Pepsi 2007 Annual Report Download - page 56

Operating activities
$6,934
Acquisitions
$1,320
Capital spending
$2,430
Share repurchases
$4,312
Short-term borrowings
$395
Use of CashSource of Cash
Dividends
$2,204
Long-term debt $1,589
Cash proceeds
from sale of PBG stock
$315
Stock option exercises
$1,108
Other, net $357
Short-term investments
$383
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.
Operating Activities
In 2007, our operations provided
$6.9 billion of cash, compared to
$6.1 billion in the prior year, primarily
refl ecting our solid business results. Our
operating cash fl ow in 2006 also refl ects
a tax payment of $420 million related to
our repatriation of international cash in
connection with the AJCA.
Investing Activities
In 2007, we used $3.7 billion for our
investing activities primarily refl ecting
capital spending of $2.4 billion and
acquisitions of $1.3 billion. Acquisitions
primarily included the remaining interest in
a snacks joint venture in Latin America,
Naked Juice Company and Bluebird Foods,
and the acquisition of a minority interest in
a juice company in the Ukraine through a
joint venture with PAS. Proceeds from our
sale of PBG stock of $315 million were
offset by net purchases of short-term
investments of $383 million. In 2006,
capital spending of $2.1 billion and
acquisitions of $522 million were mostly
offset by net sales of short-term invest-
ments of $2.0 billion and proceeds from
our sale of PBG stock of $318 million.
We anticipate net capital spending of
approximately $2.7 billion in 2008, which
is expected to be within our net capital
spending target of approximately 5%
to 7% of net revenue. Planned capital
spending in 2008 includes investments
to increase capacity in our snack and
beverage businesses to support growth
in developing and emerging markets,
investments in North America to support
growth in key trademarks, and invest-
ments in our ongoing business transfor-
mation initiative. New capital projects are
evaluated on a case-by-case basis and
must meet certain payback and internal
rate of return targets.
Financing Activities
In 2007, we used $4.0 billion for our
fi nancing activities, primarily refl ecting
the return of operating cash fl ow to our
shareholders through common share
repurchases of $4.3 billion and dividend
payments of $2.2 billion, as well as net
repayments of short-term borrowings of
$395 million. The use of cash was partially
offset by stock option proceeds of
$1.1 billion and net proceeds from issu-
ances of long-term debt of $1.6 billion.
In 2006, we used $6.0 billion for our
fi nancing activities, primarily refl ecting
the return of operating cash fl ow to our
shareholders through common share
repurchases of $3.0 billion and dividend
payments of $1.9 billion. Net repayments
of short-term borrowings of $2.3 billion
were partially offset by stock option
proceeds of $1.2 billion.
We annually review our capital structure
with our Board, including our dividend
policy and share repurchase activity. In
the second quarter of 2007, our Board
of Directors approved an increase in our
targeted dividend payout rate from 45%
to 50% of prior year’s earnings, exclud-
ing certain items. The Board of Directors
also authorized stock repurchases of
up to an additional $8 billion through
June 30, 2010, once the current share
repurchase authorization is complete. The
current $8.5 billion authorization began in
2006 and has approximately $3.1 billion
remaining. We have historically repur-
chased signifi cantly more shares each year
than we have issued under our stock-
based compensation plans, with aver-
age net annual repurchases of 1.4% of
outstanding shares for the last fi ve years.
2007 Cash Utilization
Our Liquidity and Capital Resources
54