Pepsi 2015 Annual Report Download - page 62

Table of Contents
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results or financial position, and we will continue to monitor the economic, operating and political
environment in Russia closely. For the years ended December 26, 2015 and December 27, 2014, total net
revenue generated by our operations in Russia represented 4% and 7% of our consolidated net revenue,
respectively. As of December 26, 2015, our long-lived assets in Russia were $3.6 billion. Our operations in
Ukraine are not significant in relation to our consolidated results or financial position.
Our foreign currency derivatives had a total notional value of $2.1 billion as of December 26, 2015 and $2.7
billion as of December 27, 2014. At the end of 2015, we estimate that an unfavorable 10% change in the
underlying exchange rates would have decreased our net unrealized gains by $118 million.
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 beverage joint venture with our franchise bottler in
Venezuela 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
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. For further information, please refer to Note 1 to our consolidated financial statements
and “Items Affecting Comparability.”
Beginning in the fourth quarter of 2015, we no longer included the 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. In 2015, the results of our operations in Venezuela, which include
the months of January through August, generated 2% of our net revenue and 2% of our operating profit, prior
to the impairment charges of $1.4 billion.