Pepsi 2013 Annual Report Download - page 91

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Notes to Consolidated Financial Statements
Note 1 — 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 50% or less. 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 (53rd week).
The results of our Venezuelan businesses have been reported under highly inflationary accounting since the
beginning of 2010. See further unaudited information in “Our Business Risks”, “Items Affecting
Comparability” and “Our Liquidity and Capital Resources” 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).
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 United States and Canada (North America) results are reported on a weekly calendar basis, most
of our international operations report on a monthly calendar basis. The following chart details our quarterly
reporting schedule for all reporting periods presented except for 2011 as noted above:
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