Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 9, 2017 (36 weeks)
OR
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-1183
(Exact Name of Registrant as Specified in its Charter)
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North Carolina | | 13-1584302 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
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700 Anderson Hill Road, Purchase, New York | | 10577 |
(Address of Principal Executive Offices) | | (Zip Code) |
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914-253-2000 |
(Registrant’s Telephone Number, Including Area Code) |
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer x | | Accelerated filer ¨ |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | | Smaller reporting company ¨ |
| Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
Number of shares of Common Stock outstanding as of September 27, 2017 was 1,422,143,357.
PepsiCo, Inc. and Subsidiaries
Table of Contents
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| | Page No. |
Part I Financial Information | |
Item 1. | Condensed Consolidated Financial Statements | |
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Item 2. | | |
Report of Independent Registered Public Accounting Firm | |
Item 3. | | |
Item 4. | | |
Part II Other Information | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 6. | | |
PART I FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements.
Condensed Consolidated Statement of Income
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts, unaudited)
|
| | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/9/2017 |
| | 9/3/2016 |
| | 9/9/2017 |
| | 9/3/2016 |
|
Net Revenue | $ | 16,240 |
| | $ | 16,027 |
| | $ | 43,999 |
| | $ | 43,284 |
|
Cost of sales | 7,366 |
| | 7,284 |
| | 19,708 |
| | 19,265 |
|
Gross profit | 8,874 |
| | 8,743 |
| | 24,291 |
| | 24,019 |
|
Selling, general and administrative expenses | 5,865 |
| | 5,904 |
| | 16,330 |
| | 16,566 |
|
Amortization of intangible assets | 16 |
| | 18 |
| | 45 |
| | 49 |
|
Operating Profit | 2,993 |
| | 2,821 |
| | 7,916 |
| | 7,404 |
|
Interest expense | (269 | ) | | (247 | ) | | (786 | ) | | (748 | ) |
Interest income and other | 52 |
| | 30 |
| | 141 |
| | 66 |
|
Income before income taxes | 2,776 |
| | 2,604 |
| | 7,271 |
| | 6,722 |
|
Provision for income taxes | 620 |
| | 600 |
| | 1,668 |
| | 1,760 |
|
Net income | 2,156 |
| | 2,004 |
| | 5,603 |
| | 4,962 |
|
Less: Net income attributable to noncontrolling interests | 12 |
| | 12 |
| | 36 |
| | 34 |
|
Net Income Attributable to PepsiCo | $ | 2,144 |
| | $ | 1,992 |
| | $ | 5,567 |
| | $ | 4,928 |
|
Net Income Attributable to PepsiCo per Common Share | | | | | | | |
Basic | $ | 1.50 |
| | $ | 1.38 |
| | $ | 3.90 |
| | $ | 3.41 |
|
Diluted | $ | 1.49 |
| | $ | 1.37 |
| | $ | 3.87 |
| | $ | 3.39 |
|
Weighted-average common shares outstanding | | | | | | | |
Basic | 1,425 |
| | 1,438 |
| | 1,427 |
| | 1,443 |
|
Diluted | 1,438 |
| | 1,452 |
| | 1,440 |
| | 1,456 |
|
Cash dividends declared per common share | $ | 0.805 |
| | $ | 0.7525 |
| | $ | 2.3625 |
| | $ | 2.2075 |
|
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Comprehensive Income
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 9/9/2017 | | 36 Weeks Ended 9/9/2017 |
| Pre-tax amounts |
| Tax amounts |
| After-tax amounts | | Pre-tax amounts | | Tax amounts | | After-tax amounts |
Net income |
|
| |
|
| | $ | 2,156 |
| | | | | | $ | 5,603 |
|
Other comprehensive income | | | | | | | | | | | |
Currency translation adjustment | $ | 277 |
| | $ | 43 |
| | 320 |
| | $ | 1,088 |
| | $ | 68 |
| | 1,156 |
|
Cash flow hedges: | | | | | | | | | | | |
Reclassification of net gains to net income | (97 | ) | | 37 |
| | (60 | ) | | (183 | ) | | 67 |
| | (116 | ) |
Net derivative gains | 53 |
| | (25 | ) | | 28 |
| | 70 |
| | (37 | ) | | 33 |
|
Pension and retiree medical: | | | | | | | | | | | |
Reclassification of net losses to net income | 35 |
| | (10 | ) | | 25 |
| | 95 |
| | (28 | ) | | 67 |
|
Remeasurement of net liabilities and translation | (20 | ) | | 4 |
| | (16 | ) | | (61 | ) | | 14 |
| | (47 | ) |
Available-for-sale securities: | | | | | | | | | | | |
Reclassification to net income associated with sale of Britvic plc (Britvic) securities | — |
| | — |
| | — |
| | (99 | ) | | 10 |
| | (89 | ) |
Unrealized gains on securities | 2 |
| | — |
| | 2 |
| | 29 |
| | (4 | ) | | 25 |
|
Other | — |
|
| — |
|
| — |
| | — |
| | 16 |
| | 16 |
|
Total other comprehensive income | $ | 250 |
| | $ | 49 |
| | 299 |
| | $ | 939 |
| | $ | 106 |
| | 1,045 |
|
Comprehensive income | | | | | 2,455 |
| | | | | | 6,648 |
|
Comprehensive income attributable to noncontrolling interests | | | | | (12 | ) | | | | | | (37 | ) |
Comprehensive Income Attributable to PepsiCo | | | | | $ | 2,443 |
| | | | | | $ | 6,611 |
|
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| | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended 9/3/2016 | | 36 Weeks Ended 9/3/2016 |
| Pre-tax amounts | | Tax amounts | | After-tax amounts | | Pre-tax amounts | | Tax amounts | | After-tax amounts |
Net income | | | | | $ | 2,004 |
| | | | | | $ | 4,962 |
|
Other comprehensive (loss)/income | | — |
| | | | | | | | | |
Currency translation adjustment | $ | (116 | ) | | $ | 3 |
| | (113 | ) | | $ | 419 |
| | $ | 8 |
| | 427 |
|
Cash flow hedges: | | | | | | | | | | | |
Reclassification of net losses to net income | 71 |
| | (28 | ) | | 43 |
| | 42 |
| | (21 | ) | | 21 |
|
Net derivative losses | (14 | ) | | 14 |
| — |
| — |
| | (46 | ) | | 21 |
| | (25 | ) |
Pension and retiree medical: | | | | | | | | | | | |
Reclassification of net losses to net income | 45 |
| | (15 | ) | | 30 |
| | 128 |
| | (41 | ) | | 87 |
|
Remeasurement of net liabilities and translation | 48 |
| | (16 | ) | | 32 |
| | 52 |
| | (60 | ) | | (8 | ) |
Unrealized losses on securities | (16 | ) | | 8 |
| | (8 | ) | | (25 | ) | | 13 |
| | (12 | ) |
Total other comprehensive (loss)/income | $ | 18 |
| | $ | (34 | ) | | (16 | ) | | $ | 570 |
| | $ | (80 | ) | | 490 |
|
Comprehensive income | | | | | 1,988 |
| | | | | | 5,452 |
|
Comprehensive income attributable to noncontrolling interests | | | | | (12 | ) | | | | | | (34 | ) |
Comprehensive Income Attributable to PepsiCo | | | | | $ | 1,976 |
| | | | | | $ | 5,418 |
|
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
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| 36 Weeks Ended |
| 9/9/2017 |
| | 9/3/2016 |
|
Operating Activities | | | |
Net income | $ | 5,603 |
| | $ | 4,962 |
|
Depreciation and amortization | 1,604 |
| | 1,611 |
|
Share-based compensation expense | 206 |
| | 190 |
|
Restructuring and impairment charges | 69 |
| | 106 |
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Cash payments for restructuring charges | (83 | ) | | (90 | ) |
Charge related to the transaction with Tingyi (Cayman Islands) Holding Corp. (Tingyi)
| — |
| | 373 |
|
Pension and retiree medical plan expenses | 141 |
| | 191 |
|
Pension and retiree medical plan contributions | (169 | ) | | (182 | ) |
Deferred income taxes and other tax charges and credits | 284 |
| | 285 |
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Change in assets and liabilities: | | | |
Accounts and notes receivable | (999 | ) | | (1,301 | ) |
Inventories | (424 | ) | | (381 | ) |
Prepaid expenses and other current assets | (119 | ) | | (141 | ) |
Accounts payable and other current liabilities | (496 | ) | | 523 |
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Income taxes payable | 633 |
| | 813 |
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Other, net | (188 | ) | | (135 | ) |
Net Cash Provided by Operating Activities | 6,062 |
| | 6,824 |
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| | | |
Investing Activities | | | |
Capital spending | (1,474 | ) | | (1,566 | ) |
Sales of property, plant and equipment | 82 |
| | 59 |
|
Acquisitions and investments in noncontrolled affiliates | (45 | ) | | (16 | ) |
Divestitures | 143 |
| | 76 |
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Short-term investments, by original maturity: | | | |
More than three months - purchases | (11,742 | ) | | (7,084 | ) |
More than three months - maturities | 10,400 |
| | 5,479 |
|
More than three months - sales | 345 |
| | — |
|
Three months or less, net | 4 |
| | 12 |
|
Other investing, net | 9 |
| | 9 |
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Net Cash Used for Investing Activities | (2,278 | ) | | (3,031 | ) |
| | | |
Financing Activities | | | |
Proceeds from issuances of long-term debt | 3,525 |
| | 3,355 |
|
Payments of long-term debt | (3,256 | ) | | (3,085 | ) |
Short-term borrowings, by original maturity: | | | |
More than three months - proceeds | 77 |
| | 57 |
|
More than three months - payments | (91 | ) | | (12 | ) |
Three months or less, net | 1,526 |
| | 2,024 |
|
Cash dividends paid | (3,324 | ) | | (3,144 | ) |
Share repurchases - common | (1,464 | ) | | (2,079 | ) |
Share repurchases - preferred | (4 | ) | | (3 | ) |
Proceeds from exercises of stock options | 396 |
| | 415 |
|
Withholding tax payments on RSUs, PSUs and PEPunits converted | (131 | ) | | (114 | ) |
Other financing | (29 | ) | | (29 | ) |
Net Cash Used for Financing Activities | (2,775 | ) | | (2,615 | ) |
Effect of exchange rate changes on cash and cash equivalents | 76 |
| | (18 | ) |
Net Increase in Cash and Cash Equivalents | 1,085 |
| | 1,160 |
|
Cash and Cash Equivalents, Beginning of Year | 9,158 |
| | 9,096 |
|
Cash and Cash Equivalents, End of Period | $ | 10,243 |
| | $ | 10,256 |
|
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts)
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| (Unaudited) |
| | |
| 9/9/2017 |
| | 12/31/2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 10,243 |
| | $ | 9,158 |
|
Short-term investments | 8,035 |
| | 6,967 |
|
Accounts and notes receivable, less allowance: 9/17 - $146 and 12/16 - $134 | 7,923 |
| | 6,694 |
|
Inventories: | | | |
Raw materials and packaging | 1,452 |
| | 1,315 |
|
Work-in-process | 236 |
| | 150 |
|
Finished goods | 1,563 |
| | 1,258 |
|
| 3,251 |
| | 2,723 |
|
Prepaid expenses and other current assets | 745 |
| | 908 |
|
Total Current Assets | 30,197 |
| | 26,450 |
|
Property, plant and equipment | 38,748 |
| | 36,818 |
|
Accumulated depreciation | (21,788 | ) | | (20,227 | ) |
| 16,960 |
| | 16,591 |
|
Amortizable Intangible Assets, net | 1,276 |
| | 1,237 |
|
Goodwill | 14,750 |
| | 14,430 |
|
Other nonamortizable intangible assets | 12,559 |
| | 12,196 |
|
Nonamortizable Intangible Assets | 27,309 |
| | 26,626 |
|
Investments in Noncontrolled Affiliates | 1,950 |
| | 1,950 |
|
Other Assets | 771 |
| | 636 |
|
Total Assets | $ | 78,463 |
| | $ | 73,490 |
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| | | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Short-term debt obligations | $ | 7,717 |
| | $ | 6,892 |
|
Accounts payable and other current liabilities | 14,641 |
| | 14,243 |
|
Total Current Liabilities | 22,358 |
| | 21,135 |
|
Long-Term Debt Obligations | 31,452 |
| | 30,053 |
|
Other Liabilities | 6,823 |
| | 6,669 |
|
Deferred Income Taxes | 4,419 |
| | 4,434 |
|
Total Liabilities | 65,052 |
| | 62,291 |
|
| | | |
Commitments and contingencies | | | |
| | | |
Preferred Stock, no par value | 41 |
| | 41 |
|
Repurchased Preferred Stock | (196 | ) | | (192 | ) |
PepsiCo Common Shareholders’ Equity | | | |
Common stock, par value 12/3¢ per share (authorized 3,600 shares; issued, net of repurchased common stock at par value: 1,423 and 1,428 shares, respectively) | 24 |
| | 24 |
|
Capital in excess of par value | 3,944 |
| | 4,091 |
|
Retained earnings | 54,698 |
| | 52,518 |
|
Accumulated other comprehensive loss | (12,875 | ) | | (13,919 | ) |
Repurchased common stock, in excess of par value (443 and 438 shares, respectively) | (32,341 | ) | | (31,468 | ) |
Total PepsiCo Common Shareholders’ Equity | 13,450 |
| | 11,246 |
|
Noncontrolling interests | 116 |
| | 104 |
|
Total Equity | 13,411 |
| | 11,199 |
|
Total Liabilities and Equity | $ | 78,463 |
| | $ | 73,490 |
|
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
|
| | | | | | | | | | | | | |
| 36 Weeks Ended |
| 9/9/2017 | | 9/3/2016 |
| Shares | | Amount | | Shares | | Amount |
Preferred Stock | 0.8 |
| | $ | 41 |
| | 0.8 |
| | $ | 41 |
|
Repurchased Preferred Stock | | | | | | | |
Balance, beginning of year | (0.7 | ) | | (192 | ) | | (0.7 | ) | | (186 | ) |
Redemptions | — |
| | (4 | ) | | — |
| | (3 | ) |
Balance, end of period | (0.7 | ) | | (196 | ) | | (0.7 | ) | | (189 | ) |
Common Stock | | | | | | | |
Balance, beginning of year | 1,428 |
| | 24 |
| | 1,448 |
| | 24 |
|
Change in repurchased common stock | (5 | ) | | — |
| | (12 | ) | | — |
|
Balance, end of period | 1,423 |
| | 24 |
| | 1,436 |
| | 24 |
|
Capital in Excess of Par Value | | | | | | | |
Balance, beginning of year | | | 4,091 |
| | | | 4,076 |
|
Share-based compensation expense | | | 209 |
| | | | 193 |
|
Stock option exercises, RSUs, PSUs and PEPunits converted (a) | | | (221 | ) | | | | (148 | ) |
Withholding tax on RSUs, PSUs and PEPunits converted | | | (131 | ) | | | | (114 | ) |
Other | | | (4 | ) | | | | (6 | ) |
Balance, end of period | | | 3,944 |
| | | | 4,001 |
|
Retained Earnings | | | | | | | |
Balance, beginning of year | | | 52,518 |
| | | | 50,472 |
|
Net income attributable to PepsiCo | | | 5,567 |
| | | | 4,928 |
|
Cash dividends declared – common | | | (3,387 | ) | | | | (3,200 | ) |
Balance, end of period | | | 54,698 |
| | | | 52,200 |
|
Accumulated Other Comprehensive Loss | | | | | | | |
Balance, beginning of year | | | (13,919 | ) | | | | (13,319 | ) |
Other comprehensive income attributable to PepsiCo | | | 1,044 |
| | | | 490 |
|
Balance, end of period | | | (12,875 | ) | | | | (12,829 | ) |
Repurchased Common Stock | | | | | | | |
Balance, beginning of year | (438 | ) | | (31,468 | ) | | (418 | ) | | (29,185 | ) |
Share repurchases | (13 | ) | | (1,495 | ) | | (21 | ) | | (2,112 | ) |
Stock option exercises, RSUs, PSUs and PEPunits converted | 8 |
| | 620 |
| | 9 |
| | 646 |
|
Other | — |
| | 2 |
| | — |
| | 5 |
|
Balance, end of period | (443 | ) | | (32,341 | ) | | (430 | ) | | (30,646 | ) |
Total PepsiCo Common Shareholders’ Equity | | | 13,450 |
| | | | 12,750 |
|
Noncontrolling Interests | | | | | | | |
Balance, beginning of year | | | 104 |
| | | | 107 |
|
Net income attributable to noncontrolling interests | | | 36 |
| | | | 34 |
|
Distributions to noncontrolling interests | | | (25 | ) | | | | (25 | ) |
Currency translation adjustment | | | 1 |
| | | | — |
|
Balance, end of period | | | 116 |
| | | | 116 |
|
Total Equity | | | $ | 13,411 |
| | | | $ | 12,718 |
|
| |
(a) | Includes total tax benefits of $86 million in 2016. |
See accompanying notes to the condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation and Our Divisions
Basis of Presentation
When used in this report, the terms “we,” “us,” “our,” “PepsiCo” and the “Company” mean PepsiCo, Inc. and its consolidated subsidiaries, collectively.
Our Condensed Consolidated Balance Sheet as of September 9, 2017, Condensed Consolidated Statements of Income and Comprehensive Income for the 12 and 36 weeks ended September 9, 2017 and September 3, 2016, and the Condensed Consolidated Statements of Cash Flows and Equity for the 36 weeks ended September 9, 2017 and September 3, 2016 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 31, 2016. This report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. In our opinion, these financial statements include all normal and recurring adjustments necessary for a fair presentation. The results for the 12 and 36 weeks ended September 9, 2017 are not necessarily indicative of the results expected for any future period or the full year.
While our financial results in the United States and Canada (North America) are reported on a 12-week basis, most of our international operations report on a monthly calendar basis for which the months of June, July and August are reflected in our third quarter results.
Our significant interim accounting policies include the recognition of a pro rata share of certain estimated annual sales incentives and certain advertising and marketing costs in proportion to revenue or volume, as applicable, and the recognition of income taxes using an estimated annual effective tax rate. Raw materials, direct labor and plant overhead, as well as purchasing and receiving costs, costs directly related to production planning, inspection costs and raw materials 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. Unless otherwise noted, tabular dollars are in millions, except per share amounts. All per share amounts reflect common per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts. Reclassifications were made to the prior year’s financial statements to reflect the adoption of the recently issued accounting pronouncements disclosed in Note 2.
Our Divisions
We are organized into six reportable segments (also referred to as divisions), as follows:
| |
1) | Frito-Lay North America (FLNA), which includes our branded food and snack businesses in the United States and Canada; |
| |
2) | Quaker Foods North America (QFNA), which includes our cereal, rice, pasta and other branded food businesses in the United States and Canada; |
| |
3) | North America Beverages (NAB), which includes our beverage businesses in the United States and Canada; |
| |
4) | Latin America, which includes all of our beverage, food and snack businesses in Latin America; |
| |
5) | Europe Sub-Saharan Africa (ESSA), which includes all of our beverage, food and snack businesses in Europe and Sub-Saharan Africa; and |
| |
6) | Asia, Middle East and North Africa (AMENA), which includes all of our beverage, food and snack businesses in Asia, Middle East and North Africa. |
Net revenue and operating profit of each division are as follows: |
| | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
Net Revenue | 9/9/2017 |
|
| 9/3/2016 |
| | 9/9/2017 |
| | 9/3/2016 |
|
FLNA | $ | 3,792 |
| | $ | 3,676 |
| | $ | 10,969 |
| | $ | 10,658 |
|
QFNA | 578 |
| | 571 |
| | 1,729 |
| | 1,749 |
|
NAB | 5,332 |
| | 5,518 |
| | 15,034 |
| | 15,024 |
|
Latin America | 1,873 |
| | 1,762 |
| | 4,773 |
| | 4,521 |
|
ESSA | 3,098 |
| | 2,864 |
| | 7,355 |
| | 6,883 |
|
AMENA | 1,567 |
| | 1,636 |
| | 4,139 |
| | 4,449 |
|
Total division | $ | 16,240 |
| | $ | 16,027 |
| | $ | 43,999 |
| | $ | 43,284 |
|
|
| | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
Operating Profit | 9/9/2017 |
| | 9/3/2016 |
| | 9/9/2017 |
| | 9/3/2016 |
|
FLNA | $ | 1,208 |
| | $ | 1,148 |
| | $ | 3,421 |
| | $ | 3,249 |
|
QFNA | 146 |
| | 144 |
| | 456 |
| | 456 |
|
NAB | 817 |
| | 904 |
| | 2,216 |
| | 2,270 |
|
Latin America | 281 |
| | 247 |
| | 641 |
| | 664 |
|
ESSA (a) | 436 |
| | 388 |
| | 1,039 |
| | 792 |
|
AMENA (b) | 267 |
| | 264 |
| | 745 |
| | 499 |
|
Total division | 3,155 |
| | 3,095 |
| | 8,518 |
| | 7,930 |
|
Corporate Unallocated | (162 | ) | | (274 | ) | | (602 | ) | | (526 | ) |
| $ | 2,993 |
| | $ | 2,821 |
| | $ | 7,916 |
| | $ | 7,404 |
|
| |
(a) | Operating profit for ESSA for the 36 weeks ended September 9, 2017 includes a gain of $95 million associated with the sale of our minority stake in Britvic. |
| |
(b) | Operating profit for AMENA for the 36 weeks ended September 3, 2016 includes an impairment charge of $373 million to reduce the value of our 5% indirect equity interest in Tingyi-Asahi Beverages Holding Co. Ltd. (TAB) to its estimated fair value. |
Total assets of each division are as follows: |
| | | | | | | |
| Total Assets |
| 9/9/2017 |
|
| 12/31/2016 |
|
FLNA | $ | 5,898 |
| | $ | 5,731 |
|
QFNA | 851 |
| | 811 |
|
NAB | 29,260 |
| | 28,172 |
|
Latin America | 5,036 |
| | 4,568 |
|
ESSA | 13,680 |
| | 12,302 |
|
AMENA | 5,540 |
| | 5,261 |
|
Total division | 60,265 |
| | 56,845 |
|
Corporate (a) | 18,198 |
| | 16,645 |
|
| $ | 78,463 |
| | $ | 73,490 |
|
| |
(a) | Corporate assets consist principally of certain cash and cash equivalents, short-term investments, derivative instruments, property, plant and equipment and tax assets. |
Note 2 - Recently Issued Accounting Pronouncements
Adopted
In 2016, the Financial Accounting Standards Board (FASB) issued guidance that changes the accounting for certain aspects of share-based payments to employees. We adopted the provisions of this guidance during our first quarter of 2017, resulting in the following impacts to our financial statements:
| |
• | Income tax effects of vested or settled awards were recognized in the provision for income taxes on our income statement on a prospective basis. Previously, these tax effects were recorded on our equity statement in capital in excess of par value. For the 12 and 36 weeks ended September 9, 2017, our excess tax benefits were $22 million and $93 million, respectively, resulting in a $0.01 and $0.06 increase to diluted net income attributable to PepsiCo per common share. For the 12 and 36 weeks ended September 3, 2016, our excess tax benefits recognized were $30 million and $86 million, respectively. If we had applied this standard in 2016, there would have been a $0.02 increase to diluted net income attributable to PepsiCo per common share for the 12 weeks ended September 3, 2016 and a $0.05 increase to diluted net income attributable to PepsiCo per common share for the 36 weeks ended September 3, 2016. The ongoing impact on our financial statements is dependent on the timing of when awards vest or are exercised, our tax rate and the intrinsic value when awards vest or are exercised. |
| |
• | Excess tax benefits are retrospectively presented within operating activities and withholding tax payments upon vesting of restricted stock units (RSUs), performance stock units (PSUs) and PepsiCo equity performance units (PEPunits) are retrospectively presented within financing activities in the cash flow statement. The adoption resulted in an increase of $257 million and $229 million in our operating cash flow with a corresponding decrease in our financing cash flow for the 36 weeks ended September 9, 2017 and September 3, 2016, respectively. |
The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes and not classify the award as a liability that requires valuation on a mark-to-market basis. Our accounting treatment for outstanding awards was not impacted by our adoption of this provision. In addition, the guidance allows for a policy election to account for forfeitures as they occur. We will continue to apply our policy of estimating forfeitures.
In 2016, the FASB issued guidance that eliminates the requirement that an investor retrospectively apply equity method accounting for an investment originally accounted for by another method. The guidance requires that an equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investor’s ability to exercise significant influence over the investment is achieved. We adopted the provisions of this guidance prospectively during our first quarter of 2017; the adoption did not impact our financial statements.
In 2015, the FASB issued guidance that requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet. We adopted the provisions of this guidance retrospectively during our first quarter of 2017, resulting in the reclassification of $639 million of deferred taxes from current to non-current on our balance sheet as of December 31, 2016.
Not Yet Adopted
In 2017, the FASB issued guidance to amend the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and
report hedge ineffectiveness, as well as eases certain hedge effectiveness assessment requirements. The guidance is effective beginning in 2019 with early adoption permitted. We are currently evaluating the impact of this guidance, including transition elections and required disclosures, on our financial statements and the timing of adoption.
In 2017, the FASB issued guidance that requires companies to retrospectively present the service cost component of net periodic benefit cost for pension and retiree medical plans along with other compensation costs in operating profit and present the other components of net periodic benefit cost below operating profit in the income statement. The guidance also allows only the service cost component of net periodic benefit cost to be eligible for capitalization within inventory or fixed assets on a prospective basis. We will adopt the guidance when it becomes effective in the first quarter of 2018. In connection with this adoption, we expect to record a decrease in operating profit of $69 million and $210 million in the 12 and 36 weeks ended September 9, 2017, respectively, and an increase in operating profit of $19 million for the year ended December 31, 2016. See Note 7 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and Note 7 in this Form 10-Q for further information on our service cost and other components of net periodic benefit cost for pension and retiree medical plans.
In 2016, the FASB issued guidance to clarify how restricted cash should be presented in the cash flow statement. The guidance is effective beginning in 2018 with early adoption permitted. The guidance is not expected to have a material impact on our financial statements. We are currently evaluating the timing of adoption of this guidance.
In 2016, the FASB issued guidance that requires companies to account for the income tax effects of intercompany transfers of assets, other than inventory, when the transfer occurs versus deferring income tax effects until the transferred asset is sold to an outside party or otherwise recognized. We will adopt the guidance when it becomes effective in the first quarter of 2018. We are currently evaluating the impact of this guidance on transactions involving intercompany transfers of assets in the various jurisdictions in which we operate.
In 2016, the FASB issued guidance that changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking expected loss model that will replace today’s incurred loss model and generally will result in earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. The guidance is effective beginning in 2020 with early adoption permitted in 2019. We are currently evaluating the impact of this guidance on our financial statements and the timing of adoption.
In 2016, the FASB issued guidance that requires lessees to recognize most leases on the balance sheet, but record expenses on the income statement in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The guidance is effective beginning in 2019 with early adoption permitted. We are currently evaluating the impact of this guidance on our financial statements and related disclosures, including the increase in the assets and liabilities on our balance sheet and the impact on our current lease portfolio from both a lessor and lessee perspective. To facilitate this, we are utilizing a comprehensive approach to review our lease portfolio, as well as assessing system requirements and control implications. In addition, we are currently evaluating the timing of adoption of this guidance. See Note 13 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 for our minimum lease payments under non-cancelable operating leases.
In 2016, the FASB issued guidance that requires companies to measure investments in certain equity securities at fair value and recognize any changes in fair value in net income. We will adopt the guidance when it becomes effective in the first quarter of 2018. The guidance is not expected to have a material impact on our financial statements. In the second quarter of 2017, we sold our minority stake in Britvic, representing all of our available-for-sale equity securities, which reduced the risk and volatility of these investments in our income statement in the future. See Note 9 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and Note 10 in this Form 10-Q for further information on our available-for-sale securities.
In 2014, the FASB issued guidance on revenue recognition, with final amendments issued in 2016. The guidance provides for a five-step model to determine the revenue recognized for the transfer of goods or services to customers that reflects the expected entitled consideration in exchange for those goods or services. It also provides clarification for principal versus agent considerations and identifying performance obligations. In addition, the FASB introduced practical expedients related to disclosures of remaining performance obligations, as well as other amendments related to guidance on collectibility, non-cash consideration and the presentation of sales and other similar taxes. Financial statement disclosures required under the guidance will enable users to understand the nature, amount, timing, judgments and uncertainty of revenue and cash flows relating to customer contracts. The two permitted transition methods under the guidance are the full retrospective approach or a cumulative effect adjustment to the opening retained earnings in the year of adoption (cumulative effect approach). We expect to adopt using the cumulative effect approach. We will adopt the guidance when it becomes effective in the first quarter of 2018.
We are utilizing a comprehensive approach to assess the impact of the guidance on our contract portfolio by reviewing our current accounting policies and practices to identify potential differences that would result from applying the new requirements to our revenue contracts, including evaluation of our performance obligations, principal versus agent considerations and variable consideration. We have made significant progress on our contract and business process reviews. We are also in the process of evaluating the impact, if any, on changes to our controls to support recognition and disclosures under the new guidance. Based on the foregoing, we do not currently expect this guidance to have a material impact on our financial statements.
Note 3 - Restructuring and Impairment Charges
We publicly announced a multi-year productivity plan on February 13, 2014 (2014 Productivity Plan) that includes the next generation of productivity initiatives that we believe will strengthen our food, snack and beverage businesses by: accelerating our investment in manufacturing automation; further optimizing our global manufacturing footprint, including closing certain manufacturing facilities; re-engineering our go-to-market systems in developed markets; expanding shared services; and implementing simplified organization structures to drive efficiency.
In the 12 weeks ended September 9, 2017 and September 3, 2016, we incurred restructuring charges of $8 million ($7 million after-tax with nominal amount per share) and $27 million ($20 million after-tax or $0.01 per share), respectively, in conjunction with our 2014 Productivity Plan. In the 36 weeks ended September 9, 2017 and September 3, 2016, we incurred restructuring charges of $69 million ($65 million after-tax or $0.05 per share) and $106 million ($76 million after-tax or $0.05 per share), respectively. All of these net charges were recorded in selling, general and administrative expenses and primarily relate to severance and other employee-related costs, asset impairments (all non-cash) and other costs associated with the implementation of our initiatives, including contract termination costs. Substantially all of the restructuring accrual at September 9, 2017 is expected to be paid by the end of 2018.
A summary of our 2014 Productivity Plan charges is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended |
| 9/9/2017 | | 9/3/2016 |
| Severance and Other Employee Costs(a) | | Asset Impairments | | Other Costs(b) | | Total | | Severance and Other Employee Costs | | Asset Impairments | | Other Costs | | Total |
FLNA | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | 2 |
|
QFNA | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
NAB | — |
| | — |
| | (3 | ) | | (3 | ) | | 2 |
| | 3 |
| | 1 |
| | 6 |
|
Latin America | (5 | ) | | 2 |
| | 1 |
| | (2 | ) | | — |
| | — |
| | — |
| | — |
|
ESSA | 10 |
| | 1 |
| | 1 |
| | 12 |
| | 9 |
| | — |
| | 2 |
| | 11 |
|
AMENA | (2 | ) | | — |
| | (1 | ) | | (3 | ) | | — |
| | 2 |
| | 2 |
| | 4 |
|
Corporate | 2 |
| | — |
| | — |
| | 2 |
| | 4 |
| | — |
| | — |
| | 4 |
|
| $ | 7 |
| | $ | 3 |
| | $ | (2 | ) | | $ | 8 |
| | $ | 17 |
| | $ | 5 |
| | $ | 5 |
| | $ | 27 |
|
| |
(a) | Income amounts represent adjustments for changes in estimates of previously recorded amounts. |
| |
(b) | Income amount for NAB primarily reflects a gain on the sale of property, plant and equipment. Income amount for AMENA represents adjustments for changes in estimates of previously recorded amounts. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended |
| 9/9/2017 | | 9/3/2016 |
| Severance and Other Employee Costs(a) | | Asset Impairments | | Other Costs(b) | | Total | | Severance and Other Employee Costs(a) | | Asset Impairments | | Other Costs | | Total |
FLNA | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | 6 |
| | $ | (1 | ) | | $ | — |
| | $ | 2 |
| | $ | 1 |
|
QFNA | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
NAB | — |
| | — |
| | (1 | ) | | (1 | ) | | 12 |
| | 4 |
| | 3 |
| | 19 |
|
Latin America | 28 |
| | 15 |
| | 4 |
| | 47 |
| | 27 |
| | — |
| | 1 |
| | 28 |
|
ESSA | 20 |
| | 1 |
| | (2 | ) | | 19 |
| | 12 |
| | 11 |
| | 15 |
| | 38 |
|
AMENA | (2 | ) | | — |
| | (5 | ) | | (7 | ) | | 3 |
| | 6 |
| | 2 |
| | 11 |
|
Corporate | 4 |
| | — |
| | 1 |
| | 5 |
| | 6 |
| | — |
| | 2 |
| | 8 |
|
| $ | 56 |
| | $ | 16 |
| | $ | (3 | ) | | $ | 69 |
| | $ | 59 |
| | $ | 21 |
| | $ | 26 |
| | $ | 106 |
|
| |
(a) | Income amounts represent adjustments for changes in estimates of previously recorded amounts. |
| |
(b) | Income amounts primarily reflect gains on sales of property, plant and equipment. |
Since the inception of the 2014 Productivity Plan, we incurred restructuring charges of $808 million:
|
| | | | | | | | | | | | | | | |
| 2014 Productivity Plan Costs to Date |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs | | Total |
FLNA | $ | 70 |
| | $ | 9 |
| | $ | 23 |
| | $ | 102 |
|
QFNA | 15 |
| | — |
| | 6 |
| | 21 |
|
NAB | 97 |
| | 68 |
| | 81 |
| | 246 |
|
Latin America | 80 |
| | 28 |
| | 28 |
| | 136 |
|
ESSA | 101 |
| | 38 |
| | 54 |
| | 193 |
|
AMENA | 19 |
| | 6 |
| | 15 |
| | 40 |
|
Corporate | 21 |
| | — |
| | 49 |
| | 70 |
|
| $ | 403 |
| | $ | 149 |
| | $ | 256 |
| | $ | 808 |
|
A summary of our 2014 Productivity Plan activity for the 36 weeks ended September 9, 2017 is as follows:
|
| | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs | | Total |
Liability as of December 31, 2016 | $ | 88 |
| | $ | — |
| | $ | 8 |
| | $ | 96 |
|
2017 restructuring charges | 56 |
| | 16 |
| | (3 | ) | | 69 |
|
Cash payments | (71 | ) | | — |
| | (12 | ) | | (83 | ) |
Non-cash charges and translation | (9 | ) | | (16 | ) | | 16 |
| | (9 | ) |
Liability as of September 9, 2017 | $ | 64 |
| | $ | — |
| | $ | 9 |
| | $ | 73 |
|
There were no material charges related to other productivity and efficiency initiatives outside the scope of the 2014 Productivity Plan.
We regularly evaluate different productivity initiatives beyond the 2014 Productivity Plan discussed above.
See additional unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Note 4 - Intangible Assets
A summary of our amortizable intangible assets is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 9/9/2017 | | 12/31/2016 |
| | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Acquired franchise rights | | $ | 865 |
| | $ | (123 | ) | | $ | 742 |
| | $ | 827 |
| | $ | (108 | ) | | $ | 719 |
|
Reacquired franchise rights | | 107 |
| | (104 | ) | | 3 |
| | 106 |
| | (102 | ) | | 4 |
|
Brands | | 1,305 |
| | (1,015 | ) | | 290 |
| | 1,277 |
| | (977 | ) | | 300 |
|
Other identifiable intangibles | | 560 |
| | (319 | ) | | 241 |
| | 522 |
| | (308 | ) | | 214 |
|
| | $ | 2,837 |
| | $ | (1,561 | ) | | $ | 1,276 |
| | $ | 2,732 |
| | $ | (1,495 | ) | | $ | 1,237 |
|
The change in the book value of nonamortizable intangible assets is as follows:
|
| | | | | | | | | | | |
| Balance 12/31/2016 | | Translation and Other | | Balance 9/9/2017 |
| | |
FLNA |
| |
| |
|
Goodwill | $ | 270 |
| | $ | 15 |
| | $ | 285 |
|
Brands | 23 |
| | 2 |
| | 25 |
|
| 293 |
| | 17 |
| | 310 |
|
| | | | | |
QFNA | | | | | |
Goodwill | 175 |
| | — |
| | 175 |
|
| | | | | |
NAB | | | | | |
Goodwill | 9,843 |
| | 35 |
| | 9,878 |
|
Reacquired franchise rights | 7,064 |
| | 92 |
| | 7,156 |
|
Acquired franchise rights | 1,512 |
| | 19 |
| | 1,531 |
|
Brands | 314 |
| | 24 |
| | 338 |
|
| 18,733 |
| | 170 |
| | 18,903 |
|
| | | | | |
Latin America | | | | | |
Goodwill | 553 |
| | 17 |
| | 570 |
|
Brands | 150 |
| | 5 |
| | 155 |
|
| 703 |
| | 22 |
| | 725 |
|
| | | | | |
ESSA | | | | | |
Goodwill | 3,177 |
| | 224 |
| | 3,401 |
|
Reacquired franchise rights | 488 |
| | 56 |
| | 544 |
|
Acquired franchise rights | 184 |
| | 9 |
| | 193 |
|
Brands | 2,358 |
| | 146 |
| | 2,504 |
|
| 6,207 |
| | 435 |
| | 6,642 |
|
| | | | | |
AMENA | | | | | |
Goodwill | 412 |
| | 29 |
| | 441 |
|
Brands | 103 |
| | 10 |
| | 113 |
|
| 515 |
| | 39 |
| | 554 |
|
| | | | | |
Total goodwill | 14,430 |
| | 320 |
| | 14,750 |
|
Total reacquired franchise rights | 7,552 |
| | 148 |
| | 7,700 |
|
Total acquired franchise rights | 1,696 |
| | 28 |
| | 1,724 |
|
Total brands | 2,948 |
| | 187 |
| | 3,135 |
|
| $ | 26,626 |
| | $ | 683 |
| | $ | 27,309 |
|
Note 5 - Income Taxes
A rollforward of our reserves for all federal, state and foreign tax jurisdictions is as follows:
|
| | | | | | | |
| 9/9/2017 |
| | 12/31/2016 |
|
Balance, beginning of year | $ | 1,885 |
| | $ | 1,547 |
|
Additions for tax positions related to the current year | 214 |
| | 349 |
|
Additions for tax positions from prior years | 49 |
| | 139 |
|
Reductions for tax positions from prior years | (15 | ) | | (70 | ) |
Settlement payments | (4 | ) | | (26 | ) |
Statutes of limitations expiration | (15 | ) | | (27 | ) |
Translation and other | 57 |
| | (27 | ) |
Balance, end of period | $ | 2,171 |
| | $ | 1,885 |
|
Note 6 - Share-Based Compensation
The following table summarizes our total share-based compensation expense: |
| | | | | | | | | | | | | | | | |
| | 12 Weeks Ended | | 36 Weeks Ended |
| | 9/9/2017 |
| | 9/3/2016 |
| | 9/9/2017 |
| | 9/3/2016 |
|
Share-based compensation expense - equity awards | | $ | 63 |
| | $ | 67 |
| | $ | 206 |
| | $ | 190 |
|
Share-based compensation expense - liability awards | | 3 |
| | 1 |
| | 10 |
| | 4 |
|
Restructuring and impairment charges | | 1 |
| | 1 |
| | 3 |
| | 3 |
|
Total | | $ | 67 |
| | $ | 69 |
| | $ | 219 |
| | $ | 197 |
|
For the 12 weeks ended September 9, 2017 and September 3, 2016, our grants of stock options, RSUs, PSUs and long-term cash awards were nominal.
The following table summarizes share-based awards granted under the terms of the PepsiCo, Inc. Long-Term Incentive Plan:
|
| | | | | | | | | | | | | |
| 36 Weeks Ended |
| 9/9/2017 | | 9/3/2016 |
| Granted(a) | | Weighted-Average Grant Price | | Granted(a) | | Weighted-Average Grant Price |
Stock options | 1.4 |
| | $ | 110.04 |
| | 1.6 |
| | $ | 99.51 |
|
RSUs and PSUs | 2.8 |
| | $ | 109.84 |
| | 3.0 |
| | $ | 98.87 |
|
| |
(a) | In millions. All grant activity is disclosed at target. |
We granted long-term cash awards to certain executive officers and other senior executives with an aggregate target value of $19 million and $17 million during the 36 weeks ended September 9, 2017 and September 3, 2016, respectively.
Our weighted-average Black-Scholes fair value assumptions are as follows:
|
| | | | | |
| 36 Weeks Ended |
| 9/9/2017 |
| | 9/3/2016 |
|
Expected life | 5 years |
| | 6 years |
|
Risk-free interest rate | 2.0 | % | | 1.4 | % |
Expected volatility | 11 | % | | 12 | % |
Expected dividend yield | 2.7 | % | | 2.7 | % |
Note 7 - Pension and Retiree Medical Benefits
Effective January 1, 2017, the U.S. qualified defined benefit pension plans were reorganized into the PepsiCo Employees Retirement Plan A, or active plan, and the PepsiCo Employees Retirement Plan I, or inactive plan. Actuarial gains and losses associated with the active plan are amortized over the average remaining service life of the active participants (approximately 11 years beginning in 2017), while the actuarial gains and losses associated with the inactive plan are amortized over the remaining life expectancy of the inactive participants (approximately 27 years beginning in 2017). The pre-tax reduction in net periodic benefit cost associated with this change was $10 million ($7 million after-tax with a nominal amount per share) in the 12 weeks ended September 9, 2017, and $29 million ($19 million after-tax or $0.01 per share) in the 36 weeks ended September 9, 2017 and will approximate $40 million in the full year 2017, primarily impacting corporate unallocated.
The components of net periodic benefit cost for pension and retiree medical plans are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended |
| Pension |
| Retiree Medical |
| 9/9/2017 |
|
| 9/3/2016 |
|
| 9/9/2017 |
|
| 9/3/2016 |
|
| 9/9/2017 |
|
| 9/3/2016 |
|
| U.S. |
| International |
| |
Service cost | $ | 93 |
|
| $ | 91 |
|
| $ | 21 |
|
| $ | 20 |
|
| $ | 6 |
|
| $ | 7 |
|
Interest cost | 108 |
|
| 112 |
|
| 21 |
|
| 24 |
|
| 8 |
|
| 9 |
|
Expected return on plan assets | (196 | ) |
| (193 | ) |
| (42 | ) |
| (42 | ) |
| (5 | ) |
| (6 | ) |
Amortization of prior service credits | — |
|
| (1 | ) |
| — |
|
| — |
|
| (5 | ) |
| (8 | ) |
Amortization of net losses/(gains) | 29 |
|
| 39 |
|
| 12 |
|
| 11 |
|
| (3 | ) |
| — |
|
| 34 |
|
| 48 |
|
| 12 |
|
| 13 |
|
| 1 |
|
| 2 |
|
Settlement/curtailment loss | — |
| | 4 |
| | 2 |
| | 3 |
| | — |
| | — |
|
Special termination benefits | 2 |
|
| 1 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total expense | $ | 36 |
|
| $ | 53 |
|
| $ | 14 |
|
| $ | 16 |
|
| $ | 1 |
|
| $ | 2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended |
| Pension | | Retiree Medical |
| 9/9/2017 |
| | 9/3/2016 |
| | 9/9/2017 |
| | 9/3/2016 |
| | 9/9/2017 |
| | 9/3/2016 |
|
| U.S. | | International | | |
Service cost | $ | 278 |
| | $ | 272 |
| | $ | 58 |
| | $ | 56 |
| | $ | 19 |
| | $ | 21 |
|
Interest cost | 324 |
| | 335 |
| | 57 |
| | 66 |
| | 25 |
| | 28 |
|
Expected return on plan assets | (588 | ) | | (577 | ) | | (112 | ) | | (115 | ) | | (15 | ) | | (17 | ) |
Amortization of prior service cost/(credits) | 1 |
| | (1 | ) | | — |
| | — |
| | (17 | ) | | (25 | ) |
Amortization of net losses/(gains) | 85 |
| | 116 |
| | 33 |
| | 29 |
| | (9 | ) | | (1 | ) |
| 100 |
| | 145 |
| | 36 |
| | 36 |
| | 3 |
| | 6 |
|
Settlement/curtailment loss | — |
| | 4 |
| | 2 |
| | 9 |
| | — |
| | — |
|
Special termination benefits | 4 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
|
Total expense | $ | 104 |
| | $ | 151 |
| | $ | 38 |
| | $ | 45 |
| | $ | 3 |
| | $ | 6 |
|
We regularly evaluate different opportunities to reduce risk and volatility associated with our pension and retiree medical plans. We made discretionary contributions to our international pension plans of $6 million in the second quarter of 2017 and $7 million in the first quarter of 2016.
Note 8 - Debt Obligations
In the 36 weeks ended September 9, 2017, we issued the following senior notes:
|
| | | | | | | | |
Interest Rate |
| | Maturity Date | | Amount(a) |
| |
Floating rate |
| | May 2019 | | $ | 350 |
| |
Floating rate |
| | May 2022 | | $ | 400 |
| |
1.550 | % | | May 2019 | | $ | 750 |
| |
2.250 | % | | May 2022 | | $ | 750 |
| |
4.000 | % | | May 2047 | | $ | 750 |
| |
2.150 | % | | May 2024 | | C$ | 750 |
| (b) |
| |
(a) | Represents gross proceeds from issuances of long-term debt excluding debt issuance costs, discounts and premiums. |
| |
(b) | These notes, issued in Canadian dollars, were designated as a net investment hedge to partially offset the effects of foreign currency on our investments in certain of our foreign subsidiaries. |
The net proceeds from the issuances of the above notes were used for general corporate purposes, including the repayment of commercial paper.
In the 36 weeks ended September 9, 2017, $3.3 billion of senior notes matured and were paid.
In the second quarter of 2017, we entered into a new five-year unsecured revolving credit agreement (Five-Year Credit Agreement) which expires on June 5, 2022. The Five-Year Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.75 billion, subject to customary terms and conditions. We may request that commitments under this agreement be increased up to $4.5 billion. Additionally, we may, once a year, request renewal of the agreement for an additional one-year period.
Also in the second quarter of 2017, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement) which expires on June 4, 2018. The 364-Day Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.75 billion, subject to customary terms and conditions. We may request that commitments under this agreement be increased up to $4.5 billion. We may request renewal of this facility for an additional 364-day period or convert any amounts outstanding into a term loan for a period
of up to one year, which would mature no later than the anniversary of the then effective termination date. The Five-Year Credit Agreement and the 364-Day Credit Agreement together replaced our $3.7225 billion five-year credit agreement and our $3.7225 billion 364-day credit agreement both dated as of June 6, 2016. Funds borrowed under the Five-Year Credit Agreement and the 364-Day Credit Agreement may be used for general corporate purposes. Subject to certain conditions, we may borrow, prepay and reborrow amounts under these agreements. As of September 9, 2017, there were no outstanding borrowings under the Five-Year Credit Agreement or the 364-Day Credit Agreement.
As of September 9, 2017, we had $3.8 billion of commercial paper outstanding.
Note 9 - Accumulated Other Comprehensive Loss
The reclassifications from accumulated other comprehensive loss to the income statement are summarized as follows:
|
| | | | | | | | | | | | | | | | | | |
| | 12 Weeks Ended | | 36 Weeks Ended | | |
| | 9/9/2017 |
| | 9/3/2016 |
| | 9/9/2017 |
| | 9/3/2016 |
| | Affected Line Item in the Income Statement |
Cash flow hedges: | | | | | | | | | | |
Foreign exchange contracts | | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 2 |
|