Pepsi 2011 Annual Report Download - page 41

Mark- to-Market Net Impact
We centrally manage commodity derivatives on behalf of our divi-
sions. These commodity derivatives include metals, energy and
agricultural products. Certain of these commodity derivatives do not
qualify for hedge accounting treatment and are marked to market
with the resulting gains and losses recognized in corporate unal-
located expenses. These gains and losses are subsequently reected
in division results when the divisions take delivery of the underlying
commodity. Therefore, the divisions realize the economic eects of
the derivative without experiencing any resulting mark- to-market
volatility, which remains in corporate unallocated expenses.
In 2011, we recognized $102million ($71million after- tax or
$0.04per share) of mark- to-market net losses on commodity hedges
in corporate unallocated expenses.
In 2010, we recognized $91million ($58million after- tax or
$0.04per share) of mark- to-market net gains on commodity hedges
in corporate unallocated expenses.
In 2009, we recognized $274million ($173million after- tax or
$0.11per share) of mark- to-market net gains on commodity hedges
in corporate unallocated expenses.
Restructuring and Impairment Charges
In 2011, we incurred restructuring charges of $383million ($286mil-
lion after- tax or $0.18 per share) in conjunction with our multi- year
productivity plan (Productivity Plan), including $76million recorded
in the FLNA segment, $18million recorded in the QFNA segment,
$48million recorded in the LAF segment, $81million recorded in
the PAB segment, $77million recorded in the Europe segment,
$9million recorded in the AMEA segment and $74million recorded
in corporate unallocated expenses. The Productivity Plan includes
actions in every aspect of our business that we believe will
strengthen our complementary food, snack and beverage busi-
nesses by leveraging new technologies and processes across
PepsiCo’s operations, go- to-market and information systems;
heightening the focus on best practice sharing across the globe;
consolidating manufacturing, warehouse and sales facilities; and
implementing simplied organization structures, with wider spans
of control and fewer layers of management. The Productivity Plan
is expected to enhance PepsiCo’s cost- competitiveness, provide a
source of funding for future brand- building and innovation initia-
tives, and serve as a nancial cushion for potential macroeconomic
uncertainty beyond 2012. As a result, we expect to incur pre- tax
charges of approximately $910million, $383million of which was
reected in our 2011 results, approximately $425million of which
will be reected in our 2012 results and the balance of which will
be reected in our 2013, 2014 and 2015 results. These charges
willbe comprised of approximately $500million of severance and
other employee- related costs; approximately $325million for other
costs, including consulting- related costs and the termination of
leases and other contracts; and approximately $85million for asset
impairments (all non- cash) resulting from plant closures and related
actions. These charges resulted in cash expenditures of $30million
in 2011, and we anticipate approximately $550million of related
cash expenditures during 2012, with the balance of approximately
$175million of related cash expenditures in 2013 through 2015. The
Productivity Plan will be substantially completed by the end of 2012
with incremental productivity initiatives continuing through the end
of 2015.
In 2009, we incurred charges of $36million ($29million after- tax
or $0.02 per share) in conjunction with our Productivity for Growth
program that began in 2008. The program included actions in
all divisions of the business, including the closure of six plants, to
increase cost competitiveness across the supply chain, upgrade
and streamline our product portfolio, and simplify the organization
for more eective and timely decision- making. This program was
completed in the second quarter of 2009.
Gain on Previously Held Equity Interests
In 2010, in connection with our acquisitions of PBG and PAS,
we recorded a gain on our previously held equity interests of
$958million ($0.60 per share), comprising $735million which was
non- taxable and recorded in bottling equity income and $223mil-
lion related to the reversal of deferred tax liabilities associated with
these previously held equity interests.
Merger and Integration Charges
In 2011, we incurred merger and integration charges of $329million
($271million after- tax or $0.17 per share) related to our acquisitions
of PBG, PAS and WBD, including $112million recorded in the PAB
segment, $123million recorded in the Europe segment, $78mil-
lion recorded in corporate unallocated expenses and $16million
recorded in interest expense. These charges also include closing
costs and advisory fees related to our acquisition of WBD.
In 2010, we incurred merger and integration charges of $799mil-
lion 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 unal-
located expenses and $30million recorded in interest expense. The
merger and integration charges related to our acquisitions of PBG
and PAS were incurred to help create a more fully integrated supply
chain and go- to-market business model, to improve the eective-
ness and eciency of the distribution of our brands and to enhance
our revenue growth. These charges also include closing costs, one-
time nancing 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. In total, the above charges
had an after- tax impact of $648million or $0.40 per share.
In 2009, we incurred $50million of merger- related charges, as well
as an additional $11million of merger- related charges, representing
our share of the respective merger costs of PBG and PAS, recorded
in bottling equity income. In total, these charges had an after- tax
impact of $44million or $0.03 per share.
Management’s Discussion and Analysis
PepsiCo, Inc.  Annual Report
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