10-Q 1 pepsicoq3-10xq962014.htm FORM 10-Q Pepsico Q3-10-Q 9.6.2014
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 September 6, 2014 (36 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 October 2, 2014 was 1,496,606,020.



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 36 Weeks Ended September 6, 2014 and September 7, 2013
                                                                                                                 
 
Condensed Consolidated Statement of Comprehensive Income –
12 and 36 Weeks Ended September 6, 2014 and September 7, 2013
 
Condensed Consolidated Statement of Cash Flows –
36 Weeks Ended September 6, 2014 and September 7, 2013
 
Condensed Consolidated Balance Sheet –
September 6, 2014 and December 28, 2013
 
Condensed Consolidated Statement of Equity –
36 Weeks Ended September 6, 2014 and September 7, 2013
 
Item 2.
Report of Independent Registered Public Accounting Firm
Item 3.
Item 4.
Part II Other Information
 
Item 1.
Item 1A.
Item 2.
Item 5.
Other Information
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
 
36 Weeks Ended
 
9/6/2014

 
9/7/2013

 
9/6/2014

 
9/7/2013

Net Revenue
$
17,218

 
$
16,909

 
$
46,735

 
$
46,297

Cost of sales
7,995

 
7,946

 
21,520

 
21,678

Selling, general and administrative expenses
6,354

 
6,158

 
17,600

 
17,237

Amortization of intangible assets
22

 
25

 
65

 
75

Operating Profit
2,847

 
2,780

 
7,550

 
7,307

Interest expense
(215
)
 
(220
)
 
(625
)
 
(642
)
Interest income and other
23

 
17

 
51

 
62

Income before income taxes
2,655

 
2,577

 
6,976

 
6,727

Provision for income taxes
637

 
654

 
1,744

 
1,694

Net income
2,018

 
1,923

 
5,232

 
5,033

Less: Net income attributable to noncontrolling interests
10

 
10

 
30

 
35

Net Income Attributable to PepsiCo
$
2,008

 
$
1,913

 
$
5,202

 
$
4,998

Net Income Attributable to PepsiCo per Common Share
 
 
 
 
 
 
 
Basic
$
1.33

 
$
1.24

 
$
3.43

 
$
3.23

Diluted
$
1.32

 
$
1.23

 
$
3.40

 
$
3.20

Weighted-average common shares outstanding
 
 
 
 
 
 
 
Basic
1,507

 
1,542

 
1,515

 
1,545

Diluted
1,525

 
1,561

 
1,532

 
1,564

Cash dividends declared per common share
$
0.655

 
$
0.5675

 
$
1.8775

 
$
1.6725


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 9/6/2014
 
36 Weeks Ended 9/6/2014
 
Pre-tax amounts

Tax amounts

After-tax amounts
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
Net income


 


 
$
2,018

 
 
 
 
 
$
5,232

Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment
$
(737
)
 
$

 
(737
)
 
$
(1,151
)
 
$

 
(1,151
)
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net losses to net income
109

 
(37
)
 
72

 
130

 
(46
)
 
84

Net derivative losses
(42
)
 
16

 
(26
)
 
(67
)
 
23

 
(44
)
Pension and retiree medical:

 

 

 
 
 
 
 
 
Reclassification of net losses to net income
55

 
(18
)
 
37

 
156

 
(51
)
 
105

Remeasurement of net liabilities and
translation
(10
)
 
5

 
(5
)
 
(20
)
 
8

 
(12
)
Unrealized losses on securities
(13
)
 
7

 
(6
)
 
(2
)
 
1

 
(1
)
Total Other Comprehensive Loss
$
(638
)
 
$
(27
)
 
(665
)
 
$
(954
)
 
$
(65
)
 
(1,019
)
Comprehensive income
 
 
 
 
1,353

 
 
 
 
 
4,213

Comprehensive income attributable to
noncontrolling interests
 
 
 
 
(10
)
 
 
 
 
 
(30
)
Comprehensive Income Attributable to PepsiCo
 
 
 
 
$
1,343

 
 
 
 
 
$
4,183

 
12 Weeks Ended 9/7/2013
 
36 Weeks Ended 9/7/2013
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
Net income
 
 
 
 
$
1,923

 
 
 
 
 
$
5,033

Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment
$
(700
)
 
$

 
(700
)
 
$
(1,653
)
 
$

 
(1,653
)
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net losses to net income
21

 
(7
)
 
14

 
72

 
(26
)
 
46

Net derivative gains/(losses)
4

 
(4
)
 

 
(14
)
 
12

 
(2
)
Pension and retiree medical:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net losses to net income
82

 
(29
)
 
53

 
245

 
(83
)
 
162

Remeasurement of net liabilities and
translation
(9
)
 
3

 
(6
)
 
36

 
(10
)
 
26

Unrealized gains on securities
9

 
(4
)
 
5

 
28

 
(14
)
 
14

Other
1




1

 

 
(16
)
 
(16
)
Total Other Comprehensive Loss
$
(592
)
 
$
(41
)
 
(633
)
 
$
(1,286
)
 
$
(137
)
 
(1,423
)
Comprehensive income
 
 
 
 
1,290

 
 
 
 
 
3,610

Comprehensive income attributable to
noncontrolling interests
 
 
 
 
(9
)
 
 
 
 
 
(32
)
Comprehensive Income Attributable to PepsiCo
 
 
 
 
$
1,281

 
 
 
 
 
$
3,578


See accompanying notes to the condensed consolidated financial statements.

4


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

 
36 Weeks Ended
 
9/6/2014

 
9/7/2013

Operating Activities
 
 
 
Net income
$
5,232

 
$
5,033

Depreciation and amortization
1,794

 
1,815

Stock-based compensation expense
207

 
219

Merger and integration charges

 
9

Cash payments for merger and integration charges

 
(21
)
Restructuring and impairment charges
258

 
37

Cash payments for restructuring charges
(169
)
 
(100
)
Cash payments for restructuring and other charges related to the transaction with Tingyi (Cayman Islands) Holding Corp. (Tingyi)

 
(26
)
Non-cash foreign exchange loss related to Venezuela currency devaluation

 
111

Excess tax benefits from share-based payment arrangements
(86
)
 
(94
)
Pension and retiree medical plan expenses
368

 
462

Pension and retiree medical plan contributions
(196
)
 
(208
)
Deferred income taxes and other tax charges and credits
(8
)
 
(66
)
Change in accounts and notes receivable
(1,582
)
 
(1,262
)
Change in inventories
(481
)
 
(337
)
Change in prepaid expenses and other current assets
(18
)
 
(156
)
Change in accounts payable and other current liabilities
537

 
734

Change in income taxes payable
1,115

 
811

Other, net
(278
)
 
(299
)
Net Cash Provided by Operating Activities
6,693

 
6,662

 
 
 
 
Investing Activities
 
 
 
Capital spending
(1,540
)
 
(1,497
)
Sales of property, plant and equipment
60

 
51

Cash payments related to the transaction with Tingyi

 
(3
)
Acquisitions and investments in noncontrolled affiliates
(81
)
 
(82
)
Divestitures
186

 
174

Short-term investments, by original maturity
 
 
 
More than three months – purchases
(5,423
)
 

Three months or less, net
117

 
(8
)
Other investing
3

 
(13
)
Net Cash Used for Investing Activities
(6,678
)
 
(1,378
)
 


(Continued on following page)


5


Condensed Consolidated Statement of Cash Flows (continued)
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
 
36 Weeks Ended
 
9/6/2014

 
9/7/2013

Financing Activities
 
 
 
Proceeds from issuances of long-term debt
$
3,364

 
$
4,185

Payments of long-term debt
(2,186
)
 
(2,954
)
Short-term borrowings, by original maturity
 
 
 
    More than three months – proceeds
32

 
2

    More than three months – payments
(10
)
 
(476
)
    Three months or less, net
2,117

 
662

Cash dividends paid
(2,745
)
 
(2,558
)
Share repurchases – common
(3,207
)
 
(2,041
)
Share repurchases – preferred
(7
)
 
(5
)
Proceeds from exercises of stock options
561

 
991

Excess tax benefits from share-based payment arrangements
86

 
94

Acquisition of noncontrolling interests

 
(20
)
Other financing
(32
)
 
(15
)
Net Cash Used for Financing Activities
(2,027
)
 
(2,135
)
Effect of exchange rate changes on cash and cash equivalents
(81
)
 
(242
)
Net (Decrease)/Increase in Cash and Cash Equivalents
(2,093
)
 
2,907

Cash and Cash Equivalents, Beginning of Year
9,375

 
6,297

Cash and Cash Equivalents, End of Period
$
7,282

 
$
9,204


See accompanying notes to the condensed consolidated financial statements.


6


Condensed Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
(in millions)
 
(Unaudited)
 
 
 
9/6/2014

 
12/28/2013

Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
7,282

 
$
9,375

Short-term investments
5,624

 
303

Accounts and notes receivable, less allowance: 9/14 - $154 and
    12/13 - $145
8,376

 
6,954

Inventories
 
 
 
Raw materials
1,832

 
1,732

Work-in-process
261

 
168

Finished goods
1,691

 
1,509

 
3,784

 
3,409

Prepaid expenses and other current assets
1,524

 
2,162

Total Current Assets
26,590

 
22,203

Property, Plant and Equipment
37,373

 
36,961

Accumulated Depreciation
(19,444
)
 
(18,386
)
 
17,929

 
18,575

Amortizable Intangible Assets, net
1,549

 
1,638

Goodwill
16,225

 
16,613

Other Nonamortizable Intangible Assets
13,951

 
14,401

Nonamortizable Intangible Assets
30,176

 
31,014

Investments in Noncontrolled Affiliates
1,946

 
1,841

Other Assets
2,276

 
2,207

Total Assets
$
80,466

 
$
77,478



 
(Continued on following page)

 

7


Condensed Consolidated Balance Sheet (continued)
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts)
 
(Unaudited)
 
 
 
9/6/2014

 
12/28/2013

Liabilities and Equity
 
 
 
Current Liabilities
 
 
 
Short-term obligations
$
9,253

 
$
5,306

Accounts payable and other current liabilities
13,591

 
12,533

Total Current Liabilities
22,844

 
17,839

Long-Term Debt Obligations
23,489

 
24,333

Other Liabilities
5,076

 
4,931

Deferred Income Taxes
5,870

 
5,986

Total Liabilities
57,279

 
53,089

Commitments and Contingencies


 


Preferred Stock, no par value
41

 
41

Repurchased Preferred Stock
(178
)
 
(171
)
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: 1,503 and 1,529 shares, respectively)
25

 
25

Capital in excess of par value
4,028

 
4,095

Retained earnings
48,764

 
46,420

Accumulated other comprehensive loss
(6,146
)
 
(5,127
)
Repurchased common stock, in excess of par value (363 and 337 shares, respectively)
(23,463
)
 
(21,004
)
Total PepsiCo Common Shareholders’ Equity
23,208

 
24,409

Noncontrolling Interests
116

 
110

Total Equity
23,187

 
24,389

Total Liabilities and Equity
$
80,466

 
$
77,478



See accompanying notes to the condensed consolidated financial statements.


8


Condensed Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
 
36 Weeks Ended
 
9/6/2014
 
9/7/2013
 
Shares
 
Amount
 
Shares
 
Amount
Preferred Stock
0.8

 
$
41

 
0.8

 
$
41

Repurchased Preferred Stock
 
 
 
 
 
 
 
Balance, beginning of year
(0.6
)
 
(171
)
 
(0.6
)
 
(164
)
Redemptions

 
(7
)
 

 
(5
)
Balance, end of period
(0.6
)
 
(178
)
 
(0.6
)
 
(169
)
Common Stock
 
 
 
 
 
 
 
Balance, beginning of year
1,529

 
25

 
1,544

 
26

Repurchased common stock
(26
)
 

 
(7
)
 

Balance, end of period
1,503

 
25

 
1,537

 
26

Capital in Excess of Par Value
 
 
 
 
 
 
 
Balance, beginning of year
 
 
4,095

 
 
 
4,178

Stock-based compensation expense
 
 
207

 
 
 
219

Stock option exercises and restricted stock units (RSUs) converted (a)
 
 
(200
)
 
 
 
(266
)
Withholding tax on RSUs converted
 
 
(89
)
 
 
 
(77
)
Other
 
 
15

 
 
 
(14
)
Balance, end of period
 
 
4,028

 
 
 
4,040

Retained Earnings
 
 
 
 
 
 
 
Balance, beginning of year
 
 
46,420

 
 
 
43,158

Net income attributable to PepsiCo
 
 
5,202

 
 
 
4,998

Cash dividends declared – common
 
 
(2,839
)
 
 
 
(2,583
)
Cash dividends declared – RSUs
 
 
(19
)
 
 
 
(19
)
Balance, end of period
 
 
48,764

 
 
 
45,554

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Balance, beginning of year
 
 
(5,127
)
 
 
 
(5,487
)
Currency translation adjustment
 
 
(1,151
)
 
 
 
(1,650
)
Cash flow hedges, net of tax:
 
 
 
 
 
 
 
Reclassification of net losses to net income
 
 
84

 
 
 
46

Net derivative losses
 
 
(44
)
 
 
 
(2
)
Pension and retiree medical, net of tax:
 
 
 
 
 
 
 
Reclassification of net losses to net income
 
 
105

 
 
 
162

Remeasurement of net liabilities and translation
 
 
(12
)
 
 
 
26

Unrealized (losses)/gains on securities, net of tax
 
 
(1
)
 
 
 
14

Other
 
 

 
 
 
(16
)
Balance, end of period
 
 
(6,146
)
 
 
 
(6,907
)
Repurchased Common Stock
 
 
 
 
 
 
 
Balance, beginning of year
(337
)
 
(21,004
)
 
(322
)
 
(19,458
)
Share repurchases
(38
)
 
(3,264
)
 
(27
)
 
(2,125
)
Stock option exercises
10

 
643

 
18

 
1,146

Other
2

 
162

 
2

 
138

Balance, end of period
(363
)
 
(23,463
)
 
(329
)
 
(20,299
)
Total PepsiCo Common Shareholders’ Equity
 
 
23,208

 
 
 
22,414

Noncontrolling Interests
 
 
 
 
 
 
 
Balance, beginning of year
 
 
110

 
 
 
105

Net income attributable to noncontrolling interests
 
 
30

 
 
 
35

Distributions to noncontrolling interests
 
 
(23
)
 
 
 
(15
)
Currency translation adjustment
 
 

 
 
 
(3
)
Acquisitions and divestitures
 
 

 
 
 
(6
)
Other, net
 
 
(1
)
 
 
 

Balance, end of period
 
 
116

 
 
 
116

Total Equity
 
 
$
23,187

 
 
 
$
22,402


(a)
Includes total tax benefits of $45 million in 2014 and $32 million in 2013.
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 consolidated subsidiaries.
Our Condensed Consolidated Balance Sheet as of September 6, 2014, Condensed Consolidated Statements of Income and Comprehensive Income for the 12 and 36 weeks ended September 6, 2014 and September 7, 2013, and the Condensed Consolidated Statements of Cash Flows and Equity for the 36 weeks ended September 6, 2014 and September 7, 2013 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 28, 2013. 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 6, 2014 and September 7, 2013 are not necessarily indicative of the results expected for the full year.
The results of our Venezuelan businesses have been reported under highly inflationary accounting since the beginning of 2010. See further unaudited information in “Our Business Risks,” “Items Affecting Comparability” and “Our Liquidity and Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
While our North America (United States and Canada) results are reported on a 12-week basis, most of our international operations report on a monthly calendar basis for which the months of June, July and August are reflected in our third 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 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 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. This report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 28, 2013.

10


Our Divisions
We are organized into six reportable segments (also referred to as divisions), as follows:
1.
Frito-Lay North America (FLNA);
2.
Quaker Foods North America (QFNA);
3.
Latin American Foods (LAF), which includes all of our food and snack businesses in Latin America;
4.
PepsiCo Americas Beverages (PAB), which includes all of our North American and Latin American beverage businesses;
5.
PepsiCo Europe (Europe), which includes all beverage, food and snack businesses in Europe and South Africa; and
6.
PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack businesses in AMEA, excluding South Africa.

Net revenue and operating profit of each division are as follows:
 
12 Weeks Ended
 
36 Weeks Ended
 
9/6/2014

 
9/7/2013

 
9/6/2014

 
9/7/2013

Net Revenue
 
 
 
 
 
 
 
FLNA
$
3,526

 
$
3,424

 
$
10,132

 
$
9,879

QFNA
586

 
604

 
1,784

 
1,815

LAF
2,178

 
2,049

 
5,638

 
5,532

PAB
5,383

 
5,406

 
15,090

 
15,086

Europe
3,764

 
3,818

 
9,382

 
9,413

AMEA
1,781

 
1,608

 
4,709

 
4,572

 
$
17,218

 
$
16,909

 
$
46,735

 
$
46,297

 
12 Weeks Ended
 
36 Weeks Ended
 
9/6/2014

 
9/7/2013

 
9/6/2014

 
9/7/2013

Operating Profit
 
 
 
 
 
 
 
FLNA
$
1,025

 
$
977

 
$
2,824

 
$
2,711

QFNA
150

 
137

 
449

 
450

LAF
327

 
295

 
882

 
829

PAB
858

 
843

 
2,155

 
2,290

Europe
465

 
501

 
1,068

 
1,014

AMEA
309

 
295

 
884

 
1,003

Total division
3,134

 
3,048

 
8,262

 
8,297

Corporate Unallocated
 
 
 
 
 
 
 
Mark-to-market net (losses)/gains
(33
)
 
(19
)
 
32

 
(74
)
Restructuring and impairment charges
(15
)
 
1

 
(20
)
 
(1
)
Venezuela currency devaluation

 

 

 
(124
)
Other
(239
)
 
(250
)
 
(724
)
 
(791
)
 
$
2,847

 
$
2,780

 
$
7,550

 
$
7,307


11


Total assets of each division are as follows:
 
Total Assets
 
9/6/2014


12/28/2013

FLNA
$
5,471

 
$
5,308

QFNA
1,013

 
983

LAF
5,095

 
4,829

PAB
30,727

 
30,350

Europe
17,967

 
18,702

AMEA
6,123

 
5,754

Total division
66,396

 
65,926

Corporate (a)
14,070

 
11,552


$
80,466

 
$
77,478

(a)
Corporate assets consist principally of cash and cash equivalents, short-term investments, derivative instruments, property, plant and equipment and certain pension and tax assets.
Note 2 - Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance on revenue recognition, which provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. There is no option for early adoption. The provisions of the new guidance will be effective as of the beginning of our 2017 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected a transition approach to implement the standard.
In July 2013, the FASB issued new accounting guidance that requires an entity to net its liability for unrecognized tax positions against a net operating loss carryforward, a similar tax loss or a tax credit carryforward when settlement in this manner is available under the tax law. The provisions of this new guidance were effective as of the beginning of our 2014 fiscal year and did not have a material impact on our financial statements.
In December 2011, the FASB issued new disclosure requirements that were intended to enhance current disclosures on offsetting financial assets and liabilities. The disclosures required 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 disclosure requirements were effective as of the beginning of our 2014 fiscal year. Accordingly, we included enhanced footnote disclosure in Note 10.
Note 3 - Restructuring, Impairment and Integration Charges
2014 Multi-Year Productivity Plan
The multi-year productivity plan we publicly announced on February 13, 2014 (2014 Productivity Plan) includes the next generation of productivity initiatives that we believe will strengthen our food, snack and beverage businesses by: accelerating our investment in manufacturing automation; further optimizing our global manufacturing footprint, including closing certain manufacturing facilities; re-engineering our go-to-market systems in developed markets; expanding shared services; and implementing simplified organization

12


structures to drive efficiency. The 2014 Productivity Plan is in addition to the productivity plan we began implementing in 2012 and is expected to continue the benefits of that plan.
In the 12 weeks ended September 6, 2014, we incurred restructuring and impairment charges of $54 million ($39 million after-tax or $0.03 per share) in conjunction with the 2014 Productivity Plan. In the 36 weeks ended September 6, 2014, we incurred restructuring and impairment charges of $227 million ($167 million after-tax or $0.11 per share) in conjunction with the 2014 Productivity Plan. All of these net charges were recorded in selling, general and administrative expenses. The majority of the restructuring accrual at September 6, 2014 is expected to be paid by the end of 2014.
A summary of our 2014 Productivity Plan charges is as follows:
 
 
12 Weeks Ended
 
36 Weeks Ended
 
 
9/6/2014

 
9/6/2014

FLNA
 
$
9

 
$
33

QFNA
 

 
2

LAF
 
8

 
14

PAB
 
16

 
131

Europe
 
7

 
22

AMEA
 
2

 
11

Corporate
 
12

 
14

 
 
$
54

 
$
227

A summary of our 2014 Productivity Plan activity in 2014 is as follows:
 
Severance and Other
Employee Costs
 
Asset Impairments
 
Other Costs
 
Total
Liability as of December 28, 2013
$
30

 
$

 
$
1

 
$
31

2014 restructuring charges
85

 
62

 
80

 
227

Cash payments
(35
)
 

 
(65
)
 
(100
)
Non-cash charges
(13
)
 
(62
)
 
(2
)
 
(77
)
Liability as of September 6, 2014
$
67

 
$

 
$
14

 
$
81

2012 Multi-Year Productivity Plan
The multi-year productivity plan we publicly announced on February 9, 2012 (2012 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 2012 Productivity Plan continues to enhance PepsiCo’s cost-competitiveness and provide a source of funding for future brand-building and innovation initiatives.

In the 12 weeks ended September 6, 2014, we incurred restructuring and impairment charges of $14 million ($12 million after-tax or $0.01 per share) in conjunction with our 2012 Productivity Plan. In the 36 weeks ended September 6, 2014, we incurred restructuring and impairment charges of $31 million ($29 million after-tax or $0.02 per share) in conjunction with our 2012 Productivity Plan. All of these net charges were recorded in selling, general and administrative expenses. Substantially all of the restructuring accrual at September 6, 2014 is expected to be paid by the end of 2014.

13


In the 12 weeks ended September 7, 2013, we incurred restructuring and impairment charges of $7 million ($6 million after-tax with a nominal amount per share) in conjunction with the 2012 Productivity Plan. In the 36 weeks ended September 7, 2013, we incurred restructuring and impairment charges of $37 million ($29 million after-tax or $0.02 per share) in conjunction with the 2012 Productivity Plan. All of these net charges were recorded in selling, general and administrative expenses.
A summary of our 2012 Productivity Plan charges is as follows:
 
 
12 Weeks Ended
 
36 Weeks Ended
 
 
9/6/2014

 
9/7/2013

 
9/6/2014

 
9/7/2013

FLNA
 
$

 
$
1

 
$
2

 
$
5

QFNA
 

 

 

 

LAF (a)
 
(2
)
 
1

 
(7
)
 
6

PAB
 

 
3

 
7

 
8

Europe
 
7

 
2

 
15

 
14

AMEA
 
6

 
1

 
8

 
3

Corporate (a)
 
3

 
(1
)
 
6

 
1

 
 
$
14

 
$
7

 
$
31

 
$
37

(a) Income amounts represent adjustments of previously recorded amounts.
A summary of our 2012 Productivity Plan activity in 2014 is as follows: 
 
Severance and Other
Employee Costs
 
Asset Impairments
 
Other Costs
 
Total
Liability as of December 28, 2013
$
68

 
$

 
$
17

 
$
85

2014 restructuring charges
15

 
6

 
10

 
31

Cash payments
(46
)
 

 
(23
)
 
(69
)
Non-cash charges
(5
)
 
(6
)
 
2

 
(9
)
Liability as of September 6, 2014
$
32

 
$

 
$
6

 
$
38


Note 4 - Intangible Assets

A summary of our amortizable intangible assets, net is as follows:
 
 
9/6/2014
 
12/28/2013

 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Acquired franchise rights
 
$
902

 
$
(92
)
 
$
810

 
$
910

 
$
(83
)
 
$
827

Reacquired franchise rights
 
107

 
(93
)
 
14

 
108

 
(86
)
 
22

Brands
 
1,390

 
(1,014
)
 
376

 
1,400

 
(996
)
 
404

Other identifiable intangibles
 
665

 
(316
)
 
349

 
686

 
(301
)
 
385

 
 
$
3,064

 
$
(1,515
)
 
$
1,549

 
$
3,104

 
$
(1,466
)
 
$
1,638


14


The change in the book value of nonamortizable intangible assets is as follows:
 
Balance
 
Translation
and Other
 
Balance

12/28/2013
 
 
9/6/2014
FLNA

 

 

Goodwill
$
305

 
$
(4
)
 
$
301

Brands
29

 
(1
)
 
28


334

 
(5
)
 
329

 
 
 
 
 
 
QFNA
 
 
 
 
 
Goodwill
175

 

 
175

 
 
 
 
 
 
LAF
 
 
 
 
 
Goodwill
660

 
1

 
661

Brands
206

 
4

 
210


866

 
5

 
871

 
 
 
 
 
 
PAB
 
 
 
 
 
Goodwill
9,943

 
(8
)
 
9,935

Reacquired franchise rights
7,281

 
(26
)
 
7,255

Acquired franchise rights
1,551

 

 
1,551

Brands
146

 
3

 
149


18,921

 
(31
)
 
18,890

 
 
 
 
 
 
Europe
 
 
 
 
 
Goodwill
5,027

 
(394
)
 
4,633

Reacquired franchise rights
760

 
(65
)
 
695

Acquired franchise rights
230

 
(11
)
 
219

Brands (a)
4,071

 
(361
)
 
3,710


10,088

 
(831
)
 
9,257

 
 
 
 
 
 
AMEA
 
 
 
 
 
Goodwill
503

 
17

 
520

Brands
127

 
7

 
134


630

 
24

 
654

 
 
 
 
 
 
Total goodwill
16,613

 
(388
)
 
16,225

Total reacquired franchise rights
8,041

 
(91
)
 
7,950

Total acquired franchise rights
1,781

 
(11
)
 
1,770

Total brands
4,579

 
(348
)
 
4,231


$
31,014

 
$
(838
)
 
$
30,176

(a)
In the 12 and 36 weeks ended September 6, 2014, we recorded an impairment charge of $23 million related to a brand in Greece.

15


Note 5 - Income Taxes

A rollforward of our reserves for all federal, state and foreign tax jurisdictions is as follows: 
 
9/6/2014

 
12/28/2013

Balance, beginning of year
$
1,268

 
$
2,425

Additions for tax positions related to the current year
205

 
238

Additions for tax positions from prior years
105

 
273

Reductions for tax positions from prior years
(42
)
 
(327
)
Settlement payments
(74
)
 
(1,306
)
Statute of limitations expiration
(36
)
 
(30
)
Translation and other
(9
)
 
(5
)
Balance, end of period
$
1,417

 
$
1,268

Note 6 - Stock-Based Compensation

The following table summarizes our total stock-based compensation expense:
 
 
12 Weeks Ended
 
36 Weeks Ended
 
 
9/6/2014

 
9/7/2013

 
9/6/2014


9/7/2013

Stock-based compensation expense
 
$
67

 
$
70

 
$
207

 
$
219

Restructuring and impairment benefits
 
(1
)
 

 
(4
)
 

Total
 
$
66

 
$
70

 
$
203

 
$
219

Our weighted-average Black-Scholes fair value assumptions are as follows: 
 
36 Weeks Ended
 
9/6/2014

 
9/7/2013

Expected life
6 years

 
6 years

Risk free interest rate
1.8
%
 
1.0
%
Expected volatility (a)
16
%
 
17
%
Expected dividend yield
2.9
%
 
2.7
%
(a)
Reflects movements in our stock price over the most recent historical period equivalent to the expected life.

For the 12 weeks ended September 6, 2014 and September 7, 2013, our grants of stock options, RSUs and PepsiCo equity performance units (PEPUnits) were nominal.
The following table summarizes awards granted under the terms of our 2007 Long-Term Incentive Plan:
 
 
36 Weeks Ended
 
 
9/6/2014
 
9/7/2013
 
 
Granted (a)
 
Weighted-Average Grant Price
 
Granted (a)
 
Weighted-Average Grant Price
Stock options
 
3.3

 
$
80.67

 
2.7

 
$
76.22

RSUs
 
4.2

 
$
79.80

 
4.2

 
$
76.35

PEPUnits
 
0.4

 
$
79.75

 
0.4

 
$
75.75

(a)
In millions.

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
 
9/6/2014


9/7/2013


9/6/2014


9/7/2013


9/6/2014


9/7/2013

 
U.S.

International

 
Service cost
$
91


$
107


$
24


$
28


$
8


$
10

Interest cost
134


122


33


29


14


13

Expected return on plan assets
(181
)

(190
)

(44
)

(39
)

(6
)

(6
)
Amortization of prior service cost/(credit)
5


4






(5
)

(6
)
Amortization of net losses/(gains)
40


67


14


17


(2
)



89


110


27


35


9


11

Settlement loss




3







Special termination benefits
3








1



Total expense
$
92


$
110


$
30


$
35


$
10


$
11

 
36 Weeks Ended
 
Pension
 
Retiree Medical
 
9/6/2014

 
9/7/2013

 
9/6/2014

 
9/7/2013

 
9/6/2014

 
9/7/2013

 
U.S.
 
International
 
 
Service cost
$
272

 
$
323

 
$
67

 
$
77

 
$
24

 
$
31

Interest cost
402

 
365

 
90

 
81

 
42

 
38

Expected return on plan assets
(543
)
 
(570
)
 
(120
)
 
(109
)
 
(18
)
 
(18
)
Amortization of prior service cost/(credit)
14

 
13

 

 
1

 
(15
)
 
(16
)
Amortization of net losses/(gains)
121

 
200

 
36

 
46

 
(4
)
 

 
266

 
331

 
73

 
96

 
29

 
35

Settlement loss

 

 
3

 
1

 

 

Special termination benefits
11

 
3

 

 

 
2

 

Total expense
$
277

 
$
334

 
$
76

 
$
97

 
$
31

 
$
35


We regularly evaluate different opportunities to reduce risk and volatility associated with our pension and retiree medical plans. During the second quarter of 2014, we made discretionary contributions of $19 million to our international pension plans. During the first quarter of 2013, we made discretionary contributions of $13 million to our international pension plans.

17


Note 8 - Debt Obligations and Commitments

In the first quarter of 2014, we issued:
$750 million of 0.950% senior notes maturing in February 2017; and
$1.250 billion of 3.600% senior notes maturing in March 2024.
In the second quarter of 2014, we issued:
€500 million of 1.750% senior notes maturing in April 2021; and
€500 million of 2.625% senior notes maturing in April 2026.
The net proceeds from the issuances of the above notes were used for general corporate purposes, including the repayment of commercial paper.
In the 36 weeks ended September 6, 2014, $2.2 billion of senior notes matured and were paid.
In the second quarter of 2014, we entered into a new five-year unsecured revolving credit agreement (Five-Year Credit Agreement) which expires on June 9, 2019. In the third quarter of 2014, we increased commitments under this agreement. The Five-Year Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.7725 billion, subject to customary terms and conditions. We may request that commitments under this agreement be increased up to $4.5 billion. Additionally, we may, once a year, request renewal of the agreement for an additional one-year period.
In addition, in the second quarter of 2014, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement) which expires on June 8, 2015. In the third quarter of 2014, we increased commitments under this agreement. The 364-Day Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.7725 billion, subject to customary terms and conditions. We may request that commitments under this agreement be increased up to $4.5 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 364-Day Credit Agreement together replaced our $2.925 billion five-year credit agreement dated as of June 10, 2013 and our $2.925 billion 364-Day credit agreement dated as of June 10, 2013. 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 6, 2014, there were no outstanding borrowings under the Five-Year Credit Agreement or the 364-Day Credit Agreement.
As of September 6, 2014, we had $5.0 billion of commercial paper outstanding and $1.8 billion of non-cancelable purchase commitments. For further information on our long-term contractual commitments, see Note 9 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 28, 2013.

18


Note 9 - Accumulated Other Comprehensive Loss
The reclassifications from Accumulated Other Comprehensive Loss to the Condensed Consolidated Statement of Income are summarized as follows:
 
 
12 Weeks Ended
 
36 Weeks Ended
 
 
 
 
9/6/2014
 
9/7/2013
 
9/6/2014
 
9/7/2013
 
 
 
 
Reclassifications from Accumulated Other Comprehensive Loss
 
Affected Line Item in the Condensed Consolidated Statement of Income
Losses/(gains) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
    Foreign exchange contracts
 
$
5

 
$
2

 
$
(6
)
 
$
6

 
Cost of sales
    Interest rate derivatives
 
98

 
8

 
112

 
41

 
Interest expense
    Commodity contracts
 
5

 
12

 
24

 
26

 
Cost of sales
    Commodity contracts
 
1

 
(1
)
 

 
(1
)
 
Selling, general and administrative expenses
    Net losses before tax
 
109

 
21

 
130

 
72

 
 
    Tax amounts
 
(37
)
 
(7
)
 
(46
)
 
(26
)
 
 
    Net losses after tax
 
$
72

 
$
14

 
$
84

 
$
46

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

 
$
(2
)
 
$

 
$
(2
)
 
 
    Net actuarial losses (a)
 
55

 
84

 
156

 
247

 
 
    Net losses before tax
 
55

 
82

 
156

 
245

 
 
    Tax amounts
 
(18
)
 
(29
)
 
(51
)
 
(83
)
 
 
    Net losses after tax
 
$
37

 
$
53

 
$
105

 
$
162

 
 
 
 
 
 
 
 
 
 
 
 
 
Total net losses reclassified for the period, net of tax
 
$
109

 
$
67

 
$
189

 
$
208

 


(a)
These items are included in the components of net periodic benefit cost for pension and retiree medical plans (see Note 7 for additional details).
Note 10 - 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.
In the normal course of business, we manage commodity price, foreign exchange and interest rate risks through a variety of strategies, including productivity initiatives, global purchasing programs and hedging strategies. Ongoing productivity initiatives involve the identification and effective implementation of meaningful cost-saving opportunities or efficiencies. Our global purchasing programs include fixed-price purchase orders and pricing agreements.

19


Derivatives
Our hedging strategies include the use of derivatives. Certain derivatives are designated as either cash flow or fair value hedges and qualify for hedge accounting treatment, while others do not qualify and are marked to market through earnings. Cash flows from derivatives used to manage commodity price, foreign exchange or interest rate risks are classified as operating activities in the Condensed Consolidated Statement of Cash Flows. We classify both the earnings and cash flow impact from these derivatives consistent with the underlying hedged item. See “Our Business Risks” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for further unaudited information on our business risks.
For cash flow hedges, the effective portion of changes in fair value are deferred in accumulated other comprehensive loss within common shareholders’ equity until the underlying hedged item is recognized in net income. For fair value hedges, changes in fair value are recognized immediately in earnings, consistent with the underlying hedged item. Hedging transactions are limited to an underlying exposure. As a result, any change in the value of our derivative instruments would be substantially offset by an opposite cha