Pepsi 2010 Annual Report Download - page 63

Management’s Discussion and Analysis
62 PepsiCo, Inc. 2010 Annual Report
delivery of the underlying commodity. Therefore, the divisions
realize the economic eects of the derivative without experienc-
ing any resulting mark-to-market volatility, which remains in
corporate unallocated expenses.
In 2010, we recognized $91million ($58million after-tax or
$0.04 per share) of mark-to-market net gains on commodity
hedges in corporate unallocated expenses.
In 2009, we recognized $274million ($173million after-tax
or $0.11 per share) of mark-to-market net gains on commodity
hedges in corporate unallocated expenses.
In 2008, we recognized $346million ($223million after-tax
or $0.14 per share) of mark-to-market net losses on commodity
hedges in corporate unallocated expenses.
Restructuring and Impairment Charges
In 2009, we incurred charges of $36million ($29million after-
tax or $0.02 per share) in conjunction with our Productivity
for Growth program that began in 2008. The program includes
actions in all divisions of the business, including the closure of
six plants that we believe will increase cost competitiveness
across the supply chain, upgrade and streamline our product
portfolio, and simplify the organization for more eective and
timely decision-making. These initiatives were completed in the
second quarter of 2009.
In 2008, we incurred charges of $543million ($408million
after-tax or $0.25 per share) in conjunction with our Productivity
for Growth program.
Gain on Previously Held Equity Interests
In 2010, in connection with our acquisitions of PBG and PAS,
we recorded a gain on our previously held equity interests of
$958million ($0.60 per share), 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.
Merger and Integration Charges
In 2010, we incurred merger and integration charges of
$799million related to our acquisitions of PBG and PAS, as
well as advisory fees in connection with our acquisition of WBD.
$467million of these charges were recorded in the PAB seg-
ment, $111million recorded in the Europe segment, $191mil-
lion recorded in corporate unallocated expenses and $30million
recorded in interest expense. The merger and integration
charges related to our acquisitions of PBG and PAS are being
incurred to help create a more fully integrated supply chain
and go-to-market business model, to improve the eectiveness
and eciency of the distribution of our brands and to enhance
our revenue growth. These charges also include closing costs,
one-time financing costs and advisory fees related to our acqui-
sitions of PBG and PAS. In addition, we recorded $9million of
merger-related charges, representing our share of the respective
merger costs of PBG and PAS, in bottling equity income. In total,
the above charges had an after-tax impact of $648million or
$0.40pershare.
In 2009, we incurred $50million of merger-related charges,
as well as an additional $11million of merger-related charges,
representing our share of the respective merger costs of PBG and
PAS, recorded in bottling equity income. In total, these charges
had an after-tax impact of $44million or $0.03 per share.
Inventory Fair Value Adjustments
In 2010, we recorded $398million ($333million after-tax or
$0.21 per share) of incremental costs related to fair value adjust-
ments to the acquired inventory and other related hedging
contracts included in PBG’s and PAS’s balance sheets at the
acquisition date. Substantially all of these costs were recorded
in cost of sales.
Venezuela Currency Devaluation
As of the beginning of our 2010 fiscal year, we recorded a one-
time $120million net charge related to our change to hyperin-
flationary accounting for our Venezuelan businesses and the
related devaluation of the bolivar. $129million of this net charge
was recorded in corporate unallocated expenses, with the bal-
ance (income of $9million) recorded in our PAB segment. In
total, this net charge had an after-tax impact of $120million
or $0.07 per share.
Asset Write-O
In 2010, we recorded a $145million charge ($92million after-tax
or $0.06 per share) related to a change in scope of one release in
our ongoing migration to SAP software. This change was driven,
in part, by a review of our North America systems strategy fol-
lowing our acquisitions of PBG and PAS. This change does not
impact our overall commitment to continue our implementation
of SAP across our global operations over the next few years.
Foundation Contribution
In 2010, we made a $100million ($64million after-tax or
$0.04per share) contribution to The PepsiCo Foundation, Inc.,
in order to fund charitable and social programs over the next
several years. This contribution was recorded in corporate
unallocatedexpenses.
Debt Repurchase
In 2010, we paid $672million in a cash tender oer to repurchase
$500million (aggregate principal amount) of our 7.90% senior
unsecured notes maturing in 2018. As a result of this debt repur-
chase, we recorded a $178million charge to interest expense
($114million after-tax or $0.07 per share), primarily represent-
ing the premium paid in the tender oer.
PepsiCo Share of PBG’s Restructuring and
ImpairmentCharges
In 2008, PBG implemented a restructuring initiative across
all of its geographic segments. In addition, PBG recognized
an asset impairment charge related to its business in Mexico.
Consequently, a non-cash charge of $138million was included in
bottling equity income ($114million after-tax or $0.07 per share)
as part of recording our share of PBG’s financial results.