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Management’s Discussion and Analysis
64 PepsiCo, Inc. 2010 Annual Report
Other Consolidated Results
Change
2010 2009 2008 2010 2009
Bottling equity income
$ 735 $ 365 $ 374 $ 370 $ (9)
Interest expense, net $ (835) $ (330) $ (288) $(505) $(42)
Annual tax rate 23.0% 26.0% 26.7%
Net income attributable to PepsiCo $6,320 $5,946 $5,142 6% 16%
Net income attributable to PepsiCo per common share — diluted $ 3.91 $ 3.77 $ 3.21 4% 17%
Mark-to-market net (gains)/losses (0.04) (0.11) 0.14
Restructuring and impairment charges − 0.02 0.25
PepsiCo share of PBG’s restructuring and impairment charges − − 0.07
Gain on previously held equity interests (0.60) − −
Merger and integration charges 0.40 0.03 −
Inventory fair value adjustments 0.21 − −
Venezuela currency devaluation 0.07 − −
Asset write-off 0.06 − −
Foundation contribution 0.04 − −
Debt repurchase 0.07 − −
Net income attributable to PepsiCo per common share — diluted,
excluding above items*
$ 4.13** $ 3.71 $ 3.68** 12% 1%
Impact of foreign currency translation
1 5
Growth in net income attributable to PepsiCo per common share — diluted,
excluding above items, on a constant currency basis*
12%** 6%
* See “Non-GAAP Measures”
** Does not sum due to rounding
As discussed in “Our Customers,” prior to our acquisitions of
PBG and PAS on February 26, 2010, we had noncontrolling interests
in each of these bottlers and consequently included our share of
their net income in bottling equity income. Upon consummation
of the acquisitions in the first quarter of 2010, we began to consoli-
date the results of these bottlers and recorded a $735million gain
in bottling equity income associated with revaluing our previously
held equity interests in PBG and PAS to fair value. Our share of the
net income of PBV is reflected in bottling equity income.
2010
Bottling equity income increased $370million, primarily reflect-
ing the gain on our previously held equity interests in connection
with our acquisitions of PBG and PAS, partially oset by the con-
solidation of the related financial results of the acquired bottlers.
Net interest expense increased $505million, primarily reflect-
ing higher average debt balances, interest expense incurred in
connection with our cash tender oer to repurchase debt, and
bridge and term financing costs in connection with our acquisi-
tions of PBG and PAS. These increases were partially oset by
lower average rates on our debt balances.
The reported tax rate decreased 3.0percentage points com-
pared to the prior year, primarily reflecting the impact of our
acquisitions of PBG and PAS, which includes the reversal of
deferred taxes attributable to our previously held equity interests
in PBG and PAS, as well as the favorable resolution of certain tax
matters in 2010.
Net income attributable to PepsiCo increased 6% and net income
attributable to PepsiCo per common share increased4%. Items
aecting comparability (see “Items Aecting Comparability”)
decreased net income attributable to PepsiCo and net income
attributable to PepsiCo per common share by 8percentage points.
2009
Bottling equity income decreased $9million, primarily reflect-
ing pre-tax gains on our sales of PBG and PAS stock in 2008,
mostly oset by a 2008 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 reflect-
ing lower average rates on our investment balances and higher
average debt balances. This increase was partially oset 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
2008, primarily due to the favorable resolution of certain foreign
tax matters and lower taxes on foreign results in 2009.
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
2009 were partially oset by the merger costs related to our
acquisitions of PBG and PAS; these items aecting comparability
(see “Items Aecting Comparability”) increased net income
attributable to PepsiCo by 16percentage points and net
income attributable to PepsiCo per common share by 17percent-
age points. Net income attributable to PepsiCo per common
share was also favorably impacted by share repurchases in 2008.