Pepsi 2015 Annual Report Download - page 102

Table of Contents
85
Note 2 — Our Significant Accounting Policies
Revenue Recognition
We recognize revenue upon shipment or delivery to our customers based on written sales terms that do not
allow for a right of return. However, our policy for DSD and certain chilled products is to remove and replace
damaged and out-of-date products from store shelves to ensure that consumers receive the product quality
and freshness they expect. Similarly, our policy for certain warehouse-distributed products is to replace
damaged and out-of-date products. Based on our experience with this practice, we have reserved for
anticipated damaged and out-of-date products. For additional unaudited information on our revenue
recognition and related policies, including our policy on bad debts, see “Our Critical Accounting Policies”
in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
We are exposed to concentration of credit risk from our major customers, including Wal-Mart. In 2015, sales
to Wal-Mart (including Sam’s) represented approximately 13% of our total net revenue, including concentrate
sales to our independent bottlers, which are used in finished goods sold by them to Wal-Mart. We have not
experienced credit issues with these customers.
Total Marketplace Spending
We offer sales incentives and discounts through various programs to customers and consumers. Total
marketplace spending includes sales incentives, discounts, advertising and other marketing activities. Sales
incentives and discounts are primarily accounted for as a reduction of revenue and include payments to
customers for performing merchandising activities on our behalf, such as payments for in-store displays,
payments to gain distribution of new products, payments for shelf space and discounts to promote lower
retail prices. It also includes support provided to our independent bottlers through funding of advertising and
other marketing activities. While most of these incentive arrangements have terms of no more than one year,
certain arrangements, such as fountain pouring rights, may extend beyond one year. Costs incurred to obtain
these arrangements are recognized over the shorter of the economic or contractual life, primarily as a reduction
of revenue, and the remaining balances of $321 million as of December 26, 2015 and $355 million as of
December 27, 2014 are included in prepaid expenses and other current assets and other assets on our balance
sheet. For additional unaudited information on our sales incentives, see “Our Critical Accounting Policies”
in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Advertising and other marketing activities, reported as selling, general and administrative expenses, totaled
$3.9 billion in 2015, 2014 and 2013, including advertising expenses of $2.4 billion in 2015, $2.3 billion in
2014 and $2.4 billion in 2013. Deferred advertising costs are not expensed until the year first used and consist
of:
• media and personal service prepayments;
• promotional materials in inventory; and
• production costs of future media advertising.
Deferred advertising costs of $40 million and $42 million as of December 26, 2015 and December 27, 2014,
respectively, are classified as prepaid expenses and other current assets on our balance sheet.
Distribution Costs
Distribution costs, including the costs of shipping and handling activities, are reported as selling, general
and administrative expenses. Shipping and handling expenses were $9.4 billion in 2015, $9.7 billion in 2014
and $9.4 billion in 2013.
Cash Equivalents
Cash equivalents are highly liquid investments with original maturities of three months or less.