Pepsi 2006 Annual Report Download - page 48

lawsuit related to our purchases of high
fructose corn syrup from 1991 to 1995,
were offset by the favorable impact of
certain other corporate items.
In 2005, corporate unallocated
expenses increased 14%. This increase
primarily reflects higher costs associated
with our BPT initiative which
contributed 7 percentage points,
increased support behind health and
wellness and innovation initiatives
which contributed 5 percentage points,
and Corporate departmental expenses
and restructuring charges which each
contributed 2 percentage points to the
increase. In 2005, items of a non-recur-
ring nature included charges of
$55 million to conform our method of
accounting across all divisions, primarily
for warehouse and freight costs, and a
gain of $25 million in connection with
the settlement of a class action lawsuit
related to our purchases of high fruc-
tose corn syrup from 1991 to 1995. In
2004, we recorded a charge of $50 mil-
lion for the settlement of a contractual
dispute with a former business partner.
Bottling equity income includes our
share of the net income or loss of our
noncontrolled bottling affiliates as
described in “Our Customers.” Our
interest in these bottling investments
may change from time to time. Any
gains or losses from these changes, as
well as other transactions related to our
bottling investments, are also included
on a pre-tax basis. We continue to sell
shares of PBG stock to reduce our own-
ership to the level at the time of PBG’s
initial public offering, since our owner-
ship has increased as a result of PBG’s
share repurchase program. We sold
10.0 million and 7.5 million shares of
PBG stock in 2006 and 2005,
respectively. The resulting lower owner-
ship percentage reduces the equity
income from PBG that we recognize.
2006
Bottling equity income increased 11%
primarily reflecting a $186 million pre-
tax gain on our sale of PBG stock, which
compared favorably to a $126 million
pre-tax gain in the prior year. The non-
cash gain of $21 million from our share
of PBG’s Tax Settlement was fully offset
by lower equity income from our
anchor bottlers in the current year,
primarily resulting from the impact of
their respective adoptions of SFAS 123R
in 2006.
Net interest expense decreased 33%
primarily reflecting higher average
rates on our investments and lower
debt balances, partially offset by lower
investment balances and the impact of
higher average rates on our borrowings.
The tax rate decreased 16.8 percent-
age points compared to prior year
primarily reflecting the 2006 Tax
Adjustments, the absence of the 2005
AJCA tax charge and the resolution of
certain state income tax audits in the
current year.
Net income increased 38% and the
related net income per share increased
40%. These increases primarily reflect
the 2006 Tax Settlement, the absence of
the AJCA tax charge and our solid oper-
ating profit growth.
2005
Bottling equity income increased 46%
reflecting $126 million of pre-tax gains
on our sales of PBG stock, as well as
stronger bottler results.
Net interest expense increased 4%
reflecting the impact of higher debt
levels, substantially offset by higher
investment rates and cash balances.
The tax rate increased 11.4 percent-
age points reflecting the $460 million
AJCA tax charge, as well as the absence
of income tax benefits of $266 million
recorded in 2004 related to a reduction
in foreign tax accruals following the
resolution of certain open tax items
with foreign tax authorities and a
refund claim related to prior U.S. tax
settlements. This increase was partially
offset by increased international profit
which is taxed at a lower rate.
Net income from continuing opera-
tions decreased 2% and the related net
income per common share from contin-
uing operations decreased 1%. These
decreases reflect the impact of the tax
items discussed above, partially offset
by our operating profit growth,
increased bottling equity income, which
includes the gain on our PBG stock sale,
the impact of the 53rd week, a favor-
able comparison to prior year
restructuring and impairment charges,
and for net income per share, the
impact of our share repurchases.
Change
2006 2005 2004 2006 2005
Bottling equity income $616 $557 $380 11% 46%
Interest expense, net $(66) $(97) $(93) (33)% 4%
Annual tax rate 19.3% 36.1% 24.7%
Net income — continuing
operations $5,642 $4,078 $4,174 38% (2)%
Net income per common
share — continuing
operations — diluted $3.34 $2.39 $2.41 40% (1)%
Other Consolidated Results
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