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 September 4, 20213, 2022 (36 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 |
(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 |
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 |
3.200% Senior Notes Due 2029 | | PEP29 | | 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 |
0.750% Senior Notes Due 2033 | | PEP33 | | The Nasdaq Stock Market LLC |
3.550% Senior Notes Due 2034 | | PEP34 | | 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 ¨
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 ¨
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 | ☒ | 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 ☒
Number of shares of Common Stock outstanding as of September 28, 2021October 5, 2022 was 1,382,652,943.1,377,709,209.
PepsiCo, Inc. and Subsidiaries
Table of Contents
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| | 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 | | 36 Weeks Ended | | 12 Weeks Ended | | 36 Weeks Ended |
| | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 |
Net Revenue | Net Revenue | $ | 20,189 | | | $ | 18,091 | | | $ | 54,226 | | | $ | 47,917 | | Net Revenue | $ | 21,971 | | | $ | 20,189 | | | $ | 58,396 | | | $ | 54,226 | |
Cost of sales | Cost of sales | 9,394 | | | 8,156 | | | 24,945 | | | 21,371 | | Cost of sales | 10,308 | | | 9,394 | | | 27,156 | | | 24,945 | |
Gross profit | Gross profit | 10,795 | | | 9,935 | | | 29,281 | | | 26,546 | | Gross profit | 11,663 | | | 10,795 | | | 31,240 | | | 29,281 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 7,636 | | | 6,924 | | | 20,681 | | | 19,292 | | Selling, general and administrative expenses | 8,295 | | | 7,636 | | | 22,262 | | | 20,681 | |
Gain associated with the Juice Transaction (a) | | Gain associated with the Juice Transaction (a) | 14 | | | — | | | (3,321) | | | — | |
Impairment of intangible assets (see Notes 1 and 3) | | Impairment of intangible assets (see Notes 1 and 3) | 1 | | | — | | | 1,602 | | | — | |
Operating Profit | Operating Profit | 3,159 | | | 3,011 | | | 8,600 | | | 7,254 | | Operating Profit | 3,353 | | | 3,159 | | | 10,697 | | | 8,600 | |
Other pension and retiree medical benefits income | Other pension and retiree medical benefits income | 118 | | | 86 | | | 364 | | | 247 | | Other pension and retiree medical benefits income | 36 | | | 118 | | | 168 | | | 364 | |
Net interest expense and other | Net interest expense and other | (232) | | | (264) | | | (731) | | | (789) | | Net interest expense and other | (190) | | | (232) | | | (666) | | | (731) | |
Income before income taxes | Income before income taxes | 3,045 | | | 2,833 | | | 8,233 | | | 6,712 | | Income before income taxes | 3,199 | | | 3,045 | | | 10,199 | | | 8,233 | |
Provision for income taxes | Provision for income taxes | 802 | | | 526 | | | 1,895 | | | 1,396 | | Provision for income taxes | 475 | | | 802 | | | 1,756 | | | 1,895 | |
Net income | Net income | 2,243 | | | 2,307 | | | 6,338 | | | 5,316 | | Net income | 2,724 | | | 2,243 | | | 8,443 | | | 6,338 | |
Less: Net income attributable to noncontrolling interests | Less: Net income attributable to noncontrolling interests | 19 | | | 16 | | | 42 | | | 41 | | Less: Net income attributable to noncontrolling interests | 22 | | | 19 | | | 51 | | | 42 | |
Net Income Attributable to PepsiCo | Net Income Attributable to PepsiCo | $ | 2,224 | | | $ | 2,291 | | | $ | 6,296 | | | $ | 5,275 | | Net Income Attributable to PepsiCo | $ | 2,702 | | | $ | 2,224 | | | $ | 8,392 | | | $ | 6,296 | |
Net Income Attributable to PepsiCo per Common Share | Net Income Attributable to PepsiCo per Common Share | | | | | | | | Net Income Attributable to PepsiCo per Common Share | | | | | | | |
Basic | Basic | $ | 1.61 | | | $ | 1.66 | | | $ | 4.56 | | | $ | 3.80 | | Basic | $ | 1.96 | | | $ | 1.61 | | | $ | 6.07 | | | $ | 4.56 | |
Diluted | Diluted | $ | 1.60 | | | $ | 1.65 | | | $ | 4.54 | | | $ | 3.79 | | Diluted | $ | 1.95 | | | $ | 1.60 | | | $ | 6.04 | | | $ | 4.54 | |
Weighted-average common shares outstanding | Weighted-average common shares outstanding | | Weighted-average common shares outstanding | |
Basic | Basic | 1,382 | | | 1,384 | | | 1,381 | | | 1,387 | | Basic | 1,380 | | | 1,382 | | | 1,382 | | | 1,381 | |
Diluted | Diluted | 1,389 | | | 1,390 | | | 1,388 | | | 1,393 | | Diluted | 1,387 | | | 1,389 | | | 1,389 | | | 1,388 | |
(a)In the 36 weeks ended September 3, 2022, we sold our Tropicana, Naked and other select juice brands to PAI Partners for approximately $3.5 billion in cash and a 39% noncontrolling interest in a newly formed joint venture (Tropicana JV) operating across North America and Europe (Juice Transaction). See Note 11 for further information.
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 | | 36 Weeks Ended | | 12 Weeks Ended | | 36 Weeks Ended |
| | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 |
Net income | Net income | $ | 2,243 | | | $ | 2,307 | | | $ | 6,338 | | | $ | 5,316 | | Net income | $ | 2,724 | | | $ | 2,243 | | | $ | 8,443 | | | $ | 6,338 | |
Other comprehensive (loss)/income, net of taxes: | Other comprehensive (loss)/income, net of taxes: | | Other comprehensive (loss)/income, net of taxes: | |
Net currency translation adjustment | Net currency translation adjustment | (335) | | | 414 | | | 64 | | | (1,136) | | Net currency translation adjustment | (324) | | | (335) | | | 390 | | | 64 | |
Net change on cash flow hedges | Net change on cash flow hedges | (21) | | | 11 | | | 144 | | | (37) | | Net change on cash flow hedges | (113) | | | (21) | | | (109) | | | 144 | |
Net pension and retiree medical adjustments | Net pension and retiree medical adjustments | 90 | | | (1) | | | 141 | | | 119 | | Net pension and retiree medical adjustments | 108 | | | 90 | | | (129) | | | 141 | |
| Other | Other | — | | | (3) | | | 2 | | | (3) | | Other | 2 | | | — | | | 3 | | | 2 | |
| | (266) | | | 421 | | | 351 | | | (1,057) | | | (327) | | | (266) | | | 155 | | | 351 | |
Comprehensive income | Comprehensive income | 1,977 | | | 2,728 | | | 6,689 | | | 4,259 | | Comprehensive income | 2,397 | | | 1,977 | | | 8,598 | | | 6,689 | |
Less: Comprehensive income attributable to noncontrolling interests | Less: Comprehensive income attributable to noncontrolling interests | 19 | | | 16 | | | 42 | | | 41 | | Less: Comprehensive income attributable to noncontrolling interests | 22 | | | 19 | | | 51 | | | 42 | |
Comprehensive Income Attributable to PepsiCo | Comprehensive Income Attributable to PepsiCo | $ | 1,958 | | | $ | 2,712 | | | $ | 6,647 | | | $ | 4,218 | | Comprehensive Income Attributable to PepsiCo | $ | 2,375 | | | $ | 1,958 | | | $ | 8,547 | | | $ | 6,647 | |
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
| | | 36 Weeks Ended | | 36 Weeks Ended |
| | 9/4/2021 | | 9/5/2020 | | 9/3/2022 | | 9/4/2021 |
Operating Activities | Operating Activities | | | | Operating Activities | | | |
Net income | Net income | $ | 6,338 | | | $ | 5,316 | | Net income | $ | 8,443 | | | $ | 6,338 | |
Depreciation and amortization | Depreciation and amortization | 1,863 | | | 1,731 | | Depreciation and amortization | 1,854 | | | 1,863 | |
Gain associated with the Juice Transaction | | Gain associated with the Juice Transaction | (3,321) | | | — | |
Brand portfolio impairment charges | | Brand portfolio impairment charges | 475 | | | — | |
Russia-Ukraine conflict charges | | Russia-Ukraine conflict charges | 1,402 | | | — | |
Operating lease right-of-use asset amortization | | Operating lease right-of-use asset amortization | 346 | | | 340 | |
Share-based compensation expense | Share-based compensation expense | 215 | | | 186 | | Share-based compensation expense | 233 | | | 215 | |
Restructuring and impairment charges | Restructuring and impairment charges | 129 | | | 124 | | Restructuring and impairment charges | 126 | | | 129 | |
Cash payments for restructuring charges | Cash payments for restructuring charges | (165) | | | (166) | | Cash payments for restructuring charges | (134) | | | (165) | |
Acquisition and divestiture-related charges | Acquisition and divestiture-related charges | 12 | | | 286 | | Acquisition and divestiture-related charges | 69 | | | 12 | |
Cash payments for acquisition and divestiture-related charges | Cash payments for acquisition and divestiture-related charges | (25) | | | (97) | | Cash payments for acquisition and divestiture-related charges | (41) | | | (25) | |
Pension and retiree medical plan expenses | Pension and retiree medical plan expenses | 81 | | | 121 | | Pension and retiree medical plan expenses | 235 | | | 81 | |
Pension and retiree medical plan contributions | Pension and retiree medical plan contributions | (715) | | | (501) | | Pension and retiree medical plan contributions | (335) | | | (715) | |
Deferred income taxes and other tax charges and credits | Deferred income taxes and other tax charges and credits | 261 | | | 96 | | Deferred income taxes and other tax charges and credits | (322) | | | 261 | |
Tax expense related to the Tax Cuts and Jobs Act (TCJ Act) | Tax expense related to the Tax Cuts and Jobs Act (TCJ Act) | 190 | | | — | | Tax expense related to the Tax Cuts and Jobs Act (TCJ Act) | 86 | | | 190 | |
Tax payments related to the TCJ Act | Tax payments related to the TCJ Act | (309) | | | (78) | | Tax payments related to the TCJ Act | (309) | | | (309) | |
Change in assets and liabilities: | Change in assets and liabilities: | | Change in assets and liabilities: | |
Accounts and notes receivable | Accounts and notes receivable | (1,416) | | | (1,430) | | Accounts and notes receivable | (2,258) | | | (1,416) | |
Inventories | Inventories | (579) | | | (549) | | Inventories | (837) | | | (579) | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | (46) | | | (202) | | Prepaid expenses and other current assets | (124) | | | (46) | |
Accounts payable and other current liabilities | Accounts payable and other current liabilities | 99 | | | 289 | | Accounts payable and other current liabilities | 426 | | | 99 | |
Income taxes payable | Income taxes payable | 645 | | | 583 | | Income taxes payable | 718 | | | 645 | |
Other, net | Other, net | 56 | | | 414 | | Other, net | (426) | | | (284) | |
Net Cash Provided by Operating Activities | Net Cash Provided by Operating Activities | 6,634 | | | 6,123 | | Net Cash Provided by Operating Activities | 6,306 | | | 6,634 | |
| Investing Activities | Investing Activities | | Investing Activities | |
Capital spending | Capital spending | (2,276) | | | (2,074) | | Capital spending | (2,556) | | | (2,276) | |
Sales of property, plant and equipment | Sales of property, plant and equipment | 40 | | | 26 | | Sales of property, plant and equipment | 228 | | | 40 | |
Acquisitions, net of cash acquired, and investments in noncontrolled affiliates | (28) | | | (6,373) | | |
Divestitures and sales of investments in noncontrolled affiliates | 158 | | | 4 | | |
Acquisitions, net of cash acquired, investments in noncontrolled affiliates and purchases of intangible and other assets | | Acquisitions, net of cash acquired, investments in noncontrolled affiliates and purchases of intangible and other assets | (804) | | | (28) | |
Proceeds associated with the Juice Transaction | | Proceeds associated with the Juice Transaction | 3,456 | | | — | |
Other divestitures, sales of investments in noncontrolled affiliates and other assets | | Other divestitures, sales of investments in noncontrolled affiliates and other assets | 15 | | | 158 | |
Short-term investments, by original maturity: | Short-term investments, by original maturity: | | Short-term investments, by original maturity: | |
More than three months - purchases | More than three months - purchases | — | | | (400) | | More than three months - purchases | (46) | | | — | |
More than three months - maturities | More than three months - maturities | 1,135 | | | — | | More than three months - maturities | — | | | 1,135 | |
| Three months or less, net | Three months or less, net | (65) | | | 23 | | Three months or less, net | 9 | | | (65) | |
Other investing, net | Other investing, net | 6 | | | 33 | | Other investing, net | 7 | | | 6 | |
Net Cash Used for Investing Activities | (1,030) | | | (8,761) | | |
Net Cash Provided by/(Used for) Investing Activities | | Net Cash Provided by/(Used for) Investing Activities | 309 | | | (1,030) | |
(Continued on following page)
Condensed Consolidated Statement of Cash Flows (continued)
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
| | | 36 Weeks Ended | | 36 Weeks Ended |
| | 9/4/2021 | | 9/5/2020 | | 9/3/2022 | | 9/4/2021 |
Financing Activities | Financing Activities | | | | Financing Activities | | | |
Proceeds from issuances of long-term debt | Proceeds from issuances of long-term debt | — | | | 10,564 | | Proceeds from issuances of long-term debt | 3,377 | | | — | |
Payments of long-term debt | Payments of long-term debt | (2,454) | | | (814) | | Payments of long-term debt | (1,653) | | | (2,454) | |
Debt redemptions | | Debt redemptions | (1,550) | | | — | |
Short-term borrowings, by original maturity: | Short-term borrowings, by original maturity: | | Short-term borrowings, by original maturity: | |
More than three months - proceeds | More than three months - proceeds | — | | | 4,069 | | More than three months - proceeds | 1,947 | | | — | |
More than three months - payments | More than three months - payments | (397) | | | (1,801) | | More than three months - payments | (1,932) | | | (397) | |
Three months or less, net | Three months or less, net | 19 | | | (11) | | Three months or less, net | (45) | | | 19 | |
| Cash dividends paid | Cash dividends paid | (4,328) | | | (4,094) | | Cash dividends paid | (4,586) | | | (4,328) | |
Share repurchases - common | Share repurchases - common | (106) | | | (1,543) | | Share repurchases - common | (1,156) | | | (106) | |
| Proceeds from exercises of stock options | Proceeds from exercises of stock options | 146 | | | 145 | | Proceeds from exercises of stock options | 113 | | | 146 | |
Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted | Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted | (82) | | | (86) | | Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted | (97) | | | (82) | |
Other financing | Other financing | (19) | | | (18) | | Other financing | (25) | | | (19) | |
Net Cash (Used for)/Provided by Financing Activities | (7,221) | | | 6,411 | | |
Net Cash Used for Financing Activities | | Net Cash Used for Financing Activities | (5,607) | | | (7,221) | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | Effect of exchange rate changes on cash and cash equivalents and restricted cash | (30) | | | (184) | | Effect of exchange rate changes on cash and cash equivalents and restricted cash | (197) | | | (30) | |
Net (Decrease)/Increase in Cash and Cash Equivalents and Restricted Cash | (1,647) | | | 3,589 | | |
Net Increase/(Decrease) in Cash and Cash Equivalents and Restricted Cash | | Net Increase/(Decrease) in Cash and Cash Equivalents and Restricted Cash | 811 | | | (1,647) | |
Cash and Cash Equivalents and Restricted Cash, Beginning of Year | Cash and Cash Equivalents and Restricted Cash, Beginning of Year | 8,254 | | | 5,570 | | Cash and Cash Equivalents and Restricted Cash, Beginning of Year | 5,707 | | | 8,254 | |
Cash and Cash Equivalents and Restricted Cash, End of Period | Cash and Cash Equivalents and Restricted Cash, End of Period | $ | 6,607 | | | $ | 9,159 | | Cash and Cash Equivalents and Restricted Cash, End of Period | $ | 6,518 | | | $ | 6,607 | |
| Supplemental Non-Cash Activity | Supplemental Non-Cash Activity | | Supplemental Non-Cash Activity | |
Right-of-use assets obtained in exchange for lease obligations | Right-of-use assets obtained in exchange for lease obligations | $ | 494 | | | $ | 431 | | Right-of-use assets obtained in exchange for lease obligations | $ | 560 | | | $ | 494 | |
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts)
| | | (Unaudited) | | | (Unaudited) | |
| | 9/4/2021 | | 12/26/2020 | | 9/3/2022 | | 12/25/2021 |
ASSETS | ASSETS | | | | ASSETS | | | |
Current Assets | Current Assets | | Current Assets | |
Cash and cash equivalents | Cash and cash equivalents | $ | 6,506 | | | $ | 8,185 | | Cash and cash equivalents | $ | 6,415 | | | $ | 5,596 | |
Short-term investments | Short-term investments | 344 | | | 1,366 | | Short-term investments | 327 | | | 392 | |
| Accounts and notes receivable, less allowance: 9/21 - $165 and 12/20 - $201 | 9,545 | | | 8,404 | | |
Accounts and notes receivable, less allowance: 9/22 - $165 and 12/21 - $147 | | Accounts and notes receivable, less allowance: 9/22 - $165 and 12/21 - $147 | 10,739 | | | 8,680 | |
Inventories: | Inventories: | | Inventories: | |
Raw materials and packaging | Raw materials and packaging | 1,926 | | | 1,720 | | Raw materials and packaging | 2,303 | | | 1,898 | |
Work-in-process | Work-in-process | 178 | | | 205 | | Work-in-process | 150 | | | 151 | |
Finished goods | Finished goods | 2,260 | | | 2,247 | | Finished goods | 2,566 | | | 2,298 | |
| | 4,364 | | | 4,172 | | | 5,019 | | | 4,347 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 1,058 | | | 874 | | Prepaid expenses and other current assets | 1,043 | | | 980 | |
Assets held for sale | Assets held for sale | 1,893 | | | — | | Assets held for sale | — | | | 1,788 | |
Total Current Assets | Total Current Assets | 23,710 | | | 23,001 | | Total Current Assets | 23,543 | | | 21,783 | |
Property, plant and equipment | Property, plant and equipment | 45,688 | | | 46,340 | | Property, plant and equipment | 48,100 | | | 46,828 | |
Accumulated depreciation | Accumulated depreciation | (24,431) | | | (24,971) | | Accumulated depreciation | (25,300) | | | (24,421) | |
Property, Plant and Equipment, net | Property, Plant and Equipment, net | 21,257 | | | 21,369 | | Property, Plant and Equipment, net | 22,800 | | | 22,407 | |
Amortizable Intangible Assets, net | Amortizable Intangible Assets, net | 1,584 | | | 1,703 | | Amortizable Intangible Assets, net | 1,314 | | | 1,538 | |
Goodwill | Goodwill | 18,531 | | | 18,757 | | Goodwill | 18,388 | | | 18,381 | |
Other Indefinite-Lived Intangible Assets | Other Indefinite-Lived Intangible Assets | 17,291 | | | 17,612 | | Other Indefinite-Lived Intangible Assets | 15,838 | | | 17,127 | |
| Investments in Noncontrolled Affiliates | Investments in Noncontrolled Affiliates | 2,791 | | | 2,792 | | Investments in Noncontrolled Affiliates | 3,224 | | | 2,350 | |
Deferred Income Taxes | Deferred Income Taxes | 4,357 | | | 4,372 | | Deferred Income Taxes | 4,324 | | | 4,310 | |
Other Assets | Other Assets | 3,733 | | | 3,312 | | Other Assets | 5,030 | | | 4,481 | |
Total Assets | Total Assets | $ | 93,254 | | | $ | 92,918 | | Total Assets | $ | 94,461 | | | $ | 92,377 | |
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | LIABILITIES AND EQUITY | |
Current Liabilities | Current Liabilities | | Current Liabilities | |
Short-term debt obligations | Short-term debt obligations | $ | 4,234 | | | $ | 3,780 | | Short-term debt obligations | $ | 3,109 | | | $ | 4,308 | |
Accounts payable and other current liabilities | Accounts payable and other current liabilities | 20,060 | | | 19,592 | | Accounts payable and other current liabilities | 22,544 | | | 21,159 | |
Liabilities held for sale | Liabilities held for sale | 783 | | | — | | Liabilities held for sale | — | | | 753 | |
Total Current Liabilities | Total Current Liabilities | 25,077 | | | 23,372 | | Total Current Liabilities | 25,653 | | | 26,220 | |
Long-Term Debt Obligations | Long-Term Debt Obligations | 37,023 | | | 40,370 | | Long-Term Debt Obligations | 36,136 | | | 36,026 | |
Deferred Income Taxes | Deferred Income Taxes | 4,529 | | | 4,284 | | Deferred Income Taxes | 4,724 | | | 4,826 | |
Other Liabilities | Other Liabilities | 10,635 | | | 11,340 | | Other Liabilities | 8,813 | | | 9,154 | |
Total Liabilities | Total Liabilities | 77,264 | | | 79,366 | | Total Liabilities | 75,326 | | | 76,226 | |
Commitments and contingencies | Commitments and contingencies | | Commitments and contingencies | |
PepsiCo Common Shareholders’ Equity | PepsiCo Common Shareholders’ Equity | | PepsiCo Common Shareholders’ Equity | |
Common stock, par value 12/3¢ per share (authorized 3,600 shares; issued, net of repurchased common stock at par value: 1,383 and 1,380 shares, respectively) | 23 | | | 23 | | |
Common stock, par value 12/3¢ per share (authorized 3,600 shares; issued, net of repurchased common stock at par value: 1,379 and 1,383 shares, respectively) | | Common stock, par value 12/3¢ per share (authorized 3,600 shares; issued, net of repurchased common stock at par value: 1,379 and 1,383 shares, respectively) | 23 | | | 23 | |
Capital in excess of par value | Capital in excess of par value | 3,924 | | | 3,910 | | Capital in excess of par value | 4,036 | | | 4,001 | |
Retained earnings | Retained earnings | 65,336 | | | 63,443 | | Retained earnings | 68,872 | | | 65,165 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (15,125) | | | (15,476) | | Accumulated other comprehensive loss | (14,743) | | | (14,898) | |
Repurchased common stock, in excess of par value (484 and 487 shares, respectively) | (38,286) | | | (38,446) | | |
Repurchased common stock, in excess of par value (488 and 484 shares, respectively) | | Repurchased common stock, in excess of par value (488 and 484 shares, respectively) | (39,211) | | | (38,248) | |
Total PepsiCo Common Shareholders’ Equity | Total PepsiCo Common Shareholders’ Equity | 15,872 | | | 13,454 | | Total PepsiCo Common Shareholders’ Equity | 18,977 | | | 16,043 | |
Noncontrolling interests | Noncontrolling interests | 118 | | | 98 | | Noncontrolling interests | 158 | | | 108 | |
Total Equity | Total Equity | 15,990 | | | 13,552 | | Total Equity | 19,135 | | | 16,151 | |
Total Liabilities and Equity | Total Liabilities and Equity | $ | 93,254 | | | $ | 92,918 | | Total Liabilities and Equity | $ | 94,461 | | | $ | 92,377 | |
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 | | 36 Weeks Ended | | 12 Weeks Ended | | 36 Weeks Ended |
| | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 |
| | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| Common Stock | Common Stock | | | | | | | | | | | | | | | | Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | 1,382 | | | $ | 23 | | | 1,385 | | | $ | 23 | | | 1,380 | | | $ | 23 | | | 1,391 | | | $ | 23 | | Balance, beginning of period | 1,381 | | | $ | 23 | | | 1,382 | | | $ | 23 | | | 1,383 | | | $ | 23 | | | 1,380 | | | $ | 23 | |
Change in repurchased common stock | Change in repurchased common stock | 1 | | | — | | | (2) | | | — | | | 3 | | | — | | | (8) | | | — | | Change in repurchased common stock | (2) | | | — | | | 1 | | | — | | | (4) | | | — | | | 3 | | | — | |
Balance, end of period | Balance, end of period | 1,383 | | | 23 | | | 1,383 | | | 23 | | | 1,383 | | | 23 | | | 1,383 | | | 23 | | Balance, end of period | 1,379 | | | 23 | | | 1,383 | | | 23 | | | 1,379 | | | 23 | | | 1,383 | | | 23 | |
Capital in Excess of Par Value | Capital in Excess of Par Value | | | | | | | | | | | | | | | | Capital in Excess of Par Value | | | | | | | | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | | 3,863 | | | 3,772 | | | 3,910 | | | 3,886 | | Balance, beginning of period | | 3,970 | | | 3,863 | | | 4,001 | | | 3,910 | |
Share-based compensation expense | Share-based compensation expense | | 70 | | | 85 | | | 215 | | | 186 | | Share-based compensation expense | | 77 | | | 70 | | | 236 | | | 215 | |
| Stock option exercises, RSUs and PSUs converted | Stock option exercises, RSUs and PSUs converted | | — | | | (2) | | | (119) | | | (138) | | Stock option exercises, RSUs and PSUs converted | | 1 | | | — | | | (102) | | | (119) | |
Withholding tax on RSUs and PSUs converted | Withholding tax on RSUs and PSUs converted | | (9) | | | (7) | | | (82) | | | (86) | | Withholding tax on RSUs and PSUs converted | | (10) | | | (9) | | | (97) | | | (82) | |
| Other | | Other | | (2) | | | — | | | (2) | | | — | |
Balance, end of period | Balance, end of period | | 3,924 | | | 3,848 | | | 3,924 | | | 3,848 | | Balance, end of period | | 4,036 | | | 3,924 | | | 4,036 | | | 3,924 | |
Retained Earnings | Retained Earnings | | | | | | | | | Retained Earnings | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | | 64,605 | | | 62,145 | | | 63,443 | | | 61,946 | | Balance, beginning of period | | 67,763 | | | 64,605 | | | 65,165 | | | 63,443 | |
Cumulative effect of accounting changes | | — | | | — | | | — | | | (34) | | |
| Net income attributable to PepsiCo | Net income attributable to PepsiCo | | 2,224 | | | 2,291 | | | 6,296 | | | 5,275 | | Net income attributable to PepsiCo | | 2,702 | | | 2,224 | | | 8,392 | | | 6,296 | |
Cash dividends declared – common (a) | Cash dividends declared – common (a) | | (1,493) | | | (1,423) | | | (4,403) | | | (4,174) | | Cash dividends declared – common (a) | | (1,593) | | | (1,493) | | | (4,685) | | | (4,403) | |
| Balance, end of period | Balance, end of period | | 65,336 | | | 63,013 | | | 65,336 | | | 63,013 | | Balance, end of period | | 68,872 | | | 65,336 | | | 68,872 | | | 65,336 | |
Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss | | | | | | | | | Accumulated Other Comprehensive Loss | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | | (14,859) | | | (15,778) | | | (15,476) | | | (14,300) | | Balance, beginning of period | | (14,416) | | | (14,859) | | | (14,898) | | | (15,476) | |
Other comprehensive (loss)/income attributable to PepsiCo | Other comprehensive (loss)/income attributable to PepsiCo | | (266) | | | 421 | | | 351 | | | (1,057) | | Other comprehensive (loss)/income attributable to PepsiCo | | (327) | | | (266) | | | 155 | | | 351 | |
Balance, end of period | Balance, end of period | | (15,125) | | | (15,357) | | | (15,125) | | | (15,357) | | Balance, end of period | | (14,743) | | | (15,125) | | | (14,743) | | | (15,125) | |
Repurchased Common Stock | Repurchased Common Stock | | | | | | | | | Repurchased Common Stock | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | (485) | | | (38,333) | | | (482) | | | (37,671) | | | (487) | | | (38,446) | | | (476) | | | (36,769) | | Balance, beginning of period | (486) | | | (38,787) | | | (485) | | | (38,333) | | | (484) | | | (38,248) | | | (487) | | | (38,446) | |
Share repurchases | Share repurchases | — | | | — | | | (3) | | | (400) | | | (1) | | | (106) | | | (12) | | | (1,559) | | Share repurchases | (3) | | | (448) | | | — | | | — | | | (7) | | | (1,179) | | | (1) | | | (106) | |
Stock option exercises, RSUs and PSUs converted | Stock option exercises, RSUs and PSUs converted | 1 | | | 46 | | | 1 | | | 27 | | | 4 | | | 265 | | | 4 | | | 284 | | Stock option exercises, RSUs and PSUs converted | 1 | | | 23 | | | 1 | | | 46 | | | 3 | | | 215 | | | 4 | | | 265 | |
Other | Other | — | | | 1 | | | — | | | — | | | — | | | 1 | | | — | | | — | | Other | — | | | 1 | | | — | | | 1 | | | — | | | 1 | | | — | | | 1 | |
Balance, end of period | Balance, end of period | (484) | | | (38,286) | | | (484) | | | (38,044) | | | (484) | | | (38,286) | | | (484) | | | (38,044) | | Balance, end of period | (488) | | | (39,211) | | | (484) | | | (38,286) | | | (488) | | | (39,211) | | | (484) | | | (38,286) | |
Total PepsiCo Common Shareholders’ Equity | Total PepsiCo Common Shareholders’ Equity | | | 15,872 | | | | | 13,483 | | | | | 15,872 | | | | | 13,483 | | Total PepsiCo Common Shareholders’ Equity | | | 18,977 | | | | | 15,872 | | | | | 18,977 | | | | | 15,872 | |
Noncontrolling Interests | Noncontrolling Interests | | | | | | | | | Noncontrolling Interests | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | | 99 | | | 96 | | | 98 | | | 82 | | Balance, beginning of period | | 121 | | | 99 | | | 108 | | | 98 | |
Net income attributable to noncontrolling interest | Net income attributable to noncontrolling interest | | 19 | | | 16 | | | 42 | | | 41 | | Net income attributable to noncontrolling interest | | 22 | | | 19 | | | 51 | | | 42 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | | — | | | — | | | (20) | | | (15) | | Distributions to noncontrolling interests | | (6) | | | — | | | (20) | | | (20) | |
| Acquisitions | Acquisitions | | — | | | — | | | — | | | 5 | | Acquisitions | | 21 | | | — | | | 21 | | | — | |
Other, net | Other, net | | — | | | — | | | (2) | | | (1) | | Other, net | | — | | | — | | | (2) | | | (2) | |
Balance, end of period | Balance, end of period | | 118 | | | 112 | | | 118 | | | 112 | | Balance, end of period | | 158 | | | 118 | | | 158 | | | 118 | |
Total Equity | Total Equity | | $ | 15,990 | | | $ | 13,595 | | | $ | 15,990 | | | $ | 13,595 | | Total Equity | | $ | 19,135 | | | $ | 15,990 | | | $ | 19,135 | | | $ | 15,990 | |
(a)Cash dividends declared per common share were $1.075$1.15 and $1.0225$1.075 for the 12 weeks ended September 3, 2022 and September 4, 2021, and September 5, 2020, respectively and $3.1725$3.375 and $3.00$3.1725 for the 36 weeks ended September 4, 20213, 2022 and September 5, 2020,4, 2021, 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 26, 202025, 2021 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 26, 2020 (202025, 2021 (2021 Form 10-K). This report should be read in conjunction with our 20202021 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 36 weeks ended September 4, 20213, 2022 are not necessarily indicative of the results expected for any future period or the full year.
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 reportreported on a monthly calendar basis for whichprior to the fourth quarter of 2021. Beginning in the fourth quarter of 2021, all of our international operations reported on a monthly calendar basis. This change did not have a material impact on our condensed consolidated financial statements. For our international operations, the months of June, July and August are reflected in our results for the 12 weeks ended September 4, 20213, 2022, and the months of January through August are reflected in our results for the 36 weeks ended September 4, 2021.3, 2022.
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. TheAdditionally, the business and economic uncertainty resulting from the novel coronavirus (COVID-19) pandemic and the Russia-Ukraine conflict has made such estimates and assumptions more difficult to calculate. Accordingly, actual results and outcomes could differ from those estimates.
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
We are organized into 7seven reportable segments (also referred to as divisions), as follows:
1)Frito-Lay North America (FLNA), which includes our branded convenient food and snack businesses in the United States and Canada;
2)Quaker Foods North America (QFNA), which includes our branded convenient food businesses, such as cereal, rice, pasta and other branded food, 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 snackconvenient food businesses in Latin America;
5)Europe, which includes all of our beverage food and snackconvenient food businesses in Europe;
6)Africa, Middle East and South Asia (AMESA), which includes all of our beverage food and snackconvenient food businesses in Africa, the Middle East and South Asia; and
7)Asia Pacific, Australia and New Zealand and China region (APAC), which includes all of our beverage food and snackconvenient food businesses in Asia Pacific, Australia and New Zealand, and China region.
Net revenue of each division is as follows:
| | | 12 Weeks Ended | | 36 Weeks Ended | | 12 Weeks Ended | | 36 Weeks Ended |
| | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 |
FLNA | FLNA | $ | 4,653 | | | $ | 4,399 | | | $ | 13,441 | | | $ | 12,746 | | FLNA | $ | 5,563 | | | $ | 4,653 | | | $ | 15,583 | | | $ | 13,441 | |
QFNA | QFNA | 618 | | | 608 | | | 1,839 | | | 1,906 | | QFNA | 713 | | | 618 | | | 2,101 | | | 1,839 | |
PBNA | PBNA | 6,402 | | | 5,958 | | | 17,632 | | | 15,766 | | PBNA | 6,635 | | | 6,402 | | | 18,108 | | | 17,632 | |
LatAm | LatAm | 2,100 | | | 1,654 | | | 5,309 | | | 4,531 | | LatAm | 2,517 | | | 2,100 | | | 6,406 | | | 5,309 | |
Europe | Europe | 3,612 | | | 3,323 | | | 8,693 | | | 7,887 | | Europe | 3,646 | | | 3,612 | | | 8,466 | | | 8,693 | |
AMESA (a) | AMESA (a) | 1,665 | | | 1,252 | | | 4,150 | | | 2,866 | | AMESA (a) | 1,726 | | | 1,665 | | | 4,426 | | | 4,150 | |
APAC (b) | APAC (b) | 1,139 | | | 897 | | | 3,162 | | | 2,215 | | APAC (b) | 1,171 | | | 1,139 | | | 3,306 | | | 3,162 | |
Total | Total | $ | 20,189 | | | $ | 18,091 | | | $ | 54,226 | | | $ | 47,917 | | Total | $ | 21,971 | | | $ | 20,189 | | | $ | 58,396 | | | $ | 54,226 | |
(a)Table of ContentsThe increase in net revenue for the 36 weeks ended September 4, 2021 primarily reflects our acquisition of Pioneer Food Group Ltd. (Pioneer Foods). See Note 12 for further information.(b)The increase in net revenue for the 36 weeks ended September 4, 2021 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 convenient food and snack products to our customers. The following tables reflect the approximate percentage of net revenue generated between our beverage business and our convenient food and snack business for each of our international divisions, as well as our consolidated net revenue:
| | | 12 Weeks Ended | | 12 Weeks Ended |
| | 9/4/2021 | | 9/5/2020 | | 9/3/2022 | | 9/4/2021 |
| | Beverage(a) | | Food/Snack | | Beverage(a) | | Food/Snack | | Beverages(a) | | Convenient Foods | | Beverages(a) | | Convenient Foods |
LatAm | LatAm | 10 | % | | 90 | % | | 10 | % | | 90 | % | LatAm | 10 | % | | 90 | % | | 10 | % | | 90 | % |
Europe | Europe | 55 | % | | 45 | % | | 55 | % | | 45 | % | Europe | 55 | % | | 45 | % | | 55 | % | | 45 | % |
AMESA | AMESA | 35 | % | | 65 | % | | 30 | % | | 70 | % | AMESA | 35 | % | | 65 | % | | 35 | % | | 65 | % |
APAC | APAC | 25 | % | | 75 | % | | 25 | % | | 75 | % | APAC | 25 | % | | 75 | % | | 25 | % | | 75 | % |
PepsiCo | PepsiCo | 45 | % | | 55 | % | | 45 | % | | 55 | % | PepsiCo | 45 | % | | 55 | % | | 45 | % | | 55 | % |
|
| | | 36 Weeks Ended | | 36 Weeks Ended | |
| | 9/4/2021 | | 9/5/2020 | | 9/3/2022 | | 9/4/2021 | |
| | Beverage(a) | | Food/Snack | | Beverage(a) | | Food/Snack | | Beverages(a) | | Convenient Foods | | Beverages(a) | | Convenient Foods | |
LatAm | LatAm | 10 | % | | 90 | % | | 10 | % | | 90 | % | LatAm | 10 | % | | 90 | % | | 10 | % | | 90 | % | |
Europe | Europe | 55 | % | | 45 | % | | 55 | % | | 45 | % | Europe | 50 | % | | 50 | % | | 55 | % | | 45 | % | |
AMESA | AMESA | 35 | % | | 65 | % | | 35 | % | | 65 | % | AMESA | 35 | % | | 65 | % | | 35 | % | | 65 | % | |
APAC | APAC | 25 | % | | 75 | % | | 25 | % | | 75 | % | APAC | 25 | % | | 75 | % | | 25 | % | | 75 | % | |
PepsiCo | PepsiCo | 45 | % | | 55 | % | | 45 | % | | 55 | % | 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,divisions, is approximately 40% of our consolidated net revenue in each of the 12 and 36 weeks ended September 4, 20213, 2022 and September 5, 2020.4, 2021. Generally, our finished goods beverage operations produce higher net revenue but lower operating margin 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 | | 36 Weeks Ended | | 12 Weeks Ended | | 36 Weeks Ended |
| | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 |
FLNA | FLNA | $ | 1,357 | | | $ | 1,353 | | | $ | 3,979 | | | $ | 3,833 | | FLNA | $ | 1,588 | | | $ | 1,357 | | | $ | 4,332 | | | $ | 3,979 | |
QFNA | QFNA | 106 | | | 145 | | | 384 | | | 491 | | QFNA | 122 | | | 106 | | | 416 | | | 384 | |
PBNA | 773 | | | 697 | | | 1,948 | | | 1,391 | | |
PBNA (a) (b) | | PBNA (a) (b) | 784 | | | 773 | | | 4,869 | | | 1,948 | |
LatAm(c) | LatAm(c) | 393 | | | 250 | | | 967 | | | 700 | | LatAm(c) | 463 | | | 393 | | | 1,206 | | | 967 | |
Europe | 439 | | | 480 | | | 975 | | | 977 | | |
Europe (a) (d) | | Europe (a) (d) | 564 | | | 439 | | | (369) | | | 975 | |
AMESA | AMESA | 312 | | | 193 | | | 706 | | | 386 | | AMESA | 268 | | | 312 | | | 738 | | | 706 | |
APAC | APAC | 201 | | | 163 | | | 601 | | | 494 | | APAC | 199 | | | 201 | | | 620 | | | 601 | |
Total divisions | Total divisions | 3,581 | | | 3,281 | | | 9,560 | | | 8,272 | | Total divisions | 3,988 | | | 3,581 | | | 11,812 | | | 9,560 | |
Corporate unallocated expenses (a) | (422) | | | (270) | | | (960) | | | (1,018) | | |
Corporate unallocated expenses (e) (f) | | Corporate unallocated expenses (e) (f) | (635) | | | (422) | | | (1,115) | | | (960) | |
Total | Total | $ | 3,159 | | | $ | 3,011 | | | $ | 8,600 | | | $ | 7,254 | | Total | $ | 3,353 | | | $ | 3,159 | | | $ | 10,697 | | | $ | 8,600 | |
(a)In the 12 weeks ended September 3, 2022, we recorded a charge of $8 million and $6 million in our PBNA and Europe divisions, respectively, associated with the Juice Transaction. The total after-tax amount was $11 million or $0.01 per share. In the 36 weeks ended September 3, 2022, we recorded a gain of $3,029 million and $292 million in our PBNA and Europe divisions, respectively, associated with the Juice Transaction. The total after-tax amount was $2,869 million or $2.07 per share. See Note 11 for further information.
(b)As a result of terminating our agreement with Vital Pharmaceuticals, Inc. (Vital) to distribute Bang energy drinks in our PBNA division, in the 12 weeks ended September 3, 2022, we recognized pre-tax charges (Brand Portfolio Impairment Charges) of $9 million ($7 million after-tax or $0.01 per share) related to the write-down of inventory in cost of sales. In the 36 weeks ended September 3, 2022, we recognized pre-tax impairment and other charges of $150 million ($114 million after-tax or $0.08 per share) primarily related to the write-off of distribution rights, with $17 million recorded in cost of sales, $7 million recorded in selling, general and administrative expenses and $126 million recorded in impairment of intangible assets. See Note 3 for further information.
(c)In the 36 weeks ended September 3, 2022, we made the decision to sell or discontinue certain non-strategic brands in our LatAm division. As a result, we recognized pre-tax impairment and other charges (Brand Portfolio Impairment Charges) of $83 million ($56 million after-tax or $0.04 per share) primarily related to property, plant and equipment and intangible assets, with $47 million recorded in selling, general and administrative expenses and $36 million recorded in impairment of intangible assets. See Note 3 for further information.
(d)In the 36 weeks ended September 3, 2022, we recorded pre-tax impairment charges (Brand Portfolio Impairment Charges) of $241 million ($193 million after-tax or $0.14 per share) in impairment of intangible assets related to the discontinuation or repositioning of certain juice and dairy brands in Russia. See Note 3 for further information. Also see below for charges taken as a result of the Russia-Ukraine conflict.
(e)In the 36 weeks ended September 3, 2022, we recorded a pre-tax loss on certain equity investments of $68 million ($51 million after-tax or $0.04 per share) in selling, general and administrative expenses.
(f)In the 36 weeks ended September 4, 2021, we sold our short-term investment in a publicly traded company and recorded a pre-tax net gain of $69 million ($52 million after-tax or $0.04 per share), net of discounts, in selling, general and administrative expenses associated with this sale.
Operating profit includes certainA summary of pre-tax charges taken in our Europe division as a result of the COVID-19 pandemic. These pre-tax charges by division areRussia-Ukraine conflict is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 9/4/2021 |
| Allowances for Expected Credit Losses(a) | | Upfront Payments to Customers(b) | | | | Employee Compensation Expense(c) | | Employee Protection Costs(d) | | Other(e) | | Total |
FLNA | $ | (1) | | | $ | — | | | | | $ | 2 | | | $ | 4 | | | $ | 1 | | | $ | 6 | |
QFNA | (1) | | | — | | | | | — | | | — | | | — | | | (1) | |
PBNA | (2) | | | (13) | | | | | 8 | | | 2 | | | (7) | | | (12) | |
LatAm | — | | | — | | | | | 12 | | | 4 | | | 1 | | | 17 | |
Europe | (1) | | | (1) | | | | | 2 | | | 1 | | | 2 | | | 3 | |
AMESA | (1) | | | — | | | | | 1 | | | 2 | | | 1 | | | 3 | |
APAC | — | | | — | | | | | 1 | | | — | | | 1 | | | 2 | |
| | | | | | | | | | | | | |
Total | $ | (6) | | | $ | (14) | | | | | $ | 26 | | | $ | 13 | | | $ | (1) | | | $ | 18 | |
| | | | | | | | | | | | | | | | | |
| | | |
| 9/3/2022 | | | | |
| 12 Weeks Ended | | | | 36 Weeks Ended | | | | |
Impairment charges related to intangible assets (a) | $ | — | | | | | $ | 1,198 | | | | | |
Impairment charges related to property, plant and equipment | 2 | | | | | 125 | | | | | |
| | | | | | | | | |
(Recovery of)/allowance for expected credit losses (b) | (9) | | | | | 17 | | | | | |
Allowance for inventory write-downs | 1 | | | | | 26 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Other | 2 | | | | | 36 | | | | | |
Total | $ | (4) | | | | | $ | 1,402 | | | | | |
After-tax amount | $ | (5) | | | | | $ | 1,163 | | | | | |
Impact on net income attributable to PepsiCo per common share | $ | — | | | | | $ | (0.84) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 9/5/2020 |
| Allowances for Expected Credit Losses(a) | | Upfront Payments to Customers(b) | | Inventory Write-Downs and Product Returns(f) | | Employee Compensation Expense(c) | | Employee Protection Costs(d) | | Other(e) | | Total |
FLNA | $ | — | | | $ | — | | | $ | 1 | | | $ | 24 | | | $ | 16 | | | $ | — | | | $ | 41 | |
QFNA | — | | | — | | | — | | | 1 | | | 1 | | | 1 | | | 3 | |
PBNA | 3 | | | — | | | 1 | | | 14 | | | 12 | | | 20 | | | 50 | |
LatAm | — | | | — | | | 6 | | | 19 | | | 6 | | | 1 | | | 32 | |
Europe | 1 | | | 1 | | | — | | | 8 | | | 6 | | | — | | | 16 | |
AMESA | — | | | — | | | — | | | 1 | | | 2 | | | 3 | | | 6 | |
APAC | — | | | — | | | 2 | | | (5) | | | 1 | | | 1 | | | (1) | |
Total | $ | 4 | | | $ | 1 | | | $ | 10 | | | $ | 62 | | | $ | 44 | | | $ | 26 | | | $ | 147 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended 9/4/2021 |
| Allowances for Expected Credit Losses(a) | | Upfront Payments to Customers(b) | | Inventory Write-Downs and Product Returns(f) | | Employee Compensation Expense(c) | | Employee Protection Costs(d) | | Other(e) | | Total |
FLNA | $ | (9) | | | $ | — | | | $ | — | | | $ | 31 | | | $ | 20 | | | $ | 2 | | | $ | 44 | |
QFNA | (1) | | | — | | | — | | | 2 | | | 1 | | | — | | | 2 | |
PBNA | (15) | | | (18) | | | — | | | 27 | | | 11 | | | (15) | | | (10) | |
LatAm | — | | | — | | | 1 | | | 36 | | | 9 | | | 3 | | | 49 | |
Europe | (1) | | | (1) | | | — | | | 10 | | | 7 | | | 3 | | | 18 | |
AMESA | (1) | | | — | | | (2) | | | 1 | | | 3 | | | 4 | | | 5 | |
APAC | — | | | — | | | — | | | 1 | | | 1 | | | 4 | | | 6 | |
| | | | | | | | | | | | | |
Total | $ | (27) | | | $ | (19) | | | $ | (1) | | | $ | 108 | | | $ | 52 | | | $ | 1 | | | $ | 114 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended 9/5/2020 |
| Allowances for Expected Credit Losses(a) | | Upfront Payments to Customers(b) | | Inventory Write-Downs and Product Returns(f) | | Employee Compensation Expense(c) | | Employee Protection Costs(d) | | Other(e) | | Total |
FLNA | $ | 19 | | | $ | — | | | $ | 8 | | | $ | 124 | | | $ | 49 | | | $ | 3 | | | $ | 203 | |
QFNA | 2 | | | — | | | — | | | 7 | | | 2 | | | 1 | | | 12 | |
PBNA | 48 | | | 46 | | | 30 | | | 98 | | | 43 | | | 30 | | | 295 | |
LatAm | 1 | | | — | | | 12 | | | 35 | | | 14 | | | 4 | | | 66 | |
Europe | 5 | | | 2 | | | 10 | | | 17 | | | 14 | | | 17 | | | 65 | |
AMESA | 1 | | | — | | | 1 | | | 8 | | | 6 | | | 7 | | | 23 | |
APAC | — | | | — | | | 3 | | | (3) | | | 2 | | | 2 | | | 4 | |
Total | $ | 76 | | | $ | 48 | | | $ | 64 | | | $ | 286 | | | $ | 130 | | | $ | 64 | | | $ | 668 | |
| | | | | | | | | | | |
| 9/3/2022 |
| 12 Weeks Ended | | 36 Weeks Ended |
Cost of sales | $ | 1 | | | $ | 134 | |
Selling, general and administrative expenses (b) | (5) | | | 70 | |
Impairment of intangible assets (a) | — | | | 1,198 | |
Total | $ | (4) | | | $ | 1,402 | |
(a)Reflects the expected impact of the global economic uncertainty caused by COVID-19, leveraging estimates of creditworthiness and projections of default and recovery ratesSee Note 3 for certain offurther information. For information on our customers, including foodservice and vending businesses. Income amounts represent reductionspolicies for indefinite-lived intangible assets, refer to Note 2 to our consolidated financial statements in the previously recorded reserves due to improved projected default rates and lower at-risk receivable balances.our 2021 Form 10-K.
(b)Relates to promotional spending for which benefit is not expected to be received. Income amounts represent reductionsprimarily relate to changes in previously recorded reserves dueestimates.
A summary of pre-tax charges related to improved projected default rates and lower overall advance balances.the impairment of intangible assets is as follows:
| | | | | | | | | | | |
| 9/3/2022 |
| 12 Weeks Ended | | 36 Weeks Ended |
Russia-Ukraine conflict impairment charges | $ | — | | | $ | 1,198 | |
Brand Portfolio Impairment Charges | 1 | | | 404 | |
Total | $ | 1 | | | $ | 1,602 | |
(c)Includes incremental frontline incentive pay, crisis child care and other leave benefits and labor costs. Income amounts include a social welfare relief credit of $7 million in the 12 and 36 weeks ended September 5, 2020.
(d)Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services.
(e)Includes certain reserves for property, plant and equipment, donations of cash and product, and other costs. Income amounts represent adjustments for changes in estimates of previously recorded amounts.
(f)Includes a reserve for product returns of $3 million and $19 million in the 12 and 36 weeks ended September 5, 2020, respectively. Income amount represents adjustments for changes in estimates of previously recorded amounts.
Operating profit includes certain pre-tax charges taken as a result of the COVID-19 pandemic, primarily related to incremental employee compensation costs, such as certain leave benefits and labor costs, and employee protection costs. These pre-tax charges by division are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 |
FLNA | $ | 5 | | | $ | 6 | | | $ | 24 | | | $ | 44 | |
QFNA (a) | — | | | (1) | | | 1 | | | 2 | |
PBNA (a) | 6 | | | (12) | | | 17 | | | (10) | |
LatAm | 3 | | | 17 | | | 13 | | | 49 | |
Europe | 1 | | | 3 | | | 4 | | | 18 | |
AMESA | 2 | | | 3 | | | 5 | | | 5 | |
APAC | 3 | | | 2 | | | 16 | | | 6 | |
Total | $ | 20 | | | $ | 18 | | | $ | 80 | | | $ | 114 | |
(a)Income amounts primarily relate to allowances for expected credit losses and upfront payments to customers, due to improved projected default rates and lower at-risk balances.
Note 2 - Recently Issued Accounting PronouncementsRestructuring and Impairment Charges
Adopted2019 Multi-Year Productivity Plan
InWe 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 Financial Accounting Standards Board issued guidanceright automation for each market; and simplify our organization and optimize our manufacturing and supply chain footprint. To build on the successful implementation of the 2019 Productivity Plan, in 2021, we expanded and extended the plan through the end of 2026 to simplifytake advantage of additional opportunities within the accountinginitiatives described above. As a result, we expect to incur pre-tax charges of approximately $3.15 billion, including cash expenditures of approximately $2.4 billion. These pre-tax charges are expected to consist of approximately 55% of severance and other employee-related costs, 10% for income taxes. asset impairments (all non-cash) resulting from plant closures and related actions, and 35% for other costs associated with the implementation of our initiatives.
The guidancetotal expected plan pre-tax charges are expected to be incurred by division approximately as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FLNA | | QFNA | | PBNA | | LatAm | | Europe | | AMESA | | APAC | | Corporate |
Expected pre-tax charges | 15 | % | | 1 | % | | 25 | % | | 10 | % | | 25 | % | | 5 | % | | 4 | % | | 15 | % |
A summary of our 2019 Productivity Plan charges is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 |
Cost of sales | $ | 1 | | | $ | 9 | | | $ | 6 | | | $ | 13 | |
Selling, general and administrative expenses | 50 | | | 42 | | | 117 | | | 110 | |
Other pension and retiree medical benefits expense | — | | | 1 | | | 3 | | | 6 | |
Total restructuring and impairment charges | $ | 51 | | | $ | 52 | | | $ | 126 | | | $ | 129 | |
After-tax amount | $ | 40 | | | $ | 45 | | | $ | 101 | | | $ | 109 | |
Impact on net income attributable to PepsiCo per common share | $ | (0.03) | | | $ | (0.03) | | | $ | (0.07) | | | $ | (0.08) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended | | Plan to Date |
| 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 | | through 9/3/2022 |
FLNA | $ | 4 | | | $ | 2 | | | $ | 10 | | | $ | 20 | | | $ | 174 | |
QFNA | 1 | | | 1 | | | 1 | | | 1 | | | 13 | |
PBNA | 4 | | | 3 | | | 9 | | | 8 | | | 167 | |
LatAm | 3 | | | 14 | | | 17 | | | 22 | | | 156 | |
Europe | 21 | | | 20 | | | 40 | | | 46 | | | 274 | |
AMESA | — | | | 5 | | | 5 | | | 9 | | | 75 | |
APAC | 4 | | | 1 | | | 8 | | | 2 | | | 69 | |
Corporate | 14 | | | 5 | | | 33 | | | 15 | | | 172 | |
| 51 | | | 51 | | | 123 | | | 123 | | | 1,100 | |
Other pension and retiree medical benefits expense | — | | | 1 | | | 3 | | | 6 | | | 70 | |
Total | $ | 51 | | | $ | 52 | | | $ | 126 | | | $ | 129 | | | $ | 1,170 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended | | Plan to Date |
| 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 | | through 9/3/2022 |
Severance and other employee costs | $ | 10 | | | $ | 28 | | | $ | 41 | | | $ | 77 | | | $ | 605 | |
Asset impairments | 7 | | | 3 | | | 7 | | | 4 | | | 164 | |
Other costs | 34 | | | 21 | | | 78 | | | 48 | | | 401 | |
Total | $ | 51 | | | $ | 52 | | | $ | 126 | | | $ | 129 | | | $ | 1,170 | |
Severanceand other employee costs primarily addresses how to (1) recognize a deferred tax liability after we transition to or frominclude severance and other termination benefits, as well as voluntary separation arrangements. Other costs primarily include costs associated with the equity methodimplementation of accounting, (2) evaluate if a step-up inour initiatives, including contract termination costs, consulting and other professional fees.
A summary of our 2019 Productivity Plan activity for the tax basis of goodwill36 weeks ended September 3, 2022 is related to a business combination or is a separate transaction, (3) recognizeas follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs | | Total |
Liability as of December 25, 2021 | $ | 64 | | | $ | — | | | $ | 7 | | | $ | 71 | |
2022 restructuring charges | 41 | | | 7 | | | 78 | | | 126 | |
Cash payments | (55) | | | — | | | (79) | | | (134) | |
Non-cash charges and translation | (6) | | | (7) | | | — | | | (13) | |
Liability as of September 3, 2022 | $ | 44 | | | $ | — | | | $ | 6 | | | $ | 50 | |
Substantially all of the effectsrestructuring accrual at September 3, 2022 is expected to be paid by the end of a change in tax law in2022.
Other Productivity Initiatives
There were no charges related to other productivity and efficiency initiatives outside the periodscope of enactment, including adjusting the estimated annual tax rate,2019 Productivity Plan.
We regularly evaluate different productivity initiatives beyond the productivity plan and (4) include the amount of tax basedother initiatives described above.
For information on income in the income tax provisionother impairment charges, see Notes 1 and any incremental amount as a tax not based on income3 for hybrid tax regimes. We adopted the guidance in the first quarter of 2021. The adoption did not have a material impact on our condensed consolidated financial statements or related disclosures.Brand Portfolio Impairment Charges and Russia-Ukraine Conflict Charges.
Note 3 - RestructuringIntangible Assets
Indefinite-lived intangible assets are not amortized and Impairment Charges
2019 Multi-Year Productivity Plan
are assessed for impairment at least annually, using either a qualitative or quantitative approach. We publicly announcedperform this annual assessment during our third quarter, or more frequently if circumstances indicate that the carrying value may not be recoverable. Where we use the qualitative assessment, first we determine if, based on qualitative factors, it is more likely than not that an impairment exists. If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a multi-year productivity planquantitative assessment is performed. In the quantitative assessment for indefinite-lived intangible assets, an assessment is performed to determine the fair value of the indefinite-lived intangible asset. Estimated fair value is determined using discounted cash flows and requires an analysis of several estimates including future cash flows or income consistent with management’s strategic business plans, annual sales growth rates, perpetuity growth assumptions and the selection of assumptions underlying a discount rate (weighted-average cost of capital) based on February 15, 2019 (2019 Productivity Plan) that will leverage new technologymarket data available at the time. Significant management judgment is necessary to estimate the impact of competitive operating, macroeconomic and business modelsother factors (including those related to further simplify, harmonize the Russia-Ukraine conflict) to estimate future levels of sales, operating profit or cash flows. All assumptions used in our impairment evaluations for indefinite-lived intangible assets, such as forecasted growth rates (including perpetuity growth assumptions) and automate processes; re-engineer our go-to-market and information systems, including deploying the right automation for each market; and simplify our organization and optimize our manufacturing and supply chain footprint. To buildweighted-average cost of capital, are based on the successful implementationbest available market information and are consistent with our internal forecasts and operating plans. A deterioration in these assumptions could adversely impact our results.
In the second quarter of 2022, macroeconomic factors, sanctions and other regulations as a result of the 2019 Productivity PlanRussia-Ukraine conflict indicated a material deterioration of the significant inputs used to date,determine the fair value of our indefinite-lived intangible assets in Russia, primarily assumptions underlying the weighted-average cost of capital. These factors required us to perform a quantitative assessment, despite the absence of a material adverse impact on these assets’ financial performance (e.g., sales, operating profit, cash flows).
The fair value of our indefinite-lived intangible assets in Russia was estimated using discounted cash flows under the income approach, which we expanded and extendedconsider to be a Level 3 measurement. We determined that the plan throughcarrying value exceeds the endfair value, with the decrease in the fair value primarily attributable to a significant increase in the weighted-average cost of 2026 to take advantagecapital, which reflects the macroeconomic uncertainty in Russia. As a result of additional opportunities within the initiatives described above. We now expect to incurquantitative assessment, in the 36 weeks ended September 3, 2022, we recorded pre-tax impairment charges of approximately $3.15$1.2 billion including cash expenditures($958 million after-tax or $0.69 per share) in impairment of approximately $2.4 billion, as comparedintangible assets, related to our previous estimatejuice and dairy brands in Russia in our Europe division. See Note 1 for further information.
During the 36 weeks ended September 3, 2022, we discontinued or repositioned certain juice and dairy brands in Russia in our Europe division. As a result, we recognized pre-tax impairment charges (Brand Portfolio Impairment Charges) of pre-tax charges$241 million ($193 million after-tax or $0.14 per share) in impairment of approximately $2.5 billion, which included cash expendituresintangible assets, primarily related to indefinite-lived intangible assets. In light of approximately $1.6 billion. These pre-tax charges are expectedthe current political and economic environment, we will continue to consistreview and analyze our brand portfolio worldwide. See Note 1 for further information.
The annual impairment assessment on indefinite-lived intangible assets performed in the third quarter of approximately 65%2022 resulted in no impairment. The estimated fair values of severancecertain beverage businesses and other employee-related costs, 10% for assetbrands in Europe exceeded their carrying values. However, there could be impairments (all non-cash) resulting from plant closuresof the carrying values of goodwill and related actions, and 25% for other costsbrands associated with these businesses if future performance does not achieve our expected future cash flows or if macroeconomic conditions result in a future increase in the implementationweighted average cost of our initiatives.
The total expected plan pre-tax charges are expectedcapital used to be incurred by division approximately as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FLNA | | QFNA | | PBNA | | LatAm | | Europe | | AMESA | | APAC | | Corporate |
Expected pre-tax charges | 15 | % | | 1 | % | | 25 | % | | 10 | % | | 25 | % | | 6 | % | | 3 | % | | 15 | % |
A summary of our 2019 Productivity Plan charges is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 |
Cost of sales | $ | 9 | | | $ | 1 | | | $ | 13 | | | $ | 4 | |
Selling, general and administrative expenses | 42 | | | 59 | | | 110 | | | 112 | |
Other pension and retiree medical benefits expense | 1 | | | 1 | | | 6 | | | 8 | |
Total restructuring and impairment charges | $ | 52 | | | $ | 61 | | | $ | 129 | | | $ | 124 | |
After-tax amount | $ | 45 | | | $ | 48 | | | $ | 109 | | | $ | 101 | |
Net income attributable to PepsiCo per common share | $ | (0.03) | | | $ | (0.03) | | | $ | (0.08) | | | $ | (0.07) | |
estimate fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended | | Plan to Date |
| 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | through 9/4/2021 |
FLNA | $ | 2 | | | $ | 2 | | | $ | 20 | | | $ | 9 | | | $ | 156 | |
QFNA | 1 | | | — | | | 1 | | | 1 | | | 13 | |
PBNA | 3 | | | 29 | | | 8 | | | 32 | | | 146 | |
LatAm | 14 | | | 5 | | | 22 | | | 14 | | | 124 | |
Europe | 20 | | | 13 | | | 46 | | | 29 | | | 199 | |
AMESA | 5 | | | 2 | | | 9 | | | 9 | | | 64 | |
APAC | 1 | | | 1 | | | 2 | | | 4 | | | 56 | |
Corporate | 5 | | | 8 | | | 15 | | | 18 | | | 105 | |
| 51 | | | 60 | | | 123 | | | 116 | | | 863 | |
Other pension and retiree medical benefits expense | 1 | | | 1 | | | 6 | | | 8 | | | 63 | |
Total | $ | 52 | | | $ | 61 | | | $ | 129 | | | $ | 124 | | | $ | 926 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended | | Plan to Date |
| 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | through 9/4/2021 |
Severance and other employee costs | $ | 28 | | | $ | 23 | | | $ | 77 | | | $ | 47 | | | $ | 521 | |
Asset impairments | 3 | | | 15 | | | 4 | | | 20 | | | 129 | |
Other costs | 21 | | | 23 | | | 48 | | | 57 | | | 276 | |
Total | $ | 52 | | | $ | 61 | | | $ | 129 | | | $ | 124 | | | $ | 926 | |
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 ofFor further information on our initiatives, including contract termination costs, consulting and other professional fees.
A summary ofpolicies for indefinite-lived intangible assets, refer to Note 2 to our 2019 Productivity Plan activity for the 36 weeks ended September 4,consolidated financial statements in our 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs | | Total |
Liability as of December 26, 2020 | $ | 122 | | | $ | — | | | $ | 5 | | | $ | 127 | |
2021 restructuring charges | 77 | | | 4 | | | 48 | | | 129 | |
Cash payments (a) | (119) | | | — | | | (46) | | | (165) | |
Non-cash charges and translation | (8) | | | (4) | | | (2) | | | (14) | |
Liability as of September 4, 2021 | $ | 72 | | | $ | — | | | $ | 5 | | | $ | 77 | |
(a)Excludes cash expenditures of $2 million reported in the cash flow statement in pension and retiree medical contributions.
Substantially all of the restructuring accrual at September 4, 2021 is expected to be paid by the end of 2021.
Other Productivity Initiatives
There were no 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 Form 10-K.
A summary of our amortizable intangible assets is as follows:
| | | 9/4/2021 | | 12/26/2020 | | 9/3/2022 | | 12/25/2021 |
| | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Acquired franchise rights(a) | Acquired franchise rights(a) | | $ | 981 | | | $ | (184) | | | $ | 797 | | | $ | 976 | | | $ | (173) | | | $ | 803 | | Acquired franchise rights(a) | | $ | 844 | | | $ | (197) | | | $ | 647 | | | $ | 976 | | | $ | (187) | | | $ | 789 | |
Customer relationships | Customer relationships | | 638 | | | (222) | | | 416 | | | 642 | | | (204) | | | 438 | | Customer relationships | | 596 | | | (243) | | | 353 | | | 623 | | | (227) | | | 396 | |
Brands (a) | Brands (a) | | 1,164 | | | (992) | | | 172 | | | 1,348 | | | (1,099) | | | 249 | | Brands (a) | | 1,102 | | | (971) | | | 131 | | | 1,151 | | | (989) | | | 162 | |
Other identifiable intangibles | Other identifiable intangibles | | 456 | | | (257) | | | 199 | | | 474 | | | (261) | | | 213 | | Other identifiable intangibles | | 448 | | | (265) | | | 183 | | | 451 | | | (260) | | | 191 | |
Total | Total | | $ | 3,239 | | | $ | (1,655) | | | $ | 1,584 | | | $ | 3,440 | | | $ | (1,737) | | | $ | 1,703 | | Total | | $ | 2,990 | | | $ | (1,676) | | | $ | 1,314 | | | $ | 3,201 | | | $ | (1,663) | | | $ | 1,538 | |
(a)The changeDecrease is primarily reflects assets reclassified as helddue to the write-off of our distribution rights for sale in connection with our agreement to sell certain juice brands.Bang energy drinks. See Note 121 for further information.
The change in the book value of indefinite-lived intangible assets is as follows:
| | | Balance 12/26/2020 | | Acquisitions/(Divestitures) | | Translation and Other | | Balance 9/4/2021 | | Balance 12/25/2021 | | Acquisitions | | Impairment | | Translation and Other | | Balance 9/3/2022 |
| FLNA (a) | FLNA (a) | | | | | | | | FLNA (a) | | | | | | | | | |
Goodwill | Goodwill | $ | 465 | | | $ | (8) | | | $ | 4 | | | $ | 461 | | Goodwill | $ | 458 | | | $ | — | | | $ | — | | | $ | (3) | | | $ | 455 | |
Brands | Brands | 340 | | | — | | | 1 | | | 341 | | Brands | 340 | | | — | | | — | | | (1) | | | 339 | |
Total | Total | 805 | | | (8) | | | 5 | | | 802 | | Total | 798 | | | — | | | — | | | (4) | | | 794 | |
QFNA | QFNA | | | | | | | | QFNA | | | | | | | | | |
Goodwill | Goodwill | 189 | | | — | | | — | | | 189 | | Goodwill | 189 | | | — | | | — | | | — | | | 189 | |
Total | Total | 189 | | | — | | | — | | | 189 | | Total | 189 | | | — | | | — | | | — | | | 189 | |
PBNA (b) | PBNA (b) | | | | | | | | PBNA (b) | | | — | | | | | | | |
Goodwill | Goodwill | 12,189 | | | (216) | | | 11 | | | 11,984 | | Goodwill | 11,974 | | | — | | | — | | | (14) | | | 11,960 | |
Reacquired franchise rights | Reacquired franchise rights | 7,107 | | | — | | | 18 | | | 7,125 | | Reacquired franchise rights | 7,107 | | | — | | | — | | | (22) | | | 7,085 | |
Acquired franchise rights | 1,536 | | | 1 | | | 4 | | | 1,541 | | |
Brands (c) | 3,122 | | | (290) | | | (324) | | | 2,508 | | |
Acquired franchise rights (a) | | Acquired franchise rights (a) | 1,538 | | | 177 | | | — | | | (5) | | | 1,710 | |
Brands | | Brands | 2,508 | | | — | | | — | | | — | | | 2,508 | |
Total | Total | 23,954 | | | (505) | | | (291) | | | 23,158 | | Total | 23,127 | | | 177 | | | — | | | (41) | | | 23,263 | |
LatAm | LatAm | | | | | | | | LatAm | | | | | | | | | |
Goodwill | Goodwill | 458 | | | — | | | (10) | | | 448 | | Goodwill | 433 | | | — | | | — | | | 8 | | | 441 | |
Brands | 108 | | | — | | | (3) | | | 105 | | |
Brands (b) | | Brands (b) | 100 | | | — | | | (29) | | | 6 | | | 77 | |
Total | Total | 566 | | | — | | | (13) | | | 553 | | Total | 533 | | | — | | | (29) | | | 14 | | | 518 | |
Europe (b)(c) | Europe (b)(c) | | | | | | | | Europe (b)(c) | | | | | | | | | |
Goodwill | Goodwill | 3,806 | | | (28) | | | (9) | | | 3,769 | | Goodwill | 3,700 | | | — | | | — | | | 103 | | | 3,803 | |
Reacquired franchise rights | Reacquired franchise rights | 496 | | | (24) | | | (10) | | | 462 | | Reacquired franchise rights | 441 | | | — | | | — | | | (18) | | | 423 | |
Acquired franchise rights | Acquired franchise rights | 172 | | | — | | | (6) | | | 166 | | Acquired franchise rights | 158 | | | — | | | (1) | | | (18) | | | 139 | |
Brands (c)(d) | Brands (c)(d) | 4,072 | | | — | | | 278 | | | 4,350 | | Brands (c)(d) | 4,254 | | | — | | | (1,420) | | | 90 | | | 2,924 | |
Total | Total | 8,546 | | | (52) | | | 253 | | | 8,747 | | Total | 8,553 | | | — | | | (1,421) | | | 157 | | | 7,289 | |
AMESA | AMESA | | | | | | | | AMESA | | | | | | | | | |
Goodwill | Goodwill | 1,096 | | | (2) | | | 27 | | | 1,121 | | Goodwill | 1,063 | | | 14 | | | — | | | (56) | | | 1,021 | |
Brands | Brands | 214 | | | — | | | 10 | | | 224 | | Brands | 205 | | | — | | | — | | | (14) | | | 191 | |
Total | Total | 1,310 | | | (2) | | | 37 | | | 1,345 | | Total | 1,268 | | | 14 | | | — | | | (70) | | | 1,212 | |
APAC | APAC | | | | | | | | APAC | | | | | | | | | |
Goodwill | Goodwill | 554 | | | 3 | | | 2 | | | 559 | | Goodwill | 564 | | | — | | | — | | | (45) | | | 519 | |
Brands (c) | 445 | | | — | | | 24 | | | 469 | | |
Brands | | Brands | 476 | | | — | | | — | | | (34) | | | 442 | |
Total | Total | 999 | | | 3 | | | 26 | | | 1,028 | | Total | 1,040 | | | — | | | — | | | (79) | | | 961 | |
| Total goodwill | Total goodwill | 18,757 | | | (251) | | | 25 | | | 18,531 | | Total goodwill | 18,381 | | | 14 | | | — | | | (7) | | | 18,388 | |
Total reacquired franchise rights | Total reacquired franchise rights | 7,603 | | | (24) | | | 8 | | | 7,587 | | Total reacquired franchise rights | 7,548 | | | — | | | — | | | (40) | | | 7,508 | |
Total acquired franchise rights | Total acquired franchise rights | 1,708 | | | 1 | | | (2) | | | 1,707 | | Total acquired franchise rights | 1,696 | | | 177 | | | (1) | | | (23) | | | 1,849 | |
Total brands | Total brands | 8,301 | | | (290) | | | (14) | | | 7,997 | | Total brands | 7,883 | | | — | | | (1,449) | | | 47 | | | 6,481 | |
Total | Total | $ | 36,369 | | | $ | (564) | | | $ | 17 | | | $ | 35,822 | | Total | $ | 35,508 | | | $ | 191 | | | $ | (1,450) | | | $ | (23) | | | $ | 34,226 | |
(a)The change in acquisitions/divestitures primarilyAcquisitions reflects our acquisitionagreement with Celsius Holdings, Inc. (Celsius), entered into in the third quarter of BFY Brands, Inc. (BFY Brands).2022, to distribute Celsius energy drinks in the United States. See Note 8 for further information.
(b)The change in acquisitions/divestitures primarilyImpairment reflects assets reclassified as held for sale in connection with our agreementdecision to sell or discontinue certain juicenon-strategic brands. See Note 121 for further information.
(c)The change in translationTranslation and other primarily reflectsrepresents the allocationappreciation of the Rockstar Energy Beverages (Rockstar) brand to the respective divisions, which was finalized in the second quarter of 2021 as part of purchase price allocation.Russian ruble.
(d)Impairment represents the decrease in fair value as a result of the Russia-Ukraine conflict and the discontinuation or repositioning of certain juice and dairy brands in Russia.
Note 54 - Income Taxes
On May 19, 2019, a public referendum held in Switzerland passed the Federal Act on Tax Reform and AHV Financing (TRAF), effective January 1, 2020. The enactment of certain provisions of the TRAF resulted in adjustments to our deferred taxes. In the 12 and 36 weeks ended September 4, 2021, no income tax adjustments related to the TRAF were recorded. In the year ended December 26, 2020, we recorded a net tax benefit of $72 million related to the adoption of the TRAF in the Swiss Canton of Bern. In the 12 and 36 weeks ended September 5, 2020, we recorded net tax benefits of $77 million primarily related to the adoption of the TRAF in the Swiss Canton of Bern. While the accounting for the impacts of the TRAF are deemed to be complete, further adjustments to our financial statements and related disclosures could be made in future quarters, including in connection with final tax return filings. For further information and discussion of the TRAF, refer to Note 5 to our consolidated financial statements in our 2020 Form 10-K.
In the 12 weeks ended September 4, 2021, we received a final assessment from the Internal Revenue Service (IRS) audit for the tax years 2014 through 2016. The assessment included both agreed and unagreed issues. On October 29, 2021, we filed a formal written protest of the assessment and requested an appeals conference. As a result of the analysis of the 2014 through 2016 final assessment, we have remeasured all applicable reserves for uncertain tax positions for all years open under the statute of limitations, including any correlating adjustments impacting the mandatory transition tax liability under the TCJ Act, resulting in a net non-cash tax expense of $112 million in the 12 and 36 weeks ended September 4, 2021. There were no tax amounts recognized in the 36 weeks ended September 3, 2022 from this assessment.
In the 12 weeks ended September 3, 2022, we came to an agreement with the IRS to settle one of the issues assessed in the 2014 through 2016 tax audit. The agreement covers tax years 2014 through 2019. As a result, we reduced our reserves for uncertain tax positions, including any correlating adjustments impacting the mandatory transition tax liability under the TCJ Act, resulting in a net non-cash tax benefit of $198 million ($0.14 per share) in the 12 and 36 weeks ended September 3, 2022. Tax years 2014 through 2019 remain under audit for other issues.
On August 16, 2022, the “Inflation Reduction Act” (H.R. 5376) was signed into law in the United States. We do not currently expect the Inflation Reduction Act to have a material impact on our financial results, including on our annual estimated effective tax rate or on our liquidity.
Note 5 - Share-Based Compensation
The following table summarizes our total share-based compensation expense, which is primarily recorded in selling, general and administrative expenses:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 |
Share-based compensation expense – equity awards | $ | 77 | | | $ | 71 | | | $ | 233 | | | $ | 215 | |
Share-based compensation expense – liability awards | 4 | | | 3 | | | 16 | | | 7 | |
Acquisition and divestiture-related charges | — | | | — | | | 3 | | | — | |
Restructuring charges | — | | | (1) | | | — | | | — | |
Total | $ | 81 | | | $ | 73 | | | $ | 252 | | | $ | 222 | |
The following table summarizes share-based awards granted under the terms of the PepsiCo, Inc. Long-Term Incentive Plan:
| | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended |
| 9/3/2022 | | 9/4/2021 |
| Granted(a) | | Weighted-Average Grant Price | | Granted(a) | | Weighted-Average Grant Price |
Stock options | 2.3 | | | $ | 163.46 | | | 2.0 | | | $ | 133.23 | |
RSUs and PSUs | 2.3 | | | $ | 163.01 | | | 2.6 | | | $ | 131.28 | |
(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 million and $17 million during the 36 weeks ended September 3, 2022 and September 4, 2021, respectively.
For the 12 weeks ended September 3, 2022 and September 4, 2021, our grants of stock options, RSUs, PSUs and long-term cash awards were nominal.
Our weighted-average Black-Scholes fair value assumptions are as follows:
| | | | | | | | | | | |
| 36 Weeks Ended |
| 9/3/2022 | | 9/4/2021 |
Expected life | 7 years | | 7 years |
Risk-free interest rate | 1.8 | % | | 1.1 | % |
Expected volatility | 16 | % | | 14 | % |
Expected dividend yield | 2.5 | % | | 3.1 | % |
Note 6 - Share-Based Compensation
The following table summarizes our total share-based compensation expense, which is primarily recorded in selling, general and administrative expenses:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 |
Share-based compensation expense – equity awards | $ | 71 | | | $ | 85 | | | $ | 215 | | | $ | 186 | |
Share-based compensation expense – liability awards | 3 | | | 3 | | | 7 | | | 10 | |
Restructuring charges | (1) | | | — | | | — | | | — | |
Total | $ | 73 | | | $ | 88 | | | $ | 222 | | | $ | 196 | |
The following table summarizes share-based awards granted under the terms of the PepsiCo, Inc. Long-Term Incentive Plan:
| | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended |
| 9/4/2021 | | 9/5/2020 |
| Granted(a) | | Weighted-Average Grant Price | | Granted(a) | | Weighted-Average Grant Price |
Stock options | 2.0 | | | $ | 133.23 | | | 1.8 | | | $ | 131.45 | |
RSUs and PSUs | 2.6 | | | $ | 131.28 | | | 2.5 | | | $ | 131.18 | |
(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 $17 million and $19 million during the 36 weeks ended September 4, 2021 and September 5, 2020, respectively.
For the 12 weeks ended September 4, 2021 and September 5, 2020, our grants of stock options, RSUs, PSUs and long-term cash awards were nominal.
Our weighted-average Black-Scholes fair value assumptions are as follows:
| | | | | | | | | | | |
| 36 Weeks Ended |
| 9/4/2021 | | 9/5/2020 |
Expected life | 7 years | | 6 years |
Risk-free interest rate | 1.1 | % | | 0.9 | % |
Expected volatility | 14 | % | | 14 | % |
Expected dividend yield | 3.1 | % | | 3.4 | % |
Note 7 - Pension and Retiree Medical Benefits
In 2020,the 12 and 36 weeks ended September 3, 2022, we adopted an amendment, effective December 31, 2025,recognized pre-tax settlement charges of $59 million ($46 million after-tax or $0.03 per share) and $190 million ($147 million after-tax or $0.11 per share), respectively, primarily related to a U.S. qualified defined benefit pension plan due to lump sum distributions to retired or terminated employees. The settlement charge was triggered when the cumulative lump sum distributions exceeded the total annual service and interest cost in 2022. Related plan assets and benefit obligations were remeasured using remeasurement date assumptions. The weighted-average discount rate for the U.S. defined benefit plans’ projected benefit obligations increased from 2.9% to 3.4%. In addition, the U.S. defined benefit pension plansplans’ weighted-average interest cost discount rate and expected return on plan assets used to freezedetermine 2022 net periodic 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,cost/(income) increased from 2.4% and 6.3% 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 to the PepsiCo Employees Retirement Plan I3.1% and to a newly created plan, PepsiCo Employees Retirement Plan H (Plan H)6.7%, 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. respectively.
For further information on plan changes,our policies for pension, retiree-medical and savings plans, refer to Note 7 to our consolidated financial statements in our 20202021 Form 10-K.
In the 36 weeks ended September 3, 2022, we transferred pension and retiree medical obligations of $145 million and related assets to the Tropicana JV in connection with the Juice Transaction. See Note 11 for further information.
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 | | | | 12 Weeks Ended | |
| | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | Pension | | Retiree Medical | |
| | | U.S. | | International | | | |
| | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 | |
Service cost | Service cost | $ | 119 | | | $ | 100 | | | $ | 25 | | | $ | 22 | | | $ | 8 | | | $ | 6 | | Service cost | $ | 111 | | | $ | 119 | | | $ | 13 | | | $ | 25 | | | $ | 8 | | | $ | 8 | | |
Other pension and retiree medical benefits income: | Other pension and retiree medical benefits income: | Other pension and retiree medical benefits income: | |
Interest cost | Interest cost | 75 | | | 100 | | | 17 | | | 21 | | | 3 | | | 6 | | Interest cost | 111 | | | 75 | | | 23 | | | 17 | | | 5 | | | 3 | | |
Expected return on plan assets | Expected return on plan assets | (223) | | | (214) | | | (55) | | | (52) | | | (3) | | | (3) | | Expected return on plan assets | (206) | | | (223) | | | (55) | | | (55) | | | (4) | | | (3) | | |
Amortization of prior service (credits)/cost | (8) | | | 3 | | | — | | | — | | | (2) | | | (3) | | |
Amortization of prior service credits | | Amortization of prior service credits | (6) | | | (8) | | | (1) | | | — | | | (2) | | | (2) | | |
Amortization of net losses/(gains) | Amortization of net losses/(gains) | 52 | | | 45 | | | 19 | | | 16 | | | (4) | | | (6) | | Amortization of net losses/(gains) | 35 | | | 52 | | | 8 | | | 19 | | | (3) | | | (4) | | |
Settlement/curtailment losses | Settlement/curtailment losses | 5 | | | — | | | 5 | | | — | | | — | | | — | | Settlement/curtailment losses | 59 | | | 5 | | | — | | | 5 | | | — | | | — | | |
Special termination benefits | Special termination benefits | 1 | | | 1 | | | — | | | — | | | — | | | — | | Special termination benefits | — | | | 1 | | | — | | | — | | | — | | | — | | |
Total other pension and retiree medical benefits income | Total other pension and retiree medical benefits income | (98) | | | (65) | | | (14) | | | (15) | | | (6) | | | (6) | | Total other pension and retiree medical benefits income | (7) | | | (98) | | | (25) | | | (14) | | | (4) | | | (6) | | |
Total | Total | $ | 21 | | | $ | 35 | | | $ | 11 | | | $ | 7 | | | $ | 2 | | | $ | — | | Total | $ | 104 | | | $ | 21 | | | $ | (12) | | | $ | 11 | | | $ | 4 | | | $ | 2 | | |
| | | 36 Weeks Ended | | 36 Weeks Ended |
| | Pension | | Retiree Medical | | Pension | | Retiree Medical |
| | U.S. | | International | | | | U.S. | | International | | |
| | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 |
Service cost | Service cost | $ | 359 | | | $ | 300 | | | $ | 69 | | | $ | 59 | | | $ | 23 | | | $ | 17 | | Service cost | $ | 340 | | | $ | 359 | | | $ | 47 | | | $ | 69 | | | $ | 25 | | | $ | 23 | |
Other pension and retiree medical benefits income: | Other pension and retiree medical benefits income: | | Other pension and retiree medical benefits income: | |
Interest cost | Interest cost | 224 | | | 300 | | | 49 | | | 58 | | | 10 | | | 17 | | Interest cost | 286 | | | 224 | | | 63 | | | 49 | | | 13 | | | 10 | |
Expected return on plan assets | Expected return on plan assets | (671) | | | (643) | | | (153) | | | (138) | | | (10) | | | (11) | | Expected return on plan assets | (637) | | | (671) | | | (153) | | | (153) | | | (11) | | | (10) | |
Amortization of prior service (credits)/cost | (22) | | | 8 | | | (1) | | | — | | | (7) | | | (8) | | |
Amortization of prior service credits | | Amortization of prior service credits | (19) | | | (22) | | | (1) | | | (1) | | | (6) | | | (7) | |
Amortization of net losses/(gains) | Amortization of net losses/(gains) | 155 | | | 136 | | | 51 | | | 42 | | | (10) | | | (16) | | Amortization of net losses/(gains) | 103 | | | 155 | | | 20 | | | 51 | | | (9) | | | (10) | |
Settlement/curtailment losses | 5 | | | — | | | 10 | | | — | | | — | | | — | | |
Settlement/curtailment losses/(gains) | | Settlement/curtailment losses/(gains) | 190 | | | 5 | | | — | | | 10 | | | (16) | | | — | |
Special termination benefits | Special termination benefits | 6 | | | 8 | | | — | | | — | | | — | | | — | | Special termination benefits | 9 | | | 6 | | | — | | | — | | | — | | | — | |
Total other pension and retiree medical benefits income | Total other pension and retiree medical benefits income | (303) | | | (191) | | | (44) | | | (38) | | | (17) | | | (18) | | Total other pension and retiree medical benefits income | (68) | | | (303) | | | (71) | | | (44) | | | (29) | | | (17) | |
Total | Total | $ | 56 | | | $ | 109 | | | $ | 25 | | | $ | 21 | | | $ | 6 | | | $ | (1) | | Total | $ | 272 | | | $ | 56 | | | $ | (24) | | | $ | 25 | | | $ | (4) | | | $ | 6 | |
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. In addition, lump sum payments may result in further settlement charges in future periods.
During the 36 weeks ended September 3, 2022 and September 4, 2021, we made discretionary contributions of $150 million and $500 million, respectively, to our U.S. qualified defined benefit qualified plans, and $10 million and $25 million, to our international defined benefit plans. During the 36 weeks ended September 5, 2020, we made discretionary contributions of $325 million to our U.S. defined benefit qualified plans and $14 millionrespectively, to our international defined benefit plans.
Note 7 - Debt Obligations
In the 36 weeks ended September 3, 2022, we issued the following senior notes:
| | | | | | | | | | | | | | | | | |
Interest Rate | | Maturity Date | | Principal Amount(a) | |
3.200 | % | | July 2029 | | £ | 300 | | (b) |
3.550 | % | | July 2034 | | £ | 450 | | (b) |
3.600 | % | | February 2028 | | $ | 750 | | |
3.900 | % | | July 2032 | | $ | 1,250 | | |
4.200 | % | | July 2052 | | $ | 500 | | |
(a)Excludes debt issuance costs, discounts and premiums.
(b)These notes, issued in British pounds, were designated as net investment hedges to partially offset the effects of foreign currency on our investments in certain of our foreign subsidiaries.
The net proceeds from the issuances of the above notes were used for general corporate purposes, including the repayment of commercial paper, except for an amount equivalent to the net proceeds from our 3.900% senior notes due 2032 that will be used to fund, in whole or in part, eligible green projects in the categories of investments in recycling and sustainable plastics and packaging, decarbonizing our operations and supply chain, water sustainability, and regenerative agriculture, which promote our selected Sustainable Development Goals, as defined by the United Nations.
In the 36 weeks ended September 3, 2022, $1.7 billion of U.S. dollar-denominated senior notes matured and were paid. In addition, in the 36 weeks ended September 3, 2022, we paid $750 million to redeem all $750 million outstanding principal amount of our 2.25% senior notes due May 2022, and we paid $800 million to redeem all $800 million outstanding principal amount of our 3.10% senior notes due July 2022.
As of September 3, 2022, we had no commercial paper outstanding.
In the second quarter of 2022, we entered into a new five-year unsecured revolving credit agreement (Five-Year Credit Agreement), which expires on May 27, 2027. The Five-Year Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.8 billion in U.S. dollars and/or euros, including a $0.75 billion swing line subfacility for euro-denominated borrowings permitted to be borrowed on a same-day basis, subject to customary terms and conditions. We may request that commitments under this agreement be increased up to $4.5 billion (or the equivalent amount in euros). Additionally, we may, once a year, request renewal of the agreement for an additional one-year period. The Five-Year Credit Agreement replaced our $3.75 billion five-year credit agreement, dated as of May 28, 2021.
Also in the second quarter of 2022, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement), which expires on May 26, 2023. The 364-Day Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.8 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 (or the equivalent amount in 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 May 28, 2021.
Funds borrowed under the Five-Year Credit Agreement and the 364-Day Credit Agreement may be used for general corporate purposes. Subject to certain conditions, we may borrow, prepay and reborrow amounts under these agreements. As of September 3, 2022, there were no outstanding borrowings under the Five-Year Credit Agreement or the 364-Day Credit Agreement.
Note 8 - Debt Obligations
In the 36 weeks ended September 4, 2021, $1.8 billion of USD-denominated senior notes and €0.5 billion of euro-denominated senior notes matured and were paid.
As of September 4, 2021, we had no commercial paper outstanding.
In the second quarter of 2021, we entered into a new five-year unsecured revolving credit agreement (Five-Year Credit Agreement), which expires on May 28, 2026. The Five-Year Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.75 billion in U.S. dollars and/or euros, including a $0.75 billion swing line subfacility for euro-denominated borrowings permitted to be borrowed on a same-day basis, subject to customary terms and conditions. We may request that commitments under this agreement be increased up to $4.5 billion (or the equivalent amount in euros). Additionally, we may, once a year, request renewal of the agreement for an additional one-year period. The Five-Year Credit Agreement replaced our $3.75 billion five year credit agreement, dated as of June 3, 2019.
Also in the second quarter of 2021, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement), which expires on May 27, 2022. 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 (or the equivalent amount in 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 1, 2020.
Funds borrowed under the Five-Year Credit Agreement and the 364-Day Credit Agreement may be used for general corporate purposes. Subject to certain conditions, we may borrow, prepay and reborrow amounts under these agreements. As of September 4, 2021, there were no outstanding borrowings under the Five-Year Credit Agreement or the 364-Day Credit Agreement.
Subsequent to September 4, 2021, we paid $750 million to redeem all $750 million outstanding principal amount of our 1.70% senior notes due October 2021 and terminated the associated interest rate swap with a notional amount of $250 million.
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 36 weeks ended September 4, 20213, 2022 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 20202021 Form 10-K. We continue to evaluate our hedging strategies related to our Russian business based on the impact of the Russia-Ukraine conflict on financial markets.
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 September 4, 20213, 2022 was $175$501 million. We have posted no collateral under these contracts and no credit-risk-related contingent features were triggered as of September 4, 2021.3, 2022.
The notional amounts of our financial instruments used to hedge the above risks as of September 4, 20213, 2022 and December 26, 202025, 2021 are as follows:
| | | Notional Amounts(a) | | Notional Amounts(a) |
| | 9/4/2021 | | 12/26/2020 | | 9/3/2022 | | 12/25/2021 |
Commodity | Commodity | $ | 1.4 | | | $ | 1.1 | | Commodity | $ | 1.9 | | | $ | 1.6 | |
Foreign exchange | Foreign exchange | $ | 2.3 | | | $ | 1.9 | | Foreign exchange | $ | 2.8 | | | $ | 2.8 | |
Interest rate | Interest rate | $ | 2.3 | | | $ | 3.0 | | Interest rate | $ | 2.1 | | | $ | 2.1 | |
Net investment (b) | Net investment (b) | $ | 2.7 | | | $ | 2.7 | | Net investment (b) | $ | 2.7 | | | $ | 2.1 | |
(a)In billions.
(b)The total notional of our net investment hedge consists of non-derivative debt instruments.
As of September 4, 2021,3, 2022, approximately 2%1% of total debt, after the impact of the related interest rate derivative instruments, was subject to variable rates, compared to 3%2% as of December 26, 2020.25, 2021.
Debt Securities
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 September 4, 2021,3, 2022, we had no investments in U.S. Treasurydebt 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 September 4,25, 2021, we had $258$130 million of investments in commercial paper recorded in cash and cash equivalents. 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 September 4,December 25, 2021, and December 26, 2020, gross unrecognized gains and losses and the allowance for expected credit losses were not material.
Available-for-Sale
Investments in available-for-sale debt securities are reported at fair value. Unrealized gains and losses related to changes in the fair value of available-for-sale debt securities are recognized in accumulated other comprehensive loss within common shareholders’ equity. Changes in the fair value of available-for-sale debt securities impact net income only when such securities are sold or an other-than-temporary impairment is recognized. We regularly review our investment portfolio to determine if any debt security is other-than-temporarily impaired. In making this judgment, we evaluate, among other things, the duration and extent to which the fair value of a debt security is less than its amortized cost; the financial condition of the issuer and any changes thereto; and our intent to sell, or whether we will more likely than not be required to sell, the debt security before recovery of its amortized cost basis. Our assessment of whether a debt security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular debt security.
In the 12 weeks ended September 3, 2022, we entered into an agreement with Celsius to distribute Celsius energy drinks in the United States (see Note 3 for further information) and invested $550 million in Series A convertible preferred shares issued by Celsius, which included certain conversion and redemption features. The preferred shares automatically convert into Celsius common shares after six years if certain market-based conditions are met, or can be redeemed after seven years. Shares underlying the transaction were priced at $75 per share, and the preferred shares are entitled to a 5% annual dividend. Given our redemption right, we classified our investment in the convertible preferred stock as an available-for-sale debt security. There were no unrealized gains and losses on our investment as of September 3, 2022. We recorded no other-than-temporary impairment charges on our investment for the 12 weeks ended September 3, 2022.
Fair Value Measurements
The fair values of our financial assets and liabilities as of September 4, 20213, 2022 and December 26, 202025, 2021 are categorized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 9/4/2021 | | 12/26/2020 |
| Fair Value Hierarchy Levels(a) | | Assets(a) | | Liabilities(a) | | Assets(a) | | Liabilities(a) |
| | | | | | | | | |
Index funds (b) | 1 | | $ | 339 | | | $ | — | | | $ | 231 | | | $ | — | |
Prepaid forward contracts (c) | 2 | | $ | 19 | | | $ | — | | | $ | 18 | | | $ | — | |
Deferred compensation (d) | 2 | | $ | — | | | $ | 506 | | | $ | — | | | $ | 477 | |
Contingent consideration (e) | 3 | | $ | — | | | $ | 840 | | | $ | — | | | $ | 861 | |
Derivatives designated as fair value hedging instruments: | | | | | | | | | |
Interest rate (f) | 2 | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | |
Derivatives designated as cash flow hedging instruments: | | | | | | | | | |
Foreign exchange (g) | 2 | | $ | 11 | | | $ | 25 | | | $ | 9 | | | $ | 71 | |
Interest rate (g) | 2 | | 28 | | | 221 | | | 13 | | | 307 | |
Commodity (h) | 2 | | 80 | | | 1 | | | 32 | | | — | |
| | | $ | 119 | | | $ | 247 | | | $ | 54 | | | $ | 378 | |
Derivatives not designated as hedging instruments: | | | | | | | | | |
Foreign exchange (g) | 2 | | $ | 5 | | | $ | 10 | | | $ | 4 | | | $ | 8 | |
Commodity (h) | 2 | | 48 | | | 12 | | | 19 | | | 7 | |
| | | $ | 53 | | | $ | 22 | | | $ | 23 | | | $ | 15 | |
Total derivatives at fair value (i) | | | $ | 172 | | | $ | 269 | | | $ | 79 | | | $ | 393 | |
Total | | | $ | 530 | | | $ | 1,615 | | | $ | 328 | | | $ | 1,731 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 9/3/2022 | | 12/25/2021 |
| Fair Value Hierarchy Levels(a) | | Assets(a) | | Liabilities(a) | | Assets(a) | | Liabilities(a) |
| | | | | | | | | |
Available-for-sale debt security (b) | 2 | | $ | 555 | | | $ | — | | | $ | — | | | $ | — | |
Index funds (c) | 1 | | $ | 278 | | | $ | — | | | $ | 337 | | | $ | — | |
Prepaid forward contracts (d) | 2 | | $ | 13 | | | $ | — | | | $ | 21 | | | $ | — | |
Deferred compensation (e) | 2 | | $ | — | | | $ | 436 | | | $ | — | | | $ | 505 | |
| | | | | | | | | |
Derivatives designated as cash flow hedging instruments: | | | | | | | | | |
Foreign exchange (f) | 2 | | $ | 29 | | | $ | 14 | | | $ | 29 | | | $ | 14 | |
Interest rate (f) | 2 | | 6 | | | 416 | | | 14 | | | 264 | |
Commodity (g) | 2 | | — | | | 77 | | | 70 | | | 5 | |
| | | $ | 35 | | | $ | 507 | | | $ | 113 | | | $ | 283 | |
Derivatives not designated as hedging instruments: | | | | | | | | | |
Foreign exchange (f) | 2 | | $ | 30 | | | $ | 9 | | | $ | 19 | | | $ | 7 | |
Commodity (g) | 2 | | 64 | | | 27 | | | 35 | | | 22 | |
| | | $ | 94 | | | $ | 36 | | | $ | 54 | | | $ | 29 | |
Total derivatives at fair value (h) | | | $ | 129 | | | $ | 543 | | | $ | 167 | | | $ | 312 | |
Total | | | $ | 975 | | | $ | 979 | | | $ | 525 | | | $ | 817 | |
(a)Fair value hierarchy levels are categorized consistently by Level 1 (quoted prices in active markets for identical assets), and 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)Related to our investment in Celsius convertible preferred stock. The fair value of our investment approximates the transaction price and accrued dividends, as well as the amortized cost.
(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.
(c)(d)Based primarily on the price of our common stock.
(d)(e)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. 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 2 to 35 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 4 percent. The contingent consideration measured at fair value using unobservable inputs as of September 4, 2021 is $840 million, comprised of an $861 million liability as of December
26, 2020, a fair value decrease of $19 million in the 36 weeks ended September 4, 2021, recorded in selling, general and administrative expenses, and a fair value decrease of $2 million in the 36 weeks ended September 4, 2021, recorded in goodwill as a result of the finalization of purchase price allocation.
(f)Based on London Interbank Offered Rate forward rates. The carrying amount of hedged fixed-rate debt was $0.2 billion as of September 4, 2021 and December 26, 2020, and is classified on our balance sheet within short-term debt obligations. As of September 4, 2021, fair value hedging adjustments to hedged fixed-rate debt were not material. As of December 26, 2020, the cumulative amount of fair value hedging adjustments to hedged fixed-rate debt was a $2 million gain. As of September 4, 2021, the cumulative amount of fair value hedging adjustments on discontinued hedges was a $4 million net loss, 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)(g)BasedPrimarily based on recently reported market transactions of swap arrangements.
(i)(h)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 September 4, 20213, 2022 and December 26, 202025, 2021 were not material. CollateralThere was no collateral received or posted against our asset or liability positions was not material.positions. 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(classified as Level 2 in the fair value hierarchy.hierarchy) due to their short-term maturity. The fair value of our debt obligations as of September 4, 20213, 2022 and December 26, 202025, 2021 was $46$36 billion and $50$43 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) |
| 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 |
Foreign exchange | $ | (5) | | | $ | (10) | | | $ | (18) | | | $ | 31 | | | $ | 27 | | | $ | (22) | |
Interest rate | 1 | | | 4 | | | 52 | | | (117) | | | 53 | | | (102) | |
Commodity | (31) | | | (37) | | | 11 | | | (29) | | | (66) | | | 24 | |
Net investment | — | | | — | | | (63) | | | 118 | | | — | | | — | |
Total | $ | (35) | | | $ | (43) | | | $ | (18) | | | $ | 3 | | | $ | 14 | | | $ | (100) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 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) |
| 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 |
Foreign exchange | $ | 5 | | | $ | (11) | | | $ | 20 | | | $ | (47) | | | $ | 67 | | | $ | (37) | |
Interest rate | 2 | | | (8) | | | (12) | | | (24) | | | 2 | | | (73) | |
Commodity | (182) | | | 120 | | | (235) | | | 48 | | | (109) | | | 40 | |
Net investment | — | | | — | | | (71) | | | 159 | | | — | | | — | |
Total | $ | (175) | | | $ | 101 | | | $ | (298) | | | $ | 136 | | | $ | (40) | | | $ | (70) | |
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) |
| 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 |
Foreign exchange | $ | (60) | | | $ | (5) | | | $ | (31) | | | $ | (18) | | | $ | 1 | | | $ | 27 | |
Interest rate | — | | | 1 | | | 81 | | | 52 | | | 94 | | | 53 | |
Commodity | 53 | | | (31) | | | 141 | | | 11 | | | (51) | | | (66) | |
Net investment | — | | | — | | | (144) | | | (63) | | | — | | | — | |
Total | $ | (7) | | | $ | (35) | | | $ | 47 | | | $ | (18) | | | $ | 44 | | | $ | 14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 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) |
| 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 |
Foreign exchange | $ | (55) | | | $ | 5 | | | $ | (13) | | | $ | 20 | | | $ | (20) | | | $ | 67 | |
Interest rate | — | | | 2 | | | 160 | | | (12) | | | 175 | | | 2 | |
Commodity | (294) | | | (182) | | | (49) | | | (235) | | | (203) | | | (109) | |
Net investment | — | | | — | | | (283) | | | (71) | | | — | | | — | |
Total | $ | (349) | | | $ | (175) | | | $ | (185) | | | $ | (298) | | | $ | (48) | | | $ | (40) | |
(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 primarily included in cost of sales. Interest rate derivative losses/gains on cross-currency interest rate swaps are included in selling, general and administrative expenses. 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 gains of $166$28 million related to our cash flow hedges from accumulated other comprehensive loss into net income during the next 12 months.
Note 9 - 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 |
| 9/3/2022 | | 9/4/2021 |
| Income | | Shares(a) | | Income | | Shares(a) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic net income attributable to PepsiCo per common share | $ | 1.96 | | | | | $ | 1.61 | | | |
Net income available for PepsiCo common shareholders | $ | 2,702 | | | 1,380 | | | $ | 2,224 | | | 1,382 | |
Dilutive securities: | | | | | | | |
Stock options, RSUs, PSUs and other (b) | — | | | 7 | | | — | | | 7 | |
| | | | | | | |
Diluted | $ | 2,702 | | | 1,387 | | | $ | 2,224 | | | 1,389 | |
Diluted net income attributable to PepsiCo per common share | $ | 1.95 | | | | | $ | 1.60 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended |
| 9/3/2022 | | 9/4/2021 |
| Income | | Shares(a) | | Income | | Shares(a) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic net income attributable to PepsiCo per common share | $ | 6.07 | | | | | $ | 4.56 | | | |
Net income available for PepsiCo common shareholders | $ | 8,392 | | | 1,382 | | | $ | 6,296 | | | 1,381 | |
Dilutive securities: | | | | | | | |
Stock options, RSUs, PSUs and other (b) | — | | | 7 | | | — | | | 7 | |
Diluted | $ | 8,392 | | | 1,389 | | | $ | 6,296 | | | 1,388 | |
Diluted net income attributable to PepsiCo per common share | $ | 6.04 | | | | | $ | 4.54 | | | |
(a)Weighted-average common shares outstanding (in millions).
(b)The dilutive effect of these securities is calculated using the treasury stock method.
The weighted-average amount of antidilutive securities excluded from the calculation of diluted earnings per common share was immaterial for both the 12 and 36 weeks ended September 3, 2022 and September 4, 2021.
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 |
| 9/4/2021 | | 9/5/2020 |
| Income | | Shares(a) | | Income | | Shares(a) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic net income attributable to PepsiCo per common share | $ | 1.61 | | | | | $ | 1.66 | | | |
Net income available for PepsiCo common shareholders | $ | 2,224 | | | 1,382 | | | $ | 2,291 | | | 1,384 | |
Dilutive securities: | | | | | | | |
Stock options, RSUs, PSUs and other (b) | — | | | 7 | | | — | | | 6 | |
| | | | | | | |
Diluted | $ | 2,224 | | | 1,389 | | | $ | 2,291 | | | 1,390 | |
Diluted net income attributable to PepsiCo per common share | $ | 1.60 | | | | | $ | 1.65 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended |
| 9/4/2021 | | 9/5/2020 |
| Income | | Shares(a) | | Income | | Shares(a) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic net income attributable to PepsiCo per common share | $ | 4.56 | | | | | $ | 3.80 | | | |
Net income available for PepsiCo common shareholders | $ | 6,296 | | | 1,381 | | | $ | 5,275 | | | 1,387 | |
Dilutive securities: | | | | | | | |
Stock options, RSUs, PSUs and other (b) | — | | | 7 | | | — | | | 6 | |
Diluted | $ | 6,296 | | | 1,388 | | | $ | 5,275 | | | 1,393 | |
Diluted net income attributable to PepsiCo per common share | $ | 4.54 | | | | | $ | 3.79 | | | |
(a)Weighted-average common shares outstanding (in millions).
(b)The dilutive effect of these securities is calculated using the treasury stock method.
The weighted-average amount of antidilutive securities excluded from the calculation of diluted earnings
per common share was immaterial for both the 12 and 36 weeks ended September 4, 2021 and September 5, 2020.
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 25, 2021 (a) | $ | (12,309) | | | $ | 159 | | | $ | (2,750) | | | | | $ | 2 | | | $ | (14,898) | |
Other comprehensive (loss)/income before reclassifications (b) | (549) | | | 200 | | | (8) | | | | | — | | | (357) | |
Amounts reclassified from accumulated other comprehensive loss | — | | | (62) | | | 25 | | | | | — | | | (37) | |
Net other comprehensive (loss)/income | (549) | | | 138 | | | 17 | | | | | — | | | (394) | |
Tax amounts | (11) | | | (32) | | | (4) | | | | | (4) | | | (51) | |
Balance as of March 19, 2022 (a) | $ | (12,869) | | | $ | 265 | | | $ | (2,737) | | | | | $ | (2) | | | $ | (15,343) | |
Other comprehensive income/(loss) before reclassifications (c) | 1,298 | | | (107) | | | (484) | | | | | 5 | | | 712 | |
Amounts reclassified from accumulated other comprehensive loss | — | | | (30) | | | 161 | | | | | — | | | 131 | |
Net other comprehensive income/(loss) | 1,298 | | | (137) | | | (323) | | | | | 5 | | | 843 | |
Tax amounts | (24) | | | 35 | | | 73 | | | | | — | | | 84 | |
Balance as of June 11, 2022 (a) | $ | (11,595) | | | $ | 163 | | | $ | (2,987) | | | | | $ | 3 | | | $ | (14,416) | |
Other comprehensive (loss)/income before reclassifications (d) | (292) | | | (191) | | | 50 | | | | | 2 | | | (431) | |
Amounts reclassified from accumulated other comprehensive loss | — | | | 44 | | | 90 | | | | | — | | | 134 | |
Net other comprehensive (loss)/income | (292) | | | (147) | | | 140 | | | | | 2 | | | (297) | |
Tax amounts | (32) | | | 34 | | | (32) | | | | | — | | | (30) | |
Balance as of September 3, 2022 (a) | $ | (11,919) | | | $ | 50 | | | $ | (2,879) | | | | | $ | 5 | | | $ | (14,743) | |
(a)Pension and retiree medical amounts are net of taxes of $1,283 million as of December 25, 2021, $1,279 million as of March 19, 2022, $1,352 million as of June 11, 2022 and $1,320 million as of September 3, 2022.
(b)Currency translation adjustment primarily reflects depreciation of the Russian ruble, partially offset by appreciation of the South African rand, Brazilian real and Canadian dollar.
(c)Currency translation adjustment primarily reflects appreciation of the Russian ruble.
(d)Currency translation adjustment primarily reflects depreciation of the South African rand, Mexican peso and British pound sterling.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 income/(loss) before reclassifications (b) | 128 | | | 97 | | | (20) | | | | | — | | | 205 | |
Amounts reclassified from accumulated other comprehensive loss | 18 | | | (1) | | | 52 | | | | | — | | | 69 | |
Net other comprehensive income | 146 | | | 96 | | | 32 | | | | | — | | | 274 | |
Tax amounts | (15) | | | (24) | | | (5) | | | | | — | | | (44) | |
Balance as of March 20, 2021 (a) | $ | (11,809) | | | $ | 76 | | | $ | (3,493) | | | | | $ | (20) | | | $ | (15,246) | |
Other comprehensive income/(loss) before reclassifications (c) | 255 | | | 175 | | | (28) | | | | | 2 | | | 404 | |
Amounts reclassified from accumulated other comprehensive loss | — | | | (53) | | | 57 | | | | | — | | | 4 | |
Net other comprehensive income | 255 | | | 122 | | | 29 | | | | | 2 | | | 408 | |
Tax amounts | 13 | | | (29) | | | (5) | | | | | — | | | (21) | |
Balance as of June 12, 2021 (a) | $ | (11,541) | | | $ | 169 | | | $ | (3,469) | | | | | $ | (18) | | | $ | (14,859) | |
Other comprehensive (loss)/income before reclassifications (d) | (319) | | | (45) | | | 49 | | | | | — | | | (315) | |
Amounts reclassified from accumulated other comprehensive loss | — | | | 14 | | | 67 | | | | | — | | | 81 | |
Net other comprehensive (loss)/income | (319) | | | (31) | | | 116 | | | | | — | | | (234) | |
Tax amounts | (16) | | | 10 | | | (26) | | | | | — | | | (32) | |
Balance as of September 4, 2021 (a) | $ | (11,876) | | | $ | 148 | | | $ | (3,379) | | | | | $ | (18) | | | $ | (15,125) | |
(a)Pension and retiree medical amounts are net of taxes of $1,514 million as of December 26, 2020, $1,509 million as of March 20, 2021,$1,504 $1,504 million as of June 12, 2021 and $1,478 million as of September 4, 2021.
(b)Currency translation adjustment primarily reflects appreciation of the Canadian dollar, PoundBritish pound sterling and Russian ruble.
(c)Currency translation adjustment primarily reflects appreciation of the South African rand, Canadian dollar and Russian ruble.
(d)Currency translation adjustment primarily reflects depreciation of the Canadian dollar, South African rand and PoundBritish pound sterling.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) | |
Other comprehensive income/(loss) before reclassifications (d) | 385 | | | 115 | | | (59) | | | | | (3) | | | 438 | |
Amounts reclassified from accumulated other comprehensive loss | — | | | (100) | | | 55 | | | | | — | | | (45) | |
Net other comprehensive income/(loss) | 385 | | | 15 | | | (4) | | | | | (3) | | | 393 | |
Tax amounts | 29 | | | (4) | | | 3 | | | | | — | | | 28 | |
Balance as of September 5, 2020 (a) | $ | (12,426) | | | $ | (40) | | | $ | (2,869) | | | | | $ | (22) | | | $ | (15,357) | |
(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, $1,337 million as of June 13, 2020 and $1,340 million as of September 5, 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.
(d)Currency translation adjustment primarily reflects appreciation of the Pound sterling, Canadian dollar and Australian dollar, partially offset by the depreciation of the Russian ruble.
The reclassifications from accumulated other comprehensive loss to the income statement are summarized as follows:
| | | 12 Weeks Ended | | 36 Weeks Ended | | | 12 Weeks Ended | | 36 Weeks Ended | |
| | 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | Affected Line Item in the Income Statement | | 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 | | Affected Line Item in the Income Statement |
| Currency translation: | Currency translation: | | | | | | | | | | | Currency translation: | | | | | | | | | | |
Divestiture | Divestiture | | $ | — | | | $ | — | | | $ | 18 | | | $ | — | | | Selling, general and administrative expenses | Divestiture | | $ | — | | | $ | — | | | $ | — | | | $ | 18 | | | Selling, general and administrative expenses |
| Cash flow hedges: | Cash flow hedges: | | Cash flow hedges: | |
Foreign exchange contracts | Foreign exchange contracts | | $ | 2 | | | $ | — | | | $ | 6 | | | $ | — | | | Net revenue | Foreign exchange contracts | | $ | (5) | | | $ | 2 | | | $ | (9) | | | $ | 6 | | | Net revenue |
Foreign exchange contracts | Foreign exchange contracts | | 25 | | | (22) | | | 61 | | | (37) | | | Cost of sales | Foreign exchange contracts | | 6 | | | 25 | | | (11) | | | 61 | | | Cost of sales |
Interest rate derivatives | Interest rate derivatives | | 53 | | | (102) | | | 2 | | | (73) | | | Selling, general and administrative expenses | Interest rate derivatives | | 94 | | | 53 | | | 175 | | | 2 | | | Selling, general and administrative expenses |
Commodity contracts | Commodity contracts | | (65) | | | 22 | | | (108) | | | 36 | | | Cost of sales | Commodity contracts | | (45) | | | (65) | | | (191) | | | (108) | | | Cost of sales |
Commodity contracts | Commodity contracts | | (1) | | | 2 | | | (1) | | | 4 | | | Selling, general and administrative expenses | Commodity contracts | | (6) | | | (1) | | | (12) | | | (1) | | | Selling, general and administrative expenses |
Net losses/(gains) before tax | Net losses/(gains) before tax | | 14 | | | (100) | | | (40) | | | (70) | | | Net losses/(gains) before tax | | 44 | | | 14 | | | (48) | | | (40) | | |
Tax amounts | Tax amounts | | (3) | | | 25 | | | 10 | | | 17 | | | Tax amounts | | (12) | | | (3) | | | 5 | | | 10 | | |
Net losses/(gains) after tax | Net losses/(gains) after tax | | $ | 11 | | | $ | (75) | | | $ | (30) | | | $ | (53) | | | Net losses/(gains) after tax | | $ | 32 | | | $ | 11 | | | $ | (43) | | | $ | (30) | | |
| Pension and retiree medical items: | Pension and retiree medical items: | | Pension and retiree medical items: | |
Amortization of prior service credits | Amortization of prior service credits | | $ | (10) | | | $ | — | | | $ | (30) | | | $ | — | | | Other pension and retiree medical benefits income | Amortization of prior service credits | | $ | (9) | | | $ | (10) | | | $ | (26) | | | $ | (30) | | | Other pension and retiree medical benefits income |
Amortization of net losses | Amortization of net losses | | 67 | | | 55 | | | 196 | | | 162 | | | Other pension and retiree medical benefits income | Amortization of net losses | | 40 | | | 67 | | | 114 | | | 196 | | | Other pension and retiree medical benefits income |
Settlement losses | | 10 | | | — | | | 10 | | | — | | | Other pension and retiree medical benefits income | |
Settlement/curtailment losses | | Settlement/curtailment losses | | 59 | | | 10 | | | 188 | | | 10 | | | Other pension and retiree medical benefits income |
Net losses before tax | Net losses before tax | | 67 | | | 55 | | | 176 | | | 162 | | | Net losses before tax | | 90 | | | 67 | | | 276 | | | 176 | | |
Tax amounts | Tax amounts | | (14) | | | (12) | | | (37) | | | (34) | | | Tax amounts | | (19) | | | (14) | | | (60) | | | (37) | | |
Net losses after tax | Net losses after tax | | $ | 53 | | | $ | 43 | | | $ | 139 | | | $ | 128 | | | Net losses after tax | | $ | 71 | | | $ | 53 | | | $ | 216 | | | $ | 139 | | |
| | Total net losses/(gains) reclassified, net of tax | | $ | 64 | | | $ | (32) | | | $ | 127 | | | $ | 75 | | | |
Total net losses reclassified, net of tax | | Total net losses reclassified, net of tax | | $ | 103 | | | $ | 64 | | | $ | 173 | | | $ | 127 | | |
Note 11 - Acquisitions and Divestitures
2020 Acquisitions
In 2020, we acquired Pioneer Food Group Ltd. (Pioneer Foods), Rockstar Energy Beverages (Rockstar) and Hangzhou Haomusi Food Co., Ltd. (Be & Cheery). The purchase price allocations for each of these acquisitions were finalized in the second quarter of 2021. See Note 13 to our consolidated financial statements in our 2021 Form 10-K for further information.
Juice Transaction
In the 12 weeks ended March 19, 2022, we sold our Tropicana, Naked and other select juice brands to PAI Partners for approximately $3.5 billion in cash, subject to purchase price adjustments, and a 39% noncontrolling interest in the Tropicana JV, operating across North America and Europe. The North America portion of the transaction was completed on January 24, 2022 and the Europe portion of the transaction was completed on February 1, 2022. In the United States, PepsiCo acts as the exclusive distributor for Tropicana JV’s portfolio of brands for small-format and foodservice customers with chilled direct-store-delivery. We have significant influence over our investment in the Tropicana JV and account
for our investment under the equity method, recognizing our proportionate share of Tropicana JV’s earnings on our income statement (recorded in selling, general and administrative expenses).
As a result of this transaction, in the 36 weeks ended September 3, 2022, we recorded a pre-tax gain of $3.3 billion ($2.9 billion after-tax or $2.07 per share) in our PBNA and Europe divisions, including $525 million related to the remeasurement of our 39% ownership in the Tropicana JV at fair value using a combination of the transaction price, discounted cash flows and an option pricing model related to our liquidation preference in the Tropicana JV. In the 12 weeks ended September 3, 2022, we recorded certain purchase price adjustments for net working capital and net debt amounts, which reduced the transaction price and resulted in the recognition of pre-tax expense of $14 million ($11 million after-tax or $0.01 per share) in our PBNA and Europe divisions. In the fourth quarter of 2022, we expect to finalize the purchase price adjustments for net working capital and net debt amounts as of the transaction close date compared to targeted amounts set forth in the purchase agreement.
A summary of income statement activity related to the Juice Transaction in the 36 weeks ended September 3, 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PBNA | | Europe | | Corporate | | Total PepsiCo | | Provision for income taxes(a) | | Net income attributable to PepsiCo | | Impact on net income attributable to PepsiCo per common share | |
Gain associated with the Juice Transaction | $ | (3,029) | | | $ | (292) | | | $ | — | | | $ | (3,321) | | | $ | 452 | | | $ | (2,869) | | | $ | 2.07 | | |
Acquisition and divestiture-related charges | 42 | | | 13 | | | 6 | | | 61 | | | (10) | | | 51 | | | (0.04) | | |
Operating profit | $ | (2,987) | | | $ | (279) | | | $ | 6 | | | (3,260) | | | 442 | | | (2,818) | | | 2.03 | | |
Other pension and retiree medical benefits income (b) | | | | | | | (10) | | | 3 | | | (7) | | | 0.01 | | |
Total Juice Transaction | | | | | | | $ | (3,270) | | | $ | 445 | | | $ | (2,825) | | | $ | 2.03 | | (c) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
(a)Includes $194 million of deferred tax expense related to the recognition of our investment in the Tropicana JV.
(b)Includes $16 million curtailment gain, partially offset by $6 million special termination benefits.
(c)Does not sum due to rounding.
In connection with the sale, we entered into a transition services agreement with PAI Partners, under which we provide certain services to the Tropicana JV to help facilitate an orderly transition of the business following the sale. In return for these services, the Tropicana JV is required to pay certain agreed upon fees to reimburse us for our costs without markup.
Acquisition and Divestiture-Related Charges
Acquisition and divestiture-related charges primarily include merger and integration charges and costs associated with divestitures. Merger and integration charges include changes in fair value of contingent consideration, liabilities to support socioeconomic programs in South Africa, employee-related costs, contract termination costs and other integration costs. Divestiture-related charges reflect transaction expenses, including consulting, advisory and other professional fees.
A summary of our acquisition and divestiture-related charges is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended | | |
| 9/3/2022 | | 9/4/2021 | | 9/3/2022 | | 9/4/2021 | | Transaction |
FLNA | $ | — | | | $ | — | | | $ | — | | | $ | 2 | | | BFY Brands, Inc. |
PBNA | 3 | | | — | | | 42 | | | 2 | | | Juice Transaction, Rockstar |
Europe | — | | | — | | | 13 | | | — | | | Juice Transaction |
AMESA | 2 | | | 1 | | | 2 | | | 8 | | | Pioneer Foods |
APAC | — | | | — | | | — | | | 3 | | | Be & Cheery |
Corporate (a) | — | | | (4) | | | 6 | | | (3) | | | Juice Transaction, Rockstar |
Total (b) | 5 | | | (3) | | | 63 | | | 12 | | | |
Other pension and retiree medical benefits expense | — | | | — | | | 6 | | | — | | | Juice Transaction |
Total acquisition and divestiture-related charges | $ | 5 | | | $ | (3) | | | $ | 69 | | | $ | 12 | | | |
After-tax amount | $ | 3 | | | $ | (2) | | | $ | 57 | | | $ | 12 | | | |
Impact on net income attributable to PepsiCo per common share | $ | — | | | $ | — | | | $ | (0.04) | | | $ | (0.01) | | | |
| | | | | | | | | |
| | | | | | | | | |
(a)Income amounts primarily relate to the change in the fair value of contingent consideration associated with our acquisition of Rockstar.
(b)Recorded primarily in selling, general and administrative expenses.
Note 12 - AcquisitionsRecently Issued Accounting Pronouncements
Not Yet Adopted
In September 2022, the Financial Accounting Standards Board issued guidance to enhance the transparency of supplier finance programs to allow financial statement users to understand the effect on working capital, liquidity and Divestitures
2020 Acquisitions
On March 23, 2020, we acquired allcash flows. The new guidance requires disclosure of key terms of the outstanding sharesprogram, including a description of Pioneer Foods, a foodthe payment terms, payment timing 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 billion and was funded by two unsecured bridge loan facilities entered into by oneassets pledged as security or other forms of our international consolidated subsidiaries, which were fully repaid in April 2020.
In connection with our acquisition of Pioneer Foods, we have made certain commitmentsguarantees provided to the South Africa Competition Commission, including a commitment to providefinance provider or intermediary. Other requirements include the equivalentdisclosure of 7.8 billion South African rand, or approximately $0.4 billionthe amount that remains unpaid as of the acquisition date,end of the reporting period, a description of where these obligations are presented in valuethe balance sheet and a rollforward of the obligation during the annual period. The guidance is effective in the first quarter of 2023, except 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 2.3 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,rollforward, which is an irrevocable conditioneffective in 2024. Early adoption is permitted. We are currently evaluating the timing of the acquisition. This commitment was recorded in selling, general and administrative expenses primarily in
the year ended December 26, 2020 and is expected to be settled primarily in the fourth quarter of 2021 or early 2022. 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.
On April 24, 2020, we acquired Rockstar, an energy drink maker with whom we had a distribution agreement prior to the acquisition,adoption for an upfront cash payment of approximately $3.85 billion and contingent consideration related to estimated future tax benefits associated with the acquisition of approximately $0.88 billion. See Note 9 for further information about the contingent consideration.
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. forcash. The total consideration transferred was approximately $0.7 billion.
We accounted for the 2020 transactions as business combinations. We recognized and measured the identifiable assets acquired and liabilities assumed at their estimated fair values on the respective dates of acquisition. The purchase price allocations for each of the 2020 acquisitions were finalized in the 12 weeks ended June 12, 2021. The fair value of identifiable assets acquired and liabilities assumed in the acquisitions of Pioneer Foods, Rockstar and Be & Cheery and the resulting goodwill as of the respective acquisition dates is summarized as follows:
| | | | | | | | | | | | | | | | | |
| Pioneer Foods | | Rockstar | | Be & Cheery |
Acquisition date | March 23, 2020 | | April 24, 2020 | | June 1, 2020 |
Inventories | $ | 229 | | | $ | 52 | | | $ | 45 | |
Property, plant and equipment | 379 | | | 8 | | | 60 | |
Amortizable intangible assets | 52 | | | — | | | 98 | |
Nonamortizable intangible assets | 183 | | | 2,400 | | | 309 | |
Other assets and liabilities | (53) | | | (9) | | | (24) | |
Net deferred income taxes | (117) | | | — | | | (99) | |
Noncontrolling interest | (5) | | | — | | | — | |
Total identifiable net assets | 668 | | | 2,451 | | | 389 | |
Goodwill | 558 | | | 2,278 | | | 309 | |
Total purchase price | $ | 1,226 | | | $ | 4,729 | | | $ | 698 | |
Goodwill is calculated as the excess of the aggregate of the fair value of the consideration transferred over the fair value of the net assets recognized.
The goodwill recorded as part of the acquisition of Pioneer Foods primarily reflects synergies expected to arise from our combined brand portfolios and distribution networks, and is not deductible for tax purposes. All of the goodwill is recorded in the AMESA segment.
The goodwill recorded as part of the acquisition of Rockstar primarily represents the value of PepsiCo’s expected new innovation in the energy category and is deductible for tax purposes. All of the goodwill is recorded in the PBNA segment.
The goodwill recorded as part of the acquisition of Be & Cheery primarily reflects growth opportunities for PepsiCo as we leverage Be & Cheery’s direct-to-consumer and supply chain capabilities and is not deductible for tax purposes. All of the goodwill is recorded in the APAC segment.this guidance.
Juice Transaction
On August 2, 2021, we entered into an agreement with PAI Partners to sell Tropicana, Naked and other select juice brands across North America, and an irrevocable option to sell certain juice businesses in Europe, which will result in combined pre-tax cash proceeds of approximately $3.3 billion while retaining
a 39% noncontrolling interest in a newly formed joint venture (Juice Transaction). After the transaction closes, in the United States, PepsiCo will act as the exclusive distributor for the joint venture’s portfolio of brands for small-format and foodservice customers with chilled direct-store-delivery. The purchase price will be adjusted for net working capital and net debt amounts as of the transaction close date compared to targeted amounts set forth in the purchase agreement. The financial statement impacts of the Juice Transaction will be recorded in the PBNA and Europe segments and in corporate unallocated expenses.
We have reclassified $1.9 billion of assets, primarily accounts receivable, net, and inventories of $0.7 billion, goodwill and other intangible assets of $0.6 billion and property, plant and equipment of $0.5 billion, and liabilities of $0.8 billion, primarily accounts payable and other liabilities of $0.6 billion and deferred income taxes of $0.2 billion, related to the Juice Transaction as held for sale in our condensed consolidated balance sheet as of September 4, 2021.
The Juice Transaction is expected to close in late 2021 or early 2022, subject to customary conditions, including works council consultations and regulatory approvals. The Juice Transaction does not meet the criteria to be classified as discontinued operations.
Acquisition and Divestiture-Related Charges
A summary of our acquisition and divestiture-related charges is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 |
Cost of sales | $ | — | | | $ | 11 | | | $ | 1 | | | $ | 30 | |
Selling, general and administrative expenses (a) | (3) | | | 32 | | | 11 | | | 256 | |
Total | $ | (3) | | | $ | 43 | | | $ | 12 | | | $ | 286 | |
After-tax amount | $ | (2) | | | $ | 27 | | | $ | 12 | | | $ | 254 | |
Net income attributable to PepsiCo per common share | $ | — | | | $ | (0.02) | | | $ | (0.01) | | | $ | (0.18) | |
(a)The income amount primarily relates to the change in the fair value of contingent consideration associated with our acquisition of Rockstar.
Acquisition and divestiture-related charges primarily include fair value adjustments to the acquired inventory included in the acquisition-date balance sheets (recorded in cost of sales), merger and integration charges and costs associated with divestitures (recorded in selling, general and administrative expenses). Merger and integration charges include liabilities to support socioeconomic programs in South Africa, closing costs, employee-related costs, changes in the fair value of contingent consideration, contract termination costs and other integration costs.
Acquisition and divestiture-related charges by division are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended | | |
| 9/4/2021 | | 9/5/2020 | | 9/4/2021 | | 9/5/2020 | | Transaction |
FLNA | $ | — | | | $ | 1 | | | $ | 2 | | | $ | 26 | | | BFY Brands |
PBNA | — | | | 17 | | | 2 | | | 60 | | | Rockstar |
| | | | | | | | | |
AMESA | 1 | | | 10 | | | 8 | | | 169 | | | Pioneer Foods |
APAC | — | | | 5 | | | 3 | | | 5 | | | Be & Cheery |
Corporate (a) | (4) | | | 10 | | | (3) | | | 26 | | | Rockstar, Juice Transaction |
Total | $ | (3) | | | $ | 43 | | | $ | 12 | | | $ | 286 | | | |
| | | | | | | | | |
| | | | | | | | | |
(a) Income amounts primarily relate to the change in the fair value of contingent consideration associated with our acquisition of Rockstar.
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 and Estimates
The critical accounting policies and estimates below should be read in conjunction with those outlined in our 20202021 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 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 structure 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 risks associated with the deadly conflict in Ukraine; the impact of COVID-19; future demand for PepsiCo’s products; damage to PepsiCo’s reputation or brand image; product recalls or other issues or concerns with respect to product quality and safety; PepsiCo’s ability to compete effectively; PepsiCo’s ability to attract, 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 manufacturing operations or supply chain, including cost inflation in raw materials,increased commodity, packaging, transportation, labor and commodities;other input costs; political or social conditions 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; changes in economic conditions in the countries in which PepsiCo operates; future cyber incidents and other disruptions;disruptions to our information systems; failure to successfully complete or manage strategic transactions; PepsiCo’s reliance on third-party service providers;providers and enterprise-wide systems; climate change or measures to address climate change; strikes or work 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;materials; failure to comply with personal data protection and privacy laws; increase in income tax rates, changes in income tax laws or disagreements with tax authorities; failure to adequately protect PepsiCo’s intellectual property rights or infringement on 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 risks and uncertainties 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 20202021 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 continuespandemic. Numerous measures have been implemented around the world to result in challenging operating environments and has affected almost alltry to reduce the spread of the more than 200 countriesvirus and territories in which our products are made, manufactured, distributed or sold. Travel bans and restrictions, quarantines, curfews, restrictions on public gatherings, shelter in place and safer-at-home orders, business shutdowns and closures continue in many of these markets. These measures have impacted and will continue to impact us, our customers (including foodservice customers), consumers, employees, bottlers, contract manufacturers, distributors, joint venturebusiness partners suppliers and other third parties with whom we do business, whichour customers. The COVID-19 pandemic, including these measures, may continue to result in changes in demand for our products, increases in employee and other operating costs (whether as a result of changes to ouror supply chain or increases in employee costs, including expanded benefits and frontline incentives, costs associated with the provision of personal
protective equipment and increased sanitation, or otherwise), or adverse impacts to our supply chain through labor shortages, raw material shortages or reduced availability of air or other commercial transport, port closures or border restrictions,disruptions, any of which can impact our ability to make, manufacture, distribute and selloperate our products.business. In addition, measures that impact our ability to access our offices, plants, warehouses, distribution centers or other facilities, or that impact the ability of our customers (including our foodservice customers), consumers, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third parties to do the same,we may continue to impactexperience business disruptions resulting from the availability or productivitytemporary closures of our and their employees, many of whom are not able to perform their job functions remotely.
Public concern regarding the risk of contracting COVID-19 has impacted and may continue to impact demand from consumers, including due to consumers not leaving their homesfacilities 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 somefacilities of our consumers have lower discretionary income duebusiness partners or the inability of a significant portion of our or our business partners’ workforce to unemploymentwork because of illness, absenteeism, quarantine, vaccine mandates, or reducedtravel or limited work as a result of measures taken in response to the pandemic. other governmental restrictions.
Even as governmental restrictions are relaxed and economies gradually, partially, or fully reopen in certain of these jurisdictions and markets, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels and shopping and consumption preferences. Changes in consumer purchasing and consumption patterns may increase demand for our products in one quarter, resulting in decreased demand for our products in subsequent quarters, or in a lower-margin sales channel resulting in potentially reduced profit from sales of our products. We continue to see shiftsincluding changes in product and channel preferences as markets move through varying stagesthat result in reduced sales or profit from the sale 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.our products. In addition, we continue to see an increase in demand in the e-commerce and online-to-offline channels and any failure to capitalize on this demand could adversely affect our ability to maintain and grow sales or category share and erode our competitive position.
Any reduced demand for our products or change in consumer purchasing and consumption patterns, as well as continued economic uncertainty, (including supply chain disruptions and labor shortages), can adversely affect our customers’ and business partners’ financial condition, which can result in bankruptcy filings and/or an inability to pay for our products, reduced or canceled orders of our products, continued or additional closing of restaurants, stores, entertainment or sports complexes, schools or other venues in which our products are sold, or reduced capacity at any of the foregoing, or our business partners’ inability to supply us with ingredients or other items necessary for us to make, manufacture, distribute or sell our products. Such adverse changes in our customers’ or business partners’ financial condition have alsohas resulted and may continue to result in our recording additional charges for our inability to recover or collect any accounts receivable, owned or leased assets, including certain foodservice, and vending and other equipment, or prepaid expenses. In addition, continued economic uncertainty associated with the COVID-19 pandemic has resulted in volatility in the global capital and credit markets which can impair our ability to access these markets on terms commercially acceptable to us, or at all.
While we have developed and implemented and continue to develop and implement health and safety protocols, business continuity plans and crisis management protocols in an effort to mitigate the negative impact of COVID-19 to our employees and our business, the extent of the impact of the pandemic on our business and financial results will continue to depend on numerous evolving factors that we are not able to accurately predict and which will vary by jurisdiction and market, including the duration and scope of the pandemic, the possible emergence and spread of new variants of the virus, including the delta variant, the likelihoodavailability, administration and effectiveness of a resurgence of positive cases, the development, availability and public acceptance of effective treatments and vaccines, the speed at which such vaccines are administered, the efficacy of current vaccines against evolving strains or variants of the virus, global economic conditions during and
after the pandemic, governmental actions that have been taken, or may be taken in the future, in response to the pandemic and changes in consumer behavior in response to the pandemic, some of which may be more than just temporary.
Risks Associated with Commodities and Our Supply Chain
Many of the commodities used in the production and transportation of our products are purchased in the open market. The prices we pay for such items are subject to fluctuation, and we manage this risk through the use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments, including swaps and futures. During the 12 and 36 weeks ended September 4, 2021,3, 2022, we experienced higher than anticipatedcontinued to experience inflationary pressures on transportation and commodity costs, which we expect to continue for the remainder of 2021.2022. A number of external factors, including the deadly conflict in Ukraine, the COVID-19 pandemic, adverse weather conditions, supply chain disruptions (including raw material shortages) and labor shortages, have impacted and may continue to impact transportation and commodity costs. When prices increase, we may or may not pass on such increases to our customers without suffering reduced volume, revenue, margins and operating results.
See Note 98 to our condensed consolidated financial statements in this Form 10-Q and Note 9 to our consolidated financial statements in our 20202021 Form 10-K for further information on how we manage our exposure to commodity prices.
Risks Associated with Climate Change
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased legal and regulatory requirements to reduce or mitigate the potential effects of climate change, including regulation of greenhouse gas emissions and potential carbon pricing programs. These new or increased legal or regulatory requirements could result in significant increased costs of compliance and additional investments in facilities and equipment. However, we are unable to predict the scope, nature and timing of any new or increased environmental laws and regulations and therefore cannot predict the ultimate impact of such laws and regulations on our business or financial results. We continue to monitor existing and proposed laws and regulations in the jurisdictions in which our products are made, manufactured, distributed and sold and to consider actions we may take to potentially mitigate the unfavorable impact, if any, of such laws or regulations.
Risks Associated with International Operations
In the 12 weeks ended September 4, 2021, substantially all of3, 2022, our financial results outside of North America reflect the months of June, July and August.August. In the 36 weeks ended September 4, 2021, substantially all of3, 2022, our financial results outside of North America reflect the months of January through August. In the 36 weeks ended September 4, 2021,3, 2022, our operations outside of the United States generated 43% of our consolidated net revenue, with Mexico, Russia, Canada, Russia, China, the United Kingdom and South Africa comprising approximately 22% 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 each of the 12 and 36 weeks ended September 4, 2021, favorable3, 2022, unfavorable foreign exchange contributed 2 percentage points toreduced net revenue growth by 3 percentage points primarily due to appreciationdeclines in the Mexican peso,Turkish lira, euro, Egyptian pound, South African rand and Canadian dollar. InBritish
pound sterling, partially offset by an appreciation of the 36 weeks ended September 4, 2021, favorable foreign exchange contributed 2 percentage points to net revenue growth, primarily due to appreciation in the Mexican peso, Canadian dollar and euro.Russian ruble. 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, Turkey and Turkey,Ukraine, 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, including risks of additional impairments or write-offs, and to identify actions to potentially mitigate any unfavorable impacts on our future results. We also continue
See Notes 1 and 3 to monitor the economic and political developments related to the United Kingdom’s withdrawal from the European Union (Brexit), including the effectsour condensed consolidated financial statements for a discussion of the post-Brexit trade deal entered into betweenRussia-Ukraine conflict charges, including impairment charges, recognized in the United Kingdom12 and the European Union in December 2020, as well as the economic, operating and political environment in Russia and the potential impact for our Europe segment and other businesses.36 weeks ended September 3, 2022.
See Note 98 to our condensed consolidated financial statements in this Form 10-Q for the fair values of our financial instruments as of September 4, 20213, 2022 and December 26, 202025, 2021 and Note 9 to our consolidated financial statements in our 20202021 Form 10-K for a discussion of these items.
Risks Associated with the Deadly Conflict in Ukraine
In addition to the risks associated with international operations discussed above, we continue to face risks associated with the deadly conflict in Ukraine. The conflict has continued to result in worldwide geopolitical and macroeconomic uncertainty, and the majority of our operations in Ukraine remain suspended. We have suspended sales to our customers of Pepsi-Cola and certain of our other global beverage brands, our discretionary capital investments and advertising and promotional activities in Russia, which has negatively impacted and could continue to negatively impact our business. We continue to offer our other products in Russia. Our operations in Russia and Ukraine, respectively, accounted for 6% and 0.2% of our consolidated net revenue for the 12 weeks ended September 3, 2022, 4% and 0.3% of our consolidated net revenue for the 36 weeks ended September 3, 2022, 5% and 0.6% of our consolidated net revenue for the 12 weeks ended September 4, 2021 and 4% and 0.5% of our consolidated net revenue for both the 36 weeks ended September 4, 2021 and the year ended December 25, 2021. Our assets in Russia and Ukraine, respectively, were 5% and 0.1% of our consolidated assets as of September 3, 2022 and 5% and 0.3% of our consolidated assets as of December 25, 2021. Russia accounted for 30% and 35% of our accumulated currency translation adjustment loss as of September 3, 2022 and December 25, 2021, respectively.
The conflict has resulted and could continue to result in volatile commodity markets, supply chain disruptions, increased risk of cyber incidents or other disruptions to our information systems, reputational risks, heightened risks to employee safety, business disruptions (including labor shortages), significant volatility of the Russian ruble, limitations on access to credit markets, including working capital facilities, reduced availability and increased costs for transportation, energy, packaging, raw materials and other input costs, environmental, health and safety risks related to securing and maintaining facilities, additional sanctions, export controls and other legislation or regulations (including restrictions on the transfer of funds to and from Russia). The ongoing conflict could result in the temporary or permanent loss of assets or additional impairment charges. We cannot predict how and the extent to which the conflict will continue to affect our employees, customers, operations or business partners or our ability to achieve certain of our sustainability goals. The conflict has adversely affected and could continue to adversely affect demand for our products and our global business. See Notes 1 and 3 to our condensed consolidated financial statements for a discussion of the Russia-Ukraine conflict charges, including impairment charges, recognized in the 12 and 36 weeks ended September 3, 2022.
The extent of the impact of these tragic events on our business remains uncertain and will continue to depend on numerous evolving factors that we are not able to accurately predict, including the duration and scope of the conflict, regional instability and ongoing and additional financial and economic sanctions, export controls and other legislation imposed by governments. We will continue to monitor and assess the situation as circumstances evolve and to identify actions to potentially mitigate any unfavorable impacts on our 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 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 snacksconvenient foods in more than 200 countries and territories and the profile of the products we sell, the amount of revenue attributable to such products and the type of packaging used 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.
Retail Landscape
Our industry continues to be affected by disruption of the retail landscape, including the rapid growth in sales through e-commerce websites and mobile commerce applications, including through subscription services, the integration of physical and digital operations among retailers and the international expansion of hard discounters. We have seen and expect to continue to see a further shift to e-commerce, online-to-offline and other online purchasing by consumers, including as a result of the COVID-19 pandemic. We continue to monitor changes in the retail landscape and seek to identify actions we may take to build our global e-commerce and digital capabilities, such as expanding our direct-to-consumer business, and distribute our products effectively through all existing and emerging channels of trade and potentially mitigate any unfavorable impacts on our future results.
Cautionary statements included above and in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks” in our 20202021 Form 10-K should be considered when evaluating our trends and future results.
Results of Operations – Consolidated Review
Consolidated Results
Volume
Physical or unit volume is one of the key metrics management uses internally to make operating and strategic decisions, including the preparation of our annual operating plan and the evaluation of our business performance. We believe volume provides additional information to facilitate the comparison of our historical operating performance and underlying trends and provides additional transparency on how we evaluate our business because it measures demand for our products at the consumer level. Refer to
“Item “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Financial Results – Volume” included in our 20202021 Form 10-K for further information on volume. Beginning in the first quarter of 2022, unit volume growth adjusts for the impacts of acquisitions, divestitures and other structural changes. Further, unit volume growth will exclude the impact of an additional week of results every five or six years (53rd reporting week), where applicable, including in our fourth quarter 2022 financial results.
We reportreported substantially all of our international volume on a monthly calendar basis prior to the fourth quarter of 2021, and beginning in the fourth quarter of 2021, all of our international operations report on a monthly calendar basis. The 12 weeks ended September 4, 20213, 2022 include volume outside of North America for the months of June, July and August.August. The 36 weeks ended September 4, 20213, 2022 include volume outside of North America for the months of January through August.
Consolidated Net Revenue and Operating Profit
| | | 12 Weeks Ended | | 36 Weeks Ended | | 12 Weeks Ended | | 36 Weeks Ended |
| | 9/4/2021 | | 9/5/2020 | | Change | | 9/4/2021 | | 9/5/2020 | | Change | | 9/3/2022 | | 9/4/2021 | | Change | | 9/3/2022 | | 9/4/2021 | | Change |
Net revenue | Net revenue | $ | 20,189 | | | $ | 18,091 | | | 12 | % | | $ | 54,226 | | | $ | 47,917 | | | 13 | % | Net revenue | $ | 21,971 | | | $ | 20,189 | | | 9 | % | | $ | 58,396 | | | $ | 54,226 | | | 8 | % |
Operating profit | Operating profit | $ | 3,159 | | | $ | 3,011 | | | 5 | % | | $ | 8,600 | | | $ | 7,254 | | | 19 | % | Operating profit | $ | 3,353 | | | $ | 3,159 | | | 6 | % | | $ | 10,697 | | | $ | 8,600 | | | 24 | % |
Operating margin | Operating margin | 15.6 | % | | 16.6 | % | | (1.0) | | | 15.9 | % | | 15.1 | % | | 0.8 | | Operating margin | 15.3 | % | | 15.6 | % | | (0.3) | | | 18.3 | % | | 15.9 | % | | 2.4 | |
See “Results of Operations – Division Review” for a tabular presentation and discussion of key drivers of net revenue.
12 Weeks
Operating profit grew 5%increased 6% and operating margin declined 10.3 percentage point.points. Operating profit growth was primarily driven by net revenue growth and productivity savings, partially offset by a 42-percentage-point impact of higher commodity costs, as well as certain operating cost increases.
Higher mark-to-market losses on commodity derivatives in corporate unallocated expenses reduced operating profit growth by 4 percentage points.
The operating margin decline primarily reflects the impact of higher mark-to-market losses on commodity derivatives.
36 Weeks
Operating profit increased 24% and operating margin improved 2.4 percentage points. Operating profit growth was primarily driven by a 39-percentage-point impact of the gain associated with the Juice Transaction, partially offset by a 16-percentage-point impact of the charges associated with the Russia-Ukraine conflict and a 5.5-percentage-point impact of the Brand Portfolio Impairment Charges.
Operating profit growth was also driven by net revenue growth and productivity savings, partially offset by certain operating cost increases and a 14-percentage-point36-percentage-point impact of higher commodity costs.
The operating margin declineimprovement primarily reflects higher commodity costs and certain operating cost increases, including incremental transportation costs.
Higher mark-to-market losses on commodity derivatives included in “Items Affecting Comparability” reduced operating profit growth by 3 percentage points. Additionally, lower charges taken as a resultthe impact of the COVID-19 pandemic compared togain associated with the prior year contributed 4 percentage points to operating profit growth.
36 Weeks
Operating profit grew 19% and operating margin improved 0.8 percentage point. Operating profit growth was primarily driven by the net revenue growth and productivity savings,Juice Transaction, partially offset by certain operating cost increases, a 10-percentage-point impact of higher commodity coststhe charges associated with the Russia-Ukraine conflict and higher advertising and marketing expenses.
Lower acquisition and divestiture-related charges included in “Items Affecting Comparability” contributed 4 percentage points to operating profit growth. Additionally, lower charges taken as a result of the COVID-19 pandemic compared to the prior year contributed 7 percentage points to operating profit growth.Brand Portfolio Impairment Charges.
Juice Transaction
DuringIn the 1236 weeks ended September 4, 2021,3, 2022, we entered into an agreement with PAI Partners to sellsold our Tropicana, Naked and other select juice brands across North America, and an irrevocable option to sell certain juice businesses in Europe,PAI Partners, while retaining a 39% noncontrolling interest in a newly formed joint venture. After the transaction closes,Tropicana JV, operating across North America and Europe. These juice businesses delivered approximately $3 billion in net revenue in 2021. In the United States, PepsiCo will actacts as the exclusive distributor for the joint venture’sTropicana JV’s portfolio of brands for small-format and foodservice customers with chilled direct-store-delivery. This transaction is expected to close in late 2021 or early 2022, subject to customary conditions, including works council consultations and regulatory approvals. See Note 1211 to our condensed consolidated financial statements for further information. These juice businesses delivered approximately $3 billion in net revenue in 2020.
Results of Operations – Division Review
While our financial results in North America are reported on a 12-week basis, substantially all of our international operations reportreported on a monthly calendar basis for whichprior to the fourth quarter of 2021. Beginning in the fourth quarter of 2021, all of our international operations reported on a monthly calendar basis. This change did not have a material impact on our condensed consolidated financial statements. For our international operations, the months of June, July and August are reflected in our results for the 12 weeks ended September 4, 20213, 2022, and the months of January through August are reflected in our results for the 36 weeks ended September 4, 2021.3, 2022.
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.
See “Our Business Risks,” “Non-GAAP Measures” and “Items Affecting Comparability” for a discussion of items to consider when evaluating our results and related information regarding measures not in accordance with GAAP.
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 9/4/2021 | | 12 Weeks Ended 9/3/2022 |
| | | Impact of | | | Impact of | | | 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 | | Reported % Change, GAAP Measure | | Foreign exchange translation | | Acquisitions and divestitures | | | Organic % Change, Non-GAAP Measure(a) | | Organic volume(b) | | Effective net pricing |
FLNA | FLNA | 6 | % | | (0.5) | | | — | | | | 5 | % | | 1 | | | 4 | | FLNA | 20 | % | | — | | | — | | | | 20 | % | | — | | | 20 | |
QFNA | QFNA | 2 | % | | (1) | | | — | | | | 1 | % | | (4) | | | 4.5 | | QFNA | 15 | % | | — | | | — | | | | 16 | % | | (4) | | | 20 | |
PBNA | PBNA | 7 | % | | (0.5) | | | — | | | | 7 | % | | 3 | | | 4 | | PBNA | 4 | % | | — | | | 9 | | | | 13 | % | | 1 | | | 12 | |
LatAm | LatAm | 27 | % | | (8) | | | — | | | | 19 | % | | 6 | | | 13 | | LatAm | 20 | % | | 2 | | | 1 | | | | 22 | % | | 5 | | | 17 | |
Europe | Europe | 9 | % | | — | | | — | | | | 8 | % | | 6 | | | 2.5 | | Europe | 1 | % | | 8 | | | 5.5 | | | | 15 | % | | (10) | | | 24 | |
AMESA | AMESA | 33 | % | | (8) | | | (5) | | | | 20 | % | | 12 | | | 8 | | AMESA | 4 | % | | 14 | | | — | | | | 17 | % | | (1) | | | 19 | |
APAC | APAC | 27 | % | | (7) | | | (5) | | | | 15 | % | | 12 | | | 3 | | APAC | 3 | % | | 5 | | | — | | | | 8 | % | | 3 | | | 5 | |
Total | Total | 12 | % | | (2) | | | (1) | | | | 9 | % | | 4 | | | 5 | | Total | 9 | % | | 3 | | | 4 | | | | 16 | % | | (1) | | | 17 | |
| | | 36 Weeks Ended 9/4/2021 | | 36 Weeks Ended 9/3/2022 |
| | | Impact of | | | | Impact of | | | 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 | | Reported % Change, GAAP Measure | | Foreign exchange translation | | Acquisitions and divestitures | | | Organic % Change, Non-GAAP Measure(a) | | | Organic volume(b) | | Effective net pricing |
FLNA | FLNA | 5.5 | % | | (1) | | | — | | | | 5 | % | | | 1 | | | 4 | | FLNA | 16 | % | | — | | | — | | | | 16 | % | | | 0.5 | | | 16 | |
QFNA | QFNA | (3.5) | % | | (1) | | | — | | | | (4) | % | | | (10) | | | 5 | | QFNA | 14 | % | | — | | | — | | | | 15 | % | | | (1) | | | 16 | |
PBNA | PBNA | 12 | % | | (1) | | | (2) | | | | 10 | % | | | 5 | | | 5 | | PBNA | 3 | % | | — | | | 8 | | | | 11 | % | | | 1.5 | | | 10 | |
LatAm | LatAm | 17 | % | | (4) | | | — | | | | 13 | % | | | 4 | | | 10 | | LatAm | 21 | % | | 1 | | | 1 | | | | 22 | % | | | 3.5 | | | 19 | |
Europe | Europe | 10 | % | | (1) | | | — | | | | 9 | % | | | 6 | | | 2.5 | | Europe | (3) | % | | 10 | | | 4.5 | | | | 12 | % | | | (7) | | | 18 | |
AMESA | AMESA | 45 | % | | (7) | | | (24) | | | | 14 | % | | | 8 | | | 5.5 | | AMESA | 7 | % | | 9 | | | 4 | | | | 20 | % | | | 7 | | | 13 | |
APAC | APAC | 43 | % | | (8) | | | (22) | | | | 13 | % | | | 10 | | | 3 | | APAC | 5 | % | | 3 | | | 2.5 | | | | 10 | % | | | 5 | | | 5 | |
Total | Total | 13 | % | | (2) | | | (3) | | | | 8 | % | | | 4 | | | 5 | | Total | 8 | % | | 3 | | | 4 | | | | 14 | % | | | 1 | | | 14 | |
(a)Amounts may not sum due to rounding.
(b)Excludes the impact of acquisitions, divestitures and divestitures, including the impact, in the 36 weeks ended September 4, 2021, of an extra month of volume for our acquisitions of Pioneer Foods in our AMESA division and Be & Cheery in our APAC division as we aligned the reporting calendars of these acquisitions with those of our divisions.other structural changes. In certain instances, the impact of organic volume growth on net revenue growth differs from the unit volume growth disclosed in the following divisional discussions due to the impacts of product mix, nonconsolidated joint venture volume, and, for our franchise-owned beverage businesses, temporary timing differences between bottler case sales and concentrate shipments and equivalents (CSE). OurWe report net revenue excludes nonconsolidated joint venture volume, and, forfrom our franchise-owned beverage businesses is based on CSE. The volume sold by our nonconsolidated joint ventures has no direct impact on our net revenue.
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 9/4/2021 |
| | | Items Affecting Comparability(a) | | | | | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges(c) | | | | | | Core, Non-GAAP Measure(b) |
FLNA | $ | 1,357 | | | $ | — | | | $ | 2 | | | $ | — | | | | | | | $ | 1,359 | |
QFNA | 106 | | | — | | | 1 | | | — | | | | | | | 107 | |
PBNA | 773 | | | — | | | 3 | | | — | | | | | | | 776 | |
LatAm | 393 | | | — | | | 14 | | | — | | | | | | | 407 | |
Europe | 439 | | | — | | | 20 | | | — | | | | | | | 459 | |
AMESA | 312 | | | — | | | 5 | | | 1 | | | | | | | 318 | |
APAC | 201 | | | — | | | 1 | | | — | | | | | | | 202 | |
Corporate unallocated expenses | (422) | | | 34 | | | 5 | | | (4) | | | | | | | (387) | |
Total | $ | 3,159 | | | $ | 34 | | | $ | 51 | | | $ | (3) | | | | | | | $ | 3,241 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 9/5/2020 |
| | | Items Affecting Comparability(a) | | | | | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | | | | | Core, Non-GAAP Measure(b) |
FLNA | $ | 1,353 | | | $ | — | | | $ | 2 | | | $ | 1 | | | | | | | $ | 1,356 | |
QFNA | 145 | | | — | | | — | | | — | | | | | | | 145 | |
PBNA | 697 | | | — | | | 29 | | | 17 | | | | | | | 743 | |
LatAm | 250 | | | — | | | 5 | | | — | | | | | | | 255 | |
Europe | 480 | | | — | | | 13 | | | — | | | | | | | 493 | |
AMESA | 193 | | | — | | | 2 | | | 10 | | | | | | | 205 | |
APAC | 163 | | | — | | | 1 | | | 5 | | | | | | | 169 | |
Corporate unallocated expenses | (270) | | | (71) | | | 8 | | | 10 | | | | | | | (323) | |
Total | $ | 3,011 | | | $ | (71) | | | $ | 60 | | | $ | 43 | | | | | | | $ | 3,043 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended 9/4/2021 |
| | | Items Affecting Comparability(a) | | | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges(c) | | | | Core, Non-GAAP Measure(b) |
FLNA | $ | 3,979 | | | $ | — | | | $ | 20 | | | $ | 2 | | | | | $ | 4,001 | |
QFNA | 384 | | | — | | | 1 | | | — | | | | | 385 | |
PBNA | 1,948 | | | — | | | 8 | | | 2 | | | | | 1,958 | |
LatAm | 967 | | | — | | | 22 | | | — | | | | | 989 | |
Europe | 975 | | | — | | | 46 | | | — | | | | | 1,021 | |
AMESA | 706 | | | — | | | 9 | | | 8 | | | | | 723 | |
APAC | 601 | | | — | | | 2 | | | 3 | | | | | 606 | |
Corporate unallocated expenses | (960) | | | (61) | | | 15 | | | (3) | | | | | (1,009) | |
Total | $ | 8,600 | | | $ | (61) | | | $ | 123 | | | $ | 12 | | | | | $ | 8,674 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended 9/5/2020 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | Core, Non-GAAP Measure(b) |
FLNA | $ | 3,833 | | | $ | — | | | $ | 9 | | | $ | 26 | | | $ | 3,868 | |
QFNA | 491 | | | — | | | 1 | | | — | | | 492 | |
PBNA | 1,391 | | | — | | | 32 | | | 60 | | | 1,483 | |
LatAm | 700 | | | — | | | 14 | | | — | | | 714 | |
Europe | 977 | | | — | | | 29 | | | — | | | 1,006 | |
AMESA | 386 | | | — | | | 9 | | | 169 | | | 564 | |
APAC | 494 | | | — | | | 4 | | | 5 | | | 503 | |
Corporate unallocated expenses | (1,018) | | | 26 | | | 18 | | | 26 | | | (948) | |
Total | $ | 7,254 | | | $ | 26 | | | $ | 116 | | | $ | 286 | | | $ | 7,682 | |
Operating Profit and Operating Profit Adjusted for Items Affecting Comparability | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 9/3/2022 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | Gain associated with the Juice Transaction | | Russia-Ukraine conflict charges | | Brand Portfolio Impairment Charges | | Core, Non-GAAP Measure(b) |
FLNA | $ | 1,588 | | | $ | — | | | $ | 4 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,592 | |
QFNA | 122 | | | — | | | 1 | | | — | | | — | | | — | | | — | | | 123 | |
PBNA | 784 | | | — | | | 4 | | | 3 | | | 8 | | | — | | | 9 | | | 808 | |
LatAm | 463 | | | — | | | 3 | | | — | | | — | | | — | | | — | | | 466 | |
Europe | 564 | | | — | | | 21 | | | — | | | 6 | | | (4) | | | 1 | | | 588 | |
AMESA | 268 | | | — | | | — | | | 2 | | | — | | | — | | | — | | | 270 | |
APAC | 199 | | | — | | | 4 | | | — | | | — | | | — | | | — | | | 203 | |
Corporate unallocated expenses | (635) | | | 166 | | | 14 | | | — | | | — | | | — | | | — | | | (455) | |
Total | $ | 3,353 | | | $ | 166 | | | $ | 51 | | | $ | 5 | | | $ | 14 | | | $ | (4) | | | $ | 10 | | | $ | 3,595 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 9/4/2021 |
| | | Items Affecting Comparability(a) | | | | | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges(c) | | | | | | Core, Non-GAAP Measure(b) |
FLNA | $ | 1,357 | | | $ | — | | | $ | 2 | | | $ | — | | | | | | | $ | 1,359 | |
QFNA | 106 | | | — | | | 1 | | | — | | | | | | | 107 | |
PBNA | 773 | | | — | | | 3 | | | — | | | | | | | 776 | |
LatAm | 393 | | | — | | | 14 | | | — | | | | | | | 407 | |
Europe | 439 | | | — | | | 20 | | | — | | | | | | | 459 | |
AMESA | 312 | | | — | | | 5 | | | 1 | | | | | | | 318 | |
APAC | 201 | | | — | | | 1 | | | — | | | | | | | 202 | |
Corporate unallocated expenses | (422) | | | 34 | | | 5 | | | (4) | | | | | | | (387) | |
Total | $ | 3,159 | | | $ | 34 | | | $ | 51 | | | $ | (3) | | | | | | | $ | 3,241 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended 9/3/2022 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | Gain associated with the Juice Transaction | | Russia-Ukraine conflict charges | | Brand Portfolio Impairment Charges | | Core, Non-GAAP Measure(b) |
FLNA | $ | 4,332 | | | $ | — | | | $ | 10 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 4,342 | |
QFNA | 416 | | | — | | | 1 | | | — | | | — | | | — | | | — | | | 417 | |
PBNA | 4,869 | | | — | | | 9 | | | 42 | | | (3,029) | | | — | | | 150 | | | 2,041 | |
LatAm | 1,206 | | | — | | | 17 | | | — | | | — | | | — | | | 83 | | | 1,306 | |
Europe | (369) | | | — | | | 40 | | | 13 | | | (292) | | | 1,402 | | | 242 | | | 1,036 | |
AMESA | 738 | | | — | | | 5 | | | 2 | | | — | | | — | | | — | | | 745 | |
APAC | 620 | | | — | | | 8 | | | — | | | — | | | — | | | — | | | 628 | |
Corporate unallocated expenses | (1,115) | | | (44) | | | 33 | | | 6 | | | — | | | — | | | — | | | (1,120) | |
Total | $ | 10,697 | | | $ | (44) | | | $ | 123 | | | $ | 63 | | | $ | (3,321) | | | $ | 1,402 | | | $ | 475 | | | $ | 9,395 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended 9/4/2021 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure(b) | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges(c) | | Core, Non-GAAP Measure(b) |
FLNA | $ | 3,979 | | | $ | — | | | $ | 20 | | | $ | 2 | | | $ | 4,001 | |
QFNA | 384 | | | — | | | 1 | | | — | | | 385 | |
PBNA | 1,948 | | | — | | | 8 | | | 2 | | | 1,958 | |
LatAm | 967 | | | — | | | 22 | | | — | | | 989 | |
Europe | 975 | | | — | | | 46 | | | — | | | 1,021 | |
AMESA | 706 | | | — | | | 9 | | | 8 | | | 723 | |
APAC | 601 | | | — | | | 2 | | | 3 | | | 606 | |
Corporate unallocated expenses | (960) | | | (61) | | | 15 | | | (3) | | | (1,009) | |
Total | $ | 8,600 | | | $ | (61) | | | $ | 123 | | | $ | 12 | | | $ | 8,674 | |
(a)See “Items Affecting Comparability.”
(b)Includes the charges taken as a result of the COVID-19 pandemic. See Note 1 to our condensed consolidated financial statements for further information.
(c)The income amounts primarily relate to the change in the fair value of contingent consideration associated with our acquisition of Rockstar.
Operating Profit Growth and Operating Profit Growth Adjusted for Items Affecting Comparability on a Constant Currency Basis
| | | 12 Weeks Ended 9/4/2021 | | 12 Weeks Ended 9/3/2022 |
| | | Impact of Items Affecting Comparability(a) | | | | Impact of | | | | Impact of Items Affecting Comparability(a) | | Impact of | |
| | Reported % Change, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | | Core % Change, Non-GAAP Measure(b) | | Foreign exchange translation | | Core Constant Currency % Change, Non-GAAP Measure(b) | | Reported % Change, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | Gain associated with the Juice Transaction | | Russia-Ukraine conflict charges | | Brand Portfolio Impairment Charges | | Core % Change, Non-GAAP Measure(b) | | Foreign exchange translation | | Core Constant Currency % Change, Non-GAAP Measure(b) |
FLNA | FLNA | — | % | | — | | | — | | | — | | | | — | % | | — | | | — | % | FLNA | 17 | % | | — | | | — | | | — | | | — | | | — | | | — | | | 17 | % | | — | | | 17 | % |
QFNA | QFNA | (27) | % | | — | | | — | | | — | | | | (27) | % | | — | | | (27) | % | QFNA | 15 | % | | — | | | — | | | — | | | — | | | — | | | — | | | 15 | % | | — | | | 15 | % |
PBNA | PBNA | 11 | % | | — | | | (4) | | | (2.5) | | | | 4 | % | | (1) | | | 4 | % | PBNA | 1 | % | | — | | | — | | | — | | | 1 | | | — | | | 1 | | | 4 | % | | — | | | 4 | % |
LatAm | LatAm | 57 | % | | — | | | 3 | | | — | | | | 60 | % | | (13) | | | 47 | % | LatAm | 18 | % | | — | | | (3) | | | — | | | — | | | — | | | — | | | 15 | % | | 2 | | | 17 | % |
Europe | Europe | (8) | % | | — | | | 2 | | | — | | | | (7) | % | | — | | | (7) | % | Europe | 28 | % | | — | | | — | | | — | | | — | | | — | | | — | | | 28 | % | | 10 | | | 38 | % |
AMESA | AMESA | 63 | % | | — | | | 3 | | | (10) | | | | 56 | % | | (3.5) | | | 52 | % | AMESA | (14) | % | | — | | | (1) | | | — | | | — | | | — | | | — | | | (15) | % | | 10 | | | (5) | % |
APAC | APAC | 23 | % | | — | | | — | | | (4) | | | | 20 | % | | (3) | | | 16 | % | APAC | (1) | % | | — | | | 2 | | | — | | | — | | | — | | | — | | | 1 | % | | 5 | | | 6 | % |
Corporate unallocated expenses | Corporate unallocated expenses | 57 | % | | (44) | | | 1 | | | 6 | | | | 20 | % | | — | | | 20 | % | Corporate unallocated expenses | 50 | % | | (30) | | | (2) | | | (1) | | | — | | | — | | | — | | | 17 | % | | — | | | 17 | % |
Total | Total | 5 | % | | 3 | | | — | | | (1.5) | | | | 6 | % | | (2) | | | 5 | % | Total | 6 | % | | 4 | | | — | | | — | | | — | | | — | | | — | | | 11 | % | | 3 | | | 14 | % |
| | | 36 Weeks Ended 9/4/2021 | | 36 Weeks Ended 9/3/2022 |
| | | Impact of Items Affecting Comparability(a) | | | Impact of | | | | Impact of Items Affecting Comparability(a) | | | Impact of | |
| | Reported % Change, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | | Core % Change, Non-GAAP Measure(b) | | Foreign exchange translation | | Core Constant Currency % Change, Non-GAAP Measure(b) | | Reported % Change, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | Gain associated with the Juice Transaction | | Russia-Ukraine conflict charges | | Brand Portfolio Impairment Charges | | | Core % Change, Non-GAAP Measure(b) | | Foreign exchange translation | | Core Constant Currency % Change, Non-GAAP Measure(b) |
FLNA | FLNA | 4 | % | | — | | | — | | | (1) | | | | 3 | % | | (0.5) | | | 3 | % | FLNA | 9 | % | | — | | | — | | | — | | | — | | | — | | | — | | | | 9 | % | | — | | | 9 | % |
QFNA | QFNA | (22) | % | | — | | | — | | | — | | | | (22) | % | | — | | | (22) | % | QFNA | 8 | % | | — | | | — | | | — | | | — | | | — | | | — | | | | 8 | % | | — | | | 8 | % |
PBNA | PBNA | 40 | % | | — | | | (2) | | | (6) | | | | 32 | % | | (1) | | | 31 | % | PBNA | 150 | % | | — | | | — | | | 2 | | | (156) | | | — | | | 8 | | | | 4 | % | | — | | | 4.5 | % |
LatAm | LatAm | 38 | % | | — | | | — | | | — | | | | 39 | % | | (7) | | | 32 | % | LatAm | 25 | % | | — | | | — | | | — | | | — | | | — | | | 8 | | | | 32 | % | | 1 | | | 33 | % |
Europe | Europe | — | % | | — | | | 2 | | | — | | | | 2 | % | | (2) | | | — | % | Europe | (138) | % | | — | | | (1) | | | 1 | | | (30) | | | 144 | | | 25 | | | | 1 | % | | 10 | | | 11 | % |
AMESA | AMESA | 83 | % | | — | | | — | | | (55) | | | | 28 | % | | (2) | | | 26 | % | AMESA | 5 | % | | — | | | (1) | | | (1) | | | — | | | — | | | — | | | | 3 | % | | 7 | | | 10 | % |
APAC | APAC | 22 | % | | — | | | (1) | | | (1) | | | | 20 | % | | (5) | | | 16 | % | APAC | 3 | % | | — | | | 1 | | | — | | | — | | | — | | | — | | | | 4 | % | | 3 | | | 7 | % |
Corporate unallocated expenses | Corporate unallocated expenses | (6) | % | | 9 | | | — | | | 3 | | | | 7 | % | | — | | | 7 | % | Corporate unallocated expenses | 16 | % | | (2) | | | (2) | | | (1) | | | — | | | — | | | — | | | | 11 | % | | — | | | 11 | % |
Total | Total | 19 | % | | (1) | | | — | | | (4) | | | | 13 | % | | (2) | | | 11 | % | Total | 24 | % | | — | | | — | | | 1 | | | (39) | | | 16 | | | 5.5 | | | | 8 | % | | 2 | | | 11 | % |
(a)See “Items Affecting Comparability” for further information.
(b)Amounts may not sum due to rounding.
FLNA
12 Weeks
Net revenue grew 6%20%, primarily driven by effective net pricing and organic volume growth. pricing.
Unit volume grew 1%declined 2%, primarily reflecting double-digit growth in variety packs and high-single-digit growth in trademark Ruffles, partially offset by a low-single-digitdouble-digit decline in trademark Lay’sour Sabra joint venture products and a mid-single-digit decline in variety packs, partially offset by low-single-digit growth in trademark Tostitos.Doritos and Cheetos and double-digit growth in trademark Popcorners.
Operating profit increased slightly,17%, primarily reflecting the effective net revenue growth,pricing and productivity savings, lower advertising and marketing expenses and a 3-percentage-point impact of lower charges taken as a result of the COVID-19 pandemic.savings. These impacts were largelypartially offset by certain operating cost increases, including strategic initiatives, and incremental transportation costs, and a 5-percentage-point20-percentage-point impact of higher commodity costs, primarily packaging materialcooking oil, potatoes and cooking oil.corn.
36 Weeks
Net revenue grew 5.5%16%, primarily driven by effective net pricing.
Unit volume declined 1%, primarily reflecting a double-digit decline in our Sabra joint venture products and a mid-single-digit decline in trademark Tostitos, partially offset by low-single-digit growth in trademark Doritos and double-digit growth in trademark Popcorners.
Operating profit increased 9%, primarily reflecting the effective net pricing and productivity savings. These impacts were partially offset by certain operating cost increases, including strategic initiatives, and a 16-percentage-point impact of higher commodity costs, primarily cooking oil, potatoes and packaging materials.
QFNA
12 Weeks
Net revenue grew 15%, primarily driven by effective net pricing, partially offset by a decrease in organic volume.
Unit volume declined 4%, primarily reflecting a mid-single-digit decline in oatmeal, a double-digit decline in pancake syrups and mixes, a high-single-digit decline in bars and a mid-single-digit decline in rice/pasta sides, partially offset by double-digit growth in lite snacks.
Operating profit grew 15%, primarily reflecting the effective net pricing and productivity savings. These impacts were partially offset by a 50-percentage-point impact of higher commodity costs, primarily grains and packaging materials, certain operating cost increases, including incremental transportation costs, the organic volume decline and higher advertising and marketing expenses.
36 Weeks
Net revenue grew 14%, primarily driven by effective net pricing, partially offset by a decrease in organic volume.
Unit volume declined 1%, primarily reflecting a double-digit decline in pancake syrups and mixes and a low-single-digit decline in oatmeal, partially offset by double-digit growth in rice/pasta sides.
Operating profit grew 8%, primarily reflecting the effective net pricing and productivity savings. These impacts were partially offset by a 31-percentage-point impact of higher commodity costs, primarily grains and packaging materials, certain operating cost increases, including incremental transportation costs, a 4-percentage-point impact of less favorable settlements of promotional spending accruals compared to the prior year and the organic volume decline.
PBNA
12 Weeks
Net revenue increased 4%, primarily driven by effective net pricing and an increase in organic volume growth. volume. The Juice Transaction reduced net revenue growth by 9 percentage points.
Unit volume grewincreased 1%, driven by a 4% increase in our non-carbonated beverage (NCB) volume, partially offset by a 2% decrease in carbonated soft drink (CSD) volume. The NCB volume increase primarily reflected a double-digit increase in Gatorade sports drinks and a high-single-digit increase in our juice and juice drinks portfolio (adjusted for the impact of the Juice Transaction), partially offset by a double-digit decrease in our energy portfolio and a low-single-digit decrease in our overall water portfolio.
Operating profit increased 1%, primarily reflecting the net revenue growth and productivity savings. These impacts were partially offset by certain operating cost increases, including incremental information technology and transportation costs, and a 40-percentage-point impact of higher commodity costs, primarily aluminum and resin. Additionally, operating profit growth was reduced by a 12-percentage-point impact of the loss of net revenue due to the Juice Transaction.
36 Weeks
Net revenue increased 3%, primarily driven by effective net pricing and an increase in organic volume. The Juice Transaction reduced net revenue growth by 8 percentage points.
Unit volume increased 1%, driven by a 4% increase in NCB volume, partially offset by a 1.5% decrease in CSD volume. The NCB volume increase primarily reflected a high-single-digit increase in Gatorade sports drinks and a low-single-digit increase in our BFY Brands acquisition inoverall water portfolio.
Operating profit increased 150%, primarily reflecting a 156-percentage-point impact of the first quartergain of 2020$3.0 billion associated with the Juice Transaction, partially offset by a 2-percentage-point impact of related transaction costs of $42 million.Operating profit growth was also driven by the net revenue growth and double-digitproductivity savings, partially offset by certain operating cost increases, including incremental transportation and information technology costs, and a 39-percentage-point impact of higher commodity costs, primarily aluminum and resin. A current-year gain associated with the sale of an asset contributed 8 percentage points to operating profit growth. Additionally, operating profit growth was reduced by an 11-percentage-point impact of the loss of net revenue due to the Juice Transaction and a 3-percentage-point impact of certain costs associated with remediating a service disruption from a third-party payroll service provider.
As a result of our decision to terminate the agreement with Vital to distribute Bang energy drinks, we recorded impairment and other related charges which reduced operating profit growth by 8 percentage points.
LatAm
12 Weeks
Net revenue increased 20%, primarily reflecting effective net pricing and organic volume growth.
Convenient foods unit volume grew 3%, primarily reflecting mid-single-digit growth in variety packs,Mexico, partially offset by a mid-single-digit decline in trademark TostitosBrazil.
Beverage unit volume grew 7%, primarily reflecting high-single-digit growth in Mexico and adouble-digit growth in Argentina. Additionally, Brazil experienced mid-single-digit growth and Guatemala experienced low-single-digit decline in trademark Lay’s.growth.
Operating profit increased 4%18%, primarily reflecting the net revenue growth, productivity savings and a 4- percentage-point3-percentage-point favorable impact of lower charges taken as a result of the COVID-19 pandemic. These impacts were partially offset by certain operating cost increases including strategic initiatives, a 39-percentage-point impact of higher commodity costs, primarily cooking oil and incremental transportation costs,packaging materials, a 13-percentage-point unfavorable impact of certain indirect tax credits in Brazil compared to the prior year and higher advertising and marketing expenses.
36 Weeks
Net revenue increased 21%, primarily reflecting effective net pricing and organic volume growth.
Convenient foods unit volume grew 5%, primarily reflecting mid-single-digit growth in Mexico, partially offset by a low-single-digit decline in Brazil.
Beverage unit volume grew 8%, primarily reflecting double-digit growth in Argentina. Additionally, Mexico and Brazil experienced high-single-digit growth and Guatemala and Chile experienced mid-single-digit growth.
Operating profit increased 25%, primarily reflecting the net revenue growth, productivity savings and a 3-percentage-point4-percentage-point favorable impact of lower charges taken as a result of the COVID-19 pandemic. These impacts were partially offset by certain operating cost increases and a 40-percentage-point impact of higher commodity costs, primarily cooking oil and packaging materials. Additionally, impairment and other charges associated with our decision to sell or discontinue certain non-strategic brands reduced operating profit growth by 8 percentage points.
Europe
12 Weeks
Net revenue increased 1%, reflecting effective net pricing, partially offset by an organic volume decline, an 8-percentage-point impact of unfavorable foreign exchange and a 5-percentage-point impact of the Juice Transaction.
Convenient foods unit volume declined 5%, primarily reflecting double-digit declines in Russia and Ukraine, partially offset by double-digit growth in Spain, mid-single-digit growth in France and low-single-digit growth in Turkey. Additionally, the Netherlands experienced a low-single-digit decline and the United Kingdom experienced a mid-single-digit decline.
Beverage unit volume declined 8%, primarily reflecting double-digit declines in Russia, Ukraine and Turkey, partially offset by low-single-digit growth in the United Kingdom and France. Additionally, Germany experienced a mid-single-digit decline.
Operating profit increased 28%, primarily reflecting the effective net pricing, productivity savings and lower advertising and marketing expenses. These impacts were partially offset by a 72-percentage-point impact of higher commodity costs, primarily packaging materialmaterials, potatoes and cooking oil.
QFNA
12 Weeks
Net revenue grew 2% and unit volume declined 4%. The net revenue growth primarily reflects effective net pricing, partially offset by a decrease in organic volume. The unit volume decline was primarily driven by a double-digit decline in pancake syrup and mix, a high-single-digit decline in ready-to-eat cereals and a low-single-digit decline in oatmeal, partially offset by growth in Cheetos macaroni and cheese, which was introduced in the third quarter of 2020.
Operating profit declined 27%, primarily reflectingraw milk, certain operating cost increases including incremental transportation costs, and a 10-percentage-point impact of higher commodity costs, partially offset by productivity savings and the effective net pricing.
organic volume decline. The impactwrite-down of the COVID-19 pandemic contributed to a current-year decrease in consumer demand, which had a negative impact on net revenue, unit volumecertain inventory items and related charges reduced operating profit performance compared to the significant COVID-19-related surge in demandgrowth by 8 percentage points. Additionally, adjustments of certain accruals in the prior year.United Kingdom contributed 7 percentage points to operating profit growth. Unfavorable foreign exchange reduced operating profit growth by 10 percentage points.
36 Weeks
Net revenue declined 3.5%decreased 3%, reflecting a 10-percentage-point impact of unfavorable foreign exchange, an organic volume decline and unit volume declined 10%. The net revenue decline primarily reflects a decrease in organic volume,4-percentage-point unfavorable impact of the Juice Transaction, partially offset by effective net pricing. The unit volume decline was driven by double-digit declines in oatmeal, pancake syrup and mix, and ready-to-eat cereals, partially offset by the growth in Cheetos macaroni and cheese, which was introduced in the third quarter of 2020, and double-digit growth in lite snacks.
Operating profitConvenient foods unit volume declined 22%4%, primarily reflecting certain operating cost increases, including incremental transportation costs, the net revenue performancedouble-digit declines in Russia and Ukraine and a 5-percentage-pointhigh-single-digit decline in Poland, partially offset by mid-single-digit growth in Turkey. Additionally, the United Kingdom, France and the Netherlands each experienced a low-single-digit decline.
Beverage unit volume declined 6%, primarily reflecting double-digit declines in Russia, Ukraine and Germany, partially offset by low-single-digit growth in France and the United Kingdom. Additionally, Turkey experienced a mid-single-digit decline.
Operating profit decreased 138%, primarily reflecting a 144-percentage-point unfavorable impact of charges associated with the Russia-Ukraine conflict and a 25-percentage-point unfavorable impact of impairment of intangible assets related to the discontinuation or repositioning of certain juice and dairy brands in Russia, partially offset by a 30-percentage-point favorable impact of the gain associated with the Juice Transaction. Operating profit performance was also negatively impacted by a 74-percentage-point impact of higher commodity costs, partially offset by productivity savings.
The impact of the COVID-19 pandemic contributed to a current-year decrease in consumer demand, which had a negative impact on net revenue, unit volumeprimarily packaging materials, raw milk and operating profit performance compared to the significant COVID-19-related surge in demand in the prior year.
PBNA
12 Weeks
Net revenue increased 7%, primarily driven by effective net pricing and an increase in organic volume. Unit volume increased 3%, driven by a 3% increase in carbonated soft drink (CSD) volume and a 2% increase in non-carbonated beverage (NCB) volume. The NCB volume increase primarily reflected double-digit increases in our overall water portfolio and our energy portfolio, partially offset by a double-digit decrease in Gatorade sports drinks.
Operating profit increased 11%, reflecting the net revenue growth, an 8-percentage-point impact of lower charges taken as a result of the COVID-19 pandemic and productivity savings. These impacts were partially offset bypotatoes, certain operating cost increases, including incremental transportation costs,the organic volume decline, a 4.5-percentage-point impact of payments to employees for a change in pension benefits and a 13-percentage-point4-percentage-point impact of higher commodity costs. Additionally, prior-year impairment charges associated with a coconut water brand contributed 5.5 percentage points to operating profit growth.
36 Weeks
Net revenue increased 12%, primarily driven by effective net pricing and an increase in organic volume. Unit volume increased 5%, driven by a 4% increase in CSD volume and a 7% increase in NCB volume. The NCB volume increase primarily reflected double-digit increases in our overall water portfolio and our energy portfolio and a mid-single-digit increase in Lipton ready-to-drink teas.
Operating profit increased 40%, reflecting the net revenue growth, a 21-percentage-point impact of lower charges taken as a result of the COVID-19 pandemic and productivity savings. These impacts were partially offset by certain operating cost increases, including incremental transportation costs, an 11-percentage-point impact of higher commodity costs and higher advertising and marketing expenses. Higher prior-year acquisition and divestiture-related charges contributed 6 percentage points to operating profit growth. Additionally,less favorable settlements of promotional spending accruals compared to the prior year acquisitions,. These impacts were partially offset by effective net pricing, productivity savings and the prior-year impairment charges associated with a coconut water brand each contributed 3 percentage points tolower advertising and marketing expenses. Unfavorable foreign exchange negatively impacted operating profit growth.
The recovery from the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.performance by 10 percentage points.
LatAmAMESA
12 Weeks
Net revenue increased 27%4%, primarily reflecting effective net pricing, an 8-percentage-pointpartially offset by a net decline in organic volume. Unfavorable foreign exchange reduced net revenue growth by 14 percentage points.
Convenient foods unit volume declined 2%, primarily reflecting a high-single-digit decline in South Africa, partially offset by double-digit growth in the Middle East and Pakistan and mid-single-digit growth in India.
Beverage unit volume grew 11%, primarily reflecting double-digit growth in India. Additionally, the Middle East experienced high-single-digit growth, Pakistan experienced low-single-digit growth and Nigeria experienced mid-single-digit growth.
Operating profit declined 14%, primarily reflecting a 62-percentage-point impact of favorablehigher commodity costs, primarily grains and packaging materials, certain operating cost increases and higher advertising and marketing expenses. These impacts were partially offset by the effective net pricing and productivity savings. Unfavorable foreign exchange negatively impacted operating profit performance by 10 percentage points.
36 Weeks
Net revenue increased 7%, primarily reflecting effective net pricing and organic volume growth.growth, partially offset by a 4-percentage-point unfavorable impact of an extra month of net revenue in 2021 as we aligned Pioneer Foods’ reporting calendar with that of our AMESA division. Unfavorable foreign exchange reduced net revenue growth by 9 percentage points.
SnacksConvenient foods unit volume grew 5%, primarily reflecting mid-single-digitdouble-digit growth in Mexicothe Middle East, India and Brazil.Pakistan. Additionally, South Africa grew slightly.
Beverage unit volume grew 9%17%, primarily reflecting double-digit-growth in Chile, Honduras and Argentina and high-single-digitdouble-digit growth in Guatemala.India. Additionally, Mexicothe Middle East and Pakistan each experienced mid-single-digitdouble-digit growth and BrazilNigeria experienced low-single-digit growth.
Operating profit increased 57%, primarily reflecting the net revenue growth, productivity savings and a 13-percentage-point impact of favorable foreign exchange. These impacts were partially offset by certain operating cost increases, a 31-percentage-point impact of higher commodity costs, higher advertising and marketing expenses and a 7-percentage-point impact of an insurance settlement recovery in the prior year associated with a production facility fire in Mexico in 2018. A current-year recognition of certain indirect tax credits in Brazil contributed 22 percentage points to operating profit growth. Additionally, lower charges taken as a result of the COVID-19 pandemic contributed 6 percentage points to operating profit growth.
The recovery from the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.
36 Weeks
Net revenue increased 17%, reflecting effective net pricing, a 4-percentage-point impact of favorable foreign exchange and organic volume growth.
Snacks unit volume grew 3%, primarily reflecting mid-single-digit growth in Brazil.
Beverage unit volume grew 7%, primarily reflecting double-digit growth in Chile and Argentina and high-single-digit growth in Guatemala. Additionally, Mexico experienced mid-single-digit growth, Brazil grew slightly and Honduras experienced high-single-digit growth.
Operating profit increased 38%, primarily reflecting the net revenue growth, productivity savings and a 7-percentage-point impact of favorable foreign exchange. These impacts were partially offset by certain operating cost increases, a 28-percentage-point impact of higher commodity costs, higher advertising and marketing expenses and a 3-percentage-point impact of an insurance settlement recovery in the prior year associated with a production facility fire in Mexico in 2018. A current-year recognition of certain indirect tax credits in Brazil contributed 9 percentage points to operating profit growth.
The recovery from the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.
Europe
12 Weeks
Net revenue increased 9%, primarily reflecting organic volume growth and effective net pricing.
Snacks unit volume grew 5%, primarily reflecting high-single-digit growth in Russia and double-digit growth in Turkey, partially offset by low-single-digit declines in the United Kingdom, France and the Netherlands. Additionally, Poland experienced low-single-digit growth and Spain experienced mid-single-digit growth.
Beverage unit volume grew 7%, primarily reflecting double-digit growth in Russia and Turkey, partially offset by a mid-single-digit decline in Germany and a low-single-digit decline in France. Additionally, the United Kingdom experienced mid-single-digit growth.
Operating profit decreased 8%, primarily reflecting certain operating cost increases and a 25-percentage-point impact of higher commodity costs, partially offset by the net revenue growth and productivity savings. Additionally, favorable settlements of promotional spending accruals compared to the prior year and lower charges taken as a result of the COVID-19 pandemic positively contributed 4 percentage points and 3 percentage points, respectively, to operating profit performance.
The recovery from the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue and unit volume performance.
36 Weeks
Net revenue increased 10%, primarily reflecting organic volume growth and effective net pricing.
Snacks unit volume grew 5%, primarily reflecting double-digit growth in Turkey and high-single-digit growth in Russia, partially offset by low-single-digit declines in the United Kingdom and Spain. Additionally, the Netherlands and France experienced low-single-digit growth and Poland experienced mid-single-digit growth.
Beverage unit volume grew 11%, primarily reflecting double-digit growth in Russia, Turkey and France. Additionally, Germany experienced mid-single-digit growth and the United Kingdom experienced high-single-digit growth.
Operating profit was flat, primarily reflecting certain operating cost increases, a 23-percentage-point impact of higher commodity costs and a 3.5-percentage-point impact of a gain on an asset sale in the prior year, offset by the net revenue growth and productivity savings. Additionally, lower charges taken as a result of the COVID-19 pandemic and favorable settlements of promotional spending accruals compared to the prior year positively contributed 5 percentage points and 3 percentage points, respectively, to operating profit performance.
The recovery from the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue and unit volume performance.
AMESA
12 Weeks
Net revenue increased 33%, reflecting organic volume growth, effective net pricing, an 8-percentage-point impact of favorable foreign exchange and a 5-percentage-point impact of acquisitions.
Snacks unit volume grew 5%, primarily reflecting double-digit growth in India, the Middle East and Pakistan. Additionally, South Africa experienced low-single-digit growth.
Beverage unit volume grew 19%, primarily reflecting double-digit growth in India. Additionally, the Middle East, Pakistan and Nigeria each experienced double-digit growth.
Operating profit increased 63%, primarily reflecting the net revenue growth, productivity savings and a 10-percentage-point impact of the prior-year acquisition and divestiture-related charges associated with our Pioneer Foods acquisition. These impacts were partially offset by certain operating cost increases, a 13-percentage-point impact of higher commodity costs and higher advertising and marketing expenses.
The recovery from the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.
36 Weeks
Net revenue increased 45%, reflecting a 22-percentage-point impact of our Pioneer Foods acquisition, which included the impact of an extra month of net revenue as we aligned Pioneer Foods’ reporting calendar with that of our AMESA division, as well as organic volume growth and effective net pricing. Favorable foreign exchange contributed 7 percentage points to net revenue growth.
Snacks unit volume grew 64%, primarily reflecting a 61-percentage-point impact of our Pioneer Foods acquisition, which included the impact of an extra month of unit volume as we aligned Pioneer Foods’ reporting calendar with that of our AMESA division, double-digit growth in India and Pakistan and mid- single-digit growth in the Middle East, partially offset by a low-single-digit decline in South Africa (excluding our Pioneer Foods acquisition).
Beverage unit volume grew 23%, primarily reflecting double-digit growth in India and Pakistan. Additionally, the Middle East experienced double-digit growth and Nigeria experienced high-single-digit growth.
Operating profit increased 83%, primarily reflecting a 55-percentage-point impact of the prior-year acquisition and divestiture-related charges associated with our Pioneer Foods acquisition, the net revenue growth and productivity savings. These impacts were partially offset by certain operating cost increases, a 9-percentage-point53-percentage-point impact of higher commodity costs, primarily packaging materials and cooking oil, certain operating cost increases and higher advertising and marketing expenses. Additionally, lower charges taken as a result of the COVID-19 pandemic and our Pioneer Foods acquisition each contributed 3 percentage points toUnfavorable foreign exchange reduced operating profit growth.
The recovery from the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.growth by 7 percentage points.
APAC
12 Weeks
Net revenue increased 27%3%, primarily reflecting effective net pricing and organic volume growth, a 7-percentage-point impact of favorablegrowth. Unfavorable foreign exchange and effectivereduced net pricing. Our Be & Cheery acquisition contributedrevenue growth by 5 percentage points to net revenue growth.points.
SnacksConvenient foods unit volume grew 9%3%, primarily reflecting double-digitmid-single-digit growth in China, partially offset by a low-single-digit decline in Thailand, a slight decline in Australia and Thailand. Additionally, Australia experienceda mid-single-digit growth and Indonesia and Taiwan each experienced low-single-digit growth. Our Be & Cheery acquisition contributed 4 percentage points to unit volume growth.decline in Taiwan.
Beverage unit volume grew 9%, primarily reflecting double-digit growth in Vietnam and the Philippines. Additionally, China experienced low-single-digit growth and Thailand experienced mid-single-digit growth.
Operating profit decreased 1%, primarily reflecting a 24-percentage-point impact of higher commodity costs, primarily cooking oil and potatoes, certain operating cost increases and higher advertising and marketing expenses. These impacts were partially offset by the net revenue growth and productivity savings. Unfavorable foreign exchange negatively impacted operating profit performance by 5 percentage points.
36 Weeks
Net revenue increased 5%, primarily reflecting effective net pricing and organic volume growth, partially offset by a 2.5-percentage-point unfavorable impact of an extra month of net revenue in 2021 as we aligned Be & Cheery’s reporting calendar with that of our APAC division. Unfavorable foreign exchange reduced net revenue growth by 3 percentage points.
Convenient foods unit volume grew 4%,primarily reflecting mid-single-digit growth in China and Australia and high-single-digit growth in Thailand, partially offset by a low-single-digit decline in Taiwan.
Beverage unit volume grew 9%, primarily reflecting double-digit declinegrowth in Vietnam and a slight decline in Thailand.the Philippines. Additionally, the PhilippinesChina experienced low-single-digithigh-single-digit growth and Thailand experienced mid-single-digit growth.
Operating profit increased 23%3%, primarily reflecting the net revenue growth and productivity savings, partially offset by a 16-percentage-point impact of higher commodity costs, primarily cooking oil and potatoes, certain operating cost increases, and higher advertising and marketing expenses. Additionally, the impact of lower acquisition and divestiture-related charges compared to the prior year associated with our Be & Cheery acquisition and favorable foreign exchange contributed 4 percentage points and 3 percentage points, respectively, to operating profit growth.
36 Weeks
Net revenue increased 43%, reflecting a 22-percentage-point impact of our Be & Cheery acquisition, which included the impact of an extra month of net revenue compared to the prior year as we aligned Be & Cheery’s reporting calendar with that of our APAC division, as well as organic volume growth, an 8-percentage-point impact of favorable foreign exchange and effective net pricing.
Snacks unit volume grew 23%, primarily reflecting a 23-percentage-point impact of our Be & Cheery acquisition, which included the impact of an extra month of unit volume as we aligned Be & Cheery’s reporting calendar with that of our APAC division, and double-digit growth in China (excluding our Be & Cheery acquisition) and Thailand. Additionally, Australia experienced slight growth, Taiwan experienced low-single-digit growth and Indonesia experienced mid-single-digit growth.
Beverage unit volume grew 15%, primarily reflecting double-digit growth in China. Additionally, Vietnam, the Philippines and Thailand each experienced low-single-digit growth.
Operating profit increased 22%, primarily reflecting the net revenue growth, productivity savings and a 3-percentage-point contribution from our Be & Cheery acquisition, partially offset by higher advertising and marketing expenses and certain operating cost increases.a 3-percentage-point impact of unfavorable foreign exchange. Additionally, prior-year impairment charges associated with an equity method investment contributed 3 percentage points to operating profit growth.
an equity method investment reduced operating profit growth by 4 percentage points. Favorable foreign exchange contributed 5 percentage points to operating profit growth.
Other Consolidated Results
| | | 12 Weeks Ended | | 36 Weeks Ended | | | 12 Weeks Ended | | 36 Weeks Ended | |
| | 9/4/2021 | | 9/5/2020 | | Change | | 9/4/2021 | | 9/5/2020 | | Change | | | 9/3/2022 | | 9/4/2021 | | Change | | 9/3/2022 | | 9/4/2021 | | Change | |
Other pension and retiree medical benefits income | Other pension and retiree medical benefits income | $ | 118 | | | $ | 86 | | | $ | 32 | | | $ | 364 | | | $ | 247 | | | $ | 117 | | | Other pension and retiree medical benefits income | $ | 36 | | | $ | 118 | | | $ | (82) | | | $ | 168 | | | $ | 364 | | | $ | (196) | | |
Net interest expense and other | Net interest expense and other | $ | (232) | | | $ | (264) | | | $ | 32 | | | $ | (731) | | | $ | (789) | | | $ | 58 | | | Net interest expense and other | $ | (190) | | | $ | (232) | | | $ | 42 | | | $ | (666) | | | $ | (731) | | | $ | 65 | | |
Tax rate | Tax rate | 26.3 | % | | 18.6 | % | | 23.0 | % | | 20.8 | % | | | Tax rate | 14.9 | % | | 26.3 | % | | 17.2 | % | | 23.0 | % | |
Net income attributable to PepsiCo (a) | Net income attributable to PepsiCo (a) | $ | 2,224 | | | $ | 2,291 | | | (3) | % | | $ | 6,296 | | | $ | 5,275 | | | 19 | % | | Net income attributable to PepsiCo (a) | $ | 2,702 | | | $ | 2,224 | | | 21 | % | | $ | 8,392 | | | $ | 6,296 | | | 33 | % | |
Net income attributable to PepsiCo per common share – diluted (a) | Net income attributable to PepsiCo per common share – diluted (a) | $ | 1.60 | | | $ | 1.65 | | | (3) | % | | $ | 4.54 | | | $ | 3.79 | | | 20 | % | | Net income attributable to PepsiCo per common share – diluted (a) | $ | 1.95 | | | $ | 1.60 | | | 22 | % | | $ | 6.04 | | | $ | 4.54 | | | 33 | % | |
|
(a)For the 12 and 36 weeks ended September 4, 2021, lower charges taken as a result of3, 2022, the COVID-19 pandemicgain associated with the Juice Transaction contributed 4 percentage points and 8 percentage points, respectively, to both net income attributable to PepsiCo performancegrowth and net income attributable to PepsiCo per common share performance.growth, partially offset by the impairment of intangible assets as a result of the Russia-Ukraine conflict. See Notes 3 and 11 to our condensed consolidated financial statements for further information.
12 Weeks
Other pension and retiree medical benefits income increased $32decreased $82 million, primarily reflectingdue to higher settlement charges, higher interest cost due to an increase in discount rates and lower expected return on assets compared to the recognition of fixed income gains on plan assets, the impact of plan changes approved in 2020, as discussed in Note 7 in our condensed consolidated financial statements, and the impact of discretionary plan contributions,prior year, partially offset by a decrease in the expected ratelower amortization of return onexperience loss resulting from plan assets.changes.
Net interest expense and other decreased $32$42 million, primarily due to higher interest rates on average cash balances and lower average debt balances, partially offset by losses on the market value of investments used to economically hedge a portion of our deferred compensation liability.
The reported tax rate decreased 11.4 percentage points, primarily reflecting an adjustment to reserves for uncertain tax positions as a result of our agreement with the IRS to settle one of the issues assessed in the 2014 through 2016 tax audit.
36 Weeks
Other pension and retiree medical benefits income decreased $196 million, primarily due to higher settlement charges compared to the prior year.
Net interest expense and other decreased $65 million, primarily due to higher interest rates on average cash balances, lower average debt balances and lower interest rates on average debt balances, and higher rates on average cash balances. These impacts were partially offset by lower gainslosses on the market value of investments used to economically hedge a portion of our deferred compensation liability as well asand lower average cash balances.balances.
The reported tax rate increased 7.7decreased 5.8 percentage points, primarily reflecting a remeasurementthe impact of all applicablethe Juice Transaction and an adjustment to reserves for uncertain tax positions as a result of our agreement with the IRS audit forto settle one of the tax yearsissues assessed in the 2014 through 2016 including a 6-percentage-point impact from correlating adjustments impacting the mandatory transition tax liability under the TCJ Act, as well as the prior-year impact of net tax benefits related to the TRAF. See Note 5 to our condensed consolidated financial statements for further information.audit.
36 Weeks
Other pension and retiree medical benefits income increased $117 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 in our condensed consolidated financial statements, and the impact of discretionary plan contributions, partially offset by a decrease in the expected rate of return on plan assets.
Net interest expense and other decreased $58 million, primarily due to lower rates on average debt balances and higher gains on the market value of investments used to economically hedge a portion of our deferred compensation liability. These impacts were partially offset by higher average debt balances, lower average cash balances and lower rates on average cash balances.
The reported tax rate increased 2.2 percentage points, primarily reflecting a remeasurement of all applicable reserves for uncertain tax positions as a result of the IRS audit for the tax years 2014 through 2016, including a 2-percentage-point impact from correlating adjustments impacting the mandatory transition tax liability under the TCJ Act, as well as the prior-year impact of net tax benefits related to the TRAF. See Note 5 to our condensed consolidated financial statements for further information.
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-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; costscharges associated with mergers, acquisitions, divestitures and other structural changes; gains associated with divestitures; asset impairment charges (non-cash); pension and retiree medical related items;medical-related amounts (including all settlement and curtailment gains and losses); charges or adjustments related to the enactment of new laws, rules or regulations, such as significant tax law changes; amounts related to the resolution of tax positions; tax benefits related to reorganizations of our operations; debt redemptions, cash tender or exchange offers; asset impairments (non-cash); and remeasurements of net monetary assets. Prior to the fourth quarter of 2021, certain immaterial pension and retiree medical-related settlement and curtailment gains and losses were not considered items affecting comparability. Pension and retiree medical-related service cost, interest cost, expected return on plan assets, and other net periodic pension costs will continue to be reflected in our core results. See below and “Items Affecting Comparability” for a description of adjustments to our U.S. GAAP financial measures in this Form 10-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, gain associated with the Juice Transaction, impairment of intangible assets, 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, costscharges associated with our acquisitions and divestitures, the gain associated with the Juice Transaction, Russia-Ukraine conflict charges, Brand Portfolio Impairment Charges, the impact of settlement and curtailment gains and losses related to pension and retiree medical plans, the tax benefit related to the IRS audit and the tax expense 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 and net income attributable to PepsiCo per common share – diluted, each adjusted for items affecting comparability on a constant currency basis, which measure our financial results assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period. In order to compute our constant currency results, we multiply or divide, as appropriate, our current-year U.S. dollar results by the current-year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior-year average foreign exchange rates. We believe these measures provide useful information in evaluating the results of our business because they exclude items that we believe are not indicative of our ongoing performance.performance or that we believe impact comparability with the prior year.
Organic revenue growth
We define organic revenue growth as a measure that adjusts for the impacts of foreign exchange translation, acquisitions, divestitures and divestitures,other structural changes, and where applicable, the impact of the 53rd53rd reporting week. Adjusting for acquisitions and divestitures reflects all mergers and acquisitions activity,week, including the impact, in the 36 weeks ended September 4, 2021, of an extra month of net revenue for our acquisitions of Pioneer Foods in our AMESA division and Be & Cheery in our APAC division as we aligned the reporting calendars of these acquisitions with those of our divisions, divestitures and other structural changes, including changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.fourth quarter 2022 financial results. We believe organic revenue
growth provides useful information in evaluating the results of our business because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior year.
See “Net Revenue and Organic Revenue Growth” in “Results of Operations – Division Review” for further information.
Free cash flow
We define free cash flow as net cash provided by operating activities less capital spending, plus sales of property, plant and equipment. Since net capital spending is essential to our product innovation initiatives and maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider net capital spending when evaluating our cash from operating activities. Free cash flow is used by us primarily for acquisitions and financing activities, including debt repayments, dividends and share repurchases. Free cash flow is not a measure of cash available for discretionary expenditures since we have certain non-discretionary obligations such as debt service that are not deducted from the measure.
See “Free Cash Flow” in “Our Liquidity and Capital Resources” for further information.
Items Affecting Comparability
Our reported financial results in this Form 10-Q are impacted by the following items in each of the following periods:
| | | 12 Weeks Ended 9/4/2021 | | 12 Weeks Ended 9/3/2022 |
| | 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 | | Gain associated with the Juice Transaction | | Impairment of intangible assets | | Operating profit | | Other pension and retiree medical benefits income | | Provision for income taxes(a) | | | Net income attributable to PepsiCo |
Reported, GAAP Measure | Reported, GAAP Measure | $ | 9,394 | | | $ | 10,795 | | | $ | 7,636 | | | $ | 3,159 | | | $ | 118 | | | $ | 802 | | | | $ | 2,224 | | Reported, GAAP Measure | $ | 10,308 | | | $ | 11,663 | | | $ | 8,295 | | | $ | 14 | | | $ | 1 | | | $ | 3,353 | | | $ | 36 | | | $ | 475 | | | | $ | 2,702 | |
Items Affecting Comparability | Items Affecting Comparability | | | | Items Affecting Comparability | | | |
Mark-to-market net impact | Mark-to-market net impact | (15) | | | 15 | | | (19) | | | 34 | | | — | | | 8 | | | | 26 | | Mark-to-market net impact | (54) | | | 54 | | | (112) | | | — | | | — | | | 166 | | | — | | | 40 | | | | 126 | |
Restructuring and impairment charges | Restructuring and impairment charges | (9) | | | 9 | | | (42) | | | 51 | | | 1 | | | 7 | | | | 45 | | Restructuring and impairment charges | (1) | | | 1 | | | (50) | | | — | | | — | | | 51 | | | — | | | 11 | | | | 40 | |
Acquisition and divestiture-related charges | Acquisition and divestiture-related charges | — | | | — | | | 3 | | | (3) | | | — | | | (1) | | | | (2) | | Acquisition and divestiture-related charges | — | | | — | | | (5) | | | — | | | — | | | 5 | | | — | | | 2 | | | | 3 | |
| Gain associated with the Juice Transaction | | Gain associated with the Juice Transaction | — | | | — | | | — | | | (14) | | | — | | | 14 | | | — | | | 3 | | | | 11 | |
Russia-Ukraine conflict charges | | Russia-Ukraine conflict charges | (1) | | | 1 | | | 5 | |
| — | | | — | | | (4) | | | — | | | 1 | | | | (5) | |
Brand Portfolio Impairment Charges | | Brand Portfolio Impairment Charges | (10) | | | 10 | | | 1 | | | — | | | (1) | | | 10 | | | — | | | 2 | | | | 8 | |
Pension and retiree medical-related impact | | Pension and retiree medical-related impact | — | | | — | | | — | | | — | | | — | | | — | | | 59 | | | 13 | | | | 46 | |
Tax benefit related to the IRS audit | | Tax benefit related to the IRS audit | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 284 | | | | (284) | |
Tax expense related to the TCJ Act | Tax expense related to the TCJ Act | — | | | — | | | — | | | — | | | — | | | (190) | | | | 190 | | Tax expense related to the TCJ Act | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (86) | | | | 86 | |
| Core, Non-GAAP Measure | Core, Non-GAAP Measure | $ | 9,370 | | | $ | 10,819 | | | $ | 7,578 | | | $ | 3,241 | | | $ | 119 | | | $ | 626 | | | | $ | 2,483 | | Core, Non-GAAP Measure | $ | 10,242 | | | $ | 11,729 | | | $ | 8,134 | | | $ | — | | | $ | — | | | $ | 3,595 | | | $ | 95 | | | $ | 745 | | | | $ | 2,733 | |
| | | 12 Weeks Ended 9/5/2020 | | 12 Weeks Ended 9/4/2021 |
| | 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 | | 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 | Reported, GAAP Measure | $ | 8,156 | | | $ | 9,935 | | | $ | 6,924 | | | $ | 3,011 | | | $ | 86 | | | $ | 526 | | | | $ | 2,291 | | Reported, GAAP Measure | $ | 9,394 | | | $ | 10,795 | | | $ | 7,636 | | | $ | 3,159 | | | $ | 118 | | | $ | 802 | | | | $ | 2,224 | |
Items Affecting Comparability | Items Affecting Comparability | | | | Items Affecting Comparability | | | |
Mark-to-market net impact | Mark-to-market net impact | 38 | | | (38) | | | 33 | | | (71) | | | — | | | (16) | | | | (55) | | Mark-to-market net impact | (15) | | | 15 | | | (19) | | | 34 | | | — | | | 8 | | | | 26 | |
Restructuring and impairment charges | Restructuring and impairment charges | (1) | | | 1 | | | (59) | | | 60 | | | 1 | | | 13 | | | | 48 | | Restructuring and impairment charges | (9) | | | 9 | | | (42) | | | 51 | | | 1 | | | 7 | | | | 45 | |
Acquisition and divestiture-related charges | Acquisition and divestiture-related charges | (11) | | | 11 | | | (32) | | | 43 | | | — | | | 16 | | | | 27 | | Acquisition and divestiture-related charges | — | | | — | | | 3 | | | (3) | | | — | | | (1) | | | | (2) | |
Tax expense related to the TCJ Act | | Tax expense related to the TCJ Act | — | | | — | | | — | | | — | | | — | | | (190) | | | | 190 | |
Core, Non-GAAP Measure | Core, Non-GAAP Measure | $ | 8,182 | | | $ | 9,909 | | | $ | 6,866 | | | $ | 3,043 | | | $ | 87 | | | $ | 539 | | | | $ | 2,311 | | Core, Non-GAAP Measure | $ | 9,370 | | | $ | 10,819 | | | $ | 7,578 | | | $ | 3,241 | | | $ | 119 | | | $ | 626 | | | | $ | 2,483 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended 9/3/2022 |
| Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Gain associated with the Juice Transaction | | Impairment of intangible assets | | 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 | $ | 27,156 | | | $ | 31,240 | | | $ | 22,262 | | | $ | (3,321) | | | $ | 1,602 | | | $ | 10,697 | | | $ | 168 | | | | | $ | 1,756 | | | $ | 51 | | | $ | 8,392 | |
Items Affecting Comparability | | | | | | | | | | | | | | | | | | | | | |
Mark-to-market net impact | 1 | | | (1) | | | 43 | | | — | | | — | | | (44) | | | — | | | | | (11) | | | — | | | (33) | |
Restructuring and impairment charges | (6) | | | 6 | | | (117) | | | — | | | — | | | 123 | | | 3 | | | | | 25 | | | 1 | | | 100 | |
Acquisition and divestiture-related charges | — | | | — | | | (63) | | | — | | | — | | | 63 | | | 6 | | | | | 12 | | | — | | | 57 | |
Gain associated with the Juice Transaction | — | | | — | | | — | | | 3,321 | | | — | | | (3,321) | | | — | | | | | (452) | | | — | | | (2,869) | |
Russia-Ukraine conflict charges | (134) | | | 134 | | | (70) | | | — | | | (1,198) | | | 1,402 | | | — | | | | | 239 | | | — | | | 1,163 | |
Brand Portfolio Impairment Charges | (18) | | | 18 | | | (53) | | | — | | | (404) | | | 475 | | | — | | | | | 111 | | | — | | | 364 | |
Pension and retiree medical-related impact | — | | | — | | | — | | | — | | | — | | | — | | | 174 | | | | | 39 | | | — | | | 135 | |
Tax benefit related to the IRS audit | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | 284 | | | — | | | (284) | |
Tax expense related to the TCJ Act | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | (86) | | | — | | | 86 | |
Core, Non-GAAP Measure | $ | 26,999 | | | $ | 31,397 | | | $ | 22,002 | | | $ | — | | | $ | — | | | $ | 9,395 | | | $ | 351 | | | | | $ | 1,917 | | | $ | 52 | | | $ | 7,111 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended 9/4/2021 |
| 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 | $ | 24,945 | | | $ | 29,281 | | | $ | 20,681 | | | $ | 8,600 | | | $ | 364 | | | | | $ | 1,895 | | | | | $ | 6,296 | |
Items Affecting Comparability | | | | | | | | | | | | | | | | | |
Mark-to-market net impact | 21 | | | (21) | | | 40 | | | (61) | | | — | | | | | (13) | | | | | (48) | |
Restructuring and impairment charges | (13) | | | 13 | | | (110) | | | 123 | | | 6 | | | | | 20 | | | | | 109 | |
Acquisition and divestiture-related charges | (1) | | | 1 | | | (11) | | | 12 | | | — | | | | | — | | | | | 12 | |
| | | | | | | | | | | | | | | | | |
Tax expense related to the TCJ Act | — | | | — | | | — | | | — | | | — | | | | | (190) | | | | | 190 | |
Core, Non-GAAP Measure | $ | 24,952 | | | $ | 29,274 | | | $ | 20,600 | | | $ | 8,674 | | | $ | 370 | | | | | $ | 1,712 | | | | | $ | 6,559 | |
| | | 36 Weeks Ended 9/5/2020 | | 36 Weeks Ended 9/4/2021 |
| | 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 | | 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 | Reported, GAAP Measure | $ | 21,371 | | | $ | 26,546 | | | $ | 19,292 | | | $ | 7,254 | | | $ | 247 | | | $ | 1,396 | | | | $ | 5,275 | | Reported, GAAP Measure | $ | 24,945 | | | $ | 29,281 | | | $ | 20,681 | | | $ | 8,600 | | | $ | 364 | | | $ | 1,895 | | | | $ | 6,296 | |
Items Affecting Comparability | Items Affecting Comparability | | | | Items Affecting Comparability | | | |
Mark-to-market net impact | Mark-to-market net impact | 14 | | | (14) | | | (40) | | | 26 | | | — | | | 8 | | | | 18 | | Mark-to-market net impact | 21 | | | (21) | | | 40 | | | (61) | | | — | | | (13) | | | | (48) | |
Restructuring and impairment charges | Restructuring and impairment charges | (4) | | | 4 | | | (112) | | | 116 | | | 8 | | | 23 | | | | 101 | | Restructuring and impairment charges | (13) | | | 13 | | | (110) | | | 123 | | | 6 | | | 20 | | | | 109 | |
Acquisition and divestiture-related charges | Acquisition and divestiture-related charges | (30) | | | 30 | | | (256) | | | 286 | | | — | | | 32 | | | | 254 | | Acquisition and divestiture-related charges | (1) | | | 1 | | | (11) | | | 12 | | | — | | | — | | | | 12 | |
Tax expense related to the TCJ Act | | Tax expense related to the TCJ Act | — | | | — | | | — | | | — | | | — | | | (190) | | | | 190 | |
Core, Non-GAAP Measure | Core, Non-GAAP Measure | $ | 21,351 | | | $ | 26,566 | | | $ | 18,884 | | | $ | 7,682 | | | $ | 255 | | | $ | 1,459 | | | | $ | 5,648 | | Core, Non-GAAP Measure | $ | 24,952 | | | $ | 29,274 | | | $ | 20,600 | | | $ | 8,674 | | | $ | 370 | | | $ | 1,712 | | | | $ | 6,559 | |
(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.
| | | 12 Weeks Ended | | 36 Weeks Ended | | | 12 Weeks Ended | | 36 Weeks Ended | |
| | 9/4/2021 | | 9/5/2020 | | Change | | 9/4/2021 | | 9/5/2020 | | Change | | | 9/3/2022 | | 9/4/2021 | | Change | | 9/3/2022 | | 9/4/2021 | | Change | |
Net income attributable to PepsiCo per common share – diluted, GAAP measure | Net income attributable to PepsiCo per common share – diluted, GAAP measure | $ | 1.60 | | | $ | 1.65 | | | (3) | % | | $ | 4.54 | | | $ | 3.79 | | | 20 | % | | Net income attributable to PepsiCo per common share – diluted, GAAP measure | $ | 1.95 | | | $ | 1.60 | | | 22 | % | | $ | 6.04 | | | $ | 4.54 | | | 33 | % | |
Mark-to-market net impact | Mark-to-market net impact | 0.02 | | | (0.04) | | | (0.03) | | | 0.01 | | | | Mark-to-market net impact | 0.09 | | | 0.02 | | | (0.02) | | | (0.03) | | |
Restructuring and impairment charges | Restructuring and impairment charges | 0.03 | | | 0.03 | | | 0.08 | | | 0.07 | | | | Restructuring and impairment charges | 0.03 | | | 0.03 | | | 0.07 | | | 0.08 | | |
Acquisition and divestiture-related charges | Acquisition and divestiture-related charges | — | | | 0.02 | | | 0.01 | | | 0.18 | | | | Acquisition and divestiture-related charges | — | | | — | | | 0.04 | | | 0.01 | | |
Gain associated with the Juice Transaction | | Gain associated with the Juice Transaction | 0.01 | | | — | | | (2.07) | | | — | | |
Russia-Ukraine conflict charges | | Russia-Ukraine conflict charges | — | | | — | | | 0.84 | | | — | | |
Brand Portfolio Impairment Charges | | Brand Portfolio Impairment Charges | 0.01 | | | — | | | 0.26 | | | — | | |
Pension and retiree medical-related impact | | Pension and retiree medical-related impact | 0.03 | | | — | | | 0.10 | | | — | | |
Tax benefit related to the IRS audit | | Tax benefit related to the IRS audit | (0.20) | | | — | | | (0.20) | | | — | | |
Tax expense related to the TCJ Act | Tax expense related to the TCJ Act | 0.14 | | | — | | | 0.14 | | | — | | | | Tax expense related to the TCJ Act | 0.06 | | | 0.14 | | | 0.06 | | | 0.14 | | |
| Core net income attributable to PepsiCo per common share – diluted, non-GAAP measure | Core net income attributable to PepsiCo per common share – diluted, non-GAAP measure | $ | 1.79 | |
| $ | 1.66 | | | 8 | % | | $ | 4.73 | | (a) | $ | 4.05 | | | 17 | % | | Core net income attributable to PepsiCo per common share – diluted, non-GAAP measure | $ | 1.97 | | (a) | $ | 1.79 | | | 10 | % | | $ | 5.12 | | | $ | 4.73 | | (a) | 8 | % | |
Impact of foreign exchange translation | Impact of foreign exchange translation | | | | | (2) | | | | | | | (2) | | | Impact of foreign exchange translation | | | | | 3 | | | | | | | 2 | | |
Growth in core net income attributable to PepsiCo per common share – diluted, on a constant currency basis, non-GAAP measure | Growth in core net income attributable to PepsiCo per common share – diluted, on a constant currency basis, non-GAAP measure | | 5.5 | % | (a) |
| | 15 | % | | Growth in core net income attributable to PepsiCo per common share – diluted, on a constant currency basis, non-GAAP measure | | 14 | % | (a) |
| | 11 | % | (a) |
(a)Does not sum due to rounding.
Mark-to-Market Net Impact
We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include agricultural products, energy and metals. Commodity derivatives that do not qualify for hedge accounting treatment are marked to market each period with the resulting gains and losses recorded in corporate unallocated expenses as either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. These gains and losses are subsequently reflected in division results when the divisions recognize the cost of the underlying commodity in operating profit. Therefore, the divisions realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in corporate unallocated expenses.
Restructuring and Impairment Charges
2019 Multi-Year Productivity Plan
To build on the successful implementation of the 2019 Productivity Plan, to date,in the second quarter of 2021, we expanded and extended the program through the end of 2026 to take advantage of additional opportunities within the initiatives of the 2019 Productivity Plan. We nowAs a result, we expect to incur pre-tax charges of approximately $3.15 billion, including cash expenditures of approximately $2.4 billion, as compared to our previous estimate of pre-tax charges of approximately $2.5 billion, which included cash expenditures of approximately $1.6 billion. Plan to date through September 4, 2021,3, 2022, we have incurred pre-tax charges of $926 million,$1.2 billion, including cash expenditures of $685$911 million. For the remainder of 2021,2022, we expect to incur pre-tax charges of approximately $200 million, and cash expenditures of approximately $150$75 million. These charges will be funded primarily through cash from operations. We expect to incur the majority of the remaining pre-tax charges and cash expenditures in our 2022 and 2023 through 2024 financial results, with the balance to be incurred through 2026. Charges include severance and other employee costs, asset impairments and other costs.
See Note 32 to our condensed consolidated financial statements in this Form 10-Q, as well as Note 3 to our consolidated financial statements in our 20202021 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 32 to our condensed consolidated financial statements.
Acquisition and Divestiture-Related Charges
Acquisition and divestiture-related charges primarily include fair value adjustments to the acquired inventory included in the acquisition-date balance sheets, merger and integration charges and costs associated with divestitures. Merger and integration charges include changes in fair value of contingent consideration, liabilities to support socioeconomic programs in South Africa, closing costs, employee-related costs, changes in the fair value of contingent consideration, contract termination costs and other integration costs. Divestiture-related charges reflect transaction expenses, including consulting, advisory and other professional fees.
See Note 1211 to our condensed consolidated financial statements for further information.
Gain Associated with the Juice Transaction
We recognized a gain associated with the Juice Transaction in our PBNA and Europe divisions. See Note 11 to our condensed consolidated financial statements for further information.
Russia-Ukraine Conflict Charges
In connection with the deadly conflict in Ukraine, we recognized charges related to indefinite-lived intangible assets and property, plant and equipment impairment, allowance for expected credit losses, inventory write-downs and other costs. See Notes 1 and 3 to our condensed consolidated financial statements for further information.
Brand Portfolio Impairment Charges
We recognized intangible assets and property, plant and equipment impairment and other charges as a result of management’s decision to reposition or discontinue the sale/distribution of certain brands. See Notes 1 and 3 to our condensed consolidated financial statements for further information.
Pension and Retiree Medical-Related Impact
Pension and retiree medical-related impact includes settlement charges related to lump sum distributions exceeding the total of annual service and interest cost, partially offset by curtailment gains resulting from the Juice Transaction. See Notes 6 and 11 to our condensed consolidated financial statements for further information.
Tax Benefit Related to the IRS Audit
We recognized a non-cash tax benefit resulting from our agreement with the IRS to settle one of the issues assessed in the 2014 through 2016 tax audit. The agreement covers tax years 2014 through 2019.
See Note 4 to our condensed consolidated financial statements for further information.
Tax Expense Related to the TCJ Act
Tax expense related to the TCJ Act reflects adjustments to the mandatory transition tax liability under the TCJ Act.
See Note 54 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, including with respect to our net capital spending plans. Our primary sources of cash available to
fund cash outflows, such as our anticipated dividend payments, debt repayments, payments for acquisitions, including the contingent consideration related to Rockstar, and the mandatory transition tax liability under the TCJ Act,liquidity include cash from operations, pre-tax cash proceeds of approximately $3.5 billion from the Juice Transaction,proceeds obtained from issuances of commercial paper and long-term debt, and cash and cash equivalents,equivalents. These sources of cash are available to fund cash outflows that have both a short- and expected pre-taxlong-term component, including debt repayments and related interest payments; payments for acquisitions; operating leases; purchase, marketing, and other contractual commitments, including capital expenditures and the transition tax liability under the TCJ Act. In addition, these sources of cash proceeds of approximately $3.3 billion from the Juice Transaction, which is expected to close in late 2021fund other cash outflows including anticipated dividend payments and share repurchases. We do not have guarantees or early 2022. We expect to use the proceeds from the Juice Transaction primarily to strengthenoff-balance sheet financing arrangements, including variable interest entities, that we believe could have a material impact on our balance sheet and to make organic investments in the business.liquidity. See “Our Business Risks” and Note 8Notes 7 and Note 1211 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 20202021 Form 10-K for further information.
Our sources and uses of cash were not materially adversely impacted by the Russia-Ukraine conflict in the 36 weeks ended September 3, 2022 and, to date, we have not identified any material liquidity deficiencies as a result of the conflict. Based on the information currently available to us, we do not expect the impact of the Russia-Ukraine conflict to have a material impact on our future liquidity. We will continue to monitor and assess the impact the Russia-Ukraine conflict may have on our business and financial results. See “Our Business Risks,” Note 1 to our condensed consolidated financial statements and “Item 1A. Risk Factors” for further information related to the impact of the Russia-Ukraine conflict on our business and financial results.
Our sources and uses of cash were not materially adversely impacted by COVID-19 in the 36 weeks ended September 4, 20213, 2022 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 future liquidity. We will continue to monitor and assess the impact the COVID-19 pandemic may have on our business and financial results. See “Our Business Risks” and Note 1 to our condensed consolidated financial statements 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 1 to our consolidated financial statements included in our 20202021 Form 10-K for further information related to the impact of the COVID-19 pandemic on our business and financial results.
As of September 4, 2021,3, 2022, cash, cash equivalents and short-term investments in our consolidated subsidiaries subject to currency controls or currency exchange restrictions were not material.
The TCJ Act imposed a one-time mandatory transition tax on undistributed international earnings. As of September 4, 2021,3, 2022, our mandatory transition tax liability was $2.9$2.6 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 consolidated financial statements included in our 20202021 Form 10-K for further discussion of the TCJ Act.
As of September 4, 2021, we had $3.8 billion of non-cancelable purchasing commitments, reflecting an increase of $1.5 billion from December 26, 2020, primarily due to new purchasing contracts and the timing of entering into contract renewals. For further information on our 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 market practice working with our suppliers to adjust as necessary. We also maintain voluntary supply chain finance agreements with several participating global financial institutions. Under these agreements, our suppliers, at their sole discretion, may elect to sell their accounts receivable with PepsiCo to these participating global financial institutions. Supplier participation in these financing arrangements is voluntary. Our suppliers negotiate their financing agreements directly with the respective global financial institutions and we are not a party to these agreements. These financing arrangements allow participating suppliers to leverage PepsiCo’s creditworthiness in establishing credit spreads and associated costs, which generally provides our suppliers with more favorable terms than they would be able to secure on their own. Neither PepsiCo nor any of its subsidiaries provide any guarantees to any third party in connection with these financing arrangements. We have no economic interest in our suppliers’ decision to participate in these agreements. Our
obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. All outstanding amounts related to suppliers participating in such financing arrangements are recorded within accounts payable and other current liabilities in our condensed consolidated balance sheet. We have beenwere informed by the participating financial institutions that as of September 4, 20213, 2022 and December 26, 2020, $1.125, 2021, $1.4 billion and $1.2$1.5 billion, respectively, of our accounts payable to suppliers who participate in these financing arrangements are outstanding. These supply chain finance arrangements did not have a material impact on our liquidity or capital resources in the periods presented and 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 36 weeks ended September 4, 2021,3, 2022, net cash provided by operating activities was $6.6$6.3 billion, compared to net cash provided by operating activities of $6.1$6.6 billion in the prior-year period. The increasedecrease in operating cash flow primarily reflects unfavorable working capital comparisons and higher net cash tax payments, partially offset by favorable operating profit performance partially offset by higher tax payments related to the TCJ Act and higherlower pre-tax pension and retiree medical plan contributions in the current year.
Investing Activities
During the 36 weeks ended September 4, 2021,3, 2022, net cash used forprovided by investing activities was $1.0$0.3 billion, primarily reflecting proceeds associated with the Juice Transaction of $3.5 billion, partially offset by net capital spending of $2.2$2.3 billion partially offset by maturitiesand our investment in Celsius convertible preferred stock and agreement to distribute Celsius energy drinks of short-term investments with maturities of greater than three months of $1.1$0.7 billion.
We regularly review our plans with respect to netnet capital spending, including in light of the ongoing uncertainty caused by the Russia-Ukraine conflict and 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 36 weeks ended September 4, 2021,3, 2022, net cash used for financing activities was $7.2$5.6 billion, primarily reflecting the return of operating cash flow to our shareholders primarily through dividend payments of $4.3$4.6 billion and share repurchases of $1.2 billion, payments of long-term debt borrowings of $2.5$1.7 billion and paymentsdebt redemptions of short-term borrowings$1.6 billion, partially offset by proceeds from issuances of $0.4long-term debt of $3.4 billion.
We annually review our capital structure with our Board of Directors, including our dividend policy and share repurchase activity. On February 13, 2018,10, 2022, we announced the 2018a share repurchase program providing for the repurchase of up to $15.0$10.0 billion of PepsiCo common stock which commenced on July 1, 2018February 11, 2022 and expiredwill expire on June 30, 2021.February 28, 2026. In addition, on February 11, 2021,10, 2022, we announced a 5%7% increase in our annualized dividend to $4.30$4.60 per share from $4.09$4.30 per share, effective with the dividend paid in June 2021.2022. We expect to return a total of approximately $5.9$7.7 billion to shareholders in 2021, comprised of2022, comprising dividends of approximately $5.8$6.2 billion and share repurchases of $106 million. We completed our share repurchase activity during the 12 weeks ended March 20, 2021 and do not expect to repurchase any additional shares for the balance of 2021.approximately $1.5 billion.
Free Cash Flow
The table below reconciles net cash provided by operating activities, as reflected on our cash flow statement, to our free cash flow. Free cash flow is a non-GAAP financial measure. For further information on free cash flow, see “Non-GAAP Measures.”
| | | 36 Weeks Ended | | | 36 Weeks Ended | |
| | 9/4/2021 | | 9/5/2020 | | | 9/3/2022 | | 9/4/2021 | |
Net cash provided by operating activities, GAAP measure | Net cash provided by operating activities, GAAP measure | $ | 6,634 | | | $ | 6,123 | | | Net cash provided by operating activities, GAAP measure | $ | 6,306 | | | $ | 6,634 | | |
Capital spending | Capital spending | (2,276) | | | (2,074) | | | Capital spending | (2,556) | | | (2,276) | | |
Sales of property, plant and equipment | Sales of property, plant and equipment | 40 | | | 26 | | | Sales of property, plant and equipment | 228 | | | 40 | | |
Free cash flow, non-GAAP measure | Free cash flow, non-GAAP measure | $ | 4,398 | | | $ | 4,075 | | | Free cash flow, non-GAAP measure | $ | 3,978 | | | $ | 4,398 | | |
|
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 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 20202021 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 87 to our condensed consolidated financial statements 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 20202021 Form 10-K for further information.
Material Changes in Line Items in Our Condensed Consolidated Financial Statements
Material changes in line items in our condensed consolidated statement of income are discussed in “Results of Operations – Division Review” and “Items Affecting Comparability.”
Material changes in line items in our condensed consolidated statement of cash flows are discussed in “Our Liquidity and Capital Resources.”
Material changes in line items in our condensed consolidated balance sheet are discussed below:
Total Assets
As of September 3, 2022, total assets were $94.5 billion, compared to $92.4 billion as of December 25, 2021. The increase in total assets is primarily driven by the following line items:
| | | | | | | | | | | |
| Change(a) | | Reference |
| | | |
Cash and cash equivalents | $ | 0.8 | | | Statement of Cash Flows |
Accounts and notes receivable, less allowance | $ | 2.1 | | | (b) |
Inventories | $ | 0.7 | | | (c) |
Assets held for sale | $ | (1.8) | | | (d) |
Other indefinite-lived intangible assets | $ | (1.3) | | | Note 3 |
Investments in noncontrolled affiliates | $ | 0.9 | | | Note 11 |
Other assets | $ | 0.5 | | | (e) |
Total Liabilities
As of September 3, 2022, total liabilities were $75.3 billion, compared to $76.2 billion as of December 25, 2021. The decrease in total liabilities is primarily driven by the following line items:
| | | | | | | | | | | |
| Change(a) | | Reference |
Short-term debt obligations | $ | (1.2) | | | (f) |
Accounts payable and other current liabilities | $ | 1.4 | | | (g) |
Liabilities held for sale | $ | (0.8) | | | (d) |
(a)In billions.
(b)Primarily reflects favorable operating performance.
(c)Primarily reflects commodity inflation.
(d)Reflects closing of the Juice Transaction. See Note 11 to our condensed consolidated financial statements included in this Form 10-Q and Note 13 to our consolidated financial statements included in our 2021 Form 10-K for further information.
(e)Primarily reflects our investment in Celsius convertible preferred stock. See Note 8 to our condensed consolidated financial statements for further information.
(f)Primarily reflects debt payments and redemptions, partially offset by debt maturing within a year.
(g)Primarily reflects increased promotional, advertising and marketing spend in the current year.
Total Equity
Refer to our condensed consolidated statement of equity, and Notes 6 and 10 to our condensed consolidated financial statements for material changes in equity line items.
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 September 4, 2021,3, 2022, the related Condensed Consolidated Statements of Income, Comprehensive Income, and Equity for the twelve and thirty-six weeks ended September 4, 20213, 2022 and September 5, 2020,4, 2021, the related Condensed Consolidated Statement of Cash Flows for the thirty-six weeks ended September 4, 20213, 2022 and September 5, 2020,4, 2021, 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 26, 2020,25, 2021, 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 10, 2021,9, 2022, 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 26, 2020,25, 2021, 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
October 4, 202111, 2022
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
See “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 20202021 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 the 12 weeks ended September 4, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During the 12 weeks ended September 4, 2021,3, 2022, we continued migrating certain of our financial processing systems to an enterprise-wide systems solution.Enterprise Resource Planning (ERP) system. 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.businesses in phases over the next several years. In connection with these ERP implementations, we are updating and will continue to update our internal control over financial reporting, as necessary, to accommodate modifications to our business processes and accounting procedures. During the 12 weeks ended September 3, 2022, we continued implementing these systems, resulting in changes that materially affected our internal control over financial reporting. These system implementations did not have an adverse effect, nor do we expect will have an adverse effect, on our internal control over financial reporting. In addition, in connection with our 2019 Productivity Plan,multi-year productivity plan, we continueto migrate to shared business service models across our operations to further simplify, harmonize and automate processes. In connection with these implementationsthis multi-year productivity plan 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 transitionsbusiness process changes have not materially affected, and we do not expect them to materially affect, our internal control over financial reporting.
Except with respect to the continued implementation of ERP systems, there have been no changes in our internal control over financial reporting during the 12 weeks ended September 3, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We will continue to assess the impact on our internal control over financial reporting as we continue to implement our ERP solution and our 2019 multi-year productivity plan.
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 20202021 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 1. Business – Regulatory Matters” and “Item 1A. Risk Factors” in our 20202021 Form 10-K.
ITEM 1A. Risk Factors.
There have been no material changesThe following additional risk factor should be read in conjunction with respect to the risk factors set forth under “Item 1A. Risk Factors” in our 2021 Form 10-K and our Form 10-Qs for the fiscal quarter ended March 19, 2022 (Q1 2022 Form 10-Q) and the fiscal quarter ended June 11, 2022 (Q2 2022 Form 10-Q). The developments described below have heightened, or in some cases manifested, certain of the risks disclosed in the risk factor section of our 20202021 Form 10-K.10-K, and such risk factors are further qualified by the information relating to our operations in Russia and Ukraine as described in this Form 10-Q and our Q1 2022 Form 10-Q and Q2 2022 Form 10-Q, including in the additional risk factor below.
You should carefully consider the risks described below and in our 2021 Form 10-K, Q1 2022 Form 10-Q and Q2 2022 Form 10-Q in addition to the other information set forth in this Form 10-Q, our Q2 2022 Form 10-Q, our Q1 2022 Form 10-Q and in our 2021 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 or financial performance, which in turn can affect the price of our publicly traded securities. The risks described below and in our 2021 Form 10-K, our Q1 2022 Form 10-Q and our Q2 2022 Form 10-Q are not the only risks we face. There may be other risks we are not currently aware of or that we currently deem not to be material but that may become material in the future. 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.
Risks associated with the deadly conflict in Ukraine
The deadly conflict in Ukraine has continued to result in worldwide geopolitical and macroeconomic uncertainty and the majority of our operations in Ukraine remain suspended. We have suspended sales to our customers of Pepsi-Cola and certain of our other global beverage brands, our discretionary capital investments and advertising and promotional activities in Russia. We plan to continue to offer our other products in Russia. The conflict has resulted and could continue to result in volatile commodity markets, supply chain disruptions, increased risk of cyber incidents or other disruptions to our information systems, reputational risk, heightened risks to employee safety, business disruptions (including labor shortages), significant volatility of the Russian ruble, limitations on access to credit markets, including working capital facilities, reduced availability and increased costs for transportation, energy, packaging and raw materials and other input costs, environmental, health and safety risks related to securing and maintaining facilities, additional sanctions, export controls and other legislation or regulations (including restrictions on the transfer of funds to and from Russia). The ongoing conflict could result in the temporary or permanent loss of assets or result in additional impairment charges. We cannot predict how and the extent
to which the conflict will continue to affect our employees, operations, customers or business partners or our ability to achieve certain of our sustainability goals. The conflict has adversely affected and could continue to adversely affect demand for our products and our global business.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.A summary of our common stock repurchases (in millions, except average price per share) during the 12 weeks ended September 3, 2022 is set forth in the table below.
Issuer Purchases of Common Stock
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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 |
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6/11/2022 | | | | | | | | $ | 9,269 | |
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6/12/2022 - 7/9/2022 | | 1.1 | | | $ | 164.06 | | | 1.1 | | | (187) | |
| | | | | | | | 9,082 | |
7/10/2022 - 8/6/2022 | | 0.6 | | | $ | 172.85 | | | 0.6 | | | (98) | |
| | | | | | | | 8,984 | |
8/7/2022 - 9/3/2022 | | 0.9 | | | $ | 176.30 | | | 0.9 | | | (163) | |
Total | | 2.6 | | | $ | 170.25 | | | 2.6 | | | $ | 8,821 | |
(a)All shares were repurchased in open market transactions pursuant to the $10 billion share repurchase program authorized by our Board of Directors and publicly announced on February 10, 2022, which commenced on February 11, 2022 and will expire on February 28, 2026. 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.
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See “Index to Exhibits” on page 5460. |
INDEX TO EXHIBITS
ITEM 6
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EXHIBIT | |
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Exhibit 101 | The following materials from PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 4, 20213, 2022 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 September 4, 2021,3, 2022, 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.
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| | PepsiCo, Inc. | |
| | (Registrant) | |
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Date: | October 4, 202111, 2022 | /s/ Marie T. Gallagher | |
| | Marie T. Gallagher | |
| | Senior Vice President and Controller | |
| | (Principal Accounting Officer) | |
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Date: | October 4, 202111, 2022 | /s/ David Flavell | |
| | David Flavell | |
| | Executive Vice President, General Counsel and Corporate Secretary | |
| | (Duly Authorized Officer) | |