Pepsi 2010 Annual Report Download - page 101

Notes to Consolidated Financial Statements
100 PepsiCo, Inc. 2010 Annual Report
Under the terms of the PAS Merger Agreement, each cash-
settled PAS RSU was canceled in exchange for a cash payment
equal to the closing price of a share of PAS common stock on the
business day immediately before the closing of the PAS merger
for each share of PAS common stock subject to each PAS RSU.
Each PAS restricted share was converted into either the PAS Per
Share Stock Consideration or the PAS Cash Election Price, at the
election of the holder, with the same proration procedures appli-
cable to PAS stockholders described above.
Pursuant to the terms of PBG’s executive retention arrange-
ments, PBG equity awards granted to certain executives prior to
the PBG merger vest immediately upon a qualifying termination
of the executive’s employment except for certain PBG executives
whose equity awards vested immediately at the eective time
of the PBG merger pursuant to the terms of PepsiCo’s executive
retention agreements. Each PAS equity award granted prior to
the PAS merger vested immediately at the eective time of the
PAS merger pursuant to the original terms of the awards.
Prior to the acquisitions, we had equity investments in PBG
and PAS. In addition to approximately 32% of PBG’s outstanding
common stock that we owned at year-end 2009, we owned 100%
of PBG’s class B common stock and approximately 7% of the
equity of Bottling Group, LLC, PBG’s principal operating sub-
sidiary. At year-end 2009, we owned approximately 43% of the
outstanding common stock of PAS.
The guidance on accounting for business combinations
requires that an acquirer remeasure its previously held equity
interest in an acquiree at its acquisition date fair value and rec-
ognize the resulting gain or loss in earnings. Thus, in connection
with our acquisitions of PBG and PAS, the carrying amounts of
our previously held equity interests in PBG and PAS were reval-
ued to fair value at the acquisition date, resulting in a gain in the
first quarter of 2010 of $958million, comprising $735million
which is non-taxable and recorded in bottling equity income and
$223million related to the reversal of deferred tax liabilities
associated with these previously held equity interests.
As discussed in Note 9, in January 2010, we issued $4.25bil-
lion of fixed and floating rate notes. A portion of the net proceeds
from the issuance of these notes was used to finance our acquisi-
tions of PBG and PAS.
Our actual stock price on February 25, 2010 (the last trading
day prior to the closing of the acquisitions) was used to determine
the value of stock, stock options and RSUs issued as consider-
ation in connection with our acquisitions of PBG and PAS and
thus to calculate the actual purchase price.
The table below represents the computation of the purchase
price excluding assumed debt and the fair value of our previously
held equity interests in PBG and PAS as of the acquisition date:
Total Number Total
of Shares/ Fair
Awards Issued Value
Payment in cash, for the remaining
(not owned by PepsiCo and its subsidiaries)
outstanding shares of PBG and PAS
common stock and equity awards vested
at consummation of merger – $3,813
Payment to PBG and PAS of shares of
PepsiCo common stock for the remaining
(not owned by PepsiCo and its subsidiaries)
outstanding shares of PBG and PAS
common stock and equity awards vested
at consummation of merger 67 4,175
Issuance of PepsiCo equity awards
(vested and unvested) to replace existing
PBG and PAS equity awards 16 276
Total purchase price 83 $8,264
The following table summarizes the fair value of identifi-
able assets acquired and liabilities assumed in the acquisi-
tions of PBG and PAS and the resulting goodwill as of the
acquisitiondate:
Acquisition Date
Fair Value
Inventory $ 1,006
Property, plant and equipment 5,574
Amortizable intangible assets 1,298
Nonamortizable intangible assets, primarily
reacquired franchise rights 9,036
Other current assets and current liabilities(a) 751
Other noncurrent assets 281
Debt obligations (8,814)
Pension and retiree medical benets (962)
Other noncurrent liabilities (744)
Deferred income taxes (3,246)
Total identiable net assets 4,180
Goodwill 8,059
Subtotal 12,239
Fair value of acquisition of noncontrolling interest 317
Total purchase price $12,556
(a) Includes cash and cash equivalents, accounts receivable, prepaid expenses
and other current assets, accounts payable and other current liabilities.