10-Q 1 pepsicoq2-10xq6152013.htm 10-Q Pepsico Q2-10-Q 6.15.2013
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 15, 2013 (24 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
 
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)
  
(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)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   X    NO      
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    YES   X    NO      
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  X 
  
Accelerated filer     
Non-accelerated filer     
(Do not check if a smaller reporting company)
  
Smaller reporting company     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES           NO  X
Number of shares of Common Stock outstanding as of July 17, 20131,542,214,401



PepsiCo, Inc. and Subsidiaries

Table of Contents
Part I Financial Information
Page No.
Item 1.
Condensed Consolidated Financial Statements
 
Condensed Consolidated Statement of Income –
12 and 24 Weeks Ended June 15, 2013 and June 16, 2012
                                                                                                                  
 
 
 
 
 
Item 2.
Report of Independent Registered Public Accounting Firm
Item 3.
Item 4.
Part II Other Information
 
Item 1.
Item 1A.
Item 2.
Item 6.


2


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
 
24 Weeks Ended
 
6/15/13

 
6/16/12

 
6/15/13

 
6/16/12

Net Revenue
$
16,807

 
$
16,458

 
$
29,388

 
$
28,886

Cost of sales
7,898

 
7,915

 
13,732

 
13,804

Selling, general and administrative expenses
6,013

 
6,136

 
11,079

 
10,928

Amortization of intangible assets
27

 
30

 
50

 
55

Operating Profit
2,869

 
2,377

 
4,527

 
4,099

Interest expense
(208
)
 
(209
)
 
(422
)
 
(407
)
Interest income and other
18

 
1

 
45

 
24

Income before income taxes
2,679

 
2,169

 
4,150

 
3,716

Provision for income taxes
654

 
668

 
1,040

 
1,082

Net income
2,025

 
1,501

 
3,110

 
2,634

Less: Net income attributable to noncontrolling interests
15

 
13

 
25

 
19

Net Income Attributable to PepsiCo
$
2,010

 
$
1,488

 
$
3,085

 
$
2,615

Net Income Attributable to PepsiCo per Common Share
 
 
 
 
 
 
Basic
$
1.30

 
$
0.95

 
$
1.99

 
$
1.67

Diluted
$
1.28

 
$
0.94

 
$
1.97

 
$
1.65

Weighted-average common shares outstanding
 
 
 
 
 
 
 
Basic
1,548

 
1,563

 
1,546

 
1,565

Diluted
1,567

 
1,581

 
1,565

 
1,583

Cash dividends declared per common share
$
0.5675

 
$
0.5375

 
$
1.105

 
$
1.0525


See accompanying notes to the condensed consolidated financial statements.


3


Condensed Consolidated Statement of Comprehensive Income
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited) 
 
12 Weeks Ended 6/15/13
 
24 Weeks Ended 6/15/13
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
Net income


 


 
$
2,025

 


 


 
$
3,110

Other Comprehensive Loss

 

 

 

 

 

Currency translation adjustment
$
(718
)
 
$

 
(718
)
 
$
(953
)
 
$

 
(953
)
Cash flow hedges:


 


 


 

 

 

Reclassification of net (gains)/losses to net income
(8
)
 
2

 
(6
)
 
51

 
(19
)
 
32

Net derivative gains/(losses)
5

 
(1
)
 
4

 
(18
)
 
16

 
(2
)
Pension and retiree medical:

 

 

 

 

 

Reclassification of net losses to net income
84

 
(27
)
 
57

 
163

 
(54
)
 
109

Remeasurement of net liabilities and translation
2

 
(1
)
 
1

 
45

 
(13
)
 
32

Unrealized gains on securities
20

 
(10
)
 
10

 
19

 
(10
)
 
9

Other
(1
)

(16
)
 
(17
)
 
(1
)
 
(16
)
 
(17
)
Total Other Comprehensive Loss
$
(616
)
 
$
(53
)
 
(669
)
 
$
(694
)
 
$
(96
)
 
(790
)
Comprehensive income
 
 
 
 
1,356

 
 
 
 
 
2,320

Comprehensive income attributable to noncontrolling interests
 
 
 
 
(14
)
 
 
 
 
 
(23
)
Comprehensive Income Attributable to PepsiCo
 
 
 
 
$
1,342

 
 
 
 
 
$
2,297


 
12 Weeks Ended 6/16/12
 
24 Weeks Ended 6/16/12
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
Net income
 
 
 
 
$
1,501

 
 
 
 
 
$
2,634

Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment
$
(2,231
)
 
$

 
(2,231
)
 
$
(544
)
 
$

 
(544
)
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net losses to net income
26

 
(9
)
 
17

 
38

 
(14
)
 
24

Net derivative losses
(22
)
 
11

 
(11
)
 
(37
)
 
12

 
(25
)
Pension and retiree medical:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net losses to net income
73

 
(24
)
 
49

 
140

 
(47
)
 
93

Remeasurement of net liabilities and translation
17

 
(5
)
 
12

 
1

 
(1
)
 

Unrealized (losses)/gains on securities
(10
)
 

 
(10
)
 
3

 

 
3

Other

 

 

 

 
36

 
36

Total Other Comprehensive Loss
$
(2,147
)
 
$
(27
)
 
(2,174
)
 
$
(399
)
 
$
(14
)
 
(413
)
Comprehensive (loss)/income
 
 
 
 
(673
)
 
 
 
 
 
2,221

Comprehensive income attributable to noncontrolling interests
 
 
 
 
(11
)
 
 
 
 
 
(13
)
Comprehensive (Loss)/Income Attributable to PepsiCo
 
 
 
 
$
(684
)
 
 
 
 
 
$
2,208


See accompanying notes to the condensed consolidated financial statements.

4


Condensed Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)

 
24 Weeks Ended
 
6/15/13

 
6/16/12

Operating Activities
 
 
 
Net income
$
3,110

 
$
2,634

Depreciation and amortization
1,185

 
1,201

Stock-based compensation expense
149

 
125

Merger and integration charges

 
5

Cash payments for merger and integration charges
(17
)
 
(47
)
Restructuring and impairment charges
30

 
110

Cash payments for restructuring charges
(74
)
 
(140
)
Restructuring and other charges related to the transaction with Tingyi (Cayman Islands) Holding Corp. (Tingyi)

 
163

Cash payments for restructuring and other charges related to the transaction with Tingyi
(18
)
 
(88
)
Non-cash foreign exchange loss related to Venezuela devaluation
111

 

Excess tax benefits from share-based payment arrangements
(83
)
 
(53
)
Pension and retiree medical plan contributions
(180
)
 
(1,169
)
Pension and retiree medical plan expenses
306

 
271

Deferred income taxes and other tax charges and credits
(189
)
 
85

Change in accounts and notes receivable
(1,088
)
 
(1,084
)
Change in inventories
(659
)
 
(643
)
Change in prepaid expenses and other current assets
(241
)
 
(196
)
Change in accounts payable and other current liabilities
400

 
(193
)
Change in income taxes payable
543

 
432

Other, net
(270
)
 
(166
)
Net Cash Provided by Operating Activities
3,015

 
1,247

Investing Activities
 
 
 
Capital spending
(911
)
 
(901
)
Sales of property, plant and equipment
30

 
42

Cash payments related to the transaction with Tingyi
(3
)
 
(298
)
Acquisitions and investments in noncontrolled affiliates
(59
)
 
(49
)
Divestitures
174

 
14

Short-term investments, by original maturity – three months or less, net
(4
)
 
41

Other investing, net
(13
)
 
13

Net Cash Used for Investing Activities
(786
)
 
(1,138
)
 


(Continued on following page)


5


Condensed Consolidated Statement of Cash Flows (continued)
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
 
24 Weeks Ended
 
6/15/13

 
6/16/12

Financing Activities
 
 
 
Proceeds from issuances of long-term debt
$
2,491

 
$
2,733

Payments of long-term debt
(1,945
)
 
(1,034
)
Short-term borrowings, by original maturity

 


    More than three months – proceeds
6

 
53

    More than three months – payments
(481
)
 
(189
)
    Three months or less, net
1,228

 
462

Cash dividends paid
(1,677
)
 
(1,626
)
Share repurchases – common
(1,028
)
 
(1,206
)
Share repurchases – preferred
(4
)
 
(3
)
Proceeds from exercises of stock options
823

 
496

Excess tax benefits from share-based payment arrangements
83

 
53

Acquisition of noncontrolling interests
(20
)
 
(12
)
Other financing
(3
)
 
(19
)
Net Cash Used for Financing Activities
(527
)
 
(292
)
Effect of exchange rate changes on cash and cash equivalents
(206
)
 
(21
)
Net Increase/(Decrease) in Cash and Cash Equivalents
1,496

 
(204
)
Cash and Cash Equivalents, Beginning of Year
6,297

 
4,067

Cash and Cash Equivalents, End of Period
$
7,793

 
$
3,863


See accompanying notes to the condensed consolidated financial statements.


6


Condensed Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
(in millions)
 
(Unaudited)
 
 
 
6/15/13

 
12/29/12

Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
7,793

 
$
6,297

Short-term investments
346

 
322

Accounts and notes receivable, less allowance: 6/13 – $164, 12/12 – $157
7,981

 
7,041

Inventories
 
 
 
Raw materials
1,910

 
1,875

Work-in-process
351

 
173

Finished goods
1,870

 
1,533

 
4,131

 
3,581

Prepaid expenses and other current assets
1,712

 
1,479

Total Current Assets
21,963

 
18,720

Property, Plant and Equipment
35,959

 
36,162

Accumulated Depreciation
(17,569
)
 
(17,026
)
 
18,390

 
19,136

Amortizable Intangible Assets, net
1,705

 
1,781

Goodwill
16,719

 
16,971

Other nonamortizable intangible assets
14,469

 
14,744

Nonamortizable Intangible Assets
31,188

 
31,715

Investments in Noncontrolled Affiliates
1,839

 
1,633

Other Assets
1,568

 
1,653

Total Assets
$
76,653

 
$
74,638



 
(Continued on following page)

 

7


Condensed Consolidated Balance Sheet (continued)
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts)
 
(Unaudited)
 
 
 
6/15/13

 
12/29/12

Liabilities and Equity
 
 
 
Current Liabilities
 
 
 
Short-term obligations
$
6,298

 
$
4,815

Accounts payable and other current liabilities
12,101

 
11,903

Income taxes payable
763

 
371

Total Current Liabilities
19,162

 
17,089

Long-Term Debt Obligations
23,212

 
23,544

Other Liabilities
6,414

 
6,543

Deferred Income Taxes
5,100

 
5,063

Total Liabilities
53,888

 
52,239

Commitments and Contingencies


 


Preferred Stock, no par value
41

 
41

Repurchased Preferred Stock
(168
)
 
(164
)
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: 1,547 and 1,544 shares, respectively)
26

 
26

Capital in excess of par value
3,995

 
4,178

Retained earnings
44,523

 
43,158

Accumulated other comprehensive loss
(6,275
)
 
(5,487
)
Repurchased common stock, in excess of par value (319 and 322 shares,
   respectively)
(19,483
)
 
(19,458
)
Total PepsiCo Common Shareholders’ Equity
22,786

 
22,417

Noncontrolling interests
106

 
105

Total Equity
22,765

 
22,399

Total Liabilities and Equity
$
76,653

 
$
74,638



See accompanying notes to the condensed consolidated financial statements.


8


Condensed Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
 
24 Weeks Ended
 
6/15/13
 
6/16/12
 
Shares
 
Amount
 
Shares
 
Amount
Preferred Stock
0.8

 
$
41

 
0.8

 
$
41

Repurchased Preferred Stock
 
 
 
 
 
 
 
Balance, beginning of year
(0.6
)
 
(164
)
 
(0.6
)
 
(157
)
Redemptions

 
(4
)
 

 
(3
)
Balance, end of period
(0.6
)
 
(168
)
 
(0.6
)
 
(160
)
Common Stock
 
 
 
 
 
 
 
Balance, beginning of year
1,544

 
26

 
1,565

 
26

Repurchased common stock
3

 

 
(6
)
 

Balance, end of period
1,547

 
26

 
1,559

 
26

Capital in Excess of Par Value
 
 
 
 
 
 
 
Balance, beginning of year
 
 
4,178

 
 
 
4,461

Stock-based compensation expense
 
 
149

 
 
 
125

Stock option exercises/RSUs converted (a)
 
 
(249
)
 
 
 
(275
)
Withholding tax on RSUs converted
 
 
(70
)
 
 
 
(60
)
Other
 
 
(13
)
 
 
 
(28
)
Balance, end of period
 
 
3,995

 
 
 
4,223

Retained Earnings
 
 
 
 
 
 
 
Balance, beginning of year
 
 
43,158

 
 
 
40,316

Net income attributable to PepsiCo
 
 
3,085

 
 
 
2,615

Cash dividends declared – common
 
 
(1,710
)
 
 
 
(1,649
)
Cash dividends declared – preferred
 
 

 
 
 
(1
)
Cash dividends declared – RSUs
 
 
(10
)
 
 
 
(7
)
Balance, end of period
 
 
44,523

 
 
 
41,274

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Balance, beginning of year
 
 
(5,487
)
 
 
 
(6,229
)
Currency translation adjustment
 
 
(951
)
 
 
 
(538
)
Cash flow hedges, net of tax:
 
 
 
 
 
 
 
Reclassification of net losses to net income
 
 
32

 
 
 
24

Net derivative losses
 
 
(2
)
 
 
 
(25
)
Pension and retiree medical, net of tax:
 
 
 
 
 
 
 
Reclassification of net losses to net income
 
 
109

 
 
 
93

Remeasurement of net liabilities and translation
 
 
32

 
 
 

Unrealized gains on securities, net of tax
 
 
9

 
 
 
3

Other
 
 
(17
)
 
 
 
36

Balance, end of period
 
 
(6,275
)
 
 
 
(6,636
)
Repurchased Common Stock
 
 
 
 
 
 
 
Balance, beginning of year
(322
)
 
(19,458
)
 
(301
)
 
(17,870
)
Share repurchases
(15
)
 
(1,123
)
 
(19
)
 
(1,253
)
Stock option exercises
15

 
962

 
11

 
676

Other
3

 
136

 
2

 
136

Balance, end of period
(319
)
 
(19,483
)
 
(307
)
 
(18,311
)
Total PepsiCo Common Shareholders’ Equity
 
 
22,786

 
 
 
20,576

Noncontrolling Interests
 
 
 
 
 
 
 
Balance, beginning of year
 
 
105

 
 
 
311

Net income attributable to noncontrolling interests
 
 
25

 
 
 
19

Distributions to noncontrolling interests
 
 
(15
)
 
 
 
(15
)
Currency translation adjustment
 
 
(2
)
 
 
 
(6
)
Acquisitions and divestitures
 
 
(7
)
 
 
 
(171
)
Balance, end of period
 
 
106

 
 
 
138

Total Equity
 
 
$
22,765

 
 
 
$
20,595


(a)
Includes total tax benefits of $31 million in 2013 and $27 million in 2012.
See accompanying notes to the condensed consolidated financial statements.

9


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 divisions and subsidiaries.
Our Condensed Consolidated Balance Sheet as of June 15, 2013 and the Condensed Consolidated Statements of Income and Comprehensive Income for the 12 and 24 weeks ended June 15, 2013 and June 16, 2012, and the Condensed Consolidated Statements of Cash Flows and Equity for the 24 weeks ended June 15, 2013 and June 16, 2012 have not been audited. These 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 29, 2012. In our opinion, these financial statements include all normal and recurring adjustments necessary for a fair presentation. The results for the 12 and 24 weeks are not necessarily indicative of the results expected for the full year.
While our North America (United States and Canada) results are reported on a period basis, most of our international operations report on a monthly calendar basis for which the months of March, April and May are reflected in our second quarter results.
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 and 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 material handling facilities, are included in cost of sales. The costs of moving, storing and delivering finished product are included in selling, general and administrative expenses.
The following information is unaudited. 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 amounts to conform to the 2013 presentation. This report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

Our Divisions
We are organized into four business units, as follows:
1.
PepsiCo Americas Foods, which includes Frito-Lay North America (FLNA), Quaker Foods North America (QFNA) and all of our Latin American food and snack businesses (LAF);
2.
PepsiCo Americas Beverages (PAB), which includes all of our North American and Latin American beverage businesses;
3.
PepsiCo Europe, which includes all beverage, food and snack businesses in Europe and South Africa; and
4.
PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack businesses in AMEA, excluding South Africa.

10


Our four business units comprise six reportable segments (also referred to as divisions), as follows:

FLNA,
QFNA,
LAF,
PAB,
Europe, and
AMEA.
 
12 Weeks Ended
 
24 Weeks Ended
 
6/15/13

 
6/16/12

 
6/15/13

 
6/16/12

Net Revenue
 
 
 
 
 
 
 
FLNA
$
3,332

 
$
3,193

 
$
6,455

 
$
6,203

QFNA
577

 
583

 
1,211

 
1,206

LAF
2,116

 
1,948

 
3,483

 
3,183

PAB
5,260

 
5,352

 
9,680

 
9,800

Europe
3,653

 
3,617

 
5,595

 
5,462

AMEA
1,869

 
1,765

 
2,964

 
3,032

 
$
16,807

 
$
16,458

 
$
29,388

 
$
28,886

 
 
12 Weeks Ended
 
24 Weeks Ended
 
6/15/13

 
6/16/12

 
6/15/13

 
6/16/12

Operating Profit
 
 
 
 
 
 
 
FLNA
$
906

 
$
835

 
$
1,734

 
$
1,615

QFNA
133

 
154

 
313

 
341

LAF
318

 
271

 
534

 
454

PAB
882

 
840

 
1,447

 
1,365

Europe
425

 
453

 
513

 
534

AMEA
524

 
165

 
708

 
313

Total division
3,188

 
2,718

 
5,249

 
4,622

Corporate Unallocated
 
 
 
 
 
 
 
Mark-to-market net (losses)/gains
(39
)
 
(79
)
 
(55
)
 
5

Merger and integration charges

 
(2
)
 

 
(2
)
Restructuring and impairment charges
(1
)
 
(3
)
 
(2
)
 
(1
)
Venezuela currency devaluation

 

 
(124
)
 

Other
(279
)
 
(257
)
 
(541
)
 
(525
)
 
$
2,869

 
$
2,377

 
$
4,527

 
$
4,099



11


 
Total Assets
 
6/15/13


12/29/12

FLNA
$
5,458

 
$
5,332

QFNA
1,027

 
966

LAF
4,903

 
4,993

PAB
31,639

 
30,899

Europe
19,121

 
19,218

AMEA
5,673

 
5,738

Total division
67,821

 
67,146

Corporate (a)
8,832

 
7,492


$
76,653

 
$
74,638

(a)
Corporate assets consist principally of cash and cash equivalents, short-term investments, derivative instruments and property, plant and equipment.

Note 2 - Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued guidance that requires an entity to disclose information showing the effect of items reclassified from accumulated other comprehensive income on the line items of net income. The provisions of this new guidance were effective prospectively as of the beginning of our 2013 fiscal year. Accordingly, we have included enhanced footnote disclosure for the 12 and 24 weeks ended June 15, 2013 in Note 9.
In July 2012, the FASB issued new accounting guidance that permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test. An entity would continue to calculate the fair value of an indefinite-lived intangible asset if the asset fails the qualitative assessment, while no further analysis would be required if it passes. The provisions of the new guidance were effective as of the beginning of our 2013 fiscal year. We do not expect the new guidance to have an impact on our 2013 impairment test results.
In December 2011, the FASB issued new disclosure requirements that are intended to enhance current disclosures on offsetting financial assets and liabilities. The new disclosures require an entity to disclose both gross and net information about derivative instruments accounted for in accordance with the guidance on derivatives and hedging that are eligible for offset on the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. The provisions of the new disclosure requirements are effective as of the beginning of our 2014 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements.
Note 3 - Restructuring, Impairment and Integration Charges

In the 12 weeks ended June 15, 2013, we incurred restructuring and impairment charges of $19 million ($15 million after-tax or $0.01 per share) in conjunction with our multi-year productivity plan (Productivity Plan). In the 24 weeks ended June 15, 2013, we incurred restructuring and impairment charges of $30 million ($23 million after-tax or $0.01 per share) in conjunction with our Productivity Plan. All of these net charges were recorded in selling, general and administrative expenses. The majority of cash payments related to these charges are expected to be paid by the end of 2013.
In the 12 weeks ended June 16, 2012, we incurred restructuring and impairment charges of $77 million ($57 million after-tax or $0.04 per share) in conjunction with our Productivity Plan. In the 24 weeks ended June 16,

12


2012, we incurred restructuring and impairment charges of $110 million ($80 million after-tax or $0.05 per share) in conjunction with our Productivity Plan. All of these net charges were recorded in selling, general and administrative expenses. All cash payments related to these charges were paid by the end of 2012.
The Productivity Plan includes actions in every aspect of our business that we believe will strengthen our complementary food, snack and beverage businesses by leveraging new technologies and processes across PepsiCo’s operations, go-to-market and information systems; heightening the focus on best practice sharing across the globe; consolidating manufacturing, warehouse and sales facilities; and implementing simplified organization structures, with wider spans of control and fewer layers of management. The Productivity Plan is expected to enhance PepsiCo’s cost-competitiveness, provide a source of funding for future brand-building and innovation initiatives, and serve as a financial cushion for potential macroeconomic uncertainty.
A summary of our Productivity Plan charges is as follows:
 
 
12 Weeks Ended
 
24 Weeks Ended
 
 
6/15/13

 
6/16/12

 
6/15/13

 
6/16/12

FLNA
 
$
2

 
$
24

 
$
4

 
$
32

QFNA
 
1

 
1

 

 
6

LAF
 
1

 
6

 
5

 
12

PAB
 
5

 
35

 
5

 
43

Europe (a)
 
8

 

 
12

 
(1
)
AMEA
 
1

 
8

 
2

 
17

Corporate
 
1

 
3

 
2

 
1

 
 
$
19

 
$
77

 
$
30

 
$
110

(a)
Income balance represents adjustments of previously recorded amounts.
A summary of our Productivity Plan activity in 2013 is as follows: 
 
Severance and Other
Employee Costs
 
Asset
Impairment
 
Other
Costs
 
Total
Liability as of December 29, 2012
$
91

 
$

 
$
36

 
$
127

2013 restructuring charges
11

 
1

 
18

 
30

Cash payments
(50
)
 

 
(24
)
 
(74
)
Non-cash charges and other
(5
)
 
(1
)
 
(5
)
 
(11
)
Liability as of June 15, 2013
$
47

 
$

 
$
25

 
$
72

In the 12 weeks ended June 15, 2013, we recorded income for merger and integration of $1 million ($1 million after-tax with a nominal amount per share) related to our acquisition of Wimm-Bill-Dann Foods OJSC (WBD). This income was recorded in selling, general and administrative expenses in the Europe segment representing adjustments of previously recorded amounts. In the 24 weeks ended June 15, 2013, merger and integration charges were nominal. Cash payments related to these charges are expected to be paid by the end of 2013.

13


In the 12 weeks ended June 16, 2012, we incurred merger and integration charges of $3 million ($2 million after-tax with a nominal amount per share) related to our acquisition of WBD, including $1 million recorded in the Europe segment and $2 million recorded in corporate unallocated expenses. In the 24 weeks ended June 16, 2012, we incurred merger and integration charges of $5 million ($4 million after-tax with a nominal amount per share) related to our acquisition of WBD, including $3 million recorded in the Europe segment and $2 million recorded in corporate unallocated expenses. These charges were recorded in selling, general and administrative expenses. Cash payments related to these charges were paid out by the end of 2012.
A summary of our merger and integration activity in 2013 is as follows: 
 
Severance and Other
Employee Costs
 
Other Costs
 
Total
Liability as of December 29, 2012
$
18

 
$
6

 
$
24

2013 merger and integration charges (a)
(2
)
 
2

 

Cash payments
(13
)
 
(4
)
 
(17
)
Non-cash charges and other
(1
)
 

 
(1
)
Liability as of June 15, 2013
$
2

 
$
4

 
$
6

(a)
Income balance represents adjustments of previously recorded amounts.

Note 4 - Intangible Assets
 
 
 
6/15/13
 
12/29/12
Amortizable intangible assets, net

 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Acquired franchise rights

 
$
918

 
$
(75
)
 
$
843

 
$
931

 
$
(67
)
 
$
864

Reacquired franchise rights

 
108

 
(75
)
 
33

 
110

 
(68
)
 
42

Brands

 
1,396

 
(974
)
 
422

 
1,422

 
(980
)
 
442

Other identifiable intangibles

 
693

 
(286
)
 
407

 
736

 
(303
)
 
433

 
 
 
$
3,115

 
$
(1,410
)
 
$
1,705

 
$
3,199

 
$
(1,418
)
 
$
1,781




14


The change in the book value of nonamortizable intangible assets is as follows: 
 
Balance
 
Acquisitions/
(Divestitures)
 
Translation
and Other
 
Balance

12/29/12
 
 
 
6/15/13
FLNA

 

 

 

Goodwill
$
316

 
$

 
$
(4
)
 
$
312

Brands
31

 

 
(1
)
 
30


347

 

 
(5
)
 
342

 
 
 
 
 
 
 
 
QFNA

 

 

 

Goodwill
175

 

 

 
175

 
 
 
 
 
 
 
 
LAF

 

 

 

Goodwill
716

 

 
(14
)
 
702

Brands
223

 

 
(5
)
 
218


939

 

 
(19
)
 
920

 
 
 
 
 
 
 
 
PAB

 

 

 

Goodwill
9,988

 
18

 
(15
)
 
9,991

Reacquired franchise rights
7,337

 
4

 
(23
)
 
7,318

Acquired franchise rights
1,573

 
(8
)
 
(5
)
 
1,560

Brands
153

 

 
(2
)
 
151


19,051

 
14

 
(45
)
 
19,020

 
 
 
 
 
 
 
 
Europe

 

 

 

Goodwill
5,214

 

 
(199
)
 
5,015

Reacquired franchise rights
772

 

 
(30
)
 
742

Acquired franchise rights
223

 

 
(4
)
 
219

Brands
4,284

 

 
(190
)
 
4,094


10,493

 

 
(423
)
 
10,070

 
 
 
 
 
 
 
 
AMEA

 

 

 

Goodwill
562

 
(4
)
 
(34
)
 
524

Brands
148

 

 
(11
)
 
137


710

 
(4
)
 
(45
)
 
661

 
 
 
 
 
 
 
 
Total goodwill
16,971

 
14

 
(266
)
 
16,719

Total reacquired franchise rights
8,109

 
4

 
(53
)
 
8,060

Total acquired franchise rights
1,796

 
(8
)
 
(9
)
 
1,779

Total brands
4,839

 

 
(209
)
 
4,630


$
31,715

 
$
10

 
$
(537
)
 
$
31,188




15


Note 5 - Income Taxes

A rollforward of our reserves for all federal, state and foreign tax jurisdictions is as follows: 
 
6/15/13

 
12/29/12

Balance, beginning of year
$
2,425

 
$
2,167

Additions for tax positions related to the current year
109

 
275

Additions for tax positions from prior years
7

 
161

Reductions for tax positions from prior years
(99
)
 
(172
)
Settlement payments
(68
)
 
(17
)
Statute of limitations expiration
(19
)
 
(3
)
Translation and other
(7
)
 
14

Balance, end of period
$
2,348

 
$
2,425


Note 6 - Stock-Based Compensation

The following table summarizes our total stock-based compensation expense:
 
 
12 Weeks Ended
 
24 Weeks Ended
 
 
6/15/13

 
6/16/12

 
6/15/13

 
6/16/12

Stock-based compensation expense
 
$
72

 
$
69

 
$
149

 
$
125

Merger and integration charges
 

 

 

 
1

Restructuring and impairment benefits
 

 

 

 
(7
)
Total
 
$
72

 
$
69

 
$
149

 
$
119

Our weighted-average Black-Scholes fair value assumptions are as follows: 
 
24 Weeks Ended
 
6/15/13

 
6/16/12

Expected life
6 years

 
6 years

Risk free interest rate
1.0
%
 
1.3
%
Expected volatility (a)
17
%
 
17
%
Expected dividend yield
2.7
%
 
3.0
%
(a)
Reflects movements in our stock price over the most recent historical period equivalent to the expected life.
For the 12 weeks ended June 15, 2013, our grants of stock options, restricted stock units (RSUs) and PepsiCo equity performance units (PEPUnits) were nominal. For the 24 weeks ended June 15, 2013, we granted 2.5 million stock options, 3.9 million RSUs and 0.4 million PEPUnits at a weighted-average grant price of $75.75 under the terms of our 2007 Long-Term Incentive Plan. In connection with the Productivity Plan, the grant of the 2012 annual equity award was delayed until the second quarter of 2012. Therefore, for the 12 and 24 weeks ended June 16, 2012, we granted 3.4 million stock options and 4.2 million RSUs at a weighted-average grant price of $66.50 and 0.4 million PEPUnits at a weighted-average grant price of $66.51 under the terms of our 2007 Long-Term Incentive Plan.



16


Note 7 - Pension and Retiree Medical Benefits

The components of net periodic benefit cost for pension and retiree medical plans are as follows: 
 
12 Weeks Ended
 
Pension
 
Retiree Medical
 
6/15/13

 
6/16/12

 
6/15/13

 
6/16/12

 
6/15/13

 
6/16/12

 
U.S.
 
International
 
 
Service cost
$
108

 
$
94

 
$
27

 
$
24

 
$
11

 
$
11

Interest cost
122

 
123

 
30

 
28

 
12

 
15

Expected return on plan assets
(190
)
 
(183
)
 
(40
)
 
(35
)
 
(6
)
 
(5
)
Amortization of prior service cost/(benefit)
5

 
4

 
1

 
1

 
(5
)
 
(6
)
Amortization of net losses
66

 
59

 
16

 
12

 

 

 
111

 
97

 
34

 
30

 
12

 
15

Settlement loss

 

 
1

 
3

 

 

Special termination benefits
2

 

 

 

 

 

Total expense
$
113

 
$
97

 
$
35

 
$
33

 
$
12

 
$
15

 
 
 
 
 
 
 
 
 
 
 
 

 
24 Weeks Ended
 
Pension
 
Retiree Medical
 
6/15/13

 
6/16/12

 
6/15/13

 
6/16/12

 
6/15/13

 
6/16/12

 
U.S.
 
International
 
 
Service cost
$
216

 
$
189

 
$
49

 
$
42

 
$
21

 
$
23

Interest cost
243

 
246

 
52

 
48

 
25

 
30

Expected return on plan assets
(380
)
 
(367
)
 
(70
)
 
(61
)
 
(12
)
 
(10
)
Amortization of prior service cost/(benefit)
9

 
8

 
1

 
1

 
(10
)
 
(12
)
Amortization of net losses
133

 
119

 
29

 
22

 

 


221

 
195

 
61

 
52

 
24

 
31

Settlement/curtailment (gain)/loss

 
(7
)
 
1

 
3

 

 

Special termination benefits
3

 
4

 

 

 

 
4

Total expense
$
224

 
$
192

 
$
62

 
$
55

 
$
24

 
$
35


During the first quarter of 2013, we made discretionary contributions of $13 million to our international pension plans. During the first quarter of 2012, we made discretionary contributions of $860 million to our U.S. pension plans and $140 million to our U.S. retiree medical plans.

  
Note 8 - Debt Obligations and Commitments

In the first quarter of 2013, we issued:
$625 million of floating rate notes maturing in February 2016, which bear interest at a rate equal to the three-month London Inter-Bank Offered Rate (LIBOR) plus 21 basis points;
$625 million of 0.700% senior notes maturing in February 2016; and
$1.250 billion of 2.750% senior notes maturing in March 2023.

17


The net proceeds from the issuances of the above notes were used for general corporate purposes, including the repayment of commercial paper.

In the second quarter of 2013, we entered into a new five-year unsecured revolving credit agreement (Five-Year Credit Agreement) which expires on June 10, 2018. Subsequent to the end of the second quarter, we increased commitments under this agreement. The Five-Year Credit Agreement enables us and our borrowing subsidiaries to borrow up to $2.925 billion, subject to customary terms and conditions. We may request that commitments under this agreement be increased up to $3.5 billion. Additionally, we may, once a year, request renewal of the agreement for an additional one-year period.

Also, in the second quarter of 2013, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement) which expires on June 9, 2014. Subsequent to the end of the second quarter, we increased commitments under this agreement. The 364-Day Credit Agreement enables us and our borrowing subsidiaries to borrow up to $2.925 billion, subject to customary terms and conditions. We may request that commitments under this agreement be increased up to $3.5 billion. 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 would mature no later than the then effective termination date.
The Five-Year Credit Agreement and the 2013 364-Day Credit Agreement together replaced our $2.925 billion Four-Year Credit Agreement dated as of June 14, 2011 and our $2.925 billion 364-Day Credit Agreement dated as of June 14, 2011. Funds borrowed under the Five-Year Credit Agreement and the 2013 364-Day Credit Agreement may be used for general corporate purposes of PepsiCo and our subsidiaries.
As of June 15, 2013, we had $2.4 billion of commercial paper outstanding.
Long-Term Contractual Commitments (a) 
 
Payments Due by Period
 
Total

 
2013

 
2014 –
2015

 
2016 –
2017

 
2018 and
beyond

Long-term debt obligations (b)
$
22,681

 
$

 
$
3,792

 
$
4,355

 
$
14,534

Interest on debt obligations (c)
8,698

 
511

 
1,560

 
1,321

 
5,306

Operating leases
1,993

 
256

 
700

 
396

 
641

Purchasing commitments (d)
1,959

 
449

 
1,082

 
208

 
220

Marketing commitments (d)
2,245

 
163

 
630

 
492

 
960

 
$
37,576

 
$
1,379

 
$
7,764

 
$
6,772

 
$
21,661

 
 
 
 
 
 
 
 
 
 
(a)
Based on quarter-end foreign exchange rates.
(b)
Excludes $3,656 million related to current maturities of long-term debt, $273 million related to the increase in carrying value of long-term debt reflecting the gains on our fair value interest rate swaps and $258 million related to the fair value step-up of debt acquired in connection with our acquisitions of The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS) in February 2010.
(c)
Interest payments on floating-rate debt are estimated using interest rates effective as of June 15, 2013.
(d)
Primarily reflects non-cancelable commitments as of June 15, 2013.

Most long-term contractual commitments, except for our long-term debt obligations, are not recorded on our balance sheet. Operating leases primarily represent building leases. Non-cancelable purchasing commitments are primarily for packaging materials and oranges and orange juice. Non-cancelable marketing commitments are primarily for sports marketing. Bottler funding to independent bottlers is not reflected in our long-term contractual commitments as it is negotiated on an annual basis. Accrued liabilities for pension and retiree medical plans are not reflected in our long-term contractual commitments because they do not represent

18


expected future cash outflows. See Note 7 for additional information regarding our pension and retiree medical obligations.

Note 9 - Accumulated Other Comprehensive Loss

The following table summarizes the reclassifications from Accumulated Other Comprehensive Loss to the Condensed Consolidated Statement of Income for the 12 and 24 weeks ended June 15, 2013:
 
 
12 Weeks Ended
 
24 Weeks Ended
 
 
 
 
6/15/13
 
6/15/13
 
 
 
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item in the Condensed Consolidated Statement of Income
 
 
 
 
 
 
 
Losses/(gains) on cash flow hedges:
 
 
 
 
 
 
    Foreign exchange contracts
 
$
1

 
$
4

 
Cost of sales
    Interest rate derivatives
 
(18
)
 
33

 
Interest expense
    Commodity contracts
 
8

 
14

 
Cost of sales
    Commodity contracts
 
1

 

 
Selling, general and administrative expenses
    Total before tax
 
(8
)
 
51

 
 
    Tax amounts
 
2

 
(19
)
 
 
    (Gains)/losses after tax
 
$
(6
)
 
$
32

 
 
 
 
 
 
 
 
 
Amortization of pension and retiree medical items:
 
 
 
 
 
 
    Net prior service cost (a)
 
$
1

 
$

 
 
    Net actuarial losses (a)
 
83

 
163

 
 
    Total before tax
 
84

 
163

 
 
    Tax amounts
 
(27
)
 
(54
)
 
 
    Losses after tax
 
$
57

 
$
109