Basis of Presentation and Our Divisions

12 Months Ended

Dec. 29, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis Of Presentation and Our Divisions

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^rdweek).

On February 26, 2010, we completed our acquisitions of PBG and PAS. The results of the acquired companies in the U.S. and Canada were 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 the 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 to our consolidated financial statements, 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, QFNA changed its method of accounting for certain U.S. inventories from the last-in, first-out (LIFO) method to the average cost method as we believe that the average cost method of accounting improves our financial reporting by better matching revenues and expenses and better reflecting the current value of inventory. 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, amounts and useful lives for intangible assets, and future cash flows associated with impairment testing for perpetual brands, goodwill and other long-lived assets. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effect cannot be determined with precision, actual results could differ significantly from these estimates.

While our North America results are reported on a weekly calendar basis, most of our international operations report on a monthly calendar basis. In 2011, we had an additional week of results (53^rdweek). The following chart details our quarterly reporting schedule for all other reporting periods presented:

Quarter	U.S. and Canada	International
First Quarter	12 weeks	January, February
Second Quarter	12 weeks	March, April and May
Third Quarter	12 weeks	June, July and August
Fourth Quarter	16 weeks	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 2012 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, the United Kingdom and Brazil. Division results are based on how our Chief Executive Officer assesses the performance of and allocates resources to our divisions. 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 2012 was approximately 16% to FLNA, 2% to QFNA, 5% to LAF, 25% to PAB, 14% to Europe, 12% to AMEA and 26% to corporate unallocated expenses. We had similar allocations of stock-based compensation expense to our divisions in 2011 and 2010. 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 to our consolidated financial statements.

Derivatives

We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include agricultural products, metals and energy. 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)
	2012		2011		2010		2012			2011			2010
FLNA	$	13,574	$	13,322	$	12,573	$	3,646		$	3,621		$	3,376
QFNA	2,636		2,656		2,656		695			797			741
LAF	7,780		7,156		6,315		1,059			1,078			1,004
PAB	21,408		22,418		20,401		2,937			3,273			2,776
Europe (b)	13,441		13,560		9,602		1,330			1,210			1,054
AMEA	6,653		7,392		6,291		747			887			708
Total division	65,492		66,504		57,838		10,414			10,866			9,659
Corporate Unallocated
Mark-to-market net impact gains/(losses)							65			(102		)	91
Merger and integration charges							—			(78		)	(191		)
Restructuring and impairment charges							(10		)	(74		)	—
Pension lump sum settlement charge							(195		)	—			—
53rd week							—			(18		)	—
Venezuela currency devaluation							—			—			(129		)
Asset write-off							—			—			(145		)
Foundation contribution							—			—			(100		)
Other							(1,162		)	(961		)	(853		)
	$	65,492	$	66,504	$	57,838	$	9,112		$	9,633		$	8,332

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

statements.

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

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
	2012		2011		2010		2012		2011		2010
FLNA	$	5,332	$	5,384	$	5,276	$	365	$	439	$	515
QFNA	966		1,024		1,062		37		43		48
LAF	4,993		4,721		4,041		436		413		370
PAB	30,899		31,142		31,571		702		1,006		973
Europe (a)	19,218		18,461		13,018		575		588		517
AMEA	5,738		6,038		5,557		510		693		610
Total division	67,146		66,770		60,525		2,625		3,182		3,033
Corporate (b)	7,492		6,112		7,389		89		157		220
Investments in bottling affiliates	—		—		239		—		—		—
	$	74,638	$	72,882	$	68,153	$	2,714	$	3,339	$	3,253

(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.

	Amortization of Intangible Assets						Depreciation and Other Amortization
	2012		2011		2010		2012		2011		2010
FLNA	$	7	$	7	$	7	$	445	$	458	$	448
QFNA	—		—		—		53		54		52
LAF	10		10		6		248		238		213
PAB	59		65		56		855		865		749
Europe	36		39		35		522		522		355
AMEA	7		12		13		305		350		294
Total division	119		133		117		2,428		2,487		2,111
Corporate	—		—		—		142		117		99
	$	119	$	133	$	117	$	2,570	$	2,604	$	2,210

	Net Revenue						Long-Lived Assets(a)
	2012		2011		2010		2012		2011		2010
U.S.	$	33,348	$	33,053	$	30,618	$	28,344	$	28,999	$	28,631
Russia (b)	4,861		4,749		1,890		8,603		8,121		2,744
Mexico	3,955		4,782		4,531		1,237		1,027		1,671
Canada	3,290		3,364		3,081		3,294		3,097		3,133
United Kingdom	2,102		2,075		1,888		1,053		1,011		1,019
Brazil	1,866		1,838		1,582		1,134		1,124		677
All other countries	16,070		16,643		14,248		10,600		11,041		11,020
	$	65,492	$	66,504	$	57,838	$	54,265	$	54,420	$	48,895

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

(b) Change in 2011 relates primarily to our acquisition of WB