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51PepsiCo, Inc. 2009 Annual Report
PepsiCo Share of PBG’s Restructuring and
Impairment Charges
In 2008, PBG implemented a restructuring initiative across all
of its geographic segments. In addition, PBG recognized an asset
impairment charge related to its business in Mexico. Consequently,
a non-cash charge of $138 million was included in bottling equity
income ($114 million after-tax or $0.07 per share) as part of recording
our share of PBG’s financial results.
PBG/PAS Merger Costs
In 2009, we incurred $50 million of costs associated with the proposed
mergers with PBG and PAS, as well as an additional $11 million of
costs, representing our share of the respective merger costs of PBG
and PAS, recorded in bottling equity income. In total, these costs
had an after-tax impact of $44 million or $0.03 per share.
RESULTS OF OPERATIONSCONSOLIDATED REVIEW
In the discussions of net revenue and operating profit below,
effective net pricing reflects the year-over-year impact of discrete
pricing actions, sales incentive activities and mix resulting from
selling varying products in different package sizes and in different
countries. Additionally, acquisitions reflect all mergers and acquisi-
tions activity, including the impact of acquisitions, divestitures
and changes in ownership or control in consolidated subsidiaries.
The impact of acquisitions related to our non-consolidated equity
investees is reflected in our volume and, excluding our anchor
bottlers, in our operating profit.
Servings
Since our divisions each use different measures of physical unit
volume (i.e., kilos, gallons, pounds and case sales), a common
servings metric is necessary to reflect our consolidated physical
unit volume. Our divisions’ physical volume measures are con-
verted into servings based on U.S. Food and Drug Administration
guidelines for single-serving sizes of our products.
In 2009, total servings increased slightly compared to 2008,
as servings for snacks increased 1% while servings for beverages
decreased 1%. In 2008, total servings increased 3% compared to 2007,
as servings for both snacks and beverages worldwide grew 3%.
Net Revenue and Operating Profit
Change
2009 2008 2007 2009 2008
Total net revenue $43,232 $43,251 $39,474 −% 10%
Operating profit
FLNA $÷3,258 $÷2,959 $÷2,845 10% 4%
QFNA 628 582 568 8% 2.5%
LAF 904 897 714 1% 26%
PAB 2,172 2,026 2,487 7% (19)%
Europe 932 910 855 2% 6%
AMEA 716 592 466 21% 27%
Corporate—net impact of mark-
to-market on commodity hedges 274 (346) 19 n/m n/m
Corporate—PBG/PAS merger costs (49) −−n/m n/m
Corporate—restructuring −(10) − n/m n/m
Corporate—other (791) (651) (772) 21% (16)%
Total operating profit $÷8,044 $÷6,959 $÷7,182 16% (3)%
Total operating profit margin 18.6% 16.1% 18.2% 2.5 (2.1)
n/m represents year-over-year changes that are not meaningful.
2009
Total operating profit increased 16% and operating margin
increased 2.5 percentage points. These increases were driven
by the net favorable mark-to-market impact of our commodity
hedges and lower restructuring and impairment charges related
to our Productivity for Growth program, collectively contributing
17 percentage points to operating profit growth, partially offset
by 1 percentage point from costs associated with the proposed
mergers with PBG and PAS. Foreign currency reduced operating
profit growth by 6 percentage points, and acquisitions contributed
2 percentage points to the operating profit growth.
Other corporate unallocated expenses increased 21%, primarily
reflecting deferred compensation losses, compared to gains in the
prior year. The deferred compensation losses are offset (as an
increase to interest income) by gains on investments used to
economically hedge these costs.
2008
Total operating profit decreased 3% and margin decreased
2.1 percentage points. The unfavorable net mark-to-market
impact of our commodity hedges and increased restructuring
and impairment charges contributed 11 percentage points to the
operating profit decline and 1.8 percentage points to the margin
decline. Leverage from the revenue growth was offset by the
impact of higher commodity costs. Acquisitions and foreign
currency each positively contributed 1 percentage point to
operating profit performance.
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