Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedSeptember 3, 2005
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number1-14893
THE PEPSI BOTTLING GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 13-4038356 | |
(State or other jurisdiction of employer incorporation or organization) | (I.R.S. Identification No.) | |
One Pepsi Way, Somers, New York | 10589 | |
(Address of principal executive offices) | (Zip Code) |
914-767-6000
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report.)
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESþ NOo
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YESþ NOo
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo NOþ
Number of shares of Common Stock outstanding as of September 30, 2005:
240,527,130
240,527,130
The Pepsi Bottling Group, Inc.
Index
Index
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PART I - FINANCIAL INFORMATION
Item 1.
The Pepsi Bottling Group, Inc.
Condensed Consolidated Statements of Operations
in millions, except per share amounts, unaudited
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||
September | September | September | September | |||||||||||||
3, 2005 | 4, 2004 | 3, 2005 | 4, 2004 | |||||||||||||
Net revenues | $ | 3,214 | $ | 2,934 | $ | 8,223 | $ | 7,676 | ||||||||
Cost of sales | 1,695 | 1,522 | 4,306 | 3,951 | ||||||||||||
Gross profit | 1,519 | 1,412 | 3,917 | 3,725 | ||||||||||||
Selling, delivery and administrative expenses | 1,126 | 1,055 | 3,101 | 2,945 | ||||||||||||
Operating income | 393 | 357 | 816 | 780 | ||||||||||||
Interest expense, net | 56 | 50 | 169 | 158 | ||||||||||||
Other non-operating (income) expenses, net | (1 | ) | 1 | — | 3 | |||||||||||
Minority interest | 24 | 22 | 47 | 43 | ||||||||||||
Income before income taxes | 314 | 284 | 600 | 576 | ||||||||||||
Income tax expense | 109 | 93 | 208 | 193 | ||||||||||||
Net income | $ | 205 | $ | 191 | $ | 392 | $ | 383 | ||||||||
Basic earnings per share | $ | 0.84 | $ | 0.75 | $ | 1.60 | $ | 1.49 | ||||||||
Weighted-average shares outstanding | 243 | 254 | 245 | 257 | ||||||||||||
Diluted earnings per share | $ | 0.82 | $ | 0.73 | $ | 1.55 | $ | 1.44 | ||||||||
Weighted-average shares outstanding | 250 | 262 | 252 | 266 | ||||||||||||
Dividends declared per common share | $ | 0.08 | $ | 0.05 | $ | 0.21 | $ | 0.11 | ||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
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The Pepsi Bottling Group, Inc.
Condensed Consolidated Statements of Cash Flows
in millions, unaudited
36 Weeks Ended | ||||||||
September | September | |||||||
3, 2005 | 4, 2004 | |||||||
Cash Flows — Operations | ||||||||
Net income | $ | 392 | $ | 383 | ||||
Adjustments to reconcile net income to net cash provided by operations: | ||||||||
Depreciation | 420 | 394 | ||||||
Amortization | 10 | 9 | ||||||
Deferred income taxes | (5 | ) | 38 | |||||
Other non-cash charges and credits, net | 226 | 208 | ||||||
Changes in operating working capital, excluding effects of acquisitions: | ||||||||
Accounts receivable, net | (381 | ) | (332 | ) | ||||
Inventories | (84 | ) | (91 | ) | ||||
Prepaid expenses and other current assets | 6 | (15 | ) | |||||
Accounts payable and other current liabilities | 115 | 144 | ||||||
Income taxes payable | 107 | 80 | ||||||
Net change in operating working capital | (237 | ) | (214 | ) | ||||
Pension contributions | (30 | ) | (72 | ) | ||||
Other, net | (51 | ) | (36 | ) | ||||
Net Cash Provided by Operations | 725 | 710 | ||||||
Cash Flows — Investments | ||||||||
Capital expenditures | (444 | ) | (425 | ) | ||||
Acquisitions of bottlers | (1 | ) | (8 | ) | ||||
Proceeds from sale of property, plant and equipment | 20 | 8 | ||||||
Other investing activities, net | 1 | — | ||||||
Net Cash Used for Investments | (424 | ) | (425 | ) | ||||
Cash Flows — Financing | ||||||||
Short-term borrowings — three months or less, net | (60 | ) | 139 | |||||
Proceeds from long-term debt | 36 | 23 | ||||||
Payments of long-term debt | (11 | ) | (1,010 | ) | ||||
Dividends paid | (44 | ) | (18 | ) | ||||
Proceeds from exercise of stock options | 81 | 98 | ||||||
Purchases of treasury stock | (340 | ) | (492 | ) | ||||
Net Cash Used for Financing | (338 | ) | (1,260 | ) | ||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (1 | ) | (3 | ) | ||||
Net Decrease in Cash and Cash Equivalents | (38 | ) | (978 | ) | ||||
Cash and Cash Equivalents — Beginning of Period | 305 | 1,235 | ||||||
Cash and Cash Equivalents — End of Period | $ | 267 | $ | 257 | ||||
Supplemental Cash Flow Information | ||||||||
Net third-party interest paid | $ | 187 | $ | 184 | ||||
Income taxes paid | $ | 105 | $ | 75 | ||||
See accompanying notes to Condensed Consolidated Financial Statements.
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The Pepsi Bottling Group, Inc.
Condensed Consolidated Balance Sheets
in millions, except per share amounts
(Unaudited) | ||||||||
September | December | |||||||
3, 2005 | 25, 2004 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 267 | $ | 305 | ||||
Accounts receivable, net of allowances of $58 at September 3, 2005 and $61 at December 25, 2004 | 1,422 | 1,054 | ||||||
Inventories | 510 | 427 | ||||||
Prepaid expenses and other current assets | 256 | 253 | ||||||
Total Current Assets | 2,455 | 2,039 | ||||||
Property, plant and equipment, net | 3,576 | 3,581 | ||||||
Other intangible assets, net | 3,659 | 3,639 | ||||||
Goodwill | 1,440 | 1,416 | ||||||
Other assets | 121 | 118 | ||||||
Total Assets | $ | 11,251 | $ | 10,793 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and other current liabilities | $ | 1,644 | $ | 1,373 | ||||
Short-term borrowings | 89 | 155 | ||||||
Current maturities of long-term debt | 87 | 53 | ||||||
Total Current Liabilities | 1,820 | 1,581 | ||||||
Long-term debt | 4,479 | 4,489 | ||||||
Other liabilities | 973 | 914 | ||||||
Deferred income taxes | 1,397 | 1,415 | ||||||
Minority interest | 495 | 445 | ||||||
Total Liabilities | 9,164 | 8,844 | ||||||
Shareholders’ Equity | ||||||||
Common stock, par value $0.01 per share: | ||||||||
authorized 900 shares, issued 310 shares | 3 | 3 | ||||||
Additional paid-in capital | 1,701 | 1,719 | ||||||
Retained earnings | 2,228 | 1,887 | ||||||
Accumulated other comprehensive loss | (279 | ) | (315 | ) | ||||
Deferred compensation | — | (1 | ) | |||||
Treasury stock: 68 shares and 61 shares at September 3, 2005 and December 25, 2004, respectively, at cost | (1,566 | ) | (1,344 | ) | ||||
Total Shareholders’ Equity | 2,087 | 1,949 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 11,251 | $ | 10,793 | ||||
See accompanying notes to Condensed Consolidated Financial Statements.
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Notes to Condensed Consolidated Financial Statements
Tabular dollars in millions, except per share amounts
Note 1 — Basis of Presentation
The Pepsi Bottling Group, Inc. (“PBG” or the “Company”) is the world’s largest manufacturer, seller and distributor of Pepsi-Cola beverages. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of the United States, Mexico, Canada and Europe, which consists of operations in Spain, Greece, Russia and Turkey. When used in these Condensed Consolidated Financial Statements, “PBG,” “we,” “our” and “us” each refers to The Pepsi Bottling Group, Inc. and, where appropriate, to Bottling Group, LLC (“Bottling LLC”), our principal operating subsidiary.
At September 3, 2005, PepsiCo, Inc. (“PepsiCo”) owned 99,811,403 shares of our common stock, consisting of 99,711,403 shares of common stock and 100,000 shares of Class B common stock. All shares of Class B common stock that have been authorized have been issued to PepsiCo. At September 3, 2005, PepsiCo owned approximately 41.1% of our outstanding common stock and 100% of our outstanding Class B common stock, together representing 46.6% of the voting power of all classes of our voting stock. In addition, PepsiCo owns approximately 6.8% of the equity of Bottling LLC. We fully consolidate the results of Bottling LLC and present PepsiCo’s share as minority interest in our Condensed Consolidated Financial Statements.
The accompanying Condensed Consolidated Balance Sheet at September 3, 2005, the Condensed Consolidated Statements of Operations for the 12 weeks and 36 weeks ended September 3, 2005 and September 4, 2004 and the Condensed Consolidated Statements of Cash Flows for the 36 weeks ended September 3, 2005 and September 4, 2004 have not been audited, but have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. Actual results could differ from these estimates.These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 25, 2004, as presented in our Annual Report on Form 10-K. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation.
Our U.S. and Canadian operations report using a fiscal year that consists of fifty-two weeks, ending on the last Saturday in December. Every five or six years a fifty-third week is added. Fiscal year 2004 consisted of fifty-two weeks. In 2005, our fiscal year consists of fifty-three weeks (the additional week is added to the fourth quarter). Our remaining countries report using a calendar-year basis. Accordingly, we recognize our quarterly business results as outlined below:
Quarter | U.S. & Canada | Mexico & Europe | ||
First Quarter | 12 weeks | January and February | ||
Second Quarter | 12 weeks | March, April and May | ||
Third Quarter | 12 weeks | June, July and August | ||
Fourth Quarter | 16 weeks/17 weeks (FY 2005) | September, October, | ||
November and December |
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Note 2 — Seasonality of Business
The results for the quarter are not necessarily indicative of the results that may be expected for the full year because of business seasonality. The seasonality of our operating results arises from higher sales in the second and third quarters versus the first and fourth quarters of the year, combined with the impact of fixed costs, such as depreciation and interest, which are not significantly impacted by business seasonality. From a cash flow perspective, the majority of our cash flow from operations is generated in the third and fourth quarters.
Note 3 — New Accounting Standards
SFAS No. 123R
In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revised Statement of Financial Accounting Standards (“SFAS”) No. 123, “Share-Based Payment” (“SFAS 123R”). Among its provisions, SFAS 123R will require us to measure the value of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize the cost over the requisite service period. The Company will adopt SFAS 123R in the first quarter of 2006. We are currently evaluating the impact of this proposed standard on our Consolidated Financial Statements.
FASB Staff Position No. FAS 109-1
In December 2004, the FASB issued Staff Position No. FAS 109-1 (“FSP 109-1”), “Application of FASB Statement No. 109,Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” FSP 109-1 clarifies SFAS No. 109’s guidance that applies to the new tax deduction for qualified domestic production activities. We have adopted the standard at the beginning of 2005. This standard did not have a material impact to our Consolidated Financial Statements.
FASB Staff Position No. FAS 109-2
In December 2004, the FASB issued Staff Position No. FAS 109-2 (“FSP 109-2”), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” FSP 109-2 provides that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the new tax law on its plan for applying SFAS No. 109. PBG evaluated the new tax law and will not repatriate undistributed foreign earnings in 2005.
FASB Interpretation No. 47
In March 2005, the FASB issued Interpretation No. 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations,” that requires an entity to recognize a liability for a conditional asset retirement obligation when incurred if the liability can be reasonably estimated. FIN 47 clarifies that the term Conditional Asset Retirement Obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.
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FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. We are currently evaluating the impact of this standard on our Consolidated Financial Statements.
SFAS No. 151
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage). In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on normal capacity of production facilities. SFAS 151 is effective for the first annual reporting period beginning after June 15, 2005. The adoption of SFAS 151 is not expected to have a material impact on our Consolidated Financial Statements.
Note 4 — Stock-Based Employee Compensation
We measure stock-based compensation expense using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations. Accordingly, compensation expense for stock option grants to our employees is measured as the excess of the quoted market price of common stock at the grant date over the amount the employee must pay for the stock. Our policy is to grant stock options at fair value on the date of grant. As allowed by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” we have elected to continue to apply the intrinsic-value based method of accounting described above, and have adopted the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation.” If we had measured compensation cost for the stock awards granted to our employees under the fair-value based method prescribed by SFAS No. 123, net income would have been changed to the pro forma amounts set forth below:
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||
September | September | September | September | |||||||||||||
3, 2005 | 4, 2004 | 3, 2005 | 4, 2004 | |||||||||||||
Net income: | ||||||||||||||||
As reported | $ | 205 | $ | 191 | $ | 392 | $ | 383 | ||||||||
Add: Total stock-based employee compensation expense included in reported net income, net of taxes and minority interest | — | — | 1 | 1 | ||||||||||||
Less: Total stock-based employee compensation determined under fair-value based method for all awards, net of taxes and minority interest | (11 | ) | (10 | ) | (32 | ) | (29 | ) | ||||||||
Pro forma | $ | 194 | $ | 181 | $ | 361 | $ | 355 | ||||||||
Earnings per share: | ||||||||||||||||
Basic — as reported | $ | 0.84 | $ | 0.75 | $ | 1.60 | $ | 1.49 | ||||||||
Basic — pro forma | $ | 0.80 | $ | 0.71 | $ | 1.47 | $ | 1.38 | ||||||||
Diluted — as reported | $ | 0.82 | $ | 0.73 | $ | 1.55 | $ | 1.44 | ||||||||
Diluted — pro forma | $ | 0.77 | $ | 0.69 | $ | 1.42 | $ | 1.33 |
Pro forma compensation cost measured for stock options granted to employees is amortized using a straight-line basis over the vesting period, which is typically three years.
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The fair value of PBG stock options used to compute pro forma net income disclosures was estimated on the date of grant using the Black-Scholes-Merton option-pricing model.
Note 5 — Inventories
September | December | |||||||
3, 2005 | 25, 2004 | |||||||
Raw materials and supplies | $ | 194 | $ | 159 | ||||
Finished goods | 316 | 268 | ||||||
$ | 510 | $ | 427 | |||||
Note 6 — Property, plant and equipment, net
September | December | |||||||
3, 2005 | 25, 2004 | |||||||
Land | $ | 267 | $ | 257 | ||||
Buildings and improvements | 1,280 | 1,263 | ||||||
Manufacturing and distribution equipment | 3,383 | 3,289 | ||||||
Marketing equipment | 2,334 | 2,237 | ||||||
Other | 172 | 177 | ||||||
7,436 | 7,223 | |||||||
Accumulated depreciation | (3,860 | ) | (3,642 | ) | ||||
$ | 3,576 | $ | 3,581 | |||||
Note 7 — Other intangible assets, net and Goodwill
September | December | |||||||
3, 2005 | 25, 2004 | |||||||
Intangibles subject to amortization: | ||||||||
Gross carrying amount: | ||||||||
Customer relationships and lists | $ | 52 | $ | 46 | ||||
Franchise/distribution rights | 45 | 44 | ||||||
Other identified intangibles | 27 | 30 | ||||||
124 | 120 | |||||||
Accumulated amortization: | ||||||||
Customer relationships and lists | (9 | ) | (6 | ) | ||||
Franchise/distribution rights | (18 | ) | (15 | ) | ||||
Other identified intangibles | (17 | ) | (16 | ) | ||||
(44 | ) | (37 | ) | |||||
Intangibles subject to amortization, net | 80 | 83 | ||||||
Intangibles not subject to amortization: | ||||||||
Carrying amount: | ||||||||
Franchise rights | 2,967 | 2,958 | ||||||
Distribution rights | 298 | 288 | ||||||
Trademarks | 216 | 208 | ||||||
Other identified intangibles | 98 | 102 | ||||||
Intangibles not subject to amortization | 3,579 | 3,556 | ||||||
Total other intangible assets, net | $ | 3,659 | $ | 3,639 | ||||
Goodwill | $ | 1,440 | $ | 1,416 | ||||
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Goodwill increased by approximately $24 million in 2005 due to purchase price allocations of $5 million related to a recent acquisition and the impact from foreign currency translation of $19 million.
For intangible assets subject to amortization, we calculate amortization expense over the period we expect to receive economic benefit. Total amortization expense was $10 million and $9 million for the thirty-six weeks ended September 3, 2005 and September 4, 2004. The weighted-average amortization period for each category of intangible assets and its estimated aggregate amortization expense expected to be recognized over the next five years are as follows:
Weighted- | Estimated Aggregate Amortization Expense to be Incurred | |||||||||||||||||||||||
Average | ||||||||||||||||||||||||
Amortization | ||||||||||||||||||||||||
Period | Balance of | Fiscal Year Ending | ||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||||||
Customer relationships and lists | 18 years | $ | 1 | $ | 3 | $ | 3 | $ | 3 | $ | 3 | |||||||||||||
Franchise/distribution rights | 7 years | $ | 2 | $ | 5 | $ | 3 | $ | 2 | $ | 2 | |||||||||||||
Other identified intangibles | 7 years | $ | 1 | $ | 3 | $ | 3 | $ | 2 | $ | 1 |
Note 8 — Pension and Postretirement Medical Benefit Plans
Pension Benefits
Our U.S. employees participate in noncontributory defined benefit pension plans, which cover substantially all full-time salaried employees, as well as most hourly employees. Benefits generally are based on years of service and compensation, or stated amounts for each year of service. All of our qualified plans are funded and contributions are made in amounts not less than the minimum statutory funding requirements and not more than the maximum amount that can be deducted for U.S. income tax purposes. Our net pension expense for the defined benefit plans for our operations outside the U.S. was not significant and is not included in the tables presented below.
Nearly all of our U.S. employees are also eligible to participate in our 401(k) savings plans, which are voluntary defined contribution plans. We make matching contributions to the 401(k) savings plans on behalf of participants eligible to receive such contributions. If a participant has one or more but less than 10 years of eligible service, our match will equal $0.50 for each dollar the participant elects to defer up to 4% of the participant’s pay. If the participant has 10 or more years of eligible service, our match will equal $1.00 for each dollar the participant elects to defer up to 4% of the participant’s pay.
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Components of our U.S. pension expense for the twelve weeks and thirty-six weeks ended September 3, 2005 and September 4, 2004 are as follows:
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||
September | September | September | September | |||||||||||||
3, 2005 | 4, 2004 | 3, 2005 | 4, 2004 | |||||||||||||
Service cost | $ | 11 | $ | 10 | $ | 32 | $ | 30 | ||||||||
Interest cost | 17 | 16 | 52 | 48 | ||||||||||||
Expected return on plan assets | (21 | ) | (19 | ) | (63 | ) | (57 | ) | ||||||||
Amortization of prior service cost | 2 | 2 | 5 | 5 | ||||||||||||
Amortization of net loss | 7 | 5 | 21 | 16 | ||||||||||||
Net pension expense for the defined benefit plans | 16 | 14 | 47 | 42 | ||||||||||||
Defined contribution plans expense | 4 | 4 | 13 | 14 | ||||||||||||
Total U.S. pension expense recognized in the Condensed Consolidated Statements of Operations | $ | 20 | $ | 18 | $ | 60 | $ | 56 | ||||||||
For the thirty-six weeks ended September 3, 2005, we contributed $30 million to our U.S. pension plans.
Postretirement Medical Benefits
Our postretirement medical plans provide medical and life insurance benefits principally to U.S. retirees and their dependents. Employees are eligible for benefits if they meet age and service requirements and qualify for retirement benefits. The plans are not funded and since 1993 have included retiree cost sharing.
Components of our U.S. postretirement benefits expense for the twelve and thirty-six weeks ended September 3, 2005 and September 4, 2004 are as follows:
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||
September | September | September | September | |||||||||||||
3, 2005 | 4, 2004 | 3, 2005 | 4, 2004 | |||||||||||||
Service cost | $ | 1 | $ | 1 | $ | 2 | $ | 3 | ||||||||
Interest cost | 5 | 4 | 15 | 13 | ||||||||||||
Amortization of net loss | 1 | 1 | 5 | 3 | ||||||||||||
U.S. postretirement benefits expense recognized in the Condensed Consolidated Statements of Operations | $ | 7 | $ | 6 | $ | 22 | $ | 19 | ||||||||
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Note 9 — Geographic Data
We operate in one industry, carbonated soft drinks and other ready-to-drink beverages. We conduct business in all or a portion of the United States, Mexico, Canada, Spain, Greece, Russia and Turkey.
Net Revenues
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||
September | September | September | September | |||||||||||||
3, 2005 | 4, 2004 | 3, 2005 | 4, 2004 | |||||||||||||
U.S | $ | 2,149 | $ | 2,002 | $ | 5,832 | $ | 5,537 | ||||||||
Mexico | 330 | 288 | 782 | 722 | ||||||||||||
Other countries | 735 | 644 | 1,609 | 1,417 | ||||||||||||
$ | 3,214 | $ | 2,934 | $ | 8,223 | $ | 7,676 | |||||||||
Long-Lived Assets
September | December | |||||||
3, 2005 | 25, 2004 | |||||||
U.S | $ | 5,846 | $ | 5,875 | ||||
Mexico | 1,468 | 1,435 | ||||||
Other countries | 1,482 | 1,444 | ||||||
$ | 8,796 | $ | 8,754 | |||||
Note 10 — Comprehensive Income
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||
September | September | September | September | |||||||||||||
3, 2005 | 4, 2004 | 3, 2005 | 4, 2004 | |||||||||||||
Net income | $ | 205 | $ | 191 | $ | 392 | $ | 383 | ||||||||
Net currency translation adjustment | 45 | 36 | 42 | (21 | ) | |||||||||||
Cash flow hedge adjustment (a)(b) | (4 | ) | (2 | ) | (6 | ) | (5 | ) | ||||||||
Comprehensive income | $ | 246 | $ | 225 | $ | 428 | $ | 357 | ||||||||
(a) | Net of minority interest and taxes of $3 million and $1 million for the 12 weeks ended September 3, 2005 and September 4, 2004, respectively. | |
(b) | Net of minority interest and taxes of $4 million and $4 million for the 36 weeks ended September 3, 2005 and September 4, 2004, respectively. |
Note 11 — Contingencies
We are subject to various claims and contingencies related to lawsuits, taxes and environmental and other matters arising out of the normal course of business. We believe that the ultimate liability arising from such claims or contingencies, if any, in excess of amounts already recognized will not have a material adverse effect on our results of operations, financial condition or liquidity.
Note 12 — Subsequent Event
On September 30, 2005 we acquired Pepsi-Cola Bottling Company of Charlotte (North Carolina). This acquisition will not have a material impact to our Consolidated Financial Statements.
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Item 2.
Management’s Financial Review
Management’s Financial Review
Tabular dollars in millions, except per share data
OVERVIEW
The Pepsi Bottling Group, Inc. (“PBG” or the “Company”) is the world’s largest manufacturer, seller and distributor of Pepsi-Cola beverages. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of the United States, Mexico, Canada and Europe, which consists of operations in Spain, Greece, Russia and Turkey. When used in these Condensed Consolidated Financial Statements, “PBG,” “we,” “our” and “us” each refers to The Pepsi Bottling Group, Inc. and, where appropriate, to Bottling Group, LLC (“Bottling LLC”), our principal operating subsidiary.
Management’s Financial Review should be read in conjunction with the accompanying unaudited financial statements and our Annual Report on Form 10-K for the fiscal year ended December 25, 2004, which include additional information about our accounting policies, practices and the transactions that underlie our financial results.
FINANCIAL PERFORMANCE SUMMARY
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||||||||||
September | September | % | September | September | % | |||||||||||||||||||
3, 2005 | 4, 2004 | Change | 3, 2005 | 4, 2004 | Change | |||||||||||||||||||
Net revenues | $ | 3,214 | $ | 2,934 | 10 | % | $ | 8,223 | $ | 7,676 | 7 | % | ||||||||||||
Gross profit | 1,519 | 1,412 | 8 | % | 3,917 | 3,725 | 5 | % | ||||||||||||||||
Operating income | 393 | 357 | 10 | % | 816 | 780 | 5 | % | ||||||||||||||||
Net income | 205 | 191 | 8 | % | 392 | 383 | 2 | % | ||||||||||||||||
Diluted earnings per share1 | $ | 0.82 | $ | 0.73 | 13 | % | $ | 1.55 | $ | 1.44 | 8 | % |
1 | – Percentage change for diluted earnings per share is calculated by using earnings per share data that is expanded to the fourth decimal place. |
For the third quarter, diluted earnings per share increased 13% to $0.82 and operating income grew 10% to $393 million, reflecting strong volume growth, coupled with solid pricing improvements. These results include a pretax gain of $26 million from the settlement of the high fructose corn syrup (“HFCS”) class action lawsuit, offset by $10 million of strategic spending initiatives, (“net litigation settlement” of $16 million or $0.04 of diluted EPS on an after-tax basis). Third quarter, 2004 net income of $191 million, or $0.73 per diluted share, included a $0.02 gain from the settlement of certain international tax audits.
Excluding the impact of acquisitions, worldwide volume increased 5% in the third quarter, reflecting 4% growth in the U.S. and Canada, 8% growth in Europe and 6% growth in Mexico.
Worldwide net revenue per case grew 4% in the third quarter, which includes a 1% favorable impact from foreign currency translation. In the U.S., net revenue per case increased by 2% driven primarily by rate increases.
Worldwide cost of sales per case for the quarter increased by 5%, primarily due to higher raw material costs when compared to 2004. The increase in raw material costs was driven mostly by higher resin
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costs. A percentage point of the cost of sales per case growth was attributable to the negative impact of foreign currency translation.
Worldwide selling, delivery and administrative expenses increased 7% in the third quarter, when compared to 2004, driven primarily by volume growth, wage and benefit increases and rising fuel costs, coupled with the negative impact of foreign currency translation. This increase was partially offset by the net litigation settlement which reduced selling, delivery and administrative growth by about 2 percentage points.
Outlook
In 2005, our fiscal year will include a 53rd week, while fiscal year 2004 consisted of 52 weeks. Our U.S. and Canadian operations report on a fiscal year that consists of 52 weeks, ending on the last Saturday in December. Every five or six years a 53rd week is added. Our other countries report on a calendar-year basis. In order to provide comparable volume guidance for 2005, we have excluded the impact of the 53rd week from our outlook. The table and the 2005 outlook discussion below regarding volume provide pro forma disclosure by excluding the projected impact of the 53rd week in 2005.
Pro forma Forecasted | ||||||||||||
2005 versus 2004 | Impact of | Forecasted 2005 | ||||||||||
growth | 53rdweek | versus 2004 growth | ||||||||||
Worldwide Volume | 3 | % | 1 | % | 4 | % | ||||||
United States Volume | 1 | % | 1 | % | 2 | % |
Based on our results for the first thirty-six weeks of 2005 and our intention to reinvest our 53rd week profits in long-term, strategic spending initiatives, we expect our full-year 2005 operating income growth to be within a range of 3% to 5%. In light of the recent cost pressure on resin and rising fuel prices, we have adjusted our full-year diluted earnings per share to be $1.83 to $1.87.
Given the strength of our year-to-date volume results, we expect our pro forma volume to increase 3% for the full year of 2005 versus 2004, excluding the impact of the 53rd week. In the U.S., pro forma volume is expected to be approximately 1% for the full year, excluding the impact of the 53rd week. Volume in Mexico is expected to increase 4% to 5% for the full year.
We expect to increase our worldwide net revenue per case by approximately 3%.
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Volume
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||||||||||
Sept. 3, 2005 vs. | Sept. 3, 2005 vs. | |||||||||||||||||||||||
Sept. 4, 2004 | Sept. 4, 2004 | |||||||||||||||||||||||
World- | Outside | World- | Outside | |||||||||||||||||||||
wide | U.S. | the U.S. | wide | U.S. | the U.S. | |||||||||||||||||||
Base volume | 5 | % | 4 | % | 7 | % | 3 | % | 1 | % | 5 | % | ||||||||||||
Acquisitions | 1 | % | 1 | % | 0 | % | 1 | % | 1 | % | 1 | % | ||||||||||||
Total volume change | 6 | % | 5 | % | 7 | % | 4 | % | 2 | % | 6 | % | ||||||||||||
Excluding the impact of acquisitions, worldwide physical case volume increased 5% in the third quarter and 3% in the first thirty-six weeks of 2005, when compared with similar periods of 2004. The increase in volume for the quarter and on a year-to-date basis was driven by strong growth across the U.S., Canada, Mexico and Europe.
In the U.S., our reported volume increased by 5% in the third quarter and 2% on a year-to-date basis versus 2004. Excluding acquisitions, our take home channel volume grew 5% and 2% for the quarter and year-to-date period, respectively, and our cold-drink channel volume increased 3% in the quarter and 1% for the year-to-date period.
In the U.S., our non-carbonated beverage volume increased over 20% for the quarter and 15% for the year-to-date period, driven primarily by double digit growth in theAquafina,SoBe,and Frappuccinotrademarksand solid volume growth in theLipton andTropicanatrademarks. Total carbonated soft drink volume was down approximately 1% in the quarter and 2% on a year-to-date basis, driven primarily by declines in brand Pepsi. Declines in carbonated soft drinks were partially offset by product innovation including the introduction ofTropicana Twisterand Pepsi Lime. In addition, our diet carbonated soft drink portfolio grew 4% in the quarter and 3% for the year-to-date period.
In Canada, reported volume increased 4% for the third quarter versus the prior year with 4% increases in both the cold-drink channel and the take-home channel. On a year-to-date basis,volume increased 2% with increases in both the cold-drink channel and take-home channel.
In Europe, reported volume grew 8% in the third quarter and 7% on a year-to-date basis driven by a strong performance in both Russia and Turkey. In Russia, double digit volume growth in the third quarter and on year-to-date basis was driven by strong sales of trademarksPepsiandLipton Iced Tea. In Turkey, double digit volume growth both in the third quarter and on year-to-date basis was due primarily to strong sales of trademarkPepsi.In Spain, volume was flat for the third quarter and the year-to-date period, as we continued to encounter competitive pressure in the marketplace and a challenging pricing environment.
In Mexico, reported volume increased 7% in the third quarter and 6% on a year-to-date basis, mostly due to strong jug and bottled water sales. Both jugs and bottled water had double digit increases in the quarter and year-to-date period. Total carbonated soft drink volume in Mexico was down approximately 1% in both the third quarter and on a year-to-date basis, mostly due to competitive pressure from bargain-priced brands.
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Net Revenues
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||||||||||
Sept. 3, 2005 vs. | Sept. 3 , 2005 vs. | |||||||||||||||||||||||
Sept. 4, 2004 | Sept. 4, 2004 | |||||||||||||||||||||||
World- | Outside | World- | Outside | |||||||||||||||||||||
wide | U.S. | the U.S. | wide | U.S. | the U.S. | |||||||||||||||||||
Volume impact | 5 | % | 4 | % | 7 | % | 3 | % | 1 | % | 5 | % | ||||||||||||
Net price per case impact (rate/mix) | 3 | % | 2 | % | 3 | % | 2 | % | 3 | % | 2 | % | ||||||||||||
Currency translations | 1 | % | 0 | % | 4 | % | 1 | % | 0 | % | 4 | % | ||||||||||||
Acquisitions | 1 | % | 1 | % | 0 | % | 1 | % | 1 | % | 1 | % | ||||||||||||
Total Net Revenues change | 10 | % | 7 | % | 14 | % | 7 | % | 5 | % | 12 | % | ||||||||||||
Worldwide net revenues were $3.2 billion for the third quarter and $8.2 billion for the first thirty-six weeks in 2005, increasing 10% and 7% respectively, over similar periods in 2004. The increases in worldwide net revenues for the quarter and on a year-to-date basis were driven primarily by improvements in volume and growth in net price per case. The favorable impact of foreign currency translation contributed one percentage point in the quarter and in the year-to-date period. Net revenues from our prior year acquisitions contributed a percentage point to our worldwide growth in both the third quarter and year-to-date period.
In the U.S., net revenues increased by 7% in the third quarter and 5% on a year-to-date basis driven by volume and net price per case growth, coupled with a percentage point increase from the impact of acquisitions. Our net price per case improvement for both the quarter and year-to-date period was driven mostly by rate increases.
Net revenues outside the U.S. grew approximately 14% in the third quarter and 12% for the first thirty-six weeks of 2005. The increases in net revenues outside the U.S. for the quarter and on a year-to-date basis were driven primarily by strong volume growth, coupled by rate increases and the favorable impact of foreign currency translation. In Mexico, net price per case increased slightly for the quarter versus the prior year, and was down approximately 1% on a year-to-date basis, versus the prior year. The year-to-date decline reflected a volume mix shift into bottled water and jugs, which carries a lower net price per case.
In the third quarter, approximately 67% of our net revenues was generated in the U.S., 10% of our net revenues was generated in Mexico and the remaining 23% was generated outside the U.S. and Mexico. On a year-to-date basis, approximately 71% of our net revenues was generated in the U.S., 9% of our net revenues was generated in Mexico and the remaining 20% was generated outside the U.S. and Mexico.
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Cost of Sales
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||||||||||
Sept. 3, 2005 vs. | Sept. 3 , 2005 vs. | |||||||||||||||||||||||
Sept. 4, 2004 | Sept. 4, 2004 | |||||||||||||||||||||||
World- | Outside | World- | Outside | |||||||||||||||||||||
wide | U.S. | the U.S. | wide | U.S. | the U.S. | |||||||||||||||||||
Volume impact | 5 | % | 4 | % | 7 | % | 3 | % | 1 | % | 5 | % | ||||||||||||
Costs per case impact | 4 | % | 4 | % | 5 | % | 4 | % | 5 | % | 4 | % | ||||||||||||
Currency translation | 1 | % | 0 | % | 4 | % | 1 | % | 0 | % | 4 | % | ||||||||||||
Acquisitions | 1 | % | 1 | % | 0 | % | 1 | % | 1 | % | 1 | % | ||||||||||||
Total Cost of Sales change | 11 | % | 9 | % | 16 | % | 9 | % | 7 | % | 14 | % | ||||||||||||
Worldwide cost of sales were $1.7 billion in the third quarter and $4.3 billion for the first thirty-six weeks of 2005, increasing 11% and 9% respectively, over similar periods in 2004. The growth in cost of sales for the quarter and on a year-to-date basis was driven primarily by volume and costs per case increases, coupled with the negative impact of foreign currency translation in Canada and Mexico. Growth in volume contributed 5 percentage points of change in the quarter and 3 percentage points of change for the year-to-date period.
In the U.S., cost of sales grew 9% in the second quarter and 7% on a year-to-date basis versus 2004. Growth in the quarter and on a year-to-date basis was driven primarily by volume and costs per case increases. Costs per case increases for both the quarter and year-to-date period were mostly due to increases in resin costs compared to 2004.
Cost of sales outside the U.S. grew approximately 16% in the third quarter and 14% for the first thirty-six weeks of 2005, reflecting strong volume growth, the negative impact of foreign currency translation and cost per case increases. Costs per case increases outside the U.S. were driven primarily by growth in resin costs versus 2004.
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Selling, Delivery and Administrative Expenses
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||||||||||
Sept. 3, 2005 vs. | Sept. 3 , 2005 vs. | |||||||||||||||||||||||
Sept. 4, 2004 | Sept. 4, 2004 | |||||||||||||||||||||||
World- | Outside | World- | Outside | |||||||||||||||||||||
wide | U.S. | the U.S. | wide | U.S. | the U.S. | |||||||||||||||||||
Cost impact | 6 | % | 4 | % | 10 | % | 4 | % | 3 | % | 6 | % | ||||||||||||
HFCS Settlement | (3 | )% | (4 | )% | 0 | % | (1 | )% | (1 | )% | 0 | % | ||||||||||||
Strategic Spending Initiatives | 1 | % | 1 | % | 2 | % | 0 | % | 0 | % | 1 | % | ||||||||||||
Currency translation | 2 | % | 0 | % | 5 | % | 1 | % | 0 | % | 4 | % | ||||||||||||
Acquisitions | 1 | % | 1 | % | 0 | % | 1 | % | 0 | % | 1 | % | ||||||||||||
Total SD&A change | 7 | % | 2 | % | 17 | % | 5 | % | 2 | % | 12 | % | ||||||||||||
Worldwide selling, delivery and administrative expenses were $1.1 billion in the third quarter and $3.1 billion for the first thirty-six weeks of 2005, a 7% and 5% respective increase over similar periods in 2004. This increase was driven by higher volume growth, wage and benefit increases and rising fuel prices, partially offset by the net litigation settlement. Included in our selling, delivery and administrative expenses for the quarter was a gain of $26 million in the U.S. from the settlement of the HFCS class action lawsuit, offset by $10 million of strategic spending initiatives spent in the U.S., Canada and Europe. The net litigation settlement reduced our selling, delivery and administrative worldwide growth for the quarter by approximately 2 percentage points and by 1 percentage point for the year-to-date period.
The strategic spending initiatives included programs to enhance our customer service agenda, drive productivity and improve our management information systems. We plan to spend the balance of the proceeds from the HFCS class action lawsuit on these strategic spending initiatives during the fourth quarter.
In the U.S., selling, delivery and administrative expenses increased approximately 2% for both the quarter and on a year-to-date basis. This increase was driven by higher volume growth, wage and benefit increases and rising fuel prices, partially offset by the gain from the settlement of the HFCS class action lawsuit. In addition, the strategic spending initiatives and acquisitions each accounted for approximately one percentage point of the increase in the quarter.
The increases in selling, delivery and administrative expenses outside the U.S. for the quarter and on a year-to-date basis were primarily due to volume growth, wage and benefit increases and the negative impact of foreign currency translation, coupled with strategic spending initiatives.
Operating Income
Worldwide operating income was $393 million in the third quarter, a 10% increase over 2004. On a year-to-date basis worldwide operating income was $816 million, a 5% increase over 2004. Growth in operating income for the quarter and year-to-date period was driven primarily by higher volume and pricing improvements, partially offset by higher raw material costs and increased operating costs. These results include the net litigation settlement of $16 million, which contributed 4 percentage points and 2 percentage points to our operating income growth in the quarter and year-to-date period, respectively.
In the U.S., growth in operating income of 16% for the quarter and 6% on a year-to-date basis was driven primarily by strong revenue growth and the settlement of the HFCS class action lawsuit,
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partially offset by higher raw material costs and higher selling, delivery and administrative expenses.
Outside the U.S., operating income declined slightly both in the quarter and on a year-to-date basis, driven primarily by the strategic spending initiatives for improving productivity in Europe.
Interest Expense, net
Interest expense, net increased by $6 million in the third quarter and $11 million for the first thirty-six weeks of 2005, when compared with similar periods of 2004, largely due to higher effective interest rates on our long-term debt.
Income Tax Expense
Our effective tax rate for the thirty-six weeks ended 2005 and 2004 was 34.8% and 33.6%, respectively. The increase in the effective tax rate is primarily due to the lapping of the settlement of certain international tax audits, which allowed the Company to reverse certain previously established liabilities for tax exposures in 2004. This had resulted in a $0.02 diluted earnings per share benefit in the third quarter of 2004.
Liquidity and Financial Condition
Cash Flows
Net cash from operations increased by $15 million to $725 million in the first thirty-six weeks of 2005. Increases in net cash provided by operations was driven by a higher mix of non-cash expenses such as depreciation charges, coupled with the timing of our pension contributions, partially offset by higher incentive compensation payouts and the expiration of certain tax incentives.
Net cash used for investments decreased by $1 million to $424 million in the first thirty-six weeks of 2005, primarily due to higher proceeds from the sale of property, plant and equipment and offset by increases in capital expenditures.
Net cash used for financing decreased by $922 million to $338 million in the first thirty-six weeks of 2005 driven primarily by the lapping of the repayment of our $1.0 billion note in February 2004 and lower purchases of treasury stock, partially offset by higher dividends and short-term borrowing repayments.
For the full year in 2005, we expect to generate net cash provided by operations of about $1.2 billion. In addition, we expect capital expenditures to be between $675 million and $725 million.
Liquidity and Capital Resources
We believe that our future cash flows from operations and borrowing capacity will be sufficient to fund capital expenditures, acquisitions, dividends and working capital requirements for the foreseeable future.
We have a $500 million commercial paper program in the U.S. that is supported by a credit facility, which is guaranteed by Bottling LLC and expires in April 2009. We had no commercial paper outstanding at September 3, 2005. We had $86 million and $78 million outstanding in commercial paper at September 4, 2004 and December 25, 2004, respectively.
Due to the nature of our business, we require insurance coverage for certain casualty risks. In 2005, we are self-insured for workers’ compensation and automobile risks for occurrences up to $10 million, and product and general liability risks for occurrences up to $5 million. For losses
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exceeding these self-insurance thresholds, we purchase casualty insurance from a third-party provider.
Contractual Obligations
As of September 3, 2005, there have been no material changes outside the normal course of business in the contractual obligations disclosed in Item 7 to our Annual Report on Form 10-K for the fiscal year ended December 25, 2004, under the caption “Contractual Obligations.”
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Cautionary Statements
Except for the historical information and discussions contained herein, statements contained in this Form 10-Q may constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on currently available competitive, financial and economic data and our operating plans. These statements involve a number of risks, uncertainties and other factors that could cause actual results to be materially different. Among the events and uncertainties that could adversely affect future periods are:
• | changes in our relationship with PepsiCo that could have a material adverse effect on our long-term and short-term business and financial results; | |
• | restrictions imposed by PepsiCo on our raw material suppliers that could increase our costs; | |
• | material changes from expectations in the cost of raw materials and ingredients; | |
• | decreased demand for our product resulting from changes in consumers’ preferences; | |
• | an inability to achieve volume growth through product and packaging initiatives; | |
• | impact of competitive activities on our business; | |
• | impact of customer consolidations on our business; | |
• | an inability to achieve cost savings; | |
• | material changes in capital investment for infrastructure and an inability to achieve the expected timing for returns on cold-drink equipment and related infrastructure expenditures; | |
• | material changes in expected levels of bottler incentive payments from PepsiCo; | |
• | changes in product category consumption; | |
• | unfavorable weather conditions in our markets; | |
• | unforeseen economic and political changes; | |
• | possible recalls of our products; | |
• | an inability to meet projections for performance in newly acquired territories; | |
• | failure or inability to comply with laws and regulations; | |
• | changes in laws and regulations governing the manufacture and sale of food and beverages, including restrictions on the sale of carbonated soft drinks in schools; | |
• | changes in laws and regulations governing the environment, transportation, employee safety, labor and government contracts; | |
• | changes in accounting standards and taxation requirements (including unfavorable outcomes from audits performed by various tax authorities); | |
• | changes in our debt ratings; | |
• | material changes in expected interest and currency exchange rates and unfavorable market performance of our pension plan assets; | |
• | interruptions of operations due to labor disagreements; | |
• | loss of business from a significant customer; and | |
• | limitations on the availability of water or obtaining water rights. |
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Item 3.
Quantitative and Qualitative Disclosures About Market Risk
The overall risks to our international businesses include changes in foreign governmental policies and other political or economic developments. These developments may lead to new product pricing, tax or other policies and monetary fluctuations, which may adversely impact our business. In addition, our results of operations and the value of our foreign assets are affected by fluctuations in foreign currency exchange rates. Foreign currency gains and losses reflect transaction gains and losses as well as translation gains and losses arising from the re-measurement into U.S. dollars of the net monetary assets of businesses in highly inflationary countries. There have been no material changes to our market risks as disclosed in Item 7 to our Annual Report on Form 10-K for the year ended December 25, 2004.
Item 4.
Controls and Procedures
PBG’s management carried out an evaluation, as required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as of the end of our last fiscal quarter. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
In addition, PBG’s management carried out an evaluation, as required by Rule 13a-15(d) of the Exchange Act, with the participation of our Chief Executive Officer and our Chief Financial Officer, of changes in PBG’s internal control over financial reporting. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1.
Legal Proceedings
At the end of the fourth quarter of 2004 and during the first three quarters of 2005, we received Notices of Violation (“NOVs”) and Orders For Compliance from the Environmental Protection Agency, Region 9 (“EPA”), relating to operations at four bottling plants in California and one in Hawaii. The NOVs allege that we violated our permits and the Clean Water Act as a result of certain events relating to waste water discharge and storm water run-off.
We have been cooperating with the authorities in their investigation of these matters, including responding to various document requests pertaining to our plants in California and each of our plants in Arizona and Hawaii. In August 2005, we met with representatives of EPA to discuss the circumstances giving rise to the NOVs and our responses. We believe monetary sanctions may be sought in connection with one or more of the NOVs. We further believe that neither the sanctions nor the remediation costs associated with these NOVs will be material to the Company’s business or financial condition.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
PBG Purchases of Equity Securities
In the third quarter of 2005, we repurchased approximately 3 million shares of PBG common stock. Since the inception of our share repurchase program in October 1999, we have repurchased 96 million shares of PBG common stock. Our share repurchases for the third quarter of 2005, are as follows:
Total Number of Shares | Maximum Number of | |||||||||||||||
Total Number | Purchased as Part of | Shares that May Yet Be | ||||||||||||||
of Shares | Average Price | Publicly Announced | Purchased Under the | |||||||||||||
Period | Purchased1 | Paid per Share2 | Plans or Programs3 | Plans or Programs3 | ||||||||||||
Period 7 – 06/12/05-07/09/05 | 938,000 | $ | 28.76 | 938,000 | 31,704,300 | |||||||||||
Period 8 – 07/10/05-08/06/05 | 904,700 | $ | 29.39 | 904,700 | 30,799,600 | |||||||||||
Period 9 – 08/07/05-09/03/05 | 1,438,500 | $ | 29.19 | 1,438,500 | 29,361,100 | |||||||||||
Total | 3,281,200 | $ | 29.12 | 3,281,200 |
1 | Shares have only been repurchased through publicly announced programs. | |
2 | Average share price excludes brokerage fees. |
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3 | The PBG Board has authorized the repurchase of shares of common stock on the open market and through negotiated transactions as follows: |
Number of Shares | ||||
Authorized to be | ||||
Date Share Repurchase Program was Publicly Announced | Repurchased | |||
October 14, 1999 | 20,000,000 | |||
July 13, 2000 | 10,000,000 | |||
July 11, 2001 | 20,000,000 | |||
May 28, 2003 | 25,000,000 | |||
March 25, 2004 | 25,000,000 | |||
March 24, 2005 | 25,000,000 | |||
Total shares authorized to be repurchased as of Sept. 3, 2005 | 125,000,000 | |||
Unless terminated by resolution of the PBG Board, each share repurchase program expires when we have repurchased all shares authorized for repurchase thereunder.
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Item 6.
Exhibits
Exhibit No. |
10.1 | Form of Employee Restricted Stock Unit Agreement under the PBG 2004 Long-Term Incentive Plan | |
11.1 | Computation of Basic and Diluted Earnings Per Share | |
31.1 | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 | |
31.2 | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 | |
32.1 | Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes –Oxley Act of 2002 | |
32.2 | Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes –Oxley Act of 2002 | |
99.1 | Financial statements of Bottling LLC, which are incorporated herein by reference to Bottling LLC’s Quarterly Report on Form 10-Q for the quarter ended September 3, 2005, as required by the SEC as a result of Bottling LLC’s guarantee of up to $1,000,000,000 aggregate principal amount of our 7% Senior Notes due in 2029. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE PEPSI BOTTLING GROUP, INC. | ||||||
(Registrant) | ||||||
Date:October 6, 2005 | /s/ Andrea L. Forster | |||||
Andrea L. Forster | ||||||
Vice President and Controller | ||||||
Date:October 6, 2005 | /s/ Alfred H. Drewes | |||||
Alfred H. Drewes | ||||||
Senior Vice President and | ||||||
Chief Financial Officer |