What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-10 compared with 2021-02-11 · 655 added, 789 removed, 1851 unchanged (44% of the section changed)

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Return on Invested Capital 52

OUR CRITICAL ACCOUNTING POLICIES

OUR CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Revenue Recognition 53

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CONSOLIDATED STATEMENT OF EQUITY 64

Notes to Consolidated Financial Statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation and Our Divisions 65

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Note 10 – Net Income Attributable to PepsiCo per Common Share 99

Note 11 – Preferred Stock 99

Note 11 – Accumulated Other Comprehensive Loss Attributable to PepsiCo 100

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Executive Overview

PepsiCo is a leading global food and beverage company with a complementary portfolio of brands, including Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana.

Everything we do is driven by an approach we call Winning with Purpose.

Winning with Purpose is our guide for achieving accelerated, sustainable growth that includes our mission, to Create More Smiles with Every Sip and Every Bite;

our vision, to Be the Global Leader in Convenient Foods and Beverages by Winning with Purpose;

and The PepsiCo Way, seven behaviors that define our shared culture.

This approach proved prescient and powerful in 2020 as we faced a worsening climate crisis, renewed calls for racial equality, and the first global pandemic in a century.

Life in communities around the world was transformed, and our business was tested like never before.

First and foremost, we had to protect the health of our associates, so that we could continue to serve our consumers, customers and communities.

At the same time, we had to secure our supply chain;

ensure continuity in manufacturing, distribution and sales;

further strengthen our e-commerce and digital capabilities;

reimagine our marketing;

deliver positive outcomes for people, our shareholders and the planet;

and much more.

These challenges were in addition to the structural issues facing our Company, including:

PepsiCo is a leading global beverage and convenient food company with a complementary portfolio of brands, including Lays, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and SodaStream.

As a global company with deep local ties, we faced many of the same challenges in 2021 as our consumers, customers, and competitors across the world, including the second year of the COVID-19 pandemic;

a worsening climate crisis;

supply chain disruptions;

inflationary pressures;

shifting consumer preferences and behaviors;

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and an evolving regulatory landscape.

To meet this once in a generation moment and ensure our Company’s long-term success, we will continue to focus on becoming Faster, Stronger, and Better:

• We will become Faster by sustaining or improving growth and market share in our high return foods and snacks businesses in North America;

improving the profitability of our PBNA business and capturing our fair share of category growth;

accelerating our growth and presence in international snacks and food while investing wisely in beverages to balance between growth and returns;

and making the necessary investments in our manufacturing capacity, go-to-market systems and digital initiatives, such as improving our presence and scale in our e-commerce business.

• We will become Stronger by renewing our focus on driving holistic cost management throughout our organization to support our investments in advantaged capabilities, such as a highly agile and flexible end-to-end value chain;

more precision around revenue management;

and investing in data analytics that can provide more granularity around consumer insights.

We also plan to continue investing to further expand global business services into new capabilities, which will enable better insight and support for our businesses at a lower cost.

And we will remain focused on diversifying our workforce and reinforcing The PepsiCo Way, where we emphasize that employees act like owners to get things done quickly.

• We will become Better by further integrating purpose into our business strategy and brands by becoming planet positive, strengthening our roots in our communities, and advancing social justice.

This includes supporting practices and technologies that improve farmer livelihoods and agricultural resiliency;

using precious resources such as water more efficiently;

accelerating our efforts to reduce greenhouse gas emissions throughout our value chain;

driving progress toward a world where plastics need never become waste;

advancing respect for human rights;

and investing to promote shared prosperity in local communities where we live and work.

To meet the challenges of today – and those of tomorrow – we are driven by an approach called PepsiCo Positive (pep+).

pep+ is a strategic end-to-end transformation of our business, with sustainability at the center of how the company will strive to create growth and value by operating within planetary boundaries and inspiring positive change for the planet and people.

pep+ will guide how we will work to transform our business operations, from sourcing ingredients and making and selling products in a more sustainable way, to leveraging our more than one billion connections with consumers each day to take sustainability mainstream and engage people to make choices that are better for themselves and the planet.

pep+ drives action and progress across three key pillars, bringing together a number of industry-leading 2030 sustainability goals under a comprehensive framework:

• Positive Agriculture :

We are working to spread regenerative practices to restore the Earth across land equal to the company's entire agricultural footprint (approximately 7 million acres), sustainably source key crops and ingredients, and improve the livelihoods of more people in our agricultural supply chain.

• Positive Value Chain :

We are working to build a circular and inclusive value chain through actions to:

achieve net-zero emissions by 2040;

become net water positive by 2030;

and introduce more sustainable packaging into the value chain.

Our packaging goals include cutting virgin plastic per serving, using recycled content in our plastic packaging, and scaling our SodaStream business globally, an innovative platform that almost entirely eliminates the need for beverage packaging, among other levers.

Additionally, we are making progress on our diversity, equity and inclusion journey.

And we have introduced a new global workforce volunteering program, One Smile at a

Time, to encourage, support and empower each one of our approximately 309,000 employees to make positive impacts in their local communities.

• Positive Choices :

We continue working to evolve our portfolio of beverage and convenient food products so that they are better for the planet and people, including by incorporating more diverse ingredients in both new and existing food products that are better for the planet and/or deliver nutritional benefits, prioritizing chickpeas, plant-based proteins and whole grains;

expanding our position in the nuts & seeds category, where PepsiCo is already the global branded leader, including leadership positions in Mexico, China and several Western European markets;

and accelerating our reduction of added sugars and sodium through the use of science-based targets across our portfolio and cooking our food offerings with healthier oils.

We are also continuing to scale new business models that require little or no single-use packaging, including SodaStream – an icon of a Positive Choice and the largest sparkling water brand in the world by volume.

SodaStream, already sold in more than 40 countries, and its new SodaStream Professional platform is expected to expand into functional beverages and reach additional markets by the end of 2022, part of the brand's effort to help consumers avoid plastic bottles.

We believe these priorities will position our Company for long-term sustainable growth.

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Our global operations continue to expose us to risks associated with the COVID-19 pandemic, which continues to result in challenging operating environments and has affected almost all of the more than 200 countries and territories in which our products are made, manufactured, distributed or sold.

Travel bans and restrictions, quarantines, curfews, restrictions on public gatherings, shelter in place and safer-at-home orders, business shutdowns and closures continue in many of these markets.

These measures have impacted and will continue to impact us, our customers (including foodservice customers), consumers, employees, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third parties with whom we do business, which may result in changes in demand for our products, increases in operating costs (whether as a result of changes to our supply chain or increases in employee costs, including expanded benefits and frontline incentives, costs associated with the provision of personal protective equipment and increased sanitation, or otherwise), or adverse impacts to our supply chain through reduced availability of air or other commercial transport, port closures or border restrictions, any

of which can impact our ability to make, manufacture, distribute and sell our products.

In addition, measures that impact our ability to access our offices (several of which remain closed), plants, warehouses, distribution centers or other facilities, or that impact the ability of our customers (including our foodservice customers), consumers, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third parties to do the same, may continue to impact the availability or productivity of our and their employees, many of whom are not able to perform their job functions remotely.

Numerous measures have been implemented around the world to try to reduce the spread of the virus, including travel bans and restrictions, quarantines, curfews, restrictions on public gatherings, shelter in place and safer-at-home orders, business shutdowns and closures.

These measures have impacted and will continue to impact us, our customers (including foodservice customers), consumers, employees, bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third parties with whom we do business, which may continue to result in changes in demand for our products, increases in operating costs (whether as a result of changes to our supply chain or increases in employee costs, including expanded benefits and frontline incentives, costs associated with the provision of personal protective equipment and increased sanitation, or otherwise), or adverse impacts to our supply chain through labor shortages, raw

material shortages or reduced availability of air or other commercial transport, port closures or border restrictions, any of which can impact our ability to make, manufacture, distribute and sell our products.

In addition, measures that impact our ability to access our offices, plants, warehouses, distribution centers or other facilities, or that impact the ability of our business partners to do the same or the inability of a significant portion of our or our business partners’ workforce to work because of illness, absenteeism, quarantine, vaccine mandates, or travel or other governmental restrictions, may continue to impact the availability or productivity of our and their employees, many of whom are not able to perform their job functions remotely.

Public concern regarding the risk of contracting COVID-19 has impacted and may continue to impact demand from consumers, including due to consumers not leaving their homes or leaving their homes less often than they did prior to the start of the pandemic or otherwise shopping for and consuming food and beverage products in a different manner than they historically have or because some of our consumers have lower discretionary income due to unemployment or reduced or limited work as a result of measures taken in response to the pandemic.

Even as governmental restrictions are relaxed and economies gradually, partially, or fully reopen in certain of these jurisdictions and markets, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels and shopping and consumption preferences.

In addition, as a result of COVID-19, certain jurisdictions, such as certain states in Mexico, have enacted or are considering enacting new or expanded 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.

Changes in consumer purchasing and consumption patterns may increase demand for our products in one quarter, resulting in decreased demand for our products in subsequent quarters, or in a lower-margin sales channel resulting in potentially reduced profit from sales of our products.

We continue to see shifts in product and channel preferences as markets move through varying stages of restrictions and re-opening at different times, including changes in at-home consumption, in immediate consumption and away-from-home channels, such as convenience and gas and foodservice.

In addition, we continue to see a rapid increase in demand in the e-commerce and online-to-offline channels and any failure to capitalize on this demand could adversely affect our ability to maintain and grow sales or category share and erode our competitive position.

Any reduced demand for our products or change in consumer purchasing and consumption patterns, as well as continued economic uncertainty, can adversely affect our customers’ and business partners’ financial condition, which can result in bankruptcy filings and/or an inability to pay for our products, reduced or canceled orders of our products, continued or additional closing of restaurants, stores, entertainment or sports complexes, schools or other venues in which our products are sold, or reduced capacity at any of the foregoing, or our business partners’ inability to supply us with ingredients or other items necessary for us to make, manufacture, distribute or sell our products.

In addition, we continue to see an increase in demand in the e-commerce and online-to-offline channels and any failure to capitalize on this demand could adversely affect our ability to maintain and grow sales or category share and erode our competitive position.

Any reduced demand for our products or change in consumer purchasing and consumption patterns, as well as continued economic uncertainty (including supply chain disruptions and labor shortages), can adversely affect our customers’ and business partners’ financial condition, which can result in bankruptcy filings and/or an inability to pay for our products, reduced or canceled orders of our products, continued or additional closing of restaurants, stores, entertainment or sports complexes, schools or other venues in which our products are sold, or reduced capacity at any of the foregoing, or our business partners’ inability to supply us with ingredients or other items necessary for us to make, manufacture, distribute or sell our products.

Such adverse changes in our customers’ or business partners’ financial condition have also resulted and may continue to result in our recording additional charges for our inability to recover or collect any accounts receivable, owned or leased assets, including certain foodservice and vending and other equipment, or prepaid expenses.

In addition, continued economic uncertainty associated with the COVID-19 pandemic has resulted in volatility in the global capital and credit markets which can impair our ability to access these markets on terms commercially acceptable to us, or at all.

While we have developed and implemented and continue to develop and implement health and safety protocols, business continuity plans and crisis management protocols in an effort to mitigate the negative impact of COVID-19 to our employees and our business, the extent of the impact of the pandemic on our business and financial results will continue to depend on numerous evolving factors that we are not able to accurately predict and which will vary by jurisdiction and market, including the duration and scope of the pandemic, the development and availability of effective treatments and vaccines, global economic conditions during and after the pandemic, governmental actions that have been taken, or may be taken in

the future, in response to the pandemic and changes in consumer behavior in response to the pandemic, some of which may be more than just temporary.

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

The CARES Act was enacted on March 27, 2020 in the United States.

The CARES Act and related notices include several significant provisions, such as delaying certain payroll tax payments, mandatory transition tax payments under the Tax Cuts and Jobs Act (TCJ Act) and estimated income tax payments.

The CARES Act did not have a material impact on our financial results in 2020, including on our annual estimated effective tax rate or on our liquidity.

We will continue to monitor and assess the impact similar legislation in other countries may have on our business and financial results.

Refer to the COVID-19 discussion above and Note 5 to our consolidated financial statements for further information.

While we have developed and implemented and continue to develop and implement health and safety protocols, business continuity plans and crisis management protocols in an effort to mitigate the negative impact of COVID-19 to our employees and our business, the extent of the impact of the pandemic on our business and financial results will continue to depend on numerous evolving factors that we are not able to accurately predict and which will vary by jurisdiction and market, including the duration and scope of the pandemic, the emergence and spread of new variants of the virus, including the omicron and delta variants, the development and availability of effective treatments and vaccines, the speed at which vaccines are administered, the efficacy of vaccines against the virus and evolving strains or variants of the virus, global economic conditions during and after the pandemic, governmental actions that have been

taken, or may be taken in the future, in response to the pandemic and changes in consumer behavior in response to the pandemic, some of which may be more than just temporary.

Risks Associated with Commodities and Our Supply Chain

Many of the commodities used in the production and transportation of our products 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.

During 2021, we experienced higher than anticipated transportation and commodity costs, which we expect to continue in 2022.

A number of external factors, including the COVID-19 pandemic, adverse weather conditions, supply chain disruptions (including raw material shortages) and labor shortages, have impacted and may continue to impact transportation and commodity availability and costs.

When prices increase, we may or may not pass on such increases to our customers without suffering reduced volume, revenue, margins and operating results.

See Note 9 to our consolidated financial statements for further information on how we manage our exposure to commodity prices.

Risks Associated with Climate Change

Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased legal and regulatory requirements to reduce or mitigate the potential effects of climate change, including regulation of greenhouse gas emissions and potential carbon pricing programs.

These new or increased legal or regulatory requirements could result in significant increased costs of compliance and additional investments in facilities and equipment.

However, we are unable to predict the scope, nature and timing of any new or increased environmental laws and regulations and therefore cannot predict the ultimate impact of such laws and regulations on our business or financial results.

We continue to monitor existing and proposed laws and regulations 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 laws or regulations.

Risks Associated with International Operations

We are subject to risks in the normal course of business.

During the periods presented in this report, 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 controls or fluctuations.

We are subject to risks in the normal course of business that are inherent to international operations.

During the periods presented in this report, certain jurisdictions in which our products are made, manufactured, distributed or sold, including in certain developing and emerging markets, operated in a challenging environment, experiencing unstable economic, political and social conditions, civil unrest, natural disasters, debt and credit issues and currency controls or 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.

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For example, some taxes apply to all beverages, including non-caloric beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar).

In addition, some regulations apply to all products using certain types of packaging (e.g., plastic), while others are designed to increase the sustainability of packaging, encourage waste reduction and increased recycling rates or facilitate the waste management process or restrict the sale of products in certain packaging.

We sell a wide variety of beverages, foods and snacks in more than 200 countries and territories and the profile of the products we sell, the amount of revenue attributable to such products and the type of packaging used vary by jurisdiction.

In addition, COVID-19 has resulted in increased regulatory focus on labeling in certain jurisdictions, including in Mexico which enacted product labeling requirements and limitations on the marketing of certain of our products as a result of ingredients or substances contained in such products.

Further, some regulations apply to all products using certain types of packaging (e.g., plastic), while others are designed to increase the sustainability of packaging,

encourage waste reduction and increased recycling rates or facilitate the waste management process or restrict the sale of products in certain packaging.

We sell a wide variety of beverages and convenient foods in more than 200 countries and territories and the profile of the products we sell, the amount of revenue attributable to such products and the type of packaging used vary by jurisdiction.

Because of this, we cannot predict the scope or form potential taxes, regulations or other limitations on our products or their packaging may take, and therefore cannot predict the impact of such taxes, regulations or limitations on our financial results.

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We continue to monitor existing and proposed taxes and regulations 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, regulations or limitations, including advocating alternative measures with respect to the imposition, form and scope of any such taxes, regulations or limitations.

Tax Cuts and Jobs Act

During the fourth quarter of 2017, the TCJ Act was enacted in the United States.

The related provisional measurement period allowed by the SEC ended in the fourth quarter of 2018.

While our accounting for the recorded impact of the TCJ Act was deemed to be complete, additional guidance issued by the IRS impacted our recorded amounts after December 29, 2018.

For further information, see “Our Liquidity and

Capital Resources,” “Our Critical Accounting Policies” and Note 5 to our consolidated financial statements.

Other Tax Matters

On May 19, 2019, a public referendum held in Switzerland passed the Federal Act on Tax Reform and AHV Financing (TRAF), effective January 1, 2020.

The enactment of certain provisions of the TRAF resulted in adjustments to our deferred taxes.

During 2020, we recorded a net tax benefit of $72 million related to the adoption of the TRAF in the Swiss Canton of Bern.

During 2019, we recorded net tax expense of $24 million related to the impact of the TRAF.

See “Our Critical Accounting Policies” and Note 5 to our consolidated financial statements for further information.

Retail Landscape

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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, including risks related to cybersecurity.

The Board receives updates on key risks throughout the year, including risks related to food safety and cybersecurity.

During 2021, in addition to COVID-19 discussions as part of risk updates to the Board and the relevant Committees, the Board was provided with updates on COVID-19’s impact to our business, financial condition and operations through memos, teleconferences or other appropriate means of communication.

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◦ 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;

◦ The Sustainability, Diversity and Public Policy Committee of the Board assists the Board in its oversight of PepsiCo’s policies, programs and related risks that concern key sustainability, diversity and inclusion, and public policy 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 Sustainability, Diversity and Public Policy Committee of the Board assists the Board in its oversight of PepsiCo’s policies, programs and related risks that concern key sustainability (including climate change), diversity, equity and inclusion, and public policy 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 of Directors 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;

• Division and key market 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, the Audit Committee of the Board and other Committees of the Board;

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See “Item 1A.

Risk Factors” for further discussion of our market risks, and see “Our Liquidity and Capital Resources” for further information on our non-cancelable purchasing commitments.

Risk Factors” for further discussion of our market risks.

The fair value of our derivatives fluctuates based on market rates and prices.

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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.

See “Our Critical Accounting Policies and Estimates” 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.

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Commodity Prices

Our commodity derivatives had a total notional value of $1.1 billion as of December 26, 2020 and December 28, 2019.

Our commodity derivatives had a total notional value of $1.6 billion as of December 25, 2021 and $1.1 billion as of December 26, 2020.

At the end of 2021, 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 2021 by $177 million, which would generally be offset by a reduction in the cost of the underlying commodity purchases.

Foreign Exchange

Our operations outside of the United States generated 42% of our consolidated net revenue in 2020, with Mexico, Russia, Canada, the United Kingdom, China and South Africa, collectively, comprising approximately 21% of our consolidated net revenue in 2020.

Our operations outside of the United States generated 44% of our consolidated net revenue in 2021, with Mexico, Russia, Canada, China, the United Kingdom and South Africa, collectively, comprising approximately 23% of our consolidated net revenue in 2021.

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, foreign currency assets and liabilities created in the normal course of business.

During 2020, unfavorable foreign exchange reduced net revenue growth by 2 percentage points, primarily due to declines in the Mexican peso, Russian ruble and Brazilian real.

During 2021, favorable foreign exchange contributed 1 percentage point to net revenue growth, primarily due to appreciation in the Mexican peso, Canadian dollar and South African rand.

Currency declines against the U.S.

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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 Argentina, Brazil, China, Mexico, the Middle East, Russia and Turkey, and currency controls or fluctuations in certain of these international markets, continue to, and the threat or imposition of new or increased tariffs or sanctions or other impositions in or related to these international markets may, result in challenging operating environments.

We also continue to monitor the economic and political developments related to the United Kingdom’s withdrawal from the European Union (Brexit), including the effects of the post-Brexit trade deal entered into between the United Kingdom and the European Union in December 2020, as well as the economic, operating and political environment in Russia and the potential impact for the Europe segment and our other businesses.

Our foreign currency derivatives had a total notional value of $1.9 billion as of December 26, 2020 and December 28, 2019.

At the end of 2020, we estimate that an unfavorable 10% change in the underlying exchange rates would have increased our net unrealized losses in 2020 by $175 million, which would be significantly offset by an inverse change in the fair value of the underlying exposure.

Our foreign currency derivatives had a total notional value of $2.8 billion as of December 25, 2021 and $1.9 billion as of December 26, 2020.

At the end of 2021, we estimate that an unfavorable 10% change in the underlying exchange rates would have decreased our net unrealized gains in 2021 by $278 million, which would be significantly offset by an inverse change in the fair value of the underlying exposure.

The total notional amount of our debt instruments designated as net investment hedges was $2.1 billion as of December 25, 2021 and $2.7 billion as of December 26, 2020.

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Physical or unit volume is one of the key metrics management uses internally to make operating and strategic decisions, including the preparation of our annual operating plan and the evaluation of our business performance.

We believe volume provides additional information to facilitate the comparison of

our historical operating performance and underlying trends, and provides additional transparency on how we evaluate our business because it measures demand for our products at the consumer level.

Beverage volume includes volume of concentrate sold to independent bottlers and volume of finished products bearing company-owned or licensed trademarks and allied brand products and joint venture trademarks sold by company-owned bottling operations, including by our noncontrolled affiliates.

We believe volume provides additional information to facilitate the comparison of our historical operating performance and underlying trends, and provides additional transparency on how we evaluate our business because it measures demand for our products at the consumer level.

Beverage volume also includes volume of finished products bearing company-owned or licensed trademarks sold by our noncontrolled affiliates.

Concentrate volume sold to independent bottlers is reported in concentrate shipments and equivalents (CSE), whereas finished beverage product volume is reported in bottler case sales (BCS).

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In addition, APAC licenses the Tropicana brand for use in China on co-branded juice products in connection with a strategic alliance with Tingyi.

Food and snack volume includes volume sold by our subsidiaries and noncontrolled affiliates of snack products bearing company-owned or licensed trademarks.

Internationally, we measure food and snack product volume in kilograms, while in North America we measure food and snack product volume in pounds.

Convenient food volume includes volume sold by our subsidiaries and noncontrolled affiliates of convenient food products bearing company-owned or licensed trademarks.

Internationally, we measure convenient food product volume in kilograms, while in North America we measure convenient food product volume in pounds.

FLNA makes, markets, distributes and sells Sabra refrigerated dips and spreads through a joint venture with Strauss Group.

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Operating profit $ 11,162 $ 10,080 11 %

Operating profit margin 14.3 % 15.3 % (1.0)

Operating margin 14.0 % 14.3 % (0.3)

See “Results of Operations – Division Review” for a tabular presentation and discussion of key drivers of net revenue.

Operating profit decreased 2% and operating profit margin declined 1.0 percentage point.

Operating profit performance was primarily driven by certain operating cost increases, partially offset by net revenue growth and productivity savings.

The charges taken as a result of the COVID-19 pandemic negatively impacted operating profit performance by 7 percentage points.

Operating profit grew 11% and operating margin declined 0.3 percentage points.

Operating profit growth was primarily driven by net revenue growth and productivity savings, partially offset by certain operating cost increases, a 14-percentage-point impact of higher commodity costs, and higher advertising and marketing expenses.

The operating margin decline primarily reflects higher commodity costs.

Lower charges taken as a result of the COVID-19 pandemic compared to the prior year contributed 6 percentage points to operating profit growth.

Additionally, lower acquisition and divestiture-related charges included in “Items Affecting Comparability” contributed 3 percentage points to operating profit growth.

Juice Transaction

In the first quarter of 2022, we sold our Tropicana, Naked and other select juice brands to PAI Partners, while retaining a 39% noncontrolling interest in a newly formed joint venture that will operate across North America and Europe.

These juice businesses delivered approximately $3 billion in net revenue in 2021.

In the U.S., PepsiCo acts as the exclusive distributor for the new joint venture’s portfolio of brands for small-format and foodservice customers with chilled direct-store-delivery.

See Note 13 to our consolidated financial statements for further information.

Additionally, higher inventory fair value adjustments and merger and integration charges included in “Items Affecting Comparability” and unfavorable foreign exchange each negatively impacted operating profit performance by 2 percentage points.

Results of Operations — Division Review

See “Non-GAAP Measures” and “Items Affecting Comparability” for a discussion of items to consider when evaluating our results and related information regarding measures not in accordance with U.S.

See “Our Business Risks,” “Non-GAAP Measures” and “Items Affecting Comparability” for a discussion of items to consider when evaluating our results and related information regarding measures not in accordance with U.S.

Generally Accepted Accounting Principles (GAAP).

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” 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.

Additionally, “acquisitions and divestitures” reflect mergers and acquisitions activity, as well as divestitures and other structural changes, including changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.

Net Revenue and Organic Revenue Growth

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(a) Amounts may not sum due to rounding.

(b) Excludes the impact of acquisitions and divestitures.

In certain instances, the impact of organic volume growth on net revenue growth differs from the unit volume growth disclosed in the following divisional discussions due to product mix, nonconsolidated joint venture volume, and, for our beverage businesses, temporary timing differences between BCS and CSE.

(b) Excludes the impact of acquisitions and divestitures, including the impact of an extra month of volume for our acquisitions of Pioneer Food Group Ltd.

(Pioneer Foods) in our AMESA division and Hangzhou Haomusi Food Co., Ltd.

(Be & Cheery) in our APAC division as we aligned the reporting calendars of these acquisitions with those of our divisions.

In certain instances, the impact of organic volume growth on net revenue growth differs from the unit volume growth disclosed in the following divisional discussions due to the impacts of acquisitions and divestitures, product mix, nonconsolidated joint venture volume, and, for our beverage businesses, temporary timing differences between BCS and CSE.

Our net revenue excludes nonconsolidated joint venture volume, and, for our franchise-owned beverage businesses, is based on CSE.

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Reported, GAAP Measure (b)

Mark-to-market net impact

Restructuring and impairment charges

Inventory fair value adjustments and merger and integration charges

Mark-to-market net impact Restructuring and impairment charges Acquisition and divestiture-related charges (c)

Non-GAAP Measure (b)

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Items Affecting Comparability (a)

GAAP Measure Mark-to-market net impact Restructuring and impairment charges Inventory fair value adjustments and merger and integration charges Core,

Non-GAAP Measure

GAAP Measure (b)

Mark-to-market net impact Restructuring and impairment charges Acquisition and divestiture-related charges (c)

Non-GAAP Measure (b)

$ 5,340 $ — $ 83 $ 29 $ 5,452

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Corporate unallocated expenses (1,442) (73) 36 (20) (1,499)

(1,306) (112) 47 2 (1,369)

Total $ 10,080 $ (73) $ 269 $ 255 $ 10,531

(a) See “Items Affecting Comparability.”

(b) Operating profit for 2020 includes the charges taken as a result of the COVID-19 pandemic.

(b) Includes the charges taken as a result of the COVID-19 pandemic.

See Note 1 to our consolidated financial statements for further information.

(c) The income amounts primarily relate to gains associated with the contingent consideration in connection with our acquisition of Rockstar Energy Beverages (Rockstar).

In 2021, this impact is partially offset by divestiture-related charges associated with the Juice Transaction.

See Note 13 to our consolidated financial statements for further information.

Operating Profit Growth and Operating Profit Growth Adjusted for Items Affecting Comparability on a Constant Currency Basis

Impact of Items Affecting Comparability (a)

Reported % Change, GAAP Measure Mark-to-market net impact

Restructuring and impairment charges

Inventory fair value adjustments and merger and integration charges

Reported % Change, GAAP Measure Mark-to-market net impact Restructuring and impairment charges Acquisition and divestiture-related charges Core

% Change, Non-GAAP Measure (b)

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(b) Amounts may not sum due to rounding.

Net revenue grew 7% and unit volume grew 3%.

The net revenue growth was driven by effective net pricing and organic volume growth.

The unit volume growth primarily reflects double-digit growth in variety packs and dips, and high-single-digit growth in trademark Tostitos and Ruffles, partially offset by a double-digit decline in nuts and seeds.

Operating profit increased 2%, primarily reflecting the net revenue growth and productivity savings, partially offset by certain operating cost increases.

Additionally, the charges taken as a result of the COVID-19 pandemic reduced operating profit growth by 4 percentage points.

Net revenue and unit volume each increased 10%.

The net revenue growth reflects organic volume growth and favorable pricing, partially offset by unfavorable mix.

The unit volume growth was driven by double-digit growth in oatmeal and pancake syrup and mix and high-single-digit growth in ready-to-eat cereals.

The COVID-19 pandemic drove an increase in consumer demand, which had a positive impact on both net revenue and unit volume growth.

Operating profit grew 23%, reflecting the net revenue growth and productivity savings, partially offset by certain operating cost increases.

Additionally, the charges taken as a result of the COVID-19 pandemic reduced operating profit growth by 3 percentage points.

Net revenue increased 4%, primarily driven by effective net pricing, partially offset by a decrease in organic volume.

Unit volume decreased 1%, driven by a 5% decrease in CSD volume, largely offset by a 4% increase in non-carbonated beverage (NCB) volume.

The NCB volume increase primarily reflected a high-single-digit increase in Gatorade sports drinks, a double-digit increase in our energy portfolio, primarily due to acquisitions, and a low-single-digit increase in our overall water portfolio, partially offset by a mid-single-digit decrease in our juice and juice drinks portfolio.

In addition, acquisitions contributed 2 percentage points to net revenue growth.

Operating profit decreased 11%, reflecting certain operating cost increases, including incremental information technology costs, a 14-percentage-point impact of the charges taken as a result of the COVID-19 pandemic and the organic volume decrease.

These impacts were partially offset by the effective net pricing, productivity savings, lower advertising and marketing expenses, and a 4-percentage-point impact of lower commodity costs.

Prior-year gains associated with sales of assets negatively impacted operating profit performance by 2 percentage points.

Additionally, impairment charges associated with a coconut water brand negatively impacted operating profit performance by 2 percentage points.

Acquisitions positively contributed 4 percentage points to operating profit performance.

In the fourth quarter of 2020, we received notice of termination without cause from Vital Pharmaceuticals, Inc., which would end our distribution rights of Bang Energy drinks, effective October 24, 2023.

Net revenue decreased 8%, primarily reflecting an 11-percentage-point impact of unfavorable foreign exchange, partially offset by effective net pricing.

Snacks unit volume grew slightly, primarily reflecting low-single-digit growth in Brazil, partially offset by a slight decline in Mexico.

Beverage unit volume declined 1%, primarily reflecting a high-single-digit decline in Argentina, a mid-single-digit decline in Honduras and a low-single-digit decline in Guatemala, partially offset by double-digit growth in Brazil, low-single-digit growth in Mexico and mid-single-digit growth in Chile.

The COVID-19 pandemic contributed to a decrease in consumer demand, which had a negative impact on beverage unit volume performance.

Operating profit decreased 10%, primarily reflecting certain operating cost increases and a 9-percentage-point impact of higher commodity costs due to transaction-related foreign exchange.

These impacts were partially offset by productivity savings and the effective net pricing.

Additionally, unfavorable foreign exchange and certain charges taken as a result of the COVID-19 pandemic negatively impacted operating profit performance by 11 percentage points and 8 percentage points, respectively.

Net revenue increased 2%, reflecting organic volume growth, partially offset by a 4-percentage-point impact of unfavorable foreign exchange.

Snacks unit volume grew 4%, primarily reflecting double-digit growth in Turkey, high-single-digit growth in the United Kingdom and France and mid-single-digit growth in the Netherlands, partially offset by a low-single-digit decline in Spain.

Additionally, Russia and Poland each experienced low-single-digit growth.

Beverage unit volume grew 11%, primarily reflecting double-digit growth in Germany and France, partially offset by a mid-single-digit decline in Poland and a low-single-digit decline in Turkey.

Additionally, Russia experienced low-single-digit growth and the United Kingdom experienced mid-single-digit growth.

Operating profit increased 2%, primarily reflecting the organic volume growth, productivity savings, a 4-percentage-point impact of lower restructuring and impairment charges, a 3-percentage-point impact of the prior-year inventory fair value adjustments and merger and integration charges primarily associated with our acquisition of SodaStream International Ltd.

(SodaStream) and a 2-percentage-point impact of a gain on an asset sale.

These impacts were partially offset by certain operating cost increases and a 2-percentage-point impact of higher commodity costs due to transaction-related foreign exchange.

Additionally, the charges taken as a result of the COVID-19 pandemic and unfavorable foreign exchange reduced operating profit growth by 6 percentage points and 4 percentage points, respectively.

Net revenue increased 25%, primarily reflecting a 28-percentage-point impact of the Pioneer Foods acquisition, partially offset by a 3-percentage-point impact of the prior-year refranchising of a portion of our beverage business in India.

Net revenue was also negatively impacted by the COVID-19 pandemic.

Snacks unit volume grew 199%, primarily reflecting a 195-percentage-point impact of the Pioneer Foods acquisition, double-digit growth in Pakistan and mid-single-digit growth in the Middle East.

Additionally, India and South Africa (excluding our Pioneer Foods acquisition) each experienced low-single-digit growth.

Beverage unit volume declined 5%, primarily reflecting a double-digit decline in India and a high-single-digit decline in Pakistan, partially offset by slight growth in the Middle East and low-single-digit growth in Nigeria.

Our Pioneer Foods acquisition positively contributed 2 percentage points to beverage unit volume performance.

The COVID-19 pandemic contributed to a decrease in consumer demand, which had a negative impact on beverage unit volume performance.

Operating profit decreased 11%, primarily reflecting certain operating cost increases, partially offset by productivity savings, lower advertising and marketing expenses and a 3-percentage-point impact of lower commodity costs.

The inventory fair value adjustments and merger and integration charges associated with our Pioneer Foods acquisition negatively impacted operating profit performance by 24 percentage points and were partially offset by Pioneer Foods’ 9-percentage-point positive contribution to operating profit performance.

Additionally, the charges taken as a result of the COVID-19 pandemic negatively impacted operating profit performance by 5 percentage points.

Net revenue increased 18%, primarily reflecting a 10-percentage-point impact of our Be & Cheery acquisition, organic volume growth and effective net pricing.

Snacks unit volume grew 17%, primarily reflecting a 10-percentage-point impact of our Be & Cheery acquisition and double-digit growth in Indonesia, partially offset by a low-single-digit decline in Thailand.

Additionally, China (excluding our Be & Cheery acquisition) and Australia each experienced mid-single-digit growth and Taiwan experienced low-single-digit growth.

Beverage unit volume grew 1%, primarily reflecting high-single-digit growth in China, partially offset by a double-digit decline in the Philippines, a mid-single-digit decline in Vietnam and a low-single-digit decline in Thailand.

The COVID-19 pandemic contributed to a decrease in consumer demand, which had a negative impact on beverage unit volume growth.

Operating profit increased 24%, primarily reflecting the net revenue growth, productivity savings and a 10-percentage-point impact of lower restructuring and impairment charges, partially offset by certain operating cost increases and higher advertising and marketing expenses.

Net revenue grew 8%, primarily driven by effective net pricing and organic volume growth.

Unit volume grew 2%, primarily reflecting double-digit growth in variety packs and the impact of our BFY Brands, Inc.

(BFY Brands) acquisition in the first quarter of 2020, partially offset by a low-single-digit decline in trademark Tostitos and a double-digit decline in trademark Santitas.

Operating profit increased 5.5%, primarily reflecting the net revenue growth, productivity savings and a 3-percentage-point impact of lower charges taken as a result of the COVID-19 pandemic.

These impacts were partially offset by certain operating cost increases, including strategic initiatives and incremental transportation costs, and a 4-percentage-point impact of higher commodity costs, primarily packaging material and cooking oil.

Net revenue grew slightly and unit volume declined 7%.

The net revenue growth reflects effective net pricing and a 1-percentage-point impact of favorable foreign exchange, largely offset by a decrease in organic volume.

The unit volume decline was primarily driven by double-digit declines in pancake syrups and mixes and in ready-to-eat cereals and a high-single-digit decline in oatmeal, partially offset by growth in Cheetos macaroni and cheese, which was introduced in the third quarter of 2020, and double-digit growth in lite snacks.

Operating profit declined 14%, primarily reflecting certain operating cost increases, including incremental transportation costs, and an 8-percentage-point impact of higher commodity costs, partially offset by productivity savings.

The impact of the COVID-19 pandemic contributed to a current-year decrease in consumer demand, which had a negative impact on net revenue, unit volume and operating profit performance compared to the significant COVID-19 related surge in consumer demand in the prior year.

Net revenue increased 12%, primarily driven by effective net pricing and an increase in organic volume.

Unit volume increased 6%, driven by a 7% increase in non-carbonated beverage (NCB) volume and a 4% increase in CSD volume.

The NCB volume increase primarily reflected double-digit increases in our

overall water portfolio and our energy portfolio, a low-single-digit increase in Gatorade sports drinks and a mid-single-digit increase in Lipton ready-to-drink teas.

Operating profit increased 26%, primarily reflecting the net revenue growth, a 15-percentage-point impact of lower charges taken as a result of the COVID-19 pandemic and productivity savings.

These impacts were partially offset by certain operating cost increases, including incremental transportation costs, an 18-percentage-point impact of higher commodity costs and higher advertising and marketing expenses.

Higher prior-year acquisition and divestiture-related charges contributed 4 percentage points to operating profit growth.

Changes in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue, unit volume and operating profit performance.

In 2020, we received a notice of termination without cause from Vital Pharmaceuticals, Inc., which would end our distribution rights of Bang Energy drinks, effective October 24, 2023.

Net revenue increased 17%, primarily reflecting effective net pricing and organic volume growth.

Convenient foods unit volume grew 3.5%, primarily reflecting low-single-digit growth in Brazil and Mexico.

Beverage unit volume grew 8%, primarily reflecting double-digit growth in Argentina and Chile.

Additionally, Brazil experienced low-single-digit growth, Mexico experienced mid-single-digit growth and Guatemala experienced high-single-digit growth.

Operating profit increased 33%, primarily reflecting the net revenue growth, productivity savings and a 4.5-percentage-point impact of favorable foreign exchange.

These impacts were partially offset by certain operating cost increases, a 30-percentage-point impact of higher commodity costs and higher advertising and marketing expenses.

A current-year recognition of certain indirect tax credits in Brazil and lower charges taken as a result of the COVID-19 pandemic contributed 6 percentage points and 4 percentage points, respectively, to operating profit growth.

Net revenue increased 9%, primarily reflecting organic volume growth and effective net pricing.

Convenient foods unit volume grew 4%, primarily reflecting double-digit growth in Turkey and mid-single-digit growth in Russia and Poland, partially offset by a mid-single-digit decline in the United Kingdom.

Additionally, the Netherlands grew slightly and France experienced low-single-digit growth.

Beverage unit volume grew 8%, primarily reflecting double-digit growth in Russia, Turkey and the United Kingdom and high-single-digit growth in France, partially offset by a low-single-digit decline in Germany.

Operating profit decreased 4.5%, primarily reflecting certain operating cost increases, a 28-percentage-point impact of higher commodity costs and a 2.5-percentage-point impact each from higher restructuring and impairment charges and a gain on an asset sale in the prior year.

These impacts were partially offset by the net revenue growth and productivity savings.

Additionally, lower charges taken as a result of the COVID-19 pandemic and favorable settlements of promotional spending accruals compared to the prior

year positively contributed 5 percentage points and 3 percentage points, respectively, to operating profit performance.

Changes in consumer behavior as a result of the COVID-19 pandemic contributed to a current-year increase in consumer demand, which had a positive impact on net revenue and unit volume performance.

During the fourth quarter of 2021, the implementation of an Enterprise Resource Planning (ERP) system in the United Kingdom caused a temporary disruption to our United Kingdom operations which had a negative impact on net revenue, unit volume and operating profit performance.

These issues were largely resolved within the quarter and the business operations had resumed by year end.

Net revenue increased 33%, reflecting a 14-percentage-point impact of our Pioneer Foods acquisition, which included the impact of an extra month of net revenue compared to the prior year as we aligned Pioneer Foods’ reporting calendar with that of our AMESA division, as well as organic volume growth and effective net pricing.

Favorable foreign exchange contributed 4.5 percentage points to net revenue growth.

Convenient foods unit volume grew 38%, primarily reflecting a 35-percentage-point impact of our Pioneer Foods acquisition, which included the impact of an extra month of unit volume as we aligned Pioneer Foods’ reporting calendar with that of our AMESA division, double-digit growth in India and Pakistan and high-single-digit growth in the Middle East, partially offset by a low-single-digit decline in South Africa (excluding our Pioneer Foods acquisition).

Beverage unit volume grew 20%, primarily reflecting double-digit growth in India and Pakistan.

Additionally, the Middle East experienced double-digit growth and Nigeria experienced high-single-digit growth.

Operating profit increased 43%, primarily reflecting the net revenue growth, a 31-percentage-point impact of the prior-year acquisition and divestiture-related charges associated with our Pioneer Foods acquisition and productivity savings.

These impacts were partially offset by certain operating cost increases, a 13-percentage-point impact of higher commodity costs and higher advertising and marketing expenses.

Additionally, lower charges taken as a result of the COVID-19 pandemic and our Pioneer Foods acquisition contributed 3 percentage points and 2 percentage points, respectively, to operating profit growth.

Net revenue increased 34%, reflecting a 15-percentage-point impact of our Be & Cheery acquisition, which included the impact of an extra month of net revenue compared to the prior year as we aligned Be & Cheery’s reporting calendar with that of our APAC division, as well as organic volume growth, a 6- percentage-point impact of favorable foreign exchange and effective net pricing.

Convenient foods unit volume grew 19%, primarily reflecting a 16-percentage-point impact of our Be & Cheery acquisition, which included the impact of an extra month of unit volume as we aligned Be & Cheery’s reporting calendar with that of our APAC division, and double-digit growth in China (excluding our Be & Cheery acquisition) and Thailand.

Additionally, Australia, Indonesia and Taiwan each experienced low-single-digit growth.

Beverage unit volume grew 13%, primarily reflecting double-digit growth in China, partially offset by a low-single-digit decline in Vietnam.

Additionally, the Philippines experienced low-single-digit growth and Thailand experienced mid-single-digit growth.

Operating profit increased 14%, primarily reflecting the net revenue growth, productivity savings and a 2- percentage-point contribution from our Be & Cheery acquisition, partially offset by certain operating cost increases and higher advertising and marketing expenses.

Additionally, impairment charges associated with an equity method investment reduced operating profit growth by 3 percentage points.

Favorable foreign exchange contributed 3 percentage points to operating profit growth.

Other Consolidated Results

2021 2020 Change

Other pension and retiree medical benefits income/(expense) $ 117 $ (44) $ 161

Other pension and retiree medical benefits income $ 522 $ 117 $ 405

Net interest expense and other $ (1,863) $ (1,128) $ (735)

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$ 5.49 $ 5.12 7 %

(a) The charges taken as a result of the COVID-19 pandemic negatively impacted both net income attributable to PepsiCo performance and net income attributable to PepsiCo per common share performance by 8 percentage points.

(a) In 2021, lower charges taken as a result of the COVID-19 pandemic contributed 7 percentage points to both net income attributable to PepsiCo growth and net income attributable to PepsiCo per common share growth.

See Note 1 to our consolidated financial statements for further information.

Other pension and retiree medical benefits income increased $161 million, primarily reflecting the recognition of fixed income gains on plan assets, the impact of discretionary plan contributions and higher prior-year settlement losses, partially offset by the decrease in discount rates.

Net interest expense and other increased $193 million, primarily due to higher average debt balances, lower interest rates on cash, as well as lower gains on the market value of investments used to economically hedge a portion of our deferred compensation liability.

These impacts were partially offset by lower interest rates on debt and higher average cash balances.

The reported tax rate decreased 0.1 percentage points, primarily reflecting the net tax benefits related to the TRAF, partially offset by an increase in reserves for uncertain tax positions in foreign jurisdictions.

Other pension and retiree medical benefits income increased $405 million, primarily reflecting lower settlement charges in 2021, the recognition of fixed income gains on plan assets, the impact of plan changes approved in 2020, as discussed in Note 7 to our consolidated financial statements, and the impact of discretionary plan contributions, partially offset by a decrease in the expected rate of return on plan assets.

Net interest expense and other increased $735 million, reflecting a charge of $842 million in connection with our cash tender offers.

See Note 8 to our consolidated financial statements for further information.

This impact was partially offset by lower interest rates on average debt balances.

The reported tax rate increased 0.9 percentage points, primarily reflecting the net tax impact of adjustments to uncertain tax positions related to the final assessment from the Internal Revenue Service (IRS) audit for the tax years 2014 through 2016.

Non-GAAP Measures

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charges related to restructuring plans;

amounts associated with mergers, acquisitions, divestitures and other structural changes;

pension and retiree medical related items;

charges or adjustments related to the enactment of new laws, rules or regulations, such as significant tax law changes;

costs associated with mergers, acquisitions, divestitures and other structural changes;

gains associated with divestitures;

pension and retiree medical-related amounts (including all settlement and curtailment gains and losses);

adjustments related to the enactment of new laws, rules or regulations, such as tax law changes;

amounts related to the resolution of tax positions;

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and remeasurements of net monetary assets.

Previously, certain immaterial pension and retiree medical-related settlement and curtailment gains and losses were not considered items affecting comparability.

Pension and retiree medical-related service cost, interest cost, expected return on plan assets, and other net periodic pension costs will continue to be reflected in our core results.

See below and “Items Affecting Comparability” for a description of adjustments to our U.S.

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The following non-GAAP financial measures contained in this Form 10-K are discussed below:

Cost of sales, gross profit, selling, general and administrative expenses, other pension and retiree medical benefits income/expense, provision for income taxes, net income attributable to noncontrolling interests and net income attributable to PepsiCo, each adjusted for items affecting comparability, operating profit and net income attributable to PepsiCo per common share – diluted, each adjusted for items affecting comparability, and the corresponding constant currency growth rates

These measures 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 2019 Multi-Year Productivity Plan (2019 Productivity Plan) and our 2014 Multi-Year Productivity Plan (2014 Productivity Plan), inventory fair value adjustments and merger and integration charges associated with our acquisitions, pension-related settlement charges and net tax related to the TCJ Act (see “Items Affecting Comparability” for a detailed description of each of these items).

We also evaluate performance on operating profit, adjusted for items affecting comparability, and net income attributable to PepsiCo per common share – diluted, adjusted for items affecting comparability, each 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.

Cost of sales, gross profit, selling, general and administrative expenses, other pension and retiree medical benefits income, net interest expense and other, provision for income taxes, net income attributable to noncontrolling interests and net income attributable to PepsiCo, each adjusted for items affecting comparability, operating profit and net income attributable to PepsiCo per common share – diluted, each adjusted for items affecting comparability, and the corresponding constant currency growth rates

These measures 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 2019 Multi-Year Productivity Plan (2019 Productivity Plan), costs associated with our acquisitions and divestitures, the impact of settlement and curtailment gains and losses related to pension and retiree medical plans, a charge related to cash tender offers and tax expense related to the Tax Cuts and Jobs Act (TCJ Act) (see “Items Affecting Comparability” for a detailed description of each of these items).

We also evaluate performance on operating profit and net income attributable to PepsiCo per common share – diluted, each 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.

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 or that we believe impact comparability with the prior year.

Organic revenue growth

We define organic revenue growth as net revenue growth adjusted for the impact of foreign exchange translation, as well as the impact from acquisitions, divestitures and other structural changes.

We define organic revenue growth as a measure that adjusts for the impacts of foreign exchange translation, acquisitions and divestitures, and where applicable, the impact of an additional week of results every five or six years (53 rd reporting week), including in our 2022 financial results.

Adjusting for acquisitions and divestitures reflects mergers and acquisitions activity, including the impact in 2021 of an extra month of net revenue for our acquisitions of Pioneer Foods in our AMESA division and Be & Cheery in our APAC division as we aligned the reporting calendars of these acquisitions with those of our divisions, as well as divestitures and other structural changes, including changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.

We believe organic revenue growth 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.

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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 Selling, general and administrative expenses Operating profit Other pension and retiree medical benefits income Provision for income taxes (a)

Net income attributable to PepsiCo

Cost of sales Gross profit Selling, general and administrative expenses Operating profit Other pension and retiree medical benefits income Net interest expense and other Provision for income taxes (a)

Net income attributable to noncontrolling interests Net income attributable to PepsiCo

Reported, GAAP Measure $ 37,075 $ 42,399 $ 31,237 $ 11,162 $ 522 $ (1,863) $ 2,142 $ 61 $ 7,618

$ 31,797 $ 38,575 $ 28,495 $ 10,080 $ 117 $ 1,894 $ 7,120

Items Affecting Comparability

Mark-to-market net impact (39) 39 20 19 — — 5 — 14

64 (64) 9 (73) — (15) (58)

Restructuring and impairment charges (29) 29 (208) 237 10 — 41 1 205

Acquisition and divestiture-related charges

(1) 1 5 (4) — — 23 — (27)

Inventory fair value adjustments and merger and integration charges

Pension and retiree medical-related impact

— — — — 12 — 1 — 11

Pension-related settlement charge — — — — 205 47 158

Core, Non-GAAP Measure

Charge related to cash tender offers — — — — — 842 165 — 677

Tax expense related to the TCJ Act

— — — — — — (190) — 190

Cost of sales Gross profit Selling, general and administrative expenses Operating profit Other pension and retiree medical benefits (expense)/income Provision for income taxes (a)

Net income attributable to noncontrolling interests Net income attributable to PepsiCo

Core, Non-GAAP Measure $ 37,006 $ 42,468 $ 31,054 $ 11,414 $ 544 $ (1,021) $ 2,187 $ 62 $ 8,688

Cost of sales Gross profit Selling, general and administrative expenses Operating profit Other pension and retiree medical benefits income Provision for income taxes (a)

Net income attributable to PepsiCo

Reported, GAAP Measure $ 31,797 $ 38,575 $ 28,495 $ 10,080 $ 117 $ 1,894 $ 7,120

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Restructuring and impairment charges (30) 30 (239) 269 20 58 231

Inventory fair value adjustments and merger and integration charges (34) 34 (21) 55 — 8 — 47

Pension-related settlement charges — — — — 273 62 — 211

Net tax related to the TCJ Act — — — — — 8 — (8)

Acquisition and divestiture-related charges

(32) 32 (223) 255 — 18 237

Pension and retiree medical-related impact

— — — — 205 47 158

Core, Non-GAAP Measure $ 31,799 $ 38,573 $ 28,042 $ 10,531 $ 342 $ 2,002 $ 7,688

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Restructuring and impairment charges 0.15 0.17

Inventory fair value adjustments and merger and integration charges 0.17 0.03

Pension-related settlement charges 0.11 0.15

Net tax related to the TCJ Act — (0.01)

Acquisition and divestiture-related charges

Pension and retiree medical-related impact

Charge related to cash tender offers 0.49 —

Tax expense related to the TCJ Act

Core net income attributable to PepsiCo per common share – diluted, non-GAAP measure $ 6.26 (a)

Impact of foreign exchange translation (1.5)

Growth in core net income attributable to PepsiCo per common share – diluted, on a constant currency basis, non-GAAP measure 2 %

Growth in core net income attributable to PepsiCo per common share – diluted, on a constant currency basis, non-GAAP measure 12 % (a)

(a) Does not sum due to rounding.

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and simplify our organization and optimize our manufacturing and supply chain footprint.

In connection with this plan, we expect to incur pre-tax charges of approximately $2.5 billion, including cash expenditures of approximately $1.6 billion.

Plan to date through December 26, 2020, we have incurred pre-tax charges of $797 million, including cash expenditures of $518 million.

In our 2021 financial results, we expect to incur pre-tax charges of approximately $500 million, including cash expenditures of approximately $400 million, with the balance to be reflected in our 2022 and 2023 financial results.

To build on the successful implementation of the 2019 Productivity Plan to date, we expanded and extended the program through the end of 2026 to take advantage of additional opportunities within the initiatives of the 2019 Productivity Plan.

We now expect to incur pre-tax charges of approximately $3.15 billion, including cash expenditures of approximately $2.4 billion, as compared to our previous estimate of pre-tax charges of approximately $2.5 billion, which included cash expenditures of approximately $1.6 billion.

Plan to date through December 25, 2021, we have incurred pre-tax charges of $1.0 billion, including cash expenditures of $776 million.

In our 2022 financial results, we expect to incur pre-tax charges of approximately $350 million, including cash expenditures of approximately $300 million.

These charges will be funded primarily through cash from operations.

We expect to incur the majority of the remaining pre-tax charges and cash expenditures in our 2021 and 2022 results.

2014 Multi-Year Productivity Plan

The 2014 Productivity Plan was completed in 2019.

The total plan pre-tax charges and cash expenditures approximated the previously disclosed plan estimates of $1.3 billion and $960 million, respectively.

See Note 3 to our consolidated financial statements for further information related to our 2019 and 2014 Productivity Plans.

We regularly evaluate productivity initiatives beyond the productivity plans and other initiatives discussed above and in Note 3 to our consolidated financial statements.

Inventory Fair Value Adjustments and Merger and Integration Charges

In 2020, we recorded inventory fair value adjustments and merger and integration charges related to our acquisitions of BFY Brands, Inc.

(BFY Brands), Rockstar, Pioneer Foods and Be & Cheery.

Inventory fair value adjustments and merger and integration charges include fair value adjustments to the acquired

inventory included in the acquisition-date balance sheets and closing costs, employee-related costs, contract termination costs, changes in the fair value of contingent consideration and other integration costs.

Merger and integration charges also include liabilities to support socioeconomic programs in South Africa, which are irrevocable conditions of our acquisition of Pioneer Foods.

In 2019, we recorded inventory fair value adjustments and merger and integration charges primarily related to SodaStream’s acquired inventory included in acquisition-date balance sheet, as well as merger and integration charges, including employee-related costs.

We expect to incur the majority of the remaining pre-tax charges and cash expenditures in our 2022 and 2023 financial results, with the balance to be incurred through 2026.

See Note 3 to our consolidated financial statements for further information related to our 2019 Productivity Plan.

We regularly evaluate productivity initiatives beyond the productivity plan and other initiatives discussed above and in Note 3 to our consolidated financial statements.

Acquisition and Divestiture-Related Charges

Acquisition and divestiture-related charges primarily include fair value adjustments to the acquired inventory included in the acquisition-date balance sheets, merger and integration charges and costs associated with divestitures.

Merger and integration charges include liabilities to support socioeconomic programs in South Africa, closing costs, employee-related costs, gains associated with contingent consideration, contract termination costs and other integration costs.

See Note 13 to our consolidated financial statements for further information.

Pension-Related Settlement Charges

In 2020, we recorded a pension settlement charge related to lump sum distributions exceeding the total of annual service and interest cost.

In 2019, we recorded pension settlement charges related to the purchase of a group annuity contract and one-time lump sum payments to certain former employees who had vested benefits.

Pension and Retiree Medical-Related Impact

Pension and retiree medical-related impact primarily includes settlement charges related to lump sum distributions exceeding the total of annual service and interest costs, as well as curtailment gains related to plan changes.

See Note 7 to our consolidated financial statements for further information.

Net Tax Related to the TCJ Act

During the fourth quarter of 2017, the TCJ Act was enacted in the United States.

We recognized net tax benefits in 2019 related to the TCJ Act.

Charge Related to Cash Tender Offers

As a result of the cash tender offers for some of our long-term debt, we recorded a charge primarily representing the tender price paid over the carrying value of the tendered notes and loss on treasury rate locks used to mitigate the interest rate risk on the cash tender offers.

See Note 8 to our consolidated financial statements for further information.

Tax Expense Related to the TCJ Act

Tax expense related to the TCJ Act reflects adjustments to the mandatory transition tax liability under the TCJ Act.

See Note 5 to our consolidated financial statements for further information.

Our Liquidity and Capital Resources

We believe that our cash generating capability and financial condition, together with our revolving credit facilities, working capital lines 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, including with respect to our net capital spending plans.

Our primary sources of cash available to fund cash outflows, such as our anticipated dividend payments, debt repayments, payments for acquisitions, including the contingent consideration related to Rockstar, and the transition tax liability under the TCJ Act, include cash from operations, proceeds obtained from issuances of commercial paper and long-term debt and cash and cash equivalents.

Our primary sources of liquidity include cash from operations, pre-tax cash proceeds of approximately $3.5 billion from the Juice Transaction, proceeds obtained from issuances of commercial paper and long-term debt, and cash and cash equivalents.

These sources of cash are available to fund cash outflows that have both a short- and long-term component, including debt repayments and related interest payments;

payments for acquisitions, including support for socioeconomic programs in South Africa related to our acquisition of Pioneer Foods;

operating leases;

purchase, marketing, and other contractual commitments, including capital expenditures and the transition tax liability under the TCJ Act.

In addition, these sources of cash fund other cash outflows including anticipated dividend payments and share repurchases.

We do not have guarantees or off-balance sheet financing arrangements, including variable interest entities, that we believe could have a material impact on our liquidity.

See “Item 1A.

Risk Factors,” “Our Business Risks” and Note 8 to our consolidated financial statements for further information.

Our sources and uses of cash were not materially adversely impacted by COVID-19 in 2020 and, to date, we have not identified any material liquidity deficiencies as a result of the COVID-19 pandemic.

Based on the information currently available to us, we do not expect the impact of COVID-19 to have a material impact on our liquidity.

We will continue to monitor and assess the impact COVID-19 may have on our business and financial results.

See Note 1 to our consolidated financial statements for further information.

The CARES Act and related notices include several significant provisions, such as delaying certain payroll tax payments, mandatory transition tax payments under the TCJ Act and estimated income tax payments.

The CARES Act did not have a material impact on our financial results in 2020, including on our annual estimated effective tax rate or on our liquidity.

We will continue to monitor and assess the impact similar legislation in other countries may have on our business and financial results.

Our sources and uses of cash were not materially adversely impacted by COVID-19 and, to date, we have not identified any material liquidity deficiencies as a result of the COVID-19 pandemic.

Based on the information currently available to us, we do not expect the impact of the COVID-19 pandemic to have a material impact on our future liquidity.

We will continue to monitor and assess the impact the COVID-19 pandemic may have on our business and financial results.

See “Item 1A.

Risk Factors” and “Our Business Risks” for further information related to the COVID-19 pandemic.

Risk Factors,” “Our Business Risks” and Note 1 to our consolidated financial statements for further information related to the impact of the COVID-19 pandemic on our business and financial results.

As of December 25, 2021, cash, cash equivalents and short-term investments in our consolidated subsidiaries subject to currency controls or currency exchange restrictions were not material.

The TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings, including $18.9 billion held in our consolidated subsidiaries outside the United States as of December 30, 2017.

The TCJ Act imposed a one-time mandatory transition tax on undistributed international earnings, including $18.9 billion held in our consolidated subsidiaries outside the United States as of December 30, 2017.

As of December 25, 2021, our mandatory transition tax liability was $2.9 billion, which must be paid through 2026 under the provisions of the TCJ Act;

we currently expect to pay approximately $309 million of this liability in 2022.

See “Credit Facilities and Long-Term Contractual Commitments.” Any additional guidance issued by the IRS may impact our recorded amounts for this transition tax liability.

Any additional guidance issued by the IRS may impact our recorded amounts for this transition tax liability.

See Note 5 to our consolidated financial statements for further discussion of the TCJ Act.

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Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted.

All outstanding amounts related to suppliers participating in such financing arrangements are recorded within

accounts payable and other current liabilities in our consolidated balance sheet.

We have been informed by the participating financial institutions that as of December 26, 2020 and December 28, 2019, $1.2 billion and $1.1 billion, respectively, of our accounts payable to suppliers who participate in these financing arrangements are outstanding.

outstanding amounts related to suppliers participating in such financing arrangements are recorded within accounts payable and other current liabilities in our consolidated balance sheet.

We were informed by the participating financial institutions that as of December 25, 2021 and December 26, 2020, $1.5 billion and $1.2 billion, respectively, of our accounts payable to suppliers who participate in these financing arrangements are outstanding.

These supply chain finance arrangements did not have a material impact on our liquidity or capital resources in the periods presented and we do not expect such arrangements to have a material impact on our liquidity or capital resources for the foreseeable future.

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Net cash used for investing activities $ (3,269) $ (11,619)

Net cash provided by/(used for) financing activities $ 3,819 $ (8,489)

Net cash (used for)/provided by financing activities $ (10,780) $ 3,819

Operating Activities

In 2021, net cash provided by operating activities was $11.6 billion, compared to $10.6 billion in the prior year.

The increase in operating cash flow primarily reflects lower net cash tax payments and lower pre-tax pension and retiree medical plan contributions in the current year.

The increase in operating cash flow primarily reflects favorable working capital comparisons and operating profit performance, partially offset by higher pre-tax pension and retiree medical plan contributions and higher net cash tax payments in the current year.

Investing Activities

In 2021, net cash used for investing activities was $3.3 billion, primarily reflecting net capital spending of $4.5 billion, partially offset by maturities of short-term investments with maturities greater than three months of $1.1 billion.

In 2020, net cash used for investing activities was $11.6 billion, primarily reflecting net cash paid in connection with our acquisitions of Rockstar of $3.85 billion, Pioneer Foods of $1.2 billion and Be & Cheery of $0.7 billion, net capital spending of $4.2 billion, as well as purchases of short-term investments with maturities greater than three months of $1.1 billion.

In 2019, net cash used for investing activities was $6.4 billion, primarily reflecting $4.1 billion of net capital spending, as well as $1.9 billion of the remaining cash paid in connection with our acquisition of SodaStream.

See Note 1 to our consolidated financial statements for further discussion of capital spending by division;

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Financing Activities

In 2021, net cash used for financing activities was $10.8 billion, primarily reflecting the return of operating cash flow to our shareholders largely through dividend payments of $5.8 billion, cash tender offers/debt redemption of $4.8 billion, payments of long-term debt borrowings of $3.5 billion and

payments of acquisition-related contingent consideration of $0.8 billion, partially offset by proceeds from issuances of long-term debt of $4.1 billion.

In 2020, net cash provided by financing activities was $3.8 billion, primarily reflecting proceeds from issuances of long-term debt of $13.8 billion, partially offset by the return of operating cash flow to our shareholders through dividend payments and share repurchases of $7.5 billion, payments of long-term debt borrowings of $1.8 billion and debt redemptions of $1.1 billion.

In 2019, net cash used for financing activities was $8.5 billion, primarily reflecting the return of operating cash flow to our shareholders through dividend payments and share repurchases of $8.3 billion, payments of long-term debt borrowings of $4.0 billion and debt redemptions of $1.0 billion, partially offset by proceeds from issuances of long-term debt of $4.6 billion.

See Note 8 to our consolidated financial statements for further discussion of debt obligations.

We annually review our capital structure with our Board of Directors, including our dividend policy and share repurchase activity.

On February 13, 2018, we announced the 2018 share repurchase program providing for the repurchase of up to $15.0 billion of PepsiCo common stock which commenced on July 1, 2018 and will expire on June 30, 2021.

On February 10, 2022, we announced the 2022 share repurchase program.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for further information.

In addition, on February 10, 2022, we announced a 7% increase in our annualized dividend to $4.60 per share from $4.30 per share, effective with the dividend expected to be paid in June 2022.

We expect to return a total of approximately $5.9 billion to shareholders in 2021, comprised of dividends of approximately $5.8 billion and share repurchases of approximately $100 million.

We have recently completed our share repurchase activity and do not expect to repurchase any additional shares for the balance of 2021.

We expect to return a total of approximately $7.7 billion to shareholders in 2022, comprising dividends of approximately $6.2 billion and share repurchases of approximately $1.5 billion.

Free Cash Flow

The table below reconciles net cash provided by operating activities, as reflected in our cash flow statement, to our free cash flow.

The table below reconciles net cash provided by operating activities, as reflected on our cash flow statement, to our free cash flow.

Free cash flow is a non-GAAP financial measure.

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We use free cash flow primarily for acquisitions and 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.

We expect to continue to return free cash flow to our shareholders primarily 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 “Item 1A.

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See “Item 1A.

Risk Factors,” “Our Business Risks” and Note 8 to our consolidated financial statements for further discussion.

Credit Facilities and Long-Term Contractual Commitments

See Note 8 to our consolidated financial statements for a description of our credit facilities.

The following table summarizes our long-term contractual commitments by period:

Payments Due by Period (a)

Total 2021 2022 –

2025 2026 and

Recorded Liabilities:

Long-term debt obligations (b)

$ 40,330 $ — $ 6,895 $ 6,298 $ 27,137

Operating leases (c)

1,895 486 663 333 413

One-time mandatory transition tax - TCJ Act (d)

3,239 309 617 1,351 962

Other long-term liabilities (e)

1,277 159 135 140 843

Interest on debt obligations (f)

15,988 1,160 2,043 1,771 11,014

Purchasing commitments (g)

2,295 894 1,034 246 121

Marketing commitments (h)

950 355 366 161 68

Other long-term contractual commitments (i)

347 85 167 95 —

Total contractual commitments $ 66,321 $ 3,448 $ 11,920 $ 10,395 $ 40,558

(a) Based on year-end foreign exchange rates.

(b) Excludes $3,358 million related to current maturities of debt, $40 million related to the fair value adjustments for debt acquired in acquisitions and interest rate swaps and payments of $260 million related to unamortized net discounts.

See Note 13 to our consolidated financial statements for further information on operating leases.

(d) Reflects our transition tax liability as of December 26, 2020, which must be paid through 2026 under the provisions of the TCJ Act.

(e) Reflects contingent consideration related to estimated future tax benefits associated with our acquisition of Rockstar.

Also reflects commitments to support socioeconomic programs in South Africa, which are irrevocable conditions of our acquisition of Pioneer Foods.

See Note 9 and Note 14 to our consolidated financial statements for further information.

(f) Interest payments on floating-rate debt are estimated using interest rates effective as of December 26, 2020.

Includes accrued interest of $352 million as of December 26, 2020.

(g) Reflects non-cancelable commitments, primarily for the purchase of commodities and outsourcing services in the normal course of business and does not include purchases that we are likely to make based on our plans but are not obligated to incur.

(h) Reflects non-cancelable commitments, primarily for sports marketing in the normal course of business.

(i) Reflects our commitment to incur capital expenditures and/or business-related costs associated with our acquisition of Pioneer Foods.

See Note 14 to our consolidated financial statements for further information.

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.

Bottler funding to independent bottlers is not reflected in the table above as it is negotiated on an annual basis.

Accrued liabilities for pension and retiree medical plans are not reflected in the table above.

See Note 7 to our consolidated financial statements for further 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.

Risk Factors,” “Our Business Risks” and Note 8 to our consolidated financial statements for further information.

Material Changes in Line Items in Our Consolidated Financial Statements

Material changes in line items in our consolidated statement of income are discussed in “Results of Operations – Division Review” and “Items Affecting Comparability.”

Material changes in line items in our consolidated statement of cash flows are discussed in “Our Liquidity and Capital Resources.”

Material changes in line items in our consolidated balance sheet are discussed below:

In 2021, total assets were $92.4 billion, compared to $92.9 billion in the prior year.

The decrease in total assets is primarily driven by the following line items:

Cash and cash equivalents $ (2.6) Consolidated Statement of Cash Flows

Short-term investments $ (1.0) Consolidated Statement of Cash Flows

Assets held for sale $ 1.8 Note 13

Property, plant and equipment, net $ 1.0 Note 1, Note 14

Other indefinite-lived intangible assets $ (0.5) Note 4

Other assets $ 0.9 Note 14

Total Liabilities

In 2021, total liabilities were $76.2 billion, compared to $79.4 billion in the prior year.

The decrease in total liabilities is primarily driven by the following line items:

Accounts payable and other current liabilities $ 1.6 Note 14

Liabilities held for sale $ 0.8 Note 13

Long-term debt obligations $ (4.3) Note 8

Other liabilities (b)

$ (2.2) Note 7, Note 9 and Note 12

(a) In billions.

(b) Reflects changes primarily related to pension and retiree medical plans, contingent consideration associated with our acquisition of Rockstar and leases.

Refer to our consolidated statement of equity for material changes in equity line items.

Return on Invested Capital

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The table below reconciles ROIC as calculated above to net ROIC, excluding items affecting comparability.

ROIC 14.7 % 17.7 %

ROIC, non-GAAP measure 16.0 % 14.7 %

Average cash, cash equivalents and short-term investments 2.2 3.4

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Restructuring and impairment charges 0.2 0.3

Inventory fair value adjustments and merger and integration charges 0.4 0.1

Pension-related settlement charges 0.2 0.5

Net tax related to the TCJ Act 0.1 (1.0)

Acquisition and divestiture-related charges (0.1) 0.4

Pension and retiree medical-related impact (0.1) 0.2

Tax expense related to the TCJ Act 0.3 0.1

Other net tax benefits — 1.0

Charges related to cash tender and exchange offers — (0.1)

Net ROIC, excluding items affecting comparability 19.9 % 22.3 %

OUR CRITICAL ACCOUNTING POLICIES

An appreciation of our critical accounting policies is necessary to understand our financial results.

Core Net ROIC, non-GAAP measure 18.4 % 19.9 %

OUR CRITICAL ACCOUNTING POLICIES AND ESTIMATES

An appreciation of our critical accounting policies and estimates is necessary to understand our financial results.

These policies may require management to make difficult and subjective judgments regarding uncertainties, including those related to the COVID-19 pandemic, and as a result, such estimates may significantly impact our financial results.

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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.

Our critical accounting policies are:

We have discussed our critical accounting policies and estimates with our Audit Committee.

Our critical accounting policies and estimates are:

• revenue recognition;

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We recognize revenue when our performance obligation is satisfied.

Our primary performance obligation (the distribution and sales of beverage products and food and snack products) is satisfied upon the shipment or delivery of products to our customers, which is also when control is transferred.

Our primary performance obligation (the distribution and sales of beverage and convenient food products) is satisfied upon the shipment or delivery of products to our customers, which is also when control is transferred.

The transfer of control of products to our customers is typically based on written sales terms that do not allow for a right of return.

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As a result, we record reserves, based on estimates, for anticipated damaged and out-of-date produc ts.

We recorded $20 million of reserves for product returns in 2020 as a result of the COVID-19 pandemic .

See Note 1 to our consolidated financial statements for further information.

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.

There were no material changes in credit terms as a result of the COVID-19 pandemic.

We estimate and reserve for our expected credit loss exposure based on our experience with past due accounts and collectibility, write-off history, the aging of accounts receivable, our analysis of customer data, and forward-looking information (including the expected impact of the global economic uncertainty related to the COVID-19 pandemic), leveraging estimates of creditworthiness and projections of default and recovery rates for certain of our customers (including foodservice and vending businesses).

We recorded an allowance for expected credit losses of $56 million in 2020 as a result of the COVID-19 pandemic.

See Note 1 to our consolidated financial statements for further information.

related to the COVID-19 pandemic), leveraging estimates of creditworthiness and projections of default and recovery rates for certain of our customers.

Our policy is to provide customers with product when needed.

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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.

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.

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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 for indefinite-lived intangible assets and goodwill, estimated fair value is determined using discounted cash flows and 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.

In the quantitative assessment for indefinite-lived intangible assets and goodwill, an assessment is performed to determine the fair value of the indefinite-lived intangible asset and the reporting unit, respectively.

Estimated fair value is determined using discounted cash flows and 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 (including those related to the COVID-19 pandemic) to estimate future levels of sales, operating profit or cash flows.

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A deterioration in these assumptions could adversely impact our results.

assumptions could be adversely impacted by certain of the risks described in “Item 1A.

These assumptions could be adversely impacted by certain of the risks described in “Item 1A.

Risk Factors” and “Our Business Risks.”

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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.

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.

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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 on our consolidated financial statements.

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.

We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is not more likely than not that some portion or all of the deferred tax assets will be realized.

Deferred tax liabilities generally represent tax expense recognized in our consolidated 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 consolidated 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.

We recorded a net tax benefit of $28 million ($0.02 per share) in 2018 related to the TCJ Act.

The related provisional measurement period allowed by the SEC ended in the fourth quarter of 2018.

While our accounting for the recorded impact of the TCJ Act was deemed to be complete, additional guidance issued by the IRS impacted our recorded amounts after December 29, 2018.

In 2019, we recognized a net tax benefit totaling $8 million ($0.01 per share) related to the TCJ Act.

See further information in “Items Affecting Comparability.”

On May 19, 2019, a public referendum held in Switzerland passed the TRAF, effective January 1, 2020.

The enactment of certain provisions of the TRAF resulted in adjustments to our deferred taxes.

During 2020, we recorded a net tax benefit of $72 million related to the adoption of the TRAF in the

Swiss Canton of Bern.

During 2019, we recorded net tax expense of $24 million related to the impact of the TRAF.

In 2021, our annual tax rate was 21.8% compared to 20.9% in 2020.

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In addition, we have been phasing out certain subsidies of retiree medical benefits.

In 2020, lump sum distributions exceeded the total of annual service and interest cost and triggered a pre-tax settlement charge in the PepsiCo Employees Retirement Plan A (Plan A) of $205 million ($158 million after-tax or $0.11 per share).

In 2020, we adopted an amendment to the U.S.

defined benefit pension plans to freeze benefit accruals for salaried participants, effective December 31, 2025.

Since 2011, salaried new hires are not eligible to participate in the defined benefit plan.

After the effective date, all salaried participants will receive an employer contribution to the 401(k) savings plan based on age and years of service regardless of employee contribution and will have the opportunity to receive employer contributions to match employee contributions up to defined limits.

As a result of this amendment, pension benefits pre-tax expense is expected to decrease by approximately $70 million in 2021, primarily impacting corporate unallocated expenses.

In 2020, we approved an amendment to reorganize the U.S.

qualified defined benefit pension plans that resulted in the transfer of certain participants from Plan A to the PepsiCo Employees Retirement Plan I (Plan I) and to a newly created plan, the PepsiCo Employees Retirement Hourly Plan (Plan H), effective January 1, 2021.

The benefits offered to the plans’ participants were unchanged.

The reorganization will facilitate a more targeted investment strategy and provide additional flexibility in evaluating opportunities to reduce risk and volatility.

No material impact to pension benefit pre-tax expense is expected from this reorganization.

In 2020, we adopted an amendment, effective January 1, 2021, to enhance the pay credit benefits of certain participants in Plan H.

As a result of this amendment, pension benefits pre-tax expense is expected to increase approximately $45 million in 2021, primarily impacting service cost expense.

In 2019, Plan A purchased a group annuity contract whereby a third-party insurance company assumed the obligation to pay and administer future annuity payments for certain retirees.

This transaction triggered a pre-tax settlement charge in 2019 of $220 million ($170 million after-tax or $0.12 per share).

Also in 2019, certain former employees who had vested benefits in our U.S.

defined benefit pension plans were offered the option of receiving a one-time lump sum payment equal to the present value of the participant’s pension benefit.

This transaction triggered a pre-tax settlement charge in 2019 of $53 million ($41 million after-tax or $0.03 per share).

Collectively, the group annuity contract and one-time lump sum payments to certain former employees who had vested benefits resulted in settlement charges in 2019 of $273 million ($211 million after-tax or $0.15 per share).

See “Items Affecting Comparability” and Note 7 to our consolidated financial statements.

See “Items Affecting Comparability” and Note 7 to our consolidated financial statements for information about changes and settlements within our pension plans.

Our Assumptions

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• certain employee-related demographic factors, such as turnover, retirement age and mortality;

• the expected return on assets in our funded plans;

• the expected rate of return on assets in our funded plans;

• the spot rates along the yield curve used to determine service and interest costs and the present value of liabilities;

• 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.

• for pension and retiree medical expense, the spot rates along the yield curve used to determine service and interest costs and the present value of liabilities.

Certain assumptions reflect our historical experience and management’s best judgment regarding future expectations.

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Current health care cost trend rate 5.8 % 5.5 % 5.6 %

In 2020, lump sum distributions exceeded the total of annual service and interest cost and triggered a pre-tax settlement charge in Plan A.

In addition, based on our assumptions, we expect our total pension and retiree medical expense to decrease in 2021 primarily reflecting the recognition of fixed income gains on plan assets, the impact of discretionary plan contributions and plan changes, partially offset by lower discount rates and lower rate of expected returns on U.S.

Based on our assumptions, we expect our total pension and retiree medical expense to decrease in 2022 primarily reflecting plan changes and related impacts, and higher discount rates.

Sensitivity of Assumptions

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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 November 2020, we received approval from our Board of Directors to make discretionary contributions of $500 million to our U.S.

qualified defined benefit plans.

We contributed $300 million of the approved amount in January 2021;

we expect to contribute the remaining $200 million in the third quarter of 2021.

We made discretionary contributions to our U.S.

qualified defined benefit plans of $325 million in 2020 and $400 million in 2019.

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.

qualified defined benefit plans of $75 million in January 2022 and expect to make an additional $75 million contribution in the third quarter of 2022.

Our pension and retiree medical plan 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 continue to monitor the impact of the COVID-19 pandemic and related global economic conditions and uncertainty on the net unfunded status of our pension and retiree medical plans.

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Income before income taxes 9,821 9,069 9,312

Provision for/(benefit from) income taxes (See Note 5) 1,894 1,959 ( 3,370 )

Provision for income taxes 2,142 1,894 1,959

Net income 7,679 7,175 7,353

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Net income $ 7,679 $ 7,175 $ 7,353

Other comprehensive (loss)/income, net of taxes:

Other comprehensive income/(loss), net of taxes:

Net currency translation adjustment ( 369 ) ( 650 ) 628

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Depreciation and amortization 2,710 2,548 2,432

Operating lease right-of-use asset amortization 505 478 412

Share-based compensation expense 301 264 237

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Cash payments for restructuring charges ( 256 ) ( 255 ) ( 350 )

Inventory fair value adjustments and merger and integration charges 255 55 75

Cash payments for merger and integration charges ( 131 ) ( 10 ) ( 73 )

Acquisition and divestiture-related charges ( 4 ) 255 55

Cash payments for acquisition and divestiture-related charges ( 176 ) ( 131 ) ( 10 )

Pension and retiree medical plan expenses 123 408 519

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Deferred income taxes and other tax charges and credits 298 361 453

Net tax related to the TCJ Act — ( 8 ) ( 28 )

Tax expense/(benefit) related to the TCJ Act 190 — ( 8 )

Tax payments related to the TCJ Act ( 309 ) ( 78 ) ( 423 )

Other net tax benefits related to international reorganizations — ( 2 ) ( 4,347 )

Change in assets and liabilities:

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Acquisitions, net of cash acquired, and investments in noncontrolled affiliates ( 61 ) ( 6,372 ) ( 2,717 )

Divestitures 4 253 505

Divestitures and sales of investments in noncontrolled affiliates 169 6 253

Short-term investments, by original maturity:

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Other investing, net 5 40 ( 8 )

Net Cash (Used for)/Provided by Investing Activities ( 11,619 ) ( 6,437 ) 4,564

Net Cash Used for Investing Activities ( 3,269 ) ( 11,619 ) ( 6,437 )

(Continued on following page)

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Payments of long-term debt ( 3,455 ) ( 1,830 ) ( 3,970 )

Debt redemption/cash tender and exchange offers ( 1,100 ) ( 1,007 ) ( 1,589 )

Cash tender offers/debt redemption ( 4,844 ) ( 1,100 ) ( 1,007 )

Short-term borrowings, by original maturity:

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Three months or less, net 434 ( 109 ) ( 3 )

Payments of acquisition-related contingent consideration

Cash dividends paid ( 5,815 ) ( 5,509 ) ( 5,304 )

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Proceeds from exercises of stock options 185 179 329

Withholding tax payments on restricted stock units (RSUs), performance stock units (PSUs) and PepsiCo equity performance units (PEPunits) converted ( 96 ) ( 114 ) ( 103 )

Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted ( 92 ) ( 96 ) ( 114 )

Other financing ( 47 ) ( 48 ) ( 45 )

Net Cash Provided by/(Used for) Financing Activities 3,819 ( 8,489 ) ( 13,769 )

Net Cash (Used for)/Provided by Financing Activities ( 10,780 ) 3,819 ( 8,489 )

Effect of exchange rate changes on cash and cash equivalents and restricted cash ( 114 ) ( 129 ) 78

Net Increase/(Decrease) in Cash and Cash Equivalents and Restricted Cash 2,684 ( 5,199 ) 112

Net (Decrease)/Increase in Cash and Cash Equivalents and Restricted Cash ( 2,547 ) 2,684 ( 5,199 )

Cash and Cash Equivalents and Restricted Cash, Beginning of Year 8,254 5,570 10,769

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Prepaid expenses and other current assets 980 874

Assets held for sale 1,788 —

Total Current Assets

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21,159 19,592

Liabilities held for sale 753 —

Total Current Liabilities

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Shares Amount Shares Amount Shares Amount

Preferred Stock

Balance, beginning of year 1,380 $ 23 1,391 $ 23 1,409 $ 23

Conversion to common stock — — — — ( 0.1 ) ( 6 )

Retirement of preferred stock — — — — ( 0.7 ) ( 35 )

Balance, end of year — — — — — —

Repurchased Preferred Stock

Balance, beginning of year — — — — ( 0.7 ) ( 197 )

Redemptions — — — — — ( 2 )

Retirement of preferred stock — — — — 0.7 199

Balance, end of year — — — — — —

Balance, beginning of year 1,391 23 1,409 23 1,420 24

Shares issued in connection with preferred stock conversion to common stock

Change in repurchased common stock 3 — ( 11 ) — ( 18 ) —

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Share-based compensation expense 302 263 235

Equity issued in connection with preferred stock conversion to common stock

Stock option exercises, RSUs, PSUs and PEPunits converted

( 143 ) ( 188 ) ( 193 )

Withholding tax on RSUs, PSUs and PEPunits converted

( 96 ) ( 114 ) ( 103 )

Stock option exercises, RSUs and PSUs converted ( 118 ) ( 143 ) ( 188 )

Withholding tax on RSUs and PSUs converted ( 92 ) ( 96 ) ( 114 )

Other ( 1 ) — —

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( 5,896 ) ( 5,589 ) ( 5,323 )

Retirement of preferred stock — — ( 164 )

Balance, end of year 65,165 63,443 61,946

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Balance, beginning of year ( 15,476 ) ( 14,300 ) ( 15,119 )

Other comprehensive (loss)/income attributable to PepsiCo ( 1,176 ) 819 ( 2,062 )

Other comprehensive income/(loss) attributable to PepsiCo 578 ( 1,176 ) 819

Balance, end of year ( 14,898 ) ( 15,476 ) ( 14,300 )

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Share repurchases ( 1 ) ( 106 ) ( 15 ) ( 2,000 ) ( 24 ) ( 3,000 )

Stock option exercises, RSUs, PSUs and PEPunits converted

4 322 6 516 6 469

Stock option exercises, RSUs and PSUs converted 4 303 4 322 6 516

Other — 1 — 1 — 1

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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 indefinite-lived 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.

The business and economic uncertainty resulting from the COVID-19 pandemic has made such estimates and assumptions more difficult to calculate.

Additionally, the business and economic uncertainty resulting from the COVID-19 pandemic has made such estimates and assumptions more difficult to calculate.

As future events and their effect cannot be determined with precision, actual results could differ significantly from those estimates.

Our fiscal year ends on the last Saturday of each December, resulting in an additional week of results every five or six years.

While our North America results are reported on a weekly calendar basis, substantially all of our international operations report on a monthly calendar basis.

Certain operations in our Europe segment report on a weekly calendar basis.

Our fiscal year ends on the last Saturday of each December, resulting in a 53 rd reporting week every five or six years, including in our 2022 financial results.

While our North America results are reported on a weekly calendar basis, substantially all of our international operations reported on a monthly calendar basis prior to the fourth quarter of 2021, and beginning in the fourth quarter of 2021, all of our international operations report on a monthly calendar basis.

This change did not have a material impact on our consolidated financial statements.

The following chart details our quarterly reporting schedule for the three years presented:

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We are organized into seven reportable segments (also referred to as divisions), as follows:

1) FLNA, which includes our branded food and snack businesses in the United States and Canada;

2) QFNA, which includes our cereal, rice, pasta and other branded food businesses in the United States and Canada;

1) FLNA, which includes our branded convenient food businesses in the United States and Canada;

2) QFNA, which includes our branded convenient food businesses, such as cereal, rice, pasta and other branded food, in the United States and Canada;

3) PBNA, which includes our beverage businesses in the United States and Canada;

4) LatAm, which includes all of our beverage, food and snack businesses in Latin America;

5) Europe, which includes all of our beverage, food and snack businesses in Europe;

6) AMESA, which includes all of our beverage, food and snack businesses in Africa, the Middle East and South Asia;

7) APAC, which includes all of our beverage, food and snack businesses in Asia Pacific, Australia and New Zealand and China region.

Through our operations, authorized bottlers, contract manufacturers and other third parties, we make, market, distribute and sell a wide variety of convenient beverages, foods and snacks, serving customers and consumers in more than 200 countries and territories with our largest operations in the United States, Mexico, Russia, Canada, the United Kingdom, China and South Africa.

4) LatAm, which includes all of our beverage and convenient food businesses in Latin America;

5) Europe, which includes all of our beverage and convenient food businesses in Europe;

6) AMESA, which includes all of our beverage and convenient food businesses in Africa, the Middle East and South Asia;

7) APAC, which includes all of our beverage and convenient food businesses in Asia Pacific, Australia and New Zealand, and China region.

Through our operations, authorized bottlers, contract manufacturers and other third parties, we make, market, distribute and sell a wide variety of beverages and convenient foods, serving customers and consumers in more than 200 countries and territories with our largest operations in the United States, Mexico, Russia, Canada, China, the United Kingdom and South Africa.

The accounting policies for the divisions are the same as those described in Note 2, except for the following allocation methodologies:

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Total $ 79,474 $ 70,372 $ 67,161 $ 11,162 $ 10,080 $ 10,291

(a) In 2020, the increase in net revenue primarily reflects our acquisition of Pioneer Foods.

(a) The increase in net revenue reflects our acquisition of Pioneer Foods.

See Note 13 for further information.

(b) In 2020, the increase in net revenue primarily reflects our acquisition of Be & Cheery.

(b) The increase in net revenue reflects our acquisition of Be & Cheery.

See Note 13 for further information.

Our primary performance obligation is the distribution and sales of beverage and food and snack products to our customers.

The following tables reflect the approximate percentage of net revenue generated between our beverage business and our food and snack business for each of our international divisions, as well as our consolidated net revenue:

Our primary performance obligation is the distribution and sales of beverage and convenient food products to our customers.

The following table reflects the approximate percentage of net revenue generated between our beverage business and our convenient food business for each of our international divisions, as well as our consolidated net revenue:

2021 2020 2019

Food/Snack Beverage (a)

Convenient Food Beverage (a)

Convenient Food

LatAm 10 % 90 % 10 % 90 % 10 % 90 %

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PepsiCo 45 % 55 % 45 % 55 % 45 % 55 %

(a) Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and Europe segments, is approximately 40 % of our consolidated net revenue in 2020, 2019 and 2018.

(a) Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and Europe segments, is approximately 40 % of our consolidated net revenue.

Generally, our finished goods beverage operations produce higher net revenue, but lower operating margins as compared to concentrate sold to authorized bottling partners for the manufacture of finished goods beverages.

(b) The increase in the approximate percentage of net revenue generated by our food and snack business primarily reflects our acquisition of Pioneer Foods.

(b) The increase in the approximate percentage of net revenue generated by our convenient food business in 2020 primarily reflects our acquisition of Pioneer Foods.

See Note 13 for further information.

Operating profit in 2020 includes certain pre-tax charges taken as a result of the COVID-19 pandemic.

These pre-tax charges by division are as follows:

Operating profit in 2021 and 2020 includes certain pre-tax charges/credits taken as a result of the COVID-19 pandemic.

These pre-tax charges/credits by division are as follows:

Allowances for Expected Credit Losses (a)

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AMESA ( 1 ) — ( 2 ) 1 3 6 7

— — 3 ( 7 ) 2 5 3

APAC — — — 2 2 5 9

Total $ ( 32 ) $ ( 23 ) $ ( 1 ) $ 128 $ 70 $ 6 $ 148

(a) Reflects the expected impact of the global economic uncertainty caused by COVID-19, leveraging estimates of creditworthiness, projections of default and recovery rates for certain of our customers, including foodservice and vending businesses.

Allowances for Expected Credit Losses (a)

Upfront Payments to Customers (b)

Inventory Write-Downs and Product Returns (c)

Employee Compensation Expense (d)

Employee Protection Costs (e)

FLNA $ 17 $ — $ 8 $ 145 $ 59 $ — $ 229

QFNA 2 — — 9 3 1 15

PBNA 29 56 28 115 50 26 304

LatAm 1 — 19 56 18 8 102

Europe 5 3 11 23 22 24 88

AMESA 2 — 3 9 7 12 33

APAC — — 3 ( 7 ) 2 5 3

Total $ 56 $ 59 $ 72 $ 350 $ 161 $ 76 $ 774

(a) Reflects the expected impact of the global economic uncertainty caused by COVID-19, leveraging estimates of creditworthiness and projections of default and recovery rates for certain of our customers, including foodservice and vending businesses.

Income amounts represent reductions in the previously recorded reserves due to improved projected default rates and lower at-risk receivable balances.

(b) Relates to promotional spending for which benefit is not expected to be received.

Income amounts represent reductions in previously recorded reserves due to improved projected default rates and lower overall advance balances.

Includes a reserve for product returns of $ 20 million in 2020.

(d) Includes incremental frontline incentive pay, crisis child care and other leave benefits and labor costs.

Income amount includes a social welfare relief credit of $ 11 million.

(e) Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services.

(f) Includes reserves for property, plant and equipment, donations of cash and product and other costs.

(g) Income amount includes a social welfare relief credit of $ 11 million.

(f) Includes certain reserves for property, plant and equipment, donations of cash and product, and other costs.

Income amount represents adjustments for changes in estimates of previously recorded amounts.

Corporate Unallocated Expenses

Corporate unallocated expenses include costs of our corporate headquarters, centrally managed initiatives such as commodity derivative gains and losses, foreign exchange transaction gains and losses, our ongoing business transformation initiatives, unallocated research and development costs, unallocated insurance and benefit programs, tax-related contingent consideration and certain other items.

Other Division Information

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QFNA 1,101 1,021 92 85 104

37,079 31,449 1,245 1,053 945

PBNA 37,801 37,079 1,275 1,245 1,053

LatAm 7,272 6,977 461 390 557

Europe 18,472 17,917 752 730 613

5,942 3,672 252 267 198

5,770 4,113 230 195 138

AMESA 6,125 5,942 325 252 267

APAC 5,654 5,770 203 230 195

Total division 86,188 83,436 4,519 4,121 4,016

Corporate (d)

Corporate (a)

6,189 9,482 106 119 216

Total $ 92,377 $ 92,918 $ 4,625 $ 4,240 $ 4,232

(a) In 2020, the increase in assets was primarily related to our acquisition of Rockstar.

See Note 14 for further information.

(b) In 2020, the increase in assets was primarily related to our acquisition of Pioneer Foods.

See Note 14 for further information.

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

In 2020, the change in assets was primarily due to an increase in cash and cash equivalents and short-term investments.

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

In 2021, the change in assets was primarily due to a decrease in cash and cash equivalents and short-term investments.

Refer to the cash flow statement for further information.

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2021 2020 2019 2021 2020

United States (b)

$ 40,800 $ 38,644 $ 37,148 $ 36,657 $ 30,601

United States $ 44,545 $ 40,800 $ 38,644 $ 36,324 $ 36,657

Mexico 4,580 3,924 4,190 1,720 1,708

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Canada 3,405 2,989 2,831 2,846 2,794

United Kingdom 1,882 1,723 1,743 874 827

2,679 1,732 1,300 1,745 1,649

South Africa (d)

United Kingdom 2,102 1,882 1,723 906 874

South Africa (c)

2,008 1,282 405 1,389 1,484

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See Note 2 and Note 4 for further information on goodwill and other intangible assets.

Investments in noncontrolled affiliates are evaluated for impairment upon a significant change in the operating or macroeconomic environment.

Investments in noncontrolled affiliates are evaluated for

impairment upon a significant change in the operating or macroeconomic environment.

These assets are reported in the country where they are primarily used.

(b) In 2020, the increase in long-lived assets was primarily related to our acquisition of Rockstar.

See Note 14 for further information.

(b) The increase in net revenue reflects our acquisition of Be & Cheery.

See Note 13 for further information.

(d) In 2020, the increase in net revenue and long-lived assets was primarily related to our acquisition of Pioneer Foods.

See Note 13 for further information.

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We recognize revenue when our performance obligation is satisfied.

Merchandising activities are performed after a customer obtains control of the product, are accounted for as fulfillment of our performance obligation to ship or deliver product to our customers and are recorded in selling, general and administrative expenses.

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The transfer of control of products to our customers is typically based on written sales terms that do not allow for a right of return.

However, our policy for DSD, including 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.

However, our policy for DSD, including 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 produc ts.

We recorded $ 20 million of reserves for product returns in 2020 as a result of the COVID-19 pandemic .

See Note 1 for further information.

As a result of the implementation of the revenue recognition guidance adopted in the first quarter of 2018, which did not have a material impact on our accounting policies, we recorded an adjustment in the first quarter of 2018 of $ 137 million to beginning retained earnings to reflect marketplace spending that our customers and independent bottlers expected to be entitled to in line with revenue recognition.

Our products are sold for cash or on credit terms.

There were no material changes in credit terms as a result of the COVID-19 pandemic.

We recorded an allowance for expected credit losses of $ 56 million in 2020 as a result of the COVID-19 pandemic.

See Note 1 for further information.

Expected credit loss expense is classified within selling, general and administrative expenses on our income statement.

We are exposed to concentration of credit risk from our major customers, including Walmart.

In 2020, sales to Walmart and its affiliates (including Sam’s) represented approximately 14 % 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.

In 2021, sales to Walmart and its affiliates (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.

Total Marketplace Spending

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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, as products are delivered, for the expected payout, which may occur after year end once reconciled and settled.

These accruals are based on contract terms and our historical experience with similar programs and require management judgment with respect to estimating customer and consumer 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.

The terms of most of our incentive arrangements do not exceed one year and, therefore, do not require highly uncertain long-term estimates.

Certain arrangements, such as fountain pouring rights, may extend beyond one year.

Upfront 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 $ 299 million as of December 26, 2020 and $ 272 million as of December 28, 2019 are included in prepaid expenses and other current assets and other assets on our balance sheet.

We recorded reserves of $ 59 million for upfront payments to customers in 2020 as a result of the COVID-19 pandemic .

See Note 1 for further information.

Upfront 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 25, 2021 and $ 299 million as of December 26, 2020 are included in prepaid expenses and other current assets and other assets on our balance sheet.

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.

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Our annual consolidated financial statements are not impacted by this interim allocation methodology.

Advertising and other marketing activities, reported as selling, general and administrative expenses, totaled $ 4.6 billion in 2020, $ 4.7 billion in 2019 and $ 4.2 billion in 2018, including advertising expenses of $ 3.0 billion in both 2020 and 2019, and $ 2.6 billion in 2018.

Advertising and other marketing activities, reported as selling, general and administrative expenses, totaled $ 5.1 billion in 2021, $ 4.6 billion in 2020 and $ 4.7 billion in 2019, including advertising expenses of $ 3.5 billion in 2021 and $ 3.0 billion in both 2020 and 2019.

Deferred advertising costs are not expensed until the year first used and consist of:

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Depreciation is 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.

Construction in progress is not depreciated until ready for service.

• 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.

dollars using period-end exchange rates for assets and liabilities and 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 2016, the Financial Accounting Standards Board (FASB) issued guidance that changes the impairment model used to measure credit losses for most financial assets.

Under the new model we are required to estimate expected credit losses over the life of our trade receivables, certain other receivables and certain other financial instruments.

The new model replaced the existing incurred credit loss model and generally results in earlier recognition of allowances for credit losses.

We adopted this guidance in the first quarter of 2020 and the adoption did not have a material impact on our consolidated financial statements or disclosures.

On initial recognition, we recorded an after-tax cumulative effect decrease to retained earnings of $ 34 million ($ 44 million pre-tax) as of the beginning of 2020.

Recently Issued Accounting Pronouncements - Not Yet Adopted

In 2019, the FASB issued guidance to simplify the accounting for income taxes.

In 2019, the Financial Accounting Standards Board (FASB) issued guidance to simplify the accounting for income taxes.

The guidance primarily addresses how to (1) recognize a deferred tax liability after we transition to or from the equity method of accounting, (2) evaluate if a step-up in the tax basis of goodwill is related to a business combination or is a separate transaction, (3) recognize all of the effects of a change in tax law in the period of enactment, including adjusting the estimated annual tax rate, and (4) include the amount of tax based on income in the income tax provision and any incremental amount as a tax not based on income for hybrid tax regimes.

The guidance is effective in the first quarter of 2021 with early adoption permitted.

We will adopt the guidance when it becomes effective in the first quarter of 2021.

The guidance is not expected to have a material impact on our consolidated financial statements or related disclosures.

We adopted the guidance in the first quarter of 2021.

The adoption did not have a material impact on our consolidated financial statements or related disclosures.

Note 3 — Restructuring and Impairment Charges

A summary of our restructuring and impairment charges and other productivity initiatives is as follows:

2020 2019 2018

2019 Productivity Plan $ 289 $ 370 $ 138

2014 Productivity Plan — — 170

Total restructuring and impairment charges 289 370 308

Other productivity initiatives — 3 8

Total restructuring and impairment charges and other productivity initiatives

$ 289 $ 373 $ 316

2019 Multi-Year Productivity Plan

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and simplify our organization and optimize our manufacturing and supply chain footprint.

In connection with this plan, we expect to incur pre-tax charges of approximately $ 2.5 billion, including cash expenditures of approximately $ 1.6 billion.

To build on the successful implementation of the 2019 Productivity Plan to date, we expanded and extended the plan through the end of 2026 to take advantage of additional opportunities within the initiatives described above.

We now expect to incur pre-tax charges of approximately $ 3.15 billion, including cash expenditures of approximately $ 2.4 billion, as compared to our previous estimate of pre-tax charges of approximately $ 2.5 billion, which included cash expenditures of approximately $ 1.6 billion.

These pre-tax charges are expected to consist of approximately 55 % of severance and other employee-related costs, 10 % for asset impairments (all non-cash) resulting from plant closures and related actions and 35 % for other costs associated with the implementation of our initiatives.

We expect to complete this plan by 2023.

The total expected plan pre-tax charges are expected to be incurred by division approximately as follows:

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After-tax amount $ 206 $ 231 $ 303

Net income attributable to PepsiCo per common share $ 0.17 $ 0.21 $ 0.08

Impact on net income attributable to PepsiCo per common share $ ( 0.15 ) $ ( 0.17 ) $ ( 0.21 )

2021 2020 2019 Plan to Date

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Other costs 323

Total $ 1,044

Severance and other employee costs primarily include severance and other termination benefits, as well as voluntary separation arrangements.

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Impairments Other Costs Total

2018 restructuring charges $ 137 $ — $ 1 $ 138

Non-cash charges and translation ( 32 ) — — ( 32 )

Liability as of December 29, 2018 $ 105 $ — $ 1 $ 106

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Liability as of December 26, 2020

$ 122 $ — $ 5 $ 127

(a) Excludes cash expenditures of $ 2 million and $ 4 million for 2020 and 2019, respectively, reported in the cash flow statement in pension and retiree medical contributions.

Substantially all of the restructuring accrual at December 26, 2020 is expected to be paid by the end of 2021.

2014 Multi-Year Productivity Plan

The 2014 Productivity Plan, publicly announced on February 13, 2014, included the next generation of productivity initiatives that we believed would strengthen our beverage, food and snack 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 2014 Productivity Plan, in the fourth quarter of 2017, we expanded and extended the plan through the end of 2019 to take advantage of additional opportunities within the initiatives described above that further strengthened our beverage, food and snack businesses.

The 2014 Productivity Plan was completed in 2019.

In 2019, there were no material pre-tax charges related to this plan and all cash payments were paid at year end.

The total plan pre-tax charges and cash expenditures approximated the previously disclosed plan estimates of $ 1.3 billion and $ 960 million, respectively.

These total plan pre-tax charges consisted of 59 % of severance and other employee costs, 15 % of asset impairments and 26 % of other costs, including costs associated with the implementation of our initiatives, including certain consulting and other contract termination costs.

These total plan pre-tax charges were incurred by division as follows:

FLNA 14 %, QFNA 3 %, PBNA 29 %, LatAm 15 %, Europe 23 %, AMESA 3 %, APAC 3 % and Corporate 10 %.

A summary of our 2014 Productivity Plan charges is as follows:

Selling, general and administrative expenses $ 169

Other pension and retiree medical benefits expense 1

Total restructuring and impairment charges $ 170

After-tax amount $ 143

Net income attributable to PepsiCo per common share $ 0.10

Corporate (a)

(a) Income amount primarily relates to other pension and retiree medical benefits.

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 30, 2017 $ 212 $ — $ 14 $ 226

2021 restructuring charges 120 32 95 247

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Liability as of December 25, 2021

Cash payments ( 77 ) — ( 16 ) ( 93 )

Non-cash charges and translation ( 14 ) — ( 7 ) ( 21 )

Liability as of December 28, 2019 $ — $ — $ — $ —

(a) Excludes cash expenditures of $ 11 million reported in the cash flow statement in pension and retiree medical plan contributions.

$ 64 $ — $ 7 $ 71

(a) Excludes cash expenditures of $ 2 million in both 2021 and 2020, and $ 4 million in 2019, reported in the cash flow statement in pension and retiree medical plan contributions.

Substantially all of the restructuring accrual at December 25, 2021 is expected to be paid by the end of 2022.

Other Productivity Initiatives

There were no material charges related to other productivity and efficiency initiatives outside the scope of the 2019 and 2014 Productivity Plans.

We regularly evaluate different productivity initiatives beyond the productivity plans and other initiatives described above.

There were no material charges related to other productivity and efficiency initiatives outside the scope of the 2019 Productivity Plan.

We regularly evaluate different productivity initiatives beyond the productivity plan and other initiatives described above.

Note 4 — Intangible Assets

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$ 976 $ ( 187 ) $ 789 $ 976 $ ( 173 ) $ 803

Customer relationships (b)

Customer relationships

623 ( 227 ) 396 642 ( 204 ) 438

Brands 20 – 40

1,151 ( 989 ) 162 1,348 ( 1,099 ) 249

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Amortization expense $ 91 $ 90 $ 81

(a) The change in 2020 primarily reflects our distribution agreement with Vital Pharmaceuticals, Inc., with an expected residual value higher than our carrying value.

(a) Acquired franchise rights includes our distribution agreement with Vital Pharmaceuticals, Inc., with an expected residual value higher than our carrying value.

The distribution agreement’s useful life is three years, in accordance with the three-year termination notice issued, and is not reflected in the average useful life above.

(b) The change in 2020 primarily reflects our acquisitions of Pioneer Foods and Be & Cheery.

(b) The change primarily reflects assets reclassified as held for sale in connection with our Juice Transaction.

See Note 13 for further information.

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We did not recognize any impairment charges for goodwill in each of the years ended December 25, 2021, December 26, 2020 and December 28, 2019.

We did not recognize any impairment charges for indefinite-lived intangible assets in the year ended December 25, 2021.

In 2020, we recognized a pre-tax impairment charge of $ 41 million related to a coconut water brand in PBNA.

We did not recognize any material impairment charges for indefinite-lived intangible assets in each of the years ended December 28, 2019 and December 29, 2018.

We did not recognize any material impairment charges for indefinite-lived intangible assets in the year ended December 28, 2019.

As of December 25, 2021, the estimated fair values of our indefinite-lived reacquired and acquired franchise rights recorded at PBNA exceeded their carrying values.

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We have also analyzed the impact of the macroeconomic conditions in Russia on the estimated fair value of our indefinite-lived intangible assets in Russia and have concluded that there are no impairments for the year ended December 25, 2021.

However, there could be an impairment of the carrying value of certain brands in Russia, including juice and dairy brands, 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 (including perpetuity growth assumptions), if there are significant changes in the decisions regarding assets that do not perform consistent with our expectations, or if macroeconomic conditions result in a future increase in the weighted-average cost of capital used to estimate fair value.

The estimated fair value of indefinite-lived intangible assets is dependent on macroeconomic conditions (including a resulting increase in the weighted-average cost of capital used to estimate fair value), future revenues and their contributions to operating results and expected future cash flows (including perpetuity growth assumptions), and significant changes in the decisions regarding assets that do not perform consistent with our expectations.

Subsequent to December 25, 2021, we discontinued or repositioned certain juice and dairy brands in Russia in our Europe segment.

As a result, we will recognize pre-tax impairment charges of approximately $ 0.2 billion in the first quarter of 2022 in selling, general and administrative expenses.

For further information on our policies for indefinite-lived intangible assets, see Note 2.

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and Other Balance,

2019 Acquisitions Translation

2020 Acquisitions/(Divestitures) Translation

and Other Balance,

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Acquired franchise rights 1,517 16 3 1,536 1 1 1,538

Brands 353 418 ( 8 ) 763 2,400 ( 41 ) 3,122

763 2,400 ( 41 ) 3,122 ( 290 ) ( 324 ) 2,508

Total 19,267 4,696 ( 9 ) 23,954 ( 505 ) ( 322 ) 23,127

2 unchanged sentences

Total 626 — ( 60 ) 566 ( 1 ) ( 32 ) 533

Europe (c) (d)

Goodwill 3,361 440 160 3,961 ( 2 ) ( 153 ) 3,806

Reacquired franchise rights 497 — 8 505 — ( 9 ) 496

Acquired franchise rights 161 — ( 4 ) 157 — 15 172

Brands 4,188 ( 139 ) 132 4,181 — ( 109 ) 4,072

3,961 ( 2 ) ( 153 ) 3,806 ( 28 ) ( 78 ) 3,700

Reacquired franchise rights (e)

505 — ( 9 ) 496 ( 23 ) ( 32 ) 441

Acquired franchise rights (e)

157 — 15 172 — ( 14 ) 158

4,181 — ( 109 ) 4,072 — 182 4,254

Total 8,804 ( 2 ) ( 256 ) 8,546 ( 51 ) 58 8,553

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Goodwill 207 306 41 554 3 7 564

Brands 101 — ( 1 ) 100 309 36 445

100 309 36 445 — 31 476

Total 307 615 77 999 3 38 1,040

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Total $ 30,111 $ 6,395 $ ( 137 ) $ 36,369 $ ( 564 ) $ ( 297 ) $ 35,508

(a) The change in acquisitions in 2020 primarily reflects our acquisition of BFY Brands.

(b) The change in acquisitions in 2020 primarily reflects our acquisition of Rockstar.

(a) Acquisitions/divestitures in 2021 and acquisitions in 2020 primarily reflect our acquisition of BFY Brands.

(b) Acquisitions/divestitures in 2021 primarily reflects assets reclassified as held for sale in connection with our Juice Transaction.

See Note 13 for further information.

The change in acquisitions in 2019 primarily reflects our acquisition of CytoSport Inc.

The change in translation and other in 2019 primarily reflects the appreciation of the Russian ruble.

(d) The change in acquisitions in 2019 primarily reflects our acquisition of SodaStream.

See Note 13 for further information.

(e) The change in acquisitions in 2020 primarily reflects our acquisition of Pioneer Foods.

(d) Translation and other in 2021 primarily reflects the allocation of the Rockstar brand to the respective divisions, which was finalized in 2021 as part of purchase price allocation.

(e) Translation and other primarily reflects the depreciation of the euro in 2021 and depreciation of the Russian ruble in 2020.

(f) Translation and other in 2021 reflects the allocation of the Rockstar brand from PBNA, which was finalized in 2021 as part of purchase price allocation, partially offset by the depreciation of the euro.

Translation and other in 2020 primarily reflects the depreciation of the Russian ruble.

(g) Acquisitions in 2020 primarily reflects our acquisition of Pioneer Foods.

See Note 13 for further information.

(f) The change in acquisitions in 2020 primarily reflects our acquisition of Be & Cheery.

(h) Acquisitions in 2020 primarily reflects our acquisition of Be & Cheery.

See Note 13 for further information.

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$ 9,821 $ 9,069 $ 9,312

The provision for/(benefit from) income taxes consisted of the following:

The provision for income taxes consisted of the following:

2021 2020 2019

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$ 2,142 $ 1,894 $ 1,959

$ 1,894 $ 1,959 $ ( 3,370 )

A reconciliation of the U.S.

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One-time mandatory transition tax - TCJ Act 1.9 — ( 0.1 )

Remeasurement of deferred taxes - TCJ Act — — ( 0.4 )

International reorganizations — — ( 47.3 )

Tax settlements — — ( 7.8 )

Other, net ( 0.5 ) ( 0.5 ) ( 0.6 )

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Tax Cuts and Jobs Act

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.

In 2017, the SEC issued guidance related to the TCJ Act which allowed recording of provisional tax expense using a measurement period, not to exceed one year, when information necessary to complete the accounting 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 in the fourth quarter of 2017.

As a result of the enactment of the TCJ Act, we recognized a provisional net tax expense of $ 2.5 billion ($ 1.70 per share) in the fourth quarter of 2017.

The provisional measurement period allowed by the SEC ended in the fourth quarter of 2018.

As a result, in 2018, we recognized a net tax benefit of $ 28 million ($ 0.02 per share) related to the TCJ Act.

While our accounting for the recorded impact of the TCJ Act was deemed to be complete, additional guidance issued by the IRS impacted our recorded amounts after December 29, 2018.

In 2019, we recognized a net tax benefit totaling $ 8 million ($ 0.01 per share) related to the TCJ Act.

In 2021, we recorded $ 190 million ($ 0.14 per share) of net tax expense related to the TCJ Act as a result of adjustments related to the final assessment of the 2014 through 2016 IRS audit .

There were no tax amounts recognized in 2020 related to the TCJ Act.

In 2019, we recognized a net tax benefit totaling $ 8 million ($ 0.01 per share) related to the TCJ Act.

As of December 25, 2021, our mandatory transition tax liability was $ 2.9 billion, which must be paid through 2026 under the provisions of the TCJ Act.

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The TCJ Act also created a requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (GILTI), must be included in the gross income of their U.S.

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.

During the first quarter of 2018, we elected to treat the tax effect of GILTI as a current-period expense when incurred.

Coronavirus Aid, Relief, and Economic Security Act

The CARES Act was enacted on March 27, 2020 in the United States.

The CARES Act did not have a material impact on our financial results in 2020, including on our annual estimated effective tax rate or on our liquidity.

We will continue to monitor and assess the impact similar legislation in other countries may have on our business and financial results.

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.

We elected to treat the tax effect of GILTI as a current-period expense when incurred.

Other Tax Matters

On May 19, 2019, a public referendum held in Switzerland passed the TRAF, effective January 1, 2020.

In 2021, we received a final assessment from the IRS audit for the tax years 2014 through 2016.

The assessment included both agreed and unagreed issues.

On October 29, 2021, we filed a formal written protest of the assessment and requested an appeals conference.

As a result of the analysis of the 2014 through 2016 final assessment, we remeasured all applicable reserves for uncertain tax positions for all years open under the statute of limitations, including any correlating adjustments impacting the mandatory transition tax liability under the TCJ Act, resulting in a net non-cash tax expense of $ 112 million in 2021.

On May 19, 2019, a public referendum held in Switzerland passed the Federal Act on Tax Reform and AHV Financing (TRAF), effective January 1, 2020.

The enactment of certain provisions of the TRAF resulted in adjustments to our deferred taxes.

During 2021, no income tax adjustments related to the TRAF were recorded.

During 2020, we recorded a net tax benefit of $ 72 million related to the adoption of the TRAF in the Swiss Canton of Bern.

During 2019, we recorded net tax expense of $ 24 million related to the impact of the TRAF.

During 2019, we recorded a net tax expense of $ 24 million related to the impact of the TRAF.

While the accounting for the impacts of the TRAF are deemed to be complete, further adjustments to our financial statements and related disclosures could be made in future quarters, including in connection with final tax return filings.

In 2018, we reorganized certain of our international operations, including the intercompany transfer of certain intangible assets.

As a result, we recognized other net tax benefits of $ 4.3 billion ($ 3.05 per share) in 2018.

The related deferred tax asset of $ 4.4 billion is being amortized over a period of 15 years beginning in 2019.

Additionally, the reorganization generated significant net operating loss carryforwards and related deferred tax assets that are not expected to be realized, resulting in the recording of a full valuation allowance.

Deferred tax liabilities and assets are comprised of the following:

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Recapture of net operating losses 504 504

Pension liabilities 216 —

Right-of-use assets 450 371

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Deferred tax assets, net 3,522 3,551

Net deferred tax assets $ ( 88 ) $ ( 268 )

Net deferred tax liabilities/(assets) $ 516 $ ( 88 )

A summary of our valuation allowance activity is as follows:

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Provision ( 9 ) 1,082 ( 124 )

Other additions/(deductions) 5 ( 30 ) ( 49 )

Other (deductions)/additions ( 49 ) 5 ( 30 )

Balance, end of year $ 4,628 $ 4,686 $ 3,599

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2018-2020 None

In 2018, we recognized a non-cash tax benefit of $ 364 million ($ 0.26 per share) resulting from the conclusion of certain international tax audits.

Additionally, in 2018, we recognized non-cash tax benefits of $ 353 million ($ 0.24 per share) as a result of our agreement with the IRS resolving all open matters related to the audits of taxable years 2012 and 2013, including the associated state impact.

The conclusion of certain international tax audits and the resolution with the IRS, collectively, resulted in non-cash tax benefits totaling $ 717 million ($ 0.50 per share) in 2018.

Our annual tax rate is based on our income, statutory tax rates and tax planning strategies and transactions, including transfer pricing arrangements, available to us in the various jurisdictions in which we operate.

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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 $ 338 million as of December 26, 2020, of which $ 93 million of tax expense was recognized in 2020.

The gross amount of interest accrued, reported in other liabilities, was $ 326 million as of December 25, 2021, of which $ 3 million of tax benefit was recognized in 2021.

The gross amount of interest accrued, reported in other liabilities, was $ 338 million as of December 26, 2020, of which $ 93 million of tax expense was recognized in 2020.

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$ 0.3 billion in 2022, $ 26.8 billion between 2023 and 2041 and $ 2.9 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.

We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is not more likely than not that some portion or all of the deferred tax assets will be realized.

Undistributed International Earnings

In 2018, we repatriated $ 20.4 billion of cash, cash equivalents and short-term investments held in our foreign subsidiaries without such funds being subject to further U.S.

federal income tax liability, related to the TCJ Act.

As of December 25, 2021, we had approximately $ 7 billion of undistributed international earnings.

We intend to continue to reinvest $ 6 billion of earnings outside the United States for the

foreseeable future and while future distribution of these earnings would not be subject to U.S.

We intend to continue to reinvest $ 7 billion of earnings outside the United States for the foreseeable future and while future distribution of these earnings would not be subject to U.S.

federal tax expense, 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.

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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.

PepsiCo has granted stock options, RSUs, PSUs and long-term cash awards to employees under the shareholder-approved PepsiCo, Inc.

Long-Term Incentive Plan (LTIP).

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Certain executive officers and other senior executives do not have a choice and are granted 66 % PSUs and 34 % long-term cash, each of which are subject to pre-established performance targets.

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.

The Company may use authorized and unissued shares to meet share requirements resulting from the exercise of stock options and the vesting of RSUs and PSUs.

As of December 25, 2021, 44 million shares were available for future share-based compensation grants under the LTIP.

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Outstanding at December 26, 2020 6,127 $ 119.92

2,496 $ 131.21

Converted (c)

( 2,315 ) $ 109.61

Granted 2,636 $ 131.81

Converted ( 2,229 ) $ 112.09

Forfeited ( 557 ) $ 126.70

Outstanding at December 26, 2020 (d)

Outstanding at December 25, 2021 (b)

5,977 $ 127.45 1.31 $ 1,014,854

Expected to vest as of December 26, 2020 5,447 $ 119.72 1.26 $ 790,179

Expected to vest as of December 25, 2021 (c)

6,016 $ 127.59 1.30 $ 1,021,312

(a) In thousands.

(b) Grant activity for all PSUs are disclosed at target.

(c) Represents the number of PSUs that vested during the year, net of awards above and below target levels based on the achievement of its performance conditions.

(d) The outstanding PSUs for which the vesting period has not ended as of December 26, 2020, at the threshold, target and maximum award levels were zero , 1 million and 2 million, respectively.

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, which incorporates into the fair-value determination the possibility that the market condition may not be satisfied until actual performance is determined.

PEPunits were last granted in 2015 and all outstanding PEPunits were converted to 278,000 shares in 2018.

Outstanding awards are disclosed at target.

(b) The outstanding PSUs for which the vesting period has not ended as of December 25, 2021, at the threshold, target and maximum award levels were zero , 1 million and 2 million, respectively.

(c) Represents the number of outstanding awards expected to vest, including estimated performance adjustments on all outstanding PSUs as of December 25, 2021.

Long-Term Cash

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.

achievement of a specified performance target over a three-year performance period.

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.

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Outstanding at December 26, 2020 $ 47,513

Outstanding at December 26, 2020 (d)

Granted 16,507

Vested ( 16,567 )

Forfeited ( 1,661 )

Outstanding at December 25, 2021 (b)

$ 45,792 $ 50,238 1.29

Expected to vest as of December 26, 2020 $ 42,658 $ 41,318 1.14

Expected to vest as of December 25, 2021 (c)

$ 43,480 $ 47,771 1.27

(a) In thousands.

(b) Grant activity for all long-term cash awards are disclosed at target.

(c) Represents the amount of long-term cash awards that vested during the year, net of awards above and below target levels based on the achievement of its market conditions.

(d) The outstanding long-term cash awards for which the vesting period has not ended as of December 26, 2020, at the threshold, target and maximum award levels were zero , 48 million and 95 million, respectively .

Outstanding awards are disclosed at target.

(b) The outstanding awards for which the vesting period has not ended as of December 25, 2021, at the threshold, target and maximum award levels based on the achievement of its market conditions were zero , $ 46 million and $ 92 million, respectively.

(c) Represents the number of outstanding awards expected to vest, based on the most recent valuation as of December 25, 2021.

Other Share-Based Compensation Data

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$ 198,469 $ 235,523 $ 275,234

Total intrinsic value of PEPunits converted (a)

$ — $ — $ 30,147

Total grant-date fair value of PEPunits vested (a)

$ — $ — $ 9,430

(a) In thousands.

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Note 7 — Pension, Retiree Medical and Savings Plans

In connection with our Juice Transaction subsequent to December 25, 2021, we transferred pension and retiree medical obligations of approximately $ 150 million and related assets to the newly formed joint venture.

In 2021, we adopted a change to the Canadian defined benefit plans to freeze pension accruals for salaried participants, effective January 1, 2024, and to close the hourly plan to new non-union employees hired on or after January 1, 2022.

After the effective date, all salaried participants will receive an employer contribution to the defined contribution plan based on age and years of service regardless of employee contribution and will have the opportunity to receive employer contributions to match employee contributions up to defined limits.

We also adopted a change to the U.K.

defined benefit plan to freeze pension accruals for all participants effective March 31, 2022.

After the effective date, participants will have the opportunity to receive employer contributions to match employee contributions up to defined limits.

Pre-tax pension benefits expense will decrease after the effective dates, partially offset by contributions to defined contribution plans.

In 2021, we adopted a change to the U.S.

qualified defined benefit plans to transfer certain participants from PepsiCo Employees Retirement Plan A (Plan A) to PepsiCo Employees Retirement Plan I (Plan I), effective January 1, 2022.

The benefits offered to the plans’ participants were unchanged.

There is no material impact to pre-tax pension benefits expense from this transaction.

In 2020, lump sum distributions exceeded the total of annual service and interest cost and triggered a pre-tax settlement charge in Plan A of $ 205 million ($ 158 million after-tax or $ 0.11 per share).

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As a result of this amendment, pension benefits pre-tax expense is expected to decrease by approximately $ 70 million in 2021, primarily impacting corporate unallocated expenses.

As a result of this amendment, pre-tax pension benefits expense decreased $ 70 million in 2021, primarily impacting corporate unallocated expenses.

In 2020, we approved an amendment to reorganize the U.S.

qualified defined benefit pension plans that resulted in the transfer of certain participants from Plan A to Plan I and to a newly created plan, Plan H, effective January 1, 2021.

qualified defined benefit pension plans that resulted in the transfer of certain participants from Plan A to Plan I and to a newly created plan, PepsiCo Employees Retirement Hourly Plan (Plan H), effective January 1, 2021.

The benefits offered to the plans’ participants were unchanged.

The reorganization will facilitate a more targeted investment strategy and provide additional flexibility in evaluating opportunities to reduce risk and volatility.

No material impact to pension benefit pre-tax expense is expected from this reorganization.

The reorganization facilitated a more targeted investment strategy and provided additional flexibility in evaluating opportunities to reduce risk and volatility.

There was no material impact to pre-tax pension benefits expense as a result of this reorganization.

In 2020, we adopted an amendment, effective January 1, 2021, to enhance the pay credit benefits of certain participants in Plan H.

As a result of this amendment, pension benefits pre-tax expense is expected to increase approximately $ 45 million in 2021, primarily impacting service cost expense.

As a result of this amendment, pre-tax pension benefits expense increased $ 45 million in 2021, primarily impacting service cost expense.

In 2019, Plan A purchased a group annuity contract whereby a third-party insurance company assumed the obligation to pay and administer future annuity payments for certain retirees.

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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 obligations, a portion of the net gain or loss is included in other pension and retiree medical benefits (expense)/income for the following year based upon the average remaining service life for participants in Plan A (approximately 10 years ) and retiree medical (approximately 8 years), or the remaining life expectancy for participants in Plan I (approximately 23 years).

In 2021, we expect the average remaining service life for participants in Plan A to be approximately 9 years , the remaining life expectancy for participants in Plan I to be approximately 27 years and the average remaining service life for participants in Plan H to be approximately 11 years .

The cost or benefit of plan changes that increase or decrease benefits for prior employee service (prior service cost/(credit)) is included in other pension and retiree medical benefits (expense)/income on a straight-line basis over the average remaining service life for participants in both Plan A and Plan H, except that prior service cost/(credit) for salaried participants subject to the freeze will be amortized on a

straight-line basis over the period up to the effective date of the freeze, or the remaining life expectancy for participants in Plan I.

If this net accumulated gain or loss exceeds 10 % of the greater of the market-related value of plan assets or plan obligations, a portion of the net gain or loss is included in other pension and retiree medical benefits (expense)/income for the following year based upon the average remaining service life for participants in Plan A (approximately 9 years), Plan H (approximately 11 years) and retiree medical (approximately 9 years), and the remaining life expectancy for participants in Plan I (approximately 27 years).

Selected financial information for our pension and retiree medical plans is as follows:

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Participant contributions — — 3 2 — —

Experience loss 2,042 2,091 467 515 81 36

Experience (gain)/loss ( 215 ) 2,042 ( 178 ) 467 ( 17 ) 81

Benefit payments ( 976 ) ( 378 ) ( 106 ) ( 92 ) ( 83 ) ( 89 )

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Total $ 3,487 $ 3,997 $ 685 $ 1,130 $ ( 254 ) $ ( 257 )

Changes recognized in net loss/(gain) included in other comprehensive loss

Net loss/(gain) arising in current year $ 1,009 $ ( 120 ) $ 268 $ 152 $ 50 $ ( 24 )

Changes recognized in net (gain)/loss included in other comprehensive loss

Net (gain)/loss arising in current year $ ( 301 ) $ 1,009 $ ( 355 ) $ 268 $ ( 22 ) $ 50

Amortization and settlement recognition ( 265 ) ( 409 ) ( 95 ) ( 75 ) 14 23

Foreign currency translation loss/(gain) — — 42 26 — ( 1 )

Foreign currency translation (gain)/loss — — ( 3 ) 42 — —

Total $ ( 566 ) $ 600 $ ( 453 ) $ 235 $ ( 8 ) $ 73

Accumulated benefit obligation at end of year $ 15,489 $ 15,949 $ 4,021 $ 4,108

The net loss/(gain) arising in the current year is primarily attributable to the decrease in discount rate, offset by actual asset returns exceeding expected returns.

The net gain arising in the current year is primarily attributable to the increase in discount rate offset by actual experience differing from demographic assumptions.

The amount we report in operating profit as pension and retiree medical cost is service cost, which is the value of benefits earned by employees for working during the year.

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Lump sum payouts are generally higher when interest rates are lower.

Curtailments are due to events such as plant closures or the sale of a business resulting in a reduction of future service or benefits.

Curtailments are recognized when events such as plant closures, the sale of a business, or plan changes result in a significant 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).

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Expected return on plan assets ( 970 ) ( 929 ) ( 892 ) ( 231 ) ( 202 ) ( 188 ) ( 15 ) ( 16 ) ( 18 )

Amortization of prior service cost/(credits) 12 10 3 — — — ( 12 ) ( 19 ) ( 20 )

Amortization of prior service (credits)/cost ( 31 ) 12 10 ( 2 ) — — ( 11 ) ( 12 ) ( 19 )

Amortization of net losses/(gains) 224 196 161 77 61 32 ( 14 ) ( 23 ) ( 27 )

Settlement/curtailment losses (a)

Settlement/curtailment losses/(gains) (a)

40 213 296 ( 11 ) 19 12 — — —

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Fair value of plan assets $ 705 $ 4,156 $ 102 $ 123

Selected information for plans with projected benefit obligation in excess of plan assets

Selected information for plans with projected benefit obligation in excess of plan assets (a)

Benefit obligation $ ( 1,709 ) $ ( 9,172 ) $ ( 286 ) $ ( 2,933 ) $ ( 954 ) $ ( 1,006 )

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(a) The decrease in U.S.

pension plans in 2020 primarily reflects the approved reorganization of the U.S.

qualified defined benefit plans, resulting in the transfer of obligations and plan assets relating to certain participants from Plan A to Plan I and Plan H.

pension plans with obligations in excess of plan assets primarily reflects employer contributions to Plan H.

Of the total projected pension benefit obligation as of December 25, 2021, approximately $ 810 million relates to plans that we do not fund because the funding of such plans does not receive favorable tax treatment.

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Total $ 738 $ 507 $ 672 $ 47 $ 55 $ 44

(a) Includes $ 325 million contribution in 2020, $ 400 million contribution in 2019 and $ 1.4 billion contribution in 2018 to fund Plan A in the United States.

In November 2020, we received approval from our Board of Directors to make discretionary contributions of $ 500 million to our U.S.

qualified defined benefit plans.

We contributed $ 300 million of the approved amount in January 2021;

we expect to contribute the remaining $ 200 million in the third quarter of 2021.

(a) Includes $ 500 million contribution in 2021, $ 325 million contribution in 2020 and $ 400 million contribution in 2019 to fund our qualified defined benefit plans in the United States.

We made a discretionary contribution of $ 75 million to our U.S.

qualified defined benefit plans in January 2022 and expect to make an additional $ 75 million contribution in the third quarter of 2022.

In addition, in 2022, we expect to make non-discretionary contributions of approximately $ 135 million to our U.S.

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We continue to monitor the impact of the COVID-19 pandemic and related global economic conditions and uncertainty on the net unfunded status of our pension and retiree medical plans.

We regularly evaluate opportunities to reduce risk and volatility associated with our pension and retiree medical plans.

We also regularly evaluate opportunities to reduce risk and volatility associated with our pension and retiree medical plans.

Our pension plan investment strategy includes the use of actively managed accounts and is reviewed periodically in conjunction with plan obligations, an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments.

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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 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.

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 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.

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and international common stock and commingled funds, and the preferred stock portfolio was invested in domestic and international corporate preferred stock investments.

The common stock is based on quoted prices in active markets.

The common and preferred stock investments are based on quoted prices in active markets.

The commingled funds are based on the published price of the fund and include one large-cap fund that represents 11 % and 13 % of total U.S.

plan assets for 2021 and 2020, respectively.

The preferred stock investments are based on quoted bid prices for comparable securities in the marketplace and broker/dealer quotes in active markets.

The international portfolio includes Level 1 assets of $ 2,119 million and $ 1,941 million for 2020 and 2019, respectively, and Level 2 assets of $ 32 million for 2019.

(c) These investments are based on quoted bid prices for comparable securities in the marketplace and broker/dealer quotes in active markets.

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The changes in Level 3 amounts were not significant in the years ended December 25, 2021 and December 26, 2020.

(e) Cash and cash equivalents in the U.S.

includes Level 1 assets of $ 178 million and $ 159 million for 2020 and 2019, respectively, and Level 2 assets of $ 100 million and $ 116 million for 2020 and 2019, respectively.

(e) Includes Level 1 assets of $ 216 million and $ 178 million for 2021 and 2020, respectively, and Level 2 assets of $ 136 million and $ 100 million for 2021 and 2020, respectively.

(f) The real estate commingled funds include investments in limited partnerships.

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Current maturities of long-term debt $ 3,872 $ 3,358

Commercial paper ( 0.2 %)

Commercial paper ( 0.1 % and 0.2 %)

Other borrowings ( 2.2 % and 1.7 %)

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As of December 25, 2021 and December 26, 2020, our international debt of $ 38 million and $ 29 million, respectively, 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.

of credit are subject to normal banking terms and conditions and are fully committed at least to the extent of our borrowings.

In 2021, we issued the following senior notes:

Interest Rate Maturity Date Amount (a)

2.250 % March 2025 $ 1,500

2.625 % March 2027 $ 500

2.750 % March 2030 $ 1,500

3.500 % March 2040 $ 750

3.625 % March 2050 $ 1,500

3.875 % March 2060 $ 750

0.750 % May 2023 $ 1,000

1.625 % May 2030 $ 1,000

0.250 % May 2024 € 1,000

0.500 % May 2028 € 1,000

0.750 % October 2033 € 1,000

1.400 % February 2031 $ 750

1.950 % October 2031 $ 1,250

2.625 % October 2041 $ 750

2.750 % October 2051 $ 1,000

(a) Represents gross proceeds from issuances of long-term debt excluding debt issuance costs, discounts and premiums.

The net proceeds from the issuances of the above notes will be used for general corporate purposes, including the repayment of commercial paper.

In 2020, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement) which expires on May 31, 2021.

The net proceeds from the issuances of the above notes will be used for general corporate purposes, including the repurchase of outstanding indebtedness and the repayment of commercial paper.

In 2021, we paid $ 4.8 billion in cash in connection with the tender of certain notes redeemed in the following amounts:

Interest Rate Maturity Date Principal Amount Tendered

5.500 % May 2035 $ 8

5.500 % May 2035 $ 1 (a)

5.500 % January 2040 $ 26

3.500 % March 2040 $ 443

4.875 % November 2040 $ 30

4.000 % March 2042 $ 261

3.600 % August 2042 $ 210

4.250 % October 2044 $ 190

4.600 % July 2045 $ 203

4.450 % April 2046 $ 532

3.450 % October 2046 $ 622

4.000 % May 2047 $ 212

3.375 % July 2049 $ 508

3.625 % March 2050 $ 611

3.875 % March 2060 $ 240

(a) Series A.

As a result of the cash tender offers, we recorded a pre-tax charge of $ 842 million ($ 677 million after-tax or $ 0.49 per share) to net interest expense and other, primarily representing the tender price paid over the carrying value of the tendered notes and loss on treasury rate locks used to mitigate the interest rate risk on the cash tender offers.

See Note 9 to our consolidated financial statements for the mark-to-market impact of treasury rate locks associated with the cash tender offers.

In 2021, we entered into a new five-year unsecured revolving credit agreement (Five-Year Credit Agreement), which expires on May 28, 2026.

The Five-Year Credit Agreement enables us and our borrowing subsidiaries to borrow up to $ 3.75 billion in U.S.

dollars and/or euros, including a $ 0.75 billion swing line subfacility for euro-denominated borrowings permitted to be borrowed on a same-day basis, subject to customary terms and conditions.

We may request that commitments under this agreement be increased up to $ 4.5 billion (or the equivalent amount in euros).

Additionally, we may, once a year,

request renewal of the agreement for an additional one-year period.

The Five-Year Credit Agreement replaced our $ 3.75 billion five year credit agreement, dated as of June 3, 2019.

Also in 2021, we entered into a new 364-day unsecured revolving credit agreement (364-Day Credit Agreement), which expires on May 27, 2022.

The 364-Day Credit Agreement enables us and our borrowing subsidiaries to borrow up to $ 3.75 billion in U.S.

dollars and/or euros, subject to customary terms and conditions.

We may request that commitments under this agreement be increased up to $ 4.5 billion in U.S dollars and/or euros.

We may request that commitments under this agreement be increased up to $ 4.5 billion (or the equivalent amount in euros).

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 term loan would mature no later than the anniversary of the then effective termination date.

The 364-Day Credit Agreement replaced our $ 3.75 billion 364-day credit agreement, dated as of June 1, 2020.

The 364-Day Credit Agreement is in addition to the five-year unsecured revolving credit agreement (Five-Year Credit Agreement) we entered into in 2019, and which expires on June 3, 2024.

The Five-Year Credit Agreement enables us and our borrowing subsidiaries to borrow up to $ 3.75 billion in U.S.

dollars and/or euros, including a $ 0.75 billion swing line subfacility for euro-denominated borrowings permitted to be borrowed on a same-day basis, subject to customary terms and conditions.

We may request that commitments under this agreement be increased up to $ 4.5 billion in U.S.

dollars and/or euros.

Additionally, we may, once a year, request renewal of the agreement for an additional one-year period.

Funds borrowed under the 364-Day Credit Agreement and Five-Year Credit Agreement may be used for general corporate purposes.

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 26, 2020, there were no outstanding borrowings under the 364-Day Credit Agreement or the Five-Year Credit Agreement.

In 2020, one of our international consolidated subsidiaries borrowed 21.7 billion South African rand, or approximately $ 1.3 billion, from our two unsecured bridge loan facilities (Bridge Loan Facilities) to fund

our acquisition of Pioneer Foods.

As of December 25, 2021, there were no outstanding borrowings under the Five-Year Credit Agreement or the 364-Day Credit Agreement.

These borrowings were fully repaid in April 2020 and no further borrowings under these Bridge Loan Facilities are permitted.

In 2021, we paid $ 750 million to redeem all $ 750 million outstanding principal amount of our 1.70 % senior notes due 2021 and terminated the associated interest rate swap with a notional amount of $ 250 million.

In 2020, we paid $ 1.1 billion to redeem all $ 1.1 billion outstanding principal amount of our 2.15 % senior notes due 2020 and terminated associated interest rate swaps with a notional amount of $ 0.8 billion.

In 2019, we paid $ 1.0 billion to redeem all $ 1.0 billion outstanding principal amount of our 4.50 % senior notes due 2020.

In 2018, we completed a cash tender offer to redeem $ 1.3 billion of certain notes issued by PepsiCo and predecessors to a PepsiCo subsidiary for $ 1.6 billion in cash.

Also in 2018, we completed an exchange offer for certain notes issued by predecessors to a PepsiCo subsidiary for newly issued PepsiCo notes.

These notes were issued in an aggregate principal amount of $ 732 million, equal to the exchanged notes.

As a result of the above transactions, we recorded a pre-tax charge of $ 253 million ($ 191 million after-tax or $ 0.13 per share) to interest expense in 2018, primarily representing the tender price paid over the carrying value of the tendered notes.

Note 9 — Financial Instruments

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The accounting for qualifying hedges allows changes in a hedging instrument’s fair value to offset corresponding changes in the hedged item in the same reporting period that the hedged item impacts earnings.

Gains or losses on derivatives designated as cash flow hedges are recorded in accumulated other comprehensive loss and reclassified to our income statement when the hedged transaction affects earnings.

Gains or losses on derivatives designated as cash flow hedges are recorded in accumulated other

comprehensive loss and reclassified to our income statement when the hedged transaction affects earnings.

If it becomes probable that the hedged transaction will not occur, we immediately recognize the related hedging gains or losses in earnings;

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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

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.

Certain of our agreements with our counterparties require us to post full collateral on derivative instruments in a net liability position if our credit rating is at A2 (Moody’s Investors Service, Inc.) or A (S&P Global Ratings) and we have been placed on credit watch for possible downgrade or if our credit rating falls below these levels.

The fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of December 25, 2021 was $ 247 million.

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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 $ 1.1 billion as of December 26, 2020 and December 28, 2019.

Our commodity derivatives had a total notional value of $ 1.6 billion as of December 25, 2021 and $ 1.1 billion as of December 26, 2020.

Foreign Exchange

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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 $ 1.9 billion as of December 26, 2020 and December 28, 2019.

Our foreign currency derivatives had a total notional value of $ 2.8 billion as of December 25, 2021 and $ 1.9 billion as of December 26, 2020.

The total notional amount of our debt instruments designated as net investment hedges was $ 2.1 billion as of December 25, 2021 and $ 2.7 billion as of December 26, 2020.

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We centrally manage our debt and investment portfolios considering investment opportunities and risks, tax consequences and overall financing strategies.

We use various interest rate derivative instruments including, but not limited to, interest rate swaps, cross-currency interest rate swaps, Treasury locks and

swap locks to manage our overall interest expense and foreign exchange risk.

We use various interest rate derivative instruments including, but not limited to, interest rate swaps, cross-currency interest rate swaps, Treasury locks and swap locks to manage our overall interest expense and foreign exchange risk.

These instruments effectively change the interest rate and currency of specific debt issuances.

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Our interest rate derivatives had a total notional value of $ 2.1 billion as of December 25, 2021 and $ 3.0 billion as of December 26, 2020.

As of December 26, 2020, approximately 3 % of total debt, after the impact of the related interest rate derivative instruments, was subject to variable rates, compared to approximately 9 % as of December 28, 2019.

As of December 25, 2021, approximately 2 % of total debt was subject to variable rates, compared to approximately 3 %, after the impact of the related interest rate derivative instruments, as of December 26, 2020.

Held-to-Maturity Debt Securities

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Treasury securities and commercial paper.

As of December 25, 2021, we had no investments in U.S.

Treasury securities.

As of December 26, 2020, we had $ 2.1 billion of investments in U.S.

Treasury securities with $ 2.0 billion recorded in cash and cash equivalents and $ 0.1 billion in short-term investments.

We had no investments in U.S.

Treasury securities as of December 28, 2019.

As of December 26, 2020, we had $ 260 million of investments in commercial paper with $ 75 million recorded in cash and cash equivalents and $ 185 million in short-term investments.

As of December 25, 2021, we had $ 130 million of investments in commercial paper recorded in cash and cash equivalents.

As of December 26, 2020, we had $ 260 million of investments in commercial paper with $ 75 million recorded in cash and cash equivalents and $ 185 million in short-term investments.

Held-to-maturity debt securities are recorded at amortized cost, which approximates fair value, and realized gains or losses are reported in earnings.

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Commodity (h)

Commodity (i)

$ 113 $ 283 $ 54 $ 378

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Commodity (h)

Commodity (i)

$ 54 $ 29 $ 23 $ 15

Total derivatives at fair value (j)

Total derivatives at fair value (i)

$ 167 $ 312 $ 79 $ 393

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The fair value of the liability is estimated using probability-weighted, discounted future cash flows at current tax rates.

The significant unobservable inputs (Level 3) used to estimate the fair value include the expected future tax benefits associated with the acquisition, the probability that the option to accelerate all remaining payments will be exercised and discount rates.

The expected annual future tax benefits range from approximately $ 40 million to $ 110 million, with an average of $ 70 million.

The probability, in any given year, that the option to accelerate will be exercised ranges from 3 to 25 percent, with a weighted-average payment period of approximately 4 years.

The discount rates range from less than 1 percent to 5 percent, with a weighted average of 3 percent.

The contingent consideration measured at fair value using unobservable inputs as of December 26, 2020 is $ 861 million, comprised of an $ 882 million liability recognized at the acquisition date of Rockstar and a fair value decrease of $ 21 million in the year ended December 26, 2020, recorded in selling, general and administrative expenses.

In the fourth quarter of 2021, we exercised our option to accelerate all remaining payments.

The change in the contingent consideration in 2021 is comprised of the fourth quarter payment of $ 773 million, a recognized pre-tax gain of $ 86 million ($ 66 million after-tax or $ 0.05 per share), recorded in selling, general and administrative expenses, and a fair value decrease of $ 2 million, recorded in goodwill as a result of the finalization of purchase price allocation.

(f) Based on London Interbank Offered Rate forward rates.

As of December 26, 2020 and December 28, 2019, the carrying amount of hedged fixed-rate debt was $ 0.2 billion and $ 2.2 billion, respectively, and classified on our balance sheet within short-term and long-term debt obligations.

As of December 26, 2020 and December 28, 2019, the cumulative amount of fair value hedging adjustments to hedged fixed-rate debt was a $ 2 million gain and $ 5 million loss, respectively.

As of December 26, 2020, the cumulative amount of fair value hedging adjustments on discontinued hedges was a $ 19 million loss, which is being amortized over the remaining life of the related debt obligations.

As of December 25, 2021, we had no hedged fixed-rate debt.

As of December 26, 2020, the carrying amount of hedged fixed-rate debt was $ 0.2 billion and classified on our balance sheet within short-term debt obligations.

As of December 25, 2021, there were no fair value hedging adjustments to hedged fixed-rate debt.

As of December 26, 2020, the cumulative amount of fair value hedging adjustments to hedged fixed-rate debt was a $ 2 million gain.

As of December 25, 2021, the cumulative amount of fair value hedging adjustments on discontinued hedges was a $ 2 million net loss, which is being amortized over the remaining life of the related debt obligations.

(g) Based on recently reported market transactions of spot and forward rates.

(h) Based on quoted contract prices on futures exchange markets.

(i) Based on recently reported market transactions of swap arrangements.

(j) Derivative assets and liabilities are presented on a gross basis on our balance sheet.

(h) Primarily based on recently reported market transactions of swap arrangements.

(i) 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 25, 2021 and December 26, 2020 were not material.

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Exchange-traded commodity futures are cash-settled on a daily basis and, therefore, not included in the table as of December 25, 2021.

The carrying amounts of our cash and cash equivalents and short-term investments approximate fair value due to their short-term maturity.

Our cash equivalents and short-term investments are classified as Level 2 in the fair value hierarchy.

The carrying amounts of our cash and cash equivalents and short-term investments recorded at amortized cost approximate fair value (classified as Level 2 in the fair value hierarchy) due to their short-term maturity.

The fair value of our debt obligations as of December 25, 2021 and December 26, 2020 was $ 43 billion and $ 50 billion, respectively, based upon prices of similar instruments in the marketplace, which are considered Level 2 inputs.

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Foreign exchange $ ( 4 ) $ — $ ( 7 ) $ ( 9 ) $ 82 $ ( 43 )

Interest rate ( 6 ) ( 64 ) ( 96 ) 67 ( 129 ) 7

Interest 56 ( 6 ) 44 ( 96 ) 64 ( 129 )

Commodity ( 218 ) 53 ( 285 ) ( 21 ) ( 194 ) 56

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(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 net interest expense and other.

These losses/gains are substantially offset by decreases/increases in the value of the underlying debt, which are also included in net interest expense and other.

Interest rate derivative losses/gains are primarily from treasury rate locks, with a total notional value of $ 3.2 billion, to mitigate the interest rate risk on the cash tender offers and are included in net interest expense and other.

See Note 8 to our consolidated financial statements for further information.

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 included in cost of sales.

Interest rate derivative losses/gains are included in net interest expense and other.

(b) Foreign exchange derivative losses/gains are primarily included in cost of sales.

Interest rate derivative losses/gains on cross-currency interest rate swaps are included in selling, general and administrative expenses.

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 $ 7 million related to our cash flow hedges from accumulated other comprehensive loss into net income during the next 12 months.

Based on current market conditions, we expect to reclassify net gains of $ 176 million related to our cash flow hedges from accumulated other comprehensive loss into net income during the next 12 months.

Note 10 — Net Income Attributable to PepsiCo per Common Share

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Income Shares (a)

Net income attributable to PepsiCo $ 7,120 $ 7,314 $ 12,515

Preferred stock:

Redemption premium (b)

Net income available for PepsiCo common shareholders

$ 7,120 1,385 $ 7,314 1,399 $ 12,513 1,415

Basic net income attributable to PepsiCo per common share

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Dilutive securities:

Stock options, RSUs, PSUs and other (c)

Employee stock ownership plan (ESOP) convertible preferred stock

Stock options, RSUs, PSUs and other (b)

$ 7,618 1,389 $ 7,120 1,392 $ 7,314 1,407

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(a) Weighted-average common shares outstanding (in millions).

(b) See Note 11 for further information.

(b) The dilutive effect of these securities is calculated using the treasury stock method.

The weighted-average amount of antidilutive securities excluded from the calculation of diluted earnings per common share was immaterial for the years ended December 25, 2021, December 26, 2020 and December 28, 2019.

Note 11 — Preferred Stock

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 ESOP fund established by Quaker.

Quaker made the final award to its ESOP in June 2001.

In 2018, all of the outstanding shares of our convertible preferred stock were converted into an aggregate of 550,102 shares of our common stock.

As a result, there are no shares of our convertible preferred stock outstanding as of December 29, 2018 and our convertible preferred stock is retired for accounting purposes.

Activities of our preferred stock are included in the equity statement.

Note 11 — 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:

Currency Translation Adjustment Cash Flow Hedges Pension and Retiree Medical Other Accumulated Other Comprehensive Loss Attributable to PepsiCo

Balance as of December 30, 2017 (a)

Currency Translation Adjustment Cash Flow Hedges Pension and Retiree Medical Other (a)

Accumulated Other Comprehensive Loss Attributable to PepsiCo

Balance as of December 29, 2018 (b)

$ ( 11,918 ) $ 87 $ ( 3,271 ) $ ( 17 ) $ ( 15,119 )

Other comprehensive (loss)/income before reclassifications (b)

Other comprehensive income/(loss) before reclassifications (c)

636 ( 131 ) ( 89 ) ( 2 ) 414

Amounts reclassified from accumulated other comprehensive loss — 14 468 — 482

Net other comprehensive (loss)/income ( 1,620 ) 50 ( 595 ) 6 ( 2,159 )

Net other comprehensive income/(loss) 636 ( 117 ) 379 ( 2 ) 896

Tax amounts ( 8 ) 27 ( 96 ) — ( 77 )

Balance as of December 29, 2018 (a)

Balance as of December 28, 2019 (b)

( 11,290 ) ( 3 ) ( 2,988 ) ( 19 ) ( 14,300 )

Other comprehensive (loss)/income before reclassifications (c)

Other comprehensive (loss)/income before reclassifications (d)

( 710 ) 126 ( 1,141 ) ( 1 ) ( 1,726 )

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Tax amounts 60 ( 3 ) 144 — 201

Balance as of December 28, 2019 (a)

Balance as of December 26, 2020 (b)

( 11,940 ) 4 ( 3,520 ) ( 20 ) ( 15,476 )

Other comprehensive (loss)/income before reclassifications (d)

Other comprehensive (loss)/income before reclassifications (e)

( 340 ) 248 702 22 632

Amounts reclassified from accumulated other comprehensive loss 18 ( 48 ) 299 — 269

— ( 116 ) 465 — 349

Net other comprehensive (loss)/income ( 322 ) 200 1,001 22 901

( 710 ) 10 ( 676 ) ( 1 ) ( 1,377 )

Tax amounts ( 47 ) ( 45 ) ( 231 ) — ( 323 )

Balance as of December 26, 2020 (a)

Balance as of December 25, 2021 (b)

$ ( 12,309 ) $ 159 $ ( 2,750 ) $ 2 $ ( 14,898 )

(a) Pension and retiree medical amounts are net of taxes of $ 1,338 million as of December 30, 2017, $ 1,466 million as of December 29, 2018, $ 1,370 million as of December 28, 2019 and $ 1,514 million as of December 26, 2020.

(b) Currency translation adjustment primarily reflects the depreciation of the Russian ruble, Canadian dollar, Pound sterling and Brazilian real.

(a) The change in 2021 primarily comprises fair value increases in available-for-sale securities.

(b) Pension and retiree medical amounts are net of taxes of $ 1,466 million as of December 29, 2018, $ 1,370 million as of December 28, 2019, $ 1,514 million as of December 26, 2020 and $ 1,283 million as of December 25, 2021.

(c) Currency translation adjustment primarily reflects the appreciation of the Russian ruble, Canadian dollar, Mexican peso and Pound sterling.

(d) Currency translation adjustment primarily reflects the depreciation of the Russian ruble and Mexican peso.

(e) Currency translation adjustment primarily reflects the depreciation of the Turkish lira, Swiss franc and Mexican peso.

The following table summarizes the reclassifications from accumulated other comprehensive loss to the income statement:

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Foreign exchange contracts 76 ( 43 ) 2 Cost of sales

Interest rate derivatives ( 129 ) 7 119 Net interest expense and other

Interest rate derivatives 64 ( 129 ) 7 Selling, general and administrative expenses

Commodity contracts ( 190 ) 50 3 Cost of sales

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Components of lease cost are as follows:

2021 2020 2019

Operating lease cost (a)

$ 563 $ 539 $ 474

Variable lease cost (b)

$ 112 $ 111 $ 101

Short-term lease cost (c)

(a) Includes right-of-use asset amortization of $ 478 million and $ 412 million in 2020 and 2019, respectively.

$ 469 $ 436 $ 379

(a) Includes right-of-use asset amortization of $ 505 million, $ 478 million, and $ 412 million in 2021, 2020, and 2019, respectively.

(b) Primarily related to adjustments for inflation, common-area maintenance and property tax.

Rent expense for the year ended December 29, 2018 was $ 771 million.

In 2020 and 2019, we recognized gains of $ 7 million and $ 77 million, respectively, on sale-leaseback transactions with terms under four years.

In 2021, 2020 and 2019, we recognized gains of $ 42 million, $ 7 million and $ 77 million, respectively, on sale-leaseback transactions with terms under five years.

Supplemental cash flow information and non-cash activity related to our operating leases are as follows:

2021 2020 2019

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities

$ 567 $ 555 $ 478

Non-cash activity:

Right-of-use assets obtained in exchange for lease obligations

$ 934 $ 621 $ 479

Supplemental balance sheet information related to our operating leases is as follows:

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Weighted-average remaining lease term and discount rate for our operating leases are as follows:

Weighted-average remaining lease term 6 years 6 years

2021 2020 2019

Weighted-average remaining lease term 7 years 6 years 6 years

Weighted-average discount rate 3 % 4 % 4 %

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Note 13 — Acquisitions and Divestitures

Acquisition of Pioneer Food Group Ltd.

2020 Acquisitions

On March 23, 2020, we acquired all of the outstanding shares of Pioneer Foods, a food and beverage company in South Africa with exports to countries across the globe, for 110.00 South African rand per share in cash.

The total consideration transferred was approximately $ 1.2 billion and was funded by the Bridge Loan Facilities entered into by one of our international consolidated subsidiaries.

See Note 8 for further information.

We accounted for the transaction as a business combination.

We recognized and measured the identifiable assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, in our AMESA segment.

The assets acquired and liabilities assumed in Pioneer Foods as of the acquisition date, which primarily include goodwill and other intangible assets of $ 0.8 billion and property, plant and equipment of $ 0.4 billion, are based on preliminary estimates that are subject to revisions and may result in adjustments to preliminary values as valuations are finalized.

We expect to finalize these amounts as soon as possible, but no later than the second quarter of 2021.

The total consideration transferred was approximately $ 1.2 billion and was funded by two unsecured bridge loan facilities entered into by one of our international consolidated subsidiaries, which were fully repaid in April 2020.

In connection with our acquisition of Pioneer Foods, we have made certain commitments to the South Africa Competition Commission, including a commitment to provide the equivalent of 8.8 billion South African rand, or approximately $ 0.5 billion as of the acquisition date, in value for the benefit of our employees, agricultural development, education, developing Pioneer Foods’ operations and enterprise development programs in South Africa.

Included in this commitment is 2.2 billion South African rand, or approximately $ 0.1 billion, relating to the implementation of an employee ownership plan and an agricultural, entrepreneurship and educational development fund, which is an irrevocable condition of the acquisition and will primarily be settled within the twelve-month period from the acquisition date.

This was recorded in selling, general and administrative expenses in 2020.

Included in this commitment is 2.3 billion South African rand, or approximately $ 0.1 billion, relating to the implementation of an employee ownership plan and an agricultural, entrepreneurship and educational development fund, which is an irrevocable condition of the acquisition.

This commitment was recorded in selling, general and administrative expenses primarily in the year ended December 26, 2020 and was primarily settled in the fourth quarter of 2021.

The remaining commitment of 6.5 billion South African rand, or approximately $ 0.4 billion as of the acquisition date, relates to capital expenditures and/or business-related costs which will be incurred and recorded over a five-year period from the acquisition date.

Acquisition of Rockstar Energy Beverages

On April 24, 2020, we acquired Rockstar, an energy drink maker with whom we had a distribution agreement prior to the acquisition, for an upfront cash payment of approximately $ 3.85 billion and contingent consideration related to estimated future tax benefits associated with the acquisition of approximately $ 0.88 billion.

In the fourth quarter of 2021, we exercised our option to accelerate all remaining payments due under the contingent consideration arrangement.

See Note 9 for further information about the contingent consideration.

We accounted for the transaction as a business combination.

We recognized and measured the identifiable assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, primarily in our PBNA segment.

The assets acquired and liabilities assumed in Rockstar as of the acquisition date, which primarily include goodwill and other intangible assets of $ 4.7 billion, are based on preliminary estimates that are subject to revisions and may result in adjustments to preliminary values as valuations are finalized.

We expect to finalize these amounts as soon as possible, but no later than the second quarter of 2021.

Acquisition of Hangzhou Haomusi Food Co., Ltd.

On June 1, 2020, we acquired all of the outstanding shares of Be & Cheery, one of the largest online snacks companies in China, from Haoxiangni Health Food Co., Ltd.

On June 1, 2020, we acquired all of the outstanding shares of Be & Cheery, one of the largest online convenient food companies in China, from Haoxiangni Health Food Co., Ltd.

The total consideration transferred was approximately $ 0.7 billion.

We accounted for the transaction as a business combination.

We recognized and measured the identifiable assets acquired and liabilities assumed at their estimated fair values on the date of acquisition, in our

APAC segment.

The assets acquired and liabilities assumed in Be & Cheery as of the acquisition date, which primarily include goodwill and other intangible assets of $ 0.7 billion, are based on preliminary estimates that are subject to revisions and may result in adjustments to preliminary values as valuations are finalized.

We expect to finalize these amounts as soon as possible, but no later than the third quarter of 2021.

Acquisition of SodaStream International Ltd.

On December 5, 2018, we acquired all of the outstanding shares of SodaStream, a manufacturer and distributor of sparkling water makers, for $ 144.00 per share in cash, in a transaction valued at approximately $ 3.3 billion.

The total consideration transferred was $ 3.3 billion (or $ 3.2 billion, net of cash and cash equivalents acquired).

The purchase price allocation was finalized in the fourth quarter of 2019.

Refranchising in Thailand

In 2018, we refranchised our beverage business in Thailand by selling a controlling interest in our Thailand bottling operations to form a joint venture, where we now have an equity method investment.

We recorded a pre-tax gain of $ 144 million ($ 126 million after-tax or $ 0.09 per share) in selling, general and administrative expenses in our APAC segment as a result of this transaction.

Refranchising in Czech Republic, Hungary and Slovakia

In 2018, we refranchised our entire beverage bottling operations and snack distribution operations in Czech Republic, Hungary and Slovakia.

We recorded a pre-tax gain of $ 58 million ($ 46 million after-tax or $ 0.03 per share) in selling, general and administrative expenses in our Europe segment as a result of this transaction.

Inventory Fair Value Adjustments and Merger and Integration Charges

A summary of our inventory fair value adjustments and merger and integration charges is as follows:

We accounted for the 2020 transactions as business combinations.

We recognized and measured the identifiable assets acquired and liabilities assumed at their estimated fair values on the respective dates of acquisition.

The purchase price allocations for each of the 2020 acquisitions were finalized in the second quarter of 2021.

The fair value of identifiable assets acquired and liabilities assumed in the acquisitions of Pioneer Foods, Rockstar and Be & Cheery and the resulting goodwill as of the respective acquisition dates is summarized as follows:

Pioneer Foods Rockstar Be & Cheery

Acquisition date March 23, 2020 April 24, 2020 June 1, 2020

Inventories $ 229 $ 52 $ 45

Property, plant and equipment 379 8 60

Amortizable intangible assets 52 — 98

Nonamortizable intangible assets 183 2,400 309

Other assets and liabilities ( 53 ) ( 9 ) ( 24 )

Net deferred income taxes ( 117 ) — ( 99 )

Noncontrolling interest ( 5 ) — —

Total identifiable net assets 668 2,451 389

Goodwill 558 2,278 309

Total purchase price $ 1,226 $ 4,729 $ 698

Goodwill is calculated as the excess of the aggregate of the fair value of the consideration transferred over the fair value of the net assets recognized.

The goodwill recorded as part of the acquisition of Pioneer Foods primarily reflects synergies expected to arise from our combined brand portfolios and distribution networks, and is not deductible for tax purposes.

All of the goodwill is recorded in the AMESA segment.

The goodwill recorded as part of the acquisition of Rockstar primarily represents the value of PepsiCo’s expected new innovation in the energy category and is deductible for tax purposes.

All of the goodwill is recorded in the PBNA segment.

The goodwill recorded as part of the acquisition of Be & Cheery primarily reflects growth opportunities for PepsiCo as we leverage Be & Cheery’s direct-to-consumer and supply chain capabilities and is not deductible for tax purposes.

All of the goodwill is recorded in the APAC segment.

Juice Transaction

In the first quarter of 2022, we sold our Tropicana, Naked and other select juice brands to PAI Partners for approximately $ 3.5 billion in cash and a 39 % noncontrolling interest in a newly formed joint venture that will operate across North America and Europe.

The North America portion of the transaction was completed on January 24, 2022 and the Europe portion of the transaction was completed on February 1, 2022.

In the U.S., PepsiCo acts as the exclusive distributor for the new joint venture’s portfolio of brands for small-format and foodservice customers with chilled direct-store-delivery.

In connection with the sale, we entered into a transition services agreement with PAI Partners, under which we will provide certain services to the joint venture to help facilitate an orderly transition of the business following the sale.

In return for these services, the new joint venture is required to pay certain agreed upon fees to reimburse us for our actual costs without markup.

Subsequent to the transaction close date, the purchase price will be adjusted for net working capital and net debt amounts as of the transaction close date compared to targeted amounts set forth in the purchase agreement.

We expect to record a pre-tax gain of approximately $ 3 billion in our PBNA and Europe segments in the first quarter of 2022 as a result of this transaction.

We have reclassified $ 1.8 billion of assets, primarily accounts receivable, net, and inventories of $ 0.5 billion, goodwill and other intangible assets of $ 0.6 billion and property, plant and equipment of

$ 0.5 billion, and liabilities of $ 0.8 billion, primarily accounts payable and other liabilities of $ 0.6 billion and deferred income taxes of $ 0.2 billion, related to the Juice Transaction as held for sale in our consolidated balance sheet as of December 25, 2021.

The Juice Transaction does not meet the criteria to be classified as discontinued operations.

Acquisition and Divestiture-Related Charges

A summary of our acquisition and divestiture-related charges is as follows:

2021 2020 2019

Cost of sales $ 1 $ 32 $ 34

Selling, general and administrative expenses 223 21 75

Selling, general and administrative expenses (a)

Total $ ( 4 ) $ 255 $ 55

After-tax amount $ 237 $ 47 $ 75

Net income attributable to PepsiCo per common share $ 0.17 $ 0.03 $ 0.05

Inventory fair value adjustments and merger and integration charges include fair value adjustments to the acquired inventory included in the acquisition-date balance sheets (recorded in cost of sales) and closing costs, employee-related costs, contract termination costs, changes in the fair value of contingent consideration and other integration costs (recorded in selling, general and administrative expenses).

Merger and integration charges also include liabilities to support socioeconomic programs in South Africa, which are irrevocable conditions of our acquisition of Pioneer Foods (recorded in selling, general and administrative expenses).

Inventory fair value adjustments and merger and integration charges by division are as follows:

2020 2019 2018 Acquisition

After-tax amount (b)

$ ( 27 ) $ 237 $ 47

Impact on net income attributable to PepsiCo per common share $ 0.02 $ ( 0.17 ) $ ( 0.03 )

(a) The income amount primarily relates to the acceleration payment made in the fourth quarter of 2021 under the contingent consideration arrangement associated with our acquisition of Rockstar, which is partially offset by other acquisition and divestiture-related charges.

(b) In 2021, includes a tax benefit related to contributions to socioeconomic programs in South Africa.

Acquisition and divestiture-related charges primarily include fair value adjustments to the acquired inventory included in the acquisition-date balance sheets (recorded in cost of sales), merger and integration charges and costs associated with divestitures (recorded in selling, general and administrative expenses).

Acquisition and divestiture-related charges by division are as follows:

2021 2020 2019 Transaction

FLNA $ 2 $ 29 $ — BFY Brands

PBNA 66 — — Rockstar

Europe — 46 57 SodaStream

PBNA 11 66 — Juice Transaction, Rockstar

Europe 8 — 46 Juice Transaction, SodaStream International Ltd.

AMESA 10 173 7 Pioneer Foods

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Corporate (a)

( 20 ) 2 18 Rockstar, SodaStream

( 39 ) ( 20 ) 2 Rockstar, Juice Transaction

Total $ ( 4 ) $ 255 $ 55

(a) In 2020, the income amount primarily relates to the change in the fair value of contingent consideration associated with our acquisition of Rockstar.

(a) In 2021, the income amount primarily relates to the acceleration payment made in the fourth quarter of 2021 under the contingent consideration arrangement associated with our acquisition of Rockstar, which is partially offset by divestiture-related charges associated with the Juice Transaction.

In 2020, the income amount primarily relates to the change in the fair value of the Rockstar contingent consideration.

Note 14 — Supplemental Financial Information

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Buildings and improvements 15 - 44

10,279 10,214

Machinery and equipment, including fleet and software 5 - 15

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Accounts payable and other current liabilities

Accounts payable $ 8,853 $ 8,013

Accounts payable (h)

$ 9,834 $ 8,853

Accrued marketplace spending 3,087 2,935

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Total $ 21,159 $ 19,592

(a) In 2020, includes an allowance for expected credit losses of $ 56 million related to the COVID-19 pandemic.

(a) 2021 includes reductions in the previously recorded reserves of $ 32 million, while 2020 includes an allowance for expected credit losses of $ 56 million, related to the COVID-19 pandemic.

See Note 1 for further information.

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(g) See Note 12 for further information.

(h) Increase reflects higher production payables due to strong business performance across a number of our divisions as well as higher commodity prices, partially offset by liabilities reclassified as held for sale in connection with our Juice Transaction.

Statement of Cash Flows

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$ 1,933 $ 1,770 $ 2,226

(a) In 2018, excludes the premiums paid in accordance with the debt transactions.

(a) In 2021, excludes the charge related to cash tender offers.

See Note 8 for further information.

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We have audited the accompanying Consolidated Balance Sheet of PepsiCo, Inc.

and Subsidiaries (the Company) as of December 26, 2020 and December 28, 2019, 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 26, 2020 and the related notes (collectively, the consolidated financial statements).

and Subsidiaries (the Company) as of December 25, 2021 and December 26, 2020, 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 25, 2021, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 25, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 25, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As permitted by SEC guidance, the scope of management's assessment of the effectiveness of internal control over financial reporting as of December 26, 2020 excluded Pioneer Food Group Ltd.

and its subsidiaries (Pioneer Foods) and Hangzhou Haomusi Food Co., Ltd.

and its subsidiaries (Be & Cheery), both of which the Company acquired in 2020.

Pioneer Foods’ total assets and net revenue represented approximately 2.2% and 1.4%, respectively, of the consolidated total assets and net revenue of the Company as of and for the year ended December 26, 2020.

Be & Cheery’s total assets and net revenue represented approximately 1.1% and 0.4%, respectively, of the consolidated total assets and net revenue of the Company as of and for the year ended December 26, 2020.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Pioneer Foods and Be & Cheery.

Basis for Opinions

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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.

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Subjective and complex auditor judgment is required in evaluating these sales incentive accruals as a result of the timing difference between when the product is delivered and when the incentive is settled.

This specifically related to (1) forecasted customer and consumer participation

and performance level assumptions underlying the accrual, and (2) the impact of historical experience and trends.

This specifically related to (1) forecasted customer and consumer participation and performance level assumptions underlying the accrual, and (2) the impact of historical experience and trends.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter.

This included controls related to the Company’s sales incentive process, including (1) the accrual methodology, (2) assumptions around forecasted customer and consumer participation, (3) performance levels, and (4) monitoring of actual sales incentives incurred compared to estimated sales incentives in respect of historical periods.

To evaluate the timing and amount of certain accrued sales incentives we (1) analyzed the accrual by sales incentive type as compared to historical trends to identify specific sales incentives that may require additional testing, (2) recalculated expenses and closing accruals on a sample basis, based on volumes sold and terms of the sales incentives, (3) assessed the Company’s ability to accurately estimate its sales incentive accrual by comparing previously established accruals to actual settlements, and (4) tested a sample of settlements or claims that occurred after period end, and compared them to the recorded sales incentive accrual.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the sales incentive process, including controls related to (1) the accrual methodology, (2) assumptions around forecasted customer and consumer participation, (3) performance levels, and (4) monitoring of actual sales incentives incurred compared to estimated sales incentives in respect of historical periods.

based on volumes sold and terms of the sales incentives, (3) assessed the Company’s ability to accurately estimate its sales incentive accrual by comparing previously established accruals to actual settlements, and (4) tested a sample of settlements or claims that occurred after period end, and compared them to the recorded sales incentive accrual.

Carrying value of certain reacquired and acquired franchise rights and certain juice and dairy brands

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The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter.

This included controls related to the Company’s indefinite-lived assets impairment process to develop the forecasted revenue, profitability levels, and expected long-term growth rates and select the discount rates to be applied to the projected cash flows.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the indefinite-lived assets impairment process, including controls related to the development of forecasted revenue, profitability levels, and expected long-term growth rates and select the discount rates to be applied to the projected cash flows.

We also evaluated the sensitivity of the Company’s conclusion to changes in assumptions, including the assessment of changes in assumptions from prior periods.

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The Company adjusts these reserves, as well as the related interest, in light of new information, such as the progress of a tax examination, new tax law, relevant court rulings or tax authority settlements.

We identified the evaluation of the Company’s unrecognized tax benefits as a critical audit matter because the application of tax law and interpretation of a tax authority’s settlement history is complex and involves subjective judgment.

We identified the evaluation of certain of the Company’s unrecognized tax benefits as a critical audit matter because the application of tax law and interpretation of a tax authority’s settlement history is

complex and involves subjective judgment.

Such judgments impact both the timing and amount of the reserves that are recognized, including judgments about re-measuring liabilities for positions taken in prior years’ tax returns in light of new information.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter.

This included controls related to the Company’s unrecognized tax benefits process, including controls to (1) identify uncertain income tax positions, (2) evaluate the tax law and tax authority’s settlement history used to estimate the unrecognized tax benefits, and (3) monitor for new information that may give rise to changes to the existing unrecognized tax benefits, such as progress of a tax examination, new tax law or tax authority settlements.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the unrecognized tax benefits process, including controls to (1) identify uncertain income tax positions, (2) evaluate the tax law and tax authority’s settlement history used to estimate the unrecognized tax benefits, and (3) monitor for new information that may give rise to changes to the existing unrecognized tax benefits, such as progress of a tax examination, new tax law or tax authority settlements.

We involved tax and valuation professionals with specialized skills and knowledge, who assisted in assessing the unrecognized tax benefits by (1) evaluating the Company’s tax structure and transactions, including transfer pricing arrangements, and (2) assessing the Company’s interpretation of existing tax law as well as new and amended tax laws, tax positions taken, associated external counsel opinions, information from tax examinations, relevant court rulings and tax authority settlements.

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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.

mergers and acquisitions activity, as well as divestitures and other structural changes, including changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.

Bottler Case Sales (BCS) :

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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.

delivery system used by us and our independent bottlers to deliver beverages and convenient foods directly to retail stores where our products are merchandised.

Effective net pricing :

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Free cash flow :

net cash provided by operating activities less capital spending, plus sales of property, plant and equipment.

net cash provided by/used for operating activities less capital spending, plus sales of property, plant and equipment.

Independent bottlers :

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The market value is determined based on prices on national exchanges and recently reported transactions in the marketplace.

a measure that adjusts for impacts of acquisitions, divestitures and other structural changes, and where applicable, foreign exchange translation and the impact of the 53 rd reporting week.

a measure that adjusts for the impacts of foreign exchange translation, acquisitions and divestitures, and where applicable, the impact of the 53 rd reporting week.

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.

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Exhibits and Financial Statement Schedules.”

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis