filings.toolsItem 1. Condensed Consolidated Financial Statements.
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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 | ||||||||||||||||||||||
| 9/3/2022 | 9/4/2021 | 9/3/2022 | 9/4/2021 | ||||||||||||||||||||
| Net Revenue | $ | 21,971 | $ | 20,189 | $ | 58,396 | $ | 54,226 | |||||||||||||||
| Cost of sales | 10,308 | 9,394 | 27,156 | 24,945 | |||||||||||||||||||
| Gross profit | 11,663 | 10,795 | 31,240 | 29,281 | |||||||||||||||||||
| Selling, general and administrative expenses | 8,295 | 7,636 | 22,262 | 20,681 | |||||||||||||||||||
| Gain associated with the Juice Transaction (a) | 14 | — | (3,321) | — | |||||||||||||||||||
| Impairment of intangible assets (see Notes 1 and 3) | 1 | — | 1,602 | — | |||||||||||||||||||
| Operating Profit | 3,353 | 3,159 | 10,697 | 8,600 | |||||||||||||||||||
| Other pension and retiree medical benefits income | 36 | 118 | 168 | 364 | |||||||||||||||||||
| Net interest expense and other | (190) | (232) | (666) | (731) | |||||||||||||||||||
| Income before income taxes | 3,199 | 3,045 | 10,199 | 8,233 | |||||||||||||||||||
| Provision for income taxes | 475 | 802 | 1,756 | 1,895 | |||||||||||||||||||
| Net income | 2,724 | 2,243 | 8,443 | 6,338 | |||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 22 | 19 | 51 | 42 | |||||||||||||||||||
| Net Income Attributable to PepsiCo | $ | 2,702 | $ | 2,224 | $ | 8,392 | $ | 6,296 | |||||||||||||||
| Net Income Attributable to PepsiCo per Common Share | |||||||||||||||||||||||
| Basic | $ | 1.96 | $ | 1.61 | $ | 6.07 | $ | 4.56 | |||||||||||||||
| Diluted | $ | 1.95 | $ | 1.60 | $ | 6.04 | $ | 4.54 | |||||||||||||||
| Weighted-average common shares outstanding | |||||||||||||||||||||||
| Basic | 1,380 | 1,382 | 1,382 | 1,381 | |||||||||||||||||||
| 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 | ||||||||||||||||||||||
| 9/3/2022 | 9/4/2021 | 9/3/2022 | 9/4/2021 | ||||||||||||||||||||
| Net income | $ | 2,724 | $ | 2,243 | $ | 8,443 | $ | 6,338 | |||||||||||||||
| Other comprehensive (loss)/income, net of taxes: | |||||||||||||||||||||||
| Net currency translation adjustment | (324) | (335) | 390 | 64 | |||||||||||||||||||
| Net change on cash flow hedges | (113) | (21) | (109) | 144 | |||||||||||||||||||
| Net pension and retiree medical adjustments | 108 | 90 | (129) | 141 | |||||||||||||||||||
| Other | 2 | — | 3 | 2 | |||||||||||||||||||
| (327) | (266) | 155 | 351 | ||||||||||||||||||||
| Comprehensive income | 2,397 | 1,977 | 8,598 | 6,689 | |||||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 22 | 19 | 51 | 42 | |||||||||||||||||||
| 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 | |||||||||||
| 9/3/2022 | 9/4/2021 | ||||||||||
| Operating Activities | |||||||||||
| Net income | $ | 8,443 | $ | 6,338 | |||||||
| Depreciation and amortization | 1,854 | 1,863 | |||||||||
| Gain associated with the Juice Transaction | (3,321) | — | |||||||||
| Brand portfolio impairment charges | 475 | — | |||||||||
| Russia-Ukraine conflict charges | 1,402 | — | |||||||||
| Operating lease right-of-use asset amortization | 346 | 340 | |||||||||
| Share-based compensation expense | 233 | 215 | |||||||||
| Restructuring and impairment charges | 126 | 129 | |||||||||
| Cash payments for restructuring charges | (134) | (165) | |||||||||
| Acquisition and divestiture-related charges | 69 | 12 | |||||||||
| Cash payments for acquisition and divestiture-related charges | (41) | (25) | |||||||||
| Pension and retiree medical plan expenses | 235 | 81 | |||||||||
| Pension and retiree medical plan contributions | (335) | (715) | |||||||||
| Deferred income taxes and other tax charges and credits | (322) | 261 | |||||||||
| Tax expense related to the Tax Cuts and Jobs Act (TCJ Act) | 86 | 190 | |||||||||
| Tax payments related to the TCJ Act | (309) | (309) | |||||||||
| Change in assets and liabilities: | |||||||||||
| Accounts and notes receivable | (2,258) | (1,416) | |||||||||
| Inventories | (837) | (579) | |||||||||
| Prepaid expenses and other current assets | (124) | (46) | |||||||||
| Accounts payable and other current liabilities | 426 | 99 | |||||||||
| Income taxes payable | 718 | 645 | |||||||||
| Other, net | (426) | (284) | |||||||||
| Net Cash Provided by Operating Activities | 6,306 | 6,634 | |||||||||
| Investing Activities | |||||||||||
| Capital spending | (2,556) | (2,276) | |||||||||
| Sales of property, plant and equipment | 228 | 40 | |||||||||
| Acquisitions, net of cash acquired, investments in noncontrolled affiliates and purchases of intangible and other assets | (804) | (28) | |||||||||
| Proceeds associated with the Juice Transaction | 3,456 | — | |||||||||
| Other divestitures, sales of investments in noncontrolled affiliates and other assets | 15 | 158 | |||||||||
| Short-term investments, by original maturity: | |||||||||||
| More than three months - purchases | (46) | — | |||||||||
| More than three months - maturities | — | 1,135 | |||||||||
| Three months or less, net | 9 | (65) | |||||||||
| Other investing, net | 7 | 6 | |||||||||
| 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 | |||||||||||
| 9/3/2022 | 9/4/2021 | ||||||||||
| Financing Activities | |||||||||||
| Proceeds from issuances of long-term debt | 3,377 | — | |||||||||
| Payments of long-term debt | (1,653) | (2,454) | |||||||||
| Debt redemptions | (1,550) | — | |||||||||
| Short-term borrowings, by original maturity: | |||||||||||
| More than three months - proceeds | 1,947 | — | |||||||||
| More than three months - payments | (1,932) | (397) | |||||||||
| Three months or less, net | (45) | 19 | |||||||||
| Cash dividends paid | (4,586) | (4,328) | |||||||||
| Share repurchases - common | (1,156) | (106) | |||||||||
| Proceeds from exercises of stock options | 113 | 146 | |||||||||
| Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted | (97) | (82) | |||||||||
| Other financing | (25) | (19) | |||||||||
| Net Cash Used for Financing Activities | (5,607) | (7,221) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | (197) | (30) | |||||||||
| Net Increase/(Decrease) in Cash and Cash Equivalents and Restricted Cash | 811 | (1,647) | |||||||||
| Cash and Cash Equivalents and Restricted Cash, Beginning of Year | 5,707 | 8,254 | |||||||||
| Cash and Cash Equivalents and Restricted Cash, End of Period | $ | 6,518 | $ | 6,607 | |||||||
| Supplemental Non-Cash Activity | |||||||||||
| 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) | |||||||||||
| 9/3/2022 | 12/25/2021 | ||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 6,415 | $ | 5,596 | |||||||
| Short-term investments | 327 | 392 | |||||||||
| Accounts and notes receivable, less allowance: 9/22 - $165 and 12/21 - $147 | 10,739 | 8,680 | |||||||||
| Inventories: | |||||||||||
| Raw materials and packaging | 2,303 | 1,898 | |||||||||
| Work-in-process | 150 | 151 | |||||||||
| Finished goods | 2,566 | 2,298 | |||||||||
| 5,019 | 4,347 | ||||||||||
| Prepaid expenses and other current assets | 1,043 | 980 | |||||||||
| Assets held for sale | — | 1,788 | |||||||||
| Total Current Assets | 23,543 | 21,783 | |||||||||
| Property, plant and equipment | 48,100 | 46,828 | |||||||||
| Accumulated depreciation | (25,300) | (24,421) | |||||||||
| Property, Plant and Equipment, net | 22,800 | 22,407 | |||||||||
| Amortizable Intangible Assets, net | 1,314 | 1,538 | |||||||||
| Goodwill | 18,388 | 18,381 | |||||||||
| Other Indefinite-Lived Intangible Assets | 15,838 | 17,127 | |||||||||
| Investments in Noncontrolled Affiliates | 3,224 | 2,350 | |||||||||
| Deferred Income Taxes | 4,324 | 4,310 | |||||||||
| Other Assets | 5,030 | 4,481 | |||||||||
| Total Assets | $ | 94,461 | $ | 92,377 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Short-term debt obligations | $ | 3,109 | $ | 4,308 | |||||||
| Accounts payable and other current liabilities | 22,544 | 21,159 | |||||||||
| Liabilities held for sale | — | 753 | |||||||||
| Total Current Liabilities | 25,653 | 26,220 | |||||||||
| Long-Term Debt Obligations | 36,136 | 36,026 | |||||||||
| Deferred Income Taxes | 4,724 | 4,826 | |||||||||
| Other Liabilities | 8,813 | 9,154 | |||||||||
| Total Liabilities | 75,326 | 76,226 | |||||||||
| Commitments and contingencies | |||||||||||
| PepsiCo Common Shareholders’ Equity | |||||||||||
| Common stock, par value 12/3¢ per share (authorized 3,600 shares; issued, net of repurchased common stock at par value: 1,379 and 1,383 shares, respectively) | 23 | 23 | |||||||||
| Capital in excess of par value | 4,036 | 4,001 | |||||||||
| Retained earnings | 68,872 | 65,165 | |||||||||
| Accumulated other comprehensive loss | (14,743) | (14,898) | |||||||||
| Repurchased common stock, in excess of par value (488 and 484 shares, respectively) | (39,211) | (38,248) | |||||||||
| Total PepsiCo Common Shareholders’ Equity | 18,977 | 16,043 | |||||||||
| Noncontrolling interests | 158 | 108 | |||||||||
| Total Equity | 19,135 | 16,151 | |||||||||
| 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 | ||||||||||||||||||||||||||||||||||||||||||||||
| 9/3/2022 | 9/4/2021 | 9/3/2022 | 9/4/2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | 1,381 | $ | 23 | 1,382 | $ | 23 | 1,383 | $ | 23 | 1,380 | $ | 23 | |||||||||||||||||||||||||||||||||||
| Change in repurchased common stock | (2) | — | 1 | — | (4) | — | 3 | — | |||||||||||||||||||||||||||||||||||||||
| Balance, end of period | 1,379 | 23 | 1,383 | 23 | 1,379 | 23 | 1,383 | 23 | |||||||||||||||||||||||||||||||||||||||
| Capital in Excess of Par Value | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | 3,970 | 3,863 | 4,001 | 3,910 | |||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 77 | 70 | 236 | 215 | |||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises, RSUs and PSUs converted | 1 | — | (102) | (119) | |||||||||||||||||||||||||||||||||||||||||||
| Withholding tax on RSUs and PSUs converted | (10) | (9) | (97) | (82) | |||||||||||||||||||||||||||||||||||||||||||
| Other | (2) | — | (2) | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance, end of period | 4,036 | 3,924 | 4,036 | 3,924 | |||||||||||||||||||||||||||||||||||||||||||
| Retained Earnings | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | 67,763 | 64,605 | 65,165 | 63,443 | |||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to PepsiCo | 2,702 | 2,224 | 8,392 | 6,296 | |||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared – common (a) | (1,593) | (1,493) | (4,685) | (4,403) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, end of period | 68,872 | 65,336 | 68,872 | 65,336 | |||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | (14,416) | (14,859) | (14,898) | (15,476) | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss)/income attributable to PepsiCo | (327) | (266) | 155 | 351 | |||||||||||||||||||||||||||||||||||||||||||
| Balance, end of period | (14,743) | (15,125) | (14,743) | (15,125) | |||||||||||||||||||||||||||||||||||||||||||
| Repurchased Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | (486) | (38,787) | (485) | (38,333) | (484) | (38,248) | (487) | (38,446) | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | (3) | (448) | — | — | (7) | (1,179) | (1) | (106) | |||||||||||||||||||||||||||||||||||||||
| Stock option exercises, RSUs and PSUs converted | 1 | 23 | 1 | 46 | 3 | 215 | 4 | 265 | |||||||||||||||||||||||||||||||||||||||
| Other | — | 1 | — | 1 | — | 1 | — | 1 | |||||||||||||||||||||||||||||||||||||||
| Balance, end of period | (488) | (39,211) | (484) | (38,286) | (488) | (39,211) | (484) | (38,286) | |||||||||||||||||||||||||||||||||||||||
| Total PepsiCo Common Shareholders’ Equity | 18,977 | 15,872 | 18,977 | 15,872 | |||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | 121 | 99 | 108 | 98 | |||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 22 | 19 | 51 | 42 | |||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (6) | — | (20) | (20) | |||||||||||||||||||||||||||||||||||||||||||
| Acquisitions | 21 | — | 21 | — | |||||||||||||||||||||||||||||||||||||||||||
| Other, net | — | — | (2) | (2) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, end of period | 158 | 118 | 158 | 118 | |||||||||||||||||||||||||||||||||||||||||||
| Total Equity | $ | 19,135 | $ | 15,990 | $ | 19,135 | $ | 15,990 |
(a)Cash dividends declared per common share were $1.15 and $1.075 for the 12 weeks ended September 3, 2022 and September 4, 2021, respectively and $3.375 and $3.1725 for the 36 weeks ended September 3, 2022 and September 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 25, 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 25, 2021 (2021 Form 10-K). This report should be read in conjunction with our 2021 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 3, 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 reported on a monthly calendar basis prior 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 3, 2022, and the months of January through August are reflected in our results for the 36 weeks ended September 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. Additionally, 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 seven reportable segments (also referred to as divisions), as follows:
1)Frito-Lay North America (FLNA), which includes our branded convenient food businesses in the United States and Canada;
2)Quaker Foods North America (QFNA), which includes our branded convenient food businesses, such as cereal, rice, pasta and other branded food, in the United States and Canada;
3)PepsiCo Beverages North America (PBNA), which includes our beverage businesses in the United States and Canada;
4)Latin America (LatAm), which includes all of our beverage and convenient food businesses in Latin America;
5)Europe, which includes all of our beverage and convenient food businesses in Europe;
6)Africa, Middle East and South Asia (AMESA), which includes all of our beverage and convenient food businesses in Africa, the Middle East and South Asia; and
7)Asia Pacific, Australia and New Zealand and China region (APAC), which includes all of our beverage and convenient food businesses in Asia Pacific, Australia and New Zealand, and China region.
Net revenue of each division is as follows:
| 12 Weeks Ended | 36 Weeks Ended | ||||||||||||||||||||||
| 9/3/2022 | 9/4/2021 | 9/3/2022 | 9/4/2021 | ||||||||||||||||||||
| FLNA | $ | 5,563 | $ | 4,653 | $ | 15,583 | $ | 13,441 | |||||||||||||||
| QFNA | 713 | 618 | 2,101 | 1,839 | |||||||||||||||||||
| PBNA | 6,635 | 6,402 | 18,108 | 17,632 | |||||||||||||||||||
| LatAm | 2,517 | 2,100 | 6,406 | 5,309 | |||||||||||||||||||
| Europe | 3,646 | 3,612 | 8,466 | 8,693 | |||||||||||||||||||
| AMESA | 1,726 | 1,665 | 4,426 | 4,150 | |||||||||||||||||||
| APAC | 1,171 | 1,139 | 3,306 | 3,162 | |||||||||||||||||||
| Total | $ | 21,971 | $ | 20,189 | $ | 58,396 | $ | 54,226 |
Our primary performance obligation is the distribution and sales of beverage and convenient food products to our customers. The following tables reflect the approximate percentage of net revenue generated between our beverage business and our convenient food business for each of our international divisions, as well as our consolidated net revenue:
| 12 Weeks Ended | |||||||||||||||||||||||
| 9/3/2022 | 9/4/2021 | ||||||||||||||||||||||
| Beverages**(a)** | Convenient Foods | Beverages(a) | Convenient Foods | ||||||||||||||||||||
| LatAm | 10 | % | 90 | % | 10 | % | 90 | % | |||||||||||||||
| Europe | 55 | % | 45 | % | 55 | % | 45 | % | |||||||||||||||
| AMESA | 35 | % | 65 | % | 35 | % | 65 | % | |||||||||||||||
| APAC | 25 | % | 75 | % | 25 | % | 75 | % | |||||||||||||||
| PepsiCo | 45 | % | 55 | % | 45 | % | 55 | % | |||||||||||||||
| 36 Weeks Ended | ||||||||||||||||||||||||||||||||||||||
| 9/3/2022 | 9/4/2021 | |||||||||||||||||||||||||||||||||||||
| Beverages**(a)** | Convenient Foods | Beverages(a) | Convenient Foods | |||||||||||||||||||||||||||||||||||
| LatAm | 10 | % | 90 | % | 10 | % | 90 | % | ||||||||||||||||||||||||||||||
| Europe | 50 | % | 50 | % | 55 | % | 45 | % | ||||||||||||||||||||||||||||||
| AMESA | 35 | % | 65 | % | 35 | % | 65 | % | ||||||||||||||||||||||||||||||
| APAC | 25 | % | 75 | % | 25 | % | 75 | % | ||||||||||||||||||||||||||||||
| PepsiCo | 45 | % | 55 | % | 45 | % | 55 | % | ||||||||||||||||||||||||||||||
(a)Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and Europe divisions, is approximately 40% of our consolidated net revenue in each of the 12 and 36 weeks ended September 3, 2022 and September 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 | ||||||||||||||||||||||
| 9/3/2022 | 9/4/2021 | 9/3/2022 | 9/4/2021 | ||||||||||||||||||||
| FLNA | $ | 1,588 | $ | 1,357 | $ | 4,332 | $ | 3,979 | |||||||||||||||
| QFNA | 122 | 106 | 416 | 384 | |||||||||||||||||||
| PBNA (a) (b) | 784 | 773 | 4,869 | 1,948 | |||||||||||||||||||
| LatAm (c) | 463 | 393 | 1,206 | 967 | |||||||||||||||||||
| Europe (a) (d) | 564 | 439 | (369) | 975 | |||||||||||||||||||
| AMESA | 268 | 312 | 738 | 706 | |||||||||||||||||||
| APAC | 199 | 201 | 620 | 601 | |||||||||||||||||||
| Total divisions | 3,988 | 3,581 | 11,812 | 9,560 | |||||||||||||||||||
| Corporate unallocated expenses (e) (f) | (635) | (422) | (1,115) | (960) | |||||||||||||||||||
| 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.
A summary of pre-tax charges taken in our Europe division as a result of the Russia-Ukraine conflict is as follows:
| 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) |
| 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)See Note 3 for further information. For information on our policies for indefinite-lived intangible assets, refer to Note 2 to our consolidated financial statements in our 2021 Form 10-K.
(b)Income amounts primarily relate to changes in estimates.
A summary of pre-tax charges related to 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 |
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 - Restructuring and Impairment Charges
2019 Multi-Year Productivity Plan
We publicly announced a multi-year productivity plan on February 15, 2019 (2019 Productivity Plan) that will leverage new technology and business models to further simplify, harmonize and automate processes; re-engineer our go-to-market and information systems, including deploying the right automation for each market; and simplify our organization and optimize our manufacturing and supply chain footprint. 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 take advantage of additional opportunities within the initiatives 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 asset impairments (all non-cash) resulting from plant closures and related actions, and 35% for other costs associated with the implementation of our initiatives.
The total expected plan pre-tax charges are expected to be incurred by division approximately as follows:
| FLNA | QFNA | PBNA | LatAm | Europe | AMESA | APAC | Corporate | ||||||||||||||||||||||||||||||||||||||||
| Expected pre-tax charges | 15 | % | 1 | % | 25 | % | 10 | % | 25 | % | 5 | % | 4 | % | 15 | % |
A summary of our 2019 Productivity Plan charges is as follows:
| 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 |
Severance and other employee costs primarily include severance and other termination benefits, as well as voluntary separation arrangements. Other costs primarily include costs associated with the implementation of our initiatives, including contract termination costs, consulting and other professional fees.
A summary of our 2019 Productivity Plan activity for the 36 weeks ended September 3, 2022 is as 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 restructuring accrual at September 3, 2022 is expected to be paid by the end of 2022.
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.
For information on other impairment charges, see Notes 1 and 3 for Brand Portfolio Impairment Charges and Russia-Ukraine Conflict Charges.
Note 3 - Intangible Assets
Indefinite-lived intangible assets are not amortized and are assessed for impairment at least annually, using either a qualitative or quantitative approach. We perform 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 quantitative 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 market data available at the time. Significant management judgment is necessary to estimate the impact of competitive operating, macroeconomic and other factors (including those related to the 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 weighted-average cost of capital, are based on the best available market information and are consistent with our internal forecasts and operating plans. A deterioration in these assumptions could adversely impact our results.
In the second quarter of 2022, macroeconomic factors, sanctions and other regulations as a result of the Russia-Ukraine conflict indicated a material deterioration of the significant inputs used to 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 consider to be a Level 3 measurement. We determined that the carrying value exceeds the fair value, with the decrease in the fair value primarily attributable to a significant increase in the weighted-average cost of capital, which reflects the macroeconomic uncertainty in Russia. As a result of the quantitative assessment, in the 36 weeks ended September 3, 2022, we recorded pre-tax impairment charges of $1.2 billion ($958 million after-tax or $0.69 per share) in impairment of intangible assets, related to our juice 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 $241 million ($193 million after-tax or $0.14 per share) in impairment of intangible assets, primarily related to indefinite-lived intangible assets. In light of the current political and economic environment, we will continue to review 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 2022 resulted in no impairment. The estimated fair values of certain beverage businesses and brands in Europe exceeded their carrying values. However, there could be impairments of the carrying values of goodwill and brands 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 weighted average cost of capital used to estimate fair value.
For further information on our policies for indefinite-lived intangible assets, refer to Note 2 to our consolidated financial statements in our 2021 Form 10-K.
A summary of our amortizable intangible assets is as follows:
| 9/3/2022 | 12/25/2021 | |||||||||||||||||||||||||||||||||||||
| Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | |||||||||||||||||||||||||||||||||
| Acquired franchise rights (a) | $ | 844 | $ | (197) | $ | 647 | $ | 976 | $ | (187) | $ | 789 | ||||||||||||||||||||||||||
| Customer relationships | 596 | (243) | 353 | 623 | (227) | 396 | ||||||||||||||||||||||||||||||||
| Brands | 1,102 | (971) | 131 | 1,151 | (989) | 162 | ||||||||||||||||||||||||||||||||
| Other identifiable intangibles | 448 | (265) | 183 | 451 | (260) | 191 | ||||||||||||||||||||||||||||||||
| Total | $ | 2,990 | $ | (1,676) | $ | 1,314 | $ | 3,201 | $ | (1,663) | $ | 1,538 |
(a)Decrease is primarily due to the write-off of our distribution rights for Bang energy drinks. See Note 1 for further information.
The change in the book value of indefinite-lived intangible assets is as follows:
| Balance 12/25/2021 | Acquisitions | Impairment | Translation and Other | Balance 9/3/2022 | |||||||||||||||||||||||||
| FLNA | |||||||||||||||||||||||||||||
| Goodwill | $ | 458 | $ | — | $ | — | $ | (3) | $ | 455 | |||||||||||||||||||
| Brands | 340 | — | — | (1) | 339 | ||||||||||||||||||||||||
| Total | 798 | — | — | (4) | 794 | ||||||||||||||||||||||||
| QFNA | |||||||||||||||||||||||||||||
| Goodwill | 189 | — | — | — | 189 | ||||||||||||||||||||||||
| Total | 189 | — | — | — | 189 | ||||||||||||||||||||||||
| PBNA | — | ||||||||||||||||||||||||||||
| Goodwill | 11,974 | — | — | (14) | 11,960 | ||||||||||||||||||||||||
| Reacquired franchise rights | 7,107 | — | — | (22) | 7,085 | ||||||||||||||||||||||||
| Acquired franchise rights (a) | 1,538 | 177 | — | (5) | 1,710 | ||||||||||||||||||||||||
| Brands | 2,508 | — | — | — | 2,508 | ||||||||||||||||||||||||
| Total | 23,127 | 177 | — | (41) | 23,263 | ||||||||||||||||||||||||
| LatAm | |||||||||||||||||||||||||||||
| Goodwill | 433 | — | — | 8 | 441 | ||||||||||||||||||||||||
| Brands (b) | 100 | — | (29) | 6 | 77 | ||||||||||||||||||||||||
| Total | 533 | — | (29) | 14 | 518 | ||||||||||||||||||||||||
| Europe (c) | |||||||||||||||||||||||||||||
| Goodwill | 3,700 | — | — | 103 | 3,803 | ||||||||||||||||||||||||
| Reacquired franchise rights | 441 | — | — | (18) | 423 | ||||||||||||||||||||||||
| Acquired franchise rights | 158 | — | (1) | (18) | 139 | ||||||||||||||||||||||||
| Brands (d) | 4,254 | — | (1,420) | 90 | 2,924 | ||||||||||||||||||||||||
| Total | 8,553 | — | (1,421) | 157 | 7,289 | ||||||||||||||||||||||||
| AMESA | |||||||||||||||||||||||||||||
| Goodwill | 1,063 | 14 | — | (56) | 1,021 | ||||||||||||||||||||||||
| Brands | 205 | — | — | (14) | 191 | ||||||||||||||||||||||||
| Total | 1,268 | 14 | — | (70) | 1,212 | ||||||||||||||||||||||||
| APAC | |||||||||||||||||||||||||||||
| Goodwill | 564 | — | — | (45) | 519 | ||||||||||||||||||||||||
| Brands | 476 | — | — | (34) | 442 | ||||||||||||||||||||||||
| Total | 1,040 | — | — | (79) | 961 | ||||||||||||||||||||||||
| Total goodwill | 18,381 | 14 | — | (7) | 18,388 | ||||||||||||||||||||||||
| Total reacquired franchise rights | 7,548 | — | — | (40) | 7,508 | ||||||||||||||||||||||||
| Total acquired franchise rights | 1,696 | 177 | (1) | (23) | 1,849 | ||||||||||||||||||||||||
| Total brands | 7,883 | — | (1,449) | 47 | 6,481 | ||||||||||||||||||||||||
| Total | $ | 35,508 | $ | 191 | $ | (1,450) | $ | (23) | $ | 34,226 |
(a)Acquisitions reflects our agreement with Celsius Holdings, Inc. (Celsius), entered into in the third quarter of 2022, to distribute Celsius energy drinks in the United States. See Note 8 for further information.
(b)Impairment reflects our decision to sell or discontinue certain non-strategic brands. See Note 1 for further information.
(c)Translation and other primarily represents the appreciation of the 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 4 - Income Taxes
In 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 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 - Pension and Retiree Medical Benefits
In the 12 and 36 weeks ended September 3, 2022, we 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 plans’ weighted-average interest cost discount rate and expected return on plan assets used to determine 2022 net periodic benefit cost/(income) increased from 2.4% and 6.3% to 3.1% and 6.7%, respectively.
For further information on our policies for pension, retiree-medical and savings plans, refer to Note 7 to our consolidated financial statements in our 2021 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 | |||||||||||||||||||||||||||||||||||||
| 9/3/2022 | 9/4/2021 | 9/3/2022 | 9/4/2021 | 9/3/2022 | 9/4/2021 | |||||||||||||||||||||||||||||||||
| Service cost | $ | 111 | $ | 119 | $ | 13 | $ | 25 | $ | 8 | $ | 8 | ||||||||||||||||||||||||||
| Other pension and retiree medical benefits income: | ||||||||||||||||||||||||||||||||||||||
| Interest cost | 111 | 75 | 23 | 17 | 5 | 3 | ||||||||||||||||||||||||||||||||
| Expected return on plan assets | (206) | (223) | (55) | (55) | (4) | (3) | ||||||||||||||||||||||||||||||||
| Amortization of prior service credits | (6) | (8) | (1) | — | (2) | (2) | ||||||||||||||||||||||||||||||||
| Amortization of net losses/(gains) | 35 | 52 | 8 | 19 | (3) | (4) | ||||||||||||||||||||||||||||||||
| Settlement/curtailment losses | 59 | 5 | — | 5 | — | — | ||||||||||||||||||||||||||||||||
| Special termination benefits | — | 1 | — | — | — | — | ||||||||||||||||||||||||||||||||
| Total other pension and retiree medical benefits income | (7) | (98) | (25) | (14) | (4) | (6) | ||||||||||||||||||||||||||||||||
| Total | $ | 104 | $ | 21 | $ | (12) | $ | 11 | $ | 4 | $ | 2 |
| 36 Weeks Ended | |||||||||||||||||||||||||||||||||||
| 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 | $ | 340 | $ | 359 | $ | 47 | $ | 69 | $ | 25 | $ | 23 | |||||||||||||||||||||||
| Other pension and retiree medical benefits income: | |||||||||||||||||||||||||||||||||||
| Interest cost | 286 | 224 | 63 | 49 | 13 | 10 | |||||||||||||||||||||||||||||
| Expected return on plan assets | (637) | (671) | (153) | (153) | (11) | (10) | |||||||||||||||||||||||||||||
| Amortization of prior service credits | (19) | (22) | (1) | (1) | (6) | (7) | |||||||||||||||||||||||||||||
| Amortization of net losses/(gains) | 103 | 155 | 20 | 51 | (9) | (10) | |||||||||||||||||||||||||||||
| Settlement/curtailment losses/(gains) | 190 | 5 | — | 10 | (16) | — | |||||||||||||||||||||||||||||
| Special termination benefits | 9 | 6 | — | — | — | — | |||||||||||||||||||||||||||||
| Total other pension and retiree medical benefits income | (68) | (303) | (71) | (44) | (29) | (17) | |||||||||||||||||||||||||||||
| Total | $ | 272 | $ | 56 | $ | (24) | $ | 25 | $ | (4) | $ | 6 |
We regularly evaluate opportunities to reduce risk and volatility associated with our pension and retiree medical plans.
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 plans, and $10 million and $25 million, respectively, 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 - 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 3, 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 2021 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 3, 2022 was $501 million. We have posted no collateral under these contracts and no credit-risk-related contingent features were triggered as of September 3, 2022.
The notional amounts of our financial instruments used to hedge the above risks as of September 3, 2022 and December 25, 2021 are as follows:
| Notional Amounts**(a)** | |||||||||||
| 9/3/2022 | 12/25/2021 | ||||||||||
| Commodity | $ | 1.9 | $ | 1.6 | |||||||
| Foreign exchange | $ | 2.8 | $ | 2.8 | |||||||
| Interest rate | $ | 2.1 | $ | 2.1 | |||||||
| 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 3, 2022, approximately 1% of total debt, after the impact of the related interest rate derivative instruments, was subject to variable rates, compared to 2% as of December 25, 2021.
Debt Securities
Held-to-Maturity
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. As of September 3, 2022, we had no investments in debt securities. As of December 25, 2021, we had $130 million of investments in commercial paper recorded in cash and cash equivalents. Held-to-maturity debt securities are recorded at amortized cost, which approximates fair value, and realized gains or losses are reported in earnings. As of December 25, 2021, 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 3, 2022 and December 25, 2021 are categorized as follows:
| 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) 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.
(d)Based primarily on the price of our common stock.
(e)Based on the fair value of investments corresponding to employees’ investment elections.
(f)Based on recently reported market transactions of spot and forward rates.
(g)Primarily based on recently reported market transactions of swap arrangements.
(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 3, 2022 and December 25, 2021 were not material. There was no collateral received or posted against our asset or liability 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 (classified as Level 2 in the fair value hierarchy) due to their short-term maturity. The fair value of our debt obligations as of September 3, 2022 and December 25, 2021 was $36 billion and $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)** | |||||||||||||||||||||||||||||||||
| 9/3/2022 | 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. 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 $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 - 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 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, British 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 British pound sterling.
The reclassifications from accumulated other comprehensive loss to the income statement are summarized as follows:
| 12 Weeks Ended | 36 Weeks Ended | |||||||||||||||||||||||||||||||
| 9/3/2022 | 9/4/2021 | 9/3/2022 | 9/4/2021 | Affected Line Item in the Income Statement | ||||||||||||||||||||||||||||
| Currency translation: | ||||||||||||||||||||||||||||||||
| Divestiture | $ | — | $ | — | $ | — | $ | 18 | Selling, general and administrative expenses | |||||||||||||||||||||||
| Cash flow hedges: | ||||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | (5) | $ | 2 | $ | (9) | $ | 6 | Net revenue | |||||||||||||||||||||||
| Foreign exchange contracts | 6 | 25 | (11) | 61 | Cost of sales | |||||||||||||||||||||||||||
| Interest rate derivatives | 94 | 53 | 175 | 2 | Selling, general and administrative expenses | |||||||||||||||||||||||||||
| Commodity contracts | (45) | (65) | (191) | (108) | Cost of sales | |||||||||||||||||||||||||||
| Commodity contracts | (6) | (1) | (12) | (1) | Selling, general and administrative expenses | |||||||||||||||||||||||||||
| Net losses/(gains) before tax | 44 | 14 | (48) | (40) | ||||||||||||||||||||||||||||
| Tax amounts | (12) | (3) | 5 | 10 | ||||||||||||||||||||||||||||
| Net losses/(gains) after tax | $ | 32 | $ | 11 | $ | (43) | $ | (30) | ||||||||||||||||||||||||
| Pension and retiree medical items: | ||||||||||||||||||||||||||||||||
| Amortization of prior service credits | $ | (9) | $ | (10) | $ | (26) | $ | (30) | Other pension and retiree medical benefits income | |||||||||||||||||||||||
| Amortization of net losses | 40 | 67 | 114 | 196 | Other pension and retiree medical benefits income | |||||||||||||||||||||||||||
| Settlement/curtailment losses | 59 | 10 | 188 | 10 | Other pension and retiree medical benefits income | |||||||||||||||||||||||||||
| Net losses before tax | 90 | 67 | 276 | 176 | ||||||||||||||||||||||||||||
| Tax amounts | (19) | (14) | (60) | (37) | ||||||||||||||||||||||||||||
| Net losses after tax | $ | 71 | $ | 53 | $ | 216 | $ | 139 | ||||||||||||||||||||||||
| 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 - Recently 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 cash flows. The new guidance requires disclosure of key terms of the program, including a description of the payment terms, payment timing and assets pledged as security or other forms of guarantees provided to the finance provider or intermediary. Other requirements include the disclosure of the amount that remains unpaid as of the end of the reporting period, a description of where these obligations are presented in the 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 rollforward, which is effective in 2024. Early adoption is permitted. We are currently evaluating the timing of adoption for this guidance.
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