Pepsi 2005 Annual Report Download - page 71

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69
concurrently with the issuance of the debt
that they are intended to modify. The
notional amount, interest payment and
maturity date of the swaps match the
principal, interest payment and maturity
date of the related debt. These swaps are
entered into only with strong creditworthy
counterparties, are settled on a net basis
and are of relatively short duration.
Stock Prices
The portion of our deferred compensation
liability that is based on certain market
indices and on our stock price is subject
to market risk. We hold mutual fund
investments and prepaid forward contracts
to manage this risk. Changes in the fair
value of these investments and contracts
are recognized immediately in earnings
and are offset by changes in the related
compensation liability.
Fair Value
All derivative instruments are recognized in
our Consolidated Balance Sheet at fair
value. The fair value of our derivative instru-
ments is generally based on quoted market
prices. Book and fair values of our derivative
and financial instruments are as follows:
2005 2004
Book Value Fair Value Book Value Fair Value
Assets
Cash and cash equivalents(a) .................................................................................. $1,716 $1,716 $1,280 $1,280
Short-term investments(b)........................................................................................ $3,166 $3,166 $2,165 $2,165
Forward exchange contracts(c) ................................................................................. $19 $19 $8 $8
Commodity contracts(d)............................................................................................ $41 $41 $7 $7
Prepaid forward contract(e) ...................................................................................... $107 $107 $120 $120
Cross currency interest rate swaps(f) ....................................................................... $6 $6 $– $–
Liabilities
Forward exchange contracts(c) ................................................................................. $15 $15 $35 $35
Commodity contracts(d)............................................................................................ $3 $3 $8 $8
Debt obligations....................................................................................................... $5,202 $5,378 $3,451 $3,676
Interest rate swaps(g)............................................................................................... $9 $9 $1 $1
Cross currency interest rate swaps(f) ...................................................................... $– $– $3 $3
Included in our Consolidated Balance Sheet under the captions noted above or as indicated below. In addition, derivatives are designated as accounting hedges unless otherwise noted below.
(a) Book value approximates fair value due to the short maturity.
(b) Principally short-term time deposits and includes $124 million at December 31, 2005 and $118 million at December 25, 2004 of mutual fund investments used to manage a portion of market risk arising from our
deferred compensation liability.
(c) 2005 asset includes $14 million related to derivatives not designated as accounting hedges. Assets are reported within current assets and other assets and liabilities are reported within current liabilities and
other liabilities.
(d) 2005 asset includes $2 million related to derivatives not designated as accounting hedges and the liability relates entirely to derivatives not designated as accounting hedges. Assets are reported within current
assets and other assets and liabilities are reported within current liabilities and other liabilities.
(e) Included in current assets and other assets.
(f) Asset included within other assets and liability included in long-term debt.
(g) Reported in other liabilities.
This table excludes guarantees, including our guarantee of $2.3 billion of Bottling Group, LLC’s long-term debt. The guarantee had a
fair value of $47 million at December 31, 2005 and $46 million at December 25, 2004 based on an external estimate of the cost to
us of transferring the liability to an independent financial institution. See Note 9 for additional information on our guarantees.
Basic net income per common share is net
income available to common shareholders
divided by the weighted average of com-
mon shares outstanding during the period.
Diluted net income per common share is
calculated using the weighted average of
common shares outstanding adjusted to
include the effect that would occur if
in-the-money employee stock options were
exercised and RSUs and preferred shares
were converted into common shares.
Options to purchase 3.0 million shares in
2005, 7.0 million shares in 2004 and
49.0 million shares in 2003 were not
included in the calculation of diluted
earnings per common share because these
options were out-of-the-money. Out-of-the-
money options had average exercise prices
of $53.77 in 2005, $52.88 in 2004 and
$48.27 in 2003.
Note 11 — Net Income per Common Share from Continuing Operations