Pepsi 2005 Annual Report Download - page 50

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Operating Activities
In 2005, our operations provided $5.9
billion of cash compared to $5.1 billion in
the prior year. The increase reflects our
solid business results, as well as lower
taxes paid in the current year as 2004 tax
payments included a $760 million tax
payment related to our 2003 settlement
with the IRS. This increase was partially
offset by $803 million of pension plan
contributions in the current year, of which
$729 million was discretionary, compared
to pension payments of $458 million in
the prior year, of which $400 million was
discretionary.
Investing Activities
In 2005, we used $3.5 billion, primarily
reflecting capital spending of $1.7 billion,
acquisitions of $1.1 billion, primarily the
$750 million acquisition of General Mills’
minority interest in Snack Ventures Europe,
and net purchases of short-term invest-
ments of $1.0 billion. These amounts were
partially offset by the proceeds from our
sale of PBG stock of $214 million. In
2004, we used $2.3 billion for investing,
primarily reflecting capital spending of
$1.4 billion and short-term investments of
almost $1.0 billion.
In the first quarter of 2006, we com-
pleted our acquisition of Stacy’s Pita Chip
Company which was funded with existing
domestic cash. This acquisition will be
included in the first quarter of 2006 as
an investing activity in our Condensed
Consolidated Statement of Cash Flows.
We anticipate net capital spending of
approximately $2.2 billion in 2006, which
is above our long-term target of approxi-
mately 5% of net revenue. Planned capital
spending in 2006 includes increased
investments in manufacturing capacity to
support growth in our China snack and
beverage operations and our North
American Gatorade business, as well as
increased investment in support of our
ongoing BPT initiative. We expect capital
spending to return to our long-term targeted
rate following 2006.
Financing Activities
In 2005, we used $1.9 billion, primarily
reflecting common share repurchases of
$3.0 billion and dividend payments of
$1.6 billion, partially offset by net
proceeds from short-term borrowings of
$1.8 billion and stock option proceeds of
$1.1 billion. This compares to $2.3 billion
used for financing in 2004, primarily
reflecting share repurchases at a cost of
$3.0 billion and dividend payments of
$1.3 billion, partially offset by net
issuances of short-term borrowings of
$1.1 billion and proceeds from exercises
of stock options of nearly $1.0 billion.
In 2004, our Board of Directors author-
ized a new $7.0 billion share repurchase
program. Since inception of the new pro-
gram, we have repurchased $5.1 billion of
shares, leaving $1.9 billion of remaining
authorization. We target an annual divi-
dend payout of approximately 45% of prior
year’s net income from continuing opera-
tions. Each spring we review our capital
structure with our Board, including our div-
idend policy and share repurchase activity.
Management Operating Cash Flow
We focus on management operating
cash flow as a key element in achieving
maximum shareholder value, and it is the
primary measure we use to monitor cash
flow performance. However, it is not
a measure provided by accounting principles
generally accepted in the U.S. Since net
capital spending is essential to our product
innovation initiatives and maintaining our
operational capabilities, we believe that it
is a recurring and necessary use of cash.
As such, we believe investors should also
consider net capital spending when evalu-
ating our cash from operating activities.
Our strong cash-generating capability and financial
condition give us ready access to capital markets
throughout the world. Our principal source of liquidity
is our operating cash flow. This cash-generating
capability is one of our fundamental strengths and
provides us with substantial financial flexibility in
meeting operating, investing and financing needs.
In addition, we have revolving credit facilities that
are further discussed in Note 9. Our cash provided
from operating activities is somewhat impacted by
seasonality. Working capital needs are impacted by
weekly sales, which are generally highest in the third
quarter due to seasonal and holiday-related sales
patterns, and generally lowest in the first quarter.
Our Liquidity, Capital Resources and Financial Position
Operating
activities
$5,852
Acquisitions $1,095
Dividends
$1,642
Short-term
investments
$991
Capital
spending
$1,736
Share
repurchases
$3,031
Use of Cash
Source of Cash
Stock option
exercises
$1,099
Short-term
borrowings $1,848
Cash proceeds
from sale of PBG
stock $214
Other, net $70 Long-term
debt $152
2005 Cash Utilization