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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 20, 2021 (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
PEP-20210320_G1.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
1.750% Senior Notes Due 2021 PEP21a The Nasdaq Stock Market LLC
2.500% Senior Notes Due 2022 PEP22a The Nasdaq Stock Market LLC
0.250% Senior Notes Due 2024 PEP24 The Nasdaq Stock Market LLC
2.625% Senior Notes Due 2026 PEP26 The Nasdaq Stock Market LLC
0.750% Senior Notes Due 2027 PEP27 The Nasdaq Stock Market LLC
0.875% Senior Notes Due 2028 PEP28 The Nasdaq Stock Market LLC
0.500% Senior Notes Due 2028 PEP28a The Nasdaq Stock Market LLC
1.125% Senior Notes Due 2031 PEP31 The Nasdaq Stock Market LLC
0.400% Senior Notes Due 2032 PEP32 The Nasdaq Stock Market LLC
0.875% Senior Notes Due 2039 PEP39 The Nasdaq Stock Market LLC
1.050% Senior Notes Due 2050 PEP50 The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ☒    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  ☒
Number of shares of Common Stock outstanding as of April 8, 2021 was 1,381,631,264.


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
7
8
9
Item 2.
24
Report of Independent Registered Public Accounting Firm
41
Item 3.
42
Item 4.
42
Part II Other Information
Item 1.
43
Item 1A.
43
Item 2.
43
Item 6.
43

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
  3/20/2021 3/21/2020
Net Revenue $ 14,820  $ 13,881 
Cost of sales 6,671  6,127 
Gross profit 8,149  7,754 
Selling, general and administrative expenses 5,837  5,830 
Operating Profit 2,312  1,924 
Other pension and retiree medical benefits income 120  77 
Net interest expense and other (258) (290)
Income before income taxes 2,174  1,711 
Provision for income taxes 451  360 
Net income 1,723  1,351 
Less: Net income attributable to noncontrolling interests
9  13 
Net Income Attributable to PepsiCo $ 1,714  $ 1,338 
Net Income Attributable to PepsiCo per Common Share
Basic $ 1.24  $ 0.96 
Diluted $ 1.24  $ 0.96 
Weighted-average common shares outstanding
Basic 1,380  1,390 
Diluted 1,387  1,396 
See accompanying notes to the condensed consolidated financial statements.
3

Table of Contents    

Condensed Consolidated Statement of Comprehensive Income
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited) 
12 Weeks Ended
3/20/2021 3/21/2020
Net income $ 1,723  $ 1,351 
Other comprehensive income/(loss), net of taxes:
Net currency translation adjustment 131  (754)
Net change on cash flow hedges 72  (61)
Net pension and retiree medical adjustments 27  57 
Other  
230  (757)
Comprehensive income 1,953  594 
Less: Comprehensive income attributable to
noncontrolling interests
9  13 
Comprehensive Income Attributable to PepsiCo $ 1,944  $ 581 
See accompanying notes to the condensed consolidated financial statements.
4

Table of Contents    

Condensed Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
  12 Weeks Ended
  3/20/2021 3/21/2020
Operating Activities
Net income $ 1,723  $ 1,351 
Depreciation and amortization 560  533 
Share-based compensation expense 79  61 
Restructuring and impairment charges 43  38 
Cash payments for restructuring charges (49) (60)
Merger and integration (credits)/charges (10) 25 
Cash payments for merger and integration charges (7) (38)
Pension and retiree medical plan expenses 21  40 
Pension and retiree medical plan contributions (413) (234)
Deferred income taxes and other tax charges and credits 108  25 
Change in assets and liabilities:
Accounts and notes receivable (455) (784)
Inventories (397) (312)
Prepaid expenses and other current assets (210) (263)
Accounts payable and other current liabilities (1,906) (1,419)
Income taxes payable 227  204 
Other, net (33) 84 
Net Cash Used for Operating Activities (719) (749)
Investing Activities
Capital spending (471) (484)
Sales of property, plant and equipment 5 
Acquisitions, net of cash acquired, and investments in noncontrolled affiliates (13) (454)
Divestitures 35  — 
Short-term investments, by original maturity:
More than three months - maturities 535  — 
Three months or less, net
3 
Other investing, net  
Net Cash Provided by/(Used for) Investing Activities 94  (925)
(Continued on following page)
5

Table of Contents    

Condensed Consolidated Statement of Cash Flows (continued)
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
12 Weeks Ended
3/20/2021 3/21/2020
Financing Activities
Proceeds from issuances of long-term debt   6,429 
Payments of long-term debt (1) (1)
Short-term borrowings, by original maturity:
More than three months - proceeds
  164 
More than three months - payments
(396) (2)
Three months or less, net
53  2,794 
Cash dividends paid (1,429) (1,349)
Share repurchases - common (106) (573)
Proceeds from exercises of stock options 62  78 
Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted (71) (76)
Other financing   (2)
Net Cash (Used for)/Provided by Financing Activities (1,888) 7,462 
Effect of exchange rate changes on cash and cash equivalents and restricted cash (10) (66)
Net (Decrease)/Increase in Cash and Cash Equivalents and Restricted Cash (2,523) 5,722 
Cash and Cash Equivalents and Restricted Cash, Beginning of Year 8,254  5,570 
Cash and Cash Equivalents and Restricted Cash, End of Period $ 5,731  $ 11,292 
Supplemental Non-Cash Activity
Right-of-use assets obtained in exchange for lease obligations $ 167  $ 148 
See accompanying notes to the condensed consolidated financial statements.
6

Table of Contents    

Condensed Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts)
(Unaudited)
3/20/2021 12/26/2020
ASSETS
Current Assets
Cash and cash equivalents $ 5,661  $ 8,185 
Short-term investments 964  1,366 
Accounts and notes receivable, less allowance: 3/21 - $192 and 12/20 - $201
8,885  8,404 
Inventories:
Raw materials and packaging 1,827  1,720 
Work-in-process 308  205 
Finished goods 2,421  2,247 
4,556  4,172 
Prepaid expenses and other current assets 1,130  874 
Total Current Assets 21,196  23,001 
Property, plant and equipment 46,544  46,340 
Accumulated depreciation (25,295) (24,971)
Property, Plant and Equipment, net 21,249  21,369 
Amortizable Intangible Assets, net 1,690  1,703 
Goodwill 18,779  18,757 
Other Indefinite-Lived Intangible Assets 17,641  17,612 
Investments in Noncontrolled Affiliates 2,777  2,792 
Deferred Income Taxes 4,370  4,372 
Other Assets 3,522  3,312 
Total Assets $ 91,224  $ 92,918 
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt obligations $ 4,674  $ 3,780 
Accounts payable and other current liabilities 18,019  19,592 
Total Current Liabilities 22,693  23,372 
Long-Term Debt Obligations 38,991  40,370 
Deferred Income Taxes 4,491  4,284 
Other Liabilities 10,996  11,340 
Total Liabilities 77,171  79,366 
Commitments and contingencies
PepsiCo Common Shareholders’ Equity
Common stock, par value 12/3¢ per share (authorized 3,600 shares; issued, net of repurchased common stock at par value: 1,382 and 1,380 shares, respectively)
23  23 
Capital in excess of par value 3,800  3,910 
Retained earnings 63,740  63,443 
Accumulated other comprehensive loss (15,246) (15,476)
Repurchased common stock, in excess of par value (485 and 487 shares, respectively)
(38,370) (38,446)
Total PepsiCo Common Shareholders’ Equity 13,947  13,454 
Noncontrolling interests 106  98 
Total Equity 14,053  13,552 
Total Liabilities and Equity $ 91,224  $ 92,918 
See accompanying notes to the condensed consolidated financial statements.
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Table of Contents    

Condensed Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
(in millions, except per share amounts, unaudited)
12 Weeks Ended
3/20/2021 3/21/2020
Shares Amount Shares Amount
Common Stock
Balance, beginning of period 1,380  $ 23  1,391  $ 23 
Change in repurchased common stock 2    (2) — 
Balance, end of period 1,382  23  1,389  23 
Capital in Excess of Par Value
Balance, beginning of period 3,910  3,886 
Share-based compensation expense 80  62 
Stock option exercises, RSUs and PSUs converted (119) (131)
Withholding tax on RSUs and PSUs converted (71) (76)
Balance, end of period 3,800  3,741 
Retained Earnings
Balance, beginning of period 63,443  61,946 
Cumulative effect of accounting changes   (34)
Net income attributable to PepsiCo 1,714  1,338 
Cash dividends declared – common (a)
(1,417) (1,330)
Balance, end of period 63,740  61,920 
Accumulated Other Comprehensive Loss
Balance, beginning of period (15,476) (14,300)
Other comprehensive income/(loss) attributable to PepsiCo 230  (757)
Balance, end of period (15,246) (15,057)
Repurchased Common Stock
Balance, beginning of period (487) (38,446) (476) (36,769)
Share repurchases (1) (106) (4) (602)
Stock option exercises, RSUs and PSUs converted 3  182  209 
Balance, end of period (485) (38,370) (478) (37,162)
Total PepsiCo Common Shareholders’ Equity 13,947  13,465 
Noncontrolling Interests
Balance, beginning of period 98  82 
Net income attributable to noncontrolling interest 9  13 
Other, net (1) (1)
Balance, end of period 106  94 
Total Equity $ 14,053  $ 13,559 
(a)Cash dividends declared per common share were $1.0225 and $0.955 for the 12 weeks ended March 20, 2021 and March 21, 2020, respectively.

See accompanying notes to the condensed consolidated financial statements.

8

Table of Contents    

Notes to the Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation and Our Divisions
Basis of Presentation
When used in this report, the terms “we,” “us,” “our,” “PepsiCo” and the “Company” mean PepsiCo, Inc. and its consolidated subsidiaries, collectively.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the rules and regulations for reporting the Quarterly Report on Form 10-Q (Form 10-Q). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated balance sheet at December 26, 2020 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020 (2020 Form 10-K). This report should be read in conjunction with our 2020 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 20, 2021 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 20, 2021.
The preparation of our condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and related disclosures. The business and economic uncertainty resulting from the novel coronavirus (COVID-19) pandemic has made such estimates and assumptions more difficult to calculate. Accordingly, actual results and outcomes could differ from those estimates.
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 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;
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3)PepsiCo Beverages North America (PBNA), which includes our beverage businesses in the United States and Canada;
4)Latin America (LatAm), which includes all of our beverage, food and snack businesses in Latin America;
5)Europe, which includes all of our beverage, food and snack businesses in Europe;
6)Africa, Middle East and South Asia (AMESA), which includes all of our beverage, food and snack businesses in Africa, the Middle East and South Asia; and
7)Asia Pacific, Australia and New Zealand and China region (APAC), which includes all of our beverage, food and snack businesses in Asia Pacific, Australia and New Zealand, and China region.
Net revenue of each division is as follows:
12 Weeks Ended
3/20/2021 3/21/2020
FLNA $ 4,236  $ 4,074 
QFNA 646  634 
PBNA 5,074  4,838 
LatAm 1,242  1,310 
Europe 1,795  1,839 
AMESA (a)
883  631 
APAC (b)
944  555 
Total $ 14,820  $ 13,881 
(a)The increase primarily reflects our acquisition of Pioneer Food Group Ltd. (Pioneer Foods). See Note 12 for further information.
(b)The increase primarily reflects our acquisition of Hangzhou Haomusi Food Co., Ltd. (Be & Cheery). See Note 12 for further information.
Our primary performance obligation is the distribution and sales of beverage and food and snack products to our customers. The following tables reflect the approximate percentage of net revenue generated between our beverage business and our food and snack business for each of our international divisions, as well as our consolidated net revenue:
12 Weeks Ended
3/20/2021 3/21/2020
Beverage(a)
Food/Snack
Beverage(a)
Food/Snack
LatAm 10  % 90  % 10  % 90  %
Europe 50  % 50  % 55  % 45  %
AMESA 30  % 70  % 35  % 65  %
APAC 15  % 85  % 20  % 80  %
PepsiCo 45  % 55  % 45  % 55  %
(a)Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and Europe segments, is approximately 40% of our consolidated net revenue in both the 12 weeks ended March 20, 2021 and March 21, 2020. Generally, our finished goods beverage operations produce higher net revenue but lower operating margins as compared to concentrate sold to authorized bottling partners for the manufacture of finished goods beverages.
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Operating profit of each division is as follows:
12 Weeks Ended
3/20/2021 3/21/2020
FLNA $ 1,240  $ 1,202 
QFNA 150  150 
PBNA 366  297 
LatAm 218  231 
Europe 131  146 
AMESA 138  134 
APAC 208  142 
Total divisions $ 2,451  $ 2,302 
Corporate unallocated expenses (a)
(139) (378)
Total $ 2,312  $ 1,924 
(a)During the 12 weeks ended March 20, 2021, we recorded a pre-tax unrealized gain of $108 million ($82 million after-tax or $0.06 per share) on our short-term investment in a publicly traded company, based on the quoted active market price as of market close on March 19, 2021, the last trading day of our first quarter of 2021. The gain was recorded in selling, general and administrative expenses within corporate unallocated expenses. See Note 9 for further information. We subsequently sold all of these shares during the second quarter of 2021. We will record a related pre-tax loss of $39 million ($30 million after-tax), net of discounts, on the sale in our 12 weeks ending June 12, 2021 in selling, general and administrative expenses within corporate unallocated expenses.
Operating profit includes certain pre-tax charges taken as a result of the COVID-19 pandemic. These pre-tax charges by division are as follows:
12 Weeks Ended 3/20/2021
Allowances for Expected Credit Losses(a)
Upfront Payments to Customers(b)
Inventory Write-Downs and Product Returns
Employee Compensation Expense(c)
Employee Protection Costs(d)
Other(e)
Total
FLNA (f)
$ (4) $   $   $ 18  $ 9  $ 1  $ 24 
QFNA       1  1    2 
PBNA (f)
(4) 1    12  5  (1) 13 
LatAm       12  2  1  15 
Europe       3  3    6 
AMESA (f)
    (2)     1  (1)
APAC           2  2 
Total $ (8) $ 1  $ (2) $ 46  $ 20  $ 4  $ 61 
12 Weeks Ended 3/21/2020
Allowances for Expected Credit Losses(a)
Upfront Payments to Customers(b)
Inventory Write-Downs and Product Returns(g)
Other(e)
Total
FLNA $ 21  $ —  $ $ $ 27 
QFNA —  —  — 
PBNA 41  44  22  108 
Europe —  —  — 
APAC —  — 
Total $ 68  $ 44  $ 26  $ $ 143 
(a)Reflects the expected impact of the global economic uncertainty caused by COVID-19, leveraging estimates of creditworthiness and projections of default and recovery rates for certain of our customers, including foodservice and vending businesses.
(b)Relates to promotional spending for which benefit is not expected to be received.
(c)Includes incremental frontline incentive pay, crisis child care and other leave benefits and labor costs.
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(d)Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services.
(e)Includes reserves for property, plant and equipment, donations of cash and product and other costs.
(f)Income amounts represent adjustments for changes in estimates of previously recorded amounts.
(g)Includes a reserve for product returns of $7 million.
Note 2 - Recently Issued Accounting Pronouncements
Adopted
In 2019, the Financial Accounting Standards Board 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. We adopted the guidance in the first quarter of 2021. The adoption did not have a material impact on our condensed consolidated financial statements or related disclosures.
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, including cash expenditures of approximately $1.6 billion. These pre-tax charges are expected to consist of approximately 65% of severance and other employee-related costs, 15% for asset impairments (all non-cash) resulting from plant closures and related actions, and 20% for other costs associated with the implementation of our initiatives. We expect to complete this plan by 2023.
The total expected plan pre-tax charges are expected to be incurred by division approximately as follows:
FLNA QFNA PBNA LatAm Europe AMESA APAC Corporate
Expected pre-tax charges 15  % % 30  % 10  % 25  % % % 11  %
A summary of our 2019 Productivity Plan charges is as follows:
12 Weeks Ended
3/20/2021 3/21/2020
Cost of sales $ 2  $
Selling, general and administrative expenses 35  30 
Other pension and retiree medical benefits expense 6 
Total restructuring and impairment charges $ 43  $ 38 
After-tax amount $ 35  $ 32 
Net income attributable to PepsiCo per common share $ (0.03) $ (0.02)
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12 Weeks Ended Plan to Date
3/20/2021 3/21/2020
through 3/20/2021
FLNA $ 15  $ $ 151 
QFNA   12 
PBNA 4  142 
LatAm 2  104 
Europe 11  164 
AMESA 1  56 
APAC   —  54 
Corporate 4  94 
37  32  777 
Other pension and retiree medical benefits expense 6  63 
Total $ 43  $ 38  $ 840 
12 Weeks Ended Plan to Date
3/20/2021 3/21/2020
through 3/20/2021
Severance and other employee costs $ 34  $ 22  $ 478 
Asset impairments   125 
Other costs 9  15  237 
Total $ 43  $ 38  $ 840 
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 12 weeks ended March 20, 2021 is as follows:
Severance and Other Employee Costs Other Costs Total
Liability as of December 26, 2020 $ 122  $ $ 127 
2021 restructuring charges 34  43 
Cash payments (37) (12) (49)
Non-cash charges and translation (6) (5)
Liability as of March 20, 2021 $ 113  $ 3  $ 116 
Substantially all of the restructuring accrual at March 20, 2021 is expected to be paid by the end of 2021.
Other Productivity Initiatives
There were no charges related to other productivity and efficiency initiatives outside the scope of the 2019 Productivity Plan.
We regularly evaluate different productivity initiatives beyond the productivity plan and other initiatives described above.
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Note 4 - Intangible Assets    
A summary of our amortizable intangible assets is as follows:
3/20/2021 12/26/2020
Gross Accumulated Amortization Net Gross Accumulated Amortization Net
Acquired franchise rights $ 982  $ (177) $ 805  $ 976  $ (173) $ 803 
Customer relationships 641  (209) 432  642  (204) 438 
Brands 1,348  (1,104) 244  1,348  (1,099) 249 
Other identifiable intangibles 473  (264) 209  474  (261) 213 
Total $ 3,444  $ (1,754) $ 1,690  $ 3,440  $ (1,737) $ 1,703 

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The change in the book value of indefinite-lived intangible assets is as follows:
Balance
12/26/2020
Acquisitions Translation
and Other
Balance
3/20/2021
FLNA (a)
Goodwill $ 465  $ (8) $ $ 461 
Brands 340  —  341 
Total 805  (8) 802 
QFNA
Goodwill 189  —  —  189 
Total 189  —  —  189 
PBNA
Goodwill 12,189  —  15  12,204 
Reacquired franchise rights 7,107  —  23  7,130 
Acquired franchise rights 1,536  —  1,542 
Brands 3,122  —  —  3,122 
Total 23,954  —  44  23,998 
LatAm
Goodwill 458  —  (11) 447 
Brands 108  —  (5) 103 
Total 566  —  (16) 550 
Europe
Goodwill 3,806  —  3,813 
Reacquired franchise rights 496  —  (2) 494 
Acquired franchise rights 172  —  (2) 170 
Brands 4,072  —  (3) 4,069 
Total 8,546  —  —  8,546 
AMESA
Goodwill 1,096  —  1,102 
Brands 214  —  217 
Total 1,310  —  1,319 
APAC
Goodwill 554  —  563 
Brands 445  —  453 
Total 999  —  17  1,016 
Total goodwill 18,757  (8) 30  18,779 
Total reacquired franchise rights 7,603  —  21  7,624 
Total acquired franchise rights 1,708  —  1,712 
Total brands 8,301  —  8,305 
Total $ 36,369  $ (8) $ 59  $ 36,420 
(a)The change in acquisitions primarily reflects our acquisition of BFY Brands, Inc. (BFY Brands).
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Note 5 - Income Taxes
On May 19, 2019, a public referendum held in Switzerland passed the Federal Act on Tax Reform and AHV Financing (TRAF), effective January 1, 2020. The enactment of certain provisions of the TRAF resulted in adjustments to our deferred taxes. During 2020, we recorded a net tax benefit of $72 million related to the adoption of the TRAF in the Swiss Canton of Bern. There were no income tax adjustments related to the TRAF recorded in either of the 12 weeks ended March 20, 2021 or March 21, 2020. While the accounting for the impacts of the TRAF are deemed to be complete, further adjustments to our financial statements and related disclosures could be made in future quarters, including in connection with final tax return filings.
For further information and discussion of the TRAF, refer to Note 5 to our consolidated financial statements in our 2020 Form 10-K.
Note 6 - Share-Based Compensation
The following table summarizes our total share-based compensation expense, which is primarily recorded in selling and general and administrative expenses:
12 Weeks Ended
3/20/2021 3/21/2020
Share-based compensation expense - equity awards $ 79  $ 61 
Share-based compensation expense - liability awards 4 
Restructuring charges 1 
Total $ 84  $ 65 
The following table summarizes share-based awards granted under the terms of the PepsiCo, Inc. Long-Term Incentive Plan:
12 Weeks Ended
3/20/2021 3/21/2020
Granted(a)
Weighted-Average Grant Price
Granted(a)
Weighted-Average Grant Price
Stock options 1.8  $ 131.25  1.6  $ 131.25 
RSUs and PSUs 2.6  $ 131.25  2.4  $ 131.28 
(a)In millions. All grant activity is disclosed at target.
We granted long-term cash awards to certain executive officers and other senior executives with an aggregate target value of $17 million and $18 million during the 12 weeks ended March 20, 2021 and March 21, 2020, respectively.
Our weighted-average Black-Scholes fair value assumptions are as follows: 
  12 Weeks Ended
  3/20/2021 3/21/2020
Expected life 7 years 6 years
Risk-free interest rate 1.1  % 1.0  %
Expected volatility 14  % 14  %
Expected dividend yield 3.1  % 3.5  %
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Note 7 - Pension and Retiree Medical Benefits
In 2020, we adopted an amendment, effective December 31, 2025, to the U.S. defined benefit pension plans to freeze benefit accruals for salaried participants, which will decrease pre-tax pension benefits expense by approximately $70 million in 2021, primarily impacting corporate unallocated expenses. In 2020, we also approved an amendment, effective January 1, 2021, to reorganize the U.S. qualified defined benefit pension plans that resulted in the transfer of certain participants from the PepsiCo Employees Retirement Plan A (Plan A) to the PepsiCo Employees Retirement Plan I and to a newly created plan, PepsiCo Employees Retirement Plan H (Plan H), with no material impact to pre-tax pension benefits expense. In addition, in 2020, we adopted an amendment, effective January 1, 2021, to enhance the pay credits of certain participants in Plan H, which will increase pre-tax pension benefits expense by approximately $45 million in 2021, primarily impacting service cost expense. For further information on plan changes, refer to Note 7 to our consolidated financial statements in our 2020 Form 10-K.
The components of net periodic benefit cost/(income) for pension and retiree medical plans are as follows:
  12 Weeks Ended
  Pension Retiree Medical
  U.S. International  
  3/20/2021 3/21/2020 3/20/2021 3/21/2020 3/20/2021 3/21/2020
Service cost $ 120  $ 100  $ 19  $ 17  $ 8  $
Other pension and retiree medical benefits income:
Interest cost 75  100  13  16  3 
Expected return on plan assets (224) (214) (41) (37) (4) (4)
Amortization of prior service (credits)/cost (7)   —  (2) (3)
Amortization of net losses/(gains) 51  45  13  10  (3) (5)
Special termination benefits 6    —    — 
Total other pension and retiree medical benefits income (99) (60) (15) (11) (6) (6)
Total $ 21  $ 40  $ 4  $ $ 2  $ — 
We continue to monitor the impact of the COVID-19 pandemic and related global economic conditions and uncertainty on the net unfunded status of our pension and retiree medical plans. We also regularly evaluate opportunities to reduce risk and volatility associated with our pension and retiree medical plans. During the 12 weeks ended March 20, 2021, we made discretionary contributions of $300 million to Plan H in the United States and $25 million to our international plans. We expect to make an additional discretionary contribution of $200 million to our U.S. qualified defined benefit plans in the third quarter of 2021. During the 12 weeks ended March 21, 2020, we made discretionary contributions of $150 million to Plan A in the United States.
Note 8 - Debt Obligations
In the 12 weeks ended March 20, 2021, there were no maturities or prepayments of senior notes.
As of March 20, 2021, we had no commercial paper outstanding.
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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 20, 2021 with respect to our risk management policies or strategies and valuation techniques used in measuring the fair value of the financial assets or liabilities disclosed in Note 9 to our consolidated financial statements in our 2020 Form 10-K.
Certain of our agreements with our counterparties require us to post full collateral on derivative instruments in a net liability position if our credit rating is at A2 (Moody’s Investors Service, Inc.) or A (S&P Global Ratings) and we have been placed on credit watch for possible downgrade or if our credit rating falls below either of these levels. The fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of March 20, 2021 was $262 million. We have posted no collateral under these contracts and no credit-risk-related contingent features were triggered as of March 20, 2021.
The notional amounts of our financial instruments used to hedge the above risks as of March 20, 2021 and December 26, 2020 are as follows:
 
Notional Amounts(a)
3/20/2021 12/26/2020
Commodity $ 1.1  $ 1.1 
Foreign exchange $ 2.0  $ 1.9 
Interest rate $ 3.0  $ 3.0 
Net investment (b)
$ 2.7  $ 2.7 
(a)In billions.
(b)The total notional of our net investment hedge consists of non-derivative debt instruments.
As of March 20, 2021, approximately 2% of total debt, after the impact of the related interest rate derivative instruments, was subject to variable rates, compared to approximately 3% as of December 26, 2020.
Held-to-Maturity Debt Securities
Investments in debt securities that we have the positive intent and ability to hold until maturity are classified as held-to-maturity. Highly liquid debt securities with original maturities of three months or less are recorded as cash equivalents. Our held-to-maturity debt securities consist of U.S. Treasury securities and commercial paper. As of March 20, 2021, we had no investments in U.S. Treasury securities. As of December 26, 2020, we had $2.1 billion of investments in U.S. Treasury securities with $2.0 billion recorded in cash and cash equivalents and $0.1 billion in short-term investments. As of March 20, 2021, we had $525 million of investments in commercial paper with $375 million recorded in cash and cash equivalents and $150 million in short-term investments. As of December 26, 2020, we had $260 million of investments in commercial paper with $75 million recorded in cash and cash equivalents and $185 million in short-term investments. Held-to-maturity debt securities are recorded at amortized cost, which approximates fair value, and realized gains or losses are reported in earnings. Our investments mature in less than one year. As of March 20, 2021 and December 26, 2020, gross unrecognized gains and losses and the allowance for expected credit losses were not material.
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Fair Value Measurements
The fair values of our financial assets and liabilities as of March 20, 2021 and December 26, 2020 are categorized as follows:
  3/20/2021 12/26/2020
 
Fair Value Hierarchy Levels(a)
Assets(a)
Liabilities(a)
Assets(a)
Liabilities(a)
Equity securities (b)
1 $ 124  $   $ —  $ — 
Index funds (c)
1 $ 240  $   $ 231  $ — 
Prepaid forward contracts (d)
2 $ 17  $   $ 18  $ — 
Deferred compensation (e)
2 $   $ 488  $ —  $ 477 
Contingent consideration (f)
3 $   $ 847  $   $ 861 
Derivatives designated as fair value hedging instruments:
Interest rate (g)
2 $ 1  $   $ $ — 
Derivatives designated as cash flow hedging instruments:
Foreign exchange (h)
2 $ 7  $ 68  $ $ 71 
Interest rate (h)
2 28  304  13  307 
Commodity (i)
2 59    32  — 
$ 94  $ 372  $ 54  $ 378 
Derivatives not designated as hedging instruments:
Foreign exchange (h)
2 $ 5  $ 5  $ $
Commodity (i)
2 32  10  19 
$ 37  $ 15  $ 23  $ 15 
Total derivatives at fair value (j)
$ 132  $ 387  $ 79  $ 393 
Total $ 513  $ 1,722  $ 328  $ 1,731 
(a)Fair value hierarchy levels are categorized consistently by Level 1 (quoted prices in active markets for identical assets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) in both years. Unless otherwise noted, financial assets are classified on our balance sheet within prepaid expenses and other current assets and other assets. Financial liabilities are classified on our balance sheet within accounts payable and other current liabilities and other liabilities.
(b)Based on the price of common stock. These are equity securities with readily determinable fair values and are classified as short-term investments. As of December 26, 2020, these equity securities did not have a readily determinable fair value. During the 12 weeks ended March 20, 2021, we recorded a pre-tax unrealized gain on equity securities of $108 million ($82 million after-tax or $0.06 per share). These equity securities were subsequently sold in the second quarter of 2021. See Note 1 for further information.
(c)Based on the price of index funds. These investments are classified as short-term investments and are used to manage a portion of market risk arising from our deferred compensation liability.
(d)Based primarily on the price of our common stock.
(e)Based on the fair value of investments corresponding to employees’ investment elections.
(f)In connection with our acquisition of Rockstar Energy Beverages (Rockstar), we recorded a liability for tax-related contingent consideration payable over up to 15 years, with an option to accelerate all remaining payments, with estimated maximum payments of approximately $1.1 billion, using current tax rates. The fair value of the liability is estimated using probability-weighted, discounted future cash flows at current tax rates. The significant unobservable inputs (Level 3) used to estimate the fair value include the expected future tax benefits associated with the acquisition, the probability that the option to accelerate all remaining payments will be exercised and discount rates. These unobservable inputs did not materially differ from those used as of December 26, 2020. The expected annual future tax benefits range from approximately $40 million to $110 million, with an average of $70 million. The probability, in any given year, that the option to accelerate will be exercised ranges from 3 to 25 percent, with a weighted-average payment period of approximately 3 years. The discount rates range from less than 1 percent to 5 percent, with a weighted average of 3 percent. The contingent consideration measured at fair value using unobservable inputs as of March 20, 2021 is $847 million, comprised of an $861 million liability as of December 26, 2020, and a fair value decrease of $14 million in the 12 weeks ended March 20, 2021, recorded in selling, general and administrative expenses.
(g)Based on London Interbank Offered Rate forward rates. The carrying amount of hedged fixed-rate debt was $0.2 billion as of March 20,
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2021 and December 26, 2020 and classified on our balance sheet within short-term debt obligations. As of March 20, 2021 and December 26, 2020, the cumulative amount of fair value hedging adjustments to hedged fixed-rate debt was a $1 million gain and a $2 million gain, respectively. As of March 20, 2021, the cumulative amount of fair value hedging adjustments on discontinued hedges was a $14 million net loss, which is being amortized over the remaining life of the related debt obligations.
(h)Based on recently reported market transactions of spot and forward rates.
(i)Based on recently reported market transactions of swap arrangements.
(j)Derivative assets and liabilities are presented on a gross basis on our balance sheet. Amounts subject to enforceable master netting arrangements or similar agreements which are not offset on the balance sheet as of March 20, 2021 and December 26, 2020 were not material. Collateral received or posted against our asset or liability positions was not material. Exchange-traded commodity futures are cash-settled on a daily basis and, therefore, not included in the table.
The carrying amounts of our cash and cash equivalents and short-term investments recorded at amortized cost approximate fair value due to their short-term maturity. Our cash equivalents and short-term investments recorded at amortized cost, are classified as Level 2 in the fair value hierarchy. The fair value of our debt obligations as of March 20, 2021 and December 26, 2020 was $46 billion and $50 billion, respectively, based upon prices of similar instruments in the marketplace, which are considered Level 2 inputs.
Losses/(gains) on our hedging instruments are categorized as follows:
  12 Weeks Ended
  Fair Value/Non-
designated Hedges
Cash Flow and Net Investment Hedges
 
Losses/(Gains)
Recognized in
Income Statement
(a)
Losses/(Gains)
Recognized in
Accumulated Other
Comprehensive Loss
Losses/(Gains)
Reclassified from
Accumulated Other
Comprehensive Loss
into Income Statement
(b)
3/20/2021 3/21/2020 3/20/2021 3/21/2020 3/20/2021 3/21/2020
Foreign exchange $ 4  $ (11) $ 11  $ (51) $ 13  $
Interest rate 1  (11) (18) 223  (4) 150 
Commodity (81) 166  (90) 64  (10)
Net investment   —  (63) (84)   — 
Total $ (76) $ 144  $ (160) $ 152  $ (1) $ 157 
(a)Foreign exchange derivative losses/gains are primarily included in selling, general and administrative expenses. Interest rate derivative losses/gains are primarily from fair value hedges and are included in net interest expense and other. These losses/gains are substantially offset by decreases/increases in the value of the underlying debt, which are also included in net interest expense and other. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity.
(b)Foreign exchange derivative losses/gains are primarily included in cost of sales. Interest rate derivative losses/gains 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 gains of $76 million related to our cash flow hedges from accumulated other comprehensive loss into net income during the next 12 months.
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Note 10 - Net Income Attributable to PepsiCo per Common Share
The computations of basic and diluted net income attributable to PepsiCo per common share are as follows:
  12 Weeks Ended
  3/20/2021 3/21/2020
  Income
Shares(a)
Income
Shares(a)
Basic net income attributable to PepsiCo per common share
$ 1.24  $ 0.96 
Net income available for PepsiCo common shareholders
$ 1,714  1,380  $ 1,338  1,390 
Dilutive securities:
Stock options, RSUs, PSUs and other (b)
  7  — 
Diluted $ 1,714  1,387  $ 1,338  1,396 
Diluted net income attributable to PepsiCo per common share
$ 1.24  $ 0.96 
(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 weeks ended March 20, 2021 and March 21, 2020.
Note 11 - Accumulated Other Comprehensive Loss Attributable to PepsiCo
The changes in the balances of each component of accumulated other comprehensive loss attributable to PepsiCo are as follows:
Currency Translation Adjustment Cash Flow Hedges Pension and Retiree Medical Other Accumulated Other Comprehensive Loss Attributable to PepsiCo
Balance as of December 26, 2020 (a)
$ (11,940) $ $ (3,520) $ (20) $ (15,476)
Other comprehensive (loss)/income before reclassifications (b)
128  97  (20) —  205 
Amounts reclassified from accumulated other comprehensive loss
18  (1) 52  —  69 
Net other comprehensive (loss)/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)
(a)Pension and retiree medical amounts are net of taxes of $1,514 million as of December 26, 2020 and $1,509 million as of March 20, 2021.
(b)Currency translation adjustment primarily reflects appreciation of the Canadian dollar, Pound sterling and Russian ruble.
Currency Translation Adjustment Cash Flow Hedges Pension and Retiree Medical Other Accumulated Other Comprehensive Loss Attributable to PepsiCo
Balance as of December 28, 2019 (a)
$ (11,290) $ (3) $ (2,988) $ (19) $ (14,300)
Other comprehensive (loss)/income before reclassifications (b)
(735) (236) 21  (949)
Amounts reclassified from accumulated other comprehensive loss —  157  50  —  207 
Net other comprehensive (loss)/income (735) (79) 71  (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.
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The reclassifications from accumulated other comprehensive loss to the income statement are summarized as follows:
12 Weeks Ended
3/20/2021 3/21/2020 Affected Line Item in the Income Statement
Currency translation:
Divestiture $ 18  $ — 
Selling, general and administrative expenses
Cash flow hedges:
Foreign exchange contracts $ 1  $ —  Net revenue
Foreign exchange contracts
12  Cost of sales
Interest rate derivatives
(4) 150  Net interest expense and other
Commodity contracts
(11) Cost of sales
Commodity contracts 1  — 
Selling, general and administrative expenses
Net (gains)/losses before tax (1) 157 
Tax amounts
1  (39)
Net losses after tax $   $ 118 
Pension and retiree medical items:
Amortization of prior service credits $ (9) $ —  Other pension and retiree medical benefits income
Amortization of net losses 61  50  Other pension and retiree medical benefits income
Net losses before tax
52  50 
Tax amounts
(11) (11)
Net losses after tax
$ 41  $ 39 
Total net losses reclassified, net of tax
$ 59  $ 157 
Note 12 - Acquisitions and Divestitures
Acquisition of Pioneer Food Group Ltd.
On March 23, 2020, we acquired all of the outstanding shares of Pioneer Foods, a food and beverage company in South Africa with exports to countries across the globe, for 110.00 South African rand per share in cash. The total consideration transferred was approximately $1.2 billion and was funded by two unsecured bridge loan facilities entered into by one of our international consolidated subsidiaries, which were fully repaid in April 2020.
We accounted for the transaction as a business combination. We recognized and measured the identifiable assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, in our AMESA segment. The assets acquired and liabilities assumed in Pioneer Foods as of the acquisition date, which primarily include goodwill and other intangible assets of $0.8 billion and property, plant and equipment of $0.4 billion, are based on preliminary estimates that are subject to revisions and may result in adjustments to preliminary values as valuations are finalized. We will finalize these amounts in the second quarter of 2021.
In connection with our acquisition of Pioneer Foods, we have made certain commitments to the South Africa Competition Commission, including a commitment to provide the equivalent of 7.7 billion South African rand, or approximately $0.4 billion as of the acquisition date, in value for the benefit of our employees, agricultural development, education, developing Pioneer Foods’ operations and enterprise
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development programs in South Africa. Included in this commitment is 2.2 billion South African rand, or approximately $0.1 billion, relating to the implementation of an employee ownership plan and an agricultural, entrepreneurship and educational development fund, which is an irrevocable condition of the acquisition. This commitment was recorded in selling, general and administrative expenses in the year ended December 26, 2020 and is expected to be settled primarily in the second half of 2021. The remaining commitment of 5.5 billion South African rand, or approximately $0.3 billion as of the acquisition date, relates to capital expenditures and/or business-related costs which will be incurred and recorded over a five-year period from the acquisition date.
Acquisition of Rockstar Energy Beverages
On April 24, 2020, we acquired Rockstar, an energy drink maker with whom we had a distribution agreement prior to the acquisition, for an upfront cash payment of approximately $3.85 billion and contingent consideration related to estimated future tax benefits associated with the acquisition of approximately $0.9 billion. See Note 9 for further information about the contingent consideration.
We accounted for the transaction as a business combination. We recognized and measured the identifiable assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, primarily in our PBNA segment. The assets acquired and liabilities assumed in Rockstar as of the acquisition date, which primarily include goodwill and other intangible assets of $4.7 billion, are based on preliminary estimates that are subject to revisions and may result in adjustments to preliminary values as valuations are finalized. We will finalize these amounts in the second quarter of 2021.
Acquisition of Hangzhou Haomusi Food Co., Ltd.
On June 1, 2020, we acquired all of the outstanding shares of Be & Cheery, one of the largest online snacks companies in China, from Haoxiangni Health Food Co., Ltd. for cash. The total consideration transferred was approximately $0.7 billion.
We accounted for the transaction as a business combination. We recognized and measured the identifiable assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, in our APAC segment. The assets acquired and liabilities assumed in Be & Cheery as of the acquisition date, which primarily include goodwill and other intangible assets of $0.7 billion, are based on preliminary estimates that are subject to revisions and may result in adjustments to preliminary values as valuations are finalized. We expect to finalize these amounts as soon as possible, but no later than the third quarter of 2021.
Merger and Integration Charges/Credits
A summary of our merger and integration charges/credits is as follows:
12 Weeks Ended
3/20/2021 3/21/2020 Acquisition
FLNA $ 2  $ 23  BFY Brands
PBNA 1  —  Rockstar
AMESA 1 
Pioneer Foods
Corporate (a)
(14) —  Rockstar
Total $ (10) $ 25 
After-tax amount $ (7) $ 22 
Net income attributable to PepsiCo per common share $ 0.01  $ (0.02)
(a)In the 12 weeks ended March 20, 2021, the income amount relates to the change in the fair value of contingent consideration associated with our acquisition of Rockstar.
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Merger and integration charges/credits include employee-related costs, contract termination costs, changes in the fair value of contingent consideration and other integration costs (recorded in selling, general and administrative expenses).
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FINANCIAL REVIEW
Our discussion and analysis is intended to help the reader understand our results of operations and financial condition and is provided as an addition to, and should be read in connection with, our condensed consolidated financial statements and the accompanying notes. Unless otherwise noted, tabular dollars are presented in millions, except per share amounts. All per share amounts reflect common stock per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts. Percentage changes are based on unrounded amounts.
Our Critical Accounting Policies
The critical accounting policies below should be read in conjunction with those outlined in our 2020 Form 10-K.
Total Marketplace Spending
We offer sales incentives and discounts through various programs to customers and consumers. Total marketplace spending includes sales incentives, discounts, advertising and other marketing activities. Sales incentives and discounts are primarily accounted for as a reduction of revenue. A number of our sales incentives, such as bottler funding to independent bottlers and customer volume rebates, are based on annual targets, and accruals are established during the year, as products are delivered, for the expected payout, which may occur after year end once reconciled and settled.
These accruals are based on contract terms and our historical experience with similar programs and require management judgment with respect to estimating customer and consumer participation and performance levels. Differences between estimated expense and actual incentive costs are normally insignificant and are recognized in earnings in the period such differences are determined. In addition, certain advertising and marketing costs are also based on annual targets and recognized during the year as incurred.
For interim reporting, our policy is to allocate our forecasted full-year sales incentives for most of our programs to each of our interim reporting periods in the same year that benefits from the programs. The allocation methodology is based on our forecasted sales incentives for the full year and the proportion of each interim period’s actual gross revenue or volume, as applicable, to our forecasted annual gross revenue or volume, as applicable. Based on our review of the forecasts at each interim period, any changes in estimates and the related allocation of sales incentives are recognized beginning in the interim period that they are identified. In addition, we apply a similar allocation methodology for interim reporting purposes for certain advertising and other marketing activities.
Income Taxes
In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate which is based on our expected annual income, statutory tax rates and tax structure and transactions, including transfer pricing arrangements, available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions. Subsequent recognition, derecognition and measurement of a tax position taken in a previous period are separately recognized in the quarter in which they occur. 
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Our Business Risks
This Form 10-Q contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (Reform Act). Statements that constitute forward-looking statements within the meaning of the Reform Act are generally identified through the inclusion of words such as “aim,” “anticipate,” “believe,” “drive,” “estimate,” “expect,” “expressed confidence,” “forecast,” “future,” “goal,” “guidance,” “intend,” “may,” “objective,” “outlook,” “plan,” “position,” “potential,” “project,” “seek,” “should,” “strategy,” “target,” “will” or similar statements or variations of such words and other similar expressions. All statements addressing our future operating performance, and statements addressing events and developments that we expect or anticipate will occur in the future, are forward-looking statements within the meaning of the Reform Act. These forward-looking statements are based on currently available information, operating plans and projections about future events and trends. They inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in any such forward-looking statement. Such risks and uncertainties include, but are not limited to: the impact of COVID-19; future demand for PepsiCo’s products; damage to PepsiCo’s reputation or brand image; issues or concerns with respect to product quality and safety; PepsiCo’s ability to compete effectively; PepsiCo’s ability to attract, develop and maintain a highly skilled and diverse workforce; water scarcity; changes in the retail landscape or in sales to any key customer; disruption of PepsiCo’s supply chain; political or social conditions in the markets where PepsiCo’s products are made, manufactured, distributed or sold; PepsiCo’s ability to grow its business in developing and emerging markets; changes in economic conditions in the countries in which PepsiCo operates; future cyber incidents and other disruptions; failure to successfully complete or manage strategic transactions; PepsiCo’s reliance on third-party service providers; climate change or measures to address climate change; strikes or work stoppages; failure to realize benefits from PepsiCo’s productivity initiatives; deterioration in estimates and underlying assumptions regarding future performance that can result in an impairment charge; fluctuations or other changes in exchange rates; any downgrade or potential downgrade of PepsiCo’s credit ratings; imposition or proposed imposition of new or increased taxes aimed at PepsiCo’s products; imposition of limitations on the marketing or sale of PepsiCo’s products; changes in laws and regulations related to the use or disposal of plastics or other packaging of PepsiCo’s products; failure to comply with personal data protection and privacy laws; increase in income tax rates, changes in income tax laws or disagreements with tax authorities; failure to adequately protect PepsiCo’s intellectual property rights or infringement on intellectual property rights of others; failure to comply with applicable laws and regulations; and potential liabilities and costs from litigation, claims, legal or regulatory proceedings, inquiries or investigations; and other risks and uncertainties including those described in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our Business Risks,” included in our 2020 Form 10-K and in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our Business Risks” of this Form 10-Q. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
COVID-19
Our global operations continue to expose us to risks associated with the COVID-19 pandemic, which continues to result in challenging operating environments and has affected almost all of the more than 200 countries and territories in which our products are made, manufactured, distributed or sold. Travel bans and restrictions, quarantines, curfews, restrictions on public gatherings, shelter in place and safer-at-home orders, business shutdowns and closures continue in many of these markets. These measures have impacted and will continue to impact us, our customers (including foodservice customers), consumers, employees, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third
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parties with whom we do business, which may result in changes in demand for our products, increases in operating costs (whether as a result of changes to our supply chain or increases in employee costs, including expanded benefits and frontline incentives, costs associated with the provision of personal protective equipment and increased sanitation, or otherwise), or adverse impacts to our supply chain through reduced availability of air or other commercial transport, port closures or border restrictions, any of which can impact our ability to make, manufacture, distribute and sell our products. In addition, measures that impact our ability to access our offices (several of which remain closed), plants, warehouses, distribution centers or other facilities, or that impact the ability of our customers (including our foodservice customers), consumers, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third parties to do the same, may continue to impact the availability or productivity of our and their employees, many of whom are not able to perform their job functions remotely.
Public concern regarding the risk of contracting COVID-19 has impacted and may continue to impact demand from consumers, including due to consumers not leaving their homes or leaving their homes less often than they did prior to the start of the pandemic or otherwise shopping for and consuming food and beverage products in a different manner than they historically have or because some of our consumers have lower discretionary income due to unemployment or reduced or limited work as a result of measures taken in response to the pandemic. Even as governmental restrictions are relaxed and economies gradually, partially, or fully reopen in certain of these jurisdictions and markets, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels and shopping and consumption preferences. Changes in consumer purchasing and consumption patterns may increase demand for our products in one quarter, resulting in decreased demand for our products in subsequent quarters, or in a lower-margin sales channel resulting in potentially reduced profit from sales of our products. We continue to see shifts in product and channel preferences as markets move through varying stages of restrictions and re-opening at different times, including changes in at-home consumption, in immediate consumption and away-from-home channels, such as convenience and gas and foodservice. In addition, we continue to see an increase in demand in the e-commerce and online-to-offline channels and any failure to capitalize on this demand could adversely affect our ability to maintain and grow sales or category share and erode our competitive position.
Any reduced demand for our products or change in consumer purchasing and consumption patterns, as well as continued economic uncertainty, can adversely affect our customers’ and business partners’ financial condition, which can result in bankruptcy filings and/or an inability to pay for our products, reduced or canceled orders of our products, continued or additional closing of restaurants, stores, entertainment or sports complexes, schools or other venues in which our products are sold, or reduced capacity at any of the foregoing, or our business partners’ inability to supply us with ingredients or other items necessary for us to make, manufacture, distribute or sell our products. Such adverse changes in our customers’ or business partners’ financial condition have also resulted and may continue to result in our recording additional charges for our inability to recover or collect any accounts receivable, owned or leased assets, including certain foodservice and vending and other equipment, or prepaid expenses. In addition, continued economic uncertainty associated with the COVID-19 pandemic has resulted in volatility in the global capital and credit markets which can impair our ability to access these markets on terms commercially acceptable to us, or at all.
While we have developed and implemented and continue to develop and implement health and safety protocols, business continuity plans and crisis management protocols in an effort to mitigate the negative impact of COVID-19 to our employees and our business, the extent of the impact of the pandemic on our business and financial results will continue to depend on numerous evolving factors that we are not able to accurately predict and which will vary by jurisdiction and market, including the duration and scope of the pandemic, the emergence of new variants of the virus, the likelihood of a resurgence of positive cases, the
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development and availability of effective treatments and vaccines, the speed at which such vaccines are administered, global economic conditions during and after the pandemic, governmental actions that have been taken, or may be taken in the future, in response to the pandemic and changes in consumer behavior in response to the pandemic, some of which may be more than just temporary.
Risks Associated with International Operations
In the 12 weeks ended March 20, 2021, substantially all of our financial results outside of North America reflect the months of January and February. In the 12 weeks ended March 20, 2021, our operations outside of the United States generated 37% of our consolidated net revenue, with Canada, China, Mexico, Russia, South Africa and the United Kingdom comprising approximately 21% of our consolidated net revenue. As a result, we are exposed to foreign exchange risk in the international markets in which our products are made, manufactured, distributed or sold. In the 12 weeks ended March 20, 2021, unfavorable foreign exchange reduced net revenue growth by 0.5 percentage points, primarily due to declines in the Russian ruble and Brazilian real, partially offset by an appreciation of the euro. Currency declines against the U.S. dollar which are not offset could adversely impact our future financial results.
In addition, volatile economic, political and social conditions and civil unrest in certain markets in which our products are made, manufactured, distributed or sold, including in Argentina, Brazil, China, Mexico, the Middle East, Russia and Turkey, and natural disasters, debt and credit issues and currency controls or fluctuations in certain of these international markets, continue to, and the threat or imposition of new or increased tariffs or sanctions or other impositions in or related to these international markets may, result in challenging operating environments. We continue to monitor the economic, operating and political environment in these markets closely and to identify actions to potentially mitigate any unfavorable impacts on our future results. We also continue to monitor the economic and political developments related to the United Kingdom’s withdrawal from the European Union (Brexit), including the effects of the post-Brexit trade deal entered into between the United Kingdom and the European Union in December 2020, as well as the economic, operating and political environment in Russia and the potential impact for our Europe segment and other businesses.
See Note 9 to our condensed consolidated financial statements in this Form 10-Q for the fair values of our financial instruments as of March 20, 2021 and December 26, 2020 and Note 9 to our consolidated financial statements in our 2020 Form 10-K for a discussion of these items. Cautionary statements included above and in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks” in our 2020 Form 10-K should be considered when evaluating our trends and future results.
Imposition of Taxes and Regulations on our Products
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased taxes or regulations on the manufacture, distribution or sale of our products or their packaging, ingredients or substances contained in, or attributes of, our products or their packaging, commodities used in the production of our products or their packaging or the recyclability or recoverability of our packaging. These taxes and regulations vary in scope and form. For example, some taxes apply to all beverages, including non-caloric beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar). In addition, COVID-19 has resulted in increased regulatory focus on labeling in certain jurisdictions, including in Mexico which recently enacted product labeling requirements and limitations on the marketing of certain of our products as a result of ingredients or substances contained in such products. Further, some regulations apply to all products using certain types of packaging (e.g., plastic), while others are designed to increase the sustainability of packaging, encourage waste reduction and increased recycling rates or facilitate the waste management process or restrict the sale of products in certain packaging.
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We sell a wide variety of beverages, foods and snacks in more than 200 countries and territories and the profile of the products we sell, the amount of revenue attributable to such products and the type of packaging used vary by jurisdiction. Because of this, we cannot predict the scope or form potential taxes, regulations or other limitations on our products or their packaging may take, and therefore cannot predict the impact of such taxes, regulations or limitations on our financial results. In addition, taxes, regulations and limitations may impact us and our competitors differently. We continue to monitor existing and proposed taxes and regulations in the jurisdictions in which our products are made, manufactured, distributed and sold and to consider actions we may take to potentially mitigate the unfavorable impact, if any, of such taxes, regulations or limitations, including advocating alternative measures with respect to the imposition, form and scope of any such taxes, regulations or limitations.
Retail Landscape
Our industry continues to be affected by disruption of the retail landscape, including the rapid growth in sales through e-commerce websites and mobile commerce applications, including through subscription services, the integration of physical and digital operations among retailers and the international expansion of hard discounters. We have seen and expect to continue to see a further shift to e-commerce, online-to-offline and other online purchasing by consumers, including as a result of the COVID-19 pandemic. We continue to monitor changes in the retail landscape and seek to identify actions we may take to build our global e-commerce and digital capabilities, such as expanding our direct-to-consumer business, and distribute our products effectively through all existing and emerging channels of trade and potentially mitigate any unfavorable impacts on our future results.
Results of Operations – Consolidated Review
Consolidated Results
Volume
Physical or unit volume is one of the key metrics management uses internally to make operating and strategic decisions, including the preparation of our annual operating plan and the evaluation of our business performance. We believe volume provides additional information to facilitate the comparison of our historical operating performance and underlying trends and provides additional transparency on how we evaluate our business because it measures demand for our products at the consumer level. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Financial Results – Volume” included in our 2020 Form 10-K for further information on volume.
We report substantially all of our international beverage volume on a monthly calendar basis. The 12 weeks ended March 20, 2021 include beverage volume outside of North America for the months of January and February.
Consolidated Net Revenue and Operating Profit
  12 Weeks Ended
  3/20/2021 3/21/2020 Change
Net revenue $ 14,820  $ 13,881  7  %
Operating profit $ 2,312  $ 1,924  20  %
Operating profit margin 15.6  % 13.9  % 1.7 
See “Results of Operations – Division Review” for a tabular presentation and discussion of key drivers of net revenue.
Operating profit grew 20% and operating profit margin increased 1.7 percentage points. Operating profit growth was primarily driven by effective net pricing and productivity savings, partially offset by certain
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operating cost increases, a 5-percentage-point impact of higher commodity costs and a decrease in organic volume.
Higher mark-to-market gains on commodity derivatives included in “Items Affecting Comparability” contributed 12 percentage points to operating profit growth. An unrealized pre-tax gain of $108 million on our short-term investment in a publicly traded company also contributed 5 percentage points to operating profit growth. Additionally, lower charges compared to the prior year taken as a result of the COVID-19 pandemic contributed 4 percentage points to operating profit growth. See Note 1 and Note 9 for further information.
Results of Operations – Division Review
While our financial results in North America are reported on a 12-week basis, substantially all of our international operations report on a monthly calendar basis for which the months of January and February are reflected in our results for the 12 weeks ended March 20, 2021.
See “Non-GAAP Measures” and “Items Affecting Comparability” for a discussion of items to consider when evaluating our results and related information regarding measures not in accordance with GAAP.
In the discussions of net revenue and operating profit below, “effective net pricing” reflects the year-over-year impact of discrete pricing actions, sales incentive activities and mix resulting from selling varying products in different package sizes and in different countries and “net pricing” reflects the year-over-year combined impact of list price changes, weight changes per package, discounts and allowances. Additionally, “acquisitions and divestitures” reflect all mergers and acquisitions activity, including the impact of acquisitions, divestitures and changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.
Net Revenue and Organic Revenue Growth
Organic revenue growth is a non-GAAP financial measure. For further information on this measure see “Non-GAAP Measures.”
12 Weeks Ended 3/20/2021
Impact of Impact of
Reported
% Change, GAAP Measure
Foreign exchange translation Acquisitions and divestitures
Organic
% Change, Non-GAAP Measure(a)
Organic Volume(b)
Effective net pricing
FLNA 4  % —  (0.5) 3  % (1)
QFNA 2  % (0.5) —  1  % (4)
PBNA 5  % —  (3) 2  % (4.5)
LatAm (5) %