Pepsico Q3-10-Q 9.7.2013
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 September 7, 2013 (36 weeks)
OR
 
    
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to             
Commission file number 1-1183
 
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 (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           NO  X
Number of shares of Common Stock outstanding as of October 9, 2013: 1,533,599,526

Table of Contents    

PepsiCo, Inc. and Subsidiaries

Table of Contents
Part I Financial Information
Page No.
Item 1.
Condensed Consolidated Financial Statements
 
Condensed Consolidated Statement of Income –
12 and 36 Weeks Ended September 7, 2013 and September 8, 2012                                                                                                                  
 
 
 
 
 
Item 2.
Report of Independent Registered Public Accounting Firm
Item 3.
Item 4.
Part II Other Information
 
Item 1.
Item 1A.
Item 2.
Item 6.


2
Table of Contents    

PART I FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Income
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts, unaudited) 
 
12 Weeks Ended
 
36 Weeks Ended
 
9/7/2013

 
9/8/2012

 
9/7/2013

 
9/8/2012

Net Revenue
$
16,909

 
$
16,652

 
$
46,297

 
$
45,538

Cost of sales
7,946

 
7,833

 
21,678

 
21,637

Selling, general and administrative expenses
6,158

 
5,992

 
17,237

 
16,920

Amortization of intangible assets
25

 
27

 
75

 
82

Operating Profit
2,780

 
2,800

 
7,307

 
6,899

Interest expense
(220
)
 
(204
)
 
(642
)
 
(611
)
Interest income and other
17

 
23

 
62

 
47

Income before income taxes
2,577

 
2,619

 
6,727

 
6,335

Provision for income taxes
654

 
706

 
1,694

 
1,788

Net income
1,923

 
1,913

 
5,033

 
4,547

Less: Net income attributable to noncontrolling interests
10

 
11

 
35

 
30

Net Income Attributable to PepsiCo
$
1,913

 
$
1,902

 
$
4,998

 
$
4,517

Net Income Attributable to PepsiCo per Common Share
 
 
 
 
 
 
Basic
$
1.24

 
$
1.22

 
$
3.23

 
$
2.89

Diluted
$
1.23

 
$
1.21

 
$
3.20

 
$
2.86

Weighted-average common shares outstanding
 
 
 
 
 
 
 
Basic
1,542

 
1,556

 
1,545

 
1,562

Diluted
1,561

 
1,575

 
1,564

 
1,580

Cash dividends declared per common share
$
0.5675

 
$
0.5375

 
$
1.6725

 
$
1.59

See accompanying notes to the condensed consolidated financial statements.


3
Table of Contents    

Condensed Consolidated Statement of Comprehensive Income
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited) 
 
12 Weeks Ended 9/7/2013
 
36 Weeks Ended 9/7/2013
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
Net income


 


 
$
1,923

 


 


 
$
5,033

Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment
$
(700
)
 
$
—

 
(700
)
 
$
(1,653
)
 
$
—

 
(1,653
)
Cash flow hedges:


 


 


 

 

 

Reclassification of net losses to net income
21

 
(7
)
 
14

 
72

 
(26
)
 
46

Net derivative gains/(losses)
4

 
(4
)
 
—

 
(14
)
 
12

 
(2
)
Pension and retiree medical:

 

 

 

 

 

Reclassification of net losses to net income
82

 
(29
)
 
53

 
245

 
(83
)
 
162

Remeasurement of net liabilities and
translation
(9
)
 
3

 
(6
)
 
36

 
(10
)
 
26

Unrealized gains on securities
9

 
(4
)
 
5

 
28

 
(14
)
 
14

Other
1

—

—

 
1

 
—

 
(16
)
 
(16
)
Total Other Comprehensive Loss
$
(592
)
 
$
(41
)
 
(633
)
 
$
(1,286
)
 
$
(137
)
 
(1,423
)
Comprehensive income
 
 
 
 
1,290

 
 
 
 
 
3,610

Comprehensive income attributable to
noncontrolling interests
 
 
 
 
(9
)
 
 
 
 
 
(32
)
Comprehensive Income Attributable to
PepsiCo
 
 
 
 
$
1,281

 
 
 
 
 
$
3,578


 
12 Weeks Ended 9/8/2012
 
36 Weeks Ended 9/8/2012
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
Net income
 
 
 
 
$
1,913

 
 
 
 
 
$
4,547

Other Comprehensive Income
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment
$
530

 
$
—

 
530

 
$
(14
)
 
$
—

 
(14
)
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net losses to net income
20

 
(7
)
 
13

 
58

 
(21
)
 
37

Net derivative losses
(13
)
 
(2
)
 
(15
)
 
(50
)
 
10

 
(40
)
Pension and retiree medical:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net losses to net income
69

 
(24
)
 
45

 
209

 
(71
)
 
138

Remeasurement of net liabilities and
translation
(29
)
 
7

 
(22
)
 
(28
)
 
6

 
(22
)
Unrealized (losses)/gains on securities
(1
)
 
—

 
(1
)
 
2

 
—

 
2

Other
—

 
—

 
—

 
—

 
36

 
36

Total Other Comprehensive Income
$
576

 
$
(26
)
 
550

 
$
177

 
$
(40
)
 
137

Comprehensive income
 
 
 
 
2,463

 
 
 
 
 
4,684

Comprehensive income attributable to
noncontrolling interests
 
 
 
 
(11
)
 
 
 
 
 
(24
)
Comprehensive Income Attributable to
PepsiCo
 
 
 
 
$
2,452

 
 
 
 
 
$
4,660

See accompanying notes to the condensed consolidated financial statements.

4
Table of Contents    

Condensed Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)

 
36 Weeks Ended
 
9/7/2013

 
9/8/2012

Operating Activities
 
 
 
Net income
$
5,033

 
$
4,547

Depreciation and amortization
1,815

 
1,837

Stock-based compensation expense
219

 
193

Merger and integration charges
9

 
7

Cash payments for merger and integration charges
(21
)
 
(57
)
Restructuring and impairment charges
37

 
193

Cash payments for restructuring charges
(100
)
 
(243
)
Restructuring and other charges related to the transaction with Tingyi (Cayman Islands) Holding Corp. (Tingyi)
—

 
163

Cash payments for restructuring and other charges related to the transaction with Tingyi
(26
)
 
(98
)
Non-cash foreign exchange loss related to Venezuela devaluation
111

 
—

Excess tax benefits from share-based payment arrangements
(94
)
 
(89
)
Pension and retiree medical plan contributions
(208
)
 
(1,253
)
Pension and retiree medical plan expenses
462

 
414

Deferred income taxes and other tax charges and credits
(66
)
 
283

Change in accounts and notes receivable
(1,262
)
 
(1,300
)
Change in inventories
(337
)
 
(234
)
Change in prepaid expenses and other current assets
(156
)
 
(83
)
Change in accounts payable and other current liabilities
734

 
281

Change in income taxes payable
811

 
736

Other, net
(299
)
 
(179
)
Net Cash Provided by Operating Activities
6,662

 
5,118

Investing Activities
 
 
 
Capital spending
(1,497
)
 
(1,409
)
Sales of property, plant and equipment
51

 
58

Cash payments related to the transaction with Tingyi
(3
)
 
(298
)
Acquisitions and investments in noncontrolled affiliates
(82
)
 
(76
)
Divestitures
174

 
7

Short-term investments, by original maturity – three months or less, net
(8
)
 
(21
)
Other investing, net
(13
)
 
11

Net Cash Used for Investing Activities
(1,378
)
 
(1,728
)
 

(Continued on following page)


5
Table of Contents    

Condensed Consolidated Statement of Cash Flows (continued)
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
 
36 Weeks Ended
 
9/7/2013

 
9/8/2012

Financing Activities
 
 
 
Proceeds from issuances of long-term debt
$
4,185

 
$
5,207

Payments of long-term debt
(2,954
)
 
(1,357
)
Short-term borrowings, by original maturity

 


    More than three months – proceeds
2

 
53

    More than three months – payments
(476
)
 
(213
)
    Three months or less, net
662

 
(2,034
)
Cash dividends paid
(2,558
)
 
(2,470
)
Share repurchases – common
(2,041
)
 
(2,328
)
Share repurchases – preferred
(5
)
 
(5
)
Proceeds from exercises of stock options
991

 
927

Excess tax benefits from share-based payment arrangements
94

 
89

Acquisition of noncontrolling interests
(20
)
 
(15
)
Other financing
(15
)
 
(18
)
Net Cash Used for Financing Activities
(2,135
)
 
(2,164
)
Effect of exchange rate changes on cash and cash equivalents
(242
)
 
16

Net Increase in Cash and Cash Equivalents
2,907

 
1,242

Cash and Cash Equivalents, Beginning of Year
6,297

 
4,067

Cash and Cash Equivalents, End of Period
$
9,204

 
$
5,309

See accompanying notes to the condensed consolidated financial statements.


6
Table of Contents    

Condensed Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
(in millions)
 
(Unaudited)
 
 
 
9/7/2013

 
12/29/2012

Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
9,204

 
$
6,297

Short-term investments
355

 
322

Accounts and notes receivable, less allowance: 9/13 – $155, 12/12 – $157
8,088

 
7,041

Inventories
 
 
 
Raw materials
1,791

 
1,875

Work-in-process
253

 
173

Finished goods
1,694

 
1,533

 
3,738

 
3,581

Prepaid expenses and other current assets
1,546

 
1,479

Total Current Assets
22,931

 
18,720

Property, Plant and Equipment
35,914

 
36,162

Accumulated Depreciation
(17,842
)
 
(17,026
)
 
18,072

 
19,136

Amortizable Intangible Assets, net
1,662

 
1,781

Goodwill
16,534

 
16,971

Other Nonamortizable Intangible Assets
14,300

 
14,744

Nonamortizable Intangible Assets
30,834

 
31,715

Investments in Noncontrolled Affiliates
1,823

 
1,633

Other Assets
1,492

 
1,653

Total Assets
$
76,814

 
$
74,638


 
(Continued on following page)

 

7
Table of Contents    

Condensed Consolidated Balance Sheet (continued)
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts)
 
(Unaudited)
 
 
 
9/7/2013

 
12/29/2012

Liabilities and Equity
 
 
 
Current Liabilities
 
 
 
Short-term obligations
$
5,256

 
$
4,815

Accounts payable and other current liabilities
12,214

 
11,903

Income taxes payable
998

 
371

Total Current Liabilities
18,468

 
17,089

Long-Term Debt Obligations
24,293

 
23,544

Other Liabilities
6,604

 
6,543

Deferred Income Taxes
5,047

 
5,063

Total Liabilities
54,412

 
52,239

Commitments and Contingencies


 


Preferred Stock, no par value
41

 
41

Repurchased Preferred Stock
(169
)
 
(164
)
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: 1,537 and 1,544 shares, respectively)
26

 
26

Capital in excess of par value
4,040

 
4,178

Retained earnings
45,554

 
43,158

Accumulated other comprehensive loss
(6,907
)
 
(5,487
)
Repurchased common stock, in excess of par value (329 and 322 shares,
   respectively)
(20,299
)
 
(19,458
)
Total PepsiCo Common Shareholders’ Equity
22,414

 
22,417

Noncontrolling interests
116

 
105

Total Equity
22,402

 
22,399

Total Liabilities and Equity
$
76,814

 
$
74,638


See accompanying notes to the condensed consolidated financial statements.


8
Table of Contents    

Condensed Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
 
36 Weeks Ended
 
9/7/2013
 
9/8/2012
 
Shares
 
Amount
 
Shares
 
Amount
Preferred Stock
0.8

 
$
41

 
0.8

 
$
41

Repurchased Preferred Stock
 
 
 
 
 
 
 
Balance, beginning of year
(0.6
)
 
(164
)
 
(0.6
)
 
(157
)
Redemptions
—

 
(5
)
 
—

 
(5
)
Balance, end of period
(0.6
)
 
(169
)
 
(0.6
)
 
(162
)
Common Stock
 
 
 
 
 
 
 
Balance, beginning of year
1,544

 
26

 
1,565

 
26

Repurchased common stock
(7
)
 
—

 
(13
)
 
—

Balance, end of period
1,537

 
26

 
1,552

 
26

Capital in Excess of Par Value
 
 
 
 
 
 
 
Balance, beginning of year
 
 
4,178

 
 
 
4,461

Stock-based compensation expense
 
 
219

 
 
 
193

Stock option exercises/RSUs converted (a)
 
 
(266
)
 
 
 
(384
)
Withholding tax on RSUs converted
 
 
(77
)
 
 
 
(65
)
Other
 
 
(14
)
 
 
 
(26
)
Balance, end of period
 
 
4,040

 
 
 
4,179

Retained Earnings
 
 
 
 
 
 
 
Balance, beginning of year
 
 
43,158

 
 
 
40,316

Net income attributable to PepsiCo
 
 
4,998

 
 
 
4,517

Cash dividends declared – common
 
 
(2,583
)
 
 
 
(2,482
)
Cash dividends declared – preferred
 
 
—

 
 
 
(1
)
Cash dividends declared – RSUs
 
 
(19
)
 
 
 
(18
)
Balance, end of period
 
 
45,554

 
 
 
42,332

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Balance, beginning of year
 
 
(5,487
)
 
 
 
(6,229
)
Currency translation adjustment
 
 
(1,650
)
 
 
 
(8
)
Cash flow hedges, net of tax:
 
 
 
 
 
 
 
Reclassification of net losses to net income
 
 
46

 
 
 
37

Net derivative losses
 
 
(2
)
 
 
 
(40
)
Pension and retiree medical, net of tax:
 
 
 
 
 
 
 
Reclassification of net losses to net income
 
 
162

 
 
 
138

Remeasurement of net liabilities and translation
 
 
26

 
 
 
(22
)
Unrealized gains on securities, net of tax
 
 
14

 
 
 
2

Other
 
 
(16
)
 
 
 
36

Balance, end of period
 
 
(6,907
)
 
 
 
(6,086
)
Repurchased Common Stock
 
 
 
 
 
 
 
Balance, beginning of year
(322
)
 
(19,458
)
 
(301
)
 
(17,870
)
Share repurchases
(27
)
 
(2,125
)
 
(35
)
 
(2,387
)
Stock option exercises
18

 
1,146

 
20

 
1,225

Other
2

 
138

 
2

 
141

Balance, end of period
(329
)
 
(20,299
)
 
(314
)
 
(18,891
)
Total PepsiCo Common Shareholders’ Equity
 
 
22,414

 
 
 
21,560

Noncontrolling Interests
 
 
 
 
 
 
 
Balance, beginning of year
 
 
105

 
 
 
311

Net income attributable to noncontrolling interests
 
 
35

 
 
 
30

Distributions to noncontrolling interests
 
 
(15
)
 
 
 
(15
)
Currency translation adjustment
 
 
(3
)
 
 
 
(6
)
Acquisitions and divestitures
 
 
(6
)
 
 
 
(175
)
Balance, end of period
 
 
116

 
 
 
145

Total Equity
 
 
$
22,402

 
 
 
$
21,584

(a)
Includes total tax benefits of $32 million in 2013 and $57 million in 2012.
See accompanying notes to the condensed consolidated financial statements.

9
Table of Contents    

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 divisions and subsidiaries.
Our Condensed Consolidated Balance Sheet as of September 7, 2013, Condensed Consolidated Statements of Income and Comprehensive Income for the 12 and 36 weeks ended September 7, 2013 and September 8, 2012 and Condensed Consolidated Statements of Cash Flows and Equity for the 36 weeks ended September 7, 2013 and September 8, 2012 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, 2012. 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 our North America (United States and Canada) results are reported on a period 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 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 2013 presentation. This report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.
Our Divisions
We are organized into four business units, as follows:
1.
PepsiCo Americas Foods, 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 all of our North American and Latin American beverage businesses;
3.
PepsiCo Europe, which includes all beverage, food and snack businesses in Europe and South Africa; and
4.
PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack businesses in AMEA, excluding South Africa.

10
Table of Contents    

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
 
9/7/2013

 
9/8/2012

 
9/7/2013

 
9/8/2012

Net Revenue
 
 
 
 
 
 
 
FLNA
$
3,424

 
$
3,269

 
$
9,879

 
$
9,472

QFNA
604

 
615

 
1,815

 
1,821

LAF
2,049

 
1,883

 
5,532

 
5,066

PAB
5,406

 
5,530

 
15,086

 
15,330

Europe
3,818

 
3,691

 
9,413

 
9,153

AMEA
1,608

 
1,664

 
4,572

 
4,696

 
$
16,909

 
$
16,652

 
$
46,297

 
$
45,538

 
 
12 Weeks Ended
 
36 Weeks Ended
 
9/7/2013

 
9/8/2012

 
9/7/2013

 
9/8/2012

Operating Profit
 
 
 
 
 
 
 
FLNA
$
977

 
$
917

 
$
2,711

 
$
2,532

QFNA
137

 
154

 
450

 
495

LAF
295

 
219

 
829

 
673

PAB
843

 
837

 
2,290

 
2,202

Europe
501

 
483

 
1,014

 
1,017

AMEA
295

 
317

 
1,003

 
630

Total division
3,048

 
2,927

 
8,297

 
7,549

Corporate Unallocated
 
 
 
 
 
 
 
Mark-to-market net (losses)/gains
(19
)
 
121

 
(74
)
 
126

Merger and integration charges
—

 
2

 
—

 
—

Restructuring and impairment charges
1

 
(7
)
 
(1
)
 
(8
)
Venezuela currency devaluation
—

 
—

 
(124
)
 
—

Other
(250
)
 
(243
)
 
(791
)
 
(768
)
 
$
2,780

 
$
2,800

 
$
7,307

 
$
6,899



11
Table of Contents    

 
Total Assets
 
9/7/2013


12/29/2012

FLNA
$
5,424

 
$
5,332

QFNA
1,016

 
966

LAF
4,704

 
4,993

PAB
31,145

 
30,899

Europe
18,902

 
19,218

AMEA
5,496

 
5,738

Total division
66,687

 
67,146

Corporate (a)
10,127

 
7,492


$
76,814

 
$
74,638

(a)
Corporate assets consist principally of cash and cash equivalents, short-term investments, derivative instruments and property, plant and equipment.

Note 2 - Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (FASB) issued new accounting guidance that requires an entity to net its liability for unrecognized tax positions against a net operating loss carryforward, a similar tax loss or a tax credit carryforward when settlement in this manner is available under the tax law. The provisions of this new guidance are effective as of the beginning of our 2014 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements.
In February 2013, the FASB issued guidance that requires an entity to disclose information showing the effect of the items reclassified from accumulated other comprehensive income on the line items of net income. The provisions of this new guidance were effective prospectively as of the beginning of our 2013 fiscal year. Accordingly, we have included enhanced footnote disclosure for the 12 and 36 weeks ended September 7, 2013 in Note 9.
In July 2012, the FASB issued new accounting guidance that permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test. An entity would continue to calculate the fair value of an indefinite-lived intangible asset if the asset fails the qualitative assessment, while no further analysis would be required if it passes. The provisions of the new guidance were effective for, and had no impact on, our 2013 annual indefinite-lived intangible asset impairment test results.
In December 2011, the FASB issued new disclosure requirements that are intended to enhance current disclosures on offsetting financial assets and liabilities. The new disclosures require an entity to disclose both gross and net information about derivative instruments accounted for in accordance with the guidance on derivatives and hedging that are eligible for offset on the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. The provisions of the new disclosure requirements are effective as of the beginning of our 2014 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements.

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Note 3 - Restructuring, Impairment and Integration Charges

In the 12 weeks ended September 7, 2013, we incurred restructuring and impairment charges of $7 million ($6 million after-tax with a nominal amount per share) in conjunction with our multi-year productivity plan (Productivity Plan). In the 36 weeks ended September 7, 2013, we incurred restructuring and impairment charges of $37 million ($29 million after-tax or $0.02 per share) in conjunction with our Productivity Plan. All of these net charges were recorded in selling, general and administrative expenses. The majority of cash payments related to these charges are expected to be paid by the end of 2013.
In the 12 weeks ended September 8, 2012, we incurred restructuring and impairment charges of $83 million ($59 million after-tax or $0.04 per share) in conjunction with our Productivity Plan. In the 36 weeks ended September 8, 2012, we incurred restructuring and impairment charges of $193 million ($139 million after-tax or $0.09 per share) in conjunction with our Productivity Plan. All of these net charges were recorded in selling, general and administrative expenses. The majority of cash payments related to these charges were 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.
A summary of our Productivity Plan charges is as follows:
 
 
12 Weeks Ended
 
36 Weeks Ended
 
 
9/7/2013

 
9/8/2012

 
9/7/2013

 
9/8/2012

FLNA
 
$
1

 
$
8

 
$
5

 
$
40

QFNA
 
—

 
1

 
—

 
7

LAF
 
1

 
29

 
6

 
41

PAB
 
3

 
33

 
8

 
76

Europe (a)
 
2

 
(1
)
 
14

 
(2
)
AMEA
 
1

 
6

 
3

 
23

Corporate (a)
 
(1
)
 
7

 
1

 
8

 
 
$
7

 
$
83

 
$
37

 
$
193

(a)
Income amounts represent adjustments of previously recorded amounts.
A summary of our Productivity Plan activity in 2013 is as follows: 
 
Severance and Other
Employee Costs
 
Asset
Impairment
 
Other
Costs
 
Total
Liability as of December 29, 2012
$
91

 
$
—

 
$
36

 
$
127

2013 restructuring charges
12

 
1

 
24

 
37

Cash payments
(71
)
 
—

 
(29
)
 
(100
)
Non-cash charges and other
(4
)
 
(1
)
 
(6
)
 
(11
)
Liability as of September 7, 2013
$
28

 
$
—

 
$
25

 
$
53


13
Table of Contents    

In the 12 weeks and 36 weeks ended September 7, 2013, we incurred merger and integration charges of $9 million ($7 million after-tax with a nominal amount per share) related to our acquisition of Wimm-Bill-Dann Foods OJSC (WBD), all of which were recorded in selling, general and administrative expenses in the Europe segment. Substantially all cash payments related to these charges are expected to be paid by the end of 2013.
In the 12 weeks ended September 8, 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, including $4 million recorded in the Europe segment and income of $2 million recorded in corporate unallocated expenses representing adjustments of previously recorded amounts. In the 36 weeks ended September 8, 2012, we incurred merger and integration charges of $7 million ($6 million after-tax with a nominal amount per share) related to our acquisition of WBD, all of which were recorded in the Europe segment. These charges were recorded in selling, general and administrative expenses. The majority of cash payments related to these charges were paid by the end of 2012.
A summary of our merger and integration activity in 2013 is as follows: 
 
Severance and Other
Employee Costs
 
Asset
Impairment
 
Other Costs
 
Total
Liability as of December 29, 2012
$
18

 
$
—

 
$
6

 
$
24

2013 merger and integration charges (a)
(2
)
 
8

 
3

 
9

Cash payments
(14
)
 
—

 
(7
)
 
(21
)
Non-cash charges and other
(1
)
 
(8
)
 
—

 
(9
)
Liability as of September 7, 2013
$
1

 
$
—

 
$
2

 
$
3

(a)
Income amounts represent adjustments of previously recorded amounts.

Note 4 - Intangible Assets
 
 
 
9/7/2013
 
12/29/2012
Amortizable intangible assets, net

 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Acquired franchise rights

 
$
910

 
$
(78
)
 
$
832

 
$
931

 
$
(67
)
 
$
864

Reacquired franchise rights

 
108

 
(80
)
 
28

 
110

 
(68
)
 
42

Brands

 
1,392

 
(981
)
 
411

 
1,422

 
(980
)
 
442

Other identifiable intangibles

 
675

 
(284
)
 
391

 
736

 
(303
)
 
433

 
 
 
$
3,085

 
$
(1,423
)
 
$
1,662

 
$
3,199

 
$
(1,418
)
 
$
1,781




14
Table of Contents    

The change in the book value of nonamortizable intangible assets is as follows: 
 
Balance
 
Acquisitions/
(Divestitures)
 
Translation
and Other
 
Balance

12/29/2012
 
 
 
9/7/2013
FLNA

 

 

 

Goodwill
$
316

 
$
—

 
$
(8
)
 
$
308

Brands
31

 
—

 
(2
)
 
29


347

 
—

 
(10
)
 
337

 
 
 
 
 
 
 
 
QFNA

 

 

 

Goodwill
175

 
—

 
—

 
175

 
 
 
 
 
 
 
 
LAF

 

 

 

Goodwill
716

 
—

 
(53
)
 
663

Brands
223

 
—

 
(17
)
 
206


939

 
—

 
(70
)
 
869

 
 
 
 
 
 
 
 
PAB

 

 

 

Goodwill
9,988

 
15

 
(39
)
 
9,964

Reacquired franchise rights
7,337

 
4

 
(52
)
 
7,289

Acquired franchise rights
1,573

 
(8
)
 
(10
)
 
1,555

Brands
153

 
—

 
(7
)
 
146


19,051

 
11

 
(108
)
 
18,954

 
 
 
 
 
 
 
 
Europe

 

 

 

Goodwill
5,214

 
—

 
(285
)
 
4,929

Reacquired franchise rights
772

 
—

 
(35
)
 
737

Acquired franchise rights
223

 
—

 
—

 
223

Brands
4,284

 
—

 
(297
)
 
3,987


10,493

 
—

 
(617
)
 
9,876

 
 
 
 
 
 
 
 
AMEA

 

 

 

Goodwill
562

 
(4
)
 
(63
)
 
495

Brands
148

 
—

 
(20
)
 
128


710

 
(4
)
 
(83
)
 
623

 
 
 
 
 
 
 
 
Total goodwill
16,971

 
11

 
(448
)
 
16,534

Total reacquired franchise rights
8,109

 
4

 
(87
)
 
8,026

Total acquired franchise rights
1,796

 
(8
)
 
(10
)
 
1,778

Total brands
4,839

 
—

 
(343
)
 
4,496


$
31,715

 
$
7

 
$
(888
)
 
$
30,834




15
Table of Contents    

Note 5 - Income Taxes

A rollforward of our reserves for all federal, state and foreign tax jurisdictions is as follows: 
 
9/7/2013

 
12/29/2012

Balance, beginning of year
$
2,425

 
$
2,167

Additions for tax positions related to the current year
177

 
275

Additions for tax positions from prior years
138

 
161

Reductions for tax positions from prior years
(110
)
 
(172
)
Settlement payments
(211
)
 
(17
)
Statute of limitations expiration
(26
)
 
(3
)
Translation and other
(7
)
 
14

Balance, end of period
$
2,386

 
$
2,425


In the fourth quarter of 2013, we reached an agreement with the Internal Revenue Service resolving all open matters related to the audits for taxable years 2003 through 2009. As a result, we expect to make net cash tax payments of approximately $700 million that will reduce our net cash provided by operating activities and our reserves for uncertain tax positions for various jurisdictions in the fourth quarter of 2013. In addition, as previously disclosed, we believe it is reasonably possible that our reserves for uncertain tax positions could be further impacted in the fourth quarter of 2013.
Note 6 - Stock-Based Compensation

The following table summarizes our total stock-based compensation expense:
 
 
12 Weeks Ended
 
36 Weeks Ended
 
 
9/7/2013

 
9/8/2012

 
9/7/2013

 
9/8/2012

Stock-based compensation expense
 
$
70

 
$
68

 
$
219

 
$
193

Merger and integration charges
 
—

 
1

 
—

 
2

Restructuring and impairment benefits
 
—

 
—

 
—

 
(7
)
Total
 
$
70

 
$
69

 
$
219

 
$
188

Our weighted-average Black-Scholes fair value assumptions are as follows: 
 
36 Weeks Ended
 
9/7/2013

 
9/8/2012

Expected life
6 years

 
6 years

Risk free interest rate
1.0
%
 
1.3
%
Expected volatility (a)
17
%
 
17
%
Expected dividend yield
2.7
%
 
3.0
%
(a)
Reflects movements in our stock price over the most recent historical period equivalent to the expected life.
For the 12 weeks ended September 7, 2013, our grants of stock options, restricted stock units (RSUs) and PepsiCo equity performance units (PEPUnits) were nominal. For the 36 weeks ended September 7, 2013, we granted 2.7 million stock options, 4.2 million RSUs and 0.4 million PEPUnits at weighted-average grant prices of $76.22, $76.35 and $75.75, respectively, under the terms of our 2007 Long-Term Incentive Plan.

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Table of Contents    

For the 12 weeks ended September 8, 2012, our grants of stock options, RSUs and PEPUnits were nominal. For the 36 weeks ended September 8, 2012, we granted 3.6 million stock options, 4.3 million RSUs and 0.4 million PEPUnits at weighted-average grant prices of $66.94, $66.51 and $66.70, respectively, under the terms of our 2007 Long-Term Incentive Plan.

Note 7 - Pension and Retiree Medical Benefits

The components of net periodic benefit cost for pension and retiree medical plans are as follows: 
 
12 Weeks Ended
 
Pension
 
Retiree Medical
 
9/7/2013

 
9/8/2012

 
9/7/2013

 
9/8/2012

 
9/7/2013

 
9/8/2012

 
U.S.
 
International
 
 
Service cost
$
107

 
$
93

 
$
28

 
$
23

 
$
10

 
$
12

Interest cost
122

 
124

 
29

 
27

 
13

 
15

Expected return on plan assets
(190
)
 
(183
)
 
(39
)
 
(34
)
 
(6
)
 
(5
)
Amortization of prior service cost/(benefit)
4

 
4

 
—

 
—

 
(6
)
 
(6
)
Amortization of net losses
67

 
60

 
17

 
13

 
—

 
—

 
110

 
98

 
35

 
29

 
11

 
16

Settlement/curtailment gain
—

 
—

 
—

 
(2
)
 
—

 
—

Special termination benefits
—

 
2

 
—

 
—

 
—

 
—

Total expense
$
110

 
$
100

 
$
35

 
$
27

 
$
11

 
$
16

 
 
 
 
 
 
 
 
 
 
 
 

 
36 Weeks Ended
 
Pension
 
Retiree Medical
 
9/7/2013

 
9/8/2012

 
9/7/2013

 
9/8/2012

 
9/7/2013

 
9/8/2012

 
U.S.
 
International
 
 
Service cost
$
323

 
$
282

 
$
77

 
$
65

 
$
31

 
$
35

Interest cost
365

 
370

 
81

 
75

 
38

 
45

Expected return on plan assets
(570
)
 
(550
)
 
(109
)
 
(95
)
 
(18
)
 
(15
)
Amortization of prior service cost/(benefit)
13

 
12

 
1

 
1

 
(16
)
 
(18
)
Amortization of net losses
200

 
179

 
46

 
35

 
—

 
—


331

 
293

 
96

 
81

 
35

 
47

Settlement/curtailment (gain)/loss
—

 
(7
)
 
1

 
1

 
—

 
—

Special termination benefits
3

 
6

 
—

 
—

 
—

 
4

Total expense
$
334

 
$
292

 
$
97

 
$
82

 
$
35

 
$
51


During the first quarter of 2013, we made discretionary contributions of $13 million to our international pension plans. During the first quarter of 2012, we made discretionary contributions of $860 million to our U.S. pension plans and $140 million to our U.S. retiree medical plans.

17
Table of Contents    

Note 8 - Debt Obligations and Commitments

In the first quarter of 2013, we issued:
•
$625 million of floating rate notes maturing in February 2016, which bear interest at a rate equal to the three-month London Inter-Bank Offered Rate (LIBOR) plus 21 basis points;
•
$625 million of 0.700% senior notes maturing in February 2016; and
•
$1.250 billion of 2.750% senior notes maturing in March 2023.
In the third quarter of 2013, we issued:
•
$850 million of floating rate notes maturing in July 2015 (2015 Notes), which bear interest at a rate equal to three-month LIBOR plus 20 basis points; and
•
$850 million of 2.250% senior notes maturing in January 2019 (2019 Notes).
The net proceeds from the issuances of the notes in the first quarter were used for general corporate purposes, including the repayment of commercial paper. The net proceeds from the issuances of the notes in the third quarter were primarily used for the redemption of our outstanding 3.75% senior notes maturing in March 2014 (2014 Notes), as described below, with the remainder used for general corporate purposes, including the repayment of commercial paper. In the third quarter of 2013, we exercised our option to redeem all of our outstanding 2014 Notes, using approximately $1 billion of the net proceeds from the 2015 Notes and 2019 Notes issued in the quarter.
In the second quarter of 2013, we entered into a new five-year unsecured revolving credit agreement (Five-Year Credit Agreement) which expires on June 10, 2018. The Five-Year Credit Agreement enables us and our borrowing subsidiaries to borrow up to $2.925 billion, subject to customary terms and conditions. We may request that commitments under this agreement be increased 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 second quarter of 2013, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement) which expires on June 9, 2014. The 364-Day Credit Agreement enables us and our borrowing subsidiaries to borrow up to $2.925 billion, subject to customary terms and conditions. We may request that commitments under this agreement be increased 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 the then effective termination date.
The Five-Year Credit Agreement and the 364-Day Credit Agreement together replaced our $2.925 billion Four-Year Credit Agreement dated as of June 14, 2011 and our $2.925 billion 364-Day Credit Agreement dated as of June 14, 2011. Funds borrowed under the Five-Year Credit Agreement and the 364-Day Credit Agreement may be used for general corporate purposes of PepsiCo and our subsidiaries.
As of September 7, 2013, we had $2.0 billion of commercial paper outstanding.

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Table of Contents    

Long-Term Contractual Commitments (a) 
 
Payments Due by Period
 
Total

 
2013

 
2014 –
2015

 
2016 –
2017

 
2018 and
beyond

Long-term debt obligations (b)
$
23,826

 
$
—

 
$
4,092

 
$
4,355

 
$
15,379

Interest on debt obligations (c)
8,571

 
291

 
1,597

 
1,357

 
5,326

Operating leases
1,991

 
138

 
735

 
428

 
690

Purchasing commitments (d)
2,074

 
300

 
1,177

 
289

 
308

Marketing commitments (d)
2,230

 
96

 
668

 
505

 
961

 
$
38,692

 
$
825

 
$
8,269

 
$
6,934

 
$
22,664

 
 
 
 
 
 
 
 
 
 
(a)
Based on quarter-end foreign exchange rates. We expect to make net cash tax payments of approximately $700 million in the fourth quarter of 2013, as discussed further in Note 5. Reserves for uncertain tax positions are excluded from the table above as we are unable to reasonably predict the ultimate amount or timing of any other settlements.
(b)
Excludes $3,174 million related to current maturities of long-term debt, $249 million related to the fair value step-up of debt acquired in connection with our acquisitions of The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS) in February 2010 and $218 million related to the increase in carrying value of long-term debt reflecting the gains on our fair value interest rate swaps.
(c)
Interest payments on floating-rate debt are estimated using interest rates effective as of September 7, 2013.
(d)
Primarily reflects non-cancelable commitments as of September 7, 2013.

Most long-term contractual commitments, except for our long-term debt obligations, are not recorded on our balance sheet. Operating leases primarily represent building leases. Non-cancelable purchasing commitments are primarily for packaging materials and 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. See Note 7 for additional information regarding our pension and retiree medical obligations.


19
Table of Contents    

Note 9 - Accumulated Other Comprehensive Loss

The following table summarizes the reclassifications from Accumulated Other Comprehensive Loss to the Condensed Consolidated Statement of Income for the 12 and 36 weeks ended September 7, 2013:
 
 
12 Weeks Ended
 
36 Weeks Ended
 
 
 
 
9/7/2013
 
9/7/2013
 
 
 
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item in the Condensed Consolidated Statement of Income
 
 
 
 
 
 
 
Losses/(gains) on cash flow hedges:
 
 
 
 
 
 
    Foreign exchange contracts
 
$
2

 
$
6

 
Cost of sales
    Interest rate derivatives
 
8

 
41

 
Interest expense
    Commodity contracts
 
12

 
26

 
Cost of sales
    Commodity contracts
 
(1
)
 
(1
)
 
Selling, general and administrative expenses
    Net losses before tax
 
21

 
72

 
 
    Tax amounts
 
(7
)
 
(26
)
 
 
    Net losses after tax
 
$
14

 
$
46

 
 
 
 
 
 
 
 
 
Amortization of pension and retiree medical items: