Pepsi 2010 Annual Report Download - page 79

Notes to Consolidated Financial Statements
Net Revenue Division Operating Prot
Europe
16%
12% 23%
11%
35%
AMEA FLNA
QFNA
3%
LAF
PAB
Europe
10%
8%
37%
10%
29%
AMEA
FLNA
QFNA
6%
LAF
PAB
78 PepsiCo, Inc. 2010 Annual Report
Stock-Based Compensation Expense
Our divisions are held accountable for stock-based compensation
expense and, therefore, this expense is allocated to our divisions
as an incremental employee compensation cost. The allocation
of stock-based compensation expense in 2010 was approxi-
mately 17% to FLNA, 2% to QFNA, 5% to LAF, 32% to PAB,
11% to Europe, 8% to AMEA and 25% to corporate unallocated
expenses. We had similar allocations of stock-based compensa-
tion expense to our divisions in 2009 and 2008. The expense
allocated to our divisions excludes any impact of changes in our
assumptions during the year which reflect market conditions
over which division management has no control. Therefore, any
variances between allocated expense and our actual expense are
recognized in corporate unallocatedexpenses.
Pension and Retiree Medical Expense
Pension and retiree medical service costs measured at a fixed
discount rate, as well as amortization of costs related to certain
pension plan amendments and gains and losses due to demo-
graphics, including salary experience, are reflected in divi-
sion 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, cor-
porate unallocated expenses include the dierence between
the service costs measured at a fixed discount rate (included in
division results as noted above) and the total service costs deter-
mined 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 deriva-
tives do not qualify for hedge accounting treatment and are
marked to market with the resulting gains and losses recognized
in corporate unallocated 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 eects of the derivative without experi-
encing 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.
2010 2009 2008 2010 2009 2008
Net Revenue Operating Prot(a)
FLNA
$13,397 $13,224 $12,507 $3,549 $3,258 $2,959
QFNA 1,832 1,884 1,902 568 628 582
LAF 6,315 5,703 5,895 1,004 904 897
PAB(b) 20,401 10,116 10,937 2,776 2,172 2,026
Europe(b) 9,254 6,727 6,891 1,020 932 910
AMEA 6,639 5,578 5,119 742 716 592
Total division 57,838 43,232 43,251 9,659 8,610 7,966
Corporate Unallocated
Net impact of mark-to-market on commodity hedges – – – 91 274 (346)
Merger and integration costs – – – (191) (49) –
Restructuring and impairment charges – – – – – (10)
Venezuela currency devaluation – – – (129) – –
Asset write-off – – – (145) – –
Foundation contribution – – – (100) – –
Other – – – (853) (791) (651)
$57,838 $43,232 $43,251 $8,332 $8,044 $6,959
(a) For information on the impact of restructuring, impairment and integration charges on our divisions, see Note 3.
(b) Changes in 2010 relate primarily to our acquisitions of PBG and PAS.
Corporate
Corporate includes costs of our corporate headquarters, centrally managed initiatives, such as our ongoing business transformation
initiative and research and development projects, unallocated insurance and benefit programs, foreign exchange transaction gains and
losses, certain commodity derivative gains and losses and certain other items.