Pepsico Q2-10-Q 6.13.2015
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 June 13, 2015 (24 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 July 2, 2015 was 1,468,993,138.

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 24 Weeks Ended June 13, 2015 and June 14, 2014                                                                                                                 
 
Condensed Consolidated Statement of Comprehensive Income –
12 and 24 Weeks Ended June 13, 2015 and June 14, 2014
 
Condensed Consolidated Statement of Cash Flows –
24 Weeks Ended June 13, 2015 and June 14, 2014
 
Condensed Consolidated Balance Sheet –
June 13, 2015 and December 27, 2014
 
Condensed Consolidated Statement of Equity –
24 Weeks Ended June 13, 2015 and June 14, 2014
 
Item 2.
Report of Independent Registered Public Accounting Firm
Item 3.
Item 4.
Part II Other Information
 
Item 1.
Item 1A.
Item 2.
Item 5.
Other Information
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
 
24 Weeks Ended
 
6/13/15

 
6/14/14

 
6/13/15

 
6/14/14

Net Revenue
$
15,923

 
$
16,894

 
$
28,140

 
$
29,517

Cost of sales
7,167

 
7,778

 
12,609

 
13,525

Gross profit
8,756

 
9,116

 
15,531

 
15,992

Selling, general and administrative expenses
5,837

 
6,198

 
10,799

 
11,246

Amortization of intangible assets
19

 
22

 
35

 
43

Operating Profit
2,900

 
2,896

 
4,697

 
4,703

Interest expense
(217
)
 
(209
)
 
(428
)
 
(410
)
Interest income and other
14

 
18

 
29

 
28

Income before income taxes
2,697

 
2,705

 
4,298

 
4,321

Provision for income taxes
703

 
718

 
1,073

 
1,107

Net income
1,994

 
1,987

 
3,225

 
3,214

Less: Net income attributable to noncontrolling interests
14

 
9

 
24

 
20

Net Income Attributable to PepsiCo
$
1,980

 
$
1,978

 
$
3,201

 
$
3,194

Net Income Attributable to PepsiCo per Common Share
 
 
 
 
 
 
 
Basic
$
1.34

 
$
1.30

 
$
2.16

 
$
2.10

Diluted
$
1.33

 
$
1.29

 
$
2.14

 
$
2.08

Weighted-average common shares outstanding
 
 
 
 
 
 
 
Basic
1,476

 
1,515

 
1,480

 
1,519

Diluted
1,491

 
1,532

 
1,497

 
1,536

Cash dividends declared per common share
$
0.7025

 
$
0.655

 
$
1.3575

 
$
1.2225

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 6/13/15
 
24 Weeks Ended 6/13/15
 
Pre-tax amounts

Tax amounts

After-tax amounts
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
Net income


 


 
$
1,994

 
 
 
 
 
$
3,225

Other Comprehensive Income/(Loss)
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment
$
474

 
$
—

 
474

 
$
(507
)
 
$
—

 
(507
)
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net (gains)/losses to net
income
(97
)
 
33

 
(64
)
 
82

 
(37
)
 
45

Net derivative gains/(losses)
48

 
(20
)
 
28

 
(107
)
 
44

 
(63
)
Pension and retiree medical:

 

 

 
 
 
 
 
 
Reclassification of net losses to net income
58

 
(18
)
 
40

 
109

 
(35
)
 
74

Remeasurement of net liabilities and
translation
(16
)
 
5

 
(11
)
 
15

 
(2
)
 
13

Unrealized (losses)/gains on securities
(7
)
 
4

 
(3
)
 
9

 
(4
)
 
5

Total Other Comprehensive Income/(Loss)
$
460

 
$
4

 
464

 
$
(399
)
 
$
(34
)
 
(433
)
Comprehensive income
 
 
 
 
2,458

 
 
 
 
 
2,792

Comprehensive income attributable to
noncontrolling interests
 
 
 
 
(13
)
 
 
 
 
 
(23
)
Comprehensive Income Attributable to PepsiCo
 
 
 
 
$
2,445

 
 
 
 
 
$
2,769

 
12 Weeks Ended 6/14/14
 
24 Weeks Ended 6/14/14
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
 
Pre-tax amounts
 
Tax amounts
 
After-tax amounts
Net income
 
 
 
 
$
1,987

 
 
 
 
 
$
3,214

Other Comprehensive Income/(Loss)
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment
$
460

 
$
—

 
460

 
$
(414
)
 
$
—

 
(414
)
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net losses to net income
11

 
(5
)
 
6

 
21

 
(9
)
 
12

Net derivative losses
(41
)
 
12

 
(29
)
 
(25
)
 
7

 
(18
)
Pension and retiree medical:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net losses to net income
53

 
(17
)
 
36

 
101

 
(33
)
 
68

Remeasurement of net liabilities and
translation
(13
)
 
4

 
(9
)
 
(10
)
 
3

 
(7
)
Unrealized (losses)/gains on securities
(7
)
 
3

 
(4
)
 
11

 
(6
)
 
5

Total Other Comprehensive Income/(Loss)
$
463

 
$
(3
)
 
460

 
$
(316
)
 
$
(38
)
 
(354
)
Comprehensive income
 
 
 
 
2,447

 
 
 
 
 
2,860

Comprehensive income attributable to
noncontrolling interests
 
 
 
 
(10
)
 
 
 
 
 
(20
)
Comprehensive Income Attributable to PepsiCo
 
 
 
 
$
2,437

 
 
 
 
 
$
2,840

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)
 
24 Weeks Ended
 
6/13/15

 
6/14/14

Operating Activities
 
 
 
Net income
$
3,225

 
$
3,214

Depreciation and amortization
1,075

 
1,162

Stock-based compensation expense
144

 
140

Restructuring and impairment charges
61

 
190

Cash payments for restructuring charges
(107
)
 
(112
)
Excess tax benefits from share-based payment arrangements
(78
)
 
(64
)
Pension and retiree medical plan expenses
215

 
243

Pension and retiree medical plan contributions
(117
)
 
(155
)
Deferred income taxes and other tax charges and credits
42

 
35

Change in assets and liabilities:
 
 
 
Accounts and notes receivable
(1,309
)
 
(1,554
)
Inventories
(862
)
 
(822
)
Prepaid expenses and other current assets
(264
)
 
(152
)
Accounts payable and other current liabilities
197

 
120

Income taxes payable
648

 
636

Other, net
(109
)
 
(209
)
Net Cash Provided by Operating Activities
2,761

 
2,672

 
 
 
 
Investing Activities
 
 
 
Capital spending
(832
)
 
(921
)
Sales of property, plant and equipment
26

 
42

Acquisitions and investments in noncontrolled affiliates
(16
)
 
(31
)
Divestitures
74

 
123

Short-term investments, by original maturity:
 
 
 
More than three months - purchases
(1,675
)
 
(3,498
)
More than three months - maturities
2,269

 
—

Three months or less, net
(1
)
 
118

Other investing, net
(3
)
 
5

Net Cash Used for Investing Activities
(158
)
 
(4,162
)
 

(Continued on following page)


5
Table of Contents    


Condensed Consolidated Statement of Cash Flows (continued)
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
 
24 Weeks Ended
 
6/13/15

 
6/14/14

Financing Activities
 
 
 
Proceeds from issuances of long-term debt
$
2,487

 
$
3,364

Payments of long-term debt
(2,054
)
 
(1,655
)
Short-term borrowings, by original maturity:
 
 
 
More than three months - proceeds
12

 
1

More than three months - payments
(5
)
 
(9
)
Three months or less, net
2,240

 
1,556

Cash dividends paid
(1,973
)
 
(1,752
)
Share repurchases - common
(2,130
)
 
(2,199
)
Share repurchases - preferred
(2
)
 
(3
)
Proceeds from exercises of stock options
250

 
381

Excess tax benefits from share-based payment arrangements
78

 
64

Other financing
(2
)
 
(3
)
Net Cash Used for Financing Activities
(1,099
)
 
(255
)
Effect of exchange rate changes on cash and cash equivalents
(76
)
 
(23
)
Net Increase/(Decrease) in Cash and Cash Equivalents
1,428

 
(1,768
)
Cash and Cash Equivalents, Beginning of Year
6,134

 
9,375

Cash and Cash Equivalents, End of Period
$
7,562

 
$
7,607

See accompanying notes to the condensed consolidated financial statements.


6
Table of Contents    


Condensed Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
(in millions)
 
(Unaudited)
 
 
 
6/13/15

 
12/27/14

Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
7,562

 
$
6,134

Short-term investments
2,017

 
2,592

Accounts and notes receivable, less allowance: 6/15 - $150 and 12/14 - $137
7,826

 
6,651

Inventories:
 
 
 
Raw materials
1,848

 
1,593

Work-in-process
389

 
173

Finished goods
1,694

 
1,377

 
3,931

 
3,143

Prepaid expenses and other current assets
1,733

 
2,143

Total Current Assets
23,069

 
20,663

Property, Plant and Equipment
36,079

 
36,300

Accumulated Depreciation
(19,343
)
 
(19,056
)
 
16,736

 
17,244

Amortizable Intangible Assets, net
1,378

 
1,449

Goodwill
14,912

 
14,965

Other Nonamortizable Intangible Assets
12,653

 
12,639

Nonamortizable Intangible Assets
27,565

 
27,604

Investments in Noncontrolled Affiliates
2,626

 
2,689

Other Assets
888

 
860

Total Assets
$
72,262

 
$
70,509


 
(Continued on following page)

 

7
Table of Contents    


Condensed Consolidated Balance Sheet (continued)
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts)
 
(Unaudited)
 
 
 
6/13/15

 
12/27/14

Liabilities and Equity
 
 
 
Current Liabilities
 
 
 
Short-term obligations
$
8,383

 
$
5,076

Accounts payable and other current liabilities
13,163

 
13,016

Total Current Liabilities
21,546

 
18,092

Long-term Debt Obligations
23,075

 
23,821

Other Liabilities
5,908

 
5,744

Deferred Income Taxes
5,269

 
5,304

Total Liabilities
55,798

 
52,961

Commitments and Contingencies
 
 
 
Preferred Stock, no par value
41

 
41

Repurchased Preferred Stock
(183
)
 
(181
)
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: 1,472 and 1,488 shares, respectively)
25

 
25

Capital in excess of par value
3,973

 
4,115

Retained earnings
50,268

 
49,092

Accumulated other comprehensive loss
(11,101
)
 
(10,669
)
Repurchased common stock, in excess of par value (394 and 378 shares, respectively)
(26,691
)
 
(24,985
)
Total PepsiCo Common Shareholders’ Equity
16,474

 
17,578

Noncontrolling interests
132

 
110

Total Equity
16,464

 
17,548

Total Liabilities and Equity
$
72,262

 
$
70,509


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)
 
24 Weeks Ended
 
6/13/15
 
6/14/14
 
Shares
 
Amount
 
Shares
 
Amount
Preferred Stock
0.8

 
$
41

 
0.8

 
$
41

Repurchased Preferred Stock
 
 
 
 
 
 
 
Balance, beginning of year
(0.7
)
 
(181
)
 
(0.6
)
 
(171
)
Redemptions
—

 
(2
)
 
—

 
(3
)
Balance, end of period
(0.7
)
 
(183
)
 
(0.6
)
 
(174
)
Common Stock
 
 
 
 
 
 
 
Balance, beginning of year
1,488

 
25

 
1,529

 
25

Repurchased common stock
(16
)
 
—

 
(18
)
 
—

Balance, end of period
1,472

 
25

 
1,511

 
25

Capital in Excess of Par Value
 
 
 
 
 
 
 
Balance, beginning of year
 
 
4,115

 
 
 
4,095

Stock-based compensation expense
 
 
144

 
 
 
140

Stock option exercises, RSUs, PSUs and PEPunits converted (a)
 
 
(170
)
 
 
 
(193
)
Withholding tax on RSUs and PSUs converted
 
 
(112
)
 
 
 
(80
)
Other
 
 
(4
)
 
 
 
16

Balance, end of period
 
 
3,973

 
 
 
3,978

Retained Earnings
 
 
 
 
 
 
 
Balance, beginning of year
 
 
49,092

 
 
 
46,420

Net income attributable to PepsiCo
 
 
3,201

 
 
 
3,194

Cash dividends declared – common
 
 
(2,007
)
 
 
 
(1,855
)
Cash dividends declared – RSUs and PSUs
 
 
(18
)
 
 
 
(11
)
Balance, end of period
 
 
50,268

 
 
 
47,748

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Balance, beginning of year
 
 
(10,669
)
 
 
 
(5,127
)
Currency translation adjustment
 
 
(506
)
 
 
 
(414
)
Cash flow hedges, net of tax:
 
 
 
 
 
 
 
Reclassification of net losses to net income
 
 
45

 
 
 
12

Net derivative losses
 
 
(63
)
 
 
 
(18
)
Pension and retiree medical, net of tax:
 
 
 
 
 
 
 
Reclassification of net losses to net income
 
 
74

 
 
 
68

Remeasurement of net liabilities and translation
 
 
13

 
 
 
(7
)
Unrealized gains on securities, net of tax
 
 
5

 
 
 
5

Balance, end of period
 
 
(11,101
)
 
 
 
(5,481
)
Repurchased Common Stock
 
 
 
 
 
 
 
Balance, beginning of year
(378
)
 
(24,985
)
 
(337
)
 
(21,004
)
Share repurchases
(23
)
 
(2,180
)
 
(27
)
 
(2,262
)
Stock option exercises
4

 
293

 
7

 
441

Other
3

 
181

 
2

 
159

Balance, end of period
(394
)
 
(26,691
)
 
(355
)
 
(22,666
)
Total PepsiCo Common Shareholders’ Equity
 
 
16,474

 
 
 
23,604

Noncontrolling Interests
 
 
 
 
 
 
 
Balance, beginning of year
 
 
110

 
 
 
110

Net income attributable to noncontrolling interests
 
 
24

 
 
 
20

Currency translation adjustment
 
 
(1
)
 
 
 
—

Other, net
 
 
(1
)
 
 
 
(1
)
Balance, end of period
 
 
132

 
 
 
129

Total Equity
 
 
$
16,464

 
 
 
$
23,600

(a)
Includes total tax benefits of $52 million in 2015 and $26 million in 2014.
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 consolidated subsidiaries, collectively.
Our Condensed Consolidated Balance Sheet as of June 13, 2015 and Condensed Consolidated Statements of Income and Comprehensive Income for the 12 and 24 weeks ended June 13, 2015 and June 14, 2014, and the Condensed Consolidated Statements of Cash Flows and Equity for the 24 weeks ended June 13, 2015 and June 14, 2014 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 27, 2014. In our opinion, these financial statements include all normal and recurring adjustments necessary for a fair presentation. The results for the 12 and 24 weeks are not necessarily indicative of the results expected for the full year.
The results of our Venezuelan businesses have been reported under highly inflationary accounting since the beginning of 2010. See further unaudited information in “Our Business Risks” and “Our Liquidity and Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
While our 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 March, April and May are reflected in our second 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 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. This report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 27, 2014.
Our Divisions
We are organized into six reportable segments (also referred to as divisions), as follows:
1)
Frito-Lay North America (FLNA);
2)
Quaker Foods North America (QFNA);
3)
Latin America Foods (LAF), which includes all of our food and snack businesses in Latin America;
4)
PepsiCo Americas Beverages (PAB), which includes all of our North American and Latin American beverage businesses;
5)
PepsiCo Europe (Europe), which includes all beverage, food and snack businesses in Europe and South Africa; and
6)
PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack businesses in Asia, Middle East and Africa, excluding South Africa.

10
Table of Contents    


Net revenue and operating profit of each division are as follows:
 
12 Weeks Ended
 
24 Weeks Ended
 
6/13/15


6/14/14

 
6/13/15

 
6/14/14

Net Revenue
 
 
 
 
 
 
 
FLNA
$
3,452

 
$
3,387

 
$
6,771

 
$
6,606

QFNA
546

 
564

 
1,185

 
1,198

LAF
2,000

 
2,122

 
3,279

 
3,460

PAB
5,337

 
5,281

 
9,770

 
9,707

Europe
2,788

 
3,657

 
4,265

 
5,618

AMEA
1,800

 
1,883

 
2,870

 
2,928

Total division
$
15,923

 
$
16,894

 
$
28,140

 
$
29,517

 
12 Weeks Ended
 
24 Weeks Ended
 
6/13/15

 
6/14/14

 
6/13/15

 
6/14/14

Operating Profit
 
 
 
 
 
 
 
FLNA
$
1,007

 
$
937

 
$
1,927

 
$
1,799

QFNA (a)
132

 
139

 
231

 
299

LAF
285

 
323

 
489

 
555

PAB
903

 
868

 
1,371

 
1,297

Europe
334

 
451

 
434

 
603

AMEA (b)
389

 
381

 
631

 
575

Total division
3,050

 
3,099

 
5,083

 
5,128

Corporate Unallocated
 
 
 
 
 
 
 
Mark-to-market net gains
39

 
31

 
38

 
65

Restructuring and impairment charges
(1
)
 
(8
)
 
(7
)
 
(5
)
Other
(188
)
 
(226
)
 
(417
)
 
(485
)
 
$
2,900

 
$
2,896

 
$
4,697

 
$
4,703

(a)
Operating profit for QFNA for the 24 weeks ended June 13, 2015 includes a pre-tax impairment charge of $65 million ($50 million after-tax) associated with our Muller Quaker Dairy (MQD) joint venture investment.
(b)
Operating profit for AMEA for the 24 weeks ended June 13, 2015 includes a pre-tax gain of $39 million ($28 million after-tax) associated with refranchising a portion of our bottling operations in India.
Total assets of each division are as follows:
 
Total Assets
 
6/13/15


12/27/14

FLNA
$
5,421

 
$
5,307

QFNA
932

 
982

LAF
4,682

 
4,760

PAB
31,052

 
30,188

Europe
14,363

 
13,902

AMEA
5,979

 
5,887

Total division
62,429

 
61,026

Corporate (a)
9,833

 
9,483


$
72,262

 
$
70,509


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

11
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Changes to Organizational Structure
The division amounts and discussions included in this Form 10-Q reflect the reportable segments that existed through the end of our second quarter of 2015. Effective beginning with our third quarter of 2015, we realigned certain of our reportable segments to be consistent with certain changes to our organizational structure and how the Chief Executive Officer will monitor the performance of these segments. As a result, all of our beverage, food and snack businesses in Latin America will be reported together as Latin America and our North American beverage business will be reported separately as North America Beverages. Prior to this change, the PepsiCo Americas Beverages segment included all of our North American and Latin American beverage businesses. In addition, our PepsiCo Europe reportable segment will now also include our businesses in the Sub-Saharan Africa markets that were formerly part of PepsiCo Asia, Middle East and Africa and will be renamed Europe Sub-Saharan Africa (ESSA). PepsiCo Asia, Middle East and Africa will be renamed Asia, Middle East and North Africa (AMENA). These changes do not impact our Frito-Lay North America or Quaker Foods North America reportable segments. Our historical segment reporting will be retrospectively revised during the remainder of 2015 to reflect the new organizational structure. For additional information, see Part II - Other Information.
Note 2 - Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (FASB) issued new accounting guidance intended to simplify the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the presentation for debt discounts. The guidance is effective as of the beginning of our 2016 fiscal year and must be applied on a retrospective basis with early adoption permitted. We early adopted the provisions of this guidance as of the beginning of our second quarter of 2015 and it did not have a material impact on our financial statements.
In June 2014, the FASB issued new accounting guidance for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The guidance requires that a performance target that could be achieved after the requisite service period is treated as a performance condition that affects the vesting of the award rather than factored into the grant date fair value. The guidance is effective as of the beginning of our 2016 fiscal year and can be applied prospectively to all share-based payments granted or modified on or after the effective date with early adoption permissible. This guidance is not expected to have any impact on our financial statements and we have not early adopted this standard.
In May 2014, the FASB issued new accounting guidance on revenue recognition, which provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. There is no option for early adoption. In April 2015, the FASB proposed a one-year deferral of the effective date of the new revenue standard. Under the proposal, the new guidance will be effective as of the beginning of our 2018 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected a transition approach to implement the standard.

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Note 3 - Restructuring, Impairment and Integration Charges
2014 Multi-Year Productivity Plan
The multi-year productivity plan we publicly announced on February 13, 2014 (2014 Productivity Plan) 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. The 2014 Productivity Plan is in addition to the productivity plan we began implementing in 2012 and is expected to continue the benefits of that plan.
In the 12 weeks ended June 13, 2015 and June 14, 2014, we incurred restructuring charges of $21 million ($16 million after-tax or $0.01 per share) and $77 million ($55 million after-tax or $0.04 per share), respectively, in conjunction with our 2014 Productivity Plan. In the 24 weeks ended June 13, 2015 and June 14, 2014, we incurred restructuring charges of $51 million ($39 million after-tax or $0.03 per share) and $173 million ($128 million after-tax or $0.08 per share), respectively, in conjunction with our 2014 Productivity Plan. 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 contract termination costs. The majority of the restructuring accrual at June 13, 2015 is expected to be paid by the end of 2015.
A summary of our 2014 Productivity Plan charges is as follows:
 
 
12 Weeks Ended
 
24 Weeks Ended
 
 
6/13/15

 
6/14/14

 
6/13/15

 
6/14/14

FLNA
 
$
2

 
$
12

 
$
8

 
$
24

QFNA
 
—

 
—

 
1

 
2

LAF
 
4

 
5

 
6

 
6

PAB
 
8

 
33

 
14

 
115

Europe
 
4

 
13

 
13

 
15

AMEA
 
2

 
7

 
4

 
9

Corporate
 
1

 
7

 
5

 
2

 
 
$
21

 
$
77

 
$
51

 
$
173

A summary of our 2014 Productivity Plan activity in 2015 is as follows:
 
Severance and Other
Employee Costs
 
Other Costs
 
Total
Liability as of December 27, 2014
$
89

 
$
24

 
$
113

2015 restructuring charges
15

 
36

 
51

Cash payments
(40
)
 
(45
)
 
(85
)
Non-cash charges
(3
)
 
(1
)
 
(4
)
Liability as of June 13, 2015
$
61

 
$
14

 
$
75

2012 Multi-Year Productivity Plan
The multi-year productivity plan we publicly announced on February 9, 2012 (2012 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 2012 Productivity Plan continues

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to enhance PepsiCo’s cost-competitiveness and provide a source of funding for future brand-building and innovation initiatives.
In the 12 weeks ended June 13, 2015 and June 14, 2014, we incurred restructuring charges of $4 million ($3 million after-tax with a nominal amount per share) and $15 million ($14 million after-tax or $0.01 per share), respectively, in conjunction with our 2012 Productivity Plan. In the 24 weeks ended June 13, 2015 and June 14, 2014, we incurred restructuring charges of $10 million ($9 million after-tax or $0.01 per share) and $17 million ($17 million after-tax or $0.01 per share), respectively, in conjunction with our 2012 Productivity Plan. All of these net charges were recorded in selling, general and administrative expenses and primarily relate to severance and other employee-related costs and contract termination costs. All of the restructuring accrual at June 13, 2015 is expected to be paid by the end of 2015.
A summary of our 2012 Productivity Plan charges is as follows:
 
 
12 Weeks Ended
 
24 Weeks Ended
 
 
6/13/15

 
6/14/14

 
6/13/15

 
6/14/14

FLNA
 
$
—

 
$
1

 
$
—

 
$
2

QFNA
 
—

 
—

 
—

 
—

LAF (a)
 
—

 
—

 
—

 
(5
)
PAB
 
—

 
3

 
1

 
7

Europe
 
3

 
10

 
6

 
8

AMEA
 
1

 
—

 
1

 
2

Corporate
 
—

 
1

 
2

 
3

 
 
$
4

 
$
15

 
$
10

 
$
17

(a)
Income amount represents adjustments of previously recorded amounts.
A summary of our 2012 Productivity Plan activity in 2015 is as follows: 
 
Severance and Other
Employee Costs
 
Other Costs
 
Total
Liability as of December 27, 2014
$
28

 
$
5

 
$
33

2015 restructuring charges
1

 
9

 
10

Cash payments
(11
)
 
(11
)
 
(22
)
Non-cash charges
(2
)
 
—

 
(2
)
Liability as of June 13, 2015
$
16

 
$
3

 
$
19


Note 4 - Intangible Assets
A summary of our amortizable intangible assets is as follows:
 
 
6/13/15
 
12/27/14
Amortizable intangible assets, net
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Acquired franchise rights
 
$
848

 
$
(90
)
 
$
758

 
$
879

 
$
(89
)
 
$
790

Reacquired franchise rights
 
106

 
(97
)
 
9

 
107

 
(95
)
 
12

Brands
 
1,332

 
(998
)
 
334

 
1,361

 
(1,004
)
 
357

Other identifiable intangibles
 
585

 
(308
)
 
277

 
595

 
(305
)
 
290

 
 
$
2,871

 
$
(1,493
)
 
$
1,378

 
$
2,942

 
$
(1,493
)
 
$
1,449


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The change in the book value of nonamortizable intangible assets is as follows:
 
Balance
 
Translation
and Other
 
Balance

12/27/14
 
 
6/13/15
FLNA

 

 

Goodwill
$
291

 
$
(8
)
 
$
283

Brands
27

 
(2
)
 
25


318

 
(10
)
 
308

 
 
 
 
 
 
QFNA
 
 
 
 
 
Goodwill
175

 
—

 
175

 
 
 
 
 
 
LAF
 
 
 
 
 
Goodwill
601

 
(46
)
 
555

Brands
189

 
(15
)
 
174


790

 
(61
)
 
729

 
 
 
 
 
 
PAB
 
 
 
 
 
Goodwill
9,889

 
(39
)
 
9,850

Reacquired franchise rights
7,193

 
(53
)
 
7,140

Acquired franchise rights
1,538

 
(11
)
 
1,527

Brands
142

 
(5
)
 
137


18,762

 
(108
)
 
18,654

 
 
 
 
 
 
Europe
 
 
 
 
 
Goodwill
3,539

 
72

 
3,611

Reacquired franchise rights
571

 
(24
)
 
547

Acquired franchise rights
199

 
(7
)
 
192

Brands
2,663

 
139

 
2,802


6,972

 
180

 
7,152

 
 
 
 
 
 
AMEA
 
 
 
 
 
Goodwill
470

 
(32
)
 
438

Brands
117

 
(8
)
 
109


587

 
(40
)
 
547

 
 
 
 
 
 
Total goodwill
14,965

 
(53
)
 
14,912

Total reacquired franchise rights
7,764

 
(77
)
 
7,687

Total acquired franchise rights
1,737

 
(18
)
 
1,719

Total brands
3,138

 
109

 
3,247


$
27,604

 
$
(39
)
 
$
27,565


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Note 5 - Income Taxes
A rollforward of our reserves for all federal, state and foreign tax jurisdictions is as follows: 
 
6/13/15

 
12/27/14

Balance, beginning of year
$
1,587

 
$
1,268

Additions for tax positions related to the current year
112

 
349

Additions for tax positions from prior years
3

 
215

Reductions for tax positions from prior years
(1
)
 
(81
)
Settlement payments
(12
)
 
(70
)
Statutes of limitations expiration
(30
)
 
(42
)
Translation and other
(9
)
 
(52
)
Balance, end of period
$
1,650

 
$
1,587

Note 6 - Stock-Based Compensation
The following table summarizes our total stock-based compensation expense:
 
 
12 Weeks Ended
 
24 Weeks Ended
 
 
6/13/15

 
6/14/14

 
6/13/15


6/14/14

Stock-based compensation expense
 
$
68

 
$
68

 
$
144

 
$
140

Restructuring and impairment charges/(credits)
 
1

 
—

 
1

 
(3
)
Total
 
$
69

 
$
68

 
$
145

 
$
137

Our weighted-average Black-Scholes fair value assumptions are as follows: 
 
24 Weeks Ended
 
6/13/15

 
6/14/14

Expected life
7 years

 
6 years

Risk free interest rate
1.8
%
 
1.8
%
Expected volatility (a)
15
%
 
16
%
Expected dividend yield
2.7
%
 
2.9
%
(a)
Reflects movements in our stock price over the most recent historical period equivalent to the expected life.
For the 12 weeks ended June 13, 2015 and June 14, 2014, our grants of stock options, restricted stock units (RSUs), performance stock units (PSUs) and PepsiCo equity performance units (PEPunits) were nominal.
The following table summarizes awards granted under the terms of our 2007 Long-Term Incentive Plan:
 
 
24 Weeks Ended
 
 
6/13/15
 
6/14/14
 
 
Granted (a)
 
Weighted-Average Grant Price
 
Granted (a)
 
Weighted-Average Grant Price
Stock options
 
1.6

 
$
99.25

 
3.0

 
$
79.75

RSUs and PSUs
 
2.6

 
$
99.25

 
4.2

 
$
79.76

PEPunits
 
0.3

 
$
99.25

 
0.4

 
$
79.75

(a)
In millions.

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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
 
6/13/15


6/14/14


6/13/15


6/14/14


6/13/15


6/14/14

 
U.S.

International

 
Service cost
$
100


$
90


$
26


$
24


$
8


$
8

Interest cost
126


134


29


33


12


14

Expected return on plan assets
(197
)

(181
)

(45
)

(44
)

(6
)

(6
)
Amortization of prior service cost/(credit)
—


4


—


—


(9
)

(5
)
Amortization of net losses/(gains)
48


41


18


13


1


(1
)

77


88


28


26


6


10

Special termination benefits
1


—


—


—


—


1

Total expense
$
78


$
88


$
28


$
26


$
6


$
11

 
24 Weeks Ended
 
Pension
 
Retiree Medical
 
6/13/15

 
6/14/14

 
6/13/15

 
6/14/14

 
6/13/15

 
6/14/14

 
U.S.
 
International
 
 
Service cost
$
201

 
$
181

 
$
45

 
$
43

 
$
16

 
$
16

Interest cost
252

 
268

 
51

 
57

 
24

 
28

Expected return on plan assets
(393
)
 
(362
)
 
(78
)
 
(76
)
 
(12
)
 
(12
)
Amortization of prior service (credit)/cost
(1
)
 
9

 
—

 
—

 
(18
)
 
(10
)
Amortization of net losses/(gains)
95

 
81

 
32

 
22

 
1

 
(2
)
 
154

 
177

 
50

 
46

 
11

 
20

Special termination benefits
5

 
8

 
—

 
—

 
1

 
1

Total expense
$
159

 
$
185

 
$
50

 
$
46

 
$
12

 
$
21

During the second quarter of 2014, we made discretionary contributions of $19 million to our international pension plans.

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Note 8 - Debt Obligations and Commitments
In the first quarter of 2015, $2.1 billion of senior notes matured and were paid.
In the second quarter of 2015, we issued:
•
$250 million of floating rate notes maturing in April 2018;
•
$500 million of 1.250% senior notes maturing in April 2018;
•
$750 million of 1.850% senior notes maturing in April 2020; and
•
$1 billion of 2.750% senior notes maturing in April 2025.
The net proceeds from the issuances of the above notes were used for general corporate purposes, including the repayment of commercial paper.
In the second quarter of 2015, we entered into a new five-year unsecured revolving credit agreement (Five-Year Credit Agreement) which expires on June 8, 2020. The Five-Year Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.7225 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 2015, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement) which expires on June 6, 2016. The 364-Day Credit Agreement enables us and our borrowing subsidiaries to borrow up to $3.7225 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 $3.7725 billion five-year credit agreement dated as of June 9, 2014 and our $3.7725 billion 364-day credit agreement dated as of June 9, 2014. 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 June 13, 2015, there were no outstanding borrowings under the Five-Year Credit Agreement or the 364-Day Credit Agreement.
As of June 13, 2015, we had $2.9 billion of commercial paper outstanding.

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Note 9 - Accumulated Other Comprehensive Loss
The reclassifications from Accumulated Other Comprehensive Loss to the Condensed Consolidated Statement of Income are summarized as follows:
 
 
12 Weeks Ended
 
24 Weeks Ended
 
 
 
 
6/13/15

 
6/14/14

 
6/13/15

 
6/14/14

 
 
 
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item in the Condensed Consolidated Statement of Income
(Gains)/Losses on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
    Foreign exchange contracts
 
$
(2
)
 
$
—

 
$
(2
)
 
$
—

 
Net revenue
    Foreign exchange contracts
 
(20
)
 
(5
)
 
(42
)
 
(11
)
 
Cost of sales
    Interest rate derivatives
 
(81
)
 
9

 
112

 
14

 
Interest expense
    Commodity contracts
 
3

 
7

 
8

 
19

 
Cost of sales
    Commodity contracts
 
3

 
—

 
6

 
(1
)
 
Selling, general and administrative expenses
    Net (gains)/losses before tax
 
(97
)
 
11

 
82

 
21

 
 
    Tax amounts
 
33

 
(5
)
 
(37
)
 
(9
)
 
 
    Net (gains)/losses after tax
 
$
(64
)
 
$
6

 
$
45

 
$
12

 
 
 
 
 
 
 
 
 
 
 
 
 
Pension and retiree medical items:
 
 
 
 
 
 
 
 
 
 
    Amortization of prior service credit (a)
 
$
(9
)
 
$
—

 
$
(19
)
 
$
—

 
 
    Amortization of net losses (a)
 
67

 
53

 
128

 
101

 
 
    Net losses before tax
 
58

 
53

 
109

 
101

 
 
    Tax amounts
 
(18
)
 
(17
)
 
(35
)
 
(33
)
 
 
    Net losses after tax
 
$
40

 
$
36

 
$
74

 
$
68

 
 
 
 
 
 
 
 
 
 
 
 
 
Total net (gains)/losses reclassified for
the period, net of tax
 
$
(24
)
 
$
42

 
$
119

 
$
80

 


(a)
These items are included in the components of net periodic benefit cost for pension and retiree medical plans (see Note 7 for additional details).
Note 10 - Financial Instruments
Derivatives
We are exposed to market risks arising from adverse changes in:
•
commodity prices, affecting the cost of our raw materials and energy;
•
foreign exchange rates and currency restrictions; and
•
interest rates.
In the normal course of business, we manage commodity price, foreign exchange and interest rate risks through a variety of strategies, including productivity initiatives, global purchasing programs and hedging. Ongoing productivity initiatives involve the identification and effective implementation of meaningful cost-saving opportunities or efficiencies, including the use of derivatives. Our global purchasing programs include fixed-price purchase orders and pricing agreements.

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Our hedging strategies include the use of derivatives. Certain derivatives are designated as either cash flow or fair value hedges and qualify for hedge accounting treatment, while others do not qualify and are marked to market through earnings. Cash flows from derivatives used to manage commodity price, foreign exchange or interest rate risks are classified as operating activities in the Condensed Consolidated Statement of Cash Flows. We classify both the earnings and cash flow impact from these derivatives consistent with the underlying hedged item.
For cash flow hedges, the effective portion of changes in fair value is deferred in accumulated other comprehensive loss within common shareholders’ equity until the underlying hedged item is recognized in net income. For fair value hedges, changes in fair value are recognized immediately in earnings, consistent with the underlying hedged item. Hedging transactions are limited to an underlying exposure. As a result, any change in the value of our derivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items. We do not use derivative instruments for trading or speculative purposes. We perform assessments of our counterparty credit risk regularly, including reviewing netting agreements, if any, and a review of credit ratings, credit default swap rates and potential nonperformance of the counterparty. Based on our most recent assessment of our counterparty credit risk, we consider this risk to be low. In addition, we enter into derivative contracts with a variety of financial institutions that we believe are creditworthy in order to reduce our concentration of credit risk.
Commodity Prices
We are subject to commodity price risk because our ability to recover increased costs through higher pricing may be limited in the competitive environment in which we operate. This risk is managed through the use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments, which include swaps and futures. In addition, risk to our supply of certain raw materials is mitigated through purchases from multiple geographies and suppliers. We use derivatives, with terms of no more than three years, to economically hedge price fluctuations related to a portion of our anticipated commodity purchases, primarily for agricultural products, metals and energy. Ineffectiveness for derivatives that qualify for hedge accounting treatment was not material for all periods presented. Derivatives used to hedge commodity price risk that do not qualify for hedge accounting treatment are marked to market each period with the resulting gains and losses recorded in corporate unallocated expenses as either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. These gains and losses are subsequently reflected in division results when the divisions recognize the cost of the underlying commodity in operating profit.
Our open commodity derivative contracts had a notional value of $1.0 billion as of June 13, 2015 and $1.2 billion as of December 27, 2014.
Foreign Exchange
We are exposed to foreign exchange risk from foreign currency purchases and foreign currency assets and liabilities created in the normal course of business. We manage this risk through sourcing purchases from local suppliers, negotiating contracts in local currencies with foreign suppliers and through the use of derivatives, primarily forward contracts with terms of no more than two years. Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred.
Our foreign currency derivatives had a total notional value of $2.0 billion as of June 13, 2015 and $2.7 billion as of December 27, 2014. Ineffectiveness for those derivatives that qualify for hedge accounting treatment was not material for all periods presented. For foreign currency derivatives that do not qualify for

20
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hedge accounting treatment, all losses and gains were offset by changes in the underlying hedged items, resulting in no material net impact on earnings.
Interest Rates
We centrally manage our debt and investment portfolios considering investment opportunities and risks, tax consequences and overall financing strategies. We use various interest rate derivative instruments including, but not limited to, interest rate swaps, cross-currency interest rate swaps, Treasury locks and swap locks to manage our overall interest expense and foreign exchange risk. These instruments effectively change the interest rate and currency of specific debt issuances. Certain of our fixed rate indebtedness has been swapped to floating rates. The notional amount, interest payment and maturity date of the interest rate and cross-currency interest rate swaps match the principal, interest payment and maturity date of the related debt. Our Treasury locks and swap locks are entered into to protect against unfavorable interest rate changes relating to forecasted debt transactions.
The notional values of the interest rate derivative instruments outstanding as of June 13, 2015 and December 27, 2014 were $7.8 billion and $9.3 billion, respectively. Ineffectiveness for those derivatives that qualify for cash flow hedge accounting treatment was not material for all periods presented.
As of June 13, 2015, approximately 26% of total debt, after the impact of the related interest rate derivative instruments, was exposed to variable rates, compared to approximately 25% as of December 27, 2014.
Available-for-Sale Securities
Investments in debt and marketable equity securities, other than investments accounted for under the equity method, are classified as available-for-sale. All highly liquid investments with original maturities of three months or less are classified as cash equivalents. Our investments in available-for-sale securities are reported at fair value. Unrealized gains and losses related to changes in the fair value of available-for-sale securities are recognized in accumulated other comprehensive loss within common shareholders’ equity. Unrealized gains and losses on our investments in debt securities as of June 13, 2015 and December 27, 2014 were not material. The pre-tax unrealized gains on our investments in marketable equity securities were $120 million and $111 million as of June 13, 2015 and December 27, 2014, respectively.
Changes in the fair value of available-for-sale securities impact net income only when such securities are sold or an other-than-temporary impairment is recognized. We regularly review our investment portfolio to determine if any security is other-than-temporarily impaired. In making this judgment, we evaluate, among other things, the duration and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and our intent to sell, or whether we will more likely than not be required to sell, the security before recovery of its amortized cost basis. Our assessment of whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security. We recorded no other-than-temporary impairment charges for the 12 and 24 weeks ended June 13, 2015 and June 14, 2014, respectively.
Tingyi-Asahi Beverages Holding Co. Ltd. Call Option
In connection with our transaction with Tingyi (Cayman Islands) Holding Corp. in the second quarter of 2012, we received a call option to increase our holding in Tingyi-Asahi Beverages Holding Co. Ltd. to 20% that expires in the fourth quarter of 2015. If the Company decides not to exercise this call option, we would record a charge to write off the recorded value of the option. Such a charge would be reflected in “Items Affecting Comparability” in the period recognized.


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Fair Value Measurements
The fair values of our financial assets and liabilities as of June 13, 2015 and December 27, 2014 are categorized as follows:
 
6/13/15
 
12/27/14
 
Assets