UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(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 14, 2003
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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 __________
Commission file number 333-80361-01
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BOTTLING GROUP, LLC
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(Exact name of registrant as specified in its charter)
Delaware 13-4042452
----------------------- -----------
(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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
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 14, 2003 and June 15, 2002 2
Condensed Consolidated Statements of Cash Flows -
24-weeks ended June 14, 2003 and June 15, 2002 3
Condensed Consolidated Balance Sheets -
June 14, 2003 and December 28, 2002 4
Notes to Condensed Consolidated Financial Statements 5-10
Independent Accountants' Review Report 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
Part II Other Information
Item 5. Other Information 19
Item 6. Exhibits 20-21
PART I - FINANCIAL INFORMATION
Item 1.
Bottling Group, LLC
Condensed Consolidated Statements of Operations
in millions, unaudited
12-weeks Ended 24-weeks Ended
-------------- --------------
June 14, June 15, June 14, June 15,
2003 2002 2003 2002
---- ---- ---- ----
Net revenues............................................................... $2,532 $2,209 $4,406 $3,981
Cost of sales.............................................................. 1,290 1,185 2,217 2,127
------ ------ ------ ------
Gross profit............................................................... 1,242 1,024 2,189 1,854
Selling, delivery and administrative expenses.............................. 966 752 1,794 1,447
------ ------ ------ ------
Operating income........................................................... 276 272 395 407
Interest expense........................................................... 40 31 78 61
Interest income............................................................ 6 6 12 13
Other non-operating expenses, net.......................................... - - 3 -
Minority interest.......................................................... - 2 - 3
------ ------ ------ ------
Income before income taxes................................................. 242 245 326 356
Income tax expense......................................................... 13 5 21 9
------ ------ ------ ------
Income before cumulative effect of change in accounting principle.......... 229 240 305 347
Cumulative effect of change in accounting principle, net of tax............ - - 6 -
------ ------ ------ ------
Net income................................................................ $ 229 $ 240 $ 299 $ 347
====== ====== ====== ======
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 14, June 15,
2003 2002
---- ----
Cash Flows - Operations
Net income................................................................. $ 299 $ 347
Adjustments to reconcile net income to net cash provided by operations:
Depreciation............................................................. 244 189
Amortization............................................................. 4 3
Deferred income taxes.................................................... 10 5
Cumulative effect of change in accounting principle...................... 6 -
Other non-cash charges and credits, net.................................. 74 52
Changes in operating working capital excluding effects
of acquisitions:
Accounts receivable, net................................................ (256) (235)
Inventories, net........................................................ (68) (58)
Prepaid expenses and other current assets............................... (31) 27
Accounts payable and other current liabilities.......................... 32 48
----- -----
Net change in operating working capital ................................. (323) (218)
----- -----
Other, net............................................................. (16) (21)
----- -----
Net Cash Provided by Operations............................................. 298 357
----- -----
Cash Flows - Investments
Capital expenditures....................................................... (282) (299)
Acquisitions of bottlers................................................... (83) (14)
Sale of property, plant and equipment...................................... 2 7
Notes receivable from PBG.................................................. (318) (83)
----- -----
Net Cash Used for Investments............................................... (681) (389)
----- -----
Cash Flows - Financing
Short-term borrowings - three months or less............................... 84 (80)
Proceeds from issuance of long-term debt................................... 248 37
Payments of long-term debt................................................. (1) (1)
----- -----
Net Cash Provided by (Used for) Financing................................... 331 (44)
----- -----
Effect of Exchange Rate Changes on Cash and Cash Equivalents................ 3 2
----- -----
Net Decrease in Cash and Cash Equivalents................................... (49) (74)
Cash and Cash Equivalents - Beginning of Period............................. 202 262
----- -----
Cash and Cash Equivalents - End of Period................................... $ 153 $ 188
===== =====
Supplemental Cash Flow Information
Non-cash owner contribution................................................. $ - $ 24
===== =====
Net third-party interest paid............................................... $ 85 $ 63
===== =====
Taxes paid.................................................................. $ 36 $ 7
===== =====
See accompanying notes to Condensed Consolidated Financial Statements.
3
Bottling Group, LLC
Condensed Consolidated Balance Sheets
in millions
(Unaudited)
June 14, December 28,
2003 2002
------- -------
Assets
Current Assets
Cash and cash equivalents................................................ $ 153 $ 202
Accounts receivable, less allowance of $74 at
June 14, 2003 and $67 at December 28, 2002......................... 1,216 922
Inventories.............................................................. 452 378
Prepaid expenses and other current assets................................ 222 149
Investment in debt defeasance trust...................................... 174 12
------- -------
Total Current Assets............................................. 2,217 1,663
Property, plant and equipment, net......................................... 3,411 3,308
Other intangible assets, net............................................... 3,647 3,495
Goodwill................................................................... 1,241 1,192
Notes receivable from PBG.................................................. 1,272 954
Investment in debt defeasance trust........................................ - 170
Other assets............................................................... 145 131
------- -------
Total Assets.................................................... $11,933 $10,913
======= =======
Liabilities and Owners' Equity
Current Liabilities
Accounts payable and other current liabilities........................... $ 1,257 $ 1,138
Short-term borrowings.................................................... 145 51
Current maturities of long-term debt..................................... 1,186 16
------- -------
Total Current Liabilities........................................ 2,588 1,205
Long-term debt............................................................. 2,634 3,541
Other liabilities.......................................................... 667 621
Deferred income taxes...................................................... 390 360
------- -------
Total Liabilities................................................ 6,279 5,727
Owners' Equity
Owners' net investment.................................................. 6,089 5,782
Deferred compensation................................................... (5) -
Accumulated other comprehensive loss.................................... (430) (596)
------- -------
Total Owners' Equity............................................. 5,654 5,186
------- -------
Total Liabilities and Owners' Equity............................ $11,933 $10,913
======= =======
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," "the
Company," "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, Mexico, Canada,
Spain, Greece, Russia and Turkey.
In conjunction with PBG's initial public offering in 1999 and other
subsequent transactions, 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 93.2% of Bottling LLC and
PepsiCo owns the remaining 6.8% at June 14, 2003.
The accompanying Condensed Consolidated Balance Sheet at June 14, 2003, the
Condensed Consolidated Statements of Operations for the 12 and 24- weeks ended
June 14, 2003 and June 15, 2002 and the Condensed Consolidated Statements of
Cash Flows for the 24-weeks ended June 14, 2003 and June 15, 2002 have not been
audited, but have been prepared in conformity with accounting principles
generally accepted in the United States 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
28, 2002 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.
Beginning in 2003, Russia is no longer considered highly inflationary, and
as a result, changed its functional currency from the U.S. dollar to the Russian
ruble. There was no material impact on our consolidated financial statements as
a result of Russia's change in functional currency in 2003.
Our U.S. and Canadian operations report using a fiscal year that consists
of 52 weeks, ending on the last Saturday in December. Every five or six years a
53rd week is added. Our remaining countries report using a calendar year basis.
Accordingly, we recognize our quarterly business results as outlined below:
Quarter U.S. & Canada Mexico & Europe
------- ------------- ---------------
First Quarter 12 weeks January and February
Second Quarter 12 weeks March, April and May
Third Quarter 12 weeks June, July and August
Fourth Quarter 16 weeks September, October,
November and December
Certain reclassifications were made in our Condensed Consolidated Financial
Statements to 2002 amounts to conform to the 2003 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.
5
Note 3 - Inventories
June 14, December 28,
2003 2002
------ -----
Raw materials and supplies............................................. $ 170 $ 162
Finished goods......................................................... 282 216
------- ------
$ 452 $ 378
======= =======
Note 4 - Property, plant and equipment, net
June 14, December 28,
2003 2002
------- -------
Land................................................................... $ 243 $ 228
Buildings and improvements............................................. 1,157 1,126
Manufacturing and distribution equipment............................... 2,910 2,768
Marketing equipment.................................................... 2,113 2,008
Other.................................................................. 163 154
------- -------
6,586 6,284
Accumulated depreciation............................................... (3,175) (2,976)
------- -------
$ 3,411 $ 3,308
======= =======
Note 5 - Other intangible assets, net and Goodwill
June 14, December 28,
2003 2002
------- -------
Intangibles subject to amortization:
Gross carrying amount:
Franchise rights.................................................. $ 22 $ 20
Other identifiable intangibles.................................... 25 24
------- -------
47 44
------- -------
Accumulated amortization:
Franchise rights.................................................. (8) (6)
Other identifiable intangibles.................................... (12) (9)
------- -------
(20) (15)
------- -------
Intangibles subject to amortization, net............................... 27 29
------- -------
Intangibles not subject to amortization:
Carrying amount:
Franchise rights.................................................. 3,578 3,424
Other identifiable intangibles.................................... 42 42
------- -------
Intangibles not subject to amortization................................ 3,620 3,466
------- -------
Total other intangible assets, net..................................... $ 3,647 $ 3,495
======= =======
Goodwill............................................................... $ 1,241 $ 1,192
======= =======
Total other intangible assets, net and goodwill increased by approximately
$201 million due to purchase price allocations relating to our recent
acquisitions of $106 million, coupled with the impact from foreign currency
translation of $99 million, offset by amortization of intangible assets of $4
million.
For intangible assets subject to amortization, we calculate amortization
expense on a straight-line basis over the period we expect to receive economic
benefit. Total amortization expense was $4 million and $3 million for the
24-weeks ended June 14, 2003 and June 15, 2002, respectively. The
weighted-average amortization period for each category of intangible assets and
its estimated aggregate amortization expense expected to be recognized over the
next five years are as follows:
6
Weighted-Average Estimated Aggregate Amortization Expense to be Incurred
---------------- --------------------------------------------------------
Amortization
------------
Period
------
Balance of Fiscal Year Ending
---------- ----------------------------------------
2003 2004 2005 2006 2007
---- ---- ---- ---- ----
Franchise rights..................... 5 years $2 $4 $4 $2 $1
Other identifiable intangibles....... 7 years $2 $4 $3 $2 $1
Note 6 - Acquisitions
During 2003 we acquired the operations and exclusive right to manufacture,
sell and distribute Pepsi-Cola beverages from two PepsiCo franchise bottlers.
The following acquisitions occurred for an aggregate purchase price of $77
million in cash and liabilities of $12 million:
o Pepsi-Cola Buffalo Bottling Corp. of Buffalo, New York in February 2003.
o Cassidy's Beverage Limited of New Brunswick, Canada in February 2003.
These acquisitions were made to enable us to provide better service to our
large retail customers. We expect these acquisitions to reduce costs through
economies of scale.
As a result of these acquisitions, we have assigned $80 million of the
purchase price to intangible assets, of which $10 million was assigned to
goodwill and $70 million to franchise rights. The goodwill and franchise rights
are not subject to amortization. The allocations of the purchase price for these
acquisitions are still preliminary and will be determined based on the fair
value of assets acquired and liabilities assumed as of the dates of acquisition.
In addition, we made purchase price allocations of approximately $26
million during the first half of 2003, primarily relating to Pepsi-Gemex, S.A.
de. C.V. of Mexico. The allocations of the purchase price of the prior year
acquisitions are still preliminary, pending final valuations on certain assets.
The final allocations of the purchase price will be determined based on the fair
value of assets acquired and liabilities assumed as of the dates of
acquisitions.
During 2003, we paid approximately $3 million to PepsiCo for distribution
rights relating to the SoBe brand in certain PBG-owned territories in the United
States, which are being amortized over their estimated useful life of five
years. In addition, we paid $3 million for purchase obligations relating to
acquisitions made in the prior year.
Note 7 - Geographic Data
We operate in one industry, carbonated soft drinks and other ready-to-drink
beverages. We conduct business in all or a portion of the United States, Mexico,
Canada, Spain, Russia, Greece and Turkey.
Net Revenues 12-weeks Ended 24-weeks Ended
-------------- --------------
June 14, June 15, June 14, June 15,
2003 2002 2003 2002
---- ---- ---- ----
U.S.......................................................... $1,797 $1,865 $3,293 $3,445
Mexico....................................................... 308 - 465 -
Other countries.............................................. 427 344 648 536
------ ------ ------ ------
$2,532 $2,209 $4,406 $3,981
====== ====== ====== ======
Long-Lived Assets June 14, December 28,
2003 2002
---- ----
U.S.......................................................... $6,945 $6,537
Mexico....................................................... 1,452 1,586
Other countries.............................................. 1,319 1,127
------ ------
$9,716 $9,250
====== ======
7
Note 8 - Stock-Based Compensation
During 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure, an Amendment of FASB
Statement No. 123," which provides alternative methods of accounting for
stock-based compensation. We measure stock-based compensation expense using the
intrinsic value method in accordance with Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
interpretations. Accordingly, compensation expense for PBG stock option grants
to our employees is measured as the excess of the quoted market price of PBG
common stock at the grant date over the amount the employee must pay for the
stock. Our policy is to grant PBG stock options at fair value on the date of
grant. As allowed by SFAS No. 148, we have elected to continue to apply the
intrinsic value-based method of accounting described above, and have adopted the
disclosure requirements of SFAS No. 123. If we had measured compensation cost
for the stock-based awards granted to our employees under the fair value-based
method prescribed by SFAS No. 123, net income would have been changed to the pro
forma amounts set forth below:
12-weeks Ended 24-weeks Ended
-------------- --------------
June 14, June 15, June 14, June 15,
2003 2002 2003 2002
---- ---- ---- ----
Net income:
As reported..................................................... $229 $240 $299 $347
Add: Total stock-based employee compensation expense
included in reported net income....................... 2 - 4 -
Less: Total stock-based employee compensation expense
under fair value based method for all awards.......... (18) (16) (36) (38)
----- ----- ----- -----
Pro forma....................................................... $213 $224 $267 $309
===== ===== ===== =====
Pro forma compensation cost measured for stock options granted to employees
is amortized using a straight-line basis over the vesting period, which is
typically three years.
In the first quarter of 2003, we issued restricted PBG stock awards to
certain key members of senior management, which vest over periods ranging from
three to five years from the date of grant. These restricted stock awards are
earned only if the Company achieves certain performance targets over a
three-year period. These restricted share awards are considered variable awards
pursuant to APB Opinion No. 25, which requires the related compensation expense
to be re-measured each period until the performance targets are met and the
amount of the awards becomes fixed. When the restricted PBG stock award was
granted, deferred compensation of approximately $6 million was recorded as a
reduction to owners' equity, and such amount will be adjusted quarterly and
amortized on a straight-line basis over the vesting periods. As of June 14,
2003, the deferred compensation balance remaining to be amortized is
approximately $5 million.
Note 9 - New Accounting Standards
In January 2003, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 02-16, "Accounting by a Customer (Including a Reseller)
for Certain Consideration Received from a Vendor," addressing the recognition
and income statement classification of various cash considerations given by a
vendor to a customer. The consensus requires that certain cash considerations
received by a customer from a vendor are presumed to be a reduction of the price
of the vendor's products, and therefore should be characterized as a reduction
of cost of sales when recognized in the customer's income statement, unless
certain criteria are met. EITF Issue No. 02-16 became effective beginning in our
fiscal year 2003. In the prior year we classified worldwide bottler incentives
received from PepsiCo and other brand owners as adjustments to net revenues and
selling, delivery and administrative expenses depending on the objective of the
program. In accordance with EITF Issue No. 02-16, we have classified certain
bottler incentives as a reduction of cost of sales beginning in 2003. We have
recorded a transition adjustment of $6 million, net of taxes, for the cumulative
effect on prior years, in the first quarter of 2003. This adjustment reflects
8
the amount of bottler incentives that can be attributed to our 2003 beginning
inventory balances. This accounting change did not have a material effect on our
income before cumulative effect of change in accounting principle in the second
quarter and first 24-weeks of 2003 and is not expected to have a material effect
on such amounts for the balance of fiscal 2003. Assuming that EITF Issue No.
02-16 had been in place for all periods presented, the following pro forma
adjustments would have been made to our reported results for the 12 and 24-weeks
ended June 15, 2002:
12-weeks Ended June 15, 2002
----------------------------
As EITF 02-16 Pro Forma
Reported Adjustment Results
-------- ---------- -------
Net revenues................................................ $2,209 $ (71) $2,138
Cost of sales............................................... 1,185 (119) 1,066
Selling, delivery and administrative expenses............... 752 49 801
------ ----- ------
Operating income............................................ $ 272 $ (1) $ 271
====== ===== ======
24-weeks Ended June 15, 2002
----------------------------
As EITF 02-16 Pro Forma
Reported Adjustment Results
-------- ---------- -------
Net revenues................................................ $3,981 $ (130) $3,851
Cost of sales............................................... 2,127 (214) 1,913
Selling, delivery and administrative expenses............... 1,447 86 1,533
------ ------ ------
Operating income............................................ $ 407 $ (2) $ 405
====== ====== ======
Assuming EITF Issue No. 02-16 had been adopted for all periods presented,
pro forma net income for the 12 and 24-weeks ended June 14, 2003 and June 15,
2002, would have been as follows:
12-weeks Ended 24-weeks Ended
--------------- --------------
June 14, June 15, June 14, June 15,
2003 2002 2003 2002
---- ---- ---- ----
Net income:
As reported............................................ $229 $240 $299 $347
Pro forma.............................................. 229 239 305 345
During 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement is effective for contracts entered into or modified after June 30,
2003, and will not have a material impact on our Condensed Consolidated
Financial Statements.
During 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 is effective for exit or
disposal activities initiated after December 31, 2002. We do not anticipate that
the adoption of SFAS No. 146 will have a material impact on our Condensed
Consolidated Financial Statements.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34,"
which addresses the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees. FIN 45 also
requires the recognition of a liability by a guarantor at the inception of
certain guarantees that are entered
9
into or modified after December 31, 2002. We do not anticipate that the adoption
of FIN 45 will have a material impact on our Condensed Consolidated Financial
Statements.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities," which addresses consolidation by
business enterprises of variable interest entities that either: (1) do not have
sufficient equity investment at risk to permit the entity to finance its
activities without additional subordinated financial support, or (2) the equity
investors lack an essential characteristic of a controlling financial interest.
We do not anticipate that the adoption of FIN 46 will have a material impact on
our Condensed Consolidated Financial Statements.
Note 10 - Short-term Borrowings and Long-term Debt
We intend to refinance all or a portion of our $1 billion of 5 3/8% senior
notes upon their maturity in February 2004.
During the quarter, we issued $250 million of Series B Senior Notes with a
coupon rate of 4 1/8%, which has a yield of 4.4%, maturing on June 15, 2015.
These notes are general unsecured obligations and rank on an equal basis with
all of our other existing and future senior unsecured indebtedness and rank
senior to all of our existing and future subordinated indebtedness. These senior
notes have redemption features and covenants similar to our other senior notes.
Note 11 - Comprehensive Income
12-weeks Ended 24-weeks Ended
-------------- --------------
June 14, June 15, June 14, June 15,
2003 2002 2003 2002
---- ---- ---- ----
Net income............................................... $229 $240 $299 $347
Currency translation adjustment.......................... 178 27 152 27
Cash flow hedge adjustment............................... - 16 13 28
----- ----- ----- -----
Comprehensive income..................................... $407 $283 $464 $402
===== ===== ===== =====
Note 12 - Contingencies
We are subject to various claims and contingencies related to lawsuits,
taxes and 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 expected
to have a material adverse effect on our results of operations, financial
condition or liquidity.
Note 13 - Guarantees
PBG has a $500 million commercial paper program that is supported by two
$250 million credit facilities. During the quarter, PBG renegotiated the credit
facilities. One of the credit facilities expires in April 2004 and the other
credit facility expires in April 2008. Both credit facilities are guaranteed by
us.
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.
10
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 14, 2003, and the related condensed consolidated
statements of operations for the twelve and twenty-four weeks ended June 14,
2003 and June 15, 2002 and the condensed consolidated statements of cash flows
for the twenty-four weeks ended June 14, 2003 and June 15, 2002. These condensed
consolidated financial statements are the responsibility of the Company'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 and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, 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 28, 2002, and the related consolidated
statements of operations, changes in owners' equity, and cash flows for the
fifty-two week period then ended not presented herein; and in our report dated
January 28, 2003, 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 28, 2002, is
fairly stated, 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 8, 2003
11
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
OVERVIEW
- --------
Bottling Group, LLC (collectively referred to as "Bottling LLC," "we,"
"our" and "us") is the world's largest manufacturer, seller and distributor of
Pepsi-Cola beverages. We have the exclusive right to manufacture, sell and
distribute Pepsi-Cola beverages in all or a portion of the United States,
Mexico, Canada, Spain, Greece, Russia and Turkey. In the second quarter of 2003,
approximately 71% of our net revenues were generated in the United States, 12%
of our net revenues were generated in Mexico and the remaining 17% were
generated outside the United States and Mexico. For the first 24-weeks of 2003,
approximately 75% of our net revenues were generated in the United States, 10%
of our net revenues were generated in Mexico and the remaining 15% were
generated outside the United States and Mexico.
ITEMS THAT AFFECT HISTORICAL OR FUTURE COMPARABILITY
- ----------------------------------------------------
Gemex Acquisition
- -----------------
In November 2002, we acquired all of the outstanding capital stock of
Pepsi-Gemex, S.A. de. C.V. of Mexico ("Gemex"). Our total acquisition cost
consisted of a net cash payment of $871 million and assumed debt of
approximately $305 million. The Gemex acquisition was made to allow us to
increase our markets outside the United States. Gemex was the largest Pepsi-Cola
bottler in Mexico and the largest bottler outside the United States of
Pepsi-Cola soft drink products based on sales volume. Gemex produced, sold and
distributed a variety of soft drink products under the PEPSI-COLA, PEPSI LIGHT,
PEPSI MAX, MIRINDA, 7 UP, DIET 7 UP, KAS, MOUNTAIN DEW, POWER PUNCH and
MANZANITA SOL trademarks, under exclusive franchise and bottling arrangements
with PepsiCo and certain affiliates of PepsiCo. Gemex also had rights to
produce, sell and distribute in Mexico soft drink products of other companies
and it produced, sold and distributed purified and mineral water in Mexico under
the trademarks ELECTROPURA and GARCI CRESPO, respectively. As a result of the
acquisition of Gemex, we own the ELECTROPURA and GARCI CRESPO brands.
New Accounting Standards
- ------------------------
See Note 9 - New Accounting Standards, in our Notes to Condensed
Consolidated Financial Statements, for a detailed discussion of new accounting
standards that were adopted in 2003.
RESULTS OF OPERATIONS
- ---------------------
Volume
Worldwide
---------
Volume Drivers
--------------
12-weeks Ended 24-weeks Ended
-------------- --------------
June 14, 2003 vs. June 14, 2003 vs.
---------------- ----------------
June 15, 2002 June 15, 2002
------------- -------------
Acquisitions.............................. 29 % 25 %
Base business............................. (1)% (2)%
---- ----
Total Worldwide Change.................. 28 % 23 %
Our reported worldwide physical case volume increased 28% and 23%,
respectively, in the second quarter and first 24-weeks of 2003, when compared
with similar periods of 2002. The increase in reported worldwide volume was
driven by our acquisitions, partially offset by volume declines in our base
business (base business reflects territories that we owned and operated for
comparable periods in both the current and prior year). Our acquisition of Gemex
contributed over
12
85% of the growth resulting from acquisitions for both the second quarter and
first 24-weeks of 2003.
In the U.S., our reported volume decreased by 1% and 3%, respectively, in
the second quarter and first 24- weeks of 2003, when compared with similar
periods of 2002. For the quarter and on a year-to-date basis, the decreases in
U.S. reported volume were driven primarily by the overlap of strong innovation
from the prior year and operating in a soft retail environment, partially offset
by incremental volume from acquisitions. Our cold drink business continues to be
soft, driven predominantly by our performance in the on-premise segment, which
includes fountain and full service vending. From a brand perspective, U.S.
volume continues to benefit from strong growth in Aquafina and the lemon-lime
category, led by Sierra Mist, offset by declines in trademark Pepsi.
Outside the U.S., reported volume increased by 125% for both the second
quarter and the first 24-weeks of 2003, when compared with similar periods of
2002. The increase in volume was driven by our Gemex acquisition coupled with
increases in our base business of 3% for both the quarter and on a year-to-date
basis. The increase in base business volume outside the U.S. was driven by
double-digit growth in Russia, resulting from a solid performance in trademark
Pepsi and Aqua Minerale, coupled with growth in Spain.
Net Revenues
Worldwide
---------
Net Revenues
------------
Drivers
-------
12-weeks Ended 24-weeks Ended
-------------- --------------
June 14, 2003 vs. June 14, 2003 vs.
----------------- ----------------
June 15, 2002 June 15, 2002
------------- -------------
Acquisitions.............................. 16 % 14 %
---- ----
Base business:
EITF Issue No. 02-16 impact.............. (3)% (3)%
Volume declines.......................... (1)% (3)%
Currency translations.................... 2 % 2 %
Rate / mix impact........................ 1 % 1 %
---- ----
Base business change...................... (1)% (3)%
---- ----
Total Worldwide Change.................... 15 % 11 %
==== ====
Net revenues were $2.5 billion for the second quarter and $4.4 billion for
the first 24-weeks in 2003, a 15% and 11% increase over similar periods in 2002,
respectively. The increase in net revenues was driven primarily by our
acquisition of Gemex, which contributed over 85% of the growth resulting from
acquisitions for both the second quarter and first 24-weeks of 2003, partially
offset by declines in our base business. For both the second quarter and the
first 24-weeks of 2003, the decreases in our base business net revenues were
driven by the reclassification of certain bottler incentives from net revenues
to cost of sales resulting from the adoption of Emerging Issues Task Force
("EITF") Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor, at the beginning of 2003, coupled
with volume declines. The declines in base business net revenues were partially
offset by favorable currency translations and the net rate/mix impact.
13
In the U.S., net revenues decreased 4% for both the second quarter and the
first 24-weeks of 2003, when compared with the similar periods of 2002. The
decreases in net revenues in the U.S. in the quarter and on a year-to-date
basis, are due primarily to the impact of adopting EITF Issue No. 02-16 and
volume declines, partially offset by the net rate/mix impact and incremental
revenue from acquisitions. For both the second quarter and on a year-to-date
basis, our net rate/mix impact reflects an approximate 2% price increase in the
marketplace, partially offset by a negative mix impact of 1%, driven by soft
cold drink performance.
Net revenues outside the U.S. grew approximately 114% in the second quarter
and 108% for the first 24-weeks of 2003 when compared with the similar periods
of 2002. For both the second quarter and the first 24-weeks of 2003, the
increases were driven by our Gemex acquisition, favorable foreign currency
translation, and the net rate/mix impact and volume performance, partially
offset by a decline due to the impact of adopting EITF Issue No. 02-16.
For the full year, worldwide net revenues are expected to increase in the
low double digits versus the prior year, with the majority of the increase
resulting from our Gemex acquisition. Worldwide net revenue per case is expected
to be down in the mid to high single-digits during the second half and for the
full year of 2003, as compared with the prior year periods. The decline in our
worldwide net revenue per case will be driven by country mix as a result of our
Gemex acquisition and the adoption of EITF Issue No. 02-16. We expect U.S.
pricing in the marketplace to continue to be solid, up about two percent for the
second half and the full year of 2003 versus the prior year comparable periods.
Net revenue per case results in the U.S. are forecasted to be down one to two
percent during the second half and for the full year of 2003 versus the prior
year comparable periods, reflecting the adoption of EITF Issue No. 02-16.
Cost of Sales
Worldwide
---------
Cost of Sales
-------------
Drivers
-------
12-weeks Ended 24-weeks Ended
-------------- --------------
June 14, 2003 vs. June 14, 2003 vs.
----------------- -----------------
June 15, 2002 June 15, 2002
------------- -------------
Acquisitions.............................. 15 % 13 %
----- -----
Base business:
EITF Issue No. 02-16 impact.............. (10)% (10)%
Cost per case impact..................... 4 % 3 %
Volume declines.......................... (1)% (3)%
Currency translations.................... 1 % 1 %
----- -----
Base business change...................... (6)% (9)%
----- -----
Total Worldwide Change.................... 9% 4 %
===== =====
Cost of sales was $1.3 billion in the second quarter and $2.2 billion for
the first 24-weeks of 2003, a 9% and 4% increase over similar periods in 2002,
respectively. The increase in cost of sales was driven primarily by our
acquisition of Gemex, which contributed over 80% of the growth resulting from
acquisitions in both the second quarter and the first 24-weeks of 2003,
partially offset by declines in our base business costs. Our base business cost
of sales declines were driven by the reclassification of certain bottler
incentives from net revenues and selling, delivery and administrative expenses
to cost of sales resulting from the adoption of EITF Issue No. 02-16, coupled
with volume declines. The declines in base business cost of sales were partially
offset by cost per case increases and foreign currency translation.
In the U.S., cost of sales decreased 7% in the second quarter and 9% for
the first 24-weeks of 2003, when compared with the similar periods of 2002. The
decreases in our U.S. cost of sales were driven by the impact of adopting EITF
Issue No. 02-16 and volume declines, partially offset
14
by cost per case increases and incremental costs from acquisitions. In the U.S.,
cost per case increased 3% for both the second quarter and on a year-to-date
basis, resulting from higher concentrate and resin costs.
Cost of sales outside the U.S. grew approximately 83% in the second quarter
and 77% for the first 24-weeks of 2003, when compared with the similar periods
of 2002. The increases in cost of sales outside the U.S., for the quarter and on
a year-to-date basis, were driven by our Gemex acquisition, impact of foreign
currency translation, and increases in both cost per case and volume, partially
offset by a reduction resulting from the impact of adopting EITF Issue No.
02-16.
For the balance of the year, we expect our cost of sales increases to be
similar to those experienced during the first half of the year. The expected
growth in our cost of sales will be driven primarily by our Gemex acquisition
and cost per case increases in the U.S., partially offset by the
reclassification of certain bottler incentives from net revenues and selling,
delivery and administrative expenses to cost of sales resulting from the
adoption of EITF Issue No. 02-16.
Selling, Delivery and Administrative Expenses
Worldwide
----------
SD&A Drivers
------------
12-weeks Ended 24-weeks Ended
-------------- --------------
June 14, 2003 vs. June 14, 2003 vs.
----------------- ----------------
June 15, 2002 June 15, 2002
------------ -------------
Acquisitions.............................. 19 % 17 %
----- -----
Base business:
EITF Issue No. 02-16 impact.............. 7 % 6 %
Currency translations.................... 2 % 2 %
Cost performance......................... 0 % (1)%
----- -----
Base business change...................... 9 % 7 %
----- -----
Total Worldwide Change.................... 28 % 24 %
===== =====
Selling, delivery and administrative expenses were $966 million in the
second quarter and $1.8 billion for the first 24-weeks of 2003, a 28% and 24%
increase over similar periods in 2002, respectively. The increase in selling,
delivery and administrative expenses was driven primarily by our acquisition of
Gemex and increases in our base business. Gemex contributed over 85% of the
growth resulting from acquisitions for both the second quarter and first
24-weeks of 2003. Increases in our base business selling, delivery and
administrative expenses in both the second quarter and first 24-weeks of 2003,
were driven by the reclassification of certain bottler incentives from selling,
delivery and administrative expenses to cost of sales resulting from the
adoption of EITF Issue No. 02-16, coupled with the impact of foreign currency
translation. Our base business cost performance was flat and declined 1%,
respectively, in the second quarter and on a year-to-date basis, driven largely
by reductions in labor and other costs, partially offset by increases in
pension, benefit and casualty costs.
For the balance of the year, we expect the growth of our selling, delivery
and administrative expenses to be similar to that experienced during the first
half of the year. Expected increases in selling, delivery and administrative
expenses will be driven predominantly by our Gemex acquisition and the
reclassification of certain bottler incentives from selling, delivery and
administrative expenses to cost of sales resulting from the adoption of EITF
Issue No. 02-16, partially offset by improved cost performance in the United
States.
15
Operating Income
Worldwide
---------
Operating Income
----------------
Drivers
-------
12-weeks Ended 24-weeks Ended
-------------- --------------
June 14, 2003 vs. June 14, 2003 vs.
----------------- -----------------
June 15, 2002 June 15, 2002
------------- -------------
Acquisitions.............................. 9 % 7 %
----- -----
Base business:
Volume impact............................ (5)% (12)%
Rate/mix impact.......................... 11 % 13 %
Cost of sales per case impact............ (17)% (15)%
SD&A impact.............................. 2 % 3 %
Currency translations.................... 1 % 1 %
----- -----
Base business change...................... (8)% (10)%
----- -----
Total Worldwide Change.................... 1 % (3)%
===== =====
Operating income was $276 million in the second quarter and $395 million
for the first 24-weeks of 2003, a 1% increase and 3% decrease over similar
periods in 2002, respectively. The primary drivers of change in operating income
for the quarter and on a year-to-date basis were decreases in our base business
offset by an increase from our acquisition of Gemex. The decreases in our base
business operating income for the quarter and on a year-to-date basis were
driven by lower volume in the U.S. and higher product costs, partially offset by
rate increases in the marketplace, reduced selling, delivery and administrative
expenses as a result of our focus on cost controls and the favorable impact of
foreign currency translation. Gemex contributed the majority of the growth
resulting from acquisitions for both the second quarter and first 24-weeks of
2003.
For the third quarter, we anticipate operating profit to grow in the high
single digits and for the full year we expect operating profit to grow about
10%, as compared with the prior-year periods. Expected increases in operating
income for the third quarter and for the full year of 2003 will be driven by
improving trends in the U.S. and contributions from our Gemex acquisition.
Interest Expense
Interest expense increased by $9 million and $17 million, respectively, in
the second quarter and the first 24-weeks of 2003, when compared with similar
periods of 2002, largely due to the additional interest associated with the $1
billion 4 5/8% senior notes used to finance our acquisition of Gemex in November
2002, partially offset by the favorable impact of the interest rate swaps on
$1.3 billion of our fixed rate long-term debt.
Income Tax Expense
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. The increase in the income tax expense during
the second quarter and first 24-weeks of 2003 is primarily due to our
international acquisitions and higher taxes in the United States.
Liquidity and Capital Resources
- -------------------------------
Cash Flows
Net cash provided by operations decreased by $59 million to $298 million
for the first 24-weeks of 2003, when compared with the similar period in 2002,
reflecting a decline in net income
16
coupled with the increased use of cash from working capital, principally from
the timing of payments.
Net cash used for investments increased by $292 million to $681 million for
the first 24-weeks of 2003, when compared with the similar period in 2002,
reflecting higher acquisition spending and increased loans to PBG, partially
offset by declines in capital expenditures.
Net cash provided by financing increased by $375 million for the first
24-weeks of 2003 when compared with the similar period in 2002, driven by the
issuance of $250 million in long-term debt and other short-term borrowings.
For the full year in 2003, we expect capital expenditures to be
approximately $700 million.
Short-term Borrowings and Long-term Debt
We intend to refinance all or a portion of our $1 billion of 5 3/8% senior
notes upon their maturity in February 2004. We are currently in compliance with
all debt covenants in our indenture agreements.
During the second quarter we issued $250 million of Series B Senior Notes
with a coupon rate of 4 1/8%, which has a yield of 4.4%, maturing on June 15,
2015. These notes are general unsecured obligations and rank on an equal basis
with all of our other existing and future senior unsecured indebtedness and rank
senior to all of our existing and future subordinated indebtedness. These senior
notes have redemption features and covenants similar to our other senior notes.
PBG has a $500 million commercial paper program that is supported by two
$250 million credit facilities. During the quarter, PBG renegotiated the credit
facilities. One of the credit facilities expires in April 2004 and the other
credit facility expires in April 2008. Both credit facilities are guaranteed by
us.
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 related infrastructure expenditures,
material changes in expected levels of bottler incentive payments from PepsiCo,
material changes in our expected interest and currency exchange rates, an
inability to achieve cost savings, an inability to achieve volume growth through
product and packaging initiatives, competitive pressures that may cause channel
and product mix to shift from more profitable cold drink channels and packages,
weather conditions in Bottling LLC's markets, political conditions in Bottling
LLC's markets outside the United States and Canada, possible recalls of Bottling
LLC's products, an inability to meet projections for performance in newly
acquired territories, unfavorable market performance of our pension plan assets,
unfavorable outcomes from our U.S. Internal Revenue Service audits, and changes
in our debt ratings.
17
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
The overall risks to our international businesses include changes in
foreign governmental policies, and other political or economic developments.
These developments may lead to new product pricing, tax or other policies and
monetary fluctuations, which may adversely impact our business. In addition, our
results of operations and the value of the foreign assets are affected by
fluctuations in foreign currency exchange rates.
Foreign currency gains and losses reflect transaction gains and losses as
well as translation gains and losses arising from the re-measurement into U.S.
dollars of the net monetary assets of businesses in highly inflationary
countries. Beginning in 2003, Russia is no longer considered highly
inflationary, and changed its functional currency from the U.S. dollar to the
Russian ruble. The impact to our consolidated financial statements as a result
of Russia's change in functional currency in 2003 was not material.
We acquired Gemex in November 2002. Approximately 12% and 10% of our net
revenues were derived from Mexico in the second quarter and first 24-weeks of
2003, respectively. During the second quarter and the first 24-weeks of 2003,
the Mexican peso appreciated by approximately 6% and less than 1%, respectively.
Future movements in the Mexican peso could have a material impact on our
financial results.
Item 4.
Controls and Procedures
- -----------------------
Within 90 days prior to the filing date of this report, Bottling LLC
carried out an evaluation, under the supervision and with the participation of
our management, including the Principal Executive Officer and the Principal
Financial Officer of Bottling LLC, of the effectiveness and design and operation
of our disclosure controls and procedures pursuant to the Exchange Act Rule
13a-14. Based upon that evaluation, the Principal Executive Officer and the
Principal Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
relating to Bottling LLC and its consolidated subsidiaries required to be
included in Bottling LLC's periodic filings with the SEC. In addition, there
were no significant changes in our internal controls or in other factors that
could significantly affect these internal controls subsequent to the date of our
most recent evaluation.
18
PART II - OTHER INFORMATION
Item 5.
Other Information
- -----------------
The following financial information of The Pepsi Bottling Group, Inc.
("PBG"), filed by PBG with the SEC on July 28, 2003, is hereby incorporated by
reference as required by the SEC as a result of Bottling LLC's guarantee of up
to $1,000,000,000 aggregate principal amount of PBG's 7% Senior Notes due in
2029:
>> Condensed Consolidated Statements of Operations - 12 and 24-weeks
ended June 14, 2003 and June 15, 2002
>> Condensed Consolidated Statements of Cash Flows - 24-weeks ended June
14, 2003 and June 15, 2002
>> Condensed Consolidated Balance Sheets - June 14, 2003 and December 28,
2002
>> Notes to Condensed Consolidated Financial Statements
>> Independent Accountants' Review Report
The following financial information of PepsiCo, Inc. ("PepsiCo"), filed by
PepsiCo with the SEC on July 25, 2003, is hereby incorporated by reference as
required by the SEC as a result of PepsiCo's conditional guarantee of up to
$1,000,000,000 aggregate principal amount of our 4 5/8% Senior Notes due in
2012:
>> Condensed Consolidated Statements of Operations - 12 and 24-weeks
ended June 14, 2003 and June 15, 2002
>> Condensed Consolidated Statements of Cash Flows - 24-weeks ended June
14, 2003 and June 15, 2002
>> Condensed Consolidated Balance Sheets - June 14, 2003 and December 28,
2002
>> Notes to Condensed Consolidated Financial Statements
>> Independent Accountants' Review Report
The above referenced financial information of PepsiCo was prepared by
management of PepsiCo and is subject to PepsiCo's internal control over
financial reporting.
We did not have any responsibility for the preparation of, and have not
independently reviewed the above referenced financial information of PepsiCo and
it was not subject to our financial controls or procedures. This financial
information should be viewed accordingly.
19
ITEM 6
Exhibits
- --------
Exhibit No.
- -----------
15.1 * Accountants' Acknowledgement - Bottling Group, LLC and The Pepsi
Bottling Group, Inc.
15.2 * Accountants' Acknowledgement - Bottling Group, LLC and PepsiCo, Inc.
4.1 Indenture, dated as of June 10, 2003, by and between Bottling Group,
LLC, as Obligor, and JPMorgan Chase Bank, as Trustee, relating to
$250,000,000 4 1/8% Senior Notes due June 15, 2015 which is
incorporated herein by reference to Exhibit 4.1 to Bottling Group,
LLC's registration statement on Form S-4 (Registration No. 333-106285)
4.2 Registration Rights Agreement, dated June 10, 2003, by and among
Bottling Group, LLC, J.P. Morgan Securities Inc., Lehman Brothers
Inc., Banc of America Securities LLC, Citigroup Global Markets Inc,
Credit Suisse First Boston LLC, Deutsche Bank Securities Inc.,
Blaylock & Partners, L.P. and Fleet Securities, Inc. which is
incorporated herein by reference to Exhibit 4.3 to Bottling Group,
LLC's registration statement on Form S-4 (Registration No. 333-106285)
4.3 U.S. $250,000,000 5-Year Credit Agreement, dated as of April 30, 2003
among The Pepsi Bottling Group, Inc., Bottling Group, LLC, Citibank,
N.A., Bank of America, N.A., Credit Suisse First Boston, Cayman
Islands Branch, Deutsche Bank AG New York Branch, JPMorgan Chase Bank,
The Northern Trust Company, Lehman Brothers Bank, FSB, Banco Bilbao
Vizcaya Argentaria, HSBC Bank USA, Fleet National Bank, The Bank of
New York, State Street Bank and Trust Company, Comerica Bank, Wells
Fargo Bank, N.A., JPMorgan Chase Bank, as Agent, Citigroup Global
Markets Inc. and Banc of America Securities LLC, as Joint Lead
Arrangers and Book Managers and Citibank, N.A., Bank of America, N.A.,
Credit Suisse First Boston, and Deutsche Bank Securities Inc. as
Syndication Agents which is incorporated herein by reference to
Exhibit 4.7 to Bottling Group, LLC's registration statement on Form
S-4/A (Registration No. 333-102035)
4.4 U.S. $250,000,000 364-Day Credit Agreement, dated as of April 30, 2003
among The Pepsi Bottling Group, Inc., Bottling Group, LLC, Citibank,
N.A., Bank of America, N.A., Credit Suisse First Boston, Cayman
Islands Branch, Deutsche Bank AG New York Branch, JPMorgan Chase Bank,
The Northern Trust Company, Lehman Brothers Bank, FSB, Banco Bilbao
Vizcaya Argentaria, HSBC Bank USA, Fleet National Bank, The Bank of
New York, State Street Bank and Trust Company, Comerica Bank, Wells
Fargo Bank, N.A., JPMorgan Chase Bank, as Agent, Citigroup Global
Markets Inc. and Banc of America Securities LLC, as Joint Lead
Arrangers and Book Managers and Citibank, N.A., Bank of America, N.A.,
Credit Suisse First Boston, and Deutsche Bank Securities Inc. as
Syndication Agents which is incorporated herein by reference to
Exhibit 4.8 to Bottling Group, LLC's registration statement on Form
S-4/A (Registration No. 333-102035)
20
99.1 * Certification by the Principal Executive Officer of Periodic Financial
Report pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
99.2 * Certification by the Principal Financial Officer of Periodic Financial
Report pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
- -----------------
* Filed herewith.
21
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 thereunto duly authorized.
BOTTLING GROUP, LLC
-------------------
(Registrant)
Date: July 25, 2003 /s/ Andrea L. Forster
------------- ----------------------
Andrea L. Forster
Principal Accounting Officer
Date: July 25, 2003 /s/ Alfred H. Drewes
------------- --------------------
Alfred H. Drewes
Principal Financial Officer
Form 10-Q Certification
I, John T. Cahill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bottling Group, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: July 25, 2003 /s/ John T. Cahill
------------- ------------------
John T. Cahill
Principal Executive Officer
and Managing Director
Form 10-Q Certification
I, Alfred H. Drewes, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bottling Group, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: July 25, 2003 /s/ Alfred H. Drewes
------------- --------------------
Alfred H. Drewes
Principal Financial Officer