Pepsi 2012 Annual Report Download - page 95

Retiree Medical Cost Trend Rates
An average increase of 7% in the cost of covered retiree medi-
cal benefits is assumed for 2013. This average increase is then
projected to decline gradually to 5% in 2020 and thereafter.
These assumed health care cost trend rates have an impact
on the retiree medical plan expense and liability. However, the
cap on our share of retiree medical costs limits the impact.
In addition, as of January 1, 2011, the Company started
phasing out Company subsidies of retiree medical benefits.
A1- percentage-point change in the assumed health care trend
rate would have the following effects:
1% Increase 1% Decrease
2012 Service and interest cost
components $ 4 $ (4)
2012 Benefit liability $ 40 $ (38)
Savings Plan
Certain U.S. employees are eligible to participate in 401(k) sav-
ings plans, which are voluntary defined contribution plans. The
plans are designed to help employees accumulate additional
savings for retirement, and we make Company matching con-
tributions on a portion of eligible pay based on years of service.
In 2010, in connection with our acquisitions of PBG and
PAS, we also made Company retirement contributions for
certain employees on a portion of eligible pay based on years
of service.
As of January1, 2011, a new employer contribution to
the 401(k) savings plan became effective for certain eligible
legacy PBG and PAS salaried employees as well as all eligible
salaried new hires of PepsiCo who were not eligible to par-
ticipate in the defined benefit pension plan as a result of plan
design changes approved during 2010. In 2012 and 2011, our
total Company contributions were $109million and $144mil-
lion, respectively.
As of February 2012, certain U.S. employees earning a
benefit under one of our defined benefit pension plans were
no longer eligible for the Company matching contributions on
their 401(k) contributions.
For additional unaudited information on our pension
and retiree medical plans and related accounting policies
and assumptions, see “Our Critical Accounting Policies” in
Management’s Discussion and Analysis.
Note— Related Party Transactions
On February26, 2010, we completed our acquisitions of PBG
and PAS, at which time we gained control over their opera-
tions and began to consolidate their results. See Notes 1 and
15 to our consolidated financial statements. Prior to these
acquisitions, our significant related party transactions were
with PBG and PAS as they represented our most significant
noncontrolled bottling affiliates. In 2010, prior to the date of
acquisition of PBG and PAS, we reflected the following related
party transactions in our consolidated financial statements:
net revenue of $993million, cost of sales of $116million and
selling, general and administrative expenses of $6million. As
a result of these acquisitions, our related party transactions in
2011 and 2012 were not material.
We also coordinate, on an aggregate basis, the contract
negotiations of sweeteners and other raw material require-
ments, including aluminum cans and plastic bottles and
closures for certain of our independent bottlers. Once we have
negotiated the contracts, the bottlers order and take deliv-
ery directly from the supplier and pay the suppliers directly.
Consequently, these transactions are not reflected in our
consolidated financial statements. As the contracting party,
we could be liable to these suppliers in the event of any non-
payment by our bottlers, but we consider this exposure to
be remote.
In addition, our joint ventures with Unilever (under the Lipton
brand name) and Starbucks sell finished goods (ready-to-
drink teas and coffees) to our noncontrolled bottling affiliates.
Consistent with accounting for equity method investments,
our joint venture revenue is not included in our consolidated
net revenue.
In 2010, we repurchased $357million (5.5 million shares)
of PepsiCo stock from the master trust which holds assets of
PepsiCo’s U.S. qualified pension plans at market value.
Note— Debt Obligations and Commitments
2012 2011
Short-term debt obligations
Current maturities of long-term debt $ 2,901 $ 2,549
Commercial paper (0.1% and 0.1%) 1,101 2,973
Other borrowings (7.4% and 7.6%) 813 683
$ 4,815 $ 6,205
Long-term debt obligations
Notes due 2012 (3.0%) $ – $ 2,353
Notes due 2013 (2.3%) 2,891 2,841
Notes due 2014 (4.4% and 4.6%) 3,237 3,335
Notes due 2015 (1.5% and 2.3%) 3,300 1,632
Notes due 2016 (3.9%) 1,878 1,876
Notes due 2017 (2.0% and 5.0%) 1,250 258
Notes due 2018–2042 (4.4% and 4.8%) 13,781 10,548
Other, due 2013–2020 (9.3% and 9.9%) 108 274
26,445 23,117
Less: current maturities of long-term debt
obligations (2,901) (2,549)
Total $ 23,544 $ 20,568
The interest rates in the above table reflect weighted-average rates at year-end.
2012 PEPSICO ANNUAL REPORT 93
Notes to Consolidated Financial Statements