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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 7, 2019 (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
pepsicologo20185a02.jpg 
PepsiCo, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
North Carolina
 
13-1584302
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
700 Anderson Hill Road, Purchase, New York 10577
(Address of principal executive offices and Zip Code)
(914) 253-2000
Registrant's telephone number, including area code
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
 
Trading Symbols
 
Name of each exchange on which registered
Common Stock, par value 1-2/3 cents per share
 
PEP
 
The Nasdaq Stock Market LLC
2.500% Senior Notes Due 2022
 
PEP22a
 
The Nasdaq Stock Market LLC
1.750% Senior Notes Due 2021
 
PEP21a
 
The Nasdaq Stock Market LLC
2.625% Senior Notes Due 2026
 
PEP26
 
The Nasdaq Stock Market LLC
0.875% Senior Notes Due 2028
 
PEP28
 
The Nasdaq Stock Market LLC
0.750% Senior Notes Due 2027
 
PEP27
 
The Nasdaq Stock Market LLC
1.125% Senior Notes Due 2031
 
PEP31
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  x
Number of shares of Common Stock outstanding as of September 26, 2019 was 1,394,435,338.


Table of Contents    


PepsiCo, Inc. and Subsidiaries

Table of Contents
 
 
Page No.
Part I Financial Information
 
Item 1.
Condensed Consolidated Financial Statements
 
 
 
 
 
 
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

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
 
9/7/2019

 
9/8/2018

 
9/7/2019

 
9/8/2018

Net Revenue
$
17,188

 
$
16,485

 
$
46,521

 
$
45,137

Cost of sales
7,694

 
7,527

 
20,786

 
20,445

Gross profit
9,494

 
8,958

 
25,735

 
24,692

Selling, general and administrative expenses
6,639

 
6,114

 
18,143

 
17,013

Operating Profit
2,855

 
2,844

 
7,592

 
7,679

Other pension and retiree medical benefits income
38

 
74

 
163

 
231

Interest expense
(262
)
 
(302
)
 
(790
)
 
(904
)
Interest income and other
38

 
81

 
139

 
248

Income before income taxes
2,669

 
2,697

 
7,104

 
7,254

Provision for income taxes
559

 
188

 
1,529

 
1,562

Net income
2,110

 
2,509

 
5,575

 
5,692

Less: Net income attributable to noncontrolling interests
10

 
11

 
27

 
31

Net Income Attributable to PepsiCo
$
2,100

 
$
2,498

 
$
5,548

 
$
5,661

Net Income Attributable to PepsiCo per Common Share
 
 
 
 
 
 
 
Basic
$
1.50

 
$
1.77

 
$
3.96

 
$
3.99

Diluted
$
1.49

 
$
1.75

 
$
3.94

 
$
3.97

Weighted-average common shares outstanding
 
 
 
 
 
 
 
Basic
1,397

 
1,414

 
1,401

 
1,417

Diluted
1,405

 
1,424

 
1,409

 
1,427


See accompanying notes to the condensed consolidated financial statements.

3

Table of Contents    


Condensed Consolidated Statement of Comprehensive Income
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited) 
 
12 Weeks Ended
 
36 Weeks Ended
 
9/7/2019

 
9/8/2018

 
9/7/2019

 
9/8/2018

Net income
$
2,110

 
$
2,509

 
$
5,575

 
$
5,692

Other comprehensive (loss)/income, net of taxes:
 
 
 
 
 
 
 
Net currency translation adjustment
(159
)
 
(728
)
 
(51
)
 
(1,409
)
Net change on cash flow hedges
(38
)
 
(1
)
 
(71
)
 
75

Net pension and retiree medical adjustments
56

 
54

 
115

 
134

Net change on available-for-sale securities
(1
)
 
2

 

 
4

 
(142
)
 
(673
)
 
(7
)
 
(1,196
)
Comprehensive income
1,968

 
1,836

 
5,568

 
4,496

Comprehensive income attributable to noncontrolling interests
(10
)
 
(11
)
 
(27
)
 
(31
)
Comprehensive Income Attributable to PepsiCo
$
1,958

 
$
1,825

 
$
5,541

 
$
4,465



See accompanying notes to the condensed consolidated financial statements.

4

Table of Contents    


Condensed Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
 
36 Weeks Ended
 
9/7/2019

 
9/8/2018

Operating Activities
 
 
 
Net income
$
5,575

 
$
5,692

Depreciation and amortization
1,634

 
1,636

Share-based compensation expense
169

 
203

Restructuring and impairment charges
282

 
79

Cash payments for restructuring charges
(248
)
 
(179
)
Pension and retiree medical plan expenses
165

 
147

Pension and retiree medical plan contributions
(391
)
 
(1,664
)
Deferred income taxes and other tax charges and credits
195

 
(609
)
Tax (benefits)/net tax expense related to the Tax Cuts and Jobs Act (TCJ Act)
(29
)
 
854

Tax payments related to the TCJ Act
(393
)
 
(41
)
Change in assets and liabilities:
 
 
 
Accounts and notes receivable
(1,716
)
 
(1,299
)
Inventories
(573
)
 
(362
)
Prepaid expenses and other current assets
(264
)
 
(158
)
Accounts payable and other current liabilities
80

 
116

Income taxes payable
347

 
674

Other, net
230

 
(357
)
Net Cash Provided by Operating Activities
5,063

 
4,732

 
 
 
 
Investing Activities
 
 
 
Capital spending
(1,959
)
 
(1,578
)
Sales of property, plant and equipment
63

 
119

Acquisition of SodaStream International Ltd. (SodaStream)
(1,905
)
 

Other acquisitions and investments in noncontrolled affiliates
(723
)
 
(253
)
Divestitures
253

 
294

Short-term investments, by original maturity:
 
 
 
More than three months - purchases

 
(5,637
)
More than three months - maturities
8

 
11,874

More than three months - sales
3

 
772

Three months or less, net
13

 
7

Other investing, net
(38
)
 

Net Cash (Used for)/Provided by Investing Activities
(4,285
)
 
5,598

 
 
 
 
Financing Activities
 
 
 
Proceeds from issuances of long-term debt
3,098

 

Payments of long-term debt
(2,954
)
 
(2,506
)
Short-term borrowings, by original maturity:
 
 
 
More than three months - proceeds
6

 
2

More than three months - payments

 
(17
)
Three months or less, net
94

 
(1,384
)
Cash dividends paid
(3,971
)
 
(3,621
)
Share repurchases - common
(2,268
)
 
(1,442
)
Share repurchases - preferred

 
(2
)
Proceeds from exercises of stock options
282

 
215

Withholding tax payments on restricted stock units (RSUs), performance stock units (PSUs) and PepsiCo
equity performance units (PEPunits) converted
(100
)
 
(93
)
Other financing
(16
)
 
(23
)
Net Cash Used for Financing Activities
(5,829
)
 
(8,871
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(11
)
 
(73
)
Net (Decrease)/Increase in Cash and Cash Equivalents and Restricted Cash
(5,062
)
 
1,386

Cash and Cash Equivalents and Restricted Cash, Beginning of Year
10,769

 
10,657

Cash and Cash Equivalents and Restricted Cash, End of Period
$
5,707

 
$
12,043


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)

 
 
 
9/7/2019

 
12/29/2018

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
5,494

 
$
8,721

Short-term investments
287

 
272

Restricted cash
127

 
1,997

Accounts and notes receivable, less allowance: 9/19 - $114 and 12/18 - $101
8,735

 
7,142

Inventories:
 
 
 
Raw materials and packaging
1,509

 
1,312

Work-in-process
316

 
178

Finished goods
1,842

 
1,638

 
3,667

 
3,128

Prepaid expenses and other current assets
888

 
633

Total Current Assets
19,198

 
21,893

Property, plant and equipment
40,645

 
40,164

Accumulated depreciation
(23,059
)
 
(22,575
)
 
17,586

 
17,589

Amortizable Intangible Assets, net
1,437

 
1,644

Goodwill
15,338

 
14,808

Other indefinite-lived intangible assets
14,375

 
14,181

Indefinite-Lived Intangible Assets
29,713

 
28,989

Investments in Noncontrolled Affiliates
2,690

 
2,409

Deferred Income Taxes
4,340

 
4,364

Other Assets
2,480

 
760

Total Assets
$
77,444

 
$
77,648

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Short-term debt obligations
$
2,924

 
$
4,026

Accounts payable and other current liabilities
17,207

 
18,112

Total Current Liabilities
20,131

 
22,138

Long-Term Debt Obligations
29,630

 
28,295

Deferred Income Taxes
3,643

 
3,499

Other Liabilities
9,816

 
9,114

Total Liabilities
63,220

 
63,046

 
 
 
 
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: 1,396 and 1,409 shares, respectively)
23

 
23

Capital in excess of par value
3,842

 
3,953

Retained earnings
61,514

 
59,947

Accumulated other comprehensive loss
(15,126
)
 
(15,119
)
Repurchased common stock, in excess of par value (471 and 458 shares, respectively)
(36,124
)
 
(34,286
)
Total PepsiCo Common Shareholders’ Equity
14,129

 
14,518

Noncontrolling interests
95

 
84

Total Equity
14,224

 
14,602

Total Liabilities and Equity
$
77,444

 
$
77,648


See accompanying notes to the condensed consolidated financial statements.

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Condensed Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
 
12 Weeks Ended
 
36 Weeks Ended
 
9/7/2019
 
9/8/2018
 
9/7/2019
 
9/8/2018
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
Preferred Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period

 
$

 

 
$

 

 
$

 
0.8

 
$
41

Conversion to common stock

 

 

 

 

 

 
(0.1
)
 
(6
)
Retirement of preferred stock

 

 

 

 

 

 
(0.7
)
 
(35
)
Balance, end of period

 

 

 

 

 

 

 

Repurchased Preferred Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period

 

 

 

 

 

 
(0.7
)
 
(197
)
Redemptions

 

 

 

 

 

 

 
(2
)
Retirement of preferred stock

 

 

 

 

 

 
0.7

 
199

Balance, end of period

 

 

 

 

 

 

 

Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
1,399

 
23

 
1,415

 
24

 
1,409

 
23

 
1,420

 
24

Shares issued in connection with preferred stock conversion to common stock

 

 

 

 

 

 
1

 

Change in repurchased common stock
(3
)
 

 
(3
)
 

 
(13
)
 

 
(9
)
 

Balance, end of period
1,396

 
23

 
1,412

 
24

 
1,396

 
23

 
1,412

 
24

Capital in Excess of Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
 
3,796

 
 
 
3,915

 
 
 
3,953

 
 
 
3,996

Share-based compensation expense
 
 
51

 
 
 
56

 
 
 
170

 
 
 
204

Equity issued in connection with preferred stock conversion to common stock
 
 

 
 
 

 
 
 

 
 
 
6

Stock option exercises, RSUs, PSUs and PEPunits converted
 
 
(5
)
 
 
 
(22
)
 
 
 
(181
)
 
 
 
(172
)
Withholding tax on RSUs, PSUs and PEPunits converted
 
 

 
 
 
(11
)
 
 
 
(100
)
 
 
 
(93
)
Other
 
 

 
 
 
1

 
 
 

 
 
 
(2
)
Balance, end of period
 
 
3,842

 
 
 
3,939

 
 
 
3,842

 
 
 
3,939

Retained Earnings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
 
60,752

 
 
 
53,223

 
 
 
59,947

 
 
 
52,839

Cumulative effect of accounting changes
 
 

 
 
 

 
 
 
8

 
 
 
(145
)
Net income attributable to PepsiCo
 
 
2,100

 
 
 
2,498

 
 
 
5,548

 
 
 
5,661

Cash dividends declared – common (a)
 
 
(1,338
)
 
 
 
(1,317
)
 
 
 
(3,989
)
 
 
 
(3,787
)
Retirement of preferred stock
 
 

 
 
 

 
 
 

 
 
 
(164
)
Balance, end of period
 
 
61,514

 
 
 
54,404

 
 
 
61,514

 
 
 
54,404

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
 
(14,984
)
 
 
 
(13,580
)
 
 
 
(15,119
)
 
 
 
(13,057
)
Other comprehensive loss attributable to PepsiCo
 
 
(142
)
 
 
 
(673
)
 
 
 
(7
)
 
 
 
(1,196
)
Balance, end of period
 
 
(15,126
)
 
 
 
(14,253
)
 
 
 
(15,126
)
 
 
 
(14,253
)
Repurchased Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
(468
)
 
(35,635
)
 
(452
)
 
(33,471
)
 
(458
)
 
(34,286
)
 
(446
)
 
(32,757
)
Share repurchases
(4
)
 
(551
)
 
(4
)
 
(449
)
 
(19
)
 
(2,301
)
 
(14
)
 
(1,453
)
Stock option exercises, RSUs, PSUs and PEPunits converted
1

 
62

 
1

 
92

 
6

 
463

 
5

 
381

Other

 

 

 

 

 

 

 
1

Balance, end of period
(471
)
 
(36,124
)
 
(455
)
 
(33,828
)
 
(471
)
 
(36,124
)
 
(455
)
 
(33,828
)
Total PepsiCo Common Shareholders’ Equity
 
 
14,129

 
 
 
10,286

 
 
 
14,129

 
 
 
10,286

Noncontrolling Interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
 
85

 
 
 
110

 
 
 
84

 
 
 
92

Net income attributable to noncontrolling interests
 
 
10

 
 
 
11

 
 
 
27

 
 
 
31

Distributions to noncontrolling interests
 
 

 
 
 
(20
)
 
 
 
(15
)
 
 
 
(20
)
Other, net
 
 

 
 
 
2

 
 
 
(1
)
 
 
 

Balance, end of period
 
 
95

 
 
 
103

 
 
 
95

 
 
 
103

Total Equity
 
 
$
14,224

 
 
 
$
10,389

 
 
 
$
14,224

 
 
 
$
10,389


(a)
Cash dividends declared per common share were $0.955 and $0.9275 for the 12 weeks ended September 7, 2019 and September 8, 2018, respectively, and $2.8375 and $2.66 for the 36 weeks ended September 7, 2019 and September 8, 2018, 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.
Our Condensed Consolidated Balance Sheet as of September 7, 2019, Condensed Consolidated Statements of Income, Comprehensive Income and Equity for the 12 and 36 weeks ended September 7, 2019 and September 8, 2018 and the Condensed Consolidated Statement of Cash Flows for the 36 weeks ended September 7, 2019 and September 8, 2018 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, 2018 (2018 Form 10-K), as modified to reflect the adoption of those recently issued accounting pronouncements disclosed in Note 2 in this Form 10-Q. This report should be read in conjunction with our 2018 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 7, 2019 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 7, 2019, and the months of January through August are reflected in our results for the 36 weeks ended September 7, 2019.
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.
The following information is unaudited. Unless otherwise noted, tabular dollars are in millions, except per share amounts. All per share amounts reflect common per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts. Certain reclassifications were made to the prior year’s financial statements to conform to the current year presentation.
Our Divisions
We are organized into six 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;
3)
PepsiCo Beverages North America (PBNA), which includes our beverage businesses in the United States and Canada. PBNA was formerly named North America Beverages; this change did not impact the results of PBNA or our other reportable segments;
4)
Latin America (LatAm), which includes all of our beverage, food and snack businesses in Latin America;
5)
Europe Sub-Saharan Africa (ESSA), which includes all of our beverage, food and snack businesses in Europe and Sub-Saharan Africa; and

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6)
Asia, Middle East and North Africa (AMENA), which includes all of our beverage, food and snack businesses in Asia, the Middle East and North Africa.
Net revenue and operating profit of each division are as follows:
 
12 Weeks Ended
 
36 Weeks Ended
Net Revenue (a)
9/7/2019

 
9/8/2018

 
9/7/2019

 
9/8/2018

FLNA
$
4,105

 
$
3,891

 
$
11,930

 
$
11,345

QFNA
576

 
567

 
1,710

 
1,695

PBNA
5,643

 
5,456

 
15,475

 
15,064

LatAm
1,904

 
1,868

 
5,031

 
4,935

ESSA
3,347

 
3,161

 
8,173

 
7,945

AMENA
1,613

 
1,542

 
4,202

 
4,153

Total
$
17,188

 
$
16,485

 
$
46,521

 
$
45,137

(a)
Our primary performance obligation is the distribution and sales of beverage products and food and snack products to our customers, each comprising approximately 50% of our consolidated net revenue. Internationally, our LatAm segment is predominantly a food and snack business, ESSA’s beverage business and food and snack business are each approximately 50% of the segment’s net revenue and AMENA’s beverage business and food and snack business are approximately 35% and 65%, respectively, of the segment’s net revenue. Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and ESSA segments, is approximately 40% of our consolidated net revenue. Generally, our finished goods beverage operations produce higher net revenue, but lower operating margins as compared to concentrate sold to authorized bottling partners for the manufacture of finished goods beverages.
 
12 Weeks Ended
 
36 Weeks Ended
Operating Profit
9/7/2019

 
9/8/2018

 
9/7/2019

 
9/8/2018

FLNA
$
1,286

 
$
1,241

 
$
3,694

 
$
3,491

QFNA
126

 
143

 
391

 
443

PBNA
640

 
703

 
1,719

 
1,838

LatAm