Note 1 — Basis of Presentation and Our Divisions

Basis of Presentation

Our financial statements include the consolidated accounts of PepsiCo, Inc. and the affiliates that we control. In addition, we include our share of the results of certain other affiliates using the equity method based on our economic ownership interest, our ability to exercise significant influence over the operating or financial decisions of these affiliates or our ability to direct their economic resources. We do not control these other affiliates, as our ownership in these other affiliates is generally less than 50%. Intercompany balances and transactions are eliminated. Our fiscal year ends on the last Saturday of each December, resulting in an additional week of results every five or six years. In 2011, we had an additional week of results (53^rd week).

On February 26, 2010, we completed our acquisitions of The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS). The results of the acquired companies in the U.S. and Canada are reflected in our 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. The results of the acquired companies in the U.S., Canada and Mexico are reported within our PAB segment, and the results of the acquired companies in Europe, including Russia, are reported within our Europe segment. 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. Our share of income or loss from other noncontrolled affiliates is reflected as a component of selling, general and administrative expenses. 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. See Notes 8 and 15 and for additional unaudited information on items affecting the comparability of our consolidated results, see "Items Affecting Comparability" in Management's Discussion and Analysis of Financial Condition and Results of Operations.

As of the beginning of our 2010 fiscal year, the results of our Venezuelan businesses are reported under hyperinflationary accounting. See "Our Business Risks" 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.

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 preparation of our consolidated financial statements in conformity with generally accepted accounting principles 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, stock-based compensation, pension and retiree medical accruals, useful lives for intangible assets, and future cash flows associated with impairment testing for perpetual brands, goodwill and other long-lived assets. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effect cannot be determined with precision, actual results could differ significantly from these estimates.

While our North America results are reported on a weekly calendar basis, most of our international operations report on a monthly calendar basis. The following chart details our quarterly reporting schedule in 2011, reflecting the extra week in the fourth quarter this year:


Quarter	U.S. and Canada	International
First Quarter	12weeks	January, February
Second Quarter	12weeks	March, April and May
Third Quarter	12weeks	June, July and August
Fourth Quarter	17weeks	September, October,
		November and December

See "Our Divisions" below and for additional unaudited information on items affecting the comparability of our consolidated results, see "Items Affecting Comparability" in Management's Discussion and Analysis of Financial Condition and Results of Operations.

Tabular dollars are in millions, except per share amounts. All per share amounts reflect common per share amounts, assume dilution unless noted, and are based on unrounded amounts. Certain reclassifications were made to prior years' amounts to conform to the 2011 presentation.

Our Divisions

We manufacture or use contract manufacturers, market and sell a variety of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages, dairy products and other foods in over 200 countries and territories with our largest operations in North America (United States and Canada), Russia, Mexico and the United Kingdom. Division results are based on how our Chief Executive Officer assesses the performance of and allocates resources to our divisions. For additional unaudited information on our divisions, see "Our Operations" in Management's Discussion and Analysis of Financial Condition and Results of Operations. The accounting policies for the divisions are the same as those described in Note 2, except for the following allocation methodologies:

•

stock-based compensation expense;

•

pension and retiree medical expense; and

•

derivatives.

Stock-Based Compensation Expense

Our divisions are held accountable for stock-based compensation expense and, therefore, this expense is allocated to our divisions as an incremental employee compensation cost. The allocation of stock-based compensation expense in 2011 was approximately 15% to FLNA, 2% to QFNA, 4% to LAF, 31% to PAB, 12% to Europe, 9% to AMEA and 27% to corporate unallocated expenses. We had similar allocations of stock-based compensation expense to our divisions in 2010 and 2009. The expense allocated to our divisions excludes any impact of changes in our assumptions during the year which reflect market conditions over which division management has no control. Therefore, any variances between allocated expense and our actual expense are recognized in corporate unallocated expenses.

Pension and Retiree Medical Expense

Pension and retiree medical service costs measured at a fixed discount rate, as well as amortization of costs related to certain pension plan amendments and gains and losses due to demographics, including salary experience, are reflected in division results for North American employees. Division results also include interest costs, measured at a fixed discount rate, for retiree medical plans. Interest costs for the pension plans, pension asset returns and the impact of pension funding, and gains and losses other than those due to demographics, are all reflected in corporate unallocated expenses. In addition, corporate unallocated expenses include the difference between the service costs measured at a fixed discount rate (included in division results as noted above) and the total service costs determined using the plans' discount rates as disclosed in Note 7.

Derivatives

We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include metals, energy and agricultural products. Certain of these commodity derivatives do not qualify for hedge accounting treatment and are marked to market with the resulting gains and losses recognized in corporate unallocated expenses. These gains and losses are subsequently reflected in division results when the divisions take delivery of the underlying commodity. Therefore, the divisions realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in corporate unallocated expenses. These derivatives hedge underlying commodity price risk and were not entered into for speculative purposes.


	*Net Revenue*						*Operating Profit^(a)*
	2011		2010		2009		2011			2010			2009
FLNA	$	13,322	$	12,573	$	12,421	$	3,621		$	3,376		$	3,105
QFNA		2,656		2,656		2,687		797			741			781
LAF		7,156		6,315		5,703		1,078			1,004			904
PAB		22,418		20,401		10,116		3,273			2,776			2,172
Europe^(b)		13,560		9,602		7,028		1,210			1,054			948
AMEA		7,392		6,291		5,277		887			708			700

Total division		66,504		57,838		43,232		10,866			9,659			8,610
Corporate Unallocated
53^rd week								(18	)		—			—
Net impact of mark-to-market on commodity hedges								(102	)		91			274
Merger and integration costs								(78	)		(191	)		(49	)
Restructuring and impairment charges								(74	)		—			—
Venezuela currency devaluation								—			(129	)		—
Asset write-off								—			(145	)		—
Foundation contribution								—			(100	)		—
Other								(961	)		(853	)		(791	)

	$	66,504	$	57,838	$	43,232	$	9,633		$	8,332		$	8,044

(a)	For information on the impact of restructuring, impairment and integration charges on our divisions, see Note 3.

(b)	Change in net revenue in 2011 relates primarily to our acquisition of WBD.

Net Revenue

Division Operating

Profit

[CHART]

FLNA 20%

FLNA 33%

QFNA 4%

QFNA 8%

LAF 11%

LAF 10%

PAB 34%

PAB 30%

Europe 20%

Europe 11%

AMEA 11%

AMEA 8%

Corporate

Corporate includes costs of our corporate headquarters, centrally managed initiatives, such as our ongoing global business transformation initiative and research and development projects, unallocated insurance and benefit programs, foreign exchange transaction gains and losses, certain commodity derivative gains and losses and certain other items.

Other Division Information


	*Total Assets*						*Capital Spending*
	2011		2010		2009		2011		2010		2009
FLNA	$	6,120	$	6,027	$	6,093	$	439	$	515	$	478
QFNA		1,174		1,217		1,241		43		48		45
LAF		4,731		4,053		3,575		413		370		310
PAB		31,187		31,622		7,670		1,006		973		182
Europe^(a)		18,479		13,032		9,471		588		517		370
AMEA		6,048		5,569		4,787		693		610		572

Total division		67,739		61,520		32,837		3,182		3,033		1,957
Corporate^(b)		5,143		6,394		3,933		157		220		171
Investments in bottling affiliates		—		239		3,078		—		—		—

	$	72,882	$	68,153	$	39,848	$	3,339	$	3,253	$	2,128

(a)	Changes in total assets in 2011 relate 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.


Total Assets		Capital Spending

[CHART]		[CHART]

FLNA 8%		FLNA 13%
QFNA 2%		QFNA 1%
LAF 7%		LAF 12%
PAB 43%		PAB 30%
Europe 25%		Europe 18%
AMEA 8%		AMEA 21%
Corporate 7%		Corporate 5%


	*Amortization of Intangible* *Assets*						*Depreciation and* *Other* *Amortization*
	2011		2010		2009		2011		2010		2009
FLNA	$	7	$	7	$	7	$	458	$	448	$	428
QFNA		—		—		—		54		52		48
LAF		10		6		5		238		213		189
PAB		65		56		18		865		749		345
Europe		39		35		22		522		355		236
AMEA		12		13		11		350		294		239

Total division		133		117		63		2,487		2,111		1,485
Corporate		—		—		—		117		99		87

	$	133	$	117	$	63	$	2,604	$	2,210	$	1,572



	*Net Revenue*						*Long-Lived Assets^(a)*
	2011		2010		2009		2011		2010		2009
U.S.	$	33,053	$	30,618	$	22,446	$	28,999	$	28,631	$	12,496
Russia^(b)		4,954		1,890		1,006		8,236		2,744		2,094
Mexico		4,782		4,531		3,210		1,027		1,671		1,044
Canada		3,364		3,081		1,996		3,097		3,133		688
United Kingdom		2,075		1,888		1,826		1,011		1,019		1,358
All other countries		18,276		15,830		12,748		12,050		11,697		8,632

	$	66,504	$	57,838	$	43,232	$	54,420	$	48,895	$	26,312

(a)	Long-lived assets represent property, plant and equipment, nonamortizable intangible assets, amortizable intangible assets and investments in noncontrolled affiliates. These assets are reported in the country where they are primarily used.

(b)	Changes in 2011 relate primarily to our acquisition of WBD.

Net Revenue		Long-Lived Assets
[CHART]		[CHART]
United States 50%		United States 53%
Mexico 7%		Mexico 2%
Canada 5%		Canada 6%
Russia 7%		Russia 15%
United Kingdom 3%		United Kingdom 2%
Other 28%		Other 22%