Basis of Presentation and Our Divisions

Basis of Presentation

Our Condensed Consolidated Balance Sheet as of June 11, 2011 and the Condensed Consolidated Statements of Income and Comprehensive Income for the 12 and 24 weeks ended June 11, 2011 and June 12, 2010, and the Condensed Consolidated Statements of Cash Flows and Equity for the 24 weeks ended June 11, 2011 and June 12, 2010 have not been audited. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 25, 2010 and in our Current Report on Form 8-K dated March 31, 2011. In our opinion, these financial statements include all normal and recurring adjustments necessary for a fair presentation. The results for the 12 and 24 weeks are not necessarily indicative of the results expected for the full year.

While the majority of our results are reported on a period basis, most of our international operations report on a monthly calendar basis for which the months of March, April and May are reflected in our second quarter results.

On February 26, 2010, we completed our acquisitions of PBG and PAS. The results of the acquired companies in the U.S. and Canada are reflected in our condensed consolidated results as of the acquisition date, and the international results of the acquired companies have been reported as of the beginning of our second quarter of 2010, consistent with our monthly international reporting calendar. Prior to our acquisitions of PBG and PAS, we recorded our share of equity income or loss from the acquired companies in bottling equity income in our income statement. Additionally, in the first quarter of 2010, in connection with our acquisitions of PBG and PAS, we recorded a gain on our previously held equity interests of $958 million, comprising $735 million which was non-taxable and recorded in bottling equity income and $223 million related to the reversal of deferred tax liabilities associated with these previously held equity interests. Our share of income or loss from noncontrolled affiliates is reflected as a component of selling, general and administrative expenses. See also Acquisitions and "Items Affecting Comparability" in Management's Discussion and Analysis of Financial Condition and Results of Operations.

In the first quarter of 2011, Quaker Foods North America (QFNA) changed its method of accounting for certain U.S. inventories from the last-in, first-out (LIFO) method to the average cost method. This change is considered preferable by management as we believe that the average cost method of accounting for all U.S. foods inventories will improve our financial reporting by better matching revenues and expenses and better reflecting the current value of inventory. In addition, the change from the LIFO method to the average cost method will enhance the comparability of QFNA's financial results with our other food businesses, as well as with peer companies where the average cost method is widely used. The impact of this change on consolidated net income in the first quarter of 2011 was approximately $9 million (or less than a penny per share). Prior periods were not restated as the impact of the change on previously issued financial statements was not considered material.

Our significant interim accounting policies include the recognition of a pro rata share of certain estimated annual sales incentives, and certain advertising and marketing costs, generally in proportion to revenue,and the recognition of income taxes using an estimated annual effective tax rate. Raw materials, direct labor and plant overhead, as well as purchasing and receiving costs, costs directly related to production planning, inspection costs and raw material handling facilities, are included in cost of sales. The costs of moving, storing and delivering finished product are included in selling, general and administrative expenses.

The following information is unaudited. Tabular dollars are in millions, except per share amounts. All per share amounts reflect common per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts. Certain reclassifications were made to the prior year's amounts to conform to the 2011 presentation. This report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 25, 2010 and our Current Report on Form 8-K dated March 31, 2011, in which we reclassified historical segment information on a basis consistent with our current segment reporting structure.

Our Divisions

We are organized into four business units, as follows:

PepsiCo Americas Foods (PAF), which includes Frito-Lay North America (FLNA), Quaker Foods North America (QFNA) and all of our Latin American food and snack businesses (LAF);

PepsiCo Americas Beverages (PAB), which includes PepsiCo Beverages Americas and Pepsi Beverages Company;

PepsiCo Europe, which includes all beverage, food and snack businesses in Europe; and

PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack businesses in AMEA.

Our four business units comprise six reportable segments (also referred to as divisions), as follows:

•

FLNA,

•

QFNA,

•

LAF,

•

PAB,

•

Europe, and

•

AMEA.


	12 Weeks Ended						24 Weeks Ended
	6/11/11			6/12/10			6/11/11			6/12/10
Net Revenue
FLNA	$	3,090		$	2,992		$	5,994		$	5,856
QFNA		583			582			1,223			1,265
LAF		1,808			1,538			2,916			2,521
PAB		5,629			5,548			10,160			8,313
Europe^(a)		3,794			2,498			5,420			3,542
AMEA		1,923			1,643			3,051			2,672

	$	16,827		$	14,801		$	28,764		$	24,169


	12 Weeks Ended						24 Weeks Ended
	6/11/11			6/12/10			6/11/11			6/12/10
Operating Profit
FLNA	$	853		$	800		$	1,627		$	1,528
QFNA		167			159			381			354
LAF		274			233			445			378
PAB		983			952			1,541			1,025
Europe		407			276			470			394
AMEA		299			267			445			422

Total division		2,983			2,687			4,909			4,101
Corporate Unallocated
Net impact of mark-to-market on commodity hedges		(9	)		(4	)		22			42
Merger and integration costs		(12	)		(24	)		(54	)		(112	)
Venezuela currency devaluation		–			–			–			(129	)
Asset write-off		–			–			–			(145	)
Foundation contribution		–			–			–			(100	)
Other		(208	)		(198	)		(397	)		(356	)

	$	2,754		$	2,461		$	4,480		$	3,301


	Total Assets
	6/11/11		12/25/10
FLNA	$	6,217	$	6,027
QFNA		1,194		1,217
LAF		4,327		4,053
PAB		33,006		31,622
Europe^(a)		21,637		13,032
AMEA		5,906		5,569

Total division		72,287		61,520
Corporate^(b ⁾		3,393		6,394
Investments in bottling affiliates		–		239

	$	75,680	$	68,153

^(a ⁾

Change in 2011 relates primarily to our acquisition of WBD.

^(b)	Corporate assets consist principally of cash and cash equivalents, short-term investments, derivative instruments and property, plant and equipment.