PEPSICO INC (Form: 10-Q, Received: 10/05/2021 06:02:16)

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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 September 4, 2021 (36 weeks)


☐			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


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

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 September 28, 2021 was 1,382,652,943.

Table of Contents

PepsiCo, Inc. and Subsidiaries

Table of Contents


		Page No.
Part I Financial Information
Item 1.	Condensed Consolidated Financial Statements	3
	Condensed Consolidated Statement of Income – 12 and 36 Weeks Ended September 4, 2021 and September 5, 2020	3
	Condensed Consolidated Statement of Comprehensive Income – 12 and 36 Weeks Ended September 4, 2021 and September 5, 2020	4
	Condensed Consolidated Statement of Cash Flows – 36 Weeks Ended September 4, 2021 and September 5, 2020	5
	Condensed Consolidated Balance Sheet – September 4, 2021 and December 26, 2020	7
	Condensed Consolidated Statement of Equity – 12 and 36 Weeks Ended September 4, 2021 and September 5, 2020	8
	Notes to the Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Report of Independent Registered Public Accounting Firm		51
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	52
Part II Other Information
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 6.	Exhibits	53

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				36 Weeks Ended
	9/4/2021		9/5/2020		9/4/2021		9/5/2020
Net Revenue	$	20,189	$	18,091	$	54,226	$	47,917
Cost of sales	9,394		8,156		24,945		21,371
Gross profit	10,795		9,935		29,281		26,546
Selling, general and administrative expenses	7,636		6,924		20,681		19,292
Operating Profit	3,159		3,011		8,600		7,254
Other pension and retiree medical benefits income	118		86		364		247
Net interest expense and other	(232)		(264)		(731)		(789)
Income before income taxes	3,045		2,833		8,233		6,712
Provision for income taxes	802		526		1,895		1,396
Net income	2,243		2,307		6,338		5,316
Less: Net income attributable to noncontrolling interests	19		16		42		41
Net Income Attributable to PepsiCo	$	2,224	$	2,291	$	6,296	$	5,275
Net Income Attributable to PepsiCo per Common Share
Basic	$	1.61	$	1.66	$	4.56	$	3.80
Diluted	$	1.60	$	1.65	$	4.54	$	3.79
Weighted-average common shares outstanding
Basic	1,382		1,384		1,381		1,387
Diluted	1,389		1,390		1,388		1,393

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Condensed Consolidated Statement of Comprehensive Income

PepsiCo, Inc. and Subsidiaries

(in millions, unaudited)


	12 Weeks Ended				36 Weeks Ended
	9/4/2021		9/5/2020		9/4/2021		9/5/2020
Net income	$	2,243	$	2,307	$	6,338	$	5,316
Other comprehensive (loss)/income, net of taxes:
Net currency translation adjustment	(335)		414		64		(1,136)
Net change on cash flow hedges	(21)		11		144		(37)
Net pension and retiree medical adjustments	90		(1)		141		119
Other	—		(3)		2		(3)
	(266)		421		351		(1,057)
Comprehensive income	1,977		2,728		6,689		4,259
Less: Comprehensive income attributable to noncontrolling interests	19		16		42		41
Comprehensive Income Attributable to PepsiCo	$	1,958	$	2,712	$	6,647	$	4,218

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Condensed Consolidated Statement of Cash Flows

PepsiCo, Inc. and Subsidiaries

(in millions, unaudited)


	36 Weeks Ended
	9/4/2021		9/5/2020
Operating Activities
Net income	$	6,338	$	5,316
Depreciation and amortization	1,863		1,731
Share-based compensation expense	215		186
Restructuring and impairment charges	129		124
Cash payments for restructuring charges	(165)		(166)
Acquisition and divestiture-related charges	12		286
Cash payments for acquisition and divestiture-related charges	(25)		(97)
Pension and retiree medical plan expenses	81		121
Pension and retiree medical plan contributions	(715)		(501)
Deferred income taxes and other tax charges and credits	261		96
Tax expense related to the Tax Cuts and Jobs Act (TCJ Act)	190		—
Tax payments related to the TCJ Act	(309)		(78)
Change in assets and liabilities:
Accounts and notes receivable	(1,416)		(1,430)
Inventories	(579)		(549)
Prepaid expenses and other current assets	(46)		(202)
Accounts payable and other current liabilities	99		289
Income taxes payable	645		583
Other, net	56		414
Net Cash Provided by Operating Activities	6,634		6,123

Investing Activities
Capital spending	(2,276)		(2,074)
Sales of property, plant and equipment	40		26
Acquisitions, net of cash acquired, and investments in noncontrolled affiliates	(28)		(6,373)
Divestitures and sales of investments in noncontrolled affiliates	158		4
Short-term investments, by original maturity:
More than three months - purchases	—		(400)
More than three months - maturities	1,135		—

Three months or less, net	(65)		23
Other investing, net	6		33
Net Cash Used for Investing Activities	(1,030)		(8,761)

(Continued on following page)

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Condensed Consolidated Statement of Cash Flows (continued)

PepsiCo, Inc. and Subsidiaries

(in millions, unaudited)


	36 Weeks Ended
	9/4/2021		9/5/2020
Financing Activities
Proceeds from issuances of long-term debt	—		10,564
Payments of long-term debt	(2,454)		(814)
Short-term borrowings, by original maturity:
More than three months - proceeds	—		4,069
More than three months - payments	(397)		(1,801)
Three months or less, net	19		(11)
Cash dividends paid	(4,328)		(4,094)
Share repurchases - common	(106)		(1,543)

Proceeds from exercises of stock options	146		145
Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted	(82)		(86)
Other financing	(19)		(18)
Net Cash (Used for)/Provided by Financing Activities	(7,221)		6,411
Effect of exchange rate changes on cash and cash equivalents and restricted cash	(30)		(184)
Net (Decrease)/Increase in Cash and Cash Equivalents and Restricted Cash	(1,647)		3,589
Cash and Cash Equivalents and Restricted Cash, Beginning of Year	8,254		5,570
Cash and Cash Equivalents and Restricted Cash, End of Period	$	6,607	$	9,159

Supplemental Non-Cash Activity
Right-of-use assets obtained in exchange for lease obligations	$	494	$	431

See accompanying notes to the condensed consolidated financial statements.

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Condensed Consolidated Balance Sheet

PepsiCo, Inc. and Subsidiaries

(in millions except per share amounts)


	(Unaudited)
	9/4/2021		12/26/2020
ASSETS
Current Assets
Cash and cash equivalents	$	6,506	$	8,185
Short-term investments	344		1,366

Accounts and notes receivable, less allowance: 9/21 - $165 and 12/20 - $201	9,545		8,404
Inventories:
Raw materials and packaging	1,926		1,720
Work-in-process	178		205
Finished goods	2,260		2,247
	4,364		4,172
Prepaid expenses and other current assets	1,058		874
Assets held for sale	1,893		—
Total Current Assets	23,710		23,001
Property, plant and equipment	45,688		46,340
Accumulated depreciation	(24,431)		(24,971)
Property, Plant and Equipment, net	21,257		21,369
Amortizable Intangible Assets, net	1,584		1,703
Goodwill	18,531		18,757
Other Indefinite-Lived Intangible Assets	17,291		17,612

Investments in Noncontrolled Affiliates	2,791		2,792
Deferred Income Taxes	4,357		4,372
Other Assets	3,733		3,312
Total Assets	$	93,254	$	92,918

LIABILITIES AND EQUITY
Current Liabilities
Short-term debt obligations	$	4,234	$	3,780
Accounts payable and other current liabilities	20,060		19,592
Liabilities held for sale	783		—
Total Current Liabilities	25,077		23,372
Long-Term Debt Obligations	37,023		40,370
Deferred Income Taxes	4,529		4,284
Other Liabilities	10,635		11,340
Total Liabilities	77,264		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: 1,383 and 1,380 shares, respectively)	23		23
Capital in excess of par value	3,924		3,910
Retained earnings	65,336		63,443
Accumulated other comprehensive loss	(15,125)		(15,476)
Repurchased common stock, in excess of par value (484 and 487 shares, respectively)	(38,286)		(38,446)
Total PepsiCo Common Shareholders’ Equity	15,872		13,454
Noncontrolling interests	118		98
Total Equity	15,990		13,552
Total Liabilities and Equity	$	93,254	$	92,918

See accompanying notes to the condensed consolidated financial statements.

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Condensed Consolidated Statement of Equity

PepsiCo, Inc. and Subsidiaries

(in millions, except per share amounts, unaudited)


	12 Weeks Ended						36 Weeks Ended
	9/4/2021			9/5/2020			9/4/2021			9/5/2020
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount










Common Stock
Balance, beginning of period	1,382	$	23	1,385	$	23	1,380	$	23	1,391	$	23
Change in repurchased common stock	1	—		(2)	—		3	—		(8)	—
Balance, end of period	1,383	23		1,383	23		1,383	23		1,383	23
Capital in Excess of Par Value
Balance, beginning of period		3,863			3,772			3,910			3,886
Share-based compensation expense		70			85			215			186

Stock option exercises, RSUs and PSUs converted		—			(2)			(119)			(138)
Withholding tax on RSUs and PSUs converted		(9)			(7)			(82)			(86)

Balance, end of period		3,924			3,848			3,924			3,848
Retained Earnings
Balance, beginning of period		64,605			62,145			63,443			61,946
Cumulative effect of accounting changes		—			—			—			(34)
Net income attributable to PepsiCo		2,224			2,291			6,296			5,275
Cash dividends declared – common (a)		(1,493)			(1,423)			(4,403)			(4,174)

Balance, end of period		65,336			63,013			65,336			63,013
Accumulated Other Comprehensive Loss
Balance, beginning of period		(14,859)			(15,778)			(15,476)			(14,300)
Other comprehensive (loss)/income attributable to PepsiCo		(266)			421			351			(1,057)
Balance, end of period		(15,125)			(15,357)			(15,125)			(15,357)
Repurchased Common Stock
Balance, beginning of period	(485)	(38,333)		(482)	(37,671)		(487)	(38,446)		(476)	(36,769)
Share repurchases	—	—		(3)	(400)		(1)	(106)		(12)	(1,559)
Stock option exercises, RSUs and PSUs converted	1	46		1	27		4	265		4	284
Other	—	1		—	—		—	1		—	—
Balance, end of period	(484)	(38,286)		(484)	(38,044)		(484)	(38,286)		(484)	(38,044)
Total PepsiCo Common Shareholders’ Equity		15,872			13,483			15,872			13,483
Noncontrolling Interests
Balance, beginning of period		99			96			98			82
Net income attributable to noncontrolling interest		19			16			42			41
Distributions to noncontrolling interests		—			—			(20)			(15)

Acquisitions		—			—			—			5
Other, net		—			—			(2)			(1)
Balance, end of period		118			112			118			112
Total Equity		$	15,990		$	13,595		$	15,990		$	13,595

(a)Cash dividends declared per common share were $1.075 and $1.0225 for the 12 weeks ended September 4, 2021 and September 5, 2020, respectively, and $3.1725 and $3.00 for the 36 weeks ended September 4, 2021 and September 5, 2020, respectively.

See accompanying notes to the condensed consolidated financial statements.

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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 and 36 weeks ended September 4, 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 June, July and August are reflected in our results for the 12 weeks ended September 4, 2021 and the months of January through August are reflected in our results for the 36 weeks ended September 4, 2021.

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.

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				36 Weeks Ended
	9/4/2021		9/5/2020		9/4/2021		9/5/2020
FLNA	$	4,653	$	4,399	$	13,441	$	12,746
QFNA	618		608		1,839		1,906
PBNA	6,402		5,958		17,632		15,766
LatAm	2,100		1,654		5,309		4,531
Europe	3,612		3,323		8,693		7,887
AMESA (a)	1,665		1,252		4,150		2,866
APAC (b)	1,139		897		3,162		2,215
Total	$	20,189	$	18,091	$	54,226	$	47,917

(a)The increase in net revenue for the 36 weeks ended September 4, 2021 primarily reflects our acquisition of Pioneer Food Group Ltd. (Pioneer Foods). See Note 12 for further information.

(b)The increase in net revenue for the 36 weeks ended September 4, 2021 primarily reflects our acquisition of Hangzhou Haomusi Food Co., Ltd. (Be & Cheery). See Note 12 for further information.

Our primary performance obligation is the distribution and sales of beverage and 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
	9/4/2021				9/5/2020
	Beverage(a)		Food/Snack		Beverage(a)		Food/Snack
LatAm	10	%	90	%	10	%	90	%
Europe	55	%	45	%	55	%	45	%
AMESA	35	%	65	%	30	%	70	%
APAC	25	%	75	%	25	%	75	%
PepsiCo	45	%	55	%	45	%	55	%

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	36 Weeks Ended
	9/4/2021				9/5/2020
	Beverage(a)		Food/Snack		Beverage(a)		Food/Snack
LatAm	10	%	90	%	10	%	90	%
Europe	55	%	45	%	55	%	45	%
AMESA	35	%	65	%	35	%	65	%
APAC	25	%	75	%	25	%	75	%
PepsiCo	45	%	55	%	45	%	55	%

(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 each of the 12 and 36 weeks ended September 4, 2021 and September 5, 2020. Generally, our finished goods beverage operations produce higher net revenue but lower operating margin as compared to concentrate sold to authorized bottling partners for the manufacture of finished goods beverages.

Operating profit of each division is as follows:


	12 Weeks Ended				36 Weeks Ended
	9/4/2021		9/5/2020		9/4/2021		9/5/2020
FLNA	$	1,357	$	1,353	$	3,979	$	3,833
QFNA	106		145		384		491
PBNA	773		697		1,948		1,391
LatAm	393		250		967		700
Europe	439		480		975		977
AMESA	312		193		706		386
APAC	201		163		601		494
Total divisions	3,581		3,281		9,560		8,272
Corporate unallocated expenses (a)	(422)		(270)		(960)		(1,018)
Total	$	3,159	$	3,011	$	8,600	$	7,254

(a)In the 36 weeks ended September 4, 2021, we sold our short-term investment in a publicly traded company and recorded a pre-tax net gain of $69 million ($52 million after-tax or $0.04 per share), net of discounts, in selling, general and administrative expenses associated with this sale.

Operating profit includes 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 9/4/2021
	Allowances for Expected Credit Losses(a)		Upfront Payments to Customers(b)		Employee Compensation Expense(c)		Employee Protection Costs(d)		Other(e)		Total
FLNA	$	(1)	$	—	$	2	$	4	$	1	$	6
QFNA	(1)		—		—		—		—		(1)
PBNA	(2)		(13)		8		2		(7)		(12)
LatAm	—		—		12		4		1		17
Europe	(1)		(1)		2		1		2		3
AMESA	(1)		—		1		2		1		3
APAC	—		—		1		—		1		2

Total	$	(6)	$	(14)	$	26	$	13	$	(1)	$	18

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	12 Weeks Ended 9/5/2020
	Allowances for Expected Credit Losses(a)		Upfront Payments to Customers(b)		Inventory Write-Downs and Product Returns(f)		Employee Compensation Expense(c)		Employee Protection Costs(d)		Other(e)		Total
FLNA	$	—	$	—	$	1	$	24	$	16	$	—	$	41
QFNA	—		—		—		1		1		1		3
PBNA	3		—		1		14		12		20		50
LatAm	—		—		6		19		6		1		32
Europe	1		1		—		8		6		—		16
AMESA	—		—		—		1		2		3		6
APAC	—		—		2		(5)		1		1		(1)
Total	$	4	$	1	$	10	$	62	$	44	$	26	$	147


	36 Weeks Ended 9/4/2021
	Allowances for Expected Credit Losses(a)		Upfront Payments to Customers(b)		Inventory Write-Downs and Product Returns(f)		Employee Compensation Expense(c)		Employee Protection Costs(d)		Other(e)		Total
FLNA	$	(9)	$	—	$	—	$	31	$	20	$	2	$	44
QFNA	(1)		—		—		2		1		—		2
PBNA	(15)		(18)		—		27		11		(15)		(10)
LatAm	—		—		1		36		9		3		49
Europe	(1)		(1)		—		10		7		3		18
AMESA	(1)		—		(2)		1		3		4		5
APAC	—		—		—		1		1		4		6

Total	$	(27)	$	(19)	$	(1)	$	108	$	52	$	1	$	114


	36 Weeks Ended 9/5/2020
	Allowances for Expected Credit Losses(a)		Upfront Payments to Customers(b)		Inventory Write-Downs and Product Returns(f)		Employee Compensation Expense(c)		Employee Protection Costs(d)		Other(e)		Total
FLNA	$	19	$	—	$	8	$	124	$	49	$	3	$	203
QFNA	2		—		—		7		2		1		12
PBNA	48		46		30		98		43		30		295
LatAm	1		—		12		35		14		4		66
Europe	5		2		10		17		14		17		65
AMESA	1		—		1		8		6		7		23
APAC	—		—		3		(3)		2		2		4
Total	$	76	$	48	$	64	$	286	$	130	$	64	$	668

(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. Income amounts represent reductions in the previously recorded reserves due to improved projected default rates and lower at-risk receivable balances.

(b)Relates to promotional spending for which benefit is not expected to be received. Income amounts represent reductions in previously recorded reserves due to improved projected default rates and lower overall advance balances.

(c)Includes incremental frontline incentive pay, crisis child care and other leave benefits and labor costs. Income amounts include a social welfare relief credit of $7 million in the 12 and 36 weeks ended September 5, 2020.

(d)Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services.

(e)Includes certain reserves for property, plant and equipment, donations of cash and product, and other costs. Income amounts represent adjustments for changes in estimates of previously recorded amounts.

(f)Includes a reserve for product returns of $3 million and $19 million in the 12 and 36 weeks ended September 5, 2020, respectively. Income amount represents adjustments for changes in estimates of previously recorded amounts.

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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. To build on the successful implementation of the 2019 Productivity Plan to date, we expanded and extended the plan through the end of 2026 to take advantage of additional opportunities within the initiatives described above. We now expect to incur pre-tax charges of approximately $3.15 billion, including cash expenditures of approximately $2.4 billion, as compared to our previous estimate of pre-tax charges of approximately $2.5 billion, which included cash expenditures of approximately $1.6 billion. These pre-tax charges are expected to consist of approximately 65% of severance and other employee-related costs, 10% for asset impairments (all non-cash) resulting from plant closures and related actions, and 25% for other costs associated with the implementation of our initiatives.

The total expected plan pre-tax charges are expected to be incurred by division approximately as follows:


	FLNA		QFNA		PBNA		LatAm		Europe		AMESA		APAC		Corporate
Expected pre-tax charges	15	%	1	%	25	%	10	%	25	%	6	%	3	%	15	%

A summary of our 2019 Productivity Plan charges is as follows:


	12 Weeks Ended				36 Weeks Ended
	9/4/2021		9/5/2020		9/4/2021		9/5/2020
Cost of sales	$	9	$	1	$	13	$	4
Selling, general and administrative expenses	42		59		110		112
Other pension and retiree medical benefits expense	1		1		6		8
Total restructuring and impairment charges	$	52	$	61	$	129	$	124
After-tax amount	$	45	$	48	$	109	$	101
Net income attributable to PepsiCo per common share	$	(0.03)	$	(0.03)	$	(0.08)	$	(0.07)

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	12 Weeks Ended				36 Weeks Ended				Plan to Date
	9/4/2021		9/5/2020		9/4/2021		9/5/2020		through 9/4/2021
FLNA	$	2	$	2	$	20	$	9	$	156
QFNA	1		—		1		1		13
PBNA	3		29		8		32		146
LatAm	14		5		22		14		124
Europe	20		13		46		29		199
AMESA	5		2		9		9		64
APAC	1		1		2		4		56
Corporate	5		8		15		18		105
	51		60		123		116		863
Other pension and retiree medical benefits expense	1		1		6		8		63
Total	$	52	$	61	$	129	$	124	$	926


	12 Weeks Ended				36 Weeks Ended				Plan to Date
	9/4/2021		9/5/2020		9/4/2021		9/5/2020		through 9/4/2021
Severance and other employee costs	$	28	$	23	$	77	$	47	$	521
Asset impairments	3		15		4		20		129
Other costs	21		23		48		57		276
Total	$	52	$	61	$	129	$	124	$	926

Severance and other employee costs primarily include severance and other termination benefits, as well as voluntary separation arrangements. Other costs primarily include costs associated with the implementation of our initiatives, including contract termination costs, consulting and other professional fees.

A summary of our 2019 Productivity Plan activity for the 36 weeks ended September 4, 2021 is as follows:


	Severance and Other Employee Costs		Asset Impairments		Other Costs		Total
Liability as of December 26, 2020	$	122	$	—	$	5	$	127
2021 restructuring charges	77		4		48		129
Cash payments (a)	(119)		—		(46)		(165)
Non-cash charges and translation	(8)		(4)		(2)		(14)
Liability as of September 4, 2021	$	72	$	—	$	5	$	77

(a)Excludes cash expenditures of $2 million reported in the cash flow statement in pension and retiree medical contributions.

Substantially all of the restructuring accrual at September 4, 2021 is expected to be paid by the end of 2021.

Other Productivity Initiatives

There were no charges related to other productivity and efficiency initiatives outside the scope of the 2019 Productivity Plan.

We regularly evaluate different productivity initiatives beyond the productivity plan and other initiatives described above.

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Note 4 - Intangible Assets

A summary of our amortizable intangible assets is as follows:


	9/4/2021						12/26/2020
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Acquired franchise rights	$	981	$	(184)	$	797	$	976	$	(173)	$	803
Customer relationships	638		(222)		416		642		(204)		438
Brands (a)	1,164		(992)		172		1,348		(1,099)		249
Other identifiable intangibles	456		(257)		199		474		(261)		213
Total	$	3,239	$	(1,655)	$	1,584	$	3,440	$	(1,737)	$	1,703

(a)The change primarily reflects assets reclassified as held for sale in connection with our agreement to sell certain juice brands. See Note 12 for further information.

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The change in the book value of indefinite-lived intangible assets is as follows:


	Balance 12/26/2020		Acquisitions/(Divestitures)		Translation and Other		Balance 9/4/2021

FLNA (a)
Goodwill	$	465	$	(8)	$	4	$	461
Brands	340		—		1		341
Total	805		(8)		5		802
QFNA
Goodwill	189		—		—		189
Total	189		—		—		189
PBNA (b)
Goodwill	12,189		(216)		11		11,984
Reacquired franchise rights	7,107		—		18		7,125
Acquired franchise rights	1,536		1		4		1,541
Brands (c)	3,122		(290)		(324)		2,508
Total	23,954		(505)		(291)		23,158
LatAm
Goodwill	458		—		(10)		448
Brands	108		—		(3)		105
Total	566		—		(13)		553
Europe (b)
Goodwill	3,806		(28)		(9)		3,769
Reacquired franchise rights	496		(24)		(10)		462
Acquired franchise rights	172		—		(6)		166
Brands (c)	4,072		—		278		4,350
Total	8,546		(52)		253		8,747
AMESA
Goodwill	1,096		(2)		27		1,121
Brands	214		—		10		224
Total	1,310		(2)		37		1,345
APAC
Goodwill	554		3		2		559
Brands (c)	445		—		24		469
Total	999		3		26		1,028

Total goodwill	18,757		(251)		25		18,531
Total reacquired franchise rights	7,603		(24)		8		7,587
Total acquired franchise rights	1,708		1		(2)		1,707
Total brands	8,301		(290)		(14)		7,997
Total	$	36,369	$	(564)	$	17	$	35,822

(a)The change in acquisitions/divestitures primarily reflects our acquisition of BFY Brands, Inc. (BFY Brands).

(b)The change in acquisitions/divestitures primarily reflects assets reclassified as held for sale in connection with our agreement to sell certain juice brands. See Note 12 for further information.

(c)The change in translation and other primarily reflects the allocation of the Rockstar Energy Beverages (Rockstar) brand to the respective divisions, which was finalized in the second quarter of 2021 as part of purchase price allocation.

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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. In the 12 and 36 weeks ended September 4, 2021, no income tax adjustments related to the TRAF were recorded. In the year ended December 26, 2020, we recorded a net tax benefit of $72 million related to the adoption of the TRAF in the Swiss Canton of Bern. In the 12 and 36 weeks ended September 5, 2020, we recorded net tax benefits of $77 million primarily related to the adoption of the TRAF in the Swiss Canton of Bern. While the accounting for the impacts of the TRAF are deemed to be complete, further adjustments to our financial statements and related disclosures could be made in future quarters, including in connection with final tax return filings. For further information and discussion of the TRAF, refer to Note 5 to our consolidated financial statements in our 2020 Form 10-K.

In the 12 weeks ended September 4, 2021, we received a final assessment from the Internal Revenue Service (IRS) audit for the tax years 2014 through 2016. The assessment included both agreed and unagreed issues. As a result of the analysis of the 2014 through 2016 final assessment, we have remeasured all applicable reserves for uncertain tax positions, including any correlating adjustments impacting the mandatory transition tax liability under the TCJ Act, resulting in a net non-cash tax expense of $112 million in the 12 and 36 weeks ended September 4, 2021.

Note 6 - Share-Based Compensation

The following table summarizes our total share-based compensation expense, which is primarily recorded in selling, general and administrative expenses:


	12 Weeks Ended				36 Weeks Ended
	9/4/2021		9/5/2020		9/4/2021		9/5/2020
Share-based compensation expense – equity awards	$	71	$	85	$	215	$	186
Share-based compensation expense – liability awards	3		3		7		10
Restructuring charges	(1)		—		—		—
Total	$	73	$	88	$	222	$	196

The following table summarizes share-based awards granted under the terms of the PepsiCo, Inc. Long-Term Incentive Plan:


	36 Weeks Ended
	9/4/2021			9/5/2020
	Granted(a)	Weighted-Average Grant Price		Granted(a)	Weighted-Average Grant Price
Stock options	2.0	$	133.23	1.8	$	131.45
RSUs and PSUs	2.6	$	131.28	2.5	$	131.18

(a)In millions. All grant activity is disclosed at target.

We granted long-term cash awards to certain executive officers and other senior executives with an aggregate target value of $17 million and $19 million during the 36 weeks ended September 4, 2021 and September 5, 2020, respectively.

For the 12 weeks ended September 4, 2021 and September 5, 2020, our grants of stock options, RSUs, PSUs and long-term cash awards were nominal.

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Our weighted-average Black-Scholes fair value assumptions are as follows:


	36 Weeks Ended
	9/4/2021		9/5/2020
Expected life	7 years		6 years
Risk-free interest rate	1.1	%	0.9	%
Expected volatility	14	%	14	%
Expected dividend yield	3.1	%	3.4	%

Note 7 - Pension and Retiree Medical Benefits

In 2020, 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 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
	9/4/2021		9/5/2020		9/4/2021		9/5/2020		9/4/2021		9/5/2020


Service cost	$	119	$	100	$	25	$	22	$	8	$	6
Other pension and retiree medical benefits income:
Interest cost	75		100		17		21		3		6
Expected return on plan assets	(223)		(214)		(55)		(52)		(3)		(3)
Amortization of prior service (credits)/cost	(8)		3		—		—		(2)		(3)
Amortization of net losses/(gains)	52		45		19		16		(4)		(6)
Settlement/curtailment losses	5		—		5		—		—		—
Special termination benefits	1		1		—		—		—		—
Total other pension and retiree medical benefits income	(98)		(65)		(14)		(15)		(6)		(6)
Total	$	21	$	35	$	11	$	7	$	2	$	—

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	36 Weeks Ended
	Pension								Retiree Medical
	U.S.				International
	9/4/2021		9/5/2020		9/4/2021		9/5/2020		9/4/2021		9/5/2020
Service cost	$	359	$	300	$	69	$	59	$	23	$	17
Other pension and retiree medical benefits income:
Interest cost	224		300		49		58		10		17
Expected return on plan assets	(671)		(643)		(153)		(138)		(10)		(11)
Amortization of prior service (credits)/cost	(22)		8		(1)		—		(7)		(8)
Amortization of net losses/(gains)	155		136		51		42		(10)		(16)
Settlement/curtailment losses	5		—		10		—		—		—
Special termination benefits	6		8		—		—		—		—
Total other pension and retiree medical benefits income	(303)		(191)		(44)		(38)		(17)		(18)
Total	$	56	$	109	$	25	$	21	$	6	$	(1)

We continue to monitor the impact of the COVID-19 pandemic and related global economic conditions and uncertainty on the net unfunded status of our pension and retiree medical plans. We also regularly evaluate opportunities to reduce risk and volatility associated with our pension and retiree medical plans. In addition, lump sum payments may result in further settlement charges in future periods. During the 36 weeks ended September 4, 2021, we made discretionary contributions of $500 million to our U.S. defined benefit qualified plans and $25 million to our international defined benefit plans. During the 36 weeks ended September 5, 2020, we made discretionary contributions of $325 million to our U.S. defined benefit qualified plans and $14 million to our international defined benefit plans.

Note 8 - Debt Obligations

In the 36 weeks ended September 4, 2021, $1.8 billion of USD-denominated senior notes and €0.5 billion of euro-denominated senior notes matured and were paid.

As of September 4, 2021, we had no commercial paper outstanding.

In the second quarter of 2021, we entered into a new five-year unsecured revolving credit agreement (Five-Year Credit Agreement), which expires on May 28, 2026. The Five-Year Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.75 billion in U.S. dollars and/or euros, including a $0.75 billion swing line subfacility for euro-denominated borrowings permitted to be borrowed on a same-day basis, subject to customary terms and conditions. We may request that commitments under this agreement be increased up to $4.5 billion (or the equivalent amount in euros). Additionally, we may, once a year, request renewal of the agreement for an additional one-year period. The Five-Year Credit Agreement replaced our $3.75 billion five year credit agreement, dated as of June 3, 2019.

Also in the second quarter of 2021, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement), which expires on May 27, 2022. The 364-Day Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.75 billion in U.S. dollars and/or euros, subject to customary terms and conditions. We may request that commitments under this agreement be increased up to $4.5 billion (or the equivalent amount in euros). We may request renewal of this facility for an additional 364-day period or convert any amounts outstanding into a term loan for a period of up to one year, which term loan would mature no later than the anniversary of the then effective termination date. The 364-Day Credit Agreement replaced our $3.75 billion 364-day credit agreement, dated as of June 1, 2020.

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Funds borrowed under the Five-Year Credit Agreement and the 364-Day Credit Agreement may be used for general corporate purposes. Subject to certain conditions, we may borrow, prepay and reborrow amounts under these agreements. As of September 4, 2021, there were no outstanding borrowings under the Five-Year Credit Agreement or the 364-Day Credit Agreement.

Subsequent to September 4, 2021, we paid $750 million to redeem all $750 million outstanding principal amount of our 1.70% senior notes due October 2021 and terminated the associated interest rate swap with a notional amount of $250 million.

Note 9 - Financial Instruments

We are exposed to market risks arising from adverse changes in:

•commodity prices, affecting the cost of our raw materials and energy;

•foreign exchange rates and currency restrictions; and

•interest rates.

There have been no material changes during the 36 weeks ended September 4, 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 September 4, 2021 was $175 million. We have posted no collateral under these contracts and no credit-risk-related contingent features were triggered as of September 4, 2021.

The notional amounts of our financial instruments used to hedge the above risks as of September 4, 2021 and December 26, 2020 are as follows:


	Notional Amounts(a)
	9/4/2021		12/26/2020
Commodity	$	1.4	$	1.1
Foreign exchange	$	2.3	$	1.9
Interest rate	$	2.3	$	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 September 4, 2021, approximately 2% of total debt, after the impact of the related interest rate derivative instruments, was subject to variable rates, compared to 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 September 4, 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 September 4, 2021, we had $258 million of investments in commercial paper recorded in cash and cash equivalents. As

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of December 26, 2020, we had $260 million of investments in commercial paper with $75 million recorded in cash and cash equivalents and $185 million in short-term investments. Held-to-maturity debt securities are recorded at amortized cost, which approximates fair value, and realized gains or losses are reported in earnings. Our investments mature in less than one year. As of September 4, 2021 and December 26, 2020, gross unrecognized gains and losses and the allowance for expected credit losses were not material.

Fair Value Measurements

The fair values of our financial assets and liabilities as of September 4, 2021 and December 26, 2020 are categorized as follows:


		9/4/2021				12/26/2020
	Fair Value Hierarchy Levels(a)	Assets(a)		Liabilities(a)		Assets(a)		Liabilities(a)

Index funds (b)	1	$	339	$	—	$	231	$	—
Prepaid forward contracts (c)	2	$	19	$	—	$	18	$	—
Deferred compensation (d)	2	$	—	$	506	$	—	$	477
Contingent consideration (e)	3	$	—	$	840	$	—	$	861
Derivatives designated as fair value hedging instruments:
Interest rate (f)	2	$	—	$	—	$	2	$	—
Derivatives designated as cash flow hedging instruments:
Foreign exchange (g)	2	$	11	$	25	$	9