Pepsi 2011 Annual Report Download - page 72

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current levels of interest rates and ination to assess the reason-
ableness of the long- term rates. We evaluate our expected return
assumptions annually to ensure that they are reasonable. To calcu-
late the expected return on pension plan assets, our market- related
value of assets for xed income is the actual fair value. For all other
asset categories, we use a method that recognizes investment gains
or losses (the dierence between the expected and actual return
based on the market- related value of assets) over a ve- year period.
This has the eect of reducing year- to-year volatility.
Retiree Medical
In 2011 and 2010, we made non- discretionary contributions of
$110million and $100million, respectively, to fund the payment of
retiree medical claims. In 2010, we made a discretionary contribution
of $170million to fund future U.S. retiree medical plan benets. This
contribution was invested consistent with the allocation of existing
assets in the U.S. pension plan.
Fair Value
The guidance on fair value measurements denes fair value, estab-
lishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The fair value framework requires
the categorization of assets and liabilities into three levels based
upon the assumptions (inputs) used to price the assets. Level 1
provides the most reliable measure of fair value, whereas Level 3
generally requires signicant management judgment.
Plan assets measured at fair value as of scal year- end 2011 and 2010 are categorized consistently by level in both years, and are as follows:
2011 2010
Total Level 1Level 2Level 3 Total
U.S. plan assets*
Equity securities:
U.S. common stock(a) $ 514 $ 514 $ – $ – $ 304
U.S. commingled funds(b) 3,003 – 3,003 – 3,426
International common stock(a) 1,089 1,089 – – 834
International commingled fund(c) 776 – 776 – 992
Preferred stock(d) 19 – 19 – 4
Fixed income securities:
Government securities(d) 1,032 – 1,032 – 950
Corporate bonds(d) (e) 2,653 – 2,653 – 2,374
Mortgage- backed securities(d) 24 – 24 – 20
Other:
Contracts with insurance companies(f) 24 – – 24 28
Cash and cash equivalents 78 78 – – 81
Subtotal U.S. plan assets 9,212 $ 1,681 $ 7,507 $ 24 9,013
Dividends and interest receivable 50 47
Total U.S. plan assets $ 9,262 $ 9,060
International plan assets
Equity securities:
U.S. commingled funds(b) $ 246 $ – $ 246 $ – $ 193
International commingled funds(c) 729 – 729 – 779
Fixed income securities:
Government securities(d) 171 – 171 – 184
Corporate bonds(d) 196 – 196 – 152
Fixed income commingled funds(g) 530 – 530 – 393
Other:
Contracts with insurance companies(f) 30 – – 30 28
Currency commingled funds(h) 52 – 52 – 42
Other commingled fund(i) 56 – 56 – –
Cash and cash equivalents 16 16 – – 120
Subtotal international plan assets 2,026 $ 16 $ 1,980 $ 30 1,891
Dividends and interest receivable 5 5
Total international plan assets $ 2,031 $ 1,896
(a) Based on quoted market prices in active markets.
(b) Based on the fair value of the investments owned by these funds that track various U.S. large, mid- cap and small company indices. Includes one large- cap fund that represents 30% and
32%, respectively, of total U.S. plan assets for 2011 and 2010.
(c) Based on the fair value of the investments owned by these funds that track various non- U.S. equity indices.
(d) Based on quoted bid prices for comparable securities in the marketplace and broker/dealer quotes that are not observable.
(e) Corporate bonds of U.S.-based companies represent 24% and 22%, respectively, of total U.S. plan assets for 2011 and 2010.
(f ) Based on the fair value of the contracts as determined by the insurance companies using inputs that are not observable.
(g) Based on the fair value of the investments owned by these funds that track various government and corporate bond indices.
(h) Based on the fair value of the investments owned by these funds. Includes managed hedge funds that invest primarily in derivatives to reduce currency exposure.
( i ) Based on the fair value of the investments owned by this fund that tracks various indices.
* 2011 and 2010 amounts include $190million of retiree medical plan assets that are restricted for purposes of providing health benets for U.S. retirees and their beneciaries.
PepsiCo, Inc.  Annual Report
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Notes to Consolidated Financial Statements