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Pepsico Q3 2019 10-Q

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Pepsico Q3 2019 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 7, 2019 (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 (I.R.S. Employer Incorporation or Organization) Identification No.) 700 Anderson Hill Road, Purchase, New York 10577 (Address of principal executive offices and 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) Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: Title of each class Trading Symbols Name of each exchange on which registered Common Stock, par value 1-2/3 cents per share PEP The Nasdaq Stock Market LLC 2.500% Senior Notes Due 2022 PEP22a The Nasdaq Stock Market LLC 1.750% Senior Notes Due 2021 PEP21a The Nasdaq Stock Market LLC 2.625% Senior Notes Due 2026 PEP26 The Nasdaq Stock Market LLC 0.875% Senior Notes Due 2028 PEP28 The Nasdaq Stock Market LLC 0.750% Senior Notes Due 2027 PEP27 The Nasdaq Stock Market LLC 1.125% Senior Notes Due 2031 PEP31 The Nasdaq Stock Market LLC 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 No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No Number of shares of Common Stock outstanding as of September 26, 2019 was 1,394,435,338. Table of Contents PepsiCo, Inc. and Subsidiaries Table of Contents Page No. Part I Financial Information Item 1. Condensed Consolidated Financial Statements 3 Condensed Consolidated Statement of Income – 12 and 36 Weeks Ended September 7, 2019 and September 8, 2018 3 Condensed Consolidated Statement of Comprehensive Income – 12 and 36 Weeks Ended September 7, 2019 and September 8, 2018 4 Condensed Consolidated Statement of Cash Flows – 36 Weeks Ended September 7, 2019 and September 8, 2018 5 Condensed Consolidated Balance Sheet – September 7, 2019 and December 29, 2018 6 Condensed Consolidated Statement of Equity – 12 and 36 Weeks Ended September 7, 2019 and September 8, 2018 7 Notes to the Condensed Consolidated Financial Statements 8 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 Report of Independent Registered Public Accounting Firm 48 Item 3. Quantitative and Qualitative Disclosures About Market Risk 49 Item 4. Controls and Procedures 49 Part II Other Information Item 1. Legal Proceedings 50 Item 1A. Risk Factors 50 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 50 Item 6. Exhibits 50 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 9/7/2019 9/8/2018 9/7/2019 9/8/2018 Net Revenue $ 17,188 $ 16,485 $ 46,521 $ 45,137 Cost of sales 7,694 7,527 20,786 20,445 Gross profit 9,494 8,958 25,735 24,692 Selling, general and administrative expenses 6,639 6,114 18,143 17,013 Operating Profit 2,855 2,844 7,592 7,679 Other pension and retiree medical benefits income 38 74 163 231 Interest expense (262) (302) (790) (904) Interest income and other 38 81 139 248 Income before income taxes 2,669 2,697 7,104 7,254 Provision for income taxes 559 188 1,529 1,562 Net income 2,110 2,509 5,575 5,692 Less: Net income attributable to noncontrolling interests 10 11 27 31 Net Income Attributable to PepsiCo $ 2,100 $ 2,498 $ 5,548 $ 5,661 Net Income Attributable to PepsiCo per Common Share Basic $ 1.50 $ 1.77 $ 3.96 $ 3.99 Diluted $ 1.49 $ 1.75 $ 3.94 $ 3.97 Weighted-average common shares outstanding Basic 1,397 1,414 1,401 1,417 Diluted 1,405 1,424 1,409 1,427 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 36 Weeks Ended 9/7/2019 9/8/2018 9/7/2019 9/8/2018 Net income $ 2,110 $ 2,509 $ 5,575 $ 5,692 Other comprehensive (loss)/income, net of taxes: Net currency translation adjustment (159) (728) (51) (1,409) Net change on cash flow hedges (38) (1) (71) 75 Net pension and retiree medical adjustments 56 54 115 134 Net change on available-for-sale securities (1) 2 — 4 (142) (673) (7) (1,196) Comprehensive income 1,968 1,836 5,568 4,496 Comprehensive income attributable to noncontrolling interests (10) (11) (27) (31) Comprehensive Income Attributable to PepsiCo $ 1,958 $ 1,825 $ 5,541 $ 4,465 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 9/7/2019 9/8/2018 Operating Activities Net income $ 5,575 $ 5,692 Depreciation and amortization 1,634 1,636 Share-based compensation expense 169 203 Restructuring and impairment charges 282 79 Cash payments for restructuring charges (248) (179) Pension and retiree medical plan expenses 165 147 Pension and retiree medical plan contributions (391) (1,664) Deferred income taxes and other tax charges and credits 195 (609) Tax (benefits)/net tax expense related to the Tax Cuts and Jobs Act (TCJ Act) (29) 854 Tax payments related to the TCJ Act (393) (41) Change in assets and liabilities: Accounts and notes receivable (1,716) (1,299) Inventories (573) (362) Prepaid expenses and other current assets (264) (158) Accounts payable and other current liabilities 80 116 Income taxes payable 347 674 Other, net 230 (357) Net Cash Provided by Operating Activities 5,063 4,732 Investing Activities Capital spending (1,959) (1,578) Sales of property, plant and equipment 63 119 Acquisition of SodaStream International Ltd. (SodaStream) (1,905) — Other acquisitions and investments in noncontrolled affiliates (723) (253) Divestitures 253 294 Short-term investments, by original maturity: More than three months - purchases — (5,637) More than three months - maturities 8 11,874 More than three months - sales 3 772 Three months or less, net 13 7 Other investing, net (38) — Net Cash (Used for)/Provided by Investing Activities (4,285) 5,598 Financing Activities Proceeds from issuances of long-term debt 3,098 — Payments of long-term debt (2,954) (2,506) Short-term borrowings, by original maturity: More than three months - proceeds 6 2 More than three months - payments — (17) Three months or less, net 94 (1,384) Cash dividends paid (3,971) (3,621) Share repurchases - common (2,268) (1,442) Share repurchases - preferred — (2) Proceeds from exercises of stock options 282 215 Withholding tax payments on restricted stock units (RSUs), performance stock units (PSUs) and PepsiCo equity performance units (PEPunits) converted (100) (93) Other financing (16) (23) Net Cash Used for Financing Activities (5,829) (8,871) Effect of exchange rate changes on cash and cash equivalents and restricted cash (11) (73) Net (Decrease)/Increase in Cash and Cash Equivalents and Restricted Cash (5,062) 1,386 Cash and Cash Equivalents and Restricted Cash, Beginning of Year 10,769 10,657 Cash and Cash Equivalents and Restricted Cash, End of Period $ 5,707 $ 12,043 See accompanying notes to the condensed consolidated financial statements. 5 Table of Contents Condensed Consolidated Balance Sheet PepsiCo, Inc. and Subsidiaries (in millions except per share amounts) (Unaudited) 9/7/2019 12/29/2018 ASSETS Current Assets Cash and cash equivalents $ 5,494 $ 8,721 Short-term investments 287 272 Restricted cash 127 1,997 Accounts and notes receivable, less allowance: 9/19 - $114 and 12/18 - $101 8,735 7,142 Inventories: Raw materials and packaging 1,509 1,312 Work-in-process 316 178 Finished goods 1,842 1,638 3,667 3,128 Prepaid expenses and other current assets 888 633 Total Current Assets 19,198 21,893 Property, plant and equipment 40,645 40,164 Accumulated depreciation
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