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 September 8, 2001
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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.
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(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
incorporation 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 Common Stock outstanding as of October 6, 2001: 141,941,777
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 36-weeks ended September 8, 2001 and September 2, 2000 2
Condensed Consolidated Statements of Cash Flows -
36-weeks ended September 8, 2001 and September 2, 2000 3
Condensed Consolidated Balance Sheets -
September 8, 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
Independent Accountants' Review Report 13
Part II Other Information and Signatures
Item 6. Exhibits 16
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PART I - FINANCIAL INFORMATION
Item 1.
The Pepsi Bottling Group, Inc.
Condensed Consolidated Statements of Operations
in millions except per share amounts, unaudited
12-weeks Ended 36-weeks Ended
-------------- --------------
September September September September
8, 2001 2, 2000 8, 2001 2, 2000
--------- --------- --------- ---------
Net Revenues................................................................ $2,274 $2,125 $5,981 $5,583
Cost of sales............................................................... 1,222 1,163 3,212 3,041
------ ------ ------ ------
Gross Profit................................................................ 1,052 962 2,769 2,542
Selling, delivery and administrative expenses............................... 767 706 2,177 2,020
------ ------ ------ ------
Operating Income............................................................ 285 256 592 522
Interest expense, net....................................................... 45 44 135 133
Foreign currency loss....................................................... - 1 - 1
Minority interest........................................................... 18 16 37 31
------ ------ ------ ------
Income before income taxes.................................................. 222 195 420 357
Income tax expense before rate change....................................... 81 72 153 132
Income tax rate change benefit.............................................. (9) - (25) -
------ ------ ------ ------
Net Income.................................................................. $ 150 $ 123 $ 292 $ 225
====== ====== ====== ======
Basic Earnings Per Share.................................................... $ 1.05 $ 0.84 $ 2.03 $ 1.52
Weighted-Average Shares Outstanding......................................... 142 147 144 148
Diluted Earnings Per Share.................................................. $ 1.02 $ 0.82 $ 1.97 $ 1.51
Weighted-Average Shares Outstanding......................................... 147 149 148 149
See accompanying notes to Condensed Consolidated Financial Statements.
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The Pepsi Bottling Group, Inc.
Condensed Consolidated Statements of Cash Flows
in millions, unaudited
36-weeks Ended
--------------
September September
8, 2001 2, 2000
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Cash Flows - Operations
Net income................................................................ $292 $225
Adjustments to reconcile net income to net cash provided by operations:
Depreciation........................................................ 257 232
Amortization........................................................ 92 91
Deferred income taxes............................................... 17 (10)
Other non-cash charges and credits, net............................. 133 125
Changes in operating working capital, excluding effects of
acquisitions:
Accounts receivable............................................... (274) (208)
Inventories....................................................... (58) (23)
Prepaid expenses and other current assets......................... 8 8
Accounts payable and other current liabilities.................... 70 108
---- ----
Net change in operating working capital ............................ (254) (115)
---- ----
Net Cash Provided by Operations............................................. 537 548
---- ----
Cash Flows - Investments
Capital expenditures..................................................... (397) (342)
Acquisitions of bottlers................................................. (111) (2)
Sale of property, plant and equipment.................................... 4 4
Other, net............................................................... (24) (6)
---- ----
Net Cash Used by Investments................................................ (528) (346)
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Cash Flows - Financing
Short-term borrowings - three months or less............................. 67 12
Payments of third-party debt............................................. - (9)
Dividends paid........................................................... (9) (9)
Proceeds from exercise of stock options.................................. 11 -
Purchase of treasury stock............................................... (169) (95)
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Net Cash Used by Financing.................................................. (100) (101)
---- ----
Effect of Exchange Rate Changes on Cash and Cash Equivalents................ (4) (6)
---- ----
Net (Decrease)/ Increase in Cash and Cash Equivalents...................... (95) 95
Cash and Cash Equivalents - Beginning of Period............................. 318 190
---- ----
Cash and Cash Equivalents - End of Period................................... $223 $285
==== ====
Supplemental Cash Flow Information
Third-party interest and income taxes paid.................................. $235 $287
==== ====
See accompanying notes to Condensed Consolidated Financial Statements.
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The Pepsi Bottling Group, Inc.
Condensed Consolidated Balance Sheets
in millions, except per share amounts
(Unaudited)
September December
8, 2001 30, 2000
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Assets
Current Assets
Cash and cash equivalents..................................................... $ 223 $ 318
Accounts receivable, less allowance of $43 at
September 8, 2001 and $42 at December 30, 2000.......................... 1,074 796
Inventories................................................................... 340 281
Prepaid expenses and other current assets..................................... 127 189
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Total Current Assets.................................................. 1,764 1,584
Property, plant and equipment, net............................................ 2,485 2,358
Intangible assets, net........................................................ 3,692 3,694
Other assets.................................................................. 106 100
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Total Assets......................................................... $8,047 $7,736
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other current liabilities................................ $1,011 $ 941
Short-term borrowings......................................................... 93 26
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Total Current Liabilities............................................. 1,104 967
Long-term debt................................................................ 3,281 3,271
Other liabilities............................................................. 518 474
Deferred income taxes......................................................... 1,072 1,072
Minority interest............................................................. 338 306
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Total Liabilities..................................................... 6,313 6,090
Shareholders' Equity
Common stock, par value $0.01 per share:
authorized 300 shares, issued 155 shares................................. 2 2
Additional paid-in capital................................................... 1,738 1,736
Retained earnings............................................................ 638 355
Accumulated other comprehensive loss......................................... (297) (254)
Treasury stock: 13 shares and 10 shares at September 8, 2001 and December
30, 2000, respectively.................................................... (347) (193)
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Total Shareholders' Equity............................................ 1,734 1,646
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Total Liabilities and Shareholders' Equity........................... $8,047 $7,736
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See accompanying notes to Condensed Consolidated Financial Statements.
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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 non-carbonated 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 September
8, 2001, PepsiCo's ownership consisted of 37.3% of our outstanding common stock
and 100% of our outstanding Class B common stock, together representing 45.8% 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.
The accompanying Condensed Consolidated Balance Sheet at September 8, 2001
and the Condensed Consolidated Statements of Operations for the 12 and 36-weeks
ended September 8, 2001 and September 2, 2000 and Cash Flows for the 36-weeks
ended September 8, 2001 and September 2, 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 third 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
September December
8, 2001 30, 2000
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Raw materials and supplies...................................................... $127 $107
Finished goods.................................................................. 213 174
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$340 $281
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Note 4 - Property, Plant and Equipment, net
September December
8, 2001 30, 2000
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Land............................................................................ $ 146 $ 145
Buildings and improvements...................................................... 917 903
Manufacturing and distribution equipment........................................ 2,293 2,186
Marketing equipment............................................................. 1,846 1,745
Other........................................................................... 103 89
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5,305 5,068
Accumulated depreciation........................................................ (2,820) (2,710)
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$2,485 $2,358
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Note 5 - Income Tax Rate Change Benefit
During 2001, the Canadian Government passed laws reducing federal and
certain provincial corporate income tax rates. These rate changes reduced
deferred tax liabilities associated with our operations in Canada, and resulted
in one-time gains in the 12-weeks and 36-weeks ended September 8, 2001 of $0.06
per share and $0.16 per share, respectively.
Note 6 - Acquisitions
During 2001, PBG acquired the operations and exclusive right to
manufacture, sell and distribute Pepsi-Cola beverages from two independent
bottlers. In May and August of 2001, we acquired Pepsi-Cola Bottling of Northern
California and Pepsi-Cola Elmira Bottling Co. Inc., respectively, for an
aggregate purchase price of $116 million of cash and assumed debt. These
acquisitions were accounted for by the purchase method, and were made to enable
us to provide better service to our large retail customers as well as reduce
costs through economies of scale.
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 repurchased
approximately 4 million shares for $169 million in the first 36-weeks in 2001
and approximately 4 million shares for $95 million over the same period in 2000.
Of the 25 million shares authorized we have repurchased 14 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.
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
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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 September 8, 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, the amount of deferred losses from our commodity hedging that we
recongnize into income was not material. At September 8, 2001 an $11 million
deferred loss remained in accumulated other comprehensive loss in our Condensed
Consolidated Balance Sheets resulting from our commodity hedges. We anticipate
that this loss, which is $7 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 third quarter or
first 36-weeks of 2001.
Fair Value Hedges
We finance a portion of our operations through fixed rate debt instruments.
At September 8, 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 change in fair
value of the interest rate swap was a gain of $5 million for the first 36-weeks
of 2001. The fair value change was recorded in interest expense, net in our
Condensed Consolidated Statements of Operations and in prepaid expenses and
other current assets in our Condensed Consolidated Balance Sheets. A
corresponding adjustment 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.
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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", which requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001, as well as
purchase method business combinations completed after June 30, 2001, and SFAS
142, "Goodwill and Other Intangible Assets", which requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment. SFAS 141 replaces Accounting Principles Board
Opinion 16, "Business Combinations" and SFAS 142 replaces APB 17, "Intangible
Assets". Effective the first day of fiscal year 2002 we will no longer amortize
goodwill and certain franchise rights, but will evaluate them for impairment
annually. We expect that the adoption of these statements will lower our fiscal
year 2002 amortization expense by approximately $128 million, or $0.61 per
diluted share, based on the weighted-average number of year-to-date diluted
shares outstanding.
Note 9 - Comprehensive Income
12-weeks Ended 36-weeks Ended
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September September September September
8, 2001 2, 2000 8, 2001 2, 2000
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Net income...................................... $150 $123 $292 $225
Currency translation adjustment................. (1) (13) (32) (34)
FAS 133 adjustment.............................. (9) - (11) -
---- ---- ---- ----
Comprehensive Income............................ $140 $110 $249 $191
==== ==== ==== ====
Note 10 - Subsequent Events
On October 10, 2001, our Board of Directors approved a two-for-one stock
split of our common stock. Shareholder approval will be sought at a special
meeting scheduled for November 27, 2001.
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Item 2.
Management's Discussion and Analysis of Results of Operations and Financial
--------------------------------------------------------------------------------
Condition
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Overview
The third quarter of 2001 marked the 11th consecutive quarter of
outstanding operating results for The Pepsi Bottling Group, Inc. (collectively
referred to as "PBG," "we," "our" and "us"). Highlights of these results were as
follows:
o We delivered 10% constant territory EBITDA growth in the third quarter and
11% in the first 36-weeks of 2001.
o Our worldwide constant territory physical case volume grew by 3% in both
the third quarter and first 36-weeks of 2001.
o We increased third quarter and year-to-date worldwide constant territory
net revenue per case by 3% as compared to the same periods in 2000.
o We delivered third quarter 2001 diluted earnings per share of $1.02, an
increase of $0.20, or 24%, over 2000 and year-to-date diluted earnings per
share of $1.97, an increase of $0.46, or 30%, over the same 36-week period
in 2000. Diluted earnings per share in 2001 includes tax benefits of $0.06
and $0.16 in the third quarter and year-to-date, respectively, resulting
from reductions 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
---------------------
Reported Change Constant Territory Change
--------------- -------------------------
September 8, 2001 September 8, 2001
----------------- -----------------
12-weeks 36-weeks 12-weeks 36-weeks
-------- -------- -------- --------
EBITDA............................. 11% 11% 10% 11%
Volume............................. 4% 4% 3% 3%
Net Revenue per Case............... 3% 3% 3% 3%
EBITDA
On a reported basis, EBITDA was $405 million and $941 million in the third
quarter and first 36-weeks of 2001, respectively, representing an 11% increase
over the same periods of 2000. The constant territory growth of 10% for the
third quarter and 11% for the first 36-weeks of 2001 was a reflection of higher
pricing in the U.S., an increased mix of higher margin cold drink volume
-9-
and continued growth in our operations outside the U.S., particularly in Russia,
partially offset by investments in our cold drink infrastructure.
Volume
Our worldwide physical case volume grew 4% in the third quarter and first
36-weeks of 2001, respectively. Constant territory volume growth was 3% in the
third quarter reflecting flat volume in the U.S. and 13% growth outside the U.S.
On a year-to-date basis, constant territory volume growth was 3% driven by 1%
volume growth in the U.S. and 13% growth outside the United States. U.S. volume
results in the third quarter include an approximate 2% negative impact from the
53rd week in 2000 that caused a shift in calendar weeks in 2001. Excluding this
negative impact, U.S. volume grew approximately 2% in the third quarter and
remained at 1% on a year-to-date basis. The quarter and year-to-date growth was
led by the introduction of Mountain Dew Code Red, expanded distribution of
Sierra Mist and strong growth in Aquafina. Outside the U.S., all countries
delivered solid volume growth in both the quarter and first 36 weeks of 2001.
Net revenues
Reported net revenues were $2,274 million and $5,981 million in the third
quarter and first 36-weeks of 2001, respectively, representing a 7% increase
over the prior year periods. On a constant territory basis, net revenues
increased by 6% in both the quarter and year-to-date reflecting 3% volume growth
and 3% growth in net revenue per case. Higher pricing, particularly in
foodstores, and an increased mix of higher-revenue cold drink volume reflecting
new product innovation and strong Aquafina performance, drove U.S. net revenue
per case growth of 5% in both the quarter and year-to-date. Also contributing to
the positive net revenue trends was solid international volume growth. Reported
net revenues and net revenue per case were lowered by approximately 1 percentage
point due to currency translations in both the quarter and 36-weeks ended
September 8, 2001.
Cost of sales
Cost of sales increased $59 million, or 5%, in the third quarter of 2001
and $171 million, or 6%, year-to-date. On a constant territory basis, cost of
sales per case increased 1% in both the quarter and year-to-date reflecting
higher U.S. concentrate costs and mix shifts into higher cost packages and
products offset by country mix and favorable currency translations.
Selling, delivery and administrative expenses
Selling, delivery and administrative expenses grew $61 million, or almost
9%, in the third quarter, bringing year-to-date growth to $157 million, or 8%,
over the comparable periods in 2000. This primarily reflects increased selling
and delivery costs, specifically our continued investment in our U.S. and
Canadian cold drink execution including people, routes and equipment. Also
contributing to the change in selling, delivery and administrative expenses are
higher advertising and marketing costs offset by an approximate 1 percentage
point favorable impact from currency translations.
Income tax expense before rate change
Our full year forecasted 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% in 2000. The half point decrease is primarily due to the reduced impact of
fixed non-deductible expenses on higher anticipated pre-tax income in 2001.
-10-
Income tax rate change benefit
During 2001, the Canadian Government passed laws reducing federal and
certain provincial corporate income tax rates. These rate changes reduced
deferred tax liabilities associated with our operations in Canada, and resulted
in one-time gains in the 12-weeks and 36-weeks ended September 8, 2001 of $0.06
per share and $0.16 per share, respectively.
Liquidity and Capital Resources
-------------------------------
Cash Flows
Net cash provided by operating activities decreased $11 million to $537
million in the first 36-weeks of 2001, which was primarily due to unfavorable
working capital cash flows reflecting the timing of cash payments and receipts
resulting from the negative impact of the 53rd week calendarization issue in
2001. Strong EBITDA growth mitigated the impact of working capital cash flows.
Net cash used by investments increased by $182 million from $346 million at
the end of the third quarter of 2000 to $528 million in the first 36-weeks of
2001, primarily due to acquisition spending, which was $109 million higher in
2001. Capital expenditures increased by $55 million, or 16%, reflecting our
continued investment in U.S. and Canada's cold drink infrastructure.
Net cash used by financing decreased $1 million from the end of the third
quarter of 2000 to the first 36-weeks of 2001. This change reflects higher
short-term borrowings, which were used primarily to fund increased 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 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 the 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.
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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.
-12-
Independent Accountants' Review Report
--------------------------------------
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 September 8, 2001, and the related
Condensed Consolidated Statements of Operations for the twelve and thirty-six
weeks ended September 8, 2001 and September 2, 2000 and the Condensed
Consolidated Statements of Cash Flows for the thirty-six weeks ended September
8, 2001 and September 2, 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
October 9, 2001
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PART II - OTHER INFORMATION AND SIGNATAURES
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
See Index to Exhibits on page 15.
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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: October 19, 2001 Andrea L. Forster
---------------- ------------------------------
Vice President and Controller
Date: October 19, 2001 Alfred H. Drewes
---------------- ------------------------------
Senior Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
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ITEM 6 (a)
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EXHIBITS
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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 36-weeks Ended
-------------- --------------
9/08/01 9/02/00 9/08/01 9/02/00
------- ------- ------- -------
Number of shares on which basic earnings
per share is based:
Average outstanding during period................ 142 147 144 148
Add - Incremental shares under stock
compensation plans............................. 5 2 4 1
---- ---- ---- ----
Number of shares in which diluted
earnings per share is based...................... 147 149 148 149
Net earnings applicable to common
shareholders (millions)......................... $ 150 $ 123 $ 292 $ 225
Net earnings on which diluted earnings
per share is based (millions)................... $ 150 $ 123 $ 292 $ 225
Basic earnings per share........................... $1.05 $0.84 $2.03 $1.52
Diluted earnings per share......................... $1.02 $0.82 $1.97 $1.51
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