Pepsi 2010 Annual Report Download - page 78

Notes to Consolidated Financial Statements
77
Note 1 Basis of Presentation
and Our Divisions
Basis of Presentation
Our financial statements include the consolidated accounts of
PepsiCo, Inc. and the aliates that we control. In addition, we
include our share of the results of certain other aliates based
on our economic ownership interest. We do not control these
other aliates, as our ownership in these other aliates is gen-
erally less than 50%. 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.
On February 26, 2010, we completed our acquisitions of The
Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS).
The results of the acquired companies in the U.S. and Canada are
reflected in our consolidated results as of the acquisition date,
and the international results of the acquired companies have
been reported as of the beginning of our second quarter of 2010,
consistent with our monthly international reporting calendar.
The results of the acquired companies in the U.S., Canada and
Mexico are reported within our PAB segment, and the results
of the acquired companies in Europe, including Russia, are
reported within our Europe segment. Prior to our acquisitions
of PBG and PAS, we recorded our share of equity income or loss
from the acquired companies in bottling equity income in our
income statement. Our share of the net income of PBV is reflected
in bottling equity income and our share of income or loss from
other noncontrolled aliates is reflected as a component of sell-
ing, general and administrative expenses. Additionally, in the
first quarter of 2010, in connection with our acquisitions of
PBG and PAS, we recorded a gain on our previously held equity
interests 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. See
Notes8 and 15 and for additional unaudited information on
items aecting the comparability of our consolidated results, see
“Items Aecting Comparability” in Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
As of the beginning of our 2010 fiscal year, the results of our
Venezuelan businesses are reported under hyperinflationary
accounting. See “Our Business Risks” and “Items Aecting
Comparability” in Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Raw materials, direct labor and plant overhead, as well as
purchasing and receiving costs, costs directly related to pro-
duction 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 aect
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, good-
will and other long-lived assets. We evaluate our estimates on
an ongoing 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 eect can-
not be determined with precision, actual results could dier
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 aecting the comparability of our consolidated results,
see “Items Aecting 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 2010 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, Russia and the
UnitedKingdom. Division results are based on how our Chief
Executive Ocer assesses the performance of and allocates
resources to our divisions. For additional unaudited informa-
tion 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 alloca-
tion methodologies:
• stock-based compensation expense;
• pension and retiree medical expense; and
• derivatives.