Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: 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 15(d) of the Act. Yes ¨ No x☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x☒ No ¨
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filerx | ☒ | Accelerated filer¨ | ☐ |
Non-accelerated filer¨ | ☐ | Smaller reporting company¨ | ☐ |
| | Emerging growth company¨ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
The aggregate market value of PepsiCo, Inc. Common Stock held by nonaffiliates of PepsiCo, Inc. (assuming for these purposes, but without conceding, that all executive officers and directors of PepsiCo, Inc. are affiliates of PepsiCo, Inc.) as of June 15, 2018,11, 2021, the last day of business of our most recently completed second fiscal quarter, was $152.0$203.9 billion (based on the closing sale price of PepsiCo, Inc.’s Common Stock on that date as reported on the Nasdaq Global Select Market).
The number of shares of PepsiCo, Inc. Common Stock outstanding as of February 8, 20193, 2022 was 1,404,686,108.1,383,451,400.
Documents Incorporated by Reference
Portions of the Proxy Statement relating to PepsiCo, Inc.’s 20192022 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
PepsiCo, Inc.
Form 10-K Annual Report
For the Fiscal Year Ended December 29, 201825, 2021
Table of Contents
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PART I | | |
Item 1. | | |
Item 1A. | | |
Item 1B. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART III | | |
Item 1.5. | | |
Item 1A. | | |
Item 1B. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART II | | |
Item 5. | | |
Item 6. | | |
Item 7. | | |
Item 7A. | | |
Item 8. | | |
Item 9. | | |
Item 9A. | | |
Item 9B. | | |
Item 9C. | | |
PART III | | |
PART III | | |
Item 10. | | |
Item 11. | | |
Item 12. | | |
Item 13. | | |
Item 14. | | |
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PART IV | | |
Item 15. | | |
Item 16. | | |
Forward-Looking Statements
This Annual Report on Form 10-K contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (Reform Act). Statements that constitute forward-looking statements within the meaning of the Reform Act are generally identified through the inclusion of words such as “aim,” “anticipate,” “believe,” “drive,” “estimate,” “expect,” “expressed confidence,” “forecast,” “future,” “goal,” “guidance,” “intend,” “may,” “objective,” “outlook,” “plan,” “position,” “potential,” “project,” “seek,” “should,” “strategy,” “target,” “will” or similar statements or variations of such words and other similar expressions. All statements addressing our future operating performance, and statements addressing events and developments that we expect or anticipate will occur in the future, are forward-looking statements within the meaning of the Reform Act. These forward-looking statements are based on currently available information, operating plans and projections about future events and trends. They inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in any such forward-looking statement. These risks and uncertainties include, but are not limited to, those described in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business – Our Business Risks.” Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. The discussion of risks below and elsewhere in this report is by no means all-inclusive but is designed to highlight what we believe are important factors to consider when evaluating our future performance.
PART I
Item 1. Business.
When used in this report, the terms “we,” “us,” “our,” “PepsiCo” and the “Company” mean PepsiCo, Inc. and its consolidated subsidiaries, collectively. Certain terms used in this Annual Report on Form 10-K are defined in the Glossary included in Item 7. of this report.
Company Overview
We were incorporated in Delaware in 1919 and reincorporated in North Carolina in 1986. We are a leading global foodbeverage and beverageconvenient food company with a complementary portfolio of brands, including Frito-Lay,Lays, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and Tropicana.SodaStream. Through our operations, authorized bottlers, contract manufacturers and other third parties, we make, market, distribute and sell a wide variety of beverages and convenient beverages, foods, and snacks, serving customers and consumers in more than 200 countries and territories.
Our Operations
We are organized into sixseven reportable segments (also referred to as divisions), as follows:
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1) | Frito-Lay North America (FLNA), which includes our branded food and snack businesses in the United States and Canada; |
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2) | Quaker Foods North America (QFNA), which includes our cereal, rice, pasta and other branded food businesses in the United States and Canada; |
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3) | North America Beverages (NAB), which includes our beverage businesses in the United States and Canada; |
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4) | Latin America, which includes all of our beverage, food and snack businesses in Latin America; |
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5) | Europe Sub-Saharan Africa (ESSA), which includes all of our beverage, food and snack businesses in Europe and Sub-Saharan Africa; and |
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6) | Asia, Middle East and North Africa (AMENA), which includes all of our beverage, food and snack |
1)Frito-Lay North America (FLNA), which includes our branded convenient food businesses in the United States and Canada;
2)Quaker Foods North America (QFNA), which includes our branded convenient food businesses, such as cereal, rice, pasta and other branded food, in the United States and Canada;
3)PepsiCo Beverages North America (PBNA), which includes our beverage businesses in the United States and Canada;
4)Latin America (LatAm), which includes all of our beverage and convenient food businesses in Latin America;
5)Europe, which includes all of our beverage and convenient food businesses in Europe;
6)Africa, Middle East and South Asia (AMESA), which includes all of our beverage and convenient food businesses in Africa, the Middle East and South Asia; and
7)Asia Pacific, Australia and New Zealand and China Region (APAC), which includes all of our beverage and convenient food businesses in Asia Middle EastPacific, Australia and North Africa.New Zealand, and China region.
Frito-Lay North America
Either independently or in conjunction with third parties, FLNA makes, markets, distributes and sells branded snackconvenient foods. These foods include branded dips, Cheetos cheese-flavored snacks, Doritos tortilla chips, Fritos corn chips, Lay’s potato chips, Ruffles potato chips and Tostitos tortilla chips. FLNA’s branded products are sold to independent distributors and retailers. In addition, FLNA’s joint venture with Strauss Group makes, markets, distributes and sells Sabra refrigerated dips and spreads.
Quaker Foods North America
Either independently or in conjunction with third parties, QFNA makes, markets, distributes and sells branded convenient foods, which include cereals, rice, pasta and other branded products. QFNA’s products include Aunt Jemima mixes and syrups, Cap’n Crunch cereal, Life cereal, Pearl Milling Company syrups and mixes, Quaker Chewy granola bars, Quaker grits, Quaker oat squares, Quaker oatmeal, Quaker rice cakes, Quaker simply granolaSimply Granola and Rice-A-Roni side dishes. TheseQFNA’s branded products are sold to independent distributors and retailers.
PepsiCo Beverages North America Beverages
Either independently or in conjunction with third parties, NABPBNA makes, markets and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including Aquafina, Diet Mountain Dew, Diet Pepsi, Gatorade, Gatorade Zero, Mountain Dew, Pepsi Propel, Sierra Mist and Tropicana. NABPropel. PBNA operates its own bottling plants and distribution facilities and sells branded finished goods directly to independent distributors and retailers. PBNA also sells concentrate and finished goods for our brands to authorized and independent bottlers, who in turn sell our branded finished goods to independent distributors and retailers in certain markets. PBNA also, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink tea and coffee products through joint ventures with Unilever (under the Lipton brand name) and Starbucks, respectively. Further, NABPBNA manufactures and distributes certain brands licensed from Keurig Dr Pepper Inc., including Crush, Dr Pepper and Schweppes, and certain juice brands licensed from Dole Food Company, Inc. (Dole) and Ocean Spray Cranberries, Inc. (Ocean Spray). NAB operates its own bottling plantsIn the first quarter of 2022, we sold our Tropicana, Naked and distribution facilities and sells branded finished goods directly to independent distributors and retailers. NAB also sells concentrate and finished goods for ourother select juice brands to authorizedPAI Partners, while retaining a 39% noncontrolling interest in a newly formed joint venture (Juice Transaction) that will operate across North America and independent bottlers, who in turn sellEurope. In the U.S., PepsiCo acts as the exclusive distributor for the new joint venture’s portfolio of brands for small-format and foodservice customers with chilled direct-store-delivery. See Note 13 to our branded finished goods to independent distributors and retailers in certain markets.consolidated financial statements for further information.
Latin America
Either independently or in conjunction with third parties, Latin AmericaLatAm makes, markets, distributes and sells a number of snackconvenient food brands including Cheetos, Doritos, Emperador, Lay’s, Mabel, Marias Gamesa, Rosquinhas Mabel, Ruffles, Sabritas, Saladitas and Tostitos, as well as many Quaker-branded cereals and snacks. Latin Americaconvenient foods. LatAm also, either independently or in conjunction with third parties, makes, markets, distributes and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including 7UP, Diet Pepsi, Gatorade, H2oh!, Manzanita Sol, Mirinda, Pepsi, Pepsi Black, San Carlos and Toddy. These branded products are sold to authorized and independent bottlers, independent distributors and retailers. Latin AmericaLatAm also, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name).
Europe Sub-Saharan Africa
Either independently or in conjunction with third parties, ESSAEurope makes, markets, distributes and sells a number of leading snackconvenient food brands including Cheetos, Chipita, Doritos, Lay’s, Ruffles and Walkers, as well as many Quaker-branded cereals and snacks,convenient foods, through consolidated businesses, as well as through noncontrolled affiliates. ESSAEurope also, either independently or in conjunction with third parties, makes, markets, distributes and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including 7UP, Diet Pepsi, Lubimy Sad, Mirinda, Pepsi and Pepsi Max and Tropicana.Max. These branded products are sold to authorized and independent bottlers, independent distributors and retailers. In certain markets, however, ESSAEurope operates its own bottling plants and distribution facilities. ESSAEurope also, as part of its beverage business, manufactures and distributes SodaStream sparkling water makers and related products. Further, Europe makes, markets, distributes and sells a number of dairy products including Agusha, Chudo and Domik v Derevne. Europe also, either independently or in conjunction with third parties, makes,
markets, distributes and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name). In addition, ESSA makes, markets, distributesthe first quarter of 2022, we sold our Tropicana, Naked and sellsother select juice brands to PAI Partners, while retaining a number of leading dairy products including Agusha, Chudo39% noncontrolling interest in a newly formed joint venture that will operate across North America and Domik v Derevne. In December 2018, we acquired SodaStream International Ltd. (SodaStream), a manufacturer and distributor of sparkling water makers. SodaStream products are included within ESSA’s beverage business.Europe. See Note 1413 to our consolidated financial statements for additional information about our acquisition of SodaStream.further information.
Asia,Africa, Middle East and North AfricaSouth Asia
Either independently or in conjunction with third parties, AMENAAMESA makes, markets, distributes and sells a number of leading snackconvenient food brands including Cheetos, Chipsy, Doritos, Kurkure, Lay’s, Sasko, Spekko and Lay’s,White Star, as well as many Quaker branded cereals and snacks,Quaker-branded convenient foods, through consolidated businesses, as well as through noncontrolled affiliates. AMENAAMESA also makes, markets, distributes and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including 7UP, Aquafina, Mirinda, Mountain Dew and Pepsi. These branded products are sold to authorized and independent bottlers, independent distributors and retailers. In certain markets, however, AMESA operates its own bottling plants and distribution facilities. AMESA also, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name).
Asia Pacific, Australia and New Zealand and China Region
Either independently or in conjunction with third parties, APAC makes, markets, distributes and sells a number of convenient food brands including BaiCaoWei, Cheetos, Doritos, Lay’s and Smith’s, as well as many Quaker-branded convenient foods, through consolidated businesses, as well as through noncontrolled affiliates. APAC also makes, markets, distributes and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including 7UP, Aquafina, Mirinda, Mountain Dew, Pepsi Sting and Tropicana.Sting. These branded products are sold to authorized and independent bottlers, independent distributors and retailers. In certain markets, however, AMENA operates its own bottling plants and distribution facilities. AMENAAPAC also, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name). Further, we licenseAPAC licenses the Tropicana brand for use in China on co-branded juice products in connection with a strategic alliance with Tingyi (Cayman Islands) Holding Corp. (Tingyi).
Our Distribution Network
Our products are primarily brought to market through direct-store-delivery (DSD), customer warehouse and distributor networks.networks and are also sold directly to consumers through e-commerce platforms and retailers. The distribution system used depends on customer needs, product characteristics and local trade practices.
Direct-Store-Delivery
We, our independent bottlers and our distributors operate DSD systems that deliver beverages foods and snacksconvenient foods directly to retail stores where the products are merchandised by our employees or our independent bottlers. DSD enables us to merchandise with maximum visibility and appeal. DSD is especially well-suited to products that are restocked often and respond to in-store promotion and merchandising.
Customer Warehouse
Some of our products are delivered from our manufacturing plants and warehousesdistribution centers, both company and third-party operated, to customer warehouses. These less costly systems generally work best for products that are less fragile and perishable, and have lower turnover.
Distributor Networks
We distribute many of our products through third-party distributors. Third-party distributors are particularly effective when greater distribution reach can be achieved by including a wide range of products on the delivery vehicles. For example, our foodservice and vending business distributes beverages foods and snacksconvenient foods to restaurants, businesses, schools and stadiums through third-party foodservice and vending distributors and operators.
E-commerce
Our products are also available and sold directly to consumers on a growing number of company-owned and third-party e-commerce websites and mobile commerce applications as consumer consumption patterns continue to change and retail increasingly expands online.applications.
Ingredients and Other Supplies
The principal ingredients we use in our beverage food and snackconvenient food products are apple, orange and pineapple juice and other juice concentrates, aspartame, corn, corn sweeteners, flavorings, flour, grapefruit, oranges and other fruits, oats, potatoes, raw milk, rice, seasonings, sucralose, sugar, vegetable and essential oils, and
wheat. We also use water in the manufacturing of our products. Our key packaging materials include plastic resins, including polyethylene terephthalate (PET) and polypropylene resins used for plastic beverage bottles and film packaging used for snackconvenient foods, aluminum, used for cans, glass, bottles, closures, cardboard and paperboard cartons. In addition, we continue to integrate recyclability into our product development process and support the increased use of recycled content, including recycled PET, in our packaging. Fuel, electricity and natural gas are also important commodities for our businesses due to their use in our and our business partners’ facilities and the vehicles delivering our products. We employ specialists to secure adequate supplies of many of these items and have not experienced any significant continuous shortages that would prevent us from meeting our requirements. Many of these ingredients, raw materials and commodities are purchased in the open market. The prices we pay for such items are subject to fluctuation, and we manage this risk through the use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments, including swaps and futures. In addition, risk to our supply of certain raw materials is mitigated through purchases from multiple geographies and suppliers. When prices increase, we may or may not pass on such increases to our customers. In addition, we continue to make investments to improve the sustainability and resources of our agricultural supply chain, including the development of our initiative to advance sustainable farming practices by our suppliers and expanding it further globally. During 2021, we experienced higher than anticipated commodity, packaging and other input costs and, in some instances, limited shortages due to global inflation, supply chain disruptions, labor shortages, increased demand and other regulatory and macroeconomic factors associated with the novel coronavirus (COVID-19) pandemic, which has continued into fiscal 2022. See Note 9 to our consolidated financial statements for additionalfurther information on how we manage our exposure to commodity costs.prices.
We also maintain voluntary supply chain finance agreements with several participating global financial institutions, pursuant to which our suppliers, at their sole discretion, may elect to sell their accounts receivable with PepsiCo to such global financial institutions. These agreements did not have a material impact on our business or financial results. See “Our Financial Results – Our Liquidity and Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information.
Our Brands and Intellectual Property Rights
We own numerous valuable trademarks which are essential to our worldwide businesses, including 1893, Agusha, Amp Energy, Aquafina, Aquafina Flavorsplash, Arto Lifewater, Aunt Jemima,Lifewtr, BaiCaoWei, Bare, Bokomo, Bolt24, bubly, Cap’n Crunch, Ceres, Cheetos, Chester’s, Chipita, Chipsy, Chokis, Chudo, Cracker Jack, Crunchy, Diet Mountain Dew, Diet Mug, Diet Pepsi, Diet Sierra Mist, Diet 7UP (outside the United States), Domik v Derevne, Doritos, Driftwell, Duyvis, Elma Chips, Emperador, Evolve, Frito-Lay, Fritos, Fruktovy Sad, G2, Gamesa, Gatorade, Gatorade Zero, Gatorlyte, Grandma’s, H2oh!, Health Warrior, Imunele, Izze, J-7 Tonus,J7, Kas, KeVita, Kurkure, Lay’s, Life, Lifewtr, Liquifruit, Lubimy, Mabel, Manzanita Sol, Marias Gamesa, Matutano, Mirinda, Miss Vickie’s, Moirs, Mother’s, Mountain Dew, Mountain Dew Code Red, Mountain Dew Ice,Game Fuel, Mountain Dew Kickstart, Mountain Dew Zero Sugar, MTN Dew Energy, Mug, Munchies, Naked,Muscle Milk, Near East, O.N.E.,Off the Eaten Path, Paso de los Toros, Pasta Roni, Pearl Milling Company, Pepsi, Pepsi Black, Pepsi Max, Pepsi Next, Pepsi Zero Sugar, PopCorners, Pronutro, Propel, Quaker, Quaker Chewy, Quaker Simply Granola, Rice-A-Roni, Rockstar Energy, Rold Gold, Rosquinhas Mabel, Ruffles, Sabritas, Safari, Sakata, Saladitas, San Carlos, Sandora, Santitas, Sasko, 7UP (outside the United States), 7UP Free (outside the United States), Sierra Mist, Sierra Mist Zero Sugar, Simba, Smartfood, Smith’s, Snack a Jacks, SoBe, SodaStream, Sonric’s, Spekko, Stacy’s, Sting, Stubborn Soda, SunChips, Toddy, Toddynho, Tostitos, Trop 50, Tropicana, Tropicana Farmstand, Tropicana Pure Premium, Tropicana Twister, V Water, Vesely Molochnik, Walkers, Weetbix, White Star, Ya and Ya.Yachak. We also hold long-term licenses to use valuable trademarks in connection with our products in certain markets, including Dole and Ocean Spray. We also distribute RockstarBang Energy drinks Muscle Milk protein shakes and various Keurig Dr Pepper Inc. brands, including Dr Pepper in certain markets, Crush and Schweppes. Joint ventures in which we have an ownership interest either own or have the right to use certain trademarks, such as Lipton, Sabra and Starbucks. In addition, in the first quarter of 2022, we sold our Tropicana, Naked and other select juice brands to PAI Partners while retaining a 39% noncontrolling interest in a newly formed joint venture that will operate across North America and Europe. In the U.S., PepsiCo acts as the exclusive distributor for the new joint venture’s portfolio of brands for small-format and foodservice customers with chilled direct-store-delivery. See Note 13 to our consolidated financial statements for further information. In 2022, we will also begin to distribute Hard MTN Dew, an alcoholic beverage manufactured and owned by the Boston Beer Company. We have licensed the use of the Hard MTN Dew trademark to the Boston Beer Company, which has appointed us as their distributor for this product. Trademarks remain valid so long as they are used properly for identification purposes, and we emphasize correct use of our trademarks. We have authorized, through licensing arrangements, the use of many of our trademarks in such contexts as snackconvenient food joint ventures and beverage bottling appointments. In addition, we license the use of our trademarks on merchandise that is sold at retail, which enhances brand awareness.
We either own or have licenses to use a number of patents which relate to certain of our products, their packaging, the processes for their production and the design and operation of various equipment used in our businesses. Some of these patents are licensed to others.
Seasonality
Our businesses are affected by seasonal variations. For instance, our beverage sales are higher during the warmer months and certain food and dairy sales are higher in the cooler months. WeeklyOur beverage and snackconvenient food sales are generally highest in the third quarter due to seasonal and holiday-related patterns and generally lowest in the first quarter. However, taken as a whole, seasonality has not had a material impact on our
consolidated financial results.
consolidated financial results.
Our Customers
Our customers include wholesale and other distributors, foodservice customers, grocery stores, drug stores, convenience stores, discount/dollar stores, mass merchandisers, membership stores, hard discounters, e-commerce retailers and authorized independent bottlers, among others. We normally grant our independent bottlers exclusive contracts to sell and manufacture certain beverage products bearing our trademarks within a specific geographic area. These arrangements provide us with the right to charge our independent bottlers for concentrate, finished goods and Aquafina royalties and specify the manufacturing process required for product quality. We also grant distribution rights to our independent bottlers for certain beverage products bearing our trademarks for specified geographic areas.
We rely on and provide financial incentives to our customers to assist in the distribution and promotion of our products to the consumer. For our independent distributors and retailers, these incentives include volume-based rebates, product placement fees, promotions and displays. For our independent bottlers, these incentives are referred to as bottler funding and are negotiated annually with each bottler to support a variety of trade and consumer programs, such as consumer incentives, advertising support, new product support, and vending and cooler equipment placement. Consumer incentives include coupons, pricing discounts and promotions, and other promotional offers. Advertising support is directed at advertising programs and supporting independent bottler media. New product support includes targeted consumer and retailer incentives and direct marketplace support, such as point-of-purchase materials, product placement fees, media and advertising. Vending and cooler equipment placement programs support the acquisition and placement of vending machines and cooler equipment. The nature and type of programs vary annually.
Changes to the retail landscape, including increased consolidation of retail ownership, the rapidcontinued growth of sales through e-commerce websites and mobile commerce applications, including through subscription services and other direct-to-consumer businesses, the integration of physical and digital operations among retailers, as well as the growth ininternational expansion of hard discounters, and the current economic environment, including in light of the COVID-19 pandemic, continue to increase the importance of major customers. In 2018,2021, sales to Walmart Inc. (Walmart), and its affiliates, including Sam’s Club (Sam’s), represented approximately 13% of our consolidated net revenue. Our top five retail customers represented approximately 33%revenue, with sales reported across all of our 2018 net revenue in North America, with Walmart (including Sam’s) representing approximately 19%. These percentages includedivisions, including concentrate sales to our independent bottlers, which were used in finished goods sold by them to these retailers.
See “Off-Balance-Sheet Arrangements” in “Our Financial Results – Our Liquidity and Capital Resources” in Item 7. Management’s Discussion and AnalysisWalmart. The loss of Financial Condition and Results of Operations for more informationthis customer would have a material adverse effect on our independent bottlers.FLNA, QFNA and PBNA divisions.
Our Competition
Our beverage food and snackconvenient food products are in highly competitive categories and markets and compete against products of international beverage food and snackconvenient food companies that, like us, operate in multiple geographies, as well as regional, local and private label manufacturers and economy brands and other competitors.competitors, including smaller companies developing and selling micro brands directly to consumers through e-commerce platforms or through retailers focused on locally-sourced products. In many countries in which our products are sold, including the United States, The Coca-Cola Company is our primary beverage competitor. Other beverage food and snackconvenient food competitors include, but are not limited to, Campbell Soup Company, Conagra Brands, Inc., Hormel Foods Corporation, Kellogg Company, Keurig Dr Pepper Inc., The Kraft Heinz Company, Link Snacks, Inc., Mondelēz International, Inc., Monster Beverage Corporation, Nestlé S.A. and, Red Bull GmbH.GmbH and Utz Brands, Inc.
Many of our convenient food and snack products hold significant leadership positions in the convenient food and snack industry in the United States and worldwide. In 2018,2021, we and The Coca-Cola Company represented approximately 22% and 20%19%, respectively, of the U.S. liquid refreshment beverage category by estimated retail sales in measured
channels, according to Information Resources, Inc. However, The Coca-Cola
Company has significant carbonated soft drink (CSD) share advantage in many markets outside the United States.
Our beverage food and snackconvenient food products compete primarily on the basis of brand recognition and loyalty, taste, price, value, quality, product variety, innovation, distribution, advertising, marketing and promotional activity (including digital), packaging, convenience, service and the ability to anticipate and effectively respond to consumer preferences and trends, including increased consumer focus on health and wellness and sustainability and the continued acceleration of e-commerce and other methods of distributing and purchasing products. Success in this competitive environment is dependent on effective promotion of existing products, effective introduction of new products and reformulations of existing products, increased efficiency in production techniques, effective incorporation of technology and digital tools across all areas of our business, the effectiveness of our advertising campaigns, marketing programs, product packaging and pricing, increased efficiency in production techniques, new vending and dispensing equipment and brand and trademark development and protection. We believe that the strength of our brands, innovation and marketing, coupled with the quality of our products and flexibility of our distribution network, allows us to compete effectively.
Research and Development
We engage in a variety of research and development activities and invest in innovation globally with the goal of meeting changing consumer demandsthe needs of our customers and preferencesconsumers and accelerating sustainable growth. These activities principally involve: innovations focused on creating consumer preferred products to grow and transform our portfolio through development of new technologies, ingredients, flavors and products; reformulationsubstrates; development and improvement in the quality and appeal of existing products; improvement and modernization ofour manufacturing processes including reductions in cost reduction;and environmental footprint; implementing product improvements in product quality, safety and integrity; development of, and improvements in, dispensing equipment, packaging technology (including investments in recycling-focused technologies), package design (including development of sustainable, bio-based packaging) and portion sizes; efforts focused on identifying opportunities to transform, grow and broaden our productglobal portfolio including by developing products with improved nutrition profiles that reduce added sugars, sodium or saturated fat,fat; offering more products with functional ingredients and positive nutrition including throughwhole grains, fruit, vegetables, dairy, protein, fiber, micronutrients and hydration; development of packaging technology and new package designs, including reducing the useamount of sweetener alternativesplastic in our packaging and flavor modifiersdeveloping recyclable, compostable, biodegradable or otherwise sustainable packaging; development of marketing, merchandising and innovation in existing sweeteners,dispensing equipment; further expanding our beyond the bottle portfolio (including throughincluding innovation for our acquisition of SodaStream) and offering more products with positive nutrition including whole grains, fruits and vegetables, dairy, protein and hydration;SodaStream business; investments in buildingtechnology and digitalization, including artificial intelligence and data analytics to enhance our consumer insights and research; continuing to strengthen our omnichannel capabilities, to support our global e-commerce business; and improvementsparticularly in energy efficiencye-commerce; and efforts focused on reducing our impact on the environment. environment, including reducing water use in our operations and our agricultural practices and reducing our climate impact in our operations throughout our value chain.
Our research centers are located around the world, including in Brazil, China, India, Ireland, Mexico, Russia, South Africa, the United Kingdom and the United States, and leverage nutrition science,consumer insights, food science engineering and consumer insightsengineering to meet our strategy to continue to develop nutritious and convenient beverages, foods and snacks.
In 2018, we continued to refine our beverage, food and snack portfolio to meet changing consumer demands by reducing added sugars in many of our beverages and sodium and saturated fat in many of our foods and snacks, and by developing a broader portfolio of product choices, including: continuing to expand our beverage options that contain no high-fructose corn syrup and that are made with natural flavors; expanding our state-of-the-art food and beverage healthy vending initiative to increase the availability of convenient and affordable nutrition; further expandingcontinually innovate our portfolio of nutritious products by building on our important nutrition platformsbeverages and brands — Quaker (grains), Tropicana (juices, lemonades, fruit and vegetable drinks), Gatorade (sports nutrition for athletes), Naked Juice (cold-pressed juices and smoothies), KeVita (probiotics, tonics and fermented teas), Bare (baked apple chips and other baked produce) and Health Warrior (nutrition bars); further expanding our whole grain products globally; and further expanding our portfolio of nutritious products in growing categories, such as dairy, hummus and other refrigerated dips, and baked grain snacks. In addition, we continued to make investments to reduce our impact on the environment, including: efforts to conserve raw materials and energy, such as by working to achieve reductions in greenhouse gas emissions across our global businesses, by helping to protect and conserve global water supply especially in high-water-risk locations (including replenishing watersheds that source our operations in high-water-risk locations andconvenient foods.
promoting the efficient use of water in our agricultural supply chain), and by incorporating improvements in the sustainability and resources of our agricultural supply chain into our operations; efforts to reduce waste generated by our operations and disposed of in landfills; efforts to support increased packaging recovery, recycling rates and the amount of recycled content in our packaging; efforts to increase energy efficiency, including the increased use of renewable energy and resources; efforts to support sustainable agriculture by expanding best practices with our growers and suppliers; and efforts to optimize packaging technology and design to minimize the amount of plastic in our packaging, and make our packaging increasingly recoverable or recyclable with lower environmental impact, including continuing to invest in developing compostable and biodegradable packaging.
Regulatory Matters
The conduct of our businesses, including the production, storage, distribution, sale, display, advertising, marketing, labeling, content, quality, safety, transportation, packaging, disposal, recycling and use of our products, as well as our employment and occupational health and safety practices and protection of personal information, are subject to various laws and regulations administered by federal, state and local governmental agencies in the United States, as well as to laws and regulations administered by government entities and agencies in the more than 200 other countries and territories in which our products are made, manufactured, distributed or sold. It is our policy to abide by the laws and regulations around the world that apply to our businesses.
The U.S. laws and regulations that we are subject to include:include, but are not limited to: the Federal Food, Drug and Cosmetic Act and various state laws governing food safety; the Food Safety Modernization Act; the Occupational Safety and Health Act;Act and various state laws and regulations governing workplace health and safety; various federal, state and local environmental protection laws, as discussed below; the Federal Motor Carrier Safety Act; the Federal Trade Commission Act; the Lanham Act; various federal and state laws and regulations governing competition and trade practices; various federal and state laws and regulations governing our employment practices, including those related to equal employment opportunity, such as the Equal Employment Opportunity Act and the National Labor Relations Act and those related to overtime compensation, such as the Fair Labor Standards Act; various state and federal laws pertaining to sale and distribution of alcohol beverages; data privacy and personal data protection laws and regulations, including the California Consumer Privacy Act of 2018 (as modified by the California Privacy Rights Act); customs and foreign trade laws and regulations, including laws regarding the import or export of our products or ingredients used in our products and tariffs; laws regulating the sale of certain of our products in schools; laws regulating our supply chain, including the 2010 California Transparency in Supply Chains Act and laws relating to the payment of taxes. We are also required to comply with the Foreign Corrupt Practices Act and the Trade Sanctions Reform and Export Enhancement Act. We are also subject to various state and local statutes and regulations, including state consumer protection laws such as Proposition 65 in California, which requires that a specific warning appear on any product that contains a substance listed by the State of California as having been found to cause cancer or birth defects, unless the amount of such substance in the product is below a safe harbor level.
We are also subject to numerous similar and other laws and regulations outside the United States, including but not limited to laws and regulations governing food safety, international trade and tariffs, supply chain, including the U.K. Modern Slavery Act, occupational health and safety, competition, anti-corruption and data privacy, including the European Union General Data Protection Regulation. In many jurisdictions, compliance with competition laws is of special importance to us due to our competitive position in those jurisdictions, as is compliance with anti-corruption laws, including the U.K. Bribery Act. We rely on legal and operational compliance programs, as well as in-house and outside counsel and other experts, to guide our businesses in complying with the laws and regulations around the world that apply to our businesses.
In addition, certain jurisdictions have either imposed, or are considering imposing, new or increased taxes on the manufacture, distribution or sale of our products, ingredients or substances contained in, or attributes of, our products or commodities used in the production of our products. These taxes vary in scope and form: some apply to all beverages, including non-caloric beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar). Similarly, some measures apply a single tax rate per liquid ounceounce/liter on beverages containing over a certain level of added sugar (or other sweetener) while others
apply a graduated tax rate depending upon the amount of added sugar (or other sweetener) in the beverage and some apply a flat tax rate on beverages containing a particular substance or ingredient, regardless of the level of such substance or ingredient.
In addition, certain jurisdictions have either imposed, or are considering imposing, product labeling or warning requirements or other limitations on the marketing or sale of certain of our products as a result of ingredients or substances contained in such products or the audience to whom products are marketed. These types of provisions have required that we provide a label that highlightshighlight perceived concerns about a product, or warnswarn consumers to avoid consumption of certain ingredients or substances present in our products.products, restrict the age of consumers to whom products are marketed or sold or limit the location in which our products may be available. It is possible that similar or more restrictive requirements may be proposed or enacted in the future.
In addition, certain jurisdictions have either imposed or are considering imposing regulations designed to increase recycling rates or encourage waste reduction. These regulations vary in scope and form from
deposit return systems designed to incentivize the return of beverage containers, to extended producer responsibility policies and even bans on the use of some plastic beverage bottles and othertypes of single-use plastics. It is possible that similar or more restrictive requirements may be proposed or enacted in the future.
We are also subject to national and local environmental laws in the United States and in foreign countries in which we do business, including laws related to water consumption and treatment, wastewater discharge and air emissions. In the United States, our facilities must comply with the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act and other federal and state laws regarding handling, storage, release and disposal of wastes generated onsite and sent to third-party owned and operated offsite licensed facilities and our facilities outside the United States must comply with similar laws and regulations. In addition, continuing concern over environmental, social and governance matters, including climate change, mayis expected to continue to result in new or increased legal and regulatory requirements (in or outside of the United States) to reduce or mitigate the potential effects of greenhouse gases, or to limit or impose additional costs on commercial water use due to local water scarcity concerns.concerns or to expand mandatory reporting of certain environmental, social and governance metrics. Our policy is to abide by all applicable environmental laws and regulations, and we have internal programs in place with respect to our global environmental compliance. We have made, and plan to continue making, necessary expenditures for compliance with applicable environmental laws and regulations.regulations and to achieve our sustainability goals. While these expenditures have not had a material impact on our business, financial condition or results of operations to date, changes in environmental compliance requirements, and any expenditures necessary to comply with such requirements or to achieve our sustainability goals, could adversely affect our financial performance. In addition, we and our subsidiaries are subject to environmental remediation obligations arising in the normal course of business, as well as remediation and related indemnification obligations in connection with certain historical activities and contractual obligations, including those of businesses acquired by us or our subsidiaries. While these environmental remediation and indemnification obligations cannot be predicted with certainty, such obligations have not had, and are not expected to have, a material impact on our capital expenditures, earnings or competitive position.
In addition to the discussion in this section, see also “Item 1A. Risk Factors.”
Employees
AsHuman Capital
PepsiCo believes that human capital management, including attracting, developing and retaining a high quality workforce, is critical to our long-term success. Our Board of Directors (Board) and its Committees provide oversight on a broad range of human capital management topics, including corporate culture, diversity, equity and inclusion, pay equity, health and safety, training and development and compensation and benefits.
We employed approximately 309,000 people worldwide as of December 29, 2018, we and our consolidated subsidiaries employed approximately 267,000 people worldwide,25, 2021, including approximately 114,000129,000 people within the United States. In certain countries, our employment levels are subject to seasonal variations. We or our subsidiaries are party to numerous collective bargaining agreements. We expect that we will be able to renegotiate these collective bargaining agreements on satisfactory terms when they expire.Weand believe that relations with our employees are generally good.
Protecting the safety, health, and well-being of our associates around the world is PepsiCo’s top priority. We strive to achieve an injury-free work environment. We also continue to invest in emerging technologies to protect our employees from injuries, including leveraging fleet telematics and distracted driving technology, resulting in reductions in road traffic accidents, and deploying wearable ergonomic risk reduction devices. In addition, throughout the COVID-19 pandemic, we have remained focused on the health and safety of our associates, especially our frontline associates who continue to make, move and sell our products during this critical time, including by continuing to implement various safety protocols in our facilities, providing personal protective equipment and enabling testing.
We believe that our culture of diversity, equity and inclusion is a competitive advantage that fuels innovation, enhances our ability to attract and retain talent and strengthens our reputation. We continually strive to improve the attraction, retention, and advancement of diverse associates to ensure we sustain a high-caliber pipeline of talent that also represents the communities we serve. As of December 25, 2021, our global workforce was approximately 27% female, while management roles were approximately 43% female. As of December 25, 2021, approximately 45% of our U.S. workforce was comprised of racially/ethnically diverse individuals, of which approximately 31% of our U.S. associates in managerial roles were racially/ethnically diverse individuals. Direct reports of our Chief Executive Officer include 7 executives globally who are racially/ethnically diverse and/or female.
We are also committed to the continued growth and development of our associates. PepsiCo supports and develops its associates through a variety of global training and development programs that build and strengthen employees' leadership and professional skills, including career development plans, mentoring programs and in-house learning opportunities, such as PEP U Degreed, our internal global online learning resource. In 2021, PepsiCo employees completed over 1,000,000 hours of training.
Available Information
We are required to file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (SEC). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), are also available free of charge on our Internet site at http://www.pepsico.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.
Investors should note that we currently announce material information to our investors and others using filings with the SEC, press releases, public conference calls, webcasts or our corporate website (www.pepsico.com), including news and announcements regarding our financial performance, key personnel, our brands and our business strategy. Information that we post on our corporate website could be deemed material to investors. We encourage investors, the media, our customers, consumers, business partners and others interested in us to review the information we post on these channels. We may from time to time update the list of channels we will use to communicate information that could be deemed material and will post information about any such change on www.pepsico.com. The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC.
Item 1A. Risk Factors.
You should carefully considerThe following risks, some of which have occurred and any of which may occur in the risks described below in addition to the other information set forth in this Annual Report on Form 10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and the consolidated financial statements and related notes. Any of the factors described below could occur or continue to occur and couldfuture, can have a material adverse effect on our business or financial condition, results of operations orperformance, which in turn can affect the price of our publicly traded securities. The risks belowThese are not the only risks we face. AdditionalThere may be other risks and uncertaintieswe are not currently known to us,aware of or that we currently deem not to be immaterial,material but that may occur or become material in the futurefuture.
Business Risks
The impact of COVID-19 continues to create considerable uncertainty for our business.
Our global operations continue to expose us to risks associated with the COVID-19 pandemic. Numerous measures have been implemented around the world to try to reduce the spread of the virus and may also adversely affectthese measures have impacted and continue to impact us, our business reputation, financial condition, resultspartners and consumers.
We have seen and business performance, events and trends may not be a reliable indicator of future operating results, financial and business performance, events or trends.
Demand for our products may be adversely affected bycould continue to see changes in consumer preferences or anydemand as a result of COVID-19, including the inability on our partof consumers to innovate, market or distributepurchase our products effectively,due to illness, quarantine or other restrictions, store closures, or financial hardship. We also have seen and any significant reductioncould continue to see shifts in product and channel preferences, including an increase in demand in the e-commerce channel, which has impacted and could adversely affectcontinue to impact our business, financial condition or results of operations.
We are a global foodsales and beverage company operating in highly competitive categories and markets. To generate revenues and profits, we rely on continuedprofitability. Reduced demand for our products or changes in consumer purchasing patterns, as well as continued economic uncertainty, can adversely affect our customers’ financial condition, which can result in bankruptcy filings and/or an inability to pay for our products. In addition, we may also continue to experience business disruptions as a result of COVID-19, resulting from temporary closures of our facilities or facilities of our business partners or the inability of a significant portion of our or our business partners’ workforce to work because of illness, absenteeism, quarantine, vaccine mandates, or travel or other governmental restrictions. In addition, we and therefore must understand our customersbusiness partners may also continue to see adverse impacts to our supply chain as a result of COVID-19 through raw material, packaging or other supply shortages, labor shortages or reduced availability of air or other commercial transport, port congestion and consumersclosures or border restrictions, any of which can impact our business. Any sustained interruption in our or our business partners’ operations, distribution network or supply chain or any significant continuous shortage of raw materials, packaging or other supplies can negatively impact our business. We have also incurred, and sell products that appealcould continue to themincur, increased employee and operating costs as a result of COVID-19, such as costs related to expanded benefits and frontline incentives, the provision of personal protective equipment and increased sanitation, allowances for credit losses, upfront payment reserves and inventory write-offs, and cost inflation in commodities, packaging, transportation and other input costs, which have negatively impacted and may continue to negatively impact our profitability. In addition, the increase in certain of our employees working remotely has resulted in increased demand on our information technology infrastructure, which can be subject to failure, disruption or unavailability, and increased vulnerability to cyberattacks and other cyber incidents. Also, continued economic uncertainty associated with the COVID-19 pandemic has resulted in volatility in the sales channelglobal capital and credit markets which can impair our ability to access these markets on terms commercially acceptable to us, or at all.
The impact of COVID-19 has heightened, or in some cases manifested, certain of the other risks discussed below. The extent of the impact of the COVID-19 pandemic on our business remains uncertain and will continue to depend on numerous evolving factors that we are not able to accurately predict and which they preferwill vary by jurisdiction and market, including the duration and scope of the pandemic, the emergence and spread of new variants of the virus, including the omicron and delta variants, the development and availability of effective treatments and vaccines, the speed at which vaccines are administered, the efficacy of vaccines against the virus and evolving strains or variants of the virus, global economic conditions during and after the pandemic, governmental actions that have been taken, or may be taken in the future, in response to shop or browse for such products. In general,the pandemic, and changes in consumptionconsumer behavior in our product categories or consumer demographics could resultresponse to the pandemic, some of which may be more than just temporary.
Reduction in reducedfuture demand for our products. products would adversely affect our business.
Demand for our products depends in part on our ability to innovate and anticipate and effectively respond to shifts in consumer trends and preferences, including increased demandthe types of products our consumers want and how they browse for, products that meet the needs of consumers who are concerned with: healthpurchase and wellness (including products that have less added sugars, sodium and saturated fat); convenience (including responding to changes in in-home and on-the-go consumption patterns and methods of distribution of our products to customers and consumers, including through e-commerce and hard discounters); or the location of origin or source of ingredients and products (including the environmental impact related to production of our products).
consume them. Consumer preferences have been evolving, and are expected to continue tocontinuously evolve due to a variety of factors, including: changes in consumer demographics, includingconsumption patterns and channel preferences (including continued increases in the aging of the general populatione-commerce and the emergence of the millennialonline-to-offline channels); pricing; product quality; concerns or perceptions regarding packaging and younger generations who have differing spending, consumptionits environmental impact (such as single-use and purchasing habits; consumerother plastic packaging); and concerns or perceptions regarding the nutrition profile of products, including the presence of added sugar, sodium and saturated fat in certain of our products; growing demand for organic or locally sourced ingredients, or consumer concerns or perceptions (whether or not valid) regarding the
health effects of, or location of origin of, ingredients or substances present in certainour products or packaging, including due to the results of third-party studies (whether or not scientifically valid). Concerns with any of the foregoing could lead consumers to reduce or publicly boycott the purchase or consumption of our products. Consumer
preferences are also influenced by perception of our brand image or the brand images of our products, such as 4-MeI, acrylamide, artificial flavorsthe success of our advertising and colors, artificial sweeteners, aspartame, caffeine, furfuryl alcohol, high-fructose corn syrup, partially hydrolyzed oils, saturated fat, sodium, sugar, trans fats or other product ingredients, substances or attributes, including genetically engineered ingredients; taxes or other restrictions, including labeling requirements, imposed onmarketing campaigns, our products; consumer concerns or perceptions regarding packaging materials, including single-use and other plastic packaging, and their environmental impact; changes in package or portion size; changes in social trends that impact travel, vacation or leisure activity patterns; changes in weather patterns or seasonal consumption cycles; the continued acceleration of e-commerce and other methods of purchasing products; negative publicity (whether or not valid) resulting from regulatory actions, litigation against us or other companies inability to engage with our industry or negative or inaccurate posts or commentsconsumers in the manner they prefer, including through the use of digital media including social media, about us, our employees, our products or advertising campaignsassets, and marketing programs;the perception of our employees, agents, customers, suppliers, bottlers, contract manufacturers, distributors, joint venture partners oruse, and the use of social media. These and other third parties or our respective social media posts, business practices or other information disseminated by or regarding them or us; product boycotts; or a downturnfactors have reduced in economic conditions. Any of these factors maythe past and could continue to reduce consumers’ willingness to purchase certain of our products and anyproducts. Any inability on our part to anticipate or react to such changes could result in consumer preferences and trends, or make the right strategic investments to do so, including investments in data analytics to understand consumer trends, can lead to reduced demand for our products, lead to inventory write-offs or erode our competitive and financial position, and couldthereby adversely affectaffecting our business. In addition, our business reputation, financial condition or results of operations.
Demand for our products is also dependent in part on product quality, product and marketing innovation and production and distribution,operations, including our ability to: maintain a robust pipeline of new products; improve the quality of existing products; extendsupply chain, are subject to disruption by natural disasters or other events beyond our portfolio of products in growing marketscontrol that could negatively impact product availability and categories (through acquisitions, such as SodaStream, and innovation, such as increasing non-carbonated beverage offerings and other alternatives to, or reformulations of, carbonated beverage offerings); respond to cultural differences and regional consumer preferences (whether through developing or acquiring new products that are responsive to such preferences); monitor and adjust our use of ingredients and packaging materials (including to respond to applicable regulations); develop sweetener alternatives and innovation; increase the recyclability or recoverability of our packaging; improve the production and distribution of our products; respond to competitive product and pricing pressures and changes in distribution channels, including in the e-commerce channel; and implement effective advertising campaigns and marketing programs, including successfully adapting to a rapidly changing media environment through the use of social media and online advertising campaigns and marketing programs.
Although we devote significant resources to the items mentioned above, there can be no assurance as to our continued ability to develop, launch, maintain or distribute successful new products or variants of existing products in a timely manner (including correctly anticipating or effectively reacting to changes in consumer preferences) or to develop and effectively execute advertising and marketing campaigns that appeal to customers and consumers. Our failure to make the right strategic investments to drive innovation or successfully launch new products or variants of existing products or effectively market or distribute our products could reducedecrease demand for our products result in inventory write-offs and erodeif our competitive and financial position and couldcrisis management plans do not effectively resolve these issues.
Damage to our reputation or brand image can adversely affect our business, financial conditionbusiness.
Maintaining a positive reputation globally is critical to selling our products. Our reputation or resultsbrand image has in the past been, and could in the future be, adversely impacted by a variety of operations.
Changes in laws and regulations relating to the usefactors, including: any failure by us or disposal of plastics or other packaging of our products could continue to increase our costs, reduce demand for our products or otherwise have an adverse impact on our business reputation, financial condition or results of operations.
Certain of our foodpartners to maintain high ethical, business and beverage products are sold in plastic or other packaging designedenvironmental, social and governance practices, including with respect to be recoverable for recycling but not all packaging is recovered, whether due to low value, lack of infrastructure or otherwise. In addition, certain of our packaging may currently not be recyclable, compostable or biodegradable. There is a growing concern with the accumulation of plastichuman rights, child labor laws, diversity, equity and other packaging waste in the environment,
particularly in the world’s oceansinclusion, workplace conditions and waterways. As a result, our branded packaging waste could result in negative publicity (whether or not valid) or reduce consumer demandemployee health and overall consumption of our products, which could adversely affect our business, financial condition or results of operations.
In response to these concerns, the United States and many other jurisdictions have imposed or are considering imposing regulations or policies designed to increase the sustainability of packaging, encourage waste reduction and increase recycling rates or facilitate the waste management process or restricting the sale of products in certain packaging. These regulations vary in scope and form from taxes or fees designed to incentivize behavior to restrictions or bans on certain products and materials. For example, the state of California is one of 10 states in the United States that have a bottle deposit return system in effect, which requires a deposit charged to consumers to incentivize the return of the beverage container. In addition, 26 markets in the European Union have established extended producer responsibility policies, which make manufacturers such as us responsible for the costs of recycling products after consumers have used them. Further, certain jurisdictions are considering imposing other types of regulations or policies, including packaging taxes, requirements for bottle caps to be tethered to the plastic bottle, minimum recycled content mandates, which would require packaging to include a certain percentage of post-consumer recycled material in a new package, and even bans on the use of some plastic beverage bottles and other single-use plastics. These laws and regulations, whatever their scope or form, could increase the cost of our products, reduce consumer demand and overall consumption of our products or result in negative publicity (whether or not valid), which could adversely affect our business, financial condition or results of operations.
While we continue to devote significant resources to increase the recyclability and sustainability of our packaging, the increased focus on reducing plastic waste may require us to increase capital expenditures, including requiring additional investments to minimize the amount of plastic across our packaging; increase the amount of recycled content in our packaging; and develop sustainable, bio-based packaging as a replacement for fossil fuel-based plastic packaging, including flexible film alternatives for our snacks packaging. Our failure to minimize our plastics use, increase the amount of recycled content in our packaging or develop sustainable packaging or consumers’ failure to accept such sustainable packaging could reduce consumer demand and overall consumption of our products and erode our competitive and financial position. Further, our reputation could be damaged forsafety; any failure to achieve our sustainabilityenvironmental, social and governance goals, including with respect to the nutrition profile of our plasticsproducts, diversity, equity and inclusion initiatives, packaging, water use includingand our goalimpact on the environment; any failure to use 25% recycled contentaddress health concerns about our products, products we distribute, or particular ingredients in our plastic packaging by 2025, or if we or others in our industry do not act, or are perceived not to act, responsibly with respect to packaging or disposalproducts, including concerns regarding whether certain of our products.
Changesproducts contribute to obesity or an increase in public health costs; our research and development efforts; any product quality or safety issues, including the recall of any of our products; any failure to comply with laws and regulations applicableregulations; consumer perception of our advertising campaigns, sponsorship arrangements, marketing programs, use of social media and our response to political and social issues or catastrophic events; or any failure to effectively respond to negative or inaccurate comments about us on social media or otherwise regarding any of the foregoing. Damage to our reputation or brand image has in the past and could in the future decrease demand for our products, thereby adversely affecting our business.
Product recalls or other issues or concerns with respect to product quality and safety can adversely affect our business operationsbusiness.
We have and could in the future recall products due to product quality or safety issues, including actual or alleged mislabeling, misbranding, spoilage, undeclared allergens, adulteration or contamination. Product recalls have in the past and could in the future adversely affect our business financial conditionby resulting in losses due to their cost, the destruction of product inventory or resultslost sales due to any unavailability of operations.
The conductthe product for a period of time. In addition, product quality or safety issues, whether as a result of failure to comply with food safety laws or otherwise, have in the past and could in the future also reduce consumer confidence and demand for our business is subject to various lawsproducts, cause production and regulations administered by federal, statedelivery disruptions, and local governmental agenciesresult in increased costs (including payment of fines and/or judgments) and damage our reputation, particularly as we expand into new categories, such as nuts and meat convenient foods globally and the distribution of alcoholic beverages in the United States, as well asall of which can adversely affect our business. Failure to maintain adequate oversight over product quality or safety can result in product recalls, litigation, government entities and agencies outside the United States, including laws and regulations relating to the production, storage, distribution, sale, display, advertising, marketing, labeling, content, quality, safety, transportation, packaging, disposal, recycling and useinvestigations or inquiries or civil or criminal proceedings, all of our products, as well as our employment and occupational health and safety practices and protection of personal information. In addition, in many jurisdictions, compliance with competition laws is of special importance to us due to our competitive position in those jurisdictions, as is compliance with anti-corruption laws. Many of these laws and regulations have differing or conflicting legal standards across the various markets where our products are made, manufactured, distributed or sold and, in certain markets, such as developing and emerging markets, may be less developed or certain. For example, products containing genetically engineered ingredients are subject to differing regulations and restrictions in the jurisdictions in which our products are made, manufactured, distributed or sold, as is the packaging, disposal and recyclability of our products. For example, five provinces in Canada, covering most of the Canadian market, have
established extended producer responsibility policies, which make manufacturers such as us responsible for the costs of recycling products after consumers have used them. In addition, these laws and regulations and related interpretations may change, sometimes dramatically and unexpectedly, as a result of a variety of factors, including political, economic or social events. Such changes may include changes in: food and drug laws; laws related to product labeling, advertising and marketing practices, including restrictions on the audience to whom products are marketed; laws and treaties related to international trade, including laws regarding the import or export of our products or ingredients used in our products and tariffs; laws and programs aimed at reducing, restricting or eliminating ingredients or substances in, or attributes of, certain of our products; laws and programs aimed at discouraging the consumption or altering the package or portion size of certain of our products, including laws imposing restrictions on the use of government funds or programs to purchase certain of our products; increased regulatory scrutiny of, and increased litigation involving product claims and concerns (whether or not valid) regarding the effects on health of ingredients or substances in, or attributes of, certain of our products, including without limitation those found in energy drinks; state consumer protection laws; laws regulating the protection of personal information; cyber-security regulations; regulatory initiatives, including the imposition or proposed imposition of new or increased taxes or other measures impacting the manufacture, distribution or sale of our products; accounting rules and interpretations; employment laws; privacy laws; laws regulating the price we may charge for our products; laws regulating water rights and access to and use of water or utilities; environmental laws, including laws relating to the regulation of water treatment and discharge of wastewater and air emissions and laws relating to the disposal, recovery or recycling of our products and their packaging. Changes in regulatory requirements or changing interpretations thereof, and differing or competing regulations and standards across the markets where our products are made, manufactured, distributed or sold, may result in higher compliance costs, capital expendituresfines, penalties, damages or criminal liability. Our business can also be adversely affected if consumers lose confidence in product quality, safety and higher production costs, which couldintegrity generally, even if such loss of confidence is unrelated to products in our portfolio.
Any inability to compete effectively can adversely affect our business, reputation, financial condition or results of operations.
The imposition of new laws, regulations or governmental policy and their related interpretations, or changes in any of the foregoing, including taxes, labeling, product, production, recovery or recycling requirements, or other limitations on, or pertaining to, the sale or advertisement of certain of our products, ingredients or substances contained in, or attributes of, our products, commodities used in the production of our products or use, disposal, recovery or recyclability of our products and their packaging, may further alter the way in which we do business and, therefore, may continue to increase our costs or liabilities or reduce demand for our products, which could adversely affect our business, financial condition or results of operations. If one jurisdiction imposes or proposes to impose new requirements or restrictions, other jurisdictions may follow. For example, if one jurisdiction imposes a tax on sugar-sweetened beverages or foods, or imposes a specific labeling or warning requirement, other jurisdictions may impose similar or other measures that impact the manufacture, distribution or sale of our products. The foregoing may result in decreased demand for our products, adverse publicity or increased concerns about the health implications of consumption of ingredients or substances in our products (whether or not valid).
In addition, studies (whether or not scientifically valid) have been and continue to be underway by third parties purporting to assess the health implications of consumption of certain ingredients or substances present in certain of our products or packaging materials, such as 4-MeI, acrylamide, caffeine, glyphosate, furfuryl alcohol, added sugars, sodium, saturated fat and plastic. Third parties have also published documents or studies claiming (whether or not valid) that taxes can address consumer consumption of sugar-sweetened beverages and foods high in sugar, sodium or saturated fat. If, as a result of these studies and documents or otherwise, there is an increase in consumer concerns (whether or not valid) about the health implications of consumption of certain of our products, an increase in the number of jurisdictions that impose taxes on our products, or an increase in new labeling, product or production requirements or other restrictions on the manufacturing, sale or display of our products, demand for our products could decline, or we could be subject
to lawsuits or new regulations that could affect sales of our products, any of which could adversely affect our business, financial condition or results of operations.
Although we have policies and procedures in place that are designed to promote legal and regulatory compliance, our employees, suppliers, or other third parties with whom we do business could take actions, intentional or not, that violate these policies and procedures or applicable laws or regulations or could fail to maintain required documentation sufficient to evidence our compliance with applicable laws or regulations. Failure to comply with such laws or regulations could subject us to criminal or civil enforcement actions, including fines, injunctions, product recalls, penalties, disgorgement of profits or activity restrictions, any of which could adversely affect our business, reputation, financial condition or results of operations. In addition, regulatory authorities under whose laws we operate may have enforcement powers that can subject us to actions such as product recall, seizure of products or assets or other sanctions, which could have an adverse effect on the sales of products in our portfolio or could lead to damage to our reputation.
In addition, we and our subsidiaries are party to a variety of legal and environmental remediation obligations arising in the normal course of business, as well as environmental remediation, product liability, toxic tort and related indemnification proceedings in connection with certain historical activities and contractual obligations, including those of businesses acquired by us or our subsidiaries. Due to regulatory complexities, uncertainties inherent in litigation and the risk of unidentified contaminants on current and former properties of ours and our subsidiaries, the potential exists for remediation, liability and indemnification costs to differ materially from the costs we have estimated. We cannot guarantee that our costs in relation to these matters will not exceed our estimates or otherwise have an adverse effect on our business, financial condition or results of operations.
The imposition or proposed imposition of new or increased taxes aimed at our products could adversely affect our business, financial condition or results of operations.
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased taxes on the manufacture, distribution or sale of our products, ingredients or substances contained in, or attributes of, our products or commodities used in the production of our products. These taxes vary in scope and form: some apply to all beverages, including non-caloric beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar). Similarly, some measures apply a single tax rate per liquid ounce while others apply a graduated tax rate depending upon the amount of added sugar in the beverage and some apply a flat tax rate on beverages containing a particular substance or ingredient. For example, effective January 2018, the City of Seattle, Washington in the United States enacted a per-ounce surcharge on all sugar-sweetened beverages. By contrast, France revised an existing flat tax to become a graduated tax, effective July 2018, in which the per-ounce tax rate is tied to the amount of added sugar present in the beverage: the higher the amount of added sugar, the higher the per-ounce tax rate, while Saudi Arabia enacted, effective June 2017, a flat tax rate of 50%, and Jordan increased, effective January 2018, its flat tax from 10% to 20%, on the retail price of carbonated soft drinks. These tax measures, whatever their scope or form, could increase the cost of our products, reduce consumer demand and overall consumption of our products, lead to negative publicity (whether based on scientific fact or not) or leave consumers with the perception (whether or not valid) that our products do not meet their health and wellness needs. Such factors could adversely affect our business, financial condition or results of operations.
Significant additional labeling or warning requirements or limitations on the marketing or sale of our products may reduce demand for such products and could adversely affect our business, financial condition or results of operations.
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, product labeling or warning requirements or limitations on the marketing or
sale of certain of our products as a result of ingredients or substances contained in such products. These types of provisions have required that we provide a label that highlights perceived concerns about a product or warns consumers to avoid consumption of certain ingredients or substances present in our products. For example, in California in the United States, Proposition 65 requires a specific warning on or relating to any product that contains a substance listed by the State of California as having been found to cause cancer or birth defects or other reproductive harm, unless the level of such substance in the product is below a safe harbor level established by the State of California.
In addition, a number of jurisdictions, both in and outside the United States, have imposed or are considering imposing labeling requirements, including color-coded labeling of certain food and beverage products where colors such as red, yellow and green are used to indicate various levels of a particular ingredient, such as sugar, sodium or saturated fat. The imposition or proposed imposition of additional product labeling or warning requirements could reduce overall consumption of our products, lead to negative publicity (whether based on scientific fact or not) or leave consumers with the perception (whether or not valid) that our products do not meet their health and wellness needs. Such factors could adversely affect our business, financial condition or results of operations.business.
Our business, financial condition or results of operations could suffer if we are unable to compete effectively.
Our beverage, food and snack products are in highly competitive categories and markets and compete against products of international beverage food and snackconvenient food companies that, like us, operate in multiple geographies, as well as regional, local and private label and economy brand manufacturers and economyother competitors, including smaller companies developing and selling micro brands and other competitors.directly to consumers through e-commerce platforms or through retailers focused on locally sourced products. In many countries in which our products are sold, including the United States, The Coca-Cola Company is our primary beverage competitor. Other beverage, food and snack competitors include, but are not limited to, Campbell Soup Company, Conagra Brands, Inc., Kellogg Company, Keurig Dr Pepper Inc., The Kraft Heinz Company, Link Snacks, Inc., Mondelēz International, Inc., Monster Beverage Corporation, Nestlé S.A. and Red Bull GmbH.
Our beverage, food and snack products compete primarily on the basis of brand recognition and loyalty, taste, price, value, quality, product variety, innovation, distribution, advertising, marketing and promotional activity, packaging, convenience, service and the ability to anticipate and effectively respond to consumer preferences and trends, including increased consumer focus on health and wellness and the continued acceleration of e-commerce and other methods of distributing and purchasing products. Iftrends. Our business can be adversely affected if we are unable to effectively promote or develop our existing products or introduce and effectively market new products, if we are unable to effectively adopt new technologies, including artificial intelligence and data analytics to develop new commercial insights and improve operating efficiencies, if we are unable to continuously strengthen and evolve our advertising orcapabilities in digital marketing, campaigns are not effective, if our competitors spend more aggressively than we do or if we are otherwise unable to effectively respond to supply disruptions, pricing pressure (including as a result of commodity inflation) or otherwise compete effectively, (including in distributing our products effectively and cost efficiently through all existing and emerging channels of trade, including through e-commerce and hard discounters), we may be unable to grow or maintain sales or category share or we may need to increase capital, marketing or other expenditures, which may adversely affect our business, financial condition or results of operations.expenditures.
Failure to realize anticipated benefits from our productivity initiatives or operating model couldattract, develop and maintain a highly skilled and diverse workforce can have an adverse impacteffect on our business, financial condition or results of operations.business.
Our future successbusiness requires that we attract, develop and earnings growth depend, in part,maintain a highly skilled and diverse workforce. Our employees are highly sought after by our competitors and other companies and our continued ability to compete effectively depends on our ability to continueattract, retain, develop and motivate highly skilled personnel for all areas of our organization. Any unplanned turnover, sustained labor shortage or unsuccessful implementation of our succession plans to reduce costsbackfill current leadership positions, including the Chief Executive Officer, or failure to attract, develop and improve efficiencies,maintain a highly skilled and diverse workforce, including implementing shared business service organizational models. Our productivity initiatives help support our growth initiatives and contribute to our results of operations. We continue to implement productivity initiatives that we believe will position our business for long-term sustainable growth by allowing us to achieve a lower cost structure and operate more efficiently in the highly competitive beverage, food and snack categories and markets. We are also continuing to implement our initiatives to
improve efficiency, decision making, innovation and brand management across our global organization to enable us to compete more effectively. Further, in order to continue to capitalize on our cost reduction efforts and operating model, it will be necessary to make certain investments in our business, which may be limited due to capital constraints. Some of these measures could yield unintended consequences,with key capabilities such as business disruptions, distraction of managemente-commerce and employees, reduced employee moraledigital marketing and productivity, and unexpected additional employee attrition, including the inabilitydata analytic skills, can deplete our institutional knowledge base, erode our competitive advantage or result in increased costs due to attract or retain key personnel. It is critical that we have the appropriate personnel in place to continue to lead and execute our plans, including to effectively manage personnel adjustments and transitions resulting from these initiatives and increased competition for employees, higher employee turnover or increased employee benefit costs. In addition, failure to attract, retain and develop associates from underrepresented communities can damage our business results and our reputation. Any of the foregoing can adversely affect our business.
Water scarcity can adversely affect our business.
We and our business partners use water in the manufacturing and sourcing of our products. Water is also essential to the production of the raw materials needed in our manufacturing process. Lack of available water of acceptable quality, increasing focus by governmental and non-governmental organizations, investors, customers and consumers on water scarcity and increasing pressure to conserve and replenish water in areas of scarcity and stress, including due to the effects of climate change, may lead to: supply chain disruption; adverse effects on our operations or the operations of our business partners; higher compliance costs; capital expenditures (including investments in the development of technologies to enhance water efficiency and reduce consumption); higher production costs, including less favorable pricing for water; the interruption or cessation of operations at, or relocation of, our facilities or the facilities of our business partners; failure to achieve our goals relating to water use; perception of our failure to act responsibly with respect to water use or to effectively respond to legal or regulatory requirements concerning water scarcity; or damage to our reputation, any of which can adversely affect our business.
Changes in the skills necessaryretail landscape or in sales to implementany key customer can adversely affect our plans. Ifbusiness.
The retail landscape continues to evolve, including continued growth in e-commerce channels and hard discounters. Our business will be adversely affected if we are unable to successfully implementmaintain and develop successful relationships with e-commerce retailers and hard discounters, while also maintaining relationships with our productivity initiatives as planned,key customers operating in traditional retail channels (many of whom are also focused on increasing their e-commerce sales). Our business can be adversely affected if e-commerce channels and hard discounters take significant additional market share away from traditional retailers or we fail to implementfind ways to create increasingly better digital tools and capabilities for our retail customers to enable them to grow their businesses. In addition, our business can be adversely affected if we are unable to profitably expand our own direct-to-consumer e-commerce capabilities. The retail industry is also impacted by increased consolidation of ownership and purchasing power, particularly in North America, Europe and Latin America, resulting in large retailers or buying groups with increased purchasing power, impacting our ability to compete in these initiativesareas. Consolidation also adversely impacts our smaller customers’ ability to compete effectively, resulting in an inability on their part to pay for our products or reduced or canceled orders of our products. Further, we must maintain mutually beneficial relationships with our key customers, including Walmart, to compete effectively. Any inability to resolve a significant dispute with any of our key customers, a change in the business condition (financial or otherwise) of any of our key customers, even if unrelated to us, a significant reduction in sales to any key customer, or the loss of any of our key customers can adversely affect our business.
Disruption of our manufacturing operations or supply chain, including increased commodity, packaging, transportation, labor and other input costs, can adversely affect our business.
We have experienced and could continue to experience disruption in our manufacturing operations and supply chain. Many of the raw materials and supplies used in the production of our products are sourced from countries experiencing civil unrest, political instability or unfavorable economic conditions. Some raw materials and supplies, including packaging materials, are available only from a limited number of suppliers or from a sole supplier or are in short supply when seasonal demand is at its peak. There can be no assurance that we will be able to maintain favorable arrangements and relationships with suppliers or that our contingency plans will be effective to prevent disruptions that may arise from shortages or discontinuation of any raw materials and other supplies that we use in the manufacture, production and distribution of our products. Any sustained or significant disruption to the manufacturing or sourcing of products or materials could increase our costs and interrupt product supply, which can adversely impact our business.
The raw materials and other supplies, including agricultural commodities, fuel and packaging materials, such as timely asrecycled PET, transportation, labor and other supply chain inputs that we anticipate, do not achieve expected savingsuse for the manufacturing, production and distribution of our products are subject to price volatility and fluctuations in availability caused by many factors, including changes in supply and demand, supplier capacity constraints, inflation, weather conditions (including potential effects of climate change), fire, natural disasters, disease or pests (including the impact of greening disease on the citrus industry), agricultural uncertainty, health epidemics or pandemics or other contagious outbreaks (including COVID-19), labor shortages (including the lack of availability of truck drivers or as a result of these initiativesCOVID-19), strikes or incurwork stoppages, governmental incentives and controls (including import/export restrictions, such as new or increased tariffs, sanctions, quotas or trade barriers), port congestions or delays, transport capacity constraints, cybersecurity incidents or other disruptions, loss or impairment of key manufacturing sites, political uncertainties, acts of terrorism, governmental instability or currency exchange rates. Many of our raw materials and supplies are purchased in the open market and the prices we pay for such items are subject to fluctuation. We experienced higher than expectedanticipated commodity, packaging and transportation costs during 2021, which may continue. When input prices increase unexpectedly or unanticipatedsignificantly, we may
be unwilling or unable to increase our product prices or unable to effectively hedge against price increases to offset these increased costs in implementing these initiatives, fail to identifywithout suffering reduced volume, revenue, margins and implement additional productivity opportunities in the future, or fail to successfully manage business disruptions or unexpected employee consequences on our workforce, morale or productivity, we may not realize all or any of the anticipated benefits, which couldoperating results.
Political and social conditions can adversely affect our business, financial condition or results of operations.business.
Our business, financial condition or results of operations could be adversely affected as a result of politicalPolitical and social conditions in the markets in which our products are made, manufactured, distributed or sold.
Political conditions in the markets in which our products are made, manufactured, distributed or sold mayhave been and could continue to be difficult to predict, and may adversely affectresulting in adverse effects on our business, financial condition and results of operations.business. The results of elections, referendums or other political conditions (including government shutdowns)shutdowns or hostilities between countries) in these markets have in the past and could continue to impact how existing laws, regulations and government programs or policies are implemented or createresult in uncertainty as to how such laws, regulations, and government programs or policies may change, including with respect to tariffs, sanctions, environmental and climate change regulation,regulations, taxes, benefit programs, the movement of goods, services and people between countries, relationships between countries, customer or consumer perception of a particular country or its government and other matters, and has resulted in and could continue to result in exchange rate fluctuation, volatility in global stock markets and global economic uncertainty or adversely affect demand for our products. For example,products, any of which can adversely affect our business. In addition, political and social conditions in certain cities throughout the United Kingdom’s pending withdrawal fromU.S. as well as globally have resulted in demonstrations and protests, including in connection with political elections and civil rights and liberties. Our operations, including the European Union (commonly referred to as Brexit) could lead to differing lawsdistribution of our products and regulationsthe ingredients or other raw materials used in the United Kingdom and European Union. Any changes in, or the impositionproduction of new laws, regulations or governmental policy and their related interpretationsour products, may be disrupted if such events persist for a prolonged period of time, including due to elections, referendums or other political conditions could have an adverse impact onactions taken by governmental authorities in affected cities and regions, which can adversely affect our business, financial conditions and results of operations.business.
Our business financial condition or results of operations couldcan be adversely affected if we are unable to grow our business in developing and emerging markets.
Our success depends in part on our ability to grow our business in developing and emerging markets, including Mexico, Russia, the Middle East, China, South Africa, Brazil China and India. However, thereThere can be no assurance that our existing products variants of our existing products or new products that we make, manufacture, distribute or sell will be accepted or be successful in any particular developing or emerging market, due to local or global competition, product price, cultural differences, consumer preferences, method of distribution or otherwise. The following factors could reduce demand for our products or otherwise impede the growth of ourOur business in developingthese markets has been and emerging markets: unstablecould continue in the future to be impacted by economic, political orand social conditions; acts of war, terrorist acts, and civil unrest; increasedunrest, including demonstrations and protests; competition; volatility in the economic growth of certain of these markets and the related impact on developed countries who export to these markets; volatile oil prices and the impact on the local economy in certain of these markets; our inability to acquire businesses, form strategic business alliances or to make necessary infrastructure investments; our inability to complete divestitures or refranchisings; imposition of new or increased labeling, product or production requirements, or other restrictions; our inability to hire or retain a highly skilled workforce; imposition of new or increased tariffs, and other impositions on imported goods or sanctions against, or other regulations restricting contact with certain countries in these
markets, or imposition of new or increased sanctions against U.S. multinational corporations or tariffs on the products of such corporations operating in these markets; actions, such as removing our products from shelves, taken by retailers in response to U.S. trade sanctions, tariffs or other governmental action or policy; foreign ownership restrictions; nationalization of our assets or the assets of our suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties; imposition of taxes on our products or the ingredients or substances used in our products;business partners; government-mandated closure, or threatened closure, of our operations or the operations of our suppliers, bottlers, contract manufacturers, distributors, joint venture partners, customers or other third parties;business partners; restrictions on the import or export of our products or ingredients or substances used in our products; regulations relating to the repatriation of funds currently held in foreign jurisdictions to the United States; highly inflationary economies,economies; devaluation or fluctuation such as the devaluation of the Russian ruble, Turkish lira, Brazilian real, Argentine peso and the Mexican peso, or demonetization of currency; regulations on the transfer of funds to and from foreign countries, currency controls or other currency exchange restrictions, which result in significant cash balances in foreign countries, from time to time, or couldcan significantly affect our ability to effectively manage our operations in certain of these markets and couldcan result in the deconsolidation of such businesses, such as occurred with respect to our Venezuelan businesses which were deconsolidated at the end of the third quarter of 2015;businesses; the lack of well-established or reliable legal systems; increased costs of doing business due to compliance with complex foreign and U.S. laws and regulations that apply to our international operations, including the Foreign Corrupt Practices Act, the U.K. Bribery Act and the Trade Sanctions Reform and Export Enhancement Act; and adverse consequences, such as the assessment of fines or penalties, for any failure to comply with these laws and regulations. IfOur business can be adversely affected if we are unable to expand our businessesbusiness in developing and emerging markets, effectively operate, or manage the risks associated with operating, in these markets, or achieve the return on capital we expect from our investments in these markets, our business, reputation, financial condition or results of operations could be adversely affected.markets.
Uncertain or unfavorableChanges in economic conditions may have an adversecan adversely impact on our business, financial condition or results of operations.business.
Many of the countriesjurisdictions in which our products are made, manufactured, distributed and sold have experienced and may, from time to time,could continue to experience uncertain or unfavorable economic conditions, such as recessions or economic slowdowns. Our business or financial results may be adversely impacted by uncertain or unfavorable economic conditionsslowdowns,
which have and could continue to result in the United States and globally, including: adverse changes in interest rates, tax laws or tax rates; inflation; volatile commodity markets, including speculative influences; highly-inflationarymarkets; labor shortages; highly inflationary economies, devaluation, fluctuation or demonetization;demonetization of currency; contraction in the availability of credit in the marketplace due to legislation or economic conditions; the effects of government initiatives, including demonetization,credit; austerity or stimulus measures to manage economic conditions and any changes to or cessation of such initiatives;measures; the effects of any default by or deterioration in the creditworthiness of the countries in which our products are made, manufactured, distributed or sold or of countries that may then impact countries in which our products are made, manufactured, distributed or sold; reduced demand for our products resulting from volatility in general global economic conditions or a shift in consumer preferences for economic reasons or otherwise to regional, local or private label products or other lower-cost products, or to less profitable sales channels; or a decrease in the fair value of pension or post-retirement assets that could increase future employee benefit costs and/or funding requirements of our pension or post-retirement plans. In addition, we cannot predict how current or future economic conditions will affect our customers, consumers, suppliers, bottlers, contract manufacturers, distributors, joint venturebusiness partners, or other third partiesincluding financial institutions with whom we do business, and any negative impact on any of the foregoing may also have an adverse impact on our business, financial condition or results of operations.business.
In addition, some of the major financial institutions with which we execute transactions, including U.S. and non-U.S. commercial banks, insurance companies, investment banksFuture cyber incidents and other financial institutions may be
exposeddisruptions to a ratings downgrade, bankruptcy, liquidity events, default or similar risks as a result of unfavorable economic conditions, changing regulatory requirements or other factors beyond our control. A ratings downgrade, bankruptcy, receivership, default or similar event involving a major financial institution, or changes in the regulatory environment, may limit the ability or willingness of financial institutions to enter into financial transactions with us, including to provide banking or related cash management services, or to extend credit on terms commercially acceptable to us or at all; may leave us with reduced borrowing capacity or exposed to certain currencies or price risk associated with forecasted purchases of raw materials, including through our use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments, including swaps and futures; or may result in a decline in the market value of our investments in debt securities, which could have an adverse impact on our business, financial condition or results of operations. Similar risks exist with respect to our customers, suppliers, bottlers, contract manufacturers, distributors and joint venture partners and could result in their inability to obtain credit to purchase our products or to finance the manufacture and distribution of our products resulting in canceled orders and/or product delays, which could also have an adverse impact on our business, reputation, financial condition or results of operations.
Our business and reputation could suffer if we are unable to protect our information systems against, or effectively respond to, cyberattacks or other cyber incidents or ifcan adversely affect our information systems, or those of our customers, suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties, are otherwise disrupted.business.
We depend on information systems and technology, some of which are provided by third parties, including public websites and cloud-based services, for many activities important to our business, including: to interfaceincluding communications within our company, interfacing with our customers and consumers; to engage in marketing activities; to enableordering and improve the effectiveness of our operations; to ordermanaging inventory; managing and manage materials from suppliers; to manage inventory; to manage and operateoperating our facilities; to conduct research and development; to maintainprotecting confidential information, including personal data we collect; maintaining accurate financial records; to achieve operational efficiencies; to complyrecords and complying with regulatory, financial reporting, legal and tax requirements; to collectrequirements. Our business has in the past and store sensitive data and confidential information; to communicate electronically among our global operations and with our employees andcould in the employees of our customers, suppliers, bottlers, contract manufacturers, distributors, joint venture partnersfuture be negatively affected by system shutdowns, degraded systems performance, systems disruptions or security incidents. These disruptions or incidents may be caused by cyberattacks and other third parties; and to communicate with our investors.
cyber incidents, network or power outages, software, equipment or telecommunications failures, the unintentional or malicious actions of employees or contractors, natural disasters, fires or other catastrophic events. Cyberattacks and other cyber incidents are occurring more frequently, the techniques used to gain access to information technology systems and data, disable or degrade service or sabotage systems are constantly evolving in nature, areand becoming more sophisticated in nature and are being carried out by groups and individuals (including criminal hackers, hacktivists, state-sponsored actors, criminal and terrorist organizations, individuals or groups participating in organized crime and insiders) with a wide range of expertise and motives (including monetization of corporate, payment or other internal or personal data, theft of computing resources, financial fraud, operational disruption, theft of trade secrets and intellectual property for competitive advantage and leverage for political, social, economic and environmental reasons). Such cyberattacksmotives. Cyberattacks and cyber incidents canmay be difficult to detect for periods of time and take many forms including cyber extortion, denial of service, social engineering, such as impersonation attempts to fraudulently induce employees or others to disclose information or unwittingly provide access to systems or data, introduction of viruses or malware such(such as ransomware through phishing emails,ransomware), exploiting vulnerabilities in hardware, software or other infrastructure, hacking, website defacement or theft of passwords and other credentials, unauthorized use of computing resources for digital currency mining and business email compromises.compromise. As with other global companies, we are regularly subject to cyberattacks and other cyber incidents, including many of the types of attacks and incidents described above. Although we may incur significant costs in protecting against or remediating cyberattacks or other cyber incidents, no cyberattack or other cyber incident has, to our knowledge, had a material adverse effect on our business, financial condition or results of operations to date.
If we do not allocate and effectively manage the resources necessary to buildcontinue building and maintainmaintaining our information technology infrastructure, including monitoring networks and systems, upgrading our security policies and
the skills and training of our employees, and requiring our third-party service providers, customers, suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties to do the same, if we or they fail to timely identify or appropriately respond to cyberattacks or other cyber incidents, our business has been and can continue to be adversely affected, which has resulted in and can continue to result in some or ifall of the following: transaction errors, processing inefficiencies, inability to access our data or their information systems, are damaged, compromised, destroyed or shut down (whether as a result of natural disasters, fires, power outages, acts of terrorismlost revenues or other catastrophic events, network outages, software, equipment or telecommunications failures, technology development defects, user errors, lapses in our controls or the intentional or negligent actions of employees, or from deliberate cyberattacks such as malicious or disruptive software, denial of service attacks, malicious social engineering, hackers or otherwise), our business could be disrupted and we could, among other things, be subject to: transaction errors; processing inefficiencies; the loss of, or failure to attract, new customers and consumers; lost revenuescosts resulting from the disruptiondisruptions or shutdownshutdowns of computer systems or other information technology systems at our offices, plants, warehouses, distribution centers or other facilities, or the loss of a competitive advantage due to the unauthorized use, acquisition or disclosure of, or access to, confidential information; the incurrence of costs to restore data and to safeguard against future extortion attempts; the loss of, or damage to, intellectual property or trade secrets, including the loss or unauthorized disclosure of sensitive data or other assets; alteration, corruption or loss of accounting, financial or other data on which we rely for financial reporting and other purposes, which could cause errors or delays in our financial reporting; damage to our reputation or brands; damage to employee, customer and consumer relations; litigation; regulatory enforcement actions or fines; unauthorized disclosure of confidential personal information of our employees, customers or consumers; the loss, of information and/or supply chain disruption resulting from the failure of security patches to be developed and installed on a timely basis; violation of data privacy, security or other laws and regulations; and remediation costs.
Further, our information systems and those of our third-party providers, and the information stored therein could be compromised, including through cyberattacks or other external or internal methods, resulting in unauthorized parties accessing or extracting sensitive data or confidential information. Failure to comply with data privacy laws could result in litigation, claims, legal or regulatory proceedings, inquiries or investigations.
We continueinvestigations, fines or penalties, remediation costs, damage to devote significant resources to network security, backupour reputation or a negative impact on employee morale and disaster recovery, enhancing our internal controls, and other security measures, including training, to protect our systems and data, but these security measures cannot provide absolute securitythe loss of current or guarantee that we will be successful in preventing or responding to every such breach or disruption. In addition, due to the constantly evolving nature of these security threats, the form and impact of any future incident cannot be predicted.potential customers.
Similar risks exist with respect to thethird-party providers, including suppliers, software and cloud-based service providers, and other third-party vendors that we rely upon for aspects of our information technology support services and administrative functions, including payroll processing, health and benefit plan administration and certain finance and accounting functions, and the systems managed, hosted, provided and/or used by such third parties and their vendors. For example, malicious actors have employed and could continue to employ the information technology supply chain to introduce malware through software updates or compromised supplier accounts or hardware. The need to coordinate with various third-party vendorsservice providers, including with respect to timely notification and access to personnel and information concerning an incident, may complicate our efforts to resolve any issues that may arise. As a result, we are subject to the risk that
the activities associated with our third-party vendors mayservice providers can adversely affect our business even if the attack or breach does not directly impact our systems or information. Moreover, our increased use of mobile and cloud technologies could heighten these
Although the cyber incidents and other operational risks, as certain aspectssystems disruptions that we have experienced to date have not had a material effect on our business, such incidents or disruptions could have a material adverse effect on us in the future. While we devote significant resources to network security, disaster recovery, employee training and other measures to secure our information technology systems and prevent unauthorized access to or loss of the securitydata, there are no guarantees that they will be adequate to safeguard against all cyber incidents, systems disruptions, system compromises or misuses of such technologies may be complex, unpredictable or beyond our control.
Whiledata. In addition, while we currently maintain insurance coverage that, subject to its terms and conditions, is intended to address costs associated with certain aspects of cyber incidents networkand information systems failures, and data privacy-related concerns, this insurance coverage may not, depending on the specific facts and circumstances surrounding an incident, cover all losses or all types of claims that may arise from an incident, or the damage to our reputation or brands that may result from an incident.
Our business, financial condition or results of operations may be adversely affected by increased costs, disruption of supply or shortages of raw materials, energy, water and other supplies.
We and our business partners use various raw materials, energy, water and other supplies in our business. The principal ingredients we use in our beverage, food and snack products are apple, orange and pineapple juice and other juice concentrates, aspartame, corn, corn sweeteners, flavorings, flour, grapefruit, oats, oranges and other fruits, potatoes, raw milk, rice, seasonings, sucralose, sugar, vegetable and essential oils, and wheat. We also use water in the manufacturing of our products. Our key packaging materials include plastic resins, including PET and polypropylene resins used for plastic beverage bottles and film packaging used for snack foods, aluminum used for cans, glass bottles, closures, cardboard and paperboard cartons. Fuel, electricity and natural gas are also important commodities for our businesses due to their use in our and our business partners’ facilities and the vehicles delivering our products.
Some of these raw materials and supplies are sourced from countries experiencing civil unrest, political instability or unfavorable economic conditions, and some are available from a limited number of suppliers or a sole supplier or are in short supply when seasonal demand is at its peak. We cannot assure that we will be able to maintain favorable arrangements and relationships with these suppliers or that our contingency plans, including development of ingredients, materials or supplies to replace ingredients, materials or supplies sourced from such suppliers, will be effective in preventing disruptions that may arise from shortages or discontinuation of any ingredient that is sourced from such suppliers. In addition, increasing focus on climate change, deforestation, water, animal welfare and human rights concerns and other risks associated with the global food system may lead to increased activism focusing on consumer goods companies, governmental intervention and consumer response, and could adversely affect our or our suppliers’ reputation and business and our ability to procure the materials we need to operate our business. The raw materials and energy, including fuel, that we use for the manufacturing, production and distribution of our products are largely commodities that are subject to price volatility and fluctuations in availability caused by many factors, including changes in global supply and demand, weather conditions (including any potential effects of climate change), fire, natural disasters (such as a hurricane, tornado, earthquake or flooding), disease or pests (including the impact of greening disease on the citrus industry), agricultural uncertainty, health epidemics or pandemics, governmental incentives and controls (including import/export restrictions, such as new or increased tariffs, sanctions, quotas or trade barriers), limited or sole sources of supply, political uncertainties, acts of terrorism, governmental instability or currency exchange rates. For example, in 2018, the United States imposed tariffs on steel and aluminum as well as on goods imported from China and certain other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the United States on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could result in an increase in supply chain costs that we may not be able to offset or otherwise adversely impact our results of operations. Shortage of some of these raw materials and other supplies, sustained interruption in their supply or an increase in their costs could adversely affect our business, financial condition or results of operations. Many of our ingredients, raw materials and commodities are purchased in the open market. The prices we pay for such items are subject to fluctuation, and we manage this risk through the use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments, including swaps and futures. If commodity price changes result in unexpected or significant increases in raw materials and energy costs, we may be unwilling or unable to increase our product prices or unable to effectively hedge against commodity price increases to offset these increased costs without suffering reduced volume, revenue, margins and operating results. In addition, certain of the derivatives used to hedge price risk do not qualify for hedge accounting treatment and, therefore, can result in increased volatility in our net earnings in any given period due to changes in the spot prices of the underlying commodities.
Water is a limited resource in many parts of the world. The lack of available water of acceptable quality and increasing pressure to conserve water in areas of scarcity and stress may lead to: supply chain disruption; adverse effects on our operations; higher compliance costs; capital expenditures (including additional investments in the development of technologies to enhance water efficiency and reduce water consumption); higher production costs; the cessation of operations at, or relocation of, our facilities or the facilities of our suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties; or damage to our reputation, any of which could adversely affect our business, financial condition or results of operations.
Business disruptions could have an adverse impact on our business, financial condition or results of operations.
Our ability, and that of our suppliers and other third parties, including our bottlers, contract manufacturers, distributors, joint venture partners and customers, to make, manufacture, transport, distribute and sell products in our portfolio is critical to our success. Damage or disruption to our or their operations due to any of the following factors could impair the ability to make, manufacture, transport, distribute or sell products in our portfolio: adverse weather conditions (including any potential effects of climate change) or natural disasters, such as a hurricane, tornado, earthquake or flooding; government action; economic or political uncertainties or instability in countries in which such products are made, manufactured, distributed or sold, which may also affect our ability to protect the security of our assets and employees; fire; terrorism; outbreak or escalation of armed hostilities; food safety warnings or recalls, whether related to products in our portfolio or otherwise; health epidemics or pandemics; supply and commodity shortages; unplanned delays or unexpected problems associated with repairs or enhancements of facilities in which such products are made, manufactured, distributed or sold; loss or impairment of key manufacturing sites; cyber incidents, including the disruption or shutdown of computer systems or other information technology systems at our offices, plants, warehouses, distribution centers or other facilities or those of our suppliers and other third parties who make, manufacture, transport, distribute and sell products in our portfolio; industrial accidents or other occupational health and safety issues; telecommunications failures; power or water shortages; strikes, labor disputes or lack of availability of qualified personnel, such as truck drivers; or other reasons beyond our control or the control of our suppliers and other third parties. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition or results of operations, as well as require additional resources to restore operations.
Product contamination or tampering or issues or concerns with respect to product quality, safety and integrity could adversely affect our business, reputation, financial condition or results of operations.
Product contamination or tampering, the failure to maintain high standards for product quality, safety and integrity, including with respect to raw materials and ingredients obtained from suppliers, or allegations (whether or not valid) of product quality issues, mislabeling, misbranding, spoilage, allergens, adulteration or contamination with respect to products in our portfolio may reduce demand for such products, and cause production and delivery disruptions or increase costs, which could adversely affect our business, reputation, financial condition or results of operations. If any of the products in our portfolio are mislabeled or become unfit for consumption or cause injury, illness or death, or if appropriate resources are not devoted to product quality and safety (particularly as we expand our portfolio into new categories) or to comply with changing food safety requirements, we could decide to, or be required to, recall products in our portfolio and/or we may be subject to liability or government action, which could result in payment of damages or fines, cause certain products in our portfolio to be unavailable for a period of time, result in destruction of product inventory, or result in adverse publicity (whether or not valid), which could reduce consumer demand and brand equity. Moreover, even if allegations of product contamination or tampering or suggestions that our products were not fit for consumption are meritless, the negative publicity surrounding assertions against us or products in our portfolio or processes could adversely affect our reputation or brands. Our business could
also be adversely affected if consumers lose confidence in product quality, safety and integrity generally, even if such loss of confidence is unrelated to products in our portfolio. Any of the foregoing could adversely affect our business, reputation, financial condition or results of operations. In addition, if we do not have adequate insurance, if we do not have enforceable indemnification from suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties or if indemnification is not available, the liability relating to such product claims or disruption as a result of recall efforts could materially adversely affect our business, financial condition or results of operations.
Any damage to our reputation or brand image could adversely affect our business, financial condition or results of operations.
We are a leading global beverage, food and snack company with brands that are respected household names throughout the world. Maintaining a good reputation globally is critical to selling our branded products. Our reputation or brand image could be adversely impacted by any of the following, or by adverse publicity (whether or not valid) relating thereto: the failure to maintain high ethical, social and environmental practices for all of our operations and activities, including with respect to human rights, child labor laws and workplace conditions and safety, or failure to require our suppliers or other third parties to do so; the failure to achieve our goals of reducing added sugars, sodium and saturated fat in certain of our products and of growing our portfolio of product choices; the failure to achieve our other sustainability goals, including with respect to plastic packaging, or to be perceived as appropriately addressing matters of social responsibility; the failure to protect our intellectual property, including in the event our brands are used without our authorization; health concerns (whether or not valid) about our products or particular ingredients or substances in, or attributes of, our products, including concerns regarding whether certain of our products contribute to obesity; the imposition or proposed imposition of new or increased taxes, labeling requirements or other limitations on, or pertaining to, the sale, display or advertising of our products; any failure to comply, or perception of a failure to comply, with our policies and goals, including those regarding advertising to children and reducing calorie consumption from sugar-sweetened beverages; our research and development efforts; the recall (voluntary or otherwise) of any products in our portfolio; our environmental impact, including use of agricultural materials, plastics or other packaging, water, energy use and waste management; any failure to achieve our goals with respect to reducing our impact on the environment, including the recyclability or recoverability of our packaging, or perception of a failure to act responsibly with respect to water use and the environment; any failure to achieve our goals with respect to human rights throughout our value chain; the practices of our employees, agents, customers, suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties (including others in our industry) with respect to any of the foregoing, actual or perceived; consumer perception of our industry; consumer perception of our advertising campaigns, sponsorship arrangements or marketing programs; consumer perception of our use of social media; consumer perception of statements made by us, our employees and executives, agents, customers, suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties (including others in our industry); or our responses or the responses of others in our industry to any of the foregoing.
In addition, we operate globally, which requires us to comply with numerous local regulations, including, without limitation, anti-corruption laws, competition laws and tax laws and regulations of the jurisdictions in which our products are made, manufactured, distributed or sold. In the event that we or our employees engage in or are believed to have engaged in improper activities, we may be subject to regulatory proceedings, including enforcement actions, litigation, loss of sales or other consequences, which may cause us to suffer damage to our reputation in the United States or abroad. Failure to comply with local laws and regulations, to maintain an effective system of internal control or to provide accurate and timely financial information could also hurt our reputation. In addition, water is a limited resource in many parts of the world and demand for water continues to rise. Our reputation could be damaged if we or others in our industry do not act, or are perceived not to act, responsibly with respect to water use.
Further, the popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information dissemination. As a result, negative or inaccurate posts or comments about us, our products, policies, practices, advertising campaigns and marketing programs or sponsorship arrangements; our use of social media or of posts or other information disseminated by us or our employees, agents, customers, suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties; consumer perception of any of the foregoing, or failure by us to respond effectively to any of the foregoing, may also generate adverse publicity (whether or not valid) that could damage our reputation.
Damage to our reputation or brand image or loss of consumer confidence in our products or employees for any of these or other reasons could result in decreased demand for our products and could adversely affect our business, financial condition or results of operations, as well as require additional resources to rebuild our reputation.
Failure to successfully complete or integrate acquisitions and joint ventures into our existing operations, or to complete or effectively manage divestitures or refranchisings, couldstrategic transactions can adversely affect our business, financial condition or results of operations.business.
We regularly review our portfolio of businesses and evaluate potential acquisitions, joint ventures, distribution agreements, divestitures, refranchisings and other strategic transactions. Potential issues associated withThe success of these activities could include,transactions, including the recent completion of the Juice Transaction, is dependent upon, among other things:things, our ability to realize the full extent of the expected returns, benefits, cost savings or synergies as a result of a transaction, within the anticipated time frame, or at all; and receipt of necessary consents, clearances and approvals in connectionapprovals. Risks associated with a transaction; and diversion of management’s attention from day-to-day operations.
With respect to acquisitions, including our recently completed acquisition of SodaStream, the following factors also pose potential risks: our ability to successfully combine our businesses with the business of the acquired company, includingstrategic transactions include integrating the acquired company’s manufacturing, distribution, sales, accounting, financial reporting and administrative support activities and information technology systems with our company; our ability to successfully operatecompany or difficulties separating such personnel, activities and systems in connection with divestitures; operating through new business models or in new categories or territories; motivating, recruiting and retaining executives and key employees (both of the acquired company and our company);employees; conforming standards, controls (including internal control over financial reporting and disclosure controls and procedures,procedures) and policies (including with respect to environmental compliance, health and safety compliance and compliance with other laws and regulations), procedures and policies, business cultures and compensation structures between us and the acquired company; consolidating and streamlining corporate and administrative infrastructures and avoiding increased operating expenses; consolidating sales and marketing operations;anti-bribery laws); retaining existing customers and consumers and attracting new customers; retaining existing distributors; identifyingcustomers and eliminating redundant and underperforming operations and assets; coordinating geographically dispersed organizations;consumers; managing tax costs or inefficiencies associated with integrating our operations following completion of an acquisition; and other unanticipated problems or liabilities, such as contingent liabilities and litigation.
With respect to joint ventures, we share ownership and management responsibility with one or more parties who may or may not have the same goals, strategies, priorities, resources or values as we do. Joint ventures are intended to be operated for the benefit of all co-owners, rather than for our exclusive benefit. Business decisions or other actions or omissions of our joint venture partners may adversely affect the value of our investment, result in litigation or regulatory action against us or otherwise damage our reputation and brands and adversely affect our business, financial condition or results of operations.
In addition, acquisitions and joint ventures outside of the United States increase our exposure to risks associated with operations outside of the United States, including fluctuations in exchange rates and compliance with the Foreign Corrupt Practices Act and other anti-corruption and anti-bribery laws and laws and regulations outside the United States.
With respect to divestitures and refranchisings, we may not be able to complete or effectively manage such transactions on terms commercially favorable to us or at all and may fail to achieve the anticipated benefits or cost savings from the divestiture or refranchising. Further, as divestitures and refranchisings may reduce our direct control over certain aspects of our business, any failure to maintaininefficiencies; maintaining good relations with divested or refranchised businesses in our supply or sales chain may adverselychain; inability to offset loss of revenue associated with divested brands or businesses; managing the impact our salesof business decisions or business performance.
If an acquisitionother actions or omissions of our joint venture is not successfully completed, integrated into our existing operationspartners that may have different interests than we do; and other unanticipated problems or managed effectively, or if a divestiture or refranchising isliabilities, such as contingent liabilities and litigation. Strategic transactions that are not successfully completed or managed effectively, or does notour failure to effectively manage the risks associated with such transactions, have in the past and could continue to result in adverse effects on our business.
Our reliance on third-party service providers and enterprise-wide systems can have an adverse effect on our business.
We rely on third-party service providers, including cloud data service providers, for certain areas of our business, including payroll processing, health and benefit plan administration and certain finance and accounting functions. Failure by these third parties to meet their contractual, regulatory and other obligations to us, or our failure to adequately monitor their performance, has in the benefits orpast and could continue to result in our inability to achieve the expected cost savings or efficiencies and result in additional costs to correct errors made by such service providers. Depending on the function involved, such errors can also lead to business disruption, systems performance degradation, processing inefficiencies or other systems disruptions, the loss of or damage to intellectual property or sensitive data through security breaches or otherwise, incorrect or adverse effects on financial reporting, litigation, claims, legal or regulatory proceedings, inquiries or investigations, fines or penalties, remediation costs,
damage to our reputation or have a negative impact on employee morale, all of which can adversely affect our business.
In addition, we expect,continue on our multi-year phased business transformation initiative to migrate certain of our systems, including our financial processing systems, to enterprise-wide systems solutions and have begun to roll out these systems in certain countries and divisions. We have experienced and could continue to experience systems outages and operating inefficiencies following these planned implementations. In addition, if we do not continue to allocate and effectively manage the resources necessary to build and sustain the proper information technology infrastructure, or if we fail to achieve the expected benefits from this initiative, our business financial condition or results of operations maycould be adversely affected.
Climate change or measures to address climate change can negatively affect our business or damage our reputation.
Climate change may have a negative effect on agricultural productivity which may result in decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as potatoes, sugar cane, corn, wheat, rice, oats, oranges and other fruits (and fruit-derived oils). In addition, climate change may also increase the frequency or severity of natural disasters and other extreme weather conditions (including rising temperatures and drought), which could pose physical risks to our facilities, impair our production capabilities, disrupt our supply chain or impact demand for our products. Also, there is an increased focus in many jurisdictions in which our products are made, manufactured, distributed or sold regarding environmental policies relating to climate change, regulating greenhouse gas emissions, energy policies and sustainability, including single-use plastics. This increased focus may result in new or increased legal and regulatory requirements, such as potential carbon pricing programs, which could result in significant increased costs and require additional investments in facilities and equipment. As a result, the effects of climate change can negatively affect our business and operations. In addition, any failure to achieve our goals with respect to reducing our impact on the environment or perception of a failure to act responsibly with respect to the environment or to effectively respond to regulatory requirements concerning climate change can lead to adverse publicity, which could adversely affect demand for our products or damage our reputation. Any of the foregoing can adversely affect our business.
Strikes or work stoppages can cause our business to suffer.
Many of our employees are covered by collective bargaining agreements, and other employees may seek to be covered by collective bargaining agreements. Strikes or work stoppages or other business interruptions have occurred and may occur in the future if we are unable to renew, or enter into new, collective bargaining agreements on satisfactory terms and can impair manufacturing and distribution of our products, lead to a loss of sales, increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency or to adapt to changing business needs or strategy, all of which can adversely affect our business.
Financial Risks
Failure to realize benefits from our productivity initiatives can adversely affect our financial performance.
Our future growth depends, in part, on our ability to continue to reduce costs and improve efficiencies, including our multi-year phased implementation of shared business service organizational models. We continue to identify and implement productivity initiatives that we believe will position our business for long-term sustainable growth by allowing us to achieve a lower cost structure, improve decision-making and operate more efficiently. Some of these measures result in unintended consequences, such as business disruptions, distraction of management and employees, reduced morale and productivity, unexpected
employee attrition, an inability to attract or retain key personnel and negative publicity. If we are unable to successfully implement our productivity initiatives as planned or do not achieve expected savings as a result of these initiatives, we may not realize all or any of the anticipated benefits, resulting in adverse effects on our financial performance.
A changedeterioration in our estimates and underlying assumptions regarding the future performance of our businesses couldbusiness can result in an impairment charge which could materiallythat can adversely affect our results of operations.
We conduct impairment tests on our goodwill and other indefinite-lived intangible assets as well as other investments and other long-lived assets annually during our third quarter, or more frequently if circumstances indicate that impairment may have occurred. In addition, amortizable intangible assets, property, plant and equipment and other long-lived assets are evaluated for impairment upon a significant change in the carrying value may not be recoverable. Any changesoperating or macroeconomic environment. A deterioration in our estimates or underlying assumptions regarding the impact of competitive operating conditions, macroeconomic conditions or other factors used to estimate the future performance of any of our reporting units or in determining the fair value ofassets, including any such reporting unit, including goodwill, indefinite-lived intangible assets, as well as other investments and other long-lived assets, could adversely affect our results of operations. Factors that could result in an impairment include, but are not limited to: significant negative economic or industry trends or competitive operating conditions; significant macroeconomic conditions that may result in a future increasedeterioration in the weighted-average cost of capital used to estimate fair value; and significant changesbased on market data available at the time, can result in the nature and timing of decisions regarding assets or markets that do not perform consistent with our expectations, including factors we use to estimate future levels of sales, operating profit or cash flows. Futurean impairment charges could have a significant adverse effect oncharge, which can adversely affect our results of operationsoperations.
Fluctuations in exchange rates impact our financial performance.
Because our consolidated financial statements are presented in U.S. dollars, the periods recognized.
Increases in income tax rates, changes in income tax laws or disagreements with tax authorities could adversely affectfinancial statements of our business, financial condition or results of operations.
We are subject to income taxes in the United States and in certain foreign jurisdictions in which we operate. Increases in income tax rates or other changes in income tax laws in any particular jurisdiction could reduce our after-tax income from such jurisdiction and could adversely affect our business, financial condition or results of operations. Our operationssubsidiaries outside the United States, generate a significant portion ofwhere the functional currency is other than the U.S. dollar, are translated into U.S. dollars. Given our income. In addition, the United States and many of the other countries in which our products are made, manufactured, distributed or sold, including countries in whichglobal operations, we have significant operations, have recently made or are actively considering changes to existing tax laws. For example, in December 2017, the Tax Cuts and Jobs Act (TCJ Act) was signed into law in the United States. While our accountingalso pay for the recorded impact of the TCJ Act is deemed to be complete, these amounts are based on prevailing regulationsingredients, raw materials and currently available information, and any additional guidance issued by the Internal Revenue Service (IRS) could impact our recorded amountscommodities used in future periods. For further information regarding the impact and potential impact of the TCJ Act, see “Our Liquidity and Capital Resources” and “Our Critical Accounting Policies” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5 to our consolidated financial statements.
Additional changes in the U.S. tax regime or in how U.S. multinational corporations are taxed on foreign earnings, including changes in how existing tax laws are interpreted or enforced, could adversely affect our business financial conditionin numerous currencies. Fluctuations in exchange rates, including as a result of inflation, central bank monetary policies, currency controls or results of operations. For example, the Organization for Economic Cooperationother currency exchange restrictions have had, and Development (OECD) has recommended changescould continue to numerous long-standing international tax principles through its base erosion and profit shifting (BEPS) project. These changes, to the extent adopted,
may increase tax uncertainty, result in higher compliance costs and adversely affect our provision for income taxes, results of operations and/or cash flow.
We are also subject to regular reviews, examinations and audits by the IRS and other taxing authorities with respect to income and non-income based taxes both within and outside the United States. In connection with the OECD’s BEPS project, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in various countries. Economic and political pressures to increase tax revenues in jurisdictions in which we operate, or the adoption of new or reformed tax legislation or regulation, may make resolving tax disputes more difficult and the final resolution of tax audits and any related litigation could differ from our historical provisions and accruals, resulting inhave, an adverse impact on our business, financial condition or results of operations.
If we are unable to recruit, hire or retain key employees or a highly skilled and diverse workforce, it could have a negative impact on our business, financial condition or results of operations.
Our continued growth requires us to recruit, hire, retain and develop our leadership bench and a highly skilled and diverse workforce. We compete to recruit and hire new employees and then must train them and develop their skills and competencies. Our employees are highly sought after by our competitors and other companies and our continued ability to compete effectively depends on our ability to retain, develop and motivate highly skilled personnel for all areas of our organization. Any unplanned turnover or unsuccessful implementation of our succession plans to backfill current leadership positions, including the Chief Executive Officer, or to hire and retain a highly skilled and diverse workforce could deplete our institutional knowledge base and erode our competitive advantage or result in increased costs due to increased competition for employees, higher employee turnover or increased employee benefit costs. Any of the foregoing could adversely affect our business, reputation, financial condition or results of operations.
The loss of, or a significant reduction in sales to, any key customer could adversely affect our business, financial condition or results of operations.
Our customers include wholesale and other distributors, foodservice customers, grocery stores, drug stores, convenience stores, discount/dollar stores, mass merchandisers, membership stores, hard discounters, e-commerce retailers and authorized independent bottlers, among others. We must maintain mutually beneficial relationships with our key customers, including Wal-Mart, to compete effectively. Any inability to resolve a significant dispute with any of our key customers, a change in the business condition (financial or otherwise) of any of our key customers, even if unrelated to us, a significant reduction in sales to any key customer, or the loss of any of our key customers could adversely affect our business, financial condition or results of operations.
Disruption in the retail landscape, including rapid growth in hard discounters and the e-commerce channel, could adversely affect our business, financial condition or results of operations.
Our industry has been affected by changes to the retail landscape, including the rapid growth in sales through e-commerce websites, mobile commerce applications and subscription services as well as the integration of physical and digital operations among retailers. We continue to make significant investments in attracting talent to and building our global e-commerce capabilities. Although we are engaged in e-commerce with respect to many of our products, if we are unable to maintain and develop successful relationships with existing and new e-commerce retailers or otherwise adapt to the growing e-commerce landscape, while simultaneously maintaining relationships with our key customers operating in traditional retail channels, we may be disadvantaged in certain channels and with certain customers and consumers, which could adversely affect our business, financial condition or results of operations. In addition, the growth in e-commerce and hard discounters may result in consumer price deflation, which may affect our relationships with key retail
customers. Further, the ability of consumers to compare prices on a real-time basis using digital technology puts additional pressure on us to maintain competitive prices. If these e-commerce and hard discounter retailers were to take significant market share away from traditional retailers and/or we fail to adapt to the rapidly changing retail and e-commerce landscapes, our ability to maintain and grow our profitability, share of sales or volume and our business, financial condition or results of operations could be adversely affected.
Further, the retail landscape continues to be impacted by the increased consolidation of retail ownership and purchasing power, particularly in North America, Europe and Latin America, resulting in large retailers with increased purchasing power, which may impact our ability to compete in these areas. Such retailers may demand improved efficiency, lower pricing and increased promotional programs. Further, should larger retailers increase utilization of their own distribution networks, other distribution channels such as e-commerce, or private label brands, the competitive advantages we derive from our go-to-market systems and brand equity may be eroded. In addition, the growth of hard discounters that are focused on limiting the number of items they sell and selling predominantly private label brands may reduce our ability to sell our products through such retailers. Failure to appropriately respond to any of the foregoing, including failure to offer effective sales incentives and marketing programs to our customers, could reduce our ability to secure adequate shelf space and product availability at our retailers, adversely affect our ability to maintain or grow our share of sales or volume, and adversely affect our business, financial condition or results of operations.performance.
Our borrowing costs and access to capital and credit markets maycan be adversely affected by a downgrade or potential downgrade of our credit ratings.
Rating agencies routinely evaluate us and their ratings of our long-term and short-term debt are based on a number of factors, including our cash generating capability, levels of indebtedness, policies with respect to shareholder distributions and our financial strength generally, as well as factors beyond our control, such as the then-current state of the economy and our industry generally. Any downgrade of our credit ratings by a credit rating agency, especially any downgrade to below investment grade, whether as a result of our actions or factors which are beyond our control, could increase our future borrowing costs, impair our ability to access capital and credit markets on terms commercially acceptable to us or at all, and result in a reduction in our liquidity.industry. We expect to maintain Tier 1 commercial paper access, which we believe will facilitate appropriate financial flexibility and ready access to global credit markets at favorable interest rates. However, anyAny downgrade or announcement that we are under review for a potential downgrade of our current short-term credit ratings, couldespecially any downgrade to below investment grade, can increase our future borrowing costs, impair our ability to access capital and credit markets on terms commercially acceptable to us or at all, result in a reduction in our liquidity, or impair our ability to access the commercial paper market with the same flexibility that we have experienced historically and(and therefore require us to rely more heavily on more expensive types of debt financing. Our borrowing costs and access to the commercial paper market could also be adversely affected if a credit rating agency announces that our ratings are under review for a potential downgrade. An increase in our borrowing costs, limitations on our ability to access the global capital and credit markets or a reduction in our liquidity couldfinancing), all of which can adversely affect our financial conditionperformance.
Legal, Tax and results of operations.Regulatory Risks
If we are not able to successfully implement shared services or utilize information technology systems and networks effectively,Taxes aimed at our ability to conductproducts can adversely affect our business or financial performance.
Certain jurisdictions in which our products are sold have either imposed, or are considering imposing, new or increased taxes on the manufacture, distribution or sale of certain of our products, particularly our beverages, as a result of the ingredients or substances contained in our products. These taxes vary in scope and form: some apply to all beverages, including non-caloric beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar). Similarly, some measures apply a single tax rate per ounce/liter on beverages containing over a certain amount of added sugar (or other sweetener), some apply a graduated tax rate depending upon the amount of added sugar (or other sweetener) in the beverage and others apply a flat tax rate on beverages containing any amount of added sugar (or other sweetener). For example, certain provinces in Canada enacted a flat tax on all sugar-sweetened beverages, effective
September 1, 2022, at a rate of 0.20 Canadian dollars (0.16 U.S. dollars) per liter. These tax measures, whatever their scope or form, have in the past and could continue to increase the cost of certain of our products, reduce overall consumption of our products or lead to negative publicity, resulting in an adverse effect on our business and financial performance.
Limitations on the marketing or sale of our products can adversely affect our business and financial performance.
Certain jurisdictions in which our products are sold have either imposed, or are considering imposing, limitations on the marketing or sale of our products as a result of ingredients or substances in our products. These limitations require that we highlight perceived concerns about a product, warn consumers to avoid consumption of certain ingredients or substances present in our products, restrict the age of consumers to whom products are marketed or sold or limit the location in which our products may be negatively impacted.available. For example, Argentina and Colombia enacted warning labeling requirements in 2021 to indicate whether a particular pre-packaged food or beverage product is considered to be high in sugar, sodium or saturated fat. Certain jurisdictions have imposed or are considering imposing color-coded labeling requirements where colors such as red, yellow and green are used to indicate various levels of a particular ingredient, such as sugar, sodium or saturated fat, in products. The imposition or proposed imposition of additional limitations on the marketing or sale of our products has in the past and could continue to reduce overall consumption of our products, lead to negative publicity or leave consumers with the perception that our products do not meet their health and wellness needs, resulting in an adverse effect on our business and financial performance.
Laws and regulations related to the use or disposal of plastics or other packaging materials can adversely affect our business and financial performance.
We have entered into agreements with third-party service providersrely on diverse packaging solutions to utilize information technology support servicessafely deliver products to our customers and administrative functions in certain areasconsumers. Certain of our business, including payroll processing, health and benefit plan administrationproducts are sold in packaging designed to be recyclable or commercially compostable. However, not all packaging is recycled, whether due to lack of infrastructure or otherwise, and certain financeof our packaging is not currently recyclable. Packaging waste not properly disposed of that displays one or more of our brands has in the past resulted in and accounting functions. We may enter into newcould continue to result in negative publicity, litigation or additional agreementsreduced consumer demand for shared servicesour products, adversely affecting our financial performance. Many jurisdictions in which our products are sold have imposed or are considering imposing regulations or policies intended to encourage the use of sustainable packaging, waste reduction or increased recycling rates or to restrict the sale of products utilizing certain packaging. These regulations vary in form and scope and include extended producer responsibility policies, plastic or packaging taxes, restrictions on certain products and materials, requirements for bottle caps to be tethered to bottles, bans on the use of single-use plastics and requirements to charge deposit fees. For example, the European Union, Peru and certain states in the United States, among other jurisdictions, have imposed a minimum recycled content requirement for beverage bottle packaging and similar legislation is under consideration in other functionsjurisdictions. These laws and regulations have in the past and could continue to increase the cost of our products, impact demand for our products, result in negative publicity and require us and our business partners, including our independent bottlers, to increase capital expenditures to invest in minimizing the amount of plastic or other materials used in our packaging or to develop alternative packaging, all of which can adversely affect our business and financial performance.
Failure to comply with personal data protection and privacy laws can adversely affect our business.
We are subject to a variety of continuously evolving and developing laws and regulations in numerous jurisdictions regarding personal data protection and privacy laws. These laws and regulations may be interpreted and applied differently from country to country or, within the United States, from state to state, and can create inconsistent or conflicting requirements. Our efforts to comply with these laws and
regulations, including with respect to data from residents of the European Union who are covered by the General Data Protection Regulation or residents of the state of California who are covered by the California Consumer Privacy Act (as modified by the California Privacy Rights Act), impose significant costs and challenges that are likely to continue to increase over time, particularly as additional jurisdictions adopt similar regulations. Failure to comply with these laws and regulations or to otherwise protect personal data from unauthorized access, use or other processing, have in the past and could in the future to achieve cost savings and efficiencies as we continue to migrate to shared business service organizational models across our business operations. In addition, we utilize cloud-based services and systems and networks managed by third-party vendors to process, transmit and store information and to conduct certain of our business activities and transactions with employees, customers, consumers and other third parties. If any of these third-party service
providers or vendors do not perform effectively, or if we fail to adequately monitor their performance (including compliance with service level agreements or regulatory or legal requirements), we may not be able to achieve the expected cost savings, we may have to incur additional costs to correct errors made by such service providers, our reputation could be harmed or we could be subject toresult in litigation, claims, legal or regulatory proceedings, inquiries or investigations. Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, the loss of or damage to intellectual property or sensitive data through security breaches or otherwise, incorrect or adverse effects on financial reporting, litigation or remediation costs, orinvestigations, damage to our reputation, fines or penalties, all of which could have a negative impact on employee morale. In addition, the management of multiple third-party service providers increases operational complexity and decreasescan adversely affect our control.business.
We continue on our multi-year business transformation initiative to migrate certain of our systems, includingIncreases in income tax rates, changes in income tax laws or disagreements with tax authorities can adversely affect our financial processing systems, to enterprise-wide systems solutions. These systems implementationsperformance.
Increases in income tax rates or other changes in tax laws, including changes in how existing tax laws are part of our ongoing global business transformation initiative, and we plan to continue implementing such systems throughout other parts of our businesses. If we do not allocate and effectively manage the resources necessary to build and sustain the proper information technology infrastructure,interpreted or if we fail to achieve the expected benefits from this initiative, it may impact our ability to process transactions accurately and efficiently, and remain in step with the changing needs of our business, which could result in the loss of customers or consumers and revenue. In addition, the failure to either deliver the applications on time, or anticipate the necessary readiness and training needs, could lead to business disruption and loss of customers or consumers and revenue. In connection with these implementations and resulting business process changes, we continue to enhance the design and documentation of business processes and controls, including our internal control over financial reporting processes, to maintain effective controls overenforced, can adversely affect our financial reporting. To date, this transition has not materially affected,performance. For example, economic and political conditions in countries where we do not expect itare subject to materially affect, our internal control over financial reporting.
Fluctuations in exchange rates impact our business, financial condition and results of operations.
We hold assets, incur liabilities, earn revenues and pay expenses in a variety of currencies other than the U.S. dollar. Because our consolidated financial statements are presented in U.S. dollars, the financial statements of our subsidiaries outsidetaxes, including the United States, wherehave in the functional currency is other than the U.S. dollar, are translated into U.S. dollars. Our operations outside ofpast and could continue to result in significant changes in tax legislation or regulation, including those proposed and under consideration by the United States particularlyCongress and the Organization for Economic Co-operation and Development. For example, numerous countries have recently agreed to a statement in Mexico, Russia, Canada,support of a global minimum tax rate of 15% as well as global profit reallocation. There can be no assurance that these changes will be adopted by individual countries, or that once adopted by individual countries, that they will not have adverse effects on our financial performance. This increasingly complex global tax environment has in the United Kingdompast and Brazil, generate a significant portion of our net revenue. In addition, we purchase many of the ingredients, raw materials and commodities used in our business in numerous markets and in numerous currencies. Fluctuations in exchange rates, including as a result of currency controls or other currency exchange restrictions have had, and maycould continue to have, anincrease tax uncertainty, resulting in higher compliance costs and adverse impacteffects on our business, financial condition and results of operations.
Climate change, water scarcity or legal, regulatory or market measures to address climate change or water scarcity may negatively affect our business and operations or damage our reputation.
There is concern that carbon dioxide and other greenhouse gases in the atmosphere have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on agricultural productivity, we may beperformance. We are also subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as sugar cane, corn, wheat, rice, oats, orangesregular reviews, examinations and other fruits and potatoes. Natural disasters and extreme weather conditions, such as a hurricane, tornado, earthquake or flooding, may disrupt the productivity of our facilities or the operation of our supply chain and unfavorably impact the demand for, or our consumers’ ability to purchase, our products. The predicted effects of climate change may also exacerbate challenges regarding the availability and quality of water. As demand for water access continues to increase
around the world, we may be subject to decreased availability of water, deteriorated quality of water or less favorable pricing for water, which could adversely impact our manufacturing and distribution operations.
Concern over climate change may result in new or increased regional, federal and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases, or to limit or impose additional costs on commercial water use due to local water scarcity concerns. In the event that such regulation is more stringent than current regulatory obligations or the measures that we are currently undertaking to monitor and improve our energy efficiency and water conservation, we may experience disruptions in, or significant increases in our costs of, operation and delivery and we may be required to make additional investments in facilities and equipment or relocate our facilities. In particular, increasing regulation of fuel emissions could substantially increase the cost of energy, including fuel, required to operate our facilities or transport and distribute our products, thereby substantially increasing the distribution and supply chain costs associated with our products. As a result, the effects of climate change or water scarcity could negatively affect our business and operations.
In addition, any failure to achieve our goalsaudits by numerous taxing authorities with respect to reducing our impact onincome and non-income based taxes. Economic and political pressures to increase tax revenues in jurisdictions in which we operate, or the environmentadoption of new or perception (whetherreformed tax legislation or not valid) of our failureregulation, has made and could continue to act responsibly with respect to water usemake resolving tax disputes more difficult and the environment or to effectively respond to new, or changesfinal resolution of tax audits and any related litigation can differ from our historical provisions and accruals, resulting in legal or regulatory requirements concerning climate change or water scarcity could result inan adverse publicity and could adversely affecteffect on our business, reputation, financial condition or results of operations.
There is also increased focus, including by governmental and non-governmental organizations, investors, customers and consumers on these and other environmental sustainability matters, including deforestation, land use, climate impact, water use and recyclability or recoverability of packaging, including plastic. Our reputation could be damaged if we or others in our industry do not act, or are perceived not to act, responsibly with respect to our impact on the environment.
A portion of our workforce is represented by unions. Failure to successfully negotiate collective bargaining agreements, or strikes or work stoppages, could cause our business to suffer.
Many of our employees are covered by collective bargaining agreements, and other employees may seek to be covered by collective bargaining agreements. Strikes or work stoppages or other business interruptions could occur if we are unable to renew these agreements on satisfactory terms or enter into new agreements on satisfactory terms or if we are unable to otherwise manage changes in, or that affect, our workforce, which could impair manufacturing and distribution of our products or result in a loss of sales, which could adversely impact our business, financial condition or results of operations. The terms and conditions of existing, renegotiated or new collective bargaining agreements could also increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency or to adapt to changing business needs or strategy.performance.
If we are not ableunable to adequately protect our intellectual property rights, or if we are found to infringe on the intellectual property rights of others, the value of our products or brands, or our competitive position, could be reduced, which could have an adverse impact on our business financial condition or results of operations.can be adversely affected.
We possess intellectual property rights that are important to our business. These intellectual property rights includebusiness, including ingredient formulas, trademarks, copyrights, patents, business processes and other trade secrets that are important to our businesssecrets. The laws of various jurisdictions in which we operate have differing levels of protection of intellectual property. Our competitive position and relate to a varietythe value of our products their packaging, the processes for their production and the designbrands can be reduced and operation of various equipment used in our businesses. We protect our intellectual property rights globally through a combination of trademark, copyright, patent and trade secret laws, third-party assignment and nondisclosure agreements and monitoring of third-party misuses of our
intellectual property. Ifbusiness adversely affected if we fail to obtain or adequately protect our trademarks, copyrights, patents, business processes and trade secrets,intellectual property, including our ingredient formulas, or if there is a change in law that limits or removes the current legal protections ofafforded our intellectual property, the value of our products and brands, or our competitive position, could be reduced and there could be an adverse impact on our business, financial condition or results of operations. In addition, if,property. Also, in the course of developing new products or improving the quality of existing products, we are foundhave in the past infringed or been alleged to have infringed, and could in the future infringe or be alleged to infringe, on the intellectual property rights of others, directlyothers. Such infringement or indirectly, such findingallegations of infringement could have an adverse impactresult in expensive litigation and damages, damage to our reputation, disruption to our operations, injunctions against development, manufacturing, use and/or sale of certain products, inventory write-offs or other limitations on our business, reputation, financial condition or results of operations and may limit our ability to introduce new products or improve the quality of existing products.products, resulting in an adverse effect on our business.
Failure to comply with laws and regulations applicable to our business can adversely affect our business.
The conduct of our business is subject to numerous laws and regulations relating to the production, storage, distribution, sale, display, advertising, marketing, labeling, content (including whether a product
contains genetically engineered ingredients), quality, safety, transportation, traceability, sourcing (including pesticide use), packaging, disposal, recycling and use of our products or raw materials, employment and occupational health and safety, environmental, social and governance matters (including climate change) and data privacy and protection. In addition, in many jurisdictions, compliance with competition laws is of special importance to us due to our competitive position, as is compliance with anti-corruption laws. The imposition of new laws, changes in laws or regulatory requirements or changing interpretations thereof, and differing or competing regulations and standards across the markets where our products or raw materials are made, manufactured, distributed or sold, have in the past and could continue to result in higher compliance costs, capital expenditures and higher production costs, resulting in adverse effects on our business. For example, increasing governmental and societal attention to environmental, social and governance matters has resulted and could continue to result in new laws or regulatory requirements. In addition, the entry into new markets or categories, including our planned entry into the alcoholic beverage industry as a distributor in the United States and expansion into the nuts and meat convenient foods categories globally, has resulted in and could continue to result in our business being subject to additional regulations resulting in higher compliance costs. If one jurisdiction imposes or proposes to impose new laws or regulations that impact the manufacture, distribution or sale of our products, other jurisdictions may follow. Failure to comply with such laws or regulations can subject us to criminal or civil enforcement actions, including fines, injunctions, product recalls, penalties, disgorgement of profits or activity restrictions, all of which can adversely affect our business. In addition, the results of third-party studies (whether or not scientifically valid) purporting to assess the health implications of consumption of certain ingredients or substances present in certain of our products or packaging materials have resulted in and could continue to result in our being subject to new taxes and regulations or lawsuits that can adversely affect our business.
Potential liabilities and costs from litigation, claims, legal or regulatory proceedings, inquiries or investigations couldcan have an adverse impact on our business, financial condition or results of operations.business.
We and our subsidiaries are party to a variety of litigation, claims, legal or regulatory proceedings, inquiries and investigations, including but not limited to matters related to our advertising, marketing or commercial practices, product labels, claims and ingredients, including sugar, sodiumpersonal injury and saturated fat, ourproperty damage, intellectual property rights, alleged infringement or misappropriation by us of intellectual property rights of others, environmental, privacy, employment, tax and insurance matters, environmental, social and governance matters and matters relating to our compliance with applicable laws and regulations. We evaluate such matters to assess the likelihood of unfavorable outcomes and estimate, if possible, the amount of potential losses and establish reserves as appropriate. These matters are inherently uncertain and there is no guarantee that we will be successful in defending ourselves in these matters, or that our assessment of the materiality of these matters and the likely outcome or potential losses and established reserves will be consistent with the ultimate outcome of such matters. In the event that management’s assessment of actual or potential claims and proceedings proves inaccurate or litigation, claims, proceedings, inquiries or investigations that are material arise in the future, there may be a material adverse effect on our business, financial condition or results of operations. Responding to litigation, claims, proceedings, inquiries, and investigations,these matters, even those that are ultimately non-meritorious, may also requirerequires us to incur significant expense and devote significant resources, and may generate adverse publicity that may damagedamages our reputation or brand image, which could have an adverse impact on our business, financial condition or resultsimage. Any of operations.
Many factors maythe foregoing can adversely affect the price of our publicly traded securities.business.
Many factors may adversely affect the price of our common stock and publicly traded debt. Such factors, some of which are beyond our control, may include, but are not limited to: unfavorable economic conditions; changes in financial or tax reporting and changes in accounting principles or practices that materially affect our reported financial condition and results; investor perceptions of our business, strategies and performance or those of our competitors; actions by shareholders or others seeking to influence our business strategies; speculation by the media or investment community regarding our business, strategies and performance or those of our competitors; developments relating to pending litigation, claims, inquiries or investigations; changes in laws and regulations applicable to our products or business operations; trading activity in our securities or trading activity in derivative instruments with respect to our securities; changes in our credit ratings; the impact of our share repurchase programs or dividend policy; and the outcome of referenda and elections. In addition, corporate actions, such as those we may or may not take from time to time as part of our continuous review of our corporate structure and our strategy, including as a result of business, legal, regulatory and tax considerations, may not have the impact we intend and may adversely affect the price of our securities. The above factors, as well as the other risks included in this “Item 1A. Risk Factors,” could adversely affect the price of our securities.
Item 1B. Unresolved Staff Comments.
We have received no written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of our 2018 fiscal2021 year and that remain unresolved.
Item 2. Properties.
Our principal executive officesoffice located in Purchase, New York and our facilities located in Plano, Texas, all of which we own, are our most significant corporate properties.
Each division utilizes plants, warehouses, distribution centers, storage facilities, offices and other facilities, either owned or leased, inIn connection with making, marketing, distributing and selling our products. The approximate number of such facilities utilized byproducts, each division is as follows:utilizes manufacturing, processing, bottling and production plants, warehouses, distribution centers, storage facilities, offices, including division headquarters, research and development facilities and other facilities, all of which are either owned or leased.
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| FLNA | | QFNA | | NAB | | Latin America | | ESSA | | AMENA | | Shared(a) |
Plants (b) | 35 | | 5 | | 65 | | 45 | | 85 | | 45 | | 5 |
Other Facilities (c) | 1,660 | | 4 | | 440 | | 575 | | 350 | | 335 | | 45 |
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(a) | Shared properties are in addition to the other properties reported by our six divisions identified in this table. |
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(b) | Includes manufacturing and processing plants as well as bottling and production plants. |
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(c) | Includes warehouses, distribution centers, storage facilities, offices, including division headquarters, research and development facilities and other facilities. |
Significant properties by division included in the table above are as follows:
FLNA’s research | | | | | | | | | | | | | | | | | |
| Property Type | | Location | | Owned/ Leased |
FLNA | Research and development facility | | Plano, Texas | | Owned |
QFNA | Convenient food plant | | Cedar Rapids, Iowa | | Owned |
PBNA | Research and development facility | | Valhalla, New York | | Owned |
PBNA | Concentrate plant | | Arlington, Texas | | Owned |
PBNA | Tropicana plant (a) | | Bradenton, Florida | | Owned |
LatAm | Convenient food plant | | Celaya, Mexico | | Owned |
LatAm | Two convenient food plants | | Vallejo, Mexico | | Owned |
Europe | Convenient food plant | | Kashira, Russia | | Owned |
Europe | Manufacturing plant | | Lehavim, Israel | | Owned |
Europe | Dairy plant | | Moscow, Russia | | Owned (b) |
AMESA | Convenient food plant | | Riyadh, Saudi Arabia | | Owned (b) |
APAC | Convenient food plant | | Wuhan, China | | Owned (b) |
FLNA, QFNA, PBNA | Shared service center | | Winston Salem, North Carolina | | Leased |
PBNA, LatAm | Concentrate plant | | Colonia, Uruguay | | Owned (b) |
PBNA, Europe, AMESA | Two concentrate plants | | Cork, Ireland | | Owned |
PBNA, AMESA, APAC | Concentrate plant | | Singapore | | Owned (b) |
All divisions | Shared service center | | Hyderabad, India | | Leased |
(a)As of December 25, 2021, this property was reclassified as held for sale on the consolidated balance sheet in Plano, Texas,connection with our Juice Transaction. See Note 13 to our consolidated financial statements for further information.
(b)The land on which is owned.
QFNA’s food plant in Cedar Rapids, Iowa, which is owned.
NAB’s research and development facility in Valhalla, New York, and a Tropicana plant in Bradenton, Florida, both of whichthese properties are owned.
Latin America’s three snack plants in Mexico (one in Vallejo, one in Celaya and one in Obregón) and one in Brazil (Sorocaba), all of which are owned.
ESSA’s snack plant in Leicester, United Kingdom, which is leased; its snack plant in Kashira, Russia, its fruit juice plant in Zeebrugge, Belgium, its beverage plant in Lebedyan, Russia and its dairy plant in Moscow, Russia, all of which are owned.
AMENA’s two beverage plants in Egypt (one in Tanta City and one in Sixth of October City) and its snack plant in Wuhan, China, all of which are owned; and its snack plant in Riyadh, Saudi Arabia, whichlocated is leased.
Two concentrate plants in Cork, Ireland, which are shared by our NAB, ESSA and AMENA segments, both of which are owned; and one in Singapore, which is shared by our NAB and AMENA segments, which is leased.
Shared service centers in Winston-Salem, North Carolina, and Plano, Texas, which are primarily shared by our FLNA, QFNA and NAB segments, both of which are leased.
Most of our plants are owned or leased on a long-term basis. In addition to company-owned or leased properties described above, we also utilize a highly distributed network of plants, warehouses and distribution centers that are owned or leased by our contract manufacturers, co-packers, strategic alliances or joint ventures in which we have an equity interest. We believe that our properties generally are in good operating condition and, taken as a whole, are suitable, adequate and of sufficient capacity for our current operations.
Item 3. Legal Proceedings.
As previously disclosed, in April 2017, Corporación Autónoma Regional de Cundinamarca, a Colombian environmental authority (the environmental authority), initiated an administrative proceeding regarding our subsidiary, PepsiCo Alimentos Z.F., Ltda. (PAZ), for allegedly delivering wastewater to a third party without first verifying that the third party had appropriate permits with respect to the discharge of such wastewater. In July 2018, the environmental authority initiated an administrative proceeding to impose a monetary sanction against PAZ with respect to the alleged permitting violation by the third party, and on August 13, 2018, PAZ submitted evidence of its defense to these allegations. If the environmental authority determines PAZ is responsible for the alleged permitting violations by the third party, the environmental authority may seek to impose monetary sanctions of up to $1.3 million, which PAZ would be entitled to appeal.
In addition, weWe and our subsidiaries are party to a variety of litigation, claims, legal or regulatory proceedings, inquiries and investigations. While the results of such litigation, claims, legal or regulatory proceedings, inquiries and investigations cannot be predicted with certainty, management believes that the final outcome of the foregoing will not have a material adverse effect on our financial condition, results of operations or cash flows. Sanctions imposed by foreign authorities are levied in local currency and disclosed using the U.S. dollar equivalent at the time of imposition and are subject to currency fluctuations. See also “Item 1. Business – Regulatory Matters” and “Item 1A. Risk Factors.”
Item 4. Mine Safety Disclosures.
Not applicable.
Information About Our Executive Officers of the Registrant
The following is a list of names, ages and backgrounds of our current executive officers:
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Name | Age | Age | | Title |
David J. Flavell | | 50 | | Executive Vice President, General Counsel and Corporate Secretary, PepsiCo |
Marie T. Gallagher | 59 | 62 | | Senior Vice President and Controller, PepsiCo |
Hugh F. Johnston | 57 | 60 | | Vice Chairman, PepsiCo; Executive Vice President and Chief Financial Officer, PepsiCo |
Dr. Mehmood KhanRam Krishnan | 60 | Vice Chairman, PepsiCo;51 | | Chief Executive Vice President, PepsiCoOfficer, International Franchise Beverages and Chief ScientificCommercial Officer Global Research and Development |
Ramon L. Laguarta | 55 | 58 | | Chairman of the Board of Directors and Chief Executive Officer, PepsiCo |
Laxman NarasimhanSilviu Popovici | 51 | 54 | | Chief Executive Officer, Europe |
Paula Santilli | | 57 | | Chief Executive Officer, Latin America Europe and Sub-Saharan Africa |
Silviu Popovici | 51 | President, Europe Sub-Saharan Africa |
Vivek Sankaran | 56 | Chief Executive Officer, Frito-Lay North America |
Ronald Schellekens | 54 | 57 | | Executive Vice President and Chief Human Resources Officer, PepsiCo |
Mike SpanosKirk Tanner | 54 | 53 | | Chief Executive Officer, Asia, Middle East andPepsiCo Beverages North AfricaAmerica |
Kirk TannerEugene Willemsen | 50 | 54 | | Chief Executive Officer, North America BeveragesAfrica, Middle East, South Asia |
David YawmanSteven Williams | 50 | 56 | | Chief Executive Vice President, Government Affairs, General Counsel and Corporate Secretary,Officer, PepsiCo Foods North America |
David J. Flavell has served as Executive Vice President, General Counsel and Corporate Secretary, PepsiCo since March 2021. Mr. Flavell previously held a number of leadership roles at PepsiCo, including as Senior Vice President, Deputy General Counsel and Chief Compliance & Ethics Officer for PepsiCo from 2019 to 2021, as Senior Vice President, Deputy General Counsel & Managing Attorney from 2018 to 2019, as Senior Vice President, Deputy General Counsel & General Counsel, International and Global Groups from 2017 to 2018, as Senior Vice President, Deputy General Counsel & General Counsel, Latin America and Frito-Lay North America from 2016 to 2017, as Senior Vice President, General Counsel, Latin America and Frito-Lay North America from 2015 to 2016, and as Senior Vice President, General Counsel, Asia, Middle East and Africa from 2011 to 2015. Before joining PepsiCo in 2011, Mr. Flavell was general counsel for Danone S.A.’s Asia Pacific and Middle East business. Prior to that, Mr. Flavell served as senior legal counsel at Fonterra Co-operative Group Limited and was a partner at Corrs Chambers Westgarth.
Marie T. Gallagher, 59, was appointed PepsiCo’s Senior Vice President and Controller in May 2011. Ms. Gallagher joined PepsiCo in 2005 as Vice President and Assistant Controller. Prior to joining PepsiCo, Ms. Gallagher was Assistant Controller at Altria Corporate Services from 1992 to 2005 and, prior to that, a senior manager at Coopers & Lybrand.
Hugh F. Johnston, 57, was appointed Vice Chairman, PepsiCo in July 2015 and Executive Vice President and Chief Financial Officer, PepsiCo in March 2010. In addition to providing strategic financial leadership for PepsiCo, Mr. Johnston assumed responsibility forJohnston’s portfolio has included a variety of responsibilities, including leadership of the Company’s information technology function since 2015, the Company’s global e-commerce business from 2015 to 2019, and the Company’s global business and information solutions function in July 2015. He previously held responsibility for the Quaker Foods North America division from 2014 to 2016, the position2016. He has also held a number of leadership roles throughout his PepsiCo career, serving as Executive Vice President, Global Operations from 2009 to 2010, and the position of President of Pepsi-Cola North America from 2007 to 2009. He was formerly PepsiCo’s2009, Executive Vice
President, Operations a position he held from 2006 until 2007. From 2005 until 2006, Mr. Johnston was PepsiCo’sto 2007, and Senior Vice President, Transformation.Transformation from 2005 to 2006. Prior to that, he served as Senior Vice President and Chief Financial Officer of PepsiCo Beverages and Foods from 2002 through 2005, and as PepsiCo’s Senior Vice President of Mergers and Acquisitions in 2002. Mr. Johnston joined PepsiCo in 1987 as a Business Planner and held various finance positions until 1999 when he left to join Merck & Co., Inc. as Vice President, Retail, a position which he held until he rejoined PepsiCo in 2002. Prior to joining PepsiCo in 1987, Mr. Johnston was with General Electric Company in a variety of finance positions.
Dr. Mehmood Khan, 60, was appointed Vice Chairman, PepsiCo in February 2015 and Executive Vice President, PepsiCo Chief Scientific Officer, Global Research and Development in May 2012. He previously held the position of Chief Executive Officer of PepsiCo’s Global Nutrition Group from 2010 to May 2012 and the position of PepsiCo’s Chief Scientific Officer from 2008 to May 2012. Prior to joining PepsiCo, Dr. Khan served for five years at Takeda Pharmaceuticals in various leadership roles including President of Research and Development and Chief Medical Officer. Dr. Khan also served at the Mayo Clinic from 2001 until 2003 as the director of the Diabetes, Endocrinology and Nutrition Clinical Unit and as Consultant Physician in Endocrinology.
Ramon Laguarta, 55,Ram Krishnan has served as Chief Executive Officer, International Beverages and Chief Commercial Officer of PepsiCo, effective January 2022. Prior to that, Mr. Krishnan served as Executive Vice President and Chief Commercial Officer, PepsiCo, from 2019 to 2021, as President and Chief Executive Officer of PepsiCo’s Asia Pacific, Australia and New Zealand and China Region from 2018 to 2020, and as PepsiCo’s Senior Vice President and Chief Customer Officer for Walmart, leading PepsiCo’s global Walmart customer team, from 2016 to 2017. Mr. Krishnan joined PepsiCo in 2006 and held marketing roles of increasing responsibility from 2006 to 2016, including as Senior Vice President and Chief Marketing Officer, Frito-Lay North America from 2014 to 2016, as Senior Vice President, Marketing, Frito-Lay North America from 2012 to 2013 and as Vice President of Global Brands, Frito-Lay North America from 2011 to 2012. Prior to PepsiCo, Mr. Krishnan spent six years at General Motors Company as a marketing manager for Cadillac.
Ramon L. Laguarta has served as PepsiCo’s Chief Executive Officer and a director ofon the Board since October 2018, and assumed the role of Chairman of the Board in February 2019. Mr. Laguarta previously served as President of PepsiCo from 2017 to 2018. Prior to serving as PepsiCo’s President, Mr. Laguarta also held a variety of positions of increasing responsibility in Europe, including as Commercial Vice President of PepsiCo Europe from 2006 to 2008, PepsiCo Eastern Europe Region from 2008 to 2012, President, Developing & Emerging Markets, PepsiCo Europe from 2012 to 2015, Chief Executive Officer, PepsiCo Europe in 2015, and Chief Executive Officer, Europe Sub-Saharan Africa from 2015 tountil 2017. From 2002 to 2006, he was General Manager for Iberia Snacks and Juices, and from 1999 to 2001 a General Manager for Greece Snacks. Prior to joining PepsiCo in 1996 as a marketing vice president for Spain Snacks, Mr. Laguarta worked for Chupa Chups, S.A., where he worked in several international assignments in Asia, Europe, the Middle East and the United States. Mr. Laguarta has served as a director of Visa Inc. since 2019.
Laxman Narasimhan, 51,Silviu Popovici was appointed Chief Executive Officer, Latin America, Europe, andeffective 2019. Prior to this role, he served as Chief Executive Officer, Europe Sub-Saharan Africa in September 2017. He previously held the positions of Chief Executive Officer, Latin America from 2015 to September 2017, Chief Executive Officer, PepsiCo Latin America Foods from 2014 to July 20152019 and Senior Vice President and Chief Financial Officer of PepsiCo Americas Foods, a business unit that had previously included the Company’s Frito-Lay North America, Quaker Foods North America and Latin America Foods divisions, from 2012 to 2014. Prior to joining PepsiCo in 2012, Mr. Narasimhan spent 19 years at McKinsey & Company, where he served in various positions, including as a director and location manager of the New Delhi office and co-leader of the global consumer and shopper insights practice.
Silviu Popovici, 51, was appointed President, Europe Sub-Saharan Africa effective September 2017.from 2017 to early 2019. Mr. Popovici previously served as President, Russia, Ukraine and CIS (The Commonwealth of Independent States) from August 2015 to September 2017, and as President, PepsiCo Russia from January 2013 to July 2015. Mr. Popovici joined PepsiCo in 2011 following PepsiCo’s acquisition of Wimm-Bill-Dann Foods OJSC (WBD) and served as General Manager, WBD Foods Division from February 2011 until December 2012. Prior to the acquisition, Mr. Popovici held senior leadership roles at WBD, running its dairy business from 2008 to 2011 and its beverages business from 2006 to 2008.
Vivek Sankaran, 56,Paula Santilli was appointed Chief Executive Officer, Frito-Lay NorthLatin America, effective January 2019. Prior to that, Mr. SankaranPreviously, she served in various leadership positions at PepsiCo Mexico Foods, as President andfrom 2017 to 2019, as Chief Operating Officer Frito-Lay North America from April 2016 to December 2018; Chief Operating Officer, Frito-Lay North America from February 2016 to April 2016; Chief Commercial Officer, North America from 2014 to February 2016; Chief Customer Officer for Frito-Lay North America from 2012 to 2014; Senior2017 and as Vice President and General Manager Frito-Lay North America’s South business unit from 2011 to 2012; and Senior Vice President, Corporate Strategy and Development from 2009 to 2010.2016. Prior to joining PepsiCo Mexico Foods, she held a variety of roles, including leadership positions in 2009, Mr. Sankaran was a partner at McKinsey & Company, where he advised Fortune 100 companies with a focus on retailBeverages in Mexico, as well as in Foods and high techSnacks in the Latin America Southern Cone region comprising Argentina, Uruguay and co-ledParaguay. Ms. Santilli joined PepsiCo in 2001 following PepsiCo’s acquisition of the North America purchasingQuaker Oats Company. At Quaker, she held various roles of increasing responsibility from 1992 to 2001, including running the regional Quaker Foods and supply management practice.Gatorade businesses in Argentina, Chile and Uruguay.
Ronald Schellekens, 54, was appointed Executive Vice President and Chief Human Resources Officer, PepsiCo, effective Decemberin 2018. Prior to that, Mr. Schellekens served as Group HR Director of Vodafone Group Services Limited from 2009 to December 2018, where he was responsible for the Vodafone Human Resource Management function, as well as health and safety, and property and real estate functions. Prior to joining Vodafone, Mr. Schellekens was executive vice president, human resources for the global downstream division of Royal Dutch Shell Plc. Prior to that, he worked for PepsiCo for nine years from 1994 to 2003 in various international, senior human resources roles, including assignments in Switzerland, Spain, South Africa, the United Kingdom and Poland, where he was most recently responsible for the Europe, Middle East & Africa region for PepsiCo Foods International. Prior to that, he served for nine years at AT&T Inc. in Human Resources.
Mike Spanos,54,Kirk Tanner was appointed Chief Executive Officer, Asia, Middle East and North Africa, effective January 2018. Mr. Spanos previously served as interim head of PepsiCo’s Asia, Middle East and North Africa division from October 2017 to January 2018 and as President and Chief Executive Officer, PepsiCo Greater China Region, from September 2014 to January 2018. Prior to that, Mr. Spanos served as Senior Vice President and Chief Customer Officer, PepsiCoBeverages North America, Beverages from October 2011 to September 2014, as Senior Vice President and General Manager, PepsiCo Beverages Company’s West business unit from March 2011 to October 2011 and as Senior Vice President, Retail Sales and Execution, PepsiCo Beverages Company from March 2010 to March 2011. Mr. Spanos joined PepsiCo in 1993 as a territory sales manager and unit manager in the Philadelphia market unit and served in various other leadership roles through March 2010. Prior to joining PepsiCo, Mr. Spanos served in the United States Marines Corps from 1987 to 1993, and with Tallahassee Medical Company as a sales representative in 1993.
Kirk Tanner, 50, was appointed Chief Executive Officer, North America Beverages, effective January 2019. Prior to that, Mr. Tanner served as President and Chief Operating Officer, North America Beverages from April 2016 to December 2018;2018, Chief Operating Officer, North America Beverages and President, Global Foodservice from December 2015 to April 2016, and President, Global Foodservice from 2014 to December 2015. Mr. Tanner joined PepsiCo in 1992, where he has worked in numerous domestic and international locations and in a variety of roles, including senior vice presidentSenior Vice President of Frito-Lay North America’s West region from 2009 to 2013; vice president, sales2013, Vice President, Sales of PepsiCo UKU.K. and Ireland from 2008 to 2009; region vice president,2009, Region Vice President of Frito-Lay North America’s Mountain region from 2005 to 2008; region vice president,2008, Region Vice President of Frito-Lay North America’s Mid-America region from 2002 to 2005;2005 and region vice president,Region Vice President of Frito-Lay North America’s California region from 2000 to 2002.
David Yawman,50, Eugene Willemsen was appointed Chief Executive Officer, Africa, Middle East, South Asia, effective 2019. Previously he served as Chief Executive Officer, Sub-Saharan Africa in 2019 and as Executive Vice President, Government Affairs, General CounselGlobal Categories and Corporate Secretary, PepsiCo effective October 2017.Franchise Management from 2015 to 2019. Before that, he led the global Pepsi-Lipton Joint Venture as President from 2014 to 2015. Prior to that,such role, Mr. YawmanWillemsen served as PepsiCo’s Senior Vice President and General Manager, South East Europe from 2011 to 2013, as Senior Vice President and Deputy General Counsel for PepsiCo and General Counsel for North America and CorporateManager, Commercial, Europe from July 20172008 to October 2017. He previously served2011, as Senior Vice President and General Manager, Northern Europe from 2006 to 2008, as Vice President, General Manager, Benelux from 2000 to 2005 and as Commercial Director, Benelux for the snacks business from 1998 to 2000. Mr. Willemsen joined PepsiCo Deputy General Counsel, General Counsel, North America Beverages and Quakerin 1995 as a business development manager.
Steven Williams was appointed Chief Executive Officer, PepsiCo Foods North America, from July 2015effective 2019. Prior to July 2017,this role, Mr. Williams served in leadership positions for Frito-Lay’s U.S. operations, as Senior Vice President, PepsiCo DeputyCommercial Sales and Chief Commercial Officer from 2017 to 2019 and as General Counsel, General Counsel, PepsiCo America
Beverages from April 2014 to July 2015, asManager and Senior Vice President, PepsiCo Chief Compliance and Ethics OfficerEast Division from March 20122016 to April 2014 and as Senior Vice President, General Counsel, Pepsi Beverages Company from February 2010 to March 2012.2017. Prior to that, he served five years in the law department of The Pepsi Bottling Group, Inc. (PBG)as General Manager and priorSenior Vice President, Customer Management for PepsiCo’s global Walmart business from 2013 to that, was a member of PepsiCo’s corporate law department2016, as Sales Senior Vice President, North American Nutrition from the time he2011 to 2013 and as Vice President, Sales, Central Division from 2009 to 2011. Mr. Williams joined PepsiCo in 1998 until 2003.2001 as a part of PepsiCo’s acquisition of the Quaker Oats Company, which he joined in 1997 and has held leadership positions of increasing responsibility in sales and customer management.
Executive officers are elected by our Board of Directors, and their terms of office continue until the next annual meeting of the Board or until their successors are elected and have qualified. There are no family relationships among our executive officers.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Stock Trading Symbol – PEPPEP.
Stock Exchange Listings – The Nasdaq Global Select Market is the principal market for our common stock, which is also listed on the SIX Swiss Exchange.
Shareholders – As of February 8, 2019,3, 2022, there were approximately 114,513101,778 shareholders of record of our common stock.
Dividends – We have paid consecutive quarterly cash dividends since 1965. The declaration and payment of future dividends are at the discretion of the Board of Directors. Dividends are usually declared in February, May, July and November and paid at the end of March, June and September and the beginning of January. On February 13, 2019,2, 2022, the Board of Directors declared a quarterly dividend of $0.9275$1.075 per share payable March 29, 2019,31, 2022, to shareholders of record on March 1, 2019.4, 2022. For the remainder of 2019,2022, the dividend record dates for these dividend payments are expected to be June 7,3, September 62 and December 6, 2019,2, 2022, subject to approval of the Board of Directors. On February 10, 2022, we announced a 7% increase in our annualized dividend to $4.60 per share from $4.30 per share, effective with the dividend expected to be paid in June 2022.
Additionally, on February 10, 2022, we announced a share repurchase program providing for the repurchase of up to $10.0 billion of PepsiCo common stock commencing on February 11, 2022 and expiring on February 28, 2026 (2022 share repurchase program). Shares repurchased under this program may be repurchased in open market transactions, in privately negotiated transactions, in accelerated stock repurchase transactions or otherwise. We expect to return a total of approximately $7.7 billion to shareholders in 2022, comprising dividends of approximately $6.2 billion and share repurchases of approximately $1.5 billion.
For information on securities authorized for issuance under our equity compensation plans, see “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
A summary of our common stock repurchases (in millions, except average price per share) during the fourth quarter of 2018 is set forth in the table below.28
Issuer Purchases of Common Stock |
| | | | | | | | | | | | | |
Period | Total Number of Shares Repurchased(a) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(b) |
9/8/2018 | | | | | | | $ | 14,631 |
|
| | | | | | | |
9/9/2018 - 10/6/2018 | 1.3 |
| | $ | 112.64 |
| | 1.3 |
| | (147 | ) |
| | | | | | | 14,484 |
|
10/7/2018 - 11/3/2018 | 1.3 |
| | $ | 110.39 |
| | 1.3 |
| | (145 | ) |
| | | | | | | 14,339 |
|
11/4/2018 - 12/1/2018 | 1.4 |
| | $ | 116.68 |
| | 1.4 |
| | (163 | ) |
| | | | | | | 14,176 |
|
12/2/2018 - 12/29/2018 | 0.8 |
| | $ | 116.99 |
| | 0.8 |
| | (92 | ) |
Total | 4.8 |
| | $ | 113.91 |
| | 4.8 |
| | $ | 14,084 |
|
| |
(a) | All shares were repurchased in open market transactions pursuant to publicly announced repurchase programs. |
| |
(b) | Represents shares authorized for repurchase under the $15 billion repurchase program authorized by our Board of Directors and publicly announced on February 13, 2018, which commenced on July 1, 2018 and will expire on June 30, 2021. Such shares may be repurchased in open market transactions, in privately negotiated transactions, in accelerated stock repurchase transactions or otherwise. |
Item 6. Selected Financial Data.
Five-Year Summary
(unaudited, in millions except per share amounts)
The following selected financial data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and accompanying notes thereto. Our fiscal year ends on the last Saturday of each December and our fiscal year 2016 comprised fifty-three reporting weeks while all other fiscal years presented in the tables below comprised fifty-two reporting weeks.
|
| | | | | | | | | | | | | | | | | | | |
| 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
Net revenue (a) | $ | 64,661 |
| | $ | 63,525 |
| | $ | 62,799 |
| | $ | 63,056 |
| | $ | 66,683 |
|
Operating profit (b) | $ | 10,110 |
| | $ | 10,276 |
| | $ | 9,804 |
| | $ | 8,274 |
| | $ | 9,755 |
|
(Benefit from)/provision for income taxes (c) | $ | (3,370 | ) | | $ | 4,694 |
| | $ | 2,174 |
| | $ | 1,941 |
| | $ | 2,199 |
|
Net income attributable to PepsiCo (c) | $ | 12,515 |
| | $ | 4,857 |
| | $ | 6,329 |
| | $ | 5,452 |
| | $ | 6,513 |
|
Net income attributable to PepsiCo per common share – basic (c) | $ | 8.84 |
| | $ | 3.40 |
| | $ | 4.39 |
| | $ | 3.71 |
| | $ | 4.31 |
|
Net income attributable to PepsiCo per common share – diluted (c) | $ | 8.78 |
| | $ | 3.38 |
| | $ | 4.36 |
| | $ | 3.67 |
| | $ | 4.27 |
|
Cash dividends declared per common share | $ | 3.5875 |
| | $ | 3.1675 |
| | $ | 2.96 |
| | $ | 2.7625 |
| | $ | 2.5325 |
|
Total assets | $ | 77,648 |
| | $ | 79,804 |
| | $ | 73,490 |
| | $ | 68,976 |
| | $ | 69,634 |
|
Long-term debt | $ | 28,295 |
| | $ | 33,796 |
| | $ | 30,053 |
| | $ | 29,213 |
| | $ | 23,821 |
|
| |
(a) | Our fiscal 2016 results included an extra week of results (53rd reporting week). The 53rd reporting week increased 2016 net revenue by $657 million, including $294 million in our FLNA segment, $43 million in our QFNA segment, $300 million in our NAB segment and $20 million in our ESSA segment.
|
| |
(b) | Our fiscal results prior to 2018 reflect the retrospective adoption of guidance requiring the presentation of non-service cost components of net periodic benefit cost below operating profit. See Note 2 to our consolidated financial statements.
|
| |
(c) | Our fiscal 2018 results include other net tax benefits related to the reorganization of our international operations. Our fiscal 2018 and 2017 results include the impact of the TCJ Act. See Note 5 to our consolidated financial statements. |
The following information highlights certain items that impacted our results of operations and financial condition for the five years presented above:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 |
| Operating profit | | Other pension and retiree medical benefits income | | Interest expense | | Benefit from income taxes(d) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo | | Net income attributable to PepsiCo per common share – diluted |
Mark-to-market net impact (e) | $ | (163 | ) | | $ | — |
| | $ | — |
| | $ | 38 |
| | $ | — |
| | $ | (125 | ) | | $ | (0.09 | ) |
Restructuring and impairment charges (f) | $ | (272 | ) | | $ | (36 | ) | | $ | — |
| | $ | 56 |
| | $ | 1 |
| | $ | (251 | ) | | $ | (0.18 | ) |
Merger and integration charges (g) | $ | (75 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (75 | ) | | $ | (0.05 | ) |
Net tax benefit related to the TCJ Act (h) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 28 |
| | $ | — |
| | $ | 28 |
| | $ | 0.02 |
|
Other net tax benefits (i) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5,064 |
| | $ | — |
| | $ | 5,064 |
| | $ | 3.55 |
|
Charges related to cash tender and exchange offers (j) | $ | — |
| | $ | — |
| | $ | (253 | ) | | $ | 62 |
| | $ | — |
| | $ | (191 | ) | | $ | (0.13 | ) |
Tax reform bonus (k) | $ | (87 | ) | | $ | — |
| | $ | — |
| | $ | 21 |
| | $ | — |
| | $ | (66 | ) | | $ | (0.05 | ) |
Gains on beverage refranchising (l) | $ | 202 |
| | $ | — |
| | $ | — |
| | $ | (30 | ) | | $ | — |
| | $ | 172 |
| | $ | 0.12 |
|
Gains on sale of assets (m) | $ | 76 |
| | $ | — |
| | $ | — |
| | $ | (19 | ) | | $ | — |
| | $ | 57 |
| | $ | 0.04 |
|
|
| | | | | | | | | | | | | | | | | | | |
| 2017 |
| Operating profit(b) | | Other pension and retiree medical benefits income(b) | | Provision for income
taxes(d) | | Net income attributable to PepsiCo | | Net income attributable to PepsiCo per common share – diluted |
Mark-to-market net impact (e) | $ | 15 |
| | $ | — |
| | $ | (7 | ) | | $ | 8 |
| | $ | 0.01 |
|
Restructuring and impairment charges (f) | $ | (229 | ) | | $ | (66 | ) | | $ | 71 |
| | $ | (224 | ) | | $ | (0.16 | ) |
Provisional net tax expense related to the TCJ Act (h) | $ | — |
| | $ | — |
| | $ | (2,451 | ) | | $ | (2,451 | ) | | $ | (1.70 | ) |
Gain on sale of Britvic plc (Britvic) securities (n) | $ | 95 |
| | $ | — |
| | $ | (10 | ) | | $ | 85 |
| | $ | 0.06 |
|
Gain on beverage refranchising (l) | $ | 140 |
| | $ | — |
| | $ | (33 | ) | | $ | 107 |
| | $ | 0.07 |
|
Gain on sale of assets (m) | $ | 87 |
| | $ | — |
| | $ | (25 | ) | | $ | 62 |
| | $ | 0.04 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2016 |
| Operating profit(b) | | Other pension and retiree medical benefits expense(b) | | Interest expense | | Provision for income taxes(d) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo | | Net income attributable to PepsiCo per common share – diluted |
Mark-to-market net impact (e) | $ | 167 |
| | $ | — |
| | $ | — |
| | $ | (56 | ) | | $ | — |
| | $ | 111 |
| | $ | 0.08 |
|
Restructuring and impairment charges (f) | $ | (155 | ) | | $ | (5 | ) | | $ | — |
| | $ | 26 |
| | $ | 3 |
| | $ | (131 | ) | | $ | (0.09 | ) |
Charge related to the transaction with Tingyi (o) | $ | (373 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (373 | ) | | $ | (0.26 | ) |
Charge related to debt redemption (j) | $ | — |
| | $ | — |
| | $ | (233 | ) | | $ | 77 |
| | $ | — |
| | $ | (156 | ) | | $ | (0.11 | ) |
Pension-related settlement charge (p) | $ | — |
| | $ | (242 | ) | | $ | — |
| | $ | 80 |
| | $ | — |
| | $ | (162 | ) | | $ | (0.11 | ) |
53rd reporting week (q) | $ | 126 |
| | $ | — |
| | $ | (19 | ) | | $ | (44 | ) | | $ | (1 | ) | | $ | 62 |
| | $ | 0.04 |
|
|
| | | | | | | | | | | | | | | | | | | |
| 2015 |
| Operating profit(b) | | Other pension and retiree medical benefits income(b) | | Provision for income taxes(d) | | Net income attributable to PepsiCo | | Net income attributable to PepsiCo per common share – diluted |
Mark-to-market net impact (e) | $ | 11 |
| | $ | — |
| | $ | (3 | ) | | $ | 8 |
| | $ | — |
|
Restructuring and impairment charges (f) | $ | (207 | ) | | $ | (23 | ) | | $ | 46 |
| | $ | (184 | ) | | $ | (0.12 | ) |
Charge related to the transaction with Tingyi (o) | $ | (73 | ) | | $ | — |
| | $ | — |
| | $ | (73 | ) | | $ | (0.05 | ) |
Pension-related settlement benefits (p) | $ | 67 |
| | $ | — |
| | $ | (25 | ) | | $ | 42 |
| | $ | 0.03 |
|
Venezuela impairment charges (r) | $ | (1,359 | ) | | $ | — |
| | $ | — |
| | $ | (1,359 | ) | | $ | (0.91 | ) |
Tax benefit (i) | $ | — |
| | $ | — |
| | $ | 230 |
| | $ | 230 |
| | $ | 0.15 |
|
Müller Quaker Dairy (MQD) impairment (s) | $ | (76 | ) | | $ | — |
| | $ | 28 |
| | $ | (48 | ) | | $ | (0.03 | ) |
Gain on beverage refranchising (l) | $ | 39 |
| | $ | — |
| | $ | (11 | ) | | $ | 28 |
| | $ | 0.02 |
|
Other productivity initiatives (t) | $ | (90 | ) | | $ | — |
| | $ | 24 |
| | $ | (66 | ) | | $ | (0.04 | ) |
Joint venture impairment charge (u) | $ | (29 | ) | | $ | — |
| | $ | — |
| | $ | (29 | ) | | $ | (0.02 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2014 |
| Operating profit(b) | | Other pension and retiree medical benefits expense(b) | | Provision for income taxes(d) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo | | Net income attributable to PepsiCo per common share – diluted |
Mark-to-market net impact (e) | $ | (68 | ) | | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | (44 | ) | | $ | (0.03 | ) |
Restructuring and impairment charges (f) | $ | (384 | ) | | $ | (34 | ) | | $ | 99 |
| | $ | 3 |
| | $ | (316 | ) | | $ | (0.21 | ) |
Pension-related settlement charge (p) | $ | — |
| | $ | (141 | ) | | $ | 53 |
| | $ | — |
| | $ | (88 | ) | | $ | (0.06 | ) |
Venezuela remeasurement charge (v) | $ | (105 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (105 | ) | | $ | (0.07 | ) |
Gain on sale of assets (m) | $ | 31 |
| | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | 34 |
| | $ | 0.02 |
|
Other productivity initiatives (t) | $ | (67 | ) | | $ | — |
| | $ | 13 |
| | $ | — |
| | $ | (54 | ) | | $ | (0.04 | ) |
| |
(d) | Benefit from/provision for income taxes is the expected tax benefit/charge on the underlying item based on the tax laws and income tax rates applicable to the underlying item in its corresponding tax jurisdiction and tax year. |
| |
(e) | Mark-to-market net gains and losses on commodity derivatives in corporate unallocated expenses. |
| |
(f) | Expenses related to the 2019 Multi-Year Productivity Plan (2019 Productivity Plan), 2014 Multi-Year Productivity Plan (2014 Productivity Plan) and 2012 Multi-Year Productivity Plan (2012 Productivity Plan). See Note 3 to our consolidated financial statements for further discussion of our 2019 and 2014 Productivity Plans. |
| |
(g) | In 2018, merger and integration charges related to our acquisition of SodaStream. $57 million of this charge was recorded in the ESSA segment, with the balance recorded in corporate unallocated expenses. See Note 14 to our consolidated financial statements. |
| |
(h) | In 2018, a net tax benefit and, in 2017, a provisional net tax expense, each associated with the enactment of the TCJ Act. See Note 5 to our consolidated financial statements. |
| |
(i) | In 2018, other net tax benefits of $4.3 billion resulting from the reorganization of our international operations, including the intercompany transfer of certain intangible assets. Also in 2018, non-cash tax benefits of $717 million associated with both the conclusion of certain international tax audits and our agreement with the IRS resolving all open matters related to the audits of taxable years 2012 and 2013. See Note 5 to our consolidated financial statements. In 2015, non-cash tax benefit associated with our agreement with the IRS resolving substantially all open matters related to the audits for taxable years 2010 through 2011, which reduced our reserve for uncertain tax positions for the tax years 2010 through 2011.
|
| |
(j) | In 2018, interest expense in connection with our cash tender and exchange offers, primarily representing the tender price paid over the carrying value of the tendered notes. In 2016, interest expense primarily representing the premium paid in accordance with the “make-whole” redemption provisions to redeem all of our outstanding 7.900% senior notes due 2018 and 5.125% senior notes due 2019 for the principal amounts of $1.5 billion and $750 million, respectively. See Note 8 to our consolidated financial statements.
|
| |
(k) | In 2018, bonus extended to certain U.S. employees in connection with the TCJ Act in the following segments: $44 million in FLNA, $2 million in QFNA and $41 million in NAB. |
| |
(l) | In 2018, gains of $58 million and $144 million associated with refranchising our entire beverage bottling operations and snack distribution operations in Czech Republic, Hungary and Slovakia (CHS) in the ESSA segment and refranchising a portion of our beverage business in Thailand in the AMENA segment, respectively. In 2017, gain in the AMENA segment associated with refranchising a portion of our beverage business in Jordan. See Note 14 to our consolidated financial statements. In 2015, gain in the AMENA segment associated with refranchising a portion of our beverage businesses in India.
|
| |
(m) | In 2018, gains associated with the sale of assets in the following segments: $64 million in NAB and $12 million in AMENA. In 2017, gains associated with the sale of assets in the following segments: $17 million in FLNA, $21 million in NAB, $21 million in AMENA and $28 million in corporate unallocated expenses. In 2014, gain in the ESSA segment associated with the sale of agricultural assets in Russia.
|
| |
(n) | In 2017, gain in the ESSA segment associated with the sale of our minority stake in Britvic. |
| |
(o) | In 2016, impairment charge in the AMENA segment to reduce the value of our 5% indirect equity interest in KSF Beverage Holding Co., Ltd. (KSFB), formerly known as Tingyi-Asahi Beverages Holding Co. Ltd., to its estimated fair value. See Note 9 to our consolidated financial statements. In 2015, write-off in the AMENA segment of the value of a call option to increase our holding in KSFB to 20%. |
| |
(p) | In 2016, pension settlement charge related to the purchase of a group annuity contract. In 2015, benefits in the NAB segment associated with the settlement of pension-related liabilities from previous acquisitions. In 2014, lump sum settlement charge related to payments for pension liabilities to certain former employees who had vested benefits. |
| |
(q) | Our fiscal 2016 results included the 53rd reporting week, the impact of which was fully offset by incremental investments in our business.
|
| |
(r) | In 2015, charges in the Latin America segment related to the impairment of investments in our wholly-owned Venezuelan subsidiaries and beverage joint venture. Beginning in the fourth quarter of 2015, our financial results have not included the results of our Venezuelan businesses. |
| |
(s) | In 2015, impairment charges in the QFNA segment associated with our MQD joint venture investment, including a charge related to ceasing its operations. |
| |
(t) | In 2015 and 2014, expenses related to other productivity initiatives outside the scope of the 2014 and 2012 Productivity Plans. |
| |
(u) | In 2015, impairment charge in the AMENA segment associated with a joint venture in the Middle East. |
| |
(v) | In 2014, net charge related to our remeasurement of the bolivar for certain net monetary assets of our Venezuelan businesses. $126 million of this charge was in corporate unallocated expenses, with the balance (equity income of $21 million) in our Latin America segment. |
Selected Quarterly Financial Data
Selected financial data for 2018 and 2017 is summarized as follows and highlights certain items that impacted our quarterly results (in millions except per share amounts, unaudited):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2017 |
| First Quarter |
| | Second Quarter |
| | Third Quarter |
| | Fourth Quarter |
| | First Quarter |
| | Second Quarter |
| | Third Quarter |
| | Fourth Quarter |
|
Net revenue | $ | 12,562 |
| | $ | 16,090 |
| | $ | 16,485 |
| | $ | 19,524 |
| | $ | 12,049 |
| | $ | 15,710 |
| | $ | 16,240 |
| | $ | 19,526 |
|
Gross profit (a) | $ | 6,907 |
| | $ | 8,827 |
| | $ | 8,958 |
| | $ | 10,588 |
| | $ | 6,759 |
| | $ | 8,651 |
| | $ | 8,872 |
| | $ | 10,447 |
|
Operating profit (a) | $ | 1,807 |
| | $ | 3,028 |
| | $ | 2,844 |
| | $ | 2,431 |
| | $ | 1,863 |
| | $ | 2,919 |
| | $ | 2,924 |
| | $ | 2,570 |
|
Mark-to-market net impact (b) | $ | (31 | ) | | $ | 3 |
| | $ | (29 | ) | | $ | (106 | ) | | $ | (14 | ) | | $ | (26 | ) | | $ | 27 |
| | $ | 28 |
|
Restructuring and impairment charges (c) | $ | (12 | ) | | $ | (32 | ) | | $ | (35 | ) | | $ | (229 | ) | | $ | (27 | ) | | $ | (34 | ) | | $ | (8 | ) | | $ | (226 | ) |
Merger and integration charges (d) | — |
| | — |
| | — |
| | $ | (75 | ) | | — |
| | — |
| | — |
| | — |
|
Net tax (expense)/benefit related to the TCJ Act (e) | $ | (1 | ) | | $ | (777 | ) | | $ | (76 | ) | | $ | 882 |
| | — |
| | — |
| | — |
| | $ | (2,451 | ) |
Other net tax benefits (f) | — |
| | $ | 314 |
| | $ | 364 |
| | $ | 4,386 |
| | — |
| | — |
| | — |
| | — |
|
Charges related to cash tender and exchange offers (g) | — |
| | — |
| | — |
| | $ | (253 | ) | | — |
| | — |
| | — |
| | — |
|
Tax reform bonus (h) | $ | (87 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Gains on beverage refranchising (i) | — |
| | $ | 144 |
| | — |
| | $ | 58 |
| | — |
| | — |
| | — |
| | $ | 140 |
|
Gains on sale of assets (j) | $ | 18 |
| | $ | 9 |
| | $ | 37 |
| | $ | 12 |
| | — |
| | — |
| | $ | 21 |
| | $ | 66 |
|
Gain on sale of Britvic securities (k) | — |
| | — |
| | — |
| | — |
| | — |
| | $ | 95 |
| | — |
| | — |
|
Provision for/(benefit from) income taxes (l) | $ | 304 |
| | $ | 1,070 |
| | $ | 188 |
| | $ | (4,932 | ) | | $ | 392 |
| | $ | 656 |
| | $ | 620 |
| | $ | 3,026 |
|
Net income/(loss) attributable to PepsiCo (l) | $ | 1,343 |
| | $ | 1,820 |
| | $ | 2,498 |
| | $ | 6,854 |
| | $ | 1,318 |
| | $ | 2,105 |
| | $ | 2,144 |
| | $ | (710 | ) |
Net income/(loss) attributable to PepsiCo per common share (l) | | | | | | | | | | | | | | | |
Basic | $ | 0.94 |
| | $ | 1.28 |
| | $ | 1.77 |
| | $ | 4.86 |
| | $ | 0.92 |
| | $ | 1.47 |
| | $ | 1.50 |
| | $ | (0.50 | ) |
Diluted | $ | 0.94 |
| | $ | 1.28 |
| | $ | 1.75 |
| | $ | 4.83 |
| | $ | 0.91 |
| | $ | 1.46 |
| | $ | 1.49 |
| | $ | (0.50 | ) |
Cash dividends declared per common share | $ | 0.805 |
| | $ | 0.9275 |
| | $ | 0.9275 |
| | $ | 0.9275 |
| | $ | 0.7525 |
| | $ | 0.805 |
| | $ | 0.805 |
| | $ | 0.805 |
|
| |
(a) | In 2017, reflect the retrospective adoption of guidance requiring the presentation of non-service cost components of net periodic benefit cost below operating profit. See Note 2 to our consolidated financial statements. |
| |
(b) | Mark-to-market net gains and losses on commodity derivatives in corporate unallocated expenses. |
| |
(c) | Expenses related to the 2019 and 2014 Productivity Plans. See Note 3 to our consolidated financial statements. |
| |
(d) | In 2018, merger and integration charges related to our acquisition of SodaStream. $57 million of this charge was recorded in the ESSA segment, with the balance recorded in corporate unallocated expenses. See Note 14 to our consolidated financial statements. |
| |
(e) | In 2018, a net tax benefit and, in 2017, a provisional net tax expense, each associated with the enactment of the TCJ Act. See Note 5 to our consolidated financial statements.
|
| |
(f) | In 2018, other net tax benefits of $4.3 billion resulting from the reorganization of our international operations. Also in 2018, non-cash tax benefits of $717 million associated with both the conclusion of certain international tax audits and our agreement with the IRS resolving all open matters related to the audits of taxable years 2012 and 2013. See Note 5 to our consolidated financial statements. |
| |
(g) | In 2018, interest expense in connection with our cash tender and exchange offers. See Note 8 to our consolidated financial statements. |
| |
(h) | In 2018, bonus extended to certain U.S. employees in connection with the TCJ Act in the following segments: $44 million in FLNA, $2 million in QFNA and $41 million in NAB. |
| |
(i) | In 2018, gains of $58 million and $144 million associated with refranchising our entire beverage bottling operations and snack distribution operations in CHS in the ESSA segment and refranchising a portion of our beverage business in Thailand in the AMENA segment, respectively. In 2017, gain in the AMENA segment associated with refranchising a portion of our beverage business in Jordan. See Note 14 to our consolidated financial statements.
|
| |
(j) | In 2018, gains associated with the sale of assets in the following segments: $64 million in NAB and $12 million in AMENA. In 2017, gains associated with the sale of assets in the following segments: $17 million in FLNA, $21 million in NAB, $21 million in AMENA and $28 million in corporate unallocated expenses.
|
| |
(k) | In 2017, gain in the ESSA segment associated with the sale of our minority stake in Britvic. See Note 9 to our consolidated financial statements. |
| |
(l) | Our fiscal 2018 results include other net tax benefits related to the reorganization of our international operations. Our fiscal 2018 and 2017 results include the impact of the TCJ Act. See Note 5 to our consolidated financial statements. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
| | | | | |
OUR BUSINESS | |
Executive Overview | |
Our Operations | |
Other Relationships | |
Our Business Risks | |
OUR FINANCIAL RESULTS | |
Results of Operations – Consolidated Review | |
Non-GAAP Measures | |
Items Affecting Comparability | |
Results of Operations – Division Review | |
Frito-Lay North AmericaFLNA | |
Quaker Foods North AmericaQFNA | |
North America BeveragesPBNA | |
Latin AmericaLatAm | |
Europe Sub-Saharan Africa | |
Asia, Middle East and North AfricaAMESA | |
APAC | |
Results of Operations – Other Consolidated Results | |
Non-GAAP Measures | |
Items Affecting Comparability | |
Our Liquidity and Capital Resources | |
Return on Invested Capital | |
OUR CRITICAL ACCOUNTING POLICIES AND ESTIMATES | |
Revenue Recognition | |
Goodwill and Other Intangible Assets | |
Income Tax Expense and Accruals | |
Pension and Retiree Medical Plans | |
Consolidated Statement of IncomeCONSOLIDATED STATEMENT OF INCOME | |
Consolidated Statement of Comprehensive IncomeCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |
Consolidated Statement of Cash FlowsCONSOLIDATED STATEMENT OF CASH FLOWS | |
Consolidated Balance SheetCONSOLIDATED BALANCE SHEET | |
Consolidated Statement of EquityCONSOLIDATED STATEMENT OF EQUITY | |
Notes to Consolidated Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
Note 1 – Basis of Presentation and Our Divisions | |
Note 2 – Our Significant Accounting Policies | |
Note 3 – Restructuring and Impairment Charges | |
Note 4 – Property, Plant and Equipment and Intangible Assets | |
Note 5 – Income Taxes | |
Note 6 – Share-Based Compensation | |
Note 7 – Pension, Retiree Medical and Savings Plans | |
Note 8 – Debt Obligations | |
Note 9 – Financial Instruments | |
Note 10 – Net Income Attributable to PepsiCo per Common Share | |
Note 11 – Preferred Stock | |
Note 1211 – Accumulated Other Comprehensive Loss Attributable to PepsiCo | |
Note 1312 – Restricted CashLeases | |
Note 1413 – Acquisitions and Divestitures | |
Note 1514 – Supplemental Financial Information | |
Management’s Responsibility for Financial Reporting | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |
Report of Independent Registered Public Accounting FirmGLOSSARY | |
GLOSSARY | |
Our discussion and analysis is intended to help the reader understand our results of operations and financial condition and is provided as an addition to, and should be read in connection with, our consolidated financial statements and the accompanying notes. Definitions of key terms can be found in the glossary. TabularUnless otherwise noted, tabular dollars are presented in millions, except per share amounts. All per share amounts reflect common stock per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts. Percentage changes are based on unrounded amounts.
Discussion in this Form 10-K includes results of operations and financial condition for 2021 and 2020 and year-over-year comparisons between 2021 and 2020. For discussion on results of operations and financial condition pertaining to 2019 and year-over-year comparisons between 2020 and 2019, please refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 26, 2020.
OUR BUSINESS
Executive Overview
We arePepsiCo is a leading global foodbeverage and beverageconvenient food company with a complementary portfolio of brands, including Frito-Lay,Lays, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and Tropicana.SodaStream. Through our operations, authorized bottlers, contract manufacturers and other third parties, we make, market, distribute and sell a wide variety of beverages and convenient beverages, foods, and snacks, serving customers and consumers in more than 200 countries and territories.
At PepsiCo,As a global company with deep local ties, we are focused on an approach called Winning with Purpose that will help makefaced many of the same challenges in 2021 as our company faster, strongerconsumers, customers, and better at meetingcompetitors across the needsworld, including the second year of our customers, consumers, partners and communities, while caring for our planet and inspiring our associates.
Our strategies are designed to address key challenges facing our Company, including:the COVID-19 pandemic; a worsening climate crisis; supply chain disruptions; inflationary pressures; shifting consumer preferences and behaviors; a highly competitive operating environment; a rapidly changing retail landscape, including the growth in e-commerce; continued macroeconomic and political volatility; and an evolving regulatory landscape.
We intend to focus onTo meet the following areas to addresschallenges of today – and adapt to these challenges:
Winning in the marketplace and accelerating growththose of tomorrow – we are driven by strengthening and broadening our portfolio, while focusing on locally meeting the needsan approach called PepsiCo Positive (pep+). pep+ is a strategic end-to-end transformation of our consumersbusiness, with sustainability at the center of how the company will strive to create growth and customers;
Continuing to implement our productivity initiatives to improve our operational efficiencyvalue by operating within planetary boundaries and enhance our competitive advantage while continuinginspiring positive change for the planet and people. pep+ will guide how we will work to transform our core capabilitiesbusiness operations, from sourcing ingredients and making and selling products in a more sustainable way, to leveraging our more than one billion connections with technologyconsumers each day to take sustainability mainstream and buildingengage people to make choices that are better for themselves and retainingthe planet.
pep+ drives action and progress across three key pillars, bringing together a talented workforcenumber of industry-leading 2030 sustainability goals under a comprehensive framework:
•Positive Agriculture: We are working to drive cost savings;spread regenerative practices to restore the Earth across land equal to the company's entire agricultural footprint (approximately 7 million acres), sustainably source key crops and ingredients, and improve the livelihoods of more people in our agricultural supply chain.
Continuing•Positive Value Chain: We are working to lead with purposebuild a circular and inclusive value chain through actions to: achieve net-zero emissions by focusing2040; become net water positive by 2030; and introduce more sustainable packaging into the value chain. Our packaging goals include cutting virgin plastic per serving, using recycled content in our plastic packaging, and scaling our SodaStream business globally, an innovative platform that almost entirely eliminates the need for beverage packaging, among other levers. Additionally, we are making progress on our impact ondiversity, equity and inclusion journey. And we have introduced a new global workforce volunteering program, One Smile at a
Time, to encourage, support and empower each one of our approximately 309,000 employees to make positive impacts in their local communities.
•Positive Choices: We continue working to evolve our portfolio of beverage and convenient food products so that they are better for the planet and people, including by incorporating more diverse ingredients in both new and existing food products that are better for the planet and/or deliver nutritional benefits, prioritizing chickpeas, plant-based proteins and whole grains; expanding our people, assistingposition in establishingthe nuts & seeds category, where PepsiCo is already the global branded leader, including leadership positions in Mexico, China and several Western European markets; and accelerating our reduction of added sugars and sodium through the use of science-based targets across our portfolio and cooking our food offerings with healthier oils. We are also continuing to scale new business models that require little or no single-use packaging, including SodaStream – an icon of a Positive Choice and the largest sparkling water brand in the world by volume. SodaStream, already sold in more sustainable food system, minimizing our impact onthan 40 countries, and its new SodaStream Professional platform is expected to expand into functional beverages and reach additional markets by the environment, protecting human rights and securing supply while positioning our Company for sustainable growth.end of 2022, part of the brand's effort to help consumers avoid plastic bottles.
We believe these priorities will position our Company for long-term sustainable growth.
See also “Item 1A. Risk Factors” for additionalfurther information about risks and uncertainties that the Company faces.
Our Operations
See “Item 1. Business” for information on our divisions and a description of our distribution network, ingredients and other supplies, brands and intellectual property rights, seasonality, customers, competition and competition.human capital. In addition, see Note 1 to our consolidated financial statements for financial information about our divisions and geographic areas.
Other Relationships
Certain members of our Board of Directors also serve on the boards of certain vendors and customers. These Board members do not participate in our vendor selection and negotiations nor in our customer negotiations. Our transactions with these vendors and customers are in the normal course of business and are consistent with terms negotiated with other vendors and customers. In addition, certain of our employees serve on the boards of Pepsi Bottling Ventures LLC and other affiliated companies of PepsiCo and do not receive incremental compensation for such services.
Our Business Risks
COVID-19
Our global operations continue to expose us to risks associated with the COVID-19 pandemic, which continues to result in challenging operating environments and has affected almost all of the more than 200 countries and territories in which our products are made, manufactured, distributed or sold. Numerous measures have been implemented around the world to try to reduce the spread of the virus, including travel bans and restrictions, quarantines, curfews, restrictions on public gatherings, shelter in place and safer-at-home orders, business shutdowns and closures. These measures have impacted and will continue to impact us, our customers (including foodservice customers), consumers, employees, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third parties with whom we do business, which may continue to result in changes in demand for our products, increases in operating costs (whether as a result of changes to our supply chain or increases in employee costs, including expanded benefits and frontline incentives, costs associated with the provision of personal protective equipment and increased sanitation, or otherwise), or adverse impacts to our supply chain through labor shortages, raw
material shortages or reduced availability of air or other commercial transport, port closures or border restrictions, any of which can impact our ability to make, manufacture, distribute and sell our products. In addition, measures that impact our ability to access our offices, plants, warehouses, distribution centers or other facilities, or that impact the ability of our business partners to do the same or the inability of a significant portion of our or our business partners’ workforce to work because of illness, absenteeism, quarantine, vaccine mandates, or travel or other governmental restrictions, may continue to impact the availability or productivity of our and their employees, many of whom are not able to perform their job functions remotely.
Public concern regarding the risk of contracting COVID-19 has impacted and may continue to impact demand from consumers, including due to consumers not leaving their homes or leaving their homes less often than they did prior to the start of the pandemic or otherwise shopping for and consuming food and beverage products in a different manner than they historically have or because some of our consumers have lower discretionary income due to unemployment or reduced or limited work as a result of measures taken in response to the pandemic. Even as governmental restrictions are relaxed and economies gradually, partially, or fully reopen in certain of these jurisdictions and markets, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels and shopping and consumption preferences. Changes in consumer purchasing and consumption patterns may increase demand for our products in one quarter, resulting in decreased demand for our products in subsequent quarters, or in a lower-margin sales channel resulting in potentially reduced profit from sales of our products. We continue to see shifts in product and channel preferences as markets move through varying stages of restrictions and re-opening at different times, including changes in at-home consumption, in immediate consumption and away-from-home channels, such as convenience and gas and foodservice. In addition, we continue to see an increase in demand in the e-commerce and online-to-offline channels and any failure to capitalize on this demand could adversely affect our ability to maintain and grow sales or category share and erode our competitive position.
Any reduced demand for our products or change in consumer purchasing and consumption patterns, as well as continued economic uncertainty (including supply chain disruptions and labor shortages), can adversely affect our customers’ and business partners’ financial condition, which can result in bankruptcy filings and/or an inability to pay for our products, reduced or canceled orders of our products, continued or additional closing of restaurants, stores, entertainment or sports complexes, schools or other venues in which our products are sold, or reduced capacity at any of the foregoing, or our business partners’ inability to supply us with ingredients or other items necessary for us to make, manufacture, distribute or sell our products. Such adverse changes in our customers’ or business partners’ financial condition have also resulted and may continue to result in our recording additional charges for our inability to recover or collect any accounts receivable, owned or leased assets, including certain foodservice and vending and other equipment, or prepaid expenses. In addition, continued economic uncertainty associated with the COVID-19 pandemic has resulted in volatility in the global capital and credit markets which can impair our ability to access these markets on terms commercially acceptable to us, or at all.
While we have developed and implemented and continue to develop and implement health and safety protocols, business continuity plans and crisis management protocols in an effort to mitigate the negative impact of COVID-19 to our employees and our business, the extent of the impact of the pandemic on our business and financial results will continue to depend on numerous evolving factors that we are not able to accurately predict and which will vary by jurisdiction and market, including the duration and scope of the pandemic, the emergence and spread of new variants of the virus, including the omicron and delta variants, the development and availability of effective treatments and vaccines, the speed at which vaccines are administered, the efficacy of vaccines against the virus and evolving strains or variants of the virus, global economic conditions during and after the pandemic, governmental actions that have been
taken, or may be taken in the future, in response to the pandemic and changes in consumer behavior in response to the pandemic, some of which may be more than just temporary.
Risks Associated with Commodities and Our Supply Chain
Many of the commodities used in the production and transportation of our products are purchased in the open market. The prices we pay for such items are subject to fluctuation, and we manage this risk through the use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments, including swaps and futures. During 2021, we experienced higher than anticipated transportation and commodity costs, which we expect to continue in 2022. A number of external factors, including the COVID-19 pandemic, adverse weather conditions, supply chain disruptions (including raw material shortages) and labor shortages, have impacted and may continue to impact transportation and commodity availability and costs. When prices increase, we may or may not pass on such increases to our customers without suffering reduced volume, revenue, margins and operating results.
See Note 9 to our consolidated financial statements for further information on how we manage our exposure to commodity prices.
Risks Associated with Climate Change
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased legal and regulatory requirements to reduce or mitigate the potential effects of climate change, including regulation of greenhouse gas emissions and potential carbon pricing programs. These new or increased legal or regulatory requirements could result in significant increased costs of compliance and additional investments in facilities and equipment. However, we are unable to predict the scope, nature and timing of any new or increased environmental laws and regulations and therefore cannot predict the ultimate impact of such laws and regulations on our business or financial results. We continue to monitor existing and proposed laws and regulations in the jurisdictions in which our products are made, manufactured, distributed and sold and to consider actions we may take to potentially mitigate the unfavorable impact, if any, of such laws or regulations.
Risks Associated with International Operations
We are subject to risks in the normal course of business.business that are inherent to international operations. During 2018 and 2017,the periods presented in this report, certain jurisdictions in which our products are made, manufactured, distributed or sold, including in certain developing and emerging markets, operated in a challenging environment, experiencing unstable economic, political and social conditions, civil unrest, natural disasters, debt and credit issues and currency controls or fluctuations. We continue to monitor the economic, operating and political environment in these markets closely and to identify actions to potentially mitigate any unfavorable impacts on our future results.
In addition, certainImposition of Taxes and Regulations on our Products
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased taxes or regulations on the manufacture, distribution or sale of our products or their packaging, ingredients or substances contained in, or attributes of, our products or their packaging, commodities used in the production of our products or their packaging or the recyclability or recoverability of our packaging. These taxes and regulations vary in scope and form. For example, some taxes apply to all beverages, including non-caloric beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar). In addition, COVID-19 has resulted in increased regulatory focus on labeling in certain jurisdictions, including in Mexico which enacted product labeling requirements and limitations on the marketing of certain of our products as a result of ingredients or substances contained in such products. Further, some regulations apply to all products using certain types of packaging (e.g., plastic), while others are designed to increase the sustainability of packaging, and
encourage waste reduction and increased recycling rates.rates or facilitate the waste management process or restrict the sale of products in certain packaging.
We sell a wide variety of beverages foods and snacksconvenient foods in more than 200 countries and territories and the profile of the products we sell, the amount of revenue attributable to such products and the type of packaging used variesvary by jurisdiction. Because of this, we cannot predict the scope or form potential taxes, regulations or other limitations on our products or their packaging may take, and therefore cannot predict the impact of such taxes, regulations or limitations on our financial results. In addition, taxes, regulations and limitations may impact us and our competitors differently. We continue to monitor existing and proposed taxes and regulations in the jurisdictions in which our products are made, manufactured, distributed and sold and to consider actions we may take to potentially mitigate the unfavorable impact, if any, of such taxes, regulations or limitations, including advocating alternative measures with respect to the imposition, form and scope of any such taxes, regulations or limitations.
In addition, ourRetail Landscape
Our industry continues to be affected by disruption of the retail landscape, including the rapid growth in sales through e-commerce websites and mobile commerce applications, including through subscription services, the integration of physical and digital operations among retailers and the international expansion of hard discounters. We have seen and expect to continue to see a further shift to e-commerce, online-to-offline and other online purchasing by consumers, including as a result of the COVID-19 pandemic. We continue to monitor changes in the retail landscape and seek to identify actions we may take to build our global e-commerce and digital capabilities, such as expanding our direct-to-consumer business, and distribute our products effectively through all existing and emerging channels of trade and potentially mitigate any unfavorable impacts on our future results.
During the fourth quarter of 2017, the TCJ Act was enacted in the United States. As a result of the enactment of the TCJ Act, we recognized a provisional net tax expense of $2.5 billion in the fourth quarter of 2017. In 2018, we recognized a net tax benefit of $28 million in connection with the TCJ Act. See further information in “Items Affecting Comparability.” While our accounting for the recorded impact of the TCJ Act is deemed to be complete, these amounts are based on prevailing regulations and currently available information, and any additional guidance issued by the IRS could impact the aforementioned amounts in future periods. For
additional information, see “Our Liquidity and Capital Resources,” “Our Critical Accounting Policies” and Note 5 to our consolidated financial statements.
See also “Item 1A. Risk Factors,” “Executive Overview” above and “Market Risks” below for more information about these risks and the actions we have taken to address key challenges.
Risk Management Framework
The achievement of our strategic and operating objectives involves taking risks and that those risks may evolve over time. To identify, assess, prioritize, address, manage, monitor and communicate these risks across the Company’s operations, we leverage an integrated risk management framework. This framework includes the following:
•PepsiCo’s Board of Directors has oversight responsibility for PepsiCo’s integrated risk management framework. One of the Board’s primary responsibilities is overseeing and interacting with senior management with respect to key aspects of the Company’s business, including risk assessment and risk mitigation of the Company’s top risks. The Board receives updates on key risks throughout the year, including risks related to food safety and cybersecurity. During 2021, in addition to COVID-19 discussions as part of risk updates to the Board and the relevant Committees, the Board was provided with updates on COVID-19’s impact to our business, financial condition and operations through memos, teleconferences or other appropriate means of communication. In addition, the Board has tasked designated Committees of the Board with oversight of certain categories of risk management, and the Committees report to the Board regularly on these matters.
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◦ | The Audit Committee of the Board reviews and assesses the guidelines and policies governing PepsiCo’s risk management and oversight processes, and assists the Board’s oversight of financial, compliance and employee safety risks facing PepsiCo; |
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◦ | The Compensation Committee of the Board reviews PepsiCo’s employee compensation policies and practices to assess whether such policies and practices could lead to unnecessary risk-taking behavior; |
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◦ | The Nominating and Corporate Governance Committee assists the Board in its oversight of the Company’s governance structure and other corporate governance matters, including succession planning; and |
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◦ | The Public Policy and Sustainability Committee of the Board assists the Board in its oversight of PepsiCo’s policies, programs and related risks that concern key public policy and sustainability matters. |
◦The Audit Committee of the Board reviews and assesses the guidelines and policies governing PepsiCo’s risk management and oversight processes, and assists the Board’s oversight of financial, compliance and employee safety risks facing PepsiCo;
◦The Compensation Committee of the Board reviews PepsiCo’s employee compensation policies and practices to assess whether such policies and practices could lead to unnecessary risk-taking behavior;
◦The Nominating and Corporate Governance Committee assists the Board in its oversight of the Company’s governance structure and other corporate governance matters, including succession planning; and
◦The Sustainability, Diversity and Public Policy Committee of the Board assists the Board in its oversight of PepsiCo’s policies, programs and related risks that concern key sustainability (including climate change), diversity, equity and inclusion, and public policy matters.
•The PepsiCo Risk Committee (PRC), which is comprised of a cross-functional, geographically diverse, senior management group, including PepsiCo’s Chairman of the Board of Directors and Chief Executive Officer, meets regularly to identify, assess, prioritize and address top strategic, financial, operating, compliance, safety, reputational and other risks. The PRC is also responsible for reporting progress on our risk mitigation efforts to the Board;
•Division and key countrymarket risk committees, comprised of cross-functional senior management teams, meet regularly to identify, assess, prioritize and address division and country-specific business risks;
•PepsiCo’s Risk Management Office, which manages the overall risk management process, provides ongoing guidance, tools and analytical support to the PRC and the division and key country risk committees, identifies and assesses potential risks and facilitates ongoing communication between the parties, as well as with PepsiCo’s Board of Directors, and the Audit Committee of the Board and other Committees of the Board;
•PepsiCo’s Corporate Audit Department evaluates the ongoing effectiveness of our key internal controls through periodic audit and review procedures; and
•PepsiCo’s Compliance & Ethics and Law Departments lead and coordinate our compliance policies and practices.
Market Risks
We are exposed to market risks arising from adverse changes in:
•commodity prices, affecting the cost of our raw materials and energy;
•foreign exchange rates and currency restrictions; and
•interest rates.
In the normal course of business, we manage commodity price, foreign exchange and interest rate risks through a variety of strategies, including productivity initiatives, global purchasing programs and hedging. Ongoing productivity initiatives involve the identification and effective implementation of meaningful cost-saving opportunities or efficiencies, including the use of derivatives. Our global purchasing programs include fixed-price contracts and purchase orders and pricing agreements. See “Item 1A. Risk Factors” for further discussion of our market risks, and see “Our Liquidity and Capital Resources” for further information on our non-cancelable purchasing commitments.risks.
The fair value of our derivatives fluctuates based on market rates and prices. The sensitivity of our derivatives to these market fluctuations is discussed below. See Note 9 to our consolidated financial statements for further discussion of these derivatives and our hedging policies. See “Our Critical Accounting Policies”Policies and Estimates” for a discussion of the exposure of our pension and retiree medical plan assets and liabilities to risks related to market fluctuations.
Inflationary, deflationary and recessionary conditions impacting these market risks also impact the demand for and pricing of our products. See “Item 1A. Risk Factors” for further discussion.
Commodity Prices
Our commodity derivatives had a total notional value of $1.1$1.6 billion as of December 29, 201825, 2021 and $0.9$1.1 billion as ofDecember 30, 2017.26, 2020. At the end of 2018,2021, the potential change in fair value of commodity derivative instruments, assuming a 10% decrease in the underlying commodity price, would have increaseddecreased our net unrealized lossesgains in 20182021 by $100 million.$177 million, which would generally be offset by a reduction in the cost of the underlying commodity purchases.
Foreign Exchange
Our operations outside of the United States generated 43%44% of our consolidated net revenue in 2018,2021, with Mexico, Russia, Canada, China, the United Kingdom and BrazilSouth Africa, collectively, comprising approximately 20%23% of our consolidated net revenue in 2018.2021. As a result, we are exposed to foreign exchange risks in the international markets in which our products are made, manufactured, distributed or sold. During 2018, unfavorableAdditionally, we are exposed to foreign exchange reducedrisk from net investments in foreign subsidiaries, foreign currency purchases, foreign currency assets and liabilities created in the normal course of business. During 2021, favorable foreign exchange contributed 1 percentage point to net revenue growth, by one percentage pointprimarily due to declinesappreciation in the Russian ruble, Turkish liraMexican peso, Canadian dollar and Brazilian real.South African rand. Currency declines against the U.S. dollar which are not offset could adversely impact our future financial results.
In addition, volatile economic, political and social conditions and civil unrest in certain markets in which our products are made, manufactured, distributed or sold, including in Argentina, Brazil, China, India, Mexico, the Middle East, Russia and Turkey, and currency controls or fluctuations in certain of these international markets, continue to, and the threat or imposition of new or increased tariffs or sanctions or other impositions in or related to these international markets may, result in challenging operating environments. We also continue to monitor the economic and political developments related to the United Kingdom’s pending withdrawal from the European Union, including how the United Kingdom will interact with other European Union countries following its departure, as well as the economic, operating and political environment in Russia, and the potential impact for the ESSA segment and our other businesses.
Our foreign currency derivatives had a total notional value of $2.0$2.8 billion as of December 29, 201825, 2021 and $1.6$1.9 billion as of December 30, 2017. The total notional amount of our debt instruments designated as net
investment hedges was $0.9 billion as of December 29, 2018 and $1.5 billion as of December 30, 2017.26, 2020. At the end of 2018,2021, we estimate that an unfavorable 10% change in the underlying exchange rates would have decreased our net unrealized gains in 20182021 by $149 million.$278 million, which would be significantly offset by an inverse change in the fair value of the underlying exposure.
The total notional amount of our debt instruments designated as net investment hedges was $2.1 billion as of December 25, 2021 and $2.7 billion as of December 26, 2020.
Interest Rates
Our interest rate derivatives had a total notional value of $10.5$2.1 billion as of December 29, 201825, 2021 and $14.2$3.0 billion as of December 30, 2017.26, 2020.Assuming year-end 20182021 investment levels and variable rate debt, a 1-percentage-point increase in interest rates would have increaseddecreased our net interest expense in 20182021 by $7$47 million due to lowerhigher cash and cash equivalents and short-term investments levels, as compared with our variable rate debt.
OUR FINANCIAL RESULTS
Results of Operations — Consolidated Review
Volume
Physical or unit volume is one of the key metrics management uses internally to make operating and strategic decisions, including the preparation of our annual operating plan and the evaluation of our business performance. We believe volume provides additional information to facilitate the comparison of our historical operating performance and underlying trends, and provides additional transparency on how we evaluate our business because it measures demand for our products at the consumer level.
Beverage volume includes volume of concentrate sold to independent bottlers and volume of finished products bearing company-owned or licensed trademarks and allied brand products and joint venture trademarks sold by company-owned bottling operations. Beverage volume also includes volume of finished products bearing company-owned or licensed trademarks sold by our noncontrolled affiliates. Concentrate volume sold to independent bottlers is reported in concentrate shipments and equivalents (CSE), whereas finished beverage product volume is reported in bottler case sales (BCS). Both CSE and BCS convert all beverage volume to an 8-ounce-case metric. Typically, CSE and BCS are not equal in any given period due to seasonality, timing of product launches, product mix, bottler inventory practices and other factors. While our net revenue is not entirely based on BCS volume due to the independent bottlers in our supply chain, we believe that BCS is a better measure of the consumption of our beverage products. PBNA, LatAm, Europe, AMESA and APAC, either independently or in conjunction with third parties, make, market, distribute and sell ready-to-drink tea products through a joint venture with Unilever (under the Lipton brand name), and PBNA, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink coffee products through a joint venture with Starbucks. In addition, APAC licenses the Tropicana brand for use in China on co-branded juice products in connection with a strategic alliance with Tingyi.
Convenient food volume includes volume sold by our subsidiaries and noncontrolled affiliates of convenient food products bearing company-owned or licensed trademarks. Internationally, we measure convenient food product volume in kilograms, while in North America we measure convenient food product volume in pounds. FLNA makes, markets, distributes and sells Sabra refrigerated dips and spreads through a joint venture with Strauss Group.
Consolidated Net Revenue and Operating Profit
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | Change |
Net revenue | $ | 79,474 | | | $ | 70,372 | | | 13 | % |
Operating profit | $ | 11,162 | | | $ | 10,080 | | | 11 | % |
Operating margin | 14.0 | % | | 14.3 | % | | (0.3) | |
See “Results of Operations – Division Review” for a tabular presentation and discussion of key drivers of net revenue.
Operating profit grew 11% and operating margin declined 0.3 percentage points. Operating profit growth was primarily driven by net revenue growth and productivity savings, partially offset by certain operating cost increases, a 14-percentage-point impact of higher commodity costs, and higher advertising and marketing expenses. The operating margin decline primarily reflects higher commodity costs.
Lower charges taken as a result of the COVID-19 pandemic compared to the prior year contributed 6 percentage points to operating profit growth. Additionally, lower acquisition and divestiture-related charges included in “Items Affecting Comparability” contributed 3 percentage points to operating profit growth.
Juice Transaction
In the first quarter of 2022, we sold our Tropicana, Naked and other select juice brands to PAI Partners, while retaining a 39% noncontrolling interest in a newly formed joint venture that will operate across North America and Europe. These juice businesses delivered approximately $3 billion in net revenue in 2021. In the U.S., PepsiCo acts as the exclusive distributor for the new joint venture’s portfolio of brands for small-format and foodservice customers with chilled direct-store-delivery. See Note 13 to our consolidated financial statements for further information.
Results of Operations — Division Review
See “Our Business Risks,” “Non-GAAP Measures” and “Items Affecting Comparability” for a discussion of items to consider when evaluating our results and related information regarding measures not in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
In the discussions of net revenue and operating profit below, “effective net pricing” reflects the year-over-year impact of discrete pricing actions, sales incentive activities and mix resulting from selling varying products in different package sizes and in different countries and “net pricing” reflects the year-over-year combined impact of list price changes, weight changes per package, discounts and allowances. Additionally, “acquisitions and divestitures,” except as otherwise noted,divestitures” reflect all mergers and acquisitions activity, including the impact of acquisitions,as well as divestitures and other structural changes, including changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.
Volume
Our beverageNet Revenue and Organic Revenue Growth
Organic revenue growth is a non-GAAP financial measure. For further information on this measure, see “Non-GAAP Measures.”
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| | | Impact of | | | | Impact of |
| Reported % Change, GAAP Measure | | Foreign exchange translation | | Acquisitions and divestitures | | | | Organic % Change, Non-GAAP Measure(a) | | Organic volume(b) | | Effective net pricing |
FLNA | 8 | % | | (0.5) | | | — | | | | | 7 | % | | 2 | | | 5 | |
QFNA | — | % | | (1) | | | — | | | | | — | % | | (7) | | | 7 | |
PBNA | 12 | % | | (0.5) | | | (1) | | | | | 10 | % | | 5 | | | 5 | |
LatAm | 17 | % | | (2) | | | — | | | | | 15 | % | | 4 | | | 10 | |
Europe | 9 | % | | (0.5) | | | — | | | | | 9 | % | | 4.5 | | | 4 | |
AMESA | 33 | % | | (4.5) | | | (17) | | | | | 12 | % | | 7 | | | 4 | |
APAC | 34 | % | | (6) | | | (15) | | | | | 13 | % | | 12 | | | 1 | |
Total | 13 | % | | (1) | | | (2) | | | | | 10 | % | | 4 | | | 5 | |
(a)Amounts may not sum due to rounding.
(b)Excludes the impact of acquisitions and divestitures, including the impact of an extra month of volume for our acquisitions of Pioneer Food Group Ltd. (Pioneer Foods) in our AMESA division and Hangzhou Haomusi Food Co., Ltd. (Be & Cheery) in our APAC division as we aligned the reporting calendars of these acquisitions with those of our divisions. In certain instances, the impact of organic volume growth on net revenue growth differs from the unit volume growth disclosed in the NAB, Latin America, ESSA and AMENA segments reflects sales to authorized bottlers, independent distributors and retailers, as well as the sale of beverages bearing Company-owned or licensed trademarks that have been sold through our authorized independent bottlers. Bottler case sales (BCS) and concentrate shipments and equivalents (CSE) are not necessarily equal during any given periodfollowing divisional discussions due to seasonality, timingthe impacts of product launches,acquisitions and divestitures, product mix, bottler inventory practicesnonconsolidated joint venture volume, and, other factors. Whilefor our beverage revenues are not entirelybusinesses, temporary timing differences between BCS and CSE. Our net revenue excludes nonconsolidated joint venture volume, and, for our franchise-owned beverage businesses, is based on BCS volume,CSE.
Operating Profit, Operating Profit Adjusted for Items Affecting Comparability and Operating Profit Growth Adjusted for Items Affecting Comparability on a Constant Currency Basis
Operating profit adjusted for items affecting comparability and operating profit growth adjusted for items affecting comparability on a constant currency basis are both non-GAAP financial measures. For further information on these measures see “Non-GAAP Measures” and “Items Affecting Comparability.”
Operating Profit and Operating Profit Adjusted for Items Affecting Comparability
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges(c) | | Core, Non-GAAP Measure(b) |
FLNA | $ | 5,633 | | | $ | — | | | $ | 28 | | | $ | 2 | | | $ | 5,663 | |
QFNA | 578 | | | — | | | — | | | — | | | 578 | |
PBNA | 2,442 | | | — | | | 20 | | | 11 | | | 2,473 | |
LatAm | 1,369 | | | — | | | 37 | | | — | | | 1,406 | |
Europe | 1,292 | | | — | | | 81 | | | 8 | | | 1,381 | |
AMESA | 858 | | | — | | | 15 | | | 10 | | | 883 | |
APAC | 673 | | | — | | | 7 | | | 4 | | | 684 | |
Corporate unallocated expenses | (1,683) | | | 19 | | | 49 | | | (39) | | | (1,654) | |
Total | $ | 11,162 | | | $ | 19 | | | $ | 237 | | | $ | (4) | | | $ | 11,414 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges(c) | | Core, Non-GAAP Measure(b) |
FLNA | $ | 5,340 | | | $ | — | | | $ | 83 | | | $ | 29 | | | $ | 5,452 | |
QFNA | 669 | | | — | | | 5 | | | — | | | 674 | |
PBNA | 1,937 | | | — | | | 47 | | | 66 | | | 2,050 | |
LatAm | 1,033 | | | — | | | 31 | | | — | | | 1,064 | |
Europe | 1,353 | | | — | | | 48 | | | — | | | 1,401 | |
AMESA | 600 | | | — | | | 14 | | | 173 | | | 787 | |
APAC | 590 | | | — | | | 5 | | | 7 | | | 602 | |
Corporate unallocated expenses | (1,442) | | | (73) | | | 36 | | | (20) | | | (1,499) | |
Total | $ | 10,080 | | | $ | (73) | | | $ | 269 | | | $ | 255 | | | $ | 10,531 | |
(a)See “Items Affecting Comparability.”
(b)Includes the charges taken as there are independent bottlers ina result of the supply chain, we believe that BCS is a valuable measure as it quantifiesCOVID-19 pandemic. See Note 1 to our consolidated financial statements for further information.
(c)The income amounts primarily relate to gains associated with the sell-through of our beverage products at the consumer level. Sales of products from our unconsolidated joint ventures are reflected in our reported volume. NAB, Latin America, ESSA and AMENA, either independently or in conjunction with third parties, make, market, distribute and sell ready-to-drink tea products through a joint venture with Unilever (under the Lipton brand name), and NAB, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink coffee products through a joint venture with Starbucks. In addition, AMENA licenses the Tropicana brand for use in China on co-branded juice productscontingent consideration in connection with a strategic allianceour acquisition of Rockstar Energy Beverages (Rockstar). In 2021, this impact is partially offset by divestiture-related charges associated with Tingyi.the Juice Transaction. See Note 13 to our consolidated financial statements for further information.
Operating Profit Growth and snack volume in the FLNA, QFNA, Latin America, ESSA and AMENA segments is reportedOperating Profit Growth Adjusted for Items Affecting Comparability on a system-wide basis, which includes our own salesConstant Currency Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| | | Impact of Items Affecting Comparability(a) | | | | Impact of | | |
| Reported % Change, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | | | Core % Change, Non-GAAP Measure(b) | | Foreign exchange translation | | Core Constant Currency % Change, Non-GAAP Measure(b) |
FLNA | 5.5 | % | | — | | | (1) | | | (0.5) | | | | | 4 | % | | — | | | 3 | % |
QFNA | (14) | % | | — | | | (0.5) | | | — | | | | | (14) | % | | — | | | (14) | % |
PBNA | 26 | % | | — | | | (2) | | | (4) | | | | | 21 | % | | (1) | | | 20 | % |
LatAm | 33 | % | | — | | | — | | | — | | | | | 32 | % | | (4.5) | | | 28 | % |
Europe | (4.5) | % | | — | | | 2.5 | | | 1 | | | | | (1.5) | % | | (1.5) | | | (3) | % |
AMESA | 43 | % | | — | | | — | | | (31) | | | | | 12 | % | | (2) | | | 10 | % |
APAC | 14 | % | | — | | | 1 | | | (1.5) | | | | | 14 | % | | (3) | | | 10 | % |
Corporate unallocated expenses | 17 | % | | (7) | | | (1) | | | 1 | | | | | 10 | % | | — | | | 10 | % |
Total | 11 | % | | 1 | | | — | | | (3) | | | | | 8 | % | | (1) | | | 7 | % |
(a)See “Items Affecting Comparability” for further information.
(b)Amounts may not sum due to rounding.
FLNA
Net revenue grew 8%, primarily driven by effective net pricing and the sales by our noncontrolled affiliates of snacks bearing Company-owned or licensed trademarks.
Servings
Since our divisions each use different measures of physical unitorganic volume (i.e.growth. Unit volume grew 2%, kilos, gallons, poundsprimarily reflecting double-digit growth in variety packs and case sales), a common servings metric is necessary to reflect our consolidated physical unit volume. Our divisions’ physical volume measures are converted into servings based on U.S. Food and Drug Administration guidelines for single-serving sizes of our products.
In 2018, total servings increased 1% compared to 2017. In 2017, total servings decreased 1% compared to 2016. Excluding the impact of our BFY Brands, Inc. (BFY Brands) acquisition in the 53rd reporting weekfirst quarter of 2020, partially offset by a low-single-digit decline in 2016, total servingstrademark Tostitos and a double-digit decline in 2017 was even with the prior year. Servings growth reflects adjustments to the prior year results for divestitures and other structural changes.
Consolidated Net Revenue and Operating Profit
|
| | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2018 | | 2017 | | 2016 | | 2018 | | 2017 |
Net revenue | $ | 64,661 |
| | $ | 63,525 |
| | $ | 62,799 |
| | 2 | % | | 1 | % |
Operating profit (a) | $ | 10,110 |
| | $ | 10,276 |
| | $ | 9,804 |
| | (2 | )% | | 5 | % |
Operating profit margin (a) | 15.6 | % | | 16.2 | % | | 15.6 | % | | (0.5 | ) | | 0.6 |
|
| |
(a) | In 2017 and 2016, operating profit and operating profit margin reflect the retrospective adoption of guidance requiring the presentation of non-service cost components of net periodic benefit cost below operating profit. See Note 2 to our consolidated financial statements. |
See “Results of Operations – Division Review” for a tabular presentation and discussion of key drivers of net revenue.
2018trademark Santitas.
Operating profit decreased 2%increased 5.5%, primarily reflecting the net revenue growth, productivity savings and operating profit margin declined 0.5 percentage points. The operating profit performance was drivena 3-percentage-point impact of lower charges taken as a result of the COVID-19 pandemic. These impacts were partially offset by certain operating cost increases, including strategic initiatives and incremental transportation costs, and a 6-percentage-point4-percentage-point impact of higher commodity costs, primarily packaging material and cooking oil.
QFNA
Net revenue grew slightly and unit volume declined 7%. The net revenue growth reflects effective net pricing and a 1-percentage-point impact of favorable foreign exchange, largely offset by a decrease in organic volume. The unit volume decline was primarily driven by double-digit declines in pancake syrups and mixes and in ready-to-eat cereals and a high-single-digit decline in oatmeal, partially offset by growth in Cheetos macaroni and cheese, which was introduced in the third quarter of 2020, and double-digit growth in lite snacks.
Operating profit declined 14%, primarily reflecting certain operating cost increases, including incremental transportation costs, and an 8-percentage-point impact of higher commodity costs, partially offset by productivity savings of more than $1 billion and net revenue growth.savings.
The impact of refranchisingthe COVID-19 pandemic contributed to a portion of our beverage businesscurrent-year decrease in Jordan in 2017consumer demand, which had a negative impact on net revenue, unit volume and a prior-year gain associated with the sale of our minority stake in Britvic negatively impacted operating profit performance compared to the significant COVID-19 related surge in consumer demand in the prior year.
PBNA
Net revenue increased 12%, primarily driven by 2.5 percentage points. These impacts were offseteffective net pricing and an increase in organic volume. Unit volume increased 6%, driven by a 2-percentage-point positive impact7% increase in non-carbonated beverage (NCB) volume and a 4% increase in CSD volume. The NCB volume increase primarily reflected double-digit increases in our
overall water portfolio and our entire beverage bottling operationsenergy portfolio, a low-single-digit increase in Gatorade sports drinks and snack distribution operationsa mid-single-digit increase in CHS in 2018. Items affecting comparability (see “Items Affecting Comparability”) negatively impacted operating profit performance by 3 percentage points and decreased operating profit margin by 0.5 percentage points, primarily due to higher mark-to-market net impact on commodity derivatives included in corporate unallocated expenses.
2017Lipton ready-to-drink teas.
Operating profit increased 5%26%, primarily reflecting the net revenue growth, a 15-percentage-point impact of lower charges taken as a result of the COVID-19 pandemic and productivity savings. These impacts were partially offset by certain operating cost increases, including incremental transportation costs, an 18-percentage-point impact of higher commodity costs and higher advertising and marketing expenses. Higher prior-year acquisition and divestiture-related charges contributed 4 percentage points to operating profit growth.
Changes in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit margin improved 0.6 percentage points. Operating profit growth was driven by productivity savingsperformance.
In 2020, we received a notice of more than $1 billion andtermination without cause from Vital Pharmaceuticals, Inc., which would end our distribution rights of Bang Energy drinks, effective October 24, 2023.
LatAm
Net revenue increased 17%, primarily reflecting effective net pricing and organic volume growth.
Convenient foods unit volume grew 3.5%, primarily reflecting low-single-digit growth in Brazil and Mexico.
Beverage unit volume grew 8%, primarily reflecting double-digit growth in Argentina and Chile. Additionally, Brazil experienced low-single-digit growth, Mexico experienced mid-single-digit growth and Guatemala experienced high-single-digit growth.
Operating profit increased 33%, primarily reflecting the net revenue growth, productivity savings and a 4.5-percentage-point impact of favorable foreign exchange. These impacts were partially offset by certain operating cost increases, a 7-percentage-point30-percentage-point impact of higher commodity costs and unfavorable foreign exchange.higher advertising and marketing expenses. A current-year recognition of certain indirect tax credits in Brazil and lower charges taken as a result of the COVID-19 pandemic contributed 6 percentage points and 4 percentage points, respectively, to operating profit growth.
TheChanges in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.
Europe
Net revenue increased 9%, primarily reflecting organic volume growth and effective net pricing.
Convenient foods unit volume grew 4%, primarily reflecting double-digit growth in Turkey and mid-single-digit growth in Russia and Poland, partially offset by a mid-single-digit decline in the United Kingdom. Additionally, the Netherlands grew slightly and France experienced low-single-digit growth.
Beverage unit volume grew 8%, primarily reflecting double-digit growth in Russia, Turkey and the United Kingdom and high-single-digit growth in France, partially offset by a low-single-digit decline in Germany.
Operating profit decreased 4.5%, primarily reflecting certain operating cost increases, a 28-percentage-point impact of refranchisinghigher commodity costs and a portion of our beverage business in Jordan2.5-percentage-point impact each from higher restructuring and impairment charges and a gain associated withon an asset sale in the saleprior year. These impacts were partially offset by the net revenue growth and productivity savings. Additionally, lower charges taken as a result of our minority stake in Britvic eachthe COVID-19 pandemic and favorable settlements of promotional spending accruals compared to the prior
year positively contributed 15 percentage pointpoints and 3 percentage points, respectively, to operating profit growth. Items affecting comparability (see “Items Affecting Comparability”) alsoperformance.
Changes in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue and unit volume performance.
During the fourth quarter of 2021, the implementation of an Enterprise Resource Planning (ERP) system in the United Kingdom caused a temporary disruption to our United Kingdom operations which had a negative impact on net revenue, unit volume and operating profit performance. These issues were largely resolved within the quarter and the business operations had resumed by year end.
AMESA
Net revenue increased 33%, reflecting a 14-percentage-point impact of our Pioneer Foods acquisition, which included the impact of an extra month of net revenue compared to the prior year as we aligned Pioneer Foods’ reporting calendar with that of our AMESA division, as well as organic volume growth and effective net pricing. Favorable foreign exchange contributed 4.5 percentage points to net revenue growth.
Convenient foods unit volume grew 38%, primarily reflecting a 35-percentage-point impact of our Pioneer Foods acquisition, which included the impact of an extra month of unit volume as we aligned Pioneer Foods’ reporting calendar with that of our AMESA division, double-digit growth in India and Pakistan and high-single-digit growth in the Middle East, partially offset by a low-single-digit decline in South Africa (excluding our Pioneer Foods acquisition).
Beverage unit volume grew 20%, primarily reflecting double-digit growth in India and Pakistan. Additionally, the Middle East experienced double-digit growth and Nigeria experienced high-single-digit growth.
Operating profit increased 43%, primarily reflecting the net revenue growth, a 31-percentage-point impact of the prior-year acquisition and divestiture-related charges associated with our Pioneer Foods acquisition and productivity savings. These impacts were partially offset by certain operating cost increases, a 13-percentage-point impact of higher commodity costs and higher advertising and marketing expenses. Additionally, lower charges taken as a result of the COVID-19 pandemic and our Pioneer Foods acquisition contributed 3 percentage points and 2 percentage points, respectively, to operating profit growth.
Changes in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.
APAC
Net revenue increased 34%, reflecting a 15-percentage-point impact of our Be & Cheery acquisition, which included the impact of an extra month of net revenue compared to the prior year as we aligned Be & Cheery’s reporting calendar with that of our APAC division, as well as organic volume growth, a 6- percentage-point impact of favorable foreign exchange and effective net pricing.
Convenient foods unit volume grew 19%, primarily reflecting a 16-percentage-point impact of our Be & Cheery acquisition, which included the impact of an extra month of unit volume as we aligned Be & Cheery’s reporting calendar with that of our APAC division, and double-digit growth in China (excluding our Be & Cheery acquisition) and Thailand. Additionally, Australia, Indonesia and Taiwan each experienced low-single-digit growth.
Beverage unit volume grew 13%, primarily reflecting double-digit growth in China, partially offset by a low-single-digit decline in Vietnam. Additionally, the Philippines experienced low-single-digit growth and Thailand experienced mid-single-digit growth.
Operating profit increased 14%, primarily reflecting the net revenue growth, productivity savings and a 2- percentage-point contribution from our Be & Cheery acquisition, partially offset by certain operating cost increases and higher advertising and marketing expenses. Additionally, impairment charges associated with an equity method investment reduced operating profit growth by 3 percentage points. Favorable foreign exchange contributed 3 percentage points to operating profit growth and increased operating profit margin by 0.2 percentage points, primarily reflecting a prior-year impairment charge to reduce the value of our 5% indirect equity interest in KSFB to its estimated fair value.growth.
Other Consolidated Results
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | Change |
Other pension and retiree medical benefits income | $ | 522 | | | $ | 117 | | | $ | 405 | |
Net interest expense and other | $ | (1,863) | | | $ | (1,128) | | | $ | (735) | |
Annual tax rate | 21.8 | % | | 20.9 | % | | |
Net income attributable to PepsiCo (a) | $ | 7,618 | | | $ | 7,120 | | | 7 | % |
Net income attributable to PepsiCo per common share – diluted (a) | $ | 5.49 | | | $ | 5.12 | | | 7 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2018 | | 2017 | | 2016 | | 2018 | | 2017 |
Other pension and retiree medical benefits income/(expense) (a) | $ | 298 |
| | $ | 233 |
| | $ | (19 | ) | | $ | 65 |
| | $ | 252 |
|
Net interest expense | $ | (1,219 | ) | | $ | (907 | ) | | $ | (1,232 | ) | | $ | (312 | ) | | $ | 325 |
|
Annual tax rate (b) | (36.7 | )% | | 48.9 | % | | 25.4 | % | | | | |
Net income attributable to PepsiCo | $ | 12,515 |
| | $ | 4,857 |
| | $ | 6,329 |
| | 158 | % | | (23 | )% |
Net income attributable to PepsiCo per common share – diluted | $ | 8.78 |
| | $ | 3.38 |
| | $ | 4.36 |
| | 160 | % | | (23 | )% |
Mark-to-market net impact | 0.09 |
| | (0.01 | ) | | (0.08 | ) | | | | |
Restructuring and impairment charges | 0.18 |
| | 0.16 |
| | 0.09 |
| | | | |
Merger and integration charges | 0.05 |
| | — |
| | — |
| | | | |
Net tax (benefit)/expense related to the TCJ Act (b) | (0.02 | ) | | 1.70 |
| | — |
| | | | |
Other net tax benefits (b) | (3.55 | ) | | — |
| | — |
| | | | |
Charges related to cash tender and exchange offers | 0.13 |
| | — |
| | — |
| | | | |
Charge related to the transaction with Tingyi | — |
| | — |
| | 0.26 |
| | | | |
Charge related to debt redemption | — |
| | — |
| | 0.11 |
| | | | |
Pension-related settlement charge | — |
| | — |
| | 0.11 |
| | | | |
Net income attributable to PepsiCo per common share – diluted, excluding above items (c) | $ | 5.66 |
| | $ | 5.23 |
| | $ | 4.85 |
| | 8 | % | | 8 | % |
Impact of foreign exchange translation | | | | | | | 1 |
| | 1 |
|
Growth in net income attributable to PepsiCo per common share – diluted, excluding above items, on a constant currency basis (c) | | | | | | | 9 | % | | 9 | % |
| |
(a) | In 2017 and 2016, reflect the retrospective adoption of guidance requiring the presentation of non-service cost components of net periodic benefit cost below operating profit. See Note 2 to our consolidated financial statements. |
| |
(b) | See Note 5 to our consolidated financial statements. |
| |
(c) | See “Non-GAAP Measures.” |
2018(a)In 2021, lower charges taken as a result of the COVID-19 pandemic contributed 7 percentage points to both net income attributable to PepsiCo growth and net income attributable to PepsiCo per common share growth. See Note 1 to our consolidated financial statements for further information.
Other pension and retiree medical benefits income increased $65$405 million, primarily reflecting lower settlement charges in 2021, the recognition of fixed income gains on plan assets, the impact of plan changes approved in 2020, as discussed in Note 7 to our consolidated financial statements, and the $1.4 billionimpact of discretionary pension contribution to the PepsiCo Employees Retirement Plan A (Plan A) in the United States, as well as the recognition of net asset gains,plan contributions, partially offset by higher amortizationa decrease in the expected rate of net losses.return on plan assets.
Net interest expense and other increased $312$735 million, reflecting a charge of $253$842 million in connection with our cash tender and exchange offers, primarily representing the tender price paid over the carrying value of the tendered notes. This increase also reflects higher interest rates on debt balances, as well as losses on the market value of investments used to economically hedge a portion of our deferred compensation liability. These impacts were partially offset by higher interest income due to higher interest rates on cash balances.
The reported tax rate decreased 85.6 percentage points, reflecting both other net tax benefits related to the reorganization of our international operations, which reduced the reported tax rate by 45 percentage points, and the prior year provisional net tax expense related to the TCJ Act, which reduced the current year reported tax rate by 25 percentage points. Additionally, the favorable conclusion of certain international tax audits and the favorable resolution with the IRS of all open matters related to the audits of taxable years 2012 and 2013, collectively, reduced the reported tax rate by 7 percentage points.offers. See Note 58 to our consolidated financial statements for further information.
Net income attributable to PepsiCo increased 158% and net income attributable to PepsiCo per common share increased 160%. Items affecting comparability (see “Items Affecting Comparability”) positively contributed 150 percentage points to net income attributable to PepsiCo growth and 152 percentage points to net income attributable to PepsiCo per common share growth.
2017
Other pension and retiree medical benefits income increased $252 million, primarily reflecting a settlement charge of $242 million related to the purchase of a group annuity contract in 2016.
Net interest expense decreased $325 million reflecting a charge of $233 million in 2016 representing the premium paid in accordance with the “make-whole” redemption provisions to redeem all of our outstanding 7.900% senior notes due 2018 and 5.125% senior notes due 2019 for the principal amounts of $1.5 billion and $750 million, respectively. This decrease also reflects higher interest income due to higher interest rates and average cash balances, as well as gains on the market value of investments used to economically hedge a portion of our deferred compensation liability. These impacts wereimpact was partially offset by higherlower interest expense due to higherrates on average debt balances.
The reported tax rate increased 23.50.9 percentage points, primarily as a result ofreflecting the provisional net tax expenseimpact of adjustments to uncertain tax positions related to the TCJ Act, which contributed 26 percentage points tofinal assessment from the increase, partially offset byInternal Revenue Service (IRS) audit for the impact of the 2016 impairment charge to reduce the value of our 5% indirect equity interest in KSFB to its estimated fair value, which had no corresponding tax benefit, as well as the impact of recognizing excess tax benefits in the provision for income taxes as a result of the changes in accounting for certain aspects of share-based payments to employees in 2017. See Note 2 and Note 5 to our consolidated financial statements for additional information.years 2014 through 2016.
Net income attributable to PepsiCo and net income attributable to PepsiCo per common share both decreased 23%. Items affecting comparability (see “Items Affecting Comparability”) negatively impacted both net income attributable to PepsiCo performance and net income attributable to PepsiCo per common share performance by 30 percentage points, primarily as a result of the provisional net tax expense related to the TCJ Act.
Non-GAAP Measures
Certain financial measures contained in this Form 10-K adjust for the impact of specified items and are not in accordance with U.S. Generally Accepted Accounting Principles (GAAP).GAAP. We use non-GAAP financial measures internally to make operating and strategic decisions, including the preparation of our annual operating plan, evaluation of our overall business performance and as a factor in determining compensation for certain employees. We believe presenting non-GAAP financial measures in this Form 10-K provides additional information to facilitate comparison of our historical operating results and trends in our underlying operating results and provides additional transparency on how we evaluate our business. We also believe presenting these measures in this Form 10-K allows investors to view our performance using the same measures that we use in evaluating our financial and business performance and trends.
We consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that may be significant or that could affect an understanding of our ongoing financial and business performance or trends. Examples of items for which we may make adjustments include: amounts related to mark-to-market gains or losses (non-cash); charges related to restructuring programs;plans; costs associated with mergers, acquisitions, divestitures and other structural changes; gains associated with divestitures; pension and retiree medical-related amounts (including all settlement and curtailment gains and losses); charges or
adjustments related to the enactment of new laws, rules or regulations, such as significant tax law changes; amounts related to the resolution of tax positions; tax benefits related to reorganizations of our operations; gains or losses associated with mergers, acquisitions, divestitures and other structural changes; debt redemptions, cash tender or exchange offers; pension and retiree medical related items; asset impairments (non-cash); and
remeasurements of net monetary assets. Previously, certain immaterial pension and retiree medical-related settlement and curtailment gains and losses were not considered items affecting comparability. Pension and retiree medical-related service cost, interest cost, expected return on plan assets, and other net periodic pension costs will continue to be reflected in our core results. See below and “Items Affecting Comparability” for a description of adjustments to our U.S. GAAP financial measures in this Form 10-K.
Non-GAAP information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with U.S. GAAP. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies.
The following non-GAAP financial measures are contained in this Form 10-K:10-K are discussed below:
costCost of sales, gross profit, selling, general and administrative expenses, other pension and retiree medical benefits income/expense,income, net interest expense benefit from/and other, provision for income taxes, andnet income attributable to noncontrolling interests and net income attributable to PepsiCo, each adjusted for items affecting comparability;
comparability, operating profit adjusted for items affecting comparability, and net income attributable to PepsiCo per common share – diluted, each adjusted for items affecting comparability, and the corresponding constant currency growth rates;rates
organic revenue growth;
free cash flow; and
return on invested capital (ROIC) and net ROIC, excluding items affecting comparability.
Cost of Sales, Gross Profit, Selling, General and Administrative Expenses, Other Pension and Retiree Medical Benefits Income/Expense, Interest Expense, Benefit from/Provision for Income Taxes, Annual Tax Rate and Noncontrolling Interests, Adjusted for Items Affecting Comparability; Operating Profit, Adjusted for Items Affecting Comparability, and Net Income Attributable to PepsiCo per Common Share – Diluted, Adjusted for Items Affecting Comparability, and the Corresponding Constant Currency Growth Rates
These measures exclude the net impact of mark-to-market gains and losses on centrally managed commodity derivatives that do not qualify for hedge accounting, restructuring and impairment charges related to our 2019 and 2014Multi-Year Productivity Plans, merger and integration chargesPlan (2019 Productivity Plan), costs associated with our acquisitionacquisitions and divestitures, the impact of SodaStream, net tax benefit/expense associated with the enactment of the TCJ Act, other net tax benefits, chargessettlement and curtailment gains and losses related to pension and retiree medical plans, a charge related to cash tender offers and exchange offers, a chargetax expense related to the transaction with Tingyi, a charge related to debt redemption,Tax Cuts and a pension-related settlement chargeJobs Act (TCJ Act) (see “Items Affecting Comparability” for a detailed description of each of these items). We also evaluate performance on operating profit adjusted for items affecting comparability, and net income attributable to PepsiCo per common share – diluted, each adjusted for items affecting comparability, on a constant currency basis, which measure our financial results assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period. In order to compute our constant currency results, we multiply or divide, as appropriate, our current yearcurrent-year U.S. dollar results by the current yearcurrent-year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior-year average foreign exchange rates. We believe these measures provide useful information in evaluating the results of our business because they exclude items that we believe are not indicative of our ongoing performance. We are not able to reconcile our full year projected 2019 annual tax rate, excluding items affectingperformance or that we believe impact comparability to our full year projected 2019 reported annual tax rate because we are unable to predictwith the 2019 impact of foreign exchange or the mark-to-market net impact on commodity derivatives due to the unpredictability of future changes in foreign exchange rates and commodity prices. Therefore, we are unable to provide a reconciliation of this measure.prior year.
Organic Revenue Growthrevenue growth
We define organic revenue growth as net revenue growth adjusteda measure that adjusts for the impactimpacts of foreign exchange translation, acquisitions and divestitures, and where applicable, the impact of an additional week of results every five or six years (53rd reporting week), including in our 2022 financial results. Adjusting for acquisitions and divestitures reflects mergers and acquisitions activity, including the impact in 2021 of an extra month of net revenue for our acquisitions of Pioneer Foods in our AMESA division and Be & Cheery in our APAC division as we aligned the reporting calendars of these acquisitions with those of our divisions, as well as the impact from acquisitions, divestitures and other structural changes. Our 2018 reported results reflect the accounting policy election takenchanges, including changes in conjunction with the adoption of the revenue
recognition guidance to exclude from net revenueownership or control in consolidated subsidiaries and cost of sales all sales, use, value-added and certain excise taxes assessed by governmental authorities on revenue-producing transactions not already excluded. Our 2018 organic revenue growth excludes the impact of approximately $75 million of these taxes previously recognized in net revenue. In addition, our fiscal 2016 reported results included an extra week of results. Our 2017 organic revenue growth excludes the impact of the 53rd reporting week from our 2016 results.
nonconsolidated equity investees. We believe organic revenue growth provides useful information in evaluating the results of our business because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior year.
See “Net Revenue and Organic Revenue Growth” in “Results of Operations – Division Review.”Review” for further information.
Free Cash Flowcash flow
We define free cash flow as net cash provided by operating activities less capital spending, plus sales of property, plant and equipment. Since net capital spending is essential to our product innovation initiatives and maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider net capital spending when evaluating our cash from operating activities. Free cash flow is used by us primarily for acquisitions and financing activities, including debt repayments, dividends and share repurchases. Free cash flow is not a measure of cash available for discretionary expenditures since we have certain non-discretionary obligations such as debt service that are not deducted from the measure.
See “Free Cash Flow” in “Our Liquidity and Capital Resources.”Resources” for further information.
Return on invested capital (ROIC) and net ROIC, and Net ROIC, Excluding Items Affecting Comparabilityexcluding items affecting comparability
We define ROIC as net income attributable to PepsiCo plus interest expense after-tax divided by the sum of quarterly average debt obligations and quarterly average common shareholders’ equity. Although ROIC is a common financial metric, numerous methods exist for calculating ROIC. Accordingly, the method used by management to calculate ROIC may differ from the methods other companies use to calculate their ROIC.
We believe this metric serves as a measure of how well we use our capital to generate returns. In addition, we use net ROIC, excluding items affecting comparability, to compare our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that we believe are not indicative of our ongoing performance and reflects how management evaluates our operating results and trends. We define net ROIC, excluding items affecting comparability, as ROIC, adjusted for quarterly average cash, cash equivalents and short-term investments, after-tax interest income and items affecting comparability. We believe the calculation of ROIC and net ROIC, excluding items affecting comparability, provides useful information to investors and is an additional relevant comparison of our performance to consider when evaluating our capital allocation efficiency.
See “Return on Invested Capital” in “Our Liquidity and Capital Resources.”
Resources” for further information.
Items Affecting Comparability
Our reported financial results in this Form 10-K are impacted by the following items in each of the following years:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Operating profit | | | | Other pension and retiree medical benefits income | | Net interest expense and other | | Provision for income taxes(a) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo |
Reported, GAAP Measure | $ | 37,075 | | | $ | 42,399 | | | $ | 31,237 | | | $ | 11,162 | | | | | $ | 522 | | | $ | (1,863) | | | $ | 2,142 | | | $ | 61 | | | $ | 7,618 | |
Items Affecting Comparability | | | | | | | | | | | | | | | | |
Mark-to-market net impact | (39) | | | 39 | | | 20 | | | 19 | | | | | — | | | — | | | 5 | | | — | | | 14 | |
Restructuring and impairment charges | (29) | | | 29 | | | (208) | | | 237 | | | | | 10 | | | — | | | 41 | | | 1 | | | 205 | |
Acquisition and divestiture-related charges | (1) | | | 1 | | | 5 | | | (4) | | | | | — | | | — | | | 23 | | | — | | | (27) | |
| | | | | | | | | | | | | | | | | | | |
Pension and retiree medical-related impact | — | | | — | | | — | | | — | | | | | 12 | | | — | | | 1 | | | — | | | 11 | |
Charge related to cash tender offers | — | | | — | | | — | | | — | | | | | — | | | 842 | | | 165 | | | — | | | 677 | |
Tax expense related to the TCJ Act | — | | | — | | | — | | | — | | | | | — | | | — | | | (190) | | | — | | | 190 | |
| | | | | | | | | | | | | | | | | | | |
Core, Non-GAAP Measure | $ | 37,006 | | | $ | 42,468 | | | $ | 31,054 | | | $ | 11,414 | | | | | $ | 544 | | | $ | (1,021) | | | $ | 2,187 | | | $ | 62 | | | $ | 8,688 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Operating profit | | Other pension and retiree medical benefits income | | | | Provision for income taxes(a) | | | | Net income attributable to PepsiCo |
Reported, GAAP Measure | $ | 31,797 | | | $ | 38,575 | | | $ | 28,495 | | | $ | 10,080 | | | $ | 117 | | | | | $ | 1,894 | | | | | $ | 7,120 | |
Items Affecting Comparability | | | | | | | | | | | | | | | | | |
Mark-to-market net impact | 64 | | | (64) | | | 9 | | | (73) | | | — | | | | | (15) | | | | | (58) | |
Restructuring and impairment charges | (30) | | | 30 | | | (239) | | | 269 | | | 20 | | | | | 58 | | | | | 231 | |
Acquisition and divestiture-related charges | (32) | | | 32 | | | (223) | | | 255 | | | — | | | | | 18 | | | | | 237 | |
Pension and retiree medical-related impact | — | | | — | | | — | | | — | | | 205 | | | | | 47 | | | | | 158 | |
| | | | | | | | | | | | | | | | | |
Core, Non-GAAP Measure | $ | 31,799 | | | $ | 38,573 | | | $ | 28,042 | | | $ | 10,531 | | | $ | 342 | | | | | $ | 2,002 | | | | | $ | 7,688 | |
(a)Provision for income taxes is the expected tax charge/benefit on the underlying item based on the tax laws and income tax rates applicable to the underlying item in its corresponding tax jurisdiction.
| | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | Change | |
Net income attributable to PepsiCo per common share – diluted, GAAP measure | $ | 5.49 | | | $ | 5.12 | | | 7 | % | |
Mark-to-market net impact | 0.01 | | | (0.04) | | | | |
Restructuring and impairment charges | 0.15 | | | 0.17 | | | | |
Acquisition and divestiture-related charges | (0.02) | | | 0.17 | | | | |
| | | | | | |
Pension and retiree medical-related impact | 0.01 | | | 0.11 | | | | |
Charge related to cash tender offers | 0.49 | | | — | | | | |
Tax expense related to the TCJ Act | 0.14 | | | — | | | | |
| | | | | | |
| | | | | | |
Core net income attributable to PepsiCo per common share – diluted, non-GAAP measure | $ | 6.26 | | (a) | $ | 5.52 | | (a) | 13 | % | |
Impact of foreign exchange translation | | | | | (1.5) | | |
Growth in core net income attributable to PepsiCo per common share – diluted, on a constant currency basis, non-GAAP measure | | | | | 12 | % | (a) |
(a)Does not sum due to rounding.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 |
| Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Operating profit | | Other pension and retiree medical benefits income | | Interest expense | | (Benefit from)/provision for income taxes(a) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo |
Reported, GAAP Measure | $ | 29,381 |
| | $ | 35,280 |
| | $ | 25,170 |
| | $ | 10,110 |
| | $ | 298 |
| | $ | 1,525 |
| | $ | (3,370 | ) | | $ | 44 |
| | $ | 12,515 |
|
Items Affecting Comparability | | | | | | | | | | | | | | | | | |
Mark-to-market net impact | (83 | ) | | 83 |
| | (80 | ) | | 163 |
| | — |
| | — |
| | 38 |
| | — |
| | 125 |
|
Restructuring and impairment charges | (3 | ) | | 3 |
| | (269 | ) | | 272 |
| | 36 |
| | — |
| | 56 |
| | 1 |
| | 251 |
|
Merger and integration charges | — |
| | — |
| | (75 | ) | | 75 |
| | — |
| | — |
| | — |
| | — |
| | 75 |
|
Net tax benefit related to the TCJ Act | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 28 |
| | — |
| | (28 | ) |
Other net tax benefits | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,064 |
| | — |
| | (5,064 | ) |
Charges related to cash tender and exchange offers | — |
| | — |
| | — |
| | — |
| | — |
| | (253 | ) | | 62 |
| | — |
| | 191 |
|
Core, Non-GAAP Measure | $ | 29,295 |
| | $ | 35,366 |
| | $ | 24,746 |
| | $ | 10,620 |
| | $ | 334 |
| | $ | 1,272 |
| | $ | 1,878 |
| | $ | 45 |
| | $ | 8,065 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017(b) |
| Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Operating profit | | Other pension and retiree medical benefits income | | Provision for income taxes(a) | | Net income attributable to PepsiCo |
Reported, GAAP Measure | $ | 28,796 |
| | $ | 34,729 |
| | $ | 24,453 |
| | $ | 10,276 |
| | $ | 233 |
| | $ | 4,694 |
| | $ | 4,857 |
|
Items Affecting Comparability | | | | | | | | | | | | | |
Mark-to-market net impact | 8 |
| | (8 | ) | | 7 |
| | (15 | ) | | — |
| | (7 | ) | | (8 | ) |
Restructuring and impairment charges | — |
| | — |
| | (229 | ) | | 229 |
| | 66 |
| | 71 |
| | 224 |
|
Provisional net tax expense related to the TCJ Act | — |
| | — |
| | — |
| | — |
| | — |
| | (2,451 | ) | | 2,451 |
|
Core, Non-GAAP Measure | $ | 28,804 |
| | $ | 34,721 |
| | $ | 24,231 |
| | $ | 10,490 |
| | $ | 299 |
| | $ | 2,307 |
| | $ | 7,524 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2016(b) |
| Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Operating profit | | Other pension and retiree medical benefits (expense)/income | | Interest expense | | Provision for income taxes(a) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo |
Reported, GAAP Measure | $ | 28,222 |
| | $ | 34,577 |
| | $ | 24,773 |
| | $ | 9,804 |
| | $ | (19 | ) | | $ | 1,342 |
| | $ | 2,174 |
| | $ | 50 |
| | $ | 6,329 |
|
Items Affecting Comparability | | | | |
| |
| | | |
| | | | | | |
Mark-to-market net impact | 78 |
| | (78 | ) | | 89 |
| | (167 | ) | | — |
| | — |
| | (56 | ) | | — |
| | (111 | ) |
Restructuring and impairment charges | — |
| | — |
| | (155 | ) | | 155 |
| | 5 |
| | — |
| | 26 |
| | 3 |
| | 131 |
|
Charge related to the transaction with Tingyi | — |
| | — |
| | (373 | ) | | 373 |
| | — |
| | — |
| | — |
| | — |
| | 373 |
|
Charge related to debt redemption | — |
| | — |
| | — |
| | — |
| | — |
| | (233 | ) | | 77 |
| | — |
| | 156 |
|
Pension-related settlement charge | — |
| | — |
| | — |
| | — |
| | 242 |
| | — |
| | 80 |
| | — |
| | 162 |
|
Core, Non-GAAP Measure | $ | 28,300 |
| | $ | 34,499 |
| | $ | 24,334 |
| | $ | 10,165 |
| | $ | 228 |
| | $ | 1,109 |
| | $ | 2,301 |
| | $ | 53 |
| | $ | 7,040 |
|
| |
(a) | Benefit from/provision for income taxes is the expected tax benefit/charge on the underlying item based on the tax laws and income tax rates applicable to the underlying item in its corresponding tax jurisdiction and tax year. |
| |
(b) | Reflects the retrospective adoption of guidance requiring the presentation of non-service cost components of net periodic benefit cost below operating profit. See Note 2 to our consolidated financial statements. |
Mark-to-Market Net Impact
We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include energy, agricultural products, energy and metals. Commodity derivatives that do not qualify for hedge accounting treatment are marked to market each period with the resulting gains and losses recorded in corporate unallocated expenses as either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. These gains and losses are subsequently reflected in division results when the divisions recognize the cost of the underlying commodity in operating profit. Therefore, the divisions realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in corporate unallocated expenses.
RestructuringNet Revenue and Impairment ChargesOrganic Revenue Growth
Organic revenue growth is a non-GAAP financial measure. For further information on this measure, see “Non-GAAP Measures.” 2019 Multi-Year Productivity Plan | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| | | Impact of | | | | Impact of |
| Reported % Change, GAAP Measure | | Foreign exchange translation | | Acquisitions and divestitures | | | | Organic % Change, Non-GAAP Measure(a) | | Organic volume(b) | | Effective net pricing |
FLNA | 8 | % | | (0.5) | | | — | | | | | 7 | % | | 2 | | | 5 | |
QFNA | — | % | | (1) | | | — | | | | | — | % | | (7) | | | 7 | |
PBNA | 12 | % | | (0.5) | | | (1) | | | | | 10 | % | | 5 | | | 5 | |
LatAm | 17 | % | | (2) | | | — | | | | | 15 | % | | 4 | | | 10 | |
Europe | 9 | % | | (0.5) | | | — | | | | | 9 | % | | 4.5 | | | 4 | |
AMESA | 33 | % | | (4.5) | | | (17) | | | | | 12 | % | | 7 | | | 4 | |
APAC | 34 | % | | (6) | | | (15) | | | | | 13 | % | | 12 | | | 1 | |
Total | 13 | % | | (1) | | | (2) | | | | | 10 | % | | 4 | | | 5 | |
Our 2019 Productivity Plan, publicly announced on February 15, 2019, will leverage new technology(a)Amounts may not sum due to rounding.
(b)Excludes the impact of acquisitions and business models to further simplify, harmonize and automate processes; re-engineerdivestitures, including the impact of an extra month of volume for our go-to-market and information systems, including deploying the right automation for each market; simplify our organization and optimize our manufacturing and supply chain footprint. In connection with this program, we expect to incur pre-tax chargesacquisitions of approximately $2.5 billion, of which $138 million is includedPioneer Food Group Ltd. (Pioneer Foods) in our 2018 results, approximately $800 million is expected to be reflectedAMESA division and Hangzhou Haomusi Food Co., Ltd. (Be & Cheery) in our 2019 results andAPAC division as we aligned the balance to be reflected in our 2020 through 2023 results. These pre-tax charges will consistreporting calendars of approximately 70% of severance and other employee-related costs, 15% for asset impairments (all non-cash) resulting from plant closures and related actions, and 15% for other costs associatedthese acquisitions with the implementationthose of our initiatives. We expect thatdivisions. In certain instances, the impact of organic volume growth on net revenue growth differs from the unit volume growth disclosed in the following divisional discussions due to the impacts of acquisitions and divestitures, product mix, nonconsolidated joint venture volume, and, for our beverage businesses, temporary timing differences between BCS and CSE. Our net revenue excludes nonconsolidated joint venture volume, and, for our franchise-owned beverage businesses, is based on CSE.
Operating Profit, Operating Profit Adjusted for Items Affecting Comparability and Operating Profit Growth Adjusted for Items Affecting Comparability on a Constant Currency Basis
Operating profit adjusted for items affecting comparability and operating profit growth adjusted for items affecting comparability on a constant currency basis are both non-GAAP financial measures. For further information on these pre-taxmeasures see “Non-GAAP Measures” and “Items Affecting Comparability.”
Operating Profit and Operating Profit Adjusted for Items Affecting Comparability
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges(c) | | Core, Non-GAAP Measure(b) |
FLNA | $ | 5,633 | | | $ | — | | | $ | 28 | | | $ | 2 | | | $ | 5,663 | |
QFNA | 578 | | | — | | | — | | | — | | | 578 | |
PBNA | 2,442 | | | — | | | 20 | | | 11 | | | 2,473 | |
LatAm | 1,369 | | | — | | | 37 | | | — | | | 1,406 | |
Europe | 1,292 | | | — | | | 81 | | | 8 | | | 1,381 | |
AMESA | 858 | | | — | | | 15 | | | 10 | | | 883 | |
APAC | 673 | | | — | | | 7 | | | 4 | | | 684 | |
Corporate unallocated expenses | (1,683) | | | 19 | | | 49 | | | (39) | | | (1,654) | |
Total | $ | 11,162 | | | $ | 19 | | | $ | 237 | | | $ | (4) | | | $ | 11,414 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges(c) | | Core, Non-GAAP Measure(b) |
FLNA | $ | 5,340 | | | $ | — | | | $ | 83 | | | $ | 29 | | | $ | 5,452 | |
QFNA | 669 | | | — | | | 5 | | | — | | | 674 | |
PBNA | 1,937 | | | — | | | 47 | | | 66 | | | 2,050 | |
LatAm | 1,033 | | | — | | | 31 | | | — | | | 1,064 | |
Europe | 1,353 | | | — | | | 48 | | | — | | | 1,401 | |
AMESA | 600 | | | — | | | 14 | | | 173 | | | 787 | |
APAC | 590 | | | — | | | 5 | | | 7 | | | 602 | |
Corporate unallocated expenses | (1,442) | | | (73) | | | 36 | | | (20) | | | (1,499) | |
Total | $ | 10,080 | | | $ | (73) | | | $ | 269 | | | $ | 255 | | | $ | 10,531 | |
(a)See “Items Affecting Comparability.”
(b)Includes the charges willtaken as a result in cash expenditures of approximately $1.6 billion, of which we expect approximately $450 million to be reflected in our 2019 cash flows and the balance to be reflected in our 2020 through 2023 cash flows. We expect to incur the majority of the pre-tax charges and cash expenditures in our 2019 and 2020 results.
The total expected program pre-tax charges are expected to be incurred by division approximately as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| FLNA | | QFNA | | NAB | | Latin America | | ESSA | | AMENA | | Corporate |
Expected pre-tax charges | 10 | % | | 3 | % | | 35 | % | | 12 | % | | 25 | % | | 13 | % | | 2 | % |
2014 Multi-Year Productivity Plan
To build on the successful implementation of the 2014 Productivity Plan, we expanded and extended the program through the end of 2019 to take advantage of additional opportunities within the initiatives of the 2014 Productivity Plan to further strengthen our beverage, food and snack businesses. In connection with this program, we expect to incur pre-tax charges and cash expenditures of approximately $1.3 billion and $960 million, respectively. This total pre-tax charge is expected to consist of approximately 55% of severance and other employee-related costs, 15% for asset impairments (all non-cash) resulting from plant closures and related actions, and 30% for other costs associated with the implementation of our initiatives. To date, we have incurred $1.2 billion of pre-tax charges and $814 million of cash expenditures. We expect to complete the program and incur the program’s remaining pre-tax charges and cash expenditures before the end of 2019.
The total expected program pre-tax charges are expected to be incurred by division approximately as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| FLNA | | QFNA | | NAB | | Latin America | | ESSA | | AMENA | | Corporate |
Expected pre-tax charges | 14 | % | | 3 | % | | 30 | % | | 15 | % | | 20 | % | | 6 | % | | 12 | % |
COVID-19 pandemic. See Note 31 to our consolidated financial statements for further information relatedinformation.
(c)The income amounts primarily relate to gains associated with the contingent consideration in connection with our 2019 and 2014 Productivity Plans.
We regularly evaluate productivity initiatives beyondacquisition of Rockstar Energy Beverages (Rockstar). In 2021, this impact is partially offset by divestiture-related charges associated with the productivity plans and other initiatives discussed above and inJuice Transaction. See Note 313 to our consolidated financial statements.statements for further information.
Operating Profit Growth and Integration ChargesOperating Profit Growth Adjusted for Items Affecting Comparability on a Constant Currency Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| | | Impact of Items Affecting Comparability(a) | | | | Impact of | | |
| Reported % Change, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | | | Core % Change, Non-GAAP Measure(b) | | Foreign exchange translation | | Core Constant Currency % Change, Non-GAAP Measure(b) |
FLNA | 5.5 | % | | — | | | (1) | | | (0.5) | | | | | 4 | % | | — | | | 3 | % |
QFNA | (14) | % | | — | | | (0.5) | | | — | | | | | (14) | % | | — | | | (14) | % |
PBNA | 26 | % | | — | | | (2) | | | (4) | | | | | 21 | % | | (1) | | | 20 | % |
LatAm | 33 | % | | — | | | — | | | — | | | | | 32 | % | | (4.5) | | | 28 | % |
Europe | (4.5) | % | | — | | | 2.5 | | | 1 | | | | | (1.5) | % | | (1.5) | | | (3) | % |
AMESA | 43 | % | | — | | | — | | | (31) | | | | | 12 | % | | (2) | | | 10 | % |
APAC | 14 | % | | — | | | 1 | | | (1.5) | | | | | 14 | % | | (3) | | | 10 | % |
Corporate unallocated expenses | 17 | % | | (7) | | | (1) | | | 1 | | | | | 10 | % | | — | | | 10 | % |
Total | 11 | % | | 1 | | | — | | | (3) | | | | | 8 | % | | (1) | | | 7 | % |
(a)See “Items Affecting Comparability” for further information.
(b)Amounts may not sum due to rounding.
FLNA
Net revenue grew 8%, primarily driven by effective net pricing and organic volume growth. Unit volume grew 2%, primarily reflecting double-digit growth in variety packs and the impact of our BFY Brands, Inc. (BFY Brands) acquisition in the first quarter of 2020, partially offset by a low-single-digit decline in trademark Tostitos and a double-digit decline in trademark Santitas.
Operating profit increased 5.5%, primarily reflecting the net revenue growth, productivity savings and a 3-percentage-point impact of lower charges taken as a result of the COVID-19 pandemic. These impacts were partially offset by certain operating cost increases, including strategic initiatives and incremental transportation costs, and a 4-percentage-point impact of higher commodity costs, primarily packaging material and cooking oil.
QFNA
Net revenue grew slightly and unit volume declined 7%. The net revenue growth reflects effective net pricing and a 1-percentage-point impact of favorable foreign exchange, largely offset by a decrease in organic volume. The unit volume decline was primarily driven by double-digit declines in pancake syrups and mixes and in ready-to-eat cereals and a high-single-digit decline in oatmeal, partially offset by growth in Cheetos macaroni and cheese, which was introduced in the third quarter of 2020, and double-digit growth in lite snacks.
Operating profit declined 14%, primarily reflecting certain operating cost increases, including incremental transportation costs, and an 8-percentage-point impact of higher commodity costs, partially offset by productivity savings.
The impact of the COVID-19 pandemic contributed to a current-year decrease in consumer demand, which had a negative impact on net revenue, unit volume and operating profit performance compared to the significant COVID-19 related surge in consumer demand in the prior year.
PBNA
Net revenue increased 12%, primarily driven by effective net pricing and an increase in organic volume. Unit volume increased 6%, driven by a 7% increase in non-carbonated beverage (NCB) volume and a 4% increase in CSD volume. The NCB volume increase primarily reflected double-digit increases in our
overall water portfolio and our energy portfolio, a low-single-digit increase in Gatorade sports drinks and a mid-single-digit increase in Lipton ready-to-drink teas.
Operating profit increased 26%, primarily reflecting the net revenue growth, a 15-percentage-point impact of lower charges taken as a result of the COVID-19 pandemic and productivity savings. These impacts were partially offset by certain operating cost increases, including incremental transportation costs, an 18-percentage-point impact of higher commodity costs and higher advertising and marketing expenses. Higher prior-year acquisition and divestiture-related charges contributed 4 percentage points to operating profit growth.
Changes in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.
In 2018,2020, we incurred mergerreceived a notice of termination without cause from Vital Pharmaceuticals, Inc., which would end our distribution rights of Bang Energy drinks, effective October 24, 2023.
LatAm
Net revenue increased 17%, primarily reflecting effective net pricing and integrationorganic volume growth.
Convenient foods unit volume grew 3.5%, primarily reflecting low-single-digit growth in Brazil and Mexico.
Beverage unit volume grew 8%, primarily reflecting double-digit growth in Argentina and Chile. Additionally, Brazil experienced low-single-digit growth, Mexico experienced mid-single-digit growth and Guatemala experienced high-single-digit growth.
Operating profit increased 33%, primarily reflecting the net revenue growth, productivity savings and a 4.5-percentage-point impact of favorable foreign exchange. These impacts were partially offset by certain operating cost increases, a 30-percentage-point impact of higher commodity costs and higher advertising and marketing expenses. A current-year recognition of certain indirect tax credits in Brazil and lower charges taken as a result of $75 million ($0.05 per share) relatedthe COVID-19 pandemic contributed 6 percentage points and 4 percentage points, respectively, to our acquisitionoperating profit growth.
Changes in consumer behavior as a result of SodaStream, including $57 million recordedthe COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.
Europe
Net revenue increased 9%, primarily reflecting organic volume growth and effective net pricing.
Convenient foods unit volume grew 4%, primarily reflecting double-digit growth in Turkey and mid-single-digit growth in Russia and Poland, partially offset by a mid-single-digit decline in the ESSA segmentUnited Kingdom. Additionally, the Netherlands grew slightly and $18 million recordedFrance experienced low-single-digit growth.
Beverage unit volume grew 8%, primarily reflecting double-digit growth in corporate unallocated expenses.Russia, Turkey and the United Kingdom and high-single-digit growth in France, partially offset by a low-single-digit decline in Germany.
Operating profit decreased 4.5%, primarily reflecting certain operating cost increases, a 28-percentage-point impact of higher commodity costs and a 2.5-percentage-point impact each from higher restructuring and impairment charges and a gain on an asset sale in the prior year. These impacts were partially offset by the net revenue growth and productivity savings. Additionally, lower charges include closing costs, advisory feestaken as a result of the COVID-19 pandemic and employee-related costs.
See Note 14 to our consolidated financial statements.
Net Tax (Benefit)/Expense Relatedfavorable settlements of promotional spending accruals compared to the TCJ Actprior
year positively contributed 5 percentage points and 3 percentage points, respectively, to operating profit performance.
Changes in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue and unit volume performance.
During the fourth quarter of 2017,2021, the TCJ Act was enactedimplementation of an Enterprise Resource Planning (ERP) system in the United States. Among its many provisions,Kingdom caused a temporary disruption to our United Kingdom operations which had a negative impact on net revenue, unit volume and operating profit performance. These issues were largely resolved within the TCJ Act imposedquarter and the business operations had resumed by year end.
AMESA
Net revenue increased 33%, reflecting a mandatory one-time transition tax on undistributed international earnings14-percentage-point impact of our Pioneer Foods acquisition, which included the impact of an extra month of net revenue compared to the prior year as we aligned Pioneer Foods’ reporting calendar with that of our AMESA division, as well as organic volume growth and reducedeffective net pricing. Favorable foreign exchange contributed 4.5 percentage points to net revenue growth.
Convenient foods unit volume grew 38%, primarily reflecting a 35-percentage-point impact of our Pioneer Foods acquisition, which included the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018.
In 2017,impact of an extra month of unit volume as we recorded a provisional net tax expensealigned Pioneer Foods’ reporting calendar with that of $2.5 billion ($1.70 per share) associated with the enactment of the TCJ Act. Includedour AMESA division, double-digit growth in India and Pakistan and high-single-digit growth in the provisional net tax expense of $2.5 billion was a provisional mandatory one-time transition tax of approximately $4 billion on undistributed international earnings, included in other liabilities. This mandatory one-time transition tax wasMiddle East, partially offset by a provisional $1.5 billion benefit resulting fromlow-single-digit decline in South Africa (excluding our Pioneer Foods acquisition).
Beverage unit volume grew 20%, primarily reflecting double-digit growth in India and Pakistan. Additionally, the required remeasurementMiddle East experienced double-digit growth and Nigeria experienced high-single-digit growth.
Operating profit increased 43%, primarily reflecting the net revenue growth, a 31-percentage-point impact of the prior-year acquisition and divestiture-related charges associated with our Pioneer Foods acquisition and productivity savings. These impacts were partially offset by certain operating cost increases, a 13-percentage-point impact of higher commodity costs and higher advertising and marketing expenses. Additionally, lower charges taken as a result of the COVID-19 pandemic and our Pioneer Foods acquisition contributed 3 percentage points and 2 percentage points, respectively, to operating profit growth.
Changes in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.
APAC
Net revenue increased 34%, reflecting a 15-percentage-point impact of our deferred tax assets and liabilitiesBe & Cheery acquisition, which included the impact of an extra month of net revenue compared to the new,prior year as we aligned Be & Cheery’s reporting calendar with that of our APAC division, as well as organic volume growth, a 6- percentage-point impact of favorable foreign exchange and effective net pricing.
Convenient foods unit volume grew 19%, primarily reflecting a 16-percentage-point impact of our Be & Cheery acquisition, which included the impact of an extra month of unit volume as we aligned Be & Cheery’s reporting calendar with that of our APAC division, and double-digit growth in China (excluding our Be & Cheery acquisition) and Thailand. Additionally, Australia, Indonesia and Taiwan each experienced low-single-digit growth.
Beverage unit volume grew 13%, primarily reflecting double-digit growth in China, partially offset by a low-single-digit decline in Vietnam. Additionally, the Philippines experienced low-single-digit growth and Thailand experienced mid-single-digit growth.
Operating profit increased 14%, primarily reflecting the net revenue growth, productivity savings and a 2- percentage-point contribution from our Be & Cheery acquisition, partially offset by certain operating cost increases and higher advertising and marketing expenses. Additionally, impairment charges associated with an equity method investment reduced operating profit growth by 3 percentage points. Favorable foreign exchange contributed 3 percentage points to operating profit growth.
Other Consolidated Results
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | Change |
Other pension and retiree medical benefits income | $ | 522 | | | $ | 117 | | | $ | 405 | |
Net interest expense and other | $ | (1,863) | | | $ | (1,128) | | | $ | (735) | |
Annual tax rate | 21.8 | % | | 20.9 | % | | |
Net income attributable to PepsiCo (a) | $ | 7,618 | | | $ | 7,120 | | | 7 | % |
Net income attributable to PepsiCo per common share – diluted (a) | $ | 5.49 | | | $ | 5.12 | | | 7 | % |
(a)In 2021, lower U.S. corporatecharges taken as a result of the COVID-19 pandemic contributed 7 percentage points to both net income tax rate.
In 2018, we recorded aattributable to PepsiCo growth and net tax benefit of $28 million ($0.02income attributable to PepsiCo per share) in connection with the TCJ Act.
common share growth. See Note 51 to our consolidated financial statements.
statements for further information.
Other Net Tax Benefits
In 2018, we reorganized our international operations, includingpension and retiree medical benefits income increased $405 million, primarily reflecting lower settlement charges in 2021, the intercompany transferrecognition of certain intangible assets. As a result, we recognized other net tax benefitsfixed income gains on plan assets, the impact of $4.3 billion ($3.05 per share). Alsoplan changes approved in 2018, we recognized non-cash tax benefits associated with both the conclusion of certain international tax audits and our agreement with the IRS resolving all open matters related to the audits of taxable years 2012 and 2013. The conclusion of certain international tax audits and the resolution with the IRS resulted2020, as discussed in non-cash tax benefits of $364 million ($0.26 per share) and $353 million ($0.24 per share), respectively.
See Note 57 to our consolidated financial statements.statements, and the impact of discretionary plan contributions, partially offset by a decrease in the expected rate of return on plan assets.
Charges Related to Cash TenderNet interest expense and Exchange Offers
In 2018, we recordedother increased $735 million, reflecting a pre-tax charge of $253$842 million ($191 million after-tax or $0.13 per share) to interest expense in connection with our cash tender and exchange offers, primarily representing the tender price paid over the carrying value of the tendered notes.
offers. See Note 8 to our consolidated financial statements.statements for further information. This impact was partially offset by lower interest rates on average debt balances.
Charge RelatedThe reported tax rate increased 0.9 percentage points, primarily reflecting the net tax impact of adjustments to uncertain tax positions related to the Transaction with Tingyi
In 2016, we recorded a pre- and after-tax impairment charge of $373 million ($0.26 per share) infinal assessment from the AMENA segment to reduce the value of our 5% indirect equity interest in KSFB to its estimated fair value.
See Note 9 to our consolidated financial statements.
Charge Related to Debt Redemption
In 2016, we paid $2.5 billion to redeem all of our outstanding 7.900% senior notes due 2018 and 5.125% senior notes due 2019Internal Revenue Service (IRS) audit for the principal amountstax years 2014 through 2016.
Non-GAAP Measures
Certain financial measures contained in this Form 10-K adjust for the impact of $1.5 billionspecified items and $750 million, respectively, and terminated certain interest rate swaps. As a result, we recorded a pre-tax charge of $233 million ($156 million after-tax or $0.11 per share) to interest expense, primarily representing the premium paidare not in accordance with U.S. GAAP. We use non-GAAP financial measures internally to make operating and strategic decisions, including the “make-whole” redemption provisions.preparation of our annual operating plan, evaluation of our overall business performance and as a factor in determining compensation for certain employees. We believe presenting non-GAAP financial measures in this Form 10-K provides additional information to facilitate comparison of our historical operating results and trends in our underlying operating results and provides additional transparency on how we evaluate our business. We also believe presenting these measures in this Form 10-K allows investors to view our performance using the same measures that we use in evaluating our financial and business performance and trends.
See Note 8We consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that may be significant or that could affect an understanding of our consolidatedongoing financial statements.and business performance or trends. Examples of items for which we may make adjustments include: amounts related to mark-to-market gains or losses (non-cash); charges related to restructuring plans; costs associated with mergers, acquisitions, divestitures and other structural changes; gains associated with divestitures; pension and retiree medical-related amounts (including all settlement and curtailment gains and losses); charges or
Pension-Related Settlement Charge
In 2016, we recorded a pre-tax pension settlement charge in corporate unallocated expenses43
adjustments related to the purchaseenactment of a group annuity contract.
See Note 7new laws, rules or regulations, such as tax law changes; amounts related to our consolidated financial statements.
Results of Operations — Division Review
The results and discussions below are based on how our Chief Executive Officer monitors the performancetax positions; tax benefits related to reorganizations of our divisions.operations; debt redemptions, cash tender or exchange offers; asset impairments (non-cash); and remeasurements of net monetary assets. Previously, certain immaterial pension and retiree medical-related settlement and curtailment gains and losses were not considered items affecting comparability. Pension and retiree medical-related service cost, interest cost, expected return on plan assets, and other net periodic pension costs will continue to be reflected in our core results. See “Non-GAAP Measures”below and “Items Affecting Comparability” for a discussiondescription of adjustments to our U.S. GAAP financial measures in this Form 10-K.
Non-GAAP information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with U.S. GAAP. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies.
The following non-GAAP financial measures contained in this Form 10-K are discussed below:
Cost of sales, gross profit, selling, general and administrative expenses, other pension and retiree medical benefits income, net interest expense and other, provision for income taxes, net income attributable to noncontrolling interests and net income attributable to PepsiCo, each adjusted for items affecting comparability, operating profit and net income attributable to PepsiCo per common share – diluted, each adjusted for items affecting comparability, and the corresponding constant currency growth rates
These measures exclude the net impact of mark-to-market gains and losses on centrally managed commodity derivatives that do not qualify for hedge accounting, restructuring and impairment charges related to our 2019 Multi-Year Productivity Plan (2019 Productivity Plan), costs associated with our acquisitions and divestitures, the impact of settlement and curtailment gains and losses related to pension and retiree medical plans, a charge related to cash tender offers and tax expense related to the Tax Cuts and Jobs Act (TCJ Act) (see “Items Affecting Comparability” for a detailed description of each of these items). We also evaluate performance on operating profit and net income attributable to PepsiCo per common share – diluted, each adjusted for items affecting comparability, on a constant currency basis, which measure our financial results assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period. In order to compute our constant currency results, we multiply or divide, as appropriate, our current-year U.S. dollar results by the current-year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior-year average foreign exchange rates. We believe these measures provide useful information in evaluating the results of our business because they exclude items that we believe are not indicative of our ongoing performance or that we believe impact comparability with the prior year.
Organic revenue growth
We define organic revenue growth as a measure that adjusts for the impacts of foreign exchange translation, acquisitions and divestitures, and where applicable, the impact of an additional week of results every five or six years (53rd reporting week), including in our 2022 financial results. Adjusting for acquisitions and divestitures reflects mergers and acquisitions activity, including the impact in 2021 of an extra month of net revenue for our acquisitions of Pioneer Foods in our AMESA division and Be & Cheery in our APAC division as we aligned the reporting calendars of these acquisitions with those of our divisions, as well as divestitures and other structural changes, including changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees. We believe organic revenue growth provides useful information in evaluating the results of our business because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior year.
See “Net Revenue and Organic Revenue Growth” in “Results of Operations – Division Review” for further information.
Free cash flow
We define free cash flow as net cash provided by operating activities less capital spending, plus sales of property, plant and equipment. Since net capital spending is essential to our product innovation initiatives and maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider net capital spending when evaluating our cash from operating activities. Free cash flow is used by us primarily for acquisitions and financing activities, including debt repayments, dividends and share repurchases. Free cash flow is not a measure of cash available for discretionary expenditures since we have certain non-discretionary obligations such as debt service that are not deducted from the measure.
See “Free Cash Flow” in “Our Liquidity and Capital Resources” for further information.
Return on invested capital (ROIC) and net ROIC, excluding items affecting comparability
We define ROIC as net income attributable to PepsiCo plus interest expense after-tax divided by the sum of quarterly average debt obligations and quarterly average common shareholders’ equity. Although ROIC is a common financial metric, numerous methods exist for calculating ROIC. Accordingly, the method used by management to calculate ROIC may differ from the methods other companies use to calculate their ROIC.
We believe this metric serves as a measure of how well we use our capital to generate returns. In addition, we use net ROIC, excluding items affecting comparability, to compare our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that we believe are not indicative of our ongoing performance and reflects how management evaluates our operating results and trends. We define net ROIC, excluding items affecting comparability, as ROIC, adjusted for quarterly average cash, cash equivalents and short-term investments, after-tax interest income and items affecting comparability. We believe the calculation of ROIC and net ROIC, excluding items affecting comparability, provides useful information to investors and is an additional relevant comparison of our performance to consider when evaluating our capital allocation efficiency.
See “Return on Invested Capital” in “Our Liquidity and Capital Resources” for further information.
Items Affecting Comparability
Our reported financial results in this Form 10-K are impacted by the following items in each of the following years:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Operating profit | | | | Other pension and retiree medical benefits income | | Net interest expense and other | | Provision for income taxes(a) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo |
Reported, GAAP Measure | $ | 37,075 | | | $ | 42,399 | | | $ | 31,237 | | | $ | 11,162 | | | | | $ | 522 | | | $ | (1,863) | | | $ | 2,142 | | | $ | 61 | | | $ | 7,618 | |
Items Affecting Comparability | | | | | | | | | | | | | | | | |
Mark-to-market net impact | (39) | | | 39 | | | 20 | | | 19 | | | | | — | | | — | | | 5 | | | — | | | 14 | |
Restructuring and impairment charges | (29) | | | 29 | | | (208) | | | 237 | | | | | 10 | | | — | | | 41 | | | 1 | | | 205 | |
Acquisition and divestiture-related charges | (1) | | | 1 | | | 5 | | | (4) | | | | | — | | | — | | | 23 | | | — | | | (27) | |
| | | | | | | | | | | | | | | | | | | |
Pension and retiree medical-related impact | — | | | — | | | — | | | — | | | | | 12 | | | — | | | 1 | | | — | | | 11 | |
Charge related to cash tender offers | — | | | — | | | — | | | — | | | | | — | | | 842 | | | 165 | | | — | | | 677 | |
Tax expense related to the TCJ Act | — | | | — | | | — | | | — | | | | | — | | | — | | | (190) | | | — | | | 190 | |
| | | | | | | | | | | | | | | | | | | |
Core, Non-GAAP Measure | $ | 37,006 | | | $ | 42,468 | | | $ | 31,054 | | | $ | 11,414 | | | | | $ | 544 | | | $ | (1,021) | | | $ | 2,187 | | | $ | 62 | | | $ | 8,688 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Operating profit | | Other pension and retiree medical benefits income | | | | Provision for income taxes(a) | | | | Net income attributable to PepsiCo |
Reported, GAAP Measure | $ | 31,797 | | | $ | 38,575 | | | $ | 28,495 | | | $ | 10,080 | | | $ | 117 | | | | | $ | 1,894 | | | | | $ | 7,120 | |
Items Affecting Comparability | | | | | | | | | | | | | | | | | |
Mark-to-market net impact | 64 | | | (64) | | | 9 | | | (73) | | | — | | | | | (15) | | | | | (58) | |
Restructuring and impairment charges | (30) | | | 30 | | | (239) | | | 269 | | | 20 | | | | | 58 | | | | | 231 | |
Acquisition and divestiture-related charges | (32) | | | 32 | | | (223) | | | 255 | | | — | | | | | 18 | | | | | 237 | |
Pension and retiree medical-related impact | — | | | — | | | — | | | — | | | 205 | | | | | 47 | | | | | 158 | |
| | | | | | | | | | | | | | | | | |
Core, Non-GAAP Measure | $ | 31,799 | | | $ | 38,573 | | | $ | 28,042 | | | $ | 10,531 | | | $ | 342 | | | | | $ | 2,002 | | | | | $ | 7,688 | |
(a)Provision for income taxes is the expected tax charge/benefit on the underlying item based on the tax laws and related information regarding non-GAAP measures.income tax rates applicable to the underlying item in its corresponding tax jurisdiction.
| | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | Change | |
Net income attributable to PepsiCo per common share – diluted, GAAP measure | $ | 5.49 | | | $ | 5.12 | | | 7 | % | |
Mark-to-market net impact | 0.01 | | | (0.04) | | | | |
Restructuring and impairment charges | 0.15 | | | 0.17 | | | | |
Acquisition and divestiture-related charges | (0.02) | | | 0.17 | | | | |
| | | | | | |
Pension and retiree medical-related impact | 0.01 | | | 0.11 | | | | |
Charge related to cash tender offers | 0.49 | | | — | | | | |
Tax expense related to the TCJ Act | 0.14 | | | — | | | | |
| | | | | | |
| | | | | | |
Core net income attributable to PepsiCo per common share – diluted, non-GAAP measure | $ | 6.26 | | (a) | $ | 5.52 | | (a) | 13 | % | |
Impact of foreign exchange translation | | | | | (1.5) | | |
Growth in core net income attributable to PepsiCo per common share – diluted, on a constant currency basis, non-GAAP measure | | | | | 12 | % | (a) |
(a)Does not sum due to rounding.
Mark-to-Market Net Impact
We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include agricultural products, energy and metals. Commodity derivatives that do not qualify for hedge accounting treatment are marked to market each period with the resulting gains and losses recorded in corporate unallocated expenses as either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. These gains and losses are subsequently reflected in division results when the divisions recognize the cost of the underlying commodity in operating profit. Therefore, the divisions realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in corporate unallocated expenses.
Net Revenue and Organic Revenue Growth
Organic revenue growth is a non-GAAP financial measure. For further information on organic revenue growth,this measure, see “Non-GAAP Measures.”
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| | | | | | | | | | | | | | | | | | | |
| 2018 |
| | | Impact of | | | | Impact of |
| Net revenue growth | | Foreign exchange translation | | Acquisitions and divestitures | | Sales and certain other taxes | | Organic revenue growth(a) | | Volume(b) | | Effective net pricing(c) |
FLNA | 3.5 | % | | — |
| | — |
| | — | | 3 | % | | 1 |
| | 2 |
|
QFNA | (1.5 | )% | | — |
| | — |
| | — | | (2 | )% | | (0.5 | ) | | (1 | ) |
NAB | 1 | % | | — |
| | — |
| | — | | 0.5 | % | | (1 | ) | | 2 |
|
Latin America | 2 | % | | 6 |
| | — |
| | — | | 8 | % | | 1 |
| | 7 |
|
ESSA | 4 | % | | 2 |
| | — |
| | 0.5 | | 7 | % | | 4 |
| | 3 |
|
AMENA | (2 | )% | | 1 |
| | 8 |
| | — | | 7 | % | | 3 |
| | 3 |
|
Total | 2 | % | | 1 |
| | 1 |
| | — | | 4 | % | | 1 |
| | 3 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| | | Impact of | | | | Impact of |
| Reported % Change, GAAP Measure | | Foreign exchange translation | | Acquisitions and divestitures | | | | Organic % Change, Non-GAAP Measure(a) | | Organic volume(b) | | Effective net pricing |
FLNA | 8 | % | | (0.5) | | | — | | | | | 7 | % | | 2 | | | 5 | |
QFNA | — | % | | (1) | | | — | | | | | — | % | | (7) | | | 7 | |
PBNA | 12 | % | | (0.5) | | | (1) | | | | | 10 | % | | 5 | | | 5 | |
LatAm | 17 | % | | (2) | | | — | | | | | 15 | % | | 4 | | | 10 | |
Europe | 9 | % | | (0.5) | | | — | | | | | 9 | % | | 4.5 | | | 4 | |
AMESA | 33 | % | | (4.5) | | | (17) | | | | | 12 | % | | 7 | | | 4 | |
APAC | 34 | % | | (6) | | | (15) | | | | | 13 | % | | 12 | | | 1 | |
Total | 13 | % | | (1) | | | (2) | | | | | 10 | % | | 4 | | | 5 | |
|
| | | | | | | | | | | | | | | | | | | | |
| 2017 |
| | | Impact of | | | | Impact of |
| Net revenue growth | | Foreign exchange translation | | Acquisitions and divestitures | | 53rd reporting week(d) | | Organic revenue growth(a) | | Volume(b) | | Effective net pricing(c) |
FLNA | 2 | % | | — |
| | — |
| | 2 |
| | 3 | % | | 1 |
| | 2.5 |
|
QFNA | (2 | )% | | — |
| | — |
| | 2 |
| | (1 | )% | | — |
| | (1 | ) |
NAB | (2 | )% | | — |
| | (1 | ) | | 1 |
| | (2 | )% | | (2.5 | ) | | 1 |
|
Latin America | 6 | % | | (1 | ) | | 0.5 |
| | — |
| | 5 | % | | (2 | ) | | 7 |
|
ESSA | 8 | % | | (3 | ) | | — |
| | — |
| | 6 | % | | 3 |
| | 2 |
|
AMENA | (5 | )% | | 10 |
| | — |
| | — |
| | 5 | % | | — |
| | 5 |
|
Total | 1 | % | | — |
| | — |
| | 1 |
| | 2 | % | | — |
| | 3 |
|
(a)Amounts may not sum due to rounding. | |
(a) | Amounts may not sum due to rounding. |
| |
(b) | Excludes the impact of acquisitions and divestitures. In certain instances, volume growth varies from the amounts disclosed in the following divisional discussions due to nonconsolidated joint venture volume, and, for our beverage businesses, temporary timing differences between BCS and CSE, as well as the mix of beverage volume sold by our Company-owned and franchise-owned bottlers. Our net revenue excludes nonconsolidated joint venture volume, and, for our franchise-owned beverage businesses, is based on CSE. |
| |
(c) | Includes the year-over-year impact of discrete pricing actions, sales incentive activities and mix resulting from selling varying products in different package sizes and in different countries. |
| |
(d) | Our fiscal 2016 results included a 53rd reporting week which increased 2016 net revenue by $657 million, including $294 million in our FLNA segment, $43 million in our QFNA segment, $300 million in our NAB segment and $20 million in our ESSA segment. Our 2017 organic revenue growth excludes the impact of the 53rd reporting week from our 2016 results.
|
(b)Excludes the impact of acquisitions and divestitures, including the impact of an extra month of volume for our acquisitions of Pioneer Food Group Ltd. (Pioneer Foods) in our AMESA division and Hangzhou Haomusi Food Co., Ltd. (Be & Cheery) in our APAC division as we aligned the reporting calendars of these acquisitions with those of our divisions. In certain instances, the impact of organic volume growth on net revenue growth differs from the unit volume growth disclosed in the following divisional discussions due to the impacts of acquisitions and divestitures, product mix, nonconsolidated joint venture volume, and, for our beverage businesses, temporary timing differences between BCS and CSE. Our net revenue excludes nonconsolidated joint venture volume, and, for our franchise-owned beverage businesses, is based on CSE.
Operating Profit, Operating Profit Adjusted for Items Affecting Comparability and Operating Profit Growth Adjusted for Items Affecting Comparability on a Constant Currency Basis
Frito-Lay North AmericaOperating profit adjusted for items affecting comparability and operating profit growth adjusted for items affecting comparability on a constant currency basis are both non-GAAP financial measures. For further information on these measures see “Non-GAAP Measures” and “Items Affecting Comparability.”
Operating Profit and Operating Profit Adjusted for Items Affecting Comparability
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges(c) | | Core, Non-GAAP Measure(b) |
FLNA | $ | 5,633 | | | $ | — | | | $ | 28 | | | $ | 2 | | | $ | 5,663 | |
QFNA | 578 | | | — | | | — | | | — | | | 578 | |
PBNA | 2,442 | | | — | | | 20 | | | 11 | | | 2,473 | |
LatAm | 1,369 | | | — | | | 37 | | | — | | | 1,406 | |
Europe | 1,292 | | | — | | | 81 | | | 8 | | | 1,381 | |
AMESA | 858 | | | — | | | 15 | | | 10 | | | 883 | |
APAC | 673 | | | — | | | 7 | | | 4 | | | 684 | |
Corporate unallocated expenses | (1,683) | | | 19 | | | 49 | | | (39) | | | (1,654) | |
Total | $ | 11,162 | | | $ | 19 | | | $ | 237 | | | $ | (4) | | | $ | 11,414 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges(c) | | Core, Non-GAAP Measure(b) |
FLNA | $ | 5,340 | | | $ | — | | | $ | 83 | | | $ | 29 | | | $ | 5,452 | |
QFNA | 669 | | | — | | | 5 | | | — | | | 674 | |
PBNA | 1,937 | | | — | | | 47 | | | 66 | | | 2,050 | |
LatAm | 1,033 | | | — | | | 31 | | | — | | | 1,064 | |
Europe | 1,353 | | | — | | | 48 | | | — | | | 1,401 | |
AMESA | 600 | | | — | | | 14 | | | 173 | | | 787 | |
APAC | 590 | | | — | | | 5 | | | 7 | | | 602 | |
Corporate unallocated expenses | (1,442) | | | (73) | | | 36 | | | (20) | | | (1,499) | |
Total | $ | 10,080 | | | $ | (73) | | | $ | 269 | | | $ | 255 | | | $ | 10,531 | |
(a)See “Items Affecting Comparability.”
(b)Includes the charges taken as a result of the COVID-19 pandemic. See Note 1 to our consolidated financial statements for further information.
(c)The income amounts primarily relate to gains associated with the contingent consideration in connection with our acquisition of Rockstar Energy Beverages (Rockstar). In 2021, this impact is partially offset by divestiture-related charges associated with the Juice Transaction. See Note 13 to our consolidated financial statements for further information.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | % Change | |
| 2018 |
| | 2017(a) |
| | 2016(a) |
| | 2018 |
| | 2017 | |
Net revenue | $ | 16,346 |
| | $ | 15,798 |
| | $ | 15,549 |
| | 3.5 |
| | 2 | |
Impact of foreign exchange translation | | | | | | | — |
| | — | |
Impact of acquisitions and divestitures | | | | | | | — |
| | — | |
Impact of 53rd reporting week | | | | | | | — |
| | 2 | |
Organic revenue growth (b) | | | | | | | 3 |
| (d) | 3 | (d) |
| | | | | | | | | | |
Operating profit | $ | 5,008 |
| | $ | 4,793 |
| | $ | 4,612 |
| | 4.5 |
| | 4 | |
Restructuring and impairment charges (c) | 36 |
| | 54 |
| | 12 |
| | | | | |
Operating profit excluding above item (b) | $ | 5,044 |
| | $ | 4,847 |
| | $ | 4,624 |
| | 4 |
| | 5 | |
Impact of foreign exchange translation | | | | | | | — |
| | — | |
Operating profit growth excluding above item, on a constant currency basis (b) | | | | | | | 4 |
| | 5 |
|
Operating Profit Growth and Operating Profit Growth Adjusted for Items Affecting Comparability on a Constant Currency Basis | |
(a) | In 2017 and 2016, operating profit and restructuring and impairment charges reflect the retrospective adoption of guidance requiring the presentation of non-service cost components of net periodic benefit cost below operating profit. See Note 2 to our consolidated financial statements.
|
| |
(b) | See “Non-GAAP Measures.” |
| |
(c) | See “Items Affecting Comparability.” |
| |
(d) | Does not sum due to rounding. |
2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| | | Impact of Items Affecting Comparability(a) | | | | Impact of | | |
| Reported % Change, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | | | Core % Change, Non-GAAP Measure(b) | | Foreign exchange translation | | Core Constant Currency % Change, Non-GAAP Measure(b) |
FLNA | 5.5 | % | | — | | | (1) | | | (0.5) | | | | | 4 | % | | — | | | 3 | % |
QFNA | (14) | % | | — | | | (0.5) | | | — | | | | | (14) | % | | — | | | (14) | % |
PBNA | 26 | % | | — | | | (2) | | | (4) | | | | | 21 | % | | (1) | | | 20 | % |
LatAm | 33 | % | | — | | | — | | | — | | | | | 32 | % | | (4.5) | | | 28 | % |
Europe | (4.5) | % | | — | | | 2.5 | | | 1 | | | | | (1.5) | % | | (1.5) | | | (3) | % |
AMESA | 43 | % | | — | | | — | | | (31) | | | | | 12 | % | | (2) | | | 10 | % |
APAC | 14 | % | | — | | | 1 | | | (1.5) | | | | | 14 | % | | (3) | | | 10 | % |
Corporate unallocated expenses | 17 | % | | (7) | | | (1) | | | 1 | | | | | 10 | % | | — | | | 10 | % |
Total | 11 | % | | 1 | | | — | | | (3) | | | | | 8 | % | | (1) | | | 7 | % |
(a)See “Items Affecting Comparability” for further information.
(b)Amounts may not sum due to rounding.
FLNA
Net revenue grew 3.5%8%, primarily reflectingdriven by effective net pricing and organic volume growth. VolumeUnit volume grew 1%2%, primarily reflecting mid-single-digitdouble-digit growth in variety packs and low-single-digit growththe impact of our BFY Brands, Inc. (BFY Brands) acquisition in trademark Doritos,the first quarter of 2020, partially offset by a low-single-digit decline in trademark Tostitos and a double-digit decline in trademark Santitas.
Operating profit grew 4.5%increased 5.5%, primarily reflecting the net revenue growth, and productivity savings partially offset by certain operating cost increases and a 1-percentage-point3-percentage-point impact of lower charges taken as a bonus extended to certain U.S. employees in connection with the TCJ Act.
2017
Net revenue grew 2%, primarily reflecting effective net pricing, partially offset by the impactresult of the 53rd reporting week in 2016, which reduced net revenue growth by 2 percentage points. Volume declined 1%, reflecting mid-single-digit declines in trademark Lay’s and Fritos and a low-single-digit decline in trademark Doritos, partially offset by high-single-digit growth in variety packs. The 53rd reporting week in 2016 negatively impacted volume performance by 2 percentage points.
Operating profit grew 4%, primarily reflecting productivity savings, the effective net pricing and a 1-percentage-point impact of 2016 incremental investments into our business.COVID-19 pandemic. These impacts were partially offset by certain operating cost increases, including strategic initiatives and incremental transportation costs, and a 1-percentage-point4-percentage-point impact of higher commodity costs, primarily packaging material and cooking oil. The 53rd reporting week in 2016 reduced operating profit growth by 2 percentage points.
Quaker Foods North America
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | % Change | |
| 2018 |
| | 2017(a) |
| | 2016(a) |
| | 2018 |
| | 2017 |
| |
Net revenue | $ | 2,465 |
| | $ | 2,503 |
| | $ | 2,564 |
| | (1.5 | ) | | (2 | ) | |
Impact of foreign exchange translation | | | | | | | — |
| | — |
| |
Impact of acquisitions and divestitures | | | | | | | — |
| | — |
| |
Impact of 53rd reporting week | | | | | | | — |
| | 2 |
| |
Organic revenue growth (b) | | | | | | | (2 | ) | (d) | (1 | ) | (d) |
| | | | | | | | | | |
Operating profit | $ | 637 |
| | $ | 640 |
| | $ | 649 |
| | — |
| | (1 | ) | |
Restructuring and impairment charges (c) | 7 |
| | 9 |
| | 1 |
| | | | | |
Operating profit excluding above item (b) | $ | 644 |
| | $ | 649 |
| | $ | 650 |
| | (1 | ) | | — |
| |
Impact of foreign exchange translation | | | | | | | — |
| | — |
| |
Operating profit growth excluding above item, on a constant currency basis (b) | | | | | | | (1 | ) | | — |
| |
| |
(a) | In 2017 and 2016, operating profit and restructuring and impairment charges reflect the retrospective adoption of guidance requiring the presentation of non-service cost components of net periodic benefit cost below operating profit. See Note 2 to our consolidated financial statements.
|
| |
(b) | See “Non-GAAP Measures.” |
| |
(c) | See “Items Affecting Comparability.” |
| |
(d) | Does not sum due to rounding. |
2018QFNA
Net revenue declined 1.5%grew slightly and unit volume declined 0.5%7%. The net revenue performancegrowth reflects unfavorableeffective net pricing and mix and the volume decline.a 1-percentage-point impact of favorable foreign exchange, largely offset by a decrease in organic volume. The unit volume decline was primarily driven by a double-digit declinedeclines in trademark Gamesapancake syrups and a mid-single-digit declinemixes and in ready-to-eat cereals and a high-single-digit decline in oatmeal, partially offset by mid-single-digit growth in oatmeal.Cheetos macaroni and cheese, which was introduced in the third quarter of 2020, and double-digit growth in lite snacks.
Operating profit decreased slightly,declined 14%, primarily reflecting certain operating cost increases, the net revenue performanceincluding incremental transportation costs, and a 3-percentage-pointan 8-percentage-point impact of higher commodity costs. These impacts werecosts, partially offset by productivity savings, lower advertising and marketing expenses and a 1-percentage-point positive contribution from insurance settlement recoveries related to the 2017 earthquake in Mexico.savings.
2017
Net revenue declined 2%, reflecting theThe impact of the 53rd reporting weekCOVID-19 pandemic contributed to a current-year decrease in 2016,consumer demand, which negatively impactedhad a negative impact on net revenue, performance by 2 percentage points, as well as unfavorable mix. Volume declined 2%, reflecting a low-single-digit decline in ready-to-eat cerealsunit volume and high-single-digit declines in trademark Roni and Gamesa, in part reflecting the impact of the 53rd reporting week in 2016 which negatively impacted volume performance by 2 percentage points.
Operating profit decreased 1%, reflecting certain operating cost increases and the net revenue performance. The 53rd reporting week in 2016 negatively impacted operating profit performance by 2 percentage points. These impacts were partially offset by productivity savings, lower advertising and marketing expenses and a 1.5-percentage-point impact of 2016 incremental investments into our business. Higher restructuring and impairment charges negatively impacted operating profit performance by 1 percentage point.compared to the significant COVID-19 related surge in consumer demand in the prior year.
North America Beverages
|
| | | | | | | | | | | | | | | | | |
| | | | | | | % Change |
| 2018 |
| | 2017(a) |
| | 2016(a) |
| | 2018 |
| | 2017 |
|
Net revenue | $ | 21,072 |
| | $ | 20,936 |
| | $ | 21,312 |
| | 1 |
| | (2 | ) |
Impact of foreign exchange translation | | | | | | | — |
| | — |
|
Impact of acquisitions and divestitures | | | | | | | — |
| | (1 | ) |
Impact of sales and certain other taxes (b) | | | | | | | — |
| | — |
|
Impact of 53rd reporting week | | | | | | | — |
| | 1 |
|
Organic revenue growth (b) | | | | | | | 0.5 |
| (d) | (2 | ) |
| | | | | | | | | |
Operating profit | $ | 2,276 |
| | $ | 2,700 |
| | $ | 2,947 |
| | (16 | ) | | (8 | ) |
Restructuring and impairment charges (c) | 88 |
| | 43 |
| | 33 |
| | | | |
Operating profit excluding above item (b) | $ | 2,364 |
| | $ | 2,743 |
| | $ | 2,980 |
| | (14 | ) | | (8 | ) |
Impact of foreign exchange translation | | | | | | | — |
| | — |
|
Operating profit growth excluding above item, on a constant currency basis (b) | | | | | | | (14 | ) | | (8 | ) |
| |
(a) | In 2017 and 2016, operating profit and restructuring and impairment charges reflect the retrospective adoption of guidance requiring the presentation of non-service cost components of net periodic benefit cost below operating profit. See Note 2 to our consolidated financial statements.
|
| |
(b) | See “Non-GAAP Measures.” |
| |
(c) | See “Items Affecting Comparability.” |
| |
(d) | Does not sum due to rounding. |
2018PBNA
Net revenue grew 1%increased 12%, primarily driven by effective net pricing partially offset by a declineand an increase in organic volume. Volume decreased 1%Unit volume increased 6%, driven by a 3% decline in CSD volume, partially offset by a 2%7% increase in non-carbonated beverage (NCB) volume and a 4% increase in CSD volume. The non-carbonated beverageNCB volume increase primarily reflected a high-single-digit increasedouble-digit increases in our
overall water portfolio. Additionally,portfolio and our energy portfolio, a low-single-digit increase in Gatorade sports drinks was offset by a low-single-digit decline in our juice and juice drinks portfolio.
Operating profit decreased 16%, reflecting certain operating cost increases, including increased transportation costs, a 7-percentage-point impact of higher commodity costs and higher advertising and marketing expenses. These impacts were partially offset by productivity savings and the net revenue growth. Higher gains on asset sales positively contributed 1.5 percentage points to operating profit performance. A bonus extended to certain U.S. employees in connection with the TCJ Act negatively impacted operating profit performance by 1.5 percentage points and was partially offset by prior-year costs related to hurricanes which positively contributed 1 percentage point to operating profit performance.
2017
Net revenue decreased 2%, primarily reflecting a decline in volume, partially offset by effective net pricing, as well as acquisitions which positively contributed 1 percentage point to the net revenue performance. The 53rd reporting week in 2016 negatively impacted net revenue performance by 1 percentage point. Volume decreased 3.5%, driven by a 5% decline in CSD volume and a 1% decline in non-carbonated beverage volume. The non-carbonated beverage volume decrease primarily reflected mid-single-digit declines in Gatorade sports drinks and in our juice and juice drinks portfolio, partially offset by a mid-single-digit increase in our overall water portfolio and a low-single-digit increase in Lipton ready-to-drink teas. Acquisitions had a nominal positive contribution to the volume performance. The 53rd reporting week in 2016 negatively impacted volume performance by 1.5 percentage points.
Operating profit decreased 8%, primarily reflecting certain operating cost increases, the net revenue performance and a 2-percentage-point impact of higher commodity costs. These impacts were partially offset by productivity savings and lower advertising and marketing expenses. Costs related to the hurricanes that occurred in 2017 negatively impacted operating profit performance by 1 percentage point and were offset by a gain associated with a sale of an asset. In addition, the 53rd reporting week in 2016 negatively impacted operating profit performance by 1 percentage point and was offset by incremental investments in our business in 2016.
Latin America
|
| | | | | | | | | | | | | | | | | |
| | | | | | | % Change | |
| 2018 |
| | 2017(a) |
| | 2016(a) |
| | 2018 | | 2017 |
| |
Net revenue | $ | 7,354 |
| | $ | 7,208 |
| | $ | 6,820 |
| | 2 | | 6 |
| |
Impact of foreign exchange translation | | | | | | | 6 | | (1 | ) | |
Impact of acquisitions and divestitures | | | | | | | — | | 0.5 |
| |
Organic revenue growth (b) | | | | | | | 8 | | 5 |
| (d) |
| | | | | | | | | | |
Operating profit | $ | 1,049 |
| | $ | 924 |
| | $ | 904 |
| | 13 | | 2 |
| |
Restructuring and impairment charges (c) | 40 |
| | 56 |
| | 27 |
| | | | | |
Operating profit excluding above item (b) | $ | 1,089 |
| | $ | 980 |
| | $ | 931 |
| | 11 | | 5 |
| |
Impact of foreign exchange translation | | | | | | | 2 | | 1 |
| |
Operating profit growth excluding above item, on a constant currency basis (b) | | | | | | | 13 | | 6 |
| |
| |
(a) | In 2017 and 2016, operating profit and restructuring and impairment charges reflect the retrospective adoption of guidance requiring the presentation of non-service cost components of net periodic benefit cost below operating profit. See Note 2 to our consolidated financial statements.
|
| |
(b) | See “Non-GAAP Measures.” |
| |
(c) | See “Items Affecting Comparability.” |
| |
(d) | Does not sum due to rounding. |
2018
Net revenue grew 2%, reflecting effective net pricing, partially offset by a 6-percentage-point impact of unfavorable foreign exchange.
Snacks volume grew 1%, reflecting low-single-digit growth in Mexico, partially offset by a mid-single-digit decline in Brazil.
Beverage volume declined 1%, reflecting a high-single-digit decline in Brazil, a low-single-digit decline in Mexico and a mid-single-digit decline in Argentina, partially offset by double-digit growth in Colombia, mid-single-digit growth in Guatemala and low-single-digit growth in Honduras.
Operating profit increased 13%26%, primarily reflecting the net revenue growth, productivity savings and a 4-percentage-point15-percentage-point impact of insurance settlement recoveries related tolower charges taken as a result of the 2017 earthquake in Mexico. These impacts were partially offset by certain operating cost increases, a 14-percentage-point impact of higher commodity costs and higher advertising and marketing expenses.
2017
Net revenue increased 6%, reflecting effective net pricing, partially offset by volume declines. Favorable foreign exchange contributed 1 percentage point to net revenue growth.
Snacks volume declined 1.5%, reflecting low-single-digit declines in Brazil and Mexico.
Beverage volume declined 2%, reflecting a mid-single-digit decline in Brazil and a low-single-digit decline in Argentina, partially offset by high-single-digit growth in Guatemala. Additionally, Mexico experienced a slight decline.
Operating profit increased 2%, reflecting the effective net pricingCOVID-19 pandemic and productivity savings. These impacts were partially offset by certain operating cost increases, the volume declines and a 16-percentage-pointincluding incremental transportation costs, an 18-percentage-point impact of higher commodity costs.costs and higher advertising and marketing expenses. Higher restructuringprior-year acquisition and impairmentdivestiture-related charges reducedcontributed 4 percentage points to operating profit growth by 3 percentage points.growth.
Changes in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance. Europe Sub-Saharan AfricaIn 2020, we received a notice of termination without cause from Vital Pharmaceuticals, Inc., which would end our distribution rights of Bang Energy drinks, effective October 24, 2023.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | % Change | |
| 2018 |
| | 2017(a) |
| | 2016(a) |
| | 2018 | | 2017 |
| |
Net revenue | $ | 11,523 |
| | $ | 11,050 |
| | $ | 10,216 |
| | 4 | | 8 |
| |
Impact of foreign exchange translation | | | | | | | 2 | | (3 | ) | |
Impact of acquisitions and divestitures | | | | | | | — | | — |
| |
Impact of sales and certain other taxes (b) | | | | | | | 0.5 | | — |
| |
Impact of 53rd reporting week | | | | | | | — | | — |
| |
Organic revenue growth (b) | | | | | | | 7 | (d) | 6 |
| (d) |
| | | | | | | | | | |
Operating profit | $ | 1,364 |
| | $ | 1,316 |
| | $ | 1,061 |
| | 4 | | 24 |
| |
Restructuring and impairment charges (c) | 63 |
| | 53 |
| | 60 |
| | | | | |
Merger and integration charges (c) | 57 |
| | — |
| | — |
| | | | | |
Operating profit excluding above items (b) | $ | 1,484 |
| | $ | 1,369 |
| | $ | 1,121 |
| | 8 | | 22 |
| |
Impact of foreign exchange translation | | | | | | | 3 | | — |
| |
Operating profit growth excluding above items, on a constant currency basis (b) | | | | | | | 11 | | 22 |
| |
| |
(a) | In 2017 and 2016, operating profit and restructuring and impairment charges reflect the retrospective adoption of guidance requiring the presentation of non-service cost components of net periodic benefit cost below operating profit. See Note 2 to our consolidated financial statements.
|
| |
(b) | See “Non-GAAP Measures.” |
| |
(c) | See “Items Affecting Comparability.” |
| |
(d) | Does not sum due to rounding. |
2018LatAm
Net revenue increased 4%17%, primarily reflecting volume growth and effective net pricing partially offset by a 2-percentage-point impact of unfavorable foreign exchange.and organic volume growth.
SnacksConvenient foods unit volume grew 3%3.5%, primarily reflecting mid-single-digitlow-single-digit growth in the Netherlands, partially offset by low-single-digit declines in the United KingdomBrazil and South Africa. Additionally, Russia and Turkey experienced low-single-digit growth.Mexico.
Beverage unit volume grew 7%8%, primarily reflecting double-digit growth in GermanyArgentina and PolandChile. Additionally, Brazil experienced low-single-digit growth, Mexico experienced mid-single-digit growth and high-single-digit growth in France and Nigeria, partially offset by a low-single-digit decline in the United Kingdom. Additionally, Russia and TurkeyGuatemala experienced mid-single-digithigh-single-digit growth.
Operating profit increased 4%33%, primarily reflecting the net revenue growth, productivity savings and a 4-percentage-point net4.5-percentage-point impact of refranchising our entire beverage bottling operations and snack distribution operations in CHS.favorable foreign exchange. These impacts were partially offset by certain operating cost increases, and an 8-percentage-pointa 30-percentage-point impact of higher commodity costs. Additionally,costs and higher advertising and marketing expenses. A current-year recognition of certain indirect tax credits in Brazil and lower charges taken as a prior-year gain onresult of the sale of our minority stake in Britvic
and the merger and integration charges related to our acquisition of SodaStream reduced operating profit growth by 7COVID-19 pandemic contributed 6 percentage points and 4 percentage points, respectively.respectively, to operating profit growth.
2017Changes in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.
Europe
Net revenue increased 8%9%, primarily reflecting organic volume growth and effective net pricing, as well as favorable foreign exchange, which contributed 3 percentage points to net revenue growth.pricing.
SnacksConvenient foods unit volume grew 5%4%, primarily reflecting high-single-digitdouble-digit growth in Turkey and mid-single-digit growth in Russia and Poland, partially offset by a slightmid-single-digit decline in the United Kingdom. Additionally, the Netherlands grew slightly and France experienced low-single-digit growth.
Beverage unit volume grew 8%, primarily reflecting double-digit growth in Russia, Turkey and the United Kingdom and high-single-digit growth in France, partially offset by a low-single-digit decline in Spain. Additionally, Turkey, South AfricaGermany.
Operating profit decreased 4.5%, primarily reflecting certain operating cost increases, a 28-percentage-point impact of higher commodity costs and a 2.5-percentage-point impact each from higher restructuring and impairment charges and a gain on an asset sale in the Netherlands experienced mid-single-digit growth.
Beverage volume grew 1%, reflecting mid-single-digit growth in Poland and Nigeria and low-single-digit growth in Turkey and France,prior year. These impacts were partially offset by mid-single-digit declines in Russia and Germany, and a low-single-digit decline in the United Kingdom.
Operating profit increased 24%, reflecting the net revenue growth and productivity savings. Additionally, lower charges taken as a gainresult of the COVID-19 pandemic and favorable settlements of promotional spending accruals compared to the prior
year positively contributed 5 percentage points and 3 percentage points, respectively, to operating profit performance.
Changes in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue and unit volume performance.
During the salefourth quarter of 2021, the implementation of an Enterprise Resource Planning (ERP) system in the United Kingdom caused a temporary disruption to our United Kingdom operations which had a negative impact on net revenue, unit volume and operating profit performance. These issues were largely resolved within the quarter and the business operations had resumed by year end.
AMESA
Net revenue increased 33%, reflecting a 14-percentage-point impact of our minority stake in Britvic in 2017Pioneer Foods acquisition, which included the impact of an extra month of net revenue compared to the prior year as we aligned Pioneer Foods’ reporting calendar with that of our AMESA division, as well as organic volume growth and effective net pricing. Favorable foreign exchange contributed 84.5 percentage points to operatingnet revenue growth.
Convenient foods unit volume grew 38%, primarily reflecting a 35-percentage-point impact of our Pioneer Foods acquisition, which included the impact of an extra month of unit volume as we aligned Pioneer Foods’ reporting calendar with that of our AMESA division, double-digit growth in India and Pakistan and high-single-digit growth in the Middle East, partially offset by a low-single-digit decline in South Africa (excluding our Pioneer Foods acquisition).
Beverage unit volume grew 20%, primarily reflecting double-digit growth in India and Pakistan. Additionally, the Middle East experienced double-digit growth and Nigeria experienced high-single-digit growth.
Operating profit growth.increased 43%, primarily reflecting the net revenue growth, a 31-percentage-point impact of the prior-year acquisition and divestiture-related charges associated with our Pioneer Foods acquisition and productivity savings. These impacts were partially offset by certain operating cost increases, a 13-percentage-point impact of higher commodity costs and higher advertising and marketing expensesexpenses. Additionally, lower charges taken as a result of the COVID-19 pandemic and our Pioneer Foods acquisition contributed 3 percentage points and 2 percentage points, respectively, to operating profit growth.
Changes in consumer behavior as a 7-percentage-pointresult of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact of higher commodity costs.on net revenue, unit volume and operating profit performance.
Asia, Middle East and North Africa
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | % Change | |
| 2018 |
| | 2017 |
| | 2016 |
| | 2018 |
| | 2017 |
| |
Net revenue | $ | 5,901 |
| | $ | 6,030 |
| | $ | 6,338 |
| | (2 | ) | | (5 | ) | |
Impact of foreign exchange translation | | | | | | | 1 |
| | 10 |
| |
Impact of acquisitions and divestitures | | | | | | | 8 |
| | — |
| |
Impact of sales and certain other taxes (a) | | | | | | | — |
| | — |
| |
Organic revenue growth (a) | | | | | | | 7 |
| | 5 |
| |
| | | | | | | | | | |
Operating profit | $ | 1,172 |
| | $ | 1,073 |
| | $ | 619 |
| | 9 |
| | 73 |
| |
Restructuring and impairment charges (b) | 28 |
| | (3 | ) | | 14 |
| | | | | |
Charge related to the transaction with Tingyi (b) | — |
| | — |
| | 373 |
| | | | | |
Operating profit excluding above items (a) | $ | 1,200 |
| | $ | 1,070 |
| | $ | 1,006 |
| | 12 |
| | 6 |
| |
Impact of foreign exchange translation | | | | | | | (1 | ) | | 8 |
| |
Operating profit growth excluding above items, on a constant currency basis (a) | | | | | | | 11 |
| | 15 |
| (c) |
| |
(a) | See “Non-GAAP Measures.” |
| |
(b) | See “Items Affecting Comparability.” |
| |
(c) | Does not sum due to rounding. |
2018APAC
Net revenue declined 2%increased 34%, reflecting an 8-percentage-pointa 15-percentage-point impact of refranchising a portionour Be & Cheery acquisition, which included the impact of an extra month of net revenue compared to the prior year as we aligned Be & Cheery’s reporting calendar with that of our beverage businesses in Thailand in 2018 and Jordan in 2017, partially offset by netAPAC division, as well as organic volume growth, a 6- percentage-point impact of favorable foreign exchange and effective net pricing.
SnacksConvenient foods unit volume grew 5%19%, primarily reflecting a 16-percentage-point impact of our Be & Cheery acquisition, which included the impact of an extra month of unit volume as we aligned Be & Cheery’s reporting calendar with that of our APAC division, and double-digit growth in China (excluding our Be & Cheery acquisition) and Thailand. Additionally, Australia, Indonesia and Taiwan each experienced low-single-digit growth.
Beverage unit volume grew 13%, primarily reflecting double-digit growth in India, China, and Pakistan, partially offset by a mid-single-digitlow-single-digit decline in Vietnam. Additionally, the Middle East. Additionally, AustraliaPhilippines experienced low-single-digit growth and Thailand experienced mid-single-digit growth.
Beverage volume declined slightly, reflecting a mid-single-digit decline in the Middle East and a double-digit decline in the Philippines, partially offset by double-digit growth in Vietnam, mid-single-digit growth in India and low-single-digit growth in Pakistan and China.
Operating profit grew 9%increased 14%, primarily reflecting the effective net pricing,revenue growth, productivity savings and the net volume growth, partially offset by certain operating cost increases, higher advertising and marketing expenses and a 4-percentage-point impact of higher commodity costs. The net impact of refranchising a portion of2- percentage-point contribution from our beverage business in Thailand in 2018 contributed 13 percentage points to operating profit growth and was offset by a 16-percentage-point negative impact of the prior year refranchising of a portion of our beverage business in Jordan.
2017
Net revenue decreased 5%, reflecting unfavorable foreign exchange, which negatively impacted net revenue performance by 10 percentage points, primarily driven by a weak Egyptian pound. This impact was partially offset by effective net pricing.
Snacks volume grew 5%, driven by high-single-digit growth in China and India and double-digit growth in Pakistan. Additionally, the Middle East experienced low-single-digit growth and Australia experienced mid-single-digit growth.
Beverage volume declined 1%, reflecting a double-digit decline in India and a mid-single-digit decline in the Middle East, partially offset by mid-single-digit growth in China, high-single-digit growth in Pakistan and low-single-digit growth in the Philippines.
Operating profit improvement primarily reflected a 2016 impairment charge to reduce the value of our 5% indirect equity interest in KSFB to its estimated fair value. The effective net pricing and productivity savings also increased operating profit growth. Additionally, the impact of refranchising a portion of our beverage business in Jordan contributed 14 percentage points to operating profit growth. These impacts wereBe & Cheery acquisition, partially offset by certain operating cost increases and a 32-percentage-point impact of higher commodity costs, primarily due to transaction-related foreign exchange on raw material purchases driven by the weak Egyptian pound. Unfavorable foreign exchange translationadvertising and marketing expenses. Additionally, impairment charges associated with an equity method investment reduced operating profit growth by 83 percentage points. Favorable foreign exchange contributed 3 percentage points to operating profit growth.
Other Consolidated Results
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | Change |
Other pension and retiree medical benefits income | $ | 522 | | | $ | 117 | | | $ | 405 | |
Net interest expense and other | $ | (1,863) | | | $ | (1,128) | | | $ | (735) | |
Annual tax rate | 21.8 | % | | 20.9 | % | | |
Net income attributable to PepsiCo (a) | $ | 7,618 | | | $ | 7,120 | | | 7 | % |
Net income attributable to PepsiCo per common share – diluted (a) | $ | 5.49 | | | $ | 5.12 | | | 7 | % |
(a)In 2021, lower charges taken as a result of the COVID-19 pandemic contributed 7 percentage points to both net income attributable to PepsiCo growth and net income attributable to PepsiCo per common share growth. See Note 1 to our consolidated financial statements for further information.
Other pension and retiree medical benefits income increased $405 million, primarily reflecting lower settlement charges in 2021, the recognition of fixed income gains on plan assets, the impact of plan changes approved in 2020, as discussed in Note 7 to our consolidated financial statements, and the impact of discretionary plan contributions, partially offset by a decrease in the expected rate of return on plan assets.
Net interest expense and other increased $735 million, reflecting a charge of $842 million in connection with our cash tender offers. See Note 8 to our consolidated financial statements for further information. This impact was partially offset by lower interest rates on average debt balances.
The reported tax rate increased 0.9 percentage points, primarily reflecting the net tax impact of adjustments to uncertain tax positions related to the final assessment from the Internal Revenue Service (IRS) audit for the tax years 2014 through 2016.
Non-GAAP Measures
Certain financial measures contained in this Form 10-K adjust for the impact of specified items and are not in accordance with U.S. GAAP. We use non-GAAP financial measures internally to make operating and strategic decisions, including the preparation of our annual operating plan, evaluation of our overall business performance and as a factor in determining compensation for certain employees. We believe presenting non-GAAP financial measures in this Form 10-K provides additional information to facilitate comparison of our historical operating results and trends in our underlying operating results and provides additional transparency on how we evaluate our business. We also believe presenting these measures in this Form 10-K allows investors to view our performance using the same measures that we use in evaluating our financial and business performance and trends.
We consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that may be significant or that could affect an understanding of our ongoing financial and business performance or trends. Examples of items for which we may make adjustments include: amounts related to mark-to-market gains or losses (non-cash); charges related to restructuring plans; costs associated with mergers, acquisitions, divestitures and other structural changes; gains associated with divestitures; pension and retiree medical-related amounts (including all settlement and curtailment gains and losses); charges or
adjustments related to the enactment of new laws, rules or regulations, such as tax law changes; amounts related to the resolution of tax positions; tax benefits related to reorganizations of our operations; debt redemptions, cash tender or exchange offers; asset impairments (non-cash); and remeasurements of net monetary assets. Previously, certain immaterial pension and retiree medical-related settlement and curtailment gains and losses were not considered items affecting comparability. Pension and retiree medical-related service cost, interest cost, expected return on plan assets, and other net periodic pension costs will continue to be reflected in our core results. See below and “Items Affecting Comparability” for a description of adjustments to our U.S. GAAP financial measures in this Form 10-K.
Non-GAAP information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with U.S. GAAP. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies.
The following non-GAAP financial measures contained in this Form 10-K are discussed below:
Cost of sales, gross profit, selling, general and administrative expenses, other pension and retiree medical benefits income, net interest expense and other, provision for income taxes, net income attributable to noncontrolling interests and net income attributable to PepsiCo, each adjusted for items affecting comparability, operating profit and net income attributable to PepsiCo per common share – diluted, each adjusted for items affecting comparability, and the corresponding constant currency growth rates
These measures exclude the net impact of mark-to-market gains and losses on centrally managed commodity derivatives that do not qualify for hedge accounting, restructuring and impairment charges related to our 2019 Multi-Year Productivity Plan (2019 Productivity Plan), costs associated with our acquisitions and divestitures, the impact of settlement and curtailment gains and losses related to pension and retiree medical plans, a charge related to cash tender offers and tax expense related to the Tax Cuts and Jobs Act (TCJ Act) (see “Items Affecting Comparability” for a detailed description of each of these items). We also evaluate performance on operating profit and net income attributable to PepsiCo per common share – diluted, each adjusted for items affecting comparability, on a constant currency basis, which measure our financial results assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period. In order to compute our constant currency results, we multiply or divide, as appropriate, our current-year U.S. dollar results by the current-year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior-year average foreign exchange rates. We believe these measures provide useful information in evaluating the results of our business because they exclude items that we believe are not indicative of our ongoing performance or that we believe impact comparability with the prior year.
Organic revenue growth
We define organic revenue growth as a measure that adjusts for the impacts of foreign exchange translation, acquisitions and divestitures, and where applicable, the impact of an additional week of results every five or six years (53rd reporting week), including in our 2022 financial results. Adjusting for acquisitions and divestitures reflects mergers and acquisitions activity, including the impact in 2021 of an extra month of net revenue for our acquisitions of Pioneer Foods in our AMESA division and Be & Cheery in our APAC division as we aligned the reporting calendars of these acquisitions with those of our divisions, as well as divestitures and other structural changes, including changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees. We believe organic revenue growth provides useful information in evaluating the results of our business because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior year.
See “Net Revenue and Organic Revenue Growth” in “Results of Operations – Division Review” for further information.
Free cash flow
We define free cash flow as net cash provided by operating activities less capital spending, plus sales of property, plant and equipment. Since net capital spending is essential to our product innovation initiatives and maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider net capital spending when evaluating our cash from operating activities. Free cash flow is used by us primarily for acquisitions and financing activities, including debt repayments, dividends and share repurchases. Free cash flow is not a measure of cash available for discretionary expenditures since we have certain non-discretionary obligations such as debt service that are not deducted from the measure.
See “Free Cash Flow” in “Our Liquidity and Capital Resources” for further information.
Return on invested capital (ROIC) and net ROIC, excluding items affecting comparability
We define ROIC as net income attributable to PepsiCo plus interest expense after-tax divided by the sum of quarterly average debt obligations and quarterly average common shareholders’ equity. Although ROIC is a common financial metric, numerous methods exist for calculating ROIC. Accordingly, the method used by management to calculate ROIC may differ from the methods other companies use to calculate their ROIC.
We believe this metric serves as a measure of how well we use our capital to generate returns. In addition, we use net ROIC, excluding items affecting comparability, to compare our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that we believe are not indicative of our ongoing performance and reflects how management evaluates our operating results and trends. We define net ROIC, excluding items affecting comparability, as ROIC, adjusted for quarterly average cash, cash equivalents and short-term investments, after-tax interest income and items affecting comparability. We believe the calculation of ROIC and net ROIC, excluding items affecting comparability, provides useful information to investors and is an additional relevant comparison of our performance to consider when evaluating our capital allocation efficiency.
See “Return on Invested Capital” in “Our Liquidity and Capital Resources” for further information.
Items Affecting Comparability
Our reported financial results in this Form 10-K are impacted by the following items in each of the following years:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Operating profit | | | | Other pension and retiree medical benefits income | | Net interest expense and other | | Provision for income taxes(a) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo |
Reported, GAAP Measure | $ | 37,075 | | | $ | 42,399 | | | $ | 31,237 | | | $ | 11,162 | | | | | $ | 522 | | | $ | (1,863) | | | $ | 2,142 | | | $ | 61 | | | $ | 7,618 | |
Items Affecting Comparability | | | | | | | | | | | | | | | | |
Mark-to-market net impact | (39) | | | 39 | | | 20 | | | 19 | | | | | — | | | — | | | 5 | | | — | | | 14 | |
Restructuring and impairment charges | (29) | | | 29 | | | (208) | | | 237 | | | | | 10 | | | — | | | 41 | | | 1 | | | 205 | |
Acquisition and divestiture-related charges | (1) | | | 1 | | | 5 | | | (4) | | | | | — | | | — | | | 23 | | | — | | | (27) | |
| | | | | | | | | | | | | | | | | | | |
Pension and retiree medical-related impact | — | | | — | | | — | | | — | | | | | 12 | | | — | | | 1 | | | — | | | 11 | |
Charge related to cash tender offers | — | | | — | | | — | | | — | | | | | — | | | 842 | | | 165 | | | — | | | 677 | |
Tax expense related to the TCJ Act | — | | | — | | | — | | | — | | | | | — | | | — | | | (190) | | | — | | | 190 | |
| | | | | | | | | | | | | | | | | | | |
Core, Non-GAAP Measure | $ | 37,006 | | | $ | 42,468 | | | $ | 31,054 | | | $ | 11,414 | | | | | $ | 544 | | | $ | (1,021) | | | $ | 2,187 | | | $ | 62 | | | $ | 8,688 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Operating profit | | Other pension and retiree medical benefits income | | | | Provision for income taxes(a) | | | | Net income attributable to PepsiCo |
Reported, GAAP Measure | $ | 31,797 | | | $ | 38,575 | | | $ | 28,495 | | | $ | 10,080 | | | $ | 117 | | | | | $ | 1,894 | | | | | $ | 7,120 | |
Items Affecting Comparability | | | | | | | | | | | | | | | | | |
Mark-to-market net impact | 64 | | | (64) | | | 9 | | | (73) | | | — | | | | | (15) | | | | | (58) | |
Restructuring and impairment charges | (30) | | | 30 | | | (239) | | | 269 | | | 20 | | | | | 58 | | | | | 231 | |
Acquisition and divestiture-related charges | (32) | | | 32 | | | (223) | | | 255 | | | — | | | | | 18 | | | | | 237 | |
Pension and retiree medical-related impact | — | | | — | | | — | | | — | | | 205 | | | | | 47 | | | | | 158 | |
| | | | | | | | | | | | | | | | | |
Core, Non-GAAP Measure | $ | 31,799 | | | $ | 38,573 | | | $ | 28,042 | | | $ | 10,531 | | | $ | 342 | | | | | $ | 2,002 | | | | | $ | 7,688 | |
(a)Provision for income taxes is the expected tax charge/benefit on the underlying item based on the tax laws and income tax rates applicable to the underlying item in its corresponding tax jurisdiction.
| | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | Change | |
Net income attributable to PepsiCo per common share – diluted, GAAP measure | $ | 5.49 | | | $ | 5.12 | | | 7 | % | |
Mark-to-market net impact | 0.01 | | | (0.04) | | | | |
Restructuring and impairment charges | 0.15 | | | 0.17 | | | | |
Acquisition and divestiture-related charges | (0.02) | | | 0.17 | | | | |
| | | | | | |
Pension and retiree medical-related impact | 0.01 | | | 0.11 | | | | |
Charge related to cash tender offers | 0.49 | | | — | | | | |
Tax expense related to the TCJ Act | 0.14 | | | — | | | | |
| | | | | | |
| | | | | | |
Core net income attributable to PepsiCo per common share – diluted, non-GAAP measure | $ | 6.26 | | (a) | $ | 5.52 | | (a) | 13 | % | |
Impact of foreign exchange translation | | | | | (1.5) | | |
Growth in core net income attributable to PepsiCo per common share – diluted, on a constant currency basis, non-GAAP measure | | | | | 12 | % | (a) |
(a)Does not sum due to rounding.
Mark-to-Market Net Impact
We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include agricultural products, energy and metals. Commodity derivatives that do not qualify for hedge accounting treatment are marked to market each period with the resulting gains and losses recorded in corporate unallocated expenses as either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. These gains and losses are subsequently reflected in division results when the divisions recognize the cost of the underlying commodity in operating profit. Therefore, the divisions realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in corporate unallocated expenses.
Restructuring and Impairment Charges
2019 Multi-Year Productivity Plan
The 2019 Productivity Plan, publicly announced on February 15, 2019, will leverage new technology and business models to further simplify, harmonize and automate processes; re-engineer our go-to-market and information systems, including deploying the right automation for each market; and simplify our organization and optimize our manufacturing and supply chain footprint. To build on the successful implementation of the 2019 Productivity Plan to date, we expanded and extended the program through the end of 2026 to take advantage of additional opportunities within the initiatives of the 2019 Productivity Plan. We now expect to incur pre-tax charges of approximately $3.15 billion, including cash expenditures of approximately $2.4 billion, as compared to our previous estimate of pre-tax charges of approximately $2.5 billion, which included cash expenditures of approximately $1.6 billion. Plan to date through December 25, 2021, we have incurred pre-tax charges of $1.0 billion, including cash expenditures of $776 million. In our 2022 financial results, we expect to incur pre-tax charges of approximately $350 million, including cash expenditures of approximately $300 million. These charges will be funded primarily through cash from operations. We expect to incur the majority of the remaining pre-tax charges and cash expenditures in our 2022 and 2023 financial results, with the balance to be incurred through 2026.
See Note 3 to our consolidated financial statements for further information related to our 2019 Productivity Plan. We regularly evaluate productivity initiatives beyond the productivity plan and other initiatives discussed above and in Note 3 to our consolidated financial statements.
Acquisition and Divestiture-Related Charges
Acquisition and divestiture-related charges primarily include fair value adjustments to the acquired inventory included in the acquisition-date balance sheets, merger and integration charges and costs associated with divestitures. Merger and integration charges include liabilities to support socioeconomic programs in South Africa, closing costs, employee-related costs, gains associated with contingent consideration, contract termination costs and other integration costs.
See Note 13 to our consolidated financial statements for further information.
Pension and Retiree Medical-Related Impact
Pension and retiree medical-related impact primarily includes settlement charges related to lump sum distributions exceeding the total of annual service and interest costs, as well as curtailment gains related to plan changes.
See Note 7 to our consolidated financial statements for further information.
Charge Related to Cash Tender Offers
As a result of the cash tender offers for some of our long-term debt, we recorded a charge primarily representing the tender price paid over the carrying value of the tendered notes and loss on treasury rate locks used to mitigate the interest rate risk on the cash tender offers.
See Note 8 to our consolidated financial statements for further information.
Tax Expense Related to the TCJ Act
Tax expense related to the TCJ Act reflects adjustments to the mandatory transition tax liability under the TCJ Act.
See Note 5 to our consolidated financial statements for further information.
Our Liquidity and Capital Resources
We believe that our cash generating capability and financial condition, together with our revolving credit facilities, working capital lines and other available methods of debt financing, such as commercial paper borrowings and long-term debt financing, will be adequate to meet our operating, investing and financing needs.needs, including with respect to our net capital spending plans. Our primary sources of cash available to fund cash outflows, such as our anticipated share repurchases, dividend payments, debt repayments and transition tax liability under the TCJ Act,liquidity include cash from operations, pre-tax cash proceeds of approximately $3.5 billion from the Juice Transaction,proceeds obtained from issuances of commercial paper and long-term debt, and cash and cash equivalentsequivalents. These sources of cash are available to fund cash outflows that have both a short- and short-term investments. However, there can be no assurancelong-term component, including debt repayments and related interest payments; payments for acquisitions, including support for socioeconomic programs in South Africa related to our acquisition of Pioneer Foods; operating leases; purchase, marketing, and other contractual commitments, including capital expenditures and the transition tax liability under the TCJ Act. In addition, these sources of cash fund other cash outflows including anticipated dividend payments and share repurchases. We do not have guarantees or off-balance sheet financing arrangements, including variable interest entities, that volatility in the global capitalwe believe could have a material impact on our liquidity. See “Item 1A. Risk Factors,” “Our Business Risks” and credit markets will not impair our ability to access these markets on terms commercially acceptable to us, or at all. See Note 8 to our consolidated financial statements for further information.
Our sources and uses of cash were not materially adversely impacted by COVID-19 and, to date, we have not identified any material liquidity deficiencies as a descriptionresult of the COVID-19 pandemic. Based on the information currently available to us, we do not expect the impact of the COVID-19 pandemic to have a material impact on our credit facilities.future liquidity. We will continue to monitor and assess the impact the COVID-19 pandemic may have on our business and financial results. See also “Item 1A. Risk Factors” andFactors,” “Our Business Risks” for further discussion.
As of December 29, 2018, we had cash, cash equivalents, short-term investments and restricted cash in our consolidated subsidiaries of $5.7 billion outside the United States. The restricted cash of approximately $2.0 billion held outside the United States relates to our acquisition of SodaStream. Refer to Note 131 to our consolidated financial statements for further discussioninformation related to the impact of restricted cash. the COVID-19 pandemic on our business and financial results.
As of December 25, 2021, cash, cash equivalents and short-term investments in our consolidated subsidiaries subject to currency controls or currency exchange restrictions were not material.
The TCJ Act imposed a one-time mandatory one-time transition tax on undistributed international earnings, including $18.9 billion held in our consolidated subsidiaries outside the United States as of December 30, 2017. As of December 29, 2018,25, 2021, our mandatory transition tax liability is $3.8 billion. Underwas $2.9 billion, which must be paid through 2026 under the provisions of the TCJ Act, this transition tax liability must be paid over eight years;Act; we currently expect to pay approximately $0.4 billion$309 million of this liability in 2019 and the remainder over the period 2020 to 2026. See “Credit Facilities and Long-Term Contractual Commitments.” While our accounting for the recorded impact of the TCJ Act is deemed to be complete, this amount is based on prevailing regulations and currently available information, and any2022. Any additional guidance issued by the IRS couldmay impact the aforementioned amount in future periods. The IRS issued additional guidance in the first quarter of 2019 and we are currently evaluating the impact ofour recorded amounts for this guidance.
In connection with the TCJ Act, during 2018 we repatriated $20.4 billion of cash, cash equivalents and short-term investments held in our foreign subsidiaries without such funds being subject to further U.S. federal incometransition tax liability. The repatriated cash was used primarily for repayment of commercial paper and to fund discretionary benefit plan contributions, debt repayments, dividend payments, share repurchases and our acquisition of SodaStream. See “Item 1A. Risk Factors,” “Our Business Risks,” “Items Affecting Comparability,” “Our Critical Accounting Policies,” as well as Note 5 to our consolidated financial statements.statements for further discussion of the TCJ Act.
As part of December 29, 2018, cash, cash equivalentsour evolving market practices, we work with our suppliers to optimize our terms and short-term investmentsconditions, which include the extension of payment terms. Our current payment terms with a majority of our suppliers generally range from 60 to 90 days, which we deem to be commercially reasonable. We will continue to monitor economic conditions and market practice working with our suppliers to adjust as necessary. We also maintain voluntary supply chain finance agreements with several participating global financial institutions. Under these agreements, our suppliers, at their sole discretion, may elect to sell their accounts receivable with PepsiCo to these participating global financial institutions. Supplier participation in these financing arrangements is voluntary. Our suppliers negotiate their financing agreements directly with the respective global financial institutions and we are not a party to these agreements. These financing arrangements allow participating suppliers to leverage PepsiCo’s creditworthiness in establishing credit spreads and associated costs, which generally provides our suppliers with more favorable terms than they would be able to secure on their own. Neither PepsiCo nor any of its subsidiaries provide any guarantees to any third party in connection with these financing arrangements. We have no economic interest in our suppliers’ decision to participate in these agreements. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. All
outstanding amounts related to suppliers participating in such financing arrangements are recorded within accounts payable and other current liabilities in our consolidated subsidiaries subjectbalance sheet. We were informed by the participating financial institutions that as of December 25, 2021 and December 26, 2020, $1.5 billion and $1.2 billion, respectively, of our accounts payable to currency controlssuppliers who participate in these financing arrangements are outstanding. These supply chain finance arrangements did not have a material impact on our liquidity or currency exchange restrictions werecapital resources in the periods presented and we do not material.expect such arrangements to have a material impact on our liquidity or capital resources for the foreseeable future.
Furthermore, our cash provided from operating activities is somewhat impacted by seasonality. Working capital needs are impacted by weekly sales, which are generally highest in the third quarter due to seasonal and holiday-related sales patterns and generally lowest in the first quarter. On a continuing basis, we consider various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures, joint ventures, dividends, share repurchases, productivity and other efficiency initiatives and other structural changes. These transactions may result in future cash proceeds or payments.
The table below summarizes our cash activity:
|
| | | | | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
|
Net cash provided by operating activities | $ | 9,415 |
| | $ | 10,030 |
| | $ | 10,663 |
|
Net cash provided by/(used for) investing activities | $ | 4,564 |
| | $ | (4,403 | ) | | $ | (7,150 | ) |
Net cash used for financing activities | $ | (13,769 | ) | | $ | (4,186 | ) | | $ | (3,211 | ) |
| | | | | | | | | | | |
| 2021 | | 2020 |
Net cash provided by operating activities | $ | 11,616 | | | $ | 10,613 | |
Net cash used for investing activities | $ | (3,269) | | | $ | (11,619) | |
Net cash (used for)/provided by financing activities | $ | (10,780) | | | $ | 3,819 | |
Operating Activities
During 2018,In 2021, net cash provided by operating activities was $9.4$11.6 billion, compared to $10.0$10.6 billion in the prior year. The increase in operating cash flow performance primarily reflects the discretionary contributions of $1.5 billion to ourfavorable working capital comparisons and operating profit performance, partially offset by higher pre-tax pension and retiree medical plans in the current year, partially offset by lowerplan contributions and higher net cash tax payments in the current year.
During 2017, net cash provided by operating activities was $10 billion, compared to $10.7 billion in 2016. The operating cash flow performance primarily reflects unfavorable working capital comparisons to 2016. This decrease is mainly due to higher current year payments to vendors and customers, coupled with higher net cash tax payments in 2017, partially offset by lower pension and retiree medical plan contributions in 2017.
See Note 7 to our consolidated financial statements for further discussion of pension contributions.
Investing Activities
During 2018,In 2021, net cash provided byused for investing activities was $4.6$3.3 billion, primarily reflecting net capital spending of $4.5 billion, partially offset by maturities and sales of debt securitiesshort-term investments with maturities greater than three months of $8.7 billion, partially offset by net capital spending of $3.1 billion and $1.2 billion of cash paid, net of cash and cash equivalents acquired, in connection with our acquisition of SodaStream.$1.1 billion.
During 2017,In 2020, net cash used for investing activities was $4.4$11.6 billion, primarily reflecting net cash paid in connection with our acquisitions of Rockstar of $3.85 billion, Pioneer Foods of $1.2 billion and Be & Cheery of $0.7 billion, net capital spending of $2.8$4.2 billion, and netas well as purchases of debt securitiesshort-term investments with maturities greater than three months of $1.9$1.1 billion.
See Note 1 to our consolidated financial statements for further discussion of capital spending by division; see Note 9 to our consolidated financial statements for further discussion of our investments in debt securities.securities; and see Note 13 to our consolidated financial statements for further discussion of our acquisitions.
We expect 2019regularly review our plans with respect to net capital spending, including in light of the ongoing uncertainty caused by the COVID-19 pandemic on our business, and believe that we have sufficient liquidity to be approximately $4.5 billion.meet our net capital spending needs.
Financing Activities
During 2018,In 2021, net cash used for financing activities was $13.8$10.8 billion, primarily reflecting the return of operating cash flow to our shareholders largely through dividend payments of $5.8 billion, cash tender offers/debt redemption of $4.8 billion, payments of long-term debt borrowings of $3.5 billion and
payments of acquisition-related contingent consideration of $0.8 billion, partially offset by proceeds from issuances of long-term debt of $4.1 billion.
In 2020, net cash provided by financing activities was $3.8 billion, primarily reflecting proceeds from issuances of long-term debt of $13.8 billion, partially offset by the return of operating cash flow to our shareholders through dividend payments and share repurchases of $6.9$7.5 billion, payments of long-term debt borrowings of $4.0 billion, cash tender and exchange offers of $1.6$1.8 billion and net paymentsdebt redemptions of short-term borrowings of $1.4 billion.
During 2017, net cash used for financing activities was $4.2 billion, primarily reflecting the return of operating cash flow to our shareholders through dividend payments and share repurchases of $6.5 billion and net payments of short-term borrowings of $1.1 billion, partially offset by net proceeds from long-term debt of $3.1 billion and proceeds from exercises of stock options of $0.5 billion.
See Note 8 to our consolidated financial statements for further discussion of debt obligations.
We annually review our capital structure with our Board of Directors, including our dividend policy and share repurchase activity. On February 11, 2015, we announced a share repurchase program providing for the repurchase of up to $12.0 billion of PepsiCo common stock which commenced on July 1, 2015 and expired on June 30, 2018 (2015 share repurchase program). The 2015 share repurchase program had approximately $4.3 billion of authorized repurchase capacity unused at expiration. On February 13, 2018, we announced the 2018 share repurchase program providing for the repurchase of up to $15.0 billion of PepsiCo common stock which commenced on July 1, 2018 and will expireexpired on June 30, 2021. On February 15, 2019,10, 2022, we announced the 2022 share repurchase program. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for further information. In addition, on February 10, 2022, we announced a 3%7% increase in our annualized dividend to $3.82$4.60 per share from $3.71$4.30 per share, effective with the dividend expected to be paid in June 2019.2022. We expect to return a total of approximately $8$7.7 billion to shareholders in 2019 through2022, comprising dividends of approximately $6.2 billion and share repurchases of approximately $3 billion and dividends of approximately $5$1.5 billion.
Free Cash Flow
The table below reconciles net cash provided by operating activities, as reflected on our cash flow statement, to our free cash flow.Free cash flow is a non-GAAP financial measure. For further information on free cash flow, see “Non-GAAP Measures.”
The table below reconciles net cash provided by operating activities, as reflected in our cash flow statement, to our free cash flow. | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | Change |
Net cash provided by operating activities, GAAP measure | $ | 11,616 | | | $ | 10,613 | | | 9 | % |
Capital spending | (4,625) | | | (4,240) | | | |
Sales of property, plant and equipment | 166 | | | 55 | | | |
Free cash flow, non-GAAP measure | $ | 7,157 | | | $ | 6,428 | | | 11 | % |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | % Change |
| 2018 |
| | 2017 |
| | 2016 |
| | 2018 |
| | 2017 |
|
Net cash provided by operating activities | $ | 9,415 |
| | $ | 10,030 |
| | $ | 10,663 |
| | (6 | ) | | (6 | ) |
Capital spending | (3,282 | ) | | (2,969 | ) | | (3,040 | ) | | | | |
Sales of property, plant and equipment | 134 |
| | 180 |
| | 99 |
| | | | |
Free cash flow (a) | $ | 6,267 |
|
| $ | 7,241 |
|
| $ | 7,722 |
| | (13 | ) | | (6 | ) |
| |
(a) | See “Non-GAAP Measures.” In addition, when evaluating free cash flow, we also consider the following items impacting comparability: $1.5 billion, $6 million and $459 million in discretionary pension and retiree medical contributions and associated net cash tax benefits of $473 million, $1 million and $151 million in 2018, 2017 and 2016, respectively; $266 million, $113 million and $125 million of payments related to restructuring charges and associated net cash tax benefits of $45 million, $30 million and $22 million in 2018, 2017 and 2016, respectively; tax payments related to the TCJ Act of $115 million in 2018; certain other items of $47 million in 2018; net cash tax benefit related to debt redemption charge of $83 million in 2016; and net cash received related to interest rate swaps of $5 million in 2016. We will also consider payments related to the transition tax liability of $3.8 billion as of December 29, 2018, which we currently expect to be paid over the period 2019 to 2026 under the provisions of the TCJ Act, as an item impacting comparability. |
We use free cash flow primarily for acquisitions and financing activities, including debt repayments, dividends and share repurchases. We expect to continue to return free cash flow to our shareholders primarily through dividends and share repurchases while maintaining Tier 1 commercial paper access, which we believe will facilitate appropriate financial flexibility and ready access to global capital and credit markets at favorable interest rates. However, see “Item 1A. Risk Factors” and “Our Business Risks” for certain factors that may impact our credit ratings or our operating cash flows.
Any downgrade of our credit ratings by a credit rating agency, especially any downgrade to below investment grade, whether or not as a result of our actions or factors which are beyond our control, could increase our future borrowing costs and impair our ability to access capital and credit markets on terms commercially acceptable to us, or at all. In addition, any downgrade of our current short-term credit ratings could impair our ability to access the commercial paper market with the same flexibility that we have experienced historically, and therefore require us to rely more heavily on more expensive types of debt financing. See “Item 1A. Risk Factors,” “Our Business Risks” and Note 8 to our consolidated financial statements for further discussion.information.
Credit Facilities and Long-Term Contractual Commitments
See Note 8 toMaterial Changes in Line Items in Our Consolidated Financial Statements
Material changes in line items in our consolidated financial statements for a descriptionstatement of our credit facilities.
income are discussed in “Results of Operations – Division Review” and “Items Affecting Comparability.”
Material changes in line items in our consolidated statement of cash flows are discussed in “Our Liquidity and Capital Resources.”
Material changes in line items in our consolidated balance sheet are discussed below:
Total Assets
In 2021, total assets were $92.4 billion, compared to $92.9 billion in the prior year. The decrease in total assets is primarily driven by the following table summarizes our long-term contractual commitments by period:line items:
|
| | | | | | | | | | | | | | | | | | | |
| Payments Due by Period(a) |
| Total |
| | 2019 |
| | 2020 – 2021 |
| | 2022 – 2023 |
| | 2024 and beyond |
|
Long-term debt obligations (b) | $ | 28,351 |
| | $ | — |
| | $ | 7,166 |
| | $ | 5,093 |
| | $ | 16,092 |
|
Interest on debt obligations (c) | 11,157 |
| | 1,044 |
| | 1,759 |
| | 1,322 |
| | 7,032 |
|
Operating leases (d) | 1,840 |
| | 459 |
| | 700 |
| | 371 |
| | 310 |
|
Purchasing commitments (e) | 2,602 |
| | 982 |
| | 1,221 |
| | 252 |
| | 147 |
|
Marketing commitments (e) | 1,686 |
| | 452 |
| | 796 |
| | 234 |
| | 204 |
|
| $ | 45,636 |
| | $ | 2,937 |
| | $ | 11,642 |
| | $ | 7,272 |
| | $ | 23,785 |
|
| | | | | | | | | | | |
(a) | Based on year-end foreign exchange rates. ReservesChange(a) | | Reference |
Cash and cash equivalents | $ | (2.6) | | | Consolidated Statement of Cash Flows |
Short-term investments | $ | (1.0) | | | Consolidated Statement of Cash Flows |
Assets held for uncertain tax positions are excluded from the table above as we are unable to reasonably predict the ultimate amount or timing of any such settlements. However, under the provisions of the TCJ Act, our transition tax liability of $3.8 billion, of which $3.4 billion is recorded in other liabilities on our balance sheet, must be paid over eight years. We expect to pay approximately $0.4 billion in 2019, $0.3 billion per year in 2020-2023, $0.6 billion in 2024, $0.7 billion in 2025sale | $ | 1.8 | | | Note 13 |
Property, plant and $0.9 billion in 2026 and these amounts are excluded from the table above.equipment, net | $ | 1.0 | | | Note 1, Note 14 |
Other indefinite-lived intangible assets | $ | (0.5) | | | Note 4 |
Other assets | $ | 0.9 | | | Note 14 |
Total Liabilities
In 2021, total liabilities were $76.2 billion, compared to $79.4 billion in the prior year. The decrease in total liabilities is primarily driven by the following line items:
| | | | | | | | | | | |
(b) | Excludes $3,953 millionChange(a) | | Reference |
Accounts payable and other current liabilities | $ | 1.6 | | | Note 14 |
Liabilities held for sale | $ | 0.8 | | | Note 13 |
Long-term debt obligations | $ | (4.3) | | | Note 8 |
Other liabilities (b) | $ | (2.2) | | | Note 7, Note 9 and Note 12 |
(a)In billions.
(b)Reflects changes primarily related to current maturities of debt, $56 million related to the fair value adjustments for debt acquired in acquisitions and interest rate swaps and payments of $119 million related to unamortized net discounts. | |
(c) | Interest payments on floating-rate debt are estimated using interest rates effective as of December 29, 2018. |
| |
(d) | See Note 15 to our consolidated financial statements for additional information on operating leases. |
| |
(e) | Primarily reflects non-cancelable commitments as of December 29, 2018. |
Long-term contractual commitments, except for our long-term debt obligations and transition tax liability, are generally not recorded on our balance sheet. Operating leases primarily represent building leases. Non-cancelable purchasing commitments are primarily for oranges, orange juice and certain other commodities. Non-cancelable marketing commitments are primarily for sports marketing. Bottler funding to independent bottlers is not reflected in our long-term contractual commitments as it is negotiated on an annual basis. Accrued liabilities for pension and retiree medical plans, are not reflected incontingent consideration associated with our long-term contractual commitments. See Note 7acquisition of Rockstar and leases.
Total Equity
Refer to our consolidated financial statementsstatement of equity for additional information regarding our pension and retiree medical obligations.material changes in equity line items.
Off-Balance-Sheet Arrangements
We do not have guarantees or other off-balance-sheet financing arrangements, including variable interest entities, that we believe could have a material impact on our financial condition or liquidity.
We coordinate, on an aggregate basis, the contract negotiations of raw material requirements, including sweeteners, aluminum cans and plastic bottles and closures for us and certain of our independent bottlers. Once we have negotiated the contracts, the bottlers order and take delivery directly from the supplier and pay the suppliers directly. Consequently, transactions between our independent bottlers and suppliers are not reflected in our consolidated financial statements. As the contracting party, we could be liable to these suppliers in the event of any nonpayment by our independent bottlers, but we consider this exposure to be remote.
Return on Invested Capital
ROIC is a non-GAAP financial measure. For further information on ROIC, see “Non-GAAP Measures.”
| | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | | | | | | |
Net income attributable to PepsiCo | $ | 7,618 | |
| $ | 7,120 | |
| | | | | | |
Interest expense | 1,988 | | | 1,252 | | | | | | | | |
Tax on interest expense | (441) | | | (278) | | | | | | | | |
| $ | 9,165 | | | $ | 8,094 | | | | | | | | |
| | | | | | | | | | |
Average debt obligations (a) | $ | 42,341 | | | $ | 41,402 | | | | | | | | |
Average common shareholders’ equity (b) | 14,924 | | | 13,536 | | | | | | | | |
Average invested capital | $ | 57,265 | | | $ | 54,938 | | | | | | | | |
| | | | | | | | | | |
ROIC, non-GAAP measure | 16.0 | | % | 14.7 | | % | | | | | | |
(a)Includes a quarterly average of short-term and long-term debt obligations.
(b)Includes a quarterly average of common stock, capital in excess of par value, retained earnings, accumulated other comprehensive loss and repurchased common stock.
|
| | | | | | | | | | | | | | |
| 2018 |
| | | 2017 |
| | | 2016 |
| |
Net income attributable to PepsiCo | $ | 12,515 |
| (a) | | $ | 4,857 |
| (a) | | $ | 6,329 |
| |
Interest expense | 1,525 |
| | | 1,151 |
| | | 1,342 |
| |
Tax on interest expense | (339 | ) | | | (415 | ) | | | (483 | ) | |
| $ | 13,701 |
| | | $ | 5,593 |
| | | $ | 7,188 |
| |
| | | | | | | | |
Average debt obligations (b) | $ | 38,169 |
| | | $ | 38,707 |
| | | $ | 35,308 |
| |
Average common shareholders’ equity (c) | 11,368 |
| | | 12,004 |
| | | 11,943 |
| |
Average invested capital | $ | 49,537 |
| | | $ | 50,711 |
| | | $ | 47,251 |
| |
| | | | | | | | |
Return on invested capital | 27.7 |
| % | (a) | 11.0 |
| % | (a) | 15.2 |
| % |
| |
(a) | Our fiscal 2018 results include other net tax benefits related to the reorganization of our international operations. Our fiscal 2018 and 2017 results include the impact of the TCJ Act. See Note 5 to our consolidated financial statements. |
| |
(b) | Average debt obligations includes a quarterly average of short-term and long-term debt obligations. |
| |
(c) | Average common shareholders’ equity includes a quarterly average of common stock, capital in excess of par value, retained earnings, accumulated other comprehensive loss and repurchased common stock. |
The table below reconciles ROIC as calculated above to net ROIC, excluding items affecting comparability.
| | | | | | | | | | | | | | |
| 2021 | | 2020 | |
ROIC, non-GAAP measure | 16.0 | | % | 14.7 | | % |
Impact of: | | | | |
Average cash, cash equivalents and short-term investments | 2.2 | | | 3.4 | | |
Interest income | (0.2) | | | (0.2) | | |
Tax on interest income | — | | | 0.1 | | |
Mark-to-market net impact | 0.1 | | | (0.1) | | |
Restructuring and impairment charges | 0.2 | | | 0.3 | | |
Acquisition and divestiture-related charges | (0.1) | | | 0.4 | | |
| | | | |
Pension and retiree medical-related impact | (0.1) | | | 0.2 | | |
| | | | |
Tax expense related to the TCJ Act | 0.3 | | | 0.1 | | |
Other net tax benefits | — | | | 1.0 | | |
| | | | |
| | | | |
Core Net ROIC, non-GAAP measure | 18.4 | | % | 19.9 | | % |
|
| | | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
| |
ROIC | 27.7 |
| % | 11.0 |
| % | 15.2 |
| % |
Impact of: | | | | | | |
Average cash, cash equivalents and short-term investments | 7.8 |
| | 7.6 |
| | 6.0 |
| |
Interest income | (0.6 | ) | | (0.5 | ) | | (0.2 | ) | |
Tax on interest income | 0.1 |
| | 0.2 |
| | 0.1 |
| |
Mark-to-market net impact | 0.2 |
| | — |
| | (0.2 | ) | |
Restructuring and impairment charges | 0.4 |
| | 0.3 |
| | 0.1 |
| |
Merger and integration charges | 0.1 |
| | — |
| | — |
| |
Net tax (benefit)/expense related to the TCJ Act | (1.1 | ) | | 4.5 |
| | — |
| |
Other net tax benefits | (9.7 | ) | | 0.1 |
| | 0.1 |
| |
Charges related to cash tender and exchange offers
| (0.1 | ) | | — |
| | — |
| |
Charges related to the transaction with Tingyi | — |
| | (0.1 | ) | | 0.6 |
| |
Pension-related settlement charge | — |
| | — |
| | 0.3 |
| |
Venezuela impairment charges | — |
| | (0.2 | ) | | (0.5 | ) | |
Net ROIC, excluding items affecting comparability | 24.8 |
| % | 22.9 |
| % | 21.5 |
| % |
OUR CRITICAL ACCOUNTING POLICIES AND ESTIMATES
An appreciation of our critical accounting policies and estimates is necessary to understand our financial results. These policies may require management to make difficult and subjective judgments regarding uncertainties, including those related to the COVID-19 pandemic, and as a result, such estimates may significantly impact our financial results. The precision of these estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes. Other than our accounting for pension and retiree medical plans, our critical accounting policies do not involve a choice between alternative methods of accounting. We applied our critical accounting policies and estimation methods consistently in all material respects and for all periods presented. We have discussed our critical accounting policies and estimates with our Audit Committee.
Our critical accounting policies and estimates are:
•revenue recognition;
•goodwill and other intangible assets;
•income tax expense and accruals; and
•pension and retiree medical plans.
Revenue Recognition
We recognize revenue when our performance obligation is satisfied. Our primary performance obligation (the distribution and sales of beverage products and convenient food and snack products) is satisfied upon the shipment or delivery of products to our customers, which is also when control is transferred. The transfer of control of products to our customers is typically based on written sales terms that do not allow for a right of return. However, our policy for DSD, andincluding certain chilled products, is to remove and replace damaged and out-of-date products from store shelves to ensure that consumers receive the product quality and freshness they expect. Similarly, our policy for certain warehouse-distributed products is to replace damaged and out-of-date products. As a result, we record reserves, based on estimates, for anticipated damaged and out-of-date products.products.
Our products are sold for cash or on credit terms. Our credit terms, which are established in accordance with local and industry practices, typically require payment within 30 days of delivery in the United States, and generally within 30 to 90 days internationally, and may allow discounts for early payment.
We estimate and reserve for our bad debtexpected credit loss exposure based on our experience with past due accounts and collectibility, write-off history, the aging of accounts receivable, and our analysis of customer data.data, and forward-looking information (including the expected impact of the global economic uncertainty
related to the COVID-19 pandemic), leveraging estimates of creditworthiness and projections of default and recovery rates for certain of our customers.
Our policy is to provide customers with product when needed. In fact, our commitment to freshness and product dating serves to regulate the quantity of product shipped or delivered. In addition, DSD products are placed on the shelf by our employees with customer shelf space and storerooms limiting the quantity of product. For product delivered through other distribution networks, we monitor customer inventory levels.
As discussed in “Our Customers” in “Item 1. Business,” we offer sales incentives and discounts through various programs to customers and consumers. Total marketplace spending includes sales incentives, discounts, advertising and other marketing activities. Sales incentives and discounts are primarily accounted for as a reduction of revenue and include payments to customers for performing activities on our behalf, such as payments for in-store displays, payments to gain distribution of new products, payments for shelf space and discounts to promote lower retail prices. Sales incentives and discounts also include support provided to our independent bottlers through funding of advertising and other marketing activities.
A number of our sales incentives, such as bottler funding to independent bottlers and customer volume rebates, are based on annual targets, and accruals are established during the year, as products are delivered, for the expected payout, which may occur after year end once reconciled and settled. These accruals are based on contract terms and our historical experience with similar programs and require management judgment with respect to estimating customer and consumer participation and performance levels. Differences between estimated expense and actual incentive costs are normally insignificant and are recognized in earnings in the period such differences are determined. In addition, certain advertising and marketing costs are also based on annual targets and recognized during the year as incurred.
See Note 2 to our consolidated financial statements for additionalfurther information on our revenue recognition and related policies, including total marketplace spending.
Goodwill and Other Intangible Assets
We sell products under a number of brand names, many of which were developed by us. Brand development costs are expensed as incurred. We also purchase brands and other intangible assets in acquisitions. In a business combination, the consideration is first assigned to identifiable assets and liabilities, including brands and other intangible assets, based on estimated fair values, with any excess recorded as goodwill. Determining fair value requires significant estimates and assumptions, including those related to the COVID-19 pandemic, based on an evaluation of a number of factors, such as marketplace participants, product life cycles, market share, consumer awareness, brand history and future
expansion expectations, amount and timing of future cash flows and the discount rate applied to the cash flows.
We believe that a brand has an indefinite life if it has a history of strong revenue and cash flow performance and we have the intent and ability to support the brand with marketplace spending for the foreseeable future. If these indefinite-lived brand criteria are not met, brands are amortized over their expected useful lives, which generally range from 20 to 40 years. Determining the expected life of a brand requires management judgment and is based on an evaluation of a number of factors, including market share, consumer awareness, brand history, future expansion expectations and regulatory restrictions, as well as the macroeconomic environment of the countries in which the brand is sold.
In connection with previous acquisitions, we reacquired certain franchise rights which provided the exclusive and perpetual rights to manufacture and/or distribute beverages for sale in specified territories. In determining the useful life of these franchise rights, many factors were considered, including the pre-existingpre-
existing perpetual bottling arrangements, the indefinite period expected for these franchise rights to contribute to our future cash flows, as well as the lack of any factors that would limit the useful life of these franchise rights to us, including legal, regulatory, contractual, competitive, economic or other factors. Therefore, certain of these franchise rights are considered as indefinite-lived. Franchise rights that are not considered indefinite-lived are amortized over the remaining contractual period of the contract in which the right was granted.
Indefinite-lived intangible assets and goodwill are not amortized and, as a result, are assessed for impairment at least annually, using either a qualitative or quantitative approach. We perform this annual assessment during our third quarter.quarter, or more frequently if circumstances indicate that the carrying value may not be recoverable. Where we use the qualitative assessment, first we determine if, based on qualitative factors, it is more likely than not that an impairment exists. Factors considered include macroeconomic (including those related to the COVID-19 pandemic), industry and competitive conditions, legal and regulatory environment, historical financial performance and significant changes in the brand or reporting unit. If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed.
In the quantitative assessment estimatedfor indefinite-lived intangible assets and goodwill, an assessment is performed to determine the fair value of the indefinite-lived intangible asset and the reporting unit, respectively. Estimated fair value is determined using discounted cash flows and requires an analysis of several estimates including future cash flows or income consistent with management’s strategic business plans, annual sales growth rates, perpetuity growth assumptions and the selection of assumptions underlying a discount rate (weighted-average cost of capital) based on market data available at the time. Significant management judgment is necessary to estimate the impact of competitive operating, macroeconomic and other factors (including those related to the COVID-19 pandemic) to estimate future levels of sales, operating profit or cash flows. All assumptions used in our impairment evaluations for indefinite-lived intangible assets and goodwill, such as forecasted growth rates (including perpetuity growth assumptions) and weighted-average cost of capital, are based on the best available market information and are consistent with our internal forecasts and operating plans. A deterioration in these assumptions could adversely impact our results. These assumptions could be adversely impacted by certain of the risks described in “Item 1A. Risk Factors” and “Our Business Risks.”
Amortizable intangible assets are only evaluated for impairment upon a significant change in the operating or macroeconomic environment. If an evaluation of the undiscounted future cash flows indicates impairment, the asset is written down to its estimated fair value, which is based on its discounted future cash flows.
See Note 2 and Note 4 to our consolidated financial statements.statements for further information.
Income Tax Expense and Accruals
Our annual tax rate is based on our income, statutory tax rates and tax planning opportunitiesstructure and transactions, including transfer pricing arrangements, available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are subject to challenge and that we likely
will not succeed. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances, such as the progress of a tax audit.audit, new tax laws, relevant court cases or tax authority settlements. See “Item 1A. Risk Factors” for further discussion.
An estimated annual effective tax rate is applied to our quarterly operating results. In the event there is a significant or unusual item recognized in our quarterly operating results, the tax attributable to that item is
separately calculated and recorded at the same time as that item. We consider the tax adjustments from the resolution of prior yearprior-year tax matters to be among such items.
Tax law requires items to be included in our tax returns at different times than the items are reflected in our consolidated financial statements. As a result, our annual tax rate reflected in our consolidated financial statements is different than that reported in our tax returns (our cash tax rate). Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences reverse over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years for which we have already recorded the tax benefit on our income statement.consolidated financial statements. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is not more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax liabilities generally represent tax expense recognized in our consolidated financial statements for which payment has been deferred, or expense for which we have already taken a deduction in our tax return but have not yet recognized as expense in our consolidated financial statements.
During the fourth quarter of 2017, the TCJ Act was enacted in the United States. Among its many provisions, the TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings and reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of the enactment
of the TCJ Act, we recognized a provisional net tax expense of $2.5 billion ($1.70 per share) in the fourth quarter of 2017.
Included in the provisional net tax expense of $2.5 billion recognized in 2017 is a provisional mandatory one-time transition tax of approximately $4 billion on undistributed international earnings, included in other liabilities. This provisional mandatory one-time transition tax was partially offset by a provisional $1.5 billion benefit resulting from the required remeasurement of our deferred tax assets and liabilities to the new, lower U.S. corporate income tax rate, effective January 1, 2018. The effect of the remeasurement was recorded in the fourth quarter of 2017, consistent with the enactment date of the TCJ Act and reflected in our provision for income taxes.
During 2018, we recognized a net tax benefit of $28 million ($0.02 per share) in connection with the TCJ Act. See further information in “Items Affecting Comparability.”
While our accounting for the recorded impact of the TCJ Act is deemed to be complete, these amounts are based on prevailing regulations and currently available information, and any additional guidance issued by the IRS could impact the aforementioned amounts in future periods. As a result of the TCJ Act, we currently expect our annual tax rate, excluding items affecting comparability, in percentage terms, to be in the low twenties in 2019. However, we continue to evaluate the impact of the TCJ Act on our annual tax rate due to certain provisions, such as the global intangible low-tax income (GILTI) provision, which may impact our tax rate in future years.
In 2018,2021, our annual tax rate was (36.7)%21.8% compared to 48.9%20.9% in 2017, as discussed in2020. See “Other Consolidated Results.” The tax rate decreased 85.6 percentage points compared to 2017, reflecting both other net tax benefits related to the reorganization of our international operations, which reduced the reported tax rate by 45 percentage points, and the prior year provisional net tax expense related to the TCJ Act, which reduced the current year reported tax rate by 25 percentage points. Additionally, the favorable conclusion of certain international tax audits and the favorable resolution with the IRS of all open matters related to the audits ofResults” for further information.
taxable years 2012 and 2013, collectively, reduced the reported tax rate by 7 percentage points. See Note 5 to our consolidated financial statements.statements for further information.
Pension and Retiree Medical Plans
Our pension plans cover certain employees in the United States and certain international employees. Benefits are determined based on either years of service or a combination of years of service and earnings. Certain U.S. and Canada retirees are also eligible for medical and life insurance benefits (retiree medical) if they meet age and service requirements. Generally, our share of retiree medical costs is capped at specified dollar amounts, which vary based upon years of service, with retirees contributing the remainder of the cost. In addition, we have been phasing out certain subsidies of retiree medical benefits.
In 2016, we approved an amendment to reorganize the U.S. qualified defined benefit pension plans that resulted in the combination of two plans effective December 31, 2016, and the spinoff of a portion of the combined plan into a pre-existing plan effective January 1, 2017. The benefits offered to the plans’ participants were unchanged. The result of the reorganization was the creation of Plan A and the PepsiCo Employees Retirement Plan I (Plan I). The reorganization was made to facilitate a targeted investment strategy over time and to provide additional flexibility in evaluating opportunities to reduce risk and volatility. Actuarial gains and losses associated with Plan A are amortized over the average remaining service life of the active participants, while the actuarial gains and losses associated with Plan I are amortized over the remaining life expectancy of the inactive participants. As a result of these changes, the pre-tax net periodic benefit cost decreased by $42 million ($27 million after-tax, reflecting tax rates effective for the 2017 tax year, or $0.02 per share) in 2017, primarily impacting corporate unallocated expenses. See Note 7 to our consolidated financial statements.
In 2016, the U.S. qualified defined benefit pension plans purchased a group annuity contract whereby an unrelated insurance company assumed the obligation to pay and administer future annuity payments for certain retirees. In 2016, we made discretionary contributions of $452 million primarily to fund the transfer of the obligation. This transaction triggered a pre-tax settlement charge of $242 million ($162 million after-tax or $0.11 per share). See “Items Affecting Comparability” and Note 7 to our consolidated financial statements.statements for information about changes and settlements within our pension plans.
Our Assumptions
The determination of pension and retiree medical expenses and obligations requires the use of assumptions to estimate the amount of benefits that employees earn while working, as well as the present value of those benefits. Annual pension and retiree medical expense amounts are principally based on four components: (1) the value of benefits earned by employees for working during the year (service cost), (2) the increase in the projected benefit obligation due to the passage of time (interest cost), and (3) other gains and losses as discussed in Note 7 to our consolidated financial statements, reduced by (4) the expected return on assets for our funded plans.
Significant assumptions used to measure our annual pension and retiree medical expenses include:
•certain employee-related demographic factors, such as turnover, retirement age and mortality;
•the expected rate of return on assets in our funded plans;
for pension expense, the rate of salary increases for plans where benefits are based on earnings;
for retiree medical expense, health care cost trend rates; and
for pension and retiree medical expense, •the spot rates along the yield curve used to determine service and interest costs and the present value of liabilities.liabilities;
•for pension expense, the rate of salary increases for plans where benefits are based on earnings; and
•for retiree medical expense, health care cost trend rates.
Certain assumptions reflect our historical experience and management’s best judgment regarding future expectations. All actuarial assumptions are reviewed annually, except in the case of an interim remeasurement due to a significant event such as a curtailment or settlement. Due to the significant management judgment involved, ourthese assumptions could have a material impact on the measurement of our pension and retiree medical expenses and obligations.
At each measurement date, the discount rates are based on interest rates for high-quality, long-term corporate debt securities with maturities comparable to those of our liabilities. Our U.S. obligation and pension and retiree medical expense is based on the discount rates determined using the Mercer Above Mean Curve. This curve includes bonds that closely match the timing and amount of our expected benefit payments and reflects the portfolio of investments we would consider to settle our liabilities.
See Note 7 to our consolidated financial statements for information about the expected rate of return on plan assets and our plans’ investment strategy. Although we review our expected long-term rates of return on an annual basis, our asset returns in a given year do not significantly influence our evaluation of long-term rates of return.
The health care trend rate used to determine our retiree medical plans’ liabilityobligation and expense is reviewed annually. Our review is based on our claims experience, information provided by our health plans and actuaries, and our knowledge of the health care industry. Our review of the trend rate considers factors such as demographics, plan design, new medical technologies and changes in medical carriers.
Weighted-average assumptions for pension and retiree medical expense are as follows:
| | | 2019 |
| | 2018 |
| | 2017 |
| | 2022 | | 2021 | | 2020 |
Pension | | | | | | Pension | | | | | |
Service cost discount rate | 4.4 | % | | 3.7 | % | | 4.3 | % | Service cost discount rate | 3.1 | % | | 2.6 | % | | 3.4 | % |
Interest cost discount rate | 3.9 | % | | 3.2 | % | | 3.5 | % | Interest cost discount rate | 2.4 | % | | 1.9 | % | | 2.8 | % |
Expected rate of return on plan assets | 6.8 | % | | 6.9 | % | | 7.2 | % | Expected rate of return on plan assets | 6.1 | % | | 6.2 | % | | 6.6 | % |
Expected rate of salary increases | 3.2 | % | | 3.2 | % | | 3.2 | % | Expected rate of salary increases | 3.1 | % | | 3.1 | % | | 3.2 | % |
Retiree medical | | | | | | Retiree medical | |
Service cost discount rate | 4.3 | % | | 3.6 | % | | 4.0 | % | Service cost discount rate | 2.8 | % | | 2.3 | % | | 3.2 | % |
Interest cost discount rate | 3.8 | % | | 3.0 | % | | 3.2 | % | Interest cost discount rate | 2.1 | % | | 1.6 | % | | 2.6 | % |
Expected rate of return on plan assets | 6.6 | % | | 6.5 | % | | 7.5 | % | Expected rate of return on plan assets | 5.7 | % | | 5.4 | % | | 5.8 | % |
Current health care cost trend rate | 5.7 | % | | 5.8 | % | | 5.9 | % | Current health care cost trend rate | 5.8 | % | | 5.5 | % | | 5.6 | % |
Based on our assumptions, we expect our total pension and retiree medical expense to increasedecrease in 20192022 primarily driven by the recognition of prior experience losses on return onreflecting plan assets, partially offset by the impact ofchanges and related impacts, and higher discount rates and discretionary plan contributions.rates.
Sensitivity of Assumptions
A decrease in each of the collective discount rates or in the expected rate of return assumptions would increase expense for our benefit plans. A 25-basis-point decrease in each of the above discount rates and expected rate of return assumptions would individually increase 20192022 pre-tax pension and retiree medical expense as follows:
|
| | | | | | | |
Assumption | | Amount |
Discount rates used in the calculation of expense | | $42 | 37 | |
Expected rate of return | | $40 | 49 | |
Funding
We make contributions to pension trusts that provide plan benefits for certain pension plans. These contributions are made in accordance with applicable tax regulations that provide for current tax deductions for our contributions and taxation to the employee only upon receipt of plan benefits. Generally, we do not fund our pension plans when our contributions would not be currently tax deductible. As our retiree medical plans are not subject to regulatory funding requirements, we generally fund these plans on a pay-as-you-go basis, although we periodically review available options to make additional contributions toward these benefits.
We made discretionary contributions to our U.S. qualified defined benefit plans of $75 million in January 2022 and expect to make an additional $75 million contribution in the third quarter of 2022.
Our pension and retiree medical plan contributions are subject to change as a result of many factors, such as changes in interest rates, deviations between actual and expected asset returns and changes in tax or other benefit laws. We continue to monitor the impact of the COVID-19 pandemic and related global economic conditions and uncertainty on the net unfunded status of our pension and retiree medical plans. We regularly evaluate different opportunities to reduce risk and volatility associated with our pension and retiree medical plans. See Note 7 to our consolidated financial statements for our past and expected contributions and estimated future benefit payments.
Consolidated Statement of Income
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 29, 2018,25, 2021, December 30, 201726, 2020 and December 31, 201628, 2019
(in millions except per share amounts)
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Net Revenue | $ | 79,474 | | | $ | 70,372 | | | $ | 67,161 | |
Cost of sales | 37,075 | | | 31,797 | | | 30,132 | |
Gross profit | 42,399 | | | 38,575 | | | 37,029 | |
Selling, general and administrative expenses | 31,237 | | | 28,495 | | | 26,738 | |
| | | | | |
Operating Profit | 11,162 | | | 10,080 | | | 10,291 | |
Other pension and retiree medical benefits income/(expense) | 522 | | | 117 | | | (44) | |
Net interest expense and other | (1,863) | | | (1,128) | | | (935) | |
Income before income taxes | 9,821 | | | 9,069 | | | 9,312 | |
Provision for income taxes | 2,142 | | | 1,894 | | | 1,959 | |
Net income | 7,679 | | | 7,175 | | | 7,353 | |
Less: Net income attributable to noncontrolling interests | 61 | | | 55 | | | 39 | |
Net Income Attributable to PepsiCo | $ | 7,618 | | | $ | 7,120 | | | $ | 7,314 | |
Net Income Attributable to PepsiCo per Common Share | | | | | |
Basic | $ | 5.51 | | | $ | 5.14 | | | $ | 5.23 | |
Diluted | $ | 5.49 | | | $ | 5.12 | | | $ | 5.20 | |
Weighted-average common shares outstanding | | | | | |
Basic | 1,382 | | | 1,385 | | | 1,399 | |
Diluted | 1,389 | | | 1,392 | | | 1,407 | |
|
| | | | | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
|
Net Revenue | $ | 64,661 |
| | $ | 63,525 |
| | $ | 62,799 |
|
Cost of sales | 29,381 |
| | 28,796 |
| | 28,222 |
|
Gross profit | 35,280 |
| | 34,729 |
| | 34,577 |
|
Selling, general and administrative expenses | 25,170 |
| | 24,453 |
| | 24,773 |
|
Operating Profit | 10,110 |
| | 10,276 |
| | 9,804 |
|
Other pension and retiree medical benefits income/(expense) | 298 |
| | 233 |
| | (19 | ) |
Interest expense | (1,525 | ) | | (1,151 | ) | | (1,342 | ) |
Interest income and other | 306 |
| | 244 |
| | 110 |
|
Income before income taxes | 9,189 |
| | 9,602 |
| | 8,553 |
|
(Benefit from)/provision for income taxes (See Note 5) | (3,370 | ) |
| 4,694 |
| | 2,174 |
|
Net income | 12,559 |
| | 4,908 |
| | 6,379 |
|
Less: Net income attributable to noncontrolling interests | 44 |
| | 51 |
| | 50 |
|
Net Income Attributable to PepsiCo | $ | 12,515 |
| | $ | 4,857 |
| | $ | 6,329 |
|
Net Income Attributable to PepsiCo per Common Share | | | | | |
Basic | $ | 8.84 |
| | $ | 3.40 |
| | $ | 4.39 |
|
Diluted | $ | 8.78 |
| | $ | 3.38 |
| | $ | 4.36 |
|
Weighted-average common shares outstanding | | | | | |
Basic | 1,415 |
| | 1,425 |
| | 1,439 |
|
Diluted | 1,425 |
| | 1,438 |
| | 1,452 |
|
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Comprehensive Income
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 29, 2018,25, 2021, December 30, 201726, 2020 and December 31, 201628, 2019
(in millions)
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Net income | $ | 7,679 | | | $ | 7,175 | | | $ | 7,353 | |
Other comprehensive income/(loss), net of taxes: | | | | | |
Net currency translation adjustment | (369) | | | (650) | | | 628 | |
Net change on cash flow hedges | 155 | | | 7 | | | (90) | |
Net pension and retiree medical adjustments | 770 | | | (532) | | | 283 | |
Other | 22 | | | (1) | | | (2) | |
| 578 | | | (1,176) | | | 819 | |
Comprehensive income | 8,257 | | | 5,999 | | | 8,172 | |
Less: Comprehensive income attributable to noncontrolling interests | 61 | | | 55 | | | 39 | |
Comprehensive Income Attributable to PepsiCo | $ | 8,196 | | | $ | 5,944 | | | $ | 8,133 | |
|
| | | | | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
|
Net income | $ | 12,559 |
| | $ | 4,908 |
| | $ | 6,379 |
|
Other comprehensive income/(loss), net of taxes: | | | | | |
Net currency translation adjustment | (1,641 | ) | | 1,109 |
| | (302 | ) |
Net change on cash flow hedges | 40 |
| | (36 | ) | | 46 |
|
Net pension and retiree medical adjustments | (467 | ) | | (159 | ) | | (316 | ) |
Net change on available-for-sale securities | 6 |
| | (68 | ) | | (24 | ) |
Other | — |
| | 16 |
| | — |
|
| (2,062 | ) | | 862 |
| | (596 | ) |
Comprehensive income | 10,497 |
| | 5,770 |
| | 5,783 |
|
Comprehensive income attributable to noncontrolling interests | (44 | ) | | (51 | ) | | (54 | ) |
Comprehensive Income Attributable to PepsiCo | $ | 10,453 |
| | $ | 5,719 |
| | $ | 5,729 |
|
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 29, 2018,25, 2021, December 30, 201726, 2020 and December 31, 201628, 2019
(in millions)
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Operating Activities | | | | | |
Net income | $ | 7,679 | | | $ | 7,175 | | | $ | 7,353 | |
Depreciation and amortization | 2,710 | | | 2,548 | | | 2,432 | |
Operating lease right-of-use asset amortization | 505 | | | 478 | | | 412 | |
| | | | | |
| | | | | |
Share-based compensation expense | 301 | | | 264 | | | 237 | |
Restructuring and impairment charges | 247 | | | 289 | | | 370 | |
Cash payments for restructuring charges | (256) | | | (255) | | | (350) | |
Acquisition and divestiture-related charges | (4) | | | 255 | | | 55 | |
Cash payments for acquisition and divestiture-related charges | (176) | | | (131) | | | (10) | |
Pension and retiree medical plan expenses | 123 | | | 408 | | | 519 | |
Pension and retiree medical plan contributions | (785) | | | (562) | | | (716) | |
Deferred income taxes and other tax charges and credits | 298 | | | 361 | | | 453 | |
Tax expense/(benefit) related to the TCJ Act | 190 | | | — | | | (8) | |
Tax payments related to the TCJ Act | (309) | | | (78) | | | (423) | |
Change in assets and liabilities: | | | | | |
Accounts and notes receivable | (651) | | | (420) | | | (650) | |
Inventories | (582) | | | (516) | | | (190) | |
Prepaid expenses and other current assets | 159 | | | 26 | | | (87) | |
Accounts payable and other current liabilities | 1,762 | | | 766 | | | 735 | |
Income taxes payable | 30 | | | (159) | | | (287) | |
Other, net | 375 | | | 164 | | | (196) | |
Net Cash Provided by Operating Activities | 11,616 | | | 10,613 | | | 9,649 | |
| | | | | |
Investing Activities | | | | | |
Capital spending | (4,625) | | | (4,240) | | | (4,232) | |
Sales of property, plant and equipment | 166 | | | 55 | | | 170 | |
Acquisitions, net of cash acquired, and investments in noncontrolled affiliates | (61) | | | (6,372) | | | (2,717) | |
Divestitures and sales of investments in noncontrolled affiliates | 169 | | | 6 | | | 253 | |
Short-term investments, by original maturity: | | | | | |
More than three months - purchases | — | | | (1,135) | | | — | |
More than three months - maturities | 1,135 | | | — | | | 16 | |
More than three months - sales | — | | | — | | | 62 | |
Three months or less, net | (58) | | | 27 | | | 19 | |
Other investing, net | 5 | | | 40 | | | (8) | |
Net Cash Used for Investing Activities | (3,269) | | | (11,619) | | | (6,437) | |
(Continued on following page)
|
| | | | | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
|
Operating Activities | | | | | |
Net income | $ | 12,559 |
| | $ | 4,908 |
| | $ | 6,379 |
|
Depreciation and amortization | 2,399 |
| | 2,369 |
| | 2,368 |
|
Share-based compensation expense | 256 |
| | 292 |
| | 284 |
|
Restructuring and impairment charges | 308 |
| | 295 |
| | 160 |
|
Cash payments for restructuring charges | (255 | ) | | (113 | ) | | (125 | ) |
Charge related to the transaction with Tingyi | — |
|
| — |
| | 373 |
|
Pension and retiree medical plan expenses | 221 |
| | 221 |
| | 501 |
|
Pension and retiree medical plan contributions | (1,708 | ) | | (220 | ) | | (695 | ) |
Deferred income taxes and other tax charges and credits | (531 | ) | | 619 |
| | 452 |
|
Other net tax benefits related to international reorganizations | (4,347 | ) | | — |
| | — |
|
Net tax (benefit)/expense related to the TCJ Act | (28 | ) | | 2,451 |
| | — |
|
Change in assets and liabilities: | | | | | |
Accounts and notes receivable | (253 | ) | | (202 | ) | | (349 | ) |
Inventories | (174 | ) | | (168 | ) | | (75 | ) |
Prepaid expenses and other current assets | 9 |
| | 20 |
| | 10 |
|
Accounts payable and other current liabilities | 882 |
| | 201 |
| | 981 |
|
Income taxes payable | 333 |
| | (338 | ) | | 329 |
|
Other, net | (256 | ) | | (305 | ) | | 70 |
|
Net Cash Provided by Operating Activities | 9,415 |
| | 10,030 |
| | 10,663 |
|
| | | | | |
Investing Activities | | | | | |
Capital spending | (3,282 | ) | | (2,969 | ) | | (3,040 | ) |
Sales of property, plant and equipment | 134 |
| | 180 |
| | 99 |
|
Acquisition of SodaStream, net of cash and cash equivalents acquired | (1,197 | ) | | — |
| | — |
|
Other acquisitions and investments in noncontrolled affiliates | (299 | ) | | (61 | ) | | (212 | ) |
Divestitures | 505 |
| | 267 |
| | 85 |
|
Short-term investments, by original maturity: | | | | | |
More than three months - purchases | (5,637 | ) | | (18,385 | ) | | (12,504 | ) |
More than three months - maturities | 12,824 |
| | 15,744 |
| | 8,399 |
|
More than three months - sales | 1,498 |
| | 790 |
| | — |
|
Three months or less, net | 16 |
| | 2 |
| | 16 |
|
Other investing, net | 2 |
| | 29 |
| | 7 |
|
Net Cash Provided by/(Used for) Investing Activities | 4,564 |
| | (4,403 | ) | | (7,150 | ) |
| | | | | |
Financing Activities | | | | | |
Proceeds from issuances of long-term debt | — |
| | 7,509 |
| | 7,818 |
|
Payments of long-term debt | (4,007 | ) | | (4,406 | ) | | (3,105 | ) |
Cash tender and exchange offers/debt redemptions | (1,589 | ) | | — |
| | (2,504 | ) |
Short-term borrowings, by original maturity: | | | | | |
More than three months - proceeds | 3 |
| | 91 |
| | 59 |
|
More than three months - payments | (17 | ) | | (128 | ) | | (27 | ) |
Three months or less, net | (1,352 | ) | | (1,016 | ) | | 1,505 |
|
Cash dividends paid | (4,930 | ) | | (4,472 | ) | | (4,227 | ) |
Share repurchases - common | (2,000 | ) | | (2,000 | ) | | (3,000 | ) |
Share repurchases - preferred | (2 | ) | | (5 | ) | | (7 | ) |
Proceeds from exercises of stock options | 281 |
| | 462 |
| | 465 |
|
Withholding tax payments on RSUs, PSUs and PEPunits converted | (103 | ) | | (145 | ) | | (130 | ) |
Other financing | (53 | ) | | (76 | ) | | (58 | ) |
Net Cash Used for Financing Activities | (13,769 | ) | | (4,186 | ) | | (3,211 | ) |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (98 | ) | | 47 |
| | (252 | ) |
Net Increase in Cash and Cash Equivalents and Restricted Cash | 112 |
| | 1,488 |
| | 50 |
|
Cash and Cash Equivalents and Restricted Cash, Beginning of Year | 10,657 |
| | 9,169 |
| | 9,119 |
|
Cash and Cash Equivalents and Restricted Cash, End of Year | $ | 10,769 |
| | $ | 10,657 |
| | $ | 9,169 |
|
Consolidated Statement of Cash Flows (continued)
PepsiCo, Inc. and SubsidiariesFiscal years ended December 25, 2021, December 26, 2020 and December 28, 2019
(in millions)
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Financing Activities | | | | | |
Proceeds from issuances of long-term debt | $ | 4,122 | | | $ | 13,809 | | | $ | 4,621 | |
Payments of long-term debt | (3,455) | | | (1,830) | | | (3,970) | |
Cash tender offers/debt redemption | (4,844) | | | (1,100) | | | (1,007) | |
Short-term borrowings, by original maturity: | | | | | |
More than three months - proceeds | 8 | | | 4,077 | | | 6 | |
More than three months - payments | (397) | | | (3,554) | | | (2) | |
Three months or less, net | 434 | | | (109) | | | (3) | |
Payments of acquisition-related contingent consideration | (773) | | | — | | | — | |
Cash dividends paid | (5,815) | | | (5,509) | | | (5,304) | |
Share repurchases - common | (106) | | | (2,000) | | | (3,000) | |
Proceeds from exercises of stock options | 185 | | | 179 | | | 329 | |
Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted | (92) | | | (96) | | | (114) | |
Other financing | (47) | | | (48) | | | (45) | |
Net Cash (Used for)/Provided by Financing Activities | (10,780) | | | 3,819 | | | (8,489) | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (114) | | | (129) | | | 78 | |
Net (Decrease)/Increase in Cash and Cash Equivalents and Restricted Cash | (2,547) | | | 2,684 | | | (5,199) | |
Cash and Cash Equivalents and Restricted Cash, Beginning of Year | 8,254 | | | 5,570 | | | 10,769 | |
Cash and Cash Equivalents and Restricted Cash, End of Year | $ | 5,707 | | | $ | 8,254 | | | $ | 5,570 | |
See accompanying notes to the consolidated financial statements.
Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
December 29, 201825, 2021 and December 30, 201726, 2020
(in millions except per share amounts)
| | | | | | | | | | | |
| 2021 | | 2020 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 5,596 | | | $ | 8,185 | |
Short-term investments | 392 | | | 1,366 | |
| | | |
Accounts and notes receivable, net | 8,680 | | | 8,404 | |
Inventories | 4,347 | | | 4,172 | |
Prepaid expenses and other current assets | 980 | | | 874 | |
Assets held for sale | 1,788 | | | — | |
Total Current Assets | 21,783 | | | 23,001 | |
Property, Plant and Equipment, net | 22,407 | | | 21,369 | |
Amortizable Intangible Assets, net | 1,538 | | | 1,703 | |
Goodwill | 18,381 | | | 18,757 | |
Other Indefinite-Lived Intangible Assets | 17,127 | | | 17,612 | |
Investments in Noncontrolled Affiliates | 2,627 | | | 2,792 | |
Deferred Income Taxes | 4,310 | | | 4,372 | |
Other Assets | 4,204 | | | 3,312 | |
Total Assets | $ | 92,377 | | | $ | 92,918 | |
| | | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Short-term debt obligations | $ | 4,308 | | | $ | 3,780 | |
Accounts payable and other current liabilities | 21,159 | | | 19,592 | |
Liabilities held for sale | 753 | | | — | |
Total Current Liabilities | 26,220 | | | 23,372 | |
Long-Term Debt Obligations | 36,026 | | | 40,370 | |
Deferred Income Taxes | 4,826 | | | 4,284 | |
Other Liabilities | 9,154 | | | 11,340 | |
Total Liabilities | 76,226 | | | 79,366 | |
Commitments and contingencies | 0 | | 0 |
| | | |
| | | |
PepsiCo Common Shareholders’ Equity | | | |
Common stock, par value 12/3¢ per share (authorized 3,600 shares; issued, net of repurchased common stock at par value: 1,383 and 1,380 shares, respectively) | 23 | | | 23 | |
Capital in excess of par value | 4,001 | | | 3,910 | |
Retained earnings | 65,165 | | | 63,443 | |
Accumulated other comprehensive loss | (14,898) | | | (15,476) | |
Repurchased common stock, in excess of par value (484 and 487 shares, respectively) | (38,248) | | | (38,446) | |
Total PepsiCo Common Shareholders’ Equity | 16,043 | | | 13,454 | |
Noncontrolling interests | 108 | | | 98 | |
Total Equity | 16,151 | | | 13,552 | |
Total Liabilities and Equity | $ | 92,377 | | | $ | 92,918 | |
|
| | | | | | | |
| 2018 |
| | 2017 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 8,721 |
| | $ | 10,610 |
|
Short-term investments | 272 |
| | 8,900 |
|
Restricted cash | 1,997 |
| | — |
|
Accounts and notes receivable, net | 7,142 |
| | 7,024 |
|
Inventories | 3,128 |
| | 2,947 |
|
Prepaid expenses and other current assets | 633 |
| | 1,546 |
|
Total Current Assets | 21,893 |
| | 31,027 |
|
Property, Plant and Equipment, net | 17,589 |
| | 17,240 |
|
Amortizable Intangible Assets, net | 1,644 |
| | 1,268 |
|
Goodwill | 14,808 |
| | 14,744 |
|
Other indefinite-lived intangible assets | 14,181 |
| | 12,570 |
|
Indefinite-Lived Intangible Assets | 28,989 |
| | 27,314 |
|
Investments in Noncontrolled Affiliates | 2,409 |
| | 2,042 |
|
Deferred Income Taxes | 4,364 |
| | — |
|
Other Assets | 760 |
| | 913 |
|
Total Assets | $ | 77,648 |
| | $ | 79,804 |
|
| | | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Short-term debt obligations | $ | 4,026 |
| | $ | 5,485 |
|
Accounts payable and other current liabilities | 18,112 |
| | 15,017 |
|
Total Current Liabilities | 22,138 |
| | 20,502 |
|
Long-Term Debt Obligations | 28,295 |
| | 33,796 |
|
Deferred Income Taxes | 3,499 |
| | 3,242 |
|
Other Liabilities | 9,114 |
| | 11,283 |
|
Total Liabilities | 63,046 |
| | 68,823 |
|
Commitments and contingencies |
|
| |
|
|
Preferred Stock, no par value | — |
| | 41 |
|
Repurchased Preferred Stock | — |
| | (197 | ) |
PepsiCo Common Shareholders’ Equity | | | |
Common stock, par value 12/3¢ per share (authorized 3,600 shares; issued, net of repurchased common stock at par value: 1,409 and 1,420 shares, respectively) | 23 |
| | 24 |
|
Capital in excess of par value | 3,953 |
| | 3,996 |
|
Retained earnings | 59,947 |
| | 52,839 |
|
Accumulated other comprehensive loss | (15,119 | ) | | (13,057 | ) |
Repurchased common stock, in excess of par value (458 and 446 shares, respectively) | (34,286 | ) | | (32,757 | ) |
Total PepsiCo Common Shareholders’ Equity | 14,518 |
| | 11,045 |
|
Noncontrolling interests | 84 |
| | 92 |
|
Total Equity | 14,602 |
| | 10,981 |
|
Total Liabilities and Equity | $ | 77,648 |
| | $ | 79,804 |
|
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 29, 2018,25, 2021, December 30, 201726, 2020 and December 31, 201628, 2019
(in millions)millions except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Common Stock | | | | | | | | | | | |
Balance, beginning of year | 1,380 | | | $ | 23 | | | 1,391 | | | $ | 23 | | | 1,409 | | | $ | 23 | |
Change in repurchased common stock | 3 | | | — | | | (11) | | | — | | | (18) | | | — | |
Balance, end of year | 1,383 | | | 23 | | | 1,380 | | | 23 | | | 1,391 | | | 23 | |
Capital in Excess of Par Value | | | | | | | | | | | |
Balance, beginning of year | | | 3,910 | | | | | 3,886 | | | | | 3,953 | |
Share-based compensation expense | | | 302 | | | | | 263 | | | | | 235 | |
Stock option exercises, RSUs and PSUs converted | | | (118) | | | | | (143) | | | | | (188) | |
Withholding tax on RSUs and PSUs converted | | | (92) | | | | | (96) | | | | | (114) | |
Other | | | (1) | | | | | — | | | | | — | |
Balance, end of year | | | 4,001 | | | | | 3,910 | | | | | 3,886 | |
Retained Earnings | | | | | | | | | | | |
Balance, beginning of year | | | 63,443 | | | | | 61,946 | | | | | 59,947 | |
Cumulative effect of accounting changes | | | — | | | | | (34) | | | | | 8 | |
Net income attributable to PepsiCo | | | 7,618 | | | | | 7,120 | | | | | 7,314 | |
Cash dividends declared - common (a) | | | (5,896) | | | | | (5,589) | | | | | (5,323) | |
Balance, end of year | | | 65,165 | | | | | 63,443 | | | | | 61,946 | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | |
Balance, beginning of year | | | (15,476) | | | | | (14,300) | | | | | (15,119) | |
Other comprehensive income/(loss) attributable to PepsiCo | | | 578 | | | | | (1,176) | | | | | 819 | |
Balance, end of year | | | (14,898) | | | | | (15,476) | | | | | (14,300) | |
Repurchased Common Stock | | | | | | | | | | | |
Balance, beginning of year | (487) | | | (38,446) | | | (476) | | | (36,769) | | | (458) | | | (34,286) | |
Share repurchases | (1) | | | (106) | | | (15) | | | (2,000) | | | (24) | | | (3,000) | |
Stock option exercises, RSUs and PSUs converted | 4 | | | 303 | | | 4 | | | 322 | | | 6 | | | 516 | |
Other | — | | | 1 | | | — | | | 1 | | | — | | | 1 | |
Balance, end of year | (484) | | | (38,248) | | | (487) | | | (38,446) | | | (476) | | | (36,769) | |
Total PepsiCo Common Shareholders’ Equity | | | 16,043 | | | | | 13,454 | | | | | 14,786 | |
Noncontrolling Interests | | | | | | | | | | | |
Balance, beginning of year | | | 98 | | | | | 82 | | | | | 84 | |
Net income attributable to noncontrolling interests | | | 61 | | | | | 55 | | | | | 39 | |
Distributions to noncontrolling interests | | | (49) | | | | | (44) | | | | | (42) | |
| | | | | | | | | | | |
Acquisitions | | | — | | | | | 5 | | | | | — | |
Other, net | | | (2) | | | | | — | | | | | 1 | |
Balance, end of year | | | 108 | | | | | 98 | | | | | 82 | |
Total Equity | | | $ | 16,151 | | | | | $ | 13,552 | | | | | $ | 14,868 | |
|
| | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2017 | | 2016 |
| Shares |
| | Amount |
| | Shares |
| | Amount |
| | Shares |
| | Amount |
|
Preferred Stock | | | | | | | | | | | |
Balance, beginning of year | 0.8 |
| | $ | 41 |
| | 0.8 |
| | $ | 41 |
| | 0.8 |
| | $ | 41 |
|
Conversion to common stock | (0.1 | ) | | (6 | ) | | — |
| | — |
| | — |
| | — |
|
Retirement of preferred stock | (0.7 | ) | | (35 | ) | | — |
| | — |
| | — |
| | — |
|
Balance, end of year | — |
| | — |
| | 0.8 |
| | 41 |
| | 0.8 |
| | 41 |
|
Repurchased Preferred Stock | | | | | | | | | | | |
Balance, beginning of year | (0.7 | ) | | (197 | ) | | (0.7 | ) | | (192 | ) | | (0.7 | ) | | (186 | ) |
Redemptions | — |
| | (2 | ) | | — |
| | (5 | ) | | — |
| | (6 | ) |
Retirement of preferred stock | 0.7 |
| | 199 |
| | — |
| | — |
| | — |
| | — |
|
Balance, end of year | — |
| | — |
| | (0.7 | ) | | (197 | ) | | (0.7 | ) | | (192 | ) |
Common Stock | | | | | | | | | | | |
Balance, beginning of year | 1,420 |
| | 24 |
| | 1,428 |
| | 24 |
| | 1,448 |
| | 24 |
|
Share issued in connection with preferred stock conversion to common stock | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Change in repurchased common stock | (12 | ) | | (1 | ) | | (8 | ) | | — |
| | (20 | ) | | — |
|
Balance, end of year | 1,409 |
| | 23 |
| | 1,420 |
| | 24 |
| | 1,428 |
| | 24 |
|
Capital in Excess of Par Value | | | | | | | | | | | |
Balance, beginning of year | | | 3,996 |
| | | | 4,091 |
| | | | 4,076 |
|
Share-based compensation expense | | | 250 |
| | | | 290 |
| | | | 289 |
|
Equity issued in connection with preferred stock conversion to common stock | | | 6 |
| | | | — |
| | | | — |
|
Stock option exercises, RSUs, PSUs and PEPunits converted (a) | | | (193 | ) | | | | (236 | ) | | | | (138 | ) |
Withholding tax on RSUs, PSUs and PEPunits converted | | | (103 | ) | | | | (145 | ) | | | | (130 | ) |
Other | | | (3 | ) | | | | (4 | ) | | | | (6 | ) |
Balance, end of year | | | 3,953 |
| | | | 3,996 |
| | | | 4,091 |
|
Retained Earnings | | | | | | | | | | | |
Balance, beginning of year | | | 52,839 |
| | | | 52,518 |
| | | | 50,472 |
|
Cumulative effect of accounting changes | | | (145 | ) | | | | — |
| | | | — |
|
Net income attributable to PepsiCo | | | 12,515 |
| | | | 4,857 |
| | | | 6,329 |
|
Cash dividends declared - common (b) | | | (5,098 | ) | | | | (4,536 | ) | | | | (4,282 | ) |
Cash dividends declared - preferred | | | — |
| | | | — |
| | | | (1 | ) |
Retirement of preferred stock | | | (164 | ) | | | | — |
| | | | — |
|
Balance, end of year | | | 59,947 |
| | | | 52,839 |
| | | | 52,518 |
|
Accumulated Other Comprehensive Loss | | | | | | | | | | | |
Balance, beginning of year | | | (13,057 | ) | | | | (13,919 | ) | | | | (13,319 | ) |
Other comprehensive (loss)/income attributable to PepsiCo | | | (2,062 | ) | | | | 862 |
| | | | (600 | ) |
Balance, end of year | | | (15,119 | ) | | | | (13,057 | ) | | | | (13,919 | ) |
Repurchased Common Stock | | | | | | | | | | | |
Balance, beginning of year | (446 | ) | | (32,757 | ) | | (438 | ) | | (31,468 | ) | | (418 | ) | | (29,185 | ) |
Share repurchases | (18 | ) | | (2,000 | ) | | (18 | ) | | (2,000 | ) | | (29 | ) | | (3,000 | ) |
Stock option exercises, RSUs, PSUs and PEPunits converted | 6 |
| | 469 |
| | 10 |
| | 708 |
| | 9 |
| | 712 |
|
Other | — |
| | 2 |
| | — |
| | 3 |
| | — |
| | 5 |
|
Balance, end of year | (458 | ) | | (34,286 | ) | | (446 | ) | | (32,757 | ) | | (438 | ) | | (31,468 | ) |
Total PepsiCo Common Shareholders’ Equity | | | 14,518 |
| | | | 11,045 |
| | | | 11,246 |
|
Noncontrolling Interests | | | | | | | | | | | |
Balance, beginning of year | | | 92 |
| | | | 104 |
| | | | 107 |
|
Net income attributable to noncontrolling interests | | | 44 |
| | | | 51 |
| | | | 50 |
|
Distributions to noncontrolling interests | | | (49 | ) | | | | (62 | ) | | | | (55 | ) |
Currency translation adjustment | | | — |
| | | | — |
| | | | 4 |
|
Other, net | | | (3 | ) | | | | (1 | ) | | | | (2 | ) |
Balance, end of year | | | 84 |
| | | | 92 |
| | | | 104 |
|
Total Equity | | | $ | 14,602 |
| | | | $ | 10,981 |
| | | | $ | 11,199 |
|
(a) Includes total tax benefits of $110 million in 2016.
(b) Cash dividends declared per common share were $3.5875, $3.1675$4.2475, $4.0225 and $2.96$3.7925 for 2018, 20172021, 2020 and 2016,2019, respectively.
See accompanying notes to the consolidated financial statements.
Notes to Consolidated Financial Statements
Note 1 — Basis of Presentation and Our Divisions
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and include the consolidated accounts of PepsiCo, Inc. and the affiliates that we control. In addition, we include our share of the results of certain other affiliates using the equity method based on our economic ownership interest, our ability to exercise significant influence over the operating or financial decisions of these affiliates or our ability to direct their economic resources. We do not control these other affiliates, as our ownership in these other affiliates is generally 50% or less. Intercompany balances and transactions are eliminated. As a result of exchange restrictions and other operating restrictions, we do not have control over our Venezuelan subsidiaries. As such, our Venezuelan subsidiaries are not included within our consolidated financial results for any period presented.
Raw materials, direct labor and plant overhead, as well as purchasing and receiving costs, costs directly related to production planning, inspection costs and raw materials handling facilities, are included in cost of sales. The costs of moving, storing and delivering finished product, including merchandising activities, are included in selling, general and administrative expenses.
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. Estimates are used in determining, among other items, sales incentives accruals, tax reserves, share-based compensation, pension and retiree medical accruals, amounts and useful lives for intangible assets and future cash flows associated with impairment testing for perpetual brands,indefinite-lived intangible assets, goodwill and other long-lived assets. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. Additionally, the business and economic uncertainty resulting from the COVID-19 pandemic has made such estimates and assumptions more difficult to calculate. As future events and their effect cannot be determined with precision, actual results could differ significantly from thesethose estimates.
Our fiscal year ends on the last Saturday of each December, resulting in an additionala 53rd reporting week of results every five or six years. Our fiscal 2016 results included an extra week.years, including in our 2022 financial results. While our North America results are reported on a weekly calendar basis, mostsubstantially all of our international operations reported on a monthly calendar basis prior to the fourth quarter of 2021, and beginning in the fourth quarter of 2021, all of our international operations report on a monthly calendar basis. Certain operations inThis change did not have a material impact on our ESSA segment report on a weekly calendar basis.consolidated financial statements. The following chart details our quarterly reporting schedule:
schedule for the three years presented: |
| | | | | | | | | | | | | |
Quarter | | United States and Canada | | International |
First Quarter | | 12 weeks | | January, February |
Second Quarter | | 12 weeks | | March, April and May |
Third Quarter | | 12 weeks | | June, July and August |
Fourth Quarter | | 16 weeks (17 weeks for 2016) | | September, October, November and December |
See “Our Divisions” below, and for additional unaudited information on items affecting the comparability of our consolidated results, see further unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Unless otherwise noted, tabular dollars are in millions, except per share amounts. All per share amounts reflect common per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts. Certain reclassifications were made to the prior years’year’s consolidated financial statements to conform to the current year presentation, including the adoption of the recently issued accounting pronouncements disclosed in Note 2.
presentation.
Our Divisions
We are organized into 7 reportable segments (also referred to as divisions), as follows:
1)FLNA, which includes our branded convenient food businesses in the United States and Canada;
2)QFNA, which includes our branded convenient food businesses, such as cereal, rice, pasta and other branded food, in the United States and Canada;
3)PBNA, which includes our beverage businesses in the United States and Canada;
4)LatAm, which includes all of our beverage and convenient food businesses in Latin America;
5)Europe, which includes all of our beverage and convenient food businesses in Europe;
6)AMESA, which includes all of our beverage and convenient food businesses in Africa, the Middle East and South Asia; and
7)APAC, which includes all of our beverage and convenient food businesses in Asia Pacific, Australia and New Zealand, and China region.
Through our operations, authorized bottlers, contract manufacturers and other third parties, we make, market, distribute and sell a wide variety of beverages and convenient beverages, foods, and snacks, serving customers and consumers in more than 200 countries and territories with our largest operations in North America,the United States, Mexico, Russia, Canada, China, the United Kingdom and Brazil. Division results are based on how our Chief Executive Officer assesses the performance of and allocates resources to our divisions and are considered our reportable segments. For additional unaudited information on our divisions, see “Our Operations” contained in “Item 1. Business.” South Africa.
The accounting policies for the divisions are the same as those described in Note 2, except for the following allocation methodologies:
•share-based compensation expense;
•pension and retiree medical expense; and
•derivatives.
Share-Based Compensation Expense
Our divisions are held accountable for share-based compensation expense and, therefore, this expense is allocated to our divisions as an incremental employee compensation cost.
The allocation of share-based compensation expense of each division is as follows:
|
| | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
|
FLNA | 13 | % | | 13 | % | | 14 | % |
QFNA | 1 | % | | 1 | % | | 2 | % |
NAB | 18 | % | | 18 | % | | 22 | % |
Latin America | 8 | % | | 7 | % | | 7 | % |
ESSA | 9 | % | | 9 | % | | 11 | % |
AMENA | 8 | % | | 9 | % | | 10 | % |
Corporate unallocated expenses | 43 | % | | 43 | % | | 34 | % |
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
FLNA | 13 | % | | 13 | % | | 13 | % |
QFNA | 1 | % | | 1 | % | | 1 | % |
PBNA | 19 | % | | 18 | % | | 17 | % |
LatAm | 5 | % | | 6 | % | | 7 | % |
Europe | 13 | % | | 16 | % | | 17 | % |
AMESA | 6 | % | | 6 | % | | 3 | % |
APAC | 2 | % | | 2 | % | | 5 | % |
Corporate unallocated expenses | 41 | % | | 38 | % | | 37 | % |
The expense allocated to our divisions excludes any impact of changes in our assumptions during the year which reflect market conditions over which division management has no control. Therefore, any variances between allocated expense and our actual expense are recognized in corporate unallocated expenses.
Pension and Retiree Medical Expense
Pension and retiree medical service costs measured at fixed discount rates are reflected in division results. The variance between the fixed discount rate used to determine the service cost reflected in division results and the discount rate as disclosed in Note 7 is reflected in corporate unallocated expenses.
Derivatives
We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include energy, agricultural products, energy and metals. Commodity derivatives that do not qualify for hedge accounting treatment are marked to market each period with the resulting gains and losses recorded in corporate unallocated expenses as either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. These gains and losses are subsequently reflected in division results when the divisions recognize the cost of the underlying commodity in operating profit. Therefore, the divisions realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in corporate unallocated expenses. These derivatives hedge underlying commodity price risk and were not entered into for trading or speculative purposes.
Net Revenue and Operating Profit
Net revenue and operating profit of each division are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Revenue | | Operating Profit |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
FLNA | $ | 19,608 | | | $ | 18,189 | | | $ | 17,078 | | | $ | 5,633 | | | $ | 5,340 | | | $ | 5,258 | |
QFNA | 2,751 | | | 2,742 | | | 2,482 | | | 578 | | | 669 | | | 544 | |
PBNA | 25,276 | | | 22,559 | | | 21,730 | | | 2,442 | | | 1,937 | | | 2,179 | |
LatAm | 8,108 | | | 6,942 | | | 7,573 | | | 1,369 | | | 1,033 | | | 1,141 | |
Europe | 13,038 | | | 11,922 | | | 11,728 | | | 1,292 | | | 1,353 | | | 1,327 | |
AMESA (a) | 6,078 | | | 4,573 | | | 3,651 | | | 858 | | | 600 | | | 671 | |
APAC (b) | 4,615 | | | 3,445 | | | 2,919 | | | 673 | | | 590 | | | 477 | |
Total division | 79,474 | | | 70,372 | | | 67,161 | | | 12,845 | | | 11,522 | | | 11,597 | |
Corporate unallocated expenses | — | | | — | | | — | | | (1,683) | | | (1,442) | | | (1,306) | |
Total | $ | 79,474 | | | $ | 70,372 | | | $ | 67,161 | | | $ | 11,162 | | | $ | 10,080 | | | $ | 10,291 | |
(a)The increase in net revenue reflects our acquisition of Pioneer Foods. See Note 13 for further information.
(b)The increase in net revenue reflects our acquisition of Be & Cheery. See Note 13 for further information.
Our primary performance obligation is the distribution and sales of beverage and convenient food products to our customers. The following table reflects the approximate percentage of net revenue generated between our beverage business and our convenient food business for each of our international divisions, as well as our consolidated net revenue:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Beverage(a) | | Convenient Food | | Beverage(a) | | Convenient Food | | Beverage(a) | | Convenient Food |
LatAm | 10 | % | | 90 | % | | 10 | % | | 90 | % | | 10 | % | | 90 | % |
Europe | 55 | % | | 45 | % | | 55 | % | | 45 | % | | 55 | % | | 45 | % |
AMESA (b) | 30 | % | | 70 | % | | 30 | % | | 70 | % | | 40 | % | | 60 | % |
APAC | 20 | % | | 80 | % | | 25 | % | | 75 | % | | 25 | % | | 75 | % |
PepsiCo | 45 | % | | 55 | % | | 45 | % | | 55 | % | | 45 | % | | 55 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
(a)Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and Europe segments, is approximately 40% of our consolidated net revenue. Generally, our finished goods beverage operations produce higher net revenue, but lower operating margins as compared to concentrate sold to authorized bottling partners for the manufacture of finished goods beverages.
(b)The increase in the approximate percentage of net revenue generated by our convenient food business in 2020 primarily reflects our acquisition of Pioneer Foods. See Note 13 for further information.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Net Revenue | | Operating Profit(b) |
| 2018(a) |
| | 2017 |
| | 2016 |
| | 2018 |
| | 2017(c) |
| | 2016(c) |
|
FLNA | $ | 16,346 |
| | $ | 15,798 |
| | $ | 15,549 |
| | $ | 5,008 |
| | $ | 4,793 |
| | $ | 4,612 |
|
QFNA | 2,465 |
| | 2,503 |
| | 2,564 |
| | 637 |
| | 640 |
| | 649 |
|
NAB | 21,072 |
| | 20,936 |
| | 21,312 |
| | 2,276 |
| | 2,700 |
| | 2,947 |
|
Latin America | 7,354 |
| | 7,208 |
| | 6,820 |
| | 1,049 |
| | 924 |
| | 904 |
|
ESSA | 11,523 |
| | 11,050 |
| | 10,216 |
| | 1,364 |
| | 1,316 |
| | 1,061 |
|
AMENA | 5,901 |
| | 6,030 |
| | 6,338 |
| | 1,172 |
| | 1,073 |
| | 619 |
|
Total division | 64,661 |
| | 63,525 |
| | 62,799 |
| | 11,506 |
| | 11,446 |
| | 10,792 |
|
Corporate unallocated expenses | — |
| | — |
| | — |
| | (1,396 | ) | | (1,170 | ) | | (988 | ) |
| $ | 64,661 |
| | $ | 63,525 |
| | $ | 62,799 |
| | $ | 10,110 |
| | $ | 10,276 |
| | $ | 9,804 |
|
Operating profit in 2021 and 2020 includes certain pre-tax charges/credits taken as a result of the COVID-19 pandemic. These pre-tax charges/credits by division are as follows: | |
(a) | Our primary performance obligation is the distribution and sales of beverage products and food and snack products to our customers, each comprising approximately 50% of our consolidated net revenue. Internationally, our Latin America segment is predominantly a food and snack business, ESSA’s beverage business and food and snack business are each approximately 50% of the segment’s net revenue and AMENA’s beverage business and food and snack business are approximately 35% and 65%, respectively, of the segment’s net revenue. Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our NAB and ESSA segments, is approximately 40% of our consolidated net revenue. Generally, our finished goods beverage operations produce higher net revenue, but lower operating margins as compared to concentrate sold to authorized bottling partners for the manufacture of finished goods beverages. See Note 2 for additional information. |
| |
(b) | For further unaudited information on certain items that impacted our financial performance, see “Item 6. Selected Financial Data.” |
| |
(c) | Reflects the retrospective adoption of guidance requiring the presentation of non-service cost components of net periodic benefit cost below operating profit. See Note 2 for additional information. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| Allowances for Expected Credit Losses(a) | | Upfront Payments to Customers(b) | | Inventory Write-Downs and Product Returns(c) | | Employee Compensation Expense(d) | | Employee Protection Costs(e) | | Other(f) | | Total |
FLNA | $ | (8) | | | $ | — | | | $ | — | | | $ | 35 | | | $ | 27 | | | $ | 2 | | | $ | 56 | |
QFNA | (1) | | | — | | | — | | | 2 | | | 1 | | | — | | | 2 | |
PBNA | (19) | | | (21) | | | — | | | 31 | | | 14 | | | (16) | | | (11) | |
LatAm | — | | | — | | | 1 | | | 44 | | | 15 | | | 4 | | | 64 | |
Europe | (3) | | | (2) | | | — | | | 13 | | | 8 | | | 5 | | | 21 | |
AMESA | (1) | | | — | | | (2) | | | 1 | | | 3 | | | 6 | | | 7 | |
APAC | — | | | — | | | — | | | 2 | | | 2 | | | 5 | | | 9 | |
| | | | | | | | | | | | | |
Total | $ | (32) | | | $ | (23) | | | $ | (1) | | | $ | 128 | | | $ | 70 | | | $ | 6 | | | $ | 148 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| Allowances for Expected Credit Losses(a) | | Upfront Payments to Customers(b) | | Inventory Write-Downs and Product Returns(c) | | Employee Compensation Expense(d) | | Employee Protection Costs(e) | | Other(f) | | Total |
FLNA | $ | 17 | | | $ | — | | | $ | 8 | | | $ | 145 | | | $ | 59 | | | $ | — | | | $ | 229 | |
QFNA | 2 | | | — | | | — | | | 9 | | | 3 | | | 1 | | | 15 | |
PBNA | 29 | | | 56 | | | 28 | | | 115 | | | 50 | | | 26 | | | 304 | |
LatAm | 1 | | | — | | | 19 | | | 56 | | | 18 | | | 8 | | | 102 | |
Europe | 5 | | | 3 | | | 11 | | | 23 | | | 22 | | | 24 | | | 88 | |
AMESA | 2 | | | — | | | 3 | | | 9 | | | 7 | | | 12 | | | 33 | |
APAC | — | | | — | | | 3 | | | (7) | | | 2 | | | 5 | | | 3 | |
| | | | | | | | | | | | | |
Total | $ | 56 | | | $ | 59 | | | $ | 72 | | | $ | 350 | | | $ | 161 | | | $ | 76 | | | $ | 774 | |
(a)Reflects the expected impact of the global economic uncertainty caused by COVID-19, leveraging estimates of creditworthiness and projections of default and recovery rates for certain of our customers, including foodservice and vending businesses. Income amounts represent reductions in the previously recorded reserves due to improved projected default rates and lower at-risk receivable balances.
(b)Relates to promotional spending for which benefit is not expected to be received. Income amounts represent reductions in previously recorded reserves due to improved projected default rates and lower overall advance balances.
(c)Income amount represents a true-up of inventory write-downs. Includes a reserve for product returns of $20 million in 2020.
(d)Includes incremental frontline incentive pay, crisis child care and other leave benefits and labor costs. Income amount includes a social welfare relief credit of $11 million.
(e)Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services.
(f)Includes certain reserves for property, plant and equipment, donations of cash and product, and other costs. Income amount represents adjustments for changes in estimates of previously recorded amounts.
Corporate Unallocated Expenses
Corporate unallocated expenses include costs of our corporate headquarters, centrally managed initiatives such as commodity derivative gains and losses, foreign exchange transaction gains and losses, our ongoing business transformation initiatives, unallocated research and development costs, unallocated insurance and benefit programs, tax-related contingent consideration, certain acquisition and divestiture-related charges, as well as certain other items.
Other Division Information
Total assets and capital spending of each division are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Assets | | Capital Spending |
| 2021 | | 2020 | | 2021 | | 2020 | | 2019 |
FLNA | $ | 9,763 | | | $ | 8,730 | | | $ | 1,411 | | | $ | 1,189 | | | $ | 1,227 | |
QFNA | 1,101 | | | 1,021 | | | 92 | | | 85 | | | 104 | |
PBNA | 37,801 | | | 37,079 | | | 1,275 | | | 1,245 | | | 1,053 | |
LatAm | 7,272 | | | 6,977 | | | 461 | | | 390 | | | 557 | |
Europe | 18,472 | | | 17,917 | | | 752 | | | 730 | | | 613 | |
AMESA | 6,125 | | | 5,942 | | | 325 | | | 252 | | | 267 | |
APAC | 5,654 | | | 5,770 | | | 203 | | | 230 | | | 195 | |
Total division | 86,188 | | | 83,436 | | | 4,519 | | | 4,121 | | | 4,016 | |
Corporate (a) | 6,189 | | | 9,482 | | | 106 | | | 119 | | | 216 | |
Total | $ | 92,377 | | | $ | 92,918 | | | $ | 4,625 | | | $ | 4,240 | | | $ | 4,232 | |
|
| | | | | | | | | | | | | | | | | | | |
| Total Assets | | Capital Spending |
| 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
| | 2016 |
|
FLNA | $ | 6,577 |
| | $ | 5,979 |
| | $ | 840 |
| | $ | 665 |
| | $ | 801 |
|
QFNA | 870 |
| | 804 |
| | 53 |
| | 44 |
| | 41 |
|
NAB | 29,878 |
| | 28,592 |
| | 945 |
| | 904 |
| | 769 |
|
Latin America | 6,458 |
| | 4,976 |
| | 492 |
| | 481 |
| | 507 |
|
ESSA (a) | 17,410 |
| | 13,556 |
| | 479 |
| | 481 |
| | 439 |
|
AMENA | 6,433 |
| | 5,668 |
| | 323 |
| | 308 |
| | 381 |
|
Total division | 67,626 |
| | 59,575 |
| | 3,132 |
| | 2,883 |
| | 2,938 |
|
Corporate (b) | 10,022 |
| | 20,229 |
| | 150 |
| | 86 |
| | 102 |
|
| $ | 77,648 |
| | $ | 79,804 |
| | $ | 3,282 |
| | $ | 2,969 |
| | $ | 3,040 |
|
| |
(a) | In 2018, the change in assets was primarily related to our acquisition of SodaStream. |
| |
(b) | (a)Corporate assets consist principally of certain cash and cash equivalents, restricted cash, short-term investments, derivative instruments, property, plant and equipment and tax assets. In 2018, the change in assets was primarily due to a decrease in short-term investments and cash and cash equivalents. Refer to the cash flow statement for additional information. |
certain cash and cash equivalents, restricted cash, short-term investments, derivative instruments, property, plant and equipment and tax assets. In 2021, the change in assets was primarily due to a decrease in cash and cash equivalents and short-term investments. Refer to the cash flow statement for further information.
Amortization of intangible assets and depreciation and other amortization of each division are as follows:
| | | Amortization of Intangible Assets | | Depreciation and Other Amortization | | Amortization of Intangible Assets | | Depreciation and Other Amortization |
| 2018 |
| | 2017 |
| | 2016 |
| | 2018 |
| | 2017 |
| | 2016 |
| | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
FLNA | $ | 7 |
| | $ | 7 |
| | $ | 7 |
| | $ | 457 |
| | $ | 449 |
| | $ | 435 |
| FLNA | $ | 11 | | | $ | 10 | | | $ | 7 | | | $ | 594 | | | $ | 550 | | | $ | 492 | |
QFNA | — |
| | — |
| | — |
| | 45 |
| | 47 |
| | 50 |
| QFNA | — | | | — | | | — | | | 46 | | | 41 | | | 44 | |
NAB | 31 |
| | 31 |
| | 37 |
| | 821 |
| | 780 |
| | 809 |
| |
Latin America | 5 |
| | 5 |
| | 5 |
| | 253 |
| | 245 |
| | 211 |
| |
ESSA | 23 |
| | 22 |
| | 18 |
| | 331 |
| | 329 |
| | 321 |
| |
AMENA | 3 |
| | 3 |
| | 3 |
| | 237 |
| | 257 |
| | 294 |
| |
PBNA | | PBNA | 25 | | | 28 | | | 29 | | | 926 | | | 899 | | | 857 | |
LatAm | | LatAm | 4 | | | 4 | | | 5 | | | 283 | | | 251 | | | 270 | |
Europe | | Europe | 37 | | | 40 | | | 37 | | | 364 | | | 350 | | | 341 | |
AMESA | | AMESA | 5 | | | 3 | | | 2 | | | 181 | | | 149 | | | 116 | |
APAC | | APAC | 9 | | | 5 | | | 1 | | | 102 | | | 91 | | | 76 | |
Total division | 69 |
| | 68 |
| | 70 |
| | 2,144 |
| | 2,107 |
| | 2,120 |
| Total division | 91 | | | 90 | | | 81 | | | 2,496 | | | 2,331 | | | 2,196 | |
Corporate | — |
| | — |
| | — |
| | 186 |
| | 194 |
| | 178 |
| Corporate | — | | | — | | | — | | | 123 | | | 127 | | | 155 | |
| $ | 69 |
| | $ | 68 |
| | $ | 70 |
| | $ | 2,330 |
| | $ | 2,301 |
| | $ | 2,298 |
| |
Total | | Total | $ | 91 | | | $ | 90 | | | $ | 81 | | | $ | 2,619 | | | $ | 2,458 | | | $ | 2,351 | |
Net revenue and long-lived assets by country are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Revenue | | Long-Lived Assets(a) |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
United States | $ | 44,545 | | | $ | 40,800 | | | $ | 38,644 | | | $ | 36,324 | | | $ | 36,657 | |
Mexico | 4,580 | | | 3,924 | | | 4,190 | | | 1,720 | | | 1,708 | |
Russia | 3,426 | | | 3,009 | | | 3,263 | | | 3,751 | | | 3,644 | |
Canada | 3,405 | | | 2,989 | | | 2,831 | | | 2,846 | | | 2,794 | |
China (b) | 2,679 | | | 1,732 | | | 1,300 | | | 1,745 | | | 1,649 | |
United Kingdom | 2,102 | | | 1,882 | | | 1,723 | | | 906 | | | 874 | |
South Africa (c) | 2,008 | | | 1,282 | | | 405 | | | 1,389 | | | 1,484 | |
All other countries | 16,729 | | | 14,754 | | | 14,805 | | | 13,399 | | | 13,423 | |
Total | $ | 79,474 | | | $ | 70,372 | | | $ | 67,161 | | | $ | 62,080 | | | $ | 62,233 | |
(a)Long-lived assets represent property, plant and equipment, indefinite-lived intangible assets, amortizable intangible assets and investments in noncontrolled affiliates. See Note 2 and Note 14 for further information on property, plant and equipment. See Note 2 and Note 4 for further information on goodwill and other intangible assets. Investments in noncontrolled affiliates are evaluated for
|
| | | | | | | | | | | | | | | | | | | |
| Net Revenue | | Long-Lived Assets(a) |
| 2018 |
| | 2017 |
| | 2016 |
| | 2018 |
| | 2017 |
|
United States | $ | 37,148 |
| | $ | 36,546 |
| | $ | 36,732 |
| | $ | 29,169 |
| | $ | 28,418 |
|
Mexico | 3,878 |
| | 3,650 |
| | 3,431 |
| | 1,404 |
| | 1,205 |
|
Russia (b) | 3,191 |
| | 3,232 |
| | 2,648 |
| | 3,926 |
| | 4,708 |
|
Canada | 2,736 |
| | 2,691 |
| | 2,692 |
| | 2,565 |
| | 2,739 |
|
United Kingdom | 1,743 |
| | 1,650 |
| | 1,737 |
| | 759 |
| | 817 |
|
Brazil | 1,335 |
| | 1,427 |
| | 1,305 |
| | 639 |
| | 777 |
|
All other countries (c) | 14,630 |
| | 14,329 |
| | 14,254 |
| | 12,169 |
| | 9,200 |
|
| $ | 64,661 |
| | $ | 63,525 |
| | $ | 62,799 |
| | $ | 50,631 |
| | $ | 47,864 |
|
impairment upon a significant change in the operating or macroeconomic environment. These assets are reported in the country where they are primarily used. | |
(a) | Long-lived assets represent property, plant and equipment, indefinite-lived intangible assets, amortizable intangible assets and investments in noncontrolled affiliates. These assets are reported in the country where they are primarily used. |
| |
(b) | Change in net revenue in 2017 primarily reflects appreciation of the Russian ruble. Change in long-lived assets in 2018 primarily reflects depreciation of the Russian ruble. |
| |
(c) | Change in long-lived assets in 2018 primarily related to our acquisition of SodaStream. |
(b)The increase in net revenue reflects our acquisition of Be & Cheery. See Note 13 for further information. (c)The increase in net revenue reflects our acquisition of Pioneer Foods. See Note 13 for further information.
Note 2 — Our Significant Accounting Policies
Revenue Recognition
We recognize revenue when our performance obligation is satisfied. Our primary performance obligation (the distribution and sales of beverage products and convenient food and snack products) is satisfied upon the shipment or delivery of products to our customers, which is also when control is transferred. Merchandising activities are performed after a customer obtains control of the product, are accounted for as fulfillment of our performance obligation to ship or deliver product to our customers and are recorded in selling, general and administrative expenses. Merchandising activities are immaterial in the context of our contracts. In addition, we exclude from net revenue all sales, use, value-added and certain excise taxes assessed by government authorities on revenue producing transactions.
The transfer of control of products to our customers is typically based on written sales terms that do not allow for a right of return. However, our policy for DSD, andincluding certain chilled products, is to remove and replace damaged and out-of-date products from store shelves to ensure that consumers receive the product quality and freshness they expect. Similarly, our policy for certain warehouse-distributed products is to replace damaged and out-of-date products. As a result, we record reserves, based on estimates, for anticipated damaged and out-of-date products.
In addition, upon adoption of the revenue recognition guidance (see subsequent discussion of “Recently Issued Accounting Pronouncements - Adopted”), we exclude from net revenue and cost of sales, all sales,
use, value-added and certain excise taxes assessed by governmental authorities on revenue-producing transactions.products.
Our products are sold for cash or on credit terms. Our credit terms, which are established in accordance with local and industry practices, typically require payment within 30 days of delivery in the United States, and generally within 30 to 90 days internationally, and may allow discounts for early payment.
We estimate and reserve for our bad debtexpected credit loss exposure based on our experience with past due accounts and collectibility, write-off history, the aging of accounts receivable, and our analysis of customer data. Bad debt expense is classified within selling, generaldata, and administrative expenses onforward-looking information (including the expected impact of the global economic uncertainty related to the COVID-19 pandemic), leveraging estimates of creditworthiness and projections of default and recovery rates for certain of our income statement.customers.
We are exposed to concentration of credit risk from our major customers, including Walmart. We have not experienced credit issues with these customers. In 2018,2021, sales to Walmart and its affiliates (including Sam’s) represented approximately 13% of our consolidated net revenue, including concentrate sales to our independent bottlers, which were used in finished goods sold by them to Walmart. We have not experienced credit issues with these customers.
Total Marketplace Spending
We offer sales incentives and discounts through various programs to customers and consumers. Total marketplace spending includes sales incentives, discounts, advertising and other marketing activities. Sales incentives and discounts are primarily accounted for as a reduction of revenue and include payments to customers for performing activities on our behalf, such as payments for in-store displays, payments to gain distribution of new products, payments for shelf space and discounts to promote lower retail prices. Sales incentives and discounts also include support provided to our independent bottlers through funding of advertising and other marketing activities.
A number of our sales incentives, such as bottler funding to independent bottlers and customer volume rebates, are based on annual targets, and accruals are established during the year, as products are delivered, for the expected payout.payout, which may occur after year end once reconciled and settled. These accruals are based on contract terms and our historical experience with similar programs and require management judgment with respect to estimating customer and consumer participation and performance
levels. Differences between estimated expense and actual incentive costs are normally insignificant and are recognized in earnings in the period such differences are determined. In addition, certain advertising and marketing costs are also based on annual targets and recognized during the year as incurred.
The terms of most of our incentive arrangements do not exceed aone year and, therefore, do not require highly uncertain long-term estimates. Certain arrangements, such as fountain pouring rights, may extend beyond one year. Upfront payments to customers under these arrangements are recognized over the shorter of the economic or contractual life, primarily as a reduction of revenue, and the remaining balances of $218 million as of December 29, 2018 and $262 million as of December 30, 201725, 2021 and $299 million as of December 26, 2020 are included in prepaid expenses and other current assets and other assets on our balance sheet. For additional unaudited information on our sales incentives, see “Our Customers” in “Item 1. Business.”
For interim reporting, our policy is to allocate our forecasted full-year sales incentives for most of our programs to each of our interim reporting periods in the same year that benefits from the programs. The allocation methodology is based on our forecasted sales incentives for the full year and the proportion of each interim period’s actual gross revenue or volume, as applicable, to our forecasted annual gross revenue or volume, as applicable. Based on our review of the forecasts at each interim period, any changes in estimates and the related allocation of sales incentives are recognized beginning in the interim period that they are identified. In addition, we apply a similar allocation methodology for interim reporting purposes for certain advertising and other marketing activities. Our annual consolidated financial statements are not impacted by this interim allocation methodology.
Advertising and other marketing activities, reported as selling, general and administrative expenses, totaled $4.2$5.1 billion in 2018, $4.12021, $4.6 billion in 20172020 and $4.2$4.7 billion in 2016,2019, including advertising expenses of $2.6$3.5 billion in 2018, $2.42021 and $3.0 billion in 2017both 2020 and $2.5 billion in 2016.2019. Deferred advertising costs are not expensed until the year first used and consist of:
•media and personal service prepayments;
•promotional materials in inventory; and
•production costs of future media advertising.
Deferred advertising costs of $47$53 million and $46$48 million as of December 29, 201825, 2021 and December 30, 2017,26, 2020, respectively, are classified as prepaid expenses and other current assets on our balance sheet.
Distribution Costs
Distribution costs, including the costs of shipping and handling activities, which include certain merchandising activities, are reported as selling, general and administrative expenses. Shipping and handling expenses were $10.5$13.7 billion in 2018, $9.92021, $11.9 billion in 20172020 and $9.7$10.9 billion in 2016.
Cash Equivalents
Cash equivalents are highly liquid investments with original maturities of three months or less.2019.
Software Costs
We capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use when both the preliminary project stage is completed and it is probable that the software will be used as intended. Capitalized software costs include (i)(1) external direct costs of materials and services utilized in developing or obtaining computer software, (ii)(2) compensation and related benefits for employees who are directly associated with the software projects and (iii)(3) interest costs incurred while developing internal-use computer software. Capitalized software costs are included in property, plant and equipment on our balance sheet and amortized on a straight-line basis when placed into service over the estimated useful lives of the software, which approximate five to 10 years. Software amortization totaled $204$135 million in 2018, $2242021, $152 million in 20172020 and $214$166 million in 2016.2019. Net capitalized software and development costs were $577$809 million and $686$664 million as of December 29, 201825, 2021andDecember 30, 2017,26, 2020, respectively.
Commitments and Contingencies
We are subject to various claims and contingencies related to lawsuits, certain taxes and environmental matters, as well as commitments under contractual and other commercial obligations. We recognize liabilities for contingencies and commitments when a loss is probable and estimable. For additional unaudited information on our commitments, see “Our Liquidity and Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Research and Development
We engage in a variety of research and development activities and continue to invest to accelerate growth and to drive innovation globally. Consumer research is excluded from research and development costs and included in other marketing costs. Research and development costs were $680$752 million, $737$719 million and $760$711 million in 2018, 20172021, 2020 and 2016,2019, respectively, and are reported within selling, general and administrative expenses.
See “Research and Development” in “Item 1. Business” for additional unaudited information about our research and development activities.
Goodwill and Other Intangible Assets
Indefinite-lived intangible assets and goodwill are not amortized and, as a result, are assessed for impairment at least annually, using either a qualitative or quantitative approach. We perform this annual assessment during our third quarter.quarter, or more frequently if circumstances indicate that the carrying value may not be recoverable. Where we use the qualitative assessment, first we determine if, based on qualitative factors, it is more likely than not that an impairment exists. Factors considered include macroeconomic (including those related to the COVID-19 pandemic), industry and competitive conditions, legal and regulatory environment, historical financial performance and significant changes in the brand or reporting unit. If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed.
In the quantitative assessment of indefinite lived-intangiblefor indefinite-lived intangible assets and goodwill, an assessment is performed to determine the fair value of the indefinite-lived intangible asset and the reporting unit, respectively. Estimated fair value is determined using discounted cash flows and requires an analysis of several estimates including future cash flows or income consistent with management’s strategic business plans, annual sales growth rates, perpetuity growth assumptions and the selection of assumptions underlying a discount rate (weighted-average cost of capital) based on market data available at the time. Significant management judgment is necessary to estimate the impact of competitive operating, macroeconomic and other factors (including those related to the COVID-19 pandemic) to estimate future levels of sales, operating profit or cash flows. All assumptions used in our impairment evaluations for indefinite-lived intangible assets and goodwill, such as forecasted growth rates (including perpetuity growth assumptions) and weighted-average cost of capital, are based on the best available market information and are consistent with our internal forecasts and operating plans. TheseA deterioration in these assumptions could be adversely impacted by certain of the risks described in “Item 1A. Risk Factors” and “Our Business Risks” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.impact our results.
Amortizable intangible assets are only evaluated for impairment upon a significant change in the operating or macroeconomic environment. If an evaluation of the undiscounted future cash flows indicates impairment, the asset is written down to its estimated fair value, which is based on its discounted future cash flows.
See also Note 4 and for additional unaudited information on goodwill and other intangible assets, see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.further information.
Other Significant Accounting Policies
Our other significant accounting policies are disclosed as follows:
•Basis of Presentation – Note 1 includes a description of our policies regarding use of estimates, basis of presentation and consolidation.
Property, Plant and Equipment •Income Taxes– Note 4.
5.Income Taxes – Note 5, and for additional unaudited information, see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
•Share-Based Compensation – Note 6.
•Pension, Retiree Medical and Savings Plans – Note 7, and for additional unaudited information, see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
7.•Financial Instruments – Note 9, and for additional unaudited information, see “Our Business Risks” in Management’s Discussion and Analysis9.
•Cash Equivalents – Cash equivalents are highly liquid investments with original maturities of Financial Condition and Results of Operations.
three months or less.•Inventories – Note 15.14. Inventories are valued at the lower of cost or net realizable value. Cost is determined using the average; first-in, first-out (FIFO); or, in limited instances, last-in, first-out (LIFO) methods.
•Property, Plant and Equipment – Note 14. Property, plant and equipment is recorded at historical cost. Depreciation is recognized on a straight-line basis over an asset’s estimated useful life. Construction in progress is not depreciated until ready for service.
•Translation of Financial Statements of Foreign Subsidiaries – Financial statements of foreign subsidiaries are translated into U.S. dollars using period-end exchange rates for assets and liabilities
and weighted-averageaverage exchange rates for revenues and expenses. Adjustments resulting from translating net assets are reported as a separate component of accumulated other comprehensive loss within common shareholders’ equity as currency translation adjustment.
Recently Issued Accounting Pronouncements - Adopted
In 2017,2019, the Financial Accounting Standards Board (FASB) issued guidance to retrospectively presentsimplify the service cost componentaccounting for income taxes. The guidance primarily addresses how to (1) recognize a deferred tax liability after we transition to or from the equity method of net periodic benefit cost for pensionaccounting, (2) evaluate if a step-up in the tax basis of goodwill is related to a business combination or is a separate transaction, (3) recognize all of the effects of a change in tax law in the period of enactment, including adjusting the estimated annual tax rate, and retiree medical plans along with other compensation costs in operating profit and present(4) include the other componentsamount of net periodic benefit cost separately below operating profittax based on income in the income statement. The guidance also allows only the service cost component of net periodic benefit cost to be eligibletax provision and any incremental amount as a tax not based on income for capitalization within inventory or fixed assets on a prospective basis.hybrid tax regimes. We adopted the provisions of this guidance retrospectively in the first quarter of 2018, using historical information previously disclosed in our pension and retiree medical benefits footnote as the estimation basis. We also updated our allocation of service costs to our divisions to better approximate actual service cost.2021. The impact from retrospective adoption of this guidance resulted in an increase to cost of sales and selling, general and administrative expenses of $11 million and $222 million, respectively, for the year ended December 30, 2017 and an increase of $13 million and a decrease of $32 million, respectively, for the year ended December 31, 2016. We recorded a corresponding increase of $233 million and decrease of $19 million for the years ended December 30, 2017 and December 31, 2016, respectively, to other pension and retiree medical benefits income/(expense) below operating profit.
The (decreases)/increases to operating profit for each division and to corporate unallocated expenses are as follows:
|
| | | | | | | | |
| 2017(a) |
| | 2016(b) |
| |
FLNA | $ | (30 | ) | | $ | (47 | ) | |
QFNA | (2 | ) | | (4 | ) | |
NAB | (7 | ) | | (12 | ) | |
Latin America | 16 |
| | 17 |
| |
ESSA | (38 | ) | | (47 | ) | |
AMENA | — |
| | — |
| |
Corporate unallocated expenses | (172 | ) | | 112 |
| (c) |
Total | $ | (233 | ) | | $ | 19 |
| |
| |
(a) | Includes restructuring charges of $66 million, including $13 million in our FLNA segment, $2 million in our QFNA segment, $11 million in our NAB segment, $7 million in our Latin America segment and $33 million in corporate unallocated expenses. See “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
| |
(b) | Includes restructuring charges of $5 million, including $1 million in our FLNA segment, $2 million in our NAB segment and $2 million in corporate unallocated expenses. See “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
| |
(c) | Reflects a settlement charge of $242 million related to a group annuity contract purchase. See “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The changes described above had no impact on our consolidated net revenue, net income or earnings per share. See Note 7 for further information on our service cost and other components of net periodic benefit cost for pension and retiree medical plans.
In 2016, the FASB issued guidance to clarify how restricted cash should be presented in the cash flow statement. We adopted the provisions of this guidance retrospectively during the first quarter of 2018; the adoption did not have a material impact on our financial statements and primarily related to collateral posted against our derivative asset or liability positions. See Note 9 and Note 13 for further information.
In 2016, the FASB issued guidance that requires companies to account for the income tax effects of intercompany transfers of assets, other than inventory, when the transfer occurs versus deferring income tax effects until the transferred asset is sold to an outside party or otherwise recognized. We adopted the provisions of this guidance during the first quarter of 2018; the adoption did not have a material impact on our financial statements and we recorded an adjustment of $8 million to beginning retained earnings.
In 2016, the FASB issued guidance that requires companies to measure investments in certain equity securities at fair value and recognize any changes in fair value in net income. We adopted the provisions of this guidance during the first quarter of 2018; the adoption did not have an impact on our financial statements. See Note 9 for further information on our investments in equity securities.
In 2014, the FASB issued guidance on revenue recognition, with final amendments issued in 2016. The guidance provides for a five-step model to determine the revenue recognized for the transfer of goods or services to customers that reflects the expected entitled consideration in exchange for those goods or services. It also provides clarification for principal versus agent considerations and identifying performance obligations. In addition, the FASB introduced practical expedients related to disclosures of remaining performance obligations, as well as other amendments related to guidance on collectibility, non-cash consideration and the presentation of sales and other similar taxes. Financial statement disclosures required under the guidance will enable users to understand the nature, amount, timing, judgments and uncertainty of revenue and cash flows relating to customer contracts. The two permitted transition methods under the guidance are the full retrospective approach or a cumulative effect adjustment to the opening retained earnings in the year of adoption (cumulative effect approach). We adopted the guidance applied to all contracts using the cumulative effect approach during the first quarter of 2018; the adoption did not have a material impact on our financial statements.
We utilized a comprehensive approach to assess the impact of the guidance on our contract portfolio by reviewing our current accounting policies and practices to identify potential differences that would result from applying the new requirements to our revenue contracts, including evaluation of our performance obligations, principal versus agent considerations and variable consideration. We completed our contract and business process reviews and implemented changes to our controls and disclosures under the new guidance.
As a result of the implementation of the guidance, which did not have a material impact on our accounting policies upon adoption, in the first quarter of 2018, we recorded an adjustment of $137 million to beginning retained earnings to reflect marketplace spending that our customers and independent bottlers expect to be entitled to in line with revenue recognition. In addition, we excluded from net revenue and cost of sales all sales, use, value-added and certain excise taxes assessed by governmental authorities on revenue-producing transactions that were not already excluded. The impact of these taxes previously recognized in net revenue and cost of sales was approximately $75 million for the fiscal year ended December 30, 2017, with no impact on operating profit.
Recently Issued Accounting Pronouncements - Not Yet Adopted
In 2018, the FASB issued guidance related to the TCJ Act for the optional reclassification of the residual tax effects, arising from the change in corporate tax rate, in accumulated other comprehensive loss to retained earnings. The reclassification is the difference between the amount previously recorded in other comprehensive income at the historical U.S. federal tax rate that remains in accumulated other comprehensive loss at the time the TCJ Act was effective and the amount that would have been recorded using the newly enacted rate. If elected, the guidance can be applied retrospectively to each period during which the impact of the TCJ Act is recognized or in the period of adoption. We will adopt the guidance when it becomes effective in the first quarter of 2019, but we are not planning to make the optional reclassification.
In 2017, the FASB issued guidance to amend and simplify the application of hedge accounting guidance to better portray the economic results of risk management activities in the financial statements. The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, as well as eases certain hedge effectiveness assessment requirements. Under this guidance, certain of our derivatives used to hedge commodity price risk that did not previously qualify for hedge accounting treatment will qualify prospectively. We will adopt the guidance when it becomes effective in the first quarter of 2019. The guidance is not expected to have a material impact on ourconsolidated financial statements or related disclosures. See Note 9 for further information.
In 2016, the FASB issued guidance on leases, with amendments issued in 2018. The guidance requires lessees to recognize most leases on the balance sheet but record expenses in the income statement in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The two permitted transition methods under the guidance are the modified retrospective transition approach, which requires application of the guidance for all comparative periods presented, and the cumulative effect adjustment approach, which requires prospective application at the adoption date.
We continue to utilize a comprehensive approach to assess the impact of this guidance on our financial statements and related disclosures, including the increase in the assets and liabilities on our balance sheet and the impact on our current lease portfolio from both a lessor and lessee perspective. We are substantially complete with our comprehensive review of our lease portfolio including significant leases by geography and by asset type that will be impacted by the new guidance, and enhancing our controls. In addition, we are progressing on the implementation of a new software platform, and corresponding controls, for administering our leases and facilitating compliance with the new guidance.
As part of our adoption, we will not reassess historical lease classification, will not recognize short-term leases on our balance sheet, will utilize the portfolio approach to group leases with similar characteristics and will not separate lease and non-lease components for our real estate leases. We will adopt the guidance prospectively when it becomes effective in the first quarter of 2019. The guidance is not expected to have a material impact on our financial statements, with an expected increase of approximately 2% to each of our total assets and total liabilities on our balance sheet, subject to completion of our assessment. See Note 15 for our minimum lease payments under non-cancelable operating leases.
Note 3 — Restructuring and Impairment Charges
A summary of our restructuring and impairment charges and other productivity initiatives is as follows: |
| | | | | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
|
2019 Productivity Plan | $ | 138 |
| | $ | — |
| | $ | — |
|
2014 Productivity Plan | 170 |
| | 295 |
| | 160 |
|
Total restructuring and impairment charges | 308 |
| | 295 |
| | 160 |
|
Other productivity initiatives | 8 |
| | 16 |
| | 12 |
|
Total restructuring and impairment charges and other productivity initiatives | $ | 316 |
| | $ | 311 |
| | $ | 172 |
|
2019 Multi-Year Productivity Plan
The 2019 Productivity Plan, publicly announced on February 15, 2019, will leverage new technology and business models to further simplify, harmonize and automate processes; re-engineer our go-to-market and information systems, including deploying the right automation for each market; and simplify our organization and optimize our manufacturing and supply chain footprint. To build on the successful implementation of the 2019 Productivity Plan to date, we expanded and extended the plan through the end of 2026 to take advantage of additional opportunities within the initiatives described above. We now expect to incur pre-tax charges of approximately $3.15 billion, including cash expenditures of approximately $2.4 billion, as compared to our previous estimate of pre-tax charges of approximately $2.5 billion, which included cash expenditures of approximately $1.6 billion. These pre-tax charges are expected to consist of approximately 55% of severance and other employee-related costs, 10% for asset impairments (all non-cash) resulting from plant closures and related actions and 35% for other costs associated with the implementation of our initiatives.
The total expected plan pre-tax charges are expected to be incurred by division approximately as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FLNA | | QFNA | | PBNA | | LatAm | | Europe | | AMESA | | APAC | | Corporate |
Expected pre-tax charges | 15 | % | | 1 | % | | 25 | % | | 10 | % | | 25 | % | | 5 | % | | 4 | % | | 15 | % |
A summary of our 2019 Productivity Plan charges is as follows:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Cost of sales | $ | 29 | | | $ | 30 | | | $ | 115 | |
Selling, general and administrative expenses | 208 | | | 239 | | | 253 | |
Other pension and retiree medical benefits expense | 10 | | | 20 | | | 2 | |
Total restructuring and impairment charges | $ | 247 | | | $ | 289 | | | $ | 370 | |
After-tax amount | $ | 206 | | | $ | 231 | | | $ | 303 | |
Impact on net income attributable to PepsiCo per common share | $ | (0.15) | | | $ | (0.17) | | | $ | (0.21) | |
|
| | | |
| 2018 |
|
Costs of sales | $ | 3 |
|
Selling, general and administrative expenses | 100 |
|
Other pension and retiree medical benefits expense | 35 |
|
Total restructuring and impairment charges | $ | 138 |
|
After-tax amount | $ | 109 |
|
Net income attributable to PepsiCo per common share | $ | 0.08 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 | | Plan to Date through 12/25/2021 |
FLNA | $ | 28 | | | $ | 83 | | | $ | 22 | | | $ | 164 | |
QFNA | — | | | 5 | | | 2 | | | 12 | |
PBNA | 20 | | | 47 | | | 51 | | | 158 | |
LatAm | 37 | | | 31 | | | 62 | | | 139 | |
Europe | 81 | | | 48 | | | 99 | | | 234 | |
AMESA | 15 | | | 14 | | | 38 | | | 70 | |
APAC | 7 | | | 5 | | | 47 | | | 61 | |
Corporate | 49 | | | 36 | | | 47 | | | 139 | |
| 237 | | | 269 | | | 368 | | | 977 | |
Other pension and retiree medical benefits expense | 10 | | | 20 | | | 2 | | | 67 | |
Total | $ | 247 | | | $ | 289 | | | $ | 370 | | | $ | 1,044 | |
| | | | | | | | | |
| | | | | Plan to Date through 12/25/2021 |
Severance and other employee costs | | | | | $ | 564 | |
Asset impairments | | | | | 157 | |
Other costs | | | | | 323 | |
Total | | | | | $ | 1,044 | |
Severance and other employee costs primarily include severance and other termination benefits, as well as voluntary separation arrangements. Other costs primarily include costs associated with the implementation of our initiatives, including contract termination costs, consulting and other professional fees.
|
| | | |
| 2018 |
|
FLNA | $ | 31 |
|
QFNA | 5 |
|
NAB | 40 |
|
Latin America | 9 |
|
ESSA | 8 |
|
AMENA | 3 |
|
Corporate | 7 |
|
| 103 |
|
Other pension and retiree medical benefits expense | 35 |
|
| $ | 138 |
|
A summary of our 2019 Productivity Plan activity is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs | | Total |
| | | | | | | |
| | | | | | | |
Liability as of December 29, 2018 | $ | 105 | | | $ | — | | | $ | 1 | | | $ | 106 | |
2019 restructuring charges | 149 | | | 92 | | | 129 | | | 370 | |
Cash payments (a) | (138) | | | — | | | (119) | | | (257) | |
Non-cash charges and translation | 12 | | | (92) | | | 10 | | | (70) | |
Liability as of December 28, 2019 | 128 | | | — | | | 21 | | | 149 | |
2020 restructuring charges | 158 | | | 33 | | | 98 | | | 289 | |
Cash payments (a) | (138) | | | — | | | (117) | | | (255) | |
Non-cash charges and translation | (26) | | | (33) | | | 3 | | | (56) | |
Liability as of December 26, 2020 | 122 | | | — | | | 5 | | | 127 | |
2021 restructuring charges | 120 | | | 32 | | | 95 | | | 247 | |
Cash payments (a) | (163) | | | — | | | (93) | | | (256) | |
Non-cash charges and translation | (15) | | | (32) | | | — | | | (47) | |
Liability as of December 25, 2021 | $ | 64 | | | $ | — | | | $ | 7 | | | $ | 71 | |
|
| | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs(a) | | Total |
2018 restructuring charges | $ | 137 |
| | $ | — |
| | $ | 1 |
| | $ | 138 |
|
Non-cash charges and translation | (32 | ) | | — |
| | — |
| | (32 | ) |
Liability as of December 29, 2018 | $ | 105 |
| | $ | — |
| | $ | 1 |
| | $ | 106 |
|
(a)Excludes cash expenditures of $2 million in both 2021 and 2020, and $4 million in 2019, reported in the cash flow statement in pension and retiree medical plan contributions. | |
(a) | Includes other costs associated with the implementation of our initiatives, including consulting and other professional fees. |
Substantially all of the restructuring accrual at December 29, 201825, 2021 is expected to be paid by the end of 2019.2022.
2014 Multi-Year Productivity Plan
The 2014 Productivity Plan, publicly announced on February 13, 2014, includes the next generation of productivity initiatives that we believe will strengthen our beverage, food and snack businesses by: accelerating our investment in manufacturing automation; further optimizing our global manufacturing footprint, including closing certain manufacturing facilities; re-engineering our go-to-market systems in developed markets; expanding shared services; and implementing simplified organization structures to drive efficiency. To build on the 2014 Productivity Plan, in the fourth quarter of 2017, we expanded and extended the program through the end of 2019 to take advantage of additional opportunities within the initiatives described above to further strengthen our beverage, food and snack businesses.
A summary of our 2014 Productivity Plan charges is as follows:
|
| | | | | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
|
Selling, general and administrative expenses | $ | 169 |
| | $ | 229 |
| | $ | 155 |
|
Other pension and retiree medical benefits expense | 1 |
| | 66 |
| | 5 |
|
Total restructuring and impairment charges | $ | 170 |
| | $ | 295 |
| | $ | 160 |
|
After-tax amount | $ | 143 |
| | $ | 224 |
| | $ | 134 |
|
Net income attributable to PepsiCo per common share | $ | 0.10 |
| | $ | 0.16 |
| | $ | 0.09 |
|
|
| | | | | | | | | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
| | Plan to Date |
|
FLNA | $ | 8 |
| | $ | 67 |
| | $ | 13 |
| | $ | 171 |
|
QFNA | 2 |
| | 11 |
| | 1 |
| | 34 |
|
NAB | 51 |
| | 54 |
| | 35 |
| | 352 |
|
Latin America | 30 |
| | 63 |
| | 27 |
| | 182 |
|
ESSA | 55 |
| | 53 |
| | 60 |
| | 282 |
|
AMENA (a) | 25 |
| | (3 | ) | | 14 |
| | 69 |
|
Corporate (b) | (1 | ) | | 50 |
| | 10 |
| | 114 |
|
| $ | 170 |
| | $ | 295 |
| | $ | 160 |
| | $ | 1,204 |
|
| |
(a) | In 2017, income amount primarily reflects a gain on the sale of property, plant and equipment. |
| |
(b) | In 2018, income amount primarily relates to other pension and retiree medical benefits. |
|
| | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs(a) | | Total |
Plan to Date | $ | 713 |
| | $ | 182 |
| | $ | 309 |
| | $ | 1,204 |
|
| |
(a) | Includes other costs associated with the implementation of our initiatives, including certain consulting and contract termination costs. |
A summary of our 2014 Productivity Plan activity is as follows:
|
| | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs | | Total |
Liability as of December 26, 2015 | $ | 61 |
| | $ | — |
| | $ | 20 |
| | $ | 81 |
|
2016 restructuring charges | 88 |
| | 36 |
| | 36 |
| | 160 |
|
Cash payments | (46 | ) | | — |
| | (49 | ) | | (95 | ) |
Non-cash charges and translation | (15 | ) | | (36 | ) | | 1 |
| | (50 | ) |
Liability as of December 31, 2016 | 88 |
| | — |
| | 8 |
| | 96 |
|
2017 restructuring charges | 280 |
| | 21 |
| | (6 | ) | (a) | 295 |
|
Cash payments | (91 | ) | | — |
| | (22 | ) | | (113 | ) |
Non-cash charges and translation | (65 | ) | | (21 | ) | | 34 |
| | (52 | ) |
Liability as of December 30, 2017 | 212 |
| | — |
| | 14 |
| | 226 |
|
2018 restructuring charges | 86 |
| | 28 |
| | 56 |
| | 170 |
|
Cash payments (b) | (203 | ) | | — |
| | (52 | ) | | (255 | ) |
Non-cash charges and translation | (4 | ) | | (28 | ) | | 5 |
| | (27 | ) |
Liability as of December 29, 2018 | $ | 91 |
| | $ | — |
| | $ | 23 |
| | $ | 114 |
|
| |
(a) | Income amount represents adjustments for changes in estimates and a gain on the sale of property, plant, and equipment. |
| |
(b) | Excludes cash expenditures of $11 million reported in the cash flow statement in pension and retiree medical plan contributions. |
Substantially all of the restructuring accrual at December 29, 2018 is expected to be paid by the end of 2019.
Other Productivity Initiatives
There were no material charges related to other productivity and efficiency initiatives outside the scope of the 2019 and 2014 Productivity Plans.Plan.
We regularly evaluate different productivity initiatives beyond the productivity plansplan and other initiatives described above.
See additional unaudited information in “Items Affecting Comparability” and “Results of Operations – Division Review” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Note 4 — Property, Plant and Equipment and Intangible Assets
A summary of our property, plant and equipment is as follows:
|
| | | | | | | | | | | | | |
| Average Useful Life (Years) | | 2018 |
| | 2017 |
| | 2016 |
|
Property, plant and equipment, net | | | | | | | |
Land |
| | $ | 1,078 |
| | $ | 1,148 |
| | |
Buildings and improvements | 15 - 44 | | 8,941 |
| | 8,796 |
| | |
Machinery and equipment, including fleet and software | 5 - 15 | | 27,715 |
| | 27,018 |
| | |
Construction in progress |
| | 2,430 |
| | 2,144 |
| | |
|
| | 40,164 |
| | 39,106 |
| | |
Accumulated depreciation |
| | (22,575 | ) | | (21,866 | ) | | |
|
| | $ | 17,589 |
| | $ | 17,240 |
| | |
Depreciation expense |
| | $ | 2,241 |
| | $ | 2,227 |
| | $ | 2,217 |
|
Property, plant and equipment is recorded at historical cost. Depreciation and amortization are recognized on a straight-line basis over an asset’s estimated useful life. Land is not depreciated and construction in progress is not depreciated until ready for service.
A summary of our amortizable intangible assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | 2020 | | 2019 |
| Average Useful Life (Years) | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net | | |
Acquired franchise rights (a) | 56 – 60 | | $ | 976 | | | $ | (187) | | | $ | 789 | | | $ | 976 | | | $ | (173) | | | $ | 803 | | | |
Customer relationships | 10 – 24 | | 623 | | | (227) | | | 396 | | | 642 | | | (204) | | | 438 | | | |
Brands (b) | 20 – 40 | | 1,151 | | | (989) | | | 162 | | | 1,348 | | | (1,099) | | | 249 | | | |
Other identifiable intangibles | 10 – 24 | | 451 | | | (260) | | | 191 | | | 474 | | | (261) | | | 213 | | | |
Total | | | $ | 3,201 | | | $ | (1,663) | | | $ | 1,538 | | | $ | 3,440 | | | $ | (1,737) | | | $ | 1,703 | | | |
Amortization expense | | | | | | | $ | 91 | | | | | | | $ | 90 | | | $ | 81 | |
(a)Acquired franchise rights includes our distribution agreement with Vital Pharmaceuticals, Inc., with an expected residual value higher than our carrying value. The distribution agreement’s useful life is three years, in accordance with the three-year termination notice issued, and is not reflected in the average useful life above.
(b)The change primarily reflects assets reclassified as held for sale in connection with our Juice Transaction. See Note 13 for further information.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2018 | | 2017 | | 2016 |
|
Amortizable intangible assets, net | Average Useful Life (Years) | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net | | |
Acquired franchise rights | 56 – 60 | | $ | 838 |
| | $ | (140 | ) | | $ | 698 |
| | $ | 858 |
| | $ | (128 | ) | | $ | 730 |
| | |
Reacquired franchise rights | 5 – 14 | | 106 |
| | (105 | ) | | 1 |
| | 106 |
| | (104 | ) | | 2 |
| | |
Brands | 20 – 40 | | 1,306 |
| | (1,032 | ) | | 274 |
| | 1,322 |
| | (1,026 | ) | | 296 |
| | |
Other identifiable intangibles (a) | 10 – 24 | | 959 |
| | (288 | ) | | 671 |
| | 521 |
| | (281 | ) | | 240 |
| | |
|
| | $ | 3,209 |
| | $ | (1,565 | ) | | $ | 1,644 |
| | $ | 2,807 |
| | $ | (1,539 | ) | | $ | 1,268 |
| | |
Amortization expense | | | | | | | $ | 69 |
| |
| |
| | $ | 68 |
| | $ | 70 |
|
| |
(a) | The change in 2018 is primarily related to our acquisition of SodaStream. |
Amortization is recognized on a straight-line basis over an intangible asset’s estimated useful life. Amortization of intangible assets for each of the next five years, based on existing intangible assets as of December 29, 201825, 2021 and using average 20182021 foreign exchange rates, is expected to be as follows:
|
| | | | | | | | | | | | | | | | | | | |
| 2019 |
|
| 2020 |
|
| 2021 |
| | 2022 |
| | 2023 |
|
Five-year projected amortization | $ | 89 |
| | $ | 89 |
| | $ | 87 |
| | $ | 85 |
| | $ | 83 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2023 | | 2024 | | 2025 | | 2026 |
Five-year projected amortization | $ | 84 | | | $ | 84 | | | $ | 83 | | | $ | 81 | | | $ | 72 | |
Depreciable and amortizable assets are evaluated for impairment upon a significant change in the operating or macroeconomic environment. In these circumstances, if an evaluation of the undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value, which is based on discounted future
cash flows. Useful lives are periodically evaluated to determine whether events or circumstances have occurred which indicate the need for revision. For additional unaudited information on our policies for amortizable brands, see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Indefinite-Lived Intangible Assets
We did not recognize any impairment charges for goodwill in each of the fiscal years ended December 29, 2018,25, 2021, December 30, 201726, 2020 and December 31, 2016.28, 2019. We did not recognize any impairment charges for indefinite-lived intangible assets in the year ended December 25, 2021. In 2020, we recognized noa pre-tax impairment charge of $41 million related to a coconut water brand in PBNA. We did not recognize any material impairment charges for indefinite-lived intangible assets in each of the fiscal yearsyear ended December 29, 2018, December 30, 2017 and December 31, 2016.28, 2019. As of December 29, 2018,25, 2021, the estimated fair values of our indefinite-lived reacquired and acquired franchise rights recorded at NABPBNA exceeded their carrying values. However, there could be an impairment of the carrying value of NAB’sPBNA’s reacquired and acquired franchise rights if future revenues and their contribution to the operating results of NAB’sPBNA’s CSD business do not achieve our expected future cash flows or if macroeconomic conditions result in a future increase in the weighted-average cost of capital used to estimate fair value.
We have also analyzed the impact of the macroeconomic conditions in Russia and Brazil on the estimated fair value of our indefinite-lived intangible assets in these countriesRussia and have concluded that there wereare no material impairments for the year ended December 29, 2018. However, there could be an impairment of the carrying25, 2021. The estimated fair value of certain brandsindefinite-lived intangible assets is dependent on macroeconomic conditions (including a resulting increase in these countries if there is a deterioration in these conditions, ifthe weighted-average cost of capital used to estimate fair value), future revenues and their contributions to the operating results do not achieve ourand expected future cash flows if there are(including perpetuity growth assumptions), and significant changes in the decisions regarding assets that do not perform consistent with our expectations,expectations. Subsequent to December 25, 2021, we discontinued or if macroeconomic conditionsrepositioned certain juice and dairy brands in Russia in our Europe segment. As a result, in a future increasewe will recognize pre-tax impairment charges of approximately $0.2 billion in the weighted-average costfirst quarter of capital used to estimate fair value. 2022 in selling, general and administrative expenses.
For additionalfurther information on our policies for indefinite-lived intangible assets, see Note 2.
The change in the book value of indefinite-lived intangible assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, Beginning 2020 | | Acquisitions | | Translation and Other | | Balance, End of 2020 | | Acquisitions/(Divestitures) | | Translation and Other | | Balance, End of 2021 |
FLNA (a) | | | | | | | | | | | | | |
Goodwill | $ | 299 | | | $ | 164 | | | $ | 2 | | | $ | 465 | | | $ | (8) | | | $ | 1 | | | $ | 458 | |
Brands | 162 | | | 179 | | | (1) | | | 340 | | | — | | | — | | | 340 | |
Total | 461 | | | 343 | | | 1 | | | 805 | | | (8) | | | 1 | | | 798 | |
QFNA | | | | | | | | | | | | | |
Goodwill | 189 | | | — | | | — | | | 189 | | | — | | | — | | | 189 | |
Brands | 11 | | | — | | | (11) | | | — | | | — | | | — | | | — | |
Total | 200 | | | — | | | (11) | | | 189 | | | — | | | — | | | 189 | |
PBNA (b) (c) | | | | | | | | | | | | | |
Goodwill | 9,898 | | | 2,280 | | | 11 | | | 12,189 | | | (216) | | | 1 | | | 11,974 | |
Reacquired franchise rights | 7,089 | | | — | | | 18 | | | 7,107 | | | — | | | — | | | 7,107 | |
Acquired franchise rights | 1,517 | | | 16 | | | 3 | | | 1,536 | | | 1 | | | 1 | | | 1,538 | |
Brands (d) | 763 | | | 2,400 | | | (41) | | | 3,122 | | | (290) | | | (324) | | | 2,508 | |
Total | 19,267 | | | 4,696 | | | (9) | | | 23,954 | | | (505) | | | (322) | | | 23,127 | |
LatAm | | | | | | | | | | | | | |
Goodwill | 501 | | | — | | | (43) | | | 458 | | | — | | | (25) | | | 433 | |
Brands | 125 | | | — | | | (17) | | | 108 | | | (1) | | | (7) | | | 100 | |
Total | 626 | | | — | | | (60) | | | 566 | | | (1) | | | (32) | | | 533 | |
Europe (b) | | | | | | | | | | | | | |
Goodwill (e) | 3,961 | | | (2) | | | (153) | | | 3,806 | | | (28) | | | (78) | | | 3,700 | |
Reacquired franchise rights (e) | 505 | | | — | | | (9) | | | 496 | | | (23) | | | (32) | | | 441 | |
Acquired franchise rights (e) | 157 | | | — | | | 15 | | | 172 | | | — | | | (14) | | | 158 | |
Brands (f) | 4,181 | | | — | | | (109) | | | 4,072 | | | — | | | 182 | | | 4,254 | |
Total | 8,804 | | | (2) | | | (256) | | | 8,546 | | | (51) | | | 58 | | | 8,553 | |
AMESA (g) | | | | | | | | | | | | | |
Goodwill | 446 | | | 560 | | | 90 | | | 1,096 | | | (2) | | | (31) | | | 1,063 | |
Brands | — | | | 183 | | | 31 | | | 214 | | | — | | | (9) | | | 205 | |
Total | 446 | | | 743 | | | 121 | | | 1,310 | | | (2) | | | (40) | | | 1,268 | |
APAC (h) | | | | | | | | | | | | | |
Goodwill | 207 | | | 306 | | | 41 | | | 554 | | | 3 | | | 7 | | | 564 | |
Brands (d) | 100 | | | 309 | | | 36 | | | 445 | | | — | | | 31 | | | 476 | |
Total | 307 | | | 615 | | | 77 | | | 999 | | | 3 | | | 38 | | | 1,040 | |
| | | | | | | | | | | | | |
Total goodwill | 15,501 | | | 3,308 | | | (52) | | | 18,757 | | | (251) | | | (125) | | | 18,381 | |
Total reacquired franchise rights | 7,594 | | | — | | | 9 | | | 7,603 | | | (23) | | | (32) | | | 7,548 | |
Total acquired franchise rights | 1,674 | | | 16 | | | 18 | | | 1,708 | | | 1 | | | (13) | | | 1,696 | |
Total brands | 5,342 | | | 3,071 | | | (112) | | | 8,301 | | | (291) | | | (127) | | | 7,883 | |
Total | $ | 30,111 | | | $ | 6,395 | | | $ | (137) | | | $ | 36,369 | | | $ | (564) | | | $ | (297) | | | $ | 35,508 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance, Beginning 2017 | | Translation and Other | | Balance, End of 2017 | | Acquisitions/ (Divestitures) | | Translation and Other | | Balance, End of 2018 |
FLNA |
| |
| |
| | | |
| |
|
Goodwill | $ | 270 |
| | $ | 10 |
| | $ | 280 |
| | $ | 28 |
| | $ | (11 | ) | | $ | 297 |
|
Brands | 23 |
| | 2 |
| | 25 |
| | 138 |
| | (2 | ) | | 161 |
|
| 293 |
| | 12 |
| | 305 |
| | 166 |
| | (13 | ) | | 458 |
|
QFNA |
| |
| |
| | | |
| |
|
Goodwill | 175 |
| | — |
| | 175 |
| | 9 |
| | — |
| | 184 |
|
Brands | — |
| | — |
| | — |
| | 25 |
| | — |
| | 25 |
|
| 175 |
| | — |
| | 175 |
| | 34 |
| | — |
| | 209 |
|
NAB (a) |
| |
| |
| | | |
| |
|
Goodwill | 9,843 |
| | 11 |
| | 9,854 |
| | — |
| | (41 | ) | | 9,813 |
|
Reacquired franchise rights | 7,064 |
| | 62 |
| | 7,126 |
| | — |
| | (68 | ) | | 7,058 |
|
Acquired franchise rights | 1,512 |
| | 13 |
| | 1,525 |
| | — |
| | (15 | ) | | 1,510 |
|
Brands | 314 |
| | 39 |
| | 353 |
| | — |
| | — |
| | 353 |
|
| 18,733 |
| | 125 |
| | 18,858 |
| | — |
| | (124 | ) | | 18,734 |
|
Latin America |
| |
| |
| | | |
| |
|
Goodwill | 553 |
| | 2 |
| | 555 |
| | — |
| | (46 | ) | | 509 |
|
Brands | 150 |
| | (9 | ) | | 141 |
| | — |
| | (14 | ) | | 127 |
|
| 703 |
|
| (7 | ) | | 696 |
| | — |
| | (60 | ) | | 636 |
|
ESSA (b) |
| |
| |
| | | |
| |
|
Goodwill | 3,177 |
| | 275 |
| | 3,452 |
| | 526 |
| | (367 | ) | | 3,611 |
|
Reacquired franchise rights | 488 |
| | 61 |
| | 549 |
| | (1 | ) | | (51 | ) | | 497 |
|
Acquired franchise rights | 184 |
| | 11 |
| | 195 |
| | (25 | ) | | (9 | ) | | 161 |
|
Brands | 2,358 |
| | 187 |
| | 2,545 |
| | 1,993 |
| | (350 | ) | | 4,188 |
|
| 6,207 |
| | 534 |
| | 6,741 |
| | 2,493 |
| | (777 | ) | | 8,457 |
|
AMENA | | |
| | | | | |
| | |
Goodwill | 412 |
| | 16 |
| | 428 |
| | — |
| | (34 | ) | | 394 |
|
Brands | 103 |
| | 8 |
| | 111 |
| | — |
| | (10 | ) | | 101 |
|
| 515 |
| | 24 |
| | 539 |
| | — |
| | (44 | ) | | 495 |
|
| | | | | | | | | | | |
Total goodwill | 14,430 |
| | 314 |
| | 14,744 |
| | 563 |
| | (499 | ) | | 14,808 |
|
Total reacquired franchise rights | 7,552 |
| | 123 |
| | 7,675 |
| | (1 | ) | | (119 | ) | | 7,555 |
|
Total acquired franchise rights | 1,696 |
| | 24 |
| | 1,720 |
| | (25 | ) | | (24 | ) | | 1,671 |
|
Total brands | 2,948 |
| | 227 |
| | 3,175 |
| | 2,156 |
| | (376 | ) | | 4,955 |
|
| $ | 26,626 |
| | $ | 688 |
| | $ | 27,314 |
| | $ | 2,693 |
| | $ | (1,018 | ) | | $ | 28,989 |
|
| |
(a) | The change in translation and other in 2018 primarily reflects the depreciation of the Canadian dollar. |
| |
(b) | The change in acquisitions/(divestitures) in 2018 is primarily related to the preliminary allocation of the purchase price for our acquisition of SodaStream. See Note 14 for further information. The change in translation and other in 2018 primarily reflects the depreciation of the Russian ruble, euro and Pound sterling. The change in translation and other in 2017 primarily reflects the appreciation of the Russian ruble and euro. |
(a)Acquisitions/divestitures in 2021 and acquisitions in 2020 primarily reflect our acquisition of BFY Brands.
(b)Acquisitions/divestitures in 2021 primarily reflects assets reclassified as held for sale in connection with our Juice Transaction. See Note 13 for further information.
(c)Acquisitions in 2020 primarily reflects our acquisition of Rockstar. See Note 13 for further information.
(d)Translation and other in 2021 primarily reflects the allocation of the Rockstar brand to the respective divisions, which was finalized in 2021 as part of purchase price allocation.
(e)Translation and other primarily reflects the depreciation of the euro in 2021 and depreciation of the Russian ruble in 2020.
(f)Translation and other in 2021 reflects the allocation of the Rockstar brand from PBNA, which was finalized in 2021 as part of purchase price allocation, partially offset by the depreciation of the euro. Translation and other in 2020 primarily reflects the depreciation of the Russian ruble.
(g)Acquisitions in 2020 primarily reflects our acquisition of Pioneer Foods. See Note 13 for further information.
(h)Acquisitions in 2020 primarily reflects our acquisition of Be & Cheery. See Note 13 for further information.
Note 5 — Income Taxes
The components of income before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
United States | | $ | 3,740 | | | $ | 4,070 | | | $ | 4,123 | |
Foreign | | 6,081 | | | 4,999 | | | 5,189 | |
| | $ | 9,821 | | | $ | 9,069 | | | $ | 9,312 | |
|
| | | | | | | | | | | | |
| | 2018 |
| | 2017 |
| | 2016 |
|
United States | | $ | 3,864 |
| | $ | 3,452 |
| | $ | 2,630 |
|
Foreign | | 5,325 |
| | 6,150 |
| | 5,923 |
|
| | $ | 9,189 |
| | $ | 9,602 |
| | $ | 8,553 |
|
|
The (benefit from)/provision for income taxes consisted of the following: |
| 2018 |
| | 2017 |
| | 2016 |
|
Current: | U.S. Federal | $ | 437 |
| | $ | 4,925 |
| | $ | 1,219 |
|
| Foreign | 378 |
| | 724 |
| | 824 |
|
| State | 63 |
| | 136 |
| | 77 |
|
| | 878 |
| | 5,785 |
| | 2,120 |
|
Deferred: | U.S. Federal | 140 |
| | (1,159 | ) | | 109 |
|
| Foreign | (4,379 | ) | | (9 | ) | | (33 | ) |
| State | (9 | ) | | 77 |
| | (22 | ) |
| | (4,248 | ) | | (1,091 | ) | | 54 |
|
| | $ | (3,370 | ) | | $ | 4,694 |
| | $ | 2,174 |
|
The provision for income taxes consisted of the following: | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Current: | | | | | |
U.S. Federal | $ | 702 | | | $ | 715 | | | $ | 652 | |
Foreign | 955 | | | 932 | | | 807 | |
State | 44 | | | 110 | | | 196 | |
| 1,701 | | | 1,757 | | | 1,655 | |
Deferred: | | | | | |
U.S. Federal | 375 | | | 273 | | | 325 | |
Foreign | (14) | | | (167) | | | (31) | |
State | 80 | | | 31 | | | 10 | |
| 441 | | | 137 | | | 304 | |
| $ | 2,142 | | | $ | 1,894 | | | $ | 1,959 | |
A reconciliation of the U.S. Federal statutory tax rate to our annual tax rate is as follows:
| | | | 2018 |
| | 2017 |
| | 2016 |
| | 2021 | | 2020 | | 2019 |
U.S. Federal statutory tax rate | U.S. Federal statutory tax rate | 21.0 | % | | 35.0 | % | | 35.0 | % | U.S. Federal statutory tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
State income tax, net of U.S. Federal tax benefit | State income tax, net of U.S. Federal tax benefit | 0.5 |
| | 0.9 |
| | 0.4 |
| State income tax, net of U.S. Federal tax benefit | 1.0 | | | 1.2 | | | 1.6 | |
Lower taxes on foreign results | Lower taxes on foreign results | (2.2 | ) | | (9.4 | ) | | (8.0 | ) | Lower taxes on foreign results | (1.6) | | | (0.8) | | | (0.9) | |
One-time mandatory transition tax - TCJ Act | One-time mandatory transition tax - TCJ Act | 0.1 |
| | 41.4 |
| | — |
| One-time mandatory transition tax - TCJ Act | 1.9 | | | — | | | (0.1) | |
Remeasurement of deferred taxes - TCJ Act | (0.4 | ) | | (15.9 | ) | | — |
| |
International reorganizations | (47.3 | ) | | — |
| | — |
| |
Tax settlements | (7.8 | ) | | — |
| | — |
| |
| Other, net | Other, net | (0.6 | ) | | (3.1 | ) | | (2.0 | ) | Other, net | (0.5) | | | (0.5) | | | (0.6) | |
Annual tax rate | Annual tax rate | (36.7 | )% | | 48.9 | % | | 25.4 | % | Annual tax rate | 21.8 | % | | 20.9 | % | | 21.0 | % |
Tax Cuts and Jobs Act
During the fourth quarterIn 2021, we recorded $190 million ($0.14 per share) of 2017,net tax expense related to the TCJ Act was enacted in the United States. Among its many provisions, the TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings and reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. Asas a result of adjustments related to the enactmentfinal assessment of the TCJ Act, we recognized a provisional net2014 through 2016 IRS audit. There were no tax expense of $2.5 billion ($1.70 per share) in the fourth quarter of 2017. See further unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Included in the provisional net tax expense of $2.5 billionamounts recognized in the fourth quarter of 2017, was a provisional mandatory one-time transition tax of approximately $4 billion on undistributed international earnings, included in other liabilities. This provisional mandatory one-time transition tax was partially offset by a provisional $1.5 billion benefit resulting from the required remeasurement of our deferred tax assets and liabilities2020 related to the new, lower U.S. corporate income tax rate, effective January 1, 2018. The effect of the remeasurement was recorded in the fourth quarter of 2017, consistent with the enactment date of the TCJ Act, and reflected in our provision for income taxes.
During 2018,Act. In 2019, we recognized a net tax benefit of $28totaling $8 million ($0.020.01 per share) primarily reflecting the impact of the final analysis of certain foreign exchange gains or losses, substantiation of foreign tax credits, as well as cash and cash equivalents as of November 30, 2018, the tax year-end of our foreign subsidiaries, partially offset by additional transition tax guidance issued by the United States Department of Treasury, as well as the TCJ Act impact of both the conclusion of certain international tax audits and the resolution with the IRS of all open matters related to the audits of taxable years 2012 and 2013, each discussed below.TCJ Act.
As of December 29, 2018,25, 2021, our mandatory transition tax liability is $3.8 billion. Underwas $2.9 billion, which must be paid through 2026 under the provisions of the TCJ Act, this transitionAct. We reduced our liability through cash payments and application of tax liability must be paid over eight years; weoverpayments by $309 million in 2021, $78 million in 2020 and $663 million in 2019. We currently expect to pay approximately $0.4 billion$309 million of this liability in 2019 and the remainder over the period 2020 to 2026.2022.
The TCJ Act also created a requirement that certain income earned by foreign subsidiaries, known as GILTI,global intangible low-tax income (GILTI), must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary
differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. During the first quarter of 2018, weWe elected to treat the tax effect of GILTI as a current-period expense when incurred.
Other Tax Matters
In 2017,2021, we received a final assessment from the SEC issued guidanceIRS audit for the tax years 2014 through 2016. The assessment included both agreed and unagreed issues. On October 29, 2021, we filed a formal written protest of the assessment and requested an appeals conference. As a result of the analysis of the 2014 through 2016 final assessment, we remeasured all applicable reserves for uncertain tax positions for all years open under the statute of limitations, including any correlating adjustments impacting the mandatory transition tax liability under the TCJ Act, resulting in a net non-cash tax expense of $112 million in 2021.
On May 19, 2019, a public referendum held in Switzerland passed the Federal Act on Tax Reform and AHV Financing (TRAF), effective January 1, 2020. The enactment of certain provisions of the TRAF resulted in adjustments to our deferred taxes. During 2021, no income tax adjustments related to the TCJ Act which allowed recordingTRAF were recorded. During 2020, we recorded a net tax benefit of provisional$72 million related to the adoption of the TRAF in the Swiss Canton of Bern. During 2019, we recorded a net tax expense using a measurement period, notof $24 million related to exceed one year, when information necessary to completethe impact of the TRAF. While the accounting for the effectsimpacts of the TCJ Act is not available. We elected to apply the measurement period provisions of this guidance to certain income tax effects of the TCJ Act when it became effective in the fourth quarter of 2017. The provisional measurement period ended in the fourth quarter of 2018. While our accounting for the recorded impact of the TCJ Act isTRAF are deemed to be complete, these amounts are based on prevailing regulationsfurther adjustments to our financial statements and currently available information, and any additional guidance issued by the IRSrelated disclosures could impact the aforementioned amountsbe made in future periods.
For further unaudited information and discussion, refer to “Item 1A. Risk Factors,” “Our Business Risks,” “Our Liquidity and Capital Resources” and “Our Critical Accounting Policies”quarters, including in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
International Reorganizations
During the fourth quarter of 2018, we reorganized certain of our international operations, including the intercompany transfer of certain intangible assets. As a result, we recognized other netconnection with final tax benefits of $4.3 billion ($3.05 per share). The related deferred tax asset of $4.4 billion is expected to be amortized over a period of 15 years beginning in 2019. Additionally, the reorganization generated significant net operating loss carryforwards and related deferred tax assets that are not expected to be realized, resulting in the recording of a full valuation allowance.
return filings.
Deferred tax liabilities and assets are comprised of the following:
Deferred Tax Liabilities | | | | | | | | | | | |
| 2021 | | 2020 |
Deferred tax liabilities | | | |
Debt guarantee of wholly-owned subsidiary | $ | 578 | | | $ | 578 | |
Property, plant and equipment | 2,036 | | | 1,851 | |
| | | |
Recapture of net operating losses | 504 | | | 504 | |
Pension liabilities | 216 | | | — | |
Right-of-use assets | 450 | | | 371 | |
Other | 254 | | | 159 | |
Gross deferred tax liabilities | 4,038 | | | 3,463 | |
| | | |
Deferred tax assets | | | |
Net carryforwards | 4,974 | | | 5,008 | |
Intangible assets other than nondeductible goodwill | 1,111 | | | 1,146 | |
Share-based compensation | 98 | | | 90 | |
Retiree medical benefits | 147 | | | 153 | |
Other employee-related benefits | 379 | | | 373 | |
Pension benefits | — | | | 80 | |
Deductible state tax and interest benefits | 149 | | | 150 | |
Lease liabilities | 450 | | | 371 | |
Other | 842 | | | 866 | |
Gross deferred tax assets | 8,150 | | | 8,237 | |
Valuation allowances | (4,628) | | | (4,686) | |
Deferred tax assets, net | 3,522 | | | 3,551 | |
Net deferred tax liabilities/(assets) | $ | 516 | | | $ | (88) | |
|
| | | | | | | |
| 2018 |
| | 2017 |
|
Debt guarantee of wholly-owned subsidiary | $ | 578 |
| | $ | 578 |
|
Property, plant and equipment | 1,303 |
| | 1,397 |
|
Intangible assets other than nondeductible goodwill | — |
| | 3,169 |
|
Recapture of net operating losses | 414 |
| | — |
|
Other | 71 |
| | 50 |
|
Gross deferred tax liabilities | 2,366 |
| | 5,194 |
|
Deferred tax assets | | | |
Net carryforwards | 4,353 |
| | 1,400 |
|
Intangible assets other than nondeductible goodwill | 985 |
| | — |
|
Share-based compensation | 106 |
| | 107 |
|
Retiree medical benefits | 167 |
| | 198 |
|
Other employee-related benefits | 303 |
| | 338 |
|
Pension benefits | 221 |
| | 22 |
|
Deductible state tax and interest benefits | 110 |
| | 157 |
|
Other | 739 |
| | 893 |
|
Gross deferred tax assets | 6,984 |
| | 3,115 |
|
Valuation allowances | (3,753 | ) | | (1,163 | ) |
Deferred tax assets, net | 3,231 |
| | 1,952 |
|
Net deferred tax (assets)/liabilities | $ | (865 | ) | | $ | 3,242 |
|
A summary of our valuation allowance activity is as follows: |
| | | | | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
|
Balance, beginning of year | $ | 1,163 |
| | $ | 1,110 |
| | $ | 1,136 |
|
Provision | 2,639 |
| | 33 |
| | 13 |
|
Other (deductions)/additions | (49 | ) | | 20 |
| | (39 | ) |
Balance, end of year | $ | 3,753 |
| | $ | 1,163 |
| | $ | 1,110 |
|
For additional unaudited information on our income tax policies, including our reserves for income taxes, see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Balance, beginning of year | $ | 4,686 | | | $ | 3,599 | | | $ | 3,753 | |
Provision | (9) | | | 1,082 | | | (124) | |
Other (deductions)/additions | (49) | | | 5 | | | (30) | |
Balance, end of year | $ | 4,628 | | | $ | 4,686 | | | $ | 3,599 | |
Reserves
A number of years may elapse before a particular matter, for which we have established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions and the related open tax audits are as follows:
|
| | | | | | | | | | | | | |
Jurisdiction | | Years Open to Audit | | Years Currently Under Audit |
United States | | 2014-20172014-2020 | | 2014-20162014-2019 |
Mexico | | 20172014-2020 | | None2014-2016 |
United Kingdom | | 2016-20172018-2020 | | None |
Canada (Domestic) | | 2014-20172016-2020 | | 2014-20152016-2017 |
Canada (International) | | 2010-20172010-2020 | | 2010-20152010-2017 |
Russia | | 2014-20172018-2020 | | 2014-2017None |
During 2018,Our annual tax rate is based on our income, statutory tax rates and tax planning strategies and transactions, including transfer pricing arrangements, available to us in the various jurisdictions in which we recognized a non-cashoperate. Significant judgment is required in determining our annual tax benefit of $364 million ($0.26 per share) resulting from the conclusion of certain internationalrate and in evaluating our tax audits. Additionally, during 2018, we recognized non-cashpositions. We establish reserves when, despite our belief that our tax benefits of $353 million ($0.24 per share) as a result of our agreement with the IRS resolving all open matters related to the audits of taxable years 2012 and 2013, including the associated state impact.
While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter,return positions are fully supportable, we believe that our reserves reflect the probable outcome of known tax contingencies.certain positions are subject to challenge and that we likely will not succeed. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances.circumstances, such as the progress of a tax audit, new tax laws, relevant court cases or tax authority settlements. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual tax rate in the year of resolution. For further unaudited information on the impact of the resolution of open tax issues, see “Other Consolidated Results” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As of December 29, 2018,25, 2021, the total gross amount of reserves for income taxes, reported in other liabilities, was $1.4$1.9 billion. We accrue interest related to reserves for income taxes in our provision for income taxes and any associated penalties are recorded in selling, general and administrative expenses. The gross amount of interest accrued, reported in other liabilities, was $179$326 million as of December 29, 2018,25, 2021, of which reflects a reduction of the prior year liability of $64$3 million of tax benefit that was recognized in 2018.2021. The gross amount of interest accrued, reported in other liabilities, was $283$338 million as of December 30, 2017,26, 2020, of which $89$93 million of tax expense was recognized in 2017.2020.
A reconciliation of unrecognized tax benefits is as follows:
| | | 2018 |
| | 2017 |
| | 2021 | | 2020 |
Balance, beginning of year | $ | 2,212 |
| | $ | 1,885 |
| Balance, beginning of year | $ | 1,621 | | | $ | 1,395 | |
Additions for tax positions related to the current year | 142 |
| | 309 |
| Additions for tax positions related to the current year | 222 | | | 128 | |
Additions for tax positions from prior years | 197 |
| | 86 |
| Additions for tax positions from prior years | 681 | | | 153 | |
Reductions for tax positions from prior years | (822 | ) | | (51 | ) | Reductions for tax positions from prior years | (558) | | | (22) | |
Settlement payments | (233 | ) | | (4 | ) | Settlement payments | (25) | | | (13) | |
Statutes of limitations expiration | (42 | ) | | (33 | ) | Statutes of limitations expiration | (39) | | | (23) | |
Translation and other | (14 | ) | | 20 |
| Translation and other | (2) | | | 3 | |
Balance, end of year | $ | 1,440 |
| | $ | 2,212 |
| Balance, end of year | $ | 1,900 | | | $ | 1,621 | |
Carryforwards and Allowances
Operating loss carryforwards totaling $24.9$30.0 billion at year-end 2018 as of December 25, 2021 are being carried forward in a number of foreign and state jurisdictions where we are permitted to use tax operating losses from prior periods to reduce future taxable income. These operating losses will expire as follows: $0.2$0.3 billion in 2019, $20.52022, $26.8 billion between 20202023 and 20382041 and $4.2$2.9 billion may be carried forward indefinitely. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is not more likely than not that some portion or all of the deferred tax assets will not be realized.
Undistributed International Earnings
In connection with the enactment of the TCJ Act, during 2018, we repatriated $20.4 billion of cash, cash equivalents and short-term investments held in our foreign subsidiaries without such funds being subject to further U.S. federal income tax liability. As of December 29, 2018,25, 2021, we had approximately $24$7 billion of undistributed international earnings. We intend to continue to reinvest $24$7 billion of earnings outside the United States for the foreseeable future and while future distribution of these earnings would not be subject to U.S. federal tax expense, has been recognized as a result of the TCJ Act, no deferred tax liabilities with respect to items such as certain foreign exchange gains or
losses, foreign withholding taxes or state taxes have been recognized. It is not practicable for us to determine the amount of unrecognized tax expense on these reinvested international earnings.
Note 6 — Share-Based Compensation
Our share-based compensation program is designed to attract and retain employees while also aligning employees’ interests with the interests of our shareholders. PepsiCo has granted stock options, restricted stock units (RSUs), performance stock units (PSUs), PepsiCo equity performance units (PEPunits)RSUs, PSUs and long-term cash awards to employees under the shareholder-approved PepsiCo, Inc. Long-Term Incentive Plan (LTIP). Executives who are awarded long-term incentives based on their performance may generally elect to receive their grant in the form of stock options or RSUs, or a combination thereof. Executives who elect stock options receive four4 stock options for every one1 RSU that would have otherwise been granted. Certain executive officers and other senior executives do not have a choice and wereare granted 66% PSUs and 34% long-term cash, each of which are subject to pre-established performance targets.
The Company may use authorized and unissued shares to meet share requirements resulting from the exercise of stock options and the vesting of RSUs PSUs and PEPunits.PSUs.
As of December 29, 2018, 6625, 2021, 44 million shares were available for future share-based compensation grants under the LTIP.
The following table summarizes our total share-based compensation expense, which is primarily recorded in selling, general and administrative expenses, and excess tax benefits recognized:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Share-based compensation expense - equity awards | $ | 301 | | | $ | 264 | | | $ | 237 | |
Share-based compensation expense - liability awards | 20 | | | 11 | | | 8 | |
Restructuring charges | 1 | | | (1) | | | (2) | |
Total | $ | 322 | | | $ | 274 | | | $ | 243 | |
Income tax benefits recognized in earnings related to share-based compensation | $ | 57 | | | $ | 48 | | | $ | 39 | |
Excess tax benefits related to share-based compensation | $ | 38 | | | $ | 35 | | | $ | 50 | |
|
| | | | | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
|
Share-based compensation expense - equity awards | $ | 256 |
| | $ | 292 |
| | $ | 284 |
|
Share-based compensation expense - liability awards | 20 |
| | 13 |
| | 5 |
|
Restructuring and impairment charges | (6 | ) | | (2 | ) | | 5 |
|
Total | $ | 270 |
| | $ | 303 |
| | $ | 294 |
|
Income tax benefits recognized in earnings related to share-based compensation | $ | 45 |
| | $ | 89 |
| (a) | $ | 91 |
|
Excess tax benefits related to share-based compensation (b) | $ | 48 |
| | $ | 115 |
| | $ | 110 |
|
| |
(a) | Reflects tax rates effective for the 2017 tax year. |
| |
(b) | Included in provision for income taxes in the income statement in 2018 and 2017; included in capital in excess of par value in the equity statement in 2016. |
As of December 29, 2018,25, 2021, there was $282$372 million of total unrecognized compensation cost related to nonvested share-based compensation grants. This unrecognized compensation cost is expected to be recognized over a weighted-average period of two years.
Method of Accounting and Our Assumptions
The fair value of share-based award grants is amortized to expense over the vesting period, primarily three years. Awards to employees eligible for retirement prior to the award becoming fully vested are amortized to expense over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. In addition, we use historical data to estimate forfeiture rates and record share-based compensation expense only for those awards that are expected to vest.
We do not backdate, reprice or grant share-based compensation awards retroactively. Repricing of awards would require shareholder approval under the LTIP.
Stock Options
A stock option permits the holder to purchase shares of PepsiCo common stock at a specified price. We account for our employee stock options under the fair value method of accounting using a Black-Scholes valuation model to measure stock option expense at the date of grant. All stock option grants have an exercise price equal to the fair market value of our common stock on the date of grant and generally have a 10-year term.
Our weighted-average Black-Scholes fair value assumptions are as follows:
| |
| 2018 |
| | 2017 |
| | 2016 |
| | 2021 | | 2020 | | 2019 |
Expected life | 5 years |
| | 5 years |
| | 6 years |
| Expected life | 7 years | | 6 years | | 5 years |
Risk-free interest rate | 2.6 | % | | 2.0 | % | | 1.4 | % | Risk-free interest rate | 1.1 | % | | 0.9 | % | | 2.4 | % |
Expected volatility | 12 | % | | 11 | % | | 12 | % | Expected volatility | 14 | % | | 14 | % | | 14 | % |
Expected dividend yield | 2.7 | % | | 2.7 | % | | 2.7 | % | Expected dividend yield | 3.1 | % | | 3.4 | % | | 3.1 | % |
The expected life is the period over which our employee groups are expected to hold their options. It is based on our historical experience with similar grants. The risk-free interest rate is based on the expected U.S. Treasury rate over the expected life. Volatility reflects movements in our stock price over the most recent historical period equivalent to the expected life. Dividend yield is estimated over the expected life based on our stated dividend policy and forecasts of net income, share repurchases and stock price.
A summary of our stock option activity for the year ended December 29, 201825, 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options(a) | | Weighted-Average Exercise Price | | Weighted-Average Contractual Life Remaining (years) | | Aggregate Intrinsic Value(a) |
Outstanding at December 26, 2020 | 10,640 | | | $ | 99.54 | | | | | |
Granted | 2,157 | | | $ | 134.25 | | | | | |
Exercised | (2,321) | | | $ | 79.87 | | | | | |
Forfeited/expired | (334) | | | $ | 125.35 | | | | | |
Outstanding at December 25, 2021 | 10,142 | | | $ | 110.54 | | | 5.79 | | $ | 600,755 | |
Exercisable at December 25, 2021 | 5,407 | | | $ | 93.49 | | | 3.47 | | $ | 412,524 | |
Expected to vest as of December 25, 2021 | 4,419 | | | $ | 129.78 | | | 8.41 | | $ | 176,771 | |
|
| | | | | | | | | | | | |
| Options(a) | | Weighted-Average Exercise Price | | Weighted-Average Contractual Life Remaining (years) | | Aggregate Intrinsic Value(b) |
Outstanding at December 30, 2017 | 19,013 |
| | $ | 74.23 |
| | | | |
Granted | 1,429 |
| | $ | 108.88 |
| | | | |
Exercised | (4,377 | ) | | $ | 62.95 |
| | | | |
Forfeited/expired | (476 | ) | | $ | 94.85 |
| | | | |
Outstanding at December 29, 2018 | 15,589 |
| | $ | 79.94 |
| | 4.29 | | $ | 474,746 |
|
Exercisable at December 29, 2018 | 11,547 |
| | $ | 70.74 |
| | 2.92 | | $ | 457,529 |
|
Expected to vest as of December 29, 2018 | 3,713 |
| | $ | 106.02 |
| | 8.17 | | $ | 16,606 |
|
(a)In thousands. | |
(a) | Options are in thousands and include options previously granted under the PBG plan. No additional options or shares were granted under the PBG plan after 2009. |
Restricted Stock Units and Performance Stock Units
Each RSU represents our obligation to deliver to the holder one share of PepsiCo common stock when the award vests at the end of the service period. PSUs are awards pursuant to which a number of shares are delivered to the holder upon vesting at the end of the service period based on PepsiCo’s performance against specified financial and/or operational performance metrics. The number of shares may be increased to the maximum or reduced to the minimum threshold based on the results of these performance metrics in accordance with the terms established at the time of the award. During the vesting period, RSUs and PSUs accrue dividend equivalents that pay out in cash (without interest) if and when the applicable RSU or PSU vests and becomes payable.
The fair value of RSUs isand PSUs are measured at the market price of the Company’s stock on the date of grant. The fair
value of PSUs is measured at the market price of the Company’s stock on the date of grant with the exception of awards with market conditions, for which we use the Monte-Carlo simulation model to determine the fair value. The Monte-Carlo simulation model uses the same input assumptions as the Black-Scholes model; however, it also further incorporates into the fair-value determination the possibility that the market condition may not be satisfied. Compensation costs related to these awards are recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided.
A summary of our RSU and PSU activity for the year ended December 29, 201825, 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| RSUs/PSUs(a) | | Weighted-Average Grant-Date Fair Value | | Weighted-Average Contractual Life Remaining (years) | | Aggregate Intrinsic Value(a) |
Outstanding at December 26, 2020 | 6,127 | | | $ | 119.92 | | | | | |
Granted | 2,636 | | | $ | 131.81 | | | | | |
Converted | (2,229) | | | $ | 112.09 | | | | | |
Forfeited | (557) | | | $ | 126.70 | | | | | |
Outstanding at December 25, 2021 (b) | 5,977 | | | $ | 127.45 | | | 1.31 | | $ | 1,014,854 | |
Expected to vest as of December 25, 2021 (c) | 6,016 | | | $ | 127.59 | | | 1.30 | | $ | 1,021,312 | |
|
| | | | | | | | | | | | |
| RSUs/PSUs(a) | | Weighted-Average Grant-Date Fair Value | | Weighted-Average Contractual Life Remaining (years) | | Aggregate Intrinsic Value(a) |
Outstanding at December 30, 2017 | 7,293 |
| | $ | 102.30 |
| | | | |
Granted (b) | 2,634 |
| | $ | 108.75 |
| | | | |
Converted | (2,362 | ) | | $ | 99.73 |
| | | | |
Forfeited | (647 | ) | | $ | 105.21 |
| | | | |
Actual performance change (c) | 257 |
| | $ | 98.92 |
| | | | |
Outstanding at December 29, 2018 (d) | 7,175 |
| | $ | 105.13 |
| | 1.22 | | $ | 791,878 |
|
Expected to vest as of December 29, 2018 | 6,667 |
| | $ | 104.90 |
| | 1.15 | | $ | 735,813 |
|
| |
(b) | Grant activity for all PSUs are disclosed at target. |
| |
(c) | Reflects the net number of PSUs above and below target levels based on actual performance measured at the end of the performance period. |
| |
(d) | The outstanding PSUs for which the performance period has not ended as of December 29, 2018, at the threshold, target and maximum award levels were zero, 0.9 million and 1.6 million, respectively. |
PEPunits(a)In thousands. Outstanding awards are disclosed at target.
PEPunits provide an opportunity(b)The outstanding PSUs for which the vesting period has not ended as of December 25, 2021, at the threshold, target and maximum award levels were zero, 1 million and 2 million, respectively.
(c)Represents the number of outstanding awards expected to earn sharesvest, including estimated performance adjustments on all outstanding PSUs as of PepsiCo common stock with a value that adjusts based upon changes in PepsiCo’s absolute stock price as well as PepsiCo’s Total Shareholder Return relative to the S&P 500 over a three-year performance period.
The fair value of PEPunits is measured using the Monte-Carlo simulation model.
PEPunits were last granted in 2015 and all 248,000 units outstanding at December 30, 2017, with a weighted average grant date fair value of $68.94, were converted to 278,000 shares during fiscal year 2018.25, 2021.
Long-Term Cash
Certain executive officers and other senior executives were granted long-term cash awards for which final payout is based on PepsiCo’s Total Shareholder Return relative to a specific set of peer companies and
achievement of a specified performance target over a three-year performance period.
Long-term cash awards that qualify as liability awards under share-based compensation guidance are valued through the end of the performance period on a mark-to-market basis using the Monte Carlo simulation model until actual performance is determined.
model.
A summary of our long-term cash activity for the year ended December 29, 201825, 2021 is as follows:
| | | | | | | | | | | | | | | | | |
| Long-Term Cash Award(a) | | Balance Sheet Date Fair Value(a) | | Contractual Life Remaining (years) |
Outstanding at December 26, 2020 | $ | 47,513 | | | | | |
Granted | 16,507 | | | | | |
Vested | (16,567) | | | | | |
Forfeited | (1,661) | | | | | |
Outstanding at December 25, 2021 (b) | $ | 45,792 | | | $ | 50,238 | | | 1.29 |
Expected to vest as of December 25, 2021 (c) | $ | 43,480 | | | $ | 47,771 | | | 1.27 |
|
| | | | | | | | | |
| Long-Term Cash Award(a) | | Balance Sheet Date Fair Value(a) | | Contractual Life Remaining (years) |
Outstanding at December 30, 2017 | $ | 33,200 |
| | | | |
Granted (b) | 20,926 |
| | | | |
Forfeited | (2,292 | ) | | | | |
Actual performance change (c) | 2,876 |
| | | | |
Outstanding at December 29, 2018 (d) | $ | 54,710 |
| | $ | 55,809 |
| | 1.22 |
Expected to vest as of December 29, 2018 | $ | 51,159 |
| | $ | 52,148 |
| | 1.17 |
(a)In thousands. Outstanding awards are disclosed at target. | |
(b) | Grant activity for all long-term cash awards are disclosed at target. |
| |
(c) | Reflects the net number of long-term cash awards above and below target levels based on actual performance measured at the end of the performance period. |
| |
(d) | The outstanding long-term cash awards for which the performance period has not ended as of December 29, 2018, at the threshold, target and maximum award levels were zero, 37.3 million and 74.5 million, respectively. |
(b)The outstanding awards for which the vesting period has not ended as of December 25, 2021, at the threshold, target and maximum award levels based on the achievement of its market conditions were zero, $46 million and $92 million, respectively.
(c)Represents the number of outstanding awards expected to vest, based on the most recent valuation as of December 25, 2021.
Other Share-Based Compensation Data
The following is a summary of other share-based compensation data:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Stock Options | | | | | |
Total number of options granted (a) | 2,157 | | | 1,847 | | | 1,286 | |
Weighted-average grant-date fair value of options granted | $ | 9.88 | | | $ | 8.31 | | | $ | 10.89 | |
Total intrinsic value of options exercised (a) | $ | 153,306 | | | $ | 155,096 | | | $ | 275,745 | |
Total grant-date fair value of options vested (a) | $ | 10,605 | | | $ | 8,652 | | | $ | 9,838 | |
RSUs/PSUs | | | | | |
Total number of RSUs/PSUs granted (a) | 2,636 | | | 2,496 | | | 2,754 | |
Weighted-average grant-date fair value of RSUs/PSUs granted | $ | 131.81 | | | $ | 131.21 | | | $ | 116.87 | |
Total intrinsic value of RSUs/PSUs converted (a) | $ | 273,878 | | | $ | 303,165 | | | $ | 333,951 | |
Total grant-date fair value of RSUs/PSUs vested (a) | $ | 198,469 | | | $ | 235,523 | | | $ | 275,234 | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
|
Stock Options | | | | | |
Total number of options granted (a) | 1,429 |
| | 1,481 |
| | 1,743 |
|
Weighted-average grant-date fair value of options granted | $ | 9.80 |
| | $ | 8.25 |
| | $ | 6.94 |
|
Total intrinsic value of options exercised (a) | $ | 224,663 |
| | $ | 327,860 |
| | $ | 290,131 |
|
Total grant-date fair value of options vested (a) | $ | 15,506 |
| | $ | 23,122 |
| | $ | 18,840 |
|
RSUs/PSUs | | | | | |
Total number of RSUs/PSUs granted (a) | 2,634 |
| | 2,824 |
| | 3,054 |
|
Weighted-average grant-date fair value of RSUs/PSUs granted | $ | 108.75 |
| | $ | 109.92 |
| | $ | 99.06 |
|
Total intrinsic value of RSUs/PSUs converted (a) | $ | 260,287 |
| | $ | 380,269 |
| | $ | 359,401 |
|
Total grant-date fair value of RSUs/PSUs vested (a) | $ | 232,141 |
| | $ | 264,923 |
| | $ | 257,648 |
|
PEPunits | | | | | |
Total intrinsic value of PEPunits converted (a) | $ | 30,147 |
| | $ | 39,782 |
| | $ | 38,558 |
|
Total grant-date fair value of PEPunits vested (a) | $ | 9,430 |
| | $ | 18,833 |
| | $ | 16,572 |
|
(a)In thousands.As of December 29, 201825, 2021 and December 30, 2017,26, 2020, there were approximately 248,000299,000 and 250,000287,000 outstanding awards, respectively, consisting primarily of phantom stock units that were granted under the PepsiCo Director Deferral Program and will be settled in shares of PepsiCo common stock pursuant to the LTIP at the end of the applicable deferral period, not included in the tables above.
Note 7 — Pension, Retiree Medical and Savings Plans
EffectiveIn connection with our Juice Transaction subsequent to December 25, 2021, we transferred pension and retiree medical obligations of approximately $150 million and related assets to the newly formed joint venture.
In 2021, we adopted a change to the Canadian defined benefit plans to freeze pension accruals for salaried participants, effective January 1, 2017,2024, and to close the hourly plan to new non-union employees hired on or after January 1, 2022. After the effective date, all salaried participants will receive an employer contribution to the defined contribution plan based on age and years of service regardless of employee contribution and will have the opportunity to receive employer contributions to match employee contributions up to defined limits. We also adopted a change to the U.K. defined benefit plan to freeze pension accruals for all participants effective March 31, 2022. After the effective date, participants will have the opportunity to receive employer contributions to match employee contributions up to defined limits. Pre-tax pension benefits expense will decrease after the effective dates, partially offset by contributions to defined contribution plans.
In 2021, we adopted a change to the U.S. qualified defined benefit plans to transfer certain participants from PepsiCo Employees Retirement Plan A (Plan A) to PepsiCo Employees Retirement Plan I (Plan I), effective January 1, 2022. The benefits offered to the plans’ participants were unchanged. There is no material impact to pre-tax pension benefits expense from this transaction.
In 2020, lump sum distributions exceeded the total of annual service and interest cost and triggered a pre-tax settlement charge in Plan A of $205 million ($158 million after-tax or $0.11 per share).
In 2020, we adopted an amendment to the U.S. defined benefit pension plans to freeze benefit accruals for salaried participants, effective December 31, 2025. Since 2011, salaried new hires are not eligible to participate in the defined benefit plan. After the effective date, all salaried participants will receive an employer contribution to the 401(k) savings plan based on age and years of service regardless of employee contribution and will have the opportunity to receive employer contributions to match employee contributions up to defined limits. As a result of this amendment, pre-tax pension benefits expense decreased $70 million in 2021, primarily impacting corporate unallocated expenses.
In 2020, we approved an amendment to reorganize the U.S. qualified defined benefit pension plans were reorganized intothat resulted in the transfer of certain participants from Plan A and Plan I. Actuarial gains and losses associated with Plan A are amortized over the average remaining service life of the active participants, while the actuarial gains and losses associated withto Plan I are amortized overand to a newly created plan, PepsiCo Employees Retirement Hourly Plan (Plan H), effective January 1, 2021. The benefits offered to the remaining life expectancyplans’ participants were unchanged. The reorganization facilitated a more targeted investment strategy and provided additional flexibility in evaluating opportunities to reduce risk and volatility. There was no material impact to pre-tax pension benefits expense as a result of this reorganization.
In 2020, we adopted an amendment, effective January 1, 2021, to enhance the inactive participants.pay credit benefits of certain participants in Plan H. As a result of this change, theamendment, pre-tax net periodic
benefit cost decreased by $42pension benefits expense increased $45 million ($27 million after-tax, reflecting tax rates effective for the 2017 tax year, or $0.02 per share) in 2017,2021, primarily impacting corporate unallocated expenses. See “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.service cost expense.
In 2016, the U.S. qualified defined benefit pension plans2019, Plan A purchased a group annuity contract whereby an unrelateda third-party insurance company assumed the obligation to pay and administer future annuity payments for certain retirees. In 2016, we made discretionary contributions of $452 million primarily to fund the transfer of the obligation. This transaction triggered a pre-tax settlement charge in 2019 of $242$220 million ($162170 million after-tax or $0.11$0.12 per share). See additional unaudited information
Also in “Items Affecting Comparability”2019, certain former employees who had vested benefits in Management’s Discussionour U.S. defined benefit pension plans were offered the option of receiving a one-time lump sum payment equal to the present value of the participant’s pension benefit. This transaction triggered a pre-tax settlement charge in 2019 of $53 million ($41 million after-tax or $0.03 per share). Collectively, the group annuity contract and Analysisone-time lump sum payments to certain former employees who had vested benefits resulted in settlement charges in 2019 of Financial Condition and Results$273 million ($211 million after-tax or $0.15 per share).
Gains and losses resulting from actual experience differing from our assumptions, including the difference between the actual return on plan assets and the expected return on plan assets, as well as changes in our assumptions, are determined at each measurement date. These differences are recognized as a component of net gain or loss in accumulated other comprehensive loss. If this net accumulated gain or loss exceeds 10% of the greater of the market-related value of plan assets or plan liabilities,obligations, a portion of the net gain or loss is included in other pension and retiree medical benefits income/(expense)/income for the following year based upon the average remaining service life for participants in Plan A (approximately 109 years), Plan H (approximately 11 years) and retiree medical (approximately 79 years), orand the remaining life expectancy for participants in Plan I (approximately 2527 years).
The cost or benefit of plan changes that increase or decrease benefits for prior employee service (prior service cost/(credit)) is included in other pension and retiree medical benefits income/(expense)/income on a straight-line basis over the average remaining service life for participants in both Plan A and Plan H, except that prior service cost/(credit) for salaried participants subject to the freeze is amortized on a straight-line basis over the period up to the effective date of the freeze, or the remaining life expectancy for participants in Plan I.
86
Selected financial information for our pension and retiree medical plans is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Retiree Medical |
| U.S. | | International | | | | |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Change in projected benefit obligation | | | | | | | | | | | |
Obligation at beginning of year | $ | 16,753 | | | $ | 15,230 | | | $ | 4,430 | | | $ | 3,753 | | | $ | 1,006 | | | $ | 988 | |
Service cost | 518 | | | 434 | | | 104 | | | 86 | | | 33 | | | 25 | |
Interest cost | 324 | | | 435 | | | 74 | | | 85 | | | 15 | | | 25 | |
Plan amendments | 23 | | | (221) | | | 3 | | | (17) | | | — | | | (25) | |
Participant contributions | — | | | — | | | 3 | | | 2 | | | — | | | — | |
Experience (gain)/loss | (215) | | | 2,042 | | | (178) | | | 467 | | | (17) | | | 81 | |
Benefit payments | (976) | | | (378) | | | (106) | | | (92) | | | (83) | | | (89) | |
Settlement/curtailment | (220) | | | (808) | | | (99) | | | (24) | | | — | | | — | |
Special termination benefits | 9 | | | 19 | | | — | | | — | | | — | | | — | |
Other, including foreign currency adjustment | — | | | — | | | (56) | | | 170 | | | — | | | 1 | |
Obligation at end of year | $ | 16,216 | | | $ | 16,753 | | | $ | 4,175 | | | $ | 4,430 | | | $ | 954 | | | $ | 1,006 | |
| | | | | | | | | | | |
Change in fair value of plan assets | | | | | | | | | | | |
Fair value at beginning of year | $ | 15,465 | | | $ | 14,302 | | | $ | 4,303 | | | $ | 3,732 | | | $ | 315 | | | $ | 302 | |
Actual return on plan assets | 1,052 | | | 1,908 | | | 387 | | | 401 | | | 20 | | | 47 | |
Employer contributions/funding | 580 | | | 387 | | | 158 | | | 120 | | | 47 | | | 55 | |
Participant contributions | — | | | — | | | 3 | | | 2 | | | — | | | — | |
Benefit payments | (976) | | | (378) | | | (106) | | | (92) | | | (83) | | | (89) | |
Settlement | (217) | | | (754) | | | (52) | | | (29) | | | — | | | — | |
Other, including foreign currency adjustment | — | | | — | | | (69) | | | 169 | | | — | | | — | |
Fair value at end of year | $ | 15,904 | | | $ | 15,465 | | | $ | 4,624 | | | $ | 4,303 | | | $ | 299 | | | $ | 315 | |
Funded status | $ | (312) | | | $ | (1,288) | | | $ | 449 | | | $ | (127) | | | $ | (655) | | | $ | (691) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Retiree Medical |
| U.S. | | International | | | | |
| 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
|
Change in projected benefit liability | | | | | | | | | | | |
Liability at beginning of year | $ | 14,777 |
| | $ | 13,192 |
| | $ | 3,490 |
| | $ | 3,124 |
| | $ | 1,187 |
| | $ | 1,208 |
|
Service cost | 431 |
| | 401 |
| | 92 |
| | 91 |
| | 32 |
| | 28 |
|
Interest cost | 482 |
| | 468 |
| | 93 |
| | 89 |
| | 34 |
| | 36 |
|
Plan amendments | 83 |
| | 10 |
| | 2 |
| | 2 |
| | — |
| | (5 | ) |
Participant contributions | — |
| | — |
| | 2 |
| | 2 |
| | — |
| | — |
|
Experience (gain)/loss | (972 | ) | | 1,529 |
| | (230 | ) | | 5 |
| | (147 | ) | | 21 |
|
Benefit payments | (956 | ) | | (825 | ) | | (114 | ) | | (104 | ) | | (108 | ) | | (107 | ) |
Settlement/curtailment | (74 | ) | | (58 | ) | | (35 | ) | | (22 | ) | | — |
| | — |
|
Special termination benefits | 36 |
| | 60 |
| | 2 |
| | — |
| | 1 |
| | 2 |
|
Other, including foreign currency adjustment | — |
| | — |
| | (204 | ) | | 303 |
| | (3 | ) | | 4 |
|
Liability at end of year | $ | 13,807 |
| | $ | 14,777 |
| | $ | 3,098 |
| | $ | 3,490 |
| | $ | 996 |
| | $ | 1,187 |
|
| | | | | | | | | | | |
Change in fair value of plan assets | | | | | | | | | | | |
Fair value at beginning of year | $ | 12,582 |
| | $ | 11,458 |
| | $ | 3,460 |
| | $ | 2,894 |
| | $ | 321 |
| | $ | 320 |
|
Actual return on plan assets | (789 | ) | | 1,935 |
| | (136 | ) | | 288 |
| | (21 | ) | | 52 |
|
Employer contributions/funding | 1,495 |
| | 60 |
| | 120 |
| | 104 |
| | 93 |
| | 56 |
|
Participant contributions | — |
| | — |
| | 2 |
| | 2 |
| | — |
| | — |
|
Benefit payments | (956 | ) | | (825 | ) | | (114 | ) | | (104 | ) | | (108 | ) | | (107 | ) |
Settlement | (74 | ) | | (46 | ) | | (32 | ) | | (18 | ) | | — |
| | — |
|
Other, including foreign currency adjustment | — |
| | — |
| | (210 | ) | | 294 |
| | — |
| | — |
|
Fair value at end of year | $ | 12,258 |
| | $ | 12,582 |
| | $ | 3,090 |
| | $ | 3,460 |
| | $ | 285 |
| | $ | 321 |
|
Funded status | $ | (1,549 | ) | | $ | (2,195 | ) | | $ | (8 | ) | | $ | (30 | ) | | $ | (711 | ) | | $ | (866 | ) |
| | | | Amounts recognized | | | | | | | | | | | | Amounts recognized | |
Other assets | $ | 185 |
| | $ | 286 |
| | $ | 81 |
| | $ | 85 |
| | $ | — |
| | $ | — |
| Other assets | $ | 692 | | | $ | 797 | | | $ | 564 | | | $ | 110 | | | $ | — | | | $ | — | |
Other current liabilities | (107 | ) | | (74 | ) | | (1 | ) | | (1 | ) | | (41 | ) | | (75 | ) | Other current liabilities | (48) | | | (53) | | | (1) | | | (1) | | | (57) | | | (51) | |
Other liabilities | (1,627 | ) | | (2,407 | ) | | (88 | ) | | (114 | ) | | (670 | ) | | (791 | ) | Other liabilities | (956) | | | (2,032) | | | (114) | | | (236) | | | (598) | | | (640) | |
Net amount recognized | $ | (1,549 | ) | | $ | (2,195 | ) | | $ | (8 | ) | | $ | (30 | ) | | $ | (711 | ) | | $ | (866 | ) | Net amount recognized | $ | (312) | | | $ | (1,288) | | | $ | 449 | | | $ | (127) | | | $ | (655) | | | $ | (691) | |
| | | | | | | | | | | | | | | | | | | | | | | |
Amounts included in accumulated other comprehensive loss (pre-tax) | Amounts included in accumulated other comprehensive loss (pre-tax) | | | | | | | | | Amounts included in accumulated other comprehensive loss (pre-tax) | |
Net loss/(gain) | $ | 4,093 |
| | $ | 3,520 |
| | $ | 780 |
| | $ | 782 |
| | $ | (287 | ) | | $ | (189 | ) | Net loss/(gain) | $ | 3,550 | | | $ | 4,116 | | | $ | 696 | | | $ | 1,149 | | | $ | (220) | | | $ | (212) | |
Prior service cost/(credit) | 109 |
| | 29 |
| | (1 | ) | | (3 | ) | | (51 | ) | | (71 | ) | |
Prior service (credit)/cost | | Prior service (credit)/cost | (63) | | | (119) | | | (11) | | | (19) | | | (34) | | | (45) | |
Total | $ | 4,202 |
| | $ | 3,549 |
| | $ | 779 |
| | $ | 779 |
| | $ | (338 | ) | | $ | (260 | ) | Total | $ | 3,487 | | | $ | 3,997 | | | $ | 685 | | | $ | 1,130 | | | $ | (254) | | | $ | (257) | |
| | | | | | | | | | | | | | | | | | | | | | | |
Changes recognized in net loss/(gain) included in other comprehensive loss | | | |
Net loss/(gain) arising in current year | $ | 760 |
| | $ | 431 |
| | $ | 103 |
| | $ | (115 | ) | | $ | (107 | ) | | $ | (9 | ) | |
Changes recognized in net (gain)/loss included in other comprehensive loss | | Changes recognized in net (gain)/loss included in other comprehensive loss | |
Net (gain)/loss arising in current year | | Net (gain)/loss arising in current year | $ | (301) | | | $ | 1,009 | | | $ | (355) | | | $ | 268 | | | $ | (22) | | | $ | 50 | |
Amortization and settlement recognition | (187 | ) | | (131 | ) | | (56 | ) | | (60 | ) | | 8 |
| | 12 |
| Amortization and settlement recognition | (265) | | | (409) | | | (95) | | | (75) | | | 14 | | | 23 | |
Foreign currency translation (gain)/loss | — |
| | — |
| | (49 | ) | | 73 |
| | 1 |
| | 1 |
| Foreign currency translation (gain)/loss | — | | | — | | | (3) | | | 42 | | | — | | | — | |
Total | $ | 573 |
| | $ | 300 |
| | $ | (2 | ) | | $ | (102 | ) | | $ | (98 | ) | | $ | 4 |
| Total | $ | (566) | | | $ | 600 | | | $ | (453) | | | $ | 235 | | | $ | (8) | | | $ | 73 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Accumulated benefit obligation at end of year | $ | 12,890 |
| | $ | 13,732 |
| | $ | 2,806 |
| | $ | 2,985 |
| | | | | Accumulated benefit obligation at end of year | $ | 15,489 | | | $ | 15,949 | | | $ | 4,021 | | | $ | 4,108 | | |
The net loss/(gain)gain arising in the current year is attributedprimarily attributable to actual asset returns different from expected returns, partiallythe increase in discount rate offset by the change in discount rate.
actual experience differing from demographic assumptions.
The amount we report in operating profit as pension and retiree medical cost is service cost, which is the value of benefits earned by employees for working during the year.
The amounts we report below operating profit as pension and retiree medical cost consist of the following components:
•Interest cost is the accrued interest on the projected benefit obligation due to the passage of time.
•Expected return on plan assets is the long-term return we expect to earn on plan investments for our funded plans that will be used to settle future benefit obligations.
•Amortization of prior service cost/(credit) represents the recognition in the income statement of benefit changes resulting from plan amendments.
•Amortization of net loss/(gain) represents the recognition in the income statement of changes in the amount of plan assets and the projected benefit obligation based on changes in assumptions and actual experience.
•Settlement/curtailment loss/(gain) represents the result of actions that effectively eliminate all or a portion of related projected benefit obligations. Settlements are triggered when payouts to settle the projected benefit obligation of a plan due to lump sums or other events exceed the annual service and interest cost. Settlements are recognized when actions are irrevocable and we are relieved of the primary responsibility and risk for projected benefit obligations. Lump sum payouts are generally higher when interest rates are lower. Curtailments are due torecognized when events such as plant closures, or the sale of a business, resultingor plan changes result in a significant reduction of future service or benefits. Curtailment losses are recognized when an event is probable and estimable, while curtailment gains are recognized when an event has occurred (when the related employees terminate or an amendment is adopted).
•Special termination benefits are the additional benefits offered to employees upon departure due to actions such as restructuring.
The components of total pension and retiree medical benefit costs are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Retiree Medical |
| U.S. | | International | | | | | | |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Service cost | $ | 518 | | | $ | 434 | | | $ | 381 | | | $ | 104 | | | $ | 86 | | | $ | 73 | | | $ | 33 | | | $ | 25 | | | $ | 23 | |
Other pension and retiree medical benefits (income)/expense: | | | | | | | | | | | | | | | | |
Interest cost | $ | 324 | | | $ | 435 | | | $ | 543 | | | $ | 74 | | | $ | 85 | | | $ | 97 | | | $ | 15 | | | $ | 25 | | | $ | 36 | |
Expected return on plan assets | (970) | | | (929) | | | (892) | | | (231) | | | (202) | | | (188) | | | (15) | | | (16) | | | (18) | |
Amortization of prior service (credits)/cost | (31) | | | 12 | | | 10 | | | (2) | | | — | | | — | | | (11) | | | (12) | | | (19) | |
Amortization of net losses/(gains) | 224 | | | 196 | | | 161 | | | 77 | | | 61 | | | 32 | | | (14) | | | (23) | | | (27) | |
Settlement/curtailment losses/(gains) (a) | 40 | | | 213 | | | 296 | | | (11) | | | 19 | | | 12 | | | — | | | — | | | — | |
Special termination benefits | 9 | | | 19 | | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | |
Total other pension and retiree medical benefits (income)/expense | $ | (404) | | | $ | (54) | | | $ | 119 | | | $ | (93) | | | $ | (37) | | | $ | (47) | | | $ | (25) | | | $ | (26) | | | $ | (28) | |
Total | $ | 114 | | | $ | 380 | | | $ | 500 | | | $ | 11 | | | $ | 49 | | | $ | 26 | | | $ | 8 | | | $ | (1) | | | $ | (5) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Retiree Medical |
| U.S. | | International | | | | | | |
| 2018 |
| | 2017 |
| | 2016 |
| | 2018 |
| | 2017 |
| | 2016 |
| | 2018 |
| | 2017 |
| | 2016 |
|
Service cost | $ | 431 |
| | $ | 401 |
| | $ | 393 |
| | $ | 92 |
| | $ | 91 |
| | $ | 80 |
| | $ | 32 |
| | $ | 28 |
| | $ | 31 |
|
Interest cost | 482 |
| | 468 |
| | 484 |
| | 93 |
| | 89 |
| | 94 |
| | 34 |
| | 36 |
| | 41 |
|
Expected return on plan assets | (943 | ) | | (849 | ) | | (834 | ) | | (197 | ) | | (176 | ) | | (163 | ) | | (19 | ) | | (22 | ) | | (24 | ) |
Amortization of prior service cost/(credits) | 3 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| | (20 | ) | | (25 | ) | | (38 | ) |
Amortization of net losses/(gains) | 179 |
| | 123 |
| | 168 |
| | 45 |
| | 53 |
| | 40 |
| | (8 | ) | | (12 | ) | | (1 | ) |
| 152 |
| | 144 |
| | 210 |
| | 33 |
| | 57 |
| | 51 |
| | 19 |
| | 5 |
| | 9 |
|
Settlement/curtailment losses/(gain) (a) | 8 |
| | 8 |
| | 245 |
| | 6 |
| | 11 |
| | 9 |
| | — |
| | — |
| | (14 | ) |
Special termination benefits | 36 |
| | 60 |
| | 11 |
| | 2 |
| | — |
| | 1 |
| | 1 |
| | 2 |
| | 1 |
|
Total | $ | 196 |
| | $ | 212 |
| | $ | 466 |
| | $ | 41 |
| | $ | 68 |
| | $ | 61 |
| | $ | 20 |
| | $ | 7 |
| | $ | (4 | ) |
| |
(a) | U.S. includes a settlement charge of $242 million related to the group annuity contract purchase in 2016. See additional unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
(a)In 2020, U.S. includes a settlement charge of $205 million ($158 million after-tax or $0.11 per share) related to lump sum distributions exceeding the total of annual service and interest cost. In 2019, U.S. includes settlement charges related to the purchase of a group annuity contract of $220 million ($170 million after-tax or $0.12 per share) and a pension lump sum settlement charge of $53 million ($41 million after-tax or $0.03 per share).
The following table provides the weighted-average assumptions used to determine projected benefit liability and net periodic benefit cost and projected benefit obligation for our pension and retiree medical plans:
| | | | | | | | | | | | | | | | | | | | | Pension | | Retiree Medical |
| Pension | | Retiree Medical | | U.S. | | International | | | | | | |
| U.S. | | International | | | | | | | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| 2018 |
| | 2017 |
| | 2016 |
| | 2018 |
| | 2017 |
| | 2016 |
| | 2018 |
| | 2017 |
| | 2016 |
| |
Liability discount rate | 4.4 | % | | 3.7 | % | | 4.4 | % | | 3.4 | % | | 3.0 | % | | 3.1 | % | | 4.2 | % | | 3.5 | % | | 4.0 | % | |
Net Periodic Benefit Cost | | Net Periodic Benefit Cost | | | | | | | | | | | | | | | | | |
Service cost discount rate | 3.8 | % | | 4.5 | % | | 4.6 | % | | 3.5 | % | | 3.6 | % | | 4.1 | % | | 3.6 | % | | 4.0 | % | | 4.3 | % | Service cost discount rate | 2.6 | % | | 3.4 | % | | 4.4 | % | | 2.7 | % | | 3.2 | % | | 4.2 | % | | 2.3 | % | | 3.2 | % | | 4.3 | % |
Interest cost discount rate | 3.4 | % | | 3.7 | % | | 3.8 | % | | 2.8 | % | | 2.8 | % | | 3.5 | % | | 3.0 | % | | 3.2 | % | | 3.3 | % | Interest cost discount rate | 2.0 | % | | 2.9 | % | | 4.1 | % | | 1.7 | % | | 2.4 | % | | 3.2 | % | | 1.6 | % | | 2.6 | % | | 3.8 | % |
Expected return on plan assets | 7.2 | % | | 7.5 | % | | 7.5 | % | | 6.0 | % | | 6.0 | % | | 6.2 | % | | 6.5 | % | | 7.5 | % | | 7.5 | % | Expected return on plan assets | 6.4 | % | | 6.8 | % | | 7.1 | % | | 5.3 | % | | 5.6 | % | | 5.8 | % | | 5.4 | % | | 5.8 | % | | 6.6 | % |
Liability rate of salary increases | 3.1 | % | | 3.1 | % | | 3.1 | % | | 3.7 | % | | 3.7 | % | | 3.6 | % | | | | | | | |
Expense rate of salary increases | 3.1 | % | | 3.1 | % | | 3.1 | % | | 3.7 | % | | 3.6 | % | | 3.6 | % | | | | | | | |
Rate of salary increases | | Rate of salary increases | 3.0 | % | | 3.1 | % | | 3.1 | % | | 3.3 | % | | 3.3 | % | | 3.7 | % | |
| Projected Benefit Obligation | | Projected Benefit Obligation | |
Discount rate | | Discount rate | 2.9 | % | | 2.5 | % | | 3.3 | % | | 2.4 | % | | 2.0 | % | | 2.5 | % | | 2.7 | % | | 2.3 | % | | 3.1 | % |
Rate of salary increases | | Rate of salary increases | 3.0 | % | | 3.0 | % | | 3.1 | % | | 3.3 | % | | 3.3 | % | | 3.3 | % | |
The following table provides selected information about plans with accumulated benefit obligation and total projected benefit liabilityobligation in excess of plan assets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Retiree Medical |
| U.S. | | International | | | | |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Selected information for plans with accumulated benefit obligation in excess of plan assets (a) | | | | |
Obligation for service to date | $ | (1,499) | | | $ | (5,537) | | | $ | (127) | | | $ | (172) | | | | | |
Fair value of plan assets | $ | 705 | | | $ | 4,156 | | | $ | 102 | | | $ | 123 | | | | | |
Selected information for plans with projected benefit obligation in excess of plan assets (a) | | | | | | |
Benefit obligation | $ | (1,709) | | | $ | (9,172) | | | $ | (286) | | | $ | (2,933) | | | $ | (954) | | | $ | (1,006) | |
Fair value of plan assets | $ | 705 | | | $ | 7,088 | | | $ | 171 | | | $ | 2,696 | | | $ | 299 | | | $ | 315 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Retiree Medical |
| U.S. | | International | | | | |
| 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
|
Selected information for plans with accumulated benefit obligation in excess of plan assets | | | | |
Liability for service to date | $ | (8,040 | ) | | $ | (8,355 | ) | | $ | (155 | ) | | $ | (161 | ) | | | | |
Fair value of plan assets | $ | 7,223 |
| | $ | 6,919 |
| | $ | 121 |
| | $ | 119 |
| | | | |
Selected information for plans with projected benefit liability in excess of plan assets | | | | | | |
Benefit liability | $ | (8,957 | ) | | $ | (9,400 | ) | | $ | (514 | ) | | $ | (1,273 | ) | | $ | (996 | ) | | $ | (1,187 | ) |
Fair value of plan assets | $ | 7,223 |
| | $ | 6,919 |
| | $ | 426 |
| | $ | 1,158 |
| | $ | 285 |
| | $ | 321 |
|
(a)The decrease in U.S. pension plans with obligations in excess of plan assets primarily reflects employer contributions to Plan H.Of the total projected pension benefit liabilityobligation as of December 29, 2018,25, 2021, approximately $830$810 million relates to plans that we do not fund because the funding of such plans does not receive favorable tax treatment.
Future Benefit Payments
Our estimated future benefit payments are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 - 2031 |
Pension | $ | 1,110 | | | $ | 960 | | | $ | 960 | | | $ | 995 | | | $ | 1,030 | | | $ | 5,385 | |
Retiree medical (a) | $ | 95 | | | $ | 90 | | | $ | 90 | | | $ | 85 | | | $ | 80 | | | $ | 355 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
| | 2024 - 2028 |
|
Pension | $ | 1,060 |
| | $ | 960 |
| | $ | 875 |
| | $ | 915 |
| | $ | 950 |
| | $ | 5,265 |
|
Retiree medical (a) | $ | 115 |
| | $ | 105 |
| | $ | 100 |
| | $ | 100 |
| | $ | 95 |
| | $ | 395 |
|
(a)Expected future benefit payments for our retiree medical plans do not reflect any estimated subsidies expected to be received under the 2003 Medicare Act. Subsidies are expected to be approximately $1 million for each of the years from 2022 through 2026 and approximately $4 million in total for 2027 through 2031. | |
(a) | Expected future benefit payments for our retiree medical plans do not reflect any estimated subsidies expected to be received under the 2003 Medicare Act. Subsidies are expected to be approximately $2 million for each of the years from 2019 through 2023 and approximately $6 million in total for 2024 through 2028.
|
These future benefit payments to beneficiaries include payments from both funded and unfunded plans.
Funding
Contributions to our pension and retiree medical plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Retiree Medical |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Discretionary (a) | $ | 525 | | | $ | 339 | | | $ | 417 | | | $ | — | | | $ | — | | | $ | — | |
Non-discretionary | 213 | | | 168 | | | 255 | | | 47 | | | 55 | | | 44 | |
Total | $ | 738 | | | $ | 507 | | | $ | 672 | | | $ | 47 | | | $ | 55 | | | $ | 44 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Retiree Medical |
| 2018 |
| | 2017 |
| | 2016 |
| | 2018 |
| | 2017 |
| | 2016 |
|
Discretionary (a) | $ | 1,417 |
| | $ | 6 |
| | $ | 459 |
| | $ | 37 |
| | $ | — |
| | $ | — |
|
Non-discretionary | 198 |
| | 158 |
| | 200 |
| | 56 |
| | 56 |
| | 36 |
|
Total | $ | 1,615 |
| | $ | 164 |
| | $ | 659 |
| | $ | 93 |
| | $ | 56 |
| | $ | 36 |
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(a) | Includes $1.4 billion(a)Includes $500 million contribution in 2021, $325 million contribution in 2020 and $400 million contribution in 2018 to fund Plan A in the United States. Includes $452 million in 2016 relating to the funding of the group annuity contract purchase from an unrelated insurance company. |
In January 2019 we made discretionary contributions of $150 million to Plan Afund our qualified defined benefit plans in the United States.
We made a discretionary contribution of $75 million to our U.S. qualified defined benefit plans in January 2022 and expect to make an additional $75 million contribution in the third quarter of 2022. In addition, in 2019,2022, we expect to make non-discretionary contributions of approximately $205$135 million to our U.S. and international pension benefit plans and approximately $40$55 million for retiree medical benefits.
We continue to monitor the impact of the COVID-19 pandemic and related global economic conditions and uncertainty on the net unfunded status of our pension and retiree medical plans. We also regularly evaluate opportunities to reduce risk and volatility associated with our pension and retiree medical plans.
Plan Assets
Our pension plan investment strategy includes the use of actively managed accounts and is reviewed periodically in conjunction with plan liabilities,obligations, an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments. This strategy is also applicable to funds held for the retiree medical plans. Our investment objective includes ensuring that funds are available to meet the plans’ benefit obligations when they become due. Assets contributed to our pension plans are no longer controlled by us, but become the property of our individual pension plans. However, we are indirectly impacted by changes in these plan assets as compared to changes in our projected liabilities.obligations. Our overall investment policy is to prudently invest plan assets in a well-diversified portfolio of equity and high-quality debt securities and real estate to achieve our long-term return expectations. Our investment policy also permits the use of derivative instruments, such as futures and forward contracts, to reduce interest rate and foreign currency risks. Futures contracts represent commitments to purchase or sell securities at a future date and at a specified price. Forward contracts consist of currency forwards.
For 20192022 and 2018,2021, our expected long-term rate of return on U.S. plan assets is 7.1%6.3% and 7.2%6.4%, respectively. Our target investment allocations for U.S. plan assets are as follows:
| | | 2019 |
| | 2018 |
| | 2022 | | 2021 |
Fixed income | 47 | % | | 47 | % | Fixed income | 56 | % | | 51 | % |
U.S. equity | 29 | % | | 29 | % | U.S. equity | 22 | % | | 24 | % |
International equity | 20 | % | | 20 | % | International equity | 18 | % | | 21 | % |
Real estate | 4 | % | | 4 | % | Real estate | 4 | % | | 4 | % |