filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FINANCIAL REVIEW
Our discussion and analysis is intended to help the reader understand our results of operations and financial condition and is provided as an addition to, and should be read in connection with, our condensed consolidated financial statements and the accompanying notes. Unless otherwise noted, tabular dollars are presented in millions, except per share amounts. All per share amounts reflect common stock per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts. Percentage changes are based on unrounded amounts.
Our Critical Accounting Policies
The critical accounting policies below should be read in conjunction with those outlined in our 2020 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 impact of COVID-19; future demand for PepsiCo’s products; damage to PepsiCo’s reputation or brand image; 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 supply chain, including cost inflation in raw materials, packaging and commodities; 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; failure to successfully complete or manage strategic transactions; PepsiCo’s reliance on third-party service providers; 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; 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 2020 Form 10-K and in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks” 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 continues to result in challenging operating environments and has affected almost all of the more than 200 countries and territories in which our products are made, manufactured, distributed or sold. 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 venture partners, suppliers and other third parties with whom we do business, which may continue to result in changes in demand for our products, increases in operating costs (whether as a result of changes to our supply chain or increases in employee costs, including expanded benefits and frontline incentives, costs associated with the provision of personal
protective equipment and increased sanitation, or otherwise), or adverse impacts to our supply chain through labor shortages, raw material shortages or reduced availability of air or other commercial transport, port closures or border restrictions, any of which can impact our ability to make, manufacture, distribute and sell our products. In addition, measures that impact our ability to access our offices, plants, warehouses, distribution centers or other facilities, or that impact the ability of our customers (including our foodservice customers), consumers, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third parties to do the same, may continue to impact the availability or productivity of our and their employees, many of whom are not able to perform their job functions remotely.
Public concern regarding the risk of contracting COVID-19 has impacted and may continue to impact demand from consumers, including due to consumers not leaving their homes or leaving their homes less often than they did prior to the start of the pandemic or otherwise shopping for and consuming food and beverage products in a different manner than they historically have or because some of our consumers have lower discretionary income due to unemployment or reduced or limited work as a result of measures taken in response to the pandemic. Even as governmental restrictions are relaxed and economies gradually, partially, or fully reopen in certain of these jurisdictions and markets, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels and shopping and consumption preferences. Changes in consumer purchasing and consumption patterns may increase demand for our products in one quarter, resulting in decreased demand for our products in subsequent quarters, or in a lower-margin sales channel resulting in potentially reduced profit from sales of our products. We continue to see shifts in product and channel preferences as markets move through varying stages of restrictions and re-opening at different times, including changes in at-home consumption, in immediate consumption and away-from-home channels, such as convenience and gas and foodservice. In addition, we continue to see an increase in demand in the e-commerce and online-to-offline channels and any failure to capitalize on this demand could adversely affect our ability to maintain and grow sales or category share and erode our competitive position.
Any reduced demand for our products or change in consumer purchasing and consumption patterns, as well as continued economic uncertainty (including supply chain disruptions and labor shortages), can adversely affect our customers’ and business partners’ financial condition, which can result in bankruptcy filings and/or an inability to pay for our products, reduced or canceled orders of our products, continued or additional closing of restaurants, stores, entertainment or sports complexes, schools or other venues in which our products are sold, or reduced capacity at any of the foregoing, or our business partners’ inability to supply us with ingredients or other items necessary for us to make, manufacture, distribute or sell our products. Such adverse changes in our customers’ or business partners’ financial condition have also resulted and may continue to result in our recording additional charges for our inability to recover or collect any accounts receivable, owned or leased assets, including certain foodservice and vending and other equipment, or prepaid expenses. In addition, continued economic uncertainty associated with the COVID-19 pandemic has resulted in volatility in the global capital and credit markets which can impair our ability to access these markets on terms commercially acceptable to us, or at all.
While we have developed and implemented and continue to develop and implement health and safety protocols, business continuity plans and crisis management protocols in an effort to mitigate the negative impact of COVID-19 to our employees and our business, the extent of the impact of the pandemic on our business and financial results will continue to depend on numerous evolving factors that we are not able to accurately predict and which will vary by jurisdiction and market, including the duration and scope of the pandemic, the emergence and spread of new variants of the virus, including the delta variant, the likelihood 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 weeks ended September 4, 2021, we experienced higher than anticipated transportation and commodity costs, which we expect to continue for the remainder of 2021. A number of external factors, including the COVID-19 pandemic, adverse weather conditions, supply chain disruptions (including raw material shortages) and labor shortages, have impacted and may continue to impact transportation and commodity costs. When prices increase, we may or may not pass on such increases to our customers without suffering reduced volume, revenue, margins and operating results.
See Note 9 to our condensed consolidated financial statements in this Form 10-Q and Note 9 to our consolidated financial statements in our 2020 Form 10-K for further information on how we manage our exposure to commodity prices.
Risks Associated with International Operations
In the 12 weeks ended September 4, 2021, substantially all of our financial results outside of North America reflect the months of June, July and August. In the 36 weeks ended September 4, 2021, substantially all of our financial results outside of North America reflect the months of January through August. In the 36 weeks ended September 4, 2021, our operations outside of the United States generated 43% of our consolidated net revenue, with Mexico, 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 the 12 weeks ended September 4, 2021, favorable foreign exchange contributed 2 percentage points to net revenue growth, primarily due to appreciation in the Mexican peso, South African rand and Canadian dollar. In 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. Currency declines against the U.S. dollar which are not offset could adversely impact our future financial results.
In addition, volatile economic, political and social conditions and civil unrest in certain markets in which our products are made, manufactured, distributed or sold, including in Argentina, Brazil, China, Mexico, the Middle East, Russia and Turkey, and natural disasters, debt and credit issues and currency controls or fluctuations in certain of these international markets, continue to, and the threat or imposition of new or increased tariffs or sanctions or other impositions in or related to these international markets may, result in challenging operating environments. We continue to monitor the economic, operating and political environment in these markets closely and to identify actions to potentially mitigate any unfavorable impacts on our future results. We also continue to monitor the economic and political developments related to the United Kingdom’s withdrawal from the European Union (Brexit), including the effects of the post-Brexit trade deal entered into between the United Kingdom 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.
See Note 9 to our condensed consolidated financial statements in this Form 10-Q for the fair values of our financial instruments as of September 4, 2021 and December 26, 2020 and Note 9 to our consolidated financial statements in our 2020 Form 10-K for a discussion of these items.
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 snacks in more than 200 countries and territories and the profile of the products we sell, the amount of revenue attributable to such products and the type of packaging used vary by jurisdiction. Because of this, we cannot predict the scope or form potential taxes, regulations or other limitations on our products or their packaging may take, and therefore cannot predict the impact of such taxes, regulations or limitations on our financial results. In addition, taxes, regulations and limitations may impact us and our competitors differently. We continue to monitor existing and proposed taxes and regulations in the jurisdictions in which our products are made, manufactured, distributed and sold and to consider actions we may take to potentially mitigate the unfavorable impact, if any, of such taxes, regulations or limitations, including advocating alternative measures with respect to the imposition, form and scope of any such taxes, regulations or limitations.
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 2020 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 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Financial Results – Volume” included in our 2020 Form 10-K for further information on volume.
We report substantially all of our international volume on a monthly calendar basis. The 12 weeks ended September 4, 2021 include volume outside of North America for the months of June, July and August. The 36 weeks ended September 4, 2021 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 | ||||||||||||||||||||||||||||||||||
| 9/4/2021 | 9/5/2020 | Change | 9/4/2021 | 9/5/2020 | Change | ||||||||||||||||||||||||||||||
| Net revenue | $ | 20,189 | $ | 18,091 | 12 | % | $ | 54,226 | $ | 47,917 | 13 | % | |||||||||||||||||||||||
| Operating profit | $ | 3,159 | $ | 3,011 | 5 | % | $ | 8,600 | $ | 7,254 | 19 | % | |||||||||||||||||||||||
| Operating margin | 15.6 | % | 16.6 | % | (1.0) | 15.9 | % | 15.1 | % | 0.8 |
See “Results of Operations – Division Review” for a tabular presentation and discussion of key drivers of net revenue.
12 Weeks
Operating profit grew 5% and operating margin declined 1 percentage point. Operating profit growth was primarily driven by the net revenue growth and productivity savings, partially offset by certain operating cost increases and a 14-percentage-point impact of higher commodity costs. The operating margin decline 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 result of the COVID-19 pandemic compared to 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, partially offset by certain operating cost increases, a 10-percentage-point impact of higher commodity costs 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.
Juice Transaction
During the 12 weeks ended September 4, 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, while retaining a 39% noncontrolling interest in a newly formed joint venture. 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. 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 12 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 report on a monthly calendar basis for which the months of June, July and August are reflected in our results for the 12 weeks ended September 4, 2021 and the months of January through August are reflected in our results for the 36 weeks ended September 4, 2021.
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 | |||||||||||||||||||||||||||||||||||||||||
| Impact of | Impact of | ||||||||||||||||||||||||||||||||||||||||
| Reported % Change, GAAP Measure | Foreign exchange translation | Acquisitions and divestitures | Organic % Change, Non-GAAP Measure**(a)** | Organic volume**(b)** | Effective net pricing | ||||||||||||||||||||||||||||||||||||
| FLNA | 6 | % | (0.5) | — | 5 | % | 1 | 4 | |||||||||||||||||||||||||||||||||
| QFNA | 2 | % | (1) | — | 1 | % | (4) | 4.5 | |||||||||||||||||||||||||||||||||
| PBNA | 7 | % | (0.5) | — | 7 | % | 3 | 4 | |||||||||||||||||||||||||||||||||
| LatAm | 27 | % | (8) | — | 19 | % | 6 | 13 | |||||||||||||||||||||||||||||||||
| Europe | 9 | % | — | — | 8 | % | 6 | 2.5 | |||||||||||||||||||||||||||||||||
| AMESA | 33 | % | (8) | (5) | 20 | % | 12 | 8 | |||||||||||||||||||||||||||||||||
| APAC | 27 | % | (7) | (5) | 15 | % | 12 | 3 | |||||||||||||||||||||||||||||||||
| Total | 12 | % | (2) | (1) | 9 | % | 4 | 5 |
| 36 Weeks Ended 9/4/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Impact of | Impact of | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reported % Change, GAAP Measure | Foreign exchange translation | Acquisitions and divestitures | Organic % Change, Non-GAAP Measure**(a)** | Organic volume**(b)** | Effective net pricing | ||||||||||||||||||||||||||||||||||||||||||||||||
| FLNA | 5.5 | % | (1) | — | 5 | % | 1 | 4 | |||||||||||||||||||||||||||||||||||||||||||||
| QFNA | (3.5) | % | (1) | — | (4) | % | (10) | 5 | |||||||||||||||||||||||||||||||||||||||||||||
| PBNA | 12 | % | (1) | (2) | 10 | % | 5 | 5 | |||||||||||||||||||||||||||||||||||||||||||||
| LatAm | 17 | % | (4) | — | 13 | % | 4 | 10 | |||||||||||||||||||||||||||||||||||||||||||||
| Europe | 10 | % | (1) | — | 9 | % | 6 | 2.5 | |||||||||||||||||||||||||||||||||||||||||||||
| AMESA | 45 | % | (7) | (24) | 14 | % | 8 | 5.5 | |||||||||||||||||||||||||||||||||||||||||||||
| APAC | 43 | % | (8) | (22) | 13 | % | 10 | 3 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | 13 | % | (2) | (3) | 8 | % | 4 | 5 |
(a)Amounts may not sum due to rounding.
(b)Excludes the impact of acquisitions 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. In certain instances, the impact of organic volume growth on net revenue growth differs from the unit volume growth disclosed in the following divisional discussions due to product mix, nonconsolidated joint venture volume, and, for our beverage businesses, temporary timing differences between bottler case sales and concentrate shipments and equivalents (CSE). Our net revenue excludes nonconsolidated joint venture volume, and, for our franchise-owned beverage businesses, is based on CSE.
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 |
(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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Impact of Items Affecting Comparability**(a)** | Impact of | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reported % Change, GAAP Measure | Mark-to-market net impact | Restructuring and impairment charges | Acquisition and divestiture-related charges | Core % Change, Non-GAAP Measure**(b)** | Foreign exchange translation | Core Constant Currency % Change, Non-GAAP Measure**(b)** | |||||||||||||||||||||||||||||||||||||||||||||||
| FLNA | — | % | — | — | — | — | % | — | — | % | |||||||||||||||||||||||||||||||||||||||||||
| QFNA | (27) | % | — | — | — | (27) | % | — | (27) | % | |||||||||||||||||||||||||||||||||||||||||||
| PBNA | 11 | % | — | (4) | (2.5) | 4 | % | (1) | 4 | % | |||||||||||||||||||||||||||||||||||||||||||
| LatAm | 57 | % | — | 3 | — | 60 | % | (13) | 47 | % | |||||||||||||||||||||||||||||||||||||||||||
| Europe | (8) | % | — | 2 | — | (7) | % | — | (7) | % | |||||||||||||||||||||||||||||||||||||||||||
| AMESA | 63 | % | — | 3 | (10) | 56 | % | (3.5) | 52 | % | |||||||||||||||||||||||||||||||||||||||||||
| APAC | 23 | % | — | — | (4) | 20 | % | (3) | 16 | % | |||||||||||||||||||||||||||||||||||||||||||
| Corporate unallocated expenses | 57 | % | (44) | 1 | 6 | 20 | % | — | 20 | % | |||||||||||||||||||||||||||||||||||||||||||
| Total | 5 | % | 3 | — | (1.5) | 6 | % | (2) | 5 | % |
| 36 Weeks Ended 9/4/2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Impact of Items Affecting Comparability**(a)** | Impact of | ||||||||||||||||||||||||||||||||||||||||||||||
| Reported % Change, GAAP Measure | Mark-to-market net impact | Restructuring and impairment charges | Acquisition and divestiture-related charges | Core % Change, Non-GAAP Measure**(b)** | Foreign exchange translation | Core Constant Currency % Change, Non-GAAP Measure**(b)** | |||||||||||||||||||||||||||||||||||||||||
| FLNA | 4 | % | — | — | (1) | 3 | % | (0.5) | 3 | % | |||||||||||||||||||||||||||||||||||||
| QFNA | (22) | % | — | — | — | (22) | % | — | (22) | % | |||||||||||||||||||||||||||||||||||||
| PBNA | 40 | % | — | (2) | (6) | 32 | % | (1) | 31 | % | |||||||||||||||||||||||||||||||||||||
| LatAm | 38 | % | — | — | — | 39 | % | (7) | 32 | % | |||||||||||||||||||||||||||||||||||||
| Europe | — | % | — | 2 | — | 2 | % | (2) | — | % | |||||||||||||||||||||||||||||||||||||
| AMESA | 83 | % | — | — | (55) | 28 | % | (2) | 26 | % | |||||||||||||||||||||||||||||||||||||
| APAC | 22 | % | — | (1) | (1) | 20 | % | (5) | 16 | % | |||||||||||||||||||||||||||||||||||||
| Corporate unallocated expenses | (6) | % | 9 | — | 3 | 7 | % | — | 7 | % | |||||||||||||||||||||||||||||||||||||
| Total | 19 | % | (1) | — | (4) | 13 | % | (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%, primarily driven by effective net pricing and organic volume growth. Unit volume grew 1%, primarily reflecting double-digit growth in variety packs and high-single-digit growth in trademark Ruffles, partially offset by a low-single-digit decline in trademark Lay’s and a mid-single-digit decline in trademark Tostitos.
Operating profit increased slightly, primarily reflecting the net revenue growth, 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. These impacts were largely offset by certain operating cost increases, including strategic initiatives and incremental transportation costs, and a 5-percentage-point impact of higher commodity costs, primarily packaging material and cooking oil.
36 Weeks
Net revenue grew 5.5%, primarily driven by effective net pricing and organic volume growth. Unit volume grew 1%, primarily reflecting the impact of our BFY Brands acquisition in the first quarter of 2020 and double-digit growth in variety packs, partially offset by a mid-single-digit decline in trademark Tostitos and a low-single-digit decline in trademark Lay’s.
Operating profit increased 4%, primarily reflecting the net revenue growth, productivity savings and a 4- percentage-point impact of lower charges taken as a result of the COVID-19 pandemic. These impacts were partially offset by certain operating cost increases, including strategic initiatives and incremental transportation costs, and a 3-percentage-point impact of higher commodity costs, primarily packaging material 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 reflecting 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.
The impact of the COVID-19 pandemic contributed to a current-year decrease in consumer demand, which had a negative impact on net revenue, unit volume and operating profit performance compared to the significant COVID-19-related surge in demand in the prior year.
36 Weeks
Net revenue declined 3.5% and unit volume declined 10%. The net revenue decline primarily reflects a decrease in organic volume, 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 profit declined 22%, primarily reflecting certain operating cost increases, including incremental transportation costs, the net revenue performance and a 5-percentage-point impact of higher commodity costs, partially offset by productivity savings.
The impact of the COVID-19 pandemic contributed to a current-year decrease in consumer demand, which had a negative impact on net revenue, unit volume and operating profit performance compared to the significant COVID-19-related surge in 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 by certain operating cost increases, including incremental transportation costs, and a 13-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, favorable settlements of promotional spending accruals compared to the prior year, acquisitions, and the prior-year impairment charges associated with a coconut water brand each contributed 3 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.
LatAm
12 Weeks
Net revenue increased 27%, reflecting effective net pricing, an 8-percentage-point impact of favorable foreign exchange and organic volume growth.
Snacks unit volume grew 5%, primarily reflecting mid-single-digit growth in Mexico and Brazil.
Beverage unit volume grew 9%, primarily reflecting double-digit-growth in Chile, Honduras and Argentina and high-single-digit growth in Guatemala. Additionally, Mexico experienced mid-single-digit growth and Brazil 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-point impact of higher commodity costs and higher advertising and marketing expenses. Additionally, lower charges taken as a result of the COVID-19 pandemic and our Pioneer Foods acquisition each contributed 3 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.
APAC
12 Weeks
Net revenue increased 27%, primarily reflecting organic volume growth, a 7-percentage-point impact of favorable foreign exchange and effective net pricing. Our Be & Cheery acquisition contributed 5 percentage points to net revenue growth.
Snacks unit volume grew 9%, primarily reflecting double-digit growth in China and Thailand. Additionally, Australia experienced 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.
Beverage unit volume grew 9%, primarily reflecting double-digit growth in China, partially offset by a double-digit decline in Vietnam and a slight decline in Thailand. Additionally, the Philippines experienced low-single-digit growth.
Operating profit increased 23%, primarily reflecting the net revenue growth and productivity savings, partially offset by 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. Additionally, impairment charges associated with
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 | |||||||||||||||||||||||||||||||||||||
| 9/4/2021 | 9/5/2020 | Change | 9/4/2021 | 9/5/2020 | Change | |||||||||||||||||||||||||||||||||
| Other pension and retiree medical benefits income | $ | 118 | $ | 86 | $ | 32 | $ | 364 | $ | 247 | $ | 117 | ||||||||||||||||||||||||||
| Net interest expense and other | $ | (232) | $ | (264) | $ | 32 | $ | (731) | $ | (789) | $ | 58 | ||||||||||||||||||||||||||
| Tax rate | 26.3 | % | 18.6 | % | 23.0 | % | 20.8 | % | ||||||||||||||||||||||||||||||
| Net income attributable to PepsiCo (a) | $ | 2,224 | $ | 2,291 | (3) | % | $ | 6,296 | $ | 5,275 | 19 | % | ||||||||||||||||||||||||||
| Net income attributable to PepsiCo per common share – diluted (a) | $ | 1.60 | $ | 1.65 | (3) | % | $ | 4.54 | $ | 3.79 | 20 | % | ||||||||||||||||||||||||||
(a)For the 12 and 36 weeks ended September 4, 2021, lower charges taken as a result of the COVID-19 pandemic contributed 4 percentage points and 8 percentage points, respectively, to both net income attributable to PepsiCo performance and net income attributable to PepsiCo per common share performance.
12 Weeks
Other pension and retiree medical benefits income increased $32 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 $32 million, primarily due to lower average debt balances, lower rates on average debt balances and higher rates on average cash balances. These impacts were partially offset by lower gains on the market value of investments used to economically hedge a portion of our deferred compensation liability, as well as lower average cash balances.
The reported tax rate increased 7.7 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 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.
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; costs associated with mergers, acquisitions, divestitures and other structural changes; pension and retiree medical related items; charges or adjustments related to the enactment of new laws, rules or regulations, such as significant tax law changes; amounts related to the resolution of tax positions; tax benefits related to reorganizations of our operations; debt redemptions, cash tender or exchange offers; asset impairments (non-cash); and remeasurements of net monetary assets. See below and “Items Affecting Comparability” for a description of adjustments to our U.S. GAAP financial measures in this Form 10-Q.
Non-GAAP information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with U.S. GAAP. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies.
The following non-GAAP financial measures contained in this Form 10-Q are discussed below:
Cost of sales, gross profit, selling, general and administrative expenses, other pension and retiree medical benefits income, provision for income taxes 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, costs associated with our acquisitions and divestitures and 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.
Organic revenue growth
We define organic revenue growth as a measure that adjusts for the impacts of foreign exchange translation, acquisitions and divestitures, and where applicable, the impact of the 53rd reporting week. Adjusting for acquisitions and divestitures reflects all mergers and acquisitions activity, 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. 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 | |||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 9,394 | $ | 10,795 | $ | 7,636 | $ | 3,159 | $ | 118 | $ | 802 | $ | 2,224 | |||||||||||||||||||||||||||||||||
| Items Affecting Comparability | |||||||||||||||||||||||||||||||||||||||||||||||
| Mark-to-market net impact | (15) | 15 | (19) | 34 | — | 8 | 26 | ||||||||||||||||||||||||||||||||||||||||
| Restructuring and impairment charges | (9) | 9 | (42) | 51 | 1 | 7 | 45 | ||||||||||||||||||||||||||||||||||||||||
| Acquisition and divestiture-related charges | — | — | 3 | (3) | — | (1) | (2) | ||||||||||||||||||||||||||||||||||||||||
| Tax expense related to the TCJ Act | — | — | — | — | — | (190) | 190 | ||||||||||||||||||||||||||||||||||||||||
| Core, Non-GAAP Measure | $ | 9,370 | $ | 10,819 | $ | 7,578 | $ | 3,241 | $ | 119 | $ | 626 | $ | 2,483 |
| 12 Weeks Ended 9/5/2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | Gross profit | Selling, general and administrative expenses | Operating profit | Other pension and retiree medical benefits income | Provision for income taxes(a) | Net income attributable to PepsiCo | |||||||||||||||||||||||||||||||||||||||||
| Reported, GAAP Measure | $ | 8,156 | $ | 9,935 | $ | 6,924 | $ | 3,011 | $ | 86 | $ | 526 | $ | 2,291 | |||||||||||||||||||||||||||||||||
| Items Affecting Comparability | |||||||||||||||||||||||||||||||||||||||||||||||
| Mark-to-market net impact | 38 | (38) | 33 | (71) | — | (16) | (55) | ||||||||||||||||||||||||||||||||||||||||
| Restructuring and impairment charges | (1) | 1 | (59) | 60 | 1 | 13 | 48 | ||||||||||||||||||||||||||||||||||||||||
| Acquisition and divestiture-related charges | (11) | 11 | (32) | 43 | — | 16 | 27 | ||||||||||||||||||||||||||||||||||||||||
| Core, Non-GAAP Measure | $ | 8,182 | $ | 9,909 | $ | 6,866 | $ | 3,043 | $ | 87 | $ | 539 | $ | 2,311 |
| 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 | |||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 21,371 | $ | 26,546 | $ | 19,292 | $ | 7,254 | $ | 247 | $ | 1,396 | $ | 5,275 | |||||||||||||||||||||||||||||||||
| Items Affecting Comparability | |||||||||||||||||||||||||||||||||||||||||||||||
| Mark-to-market net impact | 14 | (14) | (40) | 26 | — | 8 | 18 | ||||||||||||||||||||||||||||||||||||||||
| Restructuring and impairment charges | (4) | 4 | (112) | 116 | 8 | 23 | 101 | ||||||||||||||||||||||||||||||||||||||||
| Acquisition and divestiture-related charges | (30) | 30 | (256) | 286 | — | 32 | 254 | ||||||||||||||||||||||||||||||||||||||||
| Core, Non-GAAP Measure | $ | 21,351 | $ | 26,566 | $ | 18,884 | $ | 7,682 | $ | 255 | $ | 1,459 | $ | 5,648 |
(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 | |||||||||||||||||||||||||||||||||||||
| 9/4/2021 | 9/5/2020 | Change | 9/4/2021 | 9/5/2020 | Change | |||||||||||||||||||||||||||||||||
| Net income attributable to PepsiCo per common share – diluted, GAAP measure | $ | 1.60 | $ | 1.65 | (3) | % | $ | 4.54 | $ | 3.79 | 20 | % | ||||||||||||||||||||||||||
| Mark-to-market net impact | 0.02 | (0.04) | (0.03) | 0.01 | ||||||||||||||||||||||||||||||||||
| Restructuring and impairment charges | 0.03 | 0.03 | 0.08 | 0.07 | ||||||||||||||||||||||||||||||||||
| Acquisition and divestiture-related charges | — | 0.02 | 0.01 | 0.18 | ||||||||||||||||||||||||||||||||||
| Tax expense related to the TCJ Act | 0.14 | — | 0.14 | — | ||||||||||||||||||||||||||||||||||
| Core net income attributable to PepsiCo per common share – diluted, non-GAAP measure | $ | 1.79 | $ | 1.66 | 8 | % | $ | 4.73 | (a) | $ | 4.05 | 17 | % | |||||||||||||||||||||||||
| Impact of foreign exchange translation | (2) | (2) | ||||||||||||||||||||||||||||||||||||
| Growth in core net income attributable to PepsiCo per common share – diluted, on a constant currency basis, non-GAAP measure | 5.5 | % | (a) | 15 | % |
(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, we expanded and extended the program through the end of 2026 to take advantage of additional opportunities within the initiatives of the 2019 Productivity Plan. We now expect to incur pre-tax charges of approximately $3.15 billion, including cash expenditures of approximately $2.4 billion, as compared to our previous estimate of pre-tax charges of approximately $2.5 billion, which included cash expenditures of approximately $1.6 billion. Plan to date through September 4, 2021, we have incurred pre-tax charges of $926 million, including cash expenditures of $685 million. For the remainder of 2021, we expect to incur pre-tax charges and cash expenditures of approximately $150 million. These charges will be funded primarily through cash from operations. We expect to incur the majority of the remaining pre-tax charges and cash expenditures in our 2022 and 2023 financial results, with the balance to be incurred through 2026.
See Note 3 to our condensed consolidated financial statements in this Form 10-Q, as well as Note 3 to our consolidated financial statements in our 2020 Form 10-K, for further information related to our 2019 Productivity Plan.
We regularly evaluate productivity initiatives beyond the productivity plan and other initiatives discussed above and in Note 3 to our condensed consolidated financial statements.
Acquisition and Divestiture-Related Charges
Acquisition and divestiture-related charges primarily include fair value adjustments to the acquired inventory included in the acquisition-date balance sheets, merger and integration charges and costs associated with divestitures. Merger and integration charges include liabilities to support socioeconomic programs in South Africa, closing costs, employee-related costs, changes in the fair value of contingent consideration, contract termination costs and other integration costs.
See Note 12 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 5 to our condensed consolidated financial statements for further information.
Our Liquidity and Capital Resources
We believe that our cash generating capability and financial condition, together with our revolving credit facilities, working capital lines and other available methods of debt financing, such as commercial paper borrowings and long-term debt financing, will be adequate to meet our operating, investing and financing needs, 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, include cash from operations, proceeds obtained from issuances of commercial paper and long-term debt, cash and cash equivalents, and expected pre-tax cash proceeds of approximately $3.3 billion from the Juice Transaction, which is expected to close in late 2021 or early 2022. We expect to use the proceeds from the Juice Transaction primarily to strengthen our balance sheet and to make organic investments in the business. See “Our Business Risks” and Note 8 and Note 12 to our condensed consolidated financial statements included in this Form 10-Q and “Item 1A. Risk Factors,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks” and Note 8 to our consolidated financial statements included in our 2020 Form 10-K for further information.
Our sources and uses of cash were not materially adversely impacted by COVID-19 in the 36 weeks ended September 4, 2021 and, to date, we have not identified any material liquidity deficiencies as a result of the COVID-19 pandemic. Based on the information currently available to us, we do not expect the impact of the COVID-19 pandemic to have a material impact on our liquidity. We will continue to monitor and assess the impact the COVID-19 pandemic may have on our business and financial results. See “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 2020 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, cash, cash equivalents and short-term investments in our consolidated subsidiaries subject to currency controls or currency exchange restrictions were not material.
The TCJ Act imposed a mandatory transition tax on undistributed international earnings. As of September 4, 2021, our mandatory transition tax liability was $2.9 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 2020 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 consolidated balance sheet. We have been informed by the participating financial institutions that as of September 4, 2021 and December 26, 2020, $1.1 billion and $1.2 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, net cash provided by operating activities was $6.6 billion, compared to net cash provided by operating activities of $6.1 billion in the prior-year period. The increase in operating cash flow primarily reflects favorable operating profit performance, partially offset by higher tax payments related to the TCJ Act and higher pre-tax pension and retiree medical plan contributions in the current year.
Investing Activities
During the 36 weeks ended September 4, 2021, net cash used for investing activities was $1.0 billion, primarily reflecting net capital spending of $2.2 billion, partially offset by maturities of short-term investments with maturities of greater than three months of $1.1 billion.
We regularly review our plans with respect to net capital spending, including in light of the ongoing uncertainty caused by the COVID-19 pandemic on our business, and believe that we have sufficient liquidity to meet our net capital spending needs.
Financing Activities
During the 36 weeks ended September 4, 2021, net cash used for financing activities was $7.2 billion, primarily reflecting the return of operating cash flow to our shareholders primarily through dividend payments of $4.3 billion, payments of long-term debt borrowings of $2.5 billion and payments of short-term borrowings of $0.4 billion.
We annually review our capital structure with our Board of Directors, including our dividend policy and share repurchase activity. On February 13, 2018, we announced the 2018 share repurchase program providing for the repurchase of up to $15.0 billion of PepsiCo common stock which commenced on July 1, 2018 and expired on June 30, 2021. In addition, on February 11, 2021, we announced a 5% increase in our annualized dividend to $4.30 per share from $4.09 per share, effective with the dividend paid in June 2021. We expect to return a total of approximately $5.9 billion to shareholders in 2021, comprised of dividends of approximately $5.8 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.
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 | |||||||||||||||||
| 9/4/2021 | 9/5/2020 | ||||||||||||||||
| Net cash provided by operating activities, GAAP measure | $ | 6,634 | $ | 6,123 | |||||||||||||
| Capital spending | (2,276) | (2,074) | |||||||||||||||
| Sales of property, plant and equipment | 40 | 26 | |||||||||||||||
| Free cash flow, non-GAAP measure | $ | 4,398 | $ | 4,075 | |||||||||||||
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 2020 Form 10-K, for certain factors that may impact our credit ratings or our operating cash flows.
Any downgrade of our credit ratings by a credit rating agency, especially any downgrade to below investment grade, whether or not as a result of our actions or factors which are beyond our control, could increase our future borrowing costs and impair our ability to access capital and credit markets on terms commercially acceptable to us, or at all. In addition, any downgrade of our current short-term credit ratings could impair our ability to access the commercial paper market with the same flexibility that we have experienced historically, and therefore require us to rely more heavily on more expensive types of debt financing. See Note 8 to our condensed consolidated financial statements 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 2020 Form 10-K for further information.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
PepsiCo, Inc.:
Results of Review of Interim Financial Information
We have reviewed the Condensed Consolidated Balance Sheet of PepsiCo, Inc. and subsidiaries (the Company) as of September 4, 2021, the related Condensed Consolidated Statements of Income, Comprehensive Income and Equity for the twelve and thirty-six weeks ended September 4, 2021 and September 5, 2020, the related Condensed Consolidated Statement of Cash Flows for the thirty-six weeks ended September 4, 2021 and September 5, 2020, 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, 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, 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, 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, 2021
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