Pepsi 2013 Annual Report Download - page 92

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See “Our Divisions” below, and for additional unaudited information on items affecting the comparability
of our consolidated results, see further unaudited information in “Items Affecting Comparability” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Tabular dollars are in millions, except per share amounts. All per share amounts reflect common per share
amounts, assume dilution unless noted, and are based on unrounded amounts.
Our Divisions
Through our operations, authorized bottlers, contract manufacturers and third parties, we make, market, sell
and distribute a wide variety of convenient and enjoyable foods and beverages, serving customers in more
than 200 countries and territories with our largest operations in North America, Russia, Mexico, the United
Kingdom and Brazil. Division results are based on how our Chief Executive Officer assesses the performance
of and allocates resources to our divisions. For additional unaudited information on our divisions, see “Our
Operations” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The accounting policies for the divisions are the same as those described in Note 2, except for the following
allocation methodologies:
• stock-based compensation expense;
• pension and retiree medical expense; and
• derivatives.
Stock-Based Compensation Expense
Our divisions are held accountable for stock-based compensation expense and, therefore, this expense is
allocated to our divisions as an incremental employee compensation cost. The allocation of stock-based
compensation expense in 2013 was approximately 16% to FLNA, 2% to QFNA, 5% to LAF, 24% to PAB,
13% to Europe, 12% to AMEA and 28% to corporate unallocated expenses. We had similar allocations of
stock-based compensation expense to our divisions in 2012 and 2011. The expense allocated to our divisions
excludes any impact of changes in our assumptions during the year which reflect market conditions over
which division management has no control. Therefore, any variances between allocated expense and our
actual expense are recognized in corporate unallocated expenses.
Pension and Retiree Medical Expense
Pension and retiree medical service costs measured at a fixed discount rate, as well as amortization of costs
related to certain pension plan amendments and gains and losses due to demographics, including salary
experience, are reflected in division results for North American employees. Division results also include
interest costs, measured at a fixed discount rate, for retiree medical plans. Interest costs for the pension plans,
pension asset returns and the impact of pension funding, and gains and losses other than those due to
demographics, are all reflected in corporate unallocated expenses. In addition, corporate unallocated expenses
include the difference between the service costs measured at a fixed discount rate (included in division results
as noted above) and the total service costs determined using the plans’ discount rates as disclosed in Note 7
to our consolidated financial statements.
Derivatives
We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include
agricultural products, energy and metals. Certain of these commodity derivatives do not qualify for hedge
accounting treatment and are marked to market with the resulting gains and losses recorded in corporate
unallocated expenses as either cost of sales or selling, general and administrative expenses, depending on
the underlying commodity. These gains and losses are subsequently reflected in division results when the
divisions recognize the cost of the underlying commodity in net income. Therefore, the divisions realize the
economic effects of the derivative without experiencing any resulting mark-to-market volatility, which