Pepsi 2012 Annual Report Download - page 76

Note— Basis of Presentation and
OurDivisions
Basis of Presentation
Our financial statements include the consolidated accounts
of PepsiCo, Inc. and the affiliates that we control. In addition,
we include our share of the results of certain other affiliates
using the equity method based on our economic ownership
interest, our ability to exercise significant influence over the
operating or financial decisions of these affiliates or our ability
to direct their economic resources. We do not control these
other affiliates, as our ownership in these other affiliates is
generally less than 50%. Intercompany balances and transac-
tions are eliminated. Our fiscal year ends on the last Saturday
of each December, resulting in an additional week of results
every five or six years. In 2011, we had an additional week of
results (53rd week).
On February26, 2010, we completed our acquisitions of
PBG and PAS. The results of the acquired companies in the
U.S. and Canada were reflected in our consolidated results
as of the acquisition date, and the international results of the
acquired companies have been reported as of the beginning
of the second quarter of 2010, consistent with our monthly
international reporting calendar. The results of the acquired
companies in the U.S., Canada and Mexico are reported within
our PAB segment, and the results of the acquired companies in
Europe, including Russia, are reported within our Europe seg-
ment. Prior to our acquisitions of PBG and PAS, we recorded
our share of equity income or loss from the acquired compa-
nies in bottling equity income in our income statement. Our
share of income or loss from other noncontrolled affiliates is
reflected as a component of selling, general and administrative
expenses. Additionally, in the first quarter of 2010, in con-
nection with our acquisitions of PBG and PAS, we recorded
a gain on our previously held equity interests of $958million,
comprising $735million which was non-taxable and recorded
in bottling equity income and $223million related to the rever-
sal of deferred tax liabilities associated with these previously
held equity interests. See Notes8 and 15 to our consolidated
financial statements, and for additional unaudited informa-
tion on items affecting the comparability of our consolidated
results see “Items Affecting Comparability” in Management’s
Discussion and Analysis.
As of the beginning of our 2010 fiscal year, the results of our
Venezuelan businesses are reported under hyperinflationary
accounting. See “Our Business Risks” and “Items Affecting
Comparability” in Management’s Discussion and Analysis.
In the first quarter of 2011, QFNA changed its method of
accounting for certain U.S. inventories from the last-in, first-
out (LIFO) method to the average cost method as we believe
that the average cost method of accounting improves our
financial reporting by better matching revenues and expenses
and better reflecting the current value of inventory. The
impact of this change on consolidated net income in the first
quarter of 2011 was approximately $9million (or less than
a penny per share). Prior periods were not restated as the
impact of the change on previously issued financial statements
was not considered material.
Raw materials, direct labor and plant overhead, as well as
purchasing and receiving costs, costs directly related to pro-
duction planning, inspection costs and raw material handling
facilities, are included in cost of sales. The costs of moving,
storing and delivering finished product are included in selling,
general and administrative expenses.
The preparation of our consolidated financial statements
in conformity with generally accepted accounting principles
requires us to make estimates and assumptions that affect
reported amounts of assets, liabilities, revenues, expenses
and disclosure of contingent assets and liabilities. Estimates
are used in determining, among other items, sales incentives
accruals, tax reserves, stock-based compensation, pension
and retiree medical accruals, amounts and useful lives for
intangible assets, and future cash flows associated with
impairment testing for perpetual brands, goodwill and other
long-lived assets. We evaluate our estimates on an ongoing
basis using our historical experience, as well as other factors
we believe appropriate under the circumstances, such as cur-
rent economic conditions, and adjust or revise our estimates
as circumstances change. As future events and their effect
cannot be determined with precision, actual results could
differ significantly from these estimates.
While our North America results are reported on a weekly
calendar basis, most of our international operations report on
a monthly calendar basis. In 2011, we had an additional week of
results (53rd week). The following chart details our quarterly
reporting schedule for all other reporting periods presented:
Quarter U.S. and Canada International
First Quarter 12 weeks January, February
Second Quarter 12 weeks March, April and May
Third Quarter 12 weeks June, July and August
Fourth Quarter 16 weeks September, October,
November and December
See “Our Divisions” below, and for additional unaudited
information on items affecting the comparability of our con-
solidated results, see “Items Affecting Comparability” in
Management’s Discussion and Analysis.
2012 PEPSICO ANNUAL REPORT74
Notes to Consolidated Financial Statements