Pepsico Q3-10-Q 9.8.2012
Table of Contents    

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 8, 2012 (36 weeks)
OR
 
    
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to             
Commission file number 1-1183

 
PepsiCo, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
 
North Carolina        
  
13-1584302  
(State or Other Jurisdiction of
Incorporation or Organization)
  
(I.R.S. Employer
Identification No.)
 
 
700 Anderson Hill Road, Purchase, New York
  
10577
(Address of Principal Executive Offices)
  
(Zip Code)

914-253-2000
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   X    NO      
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES   X    NO      
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  X 
  
Accelerated filer     
Non-accelerated filer     
(Do not check if a smaller reporting company)
  
Smaller reporting company     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES           NO  X
Number of shares of Common Stock outstanding as of October 10, 2012:  1,546,853,502

Table of Contents    

PEPSICO, INC. AND SUBSIDIARIES

INDEX
 
 
Page No.
Part I Financial Information
 
Part II Other Information
 


2
Table of Contents    

PART I FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements.

PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in millions except per share amounts, unaudited)
 
 
12 Weeks Ended
 
36 Weeks Ended
 
9/8/2012

 
9/3/2011

 
9/8/2012

 
9/3/2011

Net Revenue
$
16,652

 
$
17,582

 
$
45,538

 
$
46,346

Cost of sales
7,833

 
8,452

 
21,637

 
21,862

Selling, general and administrative expenses
5,992

 
6,186

 
16,920

 
16,995

Amortization of intangible assets
27

 
38

 
82

 
103

Operating Profit
2,800

 
2,906

 
6,899

 
7,386

Interest expense
(204
)
 
(205
)
 
(611
)
 
(584
)
Interest income and other
23

 
(4
)
 
47

 
33

Income before income taxes
2,619

 
2,697

 
6,335

 
6,835

Provision for income taxes
706

 
686

 
1,788

 
1,775

Net income
1,913

 
2,011

 
4,547

 
5,060

Less: Net income attributable to noncontrolling interests
11

 
11

 
30

 
32

Net Income Attributable to PepsiCo
$
1,902

 
$
2,000

 
$
4,517

 
$
5,028

Net Income Attributable to PepsiCo per Common Share
 
 
 
 
 
 
Basic
$
1.22

 
$
1.27

 
$
2.89

 
$
3.18

Diluted
$
1.21

 
$
1.25

 
$
2.86

 
$
3.14

Weighted-average common shares outstanding
 
 
 
 
 
 
 
Basic
1,556

 
1,578

 
1,562

 
1,581

Diluted
1,575

 
1,599

 
1,580

 
1,603

Cash dividends declared per common share
$
0.5375

 
$
0.515

 
$
1.59

 
$
1.51

See accompanying notes to the condensed consolidated financial statements.


3
Table of Contents    

PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
(in millions, unaudited)
 
 
12 Weeks Ended
 
36 Weeks Ended
 
9/8/2012

 
9/3/2011

 
9/8/2012

 
9/3/2011

Net Income
$
1,913

 
$
2,011

 
$
4,547

 
$
5,060

Other Comprehensive Income/(Loss)
 
 
 
 
 
 
 
Currency translation adjustment
530

 
(515
)
 
(14
)
 
939

Cash flow hedges, net of tax:
 
 
 
 
 
 
 
Net derivative losses(a)
(15
)
 
(46
)
 
(40
)
 
(63
)
Reclassification of net losses to net income(b)
13

 
4

 
37

 
11

Pension and retiree medical, net of tax:
 
 
 
 
 
 
 
Reclassification of losses to net income(c)
23

 
26

 
109

 
49

Remeasurement of net liabilities(d)
—

 
—

 
7

 
—

Unrealized (losses)/gains on securities, net of tax(e)
(1
)
 
(18
)
 
2

 
(20
)
Other
—

 
—

 
36

 
(17
)
Total Other Comprehensive Income/(Loss)
550

 
(549
)
 
137

 
899

Comprehensive Income
2,463

 
1,462

 
4,684

 
5,959

Comprehensive income attributable to noncontrolling interests
(11
)
 
(8
)
 
(24
)
 
(101
)
Comprehensive Income Attributable to PepsiCo
$
2,452

 
$
1,454

 
$
4,660

 
$
5,858

 
 
 
 
 
 
 
 
(a)
Net of tax expense of $2 million and tax benefits of $10 million for the 12 and 36 weeks in 2012, respectively. Net of tax benefits of $27 million and $21 million for the 12 and 36 weeks in 2011, respectively.
(b)
Net of tax benefits of $7 million and $21 million for the 12 and 36 weeks in 2012, respectively. Net of tax expense of $3 million and $8 million for the 12 and 36 weeks in 2011, respectively.
(c)
Net of tax benefits of $17 million and $61 million for the 12 and 36 weeks in 2012, respectively. Net of tax benefits of $12 million and $26 million for the 12 and 36 weeks in 2011, respectively.
(d)
Net of tax expense of $4 million for the 36 weeks in 2012.
(e)
Net of tax benefits of $6 million and $7 million for the 12 and 36 weeks in 2011, respectively.
See accompanying notes to the condensed consolidated financial statements.


4
Table of Contents    

PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions, unaudited)
 
36 Weeks Ended
 
9/8/2012

 
9/3/2011

Operating Activities
 
 
 
Net income
$
4,547

 
$
5,060

Depreciation and amortization
1,837

 
1,877

Stock-based compensation expense
193

 
222

Restructuring and impairment charges
193

 
—

Cash payments for restructuring charges
(243
)
 
(1
)
Merger and integration charges
7

 
174

Cash payments for merger and integration charges
(57
)
 
(293
)
Restructuring and other charges related to the transaction with Tingyi (Cayman Islands) Holding Corp. (Tingyi)
163

 
—

Cash payments for restructuring and other charges related to the transaction with Tingyi
(98
)
 
—

Excess tax benefits from share-based payment arrangements
(89
)
 
(56
)
Pension and retiree medical plan contributions
(1,253
)
 
(185
)
Pension and retiree medical plan expenses
414

 
389

Deferred income taxes and other tax charges and credits
283

 
132

Change in accounts and notes receivable
(1,300
)
 
(1,643
)
Change in inventories
(234
)
 
(466
)
Change in prepaid expenses and other current assets
(83
)
 
(54
)
Change in accounts payable and other current liabilities
281

 
142

Change in income taxes payable
736

 
936

Other, net
(179
)
 
(400
)
Net Cash Provided by Operating Activities
5,118

 
5,834

Investing Activities
 
 
 
Capital spending
(1,409
)
 
(1,962
)
Sales of property, plant and equipment
58

 
46

Acquisition of Wimm-Bill-Dann Foods OJSC (WBD), net of cash and cash equivalents acquired
—

 
(2,428
)
Investment in WBD
—

 
(164
)
Cash payments related to the transaction with Tingyi
(298
)
 
—

Other acquisitions and investments in noncontrolled affiliates
(76
)
 
(160
)
Divestitures
7

 
10

Short-term investments, by original maturity
 
 
 
More than three months – maturities
—

 
14

Three months or less, net
(21
)
 
(48
)
Other investing, net
11

 
(3
)
Net Cash Used for Investing Activities
(1,728
)
 
(4,695
)
 
(Continued on following page)


5
Table of Contents    

 
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(in millions, unaudited)

 
36 Weeks Ended
 
9/8/2012

 
9/3/2011

Financing Activities
 
 
 
Proceeds from issuances of long-term debt
$
5,207

 
$
3,000

Payments of long-term debt
(1,357
)
 
(1,596
)
Debt repurchase
—

 
(771
)
Short-term borrowings, by original maturity
 
 
 
More than three months – proceeds
53

 
224

More than three months – payments
(213
)
 
(274
)
Three months or less, net
(2,034
)
 
106

Cash dividends paid
(2,470
)
 
(2,349
)
Share repurchases – common
(2,328
)
 
(1,929
)
Share repurchases – preferred
(5
)
 
(5
)
Proceeds from exercises of stock options
927

 
724

Excess tax benefits from share-based payment arrangements
89

 
56

Acquisition of noncontrolling interests
(15
)
 
(1,327
)
Other financing
(18
)
 
(2
)
Net Cash Used for Financing Activities
(2,164
)
 
(4,143
)
Effect of exchange rate changes on cash and cash equivalents
16

 
144

Net Increase/(Decrease) in Cash and Cash Equivalents
1,242

 
(2,860
)
Cash and Cash Equivalents, Beginning of Year
4,067

 
5,943

Cash and Cash Equivalents, End of Period
$
5,309

 
$
3,083

See accompanying notes to the condensed consolidated financial statements.


6
Table of Contents    

PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)

 
(Unaudited)
 
 
 
9/8/2012

 
12/31/2011

Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
5,309

 
$
4,067

Short-term investments
402

 
358

Accounts and notes receivable, less allowance: 9/12 – $156, 12/11 – $157
7,998

 
6,912

Inventories
 
 
 
Raw materials
1,930

 
1,883

Work-in-process
253

 
207

Finished goods
1,722

 
1,737

 
3,905

 
3,827

Prepaid expenses and other current assets
1,656

 
2,277

Total Current Assets
19,270

 
17,441

Property, Plant and Equipment
34,920

 
35,140

Accumulated Depreciation
(16,390
)
 
(15,442
)
 
18,530

 
19,698

Amortizable Intangible Assets, net
1,799

 
1,888

Goodwill
16,701

 
16,800

Other Nonamortizable Intangible Assets
14,511

 
14,557

Nonamortizable Intangible Assets
31,212

 
31,357

Investments in Noncontrolled Affiliates
1,585

 
1,477

Other Assets
1,621

 
1,021

Total Assets
$
74,017

 
$
72,882

 
(Continued on following page)

 

7
Table of Contents    

PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (continued)
(in millions except per share amounts)

 
(Unaudited)
 
 
 
9/8/2012

 
12/31/2011

Liabilities and Equity
 
 
 
Current Liabilities
 
 
 
Short-term obligations
$
4,211

 
$
6,205

Accounts payable and other current liabilities
11,722

 
11,757

Income taxes payable
287

 
192

Total Current Liabilities
16,220

 
18,154

Long-term Debt Obligations
23,732

 
20,568

Other Liabilities
7,551

 
8,266

Deferred Income Taxes
4,930

 
4,995

Total Liabilities
52,433

 
51,983

Commitments and Contingencies


 


Preferred Stock, no par value
41

 
41

Repurchased Preferred Stock
(162
)
 
(157
)
PepsiCo Common Shareholders’ Equity
 
 
 
Common stock, par value 1 2/3 cents per share:
 
 
 
Authorized 3,600 shares, issued 9/12 and 12/11 – 1,865 shares
31

 
31

Capital in excess of par value
4,179

 
4,461

Retained earnings
42,332

 
40,316

Accumulated other comprehensive loss
(6,086
)
 
(6,229
)
Less: repurchased common stock, at cost: 9/12 – 314 shares, 12/11 – 301 shares
(18,896
)
 
(17,875
)
Total PepsiCo Common Shareholders’ Equity
21,560

 
20,704

Noncontrolling interests
145

 
311

Total Equity
21,584

 
20,899

Total Liabilities and Equity
$
74,017

 
$
72,882

See accompanying notes to the condensed consolidated financial statements.


8
Table of Contents    

PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(in millions, unaudited)
 
36 Weeks Ended
 
9/8/2012
 
9/3/2011
 
Shares
 
Amount
 
Shares
 
Amount
Preferred Stock
0.8

 
$
41

 
0.8

 
$
41

Repurchased Preferred Stock
 
 
 
 
 
 
 
Balance, beginning of year
(0.6
)
 
(157
)
 
(0.6
)
 
(150
)
Redemptions
(–)

 
(5
)
 
(–)

 
(5
)
Balance, end of period
(0.6
)
 
(162
)
 
(0.6
)
 
(155
)
Common Stock
1,865

 
31

 
1,865

 
31

Capital in Excess of Par Value
 
 
 
 
 
 
 
Balance, beginning of year
 
 
4,461

 
 
 
4,527

Stock-based compensation expense
 
 
193

 
 
 
222

Stock option exercises/RSUs converted(a)
 
 
(384
)
 
 
 
(303
)
Withholding tax on RSUs converted
 
 
(65
)
 
 
 
(54
)
Other
 
 
(26
)
 
 
 
14

Balance, end of period
 
 
4,179

 
 
 
4,406

Retained Earnings
 
 
 
 
 
 
 
Balance, beginning of year
 
 
40,316

 
 
 
37,090

Net income attributable to PepsiCo
 
 
4,517

 
 
 
5,028

Cash dividends declared – common
 
 
(2,482
)
 
 
 
(2,388
)
Cash dividends declared – preferred
 
 
(1
)
 
 
 
(1
)
Cash dividends declared – RSUs
 
 
(18
)
 
 
 
(15
)
Balance, end of period
 
 
42,332

 
 
 
39,714

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Balance, beginning of year
 
 
(6,229
)
 
 
 
(3,630
)
Currency translation adjustment
 
 
(8
)
 
 
 
870

Cash flow hedges, net of tax:
 
 
 
 
 
 
 
Net derivative losses
 
 
(40
)
 
 
 
(63
)
Reclassification of net losses to net income
 
 
37

 
 
 
11

Pension and retiree medical, net of tax:
 
 
 
 
 
 
 
Reclassification of net losses to net income
 
 
109

 
 
 
49

Remeasurement of net liabilities
 
 
7

 
 
 
—

Unrealized gains/(losses) on securities, net of tax
 
 
2

 
 
 
(20
)
Other
 
 
36

 
 
 
(17
)
Balance, end of period
 
 
(6,086
)
 
 
 
(2,800
)
Repurchased Common Stock
 
 
 
 
 
 
 
Balance, beginning of year
(301
)
 
(17,875
)
 
(284
)
 
(16,745
)
Share repurchases
(35
)
 
(2,387
)
 
(30
)
 
(1,970
)
Stock option exercises
20

 
1,225

 
15

 
948

Other
2

 
141

 
2

 
107

Balance, end of period
(314
)
 
(18,896
)
 
(297
)
 
(17,660
)
Total PepsiCo Common Shareholders’ Equity
 
 
21,560

 
 
 
23,691

Noncontrolling Interests
 
 
 
 
 
 
 
Balance, beginning of year
 
 
311

 
 
 
312

Net income attributable to noncontrolling interests
 
 
30

 
 
 
32

Distributions to noncontrolling interests
 
 
(15
)
 
 
 
(10
)
Currency translation adjustment
 
 
(6
)
 
 
 
69

Acquisitions and divestitures
 
 
(175
)
 
 
 
23

Balance, end of period
 
 
145

 
 
 
426

Total Equity
 
 
$
21,584

 
 
 
$
24,003

(a)
Includes total tax benefits of $57 million in 2012 and $35 million in 2011.
See accompanying notes to the condensed consolidated financial statements.

9
Table of Contents    

PEPSICO, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation and Our Divisions

Basis of Presentation
 
Our Condensed Consolidated Statements of Income and Comprehensive Income for the 12 and 36 weeks ended September 8, 2012 and September 3, 2011, our Condensed Consolidated Statements of Cash Flows for the 36 weeks ended September 8, 2012 and September 3, 2011, our Condensed Consolidated Balance Sheet as of September 8, 2012 and our Condensed Consolidated Statements of Equity for the 36 weeks ended September 8, 2012 and September 3, 2011 have not been audited. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. In our opinion, these financial statements include all normal and recurring adjustments necessary for a fair presentation. The results for the 12 and 36 weeks are not necessarily indicative of the results expected for the full year.
While our North America results are reported on a period calendar basis, most of our international operations report on a monthly calendar basis for which the months of June, July and August are reflected in our third quarter results.
In the first quarter of 2011, Quaker Foods North America (QFNA) changed its method of accounting for certain U.S. inventories from the last-in, first-out (LIFO) method to the average cost method. This change was considered preferable by management as we believe that the average cost method of accounting for all U.S. foods inventories improves our financial reporting by better matching revenues and expenses and better reflecting the current value of inventory. In addition, the change from the LIFO method to the average cost method enhances the comparability of QFNA’s financial results with our other food businesses, as well as with peer companies where the average cost method is widely used. The impact of this change on consolidated net income in the first quarter of 2011 was approximately $9 million (or less than a penny per share).
Our significant interim accounting policies include the recognition of a pro rata share of certain estimated annual sales incentives, and certain advertising and marketing costs, in proportion to revenue and volume, as applicable, and the recognition of income taxes using an estimated annual effective tax rate. Raw materials, direct labor and plant overhead, as well as purchasing and receiving costs, costs directly related to production planning, inspection costs and raw material handling facilities, are included in cost of sales. The costs of moving, storing and delivering finished product are included in selling, general and administrative expenses.
The following information is unaudited. Tabular dollars are in millions, except per share amounts. All per share amounts reflect common per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts. Certain reclassifications were made to the prior year’s amounts to conform to the 2012 presentation. This report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Our Divisions
We are organized into four business units, as follows:
1.
PepsiCo Americas Foods (PAF), which includes Frito-Lay North America (FLNA), Quaker Foods North America (QFNA) and all of our Latin American food and snack businesses (LAF);
2.
PepsiCo Americas Beverages (PAB), which includes all of our North American and Latin American beverage businesses;

10
Table of Contents    

3.
PepsiCo Europe, which includes all beverage, food and snack businesses in Europe and South Africa; and
4.
PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack businesses in AMEA, excluding South Africa.
Our four business units comprise six reportable segments (also referred to as divisions), as follows:

•
FLNA,
•
QFNA,
•
LAF,
•
PAB,
•
Europe, and
•
AMEA.
 
12 Weeks Ended
 
36 Weeks Ended
 
9/8/2012

 
9/3/2011

 
9/8/2012

 
9/3/2011

Net Revenue
 
 
 
 
 
 
 
FLNA
$
3,269

 
$
3,173

 
$
9,472

 
$
9,167

QFNA
615

 
614

 
1,821

 
1,837

LAF
1,883

 
1,841

 
5,066

 
4,757

PAB
5,530

 
5,947

 
15,330

 
16,107

Europe
3,691

 
3,909

 
9,153

 
9,329

AMEA
1,664

 
2,098

 
4,696

 
5,149

 
$
16,652

 
$
17,582

 
$
45,538

 
$
46,346

 
 
 
 
 
 
 
 
 
12 Weeks Ended
 
36 Weeks Ended
 
9/8/2012

 
9/3/2011

 
9/8/2012

 
9/3/2011

Operating Profit
 
 
 
 
 
 
 
FLNA
$
917

 
$
918

 
$
2,532

 
$
2,545

QFNA
154

 
177

 
495

 
558

LAF
219

 
275

 
673

 
720

PAB
837

 
992

 
2,202

 
2,533

Europe
483

 
514

 
1,017

 
984

AMEA
317

 
285

 
630

 
730

Total division
2,927

 
3,161

 
7,549

 
8,070

Corporate Unallocated
 
 
 
 
 
 
 
Net impact of mark-to-market on commodity hedges
121

 
(53
)
 
126

 
(31
)
Restructuring and impairment charges
(7
)
 
—

 
(8
)
 
—

Merger and integration charges
2

 
(10
)
 
—

 
(64
)
Other
(243
)
 
(192
)
 
(768
)
 
(589
)
 
$
2,800

 
$
2,906

 
$
6,899

 
$
7,386

 

11
Table of Contents    

 
Total Assets
 
9/8/2012


12/31/2011

FLNA
$
6,075


$
6,120

QFNA
1,223


1,174

LAF
4,734


4,731

PAB
31,925


31,187

Europe
18,959


18,479

AMEA
5,669


6,048

Total division
68,585


67,739

Corporate(a)
5,432


5,143


$
74,017


$
72,882

 
 
 
 
(a)
Corporate assets consist principally of cash and cash equivalents, short-term investments, derivative instruments and property, plant and equipment.

Acquisitions and Divestitures
WBD
On February 3, 2011, we acquired the ordinary shares, including shares underlying American Depositary Shares (ADS) and Global Depositary Shares (GDS), of WBD, a company incorporated in the Russian Federation, which represented in the aggregate approximately 66% of WBD’s outstanding ordinary shares, pursuant to the purchase agreement dated December 1, 2010 between PepsiCo and certain selling shareholders of WBD for approximately $3.8 billion in cash. The acquisition of those shares increased our total ownership to approximately 77%, giving us a controlling interest in WBD. Under the guidance on accounting for business combinations, once a controlling interest is obtained, we are required to recognize and measure 100% of the identifiable assets acquired, liabilities assumed and noncontrolling interests at their full fair values. Our fair market valuations of the identifiable assets acquired and liabilities assumed have been completed and the final valuations did not materially differ from those fair values reported as of December 31, 2011.
On March 10, 2011, we commenced tender offers in Russia and the U.S. for all remaining outstanding ordinary shares and ADSs of WBD for 3,883.70 Russian rubles per ordinary share and 970.925 Russian rubles per ADS, respectively. The Russian offer was made to all holders of ordinary shares and the U.S. offer was made to all holders of ADSs. We completed the Russian offer on May 19, 2011 and the U.S. offer on May 16, 2011. After completion of the offers, we paid approximately $1.3 billion for WBD’s ordinary shares (including shares underlying ADSs) and increased our total ownership of WBD to approximately 98.6%.
On June 30, 2011, we elected to exercise our squeeze-out rights under Russian law with respect to all remaining WBD ordinary shares not already owned by us. Therefore, under Russian law, all remaining WBD shareholders were required to sell their ordinary shares (including those underlying ADSs) to us at the same price that was offered to WBD shareholders in the Russian tender offer. Accordingly, all registered holders of ordinary shares on August 15, 2011 (including the ADS depositary) received 3,883.70 Russian rubles per ordinary share. After completion of the squeeze-out in September 2011 (during our fourth quarter), we paid approximately $79 million for WBD’s ordinary shares (including shares underlying ADSs) and increased our total ownership to 100% of WBD.
Tingyi-Asahi Beverages Holding Co Ltd
On March 31, 2012 , we completed a transaction with Tingyi. Under the terms of the agreement, we contributed our company-owned and joint venture bottling operations in China to Tingyi’s beverage subsidiary, Tingyi-Asahi Beverages Holding Co Ltd (TAB), and received as consideration a 5% indirect equity interest in TAB. As a result of this transaction, TAB is now our franchise bottler in China. We also have a call option to

12
Table of Contents    

increase our indirect holding in TAB to 20% by 2015. We recorded restructuring and other charges of $137 million ($163 million after-tax or $0.10 per share), primarily consisting of employee-related charges, in our second quarter 2012 results. This charge is reflected in items affecting comparability (see “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations).

Intangible Assets
 
9/8/2012

 
12/31/2011

Amortizable intangible assets, net
 
 
 
Acquired franchise rights
$
932

 
$
916

Reacquired franchise rights
110

 
110

Brands
1,432

 
1,417

Other identifiable intangibles
701

 
777

 
3,175

 
3,220

Accumulated amortization
(1,376
)
 
(1,332
)
 
$
1,799

 
$
1,888






13
Table of Contents    

The change in the book value of nonamortizable intangible assets is as follows:
 
 
Balance
 
Acquisitions/
Divestitures
 
Translation
and Other
 
Balance

12/31/2011
 
 
 
9/8/2012
FLNA

 

 

 

Goodwill
$
311

 
$
—

 
$
7

 
$
318

Brands
30

 
—

 
2

 
32


341

 
—

 
9

 
350

 
 
 
 
 
 
 
 
QFNA

 

 

 

Goodwill
175

 
—

 
—

 
175

 
 
 
 
 
 
 
 
LAF

 

 

 

Goodwill
793

 
(83
)
 
(17
)
 
693

Brands
157

 
109

 
(15
)
 
251


950

 
26

 
(32
)
 
944

 
 
 
 
 
 
 
 
PAB

 

 

 

Goodwill
9,932

 
23

 
42

 
9,997

Reacquired franchise rights
7,342

 
(33
)
 
42

 
7,351

Acquired franchise rights
1,562

 
9

 
3

 
1,574

Brands
168

 
—

 
(17
)
 
151


19,004

 
(1
)
 
70

 
19,073

 
 
 
 
 
 
 
 
Europe

 

 

 

Goodwill
4,900

 
78

 
(16
)
 
4,962

Reacquired franchise rights
732

 
—

 
(2
)
 
730

Acquired franchise rights
218

 
—

 
(5
)
 
213

Brands
4,178

 
(96
)
 
(21
)
(a) 
4,061


10,028

 
(18
)
 
(44
)
 
9,966

 
 
 
 
 
 
 
 
AMEA

 

 

 

Goodwill
689

 
(142
)
 
9

 
556

Brands
170

 
(24
)
 
2

 
148


859

 
(166
)
 
11

 
704

 
 
 
 
 
 
 
 
Total goodwill
16,800

 
(124
)
 
25

 
16,701

Total reacquired franchise rights
8,074

 
(33
)
 
40

 
8,081

Total acquired franchise rights
1,780

 
9

 
(2
)
 
1,787

Total brands
4,703

 
(11
)
 
(49
)
 
4,643


$
31,357

 
$
(159
)
 
$
14

 
$
31,212

 
 
 
 
 
 
 
 

(a) In the 12 and 36 weeks ended September 8, 2012, we recorded an impairment charge of $23 million, primarily related to our business operations in Greece.

14
Table of Contents    

Stock-Based Compensation
In the 12 weeks ended September 8, 2012, we recognized stock-based compensation expense of $69 million ($68 million recorded as stock-based compensation expense and $1 million included in merger and integration charges). In the 36 weeks ended September 8, 2012, we recognized stock-based compensation expense of $188 million ($193 million recorded as stock-based compensation expense, $2 million included in merger and integration charges and income of $7 million included in restructuring and impairment charges). In the 12 weeks ended September 3, 2011, we recognized stock-based compensation expense of $77 million ($76 million recorded as stock-based compensation expense and $1 million included in merger and integration charges). In the 36 weeks ended September 3, 2011, we recognized stock-based compensation expense of $232 million ($222 million recorded as stock-based compensation expense and $10 million included in merger and integration charges).
In the 12 weeks ended September 8, 2012, our grants of stock options and restricted stock units (RSU) were nominal. In the 36 weeks ended September 8, 2012, we granted 3.6 million stock options and 4.3 million RSUs at weighted-average grant prices of $66.94 and $66.51, respectively, under the terms of our 2007 Long-Term Incentive Plan. In the 12 weeks ended September 3, 2011, our grants of stock options and RSUs were nominal. In the 36 weeks ended September 3, 2011, we granted 6.8 million stock options and 5.2 million RSUs at weighted-average grant prices of $64.28 and $63.88, respectively, under the terms of our 2007 Long-Term Incentive Plan.
Our weighted-average Black-Scholes fair value assumptions are as follows: 
 
36 Weeks Ended
 
9/8/2012

 
9/3/2011

Expected life
6 years

 
6 years

Risk free interest rate
1.3
%
 
2.5
%
Expected volatility(a)
17
%
 
16
%
Expected dividend yield
3.0
%
 
2.9
%
(a)
Reflects movements in our stock price over the most recent historical period equivalent to the expected life.
In the 36 weeks ended September 8, 2012, as part of our 2007 Long-Term Incentive Plan, we granted a nominal amount of PepsiCo equity performance units (PEPUnits) to certain executive officers. These PEPUnits are earned based on achievement of a cumulative net income performance target and provide an opportunity to earn shares of PepsiCo Common Stock with a value that adjusts based upon absolute changes in PepsiCo’s stock price as well as PepsiCo’s Total Shareholder Return relative to the S&P 500 over a three-year performance period.








15
Table of Contents    

Pension and Retiree Medical Benefits
The components of net periodic benefit cost for pension and retiree medical plans are as follows:
 
 
12 Weeks Ended
 
Pension
 
Retiree Medical
 
9/8/2012

 
9/3/2011

 
9/8/2012

 
9/3/2011

 
9/8/2012

 
9/3/2011

 
U.S.
 
International
 
 
Service cost
$
93

 
$
80

 
$
23

 
$
22

 
$
12

 
$
12

Interest cost
124

 
127

 
27

 
28

 
15

 
20

Expected return on plan assets
(183
)
 
(163
)
 
(34
)
 
(32
)
 
(5
)
 
(3
)
Amortization of prior service cost/(benefit)
4

 
3

 
—

 
1

 
(6
)
 
(6
)
Amortization of experience loss
60

 
34

 
13

 
10

 
—

 
2

 
98

 
81

 
29

 
29

 
16

 
25

Settlement/Curtailment gain
—

 
—

 
(2
)
 
—

 
—

 
—

Special termination benefits
2

 
—

 
—

 
—

 
—

 
—

Total expense
$
100

 
$
81

 
$
27

 
$
29

 
$
16

 
$
25

 
 
 
 
 
 
 
 
 
 
 
 
 
36 Weeks Ended
 
Pension
 
Retiree Medical
 
9/8/2012

 
9/3/2011

 
9/8/2012

 
9/3/2011

 
9/8/2012

 
9/3/2011

 
U.S.
 
International
 
 
Service cost
$
282

 
$
242

 
$
65

 
$
62

 
$
35

 
$
35

Interest cost
370

 
379

 
75

 
77

 
45

 
61

Expected return on plan assets
(550
)
 
(487
)
 
(95
)
 
(89
)
 
(15
)
 
(10
)
Amortization of prior service cost/(benefit)
12

 
10

 
1

 
2

 
(18
)
 
(19
)
Amortization of experience loss
179

 
101

 
35

 
26

 
—

 
8

 
293

 
245

 
81

 
78

 
47

 
75

Settlement/Curtailment (gain)/loss
(7
)
 
(9
)
 
1

 
—

 
—

 
—

Special termination benefits
6

 
10

 
—

 
—

 
4

 
1

Total expense
$
292

 
$
246

 
$
82

 
$
78

 
$
51

 
$
76

During the first quarter of 2012, as part of our ongoing program to reduce volatility associated with our pension plans, we made discretionary contributions of $860 million to our pension plans and $140 million to our retiree medical plans.



16
Table of Contents    

Income Taxes
A rollforward of our reserves for all federal, state and foreign tax jurisdictions is as follows:
 
 
9/8/2012

 
12/31/2011

Balance, beginning of year
$
2,167

 
$
2,022

Additions for tax positions related to the current year
190

 
233

Additions for tax positions from prior years
101

 
147

Reductions for tax positions from prior years
(25
)
 
(46
)
Settlement payments
(10
)
 
(156
)
Statute of limitations expiration
—

 
(15
)
Translation and other
5

 
(18
)
Balance, end of period
$
2,428

 
$
2,167


On September 20, 2012, during our fourth quarter, the U.S. Tax Court issued a decision in our favor in the tax court trial related to classification of financial instruments for the 1998-2002 audit cycle.  This decision remains subject to appeal by the U.S. government.


17
Table of Contents    

Net Income Attributable to PepsiCo per Common Share
The computations of basic and diluted net income attributable to PepsiCo per common share are as follows: 
 
12 Weeks Ended
 
9/8/2012

9/3/2011
 
Income

Shares(a)

Income

Shares(a)
Net income attributable to PepsiCo
$
1,902




$
2,000



Preferred shares:







Dividends
—




—



Redemption premium
(1
)



(1
)


Net income available for PepsiCo common shareholders
$
1,901


1,556


$
1,999


1,578

Basic net income attributable to PepsiCo per common share
$
1.22




$
1.27



Net income available for PepsiCo common shareholders
$
1,901


1,556


$
1,999


1,578

Dilutive securities:







Stock options and RSUs(b)
—


18


—


20

ESOP convertible preferred stock
1


1


1


1

Diluted
$
1,902


1,575


$
2,000


1,599

Diluted net income attributable to PepsiCo per common share
$
1.21




$
1.25



 

36 Weeks Ended
 
9/8/2012

9/3/2011
 
Income

Shares(a)

Income

Shares(a)
Net income attributable to PepsiCo
$
4,517




$
5,028



Preferred shares:







Dividends
(1
)



(1
)


Redemption premium
(4
)



(4
)


Net income available for PepsiCo common shareholders
$
4,512


1,562


$
5,023


1,581

Basic net income attributable to PepsiCo per common share
$
2.89




$
3.18



Net income available for PepsiCo common shareholders
$
4,512


1,562


$
5,023


1,581

Dilutive securities:







Stock options and RSUs(b)
—


17


—


21

ESOP convertible preferred stock
5


1


5


1

Diluted
$
4,517


1,580


$
5,028


1,603

Diluted net income attributable to PepsiCo per common share
$
2.86




$
3.14



 
 
 
 
 
 
 
 
(a)
Weighted-average common shares outstanding (in millions).
(b)
Options to purchase 0.6 million and 13.5 million shares, respectively, for the 12 and 36 weeks in 2012 were not included in the calculation of earnings per share because these options were out-of-the-money. These out-of-the-money options had average exercise prices of $72.26 and $67.51, respectively. Options to purchase 22.1 million and 21.2 million shares, respectively, for the 12 and 36 weeks in 2011 were not included in the calculation of earnings per share because these options were out-of-the-money. These out-of-the-money options had average exercise prices of $67.67 and $67.46, respectively.


18
Table of Contents    

Debt Obligations and Commitments
In the first quarter of 2012, we issued:
•
$750 million of 0.750% senior notes maturing in 2015;
•
$1.250 billion of 2.750% senior notes maturing in 2022; and
•
$750 million of 4.000% senior notes maturing in 2042.
In the third quarter of 2012, we issued:
•
$900 million of 0.700% senior notes maturing in 2015;
•
$1.000 billion of 1.250% senior notes maturing in 2017; and
•
$600 million of 3.600% senior notes maturing in 2042.
The net proceeds from the issuances of the above notes were used for general corporate purposes, including the repayment of commercial paper.
In the second quarter of 2012, we extended the termination date of our four-year unsecured revolving credit agreement (Four-Year Credit Agreement) from June 14, 2015 to June 14, 2016 and the termination date of our 364-day unsecured revolving credit agreement (364-Day Credit Agreement) from June 12, 2012 to June 11, 2013. Funds borrowed under the Four-Year Credit Agreement and the 364-Day Credit Agreement may be used for general corporate purposes of PepsiCo and its subsidiaries, including, but not limited to, working capital, capital investments and acquisitions.
As of September 8, 2012, we had $0.9 billion of commercial paper outstanding.
Long-Term Contractual Commitments(a) 
 
 
Payments Due by Period
 
Total

 
2012

 
2013 –
2014

 
2015 –
2016

 
2017 and
beyond

Long-term debt obligations(b)
$
22,989

 
$
—

 
$
4,153

 
$
5,093

 
$
13,743

Interest on debt obligations(c)
8,882

 
300

 
1,656

 
1,311

 
5,615

Operating leases
1,754

 
142

 
680

 
388

 
544

Purchasing commitments
2,450

 
394

 
1,664

 
331

 
61

Marketing commitments
2,364

 
78

 
596

 
540

 
1,150

 
$
38,439

 
$
914

 
$
8,749

 
$
7,663

 
$
21,113

 
 
 
 
 
 
 
 
 
 
(a)
Reflects non-cancelable commitments as of September 8, 2012 based on foreign exchange rates in effect on the balance sheet date and excludes any reserves for uncertain tax positions as we are unable to reasonably predict the ultimate amount or timing of settlement.
(b)
Excludes $3,054 million related to current maturities of long-term debt, $390 million related to the fair value step-up of debt acquired in connection with our acquisitions of The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS), and $353 million related to the increase in carrying value of long-term debt reflecting the gains on our fair value interest rate swaps.
(c)
Interest payments on floating-rate debt are estimated using interest rates effective as of September 8, 2012.

19
Table of Contents    

Most long-term contractual commitments, except for our long-term debt obligations, are not recorded on our balance sheet. Non-cancelable operating leases primarily represent building leases. Non-cancelable purchasing commitments are primarily for packaging materials, sugar and other sweeteners, oranges and orange juice. Non-cancelable marketing commitments are primarily for sports marketing. Bottler funding to independent bottlers is not reflected in our long-term contractual commitments as it is negotiated on an annual basis. Accrued liabilities for pension and retiree medical plans are not reflected in our long-term contractual commitments because they do not represent expected future cash outflows. See Pension and Retiree Medical Benefits for additional information regarding our pension and retiree medical obligations.

Restructuring, Impairment and Integration Charges
In the 12 weeks ended September 8, 2012, we incurred restructuring and impairment charges of $83 million ($59 million after-tax or $0.04 per share) in conjunction with our multi-year productivity plan (Productivity Plan), including $8 million recorded in the FLNA segment, $1 million recorded in the QFNA segment, $29 million recorded in the LAF segment, $33 million recorded in the PAB segment, $6 million recorded in the AMEA segment, $7 million recorded in corporate unallocated expenses and income of $1 million recorded in the Europe segment representing adjustments of previously recorded amounts. In the 36 weeks ended September 8, 2012, we incurred restructuring and impairment charges of $193 million ($139 million after-tax or $0.09 per share) in conjunction with our Productivity Plan, including $40 million recorded in the FLNA segment, $7 million recorded in the QFNA segment, $41 million recorded in the LAF segment, $76 million recorded in the PAB segment, $23 million recorded in the AMEA segment, $8 million recorded in corporate unallocated expenses and income of $2 million recorded in the Europe segment representing adjustments of previously recorded amounts. All of these net charges were recorded in selling, general and administrative expenses. The majority of cash payments related to these charges are expected to be paid by the end of 2012. The Productivity Plan includes actions in every aspect of our business that we believe will strengthen our complementary food, snack and beverage businesses by leveraging new technologies and processes across PepsiCo’s operations, go-to-market and information systems; heightening the focus on best practice sharing across the globe; consolidating manufacturing, warehouse and sales facilities; and implementing simplified organization structures, with wider spans of control and fewer layers of management. The Productivity Plan is expected to enhance PepsiCo’s cost-competitiveness, provide a source of funding for future brand-building and innovation initiatives, and serve as a financial cushion for potential macroeconomic uncertainty beyond 2012.
A summary of our Productivity Plan activity in 2012 is as follows:
 
 
Severance and Other
Employee Costs
 
Asset
Impairment
 
Other
Costs
 
Total
Liability as of December 31, 2011
$
249

 
$
—

 
$
27

 
$
276

2012 restructuring and impairment charges
51

 
57

 
85

 
193

Cash payments
(173
)
 
—

 
(70
)
 
(243
)
Non-cash charges
(7
)
 
(57
)
 
(2
)
 
(66
)
Liability as of September 8, 2012
$
120

 
$
—

 
$
40

 
$
160

In the 12 weeks ended September 8, 2012, we incurred merger and integration charges of $2 million ($2 million after-tax with a nominal amount per share) related to our acquisition of WBD, including $4 million recorded in the Europe segment and income of $2 million recorded in corporate unallocated expenses representing adjustments of previously recorded amounts. In the 36 weeks ended September 8, 2012, we incurred merger and integration charges of $7 million ($6 million after-tax with a nominal amount per share)

20
Table of Contents    

related to our acquisition of WBD, all of which were recorded in the Europe segment. These charges were recorded in selling, general and administrative expenses. The majority of cash payments related to these charges are expected to be paid by the end of 2012.
In the 12 weeks ended September 3, 2011, we incurred merger and integration charges of $61 million ($53 million after-tax or $0.03 per share) related to our acquisitions of PBG, PAS and WBD, including $24 million recorded in the PAB segment, $11 million recorded in the Europe segment, $10 million recorded in corporate unallocated expenses and $16 million recorded in interest expense. In the 36 weeks ended September 3, 2011, we incurred merger and integration charges of $174 million ($147 million after-tax or $0.09 per share) related to our acquisitions of PBG, PAS and WBD, including $77 million recorded in the PAB segment, $17 million recorded in the Europe segment, $64 million recorded in corporate unallocated expenses and $16 million recorded in interest expense. All of these net charges, other than the interest expense portion, were recorded in selling, general and administrative expenses. These charges also include closing costs and advisory fees related to our acquisition of WBD. Substantially all cash payments related to these charges were paid by the end of 2011.
A summary of our merger and integration activity in 2012 is as follows:
 
 
Severance and Other
Employee Costs
 
Other Costs
 
Total
Liability as of December 31, 2011
$
98

 
$
7

 
$
105

2012 merger and integration charges
2

 
5

 
7

Cash payments
(50
)
 
(7
)
 
(57
)
Non-cash charges
(6
)
 
—

 
(6
)
Liability as of September 8, 2012
$
44

 
$
5

 
$
49


Financial Instruments
We are exposed to market risks arising from adverse changes in:
•
commodity prices, affecting the cost of our raw materials and energy,
•
foreign exchange rates and currency restrictions, and
•
interest rates.
In the normal course of business, we manage these risks through a variety of strategies, including productivity initiatives, global purchasing programs and hedging strategies. Our hedging strategies include the use of derivatives. Certain derivatives are designated as either cash flow or fair value hedges and qualify for hedge accounting treatment, while others do not qualify and are marked to market through earnings. Cash flows from derivatives used to manage commodity, foreign exchange or interest risks are classified as operating activities. We classify both the earnings and cash flow impact from these derivatives consistent with the underlying hedged item. See “Our Business Risks” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for further unaudited information on our business risks.
For cash flow hedges, changes in fair value are deferred in accumulated other comprehensive loss within common shareholders’ equity until the underlying hedged item is recognized in net income. For fair value hedges, changes in fair value are recognized immediately in earnings, consistent with the underlying hedged item. Hedging transactions are limited to an underlying exposure. As a result, any change in the value of our derivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items. Hedging ineffectiveness and a net earnings impact occur when the change in the value of the

21
Table of Contents    

hedge does not offset the change in the value of the underlying hedged item. If the derivative instrument is terminated, we continue to defer the related gain or loss and then include it as a component of the cost of the underlying hedged item. Upon determination that the underlying hedged item will not be part of an actual transaction, we recognize the related gain or loss in net income immediately.
We also use derivatives that do not qualify for hedge accounting treatment. We account for such derivatives at market value with the resulting gains and losses reflected in our income statement. We do not use derivative instruments for trading or speculative purposes. We perform assessments of our counterparty credit risk regularly, including a review of credit ratings, credit default swap rates and potential nonperformance of the counterparty. Based on our most recent assessment of our counterparty credit risk, we consider this risk to be low. In addition, we enter into derivative contracts with a variety of financial institutions that we believe are creditworthy in order to reduce our concentration of credit risk.
Commodity Prices
We are subject to commodity price risk because our ability to recover increased costs through higher pricing may be limited in the competitive environment in which we operate. This risk is managed through the use of fixed-price purchase orders, pricing agreements and derivatives. In addition, risk to our supplies of certain raw materials is mitigated through purchases from multiple geographies and suppliers. We use derivatives, with terms of no more than three years, to economically hedge price fluctuations related to a portion of our anticipated commodity purchases, primarily for metals, energy and agricultural products. For those derivatives that qualify for hedge accounting, any ineffectiveness is recorded immediately in corporate unallocated expenses. Ineffectiveness is not material. During the next 12 months, we expect to reclassify net losses of $23 million related to these hedges from accumulated other comprehensive loss into net income. Derivatives used to hedge commodity price risk that do not qualify for hedge accounting are marked to market each period and reflected in our income statement.
Our open commodity derivative contracts that qualify for hedge accounting had a face value of $488 million as of September 8, 2012 and $586 million as of September 3, 2011.
Our open commodity derivative contracts that do not qualify for hedge accounting had a face value of $636 million as of September 8, 2012 and $537 million as of September 3, 2011.
Foreign Exchange
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 translation adjustment.
We enter into derivatives, primarily forward contracts with terms of no more than two years, to manage our exposure to foreign currency transaction risk. Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred.
Our foreign currency derivatives had a total face value of $2.5 billion as of September 8, 2012 and September 3, 2011. During the next 12 months, we expect to reclassify net losses of $17 million related to foreign currency contracts that qualify for hedge accounting from accumulated other comprehensive loss into net income. Additionally, ineffectiveness is not material. For foreign currency derivatives that do not qualify for hedge accounting treatment, all losses and gains were offset by changes in the underlying hedged items, resulting in no net material impact on earnings.

22
Table of Contents    

Interest Rates
We centrally manage our debt and investment portfolios considering investment opportunities and risks, tax consequences and overall financing strategies. We use various interest rate derivative instruments including, but not limited to, interest rate swaps, cross currency interest rate swaps, Treasury locks and swap locks to manage our overall interest expense and foreign exchange risk. These instruments effectively change the interest rate and currency of specific debt issuances. Certain of our fixed rate indebtedness has been swapped to floating rates. The notional amount, interest payment and maturity date of the interest rate and cross-currency swaps match the principal, interest payment and maturity date of the related debt. Our Treasury locks and swap locks are entered into to protect against unfavorable interest rate changes relating to forecasted debt transactions.
The notional amounts of the interest rate derivative instruments outstanding as of September 8, 2012 and September 3, 2011 were $7.3 billion and $8.9 billion, respectively. For those interest rate derivative instruments that qualify for cash flow hedge accounting, any ineffectiveness is recorded immediately. Ineffectiveness is not material. During the next 12 months, we expect to reclassify net losses of $23 million related to these hedges from accumulated other comprehensive loss into net income.
As of September 8, 2012, approximately 26% of total debt, after the impact of the related interest rate derivative instruments, was exposed to variable rates, compared to 38% as of December 31, 2011.

23
Table of Contents    

Fair Value Measurements
The fair values of our financial assets and liabilities as of September 8, 2012 and September 3, 2011 are categorized as follows:
 
 
2012
 
2011
 
Assets(a)
 
Liabilities(a)
 
Assets(a)
 
Liabilities(a)
Available-for-sale securities(b)
$
61

 
$
—

 
$
61

 
$
—

Short-term investments – index funds(c)
$
164

 
$
—

 
$
159

 
$
—

Prepaid forward contracts(d)
$
41

 
$
—

 
$
38

 
$
—

Deferred compensation(e)
$
—

 
$
503

 
$
—

 
$
519

Derivatives designated as fair value hedging instruments:
 
 
 
 
 
 
Interest rate derivatives(f)
$
293

 
$
—

 
$
428

 
$
—

Derivatives designated as cash flow hedging instruments:
 
 
 
 
Foreign exchange contracts(g)
$
10

 
$
31

 
$
12

 
$
23

Interest rate derivatives(f)
—

 
—

 
—

 
56

Commodity contracts(h)
13

 
38

 
28

 
17

 
$
23

 
$
69

 
$
40

 
$
96

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Foreign exchange contracts(g)
$
30

 
$
6

 
$
5

 
$
19

Interest rate derivatives(f)
128

 
159

 
104

 
140

Commodity contracts(h)
84

 
25

 
24

 
30

 
$
242

 
$
190

 
$
133

 
$
189

Total derivatives at fair value
$
558

 
$
259

 
$
601

 
$
285

Total
$
824

 
$
762

 
$
859

 
$
804

 
 
 
 
 
 
 
 
(a)
Financial assets are classified on our balance sheet within prepaid expenses and other current assets and other assets, with the exception of available-for-sale securities and short-term investments. Financial liabilities are classified on our balance sheet within accounts payable and other current liabilities and other liabilities. Unless specifically indicated, all financial assets and liabilities are categorized as Level 2 assets or liabilities.
(b)
Based on the price