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1. THE PEPSI BOTTLING GROUP, INC.
THIRD QUARTER 2008 EARNINGS CONFERENCE CALL
RECONCILIATION OF NON-GAAP MEASURES
September 30, 2008
The Company prepares its 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, the Company sometimes uses
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
Restructuring Charges
In the third and fourth quarters of 2007, PBG announced realignments in the Company’s
organization. Since the inception of the program and through June 14, 2008, the Company incurred a
pre-tax charge of approximately $33 million. Of this amount, we recorded $3 million in the first half
of 2008, primarily relating to relocation expenses in our U.S. & Canada segment. During the third
quarter of 2007, we recorded Restructuring Charges of $20 million or $0.06 per diluted share, of
which $12 million was recorded in the U.S. & Canada segment and the remaining $8 million was
recorded in the Europe segment.
Asset Disposal Charge
During the fourth quarter of 2007, PBG adopted a Full Service Vending (FSV) Rationalization plan
to dispose of older underperforming assets and to redeploy assets to higher return accounts. Over the
course of the FSV Rationalization plan, we incurred a pre-tax charge of approximately $25 million,
the majority of which was non-cash, including costs associated with the removal of these assets from
service, disposal costs and redeployment expenses. Of this amount we incurred a pre-tax charge of
$2 million in the first half of 2008 associated with the FSV Rationalization plan.
Tax Audit Settlement
During the third quarter of 2007, PBG recorded a net non-cash benefit of $46 million or $0.20 per diluted
share to income tax expense related to the reversal of reserves for uncertain tax benefits resulting from the
expiration of the statute of limitations on the IRS audit of our U.S. 2001 and 2002 tax returns.
2. Tax Law Changes
During the fourth quarter of 2007, tax law changes were enacted in Mexico and tax rate changes
were enacted in Canada, resulting in a net increase in net income of approximately $10 million.
Stock-Based Compensation
Effective January 1, 2006, The Company adopted SFAS No. 123 (revised), “Share-Based Payment”
(“SFAS 123R”). Among its provisions, SFAS 123R requires the Company to recognize
compensation expense for equity awards over the vesting period based on the award’s grant-date fair
value. For the year ended December 29, 2007, SFAS 123R reduced our operating income by $46
million in the U.S. and by $14 million outside the U.S. These amounts were excluded from 2007
results for comparability to 2004 results.
2008 Third Quarter Results
Impact of
Foreign
Q3 2008 Currency Q3 2008
Comparable Translation As Reported
Net Revenue per case – Worldwide 6% 3 9%
Net Revenue per case – Europe 9% 11 20%
Gross Margin per case – Worldwide 4% 3 7%
Europe
Operating
Income Growth
Rate
Comparable Growth 4%
Restructuring Charges 7
12%(a)
Reported Growth
(a)
Does not add due to rounding to the nearest whole percent.
Diluted Earnings
Per Share
Growth Rate
Comparable Growth 8%
Restructuring Charges 6
(19)
Tax Audit Settlement
Reported Growth (5%)
3. 2008 Third Quarter Year-To-Date Results
Europe
Operating
Income Growth
Rate
Comparable Growth 28%
Restructuring Charges 11
39%
Reported Growth
2008 Full-Year Guidance
Full-Year Impact of Full-Year
2008 Foreign 2008
Growth Rate - Currency Growth Rate
Comparable Translation – As Reported
Cost of sales per case - Worldwide 6% 2 8%
Full-Year 2008
Full-Year 2007 Growth Rate
Comparable Operating Income $1,124 Low single digits
Restructuring Charges (30) 3%
Asset Disposal Charge (23) 2%
Mid to high
Reported Operating Income $1,071 single digits
Full-Year 2008
Full-Year 2008 Full-Year 2007 Growth Rate
Comparable Diluted
Earnings Per Share $2.32 to $2.38 $2.20 5% to 8%
Tax Settlement 0.20
Tax Law Changes 0.04
(0.01)(a)
Restructuring Charges (0.09)
(0.00)(a)
Asset Disposal Charge (0.06)
Reported Diluted
Earnings Per Share $2.31 to $2.37 $2.29 1% to 3%
(a)
Restructuring Charges line item rounded up to the nearest whole percent as the total of Restructuring and Asset
Disposal charges equates to $(0.01) diluted earnings per share impact.
4. 2007 to 2005 International Contribution to Operating Income Growth
International Contribution to
Operating Income Growth from
2007 to 2005
Comparable International Contribution of Growth (a) 60%
Stock-based Compensation 22
Restructuring Charges 20
Reported International Contribution of Growth 102%
(a)
Comparable contribution of growth from our international territories includes the impact of our Russian joint venture,
PR Beverages Limited, which was formed on March 1, 2007.
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.
2008 Full-Year OFCF Guidance
PBG expects its full-year 2008 OFCF to be about $620 million. The Company anticipates capital
expenditures to be in the range of $750 to $775 million and Cash Provided by Operations plus the
excess tax benefits from the exercise of stock options to be over $1.3 billion.