Pepsi 2009 Annual Report Download - page 77

65PepsiCo, Inc. 2009 Annual Report
Pension and Retiree Medical Expense
Pension and retiree medical service costs measured at a fixed discount
rate, as well as amortization of 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.
Derivatives
We centrally manage commodity derivatives on behalf of our
divisions. These commodity derivatives include energy, fruit and
other raw materials. Certain of these commodity derivatives do not
qualify for hedge accounting treatment and are marked to market
with the resulting gains and losses reflected in corporate unallo-
cated expenses. These gains and losses are subsequently reflected
in division results when the divisions take delivery of the underlying
commodity. Therefore, the divisions realize the economic effects of
the derivative without experiencing any resulting mark-to-market
volatility, which remains in corporate unallocated expenses. These
derivatives hedge underlying commodity price risk and were not
entered into for speculative purposes.
In 2 0 0 7, we expanded our commodity hedging program to
include derivative contracts used to mitigate our exposure to price
changes associated with our purchases of fruit. In addition, in 2008,
we entered into additional contracts to further reduce our
exposure to price fluctuations in our raw material and energy costs.
The majority of these contracts do not qualify for hedge account-
ing treatment and are marked to market with the resulting gains
and losses recognized in corporate unallocated expenses within
selling, general and administrative expenses. These gains and losses
are subsequently reflected in division results.
PepsiCo
PepsiCo Americas Foods (PAF) PepsiCo Americas Beverages (PAB) PepsiCo International (PI)
Frito-Lay North America (FLNA)
Quaker Foods North America (QFNA)
Latin America Foods (LAF)
Europe
Asia, Middle East & Africa (AMEA)
2009 20082007 2009 2008 2007
Net Revenue Operating Profit(a)
FLNA $13,224 $12,507 $11,586 $3,258 $2,959 $2,845
QFNA 1,884 1,902 1,860 628 582 568
LAF 5,703 5,895 4,872 904 897 714
PAB 10,116 10,937 11,090 2,172 2,026 2,487
Europe 6,727 6,891 5,896 932 910 855
AMEA 5,578 5,119 4,170 716 592 466
Total division 43,232 43,251 39,474 8,610 7,966 7,935
Corporate—net impact of mark-to-market on commodity hedges –– – 274 (346) 19
Corporate—PBG/PAS merger costs –– – (49) – –
Corporate—restructuring –– – –(10) –
Corporate—other –– – (791) (651) (772)
$43,232 $43,251 $39,474 $8,044 $6,959 $7,182
(a) For information on the impact of restructuring and impairment charges on our divisions, see Note 3.
AMEA
8%
FLNA
38%
QFNA
7%LAF
11%
PAB
25%
Europe
11%
AMEA
13%
FLNA
31%
QFNA
4%
LAF
13%
PAB
23%
Europe
16%
Net Revenue Division Operating Profit
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