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86 PepsiCo, Inc. 2008 Annual Report
Notes to Consolidated Financial Statements
At December 27, 2008, approximately 58% of total debt,
after the impact of the related interest rate swaps, was exposed
to variable interest rates, compared to 56% at December 29,
2007. In addition to variable rate long-term debt, all debt with
maturities of less than one year is categorized as variable for
purposes of this measure.
LONG-TERM CONTRACTUAL COMMITMENTS
(a)
Payments Due by Period
Total 2009
2010
–
2011
2012
–
2013
2014 and
beyond
Long-term debt obligations (b) $÷6,599 $÷÷÷«– $÷«184 $2,198 $4,217
Interest on debt obligations (c) 2,647 388 605 522 1,132
Operating leases 1,088 262 359 199 268
Purchasing commitments 3,273 1,441 1,325 431 76
Marketing commitments 975 252 462 119 142
Other commitments 46 46 – – –
$14,628 $2,389 $2,935 $3,469 $5,835
(a) Reectsnon-cancelablecommitmentsasofDecember27,2008basedonyear-endforeign
exchangeratesandexcludesanyreservesforincometaxesunderFIN48asweareunableto
reasonablypredicttheultimateamountortimingofsettlementofourreservesforincometaxes.
(b) Excludesshort-termobligationsof$369millionandshort-termborrowingsreclassiedas
long-termdebtof$1,259million.Includes$197millionofprincipalandaccruedinterest
relatedtoourzerocouponnotes.
(c) Interestpaymentsonoating-ratedebtareestimatedusinginterestrateseffectiveasof
December27,2008.
Most long-term contractual commitments, except for our
long-term debt obligations, are not recorded on our balance sheet.
Non-cancelable operating leases primarily represent building
leases. Non-cancelable purchasing commitments are primarily for
oranges and orange juice, cooking oil and packaging materials.
Non-cancelable marketing commitments are primarily for sports
marketing. Bottler funding is not reected in our long-term con-
tractual commitments as it is negotiated on an annual basis. See
Note 7 regarding our pension and retiree medical obligations and
discussion below regarding our commitments to noncontrolled
bottling afliates.
OFF-BALANCE-SHEET ARRANGEMENTS
It is not our business practice to enter into off-balance-sheet
arrangements, other than in the normal course of business.
However, at the time of the separation of our bottling operations
from us various guarantees were necessary to facilitate the
transactions. We have guaranteed an aggregate of $2.3 billion
of Bottling Group, LLC’s long-term debt ($1.0 billion of which
matures in 2012 and $1.3 billion of which matures in 2014).
In the fourth quarter of 2008, we extended our guarantee of
$1.3 billion of Bottling Group, LLC’s long-term debt in connection
with the renancing of a corresponding portion of the underlying
debt. The terms of our Bottling Group, LLC debt guarantee are
intended to preserve the structure of PBG’s separation from us
and our payment obligation would be triggered if Bottling Group,
LLC failed to perform under these debt obligations or the struc-
ture signicantly changed. At December 27, 2008, we believe it
is remote that these guarantees would require any cash payment.
See Note 8 regarding contracts related to certain of our bottlers.
See “Our Liquidity and Capital Resources” in Management’s
Discussion and Analysis for further unaudited information on
our borrowings.
Note 10 Financial Instruments
We are exposed to market risks arising from adverse changes in:
• commodity prices, affecting the cost of our raw materials
and energy,
• foreign exchange risks, and
• interest rates.
In the normal course of business, we manage these risks
through a variety of strategies, including the use of derivatives.
Certain derivatives are designated as either cash ow or fair
value hedges and qualify for hedge accounting treatment, while
others do not qualify and are marked to market through earnings.
Cash ows from derivatives used to manage commodity, foreign
exchange or interest risks are classied as operating activities.
See “Our Business Risks” in Management’s Discussion and
Analysis for further unaudited information on our business risks.
For cash ow hedges, changes in fair value are deferred
in accumulated other comprehensive loss within shareholders’
equity until the underlying hedged item is recognized in net
income. For fair value hedges, changes in fair value are recog-
nized immediately in earnings, consistent with the underlying
hedged item. Hedging transactions are limited to an underlying
exposure. As a result, any change in the value of our derivative
instruments would be substantially offset by an opposite change
in the value of the underlying hedged items. Hedging ineffective-
ness and a net earnings impact occur when the change in the
value of the hedge does not offset the change in the value of
the underlying hedged item. If the derivative instrument is termi-
nated, we continue to defer the related gain or loss and include
it as a component of the cost of the underlying hedged item.
Upon determination that the underlying hedged item will not be
part of an actual transaction, we recognize the related gain or
loss in net income in that period.