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Basis of Presentation and Our Divisions Basis of Presentation and Our Divisions (Notes)
 6 Months Ended
Jun. 13, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] Basis of Presentation and Our Divisions
Basis of Presentation
When used in this report, the terms “we,” “us,” “our,” “PepsiCo” and the “Company” mean PepsiCo, Inc. and its consolidated subsidiaries, collectively.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the rules and regulations for reporting the Quarterly Report on Form 10-Q (Form 10-Q). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated balance sheet at December 28, 2019 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019 (2019 Form 10-K), as modified to reflect the adoption of the recently issued accounting pronouncement disclosed in Note 2 in this Form 10-Q. This report should be read in conjunction with our 2019 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 24 weeks ended June 13, 2020 are not necessarily indicative of the results expected for any future period or the full year.
Preparation of our condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and related disclosures. The business and economic uncertainty resulting from the novel coronavirus (COVID-19) pandemic has made such estimates and assumptions more difficult to calculate. Accordingly, actual results and outcomes could differ from those estimates.
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 March, April and May are reflected in our results for the 12 weeks ended June 13, 2020, and the months of January through May are reflected in our results for the 24 weeks ended June 13, 2020.
Our significant interim accounting policies include the recognition of a pro rata share of certain estimated annual sales incentives and certain advertising and marketing costs in proportion to revenue or volume, as applicable, and the recognition of income taxes using an estimated annual effective tax rate. Raw materials, direct labor and plant overhead, as well as purchasing and receiving costs, costs directly related to production planning, inspection costs and raw materials handling facilities, are included in cost of sales. The costs of moving, storing and delivering finished product, including merchandising activities, are included in selling, general and administrative expenses.
Unless otherwise noted, tabular dollars are in millions, except per share amounts. All per share amounts reflect common per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts. Certain reclassifications were made to the prior year’s financial statements to conform to the current year presentation.
Our Divisions
As previously disclosed in our 2019 Form 10-K, during the fourth quarter of 2019, we realigned certain of our reportable segments to be consistent with a strategic realignment of our organizational structure and how our Chief Executive Officer assesses the performance of, and allocates resources to, our reportable segments. Our historical segment reporting presented in this report has been retrospectively revised to reflect the new organizational structure. These changes did not impact our consolidated financial results. See Note 1 to our consolidated financial statements in our 2019 Form 10-K for further information.
We are organized into seven reportable segments (also referred to as divisions), as follows:
1)
Frito-Lay North America (FLNA), which includes our branded food and snack businesses in the United States and Canada;
2)
Quaker Foods North America (QFNA), which includes our cereal, rice, pasta and other branded food businesses in the United States and Canada;
3)
PepsiCo Beverages North America (PBNA), which includes our beverage businesses in the United States and Canada;
4)
Latin America (LatAm), which includes all of our beverage, food and snack businesses in Latin America;
5)
Europe, which includes all of our beverage, food and snack businesses in Europe;
6)
Africa, Middle East and South Asia (AMESA), which includes all of our beverage, food and snack businesses in Africa, the Middle East and South Asia; and
7)
Asia Pacific, Australia and New Zealand and China region (APAC), which includes all of our beverage, food and snack businesses in Asia Pacific, Australia and New Zealand, and China region.
Net revenue of each division is as follows:
 
12 Weeks Ended
 
24 Weeks Ended
 
6/13/2020

 
6/15/2019

 
6/13/2020

 
6/15/2019

FLNA
$
4,273

 
$
4,010

 
$
8,347

 
$
7,825

QFNA
664

 
540

 
1,298

 
1,134

PBNA
4,970

 
5,322

 
9,808

 
9,832

LatAm
1,567

 
1,886

 
2,877

 
3,127

Europe
2,725

 
3,000

 
4,564

 
4,620

AMESA
983

 
997

 
1,614

 
1,576

APAC
763

 
694

 
1,318

 
1,219

Total
$
15,945

 
$
16,449

 
$
29,826

 
$
29,333


Our primary performance obligation is the distribution and sales of beverage, food and snack products to our customers. The following tables reflect the approximate percentage of net revenue generated between our beverage business and our food and snack business for each of our international divisions, as well as our consolidated net revenue:
 
12 Weeks Ended
 
6/13/2020
 
6/15/2019
 
Beverage(a)
 
Food/Snack
 
Beverage(a)
 
Food/Snack
LatAm
10
%
 
90
%
 
10
%
 
90
%
Europe
50
%
 
50
%
 
55
%
 
45
%
AMESA
40
%
 
60
%
 
45
%
 
55
%
APAC
25
%
 
75
%
 
30
%
 
70
%
PepsiCo
45
%
 
55
%
 
45
%
 
55
%
 
24 Weeks Ended
 
6/13/2020
 
6/15/2019
 
Beverage(a)
 
Food/Snack
 
Beverage(a)
 
Food/Snack
LatAm
10
%
 
90
%
 
10
%
 
90
%
Europe
55
%
 
45
%
 
55
%
 
45
%
AMESA
35
%
 
65
%
 
45
%
 
55
%
APAC
25
%
 
75
%
 
25
%
 
75
%
PepsiCo
45
%
 
55
%
 
45
%
 
55
%
(a)
Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and Europe segments, was 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.
Operating profit of each division is as follows:
 
12 Weeks Ended
 
24 Weeks Ended
 
6/13/2020

 
6/15/2019

 
6/13/2020

 
6/15/2019

FLNA
$
1,278

 
$
1,249

 
$
2,480

 
$
2,408

QFNA
196

 
127

 
346

 
265

PBNA
397

 
690

 
694

 
1,079

LatAm
219

 
278

 
450

 
508

Europe
351

 
339

 
497

 
454

AMESA
59

 
236

 
193

 
341

APAC
189

 
116

 
331

 
222

Total division
$
2,689

 
$
3,035

 
$
4,991

 
$
5,277

Corporate unallocated expenses
(370
)
 
(306
)
 
(748
)
 
(540
)
Total
$
2,319

 
$
2,729

 
$
4,243

 
$
4,737


Operating profit in the 12 and 24 weeks ended June 13, 2020 includes certain pre-tax charges taken as a result of the COVID-19 pandemic. These pre-tax charges by division are as follows:
 
12 Weeks Ended 6/13/2020
 
Allowances for Expected Credit Losses(a)
 
Upfront Payments to Customers(b)
 
Inventory Write-Downs and Product Returns(c)
 
Employee Compensation Expense(d)
 
Employee Protection Costs(e)
 
Other(f)
 
Total
FLNA (g)
$
(2
)
 
$
—

 
$
4

 
$
100

 
$
33

 
$
—

 
$
135

QFNA
—

 
—

 
—

 
6

 
1

 
—

 
7

PBNA
4

 
2

 
7

 
84

 
31

 
9

 
137

LatAm
1

 
—

 
6

 
16

 
8

 
3

 
34

Europe
—

 
1

 
10

 
9

 
8

 
17

 
45

AMESA
1

 
—

 
1

 
7

 
4

 
4

 
17

APAC
—

 
—

 
—

 
2

 
1

 
—

 
3

Total
$
4

 
$
3

 
$
28

 
$
224

 
$
86

 
$
33

 
$
378

 
24 Weeks Ended 6/13/2020
 
Allowances for Expected Credit Losses(a)
 
Upfront Payments to Customers(b)
 
Inventory Write-Downs and Product Returns(c)
 
Employee Compensation Expense(d)
 
Employee Protection Costs(e)
 
Other(f)
 
Total
FLNA
$
19

 
$
—

 
$
7

 
$
100

 
$
33

 
$
3

 
$
162

QFNA
2

 
—

 
—

 
6

 
1

 
—

 
9

PBNA
45

 
46

 
29

 
84

 
31

 
10

 
245

LatAm
1

 
—

 
6

 
16

 
8

 
3

 
34

Europe
4

 
1

 
10

 
9

 
8

 
17

 
49

AMESA
1

 
—

 
1

 
7

 
4

 
4

 
17

APAC
—

 
—

 
1

 
2

 
1

 
1

 
5

Total
$
72

 
$
47

 
$
54

 
$
224

 
$
86

 
$
38

 
$
521

(a)
Allowances reflect the expected impact of the global economic uncertainty caused by COVID-19, leveraging estimates of credit worthiness, default and recovery rates for certain of our customers, including foodservice and vending businesses.
(b)
Upfront payments relate to promotional spending for which benefit will not be received.
(c)
Inventory write-downs and product returns include a reserve for product returns of $9 million and $16 million in the 12 and 24 weeks ended June 13, 2020, respectively.
(d)
Includes incremental frontline incentive pay, crisis child care and other leave benefits and labor costs.
(e)
Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services.
(f)
Includes write-downs of property, plant and equipment, donations of cash and product and other certain costs.
(g)
Income amount represents adjustments for changes in estimates of previously recorded amounts.