|For periods prior to the Spin-off, PepsiCo calculated income tax expense, to
the extent possible, as if we had filed separate income tax returns. As PepsiCo managed
its tax position on a consolidated basis, which takes into account the results of all of
its businesses, our historical effective tax rates prior to 1998 are not indicative of our
future tax rates.
CHANGES IN ACCOUNTING
COMPREHENSIVE INCOME. Effective December 28,
1997, we adopted Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income." This Statement requires that all items
recognized under accounting standards as components of comprehensive earnings be reported
in the financial statements. We have included these disclosures in the accompanying
Consolidated Statement of Shareholders (Deficit) Equity and Comprehensive Income. We
have classified items of other comprehensive earnings by their nature in our financial
statements. Prior years financial statements have been reclassified to conform to
Accumulated Other Comprehensive Income includes
reclassification amounts as follows:
Accumulated Other Comprehensive Income consisted of the
following components as of December 26, 1998 and December 27, 1997:
SEGMENT DISCLOSURES. Effective
December 28, 1997, we adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). This Statement supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise" and
requires that a public company report annual and interim financial and descriptive
information about its reportable operating segments. Operating segments, as defined, are
components of an enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. This Statement allows aggregation of similar
operating segments into a single operating segment if the businesses are considered
similar under the criteria of this Statement. For purposes of applying this Statement, we
consider our U.S. Core Businesses to be similar and therefore have aggregated them. As
required, our financial information has been reported on the basis that we use internally
for evaluating segment performance and deciding how to allocate resources to segments.
Upon adoption of SFAS 131, certain corporate expenses PepsiCo previously allocated to our
business segments are now reported as unallocated expenses. We have restated prior year
amounts to be comparable to the current year presentation.
INTERNAL DEVELOPMENT COSTS.
Effective March 18, 1998, we adopted Emerging Issues Task Force Issue No. 97-11
("EITF 97-11"), "Accounting for Internal Costs Relating to Real Estate
Property Acquisitions." EITF 97-11 limits the capitalization of internal real estate
acquisition costs to those site-specific costs incurred subsequent to the time that the
real estate acquisition is considered probable. We consider acquisition of the property
probable upon final site approval. Prior to the adoption of EITF 97-11, all preacquisition
real estate activities were considered capitalizable. The adoption of EITF 97-11 resulted
in additional expenses of $6 million ($3 million after-tax) in 1998 for internal
development costs no longer capitalizable.
FISCAL YEAR. Our
fiscal year ends on the last Saturday in December and, as a result, a fifty-third week is
added every five or six years. Fiscal years 1998, 1997 and 1996 comprised 52 weeks. The
first, second and third quarters of each year include 12 weeks each, while the fourth
quarter includes 16 weeks. Our subsidiaries operate on similar fiscal calendars with
period end dates suited to their businesses. Period end dates are within one week of
TRICONs period end date with the exception of our international businesses, which
close one period or month earlier to facilitate consolidated reporting.
DIRECT MARKETING COSTS. We report substantially all of our direct marketing costs in
occupancy and other operating expenses in the Consolidated Statement of Operations, which
include costs of advertising and other marketing activities. We charge direct marketing
costs to expense ratably in relation to revenues over the year in which incurred. Direct
marketing costs deferred at year-end consist of media and related ad production costs. We
expense these costs in the first year the media or ad is used. Our advertising expenses
were $462 million, $544 million and $571 million in 1998, 1997 and 1996, respectively.
RESEARCH AND DEVELOPMENT
EXPENSES. Research and development expenses,
which we expense as incurred, were $21 million, $21 million and $20 million in 1998, 1997
and 1996, respectively.