Pepsi 2012 Annual Report Download - page 81

Research and Development
We engage in a variety of research and development activities
and continue to invest to accelerate growth in these activi-
ties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 production processes, and the development and imple-
mentation 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 develop-
ment costs were $552million in 2012, $525million in 2011
and $488million in 2010 and are reported within selling, gen-
eral and administrative expenses.
Other Signicant Accounting Policies
Our other significant accounting policies are disclosed
as follows:
• 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.
• Income Taxes — Note5, and for additional unaudited informa-
tion see “Our Critical Accounting Policies” in Management’s
Discussion and Analysis.
• Stock-Based Compensation — Note6.
• Pension, Retiree Medical and Savings Plans — Note7, and for
additional unaudited information see “Our Critical Accounting
Policies” in Management’s Discussion and Analysis.
• Financial Instruments — Note10, and for additional unau-
dited information, see “Our Business Risks” in Management’s
Discussion and Analysis.
• Inventories — Note14. Inventories are valued at the lower
of cost or market. Cost is determined using the average;
first-in, first-out (FIFO) or last-in, first-out (LIFO) methods.
• Translation of Financial Statements of Foreign Subsid-
iaries — Financial statements of foreign subsidiaries are
translated into U.S. dollars using period-end exchange rates
for assets and liabilities and weighted-average exchange
rates for revenues and expenses. Adjustments resulting
from translating net assets are reported as a separate
component of accumulated other comprehensive loss
within common shareholders’ equity as currency transla-
tion adjustment.
Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (FASB)
issued new accounting guidance that permits an entity to first
assess qualitative factors to determine whether it is more likely
than not that an indefinite-lived intangible asset is impaired as
a basis for determining whether it is necessary to perform a
quantitative impairment test. An entity would continue to cal-
culate the fair value of an indefinite-lived intangible asset if the
asset fails the qualitative assessment, while no further analysis
would be required if it passes. The provisions of the new guid-
ance are effective as of the beginning of our 2013 fiscal year.
We do not expect the new guidance to have an impact on the
2013 impairment test results.
In September 2011, the FASB issued new accounting guid-
ance that permits an entity to first 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 first 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 were
effective for, and had no impact on, our 2012 annual goodwill
impairment test results.
In December 2011, the FASB issued new disclosure require-
ments that are intended to enhance current disclosures on
offsetting financial assets and liabilities. The new disclosures
require an entity to disclose both gross and net information
about derivative instruments accounted for in accordance
with the guidance on derivatives and hedging that are eligible
for offset on the balance sheet and instruments and trans-
actions subject to an agreement similar to a master netting
arrangement. The provisions of the new disclosure require-
mentsare effective as of the beginning of our 2014 fiscal year.
We arecurrently evaluating the impact of the new guidance on
our financial statements.
In September 2011, the FASB amended its guidance regard-
ing the disclosure requirements for employers participating in
multiemployer pension and other postretirement benefit plans
(multiemployer plans) to improve transparency and increase
awareness of the commitments and risks involved with partici-
pation in multiemployer plans. The new accounting guidance
requires employers participating in multiemployer plans to
provide additional quantitative and qualitative disclosures
toprovide users with more detailed information regarding an
employer’s involvement in multiemployer plans. The provisions
of this new guidance were effective as of the beginning of
our2011 fiscal year and did not have a material impact on our
financial statements.
2012 PEPSICO ANNUAL REPORT 79
Notes to Consolidated Financial Statements