Pepsi 2009 Annual Report Download - page 92

80 PepsiCo, Inc. 2009 Annual Report
Notes to Consolidated Financial Statements
LONGTERM CONTRACTUAL COMMITMENTS(a)
Payments Due by Period
Total 2010 2011– 2012 2013– 2014 2015 and beyond
Long-term debt obligations(b) $÷7,400 $÷÷÷«– $1,332 $2,063 $4,005
Interest on debt obligations(c) 2,386 347 666 500 873
Operating leases 1,076 282 356 203 235
Purchasing commitments 2,066 801 960 260 45
Marketing commitments 793 260 314 78 141
$13,721 $1,690 $3,628 $3,104 $5,299
(a) Reflects non-cancelable commitments as of December 26, 2009 based on year-end foreign
exchange rates and excludes any reserves for uncertain tax positions as we are unable to
reasonably predict the ultimate amount or timing of settlement.
(b) Excludes current maturities of long-term debt obligations of $102 million. Includes
$151 million of principal and accrued interest related to our zero coupon notes.
(c) Interest payments on floating-rate debt are estimated using interest rates effective as of
December 26, 2009.
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, packaging materials and cooking oil. Non-
cancelable marketing commitments are primarily for sports marketing.
Bottler funding is not reflected in our long-term contractual commit-
ments 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 affiliates.
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 first quarter of 2009, we extended
our guarantee of $1.3 billion of Bottling Group, LLC’s long-term debt
in connection with the refinancing 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
structure significantly changed. Neither the merger with PBG nor
the merger with PAS will trigger our payment obligation under
our guarantee of a portion of Bottling Group, LLC’s debt. As of
December 26, 2009, 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 of Financial Condition and Results of
Operations for further unaudited information on our borrowings.
Note 10 Financial Instruments
In March 2008, the FASB issued new disclosure guidance on
derivative instruments and hedging activities, which amends and
expands the disclosure requirements of previously issued guidance
on accounting for derivative instruments and hedging activities,
to provide an enhanced understanding of the use of derivative
instruments, how they are accounted for and their effect on financial
position, financial performance and cash flows. We adopted the
disclosure provisions of the new guidance in the first quarter of 2009.
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 flow or fair value hedges
and qualify for hedge accounting treatment, while others do not
qualify and are marked to market through earnings. Cash flows
from derivatives used to manage commodity, foreign exchange or
interest risks are classified as operating activities. See “Our Business
Risks” in Management’s Discussion and Analysis of Financial
Condition and Results of Operations for further unaudited
information on our business risks.
For cash flow hedges, changes in fair value are deferred in
accumulated other comprehensive loss within common share-
holders’ equity until the underlying hedged item is recognized in
net income. For fair value hedges, changes in fair value are
recognized 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 ineffectiveness
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. Ineffectiveness of our hedges is not material. If the
derivative instrument is terminated, we continue to defer the related
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