FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended June 15, 2002 (24-weeks)
--------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934For the transition period from _________ to __________
Commission file number
BOTTLING GROUP, LLC
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(Exact name of registrant as specified in its charter)
Delaware 13-4042452
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(State or other jurisdiction of (I.R.S.
Employer incorporate or organization) Identification No.)
One Pepsi Way, Somers, New York 10589
------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
914-767-6000
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(Registrant's telephone number, including area code)
N/A
---
(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
--- ---
Bottling Group, LLC
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Index
Page No.
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Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
12 and 24-weeks ended June 15, 2002 and June 16, 2001 2
Condensed Consolidated Statements of Cash Flows -
24-weeks ended June 15, 2002 and June 16, 2001 3
Condensed Consolidated Balance Sheets -
June 15, 2002 and December 29, 2001 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 11
Independent Accountants' Review Report 12
Part II Other Information and Signatures 13
-1-
PART I - FINANCIAL INFORMATION
Item 1.
Bottling Group, LLC
Condensed Consolidated Statements of Operations
in millions, unaudited
12-weeks Ended 24-weeks Ended
-------------- --------------
June 15, June 16, June 15, June 16,
2002 2001 2002 2001
---- ---- ---- ----
Net Revenues............................................................. $2,209 $2,060 $3,981 $3,707
Cost of sales........................................................... 1,185 1,108 2,127 1,990
----- ----- ----- -----
Gross Profit............................................................ 1,024 952 1,854 1,717
Selling, delivery and administrative expenses........................... 752 734 1,447 1,409
----- ----- ----- -----
Operating Income........................................................ 272 218 407 308
Interest expense........................................................ 31 31 61 62
Interest income......................................................... 6 10 13 22
Minority interest....................................................... 2 7 3 7
----- ----- ----- -----
Income before income taxes.............................................. 245 190 356 261
Income tax expense before rate change................................... 5 5 9 9
Income tax rate change benefit.......................................... - (16) - (16)
----- ----- ----- -----
Net Income.............................................................. $ 240 $ 201 $ 347 $ 268
===== ===== ===== =====
See accompanying notes to Condensed Consolidated Financial Statements.
-2-
Bottling Group, LLC
Condensed Consolidated Statements of Cash Flows
in millions, unaudited
24-weeks Ended
--------------
June 15, June 16,
2002 2001
---- ----
Cash Flows - Operations
Net income..................................................................... $ 347 $ 268
Adjustments to reconcile net income to net cash provided by operations:
Depreciation.............................................................. 189 167
Amortization.............................................................. 3 62
Other non-cash charges and credits, net.................................. 57 61
Changes in operating working capital:
Accounts receivable..................................................... (235) (222)
Inventories............................................................. (58) (87)
Prepaid expenses and other current assets............................... 27 (6)
Accounts payable and other current liabilities.......................... 48 31
---- ----
Net change in operating working capital ................................. (218) (284)
---- ----
Net Cash Provided by Operations................................................... 378 274
---- ----
Cash Flows - Investments
Capital expenditures........................................................... (299) (255)
Acquisitions of bottlers....................................................... (14) -
Sale of property, plant and equipment.......................................... 7 3
Notes receivable from PBG...................................................... (83) (150)
Other, net..................................................................... (21) (13)
---- ----
Net Cash Used for Investments..................................................... (410) (415)
---- ----
Cash Flows - Financing
Short-term borrowings - three months or less................................... (80) 18
Proceed from issuance of long-term debt........................................ 37 -
Payments of long-term debt..................................................... (1) -
---- ----
Net Cash (Used for) Provided by Financing......................................... (44) 18
---- ----
Effect of Exchange Rate Changes on Cash and Cash Equivalents...................... 2 (4)
---- ----
Net Decrease in Cash and Cash Equivalents......................................... (74) (127)
Cash and Cash Equivalents - Beginning of Period................................... 262 318
---- ----
Cash and Cash Equivalents - End of Period......................................... $ 188 $ 191
==== ====
Supplemental Cash Flow Information
Non-cash owner contribution....................................................... $ 24 $ 74
==== ====
Third-party interest and income taxes paid........................................ $ 70 $ 76
==== ====
See accompanying notes to Condensed Consolidated Financial Statements.
-3-
Bottling Group, LLC
Condensed Consolidated Balance Sheets
in millions
(Unaudited)
June December
15, 2002 29, 2001
-------- --------
Assets
Current Assets
Cash and cash equivalents................................................ $ 188 $ 262
Accounts receivable, less allowance of $43 at
June 15, 2002 and $42 at December 29, 2001......................... 1,081 823
Inventories.............................................................. 398 331
Prepaid expenses and other current assets................................ 102 115
------ ------
Total Current Assets............................................. 1,769 1,531
Property, plant and equipment, net......................................... 2,739 2,543
Intangible assets, net..................................................... 3,726 3,684
Notes receivable from PBG.................................................. 920 837
Other assets............................................................... 89 82
------ ------
Total Assets.................................................... $9,243 $8,677
====== ======
Liabilities and Owners' Equity
Current Liabilities
Accounts payable and other current liabilities........................... $1,051 $ 977
Short-term borrowings.................................................... 73 77
------ ------
Total Current Liabilities........................................ 1,124 1,054
Long-term debt............................................................. 2,320 2,299
Other liabilities.......................................................... 444 406
Deferred income taxes...................................................... 173 168
Minority interest.......................................................... 158 154
------ ------
Total Liabilities................................................ 4,219 4,081
Owners' Equity
Owners' net investment.................................................. 5,385 5,012
Accumulated other comprehensive loss.................................... (361) (416)
------ ------
Total Owners' Equity............................................. 5,024 4,596
------ ------
Total Liabilities and Owners' Equity............................ $9,243 $8,677
====== ======
See accompanying notes to Condensed Consolidated Financial Statements.
-4-
Notes to Condensed Consolidated Financial Statements
Tabular dollars in millions
- --------------------------------------------------------------------------------
Note 1 - Basis of Presentation
Bottling Group, LLC (collectively referred to as "Bottling LLC," "we,"
"our" and "us") is the principal operating subsidiary of The Pepsi Bottling
Group, Inc. ("PBG") and consists of substantially all of the operations and
assets of PBG. Bottling LLC, which is consolidated by PBG, consists of bottling
operations located in the United States, Canada, Spain, Greece, Russia and
Turkey.
In conjunction with PBG's initial public offering in 1999, PBG and PepsiCo,
Inc. ("PepsiCo") contributed bottling businesses and assets used in the bottling
businesses to Bottling LLC. As a result of the contribution of these assets, PBG
owns 93% of Bottling LLC and PepsiCo owns the remaining 7%.
On March 8, 1999, PBG issued $1 billion of 7% senior notes due 2029, which
are guaranteed by us. We also guarantee that to the extent there is available
cash, we will distribute pro rata to all owners sufficient cash such that
aggregate cash distributed to PBG will enable PBG to pay its taxes and make
interest payments on the $1 billion 7% senior notes due 2029.
The accompanying Condensed Consolidated Balance Sheet at June 15, 2002 and
the Condensed Consolidated Statements of Operations for the 12 and 24-weeks
ended June 15, 2002 and June 16, 2001 and Cash Flows for the 24-weeks ended June
15, 2002 and June 16, 2001 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 29, 2001 as presented in our Annual Report on Form 10-K. In
the opinion of management, this interim information includes all material
adjustments, which are of a normal and recurring nature, necessary for a fair
presentation.
Note 2 - Seasonality of Business
The results for the second quarter are not necessarily indicative of the
results that may be expected for the full year because of business seasonality.
The seasonality of our operating results arises from higher sales in the second
and third quarters versus the first and fourth quarters of the year, combined
with the impact of fixed costs, such as depreciation, and interest, which are
not significantly impacted by business seasonality.
Note 3 - Inventories
June December
15, 2002 29, 2001
-------- --------
Raw materials and supplies............................ $137 $117
Finished goods........................................ 261 214
--- ---
$398 $331
=== ===
-5-
Note 4 - Property, plant and equipment, net
June December
15, 2002 29, 2001
-------- --------
Land................................................................... $ 153 $ 145
Buildings and improvements............................................. 976 925
Manufacturing and distribution equipment............................... 2,496 2,308
Marketing equipment.................................................... 1,955 1,846
Other.................................................................. 133 121
----- -----
5,713 5,345
Accumulated depreciation............................................... (2,974) (2,802)
----- -----
$2,739 $2,543
===== =====
Note 5 - Intangible assets, net
June December
15, 2002 29, 2001
-------- --------
Intangibles subject to amortization:
Gross carrying amount:
Franchise rights.................................................... $ 18 $ 12
Other identifiable intangibles...................................... 44 39
----- -----
62 51
----- -----
Accumulated amortization:
Franchise rights.................................................... (4) (2)
Other identifiable intangibles...................................... (26) (25)
----- -----
(30) (27)
----- -----
Intangibles not subject to amortization:
Gross carrying amount:
Franchise rights.................................................... 3,610 3,585
Goodwill............................................................ 1,589 1,574
----- -----
5,199 5,159
----- -----
Accumulated amortization:
Franchise rights.................................................... (975) (971)
Goodwill............................................................ (530) (528)
----- -----
(1,505) (1,499)
----- -----
$3,726 $3,684
===== =====
Note 6 - Acquisitions
In March 2002, we acquired the operations and exclusive right to
manufacture, sell and distribute Pepsi-Cola's international beverages in Turkey.
Specifically, we acquired the majority and minority ownership interests in Fruko
Mesrubat Sanayii A.S. and other related entities from Tamek Holding A.S. and
individual shareholders, and PepsiCo. Prior to the acquisition, PepsiCo had a
22% investment in the bottling operations in Turkey. As part of this
acquisition, we paid PepsiCo $7 million for its equity interest in the acquired
entity, and received $16 million from PepsiCo for the sale of the acquired
entity's local brands to PepsiCo. The purchase price of this acquisition was $70
million consisting of $6 million of net cash paid and $64 million of assumed
debt.
Also in March 2002, PBG acquired the Pepsi-Cola bottling operations along
with the exclusive right to manufacture, sell and distribute Pepsi-Cola
beverages from Pepsi-Cola Bottling Company of Macon, Inc. in Georgia. In
connection with the acquisition, PBG contributed certain net assets acquired
totaling $24 million to Bottling LLC.
In June 2002, we acquired the operations and exclusive right to
manufacture, sell and distribute Pepsi-Cola beverages from the Pepsi-Cola
Bottling Company of Aroostook, Inc., based in Presque Isle, Maine. The purchase
price of this acquisition was approximately $5 million.
-6-
Of the $26 million of acquired intangible assets, $6 million was assigned
to goodwill, and $15 million to franchise rights, both of which are not subject
to amortization, and $5 million was assigned to other identifiable intangibles,
which are subject to amortization. The Turkey acquisition was made to allow us
to strategically increase our markets outside the United States. Our domestic
acquisitions were made to enable us to provide better service to our large
retail customers. We also expect these acquisitions to reduce costs through
economies of scale.
During the first half of 2002, we paid approximately $4 million to PepsiCo
for distribution rights relating to the SoBe brand in certain PBG-owned
territories in the United States. These rights are subject to amortization.
In May 2002, we signed a non-binding agreement with the two principal
shareholders of the Mexican bottler Pepsi-Gemex, S.A. de C.V. regarding the
possible acquisition of all the outstanding shares of the company. Pepsi-Gemex
is the second largest bottler of Pepsi-Cola beverages outside of the United
States. It is expected that if the transaction occurs, it will be in the form of
cash tender offers in the United States and Mexico. The gross enterprise value
of Pepsi-Gemex, of which PepsiCo is an approximately 34% shareholder, as
determined by the parties is 11.9 billion Mexican pesos. At the time of the
filing of this 10-Q, we can provide no assurance with respect to the timing,
value or determination to proceed with any transaction.
Note 7 - Financial Instruments
As of June 15, 2002, our use of derivative instruments is limited to an
interest rate swap, forward contracts, futures and options on futures contracts.
Cash Flow Hedge - 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 aluminum 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 the first 24 weeks of 2002, the amount of deferred losses from our
commodity hedging that we recognized into income was $7 million, while a $2
million deferred gain was recognized over the same period of 2001. An $8 million
deferred gain and $19 million deferred loss remained in accumulated other
comprehensive loss in our Condensed Consolidated Balance Sheets at June 15, 2002
and December 29, 2001, respectively, resulting from our commodity hedges. We
anticipate that the deferred gain as of June 15, 2002 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 2002 or 2001.
Fair Value Hedges - The fair value of our fixed-rate long-term debt is
sensitive to changes in interest rates. Interest rate changes would result in
gains or losses in the fair market value of our debt representing differences
between market interest rates and the fixed rate on the debt. At June 15, 2002
and December 29, 2001 our debt instruments primarily consisted of $2.3 billion
of fixed-rate long-term senior notes, 4% 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
-7-
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.
There was essentially no change in fair value of the interest rate swap in
the first 24 weeks of 2002, which compares to a gain of $7 million over the same
period in 2001. The fair value change was recorded in interest expense in our
Condensed Consolidated Statements of Operations and in prepaid expenses and
other current assets in our Condensed Consolidated Balance Sheets. An offsetting
adjustment was recorded in interest expense 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.
During the third quarter of 2002, we purchased an interest rate swap that
converted the remaining $900 million of our $1 billion 5 3/8% fixed rate debt to
floating rate debt. The new interest rate swap expires in 2004 and is designed
as and qualifies for fair value hedge accounting. The hedge is 100% effective in
eliminating the interest rate risk inherent in our long-term debt.
Equity Derivatives - We use equity derivative contracts with financial
institutions to hedge a portion of our deferred compensation liability, which is
based on PBG's 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.
At June 15, 2002 and December 29, 2001, we had one prepaid forward contract
outstanding. The contract was for 608,000 shares of PBG stock with an exercise
price of $23.02 per share. The contract expires in December of 2002 with a
one-year renewal option.
Note 8 - New Accounting Standards
During 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("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.
Effective the first day of fiscal year 2002, we no longer amortize goodwill and
certain franchise rights, but evaluate them for impairment annually. We have
completed the initial impairment review required by SFAS 142 and have determined
that our intangible assets were not impaired. Had we adopted SFAS 142 on the
first day of 2001, our 2001 amortization expense would have been lowered by
approximately $30 million and $59 million in the quarter and year-to-date,
respectively.
Note 9 - Comprehensive Income
12-weeks Ended 24-weeks Ended
-------------- --------------
June June June June
15, 2002 16, 2001 15, 2002 16, 2001
-------- -------- -------- --------
Net income................................................... $240 $201 $347 $268
Currency translation adjustment.............................. 27 (4) 27 (31)
Cash flow hedge accounting adjustment........................ 16 - 28 (2)
--- --- --- ---
Comprehensive income......................................... $283 $197 $402 $235
=== === === ===
Note 10 - Contingencies
We are involved in a lawsuit with current and former employees concerning
wage and hour issues in New Jersey. We are unable to predict the ultimate amount
of any costs or implications of this case at this time as legal proceedings are
ongoing.
We are subject to various claims and contingencies related to lawsuits,
taxes, environmental and other matters arising out of the normal course of
business. We believe that the ultimate liability arising from such claims or
contingencies, if any, in excess of amounts already recognized is not likely to
have a material adverse effect on our results of operations, financial condition
or liquidity.
-8-
Item 2.
Management's Discussion and Analysis of Results of Operations and Financial
Condition
- --------------------------------------------------------------------------------
Overview
Bottling Group, LLC (collectively referred to as "Bottling LLC," "we,"
"our" and "us") is the principal operating subsidiary of The Pepsi Bottling
Group, Inc. ("PBG") and consists of substantially all of the operations and
assets of PBG. Bottling LLC, which is 93% owned by PBG and is fully
consolidated, consists of bottling operations located in the United States,
Canada, Spain, Greece, Russia and Turkey.
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
--------------- -------------------------
12-weeks 24-weeks 12-weeks 24-weeks
-------- -------- -------- --------
EBITDA............................ 11% 12% 10% 11%
Volume............................ 5% 5% 2% 3%
Net Revenue per Case.............. 2% 3% 3% 3%
EBITDA was $371 million and $599 million in the second quarter and first
24-weeks of 2002, representing an 11% and 12% increase over the same periods of
2001, respectively. On a constant territory basis, EBITDA growth was 10% for the
quarter and 11% year-to-date reflecting an increase in net revenue per case
across all countries and volume growth, primarily in the U.S. and Russia. The
growth in both periods is partially offset by modest increases in cost of sales
per case and selling, delivery and administrative expenses.
Volume
Our worldwide physical case volume increased 5% in both the second quarter
and first 24-weeks of 2002. Constant territory volume growth was 2% and 3% in
the second quarter and year-to-date, respectively, led by the U.S. where volume
increased 2% in the second quarter and 3% year-to-date. The U.S. second quarter
results reflects solid take-home volume growth, partially offset by flat cold
drink volume. The second quarter cold drink volume was unfavorably impacted by
unseasonably cold weather in the U.S. and Canada, in addition to the lapping of
the introduction of Mountain Dew Code Red in the prior year. On a year-to-date
basis, the U.S. constant territory volume increase was led by favorable
performance in both the take-home and cold drink channels. United States volume
growth continues to benefit from innovation, as well as the strong growth of
-9-
Aquafina. Outside the U.S., our constant territory volume increased 4% in both
the quarter and year-to-date as double-digit growth in Russia was partially
offset by volume softness in Canada and declines in Spain.
Net Revenues
Net revenues for the quarter grew $149 million, a 7% increase over the
prior year, with year-to-date net revenues up 7% as well. On a constant
territory basis, net revenues grew 5% in the quarter driven by volume growth of
2% and a 3% increase in net revenue per case. On a year-to-date basis, constant
territory net revenue grew 6% reflecting 3% growth in both volume and net
revenue per case. Constant territory net revenue per case growth was driven by
the U.S., which grew 3% in both periods reflecting an increase in pricing,
combined with favorable package and channel mix. Outside the U.S., constant
territory net revenues were up 5% in the quarter, consisting of 4% volume growth
and 1% net revenue per case growth. On a year-to-date basis, net revenues
outside the U.S. were up 4% reflecting a 4% increase in volume and relatively
flat net revenue per case growth. Excluding the negative impact of currency
translations, net revenue per case grew 1% and 2% outside the U.S. in the
quarter and first 24-weeks of 2002, respectively, and had no impact on worldwide
net revenue per case growth.
Cost of Sales
Cost of sales increased $77 million, or 7%, in the second quarter of 2002
and $137 million, or 7%, year-to-date. On a constant territory basis, cost of
sales grew 4% in the quarter driven by volume growth of 2% and a 2% increase in
cost of sales per case. On a year-to-date basis, constant territory cost of
sales grew 5% reflecting 3% growth in volume and a 2% increase in cost of sales
per case. The increase in cost of sales per case was driven by higher U.S.
concentrate costs, and mix shifts into higher cost packages.
Selling, Delivery and Administrative Expenses
Selling, delivery and administrative expenses grew $18 million, or 3%, in
the second quarter and $38 million, or 3%, in the first 24-weeks of 2002.
Excluding the impact of the adoption of Statement of Financial Accounting
Standard ("SFAS") 142, which had it been adopted on the first day of 2001 would
have lowered second quarter and year-to-date amortization expense by $30 million
and $59 million, respectively, constant territory selling, delivery and
administrative expenses grew 5% in the quarter and 6% year-to-date. This
increase was primarily driven by higher variable selling and delivery costs
reflecting growth in our business and higher advertising and marketing costs.
Interest income
Interest income decreased $4 million in the second quarter and $9 million
for the first 24-weeks of 2002 as a result of lower market interest rates
received on our notes receivable from PBG, partially offset by a higher loan
balance with PBG.
Income Tax Expense Before Rate Change
Bottling LLC is a limited liability company, taxable as a partnership for
U.S. tax purposes and, as such, generally pays no U.S. federal or state income
taxes. The federal and state distributable share of income, deductions and
credits of Bottling LLC are allocated to Bottling LLC's owners based on
percentage ownership. However, certain domestic and foreign affiliates pay taxes
in their respective jurisdictions.
Income Tax Rate Change Benefit
In the second quarter of 2001, the Canadian Government enacted legislation
that reduced the federal corporate income tax rate from 28% to 21% over a
four-year period beginning January 1, 2001. In addition, certain provincial
income tax rates were also reduced. These rate changes reduced deferred tax
liabilities associated with our operations in Canada. The changes to deferred
taxes resulted in a reduction of our tax expense in the second quarter of 2001
totaling $16 million.
-10-
Liquidity and Capital Resources
- -------------------------------
Cash Flows
Net cash provided by operations increased $104 million to $378 million
reflecting strong EBITDA growth coupled with improved working capital.
Net cash used for investments decreased by $5 million primarily due to a
reduction of loans made to PBG, partially offset by increased capital
expenditures.
Net cash (used for) provided by financing increased by $62 million from a
source of cash of $18 million in 2001 to a use of cash of $44 million in 2002.
This increase reflects the pay down of short term borrowings partially offset by
issuances of long-term debt primarily outside the U.S. in 2002.
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, and unfavorable interest rate and currency fluctuations.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
We have no material changes to the risk disclosures made in our 2001 Annual
Report on Form 10-K.
-11-
Independent Accountants' Review Report
--------------------------------------
Owners of
Bottling Group, LLC
We have reviewed the accompanying Condensed Consolidated Balance Sheet of
Bottling Group, LLC as of June 15, 2002, and the related Condensed Consolidated
Statements of Operations for the twelve and twenty-four weeks ended June 15,
2002 and June 16, 2001 and the Condensed Consolidated Statements of Cash Flows
for the twenty-four weeks ended June 15, 2002 and June 16, 2001. These Condensed
Consolidated Financial Statements are the responsibility of Bottling Group,
LLC'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
Bottling Group, LLC as of December 29, 2001, and the related Consolidated
Statements of Operations, Cash Flows and Changes in Owners' Equity for the
fifty-two week period then ended not presented herein; and in our report dated
January 24, 2002, 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 29, 2001, is
fairly presented, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/S/ KPMG LLP
New York, New York
July 9, 2002
-12-
PART II - OTHER INFORMATION AND SIGNATURES
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.
BOTTLING GROUP, LLC
-------------------------
(Registrant)
Date: July 26, 2002 Andrea L. Forster
------------- -------------------------
Controller and Principal
Accounting Officer
Date: July 26, 2002 Alfred H. Drewes
------------- -------------------------
Principal Financial Officer
and Managing Director
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