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Notes to Consolidated Financial Statements
96 PepsiCo, Inc. 2010 Annual Report
Fair Value Measurements
The fair values of our financial assets and liabilities as of December25, 2010 and December 26, 2009 are categorized asfollows:
2010 2009
Assets(a) Liabilities(a) Assets(a) Liabilities(a)
Available-for-sale securities(b) $ 636 $ – $ 71 $ –
Short-term investments — index funds(c) $ 167 $ – $120 $ –
Deferred compensation(d) $ – $559 $ – $461
Derivatives designated as hedging instruments:
Forward exchange contracts(e) $ 8 $ 23 $ 11 $ 31
Interest rate derivatives(f) 284 12 177 43
Commodity contracts — other(g) 70 2 8 5
Commodity contracts — futures(h) 1 23 – 32
$ 363 $ 60 $196 $111
Derivatives not designated as hedging instruments:
Forward exchange contracts(e) $ 1 $ 7 $ 4 $ 2
Interest rate derivatives(f) 6 45 – –
Commodity contracts — other(g) 28 1 7 60
Commodity contracts — futures(h) – 1 – 3
Prepaid forward contracts(i) 48 – 46 –
$ 83 $ 54 $ 57 $ 65
Total derivatives at fair value $ 446 $114 $253 $176
Total $1,249 $673 $444 $637
(a) Financial assets are classied on our balance sheet within other assets, with the exception of short-term investments. Financial liabilities are classied on our balance
sheet within other current liabilities and other liabilities. Unless specically indicated, all nancial assets and liabilities are categorized as Level 2 assets or liabilities.
(b) Based on the price of common stock. Categorized as a Level 1 asset.
(c) Based on price changes in index funds used to manage a portion of market risk arising from our deferred compensation liability. Categorized as a Level 1 asset.
(d) Based on the fair value of investments corresponding to employees’ investment elections. At December25, 2010 and December 26, 2009, $170million and
$121million, respectively, are categorized as Level 1 liabilities. The remaining balances are categorized as Level 2 liabilities.
(e) Based on observable market transactions of spot and forward rates.
(f ) Based on LIBOR and recently reported transactions in the marketplace.
(g) Based on recently reported transactions in the marketplace, primarily swap arrangements.
(h) Based on average prices on futures exchanges. Categorized as a Level 1 asset or liability.
( i ) Based primarily on the price of our common stock.
The eective portion of the pre-tax (gains)/losses on our derivative instruments are categorized in the tables below.
Fair Value/Non-
designated Hedges Cash Flow Hedges
Losses/(Gains)
Losses/(Gains) Reclassied from
Losses/(Gains) Recognized in Accumulated Other
Recognized in Accumulated Other Comprehensive Loss
Income Statement(a) Comprehensive Loss into Income Statement(b)
2010 2009 2010 2009 2010 2009
Forward exchange contracts $ 6 $ (29) $ 26 $ 75 $40 $(64)
Interest rate derivatives (104) 206 75 32 7 –
Prepaid forward contracts (4) (5) – – – –
Commodity contracts (30) (274) (32) (1) 28 90
Total $(132) $(102) $ 69 $106 $75 $ 26
(a) Interest rate gains/losses are included in interest expense in our income statement. All other gains/losses are included in corporate unallocated expenses.
(b) Interest rate losses are included in interest expense in our income statement. All other gains/losses are included in cost of sales in our income statement.
The carrying amounts of our cash and cash equivalents and short-term investments approximate fair value due to the short-term
maturity. Short-term investments consist principally of short-term time deposits and index funds used to manage a portion of market
risk arising from our deferred compensation liability. The fair value of our debt obligations as of December25, 2010 and December 26,
2009 was $25.9billion and $8.6billion, respectively, based upon prices of similar instruments in the marketplace.
The above table excludes guarantees. See Note 9 for additional information on our guarantees.