SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
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14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
The Pepsi Bottling Group, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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[PBG LOGO]
THE PEPSI BOTTLING GROUP, INC.
One Pepsi Way
Somers, NY 10589
March 31, 2003
Dear Fellow Shareholders:
On behalf of your Board of Directors, we are pleased to invite you to
attend the 2003 Annual Meeting of Shareholders of The Pepsi Bottling Group, Inc.
(the "Company"). This meeting will be held on Wednesday, May 28, 2003, at 10:00
a.m. Eastern Daylight Time, at the Company's headquarters located at One Pepsi
Way in Somers, New York.
At this meeting, you will be asked to elect the Company's directors and
approve the Board's selection of independent auditors to audit the Company's
financial statements for 2003. The enclosed notice and proxy statement contain
details about the business to be conducted at the meeting. To assure that your
shares are represented at the meeting, we urge you to mark your choices on the
enclosed proxy card, sign and date the card and return it promptly in the
envelope provided. If you are able to attend the meeting and wish to vote your
shares personally, you may do so at any time before the proxy is voted at the
meeting.
If you plan to attend the meeting, please check the "Annual Meeting" box on
your proxy card so that we may send you an admission card.
Sincerely,
/s/ John T. Cahill
John T. Cahill
Chairman of the Board and
Chief Executive Officer
[PBG LOGO]
THE PEPSI BOTTLING GROUP, INC.
One Pepsi Way
Somers, New York 10589
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS:
The Pepsi Bottling Group, Inc. ("PBG" or the "Company") will hold its
Annual Shareholders' Meeting at its headquarters at One Pepsi Way, Somers, New
York, on Wednesday, MAY 28, 2003, at 10:00 A.M. Eastern Daylight Time to:
- Elect the Company's directors;
- Approve the appointment of KPMG LLP as the Company's independent
auditors; and
- Transact any other business that may properly come before the Annual
Meeting.
If you own shares of PBG Capital Stock as of the close of business on March
31, 2003 (the Record Date), you can vote those shares by proxy or at the Annual
Meeting. If you plan to attend the Annual Meeting, you must request an admission
card by checking the appropriate box on your proxy.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE THE
ENCLOSED PROXY CARD AND SIGN, DATE AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED. THE HOLDERS OF
RECORD OF OUTSTANDING SHARES OF THE COMPANY'S CAPITAL STOCK ENTITLED TO CAST A
MAJORITY OF ALL VOTES AT THE ANNUAL MEETING MUST BE PRESENT IN PERSON OR
REPRESENTED BY PROXY AT THE ANNUAL MEETING IN ORDER TO HOLD THE MEETING. ANY
SHAREHOLDER RETURNING A PROXY MAY REVOKE IT AT ANYTIME BEFORE THE PROXY IS
EXERCISED BY FILING WITH THE SECRETARY OF THE COMPANY EITHER A NOTICE OF
REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE. THE POWERS OF THE
PROXY HOLDERS WILL BE SUSPENDED IF YOU ATTEND THE MEETING IN PERSON AND SO
REQUEST, ALTHOUGH ATTENDANCE AT THE MEETING WILL NOT BY ITSELF REVOKE A
PREVIOUSLY GRANTED PROXY.
By Order of the Board of Directors,
/s/ Pamela C. McGuire
Pamela C. McGuire
Secretary
March 31, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
GENERAL INFORMATION ABOUT THE MEETING....................... 1
Quorum and Voting Requirements.............................. 1
Admission to Annual Meeting................................. 1
PROXY ITEM NO. 1 -- ELECTION OF DIRECTORS................... 2
Meetings of the Board of Directors.......................... 3
Committees of the Board of Directors........................ 3
Directors' Compensation..................................... 4
Section 16 Beneficial Ownership Reporting Compliance........ 5
Stock Ownership of Certain Beneficial Owners................ 5
Ownership of Common Stock by Directors and Executive
Officers.................................................. 6
EXECUTIVE COMPENSATION...................................... 7
Summary of Cash and Certain Other Compensation.............. 7
Stock Option Grants......................................... 8
Stock Option Exercises and Holdings......................... 8
Arrangements in Connection with the Retirement of Mr.
Weatherup as Chairman of the Board........................ 9
Pension Plan Table.......................................... 9
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION..... 10
Compensation Philosophy and Programs........................ 10
Base Salaries............................................... 10
Annual Cash Incentives...................................... 10
Long-Term Incentives........................................ 11
Other Stock Programs........................................ 11
2002 Compensation of the Chief Executive Officer............ 11
Impact of Internal Revenue Code Section 162(m).............. 11
Summary..................................................... 11
REPORT OF THE AUDIT COMMITTEE............................... 12
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 13
PERFORMANCE GRAPH........................................... 14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 15
Stock Ownership and Director Relationships with PepsiCo..... 15
Agreements and Transactions with PepsiCo and Affiliates..... 15
PROXY ITEM NO. 2 -- APPROVAL OF AUDITORS.................... 17
OTHER MATTERS............................................... 17
YEAR 2004 SHAREHOLDERS' PROPOSALS........................... 17
GENERAL..................................................... 17
</Table>
THE PEPSI BOTTLING GROUP, INC.
Somers, New York 10589
March 31, 2003
PROXY STATEMENT
FOR ANNUAL MEETING TO BE HELD ON
MAY 28, 2003
The Board of Directors of The Pepsi Bottling Group, Inc., a Delaware
corporation ("PBG" or the "Company"), is soliciting proxies to be voted at the
Annual Meeting of Shareholders (the "Annual Meeting") to be held at 10:00 a.m.
Eastern Daylight Time, on Wednesday, May 28, 2003, at PBG's headquarters, One
Pepsi Way, Somers, New York, for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders, and at any adjournment of the Annual
Meeting. We are sending this Proxy Statement in connection with the proxy
solicitation.
PBG will commence mailing this Proxy Statement to shareholders on or about
April 7, 2003.
GENERAL INFORMATION ABOUT THE MEETING
QUORUM AND VOTING REQUIREMENTS. The presence in person or by proxy of
shareholders holding as of the Record Date (defined below) the outstanding
shares of the Company's Capital Stock (defined below), which are entitled to
cast a majority of all votes that could be cast at the Annual Meeting, will
constitute a quorum for the transaction of all business at the Annual Meeting. A
shareholder voting for the election of directors may withhold authority to vote
for all or certain nominees for directors. A shareholder may also abstain from
voting on the other matters presented for shareholder vote. Votes withheld from
the election of any nominee for director and abstentions from any other proposal
will be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but will not be counted in the number of
votes cast on a matter. If a shareholder holds shares through a broker, bank or
other nominee, generally the nominee may vote the shares it holds in accordance
with instructions received.
Only shareholders of record at the close of business on March 31, 2003 are
entitled to vote at the Annual Meeting. Any shareholder returning a proxy may
revoke it at anytime before the proxy is exercised by filing with the Secretary
of the Company either a notice of revocation or a duly executed proxy bearing a
later date. The powers of the proxy holders will be suspended if you attend the
meeting in person and so request, although attendance at the meeting will not by
itself revoke a previously granted proxy. Any proxy not revoked will be voted as
specified by the shareholder. If no choice is indicated, a proxy will be voted
in accordance with the Board of Directors' recommendations. Under Delaware law,
no appraisal rights will be available to dissenters in connection with matters
to be acted upon at the Annual Meeting.
PBG Capital Stock includes both Common Stock and Class B Common Stock. At
March 31, 2003 (the "Record Date"), there were 274,979,418 shares of PBG Common
Stock outstanding and 100,000 shares of Class B Common Stock outstanding. Each
share of Common Stock entitles the holder to one vote on each matter presented
at the Annual Meeting. The holders of Class B Common Stock are entitled to 250
votes per share. All outstanding shares of Class B Common Stock are held by
PepsiCo, Inc. ("PepsiCo").
ADMISSION TO ANNUAL MEETING. If you are a registered owner and plan to
attend the Annual Meeting in person, please check the "Annual Meeting" box on
the proxy so that we may send you an admission card. A beneficial owner who
plans to attend the Annual Meeting may obtain an admission ticket in advance by
sending a written request with proof of ownership (such as a bank or brokerage
firm account statement) to the Company's transfer agent, The Bank of New York,
101 Barclay Street, New York, New York 10286 Attention: Stock Transfer
Administration Department. Admittance to the Annual Meeting will be based upon
availability of seating.
Shareholders who do not present admission tickets at the Annual Meeting
will be admitted upon verification of ownership at the admissions desk.
1
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The Board of Directors proposes the following ten nominees for election as
directors at the Annual Meeting. The directors will hold office from election
until the next Annual Meeting of Shareholders, or until their successors are
elected and qualified.
LINDA G. ALVARADO, 50, was elected to PBG's Board in March 1999. She is the
President and Chief Executive Officer of Alvarado Construction, Inc., a general
contracting firm specializing in commercial, industrial, environmental and heavy
engineering projects, a position she assumed in 1976. Ms. Alvarado is also a
director of Pitney Bowes, Inc., Qwest Communications International, Inc., Lennox
International and 3M Company.
BARRY H. BERACHA, 61, was elected to PBG's Board in March 1999. He has been
the Chief Executive Officer of Sara Lee Bakery Group since August 2001.
Previously, Mr. Beracha was the Chairman of the Board and Chief Executive
Officer of The Earthgrains Company from 1993 to August 2001. Earthgrains was
formerly part of Anheuser-Busch Companies, where Mr. Beracha served from 1967 to
1996. From 1979 to 1993, he held the position of Chairman of the Board of
Anheuser-Busch Recycling Corporation. From 1976 to 1995, Mr. Beracha was also
Chairman of the Board of Metal Container Corporation. Mr. Beracha is also a
director of St. Louis University and McCormick & Co., Inc.
JOHN T. CAHILL, 45, was elected to PBG's Board in January 1999 and became
Chairman of the Board in January 2003. He has been our Chief Executive Officer
since September 2001. Previously, Mr. Cahill served as our President and Chief
Operating Officer. Mr. Cahill served as our Executive Vice President and Chief
Financial Officer prior to becoming our President and Chief Operating Officer in
August 2000. He was Executive Vice President and Chief Financial Officer of the
Pepsi-Cola Company from April 1998 to November 1998. Prior to that, Mr. Cahill
was Senior Vice President and Treasurer of PepsiCo, having been appointed to
that position in April 1997. In 1996, he became Senior Vice President and Chief
Financial Officer of Pepsi-Cola North America. Mr. Cahill joined PepsiCo in 1989
and held several other senior financial positions through 1996.
IRA D. HALL, 58, was elected to the Board at PBG's Board meeting in March
2003. Mr. Hall has been the Chief Executive Officer of Utendahl Capital
Management, L.P. since 2002. From 1999 to 2001, he was Treasurer of Texaco Inc.
and General Manager, Alliance Management for Texaco Inc. from 1998 to 1999. From
1985 to 1998, Mr. Hall held several positions with International Business
Machines. Mr. Hall is also a director of Imagistics International, Inc., The
Reynolds and Reynolds Company and TECO Energy, Inc.
THOMAS H. KEAN, 67, was elected to PBG's Board in March 1999. Mr. Kean has
been the President of Drew University since 1990 and was the Governor of the
State of New Jersey from 1982 to 1990. Mr. Kean is also a director of Amerada
Hess Corporation, Aramark Corporation, Fiduciary Trust Company International and
UnitedHealth Group, Inc. Mr. Kean is also Chairman of The National Commission on
Terrorist Attacks upon the United States.
SUSAN D. KRONICK, 51, was elected to PBG's Board in March 1999. Ms. Kronick
became Vice Chairman of Federated Department Stores in February 2003.
Previously, she had been Group President of Federated Department Stores since
April 2001. From 1997 to 2001, Ms. Kronick was the Chairman and Chief Executive
Officer of Burdines, a division of Federated Department Stores. From 1993 to
1997, Ms. Kronick served as President of Federated's Rich's/Lazarus/Goldsmith's
division. She spent the previous 20 years at Bloomingdale's, where her last
position was as Senior Executive Vice President and Director of Stores.
BLYTHE J. MCGARVIE, 46, was elected to the Board at PBG's Board meeting in
March 2002. Ms. McGarvie is President of Leadership for International Finance, a
private consulting firm. From 1999 to December 2002, Ms. McGarvie was Executive
Vice President and Chief Financial Officer of BIC Group. From 1994 to 1999, Ms.
McGarvie served as Senior Vice President and Chief Financial Officer of
Hannaford Bros. Co. Ms. McGarvie is a Certified Public Accountant and has also
held
2
senior financial positions at Sara Lee Corporation, Kraft General Foods, Inc.
and Pizza Hut, Inc. Ms. McGarvie is also a director of Accenture Ltd.
MARGARET D. MOORE, 55, was elected to PBG's Board in January 2001. Ms.
Moore is Senior Vice President, Human Resources of PepsiCo, a position she
assumed at the end of 1999. From November 1998 to December 1999, she was Senior
Vice President and Treasurer of PBG. Prior to joining PBG, Ms. Moore spent 25
years with PepsiCo in a number of senior financial and human resources
positions.
CLAY G. SMALL, 53, was elected to PBG's Board in May 2002. Mr. Small is
Senior Vice President and General Counsel of Frito-Lay, Inc., a subsidiary of
PepsiCo. Mr. Small joined PepsiCo as an attorney in 1981. He served as Vice
President and Division Counsel of the Pepsi-Cola Company from 1983 to 1987 and
Senior Vice President and General Counsel of Pizza Hut, Inc. from 1987 to 1997.
CRAIG E. WEATHERUP, 57, was elected to PBG's Board in January 1999. He was
Chairman of the Board of PBG from March 1999 to January 2003. Mr. Weatherup
retired as Chairman of the Board in 2003, but continues to serve on the Board as
a non-employee director. Mr. Weatherup was also the Chief Executive Officer of
PBG from March 1999 to September 2001. He served on the Board of Directors of
PepsiCo from 1996 until March 1999. Prior to becoming Chairman and Chief
Executive Officer of PBG, he had served as Chairman and Chief Executive Officer
of the Pepsi-Cola Company since July 1996. He was appointed President of the
Pepsi-Cola Company in 1988, President and Chief Executive Officer of Pepsi-Cola
North America in 1991, and served as PepsiCo's President in 1996. Mr. Weatherup
is also a director of Federated Department Stores, Inc. and Starbucks
Corporation.
If any of these nominees for director becomes unavailable, the persons
named in the enclosed proxy intend to vote for any alternate designated by the
present Board.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE ABOVE-NAMED
NOMINEES FOR ELECTION AS DIRECTORS.
MEETINGS OF THE BOARD OF DIRECTORS. PBG's Board of Directors held five
regular meetings and three telephonic meetings during fiscal year 2002.
Attendance by incumbent directors at all Board and Committee meetings was
approximately 94%.
COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors has three
standing committees: Audit and Affiliated Transactions, Compensation and
Management Development (including a Compensation Subcommittee consisting solely
of "outside directors" the "Compensation Subcommittee"), and Nominating and
Corporate Governance.
The Audit and Affiliated Transactions Committee consists of Susan D.
Kronick, Blythe J. McGarvie and Barry H. Beracha, who serves as Chairperson, all
of whom have been determined by the Board of Directors to be independent (as
independence is defined under the New York Stock Exchange listing standards).
The Audit and Affiliated Transactions Committee's primary responsibilities are
to: (i) oversee the Company's financial reporting processes and policies and
internal control systems, including review of the Company's quarterly and annual
financial statements; (ii) review and monitor the performance and independence
of the Company's independent auditors and the performance of the internal
auditing department; (iii) provide an open avenue of communication among the
independent auditors, financial and senior management, the internal auditing
department, and the Board; (iv) recommend the appointment of PBG's independent
auditors to the Board of Directors (subject to shareholder ratification) and (v)
evaluate, and where appropriate, replace PBG's independent auditors. The Audit
and Affiliated Transactions Committee also reviews transactions between the
Company and PepsiCo, or any entity in which PepsiCo has a 20% or greater
interest, that are outside the ordinary course of business and have a value of
more than $10 million. The Audit and Affiliated Transactions Committee held four
regular meetings and two telephonic meetings during fiscal 2002. At each regular
meeting in fiscal 2002, the Audit and Affiliated Transactions Committee met with
KPMG LLP, the Company's independent auditors, in
3
executive session. In addition, the Audit and Affiliated Transactions Committee
met once with PBG's Director of Internal Audit and once with PBG's Chief
Financial Officer in fiscal 2002.
The Compensation and Management Development Committee consists of Linda G.
Alvarado, Barry H. Beracha, Thomas H. Kean, Blythe J. McGarvie, Margaret D.
Moore, Clay G. Small and Susan D. Kronick, who serves as Chairperson. The
Compensation and Management Development Committee's responsibilities include:
(i) reviewing the Company's compensation and benefits philosophy; (ii) approving
and, where appropriate, recommending to the shareholders for approval annual and
long-term executive compensation programs or any changes in such plans; (iii)
evaluating, in conjunction with the Nominating and Corporate Governance
Committee, the performance of both the Chairman and the CEO and approving both
the Chairman's and the CEO's base salary; (iv) evaluating the performance of the
other executive officers and approving their base salaries; (v) approving the
aggregate amount for annual bonus awards; (vi) approving awards under
stock-based plans (other than to both the Chairman and the CEO and other named
executive officers); and (vii) reviewing senior management succession planning.
In addition, for purposes of complying with Section 162(m) of the Internal
Revenue Code of 1986 (the "Code") and Rule 16b-3 of the Securities Exchange Act
of 1934, the Board of Directors has established a Compensation Subcommittee,
consisting of Linda G. Alvarado, Barry H. Beracha, Thomas H. Kean, Blythe J.
McGarvie and Susan D. Kronick, all of whom are "outside" and "non-employee"
directors. The Compensation Subcommittee's responsibilities include: (i)
administering PBG's annual and long-term executive compensation plans with
respect to the Company's executive officers, including both the Chairman and the
CEO, and other executives deemed covered by Section 162(m) of the Code (the
"Covered Executives"); (ii) approving performance goals, maximum awards and
payout schedules for annual incentive awards for the Covered Executives; (iii)
certifying performance and approving annual incentive awards for the Covered
Executives; and (iv) approving awards of long-term incentives to the Covered
Executives. The Compensation and Management Development Committee and the
Compensation Subcommittee each held three meetings during fiscal 2002.
The Nominating and Corporate Governance Committee consists of Linda G.
Alvarado and Thomas H. Kean, who serves as Chairperson. The Nominating and
Corporate Governance Committee's responsibilities include: (i) identifying
candidates for future Board membership and proposing criteria for Board
candidates and candidates to fill Board vacancies, as well as a slate of
directors for election by the shareholders at each annual meeting; (ii)
periodically assessing and reporting to the Board on Board performance and
effectiveness; (iii) periodically reviewing and making recommendations to the
Board concerning the composition, size and structure of the Board and its
Committees; (iv) periodically reviewing and recommending the compensation for
non-employee directors; and (v) in conjunction with the Compensation and
Management Development Committee, advising the Board in its periodic evaluation
of both the Chairman's and the CEO's performance. The Nominating and Corporate
Governance Committee held one meeting during fiscal 2002. The Committee does not
solicit director nominations, but will consider recommendations sent to the
Secretary of The Pepsi Bottling Group, Inc. at One Pepsi Way, Somers, New York,
10589.
DIRECTORS' COMPENSATION. Employee directors do not receive additional
compensation for serving on the Board of Directors. Non-employee directors
receive a one-time grant of $25,000 in restricted shares of PBG Common Stock
upon joining the Board of Directors. This grant may be converted to phantom
stock and deferred until the director leaves the Board. For 2002, non-employee
directors also received an annual grant of options to purchase PBG Common Stock
in the face amount of $275,000. Options are granted at fair market value and may
be exercised for up to ten years while a director is serving on the Board (the
full ten-year term also applies in the case of death or disability).
Non-employee directors have a one-time opportunity to convert options into PBG
Common Stock at a ratio of three options for each share. Converted shares may in
turn be deferred as phantom stock for a minimum period of two years.
Beginning in 2003, non-employee directors will receive an annual grant of
options to purchase PBG Common Stock in the face amount of $300,000 and an
annual cash retainer of $50,000. This
4
retainer will be made in quarterly cash payments. In addition, Committee chairs
will receive an additional annual $10,000 which will also be made in quarterly
cash payments.
Non-employee directors do not receive retirement, health or life insurance
benefits. They are, however, eligible to participate in PBG's charitable gift
match program whereby certain charitable donations of up to an aggregate of
$10,000 are matched annually.
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the
Securities Exchange Act of 1934 requires the Company's directors, certain
officers and persons who own more than ten percent of the outstanding Common
Stock of the Company, to file with the Securities and Exchange Commission (the
"SEC") reports of ownership and changes in ownership of the Capital Stock of the
Company held by such persons. Officers, directors and greater-than-ten percent
shareholders are also required to furnish the Company with copies of all forms
they file under this regulation. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and
representations that no other reports were required, all Section 16(a) filing
requirements applicable to all of its reporting persons were complied with
during fiscal 2002.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. Based on Schedule 13G
filings, shareholders holding more than 5% of PBG Capital Stock as of February
21, 2003, are:
<Table>
<Caption>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIALLY OWNED OF CLASS
- ------------------- -------------------- ------------------ --------
(1) PepsiCo, Inc.(1).................. Class B Common Stock 100,000 100%
700 Anderson Hill Road
Common Stock 105,911,358 38.0%(3)
Purchase, NY 10577
(2) Wellington Management Company, Common Stock 16,578,125 5.9%(3)
LLP(2)............................
75 State Street
Boston, MA 02109
</Table>
- ---------------
(1) PepsiCo reported its beneficial ownership as of December 29, 2001 on a
Schedule 13G filed with the SEC. The filing indicates that PepsiCo has sole
voting power for 106,011,358 shares (for combined Class B Common Stock and
Common Stock), shared voting power for 0 shares, sole dispositive power for
106,011,358 shares (for combined Class B Common Stock and Common Stock) and
shared dispositive power for 0 shares.
(2) Wellington Management Company, LLP ("WMC") reported its beneficial ownership
as of December 31, 2002 on a Schedule 13G filed with the SEC. The filing
indicates that WMC has sole voting power for 0 shares, shared voting power
for 12,008,075 shares, sole dispositive power for 0 shares and shared
dispositive power for 16,578,125 shares.
(3) Percentages are calculated based upon the number of outstanding shares of
PBG Common Stock as of February 21, 2003.
5
OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS. The
following table shows, as of February 21, 2003, the shares of PBG Common Stock
beneficially owned by (i) each director (including nominees), (ii) each
executive officer of the Company named in the Summary Compensation Table, and
(iii) all directors and executive officers as a group. Except as otherwise
noted, each of the following persons has sole voting and investment power with
respect to the shares of Common Stock beneficially owned by him or her. PBG's
internal stock ownership guidelines call for key senior executives to own PBG
Common Stock (or deferral plan units) with a value ranging from 1 to 5 times
their base salary (depending on position) within five years from the date of
their election or appointment.
<Table>
<Caption>
NUMBER OF
SHARES
NAME OF INDIVIDUAL OR BENEFICIALLY DEFERRAL PERCENT
NUMBER OF PERSONS IN GROUP OWNED(1) PLANS(2) TOTAL OF CLASS
- -------------------------- ------------ ---------- --------- --------
Linda G. Alvarado.......................... 55,100 6,998 62,098 (3)
Barry H. Beracha........................... 73,748 0 73,748 (3)
Ira D. Hall(4)............................. 0 0 0 (3)
Thomas H. Kean............................. 57,100 6,998 64,098 (3)
Susan D. Kronick........................... 69,290 2,174 71,464 (3)
Blythe J. McGarvie......................... 14,684 980 15,664 (3)
Margaret D. Moore.......................... 292,768(5)(6) 21,510 314,278 (3)
Clay G. Small.............................. 2,862(6) 0 2,862 (3)
John T. Cahill............................. 1,336,739 101,320 1,438,059 (3)
Alfred H. Drewes........................... 96,395 4,208 100,603 (3)
Eric J. Foss............................... 803,275 26,095 829,370 (3)
Pamela C. McGuire.......................... 698,182 0 698,182 (3)
Craig E. Weatherup......................... 3,622,105 0 3,622,105 1.3 %
All directors and executive officers as a
group (15 PERSONS)....................... 7,515,123 170,283 7,685,406 2.7 %
</Table>
- ---------------
(1) Includes vested stock options and stock options that will become
exercisable within 60 days.
(2) Units denominated as PBG phantom stock under deferred compensation
arrangements.
(3) Ownership percentage is less than 1% of the total amount of PBG Common
Stock outstanding as of February 21, 2003.
(4) Mr. Hall was elected to the Board of Directors at PBG's Board meeting in
March 2003.
(5) Includes 2,000 shares of PBG Common Stock held indirectly through children.
(6) Ms. Moore and Mr. Small each disclaims any beneficial ownership that she or
he may have in PepsiCo's shares of PBG Capital Stock.
6
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table
provides information on compensation earned and stock options awarded for the
years indicated by PBG to our Chief Executive Officer and four other most highly
compensated executive officers as of the end of the Company's 2002 fiscal year
in accordance with the rules of the SEC. These five individuals are referred to
in this proxy statement as the "named executive officers."
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
AWARDS PAYOUTS
----------------------
ANNUAL COMPENSATION SECURITIES
-------------------------------------------- UNDER-
OTHER ANNUAL LYING LTIP ALL OTHER
COMPENSATION OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) (#) ($) ($)
- --------------------------- ---- --------- ---------- ------------ ----------- -------- ------------
John T. Cahill.............. 2002 $721,154 $ 681,500 $ 32,227(1) 287,129 $ 0 $ 6,843(2)
Chief Executive Officer 2001 636,712 870,000 12,566 739,300 442,200 6,821
2000 539,904 811,320 14,139 240,000 0 6,800
Craig E. Weatherup.......... 2002 920,000 1,000,000 164,149(3) 0(4) 0 9,277(2)
Chairman of the Board 2001 909,231 1,315,000 142,900 1,270,770 0 11,188
2000 858,654 1,488,000 67,500 0 0 32,060
Alfred H. Drewes............ 2002 355,923 217,550 13,060(5) 113,109 218,962(6) 6,338(7)
Senior Vice President 2001 175,000 268,090 7,522 135,758 0 0
and Chief Financial 2000
Officer
Eric J. Foss................ 2002 458,462 366,560 34,902(8) 145,743 0 6,338(7)
President, North America 2001 416,923 460,360 154,565 385,364 0 6,800
2000 350,385 436,310 46,477 136,533 0 6,800
Pamela C. McGuire........... 2002 318,769 210,000 17,660(5) 101,386 0 6,031(7)
Senior Vice President, 2001 310,154 271,130 11,074 150,362 0 6,380
General Counsel and 2000 301,923 323,700 11,515 117,333 0 6,800
Secretary
</Table>
- ---------------
(1) This amount reflects (i) benefits from the use of corporate transportation;
(ii) payment of executive's tax liability with respect to certain Company
provided perquisites and (iii) reimbursement for appropriate tax-related
expenses.
(2) This amount reflects (i) a standard Company matching contribution in PBG
Common Stock to the executive's 401(k) account and (ii) premium amounts of
$119.89 and $1,323.42, for Messrs. Cahill and Weatherup, respectively,
imputed as income in connection with their waiver of rights to future
compensation payments under the Company's executive income deferral plan
and the arrangement entered into by the Company whereby such waived amounts
were used for the purpose of purchasing insurance for their benefit and
that of their designated beneficiaries, as previously disclosed in our 2002
proxy statement.
(3) This amount reflects benefits from the use of corporate transportation.
(4) Mr. Weatherup did not receive a long-term incentive award for 2002;
however, he received a grant of stock options in 2001.
(5) This amount reflects payment of executive's tax liability with respect to
certain Company provided perquisites.
(6) This amount reflects the cash payout of a variable award granted in 1999
based, in part, upon PBG performance targets pre-established by the
Compensation Subcommittee.
(7) This amount reflects a standard Company matching contribution in PBG Common
Stock to the executive's 401(k) account.
7
(8) This amount reflects (i) benefits from the use of corporate transportation
and (ii) reimbursement for appropriate tax-related expenses.
STOCK OPTION GRANTS. The following table presents information with respect
to stock option grants that were made during the fiscal year ended December 28,
2002 to each of the named executive officers. All options granted by the Company
in 2002 were non-qualified stock options, and no stock appreciation rights were
granted in 2002.
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
INDIVIDUAL GRANTS
----------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATES
UNDER- GRANTED TO EXERCISE OF STOCK PRICE APPRECIATION
LYING EMPLOYEES OR BASE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------------
NAME GRANTED(#) YEAR(1) ($/SH) DATE 5%($)(2) 10%($)(2)
- ---- ---------- ---------- -------- ---------- ------------ ------------
John T. Cahill......... 287,129(3) 4.5% $25.25 03/29/12 $ 4,559,491 $11,554,644
Craig E. Weatherup..... 0 0.0 N/A N/A N/A N/A
Alfred H. Drewes....... 113,109(3) 1.8 25.25 03/29/12 1,796,124 4,551,732
Eric J. Foss........... 145,743(3) 2.3 25.25 03/29/12 2,314,339 5,864,989
Pamela C. McGuire...... 101,386(3) 1.6 25.25 03/29/12 1,609,968 4,079,975
</Table>
- ---------------
(1) Approximately 6.4 million options to purchase PBG Common Stock were granted
primarily to key employees in 2002. This amount also includes (i) initial
acquisition grants to key employees in Turkey and Mexico and (ii) a
broad-based grant to front-line employees in Spain and Greece.
(2) The 5% and 10% rates of appreciation are based on a ten-year option term and
were specified by the SEC. These rates are not intended to forecast future
appreciation, if any, of PBG Common Stock.
(3) Amounts reflect standard annual stock option award exercisable as follows:
25% on March 30, 2003; 25% on March 30, 2004 and 50% on March 30, 2005.
STOCK OPTION EXERCISES AND HOLDINGS. No company-granted options were
exercised during the last fiscal year by the named executive officers. The
following table presents information with respect to the status and current
value of unexercised stock options held as of December 28, 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES(1)
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS AT FY-END(#) MONEY OPTIONS AT FY-END($)
ACQUIRED ON VALUE ------------------------------- -----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ------------ --------------
John T. Cahill.............. 0 0 836,419 1,198,270 $11,564,614 $ 6,304,242
Craig E. Weatherup.......... 0 0 2,694,684 750,000 33,174,682 3,712,500
Alfred H. Drewes............ 0 0 33,940 214,927 163,761 513,894
Eric J. Foss................ 0 0 518,419 562,276 6,639,166 3,289,917
Pamela C. McGuire........... 0 0 463,334 310,036 6,210,043 2,358,424
</Table>
- ---------------
(1) The closing price for a share of PBG Common Stock on December 27, 2002, the
last trading day prior to PBG's fiscal year end, was $25.45.
8
ARRANGEMENTS IN CONNECTION WITH THE RETIREMENT OF MR. WEATHERUP AS CHAIRMAN OF
THE BOARD.
Upon Mr. Weatherup's retirement as Chairman of the Board in January 2003,
Mr. Weatherup vested automatically in a pro rata portion of the stock options
granted under his 2001 Employee Stock Option Agreement (the "Agreement") in
accordance with the terms of the Agreement. This pro rata amount was determined
by reference to the number of days Mr. Weatherup worked during the three-year
vesting period for the options beginning on the date they were granted.
In recognition of Mr. Weatherup's thoughtfully designed and well-executed
succession plan and other outstanding achievements during his career, the
Compensation Subcommittee, pursuant to its authority under the terms of the 2000
PBG Long-Term Incentive Plan, approved an amendment to Mr. Weatherup's Agreement
which accelerated the vesting of 390,399 stock options that would not have
otherwise vested upon his retirement. In addition, the Company has agreed to
provide Mr. Weatherup with secretarial support and office space during his
tenure as a director of the Company.
PENSION PLAN TABLE
The Company has adopted the PBG Salaried Employees Retirement Plan and the
PBG Pension Equalization Plan. The annual benefits payable under these pension
plans to employees with five or more years of service at age 65 are, for the
first 10 years of credited service, 30% of the employee's highest consecutive
five-year average annual earnings plus an additional 1% of the employee's
highest consecutive five-year average annual earnings for each additional year
of credited service over ten years, less .43% of final average earnings not to
exceed Social Security covered compensation multiplied by years of service (not
to exceed 35 years) in the case of the PBG Salaried Employees Retirement and
Pension Equalization Plans. Under PBG's plans, when an executive retires at the
normal retirement age (65), the approximate annual benefits payable after
January 1, 2003, for the following pay classifications and years of service are
expected to be:
<Table>
<Caption>
YEARS OF SERVICE
----------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- ---------- ---------- ----------
$ 250,000 $ 84,598 $ 96,130 $ 107,663 $ 119,195 $ 130,728
500,000 172,098 196,130 220,163 244,195 268,228
750,000 259,598 296,130 332,663 369,195 405,728
1,000,000 347,098 396,130 445,163 494,195 543,228
1,250,000 434,598 496,130 557,663 619,195 680,728
1,500,000 522,098 596,130 670,163 744,195 818,228
1,750,000 609,598 696,130 782,663 869,195 955,728
2,000,000 697,098 796,130 895,163 994,195 1,093,228
2,250,000 784,598 896,130 1,007,663 1,119,195 1,230,728
2,500,000 872,098 996,130 1,120,163 1,244,195 1,368,228
</Table>
The pay covered by the pension plans noted above is based on the salary and
bonus shown in the Summary Compensation Table on page 7 for each of the named
executive officers. The years of credited service as of January 1, 2003 for the
named executive officers are as follows: 29 years for Mr. Weatherup; 14 years
for Mr. Cahill; 21 years for Mr. Foss; 26 years for Ms. McGuire; and 21 years
for Mr. Drewes.
9
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee (the "Committee") is
responsible for providing thought leadership in the development of a
compensation and benefits philosophy that drives the Company's performance and
shareholder value.
COMPENSATION PHILOSOPHY AND PROGRAMS. PBG is focused on maximizing value
for its shareholders by consistently delivering superior business results. The
Committee's goal is to ensure that PBG's executive compensation programs are
designed to enable the Company to attract, retain, and motivate global executive
talent whose performance is critical to the Company's success. PBG's executive
compensation programs provide key employees with the opportunity to receive
fixed and variable pay through annual and long-term incentives. These programs
were developed based on the following principles:
- Align the interests of shareholders, the Company, and executives by
placing particular emphasis on long-term stock based programs that foster
a strong relationship between shareholder return and executive
compensation.
- Attract and retain key talent by providing a total compensation package
that is competitive within our industry, rewards executives for superior
performance and builds employee wealth over the long-term.
- Develop programs that are (i) appropriate within our financial structure;
and (ii) simple and straightforward so that employees have a clear
understanding of the business results required to earn variable pay.
In addition, the Committee periodically examines annual and long-term
compensation levels for executives against a peer group made up of comparably
sized companies from the consumer goods, bottling, retail and service
industries. Two of these companies are included in the Bottling Group Index
described in the Performance Graph section on page 15. The Committee believes
that targeting compensation at a level comparable to this group of companies
appropriately reflects the labor market for the Company's executives.
PBG's executives are eligible for three compensation components: (1) base
salary, (2) annual cash incentives, and (3) long-term incentives.
BASE SALARIES. The Company's executive salary structure is based on broad
salary bands. Executive base pay generally is targeted at the 75th percentile of
the peer group and adjusted to reflect local market conditions. Individual base
salaries are determined based on a targeted pay level for each position within
each salary band. Annual increases are based on individual performance,
experience and responsibilities, and reflect the Company's philosophy of paying
for performance against underlying job accountabilities.
ANNUAL CASH INCENTIVES. Executive officers are eligible to receive annual
cash incentives under the Executive Incentive Compensation Plan ("EICP"). The
EICP's objectives are to support the attainment of the Company's business goals
by placing a substantial percent of an executive officer's pay at risk. Under
the EICP, and in order to ensure compliance under Section 162(m) of the Code,
the Compensation Subcommittee (comprised entirely of "outside directors")
determines the annual incentive targets for the named executive officers. In
January 2002, the Compensation Subcommittee established incentive targets for
the named executive officers based entirely on the Company's worldwide earnings
before interest, taxes, depreciation and amortization ("EBITDA"). No payment can
be made to the named executive officers unless a minimum level of EBITDA is
achieved. In January 2003, the Compensation Subcommittee certified the Company's
actual EBITDA performance, compared that performance to the pre-determined
EBITDA targets and determined the applicable maximum individual award. The
Compensation Subcommittee then exercised its discretion, based on additional
pre-determined financial factors, to decrease (but not increase) the amount
payable to each named executive officer.
10
Other executives receive annual cash incentives under a bonus plan that
includes specific goals for each organizational unit reflective of the Company's
team-based approach. The goals for 2002 for the Company's headquarters
executives were based on a combination of worldwide EBITDA and volume. The goals
for non-headquarters executives were based on volume and profit performance at
the local level. Individual payouts were based on an executive's bonus target
and attainment of applicable goals.
LONG-TERM INCENTIVES. The Company provides long-term incentives through
its Long-Term Incentive Plans (collectively "LTIP"). These long-term incentives
may include non-qualified stock options, performance units, incentive stock
options, stock appreciation rights, and restricted stock grants. The objective
of the LTIP is to provide a long-term focus that links executive compensation to
the creation of shareholder value and balances the short-term focus of the
annual incentives and base pay. Non-qualified stock options are the primary
long-term incentive vehicle of the Company. Individual grants are tied to an
executive's salary band and current base salary and generally are targeted at
the 75th percentile of the peer group.
OTHER STOCK PROGRAMS. The Committee has established stock ownership
guidelines for the Company's key senior executives. The guidelines vary from one
to five times annual salary. Ownership levels are measured annually and affected
employees must meet or exceed the guidelines within five years of
implementation.
2002 COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. In 2002, Mr. Cahill
received a base salary increase of $25,000 bringing his base salary to $725,000.
In determining Mr. Cahill's bonus, after the Compensation Subcommittee
certified the Company's EBITDA performance and determined the maximum award
payable to Mr. Cahill based on the pre-determined EBITDA targets, the
Compensation Subcommittee exercised its discretion to decrease the amount
payable to him by considering additional pre-determined financial and
non-financial measures. The additional financial measures for 2002 were based on
worldwide EBITDA and volume. The non-financial measures included: (i) developing
and implementing the Company's strategic plan and (ii) building acquisition
strategy and capability. After evaluating the attainment of both financial and
non-financial measures, the Compensation Subcommittee awarded Mr. Cahill a bonus
of $681,500.
Mr. Cahill received an annual stock option award under PBG's Long-Term
Incentive Plan reflective of his role and responsibilities.
IMPACT OF INTERNAL REVENUE CODE SECTION 162(M). Under the Omnibus Budget
Reconciliation Act of 1993, provisions were added to the Code under Section
162(m) that limit the tax deduction for compensation in excess of one million
dollars paid to certain executive officers. However, performance-based
compensation can be excluded from the limit so long as it meets certain
requirements. The Committee and the Compensation Subcommittee believe the EICP
and LTIP satisfy the requirements for exemption under Internal Revenue Code
Section 162(m). Payments made under these plans are generally expected to
qualify as performance-based compensation and to constitute the majority of
aggregate incentive payments for the named executive officers.
For 2002, the annual salary paid to Mr. Weatherup, Mr. Cahill and the other
named executive officers was in each case less than one million dollars. The
2002 annual incentives were all paid pursuant to the EICP and will, therefore,
be deductible when paid. The stock option awards made to executive officers
under the terms of the LTIP are exempt as performance-based compensation for
purposes of calculating the one million-dollar limit. Due to the Company's focus
on performance-based compensation plans and continued deferral of compensation
by certain executive officers, the Committee expects to continue to qualify most
compensation paid to the group as tax deductible.
SUMMARY. The Compensation Committee believes that the compensation
programs of the Company are well structured to encourage attainment of
objectives and foster a shareholder
11
perspective in management, in particular through employee stock ownership. The
Committee feels that the awards made in 2002 were competitive and appropriate,
and serve shareholders' long-term interests.
Respectfully submitted,
The Compensation and Management Development Committee
<Table>
Susan D. Kronick (Chairperson) Blythe J. McGarvie
Linda G. Alvarado Margaret D. Moore
Barry H. Beracha Clay G. Small
Thomas H. Kean
</Table>
REPORT OF THE AUDIT COMMITTEE
The Audit Committee (the "Committee") of the Company's Board of Directors
is composed of three directors, Barry H. Beracha (Chairperson), Susan D. Kronick
and Blythe J. McGarvie that have been determined by the Board of Directors to be
independent (as independence is defined under the New York Stock Exchange
listing standards). The Committee operates under a written charter adopted by
the Board of Directors, which was attached as an appendix to the Proxy Statement
for the 2001 annual meeting of shareholders. The Committee recommends to the
Board of Directors, subject to shareholder ratification, the selection of the
Company's independent auditors.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with auditing standards generally accepted in the
United States of America and for issuing a report thereon. The Committee's
responsibility is to monitor and oversee these processes.
In this context, the Committee has met and held discussions with management
and KPMG LLP, the independent auditing firm for the Company, including
discussions with KPMG in executive session. Management represented that the
consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America. The Committee
reviewed and discussed the audited consolidated financial statements with
management and KPMG LLP. The Committee also discussed with management and KPMG
LLP the process used for certifications by our Chief Executive Officer and Chief
Financial Officer which is required by the SEC and the Sarbanes-Oxley Act of
2002 for certain of our filings with the SEC. The Committee discussed with KPMG
LLP matters required to be discussed by Statement of Auditing Standards No. 61
(Communication with Audit Committees).
KPMG LLP also provided the Committee with the written disclosures required
by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), and the Committee discussed with KPMG LLP that firm's
independence.
Based on discussions with management and KPMG LLP and review of the
representations of management and the report of the independent auditors, the
Committee recommended to the Board of Directors that the audited consolidated
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 28, 2002 to be filed with the SEC.
Respectfully submitted,
The Audit and Affiliated Transactions Committee
Barry H. Beracha (Chairperson)
Susan D. Kronick
Blythe J. McGarvie
12
INDEPENDENT PUBLIC ACCOUNTANTS
In addition to retaining KPMG LLP to audit our consolidated financial
statements for 2003, the Company and its affiliates retained KPMG LLP, as well
as other accounting and consulting firms, to provide various consulting services
in 2003, and expect to continue to do so in the future. The aggregate fees
billed for professional services by KPMG LLP in 2002 were as follows.
Audit Fees. The aggregate fees billed by KPMG LLP for professional
services rendered for the audit of PBG's consolidated financial statements for
the fiscal year ended December 28, 2002, and the reviews of its interim
financial statements included in PBG's Forms 10-Q were approximately $4.5
million, including all statutory audits.
Financial Information Systems Design and Implementation Fee. There were no
fees billed by KPMG LLP for services rendered in connection with PBG's financial
information systems design and implementation during the fiscal year ended
December 28, 2002.
All Other Fees. The aggregate amount of all fees billed for services
rendered to PBG by KPMG LLP for the fiscal year ended December 28, 2002 (other
than the audit fees described above) were approximately $1.3 million, primarily
related to due diligence work on acquisitions, audits of employee benefit plans
and other audit related services.
The Audit Committee has determined that the provision of all non-audit
services performed for PBG by KPMG LLP is compatible with maintaining that
firm's independence.
13
PERFORMANCE GRAPH
The following performance graph compares the cumulative total return of the
Company's Common Stock to the S&P 500 Stock Index and to an index of peer
companies selected by the Company (the "Bottling Group Index"). The Bottling
Group Index consists of Coca-Cola Amatil Limited, Coca-Cola Bottling Co.
Consolidated, Coca-Cola Enterprises Inc., Panamerican Beverages, Inc. and
PepsiAmericas, Inc. The graph assumes the return on $100 invested on March 31,
1999, the day the shares of PBG Common Stock began trading on the New York Stock
Exchange, to December 28, 2002, the last day of the Company's fiscal year. The
returns of each member of the Bottling Group Index are weighted according to
each member's stock market capitalization as of the beginning of the period
measured and includes the subsequent reinvestment of dividends on a quarterly
basis.
[Performace Graph]
<Table>
<Caption>
DECEMBER 25, 1999 DECEMBER 30, 2000 DECEMBER 29, 2001 DECEMBER 28, 2002
----------------- ----------------- ----------------- -----------------
PBG*................. 75 184 221 237
Bottling Group
Index.............. 70 68 69 81
S&P 500 Index........ 113 103 93 72
</Table>
- ---------------
* PBG's share price was $25.45 on December 27, 2002 (the last trading day before
our fiscal year end).
14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK OWNERSHIP AND DIRECTOR RELATIONSHIPS WITH PEPSICO. PBG was initially
incorporated in January 1999 as a wholly owned subsidiary of PepsiCo to effect
the separation of most of PepsiCo's company-owned bottling businesses. PBG
became a publicly traded company on March 31, 1999. As of February 21, 2003,
PepsiCo's ownership represented 38.0% of the outstanding Common Stock and 100%
of the outstanding Class B Common Stock together representing 43.1% of the
voting power of all classes of PBG's voting stock. PepsiCo also owns
approximately 6.8% of the equity of Bottling Group, LLC, PBG's principal
operating subsidiary. In addition, Margaret D. Moore, one of our directors, is
an executive officer of PepsiCo.
AGREEMENTS AND TRANSACTIONS WITH PEPSICO AND AFFILIATES. PBG and PepsiCo
(and certain of its affiliates) have entered into transactions and agreements
with one another, incident to their respective businesses, and PBG and PepsiCo
are expected to enter into material transactions and agreements from time to
time in the future. As used in this section, "PBG" includes the Company and its
subsidiaries.
Material agreements and transactions between PBG and PepsiCo (and certain
of its affiliates) during 2002 are described below.
Beverage Agreements and Purchases of Concentrates and Finished
Products. PBG purchases concentrates from PepsiCo and manufactures, packages,
distributes and sells carbonated and non-carbonated beverages under license
agreements with PepsiCo. These agreements give PBG the right to manufacture,
sell and distribute beverage products of PepsiCo in both bottles and cans and
fountain syrup in specified territories. The agreements also provide PepsiCo
with the ability to set prices of such concentrates, as well as the terms of
payment and other terms and conditions under which PBG purchases such
concentrates. In addition, PBG bottles water under the Aquafina trademark
pursuant to an agreement with PepsiCo, which provides for the payment of a
royalty fee to PepsiCo. In certain instances, PBG purchases finished beverage
products from PepsiCo.
During 2002, total payments by PBG to PepsiCo for concentrates, royalties
and finished beverage products were approximately $1.9 billion.
PBG Manufacturing Services. PBG provides manufacturing services to PepsiCo
in connection with the production of certain finished beverage products. In
2002, amounts paid or payable by PepsiCo to PBG for these services were
approximately $9.8 million.
Purchase of Distribution Rights. During 2002, PBG paid PepsiCo
approximately $10.3 million for distribution rights relating to the SoBe brand
in certain PBG-owned territories in the United States and Canada.
Transactions with Joint Ventures in which PepsiCo holds an equity
interest. PBG purchases tea concentrate and finished beverage products from the
Pepsi/Lipton Tea Partnership, a joint venture of Pepsi-Cola North America, a
division of PepsiCo, and Lipton (the "Partnership"). During 2002, total amounts
paid or payable to PepsiCo for the benefit of the Partnership were approximately
$130.5 million. In addition, PBG provides certain manufacturing services in
connection with the hot-filled tea products of the Partnership to PepsiCo for
the benefit of the Partnership. In 2002, amounts paid or payable by PepsiCo to
PBG for these services were approximately $0.3 million.
PBG purchases finished beverage products from the North American Coffee
Partnership, a joint venture of Pepsi-Cola North America and Starbucks. During
2002, amounts paid or payable to the North American Coffee Partnership by PBG
were approximately $133.4 million.
In addition to the amounts described above, PBG received approximately $2.9
million in 2002 from an international joint venture, in which PepsiCo holds an
equity interest.
Purchase of Snack Food Products from Frito-Lay, Inc. PBG purchases snack
food products from Frito-Lay, Inc., a subsidiary of PepsiCo, for sale and
distribution through all of Russia except
15
for Moscow. In 2002, amounts paid or payable by PBG to Frito-Lay, Inc. were
approximately $44 million.
Shared Services. PepsiCo provides various services to PBG pursuant to a
shared services agreement and other arrangements, including information
technology maintenance and the procurement of raw materials. During 2002,
amounts paid or payable to PepsiCo for these services totaled approximately
$70.6 million.
Pursuant to the shared services agreement and other arrangements, PBG
provides various services to PepsiCo, including employee benefit, credit and
collection, international tax and accounting services. During 2002, payments to
PBG from PepsiCo for these services totaled approximately $6.4 million.
Rental Payments. Amounts paid or payable by PepsiCo to PBG for rental of
office space at certain PBG facilities were approximately $5.0 million in 2002.
National Fountain Services. PBG provides certain manufacturing, delivery
and equipment maintenance services to PepsiCo's national fountain customers. In
2002, net amounts paid or payable by PepsiCo to PBG for these services were
approximately $199.9 million.
Bottler Incentives. PepsiCo provides PBG with various forms of bottler
incentives. The level of this support is negotiated annually and can be
increased or decreased at the discretion of PepsiCo. These bottler incentives
are intended to cover a variety of programs and initiatives, including direct
marketplace support (including point-of-sale materials), capital equipment
funding and advertising support. For 2002, total bottler incentives paid or
payable to PBG or on behalf of PBG by PepsiCo approximated $560.1 million.
Transactions with Bottlers in which PepsiCo holds an Equity Interest. PBG
and PepsiAmericas, Inc., a bottler in which PepsiCo owns an equity interest, and
PBG and Pepsi Bottling Ventures LLC, a bottler in which PepsiCo owns an equity
interest, bought from and sold to each other finished beverage products. These
transactions occurred in instances where the proximity of one party's production
facilities to the other party's markets or lack of manufacturing capability, as
well as other economic considerations, made it more efficient or desirable for
one bottler to buy finished product from another. In 2002, PBG's sales to those
bottlers totaled approximately $671,000 and purchases were approximately
$127,000.
PBG provides certain administrative support services to PepsiAmericas, Inc.
and Pepsi Bottling Ventures LLC. In 2002, amounts paid or payable by
PepsiAmericas, Inc. and Pepsi Bottling Ventures LLC to PBG for these services
were approximately $1.6 million.
On March 13, 2002, PBG acquired the operations and exclusive right to
manufacture, sell and distribute Pepsi-Cola's international beverages in Turkey.
As part of this acquisition, PBG paid PepsiCo approximately $7.8 million,
subject to certain purchase price adjustments, for its equity interest in the
acquired entity and received approximately $16.4 million from PepsiCo for the
sale of the acquired entity's local brands to PepsiCo.
In November 2002, PBG acquired all of the outstanding capital stock of
Pepsi-Gemex S.A. de C.V. ("Pepsi-Gemex"). As part of this acquisition, PBG paid
to PepsiCo approximately $297 million for its equity interest in the acquired
entity. In addition, PepsiCo paid PBG approximately $17 million to facilitate
the purchase and ensure the smooth ownership transition of Pepsi-Gemex to PBG.
PepsiCo Guarantee. In connection with the issuance by Bottling Group, LLC
of $1.0 billion aggregate principal amount of 4 5/8% senior notes in November
2002, PepsiCo will guarantee the notes in accordance with the terms set forth in
the related indenture.
Bottling Group, LLC Distribution. PepsiCo has approximately a 6.8%
ownership interest in Bottling Group, LLC, our principal operating subsidiary.
In accordance with the Bottling Group, LLC's Limited Liability Company
Agreement, PepsiCo received a $11.0 million distribution from Bottling Group,
LLC in 2002.
16
Relationships and Transactions with Management and Others. Linda G.
Alvarado, a member of PBG's Board of Directors, together with her husband and
children, own and operate Taco Bell and Pizza Hut restaurant companies that
purchase beverage products from PBG. In 2002, the total amount of these
purchases was approximately $341,389.
APPROVAL OF AUDITORS
(ITEM 2 ON PROXY CARD)
The Board of Directors, upon recommendation of the Audit Committee,
recommends that KPMG LLP continue as PBG's independent auditors for fiscal 2003.
They have been PBG's independent auditors since 1999. Representatives of KPMG
LLP will be available to answer questions at the Annual Meeting and are free to
make statements during the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL
OF KPMG LLP AS PBG'S INDEPENDENT AUDITORS FOR FISCAL 2003.
OTHER MATTERS
As of the mailing date of this Proxy Statement, the Board of Directors
knows of no other matters to be brought before the Annual Meeting. If matters
other than the ones listed in this Proxy Statement arise at the Annual Meeting,
the persons named in the proxy will vote the shares represented by the proxy
according to their judgment.
CONFIDENTIALITY. PBG's policy is that proxies identifying individual
shareholders are private except as necessary to determine compliance with law,
or assert or defend legal claims, or in a contested proxy solicitation, or in
the event that a shareholder makes a written comment on a proxy card or an
attachment to it. PBG retains an independent organization to tabulate
shareholder votes and certify voting results.
YEAR 2004 SHAREHOLDERS' PROPOSALS
PBG welcomes comments or suggestions from its shareholders. If a
shareholder wants to have a proposal formally considered at the 2004 Annual
Shareholders' Meeting, and included in the Proxy Statement for that meeting, PBG
must receive the proposal in writing on or before December 12, 2003. Proposals
should be sent to the Secretary of The Pepsi Bottling Group, Inc. at One Pepsi
Way, Somers, New York, 10589. If a proposal is received by February 23, 2004,
PBG may include it in the Proxy Statement and, if it does, may use its
discretionary authority to vote on the proposal. For proposals that are not
submitted by February 23, 2004, PBG may use its discretionary voting authority
when the proposal is raised at the 2004 Annual Meeting, without inclusion of the
proposal in its Proxy Statement.
GENERAL
PBG will pay the costs of preparing, assembling and mailing this Proxy
Statement and the costs relating to the Annual Meeting.
In addition to the solicitation of proxies by mail, PBG intends to ask
brokers and bank nominees to solicit proxies from their principals and will pay
the brokers and bank nominees their expenses for such solicitation.
To be sure that we have the necessary quorum to hold the Annual Meeting,
PBG has hired the firm of Morrow & Co., Inc. to help in soliciting proxies by
mail, telephone and personal interview for fees estimated at approximately
$8,500.
Employees of PBG may also solicit proxies. They will not receive any
additional compensation for such solicitation.
17
The Annual Report to Shareholders for 2002, including our consolidated
financial statements, was mailed with this Proxy Statement or was previously
delivered to shareholders and is not part of the material for the solicitation
of proxies. To reduce postage costs, we sent materials at bulk mail rates. If
you have not received the Annual Report by the time you receive your Proxy
Statement, please write or call PBG's Director of Investor Relations, at The
Pepsi Bottling Group, Inc., One Pepsi Way, Somers, NY 10589 or (914) 767-7216.
Please complete, sign, and date the enclosed proxy card and mail it
promptly in the enclosed postage-paid envelope. The enclosed proxy card can be
revoked at anytime before the proxy is exercised by filing with the Secretary of
the Company either a notice of revocation or a duly executed proxy bearing a
later date. The powers of the proxy holders will be suspended if you attend the
meeting in person and so request, although attendance at the meeting will not by
itself revoke a previously granted proxy.
By Order of the Board of Directors,
/s/ Pamela C. McGuire
Pamela C. McGuire
Secretary
18
DIRECTIONS TO THE PEPSI BOTTLING GROUP, INC.
SOMERS, NEW YORK
----------------------
MAPS
----------------------
DIRECTIONS BY CAR
The Pepsi Bottling Group's Headquarters is located at the Intersection of Rt. 35
and Rt. 100 in Somers, New York. The headquarters has two entrances, one on Rt.
35 approximately 500 yards East of the intersection of Rt. 35 and Rt. 100 and
the second on Rt. 100 approximately 100 yards North of the Intersection of Rt.
35 and Rt. 100.
FROM I-684
If you are using I-684 (either North or South) take exit #6 (Katonah-Cross
River, Rt. 35) Take Rt. 35 West for approximately two miles. Entrance is on Rt.
35 approximately 500 yards East of the intersection of Rt. 35 and Rt. 100.
FROM MANHATTAN -- WEST SIDE
West Side Highway/Henry Hudson Parkway to Saw Mill River Parkway. Saw Mill River
Parkway merges with I-684 at exit #6. Take exit #6 and follow directions above.
FROM MANHATTAN -- EAST SIDE
FDR Drive to I-87 Major Deegan North to Saw Mill River Parkway and follow
directions above.
FROM BRONX -- EAST SIDE
Hutchinson River Parkway North to I-684 (Brewster) North and follow directions
above.
FROM BROOKLYN AND J.F.K. AIRPORT
Van Wyck Expressway (676) to the Bronx Whitestone Bridge to Hutchinson River
Parkway North, Take I-684 (Brewster) North and follow directions above.
FROM LAGUARDIA AIRPORT
Grand Central Parkway East. Exit Whitestone Expressway. Cross the Whitestone
Bridge North to Hutchinson River Parkway to I-684 (Brewster) North and follow
directions above.
FROM LONG ISLAND AND QUEENS
Long Island Expressway or the Grand Central Parkway to the Cross Island Parkway.
Cross Island Parkway West to the Throgs Neck Bridge. Cross the Bridge North and
travel North on New England Thruway (Route 95) to Cross Westchester (I-287) to
(I-684) North and follow directions above.
FROM WEST OF HUDSON RIVER-TAPPAN ZEE BRIDGE
Cross Tappan Zee Bridge South. Follow Cross Westchester (I-287) to I-684
(Brewster) North and follow directions above.
FROM CONNECTICUT-MERRITT PARKWAY
Take the Merritt Parkway South, which becomes the Hutchinson River Parkway to
I-684 (Brewster) North and follow directions above.
NEW ENGLAND THRUWAY
Follow the New England Thruway to Exit for Cross Westchester Expressway
Westbound to Exit 9 North, Hutchinson River Parkway to I-684 (Brewster) North
and follow directions above.
FROM CONNECTICUT -- RT. 35
Heading West on Rt. 35 from the Connecticut/New York line (Ridgefield, CT.),
proceed on Rt. 35 past the intersection of I-684 and follow directions above.
THE PEPSI BOTTLING GROUP, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 28, 2003
THIS PROXY IS SOLICITED ON BEHALF OF
THE PEPSI BOTTLING GROUP, INC.'S BOARD OF DIRECTORS
The undersigned hereby appoints John T. Cahill, Pamela C. McGuire, and
each of them, proxies for the undersigned, with full power of substitution, to
vote all shares of The Pepsi Bottling Group, Inc. Common Stock which the
undersigned may be entitled to vote at the Annual Meeting of Shareholders of The
Pepsi Bottling Group, Inc., in Somers, New York, on Wednesday, May 28, 2003 at
10:00 A.M., or at any adjournment thereof, upon the matters set forth on the
reverse side and described in the accompanying Proxy Statement and upon such
other business as may properly come before the meeting or any adjournment
thereof.
YOUR VOTE IS IMPORTANT! PLEASE SIGN AND DATE ON THE REVERSE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on other side)
THE PEPSI BOTTLING GROUP, INC.
P.O. BOX 11425
NEW YORK, N.Y. 10203-0425
[PBG LOGO]
The Pepsi Bottling Group, Inc.
March 31, 2003
Your proxy card is attached below.
Please read the enclosed Proxy Statement, then vote and return
the card at your earliest convenience.
* FOLD AND DETACH HERE *
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.
Where no voting instructions are given, the shares represented by this Proxy
will be VOTED FOR Items 1 and 2.
Vote on Directors
1. Election of Directors: Nominees Linda G. Alvarado, Barry H. Beracha, John
T. Cahill, Ira D. Hall, Thomas H. Kean, Susan D. Kronick, Blythe J.
McGarvie, Margaret D. Moore, Clay G. Small and Craig E. Weatherup
FOR all nominees [ ] WITHHOLD AUTHORITY [ ] EXCEPTIONS [ ]
to vote for all nominees
(INSTRUCTION: To withhold authority to vote for any individual nominee, mark the
"EXCEPTIONS" box and write that nominee's name in the space provided below.)
*Exceptions ___________________________________________________________________
Vote on Proposal
2. Approval of Auditors
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IF OTHER MATTERS ARE PROPERLY PRESENTED, THE PERSONS NAMED AS PROXIES WILL VOTE
IN ACCORDANCE WITH THEIR JUDGMENT WITH RESPECT TO THOSE MATTERS.
Change of Address and/ I PLAN TO ATTEND ANNUAL MEETING. If you
or Comments Mark Here [ ] check this box to the right an admission
card will be sent to you. [ ]
Receipt is hereby acknowledged of The Pepsi Bottling Group, Inc. Notice of
Meeting and Proxy Statement.
IMPORTANT: Please sign exactly as your name or names appear on this Proxy. Where
shares are held jointly, both holders should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title as
such. If the holder is a corporation, execute in full corporate name by
authorized officer.
Dated: ___________________________________________, 2003
_________________________________________________________
Signature
_________________________________________________________
Signature
(Please sign, date and return this Votes MUST be indicated
proxy card in the enclosed envelope.) in black or blue ink. [x]
________________________________________________________________________________
Please Detach Here
* You Must Detach This Portion of the Proxy Card *
Before Returning it in the Enclosed Envelope