Pepsi 2011 Annual Report Download - page 59

carbonated and non- carbonated beverages, dairy products and
other foods in over 200 countries and territories with our largest
operations in North America (United States and Canada), Russia,
Mexico and the United Kingdom. Division results are based on
how our Chief Executive Ocer assesses the performance of and
allocates resources to our divisions. For additional unaudited infor-
mation on our divisions, see “Our Operations” in Management’s
Discussion and Analysis. The accounting policies for the divisions
are the same as those described in Note 2, except for the following
allocation methodologies:
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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 2011 was approximately 15%
to FLNA, 2% to QFNA, 4% to LAF, 31% to PAB, 12% to Europe, 9% to
AMEA and 27% to corporate unallocated expenses. We had similar
allocations of stock- based compensation expense to our divisions in
2010 and 2009. The expense allocated to our divisions excludes any
impact of changes in our assumptions during the year which reect
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 xed
discount rate, as well as amortization of costs related to certain
pension plan amendments and gains and losses due to demograph-
ics, including salary experience, are reected in division results for
North American employees. Division results also include interest
costs, measured at a xed 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 reected in corporate unallocated
expenses. In addition, corporate unallocated expenses include the
dierence between the service costs measured at a xed discount
rate (included in division results as noted above) and the total ser-
vice costs determined using the plans’ discount rates as disclosed
inNote 7.
Derivatives
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
unallocated 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 eco-
nomic eects of the derivative without experiencing 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.
Net Revenue Operating Prot(a)
2011 2010 2009 2011 2010 2009
FLNA $ 13,322 $ 12,573 $ 12,421 $ 3,621 $ 3,376 $ 3,105
QFNA 2,656 2,656 2,687 797 741 781
LAF 7,156 6,315 5,703 1,078 1,004 904
PAB 22,418 20,401 10,116 3,273 2,776 2,172
Europe(b) 13,560 9,602 7,028 1,210 1,054 948
AMEA 7,392 6,291 5,277 887 708 700
Total division 66,504 57,838 43,232 10,866 9,659 8,610
Corporate Unallocated
53rd week (18) – –
Net impact of mark- to-market on commodity hedges (102) 91 274
Merger and integration costs (78) (191) (49)
Restructuring and impairment charges (74) – –
Venezuela currency devaluation – (129) –
Asset write- o – (145) –
Foundation contribution – (100) –
Other (961) (853) (791)
$ 66,504 $ 57,838 $ 43,232 $ 9,633 $ 8,332 $ 8,044
(a) For information on the impact of restructuring, impairment and integration charges on our divisions, see Note 3.
(b) Change in net revenue in 2011 relates primarily to our acquisition of WBD.
PepsiCo, Inc.  Annual Report
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Notes to Consolidated Financial Statements