Investors
GAAP Reconciliation
Non-GAAP Measurements
Our management, as well as certain investors, use certain non-GAAP measures to analyze our current and future financial performance. These historical and prospective non-GAAP measures include adjusted operating cash flow, adjusted return on invested capital and adjusted comparisons, including adjusted earnings per share and earnings before interest, taxes, depreciation and amortization ("EBITDA"). These non-GAAP measurements do not replace the presentation of our GAAP financial results. These measurements simply provide supplemental information to assist our management and certain investors in analyzing our performance. We have provided this information to investors to enable them to perform meaningful comparisons of past, present and future performance and as a means to better understand the results of our core on-going operations.
This section contains forward-looking statements of expected future developments. These forward-looking statements reflect management's expectations and are based on currently available data; however, actual results are subject to risks and uncertainties, which could materially affect actual performance. Risks and uncertainties that could affect our future performance include, but are not limited to, the following: the outcome of, or developments concerning, our pending merger with PepsiCo, Inc. ("PepsiCo"); competition, including product and pricing pressures; changing trends in consumer tastes; changes in our relationship and/or support programs with PepsiCo and other brand owners; market acceptance of new product and packaging offerings; weather conditions; cost and availability of raw materials; changing legislation including tax laws; cost and outcome of environmental claims; availability and cost of capital including changes in our debt ratings; labor and employee benefit costs; unfavorable foreign currency rate fluctuations; cost and outcome of legal proceedings; integration of acquisitions; failure of information technology systems; and general economic, business and political conditions in the countries and territories where we operate. Any forward-looking statements should be read in conjunction with information about risks and uncertainties set forth in our Securities and Exchange Commission reports, including our Annual Report on Form 10-K.
Adjusted Operating Cash Flow:
Adjusted operating cash flow is the primary measure that management uses to monitor our cash flow performance, and therefore, management believes this information is useful to investors. We define adjusted operating cash flow as our cash generated from operating activities of continuing operations, plus proceeds from the sales of property and equipment, less the impact of accounts receivable securitization, capital investments and net operating cash flows used in discontinued operations. The costs of acquisitions and divestitures are excluded from the calculation.
Adjusted operating cash flow is a measure of cash that is available for financing and other investing activities, including discretionary distributions in the form of dividends, repurchases of our common stock, reduction of borrowings and reinvestments in our business, as well as non-discretionary expenditures. Such non-discretionary expenditures include mandatory debt service requirements and other contractual cash obligations relating to our advertising commitments and exclusivity rights, raw material purchase obligations and lease obligations. These contractual obligations are described in our Annual Report on Form 10-K. This non-GAAP measure is provided as supplemental information and should not be considered in lieu of the GAAP measures.
Adjusted operating cash flow can be defined as a formula as follows:
| + | Net cash provided by operating activities of continuing operations |
| - | Impact of accounts receivable securitization |
| - | Capital investments |
| + | Proceeds from the sale of property and equipment |
| - | Net operating cash flows used in discontinued operations |
| = | Adjusted operating cash flow |
Adjusted operating cash flow in any one year may be affected by investment initiatives or by the timing of routine cash receipts and disbursements. The reconciliation to the most comparable U.S. GAAP measurement is calculated as follows:
| 2009 | 2008 | |
| Net cash provided by operating activities of continuing operations | $308.6 | $500.6 |
| Accounts receivable securitization | 150.0 | — |
| Capital investments | (235.7) | (248.9) |
| Proceeds from the sale of property and equipment | 21.6 | 7.5 |
| Net operating cash flows used in discontinued operations | (2.2) | (9.4) |
| Adjusted operating cash flow | $242.3 | $249.8 |
Included in adjusted operating cash flow for fiscal year 2009 were $5.3 million of fees incurred related to our pending merger with PepsiCo, Inc.
The GAAP measures of cash flows from investing and financing activities for the periods presented above are presented in our Consolidated Statements of Cash Flows and are as follows (in millions):
| 2009 | 2008 | |
| Net cash used in investing activities | $(234.3) | $(242.2) |
| Net cash used in financing activities | $(120.1) | $(162.1) |
Adjusted Return on Invested Capital
Our adjusted return on invested capital (“Adjusted ROIC”) is a measure of how effectively we allocate our capital in our core operations. We also use Adjusted ROIC as part of our initial capital spending and potential acquisition review processes to ensure that each capital dollar spent achieves a certain hurdle rate of return.
In calculating Adjusted ROIC, management excludes loss from deconsolidation of business, other (expense) income and loss from discontinued operations. Management excludes these items because we do not consider them to be components of Adjusted ROIC. Discontinued operations represent items that we do not consider to be a component of our ongoing core operations. Other (expense) income, net of tax, is excluded from the Adjusted ROIC calculation, as this line item in the income statement includes such items as realized and unrealized foreign currency transaction gains and losses, which we do not consider to be components of our Adjusted ROIC. Loss from deconsolidation of business, net of tax, represents the non-cash loss associated with the deconsolidation of our Caribbean subsidiaries, which we do not consider to be a component of our Adjusted ROIC. The impact of these adjustments increases Adjusted ROIC in our two most recent fiscal years. There are limitations in the use of Adjusted ROIC due to the subjective nature of items excluded by management in calculating Adjusted ROIC. This non-GAAP measure is provided as supplemental information and should not be considered in lieu of the GAAP measures. Management uses Adjusted ROIC to measure how effectively we are allocating capital in our core operations, and therefore, management believes this information is useful to investors.
We define Adjusted ROIC as follows:
Numerator (rolling 12 periods):
| + | Net income attributable to PepsiAmericas, Inc. |
| + | Amortization expense |
| + | Interest expense (income), net of tax |
| - | Loss from discontinued operations, net of tax |
| - | Loss from deconsolidation of business, net of tax |
| - | Other (expense) income, net of tax |
| = | Adjusted net operating profit after taxes |
Denominator (average 4 quarters):
| + | Total assets |
| + | Accumulated amortization |
| - | Cash |
| - | Current liabilities, excluding short-term debt |
| - | Other liabilities, excluding long-term debt |
| - | Noncontrolling interests |
| = | Adjusted average invested capital |
Adjusted ROIC:
Adjusted net operating profit after taxes / Average adjusted invested capital
As of the end of fiscal year 2009 and 2008, we had an Adjusted ROIC of 6.6 percent and 8.0 percent, respectively. As of the end of fiscal year 2009 and 2008, Adjusted ROIC was negatively impacted by 110 basis points and 20 basis points, respectively, from the impairment of intangible assets, special charges and adjustments, fees associated with our pending merger with PepsiCo, impairment of non-operating assets, loss from multi-employer pension plans, gain from interest rate swap termination and impact of the 53rd week. Excluding the impact of these items, Adjusted ROIC was 7.7 percent as of the end of fiscal year 2009 and 8.2 percent as of the end of fiscal year 2008. The reconciliation to the most comparable U.S. GAAP measurements for the numerator and denominator are as follows (in millions and unaudited):
Qtrs FY 2009 |
Qtrs FY 2008 |
|||||||||
| Net income attributable to PepsiAmericas, Inc. | $24.7 | $90.8 | $73.1 | $37.8 | $21.7 | $61.4 | $63.5 | $34.6 | $181.2 | $226.4 |
| + Amortization expense | 3.1 | - | 2.2 | 2.0 | 1.6 | 1.8 | 1.8 | 1.7 | 6.9 | 7.3 |
| + Interest expense (income), net (net of tax) | 19.6 | 19.5 | 19.4 | 17.7 | 17.0 | 18.2 | 14.2 | (6.1) | 43.3 | 76.2 |
| - Loss from discontinued operations (net of tax) | - | - | (9.2) | - | - | - | - | - | - | (9.2) |
| - Loss from deconsolidation of business (net of tax) | - | - | - | - | - | (23.0) | - | - | (23.0) | - |
| - Other (expense) income, (net of tax) | (0.8) | 0.7 | (1.0) | (4.4) | (1.7) | (2.4) | (3.2) | (1.8) | (9.1) | (5.5) |
| = Adjusted net operating profit after taxes | $48.2 | $109.6 | $104.9 | $61.9 | $42.0 | $106.8 | $82.7 | $32.0 | $263.5 | $324.6 |
Qtrs FY 2009 |
Qtrs FY 2008 |
|||||||||
| + Total assets | $5,357.9 | $5,570.8 | $5,510.9 | $5,054.1 | $5,112.6 | $5,314.8 | $5,193.3 | $5,092.7 | ||
| + Accumulated amortization | 266.9 | 266.9 | 269.1 | 271.1 | 272.7 | 274.5 | 276.3 | 278.0 | ||
| - Cash | (198.2) | (190.4) | (265.3) | (242.4) | (202.9) | (191.2) | (176.8) | (193.9) | ||
| - Current liabilities excluding short-term debt | (540.2) | (595.1) | (558.9) | (523.2) | (519.2) | (566.2) | (532.1) | (527.8) | ||
| - Other liabilities, excluding long-term debt | (474.6) | (502.7) | (517.8) | (532.6) | (509.3) | (502.0) | (501.9) | (502.3) | ||
| - Noncontrolling interests | (274.3) | (303.2) | (306.5) | (231.0) | (210.2) | (213.4) | (198.8) | (198.6) | ||
| = Adjusted invested capital | $4,137.5 | $4,246.3 | $4,131.5 | $3,796.0 | $3,943.7 | $4,116.5 | $4,060.0 | $3,948.1 | $4,017.0 | $4,077.8 |
| Adjusted ROIC | ROIC= | 6.6% | 8.0% | |||||||
Adjusted Comparisons
In order to provide a supplemental comparison of current period results of operations to prior periods, we have adjusted for and summarized the nature of certain transactions or events. These adjustments relate to operating income, net income attributable to PepsiAmericas, Inc. and diluted earnings per share. To calculate the adjusted comparisons, management has excluded the impairment of intangible assets, special charges relating to various restructuring initiatives and adjustments, fees associated with our pending merger with PepsiCo, impairment of non-operating assets, loss from multi-employer pension plans, loss from deconsolidation of our Caribbean business, impairment of marketable securities, gain from interest rate swap termination, gain on sale of non-core property and impact of the 53rd week, which reflects the impact of an extra week of operations in fiscal year 2008 financial statements due to an accounting convention.
Management believes that the adjusted comparisons provide a supplemental view of operations that excludes items that are unusual, infrequent or unrelated to the ongoing core operations. Management believes these non-GAAP measures provide useful information to investors through the summarization of transactions comparable with prior period results. These non-GAAP measures are provided as supplemental information, and should not be considered in lieu of the GAAP measures. There are limitations in the use of adjusted comparisons due to the subjective nature of items excluded by management in calculating adjusted comparisons.
These supplemental comparisons are consistent with the manner in which management internally reviews results of operations and evaluates performance in that management reviews the results of operations on both a GAAP basis and using adjusted comparisons. Management does not use the adjusted comparisons in lieu of the comparable GAAP measures, but rather uses the adjusted comparisons to supplement its review of operations.
We have provided the table below that summarizes the adjustments discussed above that impact comparability of fiscal years 2009, 2008 and 2007 (in millions, except per share data). Details of the adjustment items can be found in our Annual Report on Form 10-K.
Income |
Attributable to PepsiAmericas, Inc. |
Per Share |
|
| Fiscal year 2009, as reported | $380.9 | $181.2 | $1.46 |
| Intangible assets impairment | 17.4 | 7.9 | |
| Special charges | 11.1 | 7.4 | |
| PepsiCo merger fees | 6.1 | 3.9 | |
| Non-operating assets impairment | 4.9 | 3.1 | |
| Loss from multi-employer pension plans | 3.4 | 2.1 | |
| Loss from deconsolidation of businesses | — | 23.0 | |
| Marketable securities impairment | — | 1.3 | |
| Gain from interest rate swap termination | — | (20.9) | |
| Fiscal year 2009, as adjusted | $423.8 | $209.0 | $1.69 |
| Fiscal year 2008, as reported | $473.2 | $226.4 | $1.78 |
| Impact of 53rd week | (8.9) | (5.7) | |
| Special charges and adjustments | 23.0 | 18.0 | |
| Fiscal year 2008, as adjusted | $487.3 | $238.7 | $1.88* |
| Fiscal year 2007, as reported | $436.1 | $212.1 | $1.64 |
| Special charges | 6.3 | 4.0 | |
| Marketable securities impairment | — | 2.5 | |
| Gain on sale of non-core property | — | (6.5) | |
| Fiscal year 2007, as adjusted | $442.4 | $212.1 | $1.64* |
* Includes a $0.07 and $0.02 per share reduction related to discontinued operations in fiscal year 2008 and 2007, respectively.
Non-GAAP Measurements Referenced at Conferences
EBITDA
EBITDA is a measure that management uses to monitor our operating and cash flow performance of our geographic segments. This non-GAAP measure is provided as supplemental information and should not be considered in lieu of the GAAP measures.
In calculating EBITDA, management excludes interest, taxes and depreciation and amortization. There are limitations in the use of EBITDA due to the nature of items excluded by management.
We define EBITDA as follows:
Operating Income
+ Depreciation and Amortization
= EBITDA
| Calculation of U.S. EBITDA | 2009* |
2008 |
2007 |
| Operating Income | $341.1 | $333.8 | $331.6 |
| + Depreciation and Amortization | 130.6 | 136.8 | 148.2 |
| = U.S. EBITDA | $471.7 | $470.6 | $479.8 |
* Beginning in the third quarter of 2009, our operating results for the Bahamas are included in our U.S. geographic segment. The impact of including the Bahamas is a reduction of $0.2 million to our 2009 U.S. EBITDA.
Operating Margin
Management uses operating margins to measure our operating efficiency. This non-GAAP measure is provided as supplemental information and should not be considered in lieu of the GAAP measures.
In calculating our operating margin, management excludes special charges and adjustments and certain one time events for comparability. There are limitations in the use of this measure due to the nature of items excluded by management.
We calculate our operating margin as follows:
| Calculation of Operating Margin | 2009 |
| Operating Income | $380.9 |
| + Intangible assets impairment | 17.4 |
| + Special charges | 11.1 |
| + PepsiCo merger fees | 6.1 |
| + Non-operating assets impairment | 4.9 |
| + Loss from multi-employer pension plans | 3.4 |
| = Adjusted Operating Income | $423.8 |
| Adjusted Operating Income | $423.8 |
| Divided by Net Sales - 52 week basis | 4,421.3 |
| = Operating Margin | 9.6% |
Cash Flow Yield
Management uses cash flow yields to monitor our cash flow performance. This non-GAAP measure is provided as supplemental information and should not be considered in lieu of the GAAP measures.
We calculate our cash flow yield as follows:
| Calculation of Cash Flow Yield | 2009 |
| Net cash provided by operating activities of continuing operations | $308.6 |
| - Impact of accounts receivable securitization | 150.0 |
| - Capital investments | (235.7) |
| + Proceeds from the sales of property and equipment | 21.6 |
| - Net operating cash flows used in discontinued operations | (2.2) |
| = Adjusted Operating Cash Flow | $242.3 |
| Adjusted Operating Cash Flow | $242.3 |
| Divided by Net Sales - as reported | 4,421.3 |
| = Cash Flow Yield | 5.5% |