GOOD
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BETTER
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// 2017 ANNUAL REPORT / PERFORMANCE WITH PURPOSE
Performing while Transforming
In 2017, PepsiCo continued to deliver strong performance and shareholder returns,
powered by our portfolio of Fun for You, Better for You and Good for You products.*
$6.5B
cash returned to
shareholders through
dividends and
share repurchases
9%
core constant
currency EPS
growth1
$7.3B
free cash
flow, excluding
certain items1
Our selection of low- and
Our selection of low- and
Our selection of low- and
zero-calorie beverages and more-
zero-calorie beverages and more-
zero-calorie beverages and more-
nutritious foods continued to grow,
including Aqua Minerale Water+Juice,
new flavors of KeVita Master Brew
Kombucha, Quaker 3 Minutos
and Off the Eaten Path.
2.3%
organic revenue
growth1
The joint launch of MTN DEW ICE
The joint launch of MTN DEW ICE
The joint launch of MTN DEW ICE
The joint launch of MTN DEW ICE
The joint launch of MTN DEW ICE
The joint launch of MTN DEW ICE
The joint launch of MTN DEW ICE
and Doritos Blaze harnessed
and Doritos Blaze harnessed
and Doritos Blaze harnessed
and Doritos Blaze harnessed
and Doritos Blaze harnessed
and Doritos Blaze harnessed
and Doritos Blaze harnessed
the power of PepsiCo’s
complementary food and
beverage brands.
~$1B
annual savings
enabled by productivity
agenda
PepsiCo’s distinctive
PepsiCo’s distinctive
PepsiCo’s distinctive
black can Pepsi, with maximum
cola taste and zero sugar,
expanded to 35+ new markets
around the world in 2017.
22.9%
core net
return on invested
capital (ROIC)1
Frito-Lay’s expanded Simply line
Frito-Lay’s expanded Simply line
Frito-Lay’s expanded Simply line
offers great-tasting
offers great-tasting
offers great-tasting
snacks with no artificial
flavors or colors.
1. Full-year reported net revenue increased 1.2%. Full-year reported EPS declined 23%. Full-year reported EPS results include a $2.5 billion provisional net tax expense ($1.70 per share) associated with the enactment of the
U.S. Tax Cuts and Jobs Act. Full-year cash flow from operating activities was $10 billion. Over the past five years, reported net revenue declined at a 1% compound annual growth rate and reported EPS declined an average
of 2%. Organic, core and constant currency results, free cash flow, excluding certain items, as well as ROIC and core net ROIC, are non-GAAP financial measures. Please refer to “Reconciliation of GAAP and Non-GAAP
Information” beginning on page 147 of this Annual Report for definitions and more information about these results, including a reconciliation to the most directly comparable financial measure in accordance with GAAP.
2017 PepsiCo Annual Report | 1
2017 PepsiCo Annual Report | 1
Indra K. Nooyi
PepsiCo Chairman
of the Board of
Directors and Chief
Executive Offi cer
Table of
Contents
Letter to Shareholders 01
Financial Highlights 10
PepsiCo Board of Directors 11
PepsiCo Leadership 12
PepsiCo Form 10-K 13
Reconciliation of GAAP
and Non-GAAP Information 147
Forward- Looking Statements 150
Common Stock and
Shareholder Information 151
Corporate Information 152
Dear Fellow
Dear Fellow
Shareholders,
Shareholders,
More than half a century ago, standing before an assembly
of civic leaders and citizens in Frankfurt, Germany, President
John F. Kennedy — a man who, for so many, embodied the
dawning of a new era — articulated his philosophy on progress:
“For time and the world do not stand still,” he said. “Change
is the law of life. And those who look only to the past or the
present are certain to miss the future.”
Two years later, in 1965, Frito-Lay and Pepsi-Cola merged
to form PepsiCo. And ever since, we have done our best to
live up to those words, to the idea of always looking to the
future. Throughout our history, we have continually scanned
the horizon, strived to identify new and emerging trends,
and focused on making the necessary investments and
adjustments to navigate them successfully.
That is why, decade after decade, we have consistently delivered
top-tier returns, outperformed the competition and built a
portfolio of iconic brands, while also attracting and developing
some of the best and brightest leaders in our industry.
*As we evolve our portfolio and expand our offerings, we are continually updating our defi nitions of our Good for You, Better for You and Fun for You categories,
and what products fi t within each category. Below are 2017 defi nitions:
GOOD FOR YOU options help consumers meet recommended daily intakes of whole grains, vegetables, fruits, dairy, nuts and seeds with low to no amounts of
particular nutrients, such as added sugars, salt or saturated fat.
BETTER FOR YOU options can help consumers limit particular nutrients, such as added sugars, salt or saturated fat, when incorporated into a well-balanced diet.
These options include beverages with fewer or no calories. In this category, we also include products specifi cally formulated to provide a functional benefi t,
such as addressing the performance needs of athletes.
FUN FOR YOU options are treats for consumers to enjoy responsibly.
Our commitment to excellence and innovation served us well
once again in 2017, unlocking another year of strong operating
performance1:
• • We delivered organic revenue growth of 2.3%.
• • We expanded core operating margins by 45 basis points.
• • We grew core constant currency EPS by 9%, exceeding the
8% goal we set at the beginning of 2017.
• • We generated free cash fl ow, excluding certain items, of
$7.3 billion, which exceeded our goal of approximately
$7 billion we set at the beginning of 2017.
• • Core net ROIC expanded by 140 basis points and now
stands at 22.9%.
• • We met our goal of returning $6.5 billion in cash
to shareholders through dividends and share
repurchases combined.
Our 2017 results build
on a strong fi ve-year
track record:
• Organic revenue grew at a 4% compound rate.
• Core operating margin expanded by 220 basis points.
• Core constant currency EPS growth averaged more than
9% annually.
• Core net ROIC expanded more than 750 basis points.
I have written about some of these megatrends in past
letters to shareholders, but what sets this moment apart
is not just the perpetuation of these trends, but also their
acceleration and the amplifi cation of their impact on our
business — and all businesses.
A recent study of how companies perform when confronted by
industry-wide disruption found that only one-third successfully
navigate change and emerge on the other side.
I am absolutely confi dent PepsiCo will be one of those
companies, emerging from this period stronger than before —
because we have anticipated many of these trends and
changes, and invested behind them.
The ongoing transformation of our portfolio with more
delicious, nutritious choices is helping ensure the health
of our business. The power of our retail and foodservice
partnerships off ers an unmatched advantage in the
marketplace. We are diff erentiating ourselves with world-
class design and capturing growth in eCommerce.
Digitalization is empowering us to be more responsive to
the needs of customers and consumers, and helping drive
greater agility and effi ciency, leading to greater productivity.
We are minimizing our impact on the planet while reducing
costs. And upskilling our associates is helping ensure
we have the workforce of the future, while uplifting our
communities is helping ensure we are a good neighbor in
the markets we serve.
• Our annualized dividend per share increased by 50%.
Let’s take these, one at a time:
• We returned $38 billion to shareholders through dividends
and share repurchases combined.
These are impressive results, particularly in light of all
the global megatrends impacting our business, including
macroeconomic and political volatility; the continued
rebalancing of the economic world; shifting consumer
preferences and increasing demand for more nutritious
foods and beverages; the disruption of retail; and
the emergence of niche brands capturing growth in
many markets.
One of the other powerful megatrends impacting our business,
of course, is the relentless pace of digital innovation. Internet-
enabled services, automation across the value chain, the rise
of Big Data, and pervasive social media–driven consumption
are fundamentally transforming how all of us live, work,
communicate, shop and do business.
More Delicious,
Nutritious Choices
We are off ering consumers a wide array of great-tasting
choices, from Fun for You, to Better for You, to Good for
You products, and leveraging the power of our distribution
system to make them available everywhere consumers
want them.
In 2017, we continued expanding our selection of low- and
zero-calorie beverages, with launches such as Aqua
Minerale Water+Juice and new fl avors of KeVita Master Brew
2017 PepsiCo Annual Report 2 | 3
Kombucha, while introducing Tropicana Probiotics. And our
distinctive black can Pepsi — known as Pepsi Zero Sugar or
Pepsi Max — continued to gain ground around the world.
We also introduced Quaker 3 Minutos, an aff ordable, whole-
grain, oat-based product that delivers daily nutrition to
consumers across Latin America, and Off the Eaten Path,
a series of vegetable- and legume-based products like
Veggie Crisps, Hummus Crisps and Sweet Potato Crisps
available in the U.S. and UK. And we built on the success
of the Simply brand with new products like Simply Doritos
White Cheddar.
These are just a few of the more nutritious products we
launched in 2017, building on more than a decade of progress
transforming our portfolio. In fact, while in 2006 our Fun for
You portfolio was about 70% larger than our Good for You
and Better for You portfolios combined, by the end of 2017,
they were nearly equal in size.
Enabling this shift in our portfolio has been our long-term
investment in R&D — from product reformulation to sweetener
and ingredient discovery — that has produced foods and
beverages with fewer calories, less salt and reduced fat
without sacrifi cing great taste.
Portfolio
Transformation
Better for You and Good for You
products are an increasing
percentage of our total portfolio.
~38%
~50%
2006
2017
Fun for You
Better for You & Good for You
While delivering strong performance,
we continued to expand our selection of
more nutritious foods and beverages to
meet consumers’ shifting preferences and
unlock opportunities for growth.
Building
Powerful Brands
We continued to engage consumers with
cutting-edge design, exciting campaigns
and world-class partnerships.
~$200M
PepsiCo’s premium bottled
water brand LIFEWTR generated
approximately $200M in
estimated annual retail sales
in 2017, its fi rst year. Four series
of bottles celebrated public
art, women in the arts,
fashion and arts in
education.
SERSERSERSERSERSERERIESIESIESIESIESIESIES 1111111
SERIES 1
SERSERSERSERSERSERSERIESIESIESIESIESIESIES 2222222
SERIES 2
SERSERSERSERSERSERERIESIESIESIESIESIESIES 3333333
SERIES 3
SERSERSERSERSERSERSERIESIESIESIESIESIESIES 4444444
SERIES 4
LIFEWTR
PepsiCo’s premium bottled
water brand LIFEWTR
generated more than $200MM
in annualized retail sales in its
fi rst year. The ‘Series 2’ bottles
celebrated female artists,
generating buzz with an
“Art By A Woman” campaign
that included an interactive
art installation in New York
City.
Gatorade’s
“Made For This” campaign
featured high school athletes
and the hard work behind
their greatest moments,
underscoring that athletes
are made for these moments,
and Gatorade is made
to fuel them.
UEFA
Champions
League
PepsiCo celebrated its
second year of partnership with
UEFA Champions League, with more
than 100 markets activating across some
of PepsiCo’s biggest global brands,
including Pepsi, Lay’s and Gatorade.
2017 PepsiCo Annual Report 4 | 5
2 0 17
P
L
I
A
T
E
R
R
A
T
N
A
K
Retail partners
scored PepsiCo
O
W
E
#1
Manufacturer
in Kantar Retail’s
2017 PoweRanking®
Survey
R
A
N
K
I
N
G
and several international markets, expanded our partnership
with Subway to China, France and Colombia, and won new
colleges and universities, including Portland State University,
the University of Kansas and University of Utah.
Differentiating
PepsiCo with Design
In 2017, our design team helped drive successful launches of
new products such as LIFEWTR, while creating meaningful,
memorable experiences for customers and consumers
at major global events, from Super Bowl LI to Milan Design
Week to the UEFA Champions League Final. Recognized
with more than 400(cid:4)awards since 2012, PepsiCo’s design team
helps bolster our reputation as one of the world’s leading
corporate innovators.
Unmatched
Retail and Foodservice
Partnerships
Enabled by our integrated Global Foodservice team, we are
leveraging our complementary food and beverage portfolios
to drive sales and help support our retail and foodservice
partners in the U.S. and across the world.
The strength of our partnerships in the U.S. was refl ected
in Kantar Retail’s 2017 PoweRanking® survey, where, for the
second consecutive year in the 21-year history of Kantar, our
retail partners named us the #1, best-in-class manufacturer,
with the gap between #1 and #2 widening signifi cantly since
2016. This ranking is a testament to the dedication of our
associates and the innovations we continue to bring to market,
including our Hello Goodness platform that off ers consumers a
range of lower-calorie and more-nutritious options.
We were also ranked by the Advantage Report™ as the #1
food and beverage supplier in the U.S., and many of our
business units are highly ranked in markets such as China,
Thailand, Russia, the UK, Poland and Mexico.
Based on our reputation for top-tier service and world-class
innovation, we forged or extended a number of foodservice
partnerships in 2017, increasing distribution and market share.
We completed long-term renewals with YUM Brands in the U.S.
Hello Goodness vending machines,
coolers and racks, offering more
nutritious on-the-go snacks and
beverages, signifi cantly expanded
across the U.S., with nearly 40,000
units sold into the market.
New Channels
for Growth
Our investment in digital capabilities and
eCommerce helped drive strong results in 2017,
particularly in the U.S. and China, positioning
us well for future growth.
~$1B
in annualized
retail sales from
eCommerce
Exclusive
eCommerce offerings
PepsiCo’s eCommerce team
developed branded NFL gift packs
with team-themed products
to help consumers amp up their
game-watch parties.
USA
In China, one of the biggest
eCommerce markets in the
world, PepsiCo has launched
innovative snacks exclusively
for online channels, driving
revenue gains in the region.
CHINA
Breakthrough
digital engagement
PepsiCo Greater China
celebrated the 6th year of its
“Bring Happiness Home”
campaign, with a video that
generated more than
1 billion views.
2017 PepsiCo Annual Report 6 | 7
Capturing
Growth in eCommerce
Our investment in eCommerce across multiple channels
helped drive strong results in 2017, particularly in the U.S.
and China. We are leveraging Big Data and predictive
analytics to shape real-time marketing messages, dynamic
merchandising and tailored off ers. And we are increasingly
collaborating with retail customers to make eCommerce a
point of diff erentiation for PepsiCo, earning awards for
eCommerce excellence. In fact, our eCommerce business in
2017 generated approximately $1(cid:4)billion in annualized retail
sales, and we believe we are well-positioned to seize the
dynamic future of this space.
Digitalizing
PepsiCo
In the face of rapid technological innovation and accelerating
change throughout our industry, we are deploying digital
capabilities widely across the company. Frito-Lay North
America is using Big Data to help make sure consumers can
fi nd their favorite snacks in local stores. In India, we set up a
Digital Command Center to analyze links between consumer
behavior and business results. In China, we leveraged
social media to launch the latest “Bring Happiness Home”
Chinese New Year campaign, including a 20-minute video
that generated more than 1 billion views. Our increased
commitment to digitalization in Latin America drove up our
return on investment from advertising and marketing. We
are capitalizing on the emerging capabilities of the Internet
of Things, from predicting when plant equipment will need
maintenance to reducing energy consumption. And we are just
getting started.
Enhancing
Productivity with Greater
Agility and Effi ciency
In 2017, we generated approximately $1 billion in savings,
enabled by our productivity agenda. Our productivity
has been driven by a relentless continuous-improvement
mindset, focused on every aspect of our value chain. We
have refi ned our business model to reduce management
layers and accelerate decision-making. We have harnessed
leading-edge digital tools to increase manufacturing
throughput, curb logistics costs, and improve go-to-market
effi ciency and eff ectiveness. And we are sustainably
reinvesting in our business, positioning ourselves to capture
tomorrow’s growth.
Minimizing Our
Environmental Impact
while Cutting Costs
We are accelerating our eff orts to minimize PepsiCo’s
environmental footprint, enabling us to curb costs and
mitigate our operational impact on the communities
we serve.
In 2017, we teamed up with leading universities,
governments and innovators on projects such as developing
biodegradable fi lm resins that meet the sustainable
fl exible packaging needs of our global business — helping
advance our goal of designing 100% of our packaging to(cid:4)be
recyclable, compostable or biodegradable by 2025.
We also continued investing in long-term water security,
from Latin America, where we are developing innovative
solutions to help public institutions more effi ciently
manage water, to the Middle East, where we are working
with the Jordanian Ministry of Water and Irrigation to
replenish water at its source. In fact, through community
programs, we returned more water than we consumed
in Jordan every year from 2013 to 2015 — more than
600(cid:4)million liters annually.
Upskilling Our
Workforce and Uplifting
Communities
PepsiCo’s success has always rested on our single greatest
asset: our people. At a time of sweeping change in our
industry, we are helping associates develop the skills they need
to grow and our company needs to thrive, from enhancing our
Education Assistance Program so frontline associates can
build their skills and earn a degree in an area that advances
their careers, to expanding PepsiCo University’s course
off erings on digital trends. In 2017, our associates completed
over 1(cid:4)million hours of training for the second consecutive year,
and more than 3,000(cid:4)associates attended Learn Together
sessions with subject-matter experts to enhance their skills.
In 2017, we also renewed our commitment to supporting our
associates in other ways. On-site and near-site childcare
opened in Purchase and Plano — joining the childcare options
already available at or near PepsiCo locations around the
world — and we launched our Ready to Return initiative, a
10-week “boot camp” for professionals seeking to refresh their
skills after taking time off to care for a loved one.
All of these eff orts refl ect a broader commitment to operating
in a way that not only generates sustained fi nancial growth
and consistently strong returns, but also does so while
being responsive to the needs of the world around us. That
commitment — what we call Performance with Purpose — is
increasingly important to a wide range of stakeholders,
from consumers to investors.
According to a recent study, assets managed with responsible
investment criteria grew from more than $18 trillion in 2014
to nearly $23 trillion in 2016 — a trend expected to gain
momentum in the years ahead, as investors under the age of
35 are twice as likely to divest from a company if it is perceived
to be unsustainable.
This trend refl ects the idea that, in the 21st century, being a
great company means being a good company, too. It means
focusing not only on the coming quarters, but also the coming
years, considering the level, as well as duration of returns.
At PepsiCo, we know that prioritizing the short term at the
expense of the long term is simply not sustainable, and
perpetuates the kinds of boom-splat cycles that are not
good for any of our stakeholders. Instead, we have adopted
a diff erent approach — advancing both short- and long-term
priorities, hand in hand, so we can deliver strong returns
that grow consistently over an extended period of time. And
we have done so while upholding the highest standards of
corporate integrity and responsibility. In fact, PepsiCo is the
only food and beverage company to appear on the Ethisphere
Institute’s list of the World’s Most Ethical Companies® every
year since the list was established twelve years ago.
More than a decade into our Performance with Purpose
journey, I am more confi dent than ever that we are on the
right path. And we have recommitted to that path with
our Performance with Purpose 2025 Agenda, embedding
sustainability into everything we do and powering a virtuous
cycle that allows us to continue doing well by doing good.
Our company has come a long way from our humble roots
in a North Carolina apothecary, and so long as we continue
heeding what John F. Kennedy called “the law of life”—
change — and always look to the future, we will continue
climbing higher and crossing new frontiers in 2018 and beyond.
Thank you for your support and the confi dence you’ve placed
in us with your investment.
Indra K. Nooyi
PepsiCo Chairman of the
Board of Directors and
Chief Executive Offi cer
2017 PepsiCo Annual Report 8 | 9
Performance with
Purpose
Agenda 2025
Since launching our ambitious Performance with
Purpose 2025 Agenda, we have made progress
across our sustainability goals in each of the
Agenda’s three focus areas — Products, Planet and
People — strengthening our business and
the communities we serve.
6M
women and girls assisted
through investments
in communities
around the world
>260M
servings of nutritious
foods and beverages
provided to underserved
consumers and
communities
~2.7B
liters of water
replenished locally
in high-risk
watersheds
11M
people provided
safe water access
since 2006
PepsiCo is supporting the
International Youth Foundation
(IYF) to train 1M young women
by the end of 2025 through IYF’s
successful Passport to Success
life skills program.
1M
hours of training
completed by
our associates
in 2017
Quaker 3 Minutos, an affordable,
whole- grain, oat-based product
fortifi ed with vitamins and minerals,
is helping consumers in Mexico
get the daily nutrition
they need.
Reduced
added sugars, saturated
fat and sodium in our food
and beverage portfolio
In 2017, PepsiCo placed one of
the largest reservations for
Tesla, Inc.’s new electric Semi
trucks to help reduce fleet
emissions and cut down
on fuel costs.
All of the data presented above is for 2016, unless otherwise noted. For more information on our goals and progress, please see our 2016 Sustainability
Report available at www.pepsico.com.
2017 Financial Highlights
Mix of Net Revenue
Net Revenues
Food 53%
Beverage 47%
U.S. 58%
Outside U.S. 42%
North America Beverages 33%
Latin America 11%
Asia, Middle East and North Africa 10%
Quaker Foods North America 4%
Europe Sub-Saharan Africa 17%
Frito-Lay North America 25%
Division Operating Profi t
North America Beverages 23%
Latin America 8%
Asia, Middle East and North Africa 9%
Quaker Foods North America 6%
Europe Sub-Saharan Africa 12%
Frito-Lay North America 42%
PepsiCo, Inc. and Subsidiaries
(in millions except per share data; all per share amounts assume dilution)
Summary of Operations
Net revenue
Core total operating profit (b)
Reported earnings per share
Core earnings per share attributable to PepsiCo (c)
Free cash flow, excluding certain items (d)
Capital spending
Common share repurchases
Dividends paid
2017
$ 63,525
$ 10,789
$ 3.38
$ 5.23
$ 7,293
$ 2,969
$ 2,000
$ 4,472
2016
$ 62,799
$ 10,393
$ 4.36
$ 4.85
$ 8,055
$ 3,040
$ 3,000
$ 4,227
% Chg (a)
1%
4%
-23%
8%
-9%
-2%
-33%
6%
(a) Percentage changes are based on unrounded amounts.
(b) Excludes the net mark-to-market impact of our commodity derivatives and restructuring and impairment charges in both years. In 2016, also excludes a charge related to the transaction
with Tingyi and a pension-related settlement charge. See page 147 “Reconciliation of GAAP and Non-GAAP Information” for a reconciliation to the most directly comparable fi nancial measure
in accordance with GAAP.
(c) Excludes the net mark-to-market impact of our commodity derivatives and restructuring and impairment charges in both years. In 2017, also excludes the provisional net tax expense related
to the TCJ Act. In 2016, also excludes a charge related to the transaction with Tingyi, a charge related to debt redemption and a pension-related settlement charge. See page 52 “Results of
Operations — Consolidated Review — Other Consolidated Results” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and page 147 “Reconciliation of
GAAP and Non-GAAP Information” for a reconciliation to the most directly comparable fi nancial measure in accordance with GAAP.
(d) Includes the impact of net capital spending, and excludes payments related to restructuring charges and the associated net cash tax benefi ts, as well as discretionary pension
contributions and the associated net cash tax benefi ts in both years. In 2016, also excludes net cash received related to interest rate swaps and net cash tax benefi t related to debt redemption
charge. See page 70 “Our Liquidity and Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and page 147 “Reconciliation of GAAP
and Non-GAAP Information” for a reconciliation to the most directly comparable fi nancial measure in accordance with GAAP.
PepsiCo Board of Directors
2017 PepsiCo Annual Report 10 | 11
PHOTO LEFT TO RIGHT
Cesar Conde, 44
Chairman,
NBCUniversal
International Group
and NBCUniversal
Telemundo Enterprises
Elected 2016
Robert C. Pohlad, 63
President,
Dakota Holdings, LLC
Elected 2015
Richard W. Fisher, 68
Former President and
Chief Executive Officer,
Federal Reserve
Bank of Dallas
Elected 2015
George W. Buckley, 71
Former Chairman,
President and Chief
Executive Officer,
3M Company
Elected 2012
Darren Walker, 58
President,
Ford Foundation
Elected 2016
Shona L. Brown, 52
Independent Advisor;
Former Senior Advisor,
Google Inc.
Elected 2009
Alberto Weisser, 62
Former Chairman and
Chief Executive Officer,
Bunge Limited
Elected 2011
Dina Dublon, 64
Former Executive Vice
President and Chief
Financial Officer,
JPMorgan Chase & Co.
Elected 2005
William R. Johnson, 69
Operating Partner,
Global Retail and
Consumer, Advent
International
Corporation; Former
Chairman, President and
Chief Executive Officer,
H.J. Heinz Company
Elected 2015
Daniel Vasella, MD, 64
Former Chairman and
Chief Executive Officer,
Novartis AG
Elected 2002
Ian M. Cook, 65
Chairman,
President and Chief
Executive Officer,
Colgate-Palmolive
Company
Elected 2008
Indra K. Nooyi, 62
Chairman of the
Board of Directors and
Chief Executive Officer,
PepsiCo
Elected 2001
David C. Page, MD, 61
Director and President,
Whitehead Institute
for Biomedical Research;
Professor,
Massachusetts
Institute of Technology
Elected 2014
PepsiCo Leadership
PHOTO LEFT TO RIGHT
Kirk Tanner
President and Chief
Operating Officer,
North America
Beverages
Ruth Fattori
Executive Vice President,
Human Resources and
Chief Human Resources
Officer
David Yawman
Executive Vice President,
Government Affairs,
General Counsel and
Corporate Secretary
Mike Spanos
Chief Executive Officer,
Asia, Middle East and
North Africa
Eugene Willemsen
Executive Vice President,
Global Categories &
Franchise Management
Silviu Popovici
President,
Europe Sub-Saharan
Africa
Laxman Narasimhan
Chief Executive Officer,
Latin America and
Europe Sub-Saharan
Africa
Hugh F. Johnston
Vice Chairman,
Executive Vice President
and Chief Financial
Officer
Ramon Laguarta
President
Indra K. Nooyi
Chairman of the
Board of Directors and
Chief Executive Officer
Vivek Sankaran
President and Chief
Operating Officer,
Frito-Lay North America
Jim Andrew
Executive Vice President,
Corporate Strategy and
Chief Venturing Officer
Grace Puma
Executive Vice President,
Global Operations
Albert P. Carey
Chief Executive Officer,
North America
Sanjeev Chadha
Chairman, Asia,
Middle East and
North Africa
Jon Banner
Executive Vice President,
Communications
Dr. Mehmood Khan
Vice Chairman,
Executive Vice President
and Chief Scientific
Officer, Global Research
and Development
See pages 32–35 of the Form 10-K for a list of PepsiCo Executive Officers subject to Section 16 of the Securities Exchange Act of 1934.
2017 PepsiCo Annual Report 12 | 13
PepsiCo, Inc.
Annual Report 2017
Form 10-K
For the fi scal year ended
December 30, 2017
page intentionally left blank
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2017
Commission file number 1-1183
PepsiCo, Inc.
(Exact Name of Registrant as Specified in Its Charter)
North Carolina
(State or Other Jurisdiction of Incorporation or Organization)
700 Anderson Hill Road, Purchase, New York
(Address of Principal Executive Offices)
13-1584302
(I.R.S. Employer Identification No.)
10577
(Zip Code)
Registrant’s telephone number, including area code: 914-253-2000
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Common Stock, par value 1-2/3 cents per share
Name of each exchange on which registered
The Nasdaq Stock Market LLC and Chicago Stock
Exchange
2.500% Senior Notes Due 2022
1.750% Senior Notes Due 2021
2.625% Senior Notes Due 2026
0.875% Senior Notes Due 2028
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
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
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
No
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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
Non-accelerated filer
(Do not check if a smaller reporting company)
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
The aggregate market value of PepsiCo, Inc. Common Stock held by nonaffiliates of PepsiCo, Inc. (assuming for these purposes, but
without conceding, that all executive officers and directors of PepsiCo, Inc. are affiliates of PepsiCo, Inc.) as of June 16, 2017, the last
day of business of our most recently completed second fiscal quarter, was $166.5 billion (based on the closing sale price of PepsiCo,
Inc.’s Common Stock on that date as reported on the New York Stock Exchange).
The number of shares of PepsiCo, Inc. Common Stock outstanding as of February 6, 2018 was 1,419,908,267.
Documents Incorporated by Reference
Portions of the Proxy Statement relating to PepsiCo, Inc.’s 2018 Annual Meeting of Shareholders are incorporated by reference into Part
III of this Form 10-K.
PepsiCo, Inc.
Form 10-K Annual Report
For the Fiscal Year Ended December 30, 2017
Table of Contents
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
1
2
10
29
30
31
31
36
39
44
132
132
132
132
133
133
133
133
134
134
135
136
Forward-Looking Statements
This Annual Report on Form 10-K contains statements reflecting our views about our future performance
that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995 (Reform Act). Statements that constitute forward-looking statements within the meaning of the
Reform Act are generally identified through the inclusion of words such as “aim,” “anticipate,” “believe,”
“drive,” “estimate,” “expect,” “expressed confidence,” “forecast,” “future,” “goal,” “guidance,”
“intend,” “may,” “objective,” “outlook,” “plan,” “position,” “potential,” “project,” “seek,” “should,”
“strategy,” “target,” “will” or similar statements or variations of such words and other similar expressions.
All statements addressing our future operating performance, and statements addressing events and
developments that we expect or anticipate will occur in the future, are forward-looking statements within the
meaning of the Reform Act. These forward-looking statements are based on currently available information,
operating plans and projections about future events and trends. They inherently involve risks and uncertainties
that could cause actual results to differ materially from those predicted in any such forward-looking statement.
These risks and uncertainties include, but are not limited to, those described in “Item 1A. Risk Factors” and
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our
Business – Our Business Risks.” Investors are cautioned not to place undue reliance on any such forward-
looking statements, which speak only as of the date they are made. We undertake no obligation to update any
forward-looking statement, whether as a result of new information, future events or otherwise. The discussion
of risks below and elsewhere in this report is by no means all-inclusive but is designed to highlight what we
believe are important factors to consider when evaluating our future performance.
Item 1. Business.
PART I
When used in this report, the terms “we,” “us,” “our,” “PepsiCo” and the “Company” mean PepsiCo, Inc.
and its consolidated subsidiaries, collectively. Certain terms used in this Annual Report on Form 10-K are
defined in the Glossary included in Item 7. of this report.
Company Overview
We were incorporated in Delaware in 1919 and reincorporated in North Carolina in 1986. We are a leading
global food and beverage company with a complementary portfolio of enjoyable brands, including Frito-
Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. Through our operations, authorized bottlers, contract
manufacturers and other third parties, we make, market, distribute and sell a wide variety of convenient and
enjoyable beverages, foods and snacks, serving customers and consumers in more than 200 countries and
territories.
Our Operations
We are organized into six reportable segments (also referred to as divisions), as follows:
1) Frito-Lay North America (FLNA), which includes our branded food and snack businesses in the
United States and Canada;
2) Quaker Foods North America (QFNA), which includes our cereal, rice, pasta and other branded food
businesses in the United States and Canada;
3) North America Beverages (NAB), which includes our beverage businesses in the United States and
Canada;
4) Latin America, which includes all of our beverage, food and snack businesses in Latin America;
5) Europe Sub-Saharan Africa (ESSA), which includes all of our beverage, food and snack businesses
in Europe and Sub-Saharan Africa; and
2
6) Asia, Middle East and North Africa (AMENA), which includes all of our beverage, food and snack
businesses in Asia, Middle East and North Africa.
Our segment net revenue (in millions) and contributions to consolidated net revenue for each of the last three
fiscal years were as follows:
FLNA
QFNA
NAB
Latin America
ESSA
AMENA
2017
$ 15,798
2,503
20,936
7,208
11,050
6,030
$ 63,525
Net Revenue
2016(a)
$ 15,549
2,564
21,312
6,820
10,216
6,338
$ 62,799
$
$
2015
14,782
2,543
20,618
8,228
10,510
6,375
63,056
% of Total Net Revenue
2017
25%
4
33
11
17
10
100%
2016
25%
4
34
11
16
10
100%
2015
23%
4
33
13
17
10
100%
(a) Our fiscal 2016 results included an extra week of results (53rd reporting week). The 53rd reporting week increased 2016 net revenue by $657
million, including $294 million in our FLNA segment, $43 million in our QFNA segment, $300 million in our NAB segment and $20
million in our ESSA segment.
See Note 1 to our consolidated financial statements for financial information about our divisions and
geographic areas. See also “Item 1A. Risk Factors” below for a discussion of certain risks associated with
our operations, including outside the United States.
Frito-Lay North America
Either independently or in conjunction with third parties, FLNA makes, markets, distributes and sells branded
snack foods. These foods include branded dips, Cheetos cheese-flavored snacks, Doritos tortilla chips, Fritos
corn chips, Lay’s potato chips, Ruffles potato chips, Santitas tortilla chips and Tostitos tortilla chips. FLNA’s
branded products are sold to independent distributors and retailers. In addition, FLNA’s joint venture with
Strauss Group makes, markets, distributes and sells Sabra refrigerated dips and spreads.
Quaker Foods North America
Either independently or in conjunction with third parties, QFNA makes, markets, distributes and sells cereals,
rice, pasta and other branded products. QFNA’s products include Aunt Jemima mixes and syrups, Cap’n
Crunch cereal, Life cereal, Quaker Chewy granola bars, Quaker grits, Quaker oat squares, Quaker oatmeal,
Quaker rice cakes, Quaker simply granola and Rice-A-Roni side dishes. These branded products are sold to
independent distributors and retailers.
North America Beverages
Either independently or in conjunction with third parties, NAB makes, markets and sells beverage
concentrates, fountain syrups and finished goods under various beverage brands including Aquafina, Diet
Mountain Dew, Diet Pepsi, Gatorade, Mist Twst, Mountain Dew, Pepsi, Propel and Tropicana. NAB also,
either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink
tea and coffee products through joint ventures with Unilever (under the Lipton brand name) and Starbucks,
respectively. Further, NAB manufactures and distributes certain brands licensed from Dr Pepper Snapple
Group, Inc. (DPSG), including Crush, Dr Pepper and Schweppes, and certain juice brands licensed from
Dole Food Company, Inc. (Dole) and Ocean Spray Cranberries, Inc. (Ocean Spray). NAB operates its own
bottling plants and distribution facilities and sells branded finished goods directly to independent distributors
and retailers. NAB also sells concentrate and finished goods for our brands to authorized and independent
bottlers, who in turn sell our branded finished goods to independent distributors and retailers in certain
markets.
3
Latin America
Either independently or in conjunction with third parties, Latin America makes, markets, distributes and sells
a number of snack food brands including Cheetos, Doritos, Emperador, Lay’s, Marias Gamesa, Rosquinhas
Mabel, Ruffles, Sabritas, Saladitas and Tostitos, as well as many Quaker-branded cereals and snacks. Latin
America also, either independently or in conjunction with third parties, makes, markets, distributes and sells
beverage concentrates, fountain syrups and finished goods under various beverage brands including 7UP,
Diet Pepsi, Gatorade, H2oh!, Manzanita Sol, Mirinda, Pepsi and Toddy. These branded products are sold to
authorized bottlers, independent distributors and retailers. Latin America also, either independently or in
conjunction with third parties, makes, markets, distributes and sells ready-to-drink tea products through an
international joint venture with Unilever (under the Lipton brand name).
See Note 1 to our consolidated financial statements for information about the deconsolidation of our
Venezuelan subsidiaries, which was effective as of the end of the third quarter of 2015.
Europe Sub-Saharan Africa
Either independently or in conjunction with third parties, ESSA makes, markets, distributes and sells a number
of leading snack food brands including Cheetos, Chipita, Doritos, Lay’s, Ruffles and Walkers, as well as
many Quaker-branded cereals and snacks, through consolidated businesses as well as through noncontrolled
affiliates. ESSA also, either independently or in conjunction with third parties, makes, markets, distributes
and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including
7UP, Diet Pepsi, Mirinda, Pepsi, Pepsi Max and Tropicana. These branded products are sold to authorized
bottlers, independent distributors and retailers. In certain markets, however, ESSA operates its own bottling
plants and distribution facilities. ESSA also, either independently or in conjunction with third parties, makes,
markets, distributes and sells ready-to-drink tea products through an international joint venture with Unilever
(under the Lipton brand name). In addition, ESSA makes, markets, distributes and sells a number of leading
dairy products including Agusha, Chudo and Domik v Derevne.
Asia, Middle East and North Africa
Either independently or in conjunction with third parties, AMENA makes, markets, distributes and sells a
number of leading snack food brands including Cheetos, Chipsy, Crunchy, Doritos, Kurkure and Lay’s, as
well as many Quaker branded cereals and snacks, through consolidated businesses, as well as through
noncontrolled affiliates. AMENA also makes, markets, distributes and sells beverage concentrates, fountain
syrups and finished goods under various beverage brands including 7UP, Aquafina, Mirinda, Mountain Dew,
Pepsi and Tropicana. These branded products are sold to authorized bottlers, independent distributors and
retailers. In certain markets, however, AMENA operates its own bottling plants and distribution facilities.
AMENA also, either independently or in conjunction with third parties, makes, markets, distributes and sells
ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand
name). Further, we license the Tropicana brand for use in China on co-branded juice products in connection
with a strategic alliance with Tingyi (Cayman Islands) Holding Corp. (Tingyi).
Our Distribution Network
Our products are primarily brought to market through direct-store-delivery (DSD), customer warehouse and
distributor networks. The distribution system used depends on customer needs, product characteristics and
local trade practices.
Direct-Store-Delivery
We, our independent bottlers and our distributors operate DSD systems that deliver beverages, foods and
snacks directly to retail stores where the products are merchandised by our employees or our independent
bottlers. DSD enables us to merchandise with maximum visibility and appeal. DSD is especially well-suited
4
to products that are restocked often and respond to in-store promotion and merchandising.
Customer Warehouse
Some of our products are delivered from our manufacturing plants and warehouses to customer warehouses.
These less costly systems generally work best for products that are less fragile and perishable, and have lower
turnover.
Distributor Networks
We distribute many of our products through third-party distributors. Third-party distributors are particularly
effective when greater distribution reach can be achieved by including a wide range of products on the
delivery vehicles. For example, our foodservice and vending business distributes beverages, foods and snacks
to restaurants, businesses, schools and stadiums through third-party foodservice and vending distributors and
operators.
Our products are also available on a growing number of e-commerce websites and mobile commerce
applications as consumer consumption patterns continue to change and retail increasingly expands online.
Ingredients and Other Supplies
The principal ingredients we use in our beverage, food and snack products are apple, orange and pineapple
juice and other juice concentrates, aspartame, corn, corn sweeteners, flavorings, flour, grapefruit, oranges
and other fruits, oats, potatoes, raw milk, rice, seasonings, sucralose, sugar, vegetable and essential oils, and
wheat. We also use water in the manufacturing of our products. Our key packaging materials include plastic
resins, including polyethylene terephthalate (PET) and polypropylene resins used for plastic beverage bottles
and film packaging used for snack foods, aluminum used for cans, glass bottles, closures, cardboard and
paperboard cartons. Fuel, electricity and natural gas are also important commodities for our businesses due
to their use in our and our business partners’ facilities and the vehicles delivering our products. We employ
specialists to secure adequate supplies of many of these items and have not experienced any significant
continuous shortages that would prevent us from meeting our requirements. Many of these ingredients, raw
materials and commodities are purchased in the open market. The prices we pay for such items are subject
to fluctuation, and we manage this risk through the use of fixed-price contracts and purchase orders, pricing
agreements and derivative instruments, including swaps and futures. In addition, risk to our supply of certain
raw materials is mitigated through purchases from multiple geographies and suppliers. When prices increase,
we may or may not pass on such increases to our customers. In addition, we continue to make investments
to improve the sustainability and resources of our agricultural supply chain, including the development of
our initiative to advance sustainable farming practices by our suppliers and expanding it globally. See Note
9 to our consolidated financial statements for additional information on how we manage our exposure to
commodity costs.
Our Brands and Intellectual Property Rights
We own numerous valuable trademarks which are essential to our worldwide businesses, including Agusha,
Amp Energy, Aquafina, Aquafina Flavorsplash, Aunt Jemima, Cap’n Crunch, Cheetos, Chester’s, Chipsy,
Chokis, Chudo, Cracker Jack, Crunchy, Diet Mist Twst, Diet Mountain Dew, Diet Mug, Diet Pepsi, Diet 7UP
(outside the United States), Domik v Derevne, Doritos, Duyvis, Elma Chips, Emperador, Frito-Lay, Fritos,
Fruktovy Sad, G2, Gamesa, Gatorade, Grandma’s, H2oh!, Imunele, Izze, J-7 Tonus, Kas, KeVita, Kurkure,
Lay’s, Life, Lifewtr, Lifewater, Lubimy, Manzanita Sol, Marias Gamesa, Matutano, Mirinda, Miss Vickie’s,
Mist Twst, Mother’s, Mountain Dew, Mountain Dew Code Red, Mountain Dew Kickstart, Mug, Munchies,
Naked, Near East, O.N.E., Paso de los Toros, Pasta Roni, Pepsi, Pepsi Max, Pepsi Next, Pepsi Zero Sugar,
Propel, Quaker, Quaker Chewy, Rice-A-Roni, Rold Gold, Rosquinhas Mabel, Ruffles, Sabritas, Sakata,
Saladitas, Sandora, Santitas, 7UP (outside the United States), 7UP Free (outside the United States), Simba,
Smartfood, Smith’s, Snack a Jacks, SoBe, SoBe Lifewater, Sonric’s, Stacy’s, Sting, SunChips, Toddy,
5
Toddynho, Tostitos, Trop 50, Tropicana, Tropicana Farmstand, Tropicana Pure Premium, Tropicana Twister,
V Water, Vesely Molochnik, Walkers and Ya. We also hold long-term licenses to use valuable trademarks in
connection with our products in certain markets, including Dole and Ocean Spray. We also distribute Rockstar
Energy drinks, Muscle Milk protein shakes and various DPSG brands, including Dr Pepper in certain markets,
Crush and Schweppes. Joint ventures in which we have an ownership interest either own or have the right
to use certain trademarks, such as Lipton, Sabra and Starbucks. Trademarks remain valid so long as they are
used properly for identification purposes, and we emphasize correct use of our trademarks. We have
authorized, through licensing arrangements, the use of many of our trademarks in such contexts as snack
food joint ventures and beverage bottling appointments. In addition, we license the use of our trademarks
on merchandise that is sold at retail, which enhances brand awareness.
We either own or have licenses to use a number of patents which relate to certain of our products, their
packaging, the processes for their production and the design and operation of various equipment used in our
businesses. Some of these patents are licensed to others.
Seasonality
Our businesses are affected by seasonal variations. For instance, our beverage sales are higher during the
warmer months and certain food and dairy sales are higher in the cooler months. Weekly beverage and snack
sales are generally highest in the third quarter due to seasonal and holiday-related patterns, and generally
lowest in the first quarter. However, taken as a whole, seasonality has not had a material impact on our
consolidated financial results.
Our Customers
Our customers include wholesale and other distributors, foodservice customers, grocery stores, drug stores,
convenience stores, discount/dollar stores, mass merchandisers, membership stores, hard discounters, e-
commerce retailers and authorized independent bottlers, among others. We normally grant our independent
bottlers exclusive contracts to sell and manufacture certain beverage products bearing our trademarks within
a specific geographic area. These arrangements provide us with the right to charge our independent bottlers
for concentrate, finished goods and Aquafina royalties and specify the manufacturing process required for
product quality. We also grant distribution rights to our independent bottlers for certain beverage products
bearing our trademarks for specified geographic areas.
We rely on and provide financial incentives to our customers to assist in the distribution and promotion of
our products to the consumer. For our independent distributors and retailers, these incentives include volume-
based rebates, product placement fees, promotions and displays. For our independent bottlers, these incentives
are referred to as bottler funding and are negotiated annually with each bottler to support a variety of trade
and consumer programs, such as consumer incentives, advertising support, new product support, and vending
and cooler equipment placement. Consumer incentives include coupons, pricing discounts and promotions,
and other promotional offers. Advertising support is directed at advertising programs and supporting
independent bottler media. New product support includes targeted consumer and retailer incentives and direct
marketplace support, such as point-of-purchase materials, product placement fees, media and advertising.
Vending and cooler equipment placement programs support the acquisition and placement of vending
machines and cooler equipment. The nature and type of programs vary annually.
Changes to the retail landscape, including increased consolidation of retail ownership, the rapid growth of
sales through e-commerce websites and mobile commerce applications, the integration of physical and digital
operations among retailers, as well as the growth in hard discounters, and the current economic environment
continue to increase the importance of major customers. In 2017, sales to Walmart Inc. (Walmart), including
Sam’s Club (Sam’s), represented approximately 13% of our consolidated net revenue. Our top five retail
customers represented approximately 33% of our 2017 net revenue in North America, with Walmart (including
6
Sam’s) representing approximately 19%. These percentages include concentrate sales to our independent
bottlers, which were used in finished goods sold by them to these retailers.
See “Off-Balance-Sheet Arrangements” in “Our Financial Results – Our Liquidity and Capital Resources”
in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for more
information on our independent bottlers.
Our Competition
Our beverage, food and snack products are in highly competitive categories and markets and compete against
products of international beverage, food and snack companies that, like us, operate in multiple geographies,
as well as regional, local and private label manufacturers, economy brands and other competitors. In many
countries in which our products are sold, including the United States, The Coca-Cola Company is our primary
beverage competitor. Other beverage, food and snack competitors include, but are not limited to, DPSG,
Kellogg Company, The Kraft Heinz Company, Mondel z International, Inc., Monster Beverage Corporation,
Nestlé S.A., Red Bull GmbH and Snyder’s-Lance, Inc.
Many of our food and snack products hold significant leadership positions in the food and snack industry in
the United States and worldwide. In 2017, we and The Coca-Cola Company represented approximately 23%
and 20%, respectively, of the U.S. liquid refreshment beverage category by estimated retail sales in measured
channels, according to Information Resources, Inc. However, The Coca-Cola Company has significant
carbonated soft drink (CSD) share advantage in many markets outside the United States.
Our beverage, food and snack products compete primarily on the basis of brand recognition and loyalty,
taste, price, value, quality, product variety, innovation, distribution, advertising, marketing and promotional
activity, packaging, convenience, service and the ability to anticipate and effectively respond to consumer
preferences and trends, including increased consumer focus on health and wellness and the continued
acceleration of e-commerce and other methods of distributing and purchasing products. Success in this
competitive environment is dependent on effective promotion of existing products, effective introduction of
new products and reformulations of existing products, the effectiveness of our advertising campaigns,
marketing programs, product packaging, pricing, increased efficiency in production techniques, new vending
and dispensing equipment and brand and trademark development and protection. We believe that the strength
of our brands, innovation and marketing, coupled with the quality of our products and flexibility of our
distribution network, allows us to compete effectively.
Research and Development
We engage in a variety of research and development activities and invest in innovation globally with the goal
of meeting changing consumer demands and preferences and accelerating sustainable growth. These activities
principally involve: development of new ingredients, flavors and products; reformulation and improvement
in the quality and appeal of existing products; improvement and modernization of manufacturing processes,
including cost reduction; improvements in product quality, safety and integrity; development of, and
improvements in, dispensing equipment, packaging technology, package design and portion sizes; efforts
focused on identifying opportunities to transform, grow and broaden our product portfolio, including by
developing products with improved nutrition profiles that reduce added sugars, sodium or saturated fat,
including through the use of sweetener alternatives and flavor modifiers and innovation in existing sweeteners,
and by offering more products with positive nutrition including whole grains, fruits and vegetables, dairy,
protein and hydration; investments in building our capabilities to support our global e-commerce business;
and improvements in energy efficiency and efforts focused on reducing our impact on the environment. Our
research centers are located around the world, including in Brazil, China, India, Ireland, Mexico, Russia, the
United Arab Emirates, the United Kingdom and the United States, and leverage nutrition science, food
7
science, engineering and consumer insights to meet our strategy to continue to develop nutritious and
convenient beverages, foods and snacks.
In 2017, we continued to refine our beverage, food and snack portfolio to meet changing consumer demands
by reducing added sugars in many of our beverages and sodium and saturated fat in many of our foods and
snacks, and by developing a broader portfolio of product choices, including: continuing to expand our
beverage options that contain no high-fructose corn syrup and that are made with natural flavors; expanding
our state-of-the-art food and beverage healthy vending initiative to increase the availability of convenient,
affordable and enjoyable nutrition; further expanding our portfolio of nutritious products by building on our
important nutrition platforms and brands — Quaker (grains), Tropicana (juices, lemonades, fruit and vegetable
drinks), Gatorade (sports nutrition for athletes), Naked Juice (cold-pressed juices and smoothies) and KeVita
(probiotics, tonics and fermented teas); further expanding our whole grain products globally; and further
expanding our portfolio of nutritious products in growing categories, such as dairy, hummus and other
refrigerated dips, and baked grain snacks. In addition, we continued to make investments to reduce our impact
on the environment, including: efforts to conserve raw materials and energy, such as by working to achieve
reductions in greenhouse gas emissions across our global businesses, by helping to protect and conserve
global water supply especially in high-water-risk locations (including replenishing watersheds that source
our operations in high-water-risk locations and promoting the efficient use of water use in our agricultural
supply chain), and by incorporating into our operations, improvements in the sustainability and resources of
our agricultural supply chain; efforts to reduce waste generated by our operations and disposed of in landfills;
efforts to support increased packaging recovery and recycling rates; efforts to increase energy efficiency,
including the increased use of renewable energy and resources; efforts to support sustainable agriculture by
expanding best practices with our growers and suppliers; and efforts to optimize packaging technology and
design to make our packaging increasingly recoverable or recyclable with lower environmental impact,
including continuing to invest in developing compostable and biodegradable packaging.
Research and development costs were $737 million, $760 million and $754 million in 2017, 2016 and 2015,
respectively, and are reported within selling, general and administrative expenses. Consumer research is
excluded from such research and development costs and included in other marketing costs.
Regulatory Matters
The conduct of our businesses, including the production, storage, distribution, sale, display, advertising,
marketing, labeling, content, quality, safety, transportation, disposal, recycling and use of our products, as
well as our occupational health and safety practices and protection of personal information, are subject to
various laws and regulations administered by federal, state and local governmental agencies in the United
States, as well as to laws and regulations administered by government entities and agencies in the more than
200 other countries and territories in which our products are made, manufactured, distributed or sold. It is
our policy to abide by the laws and regulations around the world that apply to our businesses.
The U.S. laws and regulations that we are subject to include: the Federal Food, Drug and Cosmetic Act and
various state laws governing food safety; the Food Safety Modernization Act; the Occupational Safety and
Health Act; various federal, state and local environmental protection laws, as discussed below; the Federal
Motor Carrier Safety Act; the Federal Trade Commission Act; the Lanham Act; various federal and state
laws and regulations governing competition and trade practices; various federal and state laws and regulations
governing our employment practices, including those related to equal employment opportunity, such as the
Equal Employment Opportunity Act and the National Labor Relations Act and those related to overtime
compensation, such as the Fair Labor Standards Act; customs and foreign trade laws and regulations; laws
regulating the sale of certain of our products in schools; and laws relating to the payment of taxes. We are
also required to comply with the Foreign Corrupt Practices Act and the Trade Sanctions Reform and Export
Enhancement Act. We are also subject to various state and local statutes and regulations, including state
consumer protection laws such as Proposition 65 in California, which requires that a specific warning appear
8
on any product that contains a substance listed by the State of California as having been found to cause cancer
or birth defects, unless the amount of such substance in the product is below a safe harbor level.
We are also subject to numerous similar and other laws and regulations outside the United States, including
but not limited to laws and regulations governing food safety, occupational health and safety, competition,
anti-corruption and data privacy. In many jurisdictions, compliance with competition laws is of special
importance to us due to our competitive position in those jurisdictions, as is compliance with anti-corruption
laws, including the U.K. Bribery Act. We rely on legal and operational compliance programs, as well as in-
house and outside counsel and other experts, to guide our businesses in complying with the laws and
regulations around the world that apply to our businesses.
In addition, certain jurisdictions have either imposed, or are considering imposing, new or increased taxes
on the manufacture, distribution or sale of our products, ingredients or substances contained in, or attributes
of, our products or commodities used in the production of our products. These taxes vary in scope and form:
some apply to all beverages, including non-caloric beverages, while others apply only to beverages with a
caloric sweetener (e.g., sugar). Similarly, some measures apply a single tax rate per liquid ounce while others
apply a graduated tax rate depending upon the amount of added sugar in the beverage and some apply a flat
tax rate on beverages containing a particular substance or ingredient.
In addition, certain jurisdictions have either imposed, or are considering imposing, product labeling or warning
requirements or other limitations on the marketing or sale of certain of our products as a result of ingredients
or substances contained in such products or the audience to whom products are marketed. These types of
provisions have required that we provide a label that highlights perceived concerns about a product or warns
consumers to avoid consumption of certain ingredients or substances present in our products. It is possible
that similar or more restrictive requirements may be proposed or enacted in the future. Regulators may also
restrict consumers’ ability to use benefit programs, such as the Supplemental Nutrition Assistance Program
in the United States, to purchase certain beverages and foods. In addition, legislation has been enacted in
certain U.S. states and in certain other countries where our products are sold that requires collection and
recycling of containers or that prohibits the sale of our beverages in certain non-refillable containers, unless
a deposit, ecotax or other fee is charged. It is possible that similar or more restrictive requirements may be
proposed or enacted in the future.
We are also subject to national and local environmental laws in the United States and in foreign countries in
which we do business, including laws related to water consumption and treatment, wastewater discharge and
air emissions. In the United States, our facilities must comply with the Clean Air Act, the Clean Water Act,
the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation
and Recovery Act and other federal and state laws regarding handling, storage, release and disposal of wastes
generated on-site and sent to third-party owned and operated off-site licensed facilities and our facilities
outside the United States must comply with similar laws and regulations. In addition, continuing concern
over climate change may result in new or increased legal and regulatory requirements (in or outside of the
United States) to reduce or mitigate the potential effects of greenhouse gases, or to limit or impose additional
costs on commercial water use due to local water scarcity concerns. Our policy is to abide by all applicable
environmental laws and regulations, and we have internal programs in place with respect to our global
environmental compliance. We have made, and plan to continue making, necessary expenditures for
compliance with applicable environmental laws and regulations. While these expenditures have not had a
material impact on our business, financial condition or results of operations to date, changes in environmental
compliance requirements, and any expenditures necessary to comply with such requirements, could adversely
affect our financial performance. In addition, we and our subsidiaries are subject to environmental remediation
obligations arising in the normal course of business, as well as remediation and related indemnification
obligations in connection with certain historical activities and contractual obligations, including those of
businesses acquired by us or our subsidiaries. While these environmental remediation and indemnification
9
obligations cannot be predicted with certainty, such obligations have not had, and are not expected to have,
a material impact on our capital expenditures, earnings or competitive position.
In addition to the discussion in this section, see also “Item 1A. Risk Factors.”
Employees
As of December 30, 2017, we and our consolidated subsidiaries employed approximately 263,000 people
worldwide, including approximately 113,000 people within the United States. In certain countries, our
employment levels are subject to seasonal variations. We or our subsidiaries are party to numerous collective
bargaining agreements. We expect that we will be able to renegotiate these collective bargaining agreements
on satisfactory terms when they expire. We believe that relations with our employees are generally good.
Available Information
We are required to file annual, quarterly and current reports, proxy statements and other information with
the U.S. Securities and Exchange Commission (SEC). The public may read and copy any materials that we
file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-
SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy
statements and amendments to those documents filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (Exchange Act), are also available free of charge on our Internet
site at http://www.pepsico.com as soon as reasonably practicable after such reports are electronically filed
with or furnished to the SEC.
Investors should note that we currently announce material information to our investors and others using
filings with the SEC, press releases, public conference calls, webcasts or our corporate website
(www.pepsico.com), including news and announcements regarding our financial performance, key personnel,
our brands and our business strategy. Information that we post on our corporate website could be deemed
material to investors. We encourage investors, the media, our customers, consumers, business partners and
others interested in us to review the information we post on these channels. We may from time to time update
the list of channels we will use to communicate information that could be deemed material and will post
information about any such change on www.pepsico.com. The information on our website is not, and shall
not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC.
Item 1A. Risk Factors.
You should carefully consider the risks described below in addition to the other information set forth in this
Annual Report on Form 10-K. Any of the factors described below could occur or continue to occur and could
have a material adverse effect on our business, financial condition, results of operations or the price of our
publicly traded securities. The risks below are not the only risks we face. Additional risks and uncertainties
not currently known to us, or that we currently deem to be immaterial, may occur or become material in the
future and may also adversely affect our business, reputation, financial condition, results of operations or the
price of our publicly traded securities. Therefore, historical operating results, financial and business
performance, events and trends may not be a reliable indicator of future operating results, financial and
business performance, events or trends.
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Demand for our products may be adversely affected by changes in consumer preferences or any inability
on our part to innovate, market or distribute our products effectively, and any significant reduction in
demand could adversely affect our business, financial condition or results of operations.
We are a global food and beverage company operating in highly competitive categories and markets. To
generate revenues and profits, we rely on continued demand for our products and therefore must understand
our customers and consumers and sell products that appeal to them in the sales channel in which they prefer
to shop or browse for such products. In general, changes in consumption in our product categories or consumer
demographics could result in reduced demand for our products. Demand for our products depends in part on
our ability to anticipate and effectively respond to shifts in consumer trends and preferences, including
increased demand for products that meet the needs of consumers who are concerned with: health and wellness
(including products that have less added sugars, sodium and saturated fat); convenience (including responding
to changes in in-home and on-the-go consumption patterns and methods of distribution of our products to
customers and consumers); or the location of origin or source of the ingredients and products (including the
environmental impact related to the production of our products).
Consumer preferences have been evolving, and are expected to continue to evolve, due to a variety of factors,
including: changes in consumer demographics, including the aging of the general population and the
emergence of the millennial and younger generations who have differing spending and consumption habits;
consumer concerns or perceptions regarding the nutrition profile of certain of our products, including the
presence of added sugar, sodium and saturated fat in certain of our products; growing demand for organic or
locally sourced ingredients, or consumer concerns or perceptions (whether or not valid) regarding the health
effects of ingredients or substances present in certain of our products, such as 4-MeI, acrylamide, artificial
flavors and colors, artificial sweeteners, aspartame, caffeine, furfuryl alcohol, high-fructose corn syrup,
partially hydrolyzed oils, saturated fat, sodium, sugar, trans fats or other product ingredients, substances or
attributes, including genetically engineered ingredients; taxes or other restrictions, including labeling
requirements, imposed on our products; consumer concerns or perceptions regarding packaging materials,
including their environmental impact; changes in package or portion size; changes in social trends that impact
travel, vacation or leisure activity patterns; changes in weather patterns or seasonal consumption cycles; the
continued acceleration of e-commerce and other methods of purchasing products; negative publicity (whether
or not valid) resulting from regulatory actions, litigation against us or other companies in our industry or
negative or inaccurate posts or comments in the media, including social media, about us, our employees, our
products or advertising campaigns and marketing programs; perception of social media posts or other
information disseminated by us or our employees and agents, customers, suppliers, bottlers, distributors, joint
venture partners or other third parties; perception of our employees, agents, customers, suppliers, bottlers,
distributors, joint venture partners or other third parties or the business practices of such parties; product
boycotts; or a downturn in economic conditions. Any of these factors may reduce consumers’ willingness to
purchase our products and any inability on our part to anticipate or react to such changes could result in
reduced demand for our products and erosion of our competitive and financial position and could adversely
affect our business, reputation, financial condition or results of operations.
Demand for our products is also dependent in part on product quality, product and marketing innovation and
production and distribution, including our ability to: maintain a robust pipeline of new products; improve
the quality of existing products; extend our portfolio of products in growing markets and categories; respond
to cultural differences and regional consumer preferences (whether through developing or acquiring new
products that are responsive to such preferences); monitor and adjust our use of ingredients (including to
respond to applicable regulations); develop or acquire a broader portfolio of product choices, including by
continuing to increase non-carbonated beverage offerings and other alternatives to traditional carbonated
beverage offerings and, in some cases, reformulations of our traditional carbonated beverage offerings;
develop sweetener alternatives and innovation; improve the production, packaging and distribution of our
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products; respond to competitive product and pricing pressures and changes in distribution channels, including
in the rapidly growing e-commerce channel; and implement effective advertising campaigns and marketing
programs, including successfully adapting to a rapidly changing media environment through the use of social
media and online advertising campaigns and marketing programs.
Although we devote significant resources to the items mentioned above, there can be no assurance as to our
continued ability to develop, launch, maintain or distribute successful new products or variants of existing
products in a timely manner (including to correctly anticipate or effectively react to changes in consumer
preferences) or to develop and effectively execute advertising and marketing campaigns that appeal to
customers and consumers. Our failure to make the right strategic investments to drive innovation or
successfully launch new products or variants of existing products or effectively distribute our products could
decrease demand for our existing products by negatively affecting consumer perception of our existing brands
and may result in inventory write-offs and other costs that could adversely affect our business, financial
condition or results of operations.
Changes in, or failure to comply with, laws and regulations applicable to our products or our business
operations could adversely affect our business, financial condition or results of operations.
The conduct of our business is subject to various laws and regulations administered by federal, state and local
governmental agencies in the United States, as well as government entities and agencies outside the United
States, including laws and regulations relating to the production, storage, distribution, sale, display,
advertising, marketing, labeling, content, quality, safety, transportation, disposal, recycling and use of our
products, as well as our employment and occupational health and safety practices and protection of personal
information. In addition, in many jurisdictions, compliance with competition laws is of special importance
to us due to our competitive position in those jurisdictions, as is compliance with anti-corruption laws. Many
of these laws and regulations have differing or conflicting legal standards across the various markets where
our products are made, manufactured, distributed or sold and, in certain markets, such as developing and
emerging markets, may be less developed or certain. For example, products containing genetically engineered
ingredients are subject to varying regulations and restrictions in the jurisdictions in which our products are
made, manufactured, distributed or sold. In addition, these laws and regulations and related interpretations
may change, sometimes dramatically and unexpectedly, as a result of a variety of factors, including political,
economic or social events. Such changes may include changes in: food and drug laws; laws related to product
labeling, advertising and marketing practices; laws and treaties related to international trade, including laws
regarding the import or export of our products or ingredients used in our products and tariffs; laws and
programs restricting the sale and advertising of certain of our products, including restrictions on the audience
to whom products are marketed; laws and programs aimed at reducing, restricting or eliminating ingredients
or substances in, or attributes of, certain of our products; laws and programs aimed at discouraging the
consumption or altering the package or portion size of certain of our products, including laws imposing
restrictions on the use of government funds or programs, such as the Supplemental Nutrition Assistance
Program (included within the Farm Bill in the United States), to purchase certain of our products; increased
regulatory scrutiny of, and increased litigation involving product claims and concerns (whether or not valid)
regarding the effects on health of ingredients or substances in, or attributes of, certain of our products, including
without limitation those found in energy drinks; state consumer protection laws; laws regulating the protection
of personal information; cyber-security regulations; regulatory initiatives, including the imposition or
proposed imposition of new or increased taxes or other measures impacting the manufacture, distribution or
sale of our products; accounting rules and interpretations; employment laws; privacy laws; laws regulating
the price we may charge for our products; laws regulating water rights and access to and use of water or
utilities; environmental laws, including laws relating to the regulation of water treatment and discharge of
wastewater and air emissions and laws relating to the disposal, recovery or recycling of our products and
their packaging. Changes in regulatory requirements, and competing regulations and standards, where our
12
products are made, manufactured, distributed or sold, may result in higher compliance costs, capital
expenditures and higher production costs, which could adversely affect our business, reputation, financial
condition or results of operations.
The imposition by any jurisdiction in the United States or outside the United States of new laws, regulations
or governmental policy and their related interpretations, or changes in any of the foregoing, including taxes,
labeling, product or production requirements or other limitations on, or pertaining to, the sale or advertisement
of certain of our products, ingredients or substances contained in, or attributes of, our products or commodities
used in the production of our products, may further alter the way in which we do business and, therefore,
may continue to increase our costs or liabilities or reduce demand for our products, which could adversely
affect our business, financial condition or results of operations. If one jurisdiction imposes or proposes to
impose new requirements or restrictions, other jurisdictions may follow and the requirements or restrictions,
or proposed requirements or restrictions, may also result in adverse publicity (whether or not valid). For
example, if one jurisdiction imposes a tax on sugar-sweetened beverages or foods, or imposes a specific
labeling or warning requirement, other jurisdictions may impose similar or other measures that impact the
manufacture, distribution or sale of our products. The foregoing may result in decreased demand for our
products, adverse publicity or increased concerns about the health implications of consumption of ingredients
or substances in our products (whether or not valid).
In addition, studies (whether or not scientifically valid) are underway by third parties purporting to assess
the health implications of consumption of certain ingredients or substances present in certain of our products,
such as 4-MeI, acrylamide, caffeine, furfuryl alcohol, added sugars, sodium and saturated fat. Third parties
have also published documents or studies claiming (whether or not valid) that taxes can address consumer
consumption of sugar-sweetened beverages and other foods high in sugar, sodium or saturated fat. If, as a
result of these studies and documents or otherwise, there is an increase in consumer concerns (whether or
not valid) about the health implications of consumption of our products, an increase in the number of
jurisdictions that impose taxes on our products, or an increase in new labeling, product or production
requirements or other restrictions on the manufacturing, sale or display of our products, demand for our
products could decline, or we could be subject to lawsuits or new regulations that could affect sales of our
products, any of which could adversely affect our business, financial condition or results of operations.
Although we have policies and procedures in place that are designed to promote legal and regulatory
compliance, our employees, suppliers, or other third parties with whom we do business could take actions,
intentional or not, that violate these policies and procedures or applicable laws or regulations or could fail
to maintain required documentation sufficient to evidence our compliance with applicable laws or regulations.
Violations of laws or regulations could subject us to criminal or civil enforcement actions, including fines,
penalties, disgorgement of profits or activity restrictions, any of which could result in adverse publicity or
affect our business, financial condition or results of operations. In addition, regulatory authorities under
whose laws we operate may have enforcement powers that can subject us to actions such as product recall,
seizure of products or assets or other sanctions, which could have an adverse effect on the sales of products
in our portfolio or could lead to damage to our reputation.
In addition, we and our subsidiaries are party to a variety of legal and environmental remediation obligations
arising in the normal course of business, as well as environmental remediation, product liability, toxic tort
and related indemnification proceedings in connection with certain historical activities and contractual
obligations, including those of businesses acquired by us or our subsidiaries. Due to regulatory complexities,
uncertainties inherent in litigation and the risk of unidentified contaminants on current and former properties
of ours and our subsidiaries, the potential exists for remediation, liability and indemnification costs to differ
materially from the costs we have estimated. We cannot guarantee that our costs in relation to these matters
13
will not exceed our estimates or otherwise have an adverse effect on our business, financial condition or
results of operations.
The imposition or proposed imposition of new or increased taxes aimed at our products could adversely
affect our business, financial condition or results of operations.
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed,
or are considering imposing, new or increased taxes on the manufacture, distribution or sale of our products,
ingredients or substances contained in, or attributes of, our products or commodities used in the production
of our products. These taxes vary in scope and form: some apply to all beverages, including non-caloric
beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar). Similarly, some
measures apply a single tax rate per liquid ounce while others apply a graduated tax rate depending upon the
amount of added sugar in the beverage and some apply a flat tax rate on beverages containing a particular
substance or ingredient. For example, effective January 2018, the City of Seattle, Washington in the United
States enacted a per-ounce surcharge on all sugar-sweetened beverages. By contrast, the United Kingdom
enacted a graduated tax, effective April 2018, in which the per-ounce tax rate is tied to the amount of added
sugar present in the beverage: the higher the amount of added sugar, the higher the per-ounce tax rate and
Saudi Arabia enacted, effective June 2017, a flat tax rate of 50% on the retail price of carbonated soft drinks.
These tax measures, whatever their scope or form, could increase the cost of our products, reduce overall
consumption of our products, lead to negative publicity (whether based on scientific fact or not) or leave
consumers with the perception (whether or not valid) that our products do not meet their health and wellness
needs. Such factors could adversely affect our business, financial condition or results of operations.
Significant additional labeling or warning requirements or limitations on the marketing or sale of our
products may reduce demand for such products and could adversely affect our business, financial condition
or results of operations.
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed,
or are considering imposing, product labeling or warning requirements or limitations on the marketing or
sale of certain of our products as a result of ingredients or substances contained in such products. These types
of provisions have required that we provide a label that highlights perceived concerns about a product or
warns consumers to avoid consumption of certain ingredients or substances present in our products. For
example, in California in the United States, Proposition 65 requires a specific warning on or relating to any
product that contains a substance listed by the State of California as having been found to cause cancer or
birth defects or other reproductive harm, unless the level of such substance in the product is below a safe
harbor level established by the State of California.
In addition, a number of jurisdictions, both in and outside the United States, have imposed or are considering
imposing labeling requirements, including color-coded labeling of certain food and beverage products where
colors such as red, yellow and green are used to indicate various levels of a particular ingredient, such as
sugar, sodium or saturated fat. The imposition or proposed imposition of additional product labeling or
warning requirements could reduce overall consumption of our products, lead to negative publicity (whether
based on scientific fact or not) or leave consumers with the perception (whether or not valid) that our products
do not meet their health and wellness needs. Such factors could adversely affect our business, financial
condition or results of operations.
Changes in laws and regulations relating to packaging or disposal of our products could continue to
increase our costs and reduce demand for our products or otherwise have an adverse impact on our
business, reputation, financial condition or results of operations.
Certain of our products are sold in packaging designed to be recoverable for recycling but not all packaging
14
is recovered, whether due to low value, lack of infrastructure or otherwise. The United States and many other
jurisdictions have imposed or are considering imposing regulations or policies designed to encourage
recycling, including requiring that deposits or certain taxes or fees be charged in connection with the sale,
distribution, marketing and use of certain packaging; extended producer responsibility policies which makes
brand owners responsible for the costs of recycling products after consumers have used them; and adopting
or extending product stewardship policies which could require brand owners to plan for and, if necessary,
pay for the recycling or disposal of packaging after consumers have used them. In addition, these jurisdictions
may elect to impose regulations or policies to ban the use of certain packaging, such as plastic beverage
bottles. Compliance with these laws and regulations could continue to affect our costs or require changes in
our distribution model, which could adversely affect our business, financial condition or results of operations.
Further, our reputation could be damaged if we or others in our industry do not act, or are perceived not to
act, responsibly with respect to packaging or disposal of our products.
Our business, financial condition or results of operations could suffer if we are unable to compete
effectively.
Our beverage, food and snack products are in highly competitive categories and markets and compete against
products of international beverage, food and snack companies that, like us, operate in multiple geographies,
as well as regional, local, and private label manufacturers, economy brands and other competitors. In many
countries in which our products are sold, including the United States, The Coca-Cola Company is our primary
beverage competitor. Other beverage, food and snack competitors include, but are not limited to, DPSG,
Kellogg Company, The Kraft Heinz Company, Mondel z International, Inc., Monster Beverage Corporation,
Nestlé S.A., Red Bull GmbH and Snyder’s-Lance, Inc.
Our beverage, food and snack products compete primarily on the basis of brand recognition and loyalty, taste,
price, value, quality, product variety, innovation, distribution, advertising, marketing and promotional activity,
packaging, convenience, service and the ability to anticipate and effectively respond to consumer preferences
and trends, including increased consumer focus on health and wellness and the continued acceleration of e-
commerce and other methods of distributing and purchasing products. If we are unable to effectively promote
our existing products or introduce new products, if our advertising or marketing campaigns are not effective
or if we are otherwise unable to effectively respond to pricing pressure or compete effectively (including in
distributing our products effectively and cost efficiently through all existing and emerging channels of trade,
including through e-commerce and hard discounters), we may be unable to grow or maintain sales or category
share or we may need to increase capital, marketing or other expenditures, which may adversely affect our
business, financial condition or results of operations.
Our business, financial condition or results of operations could be adversely affected as a result of political
conditions in the markets in which our products are made, manufactured, distributed or sold.
Political conditions in the markets in which our products are made, manufactured, distributed or sold may
be difficult to predict and may adversely affect our business, financial condition and results of operations.
The results of elections, referendums or other political conditions in the markets in which our products are
made, manufactured, distributed or sold could create uncertainty regarding how existing laws and regulations
may change, including with respect to sanctions, climate change regulation, taxes, the movement of goods,
services and people between countries and other matters, and could result in exchange rate fluctuation,
volatility in global stock markets and global economic uncertainty. For example, there is continued uncertainty
surrounding the United Kingdom’s pending withdrawal from the European Union, including how the United
Kingdom will interact with other European Union countries following its departure. Any changes in, or the
imposition of new laws, regulations or governmental policy and their related interpretations due to elections,
15
referendums or other political conditions could have an adverse impact on our business, financial conditions
and results of operations.
Our business, financial condition or results of operations could be adversely affected if we are unable to
grow our business in developing and emerging markets.
Our success depends in part on our ability to grow our business in developing and emerging markets, including
Mexico, Russia, the Middle East, Brazil, China and India. However, there can be no assurance that our existing
products, variants of our existing products or new products that we make, manufacture, distribute or sell will
be accepted or be successful in any particular developing or emerging market, due to local or global
competition, product price, cultural differences, consumer preferences or otherwise. The following factors
could reduce demand for our products or otherwise impede the growth of our business in developing and
emerging markets: unstable economic, political or social conditions; acts of war, terrorist acts, and civil
unrest; increased competition; volatility in the economic growth of certain of these markets and the related
impact on developed countries who export to these markets; volatile oil prices and the impact on the local
economy in certain of these markets; our inability to acquire businesses, form strategic business alliances or
to make necessary infrastructure investments; our inability to complete divestitures or refranchisings;
imposition of new or increased labeling, product or production requirements, or other restrictions; imposition
of new or increased sanctions against, or other regulations restricting contact with, certain countries in these
markets, or imposition of new or increased sanctions against U.S. multinational corporations operating in
these markets; actions, such as removing our products from shelves, taken by retailers in response to U.S.
trade sanctions or other governmental action or policy; foreign ownership restrictions; nationalization of our
assets or the assets of our suppliers, bottlers, distributors, joint venture partners or other third parties;
imposition of taxes on our products or the ingredients or substances used in our products; government-
mandated closure, or threatened closure, of our operations or the operations of our suppliers, bottlers,
distributors, joint venture partners, customers or other third parties; restrictions on the import or export of
our products or ingredients or substances used in our products; regulations relating to the repatriation of funds
currently held in foreign jurisdictions to the United States; highly-inflationary economies, devaluation or
fluctuation, such as the devaluation of the Egyptian pound, Turkish lira, Pound sterling, Argentine peso and
the Mexican peso, or demonetization of currency; regulations on the transfer of funds to and from foreign
countries, currency controls or other currency exchange restrictions, which result in significant cash balances
in foreign countries, from time to time, or could significantly affect our ability to effectively manage our
operations in certain of these markets and could result in the deconsolidation of such businesses; the lack of
well-established or reliable legal systems; increased costs of doing business due to compliance with complex
foreign and U.S. laws and regulations that apply to our international operations, including the Foreign Corrupt
Practices Act, the U.K. Bribery Act and the Trade Sanctions Reform and Export Enhancement Act; and
adverse consequences, such as the assessment of fines or penalties, for any failure to comply with these laws
and regulations. If we are unable to expand our businesses in developing and emerging markets, effectively
operate, or manage the risks associated with operating, in these markets, or achieve the return on capital we
expect from our investments in these markets, our reputation, business, financial condition or results of
operations could be adversely affected.
Uncertain or unfavorable economic conditions may have an adverse impact on our business, financial
condition or results of operations.
Many of the countries in which our products are made, manufactured, distributed and sold have experienced
and may, from time to time, continue to experience uncertain or unfavorable economic conditions, such as
recessions or economic slowdowns. Our business or financial results may be adversely impacted by uncertain
or unfavorable economic conditions in the United States and globally, including: adverse changes in interest
rates, tax laws or tax rates; volatile commodity markets, including speculative influences; highly-inflationary
16
economies, devaluation, fluctuation or demonetization; contraction in the availability of credit in the
marketplace due to legislation or economic conditions; the effects of government initiatives, including
demonetization, austerity or stimulus measures to manage economic conditions and any changes to or
cessation of such initiatives; the effects of any default by or deterioration in the creditworthiness of the
countries in which our products are made, manufactured, distributed or sold or of countries that may then
impact countries in which our products are made, manufactured, distributed or sold; reduced demand for our
products resulting from volatility in general global economic conditions or a shift in consumer preferences
for economic reasons or otherwise to regional, local or private label products or other lower-cost products,
or to less profitable sales channels; or a decrease in the fair value of pension or post-retirement assets that
could increase future employee benefit costs and/or funding requirements of our pension or post-retirement
plans. In addition, we cannot predict how current or future economic conditions will affect our customers,
consumers, suppliers, bottlers, distributors, joint venture partners or other third parties and any negative
impact on any of the foregoing may also have an adverse impact on our business, financial condition or
results of operations.
In addition, some of the major financial institutions with which we execute transactions, including U.S. and
non-U.S. commercial banks, insurance companies, investment banks and other financial institutions, may be
exposed to a ratings downgrade, bankruptcy, liquidity events, default or similar risks as a result of unfavorable
economic conditions, changing regulatory requirements or other factors beyond our control. A ratings
downgrade, bankruptcy, receivership, default or similar event involving a major financial institution, or
changes in the regulatory environment, may limit the ability or willingness of financial institutions to enter
into financial transactions with us, including to provide banking or related cash management services, or to
extend credit on terms commercially acceptable to us or at all; may leave us with reduced borrowing capacity
or exposed to certain currencies or price risk associated with forecasted purchases of raw materials, including
through our use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments,
including swaps and futures; or may result in a decline in the market value of our investments in debt securities,
which could have an adverse impact on our business, financial condition or results of operations. Similar
risks exist with respect to our customers, suppliers, bottlers, distributors and joint venture partners and could
result in their inability to obtain credit to purchase our products or to finance the manufacture and distribution
of our products resulting in canceled orders and/or product delays, which could also have an adverse impact
on our reputation, business, financial condition or results of operations.
Our business and reputation could suffer if we are unable to protect our information systems against, or
effectively respond to, cyberattacks or other cyber incidents or if our information systems, or those of our
customers, suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third
parties, are otherwise disrupted.
We depend on information systems and technology, some of which are provided by third parties, including
public websites and cloud-based services, for many activities important to our business, including: to interface
with our customers and consumers; to engage in marketing activities; to enable and improve the effectiveness
of our operations; to order and manage materials from suppliers; to manage inventory; to manage our facilities;
to conduct research and development; to maintain accurate financial records; to achieve operational
efficiencies; to comply with regulatory, financial reporting, legal and tax requirements; to collect and store
sensitive data and confidential information; to communicate electronically among our global operations and
with our employees and the employees of our customers, suppliers, bottlers, contract manufacturers,
distributors, joint venture partners and other third parties; and to communicate with our investors.
As with other global companies, we are regularly subject to cyberattacks. Cyberattacks and other cyber
incidents are occurring more frequently, are constantly evolving in nature, are becoming more sophisticated
and are being made by groups and individuals (including criminal hackers, hacktivists, state-sponsored
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institutions, terrorist organizations and individuals or groups participating in organized crime) with a wide
range of expertise and motives (including monetization of corporate, payment or other internal or personal
data, theft of trade secrets and intellectual property for competitive advantage and leverage for political,
social, economic and environmental reasons). Such cyberattacks and cyber incidents can take many forms
including cyber extortion, denial of service, social engineering, such as impersonation attempts to fraudulently
induce employees or others to disclose information or unwittingly provide access to systems or data,
introduction of viruses or malware, such as ransomware through phishing emails, website defacement or
theft of passwords and other credentials. Although we may incur significant costs in protecting against or
remediating cyberattacks or other cyber incidents, no cyberattack or other cyber incident has, to our
knowledge, had a material adverse effect on our business, financial condition or results of operations to date.
If we do not allocate and effectively manage the resources necessary to build and maintain our information
technology infrastructure, including monitoring networks and systems, upgrading our security policies and
the skills and training of our employees, and requiring our third-party service providers, customers, suppliers,
bottlers, contract manufacturers, distributors, joint venture partners or other third parties to do the same, if
we or they fail to timely identify or appropriately respond to cyberattacks or other cyber incidents, or if our
or their information systems are damaged, compromised, destroyed or shut down (whether as a result of
natural disasters, fires, power outages, acts of terrorism or other catastrophic events, network outages,
software, equipment or telecommunications failures, technology development defects, user errors, or from
deliberate cyberattacks such as malicious or disruptive software, denial of service attacks, malicious social
engineering, hackers or otherwise), our business could be disrupted and we could, among other things, be
subject to: transaction errors; processing inefficiencies; the loss of, or failure to attract, new customers and
consumers; lost revenues resulting from the disruption or shutdown of computer systems or other information
technology systems at our offices, plants, warehouses, distribution centers or other facilities, or the loss of a
competitive advantage due to the unauthorized use, acquisition or disclosure of, or access to, confidential
information; the incurrence of costs to restore data and to safeguard against future extortion attempts; the
loss of, or damage to, intellectual property or trade secrets, including the loss or unauthorized disclosure of
sensitive data or other assets; alteration, corruption or loss of accounting, financial or other data on which
we rely for financial reporting and other purposes, which could cause delays in our financial reporting; damage
to our reputation or brands; damage to employee, customer and consumer relations; litigation; regulatory
enforcement actions or fines; unauthorized disclosure of confidential personal information of our employees,
customers or consumers; the loss of information and/or supply chain disruption resulting from the failure of
security patches to be developed and installed on a timely basis; violation of data privacy, security or other
laws and regulations; and remediation costs.
Further, our information systems and the information stored therein could be compromised by, and we could
experience similar adverse consequences due to, unauthorized outside parties accessing or extracting sensitive
data or confidential information, corrupting information or disrupting business processes (or demonstrating
an ability to do so) or by inadvertent or intentional actions by our employees, agents or third parties. We
continue to devote significant resources to network security, backup and disaster recovery, and other security
measures, including training, to protect our systems and data, but these security measures cannot provide
absolute security or guarantee that we will be successful in preventing or responding to every such breach
or disruption. In addition, due to the constantly evolving nature of these security threats, the form and impact
of any future incident cannot be predicted.
Similar risks exist with respect to the cloud-based service providers and other third-party vendors that we
rely upon for aspects of our information technology support services and administrative functions, including
payroll processing, health and benefit plan administration and certain finance and accounting functions, and
systems managed, hosted, provided and/or used by third parties and their vendors. The need to coordinate
with various third-party vendors may complicate our efforts to resolve any issues that may arise. As a result,
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we are subject to the risk that the activities associated with our third-party vendors may adversely affect our
business even if the attack or breach does not directly impact our systems or information. Moreover, our
increased use of mobile and cloud technologies could heighten these and other operational risks, as certain
aspects of the security of such technologies may be complex, unpredictable or beyond our control.
While we currently maintain insurance coverage that, subject to its terms and conditions, is intended to
address costs associated with certain aspects of cyber incidents, network failures and data privacy-related
concerns, this insurance coverage may not, depending on the specific facts and circumstances surrounding
an incident, cover all losses or all types of claims that may arise from an incident, or the damage to our
reputation or brands that may result from an incident.
Our business, financial condition or results of operations may be adversely affected by increased costs,
disruption of supply or shortages of raw materials, energy, water and other supplies.
We and our business partners use various raw materials, energy, water and other supplies in our business.
The principal ingredients we use in our beverage, food and snack products are apple, orange and pineapple
juice and other juice concentrates, aspartame, corn, corn sweeteners, flavorings, flour, grapefruit, oranges
and other fruits, oats, potatoes, raw milk, rice, seasonings, sucralose, sugar, vegetable and essential oils, and
wheat. We also use water in the manufacturing of our products. Our key packaging materials include plastic
resins, including PET and polypropylene resins used for plastic beverage bottles and film packaging used
for snack foods, aluminum used for cans, glass bottles, closures, cardboard and paperboard cartons. Fuel,
electricity and natural gas are also important commodities for our businesses due to their use in our and our
business partners’ facilities and the vehicles delivering our products.
Some of these raw materials and supplies are sourced from countries experiencing civil unrest, political
instability or unfavorable economic conditions, and some are available from a limited number of suppliers
or a sole supplier or are in short supply when seasonal demand is at its peak. We cannot assure that we will
be able to maintain favorable arrangements and relationships with these suppliers or that our contingency
plans, including development of ingredients, materials or supplies to replace ingredients, materials or supplies
sourced from such suppliers, will be effective in preventing disruptions that may arise from shortages or
discontinuation of any ingredient that is sourced from such suppliers. In addition, increasing focus on climate
change, deforestation, water, animal welfare and human rights concerns and other risks associated with the
global food system may lead to increased activism focusing on consumer goods companies, governmental
intervention and consumer response, and could adversely affect our or our suppliers’ reputation and business
and our ability to procure the materials we need to operate our business. The raw materials and energy,
including fuel, that we use for the manufacturing, production and distribution of our products are largely
commodities that are subject to price volatility and fluctuations in availability caused by many factors,
including changes in global supply and demand, weather conditions (including any potential effects of climate
change), fire, natural disasters (such as a hurricane, tornado, earthquake or flooding), disease or pests,
agricultural uncertainty, health epidemics or pandemics, governmental incentives and controls (including
import/export restrictions), political uncertainties, acts of terrorism, governmental instability or currency
exchange rates. Shortage of some of these raw materials and other supplies, sustained interruption in their
supply or an increase in their costs could adversely affect our business, financial condition or results of
operations. Many of our ingredients, raw materials and commodities are purchased in the open market. The
prices we pay for such items are subject to fluctuation, and we manage this risk through the use of fixed-
price contracts and purchase orders, pricing agreements and derivative instruments, including swaps and
futures. If commodity price changes result in unexpected or significant increases in raw materials and energy
costs, we may be unwilling or unable to increase our product prices or unable to effectively hedge against
commodity price increases to offset these increased costs without suffering reduced volume, revenue, margins
and operating results. In addition, certain of the derivatives used to hedge price risk do not qualify for hedge
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accounting treatment and, therefore, can result in increased volatility in our net earnings in any given period
due to changes in the spot prices of the underlying commodities.
Water is a limited resource in many parts of the world. The lack of available water of acceptable quality and
increasing pressure to conserve water in areas of scarcity and stress may lead to: supply chain disruption;
adverse effects on our operations; higher compliance costs; capital expenditures (including additional
investments in the development of technologies to enhance water efficiency and reduce water consumption);
higher production costs; the cessation of operations at, or relocation of, our facilities or the facilities of our
suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties; or damage
to our reputation, any of which could adversely affect our business, financial condition or results of operations.
Business disruptions could have an adverse impact on our business, financial condition or results of
operations.
Our ability, and that of our suppliers and other third parties, including our bottlers, contract manufacturers,
joint venture partners, distributors and customers, to make, manufacture, transport, distribute and sell products
in our portfolio is critical to our success. Damage or disruption to our or their operations due to any of the
following factors could impair the ability to make, manufacture, transport, distribute or sell products in our
portfolio: adverse weather conditions (including any potential effects of climate change) or natural disasters,
such as a hurricane, tornado, earthquake or flooding; government action; economic or political uncertainties
or instability in countries in which such products are made, manufactured, distributed or sold, which may
also affect our ability to protect the security of our assets and employees; fire; terrorism; outbreak or escalation
of armed hostilities; food safety warnings or recalls, whether related to products in our portfolio or otherwise;
health epidemics or pandemics; supply and commodity shortages; unplanned delays or unexpected problems
associated with repairs or enhancements of facilities in which such products are made, manufactured,
distributed or sold; loss or impairment of key manufacturing sites; cyber incidents, including the disruption
or shutdown of computer systems or other information technology systems at our offices, plants, warehouses,
distribution centers or other facilities or those of our suppliers and other third parties who make, manufacture,
transport, distribute and sell products in our portfolio; industrial accidents or other occupational health and
safety issues; telecommunications failures; power or water shortages; strikes and other labor disputes; or
other reasons beyond our control or the control of our suppliers and other third parties. Failure to take adequate
steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if
they occur, could adversely affect our business, financial condition or results of operations, as well as require
additional resources to restore operations.
Product contamination or tampering or issues or concerns with respect to product quality, safety and
integrity could adversely affect our business, reputation, financial condition or results of operations.
Product contamination or tampering, the failure to maintain high standards for product quality, safety and
integrity, including with respect to raw materials and ingredients obtained from suppliers, or allegations
(whether or not valid) of product quality issues, mislabeling, misbranding, spoilage, allergens, adulteration
or contamination with respect to products in our portfolio may reduce demand for such products, and cause
production and delivery disruptions or increase costs, which could adversely affect our business, reputation,
financial condition or results of operations. If any of the products in our portfolio are mislabeled or become
unfit for consumption or cause injury, illness or death, or if appropriate resources are not devoted to product
quality and safety (particularly as we expand our portfolio into new categories) or to comply with changing
food safety requirements, we could decide to, or be required to, recall products in our portfolio and/or we
may be subject to liability or government action, which could result in payment of damages or fines, cause
certain products in our portfolio to be unavailable for a period of time, result in destruction of product
inventory, or result in adverse publicity (whether or not valid), which could reduce consumer demand and
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brand equity. Moreover, even if allegations of product contamination or tampering or suggestions that our
products were not fit for consumption are meritless, the negative publicity surrounding assertions against us
or products in our portfolio or processes could adversely affect our reputation or brands. Our business could
also be adversely affected if consumers lose confidence in product quality, safety and integrity generally,
even if such loss of confidence is unrelated to products in our portfolio. Any of the foregoing could adversely
affect our business, reputation, financial condition or results of operations. In addition, if we do not have
adequate insurance, if we do not have enforceable indemnification from suppliers, bottlers, contract
manufacturers, distributors, joint venture partners or other third parties or if indemnification is not available,
the liability relating to such product claims or disruption as a result of recall efforts could materially adversely
affect our business, financial condition or results of operations.
Any damage to our reputation or brand image could adversely affect our business, financial condition or
results of operations.
We are a leading global beverage, food and snack company with brands that are respected household names
throughout the world. Maintaining a good reputation globally is critical to selling our branded products. Our
reputation or brand image could be adversely impacted by any of the following, or by adverse publicity
(whether or not valid) relating thereto: the failure to maintain high ethical, social and environmental practices
for all of our operations and activities, including with respect to human rights, child labor laws and workplace
conditions and safety, or failure to require our suppliers or other third parties to do so; the failure to achieve
our goals of reducing added sugars, sodium and saturated fat in certain of our products and of growing our
portfolio of product choices; the failure to achieve our other sustainability goals or to be perceived as
appropriately addressing matters of social responsibility; the failure to protect our intellectual property,
including in the event our brands are used without our authorization; health concerns (whether or not valid)
about our products or particular ingredients or substances in, or attributes of, our products, including concerns
regarding whether certain of our products contribute to obesity; the imposition or proposed imposition of
new or increased taxes, labeling requirements or other limitations on, or pertaining to, the sale, display or
advertising of our products; any failure to comply, or perception of a failure to comply, with our policies and
goals, including those regarding advertising to children and reducing calorie consumption from sugar-
sweetened beverages; our research and development efforts; the recall (voluntary or otherwise) of any products
in our portfolio; our environmental impact, including use of agricultural materials, packaging, water, energy
use and waste management; any failure to achieve our goals with respect to reducing our impact on the
environment, or perception of a failure to act responsibly with respect to water use and the environment; any
failure to achieve our goals with respect to human rights throughout our value chain; the practices of our
employees, agents, customers, distributors, suppliers, bottlers, contract manufacturers, joint venture partners
or other third parties (including others in our industry) with respect to any of the foregoing, actual or perceived;
consumer perception of our industry; consumer perception of our advertising campaigns, sponsorship
arrangements or marketing programs; consumer perception of our use of social media; consumer perception
of statements made by us, our employees and executives, agents, customers, suppliers, bottlers, distributors,
joint venture partners or other third parties (including others in our industry); or our responses or the responses
of others in our industry to any of the foregoing.
In addition, we operate globally, which requires us to comply with numerous local regulations, including,
without limitation, anti-corruption laws, competition laws and tax laws and regulations of the jurisdictions
in which our products are made, manufactured, distributed or sold. In the event that we or our employees
engage in or are believed to have engaged in improper activities, we may be subject to regulatory proceedings,
including enforcement actions, litigation, loss of sales or other consequences, which may cause us to suffer
damage to our reputation in the United States or abroad. Failure to comply with local laws and regulations,
to maintain an effective system of internal control or to provide accurate and timely financial information
could also hurt our reputation. In addition, water is a limited resource in many parts of the world and demand
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for water continues to rise. Our reputation could be damaged if we or others in our industry do not act, or
are perceived not to act, responsibly with respect to water use.
Further, the popularity of social media and other consumer-oriented technologies has increased the speed
and accessibility of information dissemination. As a result, negative or inaccurate posts or comments about
us, our products, policies, practices, advertising campaigns and marketing programs or sponsorship
arrangements; our use of social media or of posts or other information disseminated by us or our employees,
agents, customers, suppliers, bottlers, distributors, joint venture partners or other third parties; consumer
perception of any of the foregoing, or failure by us to respond effectively to any of the foregoing, may also
generate adverse publicity (whether or not valid) that could damage our reputation.
Damage to our reputation or brand image or loss of consumer confidence in our products or employees for
any of these or other reasons could result in decreased demand for our products and could adversely affect
our business, financial condition or results of operations, as well as require additional resources to rebuild
our reputation.
Failure to successfully complete or integrate acquisitions and joint ventures into our existing operations,
or to complete or effectively manage divestitures or refranchisings, could adversely affect our business,
financial condition or results of operations.
We regularly review our portfolio of businesses and evaluate potential acquisitions, joint ventures,
divestitures, refranchisings and other strategic transactions. Potential issues associated with these activities
could include, among other things: our ability to realize the full extent of the expected returns, benefits, cost
savings or synergies as a result of a transaction, within the anticipated time frame, or at all; receipt of necessary
consents, clearances and approvals in connection with a transaction; and diversion of management’s attention
from day-to-day operations.
With respect to acquisitions, the following factors also pose potential risks: our ability to successfully combine
our businesses with the business of the acquired company, including integrating the acquired company’s
manufacturing, distribution, sales, accounting, financial reporting and administrative support activities and
information technology systems with our company; our ability to successfully operate in new categories or
territories; motivating, recruiting and retaining executives and key employees; conforming standards, controls
(including internal control over financial reporting, environmental compliance, health and safety compliance
and compliance with other laws and regulations), procedures and policies, business cultures and compensation
structures between us and the acquired company; consolidating and streamlining corporate and administrative
infrastructures and avoiding increased operating expenses; consolidating sales and marketing operations;
retaining existing customers and attracting new customers; retaining existing distributors; identifying and
eliminating redundant and underperforming operations and assets; coordinating geographically dispersed
organizations; managing tax costs or inefficiencies associated with integrating our operations following
completion of an acquisition; and other unanticipated problems or liabilities, such as contingent liabilities
and litigation.
With respect to joint ventures, we share ownership and management responsibility with one or more parties
who may or may not have the same goals, strategies, priorities, resources or values as we do. Joint ventures
are intended to be operated for the benefit of all co-owners, rather than for our exclusive benefit. Business
decisions or other actions or omissions of our joint venture partners may adversely affect the value of our
investment, result in litigation or regulatory action against us or otherwise damage our reputation and brands
and adversely affect our business, financial condition or results of operations.
In addition, acquisitions and joint ventures outside of the United States increase our exposure to risks
associated with operations outside of the United States, including fluctuations in exchange rates and
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compliance with the Foreign Corrupt Practices Act and other anti-corruption and anti-bribery laws and laws
and regulations outside the United States.
With respect to divestitures and refranchisings, we may not be able to complete or effectively manage such
transactions on terms commercially favorable to us or at all and may fail to achieve the anticipated benefits
or cost savings from the divestiture or refranchising. Further, as divestitures and refranchisings may reduce
our direct control over certain aspects of our business, any failure to maintain good relations with divested
or refranchised businesses in our supply or sales chain may adversely impact our sales or business
performance.
If an acquisition or joint venture is not successfully completed or integrated into our existing operations, or
if a divestiture or refranchising is not successfully completed or managed or does not result in the benefits
or cost savings we expect, our business, financial condition or results of operations may be adversely affected.
A change in our estimates and underlying assumptions regarding the future performance of our businesses
could result in an impairment charge, which could materially affect our results of operations.
We conduct impairment tests on our goodwill, indefinite-lived intangible assets, as well as other investments
and other long-lived assets annually, during our third quarter, or more frequently, if circumstances indicate
that the carrying value may not be recoverable or that an other-than-temporary impairment exists. Any changes
in our estimates or underlying assumptions regarding the future performance of our reporting units or in
determining the fair value of any such reporting unit, including goodwill, indefinite-lived intangible assets,
as well as other investments and other long-lived assets, could adversely affect our results of operations.
Factors that could result in an impairment include, but are not limited to: significant negative economic or
industry trends or competitive operating conditions; significant macroeconomic conditions that may result
in a future increase in the weighted-average cost of capital used to estimate fair value; and significant changes
in the nature and timing of decisions regarding assets or markets that do not perform consistent with our
expectations, including factors we use to estimate future levels of sales, operating profit or cash flows. Future
impairment charges could have a significant adverse effect on our results of operations in the periods
recognized.
Increases in income tax rates, changes in income tax laws or disagreements with tax authorities could
adversely affect our business, financial condition or results of operations.
We are subject to income taxes in the United States and in certain foreign jurisdictions in which we operate.
Increases in income tax rates or other changes in income tax laws in any particular jurisdiction could reduce
our after-tax income from such jurisdiction and could adversely affect our business, financial condition or
results of operations. Our operations outside the United States generate a significant portion of our income.
In addition, the United States and many of the other countries in which our products are made, manufactured,
distributed or sold, including countries in which we have significant operations, have recently made or are
actively considering changes to existing tax laws. For example, on December 22, 2017, the Tax Cuts and
Jobs Act (TCJ Act) was signed into law in the United States. The changes in the TCJ Act are broad and
complex and we continue to examine the impact the TCJ Act may have on our business and financial results.
Among its many provisions, the TCJ Act imposed a mandatory one-time transition tax on undistributed
international earnings regardless of whether they are repatriated, reduced the U.S. corporate income tax rate
from 35% to 21%, imposed limitations on the deductibility of interest and certain other corporate deductions,
and moved from a “worldwide” system of taxation that generally allows deferral of U.S. tax on international
earnings until repatriated to a “territorial”/dividend exemption system with a minimum tax that will subject
international earnings to U.S. tax when earned. In accordance with applicable SEC guidance, we recorded a
provisional net tax expense in the fourth quarter of 2017 resulting from the enactment of the TCJ Act. This
provisional expense is subject to change, possibly materially, due to, among other things, changes in estimates,
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interpretations and assumptions we have made, changes in Internal Revenue Service (IRS) interpretations,
the issuance of new guidance, legislative actions, changes in accounting standards or related interpretations
in response to the TCJ Act and future actions by states within the United States that have not currently adopted
the TCJ Act. For further information regarding the potential impact of the TCJ Act, see “Our Liquidity and
Capital Resources” and “Our Critical Accounting Policies” in Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations and Note 5 to our consolidated financial statements.
Additional changes in the U.S. tax regime or in how U.S. multinational corporations are taxed on foreign
earnings, including changes in how existing tax laws are interpreted or enforced, could adversely affect our
business, financial condition or results of operations.
We are also subject to regular reviews, examinations and audits by the IRS and other taxing authorities with
respect to income and non-income based taxes both within and outside the United States. Economic and
political pressures to increase tax revenues in jurisdictions in which we operate, or the adoption of new or
reformed tax legislation or regulation, may make resolving tax disputes more difficult and the final resolution
of tax audits and any related litigation could differ from our historical provisions and accruals, resulting in
an adverse impact on our business, financial condition or results of operations. In addition, in connection
with the Organisation for Economic Co-operation and Development Base Erosion and Profit Shifting project,
companies are required to disclose more information to tax authorities on operations around the world, which
may lead to greater audit scrutiny of profits earned in various countries.
Failure to realize anticipated benefits from our productivity initiatives or global operating model could
have an adverse impact on our business, financial condition or results of operations.
Our future success and earnings growth depend, in part, on our ability to continue to reduce costs and improve
efficiencies. Our productivity initiatives help support our growth initiatives and contribute to our results of
operations. We continue to implement strategic plans that we believe will position our business for future
success and long-term sustainable growth by allowing us to achieve a lower cost structure and operate more
efficiently in the highly competitive beverage, food and snack categories and markets. We are also continuing
to implement our global operating model to improve efficiency, decision making, innovation and brand
management across the global PepsiCo organization to enable us to compete more effectively. Further, in
order to continue to capitalize on our cost reduction efforts and our global operating model, it will be necessary
to make certain investments in our business, which may be limited due to capital constraints. Some of these
measures could yield unintended consequences, such as business disruptions, distraction of management and
employees, reduced employee morale and productivity, and unexpected additional employee attrition,
including the inability to attract or retain key personnel. It is critical that we have the appropriate personnel
in place to continue to lead and execute our plans, including to effectively manage personnel adjustments
and transitions resulting from these initiatives and increased competition for employees with the skills
necessary to implement our plans. If we are unable to successfully implement our productivity initiatives
and global operating model as planned, fail to implement these initiatives as timely as we anticipate, do not
achieve expected savings as a result of these initiatives or incur higher than expected or unanticipated costs
in implementing these initiatives, fail to identify and implement additional productivity opportunities in the
future, or fail to successfully manage business disruptions or unexpected employee consequences on our
workforce, morale or productivity, we may not realize all or any of the anticipated benefits, which could
adversely affect our business, financial condition or results of operations.
If we are unable to recruit, hire or retain key employees or a highly skilled and diverse workforce, it could
have a negative impact on our business, financial condition or results of operations.
Our continued growth requires us to recruit, hire, retain and develop our leadership bench and a highly skilled
and diverse workforce. We compete to recruit and hire new employees and then must train them and develop
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their skills and competencies. Our employees are highly sought after by our competitors and other companies
and our continued ability to compete effectively depends on our ability to retain, develop and motivate highly
skilled personnel for all areas of our organization. Any unplanned turnover or unsuccessful implementation
of our succession plans to backfill current leadership positions, including the Chief Executive Officer, or to
hire and retain a highly skilled and diverse workforce could deplete our institutional knowledge base and
erode our competitive advantage or result in increased costs due to increased competition for employees,
higher employee turnover or increased employee benefit costs. Any of the foregoing could adversely affect
our reputation, business, financial condition or results of operations.
The loss of, or a significant reduction in sales to, any key customer or disruption in the retail landscape,
including rapid growth in hard discounters and the e-commerce channel, could adversely affect our
business, financial condition or results of operations.
Our customers include wholesale and other distributors, foodservice customers, grocery stores, drug stores,
convenience stores, discount/dollar stores, mass merchandisers, membership stores, hard discounters, e-
commerce retailers and authorized independent bottlers, among others. We must maintain mutually beneficial
relationships with our key customers, including Wal-Mart, to compete effectively. Any inability to resolve a
significant dispute with any of our key customers, a change in the business condition (financial or otherwise)
of any of our key customers, even if unrelated to us, a significant reduction in sales to any key customer, or
the loss of any of our key customers could adversely affect our business, financial condition or results of
operations.
In addition, our industry has been affected by changes to the retail landscape, including the rapid growth in
sales through e-commerce websites and mobile commerce applications as well as the integration of physical
and digital operations among retailers. We are making significant investments in attracting talent to and
building our global e-commerce capabilities. Although we are engaged in e-commerce with respect to many
of our products, if we are unable to maintain and develop successful relationships with existing and new e-
commerce retailers or otherwise adapt to the growing e-commerce landscape, while simultaneously
maintaining relationships with our key customers operating in traditional retail channels, we may be
disadvantaged in certain channels and with certain customers and consumers, which could adversely affect
our business, financial condition or results of operations. In addition, the growth in e-commerce may result
in consumer price deflation, which may affect our relationships with key retail customers. If these e-commerce
retailers were to take significant market share away from traditional retailers and/or we fail to adapt to the
rapidly changing retail and e-commerce landscapes, our ability to maintain and grow our share of sales or
volume and our business, financial condition or results of operations could be adversely affected.
Further, the retail landscape continues to be impacted by the increased consolidation of retail ownership and
purchasing power, particularly in North America, Europe and Latin America, resulting in large retailers with
increased purchasing power, which may impact our ability to compete in these areas. Such retailers may
demand improved efficiency, lower pricing and increased promotional programs. Further, should larger
retailers increase utilization of their own distribution networks, other distribution channels such as e-
commerce, or private label brands, the competitive advantages we derive from our go-to-market systems and
brand equity may be eroded. In addition, the growth of hard discounters that are focused on limiting the
number of items they sell and selling predominantly private label brands may reduce our ability to sell our
products through such retailers. Failure to appropriately respond to any of the foregoing, including failure
to offer effective sales incentives and marketing programs to our customers, could reduce our ability to secure
adequate shelf space and product availability at our retailers, adversely affect our ability to maintain or grow
our share of sales or volume, and adversely affect our business, financial condition or results of operations.
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Our borrowing costs and access to capital and credit markets may be adversely affected by a downgrade
or potential downgrade of our credit ratings.
Rating agencies routinely evaluate us, and their ratings of our long-term and short-term debt are based on a
number of factors, including our cash generating capability, levels of indebtedness, policies with respect to
shareholder distributions and our financial strength generally, as well as factors beyond our control, such as
the then-current state of the economy and our industry generally. Any downgrade of our credit ratings by a
credit rating agency, especially any downgrade to below investment grade, whether as a result of our actions
or factors which are beyond our control, could increase our future borrowing costs, impair our ability to
access capital and credit markets on terms commercially acceptable to us or at all, and result in a reduction
in our liquidity. We expect to maintain Tier 1 commercial paper access, which we believe will facilitate
appropriate financial flexibility and ready access to global credit markets at favorable interest rates. However,
any downgrade of our current short-term credit ratings could impair our ability to access the commercial
paper market with the same flexibility that we have experienced historically, and therefore require us to rely
more heavily on more expensive types of debt financing. Our borrowing costs and access to the commercial
paper market could also be adversely affected if a credit rating agency announces that our ratings are under
review for a potential downgrade. An increase in our borrowing costs, limitations on our ability to access the
global capital and credit markets or a reduction in our liquidity could adversely affect our financial condition
and results of operations.
If we are not able to successfully implement shared services or utilize information technology systems and
networks effectively, our ability to conduct our business may be negatively impacted.
We have entered into agreements with third-party service providers to utilize certain information technology
support services and administrative functions, including payroll processing, health and benefit plan
administration and certain finance and accounting functions, and may enter into agreements for shared services
in other functions in the future to achieve cost savings and efficiencies. In addition, we utilize cloud-based
services and systems and networks managed by third-party vendors to process, transmit and store information
and to conduct certain of our business activities and transactions with employees, customers, consumers and
other third parties. If any of these third-party service providers or vendors do not perform effectively, or if
we fail to adequately monitor their performance, we may not be able to achieve the expected cost savings or
we may have to incur additional costs to correct errors made by such service providers and our reputation
could be harmed. Depending on the function involved, such errors may also lead to business disruption,
processing inefficiencies, the loss of or damage to intellectual property or sensitive data through security
breaches or otherwise, adverse effects on financial reporting, litigation or remediation costs, or damage to
our reputation, which could have a negative impact on employee morale.
We continue on our multi-year business transformation initiative to migrate certain of our systems, including
our financial processing systems, to enterprise-wide systems solutions. These systems implementations are
part of our ongoing global business transformation initiative, and we plan to continue implementing such
systems throughout other parts of our businesses. If we do not allocate and effectively manage the resources
necessary to build and sustain the proper information technology infrastructure, or if we fail to achieve the
expected benefits from this initiative, it may impact our ability to process transactions accurately and
efficiently, and remain in step with the changing needs of our business, which could result in the loss of
customers or consumers and revenue. In addition, the failure to either deliver the applications on time, or
anticipate the necessary readiness and training needs, could lead to business disruption and loss of customers
or consumers and revenue. In connection with these implementations and resulting business process changes,
we continue to enhance the design and documentation of business processes and controls, including our
internal control over financial reporting processes, to maintain effective controls over our financial reporting.
To date, this transition has not materially affected, and we do not expect it to materially affect, our internal
26
control over financial reporting.
Fluctuations in exchange rates impact our business, financial condition and results of operations.
We hold assets, incur liabilities, earn revenues and pay expenses in a variety of currencies other than the U.S.
dollar. Because our consolidated financial statements are presented in U.S. dollars, the financial statements
of our subsidiaries outside the United States, where the functional currency is other than the U.S. dollar, are
translated into U.S. dollars. Our operations outside of the United States, particularly in Mexico, Russia,
Canada, the United Kingdom and Brazil, generate a significant portion of our net revenue. In addition, we
purchase many of the ingredients, raw materials and commodities used in our business in numerous markets
and in numerous currencies. Fluctuations in exchange rates, including as a result of currency controls or other
currency exchange restrictions have had, and may continue to have, an adverse impact on our business,
financial condition and results of operations.
Climate change, water scarcity or legal, regulatory or market measures to address climate change or water
scarcity may negatively affect our business and operations or damage our reputation.
There is concern that carbon dioxide and other greenhouse gases in the atmosphere have an adverse impact
on global temperatures, weather patterns and the frequency and severity of extreme weather and natural
disasters. In the event that such climate change has a negative effect on agricultural productivity, we may be
subject to decreased availability or less favorable pricing for certain commodities that are necessary for our
products, such as sugar cane, corn, wheat, rice, oats, oranges and other fruits and potatoes. Natural disasters
and extreme weather conditions, such as a hurricane, earthquake or flooding, may disrupt the productivity
of our facilities or the operation of our supply chain and unfavorably impact the demand for, or our consumer’s
ability to purchase, our products. The predicted effects of climate change may also exacerbate challenges
regarding the availability and quality of water. As demand for water access continues to increase around the
world, we may be subject to decreased availability of water, deteriorated quality of water or less favorable
pricing for water, which could adversely impact our manufacturing and distribution operations.
Concern over climate change may result in new or increased regional, federal and/or global legal and
regulatory requirements to reduce or mitigate the effects of greenhouse gases, or to limit or impose additional
costs on commercial water use due to local water scarcity concerns. In the event that such regulation is more
stringent than current regulatory obligations or the measures that we are currently undertaking to monitor
and improve our energy efficiency and water conservation, we may experience disruptions in, or significant
increases in our costs of, operation and delivery and we may be required to make additional investments in
facilities and equipment or relocate our facilities. In particular, increasing regulation of fuel emissions could
substantially increase the cost of energy, including fuel, required to operate our facilities or transport and
distribute our products, thereby substantially increasing the distribution and supply chain costs associated
with our products. As a result, the effects of climate change or water scarcity could negatively affect our
business and operations.
In addition, any failure to achieve our goals with respect to reducing our impact on the environment or
perception (whether or not valid) of our failure to act responsibly with respect to water use and the environment
or to effectively respond to new, or changes in, legal or regulatory requirements concerning climate change
or water scarcity could result in adverse publicity and could adversely affect our business, reputation, financial
condition or results of operations.
There is also increased focus, including by governmental and non-governmental organizations, investors,
customers and consumers on these and other environmental sustainability matters, including deforestation,
land use, climate impact and water use. Our reputation could be damaged if we or others in our industry do
not act, or are perceived not to act, responsibly with respect to our impact on the environment.
27
A portion of our workforce is represented by unions. Failure to successfully negotiate collective bargaining
agreements, or strikes or work stoppages, could cause our business to suffer.
Many of our employees are covered by collective bargaining agreements, and other employees may seek to
be covered by collective bargaining agreements. Strikes or work stoppages or other business interruptions
could occur if we are unable to renew these agreements on satisfactory terms or enter into new agreements
on satisfactory terms or if we are unable to otherwise manage changes in, or that affect, our workforce, which
could impair manufacturing and distribution of our products or result in a loss of sales, which could adversely
impact our business, financial condition or results of operations. The terms and conditions of existing,
renegotiated or new collective bargaining agreements could also increase our costs or otherwise affect our
ability to fully implement future operational changes to enhance our efficiency or to adapt to changing business
needs or strategy.
If we are not able to adequately protect our intellectual property rights or if we are found to infringe the
intellectual property rights of others, the value of our products or brands, or our competitive position,
could be reduced, which could have an adverse impact on our business, financial condition or results of
operations.
We possess intellectual property rights that are important to our business. These intellectual property rights
include ingredient formulas, trademarks, copyrights, patents, business processes and other trade secrets that
are important to our business and relate to a variety of our products, their packaging, the processes for their
production and the design and operation of various equipment used in our businesses. We protect our
intellectual property rights globally through a combination of trademark, copyright, patent and trade secret
laws, third-party assignment and nondisclosure agreements and monitoring of third-party misuses of our
intellectual property. If we fail to obtain or adequately protect our trademarks, copyrights, patents, business
processes and trade secrets, including our ingredient formulas, or if there is a change in law that limits or
removes the current legal protections of our intellectual property, the value of our products and brands, or
our competitive position, could be reduced and there could be an adverse impact on our business, financial
condition or results of operations. In addition, if, in the course of developing new products or improving the
quality of existing products, we are found to have infringed the intellectual property rights of others, directly
or indirectly, such finding could have an adverse impact on our reputation, business, financial condition or
results of operations and may limit our ability to introduce new products or improve the quality of existing
products.
Potential liabilities and costs from litigation, claims, legal or regulatory proceedings, inquiries or
investigations could have an adverse impact on our business, financial condition or results of operations.
We and our subsidiaries are party to a variety of litigation, claims, legal or regulatory proceedings, inquiries
and investigations, including but not limited to matters related to our advertising, marketing or commercial
practices, product labels, claims and ingredients including sugar, sodium and saturated fat, our intellectual
property rights, alleged infringement or misappropriation by us of intellectual property rights of others,
environmental, privacy, employment, tax and insurance matters and matters relating to our compliance with
applicable laws and regulations. We evaluate such matters to assess the likelihood of unfavorable outcomes
and estimate, if possible, the amount of potential losses and establish reserves as appropriate. These matters
are inherently uncertain and there is no guarantee that we will be successful in defending ourselves in these
matters, or that our assessment of the materiality of these matters and the likely outcome or potential losses
and established reserves will be consistent with the ultimate outcome of such matters. In the event that
management’s assessment of actual or potential claims and proceedings proves inaccurate or litigation, claims,
proceedings, inquiries or investigations that are material arise in the future, there may be a material adverse
effect on our business, financial condition or results of operations. Responding to litigation, claims,
28
proceedings, inquiries, and investigations, even those that are ultimately non-meritorious, may also require
us to incur significant expense and devote significant resources, and may generate adverse publicity that may
damage our reputation or brand image, which could have an adverse impact on our business, financial
condition or results of operations.
Many factors may adversely affect the price of our publicly traded securities.
Many factors may adversely affect the price of our common stock and publicly traded debt. Such factors,
some of which are beyond our control, may include, but are not limited to: unfavorable economic conditions;
changes in financial or tax reporting and changes in accounting principles or practices that materially affect
our reported financial condition and results; investor perceptions of our business, strategies and performance
or those of our competitors; actions by shareholders or others seeking to influence our business strategies;
speculation by the media or investment community regarding our business, strategies and performance or
those of our competitors; developments relating to pending litigation, claims, investigations or inquiries;
trading activity in our securities or trading activity in derivative instruments with respect to our securities;
changes in our credit ratings; the impact of our share repurchase programs or dividend policy; and the outcome
of referenda and elections. In addition, corporate actions, such as those we may or may not take from time
to time as part of our continuous review of our corporate structure and our strategy, including as a result of
business, legal, regulatory and tax considerations, may not have the impact we intend and may adversely
affect the price of our securities. The above factors, as well as the other risks included in this “Item 1A. Risk
Factors,” could adversely affect the price of our securities.
Item 1B. Unresolved Staff Comments.
We have received no written comments regarding our periodic or current reports from the staff of the SEC
that were issued 180 days or more preceding the end of our 2017 fiscal year and that remain unresolved.
29
Item 2. Properties.
Our principal executive offices located in Purchase, New York and our facilities located in Plano, Texas, all
of which we own, are our most significant corporate properties.
Each division utilizes plants, warehouses, distribution centers, storage facilities, offices and other facilities,
either owned or leased, in connection with making, marketing, distributing and selling our products. The
approximate number of such facilities utilized by each division is as follows:
FLNA
QFNA
NAB
Latin
America
ESSA
AMENA
Shared(a)
Plants (b)
Other Facilities (c)
(a) Shared properties are in addition to the other properties reported by our six divisions identified in this table.
(b) Includes manufacturing and processing plants as well as bottling and production plants.
(c) Includes warehouses, distribution centers, storage facilities, offices, including division headquarters, research and development facilities and
1,680
340
585
345
440
85
50
50
35
40
65
5
3
5
other facilities.
Significant properties by division included in the table above are as follows:
• FLNA’s research and development facility in Plano, Texas, which is owned.
• QFNA’s food plant in Cedar Rapids, Iowa, which is owned.
• NAB’s research and development facility in Valhalla, New York, and a Tropicana plant in Bradenton,
Florida, both of which are owned.
• Latin America’s three snack plants in Mexico (one in Vallejo, one in Celaya and one in Monterrey)
and one in Brazil (Sorocaba), all of which are owned.
• ESSA’s snack plant in Leicester, United Kingdom, which is leased; its snack plant in Kashira, Russia,
its fruit juice plant in Zeebrugge, Belgium, its beverage plant in Lebedyan, Russia and its dairy plant
in Moscow, Russia, all of which are owned.
• AMENA’s beverage plants in Tanta City, Egypt and Rayong, Thailand, and its snack plant in Sixth
of October City, Egypt, all of which are owned; and its snack plant in Riyadh, Saudi Arabia, which
is leased.
• Two concentrate plants in Cork, Ireland, which are shared by our NAB, ESSA and AMENA divisions,
both of which are owned.
• Shared service centers in Winston-Salem, North Carolina, and Plano, Texas, which are primarily
shared by our FLNA, QFNA and NAB divisions, both of which are leased.
Most of our plants are owned or leased on a long-term basis. In addition to company-owned or leased properties
described above, we also utilize a highly distributed network of plants, warehouses and distribution centers
that are owned or leased by our contract manufacturers, co-packers, strategic alliances or joint ventures in
which we have an equity interest. We believe that our properties generally are in good operating condition
and, taken as a whole, are suitable, adequate and of sufficient capacity for our current operations.
30
Item 3. Legal Proceedings.
As previously disclosed, in January 2011, Wojewodzka Inspekcja Ochrony Srodowiska, the Polish
environmental control authority, began an audit of a bottling plant of our subsidiary, Pepsi-Cola General
Bottlers Poland SP, z.o.o. (PCGB), in Michrow, Poland. In July 2013, Wojewodzka Inspekcja Ochrony
Srodowiska alleged that the plant was not in compliance in 2009 with applicable regulations governing the
taking of water samples for analysis of the plant’s waste and sought monetary sanctions of $650,000 and, in
August 2013, PCGB appealed this decision. In April 2015, the General Environmental Inspector for
Environmental Protection upheld the sanctions against PCGB and, in May 2015, PCGB further appealed this
decision. In October 2015, Viovodeship Administrative Court in Warsaw rejected our appeal and, in December
2015, PCGB filed an extraordinary appeal in the Supreme Administrative Court. In October 2017, the Supreme
Administrative Court issued a final, non-appealable decision, rejecting our appeal and we agreed to invest
funds up to the penalty amount(s) into the bottling plant to fully resolve the matter.
In addition, we and our subsidiaries are party to a variety of litigation, claims, legal or regulatory proceedings,
inquiries and investigations. While the results of such litigation, claims, legal or regulatory proceedings,
inquiries and investigations cannot be predicted with certainty, management believes that the final outcome
of the foregoing will not have a material adverse effect on our financial condition, results of operations or
cash flows. Sanctions imposed by foreign authorities are levied in local currency and disclosed using the
U.S. dollar equivalent at the time of imposition and are subject to currency fluctuations. See also “Item 1.
Business – Regulatory Matters” and “Item 1A. Risk Factors.”
Item 4. Mine Safety Disclosures.
Not applicable.
__________________________________________________
31
Executive Officers of the Registrant
The following is a list of names, ages and backgrounds of our current executive officers:
Name
Albert P. Carey
Sanjeev Chadha
Ruth Fattori
Marie T. Gallagher
Hugh F. Johnston
Age Title
66
58
65
Chief Executive Officer, North America
Chairman, Asia, Middle East and North Africa
Executive Vice President, Human Resources and Chief Human Resources
Officer, PepsiCo
Senior Vice President and Controller, PepsiCo
58
56 Vice Chairman, PepsiCo; Executive Vice President and Chief Financial
Officer, PepsiCo
Dr. Mehmood Khan 59 Vice Chairman, PepsiCo; Executive Vice President, PepsiCo Chief Scientific
Ramon Laguarta
54
Laxman Narasimhan 50
62
Indra K. Nooyi
50
Silviu Popovici
55
Vivek Sankaran
53
Mike Spanos
49
Kirk Tanner
49
David Yawman
Officer, Global Research and Development
President, PepsiCo
Chief Executive Officer, Latin America and Europe Sub-Saharan Africa
Chairman of the Board of Directors and Chief Executive Officer, PepsiCo
President, Europe Sub-Saharan Africa
President and Chief Operating Officer, Frito-Lay North America
Chief Executive Officer, Asia, Middle East and North Africa
President and Chief Operating Officer, North America Beverages
Executive Vice President, Government Affairs, General Counsel and
Corporate Secretary, PepsiCo
Albert P. Carey, 66, was appointed Chief Executive Officer, North America, effective April 2016. Mr. Carey
previously served as Chief Executive Officer, North America Beverages from July 2015 to April 2016, as
Chief Executive Officer, PepsiCo Americas Beverages from 2011 to July 2015 and as President and Chief
Executive Officer of Frito-Lay North America from 2006 to 2011. Mr. Carey began his career with Frito-
Lay in 1981 where he spent 20 years in a variety of roles. He served as President, PepsiCo Sales from 2003
until 2006. Prior to that, he served as Chief Operating Officer, PepsiCo Beverages and Foods North America
from 2002 to 2003 and as PepsiCo’s Senior Vice President, Sales and Retailer Strategies from 1998 to 2002.
Sanjeev Chadha, 58, was appointed Chairman, Asia, Middle East and North Africa, effective January 2018.
Mr. Chadha previously served as Chief Executive Officer, Asia, Middle East and North Africa from July
2015 to January 2018, as Chief Executive Officer, PepsiCo Asia, Middle East and Africa from 2013 to July
2015, as President of PepsiCo’s Middle East and Africa region from 2011 to 2013 and as President of PepsiCo’s
India region from 2009 to 2010. Mr. Chadha joined PepsiCo in 1989 and has held a variety of senior positions
with the Company. He served as Senior Vice President - Commercial, Asia Pacific, including China and India,
Senior General Manager, Vietnam and the Philippines, and held other leadership roles in sales, marketing,
innovation and franchise.
Ruth Fattori, 65, was appointed Executive Vice President, Human Resources and Chief Human Resources
Officer, PepsiCo effective October 2017. Ms. Fattori previously served as PepsiCo’s Senior Vice President,
Talent Management, Training and Development from February 2013 until October 2017. Prior to joining
PepsiCo, Ms. Fattori was managing partner of Pecksland Partners, LLC from 2009 to February 2013. From
2008 to 2009, Ms. Fattori served as Executive Vice President and Chief Administrative Officer for MetLife,
Inc. From 2004 to 2008, Ms. Fattori served as Executive Vice President of Human Resources at Motorola,
Inc. and, prior to that, held senior human resources positions at JPMorgan Chase & Co. and Siemens
Corporation.
32
Marie T. Gallagher, 58, was appointed PepsiCo’s Senior Vice President and Controller in May 2011.
Ms. Gallagher joined PepsiCo in 2005 as Vice President and Assistant Controller. Prior to joining PepsiCo,
Ms. Gallagher was Assistant Controller at Altria Corporate Services from 1992 to 2005 and, prior to that, a
senior manager at Coopers & Lybrand.
Hugh F. Johnston, 56, was appointed Vice Chairman, PepsiCo in July 2015 and Executive Vice President
and Chief Financial Officer, PepsiCo in March 2010. Mr. Johnston assumed responsibility for the Company’s
global e-commerce business and the Company’s global business and information solutions function in July
2015. He previously held responsibility for the Quaker Foods North America division from 2014 to 2016,
the position of Executive Vice President, Global Operations from 2009 to 2010 and the position of President
of Pepsi-Cola North America from 2007 to 2009. He was formerly PepsiCo’s Executive Vice President,
Operations, a position he held from 2006 until 2007. From 2005 until 2006, Mr. Johnston was PepsiCo’s
Senior Vice President, Transformation. Prior to that, he served as Senior Vice President and Chief Financial
Officer of PepsiCo Beverages and Foods from 2002 through 2005, and as PepsiCo’s Senior Vice President
of Mergers and Acquisitions in 2002. Mr. Johnston joined PepsiCo in 1987 as a Business Planner and held
various finance positions until 1999 when he left to join Merck & Co., Inc. as Vice President, Retail, a position
which he held until he rejoined PepsiCo in 2002. Prior to joining PepsiCo in 1987, Mr. Johnston was with
General Electric Company in a variety of finance positions.
Dr. Mehmood Khan, 59, was appointed Vice Chairman, PepsiCo in February 2015 and Executive Vice
President, PepsiCo Chief Scientific Officer, Global Research and Development in May 2012. He previously
held the position of Chief Executive Officer of PepsiCo’s Global Nutrition Group from 2010 to May 2012
and the position of PepsiCo’s Chief Scientific Officer from 2008 to May 2012. Prior to joining PepsiCo,
Dr. Khan served for five years at Takeda Pharmaceuticals in various leadership roles including President of
Research and Development and Chief Medical Officer. Dr. Khan also served at the Mayo Clinic from 2001
until 2003 as the director of the Diabetes, Endocrinology and Nutrition Clinical Unit and as Consultant
Physician in Endocrinology.
Ramon Laguarta, 54, was appointed President, PepsiCo in September 2017. He previously held the positions
of Chief Executive Officer, Europe Sub-Saharan Africa from July 2015 to September 2017, Chief Executive
Officer, PepsiCo Europe from January 2015 to July 2015, President, Developing & Emerging Markets,
PepsiCo Europe from 2012 to January 2015 and President, PepsiCo Eastern Europe Region from 2008 to
2012. Mr. Laguarta joined PepsiCo in 1996 as a marketing vice president for Spain Snacks and served in a
variety of positions, including as Commercial Vice President of PepsiCo Europe from 2006 to 2008, General
Manager for Iberia Snacks and Juices from 2002 to 2006 and General Manager for Greece Snacks from 1999
to 2001. Prior to joining PepsiCo in 1996, Mr. Laguarta worked for Chupa Chups, S.A., where he worked in
several international assignments in Europe, Asia, and the United States.
Laxman Narasimhan, 50, was appointed Chief Executive Officer, Latin America and Europe Sub-Saharan
Africa in September 2017. He previously held the positions of Chief Executive Officer, Latin America from
2015 to September 2017, Chief Executive Officer, PepsiCo Latin America Foods from 2014 to July 2015
and Senior Vice President and Chief Financial Officer of PepsiCo Americas Foods, a business unit that had
previously included the Company’s Frito-Lay North America, Quaker Foods North America and Latin
America Foods divisions, from 2012 to 2014. Prior to joining PepsiCo in 2012, Mr. Narasimhan spent 19
years at McKinsey & Company, where he served in various positions, including as a director and location
manager of the New Delhi office and co-leader of the global consumer and shopper insights practice.
Indra K. Nooyi, 62, has been PepsiCo’s Chief Executive Officer since 2006 and assumed the role of Chairman
of PepsiCo’s Board of Directors in 2007. She was elected to PepsiCo’s Board of Directors and became
President and Chief Financial Officer in 2001, after serving as Senior Vice President and Chief Financial
Officer since 2000. Ms. Nooyi also served as PepsiCo’s Senior Vice President, Corporate Strategy and
33
Development from 1996 until 2000, and as PepsiCo’s Senior Vice President, Strategic Planning from 1994
until 1996. Prior to joining PepsiCo, Ms. Nooyi spent four years as Senior Vice President of Strategy, Planning
and Strategic Marketing for Asea Brown Boveri, Inc. She was also Vice President and Director of Corporate
Strategy and Planning at Motorola, Inc. Ms. Nooyi has served as a director of Schlumberger Ltd. since 2015.
Silviu Popovici, 50, was appointed President, Europe Sub-Saharan Africa effective September 2017. Mr.
Popovici previously served as President, Russia, Ukraine and CIS (The Commonwealth of Independent
States) from August 2015 to September 2017, and as President, PepsiCo Russia from January 2013 to July
2015. Mr. Popovici joined PepsiCo in 2011 following PepsiCo’s acquisition of Wimm-Bill-Dann Foods OJSC
(WBD) and served as General Manager, WBD Foods Division from February 2011 until December 2012.
Prior to the acquisition, Mr. Popovici held senior leadership roles at WBD, running its dairy business from
2008 to 2011 and its beverages business from 2006 to 2008.
Vivek Sankaran, 55, was appointed President and Chief Operating Officer, Frito-Lay North America,
effective April 2016. Prior to that, Mr. Sankaran served as Chief Operating Officer, Frito-Lay North America
from February 2016 to April 2016; Chief Commercial Officer, North America from 2014 to February 2016;
Chief Customer Officer for Frito-Lay North America from 2012 to 2014; Senior Vice President and General
Manager, Frito-Lay North America’s south business unit from 2011 to 2012; and Senior Vice President,
Corporate Strategy and Development from 2009 to 2010. Prior to joining PepsiCo in 2009, Mr. Sankaran
was a partner at McKinsey & Company, where he advised Fortune 100 companies with a focus on retail and
high tech and co-led the North America purchasing and supply management practice.
Mike Spanos, 53, was appointed Chief Executive Officer, Asia, Middle East and North Africa, effective
January 2018. Mr. Spanos previously served as interim head of PepsiCo’s Asia, Middle East and North Africa
division from October 2017 to January 2018 and as President and Chief Executive Officer, PepsiCo Greater
China Region, from September 2014 to January 2018. Prior to that, Mr. Spanos served as Senior Vice President
and Chief Customer Officer, PepsiCo North America Beverages from October 2011 to September 2014, as
Senior Vice President and General Manager, PepsiCo Beverages Company’s west business unit from March
2011 to October 2011 and as Senior Vice President, Retail Sales and Execution, PepsiCo Beverages Company
from March 2010 to March 2011. Mr. Spanos joined PepsiCo in 1993 as a territory sales manager and unit
manager in the Philadelphia market unit and served in various other leadership roles through March 2010.
Prior to joining PepsiCo, Mr. Spanos served in the United States Marines Corps from 1987 to 1993, and with
Tallahassee Medical Company as a sales representative in 1993.
Kirk Tanner, 49, was appointed President and Chief Operating Officer, North America Beverages, effective
April 2016. Prior to that, Mr. Tanner served as Chief Operating Officer, North America Beverages and
President, Global Foodservice from December 2015 to April 2016 and President, Global Foodservice from
2014 to December 2015. Mr. Tanner joined PepsiCo in 1992, where he has worked in numerous domestic
and international locations and in a variety of roles, including senior vice president of Frito-Lay North
America’s west region from 2009 to 2013; vice president, sales of PepsiCo UK and Ireland from 2008 to
2009; region vice president, Frito-Lay North America’s Mountain region from 2005 to 2008; region vice
president, Frito-Lay North America’s Mid-America region from 2002 to 2005; and region vice president,
Frito-Lay North America’s California region from 2000 to 2002.
David Yawman, 49, was appointed Executive Vice President, Government Affairs, General Counsel and
Corporate Secretary, PepsiCo effective October 2017. Prior to that, Mr. Yawman served as Senior Vice
President and Deputy General Counsel for PepsiCo and General Counsel for North America and Corporate
from July 2017 to October 2017. He previously served as Senior Vice President, PepsiCo Deputy General
Counsel, General Counsel, North America Beverages and Quaker Foods North America from July 2015 to
July 2017, as Senior Vice President, PepsiCo Deputy General Counsel, General Counsel, PepsiCo America
Beverages from April 2014 to July 2015, as Senior Vice President, PepsiCo Chief Compliance and Ethics
34
Officer from March 2012 to April 2014 and as Senior Vice President, General Counsel, Pepsi Beverages
Company from February 2010 to March 2012. Prior to that, he spent five years in the law department of The
Pepsi Bottling Group, Inc. (PBG) and, prior to that, was a member of PepsiCo’s corporate law department
from the time he joined PepsiCo in 1998 until 2003.
Executive officers are elected by our Board of Directors, and their terms of office continue until the next
annual meeting of the Board or until their successors are elected and have qualified. There are no family
relationships among our executive officers.
35
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
Stock Trading Symbol – PEP
Stock Exchange Listings – Since December 20, 2017, our common stock has traded on The Nasdaq Global
Select Market. Before December 20, 2017, our common stock traded on The New York Stock Exchange.
Our common stock is also listed on the Chicago Stock Exchange and SIX Swiss Exchange.
Stock Prices – The quarterly composite high and low sales prices for PepsiCo common stock for each fiscal
quarter of 2017 and 2016 as reported on The New York Stock Exchange through December 19, 2017 and
The Nasdaq Global Select Market from December 20, 2017 through December 30, 2017, are contained in
“Item 6. Selected Financial Data.”
Shareholders – As of February 6, 2018, there were approximately 120,156 shareholders of record of our
common stock.
Dividends – We have paid consecutive quarterly cash dividends since 1965. The declaration and payment of
future dividends are at the discretion of the Board of Directors. Dividends are usually declared in February,
May, July and November and paid at the end of March, June and September and the beginning of January.
On February 5, 2018, the Board of Directors declared a quarterly dividend of $0.805 payable March 30,
2018, to shareholders of record on March 2, 2018. For the remainder of 2018, the dividend record dates for
these payments are expected to be June 1, September 7 and December 7, 2018, subject to approval of the
Board of Directors. Information with respect to the quarterly dividends declared in 2017 and 2016 is contained
in “Item 6. Selected Financial Data.”
For information on securities authorized for issuance under our equity compensation plans, see “Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
36
A summary of our common stock repurchases (in millions, except average price per share) during the fourth
quarter of 2017 is set forth in the table below.
Issuer Purchases of Common Stock
Total
Number of
Shares
Repurchased(a)
Average
Price Paid
Per Share
Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Number (or
Approximate
Dollar Value) of
Shares that May Yet Be
Purchased Under the
Plans or Programs(b)
Period
9/9/2017
9/10/2017 - 10/7/2017
1.5 $
112.85
10/8/2017 - 11/4/2017
1.3 $
111.00
11/5/2017 - 12/2/2017
1.1 $
114.32
12/3/2017 - 12/30/2017
Total
0.6 $
4.5 $
117.55
113.34
$
1.5
1.3
1.1
0.6
4.5 $
5,857
(167)
5,690
(139)
5,551
(126)
5,425
(72)
5,353
(a) All shares were repurchased in open market transactions pursuant to publicly announced repurchase programs.
(b) Includes shares authorized for repurchase under the $12 billion repurchase program authorized by our Board of Directors and
publicly announced on February 11, 2015, which commenced on July 1, 2015 and expires on June 30, 2018. On February 13,
2018, we publicly announced a new repurchase program of up to $15 billion of our common stock, which will commence on
July 1, 2018 and expire on June 30, 2021, and such shares are excluded from the above table. Such shares may be repurchased
in open market transactions, in privately negotiated transactions, in accelerated stock repurchase transactions or otherwise.
37
In connection with our merger with The Quaker Oats Company (Quaker) in 2001, shares of our convertible
preferred stock were authorized and issued to an employee stock ownership plan (ESOP) fund established
by Quaker. In the fourth quarter of 2017, PepsiCo repurchased shares of its convertible preferred stock from
the ESOP in connection with share redemptions by ESOP participants. See Note 11 to our consolidated
financial statements for additional information on our convertible preferred stock.
The Company does not have any authorized, but unissued, “blank check preferred stock.”
The following table summarizes our convertible preferred share repurchases during the fourth quarter of
2017.
Issuer Purchases of Convertible Preferred Stock
Period
9/10/2017 - 10/7/2017
Total
Number of
Shares
Repurchased
Average
Price Paid Per
Share
— $
—
10/8/2017 - 11/4/2017
1,000
$
548.21
11/5/2017 - 12/2/2017
— $
—
12/3/2017 - 12/30/2017
Total
900
1,900
$
$
578.48
562.55
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be
Purchased
Under the Plans
or Programs
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
38
Item 6. Selected Financial Data.
Five-Year Summary
(unaudited, in millions except per share amounts)
The following selected financial data should be read in conjunction with “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and
accompanying notes thereto. Our fiscal year ends on the last Saturday of each December and our fiscal year
2016 comprised fifty-three reporting weeks while all other fiscal years presented in the tables below comprised
fifty-two reporting weeks.
Net revenue (a)
Operating profit
Provision for income taxes (b)
Net income attributable to PepsiCo (b)
Net income attributable to PepsiCo per common
share – basic (b)
Net income attributable to PepsiCo per common
share – diluted (b)
Cash dividends declared per common share
Total assets
Long-term debt
2017
63,525
10,509
4,694
4,857
3.40
3.38
3.1675
79,804
33,796
$
$
$
$
$
$
$
$
$
2016
62,799
9,785
2,174
6,329
4.39
4.36
2.96
73,490
30,053
$
$
$
$
$
$
$
$
$
2015
63,056
8,353
1,941
5,452
3.71
3.67
2.7625
68,976
29,213
$
$
$
$
$
$
$
$
$
2014
66,683
9,581
2,199
6,513
4.31
4.27
2.5325
69,634
23,821
$
$
$
$
$
$
$
$
$
2013
66,415
9,705
2,104
6,740
4.37
4.32
2.24
76,762
24,333
$
$
$
$
$
$
$
$
$
(a) Our fiscal 2016 results included an extra week of results. The 53rd reporting week increased 2016 net revenue by $657 million, including
$294 million in our FLNA segment, $43 million in our QFNA segment, $300 million in our NAB segment and $20 million in our ESSA
segment.
(b) Includes the provisional impact of the TCJ Act enacted in 2017. See Note 5 to our consolidated financial statements for additional information.
The following information highlights certain items that impacted our results of operations and financial
condition for the five years presented above:
Mark-to-market net impact (d)
Restructuring and impairment charges (e)
Provisional net tax expense related to the TCJ Act (f)
Gain on sale of Britvic plc (Britvic) securities (g)
Gain on beverage refranchising (h)
Gain on sale of assets (i)
2017
Net income
attributable
to PepsiCo
Net income
attributable to
PepsiCo per
common share –
diluted
Operating
profit
Provision for
income taxes(c)
$
$
$
$
$
$
15
$
(295) $
(7) $
71
$
8
$
(224) $
— $
(2,451) $
(2,451) $
95
140
87
$
$
$
(10) $
(33) $
(25) $
85
107
62
$
$
$
0.01
(0.16)
(1.70)
0.06
0.07
0.04
39
2016
Operating
profit
Interest
expense
Provision
for income
taxes(c)
Net income
attributable to
noncontrolling
interests
Net income
attributable
to PepsiCo
Net income
attributable to
PepsiCo per
common share –
diluted
Mark-to-market net impact (d)
Restructuring and impairment charges (e)
Charge related to the transaction with
Tingyi (j)
Charge related to debt redemption (k)
Pension-related settlement charge (l)
53rd reporting week (m)
$
$
$
$
$
$
167
$ — $
(160) $ — $
(56) $
26
$
(373) $ — $
— $
— $ (233) $
(242) $ — $
77
80
$
$
126
$
(19) $
(44) $
111
$
(131) $
(373) $
(156) $
(162) $
62
$
0.08
(0.09)
(0.26)
(0.11)
(0.11)
0.04
— $
3
$
— $
— $
— $
(1) $
2015
Mark-to-market net impact (d)
Restructuring and impairment charges (e)
Charge related to the transaction with Tingyi (j)
Pension-related settlement benefits (l)
Venezuela impairment charges (n)
Tax benefit (o)
Müller Quaker Dairy (MQD) impairment (p)
Gain on beverage refranchising (h)
Other productivity initiatives (q)
Joint venture impairment charge (r)
Operating
profit
Provision for
income taxes(c)
Net income
attributable to
PepsiCo
Net income
attributable to
PepsiCo per
common share –
diluted
$
$
$
$
$
$
$
$
$
$
11
$
(230) $
(73) $
67
$
(1,359) $
— $
(76) $
39
$
(90) $
(29) $
8
$
(184) $
(73) $
42
$
(1,359) $
230
$
(48) $
28
$
(66) $
(29) $
(3) $
46
$
— $
(25) $
— $
230
28
$
$
(11) $
24
$
— $
2014
—
(0.12)
(0.05)
0.03
(0.91)
0.15
(0.03)
0.02
(0.04)
(0.02)
Provision for
income
taxes(c)
Net income
attributable to
noncontrolling
interests
Net income
attributable to
PepsiCo
Operating
profit
Net income
attributable to
PepsiCo per
common share –
diluted
Mark-to-market net impact (d)
Restructuring and impairment charges (e)
Pension-related settlement charge (l)
Venezuela remeasurement charge (s)
Gain on sale of assets (i)
Other productivity initiatives (q)
$
$
$
$
$
$
(68) $
(418) $
(141) $
(105) $
31
$
(67) $
24
99
53
$
$
$
— $
3
13
$
$
— $
3
$
— $
— $
— $
— $
(44) $
(316) $
(88) $
(105) $
34
$
(54) $
(0.03)
(0.21)
(0.06)
(0.07)
0.02
(0.04)
40
Mark-to-market net impact (d)
Restructuring and impairment charges (e)
Tax benefit (o)
Venezuela remeasurement charge (s)
Merger and integration charges (t)
Gain on beverage refranchising (h)
2013
Operating
profit
Provision for
income taxes(c)
Net income
attributable to
PepsiCo
Net income
attributable to
PepsiCo per
common share –
diluted
$
$
$
$
$
$
(72) $
(163) $
— $
(111) $
(10) $
137
$
28
34
209
$
$
$
— $
2
$
— $
(44) $
(129) $
209
$
(111) $
(8) $
137
$
(0.03)
(0.08)
0.13
(0.07)
(0.01)
0.09
(c) Provision for income taxes is the expected tax benefit/charge on the underlying item based on the tax laws and income tax rates applicable
to the underlying item in its corresponding tax jurisdiction and tax year and, in 2017, the impact of the TCJ Act is presented separately.
(d) Mark-to-market net gains and losses on commodity derivatives in corporate unallocated expenses.
(e) Expenses related to the 2014 Multi-Year Productivity Plan (2014 Productivity Plan) and 2012 Multi-Year Productivity Plan (2012 Productivity
Plan). See Note 3 to our consolidated financial statements.
In 2017, provisional net tax expense associated with the enactment of the TCJ Act. See Note 5 to our consolidated financial statements.
(f)
(g) In 2017, gain in the ESSA segment associated with the sale of our minority stake in Britvic.
(h) In 2017, gain in the AMENA segment associated with refranchising our beverage business in Jordan. See Note 14 to our consolidated
financial statements. In 2015 and 2013, gains in the AMENA segment associated with refranchising a portion of our beverage businesses
in India and the refranchising of our beverage business in Vietnam, respectively.
In 2017, gains associated with the sale of assets in the following segments: $17 million in FLNA, $21 million in NAB, $21 million in
AMENA and $28 million in corporate unallocated expenses. In 2014, gain in the ESSA segment associated with the sale of agricultural
assets in Russia.
In 2016, impairment charge in the AMENA segment to reduce the value of our 5% indirect equity interest in Tingyi-Asahi Beverages Holding
Co. Ltd. (TAB) to its estimated fair value. In 2015, write-off in the AMENA segment of the value of a call option to increase our holding
in TAB to 20%. See Note 9 to our consolidated financial statements.
(j)
(i)
(l)
(k) In 2016, interest expense primarily representing the premium paid in accordance with the “make-whole” redemption provisions to redeem
all of our outstanding 7.900% senior notes due 2018 and 5.125% senior notes due 2019 for the principal amounts of $1.5 billion and $750
million, respectively. See Note 8 to our consolidated financial statements.
In 2016, pension settlement charge in corporate unallocated expenses related to the purchase of a group annuity contract. In 2015, benefits
in the NAB segment associated with the settlement of pension-related liabilities from previous acquisitions. In 2014, lump sum settlement
charges in corporate unallocated expenses related to payments for pension liabilities to certain former employees who had vested benefits.
(m) Our fiscal 2016 results included the 53rd reporting week, the impact of which was fully offset by incremental investments in our business.
(n) In 2015, charges in the Latin America segment related to the impairment of investments in our wholly-owned Venezuelan subsidiaries and
beverage joint venture. Beginning in the fourth quarter of 2015, our financial results have not included the results of our Venezuelan
businesses. See Note 1 to our consolidated financial statements.
(o) In 2015, non-cash tax benefit associated with our agreement with the IRS resolving substantially all open matters related to the audits for
taxable years 2010 through 2011, which reduced our reserve for uncertain tax positions for the tax years 2010 through 2011. In 2013, non-
cash tax benefit associated with our agreement with the IRS resolving all open matters related to the audits for taxable years 2003 through
2009, which reduced our reserve for uncertain tax positions for the tax years 2003 through 2012.
(p) In 2015, impairment charges in the QFNA segment associated with our MQD joint venture investment, including a charge related to ceasing
its operations.
(q) In 2015 and 2014, expenses related to other productivity initiatives outside the scope of the 2014 and 2012 Productivity Plans.
(r)
(s)
In 2015, impairment charge in the AMENA segment associated with a joint venture in the Middle East.
In 2014, net charge related to our remeasurement of the bolivar for certain net monetary assets of our Venezuelan businesses. $126 million of
this charge was in corporate unallocated expenses, with the balance (equity income of $21 million) in our Latin America segment. In 2013,
net charge related to the devaluation of the bolivar for our Venezuelan businesses. $124 million of this charge was in corporate unallocated
expenses, with the balance (equity income of $13 million) in our Latin America segment.
In 2013, merger and integration charges in the ESSA segment related to our acquisition of WBD.
(t)
41
Selected Quarterly Financial Data
Selected financial data for 2017 and 2016 is summarized as follows and highlights certain items that impacted
our quarterly results (in millions except per share amounts, unaudited):
2017
2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Net revenue (a)
Gross profit
Operating profit
Mark-to-market net impact (b)
Restructuring and impairment
charges (c)
Provisional net tax expense related
to the TCJ Act (d)
Gain on sale of Britvic securities (e)
Gain on beverage refranchising (f)
Gain on sale of assets (g)
Charge related to the transaction
with Tingyi (h)
Charge related to debt redemption (i)
Pension-related settlement charge (j)
53rd reporting week (k)
Provision for income taxes (l)
Net income/(loss) attributable to
PepsiCo (l)
Net income/(loss) attributable to
PepsiCo per common share (l)
Basic
Diluted
Cash dividends declared per
common share
Stock price per share (m)
$ 12,049
$ 6,763
$ 1,933
$
$ 15,710
$ 8,654
$ 2,990
(14) $
(26) $
$ 16,240
$ 8,874
$ 2,993
27
$ 19,526
$ 10,449
$ 2,593
28
$
$ 11,862
$ 6,711
$ 1,619
46
$
$ 15,395
$ 8,565
$ 2,964
100
$
$ 16,027
$ 8,743
$ 2,821
$
(39) $
$ 19,515
$ 10,571
$ 2,381
60
$
(27) $
(34) $
(8) $
(226) $
(30) $
(49) $
(27) $
(54)
—
— $
—
—
—
—
—
—
—
95
—
— $
— $ (2,451)
—
— $
21
$
—
140
66
—
—
—
—
—
—
—
—
—
—
—
—
— $
(373)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
(233)
— $
(242)
— $
126
414
$
392
$
656
$
620
$ 3,026
$
442
$
718
$
600
$
$ 1,318
$ 2,105
$ 2,144
$
(710) $
931
$ 2,005
$ 1,992
$ 1,401
$
$
0.92
0.91
$
$
1.47
1.46
$
$
1.50
1.49
$ (0.50) $
$ (0.50) $
0.64
0.64
$
$
1.39
1.38
$
$
1.38
1.37
$
$
0.98
0.97
$ 0.7525
$ 0.805
$ 0.805
$ 0.805
$ 0.7025
$ 0.7525
$ 0.7525
$ 0.7525
High
Low
$ 112.38
$ 101.06
$ 118.12
$ 111.34
$ 119.39
$ 112.25
$ 120.57
$ 106.19
$ 102.12
$ 93.25
$ 106.94
$ 100.00
$ 110.94
$ 101.30
$ 109.71
$ 98.50
(a) Our fiscal 2016 results included a 53rd reporting week which increased 2016 net revenue by $657 million, including $294 million in our
FLNA segment, $43 million in our QFNA segment, $300 million in our NAB segment and $20 million in our ESSA segment.
(b) Mark-to-market net gains and losses on commodity derivatives in corporate unallocated expenses.
(c) Expenses related to the 2014 and 2012 Productivity Plans. See Note 3 to our consolidated financial statements.
(d) In 2017, provisional net tax expense associated with the enactment of the TCJ Act. See Note 5 to our consolidated financial statements.
(e) In 2017, gain in the ESSA segment associated with the sale of our minority stake in Britvic. See Note 9 to our consolidated financial
(f)
statements.
In 2017, gain in the AMENA segment associated with refranchising our beverage business in Jordan. See Note 14 to our consolidated
financial statements.
(g) In 2017, gains associated with the sale of assets in the following segments: $17 million in FLNA, $21 million in NAB, $21 million in
AMENA and $28 million in corporate unallocated expenses.
(h) In 2016, impairment charge in the AMENA segment to reduce the value of our 5% indirect equity interest in TAB to its estimated fair value.
(i)
See Note 9 to our consolidated financial statements.
In 2016, interest expense primarily representing the premium paid in accordance with the “make-whole” redemption provisions to redeem
all of our outstanding 7.900% senior notes due 2018 and 5.125% senior notes due 2019 for the principal amounts of $1.5 billion and $750
million, respectively. See Note 8 to our consolidated financial statements.
In 2016, pension settlement charge in corporate unallocated expenses related to the purchase of a group annuity contract.
(j)
(k) Our fiscal 2016 results included the 53rd reporting week, the impact of which was fully offset by incremental investments in our business.
Includes the provisional impact of the TCJ Act enacted in the fourth quarter of 2017. See Note 5 to our consolidated financial statements
(l)
for additional information.
42
(m) Reflects the quarterly composite high and low sales prices for one share of PepsiCo common stock as reported on The New York Stock
Exchange from December 27, 2015 through December 19, 2017 and The Nasdaq Global Select Market from December 20, 2017 through
December 30, 2017.
43
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OUR BUSINESS
Executive Overview
Our Operations
Other Relationships
Our Business Risks
OUR FINANCIAL RESULTS
Results of Operations – Consolidated Review
Non-GAAP Measures
Items Affecting Comparability
Results of Operations – Division Review
Frito-Lay North America
Quaker Foods North America
North America Beverages
Latin America
Europe Sub-Saharan Africa
Asia, Middle East and North Africa
Our Liquidity and Capital Resources
Return on Invested Capital
OUR CRITICAL ACCOUNTING POLICIES
Revenue Recognition
Goodwill and Other Intangible Assets
Income Tax Expense and Accruals
Pension and Retiree Medical Plans
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Cash Flows
Consolidated Balance Sheet
Consolidated Statement of Equity
Notes to Consolidated Financial Statements
Note 1 – Basis of Presentation and Our Divisions
Note 2 – Our Significant Accounting Policies
Note 3 – Restructuring and Impairment Charges
Note 4 – Property, Plant and Equipment and Intangible Assets
Note 5 – Income Taxes
Note 6 – Share-Based Compensation
Note 7 – Pension, Retiree Medical and Savings Plans
Note 8 – Debt Obligations
Note 9 – Financial Instruments
Note 10 – Net Income Attributable to PepsiCo per Common Share
Note 11 – Preferred Stock
Note 12 – Accumulated Other Comprehensive Loss Attributable to PepsiCo
Note 13 – Supplemental Financial Information
Note 14 – Divestitures
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
GLOSSARY
44
45
45
46
46
50
53
55
59
61
62
63
64
65
66
68
72
73
73
74
76
79
80
81
82
83
84
87
93
96
99
102
106
114
115
121
121
122
124
125
126
128
130
Our discussion and analysis is intended to help the reader understand our results of operations and financial
condition and is provided as an addition to, and should be read in connection with, our consolidated financial
statements and the accompanying notes. Definitions of key terms can be found in the glossary beginning on
page 130. Tabular dollars are presented in millions, except per share amounts. All per share amounts reflect
common stock per share amounts, assume dilution unless otherwise noted, and are based on unrounded
amounts. Percentage changes are based on unrounded amounts.
OUR BUSINESS
Executive Overview
We are a leading global food and beverage company with a complementary portfolio of enjoyable brands,
including Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. Through our operations, authorized
bottlers, contract manufacturers and other third parties, we make, market, distribute and sell a wide variety
of convenient and enjoyable beverages, foods and snacks, serving customers and consumers in more than
200 countries and territories.
At PepsiCo, we are focused on operating our company in a way that generates sustained financial growth
and consistently strong returns and is also responsive to the needs of the world around us. We call this approach
Performance with Purpose — it is embedded into our business and our strategy — and it enabled us to deliver
another year of strong performance in 2017.
As we look to 2018 and beyond, we believe our Performance with Purpose strategy will enable us to continue
delivering strong performance while positioning our Company for long-term sustainable growth.
Our strategies are designed to address key challenges facing our Company, including: macroeconomic and
political volatility and the continued rebalancing of the economic world; shifting consumer preferences and
increasing demand for more nutritious foods and beverages; the disruption of retail; the expansion of hard
discounters; and the emergence of niche brands laying claim to large consumer segments, particularly in
developed markets. We intend to focus on the following areas to address and adapt to these challenges:
• Utilizing the strength of our distribution system to offer consumers a wide array of choices, from
“fun-for-you” to “better-for-you” to “good-for-you” products to meet consumers’ demand for more
nutritious foods and beverages;
• Continuing to strengthen our retail and foodservice relationships to sell our products faster, increase
cash flow and engage consumers;
• Minimizing our environmental footprint to streamline costs and mitigate our operational impact on
the communities in which we operate;
• Continuing to invest in our associates so that we have the best talent to position our company for
continued growth; and
• Continuing our investments in e-commerce and digital solutions to meet changing consumer
consumption patterns and capture cost savings while streamlining our operations.
See also “Item 1A. Risk Factors” for additional information about risks and uncertainties that the Company
faces.
Our Operations
See “Item 1. Business” for information on our divisions and a description of our distribution network,
ingredients and other supplies, brands and intellectual property rights, seasonality, customers and competition.
In addition, see Note 1 to our consolidated financial statements for financial information about our divisions
45
and geographic areas.
Other Relationships
Certain members of our Board of Directors also serve on the boards of certain vendors and customers. These
Board members do not participate in our vendor selection and negotiations nor in our customer negotiations.
Our transactions with these vendors and customers are in the normal course of business and are consistent
with terms negotiated with other vendors and customers. In addition, certain of our employees serve on the
boards of Pepsi Bottling Ventures LLC and other affiliated companies of PepsiCo and do not receive
incremental compensation for such services.
Our Business Risks
We are subject to risks in the normal course of business. During 2017 and 2016, certain jurisdictions in which
our products are made, manufactured, distributed or sold operated in a challenging environment, experiencing
unstable economic, political and social conditions, civil unrest, natural disasters, debt and credit issues, and
currency fluctuations. We continue to monitor the economic, operating and political environment in these
markets closely and to identify actions to potentially mitigate any unfavorable impacts on our future results.
The hurricanes and earthquakes which occurred in the third and fourth quarters of 2017 in North and Central
America did not materially impact our consolidated financial results in 2017.
In addition, certain jurisdictions in which our products are made, manufactured, distributed or sold have
either imposed, or are considering imposing, new or increased taxes on the manufacture, distribution or sale
of our products, ingredients or substances contained in, or attributes of, our products or commodities used
in the production of our products. These taxes vary in scope and form: some apply to all beverages, including
non-caloric beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar). Similarly,
some measures apply a single tax rate per liquid ounce while others apply a graduated tax rate depending
upon the amount of added sugar in the beverage and some apply a flat tax rate on beverages containing a
particular substance or ingredient.
We sell a wide variety of beverages, foods and snack in more than 200 countries and territories and the profile
of the products we sell, and the amount of revenue attributable to such products, varies by jurisdiction.
Because of this, we cannot predict the scope or form potential taxes or other potential limitations on our
products may take, and therefore cannot predict the impact of such taxes or limitations on our financial
results. In addition, taxes and limitations may impact us and our competitors differently. We continue to
monitor existing and proposed taxes in the jurisdictions in which our products are made, manufactured,
distributed and sold and to consider actions we may take to potentially mitigate the unfavorable impact, if
any, of such taxes or limitations, including advocating alternative measures with respect to the imposition,
form and scope of any such taxes or limitations.
In addition, our industry has been affected by disruption of the retail landscape, including the rapid growth
in sales through e-commerce websites and mobile commerce applications, the integration of physical and
digital operations among retailers and the international expansion of hard discounters. We continue to monitor
changes in the retail landscape and to identify actions we may take to build our global e-commerce capabilities,
distribute our products effectively through all existing and emerging channels of trade and potentially mitigate
any unfavorable impacts on our future results.
During the fourth quarter of 2017, the TCJ Act was enacted in the United States. The changes in the TCJ Act
are broad and complex and we continue to examine the impact the TCJ Act may have on our business and
financial results. Among its many provisions, the TCJ Act imposed a mandatory one-time transition tax on
undistributed international earnings and reduced the U.S. corporate income tax rate from 35% to 21%. As a
result of the enactment of the TCJ Act, we recognized a provisional net tax expense of $2.5 billion in the
fourth quarter of 2017. See further information in “Items Affecting Comparability.” The recorded impact of
46
the TCJ Act is provisional and the final amount may differ from the above estimate, possibly materially, due
to, among other things, changes in estimates, interpretations and assumptions we have made, changes in IRS
interpretations, the issuance of new guidance, legislative actions, changes in accounting standards or related
interpretations in response to the TCJ Act and future actions by states within the United States that have not
currently adopted the TCJ Act. For additional information, see “Our Liquidity and Capital Resources,” “Our
Critical Accounting Policies” and Note 5 to our consolidated financial statements.
See also “Item 1A. Risk Factors,” “Executive Overview” above and “Market Risks” below for more
information about these risks and the actions we have taken to address key challenges.
Risk Management Framework
The achievement of our strategic and operating objectives involves taking risks and that those risks may
evolve over time. To identify, assess, prioritize, address, manage, monitor and communicate these risks across
the Company’s operations, we leverage an integrated risk management framework. This framework includes
the following:
• PepsiCo’s Board of Directors has oversight responsibility for PepsiCo’s integrated risk management
framework. One of the Board’s primary responsibilities is overseeing and interacting with senior
management with respect to key aspects of the Company’s business, including risk assessment and
risk mitigation of the Company’s top risks. The Board receives updates on key risks throughout the
year. In addition, the Board has tasked designated Committees of the Board with oversight of certain
categories of risk management, and the Committees report to the Board regularly on these matters.
The Audit Committee of the Board reviews and assesses the guidelines and policies governing
PepsiCo’s risk management and oversight processes, and assists the Board’s oversight of
financial, compliance and employee safety risks facing PepsiCo;
The Compensation Committee of the Board reviews PepsiCo’s employee compensation
policies and practices to assess whether such policies and practices could lead to unnecessary
risk-taking behavior;
The Nominating and Corporate Governance Committee assists the Board in its oversight of
the Company’s governance structure and other corporate governance matters, including
succession planning; and
The Public Policy and Sustainability Committee of the Board assists the Board in its oversight
of PepsiCo’s policies, programs and related risks that concern key public policy and
sustainability matters.
• The PepsiCo Risk Committee (PRC), which is comprised of a cross-functional, geographically
diverse, senior management group, including PepsiCo’s Chairman of the Board and Chief Executive
Officer, meets regularly to identify, assess, prioritize and address top strategic, financial, operating,
compliance, safety, reputational and other risks. The PRC is also responsible for reporting progress
on our risk mitigation efforts to the Board;
• Division and key country risk committees, comprised of cross-functional senior management teams,
meet regularly to identify, assess, prioritize and address division and country-specific business risks;
• PepsiCo’s Risk Management Office, which manages the overall risk management process, provides
ongoing guidance, tools and analytical support to the PRC and the division and key country risk
committees, identifies and assesses potential risks and facilitates ongoing communication between
the parties, as well as with PepsiCo’s Board of Directors and the Audit Committee of the Board;
47
• PepsiCo’s Corporate Audit Department evaluates the ongoing effectiveness of our key internal
controls through periodic audit and review procedures; and
• PepsiCo’s Compliance & Ethics Department leads and coordinates our compliance policies and
practices.
Market Risks
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 contracts and purchase orders and pricing agreements. See “Uncertain or unfavorable economic
conditions may have an adverse impact on our business, financial condition or results of operations.” and
“Our business, financial condition or results of operations may be adversely affected by increased costs,
disruption of supply or shortages of raw materials, energy, water and other supplies.” in “Item 1A. Risk
Factors.” See “Our Liquidity and Capital Resources” for further information on our non-cancelable
purchasing commitments.
The fair value of our derivatives fluctuates based on market rates and prices. The sensitivity of our derivatives
to these market fluctuations is discussed below. See Note 9 to our consolidated financial statements for further
discussion of these derivatives and our hedging policies. See “Our Critical Accounting Policies” for a
discussion of the exposure of our pension and retiree medical plan assets and liabilities to risks related to
market fluctuations.
Inflationary, deflationary and recessionary conditions impacting these market risks also impact the demand
for and pricing of our products. See “Item 1A. Risk Factors” for further discussion.
Commodity Prices
Our commodity derivatives had a total notional value of $0.9 billion as of December 30, 2017 and $0.8 billion
as of December 31, 2016. At the end of 2017, the potential change in fair value of commodity derivative
instruments, assuming a 10% decrease in the underlying commodity price, would have decreased our net
unrealized gains in 2017 by $96 million.
Foreign Exchange
Our operations outside of the United States generated 42% of our net revenue in 2017, with Mexico, Russia,
Canada, the United Kingdom and Brazil comprising approximately 20% of our net revenue in 2017. As a
result, we are exposed to foreign exchange risks in the international markets in which our products are made,
manufactured, distributed or sold. During 2017, unfavorable foreign exchange had a net nominal impact on
net revenue growth due to declines in the Egyptian pound, Turkish lira and Pound sterling, offset by
appreciation in the Russian ruble, Brazilian real and euro. Currency declines against the U.S. dollar which
are not offset could adversely impact our future financial results.
In addition, volatile economic, political and social conditions and civil unrest in certain markets in which
our products are made, manufactured, distributed or sold, including in Brazil, China, India, Mexico, the
48
Middle East, Russia and Turkey, and currency fluctuations in certain of these international markets continue
to result in challenging operating environments. We also continue to monitor the economic and political
developments related to the United Kingdom’s pending withdrawal from the European Union, including how
the United Kingdom will interact with other European Union countries following its departure, and the
potential impact for the ESSA segment and our other businesses.
Starting in 2014, Russia announced economic sanctions against the United States and other nations that
include a ban on imports of certain ingredients and finished goods from specific countries. These sanctions
have not had and are not expected to have a material impact on the results of our operations in Russia or our
consolidated results or financial position, and we will continue to monitor the economic, operating and
political environment in Russia closely. For the years ended December 30, 2017, December 31, 2016 and
December 26, 2015, net revenue generated by our operations in Russia represented 5%, 4% and 4% of our
consolidated net revenue, respectively. As of December 30, 2017, our long-lived assets in Russia were $4.7
billion.
Our foreign currency derivatives had a total notional value of $1.6 billion as of December 30, 2017 and
December 31, 2016. The total notional amount of our debt instruments designated as net investment hedges
was $1.5 billion as of December 30, 2017 and $0.8 billion as of December 31, 2016. At the end of 2017, we
estimate that an unfavorable 10% change in the underlying exchange rates would have increased our net
unrealized losses in 2017 by $125 million.
Due to exchange restrictions and other conditions that significantly impact our ability to effectively manage
our businesses in Venezuela and realize earnings generated by our Venezuelan businesses, effective at the
end of the third quarter of 2015, we deconsolidated our Venezuelan subsidiaries and began accounting for
our investments in our Venezuelan subsidiaries and joint venture using the cost method of accounting. In
2015, we recorded pre- and after-tax charges of $1.4 billion in our income statement to reduce the value of
the cost method investments to their estimated fair values, resulting in a full impairment. The factors that
led to our conclusions at the end of the third quarter of 2015 continued to exist through the end of 2017, and
we expect these conditions will continue for the foreseeable future.
We do not have any guarantees related to our Venezuelan entities, and our ongoing contractual commitments
to our Venezuelan businesses are not material. We will recognize income from dividends and sales of inventory
to our Venezuelan entities, which have not been and are not expected to be material, to the extent cash in
U.S. dollars is received. We have not received any cash in U.S. dollars from our Venezuelan entities since
our deconsolidation at the end of the third quarter of 2015. We continue to monitor the conditions in Venezuela
and their impact on our accounting and disclosures. For further information, please refer to Note 1 to our
consolidated financial statements and “Items Affecting Comparability.”
Interest Rates
Our interest rate derivatives had a total notional value of $14.2 billion as of December 30, 2017 and $11.2
billion as of December 31, 2016. Assuming year-end 2017 investment levels and variable rate debt, a 1-
percentage-point increase in interest rates would have decreased our net interest expense in 2017 by $25
million due to higher cash and cash equivalents and short-term investments levels as compared with our
variable rate debt.
49
OUR FINANCIAL RESULTS
Results of Operations — Consolidated Review
In the discussions of net revenue and operating profit below, “effective net pricing” reflects the year-over-
year impact of discrete pricing actions, sales incentive activities and mix resulting from selling varying
products in different package sizes and in different countries and “net pricing” reflects the year-over-year
combined impact of list price changes, weight changes per package, discounts and allowances. Additionally,
“acquisitions and divestitures,” except as otherwise noted, reflect all mergers and acquisitions activity,
including the impact of acquisitions, divestitures and changes in ownership or control in consolidated
subsidiaries and nonconsolidated equity investees. The impact of the structural change related to the
deconsolidation of our Venezuelan businesses is presented separately.
Volume
Our beverage volume in the NAB, Latin America, ESSA and AMENA segments reflects sales to authorized
bottlers, independent distributors and retailers, as well as the sale of beverages bearing Company-owned or
licensed trademarks that have been sold through our authorized independent bottlers. Bottler case sales (BCS)
and concentrate shipments and equivalents (CSE) are not necessarily equal during any given period due to
seasonality, timing of product launches, product mix, bottler inventory practices and other factors. While our
beverage revenues are not entirely based on BCS volume, as there are independent bottlers in the supply
chain, we believe that BCS is a valuable measure as it quantifies the sell-through of our beverage products
at the consumer level. Sales of products from our unconsolidated joint ventures are reflected in our reported
volume. NAB, Latin America, ESSA and AMENA, either independently or in conjunction with third parties,
make, market, distribute and sell ready-to-drink tea products through a joint venture with Unilever (under
the Lipton brand name), and NAB further, either independently or in conjunction with third parties, makes,
markets, distributes and sells ready-to-drink coffee products through a joint venture with Starbucks. In
addition, AMENA licenses the Tropicana brand for use in China on co-branded juice products in connection
with a strategic alliance with Tingyi.
Our food and snacks volume in the FLNA, QFNA, Latin America, ESSA and AMENA segments is reported
on a system-wide basis, which includes our own sales and the sales by our noncontrolled affiliates of snacks
bearing Company-owned or licensed trademarks.
Servings
Since our divisions each use different measures of physical unit volume (i.e., kilos, gallons, pounds and case
sales), a common servings metric is necessary to reflect our consolidated physical unit volume. Our divisions’
physical volume measures are converted into servings based on U.S. Food and Drug Administration guidelines
for single-serving sizes of our products.
In 2017, total servings decreased 1% compared to 2016. In 2016, total servings increased 3% compared to
2015. Excluding the impact of the 53rd reporting week in 2016, total servings in 2017 was even with the prior
year and total servings in 2016 increased 2% compared to 2015. Servings growth reflects adjustments to the
prior year results for divestitures and other structural changes, including the deconsolidation of our Venezuelan
businesses effective as of the end of the third quarter of 2015.
50
Consolidated Net Revenue and Operating Profit
Net revenue
Operating profit
Operating profit margin
2017
$ 63,525
$ 10,509
2016
62,799
9,785
$
$
16.5%
15.6%
2015
$ 63,056
8,353
$
13.2%
Change
2017
2016
1%
7%
1.0
— %
17 %
2.3
See “Results of Operations – Division Review” for a tabular presentation and discussion of key drivers of
net revenue.
2017
Operating profit increased 7% and operating margin improved 1.0 percentage points. Operating profit growth
was driven by the benefit of actions associated with our productivity initiatives, which contributed more than
$1 billion in cost reductions across a number of expense categories, as well as effective net pricing. Items
affecting comparability (see “Items Affecting Comparability”) also contributed 4 percentage points to
operating profit growth and increased operating profit margin by 0.5 percentage points, primarily reflecting
a prior-year impairment charge to reduce the value of our 5% indirect equity interest in TAB to its estimated
fair value. Additionally, the impact of refranchising our beverage business in Jordan and a gain associated
with the sale of our minority stake in Britvic each contributed 1 percentage point to operating profit growth.
These impacts were partially offset by certain operating cost increases, higher commodity costs and
unfavorable foreign exchange. Commodity inflation reduced operating profit growth by 6 percentage points,
primarily attributable to inflation in the AMENA, Latin America, ESSA, NAB and FLNA segments. Corporate
unallocated expenses (see Note 1 to our consolidated financial statements) decreased 9%, reflecting the
impact of higher prior-year contributions to The PepsiCo Foundation, Inc. to fund charitable and social
programs.
2016
Operating profit increased 17% and operating margin increased 2.3 percentage points. Operating profit
growth was driven by the benefit of actions associated with our productivity initiatives, which contributed
more than $1 billion in cost reductions across a number of expense categories, effective net pricing and
volume growth. Additionally, the impact of recording an impairment charge in 2015 and ceasing the operations
of our MQD joint venture contributed 1 percentage point to operating profit growth. These impacts were
partially offset by certain operating cost increases, higher advertising and marketing expenses, unfavorable
foreign exchange and higher commodity costs, as well as the deconsolidation of our Venezuelan businesses,
which reduced operating profit growth by 2 percentage points. Items affecting comparability (see “Items
Affecting Comparability”) contributed 13 percentage points to operating profit growth and increased
operating profit margin by 1.5 percentage points, primarily reflecting a 17-percentage-point contribution
from the 2015 Venezuela impairment charges. Higher commodity inflation reduced operating profit growth
by 1 percentage point, primarily attributable to inflation in the Latin America, ESSA and AMENA segments,
partially offset by deflation in the NAB, FLNA and QFNA segments. The impact of our 53rd reporting week
was fully offset by incremental investments we made in our business. Corporate unallocated expenses (see
Note 1 to our consolidated financial statements) decreased 1%, driven by lower pension expense reflecting
the change to the full yield curve approach, lower foreign exchange transaction losses and decreases in other
corporate expenses, partially offset by increased contributions to The PepsiCo Foundation, Inc. to fund
charitable and social programs and the net impact of items affecting comparability mentioned above included
in corporate unallocated expenses.
51
Other Consolidated Results
Net interest expense
Annual tax rate (a)
Net income attributable to PepsiCo
Net income attributable to PepsiCo per common
share – diluted
Mark-to-market net impact
Restructuring and impairment charges
Provisional net tax expense related to the TCJ Act (a)
Charges related to the transaction with Tingyi
Charge related to debt redemption
Pension-related settlement charge/(benefits)
Venezuela impairment charges
Tax benefit
Net income attributable to PepsiCo per common
share – diluted, excluding above items (b)
Impact of foreign exchange translation
Growth in net income attributable to PepsiCo per
common share – diluted, excluding above items, on
a constant currency basis (b)
(a) See Note 5 to our consolidated financial statements.
(b) See “Non-GAAP Measures.”
2017
2017
$
(907)
48.9%
2016
$ (1,232)
25.4%
$
2015
(911)
26.1%
Change
2017
$ 325
2016
$ (321)
$ 4,857
$ 6,329
$ 5,452
(23)%
16%
19%
(23)%
$
3.38
(0.01)
0.16
1.70
—
—
—
—
—
$
4.36
(0.08)
0.09
—
0.26
0.11
0.11
—
—
$
3.67
—
0.12
—
0.05
—
(0.03)
0.91
(0.15)
$
5.23
$
4.85
$
4.57
8 %
1
6%
3
9 %
9%
Net interest expense decreased $325 million reflecting a prior-year charge of $233 million representing the
premium paid in accordance with the “make-whole” redemption provisions to redeem all of our outstanding
7.900% senior notes due 2018 and 5.125% senior notes due 2019 for the principal amounts of $1.5 billion
and $750 million, respectively. This decrease also reflects higher interest income due to higher interest rates
and average cash balances, as well as gains on the market value of investments used to economically hedge
a portion of our deferred compensation liability. These impacts were partially offset by higher interest expense
due to higher average debt balances.
The reported tax rate increased 23.5 percentage points primarily as a result of the provisional net tax expense
related to the TCJ Act, which contributed 26 percentage points to the increase, partially offset by the impact
of the prior-year impairment charge to reduce the value of our 5% indirect equity interest in TAB to its
estimated fair value, which had no corresponding tax benefit, as well as the impact of recognizing excess
tax benefits in the provision for income taxes as a result of the changes in accounting for certain aspects of
share-based payments to employees in the current year. See Note 2 and Note 5 to our consolidated financial
statements for additional information.
Net income attributable to PepsiCo and net income attributable to PepsiCo per common share both decreased
23%. Items affecting comparability (see “Items Affecting Comparability”) negatively impacted both net
income attributable to PepsiCo and net income attributable to PepsiCo per common share by 30 percentage
points, primarily as a result of the provisional net tax expense related to the TCJ Act.
52
2016
Net interest expense increased $321 million reflecting a charge of $233 million representing the premium
paid in accordance with the “make-whole” redemption provisions to redeem all of our outstanding 7.900%
senior notes due 2018 and 5.125% senior notes due 2019 for the principal amounts of $1.5 billion and $750
million, respectively. This increase also reflects higher average debt balances, partially offset by higher
interest income due to higher average cash balances, as well as gains on the market value of investments
used to economically hedge a portion of our deferred compensation liability.
The reported tax rate decreased 0.7 percentage points due to the impact of the 2015 Venezuela impairment
charges, which had no corresponding tax benefit, partially offset by the 2015 favorable resolution with the
IRS of substantially all open matters related to the audits for taxable years 2010 and 2011, as well as the
2016 impairment charge recorded to reduce the value of our 5% indirect equity interest in TAB to its estimated
fair value, which had no corresponding tax benefit.
Net income attributable to PepsiCo increased 16% and net income attributable to PepsiCo per common share
increased 19%. Items affecting comparability (see “Items Affecting Comparability”) positively contributed
12 percentage points to net income attributable to PepsiCo and 13 percentage points to net income attributable
to PepsiCo per common share.
Non-GAAP Measures
Certain financial measures contained in this Form 10-K adjust for the impact of specified items and are not
in accordance with U.S. Generally Accepted Accounting Principles (GAAP). We use non-GAAP financial
measures internally to make operating and strategic decisions, including the preparation of our annual
operating plan, evaluation of our overall business performance and as a factor in determining compensation
for certain employees. We believe presenting non-GAAP financial measures in this Form 10-K provides
additional information to facilitate comparison of our historical operating results and trends in our underlying
operating results, and provides additional transparency on how we evaluate our business. We also believe
presenting these measures in this Form 10-K allows investors to view our performance using the same
measures that we use in evaluating our financial and business performance and trends.
We consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that
may be significant or that could affect an understanding of our ongoing financial and business performance
or trends. Examples of items for which we may make adjustments include: amounts related to mark-to-market
gains or losses (non-cash); charges related to restructuring programs; charges or adjustments related to the
enactment of new laws, rules or regulations, such as significant tax law changes; gains or losses associated
with mergers, acquisitions, divestitures and other structural changes; debt redemptions; pension and retiree
medical related items; amounts related to the resolution of tax positions; asset impairments (non-cash); and
remeasurements of net monetary assets. See below and “Items Affecting Comparability” for a description
of adjustments to our U.S. GAAP financial measures in this Form 10-K.
Non-GAAP information should be considered as supplemental in nature and is not meant to be considered
in isolation or as a substitute for the related financial information prepared in accordance with U.S. GAAP.
In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP
measures presented by other companies.
The following non-GAAP financial measures are contained in this Form 10-K:
•
cost of sales, gross profit, selling, general and administrative expenses, interest expense,
noncontrolling interests and provision for income taxes, each adjusted for items affecting
comparability;
53
• operating profit/loss, adjusted for items affecting comparability, and net income attributable to
PepsiCo per common share – diluted, adjusted for items affecting comparability, and the
corresponding constant currency growth rates;
• organic revenue;
•
•
free cash flow; and
return on invested capital (ROIC) and net ROIC, excluding items affecting comparability.
Cost of Sales, Gross Profit, Selling, General and Administrative Expenses, Interest Expense, Noncontrolling
Interests and Provision for Income Taxes, Adjusted for Items Affecting Comparability; Operating Profit/Loss,
Adjusted for Items Affecting Comparability, and Net Income Attributable to PepsiCo per Common Share –
Diluted, Adjusted for Items Affecting Comparability, and the Corresponding Constant Currency Growth
Rates
Cost of sales, gross profit, selling, general and administrative expenses, interest expense, noncontrolling
interests and provision for income taxes, adjusted for items affecting comparability; operating profit/loss,
adjusted for items affecting comparability, and net income attributable to PepsiCo per common share – diluted,
adjusted for items affecting comparability, exclude the net impact of mark-to-market gains and losses on
centrally managed commodity derivatives that do not qualify for hedge accounting, restructuring and
impairment charges related to our 2014 and 2012 Productivity Plans, a provisional net tax expense associated
with the enactment of the TCJ Act, charges related to the transaction with Tingyi, a charge related to debt
redemption, pension-related settlements, Venezuela impairment charges and a tax benefit (see “Items
Affecting Comparability” for a detailed description of each of these items). We also evaluate performance
on operating profit/loss, adjusted for items affecting comparability, and net income attributable to PepsiCo
per common share – diluted, adjusted for items affecting comparability, on a constant currency basis, which
measure our financial results assuming constant foreign currency exchange rates used for translation based
on the rates in effect for the comparable prior-year period. In order to compute our constant currency results,
we multiply or divide, as appropriate, our current year U.S. dollar results by the current year average foreign
exchange rates and then multiply or divide, as appropriate, those amounts by the prior-year average foreign
exchange rates. We believe these measures provide useful information in evaluating the results of our business
because they exclude items that we believe are not indicative of our ongoing performance.
Organic Revenue
We define organic revenue as net revenue adjusted for the impact of foreign exchange translation, as well as
the impact from acquisitions, divestitures and other structural changes, including the Venezuela
deconsolidation, for the comparable period. The Venezuela deconsolidation impact excluded the results of
our Venezuelan businesses for the first three quarters of 2015. In addition, our fiscal 2016 reported results
included an extra week of results. Organic revenue excludes the impact of the 53rd reporting week in the
fourth quarter of 2016.
We believe organic revenue provides useful information in evaluating the results of our business because it
excludes items that we believe are not indicative of ongoing performance or that we believe impact
comparability with the prior year.
See “Organic Revenue Growth” in “Results of Operations – Division Review.”
Free Cash Flow
We define free cash flow as net cash provided by operating activities less capital spending, plus sales of
property, plant and equipment. Since net capital spending is essential to our product innovation initiatives
and maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As
such, we believe investors should also consider net capital spending when evaluating our cash from operating
54
activities. Free cash flow is used by us primarily for financing activities, including debt repayments, dividends
and share repurchases. Free cash flow is not a measure of cash available for discretionary expenditures since
we have certain non-discretionary obligations such as debt service that are not deducted from the measure.
See “Free Cash Flow” in “Our Liquidity and Capital Resources.”
ROIC and Net ROIC, Excluding Items Affecting Comparability
We define ROIC as net income attributable to PepsiCo plus interest expense after-tax divided by the sum of
quarterly average debt obligations and quarterly average common shareholders’ equity. Although ROIC is a
common financial metric, numerous methods exist for calculating ROIC. Accordingly, the method used by
management to calculate ROIC may differ from the methods other companies use to calculate their ROIC.
We believe this metric serves as a measure of how well we use our capital to generate returns. In addition,
we use net ROIC, excluding items affecting comparability, to compare our performance over various reporting
periods on a consistent basis because it removes from our operating results the impact of items that are not
indicative of our ongoing performance and reflects how management evaluates our operating results and
trends. We define net ROIC, excluding items affecting comparability, as ROIC, adjusted for quarterly average
cash, cash equivalents and short-term investments, after-tax interest income and items affecting comparability.
We believe the calculation of ROIC and net ROIC, excluding items affecting comparability, provides useful
information to investors and is an additional relevant comparison of our performance to consider when
evaluating our capital allocation efficiency.
See “Return on Invested Capital” in “Our Liquidity and Capital Resources.”
Items Affecting Comparability
Our reported financial results in this Form 10-K are impacted by the following items in each of the following
years:
Cost of sales
Gross profit
2017
Selling,
general and
administrative
expenses
Operating
profit
Provision for
income taxes(a)
Net income
attributable
to PepsiCo
$
28,785
$
34,740
$
24,231
$
10,509
$
4,694
$
4,857
Reported, GAAP Measure
Items Affecting Comparability
Mark-to-market net impact
Restructuring and impairment charges
Provisional net tax expense related to the TCJ Act
Core, Non-GAAP Measure
$
28,793
$
34,732
$
23,943
$
10,789
$
2,307
$
8
—
—
(8)
—
—
7
(295)
—
(15)
295
—
(7)
71
(2,451)
(8)
224
2,451
7,524
Cost of
sales
Gross
profit
Selling,
general and
administrative
expenses
Operating
profit
Interest
expense
Provision
for income
taxes(a)
Net income
attributable to
noncontrolling
interests
Net income
attributable
to PepsiCo
$ 28,209
$ 34,590
$
24,805
$
9,785
$
1,342
$
2,174
$
50
$
6,329
2016
78
—
—
—
—
(78)
—
—
—
—
89
(160)
(373)
—
(242)
(167)
160
373
—
242
—
—
—
(233)
—
(56)
26
—
77
80
—
3
—
—
—
53
(111)
131
373
156
162
$
7,040
Reported, GAAP Measure
Items Affecting Comparability
Mark-to-market net impact
Restructuring and
impairment charges
Charge related to the
transaction with Tingyi
Charge related to debt
redemption
Pension-related settlement
charge
Core, Non-GAAP Measure
$ 28,287
$ 34,512
$
24,119
$
10,393
$
1,109
$
2,301
$
55
Reported, GAAP Measure
Items Affecting Comparability
Mark-to-market net impact
Restructuring and impairment charges
Charge related to the transaction with
Tingyi
Pension-related settlement benefits
Venezuela impairment charges
Tax benefit
Selling,
general and
administrative
expenses
2015
Venezuela
impairment
charges
Cost of
sales
Gross profit
Operating
profit
Provision for
income taxes(a)
Net income
attributable
to PepsiCo
$ 28,731
$
34,325
$
24,613
$
1,359
$
8,353
$
1,941
$
5,452
(18)
—
—
—
—
—
18
—
—
—
—
—
29
(230)
(73)
67
—
—
—
—
—
—
(1,359)
—
(11)
230
73
(67)
1,359
—
(3)
46
—
(25)
—
230
(8)
184
73
(42)
1,359
(230)
6,788
Core, Non-GAAP Measure
$ 28,713
$
34,343
$
24,406
$
— $
9,937
$
2,189
$
(a) Provision for income taxes is the expected tax benefit/charge on the underlying item based on the tax laws and income tax rates applicable to the underlying
item in its corresponding tax jurisdiction and tax year and, in 2017, the impact of the TCJ Act is presented separately.
Mark-to-Market Net Impact
We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include
agricultural products, energy and metals. Commodity derivatives 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. Therefore, the divisions realize
the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which
remains in corporate unallocated expenses.
Restructuring and Impairment Charges
2014 Multi-Year Productivity Plan
To build on the successful implementation of the 2014 Productivity Plan to date, we expanded and extended
the program through the end of 2019 to take advantage of additional opportunities within the initiatives of
the 2014 Productivity Plan to further strengthen our food, snack and beverage businesses. We now expect
to incur pre-tax charges and cash expenditures of approximately $1.3 billion and $985 million, respectively,
as compared to our previous estimate of pre-tax charges and cash expenditures of approximately $990 million
and $705 million, respectively.
56
The expected pre-tax charges and cash expenditures are summarized by year as follows:
2013
2014
2015
2016
2017
2018 (expected)
2019 (expected)
$
$
Charges
Cash
Expenditures
—
$
175 (b)
165 (b)
95
113
396
41
985
53
357
169
160
295
254
17
1,305 (a) $
(a) This total pre-tax charge is expected to consist of approximately $795 million of severance and other employee-related costs, approximately $165 million
for asset impairments (all non-cash) resulting from plant closures and related actions, and approximately $345 million for other costs associated with the
implementation of our initiatives, including contract termination costs. This charge is expected to impact reportable segments and Corporate approximately
as follows: FLNA 14%, QFNA 3%, NAB 30%, Latin America 15%, ESSA 25%, AMENA 4% and Corporate 9%.
In 2015 and 2014, cash expenditures include $2 million and $10 million, respectively, reported on our cash flow statement in pension and retiree medical
plan contributions.
(b)
See Note 3 to our consolidated financial statements for further information related to our 2014 and 2012
Productivity Plans.
We regularly evaluate different productivity initiatives beyond the productivity plans and other initiatives
discussed above and in Note 3 to our consolidated financial statements.
Provisional Net Tax Expense Related to the TCJ Act
In 2017, we recorded a provisional net tax expense of $2.5 billion ($1.70 per share) associated with the
enactment of the TCJ Act in the fourth quarter of 2017. Included in the net tax expense of $2.5 billion is a
provisional mandatory one-time transition tax of approximately $4 billion on undistributed international
earnings, included in other liabilities. This mandatory one-time transition tax was partially offset by a
provisional $1.5 billion benefit resulting from the required remeasurement of our deferred tax assets and
liabilities to the new, lower U.S. corporate income tax rate.
See Note 5 to our consolidated financial statements.
Charges Related to the Transaction with Tingyi
In 2016, we recorded a pre- and after-tax impairment charge of $373 million ($0.26 per share) in the AMENA
segment to reduce the value of our 5% indirect equity interest in TAB to its estimated fair value.
In 2015, we recorded a pre- and after-tax charge of $73 million ($0.05 per share) in the AMENA segment
related to a write-off of the value of a call option to increase our holding in TAB to 20%.
See Note 9 to our consolidated financial statements.
Charge Related to Debt Redemption
In 2016, we paid $2.5 billion to redeem all of our outstanding 7.900% senior notes due 2018 and 5.125%
senior notes due 2019 for the principal amounts of $1.5 billion and $750 million, respectively, and terminated
certain interest rate swaps. As a result, we recorded a pre-tax charge of $233 million ($156 million after-tax
or $0.11 per share) to interest expense, primarily representing the premium paid in accordance with the
“make-whole” redemption provisions.
See Note 8 to our consolidated financial statements.
57
Pension-Related Settlements
In 2016, we recorded a pre-tax pension settlement charge in corporate unallocated expenses of $242 million
($162 million after-tax or $0.11 per share) related to the purchase of a group annuity contract. See Note 7 to
our consolidated financial statements.
In 2015, we recorded pre-tax benefits of $67 million ($42 million after-tax or $0.03 per share) in the NAB
segment associated with the settlement of pension-related liabilities from previous acquisitions. These
benefits were recognized in selling, general and administrative expenses.
Venezuela Impairment Charges
In 2015, we recorded pre- and after-tax charges of $1.4 billion ($0.91 per share) in the Latin America segment
related to the impairment of investments in our wholly-owned Venezuelan subsidiaries and beverage joint
venture.
See Note 1 to our consolidated financial statements and “Our Business Risks.”
Tax Benefit
In 2015, we recognized a non-cash tax benefit of $230 million ($0.15 per share) associated with our agreement
with the IRS resolving substantially all open matters related to the audits for taxable years 2010 through
2011, which reduced our reserve for uncertain tax positions for the tax years 2010 and 2011.
See Note 5 to our consolidated financial statements.
58
Results of Operations — Division Review
The results and discussions below are based on how our Chief Executive Officer monitors the performance
of our divisions. Accordingly, volume growth measures for 2016 reflect adjustments to the base year for
divestitures and other structural changes, including the deconsolidation of our Venezuelan businesses effective
as of the end of the third quarter of 2015. See “Non-GAAP Measures” and “Items Affecting Comparability”
for a discussion of items to consider when evaluating our results and related information regarding non-GAAP
measures.
Net Revenue, 2017
Net Revenue, 2016
% Impact of:
Volume (a)
Effective net pricing (b)
Foreign exchange translation
Acquisitions and divestitures
53rd reporting week (c)
Reported growth (e)
Net Revenue, 2016
Net Revenue, 2015
% Impact of:
Volume (a)
Effective net pricing (b)
Foreign exchange translation
Acquisitions and divestitures
Venezuela deconsolidation (d)
53rd reporting week (c)
Reported growth (e)
FLNA
QFNA
NAB
Latin
America
ESSA
AMENA
Total
$ 15,798
$ 2,503
$ 20,936
$ 7,208
$ 11,050
$ 6,030
$ 63,525
$ 15,549
$ 2,564
$ 21,312
$ 6,820
$ 10,216
$ 6,338
$ 62,799
1%
— %
(2.5)%
(2)%
3%
— %
— %
2.5
—
—
(2)
2%
(1)
—
—
(2)
(2)%
1
—
1
(1)
(2)%
7
1
(0.5)
—
2
3
—
—
5
(10)
—
—
6 %
8%
(5)%
3
—
—
(1)
1 %
FLNA
QFNA
NAB
Latin
America
ESSA
AMENA
Total
$ 15,549
$ 14,782
$
$
2,564
2,543
$ 21,312
$ 6,820
$ 10,216
$ 6,338
$ 62,799
$ 20,618
$ 8,228
$ 10,510
$ 6,375
$ 63,056
2%
2
—
—
—
2
—%
(1)
—
—
—
2
1%
3 %
1.5 %
6 %
2%
1
—
—
—
1.5
7
(11)
(1)
(14)
—
2.5
(7)
—
—
—
(1)
(5)
—
—
—
2
(3)
—
(2)
1
5%
1%
3%
(17)%
(3)%
(1)%
—%
(a) Excludes the impact of acquisitions and divestitures. In certain instances, volume growth varies from the amounts disclosed in the following
divisional discussions due to nonconsolidated joint venture volume, and, for our beverage businesses, temporary timing differences between
BCS and CSE, as well as the mix of beverage volume sold by our Company-owned and franchised-owned bottlers. Our net revenue excludes
nonconsolidated joint venture volume, and, for our beverage businesses, is based on CSE.
(b) Includes the year-over-year impact of discrete pricing actions, sales incentive activities and mix resulting from selling varying products in
different package sizes and in different countries.
(c) Our fiscal 2016 results included a 53rd reporting week which increased 2016 net revenue by $657 million, including $294 million in our
FLNA segment, $43 million in our QFNA segment, $300 million in our NAB segment and $20 million in our ESSA segment.
(d) The impact of the exclusion of the 2015 results of our Venezuelan businesses, which were deconsolidated effective as of the end of the third
quarter of 2015.
(e) Amounts may not sum due to rounding.
59
Organic Revenue Growth
Organic revenue is a non-GAAP financial measure. For further information on organic revenue see “Non-
GAAP Measures.”
2017
Reported Growth
% Impact of:
Foreign exchange translation
Acquisitions and divestitures
53rd reporting week (a)
Organic Growth (c)
2016
Reported Growth
% Impact of:
Foreign exchange translation
Acquisitions and divestitures
Venezuela deconsolidation (b)
53rd reporting week (a)
Organic Growth (c)
FLNA
QFNA
NAB
Latin
America
ESSA
AMENA
Total
2%
(2)%
(2)%
6 %
8 %
(5)%
1%
—
—
2
—
—
2
—
(1)
1
(1)
0.5
—
(3)
—
—
10
—
—
—
—
1
3 %
(1 )%
(2 )%
5 %
6 %
5 %
2 %
FLNA
QFNA
NAB
Latin
America
ESSA
AMENA
Total
5 %
1 %
3 %
(17)%
(3)%
(1 )%
— %
—
—
—
(2)
—
—
—
(2)
—
—
—
(1.5)
11
1
14
—
7
—
—
—
5
—
—
—
3.5 %
— %
2 %
9 %
4 %
5 %
3
—
2
(1)
4 %
(a) Our fiscal 2016 results included a 53rd reporting week which increased 2016 net revenue by $657 million, including $294 million in our
FLNA segment, $43 million in our QFNA segment, $300 million in our NAB segment and $20 million in our ESSA segment. Our 2017
organic revenue growth excludes the impact of the 53rd reporting week from our 2016 results.
(b) The impact of the exclusion of the 2015 results of our Venezuelan businesses, which were deconsolidated effective as of the end of the third
quarter of 2015.
(c) Amounts may not sum due to rounding.
60
Frito-Lay North America
Net revenue
Impact of foreign exchange translation
Impact of 53rd reporting week
Organic revenue growth (a)
Operating profit
Restructuring and impairment charges
Operating profit excluding above item (a)
Impact of foreign exchange translation
Operating profit growth excluding above item,
on a constant currency basis (a)
(a) See “Non-GAAP Measures.”
(b) Does not sum due to rounding.
2017
2017
2015
$15,798 $15,549 $14,782
2016
$ 4,823 $ 4,659 $ 4,304
26
$ 4,890 $ 4,672 $ 4,330
67
13
% Change
2017
2
—
2
3 (b)
2016
5
—
(2)
3.5 (b)
3.5
8
5
—
4.5 (b)
8
—
8
Net revenue grew 2%, primarily reflecting effective net pricing, partially offset by the impact of the 53rd
reporting week in the prior year, which reduced net revenue growth by 2 percentage points.
Volume declined 1%, reflecting mid-single-digit declines in trademark Lay’s and Fritos and a low-single-
digit decline in trademark Doritos, partially offset by high-single-digit growth in variety packs. The 53rd
reporting week in the prior year negatively impacted volume performance by 2 percentage points.
Operating profit grew 3.5%, primarily reflecting planned cost reductions across a number of expense
categories and the effective net pricing, as well as the impact of prior-year incremental investments into our
business, which contributed 1 percentage point to operating profit growth. These impacts were partially offset
by certain operating cost increases, including strategic initiatives, as well as higher commodity costs, primarily
cooking oil, which reduced operating profit growth by 1 percentage point. The 53rd reporting week in the
prior year reduced operating profit growth by 2 percentage points.
2016
Net revenue grew 5%, driven by volume growth and effective net pricing. The 53rd reporting week contributed
2 percentage points to the net revenue growth.
Volume grew 3%, reflecting high-single-digit growth in variety packs, and mid-single-digit growth in
trademark Doritos and Cheetos. These gains were partially offset by a mid-single-digit decline in our Sabra
joint venture products. The 53rd reporting week contributed 2 percentage points to the volume growth.
Operating profit grew 8%, primarily reflecting the net revenue growth and planned cost reductions across a
number of expense categories, as well as lower commodity costs, which contributed 3 percentage points to
operating profit growth, primarily fuel and cooking oil. These impacts were partially offset by certain
operating cost increases, including strategic initiatives, and higher advertising and marketing expenses. The
53rd reporting week contributed 2 percentage points to operating profit growth, partially offset by incremental
investments in our business, which reduced operating profit growth by 1.5 percentage points.
61
Quaker Foods North America
Net revenue
Impact of foreign exchange translation
Impact of 53rd reporting week
Organic revenue growth (a)
Operating profit
Restructuring and impairment charges
Operating profit excluding above item (a)
Impact of foreign exchange translation
Operating profit growth excluding above item,
on a constant currency basis (a)
(a) See “Non-GAAP Measures.”
(b) Does not sum due to rounding.
2017
2017
2015
$ 2,503 $ 2,564 $ 2,543
2016
$
$
642 $
11
653 $
653 $
1
654 $
560
3
563
% Change
2017
(2)
—
2
(1) (b)
(2)
—
—
—
2016
1
—
(2)
— (b)
16
16
—
16
Net revenue declined 2%, reflecting the impact of the 53rd reporting week in the prior year, which negatively
impacted net revenue performance by 2 percentage points, as well as unfavorable mix.
Volume declined 2%, reflecting a low-single-digit decline in ready-to-eat cereals and high-single-digit
declines in trademark Roni and Gamesa, in part reflecting the impact of the 53rd reporting week in the prior
year which negatively impacted volume performance by 2 percentage points.
Operating profit decreased 2%, reflecting certain operating cost increases and the net revenue performance.
The 53rd reporting week in the prior year negatively impacted operating profit performance by 2 percentage
points. These impacts were partially offset by planned cost reductions across a number of expense categories
and lower advertising and marketing expenses, as well as the impact of prior-year incremental investments
into our business, which positively contributed 1.5 percentage points to operating profit performance.
Restructuring and impairment charges in the above table (see “Items Affecting Comparability”) negatively
impacted operating profit performance by 1.5 percentage points.
2016
Net revenue grew 1%, driven by the 53rd reporting week which contributed 2 percentage points to the net
revenue growth, partially offset by unfavorable net pricing and mix and unfavorable foreign exchange.
Volume grew 2%, reflecting mid-single-digit growth in Aunt Jemima syrup and mix and low-single-digit
growth in ready-to-eat cereals, oatmeal and bars. The 53rd reporting week contributed 2 percentage points
to the volume growth.
Operating profit increased 16%, impacted by 2015 impairment charges related to our dairy joint venture and
ceasing its operations, which contributed 17 percentage points to operating profit growth. This increase also
reflects planned cost reductions across a number of expense categories, as well as lower commodity costs,
which contributed 6 percentage points to operating profit growth. These impacts were partially offset by
higher advertising and marketing expenses, certain operating cost increases and the unfavorable net pricing
and mix. The 53rd reporting week contributed 2 percentage points to operating profit growth, partially offset
by incremental investments in our business, which reduced operating profit growth by 1.5 percentage points.
62
North America Beverages
Net revenue
Impact of foreign exchange translation
Impact of acquisitions and divestitures
Impact of 53rd reporting week
Organic revenue growth (a)
Operating profit
Restructuring and impairment charges
Pension-related settlement benefits
Operating profit excluding above items (a)
Impact of foreign exchange translation
Operating profit growth excluding above items,
on a constant currency basis (a)
(a) See “Non-GAAP Measures.”
(b) Does not sum due to rounding.
2017
2017
2015
$20,936 $21,312 $20,618
2016
% Change
2017
(2)
—
(1)
1
(2)
2016
3
—
—
(1.5)
2 (b)
$ 2,707 $ 2,959 $ 2,785
33
(67)
$ 2,761 $ 2,994 $ 2,751
54
—
35
—
(9)
6
(8)
—
(8)
9
—
9
Net revenue decreased 2%, primarily reflecting a decline in volume, partially offset by effective net pricing,
as well as acquisitions which positively contributed 1 percentage point to the net revenue performance. The
53rd reporting week in the prior year negatively impacted net revenue performance by 1 percentage point.
Volume decreased 3.5%, driven by a 5% decline in CSD volume and a 1% decline in non-carbonated beverage
volume. The non-carbonated beverage volume decrease primarily reflected mid-single-digit declines in
Gatorade sports drinks and in our juice and juice drinks portfolio, partially offset by a mid-single-digit increase
in our overall water portfolio and a low-single-digit increase in Lipton ready-to-drink teas. Acquisitions had
a nominal positive contribution to the volume performance. The 53rd reporting week in the prior year
negatively impacted volume performance by 1.5 percentage points.
Operating profit decreased 9%, primarily reflecting certain operating cost increases and the net revenue
performance, as well as higher commodity costs which negatively impacted operating profit performance
by 2 percentage points. These impacts were partially offset by planned cost reductions across a number of
expense categories and lower advertising and marketing expenses. Costs related to the hurricanes that occurred
in the current year negatively impacted operating profit performance by 1 percentage point and were offset
by a gain associated with a sale of an asset. In addition, the 53rd reporting week in the prior year negatively
impacted operating profit performance by 1 percentage point and was offset by incremental investments in
our business in the prior year.
2016
Net revenue increased 3%, primarily reflecting effective net pricing and volume growth. The 53rd reporting
week contributed 1.5 percentage points to the net revenue growth.
Volume increased 2%, driven by a 7% increase in non-carbonated beverage volume, partially offset by a 1%
decline in CSD volume. The non-carbonated beverage volume increase primarily reflected a double-digit
increase in our overall water portfolio, a mid-single-digit increase in Gatorade sports drinks, and a high-
63
single-digit increase in Lipton ready-to-drink teas. The 53rd reporting week contributed 1.5 percentage points
to the volume growth.
Operating profit increased 6%, primarily reflecting the net revenue growth and planned cost reductions across
a number of expense categories, as well as lower commodity costs which contributed 6 percentage points to
operating profit growth. These impacts were partially offset by certain operating cost increases and higher
advertising and marketing expenses. The 53rd reporting week contributed 1.5 percentage points to the
operating profit growth. This was partially offset by incremental investments in our business which reduced
operating profit growth by 1 percentage point. Items affecting comparability in the above table (see “Items
Affecting Comparability”) reduced operating profit growth by 3 percentage points.
Latin America
Net revenue
Impact of foreign exchange translation
Impact of acquisitions and divestitures
Impact of Venezuela deconsolidation
Organic revenue growth (a)
2017
2015
$ 7,208 $ 6,820 $ 8,228
2016
Operating profit/(loss)
Restructuring and impairment charges
Venezuela impairment charges
Operating profit excluding above items (a)
Impact of foreign exchange translation
Operating profit growth excluding above items, on a
constant currency basis (a)
$
$
908 $
63
—
971 $
887 $ (206)
27
36
— 1,359
914 $ 1,189
% Change
2017
6
(1)
0.5
—
5 (b)
2
6
1
7
2016
(17)
11
1
14
9
n/m
(23)
14
(9)
(a) See “Non-GAAP Measures.”
(b) Does not sum due to rounding.
n/m - Not meaningful due to the impact of impairment charges associated with a change in accounting for our Venezuela operations in 2015.
2017
Net revenue increased 6%, reflecting effective net pricing, partially offset by volume declines. Favorable
foreign exchange contributed 1 percentage point to net revenue growth.
Snacks volume declined 1.5%, reflecting low-single-digit declines in Brazil and Mexico.
Beverage volume declined 2%, reflecting a mid-single-digit decline in Brazil and a low-single-digit decline
in Argentina, partially offset by high-single-digit growth in Guatemala. Additionally, Mexico experienced a
slight decline.
Operating profit increased 2%, reflecting the effective net pricing and planned cost reductions across a number
of expense categories. These impacts were partially offset by certain operating cost increases and the volume
declines, as well as higher commodity costs which reduced operating profit growth by 17 percentage points.
Restructuring and impairment charges in the above table (see “Items Affecting Comparability”) reduced
operating profit growth by 4 percentage points.
2016
Net revenue decreased 17%, reflecting the impact of the deconsolidation of our Venezuelan businesses,
64
effective as of the end of the third quarter of 2015, and unfavorable foreign exchange, which negatively
impacted net revenue performance by 14 percentage points and 11 percentage points, respectively. These
impacts were partially offset by effective net pricing and net volume growth.
Snacks volume grew 3%, reflecting a mid-single-digit increase in Mexico. Additionally, Brazil experienced
a slight increase.
Beverage volume decreased 2%, reflecting a double-digit decline in Argentina and low-single-digit declines
in Mexico and Honduras, partially offset by a low-single-digit increase in Brazil and a mid-single-digit
increase in Guatemala.
Operating profit improvement primarily reflected the 2015 Venezuela impairment charges, included in items
affecting comparability in the above table (see “Items Affecting Comparability”). This improvement also
reflects the effective net pricing, planned cost reductions across a number of expense categories and the net
volume growth. Additionally, the impact of 2015 charges associated with productivity initiatives outside the
scope of the 2014 and 2012 Productivity Plans contributed 4 percentage points to operating profit growth.
These impacts were partially offset by certain operating cost increases, as well as the deconsolidation of our
Venezuelan businesses, which reduced operating profit growth by 19 percentage points. Additionally, higher
commodity costs reduced operating profit growth by 22 percentage points, largely due to transaction-related
foreign exchange on purchases of raw materials, driven by a strong U.S. dollar. Operating profit was also
reduced by higher advertising and marketing expenses, as well as incremental investments in our business,
which reduced operating profit growth by 4 percentage points. Unfavorable foreign exchange translation
reduced operating profit growth by 14 percentage points.
Europe Sub-Saharan Africa
Net revenue
Impact of foreign exchange translation
Impact of 53rd reporting week
Organic revenue growth (a)
Operating profit
Restructuring and impairment charges
Operating profit excluding above item (a)
Impact of foreign exchange translation
Operating profit growth excluding above item,
on a constant currency basis (a)
(a) See “Non-GAAP Measures.”
(b) Does not sum due to rounding.
2017
2017
2015
$ 11,050 $ 10,216 $ 10,510
2016
$ 1,354 $ 1,108 $ 1,081
89
$ 1,407 $ 1,168 $ 1,170
60
53
% Change
2017
8
(3)
—
6 (b)
22
20
—
20
2016
(3)
7
—
4
2.5
—
6
6
Net revenue increased 8%, reflecting volume growth and effective net pricing, as well as favorable foreign
exchange, which contributed 3 percentage points to net revenue growth.
Snacks volume grew 5%, reflecting high-single-digit growth in Russia, partially offset by a slight decline in
the United Kingdom and a low-single-digit decline in Spain. Additionally, Turkey, South Africa and the
Netherlands experienced mid-single-digit growth.
65
Beverage volume grew 1%, reflecting mid-single-digit growth in Poland and Nigeria and low-single-digit
growth in Turkey and France, partially offset by mid-single-digit declines in Russia and Germany, and a low-
single-digit decline in the United Kingdom.
Operating profit increased 22%, reflecting the net revenue growth and planned cost reductions across a
number of expense categories. Additionally, a gain associated with the sale of our minority stake in Britvic
in the second quarter of 2017 contributed 8 percentage points to operating profit growth. These impacts were
partially offset by certain operating cost increases and higher advertising and marketing expenses, as well
as higher commodity costs, which reduced operating profit growth by 7 percentage points.
2016
Net revenue decreased 3%, primarily reflecting unfavorable foreign exchange, which negatively impacted
net revenue performance by 7 percentage points. These impacts were partially offset by effective net pricing
and volume growth.
Snacks volume grew 3%, primarily reflecting mid-single-digit growth in South Africa and low-single-digit
growth in the Netherlands, partially offset by a low-single-digit decline in Russia. Additionally, the United
Kingdom, Turkey and Spain experienced low-single-digit growth.
Beverage volume grew 2%, primarily reflecting double-digit growth in Nigeria and high-single-digit growth
in the United Kingdom and Poland, partially offset by a mid-single-digit decline in Russia and a low-single-
digit decline in Germany. Additionally, Turkey and France each experienced low-single-digit growth.
Operating profit increased 2.5%, reflecting planned cost reductions across a number of expense categories,
the effective net pricing and the volume growth. These impacts were partially offset by higher commodity
costs, which reduced operating profit growth by 19 percentage points, largely due to transaction-related
foreign exchange on purchases of raw materials led by a strong U.S. dollar. Additionally, certain operating
cost increases and higher advertising and marketing expenses reduced operating profit growth. The impact
of unfavorable foreign exchange translation and incremental investments in our business also reduced
operating profit growth by 6 percentage points and 2 percentage points, respectively.
Asia, Middle East and North Africa
Net revenue
Impact of foreign exchange translation
Impact of acquisitions and divestitures
Organic revenue growth (a)
Operating profit
Restructuring and impairment charges
Charges related to the transaction with Tingyi
Operating profit excluding above items (a)
Impact of foreign exchange translation
Operating profit growth excluding above
items, on a constant currency basis (a)
(a) See “Non-GAAP Measures.”
(b) Does not sum due to rounding.
% Change
2017
(5)
10
—
5
73
6
8
2016
(1)
5
—
5 (b)
(34)
(4)
2
15 (b)
(1.5) (b)
2017
2015
$ 6,030 $ 6,338 $ 6,375
2016
$ 1,073 $
941
30
73
$ 1,070 $ 1,006 $ 1,044
619 $
14
373
(3)
—
66
2017
Net revenue decreased 5%, reflecting unfavorable foreign exchange, which negatively impacted net revenue
performance by 10 percentage points, primarily driven by a weak Egyptian pound. This impact was partially
offset by effective net pricing.
Snacks volume grew 5%, driven by high-single-digit growth in China and India and double-digit growth in
Pakistan. Additionally, the Middle East experienced low-single-digit growth and Australia experienced mid-
single-digit growth.
Beverage volume declined 1%, reflecting a double-digit decline in India and a mid-single-digit decline in
the Middle East, partially offset by mid-single-digit growth in China, high-single-digit growth in Pakistan
and low-single-digit growth in the Philippines.
Operating profit improvement primarily reflected a prior-year impairment charge to reduce the value of our
5% indirect equity interest in TAB to its estimated fair value, included in items affecting comparability in
the above table (see “Items Affecting Comparability”). The effective net pricing and planned cost reductions
across a number of expense categories also increased operating profit growth. Additionally, the impact of
refranchising our beverage business in Jordan contributed 14 percentage points to operating profit growth.
These impacts were partially offset by certain operating cost increases, as well as higher commodity costs,
which reduced operating profit growth by 32 percentage points, primarily due to transaction-related foreign
exchange on raw material purchases driven by the weak Egyptian pound. Unfavorable foreign exchange
translation reduced operating profit growth by 8 percentage points.
2016
Net revenue declined 1%, reflecting unfavorable foreign exchange, which negatively impacted net revenue
performance by 5 percentage points, as well as unfavorable net pricing. These impacts were partially offset
by volume growth.
Snacks volume grew 7%, reflecting double-digit growth in China and the Middle East and high-single-digit
growth in Pakistan. Additionally, India experienced low-single-digit growth and Australia experienced mid-
single-digit growth.
Beverage volume grew 4%, driven by high-single-digit growth in Pakistan, double-digit growth in the
Philippines and mid-single-digit growth in China. Additionally, the Middle East experienced low-single-
digit growth and India experienced mid-single-digit growth.
Operating profit decreased 34%, primarily reflecting the items affecting comparability in the above table
(see “Items Affecting Comparability”). Additionally, operating profit performance was negatively impacted
by certain operating cost increases, including strategic initiatives, higher advertising and marketing expenses
and the unfavorable net pricing, partially offset by the volume growth and planned cost reductions across a
number of expense categories. The impact from a 2015 gain related to the refranchising of a portion of our
beverage business in India negatively impacted operating profit performance by 4 percentage points. This
impact was partially offset by a 2015 impairment charge associated with a joint venture in the Middle East
which positively contributed 3 percentage points to operating profit performance.
67
Our Liquidity and Capital Resources
We believe that our cash generating capability and financial condition, together with our revolving credit
facilities and other available methods of debt financing, such as commercial paper borrowings and long-term
debt financing, will be adequate to meet our operating, investing and financing needs. Our primary sources
of cash available to fund cash outflows, such as our anticipated share repurchases, dividend payments and
scheduled debt maturities, include cash from operations and proceeds obtained from issuances of commercial
paper and long-term debt. However, there can be no assurance that volatility in the global capital and credit
markets will not impair our ability to access these markets on terms commercially acceptable to us, or at all.
See Note 8 to our consolidated financial statements for a description of our credit facilities. See also “Our
Business Risks” and “Uncertain or unfavorable economic conditions may have an adverse impact on our
business, financial condition or results of operations.” in “Item 1A. Risk Factors.”
As of December 30, 2017, we had cash, cash equivalents and short-term investments in our consolidated
subsidiaries of $18.9 billion outside the United States. The TCJ Act imposed a mandatory one-time transition
tax on undistributed international earnings, including the $18.9 billion held in our consolidated subsidiaries
outside the United States as of December 30, 2017, as a result of which we recognized a provisional mandatory
transition tax liability of approximately $4 billion in the fourth quarter of 2017. Under the provisions of the
TCJ Act, this transition tax must be paid over eight years; we currently expect to pay this liability over the
period 2019 to 2026. The recorded impact of the TCJ Act is provisional and the final amount may differ from
the above estimate, possibly materially, due to, among other things, changes in estimates, interpretations and
assumptions we have made, changes in IRS interpretations, the issuance of new guidance, legislative actions,
changes in accounting standards or related interpretations in response to the TCJ Act and future actions by
states within the United States that have not currently adopted the TCJ Act.
In addition, as a result of this transition tax, we may access and repatriate our cash, cash equivalents and
short-term investments held in our foreign subsidiaries during 2018 without such funds being subject to
further U.S. income tax liability. We are currently evaluating when to repatriate such funds currently held
by our foreign subsidiaries and how to utilize such funds, including whether to utilize such funds or other
available methods of debt financing, such as commercial paper borrowings, for our anticipated share
repurchases, dividend payments, scheduled debt maturities, discretionary benefit plan contributions, capital
expenditures, certain investments into our business or other uses. See “Item 1A. Risk Factors,” “Our Business
Risks,” “Items Affecting Comparability” and “Our Critical Accounting Policies” as well as Note 5 to our
consolidated financial statements.
As of December 30, 2017, cash, cash equivalents and short-term investments in our consolidated subsidiaries
subject to currency controls or currency exchange restrictions were not material.
Furthermore, our cash provided from operating activities is somewhat impacted by seasonality. Working
capital needs are impacted by weekly sales, which are generally highest in the third quarter due to seasonal
and holiday-related sales patterns, and generally lowest in the first quarter. On a continuing basis, we consider
various transactions to increase shareholder value and enhance our business results, including acquisitions,
divestitures, joint ventures, dividends, share repurchases, productivity and other efficiency initiatives, and
other structural changes. These transactions may result in future cash proceeds or payments.
The table below summarizes our cash activity:
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
68
2017
2016
2015
$ 9,994 $ 10,673 $ 10,864
$ (4,403) $ (7,148) $ (3,569)
$ (4,186) $ (3,211) $ (4,112)
Operating Activities
During 2017, net cash provided by operating activities was approximately $10 billion, compared to $10.7
billion in the prior year. The operating cash flow performance primarily reflects unfavorable working capital
comparisons to the prior year. This decrease is mainly due to higher current year payments to vendors and
customers, coupled with higher net cash tax payments in the current year, partially offset by lower pension
and retiree medical plan contributions in the current year.
In February 2018, we received approval from our Board of Directors to make discretionary contributions of
$1.4 billion to the PepsiCo Employees Retirement Plan A (Plan A) in the United States that we intend to
invest in fixed income securities. As of February 13, 2018, we contributed $750 million of the approved
amount; we expect to contribute the remaining $650 million in the first quarter of 2018.
During 2016, net cash provided by operating activities was $10.7 billion, compared to $10.9 billion in the
prior year. The operating cash flow performance reflects discretionary pension contributions of $459 million.
In addition, working capital reflects unfavorable comparisons to the prior year. These decreases were partially
offset by lower net cash tax payments in the current year.
Investing Activities
During 2017, net cash used for investing activities was $4.4 billion, primarily reflecting net capital spending
of $2.8 billion and net purchases of debt securities with maturities greater than three months of $1.9 billion.
During 2016, net cash used for investing activities was $7.1 billion, primarily reflecting net purchases of
debt securities with maturities greater than three months of $4.1 billion and net capital spending of $2.9
billion.
See Note 1 to our consolidated financial statements for further discussion of capital spending by division;
see Note 9 to our consolidated financial statements for further discussion of our investments in debt securities.
We expect 2018 net capital spending to be approximately $3.6 billion.
Financing Activities
During 2017, net cash used for financing activities was $4.2 billion, primarily reflecting the return of operating
cash flow to our shareholders through dividend payments and share repurchases of $6.5 billion and net
payments of short-term borrowings of $1.1 billion, partially offset by net proceeds from long-term debt of
$3.1 billion and proceeds from exercises of stock options of $0.5 billion.
During 2016, net cash used for financing activities was $3.2 billion, primarily reflecting the return of operating
cash flow to our shareholders through dividend payments and share repurchases of $7.2 billion, debt
redemptions of $2.5 billion, and withholding tax payments on restricted stock units (RSUs), performance
stock units (PSUs) and PepsiCo equity performance units (PEPunits) converted of $0.1 billion, partially
offset by net proceeds from long-term debt of $4.7 billion, net proceeds from short-term borrowings of $1.5
billion, and proceeds from exercises of stock options of $0.5 billion.
We annually review our capital structure with our Board of Directors, including our dividend policy and
share repurchase activity. On February 11, 2015, we announced a share repurchase program providing for
the repurchase of up to $12.0 billion of PepsiCo common stock commencing from July 1, 2015 and expiring
on June 30, 2018. On February 13, 2018, we announced a new share repurchase program providing for the
repurchase of up to $15.0 billion of PepsiCo common stock commencing on July 1, 2018 and expiring on
June 30, 2021. In addition, on February 13, 2018, we announced a 15.2% increase in our annualized dividend
to $3.71 per share from $3.22 per share, effective with the dividend expected to be paid in June 2018. We
expect to return a total of approximately $7 billion to shareholders in 2018 through share repurchases of
approximately $2 billion and dividends of approximately $5 billion.
69
Free Cash Flow
Free cash flow is a non-GAAP financial measure. For further information on free cash flow see “Non-GAAP
Measures.”
The table below reconciles net cash provided by operating activities, as reflected in our cash flow statement,
to our free cash flow.
Net cash provided by operating activities
Capital spending
Sales of property, plant and equipment
Free cash flow (a)
2017
9,994
(2,969)
180
7,205
2016
$ 10,673
(3,040)
99
$ 7,732
2015
$ 10,864
(2,758)
86
8,192
$
$
$
% Change
2017
(6)
2016
(2)
(7)
(6)
(a) See “Non-GAAP Measures.” In addition, when evaluating free cash flow, we also consider the following items impacting comparability: $6 million
and $459 million in discretionary pension contributions and associated net cash tax benefits of $1 million and $151 million in 2017 and 2016,
respectively; $113 million, $125 million and $214 million of payments related to restructuring charges and associated net cash tax benefits of $30
million, $22 million and $51 million in 2017, 2016 and 2015, respectively; net cash received related to interest rate swaps of $5 million in 2016;
net cash tax benefit related to debt redemption charge of $83 million in 2016; and $88 million in pension-related settlements and associated net
cash tax benefits of $31 million in 2015. We will also consider payments related to the provisional transition tax liability of approximately $4 billion,
which we currently expect to be paid over the period 2019 to 2026 under the provisions of the TCJ Act, as an item impacting comparability.
We use free cash flow primarily for financing activities, including debt repayments, dividends and share
repurchases. We expect to continue to return free cash flow to our shareholders through dividends and share
repurchases while maintaining Tier 1 commercial paper access, which we believe will facilitate appropriate
financial flexibility and ready access to global capital and credit markets at favorable interest rates. However,
see “Our borrowing costs and access to capital and credit markets may be adversely affected by a downgrade
or potential downgrade of our credit ratings.” in “Item 1A. Risk Factors” and “Our Business Risks” for certain
factors that may impact our credit ratings or our operating cash flows.
Any downgrade of our credit ratings by a credit rating agency, especially any downgrade to below investment
grade, whether or not as a result of our actions or factors which are beyond our control, could increase our
future borrowing costs and impair our ability to access capital and credit markets on terms commercially
acceptable to us, or at all. In addition, any downgrade of our current short-term credit ratings could impair
our ability to access the commercial paper market with the same flexibility that we have experienced
historically, and therefore require us to rely more heavily on more expensive types of debt financing. See
“Our borrowing costs and access to capital and credit markets may be adversely affected by a downgrade or
potential downgrade of our credit ratings.” in “Item 1A. Risk Factors,” “Our Business Risks” and Note 8 to
our consolidated financial statements.
Credit Facilities and Long-Term Contractual Commitments
See Note 8 to our consolidated financial statements for a description of our credit facilities.
70
The following table summarizes our long-term contractual commitments by period:
Long-term debt obligations (b)
Interest on debt obligations (c)
Operating leases (d)
Purchasing commitments (e)
Marketing commitments (e)
Payments Due by Period(a)
Total
2018
$
33,793
$
— $
13,371
1,894
2,910
1,114
452
1,076
$
2019 –
2020
7,803
1,966
700
1,394
2021 –
2022
7,209
1,637
375
342
2023 and
beyond
18,781
$
8,654
367
98
202
28,102
(a) Based on year-end foreign exchange rates. 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 such settlements. However, under the provisions of the TCJ Act, our provisional transition tax liability
of approximately $4 billion, recorded in other liabilities on our balance sheet, must be paid over eight years. We expect to pay approximately $0.3
billion per year in 2019-2023, $0.6 billion in 2024, $0.9 billion in 2025 and $1.0 billion in 2026 and these amounts are excluded from the table
above.
12,657
53,854
10,043
3,052
1,886
480
410
794
$
$
$
$
$
(b) Excludes $4,020 million related to current maturities of debt, $3 million related to the fair value adjustments for debt acquired in acquisitions and
interest rate swaps and payments of $155 million related to unamortized net discount.
Interest payments on floating-rate debt are estimated using interest rates effective as of December 30, 2017.
(c)
(d) See Note 13 to our consolidated financial statements for additional information on operating leases.
(e) Primarily reflects non-cancelable commitments as of December 30, 2017.
Long-term contractual commitments, except for our long-term debt obligations and provisional transition
tax liability, are generally not recorded on our balance sheet. Operating leases primarily represent building
leases. Non-cancelable purchasing commitments are primarily for oranges, orange juice and certain other
commodities. 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. See Note 7 to our consolidated financial statements for additional information
regarding our pension and retiree medical obligations.
Off-Balance-Sheet Arrangements
We do not have guarantees or other off-balance-sheet financing arrangements, including variable interest
entities, that we believe could have a material impact on our financial condition or liquidity.
We coordinate, on an aggregate basis, the contract negotiations of raw material requirements, including
sweeteners, aluminum cans and plastic bottles and closures for us and certain of our independent bottlers.
Once we have negotiated the contracts, the bottlers order and take delivery directly from the supplier and
pay the suppliers directly. Consequently, transactions between our independent bottlers and suppliers are not
reflected in our consolidated financial statements. As the contracting party, we could be liable to these
suppliers in the event of any nonpayment by our independent bottlers, but we consider this exposure to be
remote.
71
Return on Invested Capital
ROIC is a non-GAAP financial measure. For further information on ROIC, see “Non-GAAP Measures.”
Net income attributable to PepsiCo
Interest expense
Tax on interest expense
Average debt obligations (c)
Average common shareholders’ equity (d)
Average invested capital
2017
4,857 (a)
1,151
(415)
5,593
38,707
12,004
50,711
$
$
$
$
2016
6,329
1,342
(483)
7,188
35,308
11,943
47,251
$
$
$
$
2015
5,452 (b)
970
(349)
6,073
31,169
15,147
46,316
$
$
$
$
Return on invested capital
11.0 % (a)
15.2 %
13.1 % (b)
(a) Includes the provisional impact of the TCJ Act enacted in 2017. See Note 5 to our consolidated financial statements for additional information.
(b) Reflects the impact of the Venezuela impairment charges in 2015.
(c) Average debt obligations includes a quarterly average of short-term and long-term debt obligations.
(d) Average common shareholders’ equity includes a quarterly average of common stock, capital in excess of par value, retained earnings,
accumulated other comprehensive loss and repurchased common stock.
The table below reconciles ROIC as calculated above to net ROIC, excluding items affecting comparability.
ROIC
Impact of:
Average cash, cash equivalents and short-term investments
Interest income
Tax on interest income
Commodity mark-to-market net impact
Restructuring and impairment charges
Provisional net tax expense related to the TCJ Act
Charges related to the transaction with Tingyi
Pension-related settlement charge/(benefits)
Venezuela impairment charges
Tax benefits
Net ROIC, excluding items affecting comparability
OUR CRITICAL ACCOUNTING POLICIES
2017
11.0 %
2016
15.2 %
2015
13.1 %
7.6
(0.5)
0.2
—
0.3
4.5
(0.1)
—
(0.2)
0.1
22.9 %
6.0
(0.2)
0.1
(0.2)
0.1
—
0.6
0.3
(0.5)
0.1
21.5 %
4.1
(0.1)
—
—
0.2
—
0.1
(0.1)
2.7
(0.4)
19.6 %
An appreciation of our critical accounting policies is necessary to understand our financial results. These
policies may require management to make difficult and subjective judgments regarding uncertainties, and
as a result, such estimates may significantly impact our financial results. The precision of these estimates
and the likelihood of future changes depend on a number of underlying variables and a range of possible
outcomes. Other than our accounting for pension and retiree medical plans, our critical accounting policies
do not involve a choice between alternative methods of accounting. With the exception of our provisional
net tax expense related to the TCJ Act and the change in 2016 to the full yield approach to estimate the service
and interest cost components for our pension and retiree medical plans described below, we applied our
critical accounting policies and estimation methods consistently in all material respects, and for all periods
presented. We have discussed our critical accounting policies with our Audit Committee.
72
Our critical accounting policies are:
•
revenue recognition;
• goodwill and other intangible assets;
•
income tax expense and accruals; and
• pension and retiree medical plans.
Revenue Recognition
We recognize revenue upon shipment or delivery to our customers based on written sales terms that do not
allow for a right of return. However, our policy for DSD and certain chilled products is to remove and replace
damaged and out-of-date products from store shelves to ensure that consumers receive the product quality
and freshness they expect. Similarly, our policy for certain warehouse-distributed products is to replace
damaged and out-of-date products. As a result, we record reserves, based on estimates, for anticipated
damaged and out-of-date products.
Our products are sold for cash or on credit terms. Our credit terms, which are established in accordance with
local and industry practices, typically require payment within 30 days of delivery in the United States, and
generally within 30 to 90 days internationally, and may allow discounts for early payment. We estimate and
reserve for our bad debt exposure based on our experience with past due accounts and collectibility, the aging
of accounts receivable and our analysis of customer data.
Our policy is to provide customers with product when needed. In fact, our commitment to freshness and
product dating serves to regulate the quantity of product shipped or delivered. In addition, DSD products are
placed on the shelf by our employees with customer shelf space and storerooms limiting the quantity of
product. For product delivered through other distribution networks, we monitor customer inventory levels.
As discussed in “Our Customers” in “Item 1. Business,” we offer sales incentives and discounts through
various programs to customers and consumers. Total marketplace spending includes sales incentives,
discounts, advertising and other marketing activities. Sales incentives and discounts are primarily accounted
for as a reduction of revenue and include payments to customers for performing activities on our behalf, such
as payments for in-store displays, payments to gain distribution of new products, payments for shelf space
and discounts to promote lower retail prices. Sales incentives and discounts also include support provided
to our independent bottlers.
See Note 2 to our consolidated financial statements for additional information on our revenue recognition
and related policies, including total marketplace spending, and the transition to the new revenue recognition
guidance, which becomes effective in the first quarter of 2018.
Goodwill and Other Intangible Assets
We sell products under a number of brand names, many of which were developed by us. Brand development
costs are expensed as incurred. We also purchase brands and other intangible assets in acquisitions. In a
business combination, the consideration is first assigned to identifiable assets and liabilities, including brands
and other intangible assets, based on estimated fair values, with any excess recorded as goodwill. Determining
fair value requires significant estimates and assumptions based on an evaluation of a number of factors, such
as marketplace participants, product life cycles, market share, consumer awareness, brand history and future
expansion expectations, amount and timing of future cash flows and the discount rate applied to the cash
flows.
We believe that a brand has an indefinite life if it has a history of strong revenue and cash flow performance
73
and we have the intent and ability to support the brand with marketplace spending for the foreseeable future.
If these perpetual brand criteria are not met, brands are amortized over their expected useful lives, which
generally range from 20 to 40 years. Determining the expected life of a brand requires management judgment
and is based on an evaluation of a number of factors, including market share, consumer awareness, brand
history, future expansion expectations and regulatory restrictions, as well as the macroeconomic environment
of the countries in which the brand is sold.
In connection with previous acquisitions, we reacquired certain franchise rights which provided the exclusive
and perpetual rights to manufacture and/or distribute beverages for sale in specified territories. In determining
the useful life of these franchise rights, many factors were considered, including the pre-existing perpetual
bottling arrangements, the indefinite period expected for these franchise rights to contribute to our future
cash flows, as well as the lack of any factors that would limit the useful life of these franchise rights to us,
including legal, regulatory, contractual, competitive, economic or other factors. Therefore, certain of these
franchise rights are considered as indefinite-lived, with the balance amortized over the remaining contractual
period of the contract in which the right was granted.
Indefinite-lived intangible assets and goodwill are not amortized and are assessed for impairment at least
annually, using either a qualitative or quantitative approach. We perform this annual assessment during our
third quarter. Where we use the qualitative assessment, first we determine if, based on qualitative factors, it
is more likely than not that an impairment exists. Factors considered include macroeconomic, industry and
competitive conditions, legal and regulatory environment, historical financial performance and significant
changes in the brand or reporting unit. If the qualitative assessment indicates that it is more likely than not
that an impairment exists, then a quantitative assessment is performed.
The quantitative assessment requires an analysis of several estimates including future cash flows or income
consistent with management’s strategic business plans, annual sales growth rates, perpetuity growth
assumptions and the selection of assumptions underlying a discount rate (weighted-average cost of capital)
based on market data available at the time. Significant management judgment is necessary to estimate the
impact of competitive operating, macroeconomic and other factors to estimate future levels of sales, operating
profit or cash flows. All assumptions used in our impairment evaluations for nonamortizable intangible assets,
such as forecasted growth rates and weighted-average cost of capital, are based on the best available market
information and are consistent with our internal forecasts and operating plans. These assumptions could be
adversely impacted by certain of the risks described in “Item 1A. Risk Factors” and “Our Business Risks.”
Amortizable intangible assets are only evaluated for impairment upon a significant change in the operating
or macroeconomic environment. If an evaluation of the undiscounted future cash flows indicates impairment,
the asset is written down to its estimated fair value, which is based on its discounted future cash flows.
See Note 2 and Note 4 to our consolidated financial statements for additional information.
Income Tax Expense and Accruals
Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us
in the various jurisdictions in which we operate. Significant judgment is required in determining our annual
tax rate and in evaluating our tax positions. We establish reserves when, despite our belief that our tax return
positions are fully supportable, we believe that certain positions are subject to challenge and that we likely
will not succeed. We adjust these reserves, as well as the related interest, in light of changing facts and
circumstances, such as the progress of a tax audit. See “Increases in income tax rates, changes in income tax
laws or disagreements with tax authorities could adversely affect our business, financial condition or results
of operations.” in “Item 1A. Risk Factors.”
74
An estimated annual effective tax rate is applied to our quarterly operating results. In the event there is a
significant or unusual item recognized in our quarterly operating results, the tax attributable to that item is
separately calculated and recorded at the same time as that item. We consider the tax adjustments from the
resolution of prior year tax matters to be among such items.
Tax law requires items to be included in our tax returns at different times than the items are reflected in our
financial statements. As a result, our annual tax rate reflected in our financial statements is different than that
reported in our tax returns (our cash tax rate). Some of these differences are permanent, such as expenses
that are not deductible in our tax return, and some differences reverse over time, such as depreciation expense.
These temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent
items that can be used as a tax deduction or credit in our tax returns in future years for which we have already
recorded the tax benefit in our income statement. We establish valuation allowances for our deferred tax
assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax liabilities generally represent tax expense recognized in our
financial statements for which payment has been deferred, or expense for which we have already taken a
deduction in our tax return but have not yet recognized as expense in our financial statements.
During the fourth quarter of 2017, the TCJ Act was enacted in the United States. Among its many provisions,
the TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings and reduced
the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of the enactment
of the TCJ Act, we recognized a provisional net tax expense of $2.5 billion in the fourth quarter of 2017. See
further information in “Items Affecting Comparability.”
Included in the provisional net tax expense of $2.5 billion is a provisional mandatory one-time transition tax
of approximately $4 billion on undistributed international earnings, included in other liabilities. This
provisional mandatory one-time transition tax was partially offset by a provisional $1.5 billion benefit
resulting from the required remeasurement of our deferred tax assets and liabilities to the new, lower U.S.
corporate income tax rate, effective January 1, 2018. The effect of the remeasurement was recorded in the
fourth quarter of 2017, consistent with the enactment date of the TCJ Act and reflected in our provision for
income taxes.
The recorded impact of the TCJ Act is provisional and the final amount may differ, possibly materially, due
to, among other things, changes in estimates, interpretations and assumptions we have made, changes in IRS
interpretations, the issuance of new guidance, legislative actions, changes in accounting standards or related
interpretations in response to the TCJ Act and future actions by states within the United States that have not
currently adopted the TCJ Act.
In 2017, our annual tax rate was 48.9% compared to 25.4% in 2016, as discussed in “Other Consolidated
Results.” The tax rate increased 23.5 percentage points compared to 2016, primarily as a result of the
provisional net tax expense related to the TCJ Act, which contributed 26 percentage points to the increase,
partially offset by the impact of the prior-year impairment charge to reduce the value of our 5% indirect
equity interest in TAB to its estimated fair value, which had no corresponding tax benefit, as well as the
impact of recognizing excess tax benefits in the provision for income taxes as a result of the changes in
accounting for certain aspects of share-based payments to employees in the current year. See Note 2 and
Note 5 to our consolidated financial statements for additional information.
The TCJ Act is currently expected to reduce our annual tax rate, in percentage terms, to the low twenties in
2018. However, we continue to evaluate the impact of the TCJ Act on our annual tax rate due to certain
provisions, such as the global intangible low-tax income (GILTI) provision which may impact our tax rate
in future years.
75
Pension and Retiree Medical Plans
Our pension plans cover certain employees in the United States and certain international employees. Benefits
are determined based on either years of service or a combination of years of service and earnings. Certain
U.S. and Canada retirees are also eligible for medical and life insurance benefits (retiree medical) if they
meet age and service requirements. Generally, our share of retiree medical costs is capped at specified dollar
amounts, which vary based upon years of service, with retirees contributing the remainder of the cost. In
addition, we have been phasing out certain subsidies of retiree medical benefits.
In 2016, we approved an amendment to reorganize the U.S. qualified defined benefit pension plans that
resulted in the combination of two plans effective December 31, 2016, and the spinoff of a portion of the
combined plan into a pre-existing plan effective January 1, 2017. The benefits offered to the plans’ participants
were unchanged. The result of the reorganization was the creation of Plan A and the PepsiCo Employees
Retirement Plan I (Plan I). The reorganization was made to facilitate a targeted investment strategy over time
and to provide additional flexibility in evaluating opportunities to reduce risk and volatility. Actuarial gains
and losses associated with Plan A are amortized over the average remaining service life of the active
participants, while the actuarial gains and losses associated with Plan I are amortized over the remaining life
expectancy of the inactive participants. As a result of these changes, the pre-tax net periodic benefit cost
decreased by $42 million ($27 million after-tax, reflecting tax rates effective for the 2017 tax year, or $0.02
per share) in 2017, primarily impacting corporate unallocated expenses. See Note 7 to our consolidated
financial statements.
In 2016, the U.S. qualified defined benefit pension plans purchased a group annuity contract whereby an
unrelated insurance company assumed the obligation to pay and administer future annuity payments for
certain retirees. In 2016, we made discretionary contributions of $452 million primarily to fund the transfer
of the obligation. This transaction triggered a pre-tax settlement charge of $242 million ($162 million after-
tax or $0.11 per share). See “Items Affecting Comparability” and Note 7 to our consolidated financial
statements.
Our Assumptions
The determination of pension and retiree medical expenses and obligations requires the use of assumptions
to estimate the amount of benefits that employees earn while working, as well as the present value of those
benefits. Annual pension and retiree medical expense amounts are principally based on four components:
(1) the value of benefits earned by employees for working during the year (service cost), (2) the increase in
the projected benefit obligation due to the passage of time (interest cost), and (3) other gains and losses as
discussed in Note 7 to our consolidated financial statements, reduced by (4) the expected return on assets
for our funded plans.
Significant assumptions used to measure our annual pension and retiree medical expenses include:
•
•
•
•
•
certain employee-related demographic factors, such as turnover, retirement age and mortality;
the expected return on assets in our funded plans;
for pension expense, the rate of salary increases for plans where benefits are based on earnings;
for retiree medical expense, health care cost trend rates; and
for pension and retiree medical expense, the spot rates along the yield curve used to determine the
present value of liabilities and, beginning in 2016, to determine service and interest costs.
Certain assumptions reflect our historical experience and management’s best judgment regarding future
expectations. All actuarial assumptions are reviewed annually, except in the case of an interim remeasurement
due to a significant event such as a curtailment or settlement. Due to the significant management judgment
76
involved, our assumptions could have a material impact on the measurement of our pension and retiree
medical expenses and obligations.
At each measurement date, the discount rates are based on interest rates for high-quality, long-term corporate
debt securities with maturities comparable to those of our liabilities. Our U.S. obligation and pension and
retiree medical expense is based on the discount rates determined using the Mercer Above Mean Curve. This
curve includes bonds that closely match the timing and amount of our expected benefit payments and reflects
the portfolio of investments we would consider to settle our liabilities.
Beginning 2016, we changed the method we use to estimate the service and interest cost components of net
periodic benefit cost for our U.S. and the majority of our significant international pension and retiree medical
plans. Historically, we estimated the service and interest cost components using a single weighted-average
discount rate derived from the yield curve used to measure the projected benefit obligation (or accumulated
post-retirement benefit obligation for the retiree medical plans) at the beginning of the period. We now use
a full yield curve approach in the estimation of these components of benefit cost by applying the specific
spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected
cash flows. We have made this change to improve the correlation between projected benefit cash flows and
the corresponding yield curve spot rates, which we believe will result in a more precise measurement of
service and interest costs. This change does not affect the measurement of our benefit obligation. We have
accounted for this change in estimate on a prospective basis as of the beginning of 2016. The pre-tax reduction
in net periodic benefit cost associated with this change was $125 million ($81 million after-tax or $0.06 per
share) for the full year 2016.
See Note 7 to our consolidated financial statements for information about the expected rate of return on plan
assets and our plans’ investment strategy. Although we review our expected long-term rates of return on an
annual basis, our asset returns in a given year do not significantly influence our evaluation of long-term rates
of return.
The health care trend rate used to determine our retiree medical plans’ liability and expense is reviewed
annually. Our review is based on our claims experience, information provided by our health plans and
actuaries, and our knowledge of the health care industry. Our review of the trend rate considers factors such
as demographics, plan design, new medical technologies and changes in medical carriers.
Weighted-average assumptions for pension and retiree medical expense are as follows:
Pension
Service cost discount rate
Interest cost discount rate
Expected rate of return on plan assets (a)
Expected rate of salary increases
Retiree medical
2018
2017
2016
3.7%
3.2%
6.9%
3.2%
4.3%
3.5%
7.2%
3.2%
4.5%
3.8%
7.2%
3.2%
Service cost discount rate
Interest cost discount rate
Expected rate of return on plan assets (a)
Current health care cost trend rate
4.3%
3.3%
7.5%
6.0%
(a) Expected rate of return on plan assets in 2018 reflects a $1.4 billion contribution to Plan A in the United States that we intend to invest in
fixed income securities, as well as our 2018 target investment allocations disclosed in Note 7 to our consolidated financial statements.
3.6%
3.0%
6.5%
5.8%
4.0%
3.2%
7.5%
5.9%
In general, lower discount rates increase the size of the projected benefit obligation and pension expense in
the following year, while higher discount rates reduce the size of the projected benefit obligation and pension
expense. Based on our assumptions, we expect our total pension and retiree medical expense to remain
77
consistent in 2018 primarily driven by cost savings due to the recognition of prior experience gains on plan
assets and the impact of approved plan contributions, partially offset by the change in discount rates.
Sensitivity of Assumptions
A decrease in each of the collective discount rates or in the expected rate of return assumptions would increase
expense for our benefit plans. A 25-basis-point decrease in each of the above discount rates and expected
rate of return assumptions would increase 2018 pre-tax pension and retiree medical expense as follows:
Discount rates used in the calculation of expense
Expected rate of return
Assumption
Amount
$47
$42
See Note 7 to our consolidated financial statements for additional information about the sensitivity of our
retiree medical cost assumptions.
Funding
We make contributions to pension trusts that provide plan benefits for certain pension plans. These
contributions are made in accordance with applicable tax regulations that provide for current tax deductions
for our contributions and taxation to the employee only upon receipt of plan benefits. Generally, we do not
fund our pension plans when our contributions would not be currently tax deductible. As our retiree medical
plans are not subject to regulatory funding requirements, we generally fund these plans on a pay-as-you-go
basis, although we periodically review available options to make additional contributions toward these
benefits.
In February 2018, we received approval from our Board of Directors to make discretionary contributions of
$1.4 billion to Plan A in the United States that we intend to invest in fixed income securities. As of February
13, 2018, we contributed $750 million of the approved amount; we expect to contribute the remaining $650
million in the first quarter of 2018. These contributions are reflected in our 2018 long-term expected rate of
return on plan assets and target investment allocations.
Our pension and retiree medical contributions are subject to change as a result of many factors, such as
changes in interest rates, deviations between actual and expected asset returns and changes in tax or other
benefit laws. We regularly evaluate different opportunities to reduce risk and volatility associated with our
pension and retiree medical plans. See Note 7 to our consolidated financial statements for our past and
expected contributions and estimated future benefit payments.
78
Consolidated Statement of Income
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 30, 2017, December 31, 2016 and December 26, 2015
(in millions except per share amounts)
Net Revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Venezuela impairment charges
Operating Profit
Interest expense
Interest income and other
Income before income taxes
Provision for income taxes (See Note 5)
Net income
Less: Net income attributable to noncontrolling interests
Net Income Attributable to PepsiCo
Net Income Attributable to PepsiCo per Common Share
Basic
Diluted
Weighted-average common shares outstanding
Basic
Diluted
Cash dividends declared per common share
2017
63,525 $
28,785
34,740
24,231
—
10,509
(1,151)
244
9,602
4,694
4,908
51
4,857 $
2016
62,799 $
28,209
34,590
24,805
—
9,785
(1,342)
110
8,553
2,174
6,379
50
6,329 $
2015
63,056
28,731
34,325
24,613
1,359
8,353
(970)
59
7,442
1,941
5,501
49
5,452
3.40 $
3.38 $
4.39 $
4.36 $
3.71
3.67
1,425
1,438
3.1675 $
1,439
1,452
2.96 $
1,469
1,485
2.7625
$
$
$
$
$
See accompanying notes to the consolidated financial statements.
79
Consolidated Statement of Comprehensive Income
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 30, 2017, December 31, 2016 and December 26, 2015
(in millions)
2017
4,908 $
2016
6,379 $
$
1,109
(36)
(159)
(68)
16
862
5,770
(302)
46
(316)
(24)
—
(596)
5,783
(51)
5,719 $
(54)
5,729 $
2015
5,501
(2,827)
3
171
1
—
(2,652)
2,849
(47)
2,802
Net income
Other comprehensive income/(loss), net of taxes:
Net currency translation adjustment
Net change on cash flow hedges
Net pension and retiree medical adjustments
Net change on securities
Other
Comprehensive income
Comprehensive income attributable to noncontrolling
interests
Comprehensive Income Attributable to PepsiCo
$
See accompanying notes to the consolidated financial statements.
80
Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 30, 2017, December 31, 2016 and December 26, 2015
(in millions)
Operating Activities
Net income
Depreciation and amortization
Share-based compensation expense
Restructuring and impairment charges
Cash payments for restructuring charges
Charges related to the transaction with Tingyi
Venezuela impairment charges
Pension and retiree medical plan expenses
Pension and retiree medical plan contributions
Deferred income taxes and other tax charges and credits
Provisional net tax expense related to the TCJ Act
Change in assets and liabilities:
Accounts and notes receivable
Inventories
Prepaid expenses and other current assets
Accounts payable and other current liabilities
Income taxes payable
Other, net
Net Cash Provided by Operating Activities
Investing Activities
Capital spending
Sales of property, plant and equipment
Acquisitions and investments in noncontrolled affiliates
Reduction of cash due to Venezuela deconsolidation
Divestitures
Short-term investments, by original maturity:
More than three months - purchases
More than three months - maturities
More than three months - sales
Three months or less, net
Other investing, net
Net Cash Used for Investing Activities
Financing Activities
Proceeds from issuances of long-term debt
Payments of long-term debt
Debt redemptions
Short-term borrowings, by original maturity:
More than three months - proceeds
More than three months - payments
Three months or less, net
Cash dividends paid
Share repurchases - common
Share repurchases - preferred
Proceeds from exercises of stock options
Withholding tax payments on RSUs, PSUs and PEPunits converted
Other financing
Net Cash Used for Financing Activities
Effect of exchange rate changes on cash and cash equivalents
Net Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
See accompanying notes to the consolidated financial statements.
81
2017
2016
2015
$
$
4,908
2,369
292
295
(113)
—
—
221
(220)
619
2,451
(202)
(168)
20
201
(338)
(341)
9,994
(2,969)
180
(61)
—
267
(18,385)
15,744
790
2
29
(4,403)
7,509
(4,406)
—
91
(128)
(1,016)
(4,472)
(2,000)
(5)
462
(145)
(76)
(4,186)
47
1,452
9,158
10,610
$
$
6,379
2,368
284
160
(125)
373
—
501
(695)
452
—
(349)
(75)
10
997
329
64
10,673
(3,040)
99
(212)
—
85
(12,504)
8,399
—
16
9
(7,148)
7,818
(3,105)
(2,504)
59
(27)
1,505
(4,227)
(3,000)
(7)
465
(130)
(58)
(3,211)
(252)
62
9,096
9,158
$
$
5,501
2,416
295
230
(208)
73
1,359
467
(205)
78
—
(461)
(244)
(50)
1,692
55
(134)
10,864
(2,758)
86
(86)
(568)
76
(4,428)
4,111
—
3
(5)
(3,569)
8,702
(4,095)
—
15
(43)
53
(4,040)
(5,000)
(5)
504
(151)
(52)
(4,112)
(221)
2,962
6,134
9,096
Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
December 30, 2017 and December 31, 2016
(in millions except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents
Short-term investments
Accounts and notes receivable, net
Inventories
Prepaid expenses and other current assets
Total Current Assets
Property, Plant and Equipment, net
Amortizable Intangible Assets, net
Goodwill
Other nonamortizable intangible assets
Nonamortizable Intangible Assets
Investments in Noncontrolled Affiliates
Other Assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt obligations
Accounts payable and other current liabilities
Total Current Liabilities
Long-Term Debt Obligations
Other Liabilities
Deferred Income Taxes
Total Liabilities
Commitments and contingencies
Preferred Stock, no par value
Repurchased Preferred Stock
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: 1,420 and 1,428 shares, respectively)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Repurchased common stock, in excess of par value (446 and 438 shares, respectively)
Total PepsiCo Common Shareholders’ Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
See accompanying notes to the consolidated financial statements.
82
2017
2016
$
$
$
10,610
8,900
7,024
2,947
1,546
31,027
17,240
1,268
14,744
12,570
27,314
2,042
913
79,804
5,485
15,017
20,502
33,796
11,283
3,242
68,823
9,158
6,967
6,694
2,723
908
26,450
16,591
1,237
14,430
12,196
26,626
1,950
636
73,490
6,892
14,243
21,135
30,053
6,669
4,434
62,291
41
(197)
41
(192)
24
3,996
52,839
(13,057)
(32,757)
11,045
92
10,981
79,804
$
24
4,091
52,518
(13,919)
(31,468)
11,246
104
11,199
73,490
$
$
$
$
Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 30, 2017, December 31, 2016 and December 26, 2015
(in millions)
Preferred Stock
Repurchased Preferred Stock
Balance, beginning of year
Redemptions
Balance, end of year
Common Stock
Balance, beginning of year
Change in repurchased common stock
Balance, end of year
Capital in Excess of Par Value
Balance, beginning of year
Share-based compensation expense
Stock option exercises, RSUs, PSUs and PEPunits
converted (a)
Withholding tax on RSUs, PSUs and PEPunits
converted
Other
Balance, end of year
Retained Earnings
Balance, beginning of year
Net income attributable to PepsiCo
Cash dividends declared - common
Cash dividends declared - preferred
Balance, end of year
Accumulated Other Comprehensive Loss
Balance, beginning of year
Other comprehensive income/(loss) attributable to
PepsiCo
Balance, end of year
Repurchased Common Stock
Balance, beginning of year
Share repurchases
Stock option exercises, RSUs, PSUs and PEPunits
converted
Other
Balance, end of year
Total PepsiCo Common Shareholders’ Equity
Noncontrolling Interests
Balance, beginning of year
Net income attributable to noncontrolling interests
Distributions to noncontrolling interests
Currency translation adjustment
Other, net
Balance, end of year
Total Equity
2017
2016
2015
Shares
0.8
$
Amount
41
Shares
0.8
$
Amount
41
Shares
0.8
$
Amount
41
(0.7)
—
(0.7)
1,428
(8)
1,420
(438)
(18)
10
—
(446)
(192)
(5)
(197)
24
—
24
4,091
290
(236)
(145)
(4)
3,996
52,518
4,857
(4,536)
—
52,839
(13,919)
862
(13,057)
(31,468)
(2,000)
708
3
(32,757)
11,045
104
51
(62)
—
(1)
92
(0.7)
—
(0.7)
1,448
(20)
1,428
(418)
(29)
9
—
(438)
(186)
(6)
(192)
24
—
24
4,076
289
(138)
(130)
(6)
4,091
50,472
6,329
(4,282)
(1)
52,518
(13,319)
(600)
(13,919)
(29,185)
(3,000)
712
5
(31,468)
11,246
107
50
(55)
4
(2)
104
(0.7)
—
(0.7)
1,488
(40)
1,448
(378)
(52)
12
—
(418)
(181)
(5)
(186)
25
(1)
24
4,115
299
(182)
(151)
(5)
4,076
49,092
5,452
(4,071)
(1)
50,472
(10,669)
(2,650)
(13,319)
(24,985)
(4,999)
794
5
(29,185)
12,068
110
49
(48)
(2)
(2)
107
$
10,981
$
11,199
$
12,030
(a) Includes total tax benefits of $110 million in 2016 and $107 million in 2015.
See accompanying notes to the consolidated financial statements.
83
Notes to Consolidated Financial Statements
Note 1 — Basis of Presentation and Our Divisions
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. GAAP and include the
consolidated accounts of PepsiCo, Inc. and the affiliates that we control. In addition, we include our share
of the results of certain other affiliates using the equity method based on our economic ownership interest,
our ability to exercise significant influence over the operating or financial decisions of these affiliates or our
ability to direct their economic resources. We do not control these other affiliates, as our ownership in these
other affiliates is generally 50% or less. Intercompany balances and transactions are eliminated.
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 are included in selling, general and
administrative expenses.
The preparation of our consolidated financial statements requires us to make estimates and assumptions that
affect reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and
liabilities. Estimates are used in determining, among other items, sales incentives accruals, tax reserves,
share-based compensation, pension and retiree medical accruals, amounts and useful lives for intangible
assets and future cash flows associated with impairment testing for perpetual brands, goodwill and other
long-lived assets. We evaluate our estimates on an ongoing basis using our historical experience, as well as
other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust
or revise our estimates as circumstances change. As future events and their effect cannot be determined with
precision, actual results could differ significantly from these estimates.
Effective as of the end of the third quarter of 2015, we deconsolidated our Venezuelan subsidiaries from our
consolidated financial statements and began accounting for our investments in our wholly-owned Venezuelan
subsidiaries and joint venture using the cost method of accounting. See subsequent discussion of “Venezuela.”
Our fiscal year ends on the last Saturday of each December, resulting in an additional week of results every
five or six years. Our fiscal 2016 results included an extra week. While our North America results are reported
on a weekly calendar basis, most of our international operations report on a monthly calendar basis. Certain
operations in our ESSA segment report on a weekly calendar basis. The following chart details our quarterly
reporting schedule:
Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
United States and Canada
International
12 weeks
12 weeks
12 weeks
16 weeks (17 weeks for 2016)
January, February
March, April and May
June, July and August
September, October, November and December
See “Our Divisions” below, and for additional unaudited information on items affecting the comparability
of our consolidated results, see further unaudited information in “Items Affecting Comparability” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 years’ financial statements to conform to the current
84
year presentation, including the adoption of the recently issued accounting pronouncements disclosed in
Note 2.
Our Divisions
Through our operations, authorized bottlers, contract manufacturers and other third parties, we make, market,
distribute and sell a wide variety of convenient and enjoyable beverages, foods and snacks, serving customers
and consumers in more than 200 countries and territories with our largest operations in North America,
Mexico, Russia, the United Kingdom and Brazil. Division results are based on how our Chief Executive
Officer assesses the performance of and allocates resources to our divisions and are considered our reportable
segments. For additional unaudited information on our divisions, see “Our Operations” contained in “Item
1. Business.” The accounting policies for the divisions are the same as those described in Note 2, except for
the following allocation methodologies:
•
share-based compensation expense;
• pension and retiree medical expense; and
• derivatives.
Share-Based Compensation Expense
Our divisions are held accountable for share-based compensation expense and, therefore, this expense is
allocated to our divisions as an incremental employee compensation cost. The allocation of share-based
compensation expense in 2017 was approximately 13% to FLNA, 1% to QFNA, 18% to NAB, 7% to Latin
America, 9% to ESSA, 9% to AMENA and 43% to corporate unallocated expenses. In 2016, the allocation
of share-based compensation expense was approximately 14% to FLNA, 2% to QFNA, 22% to NAB, 7%
to Latin America, 11% to ESSA, 10% to AMENA and 34% to corporate unallocated expenses. We had similar
allocations of share-based compensation expense to our divisions in 2015. The expense allocated to our
divisions excludes any impact of changes in our assumptions during the year which reflect market conditions
over which division management has no control. Therefore, any variances between allocated expense and
our actual expense are recognized in corporate unallocated expenses.
Pension and Retiree Medical Expense
Pension and retiree medical service costs measured at fixed discount rates, as well as amortization of costs
related to certain pension plan amendments and gains and losses due to demographics (including mortality
assumptions and salary experience) are reflected in division results. Division results also include interest
costs, measured at fixed discount rates, for retiree medical plans. Interest costs for the pension plans, pension
asset returns and the impact of pension funding, and gains and losses other than those due to demographics,
are all reflected in corporate unallocated expenses. In addition, corporate unallocated expenses include the
difference between the service costs included in division results and total service costs determined using the
plans’ discount rates as disclosed in Note 7.
Derivatives
We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include
agricultural products, energy and metals. Commodity derivatives 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. Therefore, the divisions realize
the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which
remains in corporate unallocated expenses. These derivatives hedge underlying commodity price risk and
were not entered into for trading or speculative purposes.
85
Net revenue and operating profit/(loss) of each division are as follows:
FLNA
QFNA
NAB
Latin America
ESSA
AMENA
Total division
Corporate unallocated
2017
15,798
2,503
20,936
7,208
11,050
6,030
63,525
—
63,525
$
$
$
Net Revenue
2016
15,549
2,564
21,312
6,820
10,216
6,338
62,799
—
62,799
$
2015
14,782
2,543
20,618
8,228
10,510
6,375
63,056
—
63,056
$
$
$
$
$
$
Operating Profit/(Loss)(a)
2017
4,823
642
2,707
908
1,354
1,073
11,507
(998)
10,509
2016
4,659
653
2,959
887
1,108
619
10,885
(1,100)
9,785
$
$
2015
4,304
560
2,785
(206)
1,081
941
9,465
(1,112)
8,353
(a) For further unaudited information on certain items that impacted our financial performance, see “Item 6. Selected Financial Data.”
Corporate Unallocated
Corporate unallocated includes costs of our corporate headquarters, centrally managed initiatives such as
research and development projects, unallocated insurance and benefit programs, foreign exchange transaction
gains and losses, commodity derivative gains and losses, our ongoing business transformation initiatives and
certain other items.
Other Division Information
Total assets and capital spending of each division are as follows:
FLNA
QFNA
NAB
Latin America
ESSA
AMENA
Total division
Corporate (a)
$
$
$
Total Assets
2017
5,979
804
28,592
4,976
13,556
5,668
59,575
20,229
79,804
$
2016
5,731
811
28,172
4,568
12,302
5,261
56,845
16,645
73,490
Capital Spending
2017
665
44
904
481
481
308
2,883
86
2,969
$
$
2016
801
41
769
507
439
381
2,938
102
3,040
$
$
2015
608
40
695
368
404
441
2,556
202
2,758
$
$
(a) Corporate assets consist principally of certain cash and cash equivalents, short-term investments, derivative instruments, property, plant
and equipment and tax assets. In 2017, the change in total Corporate assets was primarily due to an increase in short-term investments and
cash and cash equivalents.
Amortization of intangible assets and depreciation and other amortization of each division are as follows:
Amortization of
Intangible Assets
Depreciation and
Other Amortization
FLNA
QFNA
NAB
Latin America
ESSA
AMENA
Total division
Corporate
2017
7
—
31
5
22
3
68
—
68
$
$
$
$
$
$
2016
7
—
37
5
18
3
70
—
70
86
2015
7
—
38
7
20
3
75
—
75
$
$
2017
449
47
780
245
329
257
2,107
194
2,301
$
$
2016
435
50
809
211
321
294
2,120
178
2,298
$
$
2015
427
51
813
238
353
293
2,175
166
2,341
Net revenue and long-lived assets by country are as follows:
United States
Mexico
Russia (b)
Canada
United Kingdom
Brazil
All other countries
2017
36,546
3,650
3,232
2,691
1,650
1,427
14,329
63,525
$
$
$
Net Revenue
2016
36,732
3,431
2,648
2,692
1,737
1,305
14,254
62,799
$
2015
35,266
3,687
2,797
2,677
1,966
1,289
15,374
63,056
$
$
Long-Lived Assets(a)
2017
28,418
1,205
4,708
2,739
817
777
9,200
47,864
$
$
2016
28,382
998
4,373
2,499
852
796
8,504
46,404
$
$
(a) Long-lived assets represent property, plant and equipment, nonamortizable intangible assets, amortizable intangible assets and investments
in noncontrolled affiliates. These assets are reported in the country where they are primarily used.
(b) Change in net revenue and long-lived assets in 2017 primarily reflects appreciation of the Russian ruble.
Venezuela
Due to exchange restrictions and other conditions that significantly impact our ability to effectively manage
our businesses in Venezuela and realize earnings generated by our Venezuelan businesses, effective at the
end of the third quarter of 2015, we deconsolidated our Venezuelan subsidiaries and began accounting for
our investments in our Venezuelan subsidiaries and joint venture using the cost method of accounting. We
recorded pre- and after-tax charges of $1.4 billion in our income statement to reduce the value of the cost
method investments to their estimated fair values, resulting in a full impairment. The factors that led to our
conclusions at the end of the third quarter of 2015 continued to exist through the end of 2017.
We do not have any guarantees related to our Venezuelan entities, and our ongoing contractual commitments
to our Venezuelan businesses are not material. We will recognize income from dividends and sales of inventory
to our Venezuelan entities, which have not been and are not expected to be material, to the extent cash in
U.S. dollars is received. We have not received any cash in U.S. dollars from our Venezuelan entities since
our deconsolidation at the end of the third quarter of 2015. We continue to monitor the conditions in Venezuela
and their impact on our accounting and disclosures. For further unaudited information, see “Our Business
Risks,” “Items Affecting Comparability” and “Our Liquidity and Capital Resources” in Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Note 2 — Our Significant Accounting Policies
Revenue Recognition
We recognize revenue upon shipment or delivery to our customers based on written sales terms that do not
allow for a right of return. However, our policy for DSD and certain chilled products is to remove and replace
damaged and out-of-date products from store shelves to ensure that consumers receive the product quality
and freshness they expect. Similarly, our policy for certain warehouse-distributed products is to replace
damaged and out-of-date products. As a result, we record reserves, based on estimates, for anticipated
damaged and out-of-date products.
Our products are sold for cash or on credit terms. Our credit terms, which are established in accordance with
local and industry practices, typically require payment within 30 days of delivery in the United States, and
generally within 30 to 90 days internationally, and may allow discounts for early payment.
We estimate and reserve for our bad debt exposure based on our experience with past due accounts and
collectibility, the aging of accounts receivable and our analysis of customer data. Bad debt expense is classified
within selling, general and administrative expenses in our income statement.
87
We are exposed to concentration of credit risk from our major customers, including Walmart. In 2017, sales
to Walmart (including Sam’s) represented approximately 13% of our consolidated net revenue, including
concentrate sales to our independent bottlers, which were used in finished goods sold by them to Walmart.
We have not experienced credit issues with these customers.
Total Marketplace Spending
We offer sales incentives and discounts through various programs to customers and consumers. Total
marketplace spending includes sales incentives, discounts, advertising and other marketing activities. Sales
incentives and discounts are primarily accounted for as a reduction of revenue and include payments to
customers for performing activities on our behalf, such as payments for in-store displays, payments to gain
distribution of new products, payments for shelf space and discounts to promote lower retail prices. Sales
incentives and discounts also include support provided to our independent bottlers.
A number of our sales incentives, such as bottler funding to independent bottlers and customer volume rebates,
are based on annual targets, and accruals are established during the year for the expected payout. These
accruals are based on contract terms and our historical experience with similar programs and require
management judgment with respect to estimating customer participation and performance levels. Differences
between estimated expense and actual incentive costs are normally insignificant and are recognized in
earnings in the period such differences are determined. In addition, certain advertising and marketing costs
are also based on annual targets and recognized during the year as incurred. The terms of most of our incentive
arrangements do not exceed a year, and, therefore, do not require highly uncertain long-term estimates.
Certain arrangements, such as fountain pouring rights, may extend beyond one year. Up-front payments to
customers under these arrangements are recognized over the shorter of the economic or contractual life,
primarily as a reduction of revenue, and the remaining balances of $262 million as of December 30, 2017
and $291 million as of December 31, 2016 are included in prepaid expenses and other current assets and
other assets on our balance sheet. For additional unaudited information on our sales incentives, see “Our
Customers” in “Item 1. Business” and “Our Critical Accounting Policies” in Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
For interim reporting, our policy is to allocate our forecasted full-year sales incentives for most of our
programs to each of our interim reporting periods in the same year that benefits from the programs. The
allocation methodology is based on our forecasted sales incentives for the full year and the proportion of
each interim period’s actual gross revenue or volume, as applicable, to our forecasted annual gross revenue
or volume, as applicable. Based on our review of the forecasts at each interim period, any changes in estimates
and the related allocation of sales incentives are recognized beginning in the interim period that they are
identified. In addition, we apply a similar allocation methodology for interim reporting purposes for certain
advertising and other marketing activities. Our annual financial statements are not impacted by this interim
allocation methodology.
Advertising and other marketing activities, reported as selling, general and administrative expenses, totaled
$4.1 billion in 2017, $4.2 billion in 2016 and $3.9 billion in 2015, including advertising expenses of $2.4
billion in 2017, $2.5 billion in 2016 and $2.4 billion in 2015. Deferred advertising costs are not expensed
until the year first used and consist of:
• media and personal service prepayments;
• promotional materials in inventory; and
• production costs of future media advertising.
Deferred advertising costs of $46 million and $32 million as of December 30, 2017 and December 31, 2016,
respectively, are classified as prepaid expenses and other current assets on our balance sheet.
88
Distribution Costs
Distribution costs, including the costs of shipping and handling activities, which include certain
merchandising activities, are reported as selling, general and administrative expenses. Shipping and handling
expenses were $9.9 billion in 2017, $9.7 billion in 2016 and $9.4 billion in 2015.
Cash Equivalents
Cash equivalents are highly liquid investments with original maturities of three months or less.
Software Costs
We capitalize certain computer software and software development costs incurred in connection with
developing or obtaining computer software for internal use when both the preliminary project stage is
completed and it is probable that the software will be used as intended. Capitalized software costs include
(i) external direct costs of materials and services utilized in developing or obtaining computer software,
(ii) compensation and related benefits for employees who are directly associated with the software projects
and (iii) interest costs incurred while developing internal-use computer software. Capitalized software costs
are included in property, plant and equipment on our balance sheet and amortized on a straight-line basis
when placed into service over the estimated useful lives of the software, which approximate five to 10 years.
Software amortization totaled $224 million in 2017, $214 million in 2016 and $202 million in 2015. Net
capitalized software and development costs were $686 million and $791 million as of December 30, 2017
and December 31, 2016, respectively.
Commitments and Contingencies
We are subject to various claims and contingencies related to lawsuits, certain taxes and environmental
matters, as well as commitments under contractual and other commercial obligations. We recognize liabilities
for contingencies and commitments when a loss is probable and estimable. For additional unaudited
information on our commitments, see “Our Liquidity and Capital Resources” in Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
Research and Development
We engage in a variety of research and development activities and continue to invest to accelerate growth
and to drive innovation globally. Consumer research is excluded from research and development costs and
included in other marketing costs. Research and development costs were $737 million, $760 million and
$754 million in 2017, 2016 and 2015, respectively, and are reported within selling, general and administrative
expenses.
See “Research and Development” in “Item 1. Business” for additional unaudited information about our
research and development activities.
Goodwill and Other Intangible Assets
Indefinite-lived intangible assets and goodwill are not amortized and are assessed for impairment at least
annually, using either a qualitative or quantitative approach. We perform this annual assessment during our
third quarter. Where we use the qualitative assessment, first we determine if, based on qualitative factors, it
is more likely than not that an impairment exists. Factors considered include macroeconomic, industry and
competitive conditions, legal and regulatory environment, historical financial performance and significant
changes in the brand or reporting unit. If the qualitative assessment indicates that it is more likely than not
that an impairment exists, then a quantitative assessment is performed.
In the quantitative assessment of indefinite-lived intangible assets, if the carrying amount of the indefinite-
lived intangible asset exceeds its estimated fair value, as determined by its discounted cash flows, an
impairment loss is recognized in an amount equal to that excess. Quantitative assessment of goodwill is
performed using a two-step impairment test at the reporting unit level. A reporting unit can be a division or
89
business within a division. The first step compares the carrying value of a reporting unit, including goodwill,
with its estimated fair value, as determined by its discounted cash flows. If the carrying value of a reporting
unit exceeds its estimated fair value, we complete the second step to determine the amount of goodwill
impairment loss that we should record, if any. In the second step, we determine an implied fair value of the
reporting unit’s goodwill by allocating the estimated fair value of the reporting unit to all of the assets and
liabilities other than goodwill (including any unrecognized intangible assets). The amount of impairment
loss is equal to the excess of the carrying value of the goodwill over the implied fair value of that goodwill.
The quantitative assessment described above requires an analysis of several estimates including future cash
flows or income consistent with management’s strategic business plans, annual sales growth rates, perpetuity
growth assumptions and the selection of assumptions underlying a discount rate (weighted average cost of
capital) based on market data available at the time. Significant management judgment is necessary to estimate
the impact of competitive operating, macroeconomic and other factors to estimate future levels of sales,
operating profit or cash flows. All assumptions used in our impairment evaluations for nonamortizable
intangible assets, such as forecasted growth rates and weighted-average cost of capital, are based on the best
available market information and are consistent with our internal forecasts and operating plans.
Amortizable intangible assets are only evaluated for impairment upon a significant change in the operating
or macroeconomic environment. If an evaluation of the undiscounted future cash flows indicates impairment,
the asset is written down to its estimated fair value, which is based on its discounted future cash flows.
See also Note 4, and for additional unaudited information on goodwill and other intangible assets, see “Our
Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
Other Significant Accounting Policies
Our other significant accounting policies are disclosed as follows:
• Basis of Presentation – Note 1 - Basis of Presentation for a description of our policies regarding use
of estimates, basis of presentation and consolidation.
• Property, Plant and Equipment – Note 4.
•
Income Taxes – Note 5, and for additional unaudited information, see “Our Critical Accounting
Policies” in Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
• Share-Based Compensation – Note 6.
• Pension, Retiree Medical and Savings Plans – Note 7, and for additional unaudited information, see
“Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
• Financial Instruments – Note 9, and for additional unaudited information, see “Our Business Risks”
in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Inventories – Note 13. Inventories are valued at the lower of cost or net realizable value. Cost is
determined using the average; first-in, first-out (FIFO) or last-in, first-out (LIFO) methods.
•
• Translation of Financial Statements of Foreign Subsidiaries – Financial statements of foreign
subsidiaries are translated into U.S. dollars using period-end exchange rates for assets and liabilities
and weighted-average exchange rates for revenues and expenses. Adjustments resulting from
translating net assets are reported as a separate component of accumulated other comprehensive loss
within common shareholders’ equity as currency translation adjustment.
Recently Issued Accounting Pronouncements - Adopted
In 2017, the SEC issued guidance related to the TCJ Act which allows recording of provisional tax expense
using a measurement period, not to exceed one year, when information necessary to complete the accounting
90
for the effects of the TCJ Act is not available. We elected to apply the measurement period provisions of this
guidance to certain income tax effects of the TCJ Act when it became effective during our fourth quarter of
2017, resulting in a provisional net tax expense of $2.5 billion. This provisional net tax expense was recorded
based on information available to us prior to the issuance of our 2017 consolidated financial statements, may
be subject to further revision as disclosed in Note 5, and will be finalized no later than the end of 2018.
In 2016, the Financial Accounting Standards Board (FASB) issued guidance that changes the accounting for
certain aspects of share-based payments to employees. We adopted the provisions of this guidance during
our first quarter of 2017, resulting in the following impacts to our financial statements:
•
Income tax effects of vested or settled awards were recognized in the provision for income taxes on
our income statement on a prospective basis. Previously, these tax effects were recorded on our equity
statement in capital in excess of par value. For the year ended December 30, 2017, our excess tax
benefits were $115 million, resulting in a $0.08 increase to diluted net income attributable to PepsiCo
per common share. For the years ended December 31, 2016 and December 26, 2015, our excess tax
benefits recognized were $110 million and $107 million, respectively. If we had applied this standard
in 2016 and 2015, there would have been a $0.07 increase to diluted net income attributable to PepsiCo
per common share for both years. The ongoing impact on our financial statements is dependent on
the timing of when awards vest or are exercised, our tax rate and the intrinsic value when awards
vest or are exercised.
• Excess tax benefits are retrospectively presented within operating activities and withholding tax
payments upon vesting of RSUs, PSUs and PEPunits are retrospectively presented within financing
activities in the cash flow statement. The adoption resulted in an increase of $295 million, $269
million and $284 million in our operating cash flow with a corresponding decrease in our financing
cash flow for the years ended December 30, 2017, December 31, 2016 and December 26, 2015,
respectively.
The guidance also allows for the employer to repurchase more of an employee’s shares, up to the maximum
statutory rate, for tax withholding purposes and not classify the award as a liability that requires valuation
on a mark-to-market basis. Our accounting treatment for outstanding awards was not impacted by our adoption
of this provision. In addition, the guidance allows for a policy election to account for forfeitures as they
occur. We will continue to apply our policy of estimating forfeitures.
In 2016, the FASB issued guidance that eliminates the requirement that an investor retrospectively apply
equity method accounting for an investment originally accounted for by another method. The guidance
requires that an equity method investor add the cost of acquiring the additional interest in the investee to the
current basis of the investor’s previously held interest and adopt the equity method of accounting as of the
date the investor’s ability to exercise significant influence over the investment is achieved. We adopted the
provisions of this guidance prospectively during our first quarter of 2017; the adoption did not impact our
financial statements.
In 2015, the FASB issued guidance that requires companies to classify all deferred tax assets and liabilities
as noncurrent on the balance sheet. We adopted the provisions of this guidance retrospectively during our
first quarter of 2017, resulting in the reclassification of $639 million of deferred taxes from current to non-
current on our balance sheet as of December 31, 2016.
Recently Issued Accounting Pronouncements - Not Yet Adopted
In 2017, the FASB issued guidance to amend and simplify the application of hedge accounting guidance to
better portray the economic results of risk management activities in the financial statements. The guidance
expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value
hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness,
as well as eases certain hedge effectiveness assessment requirements. The guidance is effective beginning
91
in 2019 with early adoption permitted. We are currently evaluating the impact of this guidance, including
transition elections and required disclosures, on our financial statements and the timing of adoption.
In 2017, the FASB issued guidance that requires companies to retrospectively present the service cost
component of net periodic benefit cost for pension and retiree medical plans along with other compensation
costs in operating profit and present the other components of net periodic benefit cost below operating profit
in the income statement. The guidance also allows only the service cost component of net periodic benefit
cost to be eligible for capitalization within inventory or fixed assets on a prospective basis. We will adopt
the guidance when it becomes effective in the first quarter of 2018. We will also update our allocation of
service costs to our divisions starting in 2018 to better approximate actual service cost. In connection with
this adoption, we expect to record a decrease in operating profit of $233 million for the year ended December
30, 2017 and an increase in operating profit of $19 million for the year ended December 31, 2016, primarily
impacting selling, general and administrative expenses. See Note 7 for further information on our service
cost and other components of net periodic benefit cost for pension and retiree medical plans.
In 2016, the FASB issued guidance to clarify how restricted cash should be presented in the cash flow
statement. We will adopt the guidance when it becomes effective in the first quarter of 2018. The guidance
is not expected to have a material impact on our financial statements.
In 2016, the FASB issued guidance that requires companies to account for the income tax effects of
intercompany transfers of assets, other than inventory, when the transfer occurs versus deferring income tax
effects until the transferred asset is sold to an outside party or otherwise recognized. We will adopt the
guidance when it becomes effective in the first quarter of 2018. The guidance is not expected to have a
material impact on our financial statements.
In 2016, the FASB issued guidance that requires lessees to recognize most leases on the balance sheet, but
record expenses on the income statement in a manner similar to current accounting. For lessors, the guidance
modifies the classification criteria and the accounting for sales-type and direct financing leases. The guidance
is effective beginning in 2019 with early adoption permitted. We are currently evaluating the impact of this
guidance on our financial statements and related disclosures, including the increase in the assets and liabilities
on our balance sheet and the impact on our current lease portfolio from both a lessor and lessee perspective.
To facilitate this, we are utilizing a comprehensive approach to review our lease portfolio, as well as assessing
system requirements and control implications. We have identified our significant leases by geography and
by asset type that will be impacted by the new guidance, as well as a software tool to begin tracking the
requirements of the guidance. In addition, we are currently evaluating the timing of adoption of this guidance.
See Note 13 for our minimum lease payments under non-cancelable operating leases.
In 2016, the FASB issued guidance that requires companies to measure investments in certain equity securities
at fair value and recognize any changes in fair value in net income. We will adopt the guidance when it
becomes effective in the first quarter of 2018. The guidance is not expected to have a material impact on our
financial statements. In the second quarter of 2017, we sold our minority stake in Britvic, representing all of
our available-for-sale equity securities, which reduced the risk and volatility of these investments in our
income statement in the future. See Note 9 for further information on our available-for-sale securities.
In 2014, the FASB issued guidance on revenue recognition, with final amendments issued in 2016. The
guidance provides for a five-step model to determine the revenue recognized for the transfer of goods or
services to customers that reflects the expected entitled consideration in exchange for those goods or services.
It also provides clarification for principal versus agent considerations and identifying performance
obligations. In addition, the FASB introduced practical expedients related to disclosures of remaining
performance obligations, as well as other amendments related to guidance on collectibility, non-cash
consideration and the presentation of sales and other similar taxes. Financial statement disclosures required
under the guidance will enable users to understand the nature, amount, timing, judgments and uncertainty
of revenue and cash flows relating to customer contracts. The two permitted transition methods under the
92
guidance are the full retrospective approach or a cumulative effect adjustment to the opening retained earnings
in the year of adoption (cumulative effect approach). We will adopt the guidance using the cumulative effect
approach when it becomes effective in the first quarter of 2018.
We are utilizing a comprehensive approach to assess the impact of the guidance on our contract portfolio by
reviewing our current accounting policies and practices to identify potential differences that would result
from applying the new requirements to our revenue contracts, including evaluation of our performance
obligations, principal versus agent considerations and variable consideration. We are substantially complete
with our contract and business process reviews and implemented changes to our controls to support
recognition and disclosures under the new guidance. As a result of implementing certain changes to our
accounting policies upon adoption, we plan to record an adjustment to opening retained earnings to reflect
marketplace spending that our customers and independent bottlers expect to be entitled to in line with revenue
recognition; exclude all sales, use, value-added and certain excise taxes assessed by governmental authorities
on revenue-producing transactions from net revenue and cost of sales; and to record shipping and handling
activities that are performed after a customer obtains control of the product as a fulfillment cost. Based on
the foregoing, we currently do not expect this guidance to have a material impact on our financial statements
or disclosures.
Note 3 — Restructuring and Impairment Charges
A summary of our restructuring and impairment charges and other productivity initiatives is as follows:
2014 Productivity Plan
2012 Productivity Plan
Total restructuring and impairment charges
Other productivity initiatives
Total restructuring and impairment charges and other
productivity initiatives
$
$
2014 Multi-Year Productivity Plan
$
2017
295
—
295
16
$
2016
160
—
160
12
311
$
172
$
2015
169
61
230
90
320
The 2014 Productivity Plan, publicly announced on February 13, 2014, 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. To build on the successful implementation of the 2014 Productivity Plan to date, we expanded
and extended the program through the end of 2019 to take advantage of additional opportunities within the
initiatives described above to further strengthen our food, snack and beverage businesses.
In 2017, 2016 and 2015, we incurred restructuring charges of $295 million ($224 million after-tax or $0.16
per share), $160 million ($131 million after-tax or $0.09 per share) and $169 million ($134 million after-tax
or $0.09 per share), respectively, in conjunction with our 2014 Productivity Plan. All of these 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 other costs associated with the implementation of our
initiatives, including contract termination costs. Substantially all of the restructuring accrual at December 30,
2017 is expected to be paid by the end of 2018.
93
A summary of our 2014 Productivity Plan charges is as follows:
2017
2016
2015
Severance
and Other
Employee
Costs
Asset
Impairments
Other
Costs
Total
Severance
and Other
Employee
Costs
Asset
Impairments
Other
Costs
Total
Severance
and Other
Employee
Costs
Asset
Impairments
Other
Costs
$
— $ — $ 67
$
$
— $
$
(1) $
FLNA (a)
QFNA
$
NAB
Latin America (a)
ESSA
AMENA (b)
Corporate
67
11
52
57
46
2
45
—
1
(10)
3
(5)
5
11
54
63
53
(3)
50
—
1
16
4
—
—
21
10
—
18
29
21
4
6
3
1
9
(2)
17
4
4
$ 13
$
1
35
27
60
14
10
18
—
10
2
26
2
1
—
8
—
22
6
—
36
Total
$ 26
3
31
28
62
10
9
9
3
17
16
25
8
8
—
4
10
11
—
—
24
$
280
$
$
(6) $ 295
$
88
$
$
36
$ 160
$
59
$
$
86
$ 169
(a) Income amounts represent adjustments for changes in estimates.
(b) Income amount primarily reflects a gain on the sale of property, plant and equipment.
Since the inception of the 2014 Productivity Plan, we incurred restructuring charges of $1,034 million:
FLNA
QFNA
NAB
Latin America
ESSA
AMENA
Corporate
2014 Productivity Plan Costs to Date
Severance
and Other
Employee Costs
131
$
26
149
109
127
23
62
627
$
$
$
Asset
Impairments
Other Costs
Total
9
—
69
29
41
6
—
154
$
$
23
6
83
14
59
15
53
253
$
$
A summary of our 2014 Productivity Plan activity is as follows:
Severance
and Other
Employee Costs
Asset
Impairments
Other Costs
Total
Liability as of December 27, 2014
$
2015 restructuring charges
Cash payments
Non-cash charges and translation
Liability as of December 26, 2015
2016 restructuring charges
Cash payments
Non-cash charges and translation
Liability as of December 31, 2016
2017 restructuring charges
Cash payments
Non-cash charges and translation
Liability as of December 30, 2017
$
89
59
(76)
(11)
61
88
(46)
(15)
88
280
(91)
(65)
212
$
— $
24
$
24
—
(24)
—
36
—
(36)
—
21
—
(21)
— $
86
(87)
(3)
20
36
(49)
1
8
(6)
(22)
34
14
$
$
163
32
301
152
227
44
115
1,034
113
169
(163)
(38)
81
160
(95)
(50)
96
295
(113)
(52)
226
94
2012 Multi-Year Productivity Plan
The 2012 Productivity Plan, publicly announced on February 9, 2012, included actions in every aspect of
our business that we believe would strengthen our complementary food, snack and beverage businesses.
In 2015, we incurred restructuring charges of $61 million ($50 million after-tax or $0.03 per share) in
conjunction with our 2012 Productivity Plan. All of these charges were recorded in selling, general and
administrative expenses and primarily related to severance and other employee-related costs, asset
impairments (all non-cash) and contract termination costs. The 2012 Productivity Plan was completed in
2016 and all cash payments were paid by the end of 2016.
A summary of our 2012 Productivity Plan charges in 2015 is as follows:
FLNA
QFNA
NAB
Latin America
ESSA
AMENA
Corporate
Severance
and Other
Employee Costs
Asset Impairments
Other Costs
Total
— $
— $
— $
—
—
6
15
15
3
39
$
—
—
1
—
3
—
4
—
2
1
12
2
1
$
18
$
$
$
Since the inception of the 2012 Productivity Plan, we incurred restructuring charges of $894 million:
FLNA
QFNA
NAB
Latin America
ESSA
AMENA
Corporate
2012 Productivity Plan Costs to Date
Severance
and Other
Employee Costs
Asset
Impairments
Other Costs
Total
$
$
91
18
107
98
136
75
35
560
$
$
8
—
44
11
23
5
—
91
$
$
25
10
48
18
66
17
59
243
$
$
A summary of our 2012 Productivity Plan activity is as follows:
Severance
and Other
Employee Costs
Asset Impairments
$
Liability as of December 27, 2014
2015 restructuring charges
Cash payments
Non-cash charges and translation
Liability as of December 26, 2015
Cash payments
Non-cash charges and translation
Liability as of December 31, 2016
$
$
28
39
(24)
(8)
35
(28)
(7)
— $
95
Other Costs
Total
$
5
18
(21)
1
3
(2)
(1)
— $
— $
4
—
(4)
—
—
—
— $
—
—
2
8
27
20
4
61
124
28
199
127
225
97
94
894
33
61
(45)
(11)
38
(30)
(8)
—
Other Productivity Initiatives
There were no material charges related to other productivity and efficiency initiatives outside the scope of
the 2014 and 2012 Productivity Plans in 2017 and 2016. In 2015, we incurred charges of $90 million ($66
million after-tax or $0.04 per share) related to other productivity and efficiency initiatives outside the scope
of the 2014 and 2012 Productivity Plans. These charges were recorded in selling, general and administrative
expenses and primarily reflect severance and other employee-related costs and asset impairments (all non-
cash). These initiatives were not included in items affecting comparability.
We regularly evaluate different productivity initiatives beyond the productivity plans and other initiatives
described above.
See additional unaudited information in “Items Affecting Comparability” and “Results of Operations –
Division Review” in Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Note 4 — Property, Plant and Equipment and Intangible Assets
A summary of our property, plant and equipment is as follows:
Property, plant and equipment, net
Land
Buildings and improvements
Machinery and equipment, including fleet and software
Construction in progress
Accumulated depreciation
Depreciation expense
Average
Useful Life
(Years)
$
15 - 44
5 - 15
2017
2016
2015
1,148
8,796
27,018
2,144
39,106
$
1,153
8,306
25,277
2,082
36,818
(21,866)
(20,227)
$
$
17,240
2,227
$
$
16,591
2,217
$
2,248
Property, plant and equipment is recorded at historical cost. Depreciation and amortization are recognized
on a straight-line basis over an asset’s estimated useful life. Land is not depreciated and construction in
progress is not depreciated until ready for service.
A summary of our amortizable intangible assets is as follows:
2017
2016
2015
Amortizable intangible assets, net
Acquired franchise rights
Reacquired franchise rights
Brands
Other identifiable intangibles
Average
Useful Life
(Years)
56 – 60
5 – 14
20 – 40
10 – 24
Gross
858
$
106
1,322
521
Accumulated
Amortization
$
(128) $
(104)
(1,026)
(281)
Net
730
2
296
240
Gross
827
$
106
1,277
522
Accumulated
Amortization
$
(108) $
(102)
(977)
(308)
Net
719
4
300
214
$ 2,807
$
(1,539) $ 1,268
$ 2,732
$
(1,495) $ 1,237
Amortization expense
$
68
$
70
$
75
Amortization of intangible assets for each of the next five years, based on existing intangible assets as of
December 30, 2017 and using average 2017 foreign exchange rates, is expected to be as follows:
Five-year projected amortization
$
69
$
64
$
64
$
62
$
2018
2019
2020
2021
2022
60
96
Depreciable and amortizable assets are evaluated for impairment upon a significant change in the operating
or macroeconomic environment. In these circumstances, if an evaluation of the undiscounted cash flows
indicates impairment, the asset is written down to its estimated fair value, which is based on discounted future
cash flows. Useful lives are periodically evaluated to determine whether events or circumstances have
occurred which indicate the need for revision. For additional unaudited information on our policies for
amortizable brands, see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Nonamortizable Intangible Assets
We did not recognize any impairment charges for goodwill in each of the fiscal years ended December 30,
2017, December 31, 2016 and December 26, 2015. We recognized no material impairment charges
for nonamortizable intangible assets in each of the fiscal years ended December 30, 2017, December 31,
2016 and December 26, 2015. As of December 30, 2017, the estimated fair values of our indefinite-lived
reacquired and acquired franchise rights recorded at NAB exceeded their carrying values. However, there
could be an impairment of the carrying value of NAB’s reacquired and acquired franchise rights if future
revenues and their contribution to the operating results of NAB’s CSD business do not achieve our expected
future cash flows or if macroeconomic conditions result in a future increase in the weighted-average cost of
capital used to estimate fair value. We have also analyzed the impact of the macroeconomic conditions in
Russia and Brazil on the estimated fair value of our indefinite-lived intangible assets in these countries and
have concluded that there is no impairment as of December 30, 2017. However, there could be an impairment
of the carrying value of certain brands in these countries if there is a deterioration in these conditions, if future
revenues and their contributions to the operating results do not achieve our expected future cash flows or if
macroeconomic conditions result in a future increase in the weighted-average cost of capital used to estimate
fair value. For additional information on our policies for nonamortizable intangible assets, see Note 2.
97
The change in the book value of nonamortizable intangible assets is as follows:
Balance,
Beginning
2016
Translation
and Other
Balance,
End of
2016
Translation
and Other
Balance,
End of
2017
FLNA
Goodwill
Brands
QFNA
Goodwill
NAB
Goodwill (a)
Reacquired franchise rights
Acquired franchise rights
Brands (a)
Latin America
Goodwill
Brands
ESSA (b)
Goodwill
Reacquired franchise rights
Acquired franchise rights
Brands
AMENA
Goodwill
Brands
Total goodwill
Total reacquired franchise rights
Total acquired franchise rights
Total brands
$
$
267
22
289
175
9,754
7,042
1,507
108
18,411
521
137
658
3,042
488
190
2,212
5,932
418
105
523
14,177
7,530
1,697
2,584
25,988
$
$
$
3
1
4
—
89
22
5
206
322
32
13
45
135
—
(6)
146
275
(6)
(2)
(8)
253
22
(1)
364
638
$
270
23
293
175
9,843
7,064
1,512
314
18,733
553
150
703
3,177
488
184
2,358
6,207
412
103
515
14,430
7,552
1,696
2,948
26,626
$
$
10
2
12
—
11
62
13
39
125
2
(9)
(7)
275
61
11
187
534
16
8
24
314
123
24
227
688
$
$
280
25
305
175
9,854
7,126
1,525
353
18,858
555
141
696
3,452
549
195
2,545
6,741
428
111
539
14,744
7,675
1,720
3,175
27,314
(a) The change in 2016 is primarily related to our acquisition of KeVita, Inc.
(b) The change in 2017 primarily reflects the currency appreciation of the Russian ruble and euro. The change in 2016 primarily reflects the
currency appreciation of the Russian ruble.
98
Note 5 — Income Taxes
The components of income before income taxes are as follows:
United States
Foreign
The provision for income taxes consisted of the following:
Current:
Deferred:
U.S. Federal
Foreign
State
U.S. Federal
Foreign
State
2017
3,452 $
6,150
9,602 $
2016
2,630 $
5,923
8,553 $
2017
4,925 $
724
136
5,785
(1,159)
(9)
77
(1,091)
4,694 $
2016
1,219 $
824
77
2,120
109
(33)
(22)
54
2,174 $
$
$
$
$
A reconciliation of the U.S. Federal statutory tax rate to our annual tax rate is as follows:
U.S. Federal statutory tax rate
State income tax, net of U.S. Federal tax benefit
Lower taxes on foreign results
Impact of Venezuela impairment charges
Provisional one-time mandatory transition tax - TCJ Act
Provisional remeasurement of deferred taxes - TCJ Act
Tax settlements
Other, net
Annual tax rate
Tax Cuts and Jobs Act
2017
35.0%
0.9
(9.4)
—
41.4
(15.9)
—
(3.1)
48.9%
2016
35.0%
0.4
(8.0)
—
—
—
—
(2.0)
25.4%
2015
2,879
4,563
7,442
2015
1,143
773
65
1,981
(14)
(32)
6
(40)
1,941
2015
35.0%
0.6
(10.5)
6.4
—
—
(3.1)
(2.3)
26.1%
During the fourth quarter of 2017, the TCJ Act was enacted in the United States. Among its many provisions,
the TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings and reduced
the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of the enactment
of the TCJ Act, we recognized a provisional net tax expense of $2.5 billion in the fourth quarter of 2017. See
further unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
Included in the provisional net tax expense of $2.5 billion is a provisional mandatory one-time transition tax
of approximately $4 billion on undistributed international earnings, included in other liabilities. This
provisional mandatory one-time transition tax was partially offset by a provisional $1.5 billion benefit
resulting from the required remeasurement of our deferred tax assets and liabilities to the new, lower U.S.
corporate income tax rate, effective January 1, 2018. The effect of the remeasurement was recorded in the
fourth quarter of 2017, consistent with the enactment date of the TCJ Act, and reflected in our provision for
income taxes.
99
The TCJ Act also creates a new requirement that certain income earned by foreign subsidiaries, known as
GILTI, must be included in the gross income of their U.S. shareholder. The FASB allows an accounting
policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI
in future years or recognizing such taxes as a current-period expense when incurred. Due to the complexity
of calculating GILTI under the new law, we have not determined which method we will apply. Therefore,
we have not made any adjustments related to potential GILTI tax in our financial statements. We expect to
elect an accounting policy in the first quarter of 2018.
The components of the provisional net tax expense recorded in 2017 are based on currently available
information and additional information needs to be prepared, obtained and/or analyzed to determine the final
amounts. The provisional tax expense for the mandatory repatriation of undistributed international earnings
will require further analysis of certain foreign exchange gains or losses, substantiation of foreign tax credits,
as well as estimated cash and cash equivalents as of November 30, 2018, the tax year-end of our foreign
subsidiaries. The provisional tax benefit for the remeasurement of deferred taxes will require additional
information necessary for the preparation of our U.S. federal tax return, and further analysis and interpretation
of certain provisions of the TCJ Act impacting deferred taxes, for example 100% expensing of qualified
assets as well as our accounting policy election for recognizing deferred taxes for GILTI, could impact our
deferred tax balance as of December 30, 2017.
Tax effects for these items will be recorded in subsequent quarters, as discrete adjustments to our income
tax provision, once complete. The SEC has issued guidance that allows for a measurement period of up to
one year after the enactment date of the TCJ Act to finalize the recording of the related tax impacts. We
currently anticipate finalizing and recording any resulting adjustments by the end of 2018.
The recorded impact of the TCJ Act is provisional and the final amount may differ, possibly materially, due
to, among other things, changes in estimates, interpretations and assumptions we have made, changes in IRS
interpretations, the issuance of new guidance, legislative actions, changes in accounting standards or related
interpretations in response to the TCJ Act and future actions by states within the United States that have not
currently adopted the TCJ Act.
For further unaudited information and discussion of the potential impact of the TCJ Act, refer to “Item 1A.
Risk Factors,” “Our Business Risks,” “Our Liquidity and Capital Resources” and “Our Critical Accounting
Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
100
Deferred tax liabilities and assets are comprised of the following:
Deferred Tax Liabilities
Debt guarantee of wholly-owned subsidiary
Property, plant and equipment
Intangible assets other than nondeductible goodwill
Other
Gross deferred tax liabilities
Deferred tax assets
Net carryforwards
Share-based compensation
Retiree medical benefits
Other employee-related benefits
Pension benefits
Deductible state tax and interest benefits
Other
Gross deferred tax assets
Valuation allowances
Deferred tax assets, net
Net deferred tax liabilities
A summary of our valuation allowance activity is as follows:
2017
578 $
$
1,397
3,169
50
5,194
1,400
107
198
338
22
157
893
3,115
(1,163)
1,952
3,242 $
$
2016
839
1,967
4,124
245
7,175
1,255
219
316
614
419
189
839
3,851
(1,110)
2,741
4,434
Balance, beginning of year
Provision/(benefit)
Other additions/(deductions)
Balance, end of year
2017
1,110 $
33
20
1,163 $
2016
1,136 $
13
(39)
1,110 $
2015
1,230
(26)
(68)
1,136
$
$
For additional unaudited information on our income tax policies, including our reserves for income taxes,
see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
Reserves
A number of years may elapse before a particular matter, for which we have established a reserve, is audited
and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. Our
major taxing jurisdictions and the related open tax audits are as follows:
Jurisdiction
United States
Mexico
United Kingdom
Canada (Domestic)
Canada (International)
Russia
Years Open to Audit
2012-2016
2014-2016
2014-2016
2013-2016
2010-2016
2012-2016
Years Currently
Under Audit
2012-2013
2014
None
2013-2014
2010-2014
2012-2016
While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter,
we believe that our reserves reflect the probable outcome of known tax contingencies. We adjust these
reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any
101
particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction
to our annual tax rate in the year of resolution. For further unaudited information on the impact of the resolution
of open tax issues, see “Other Consolidated Results” in Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
In 2015, we reached an agreement with the IRS resolving substantially all open matters related to the audits
of taxable years 2010 and 2011. The agreement resulted in a 2015 non-cash tax benefit totaling $230 million.
As of December 30, 2017, the total gross amount of reserves for income taxes, reported in other liabilities,
was $2.2 billion. We accrue interest related to reserves for income taxes in our provision for income taxes
and any associated penalties are recorded in selling, general and administrative expenses. The gross amount
of interest accrued, reported in other liabilities, was $283 million as of December 30, 2017, of which $89
million of expense was recognized in 2017. The gross amount of interest accrued, reported in other liabilities,
was $193 million as of December 31, 2016, of which $61 million of expense was recognized in 2016.
A reconciliation of unrecognized tax benefits, is as follows:
Balance, beginning of year
Additions for tax positions related to the current year
Additions for tax positions from prior years
Reductions for tax positions from prior years
Settlement payments
Statutes of limitations expiration
Translation and other
Balance, end of year
Carryforwards and Allowances
2017
1,885 $
309
86
(51)
(4)
(33)
20
2,212 $
2016
1,547
349
139
(70)
(26)
(27)
(27)
1,885
$
$
Operating loss carryforwards totaling $12.6 billion at year-end 2017 are being carried forward in a number
of foreign and state jurisdictions where we are permitted to use tax operating losses from prior periods to
reduce future taxable income. These operating losses will expire as follows: $0.2 billion in 2018, $11.1 billion
between 2019 and 2037 and $1.3 billion may be carried forward indefinitely. We establish valuation
allowances for our deferred tax assets if, based on the available evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Undistributed International Earnings
As of December 30, 2017, we had approximately $42.5 billion of undistributed international earnings. We
intend to repatriate approximately $20 billion of our foreign earnings back to the United States and have
recognized all tax expense on these earnings in the fourth quarter of 2017. We intend to continue to reinvest
the remaining $22.5 billion of earnings outside the United States for the foreseeable future and while U.S.
federal tax expense has been recognized as a result of the TCJ Act, no deferred tax liabilities with respect to
items such as certain foreign exchange gains or losses, foreign withholding taxes or state taxes have been
recognized. It is not practicable for us to determine the amount of unrecognized tax expense on these reinvested
international earnings.
Note 6 — Share-Based Compensation
Our share-based compensation program is designed to attract and retain employees while also aligning
employees’ interests with the interests of our shareholders. PepsiCo has granted stock options, RSUs, PSUs,
PEPunits and long-term cash awards to employees under the shareholder-approved PepsiCo, Inc. Long-Term
102
Incentive Plan (LTIP). Executives who are awarded long-term incentives based on their performance may
generally elect to receive their grant in the form of stock options or RSUs, or a combination thereof. Executives
who elect stock options receive four stock options for every one RSU that would have otherwise been granted.
Certain executive officers and other senior executives do not have a choice and, beginning in 2016, were
granted 66% PSUs and 34% long-term cash, each of which are subject to pre-established performance targets.
Previously, they were granted a combination of 60% PEPunits measuring both absolute and relative stock
price performance and 40% long-term cash based on achievement of specific performance operating metrics.
The Company may use authorized and unissued shares to meet share requirements resulting from the exercise
of stock options and the vesting of RSUs, PSUs and PEPunits.
As of December 30, 2017, 74 million shares were available for future share-based compensation grants under
the LTIP.
The following table summarizes our total share-based compensation expense:
Share-based compensation expense - equity awards
Share-based compensation expense - liability awards
Restructuring and impairment (credits)/charges
Total
Income tax benefits recognized in earnings related to share-based
compensation
(a) Reflects tax rates effective for the 2017 tax year.
2017
292
13
(2)
303
2016
284
5
5
294
$
$
89 (a) $
91
2015
295
—
4
299
77
$
$
$
$
$
$
As of December 30, 2017, there was $314 million of total unrecognized compensation cost related to
nonvested share-based compensation grants. This unrecognized compensation cost is expected to be
recognized over a weighted-average period of two years.
Method of Accounting and Our Assumptions
The fair value of share-based award grants is amortized to expense over the vesting period, primarily three
years. Awards to employees eligible for retirement prior to the award becoming fully vested are amortized
to expense over the period through the date that the employee first becomes eligible to retire and is no longer
required to provide service to earn the award. In addition, we use historical data to estimate forfeiture rates
and record share-based compensation expense only for those awards that are expected to vest.
We do not backdate, reprice or grant share-based compensation awards retroactively. Repricing of awards
would require shareholder approval under the LTIP.
Stock Options
A stock option permits the holder to purchase shares of PepsiCo common stock at a specified price. We
account for our employee stock options under the fair value method of accounting using a Black-Scholes
valuation model to measure stock option expense at the date of grant. All stock option grants have an exercise
price equal to the fair market value of our common stock on the date of grant and generally have a 10-year
term.
103
Our weighted-average Black-Scholes fair value assumptions are as follows:
Expected life
Risk-free interest rate
Expected volatility
Expected dividend yield
2017
5 years
2.0%
11%
2.7%
2016
6 years
1.4%
12%
2.7%
2015
7 years
1.8%
15%
2.7%
The expected life is the period over which our employee groups are expected to hold their options. It is based
on our historical experience with similar grants. The risk-free interest rate is based on the expected U.S.
Treasury rate over the expected life. Volatility reflects movements in our stock price over the most recent
historical period equivalent to the expected life. Dividend yield is estimated over the expected life based on
our stated dividend policy and forecasts of net income, share repurchases and stock price.
A summary of our stock option activity for the year ended December 30, 2017 is as follows:
Weighted-
Average
Contractual
Life
Remaining
(years)
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value(b)
Options(a)
Outstanding at December 31, 2016
Granted
Exercised
Forfeited/expired
Outstanding at December 30, 2017
Exercisable at December 30, 2017
Expected to vest as of December 30, 2017
25,190 $
1,481 $
(7,136) $
(522) $
19,013 $
14,589 $
3,994 $
69.88
110.15
65.31
88.36
74.23
65.60
102.50
4.22 $ 868,750
3.02 $ 792,560
69,578
8.15 $
(a) Options are in thousands and include options previously granted under the PBG plan. No additional options or shares were granted under
the PBG plan after 2009.
(b) In thousands.
Restricted Stock Units and Performance Stock Units
Each RSU represents our obligation to deliver to the holder one share of PepsiCo common stock when the
award vests at the end of the service period. PSUs are awards pursuant to which a number of shares are
delivered to the holder upon vesting at the end of the service period based on PepsiCo’s performance against
specified financial and/or operational performance metrics. The number of shares may be increased to the
maximum or reduced to the minimum threshold based on the results of these performance metrics in
accordance with the terms established at the time of the award. During the vesting period, RSUs and PSUs
accrue dividend equivalents that pay out in cash (without interest) if and when the applicable RSU or PSU
vests and becomes payable.
The fair value of RSUs is measured at the market price of the Company’s stock on the date of grant. The fair
value of PSUs is measured at the market price of the Company’s stock on the date of grant with the exception
of awards with market conditions, for which we use the Monte-Carlo simulation model to determine the fair
value. The Monte-Carlo simulation model uses the same input assumptions as the Black-Scholes model;
however, it also further incorporates into the fair-value determination the possibility that the market condition
may not be satisfied. Compensation costs related to these awards are recognized regardless of whether the
market condition is satisfied, provided that the requisite service has been provided.
104
A summary of our RSU and PSU activity for the year ended December 30, 2017 is as follows:
RSUs/PSUs(a)
Weighted-
Average
Grant-Date
Fair Value
91.81
109.92
82.56
100.17
100.33
102.30
102.00
8,237 $
2,824 $
(3,226) $
(608) $
66 $
7,293 $
6,695 $
Weighted-
Average
Contractual
Life
Remaining
(years)
Aggregate
Intrinsic
Value(a)
1.33 $ 874,517
1.26 $ 802,826
Outstanding at December 31, 2016
Granted (b)
Converted
Forfeited
Actual performance change (c)
Outstanding at December 30, 2017 (d)
Expected to vest as of December 30, 2017
(a) In thousands.
(b) Grant activity for all PSUs are disclosed at target.
(c) Reflects the net number of PSUs above and below target levels based on actual performance measured at the end of the performance period.
(d) The outstanding PSUs for which the performance period has not ended as of December 30, 2017, at the threshold, target and maximum
award levels were zero, 0.9 million and 1.5 million, respectively.
PEPunits
PEPunits provide an opportunity to earn shares of PepsiCo common stock with a value that adjusts based
upon changes in PepsiCo’s absolute stock price as well as PepsiCo’s Total Shareholder Return relative to the
S&P 500 over a three-year performance period.
The fair value of PEPunits is measured using the Monte-Carlo simulation model.
A summary of our PEPunit activity for the year ended December 30, 2017 is as follows:
Outstanding at December 31, 2016
Converted
Forfeited
Actual performance change (b)
Outstanding at December 30, 2017 (c)
Expected to vest as of December 30, 2017
PEPunits(a)
Weighted-
Average
Grant-Date
Fair Value
59.86
49.11
68.94
50.74
68.94
68.94
533 $
(363) $
(13) $
91 $
248 $
234 $
Weighted-
Average
Contractual
Life
Remaining
(years)
Aggregate
Intrinsic
Value(a)
0.17 $
0.17 $
29,734
28,034
(a) In thousands.
(b) Reflects the net number of PEPunits above and below target levels based on actual performance measured at the end of the performance
period.
(c) The outstanding PEPunits for which the performance period has not ended as of December 30, 2017, at the threshold, target and maximum
award levels were zero, 0.2 million and 0.4 million, respectively.
Long-Term Cash
Beginning in 2016, certain executive officers and other senior executives were granted long-term cash awards
for which final payout is based on PepsiCo’s Total Shareholder Return relative to a specific set of peer
companies and achievement of a specified performance target over a three-year performance period.
105
Long-term cash awards that qualify as liability awards under share-based compensation guidance are valued
through the end of the performance period on a mark-to-market basis using the Monte Carlo simulation
model until actual performance is determined.
A summary of our long-term cash activity for the year ended December 30, 2017 is as follows:
Long-Term
Cash
Award(a)
Balance
Sheet Date
Fair Value(a)
Contractual
Life
Remaining
(years)
15,670
19,060
(1,530)
33,200 $
29,590 $
Outstanding at December 31, 2016
$
Granted (b)
Forfeited
Outstanding at December 30, 2017 (c)
Expected to vest as of December 30, 2017
(a) In thousands.
(b) Grant activity for all long-term cash awards are disclosed at target.
(c) The outstanding long-term cash awards for which the performance period has not ended as of December 30, 2017, at the threshold, target
32,592
29,092
1.73
1.71
$
$
and maximum award levels were zero, $33.2 million and $66.4 million, respectively.
Other Share-Based Compensation Data
The following is a summary of other share-based compensation data:
Stock Options
Total number of options granted (a)
Weighted-average grant-date fair value of options granted
Total intrinsic value of options exercised (a)
Total grant-date fair value of options vested (a)
RSUs/PSUs
Total number of RSUs/PSUs granted (a)
Weighted-average grant-date fair value of RSUs/PSUs granted
Total intrinsic value of RSUs/PSUs converted (a)
Total grant-date fair value of RSUs/PSUs vested (a)
PEPunits
Total number of PEPunits granted (a)
Weighted-average grant-date fair value of PEPunits granted
Total intrinsic value of PEPunits converted (a)
Total grant-date fair value of PEPunits vested (a)
(a) In thousands.
2017
2016
2015
1,481
8.25 $
1,743
6.94 $
1,884
$
10.80
$ 327,860 $ 290,131 $ 366,188
$ 23,122 $ 18,840 $ 21,837
3,054
99.06 $
2,824
2,759
$ 109.92 $
99.17
$ 380,269 $ 359,401 $ 375,510
$ 264,923 $ 257,648 $ 257,831
—
— $
—
— $
300
$
68.94
$ 39,782 $ 38,558 $ 37,705
$ 18,833 $ 16,572 $ 22,286
As of December 30, 2017 and December 31, 2016, there were approximately 250,000 and 254,000
outstanding awards, respectively, consisting primarily of phantom stock units that were granted under the
PepsiCo Director Deferral Program and will be settled in shares of PepsiCo common stock pursuant to the
LTIP at the end of the applicable deferral period, not included in the tables above.
Note 7 — Pension, Retiree Medical and Savings Plans
Effective January 1, 2017, the U.S. qualified defined benefit pension plans were reorganized into Plan A and
Plan I. Actuarial gains and losses associated with Plan A are amortized over the average remaining service
106
life of the active participants, while the actuarial gains and losses associated with Plan I are amortized over
the remaining life expectancy of the inactive participants. As a result of this change, the pre-tax net periodic
benefit cost decreased by $42 million ($27 million after-tax, reflecting tax rates effective for the 2017 tax
year, or $0.02 per share) in 2017, primarily impacting corporate unallocated expenses. See “Our Critical
Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
In 2016, the U.S. qualified defined benefit pension plans purchased a group annuity contract whereby an
unrelated insurance company assumed the obligation to pay and administer future annuity payments for
certain retirees. In 2016, we made discretionary contributions of $452 million primarily to fund the transfer
of the obligation. This transaction triggered a pre-tax settlement charge of $242 million ($162 million after-
tax or $0.11 per share). See additional unaudited information in “Items Affecting Comparability” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Effective as of the beginning of 2016, we prospectively changed the method we use to estimate the service
and interest cost components of net periodic benefit cost. The pre-tax reduction in net periodic benefit cost
associated with this change in 2016 was $125 million ($81 million after-tax or $0.06 per share). See “Our
Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results
of Operations for further unaudited information on this change in accounting estimate.
Gains and losses resulting from actual experience differing from our assumptions, including the difference
between the actual return on plan assets and the expected return on plan assets, as well as changes in our
assumptions, are determined at each measurement date. These differences are recognized as a component of
net gain or loss in accumulated other comprehensive loss. If this net accumulated gain or loss exceeds 10%
of the greater of the market-related value of plan assets or plan liabilities, a portion of the net gain or loss is
included in expense for the following year based upon the average remaining service life for participants in
Plan A (approximately 11 years) and retiree medical (approximately 7 years), or the remaining life expectancy
for participants in Plan I (approximately 27 years). The cost or benefit of plan changes that increase or
decrease benefits for prior employee service (prior service (credit)/cost) is included in earnings on a straight-
line basis over the average remaining service life for participants in Plan A or the remaining life expectancy
for participants in Plan I.
We regularly evaluate different opportunities to reduce risk and volatility associated with our pension and
retiree medical plans.
107
Selected financial information for our pension and retiree medical plans is as follows:
Change in projected benefit liability
Liability at beginning of year
Service cost
Interest cost
Plan amendments
Participant contributions
Experience loss/(gain)
Benefit payments
Settlement/curtailment
Special termination benefits
Other, including foreign currency adjustment
Liability at end of year
Change in fair value of plan assets
Fair value at beginning of year
Actual return on plan assets
Employer contributions/funding
Participant contributions
Benefit payments
Settlement
Other, including foreign currency adjustment
Fair value at end of year
Funded status
Amounts recognized
Other assets
Other current liabilities
Other liabilities
Net amount recognized
Pension
Retiree Medical
U.S.
International
2017
2016
2017
2016
2017
2016
$
13,192
$
13,033
$
3,124
$
2,872
$
1,208
$
1,300
401
468
10
—
1,529
(825)
(58)
60
—
393
484
18
—
614
(347)
(1,014)
11
—
91
89
2
2
5
(104)
(22)
—
303
80
94
—
2
560
(83)
(19)
1
(383)
28
36
(5)
—
21
31
41
(15)
—
(51)
(107)
(100)
—
2
4
—
1
1
$
14,777
$
13,192
$
3,490
$
3,124
$
1,187
$
1,208
$
11,458
$
11,397
$
2,894
$
2,823
$
320
$
354
1,935
60
—
(825)
(46)
—
880
541
—
(347)
(1,013)
—
288
104
2
(104)
(18)
294
409
118
2
(83)
(22)
(353)
52
56
—
30
36
—
(107)
(100)
—
—
$
$
$
12,582
$
11,458
$
3,460
$
2,894
$
321
$
(2,195) $
(1,734) $
(30) $
(230) $
(866) $
286
$
— $
85
$
51
$
— $
(74)
(42)
(2,407)
(1,692)
(1)
(114)
(1)
(280)
(75)
(791)
$
(2,195) $
(1,734) $
(30) $
(230) $
(866) $
—
—
320
(888)
—
(54)
(834)
(888)
(193)
(91)
(284)
Amounts included in accumulated other comprehensive loss (pre-tax)
Net loss/(gain)
Prior service cost/(credit)
Total
$
$
3,520
29
3,549
$
$
3,220
20
3,240
$
$
782
(3)
779
$
$
884
(5)
879
$
$
(189) $
(71)
(260) $
Changes recognized in net loss/(gain) included in other comprehensive loss
Net loss/(gain) arising in current year
431
$
$
568
$
(115) $
314
$
(9) $
(57)
Amortization and settlement recognition
Foreign currency translation loss/(gain)
Total
Accumulated benefit obligation at end of year
(131)
—
300
13,732
(413)
—
155
12,211
$
$
$
$
$
$
(60)
73
(46)
(117)
(102) $
151
$
12
1
4
1
1
$
(55)
2,985
$
2,642
The amounts we report as pension and retiree medical cost consist of the following components:
• Service cost is the value of benefits earned by employees for working during the year.
•
Interest cost is the accrued interest on the projected benefit obligation due to the passage of time.
108
• Expected return on plan assets is the long-term return we expect to earn on plan investments for our
funded plans that will be used to settle future benefit obligations.
• Amortization of prior service cost/(credit) represents the recognition in the income statement of benefit
changes resulting from plan amendments.
• Amortization of net loss/(gain) represents the recognition in the income statement of changes in the
amount of plan assets and the projected benefit obligation based on changes in assumptions and actual
experience.
• Settlement/curtailment loss/(gain) represents the result of actions that effectively eliminate all or a
portion of related projected benefit obligations. Settlements are triggered when payouts to settle the
projected benefit obligation of a plan due to lump sums or other events exceed the annual service and
interest cost. Settlements are recognized when actions are irrevocable and we are relieved of the
primary responsibility and risk for projected benefit obligations. Curtailments are due to events such
as plant closures or the sale of a business resulting in a reduction of future service or benefits.
Curtailment losses are recognized when an event is probable and estimable, while curtailment gains
are recognized when an event has occurred (when the related employees terminate or an amendment
is adopted).
• Special termination benefits are the additional benefits offered to employees upon departure due to
actions such as restructuring.
The components of benefit expense are as follows:
Components of benefit expense
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost/(credit)
Amortization of net loss/(gain)
Settlement/curtailment loss/(gain) (a)
Special termination benefits
Total
Pension
Retiree Medical
U.S.
International
2017
2016
2015
2017
2016
2015
2017
2016
2015
$ 401
468
(849)
1
123
144
8
60
$ 212
$ 393
484
(834)
(1)
168
210
245
11
$ 466
$ 435
546
(850)
(3)
205
333
—
18
$ 351
$
$
91
89
(176)
—
53
57
11
—
68
$
$
80
94
(163)
—
40
51
9
1
61
$
99
115
(174)
—
71
111
3
1
$ 115
$
$
28
36
(22)
(25)
(12)
5
—
2
7
$
$
$
31
41
(24)
(38)
(1)
9
(14)
1
(4) $
35
52
(27)
(39)
2
23
—
1
24
(a) U.S. includes a settlement charge of $242 million related to the group annuity contract purchase in 2016. See additional unaudited information
in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The estimated amounts to be amortized from accumulated other comprehensive loss/(gain) into pre-tax
expense in 2018 for our pension and retiree medical plans are as follows:
Net loss/(gain)
Prior service cost/(credit)
Total
Pension
Retiree Medical
U.S.
International
$
$
179
$
3
182
$
46
—
46
$
$
(10)
(20)
(30)
109
The following table provides the weighted-average assumptions used to determine projected benefit liability
and benefit expense for our pension and retiree medical plans:
Weighted-average assumptions
Liability discount rate
Expense discount rate (a)
Service cost discount rate (a)
Interest cost discount rate (a)
Expected return on plan assets
Liability rate of salary increases
Expense rate of salary increases
Pension
Retiree Medical
U.S.
International
2017
2016
2015
2017
2016
2015
2017
2016
2015
3.7%
n/a
4.5%
3.7%
7.5%
3.1%
3.1%
4.4%
n/a
4.6%
3.8%
7.5%
3.1%
3.1%
4.5%
4.2%
n/a
n/a
7.5%
3.1%
3.5%
3.0%
n/a
3.6%
2.8%
6.0%
3.7%
3.6%
3.1%
n/a
4.1%
3.5%
6.2%
3.6%
3.6%
4.0%
3.8%
n/a
n/a
6.5%
3.6%
3.6%
3.5%
n/a
4.0%
3.2%
7.5%
4.0%
n/a
4.3%
3.3%
7.5%
4.2%
3.8%
n/a
n/a
7.5%
(a) Effective as of the beginning of 2016, we prospectively changed the method we use to estimate the service and interest cost components
of pension and retiree medical expense. See additional unaudited information in “Our Critical Accounting Policies” in Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
The following table provides selected information about plans with accumulated benefit obligation and total
projected benefit liability in excess of plan assets:
Pension
Retiree Medical
U.S.
International
2017
2016
2017
2016
2017
2016
Selected information for plans with accumulated benefit obligation in excess of plan assets
Liability for service to date
Fair value of plan assets
$
$
(8,355) $
(12,211) $
(161) $
6,919
$
11,458
$
119
$
(134)
110
Selected information for plans with projected benefit liability in excess of plan assets
Benefit liability
Fair value of plan assets
$
$
(9,400) $
(13,192) $
(1,273) $
(2,773) $
(1,187) $
(1,208)
6,919
$
11,458
$
1,158
$
2,492
$
321
$
320
Of the total projected pension benefit liability as of December 30, 2017, approximately $905 million relates
to plans that we do not fund because the funding of such plans does not receive favorable tax treatment.
Future Benefit Payments
Our estimated future benefit payments are as follows:
Pension
Retiree medical (a)
2018
890
120
$
$
2019
985
120
$
$
2020
825
110
$
$
2021
875
110
$
$
2022
2023 - 27
925
105
$
$
5,210
455
$
$
(a) Expected future benefit payments for our retiree medical plans do not reflect any estimated subsidies expected to be received under the
2003 Medicare Act. Subsidies are expected to be approximately $2 million for each of the years from 2018 through 2022 and approximately
$6 million in total for 2023 through 2027.
These future benefit payments to beneficiaries include payments from both funded and unfunded plans.
110
Funding
Contributions to our pension and retiree medical plans were as follows:
Discretionary (a)
Non-discretionary
Total
Pension
Retiree Medical
2017
6
158
164
$
$
2016
459
200
659
$
$
2015
2017
2016
2015
— $
162
162
$
— $
56
56
$
— $
36
36
$
—
43
43
$
$
(a) Includes $452 million in 2016 relating to the funding of the group annuity contract purchase from an unrelated insurance company.
In February 2018, we received approval from our Board of Directors to make discretionary contributions of
$1.4 billion to Plan A in the United States that we intend to invest in fixed income securities. As of February
13, 2018, we contributed $750 million of the approved amount; we expect to contribute the remaining $650
million in the first quarter of 2018. These contributions are reflected in our 2018 long-term expected rate of
return on plan assets and target investment allocations. In addition, in 2018, we expect to make non-
discretionary contributions of approximately $175 million to our U.S. and international plans for pension
benefits and approximately $75 million for retiree medical benefits.
Plan Assets
Our pension plan investment strategy includes the use of actively managed accounts and is reviewed
periodically in conjunction with plan liabilities, an evaluation of market conditions, tolerance for risk and
cash requirements for benefit payments. This strategy is also applicable to funds held for the retiree medical
plans. Our investment objective includes ensuring that funds are available to meet the plans’ benefit
obligations when they become due. Assets contributed to our pension plans are no longer controlled by us,
but become the property of our individual pension plans. However, we are indirectly impacted by changes
in these plan assets as compared to changes in our projected liabilities. Our overall investment policy is to
prudently invest plan assets in a well-diversified portfolio of equity and high-quality debt securities and real
estate to achieve our long-term return expectations. Our investment policy also permits the use of derivative
instruments, such as futures and forward contracts, to reduce interest rate and foreign currency risks. Futures
contracts represent commitments to purchase or sell securities at a future date and at a specified price. Forward
contracts consist of currency forwards.
For 2018 and 2017, our expected long-term rate of return on U.S. plan assets is 7.2% and 7.5%, respectively.
Our target investment allocations for U.S. plan assets are as follows:
Fixed income
U.S. equity
International equity
Real estate
2018
47%
29%
20%
4%
2017
40%
33%
22%
5%
Actual investment allocations may vary from our target investment allocations due to prevailing market
conditions. We regularly review our actual investment allocations and periodically rebalance our investments.
The expected return on plan assets is based on our investment strategy and our expectations for long-term
rates of return by asset class, taking into account volatility and correlation among asset classes and our
historical experience. We also review current levels of interest rates and inflation to assess the reasonableness
of the long-term rates. We evaluate our expected return assumptions annually to ensure that they are
reasonable. To calculate the expected return on plan assets, our market-related value of assets for fixed income
is the actual fair value. For all other asset categories, such as equity securities, we use a method that recognizes
111
investment gains or losses (the difference between the expected and actual return based on the market-related
value of assets) over a five-year period. This has the effect of reducing year-to-year volatility.
Plan assets measured at fair value as of fiscal year-end 2017 and 2016 are categorized consistently by level,
and are as follows:
2017
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
2016
Total
Total
U.S. plan assets (a)
Equity securities, including preferred stock (b) $
Government securities (c)
Corporate bonds (c)
Mortgage-backed securities (c)
Contracts with insurance companies (d)
Cash and cash equivalents
Sub-total U.S. plan assets
Real estate commingled funds measured at
net asset value (e)
Dividends and interest receivable, net of
payables
Total U.S. plan assets
International plan assets
Equity securities (b)
Government securities (c)
Corporate bonds (c)
Fixed income commingled funds (f)
Contracts with insurance companies (d)
Cash and cash equivalents
Sub-total international plan assets
Real estate commingled funds measured at
net asset value (e)
Dividends and interest receivable
Total international plan assets
$
$
$
$
$
$
$
6,904
1,365
3,429
217
8
236
12,159
675
69
12,903
1,928
492
493
383
36
19
3,351
102
7
3,460
6,896
—
—
—
—
236
7,132
1,895
—
—
383
—
19
2,297
$
$
$
$
8
1,365
3,429
217
—
—
5,019
33
492
493
—
—
—
1,018
$
$
$
$
— $
—
—
—
8
—
8
$
— $
—
—
—
36
—
36
$
6,489
1,173
3,012
187
7
196
11,064
651
63
11,778
1,556
432
453
316
35
12
2,804
84
6
2,894
(a) 2017 and 2016 amounts include $321 million and $320 million, respectively, of retiree medical plan assets that are restricted for purposes of
providing health benefits for U.S. retirees and their beneficiaries.
(b) The equity securities portfolio was invested in U.S. and international common stock and commingled funds, and the preferred stock portfolio in
the U.S. was invested in domestic and international corporate preferred stock investments. The common stock is based on quoted prices in active
markets. The U.S. commingled funds are based on fair values of the investments owned by these funds that are benchmarked against various U.S.
large, mid-cap and small company indices, and includes one large-cap fund that represents 19% of total U.S. plan assets for 2017 and 2016. The
international commingled funds are based on the fair values of the investments owned by these funds that track various non-U.S. equity indices.
The preferred stock investments are based on quoted bid prices for comparable securities in the marketplace and broker/dealer quotes in active
markets.
(c) These investments are based on quoted bid prices for comparable securities in the marketplace and broker/dealer quotes in active markets. Corporate
bonds of U.S.-based companies represent 23% and 22% of total U.S. plan assets for 2017 and 2016, respectively.
(d) Based on the fair value of the contracts as determined by the insurance companies using inputs that are not observable. The changes in Level 3
amounts were not significant in the years ended December 30, 2017 and December 31, 2016.
(e) The real estate commingled funds include investments in limited partnerships. These funds are based on the net asset value of the appraised value
of investments owned by these funds as determined by independent third parties using inputs that are not observable. The majority of the funds are
redeemable quarterly subject to availability of cash and have notice periods ranging from 45 to 90 days.
(f) Based on the fair value of the investments owned by these funds that track various government and corporate bond indices.
112
Retiree Medical Cost Trend Rates
Average increase assumed
Ultimate projected increase
Year of ultimate projected increase
2018
2017
6%
5%
6%
5%
2039
2039
These assumed health care cost trend rates have an impact on the retiree medical plan expense and liability,
however the cap on our share of retiree medical costs limits the impact. A 1-percentage-point change in the
assumed health care trend rate would have the following effects:
2017 service and interest cost components
2017 benefit liability
Savings Plan
1%
Increase
1%
Decrease
$
$
3
39
$
$
(3)
(34)
Certain U.S. employees are eligible to participate in 401(k) savings plans, which are voluntary defined
contribution plans. The plans are designed to help employees accumulate additional savings for retirement,
and we make Company matching contributions for certain employees on a portion of eligible pay based on
years of service.
Certain U.S. salaried employees, who are not eligible to participate in a defined benefit pension plan, are
also eligible to receive an employer contribution to the 401(k) savings plan based on age and years of service
regardless of employee contribution.
In 2017, 2016 and 2015, our total Company contributions were $176 million, $164 million and $148 million,
respectively.
For additional unaudited information on our pension and retiree medical plans and related accounting policies
and assumptions, see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
113
Note 8 — Debt Obligations
The following table summarizes the Company’s debt obligations:
Short-term debt obligations (b)
Current maturities of long-term debt
Commercial paper (1.3% and 0.6%)
Other borrowings (4.7% and 4.4%)
Long-term debt obligations (b)
Notes due 2017 (1.4%)
Notes due 2018 (2.4% and 2.3%)
Notes due 2019 (2.1% and 1.7%)
Notes due 2020 (3.1% and 2.6%)
Notes due 2021 (2.4% and 2.4%)
Notes due 2022 (2.6% and 2.8%)
Notes due 2023-2047 (3.7% and 3.8%)
Other, due 2017-2026 (1.3% and 1.4%)
Less: current maturities of long-term debt obligations
Total
2017(a)
2016(a)
$
$
4,020 $
1,385
80
5,485 $
4,401
2,257
234
6,892
$
— $
4,398
2,561
2,837
3,816
2,249
2,655
15,903
35
34,454
(4,401)
$ 33,796 $ 30,053
4,016
3,933
3,792
3,300
3,853
18,891
31
37,816
(4,020)
(a) Amounts are shown net of unamortized net discounts of $155 million and $142 million for 2017 and 2016, respectively.
(b) The interest rates presented reflect weighted-average rates at year-end. Certain of our fixed rate indebtedness have been swapped to floating
rates through the use of interest rate derivative instruments. See Note 9 for additional information regarding our interest rate derivative
instruments.
In 2017, we issued the following senior notes:
Interest Rate
Floating rate
Floating rate
1.550%
2.250%
4.000%
2.150%
Floating rate
2.000%
3.000%
Maturity Date
May 2019 $
May 2022 $
May 2019 $
May 2022 $
May 2047 $
May 2024 C$
Amount(a)
350
400
750
750
750
750 (b)
October 2018 $
April 2021 $
October 2027 $
1,500
1,000
1,500
(a) Represents gross proceeds from issuances of long-term debt excluding debt issuance costs, discounts and premiums.
(b) These notes, issued in Canadian dollars, were designated as a net investment hedge to partially offset the effects of foreign currency on our
investments in certain of our foreign subsidiaries.
The net proceeds from the issuances of the above notes were used for general corporate purposes, including
the repayment of commercial paper.
In 2017, we entered into a new five-year unsecured revolving credit agreement (Five-Year Credit Agreement)
which expires on June 5, 2022. The Five-Year Credit Agreement enables us and our borrowing subsidiaries
to borrow up to $3.75 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.
114
Also in 2017, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit
Agreement) which expires on June 4, 2018. The 364-Day Credit Agreement enables us and our borrowing
subsidiaries to borrow up to $3.75 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 $3.7225 billion five-year
credit agreement and our $3.7225 billion 364-day credit agreement both dated as of June 6, 2016. 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 December 30, 2017, there were no outstanding borrowings under the Five-Year Credit
Agreement or the 364-Day Credit Agreement.
In 2016, we paid $2.5 billion to redeem all of our outstanding 7.900% senior notes due 2018 and 5.125%
senior notes due 2019 for the principal amounts of $1.5 billion and $750 million, respectively, and terminated
certain interest rate swaps. As a result, we recorded a pre-tax charge of $233 million ($156 million after-tax
or $0.11 per share) to interest expense, primarily representing the premium paid in accordance with the
“make-whole” redemption provisions. See further unaudited information in “Items Affecting Comparability”
in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In addition, as of December 30, 2017, our international debt of $73 million was related to borrowings from
external parties including various lines of credit. These lines of credit are subject to normal banking terms
and conditions and are fully committed at least to the extent of our borrowings.
See “Our Liquidity and Capital Resources” in Management’s Discussion and Analysis of Financial Condition
and Results of Operations for further unaudited information on our borrowings and long-term contractual
commitments.
Note 9 — Financial Instruments
Derivatives and Hedging
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 contracts and purchase orders and pricing agreements.
Our hedging strategies include the use of derivatives and, in the case of our net investment hedges, debt
instruments. 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 cash flow statement. We classify both the earnings and cash flow impact from these
derivatives consistent with the underlying hedged item. See “Our Business Risks” in Management’s
Discussion and Analysis of Financial Condition and Results of Operations for further unaudited information
on our business risks.
115
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, energy and metals. Ineffectiveness for those 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 commodity derivatives had a total notional value of $0.9 billion as of December 30, 2017 and $0.8 billion
as of December 31, 2016.
Foreign Exchange
Our operations outside of the United States generated 42% of our net revenue in 2017, with Mexico, Russia,
Canada, the United Kingdom and Brazil comprising approximately 20% of our net revenue in 2017. As a
result, we are exposed to foreign exchange risks in the international markets in which our products are made,
manufactured, distributed or sold.
Additionally, we are exposed to foreign exchange risk from net investments in foreign subsidiaries, 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. We also use net investment hedges to partially
offset the effects of foreign currency on our investments in certain of our foreign subsidiaries.
Our foreign currency derivatives had a total notional value of $1.6 billion as of December 30, 2017 and
December 31, 2016. The total notional amount of our debt instruments designated as net investment hedges
was $1.5 billion as of December 30, 2017 and $0.8 billion as of December 31, 2016. Ineffectiveness for
derivatives and non-derivatives that qualify for hedge accounting treatment was not material for all periods
presented. For foreign currency derivatives that do not qualify for hedge accounting treatment, all gains and
losses 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,
116
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 have 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.
Our interest rate derivatives had a total notional value of $14.2 billion as of December 30, 2017 and $11.2
billion as of December 31, 2016. Ineffectiveness for derivatives that qualify for cash flow hedge accounting
treatment was not material for all periods presented.
As of December 30, 2017, approximately 43% of total debt, after the impact of the related interest rate
derivative instruments, was subject to variable rates, compared to approximately 38% as of December 31,
2016.
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 December 30, 2017 were not material. In 2017,
we recorded a pre-tax gain of $95 million ($85 million after-tax or $0.06 per share), net of discount and fees,
associated with the sale of our minority stake in Britvic. This gain was recorded in our ESSA segment in
selling, general and administrative expenses. The pre-tax unrealized gain on these available-for-sale equity
securities was $72 million as of December 31, 2016. See Note 2 for additional information on investments
in certain equity securities.
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
on our available-for-sale securities for the years ended December 30, 2017, December 31, 2016 and
December 26, 2015.
Tingyi-Asahi Beverages Holding Co. Ltd.
During 2016, we concluded that the decline in estimated fair value of our 5% indirect equity interest in TAB
was other than temporary based on significant negative economic trends in China and changes in assumptions
associated with TAB’s future financial performance arising from the disclosure by TAB’s parent company,
Tingyi, regarding the operating results of its beverage business. As a result, we recorded a pre- and after-tax
impairment charge of $373 million ($0.26 per share) in 2016 in the AMENA segment. This charge was
recorded in selling, general and administrative expenses in our income statement and reduced the value of
our 5% indirect equity interest in TAB to its estimated fair value. The estimated fair value was derived using
both an income and market approach, and is considered a non-recurring Level 3 measurement within the fair
value hierarchy. The carrying value of the investment in TAB was $166 million as of December 30, 2017
117
and December 31, 2016. We continue to monitor the impact of economic and other developments on the
remaining value of our investment in TAB.
In connection with our transaction with Tingyi in 2012, we received a call option to increase our holding in
TAB to 20% with an expiration date in 2015. Prior to its expiration, we concluded that the probability of
exercising the option was remote and, accordingly, we recorded a pre- and after-tax charge of $73 million
($0.05 per share) to write off the recorded value of this call option in 2015.
See further unaudited information in “Items Affecting Comparability” in Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
118
Fair Value Measurements
The fair values of our financial assets and liabilities as of December 30, 2017 and December 31, 2016 are
categorized as follows:
Fair Value
Hierarchy
Levels(a)
Available-for-sale securities:
Equity securities (b)
Debt securities (c)
Short-term investments (d)
Prepaid forward contracts (e)
Deferred compensation (f)
Derivatives designated as fair
value hedging instruments:
Interest rate (g)
Derivatives designated as cash
flow hedging instruments:
Foreign exchange (h)
Interest rate (h)
Commodity (i)
Commodity (j)
Derivatives not designated as
hedging instruments:
Foreign exchange (h)
Commodity (i)
Commodity (j)
Total derivatives at fair value (k)
Total
1
2
1
2
2
2
2
2
1
2
2
1
2
2017
2016
Assets(a)
Liabilities(a)
Assets(a)
Liabilities(a)
— $
14,510
14,510 $
228 $
27 $
— $
— $
—
— $
— $
— $
503 $
82 $
11,369
11,451 $
193 $
25 $
— $
—
—
—
—
—
472
24 $
130 $
66 $
71
15 $
—
—
2
17 $
10 $
—
85
95 $
136 $
14,901 $
31 $
213
2
—
246 $
3 $
19
12
34 $
410 $
913 $
51 $
—
—
2
53 $
2 $
1
60
63 $
182 $
11,851 $
8
408
1
—
417
15
1
25
41
529
1,001
$
$
$
$
$
$
$
$
$
$
$
$
(a) Fair value hierarchy levels are defined in Note 7. Unless otherwise noted, financial assets are classified on our balance sheet within prepaid
expenses and other current assets and other assets. Financial liabilities are classified on our balance sheet within accounts payable and other
current liabilities and other liabilities.
(b) Based on the price of common stock. These equity securities were classified as investments in noncontrolled affiliates.
(c) Based on quoted broker prices or other significant inputs derived from or corroborated by observable market data. As of December 30,
2017, $5.8 billion and $8.7 billion of debt securities were classified as cash equivalents and short-term investments, respectively. As of
December 31, 2016, $4.6 billion and $6.8 billion of debt securities were classified as cash equivalents and short-term investments,
respectively. All of our available-for-sale debt securities have maturities of one year or less.
(d) Based on the price of index funds. These investments are classified as short-term investments and are used to manage a portion of market
risk arising from our deferred compensation liability.
(e) Based primarily on the price of our common stock.
(f) Based on the fair value of investments corresponding to employees’ investment elections.
(g) Based on LIBOR forward rates.
(h) Based on recently reported market transactions of spot and forward rates.
(i) Based on quoted contract prices on futures exchange markets.
(j) Based on recently reported market transactions of swap arrangements.
(k) Unless otherwise noted, derivative assets and liabilities are presented on a gross basis on our balance sheet. Amounts subject to enforceable
master netting arrangements or similar agreements which are not offset on the balance sheet as of December 30, 2017 and December 31,
2016 were not material. Collateral received against any of our asset positions was not material.
119
The carrying amounts of our cash and cash equivalents and short-term investments approximate fair value
due to their short-term maturity. The fair value of our debt obligations as of December 30, 2017 and
December 31, 2016 was $41 billion and $38 billion, respectively, based upon prices of similar instruments
in the marketplace, which are considered Level 2 inputs.
Losses/(gains) on our hedging instruments are categorized as follows:
Fair Value/Non-
designated Hedges
Losses/(Gains)
Recognized in
Income Statement(a)
2017
2016
Cash Flow and Net Investment Hedges
Losses/(Gains)
Reclassified from
Accumulated Other
Comprehensive Loss
into Income
Statement(b)
2017
Losses/(Gains)
Recognized in
Accumulated Other
Comprehensive Loss
2016
2017
Foreign exchange
Interest rate
Commodity
Net investment
Total
$
$
(15) $
101
(48)
—
38
$
74 $
105
(52)
—
127 $
62 $
(195)
3
157
27 $
(24) $
97
1
(39)
35 $
10 $
(184)
3
—
(171) $
2016
(44)
187
7
—
150
(a) Foreign exchange derivative losses/gains are primarily included in selling, general and administrative expenses. Interest rate derivative
losses/gains are primarily from fair value hedges and are included in interest expense. These losses/gains are substantially offset by decreases/
increases in the value of the underlying debt, which are also included in interest expense. Commodity derivative losses/gains are included
in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity.
(b) Foreign exchange derivative losses/gains are primarily included in cost of sales. Interest rate derivative losses/gains are included in interest
expense. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending
on the underlying commodity.
Based on current market conditions, we expect to reclassify net losses of $33 million related to our cash flow
hedges from accumulated other comprehensive loss into net income during the next 12 months.
120
Note 10 — Net Income Attributable to PepsiCo per Common Share
The computations of basic and diluted net income attributable to PepsiCo per common share are as follows:
Net income attributable to PepsiCo
Preferred shares:
Dividends
Redemption premium
Net income available for PepsiCo
common shareholders
Basic net income attributable to
PepsiCo per common share
Net income available for PepsiCo
common shareholders
Dilutive securities:
2017
Income Shares(a)
$ 4,857
2016
2015
Income
$ 6,329
Shares(a)
Income
$ 5,452
Shares(a)
—
(4)
(1)
(5)
(1)
(5)
$ 4,853
1,425 $ 6,323
1,439 $ 5,446
1,469
$ 3.40
$
4.39
$
3.71
$ 4,853
1,425 $ 6,323
1,439 $ 5,446
1,469
Stock options, RSUs, PSUs,
PEPunits and Other
ESOP convertible preferred stock
Diluted
Diluted net income attributable to
PepsiCo per common share
—
4
$ 4,857
$ 3.38
(a) Weighted-average common shares outstanding (in millions).
12
1
1
5
1,438 $ 6,329
12
1
—
6
1,452 $ 5,452
15
1
1,485
$
4.36
$
3.67
Out-of-the-money options excluded from the calculation of diluted earnings per common share are as follows:
Out-of-the-money options (a)
Average exercise price per option
(a) In millions.
Note 11 — Preferred Stock
2017
0.4
110.12 $
2016
0.7
99.98 $
2015
1.5
99.25
$
As of December 30, 2017 and December 31, 2016, there were 3 million shares of convertible preferred stock
authorized. The preferred stock was issued for an ESOP established by Quaker. Quaker made the final award
to its ESOP in June 2001. As of December 30, 2017 and December 31, 2016, there were 803,953 preferred
shares issued and 114,753 and 122,553 shares outstanding, respectively. The outstanding preferred shares
had a fair value of $68 million as of December 30, 2017 and $64 million as of December 31, 2016.
Activities of our preferred stock are included in the equity statement.
In January 2018, all of the outstanding shares of our convertible preferred stock were converted into an
aggregate of 550,102 shares of our common stock at the conversion ratio set forth in Exhibit A to our amended
and restated articles of incorporation. As a result, there are no shares of our convertible preferred stock
outstanding as of February 13, 2018.
121
Note 12 — Accumulated Other Comprehensive Loss Attributable to PepsiCo
The changes in the balances of each component of accumulated other comprehensive loss attributable to
PepsiCo are as follows:
Balance as of December 27, 2014 (a)
Other comprehensive (loss)/income
before reclassifications (b)
Amounts reclassified from accumulated
other comprehensive loss
Net current year other comprehensive
(loss)/income
Tax amounts
Balance as of December 26, 2015 (a)
Other comprehensive (loss)/income
before reclassifications
Amounts reclassified from accumulated
other comprehensive loss
Net current year other comprehensive
(loss)/income
Tax amounts
Balance as of December 31, 2016 (a)
Other comprehensive (loss)/income
before reclassifications (c)
Amounts reclassified from accumulated
other comprehensive loss
Net current year other comprehensive
(loss)/income
Tax amounts
Balance as of December 30, 2017 (a)
Currency
Translation
Adjustment
Cash
Flow
Hedges
Pension and
Retiree
Medical
Available-
For-Sale
Securities
Other
Accumulated Other
Comprehensive
Loss Attributable to
PepsiCo
$
(8,255) $
34
$
(2,500) $
87
$
(35) $
(10,669)
(2,936)
(95)
111
(2,825)
—
(11,080)
(313)
—
(313)
7
(11,386)
1,049
97
2
1
37
(74)
150
76
(30)
83
130
—
(171)
1,049
60
$
(10,277) $
(41)
5
47
(88)
266
178
(7)
(2,329)
(750)
407
(343)
27
(2,645)
(375)
158
(217)
58
3
—
3
(2)
88
(43)
—
(43)
19
64
25
(99)
(74)
6
—
—
—
—
(35)
—
—
—
—
(35)
—
—
—
16
(3,116)
474
(2,642)
(8)
(13,319)
(1,180)
557
(623)
23
(13,919)
829
(112)
717
145
$
(2,804) $
(4) $
(19) $
(13,057)
(a) Pension and retiree medical amounts are net of taxes of $1,260 million in 2014, $1,253 million in 2015, $1,280 million in 2016 and $1,338
million in 2017.
(b) Currency translation adjustment primarily reflects the depreciation of the Russian ruble, Brazilian real and Canadian dollar.
(c) Currency translation adjustment primarily reflects the appreciation of the euro, Russian ruble, Pound sterling and Canadian dollar.
122
The following table summarizes the reclassifications from accumulated other comprehensive loss to the
income statement:
Currency translation:
Venezuelan entities
Cash flow hedges:
Foreign exchange contracts
Foreign exchange contracts
Interest rate derivatives
Commodity contracts
Commodity contracts
Net (gains)/losses before tax
Tax amounts
Net (gains)/losses after tax
Pension and retiree medical items:
Amortization of net prior service credit (a)
Amortization of net losses (a)
Settlement/curtailment (a)
Net losses before tax
Tax amounts
Net losses after tax
Venezuelan entities
Tax amount
Net losses after tax
Available-for-sale securities:
Sale of Britvic securities
Tax amount
Net gain after tax
Total net (gains)/losses reclassified for the year, net
of tax
Amount Reclassified from
Accumulated Other
Comprehensive Loss
2017
2016
2015
Affected Line Item in the
Income Statement
— $
— $
111 Venezuela impairment charges
— $
10
(184)
4
(1)
(171)
64
(107) $
$
2
(46)
187
3
4
150
(63)
87
$
(24) $
167
(39) $
209
15
158
(44)
114
$
— $
—
— $
237
407
(144)
263
$
— $
—
— $
(3) Net revenue
(94) Cost of sales
174
Interest expense
9 Cost of sales
Selling, general and
administrative expenses
11
97
(47)
50
(41)
281
6
246
(74)
172
20 Venezuela impairment charges
(4)
16
Selling, general and
administrative expenses
(99) $
10
(89) $
— $
—
— $
—
—
—
(82) $
350
$
349
$
$
$
$
$
$
$
$
$
$
(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).
123
Note 13 — Supplemental Financial Information
Balance Sheet
Accounts and notes receivable
Trade receivables
Other receivables
Allowance, beginning of year
Net amounts charged to expense
Deductions (a)
Other (b)
Allowance, end of year
Net receivables
Inventories (c)
Raw materials and packaging
Work-in-process
Finished goods
Other assets
Noncurrent notes and accounts receivable
Deferred marketplace spending
Pension plans (d)
Other
Accounts payable and other current liabilities
Accounts payable
Accrued marketplace spending
Accrued compensation and benefits
Dividends payable
Other current liabilities
2017
2016
2015
$
5,956
$
1,197
7,153
134
26
(35)
4
129
5,709
1,119
6,828
130
$
37
(30)
(3)
134
$
137
43
(27)
(23)
130
$
$
$
$
$
$
7,024
$
6,694
1,344
$
167
1,436
2,947
$
1,315
150
1,258
2,723
59
$
134
374
346
913
$
6,727
$
2,390
1,785
1,161
2,954
105
140
53
338
636
6,158
2,444
1,770
1,097
2,774
$
15,017
$
14,243
(a) Includes accounts written off.
(b) Includes adjustments related primarily to currency translation and other adjustments.
(c) Approximately 5% of the inventory cost in 2017 and 2016 were computed using the LIFO method. The differences between LIFO and
FIFO methods of valuing these inventories were not material.
(d) See Note 7 for additional information regarding our pension plans.
124
Statement of Cash Flows
Interest paid (a)
Income taxes paid, net of refunds
2017
1,123
1,962
$
$
2016
1,102
1,393
$
$
2015
952
1,808
$
$
(a) In 2016, interest paid excludes the premium paid in accordance with the “make-whole” provisions of the debt redemption discussed in
Note 8.
Lease Information
Rent expense
Minimum lease payments under non-cancelable operating leases by period
2018
2019
2020
2021
2022
2023 and beyond
Total minimum operating lease payments
Note 14 — Divestitures
Refranchising in Jordan
2017
2016
$
742
$
701
$
2015
696
Operating Lease Payments
$
$
452
403
297
215
160
367
1,894
During the fourth quarter of 2017, we refranchised our beverage business in Jordan by selling a controlling
interest in our Jordan bottling operations. We recorded a pre-tax gain of $140 million ($107 million after-
tax or $0.07 per share) in selling, general and administrative expenses in our AMENA segment as a result
of this transaction.
Refranchising in Thailand
During the fourth quarter of 2017, we entered into an agreement to refranchise our beverage business in
Thailand by selling a controlling interest in our Thailand bottling operations (included within our AMENA
segment). The transaction is expected to be completed in 2018.
Refranchising in Czech Republic, Hungary, and Slovakia (CHS)
During the first quarter of 2018, we entered into an agreement to refranchise our entire beverage bottling
operations and snack distribution operations in CHS (included within our ESSA segment). The transaction
is expected to be completed in 2018.
125
To Our Shareholders:
Management’s Responsibility for Financial Reporting
At PepsiCo, our actions – the actions of all our associates – are governed by our Global Code of Conduct.
This Code is clearly aligned with our stated values – a commitment to deliver sustained growth through
empowered people acting with responsibility and building trust. Both the Code and our core values enable
us to operate with integrity – both within the letter and the spirit of the law. Our Code of Conduct is reinforced
consistently at all levels and in all countries. We have maintained strong governance policies and practices
for many years.
The management of PepsiCo is responsible for the objectivity and integrity of our consolidated financial
statements. The Audit Committee of the Board of Directors has engaged independent registered public
accounting firm, KPMG LLP, to audit our consolidated financial statements, and they have expressed an
unqualified opinion.
We are committed to providing timely, accurate and understandable information to investors. Our commitment
encompasses the following:
Maintaining strong controls over financial reporting. Our system of internal control is based on the control
criteria framework of the Committee of Sponsoring Organizations of the Treadway Commission published
in their report titled Internal Control – Integrated Framework (2013). The system is designed to provide
reasonable assurance that transactions are executed as authorized and accurately recorded; that assets are
safeguarded; and that accounting records are sufficiently reliable to permit the preparation of financial
statements that conform in all material respects with accounting principles generally accepted in the United
States. We maintain disclosure controls and procedures designed to ensure that information required to be
disclosed in reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the specified time periods. We monitor these internal controls through self-assessments and
an ongoing program of internal audits. Our internal controls are reinforced through our Global Code of
Conduct, which sets forth our commitment to conduct business with integrity, and within both the letter and
the spirit of the law.
Exerting rigorous oversight of the business. We continuously review our business results and strategies.
This encompasses financial discipline in our strategic and daily business decisions. Our Executive Committee
is actively involved – from understanding strategies and alternatives to reviewing key initiatives and financial
performance. The intent is to ensure we remain objective in our assessments, constructively challenge our
approach to potential business opportunities and issues, and monitor results and controls.
Engaging strong and effective Corporate Governance from our Board of Directors. We have an active,
capable and diligent Board that meets the required standards for independence, and we welcome the Board’s
oversight as a representative of our shareholders. Our Audit Committee is comprised of independent directors
with the financial literacy, knowledge and experience to provide appropriate oversight. We review our critical
accounting policies, financial reporting and internal control matters with them and encourage their direct
communication with KPMG LLP, with our Internal Auditor and with our General Counsel. We also have a
Compliance & Ethics Department, led by our Chief Compliance & Ethics Officer, who coordinates our
compliance policies and practices.
Providing investors with financial results that are complete, transparent and understandable. The
consolidated financial statements and financial information included in this report are the responsibility of
management. This includes preparing the financial statements in accordance with accounting principles
generally accepted in the United States, which require estimates based on management’s best judgment.
126
PepsiCo has a strong history of doing what’s right. We realize that great companies are built on trust,
strong ethical standards and principles. Our financial results are delivered from that culture of accountability,
and we take responsibility for the quality and accuracy of our financial reporting.
February 13, 2018
/s/ MARIE T. GALLAGHER
Marie T. Gallagher
Senior Vice President and Controller
(Principal Accounting Officer)
/s/ HUGH F. JOHNSTON
Hugh F. Johnston
Vice Chairman, Executive Vice President and
Chief Financial Officer
/s/ INDRA K. NOOYI
Indra K. Nooyi
Chairman of the Board of Directors and
Chief Executive Officer
127
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
PepsiCo, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying Consolidated Balance Sheets of PepsiCo, Inc. and Subsidiaries (the
“Company”) as of December 30, 2017 and December 31, 2016, and the related Consolidated Statements
of Income, Comprehensive Income, Cash Flows, and Equity for each of the fiscal years in the three-year
period ended December 30, 2017 and the related notes (collectively, the “consolidated financial
statements”). We also have audited the Company’s internal control over financial reporting as of
December 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 30, 2017 and December 31, 2016, and the
results of its operations and its cash flows for each of the fiscal years in the three-year period ended
December 30, 2017, in conformity with U.S. generally accepted accounting principles. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 30, 2017, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated
financial statements and an opinion on the Company’s internal control over financial reporting based on
our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
128
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ KPMG LLP
We have served as the Company’s auditor since 1990.
New York, New York
February 13, 2018
129
GLOSSARY
Acquisitions and divestitures: all mergers and acquisitions activity, including the impact of acquisitions,
divestitures and changes in ownership or control in consolidated subsidiaries and nonconsolidated equity
investees.
Bottler Case Sales (BCS): measure of physical beverage volume shipped to retailers and independent
distributors from both PepsiCo and our independent bottlers.
Bottler funding: financial incentives we give to our independent bottlers to assist in the distribution and
promotion of our beverage products.
Concentrate Shipments and Equivalents (CSE): measure of our physical beverage volume shipments to
independent bottlers, retailers and independent distributors.
Constant currency: financial results assuming constant foreign currency exchange rates used for translation
based on the rates in effect for the comparable prior-year period. In order to compute our constant currency
results, we multiply or divide, as appropriate, our current year U.S. dollar results by the current year average
foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior year average
foreign exchange rates.
Consumers: people who eat and drink our products.
CSD: carbonated soft drinks.
Customers: authorized independent bottlers, distributors and retailers.
Derivatives: financial instruments, such as futures, swaps, Treasury locks, cross currency swaps and forward
contracts that we use to manage our risk arising from changes in commodity prices, interest rates and foreign
exchange rates.
Direct-Store-Delivery (DSD): delivery system used by us and our independent bottlers to deliver snacks
and beverages directly to retail stores where our products are merchandised.
Effective net pricing: reflects the year-over-year impact of discrete pricing actions, sales incentive activities
and mix resulting from selling varying products in different package sizes and in different countries.
Free cash flow: net cash provided by operating activities less capital spending plus sales of property, plant
and equipment.
Hedge accounting: treatment for qualifying hedges that allows fluctuations in a hedging instrument’s fair
value to offset corresponding fluctuations in the hedged item in the same reporting period. Hedge accounting
is allowed only in cases where the hedging relationship between the hedging instruments and hedged items
is highly effective, and only prospectively from the date a hedging relationship is formally documented.
Independent bottlers: customers to whom we have granted exclusive contracts to sell and manufacture
certain beverage products bearing our trademarks within a specific geographical area.
Mark-to-market net gain or loss: change in market value for commodity derivative contracts that we
purchase to mitigate the volatility in costs of energy and raw materials that we consume. The market value
is determined based on prices on national exchanges and recently reported transactions in the marketplace.
130
Organic: a measure that adjusts for impacts of acquisitions, divestitures and other structural changes,
including the Venezuela deconsolidation which was effective as of the end of the third quarter of 2015, and
foreign exchange translation. In excluding the impact of foreign exchange translation, we assume constant
foreign exchange rates used for translation based on the rates in effect for the comparable prior-year period.
See the definition of “Constant currency” for additional information. This measure also excludes the impact
of the 53rd reporting week in 2016.
Servings: common metric reflecting our consolidated physical unit volume. Our divisions’ physical unit
measures are converted into servings based on U.S. Food and Drug Administration guidelines for single-
serving sizes of our products.
Total marketplace spending: includes sales incentives and discounts offered through various programs to
our customers, consumers or independent bottlers, as well as advertising and other marketing activities.
Transaction gains and losses: the impact on our consolidated financial statements of exchange rate changes
arising from specific transactions.
Translation adjustment: the impact of converting our foreign affiliates’ financial statements into U.S. dollars
for the purpose of consolidating our financial statements.
131
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
– Our Business Risks.”
Item 8. Financial Statements and Supplementary Data.
See “Item 15. Exhibits and Financial Statement Schedules.”
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
(a) Disclosure Controls and Procedures. As of the end of the period covered by this report, we carried out
an evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934, as amended (the Exchange Act). Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that as of the end of the period covered by this report our disclosure controls
and procedures were effective to ensure that information required to be disclosed by us in reports we file or
submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
(b) Management’s Annual Report on Internal Control over Financial Reporting. Our management is
responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting based upon criteria established in Internal
Control – Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, our management concluded that our internal control over financial
reporting was effective as of December 30, 2017.
Attestation Report of the Registered Public Accounting Firm. KPMG LLP, an independent registered public
accounting firm, has audited the consolidated financial statements included in this Annual Report on Form
10-K and, as part of their audit, has issued their report, included herein, on the effectiveness of our internal
control over financial reporting.
(c) Changes in Internal Control over Financial Reporting. There were no changes in our internal control
over financial reporting during our fourth fiscal quarter of 2017 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
During our fourth fiscal quarter of 2017, we continued migrating certain of our financial processing systems
to an enterprise-wide systems solution. These systems implementations are part of our ongoing global business
transformation initiative, and we plan to continue implementing such systems throughout other parts of our
businesses. In connection with these implementations and resulting business process changes, we continue
to enhance the design and documentation of our internal control over financial reporting processes to maintain
effective controls over our financial reporting. This transition has not materially affected, and we do not
expect it to materially affect, our internal control over financial reporting.
132
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information about our directors and persons nominated to become directors is contained under the caption
“Election of Directors” in our Proxy Statement for our 2018 Annual Meeting of Shareholders to be filed with
the SEC within 120 days of the fiscal year ended December 30, 2017 (the 2018 Proxy Statement) and is
incorporated herein by reference. Information about our executive officers is reported under the caption
“Executive Officers of the Registrant” in Part I of this report.
Information on beneficial ownership reporting compliance is contained under the caption “Ownership of
PepsiCo Common Stock – Section 16(a) Beneficial Ownership Reporting Compliance” in our 2018 Proxy
Statement and is incorporated herein by reference.
We have a written code of conduct that applies to all of our employees, including our Chairman of the Board
of Directors and Chief Executive Officer, Chief Financial Officer and Controller, and to our Board of Directors.
Our Global Code of Conduct is distributed to all employees and is available on our website at http://
www.pepsico.com. A copy of our Global Code of Conduct may be obtained free of charge by writing to
Investor Relations, PepsiCo, Inc., 700 Anderson Hill Road, Purchase, New York 10577. Any amendment to
our Global Code of Conduct and any waiver applicable to our executive officers or senior financial officers
will be posted on our website within the time period required by the SEC and applicable rules of The Nasdaq
Stock Market LLC.
Information about the procedures by which security holders may recommend nominees to our Board of
Directors can be found in our 2018 Proxy Statement under the caption “Board Composition and Refreshment
– Shareholder Recommendations and Nominations of Director Candidates” and is incorporated herein by
reference.
Information concerning the composition of the Audit Committee and our Audit Committee financial experts
is contained in our 2018 Proxy Statement under the caption “Corporate Governance at PepsiCo – Committees
of the Board of Directors – Audit Committee” and is incorporated herein by reference.
Item 11. Executive Compensation.
Information about director and executive officer compensation, Compensation Committee interlocks and the
Compensation Committee Report is contained in our 2018 Proxy Statement under the captions “2017 Director
Compensation,” “Executive Compensation,” “Corporate Governance at PepsiCo – Committees of the Board
of Directors – Compensation Committee – Compensation Committee Interlocks and Insider Participation”
and “Executive Compensation – Compensation Committee Report” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Information with respect to securities authorized for issuance under equity compensation plans can be found
under the caption “Executive Compensation – Securities Authorized for Issuance Under Equity Compensation
Plans” in our 2018 Proxy Statement and is incorporated herein by reference.
Information on the number of shares of PepsiCo Common Stock beneficially owned by each director and
named executive officer, by all directors and executive officers as a group and on each beneficial owner of
more than 5% of PepsiCo Common Stock is contained under the caption “Ownership of PepsiCo Common
Stock” in our 2018 Proxy Statement and is incorporated herein by reference.
133
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information with respect to certain relationships and related transactions and director independence is
contained under the captions “Corporate Governance at PepsiCo – Related Person Transactions” and
“Corporate Governance at PepsiCo – Director Independence” in our 2018 Proxy Statement and is incorporated
herein by reference.
Item 14. Principal Accounting Fees and Services.
Information on our Audit Committee’s pre-approval policy and procedures for audit and other services and
information on our principal accountant fees and services is contained in our 2018 Proxy Statement under
the caption “Ratification of Appointment of Independent Registered Public Accounting Firm – Audit and
Other Fees” and is incorporated herein by reference.
134
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)1. Financial Statements
The following consolidated financial statements of PepsiCo, Inc. and its affiliates are included herein
by reference to the pages indicated on the index appearing in “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations”:
Consolidated Statement of Income – Fiscal years ended December 30, 2017, December 31, 2016 and
December 26, 2015
Consolidated Statement of Comprehensive Income – Fiscal years ended December 30, 2017,
December 31, 2016 and December 26, 2015
Consolidated Statement of Cash Flows – Fiscal years ended December 30, 2017, December 31, 2016
and December 26, 2015
Consolidated Balance Sheet – December 30, 2017 and December 31, 2016
Consolidated Statement of Equity – Fiscal years ended December 30, 2017, December 31, 2016 and
December 26, 2015
Notes to Consolidated Financial Statements, and
Report of Independent Registered Public Accounting Firm.
(a)2. Financial Statement Schedules
These schedules are omitted because they are not required or because the information is set forth in
the financial statements or the notes thereto.
(a)3. Exhibits
See Index to Exhibits.
135
Item 16. Form 10-K Summary.
None.
INDEX TO EXHIBITS
ITEM 15(a)(3)
The following is a list of the exhibits filed as part of this Form 10-K. The documents incorporated by
reference are located in the SEC’s Public Reference Room in Washington, D.C. in the SEC’s file no.
1-1183.
EXHIBIT
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Articles of Incorporation of PepsiCo, Inc., as amended and restated, effective as of May 9,
2011, which are incorporated herein by reference to Exhibit 3.1 to PepsiCo, Inc.’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on May 9, 2011.
By-laws of PepsiCo, Inc., as amended and restated, effective as of January 11, 2016, which
are incorporated herein by reference to Exhibit 3.2 to PepsiCo, Inc.’s Current Report on Form
8-K filed with the Securities and Exchange Commission on January 11, 2016.
PepsiCo, Inc. agrees to furnish to the SEC, upon request, a copy of any instrument defining
the rights of holders of long-term debt of PepsiCo, Inc. and all of its subsidiaries for which
consolidated or unconsolidated financial statements are required to be filed with the Securities
and Exchange Commission.
Indenture dated May 21, 2007 between PepsiCo, Inc. and The Bank of New York Mellon
(formerly known as The Bank of New York), as Trustee, which is incorporated herein by
reference to Exhibit 4.3 to PepsiCo, Inc.’s Registration Statement on Form S-3ASR
(Registration No. 333-154314) filed with the Securities and Exchange Commission on October
15, 2008.
Form of 5.00% Senior Note due 2018, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 21, 2008.
Form of 7.90% Senior Note due 2018, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 24, 2008.
Form of 4.50% Senior Note due 2020, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 13, 2010.
Form of 5.50% Senior Note due 2040, which is incorporated herein by reference to Exhibit
4.4 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 13, 2010.
Form of 3.125% Senior Note due 2020, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 25, 2010.
Form of 4.875% Senior Note due 2040, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 25, 2010.
Form of 0.950% Senior Notes due 2017, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 28, 2014.
4.10 Form of 3.600% Senior Notes due 2024, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 28, 2014.
4.11 Form of 1.750% Senior Notes due 2021, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 28, 2014.
136
4.12 Form of 2.625% Senior Notes due 2026, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 28, 2014.
4.13 Form of 4.250% Senior Notes due 2044, which is incorporated herein by reference to Exhibit
4.1 of PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 22, 2014.
4.14 Form of Floating Rate Notes due 2018, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 30, 2015.
4.15 Form of 1.250% Senior Notes due 2018, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 30, 2015.
4.16 Form of 1.850% Senior Notes due 2020, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 30, 2015.
4.17 Form of 2.750% Senior Notes due 2025, which is incorporated herein by reference to Exhibit
4.4 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 30, 2015.
4.18 Form of Floating Rate Notes due 2017, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 17, 2015.
4.19 Form of 1.125% Senior Notes due 2017, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 17, 2015.
4.20 Form of 3.100% Senior Notes due 2022, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 17, 2015.
4.21 Form of 3.500% Senior Notes due 2025, which is incorporated herein by reference to Exhibit
4.4 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 17, 2015.
4.22 Form of 4.600% Senior Notes due 2045, which is incorporated herein by reference to Exhibit
4.5 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 17, 2015.
4.23 Form of Floating Rate Notes due 2017, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 14, 2015.
4.24 Form of 1.000% Senior Notes due 2017, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 14, 2015.
4.25 Form of 2.150% Senior Notes due 2020, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 14, 2015.
4.26 Form of 4.450% Senior Notes due 2046, which is incorporated herein by reference to Exhibit
4.4 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 14, 2015.
4.27 Form of Floating Rate Note due 2019, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 24, 2016.
4.28 Form of 1.500% Senior Notes due 2019, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 24, 2016.
137
4.29 Form of 2.850% Senior Notes due 2026, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 24, 2016.
4.30 Form of 4.450% Senior Notes due 2046, which is incorporated herein by reference to Exhibit
4.4 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 24, 2016.
4.31 Form of 0.875% Senior Note due 2028, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 18, 2016.
4.32 Form of Floating Rate Note due 2019, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 6, 2016.
4.33 Form of Floating Rate Note due 2021, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 6, 2016.
4.34 Form of 1.350% Senior Notes due 2019, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 6, 2016.
4.35 Form of 1.700% Senior Notes due 2021, which is incorporated herein by reference to Exhibit
4.4 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 6, 2016.
4.36 Form of 2.375% Senior Notes due 2026, which is incorporated herein by reference to Exhibit
4.5 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 6, 2016.
4.37 Form of 3.450% Senior Notes due 2046, which is incorporated herein by reference to Exhibit
4.6 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 6, 2016.
4.38 Form of Floating Rate Notes due 2019, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 2, 2017.
4.39 Form of Floating Rate Notes due 2022, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 2, 2017.
4.40 Form of 1.550% Senior Notes due 2019, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 2, 2017.
4.41 Form of 2.250% Senior Notes due 2022, which is incorporated herein by reference to Exhibit
4.4 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 2, 2017.
4.42 Form of 4.000% Senior Notes due 2047, which is incorporated herein by reference to Exhibit
4.5 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 2, 2017.
4.43 Form of 2.150% Senior Notes due 2024, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 4, 2017.
4.44 Form of Floating Rate Notes due 2018, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 10, 2017.
4.45 Form of 2.000% Senior Notes due 2021, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 10, 2017.
138
4.46 Form of 3.000% Senior Notes due 2027, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 10, 2017.
4.47 Board of Directors Resolutions Authorizing PepsiCo, Inc.’s Officers to Establish the Terms
of the 4.50% Senior Note due 2020, 5.50% Senior Note due 2040, 3.125% Senior Note due
2020 and 4.875% Senior Note due 2040, which are incorporated herein by reference to
Exhibit 4.1 to PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the 24 weeks ended June 12,
2010.
4.48 Form of 2.500% Senior Note due 2016, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 6, 2011.
4.49 Board of Directors Resolutions Authorizing PepsiCo, Inc.’s Officers to Establish the Terms
of the 2.500% Senior Note due 2016, the 3.000% Senior Note due 2021, the 2.750% Senior
Note due 2022, the 4.000% Senior Note due 2042, the 1.250% Senior Note due 2017, the
3.600% Senior Note due 2042 and the 2.500% Senior Note due 2022, which are incorporated
herein by reference to Exhibit 4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on May 6, 2011.
4.50 Form of 3.000% Senior Note due 2021, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 25, 2011.
4.51 Form of 2.750% Senior Note due 2022, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 2, 2012.
4.52 Form of 4.000% Senior Note due 2042, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 2, 2012.
4.53 Form of 1.250% Senior Note due 2017, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 13, 2012.
4.54 Form of 3.600% Senior Note due 2042, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 13, 2012.
4.55 Form of 2.500% Senior Note due 2022, which is incorporated herein by reference to Exhibit
4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 30, 2012.
Indenture dated as of October 24, 2008 among PepsiCo, Inc., Bottling Group, LLC and The
Bank of New York Mellon, as Trustee, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 24, 2008.
4.56
4.57 Form of 2.750% Senior Note due 2023, which is incorporated herein by reference to Exhibit
4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 28, 2013.
139
4.58 Board of Directors Resolutions Authorizing PepsiCo, Inc.’s Officers to Establish the Terms
of the 2.750% Senior Note due 2023, the 2.250% Senior Notes due 2019, the 0.950% Senior
Notes due 2017, the 3.600% Senior Notes due 2024, the 1.750% Senior Notes due 2021, the
2.625% Senior Notes due 2026, the 4.250% Senior Notes due 2044, the Floating Rate Notes
due 2018, 1.250% Senior Notes due 2018, the 1.850% Senior Notes due 2020, the 2.750%
Senior Notes due 2025, the Floating Rate Notes due 2017, the 1.125% Senior Notes due 2017,
the 3.100% Senior Notes due 2022, the 3.500% Senior Notes due 2025, the 4.600% Senior
Notes due 2045, the Floating Rate Notes due 2017, the 1.000% Senior Notes due 2017, the
2.150% Senior Notes due 2020, the 4.450% Senior Notes due 2046, the Floating Rate Note
due 2019, the 1.500% Senior Notes due 2019, the 2.850% Senior Notes due 2026, the 0.875%
Senior Note due 2028, the Floating Rate Note due 2019, the Floating Rate Note due 2021,
the 1.350% Senior Notes due 2019, the 1.700% Senior Notes due 2021, the 2.375% Senior
Notes due 2026, the 3.450% Senior Notes due 2046, the Floating Rate Notes due 2019, the
Floating Rate Notes due 2022, the 1.550% Senior Notes due 2019, the 2.250% Senior Notes
due 2022, the 4.000% Senior Notes due 2047, the 2.150% Senior Notes due 2024, the Floating
Rate Notes due 2018, the 2.000% Senior Notes due 2021 and the 3.000% Senior Notes due
2027 which are incorporated herein by reference to Exhibit 4.4 to PepsiCo, Inc.’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on February 28,
2013.
4.59 Form of 2.250% Senior Notes due 2019, which is incorporated herein by reference to Exhibit
4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 30, 2013.
4.60 First Supplemental Indenture, dated as of February 26, 2010, among Pepsi-Cola Metropolitan
Bottling Company, Inc., The Pepsi Bottling Group, Inc., Bottling Group, LLC and The Bank
of New York Mellon to the Indenture dated March 8, 1999 between The Pepsi Bottling Group,
Inc., Bottling Group, LLC and The Chase Manhattan Bank, which is incorporated herein by
reference to Exhibit 4.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on March 1, 2010.
Indenture, dated as of March 8, 1999, by and among The Pepsi Bottling Group, Inc., as obligor,
Bottling Group, LLC, as guarantor, and The Chase Manhattan Bank, as trustee, relating to
$1,000,000,000 7% Series B Senior Note due 2029, which is incorporated herein by reference
to Exhibit 10.14 to The Pepsi Bottling Group, Inc.’s Registration Statement on Form S-1
(Registration No. 333-70291).
4.61
4.62 Second Supplemental Indenture, dated as of February 26, 2010, among Pepsi-Cola
Metropolitan Bottling Company, Inc., PepsiAmericas, Inc. and The Bank New York Mellon
Trust Company, N.A. to the Indenture dated as of January 15, 1993 between Whitman
Corporation and The First National Bank of Chicago, as trustee, which is incorporated herein
by reference to Exhibit 4.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 1, 2010.
4.63 First Supplemental Indenture, dated as of May 20, 1999, including the Indenture dated as of
January 15, 1993, between Whitman Corporation and The First National Bank of Chicago,
as trustee, which is incorporated herein by reference to Exhibit 4.3 to Post-Effective
Amendment No. 1 to PepsiAmericas, Inc.’s Registration Statement on Form S-8 (Registration
No. 333-64292) filed with the Securities and Exchange Commission on December 29, 2005.
4.64 Form of PepsiAmericas, Inc. 7.29% Note due 2026, which is incorporated herein by reference
to Exhibit 4.7 to PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended
March 20, 2010.
4.65 Form of PepsiAmericas, Inc. 7.44% Note due 2026, which is incorporated herein by reference
to Exhibit 4.8 to PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended
March 20, 2010.
140
4.66 First Supplemental Indenture, dated as of February 26, 2010, among Pepsi-Cola Metropolitan
Bottling Company, Inc., PepsiAmericas, Inc. and Wells Fargo Bank, National Association to
the Indenture dated as of August 15, 2003 between PepsiAmericas, Inc. and Wells Fargo Bank
Minnesota, National Association, as trustee, which is incorporated herein by reference to
Exhibit 4.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 1, 2010.
Indenture dated as of August 15, 2003 between PepsiAmericas, Inc. and Wells Fargo Bank
Minnesota, National Association, as trustee, which is incorporated herein by reference to
Exhibit 4 to PepsiAmericas, Inc.’s Registration Statement on Form S-3 (Registration
No. 333-108164) filed with the Securities and Exchange Commission on August 22, 2003.
4.67
4.68 Form of PepsiAmericas, Inc. 5.00% Note due 2017, which is incorporated herein by reference
to Exhibit 4.16 to PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the quarterly period
ended March 20, 2010.
4.70
4.69 Form of PepsiAmericas, Inc. 5.50% Note due 2035, which is incorporated herein by reference
to Exhibit 4.17 to PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the quarterly period
ended March 20, 2010.
Indenture, dated as of October 1, 2003, by and between Bottling Group, LLC, as obligor, and
JPMorgan Chase Bank, as trustee, which is incorporated herein by reference to Exhibit 4.1 to
Bottling Group, LLC’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 3, 2003.
Indenture, dated as of March 30, 2006, by and between Bottling Group, LLC, as obligor, and
JPMorgan Chase Bank, N.A., as trustee, which is incorporated herein by reference to
Exhibit 4.1 to The Pepsi Bottling Group, Inc.’s Quarterly Report on Form 10-Q for the quarter
ended March 25, 2006.
4.71
4.72 Form of Bottling Group, LLC 5.50% Senior Note due April 1, 2016, which is incorporated
herein by reference to Exhibit 4.2 to The Pepsi Bottling Group, Inc.’s Quarterly Report on
Form 10-Q for the quarter ended March 25, 2006.
4.73 Form of Bottling Group, LLC 5.125% Senior Note due January 15, 2019, which is incorporated
herein by reference to Exhibit 4.1 to Bottling Group, LLC’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on January 20, 2009.
4.74 Form of PepsiCo Guarantee of Pepsi-Cola Metropolitan Bottling Company, Inc.’s 7.00% Note
due 2029, 7.29% Note due 2026, 7.44% Note due 2026, 5.00% Note due 2017, 5.50% Note
due 2035 and Bottling Group, LLC’s 5.50% Note due 2016 and 5.125% Note due 2019, which
is incorporated herein by reference to Exhibit 4.1 to PepsiCo, Inc.’s Current Report on Form
8-K filed with the Securities and Exchange Commission on October 5, 2010.
10.1 PepsiCo Executive Income Deferral Program (Plan Document for the Pre-409A Program),
amended and restated effective December 20, 2017.*
10.2 PepsiCo, Inc. 2003 Long-Term Incentive Plan, as amended and restated effective September
12, 2008, which is incorporated herein by reference to Exhibit 10.4 to PepsiCo, Inc.’s Quarterly
Report on Form 10-Q for the fiscal quarter ended September 6, 2008.*
10.3 PepsiCo, Inc. Executive Incentive Compensation Plan, which is incorporated herein by
reference to Exhibit B to PepsiCo, Inc.’s Proxy Statement for its 2009 Annual Meeting of
Shareholders filed with the Securities and Exchange Commission on March 24, 2009.*
10.4 Form of PepsiCo, Inc. Director Indemnification Agreement, which is incorporated herein by
reference to Exhibit 10.20 to PepsiCo, Inc.’s Annual Report on Form 10-K for the fiscal year
ended December 25, 2004.*
10.5 Severance Plan for Executive Employees of PepsiCo, Inc. and Affiliates, which is incorporated
herein by reference to Exhibit 10.5 to PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the
fiscal quarter ended September 6, 2008.*
141
10.6 Amendments to the PepsiCo, Inc. 2003 Long-Term Incentive Plans, the PepsiCo, Inc. 1994
Long-Term Incentive Plan, the PepsiCo, Inc. 1995 Stock Option Incentive Plan, the PepsiCo
SharePower Stock Option Plan, the PepsiCo, Inc. 1987 Incentive Plan effective as of December
31, 2005, which are incorporated herein by reference to Exhibit 10.31 to PepsiCo, Inc.’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2005.*
10.7 Amendments to the PepsiCo, Inc. 2003 Long-Term Incentive Plan, the PepsiCo SharePower
Stock Option Plan, the PepsiCo, Inc. 1995 Stock Option Incentive Plan, the Quaker Long-
Term Incentive Plan of 1999, the Quaker Long-Term Incentive Plan of 1990 and the PepsiCo,
Inc. Director Stock Plan, effective as of November 17, 2006, which are incorporated herein
by reference to Exhibit 10.31 to PepsiCo, Inc.’s Annual Report on Form 10-K for the fiscal
year ended December 30, 2006.*
10.8 Form of Non-Employee Director Long-Term Incentive Award Agreement, which is
incorporated herein by reference to Exhibit 10.2 to PepsiCo, Inc.’s Quarterly Report on Form
10-Q for the fiscal quarter ended September 9, 2006.*
10.9 Form of Annual Long-Term Incentive Award Agreement, which is incorporated herein by
reference to Exhibit 10.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 7, 2007.*
10.10 Form of Performance-Based Long-Term Incentive Award Agreement, which is incorporated
herein by reference to Exhibit 10.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on February 7, 2007.*
10.11 Form of Pro Rata Long-Term Incentive Award Agreement, which is incorporated herein by
reference to Exhibit 10.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 8, 2007.*
10.12 Form of Stock Option Retention Award Agreement, which is incorporated herein by reference
to Exhibit 10.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on May 8, 2007.*
10.13 PepsiCo, Inc. 2007 Long-Term Incentive Plan, as amended and restated March 12, 2010,
which is incorporated herein by reference to Exhibit 10.1 to PepsiCo, Inc.’s Current Report
on Form 8-K filed with the Securities and Exchange Commission on May 11, 2010.*
10.14 Form of Annual Long-Term Incentive Award Agreement, which is incorporated herein by
reference to Exhibit 10.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 7, 2008.*
10.15 Form of Performance-Based Long-Term Incentive Award Agreement, which is incorporated
herein by reference to Exhibit 10.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on February 7, 2008.*
10.16 Form of Annual Long-Term Incentive Award Agreement, which is incorporated herein by
reference to Exhibit 10.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 11, 2009.*
10.17 Form of Performance-Based Long-Term Incentive Award Agreement, which is incorporated
herein by reference to Exhibit 10.2 to PepsiCo, Inc.’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on February 11, 2009.*
10.18 Form of Pro Rata Long-Term Incentive Award Agreement, which is incorporated herein by
reference to Exhibit 10.3 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 11, 2009.*
10.19 Form of Stock Option Retention Award Agreement, which is incorporated herein by reference
to Exhibit 10.4 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 11, 2009.*
10.20 Form of Restricted Stock Unit Retention Award Agreement, which is incorporated herein by
reference to Exhibit 10.5 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 11, 2009.*
10.21 Form of Aircraft Time Sharing Agreement, which is incorporated herein by reference to Exhibit
10 to PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 21,
2009.*
142
10.22 PBG 2004 Long Term Incentive Plan, which is incorporated herein by reference to Exhibit
99.1 to PepsiCo, Inc.’s Registration Statement on Form S-8 as filed with the Securities and
Exchange Commission on February 26, 2010 (Registration No. 333-165107).*
10.23 PBG Stock Incentive Plan, which is incorporated herein by reference to Exhibit 99.6 to
PepsiCo, Inc.’s Registration Statement on Form S-8 as filed with the Securities and Exchange
Commission on February 26, 2010 (Registration No. 333-165107).*
10.24 Amendments to PBG 2002 Long Term Incentive Plan, PBG Long Term Incentive Plan, The
Pepsi Bottling Group, Inc. 1999 Long Term Incentive Plan and PBG Stock Incentive Plan
(effective February 8, 2007), which are incorporated herein by reference to Exhibit 99.7 to
PepsiCo, Inc.’s Registration Statement on Form S-8 as filed with the Securities and Exchange
Commission on February 26, 2010 (Registration No. 333-165107).*
10.25 Amendments to PBG 2004 Long Term Incentive Plan, PBG 2002 Long Term Incentive Plan,
The Pepsi Bottling Group, Inc. Long Term Incentive Plan, The Pepsi Bottling Group, Inc.
1999 Long Term Incentive Plan, PBG Directors’ Stock Plan and PBG Stock Incentive Plan
(effective February 19, 2010), which are incorporated herein by reference to Exhibit 99.8 to
PepsiCo, Inc.’s Registration Statement on Form S-8 as filed with the Securities and Exchange
Commission on February 26, 2010 (Registration No. 333-165107).*
10.26 Specified Employee Amendments to Arrangements Subject to Section 409A of the Internal
Revenue Code, adopted February 18, 2010 and March 29, 2010, which is incorporated herein
by reference to Exhibit 10.13 to PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the
quarterly period ended March 20, 2010.*
10.27 Form of Performance-Based Long-Term Incentive Award Agreement, which is incorporated
herein by reference to Exhibit 10.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on April 16, 2010.*
10.28 PBG Executive Income Deferral Program (Plan Document for the 409A Program), as
amended, which is incorporated herein by reference to Exhibit 10.67 to PepsiCo, Inc.’s Annual
Report on Form 10-K for the fiscal year ended December 25, 2010.*
10.29 PBG Executive Income Deferral Program (Plan Document for the Pre-409A Program), as
amended and restated effective as of December 20, 2017.*
10.30 Form of Annual Long-Term Incentive Award Agreement, which is incorporated herein by
reference to Exhibit 10.1 to PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the quarterly
period ended March 24, 2012.*
10.31 Form of Annual Long-Term Incentive Award Agreement, which is incorporated herein by
reference to Exhibit 10.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 18, 2013.*
10.32 PepsiCo, Inc. 2007 Long-Term Incentive Plan, as amended and restated March 13, 2014,
which is incorporated herein by reference to Exhibit 10.1 to PepsiCo, Inc.’s Current Report
on Form 8-K filed with the Securities and Exchange Commission on March 14, 2014.*
10.33 PepsiCo, Inc. Executive Incentive Compensation Plan, as amended and restated effective
February 7, 2014, which is incorporated herein by reference to Exhibit B to PepsiCo, Inc.’s
Proxy Statement for its 2014 Annual Meeting of Shareholders filed with the Securities and
Exchange Commission on March 21, 2014.*
10.34 The PepsiCo International Retirement Plan Defined Benefit Program, as amended and restated
effective as of January 1, 2016, which is incorporated herein by reference to Exhibit 10.40 to
PepsiCo, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.*
10.35 The PepsiCo International Retirement Plan Defined Contribution Program, as amended and
restated effective as of January 1, 2016, which is incorporated herein by reference to Exhibit
10.41 to PepsiCo, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31,
2016.*
10.36 PepsiCo, Inc. Long-Term Incentive Plan (as amended and restated May 4, 2016), which is
incorporated herein by reference to Exhibit B to PepsiCo’s Proxy Statement for its 2016 Annual
Meeting of Shareholders, filed with the Securities and Exchange Commission on March 18,
2016.*
143
10.37 Form of Annual Long-Term Incentive Award Agreement, which is incorporated herein by
reference to Exhibit 10.1 to PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the quarterly
period ended March 19, 2016.*
10.38 PepsiCo Pension Equalization Plan (the Plan Document for the Pre-409A Program), as
amended and restated effective as of April 1, 2016, which is incorporated herein by reference
to Exhibit 10.2 to PepsiCo, Inc.’s Quarterly Report on Form 10-Q for the quarterly period
ended March 19, 2016.*
10.39 PepsiCo Pension Equalization Plan (Plan Document for the Section 409A Program), January
1, 2017 Restatement.*
10.40 PepsiCo Automatic Retirement Contribution Equalization Plan, as amended and restated
effective as of April 1, 2016, with amendments through December 12, 2016, which is
incorporated herein by reference to Exhibit 10.47 to PepsiCo, Inc.’s Annual Report on Form
10-K for the fiscal year ended December 31, 2016.*
10.41 PepsiCo Director Deferral Program (Plan Document for the 409A Program), amended and
restated effective as of December 20, 2017.*
10.42 Form of Annual Long-Term Incentive Award Agreement, which is incorporated herein by
reference to Exhibit 10.49 to PepsiCo, Inc.’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2016.*
10.43 PepsiCo Executive Income Deferral Program (Plan Document for the 409A Program),
amended and restated effective as of January 1, 2005 (with amendments through March 9,
2017), which is incorporated herein by reference to Exhibit 10.1 to PepsiCo, Inc.’s Quarterly
Report on Form 10-Q for the quarterly period ended March 25, 2017.*
10.44 Five-Year Credit Agreement, dated as of June 5, 2017, among PepsiCo, Inc., as borrower, the
lenders named therein, and Citibank, N.A., as administrative agent, which is incorporated
herein by reference to Exhibit 10.1 to PepsiCo, Inc.’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on June 6, 2017.
10.45 Amendment to Certain PepsiCo Award Agreements.*
10.46 Amendment to the PBG 2004 Long Term Incentive Plan and the PBG Stock Incentive Plan,
effective December 20, 2017.*
10.47 PepsiCo, Inc. Long Term Incentive Plan (as amended and restated December 20, 2017).*
12
21
23
24
31
Computation of Ratio of Earnings to Fixed Charges.
Subsidiaries of PepsiCo, Inc.
Consent of KPMG LLP.
Power of Attorney.
Certification of our Chief Executive Officer and our Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certification of our Chief Executive Officer and our Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
The following materials from PepsiCo, Inc.’s Annual Report on Form 10-K for the fiscal year
ended December 30, 2017 formatted in XBRL (eXtensible Business Reporting Language):
(i) the Consolidated Statement of Income, (ii) the Consolidated Statement of Comprehensive
Income, (iii) the Consolidated Statement of Cash Flows, (iv) the Consolidated Balance Sheet,
(v) the Consolidated Statement of Equity and (vi) Notes to Consolidated Financial Statements.
32
101
* Management contracts and compensatory plans or arrangements required to be filed as exhibits pursuant to Item 15
(a)(3) of this report.
144
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, PepsiCo has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 13, 2018
PepsiCo, Inc.
By: /s/ Indra K. Nooyi
Indra K. Nooyi
Chairman of the Board of Directors and
Chief Executive Officer
145
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of PepsiCo and in the capacities and on the date indicated.
SIGNATURE
/s/ Indra K. Nooyi
Indra K. Nooyi
/s/ Hugh F. Johnston
Hugh F. Johnston
/s/ Marie T. Gallagher
Marie T. Gallagher
/s/ Shona L. Brown
Shona L. Brown
/s/ George W. Buckley
George W. Buckley
/s/ Cesar Conde
Cesar Conde
/s/ Ian M. Cook
Ian M. Cook
/s/ Dina Dublon
Dina Dublon
/s/ Richard W. Fisher
Richard W. Fisher
/s/ William R. Johnson
William R. Johnson
/s/ David C. Page
David C. Page
/s/ Robert C. Pohlad
Robert C. Pohlad
/s/ Daniel Vasella
Daniel Vasella
/s/ Darren Walker
Darren Walker
/s/ Alberto Weisser
Alberto Weisser
TITLE
Chairman of the Board of Directors and
Chief Executive Officer
DATE
February 13, 2018
Vice Chairman, Executive Vice President February 13, 2018
and Chief Financial Officer
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
February 13, 2018
Senior Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
146
Reconciliation of GAAP and
Non-GAAP Information
Organic, core and constant currency results, as well as ROIC,
core net ROIC, free cash fl ow and free cash fl ow excluding certain
items, are not in accordance with U.S. GAAP. We use non-GAAP
fi nancial measures internally to make operating and strategic
decisions, including the preparation of our annual operating plan,
evaluation of our overall business performance and as a factor
in determining compensation for certain employees. We believe
presenting non-GAAP fi nancial measures provides additional
information to facilitate comparison of our historical operating
results and trends in our underlying operating results, and pro-
vides additional transparency on how we evaluate our business.
We also believe presenting these measures allows investors to
view our performance using the same measures that we use in
evaluating our fi nancial and business performance and trends.
We consider quantitative and qualitative factors in assessing
whether to adjust for the impact of items that may be signifi cant
or that could aff ect an understanding of our ongoing fi nancial
and business performance or trends. The non-GAAP fi nancial
measures contained in this Annual Report exclude the impact of
the following items:
Commodity Mark-to-Market Net Impact: Mark-to-market
net gains and losses on commodity derivatives in corporate
unallocated expenses. These gains and losses are subsequently
refl ected in division results when the divisions recognize the cost
of the underlying commodity in operating profi t.
Restructuring and Impairment Charges: Expenses related to the
2014 and 2012 Productivity Plans.
Provisional Net Tax Expense Related to the TCJ Act: In 2017,
provisional net tax expense of $2.5(cid:4)billion associated with the
enactment of the TCJ Act. Included in the net tax expense of
$2.5(cid:4)billion is a provisional mandatory one-time transition tax of
approximately $4(cid:4)billion on undistributed international earnings.
This mandatory one-time transition tax was partially off set
by a provisional $1.5(cid:4)billion benefi t resulting from the required
remeasurement of our deferred tax assets and liabilities to the
new, lower U.S. corporate income tax rate.
Charges Related to the Transaction with Tingyi: In 2016,
impairment charge of $373(cid:4)million to reduce the value of our
5% indirect equity interest in TAB to its estimated fair value. In
2015, charge of $73(cid:4)million related to a write-off of the value
of a call option to increase our holding in TAB to 20%. In 2012,
restructuring and other charges of $150(cid:4)million related to a
transaction with Tingyi.
2017 PepsiCo Annual Report | 147
Charge Related to Debt Redemption: In 2016, interest expense
primarily representing the premium paid in accordance with
the “make-whole” redemption provisions to redeem all of our
outstanding 7.900% senior notes due 2018 and 5.125% senior
notes due 2019 for the principal amounts of $1.5(cid:4)billion and
$750(cid:4)million, respectively.
Pension-Related Settlements: In 2016, pension settlement charge
of $242(cid:4)million related to the purchase of a group annuity contract.
In 2015, benefi ts of $67(cid:4)million associated with the settlement of
pension-related liabilities from previous acquisitions. In 2014 and
2012, lump sum settlement charges of $141(cid:4)million and $195(cid:4)million,
respectively, related to payments for pension liabilities to certain
former employees who had vested benefi ts.
Venezuela Impairment Charges: In 2015, charges of $1.4(cid:4)billion
related to the impairment of investments in our wholly-owned
Venezuelan subsidiaries and beverage joint venture.
Tax Benefi t: In 2015, non-cash tax benefi t of $230(cid:4)million
associated with our agreement with the IRS resolving
substantially all open matters related to the audits for taxable
years 2010 through 2011, which reduced our reserve for uncertain
tax positions for the tax years 2010 through 2011. In 2013, non-
cash tax benefi t of $209(cid:4)million associated with our agreement
with the IRS resolving all open matters related to the audits for
taxable years 2003 through 2009, which reduced our reserve
for uncertain tax positions for the tax years 2003 through 2012.
In 2012, non-cash tax benefi t of $217(cid:4)million associated with
a favorable tax court decision related to the classifi cation of
fi nancial instruments.
Venezuela Remeasurement Charges: In 2014, net charge of
$105(cid:4)million related to our remeasurement of the bolivar for certain
net monetary assets of our Venezuelan businesses. In 2013, net
charge of $111(cid:4)million related to the devaluation of the bolivar for
our Venezuelan businesses.
Merger and Integration Charges: In 2013 and 2012, merger and
integration charges of $10(cid:4)million and $16(cid:4)million, respectively,
related to our acquisition of WBD.
Additionally, free cash fl ow excluding certain items is a measure
management uses to monitor cash fl ow performance. Since net
capital spending is essential to our product innovation initiatives
and maintaining our operational capabilities, we believe that
it is a recurring and necessary use of cash. As such, we believe
investors should also consider net capital spending when
evaluating our cash from operating activities. We also consider
certain other items (included in the Net Cash Provided by
Operating Activities Reconciliation table below) in evaluating free
cash fl ow that we believe investors should consider in evaluating
our free cash fl ow results.
2017 PepsiCo Annual Report | 148
For more information regarding these non-GAAP measures,
including further information on the excluded items for the years
2017, 2016 and 2015, see pages 53–58, 70 and 72 in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.
Non-GAAP information should be considered as supplemental
in nature and is not meant to be considered in isolation or as
a substitute for the related fi nancial information prepared in
accordance with U.S. GAAP. In addition, our non-GAAP fi nancial
measures may not be the same as or comparable to similar
non-GAAP measures presented by other companies.
Total Operating Profi t Reconciliation
Operating Margin Growth Reconciliation
Year Ended
12/30/17
12/31/16
Growth
Reported Operating Profi t
$ 10,509 $ 9,785
7%
Reported Operating Margin Growth
Commodity Mark-to-Market Net Impact
Restructuring and Impairment Charges
Charge Related to the Transaction
with Tingyi
Pension-Related Settlement Charge
(15)
295
–
–
(167)
160
373
242
Core Operating Profi t
$ 10,789 $ 10,393
4%
Commodity Mark-to-Market Net Impact
Restructuring and Impairment Charges
Pension-Related Settlement Charge
Charge Related to the Transaction with Tingyi
Core Operating Margin Growth
Year Ended
12/30/17
96 bps
24
21
(39)
(59)
43bps
Net Cash Provided by Operating Activities Reconciliation
Net Cash Provided by Operating Activities
Capital Spending
Sales of Property, Plant and Equipment
Free Cash Flow
Payments Related to Restructuring Charges
Net Cash Tax Benefi ts Related to Restructuring Charges
Discretionary Pension Contributions
Net Cash Tax Benefi ts Related to Discretionary Pension Contributions
Net Cash Received Related to Interest Rate Swaps
Net Cash Tax Benefi t Related to Debt Redemption Charge
Year Ended
12/30/17
12/31/16
Growth
$ 9,994 $ 10,673
(6)%
(2,969)
(3,040)
180
7,205
113
(30)
6
(1)
–
–
99
7,732
125
(22)
459
(151)
(5)
(83)
Free Cash Flow Excluding Certain Items
$ 7,293 $ 8,055
(9)%
Net Revenue Growth Reconciliation
Reported Net Revenue Growth
Foreign Exchange Translation
Acquisitions and Divestitures
Venezuela Deconsolidation
53rd Reporting Week
Organic Revenue Growth
(a) Compound Annual Growth Rate
Year Ended
5-Year
CAGR(a)
12/30/17
12/31/16
12/26/15
12/27/14
12/28/13
(1)%
1 %
–
–
–
1
2 %
4 %
–%
3
–
2
(1)
4 %
(5)%
10
–
1
–
5 %
–%
3
–
–
–
4 %
1 %
2
1
–
–
4 %
Note — Dollars are presented in millions, except per share amounts. Certain amounts above may not sum due to rounding.
2017 PepsiCo Annual Report | 149
Operating Margin Growth Reconciliation
Year Ended
12/30/17
12/29/12
5-Year
Growth
Reported Operating Margin
Commodity Mark-to-Market Net Impact
17 %
–
Restructuring and Impairment Charges
0.5
Pension-Related Settlement Charge
Charges Related to the Transaction
with Tingyi
Merger and Integration Charges
–
–
–
14 %
263 bps
–
–
–
–
–
Core Operating Margin
17 %
15 %
220 bps
Diluted EPS Growth Reconciliation
Reported Diluted EPS
Commodity Mark-to-Market Net Impact
Restructuring and Impairment Charges
Provisional Net Tax Expense Related to the TCJ Act
Charges Related to the Transaction with Tingyi
Charge Related to Debt Redemption
Pension-Related Settlement Charges/(Benefi t)
Venezuela Impairment Charges
Venezuela Remeasurement Charges
Merger and Integration Charges
Tax Benefi ts
Core Diluted EPS
Reported Diluted EPS Growth
Core Diluted EPS Growth
Foreign Exchange Translation
Core Constant Currency Diluted EPS Growth
ROIC
Year Ended
12/30/17
12/31/16
12/26/15
12/27/14
12/28/13
12/29/12
$ 3.38
$ 4.36
$ 3.67
$ 4.27
$ 4.32
$ 3.92
(0.01)
0.16
1.70
–
–
–
–
–
–
–
(0.08)
0.09
–
0.26
0.11
0.11
–
–
–
–
$ 5.23
$ 4.85
5-Year
Average
–
0.12
–
0.05
–
(0.03)
0.91
–
–
(0.15)
$ 4.57
0.03
0.21
0.03
0.08
–
–
–
0.06
-
0.07
–
–
–
–
–
–
–
0.07
0.01
(0.13)
(0.03)
0.14
-
0.11
-
0.08
–
–
0.01
(0.14)
$ 4.63
$ 4.37
$ 4.10
(2)%
5 %
9 %
(23)%
8 %
1
9 %
19 %
6 %
3
9 %
(14)%
(1)%
11
10 %
(1)%
6 %
3
9 %
10 %
7 %
2
9 %
Year Ended
12/30/17
12/31/16
12/29/12
Net Income Attributable to PepsiCo
$ 4,857
$ 6,329
$ 6,178
Interest Expense
Tax on Interest Expense
1,151
(415)
1,342
(483)
899
(324)
$ 5,593
$ 7,188
$ 6,753
Average Debt Obligations
$ 38,707
$ 35,308
$ 27,823
Average Common Shareholders’ Equity
12,004
11,943
21,603
Average Invested Capital
$ 50,711
$ 47,251
$ 49,426
ROIC
11.0 %
15.2 %
13.7 %
Note — Dollars are presented in millions, except per share amounts. Certain amounts above may not sum due to rounding.
2017 PepsiCo Annual Report | 150
Core Net ROIC Growth Reconciliation
ROIC
Impact of:
Average Cash, Cash Equivalents and Short-Term Investments
Interest Income
Tax on Interest Income
Commodity Mark-to-Market Net Impact
Restructuring and Impairment Charges
Provisional Net Tax Expense Related to the TCJ Act
Charges Related to the Transaction with Tingyi
Pension-Related Settlement Charges
Venezuela Impairment Charges
Merger and Integration Charges
Tax Benefi ts
Core Net ROIC
Year Ended
12/30/17
12/31/16
12/29/12
Growth vs.
Prior Year
5-Year
Growth
11.0 %
15.2 %
13.7 %
(420) bps
(270) bps
7.6
(0.5)
0.2
-
0.3
4.5
(0.1)
-
(0.2)
-
0.1
6.0
(0.2)
0.1
(0.2)
0.1
-
0.6
0.3
(0.5)
-
0.1
22.9 %
21.5 %
1.5
(0.2)
0.1
(0.1)
0.3
-
0.3
0.3
-
(0.1)
(0.4)
15.3 %
140 bps
760 bps
Note — Dollars are presented in millions, except per share amounts. Certain amounts above may not sum due to rounding.
Forward- Looking Statements
This Annual Report contains statements refl ecting our views
about our future performance that constitute “ forward- looking
statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 (Reform Act). Statements that
constitute forward- looking statements within the meaning of
the Reform Act are generally identifi ed through the inclusion
of words such as “aim,” “anticipate,” “believe,” “drive,” “estimate,”
“expect,” “expressed confi dence,” “forecast,” “future,” “goal,”
“guidance,” “intend,” “may,” “objective,” “outlook,” “plan,”
“position,” “potential,” “project,” “seek,” “should,” “strategy,”
“target,” “will” or similar statements or variations of such words
and other similar expressions. All statements addressing our
future operating performance, and statements addressing
events and developments that we expect or anticipate will
occur in the future, are forward- looking statements within the
meaning of the Reform Act. These forward- looking statements
are based on currently available information, operating plans
and projections about future events and trends. They inherently
involve risks and uncertainties that could cause actual results
to diff er materially from those predicted in any such forward-
looking statement. These risks and uncertainties include, but
are not limited to, those described in “Item 1A. Risk Factors” on
pages 10–29 of our Annual Report on Form 10-K and “Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Our Business — Our Business Risks”
of our Annual Report on Form 10-K included herewith. Investors
are cautioned not to place undue reliance on any such forward-
looking statements, which speak only as of the date they are
made. We undertake no obligation to update any forward-
looking statement, whether as a result of new information, future
events or otherwise.
Common Stock
Information
Stock Trading Symbol — PEP
Stock Exchange Listings
Since December 20, 2017, our common
stock has traded on The Nasdaq Global
Select Market. Before December 20, 2017,
our common stock traded on The New York
Stock Exchange. Our common stock is also
listed on the Chicago Stock Exchange and
SIX Swiss Exchange.
Dividend Policy
Dividends are usually declared in February,
May, July and November and paid at the
end of March, June and September and the
beginning of January. On February 5, 2018,
the Board of Directors of PepsiCo declared
a quarterly dividend of $0.805 per share
payable March 30, 2018 to shareholders
of record on March 2, 2018. For the remain-
der of 2018, the dividend record dates for
these payments are expected to be June 1,
September 7 and December 7, 2018, subject
to approval of the Board of Directors. We
have paid consecutive quarterly cash divi-
dends since 1965.
Annualized Cash Dividends Declared
Per share (in $)
17
16
15
14
13
3.1675
2.96
2.7625
2.5325
2.24
Year-End Market Price of Stock
Based on calendar year-end (in $)
125
100
75
50
25
0
13
14
15
16
17
The closing price for a share of PepsiCo
common stock on The New York Stock
Exchange and The Nasdaq Global
Select Market was the price reported by
Bloomberg for the years ended 2013–2016
and 2017, respectively. Past performance
is not necessarily indicative of future stock
price performance.
2017 PepsiCo Annual Report | 151
Comparison of Cumulative Total Shareholder Return
The graph below compares PepsiCo, Inc.’s cumulative fi ve-year total shareholder
return on common stock with the cumulative total returns of the S&P 500 index and the
S&P(cid:4)Average of Industry Groups index.* The graph tracks the performance of a $100
investment in our common stock and in each index (with the reinvestment of all dividends)
from 12/31/2012 to 12/31/2017.
in U.S. dollars
PepsiCo, Inc.
S&P 500
S&P Avg. of Ind. Groups*
200
175
150
125
100
2012
2013
2014
2015
2016
2017
PepsiCo, Inc.
S&P 500
S&P Avg. of Industry Groups*
/
/ / / / /
* The S&P Average of Industry Groups is derived by weighting the returns of two applicable S&P Industry Groups
(Non-Alcoholic Beverages and Food) based on the relative contribution of PepsiCo’s sales in its beverage
and food businesses.
The returns on PepsiCo common stock, the S&P 500 Index and the S&P Average of Industry Groups are
calculated through December 31, 2017. Past performance is not necessarily indicative of future returns on
investments in PepsiCo common stock.
Shareholder Information
Annual Meeting
The Annual Meeting of Shareholders will be held at the New Bern Riverfront Convention
Center, 203 South Front Street, New Bern, North Carolina 28560, on Wednesday,
May 2, 2018, at 9:00 a.m. Eastern Daylight Time. Proxies for the meeting will be solicited
by an independent proxy solicitor. This Annual Report is not part of the proxy solicitation.
Inquiries Regarding Your Stock Holdings
Registered Shareholders (shares held by you in your name) should address communi-
cations concerning transfers, statements, dividend payments, address changes, lost
certificates and other administrative matters to:
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
Telephone: 800-226-0083
201-680-6578 (outside the U.S.)
Website: www.computershare.com/
investor
Online inquiries: www-us.computer
share.com/investor/contact
or
Manager, Shareholder Relations
PepsiCo, Inc.
700 Anderson Hill Road
Purchase, NY 10577
Telephone: 914-253-3055
E-mail: investor@pepsico.com
In all correspondence or telephone inquiries, please mention PepsiCo, the name in which
your shares are registered, your holder ID, your address and your telephone number.
PepsiCo Values
Our Commitment: To deliver SUSTAINED
GROWTH through EMPOWERED
PEOPLE acting with RESPONSIBILITY and
building TRUST.
Guiding Principles
We must always strive to: Care for our
customers, our consumers and the world
we live in. Sell only products we can be
proud of. Speak with truth and candor.
Win with diversity and inclusion. Balance
short term and long term. Respect others
and succeed together.
© 2018 PepsiCo, Inc.
Environmental Profi le
This Annual Report was printed with
Forest Stewardship Council™ (FSC®)–
certified paper, the use of 100% certified
renewable wind power resources and
soy ink. PepsiCo continues to reduce
the costs and environmental impact
of annual report printing and mailing
by utilizing a distribution model that
drives increased online readership and
fewer printed copies. You can learn
more about our environmental efforts
at www.pepsico.com.
2017 PepsiCo Annual Report | 152
SharePower Participants (associates
with SharePower Options) should address
all questions regarding your account,
outstanding options or shares received
through option exercises to:
Merrill Lynch
1400 Merrill Lynch Drive
MSC NJ2-140-03-17
Pennington, NJ 08534
Telephone: 800-637-6713
(U.S., Puerto Rico and Canada)
609-818-8800 (all other locations)
In all correspondence, please provide
your account number (for U.S. citizens,
this is your Social Security number), your
address and your telephone number, and
mention PepsiCo SharePower. For tele-
phone inquiries, please have a copy of
your most recent statement available.
Associate Benefi t Plan Participants
PepsiCo 401(k) Plan
The PepsiCo Savings & Retirement
Center at Fidelity
P.O. Box 770003
Cincinnati, OH 45277-0065
Telephone: 800-632-2014
(Overseas: Dial your country’s AT&T
Access Number + 800-632-2014. In the
U.S., access numbers are available by
calling 800-331-1140. From anywhere in
the world, access numbers are available
online at www.att.com/traveler).
Website: www.netbenefits.com/pepsico
PepsiCo Stock Purchase Program
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
Telephone: 800-632-2014
Website: www.netbenefits.com/pepsico
Please have a copy of your most recent state-
ment available when calling with inquiries.
Corporate
Information
Corporate Headquarters
PepsiCo, Inc.
700 Anderson Hill Road
Purchase, NY 10577
Telephone: 914-253-2000
PepsiCo Website
www.pepsico.com
Independent Auditors
KPMG LLP
345 Park Avenue
New York, NY 10154-0102
Telephone: 212-758-9700
Direct Stock Purchase
Interested investors can make their
initial purchase directly through
Computershare, transfer agent for
PepsiCo and Administrator for the Plan.
Please contact our transfer agent for
more information:
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
Telephone: 800-226-0083
201-680-6578 (outside the U.S.)
Website: www.computershare.com/
investor
Online inquiries: www-us.computer
share.com/investor/contact
Other services include dividend reinvest-
ment, direct deposit of dividends, optional
cash investments by electronic funds
transfer or check drawn on a U.S. bank,
sale of shares, online account access
and electronic delivery of shareholder
materials.
Additional Information
PepsiCo’s Annual Report contains many
of the valuable trademarks owned and/
or used by PepsiCo and its subsidiaries
and affiliates in the U.S. and internation-
ally to distinguish products and services of
outstanding quality. All other trademarks
featured herein are the property of their
respective owners.
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PepsiCo’s portfolio includes 22 brands that each generated
$1 billion or more in estimated annual retail sales in 2017.
2017 Diversity Statistics
Summary of Contributions (in millions)
% Women % People of Color (a)
Board of Directors
Senior Executives(b)
Executives (U.S.)
All Managers (U.S.)
All Employees (U.S.)
23
21
34
35
19
31
29
24
29
39
PepsiCo Foundation
Corporate Contributions*
Division Contributions
Division Estimated In-Kind
Total
The data in this chart is as of December 31, 2017, and, other than the
Board of Directors, this chart reflects full-time employees only.
(a) U.S. only; primarily based on completed self-identification forms.
(b) Composed of PepsiCo Executive Officers subject to Section 16 of
the Securities Exchange Act of 1934.
* Corporate Contributions include estimated in-kind
donations of $0.4 million.
2017
.
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