Pepsi 2011 Annual Report Download - page 62

Software Costs
We capitalize certain computer software and software develop-
ment costs incurred in connection with developing or obtaining
computer software for internal use when both the preliminary
project stage is completed and it is probable that the software will
be used as intended. Capitalized software costs include only (i)
external direct costs of materials and services utilized in developing
or obtaining computer software, (ii) compensation and related ben-
ets for employees who are directly associated with the software
project and (iii) interest costs incurred while developing internal-
use computer software. Capitalized software costs are included in
property, plant and equipment on our balance sheet and amortized
on a straight- line basis when placed into service over the estimated
useful lives of the software, which approximate ve to 10 years.
Software amortization totaled $156million in 2011, $137million in
2010 and $119million in 2009. Net capitalized software and develop-
ment costs were $1.3billion as of December31, 2011 and $1.1billion
as of December25, 2010.
Commitments and Contingencies
We are subject to various claims and contingencies related to
lawsuits, certain taxes and environmental matters, as well as com-
mitments under contractual and other commercial obligations. We
recognize liabilities for contingencies and commitments when a loss
is probable and estimable. For additional information on our com-
mitments, see Note 9.
Research and Development
We engage in a variety of research and development activities
and continue to invest to accelerate growth in these activities and
to drive innovation globally. These activities principally involve
the development of new products, improvement in the quality of
existing products, improvement and modernization of produc-
tion processes, and the development and implementation of new
technologies to enhance the quality and value of both current
and proposed product lines. Consumer research is excluded from
research and development costs and included in other marketing
costs. Research and development costs were $525million in 2011,
$488million in 2010 and $414million in 2009 and are reported
within selling, general and administrative expenses.
Other Significant Accounting Policies
Our other signicant accounting policies are disclosed as follows:
t 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.
t Income Taxes — Note 5, and for additional unaudited information,
see “Our Critical Accounting Policies” in Management’s Discussion
and Analysis.
t Stock- Based Compensation — Note 6.
t Pension, Retiree Medical and Savings Plans — Note 7, and for
additional unaudited information, see “Our Critical Accounting
Policies” in Management’s Discussion and Analysis.
t Financial Instruments — Note 10, and for additional unaudited
information, see “Our Business Risks” in Management’s Discussion
and Analysis.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB)
amended its accounting guidance on the consolidation of vari-
able interest entities (VIE). Among other things, the new guidance
requires a qualitative rather than a quantitative assessment to deter-
mine the primary beneciary of a VIE based on whether the entity
(1) has the power to direct matters that most signicantly impact
the activities of the VIE and (2) has the obligation to absorb losses
or the right to receive benets of the VIE that could potentially be
signicant to the VIE. In addition, the amended guidance requires an
ongoing reconsideration of the primary beneciary. The provisions
of this guidance were eective as of the beginning of our 2010 scal
year, and the adoption did not have a material impact on our nan-
cial 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 benet plans that
provide a benet that is at least actuarially equivalent to the benets
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 provisions of the PPACA
required us to record the eect of this tax law change beginning in
our second quarter of 2010, and consequently 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 legislation.
In June 2011, the FASB amended its accounting guidance on the
presentation of comprehensive income in nancial statements
to improve the comparability, consistency and transparency of
nancial reporting and to increase the prominence of items that
are recorded in other comprehensive income. The new accounting
guidance requires entities to report components of comprehen-
sive income in either (1) a continuous statement of comprehensive
income or (2) two separate but consecutive statements. In
December 2011, the FASB approved a deferral of the eective
dateof certain requirements related to the presentation and dis-
closure of reclassication adjustments from other comprehensive
income to net income. The provisions of the retained guidance
are eective as of the beginning of our 2012 scal year. We do not
expect the adoption of this guidance to have a material impact on
our nancial statements.
In September 2011, the FASB issued new accounting guidance
that permits an entity to rst assess qualitative factors of whether it
is more likely than not that a reporting unit’s fair value is less than its
carrying amount before applying the two- step goodwill impairment
test. An entity would continue to perform the historical rst step of
the impairment test if it fails the qualitative assessment, while no
further analysis would be required if it passes. The provisions of the
new guidance are eective for our 2012 goodwill impairment test.
PepsiCo, Inc.  Annual Report
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Notes to Consolidated Financial Statements