Pepsi 2007 Annual Report Download - page 63

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Derivatives
Beginning in the fourth quarter of 2005,
we began centrally managing commod-
ity derivatives on behalf of our divisions.
Certain of the commodity derivatives,
primarily those related to the purchase
of energy for use by our divisions, do not
qualify for hedge accounting treatment.
These derivatives hedge underlying com-
modity price risk and were not entered
into for speculative purposes. Such
derivatives are marked to market with
the resulting gains and losses recognized
in corporate unallocated expenses.
These gains and losses are subsequently
refl ected in division results when the
divisions take delivery of the underlying
commodity. Therefore, division results
refl ect the contract purchase price of the
energy or other commodities.
In the second quarter of 2007, we
expanded our commodity hedging pro-
gram to include derivative contracts used
to mitigate our exposure to price changes
associated with our purchases of fruit.
Similar to our energy contracts, these con-
tracts do not qualify for hedge accounting
treatment and are marked to market with
the resulting gains and losses recognized
in corporate unallocated expenses. These
gains and losses are then subsequently
refl ected in divisional results.
New Organizational Structure
In the fourth quarter of 2007, we
announced a strategic realignment of our
organizational structure. For additional
unaudited information on our new orga-
nizational structure, see “Our Operations”
in Management’s Discussion and Analysis.
In the fi rst quarter of 2008, our histori-
cal segment reporting will be restated to
refl ect the new structure. The segment
amounts and discussions refl ected in this
annual report refl ect the management
reporting that existed through fi scal year-
end 2007.
Corporate
Corporate includes costs of our corpo-
rate headquarters, centrally managed
initiatives, such as our ongoing business
transformation initiative in North America,
unallocated insurance and benefi t pro-
grams, foreign exchange transaction gains
and losses, and certain commodity deriva-
tive gains and losses, as well as profi t-
in-inventory elimination adjustments for
our noncontrolled bottling affi liates and
certain other items.
Net Revenue Operating Profi t
2007 2006 2005 2007 2006 2005
FLNA $11,586 $10,844 $10,322 $2,845 $2,615 $2,529
PBNA 10,230 9,565 9,146 2,188 2,055 2,037
PI 15,798 12,959 11,376 2,322 2,016 1,661
QFNA 1,860 1,769 1,718 568 554 537
Total division 39,474 35,137 32,562 7,923 7,240 6,764
Corporate – – – (753) (738) (780)
$39,474 $35,137 $32,562 $7,170 $6,502 $5,984
Frito-Lay
North America
(FLNA)
Quaker Foods
North America
(QFNA)
PepsiCo
Beverages
North America
(PBNA)
PepsiCo
International
(PI)
QFNA
5%
FLNA
29%
PBNA
26%
PI
40%
QFNA
7%
FLNA
36%
PBNA
28%
PI
29%
Net Revenue Division Operating Profit
61