Pepsi 2010 Annual Report Download - page 82

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Other Significant Accounting Policies
Our other significant accounting policies are disclosed as follows:
• Property, Plant and Equipment and Intangible Assets — Note4,
and for additional unaudited information on goodwill and
other intangible assets, see “Our Critical Accounting Policies”
in Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
• Income Taxes — Note 5, and for additional unaudited informa-
tion, see “Our Critical Accounting Policies” in Management’s
Discussion and Analysis of Financial Condition and Results
ofOperations.
• Stock-Based Compensation — Note 6.
• Pension, Retiree Medical and Savings Plans — Note 7, and
for additional unaudited information, see “Our Critical
Accounting Policies” in Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
• Financial Instruments — Note 10, and for additional unau-
dited information, see “Our Business Risks” in Management’s
Discussion and Analysis of Financial Condition and Results
ofOperations.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) amended its guidance on accounting for business
combinations to improve, simplify and converge internationally
the accounting for business combinations. The new accounting
guidance continues the movement toward the greater use of
fair value in financial reporting and increased transparency
through expanded disclosures. We adopted the provisions of the
new guidance as of the beginning of our 2009 fiscal year. The
new accounting guidance changes how business acquisitions are
accounted for and will impact financial statements both on the
acquisition date and in subsequent periods. Additionally, under
the new guidance, transaction costs are expensed rather than
capitalized. Future adjustments made to valuation allowances
on deferred taxes and acquired tax contingencies associated with
acquisitions that closed prior to the beginning of our 2009 fiscal
year apply the new provisions and will be evaluated based on the
outcome of these matters.
In June 2009, the FASB amended its accounting guidance on
the consolidation of variable interest entities (VIE). Among other
things, the new guidance requires a qualitative rather than a
quantitative assessment to determine the primary beneficiary
of a VIE based on whether the entity (1) has the power to direct
matters that most significantly impact the activities of the VIE
and (2) has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the
VIE. In addition, the amended guidance requires an ongoing
reconsideration of the primary beneficiary. The provisions of
this new guidance were eective as of the beginning of our
2010fiscal year, and the adoption did not have a material impact
on our financial statements.
In the second quarter of 2010, the Patient Protection and
Aordable Care Act (PPACA) was signed into law. The PPACA
changes the tax treatment related to an existing retiree drug sub-
sidy (RDS) available to sponsors of retiree health benefit plans
that provide a benefit that is at least actuarially equivalent to the
benefits under Medicare Part D. As a result of the PPACA, RDS
payments will eectively become taxable in tax years beginning
in 2013, by requiring the amount of the subsidy received to be
oset against our deduction for health care expenses. The provi-
sions of the PPACA required us to record the eect of this tax
law change beginning in our second quarter of 2010, and conse-
quently we recorded a one-time related tax charge of $41million
in the second quarter of 2010. We continue to evaluate the longer-
term impacts of this new legislation.
Note 3 Restructuring, Impairment
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 segment,
$111million recorded in the Europe segment, $191million recorded
in corporate unallocated expenses and $30million recorded in
interest expense. All of these charges, other than the interest
expense portion, were recorded in selling, general and admin-
istrative expenses. 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 acquisitions 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. Substantially all cash
payments related to the above charges are expected to be paid by
the end of2011. In total, these charges had an after-tax impact of
$648million or $0.40 per share.
In 2009, we incurred $50million of charges related to the
merger of PBG and PAS, of which substantially all was paid in
2009. In 2009, we also incurred charges of $36million ($29mil-
lion after-tax or $0.02 per share) in conjunction with our
Productivity for Growth program that began in 2008. The pro-
gram includes actions in all divisions of the business, including
the closure of six plants that we believe will increase cost com-
petitiveness across the supply chain, upgrade and streamline our
product portfolio, and simplify the organization for more eec-
tive and timely decision-making. These charges were recorded in
selling, general and administrative expenses. These initiatives
were completed in the second quarter of 2009 and substantially
all cash payments related to these charges were paid by the end
of 2010.