Pepsi 2015 Annual Report Download - page 101

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our Venezuelan entities were not able to participate in SICAD auctions during 2015, as the auctions that were
held were not for our industry, and had limited access to the SIMADI market since its inception.
The evolving conditions in Venezuela, including increasingly restrictive exchange control regulations and
reduced access to dollars through official currency exchange markets, resulted in an other-than-temporary
lack of exchangeability between the Venezuelan bolivar and the U.S. dollar, which significantly impacted
our ability to effectively manage our Venezuelan businesses, including restrictions on the ability of our
Venezuelan businesses to import certain raw materials to maintain normal production and to settle U.S. dollar-
denominated obligations. The exchange restrictions, combined with other regulations that have limited our
ability to import certain raw materials, also increasingly constrained our ability to make and execute
operational decisions regarding our businesses in Venezuela. In addition, the inability of our Venezuelan
businesses to pay dividends, which remain subject to Venezuelan government approvals, restricted our ability
to realize the earnings generated out of our Venezuelan businesses. We expect these conditions will continue
for the foreseeable future.
As a result of these factors, we concluded that, effective as of the end of the third quarter of 2015, we did
not meet the accounting criteria for control over our wholly-owned Venezuelan subsidiaries, and therefore
we deconsolidated our wholly-owned Venezuelan subsidiaries effective as of the end of the third quarter of
2015. We also concluded that, effective as of the end of the third quarter of 2015, due to the above-mentioned
factors and other matters impacting the operation of our joint venture and the distribution of its products, we
no longer had significant influence over our joint venture, which was previously accounted for under the
equity method. As a result of these conclusions, effective at the end of the third quarter of 2015, we began
accounting for our investments in our wholly-owned Venezuelan subsidiaries and our joint venture using the
cost method of accounting and recorded pre- and after-tax charges of $1.4 billion in our Consolidated
Statement of Income to reduce the value of the cost method investments to their estimated fair values, resulting
in a full impairment. The impairment charges primarily included approximately $1.2 billion related to our
investments in previously consolidated Venezuelan subsidiaries and our joint venture and $111 million related
to the reclassification of cumulative translation losses. The estimated fair value of the investments in our
Venezuelan entities was derived using discounted cash flow analyses, including U.S. dollar exchange and
discount rate assumptions that reflected the inflation and economic uncertainty in Venezuela, and are
considered non-recurring Level 3 measurements within the fair value hierarchy. The factors that led to the
above-mentioned conclusions at the end of the third quarter of 2015 continued to exist as of the end of 2015.
During 2015 and prior to the end of the third quarter of 2015, we used the SICAD exchange rate to remeasure
our net monetary assets in Venezuela, except for certain other net monetary assets that we believed qualified
for the fixed exchange rate (including requests for remittance of dividends submitted to CENCOEX in certain
prior years at the fixed exchange rate and payables for imports of essential goods approved by CENCOEX).
During 2015, the results of our operations in Venezuela, which reflected the months of January through
August, were included in our Consolidated Statement of Income using a combination of the fixed exchange
and SICAD rates, as appropriate. As of the end of 2015, consistent with the end of the third quarter of 2015,
we did not consolidate the assets and liabilities of our Venezuelan subsidiaries in our Consolidated Balance
Sheet. Beginning in the fourth quarter of 2015, we no longer included the financial results of our Venezuelan
businesses in our Consolidated Statement of Income and our financial results only included revenue relating
to the sales of inventory to our Venezuelan entities to the extent cash was received for those sales. Any
dividends from our Venezuelan entities will be recorded as income upon receipt of the cash. We did not
receive any U.S. dollars in the fourth quarter of 2015 from our Venezuelan entities. Our ongoing contractual
commitments to our Venezuelan businesses are not material.