UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 22, 2003
THE PEPSI BOTTLING GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-14893 13-4038356
(State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) Identification No.)
One Pepsi Way, Somers, NY 10589
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 767-6000
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not Applicable.
(b) Not Applicable.
(c) Exhibit 99.1 Press release dated April 22, 2003.
Item 9. Information Furnished Pursuant to Item 12 of Form 8-K - Results of
Operations and Financial Condition.
On April 22, 2003, The Pepsi Bottling Group, Inc. announced its financial
results for its first quarter ended March 22, 2003. The press release is
furnished as Exhibit 99.1 hereto and is incorporated herein by reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE PEPSI BOTTLING GROUP, INC.
(Registrant)
Date April 22, 2003 /s/ Pamela C. McGuire
------------------------------
(Signature)
Pamela C. McGuire, Senior Vice President,
General Counsel and Secretary
Exhibit 99.1
Contact: Kelly McAndrew Mary Winn Settino
Public Relations Investor Relations
(914) 767-7690 (914) 767-7216
FOR IMMEDIATE RELEASE
THE PEPSI BOTTLING GROUP REPORTS 1st QUARTER RESULTS
SOMERS, N.Y., April 22, 2003 - The Pepsi Bottling Group, Inc. (NYSE: PBG)
today announced first quarter 2003 income of $39 million, or $0.14 per diluted
share, before the cumulative effect of the adoption of a new accounting
principle. This compares to reported first quarter 2002 net income of $54
million, or $0.19 per diluted share.
o On a constant territory basis, worldwide physical case volume was down
three percent for the quarter. Constant territory volume in PBG's
territories in Mexico grew one percent, while volume in the U.S. was down
five percent, consistent with the Company's previous guidance.
o Constant territory net revenue per case in the U.S. grew two percent in
the first quarter, all of which came from rate increases. The impact of
adopting the FASB's Emerging Issues Task Force (EITF) Issue No. 02-16
reduced U.S. net revenue per case by three percentage points, which
resulted in a one percent decline in PBG's reported net revenue per case in
the U.S. Worldwide net revenue per case on a reported basis declined nine
percent, reflecting the impact of country mix, primarily from our
acquisition territories in Mexico and Turkey, and the impact of EITF Issue
No. 02-16.
o Reported operating income declined 10 percent in the quarter, driven by
the weakness in PBG's U.S. territories.
"As we announced in March, our results this past quarter reflect the impact
of a number of challenging conditions," said John T. Cahill, Chairman and Chief
Executive Officer of PBG. "The shortfall in our volume growth, particularly in
the U.S., was the principal driver behind the decline in our earnings. However,
the discipline of our organization in the areas of marketplace execution and
pricing continues to yield positive results. We remain very focused
- more -
PBG REPORTS 1st QUARTER RESULTS/ 2 or 3
on reinvigorating our U.S. business and are confident that the recently
announced innovations from Pepsi-Cola in products, packages and promotions will
be our ticket to volume growth in the second half of the year."
Cahill continued, "Next month, we will launch the latest extension of the
Mountain Dew trademark, LiveWire, in both single serve and take home packages.
At the same time, the Pepsi Play for a Billion promotion will kick off and
continue throughout the summer. Near the latter part of the second quarter we'll
launch a terrific promotion tied in with Universal Pictures' The Hulk. These
programs, along with others to be introduced during the third quarter, will
generate consumer excitement as we approach the important summer selling season.
We expect all of these new ideas to bring excitement to the category, consumers
to the stores and volume growth to PBG.
"We've made solid progress in Mexico. To date, we have strengthened our
local management team, improved our partnership with Pepsi-Cola Mexico and made
measurable gains in expanding our distribution. In the coming months, we will
introduce exciting new product and package innovation designed specifically for
the Mexico marketplace."
On a constant territory basis, worldwide physical case volume was down
three percent for the quarter, driven by a volume decline of five percent in the
U.S. (Constant territory calculations assume all significant acquisitions made
in 2002 were made at the beginning of 2002 and exclude all significant
acquisitions made in 2003. Constant territory calculations have also been
adjusted to reflect the impact of EITF 02-16 as if it had been adopted at the
beginning of 2002.) In Mexico, PBG's constant territory volume grew one percent,
a solid performance as it overlaps double-digit volume growth during the same
quarter in 2002.
Constant territory worldwide net revenue per case was flat in the first
quarter. In the U.S., constant territory net revenue per case increased two
percent in the first quarter, all of which came from rate increases. Net revenue
per case in Mexico was flat in local currency, with solid price improvements
offset by a higher jug water mix.
Beginning in 2003, the Company adopted FASB's EITF Issue No. 02-16,
"Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor." Under this new accounting principle, the majority of
the bottler incentives we receive from PepsiCo and other brand owners will be
reclassified from net revenues and selling, delivery and administrative (SD&A)
expenses to cost of sales. The adoption of EITF Issue No. 02-16
- more -
PBG REPORTS 1st QUARTER RESULTS/ 3 of 3
has resulted in a cumulative, non-cash, one-time charge of $6 million, net of
tax and minority interest, or $0.02 per diluted share for the first quarter
2003. The following table details the impact of this new accounting change on
PBG's net revenue per case growth:
U.S. Worldwide
Q1 2003 Net Revenue per Case Growth 2% (6%)
excluding the impact of EITF 02-16
Impact of EITF 02-16 (3%) (3%)
Q1 2003 Reported Net Revenue per (1%) (9%)
Case Growth
During the first quarter of 2003, PBG repurchased 4.8 million shares of
common stock. Since the inception of the Company's share repurchase program in
October 1999, 45.2 million shares of PBG common stock have been repurchased.
The Company stated that in fiscal 2003 it expects to achieve EPS of $1.61
to $1.67 excluding the cumulative effect of the adoption of EITF Issue No.
02-16, with worldwide constant territory volume growth of one to two percent and
an increase in reported operating income in the mid teens.
The Pepsi Bottling Group, Inc. (www.pbg.com) is the world's largest
manufacturer, seller and distributor of Pepsi-Cola beverages with operations in
the U.S., Canada, Greece, Mexico, Russia, Spain and Turkey. To receive company
news releases by e-mail, please visit www.pbg.com.
Listen in live to PBG's first quarter 2003 earnings discussion with
financial analysts on April 22nd at 11 a.m. (EDT) at http://www.pbg.com. In
response to the U.S. Securities and Exchange Commission's rules on the use of
non-GAAP measures, attached is a Reconciliation of Non-GAAP Measures to
Comparable U.S. GAAP Measures.
# # #
Statements made in this press release that relate to future performance or
financial results of the Company are forward-looking statements which involve
uncertainties that could cause actual performance or results to materially
differ. PBG undertakes no obligation to update any of these statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as to the date hereof. Accordingly, any forward-looking
statement should be read in conjunction with the additional information about
risks and uncertainties set forth in PBG's Securities and Exchange Commission
reports, including its annual report on Form 10-K for the year ended December
28, 2002.
Attachments (7 pages)
THE PEPSI BOTTLING GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
in millions except per share amounts, unaudited
12 Weeks Ended
------------------
March March
22, 2003 23, 2002
-------- --------
Net revenues............................................ $1,874 $1,772
Cost of sales........................................... 927 942
----- -----
Gross profit............................................ 947 830
Selling, delivery and administrative expenses........... 827 695
----- -----
Operating income........................................ 120 135
Interest expense, net................................... 53 45
Other non-operating expenses, net....................... 3 -
Minority interest....................................... 5 8
----- -----
Income before income taxes.............................. 59 82
Income tax expense...................................... 20 28
----- -----
Income before cumulative effect of change in accounting
principle .......................... 39 54
Cumulative effect of change in accounting principle, net
of tax and minority interest............................ 6 -
----- -----
Net income.............................................. $ 33 $ 54
===== =====
Basic earnings per share before cumulative effect of
change in accounting principle ......................... $ 0.14 $ 0.19
Cumulative effect of change in accounting principle .... (0.02) -
----- -----
Basic earnings per share................................ $ 0.12 $ 0.19
===== =====
Weighted-average shares outstanding..................... 279 280
Diluted earnings per share before cumulative effect of
change in accounting principle ......................... $ 0.14 $ 0.19
Cumulative effect of change in accounting principle .... (0.02) -
----- -----
Diluted earnings per share.............................. $ 0.12 $ 0.19
===== =====
Weighted-average shares outstanding..................... 287 291
THE PEPSI BOTTLING GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
in millions, unaudited
12 Weeks Ended
--------------
March March
22, 2003 23, 2002
------- --------
Cash Flows - Operations
Net Income.................................................. $ 33 $ 54
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation............................................ 117 91
Amortization............................................ 2 2
Changes in working capital and other non-cash charges... (82) (53)
Other, net.................................................. (3) (6)
---- ----
Net Cash Provided by Operations................................ 67 88
---- ----
Cash Flows - Investments
Capital expenditures........................................ (112) (110)
Acquisitions of bottlers.................................... (82) (24)
Sale of property, plant and equipment....................... 1 1
---- -----
Net Cash Used for Investments.................................. (193) (133)
---- ----
Cash Flows - Financing
Borrowing activities, net................................... 120 15
Dividends paid.............................................. (3) (3)
Treasury stock transactions................................. (98) (31)
---- ----
Net Cash Provided by (Used for) Financing...................... 19 (19)
---- ----
Effect of Exchange Rate Changes on Cash and Cash
Equivalents.................................................... (1) -
---- -----
Net Decrease in Cash and Cash Equivalents...................... (108) (64)
Cash and Cash Equivalents - Beginning of Period................ 222 277
---- -----
Cash and Cash Equivalents - End of Period...................... $ 114 $ 213
==== ====
THE PEPSI BOTTLING GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
in millions, except per share amounts
(Unaudited)
March December
22, 2003 28, 2002
-------- --------
Assets
Current Assets
Cash and cash equivalents................................. $ 114 $ 222
Accounts receivable, net.................................. 882 922
Inventories............................................... 397 378
Prepaid expenses and other current assets................. 207 215
------ ------
Total Current Assets................................... 1,600 1,737
Property, plant and equipment, net........................... 3,300 3,308
Intangible assets, net....................................... 4,727 4,687
Investment in debt defeasance trust.......................... 171 170
Other assets................................................. 120 125
------ ------
Total Assets........................................... $ 9,918 $10,027
====== ======
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other current liabilities............ $ 997 $ 1,179
Short-term borrowings..................................... 170 51
Current maturities of long-term debt...................... 1,016 18
------ ------
Total Current Liabilities.............................. 2,183 1,248
Long-term debt............................................... 3,519 4,523
Other liabilities............................................ 847 819
Deferred income taxes........................................ 1,274 1,265
Minority interest............................................ 352 348
------ ------
Total Liabilities...................................... 8,175 8,203
Shareholders' Equity
Common stock, par value $0.01 per share:
Authorized 900 shares, issued 310 shares................ 3 3
Additional paid-in capital................................ 1,750 1,750
Retained earnings......................................... 1,096 1,066
Accumulated other comprehensive loss...................... (485) (468)
Treasury stock: 34 shares and 30 shares at March 22, 2003
and December 28, 2002, respectively..................... (621) (527)
------ ------
Total Shareholders' Equity.............................. 1,743 1,824
------ ------
Total Liabilities and Shareholders' Equity............. $ 9,918 10,027
====== ======
The Pepsi Bottling Group, Inc.
Reconciliation of Non-GAAP Measures to Comparable U.S. GAAP Measures
in millions, except for percentages
In response to the U.S. Securities and Exchange Commission's rules on the
use of non-GAAP measures, below is a reconciliation of non-GAAP measures to
measurements required by accounting principles generally accepted in the United
States of America ("U.S. GAAP").
We utilize certain non-GAAP measures to evaluate our performance. We
consider these measures important indicators of our success. These measures
should not be considered an alternative to measurements required by U.S. GAAP
and should not be considered measures of our liquidity. In addition, our
non-GAAP measures may not be comparable to similar measures reported by other
companies and could be misleading unless all companies and analysts calculate
them in the same manner.
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. In addition, constant territory calculations have been
adjusted to reflect the impact of EITF No. 02-16 as if it had been adopted at
the beginning of 2002.
Our constant territory results exclude the operating results of the
following acquisitions made during 2003:
- Pepsi-Cola Buffalo Bottling Corp. of Buffalo, New York in February.
- Cassidy's Beverage Limited of New Brunswick, Canada in February.
We adjusted our prior year results to include the operating results of the
following prior year acquisitions as if they had occurred on the first day of
the prior fiscal year:
- Fruko Mesrubat Sanayii A.S. of Turkey in March 2002.
- Pepsi-Cola Bottling Company of Macon, Inc. of Georgia in March 2002.
- Pepsi-Cola Bottling Company of Aroostook, Inc., of Presque Isle, Maine
in June 2002.
- Seaman's Beverages Limited of the Canadian province of Prince Edward
Island in July 2002.
- Pepsi-Gemex, S.A. de. C.V. of Mexico in November 2002.
- Kitchener Beverages Limited of Ontario, Canada in December 2002.
The tables below reconcile our U.S. GAAP reported net revenue per case
results to our constant territory net revenue per case results for the twelve
weeks ended March 22, 2003 versus the twelve weeks ended March 23, 2002:
Net Revenue per
Case 2003 vs. 2002
-------------
Impact from Impact from
As Impact from 2002 Pro 2002 EITF Constant
Reported 2003 Forma No.02-16 Territory
Change Acquisitions Adjustments Adjustment Change
-------- ------------ ----------- ---------- ---------
Worldwide..... -9% 0% 6% 3% 0%
U.S........... -1% 0% 0% 3% 2%
Net Revenue per
Case in local
currency 2003 vs. 2002
-------------
Impact from Impact from
As 2002 Pro 2002 EITF Constant
Reported Forma No. 02-16 Territory
Change Adjustments Adjustment Change
-------- ----------- ----------- ---------
Mexico........ 100% -100% 0% 0%
The Pepsi Bottling Group, Inc.
(in millions, except per share data)
EITF Issue No. 02-16, "Accounting by a Reseller for Cash Consideration
Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)"
In January 2003, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 02-16, "Accounting by a Reseller for Cash Consideration
Given by a Vendor to a Customer (Including a Reseller of the Vendor's
Products)," addressing the recognition and income statement classification of
various cash considerations given by a vendor to a customer. The consensus
requires that certain cash considerations received by a customer from a vendor
are presumed to be a reduction of the price of the vendor's products, and
therefore should be characterized as a reduction of cost of sales when
recognized in the customer's income statement, unless certain criteria are met.
EITF Issue No. 02-16 became effective beginning in our fiscal year 2003. In the
prior year we classified worldwide bottler incentives received from PepsiCo and
other brand owners as adjustments to net revenues and selling, delivery and
administrative expenses depending on the objective of the program. In accordance
with EITF Issue No. 02-16, we have classified certain bottler incentives as a
reduction of cost of sales beginning in 2003. We have recorded a transition
adjustment of $6 million, net of taxes and minority interest of $1 million, for
the cumulative effect on prior years. This adjustment reflects the amount of
bottler incentives that can be attributed to our 2003 beginning inventory
balances. This accounting change did not have a material effect on our income
before cumulative effect of change in accounting principle in the first twelve
weeks of 2003 and is not expected to have a material effect on such amounts for
the balance of fiscal 2003. Assuming that EITF Issue No. 02-16 had been in place
for all periods presented, the following pro forma adjustments would have been
made to our 2002 reported results:
Net Revenues Q1 Q2 Q3 Q4 FY 2002
------------ ------ ------ ------ ------ -------
As Reported.................. $1,772 $2,209 $2,455 $2,780 $9,216
EITF 02-16 Adjustment........ (59) (71) (72) (88) (290)
----- ----- ----- ----- ------
Pro Forma.................... $1,713 $2,138 $2,383 $2,692 $8,926
===== ===== ===== ===== ======
Cost of Sales Q1 Q2 Q3 Q4 FY 2002
------------- ------ ------ ------ ------ ------
As Reported.................. $942 $1,185 $1,337 $1,537 $5,001
EITF 02-16 Adjustment........ (95) (119) (125) (151) (490)
----- ----- ----- ----- -----
Pro Forma.................... $847 $1,066 $1,212 $1,386 $4,511
===== ===== ===== ===== =====
Selling, Delivery and
---------------------
Administrative Expenses Q1 Q2 Q3 Q4 FY 2002
----------------------- ------ ------ ------ ------ -------
As Reported.................. $695 $753 $780 $1,089 $3,317
EITF 02-16 Adjustment........ 37 49 53 62 201
----- ----- ----- ----- ------
Pro Forma.................... $732 $802 $833 $1,151 $3,518
===== ===== ===== ===== ======
Assuming EITF Issue No. 02-16 had been adopted for all periods presented,
pro forma net income and earnings per share for the twelve weeks ended March 22,
2003 and March 23, 2002, would have been as follows:
12-Weeks Ended
--------------
March March
22, 2003 23, 2002
-------- --------
Net income
As reported............................... $ 33 $ 54
Pro forma................................. $ 39 $ 53
Earnings per share
Basic - as reported....................... $ 0.12 $ 0.19
Basic - pro forma......................... $ 0.14 $ 0.19
Diluted - as reported..................... $ 0.12 $ 0.19
Diluted - pro forma....................... $ 0.14 $ 0.18