Financials - PepsiCo

Retiree Medical Cost Trend Rates
An average increase of 7% in the cost of covered retiree medical
benefits is assumed for 2011. This average increase is then projected
to decline gradually to 5% in 2020 and thereafter. These
assumed health care cost trend rates have an impact on the
retiree medical plan expense and liability. However, the cap on
our share of retiree medical costs limits the impact. In addition,
beginning January 1, 2011, the Company will start phasing out
company subsidies of retiree medical benefits. A 1-percentagepoint
change in the assumed health care trend rate would have
the following effects:
1% 1%
Increase Decrease
2010 service and interest cost components $ 5 $ (4)
2010 benefit liability $42 $(50)
Savings Plan
Our U.S. employees are eligible to participate in 401(k) savings
plans, which are voluntary defined contribution plans. The
plans are designed to help employees accumulate additional
savings for retirement, and we make company matching contributions
on a portion of eligible pay based on years of service.
In 2010, in connection with our acquisitions of PBG and PAS,
we also made company retirement contributions for certain
employees on a portion of eligible pay based on years of service.
In 2010 and 2009, our total contributions were $135 million and
$72 million, respectively.
Beginning January 1, 2011, a new employer contribution to
the 401(k) savings plan will become effective for certain eligible
legacy PBG and PAS salaried employees as well as all future
eligible salaried new hires of PepsiCo who are not eligible to
participate in the defined benefit pension plan as a result of plan
design changes approved during 2010.
For additional unaudited information on our pension
and retiree medical plans and related accounting policies and
assumptions, see “Our Critical Accounting Policies” in
Management’s Discussion and Analysis.
Note 8 Noncontrolled
Bottling Affiliates
On February 26, 2010, we completed our acquisitions of PBG
and PAS, at which time we gained control over their operations
and began to consolidate their results. See Note 1. Prior to these
acquisitions, PBG and PAS represented our most significant
noncontrolled bottling affiliates. Sales to PBG in 2010 (prior to
the acquisition date) represented less than 1% of our total net
revenue in 2010, 6% of our total net revenue in 2009 and 7% of our
total net revenue in 2008.
See Note 15 for additional information regarding our acquisitions
of PBG and PAS.
The Pepsi Bottling Group
In addition to approximately 32% of PBG’s outstanding common
stock that we owned at year-end 2009, we owned 100% of PBG’s
class B common stock and approximately 7% of the equity of
Bottling Group, LLC, PBG’s principal operating subsidiary.
PBG’s summarized financial information is as follows:
2009 2008
Current assets $ 3,412
Noncurrent assets 10,158
Total assets $13,570
Current liabilities $ 1,965
Noncurrent liabilities 7,896
Total liabilities $ 9,861
Our investment $ 1,775
Net revenue $13,219 $13,796
Gross profit $ 5,840 $ 6,210
Operating income $ 1,048 $ 649
Net income attributable to PBG $ 612 $ 162
Our investment in PBG, which included the related goodwill,
was $463 million higher than our ownership interest in their net
assets less noncontrolling interests at year-end 2009.
During 2008, together with PBG, we jointly acquired Russia’s
leading branded juice company, Lebedyansky. See Note 14 for
further information on this acquisition.
PepsiAmericas
At year-end 2009, we owned approximately 43% of the outstanding
common stock of PAS.
PAS’s summarized financial information is as follows:
2009 2008
Current assets $ 952
Noncurrent assets 4,141
Total assets $5,093
Current liabilities $ 669
Noncurrent liabilities 2,493
Total liabilities $3,162
Our investment $1,071
Net revenue $4,421 $4,937
Gross profit $1,767 $1,982
Operating income $ 381 $ 473
Net income attributable to PAS $ 181 $ 226
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