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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 21, 2020 (12 weeks)
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to             
Commission file number 1-1183
PEPSICOLOGO20185A02.JPG  
PepsiCo, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
North Carolina
 
13-1584302
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
700 Anderson Hill Road, Purchase, New York 10577
(Address of principal executive offices and Zip Code)
(914) 253-2000
Registrant's telephone number, including area code
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
 
Trading Symbols
 
Name of each exchange on which registered
Common Stock, par value 1-2/3 cents per share
 
PEP
 
The Nasdaq Stock Market LLC
2.500% Senior Notes Due 2022
 
PEP22a
 
The Nasdaq Stock Market LLC
1.750% Senior Notes Due 2021
 
PEP21a
 
The Nasdaq Stock Market LLC
2.625% Senior Notes Due 2026
 
PEP26
 
The Nasdaq Stock Market LLC
0.875% Senior Notes Due 2028
 
PEP28
 
The Nasdaq Stock Market LLC
0.750% Senior Notes Due 2027
 
PEP27
 
The Nasdaq Stock Market LLC
1.125% Senior Notes Due 2031
 
PEP31
 
The Nasdaq Stock Market LLC
0.875% Senior Notes Due 2039
 
PEP39
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  x
Number of shares of Common Stock outstanding as of April 21, 2020 was 1,387,500,433.


Table of Contents    


PepsiCo, Inc. and Subsidiaries

Table of Contents
 
 
Page No.
Part I Financial Information
 
Item 1.
Condensed Consolidated Financial Statements
3
 
3
 
4
 
5
 
6
 
7
 
8
Item 2.
21
Report of Independent Registered Public Accounting Firm
38
Item 3.
39
Item 4.
39
Part II Other Information
 
Item 1.
40
Item 1A.
40
Item 2.
42
Item 6.
42


2

Table of Contents    


PART I FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Income
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts, unaudited) 
 
12 Weeks Ended
 
3/21/2020

 
3/23/2019

Net Revenue
$
13,881

 
$
12,884

Cost of sales
6,127

 
5,688

Gross profit
7,754

 
7,196

Selling, general and administrative expenses
5,830

 
5,188

Operating Profit
1,924

 
2,008

Other pension and retiree medical benefits income
77

 
64

Net interest expense and other
(290
)
 
(204
)
Income before income taxes
1,711

 
1,868

Provision for income taxes
360

 
446

Net income
1,351

 
1,422

Less: Net income attributable to noncontrolling interests
13

 
9

Net Income Attributable to PepsiCo
$
1,338

 
$
1,413

Net Income Attributable to PepsiCo per Common Share
 
 
 
Basic
$
0.96

 
$
1.01

Diluted
$
0.96

 
$
1.00

Weighted-average common shares outstanding
 
 
 
Basic
1,390

 
1,406

Diluted
1,396

 
1,413


See accompanying notes to the condensed consolidated financial statements.

3



Condensed Consolidated Statement of Comprehensive Income
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited) 
 
12 Weeks Ended
 
3/21/2020

 
3/23/2019

Net income
$
1,351

 
$
1,422

Other comprehensive (loss)/income, net of taxes:
 
 
 
Net currency translation adjustment
(754
)
 
473

Net change on cash flow hedges
(61
)
 
(27
)
Net pension and retiree medical adjustments
57

 
17

Other
1

 

 
(757
)
 
463

Comprehensive income
594

 
1,885

Comprehensive income attributable to noncontrolling interests
(13
)
 
(9
)
Comprehensive Income Attributable to PepsiCo
$
581

 
$
1,876



See accompanying notes to the condensed consolidated financial statements.

4



Condensed Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
 
12 Weeks Ended
 
3/21/2020

 
3/23/2019

Operating Activities
 
 
 
Net income
$
1,351

 
$
1,422

Depreciation and amortization
533

 
498

Share-based compensation expense
61

 
57

Restructuring and impairment charges
38

 
26

Cash payments for restructuring charges
(60
)
 
(52
)
Pension and retiree medical plan expenses
40

 
47

Pension and retiree medical plan contributions
(234
)
 
(260
)
Deferred income taxes and other tax charges and credits
25

 
216

Net tax related to the Tax Cuts and Jobs Act (TCJ Act)

 
(29
)
Change in assets and liabilities:
 
 
 
Accounts and notes receivable
(784
)
 
(406
)
Inventories
(312
)
 
(435
)
Prepaid expenses and other current assets
(263
)
 
(382
)
Accounts payable and other current liabilities
(1,419
)
 
(1,207
)
Income taxes payable
204

 
120

Other, net
71

 
40

Net Cash Used for Operating Activities
(749
)
 
(345
)
 
 
 
 
Investing Activities
 
 
 
Capital spending
(484
)
 
(442
)
Sales of property, plant and equipment
5

 
2

Acquisition of SodaStream International Ltd. (SodaStream)
(9
)
 
(1,807
)
Other acquisitions and investments in noncontrolled affiliates
(445
)
 
(56
)
Short-term investments, by original maturity - three months or less, net
7

 
9

Other investing, net
1

 
(6
)
Net Cash Used for Investing Activities
(925
)
 
(2,300
)
 
 
 
 
Financing Activities
 
 
 
Proceeds from issuances of long-term debt
6,429

 
1,122

Payments of long-term debt
(1
)
 
(1,851
)
Short-term borrowings, by original maturity:
 
 
 
More than three months - proceeds
164

 
2

More than three months - payments
(2
)
 

Three months or less, net
2,794

 
115

Cash dividends paid
(1,349
)
 
(1,332
)
Share repurchases - common
(573
)
 
(940
)
Proceeds from exercises of stock options
78

 
103

Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted
(76
)
 
(93
)
Other financing
(2
)
 
(2
)
Net Cash Provided by/(Used for) Financing Activities
7,462

 
(2,876
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(66
)
 
57

Net Increase/(Decrease) in Cash and Cash Equivalents and Restricted Cash
5,722

 
(5,464
)
Cash and Cash Equivalents and Restricted Cash, Beginning of Year
5,570

 
10,769

Cash and Cash Equivalents and Restricted Cash, End of Period
$
11,292

 
$
5,305

 
 
 
 
Supplemental Non-Cash Activity
 
 
 
Right-of-use assets obtained in exchange for lease obligations
$
148

 
$
59


See accompanying notes to the condensed consolidated financial statements.

5



Condensed Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts)
 
(Unaudited)

 
 
 
3/21/2020

 
12/28/2019

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
11,089

 
$
5,509

Short-term investments
158

 
229

Accounts and notes receivable, less allowance: 3/20 - $228 and 12/19 - $105
8,477

 
7,822

Inventories:
 
 
 
Raw materials and packaging
1,502

 
1,395

Work-in-process
277

 
200

Finished goods
1,821

 
1,743

 
3,600

 
3,338

Prepaid expenses and other current assets
944

 
747

Total Current Assets
24,268

 
17,645

Property, plant and equipment
42,696

 
43,003

Accumulated depreciation
(23,716
)
 
(23,698
)
Property, Plant and Equipment, net
18,980

 
19,305

Amortizable Intangible Assets, net
1,443

 
1,433

Goodwill
15,465

 
15,501

Other indefinite-lived intangible assets
14,536

 
14,610

Indefinite-Lived Intangible Assets
30,001

 
30,111

Investments in Noncontrolled Affiliates
2,719

 
2,683

Deferred Income Taxes
4,357

 
4,359

Other Assets
3,294

 
3,011

Total Assets
$
85,062

 
$
78,547

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Short-term debt obligations
$
5,882

 
$
2,920

Accounts payable and other current liabilities
16,196

 
17,541

Total Current Liabilities
22,078

 
20,461

Long-Term Debt Obligations
35,361

 
29,148

Deferred Income Taxes
4,060

 
4,091

Other Liabilities
10,004

 
9,979

Total Liabilities
71,503

 
63,679

Commitments and contingencies
 
 
 
PepsiCo Common Shareholders’ Equity
 
 
 
Common stock, par value 12/3¢ per share (authorized 3,600 shares; issued, net of repurchased common stock at par value: 1,389 and 1,391 shares, respectively)
23

 
23

Capital in excess of par value
3,741

 
3,886

Retained earnings
61,920

 
61,946

Accumulated other comprehensive loss
(15,057
)
 
(14,300
)
Repurchased common stock, in excess of par value (478 and 476 shares, respectively)
(37,162
)
 
(36,769
)
Total PepsiCo Common Shareholders’ Equity
13,465

 
14,786

Noncontrolling interests
94

 
82

Total Equity
13,559

 
14,868

Total Liabilities and Equity
$
85,062

 
$
78,547


See accompanying notes to the condensed consolidated financial statements.

6



Condensed Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
(in millions, except per share amounts, unaudited)
 
12 Weeks Ended
 
3/21/2020
 
3/23/2019
 
Shares
 
Amount
 
Shares
 
Amount
Common Stock
 
 
 
 
 
 
 
Balance, beginning of period
1,391

 
$
23

 
1,409

 
$
23

Change in repurchased common stock
(2
)
 

 
(5
)
 

Balance, end of period
1,389

 
23

 
1,404

 
23

Capital in Excess of Par Value
 
 
 
 
 
 
 
Balance, beginning of period
 
 
3,886

 
 
 
3,953

Share-based compensation expense
 
 
62

 
 
 
57

Stock option exercises, RSUs and PSUs converted
 
 
(131
)
 
 
 
(164
)
Withholding tax on RSUs and PSUs converted
 
 
(76
)
 
 
 
(93
)
Balance, end of period
 
 
3,741

 
 
 
3,753

Retained Earnings
 
 
 
 
 
 
 
Balance, beginning of period
 
 
61,946

 
 
 
59,947

Cumulative effect of accounting changes
 
 
(34
)
 
 
 
8

Net income attributable to PepsiCo
 
 
1,338

 
 
 
1,413

Cash dividends declared – common (a)
 
 
(1,330
)
 
 
 
(1,308
)
Balance, end of period
 
 
61,920

 
 
 
60,060

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Balance, beginning of period
 
 
(14,300
)
 
 
 
(15,119
)
Other comprehensive (loss)/income attributable to PepsiCo
 
 
(757
)
 
 
 
463

Balance, end of period
 
 
(15,057
)
 
 
 
(14,656
)
Repurchased Common Stock
 
 
 
 
 
 
 
Balance, beginning of period
(476
)
 
(36,769
)
 
(458
)
 
(34,286
)
Share repurchases
(4
)
 
(602
)
 
(9
)
 
(971
)
Stock option exercises, RSUs and PSUs converted
2

 
209

 
4

 
279

Balance, end of period
(478
)
 
(37,162
)
 
(463
)
 
(34,978
)
Total PepsiCo Common Shareholders’ Equity
 
 
13,465

 
 
 
14,202

Noncontrolling Interests
 
 
 
 
 
 
 
Balance, beginning of period
 
 
82

 
 
 
84

Net income attributable to noncontrolling interests
 
 
13

 
 
 
9

Other, net
 
 
(1
)
 
 
 
1

Balance, end of period
 
 
94

 
 
 
94

Total Equity
 
 
$
13,559

 
 
 
$
14,296


(a)
Cash dividends declared per common share were $0.955 and $0.9275 for the 12 weeks ended March 21, 2020 and March 23, 2019, respectively.
See accompanying notes to the condensed consolidated financial statements.

7



Notes to the Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation and Our Divisions
Basis of Presentation
When used in this report, the terms “we,” “us,” “our,” “PepsiCo” and the “Company” mean PepsiCo, Inc. and its consolidated subsidiaries, collectively.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the rules and regulations for reporting the Quarterly Report on Form 10-Q (Form 10-Q). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated balance sheet at December 28, 2019 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019 (2019 Form 10-K), as modified to reflect the adoption of the recently issued accounting pronouncement disclosed in Note 2 in this Form 10-Q. This report should be read in conjunction with our 2019 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 weeks ended March 21, 2020 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 report on a monthly calendar basis for which the months of January and February are reflected in our results for the 12 weeks ended March 21, 2020.
Our significant interim accounting policies include the recognition of a pro rata share of certain estimated annual sales incentives and certain advertising and marketing costs in proportion to revenue or volume, as applicable, and the recognition of income taxes using an estimated annual effective tax rate. Raw materials, direct labor and plant overhead, as well as purchasing and receiving costs, costs directly related to production planning, inspection costs and raw materials handling facilities, are included in cost of sales. The costs of moving, storing and delivering finished product, including merchandising activities, are included in selling, general and administrative expenses.
Unless otherwise noted, tabular dollars are in millions, except per share amounts. All per share amounts reflect common per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts.
Our Divisions
As previously disclosed in our 2019 Form 10-K, during the fourth quarter of 2019, we realigned certain of our reportable segments to be consistent with a recent strategic realignment of our organizational structure and how our Chief Executive Officer assesses the performance of, and allocates resources to, our reportable segments. Our historical segment reporting presented in this report has been retrospectively revised to reflect the new organizational structure. These changes did not impact our consolidated financial results. See Note 1 to our consolidated financial statements in our 2019 Form 10-K for further information.
We are organized into seven reportable segments (also referred to as divisions), as follows:
1)
Frito-Lay North America (FLNA), which includes our branded food and snack businesses in the United States and Canada;
2)
Quaker Foods North America (QFNA), which includes our cereal, rice, pasta and other branded food businesses in the United States and Canada;

8


3)
PepsiCo Beverages North America (PBNA), which includes our beverage businesses in the United States and Canada;
4)
Latin America (LatAm), which includes all of our beverage, food and snack businesses in Latin America;
5)
Europe, which includes all of our beverage, food and snack businesses in Europe;
6)
Africa, Middle East and South Asia (AMESA), which includes all of our beverage, food and snack businesses in Africa, the Middle East and South Asia; and
7)
Asia Pacific, Australia and New Zealand and China region (APAC), which includes all of our beverage, food and snack businesses in Asia Pacific, Australia and New Zealand, and China region.
Net revenue and operating profit of each division are as follows:
 
12 Weeks Ended
Net Revenue (a)
3/21/2020

 
3/23/2019

FLNA
$
4,074

 
$
3,815

QFNA
634

 
594

PBNA
4,838

 
4,510

LatAm
1,310

 
1,241

Europe
1,839

 
1,620

AMESA
631

 
579

APAC
555

 
525

Total
$
13,881

 
$
12,884

(a)
Our primary performance obligation is the distribution and sales of beverage, food and snack products to our customers. For the 12 weeks ended March 21, 2020 and March 23, 2019, our food and snack business represented approximately 55% of our consolidated net revenue. Internationally, LatAm’s food and snack business represented approximately 90% of the segment’s revenue, Europe’s beverage business and food and snack business represented approximately 55% and 45%, respectively, of the segment’s net revenue, AMESA’s beverage business and food and snack business represented approximately 35% and 65%, respectively, of the segment’s net revenue and APAC’s beverage business and food and snack business represented approximately 20% and 80%, respectively, of the segment’s net revenue. Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and Europe segments, was approximately 40% of our consolidated net revenue. Generally, our finished goods beverage operations produce higher net revenue, but lower operating margins as compared to concentrate sold to authorized bottling partners for the manufacture of finished goods beverages.
 
12 Weeks Ended
Operating Profit
3/21/2020

 
3/23/2019

FLNA (a)
$
1,202

 
$
1,159

QFNA (a)
150

 
138

PBNA (a)
297

 
389

LatAm
231

 
230

Europe (a)
146

 
115

AMESA
134

 
105

APAC (a)
142

 
106

Total division
$
2,302

 
$
2,242

Corporate unallocated expenses
(378
)
 
(234
)
Total
$
1,924

 
$
2,008


(a)
In the 12 weeks ended March 21, 2020, operating profit includes $143 million of certain charges taken as a result of the novel coronavirus (COVID-19) pandemic, including $68 million of incremental allowances for expected credit losses ($21 million in FLNA, $2 million in QFNA, $41 million in PBNA and $4 million in Europe), $44 million of write-downs against upfront payments to customers in PBNA, $26 million of inventory write-downs and product returns ($3 million in FLNA, $22 million in PBNA and $1 million in APAC) and $5 million of certain other charges ($3 million in FLNA, $1 million in PBNA and $1 million in APAC).

9


Note 2 - Recently Issued Accounting Pronouncements
Adopted
In 2016, the Financial Accounting Standards Board (FASB) issued guidance that changes the impairment model used to measure credit losses for most financial assets. For our trade receivables, certain other receivables and certain other financial instruments, we are required to use a new forward-looking expected credit loss model that replaced the existing incurred credit loss model. The new model generally results in earlier recognition of allowances for credit losses. We adopted this guidance prospectively in the first quarter of 2020 and the adoption did not have a material impact on our condensed consolidated financial statements or disclosures. We recorded an after-tax cumulative effect decrease to retained earnings of $34 million ($44 million pre-tax) as of the beginning of 2020 and, during the first quarter of 2020, we increased our allowance for expected credit losses and recorded a pre-tax charge of $68 million. This increase in allowance reflects the forward-looking expected impact of the global economic uncertainty caused by COVID-19, leveraging estimates of credit worthiness, default and recovery rates for certain of our customers, including foodservice and vending businesses.
Not Yet Adopted
In 2019, the FASB issued guidance to simplify the accounting for income taxes. The guidance primarily addresses how to (1) recognize a deferred tax liability after we transition to or from the equity method of accounting, (2) evaluate if a step-up in the tax basis of goodwill is related to a business combination or is a separate transaction, (3) recognize all of the effects of a change in tax law in the period of enactment, including adjusting the estimated annual tax rate, and (4) include the amount of tax based on income in the income tax provision and any incremental amount as a tax not based on income for hybrid tax regimes. The guidance is effective in the first quarter of 2021 with early adoption permitted. We are currently evaluating the impact of this guidance on our financial statements and the timing of adoption.
Note 3 - Restructuring and Impairment Charges
2019 Multi-Year Productivity Plan
We publicly announced a multi-year productivity plan on February 15, 2019 (2019 Productivity Plan) that will leverage new technology and business models to further simplify, harmonize and automate processes; re-engineer our go-to-market and information systems, including deploying the right automation for each market; and simplify our organization and optimize our manufacturing and supply chain footprint. In connection with this plan, we expect to incur pre-tax charges of approximately $2.5 billion and cash expenditures of approximately $1.6 billion. These pre-tax charges are expected to consist of approximately 70% of severance and other employee-related costs, 15% for asset impairments (all non-cash) resulting from plant closures and related actions, and 15% for other costs associated with the implementation of our initiatives. We expect to complete this plan by 2023.
The total expected plan pre-tax charges are expected to be incurred by division approximately as follows:
 
FLNA
 
QFNA
 
PBNA
 
LatAm
 
Europe
 
AMESA
 
APAC
 
Corporate
Expected pre-tax charges
11
%
 
2
%
 
30
%
 
10
%
 
25
%
 
8
%
 
5
%
 
9
%

10


A summary of our 2019 Productivity Plan charges is as follows:
 
12 Weeks Ended
 
3/21/2020

 
3/23/2019

Cost of sales
$
2

 
$
8

Selling, general and administrative expenses
30

 
23

Other pension and retiree medical benefits expense/(income)
6

 
(5
)
Total restructuring and impairment charges
$
38

 
$
26

After-tax amount
$
32

 
$
23

Net income attributable to PepsiCo per common share
$
0.02

 
$
0.02

 
12 Weeks Ended
 
Plan to Date

 
3/21/2020

 
3/23/2019

 
through 3/21/2020

FLNA
$
5

 
$

 
$
58

QFNA
1

 

 
8

PBNA
3

 
6

 
94

LatAm
5

 

 
76

Europe
8

 
6

 
113

AMESA
2

 
8

 
43

APAC

 
3

 
49

Corporate
8

 
8

 
62

 
32

 
31

 
503

Other pension and retiree medical benefits expense/
(income) (a)
6

 
(5
)
 
43

Total
$
38

 
$
26

 
$
546


(a)
Income amount represents adjustments for changes in estimates of previously recorded amounts.
 
12 Weeks Ended
 
Plan to Date

 
3/21/2020

 
3/23/2019

 
through 3/21/2020

Severance and other employee costs (a)
$
22

 
$
(3
)
 
$
308

Asset impairments
1

 
8

 
93

Other costs (b)
15

 
21

 
145

Total
$
38

 
$
26

 
$
546

(a)
Income amount represents adjustments for changes in estimates of previously recorded amounts.
(b)
Includes other costs associated with the implementation of our initiatives, including contract termination costs, consulting and other professional fees.
A summary of our 2019 Productivity Plan activity for the 12 weeks ended March 21, 2020 is as follows:
 
Severance and Other Employee Costs
 
Asset
Impairments
 
Other Costs
 
Total
Liability as of December 28, 2019
$
128

 
$

 
$
21

 
$
149

2020 restructuring charges
22

 
1

 
15

 
38

Cash payments
(31
)
 

 
(29
)
 
(60
)
Non-cash charges and translation
(9
)
 
(1
)
 
4

 
(6
)
Liability as of March 21, 2020
$
110

 
$

 
$
11

 
$
121


Substantially all of the restructuring accrual at March 21, 2020 is expected to be paid by the end of 2020.

11


Other Productivity Initiatives
There were no material charges related to other productivity and efficiency initiatives outside the scope of the 2019 Productivity Plan.
We regularly evaluate different productivity initiatives beyond the productivity plan and other initiatives described above.
Note 4 - Intangible Assets
A summary of our amortizable intangible assets is as follows:
 
 
3/21/2020
 
12/28/2019
 
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Acquired franchise rights
 
$
829

 
$
(157
)
 
$
672

 
$
846

 
$
(158
)
 
$
688

Reacquired franchise rights
 
105

 
(105
)
 

 
106

 
(105
)
 
1

Brands
 
1,307

 
(1,058
)
 
249

 
1,326

 
(1,066
)
 
260

Other identifiable intangibles
 
850

 
(328
)
 
522

 
810

 
(326
)
 
484

Total
 
$
3,091

 
$
(1,648
)
 
$
1,443

 
$
3,088

 
$
(1,655
)
 
$
1,433





12


The change in the book value of indefinite-lived intangible assets is as follows:
 
Balance
12/28/2019
 
Acquisitions/
(Divestitures)
 
Translation
and Other
 
Balance
3/21/2020

 
 
 
FLNA (a)

 
 
 

 

Goodwill
$
299

 
$
162

 
$
(11
)
 
$
450

Brands
162

 
176

 
(2
)
 
336

Total
461

 
338

 
(13
)
 
786

QFNA
 
 
 
 
 
 
 
Goodwill
189

 

 

 
189

Brands
11

 

 

 
11

Total
200

 

 

 
200

PBNA (b)
 
 
 
 
 
 
 
Goodwill
9,898

 
21

 
(39
)
 
9,880

Reacquired franchise rights
7,089

 

 
(66
)
 
7,023

Acquired franchise rights
1,517

 

 
(13
)
 
1,504

Brands
763

 

 

 
763

Total
19,267

 
21

 
(118
)
 
19,170

LatAm
 
 
 
 
 
 
 
Goodwill
501

 

 
(26
)
 
475

Brands
125

 

 
(8
)
 
117

Total
626

 

 
(34
)
 
592

Europe (c)
 
 
 
 
 
 
 
Goodwill
3,961

 
(3
)
 
(131
)
 
3,827

Reacquired franchise rights
505

 

 
(20
)
 
485

Acquired franchise rights
157

 

 
(3
)
 
154

Brands
4,181

 

 
(131
)
 
4,050

Total
8,804

 
(3
)
 
(285
)
 
8,516

AMESA
 
 
 
 
 
 
 
Goodwill
446

 

 
1

 
447

Total
446

 

 
1

 
447

APAC
 
 
 
 
 
 
 
Goodwill
207

 

 
(10
)
 
197

Brands
100

 

 
(7
)
 
93

Total
307

 

 
(17
)
 
290

 
 
 
 
 
 
 
 
Total goodwill
15,501

 
180

 
(216
)
 
15,465

Total reacquired franchise rights
7,594

 

 
(86
)
 
7,508

Total acquired franchise rights
1,674

 

 
(16
)
 
1,658

Total brands
5,342

 
176

 
(148
)
 
5,370

Total
$
30,111

 
$
356

 
$
(466
)
 
$
30,001


(a)
The change from December 28, 2019 to March 21, 2020 primarily reflects our acquisition of BFY Brands, Inc. (BFY Brands).
(b)
The change in translation and other primarily reflects the depreciation of the Canadian dollar.
(c)
The change in translation and other primarily reflects the depreciation of the Russian ruble.

13


Note 5 - Income Taxes
Tax Cuts and Jobs Act
During the fourth quarter of 2017, the TCJ Act was enacted in the United States. The related provisional measurement period allowed by the U.S. Securities and Exchange Commission (SEC) ended in the fourth quarter of 2018. While our accounting for the recorded impact of the TCJ Act was deemed to be complete, additional guidance issued by the Internal Revenue Service (IRS) impacted our recorded amounts after December 29, 2018. 
There were no tax amounts recognized in the 12 weeks ended March 21, 2020 related to the TCJ Act. In the 12 weeks ended March 23, 2019, we recognized tax benefits of $29 million ($0.02 per share) related to the TCJ Act. 
Other Tax Matters
On May 19, 2019, a public referendum held in Switzerland passed the Federal Act on Tax Reform and AHV Financing (TRAF), effective January 1, 2020. There were no income tax adjustments recorded in the 12 weeks ended March 21, 2020 related to the TRAF. Enactment of additional TRAF provisions subsequent to March 21, 2020 is expected to result in adjustments to our financial statements and related disclosures in future periods. The future impact of the TRAF cannot currently be reasonably estimated; we will continue to monitor and assess the impact the TRAF may have on our business and financial results.
For further information and discussion of the impacts of the TCJ Act and the TRAF, refer to Note 5 to our consolidated financial statements in our 2019 Form 10-K.
Subsequent to the end of our first quarter, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020 in the United States. The CARES Act and related notices include several significant provisions, including delaying certain payroll tax payments, mandatory transition tax payments under the TCJ Act, and estimated income tax payments that we expect to defer to future periods. We do not currently expect the CARES Act to have a material impact on our financial results, including on our annual estimated effective tax rate, or on our liquidity. We will continue to monitor and assess the impact the CARES Act and similar legislation in other countries may have on our business and financial results.
Note 6 - Share-Based Compensation
The following table summarizes our total share-based compensation expense:
 
12 Weeks Ended
 
3/21/2020

 
3/23/2019

Share-based compensation expense - equity awards
$
61

 
$
57

Share-based compensation expense - liability awards
3

 
1

Restructuring charges
1

 

Total (a)
$
65

 
$
58


(a)
Primarily recorded in selling, general and administrative expenses.

14


The following table summarizes share-based awards granted under the terms of the PepsiCo, Inc. Long-Term Incentive Plan:
 
12 Weeks Ended
 
3/21/2020
 
3/23/2019
 
Granted(a)
 
Weighted-Average Grant Price
 
Granted(a)
 
Weighted-Average Grant Price
Stock options
1.6

 
$
131.25

 
1.1

 
$
116.00

RSUs and PSUs
2.4

 
$
131.28

 
2.7

 
$
115.98

(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 $15 million during the 12 weeks ended March 21, 2020 and March 23, 2019, respectively.
Our weighted-average Black-Scholes fair value assumptions are as follows: 
 
12 Weeks Ended
 
3/21/2020

 
3/23/2019

Expected life
6 years

 
5 years

Risk-free interest rate
1.0
%
 
2.6
%
Expected volatility
14
%
 
14
%
Expected dividend yield
3.5
%
 
3.1
%
Note 7 - Pension and Retiree Medical Benefits
The components of net periodic benefit cost for pension and retiree medical plans are as follows: 
 
12 Weeks Ended
 
Pension
 
Retiree Medical
 
U.S.
 
International
 
 
 
3/21/2020

 
3/23/2019

 
3/21/2020

 
3/23/2019

 
3/21/2020

 
3/23/2019

Service cost
$
100

 
$
88

 
$
17

 
$
13

 
$
6

 
$
5

Other pension and retiree medical benefits expense/(income):
 
 
 
 
Interest cost
100

 
125

 
16

 
17

 
6

 
8

Expected return on plan assets
(214
)
 
(206
)
 
(37
)
 
(33
)
 
(4
)
 
(4
)
Amortization of prior service cost/(credits)
3

 
2

 

 

 
(3
)
 
(4
)
Amortization of net losses/(gains)
45

 
37

 
10

 
5

 
(5
)
 
(6
)
Special termination benefits (a)
6

 
(5
)
 

 

 

 

Total other pension and retiree medical benefits income
(60
)
 
(47
)
 
(11
)
 
(11
)
 
(6
)
 
(6
)
Total
$
40

 
$
41

 
$
6

 
$
2

 
$

 
$
(1
)

(a)
Income amount represents adjustments for changes in estimates of previously recorded amounts.
We continue to monitor the impact of the COVID-19 pandemic and related global economic conditions and uncertainty on the net unfunded status of our pension and retiree medical plans. We also regularly evaluate opportunities to reduce risk and volatility associated with our pension and retiree medical plans. In the 12

15


weeks ended March 21, 2020, we made a discretionary contribution of $150 million to the PepsiCo Employees Retirement Plan A (Plan A) in the United States. In the 12 weeks ended March 23, 2019, we made discretionary contributions of $150 million to Plan A in the United States and $17 million to our international plans.
Note 8 - Debt Obligations
In the 12 weeks ended March 21, 2020, we issued the following senior notes:
Interest Rate

 
Maturity Date
 
Amount(a)

2.250
%
 
March 2025
 
$
1,500

2.625
%
 
March 2027
 
$
500

2.750
%
 
March 2030
 
$
1,500

3.500
%
 
March 2040
 
$
750

3.625
%
 
March 2050
 
$
1,500

3.875
%
 
March 2060
 
$
750

(a)
Represents gross proceeds from issuances of long-term debt excluding debt issuance costs, discounts and premiums.
The net proceeds from the issuances of the above notes will be used for general corporate purposes, including the repayment of commercial paper.
In the 12 weeks ended March 21, 2020, there were no maturities or prepayments of senior notes.
As of March 21, 2020, we had $2.8 billion of commercial paper outstanding.
On March 12, 2020, one of our international consolidated subsidiaries borrowed 21.7 billion South African rand, or approximately $1.3 billion, from our two unsecured bridge loan facilities (Bridge Loan Facilities) to fund our acquisition of Pioneer Food Group Ltd. (Pioneer Foods). These borrowings are subject to a weighted-average initial annual interest rate of 7.5%, which resets every month, have maturity dates within one year and can be prepaid at any time. No further borrowings under these Bridge Loan Facilities are permitted. On April 14, 2020, we repaid 6.6 billion South African rand, or approximately $360 million, with no gain or loss recorded, and we have initiated repayment of the remaining outstanding borrowings and therefore expect these Bridge Loan Facilities to be fully repaid in the second quarter of 2020.
Note 9 - Financial Instruments
We are exposed to market risks arising from adverse changes in:
commodity prices, affecting the cost of our raw materials and energy;
foreign exchange rates and currency restrictions; and
interest rates.
There have been no material changes during the 12 weeks ended March 21, 2020 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 2019 Form 10-K.
Certain of our agreements with our counterparties require us to post full collateral on derivative instruments in a net liability position if our credit rating is at A2 (Moody’s Investors Service, Inc.) or A (S&P Global Ratings), and we have been placed on credit watch for possible downgrade or if our credit rating falls below these levels. The fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of March 21, 2020 was $672 million. We have posted no collateral under these contracts and no credit-risk-related contingent features were triggered as of March 21, 2020.

16


The notional amounts of our financial instruments used to hedge the above risks as of March 21, 2020 and December 28, 2019 are as follows:
 
Notional Amounts(a)
 
3/21/2020

 
12/28/2019

Commodity
$
1.2

 
$
1.1

Foreign exchange
$
1.8

 
$
1.9

Interest rate
$
5.0

 
$
5.0

Net investment (b)
$
2.4

 
$
2.5

(a)
In billions.
(b)
The total notional of our net investment hedge consists of non-derivative debt instruments.
As of March 21, 2020, approximately 14% of total debt, after the impact of the related interest rate derivative instruments, was subject to variable rates, compared to approximately 9% as of December 28, 2019.
Fair Value Measurements
The fair values of our financial assets and liabilities as of March 21, 2020 and December 28, 2019 are categorized as follows:
 
 
 
3/21/2020
 
12/28/2019
 
Fair Value Hierarchy Levels
 
Assets(a)
 
Liabilities(a)
 
Assets(a)
 
Liabilities(a)
Short-term investments (b)
1
 
$
158

 
$

 
$
229

 
$

Prepaid forward contracts (c)
2
 
$
13

 
$

 
$
17

 
$

Deferred compensation (d)
2
 
$

 
$
379

 
$

 
$
468

Derivatives designated as fair value hedging instruments:
 
 
 
 
 
 
 
 
 
Interest rate (e)
2
 
$
7

 
$
1

 
$

 
$
5

Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign exchange (f)
2
 
$
53

 
$
13

 
$
5

 
$
32

Interest rate (f)
2
 

 
613

 

 
390

Commodity (g)
1
 

 
31

 
2

 
5

Commodity (h)
2
 

 
30

 
2

 
5

 
 
 
$
53

 
$
687

 
$
9

 
$
432

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign exchange (f)
2
 
$
8

 
$
1

 
$
3

 
$
2

Commodity (g)
1
 
1

 
111

 
23

 
7

Commodity (h)
2
 
5

 
40

 
6

 
24

 
 
 
$
14

 
$
152

 
$
32

 
$
33

Total derivatives at fair value (i)
 
 
$
74

 
$
840

 
$
41

 
$
470

Total
 
 
$
245

 
$
1,219

 
$
287

 
$
938

(a)
Unless otherwise noted, financial assets are classified on our balance sheet within prepaid expenses and other current assets and other assets. Financial liabilities are classified on our balance sheet within accounts payable and other current liabilities and other liabilities.
(b)
Based on the price of index funds. These investments are classified as short-term investments and are used to manage a portion of market risk arising from our deferred compensation liability.
(c)
Based primarily on the price of our common stock.
(d)
Based on the fair value of investments corresponding to employees’ investment elections.
(e)
Based on LIBOR forward rates. The carrying amount of hedged fixed-rate debt was $2.2 billion as of March 21, 2020 and December 28, 2019, and classified on our balance sheet within short-term and long-term debt obligations. As of March 21, 2020 and December 28, 2019, the cumulative amount of fair value hedging adjustments to hedged fixed-rate debt was a $6 million gain and a $5 million loss, respectively. As of March 21, 2020 and December 28, 2019, the cumulative amount of fair value hedging adjustments on discontinued hedges was a

17


$42 million loss and a $49 million loss, respectively, which is being amortized over the remaining life of the related debt obligations.
(f)
Based on recently reported market transactions of spot and forward rates.
(g)
Based on quoted contract prices on futures exchange markets.
(h)
Based on recently reported market transactions of swap arrangements.
(i)
Derivative assets and liabilities are presented on a gross basis on our balance sheet. Amounts subject to enforceable master netting arrangements or similar agreements which are not offset on the balance sheet as of March 21, 2020 and December 28, 2019 were not material. Collateral received or posted against our asset or liability positions was not material. Collateral posted of $201 million and $58 million as of March 21, 2020 and December 28, 2019, respectively, is classified as restricted cash.
The carrying amounts of our cash and cash equivalents approximate fair value due to their short-term maturity. The fair value of our debt obligations as of March 21, 2020 and December 28, 2019 was $43 billion and $34 billion, respectively, based upon prices of similar instruments in the marketplace, which are considered Level 2 inputs.
Losses/(gains) on our hedging instruments are categorized as follows:
 
12 Weeks Ended
 
Fair Value/Non-
designated Hedges
 
Cash Flow and Net Investment Hedges
 
Losses/(Gains)
Recognized in
Income Statement
(a)
 
Losses/(Gains)
Recognized in
Accumulated Other
Comprehensive Loss
 
Losses/(Gains)
Reclassified from
Accumulated Other
Comprehensive Loss
into Income Statement
(b)
 
3/21/2020

 
3/23/2019

 
3/21/2020

 
3/23/2019

 
3/21/2020

 
3/23/2019

Foreign exchange
$
(11
)
 
$
(3
)
 
$
(51
)
 
$
31

 
$
4

 
$
(5
)
Interest rate
(11
)
 
(28
)
 
223

 
(7
)
 
150

 
(11
)
Commodity
166

 
(42
)
 
64

 
(4
)
 
3

 
1

Net investment

 

 
(84
)
 
(10
)
 

 

Total
$
144

 
$
(73
)
 
$
152

 
$
10

 
$
157

 
$
(15
)

(a)
Foreign exchange derivative losses/gains are primarily included in selling, general and administrative expenses. Interest rate derivative losses/gains are primarily from fair value hedges and are included in net interest expense and other. These losses/gains are substantially offset by decreases/increases in the value of the underlying debt, which are also included in net interest expense and other. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity.
(b)
Foreign exchange derivative losses/gains are included in cost of sales. Interest rate derivative losses/gains are included in net interest expense and other. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity.
Based on current market conditions, we expect to reclassify net losses of $46 million related to our cash flow hedges from accumulated other comprehensive loss into net income during the next 12 months.
Note 10 - Net Income Attributable to PepsiCo per Common Share
The computations of basic and diluted net income attributable to PepsiCo per common share are as follows:
 
12 Weeks Ended
 
3/21/2020
 
3/23/2019
 
Income
 
Shares(a)
 
Income
 
Shares(a)
Basic net income attributable to PepsiCo per common share
$
0.96

 
 
 
$
1.01

 
 
Net income available for PepsiCo common shareholders
$
1,338

 
1,390

 
$
1,413

 
1,406

Dilutive securities:
 
 
 
 
 
 
 
Stock options, RSUs, PSUs and other (b)

 
6

 

 
7

Diluted
$
1,338

 
1,396

 
$
1,413

 
1,413

Diluted net income attributable to PepsiCo per common share
$
0.96

 
 
 
$
1.00

 
 

(a)
Weighted-average common shares outstanding (in millions).

18


(b)
The dilutive effect of these securities is calculated using the treasury stock method.
Out-of-the-money options excluded from the calculation of diluted earnings per common share are as follows:
 
12 Weeks Ended
 
3/21/2020

 
3/23/2019

Out-of-the-money options (a)

 
1.2

Average exercise price per option
$

 
$
115.98

(a)
In millions.
Note 11 - Accumulated Other Comprehensive Loss Attributable to PepsiCo
The changes in the balances of each component of accumulated other comprehensive loss attributable to PepsiCo are as follows:
 
Currency Translation Adjustment
 
Cash Flow Hedges
 
Pension and Retiree Medical
 
Other
 
Accumulated Other Comprehensive Loss Attributable to PepsiCo
Balance as of December 28, 2019 (a)
$
(11,290
)
 
$
(3
)
 
$
(2,988
)
 
$
(19
)
 
$
(14,300
)
Other comprehensive (loss)/income before reclassifications (b)
(735
)
 
(236
)
 
21

 
1

 
(949
)
Amounts reclassified from accumulated other comprehensive loss

 
157

 
50

 

 
207

Net other comprehensive (loss)/income
(735
)
 
(79
)
 
71

 
1

 
(742
)
Tax amounts
(19
)
 
18

 
(14
)
 

 
(15
)
Balance as of March 21, 2020 (a)
$
(12,044
)
 
$
(64
)
 
$
(2,931
)
 
$
(18
)
 
$
(15,057
)
(a)
Pension and retiree medical amounts are net of taxes of $1,370 million as of December 28, 2019 and $1,356 million as of March 21, 2020.
(b)
Currency translation adjustment primarily reflects depreciation of the Russian ruble, Canadian dollar and Mexican peso.
 
Currency Translation Adjustment
 
Cash Flow Hedges
 
Pension and Retiree Medical
 
Other
 
Accumulated Other Comprehensive Loss Attributable to PepsiCo
Balance as of December 29, 2018 (a)
$
(11,918
)
 
$
87

 
$
(3,271
)
 
$
(17
)
 
$
(15,119
)
Other comprehensive (loss)/income before reclassifications (b)
475

 
(20
)
 
(16
)
 

 
439

Amounts reclassified from accumulated other comprehensive loss

 
(15
)
 
34

 

 
19

Net other comprehensive (loss)/income
475

 
(35
)
 
18

 

 
458

Tax amounts
(2
)
 
8

 
(1
)
 

 
5

Balance as of March 23, 2019 (a)
$
(11,445
)
 
$
60

 
$
(3,254
)
 
$
(17
)
 
$
(14,656
)

(a)
Pension and retiree medical amounts are net of taxes of $1,466 million as of December 29, 2018 and $1,465 million as of March 23, 2019.
(b)
Currency translation adjustment primarily reflects appreciation of the Russian ruble, Mexican peso and Pound sterling.

19


The reclassifications from accumulated other comprehensive loss to the income statement are summarized as follows:
 
12 Weeks Ended
 
 
 
3/21/2020

 
3/23/2019

 
Affected Line Item in the Income Statement
Cash flow hedges:
 
 
 
 
 
Foreign exchange contracts
$
4

 
$
(5
)
 
Cost of sales
Interest rate derivatives
150

 
(11
)
 
Net interest expense and other
Commodity contracts
3

 
1

 
Cost of sales
Net losses/(gains) before tax
157

 
(15
)
 
 
Tax amounts
(39
)
 
4

 
 
Net losses/(gains) after tax
$
118

 
$
(11
)
 
 
 
 
 
 
 
 
Pension and retiree medical items:
 
 
 
 
 
Amortization of prior service credits
$

 
$
(2
)
 
Other pension and retiree medical benefits income
Amortization of net losses
50

 
36

 
Other pension and retiree medical benefits income
Net losses before tax
50

 
34

 
 
Tax amounts
(11
)
 
(7
)
 
 
Net losses after tax
$
39

 
$
27

 
 
 
  </