The instructions are attached in the Division Performance Evaluation

Division Performance Evaluation Project Using Excel In this assignment you will analyze the performance of PepsiCo or Marriott's company divisions. SFAS 131 requires publicly traded companies to disclose division information in the footnotes to the financial statements. You will use Excel to create visually appealing data tables and bar charts to analyze division performance, and then comment on the results. See me if you need help on any step! One of the goals of this project is for you to continue to improve your Excel skills. SECTION I 1. Download the 2013 annual report for either Marriott International or PepsiCo. Locate the \"Divisions\" or \"Business Segment\" information in the footnotes following the financial statements. For Marriott, you'll find the information in Footnote 14. For PepsiCo, it's in Footnote 1. I've posted the annual reports on Blackboard. 2. In an Excel spreadsheet, set up four column headings: Division; Assets; Operating Income; Revenue. Input the 2013 data for each of the company's operating divisions. (Do not include \"unallocated corporate\".) Expand column widths as needed. 3. Use the \"Number\" section of the menu bar to format the data as \"currency\" (dollar signs and commas). Use the \"decimal remove\" button to delete unnecessary decimals. 4. Use \"Format as a Table\" or shading to improve the visual look of your data table. Play around with the different design options. 5. Next, you will be adding a graph to visually display this data. To do this, highlight the entire table. Then click on the \"insert\" tab on the menu bar. Then click on the \"Column\" Chart. Choose an appropriate layout from those available. Add a title to your chart. Expand the chart size if needed. 6. Comment on the Division information by using the \"Insert textbox\" command from the \"Insert\" menu tab: a. Use bullet points, or a few short sentences, to briefly describe the primary products and brands operated/sold by each division. You'll find this information in the footnote itself (Marriott- FN 14) or in Part 1 of the 10k that is imbedded in the annual report (pages 3-5 of the 10k for Pepsi) b. Next, comment on anything that seems to be interesting in the data set that you would like to point out to the reader of this report. Drag your textbox and graph around the worksheet as needed to create a visually appealing layout. SECTION II 7. Add a new table somewhere below the first section. The second data table should have the following column headings: Division, ROI, Sales Margin, and Capital Turnover. \"Copy\" and \"paste\" the division names into the new table. 8. For the first company division listed, insert formula commands to calculate ROI, Sales Margin, and Capital Turnover. To insert formulas, highlight the cell where you want your answer to be. Then, for example, type in \"=B2/B3\" to divide the figure in cell B2 by the figure in cell B3. 9. Use the \"Copy\" and \"Paste\" commands to copy the same formulas into the appropriate cell for each division. 10. Use the \"%\" on the \"Number\" section of the menu bar to format the ROI and Sales Margin as percentages. Use the \"decimal remove\" button to decrease the number of decimals on the Capital Turnover statistic (two decimal should be sufficient). 11. Add a columnar graph that compares the ROI of each division. Add a title and size the graph as needed. 12. Add one or more textboxes to comment on the following: (Do NOT answer these questions in one long paragraph. Divide up your paragraphs/comments/boxes in a visually appealing manner to make it easy for the reader to absorb the information.) a. What does ROI tell management? b. Interpret the ROI statistics found through your analysis. Which divisions have the best and worst? How do they compare? c. How could a division of this company improve its ROI? Give me an example of a specific action that could be taken to improve ROI. d. What does Sales Margin tell management? e. Interpret the Sales margin statistics found through your analysis. Which divisions have the best and worst? How do they compare? f. How could a division of this company improve its sales margin? Give me an example of a specific action that could be taken to improve sales margin. g. What does Capital Turnover tell management? h. Interpret the Capital turnover statistics found through your analysis. Which divisions have the best and worst? How do they compare? i. How could a division of this company improve its capital turnover? Give me an example of a specific action that could be taken to improve capital turnover. j. If you were upper management (CEO of the whole corporation), and had excess funds to allocate among divisions, which division would you allocate those funds to and why? Grading Rubric Requirements (1 point each): Table 1 Graph 1 Table 2 Graph 2 Textbox briefly describing each division Textbox commenting on Table 1 /Graph 1 info. What does ROI tell management? Interpret ROI data How could managers improve ROI What does sales margin tell management? Interpret sales margin data How could managers improve sales margin? What does capital turnover tell management? Interpret capital turnover data How could managers improve capital turnover Allocation of excess funds: Decision and explanation (Points will be deducted for sloppy work, spelling and punctuation errors, etc. Assume you are preparing this report for a client.) 16 pts total 2013 Annual Report Letter to Shareholders 1 Financial Highlights 10 PepsiCo Board of Directors 11 PepsiCo Leadership 12 PepsiCo Form 10-K 13 Reconciliation of GAAP and Non-GAAP Information 141 Common Stock and Shareholder Information 144 \"We delivered on, or exceeded, each and every one of the financial goals we announced to shareholders at the beginning of the year.\" INDRA K. NOOYI PepsiCo Chairman and Chief Executive Officer Dear Fellow Shareholders, Last year I described the dual goals we have unwaveringly pursued since we began our transformation back in 2007: continue to deliver the strong, consistent financial results our shareholders expect year after year, while at the same time investing in and transforming the company to ensure it is built for long-term, sustainable growth. In short, perform while we transform. Looking back, 2012 was an important year in PepsiCo's transformation journey. We took the necessary actions to strengthen our company. We made significant investments behind our largest global brands. And we changed our operating model moving from a loose federation of countries and regions to a more efficient and effective model that leverages PepsiCo's talent, capabilities and resources globally. In 2013, we continued to reinforce these actions and began to realize the benefits. Despite a very challenging operating environment that included economic instability and uncertainty in many of our key markets around the world, we delivered on, or exceeded, each and every one of the financial goals we announced to shareholders at the beginning of the year. Our performance in 2013 was strong: Our organic revenue grew 4%. Core constant currency earnings per share (EPS) grew 9%. Core gross margins improved by 90 basis points and core operating margins improved by 40 basis points, even while we increased investments in the company. We captured more than $900 million of productivity, exceeding our target and keeping us on track to deliver our three-year $3 billion productivity target for 2012- 2014. This success gave us the confidence to extend our goal of $1 billion in annual productivity savings for five years beyond the existing goal (2015-2019). Core net return on invested capital (ROIC) improved 110 basis points, 60 points ahead of our target. Free cash flow excluding certain items was strong at $8.2 billion. PepsiCo increased its annual dividend for the 41st consecutive year in 2013 and returned $6.4 billion to our shareholders through share repurchases and dividends. Organic, core and constant currency results, as well as free cash flow excluding certain items, are non-GAAP financial measures. Please refer to \"Reconciliation of GAAP and Non-GAAP Information\" beginning on page 141 of this Annual Report for more information about these results, including a reconciliation to the most directly comparable financial measures in accordance with GAAP. 2013 ANNUAL REPORT 1 4 % 9 $ 900 MM % Organic revenue was up 4% in 2013 Core constant currency EPS grew 9% We delivered $900+ million in savings in the second year of our current productivity program and remain on track to deliver $3 billion by 2015 110 BPS 2 Core net ROIC improved 110 bps in 2013 compared to 2012 8.2 B $ Free cash flow, excluding certain items, reached $8.2 billion $ 6.4 B We returned $6.4 billion to shareholders in 2013 through share repurchases and dividends *Source: IRI MULOC; based on estimated launch-year sales for innovations launched through June 2013. PEPSICO Equally important were the investments and capacity-building initiatives we undertook over the past five years to position ourselves for superior value creation over the long term: 1. We invested to enhance the equity of our 22 billion dollar brands, which together account for more than 70% of our total revenue. Advertising and marketing (A&M) increased and now stands at 5.9% of net revenue up from 5.2% in 2011. More importantly, this investment led to significant brand equity improvement. For example, brand equity scores for our global beverage and snack brands held or gained in 90% of our strategic markets, and six of our global brands saw brand equity hold or gain in 100% of their strategic markets. Our brand-building efforts are paying off. PepsiCo has nine of the 40 largest packaged goods trademarks in the U.S. according to IRI, and, according to Euromonitor International, nine of the top 50 packaged food and soft drink brands measured at Global Brand Name in Russia, seven of the top 50 in Mexico, and six of the top 50 in the U.K. 2. We fine-tuned and ramped up our innovation machine, increasing our rate of success of new innovations to make this one of PepsiCo's best years ever for innovation. In fact, in 2013, PepsiCo had nine of the top 50 new food and beverage product introductions across all measured U.S. retail channels.* Additionally, six new products are on track to achieve at least $100 million each in estimated annual retail sales in the U.S.: Mountain Dew Kickstart, Tostitos Cantina tortilla chips, Starbucks Iced Coffee, Lipton Pure Leaf Tea, Muller Quaker Yogurt and Gatorade Frost Glacier Cherry. We also opened a state-of-theart food and beverage innovation center in Shanghai, China to fuel new product, packaging and equipment innovation for our businesses throughout Asia. Innovation as a percentage of net revenue grew to 9% in 2013, and as a whole our R&D investments have increased more than 25% since 2011. 3. Our developing and emerging markets, a major investment area, continued to perform well despite significant volatility in key regions. As a group, our developing and emerging markets posted 10% organic revenue growth, with particularly strong performance in China, Pakistan, Saudi Arabia, Mexico, Brazil and Turkey. Our convenient, on-trend and affordable products, coupled with a long runway for growth in developing and emerging markets, give us confidence that they can sustain solid growth over the long term. 4. Building from our positions of strength with four of the most important nutrition platforms and brands Quaker (grains), Tropicana (fruits and vegetables), Gatorade (sports nutrition for athletes) and Naked Juice (super-premium juices and protein smoothies) we continued to expand our portfolio of nutritious A fine-tuned innovation machine Six new products are on track to achieve at least $100 million each in estimated annual retail sales in the U.S.: Starbucks Iced Coffee, Mountain Dew Kickstart, Tostitos Cantina tortilla chips, Gatorade Frost Glacier Cherry, Lipton Pure Leaf Tea and Muller Quaker Yogurt. 3 products across multiple markets and unlock growth opportunities in new product categories, such as dairy, hummus and other fresh dips, and baked grain snacks. Over the last decade our nutrition business revenue has grown substantially and, in 2013, represented approximately 20% of PepsiCo's net revenue. In 2013, we also remained focused on improving the nutritional profile of many of our social snacks and beverages. In snacks, we continued our efforts to reduce saturated fat levels and sodium content in certain key brands while dialing up our baked offerings and whole grains. In beverages, we added new low- and zero-calorie choices and continued to work to reduce added sugar in certain key brands. We also continued to accelerate our research and technology investments in the development of sweetener innovation. 5. Our global go-to-market capability is one of PepsiCo's most important strategic advantages, and, in 2013, we further reinforced this key differentiator in very tangible ways. We increased our number of routes in key markets and greatly improved our in-store presence for our snack and beverage portfolio. We also empowered our sales teams globally with mobile technology to help them enhance their merchandising capabilities and drive increased sales. 6. We redoubled our efforts on talent development and improved the quality of the training we offer employees by, among other actions, investing in a new foundational leadership training program and completely revamping PepsiCo University. \"PepsiCo has knocked it out of the park with new product innovation this year. Across both snacks and beverages, they're consistently bringing great new products to the shelf.\" JOE DEPINTO President and Chief Executive Officer, 7-Eleven 2013 ANNUAL REPORT Cumulative Total Shareholder Return Return on PepsiCo stock investment (including dividends) and the S&P 500. The return for PepsiCo and the S&P 500 indices are calculated through December 31, 2013. PepsiCo, Inc. S&P 500 250 200 150 100 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13 PepsiCo, Inc. $100 $99 $87 $98 $111 $128 $139 $172 $127 $146 $161 $169 $180 $224 S&P 500 $100 $88 $69 $88 $98 $103 $119 $126 $79 $100 $115 $118 $136 $180 4 PepsiCo associates are highly engaged globally as reflected in our 2013 Organizational Health Survey. An impressive 89% of our professional and executive populations responded they are proud to work for PepsiCo, which is well above a respected cross-industry benchmark. We have seen sustained improvement in both employee commitment and satisfaction results over the past decade a testament to our continued focus on making PepsiCo a great place to work. PepsiCo's Cumulative Total Shareholder Return has outpaced the S&P 500 on an annualized basis by 170 basis points since 2000. PEPSICO The continued focus on execution discipline to drive results in the short term, and investments to build capabilities and advantage for the long term, has been financially rewarding for PepsiCo and our shareholders: Over the past decade, our net revenue compound annual growth rate was 9%. Today, our operating margin stands at 15%, in the top tier of our food and beverage peer group. In addition, core net return on invested capital improved 110 basis points in 2013. In the last 10 years, earnings per share grew at an 8% compound annual growth rate, and we returned $57 billion in cash to shareholders through a combination of dividends and share repurchases. PepsiCo's Cumulative Total Shareholder Return has outpaced the S&P 500 on an annualized basis by 170 basis points since 2000. This strong performance is the foundation upon which we will build our future. I am more confident than ever that PepsiCo today has the right model, capabilities, people and portfolio to continue to deliver for our consumers, customers and shareholders well into the future. 2014 and Beyond Delivering on our 2013 financial targets demanded the very best of the entire PepsiCo management team. The operating environment was volatile and challenging, and going forward we expect the amplitude and frequency of change only to increase. Growth will continue to be fueled by developing and emerging markets. The growth rates of developing and emerging markets are expected to continue to outpace developed markets for the foreseeable future. And by 2030, experts estimate an additional 3 billion people may join the middle class. These trends present excellent growth opportunities, but will require significant investment and development of the right people, skills and tools to compete. We have already established strong positions in developing and emerging markets, but need to continue to invest in building our capabilities in these markets to capture these growth opportunities. The consumer shift to more nutritious products will accelerate. Trends such as a desire for convenient, functional nutrition, local and natural ingredients, and better-for-you snack and beverage options have firmly taken hold and will continue to accelerate around the world. We anticipated these trends early on and have taken significant actions to balance our portfolio of offerings. Additionally, we have improved the nutritional profile of many of our social snacks and beverages by reducing added sugar, sodium and saturated fat in key brands. We are building from an advantaged portfolio, but need to accelerate our efforts to continue to meet this consumer demand and capture this growth opportunity. Digital technology is disrupting every business at every point in the value chain, and the way we interact with retailers, shoppers and consumers is changing at a dramatic pace. Being a laggard is simply not an option. In a digital landscape that is incredibly dynamic, we are focusing on new digital tools, technologies and retail platforms to allow us to reach consumers differently, shift our advertising and marketing model, improve our analytics and enhance the efficiency of our sales force. Cybersecurity is also a real concern, requiring focused investment and constant diligence against threats. RUSSIA In Russia, where PepsiCo is the largest food and beverage business, 2013 highlights include the launch of new flavors of Chudo drinkable yogurt, as well as volume growth for Lipton ready-to-drink teas and Lay's. CHINA In China in 2013, PepsiCo engaged consumers with Lay's \"Do Us a Flavor\" campaign, which drove volume growth for the brand. Other highlights include volume growth for Mirinda and Quaker. 5 LATIN AMERICA We launched Quaker Stila cereal, an extension of the popular Quaker Stila brand, in Mexico in 2013. Other highlights in Latin America include volume growth for 7UP and Sabritas. 2013 ANNUAL REPORT We should anticipate geopolitical and social instability to be the norm, not the exception. Income inequality, competition for natural resources, and geopolitical tensions and conflict will continue to pose risks to doing business in many countries around the world. Doing business in this environment requires continued investment to keep our people safe and protect our supply chain against potential threats. Fortunately, PepsiCo's local teams have an intimate understanding of how to do business in each community in which we operate, allowing them to adapt to changing circumstances. For example, in Egypt, amid political unrest, PepsiCo associates ensured operations were not disrupted and looked for opportunities to expand the business even in a challenging period. Extreme weather patterns are expected to persist, forcing companies to deal with commodity scarcity and volatility. Warmer temperatures, erratic rainfall patterns, new pests, floods and wildfires all threaten the productivity and availability of agricultural inputs. Our size and scale allow us to manage our commodity supply cost and inflation risks through our centralized strategic platforms and our multiple sourcing pipelines. But managing through these fluctuations requires additional investment and contingency planning. For example, our R&D team is working on developing multiple formulations of various products to be able to cope with changes in raw material availability and price, while delivering on taste and quality. 6 PepsiCo's top 12 executives collectively have nearly 200 years of experience in the Consumer Packaged Goods industry. This \"new normal\" will require continued focus and investment, and we are confident we have the ingredients for success: geographic diversity; a complementary, related and diverse product portfolio; an efficient and effective operating model; an experienced, top-notch management team; and a culture and ethics that are second to none. PEPSICO Better Together: The Benefits of the PepsiCo Portfolio PepsiCo's portfolio competes in two focused, related categories: foods and beverages. Both categories have attractive global growth prospects of 5% or more, and our convenient foods and beverages businesses are fairly evenly balanced, with about half of our 2013 revenue coming from each. More importantly, our categories and products are highly complementary, sharing the same customers, consumers and occasions. It is the \"related diversity\" of the PepsiCo portfolio that we believe gives us an advantaged position over the competition. The Power of PepsiCo's Portfolio to Enable the Next Wave of Growth. Foods and beverages are consumed together, and PepsiCo's portfolio offers delicious and convenient food and beverage options for a wide range of occasions from morning to evening. For example, our consumers might wake up to a breakfast of Quaker Real Medleys and Trop50, enjoy a Pepsi MAX and SunChips with lunch, unwind with Stacy's pita chips, Sabra hummus and a Lipton beverage, and host a party with an array of Frito-Lay and Pepsi products. No matter the consumer or the occasion, we seek to provide a food or beverage solution. With joint consumer insights, R&D and innovation across foods and beverages, we have capabilities that give us a leg up on the competition when it comes to knowing and developing what consumers want to eat and drink throughout the day. There are overlapping \"demand moments\" or \"need states\" that could be satisfied by a food or a beverage. Our capabilities position us to develop the best solutions, be it a food or beverage, or even something in-between, to meet the needs of our consumers. Our portfolio allows us to capture coincident eating and drinking occasions using joint marketing and selling. When consumers reach for a Frito-Lay snack, we want them to pair it with a refreshing Pepsi beverage or any of our other diverse beverage offerings. Our scale and relationship with our retailers allow us to create in-store destinations to influence consumer shopping patterns and decisions to increase this coincidence of purchase. For example, during the 4th of July holiday season this past year in the U.S., the The Power of PepsiCo's Portfolio for Our Customers The scale, ubiquity and related velocity of our categories make us an essential partner for retailers, who look to PepsiCo to drive a signifi cant share of their growth. TACO BELL THE NFL BUFFALO WILD WINGS \"With PepsiCo's help, we have reinvented the crunchy taco and expanded our beverage line while creating a model that has unlimited possibilities for future innovation.\" \"PepsiCo is part of the fabric of the NFL. The company has a deep understanding of our business, and its portfolio of iconic brands enables us to win together.\" \"What attracted us to PepsiCo is its extensive beverage and food portfolio. We see this as a very powerful partnership.\" GREG CREED Chief Executive Officer, Taco Bell ROGER GOODELL NFL Commissioner SALLY SMITH Chief Executive Officer, Buffalo Wild Wings combination of Pepsi and Lay's potato chips at one major retail chain drove increases in display inventory of approximately 40% and resulting gains in sales and share over the holiday. enable us to support the growth of our complementary categories. For example, an existing PepsiCo beverage business in a market can enable us to enter the snacks business in that market. And having both foods and beverages allows us to launch and broadly distribute new, convergent food and beverage products for example, foods through chilled beverage distribution, beverages through ambient food distribution and convergent products that \"snackify\" beverages. And our broad portfolio has been a strong competitive advantage in foodservice. The runaway success of Doritos Locos Tacos, a culinary innovation to drive growth for a PepsiCo foodservice customer, is just one example. Doritos Locos Tacos have exceeded $1 billion in retail sales since their launch in 2012. In 2013, PepsiCo won the Buffalo Wild Wings account, giving us access to more than 1,000 locations, by demonstrating the advantages of our combined portfolio. Foodservice customers also see the advantage of partnering with PepsiCo because of our access to retail partners and the option of getting foodservice customerinspired snacks onto the shelves in grocery stores. The Power of PepsiCo's Portfolio for Our Customers. The retail landscape today is more competitive than ever before, including competition for share of the shopper's basket and the retail shelf. The scale, ubiquity and related velocity of our categories make us an essential partner for retailers, who look to PepsiCo to drive a significant share of their growth. Our relationships with our retail partners 2013 ANNUAL REPORT 7 8 The Structural Cost Benefits and Global Capability. Beyond what the customers and consumers see on the shelf, our business model drives structural cost benefits of $800 million to $1 billion across PepsiCo globally each year. These financial benefits are achieved through regional scale cost leverage obtained through procurement, supply chain, go-to-market and selling functions, and G&A. We also see significant financial benefits and savings from having corporate functions integrated globally, such as Global Procurement, R&D, Human Resources and Business Information Services. Looking beyond direct cost savings, these global platforms create capability advantages for us across the entire value chain. For example, our global marketing capabilities allow us to increase the share of dollars that go to working A&M, facilitate the sharing of sports and talent properties, and enable \"lift and shift\" of brand-building models. With a global R&D function, investments made are leveraged to drive innovation across both foods and beverages. PEPSICO How We \"Future-Proof\" PepsiCo: Performance with Purpose I began this letter by talking about our focus on two goals: delivering on the short term while investing for the long term. One of the great balancing acts as CEO is to manage for both level and duration. And I believe any CEO should be able to answer the question \"How are you futureproofing your company?\" As the operating environment has become more volatile and complex, this is a tall order. But I firmly believe that the goals we articulated in 2007 under Performance with 9 Purpose hold the answer. As long as Performance with Purpose is our guide, I believe PepsiCo will continue to deliver long-term, sustainable growth. Performance with Purpose is PepsiCo's recognition that the company's success is inextricably linked to society's success. In order to do well by our shareholders, we also have to take into account the needs and concerns of a wide range of stakeholders. If our financial success comes at the expense of the environment, our consumers or our communities, we will not be viable in the long run. In practice, Performance with Purpose means we provide a range of foods and beverages from treats to healthy eats; we find innovative ways to minimize our impact on the environment and lower our costs through energy and water conservation as well as reduced use of packaging material; we provide a safe and inclusive workplace for our employees globally; and we respect, support and invest in the local communities in which we operate. Performance with Purpose remains our true north, and it is more important than ever. I encourage you to please take the time to read our latest Sustainability Report, which details our work and progress toward our goals around the world. As 2014 begins, every PepsiCo associate feels an incredible sense of duty and responsibility to those who depend on us to offer sustainable financial returns over the long term. It is for these long-term investors that we run PepsiCo. I'm confident that PepsiCo's best days are yet to come, and I'm honored more than ever to serve as Chairman and CEO. Indra K. Nooyi PepsiCo Chairman and Chief Executive Officer March 2014 2013 ANNUAL REPORT Financial Highlights Net Revenues Mix of Net Revenue PepsiCo Americas Foods 37% Food 52% PepsiCo Americas Beverages 32% Beverage 48% PepsiCo Europe 21% PepsiCo AMEA 10% U.S. 51% Outside U.S. 49% Division Operating Profit PepsiCo Americas Foods 52% PepsiCo Americas Beverages 26% PepsiCo Europe 12% PepsiCo AMEA 10% 10 PepsiCo, Inc. and Subsidiaries (in millions except per share data; all per share amounts assume dilution) 2013 2012 Chg (a) Net revenue $66,415 $65,492 1% Core total operating profit (b) $10,061 $ 9,682 4% Core earnings per share attributable to PepsiCo (c) $ $ 4.10 7% Free cash flow, excluding certain items (d) $ 8,162 $ 7,387 10% Capital spending $ 2,795 $ 2,714 3% Common share repurchases $ 3,001 $ 3,219 (7)% Dividends paid $ 3,434 $ 3,305 4% Summary of Operations 4.37 (a) Percentage changes are based on unrounded amounts. (b) Excludes the net mark-to-market impact of our commodity hedges, merger and integration charges and restructuring and impairment charges in both years. In 2013, also excludes the Venezuela currency devaluation. In 2012, also excludes restructuring and other charges related to the transaction with Tingyi and a pension lump-sum settlement charge. See page 143 \"Reconciliation of GAAP and Non-GAAP Information\" for a reconciliation to the most directly comparable financial measure in accordance with GAAP. (c) Excludes net mark-to-market impact of our commodity hedges, merger and integration charges, restructuring and impairment charges and tax benefits in both years. In 2013, also excludes the Venezuela currency devaluation. In 2012, also excludes restructuring and other charges related to the transaction with Tingyi and a pension lump-sum settlement charge. See page 53 \"Results of OperationsConsolidated Review\" in Management's Discussion and Analysis for a reconciliation to the most directly comparable financial measure in accordance with GAAP. (d) Includes the impact of net capital spending, and excludes discretionary pension and retiree medical payments, merger and integration payments, restructuring payments, net capital investments related to merger and integration, net capital investments related to restructuring plan and payments for restructuring and other charges related to the transaction with Tingyi in both years. In 2013, also excludes net payments related to income tax settlements. See page 65 \"Our Liquidity and Capital Resources\" in Management's Discussion and Analysis for a reconciliation to the most directly comparable financial measure in accordance with GAAP. PEPSICO PepsiCo Board of Directors 11 Shown in photo, left to right: Ray L. Hunt Chairman, President and Chief Executive Officer, Hunt Consolidated, Inc. 70. Elected 1996. James J. Schiro Former Chief Executive Officer, Zurich Financial Services 68. Elected 2003. Daniel Vasella, M.D. Former Chairman and Chief Executive Officer, Novartis AG 60. Elected 2002. Indra K. Nooyi Chairman and Chief Executive Officer, PepsiCo 58. Elected 2001. George W. Buckley Retired Chairman, President and Chief Executive Officer, 3M Company; Chairman, Smiths Group plc 67. Elected 2012. Sharon Percy Rockefeller President and Chief Executive Officer, WETA Public Stations 69. Elected 1986. Lloyd G. Trotter Managing Partner, GenNx360 Capital Partners 68. Elected 2008. Shona L. Brown Senior Advisor, Google Inc. 48. Elected 2009. Ian M. Cook Chairman, President and Chief Executive Officer, Colgate-Palmolive Company 61. Elected 2008. Alberto Weisser Former Chairman and Chief Executive Officer, Bunge Limited 58. Elected 2011. Dina Dublon Former Executive Vice President and Chief Financial Officer, JPMorgan Chase & Co. 60. Elected 2005. Alberto Ibargen President and Chief Executive Officer, John S. and James L. Knight Foundation 70. Elected 2005. Rona A. Fairhead Former Chairman and Chief Executive Officer, Financial Times Group 52. Elected 2014. 2013 ANNUAL REPORT PepsiCo Leadership 12 2 Shown in photo, left to right: Ruth Fattori Senior Vice President, Talent Management Training and Development Hugh F. Johnston Executive Vice President and Chief Financial Officer, PepsiCo Dr. Mehmood Khan Executive Vice President, PepsiCo Chief Scientific Officer, Global Research and Development Indra K. Nooyi Chairman and Chief Executive Officer, PepsiCo Zein Abdalla President, PepsiCo Enderson Guimaraes Chief Executive Officer, PepsiCo Europe Brian C. Cornell Chief Executive Officer, PepsiCo Americas Foods Larry D. Thompson Executive Vice President, Government Affairs, General Counsel and Corporate Secretary Sanjeev Chadha Chief Executive Officer, PepsiCo Asia, Middle East and Africa Cynthia M. Trudell Executive Vice President, Human Resources and Chief Human Resources Officer, PepsiCo See page 24 of the Form 10-K for a list of PepsiCo Executive Officers subject to Section 16 of the Securities Exchange Act of 1934. PEPSICO Albert P. Carey Chief Executive Officer, PepsiCo Americas Beverages Jim Wilkinson Executive Vice President, Communications, PepsiCo PepsiCo, Inc. Annual Report 2013 Form 10-K For the fiscal year ended December 28, 2013 13 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 2013 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 to For the transition period from Commission file number 1-1183 PepsiCo, Inc. (Exact Name of Registrant as Specified in Its Charter) North Carolina (State or Other Jurisdiction of Incorporation or Organization) 13-1584302 (I.R.S. Employer Identification No.) 700 Anderson Hill Road, Purchase, New York (Address of Principal Executive Offices) 10577 (Zip Code) Registrant's telephone number, including area code: 914-253-2000 Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: Name of each exchange Title of each class on which registered New York and Chicago Stock Exchanges Common Stock, par value 1-2/3 cents per share 2.5000% Senior Notes Due 2022 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the No Securities Act. Yes Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for No the past 90 days. Yes Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of \"large accelerated filer,\" \"accelerated filer\" and \"smaller reporting company\" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the No Exchange Act). Yes The aggregate market value of PepsiCo, Inc. Common Stock held by nonaffiliates of PepsiCo, Inc. (assuming for these purposes, but without conceding, that all executive officers and directors of PepsiCo, Inc. are affiliates of PepsiCo, Inc.) as of June 14, 2013, the last day of business of our most recently completed second fiscal quarter, was $127,040,995,303 (based on the closing sale price of PepsiCo, Inc.'s Common Stock on that date as reported on the New York Stock Exchange). The number of shares of PepsiCo, Inc. Common Stock outstanding as of February 6, 2014 was 1,522,465,786. Documents of Which Portions Are Incorporated by Reference Parts of Form 10-K into Which Portion of Documents Are Incorporated Proxy Statement for PepsiCo, Inc.'s 2014 Annual Meeting of Shareholders III PepsiCo, Inc. Form 10-K Annual Report For the Fiscal Year Ended December 28, 2013 Table of Contents PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures 2 10 22 22 23 24 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information 27 30 30 121 121 121 121 122 PART III Item 10. Directors, Executive Officers and Corporate Governance 122 Item 11. Executive Compensation 122 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 122 Item 13. Certain Relationships and Related Transactions, and Director Independence 123 Item 14. Principal Accounting Fees and Services 123 PART IV Item 15. Exhibits and Financial Statement Schedules 1 124 Forward-Looking Statements This Annual Report on Form 10-K contains statements reflecting our views about our future performance that constitute \"forward-looking statements\" within the meaning of the Private Securities Litigation Reform Act of 1995 (the \"Reform Act\"). Statements that constitute forward-looking statements within the meaning of the Reform Act are generally identified through the inclusion of words such as \"aim,\" \"anticipate,\" \"believe,\" \"drive,\" \"estimate,\" \"expect,\" \"expressed confidence,\" \"forecast,\" \"future,\" \"goals,\" \"guidance,\" \"intend,\" \"may,\" \"plan,\" \"position,\" \"potential,\" \"project,\" \" seek,\" \"should,\" \"strategy,\" \"target,\" \"will\" or similar statements or variations of such words and other similar expressions. All statements addressing our future operating performance, and statements addressing events and developments that we expect or anticipate will occur in the future, are forward-looking statements within the meaning of the Reform Act. These forward-looking statements are based on currently available information, operating plans and projections about future events and trends. They inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in any such forward-looking statement. These risks and uncertainties include, but are not limited to, those described in \"Risk Factors\" in Item 1A. and \"Management's Discussion and Analysis of Financial Condition and Results of Operations - Our Business Risks\" in Item 7. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update any forwardlooking statement, whether as a result of new information, future events or otherwise. The discussion of risks below and elsewhere in this report is by no means all inclusive but is designed to highlight what we believe are important factors to consider when evaluating our future performance. PART I Item 1. Business. PepsiCo, Inc. was incorporated in Delaware in 1919 and was reincorporated in North Carolina in 1986. When used in this report, the terms \"we,\" \"us,\" \"our,\" \"PepsiCo\" and the \"Company\" mean PepsiCo, Inc. and its consolidated subsidiaries. We are a leading global food and beverage company with brands that are respected household names throughout the world. Through our operations, authorized bottlers, contract manufacturers and other third parties, we make, market, sell and distribute a wide variety of convenient and enjoyable foods and beverages, serving customers and consumers in more than 200 countries and territories. Our management monitors a variety of key indicators to evaluate our business results and financial condition. These indicators include growth in volume, revenue and organic revenue, growth in operating profit and EPS (as reported and excluding certain items and the impact of foreign exchange translation), market share, safety, product and service quality, organizational health, brand equity, employee diversity, net commodity inflation, productivity savings, net capital spending, free cash flow and free cash flow excluding certain items, cash returned to shareholders in the forms of share repurchases and dividends, advertising and marketing expenses, return on invested capital (ROIC), and gross and operating margin change. Performance with Purpose is our goal to deliver sustained value by providing a wide range of foods and beverages, from treats to healthy eats; finding innovative ways to minimize our impact on the environment and lower our costs through energy and water conservation as well as reduce use of packaging material; providing a safe and inclusive workplace for our employees globally; and respecting, supporting and investing in the local communities in which we operate. PepsiCo was again recognized for its leadership in this area in 2013 by earning a place on the prestigious Dow Jones Sustainability World Index for the seventh consecutive year and on the North America Index for the eighth consecutive year. 2 Our Operations We are organized into four business units, as follows: 1) PepsiCo Americas Foods, which includes Frito-Lay North America (FLNA), Quaker Foods North America (QFNA) and all of our Latin American food and snack businesses (LAF); 2) PepsiCo Americas Beverages (PAB), which includes all of our North American and Latin American beverage businesses; 3) PepsiCo Europe (Europe), which includes all beverage, food and snack businesses in Europe and South Africa; and 4) PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack businesses in AMEA, excluding South Africa. Our four business units are comprised of six reportable segments (also referred to as divisions), as follows: FLNA, QFNA, LAF, PAB, Europe, and AMEA. See Note 1 to our consolidated financial statements for financial information about our divisions and geographic areas. Frito-Lay North America Either independently or in conjunction with third parties, FLNA makes, markets, sells and distributes branded snack foods. These foods include Lay's potato chips, Doritos tortilla chips, Cheetos cheese flavored snacks, Tostitos tortilla chips, branded dips, Ruffles potato chips, Fritos corn chips and Santitas tortilla chips. FLNA's branded products are sold to independent distributors and retailers. In addition, FLNA's joint venture with Strauss Group makes, markets, sells and distributes Sabra refrigerated dips and spreads. FLNA's net revenue was $14.1 billion, $13.6 billion and $13.3 billion in 2013, 2012 and 2011, respectively, and approximated 21% of our total net revenue in both 2013 and 2012 and 20% of our total net revenue in 2011. Quaker Foods North America Either independently or in conjunction with third parties, QFNA makes, markets, sells and distributes cereals, rice, pasta, dairy and other branded products. QFNA's products include Quaker oatmeal, Aunt Jemima mixes and syrups, Quaker Chewy granola bars, Cap'n Crunch cereal, Quaker grits, Life cereal, Rice-A-Roni side dishes, Quaker rice cakes, Quaker Oat Squares and Quaker Natural Granola. These branded products are sold to independent distributors and retailers. QFNA's net revenue was $2.6 billion in both 2013 and 2012 and $2.7 billion in 2011, and approximated 4% of our total net revenue in 2013, 2012 and 2011. Latin America Foods Either independently or in conjunction with third parties, LAF makes, markets, sells and distributes a number of snack food brands including Doritos, Marias Gamesa, Cheetos, Ruffles, Emperador, Saladitas, Sabritas, Elma Chips, Tostitos and Rosquinhas Mabel, as well as many Quaker-branded cereals and snacks. These branded products are sold to independent distributors and retailers. LAF's net revenue was $8.3 billion, $7.8 3 billion and $7.2 billion in 2013, 2012 and 2011, respectively, and approximated 12% of our total net revenue in both 2013 and 2012 and 11% of our total net revenue 2011. PepsiCo Americas Beverages Either independently or in conjunction with third parties, PAB makes, markets, sells and distributes beverage concentrates, fountain syrups and finished goods under various beverage brands including Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, 7UP (outside the U.S.), Diet Mountain Dew, Tropicana Pure Premium, Sierra Mist and Mirinda. PAB also, either independently or in conjunction with third parties, makes, markets and sells ready-to-drink tea and coffee products through joint ventures with Unilever (under the Lipton brand name) and Starbucks. Further, PAB manufactures and distributes certain brands licensed from Dr Pepper Snapple Group, Inc. (DPSG), including Dr Pepper, Crush and Schweppes, and certain juice brands licensed from Dole Food Company, Inc. (Dole) and Ocean Spray Cranberries, Inc. (Ocean Spray). PAB operates its own bottling plants and distribution facilities and sells branded finished goods directly to independent distributors and retailers. PAB also sells concentrate and finished goods for our brands to authorized and independent bottlers, who in turn also sell our brands as finished goods to independent distributors and retailers in certain markets. PAB's net revenue was $21.1 billion, $21.4 billion and $22.4 billion in 2013, 2012 and 2011, respectively, and approximated 32%, 33% and 34% of our total net revenue in 2013, 2012 and 2011, respectively. Europe Either independently or in conjunction with third parties, Europe makes, markets, sells and distributes a number of leading snack food brands including Lay's, Walkers, Doritos, Cheetos and Ruffles, as well as many Quaker-branded cereals and snacks, through consolidated businesses as well as through noncontrolled affiliates. Europe also, either independently or in conjunction with third parties, makes, markets, sells and distributes beverage concentrates, fountain syrups and finished goods under various beverage brands including Pepsi, Pepsi Max, 7UP, Diet Pepsi and Tropicana. These branded products are sold to authorized bottlers, independent distributors and retailers. In certain markets, however, Europe operates its own bottling plants and distribution facilities. Europe also, either independently or in conjunction with third parties, makes, markets and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name). In addition, Europe makes, markets, sells and distributes a number of leading dairy products including Domik v Derevne, Chudo and Agusha. Europe's net revenue was $13.8 billion, $13.4 billion and $13.6 billion in 2013, 2012 and 2011, respectively, and approximated 21% of our total net revenue in 2013 and 20% of our total net revenue in both 2012 and 2011. See Note 15 to our consolidated financial statements for additional information about our acquisition of Wimm-Bill-Dann Foods OJSC (WBD) in 2011. Asia, Middle East and Africa Either independently or in conjunction with third parties, AMEA makes, markets, sells and distributes a number of leading snack food brands including Lay's, Kurkure, Chipsy, Doritos, Cheetos and Smith's through consolidated businesses as well as through noncontrolled affiliates. Further, either independently or in conjunction with third parties, AMEA makes, markets and sells many Quaker-branded cereals and snacks. AMEA also makes, markets, sells and distributes beverage concentrates, fountain syrups and finished goods under various beverage brands including Pepsi, Mirinda, 7UP, Mountain Dew, Aquafina and Tropicana. These branded products are sold to authorized bottlers, independent distributors and retailers. However, in certain markets, AMEA operates its own bottling plants and distribution facilities. AMEA also, either independently or in conjunction with third parties, makes, markets and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name). Further, we license the Tropicana brand for use in China on co-branded juice products to a strategic alliance with Tingyi (Cayman Islands) 4 Holding Corp. (Tingyi). AMEA's net revenue was $6.5 billion, $6.7 billion and $7.4 billion in 2013, 2012 and 2011, respectively, and approximated 10% of our total net revenue in 2013 and 2012 and 11% of our total net revenue in 2011. See Note 15 to our consolidated financial statements for additional information about our transaction with Tingyi in 2012. Our Distribution Network Our products are brought to market through direct-store-delivery (DSD), customer warehouse and distributor networks. The distribution system used depends on customer needs, product characteristics and local trade practices. These distribution systems are described under the heading \"Our Distribution Network\" contained in \"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.\" Ingredients and Other Supplies The principal ingredients we use in our food and beverage businesses are apple, orange and pineapple juice and other juice concentrates, aspartame, corn, corn sweeteners, flavorings, flour, grapefruit and other fruits, oats, oranges, potatoes, raw milk, rice, seasonings, sucralose, sugar, vegetable and essential oils, and wheat. Our key packaging materials include plastic resins, including polyethylene terephthalate (PET) and polypropylene resins used for plastic beverage bottles and film packaging used for snack foods, aluminum used for cans, glass bottles, closures, cardboard and paperboard cartons. Fuel and natural gas are also important commodities for us due to their use in our facilities and in the trucks delivering our products. We employ specialists to secure adequate supplies of many of these items and have not experienced any significant continuous shortages. Many of these ingredients, raw materials and commodities are purchased in the open market. The prices we pay for such items are subject to fluctuation, and we manage this risk through the use of fixed-price contracts and purchase orders, pricing agreements and derivatives. In addition, risk to our supply of certain raw materials is mitigated through purchases from multiple geographies and suppliers. When prices increase, we may or may not pass on such increases to our customers. See Note 10 to our consolidated financial statements for additional information on how we manage our exposure to commodity costs. See also \"Item 1A. Risk Factors - Our operating results may be adversely affected by increased costs, disruption of supply or shortages of raw materials and other supplies.\" Our Brands We own numerous valuable trademarks which are essential to our worldwide businesses, including Agusha, Amp Energy, Aquafina, Aquafina Flavorsplash, Aunt Jemima, Cap'n Crunch, Cheetos, Chester's, Chipsy, Chudo, Cracker Jack, Diet Mountain Dew, Diet Mug, Diet Pepsi, Diet Sierra Mist, Domik v Derevne, Doritos, Duyvis, Elma Chips, Emperador, Frito-Lay, Fritos, Fruktovy Sad, Frustyle, Gatorade, G2, G Series, Grandma's, Imunele, Izze, Kurkure, Lay's, Life, Lubimy Sad, Manzanita Sol, Marias Gamesa, Matutano, Mirinda, Miss Vickie's, Mother's, Mountain Dew, Mountain Dew Code Red, Mountain Dew Kickstart, Mug, Munchies, Naked, Near East, O.N.E., Paso de los Toros, Pasta Roni, Pepsi, Pepsi Max, Pepsi Next, Propel, Quaker, Quaker Chewy, Rice-A-Roni, Rold Gold, Rosquinhas Mabel, Ruffles, Sabritas, Sakata, Saladitas, Sandora, Santitas, 7UP (outside the United States) and 7UP Free (outside the United States), Sierra Mist, Simba, Smartfood, Smith's, Snack a Jacks, SoBe, SoBe Lifewater, SoBe V Water, Sonric's, Stacy's, Sting, SunChips, Tonus, Tostitos, Trop 50, Tropicana, Tropicana Farmstand, Tropicana Pure Premium, Tropicana Twister, Vesely Molochnik, Walkers and Ya. We also hold long-term licenses to use valuable trademarks in connection with our products in certain markets, including Dole and Ocean Spray. We also distribute Rockstar Energy drinks, Muscle Milk protein shakes and certain DPSG brands, including Dr Pepper, Crush and Schweppes, in certain markets. Joint ventures in which we have an ownership interest either own or have the right to use certain trademarks, such as Lipton, Mller, Sabra and Starbucks. Trademarks remain valid so long as they are used properly for identification purposes, and we emphasize correct use of our trademarks. We have authorized, through licensing arrangements, the use of many of our trademarks in such contexts as 5 snack food joint ventures and beverage bottling appointments. In addition, we license the use of our trademarks on merchandise that is sold at retail for the primary purpose of enhancing brand awareness. We either own or have licenses to use a number of patents which relate to some of our products, their packaging, the processes for their production and the design and operation of various equipment used in our businesses. Some of these patents are licensed to others. Seasonality Our businesses are affected by seasonal variations. For instance, our beverage sales are higher during the warmer months and certain food and dairy sales are higher in the cooler months. Weekly beverage and snack sales are generally highest in the third quarter due to seasonal and holiday-related patterns, and generally lowest in the first quarter. However, taken as a whole, seasonality does not have a material impact on our consolidated financial results. Our Customers Our primary customers include wholesale and other distributors, foodservice customers, grocery stores, drug stores, convenience stores, discount/dollar stores, mass merchandisers, membership stores and authorized independent bottlers. We normally grant our independent bottlers exclusive contracts to sell and manufacture certain beverage products bearing our trademarks within a specific geographic area. These arrangements provide us with the right to charge our independent bottlers for concentrate, finished goods and Aquafina royalties and specify the manufacturing process required for product quality. We also grant distribution rights to our independent bottlers for certain beverage products bearing our trademarks for specified geographic areas. In 2013, sales to Wal-Mart Stores, Inc. (Wal-Mart), including Sam's Club (Sam's), represented approximately 11% of our total net revenue. Our top five retail customers represented approximately 30% of our 2013 North American (United States and Canada) net revenue, with Wal-Mart (including Sam's) representing approximately 17%. These percentages include concentrate sales to our independent bottlers which were used in finished goods sold by them to these retailers. See \"Our Customers\" contained in \"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations\" and Note 8 to our consolidated financial statements for more information on our customers, including our independent bottlers. Our Competition Our businesses operate in highly competitive markets. Our beverage, snack and food brands compete against global, regional, local and private label manufacturers and other value competitors. In many countries in which we do business, The Coca-Cola Company is our primary beverage competitor. Other food and beverage competitors include, but are not limited to, ConAgra Foods, Inc., DPSG, Kellogg Company, Kraft Foods Group, Inc., International, Inc., Monster Beverage Corporation, Nestl S.A., Red Bull GmbH and Snyder's-Lance, Inc. In many markets, we also compete against numerous regional and local companies. Many of our snack and food brands hold significant leadership positions in the snack and food industry worldwide. However, The Coca-Cola Company has significant carbonated soft drink (CSD) share advantage in many markets outside the United States. Our beverage, snack and food brands compete on the basis of price, quality, product variety and distribution. Success in this competitive environment is dependent on effective promotion of existing products, introduction of new products and the effectiveness of our advertising campaigns, marketing programs, product packaging, pricing, increased efficiency in production techniques, new vending and dispensing equipment 6 and brand and trademark development and protection. We believe that the strength of our brands, innovation and marketing, coupled with the quality of our products and flexibility of our distribution network, allows us to compete effectively. (1) The categories and category share information in the charts above are through December 2013 based on data provided and verified by Information Resources, Inc. (IRI). The above charts include data from most major retail chains (including Wal-Mart) but exclude data from certain retailers that do not report to this service. (2) Does not sum due to rounding. Research and Development We engage in a variety of research and development activities and continue to invest to accelerate growth in these activities and to drive innovation globally. These activities principally involve production, processing and packaging and include: development of new ingredients and products; reformulation of existing products; improvement in the quality of existing products; improvement and modernization of manufacturing processes; improvements in product quality, safety and integrity; improvements in packaging technology; improvements in dispensing equipment; development and implementation of new technologies to enhance the quality and value of current and proposed product lines; efforts focused on identifying opportunities to transform and grow our product portfolio, including the development of sweetener and flavor innovation and recipes that reduce sodium levels in certain of our products. Our research centers are located around the world, including in China, Germany, India, Mexico, Russia, Turkey, the United Kingdom and the United States, and leverage nutrition science, food science and consumer insights to meet our strategy to develop healthful, convenient foods and beverages. In 2013, we continued to expand our portfolio of nutritious foods and beverages that include fruits, vegetables, whole grains, low-fat dairy, nuts, seeds and key nutrients, as well as offerings that provide a functional benefit, such as addressing the performance needs of athletes. We continue to refine our food and beverage portfolio to meet changing consumer needs by developing a broader portfolio of product choices. We also made investments to minimize our impact on the environment, including innovation in our packaging to make it increasingly sustainable, and developed and implemented new technologies to enhance the quality and value of our current and future products, as well as made investments to incorporate into our operations best practices and technology to support sustainable agriculture and to reduce our impact on the environment. We continue to make investments to conserve energy and raw materials, reduce waste in our facilities, recycle containers, use renewable resources and optimize package design to use less materials. Consumer research is excluded from research and development costs and included in other marketing costs. Research and development costs were $665 million in 2013, $552 million in 2012 and $525 million in 2011 and are reported within selling, general and administrative expenses. 7 Regulatory Environment and Environmental Compliance The conduct of our businesses, including the production, storage, distribution, sale, advertising, marketing, labeling, safety and health practices, transportation and use of many of our products, are subject to various laws and regulations administered by federal, state and local governmental agencies in the United States, as well as to laws and regulations administered by government entities and agencies outside the United States in markets in which our products are made, manufactured or sold. It is our policy to abide by the laws and regulations around the world that apply to our businesses. We are required to comply with a variety of U.S. laws and regulations, including but not limited to: the Federal Food, Drug and Cosmetic Act and various state laws governing food safety; the Food Safety Modernization Act; the Occupational Safety and Health Act; the Clean Air Act; the Clean Water Act; the Resource Conservation and Recovery Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Federal Motor Carrier Safety Act; the Lanham Act; various federal and state laws and regulations governing competition and trade practices; various federal and state laws and regulations governing our employment practices, including those related to equal employment opportunity, such as the Equal Employment Opportunity Act and the National Labor Relations Act; customs and foreign trade laws and regulations; and laws regulating sale of certain of our products in schools. In our business dealings, we are also required to comply with the Foreign Corrupt Practices Act and the Trade Sanctions Reform and Export Enhancement Act. We are also subject to various state and local statutes and regulations, including state consumer protection laws such as Proposition 65 in California which requires that, unless a safe harbor level exists and has been met, a specific warning appear on any product that contains a substance listed by the State of California as having been found to cause cancer or birth defects. See also \"Item 1A. Risk Factors - Changes in the legal and regulatory environment could limit our business activities, increase our operating costs, reduce demand for our products or result in litigation.\" We are also subject to numerous similar and other laws and regulations outside the U.S., including but not limited to laws and regulations governing food safety, health and safety, anti-corruption and data privacy. In many jurisdictions, compliance with competition is of special importance to us due to our competitive position in those jurisdictions as is compliance with the anti-corruption laws. We rely on legal and operational compliance programs, as well as in-house and outside counsel, to guide our businesses in complying with applicable laws and regulations of the countries in which we do business. See also \"Item 1A. Risk Factors - Changes in the legal and regulatory environment could limit our business activities, increase our operating costs, reduce demand for our products or result in litigation.\" and \"Item 1A. Risk Factors - Our financial performance could be adversely affected if we are unable to grow our business in emerging and developing markets or as a result of unstable political conditions, civil unrest or other developments and risks in the markets where our products are sold.\" Certain jurisdictions in which our products are sold have either imposed, or are considering imposing, taxes or other limitations on certain ingredients we use or products we sell. For example, certain federal, state and local governments in the United States, and in certain other countries in which our products are sold, including Mexico, have either imposed or are consid