FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended June 16, 2001 (24-weeks)
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission file number 1-14893
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THE PEPSI BOTTLING GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-4038356
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(State or other jurisdiction of (I.R.S.
Employer incorporate or organization) Identification No.)
One Pepsi Way, Somers, New York 10589
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(Address of principal executive offices) (Zip Code)
914-767-6000
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(Registrant's telephone number, including area code)
N/A
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(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.
YES X NO
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Number of shares of Capital Stock outstanding as of July 13, 2001:
142,647,513
The Pepsi Bottling Group, Inc.
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Index
Page No.
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Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
12 and 24-weeks ended June 16, 2001 and June 10, 2000 2
Condensed Consolidated Statements of Cash Flows -
24-weeks ended June 16, 2001 and June 10, 2000 3
Condensed Consolidated Balance Sheets -
June 16, 2001 and December 30, 2000 4
Notes to Condensed Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9-11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Independent Accountants' Review Report 13
Part II Other Information and Signatures
Item 6. Exhibits 14
-1-
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 24-weeks Ended
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June 16, June 10, June 16, June 10,
2001 2000 2001 2000
---- ---- ---- ----
Net Revenues.................................................... $2,060 $1,913 $3,707 $3,458
Cost of sales................................................... 1,108 1,033 1,990 1,878
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Gross Profit.................................................... 952 880 1,717 1,580
Selling, delivery and administrative expenses................... 735 689 1,410 1,314
------ ------ ------ ------
Operating Income................................................ 217 191 307 266
Interest expense, net........................................... 46 44 90 89
Minority interest............................................... 14 12 19 15
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Income before income taxes...................................... 157 135 198 162
Income tax expense before rate change........................... 57 50 72 60
Income tax rate change benefit.................................. (16) - (16) -
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Net Income...................................................... $ 116 $ 85 $ 142 $ 102
====== ====== ====== ======
Basic Earnings Per Share........................................ $ 0.81 $ 0.58 $ 0.98 $ 0.69
Weighted-Average Shares Outstanding............................. 143 148 144 148
Diluted Earnings Per Share...................................... $ 0.78 $ 0.58 $ 0.95 $ 0.69
Weighted-Average Shares Outstanding............................. 148 148 149 148
See accompanying notes to Condensed Consolidated Financial Statements.
-2-
The Pepsi Bottling Group, Inc.
Condensed Consolidated Statements of Cash Flows
in millions, unaudited
24-weeks Ended
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June 16, June 10,
2001 2000
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Cash Flows - Operations
Net income............................................................... $142 $102
Adjustments to reconcile net income to net cash provided by operations:
Depreciation....................................................... 167 153
Amortization....................................................... 62 61
Deferred income taxes.............................................. (7) (14)
Other non-cash charges and credits, net............................ 86 78
Changes in operating working capital:
Accounts receivable.............................................. (222) (177)
Inventories...................................................... (87) (49)
Prepaid expenses and other current assets........................ 4 (10)
Accounts payable and other current liabilities................... 34 104
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Net change in operating working capital ........................... (271) (132)
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Net Cash Provided by Operations............................................ 179 248
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Cash Flows - Investments
Capital expenditures.................................................... (255) (224)
Acquisitions of bottlers................................................ (68) (2)
Other, net.............................................................. (12) (4)
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Net Cash Used for Investments.............................................. (335) (230)
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Cash Flows - Financing
Short-term borrowings - three months or less............................ 149 7
Payments of third-party debt............................................ - (8)
Dividends paid.......................................................... (6) (6)
Proceeds from exercise of stock options................................. 7 -
Purchases of treasury stock............................................. (117) (58)
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Net Cash Provided by (Used for) Financing.................................. 33 (65)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents............... (4) (3)
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Net Decrease in Cash and Cash Equivalents.................................. (127) (50)
Cash and Cash Equivalents - Beginning of Period............................ 318 190
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Cash and Cash Equivalents - End of Period.................................. $ 191 $ 140
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Supplemental Cash Flow Information
Third-party interest and income taxes paid................................. $ 143 $ 164
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See accompanying notes to Condensed Consolidated Financial Statements.
-3-
The Pepsi Bottling Group, Inc.
Condensed Consolidated Balance Sheets
in millions, except per share amounts
(Unaudited)
June 16, December 30,
2001 2000
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Assets
Current Assets
Cash and cash equivalents................................................ $ 191 $ 318
Accounts receivable, less allowance of $42 at
June 16, 2001 and December 30, 2000, respectively.................. 1,013 796
Inventories.............................................................. 367 281
Prepaid expenses and other current assets................................ 159 189
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Total Current Assets............................................. 1,730 1,584
Property, plant and equipment, net......................................... 2,432 2,358
Intangible assets, net..................................................... 3,689 3,694
Other assets............................................................... 102 100
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Total Assets.................................................. $7,953 $7,736
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other current liabilities........................... $ 972 $ 941
Short-term borrowings.................................................... 173 26
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Total Current Liabilities........................................ 1,145 967
Long-term debt............................................................. 3,282 3,271
Other liabilities.......................................................... 505 474
Deferred income taxes...................................................... 1,058 1,072
Minority interest.......................................................... 322 306
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Total Liabilities................................................ 6,312 6,090
Shareholders' Equity
Common stock, par value $.01 per share:
authorized 300 shares, issued 155 shares............................ 2 2
Additional paid-in capital.............................................. 1,736 1,736
Retained earnings....................................................... 491 355
Accumulated other comprehensive loss.................................... (287) (254)
Treasury stock: 12 shares and 10 shares at June 16, 2001 and December 30,
2000, respectively................................................... (301) (193)
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Total Shareholders' Equity....................................... 1,641 1,646
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Total Liabilities and Shareholders' Equity.................... $7,953 $7,736
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See accompanying notes to Condensed Consolidated Financial Statements.
-4-
Notes to Condensed Consolidated Financial Statements
Tabular dollars in millions
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Note 1 - Basis of Presentation
The Pepsi Bottling Group, Inc. ("PBG") consists of bottling operations
located in the United States, Canada, Spain, Greece and Russia. These bottling
operations manufacture, sell and distribute Pepsi-Cola beverages including
Pepsi-Cola, Diet Pepsi, Mountain Dew and other brands of carbonated soft drinks
and other ready-to-drink beverages. Approximately 90% of PBG's net revenues were
derived from the sale of Pepsi-Cola beverages. References to PBG throughout
these Condensed Consolidated Financial Statements are made using the
first-person notations of "we," "our" and "us."
Prior to our formation, we were an operating unit of PepsiCo, Inc.
("PepsiCo"). On March 31, 1999, we offered 100 million shares of PBG common
stock for sale at $23 per share in an initial public offering. As of June 16,
2001, PepsiCo's ownership consisted of 37.0% of our outstanding common stock and
100% of our outstanding Class B common stock, together representing 45.5% of the
voting power of all classes of our voting stock. PepsiCo also owns 7.0% of the
equity of Bottling Group, LLC, our principal operating subsidiary, giving
PepsiCo economic ownership of 41.5% of our combined operations at June 16, 2001.
The accompanying Condensed Consolidated Balance Sheet at June 16, 2001 and
the Condensed Consolidated Statements of Operations for the 12 and 24-weeks
ended June 16, 2001 and June 10, 2000 and Cash Flows for the 24-weeks ended June
16, 2001 and June 10, 2000 have not been audited, but have been prepared in
conformity with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. These Condensed Consolidated Financial Statements should be read in
conjunction with the audited consolidated financial statements for the fiscal
year ended December 30, 2000 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.
Note 2 - Seasonality of Business
The results for the second 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, amortization and interest,
which are not significantly impacted by business seasonality.
Note 3 - Inventories
June 16, December 30,
2001 2000
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Raw materials and supplies.................... $ 127 $ 107
Finished goods................................ 240 174
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$ 367 $ 281
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-5-
Note 4 - Property, Plant and Equipment, net
June 16, December 30,
2001 2000
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Land.................................................. $ 145 $ 145
Buildings and improvements............................ 913 903
Manufacturing and distribution equipment.............. 2,248 2,186
Marketing equipment................................... 1,806 1,745
Other................................................. 97 89
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5,209 5,068
Accumulated depreciation.............................. (2,777) (2,710)
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$2,432 $2,358
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Note 5 - Income Tax Rate Change Benefit
In the second quarter of 2001, the Canadian Government enacted legislation
that reduced the federal corporate income tax rate from 28% to 21% over a
four-year period beginning January 1, 2001. In addition, certain provincial
income tax rates were also reduced. These rate changes reduced deferred tax
liabilities associated with our operations in Canada. The changes to deferred
taxes resulted in a reduction of our tax expense in the second quarter of $16
million ($0.10 per diluted share after minority interest).
On June 29, 2001, the Province of Ontario enacted legislation that reduced
the provincial income tax rate. This change will further reduce our deferred tax
liabilities associated with our operations in Canada and will result in an
additional income tax rate benefit in the third quarter of $8 million
(approximately $0.05 per diluted share after minority interest).
Note 6 - Acquisitions
On May 1, 2001, PBG acquired the Pepsi-Cola bottling operations along with
the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages
from Pepsi-Cola Bottling of Northern California for an aggregate purchase price
of $70 million in cash and assumed debt. This acquisition was accounted for by
the purchase method of accounting.
Note 7 - Treasury Stock
In the second quarter of 2001, the Board of Directors authorized the
repurchase of 10 million shares of common stock, increasing the cumulative
amount of shares that can be repurchased to 25 million shares. We made
repurchases of approximately 3 million shares for $117 million in the first
24-weeks in 2001 and approximately 3 million shares for $58 million over the
same period in 2000. Of the 25 million shares authorized we have repurchased 13
million shares since the inception of our stock repurchase plan, which began in
October 1999.
Note 8 - New Accounting Standards
Accounting for Derivative Instruments and Hedging Activities
We adopted the accounting and reporting standards of Statement of Financial
Accounting Standard 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS 137 and SFAS 138, on the first day of fiscal
year 2001. The adoption resulted in an increase in current assets of $4 million,
a reduction of accumulated other comprehensive loss of $4 million and had no
impact on our statement of operations.
-6-
All derivatives are now recorded at fair value as either assets or
liabilities in our consolidated balance sheet. Using qualifying criteria defined
in SFAS 133, derivative instruments are designated and accounted for as either a
hedge of a recognized asset or liability (fair value hedge) or a hedge of a
forecasted transaction (cash flow hedge). For a fair value hedge, both the
effective and ineffective portions of the change in fair value of the derivative
instrument, along with an adjustment to the carrying amount of the hedged item
for fair value changes attributable to the hedged risk, are recognized in
earnings. For a cash flow hedge, changes in the fair value of the derivative
instrument that are highly effective are deferred in accumulated other
comprehensive loss until the underlying hedged item is recognized in earnings.
The ineffective portion of fair value changes on qualifying hedges is recognized
in earnings immediately and is recorded consistent with the expense
classification of the underlying hedged item. If a fair value or cash flow hedge
were to cease to qualify for hedge accounting or be terminated, it would
continue to be carried on the balance sheet at fair value until settled but
hedge accounting would be discontinued prospectively. If a forecasted
transaction were no longer probable of occurring, amounts previously deferred in
accumulated other comprehensive loss would be recognized immediately in
earnings.
On occasion, we may enter into a derivative instrument for which hedge
accounting is not required because it is entered into to offset changes in the
fair value of an underlying transaction recognized in earnings (natural hedge).
These instruments are reflected in the Condensed Consolidated Balance Sheets at
fair value with changes in fair value recognized in earnings.
As of June 16, 2001, our use of derivative instruments was limited to an
interest rate swap, forward contracts, futures and options on futures contracts.
Our corporate policy prohibits the use of derivative instruments for trading or
speculative purposes, and we have procedures in place to monitor and control
their use.
Cash Flow Hedges
We are subject to market risk with respect to the cost of commodities
because our ability to recover increased costs through higher pricing may be
limited by the competitive environment in which we operate. We use futures
contracts and options on futures in the normal course of business to hedge the
risk of adverse movements in commodity prices related to anticipated purchases
of certain raw materials and fuel used in our operations. These contracts, which
generally range from 1 to 12 months in duration, establish our commodity
purchase prices within defined ranges in an attempt to limit our purchase price
risk resulting from adverse commodity price movements and are designated as and
qualify for cash flow hedge accounting treatment.
In 2001, we recognized $2 million of deferred gains from our commodity
hedging into income as inventory being hedged was sold. At June 16, 2001 a $2
million deferred loss remained in accumulated other comprehensive loss in our
Condensed Consolidated Balance Sheet resulting from our commodity hedges. We
anticipate that this loss, which totals $1 million on an after-tax basis, will
be recognized in cost of sales in our Condensed Consolidated Statements of
Operations over the next 12 months. The ineffective portion of the change in
fair value of these contracts was not material to our results of operations in
the second quarter or first 24-weeks of 2001.
-7-
Fair Value Hedges
We finance a portion of our operations through fixed rate debt instruments.
At June 16, 2001 our debt instruments primarily consisted of $3 billion of fixed
rate long-term senior notes, 3% of which we converted to floating rate debt
through the use of an interest rate swap with the objective of reducing our
overall borrowing costs. This interest rate swap, which expires in 2004, is
designated as and qualifies for fair value hedge accounting and is 100%
effective in eliminating the interest rate risk inherent in our long-term debt
as the notional amount, interest payment and maturity date of the swap matches
the notional amount, interest payment and maturity date of the related debt.
Accordingly, any market risk or opportunity associated with this swap is fully
offset by the opposite market impact on the related debt. The second quarter and
first 24-weeks of 2001 changes in fair value of the interest rate swap was a
gain of $4 million and $7 million, respectively. These gains were recorded in
interest expense, net in our Condensed Consolidated Statements of Operations and
prepaid expenses and other current assets in our Condensed Consolidated Balance
Sheets. An offsetting loss was recorded in interest expense, net in our
Condensed Consolidated Statements of Operations and in long-term debt in our
Condensed Consolidated Balance Sheets representing the change in fair value in
long-term debt.
Equity Derivatives
We use equity derivative contracts with financial institutions to hedge a
portion of our deferred compensation liability which is based on our stock
price. These prepaid forward contracts for the purchase of PBG common stock are
accounted for as natural hedges. The earnings impact from these hedges is
classified as selling, delivery and administrative expenses consistent with the
expense classification of the underlying hedged item.
Business Combinations & Goodwill and Other Intangible Assets
On July 20, 2001 the Financial Accounting Standards Board issued SFAS 141,
"Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets".
SFAS 141 replaces Accounting Principles Board Opinion 16, "Business
Combinations" and SFAS 142 replaces APB 17, "Intangible Assets". Beginning in
fiscal year 2002, we anticipate that we will no longer amortize goodwill and
certain franchise rights, but will evaluate them for impairment annually. We are
currently reviewing these statements to determine their impact.
Note 9 - Comprehensive Income
12-weeks Ended 24-weeks Ended
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June 16, June 10, June 16, June 10,
2001 2000 2001 2000
---- ---- ---- ----
Net income...................................... $ 116 $ 85 $ 142 $ 102
Currency translation adjustment................. - (8) (31) (21)
FAS 133 adjustment.............................. - - (2) -
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Comprehensive Income............................ $ 116 $ 77 $ 109 $ 81
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-8-
Item 2.
Management's Discussion and Analysis of Results of Operations and Financial
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Condition
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Overview
In the second quarter and first 24-weeks of 2001 The Pepsi Bottling Group,
Inc. (collectively referred to as "PBG," "we," "our" and "us") again delivered
outstanding operating results. Highlights of the quarter were as follows:
o We delivered 11% constant territory EBITDA growth in the second quarter and
first 24-weeks of 2001.
o We increased worldwide constant territory physical case volume by 4% in the
second quarter and first 24-weeks of 2001.
o We grew second quarter and second quarter year-to-date worldwide constant
territory net revenue per case by 3% compared to the same periods in 2000.
o We delivered second quarter 2001 diluted earnings per share of $0.78, an
increase of $0.20, or 36%, over 2000 and year-to-date diluted earnings per
share of $0.95, an increase of $0.26, or 39%, over the same 24-week period
in 2000. Diluted earnings per share in 2001 includes a tax benefit of $0.10
resulting from a reduction in Canadian income tax rates.
The following management's discussion and analysis should be read in
conjunction with our Condensed Consolidated Financial Statements and
accompanying footnotes along with the cautionary statements at the end of this
section.
Constant Territory
We believe that constant territory performance results are the most
appropriate indicators of operating trends and performance, particularly in
light of our stated intention of acquiring additional bottling territories, and
are consistent with industry practice. Constant territory operating results are
derived by adjusting current year results to exclude significant current year
acquisitions and adjusting prior year results to include the results of
significant prior year acquisitions as if they had occurred on the first day of
the prior fiscal year.
Use of EBITDA
EBITDA, which is computed as operating income plus the sum of depreciation
and amortization, is a key indicator management and the industry use to evaluate
operating performance. It is not, however, required under generally accepted
accounting principles and should not be considered an alternative to
measurements required by GAAP such as net income or cash flows.
Results of Operations
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Reported Change Constant Territory Change
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June 16, 2001 June 16, 2001
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12-weeks 24-weeks 12-weeks 24-weeks
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EBITDA............................ 12% 12% 11% 11%
Volume............................ 5% 4% 4% 4%
Net Revenue per Case.............. 3% 3% 3% 3%
EBITDA
EBITDA was $335 million and $536 million in the second quarter and first
24-weeks of 2001, representing a 12% increase over the same periods of 2000,
respectively. On a constant territory basis, EBITDA growth was 11% for both the
quarter and year-to-date periods reflecting a balanced equation of increased net
revenue per case and solid volume growth as well as continued favorable cost of
sales trends.
-9-
Volume
Our worldwide physical case volume increased 5% and 4% in the second
quarter and first 24-weeks of 2001, respectively. Constant territory volume
growth was 4% in both the second quarter and year-to-date. In the U.S., constant
territory volume increased 2% in the second quarter and year-to-date led by the
introduction of Mountain Dew Code Red, distribution of Sierra Mist and strong
growth in Aquafina, driving increases in both our cold drink and take-home
segments. Outside the U.S., our constant territory volumes increased 12% in the
quarter and 13% year-to-date reflecting improvements across all of our markets,
particularly in Russia.
Net Revenues
Net revenues for the quarter grew $147 million, an 8% increase over the
prior year, raising year-to-date net revenues up 7% to $3,707 million over the
same period of 2000. On a constant territory basis, net revenues grew 7% in the
quarter and first 24-weeks of 2001 driven by volume growth of 4% and a 3%
increase in net revenue per case, respectively. Constant territory net revenue
per case growth was driven by the U.S., which grew 5% in both periods,
reflecting higher take-home pricing and positive package and channel mix, which
was driven by the introduction of Mountain Dew Code Red and SoBe. Outside the
U.S., constant territory net revenues were up 7% in the quarter and year-to-date
reflecting a double-digit increase in volume and an approximate 5% decrease in
net revenue per case. Excluding the negative impact of currency translations,
net revenue per case was essentially flat outside the U.S. and increased 4%
worldwide in the second quarter and first 24-weeks of 2001.
Cost of Sales
Cost of sales increased $75 million, or 7%, in the second quarter of 2001
and $112 million, or 6%, year-to-date. On a constant territory basis, cost of
sales per case increased 3% for the quarter and 2% year-to-date, compared to the
same periods in 2000 reflecting higher U.S. concentrate costs, and mix shifts
into higher cost packages and products offset by favorable currency translations
and country mix.
Selling, Delivery and Administrative Expenses
Selling, delivery and administrative expenses grew $46 million, or 7%, in
the second quarter and $96 million, or 7%, in the first 24-weeks of 2001. This
primarily reflects increased selling and delivery costs resulting from volume
growth and our continued investment in our U.S. and Canadian cold drink
infrastructure as well as higher advertising and marketing costs. Current year
costs also include an approximate 1 percentage point favorable impact from
currency translations.
Income Tax Expense Before Rate Change
PBG's full year forecasted effective tax rate for 2001 is 36.5% and this
rate has been applied to our 2001 results. This rate corresponds to an effective
tax rate of 37.0% in 2000. The decrease is primarily due to the reduced impact
of fixed non-deductible expenses on higher anticipated pre-tax income in 2001.
Income Tax Rate Change Benefit
In the second quarter of 2001, the Canadian Government enacted legislation
that reduced the federal corporate income tax rate from 28% to 21% over a
four-year period beginning January 1, 2001. In addition, certain provincial
income tax rates were also reduced. These rate changes reduced deferred tax
liabilities associated with our operations in Canada. The changes to deferred
taxes resulted in a reduction of our tax expense in the second quarter of $16
million ($0.10 per diluted share after minority interest).
On June 29, 2001, the Province of Ontario enacted legislation that
reduced the provincial income tax rate. This change will further reduce our
deferred tax liabilities associated with our operations in Canada and will
result in an additional income tax rate benefit in the third quarter of $8
million (approximately $0.05 per diluted share after minority interest).
-10-
Liquidity and Capital Resources
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Cash Flows
Net cash provided by operations decreased $69 million to $179 million
reflecting higher working capital requirements due to the growth of our business
and the unfavorable timing of payments on current liabilities, partially offset
by strong growth in net income.
Net cash used for investments increased by $105 million from $230 million
in the first 24-weeks of 2000 to $335 million over the same period in 2001,
primarily due to acquisition spending which was $66 million higher in 2001 and
capital expenditures, which increased by $31 million, driven by increased
infrastructure spending.
Net cash provided by (used for) financing increased by $98 million from a
use of cash of $65 million in 2000 to a source of cash of $33 million in 2001.
This change reflects $142 million of short-term borrowings, which were used
primarily to fund investment spending and higher share repurchases.
Euro
- ----
On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between existing currencies and one common
currency, the Euro. Beginning in January 2002, new Euro-denominated bills and
coins will be issued, and existing currencies will be withdrawn from
circulation. Spain is one of the original member countries that instituted the
Euro and, in June 2000, Greece also elected to institute the Euro effective
January 1, 2001. We have established plans to address the issues raised by the
Euro currency conversion. These issues include, among others, the need to adapt
computer and financial systems, business processes and equipment such as vending
machines to accommodate Euro-denominated transactions and the impact of one
common currency on cross-border pricing. Since financial systems and processes
currently accommodate multiple currencies, we do not expect the system and
equipment conversion costs to be material. Due to numerous uncertainties, we
cannot reasonably estimate the long-term effects one common currency may have on
pricing, costs and the resulting impact, if any, on our financial condition or
results of operations.
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 lower-than-expected net pricing resulting
from marketplace competition, material changes from expectations in the cost of
raw materials and ingredients, an inability to achieve the expected timing for
returns on cold drink equipment and employee infrastructure expenditures,
material changes in expected levels of marketing support payments from PepsiCo,
Inc., an inability to meet projections for performance in newly acquired
territories, unexpected costs associated with conversion to the common European
currency and unfavorable interest rate and currency fluctuations.
-11-
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
We have no material changes to the risk disclosures made in our 2000 Annual
Report on Form 10-K.
Item 4.
Submission of Matters to a Vote of Security Holders
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(a) Annual Meeting of Shareholders of The Pepsi Bottling Group, Inc. was held
on May 23, 2001.
(b) The names of all directors are set forth in (c) below. The proxies for the
meeting were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934. There were no solicitations in opposition to the
nominees as listed in the proxy and all such nominees were elected.
(c) A brief description of each matter voted on and the number of votes cast
are as follows:
Number of Votes (millions)
---------------------------
Broker
Description of Proposals For Against Abstain Non-votes
- ------------------------ --- ------- ------- ---------
1) Election of Directors:
Linda G. Alvarado 156 N/A 1 N/A
Barry H. Beracha 156 N/A 1 N/A
John T. Cahill 156 N/A 1 N/A
Thomas W. Jones 156 N/A 1 N/A
Thomas H. Kean 156 N/A 1 N/A
Susan D. Kronick 156 N/A 1 N/A
Margaret D. Moore 155 N/A 2 N/A
Robert F. Sharpe, Jr. 155 N/A 2 N/A
Craig E. Weatherup 156 N/A 1 N/A
2) Approval of the PBG Directors' Stock Plan 141 16 - N/A
3) Approval of the appointment of KPMG LLP as
independent auditors 157 - - N/A
-12-
Independent Accountants' Review Report
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The Board of Directors
The Pepsi Bottling Group, Inc.
We have reviewed the accompanying Condensed Consolidated Balance Sheet of The
Pepsi Bottling Group, Inc. as of June 16, 2001, and the related Condensed
Consolidated Statements of Operations for the twelve and twenty-four weeks ended
June 16, 2001 and June 10, 2000 and the Condensed Consolidated Statements of
Cash Flows for the twenty-four weeks ended June 16, 2001 and June 10, 2000.
These Condensed Consolidated Financial Statements are the responsibility of The
Pepsi Bottling Group, Inc.'s management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the Condensed Consolidated Financial Statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the Consolidated Balance Sheet of The
Pepsi Bottling Group, Inc. as of December 30, 2000, and the related Consolidated
Statements of Operations, Cash Flows and Changes in Shareholders' Equity for the
fifty-three week period then ended not presented herein; and in our report dated
January 30, 2001, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 30, 2000, is
fairly presented, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/S/ KPMG LLP
New York, New York
July 11, 2001
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PART II - OTHER INFORMATION AND SIGNATURES
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
See Index to Exhibits on page 16.
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Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned.
THE PEPSI BOTTLING GROUP, INC.
------------------------------
(Registrant)
Date: July 27, 2001 Andrea L. Forster
------------- -----------------
Vice President and Controller
Date: July 27, 2001 Alfred H. Drewes
------------- ----------------
Senior Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
ITEM 6 (a)
----------
EXHIBITS
- --------
Exhibit 11 Computation of Basic and Diluted Earnings Per Share
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EXHIBIT 11
The Pepsi Bottling Group, Inc.
Computation of Basic and Diluted Earnings Per Share
(in millions, except per share data)
12-weeks Ended 24-weeks Ended
-------------- --------------
June 16, June 10, June 16, June 10,
2001 2000 2001 2000
------- ------- ------- -------
Number of shares on which basic earnings per share is based:
Average outstanding during period................ 143 148 144 148
Add - Incremental shares under stock
compensation plans............................. 5 - 5 -
------ ------ ------ ------
Number of shares in which diluted
earnings per share is based...................... 148 148 149 148
Net earnings applicable to common
shareholders (millions)......................... $ 116 $ 85 $ 142 $ 102
Net earnings on which diluted earnings
per share is based (millions)................... $ 116 $ 85 $ 142 $ 102
Basic earnings per share........................... $ 0.81 $ 0.58 $ 0.98 $ 0.69
Diluted earnings per share......................... $ 0.78 $ 0.58 $ 0.95 $ 0.69
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