Pepsi 2009 Annual Report Download - page 64

52 PepsiCo, Inc. 2009 Annual Report
Management’s Discussion and Analysis
Other corporate unallocated expenses decreased 16%. 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 implementation 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 economically hedge these costs.
Other Consolidated Results
Change
2009 2008 2007 2009 2008
Bottling equity income $÷«365 $÷«374 $÷«560 (2)%(33)%
Interest expense, net $÷(330) $÷(288) $÷÷(99) $(42)$(189)
Annual tax rate 26.0% 26.7% 25.8%
Net income attributable to PepsiCo $5,946 $5,142 $5,658 16% (9)%
Net income attributable to PepsiCo
per common share—diluted$÷3.77 $÷3.21 $÷3.41 17% (6)%
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 ownership
level at the time of the merger with Whitman Corporation in 2000
of about 37%. Consequently, we sold 8.8 million shares of PBG stock
and 3.3 million shares of PAS stock in 2008. The resulting lower
ownership percentages reduced the equity income from PBG and
PAS that we recognized subsequent to those sales. We did not sell
any PBG or PAS stock in 2009. Substantially all of our bottling equity
income is derived from our equity investments in PBG and PAS.
Also see “Acquisition of Common Stock of PBG and PAS.”
2009
Bottling equity income decreased 2%, primarily reflecting pre-tax
gains on our sales of PBG and PAS stock in the prior year, mostly
offset by a prior year non-cash charge of $138 million related to
our share of PBG’s 2008 restructuring and impairment charges.
Net interest expense increased $42 million, primarily reflecting
lower average rates on our investment balances and higher average
debt balances. This increase was partially offset by gains in the
market value of investments used to economically hedge a portion
of our deferred compensation costs.
The tax rate decreased 0.7 percentage points compared to the
prior year, primarily due to the favorable resolution of certain foreign
tax matters and lower taxes on foreign results in the current year.
Net income attributable to PepsiCo increased 16% and net
income attributable to PepsiCo per common share increased 17%.
The favorable net mark-to-market impact of our commodity
hedges and lower restructuring and impairment charges in the
current year were partially offset by the PBG/PAS merger costs;
these items affecting comparability increased net income
attributable to PepsiCo by 16 percentage points and net income
attributable to PepsiCo per common share by 17 percentage points.
Net income attributable to PepsiCo per common share was also
favorably impacted by share repurchases in the prior year.
2008
Bottling equity income decreased 33%, primarily reflecting 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 reflecting
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 benefits recognized in
the prior year related to the favorable resolution of certain foreign
tax matters, partially offset by lower taxes on foreign results in the
current year.
Net income attributable to PepsiCo decreased 9% and the
related net income attributable to PepsiCo per common share
decreased 6%. The unfavorable net mark-to-market impact of our
commodity hedges, the absence of the tax benefits 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 attributable to PepsiCo and net income attributable to
PepsiCo per common share. Additionally, net income attributable
to PepsiCo per common share was favorably impacted by our
share repurchases.
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