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Basis of Presentation and Our Divisions | 8 Months Ended
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Sep. 09, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of Presentation and Other Divisions | 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. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the rules and regulations for reporting the Quarterly Report on Form 10-Q (Form 10-Q). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (2022 Form 10-K). This report should be read in conjunction with our 2022 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 and 36 weeks ended September 9, 2023 are not necessarily indicative of the results expected for any future period or the full year. 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. While our financial results in the United States and Canada (North America) are reported on a 12-week basis, all of our international operations are reported on a monthly calendar basis for which the months of June, July and August are reflected in our results for the 12 weeks ended September 9, 2023 and September 3, 2022, and the months of January through August are reflected in our results for the 36 weeks ended September 9, 2023 and September 3, 2022. The preparation of our condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and related disclosures. Additionally, the business and economic uncertainty resulting from the Russia-Ukraine conflict and the high interest rate and inflationary cost environment has made such estimates and assumptions more difficult to calculate. Accordingly, actual results and outcomes could differ from those estimates. 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. 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. Certain reclassifications were made to the prior year’s financial statements to conform to the current year presentation. Our Divisions We are organized into seven reportable segments (also referred to as divisions), as follows: 1)Frito-Lay North America (FLNA), which includes our branded convenient food businesses in the United States and Canada; 2)Quaker Foods North America (QFNA), which includes our branded convenient food businesses, such as cereal, rice, pasta and other branded food, in the United States and Canada; 3)PepsiCo Beverages North America (PBNA), which includes our beverage businesses in the United States and Canada; 4)Latin America (LatAm), which includes all of our beverage and convenient food businesses in Latin America; 5)Europe, which includes all of our beverage and convenient food businesses in Europe; 6)Africa, Middle East and South Asia (AMESA), which includes all of our beverage and convenient food businesses in Africa, the Middle East and South Asia; and 7)Asia Pacific, Australia and New Zealand and China region (APAC), which includes all of our beverage and convenient food businesses in Asia Pacific, Australia and New Zealand, and China region. Net revenue of each division is as follows:
| 12 Weeks Ended |  | 36 Weeks Ended
| 9/9/2023 |  | 9/3/2022 |  | 9/9/2023 |  | 9/3/2022
FLNA | $ | 5,954 |  |  | $ | 5,563 |  |  | $ | 17,441 |  |  | $ | 15,583 |
QFNA | 747 |  |  | 713 |  |  | 2,208 |  |  | 2,101 |
PBNA | 7,161 |  |  | 6,635 |  |  | 19,714 |  |  | 18,108 |
LatAm | 3,055 |  |  | 2,517 |  |  | 7,688 |  |  | 6,406 |
Europe | 3,704 |  |  | 3,646 |  |  | 9,018 |  |  | 8,466 |
AMESA | 1,615 |  |  | 1,726 |  |  | 4,202 |  |  | 4,426 |
APAC | 1,217 |  |  | 1,171 |  |  | 3,350 |  |  | 3,306 |
Total | $ | 23,453 |  |  | $ | 21,971 |  |  | $ | 63,621 |  |  | $ | 58,396 |
Our primary performance obligation is the distribution and sales of beverage and convenient food products to our customers. The following tables reflect the approximate percentage of net revenue generated between our beverage business and our convenient food business for each of our international divisions, as well as our consolidated net revenue:
| 12 Weeks Ended
| 9/9/2023 |  | 9/3/2022
| Beverages(a) |  | Convenient Foods |  | Beverages(a) |  | Convenient Foods
LatAm | 10 | % |  | 90 | % |  | 10 | % |  | 90 | %
Europe | 50 | % |  | 50 | % |  | 55 | % |  | 45 | %
AMESA | 30 | % |  | 70 | % |  | 35 | % |  | 65 | %
APAC | 25 | % |  | 75 | % |  | 25 | % |  | 75 | %
PepsiCo | 45 | % |  | 55 | % |  | 45 | % |  | 55 | %
| 36 Weeks Ended |  |  |  |  |
| 9/9/2023 |  | 9/3/2022 |  |  |  |  |
| Beverages(a) |  | Convenient Foods |  | Beverages(a) |  | Convenient Foods |  |  |  |  |
LatAm | 10 | % |  | 90 | % |  | 10 | % |  | 90 | % |  |  |  |  |
Europe | 50 | % |  | 50 | % |  | 50 | % |  | 50 | % |  |  |  |  |
AMESA | 30 | % |  | 70 | % |  | 35 | % |  | 65 | % |  |  |  |  |
APAC | 25 | % |  | 75 | % |  | 25 | % |  | 75 | % |  |  |  |  |
PepsiCo | 40 | % |  | 60 | % |  | 45 | % |  | 55 | % |  |  |  |  |
(a)Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and Europe divisions, is over 35% of our consolidated net revenue in the 12 weeks ended September 9, 2023, approximately 35% of our consolidated net revenue in the 36 weeks ended September 9, 2023, and approximately 40% of our consolidated net revenue in the 12 and 36 weeks ended September 3, 2022. Generally, our finished goods beverage operations produce higher net revenue but lower operating margin as compared to concentrate sold to authorized bottling partners for the manufacture of finished goods beverages. Operating profit of each division is as follows:
| 12 Weeks Ended |  | 36 Weeks Ended
| 9/9/2023 |  | 9/3/2022 |  | 9/9/2023 |  | 9/3/2022
FLNA | $ | 1,669 |  |  | $ | 1,588 |  |  | $ | 4,915 |  |  | $ | 4,332 |
QFNA | 135 |  |  | 122 |  |  | 452 |  |  | 416 |
PBNA (a) (b) (c) | 970 |  |  | 784 |  |  | 2,176 |  |  | 4,869 |
LatAm (d) | 593 |  |  | 463 |  |  | 1,549 |  |  | 1,206 |
Europe (a) (e) (f) | 659 |  |  | 564 |  |  | 1,206 |  |  | (369) |
AMESA | 238 |  |  | 268 |  |  | 656 |  |  | 738 |
APAC | 239 |  |  | 199 |  |  | 689 |  |  | 620 |
Total divisions | 4,503 |  |  | 3,988 |  |  | 11,643 |  |  | 11,812 |
Corporate unallocated expenses (g) (h) | (488) |  |  | (635) |  |  | (1,340) |  |  | (1,115) |
Total | $ | 4,015 |  |  | $ | 3,353 |  |  | $ | 10,303 |  |  | $ | 10,697 |
(a)In the 12 weeks ended September 3, 2022, we recorded a charge of $8 million and $6 million in our PBNA and Europe divisions, respectively, associated with the Juice Transaction. The total after-tax amount was $11 million or $0.01 per share. In the 36 weeks ended September 3, 2022, we recorded a gain of $3,029 million and $292 million in our PBNA and Europe divisions, respectively, associated with the Juice Transaction. The total after-tax amount was $2,869 million or $2.07 per share. See Note 12 for further information. (b)In the 36 weeks ended September 3, 2022, we terminated our agreement with Vital Pharmaceuticals, Inc. (Vital) to distribute Bang Energy drinks in our PBNA division. As a result, in the 12 weeks ended September 3, 2022, we recognized pre-tax brand portfolio impairment charges of $9 million ($7 million after-tax or $0.01 per share) related to the write-down of inventory in cost of sales. In the 36 weeks ended September 3, 2022, we recognized pre-tax brand portfolio impairment charges of $150 million ($114 million after-tax or $0.08 per share) primarily related to the write-off of distribution rights, with $17 million recorded in cost of sales, $7 million recorded in selling, general and administrative expenses and $126 million recorded in impairment of intangible assets. (c)In the 36 weeks ended September 9, 2023, we recorded our proportionate share of TBG’s earnings, which includes an impairment of TBG’s indefinite-lived intangible assets, and recorded an other-than-temporary impairment of our investment, both of which resulted in pre-tax impairment charges of $113 million ($86 million after-tax or $0.06 per share), recorded in selling, general and administrative expenses. See Note 9 for further information. (d)In the 36 weeks ended September 3, 2022, we made the decision to sell or discontinue certain non-strategic brands in our LatAm division. As a result, we recognized pre-tax brand portfolio impairment charges of $83 million ($56 million after-tax or $0.04 per share) primarily related to property, plant and equipment and intangible assets, with $47 million recorded in selling, general and administrative expenses and $36 million recorded in impairment of intangible assets. (e)In the 12 weeks ended September 3, 2022, we recognized net pre-tax income of $4 million ($5 million after-tax with a nominal amount per share) as a result of the Russia-Ukraine conflict, with $5 million of income recorded in selling, general and administrative expenses, partially offset by $1 million of expense recorded in cost of sales. The amounts recorded in selling, general and administrative expenses represent recovery of previously recorded amounts for allowance for expected credit losses of $9 million, partially offset by pre-tax impairment charges related to property, plant and equipment of $2 million and other costs of $2 million. The amount recorded in cost of sales represents allowance for inventory write-downs. In the 36 weeks ended September 3, 2022, we recognized pre-tax charges of $1,402 million ($1,163 million after-tax or $0.84 per share) as a result of the Russia-Ukraine conflict, with $134 million recorded in cost of sales, $70 million recorded in selling, general and administrative expenses and $1,198 million recorded in impairment of intangible assets. The amounts recorded in cost of sales and selling, general and administrative expenses include impairment charges related to property, plant and equipment of $125 million, allowance for expected credit losses of $17 million, allowance for inventory write-downs of $26 million and other costs of $36 million. See Note 4 for further information. For information on indefinite-lived intangible assets, see Notes 2 and 4 to our consolidated financial statements in our 2022 Form 10-K. (f)In the 36 weeks ended September 3, 2022, we recognized pre-tax brand portfolio impairment charges of $241 million ($193 million after-tax or $0.14 per share) in impairment of intangible assets, related to the repositioning or discontinuation of certain juice and dairy brands in Russia. See Note 4 for further information. For information on indefinite-lived intangible assets, see Notes 2 and 4 to our consolidated financial statements in our 2022 Form 10-K. (g)In the 36 weeks ended September 9, 2023, we recorded a pre-tax gain of $85 million ($65 million after-tax or $0.05 per share) in selling, general and administrative expenses as a result of the sale of a corporate asset. (h)In the 36 weeks ended September 3, 2022, we recorded a pre-tax loss on certain equity investments of $68 million ($51 million after-tax or $0.04 per share) in selling, general and administrative expenses.

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