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 endedSeptember 3, 2011 (36March 24, 2012 (12 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 number1-1183
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: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 NOX
Number of shares of Common Stock outstanding as of October 5, 2011: 1,563,410,224April 20, 2012: 1,563,964,807
PEPSICO, INC. AND SUBSIDIARIES
Page No. | ||||
Part I Financial Information | ||||
3 | ||||
3 | ||||
Condensed Consolidated Statement of Cash Flows – 12 Weeks Ended March 24, 2012 and March 19, 2011 | 5-6 | |||
Condensed Consolidated Balance Sheet – | ||||
9 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | ||||
Part II Other Information | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | ||||
PART I FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements.
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in millions except per share amounts, unaudited)
12 Weeks Ended | 36 Weeks Ended | 12 Weeks Ended | ||||||||||||||||||||||
9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | 3/24/12 | 3/19/11 | |||||||||||||||||||
Net Revenue | $ | 17,582 | $ | 15,514 | $ | 46,346 | $ | 39,683 | $ | 12,428 | $ | 11,937 | ||||||||||||
Cost of sales | 8,452 | 7,008 | 21,862 | 18,216 | 5,889 | 5,447 | ||||||||||||||||||
Selling, general and administrative expenses | 6,186 | 5,676 | 16,995 | 15,288 | 4,792 | 4,739 | ||||||||||||||||||
Amortization of intangible assets | 38 | 30 | 103 | 78 | 25 | 25 | ||||||||||||||||||
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Operating Profit | 2,906 | 2,800 | 7,386 | 6,101 | 1,722 | 1,726 | ||||||||||||||||||
Bottling equity income | – | 10 | – | 728 | ||||||||||||||||||||
Interest expense | (205 | ) | (169 | ) | (584 | ) | (495 | ) | (198 | ) | (180 | ) | ||||||||||||
Interest income and other | (4 | ) | 18 | 33 | 26 | 23 | 17 | |||||||||||||||||
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Income before income taxes | 2,697 | 2,659 | 6,835 | 6,360 | 1,547 | 1,563 | ||||||||||||||||||
Provision for income taxes | 686 | 729 | 1,775 | 1,383 | 414 | 419 | ||||||||||||||||||
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Net income | 2,011 | 1,930 | 5,060 | 4,977 | 1,133 | 1,144 | ||||||||||||||||||
Less: Net income attributable to noncontrolling interests | 11 | 8 | 32 | 22 | 6 | 1 | ||||||||||||||||||
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Net Income Attributable to PepsiCo | $ | 2,000 | $ | 1,922 | $ | 5,028 | $ | 4,955 | $ | 1,127 | $ | 1,143 | ||||||||||||
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Net Income Attributable to PepsiCo per Common Share | ||||||||||||||||||||||||
Basic | $ | 1.27 | $ | 1.21 | $ | 3.18 | $ | 3.11 | $ | 0.72 | $ | 0.72 | ||||||||||||
Diluted | $ | 1.25 | $ | 1.19 | $ | 3.14 | $ | 3.06 | $ | 0.71 | $ | 0.71 | ||||||||||||
Weighted-average common shares outstanding | ||||||||||||||||||||||||
Basic | 1,568 | 1,583 | ||||||||||||||||||||||
Diluted | 1,584 | 1,605 | ||||||||||||||||||||||
Cash dividends declared per common share | $ | 0.515 | $ | 0.48 | $ | 1.51 | $ | 1.41 | $ | 0.515 | $ | 0.48 |
See accompanying notes to the condensed consolidated financial statements.
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWSCOMPREHENSIVE INCOME
(in millions, unaudited)
36 Weeks Ended | ||||||||
9/3/11 | 9/4/10 | |||||||
Operating Activities | ||||||||
Net income | $ | 5,060 | $ | 4,977 | ||||
Depreciation and amortization | 1,877 | 1,580 | ||||||
Stock-based compensation expense | 222 | 191 | ||||||
Cash payments for restructuring charges | (1 | ) | (29 | ) | ||||
Merger and integration costs | 174 | 545 | ||||||
Cash payments for merger and integration costs | (293 | ) | (272 | ) | ||||
Gain on previously held equity interests in The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS) | – | (958 | ) | |||||
Asset write-off | – | 145 | ||||||
Non-cash foreign exchange loss related to Venezuela devaluation | – | 120 | ||||||
Excess tax benefits from share-based payment arrangements | (56 | ) | (73 | ) | ||||
Pension and retiree medical plan contributions | (185 | ) | (1,350 | ) | ||||
Pension and retiree medical plan expenses | 389 | 310 | ||||||
Bottling equity income, net of dividends | – | 37 | ||||||
Deferred income taxes and other tax charges and credits | 132 | 291 | ||||||
Change in accounts and notes receivable | (1,643 | ) | (1,287 | ) | ||||
Change in inventories | (466 | ) | 224 | |||||
Change in prepaid expenses and other current assets | (54 | ) | (14 | ) | ||||
Change in accounts payable and other current liabilities | 142 | 762 | ||||||
Change in income taxes payable | 936 | 787 | ||||||
Other, net | (400 | ) | (198 | ) | ||||
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Net Cash Provided by Operating Activities | 5,834 | 5,788 | ||||||
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Investing Activities | ||||||||
Capital spending | (1,962 | ) | (1,670 | ) | ||||
Sales of property, plant and equipment | 46 | 55 | ||||||
Acquisitions of PBG and PAS, net of cash and cash equivalents acquired | – | (2,833 | ) | |||||
Acquisition of manufacturing and distribution rights from Dr Pepper Snapple Group, Inc. (DPSG) | – | (900 | ) | |||||
Acquisition of Wimm-Bill-Dann Foods OJSC (WBD), net of cash and cash equivalents acquired | (2,428 | ) | – | |||||
Investment in WBD | (164 | ) | – | |||||
Other acquisitions and investments in noncontrolled affiliates | (160 | ) | (36 | ) | ||||
Divestitures | 10 | – | ||||||
Cash restricted for pending acquisitions | – | (8 | ) | |||||
Short-term investments, by original maturity | ||||||||
More than three months – purchases | – | (8 | ) | |||||
More than three months – maturities | 14 | 21 | ||||||
Three months or less, net | (48 | ) | (53 | ) | ||||
Other investing, net | (3 | ) | (12 | ) | ||||
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Net Cash Used for Investing Activities | (4,695 | ) | (5,444 | ) | ||||
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12 Weeks Ended | ||||||||
3/24/12 | 3/19/11 | |||||||
Net Income | $ | 1,133 | $ | 1,144 | ||||
Other Comprehensive Income | ||||||||
Currency translation adjustment | 1,687 | 645 | ||||||
Cash flow hedges, net of tax: | ||||||||
Net derivative (losses)/gains(a) | (14 | ) | 8 | |||||
Reclassification of net losses to net income(b) | 7 | 4 | ||||||
Pension and retiree medical, net of tax: | ||||||||
Reclassification of losses/(gains) to net income(c) | 25 | (3 | ) | |||||
Remeasurement of net liabilities(d) | 7 | – | ||||||
Unrealized gains/(losses) on securities, net of tax(e) | 13 | (13 | ) | |||||
Other | 36 | (18 | ) | |||||
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Total Other Comprehensive Income | 1,761 | 623 | ||||||
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Comprehensive Income | 2,894 | 1,767 | ||||||
Comprehensive income attributable to noncontrolling interests | (2 | ) | (29 | ) | ||||
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Comprehensive Income Attributable to PepsiCo | $ | 2,892 | $ | 1,738 | ||||
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(a) | Net of tax benefits of $1 million in 2012 and tax expense of $13 million in 2011. |
(b) | Net of tax benefits of $5 million in 2012 and tax expense of $2 million in 2011. |
(c) | Net of tax benefits of $15 million in 2012 and tax benefits of $1 million in 2011. |
(d) | Net of tax expense of $4 million in 2012. |
(e) | Net of tax benefits of $5 million in 2011. |
See accompanying notes to the condensed consolidated financial statements.
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions, unaudited)
12 Weeks Ended | ||||||||
3/24/12 | 3/19/11 | |||||||
Operating Activities | ||||||||
Net income | $ | 1,133 | $ | 1,144 | ||||
Depreciation and amortization | 555 | 523 | ||||||
Stock-based compensation expense | 56 | 72 | ||||||
Restructuring and impairment charges | 33 | – | ||||||
Cash payments for restructuring charges | (44 | ) | (1 | ) | ||||
Merger and integration charges | 2 | 55 | ||||||
Cash payments for merger and integration charges | (20 | ) | (117 | ) | ||||
Excess tax benefits from share-based payment arrangements | (35 | ) | (24 | ) | ||||
Pension and retiree medical plan contributions | (1,100 | ) | (59 | ) | ||||
Pension and retiree medical plan expenses | 129 | 119 | ||||||
Deferred income taxes and other tax charges and credits | 120 | (98 | ) | |||||
Change in accounts and notes receivable | (71 | ) | (271 | ) | ||||
Change in inventories | (266 | ) | (77 | ) | ||||
Change in prepaid expenses and other current assets | (197 | ) | (137 | ) | ||||
Change in accounts payable and other current liabilities | (960 | ) | (1,028 | ) | ||||
Change in income taxes payable | 90 | 362 | ||||||
Other, net | (115 | ) | (83 | ) | ||||
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Net Cash (Used for)/Provided by Operating Activities | (690 | ) | 380 | |||||
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Investing Activities | ||||||||
Capital spending | (316 | ) | (433 | ) | ||||
Sales of property, plant and equipment | 17 | 12 | ||||||
Acquisition of Wimm-Bill-Dann Foods OJSC (WBD), net of cash and cash equivalents acquired | – | (2,428 | ) | |||||
Investment in WBD | – | (164 | ) | |||||
Other acquisitions and investments in noncontrolled affiliates | (32 | ) | (28 | ) | ||||
Divestitures | 9 | – | ||||||
Short-term investments, by original maturity | ||||||||
More than three months – maturities | – | 6 | ||||||
Three months or less, net | 52 | 57 | ||||||
Other investing, net | 13 | (1 | ) | |||||
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Net Cash Used for Investing Activities | (257 | ) | (2,979 | ) | ||||
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(Continued on following page)
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(in millions, unaudited)
36 Weeks Ended | 12 Weeks Ended | |||||||||||||||
9/3/11 | 9/4/10 | 3/24/12 | 3/19/11 | |||||||||||||
Financing Activities | ||||||||||||||||
Proceeds from issuances of long-term debt | $ | 3,000 | $ | 4,215 | $ | 2,733 | $ | 9 | ||||||||
Payments of long-term debt | (1,596 | ) | (73 | ) | (9 | ) | (10 | ) | ||||||||
Debt repurchase | (771 | ) | – | |||||||||||||
Short-term borrowings, by original maturity | ||||||||||||||||
More than three months – proceeds | 224 | 55 | 13 | 21 | ||||||||||||
More than three months – payments | (274 | ) | (27 | ) | (107 | ) | (64 | ) | ||||||||
Three months or less, net | 106 | 3,351 | (1,696 | ) | 1,160 | |||||||||||
Cash dividends paid | (2,349 | ) | (2,218 | ) | (816 | ) | (769 | ) | ||||||||
Share repurchases – common | (1,929 | ) | (4,418 | ) | (142 | ) | (361 | ) | ||||||||
Share repurchases – preferred | (5 | ) | (3 | ) | (1 | ) | (2 | ) | ||||||||
Proceeds from exercises of stock options | 724 | 700 | 274 | 218 | ||||||||||||
Excess tax benefits from share-based payment arrangements | 56 | 73 | 35 | 24 | ||||||||||||
Acquisition of noncontrolling interests | (1,327 | ) | (159 | ) | ||||||||||||
Other financing | (2 | ) | (6 | ) | (1 | ) | – | |||||||||
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Net Cash (Used for)/Provided by Financing Activities | (4,143 | ) | 1,490 | |||||||||||||
Net Cash Provided by Financing Activities | 283 | 226 | ||||||||||||||
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Effect of exchange rate changes on cash and cash equivalents | 144 | (200 | ) | 82 | 92 | |||||||||||
Net (Decrease)/Increase in Cash and Cash Equivalents | (2,860 | ) | 1,634 | |||||||||||||
Net Decrease in Cash and Cash Equivalents | (582 | ) | (2,281 | ) | ||||||||||||
Cash and Cash Equivalents, Beginning of Year | 5,943 | 3,943 | 4,067 | 5,943 | ||||||||||||
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Cash and Cash Equivalents, End of Period | $ | 3,083 | $ | 5,577 | $ | 3,485 | $ | 3,662 | ||||||||
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Non-cash activity: | ||||||||||||||||
Issuance of common stock and equity awards in connection with our acquisitions of PBG and PAS, as reflected in investing and financing activities | – | $ | 4,451 | |||||||||||||
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See accompanying notes to the condensed consolidated financial statements.
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
(Unaudited) | (Unaudited) | |||||||||||||||
9/3/11 | 12/25/10 | 3/24/12 | 12/31/11 | |||||||||||||
Assets | ||||||||||||||||
Current Assets | ||||||||||||||||
Cash and cash equivalents | $ | 3,083 | $ | 5,943 | $ | 3,485 | $ | 4,067 | ||||||||
Short-term investments | 452 | 426 | 328 | 358 | ||||||||||||
Accounts and notes receivable, less allowance: 9/11 – $147, 12/10 – $144 | 8,330 | 6,323 | ||||||||||||||
Accounts and notes receivable, less allowance: 3/12 – $168, 12/11 – $157 | 7,158 | 6,912 | ||||||||||||||
Inventories | ||||||||||||||||
Raw materials | 2,152 | 1,654 | 2,071 | 1,883 | ||||||||||||
Work-in-process | 237 | 128 | 302 | 207 | ||||||||||||
Finished goods | 1,816 | 1,590 | 1,841 | 1,737 | ||||||||||||
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4,205 | 3,372 | 4,214 | 3,827 | |||||||||||||
Prepaid expenses and other current assets | 1,764 | 1,505 | 2,393 | 2,277 | ||||||||||||
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Total Current Assets | 17,834 | 17,569 | 17,578 | 17,441 | ||||||||||||
Property, Plant and Equipment | 36,262 | 33,041 | 36,193 | 35,140 | ||||||||||||
Accumulated Depreciation | (15,525 | ) | (13,983 | ) | (16,188 | ) | (15,442 | ) | ||||||||
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20,737 | 19,058 | 20,005 | 19,698 | |||||||||||||
Amortizable Intangible Assets, net | 2,426 | 2,025 | 1,960 | 1,888 | ||||||||||||
Goodwill | 16,272 | 14,661 | 17,208 | 16,800 | ||||||||||||
Other Nonamortizable Intangible Assets | 15,433 | 11,783 | 15,093 | 14,557 | ||||||||||||
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Nonamortizable Intangible Assets | 31,705 | 26,444 | 32,301 | 31,357 | ||||||||||||
Investments in Noncontrolled Affiliates | 1,500 | 1,368 | 1,515 | 1,477 | ||||||||||||
Other Assets | 1,176 | 1,689 | 1,032 | 1,021 | ||||||||||||
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Total Assets | $ | 75,378 | $ | 68,153 | $ | 74,391 | $ | 72,882 | ||||||||
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(Continued on following page)
6
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (continued)
(in millions except per share amounts)
(Unaudited) | (Unaudited) | |||||||||||||||
9/3/11 | 12/25/10 | 3/24/12 | 12/31/11 | |||||||||||||
Liabilities and Equity | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Short-term obligations | $ | 5,070 | $ | 4,898 | $ | 5,656 | $ | 6,205 | ||||||||
Accounts payable and other current liabilities | 11,524 | 10,923 | 11,180 | 11,757 | ||||||||||||
Income taxes payable | 971 | 71 | 149 | 192 | ||||||||||||
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Total Current Liabilities | 17,565 | 15,892 | 16,985 | 18,154 | ||||||||||||
Long-term Debt Obligations | 21,781 | 19,999 | 22,054 | 20,568 | ||||||||||||
Other Liabilities | 6,859 | 6,729 | 7,323 | 8,266 | ||||||||||||
Deferred Income Taxes | 5,170 | 4,057 | 5,075 | 4,995 | ||||||||||||
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Total Liabilities | 51,375 | 46,677 | 51,437 | 51,983 | ||||||||||||
Commitments and Contingencies | ||||||||||||||||
Preferred Stock, no par value | 41 | 41 | 41 | 41 | ||||||||||||
Repurchased Preferred Stock | (155 | ) | (150 | ) | (158 | ) | (157 | ) | ||||||||
PepsiCo Common Shareholders’ Equity | ||||||||||||||||
Common stock, par value 1 2/3 cents per share: | ||||||||||||||||
Authorized 3,600 shares, issued 9/11 and 12/10 – 1,865 shares | 31 | 31 | ||||||||||||||
Authorized 3,600 shares, issued 3/12 and 12/11 – 1,865 shares | 31 | 31 | ||||||||||||||
Capital in excess of par value | 4,406 | 4,527 | 4,251 | 4,461 | ||||||||||||
Retained earnings | 39,714 | 37,090 | 40,631 | 40,316 | ||||||||||||
Accumulated other comprehensive loss | (2,800 | ) | (3,630 | ) | (4,464 | ) | (6,229 | ) | ||||||||
Less: repurchased common stock, at cost: 9/11 – 297 shares, 12/10 – 284 shares | (17,660 | ) | (16,745 | ) | ||||||||||||
Less: repurchased common stock, at cost: 3/12 – 298 shares, 12/11 – 301 shares | (17,691 | ) | (17,875 | ) | ||||||||||||
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Total PepsiCo Common Shareholders’ Equity | 23,691 | 21,273 | 22,758 | 20,704 | ||||||||||||
Noncontrolling interests | 426 | 312 | 313 | 311 | ||||||||||||
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Total Equity | 24,003 | 21,476 | 22,954 | 20,899 | ||||||||||||
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Total Liabilities and Equity | $ | 75,378 | $ | 68,153 | $ | 74,391 | $ | 72,882 | ||||||||
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See accompanying notes to the condensed consolidated financial statements.
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(in millions, unaudited)
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12 Weeks Ended | ||||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | 3/24/12 | 3/19/11 | |||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Preferred Stock | 0.8 | $ | 41 | 0.8 | $ | 41 | 0.8 | $ | 41 | 0.8 | $ | 41 | ||||||||||||||||||||
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Repurchased Preferred Stock | ||||||||||||||||||||||||||||||||
Balance, beginning of year | (0.6 | ) | (150 | ) | (0.6 | ) | (145 | ) | (0.6 | ) | (157 | ) | (0.6 | ) | (150 | ) | ||||||||||||||||
Redemptions | (– | ) | (5 | ) | (– | ) | (3 | ) | (– | ) | (1 | ) | (– | ) | (2 | ) | ||||||||||||||||
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Balance, end of period | (0.6 | ) | (155 | ) | (0.6 | ) | (148 | ) | (0.6 | ) | (158 | ) | (0.6 | ) | (152 | ) | ||||||||||||||||
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Common Stock | 1,865 | 31 | 1,865 | 31 | ||||||||||||||||||||||||||||
Balance, beginning of year | 1,865 | 31 | 1,782 | 30 | ||||||||||||||||||||||||||||
Shares issued in connection with our acquisitions of PBG and PAS | – | – | 83 | 1 | ||||||||||||||||||||||||||||
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Balance, end of period | 1,865 | 31 | 1,865 | 31 | ||||||||||||||||||||||||||||
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Capital in Excess of Par Value | ||||||||||||||||||||||||||||||||
Balance, beginning of year | 4,527 | 250 | 4,461 | 4,527 | ||||||||||||||||||||||||||||
Stock-based compensation expense | 222 | 191 | 56 | 72 | ||||||||||||||||||||||||||||
Stock option exercises/RSUs converted(a) | (303 | ) | (399 | ) | (194 | ) | (160 | ) | ||||||||||||||||||||||||
Withholding tax on RSUs converted | (54 | ) | (57 | ) | (52 | ) | (40 | ) | ||||||||||||||||||||||||
Equity issued in connection with our acquisitions of PBG and PAS | – | 4,451 | ||||||||||||||||||||||||||||||
Other | 14 | 99 | (20 | ) | 8 | |||||||||||||||||||||||||||
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Balance, end of period | 4,406 | 4,535 | 4,251 | 4,407 | ||||||||||||||||||||||||||||
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Retained Earnings | ||||||||||||||||||||||||||||||||
Balance, beginning of year | 37,090 | 33,805 | 40,316 | 37,090 | ||||||||||||||||||||||||||||
Net income attributable to PepsiCo | 5,028 | 4,955 | 1,127 | 1,143 | ||||||||||||||||||||||||||||
Cash dividends declared – common | (2,388 | ) | (2,270 | ) | (809 | ) | (762 | ) | ||||||||||||||||||||||||
Cash dividends declared – preferred | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||
Cash dividends declared – RSUs | (15 | ) | (9 | ) | (3 | ) | (5 | ) | ||||||||||||||||||||||||
Other | – | 7 | ||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Balance, end of period | 39,714 | 36,487 | 40,631 | 37,466 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||||
Balance, beginning of year | (3,630 | ) | (3,794 | ) | (6,229 | ) | (3,630 | ) | ||||||||||||||||||||||||
Currency translation adjustment | 870 | (291 | ) | 1,691 | 617 | |||||||||||||||||||||||||||
Cash flow hedges, net of tax: | ||||||||||||||||||||||||||||||||
Net derivative losses | (63 | ) | (123 | ) | ||||||||||||||||||||||||||||
Net derivative (losses)/gains | (14 | ) | 8 | |||||||||||||||||||||||||||||
Reclassification of net losses to net income | 11 | 39 | 7 | 4 | ||||||||||||||||||||||||||||
Pension and retiree medical, net of tax: | ||||||||||||||||||||||||||||||||
Reclassification of losses to net income | 49 | 210 | ||||||||||||||||||||||||||||||
Reclassification of net losses/(gains) to net income | 25 | (3 | ) | |||||||||||||||||||||||||||||
Remeasurement of net liabilities | – | (406 | ) | 7 | – | |||||||||||||||||||||||||||
Unrealized (losses)/gains on securities, net of tax | (20 | ) | 7 | |||||||||||||||||||||||||||||
Unrealized gains/(losses) on securities, net of tax | 13 | (13 | ) | |||||||||||||||||||||||||||||
Other | (17 | ) | – | 36 | (18 | ) | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Balance, end of period | (2,800 | ) | (4,358 | ) | (4,464 | ) | (3,035 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Repurchased Common Stock | ||||||||||||||||||||||||||||||||
Balance, beginning of year | (284 | ) | (16,745 | ) | (217 | ) | (13,383 | ) | (301 | ) | (17,875 | ) | (284 | ) | (16,745 | ) | ||||||||||||||||
Share repurchases | (30 | ) | (1,970 | ) | (68 | ) | (4,418 | ) | (5 | ) | (294 | ) | (7 | ) | (413 | ) | ||||||||||||||||
Stock option exercises | 15 | 948 | 17 | 1,029 | 6 | 356 | 5 | 296 | ||||||||||||||||||||||||
Other | 2 | 107 | (15 | ) | 122 | 2 | 122 | 2 | 89 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Balance, end of period | (297 | ) | (17,660 | ) | (283 | ) | (16,650 | ) | (298 | ) | (17,691 | ) | (284 | ) | (16,773 | ) | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total Common Shareholders’ Equity | 23,691 | 20,045 | 22,758 | 22,096 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Noncontrolling Interests | ||||||||||||||||||||||||||||||||
Balance, beginning of year | 312 | 638 | 311 | 312 | ||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests | 32 | 22 | 6 | 1 | ||||||||||||||||||||||||||||
Contributions from/(distributions to) noncontrolling interests, net | 13 | (347 | ) | |||||||||||||||||||||||||||||
Currency translation adjustment | 69 | (14 | ) | (4 | ) | 28 | ||||||||||||||||||||||||||
Acquisitions and divestitures | (1 | ) | 1,348 | |||||||||||||||||||||||||||||
Other, net | – | (1 | ) | 1 | – | |||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Balance, end of period | 426 | 298 | 313 | 1,689 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total Equity | $ | 24,003 | $ | 20,236 | $ | 22,954 | $ | 23,674 | ||||||||||||||||||||||||
|
|
|
|
(a) | Includes total tax benefits of |
See accompanying notes to the condensed consolidated financial statements.
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
(in millions, unaudited)
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||
9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | |||||||||||||
Net Income | $ | 2,011 | $ | 1,930 | $ | 5,060 | $ | 4,977 | ||||||||
Other Comprehensive (Loss)/Income | ||||||||||||||||
Currency translation adjustment | (515 | ) | 290 | 939 | (305 | ) | ||||||||||
Cash flow hedges, net of tax: | ||||||||||||||||
Net derivative losses | (46 | ) | (37 | ) | (63 | ) | (123 | ) | ||||||||
Reclassification of net losses to net income | 4 | 16 | 11 | 39 | ||||||||||||
Pension and retiree medical, net of tax: | ||||||||||||||||
Reclassification of losses/(gains) to net income | 26 | (1 | ) | 49 | 210 | |||||||||||
Remeasurement of net liabilities | – | (406 | ) | – | (406 | ) | ||||||||||
Unrealized (losses)/gains on securities, net of tax | (18 | ) | 6 | (20 | ) | 7 | ||||||||||
Other | – | – | (17 | ) | – | |||||||||||
|
|
|
|
|
|
|
| |||||||||
(549 | ) | (132 | ) | 899 | (578 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive Income | 1,462 | 1,798 | 5,959 | 4,399 | ||||||||||||
Comprehensive income attributable to noncontrolling interests | (8 | ) | (8 | ) | (101 | ) | (8 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive Income Attributable to PepsiCo | $ | 1,454 | $ | 1,790 | $ | 5,858 | $ | 4,391 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
PEPSICO, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation and Our Divisions
Basis of Presentation
Our Condensed Consolidated Balance Sheet as of September 3, 2011March 24, 2012 and the Condensed Consolidated Statements of Income, and Comprehensive Income, for the 12 and 36 weeks ended September 3, 2011 and September 4, 2010, and the Condensed Consolidated Statements of Cash Flows and Equity for the 3612 weeks ended September 3,March 24, 2012 and March 19, 2011 and September 4, 2010 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 25, 2010 and in our Current Report on Form 8-K dated March 31, 2011. 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 are not necessarily indicative of the results expected for the full year.
While the majority of our results are reported on a period basis, most of our international operations report on a monthly calendar basis for which the months of June, JulyJanuary and AugustFebruary are reflected in our thirdfirst quarter results.
On February 26, 2010, we completed our acquisitions of PBG and PAS. The results of the acquired companies in the U.S. and Canada are reflected in our condensed consolidated results as of the acquisition date, and the international results of the acquired companies have been reported as of the beginning of our second quarter of 2010, consistent with our monthly international reporting calendar. Prior to our acquisitions of PBG and PAS, we recorded our share of equity income or loss from the acquired companies in bottling equity income in our income statement. Additionally, in the first quarter of 2010, in connection with our acquisitions of PBG and PAS, we recorded a gain on our previously held equity interests of $958 million, comprising $735 million which was non-taxable and recorded in bottling equity income and $223 million related to the reversal of deferred tax liabilities associated with these previously held equity interests. Our share of income or loss from noncontrolled affiliates is reflected as a component of selling, general and administrative expenses. See alsoAcquisitionsand “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In the first quarter of 2011, Quaker Foods North America (QFNA) changed its method of accounting for certain U.S. inventories from the last-in, first-out (LIFO) method to the average cost method. This change iswas considered preferable by management as we believe that the average cost method of accounting for all U.S. foods inventories will improveimproves our financial reporting by better matching revenues and expenses and better reflecting the current value of inventory. In addition, the change from the LIFO method to the average cost method will enhanceenhances the comparability of QFNA’s financial results with our other food businesses, as well as with peer companies where the average cost method is widely used. The impact of this change on consolidated net income in the first quarter of 2011 was approximately $9 million (or less than a penny per share). Prior periods were not restated as the impact of the change on previously issued financial statements was not considered material.
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, generally 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 20112012 presentation. This report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 25, 2010 and our Current Report on Form 8-K dated March 31, 2011, in which we reclassified historical segment information on a basis consistent with our current segment reporting structure.2011.
Our Divisions
We are organized into four business units, as follows:
1. | PepsiCo Americas Foods (PAF), 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 |
3. | PepsiCo Europe, which includes all beverage, food and snack businesses in |
4. | PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack businesses in |
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 | 36 Weeks Ended | 12 Weeks Ended | ||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | Net Revenue | Operating Profit | |||||||||||||||||||||||||||
Net Revenue | ||||||||||||||||||||||||||||||||
3/24/12 | 3/19/11 | 3/24/12 | 3/19/11 | |||||||||||||||||||||||||||||
FLNA | $ | 3,173 | $ | 3,050 | $ | 9,167 | $ | 8,906 | $ | 3,010 | $ | 2,904 | $ | 780 | $ | 774 | ||||||||||||||||
QFNA | 614 | 601 | 1,837 | 1,866 | 623 | 640 | 187 | 214 | ||||||||||||||||||||||||
LAF | 1,841 | 1,542 | 4,757 | 4,063 | 1,235 | 1,108 | 183 | 171 | ||||||||||||||||||||||||
PAB | 5,947 | 5,792 | 16,107 | 14,105 | 4,448 | 4,531 | 525 | 558 | ||||||||||||||||||||||||
Europe | 3,909 | 2,848 | 9,329 | 6,390 | 1,845 | 1,626 | 81 | 63 | ||||||||||||||||||||||||
AMEA | 2,098 | 1,681 | 5,149 | 4,353 | 1,267 | 1,128 | 148 | 146 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
$ | 17,582 | $ | 15,514 | $ | 46,346 | $ | 39,683 | |||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | |||||||||||||||||||||||||||||
Operating Profit | ||||||||||||||||||||||||||||||||
FLNA | $ | 918 | $ | 866 | $ | 2,545 | $ | 2,394 | ||||||||||||||||||||||||
QFNA | 177 | 167 | 558 | 521 | ||||||||||||||||||||||||||||
LAF | 275 | 238 | 720 | 616 | ||||||||||||||||||||||||||||
PAB | 992 | 1,017 | 2,533 | 2,042 | ||||||||||||||||||||||||||||
Europe | 514 | 432 | 984 | 826 | ||||||||||||||||||||||||||||
AMEA | 285 | 235 | 730 | 657 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total division | 3,161 | 2,955 | 8,070 | 7,056 | 12,428 | 11,937 | 1,904 | 1,926 | ||||||||||||||||||||||||
Corporate Unallocated | ||||||||||||||||||||||||||||||||
Net impact of mark-to-market on commodity hedges | (53 | ) | 16 | (31 | ) | 58 | 84 | 31 | ||||||||||||||||||||||||
Merger and integration costs | (10 | ) | (16 | ) | (64 | ) | (128 | ) | ||||||||||||||||||||||||
Venezuela currency devaluation | – | – | – | (129 | ) | |||||||||||||||||||||||||||
Asset write-off | – | – | – | (145 | ) | |||||||||||||||||||||||||||
Foundation contribution | – | – | – | (100 | ) | |||||||||||||||||||||||||||
Restructuring and impairment charges | 2 | – | ||||||||||||||||||||||||||||||
Merger and integration charges | – | (42 | ) | |||||||||||||||||||||||||||||
Other | (192 | ) | (155 | ) | (589 | ) | (511 | ) | (268 | ) | (189 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
$ | 2,906 | $ | 2,800 | $ | 7,386 | $ | 6,101 | $ | 12,428 | $ | 11,937 | $ | 1,722 | $ | 1,726 | |||||||||||||||||
|
|
|
|
|
|
|
|
Total Assets | Total Assets | |||||||||||||||
9/3/11 | 12/25/10 | 3/24/12 | 12/31/11 | |||||||||||||
FLNA | $ | 6,185 | $ | 6,027 | $ | 6,075 | $ | 6,120 | ||||||||
QFNA | 1,242 | 1,217 | 1,205 | 1,174 | ||||||||||||
LAF | 4,288 | 4,053 | 4,967 | 4,731 | ||||||||||||
PAB | 32,641 | 31,622 | 31,690 | 31,187 | ||||||||||||
Europe | 21,180 | 13,032 | 19,755 | 18,479 | ||||||||||||
AMEA | 6,163 | 5,569 | 6,305 | 6,048 | ||||||||||||
|
|
|
| |||||||||||||
Total division | 71,699 | 61,520 | 69,997 | 67,739 | ||||||||||||
Corporate(b) | 3,679 | 6,394 | ||||||||||||||
Investments in bottling affiliates | – | 239 | ||||||||||||||
Corporate(a) | 4,394 | 5,143 | ||||||||||||||
|
|
|
| |||||||||||||
$ | 75,378 | $ | 68,153 | $ | 74,391 | $ | 72,882 | |||||||||
|
|
|
|
(a) |
|
Corporate assets consist principally of cash and cash equivalents, short-term investments, derivative instruments and property, plant and equipment. |
Acquisitions and Divestitures
PBG and PAS
On February 26, 2010, we acquired PBG and PAS to create a more fully integrated supply chain and go-to-market business model, improving the effectiveness and efficiency of the distribution of our brands and enhancing our revenue growth. The total purchase price was approximately $12.6 billion, which included $8.3 billion of cash and equity and the fair value of our previously held equity interests in PBG and PAS of $4.3 billion. The acquisitions were accounted for as business combinations, and, accordingly, the identifiable assets acquired and liabilities assumed were recorded at their estimated fair values at the date of acquisition. Our fair market valuations of the identifiable assets acquired and liabilities assumed have been completed and the final valuations did not materially differ from those fair values reported as of December 25, 2010.
The following table presents unaudited consolidated pro forma financial information as if the closing of our acquisitions of PBG and PAS had occurred on December 27, 2009 for purposes of the financial information presented for the 36 weeks ended September 4, 2010.
(unaudited) 36 Weeks Ended | ||||
9/4/10 | ||||
Net Revenue | $ | 41,427 | ||
Net Income Attributable to PepsiCo | $ | 4,491 | ||
Net Income Attributable to PepsiCo per Common Share – Diluted | $ | 2.75 |
The unaudited consolidated pro forma financial information was prepared in accordance with the acquisition method of accounting under existing standards, and the regulations of the U.S. Securities and Exchange Commission, and is not necessarily indicative of the results of operations that would have occurred if our acquisitions of PBG and PAS had been completed on the date indicated, nor is it indicative of the future operating results of PepsiCo.
The historical unaudited consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the acquisitions, (2) factually supportable, and (3) expected to have a continuing impact on the combined results of PepsiCo, PBG and PAS.
The unaudited pro forma results have been adjusted with respect to certain aspects of our acquisitions of PBG and PAS to reflect:
the consummation of the acquisitions;
consolidation of PBG and PAS which are now owned 100% by PepsiCo and the corresponding gain resulting from the remeasurement of our previously held equity interests in PBG and PAS;
the elimination of related party transactions between PepsiCo and PBG, and PepsiCo and PAS;
changes in assets and liabilities to record their acquisition date fair values and changes in certain expenses resulting therefrom; and
additional indebtedness, including, but not limited to, debt issuance costs and interest expense, incurred in connection with the acquisitions.
The unaudited pro forma results do not reflect future events that either have occurred or may occur after the acquisitions, including, but not limited to, the anticipated realization of ongoing savings from operating synergies in subsequent periods. They also do not give effect to certain one-time charges we expect to incur in connection with the acquisitions, including, but not limited to, charges that are expected to achieve ongoing cost savings and synergies.
WBD
On February 3, 2011, we acquired the ordinary shares, including shares underlying American Depositary Shares (ADSs)(ADS) and Global Depositary Shares (GDSs)(GDS), of WBD, a company incorporated in the Russian Federation, which represented in the aggregate approximately 66% of WBD’s outstanding ordinary shares, pursuant to the purchase agreement dated December 1, 2010 between PepsiCo and certain selling shareholders of WBD for approximately $3.8 billion in cash. The acquisition of those shares increased our total ownership to approximately 77%, giving us a controlling interest in WBD. Under the guidance on accounting for business combinations, once a controlling interest is obtained, we are required to recognize and measure 100% of the identifiable assets acquired, liabilities assumed and noncontrolling interests at their full fair values. As a result, the total consideration transferred was approximately $5.8 billion, which included the $3.8 billion of cash (or $2.4 billion, net of cash and cash equivalents acquired), theOur fair value of our previously held equity interest in WBD of $0.7 billion and the fair value of the remaining noncontrolling interests in WBD of $1.3 billion. The preliminary estimates of the fair valuemarket valuations of the identifiable assets acquired and liabilities assumed in WBDhave been completed and the final valuations did not materially differ from those fair values reported as of the acquisition date include goodwill and other intangible assets of $4.9 billion; property, plant and equipment of $1.3 billion; debt obligations of $1.1 billion; and other net assets of $0.7 billion, all of which are recorded in our Europe segment. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in adjustments to the preliminary values discussed above as valuations are finalized. We expect to finalize these amounts as soon as possible but no later than by the end ofDecember 31, 2011.
Under the guidance on accounting for business combinations, merger and integration costs are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred. SeeMerger and Integration Charges for details on the expenses incurred during 2011.
On March 10, 2011, we commenced our tender offers in Russia and the U.S. for all remaining outstanding ordinary shares and ADSs of WBD for 3,883.70 Russian rubles per ordinary share and 970.925 Russian rubles per ADS, respectively. The Russian offer was made to all holders of ordinary shares and the U.S. offer was made to all holders of ADSs. We completed the Russian offer on May 19, 2011 and the U.S. offer on May 16, 2011. After completion of the offers, we paid approximately $1.3 billion for WBD’s ordinary shares (including shares underlying ADSs) and increased our total ownership of WBD to approximately 98.6%.
On June 30, 2011, we elected to exercise our squeeze-out rights under Russian law with respect to all remaining WBD ordinary shares not already owned by us. Therefore, under Russian law, all remaining WBD shareholders were required to sell their ordinary shares (including those underlying ADSs) to us at the same price that was offered to WBD shareholders in the Russian tender offer. Accordingly, all registered holders of ordinary shares on August 15, 2011 (including
the ADS depository)depositary) received 3,883.70 Russian rubles per ordinary share. After completion of the squeeze-out in September 2011 (during our fourth quarter), we paid approximately $79 million for WBD’s ordinary shares (including shares underlying ADSs) and increased our total ownership to 100% of WBD.
Tingyi-Asahi Beverages Holding Co Ltd
On March 31, 2012 (during our second quarter), we completed a transaction with Tingyi (Cayman Islands) Holding Corp. (Tingyi). Under the terms of the agreement, we contributed our company-owned and joint venture bottling operations in China to Tingyi’s beverage subsidiary, Tingyi-Asahi Beverages Holding Co Ltd (TAB), and received as consideration a 5% indirect equity interest in TAB. As a result of this transaction, TAB is now our franchise bottler in China. We also have a call option to increase our indirect holding in TAB to 20% by 2015. We anticipate recording an after-tax loss of approximately $200 million associated with this transaction in our second quarter results. This loss will be reflected in items affecting comparability in our 2012 second quarter Form 10-Q (see “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations).
Intangible Assets
9/3/11 | 12/25/10 | 3/24/12 | 12/31/11 | |||||||||||||
Amortizable intangible assets, net | ||||||||||||||||
Acquired franchise rights | $ | 967 | $ | 949 | $ | 929 | $ | 916 | ||||||||
Reacquired franchise rights | 110 | 110 | 110 | 110 | ||||||||||||
Brands | 1,538 | 1,463 | 1,440 | 1,417 | ||||||||||||
Other identifiable intangibles | 1,159 | 747 | 862 | 777 | ||||||||||||
|
|
|
| |||||||||||||
3,774 | 3,269 | 3,341 | 3,220 | |||||||||||||
Accumulated amortization | (1,348 | ) | (1,244 | ) | (1,381 | ) | (1,332 | ) | ||||||||
|
|
|
| |||||||||||||
$ | 2,426 | $ | 2,025 | $ | 1,960 | $ | 1,888 | |||||||||
|
|
|
|
The change in the book value of nonamortizable intangible assets is as follows:
Balance 12/25/10 | Acquisitions | Translation and Other | Balance 9/3/11 | |||||||||||||
FLNA | ||||||||||||||||
Goodwill | $ | 313 | $ | – | $ | 4 | $ | 317 | ||||||||
Brands | 31 | – | 1 | 32 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
344 | – | 5 | 349 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
QFNA | ||||||||||||||||
Goodwill | 175 | – | – | 175 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
LAF | ||||||||||||||||
Goodwill | 497 | 18 | 9 | 524 | ||||||||||||
Brands | 143 | – | 3 | 146 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
640 | 18 | 12 | 670 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
PAB | ||||||||||||||||
Goodwill | 9,946 | 57 | 9 | 10,012 | ||||||||||||
Reacquired franchise rights | 7,283 | 79 | 25 | 7,387 | ||||||||||||
Acquired franchise rights | 1,565 | – | 2 | 1,567 | ||||||||||||
Brands | 182 | 11 | 3 | 196 | ||||||||||||
Other | 10 | – | – | 10 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
18,986 | 147 | 39 | 19,172 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Europe(a) | ||||||||||||||||
Goodwill | 3,040 | 1,240 | 240 | 4,520 | ||||||||||||
Reacquired franchise rights | 793 | – | 36 | 829 | ||||||||||||
Acquired franchise rights | 227 | – | 20 | 247 | ||||||||||||
Brands | 1,380 | 3,300 | 162 | 4,842 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
5,440 | 4,540 | 458 | 10,438 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
AMEA | ||||||||||||||||
Goodwill | 690 | – | 34 | 724 | ||||||||||||
Brands | 169 | – | 8 | 177 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
859 | – | 42 | 901 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total goodwill | 14,661 | 1,315 | 296 | 16,272 | ||||||||||||
Total reacquired franchise rights | 8,076 | 79 | 61 | 8,216 | ||||||||||||
Total acquired franchise rights | 1,792 | – | 22 | 1,814 | ||||||||||||
Total brands | 1,905 | 3,311 | 177 | 5,393 | ||||||||||||
Total other | 10 | – | – | 10 | ||||||||||||
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$ | 26,444 | $ | 4,705 | $ | 556 | $ | 31,705 | |||||||||
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Balance 12/31/11 | Acquisitions/ (Divestitures) | Translation and Other | Balance 3/24/12 | |||||||||||||
FLNA | ||||||||||||||||
Goodwill | $ | 311 | $ | – | $ | 4 | $ | 315 | ||||||||
Brands | 30 | – | 1 | 31 | ||||||||||||
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341 | – | 5 | 346 | |||||||||||||
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QFNA | ||||||||||||||||
Goodwill | 175 | – | – | 175 | ||||||||||||
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LAF | ||||||||||||||||
Goodwill | 793 | (162 | ) | 37 | 668 | |||||||||||
Brands | 157 | 112 | 9 | 278 | ||||||||||||
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950 | (50 | ) | 46 | 946 | ||||||||||||
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PAB | ||||||||||||||||
Goodwill | 9,932 | 2 | 20 | 9,954 | ||||||||||||
Reacquired franchise rights | 7,342 | (1 | ) | 24 | 7,365 | |||||||||||
Acquired franchise rights | 1,562 | – | 2 | 1,564 | ||||||||||||
Brands | 168 | – | 5 | 173 | ||||||||||||
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19,004 | 1 | 51 | 19,056 | |||||||||||||
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Europe | ||||||||||||||||
Goodwill | 4,900 | 78 | 392 | 5,370 | ||||||||||||
Reacquired franchise rights | 732 | – | 63 | 795 | ||||||||||||
Acquired franchise rights | 218 | – | 11 | 229 | ||||||||||||
Brands | 4,178 | (96 | ) | 397 | 4,479 | |||||||||||
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10,028 | (18 | ) | 863 | 10,873 | ||||||||||||
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AMEA | ||||||||||||||||
Goodwill | 689 | – | 37 | 726 | ||||||||||||
Brands | 170 | – | 9 | 179 | ||||||||||||
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859 | – | 46 | 905 | |||||||||||||
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Total goodwill | 16,800 | (82 | ) | 490 | 17,208 | |||||||||||
Total reacquired franchise rights | 8,074 | (1 | ) | 87 | 8,160 | |||||||||||
Total acquired franchise rights | 1,780 | – | 13 | 1,793 | ||||||||||||
Total brands | 4,703 | 16 | 421 | 5,140 | ||||||||||||
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$ | 31,357 | $ | (67 | ) | $ | 1,011 | $ | 32,301 | ||||||||
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Stock-Based Compensation
For the 12 weeks ended September 3,March 24, 2012, we recognized stock-based compensation expense of $50 million ($56 million recorded as stock-based compensation expense, $1 million included in merger and integration charges and income of $7 million included in restructuring and impairment charges). For the 12 weeks ended March 19, 2011, we recognized stock-based compensation expense of $77 million ($76 million recorded as stock-based compensation expense and $1 million included in merger and integration charges). For the 36 weeks ended September 3, 2011, we recognized stock-based compensation expense of $232 million ($222 million recorded as stock-based compensation expense and $10 million included in merger and integration charges). For the 12 weeks ended September 4, 2010, we recognized stock-based compensation expense of $77$79 million ($72 million recorded as stock-based compensation expense and $5 million included in merger and integration charges). For the 36 weeks ended September 4, 2010, we recognized stock-based compensation expense of $236 million ($191 million recorded as stock-based compensation expense and $45$7 million included in merger and integration charges).
In connection with our multi-year productivity plan (Productivity Plan) announced in February 2012, the Compensation Committee of PepsiCo’s Board of Directors elected to delay the grant of the annual equity award from March to April, in order to appropriately administer the award following employee headcount reductions. Therefore, for the 12 weeks ended March 24, 2012, we did not issue any grants of stock options or restricted stock units (RSU). For the 12 weeks ended September 3,March 19, 2011, our grants ofwe granted 6.4 million stock options and restricted stock units (RSU) were nominal. For the 36 weeks ended September 3, 2011, we granted 6.8 million stock options at a weighted-average grant price of $64.28 and 5.25.1 million RSUs at a weighted-average grant price of $63.88, under the terms of our 2007 Long-Term Incentive Plan. For the 12 weeks ended September 4, 2010, our grants of stock options and RSUs were nominal. For the 36 weeks ended September 4, 2010, we granted 12.2 million stock options and 4.7 million RSUs at weighted-average grant prices of $66.50 and $66.46, respectively,$63.75, under the terms of our 2007 Long-Term Incentive Plan.
Our weighted-average Black-Scholes fair value assumptions arein the prior year were as follows:
36 Weeks Ended | ||||||||
9/3/11 | 9/4/10 | |||||||
Expected life | 6 yrs. | 5 yrs. | ||||||
Risk free interest rate | 2.5 | % | 2.3 | % | ||||
Expected volatility(a) | 16 | % | 17 | % | ||||
Expected dividend yield | 2.9 | % | 2.8 | % |
12 Weeks Ended | ||||
3/19/11 | ||||
Expected life | 6 yrs. | |||
Risk free interest rate | 2.6 | % | ||
Expected volatility(a) | 16 | % | ||
Expected dividend yield | 2.9 | % |
(a) | Reflects movements in our stock price over the most recent historical period equivalent to the expected life. |
Pension and Retiree Medical Benefits
The components of net periodic benefit cost for pension and retiree medical plans are as follows:
12 Weeks Ended | 12 Weeks Ended | |||||||||||||||||||||||||||||||||||||||||||||||
Pension | Retiree Medical | Pension | Retiree Medical | |||||||||||||||||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | 3/24/12 | 3/19/11 | 3/24/12 | 3/19/11 | 3/24/12 | 3/19/11 | |||||||||||||||||||||||||||||||||||||
U.S. | International | U.S. | International | |||||||||||||||||||||||||||||||||||||||||||||
Service cost | $ | 80 | $ | 73 | $ | 22 | $ | 19 | $ | 12 | $ | 13 | $ | 95 | $ | 82 | $ | 18 | $ | 17 | $ | 12 | $ | 12 | ||||||||||||||||||||||||
Interest cost | 127 | 123 | 28 | 26 | 20 | 22 | 123 | 126 | 20 | 21 | 15 | 20 | ||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (163 | ) | (158 | ) | (32 | ) | (31 | ) | (3 | ) | – | (184 | ) | (162 | ) | (26 | ) | (24 | ) | (5 | ) | (3 | ) | |||||||||||||||||||||||||
Amortization of prior service cost/(benefit) | 3 | 3 | 1 | 1 | (6 | ) | (5 | ) | 4 | 3 | – | – | (6 | ) | (7 | ) | ||||||||||||||||||||||||||||||||
Amortization of experience loss | 34 | 30 | 10 | 6 | 2 | 2 | 60 | 33 | 10 | 7 | – | 3 | ||||||||||||||||||||||||||||||||||||
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81 | 71 | 29 | 21 | 25 | 32 | 98 | 82 | 22 | 21 | 16 | 25 | |||||||||||||||||||||||||||||||||||||
Settlement/Curtailment gain | – | – | – | – | – | (62 | ) | |||||||||||||||||||||||||||||||||||||||||
Curtailment gain | (7 | ) | (9 | ) | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||
Special termination benefits | 4 | 10 | – | – | 4 | 1 | ||||||||||||||||||||||||||||||||||||||||||
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Total expense | $ | 81 | $ | 71 | $ | 29 | $ | 21 | $ | 25 | $ | (30 | ) | $ | 95 | $ | 83 | $ | 22 | $ | 21 | $ | 20 | $ | 26 | |||||||||||||||||||||||
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During the first quarter of 2012, we made discretionary contributions of $860 million to our pension plans and $140 million to our retiree medical plans.
36 Weeks Ended | ||||||||||||||||||||||||
Pension | Retiree Medical | |||||||||||||||||||||||
9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | |||||||||||||||||||
U.S. | International | |||||||||||||||||||||||
Service cost | $ | 242 | $ | 203 | $ | 62 | $ | 52 | $ | 35 | $ | 39 | ||||||||||||
Interest cost | 379 | 341 | 77 | 70 | 61 | 65 | ||||||||||||||||||
Expected return on plan assets | (487 | ) | (433 | ) | (89 | ) | (84 | ) | (10 | ) | – | |||||||||||||
Amortization of prior service cost/(benefit) | 10 | 8 | 2 | 2 | (19 | ) | (13 | ) | ||||||||||||||||
Amortization of experience loss | 101 | 80 | 26 | 16 | 8 | 4 | ||||||||||||||||||
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245 | 199 | 78 | 56 | 75 | 95 | |||||||||||||||||||
Settlement/Curtailment gain | (9 | ) | (2 | ) | – | – | – | (62 | ) | |||||||||||||||
Special termination benefits | 10 | 23 | – | – | 1 | 1 | ||||||||||||||||||
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Total expense | $ | 246 | $ | 220 | $ | 78 | $ | 56 | $ | 76 | $ | 34 | ||||||||||||
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Income Taxes
A rollforward of our reserves for all federal, state and foreign tax jurisdictions, is as follows:
9/3/11 | 12/25/10 | 3/24/12 | 12/31/11 | |||||||||||||
Balance, beginning of year | $ | 2,022 | $ | 1,731 | $ | 2,167 | $ | 2,022 | ||||||||
Additions for tax positions related to the current year | 143 | 204 | 45 | 233 | ||||||||||||
Additions for tax positions from prior years | 74 | 517 | 5 | 147 | ||||||||||||
Reductions for tax positions from prior years | (66 | ) | (391 | ) | (5 | ) | (46 | ) | ||||||||
Settlement payments | (87 | ) | (30 | ) | (4 | ) | (156 | ) | ||||||||
Statute of limitations expiration | (3 | ) | (7 | ) | – | (15 | ) | |||||||||
Translation and other | 1 | (2 | ) | (7 | ) | (18 | ) | |||||||||
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Balance, end of period | $ | 2,084 | $ | 2,022 | $ | 2,201 | $ | 2,167 | ||||||||
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Net Income Attributable to PepsiCo per Common Share
The computations of basic and diluted net income attributable to PepsiCo per common share are as follows:
12 Weeks Ended | 12 Weeks Ended | |||||||||||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | 3/24/12 | 3/19/11 | |||||||||||||||||||||||||||||||||||||
Income | Shares(a) | Income | Shares(a) | Income | Shares(a) | Income | Shares(a) | |||||||||||||||||||||||||||||||||
Net income attributable to PepsiCo | $2,000 | $1,922 | $ | 1,127 | $ | 1,143 | ||||||||||||||||||||||||||||||||||
Preferred shares: | ||||||||||||||||||||||||||||||||||||||||
Dividends | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Redemption premium | (1) | – | (1 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||
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Net income available for PepsiCo common shareholders | $1,999 | 1,578 | $1,922 | 1,588 | $ | 1,126 | 1,568 | $ | 1,141 | 1,583 | ||||||||||||||||||||||||||||||
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Basic net income attributable to PepsiCo per common share | $1.27 | $1.21 | $ | 0.72 | $ | 0.72 | ||||||||||||||||||||||||||||||||||
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Net income available for PepsiCo common shareholders | $1,999 | 1,578 | $1,922 | 1,588 | $ | 1,126 | 1,568 | $ | 1,141 | 1,583 | ||||||||||||||||||||||||||||||
Dilutive securities: | ||||||||||||||||||||||||||||||||||||||||
Stock options and RSUs(b) | – | 20 | – | 23 | – | 15 | – | 21 | ||||||||||||||||||||||||||||||||
ESOP convertible preferred stock | 1 | 1 | – | 1 | 1 | 1 | 2 | 1 | ||||||||||||||||||||||||||||||||
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Diluted | $2,000 | 1,599 | $1,922 | 1,612 | $ | 1,127 | 1,584 | $ | 1,143 | 1,605 | ||||||||||||||||||||||||||||||
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Diluted net income attributable to PepsiCo per common share | $1.25 | $1.19 | $ | 0.71 | $ | 0.71 | ||||||||||||||||||||||||||||||||||
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36 Weeks Ended | ||||||||||||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | |||||||||||||||||||||||||||||||||||||||
Income | Shares(a) | Income | Shares(a) | |||||||||||||||||||||||||||||||||||||
Net income attributable to PepsiCo | $ | 5,028 | $ | 4,955 | ||||||||||||||||||||||||||||||||||||
Preferred shares: | ||||||||||||||||||||||||||||||||||||||||
Dividends | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||
Redemption premium | (4 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||
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Net income available for PepsiCo common shareholders | $ | 5,023 | 1,581 | $ | 4,952 | 1,593 | ||||||||||||||||||||||||||||||||||
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Basic net income attributable to PepsiCo per common share | $ | 3.18 | $ | 3.11 | ||||||||||||||||||||||||||||||||||||
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Net income available for PepsiCo common shareholders | $ | 5,023 | 1,581 | $ | 4,952 | 1,593 | ||||||||||||||||||||||||||||||||||
Dilutive securities: | ||||||||||||||||||||||||||||||||||||||||
Stock options and RSUs(b) | – | 21 | – | 24 | ||||||||||||||||||||||||||||||||||||
ESOP convertible preferred stock | 5 | 1 | 3 | 1 | ||||||||||||||||||||||||||||||||||||
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Diluted | $ | 5,028 | 1,603 | $ | 4,955 | 1,618 | ||||||||||||||||||||||||||||||||||
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Diluted net income attributable to PepsiCo per common share | $ | 3.14 | $ | 3.06 | ||||||||||||||||||||||||||||||||||||
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(a) | Weighted-average common shares outstanding (in millions). |
(b) | Options to purchase |
Debt Obligations and Commitments
In the secondfirst quarter of 2011,2012, we issued $750issued:
$750 million of floating rate notes maturing in 2013, which bear interest at a rate equal to the three-month London Inter-Bank Offered Rate (LIBOR) plus 8 basis points, and $1.0 billion of 2.500%0.750% senior notes maturing in 2016. 2015;
$1.250 billion of 2.750% senior notes maturing in 2022; and
$750 million of 4.000% senior notes maturing in 2042.
The net proceeds from the issuanceissuances of thesethe above notes were used for general corporate purposes.
In the third quarter of 2011, we issued $500 million of 0.800% senior notes maturing in 2014 and $750 million of 3.000% senior notes maturing in 2021. The net proceeds from the issuance of these notes will be used for general corporate purposes.
In the third quarter of 2011, we entered into a new four-year unsecured revolving credit agreement (Four-Year Credit Agreement) which expires in June 2015. Effective August 8, 2011, commitments under this agreement were increased to enable us to borrow up to $2.925 billion, subject to customary terms and conditions. We may request to increase the commitments under this agreement to 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 third quarter of 2011, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement) which expires in June 2012. Effective August 8, 2011, commitments under this agreement were increased to enable us to borrow up to $2.925 billion, subject to customary terms and conditions. We may request to increase the commitments under this agreement to 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 June 2013.
The Four-Year Credit Agreement and the 364-Day Credit Agreement, together replaced our $2 billion unsecured revolving credit agreement, our $2.575 billion 364-day unsecured revolving credit agreement and our $1.080 billion amended PBG credit facility. Funds borrowed under the Four-Year Credit Agreement and the 364-Day Credit Agreement may be used for general corporate purposes, including but not limited tothe repayment of outstanding commercial paper issued by us and our subsidiaries, working capital, capital investments and/or acquisitions.
In the third quarter of 2011, we paid $784 million in a cash tender offer to repurchase $766 million (aggregate principal amount) of certain WBD debt obligations. As a result of this debt repurchase, we recorded a $16 million charge to interest expense in the third quarter, primarily representing the premium paid in the tender offer.paper.
As of September 3, 2011,March 24, 2012, we had $2.8$1.2 billion of commercial paper outstanding.
Long-Term Contractual Commitments(a)
Payments Due by Period | Payments Due by Period | |||||||||||||||||||||||||||||||||||||||
Total | 2011 | 2012 – 2013 | 2014 – 2015 | 2016 and beyond | Total | 2012 | 2013 – 2014 | 2015 – 2016 | 2017 and beyond | |||||||||||||||||||||||||||||||
Long-term debt obligations(b) | $ | 21,226 | $ | – | $ | 4,043 | $ | 4,866 | $ | 12,317 | $ | 21,289 | $ | – | $ | 4,930 | $ | 4,195 | $ | 12,164 | ||||||||||||||||||||
Interest on debt obligations(c) | 7,538 | 244 | 1,564 | 1,161 | 4,569 | 8,521 | 711 | 1,545 | 1,223 | 5,042 | ||||||||||||||||||||||||||||||
Operating leases | 1,942 | 154 | 755 | 435 | 598 | 1,861 | 367 | 632 | 355 | 507 | ||||||||||||||||||||||||||||||
Purchasing commitments | 3,198 | 567 | 2,089 | 451 | 91 | 3,123 | 1,113 | 1,525 | 422 | 63 | ||||||||||||||||||||||||||||||
Marketing commitments | 2,501 | 53 | 573 | 539 | 1,336 | 2,461 | 200 | 570 | 526 | 1,165 | ||||||||||||||||||||||||||||||
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$ | 36,405 | $ | 1,018 | $ | 9,024 | $ | 7,452 | $ | 18,911 | $ | 37,255 | $ | 2,391 | $ | 9,202 | $ | 6,721 | $ | 18,941 | |||||||||||||||||||||
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(a) | Reflects non-cancelable commitments as of |
(b) | Excludes |
(c) | Interest payments on floating-rate debt are estimated using interest rates effective as of |
Most long-term contractual commitments, except for our long-term debt obligations, are not recorded on our balance sheet. Non-cancelable operating leases primarily represent building leases. Non-cancelable purchasing commitments are primarily for packaging materials, sugar and other sweeteners, 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 expected future cash outflows. SeePension and Retiree Medical Benefitsfor additional information regarding our pension and retiree medical obligations.
MergerRestructuring, Impairment and Integration Charges
In the 12 weeks ended September 3,March 24, 2012, we incurred restructuring and impairment charges of $33 million ($23 million after-tax or $0.01 per share) in conjunction with our Productivity Plan, including $8 million recorded in the FLNA segment, $5 million recorded in the QFNA segment, $6 million recorded in the LAF segment, $8 million recorded in the PAB segment, $9 million recorded in the AMEA segment and income of $1 million and $2 million recorded in the Europe segment and in corporate unallocated expenses, respectively, representing adjustments of previously recorded amounts. All of these net charges were recorded in selling, general and administrative expenses. Substantially all cash payments related to these charges are expected to be 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 beyond 2012.
A summary of our Productivity Plan activity in 2012 is as follows:
Severance and Other Employee Costs | Asset Impairment | Other Costs | Total | |||||||||||||
Liability as of December 31, 2011 | $ | 249 | $ | – | $ | 27 | $ | 276 | ||||||||
2012 restructuring and impairment charges | (2 | ) | 17 | 18 | 33 | |||||||||||
Cash payments | (24 | ) | – | (20 | ) | (44 | ) | |||||||||
Non-cash charges | – | (17 | ) | – | (17 | ) | ||||||||||
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Liability as of March 24, 2012 | $ | 223 | $ | – | $ | 25 | $ | 248 | ||||||||
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In the 12 weeks ended March 24, 2012, we incurred merger and integration charges of $2 million ($2 million after-tax with a nominal amount per share) related to our acquisition of WBD. These charges were recorded in selling, general and administrative expenses in the Europe segment. Cash payments related to these charges are expected to be paid by the end of 2012.
In the 12 weeks ended March 19, 2011, we incurred merger and integration charges of $61$55 million ($5349 million after-tax or $0.03 per share) related to our acquisitions of PBG, PAS and WBD, including $24$21 million recorded in the PAB segment, $11 million recorded in the Europe segment, $10$42 million recorded in corporate unallocated expenses and $16 million recorded in interest expense. In the 36 weeks ended September 3, 2011, we incurred merger and integration chargesincome of $174 million ($147 million after-tax or $0.09 per share) related to our acquisitions of PBG, PAS and WBD, including $77 million recorded in the PAB segment, $17$8 million recorded in the Europe segment, $64 million recordedprimarily reflecting a gain on our previously held equity interest in corporate unallocated expenses and $16 million recorded in interest expense.WBD. All of these net charges other than the interest expense portion, were recorded in selling, general and administrative expenses. These charges also include closing costs and advisory fees related to our acquisition of WBD. Substantially all cash payments related to the abovethese charges are expected to bewere paid by the end of 2011.
In the 12 weeks ended September 4, 2010, we incurred merger and integration charges of $69 million related to our acquisitions of PBG and PAS, including $38 million recorded in the PAB segment, $15 million recorded in the Europe segment and $16 million recorded in corporate unallocated expenses. In the 36 weeks ended September 4, 2010, we incurred merger and
integration charges of $536 million related to our acquisitions of PBG and PAS, including $334 million recorded in the PAB segment, $44 million recorded in the Europe segment, $128 million recorded in corporate unallocated expenses and $30 million recorded in interest expense. All of these charges, other than the interest expense portion, were recorded in selling, general and administrative expenses. These charges also include closing costs, one-time financing costs and advisory fees related to our acquisitions of PBG and PAS. In addition, in the first quarter of 2010, we recorded $9 million of charges, representing our share of the respective merger costs of PBG and PAS, in bottling equity income. Substantially all cash payments related to the above charges are expected to be paid by the end of 2011. In total, these charges had an after-tax impact of $51 million ($0.03 per share) and $431 million ($0.27 per share) for the 12 and 36 weeks ended September 4, 2010, respectively.
A summary of our merger and integration activity in 20112012 is as follows:
Severance and Other Employee Costs | Other Costs | Total | ||||||||||
Liability as of December 25, 2010 | $ | 179 | $ | 25 | $ | 204 | ||||||
2011 merger and integration charges | 54 | 120 | 174 | |||||||||
Cash payments | (148 | ) | (145 | ) | (293 | ) | ||||||
Non-cash charges | (20 | ) | 7 | (13 | ) | |||||||
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Liability as of September 3, 2011 | $ | 65 | $ | 7 | $ | 72 | ||||||
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Severance and Other Employee Costs | Other Costs | Total | ||||||||||
Liability as of December 31, 2011 | $ | 98 | $ | 7 | $ | 105 | ||||||
2012 merger and integration charges | 2 | – | 2 | |||||||||
Cash payments | (19 | ) | (1 | ) | (20 | ) | ||||||
Non-cash charges | 4 | (1 | ) | 3 | ||||||||
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Liability as of March 24, 2012 | $ | 85 | $ | 5 | $ | 90 | ||||||
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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 risks,rates and currency restrictions, and
interest rates.
In the normal course of business, we manage these risks through a variety of strategies, including productivity initiatives, global purchasing programs and hedging strategies. 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. IneffectivenessCash flows from derivatives used to manage commodity, foreign exchange or interest risks are classified as operating activities. 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, 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 hedgesderivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items. Hedging ineffectiveness and a net earnings impact occur when the change in the value of the hedge does not offset the change in the value of the underlying hedged item. If the derivative instrument is terminated, we continue to defer the related gain or loss and then include it as a component of the cost of the underlying hedged item. Upon determination that the underlying hedged item will not material.be part of an actual transaction, we recognize the related gain or loss in net income immediately.
We also use derivatives that do not qualify for hedge accounting treatment. We account for such derivatives at market value with the resulting gains and losses reflected in our income statement. We do not use derivative instruments for trading or speculative purposes. We perform assessments of our counterparty credit risk regularly, including a review of credit ratings, credit default swap rates and potential nonperformance of the counterparty. Based on our most recent assessment of our counterparty credit risk, we consider this risk to be low. In addition, we enter into derivative contracts with a variety of financial institutions that we believe are creditworthy in order to reduce our concentration of credit risk.
Commodity Prices
We are subject to commodity price risk because our ability to recover increased costs through higher pricing may be limited in the competitive environment in which we operate. This risk is managed through the use of fixed-price purchase orders, pricing agreements geographic diversity and derivatives. In addition, risk to our supplies of certain raw materials is mitigated through purchases from multiple geographies and suppliers. We use derivatives, primarily with terms of no more than three years, to economically hedge price fluctuations related to a portion of our anticipated commodity purchases, primarily for aluminum, fuelmetals, energy and natural gas.agricultural products. For those derivatives that qualify for hedge accounting, any ineffectiveness is recorded immediately in corporate unallocated expenses. Ineffectiveness is not material. We
classify both the earnings and cash flow impact from these derivatives consistent with the underlying hedged item. During the next 12 months, we expect to reclassify net gainslosses of $2$33 million related to these hedges from accumulated other comprehensive loss into net income. Derivatives used to hedge commodity price risk that do not qualify for hedge accounting are marked to market each period and reflected in our income statement.
Our open commodity derivative contracts that qualify for hedge accounting had a face value of $586$552 million as of September 3, 2011March 24, 2012 and $577$573 million as of September 4, 2010. These contracts resulted in net unrealized gains of $11 million as of September 3, 2011 and $7 million as of September 4, 2010.March 19, 2011.
Our open commodity derivative contracts that do not qualify for hedge accounting had a face value of $537$628 million as of September 3, 2011March 24, 2012 and $254$300 million as of September 4, 2010. These contracts resulted in net losses of $6 million as of September 3, 2011 and $3 million as of September 4, 2010.March 19, 2011.
Foreign Exchange
Financial statements of foreign subsidiaries are translated into U.S. dollars using period-end exchange rates for assets and liabilities and weighted-average exchange rates for revenues and expenses. Adjustments resulting from translating net assets are reported as a separate component of accumulated other comprehensive loss within common shareholders’ equity as currency translation adjustment.
We may enter into derivatives, primarily forward contracts with terms of no more than two years, to manage our exposure to foreign currency transaction risk. Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred.
Our foreign currency derivatives had a total face value of $2.5$2.7 billion as of September 3, 2011March 24, 2012 and $1.4$2.3 billion as of September 4, 2010. The contracts that qualify for hedge accounting resulted in net unrealized losses of $11 million as of September 3, 2011 and $5 million as of September 4, 2010.March 19, 2011. During the next 12 months, we expect to reclassify net losses of $10$9 million related to these hedgesforeign currency contracts that qualify for hedge accounting from accumulated other comprehensive loss into net income. The contractsAdditionally, ineffectiveness is not material. For foreign currency derivatives that do not qualify for hedge accounting resulted in net losses of $14 million as of September 3, 2011 and a net gain of $1 million as of September 4, 2010. Alltreatment, all losses and gains were offset by changes in the underlying hedged items, resulting in no net material impact on earnings.
Interest Rates
We centrally manage our debt and investment portfolios considering investment opportunities and risks, tax consequences and overall financing strategies. We use various interest rate derivative instruments including, but not limited to, interest rate swaps, cross currency interest rate swaps, Treasury locks and swap locks to manage our overall interest expense and foreign exchange risk. These instruments effectively change the interest rate and currency of specific debt issuances. Certain of our fixed rate indebtedness has been swapped to floating rates. The notional amount, interest payment and maturity date of the interest rate and cross-currency swaps match the principal, interest payment and maturity date of the related debt. Our Treasury locks and swap locks are entered into to protect against unfavorable interest rate changes relating to forecasted debt transactions.
The notional amounts of the interest rate derivative instruments outstanding as of September 3,March 24, 2012 and March 19, 2011 and September 4, 2010 were $8.9$8.33 billion and $9.2$9.23 billion, respectively. For those interest rate derivative instruments that qualify for cash flow hedge accounting, any ineffectiveness is recorded immediately. We classify both the earnings and cash flow impact from these interest rate derivative instruments consistent with the underlying hedged item. For those interest rate derivative instruments that qualify for cash flow hedge accounting, any ineffectiveness is recorded immediately. Ineffectiveness is not material. During the next 12 months, we expect to reclassify net losses of $16$23 million related to these hedges from accumulated other comprehensive loss into net income.
As of September 3, 2011,March 24, 2012, approximately 40%32% of total debt, after the impact of the related interest rate derivative instruments, was exposed to variable rates, compared to 43%38% as of December 25, 2010.31, 2011.
Fair Value Measurements
The fair values of our financial assets and liabilities as of September 3,March 24, 2012 and March 19, 2011 and September 4, 2010 are categorized as follows:
2011 | 2010 | |||||||||||||||
Assets(a) | Liabilities(a) | Assets(a) | Liabilities(a) | |||||||||||||
Available-for-sale securities(b) | $ | 61 | $ | – | $ | 88 | $ | – | ||||||||
Short-term investments – index funds(c) | $ | 159 | $ | – | $ | 147 | $ | – | ||||||||
Deferred compensation(d) | $ | – | $ | 519 | $ | – | $ | 553 | ||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||
Forward exchange contracts(e) | $ | 12 | $ | 23 | $ | 19 | $ | 24 | ||||||||
Interest rate derivatives(f) | 428 | 56 | 402 | 91 | ||||||||||||
Commodity contracts – other(g) | 27 | 16 | 45 | 12 | ||||||||||||
Commodity contracts – futures(h) | 1 | 1 | 1 | 27 | ||||||||||||
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$ | 468 | $ | 96 | $ | 467 | $ | 154 | |||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||
Forward exchange contracts(e) | $ | 5 | $ | 19 | $ | 6 | $ | 5 | ||||||||
Interest rate derivatives(f) | 104 | 140 | 56 | 97 | ||||||||||||
Commodity contracts – other(g) | 24 | 29 | 6 | 8 | ||||||||||||
Commodity contracts – futures(h) | – | 1 | – | 1 | ||||||||||||
Prepaid forward contracts(i) | 38 | – | 48 | – | ||||||||||||
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$ | 171 | $ | 189 | $ | 116 | $ | 111 | |||||||||
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Total derivatives at fair value | $ | 639 | $ | 285 | $ | 583 | $ | 265 | ||||||||
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Total | $ | 859 | $ | 804 | $ | 818 | $ | 818 | ||||||||
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2012 | 2011 | |||||||||||||||
Assets(a) | Liabilities(a) | Assets(a) | Liabilities(a) | |||||||||||||
Available-for-sale securities(b) | $ | 72 | $ | – | $ | 70 | $ | – | ||||||||
Short-term investments – index funds(c) | $ | 166 | $ | – | $ | 177 | $ | – | ||||||||
Prepaid forward contracts(d) | $ | 37 | $ | – | $ | 43 | $ | – | ||||||||
Deferred compensation(e) | $ | – | $ | 523 | $ | – | $ | 553 | ||||||||
Derivatives designated as fair value hedging instruments: | ||||||||||||||||
Interest rate derivatives(f) | $ | 274 | $ | 2 | $ | 293 | $ | 4 | ||||||||
Derivatives designated as cash flow hedging instruments: | ||||||||||||||||
Forward exchange contracts(g) | $ | 9 | $ | 18 | $ | 4 | $ | 38 | ||||||||
Interest rate derivatives(f) | – | – | 3 | 12 | ||||||||||||
Commodity contracts(h) | 14 | 42 | 90 | 17 | ||||||||||||
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$ | 23 | $ | 60 | $ | 97 | $ | 67 | |||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||
Forward exchange contracts(g) | $ | 30 | $ | 9 | $ | 6 | $ | 11 | ||||||||
Interest rate derivatives(f) | 95 | 128 | 14 | 52 | ||||||||||||
Commodity contracts(h) | 39 | 30 | 59 | 1 | ||||||||||||
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$ | 164 | $ | 167 | $ | 79 | $ | 64 | |||||||||
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Total derivatives at fair value | $ | 461 | $ | 229 | $ | 469 | $ | 135 | ||||||||
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Total | $ | 736 | $ | 752 | $ | 759 | $ | 688 | ||||||||
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(a) | Financial assets are classified on our balance sheet within prepaid expenses and other current assets and other assets, with the exception of available-for-sale securities and short-term investments. Financial liabilities are classified on our balance sheet within accounts payable, other current liabilities and other liabilities. Unless specifically indicated, all financial assets and liabilities are categorized as Level 2 assets or liabilities. |
(b) | Based on the price of common stock. Categorized as a Level 1 asset. |
(c) | Based on price changes in index funds used to manage a portion of market risk arising from our deferred compensation liability. Categorized as a Level 1 asset. |
(d) | Based primarily on the price of our common stock. |
(e) | Based on the fair value of investments corresponding to employees’ investment elections. As of |
Based on LIBOR forward rates. |
(g) | Based on |
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(h) | Based on recently reported market transactions, primarily swap arrangements, except for liabilities as of March 19, 2011, which primarily related to commodity futures contracts. The futures contracts are valued based on average prices on futures |
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The fair value of our debt obligations as of September 3, 2011March 24, 2012 was $29.4$30 billion, based upon prices of similar instruments in the marketplace.
The effective portion of the pre-tax losses/(gains)/losses on our derivative instruments are categorized in the tables below.
12 Weeks Ended | 12 Weeks Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value/Non- designated Hedges | Cash Flow Hedges | Fair Value/Non- designated Hedges | Cash Flow Hedges | |||||||||||||||||||||||||||||||||||||||||||||||
Losses/(Gains) Recognized in Income Statement(a) | (Gains)/Losses Recognized in Accumulated Other Comprehensive Loss | Losses/(Gains) Reclassified from Accumulated Other Comprehensive Loss into Income Statement(b) | (Gains) /Losses Recognized in Income Statement(a) | Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss | (Gains)/Losses Reclassified from Accumulated Other Comprehensive Loss into Income Statement(b) | |||||||||||||||||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | 3/24/12 | 3/19/11 | 3/24/12 | 3/19/11 | 3/24/12 | 3/19/11 | |||||||||||||||||||||||||||||||||||||||
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Forward exchange contracts | $ | 7 | $ | 5 | $(9) | $ | 17 | $ | 9 | $ | 10 | $ | (10 | ) | $ | (1 | ) | $ | 29 | $ | 25 | $ | (3 | ) | $ | 5 | ||||||||||||||||||||||||
Interest rate derivatives | (84 | ) | (135 | ) | 42 | 62 | 4 | – | 27 | (22 | ) | 4 | (6 | ) | 4 | 3 | ||||||||||||||||||||||||||||||||||
Prepaid forward contracts | 3 | (2 | ) | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
Commodity contracts | 29 | (15 | ) | 40 | (32 | ) | (12 | ) | 12 | (49 | ) | (39 | ) | (18 | ) | (40 | ) | 11 | (6 | ) | ||||||||||||||||||||||||||||||
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Total | $ | (45 | ) | $ | (147 | ) | $73 | $ | 47 | $ | 1 | $ | 22 | $ | (32 | ) | $ | (62 | ) | $ | 15 | $ | (21 | ) | $ | 12 | $ | 2 | ||||||||||||||||||||||
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Losses/(Gains) Recognized in Income Statement(a) | Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss | Losses/(Gains) Reclassified from Accumulated Other Comprehensive Loss into Income Statement(b) | ||||||||||||||||||||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | |||||||||||||||||||||||||||||||||||||||||||||
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Forward exchange contracts | $ | 8 | $– | $ | 28 | $ | 9 | $ | 30 | $ | 32 | |||||||||||||||||||||||||||||||||||||||
Interest rate derivatives | (162 | ) | (195) | 71 | 98 | 10 | – | |||||||||||||||||||||||||||||||||||||||||||
Prepaid forward contracts | 1 | (4) | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||
Commodity contracts | (17 | ) | (58) | (15 | ) | 26 | (37 | ) | 28 | |||||||||||||||||||||||||||||||||||||||||
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Total | $ | (170 | ) | $(257) | $ | 84 | $ | 133 | $ | 3 | $ | 60 | ||||||||||||||||||||||||||||||||||||||
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(a) | Interest rate |
(b) | Interest rate losses are included in interest |
Recent Accounting Pronouncements
In the second quarter of 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law. The PPACA changes the tax treatment related to an existing retiree drug subsidy (RDS) available to sponsors of retiree health benefit plans that provide a benefit that is at least actuarially equivalent to the benefits under Medicare Part D. As a result of the PPACA, RDS payments will effectively become taxable in tax years beginning in 2013, by requiring the amount of the subsidy received to be offset against our deduction for health care expenses. The provisions of the PPACA required us to record the effect of this tax law change beginning in our second quarter of 2010, and consequently we recorded a one-time related tax charge of $41 million in the second quarter of 2010. In the first quarter of 2012, we began pre-paying funds within our 401(h) voluntary employee beneficiary associations (VEBA) trust to fully cover prescription drug benefit liabilities for Medicare eligible retirees. As a result, the receipt of future Medicare subsidy payments for prescription drugs will not be taxable and, consequently, we recorded a $55 million tax benefit reflecting this change.
In June 2011, the Financial Accounting Standards Board (FASB) amended its accounting guidance on the presentation of comprehensive income in financial statements to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items that are recorded in other comprehensive income. The new accounting guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. In December 2011, the FASB approved a deferral of the effective date of certain requirements related to the presentation and disclosure of reclassification adjustments from other comprehensive income to net income. The provisions of thisthe retained guidance were effective as of the beginning of our 2012 fiscal year. Accordingly, we have presented the components of net income and other comprehensive income for the 12 weeks ended March 24, 2012 and March 19, 2011 as two separate but consecutive statements. We will continue to monitor the FASB’s activities related to the deferral of the presentation and disclosure of reclassification adjustments from other comprehensive income to net income.
In September 2011, the FASB issued new accounting guidance that permits an entity to first assess qualitative factors of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. An entity would continue to perform the historical first step of the impairment test if it fails the qualitative assessment, while no further analysis would be required if it passes. The provisions of the new guidance are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.our 2012 annual goodwill impairment test. We are currently evaluating the impact of adopting thisthe new guidance on our financial statements.
In SeptemberDecember 2011, the FASB amended its guidance regarding theissued new disclosure requirements for employers participating in multiemployer pensionthat are intended to enhance current disclosures on offsetting financial assets and other postretirement benefit plans (multiemployer plans) to improve transparency and increase awareness of the commitments and risks involved with participation in multiemployer plans.liabilities. The new accounting guidance requires employers participating in multiemployer plansdisclosures require an entity to provide additional quantitativedisclose both gross and qualitative disclosuresnet information about financial instruments eligible for offset on the balance sheet and instruments and transactions subject to provide users with more detailed information regarding an employer’s involvement in multiemployer plans.agreement similar to a master netting arrangement. The provisions of thisthe new guidancedisclosure requirements are effective for annual periodsas of the beginning withof our 2014 fiscal years ending after December 15, 2011, with early adoption permitted.year. We have reviewed our level of participation in multiemployer plans and determined thatare currently evaluating the impact of adopting thisthe new guidance is not material toon our financial statements.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FINANCIAL REVIEW
Our discussion and analysis is an integral part of understanding our financial results. Also refer to Basis of Presentation and Our Divisions in the notes to the condensed consolidated financial statements. 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. Percentage changes are based on unrounded amounts.
Our Critical Accounting Policies
Sales Incentives and Advertising and Marketing Costs
We offer sales incentives and discounts through various programs to customers and consumers. These incentives and discounts are accounted for as a reduction of revenue. CertainA number of our sales incentives are recognized at the time of sale while other incentives, such as bottler funding to independent bottlers and customer volume rebates, are recognizedbased on annual targets, and accruals are established during the year incurred, generally in proportion to revenue,for the expected payout. These accruals are based on annual targets. Anticipated payments are estimated based oncontract terms and our historical experience with similar programs and require management judgment with respect to estimating customer participation and performance levels. Differences between estimated expense and actual incentive costs are normally insignificant and are recognized in earnings in the period such differences are determined. In addition, certain advertising and marketing costs are also based on annual targets and recognized during the year incurred, generallyincurred.
For interim reporting, our policy is to allocate our forecasted full-year sales incentives for most of our programs to each of our interim reporting periods in proportion to revenue,the same year that benefits from the programs. The allocation methodology is based on our forecasted sales incentives for the full year and the proportion of each interim period’s actual gross revenue and volume, as applicable, to our forecasted annual targets.gross revenue and volume, as applicable. Based on our review of the forecasts at each interim period, any changes in estimates and the related allocation of sales incentives are recognized in the interim period as they are identified. In addition, we apply a similar allocation methodology for interim reporting purposes for other marketplace spending, which includes the costs of advertising and other marketing activities.
Income Taxes
In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate which is based on our expected annual income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Subsequent recognition, derecognition and measurement of a tax position taken in a previous period are separately recognized in the quarter in which they occur.
Our Business Risks
This Quarterly Report on Form 10-Q contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Statements that constitute forward-looking statements within the meaning of the Reform Act are generally identified through the
inclusion of words such as “believe,” “expect,” “intend,” “estimate,” “project,” “anticipate,” “will” and variations of such words and other similar expressions. All statements addressing our future operating performance, and statements addressing events and developments that we expect or anticipate will occur in the future, are forward-looking statements within the meaning of the Reform Act. These forward-looking statements are based on currently available information, operating plans and projections about future events and trends. They inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in any such forward-looking statements. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We undertake no
obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
Our operations outside of the United States generated approximately 50%40% of our net revenue in the 3612 weeks ended September 3, 2011.March 24, 2012. As a result, we are exposed to foreign currency risks, including unforeseen economic changes and political unrest. During 2011, the economic environment in Europe deteriorated and certain countries experienced debt and credit issues as well as currency fluctuations. We are identifying actions to potentially mitigate the unfavorable impact, if any, on our 2012 results. During the 12 weeks ended September 3, 2011, favorableMarch 24, 2012, unfavorable foreign currency increaseddecreased net revenue growth by 3.51 percentage points,point, primarily due to depreciation of the Mexican peso and Indian rupee, partially offset by appreciation of the euro, Mexican peso, Russian ruble and Canadian dollar. During the 36 weeks ended September 3, 2011, favorable foreign currency increased net revenue growth by nearly 3 percentage points, primarily due to appreciation of the euro, Mexican peso, Canadian dollar and Brazilian real.Chinese yuan. Currency declines against the U.S. dollar which are not offset could adversely impact our future results.
We expect to be able to reduce the impact of volatility in our raw material and energy costs through our hedging strategies and ongoing sourcing initiatives.
SeeFinancial Instrumentsin the notes to the condensed consolidated financial statements for further discussion of our derivative instruments, including their fair values as of September 3, 2011March 24, 2012 and September 4, 2010.March 19, 2011. Cautionary statements included in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 25, 2010 and in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks, included in Exhibit 99.1 to our CurrentAnnual Report on Form 8-K dated March10-K for the fiscal year ended December 31, 2011, should be considered when evaluating our trends and future results.
Results of Operations – Consolidated Review
Items Affecting Comparability
Our reported financial results are impacted by the following items in each of the following periods:
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||
9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | |||||||||||||
Operating profit | ||||||||||||||||
Mark-to-market net (losses)/gains | $ | (53 | ) | $ | 16 | $ | (31 | ) | $ | 58 | ||||||
Merger and integration charges | $ | (45 | ) | $ | (69 | ) | $ | (158 | ) | $ | (506 | ) | ||||
Inventory fair value adjustments | $ | (3 | ) | $ | (17 | ) | $ | (41 | ) | $ | (374 | ) | ||||
Venezuela currency devaluation | $ | – | $ | – | $ | – | $ | (120 | ) | |||||||
Asset write-off | $ | – | $ | – | $ | – | $ | (145 | ) | |||||||
Foundation contribution | $ | – | $ | – | $ | – | $ | (100 | ) | |||||||
Bottling equity income | ||||||||||||||||
Gain on previously held equity interests | $ | – | $ | – | $ | – | $ | 735 | ||||||||
Merger and integration charges | $ | – | $ | – | $ | – | $ | (9 | ) | |||||||
Interest expense | ||||||||||||||||
Merger and integration charges | $ | (16 | ) | $ | – | $ | (16 | ) | $ | (30 | ) | |||||
Net income attributable to PepsiCo | ||||||||||||||||
Mark-to-market net (losses)/gains | $ | (34 | ) | $ | 10 | $ | (20 | ) | $ | 36 | ||||||
Gain on previously held equity interests | $ | – | $ | – | $ | – | $ | 958 | ||||||||
Merger and integration charges | $ | (53 | ) | $ | (51 | ) | $ | (147 | ) | $ | (431 | ) | ||||
Inventory fair value adjustments | $ | (2 | ) | $ | (11 | ) | $ | (25 | ) | $ | (319 | ) | ||||
Venezuela currency devaluation | $ | – | $ | – | $ | – | $ | (120 | ) | |||||||
Asset write-off | $ | – | $ | – | $ | – | $ | (92 | ) | |||||||
Foundation contribution | $ | – | $ | – | $ | – | $ | (64 | ) | |||||||
Net income attributable to PepsiCo per common share–diluted | ||||||||||||||||
Mark-to-market net (losses)/gains | $ | (0.02 | ) | $ | 0.01 | $ | (0.01 | ) | $ | 0.02 | ||||||
Gain on previously held equity interests | $ | – | $ | – | $ | – | $ | 0.60 | ||||||||
Merger and integration charges | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.09 | ) | $ | (0.27 | ) | ||||
Inventory fair value adjustments | $ | (– | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.20 | ) | ||||
Venezuela currency devaluation | $ | – | $ | – | $ | – | $ | (0.07 | ) | |||||||
Asset write-off | $ | – | $ | – | $ | – | $ | (0.06 | ) | |||||||
Foundation contribution | $ | – | $ | – | $ | – | $ | (0.04 | ) |
12 Weeks Ended | ||||||||
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Operating profit | ||||||||
Mark-to-market net gains | $ | 84 | $ | 31 | ||||
Restructuring and impairment charges | $ | (33 | ) | $ | – | |||
Merger and integration charges | $ | (2 | ) | $ | (55 | ) | ||
Inventory fair value adjustments | $ | – | $ | (34 | ) | |||
Net income attributable to PepsiCo | ||||||||
Mark-to-market net gains | $ | 60 | $ | 19 | ||||
Restructuring and impairment charges | $ | (23 | ) | $ | – | |||
Merger and integration charges | $ | (2 | ) | $ | (49 | ) | ||
Inventory fair value adjustments | $ | – | $ | (21 | ) | |||
Net income attributable to PepsiCo per common share–diluted | ||||||||
Mark-to-market net gains | $ | 0.04 | $ | 0.01 | ||||
Restructuring and impairment charges | $ | (0.01 | ) | $ | – | |||
Merger and integration charges | $ | (– | ) | $ | (0.03 | ) | ||
Inventory fair value adjustments | $ | – | $ | (0.01 | ) |
Mark-to-Market Net Impact
We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include aluminum, fuel, natural gasmetals, energy and other raw materials.agricultural products. Certain of these commodity derivatives do not qualify for hedge accounting treatment and are marked to market with the resulting gains and losses recognized in corporate unallocated expenses. These gains and losses are subsequently reflected in division results when the divisions take delivery of the underlying commodity. Therefore, the divisions realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in corporate unallocated expenses.
For the 12 weeks ended September 3, 2011,March 24, 2012, we recognized $53$84 million ($3460 million after-tax or $0.02$0.04 per share) of mark-to-market net losses on commodity hedges in corporate unallocated expenses. For the 36 weeks ended September 3, 2011, we recognized $31 million ($20 million
after-tax or $0.01 per share) of mark-to-market net losses on commodity hedges in corporate unallocated expenses.
For the 12 weeks ended September 4, 2010, we recognized $16 million ($10 million after-tax or $0.01 per share) of market-to-market net gains on commodity hedges in corporate unallocated expenses. For the 36 weeks ended September 4, 2010, we recognized $58 million ($36 million after-tax or $0.02 per share) of market-to-market net gains on commodity hedges in corporate unallocated expenses.
GainIn the 12 weeks ended March 19, 2011, we recognized $31 million ($19 million after-tax or $0.01 per share) of mark-to-market net gains on Previously Held Equity Interestscommodity hedges in corporate unallocated expenses.
Restructuring and Impairment Charges
InFor the 12 weeks ended March 24, 2012, we incurred restructuring and impairment charges of $33 million ($23 million after-tax or $0.01 per share) in conjunction with our multi-year Productivity Plan, including $8 million recorded in the FLNA segment, $5 million recorded in the QFNA segment,
$6 million recorded in the LAF segment, $8 million recorded in the PAB segment, $9 million recorded in the AMEA segment and income of $1 million and $2 million recorded in the Europe segment and in corporate unallocated expenses, respectively, representing adjustments of previously recorded amounts. 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 beyond 2012. As a result, we expect to incur pre-tax charges of approximately $910 million, $383 million of which was reflected in our 2011 results, approximately $425 million of which will be reflected in our 2012 results and the balance of which will be reflected in our 2013, 2014 and 2015 results. These charges will be comprised of approximately $500 million of severance and other employee-related costs; approximately $325 million for other costs, including consulting-related costs and the termination of leases and other contracts; and approximately $85 million for asset impairments (all non-cash) resulting from plant closures and related actions. These charges resulted in cash expenditures of $30 million in 2011 and cash expenditures of $44 million in the first quarter of 2010,2012, and we anticipate approximately $506 million of additional related cash expenditures during the remainder of 2012, with the balance of approximately $175 million of related cash expenditures in connection2013 through 2015. We expect that the Productivity Plan will be substantially completed by the end of 2012 with our acquisitionsincremental productivity initiatives continuing through the end of PBG and PAS, we recorded a gain on our previously held equity interests of $958 million ($0.60 per share), comprising $735 million which is non-taxable and recorded in bottling equity income and $223 million related to the reversal of deferred tax liabilities associated with these previously held equity interests.2015.
Merger and Integration Charges
In the 12 weeks ended September 3,March 24, 2012, we incurred merger and integration charges of $2 million ($2 million after-tax with a nominal amount per share) related to our acquisition of WBD and recorded in the Europe segment.
In the 12 weeks ended March 19, 2011, we incurred merger and integration charges of $61$55 million ($5349 million after-tax or $0.03 per share) related to our acquisitions of PBG, PAS and WBD, including $24$21 million recorded in the PAB segment, $11 million recorded in the Europe segment, $10$42 million recorded in corporate unallocated expenses and $16 million recorded in interest expense. In the 36 weeks ended September 3, 2011, we incurred merger and integration chargesincome of $174 million ($147 million after-tax or $0.09 per share) related to our acquisitions of PBG, PAS and WBD, including $77 million recorded in the PAB segment, $17$8 million recorded in the Europe segment, $64 million recordedprimarily reflecting a gain on our previously held equity interest in corporate unallocated expenses and $16 million recorded in interest expense.WBD. These charges also include closing costs and advisory fees related to our acquisition of WBD.
In the 12 weeks ended September 4, 2010, we incurred merger and integration charges of $69 million related to our acquisitions of PBG and PAS, including $38 million recorded in the PAB segment, $15 million recorded in the Europe segment and $16 million recorded in corporate unallocated expenses. In the 36 weeks ended September 4, 2010, we incurred merger and integration charges of $536 million related to our acquisitions of PBG and PAS, including $334 million recorded in the PAB segment, $44 million recorded in the Europe segment, $128 million recorded in corporate unallocated expenses and $30 million recorded in interest expense. These charges also include closing costs, one-time financing costs and advisory fees related to our acquisitions of PBG and PAS. In addition, in the first quarter of 2010, we recorded $9 million of charges, representing our share of the respective merger costs of PBG and PAS, in bottling equity income. In total, these charges had an after-tax impact of $51 million ($0.03 per share) and $431 million ($0.27 per share) for the 12 and 36 weeks ended September 4, 2010, respectively.
Inventory Fair Value Adjustments
In the 12 and 36 weeks ended September 3,March 19, 2011, we recorded $3$34 million ($2 million after-tax with a nominal impact per share) and $41 million ($2521 million after-tax or $0.02$0.01 per share), respectively, of incremental costs in cost of sales related to fair value adjustments to the acquired inventory included in WBD’s balance sheet at the acquisition date and other related hedging contracts included in PBG’s and PAS’s balance sheets at the acquisition date.
In the 12 and 36 weeks ended September 4, 2010, we recorded $17 million ($11 million after-tax or $0.01 per share) and $374 million ($319 million after-tax or $0.20 per share), respectively, of incremental costs related to fair value adjustments to the acquired inventory and other related hedging contracts included in PBG’s and PAS’s balance sheets at the acquisition date. Substantially all of these costs were recorded in cost of sales.
Venezuela Currency Devaluation
As of the beginning of our 2010 fiscal year, we recorded a one-time $120 million net charge related to our change to hyperinflationary accounting for our Venezuelan businesses and the related devaluation of the bolivar. $129 million of this net charge was recorded in corporate unallocated expenses, with the balance (income of $9 million) recorded in our PAB segment. In total, this net charge had an after-tax impact of $120 million or $0.07 per share.
Asset Write-Off
In the first quarter of 2010, we recorded a $145 million charge ($92 million after-tax or $0.06 per share) related to a change in scope of one release in our ongoing migration to SAP software. This change was driven, in part, by a review of our North America systems strategy following our acquisitions of PBG and PAS. This change does not impact our overall commitment to continue our implementation of SAP across our global operations over the next few years.
Foundation Contribution
In the first quarter of 2010, we made a $100 million ($64 million after-tax or $0.04 per share) contribution to The PepsiCo Foundation, Inc., in order to fund charitable and social programs over the next several years. This contribution was recorded in corporate unallocated expenses.
Non-GAAP Measures
Certain measures contained in this Form 10-Q are financial measures that are adjusted for items affecting comparability (see “Items Affecting Comparability” for a detailed list and description of each of these items), as well as, in certain instances, adjusted for foreign currency. These
measures are not in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Items adjusted for currency assume foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period. In order to compute our constant currency results, we multiply or divide, as appropriate, our current year U.S. dollar results by the current year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior year average foreign exchange rates. We believe investors should consider these non-GAAP measures in evaluating our results as they are more indicative of our ongoing performance and with how management evaluates our operational results and trends. These measures are not, and should not be viewed as, a substitute for U.S. GAAP reporting measures. See also “Management Operating Cash Flow.”
Volume
Since our divisions each use different measures of physical unit volume, a common servings metric is necessary to reflect our consolidated physical unit volume. For the 12 weeks ended September 3,March 24, 2012, total servings increased 2%. For the 12 weeks ended March 19, 2011, total servings increased 4.5%9%. For2012 servings growth reflects an adjustment to the 36 weeks ended September 3,base year (2011) for divestitures that occurred in 2011, total servings increased 6%.as applicable.
We discuss volume for our beverage businesses on a bottler case sales (BCS) basis in which all beverage volume is converted to an 8-ounce-case metric. Most of our beverage volume is sold by
our company-owned and franchise-owned bottlers, and that portion is based on our bottlers’ sales to retailers and independent distributors. The remainder of our volume is based on our direct shipments to retailers and independent distributors. We report our international beverage volume on a monthly basis. Our thirdfirst quarter includes beverage volume outside of North America for June, JulyJanuary and August.February. Concentrate shipments and equivalents (CSE) represent our physical beverage volume shipments to independent bottlers, retailers and independent distributors, and is the measure upon which our revenue is based.
Consolidated Results
Total Net Revenue and Operating Profit
12 Weeks Ended | 36 Weeks Ended | 12 Weeks Ended | ||||||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | Change | 9/3/11 | 9/4/10 | Change | 3/24/12 | 3/19/11 | Change | ||||||||||||||||||||||||||||
Total net revenue | $ | 17,582 | $ | 15,514 | 13 | % | $ | 46,346 | $ | 39,683 | 17 | % | $ | 12,428 | $ | 11,937 | 4 | % | ||||||||||||||||||
Operating profit | ||||||||||||||||||||||||||||||||||||
FLNA | $ | 918 | $ | 866 | 6 | % | $ | 2,545 | $ | 2,394 | 6 | % | $ | 780 | $ | 774 | 1 | % | ||||||||||||||||||
QFNA | 177 | 167 | 6 | % | 558 | 521 | 7 | % | 187 | 214 | (12 | )% | ||||||||||||||||||||||||
LAF | 275 | 238 | 15 | % | 720 | 616 | 17 | % | 183 | 171 | 7 | % | ||||||||||||||||||||||||
PAB | 992 | 1,017 | (2.5 | )% | 2,533 | 2,042 | 24 | % | 525 | 558 | (6 | )% | ||||||||||||||||||||||||
Europe | 514 | 432 | 19 | % | 984 | 826 | 19 | % | 81 | 63 | 29 | % | ||||||||||||||||||||||||
AMEA | 285 | 235 | 21 | % | 730 | 657 | 11 | % | 148 | 146 | 2 | % | ||||||||||||||||||||||||
Corporate Unallocated | ||||||||||||||||||||||||||||||||||||
Mark-to-market net (losses)/gains | (53 | ) | 16 | n/m | (31 | ) | 58 | n/m | ||||||||||||||||||||||||||||
Mark-to-market net gains | 84 | 31 | 175 | % | ||||||||||||||||||||||||||||||||
Restructuring and impairment charges | 2 | – | n/m | |||||||||||||||||||||||||||||||||
Merger and integration charges | (10 | ) | (16 | ) | (28 | )% | (64 | ) | (128 | ) | (50 | )% | – | (42 | ) | n/m | ||||||||||||||||||||
Venezuela currency devaluation | – | – | – | – | (129 | ) | n/m | |||||||||||||||||||||||||||||
Asset write-off | – | – | – | – | (145 | ) | n/m | |||||||||||||||||||||||||||||
Foundation contribution | – | – | – | – | (100 | ) | n/m | |||||||||||||||||||||||||||||
Other | (192 | ) | (155 | ) | 24 | % | (589 | ) | (511 | ) | 15 | % | (268 | ) | (189 | ) | 42 | % | ||||||||||||||||||
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Total operating profit | $ | 2,906 | $ | 2,800 | 4 | % | $ | 7,386 | $ | 6,101 | 21 | % | $ | 1,722 | $ | 1,726 | – | % | ||||||||||||||||||
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Total operating profit margin | 16.5 | % | 18.0 | % | (1.5 | ) | 15.9 | % | 15.4 | % | 0.5 | 13.9 | % | 14.5 | % | (0.6 | ) |
n/m = not meaningful
See “Results of Operations – Division Review” for a tabular presentation and discussion of key drivers of net revenue.
12 Weeks
On a reported basis, total operating profit increased 4%was flat and operating margin decreased 1.50.6 percentage points. Operating profit performance was primarily driven by higher commodity costs, offset by the net revenue growth,
partially offset by higher commodity costs.growth. Commodity cost inflation was approximately $300 million compared to the prior year period, primarily attributable to PAB and FLNA. Items affecting comparability (see “Items Affecting Comparability”) reducedpositively contributed 6 percentage points to total operating profit growth by 1 percentage pointperformance and total operating margin by 0.1 percentage points.
36 Weeks
On a reported basis, total operating profit increased 21% and operating margin increased 0.5 percentage points. Operating profit growth was primarily driven by the net revenue growth, partially offset by higher commodity costs. Items affecting comparability (see “Items Affecting Comparability”) contributed 170.9 percentage points to the total operating profit growth and 2.5 percentage points to the total operating margin increase.margin.
Other Consolidated Results
12 Weeks Ended | 36 Weeks Ended | 12 Weeks Ended | ||||||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | Change | 9/3/11 | 9/4/10 | Change | 3/24/12 | 3/19/11 | Change | ||||||||||||||||||||||||||||
Bottling equity income | $ | – | $ | 10 | $ | (10 | ) | $ | – | $ | 728 | $ | (728 | ) | ||||||||||||||||||||||
Interest expense, net | $ | (209 | ) | $ | (151 | ) | $ | (58 | ) | $ | (551 | ) | $ | (469 | ) | $ | (82 | ) | $ | (175 | ) | $ | (163 | ) | $ | (12 | ) | |||||||||
Tax rate | 25.4 | % | 27.4 | % | 26.0 | % | 21.7 | % | 26.7 | % | 26.8 | % | ||||||||||||||||||||||||
Net income attributable to PepsiCo | $ | 2,000 | $ | 1,922 | 4 | % | $ | 5,028 | $ | 4,955 | 1.5 | % | $ | 1,127 | $ | 1,143 | (1 | )% | ||||||||||||||||||
Net income attributable to PepsiCo per common share – diluted | $ | 1.25 | $ | 1.19 | 5 | % | $ | 3.14 | $ | 3.06 | 2 | % | $ | 0.71 | $ | 0.71 | – | % | ||||||||||||||||||
Mark-to-market net losses/(gains) | 0.02 | (0.01 | ) | 0.01 | (0.02 | ) | ||||||||||||||||||||||||||||||
Gain on previously held equity interests | – | – | – | (0.60 | ) | |||||||||||||||||||||||||||||||
Mark-to-market net gains | (0.04 | ) | (0.01 | ) | ||||||||||||||||||||||||||||||||
Restructuring and impairment charges | 0.01 | – | ||||||||||||||||||||||||||||||||||
Merger and integration charges | 0.03 | 0.03 | 0.09 | 0.27 | – | 0.03 | ||||||||||||||||||||||||||||||
Inventory fair value adjustments | – | 0.01 | 0.02 | 0.20 | – | 0.01 | ||||||||||||||||||||||||||||||
Venezuela currency devaluation | – | – | – | 0.07 | ||||||||||||||||||||||||||||||||
Asset write-off | – | – | – | 0.06 | ||||||||||||||||||||||||||||||||
Foundation contribution | – | – | – | 0.04 | ||||||||||||||||||||||||||||||||
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Net income attributable to PepsiCo per common share – diluted, excluding above items* | $ | 1.31 | ** | $ | 1.22 | 7 | % | $ | 3.26 | $ | 3.08 | 6 | % | $ | 0.69 | ** | $ | 0.74 | (7 | )% | ||||||||||||||||
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* | See “Non-GAAP Measures” |
** | Does not sum due to rounding |
12 Weeks
Net interest expense increased $58$12 million, primarily reflecting higher average debt balances and losseshigher rates on international borrowings, partially offset by gains in the market value of investments used to economically hedge a portion of our deferred compensation costs, partially offset by lower average rates on our debt balances.costs.
The reported tax rate decreased 2.0%0.1% compared to the prior year, primarily reflecting current year planning initiatives, including the impactpre-payment of adjustments to previous estimatesMedicare subsidy liabilities, partially offset by income mix shift and the favorable resolution of geographic earnings mixcertain tax matters in the quarter.2011.
Net income attributable to PepsiCo increased 4%decreased 1% and net income attributable to PepsiCo per common share increased 5%.was flat. Items affecting comparability (see “Items Affecting Comparability”) decreasedincreased both net income attributable to PepsiCo and net income attributable to PepsiCo per common share by 2 percentage points.
36 Weeks
Bottling equity income decreased $728 million, primarily reflecting the gain in the prior year on our previously held equity interests in connection with our acquisitions of PBG and PAS.
Net interest expense increased $82 million, primarily reflecting higher average debt balances, partially offset by lower average rates on our debt balances.
The reported tax rate increased 4.3% compared to the prior year, primarily reflecting the prior year non-taxable gain and reversal of deferred taxes attributable to our previously held equity interests in connection with our acquisitions of PBG and PAS.
Net income attributable to PepsiCo increased 1.5% and net income attributable to PepsiCo per common share increased 2%. Items affecting comparability (see “Items Affecting Comparability”) decreased both net income attributable to PepsiCo and net income attributable to PepsiCo per common share by 37 percentage points.
Results of Operations – Division Review
The results and discussions below are based on how our Chief Executive Officer monitors the performance of our divisions. For additional information, seeOur DivisionsandMerger and Integration Chargesin the notesAccordingly, 2012 volume growth measures reflect an adjustment to the condensed consolidated financial statements andbase year (2011) for divestitures that occurred in 2011. See “Items Affecting Comparability.”Comparability” for a discussion of items to consider when evaluating our results and related information regarding non-GAAP measures.
Furthermore, in the discussions of net revenue and operating profit below, “effective net pricing” reflects the year-over-year impact of discrete pricing actions, sales incentive activities and mix resulting from selling varying products in different package sizes and in different countries, and “net pricing” reflects the year-over-year combined impact of list price changes, weight changes per package, discounts and allowances. Additionally, “acquisitions”“acquisitions and divestitures”, except as otherwise noted, reflect all mergers and acquisitions activity, including the impact of acquisitions, divestitures and changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.
Net Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12 Weeks Ended | FLNA | QFNA | LAF | PAB | Europe | AMEA | Total | FLNA | QFNA | LAF | PAB | Europe | AMEA | Total | ||||||||||||||||||||||||||||||||||||||||||
September 3, 2011 | $ | 3,173 | $ | 614 | $ | 1,841 | $ | 5,947 | $ | 3,909 | $ | 2,098 | $ | 17,582 | ||||||||||||||||||||||||||||||||||||||||||
September 4, 2010 | $ | 3,050 | $ | 601 | $ | 1,542 | $ | 5,792 | $ | 2,848 | $ | 1,681 | $ | 15,514 | ||||||||||||||||||||||||||||||||||||||||||
March 24, 2012 | $ | 3,010 | $ | 623 | $ | 1,235 | $ | 4,448 | $ | 1,845 | $ | 1,267 | $ | 12,428 | ||||||||||||||||||||||||||||||||||||||||||
March 19, 2011 | $ | 2,904 | $ | 640 | $ | 1,108 | $ | 4,531 | $ | 1,626 | $ | 1,128 | $ | 11,937 | ||||||||||||||||||||||||||||||||||||||||||
% Impact of: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Volume(a) | (1 | )% | (4.5 | )% | 3.5 | % | – | % | (1 | )% | 11 | % | 1 | % | (2 | )% | (5 | )% | 4.5 | % | (2 | )% | (0.5 | )% | 5 | % | (1 | )% | ||||||||||||||||||||||||||||
Effective net pricing(b) | 4 | 6 | 8 | 2 | 4 | 9 | 4 | 6 | 3 | 11 | 4 | 5 | 7 | 5.5 | ||||||||||||||||||||||||||||||||||||||||||
Foreign exchange | 1 | 1 | 8 | 1 | 9 | 5 | 3.5 | – | – | (6 | ) | – | (4 | ) | – | (1 | ) | |||||||||||||||||||||||||||||||||||||||
Acquisitions | – | – | – | – | 26 | – | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions and divestitures | – | – | 1 | (3 | ) | 13 | – | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||
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% Change(c) | 4 | % | 2 | % | 19 | % | 3 | % | 37 | % | 25 | % | 13 | % | 4 | % | (3 | )% | 11 | % | (2 | )% | 13 | % | 12 | % | 4 | % | ||||||||||||||||||||||||||||
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Net Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
36 Weeks Ended | FLNA | QFNA | LAF | PAB | Europe | AMEA | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
September 3, 2011 | $ | 9,167 | $ | 1,837 | $ | 4,757 | $ | 16,107 | $ | 9,329 | $ | 5,149 | $ | 46,346 | ||||||||||||||||||||||||||||||||||||||||||
September 4, 2010 | $ | 8,906 | $ | 1,866 | $ | 4,063 | $ | 14,105 | $ | 6,390 | $ | 4,353 | $ | 39,683 | ||||||||||||||||||||||||||||||||||||||||||
% Impact of: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Volume(a) | – | % | (5 | )% | 4 | % | * | * | 10 | % | * | |||||||||||||||||||||||||||||||||||||||||||||
Effective net pricing(b) | 2 | 3 | 7 | * | * | 5 | * | |||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange | 0.5 | 1 | 7 | 1 | 6 | 3 | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | – | – | – | * | * | – | * | |||||||||||||||||||||||||||||||||||||||||||||||||
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% Change(c) | 3 | % | (2 | )% | 17 | % | 14 | % | 46 | % | 18 | % | 17 | % | ||||||||||||||||||||||||||||||||||||||||||
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(a) | Excludes the impact of |
(b) | Includes the year-over-year impact of discrete pricing actions, sales incentive activities and mix resulting from selling varying products in different package sizes and in different countries. |
(c) | Amounts may not sum due to rounding. |
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Frito-Lay North America
12 Weeks Ended | % | 36 Weeks Ended | % | 12 Weeks Ended | % | |||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | Change | 9/3/11 | 9/4/10 | Change | 3/24/12 | 3/19/11 | Change | ||||||||||||||||||||||||||||
Net revenue | $ | 3,173 | $ | 3,050 | 4 | $ | 9,167 | $ | 8,906 | 3 | $ | 3,010 | $ | 2,904 | 4 | |||||||||||||||||||||
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Impact of foreign currency translation | (1 | ) | (0.5 | ) | – | |||||||||||||||||||||||||||||||
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Net revenue growth, on a constant currency basis* | 3 | 2 | ** | |||||||||||||||||||||||||||||||||
Net revenue growth, on a constant currency basis* | 4 | |||||||||||||||||||||||||||||||||||
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Operating profit | $ | 918 | $ | 866 | 6 | $ | 2,545 | $ | 2,394 | 6 | $ | 780 | $ | 774 | 1 | |||||||||||||||||||||
Restructuring and impairment charges | 8 | – | ||||||||||||||||||||||||||||||||||
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Operating profit excluding above item | $ | 788 | $ | 774 | 2 | |||||||||||||||||||||||||||||||
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Impact of foreign currency translation | (1 | ) | (0.5 | ) | – | |||||||||||||||||||||||||||||||
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Operating profit growth, on a constant currency basis* | 5.5 | ** | 6 | ** | ||||||||||||||||||||||||||||||||
Operating profit growth excluding above item, on a constant currency basis* | 2 | |||||||||||||||||||||||||||||||||||
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* | See “Non-GAAP Measures” |
Net revenue increased 4% and pound volume declined 2%. The volume decline primarily reflects high-single-digit declines in trademark Lay’s and dips, partially offset by double-digit growth in variety packs. Volume performance was negatively impacted by approximately 2 percentage points due to the extra week of results in 2011, which caused the key pre-New Year’s holiday week to be included in the fourth quarter of 2011 rather than in the first quarter of 2012. Net revenue growth was driven by effective net pricing, which more than offset the volume declines.
Operating profit grew 1%, reflecting the net revenue growth, partially offset by higher commodity costs, primarily cooking oil. Restructuring and impairment charges reduced operating profit growth by 1 percentage point.
Quaker Foods North America
12 Weeks Ended | % | |||||||||||
3/24/12 | 3/19/11 | Change | ||||||||||
Net revenue | $ | 623 | $ | 640 | (3 | ) | ||||||
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Impact of foreign currency translation | – | |||||||||||
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Net revenue growth, on a constant currency basis* | (2 | )** | ||||||||||
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Operating profit | $ | 187 | $ | 214 | (12 | ) | ||||||
Restructuring and impairment charges | 5 | – | ||||||||||
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Operating profit excluding above item | $ | 192 | $ | 214 | (10 | ) | ||||||
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Impact of foreign currency translation | – | |||||||||||
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Operating profit growth excluding above item, on a constant currency basis* | (10 | ) | ||||||||||
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* | See “Non-GAAP Measures” |
** | Does not sum due to rounding |
12 Weeks
Net revenue increased 4%declined 3% and pound volume grew 1%declined 5%. The volume increasedecline primarily reflects high single-digit declines in Oatmeal and ready-to-eat cereals and double-digit growthdeclines in our Sabra joint venture,Chewy granola bars, partially offset by a high-single-digit declinemid-single-digit increase in dips.grits. Net revenue growth alsoperformance benefited from effectivepositive net pricing.
Operating profit declined 12%, reflecting higher commodity costs. Additionally, the benefit from a change in accounting methodology for inventory recorded in the prior year contributed 7 percentage points to the operating profit decline. Restructuring charges negatively impacted operating profit performance by 2 percentage points.
Latin America Foods
12 Weeks Ended | % | |||||||||||
3/24/12 | 3/19/11 | Change | ||||||||||
Net revenue | $ | 1,235 | $ | 1,108 | 11 | |||||||
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Impact of foreign currency translation | 6 | |||||||||||
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Net revenue growth, on a constant currency basis* | 17 | |||||||||||
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Operating profit | $ | 183 | $ | 171 | 7 | |||||||
Restructuring and impairment charges | 6 | – | ||||||||||
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Operating profit excluding above item | $ | 189 | $ | 171 | 10 | |||||||
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Impact of foreign currency translation | 8 | |||||||||||
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Operating profit growth excluding above item, on a constant currency basis* | 18 | |||||||||||
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* | See “Non-GAAP Measures” |
Volume grew 6%15%, primarily reflecting acquisitions in Brazil and Argentina in the fourth quarter of 2011, which contributed 10 percentage points to the volume growth. Additionally, Mexico grew at a mid-single-digit rate and Brazil grew at a low-single-digit rate (excluding the impact of the acquisition).
Net revenue increased 11%, primarily reflecting favorable effective net pricing and the volume growth. Unfavorable foreign currency reduced net revenue growth by 6 percentage points. Acquisitions and divestitures contributed over 1 percentage point to the net revenue growth.
Operating profit increased 7%, primarily reflecting the net revenue growth, partially offset by higher commodity costs.
36 Weeks
Net revenue increased 3% Unfavorable foreign currency reduced operating profit growth by 8 percentage points and pound volume grew 1%. Poundacquisitions and divestitures reduced operating profit growth primarily reflects double-digitby 5 percentage points. Restructuring and impairment charges reduced operating profit growth in our Sabra joint venture and high-single-digit growth in variety packs, partially offset by a mid-single-digit decline in dips. Net revenue growth also benefited from effective net pricing.
Operating profit grew 6%, primarily reflecting the net revenue growth.3 percentage points.
Quaker Foods North AmericaPepsiCo Americas Beverages
12 Weeks Ended | % | 36 Weeks Ended | % | 12 Weeks Ended | % | |||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | Change | 9/3/11 | 9/4/10 | Change | 3/24/12 | 3/19/11 | Change | ||||||||||||||||||||||||||||
Net revenue | $ | 614 | $ | 601 | 2 | $ | 1,837 | $ | 1,866 | (2 | ) | $ | 4,448 | $ | 4,531 | (2 | ) | |||||||||||||||||||
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Impact of foreign currency translation | (1 | ) | (1 | ) | – | |||||||||||||||||||||||||||||||
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Net revenue growth, on a constant currency basis* | 1 | (2 | )** | (2 | ) | |||||||||||||||||||||||||||||||
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Operating profit | $ | 177 | $ | 167 | 6 | $ | 558 | $ | 521 | 7 | $ | 525 | $ | 558 | (6 | ) | ||||||||||||||||||||
Restructuring and impairment charges | 8 | – | ||||||||||||||||||||||||||||||||||
Merger and integration charges | – | 21 | ||||||||||||||||||||||||||||||||||
Inventory fair value adjustments | – | 9 | ||||||||||||||||||||||||||||||||||
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Operating profit excluding above items* | $ | 533 | $ | 588 | (9 | ) | ||||||||||||||||||||||||||||||
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Impact of foreign currency translation | (1 | ) | (1 | ) | 1 | |||||||||||||||||||||||||||||||
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Operating profit growth, on a constant currency basis* | 5 | 6 | ||||||||||||||||||||||||||||||||||
Operating profit growth excluding above items, on a constant currency basis* | (9 | )** | ||||||||||||||||||||||||||||||||||
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* | See “Non-GAAP Measures” |
** | Does not sum due to rounding |
12 WeeksVolume decreased 1%, primarily reflecting North America volume declines of 2.5%, partially offset by a 3.5% increase in Latin America volume. North America volume declines were driven by a 4% decline in CSD volume, while non-carbonated beverage volume was unchanged. Latin America volume growth primarily reflected a double-digit increase in Mexico and a high-single-digit increase in Argentina, partially offset by a double-digit decline in Venezuela.
Net revenue increaseddecreased 2% and volume declined 4.5%. The volume decline, primarily reflects double-digit declines in ready-to-eat cereals and Chewy granola bars. The impactreflecting the divestiture of positive net pricing, driven primarily by price increases takenour Mexico beverage business in the fourth quarter of 2010, was partially2011, which contributed 4 percentage points to the net revenue decline. Additionally, volume declines were more than offset by negative mix. Favorable foreign currency contributed 1 percentage point tofavorable effective net revenue growth.pricing.
OperatingReported operating profit grewdecreased 6%, primarily reflecting the net revenue growth,higher commodity costs, partially offset by higher commodity costs. Favorable foreign currency contributed 1 percentage point to operating profit growth.
36 Weeks
Net revenue declined 2% and volume declined 5%. The volume decline primarily reflects double-digit declines in ready-to-eat cereals and Chewy granola bars, as well as mid-single-digit declines in Aunt Jemima syrup and mix. The impact of positive net pricing, driven primarily by price increases taken in the fourth quarter of 2010, was partially offset by negative mix. Favorable foreign currency positively contributed 1 percentage point to the net revenue performance.
Operating profit grew 7%, reflecting the favorable effective net pricing and lower sellinggeneral and distributionadministrative costs. Additionally, a changeExcluding the items affecting comparability in accounting methodology for inventory contributed 3 percentage points to the above table (see “Items Affecting Comparability”), operating profit growth (seeBasisdecreased 9%. The divestiture of Presentation in the notes to the condensed consolidated financial statements). Favorable foreign currency contributedour Mexico beverage business increased reported operating profit by nearly 1 percentage point to operating profit growth.point.
Latin America FoodsEurope
12 Weeks Ended | % | 36 Weeks Ended | % | 12 Weeks Ended | % | |||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | Change | 9/3/11 | 9/4/10 | Change | 3/24/12 | 3/19/11 | Change | ||||||||||||||||||||||||||||
Net revenue | $ | 1,841 | $ | 1,542 | 19 | $ | 4,757 | $ | 4,063 | 17 | $ | 1,845 | $ | 1,626 | 13 | |||||||||||||||||||||
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Impact of foreign currency translation | (8 | ) | (7 | ) | 4 | |||||||||||||||||||||||||||||||
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Net revenue growth, on a constant currency basis* | 12 | ** | 10 | 18 | ** | |||||||||||||||||||||||||||||||
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Operating profit | $ | 275 | $ | 238 | 15 | $ | 720 | $ | 616 | 17 | $ | 81 | $ | 63 | 29 | |||||||||||||||||||||
Restructuring and impairment charges | (1 | ) | – | |||||||||||||||||||||||||||||||||
Merger and integration charges | 2 | (8 | ) | |||||||||||||||||||||||||||||||||
Inventory fair value adjustments | – | 25 | ||||||||||||||||||||||||||||||||||
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Operating profit excluding above items* | $ | 82 | $ | 80 | 2.5 | |||||||||||||||||||||||||||||||
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Impact of foreign currency translation | (7 | ) | (6 | ) | 2 | |||||||||||||||||||||||||||||||
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Operating profit growth, on a constant currency basis* | 8 | 11 | ||||||||||||||||||||||||||||||||||
Operating profit growth excluding above items, on a constant currency basis* | 4 | ** | ||||||||||||||||||||||||||||||||||
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* | See “Non-GAAP Measures” |
** | Does not sum due to rounding |
12 Weeks
VolumeSnacks volume grew 3.5%17%, primarily reflecting high-single-digitour acquisition of WBD, which contributed 15 percentage points to volume growth in Brazil. Additionally, Gamesa in Mexicoand grew at a high-single-digit rate for the comparable post-acquisition period in February. Mid-single-digit increases in the United Kingdom and South Africa were partially offset by low-single-digit declines in Turkey and the Netherlands.
Beverage volume increased 10%, primarily reflecting our acquisition of WBD, which contributed 11 percentage points to volume growth and grew at a high-single-digit rate for the comparable post-acquisition period in February. A double-digit decrease in Russia (ex-WBD) and Sabritasa high-single-digit decrease in Mexico grew slightly.Turkey were partially offset by a double-digit increase in the United Kingdom and a mid-single-digit increase in Germany.
Net revenue increased 19%grew 13%, primarily reflecting our acquisition of WBD and favorable effective net pricing and the volume growth. Favorablepricing. Unfavorable foreign currency contributed 8 percentage points toreduced net revenue growth.growth by 4 percentage points.
OperatingReported operating profit increased 15%29%, primarily reflecting the net revenue growth and lower advertising and marketing expenses, partially offset by higher commodity costs. Favorable foreign currency contributed 7 percentage points to operating profit growth.
36 Weeks
Volume grew 4%, primarily reflecting mid-single-digit growth in Brazil. Additionally, Gamesa and Sabritas in Mexico each grew at a low-single-digit rate.
Net revenue increased 17%, primarily reflecting favorable effective net pricing and the volume growth. Favorable foreign currency contributed 7 percentage points to net revenue growth.
Operating profit increased 17%, primarily reflecting the net revenue growth, partially offset by higher selling and distribution costs and higher commodity costs. Additionally, an unfavorable legal settlement in the prior year increased operating profit growth by 2 percentage points. Favorable foreign currency contributed 6 percentage points to operating profit growth.
PepsiCo Americas Beverages
12 Weeks Ended | % | 36 Weeks Ended | % | |||||||||||||||||||||
9/3/11 | 9/4/10 | Change | 9/3/11 | 9/4/10 | Change | |||||||||||||||||||
Net revenue | $ | 5,947 | $ | 5,792 | 3 | $ | 16,107 | $ | 14,105 | 14 | ||||||||||||||
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Impact of foreign currency translation | (1 | ) | (1 | ) | ||||||||||||||||||||
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Net revenue growth, on a constant currency basis* | 1.5 | ** | 13 | |||||||||||||||||||||
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Operating profit | $ | 992 | $ | 1,017 | (2.5 | ) | $ | 2,533 | $ | 2,042 | 24 | |||||||||||||
Merger and integration charges | 24 | 38 | 77 | 334 | ||||||||||||||||||||
Inventory fair value adjustments | 3 | 17 | 16 | 334 | ||||||||||||||||||||
Venezuela currency devaluation | – | – | – | (9 | ) | |||||||||||||||||||
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Operating profit excluding above items* | $ | 1,019 | $ | 1,072 | (5 | ) | $ | 2,626 | $ | 2,701 | (3 | ) | ||||||||||||
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Impact of foreign currency translation | (1 | ) | (1 | ) | ||||||||||||||||||||
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Operating profit growth excluding above items, on a constant currency basis* | (6 | ) | (4 | ) | ||||||||||||||||||||
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12 Weeks
Volume increased slightly, primarily reflecting a 2.5% volume increase in Latin America, partially offset by a 1% volume decline in North America. The volume decline in North America was driven by a 5% decline in CSD volume, partially offset by a 5% increase in non-carbonated beverage volume. The non-carbonated beverage volume growth primarily reflected a high-single-digit increase in Gatorade sports drinks and a double-digit increase in our base Aquafina water business.
Net revenue increased 3%, primarily driven by effective net pricing. Favorable foreign currency contributed 1 percentage point to net revenue growth.
Reported operating profit decreased 2.5%, mainly driven by higher commodity costs and higher selling and distribution costs, partially offset by the net revenue growth. Additionally,Excluding the items affecting comparability in the above table (see “Items Affecting Comparability”) favorably impacted the reported operating profit performance. Excluding the items affecting comparability, operating profit decreased 5%. Favorable foreign currency positively contributed 1 percentage point to the operating profit performance.
36 Weeks
Volume increased 3%, primarily reflecting volume from incremental brands related to our acquisition of PBG’s operations in Mexico, as well as incremental volume related to our DPSG manufacturing and distribution agreement, each of which contributed 1 percentage point to volume growth. North America volumes, excluding the impact of the incremental DPSG volume, decreased slightly, as a 3.5% decline in CSD volume was partially offset by a 4.5% increase in non-carbonated beverage volume. The non-carbonated beverage volume growth primarily reflected a double-digit increase in Gatorade sports drinks and high-single-digit growth in our base Aquafina water business.
Net revenue increased 14%, primarily reflecting the incremental finished goods revenue related to our acquisitions of PBG and PAS. Favorable foreign currency contributed 1 percentage point to net revenue growth.
Reported operating profit increased 24%, primarily reflecting the items affecting comparability in the above table (see “Items Affecting Comparability”)2.5%. Excluding these items, operating profit decreased 3%, mainly driven by higher commodity costs and higher selling and distribution costs, partially offset by the net revenue growth. Operating profit performance also benefited from the impact of more-favorablewas negatively impacted by unfavorable settlements of promotional spending accruals in the current year and certain insurance adjustments incompared to the second quarter,prior year, which collectivelydecreased reported operating profit growth by 15 percentage points. Acquisitions contributed 27 percentage points to the reported operating profit growth.
Europe
12 Weeks Ended | % | 36 Weeks Ended | % | |||||||||||||||||||||
9/3/11 | 9/4/10 | Change | 9/3/11 | 9/4/10 | Change | |||||||||||||||||||
Net revenue | $ | 3,909 | $ | 2,848 | 37 | $ | 9,329 | $ | 6,390 | 46 | ||||||||||||||
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Impact of foreign currency translation | (9 | ) | (6 | ) | ||||||||||||||||||||
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Net revenue growth, on a constant currency basis* | 28 | 40 | ||||||||||||||||||||||
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Operating profit | $ | 514 | $ | 432 | 19 | $ | 984 | $ | 826 | 19 | ||||||||||||||
Merger and integration charges | 11 | 15 | 17 | 44 | ||||||||||||||||||||
Inventory fair value adjustments | – | – | 25 | 40 | ||||||||||||||||||||
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Operating profit excluding above items* | $ | 525 | $ | 447 | 17 | $ | 1,026 | $ | 910 | 13 | ||||||||||||||
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Impact of foreign currency translation | (8 | ) | (6 | ) | ||||||||||||||||||||
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Operating profit growth excluding above items, on a constant currency basis* | 9 | 7 | ||||||||||||||||||||||
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12 Weeks
Snacks volume grew 35%, primarily reflecting our acquisition of WBD, which contributed 30 percentage points to volume growth. Double-digit increases in Turkey and France and a high-single-digit increase in Russia (ex-WBD) weregrowth, partially offset by a high-single-digit decline in Spain and a low-single-digit decrease in the Netherlands. Additionally, Walkers in the United Kingdom experienced low-single-digit growth.
Beverage volume increased 13%, primarily reflecting our acquisition of WBD, which contributed 17 percentage points to volume growth. A double-digit decrease in Russia (ex-WBD) was partially offset by double-digit gains in Turkey. Additionally, the United Kingdom grew in the low-single-digit range.
Net revenue grew 37%, primarily reflecting our acquisition of WBD, which contributed 26 percentage points to net revenue growth. Net revenue also benefited from effective net pricing in the quarter. Favorableunfavorable foreign currency, contributed 9 percentage points to net revenue growth.
Reported operating profit increased 19%, primarily reflecting the favorable effective net pricing and lower advertising and marketing expenses, offset by higher commodity costs and selling and distribution costs. Additionally, the accelerated timing of concentrate shipments into the second quarter in connection with our global SAP implementationwhich reduced operating profit growth by nearly 42 percentage points. Our acquisition of WBD contributed 13 percentage points to the reported operating profit growth and reflected net charges of $4 million included in items affecting
comparability in the above table (see “Items Affecting Comparability”). Excluding the items affecting comparability in the above table, operating profit increased 17%. Favorable foreign currency contributed 8 percentage points to operating profit growth.
36 Weeks
Snacks volume grew 35%, primarily reflecting our acquisition of WBD, which contributed 30 percentage points to volume growth. Double-digit growth in Turkey, South Africa and Russia (ex-WBD) was partially offset by a mid-single-digit decline in Spain. Additionally, Walkers in the United Kingdom experienced low-single-digit growth.
Beverage volume increased 21%, primarily reflecting our acquisition of WBD, which contributed 19 percentage points to volume growth, and incremental brands related to our acquisitions of PBG and PAS, which contributed 1 percentage point to volume growth. A double-digit increase in Turkey, mid-single-digit growth in Germany and a low-single-digit increase in the United Kingdom were offset by a high-single-digit decline in Russia (ex-WBD).
Net revenue grew 46%, primarily reflecting our acquisition of WBD, which contributed 28 percentage points to net revenue growth, and the incremental finished goods revenue related to our acquisitions of PBG and PAS. Favorable foreign currency contributed 6 percentage points to net revenue growth.
Reported operating profit increased 19%, primarily reflecting the net revenue growth, offset by higher commodity costs. The impact of more-favorable settlements of promotional spending accruals in the current year contributed 2.5 percentage points to operating profit growth. Our acquisition of WBD contributed 13 percentage points to the reported operating profit growth and reflected net charges of $19 million included in items affecting comparability in the above table (see “Items Affecting Comparability”). Excluding the items affecting comparability in the above table, operating profit increased 13%. Favorable foreign currency contributed 6 percentage points to operating profit growth.
Asia, Middle East & Africa
12 Weeks Ended | % | 36 Weeks Ended | % | 12 Weeks Ended | % | |||||||||||||||||||||||||||||||
9/3/11 | 9/4/10 | Change | 9/3/11 | 9/4/10 | Change | 3/24/12 | 3/19/11 | Change | ||||||||||||||||||||||||||||
Net revenue | $ | 2,098 | $ | 1,681 | 25 | $ | 5,149 | $ | 4,353 | 18 | $ | 1,267 | $ | 1,128 | 12 | |||||||||||||||||||||
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Impact of foreign currency translation | (5 | ) | (3 | ) | – | |||||||||||||||||||||||||||||||
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Net revenue growth, on a constant currency basis* | 20 | 15 | 12 | |||||||||||||||||||||||||||||||||
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Operating profit | $ | 285 | $ | 235 | 21 | $ | 730 | $ | 657 | 11 | $ | 148 | $ | 146 | 2 | |||||||||||||||||||||
Restructuring and impairment charges | 9 | – | ||||||||||||||||||||||||||||||||||
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Operating profit excluding above item | $ | 157 | $ | 146 | 7 | |||||||||||||||||||||||||||||||
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Impact of foreign currency translation | (4 | ) | (3 | ) | (1 | ) | ||||||||||||||||||||||||||||||
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Operating profit growth, on a constant currency basis* | 18 | ** | 8 | |||||||||||||||||||||||||||||||||
Operating profit growth excluding above item, on a constant currency basis* | 6 | |||||||||||||||||||||||||||||||||||
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* | See “Non-GAAP Measures” |
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12 Weeks
Snacks volume grew 16%, reflecting broad-based increases driven by double-digit growth in India, China and the Middle East.East, Australia and India. Additionally, AustraliaChina grew at a low-single-digit rate.
Beverage volume grew 6%, driven by double-digit growth in India and high-single-digit growth in the Middle East. Additionally, China grew at a low-single-digit rate. Acquisitions had a nominal impact on beverage volume growth.
Net revenue grew 25%, reflecting the volume growth and favorable effective net pricing. Additionally, the accelerated timing of concentrate shipments into the second quarter in connection with our global SAP implementation reduced net revenue growth by almost 2 percentage points. Foreign currency contributed nearly 5 percentage points to net revenue growth.
Operating profit grew 21%, reflecting the net revenue growth, partially offset by higher commodity costs, as well as the accelerated concentrate shipments, which reduced operating profit growth by 9 percentage points. Favorable foreign currency contributed 4 percentage points to operating profit growth and acquisitions reduced operating profit growth by nearly 1 percentage point.
36 Weeks
Snacks volume grew 14%2%, reflecting broad-based increases driven by double-digit growth in India, China and the Middle East and India, partially offset by a low-single-digitan 11% decline in Australia.
Beverage volume grew 6%, driven by double-digit growth in India and mid-single-digit growth in China, primarily due to the timing of the New Year’s holiday and the Middle East.impact of the introduction of a 500 ml PET value package in the third quarter of 2011, which largely replaced our 600 ml offering in that market. Acquisitions had a nominal impact on the beverage volume growth.growth rate.
Net revenue grew 18%12%, reflecting the volume growth and favorable effective net pricing. Foreign currency contributed 3 percentage points to net revenue growth. Acquisitions had a nominal
impact on net revenuepricing and the volume growth.
Operating profit grew 11%2%, driven primarily reflectingby the net revenue growth, partially offset by higher commodity costs. Favorable foreign currency contributed 3 percentage points to operating profit growth and acquisitionsRestructuring charges reduced operating profit growth by nearly 6 percentage points. Favorable foreign currency increased operating profit growth by 1 percentage point.point and acquisitions and divestitures reduced operating profit growth by 0.5 percentage points.
Our Liquidity and Capital Resources
We believe that our cash generating capability and financial condition, together with our revolving credit facilities and other available methods of debt financing (including long-term debt financing which, depending upon market conditions, we may use to replace a portion of our commercial paper borrowings), will be adequate to meet our operating, investing and financing needs. Sources of cash available to us to fund cash outflows, such as our anticipated share repurchases and dividend payments, include cash from operations and proceeds obtained in the U.S. debt markets. However, there can be no assurance that volatility in the global capital and credit markets will not impair our ability to access these markets on terms commercially acceptable to us or at all.
As of March 24, 2012, we had cash, cash equivalents and short-term investments of $2.9 billion outside the U.S. In addition, currency restrictions enacted by the government in Venezuela have impacted our ability to pay dividends outside of the country from our snack and beverage operations in Venezuela. As of September 3, 2011,March 24, 2012, our operations in Venezuela comprised 10%held 11% of our cash and cash equivalents balance. To the extent foreign earnings are repatriated, such amounts would be subject to income tax liabilities, both in the U.S. and in the various applicable foreign tax jurisdictions.
Operating Activities
During the 3612 weeks in 2011,2012, net cash provided byused for operating activities was $5.8 billion,$690 million, compared to net cash provided of $5.8 billion$380 million in the prior year period. The operating cash flow performance primarily reflects unfavorable working capital comparisons to the prior year, offset by the overlap of discretionary pension and post-retirement contributions of $1.2$1.0 billion in the priorcurrent year.
Investing Activities
During the 3612 weeks in 2011,2012, net cash used for investing activities was $4.7 billion,$257 million, primarily reflecting $2.4 billion of cash paid, net of cash and cash equivalents acquired, in connection with our acquisition of WBD and $1.9 billion$299 million for net capital spending.
Financing Activities
During the 3612 weeks in 2011,2012, net cash used forprovided by financing activities was $4.1$283 million, primarily reflecting net proceeds from long-term debt of $2.7 billion primarily reflectingand stock option proceeds of $274 million, partially offset by net payments of short-term borrowings of $1.8 billion and the return of operating cash flow to our shareholders through share repurchases and dividend payments of $4.3 billion, our purchase of an additional $1.3 billion of WBD ordinary shares (including shares underlying ADSs) and our repurchase of certain WBD debt obligations of $0.8 billion, partially offset by net proceeds from long-term debt of $1.4 billion and stock option proceeds of $0.7 billion.$958 million. We anticipate dividends and share repurchases of approximately $2.5more than $6 billion in 2011.2012.
Management Operating Cash Flow
We focus on management operating cash flow as a key element in achieving maximum shareholder value, and it is the primary measure we use to monitor cash flow performance. However, it is not a measure provided by accounting principles generally accepted in the U.S. Therefore, this measure is not, and should not be viewed as, a substitute for U.S. GAAP cash flow measures. Since net capital spending is essential to our product innovation initiatives and maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash.
As such, we believe investors should also consider net capital spending when evaluating our cash from operating activities. Additionally, we consider certain items (included in the table below), in evaluating management operating cash flow. We believe investors should consider these items in evaluating our management operating cash flow results.
The table below reconciles net cash provided by operating activities, as reflected in our cash flow statement, to our management operating cash flow excluding the impact of the items below.
36 Weeks Ended | 12 Weeks Ended | |||||||||||||||
9/3/11 | 9/4/10 | 3/24/12 | 3/19/11 | |||||||||||||
Net cash provided by operating activities | $ | 5,834 | $ | 5,788 | ||||||||||||
Net cash (used for)/provided by operating activities | $ | (690 | ) | $ | 380 | |||||||||||
Capital spending | (1,962 | ) | (1,670 | ) | (316 | ) | (433 | ) | ||||||||
Sales of property, plant and equipment | 46 | 55 | 17 | 12 | ||||||||||||
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Management operating cash flow | 3,918 | 4,173 | (989 | ) | (41 | ) | ||||||||||
Discretionary pension contribution (after-tax) | – | 768 | ||||||||||||||
Payments related to 2009 restructuring charges (after-tax) | 1 | 29 | ||||||||||||||
Discretionary pension and retiree medical contributions | 1,000 | – | ||||||||||||||
Payments related to restructuring charges | 44 | 1 | ||||||||||||||
Merger and integration payments (after-tax) | 223 | 233 | 20 | 97 | ||||||||||||
Foundation contribution (after-tax) | – | 64 | ||||||||||||||
Capital investments related to the PBG/PAS integration | 91 | 33 | 4 | 21 | ||||||||||||
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Management operating cash flow excluding above items | $ | 4,233 | $ | 5,300 | $ | 79 | $ | 78 | ||||||||
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We expect to continue to return management operating cash flow to our shareholders through dividends and share repurchases while maintaining short-term credit ratings that ensure appropriate financial flexibility andprovide us with ready access to global and capital credit markets at favorable interest rates.markets. However, see Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 25, 2010 and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks, included in our CurrentAnnual Report on Form 8-K dated March10-K for the fiscal year ended December 31, 2011, for certain factors that may impact our operating cash flows.
Any downgrade of our credit ratings by a credit rating agency, especially any downgrade to below investment grade, could increase our future borrowing costs or impair our ability to access capital and credit markets on terms commercially acceptable to us, or at all. In addition, any downgrade of our current short-term credit ratings could impair our ability to access the commercial paper market with the same flexibility that we have experienced historically, and therefore require us to rely more heavily on more expensive types of debt financing. See Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 andDebt Obligations and Commitments in the notes to the condensed consolidated financial statements.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
PepsiCo, Inc.:
We have reviewed the accompanying Condensed Consolidated Balance Sheet of PepsiCo, Inc. and Subsidiaries as of September 3, 2011,March 24, 2012, and the related Condensed Consolidated Statements of Income, and Comprehensive Income, for the twelve and thirty-six weeks ended September 3, 2011 and September 4, 2010, and the Condensed Consolidated Statements of Cash Flows and Equity for the thirty-sixtwelve weeks ended September 3, 2011March 24, 2012 and September 4, 2010.March 19, 2011. These interim condensed consolidated financial statements are the responsibility of PepsiCo, Inc.’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheet of PepsiCo, Inc. and Subsidiaries as of December 25, 2010,31, 2011, and the related Consolidated Statements of Income, Cash Flows and Equity for the fiscal year then ended not presented herein; and in our report dated February 18, 2011, except for notes 1, 3 and 4, which are as of March 31, 2011,27, 2012 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying Condensed Consolidated Balance Sheet as of December 25, 2010,31, 2011, is fairly stated, in all material respects, in relation to the Consolidated Balance Sheet from which it has been derived.
/s/ KPMG LLP |
New York, New York |
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks” andFinancial Instruments in the notes to the condensed consolidated financial statements. In addition, see Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 25, 2010 and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks included in Exhibit 99.1 to our CurrentAnnual Report on Form 8-K dated March 31, 2011, as updated by Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks in our Quarterly Reports on Form 10-Q10-K for the quartersfiscal year ended March 19, 2011 and June 11,December 31, 2011.
ITEM 4. Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
During our thirdfirst fiscal quarter of 2011,2012, we continued migrating certain of our financial processing systems to an enterprise-wide systems solution. These systems implementations are part of our ongoing global business transformation initiative, and we plan to continue implementing such systems throughout other parts of our businesses over the course of the next few years. Moreover, we continue to integrate our WBD business, which was acquired in 2011. In connection with these implementations and integration, and resulting business process changes, we continue to enhance the design and documentation of our internal control over financial reporting processes to ensuremaintain suitable controls over our financial reporting.
Except as described above, there were no changes in our internal control over financial reporting during our thirdfirst fiscal quarter of 20112012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
The following information supplements and amends the discussion set forth under Part I, Item 3 “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2010, as updated by our Quarterly Reports on Form 10-Q for the quarters ended March 19, 2011 and June 11, 2011.
On July 22, 2011, the Harbin Environmental Protection Bureau issued an environmental protection decision to one of our subsidiaries, Harbin Pepsi-Cola Beverages Company Limited, imposing fines of approximately $200,000 in connection with violations of applicable water pollution prevention and control regulations pertaining to one of the wastewater treatment facilities at its plant. The wastewater treatment facilities at this plant were designed and operated by a third-party contractor. During the third quarter, our subsidiary paid this fine and took actions to remediate the violations.
In September 2010, Rosprirodnadzor (the Russian Environmental Compliance Body) identified certain violations connected to the discharge of packaging and other waste in excess of permitted limits and without valid permits at the Kashira plant of our subsidiary, Frito-Lay Manufacturing OOO (“FLM”) for the period from 2008 to 2010. FLM appealed this decision and on September 29, 2011 the decision was upheld. As a result, Rosprirodnadzor can now bring a civil claim against FLM which may be required to pay damages of approximately $300,000 in connection with this matter.
In addition, weWe and our subsidiaries are party to a variety of other legal, administrative, regulatory and government proceedings, claims and inquiries arising in the normal course of business. While the results of these proceedings, claims and inquiries cannot be predicted with certainty, management believes that the final outcome of these proceedingsthe foregoing will not have a material adverse effect on our consolidated financial statements, results of operations or cash flows. See Item 1. Business – Regulatory Environment and Environmental Compliance in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 25, 2010.31, 2011.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
A summary of our common stock repurchases (in millions, except average price per share) during the thirdfirst quarter under the $15.0 billion repurchase program authorized by our Board of Directors and publicly announced on March 15, 2010, and expiring on June 30, 2013, is set forth in the following table. All such shares of common stock were repurchased pursuant to open market transactions.transactions, other than 381,528 shares of common stock which were repurchased pursuant to a privately negotiated block trade transaction.
Issuer Purchases of Common Stock
Period | Total Number of Shares Repurchased | Average Price Paid Per Share | Total Number of Shares | Maximum Number (or Approximate Dollar Value) of Shares that may Yet Be Purchased Under the Plans or Programs | ||||||||||||
6/11/11 | $ | 12,725 | ||||||||||||||
6/12/11 – 7/9/11 | 2.4 | $ | 69.39 | 2.4 | (166 | ) | ||||||||||
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12,559 | ||||||||||||||||
7/10/11 – 8/6/11 | 7.4 | $ | 64.76 | 7.4 | (483 | ) | ||||||||||
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12,076 | ||||||||||||||||
8/7/11 – 9/3/11 | 8.1 | $ | 63.08 | 8.1 | (509 | ) | ||||||||||
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Total | 17.9 | $ | 64.63 | 17.9 | $ | 11,567 | ||||||||||
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Period | Total Number of Shares Repurchased | Average Price Paid Per Share | Total Number of Shares | Maximum Number (or Approximate Dollar Value) of Shares that may Yet Be Purchased Under the Plans or Programs | ||||||||||||
12/31/11 | $ | 11,047 | ||||||||||||||
1/1/12 – 1/28/12 | – | – | – | – | ||||||||||||
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11,047 | ||||||||||||||||
1/29/12 – 2/25/12 | – | – | – | – | ||||||||||||
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11,047 | ||||||||||||||||
2/26/12 – 3/24/12 | 4.5 | $ | 65.15 | 4.5 | (294 | ) | ||||||||||
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Total | 4.5 | $ | 65.15 | 4.5 | $ | 10,753 | ||||||||||
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PepsiCo also repurchases shares of its convertible preferred stock from an employee stock ownership plan (ESOP) fund established by Quaker in connection with share redemptions by ESOP participants. The following table summarizes our convertible preferred share repurchases during the thirdfirst quarter.
Issuer Purchases of Convertible Preferred Stock
Period | Total Number of Shares Repurchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that may Yet Be Purchased Under the Plans or Programs | ||||||||
6/11/11 | ||||||||||||
6/12/11 – 7/9/11 | 1,700 | $ | 348.42 | N/A | N/A | |||||||
7/10/11 – 8/6/11 | – | – | N/A | N/A | ||||||||
8/7/11 – 9/3/11 | 900 | $ | 319.73 | N/A | N/A | |||||||
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Total | 2,600 | $ | 338.49 | N/A | N/A | |||||||
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ITEM 4. (Removed and Reserved).
Period | Total Number of Shares Repurchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that may Yet Be Purchased Under the Plans or Programs | ||||||||||||
12/31/11 | ||||||||||||||||
1/1/12 – 1/28/12 | 1,600 | $ | 326.58 | N/A | N/A | |||||||||||
1/29/12 – 2/25/12 | 500 | $ | 316.06 | N/A | N/A | |||||||||||
2/26/12 – 3/24/12 | 1,900 | $ | 313.31 | N/A | N/A | |||||||||||
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Total | 4,000 | $ | 318.96 | N/A | N/A | |||||||||||
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See Index to Exhibits on page 54.48.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PepsiCo, Inc. | ||
(Registrant) | ||
Date: | /s/ Marie T. Gallagher | |
Marie T. Gallagher | ||
Senior Vice President and Controller | ||
Date: | /s/ Maura Abeln Smith | |
Maura Abeln Smith | ||
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(Duly Authorized Officer) |
INDEX TO EXHIBITS
ITEM 6
EXHIBITS | ||
Exhibit 2.1 | Agreement and Plan of Merger dated as of August 3, 2009, among PepsiCo, Inc., The Pepsi Bottling Group, Inc. and Pepsi-Cola Metropolitan Bottling Company, Inc. (the schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K), which is incorporated herein by reference to Exhibit 2.1 to PepsiCo’s Current Report on Form 8-K | |
Exhibit 2.2 | Agreement and Plan of Merger dated as of August 3, 2009, among PepsiCo, Inc., PepsiAmericas, Inc. and Pepsi-Cola Metropolitan Bottling Company, Inc. (the schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K), which is incorporated herein by reference to Exhibit 2.2 to PepsiCo’s Current Report on Form 8-K | |
Exhibit 2.3 | Purchase Agreement dated as of December 1, 2010 among PepsiCo, Inc., Pepsi-Cola (Bermuda) Limited, Gavril A. Yushvaev, David Iakobachvili, Mikhail V. Dubinin, Sergei A. Plastinin, Alexander S. Orlov, Mikhail I. Vishnaykov, Aladaro Limited, Tony D. Maher, Dmitry Ivanov, Wimm Bill Dann Finance Cyprus Ltd. and Wimm-Bill-Dann Finance Co. Ltd. (the schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K), which is incorporated herein by reference to Exhibit 2.1 to PepsiCo’s Current Report on Form 8-K | |
Exhibit 3.1 | Articles of Incorporation of PepsiCo, Inc., as amended and restated, effective as of May 9, 2011, which are incorporated herein by reference to Exhibit 3.1 to PepsiCo, Inc.’s Current Report on Form 8-K | |
Exhibit 3.2 | By-laws of PepsiCo, Inc., as amended, effective as of | |
Exhibit 4.1 | Form of | |
Exhibit 4.2 | Form of |
Exhibit 4.3 | Form of 4.000% Senior Note due 2042, which is incorporated herein by reference to Exhibit 4.3 to PepsiCo’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 2, 2012. | |
Exhibit | Board of Directors Resolutions Authorizing PepsiCo’s Officers to Establish the Terms of the |
Exhibit 10.1 |
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Exhibit 12 | Computation of Ratio of Earnings to Fixed Charges. | |
Exhibit 15 | Letter re: Unaudited Interim Financial Information. | |
Exhibit 31 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Exhibit 32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
Exhibit 101 | The following materials from PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the quarter ended |
5549