Pepsi 2009 Annual Report Download - page 76

64 PepsiCo, Inc. 2009 Annual Report
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 based on
our economic ownership interest. We do not control these other
affiliates, as our ownership in these other affiliates is generally less
than 50%. Equity income or loss from our anchor bottlers is
recorded as bottling equity income in our income statement.
Bottling equity income also includes any changes in our ownership
interests of our anchor bottlers. Bottling equity income includes
$147 million of pre-tax gains on our sales of PBG and PAS stock in
2008 and $174 million of pre-tax gains on our sales of PBG stock in
2007. There were no sales of PBG or PAS stock in 2009. See Notes 8
and 15 for additional information on our significant noncontrolled
bottling affiliates. Income or loss from other noncontrolled affiliates
is recorded as a component of selling, general and administrative
expenses. 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.
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, 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 on-going 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 the majority of our 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:
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
See “Our Divisions” below and for additional unaudited informa-
tion on items affecting the comparability of our consolidated results,
see “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.
Certain reclassifications were made to prior years’ amounts to
conform to the 2009 presentation.
OUR DIVISIONS
We manufacture or use contract manufacturers, market and
sell a variety of salty, convenient, sweet and grain-based snacks,
carbonated and non-carbonated beverages, and foods in over
200 countries with our largest operations in North America
(United States and Canada), Mexico and the United Kingdom.
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 2009 was approximately 27%
to FLNA, 3% to QFNA, 6% to LAF, 21% to PAB, 13% to Europe, 13% to
AMEA and 17% to corporate unallocated expenses. We had similar
allocations of stock-based compensation expense to our divisions in
2008 and 2007. 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.
88045_pepsico-09ar_64-86_R1.indd 64 2/24/10 5:00 PM