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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
| |
X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 23, 2019 (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 number 1-1183
(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) |
(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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | | |
Large accelerated filer x | | Accelerated filer ¨ |
Non-accelerated filer ¨ | | Smaller reporting company ¨ |
| | Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
Number of shares of Common Stock outstanding as of April 10, 2019 was 1,401,821,663.
PepsiCo, Inc. and Subsidiaries
Table of Contents
|
| | |
| | Page No. |
Part I Financial Information | |
Item 1. | Condensed Consolidated Financial Statements | |
| | |
| | |
| | |
| | |
| | |
| | |
Item 2. | | |
Report of Independent Registered Public Accounting Firm | |
Item 3. | | |
Item 4. | | |
Part II Other Information | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 6. | | |
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 |
| 3/23/2019 |
| | 3/24/2018 |
|
Net Revenue | $ | 12,884 |
| | $ | 12,562 |
|
Cost of sales | 5,688 |
| | 5,655 |
|
Gross profit | 7,196 |
| | 6,907 |
|
Selling, general and administrative expenses | 5,188 |
| | 5,100 |
|
Operating Profit | 2,008 |
| | 1,807 |
|
Other pension and retiree medical benefits income | 64 |
| | 75 |
|
Interest expense | (267 | ) | | (294 | ) |
Interest income and other | 63 |
| | 69 |
|
Income before income taxes | 1,868 |
| | 1,657 |
|
Provision for income taxes | 446 |
| | 304 |
|
Net income | 1,422 |
| | 1,353 |
|
Less: Net income attributable to noncontrolling interests | 9 |
| | 10 |
|
Net Income Attributable to PepsiCo | $ | 1,413 |
| | $ | 1,343 |
|
Net Income Attributable to PepsiCo per Common Share | | | |
Basic | $ | 1.01 |
| | $ | 0.94 |
|
Diluted | $ | 1.00 |
| | $ | 0.94 |
|
Weighted-average common shares outstanding | | | |
Basic | 1,406 |
| | 1,420 |
|
Diluted | 1,413 |
| | 1,430 |
|
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 |
| 3/23/2019 |
| | 3/24/2018 |
|
Net income | $ | 1,422 |
| | $ | 1,353 |
|
Other comprehensive income/(loss), net of taxes: | | | |
Net currency translation adjustment | 473 |
| | 290 |
|
Net change on cash flow hedges | (27 | ) | | 28 |
|
Net pension and retiree medical adjustments | 17 |
| | 24 |
|
Net change on available-for-sale securities | — |
| | (2 | ) |
| 463 |
| | 340 |
|
Comprehensive income | 1,885 |
| | 1,693 |
|
Comprehensive income attributable to noncontrolling interests | (9 | ) | | (10 | ) |
Comprehensive Income Attributable to PepsiCo | $ | 1,876 |
| | $ | 1,683 |
|
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
|
| | | | | | | |
| 12 Weeks Ended |
| 3/23/2019 |
| | 3/24/2018 |
|
Operating Activities | | | |
Net income | $ | 1,422 |
| | $ | 1,353 |
|
Depreciation and amortization | 498 |
| | 496 |
|
Share-based compensation expense | 57 |
| | 80 |
|
Restructuring and impairment charges | 26 |
| | 12 |
|
Cash payments for restructuring charges | (52 | ) | | (39 | ) |
Pension and retiree medical plan expenses | 47 |
| | 46 |
|
Pension and retiree medical plan contributions | (260 | ) | | (1,521 | ) |
Deferred income taxes and other tax charges and credits | 216 |
| | 49 |
|
Tax (benefits)/net tax expense related to the Tax Cuts and Jobs Act (TCJ Act) | (29 | ) | | 1 |
|
Change in assets and liabilities: | | | |
Accounts and notes receivable | (406 | ) | | (162 | ) |
Inventories | (435 | ) | | (383 | ) |
Prepaid expenses and other current assets | (382 | ) | | (347 | ) |
Accounts payable and other current liabilities | (1,207 | ) | | (1,050 | ) |
Income taxes payable | 120 |
| | 178 |
|
Other, net | 40 |
| | (22 | ) |
Net Cash Used for Operating Activities | (345 | ) | | (1,309 | ) |
| | | |
Investing Activities | | | |
Capital spending | (442 | ) | | (352 | ) |
Sales of property, plant and equipment | 2 |
| | 9 |
|
Acquisition of SodaStream International Ltd. (SodaStream) | (1,807 | ) | | — |
|
Other acquisitions and investments in noncontrolled affiliates | (56 | ) | | (36 | ) |
Divestitures | — |
| | 42 |
|
Short-term investments, by original maturity: | | | |
More than three months - purchases | — |
| | (3,416 | ) |
More than three months - maturities | — |
| | 4,609 |
|
More than three months - sales | — |
| | 533 |
|
Three months or less, net | 9 |
| | 7 |
|
Other investing, net | (6 | ) | | — |
|
Net Cash (Used for)/Provided by Investing Activities | (2,300 | ) | | 1,396 |
|
| | | |
Financing Activities | | | |
Proceeds from issuances of long-term debt | 1,122 |
| | — |
|
Payments of long-term debt | (1,851 | ) | | — |
|
Short-term borrowings, by original maturity: | | | |
More than three months - proceeds | 2 |
| | — |
|
More than three months - payments | — |
| | (1 | ) |
Three months or less, net | 115 |
| | 4,291 |
|
Cash dividends paid | (1,332 | ) | | (1,160 | ) |
Share repurchases - common | (940 | ) | | (493 | ) |
Share repurchases - preferred | — |
| | (2 | ) |
Proceeds from exercises of stock options | 103 |
| | 125 |
|
Withholding tax payments on restricted stock units (RSUs), performance stock units (PSUs) and PepsiCo equity performance units (PEPunits) converted | (93 | ) | | (76 | ) |
Other financing | (2 | ) | | (2 | ) |
Net Cash (Used for)/Provided by Financing Activities | (2,876 | ) | | 2,682 |
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash | 57 |
| | 49 |
|
Net (Decrease)/Increase in Cash and Cash Equivalents and Restricted Cash | (5,464 | ) | | 2,818 |
|
Cash and Cash Equivalents and Restricted Cash, Beginning of Year | 10,769 |
| | 10,657 |
|
Cash and Cash Equivalents and Restricted Cash, End of Period | $ | 5,305 |
| | $ | 13,475 |
|
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts)
|
| | | | | | | |
| (Unaudited) |
| | |
| 3/23/2019 |
| | 12/29/2018 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 5,072 |
| | $ | 8,721 |
|
Short-term investments | 289 |
| | 272 |
|
Restricted cash | 190 |
| | 1,997 |
|
Accounts and notes receivable, less allowance: 3/19 - $113 and 12/18 - $101 | 7,604 |
| | 7,142 |
|
Inventories: | | | |
Raw materials and packaging | 1,438 |
| | 1,312 |
|
Work-in-process | 257 |
| | 178 |
|
Finished goods | 1,859 |
| | 1,638 |
|
| 3,554 |
| | 3,128 |
|
Prepaid expenses and other current assets | 1,208 |
| | 633 |
|
Total Current Assets | 17,917 |
| | 21,893 |
|
Property, plant and equipment | 40,245 |
| | 40,164 |
|
Accumulated depreciation | (22,695 | ) | | (22,575 | ) |
| 17,550 |
| | 17,589 |
|
Amortizable Intangible Assets, net | 1,641 |
| | 1,644 |
|
Goodwill | 14,945 |
| | 14,808 |
|
Other indefinite-lived intangible assets | 14,334 |
| | 14,181 |
|
Indefinite-Lived Intangible Assets | 29,279 |
| | 28,989 |
|
Investments in Noncontrolled Affiliates | 2,476 |
| | 2,409 |
|
Deferred Income Taxes | 4,361 |
| | 4,364 |
|
Other Assets | 2,242 |
| | 760 |
|
Total Assets | $ | 75,466 |
| | $ | 77,648 |
|
| | | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Short-term debt obligations | $ | 3,291 |
| | $ | 4,026 |
|
Accounts payable and other current liabilities | 15,799 |
| | 18,112 |
|
Total Current Liabilities | 19,090 |
| | 22,138 |
|
Long-Term Debt Obligations | 28,458 |
| | 28,295 |
|
Deferred Income Taxes | 3,619 |
| | 3,499 |
|
Other Liabilities | 10,003 |
| | 9,114 |
|
Total Liabilities | 61,170 |
| | 63,046 |
|
| | | |
Commitments and contingencies | | | |
| | | |
PepsiCo Common Shareholders’ Equity | | | |
Common stock, par value 12/3¢ per share (authorized 3,600 shares; issued, net of repurchased common stock at par value: 1,404 and 1,409 shares, respectively) | 23 |
| | 23 |
|
Capital in excess of par value | 3,753 |
| | 3,953 |
|
Retained earnings | 60,060 |
| | 59,947 |
|
Accumulated other comprehensive loss | (14,656 | ) | | (15,119 | ) |
Repurchased common stock, in excess of par value (463 and 458 shares, respectively) | (34,978 | ) | | (34,286 | ) |
Total PepsiCo Common Shareholders’ Equity | 14,202 |
| | 14,518 |
|
Noncontrolling interests | 94 |
| | 84 |
|
Total Equity | 14,296 |
| | 14,602 |
|
Total Liabilities and Equity | $ | 75,466 |
| | $ | 77,648 |
|
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
|
| | | | | | | | | | | | | |
| 12 Weeks Ended |
| 3/23/2019 | | 3/24/2018 |
| Shares | | Amount | | Shares | | Amount |
Preferred Stock | | | | | | | |
Balance, beginning of year | — |
| | $ | — |
| | 0.8 |
| | $ | 41 |
|
Conversion to common stock | — |
| | — |
| | (0.1 | ) | | (6 | ) |
Retirement of preferred stock | — |
| | — |
| | (0.7 | ) | | (35 | ) |
Balance, end of period | — |
| | — |
| | — |
| | — |
|
Repurchased Preferred Stock | | | | | | | |
Balance, beginning of year | — |
| | — |
| | (0.7 | ) | | (197 | ) |
Redemptions | — |
| | — |
| | — |
| | (2 | ) |
Retirement of preferred stock | — |
| | — |
| | 0.7 |
| | 199 |
|
Balance, end of period | — |
| | — |
| | — |
| | — |
|
Common Stock | | | | | | | |
Balance, beginning of year | 1,409 |
| | 23 |
| | 1,420 |
| | 24 |
|
Shares issued in connection with preferred stock conversion to common stock | — |
| | — |
| | 1 |
| | — |
|
Change in repurchased common stock | (5 | ) | | — |
| | (2 | ) | | — |
|
Balance, end of period | 1,404 |
| | 23 |
| | 1,419 |
| | 24 |
|
Capital in Excess of Par Value | | | | | | | |
Balance, beginning of year | | | 3,953 |
| | | | 3,996 |
|
Share-based compensation expense | | | 57 |
| | | | 83 |
|
Equity issued in connection with preferred stock conversion to common stock | | | — |
| | | | 6 |
|
Stock option exercises, RSUs, PSUs and PEPunits converted | | | (164 | ) | | | | (142 | ) |
Withholding tax on RSUs, PSUs and PEPunits converted | | | (93 | ) | | | | (76 | ) |
Other | | | — |
| | | | (1 | ) |
Balance, end of period | | | 3,753 |
| | | | 3,866 |
|
Retained Earnings | | | | | | | |
Balance, beginning of year | | | 59,947 |
| | | | 52,839 |
|
Cumulative effect of accounting changes | | | 8 |
| | | | (145 | ) |
Net income attributable to PepsiCo | | | 1,413 |
| | | | 1,343 |
|
Cash dividends declared – common (a) | | | (1,308 | ) | | | | (1,147 | ) |
Retirement of preferred stock | | | — |
| | | | (164 | ) |
Balance, end of period | | | 60,060 |
| | | | 52,726 |
|
Accumulated Other Comprehensive Loss | | | | | | | |
Balance, beginning of year | | | (15,119 | ) | | | | (13,057 | ) |
Other comprehensive income attributable to PepsiCo | | | 463 |
| | | | 340 |
|
Balance, end of period | | | (14,656 | ) | | | | (12,717 | ) |
Repurchased Common Stock | | | | | | | |
Balance, beginning of year | (458 | ) | | (34,286 | ) | | (446 | ) | | (32,757 | ) |
Share repurchases | (9 | ) | | (971 | ) | | (5 | ) | | (521 | ) |
Stock option exercises, RSUs, PSUs and PEPunits converted | 4 |
| | 279 |
| | 3 |
| | 261 |
|
Other | — |
| | — |
| | — |
| | 1 |
|
Balance, end of period | (463 | ) | | (34,978 | ) | | (448 | ) | | (33,016 | ) |
Total PepsiCo Common Shareholders’ Equity | | | 14,202 |
| | | | 10,883 |
|
Noncontrolling Interests | | | | | | | |
Balance, beginning of year | | | 84 |
| | | | 92 |
|
Net income attributable to noncontrolling interests | | | 9 |
| | | | 10 |
|
Other, net | | | 1 |
| | | | — |
|
Balance, end of period | | | 94 |
| | | | 102 |
|
Total Equity | | | $ | 14,296 |
| | | | $ | 10,985 |
|
| |
(a) | Cash dividends declared per common share were $0.9275 and $0.805 for the 12 weeks ended March 23, 2019 and March 24, 2018, respectively. |
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 March 23, 2019 and Condensed Consolidated Statements of Income, Comprehensive Income, Cash Flows and Equity for the 12 weeks ended March 23, 2019 and March 24, 2018 have not been audited. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018 (2018 Form 10-K), as modified to reflect the adoption of those recently issued accounting pronouncements disclosed in Note 2 in this Form 10-Q. This report should be read in conjunction with our 2018 Form 10-K. In our opinion, these financial statements include all normal and recurring adjustments necessary for a fair presentation. The results for the 12 weeks ended March 23, 2019 are not necessarily indicative of the results expected for any future period or the full year.
While our financial results in the United States and Canada (North America) are reported on a 12-week basis, substantially all of our international operations report on a monthly calendar basis for which the months of January and February are reflected in our first 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, including merchandising activities, are included in selling, general and administrative expenses.
The following information is unaudited. Unless otherwise noted, tabular dollars are in millions, except per share amounts. All per share amounts reflect common per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts.
Our Divisions
We are organized into six reportable segments (also referred to as divisions), as follows:
| |
1) | Frito-Lay North America (FLNA), which includes our branded food and snack businesses in the United States and Canada; |
| |
2) | Quaker Foods North America (QFNA), which includes our cereal, rice, pasta and other branded food businesses in the United States and Canada; |
| |
3) | PepsiCo Beverages North America (PBNA), which includes our beverage businesses in the United States and Canada. PBNA was formerly named North America Beverages; this change did not impact the results of PBNA or our other reportable segments; |
| |
4) | Latin America (LatAm), which includes all of our beverage, food and snack businesses in Latin America; |
| |
5) | Europe Sub-Saharan Africa (ESSA), which includes all of our beverage, food and snack businesses in Europe and Sub-Saharan Africa; and |
| |
6) | Asia, Middle East and North Africa (AMENA), which includes all of our beverage, food and snack businesses in Asia, the Middle East and North Africa. |
Net revenue and operating profit of each division are as follows: |
| | | | | | | |
| 12 Weeks Ended |
Net Revenue(a) | 3/23/2019 |
| | 3/24/2018 |
|
FLNA | $ | 3,815 |
| | $ | 3,617 |
|
QFNA | 594 |
| | 601 |
|
PBNA | 4,510 |
| | 4,415 |
|
LatAm | 1,241 |
| | 1,224 |
|
ESSA | 1,693 |
| | 1,668 |
|
AMENA | 1,031 |
| | 1,037 |
|
| $ | 12,884 |
| | $ | 12,562 |
|
| |
(a) | 50% of our consolidated net revenue. Internationally, our LatAm segment is predominantly a food and snack business, ESSA’s beverage business and food and snack business are each approximately 50% of the segment’s net revenue and AMENA’s beverage business and food and snack business are approximately 35% and 65%, respectively, of the segment’s net revenue. Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and ESSA segments, is approximately 40% of our consolidated net revenue. Generally, our finished goods beverage operations produce higher net revenue, but lower operating margins as compared to concentrate sold to authorized bottling partners for the manufacture of finished goods beverages. |
|
| | | | | | | |
| 12 Weeks Ended |
Operating Profit | 3/23/2019 |
| | 3/24/2018 |
|
FLNA | $ | 1,159 |
| | $ | 1,050 |
|
QFNA | 138 |
| | 155 |
|
PBNA | 389 |
| | 388 |
|
LatAm | 230 |
| | 189 |
|
ESSA | 125 |
| | 118 |
|
AMENA | 201 |
| | 187 |
|
Total division | $ | 2,242 |
| | $ | 2,087 |
|
Corporate unallocated expenses | (234 | ) | | (280 | ) |
| $ | 2,008 |
| | $ | 1,807 |
|
Note 2 - Recently Issued Accounting Pronouncements
Adopted
In 2018, the Financial Accounting Standards Board (FASB) issued guidance related to the TCJ Act for the optional reclassification of the residual tax effects, arising from the change in corporate tax rate, in accumulated other comprehensive loss to retained earnings. The reclassification is the difference between the amount previously recorded in other comprehensive income at the historical U.S. federal tax rate that remains in accumulated other comprehensive loss at the time the TCJ Act was effective and the amount that would have been recorded using the newly enacted rate. This guidance became effective during the first quarter of 2019; however, we did not elect to make the optional reclassification.
In 2017, the FASB issued guidance to amend and simplify the application of hedge accounting guidance to 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. Under this guidance, certain of our derivatives used to hedge commodity price risk that did not previously qualify for hedge accounting treatment can now qualify prospectively. We adopted this guidance during the first quarter of 2019; the adoption did not have a material impact on our financial statements or disclosures. See Note 9 for further information.
In 2016, the FASB issued guidance on leases, with amendments issued in 2018. The guidance requires lessees to recognize most leases on the balance sheet but does not change the manner in which expenses are recorded in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The two permitted transition methods under the guidance are the modified retrospective transition approach, which requires application of the guidance for all comparative periods presented, and the cumulative effect adjustment approach, which requires prospective application at the adoption date.
We utilized a comprehensive approach to assess 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. We completed our comprehensive review of our lease portfolio including significant leases by geography and by asset type that were impacted by the new guidance, and enhanced our controls. In addition, we implemented a new software platform, and corresponding controls, for administering our leases and facilitating compliance with the new guidance.
We adopted the guidance prospectively during the first quarter of 2019. As part of our adoption, we elected not to reassess historical lease classification, recognize short-term leases on our balance sheet, nor separate lease and non-lease components for our real estate leases. In addition, we utilized the portfolio approach to group leases with similar characteristics and did not use hindsight to determine lease term. The adoption did not have a material impact on our financial statements, resulted in an increase of 2% to each of our total assets and total liabilities on our balance sheet, and had an immaterial increase to retained earnings as of the beginning of 2019. See Note 14 for further information.
Note 3 - Restructuring and Impairment Charges
2019 Multi-Year Productivity Plan
We publicly announced a multi-year productivity plan on February 15, 2019 (2019 Productivity Plan) that will leverage new technology and business models to further simplify, harmonize and automate processes; re-engineer our go-to-market and information systems, including deploying the right automation for each market; simplify our organization and optimize our manufacturing and supply chain footprint.
A summary of our 2019 Productivity Plan charges is as follows:
|
| | | |
| 12 Weeks Ended |
|
| 3/23/2019 |
|
Cost of sales | $ | 8 |
|
Selling, general and administrative expenses | 23 |
|
Other pension and retiree medical benefits income | (5 | ) |
Total restructuring and impairment charges | $ | 26 |
|
After-tax amount | $ | 23 |
|
Net income attributable to PepsiCo per common share | $ | 0.02 |
|
|
| | | | | | | |
| 12 Weeks Ended |
| | |
| 3/23/2019 |
| | Plan to Date |
FLNA | $ | — |
| | $ | 31 |
|
QFNA | — |
| | 5 |
|
PBNA | 6 |
| | 46 |
|
LatAm | — |
| | 9 |
|
ESSA | 6 |
| | 14 |
|
AMENA | 11 |
| | 14 |
|
Corporate | 8 |
| | 15 |
|
| 31 |
| | 134 |
|
Other pension and retiree medical benefits (income)/expense (a) | (5 | ) | | 30 |
|
| $ | 26 |
| | $ | 164 |
|
|
| | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs(a) | | Total |
Plan to date | $ | 134 |
| | $ | 8 |
| | $ | 22 |
| | $ | 164 |
|
A summary of our 2019 Productivity Plan activity for the 12 weeks ended March 23, 2019 is as follows:
|
| | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs | | Total |
Liability as of December 29, 2018 | $ | 105 |
| | $ | — |
| | $ | 1 |
| | $ | 106 |
|
2019 restructuring charges (a) | (3 | ) | | 8 |
| | 21 |
| | 26 |
|
Cash payments (b) | (7 | ) | | — |
| | (3 | ) | | (10 | ) |
Non-cash charges and translation | 6 |
| | (8 | ) | | 3 |
| | 1 |
|
Liability as of March 23, 2019 | $ | 101 |
| | $ | — |
| | $ | 22 |
| | $ | 123 |
|
| |
(a) | Income amount represents adjustments for changes in estimates of previously recorded amounts. |
| |
(b) | $2 million reported in the cash flow statement in pension and retiree medical contributions. |
Substantially all of the restructuring accrual at March 23, 2019 is expected to be paid by the end of 2019.
2014 Multi-Year Productivity Plan
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 beverage, food and snack 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. To build on the 2014 Productivity Plan, in the fourth quarter of 2017, we expanded and extended the program through the end of 2019 to take advantage of additional opportunities within the initiatives described above to further strengthen our beverage, food and snack businesses.
We have substantially completed our 2014 Productivity Plan and do not expect to incur material charges in 2019 associated with this program. We expect pre-tax charges and cash expenditures for the program to approximate the total program estimates of $1.3 billion and $960 million, respectively.
For the 12 weeks ended March 23, 2019, there were no material charges related to this program and cash payments were $42 million. Substantially all of the restructuring accrual of approximately $70 million at March 23, 2019 is expected to be paid by the end of 2019.
For further information, refer to Note 3 to our consolidated financial statements in our 2018 Form 10-K.
A summary of our 2014 Productivity Plan charges is as follows:
|
| | | |
| 12 Weeks Ended |
| 3/24/2018 |
|
Selling, general and administrative expenses | $ | 8 |
|
Other pension and retiree medical benefits expense | 4 |
|
Total restructuring and impairment charges | $ | 12 |
|
After-tax amount | $ | 11 |
|
Net income attributable to PepsiCo per common share | $ | 0.01 |
|
|
| | | |
| 12 Weeks Ended |
| 3/24/2018 |
|
FLNA | $ | 5 |
|
QFNA | 1 |
|
PBNA | 3 |
|
LatAm | 9 |
|
ESSA | 4 |
|
AMENA | 2 |
|
Corporate (a) | (12 | ) |
| $ | 12 |
|
| |
(a) | Income amount represents adjustments for changes in estimates of previously recorded amounts. |
Other Productivity Initiatives
There were no material charges related to other productivity and efficiency initiatives outside the scope of the 2019 and 2014 Productivity Plans.
We regularly evaluate different productivity initiatives beyond the productivity plans and other initiatives described above.
Note 4 - Intangible Assets
A summary of our amortizable intangible assets is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 3/23/2019 | | 12/29/2018 |
| | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Acquired franchise rights | | $ | 842 |
| | $ | (145 | ) | | $ | 697 |
| | $ | 838 |
| | $ | (140 | ) | | $ | 698 |
|
Reacquired franchise rights | | 106 |
| | (105 | ) | | 1 |
| | 106 |
| | (105 | ) | | 1 |
|
Brands | | 1,313 |
| | (1,042 | ) | | 271 |
| | 1,306 |
| | (1,032 | ) | | 274 |
|
Other identifiable intangibles | | 969 |
| | (297 | ) | | 672 |
| | 959 |
| | (288 | ) | | 671 |
|
| | $ | 3,230 |
| | $ | (1,589 | ) | | $ | 1,641 |
| | $ | 3,209 |
| | $ | (1,565 | ) | | $ | 1,644 |
|
The change in the book value of indefinite-lived intangible assets is as follows:
|
| | | | | | | | | | | |
| Balance 12/29/2018 | | Translation and Other | | Balance 3/23/2019 |
| | |
FLNA |
| |
| |
|
Goodwill | $ | 297 |
| | $ | (1 | ) | | $ | 296 |
|
Brands | 161 |
| | — |
| | 161 |
|
| 458 |
| | (1 | ) | | 457 |
|
QFNA | | | | | |
Goodwill | 184 |
| | — |
| | 184 |
|
Brands | 25 |
| | — |
| | 25 |
|
| 209 |
| | — |
| | 209 |
|
PBNA | | | | | |
Goodwill | 9,813 |
| | 8 |
| | 9,821 |
|
Reacquired franchise rights | 7,058 |
| | 14 |
| | 7,072 |
|
Acquired franchise rights | 1,510 |
| | 3 |
| | 1,513 |
|
Brands | 353 |
| | — |
| | 353 |
|
| 18,734 |
| | 25 |
| | 18,759 |
|
LatAm | | | | | |
Goodwill | 509 |
| | 14 |
| | 523 |
|
Brands | 127 |
| | 4 |
| | 131 |
|
| 636 |
| | 18 |
| | 654 |
|
ESSA (a) | | | | | |
Goodwill | 3,611 |
| | 111 |
| | 3,722 |
|
Reacquired franchise rights | 497 |
| | 4 |
| | 501 |
|
Acquired franchise rights | 161 |
| | (1 | ) | | 160 |
|
Brands | 4,188 |
| | 128 |
| | 4,316 |
|
| 8,457 |
| | 242 |
| | 8,699 |
|
AMENA | | | | | |
Goodwill | 394 |
| | 5 |
| | 399 |
|
Brands | 101 |
| | 1 |
| | 102 |
|
| 495 |
| | 6 |
| | 501 |
|
| | | | | |
Total goodwill | 14,808 |
| | 137 |
| | 14,945 |
|
Total reacquired franchise rights | 7,555 |
| | 18 |
| | 7,573 |
|
Total acquired franchise rights | 1,671 |
| | 2 |
| | 1,673 |
|
Total brands | 4,955 |
| | 133 |
| | 5,088 |
|
| $ | 28,989 |
| | $ | 290 |
| | $ | 29,279 |
|
| |
| The change primarily reflects appreciation of the Russian ruble. |
Note 5 - Income Taxes
Tax Cuts and Jobs Act
During the fourth quarter of 2017, the TCJ Act was enacted in the United States. Among its many provisions, the TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings and reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018.
The U.S. Securities and Exchange Commission previously issued guidance related to the TCJ Act which allowed recording of provisional tax expense using a measurement period, not to exceed one year, when
information necessary to complete the accounting for the effects of the TCJ Act was not available. We elected to apply the measurement period provisions of this guidance to certain income tax effects of the TCJ Act when it became effective in the fourth quarter of 2017. The provisional measurement period ended in the fourth quarter of 2018. As a result, we recognized a net tax benefit of $28 million ($0.02 per share) for the fiscal year ended December 29, 2018, which included a provisional transition tax expense of $1 million (nominal amount per share) recorded in the first quarter of 2018.
While our accounting for the recorded impact of the TCJ Act as of December 29, 2018 was deemed to be complete, this amount was based on prevailing regulations and available information as of December 29, 2018, and additional guidance issued by the Internal Revenue Service (IRS) impacted, and may continue to impact, our recorded amounts after December 29, 2018.
For the 12 weeks ended March 23, 2019, we recognized tax benefits totaling $29 million ($0.02 per share) in connection with the TCJ Act, including the impact of additional guidance issued by the IRS in the first quarter of 2019.
For further information and discussion of the impact of the TCJ Act, refer to Note 5 to our consolidated financial statements in our 2018 Form 10-K.
Note 6 - Share-Based Compensation
The following table summarizes our total share-based compensation expense: |
| | | | | | | |
| 12 Weeks Ended |
| 3/23/2019 |
| | 3/24/2018 |
|
Share-based compensation expense - equity awards | $ | 57 |
| | $ | 80 |
|
Share-based compensation expense - liability awards | 1 |
| | 6 |
|
Restructuring and impairment charges | — |
| | 3 |
|
Total | $ | 58 |
| | $ | 89 |
|
The following table summarizes share-based awards granted under the terms of the PepsiCo, Inc. Long-Term Incentive Plan:
|
| | | | | | | | | | | | | |
| 12 Weeks Ended |
| 3/23/2019 | | 3/24/2018 |
| Granted(a) | | Weighted-Average Grant Price | | Granted(a) | | Weighted-Average Grant Price |
Stock options | 1.1 |
| | $ | 116.00 |
| | 1.2 |
| | $ | 108.75< |