Pepsi 2008 Annual Report Download - page 60

58 PepsiCo, Inc. 2008 Annual Report
Management’s Discussion and Analysis
Other corporate unallocated expenses decreased 14%. The
favorable impact of certain employee-related items, including
lower deferred compensation and pension costs were partially
offset by higher costs associated with our global SAP implemen-
tation and increased research and development costs. The
decrease in deferred compensation costs are offset by a decrease
in interest income from losses on investments used to economi-
cally hedge these costs.
2007
Total operating prot increased 10% and margin decreased
0.3 percentage points. The operating prot growth reects
leverage from the revenue growth, offset by increased cost of
sales, largely due to higher raw material costs. The impact of
foreign currency contributed 2 percentage points to operating
prot growth. There was no net impact of acquisitions on
operating prot growth.
Other corporate unallocated expenses increased 7%, primarily
reecting increased research and development costs and the
absence of certain other favorable corporate items in 2006,
partially offset by lower pension costs.
Other Consolidated Results
Change
2008 2007 2006 2008 2007
Bottling equity income $÷«374 $÷«560 $÷«553 (33)«% 1%
Interest expense, net $÷(288) $÷÷(99) $÷÷(66) $(189)« $(33)
Annual tax rate 26.8% 25.9% 19.3%
Net income $5,142 $5,658 $5,642 (9)«% –
Net income per common
share – diluted $÷3.21 $÷3.41 $÷3.34 (6)«% 2%
Bottling equity income includes our share of the net income
or loss of our anchor bottlers 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. In November 2007, our Board of Directors
approved the sale of additional PBG stock to an economic owner-
ship level of 35%, as well as the sale of PAS stock to the owner-
ship level at the time of the merger with Whitman Corporation in
2000 of about 37%. We sold 8.8 million and 9.5 million shares of
PBG stock in 2008 and 2007, respectively. In addition, in 2008,
we sold 3.3 million shares of PAS stock. The resulting lower own-
ership percentages reduce the equity income from PBG and PAS
that we recognize. See “Our Liquidity and Capital Resources –
Investing Activities” for further information with respect to
planned sales of PBG and PAS stock in 2009.
2008
Bottling equity income decreased 33%, primarily reecting a
non-cash charge of $138 million related to our share of PBG’s
restructuring and impairment charges. Additionally, lower pre-tax
gains on our sales of PBG stock contributed to the decline.
Net interest expense increased $189 million, primarily reect-
ing higher average debt balances and losses on investments used
to economically hedge our deferred compensation costs, partially
offset by lower average rates on our borrowings.
The tax rate increased 0.9 percentage points compared to the
prior year, primarily due to $129 million of tax benets recog-
nized in the prior year related to the favorable resolution of cer-
tain foreign tax matters, partially offset by lower taxes on foreign
results in the current year.
Net income decreased 9% and the related net income per
share decreased 6%. The unfavorable net mark-to-market impact of
our commodity hedges, the absence of the tax benets recognized
in the prior year, our increased restructuring and impairment
charges and our share of PBG’s restructuring and impairment
charges collectively contributed 15 percentage points to both
the decline in net income and net income per share. Additionally,
net income per share was favorably impacted by our share
repurchases.
2007
Bottling equity income increased 1%, reecting higher earnings
from our anchor bottlers, partially offset by the impact of our
reduced ownership level in 2007 and lower pre-tax gains on
our sale of PBG stock.
Net interest expense increased $33 million, primarily reecting
the impact of lower investment balances and higher average rates
on our debt, partially offset by higher average interest rates on
our investments and lower average debt balances.
The tax rate increased 6.6 percentage points compared to the
prior year, primarily reecting an unfavorable comparison to the
prior year’s non-cash tax benets.
Net income remained at and the related net income per
share increased 2%. Our solid operating prot growth and
favorable net mark-to-market impact were offset by unfavorable
comparisons to the non-cash tax benets and restructuring and
impairment charges in the prior year. These items affecting com-
parability reduced both net income performance and related net
income per share growth by 10 percentage points. Additionally,
net income per share was favorably impacted by our share
repurchases.