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pepsi bottling Non Gaap Investor Day121307


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pepsi bottling Non Gaap Investor Day121307

  1. 1. THE PEPSI BOTTLING GROUP, INC. INVESTOR DAY 2007 RECONCILIATION OF NON-GAAP MEASURES December 13, 2007 We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). In an effort to provide investors with additional information regarding the Company's results and to provide a meaningful year-over-year comparison of the Company’s financial performance, we sometimes use non-GAAP financial measures as defined by the Securities and Exchange Commission. The differences between the U.S. GAAP and non- GAAP financial measures are reconciled in this attachment. In presenting comparable results, the Company discloses non-GAAP financial measures when it believes such measures will be useful to investors in evaluating the Company’s underlying business performance. Management uses the non-GAAP financial measures to evaluate the Company’s financial performance against internal budgets and targets (including under the Company’s incentive compensation plans). In addition, management internally reviews the results of the Company excluding the impact of certain items as it believes that these non-GAAP financial measures are useful for evaluating the Company’s core operating results and facilitating comparison across reporting periods. Importantly, the Company believes non-GAAP financial measures should be considered in addition to, and not in lieu of, U.S. GAAP financial measures. The Company's non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Items Affecting Comparability 2007 Forecast Reversal of Net Tax Contingencies During the third quarter of 2007, PBG recorded a non-cash benefit of approximately $46 million or $0.20 of diluted earnings per share (EPS) due to the reversal of net tax contingencies associated with the expiration of the statute of limitations on the IRS audit of its 2001 and 2002 tax returns. Organizational Realignment Charge In the third quarter of 2007, PBG announced a realignment in the Company’s organization. The total charge for the realignment is expected to be about $30 to $35 million pre-tax. PBG recorded a $20 million pre-tax restructuring charge in the third quarter of 2007. The remaining charges will be taken in the fourth quarter of 2007 and the first quarter of 2008. PBG expects the full year 2007 impact of the restructuring charges to be about $0.08 per diluted share after-tax and minority interest. Asset Rationalization Charges During the fourth quarter of 2007, PBG will record a pre-tax charge of $20 to $30 million, or $0.05 to $0.08 per diluted share after-tax and minority interest relating to the disposal of select full service vending equipment. The remaining charges will be taken in 2008.
  2. 2. PR Beverages Venture (the Russian joint venture) On March 1, 2007, together with PepsiCo, PBG formed PR Beverages Limited, a joint venture that will enable us to strategically invest in Russia to accelerate our growth. We consolidate the venture into our financial results. The joint venture has no impact on diluted EPS. 2006 Results FAS 123(r) Effective in 2006, the Company adopted FAS 123(r), Share-Based Payment, which requires that all stock-based payments be expensed over the vesting period based on the fair value of the awards at the time of grant. Prior to 2006, in accordance with existing accounting guidelines, the Company was not required to recognize this expense, and the Company’s financial results during fiscal year 2005 do not reflect this expense. Tax Law Changes During 2006, tax rate changes were enacted in Canada, Turkey, and in various U.S. jurisdictions resulting in a net decrease in income tax expense. Tax Audit Settlement Included in our 2006 results was an approximate $0.22 tax gain which was primarily driven by the reversal of approximately $55 million of tax contingency reserves in the fourth quarter of 2006. These reserves related to the IRS audit of our 1999-2000 income tax returns. 2005 Results 53rd Week Our fiscal year ends on the last Saturday in December and, as a result, a 53rd week is added every five or six years. In 2005, our fiscal year consisted of 53 weeks. High Fructose Corn Syrup (“HFCS”) Litigation Settlement and Strategic Spending Initiatives In 2005, the Company recorded a gain, net of strategic spending initiatives, related to the settlement of the HFCS class action lawsuit. The lawsuit related to purchases of high fructose corn syrup. Management considers this settlement as an unusual and material settlement of a type that the Company has not received in the past and does not expect to receive in the near future. As a result of the HFCS settlement, the Company decided to accelerate the implementation of strategic spending initiatives into 2005. Although strategic spending initiatives may not be unusual or outside the ordinary course of business in a general sense, the timing of the spending was unusual as such initiatives would not have been accelerated into 2005 without the HFCS settlement.
  3. 3. The reconciliations of the Company’s non-GAAP measures are set out below. Revenue 2005 Reported $11,885 53rd Week Impact (139) Adjusted $11,746 Operating Profit Growth Rates ¹ 2005 2006 Full Year 2007 ² Reported 5% (1)% 4% to 6% HFCS Settlement (3) 3 53rd Week Impact (2) 2 Strategic Spending Initiatives 4 (4) FAS 123(r) 6 Russian Joint Venture (3) Organizational Realignment Charge 3 Asset Rationalization Charge 2 to 3 Adjusted 4% 6% 7% to 8% 1 Percentage change shown is rounded to the nearest whole number. ² 2007 growth rates are estimated based on our 2007 forecasted results. Operating Profit Cumulative Average Growth Rate (CAGR) 2005 Full Year 2007 ¹ CAGR Reported $1,023 $1,062 to $1,087 HFCS Settlement (29) 53rd Week Impact (24) Strategic Spending Initiatives 48 FAS 123(r) (66) Organizational Realignment Charge 28 Asset Rationalization Charge 20-30 Adjusted $952 $1,120 - $1,135 +7% ¹ 2007 amounts are estimated based on our 2007 forecasted results. Operating Profit Contribution Rates – Europe Full Year 2007 - Europe ¹ Reported 10% Russian Joint Venture (3) Adjusted 7% ¹ 2007 contribution rates are estimated based on our 2007 forecasted results.
  4. 4. Diluted Earnings Per Share 2005 2006 Full Year 2007¹ Reported $1.86 $2.16 $2.21 - $2.27 FAS 123(r) $(0.18) Tax Law Changes $(0.05) Tax Audit Settlement $(0.22) Reversal of Net Tax Contingencies $(0.20) Organizational Realignment Charge $0.08 Asset Rationalization Charges $0.05-$0.08 Adjusted $1.68 $1.89 $2.17 - $2.20 ¹ 2007 amounts are estimated based on our 2007 forecasted results. The reconciliation to the Company’s 2008 guidance relating to reported operating profit change and diluted EPS is set out below. 2008 Guidance Operating Profit Diluted Earnings Growth Rates Per Share Reported 7% to 11% $2.21 to $2.36 Organizational Realignment Charge (2)% to (3)% $0.00 to $0.02 Asset Rationalization Charge (1)% to (2)% $0.02 to $0.07 As Adjusted 4% to 6% $2.30 to $2.38 Operating Free Cash Flow The Company defines Operating Free Cash Flow (OFCF) as Cash Provided by Operations, less capital expenditures, plus excess tax benefits from the exercise of stock options. The Company uses OFCF to evaluate the performance of its business and management considers OFCF an important indicator of the Company’s liquidity, including its ability to satisfy debt obligations, fund future acquisitions, pay dividends to common shareholders and repurchase Company stock. OFCF is a non-GAAP financial measure and should be considered in addition to, not as a substitute for Cash Provided by Operations as well as other measures of financial performance and liquidity reported in accordance with U.S. GAAP. The Company’s OFCF may not be comparable to similarly titled measures reported by other companies.
  5. 5. PBG expects its full-year 2007 OFCF to exceed $570 million. We anticipate capital expenditures to exceed $800 million and Cash Provided by Operations plus the excess tax benefits from the exercise of stock options to be about $1.4 billion. We are unable to separately estimate the excess tax benefits from the exercise of stock options. 2005 OFCF 2006 OFCF Net cash provided by operations $1,219 $1,228 Less: Capital spending plus excess tax benefits from exercise of stock options 715 706 Operating Free Cash Flow $ 504 $ 522 ¹ 2007 amounts are estimated based on our 2007 forecasted results.