UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 13, 2020 (24March 20, 2021 (12 weeks)
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-1183
(Exact Name of Registrant as Specified in its Charter)
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North Carolina | | 13-1584302 |
North Carolina | | 13-1584302 |
(State or Other Jurisdiction of Incorporation or Organization)
| | (I.R.S. Employer Identification No.)
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700 Anderson Hill Road, Purchase, New York 10577
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(Address of principal executive offices and Zip Code) |
(914) 253-2000
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Registrant's telephone number, including area code |
N/A
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
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Title of each class | | Trading Symbols | | Name of each exchange on which registered |
Common Stock, par value 1-2/3 cents per share | | PEP | | The Nasdaq Stock Market LLC |
1.750% Senior Notes Due 2021 | | PEP21a | | The Nasdaq Stock Market LLC |
2.500% Senior Notes Due 2022 | | PEP22a | | The Nasdaq Stock Market LLC |
0.250% Senior Notes Due 2024 | | PEP24 | | The Nasdaq Stock Market LLC |
2.625% Senior Notes Due 2026 | | PEP26 | | The Nasdaq Stock Market LLC |
0.750% Senior Notes Due 2027 | | PEP27 | | The Nasdaq Stock Market LLC |
0.875% Senior Notes Due 2028 | | PEP28 | | The Nasdaq Stock Market LLC |
0.500% Senior Notes Due 2028 | | PEP28a | | The Nasdaq Stock Market LLC |
1.125% Senior Notes Due 2031 | | PEP31 | | The Nasdaq Stock Market LLC |
0.400% Senior Notes Due 2032 | | PEP32 | | The Nasdaq Stock Market LLC |
0.875% Senior Notes Due 2039 | | PEP39 | | The Nasdaq Stock Market LLC |
1.050% Senior Notes Due 2050 | | PEP50 | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No 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 ☒ No x No ¨
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 filer | x☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x☒
Number of shares of Common Stock outstanding as of July 6, 2020April 8, 2021 was 1,384,632,842.1,381,631,264.
PepsiCo, Inc. and Subsidiaries
Table of Contents
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| | Page No. |
| | Page No. |
Part I Financial Information | |
Item 1. | Condensed Consolidated Financial Statements | |
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Item 2. | | |
Report of Independent Registered Public Accounting Firm | |
Item 3. | | |
Item 4. | | |
Part II Other Information | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 6. | | |
PART I FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements.
Condensed Consolidated Statement of Income
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts, unaudited)
| | | | | | | | | | | | | | | |
| | | 12 Weeks Ended |
| | | | | 3/20/2021 | | 3/21/2020 |
Net Revenue | | | | | $ | 14,820 | | | $ | 13,881 | |
Cost of sales | | | | | 6,671 | | | 6,127 | |
Gross profit | | | | | 8,149 | | | 7,754 | |
Selling, general and administrative expenses | | | | | 5,837 | | | 5,830 | |
Operating Profit | | | | | 2,312 | | | 1,924 | |
Other pension and retiree medical benefits income | | | | | 120 | | | 77 | |
Net interest expense and other | | | | | (258) | | | (290) | |
Income before income taxes | | | | | 2,174 | | | 1,711 | |
Provision for income taxes | | | | | 451 | | | 360 | |
Net income | | | | | 1,723 | | | 1,351 | |
Less: Net income attributable to noncontrolling interests | | | | | 9 | | | 13 | |
Net Income Attributable to PepsiCo | | | | | $ | 1,714 | | | $ | 1,338 | |
Net Income Attributable to PepsiCo per Common Share | | | | | | | |
Basic | | | | | $ | 1.24 | | | $ | 0.96 | |
Diluted | | | | | $ | 1.24 | | | $ | 0.96 | |
Weighted-average common shares outstanding | | | | | | | |
Basic | | | | | 1,380 | | | 1,390 | |
Diluted | | | | | 1,387 | | | 1,396 | |
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| | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 24 Weeks Ended |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
|
Net Revenue | $ | 15,945 |
| | $ | 16,449 |
| | $ | 29,826 |
| | $ | 29,333 |
|
Cost of sales | 7,088 |
| | 7,404 |
| | 13,215 |
| | 13,092 |
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Gross profit | 8,857 |
| | 9,045 |
| | 16,611 |
| | 16,241 |
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Selling, general and administrative expenses | 6,538 |
| | 6,316 |
| | 12,368 |
| | 11,504 |
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Operating Profit | 2,319 |
| | 2,729 |
| | 4,243 |
| | 4,737 |
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Other pension and retiree medical benefits income | 84 |
| | 61 |
| | 161 |
| | 125 |
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Net interest expense and other | (235 | ) | | (223 | ) | | (525 | ) | | (427 | ) |
Income before income taxes | 2,168 |
| | 2,567 |
| | 3,879 |
| | 4,435 |
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Provision for income taxes | 510 |
| | 524 |
| | 870 |
| | 970 |
|
Net income | 1,658 |
| | 2,043 |
| | 3,009 |
| | 3,465 |
|
Less: Net income attributable to noncontrolling interests | 12 |
| | 8 |
| | 25 |
| | 17 |
|
Net Income Attributable to PepsiCo | $ | 1,646 |
| | $ | 2,035 |
| | $ | 2,984 |
| | $ | 3,448 |
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Net Income Attributable to PepsiCo per Common Share | | | | | | | |
Basic | $ | 1.19 |
| | $ | 1.45 |
| | $ | 2.15 |
| | $ | 2.46 |
|
Diluted | $ | 1.18 |
| | $ | 1.44 |
| | $ | 2.14 |
| | $ | 2.44 |
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Weighted-average common shares outstanding | | | | | | | |
Basic | 1,387 |
| | 1,401 |
| | 1,389 |
| | 1,403 |
|
Diluted | 1,393 |
| | 1,409 |
| | 1,395 |
| | 1,411 |
|
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Comprehensive Income
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
| | | | | | | | | | | | | | | |
| | | 12 Weeks Ended |
| | | | | 3/20/2021 | | 3/21/2020 |
Net income | | | | | $ | 1,723 | | | $ | 1,351 | |
Other comprehensive income/(loss), net of taxes: | | | | | | | |
Net currency translation adjustment | | | | | 131 | | | (754) | |
Net change on cash flow hedges | | | | | 72 | | | (61) | |
Net pension and retiree medical adjustments | | | | | 27 | | | 57 | |
Other | | | | | 0 | | | 1 | |
| | | | | 230 | | | (757) | |
Comprehensive income | | | | | 1,953 | | | 594 | |
Less: Comprehensive income attributable to noncontrolling interests | | | | | 9 | | | 13 | |
Comprehensive Income Attributable to PepsiCo | | | | | $ | 1,944 | | | $ | 581 | |
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| | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 24 Weeks Ended |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
|
Net income | $ | 1,658 |
| | $ | 2,043 |
| | $ | 3,009 |
| | $ | 3,465 |
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Other comprehensive (loss)/income, net of taxes: | | | | | | | |
Net currency translation adjustment | (796 | ) | | (365 | ) | | (1,550 | ) | | 108 |
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Net change on cash flow hedges | 13 |
| | (6 | ) | | (48 | ) | | (33 | ) |
Net pension and retiree medical adjustments | 63 |
| | 42 |
| | 120 |
| | 59 |
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Other | (1 | ) | | 1 |
| | — |
| | 1 |
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| (721 | ) | | (328 | ) | | (1,478 | ) | | 135 |
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Comprehensive income | 937 |
| | 1,715 |
| | 1,531 |
| | 3,600 |
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Comprehensive income attributable to noncontrolling interests | (12 | ) | | (8 | ) | | (25 | ) | | (17 | ) |
Comprehensive Income Attributable to PepsiCo | $ | 925 |
| | $ | 1,707 |
| | $ | 1,506 |
| | $ | 3,583 |
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See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
| | | | | | | | | | | |
| 12 Weeks Ended |
| 3/20/2021 | | 3/21/2020 |
Operating Activities | | | |
Net income | $ | 1,723 | | | $ | 1,351 | |
Depreciation and amortization | 560 | | | 533 | |
Share-based compensation expense | 79 | | | 61 | |
Restructuring and impairment charges | 43 | | | 38 | |
Cash payments for restructuring charges | (49) | | | (60) | |
Merger and integration (credits)/charges | (10) | | | 25 | |
Cash payments for merger and integration charges | (7) | | | (38) | |
Pension and retiree medical plan expenses | 21 | | | 40 | |
Pension and retiree medical plan contributions | (413) | | | (234) | |
Deferred income taxes and other tax charges and credits | 108 | | | 25 | |
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| | | |
Change in assets and liabilities: | | | |
Accounts and notes receivable | (455) | | | (784) | |
Inventories | (397) | | | (312) | |
Prepaid expenses and other current assets | (210) | | | (263) | |
Accounts payable and other current liabilities | (1,906) | | | (1,419) | |
Income taxes payable | 227 | | | 204 | |
Other, net | (33) | | | 84 | |
Net Cash Used for Operating Activities | (719) | | | (749) | |
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Investing Activities | | | |
Capital spending | (471) | | | (484) | |
Sales of property, plant and equipment | 5 | | | 5 | |
Acquisitions, net of cash acquired, and investments in noncontrolled affiliates | (13) | | | (454) | |
Divestitures | 35 | | | 0 | |
Short-term investments, by original maturity: | | | |
| | | |
More than three months - maturities | 535 | | | 0 | |
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Three months or less, net | 3 | | | 7 | |
Other investing, net | 0 | | | 1 | |
Net Cash Provided by/(Used for) Investing Activities | 94 | | | (925) | |
(Continued on following page)
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| 24 Weeks Ended |
| 6/13/2020 |
| | 6/15/2019 |
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Operating Activities | | | |
Net income | $ | 3,009 |
| | $ | 3,465 |
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Depreciation and amortization | 1,122 |
| | 1,056 |
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Share-based compensation expense | 101 |
| | 118 |
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Restructuring and impairment charges | 63 |
| | 184 |
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Cash payments for restructuring charges | (109 | ) | | (153 | ) |
Pension and retiree medical plan expenses | 80 |
| | 98 |
|
Pension and retiree medical plan contributions | (293 | ) | | (317 | ) |
Deferred income taxes and other tax charges and credits | 109 |
| | 221 |
|
Net tax related to the Tax Cuts and Jobs Act (TCJ Act) | — |
| | (29 | ) |
Tax payments related to the TCJ Act | — |
| | (393 | ) |
Change in assets and liabilities: | | | |
Accounts and notes receivable | (1,101 | ) | | (1,372 | ) |
Inventories | (827 | ) | | (872 | ) |
Prepaid expenses and other current assets | (251 | ) | | (336 | ) |
Accounts payable and other current liabilities | (1,336 | ) | | (521 | ) |
Income taxes payable | 448 |
| | 202 |
|
Other, net | 447 |
| | 37 |
|
Net Cash Provided by Operating Activities | 1,462 |
| | 1,388 |
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| | | |
Investing Activities | | | |
Capital spending | (1,188 | ) | | (1,167 | ) |
Sales of property, plant and equipment | 18 |
| | 42 |
|
Acquisitions, net of cash acquired, and investments in noncontrolled affiliates | (5,649 | ) | | (2,424 | ) |
Divestitures | 4 |
| | 270 |
|
Short-term investments, by original maturity: | | | |
More than three months - maturities | — |
| | 4 |
|
More than three months - sales | — |
| | 2 |
|
Three months or less, net | 18 |
| | 8 |
|
Other investing, net | 35 |
| | (6 | ) |
Net Cash Used for Investing Activities | (6,762 | ) | | (3,271 | ) |
| | | |
Financing Activities | | | |
Proceeds from issuances of long-term debt | 10,564 |
| | 1,122 |
|
Payments of long-term debt | (752 | ) | | (2,953 | ) |
Short-term borrowings, by original maturity: | | | |
More than three months - proceeds | 3,663 |
| | 6 |
|
More than three months - payments | (1,176 | ) | | — |
|
Three months or less, net | 461 |
| | 652 |
|
Cash dividends paid | (2,677 | ) | | (2,635 | ) |
Share repurchases - common | (1,137 | ) | | (1,726 | ) |
Proceeds from exercises of stock options | 120 |
| | 210 |
|
Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted | (79 | ) | | (100 | ) |
Other financing | (16 | ) | | (15 | ) |
Net Cash Provided by/(Used for) Financing Activities | 8,971 |
| | (5,439 | ) |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (252 | ) | | 24 |
|
Net Increase/(Decrease) in Cash and Cash Equivalents and Restricted Cash | 3,419 |
| | (7,298 | ) |
Cash and Cash Equivalents and Restricted Cash, Beginning of Year | 5,570 |
| | 10,769 |
|
Cash and Cash Equivalents and Restricted Cash, End of Period | $ | 8,989 |
| | $ | 3,471 |
|
| | | |
Supplemental Non-Cash Activity | | | |
Right-of-use assets obtained in exchange for lease obligations | $ | 302 |
| | $ | 170 |
|
Condensed Consolidated Statement of Cash Flows (continued)
PepsiCo, Inc. and Subsidiaries(in millions, unaudited)
| | | | | | | | | | | |
| 12 Weeks Ended |
| 3/20/2021 | | 3/21/2020 |
Financing Activities | | | |
Proceeds from issuances of long-term debt | 0 | | | 6,429 | |
Payments of long-term debt | (1) | | | (1) | |
Short-term borrowings, by original maturity: | | | |
More than three months - proceeds | 0 | | | 164 | |
More than three months - payments | (396) | | | (2) | |
Three months or less, net | 53 | | | 2,794 | |
Cash dividends paid | (1,429) | | | (1,349) | |
Share repurchases - common | (106) | | | (573) | |
| | | |
Proceeds from exercises of stock options | 62 | | | 78 | |
Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted | (71) | | | (76) | |
Other financing | 0 | | | (2) | |
Net Cash (Used for)/Provided by Financing Activities | (1,888) | | | 7,462 | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (10) | | | (66) | |
Net (Decrease)/Increase in Cash and Cash Equivalents and Restricted Cash | (2,523) | | | 5,722 | |
Cash and Cash Equivalents and Restricted Cash, Beginning of Year | 8,254 | | | 5,570 | |
Cash and Cash Equivalents and Restricted Cash, End of Period | $ | 5,731 | | | $ | 11,292 | |
| | | |
Supplemental Non-Cash Activity | | | |
Right-of-use assets obtained in exchange for lease obligations | $ | 167 | | | $ | 148 | |
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts)
| | | | | | | | | | | |
| (Unaudited) | | |
| 3/20/2021 | | 12/26/2020 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 5,661 | | | $ | 8,185 | |
Short-term investments | 964 | | | 1,366 | |
| | | |
Accounts and notes receivable, less allowance: 3/21 - $192 and 12/20 - $201 | 8,885 | | | 8,404 | |
Inventories: | | | |
Raw materials and packaging | 1,827 | | | 1,720 | |
Work-in-process | 308 | | | 205 | |
Finished goods | 2,421 | | | 2,247 | |
| 4,556 | | | 4,172 | |
Prepaid expenses and other current assets | 1,130 | | | 874 | |
Total Current Assets | 21,196 | | | 23,001 | |
Property, plant and equipment | 46,544 | | | 46,340 | |
Accumulated depreciation | (25,295) | | | (24,971) | |
Property, Plant and Equipment, net | 21,249 | | | 21,369 | |
Amortizable Intangible Assets, net | 1,690 | | | 1,703 | |
Goodwill | 18,779 | | | 18,757 | |
Other Indefinite-Lived Intangible Assets | 17,641 | | | 17,612 | |
| | | |
Investments in Noncontrolled Affiliates | 2,777 | | | 2,792 | |
Deferred Income Taxes | 4,370 | | | 4,372 | |
Other Assets | 3,522 | | | 3,312 | |
Total Assets | $ | 91,224 | | | $ | 92,918 | |
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LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Short-term debt obligations | $ | 4,674 | | | $ | 3,780 | |
Accounts payable and other current liabilities | 18,019 | | | 19,592 | |
Total Current Liabilities | 22,693 | | | 23,372 | |
Long-Term Debt Obligations | 38,991 | | | 40,370 | |
Deferred Income Taxes | 4,491 | | | 4,284 | |
Other Liabilities | 10,996 | | | 11,340 | |
Total Liabilities | 77,171 | | | 79,366 | |
Commitments and contingencies | | | |
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: 1,382 and 1,380 shares, respectively) | 23 | | | 23 | |
Capital in excess of par value | 3,800 | | | 3,910 | |
Retained earnings | 63,740 | | | 63,443 | |
Accumulated other comprehensive loss | (15,246) | | | (15,476) | |
Repurchased common stock, in excess of par value (485 and 487 shares, respectively) | (38,370) | | | (38,446) | |
Total PepsiCo Common Shareholders’ Equity | 13,947 | | | 13,454 | |
Noncontrolling interests | 106 | | | 98 | |
Total Equity | 14,053 | | | 13,552 | |
Total Liabilities and Equity | $ | 91,224 | | | $ | 92,918 | |
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| | | | | | | |
| (Unaudited) |
| | |
| 6/13/2020 |
| | 12/28/2019 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 8,927 |
| | $ | 5,509 |
|
Short-term investments | 196 |
| | 229 |
|
Accounts and notes receivable, less allowance: 6/20 - $235 and 12/19 - $105 | 8,780 |
| | 7,822 |
|
Inventories: | | | |
Raw materials and packaging | 1,869 |
| | 1,395 |
|
Work-in-process | 344 |
| | 200 |
|
Finished goods | 2,101 |
| | 1,743 |
|
| 4,314 |
| | 3,338 |
|
Prepaid expenses and other current assets | 972 |
| | 747 |
|
Total Current Assets | 23,189 |
| | 17,645 |
|
Property, plant and equipment | 43,018 |
| | 43,003 |
|
Accumulated depreciation | (23,831 | ) | | (23,698 | ) |
Property, Plant and Equipment, net | 19,187 |
| | 19,305 |
|
Amortizable Intangible Assets, net | 1,465 |
| | 1,433 |
|
Goodwill | 17,845 |
| | 15,501 |
|
Other indefinite-lived intangible assets | 17,530 |
| | 14,610 |
|
Indefinite-Lived Intangible Assets | 35,375 |
| | 30,111 |
|
Investments in Noncontrolled Affiliates | 2,715 |
| | 2,683 |
|
Deferred Income Taxes | 4,351 |
| | 4,359 |
|
Other Assets | 3,243 |
| | 3,011 |
|
Total Assets | $ | 89,525 |
| | $ | 78,547 |
|
| | | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Short-term debt obligations | $ | 6,607 |
| | $ | 2,920 |
|
Accounts payable and other current liabilities | 17,220 |
| | 17,541 |
|
Total Current Liabilities | 23,827 |
| | 20,461 |
|
Long-Term Debt Obligations | 38,371 |
| | 29,148 |
|
Deferred Income Taxes | 4,203 |
| | 4,091 |
|
Other Liabilities | 10,537 |
| | 9,979 |
|
Total Liabilities | 76,938 |
| | 63,679 |
|
Commitments and contingencies | | | |
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: 1,385 and 1,391 shares, respectively) | 23 |
| | 23 |
|
Capital in excess of par value | 3,772 |
| | 3,886 |
|
Retained earnings | 62,145 |
| | 61,946 |
|
Accumulated other comprehensive loss | (15,778 | ) | | (14,300 | ) |
Repurchased common stock, in excess of par value (482 and 476 shares, respectively) | (37,671 | ) | | (36,769 | ) |
Total PepsiCo Common Shareholders’ Equity | 12,491 |
| | 14,786 |
|
Noncontrolling interests | 96 |
| | 82 |
|
Total Equity | 12,587 |
| | 14,868 |
|
Total Liabilities and Equity | $ | 89,525 |
| | $ | 78,547 |
|
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
(in millions, except per share amounts, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 12 Weeks Ended |
| | | | | 3/20/2021 | | 3/21/2020 |
| | | | | | | | | Shares | | Amount | | Shares | | Amount |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | |
Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | 1,380 | | | $ | 23 | | | 1,391 | | | $ | 23 | |
Change in repurchased common stock | | | | | | | | | 2 | | | 0 | | | (2) | | | 0 | |
Balance, end of period | | | | | | | | | 1,382 | | | 23 | | | 1,389 | | | 23 | |
Capital in Excess of Par Value | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | 3,910 | | | | | 3,886 | |
Share-based compensation expense | | | | | | | | | | | 80 | | | | | 62 | |
| | | | | | | | | | | | | | | |
Stock option exercises, RSUs and PSUs converted | | | | | | | | | | | (119) | | | | | (131) | |
Withholding tax on RSUs and PSUs converted | | | | | | | | | | | (71) | | | | | (76) | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | | | | | | | | | 3,800 | | | | | 3,741 | |
Retained Earnings | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | 63,443 | | | | | 61,946 | |
Cumulative effect of accounting changes | | | | | | | | | | | 0 | | | | | (34) | |
Net income attributable to PepsiCo | | | | | | | | | | | 1,714 | | | | | 1,338 | |
Cash dividends declared – common (a) | | | | | | | | | | | (1,417) | | | | | (1,330) | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | | | | | | | | | 63,740 | | | | | 61,920 | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | (15,476) | | | | | (14,300) | |
Other comprehensive income/(loss) attributable to PepsiCo | | | | | | | | | | | 230 | | | | | (757) | |
Balance, end of period | | | | | | | | | | | (15,246) | | | | | (15,057) | |
Repurchased Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | (487) | | | (38,446) | | | (476) | | | (36,769) | |
Share repurchases | | | | | | | | | (1) | | | (106) | | | (4) | | | (602) | |
Stock option exercises, RSUs and PSUs converted | | | | | | | | | 3 | | | 182 | | | 2 | | | 209 | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | | | | | | | (485) | | | (38,370) | | | (478) | | | (37,162) | |
Total PepsiCo Common Shareholders’ Equity | | | | | | | | | | | 13,947 | | | | | 13,465 | |
Noncontrolling Interests | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | 98 | | | | | 82 | |
Net income attributable to noncontrolling interest | | | | | | | | | | | 9 | | | | | 13 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other, net | | | | | | | | | | | (1) | | | | | (1) | |
Balance, end of period | | | | | | | | | | | 106 | | | | | 94 | |
Total Equity | | | | | | | | | | | $ | 14,053 | | | | | $ | 13,559 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 24 Weeks Ended |
| 6/13/2020 | | 6/15/2019 | | 6/13/2020 | | 6/15/2019 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | 1,389 |
| | $ | 23 |
| | 1,404 |
| | $ | 23 |
| | 1,391 |
| | $ | 23 |
| | 1,409 |
| | $ | 23 |
|
Change in repurchased common stock | (4 | ) | | — |
| | (5 | ) | | — |
| | (6 | ) | | — |
| | (10 | ) | | — |
|
Balance, end of period | 1,385 |
| | 23 |
| | 1,399 |
| | 23 |
| | 1,385 |
| | 23 |
| | 1,399 |
| | 23 |
|
Capital in Excess of Par Value | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 3,741 |
| | | | 3,753 |
| | | | 3,886 |
| | | | 3,953 |
|
Share-based compensation expense | | | 39 |
| | | | 62 |
| | | | 101 |
| | | | 119 |
|
Stock option exercises, RSUs and PSUs converted | | | (5 | ) | | | | (12 | ) | | | | (136 | ) | | | | (176 | ) |
Withholding tax on RSUs and PSUs converted | | | (3 | ) | | | | (7 | ) | | | | (79 | ) | | | | (100 | ) |
Balance, end of period | | | 3,772 |
| | | | 3,796 |
| | | | 3,772 |
| | | | 3,796 |
|
Retained Earnings | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 61,920 |
| | | | 60,060 |
| | | | 61,946 |
| | | | 59,947 |
|
Cumulative effect of accounting changes | | | — |
| | | | — |
| | | | (34 | ) | | | | 8 |
|
Net income attributable to PepsiCo | | | 1,646 |
| | | | 2,035 |
| | | | 2,984 |
| | | | 3,448 |
|
Cash dividends declared – common (a) | | | (1,421 | ) | | | | (1,343 | ) | | | | (2,751 | ) | | | | (2,651 | ) |
Balance, end of period | | | 62,145 |
| | | | 60,752 |
| | | | 62,145 |
| | | | 60,752 |
|
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | |
Balance, beginning of period | | | (15,057 | ) | | | | (14,656 | ) | | | | (14,300 | ) | | | | (15,119 | ) |
Other comprehensive (loss)/income attributable to PepsiCo | | | (721 | ) | | | | (328 | ) | | | | (1,478 | ) | | | | 135 |
|
Balance, end of period | | | (15,778 | ) | | | | (14,984 | ) | | | | (15,778 | ) | | | | (14,984 | ) |
Repurchased Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | (478 | ) | | (37,162 | ) | | (463 | ) | | (34,978 | ) | | (476 | ) | | (36,769 | ) | | (458 | ) | | (34,286 | ) |
Share repurchases | (5 | ) | | (557 | ) | | (6 | ) | | (779 | ) | | (9 | ) | | (1,159 | ) | | (15 | ) | | (1,750 | ) |
Stock option exercises, RSUs and PSUs converted | 1 |
| | 48 |
| | 1 |
| | 122 |
| | 3 |
| | 257 |
| | 5 |
| | 401 |
|
Balance, end of period | (482 | ) | | (37,671 | ) | | (468 | ) | | (35,635 | ) | | (482 | ) | | (37,671 | ) | | (468 | ) | | (35,635 | ) |
Total PepsiCo Common Shareholders’ Equity | | | 12,491 |
| | | | 13,952 |
| | | | 12,491 |
| | | | 13,952 |
|
Noncontrolling Interests | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 94 |
| | | | 94 |
| | | | 82 |
| | | | 84 |
|
Net income attributable to noncontrolling interests | | | 12 |
| | | | 8 |
| | | | 25 |
| | | | 17 |
|
Distributions to noncontrolling interests | | | (15 | ) | | | | (15 | ) | | | | (15 | ) | | | | (15 | ) |
Acquisitions | | | 6 |
| | | | — |
| | | | 6 |
| | | | — |
|
Other, net | | | (1 | ) | | | | (2 | ) | | | | (2 | ) | | | | (1 | ) |
Balance, end of period | | | 96 |
| | | | 85 |
| | | | 96 |
| | | | 85 |
|
Total Equity | | | $ | 12,587 |
| | | | $ | 14,037 |
| | | | $ | 12,587 |
| | | | $ | 14,037 |
|
| | |
(a) | Cash dividends declared per common share were $1.0225 and $0.955 for the 12 weeks ended June 13, 2020 and June 15, 2019, respectively, and $1.9775 and $1.8825 for the 24 weeks ended June 13, 2020 and June 15, 2019, respectively. |
(a)Cash dividends declared per common share were $1.0225 and $0.955 for the 12 weeks ended March 20, 2021 and March 21, 2020, respectively.
See accompanying notes to the condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation and Our Divisions
Basis of Presentation
When used in this report, the terms “we,” “us,” “our,” “PepsiCo” and the “Company” mean PepsiCo, Inc. and its consolidated subsidiaries, collectively.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the rules and regulations for reporting the Quarterly Report on Form 10-Q (Form 10-Q). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated balance sheet at December 28, 201926, 2020 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019 (201926, 2020 (2020 Form 10-K), as modified to reflect the adoption of the recently issued accounting pronouncement disclosed in Note 2 in this Form 10-Q.. This report should be read in conjunction with our 20192020 Form 10-K. In our opinion, these financial statements include all normal and recurring adjustments necessary for a fair presentation. The results for the 12 and 24 weeks ended June 13, 2020March 20, 2021 are not necessarily indicative of the results expected for any future period or the full year.
PreparationWhile our financial results in the United States and Canada (North America) are reported on a 12-week basis, substantially all of our international operations report on a monthly calendar basis for which the months of January and February are reflected in our results for the 12 weeks ended March 20, 2021.
The preparation of our condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and related disclosures. The business and economic uncertainty resulting from the novel coronavirus (COVID-19) pandemic has made such estimates and assumptions more difficult to calculate. Accordingly, actual results and outcomes could differ from those estimates.
While our financial results in the United States and Canada (North America) are reported on a 12-week basis, substantially all of our international operations report on a monthly calendar basis for which the months of March, April and May are reflected in our results for the 12 weeks endedJune 13, 2020, and the months of January through May are reflected in our results for the 24 weeks endedJune 13, 2020.
Our significant interim accounting policies include the recognition of a pro rata share of certain estimated annual sales incentives and certain advertising and marketing costs in proportion to revenue or volume, as applicable, and the recognition of income taxes using an estimated annual effective tax rate. 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.
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 year’s financial statements to conform to the current year presentation.
Our Divisions
As previously disclosed in our 2019 Form 10-K, during the fourth quarter of 2019, we realigned certain of our reportable segments to be consistent with a strategic realignment of our organizational structure and how our Chief Executive Officer assesses the performance of, and allocates resources to, our reportable segments. Our historical segment reporting presented in this report has been retrospectively revised to reflect the new organizational structure. These changes did not impact our consolidated financial results. See Note 1 to our consolidated financial statements in our 2019 Form 10-K for further information.
We are organized into seven7 reportable segments (also referred to as divisions), as follows:
| |
1) | Frito-Lay North America (FLNA), which includes our branded food and snack businesses in the United States and Canada; |
| |
2) | Quaker Foods North America (QFNA), which includes our cereal, rice, pasta and other branded food businesses 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, food and snack businesses in Latin America; |
| |
5) | Europe, which includes all of our beverage, food and snack businesses in Europe; |
| |
6) | Africa, Middle East and South Asia (AMESA), which includes all of our beverage, food and snack 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, food and snack businesses in Asia Pacific, Australia and New Zealand, and China region. |
1)Frito-Lay North America (FLNA), which includes our branded food and snack businesses in the United States and Canada;
2)Quaker Foods North America (QFNA), which includes our cereal, rice, pasta and other branded food businesses 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, food and snack businesses in Latin America;
5)Europe, which includes all of our beverage, food and snack businesses in Europe;
6)Africa, Middle East and South Asia (AMESA), which includes all of our beverage, food and snack 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, food and snack businesses in Asia Pacific, Australia and New Zealand, and China region.
Net revenue of each division is as follows:
| | | | | | | | | | | | | | | |
| | | 12 Weeks Ended |
| | | | | 3/20/2021 | | 3/21/2020 |
FLNA | | | | | $ | 4,236 | | | $ | 4,074 | |
QFNA | | | | | 646 | | | 634 | |
PBNA | | | | | 5,074 | | | 4,838 | |
LatAm | | | | | 1,242 | | | 1,310 | |
Europe | | | | | 1,795 | | | 1,839 | |
AMESA (a) | | | | | 883 | | | 631 | |
APAC (b) | | | | | 944 | | | 555 | |
Total | | | | | $ | 14,820 | | | $ | 13,881 | |
|
| | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 24 Weeks Ended |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
|
FLNA | $ | 4,273 |
| | $ | 4,010 |
| | $ | 8,347 |
| | $ | 7,825 |
|
QFNA | 664 |
| | 540 |
| | 1,298 |
| | 1,134 |
|
PBNA | 4,970 |
| | 5,322 |
| | 9,808 |
| | 9,832 |
|
LatAm | 1,567 |
| | 1,886 |
| | 2,877 |
| | 3,127 |
|
Europe | 2,725 |
| | 3,000 |
| | 4,564 |
| | 4,620 |
|
AMESA | 983 |
| | 997 |
| | 1,614 |
| | 1,576 |
|
APAC | 763 |
| | 694 |
| | 1,318 |
| | 1,219 |
|
Total | $ | 15,945 |
| | $ | 16,449 |
| | $ | 29,826 |
| | $ | 29,333 |
|
(a)The increase primarily reflects our acquisition of Pioneer Food Group Ltd. (Pioneer Foods). See Note 12 for further information.(b)The increase primarily reflects our acquisition of Hangzhou Haomusi Food Co., Ltd. (Be & Cheery). See Note 12 for further information. Our primary performance obligation is the distribution and sales of beverage and food and snack products to our customers. The following tables reflect the approximate percentage of net revenue generated between our beverage business and our food and snack business for each of our international divisions, as well as our consolidated net revenue:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended |
| 3/20/2021 | | 3/21/2020 |
| Beverage(a) | | Food/Snack | | Beverage(a) | | Food/Snack |
LatAm | 10 | % | | 90 | % | | 10 | % | | 90 | % |
Europe | 50 | % | | 50 | % | | 55 | % | | 45 | % |
AMESA | 30 | % | | 70 | % | | 35 | % | | 65 | % |
APAC | 15 | % | | 85 | % | | 20 | % | | 80 | % |
PepsiCo | 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 in both the 12 weeks ended March 20, 2021 and March 21, 2020. 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.
|
| | | | | | | | | | | |
| 12 Weeks Ended |
| 6/13/2020 | | 6/15/2019 |
| Beverage(a) | | Food/Snack | | Beverage(a) | | Food/Snack |
LatAm | 10 | % | | 90 | % | | 10 | % | | 90 | % |
Europe | 50 | % | | 50 | % | | 55 | % | | 45 | % |
AMESA | 40 | % | | 60 | % | | 45 | % | | 55 | % |
APAC | 25 | % | | 75 | % | | 30 | % | | 70 | % |
PepsiCo | 45 | % | | 55 | % | | 45 | % | | 55 | % |
|
| | | | | | | | | | | |
| 24 Weeks Ended |
| 6/13/2020 | | 6/15/2019 |
| Beverage(a) | | Food/Snack | | Beverage(a) | | Food/Snack |
LatAm | 10 | % | | 90 | % | | 10 | % | | 90 | % |
Europe | 55 | % | | 45 | % | | 55 | % | | 45 | % |
AMESA | 35 | % | | 65 | % | | 45 | % | | 55 | % |
APAC | 25 | % | | 75 | % | | 25 | % | | 75 | % |
PepsiCo | 45 | % | | 55 | % | | 45 | % | | 55 | % |
| |
(a) | Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and Europe segments, was 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. |
Operating profit of each division is as follows:
| | | | | | | | | | | | | | | |
| | | 12 Weeks Ended |
| | | | | 3/20/2021 | | 3/21/2020 |
FLNA | | | | | $ | 1,240 | | | $ | 1,202 | |
QFNA | | | | | 150 | | | 150 | |
PBNA | | | | | 366 | | | 297 | |
LatAm | | | | | 218 | | | 231 | |
Europe | | | | | 131 | | | 146 | |
AMESA | | | | | 138 | | | 134 | |
APAC | | | | | 208 | | | 142 | |
Total divisions | | | | | $ | 2,451 | | | $ | 2,302 | |
Corporate unallocated expenses (a) | | | | | (139) | | | (378) | |
Total | | | | | $ | 2,312 | | | $ | 1,924 | |
|
| | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 24 Weeks Ended |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
|
FLNA | $ | 1,278 |
| | $ | 1,249 |
| | $ | 2,480 |
| | $ | 2,408 |
|
QFNA | 196 |
| | 127 |
| | 346 |
| | 265 |
|
PBNA | 397 |
| | 690 |
| | 694 |
| | 1,079 |
|
LatAm | 219 |
| | 278 |
| | 450 |
| | 508 |
|
Europe | 351 |
| | 339 |
| | 497 |
| | 454 |
|
AMESA | 59 |
| | 236 |
| | 193 |
| | 341 |
|
APAC | 189 |
| | 116 |
| | 331 |
| | 222 |
|
Total division | $ | 2,689 |
| | $ | 3,035 |
| | $ | 4,991 |
| | $ | 5,277 |
|
Corporate unallocated expenses | (370 | ) | | (306 | ) | | (748 | ) | | (540 | ) |
Total | $ | 2,319 |
| | $ | 2,729 |
| | $ | 4,243 |
| | $ | 4,737 |
|
(a)During the 12 weeks ended March 20, 2021, we recorded a pre-tax unrealized gain of $108 million ($82 million after-tax or $0.06 per share) on our short-term investment in a publicly traded company, based on the quoted active market price as of market close on March 19, 2021, the last trading day of our first quarter of 2021. The gain was recorded in selling, general and administrative expenses within corporate unallocated expenses. See Note 9 for further information. We subsequently sold all of these shares during the second quarter of 2021. We will record a related pre-tax loss of $39 million ($30 million after-tax), net of discounts, on the sale in our 12 weeks ending June 12, 2021 in selling, general and administrative expenses within corporate unallocated expenses.Operating profit in the 12 and 24 weeks ended June 13, 2020 includes certain pre-tax charges taken as a result of the COVID-19 pandemic. These pre-tax charges by division are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 3/20/2021 |
| Allowances for Expected Credit Losses(a) | | Upfront Payments to Customers(b) | | Inventory Write-Downs and Product Returns | | Employee Compensation Expense(c) | | Employee Protection Costs(d) | | Other(e) | | Total |
FLNA (f) | $ | (4) | | | $ | 0 | | | $ | 0 | | | $ | 18 | | | $ | 9 | | | $ | 1 | | | $ | 24 | |
QFNA | 0 | | | 0 | | | 0 | | | 1 | | | 1 | | | 0 | | | 2 | |
PBNA (f) | (4) | | | 1 | | | 0 | | | 12 | | | 5 | | | (1) | | | 13 | |
LatAm | 0 | | | 0 | | | 0 | | | 12 | | | 2 | | | 1 | | | 15 | |
Europe | 0 | | | 0 | | | 0 | | | 3 | | | 3 | | | 0 | | | 6 | |
AMESA (f) | 0 | | | 0 | | | (2) | | | 0 | | | 0 | | | 1 | | | (1) | |
APAC | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | | 2 | |
| | | | | | | | | | | | | |
Total | $ | (8) | | | $ | 1 | | | $ | (2) | | | $ | 46 | | | $ | 20 | | | $ | 4 | | | $ | 61 | |
| | | | | | | | | | | | | | | | | | 12 Weeks Ended 3/21/2020 |
| 12 Weeks Ended 6/13/2020 | | Allowances for Expected Credit Losses(a) | | Upfront Payments to Customers(b) | | Inventory Write-Downs and Product Returns(g) | | | Other(e) | | Total |
| 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 (g) | $ | (2 | ) | | $ | — |
| | $ | 4 |
| | $ | 100 |
| | $ | 33 |
| | $ | — |
| | $ | 135 |
| |
FLNA | | FLNA | $ | 21 | | | $ | 0 | | | $ | 3 | | | | $ | 3 | | | $ | 27 | |
QFNA | — |
| | — |
| | — |
| | 6 |
| | 1 |
| | — |
| | 7 |
| QFNA | 2 | | | 0 | | | 0 | | | | 0 | | | 2 | |
PBNA | 4 |
| | 2 |
| | 7 |
| | 84 |
| | 31 |
| | 9 |
| | 137 |
| PBNA | 41 | | | 44 | | | 22 | | | | 1 | | | 108 | |
LatAm | 1 |
| | — |
| | 6 |
| | 16 |
| | 8 |
| | 3 |
| | 34 |
| |
| Europe | — |
| | 1 |
| | 10 |
| | 9 |
| | 8 |
| | 17 |
| | 45 |
| Europe | 4 | | | 0 | | | 0 | | | | 0 | | | 4 | |
AMESA | 1 |
| | — |
| | 1 |
| | 7 |
| | 4 |
| | 4 |
| | 17 |
| |
| APAC | — |
| | — |
| | — |
| | 2 |
| | 1 |
| | — |
| | 3 |
| APAC | 0 | | | 0 | | | 1 | | | | 1 | | | 2 | |
| Total | $ | 4 |
| | $ | 3 |
| | $ | 28 |
| | $ | 224 |
| | $ | 86 |
| | $ | 33 |
| | $ | 378 |
| Total | $ | 68 | | | $ | 44 | | | $ | 26 | | | | $ | 5 | | | $ | 143 | |
(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.
(b)Relates to promotional spending for which benefit is not expected to be received.
(c)Includes incremental frontline incentive pay, crisis child care and other leave benefits and labor costs.
(d)Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services.
(e)Includes reserves for property, plant and equipment, donations of cash and product and other costs.
(f)Income amounts represent adjustments for changes in estimates of previously recorded amounts.
(g)Includes a reserve for product returns of $7 million.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 24 Weeks Ended 6/13/2020 |
| 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 | $ | 19 |
| | $ | — |
| | $ | 7 |
| | $ | 100 |
| | $ | 33 |
| | $ | 3 |
| | $ | 162 |
|
QFNA | 2 |
| | — |
| | — |
| | 6 |
| | 1 |
| | — |
| | 9 |
|
PBNA | 45 |
| | 46 |
| | 29 |
| | 84 |
| | 31 |
| | 10 |
| | 245 |
|
LatAm | 1 |
| | — |
| | 6 |
| | 16 |
| | 8 |
| | 3 |
| | 34 |
|
Europe | 4 |
| | 1 |
| | 10 |
| | 9 |
| | 8 |
| | 17 |
| | 49 |
|
AMESA | 1 |
| | — |
| | 1 |
| | 7 |
| | 4 |
| | 4 |
| | 17 |
|
APAC | — |
| | — |
| | 1 |
| | 2 |
| | 1 |
| | 1 |
| | 5 |
|
Total | $ | 72 |
| | $ | 47 |
| | $ | 54 |
| | $ | 224 |
| | $ | 86 |
| | $ | 38 |
| | $ | 521 |
|
| |
(a) | Allowances reflect the expected impact of the global economic uncertainty caused by COVID-19, leveraging estimates of credit worthiness, default and recovery rates for certain of our customers, including foodservice and vending businesses. |
| |
(b) | Upfront payments relate to promotional spending for which benefit will not be received. |
| |
(c) | Inventory write-downs and product returns include a reserve for product returns of $9 million and $16 million in the 12 and 24 weeks ended June 13, 2020, respectively. |
| |
(d) | Includes incremental frontline incentive pay, crisis child care and other leave benefits and labor costs. |
| |
(e) | Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services. |
| |
(f) | Includes write-downs of property, plant and equipment, donations of cash and product and other certain costs. |
| |
(g) | Income amount represents adjustments for changes in estimates of previously recorded amounts. |
Note 2 - Recently Issued Accounting Pronouncements
Adopted
In 2016,2019, the Financial Accounting Standards Board (FASB) issued guidance that changes the impairment model used to measure credit losses for most financial assets. For our trade receivables, certain other receivables and certain other financial instruments, we are required to use a new forward-looking expected credit loss model that replaced the existing incurred credit loss model. The new model generally results in earlier recognition of allowances for credit losses. We adopted this guidance in the first quarter of 2020 and the adoption did not have a material impact on our condensed consolidated financial statements or disclosures. On initial recognition, we recorded an after-tax cumulative effect decrease to retained earnings of $34 million ($44 million pre-tax) as of the beginning of 2020.
Not Yet Adopted
In 2019, the FASB issued guidance to simplify the accounting 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 accounting, (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 (4) include the amount of tax based on income in the income tax provision and any incremental amount as a tax not based on income for hybrid tax regimes. TheWe adopted the guidance is effective in the first quarter of 2021 with early2021. The adoption permitted. We are currently evaluating thedid not have a material impact of this guidance on our condensed consolidated financial statements and the timing of adoption.or related disclosures.
Note 3 - Restructuring and Impairment Charges
2019 Multi-Year Productivity Plan
We publicly announced a multi-year productivity plan on February 15, 2019 (2019 Productivity Plan) that 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. In connection with this plan, we expect to incur pre-tax charges of approximately $2.5 billion, andincluding cash expenditures of approximately $1.6 billion. These pre-tax charges are expected to consist of approximately 70%65% of severance and other employee-related costs, 15% for asset impairments (all non-cash) resulting from plant closures and related actions, and 15%20% for other costs associated with the implementation of our initiatives. We expect to complete this plan by 2023.
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 | 11 | % | | 2 | % | | 30 | % | | 10 | % | | 25 | % | | 8 | % | | 5 | % | | 9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FLNA | | QFNA | | PBNA | | LatAm | | Europe | | AMESA | | APAC | | Corporate |
Expected pre-tax charges | 15 | % | | 1 | % | | 30 | % | | 10 | % | | 25 | % | | 5 | % | | 3 | % | | 11 | % |
A summary of our 2019 Productivity Plan charges is as follows:
| | | | | | | | | | | | | | | |
| | | 12 Weeks Ended |
| | | | | 3/20/2021 | | 3/21/2020 |
Cost of sales | | | | | $ | 2 | | | $ | 2 | |
Selling, general and administrative expenses | | | | | 35 | | | 30 | |
Other pension and retiree medical benefits expense | | | | | 6 | | | 6 | |
Total restructuring and impairment charges | | | | | $ | 43 | | | $ | 38 | |
After-tax amount | | | | | $ | 35 | | | $ | 32 | |
Net income attributable to PepsiCo per common share | | | | | $ | (0.03) | | | $ | (0.02) | |
|
| | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 24 Weeks Ended |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 | | 6/15/2019 |
|
Cost of sales | $ | 1 |
| | $ | 82 |
| | $ | 3 |
| | $ | 90 |
|
Selling, general and administrative expenses | 23 |
| | 76 |
| | 53 |
| | 99 |
|
Other pension and retiree medical benefits expense/(income) (a) | 1 |
| | — |
| | 7 |
| | (5 | ) |
Total restructuring and impairment charges | $ | 25 |
| | $ | 158 |
| | $ | 63 |
| | $ | 184 |
|
After-tax amount | $ | 21 |
| | $ | 120 |
| | $ | 53 |
| | $ | 143 |
|
Net income attributable to PepsiCo per common share | $ | 0.02 |
| | $ | 0.08 |
| | $ | 0.04 |
| | $ | 0.10 |
|
| |
(a) | Income amount represents adjustments for changes in estimates of previously recorded amounts. |
|
| | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 24 Weeks Ended | | Plan to Date |
|
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
| | through 6/13/2020 |
|
FLNA | $ | 2 |
| | $ | 6 |
| | $ | 7 |
| | $ | 6 |
| | $ | 60 |
|
QFNA | — |
| | — |
| | 1 |
| | — |
| | 8 |
|
PBNA | — |
| | 10 |
| | 3 |
| | 16 |
| | 94 |
|
LatAm | 4 |
| | 21 |
| | 9 |
| | 21 |
| | 80 |
|
Europe | 8 |
| | 53 |
| | 16 |
| | 59 |
| | 121 |
|
AMESA | 5 |
| | 8 |
| | 7 |
| | 16 |
| | 48 |
|
APAC | 3 |
| | 34 |
| | 3 |
| | 37 |
| | 52 |
|
Corporate | 2 |
| | 26 |
| | 10 |
| | 34 |
| | 64 |
|
| 24 |
| | 158 |
| | 56 |
| | 189 |
| | 527 |
|
Other pension and retiree medical benefits expense/(income) (a) | 1 |
| | — |
| | 7 |
| | (5 | ) | | 44 |
|
Total | $ | 25 |
| | $ | 158 |
| | $ | 63 |
| | $ | 184 |
| | $ | 571 |
|
| |
(a) | Income amount represents adjustments for changes in estimates of previously recorded amounts. |
| | | | | | | | | | | | | | | | | | | | | |
| | | 12 Weeks Ended | | Plan to Date |
| | | | | 3/20/2021 | | 3/21/2020 | | through 3/20/2021 |
FLNA | | | | | $ | 15 | | | $ | 5 | | | $ | 151 | |
QFNA | | | | | 0 | | | 1 | | | 12 | |
PBNA | | | | | 4 | | | 3 | | | 142 | |
LatAm | | | | | 2 | | | 5 | | | 104 | |
Europe | | | | | 11 | | | 8 | | | 164 | |
AMESA | | | | | 1 | | | 2 | | | 56 | |
APAC | | | | | 0 | | | 0 | | | 54 | |
Corporate | | | | | 4 | | | 8 | | | 94 | |
| | | | | 37 | | | 32 | | | 777 | |
Other pension and retiree medical benefits expense | | | | | 6 | | | 6 | | | 63 | |
Total | | | | | $ | 43 | | | $ | 38 | | | $ | 840 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 12 Weeks Ended | | Plan to Date |
| | | | | 3/20/2021 | | 3/21/2020 | | through 3/20/2021 |
Severance and other employee costs | | | | | $ | 34 | | | $ | 22 | | | $ | 478 | |
Asset impairments | | | | | 0 | | | 1 | | | 125 | |
Other costs | | | | | 9 | | | 15 | | | 237 | |
Total | | | | | $ | 43 | | | $ | 38 | | | $ | 840 | |
|
| | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 24 Weeks Ended | | Plan to Date |
|
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
| | through 6/13/2020 |
|
Severance and other employee costs | $ | 2 |
| | $ | 43 |
| | $ | 24 |
| | $ | 40 |
| | $ | 310 |
|
Asset impairments | 4 |
| | 76 |
| | 5 |
| | 84 |
| | 97 |
|
Other costs (a) | 19 |
| | 39 |
| | 34 |
| | 60 |
| | 164 |
|
Total | $ | 25 |
| | $ | 158 |
| | $ | 63 |
| | $ | 184 |
| | $ | 571 |
|
Severanceand 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. | |
(a) | Includes other costs associated with the implementation of our initiatives, including contract termination costs, consulting and other professional fees. |
A summary of our 2019 Productivity Plan activity for the 2412 weeks ended June 13, 2020March 20, 2021 is as follows:
|
| | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs | | Total |
Liability as of December 28, 2019 | $ | 128 |
| | $ | — |
| | $ | 21 |
| | $ | 149 |
|
2020 restructuring charges | 24 |
| | 5 |
| | 34 |
| | 63 |
|
Cash payments | (59 | ) | | — |
| | (50 | ) | | (109 | ) |
Non-cash charges and translation | (11 | ) | | (5 | ) | | 3 |
| | (13 | ) |
Liability as of June 13, 2020 | $ | 82 |
| | $ | — |
| | $ | 8 |
| | $ | 90 |
|
| | | | | | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | | | Other Costs | | Total |
Liability as of December 26, 2020 | $ | 122 | | | | | $ | 5 | | | $ | 127 | |
2021 restructuring charges | 34 | | | | | 9 | | | 43 | |
Cash payments | (37) | | | | | (12) | | | (49) | |
Non-cash charges and translation | (6) | | | | | 1 | | | (5) | |
Liability as of March 20, 2021 | $ | 113 | | | | | $ | 3 | | | $ | 116 | |
Substantially all of the restructuring accrual at June 13, 2020March 20, 2021 is expected to be paid by the end of 2020.2021.
Other Productivity Initiatives
There were no material0 charges related to other productivity and efficiency initiatives outside the scope of the 2019 Productivity Plan.
We regularly evaluate different productivity initiatives beyond the productivity plan and other initiatives described above.
Note 4 - Intangible Assets
A summary of our amortizable intangible assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 3/20/2021 | | 12/26/2020 |
| | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Acquired franchise rights | | $ | 982 | | | $ | (177) | | | $ | 805 | | | $ | 976 | | | $ | (173) | | | $ | 803 | |
Customer relationships | | 641 | | | (209) | | | 432 | | | 642 | | | (204) | | | 438 | |
Brands | | 1,348 | | | (1,104) | | | 244 | | | 1,348 | | | (1,099) | | | 249 | |
Other identifiable intangibles | | 473 | | | (264) | | | 209 | | | 474 | | | (261) | | | 213 | |
Total | | $ | 3,444 | | | $ | (1,754) | | | $ | 1,690 | | | $ | 3,440 | | | $ | (1,737) | | | $ | 1,703 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 6/13/2020 | | 12/28/2019 |
| | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Acquired franchise rights | | $ | 838 |
| | $ | (162 | ) | | $ | 676 |
| | $ | 846 |
| | $ | (158 | ) | | $ | 688 |
|
Reacquired franchise rights | | 105 |
| | (105 | ) | | — |
| | 106 |
| | (105 | ) | | 1 |
|
Brands | | 1,300 |
| | (1,061 | ) | | 239 |
| | 1,326 |
| | (1,066 | ) | | 260 |
|
Other identifiable intangibles | | 873 |
| | (323 | ) | | 550 |
| | 810 |
| | (326 | ) | | 484 |
|
Total | | $ | 3,116 |
| | $ | (1,651 | ) | | $ | 1,465 |
| | $ | 3,088 |
| | $ | (1,655 | ) | | $ | 1,433 |
|
The change in the book value of indefinite-lived intangible assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance 12/26/2020 | | Acquisitions | | Translation and Other | | Balance 3/20/2021 |
| | | |
FLNA (a) | | | | | | | |
Goodwill | $ | 465 | | | $ | (8) | | | $ | 4 | | | $ | 461 | |
Brands | 340 | | | 0 | | | 1 | | | 341 | |
Total | 805 | | | (8) | | | 5 | | | 802 | |
QFNA | | | | | | | |
Goodwill | 189 | | | 0 | | | — | | | 189 | |
Total | 189 | | | 0 | | | 0 | | | 189 | |
PBNA | | | | | | | |
Goodwill | 12,189 | | | 0 | | | 15 | | | 12,204 | |
Reacquired franchise rights | 7,107 | | | 0 | | | 23 | | | 7,130 | |
Acquired franchise rights | 1,536 | | | 0 | | | 6 | | | 1,542 | |
Brands | 3,122 | | | 0 | | | 0 | | | 3,122 | |
Total | 23,954 | | | 0 | | | 44 | | | 23,998 | |
LatAm | | | | | | | |
Goodwill | 458 | | | 0 | | | (11) | | | 447 | |
Brands | 108 | | | 0 | | | (5) | | | 103 | |
Total | 566 | | | 0 | | | (16) | | | 550 | |
Europe | | | | | | | |
Goodwill | 3,806 | | | 0 | | | 7 | | | 3,813 | |
Reacquired franchise rights | 496 | | | 0 | | | (2) | | | 494 | |
Acquired franchise rights | 172 | | | 0 | | | (2) | | | 170 | |
Brands | 4,072 | | | 0 | | | (3) | | | 4,069 | |
Total | 8,546 | | | 0 | | | 0 | | | 8,546 | |
AMESA | | | | | | | |
Goodwill | 1,096 | | | 0 | | | 6 | | | 1,102 | |
Brands | 214 | | | 0 | | | 3 | | | 217 | |
Total | 1,310 | | | 0 | | | 9 | | | 1,319 | |
APAC | | | | | | | |
Goodwill | 554 | | | 0 | | | 9 | | | 563 | |
Brands | 445 | | | 0 | | | 8 | | | 453 | |
Total | 999 | | | 0 | | | 17 | | | 1,016 | |
| | | | | | | |
Total goodwill | 18,757 | | | (8) | | | 30 | | | 18,779 | |
Total reacquired franchise rights | 7,603 | | | 0 | | | 21 | | | 7,624 | |
Total acquired franchise rights | 1,708 | | | 0 | | | 4 | | | 1,712 | |
Total brands | 8,301 | | | 0 | | | 4 | | | 8,305 | |
Total | $ | 36,369 | | | $ | (8) | | | $ | 59 | | | $ | 36,420 | |
|
| | | | | | | | | | | | | | | |
| Balance 12/28/2019 | | Acquisitions | | Translation and Other | | Balance 6/13/2020 |
| | | |
FLNA (a) |
| | | |
| |
|
Goodwill | $ | 299 |
| | $ | 160 |
| | $ | (4 | ) | | $ | 455 |
|
Brands | 162 |
| | 176 |
| | (1 | ) | | 337 |
|
Total | 461 |
| | 336 |
| | (5 | ) | | 792 |
|
QFNA | | | | | | | |
Goodwill | 189 |
| | — |
| | — |
| | 189 |
|
Brands | 11 |
| | — |
| | — |
| | 11 |
|
Total | 200 |
| | — |
| | — |
| | 200 |
|
PBNA (b) | | | | | | | |
Goodwill | 9,898 |
| | 1,968 |
| | (16 | ) | | 11,850 |
|
Reacquired franchise rights | 7,089 |
| | — |
| | (28 | ) | | 7,061 |
|
Acquired franchise rights | 1,517 |
| | 141 |
| | (6 | ) | | 1,652 |
|
Brands | 763 |
| | 2,700 |
| | 1 |
| | 3,464 |
|
Total | 19,267 |
| | 4,809 |
| | (49 | ) | | 24,027 |
|
LatAm | | | | | | | |
Goodwill | 501 |
| | — |
| | (58 | ) | | 443 |
|
Brands | 125 |
| | — |
| | (21 | ) | | 104 |
|
Total | 626 |
| | — |
| | (79 | ) | | 547 |
|
Europe (c) | | | | | | | |
Goodwill | 3,961 |
| | (3 | ) | | (216 | ) | | 3,742 |
|
Reacquired franchise rights | 505 |
| | — |
| | (30 | ) | | 475 |
|
Acquired franchise rights | 157 |
| | — |
| | (1 | ) | | 156 |
|
Brands | 4,181 |
| | — |
| | (211 | ) | | 3,970 |
|
Total | 8,804 |
| | (3 | ) | | (458 | ) | | 8,343 |
|
AMESA (d) | | | | | | | |
Goodwill | 446 |
| | 533 |
| | (10 | ) | | 969 |
|
Brands | — |
| | 208 |
| | (3 | ) | | 205 |
|
Total | 446 |
| | 741 |
| | (13 | ) | | 1,174 |
|
APAC | | | | | | | |
Goodwill | 207 |
| | — |
| | (10 | ) | | 197 |
|
Brands | 100 |
| | — |
| | (5 | ) | | 95 |
|
Total | 307 |
| | — |
| | (15 | ) | | 292 |
|
| | | | | | | |
Total goodwill | 15,501 |
| | 2,658 |
| | (314 | ) | | 17,845 |
|
Total reacquired franchise rights | 7,594 |
| | — |
| | (58 | ) | | 7,536 |
|
Total acquired franchise rights | 1,674 |
| | 141 |
| | (7 | ) | | 1,808 |
|
Total brands | 5,342 |
| | 3,084 |
| | (240 | ) | | 8,186 |
|
Total | $ | 30,111 |
| | $ | 5,883 |
| | $ | (619 | ) | | $ | 35,375 |
|
(a) | |
(a) | The change in acquisitions primarily reflects our acquisition of BFY Brands, Inc. (BFY Brands). |
| |
(b) | The change in acquisitions primarily reflects our acquisition of Rockstar Energy Beverages (Rockstar). |
| |
(c) | The change in translation and other primarily reflects the depreciation of the Russian ruble. |
| |
(d) | The change in acquisitions primarily reflects our acquisition of Pioneer Food Group Ltd. (Pioneer Foods). |
The change in acquisitions primarily reflects our acquisition of BFY Brands, Inc. (BFY Brands).
Note 5 - Income Taxes
Tax Cuts and Jobs Act
During the fourth quarter of 2017, the TCJ Act was enacted in the United States. The related provisional measurement period allowed by the U.S. Securities and Exchange Commission (SEC) ended in the fourth quarter of 2018. While our accounting for the recorded impact of the TCJ Act was deemed to be complete, additional guidance issued by the Internal Revenue Service (IRS) impacted our recorded amounts after December 29, 2018.
There were no tax amounts recognized in the 24 weeks ended June 13, 2020 related to the TCJ Act. In the 24 weeks ended June 15, 2019, we recognized tax benefits of $29 million ($0.02 per share) related to the TCJ Act.
Other Tax Matters
On May 19, 2019, a public referendum held in Switzerland passed the Federal Act on Tax Reform and AHV Financing (TRAF)(TRAF), effective January 1, 2020. The enactment of certain provisions of the TRAF resulted in adjustments to our deferred taxes. During 2020, we recorded a net tax benefit of $72 million related to the adoption of the TRAF in the Swiss Canton of Bern. There were no0 income tax adjustments recorded in the 24 weeks ended June 13, 2020 related to the TRAF. EnactmentTRAF recorded in either of additionalthe 12 weeks ended March 20, 2021 or March 21, 2020. While the accounting for the impacts of the TRAF provisions subsequentare deemed to June 13, 2020 is expected to result inbe complete, further adjustments to our financial statements and related disclosures could be made in future periods. The future impact of the TRAF cannot currently be reasonably estimated; we will continue to monitor and assess the impact the TRAF may have on our business and financial results.quarters, including in connection with final tax return filings.
For further information and discussion of the impacts of the TCJ Act and the TRAF, refer to Note 5 to our consolidated financial statements in our 20192020 Form 10-K.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020 in the United States. The CARES Act and related notices include several significant provisions, including delaying certain payroll tax payments, mandatory transition tax payments under the TCJ Act, and estimated income tax payments that we are deferring to future periods. We do not currently expect the CARES Act to have a material impact on our financial results, including on our annual estimated effective tax rate or on our liquidity.We will continue to monitor and assess the impact the CARES Act and similar legislation in other countries may have on our business and financial results.
Note 6 - Share-Based Compensation
The following table summarizes our total share-based compensation expense: |
| | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 24 Weeks Ended |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
|
Share-based compensation expense - equity awards | $ | 40 |
| | $ | 61 |
| | $ | 101 |
| | $ | 118 |
|
Share-based compensation expense - liability awards | 4 |
| | 3 |
| | 7 |
| | 4 |
|
Restructuring charges | (1 | ) | | 1 |
| | — |
| | 1 |
|
Total (a) | $ | 43 |
| | $ | 65 |
| | $ | 108 |
| | $ | 123 |
|
| |
(a) | Primarily recorded in selling, general and administrative expenses. |
expense, which is primarily recorded in selling and general and administrative expenses:
| | | | | | | | | | | | | | | |
| | | 12 Weeks Ended |
| | | | | 3/20/2021 | | 3/21/2020 |
Share-based compensation expense - equity awards | | | | | $ | 79 | | | $ | 61 | |
Share-based compensation expense - liability awards | | | | | 4 | | | 3 | |
Restructuring charges | | | | | 1 | | | 1 | |
Total | | | | | $ | 84 | | | $ | 65 | |
The following table summarizes share-based awards granted under the terms of the PepsiCo, Inc. Long-Term Incentive Plan:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended |
| 3/20/2021 | | 3/21/2020 |
| Granted(a) | | Weighted-Average Grant Price | | Granted(a) | | Weighted-Average Grant Price |
Stock options | 1.8 | | | $ | 131.25 | | | 1.6 | | | $ | 131.25 | |
RSUs and PSUs | 2.6 | | | $ | 131.25 | | | 2.4 | | | $ | 131.28 | |
|
| | | | | | | | | | | | | |
| 24 Weeks Ended |
| 6/13/2020 | | 6/15/2019 |
| Granted(a) | | Weighted-Average Grant Price | | Granted(a) | | Weighted-Average Grant Price |
Stock options | 1.6 |
| | $ | 131.25 |
| | 1.1 |
| | $ | 116.00 |
|
RSUs and PSUs | 2.5 |
| | $ | 131.20 |
| | 2.7 |
| | $ | 116.03 |
|
| |
(a) | In millions. All grant activity is disclosed at target. |
For the 12 weeks ended June 13, 2020 and June 15, 2019, our grants of stock options, RSUs, PSUs and long-term cash awards were nominal.(a)In millions. All grant activity is disclosed at target.
We granted long-term cash awards to certain executive officers and other senior executives with an aggregate target value of $18$17 million and $16$18 million during the 2412 weeks ended June 13,March 20, 2021 and March 21, 2020, and June 15, 2019, respectively.
Our weighted-average Black-Scholes fair value assumptions are as follows:
| | | | | | | | | | | |
| 12 Weeks Ended |
| 3/20/2021 | | 3/21/2020 |
Expected life | 7 years | | 6 years |
Risk-free interest rate | 1.1 | % | | 1.0 | % |
Expected volatility | 14 | % | | 14 | % |
Expected dividend yield | 3.1 | % | | 3.5 | % |
|
| | | | | |
| 24 Weeks Ended |
| 6/13/2020 |
| | 6/15/2019 |
|
Expected life | 6 years |
| | 5 years |
|
Risk-free interest rate | 1.0 | % | | 2.6 | % |
Expected volatility | 14 | % | | 14 | % |
Expected dividend yield | 3.5 | % | | 3.1 | % |
Note 7 - Pension and Retiree Medical Benefits
In 2020, we adopted an amendment, effective December 31, 2025, to the U.S. defined benefit pension plans to freeze benefit accruals for salaried participants, which will decrease pre-tax pension benefits expense by approximately $70 million in 2021, primarily impacting corporate unallocated expenses. In 2020, we also approved an amendment, effective January 1, 2021, to reorganize the U.S. qualified defined benefit pension plans that resulted in the transfer of certain participants from the PepsiCo Employees Retirement Plan A (Plan A) to the PepsiCo Employees Retirement Plan I and to a newly created plan, PepsiCo Employees Retirement Plan H (Plan H), with no material impact to pre-tax pension benefits expense. In addition, in 2020, we adopted an amendment, effective January 1, 2021, to enhance the pay credits of certain participants in Plan H, which will increase pre-tax pension benefits expense by approximately $45 million in 2021, primarily impacting service cost expense. For further information on plan changes, refer to Note 7 to our consolidated financial statements in our 2020 Form 10-K.
The components of net periodic benefit cost/(income) for pension and retiree medical plans are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended |
| Pension | | Retiree Medical |
| U.S. | | International | | |
| 3/20/2021 | | 3/21/2020 | | 3/20/2021 | | 3/21/2020 | | 3/20/2021 | | 3/21/2020 |
Service cost | $ | 120 | | | $ | 100 | | | $ | 19 | | | $ | 17 | | | $ | 8 | | | $ | 6 | |
Other pension and retiree medical benefits income: | | | | |
Interest cost | 75 | | | 100 | | | 13 | | | 16 | | | 3 | | | 6 | |
Expected return on plan assets | (224) | | | (214) | | | (41) | | | (37) | | | (4) | | | (4) | |
Amortization of prior service (credits)/cost | (7) | | | 3 | | | 0 | | | 0 | | | (2) | | | (3) | |
Amortization of net losses/(gains) | 51 | | | 45 | | | 13 | | | 10 | | | (3) | | | (5) | |
| | | | | | | | | | | |
Special termination benefits | 6 | | | 6 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total other pension and retiree medical benefits income | (99) | | | (60) | | | (15) | | | (11) | | | (6) | | | (6) | |
Total | $ | 21 | | | $ | 40 | | | $ | 4 | | | $ | 6 | | | $ | 2 | | | $ | 0 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended |
| Pension | | Retiree Medical |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
|
| U.S. | | International | | |
Service cost | $ | 100 |
| | $ | 88 |
| | $ | 20 |
| | $ | 18 |
| | $ | 5 |
| | $ | 6 |
|
Other pension and retiree medical benefits expense/(income): |
Interest cost | 100 |
| | 126 |
| | 21 |
| | 23 |
| | 5 |
| | 8 |
|
Expected return on plan assets | (215 | ) | | (206 | ) | | (49 | ) | | (45 | ) | | (4 | ) | | (4 | ) |
Amortization of prior service cost/(credits) | 2 |
| | 3 |
| | — |
| | — |
| | (2 | ) | | (5 | ) |
Amortization of net losses/(gains) | 46 |
| | 37 |
| | 16 |
| | 8 |
| | (5 | ) | | (6 | ) |
Special termination benefits | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total other pension and retiree medical benefits income | (66 | ) | | (40 | ) | | (12 | ) | | (14 | ) | | (6 | ) | | (7 | ) |
Total | $ | 34 |
| | $ | 48 |
| | $ | 8 |
| | $ | 4 |
| | $ | (1 | ) | | $ | (1 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 24 Weeks Ended |
| Pension | | Retiree Medical |
| U.S. | | International | | |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
|
Service cost | $ | 200 |
| | $ | 176 |
| | $ | 37 |
| | $ | 31 |
| | $ | 11 |
| | $ | 11 |
|
Other pension and retiree medical benefits expense/(income): | | | | |
Interest cost | 200 |
| | 251 |
| | 37 |
| | 40 |
| | 11 |
| | 16 |
|
Expected return on plan assets | (429 | ) | | (412 | ) | | (86 | ) | | (78 | ) | | (8 | ) | | (8 | ) |
Amortization of prior service cost/(credits) | 5 |
| | 5 |
| | — |
| | — |
| | (5 | ) | | (9 | ) |
Amortization of net losses/(gains) | 91 |
| | 74 |
| | 26 |
| | 13 |
| | (10 | ) | | (12 | ) |
Special termination benefits (a) | 7 |
| | (5 | ) | | — |
| | — |
| | — |
| | — |
|
Total other pension and retiree medical benefits income | (126 | ) | | (87 | ) | | (23 | ) | | (25 | ) | | (12 | ) | | (13 | ) |
Total | $ | 74 |
| | $ | 89 |
| | $ | 14 |
| | $ | 6 |
| | $ | (1 | ) | | $ | (2 | ) |
| |
(a) | Income amount represents adjustments for changes in estimates of previously recorded amounts. |
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. During the 2412 weeks ended June 13, 2020,March 20, 2021, we made a discretionary contributioncontributions of $150$300 million to the PepsiCo Employees Retirement Plan A (Plan A)H in the United States and $14$25 million to our international plans. We expect to make an additional discretionary contribution of $200 million to our U.S. qualified defined benefit plans in the third quarter of 2021. During the 2412 weeks ended June 15, 2019,March 21, 2020, we made discretionary contributions of $150 million to Plan A in the United States and $17 million to our international plans.States.
Note 8 - Debt Obligations
In the 2412 weeks ended June 13, 2020, we issued the following senior notes:
|
| | | | | | | |
Interest Rate |
| | Maturity Date | | Amount(a) |
|
2.250 | % | | March 2025 | | $ | 1,500 |
|
2.625 | % | | March 2027 | | $ | 500 |
|
2.750 | % | | March 2030 | | $ | 1,500 |
|
3.500 | % | | March 2040 | | $ | 750 |
|
3.625 | % | | March 2050 | | $ | 1,500 |
|
3.875 | % | | March 2060 | | $ | 750 |
|
0.750 | % | | May 2023 | | $ | 1,000 |
|
1.625 | % | | May 2030 | | $ | 1,000 |
|
0.250 | % | | May 2024 | | € | 1,000 |
|
0.500 | % | | May 2028 | | € | 1,000 |
|
| |
(a) | Represents gross proceeds from issuances of long-term debt excluding debt issuance costs, discounts and premiums. |
The net proceeds from the issuances of the above notes will be used for general corporate purposes, including the repayment of commercial paper.
In the 24 weeks ended June 13, 2020, $750 millionMarch 20, 2021, there were 0 maturities or prepayments of senior notes matured and were paid.
notes.
As of June 13, 2020,March 20, 2021, we had $2.8 billion of0 commercial paper outstanding.
Table of 2020, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement) which expires on May 31, 2021. The 364-Day Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.75 billion in U.S. dollars and/or euros, subject to customary terms and conditions. We may request that commitments under this agreement be increased up to $4.5 billion in U.S. dollars and/or euros. We may request renewal of this facility for an additional 364-day period or convert any amounts outstanding into a term loan for a period of up to one year, which term loan would mature no later than the anniversary of the then effective termination date. The 364-Day Credit Agreement replaced our $3.75 billion 364-day credit agreement, dated as of June 3, 2019. Funds borrowed under the 364-Day Credit Agreement may be used for general corporate purposes. Subject to certain conditions, we may borrow, prepay and reborrow amounts under this agreement. The 364-Day Credit Agreement is in addition to our existing $3.75 billion unsecured revolving credit agreement which expires on June 3, 2024 (Five-Year Credit Agreement). As of June 13, 2020, there were no outstanding borrowings under either the 364-Day Credit Agreement or the Five-Year Credit Agreement.Contents On March 12, 2020, one of our international consolidated subsidiaries borrowed 21.7 billion South African rand, or approximately $1.3 billion, from our two unsecured bridge loan facilities (Bridge Loan Facilities) to fund our acquisition of Pioneer Foods. These borrowings were fully repaid in April 2020 and no further borrowings under these Bridge Loan Facilities are permitted.
Note 9 - Financial Instruments
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.
There have been no material changes during the 2412 weeks ended June 13, 2020March 20, 2021 with respect to our risk management policies or strategies and valuation techniques used in measuring the fair value of the financial assets or liabilities disclosed in Note 9 to our consolidated financial statements in our 20192020 Form 10-K.
Certain of our agreements with our counterparties require us to post full collateral on derivative instruments in a net liability position if our credit rating is at A2 (Moody’s Investors Service, Inc.) or A (S&P Global Ratings), and we have been placed on credit watch for possible downgrade or if our credit rating falls below either of these levels. The fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of June 13, 2020March 20, 2021 was $530$262 million. We have posted no0 collateral under these contracts and no credit-risk-related contingent features were triggered as of June 13, 2020.March 20, 2021.
The notional amounts of our financial instruments used to hedge the above risks as of June 13, 2020March 20, 2021 and December 28, 201926, 2020 are as follows:
| | | | | | | | | | | |
| Notional Amounts(a) |
| 3/20/2021 | | 12/26/2020 |
Commodity | $ | 1.1 | | | $ | 1.1 | |
Foreign exchange | $ | 2.0 | | | $ | 1.9 | |
Interest rate | $ | 3.0 | | | $ | 3.0 | |
Net investment (b) | $ | 2.7 | | | $ | 2.7 | |
|
| | | | | | | |
| Notional Amounts(a) |
| 6/13/2020 |
| | 12/28/2019 |
|
Commodity | $ | 1.1 |
| | $ | 1.1 |
|
Foreign exchange | $ | 2.1 |
| | $ | 1.9 |
|
Interest rate | $ | 4.3 |
| | $ | 5.0 |
|
Net investment (b) | $ | 2.5 |
| | $ | 2.5 |
|
(a)In billions. | |
(b) | The total notional of our net investment hedge consists of non-derivative debt instruments. |
(b)The total notional of our net investment hedge consists of non-derivative debt instruments.
As of June 13, 2020,March 20, 2021, approximately 12%2% of total debt, after the impact of the related interest rate derivative instruments, was subject to variable rates, compared to approximately 9%3% as of December 28, 2019.26, 2020.
Held-to-Maturity Debt Securities
Investments in debt securities that we have the positive intent and ability to hold until maturity are classified as held-to-maturity. Highly liquid debt securities with original maturities of three months or less are recorded as cash equivalents. Our held-to-maturity debt securities consist of U.S. Treasury securities and commercial paper. As of March 20, 2021, we had 0 investments in U.S. Treasury securities. As of December 26, 2020, we had $2.1 billion of investments in U.S. Treasury securities with $2.0 billion recorded in cash and cash equivalents and $0.1 billion in short-term investments. As of March 20, 2021, we had $525 million of investments in commercial paper with $375 million recorded in cash and cash equivalents and $150 million in short-term investments. As of December 26, 2020, we had $260 million of investments in commercial paper with $75 million recorded in cash and cash equivalents and $185 million in short-term investments. Held-to-maturity debt securities are recorded at amortized cost, which approximates fair value, and realized gains or losses are reported in earnings. Our investments mature in less than one year. As of March 20, 2021 and December 26, 2020, gross unrecognized gains and losses and the allowance for expected credit losses were not material.
Fair Value Measurements
The fair values of our financial assets and liabilities as of June 13, 2020March 20, 2021 and December 28, 201926, 2020 are categorized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3/20/2021 | | 12/26/2020 |
| Fair Value Hierarchy Levels(a) | | Assets(a) | | Liabilities(a) | | Assets(a) | | Liabilities(a) |
| | | | | | | | | |
Equity securities (b) | 1 | | $ | 124 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Index funds (c) | 1 | | $ | 240 | | | $ | 0 | | | $ | 231 | | | $ | 0 | |
Prepaid forward contracts (d) | 2 | | $ | 17 | | | $ | 0 | | | $ | 18 | | | $ | 0 | |
Deferred compensation (e) | 2 | | $ | 0 | | | $ | 488 | | | $ | 0 | | | $ | 477 | |
Contingent consideration (f) | 3 | | $ | 0 | | | $ | 847 | | | $ | 0 | | | $ | 861 | |
Derivatives designated as fair value hedging instruments: | | | | | | | | | |
Interest rate (g) | 2 | | $ | 1 | | | $ | 0 | | | $ | 2 | | | $ | 0 | |
Derivatives designated as cash flow hedging instruments: | | | | | | | | | |
Foreign exchange (h) | 2 | | $ | 7 | | | $ | 68 | | | $ | 9 | | | $ | 71 | |
Interest rate (h) | 2 | | 28 | | | 304 | | | 13 | | | 307 | |
Commodity (i) | 2 | | 59 | | | 0 | | | 32 | | | 0 | |
| | | $ | 94 | | | $ | 372 | | | $ | 54 | | | $ | 378 | |
Derivatives not designated as hedging instruments: | | | | | | | | | |
Foreign exchange (h) | 2 | | $ | 5 | | | $ | 5 | | | $ | 4 | | | $ | 8 | |
Commodity (i) | 2 | | 32 | | | 10 | | | 19 | | | 7 | |
| | | $ | 37 | | | $ | 15 | | | $ | 23 | | | $ | 15 | |
Total derivatives at fair value (j) | | | $ | 132 | | | $ | 387 | | | $ | 79 | | | $ | 393 | |
Total | | | $ | 513 | | | $ | 1,722 | | | $ | 328 | | | $ | 1,731 | |
(a)Fair value hierarchy levels are categorized consistently by Level 1 (quoted prices in active markets for identical assets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) in both years. Unless otherwise noted, financial assets are classified on our balance sheet within prepaid expenses and other current assets and other assets. Financial liabilities are classified on our balance sheet within accounts payable and other current liabilities and other liabilities.
(b)Based on the price of common stock. These are equity securities with readily determinable fair values and are classified as short-term investments. As of December 26, 2020, these equity securities did not have a readily determinable fair value. During the 12 weeks ended March 20, 2021, we recorded a pre-tax unrealized gain on equity securities of $108 million ($82 million after-tax or $0.06 per share). These equity securities were subsequently sold in the second quarter of 2021. See Note 1 for further information.
(c)Based on the price of index funds. These investments are classified as short-term investments and are used to manage a portion of market risk arising from our deferred compensation liability.
(d)Based primarily on the price of our common stock.
(e)Based on the fair value of investments corresponding to employees’ investment elections.
(f)In connection with our acquisition of Rockstar Energy Beverages (Rockstar), we recorded a liability for tax-related contingent consideration payable over up to 15 years, with an option to accelerate all remaining payments, with estimated maximum payments of approximately $1.1 billion, using current tax rates. The fair value of the liability is estimated using probability-weighted, discounted future cash flows at current tax rates. The significant unobservable inputs (Level 3) used to estimate the fair value include the expected future tax benefits associated with the acquisition, the probability that the option to accelerate all remaining payments will be exercised and discount rates. These unobservable inputs did not materially differ from those used as of December 26, 2020. The expected annual future tax benefits range from approximately $40 million to $110 million, with an average of $70 million. The probability, in any given year, that the option to accelerate will be exercised ranges from 3 to 25 percent, with a weighted-average payment period of approximately 3 years. The discount rates range from less than 1 percent to 5 percent, with a weighted average of 3 percent. The contingent consideration measured at fair value using unobservable inputs as of March 20, 2021 is $847 million, comprised of an $861 million liability as of December 26, 2020, and a fair value decrease of $14 million in the 12 weeks ended March 20, 2021, recorded in selling, general and administrative expenses.
(g)Based on London Interbank Offered Rate forward rates. The carrying amount of hedged fixed-rate debt was $0.2 billion as of March 20,
|
| | | | | | | | | | | | | | | | | |
| | | 6/13/2020 | | 12/28/2019 |
| Fair Value Hierarchy Levels | | Assets(a) | | Liabilities(a) | | Assets(a) | | Liabilities(a) |
Short-term investments (b) | 1 | | $ | 196 |
| | $ | — |
| | $ | 229 |
| | $ | — |
|
Prepaid forward contracts (c) | 2 | | $ | 16 |
| | $ | — |
| | $ | 17 |
| | $ | — |
|
Deferred compensation (d) | 2 | | $ | — |
| | $ | 428 |
| | $ | — |
| | $ | 468 |
|
Contingent consideration (e) | 3 | | $ | — |
| | $ | 864 |
| | $ | — |
| | $ | — |
|
Derivatives designated as fair value hedging instruments: | | | | | | | | | |
Interest rate (f) | 2 | | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | 5 |
|
Derivatives designated as cash flow hedging instruments: | | | | | | | | | |
Foreign exchange (g) | 2 | | $ | 54 |
| | $ | 20 |
| | $ | 5 |
| | $ | 32 |
|
Interest rate (g) | 2 | | — |
| | 483 |
| | — |
| | 390 |
|
Commodity (h) | 1 | | — |
| | — |
| | 2 |
| | 5 |
|
Commodity (i) | 2 | | 1 |
| | 27 |
| | 2 |
| | 5 |
|
| | | $ | 55 |
| | $ | 530 |
| | $ | 9 |
| | $ | 432 |
|
Derivatives not designated as hedging instruments: | | | | | | | | | |
Foreign exchange (g) | 2 | | $ | 10 |
| | $ | 8 |
| | $ | 3 |
| | $ | 2 |
|
Interest rate (j) | 2 | | — |
| | 1 |
| | — |
| | — |
|
Commodity (h) | 1 | | — |
| | — |
| | 23 |
| | 7 |
|
Commodity (i) | 2 | | 15 |
| | 42 |
| | 6 |
| | 24 |
|
| | | $ | 25 |
| | $ | 51 |
| | $ | 32 |
| | $ | 33 |
|
Total derivatives at fair value (k) | | | $ | 87 |
| | $ | 581 |
| | $ | 41 |
| | $ | 470 |
|
Total | | | $ | 299 |
| | $ | 1,873 |
| | $ | 287 |
| | $ | 938 |
|
| |
(a) | Unless otherwise noted, financial assets are classified on our balance sheet within prepaid expenses and other current assets and other assets. Financial liabilities are classified on our balance sheet within accounts payable and other current liabilities and other liabilities. |
| |
(b) | Based on the price of index funds. These investments are classified as short-term investments and are used to manage a portion of market risk arising from our deferred compensation liability. |
| |
(c) | Based primarily on the price of our common stock. |
| |
(d) | Based on the fair value of investments corresponding to employees’ investment elections. |
| |
(e) | In connection with our acquisition of Rockstar, we recorded a liability for tax-related contingent consideration payable over up to 15 years, with an option to accelerate all remaining payments, with estimated maximum payments of approximately $1.1 billion, using current tax rates. The fair value of the liability is estimated using probability-weighted, discounted future cash flows at current tax rates. The significant unobservable inputs (Level 3) used to estimate the fair value include the expected future tax benefits associated with the acquisition, the probability that the option to accelerate all remaining payments will be exercised and discount rates. The expected annual future tax benefits range from approximately $40 million to $100 million, with an average of $70 million. The probability, in any given year, that the option to accelerate will be exercised ranges from 0 to 10 percent, with a weighted average payment period of approximately 7 years. The discount rates range from less than 1 percent to 5 percent, with a weighted average of 2 percent. The contingent consideration measured at fair value using unobservable inputs for the 24 weeks ended June 13, 2020 is $864 million, comprised of an $848 million liability recognized at the acquisition date of Rockstar and a fair value increase of $16 million recorded in the 12 and 24 weeks ended June 13, 2020 in selling, general and administrative expenses. |
| |
(f) | Based on London Interbank Offered Rate forward rates. As of June 13, 2020 and December 28, 2019, the carrying amount of hedged fixed-rate debt was $1.5 billion and $2.2 billion, respectively, and classified on our balance sheet within short-term and long-term debt obligations. As of June 13, 2020 and December 28, 2019, the cumulative amount of fair value hedging adjustments to hedged fixed-rate debt was a $7 million gain and a $5 million loss, respectively. As of June 13, 2020 and December 28, 2019, the cumulative amount of fair value hedging adjustments on discontinued hedges was a $35 million loss and a $49 million loss, respectively, which is being amortized over the remaining life of the related debt obligations. |
| |
(g) | Based on recently reported market transactions of spot and forward rates. |
| |
(h) | Based on quoted contract prices on futures exchange markets. |
2021 and December 26, 2020 and classified on our balance sheet within short-term debt obligations. As of March 20, 2021 and December 26, 2020, the cumulative amount of fair value hedging adjustments to hedged fixed-rate debt was a $1 million gain and a $2 million gain, respectively. As of March 20, 2021, the cumulative amount of fair value hedging adjustments on discontinued hedges was a $14 million net loss, which is being amortized over the remaining life of the related debt obligations.
| |
(i) | Based on recently reported market transactions of swap arrangements. |
| |
(j) | Based on Johannesburg Interbank Average Rate forward rates. |
| |
(k) | Derivative assets and liabilities are presented on a gross basis on our balance sheet. Amounts subject to enforceable master netting arrangements or similar agreements which are not offset on the balance sheet as of June 13, 2020 and December 28, 2019 were not material. Collateral received or posted against our asset or liability positions was not material. Collateral posted of $64 million and $58 million as of June 13, 2020 and December 28, 2019, respectively, is classified as restricted cash. |
(h)Based on recently reported market transactions of spot and forward rates.
(i)Based on recently reported market transactions of swap arrangements.
(j)Derivative assets and liabilities are presented on a gross basis on our balance sheet. Amounts subject to enforceable master netting arrangements or similar agreements which are not offset on the balance sheet as of March 20, 2021 and December 26, 2020 were not material. Collateral received or posted against our asset or liability positions was not material. Exchange-traded commodity futures are cash-settled on a daily basis and, therefore, not included in the table.
The carrying amounts of our cash and cash equivalents and short-term investments recorded at amortized cost approximate fair value due to their short-term maturity. Our cash equivalents and short-term investments recorded at amortized cost, are classified as Level 2 in the fair value hierarchy. The fair value of our debt obligations as of June 13, 2020March 20, 2021 and December 28, 201926, 2020 was $51$46 billion and $34$50 billion, respectively, based upon prices of similar instruments in the marketplace, which are considered Level 2 inputs.
Losses/(gains) on our hedging instruments are categorized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended |
| Fair Value/Non- designated Hedges | | Cash Flow and Net Investment Hedges |
| Losses/(Gains) Recognized in Income Statement(a) | | Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss | | Losses/(Gains) Reclassified from Accumulated Other Comprehensive Loss into Income Statement(b) |
| 3/20/2021 | | 3/21/2020 | | 3/20/2021 | | 3/21/2020 | | 3/20/2021 | | 3/21/2020 |
Foreign exchange | $ | 4 | | | $ | (11) | | | $ | 11 | | | $ | (51) | | | $ | 13 | | | $ | 4 | |
Interest rate | 1 | | | (11) | | | (18) | | | 223 | | | (4) | | | 150 | |
Commodity | (81) | | | 166 | | | (90) | | | 64 | | | (10) | | | 3 | |
Net investment | 0 | | | 0 | | | (63) | | | (84) | | | 0 | | | 0 | |
Total | $ | (76) | | | $ | 144 | | | $ | (160) | | | $ | 152 | | | $ | (1) | | | $ | 157 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended |
| Fair Value/Non- designated Hedges | | Cash Flow and Net Investment Hedges |
| Losses/(Gains) Recognized in Income Statement(a) | | Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss | | Losses/(Gains) Reclassified from Accumulated Other Comprehensive Loss into Income Statement(b) |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
|
Foreign exchange | $ | 10 |
| | $ | 7 |
| | $ | (27 | ) | | $ | (13 | ) | | $ | (19 | ) | | $ | 1 |
|
Interest rate | (1 | ) | | (22 | ) | | (130 | ) | | 59 |
| | (121 | ) | | 27 |
|
Commodity | (9 | ) | | 31 |
| | 13 |
| | (9 | ) | | 13 |
| | 1 |
|
Net investment | — |
| | — |
| | 125 |
| | (5 | ) | | — |
| | — |
|
Total | $ | — |
| | $ | 16 |
| | $ | (19 | ) | | $ | 32 |
| | $ | (127 | ) | | $ | 29 |
|
(a)Foreign exchange derivative losses/gains are primarily included in selling, general and administrative expenses. Interest rate derivative losses/gains are primarily from fair value hedges and are included in net interest expense and other. These losses/gains are substantially offset by decreases/increases in the value of the underlying debt, which are also included in net interest expense and other. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. |
| | | | | | | | | | | | | | | | | | | | | | | |
| 24 Weeks Ended |
| Fair Value/Non- designated Hedges | | Cash Flow and Net Investment Hedges |
| Losses/(Gains) Recognized in Income Statement(a) | | Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss | | Losses/(Gains) Reclassified from Accumulated Other Comprehensive Loss into Income Statement(b) |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
|
Foreign exchange | $ | (1 | ) | | $ | 4 |
| | $ | (78 | ) | | $ | 18 |
| | $ | (15 | ) | | $ | (4 | ) |
Interest rate | (12 | ) | | (50 | ) | | 93 |
| | 52 |
| | 29 |
| | 16 |
|
Commodity | 157 |
| | (11 | ) | | 77 |
| | (13 | ) | | 16 |
| | 2 |
|
Net investment | — |
| | — |
| | 41 |
| | (15 | ) | | — |
| | — |
|
Total | $ | 144 |
| | $ | (57 | ) | | $ | 133 |
| | $ | 42 |
| | $ | 30 |
| | $ | 14 |
|
(b)Foreign exchange derivative losses/gains are primarily included in cost of sales. Interest rate derivative losses/gains are included in net interest expense and other. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. | |
(a) | Foreign exchange derivative losses/gains are primarily included in selling, general and administrative expenses. Interest rate derivative losses/gains are primarily from fair value hedges and are included in net interest expense and other. These losses/gains are substantially offset by decreases/increases in the value of the underlying debt, which are also included in net interest expense and other. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. |
| |
(b) | Foreign exchange derivative losses/gains are included in cost of sales. Interest rate derivative losses/gains are included in net interest expense and other. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. |
Based on current market conditions, we expect to reclassify net lossesgains of $43$76 million related to our cash flow hedges from accumulated other comprehensive loss into net income during the next 12 months.
Note 10 - Net Income Attributable to PepsiCo per Common Share
The computations of basic and diluted net income attributable to PepsiCo per common share are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended |
| 3/20/2021 | | 3/21/2020 |
| Income | | Shares(a) | | Income | | Shares(a) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic net income attributable to PepsiCo per common share | $ | 1.24 | | | | | $ | 0.96 | | | |
Net income available for PepsiCo common shareholders | $ | 1,714 | | | 1,380 | | | $ | 1,338 | | | 1,390 | |
Dilutive securities: | | | | | | | |
Stock options, RSUs, PSUs and other (b) | 0 | | | 7 | | | 0 | | | 6 | |
Diluted | $ | 1,714 | | | 1,387 | | | $ | 1,338 | | | 1,396 | |
Diluted net income attributable to PepsiCo per common share | $ | 1.24 | | | | | $ | 0.96 | | | |
|
| | | | | | | | | | | | | |
| 12 Weeks Ended |
| 6/13/2020 | | 6/15/2019 |
| Income | | Shares(a) | | Income | | Shares(a) |
Basic net income attributable to PepsiCo per common share | $ | 1.19 |
| | | | $ | 1.45 |
| | |
Net income available for PepsiCo common shareholders | $ | 1,646 |
| | 1,387 |
| | $ | 2,035 |
| | 1,401 |
|
Dilutive securities: | | | | | | | |
Stock options, RSUs, PSUs and other (b) | — |
| | 6 |
| | — |
| | 8 |
|
Diluted | $ | 1,646 |
| | 1,393 |
| | $ | 2,035 |
| | 1,409 |
|
Diluted net income attributable to PepsiCo per common share | $ | 1.18 |
| | | | $ | 1.44 |
| | |
(a)Weighted-average common shares outstanding (in millions). |
| | | | | | | | | | | | | |
| 24 Weeks Ended |
| 6/13/2020 | | 6/15/2019 |
| Income | | Shares(a) | | Income | | Shares(a) |
Basic net income attributable to PepsiCo per common share | $ | 2.15 |
| | | | $ | 2.46 |
| | |
Net income available for PepsiCo common shareholders | $ | 2,984 |
| | 1,389 |
| | $ | 3,448 |
| | 1,403 |
|
Dilutive securities: | | | | | | | |
Stock options, RSUs, PSUs and other (b) | — |
| | 6 |
| | — |
| | 8 |
|
Diluted | $ | 2,984 |
| | 1,395 |
| | $ | 3,448 |
| | 1,411 |
|
Diluted net income attributable to PepsiCo per common share | $ | 2.14 |
| | | | $ | 2.44 |
| | |
(b)The dilutive effect of these securities is calculated using the treasury stock method. | |
(a) | Weighted-average common shares outstanding (in millions). |
| |
(b) | The dilutive effect of theseThe weighted-average amount of antidilutive securities is calculated using the treasury stock method. |
Out-of-the-money options excluded from the calculation of diluted earnings per common share are as follows:was immaterial for both the 12 weeks ended March 20, 2021 and March 21, 2020.
|
| | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 24 Weeks Ended |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
|
Out-of-the-money options (a) | 1.7 |
| | — |
| | 0.8 |
| | 0.6 |
|
Average exercise price per option | $ | 131.53 |
| | $ | — |
| | $ | 131.53 |
| | $ | 115.98 |
|
Note 11 - Accumulated Other Comprehensive Loss Attributable to PepsiCo
The changes in the balances of each component of accumulated other comprehensive loss attributable to PepsiCo are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency Translation Adjustment | | Cash Flow Hedges | | Pension and Retiree Medical | | | | Other | | Accumulated Other Comprehensive Loss Attributable to PepsiCo |
Balance as of December 26, 2020 (a) | $ | (11,940) | | | $ | 4 | | | $ | (3,520) | | | | | $ | (20) | | | $ | (15,476) | |
Other comprehensive (loss)/income before reclassifications (b) | 128 | | | 97 | | | (20) | | | | | 0 | | | 205 | |
Amounts reclassified from accumulated other comprehensive loss | 18 | | | (1) | | | 52 | | | | | 0 | | | 69 | |
Net other comprehensive (loss)/income | 146 | | | 96 | | | 32 | | | | | 0 | | | 274 | |
Tax amounts | (15) | | | (24) | | | (5) | | | | | 0 | | | (44) | |
Balance as of March 20, 2021 (a) | $ | (11,809) | | | $ | 76 | | | $ | (3,493) | | | | | $ | (20) | | | $ | (15,246) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Currency Translation Adjustment | | Cash Flow Hedges | | Pension and Retiree Medical | | Other | | Accumulated Other Comprehensive Loss Attributable to PepsiCo |
Balance as of December 28, 2019 (a) | $ | (11,290 | ) | | $ | (3 | ) | | $ | (2,988 | ) | | $ | (19 | ) | | $ | (14,300 | ) |
Other comprehensive (loss)/income before reclassifications (b) | (735 | ) | | (236 | ) | | 21 |
| | 1 |
| | (949 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | 157 |
| | 50 |
| | — |
| | 207 |
|
Net other comprehensive (loss)/income | (735 | ) | | (79 | ) | | 71 |
| | 1 |
| | (742 | ) |
Tax amounts | (19 | ) | | 18 |
| | (14 | ) | | — |
| | (15 | ) |
Balance as of March 21, 2020 (a) | $ | (12,044 | ) | | $ | (64 | ) | | $ | (2,931 | ) | | $ | (18 | ) | | $ | (15,057 | ) |
Other comprehensive (loss)/income before reclassifications (c) | (827 | ) | | 144 |
| | 25 |
| | (1 | ) | | (659 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | (127 | ) | | 57 |
| | — |
| | (70 | ) |
Net other comprehensive (loss)/income | (827 | ) | | 17 |
| | 82 |
| | (1 | ) | | (729 | ) |
Tax amounts | 31 |
| | (4 | ) | | (19 | ) | | — |
| | 8 |
|
Balance as of June 13, 2020 (a) | $ | (12,840 | ) | | $ | (51 | ) | | $ | (2,868 | ) | | $ | (19 | ) | | $ | (15,778 | ) |
| |
(a) | Pension and retiree medical amounts are net of taxes of $1,370 million as of December 28, 2019, $1,356 million as of March 21, 2020 and $1,337 million as of June 13, 2020. |
| |
(b) | Currency translation adjustment primarily reflects depreciation of the Russian ruble, Canadian dollar and Mexican peso. |
| |
(c) | Currency translation adjustment primarily reflects depreciation of the Mexican peso, Russian ruble and euro. |
|
| | | | | | | | | | | | | | | | | | | |
| Currency Translation Adjustment | | Cash Flow Hedges | | Pension and Retiree Medical | | Other | | Accumulated Other Comprehensive Loss Attributable to PepsiCo |
Balance as of December 29, 2018 (a) | $ | (11,918 | ) | | $ | 87 |
| | $ | (3,271 | ) | | $ | (17 | ) | | $ | (15,119 | ) |
Other comprehensive (loss)/income before reclassifications (b) | 475 |
| | (20 | ) | | (16 | ) | | — |
| | 439 |
|
Amounts reclassified from accumulated other comprehensive loss | — |
| | (15 | ) | | 34 |
| | — |
| | 19 |
|
Net other comprehensive (loss)/income | 475 |
| | (35 | ) | | 18 |
| | — |
| | 458 |
|
Tax amounts | (2 | ) | | 8 |
| | (1 | ) | | — |
| | 5 |
|
Balance as of March 23, 2019 (a) | $ | (11,445 | ) | | $ | 60 |
| | $ | (3,254 | ) | | $ | (17 | ) | | $ | (14,656 | ) |
Other comprehensive (loss)/income before reclassifications (c) | (365 | ) | | (37 | ) | | 16 |
| | 1 |
| | (385 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | 29 |
| | 37 |
| | — |
| | 66 |
|
Net other comprehensive (loss)/income | (365 | ) | | (8 | ) | | 53 |
| | 1 |
| | (319 | ) |
Tax amounts | — |
| | 2 |
| | (11 | ) | | — |
| | (9 | ) |
Balance as of June 15, 2019 (a) | $ | (11,810 | ) | | $ | 54 |
| | $ | (3,212 | ) | | $ | (16 | ) | | $ | (14,984 | ) |
(a)Pension and retiree medical amounts are net of taxes of $1,514 million as of December 26, 2020 and $1,509 million as of March 20, 2021. | |
(a) | Pension and retiree medical amounts are net of taxes of $1,466 million as of December 29, 2018, $1,465 million as of March 23, 2019 and $1,454 million as of June 15, 2019. |
| |
(b) | Currency translation adjustment primarily reflects appreciation of the Russian ruble, Mexican peso and Pound sterling. |
| |
(c) | Currency translation adjustment primarily reflects depreciation of the euro, Mexican peso and Swiss franc. |
(b)Currency translation adjustment primarily reflects appreciation of the Canadian dollar, Pound sterling and Russian ruble.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency Translation Adjustment | | Cash Flow Hedges | | Pension and Retiree Medical | | | | Other | | Accumulated Other Comprehensive Loss Attributable to PepsiCo |
Balance as of December 28, 2019 (a) | $ | (11,290) | | | $ | (3) | | | $ | (2,988) | | | | | $ | (19) | | | $ | (14,300) | |
Other comprehensive (loss)/income before reclassifications (b) | (735) | | | (236) | | | 21 | | | | | 1 | | | (949) | |
Amounts reclassified from accumulated other comprehensive loss | 0 | | | 157 | | | 50 | | | | | 0 | | | 207 | |
Net other comprehensive (loss)/income | (735) | | | (79) | | | 71 | | | | | 1 | | | (742) | |
Tax amounts | (19) | | | 18 | | | (14) | | | | | 0 | | | (15) | |
Balance as of March 21, 2020 (a) | $ | (12,044) | | | $ | (64) | | | $ | (2,931) | | | | | $ | (18) | | | $ | (15,057) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(a)Pension and retiree medical amounts are net of taxes of $1,370 million as of December 28, 2019 and $1,356 million as of March 21, 2020.
(b)Currency translation adjustment primarily reflects depreciation of the Russian ruble, Canadian dollar and Mexican peso.
The reclassifications from accumulated other comprehensive loss to the income statement are summarized as follows:
|
| | | | | | | | | | | | | | | | | | |
| | 12 Weeks Ended | | 24 Weeks Ended | | |
| | 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
| | Affected Line Item in the Income Statement |
Cash flow hedges: | | | | | | | | | | |
Foreign exchange contracts | | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| | Net revenue |
Foreign exchange contracts | | (19 | ) | | — |
| | (15 | ) | | (5 | ) | | Cost of sales |
Interest rate derivatives | | (121 | ) | | 27 |
| | 29 |
| | 16 |
| | Net interest expense and other |
Commodity contracts | | 11 |
| | 1 |
| | 14 |
| | 2 |
| | Cost of sales |
Commodity contracts | | 2 |
| | — |
| | 2 |
| | — |
| | Selling, general and administrative expenses |
Net (gains)/losses before tax | | (127 | ) | | 29 |
| | 30 |
| | 14 |
| | |
Tax amounts | | 31 |
| | (6 | ) | | (8 | ) | | (2 | ) | | |
Net (gains)/losses after tax | | $ | (96 | ) | | $ | 23 |
| | $ | 22 |
| | $ | 12 |
| | |
| | | | | | | | | | |
Pension and retiree medical items: | | | | | | | | | | |
Amortization of prior service credits | | $ | — |
| | $ | (2 | ) | | $ | — |
| | $ | (4 | ) | | Other pension and retiree medical benefits income |
Amortization of net losses | | 57 |
| | 39 |
| | 107 |
| | 75 |
| | Other pension and retiree medical benefits income |
Net losses before tax | | 57 |
| | 37 |
| | 107 |
| | 71 |
| | |
Tax amounts | | (11 | ) | | (8 | ) | | (22 | ) | | (15 | ) | | |
Net losses after tax | | $ | 46 |
| | $ | 29 |
| | $ | 85 |
| | $ | 56 |
| | |
| | | | | | | | | | |
Total net (gains)/losses reclassified, net of tax | | $ | (50 | ) | | $ | 52 |
| | $ | 107 |
| | $ | 68 |
| | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | 12 Weeks Ended | | |
| | | | | | 3/20/2021 | | 3/21/2020 | | Affected Line Item in the Income Statement |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Currency translation: | | | | | | | | | | |
Divestiture | | | | | | $ | 18 | | | $ | 0 | | | Selling, general and administrative expenses |
| | | | | | | | | | |
Cash flow hedges: | | | | | | | | | | |
Foreign exchange contracts | | | | | | $ | 1 | | | $ | 0 | | | Net revenue |
Foreign exchange contracts | | | | | | 12 | | | 4 | | | Cost of sales |
Interest rate derivatives | | | | | | (4) | | | 150 | | | Net interest expense and other |
Commodity contracts | | | | | | (11) | | | 3 | | | Cost of sales |
Commodity contracts | | | | | | 1 | | | 0 | | | Selling, general and administrative expenses |
Net (gains)/losses before tax | | | | | | (1) | | | 157 | | | |
Tax amounts | | | | | | 1 | | | (39) | | | |
Net losses after tax | | | | | | $ | 0 | | | $ | 118 | | | |
| | | | | | | | | | |
Pension and retiree medical items: | | | | | | | | | | |
Amortization of prior service credits | | | | | | $ | (9) | | | $ | 0 | | | Other pension and retiree medical benefits income |
Amortization of net losses | | | | | | 61 | | | 50 | | | Other pension and retiree medical benefits income |
| | | | | | | | | | |
Net losses before tax | | | | | | 52 | | | 50 | | | |
Tax amounts | | | | | | (11) | | | (11) | | | |
Net losses after tax | | | | | | $ | 41 | | | $ | 39 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total net losses reclassified, net of tax | | | | | | $ | 59 | | | $ | 157 | | | |
Note 12 - Acquisitions and Divestitures
Acquisition of Pioneer Food Group Ltd.
On March 23, 2020, we acquired all of the outstanding shares of Pioneer Foods, a food and beverage company in South Africa with exports to countries across the globe, for 110.00 South African rand per share in cash. The total consideration transferred was approximately $1.2$1.2 billion and was funded by the Bridge Loan Facilitiestwo unsecured bridge loan facilities entered into by one of our international consolidated subsidiaries. See Note 8 for further information.subsidiaries, which were fully repaid in April 2020.
We accounted for the transaction as a business combination. We recognized and measured the identifiable assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, in our AMESA segment. The assets acquired and liabilities assumed in Pioneer Foods as of the acquisition date, which primarily include goodwill and other intangible assets of $0.8$0.8 billion and property, plant and equipment of $0.4$0.4 billion,, are based on preliminary estimates that are subject to revisions and may result in adjustments to preliminary values as valuations are finalized. We expect towill finalize these amounts as soon as possible, but no later thanin the second quarter of 2021.
In connection with our acquisition of Pioneer Foods, we have made certain commitments to the South Africa Competition Commission, including a commitment to provide the equivalent of 7.7 billion South African rand, or approximately $0.4 billion as of the end of the second quarter of 2020,acquisition date, in value for the benefit of our employees, agricultural development, education, developing Pioneer Foods’ operations and enterprise
development programs in South Africa. Included in this commitment is 2.2 billion South African rand, or approximately $0.1 billion, relating to the implementation of an employee ownership plan and an agricultural, entrepreneurship and educational development fund, which was recorded in selling, general and
administrative expenses in the 12 and 24 weeks ended June 13, 2020 since it is an irrevocable condition of the acquisitionacquisition. This commitment was recorded in selling, general and will primarilyadministrative expenses in the year ended December 26, 2020 and is expected to be settled withinprimarily in the twelve-month period from the acquisition date.second half of 2021. The remaining commitment of 5.5 billion South African rand, or approximately $0.3 billion as of the acquisition date, relates to capital expenditures and/or business-related costs which will be incurred and recorded over a five-year period from the acquisition date.
Acquisition of Rockstar Energy Beverages
On April 24, 2020, we acquired Rockstar, an energy drink maker with whom we had a distribution agreement prior to the acquisition, for an upfront cash payment of approximately $3.85$3.85 billion and contingent consideration related to estimated future tax benefits associated with the acquisition of approximately $0.85$0.9 billion. See Note 9 for further information about the contingent consideration. The purchase price will also be adjusted for net working capital amounts as of the acquisition date compared to targeted amounts set forth in the acquisition agreement.
We accounted for the transaction as a business combination. We recognized and measured the identifiable assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, primarily in our PBNA segment. The assets acquired and liabilities assumed in Rockstar as of the acquisition date, which primarily include goodwill and other intangible assets of $4.7 billion, are based on preliminary estimates that are subject to revisions and may result in adjustments to preliminary values as valuations are finalized. We expect towill finalize these amounts as soon as possible, but no later thanin the second quarter of 2021.
In addition to our acquisition of Rockstar, as part of our overall energy strategy, we entered into an agreement with Vital Pharmaceuticals, Inc. for us and our bottlers to exclusively distribute Bang Energy drinks in the United States.
Acquisition of Hangzhou Haomusi Food Co., Ltd. (Be & Cheery)
On June 1, 2020, we acquired all of the outstanding shares of Be & Cheery, one of the largest online snacks companies in China, from Haoxiangni Health Food Co., Ltd. for cash.cash. The total consideration transferred was approximately $0.7 billion. The purchase price will be adjusted for net working capital and net debt amounts as of the acquisition date compared to targeted amounts set forth in the acquisition agreement.$0.7 billion.
We will accountaccounted for the transaction as a business combination in the third quarter of 2020.combination. We will recognizerecognized and measuremeasured the identifiable assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, in our APAC segment. The assets acquired and liabilities assumed in Be & Cheery as of the acquisition date, which primarily include goodwill and other intangible assets will beof $0.7 billion, are based on preliminary estimates that are subject to revisions and may result in adjustments to preliminary values as valuations are finalized. We expect to finalize these amounts as soon as possible, but no later than the third quarter of 2021.
Acquisition of SodaStream International Ltd. (SodaStream)
On December 5, 2018, we acquired all of the outstanding shares of SodaStream, a manufacturer and distributor of sparkling water makers, for $144.00 per share in cash, in a transaction valued at approximately $3.3 billion. The total consideration transferred was $3.3 billion (or $3.2 billion, net of cash and cash equivalents acquired). The purchase price allocation was finalized in the fourth quarter of 2019. See Note 14 to our consolidated financial statements in our 2019 Form 10-K for further information.
Inventory Fair Value Adjustments and Merger and Integration ChargesCharges/Credits
A summary of our inventory fair value adjustments and merger and integration chargescharges/credits is as follows:
| | | | | | | | | | | | | 12 Weeks Ended | |
| 12 Weeks Ended | | 24 Weeks Ended | | | 3/20/2021 | | 3/21/2020 | | Acquisition |
FLNA | | FLNA | | $ | 2 | | | $ | 23 | | | BFY Brands |
PBNA | | PBNA | | 1 | | | 0 | | | Rockstar |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
| | 6/15/2019 |
| |
Cost of sales | 19 |
| | 20 |
| | 19 |
| | 34 |
| |
Selling, general and administrative expenses | 199 |
| | 4 |
| | 224 |
| | 5 |
| |
AMESA | | AMESA | | 1 | | | 2 | | | Pioneer Foods |
Corporate (a) | | Corporate (a) | | (14) | | | 0 | | | Rockstar |
Total | $ | 218 |
| | $ | 24 |
| | $ | 243 |
| | $ | 39 |
| Total | | $ | (10) | | | $ | 25 | | |
After-tax amount | $ | 205 |
| | $ | 19 |
| | $ | 227 |
| | $ | 32 |
| After-tax amount | | $ | (7) | | | $ | 22 | | |
Net income attributable to PepsiCo per common share | $ | 0.15 |
| | $ | 0.01 |
| | $ | 0.16 |
| | $ | 0.02 |
| Net income attributable to PepsiCo per common share | | $ | 0.01 | | | $ | (0.02) | | |
Inventory(a)In the 12 weeks ended March 20, 2021, the income amount relates to the change in the fair value adjustments and mergerof contingent consideration associated with our acquisition of Rockstar.
Merger and integration chargescharges/credits include fair value adjustments to the acquired inventory included in the acquisition-date balance sheets (recorded in cost of sales) and liabilities to support socioeconomic programs in South Africa, as well as closingemployee-related costs, employee-relatedcontract termination costs, changes in the fair value of contingent consideration and contract terminationother integration costs (recorded in selling, general and administrative expenses). Inventory fair value adjustments and merger and integration charges by division are as follows:
|
| | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 24 Weeks Ended | | |
| 6/13/2020 |
| | 6/15/2019 |
| | 6/13/2020 |
|
| 6/15/2019 |
|
| Acquisition |
FLNA | $ | 2 |
| | $ | — |
| | $ | 25 |
| | $ | — |
|
| BFY Brands |
PBNA | 43 |
| | — |
| | 43 |
| | — |
|
| Rockstar |
Europe | — |
| | 23 |
| | — |
| | 38 |
| | SodaStream |
AMESA | 157 |
| | — |
| | 159 |
| | — |
|
| Pioneer Foods |
Corporate | 16 |
| | 1 |
| | 16 |
| | 1 |
| | Rockstar, SodaStream |
Total | $ | 218 |
| | $ | 24 |
| | $ | 243 |
| | $ | 39 |
|
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FINANCIAL REVIEW
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 condensed consolidated financial statements and the accompanying notes. Unless 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.
Our Critical Accounting Policies
The critical accounting policies below should be read in conjunction with those outlined in our 20192020 Form 10-K.
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. 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-endyear 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.
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.
Income Taxes
In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate which is based on our expected annual income, statutory tax rates and tax planning strategiesstructure 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. Subsequent recognition, derecognition and measurement of a tax position taken in a previous period are separately recognized in the quarter in which they occur.
Our Business Risks
This Form 10-Q 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. Such risks and uncertainties include, but are not limited to: the impact of the spread of COVID-19; future demand for PepsiCo’s products, as a result of changes in consumer preferencesproducts; damage to PepsiCo’s reputation or otherwise; changes in laws relatedbrand image; issues or concerns with respect to the use or disposal of plastics or other packaging of PepsiCo’s products; changes in, or failure to comply with, applicable lawsproduct quality and regulations; imposition or proposed imposition of new or increased taxes aimed at PepsiCo’s products; imposition of labeling or warning requirements on PepsiCo’s products;safety; PepsiCo’s ability to compete effectively; failurePepsiCo’s ability to realize anticipated benefits fromattract, develop and maintain a highly skilled and diverse workforce; water scarcity; changes in the retail landscape or in sales to any key customer; disruption of PepsiCo’s productivitysupply chain; political or reinvestment initiatives or operating model; politicalsocial conditions civil unrest or other developments and risks in the markets where PepsiCo’s products are made, manufactured, distributed or sold; PepsiCo’s ability to grow its business in developing and emerging markets; uncertain or unfavorablechanges in economic conditions in the countries in which PepsiCo operates; the ability to protect information systems against, or effectively respond to, a cybersecurity incident or other disruption; increased costs, disruption of supply or shortages of raw materialsfuture cyber incidents and other supplies; water scarcity; business disruptions; product contamination or tampering or issues or concerns with respect to product quality, safety and integrity; damage to PepsiCo’s reputation or brand image; failure to successfully complete integrate or manage acquisitions and joint ventures into
strategic transactions; PepsiCo’s existing operationsreliance on third-party service providers; climate change or measures to completeaddress climate change; strikes or manage divestitures or refranchisings; changeswork stoppages; failure to realize benefits from PepsiCo’s productivity initiatives; deterioration in estimates and underlying assumptions regarding future performance that can result in an impairment charge; fluctuations or other changes in exchange rates; any downgrade or potential downgrade of PepsiCo’s credit ratings; imposition or proposed imposition of new or increased taxes aimed at PepsiCo’s products; imposition of limitations on the marketing or sale of PepsiCo’s products; changes in laws and regulations related to the use or disposal of plastics or other packaging of PepsiCo’s products; failure to comply with personal data protection and privacy laws; increase in income tax rates, changes in income tax laws including as a result of enactment and implementation of the TRAF, or disagreements with tax authorities; PepsiCo’s ability to recruit, hire or retain key employees or a highly skilled and diverse workforce; loss of, or a significant reduction in sales to, any key customer; disruption to the retail landscape, including rapid growth in e-commerce channel and hard discounters; any downgrade or potential downgrade of PepsiCo’s credit ratings; PepsiCo’s ability to implement shared services or utilize information technology systems and networks effectively; fluctuations or other changes in exchange rates; climate change or legal, regulatory or market measures to address climate change; failure to successfully negotiate collective bargaining agreements, or strikes or work stoppages; failure to adequately protect ourPepsiCo’s intellectual property rights or infringement ofon intellectual property rights of others; failure to comply with applicable laws and regulations; and potential liabilities and costs from litigation, claims, legal or regulatory proceedings, inquiries or investigations; and other factors that may adversely affect the price of PepsiCo’s publicly traded securitiesrisks and financial performanceuncertainties including those described in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks,” included in our 20192020 Form 10-K and in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks” and “Item 1A. Risk Factors” of this Form 10-Q. 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.
COVID-19
Our global operations continue to expose us to risks associated with the COVID-19 pandemic, which has continuedcontinues 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. Authorities in many of these markets have implemented numerous and varying measures to stall the spread and ameliorate the impact of COVID-19, including travelTravel bans and restrictions, quarantines, curfews, restrictions on public gatherings, shelter in place and safer-at-home orders, business shutdowns and closures and have also implemented multi-step policies with the goalcontinue in many of re-opening these markets. These measures have impacted and will continue to impact us, our customers (including our foodservice customers), consumers, employees, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third
parties with whom we do business. The countries and territories inbusiness, which our products are made, manufactured, distributed or sold are in varying stages of restrictions and re-opening to address the COVID-19 pandemic. Certain jurisdictions have begun re-opening only to return to restrictions in the face of increases in new COVID-19 cases. There is considerable uncertainty regarding how current and future health and safety measures implemented in response to the pandemic will impact our business, including whether they willmay result in further changes in demand for our products, further increases in operating costs (whether as a result of changes to our supply chain or increases in employee costs, operatingincluding expanded benefits and frontline incentives, costs associated with the provision of personal protective equipment and increased sanitation, or otherwise), how they will further impactor adverse impacts to our supply chain and whether they will result in furtherthrough reduced availability of air or other commercial transport, port closures or border restrictions, each or allany of which can impact our ability to make, manufacture, distribute and sell our products. To date, we have incurred increased costs as a result of COVID-19, including increased employee costs, such as expanded benefits and frontline incentives, and other operating costs, such as costs associated with the provision of personal protective equipment, allowances for credit losses, upfront payment write-offs and inventory write-offs, which have negatively impacted our profitability. In addition, measures that impact our ability to access our offices (several of which remain closed), plants, warehouses, distribution centers or other facilities, (some of which are currently closed), or that impact the ability of our customers (including our foodservice customers), consumers, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third parties to do the same, 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. We continue to implement safety protocols at our facilities
and have been working and will continue to work closely with our business partners on contingency planning in an effort to maintain supply. To date, we have not experienced a material disruption to our operations or supply chain, although we can reasonably envision that possibility.
Public concern regarding the risk of contracting COVID-19 impactshas 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. Changes in consumer demand as a result of COVID-19 continues to vary in scope and timing by jurisdiction as we sell a wide variety of beverages, foods and snacks and the amount of revenue attributable to such products varies across these markets. Even as governmentgovernmental restrictions are liftedrelaxed 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. In addition, changesChanges in consumer purchasing and consumption patterns may increase demand for our products in one quarter, resulting in decreased consumer demand for our products in subsequent quarters, or in onea 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 a rapidan 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, 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 alsocontinue to result in our recording additional impairment 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 try 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 of new variants of the virus, the likelihood of a resurgence of positive cases, the
development and availability of effective treatments and vaccines, the speed at which such vaccines are administered, 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.
Coronavirus Aid, Relief, and Economic Security Act
The CARES Act was enacted on March 27, 2020 in the United States. The CARES Act and related notices include several significant provisions, including delaying certain payroll tax payments, mandatory transition tax payments under the TCJ Act, and estimated income tax payments that we are deferring to future periods. We do not currently expect the CARES Act to have a material impact on our financial results, including on our annual estimated effective tax rate or on our liquidity.We will continue to monitor and assess the impact the CARES Act and similar legislation in other countries may have on our business and financial results.
Refer to the COVID-19 discussion above and Note 5 to our condensed consolidated financial statements for further information.
Risks Associated with International Operations
In the 12 weeks ended June 13, 2020, substantially all of our financial results outside of North America reflect the months of March April and May. In the 24 weeks ended June 13, 202020, 2021, substantially all of our financial results outside of North America reflect the months of January through May.and February. In the 2412 weeks ended June 13, 2020,March 20, 2021, our operations outside of the United States generated 39%37% of our consolidated net revenue, with Brazil, Canada, China, Mexico, Russia, South Africa and the United Kingdom comprising approximately 20%21% of our consolidated net revenue. As a result, we are exposed to foreign exchange risk in the international markets in which our products are made, manufactured, distributed or sold. In the 12 and 24 weeks ended June 13, 2020,March 20, 2021, unfavorable foreign exchange negatively impactedreduced net revenue performancegrowth by 40.5 percentage points, and 2 percentage points, respectively, primarily due to declines in the Mexican peso,Russian ruble and Brazilian real, and Russian ruble.partially offset by an appreciation of the euro. 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, Mexico, the Middle East, Russia and Turkey, and natural disasters, debt and credit issues 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 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. We also continue to monitor the economic and political developments related to the United Kingdom’s withdrawal from the European Union (Brexit), including howthe effects of the post-Brexit trade deal entered into between the United Kingdom will interact with otherand the European Union countries following its departure,in December 2020, as well as the economic, operating and political environment in Russia and the potential impact for theour Europe segment and our other businesses.
See Note 9 to our condensed consolidated financial statements in this Form 10-Q for the fair values of our financial instruments as of June 13, 2020March 20, 2021 and December 28, 201926, 2020 and Note 9 to our consolidated financial statements in our 20192020 Form 10-K for a discussion of these items. Cautionary statements included above and in “Item 1A. Risk Factors” in this Form 10-Q, and in “Item 1A. Risk Factors” and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks” in our 20192020 Form 10-K should be considered when evaluating our trends and future results.
Imposition 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 recently 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, encourage
waste reduction and increased recycling 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 snacks 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 vary 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.
Tax Cuts and Jobs Act
During the fourth quarter of 2017, the TCJ Act was enacted in the United States. The related provisional measurement period allowed by the SEC ended in the fourth quarter of 2018. While our accounting for the recorded impact of the TCJ Act was deemed to be complete, additional guidance issued by theIRSimpacted our recorded amounts after December 29, 2018. For further information on the impact of the TCJ Act, see Note 5 to our condensed consolidated financial statements and “Our Liquidity and Capital Resources” in this Form 10-Q, as well as Note 5 to our consolidated financial statements in our 2019 Form 10-K.
Other Tax Matters
On May 19, 2019, a public referendum held in Switzerland passed the TRAF, effective January 1, 2020. There were no income tax adjustments recorded in the 24 weeks ended June 13, 2020 related to the TRAF. Enactment of additional TRAF provisions subsequent to June 13, 2020 is expected to result in adjustments to our financial statements and related disclosures in future periods. The future impact of the TRAF cannot currently be reasonably estimated; we will continue to monitor and assess the impact the TRAF may have on our business and financial results.
See Note 5 to our condensed consolidated financial statements in this Form 10-Q, as well as Note 5 to our consolidated financial statements in our 2019 Form 10-K for further information.
Retail Landscape
Additionally, ourOur 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.
Results of Operations – Consolidated Review
Consolidated Results
Volume
VolumePhysical 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. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Financial Results – Volume” included in our 20192020 Form 10-K for further information on volume.
We report substantially all of our international beverage volume on a monthly calendar basis. The 12 weeks ended June 13, 2020 include beverage volume outside of North America for the months of March April and May. The 24 weeks ended June 13, 202020, 2021 include beverage volume outside of North America for the months of January through May.and February.
Our divisions’ physical volume measures are converted into servings based on U.S. Food and Drug Administration (FDA) recommended guidelines for single-serving sizes of food and beverage products. The FDA revised the guidelines on recommended serving size for beverage products, effective January 1, 2020. Previously, FDA guidelines recommended a serving size of 8 fluid ounces for all beverages. The revised guidelines recommend a serving size of 8 fluid ounces for beverages that consist of milk, fruit juices, nectars and fruit drinks and 12 fluid ounces for other beverages. No changes were recommended to the serving size of food products. For the 12 and 24 weeks ended June 13, 2020, total servings increased 1% and 3.5%, respectively, which reflects the impact of the revised guidelines on our prior-year servings.
Consolidated Net Revenue and Operating Profit
| | | 12 Weeks Ended | | 24 Weeks Ended | | | 12 Weeks Ended |
| 6/13/2020 |
| | 6/15/2019 |
| | Change | | 6/13/2020 |
| | 6/15/2019 |
| | Change | | | 3/20/2021 | | 3/21/2020 | | Change |
Net revenue | $ | 15,945 |
| | $ | 16,449 |
| | (3 | )% | | $ | 29,826 |
| | $ | 29,333 |
| | 2 | % | Net revenue | | $ | 14,820 | | | $ | 13,881 | | | 7 | % |
Operating profit | $ | 2,319 |
| | $ | 2,729 |
| | (15 | )% | | $ | 4,243 |
| | $ | 4,737 |
| | (10 | )% | Operating profit | | $ | 2,312 | | | $ | 1,924 | | | 20 | % |
Operating profit margin | 14.5 | % | | 16.6 | % | | (2.1 | ) | | 14.2 | % | | 16.1 | % | | (1.9 | ) | Operating profit margin | | 15.6 | % | | 13.9 | % | | 1.7 | |
See “Results of Operations – Division Review” for a tabular presentation and discussion of key drivers of net revenue.
12 Weeks
Operating profit decreased 15%grew 20% and operating profit margin decreased 2.1increased 1.7 percentage points. Operating profit performancegrowth was primarily driven by effective net pricing and productivity savings, partially offset by certain
operating cost increases, a net volume decline5-percentage-point impact of higher commodity costs and a 3-percentage-point impact of unfavorable foreign exchange, partially offset by productivity savings, lower advertising and marketing expenses and effective net pricing.decrease in organic volume.
Higher inventory fair value adjustments and merger and integration chargesmark-to-market gains on commodity derivatives included in “Items Affecting Comparability” negatively impacted operating profit performance by 25contributed 12 percentage points and were largely offset by lower restructuring and impairment charges and a favorable mark to market net impact on commodity derivatives which positively contributed 17 percentage points and 6 percentage points, respectively, to operating profit performance.growth. An unrealized pre-tax gain of $108 million on our short-term investment in a publicly traded company also contributed 5 percentage points to operating profit growth. Additionally, lower charges compared to the chargesprior year taken as a result of the COVID-19 pandemic negatively impactedcontributed 4 percentage points to operating profit performance by 13 percentage points.growth. See Note 1 to our condensed consolidated financial statementsand Note 9 for further information.
24 Weeks
Operating profit decreased 10% and operating profit margin decreased 1.9 percentage points. Operating profit performance was primarily driven by certain operating cost increases, partially offset by productivity savings and net revenue growth.
Higher inventory fair value adjustments and merger and integration charges included in “Items Affecting Comparability” negatively impacted operating profit performance by 4.5 percentage points. Additionally,
the charges taken as a result of the COVID-19 pandemic negatively impacted operating profit performance by 11 percentage points. See Note 1 to our condensed consolidated financial statements for further information.
Results of Operations – Division Review
As previously disclosed in our 2019 Form 10-K, our historical segment reporting presented in this report has been retrospectively revised to reflect the new organizational structure. These changes did not impact our consolidated financial results.
While our financial results in North America are reported on a 12-week basis, substantially all of our international operations report on a monthly calendar basis for which the months of March, April January and MayFebruary are reflected in our results for the 12 weeks endedJune 13, 2020, and the months of January through May are reflected in our results for the 24 weeks endedJune 13, 2020. March 20, 2021.
See “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 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” reflect all mergers and acquisitions activity, including the impact of acquisitions, divestitures and changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.
Net Revenue and Organic Revenue Growth
Organic revenue growth is a non-GAAP financial measure. For further information on this measure see “Non-GAAP Measures.”
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 3/20/2021 |
| | | 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 | 4 | % | | — | | | (0.5) | | | | | 3 | % | | | | | | (1) | | | 4 | |
QFNA | 2 | % | | (0.5) | | | — | | | | | 1 | % | | | | | | (4) | | | 5 | |
PBNA | 5 | % | | — | | | (3) | | | | | 2 | % | | | | | | (4.5) | | | 6 | |
LatAm | (5) | % | | 8 | | | — | | | | | 3 | % | | | | | | (2) | | | 4 | |
Europe | (2) | % | | 2 | | | — | | | | | — | % | | | | | | — | | | (1) | |
AMESA | 40 | % | | 1 | | | (42) | | | | | (1) | % | | | | | | 2 | | | (3) | |
APAC | 70 | % | | (8) | | | (44) | | | | | 18 | % | | | | | | 17 | | | 2 | |
Total | 7 | % | | 0.5 | | | (5) | | | | | 2 | % | | | | | | (1) | | | 4 | |
(a)Amounts may not sum due to rounding.
(b)Excludes the impact of acquisitions and divestitures. 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 product mix, nonconsolidated joint venture volume, and, for our beverage businesses, temporary timing differences between bottler case sales and concentrate shipments and equivalents (CSE). Our net revenue excludes nonconsolidated joint venture volume, and, for our franchise-owned beverage businesses, is based on CSE.
|
| | | | | | | | | | | | | | | | |
| 12 Weeks Ended 6/13/2020 |
| | | Impact of | | | Impact of |
| Reported % Change, GAAP Measure | | Foreign exchange translation | | Acquisitions and divestitures | | Organic % Change, Non-GAAP Measure(a) | | Volume(b) | | Effective net pricing |
FLNA | 7 | % | | — | | (0.5 | ) | | 6 | % | | 4 |
| | 2 |
|
QFNA | 23 | % | | — | | — |
| | 23 | % | | 26 |
| | (3 | ) |
PBNA | (7 | )% | | — | | (1 | ) | | (7 | )% | | (11 | ) | | 3 |
|
LatAm | (17 | )% | | 17 | | — |
| | — | % | | (1 | ) | | 1 |
|
Europe | (9 | )% | | 7 | | — |
| | (2.5 | )% | | (1 | ) | | (2 | ) |
AMESA | (1 | )% | | 2 | | (7 | ) | | (7 | )% | | (8 | ) | | 1.5 |
|
APAC | 10 | % | | 5 | | — |
| | 15 | % | | 11 |
| | 3 |
|
Total | (3 | )% | | 4 | | (1 | ) | | — | % | | (2 | ) | | 1.5 |
|
|
| | | | | | | | | | | | | | | | |
| 24 Weeks Ended 6/13/2020 |
| | | Impact of | | | Impact of |
| Reported % Change, GAAP Measure | | Foreign exchange translation | | Acquisitions and divestitures | | Organic % Change, Non-GAAP Measure(a) | | Volume(b) | | Effective net pricing |
FLNA | 7 | % | | — | | — |
| | 7 | % | | 4.5 |
| | 2 |
|
QFNA | 14 | % | | — | | — |
| | 15 | % | | 17 |
| | (2 | ) |
PBNA | — | % | | — | | (1 | ) | | (1 | )% | | (3 | ) | | 2 |
|
LatAm | (8 | )% | | 11 | | — |
| | 3 | % | | 1 |
| | 2 |
|
Europe | (1 | )% | | 4 | | — |
| | 3 | % | | 3 |
| | — |
|
AMESA | 2 | % | | 1 | | (2 | ) | | 1 | % | | (1 | ) | | 2 |
|
APAC | 8 | % | | 3 | | — |
| | 11 | % | | 7 |
| | 5 |
|
Total | 2 | % | | 2 | | (0.5 | ) | | 3 | % | | 2 |
| | 2 |
|
| |
(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 bottler case sales and concentrate shipments and equivalents (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. |
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
| | | 12 Weeks Ended 6/13/2020 | | 12 Weeks Ended 3/20/2021 |
| | | Items Affecting Comparability(a) | | | | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Inventory fair value adjustments and merger and integration charges | | Core, Non-GAAP Measure(b) | | Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Merger and integration charges/(credits) | | | Core, Non-GAAP Measure(b) |
FLNA | $ | 1,278 |
| | $ | — |
| | $ | 2 |
| | $ | 2 |
| | $ | 1,282 |
| FLNA | $ | 1,240 | | | $ | — | | | $ | 15 | | | $ | 2 | | | | $ | 1,257 | |
QFNA | 196 |
| | — |
| | — |
| | — |
| | 196 |
| QFNA | 150 | | | — | | | — | | | — | | | | 150 | |
PBNA | 397 |
| | — |
| | — |
| | 43 |
| | 440 |
| PBNA | 366 | | | — | | | 4 | | | 1 | | | | 371 | |
LatAm | 219 |
| | — |
| | 4 |
| | — |
| | 223 |
| LatAm | 218 | | | — | | | 2 | | | — | | | | 220 | |
Europe | 351 |
| | — |
| | 8 |
| | — |
| | 359 |
| Europe | 131 | | | — | | | 11 | | | — | | | | 142 | |
AMESA | 59 |
| | — |
| | 5 |
| | 157 |
| | 221 |
| AMESA | 138 | | | — | | | 1 | | | 1 | | | | 140 | |
APAC | 189 |
| | — |
| | 3 |
| | — |
| | 192 |
| APAC | 208 | | | — | | | — | | | — | | | | 208 | |
Corporate unallocated expenses | (370 | ) | | (45 | ) | | 2 |
| | 16 |
| | (397 | ) | Corporate unallocated expenses | (139) | | | (75) | | | 4 | | | (14) | | | | (224) | |
Total | $ | 2,319 |
| | $ | (45 | ) | | $ | 24 |
| | $ | 218 |
| | $ | 2,516 |
| Total | $ | 2,312 | | | $ | (75) | | | $ | 37 | | | $ | (10) | | | | $ | 2,264 | |
|
| | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 6/15/2019 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Inventory fair value adjustments and merger and integration charges | | Core, Non-GAAP Measure |
FLNA | $ | 1,249 |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | 1,255 |
|
QFNA | 127 |
| | — |
| | — |
| | — |
| | 127 |
|
PBNA | 690 |
| | — |
| | 10 |
| | — |
| | 700 |
|
LatAm | 278 |
| | — |
| | 21 |
| | — |
| | 299 |
|
Europe | 339 |
| | — |
| | 53 |
| | 23 |
| | 415 |
|
AMESA | 236 |
| | — |
| | 8 |
| | — |
| | 244 |
|
APAC | 116 |
| | — |
| | 34 |
| | — |
| | 150 |
|
Corporate unallocated expenses | (306 | ) | | 6 |
| | 26 |
| | 1 |
| | (273 | ) |
Total | $ | 2,729 |
| | $ | 6 |
| | $ | 158 |
| | $ | 24 |
| | $ | 2,917 |
|
| | | 24 Weeks Ended 6/13/2020 | | 12 Weeks Ended 3/21/2020 |
| | | Items Affecting Comparability(a) | | | | | Items Affecting Comparability(a) | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Inventory fair value adjustments and merger and integration charges | | Core, Non-GAAP Measure(b) | | Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Merger and integration charges | | Core, Non-GAAP Measure(b) |
FLNA | $ | 2,480 |
| | $ | — |
| | $ | 7 |
| | $ | 25 |
| | $ | 2,512 |
| FLNA | $ | 1,202 | | | $ | — | | | $ | 5 | | | $ | 23 | | | $ | 1,230 | |
QFNA | 346 |
| | — |
| | 1 |
| | — |
| | 347 |
| QFNA | 150 | | | — | | | 1 | | | — | | | 151 | |
PBNA | 694 |
| | — |
| | 3 |
| | 43 |
| | 740 |
| PBNA | 297 | | | — | | | 3 | | | — | | | 300 | |
LatAm | 450 |
| | — |
| | 9 |
| | — |
| | 459 |
| LatAm | 231 | | | — | | | 5 | | | — | | | 236 | |
Europe | 497 |
| | — |
| | 16 |
| | — |
| | 513 |
| Europe | 146 | | | — | | | 8 | | | — | | | 154 | |
AMESA | 193 |
| | — |
| | 7 |
| | 159 |
| | 359 |
| AMESA | 134 | | | — | | | 2 | | | 2 | | | 138 | |
APAC | 331 |
| | — |
| | 3 |
| | — |
| | 334 |
| APAC | 142 | | | — | | | — | | | — | | | 142 | |
Corporate unallocated expenses | (748 | ) | | 97 |
| | 10 |
| | 16 |
| | (625 | ) | Corporate unallocated expenses | (378) | | | 142 | | | 8 | | | — | | | (228) | |
Total | $ | 4,243 |
| | $ | 97 |
| | $ | 56 |
| | $ | 243 |
| | $ | 4,639 |
| Total | $ | 1,924 | | | $ | 142 | | | $ | 32 | | | $ | 25 | | | $ | 2,123 | |
(a)See “Items Affecting Comparability.”
(b)Operating profit for the 12 weeks ended March 20, 2021 and March 21, 2020 includes the charges taken as a result of the COVID-19 pandemic. See Note 1 to our condensed consolidated financial statements for further information.
|
| | | | | | | | | | | | | | | | | | | |
| 24 Weeks Ended 6/15/2019 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Inventory fair value adjustments and merger and integration charges | | Core, Non-GAAP Measure |
FLNA | $ | 2,408 |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | 2,414 |
|
QFNA | 265 |
| | — |
| | — |
| | — |
| | 265 |
|
PBNA | 1,079 |
| | — |
| | 16 |
| | — |
| | 1,095 |
|
LatAm | 508 |
| | — |
| | 21 |
| | — |
| | 529 |
|
Europe | 454 |
| | — |
| | 59 |
| | 38 |
| | 551 |
|
AMESA | 341 |
| | — |
| | 16 |
| | — |
| | 357 |
|
APAC | 222 |
| | — |
| | 37 |
| | — |
| | 259 |
|
Corporate unallocated expenses | (540 | ) | | (54 | ) | | 34 |
| | 1 |
| | (559 | ) |
Total | $ | 4,737 |
| | $ | (54 | ) | | $ | 189 |
| | $ | 39 |
| | $ | 4,911 |
|
| |
(a) | See “Items Affecting Comparability.” |
| |
(b) | Operating profit for the 12 and 24 weeks ended June 13, 2020 includes the charges taken as a result of the COVID-19 pandemic. See Note 1 to our condensed consolidated financial statements for further information. |
Operating Profit Growth and Operating Profit Growth Adjusted for Items Affecting Comparability on a Constant Currency Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 3/20/2021 |
| | | Impact of Items Affecting Comparability(a) | | | | | | Impact of | | |
| Reported % Change, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Merger and integration credits/charges | | | | Core % Change, Non-GAAP Measure(b) | | Foreign exchange translation | | Core Constant Currency % Change, Non-GAAP Measure(b) |
FLNA | 3 | % | | — | | | 1 | | | (2) | | | | | 2 | % | | — | | | 2 | % |
QFNA | — | % | | — | | | — | | | — | | | | | — | % | | — | | | (1) | % |
PBNA | 23 | % | | — | | | — | | | — | | | | | 24 | % | | (0.5) | | | 23 | % |
LatAm | (6) | % | | — | | | (1) | | | — | | | | | (7) | % | | 8 | | | 1 | % |
Europe | (10) | % | | — | | | 3 | | | — | | | | | (7) | % | | 3 | | | (4) | % |
AMESA | 4 | % | | — | | | (1) | | | (1) | | | | | 1.5 | % | | — | | | 2 | % |
APAC | 47 | % | | — | | | (1) | | | — | | | | | 46 | % | | (7) | | | 39 | % |
Corporate unallocated expenses | (63) | % | | 57 | | | 1 | | | 4 | | | | | (1) | % | | — | | | (1) | % |
Total | 20 | % | | (12) | | | — | | | (2) | | | | | 7 | % | | — | | | 7 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 6/13/2020 |
| | | Impact of Items Affecting Comparability(a) | | | | Impact of | | |
| Reported % Change, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Inventory fair value adjustments and merger and integration charges | | Core % Change, Non-GAAP Measure(b) | | Foreign exchange translation | | Core Constant Currency % Change, Non-GAAP Measure(b) |
FLNA | 2 | % | | — |
| | — |
| | — |
| | 2 | % | | — |
| | 2 | % |
QFNA | 55 | % | | — |
| | — |
| | — |
| | 55 | % | | — |
| | 55 | % |
PBNA | (42 | )% | | — |
| | (1.5 | ) | | 7 |
| | (37 | )% | | — |
| | (37 | )% |
LatAm | (22 | )% | | — |
| | (4 | ) | | — |
| | (25 | )% | | 18 |
| | (8 | )% |
Europe | 3 | % | | — |
| | (11 | ) | | (6 | ) | | (14 | )% | | 6 |
| | (7 | )% |
AMESA | (75 | )% | | — |
| | (1 | ) | | 67 |
| | (9 | )% | | — |
| | (9 | )% |
APAC | 63 | % | | — |
| | (35 | ) | | — |
| | 28 | % | | 4 |
| | 31 | % |
Corporate unallocated expenses | 21 | % | | 20 |
| | 10 |
| | (6 | ) | | 45 | % | | — |
| | 45 | % |
Total | (15 | )% | | (6 | ) | | (17 | ) | | 25 |
| | (14 | )% | | 3 |
| | (11 | )% |
(b)Amounts may not sum due to rounding.
|
| | | | | | | | | | | | | | | | | | | | |
| 24 Weeks Ended 6/13/2020 |
| | | Impact of Items Affecting Comparability(a) | | | | Impact of | | |
| Reported % Change, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Inventory fair value adjustments and merger and integration charges | | Core % Change, Non-GAAP Measure(b) | | Foreign exchange translation | | Core Constant Currency % Change, Non-GAAP Measure(b) |
FLNA | 3 | % | | — |
| | — |
| | 1 |
| | 4 | % | | — |
| | 4 | % |
QFNA | 31 | % | | — |
| | — |
| | — |
| | 31 | % | | — |
| | 31 | % |
PBNA | (36 | )% | | — |
| | (1 | ) | | 5 |
| | (32 | )% | | — |
| | (32 | )% |
LatAm | (12 | )% | | — |
| | (2 | ) | | — |
| | (13 | )% | | 10 |
| | (3 | )% |
Europe | 9 | % | | — |
| | (9 | ) | | (8 | ) | | (7 | )% | | 5 |
| | (2 | )% |
AMESA | (43 | )% | | — |
| | (2 | ) | | 46 |
| | 1 | % | | (0.5 | ) | | — | % |
APAC | 49 | % | | — |
| | (20 | ) | | — |
| | 29 | % | | 3 |
| | 31 | % |
Corporate unallocated expenses | 38 | % | | (28 | ) | | 5 |
| | (3 | ) | | 12 | % | | — |
| | 12 | % |
Total | (10 | )% | | 3 |
| | (3 | ) | | 4.5 |
| | (5.5 | )% | | 2 |
| | (4 | )% |
| |
(a) | See “Items Affecting Comparability” for further information. |
| |
(b) | Amounts may not sum due to rounding. |
FLNA
12 Weeks
Net revenue increased 7% and volume increasedgrew 4%. The net revenue growth was, primarily driven by the volume growth and effective net pricing. Thepricing, partially offset by a decrease in organic volume. Unit volume growthdeclined slightly, primarily reflects double-digit growth in dips and trademark Tostitos, high-single-digit growthdriven by mid-single-digit declines in trademark RufflesCheetos and Fritos and a low-single-digit decline in trademark Lay’s, partially offset by high-single-digit-growth in variety packs and mid-single-digit growth in trademark Doritos and Cheetos, partially offset by a double-digit decline in nuts and seeds and trademark Smartfood.dips.
Operating profit increased 2%3%, primarily reflecting the effective net revenue growthpricing and productivity savings, partially offset by certain operating cost increases. Additionally, the charges taken as a result of the COVID-19 pandemic reduced operating profit growth
Furthermore, performance was negatively impacted by 10 percentage points.weather-related business disruptions.
24 Weeks
QFNA
Net revenue increased 7% and volume increased 4.5%. The net revenue growth wasgrew 2%, primarily driven by the volume growth and effective net pricing. The volume growth primarily reflects double-digit growth in dips and trademark Tostitos, high-single-digit growth in trademark Cheetos and in variety packs and mid-single-digit growth in trademark Doritos,favorable pricing, partially offset by a double-digitdecrease in organic volume. Unit volume declined 4%, primarily driven by a mid-single-digit decline in nutsoatmeal and seedshigh-single-digit declines in pancake syrup and trademark Smartfood.mix and in bars, partially offset by double-digit growth in lite snacks.
Operating profit increased 3%,experienced a slight decline, primarily reflecting the net revenue growth and productivity savings, partially offset by certain operating cost increases. Additionally,increases, the charges taken asdecrease in organic volume and a result5-percentage-point impact of higher commodity costs, largely offset by the COVID-19 pandemic reduced operating profit growth by 6 percentage points.favorable pricing and productivity savings.
QFNAPBNA
12 Weeks
Net revenue increased 23% and volume increased 26%. The net revenue growth reflects the volume growth and favorable5%, primarily driven by effective net pricing, partially offset by unfavorable mix. The volume growth was broad-based across our product portfolio, and was primarily driven by double-digit growtha decrease in oatmeal, Aunt Jemima syrup and
mix, and ready-to-eat cereals. The COVID-19 pandemic drove an increase in consumer demand, which had a positive impact on bothIn addition, acquisitions contributed 3 percentage points to net revenue andgrowth.Unit volume growth.
Operating profit grew 55%, reflecting the net revenue growth and productivity savings, partially offset by certain operating cost increases, higher advertising and marketing expenses, a 6-percentage-point impact of an asset write-off and a 4-percentage-point impact of higher commodity costs. Additionally, the charges taken as a result of the COVID-19 pandemic reduced operating profit growth by 6 percentage points.
24 Weeks
Net revenue increased 14% and volume increased 17%. The net revenue growth reflects the volume growth and favorable net pricing, partially offset by unfavorable mix. The volume growth was broad-based across our product portfolio, and was primarily driven by double-digit growth in oatmeal, Aunt Jemima syrup and mix, and ready-to-eat cereals. The COVID-19 pandemic drove an increase in consumer demand, which had a positive impact on both net revenue and volume growth.
Operating profit grew 31%, reflecting the net revenue growth and productivity savings, partially offset by certain operating cost increases, higher advertising and marketing expenses and a 3-percentage-point impact of an asset write-off. Additionally, the charges taken as a result of the COVID-19 pandemic reduced operating profit growth by 3 percentage points.
PBNA
12 Weeks
Net revenue decreased 7%2%, driven by a decrease in volume, partially offset by effective net pricing. Volume decreased 10%, driven by an 11%2% decrease in carbonated soft drink (CSD) volume and an 8%a 1.5% decrease in non-carbonated beverage (NCB) volume. The NCB volume decrease primarily reflected a double-digit decreasesdecrease in our overall water portfolio Lipton ready-to-drink teas, and a high-single-digit decrease in our juice and juice
drinks portfolio, as well aspartially offset by a mid-single-digit decreasedouble-digit increase in our energy portfolio, primarily due to acquisitions, and a low-single-digit increase in Gatorade sports drinks.
Operating profit increased 23%, reflecting the effective net pricing, a 32-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 and information technology costs, the organic volume decrease, and a 4-percentage-point impact of higher commodity costs. Favorable settlements of promotional spending accruals compared to the prior yearcontributed 5 percentage points to operating profit growth. In addition, acquisitions contributed 11 percentage points to operating profit growth.
Furthermore, performance was negatively impacted by weather-related business disruptions.
LatAm
Net revenue decreased 5%, primarily reflecting an 8-percentage-point impact of unfavorable foreign exchange and a net organic volume decline, partially offset by effective net pricing.
Snacks unit volume declined 2%, primarily reflecting low-single-digit declines in Brazil and Mexico.
Beverage unit volume declined 4%, primarily reflecting a double-digit decline in Brazil and a low-single-digit decline in Mexico, partially offset by high-single-digit growth in Argentina, mid-single-digit growth in Chile and low-single-digit growth in Guatemala. The COVID-19 pandemic contributed to a decrease in consumer demand, which had a negative impact on both net revenue and volume performance. In addition, acquisitions positively contributed 1 percentage point to the net revenue performance.
Operating profit decreased 42%, primarily reflecting the volume decrease and a 20-percentage-point impact of the charges taken as a result of the COVID-19 pandemic. In addition, certain operating cost increases, including incremental information technology costs, were partially offset by productivity savings, the effective net pricing, lower advertising and marketing expenses and a 7-percentage-point impact of lower commodity costs. A prior-year gain associated with a sale of an asset negatively impacted operating profit performance by 5 percentage points and was partially offset by favorable insurance adjustments compared to the prior year, which positively contributed 3 percentage points to operating profit performance.
24 Weeks
Net revenue decreased slightly, driven by a decrease in volume, partially offset by effective net pricing. Volume decreased 2.5%, driven by a 6% decrease in CSDs, partially offset by a 1% increase in NCB volume. The NCB volume increase primarily reflected a mid-single-digit increase in our overall water portfolio and a low-single-digit increase in Gatorade sports drinks, partially offset by mid-single-digit decreases in our juice and juice drinks portfolio and Lipton ready-to-drink teas. The COVID-19 pandemic contributed to a decrease in consumer demand, which had a negative impact on both net revenue and volume performance. In addition, acquisitions positively contributed 1 percentage point to the net revenue performance.
Operating profit decreased 36%, primarily reflecting a 22-percentage-point impact of the charges taken as a result of the COVID-19 pandemic and the related volume decrease. In addition, certain operating cost increases, including incremental information technology costs, were partially offset by productivity savings, lower advertising and marketing expenses, the effective net pricing and a 4-percentage-point impact of lower commodity costs. A prior-year gain associated with a sale of an asset negatively impacted operating profit performance by 3 percentage points and was partially offset by favorable insurance adjustments compared to the prior year, which positively contributed 2 percentage points to operating profit performance.
LatAm
12 Weeks
Net revenue decreased 17%, reflecting a 17-percentage-point impact of unfavorable foreign exchange and a net volume decline, partially offset by effective net pricing.
Snacks volume was flat, reflecting low-single-digit growth in Mexico and Brazil, offset by broad-based declines across several smaller markets.
Beverage volume declined 9%, reflecting double-digit declines in Colombia and Argentina, high-single-digit declines in Brazil and Chile, a mid-single-digit decline in Honduras, and a low-single-digit decline in Guatemala, partially offset by low-single-digit growth in Mexico. The COVID-19 pandemic contributed to a decrease in consumer demand, which had a negative impact onbeverage unit volume performance.
Operating profit decreased 22%6%, primarily reflecting certain operating cost increases, a 10-percentage-point19-percentage-point impact of higher commodity costs, largely due to transaction-related foreign exchange, certain operating cost increases and the net organic volume decline. These impacts were partially offset by productivity savings, the effective net pricing, productivity savings and lower advertising and marketing expenses and a 4-percentage-point impact of lower restructuring and impairment charges.expenses. Additionally, unfavorable foreign exchange translation and thecertain charges taken as a result of the COVID-19 pandemic negatively impacted operating profit performance by 18 percentage points and 11 percentage points, respectively.
24 Weeks
Net revenue decreased 8%, reflecting an 11-percentage-point impact of unfavorable foreign exchange, partially offset by effective net pricing and net volume growth.
Snacks volume grew 1%, reflecting low-single-digit growth in Mexico and Brazil.
Beverage volume declined 3.5%, reflecting a double-digit decline in Colombia, a high-single-digit decline in Argentina, mid-single-digit declines in Brazil and Honduras, and a low-single-digit decline in Guatemala, partially offset by low-single-digit growth in Mexico and Chile. The COVID-19 pandemic contributed to a decrease in consumer demand, which had a negative impact on volume performance.
Operating profit decreased 12%, primarily reflecting certain operating cost increases, a 7-percentage-point impact of higher commodity costs, largely due to transaction-related foreign exchange, and a 6-percentage-point impact of a prior-year insurance settlement recovery related to the 2017 earthquake in Mexico. These impacts were partially offset by productivity savings and the effective net pricing. Additionally, unfavorable foreign exchange and the charges taken as a result of the COVID-19 pandemic negatively impacted operating profit performance by 108 percentage points and 6 percentage points, respectively.
Europe
12 Weeks
Net revenue decreased 9%2%, primarily reflecting a 7-percentage-point2-percentage-point impact of unfavorable foreign exchange and unfavorableexchange. SodaStream International Ltd. (SodaStream) negatively impacted net pricing.revenue performance by 2 percentage points, primarily reflecting the prior-year benefit of an extra month of sales as we aligned SodaStream’s reporting calendar with that of our Europe division in the first quarter of 2020. Since being acquired in the fourth quarter of 2018, SodaStream had been reporting on a one-month lag.
Snacks unit volume grew 2%4%, primarily reflecting double-digit growth in Turkey and high-single-digit growth in Russia, partially offset by a mid-single-digit decline in Spain and low-single-digit declines in France and the Netherlands. Additionally, the United Kingdom high-single-digitand Poland each experienced low-single-digit growth.
Beverage unit volume grew 7%, primarily reflecting double-digit growth in FranceGermany, Russia and low-single-digit growth in the Netherlands,Turkey, partially offset by a double-digit decline in Turkey, a mid-single-digit decline in Poland and a low-single-digit decline in Spain. Additionally, Russia experienced low-single-digit growth.
Beverage volume grew 2%, reflecting double-digit growth in Germany and France partially offset by double-digit declines in Poland and Turkey, a mid-single-digit decline in Russia and a low-single-digit decline in the United Kingdom.
Operating profit increased 3%decreased 10%, primarily reflecting productivity savings, an 11-percentage-point impact of lower restructuring and impairment charges, a 9-percentage-point impact of a gain on an asset sale, a 6-percentage-point impact of the prior-year inventory fair value adjustments and merger and integration charges associated with the SodaStream acquisition and lower advertising and marketing expenses. These impacts were offset by certain operating cost increases, and unfavorable net pricing. Additionally, the charges taken as a result21-percentage-point impact of the COVID-19 pandemic and unfavorablehigher commodity costs driven by transaction-related foreign exchange reduced operating profit growth by 11 percentage points and 6 percentage points, respectively.
24 Weeks
Net revenue decreased 1%, reflecting a 4-percentage-point impact of unfavorable foreign exchange, partially offset by volume growth.
Snacks volume grew 3%, reflecting high-single-digit growth in the United Kingdom and France, partially offset by low-single-digit declines in Turkey and Poland. Additionally, Russia, Spain and the Netherlands each experienced low-single-digit growth.
Beverage volume grew 5%, reflecting double-digit growth in Germany and France, partially offset by mid-single-digit declines in Russia and Turkey and a double-digit decline in Poland. Additionally, the United Kingdom experienced low-single-digit growth.
Operating profit increased 9%, primarily reflecting productivity savings, a 9-percentage-point impact of lower restructuring and impairment charges, an 8-percentage-point impact of the prior-year inventory fair value adjustments and merger and integration charges associated with the SodaStream acquisition, a 6-percentage-point impact of a gain on an asset sale and a 3.5-percentage-point impact of lower commodity costs. These impacts were partially offset by certain operating cost increases, unfavorable net pricing, and a 3-percentage-point impact of a prior-year insurance settlement recovery in Russia. Additionally, the charges taken as a result of the COVID-19 pandemichigher restructuring and unfavorable foreign exchange reduced operating profit growth by 9 percentage points and 5 percentage points, respectively.
AMESA
12 Weeks
Net revenue decreased 1%, primarily reflecting a net volume decline and a 6-percentage-point impact of a prior-year refranchising of a portion of our beverage business in India, partially offset by a 13-percentage-point impact of the Pioneer Foods acquisition. Net revenue was also negatively impacted by the COVID-19 pandemic.
Snacks volume grew 117%, primarily reflecting a 124-percentage-point impact of the Pioneer Foods acquisition, mid-single-digit growth in the Middle East and Pakistan and low-single-digit growth in South Africa, partially offset by a double-digit decline in India.
Beverage volume declined 25%, reflecting double-digit declines in India and Pakistan, a low-single-digit decline in Nigeria and a high-single-digit decline in the Middle East. The COVID-19 pandemic contributed to a decrease in consumer demand, which had a negative impact on volume performance.
Operating profit decreased 75%, primarily reflecting a 67-percentage-point impact of merger and integration charges associated with the Pioneer Foods acquisition, the net revenue performance, certain operating cost increases and a 4.5-percentage-point impact of a prior-year gain on the refranchising of a portion of our beverage business in India. These impacts were partially offset by lower advertising and marketing expenses, productivity savings and a 3-percentage-point impact of lower commodity costs. Additionally, the charges taken as a result of the COVID-19 pandemic negatively impacted operating profit performance by 7 percentage points.
24 Weeks
Net revenue increased 2%, reflecting an 8-percentage-point impact of the Pioneer Foods acquisition and effective net pricing, partially offset by a 6-percentage-point impact of the prior-year refranchising of a portion of our beverage business in India and a net volume decline. Net revenue was also negatively impacted by the COVID-19 pandemic.
Snacks volume grew 76%, primarily reflecting a 74-percentage-point impact of the Pioneer Foods acquisition, high-single-digit growth in the Middle East and Pakistan and low-single-digit growth in South Africa, partially offset by a high-single-digit decline in India.
Beverage volume declined 14%, reflecting double-digit declines in India and Pakistan and a low-single-digit decline in the Middle East, partially offset by low-single-digit growth in Nigeria. The COVID-19 pandemic contributed to a decrease in consumer demand, which had a negative impact on volume performance.
Operating profit decreased 43%, primarily reflecting a 46-percentage-point impact of merger and integration charges associated with the Pioneer Foods acquisition, certain operating cost increases and a 3-percentage-point impact of a prior-year gain on the refranchising of a portion of our beverage business in India.impairment charges. These impacts were partially offset by productivity savings, lower advertising and marketing expenses and a 3-percentage-point impacteffective net pricing.
Additionally, the charges taken as a result of the COVID-19 pandemicunfavorable foreign exchange translation negatively impacted operating profit performance by 53 percentage points.
APAC
12 WeeksAMESA
Net revenue increased 10%40%, primarily reflecting a 42-percentage-point impact of our Pioneer Foods acquisition and organic volume growth, partially offset by unfavorable net pricing.
Snacks unit volume grew 232%, primarily reflecting a 228-percentage-point impact of our Pioneer Foods acquisition, double-digit growth in Pakistan and high-single-digit growth in India, partially offset by a low-single-digit decline in the Middle East. Additionally, South Africa (excluding our Pioneer Foods acquisition) experienced low-single-digit growth.
Beverage unit volume grew 5.5%, primarily reflecting a 4-percentage-point impact of our Pioneer Foods acquisition and double-digit growth in Pakistan, partially offset by a mid-single-digit decline in India and a slight decline in the Middle East. Additionally, Nigeria experienced slight growth.
Operating profit increased 4%, primarily reflecting productivity savings, a 7-percentage-point contribution from our Pioneer Foods acquisition and lower advertising and marketing expenses, partially offset by the unfavorable net pricing.
APAC
Net revenue increased 70%, primarily reflecting a 44-percentage-point impact of our Be & Cheery acquisition, organic volume growth and effective net pricing, partially offset bypricing. Favorable foreign exchange contributed 8 percentage points to net revenue growth.
Snacks unit volume grew 59%, primarily reflecting a 5-percentage-point45-percentage-point impact of unfavorable foreign exchange.
Snacks volume grew 14%, reflectingour Be & Cheery acquisition and double-digit growth in China (excluding our Be & Cheery acquisition). Additionally, Australia experienced low-single-digit growth, Thailand and Indonesia partially offset by a high-single-digit decline in Thailand. Additionally, Australiaeach experienced high-single-digit growth and Taiwan experienced double-digit growth.
Beverage unit volume declined 8%grew 15%, primarily reflecting double-digit declines in the Philippines, Vietnam and Thailand, partially offset by low-single-digitdouble digit growth in China. The COVID-19 pandemic contributed to a decrease in consumer demand, which had a negative impact on volume performance.
Operating profit increased 63%, reflecting the net revenue growth, a 35-percentage-point impact of lower restructuring and impairment charges, productivity savings and a 3-percentage-point impact of lower commodity costs, partially offset by certain operating cost increases and a 4-percentage-point impact of unfavorable foreign exchange.
24 Weeks
Net revenue increased 8%, reflecting net volume growth and effective net pricing,China, partially offset by a 3-percentage-point impact of unfavorable foreign exchange.
Snacks volume grew 10%, reflecting double-digit growthdecline in Indonesiathe Philippines and China, partially offset by a mid-single-digit decline in Thailand. Additionally, Australia and Taiwan eachVietnam experienced high-single digitmid-single-digit growth.
Beverage volume declined 5%, reflecting a double-digit decline in the Philippines, a high-single-digit decline in Thailand, a mid-single-digit decline in Vietnam and a low-single-digit decline in China. The COVID-19 pandemic contributed to a decrease in consumer demand, which had a negative impact on volume performance.
Operating profit increased 49%47%, primarily reflecting the net revenueorganic volume growth, a 20-percentage-point impact of lower restructuring10-percentage-point contribution from our Be & Cheery acquisition and impairment charges, productivity savings, and a 3-percentage-point impact of lower commodity costs, partially offset by higher advertising and marketing expenses and certain operating cost increases and a 3-percentage-point impactincreases. Favorable foreign exchange contributed 7 percentage points to operating profit growth.
Other Consolidated Results
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| 12 Weeks Ended | | 24 Weeks Ended |
| 6/13/2020 |
| | 6/15/2019 |
| | Change | | 6/13/2020 |
| | 6/15/2019 |
| | Change |
Other pension and retiree medical benefits income | $ | 84 |
| | $ | 61 |
| | $ | 23 |
| | $ | 161 |
| | $ | 125 |
| | $ | 36 |
|
Net interest expense and other | $ | (235 | ) | | $ | (223 | ) | | $ | (12 | ) | | $ | (525 | ) | | $ | (427 | ) | | $ | (98 | ) |
Tax rate | 23.5 | % | | 20.4 | % | | | | 22.4 | % | | 21.9 | % | | |
Net income attributable to PepsiCo | $ | 1,646 |
| | $ | 2,035 |
| | (19 | )% | | $ | 2,984 |
| | $ | 3,448 |
| | (13 | )% |
Net income attributable to PepsiCo per common share – diluted | $ | 1.18 |
| | $ | 1.44 |
| | (18 | )% | | $ | 2.14 |
| | $ | 2.44 |
| | (12 | )% |
Mark-to-market net impact | (0.02 | ) | | — |
| | | | 0.05 |
| | (0.03 | ) | | |
Restructuring and impairment charges | 0.02 |
| | 0.08 |
| | | | 0.04 |
| | 0.10 |
| | |
Inventory fair value adjustments and merger and integration charges | 0.15 |
| | 0.01 |
| | | | 0.16 |
| | 0.02 |
| | |
Net tax related to the TCJ Act | — |
| | — |
| | | | — |
| | (0.02 | ) | | |
Net income attributable to PepsiCo per common share – diluted, excluding above items (a) | $ | 1.32 |
| (b) | $ | 1.54 |
| (b) | (15 | )% | | $ | 2.39 |
| | $ | 2.52 |
| (b) | (5 | )% |
Impact of foreign exchange translation | | | | | 3 |
| | | | | | 2 |
|
Growth in net income attributable to PepsiCo per common share – diluted, excluding above items, on a constant currency basis (a) | | | | | (11 | )% | (b) | | | | | (3 | )% |
| |
(a) | See “Non-GAAP Measures.” |
| |
(b) | Does not sum due to rounding. |
12 Weeks | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 12 Weeks Ended | |
| | | | | | | 3/20/2021 | | 3/21/2020 | | Change | |
Other pension and retiree medical benefits income | | | | | | | $ | 120 | | | $ | 77 | | | $ | 43 | | |
Net interest expense and other | | | | | | | $ | (258) | | | $ | (290) | | | $ | 32 | | |
Tax rate | | | | | | | 20.7 | % | | 21.0 | % | | | |
Net income attributable to PepsiCo | | | | | | | $ | 1,714 | | | $ | 1,338 | | | 28 | % | |
Net income attributable to PepsiCo per common share – diluted | | | | | | | $ | 1.24 | | | $ | 0.96 | | | 29 | % | |
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Other pension and retiree medical benefits income increased $23$43 million, primarily reflecting the recognition of fixed income gains on plan assets, the impact of plan changes approved in 2020, as discussed in Note 7 to our condensed consolidated financial statements, and the impact of approved discretionary plan contributions, partially offset by the decrease in discount rates.the expected rate of return on plan assets.
Net interest expense and other increased $12decreased $32 million, primarily reflecting higher interest expense due to higher average debt balances. This impact was partially offset by gains on the market value of investments used to economically hedge a portion of our deferred compensation liability, as well as higherlower interest income due torates on average debt balances and higher average cash balancesbalances. These impacts were partially offset by lower interest rates.
The reported tax rate increased 3.1 percentage points, primarily reflecting a prior-year tax benefit related to an international restructuring and current-year non-deductible expenses related to an acquisition.
Net income attributable to PepsiCo decreased 19% and net income attributable to PepsiCo per common share decreased 18%. 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 4 percentage points. Additionally, the charges taken as a result of the COVID-19 pandemic negatively impacted both net income attributable to PepsiCo performance and net income attributable to PepsiCo per common share performance by approximately 15 percentage points.
24 Weeks
Other pension and retiree medical benefits income increased $36 million, reflecting the recognition of fixed income gains on plan assets and the impact of approved discretionary plan contributions, partially offset by the decrease in discount rates.
Net interest expense and other increased $98 million, reflecting losses on the market value of investments used to economically hedge a portion of our deferred compensation liability, higher interest expense due to higher average debt balances, partially offset by lower interest rates, as well as lower interest income due to lower interest rates partially offset by higheron average cash balances.
The reported tax rate increased 0.5decreased 0.3 percentage points, primarily reflecting a prior-year tax benefit related to an international restructuring, current-year non-deductible expenses related to an acquisition, as well as the prior-year net tax related to the TCJ Act. These impacts were partially offset by a prior-year increasedecrease in reserves for uncertain tax positions in foreign jurisdictions.
Net income attributable to PepsiCo decreased 13% and net income attributable to PepsiCo per common share decreased 12%. Items affecting comparability (see “Items Affecting Comparability”) negatively impacted net income attributable to PepsiCo performance by 7 percentage points and net income attributable to PepsiCo per common share performance by 8 percentage points. Additionally, the charges taken as a result of the COVID-19 pandemic negatively impacted both net income attributable to PepsiCo performanceexpiration of the statute of limitations in certain domestic and net income attributable to PepsiCo per common share performance by approximately 12 percentage points.foreign jurisdictions.
Non-GAAP Measures
Certain financial measures contained in this Form 10-Q 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-Q 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-
Q10-Q 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; amounts associated with mergers, acquisitions, divestitures and other structural changes; pension and retiree medical related items; 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; debt redemptions, cash tender or exchange offers; asset impairments (non-cash); and remeasurements of net monetary assets. See below and “Items Affecting Comparability” for a description of adjustments to our U.S. GAAP financial measures in this Form 10-Q.
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-Q are discussed below:
Cost of sales, gross profit, selling, general and administrative expenses, other pension and retiree medical benefits income, 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 Productivity Plan, inventory fair value adjustments and merger and integration chargescharges/credits associated with our acquisitions and net tax related to the 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 each 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.
Organic revenue growth
We define organic revenue growth as net revenue growth adjusted for the impact of foreign exchange translation, as well as the impact from acquisitions, divestitures and other structural changes. 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 byused for 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.
Items Affecting Comparability
Our reported financial results in this Form 10-Q are impacted by the following items in each of the following periods:
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| 12 Weeks Ended 3/20/2021 |
| 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 | $ | 6,671 | | | $ | 8,149 | | | $ | 5,837 | | | $ | 2,312 | | | $ | 120 | | | | | $ | 451 | | | | | $ | 1,714 | |
Items Affecting Comparability | | | | | | | | | | | | | | | | | |
Mark-to-market net impact | 36 | | | (36) | | | 39 | | | (75) | | | — | | | | | (17) | | | | | (58) | |
Restructuring and impairment charges | (2) | | | 2 | | | (35) | | | 37 | | | 6 | | | | | 8 | | | | | 35 | |
Merger and integration credits | — | | | — | | | 10 | | | (10) | | | — | | | | | (3) | | | | | (7) | |
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Core, Non-GAAP Measure | $ | 6,705 | | | $ | 8,115 | | | $ | 5,851 | | | $ | 2,264 | | | $ | 126 | | | | | $ | 439 | | | | | $ | 1,684 | |
| | | 12 Weeks Ended 6/13/2020 | | 12 Weeks Ended 3/21/2020 |
| 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 | | 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 | $ | 7,088 |
| | $ | 8,857 |
| | $ | 6,538 |
| | $ | 2,319 |
| | $ | 84 |
| | $ | 510 |
| | $ | 1,646 |
| Reported, GAAP Measure | $ | 6,127 | | | $ | 7,754 | | | $ | 5,830 | | | $ | 1,924 | | | $ | 77 | | | $ | 360 | | | | $ | 1,338 | |
Items Affecting Comparability | | | | | | | | | | | | | | Items Affecting Comparability | | | |
Mark-to-market net impact | 14 |
| | (14 | ) | | 31 |
| | (45 | ) | | — |
| | (11 | ) | | (34 | ) | Mark-to-market net impact | (38) | | | 38 | | | (104) | | | 142 | | | — | | | 35 | | | | 107 | |
Restructuring and impairment charges | (1 | ) | | 1 |
| | (23 | ) | | 24 |
| | 1 |
| | 4 |
| | 21 |
| Restructuring and impairment charges | (2) | | | 2 | | | (30) | | | 32 | | | 6 | | | 6 | | | | 32 | |
Inventory fair value adjustments and merger and integration charges | (19 | ) | | 19 |
| | (199 | ) | | 218 |
| | — |
| | 13 |
| | 205 |
| |
Merger and integration charges | | Merger and integration charges | — | | | — | | | (25) | | | 25 | | | — | | | 3 | | | | 22 | |
Core, Non-GAAP Measure | $ | 7,082 |
| | $ | 8,863 |
| | $ | 6,347 |
| | $ | 2,516 |
| | $ | 85 |
| | $ | 516 |
| | $ | 1,838 |
| Core, Non-GAAP Measure | $ | 6,087 | | | $ | 7,794 | | | $ | 5,671 | | | $ | 2,123 | | | $ | 83 | | | $ | 404 | | | | $ | 1,499 | |
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| 12 Weeks Ended 6/15/2019 |
| Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Operating profit | | Provision for income taxes(a) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo |
Reported, GAAP Measure | $ | 7,404 |
| | $ | 9,045 |
| | $ | 6,316 |
| | $ | 2,729 |
| | $ | 524 |
| | $ | 8 |
| | $ | 2,035 |
|
Items Affecting Comparability | | | | | | | | | | | | | |
Mark-to-market net impact | 13 |
| | (13 | ) | | (19 | ) | | 6 |
| | 1 |
| | — |
| | 5 |
|
Restructuring and impairment charges | (82 | ) | | 82 |
| | (76 | ) | | 158 |
| | 38 |
| | 4 |
| | 116 |
|
Inventory fair value adjustments and merger and integration charges | (20 | ) | | 20 |
| | (4 | ) | | 24 |
| | 5 |
| | — |
| | 19 |
|
Core, Non-GAAP Measure | $ | 7,315 |
| | $ | 9,134 |
| | $ | 6,217 |
| | $ | 2,917 |
| | $ | 568 |
| | $ | 12 |
| | $ | 2,175 |
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| 24 Weeks Ended 6/13/2020 |
| 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 | $ | 13,215 |
| | $ | 16,611 |
| | $ | 12,368 |
| | $ | 4,243 |
| | $ | 161 |
| | $ | 870 |
| | $ | 2,984 |
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Items Affecting Comparability | | | | | | | | | | | | | |
Mark-to-market net impact | (24 | ) | | 24 |
| | (73 | ) | | 97 |
| | — |
| | 24 |
| | 73 |
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Restructuring and impairment charges | (3 | ) | | 3 |
| | (53 | ) | | 56 |
| | 7 |
| | 10 |
| | 53 |
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Inventory fair value adjustments and merger and integration charges | (19 | ) | | 19 |
| | (224 | ) | | 243 |
| | — |
| | 16 |
| | 227 |
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Core, Non-GAAP Measure | $ | 13,169 |
| | $ | 16,657 |
| | $ | 12,018 |
| | $ | 4,639 |
| | $ | 168 |
| | $ | 920 |
| | $ | 3,337 |
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Table of Contents(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.
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| | | 12 Weeks Ended | | |
| | | | | | | 3/20/2021 | | 3/21/2020 | | Change | | |
Net income attributable to PepsiCo per common share – diluted, GAAP measure | | | | | | | $ | 1.24 | | | $ | 0.96 | | | 29 | % | | |
Mark-to-market net impact | | | | | | | (0.04) | | | 0.08 | | | | | |
Restructuring and impairment charges | | | | | | | 0.03 | | | 0.02 | | | | | |
Merger and integration (credits)/charges | | | | | | | (0.01) | | | 0.02 | | | | | |
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Core net income attributable to PepsiCo per common share – diluted, non-GAAP measure | | | | | | | $ | 1.21 | | (a) | $ | 1.07 | | (a) | 13 | % | | |
Impact of foreign exchange translation | | | | | | | | | | | — | | | |
Growth in core net income attributable to PepsiCo per common share – diluted, on a constant currency basis, non-GAAP measure | | | | | | |
| | | | 14 | % | (a) | |
(a)Does not sum due to rounding.
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| 24 Weeks Ended 6/15/2019 |
| 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 noncontrolling interests | | Net income attributable to PepsiCo |
Reported, GAAP Measure | $ | 13,092 |
| | $ | 16,241 |
| | $ | 11,504 |
| | $ | 4,737 |
| | $ | 125 |
| | $ | 970 |
| | $ | 17 |
| | $ | 3,448 |
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Items Affecting Comparability | | | | | | | | | | | | | | | |
Mark-to-market net impact | 32 |
| | (32 | ) | | 22 |
| | (54 | ) | | — |
| | (13 | ) | | — |
| | (41 | ) |
Restructuring and impairment charges | (90 | ) | | 90 |
| | (99 | ) | | 189 |
| | (5 | ) | | 41 |
| | 4 |
| | 139 |
|
Inventory fair value adjustments and merger and integration charges | (34 | ) | | 34 |
| | (5 | ) | | 39 |
| | — |
| | 7 |
| | — |
| | 32 |
|
Net tax related to the TCJ Act | — |
| | — |
| | — |
| | — |
| | — |
| | 29 |
| | — |
| | (29 | ) |
Core, Non-GAAP Measure | $ | 13,000 |
| | $ | 16,333 |
| | $ | 11,422 |
| | $ | 4,911 |
| | $ | 120 |
| | $ | 1,034 |
| | $ | 21 |
| | $ | 3,549 |
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(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.
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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.
Restructuring and Impairment Charges
2019 Multi-Year Productivity Plan
In connection with our 2019 Productivity Plan, we expect to incur pre-tax charges of approximately $2.5 billion, of which we have incurred $571 million plan to date through June 13, 2020 andincluding cash expenditures of approximately $1.6 billion, of whichbillion. Plan to date through March 20, 2021, we have incurred approximately $370pre-tax charges of $840 million, plan to date through June 13, 2020. Weincluding cash expenditures of $567 million. For the remainder of 2021, we expect to incur pre-tax charges of approximately $200$400 million, andincluding cash expenditures of approximately $150$300 million, for the remainder of 2020, with the balance to be reflected in our 2021 through2022 and 2023 financial results. 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 2021 and 2022 results.
See Note 3 to our condensed consolidated financial statements in this Form 10-Q, as well as Note 3 to our consolidated financial statements in our 20192020 Form 10-K, 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 condensed consolidated financial statements.
Inventory Fair Value Adjustments and Merger and Integration ChargesCharges/Credits
In the 12 and 24 weeks ended June 13, 2020,March 20, 2021, we recorded inventory fair value adjustments and merger and integration charges of $218 million ($205 million after-tax or $0.15 per share) and $243 million ($227 million after-tax or $0.16 per share), respectively. Inventory fair value adjustments and merger and integration charges include fair value adjustments to the acquired inventory included in the acquisition-date balance sheets and
liabilities to support socioeconomic programs in South Africa, as well as closing costs, employee-related costs, changes in the fair value of contingent consideration and contract termination costscharges/credits related to our acquisitions of BFY Brands, Rockstar and Pioneer Foods. Merger and integration charges/credits primarily include changes in the fair value of contingent consideration, employee-related costs and other integration costs.
In the 12 and 24 weeks ended June 15, 2019,March 21, 2020, we recorded inventory fair value adjustments and merger and integration charges related to our acquisitions of $24 million ($19 million after-tax or $0.01 per share)BFY Brands and $39 million ($32 million after-tax or $0.02 per share), respectively.Pioneer Foods. These charges primarily relate to SodaStream’s acquired inventory included in the acquisition-date balance sheet, as well as mergercontract termination and integration charges, including employee-related costs.
See Note 12 to our condensed consolidated financial statements for further information.
Net Tax Related to the TCJ Act
During the fourth quarter of 2017, the TCJ Act was enacted in the United States. We recognized tax benefits of $29 million ($0.02 per share) in the 24 weeks ended June 15, 2019 related to the TCJ Act.
See Note 5 to our condensed 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, payments for acquisitions, including the contingent consideration related to Rockstar, and the transition tax liability under the TCJTax Cuts and Jobs Act (TCJ Act), include cash from operations, proceeds obtained from issuances of commercial paper and long-term debt and cash and cash equivalents. See “Our Business Risks” and Note 8 to our condensed consolidated financial statements included in this Form 10-Q and “Item 1A. Risk Factors,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks” and Note 8 to our consolidated financial statements included in our 2020 Form 10-K for further information.
Our sources and uses of cash were not materially adversely impacted by COVID-19 in the 2412 weeks ended June 13, 2020March 20, 2021 and, to date, we have not identified any material liquidity deficiencies as a result 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 liquidity. We will continue to monitor and assess the impact the COVID-19 pandemic may have on our business and financial results. See “Item 1A. Risk Factors,” “Our Business Risks” and Note 81 to our condensed consolidated financial statements included in this Form 10-Q and “Item 1A. Risk Factors” andFactors,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks,” as well asRisks” and Note 81 to our consolidated financial statements included in our 20192020 Form 10-K for further information.information related to the impact of the COVID-19 pandemic on our business and financial results.
As of June 13, 2020,March 20, 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 mandatory one-time transition tax on undistributed international earnings. As of June 13, 2020,March 20, 2021, our mandatory transition tax liability was $3.3$3.2 billion, which must be paid through 2026 under the provisions of the TCJ Act. See “Our Liquidity and Capital Resources,” “Our Critical Accounting Policies” and Note 5 to our condensed consolidated financial statements included in our 2020 Form 10-K for further discussion of the TCJ Act.
The CARES Act was enacted onAs of March 27,20, 2021, we had $3.7 billion of non-cancelable purchasing commitments, reflecting an increase of $1.4 billion from December 26, 2020, inprimarily due to new purchasing contracts and the United States. The CARES Act and related notices include several significant provisions, including delaying certain payroll tax payments, mandatory transition tax payments under the TCJ Act, and estimated income tax payments that we are deferring to future periods. We do not currently expect the CARES Act to have a material impacttiming of entering into contract renewals. For further information on our liquidity. long-term contractual commitments, see “Credit Facilities and Long-Term Contractual Commitments” in “Our Liquidity and Capital Resources” in our 2020 Form 10-K.
As part of our evolving market practices, we work with our suppliers to optimize our terms and conditions, 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 assessmarket 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 impactrespective 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 balance sheet. We have been informed by the CARES Actparticipating financial institutions that as of March 20, 2021 and similar legislationDecember 26, 2020, $1.1 billion and $1.2 billion, respectively, of our accounts payable to suppliers who participate in other countries maythese financing arrangements are outstanding. These supply chain finance arrangements did not have a material impact on our businessliquidity or capital resources in the periods presented and financial results.we do not expect such arrangements to have a material impact on our liquidity or capital resources for the foreseeable future.
Operating Activities
During the 2412 weeks ended June 13, 2020,March 20, 2021, net cash provided by operating activities was $1.5 billion, compared to net cash provided byused for operating activities of $1.4$0.7 billion inwas even with the prior-year period. The operating cash flow performance primarily reflects lower net cash tax payments in the current year, partially offset by unfavorable net working capital comparisons to 2019.prior year.
Investing Activities
During the 2412 weeks ended June 13, 2020,March 20, 2021, net cash used forprovided by investing activities was $6.8$0.1 billion, primarily reflecting net cash paid in connectionmaturities of short-term investments with our acquisitionsmaturities of RockStargreater than three months of $3.85$0.5 billion, and Pioneer Foods of $1.2 billion, as well aslargely offset by net capital spending of $1.2$0.5 billion.
In light of the potential impact of the COVID-19 pandemic on our business, we are currently reviewingWe regularly review our plans with respect to net capital spending.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 meet our net capital spending needs.
Financing Activities
During the 2412 weeks ended June 13, 2020,March 20, 2021, net cash provided byused for financing activities was $9.0$1.9 billion, primarily reflecting proceeds from issuances of long-term debt of $10.6 billion and net proceeds of short-term borrowings of $2.9 billion, partially offset by the return of operating cash flow to our shareholders primarily through dividend payments of $1.4 billion and share repurchasespayments of $3.8short-term borrowings of $0.4 billion.
We annually review our capital structure with our Board of Directors, including our dividend policy and share repurchase activity. 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 expire on June 30, 2021. OnIn addition, on February 13, 2020,11, 2021, we announced a 7%5% increase in our annualized dividend to $4.09$4.30 per share from $3.82$4.09 per share, effective with the dividend expected to be paid in June 2020.2021. We expect to return a total of approximately $7.5$5.9 billion to shareholders in 2020 through2021, comprised of dividends of approximately $5.8 billion and share repurchases of approximately $2 billion$106 million. We completed our share repurchase activity during the 12 weeks ended March 20, 2021 and dividendsdo not expect to repurchase any additional shares for the balance of approximately $5.5 billion.2021. See Part II, “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” for a description of our share repurchase program.
Free Cash Flow
The table below reconciles net cash provided byused for 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.”
| | | | 12 Weeks Ended | |
| | | 3/20/2021 | | 3/21/2020 | |
Net cash used for operating activities, GAAP measure | | Net cash used for operating activities, GAAP measure | $ | (719) | | | $ | (749) | | |
Capital spending | | Capital spending | (471) | | | (484) | | |
Sales of property, plant and equipment | | Sales of property, plant and equipment | 5 | | | 5 | | |
Free cash flow, non-GAAP measure | | Free cash flow, non-GAAP measure | $ | (1,185) | | | $ | (1,228) | | |
| | | 24 Weeks Ended | |
| 6/13/2020 |
|
| 6/15/2019 |
| |
Net cash provided by operating activities, GAAP measure | $ | 1,462 |
|
| $ | 1,388 |
| |
Capital spending | (1,188 | ) |
| (1,167 | ) | |
Sales of property, plant and equipment | 18 |
|
| 42 |
| |
Free cash flow, non-GAAP measure | $ | 292 |
|
| $ | 263 |
| |
|
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. See “Our Business Risks” included in this Form 10-Q and “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks,” included in our 20192020 Form 10-K, 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 Note 8 to our condensed consolidated financial statements “Item 1A. Risk Factors” and “Our Business Risks” included in this Form 10-Q, as well as “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks” included in our 20192020 Form 10-K for further information.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
PepsiCo, Inc.:
Results of Review of Interim Financial Information
We have reviewed the Condensed Consolidated Balance Sheet of PepsiCo, Inc. and subsidiaries (the Company) as of June 13, 2020,March 20, 2021, the related Condensed Consolidated Statements of Income, Comprehensive Income, Cash Flows and Equity for the twelve and twenty-four weeks ended June 13,March 20, 2021 and March 21, 2020, and June 15, 2019, the related Condensed Consolidated Statement of Cash Flows for the twenty-four weeks ended June 13, 2020 and June 15, 2019, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Consolidated Balance Sheet of the Company as of December 28, 2019,26, 2020, and the related Consolidated Statements of Income, Comprehensive Income, Cash Flows and Equity for the year then ended (not presented herein); and in our report dated February 13, 2020,10, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying Condensed Consolidated Balance Sheet as of December 28, 2019,26, 2020, is fairly stated, in all material respects, in relation to the Consolidated Balance Sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ KPMG LLP
New York, New York
July 13, 2020
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
See “Item 1A. Risk Factors” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks.” In addition, see “Item 1A. Risk Factors,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks” and Note 9 to our consolidated financial statements in our 20192020 Form 10-K.
ITEM 4. Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during our secondfirst quarter of 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During our secondfirst quarter of 2020,2021, we continued migrating certain of our financial processing systems to an enterprise-wide systems solution. These systems implementations are part of our ongoing global business transformation initiative, and we plan to continue implementing such systems throughout other parts of our businesses. In addition, in connection with our 2019 Productivity Plan, we continue to migrate to shared business service models across our operations to further simplify, harmonize and automate processes. In connection with these implementations and resulting business process changes, we continue to enhance the design and documentation of our internal control over financial reporting processes to maintain effective controls over our financial reporting. These transitions have not materially affected, and we do not expect them to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.
The following information should be read in conjunction with the discussion set forth under Part I, “Item 3. Legal Proceedings” in our 20192020 Form 10-K.
We 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. See also “Item 1A. Risk Factors” in this Form 10-Q and “Item 1. Business – Regulatory Matters” and “Item 1A. Risk Factors” in our 20192020 Form 10-K.
ITEM 1A. Risk Factors.
The following additional risk factor relating to COVID-19 should be read in conjunction with the risk factors set forth under “Item 1A. Risk Factors” in our 2019 Form 10-K and our Form 10-Q for the fiscal quarter ended March 21, 2020 (Q1 2020 Form 10-Q). The developments described in this additional risk factor have heightened, or in some cases manifested, certain of the risks disclosed in the risk factor section of our 2019 Form 10-K, and such risk factors are further qualified by the information relating to COVID-19 that is described in this Form 10-Q and our Q1 2020 Form 10-Q, including in the additional risk factor below. Except as described herein and in our Q1 2020 Form 10-Q, thereThere have been no material changes with respect to the risk factors disclosed in our 20192020 Form 10-K.
You should carefully consider the risks described below and in our 2019 Form 10-K and Q1 2020 Form 10-Q in addition to the other information set forth in this Form 10-Q, our Q1 2020 Form 10-Q and in our 2019 Form 10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations sections and the consolidated financial statements and related notes. These risks, some of which have occurred and any of which may occur in the future, can have a material adverse effect on our business, financial condition, results of operations or the prices of our publicly traded securities. The risks described below and in our 2019 Form 10-K and Q1 2020 Form 10-Q are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may occur or become material in the future and adversely affect our business, reputation, financial condition, results of operations or the prices of our publicly traded securities. Therefore, historical operating results, financial and business performance, events and trends are often not a reliable indicator of future operating results, financial and business performance, events or trends.
The impact of the spread of COVID-19 continues to create significant uncertainty for our business, financial condition and results of operations and for the prices of our publicly traded securities.
The extent of the impact of the COVID-19 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 market, including the duration and scope of the pandemic, 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.
Our global operations expose us to risks associated with the COVID-19 pandemic, which has continued to result in challenging operating environments. COVID-19 continues to spread across the globe to almost all of the countries and territories in which our products are made, manufactured, distributed or sold.Authorities in many of these markets have implemented numerous measures to stall the spread and ameliorate the impact of COVID-19, including travel bans and restrictions, quarantines, curfews, shelter in place and safer-at-home orders, business shutdowns and closures, and have also implemented multi-step polices with the goal of re-
opening these markets. These measures have impacted and continue to impact us, our employees, customers (including our foodservice customers), consumers, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third parties with whom we do business. The countries and territories in which our products are made, manufactured, distributed or sold are in varying stages of restrictions and re-opening to address the COVID-19 pandemic. Certain jurisdictions have begun re-opening only to return to restrictions in the face of increases in new COVID-19 cases. There is considerable uncertainty regarding how current and future health and safety measures implemented in response to the pandemic will impact our business, including whether they will result in further changes in demand for our products, further increases in operating costs (whether as a result of changes to our supply chain or increases in employee costs, operating costs or otherwise), how they will further impact our supply chain and whether they will result in further reduced availability of air or other commercial transport, port closures or border restrictions, each or all of which can impact our ability to make, manufacture, distribute and sell our products. To date, we have incurred increased costs as a result of COVID-19, including increased employee costs, such as expanded benefits and frontline incentives, and other operating costs, such as costs associated with the provision of personal protective equipment, allowances for credit losses, upfront payment write-offs and inventory write-offs, which have negatively impacted our profitability. In addition, measures that impact our ability to access our offices, plants, warehouses, distribution centers or other facilities (some of which are currently closed), or that impact the ability of our customers (including our foodservice customers), consumers, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third parties to do the same, may continue to impact the availability of our and their employees, many of whom are not able to perform their job functions remotely. If a significant percentage of our or our business partners’ workforce is unable to work, including because of illness, facility closures, quarantine, curfews, shelter in place orders, travel restrictions, social distancing requirements or other governmental restrictions or voluntarily adopted practices, our operations will be negatively impacted. Any sustained interruption in our or our business partners’ operations, distribution network or supply chain or any significant continuous shortage of raw materials or other supplies as a result of these measures, restrictions or disruptions, including as a result of increased demand for certain products, can impair our ability to make, manufacture, distribute or sell our products. Compliance with governmental measures imposed in response to COVID-19 has caused and will continue to cause us to incur additional costs, and any inability to comply with such measures can subject us to restrictions on our business activities, fines, and other penalties, any of which can adversely affect our business. In addition, the increase in certain of our employees working remotely has amplified certain risks to our business, including increased demand on our information technology resources and systems, increased phishing and other cybersecurity attacks as cybercriminals try to exploit the uncertainty surrounding the COVID-19 pandemic, and an increase in the number of points of potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers), to be secured, and any failure to effectively manage these risks, including to timely identify and appropriately respond to any cyberattacks, may adversely affect our business.
Public concern regarding the risk of contracting COVID-19 impacts 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 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. Changes in consumer demand as a result of COVID-19 continue to vary in scope and timing as we sell a wide variety of beverages, foods and snacks, and the amount of revenue attributable to such products varies across these markets. Even as governmental restrictions are lifted and economies gradually reopen, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels and shopping and consumption preferences. In addition, changes in consumer purchasing and consumption patterns may increase demand for our products in one quarter, resulting in decreased consumer demand for
our products in subsequent quarters, or in one sales channel resulting in potentially reduced profit from sales of our products. We continue to see shifts in product and channel preferences, including an increase 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 a rapid 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, can adversely affect our customers’ and business partners’ financial condition, which can result in 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 or other venues in which our products are sold, 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 may also result in our recording additional impairment 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 try to mitigate the negative impact of COVID-19 on our employees and our business, there can be no assurance that we will be successful in our efforts, and as a result, our business, financial condition and results of operations and the prices of our publicly traded securities may be adversely affected.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
A summary of our common stock repurchases (in millions, except average price per share) during the secondfirst quarter of 20202021 is set forth in the table below.
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 |
12/26/2020 | | | | | | | | $ | 9,084 | |
| | | | | | | | |
12/27/2020 - 1/23/2021 | | 0.4 | | | $ | 141.69 | | | 0.4 | | | (57) | |
| | | | | | | | 9,027 | |
1/24/2021 - 2/20/2021 | | 0.4 | | | $ | 139.28 | | | 0.4 | | | (49) | |
| | | | | | | | 8,978 | |
2/21/2021 - 3/20/2021 | | — | | | $ | — | | | — | | | — | |
Total | | 0.8 | | | $ | 140.58 | | | 0.8 | | | $ | 8,978 | |
(a)All shares were repurchased in open market transactions pursuant to the $15 billion share 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. Shares repurchased under this program may be repurchased in open market transactions, in privately negotiated transactions, in accelerated stock repurchase transactions or otherwise.
|
| | | | | | | | | | | | | | |
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 |
3/21/2020 | | | | | | | | $ | 10,482 |
|
| | | | | | | | |
3/22/2020 - 4/18/2020 | | 1.8 |
| | $ | 125.56 |
| | 1.8 |
| | (227 | ) |
| | | | | | | | 10,255 |
|
4/19/2020 - 5/16/2020 | | 1.3 |
| | $ | 133.09 |
| | 1.3 |
| | (168 | ) |
| | | | | | | | 10,087 |
|
5/17/2020 - 6/13/2020 | | 1.2 |
| | $ | 131.49 |
| | 1.2 |
| | (162 | ) |
Total | | 4.3 |
| | $ | 129.47 |
| | 4.3 |
| | $ | 9,925 |
|
| |
(a) | All shares were repurchased in open market transactions pursuant to the $15 billion share 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. Shares repurchased under this program may be repurchased in open market transactions, in privately negotiated transactions, in accelerated stock repurchase transactions or otherwise. |
ITEM 6. Exhibits.
|
| |
See “Index to Exhibits” on page 5544. |
INDEX TO EXHIBITS
|
| | | | |
EXHIBIT | |
| |
| |
| |
| |
| |
| |
| 364-Day Credit Agreement, dated as of June 1, 2020, among PepsiCo, as borrower, the lenders named therein, and Citibank, N.A., as administrative agent, which is incorporated by reference to Exhibit 99.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 3, 2020. |
| Five-Year Credit Agreement, dated as of June 3, 2019, among PepsiCo, as borrower, the lenders named therein, and Citibank, N.A., as administrative agent, which is incorporated by reference to Exhibit 99.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 3, 2020. |
Exhibit 101 | The following materials from PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 13, 2020March 20, 2021 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Statement of Income, (ii) the Condensed Consolidated Statement of Comprehensive Income, (iii) the Condensed Consolidated Statement of Cash Flows, (iv) the Condensed Consolidated Balance Sheet, (v) the Condensed Consolidated Statement of Equity, and (vi) Notes to the Condensed Consolidated Financial Statements. |
Exhibit 104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 13, 2020,March 20, 2021, formatted in iXBRL and contained in Exhibit 101. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | | |
| | | |
| | PepsiCo, Inc. | |
| | (Registrant) | |
| | | |
Date: | July 13, 2020April 14, 2021 | /s/ Marie T. Gallagher | |
| | Marie T. Gallagher | |
| | Senior Vice President and Controller | |
| | (Principal Accounting Officer) | |
| | | |
Date: | July 13, 2020April 14, 2021 | /s/ David YawmanFlavell | |
| | David YawmanFlavell | |
| | Executive Vice President, Government Affairs, General Counsel and Corporate Secretary | |
| | (Duly Authorized Officer) | |