Pepsi 2011 Annual Report Download - page 40

Ourreview of the trend rate considers factors such as demo-
graphics, plan design, new medical technologies and changes in
medical carriers.
Weighted- average assumptions for pension and retiree medical
expense are as follows:
2012 2011 2010
Pension
Expense discount rate 4.6% 5.6% 6.0%
Expected rate of return on plan assets 7.6% 7.6% 7.6%
Expected rate of salary increases 3.8% 4.1% 4.4%
Retiree medical
Expense discount rate 4.4% 5.2% 5.8%
Expected rate of return on plan assets 7.8% 7.8% –
Current health care cost trend rate 6.8% 7.0% 7.5%
Based on our assumptions, we expect our pension and retiree
medical expenses to increase in 2012 primarily driven by lower
discount rates, partially oset by expected asset returns on contri-
butions and changes to other actuarial assumptions.
Sensitivity of Assumptions
A decrease in the discount rate or in the expected rate of return
assumptions would increase pension expense. The estimated
impact of a 25-basis- point decrease in the discount rate on 2012
pension expense is an increase of approximately $62million. The
estimated impact on 2012 pension expense of a 25-basis- point
decrease in the expected rate of return is an increase of approxi-
mately $31million.
See Note 7 for information about the sensitivity of our retiree
medical cost assumptions.
Funding
We make contributions to pension trusts maintained to provide
plan benets for certain pension plans. These contributions are
made in accordance with applicable tax regulations that provide
for current tax deductions for our contributions and taxation to the
employee only upon receipt of plan benets. Generally, we do not
fund our pension plans when our contributions would not be cur-
rently tax deductible. As our retiree medical plans are not subject
to regulatory funding requirements, we generally fund these plans
on a pay- as-you- go basis, although we periodically review available
options to make additional contributions toward these benets.
Our pension contributions for 2011 were $239million, of which
$61million was discretionary. Our retiree medical contributions for
2011 were $110million, none of which was discretionary.
In 2012, we expect to make pension and retiree medical con-
tributions of approximately $1.3billion, with up to approximately
$1billion expected to be discretionary. Our cash payments for
retiree medical benets are estimated to be approximately $124mil-
lion in 2012. Our pension and retiree medical contributions are
subject to change as a result of many factors, such as changes in
interest rates, deviations between actual and expected asset returns
and changes in tax or other benet laws. For estimated future bene-
t payments, including our pay- as-you- go payments as well as those
from trusts, see Note 7.
Our Financial Results
Items Aecting Comparability
The year- over-year comparisons of our nancial results are aected
by the following items:
2011 2010 2009
Net revenue
53rd week $ 623 – –
Operating profit
53rd week $ 109 – –
Mark- to-market net impact (losses)/gains $ (102) $ 91 $ 274
Restructuring and impairment charges $ (383) – $ (36)
Merger and integration charges $ (313) $ (769) $ (50)
Inventory fair value adjustments $ (46) $ (398) –
Venezuela currency devaluation – $ (120) –
Asset write- o – $ (145) –
Foundation contribution – $ (100) –
Bottling equity income
Gain on previously held equity interests – $ 735 –
Merger and integration charges – $ (9) $ (11)
Interest expense
53rd week $ (16) – –
Merger and integration charges $ (16) $ (30) –
Debt repurchase – $ (178) –
Net income attributable to PepsiCo
53rd week $ 64 – –
Mark- to-market net impact (losses)/gains $ (71) $ 58 $ 173
Restructuring and impairment charges $ (286) – $ (29)
Gain on previously held equity interests – $ 958 –
Merger and integration charges $ (271) $ (648) $ (44)
Inventory fair value adjustments $ (28) $ (333) –
Venezuela currency devaluation – $ (120) –
Asset write- o – $ (92) –
Foundation contribution – $ (64) –
Debt repurchase – $ (114) –
Net income attributable to PepsiCo
percommon share — diluted
53rd week $ 0.04 – –
Mark- to-market net impact (losses)/gains $ (0.04) $ 0.04 $ 0.11
Restructuring and impairment charges $ (0.18) – $ (0.02)
Gain on previously held equity interests – $ 0.60 –
Merger and integration charges $ (0.17) $ (0.40) $ (0.03)
Inventory fair value adjustments $ (0.02) $ (0.21) –
Venezuela currency devaluation – $ (0.07) –
Asset write- o – $ (0.06) –
Foundation contribution – $ (0.04) –
Debt repurchase – $ (0.07) –
53rd Week
In 2011, we had an additional week of results (53rd week). Our scal
year ends on the last Saturday of each December, resulting in an
additional week of results every ve or six years. The 53rd week
increased 2011 net revenue by $623million and operating prot by
$109million ($64million after- tax or $0.04 per share).
Management’s Discussion and Analysis
PepsiCo, Inc.  Annual Report
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