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Notes to Consolidated Financial Statements
90 PepsiCo, Inc. 2010 Annual Report
are reasonable. To calculate the expected return on pension plan
assets, we use a market-related valuation method that recognizes
investment gains or losses (the dierence between the expected
and actual return based on the market-related value of assets)
for securities included in our equity strategies over a five-year
period. This has the eect of reducing year-to-year volatility.
For all other asset categories, the actual fair value is used for the
market-related value of assets.
Retiree Medical
In 2010, we made nondiscretionary contributions of $100mil-
lion to fund the payment of U.S. retiree medical claims. During
the fourth quarter of 2010, we made a discretionary contribution
of $170million to fund future U.S. retiree medical plan benefits.
This contribution was invested consistent with the allocation of
existing assets in the U.S. pension plan.
Fair Value
The guidance on fair value measurements defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. The fair value
framework requires the categorization of assets and liabilities
into three levels based upon the assumptions (inputs) used to
price the assets. Level 1 provides the most reliable measure
of fair value, whereas Level 3 generally requires significant
managementjudgment.
Plan assets measured at fair value as of fiscal year-end 2010 and 2009 are categorized consistently by level in both years, and are as follows:
2010* 2009
Total Level 1 Level 2 Level 3 Total
U.S. plan assets
Equity securities:
PepsiCo common stock(a) $ – $ – $ – $ – $ 332
U.S. common stock(a) 304 304 – – 229
U.S. commingled funds(b) 3,426 – 3,426 – 1,387
International common stock(a) 834 834 – – 700
International commingled fund(c) 992 – 992 – 114
Preferred stock(d) 4 – 4 – 4
Fixed income securities:
Government securities(d) 950 – 950 – 741
Corporate bonds(d) 2,374 – 2,374 – 1,214
Mortgage-backed securities(d) 20 – 20 – 201
Other:
Contracts with insurance companies(f) 28 – – 28 9
Cash and cash equivalents 81 81 – – 457
Subtotal U.S. plan assets 9,013 $1,219 $7,766 $28 5,388
Dividends and interest receivable 47 32
Total U.S. plan assets $9,060 $5,420
International plan assets
Equity securities:
U.S. commingled funds(b) $ 193 $ – $ 193 $ – $ 180
International commingled funds(c) 779 – 779 – 661
Fixed income securities:
Government securities(d) 184 – 184 – 139
Corporate bonds(d) 152 – 152 – 128
Fixed income commingled funds(e) 393 – 393 – 363
Other:
Contracts with insurance companies(f) 28 – – 28 29
Currency commingled funds(g) 42 – 42 – 44
Cash and cash equivalents 120 120 – – 17
Subtotal international plan assets 1,891 $ 120 $1,743 $28 1,561
Dividends and interest receivable 5 –
Total international plan assets $1,896 $1,561
(a) Based on quoted market prices in active markets.
(b) Based on the fair value of the investments owned by these funds that track various U.S. large, mid-cap and small company indices. Includes one large-cap fund that
represents 32% and 25%, respectively, of total U.S. plan assets for 2010 and 2009.
(c) Based on the fair value of the investments owned by these funds that track various non-U.S. equity indices.
(d) Based on quoted bid prices for comparable securities in the marketplace and broker/dealer quotes that are not observable. Corporate bonds of U.S.-based companies
represent 22% and 18%, respectively, of total U.S. plan assets for 2010 and 2009.
(e) Based on the fair value of the investments owned by these funds that track various government and corporate bond indices.
(f ) Based on the fair value of the contracts as determined by the insurance companies using inputs that are not observable.
(g) Based on the fair value of the investments owned by these funds. Includes managed hedge funds that invest primarily in derivatives to reduce currency exposure.
* 2010 amounts include $190million of retiree medical plan assets that are restricted for purposes of providing health benets for U.S. retirees and their beneciaries.