Pepsi 2012 Annual Report Download - page 87

reserves for income taxes in our provision for income taxes
and any associated penalties are recorded in selling, general
and administrative expenses. The gross amount of interest
accrued, reported in other liabilities, was $670million as of
December29, 2012, of which $10million was recognized in
2012. The gross amount of interest accrued, reported in other
liabilities, was $660million as of December31, 2011, of which
$90million was recognized in 2011.
A rollforward of our reserves for all federal, state and for-
eign tax jurisdictions, is as follows:
2012 2011
Balance, beginning of year $ 2,167 $ 2,022
Additions for tax positions related to the current year 275 233
Additions for tax positions from prior years 161 147
Reductions for tax positions from prior years (172) (46)
Settlement payments (17) (156)
Statute of limitations expiration (3) (15)
Translation and other 14 (18)
Balance, end of year $ 2,425 $ 2,167
Carryforwards and Allowances
Operating loss carryforwards totaling $10.4billion at year-end
2012 are being carried forward in a number of foreign and
state jurisdictions where we are permitted to use tax operat-
ing losses from prior periods to reduce future taxable income.
These operating losses will expire as follows: $0.2billion in
2013, $8.2 billion between 2014 and 2032 and $2.0 billion
may be carried forward indefinitely. We establish valuation
allowances for our deferred tax assets if, based on the avail-
able evidence, it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
Undistributed International Earnings
As of December29, 2012, we had approximately $32.2billion
of undistributed international earnings. We intend to continue
to reinvest earnings outside the U.S. for the foreseeable future
and, therefore, have not recognized any U.S. tax expense on
these earnings.
Note— Stock-Based Compensation
Our stock-based compensation program is designed to attract
and retain employees while also aligning employees’ inter-
ests with the interests of our shareholders. Stock options
and restricted stock units (RSU) are granted to employees
under the shareholder-approved 2007 Long-Term Incentive
Plan(LTIP).
In 2012, certain executive officers were granted PepsiCo
equity performance units (PEPUnits). These PEPUnits are
earned based on achievement of a cumulative net income per-
formance target and provide an opportunity to earn shares of
PepsiCo common stock with a value that adjusts based upon
absolute changes in PepsiCo’s stock price as well as PepsiCo’s
Total Shareholder Return relative to the S&P 500 over a three-
year performance period.
The Company may use either authorized and unissued
shares or repurchased common stock to meet share require-
ments resulting from the exercise of stock options and the
vesting of restricted stock awards.
At year-end 2012, 124million shares were available for
future stock-based compensation grants.
The following table summarizes our total stock-based com-
pensation expense:
2012 2011 2010
Stock-based compensation expense $ 278 $ 326 $ 299
Merger and integration charges 2 13 53
Restructuring and impairment (benefits)/charges (7) 4 –
Total(a) $ 273 $ 343 $ 352
Income tax benefits recognized in earnings related
to stock-based compensation $ 73 $ 101 $ 89
(a) $86million recorded in 2010 was related to the unvested PBG/PAS acquisition-
related grants.
In connection with our acquisition of PBG in 2010, we issued
13.4million stock options and 2.7million RSUs at weighted-
average grant prices of $42.89 and $62.30, respectively, to
replace previously held PBG equity awards. In connection
with our acquisition of PAS in 2010, we issued 0.4million
stock options at a weighted-average grant price of $31.72 to
replace previously held PAS equity awards. Our equity issu-
ances included 8.3million stock options and 0.6million RSUs
which were vested at the acquisition date and were included
in the purchase price. The remaining 5.5million stock options
and 2.1million RSUs issued were unvested at the issuance date
and are being amortized over their remaining vesting period,
up to three years from the issuance date.
As a result of our annual benefits review in 2010, the
Company approved certain changes to our benefits pro-
grams to remain market competitive relative to other
leading global companies. These changes included ending
the Company’s broad-based SharePower stock option pro-
gram. Consequently, beginning in 2011, no new awards
were granted under the SharePower program. Outstanding
SharePower awards from 2010 and earlier continue to vest
and are exercisable according to the terms and conditions of
the program. See Note 7 for additional information regarding
other related changes.
2012 PEPSICO ANNUAL REPORT 85
Notes to Consolidated Financial Statements