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NO. 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 29, 2001
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THE PEPSI BOTTLING GROUP, INC.
ONE PEPSI WAY
SOMERS, NEW YORK 10589
(914) 767-6000
INCORPORATED IN DELAWARE 13-4038356
(JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
-------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT
OF 1934:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
7% Series B Senior Notes due 2029 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE SECURITIES EXCHANGE ACT
OF 1934: NONE
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___
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
THE NUMBER OF SHARES OF CAPITAL STOCK OF THE PEPSI BOTTLING GROUP, INC.
OUTSTANDING AS OF MARCH 11, 2002 WAS 279,881,744. THE AGGREGATE MARKET VALUE OF
THE PEPSI BOTTLING GROUP, INC. CAPITAL STOCK HELD BY NON-AFFILIATES OF THE PEPSI
BOTTLING GROUP, INC. AS OF MARCH 11, 2002 WAS $4,155,502,225.
DOCUMENTS OF WHICH PORTIONS PARTS OF FORM 10-K INTO WHICH PORTION
ARE INCORPORATED BY REFERENCE OF DOCUMENTS ARE INCORPORATED
- ----------------------------- -----------------------------
ANNUAL REPORT TO SHAREHOLDERS I, II
PROXY STATEMENT FOR THE PEPSI BOTTLING GROUP, INC.
MAY 22, 2002 ANNUAL MEETING OF SHAREHOLDERS III
PART I
ITEM 1. BUSINESS
INTRODUCTION
The Pepsi Bottling Group, Inc. ("PBG") was incorporated in Delaware in
January, 1999, as a wholly-owned subsidiary of PepsiCo, Inc. ("PepsiCo") to
effect the separation of most of PepsiCo's company-owned bottling businesses.
PBG became a publicly traded company on March 31, 1999. As of February 21, 2002,
PepsiCo's ownership represented 37.9% of the outstanding common stock and 100%
of the outstanding Class B common stock, together representing 42.9% of the
voting power of all classes of PBG's voting stock. PepsiCo also owns 7.0% of the
equity interest of Bottling Group, LLC, PBG's principal operating subsidiary. We
refer to our publicly traded common stock as "Common Stock" and, together with
our Class B common stock, as our "Capital Stock." When used in this Report,
"PBG," "we," "us" and "our" each refers to The Pepsi Bottling Group, Inc. and,
where appropriate, to Bottling Group, LLC, which we also refer to as "Bottling
LLC."
RECENT ACQUISITION
On March 13, 2002, we acquired the operations and exclusive right to
manufacture, sell and distribute Pepsi-Cola's international beverages in Turkey
for a purchase price of approximately $100 million in cash and assumed debt.
PRINCIPAL PRODUCTS
PBG is the world's largest manufacturer, seller and distributor of
Pepsi-Cola beverages. Pepsi-Cola beverages sold by us include PEPSI-COLA, DIET
PEPSI, PEPSI ONE, PEPSI TWIST, MOUNTAIN DEW, MOUNTAIN DEW CODE RED, AMP, LIPTON
BRISK, LIPTON'S ICED TEA, SLICE, MUG, AQUAFINA, STARBUCKS FRAPPUCCINO,
FRUITWORKS, SIERRA MIST, DOLE and SOBE and, outside the U.S., 7UP, PEPSI MAX,
MIRINDA and KAS. We have the exclusive right to manufacture, sell and distribute
Pepsi-Cola beverages in all or a portion of 41 states, the District of Columbia,
eight Canadian provinces, Spain, Greece and Russia. In some of our territories,
we also have the right to manufacture, sell and distribute soft drink products
of other companies, including DR PEPPER, 7UP and ALL SPORT in the U.S.
Approximately 79% of our volume is sold in the United States, and the remaining
21% is sold in Canada, Spain, Greece and Russia. We have an extensive
distribution system in the United States and Canada. In Russia, Spain and
Greece, we use a combination of direct store distribution and distribution
through wholesalers, depending on local marketplace considerations.
RAW MATERIALS AND OTHER SUPPLIES
PBG purchases the concentrates to manufacture Pepsi-Cola beverages and
other soft drink products from PepsiCo and other soft-drink companies.
In addition to concentrates, we purchase sweeteners, glass and plastic
bottles, cans, closures, syrup containers, other packaging materials and carbon
dioxide. We generally purchase our raw materials, other than concentrates, from
multiple suppliers. PepsiCo acts as our agent for the purchase of such raw
materials. The Pepsi beverage agreements provide that, with respect to the soft
drink products of PepsiCo, all authorized containers, closures, cases, cartons
and other packages and labels may be purchased only from manufacturers approved
by PepsiCo. There are no materials or supplies used by PBG that are currently in
short supply. The supply or cost of specific materials could be adversely
affected by price changes, strikes, weather conditions, governmental controls or
other factors.
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PATENTS, TRADEMARKS, LICENSES AND FRANCHISES
Our portfolio of beverage products includes some of the best recognized
trademarks in the world and includes PEPSI-COLA, DIET PEPSI, PEPSI ONE, PEPSI
TWIST, MOUNTAIN DEW, MOUNTAIN DEW CODE RED, AMP, LIPTON BRISK, LIPTON'S ICED
TEA, SLICE, MUG, AQUAFINA, STARBUCKS FRAPPUCCINO, FRUITWORKS, SIERRA MIST, DOLE,
SOBE and outside the U.S., 7UP, PEPSI MAX, MIRINDA and KAS. The majority of our
volume is derived from brands licensed from PepsiCo or PepsiCo joint ventures.
In some of our territories, we also have the right to manufacture, sell and
distribute soft drink products of other companies, including DR PEPPER, 7UP and
ALL SPORT in the U.S.
PBG conducts its business primarily under agreements with PepsiCo. These
agreements give us the exclusive right to market, distribute, and produce
beverage products of PepsiCo in authorized containers in specified territories.
Set forth below is a description of the Pepsi beverage agreements and other
bottling agreements to which we are a party.
Terms of the Master Bottling Agreement. The Master Bottling Agreement under
which we manufacture, package, sell and distribute the cola beverages bearing
the PEPSI-COLA and PEPSI trademarks was entered into in March of 1999. The
Master Bottling Agreement gives us the exclusive and perpetual right to
distribute cola beverages for sale in specified territories in authorized
containers of the nature currently used by us. The Master Bottling Agreement
provides that we will purchase our entire requirements of concentrates for the
cola beverages from PepsiCo at prices, and on terms and conditions, determined
from time to time by PepsiCo. PepsiCo may determine from time to time what types
of containers to authorize for use by us. PepsiCo has no rights under the Master
Bottling Agreement with respect to the prices at which we sell our products.
Under the Master Bottling Agreement we are obligated to:
(1) maintain such plant and equipment, staff, and distribution and vending
facilities that are capable of manufacturing, packaging and
distributing the cola beverages in sufficient quantities to fully meet
the demand for these beverages in our territories;
(2) undertake adequate quality control measures prescribed by PepsiCo;
(3) push vigorously the sale of the cola beverages in our territories;
(4) increase and fully meet the demand for the cola beverages in our
territories;
(5) use all approved means and spend such funds on advertising and other
forms of marketing beverages as may be reasonably required to meet the
objective; and
(6) maintain such financial capacity as may be reasonably necessary to
assure performance under the Master Bottling Agreement by us.
The Master Bottling Agreement requires us to meet annually with PepsiCo to
discuss plans for the ensuing year and the following two years. At such
meetings, we are obligated to present plans that set out in reasonable detail
our marketing plan, our management plan and advertising plan with respect to the
cola beverages for the year. We must also present a financial plan showing that
we have the financial capacity to perform our duties and obligations under the
Master Bottling Agreement for that year, as well as sales, marketing,
advertising and capital expenditure plans for the two years following such year.
PepsiCo has the right to approve such plans, which approval shall not be
unreasonably withheld. In 2001, PepsiCo approved our annual plan.
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If we carry out our annual plan in all material respects, we will be deemed
to have satisfied our obligations to push vigorously the sale of the cola
beverages, increase and fully meet the demand for the cola beverages in our
territories and maintain the financial capacity required under the Master
Bottling Agreement. Failure to present a plan or carry out approved plans in all
material respects would constitute an event of default that, if not cured within
120 days of notice of the failure, would give PepsiCo the right to terminate the
Master Bottling Agreement.
If we present a plan that PepsiCo does not approve, such failure shall
constitute a primary consideration for determining whether we have satisfied our
obligations to maintain our financial capacity, push vigorously the sale of the
cola beverages and increase and fully meet the demand for the cola beverages in
our territories.
If we fail to carry out our annual plan in all material respects in any
segment of our territory, whether defined geographically or by type of market or
outlet, and if such failure is not cured within six months of notice of the
failure, PepsiCo may reduce the territory covered by the Master Bottling
Agreement by eliminating the territory, market or outlet with respect to which
such failure has occurred.
PepsiCo has no obligation to participate with us in advertising and
marketing spending, but it may contribute to such expenditures and undertake
independent advertising and marketing activities, as well as cooperative
advertising and sales promotion programs that would require our cooperation and
support. Although PepsiCo has advised us that it intends to continue to provide
cooperative advertising funds, it is not obligated to do so under the Master
Bottling Agreement.
The Master Bottling Agreement provides that PepsiCo may in its sole
discretion reformulate any of the cola beverages or discontinue them, with some
limitations, so long as all cola beverages are not discontinued. PepsiCo may
also introduce new beverages under the PEPSI-COLA trademarks or any modification
thereof. If that occurs, we will be obligated to manufacture, package,
distribute and sell such new beverages with the same obligations as then exist
with respect to other cola beverages. We are prohibited from producing or
handling cola products, other than those of PepsiCo, or products or packages
that imitate, infringe or cause confusion with the products, containers or
trademarks of PepsiCo. The Master Bottling Agreement also imposes requirements
with respect to the use of PepsiCo's trademarks, authorized containers,
packaging and labeling.
If we acquire control, directly or indirectly, of any bottler of cola
beverages, we must cause the acquired bottler to amend its bottling appointments
for the cola beverages to conform to the terms of the Master Bottling Agreement.
Under the Master Bottling Agreement, PepsiCo has agreed not to withhold
approval for any acquisition of rights to manufacture and sell PEPSI trademarked
cola beverages within a specific area -- currently representing approximately
13.2% of PepsiCo's U.S. bottling system in terms of volume -- if we have
successfully negotiated the acquisition and, in PepsiCo's reasonable judgment,
satisfactorily performed our obligations under the Master Bottling Agreement. We
have agreed not to acquire or attempt to acquire any rights to manufacture and
sell PEPSI trademarked cola beverages outside of that specific area without
PepsiCo's prior written approval.
The Master Bottling Agreement is perpetual, but may be terminated by
PepsiCo in the event of our default. Events of default include:
(1) our insolvency, bankruptcy, dissolution, receivership or the like;
(2) any disposition of any voting securities of one of our bottling
subsidiaries or substantially all of our bottling assets without the
consent of PepsiCo;
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(3) our entry into any business other than the business of manufacturing,
selling or distributing non-alcoholic beverages or any business which
is directly related and incidental to such beverage business; and
(4) any material breach under the contract that remains uncured for 120
days after notice by PepsiCo.
An event of default will also occur if any person or affiliated group
acquires any contract, option, conversion privilege, or other right to acquire,
directly or indirectly, beneficial ownership of more than 15% of any class or
series of our voting securities without the consent of PepsiCo. As of February
21, 2002, no shareholder of PBG, other than PepsiCo, holds more than 7.0% of our
Common Stock.
We are prohibited from assigning, transferring or pledging the Master
Bottling Agreement, or any interest therein, whether voluntarily, or by
operation of law, including by merger or liquidation, without the prior consent
of PepsiCo.
The Master Bottling Agreement was entered into by us in the context of our
separation from PepsiCo and, therefore, its provisions were not the result of
arm's-length negotiations. Consequently, the agreement contains provisions that
are less favorable to us than the exclusive bottling appointments for cola
beverages currently in effect for independent bottlers in the United States.
Terms of the Non-Cola Bottling Agreements. The beverage products covered by
the non-cola bottling agreements are beverages licensed to us by PepsiCo,
consisting of MOUNTAIN DEW, DIET MOUNTAIN DEW, MOUNTAIN DEW CODE RED, SLICE,
SIERRA MIST, AQUAFINA, FRUITWORKS, MUG root beer and cream soda. The non-cola
bottling agreements contain provisions that are similar to those contained in
the Master Bottling Agreement with respect to pricing, territorial restrictions,
authorized containers, planning, quality control, transfer restrictions, term,
and related matters. Our non-cola bottling agreements will terminate if PepsiCo
terminates our Master Bottling Agreement. The exclusivity provisions contained
in the non-cola bottling agreements would prevent us from manufacturing, selling
or distributing beverage products which imitate, infringe upon, or cause
confusion with, the beverage products covered by the non-cola bottling
agreements. PepsiCo may also elect to discontinue the manufacture, sale or
distribution of a non-cola beverage and terminate the applicable non-cola
bottling agreement upon six months notice to us.
We also have agreements with PepsiCo granting us exclusive rights to
distribute AMP and DOLE in all of our territories and SOBE in certain specified
territories. The distribution agreements contain provisions generally similar to
those in the Master Bottling Agreement as to use of trademarks, trade names,
approved containers and labels and causes for termination. Some of these
beverage agreements have limited terms and, in most instances, prohibit us from
dealing in similar beverage products.
Terms of the Master Syrup Agreement. The Master Syrup Agreement grants us
the exclusive right to manufacture, sell and distribute fountain syrup to local
customers in our territories. The Master Syrup Agreement also grants us the
right to act as a manufacturing and delivery agent for national accounts within
our territories that specifically request direct delivery without using a
middleman. In addition, PepsiCo may appoint us to manufacture and deliver
fountain syrup to national accounts that elect delivery through independent
distributors. Under the Master Syrup Agreement, we will have the exclusive right
to service fountain equipment for all of the national account customers within
our territories. The Master Syrup Agreement provides that the determination of
whether an account is local or national is at the sole discretion of PepsiCo.
The Master Syrup Agreement contains provisions that are similar to those
contained in the Master Bottling Agreement with respect to pricing, territorial
restrictions with respect to local customers and national customers electing
direct-to-store delivery only, planning, quality control,
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transfer restrictions and related matters. The Master Syrup Agreement has an
initial term of five years and is automatically renewable for additional
five-year periods unless PepsiCo terminates it for cause. PepsiCo has the right
to terminate the Master Syrup Agreement without cause at the conclusion of the
initial five-year period or at any time during a renewal term upon twenty-four
months notice. In the event PepsiCo terminates the Master Syrup Agreement
without cause, PepsiCo is required to pay us the fair market value of our rights
thereunder.
Our Master Syrup Agreement will terminate if PepsiCo terminates our Master
Bottling Agreement.
Terms of Other U.S. Bottling Agreements. The bottling agreements between us
and other licensors of beverage products, including Cadbury Schweppes plc -- for
DR PEPPER, 7UP, SCHWEPPES and CANADA DRY, the Pepsi/Lipton Tea Partnership --
for LIPTON BRISK and LIPTON'S ICED TEA, the North American Coffee Partnership --
for STARBUCKS FRAPPUCCINO, and Monarch Company -- for ALL SPORT, contain
provisions generally similar to those in the Master Bottling Agreement as to use
of trademarks, trade names, approved containers and labels, sales of imitations,
and causes for termination. Some of these beverage agreements have limited terms
and, in most instances, prohibit us from dealing in similar beverage products.
Terms of the Country Specific Bottling Agreements. The country specific
bottling agreements contain provisions similar to those contained in the Master
Bottling Agreement and the non-cola bottling agreements and, in Canada, the
Master Syrup Agreement with respect to authorized containers, planning, quality
control, transfer restrictions, causes for termination and related matters.
These bottling agreements differ from the Master Bottling Agreement because,
except for Canada, they include both fountain syrup and non-fountain beverages.
These bottling agreements also differ from the Master Bottling Agreement with
respect to term and contain certain provisions that have been modified to
reflect the laws and regulations of the applicable country. For example, the
bottling agreements in Spain do not contain a restriction on the sale and
shipment of Pepsi-Cola beverages into our territory by others in response to
unsolicited orders.
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SEASONALITY
Our peak season is the warm summer months beginning with Memorial Day and
ending with Labor Day. Approximately 75% of our operating income is typically
earned during the second and third quarters. Over 80% of cash flow from
operations is typically generated in the third and fourth quarters.
COMPETITION
The carbonated soft drink market and the non-carbonated beverage market are
highly competitive. Our competitors in these markets include bottlers and
distributors of nationally advertised and marketed products, bottlers and
distributors of regionally advertised and marketed products, as well as bottlers
of private label soft drinks sold in chain stores. We compete primarily on the
basis of advertising and marketing programs to create brand awareness, price and
promotions, retail space management, customer service, consumer points of
access, new products, packaging innovations and distribution methods. We believe
that brand recognition, availability and consumer and customer goodwill are
primary factors affecting our competitive position.
GOVERNMENTAL REGULATION APPLICABLE TO PBG
Our operations and properties are subject to regulation by various federal,
state and local governmental entities and agencies as well as foreign government
entities. As a producer of food products, we are subject to production,
packaging, quality, labeling and distribution standards in each of the countries
where we have operations, including, in the United States, those of the federal
Food, Drug and Cosmetic Act. The operations of our production and distribution
facilities are subject to the laws and regulations of, among other agencies, the
Department of Transportation, and various federal, state and local occupational
and environmental laws. These laws and regulations include, in the United
States, the Occupational Safety and Health Act, the Clean Air Act, the Clean
Water Act and laws relating to the operation, maintenance of and financial
responsibility for, fuel storage tanks. We believe that our current legal,
operational and environmental compliance programs adequately address such
concerns and that we are in substantial compliance with applicable laws and
regulations. We do not anticipate making any material expenditures in connection
with environmental remediation and compliance. However, compliance with, or any
violation of, future laws or regulations could require material expenditures by
us or otherwise have a material adverse effect on our business, financial
condition and results of operations.
Bottle and Can Legislation
In all but a few of our United States and Canadian markets, we offer our
bottle and can beverage products in non-refillable containers. Legislation has
been enacted in certain states and Canadian provinces where we operate that
generally prohibits the sale of certain beverages unless a deposit or levy is
charged for the container. These include Connecticut, Delaware, Maine,
Massachusetts, Michigan, New York, Oregon, California, British Columbia,
Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia and Quebec.
Maine, Massachusetts and Michigan have statutes that require us to pay all
or a portion of unclaimed container deposits to the state and California imposes
a levy on beverage containers to fund a waste recovery system.
In addition to the Canadian deposit legislation described above, Ontario,
Canada, currently has a regulation requiring that 30% of all soft drinks sold in
Ontario be bottled in refillable containers. This regulation is currently being
reviewed by the Canadian Ministry of the Environment.
The European Commission issued a packaging and packing waste directive that
was incorporated into the national legislation of most member states. This has
resulted in targets being set for the
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recovery and recycling of household, commercial and industrial packaging waste
and imposes substantial responsibilities upon bottlers and retailers for
implementation.
We are not aware of similar material legislation being proposed or enacted
in any other areas served by us. We are unable to predict, however, whether such
legislation will be enacted or what impact its enactment would have on our
business, financial condition or results of operations.
Soft Drink Excise Tax Legislation
Specific soft drink excise taxes have been in place in certain states for
several years. The states in which we operate that currently impose such a tax
are West Virginia, Arkansas and Tennessee and, with respect to fountain syrup
only, Washington. Value-added taxes on soft drinks vary in our territories
located in Canada, Spain, Greece and Russia, but are consistent with the
value-added tax rate for other consumer products.
We are not aware of any material soft drink taxes that have been enacted in
any other market served by us. We are unable to predict, however, whether such
legislation will be enacted or what impact its enactment would have on our
business, financial condition or results of operations.
Trade Regulation
As a manufacturer, seller and distributor of bottled and canned soft drink
products of PepsiCo and other soft drink manufacturers in exclusive territories
in the United States and internationally, we are subject to antitrust laws.
Under the Soft Drink Interbrand Competition Act, soft drink bottlers operating
in the United States, such as us, may have an exclusive right to manufacture,
distribute and sell a soft drink product in a geographic territory if the soft
drink product is in substantial and effective competition with other products of
the same class in the same market or markets. We believe that there is such
substantial and effective competition in each of the exclusive geographic
territories in which we operate.
California Carcinogen and Reproductive Toxin Legislation
A California law requires that any person who exposes another to a
carcinogen or a reproductive toxin must provide a warning to that effect.
Because the law does not define quantitative thresholds below which a warning is
not required, virtually all manufacturers of food products are confronted with
the possibility of having to provide warnings due to the presence of trace
amounts of defined substances. Regulations implementing the law exempt
manufacturers from providing the required warning if it can be demonstrated that
the defined substances occur naturally in the product or are present in
municipal water used to manufacture the product. We have assessed the impact of
the law and its implementing regulations on our beverage products and have
concluded that none of our products currently require a warning under the law.
We cannot predict whether or to what extent food industry efforts to minimize
the law's impact on food products will succeed. We also cannot predict what
impact, either in terms of direct costs or diminished sales, imposition of the
law may have.
EMPLOYEES
As of December 29, 2001, we employed approximately 37,000 full-time
workers, of whom approximately 30,000 were employed in the United States.
Approximately 8,800 of our full-time workers in the United States are union
members. We consider relations with our employees to be good and have not
experienced significant interruptions of operations due to labor disagreements
with the exception of a labor dispute at certain of our New Jersey facilities,
which was successfully resolved on July 22, 2001.
FINANCIAL INFORMATION ON INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
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For financial information on industry segments and operations in geographic
areas, see Note 15 to PBG's Consolidated Financial Statements, found on page 52
of our Annual Report to Shareholders for the year ended December 29, 2001, which
is incorporated herein by reference and is included as Exhibit 13 hereto.
ITEM 2. PROPERTIES
We operate 70 soft drink production facilities worldwide, of which 62 are
owned and 8 are leased. Of PBG's 328 distribution facilities, 264 are owned and
64 are leased. We believe that our bottling, canning and syrup filling lines and
our distribution facilities are sufficient to meet present needs. We also lease
headquarters office space in Somers, New York.
We also own or lease and operate approximately 28,000 vehicles, including
delivery trucks, delivery and transport tractors and trailers and other trucks
and vans used in the sale and distribution of our soft drink products. We also
own more than 1.2 million soft drink dispensing and vending machines.
With a few exceptions, leases of plants in the United States and Canada are
on a long-term basis, expiring at various times, with options to renew for
additional periods. Most international plants are leased for varying and usually
shorter periods, with or without renewal options. We believe that our properties
are in good operating condition and are adequate to serve our current
operational needs.
ITEM 3. LEGAL PROCEEDINGS
From time to time we are a party to various litigation matters incidental
to the conduct of our business. There is no pending or, to PBG's best knowledge,
threatened legal proceeding to which we are a party that, in the opinion of
management, is likely to have a material adverse effect on our future financial
results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
(a) Special Meeting of Shareholders of PBG was held on November 27, 2001.
(b) The only matter voted on was:
Approval of an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock of the Company
from 300,000,000 to 900,000,000. The number of votes cast in connection
with said approval was as follows:
Number of Votes Cast:
For Against Abstain Broker Non-Votes
--- -------- ------- ----------------
105,980,118 23,457,374 398,670 N/A
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EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information pertaining to the executive officers of PBG
as of February 21, 2002:
CRAIG E. WEATHERUP, 56, is currently the Chairman of our Board. Mr. Weatherup
was also the Chief Executive Officer of PBG from March 1999 to September 2001.
Mr. Weatherup served on the Board of Directors of PepsiCo from 1996 until March
1999. Prior to becoming our Chairman and Chief Executive Officer, he served as
Chairman and Chief Executive Officer of the Pepsi-Cola Company since July 1996.
He was appointed President of the Pepsi-Cola Company in 1988, President and
Chief Executive Officer of Pepsi-Cola North America in 1991, and served as
PepsiCo's President in 1996. Mr. Weatherup is also a director of Federated
Department Stores, Inc. and Starbucks Corporation.
JOHN T. CAHILL, 44, is currently our Chief Executive Officer. Previously, Mr.
Cahill served as our President and Chief Operating Officer from August 2000 to
September 2001. Mr. Cahill has been a member of our Board of Directors since
January 1999 and served as our Executive Vice President and Chief Financial
Officer prior to becoming President and Chief Operating Officer in August 2000.
He was Executive Vice President and Chief Financial Officer of the Pepsi-Cola
Company from April 1998 until November 1998. Prior to that, Mr. Cahill was
Senior Vice President and Treasurer of PepsiCo, having been appointed to that
position in April 1997. In 1996, he became Senior Vice President and Chief
Financial Officer of Pepsi-Cola North America. Mr. Cahill joined PepsiCo in 1989
where he held several other senior financial positions through 1996.
ERIC J. FOSS, 43, is currently our President, PBG North America. Previously, Mr.
Foss was our Executive Vice President and General Manager, PBG North America
from August 2000 to September 2001. From October 1999 until August 2000, he
served as our Senior Vice President, U.S. Sales and Field Operations, and prior
to that, he was our Senior Vice President, Sales and Field Marketing, since
March 1999. Mr. Foss joined Pepsi-Cola Company in 1982 and has held a variety of
other field and headquarters-based sales, marketing and general management
positions. From 1994 to 1996, Mr. Foss was General Manager of Pepsi-Cola North
America's Great West Business Unit. In 1996, Mr. Foss was named General Manager
for the Central Europe Region for Pepsi-Cola International, a position he held
until joining PBG in March 1999.
YIANNIS PETRIDES, 44, has been our President, PBG Europe, since June 2000, with
responsibilities for PBG's operations in Spain, Greece and Russia. Most
recently, he served as Business Unit General Manager for PBG in Spain and
Greece. Mr. Petrides joined PepsiCo in 1987 in the international beverage
division. In 1993, he was named General Manager of Frito Lay's Greek operation
with additional responsibility for the Balkan countries. Two years later, he was
appointed Business Unit General Manager for Pepsi Beverages International's
bottling operation in Spain.
ALFRED H. DREWES, 46, is our Senior Vice President and Chief Financial Officer.
Appointed to this position in June 2001, Mr. Drewes previously served as Senior
Vice President and Chief Financial Officer of Pepsi Beverages International
("PBI"). Mr. Drewes joined PepsiCo in 1982 as a financial analyst in New Jersey.
During the next nine years, he rose through increasingly responsible finance
positions within Pepsi-Cola North America in field operations and headquarters.
In 1991, Mr. Drewes joined PBI as Vice President of Manufacturing Operations,
with responsibility for the global concentrate supply organization.
PAMELA C. MCGUIRE, 54, has been our Senior Vice President, General Counsel and
Secretary since November 1998. Ms. McGuire joined PepsiCo in 1977 and served as
Vice President and Division Counsel of Pepsi-Cola Company from 1989 to March
1998, when she was named Vice President and Associate General Counsel of the
Pepsi-Cola Company.
10
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Stock Trading Symbol - PBG.
Stock Exchange Listings - PBG's Common Stock is listed on the New York
Stock Exchange. Our Class B common stock is not publicly traded.
Shareholders - As of March 11, 2002, there were approximately 44,033
registered and beneficial shareholders of Common Stock. PepsiCo is the holder of
all of the outstanding shares of Class B common stock.
Dividend Policy - Quarterly cash dividends are usually declared in
January, March, July and November and paid at the end of March, June, September
and at the beginning of January. The dividend record dates for 2002 are expected
to be March 8, June 7, September 6 and December 6.
Cash Dividends Declared Per Share on Capital Stock:
Quarter 2001 2000
------- ---- ----
1 $.02 $.02
2 $.02 $.02
3 $.02 $.02
4 $.01(1) $.02
----- ----
Total $.07 $.08
Stock Prices - The high, low and closing prices for a share of PBG
Common Stock on the New York Stock Exchange, as reported by Bloomberg Service,
for each fiscal quarter of 2001 and 2000 were as follows (in dollars): (2)
2001 High Low Close
---- ---- --- -----
First Quarter 21 1/4 16 25/32 19 5/91
Second Quarter 22 23/43 17 19/20 20 29/40
Third Quarter 22 43/50 19 17/25 22 3/10
Fourth Quarter 24 29/40 21 5/8 23 4/5
2000 High Low Close
---- ---- --- -----
First Quarter 11 15/32 8 1/8 10 1/8
Second Quarter 13 5/8 9 1/32 13 17/32
Third Quarter 16 19/32 13 1/4 15 23/32
Fourth Quarter 21 1/8 14 5/32 19 29/32
- ------------------
(1) As a result of a 2-for-1 split of PBG Common Stock effective November 27,
2001, PBG's previous quarterly dividend of $.02 per share was halved.
(2) For purposes of comparability share prices for the quarters prior to
November 27, 2001 have been adjusted to reflect the 2-for-1 split of PBG
Common Stock which was effective November 27, 2001.
11
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial and Operating Data" for the years 1995 through 2001, on page
56 of our Annual Report to Shareholders for the year ended December 29, 2001 is
incorporated into this report by reference and is included as Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
"Management's Financial Review" on pages 26 through 56 of PBG's Annual Report to
Shareholders for the year ended December 29, 2001 is incorporated into this
report by reference and is included as Exhibit 13 hereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
"Management's Financial Review -- Market Risks and Cautionary Statements" on
pages 26 and 39 of our Annual Report to Shareholders for the year ended December
29, 2001 is incorporated herein by reference and is included as Exhibit 13
hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of PBG and its subsidiaries are
incorporated herein by reference to our Annual Report to Shareholders for the
year ended December 29, 2001, included as Exhibit 13 hereto, at the pages
indicated:
Consolidated Statements of Operations - Fiscal years ended December 29, 2001,
December 30, 2000 and December 25, 1999 (page 31).
Consolidated Statements of Cash Flows - Fiscal years ended December 29, 2001,
December 30, 2000 and December 25, 1999 (page 35).
Consolidated Balance Sheets - December 29, 2001 and December 30, 2000 (page 36).
Consolidated Statements of Changes in Shareholders' Equity - Fiscal years ended
December 29, 2001, December 30, 2000 and December 25, 1999 (page 40).
Notes to Consolidated Financial Statements (pages 41-54).
Report of Independent Auditors (page 55).
12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PBG
The name, age and background of each of the PBG's directors nominated
for election are contained under the caption "Election of Directors" in PBG's
Proxy Statement for its 2002 Annual Meeting of Shareholders and are incorporated
herein by reference. Pursuant to Item 401(b) of Regulation S-K, the requisite
information pertaining to the executive officers of PBG is reported in Part I of
this Report.
Executive officers are elected by PBG's Board of Directors, and their
terms of office continue until the next annual meeting of the Board or until
their successors are elected and have been qualified. There are no family
relationships among our executive officers.
Information on Compliance with Section 16(a) of the Exchange Act is
contained in PBG's Proxy Statement for its 2002 Annual Meeting of Shareholders
under the caption "Section 16 Beneficial Ownership Reporting Compliance" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information on compensation of PBG's directors and certain named
executive officers is contained in PBG's Proxy Statement for its 2002 Annual
Meeting of Shareholders under the captions "Directors' Compensation" and
"Executive Compensation," respectively, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on the number of shares of PBG Common Stock beneficially
owned by each director, each named executive officer and by all directors and
named executive officers as a group is contained under the captions "Ownership
of Common Stock by Directors and Executive Officers" and "Stock Ownership of
Certain Beneficial Owners" in PBG's Proxy Statement for its 2002 Annual Meeting
of Shareholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain transactions between PBG, PepsiCo and
their affiliates and certain other persons is set forth under the caption
"Certain Relationships and Related Transactions" in PBG's 2002 Proxy Statement
and is incorporated herein by reference.
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. The following consolidated financial
statements of PBG and its subsidiaries, included in our Annual Report to
Shareholders for the year ended December 29, 2001, are incorporated by reference
into Part II, Item 8 of this report:
Consolidated Statements of Operations - Fiscal years ended December 29,
2001, December 30, 2000 and December 25, 1999.
Consolidated Statements of Cash Flows - Fiscal years ended December 29,
2001, December 30, 2000 and December 25, 1999.
Consolidated Balance Sheets - December 29, 2001 and December 30, 2000.
Consolidated Statements of Changes in Shareholders' Equity - Fiscal
years ended December 29, 2001, December 30, 2000 and December 25, 1999.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. Financial Statement Schedule. The following financial statement
schedule of PBG and its subsidiaries is included in this report on the page
indicated:
Page
Independent Auditors' Report on Schedule and Consent .......................F-2
Schedule II - Valuation and Qualifying Accounts for the fiscal years ended
December 29, 2001, December 30, 2000 and December 25, 1999 . F-3
3. Exhibits
See Index to Exhibits on pages E-1 - E-3.
(b) Reports on Form 8-K
None.
14
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, The Pepsi Bottling Group, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 28, 2002
The Pepsi Bottling Group, Inc.
By: /s/ John T. Cahill
-------------------------
John T. Cahill
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of The
Pepsi Bottling Group, Inc. and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Craig E. Weatherup Chairman of the Board March 28, 2002
- ----------------------
Craig E. Weatherup
/s/ John T. Cahill Chief Executive Officer and March 28, 2002
- ------------------ Director
John T. Cahill
/s/Alfred H. Drewes Senior Vice President and Chief March 28, 2002
- ------------------- Financial Officer (Principal
Alfred H. Drewes Financial Officer)
/s/ Andrea L. Forster Vice President and Controller March 28, 2002
- --------------------- (Principal Accounting Officer)
Andrea L. Forster
/s/ Linda G. Alvarado Director March 28, 2002
- ---------------------
Linda G. Alvarado
/s/ Barry H. Beracha Director March 28, 2002
- --------------------
Barry H. Beracha
/s/ Thomas W. Jones Director March 28, 2002
- --------------------
Thomas W. Jones
/s/ Thomas H. Kean Director March 28, 2002
- ------------------
Thomas H. Kean
/s/ Susan D. Kronick Director March 28, 2002
- --------------------
Susan D. Kronick
/s/ Margaret D. Moore Director March 28, 2002
- ---------------------
Margaret D. Moore
S-1
INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
Independent Auditors' Report on Schedule and Consent........................ F-2
Schedule II - Valuation and Qualifying Accounts for the fiscal years
ended December 29, 2001 December 30, 2000 and December 25, 1999........... F-3
F-1
INDEPENDENT AUDITORS' REPORT AND CONSENT
The Board of Directors and Shareholders
The Pepsi Bottling Group, Inc.:
Under date of January 24, 2002 we reported on the Consolidated Balance Sheets of
The Pepsi Bottling Group, Inc. (the "Company") as of December 29, 2001 and
December 30, 2000 and the related Consolidated Statements of Operations, Cash
Flows and Changes in Shareholders' Equity for each of the fiscal years in the
three-year period ended December 29, 2001, which are incorporated by reference
in this Form 10-K. In connection with our audits of the aforementioned
Consolidated Financial Statements, we also audited the related consolidated
financial statement schedule included in this Form 10-K. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this consolidated financial
statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic Consolidated Financial Statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We consent to the use of reports included herein or incorporated herein by
reference in the registration statements (Nos. 333-79357, 333-79369, 333-79375,
333-79365, 333-80647, 333-60428, 333-69622, 333-73302) on Form S-8 of The Pepsi
Bottling Group, Inc.
/s/ KPMG LLP
New York, New York
March 28, 2002
F-2
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THE PEPSI BOTTLING GROUP, INC.
IN MILLIONS
ADDITIONS
---------------------------
Balance At Charged To Charged To
Beginning Cost And Other Balance At End
DESCRIPTION Of Period Expenses Accounts(a) Deductions(b) Of Period
----------- --------- -------- ----------- ------------- ---------
FISCAL YEAR ENDED
DECEMBER 29, 2001
Allowance for
losses on trade
accounts receivable $42 $ 9 $-- $ 9 $42
DECEMBER 30, 2000
Allowance for losses
on trade accounts
receivable $48 $ 2 $-- $ 8 $42
DECEMBER 25, 1999
Allowance for losses
on trade accounts
receivable $46 $ 6 $ 3 $ 7 $48
- ------------------------
(a) Represents recoveries of amounts previously written off.
(b) Charge off of uncollectable accounts.
F-3
INDEX TO EXHIBITS
ITEM 14(a)(3)
EXHIBIT
3.1 Articles of Incorporation of The Pepsi Bottling Group, Inc. ("PBG"),
which are incorporated herein by reference to Exhibit 3.1 to PBG's
Registration Statement on Form S-1 (Registration No. 333-70291).
3.2 By-Laws of PBG, which are incorporated herein by reference to Exhibit
3.2 to PBG's Registration Statement on Form S-1 (Registration No.
333-70291).
3.3 Amendment to Articles of Incorporation of PBG, which is incorporated
herein by reference to Exhibit 3.3 to PBG's Registration Statement on
Form S-1 (Registration No. 333-70291).
3.4 Amendment to Articles of Incorporation of PBG dated as of November 27,
2001.
4.1 Form of common stock certificate, which is incorporated herein by
reference to Exhibit 4 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).
4.2 Indenture dated as of February 8, 1999 among Pepsi Bottling Holdings,
Inc., PepsiCo, Inc. and The Chase Manhattan Bank, as trustee, relating
to $1,000,000,000 5 3/8% Senior Notes due 2004 and $1,300,000,000 5
5/8% Senior Notes due 2009, which is incorporated herein by reference
to Exhibit 10.9 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).
4.3 First Supplemental Indenture dated as of February 8, 1999 among Pepsi
Bottling Holdings, Inc., Bottling Group, LLC, PepsiCo, Inc. and The
Chase Manhattan Bank, as trustee, supplementing the Indenture dated as
of February 8, 1999 among Pepsi Bottling Holdings, Inc., PepsiCo, Inc.
and The Chase Manhattan Bank, as trustee, which is incorporated herein
by reference to Exhibit 10.10 to PBG's Registration Statement on Form
S-1 (Registration No. 333-70291).
4.4 Indenture, dated as of March 8, 1999, by and among PBG, as obligor,
Bottling Group, LLC, as guarantor, and The Chase Manhattan Bank, as
trustee, relating to $1,000,000,000 7% Series B Senior Notes due 2029,
which is incorporated herein by reference to Exhibit 10.14 to PBG's
Registration Statement on Form S-1 (Registration No. 333-70291).
4.5 U.S. $250,000,000 364 Day Credit Agreement, dated as of April 22, 1999
among PBG, Bottling Group, LLC, The Chase Manhattan Bank, Bank of
America National Trust and Savings Association, Citibank, N.A., Credit
Suisse First Boston, UBS AG, Lehman Commercial Paper Inc., Royal Bank
of Canada, Banco Bilbao Vizcaya, Deutsche Bank AG New York Branch
and/or Cayman Islands Branch, Fleet National Bank, Hong Kong & Shanghai
Banking Corp., The Bank of New York, The Northern Trust Company, The
Chase Manhattan Bank, as Agent, Chase Securities Inc. as Arranger and
Nationsbanc Montgomery Securities LLC and Solomon Smith Barney Inc. as
Co-Syndication Agents, which is incorporated herein by reference to
Exhibit 4.5 to PBG's Annual Report on Form 10-K for the year ended
December 25, 1999.
E-1
4.6 U.S. $250,000,000 5 Year Credit Agreement, dated as of April 22, 1999
among PBG, Bottling Group, LLC, The Chase Manhattan Bank, Bank of
America National Trust and Savings Association, Citibank, N.A., Credit
Suisse First Boston, UBS AG, Lehman Commercial Paper Inc., Royal Bank
of Canada, Banco Bilbao Vizcaya, Deutsche Bank AG New York Branch
and/or Cayman Islands Branch, Fleet National Bank, Hong Kong & Shanghai
Banking Corp., The Bank of New York, The Northern Trust Company, The
Chase Manhattan Bank, as Agent, Chase Securities Inc. as Arranger and
Nationsbanc Montgomery Securities LLC and Solomon Smith Barney Inc. as
Co-Syndication Agents, which is incorporated herein by reference to
Exhibit 4.6 to PBG's Annual Report on Form 10-K for the year ended
December 25, 1999.
4.7 U.S. $250,000,000 364 Day Credit Agreement, dated as of May 3, 2000
among PBG, Bottling Group, LLC, The Chase Manhattan Bank, Bank of
America, N. A., Citibank, N.A., Credit Suisse First Boston, UBS AG,
Lehman Commercial Paper Inc., The Northern Trust Company, Deutsche Bank
AG New York Branch and/or Cayman Islands Branch, Royal Bank of Canada,
Banco Bilbao Vizcaya, Fleet National Bank, The Bank of New York, The
Chase Manhattan Bank, as Agent, Salomon Smith Barney Inc and Banc of
America Securities LLC as Co-Lead Arrangers and Book Managers and
Citibank, N.A. and Bank of America, N.A., as Co-Syndication Agents,
which is incorporated herein by reference to Exhibit 4.7 to PBG's
Annual Report on Form 10-K for the year ended December 30, 2000.
4.8 U.S. $250,000,000 Amended and Restated 364 Day Credit Agreement, dated
as of May 2, 2001 among PBG, Bottling Group, LLC, The Chase Manhattan
Bank, Bank of America, N. A., Citibank, N.A., Credit Suisse First
Boston, Lehman Commercial Paper Inc., The Northern Trust Company,
Deutsche Bank AG New York Branch and/or Cayman Islands Branch, Royal
Bank of Canada, Banco Bilbao Vizcaya, Fleet National Bank, The Bank of
New York, State Street Bank and Trust Company, The Chase Manhattan
Bank, as Agent, Salomon Smith Barney Inc and JP Morgan as Co-Lead
Arrangers and Book Managers and Citibank, N.A. and Bank of America,
N.A., as Co-Syndication Agents.
10.1 Form of Master Bottling Agreement, which is incorporated herein by
reference to Exhibit 10.1 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).
10.2 Form of Master Syrup Agreement, which is incorporated herein by
reference to Exhibit 10.2 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).
10.3 Form of Non-Cola Bottling Agreement, which is incorporated herein by
reference to Exhibit 10.3 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).
10.4 Form of Separation Agreement, which is incorporated herein by reference
to Exhibit 10.4 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).
10.5 Form of Shared Services Agreement, which is incorporated herein by
reference to Exhibit 10.5 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).
10.6 Form of Tax Separation Agreement, which is incorporated herein by
reference to Exhibit 10.6 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).
10.7 Form of Employee Programs Agreement, which is incorporated herein by
reference to Exhibit 10.7 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).
E-2
10.8 PBG Executive Income Deferral Plan, which is incorporated herein by
reference to Exhibit 10.8 to PBG's Annual Report on Form 10-K for the
year ended December 25, 1999.
10.9 PBG 1999 Long-Term Incentive Plan, which is incorporated herein by
reference to Exhibit 10.9 to PBG's Annual Report on Form 10-K for the
year ended December 25, 1999.
10.10 PBG Directors' Stock Plan, which is incorporated herein by reference to
Exhibit 10.10 to PBG's Annual Report on Form 10-K for the year ended
December 25, 1999.
10.11 PBG Stock Incentive Plan, which is incorporated herein by reference to
Exhibit 10.11 to PBG's Annual Report on Form 10-K for the year ended
December 25, 1999.
10.12 Amended PBG Executive Income Deferral Program, which is incorporated
herein by reference to Exhibit 10.12 to PBG's Annual Report on Form
10-K for the year ended December 30, 2000.
10.13 PBG Long Term Incentive Plan, which is incorporated herein by reference
to Exhibit 10.13 to PBG's Annual Report on Form 10-K for the year ended
December 30, 2000.
10.14 PBG Directors' Stock Plan.
12 Statement re Computation of Ratios.
13 PBG 2001 Annual Report to Shareholders. (Pages 26 through 56)
21 Subsidiaries of PBG.
23 Report and Consent of KPMG LLP
24 Copy of Power of Attorney.
E-3