-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BbW41poiFU5HsR/VcoNZuf70diqvU8VQDJlTGY5AwQrx7QnIBhvNZCZ0jDSWAi+6 +0G0QMXGxfApHmAMAYLmzA== 0001076405-05-000060.txt : 20050427 0001076405-05-000060.hdr.sgml : 20050427 20050427154223 ACCESSION NUMBER: 0001076405-05-000060 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050319 FILED AS OF DATE: 20050427 DATE AS OF CHANGE: 20050427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEPSI BOTTLING GROUP INC CENTRAL INDEX KEY: 0001076405 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 134038356 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14893 FILM NUMBER: 05776305 BUSINESS ADDRESS: STREET 1: ONE PEPSI WAY CITY: SOMERS STATE: NY ZIP: 10589-2201 BUSINESS PHONE: 9147676000 MAIL ADDRESS: STREET 1: ONE PEPSI WAY CITY: SOMERS STATE: NY ZIP: 10589-2201 10-Q 1 pbg1q10q2005.txt PEPSI BOTTLING GROUP (1Q 10Q 2005) 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 March 19, 2005 (12 weeks) -------------------------- 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 1-14893 ------- THE PEPSI BOTTLING GROUP, INC. ------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-4038356 ------------------------------ -------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) Identification No.) One Pepsi Way, Somers, New York 10589 ---------------------------------- -------------------- (Address of principal executive offices) (Zip Code) 914-767-6000 ------------ (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 X NO --- --- Number of shares of Common Stock outstanding as of April 15, 2005: 244,966,803 The Pepsi Bottling Group, Inc. ------------------------------ Index
Page No. -------- Part I Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Operations - 12 weeks ended March 19, 2005 and March 20, 2004 2 Condensed Consolidated Statements of Cash Flows - 12 weeks ended March 19, 2005 and March 20, 2004 3 Condensed Consolidated Balance Sheets - March 19, 2005 and December 25, 2004 4 Notes to Condensed Consolidated Financial Statements 5-11 Report of Independent Registered Public Accounting Firm 12 Item 2. Management's Financial Review 13-19 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 Item 4. Controls and Procedures 20 Part II Other Information Item 1. Legal Proceedings 21 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 21-22 Item 6. Exhibits 23
PART I - FINANCIAL INFORMATION Item 1. The Pepsi Bottling Group, Inc. Condensed Consolidated Statements of Operations in millions, except per share amounts, unaudited
12 Weeks Ended -------------- March March 19, 2005 20, 2004 -------- -------- Net revenues........................................................... $2,147 $2,067 Cost of sales.......................................................... 1,116 1,051 ----- ----- Gross profit........................................................... 1,031 1,016 Selling, delivery and administrative expenses.......................... 911 879 ----- ----- Operating income....................................................... 120 137 Interest expense, net.................................................. 55 55 Minority interest...................................................... 6 6 ----- ----- Income before income taxes............................................. 59 76 Income tax expense..................................................... 20 26 ----- ----- Net income............................................................. $ 39 $ 50 ===== ===== Basic earnings per share............................................... $ 0.16 $ 0.19 ===== ===== Weighted-average shares outstanding.................................... 248 260 Diluted earnings per share............................................. $ 0.15 $ 0.19 ===== ===== Weighted-average shares outstanding.................................... 254 269
See accompanying notes to Condensed Consolidated Financial Statements. -2- The Pepsi Bottling Group, Inc. Condensed Consolidated Statements of Cash Flows in millions, unaudited
12 Weeks Ended -------------- March March 19, 2005 20, 2004 -------- -------- Cash Flows - Operations Net income..................................................................... $ 39 $ 50 Adjustments to reconcile net income to net cash (used for) provided by operations: Depreciation................................................................ 130 124 Amortization................................................................ 3 3 Deferred income taxes....................................................... 4 11 Other non-cash charges and credits, net..................................... 64 62 Changes in operating working capital, excluding effects of acquisitions: Accounts receivable, net................................................... (3) (3) Inventories, net........................................................... (48) (67) Prepaid expenses and other current assets.................................. (45) (2) Accounts payable and other current liabilities............................. (121) (35) Income taxes payable....................................................... 2 (2) ----- ----- Net change in operating working capital .................................... (215) (109) ----- ----- Pension contributions....................................................... (20) (20) Other, net.................................................................. (15) (10) ----- ----- Net Cash (Used for) Provided by Operations...................................... (10) 111 ----- ----- Cash Flows - Investments Capital expenditures........................................................... (93) (102) Acquisitions of bottlers....................................................... (1) - Sale of property, plant and equipment.......................................... 1 1 ----- ----- Net Cash Used for Investments................................................... (93) (101) ----- ----- Cash Flows - Financing Short-term borrowings - three months or less................................... 147 97 Proceeds of long-term debt..................................................... 23 9 Payments of long-term debt..................................................... (4) (1,004) Dividends paid................................................................. (13) (3) Proceeds from exercise of stock options........................................ 13 13 Purchases of treasury stock.................................................... (118) (86) ----- ----- Net Cash Provided by (Used for) Financing....................................... 48 (974) ----- ----- Effect of Exchange Rate Changes on Cash and Cash Equivalents.................... - (2) ----- ----- Net Decrease in Cash and Cash Equivalents....................................... (55) (966) Cash and Cash Equivalents - Beginning of Period................................. 305 1,235 ----- ----- Cash and Cash Equivalents - End of Period....................................... $ 250 $ 269 ===== ===== Supplemental Cash Flow Information Net third-party interest paid................................................... $ 66 $ 72 ===== ===== Income taxes paid............................................................... $ 14 $ 16 ===== =====
See accompanying notes to Condensed Consolidated Financial Statements. -3- The Pepsi Bottling Group, Inc. Condensed Consolidated Balance Sheets in millions, except per share amounts
(Unaudited) March December 19, 2005 25, 2004 -------- -------- ASSETS Current Assets Cash and cash equivalents....................................................... $ 250 $ 305 Accounts receivable, less allowance of $59 at March 19, 2005 and $61 at December 25, 2004..................................................... 1,054 1,054 Inventories..................................................................... 476 427 Prepaid expenses and other current assets....................................... 293 253 ------ ------ Total Current Assets......................................................... 2,073 2,039 Property, plant and equipment, net.............................................. 3,543 3,581 Other intangible assets, net.................................................... 3,645 3,639 Goodwill........................................................................ 1,422 1,416 Other assets.................................................................... 113 118 ------ ------ Total Assets.......................................................... $10,796 $10,793 ======= ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and other current liabilities.................................. $ 1,255 $ 1,373 Short-term borrowings........................................................... 301 155 Current maturities of long-term debt............................................ 77 53 ------ ------ Total Current Liabilities.................................................... 1,633 1,581 Long-term debt.................................................................. 4,470 4,489 Other liabilities............................................................... 937 914 Deferred income taxes........................................................... 1,417 1,415 Minority interest............................................................... 452 445 ------ ------ Total Liabilities............................................................ 8,909 8,844 ------ ------ Shareholders' Equity Common stock, par value $0.01 per share: authorized 900 shares, issued 310 shares..................................... 3 3 Additional paid-in capital...................................................... 1,716 1,719 Retained earnings............................................................... 1,914 1,887 Accumulated other comprehensive loss............................................ (303) (315) Deferred compensation........................................................... (1) (1) Treasury stock: 64 shares and 61 shares at March 19, 2005 and December 25, 2004, respectively, at cost......................................................... (1,442) (1,344) ------ ------ Total Shareholders' Equity................................................... 1,887 1,949 ------ ------ Total Liabilities and Shareholders' Equity............................ $10,796 $10,793 ====== ======
See accompanying notes to Condensed Consolidated Financial Statements. -4- Notes to Condensed Consolidated Financial Statements Tabular dollars in millions, except per share amounts - -------------------------------------------------------------------------------- Note 1 - Basis of Presentation The Pepsi Bottling Group, Inc. ("PBG" or the "Company") 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 and Europe, which consists of operations in Spain, Greece, Russia and Turkey. When used in these Condensed Consolidated Financial Statements, "PBG," "we," "our" and "us" each refers to The Pepsi Bottling Group, Inc. and, where appropriate, to Bottling Group, LLC ("Bottling LLC"), our principal operating subsidiary. At March 19, 2005, PepsiCo, Inc. ("PepsiCo") owned 104,303,858 shares of our common stock, consisting of 104,203,858 shares of common stock and 100,000 shares of Class B common stock. All shares of Class B common stock that have been authorized have been issued to PepsiCo. At March 19, 2005, PepsiCo owned approximately 42.4% of our outstanding common stock and 100% of our outstanding Class B common stock, together representing 47.7% of the voting power of all classes of our voting stock. In addition, PepsiCo owns approximately 6.8% of the equity of Bottling LLC. We fully consolidate the results of Bottling LLC and present PepsiCo's share as minority interest in our Condensed Consolidated Financial Statements. The accompanying Condensed Consolidated Balance Sheet at March 19, 2005 and the Condensed Consolidated Statements of Operations and Cash Flows for the 12 weeks ended March 19, 2005 and March 20, 2004 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 25, 2004 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. Our U.S. and Canadian operations report using a fiscal year that consists of fifty-two weeks, ending on the last Saturday in December. Every five or six years a fifty-third week is added. Fiscal year 2004 consisted of fifty-two weeks. In 2005, our fiscal year consists of fifty-three weeks (the additional week is added to the fourth quarter). 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/17 weeks (FY 2005) September, October, November and December Note 2 - Seasonality of Business The results for the first 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. From a cash flow perspective, the majority of our cash flow from operations is generated in the third and fourth quarters. - 5 - Note 3 - New Accounting Standards Share-Based Payment In December 2004, the FASB issued a revised Statement of Financial Accounting Standards ("SFAS") No. 123, "Share-Based Payment." Among its provisions, SFAS 123R will require us to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize the cost over the requisite service period. As a result of the release of a recent Securities and Exchange Commission rule, SFAS 123R becomes effective for us beginning in the first quarter of 2006. We are currently evaluating the impact of this proposed standard on our Consolidated Financial Statements. FASB Staff Position No. FAS 109-1 In December 2004, the FASB issued Staff Position No. FAS 109-1 ("FSP 109-1"), "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004." FSP No. 109-1 clarifies SFAS No. 109's guidance that applies to the new tax deduction for qualified domestic production activities. We have adopted the standard at the beginning of 2005. This standard will not have a material impact to our Consolidated Financial Statements. FASB Staff Position No. FAS 109-2 In December 2004, the FASB issued Staff Position No. FAS 109-2 ("FSP 109-2"), "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004." FSP 109-2 provides that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the new tax law on its plan for applying SFAS No. 109. We are evaluating whether to repatriate our undistributed foreign earnings in 2005. FASB Interpretation No. 47 In April 2005, the FASB issued FASB Interpretation No. 47 ("FIN 47"), "Accounting for Conditional Asset Retirement Obligations." FIN 47 provides clarification of certain sections of FASB Statement No. 143, "Accounting for Asset Retirement Obligations." Specifically, FIN 47 clarifies the term conditional asset retirement obligation as used in SFAS 143 and also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. We are currently evaluating the impact of this standard on our Consolidated Financial Statements. Note 4 - Stock-Based Employee 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 stock option grants to our employees is measured as the excess of the quoted market price of common stock at the grant date over the amount the employee must pay for the stock. Our policy is to grant stock options at fair value on the date of grant. As allowed by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," 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, "Accounting for Stock-Based Compensation." If we had measured compensation cost for the stock 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: - 6 -
12 Weeks Ended -------------- March March 19, 2005 20, 2004 -------- --------- Net income: As reported.................................................. $ 39 $ 50 Add: Total stock-based employee compensation included in reported net income, net of taxes and and minority interest.............................................. - - Less: Total stock-based employee compensation determined under fair-value based method for all awards, net of taxes and minority interest........................... (11) (10) ---- ---- Pro forma.................................................... $ 28 $ 40 ==== ==== Earnings per share: Basic - as reported....................................... $0.16 $0.19 Basic - pro forma......................................... $0.11 $0.16 Diluted - as reported..................................... $0.15 $0.19 Diluted - pro forma....................................... $0.11 $0.15
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. The fair value of PBG stock options used to compute pro forma net income disclosures was estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Note 5 - Inventories March December 19, 2005 25, 2004 -------- -------- Raw materials and supplies................................... $ 175 $ 159 Finished goods............................................... 301 268 ---- ---- $ 476 $ 427 ==== ==== - 7 - Note 6 - Property, plant and equipment, net
March December 19, 2005 25, 2004 -------- -------- Land............................................................................ $ 258 $ 257 Buildings and improvements...................................................... 1,270 1,263 Manufacturing and distribution equipment........................................ 3,303 3,289 Marketing equipment............................................................. 2,255 2,237 Other........................................................................... 180 177 ------ ------ 7,266 7,223 Accumulated depreciation........................................................ (3,723) (3,642) ------ ------ $ 3,543 $ 3,581 ====== ====== Note 7 - Other intangible assets, net and Goodwill March December 19, 2005 25, 2004 -------- -------- Intangibles subject to amortization: Gross carrying amount: Customer relationships and lists ...................................... $ 46 $ 46 Franchise/distribution rights.......................................... 45 44 Other identified intangibles........................................... 30 30 ------ ------ 121 120 ------ ------ Accumulated amortization: Customer relationships and lists ...................................... (6) (6) Franchise/distribution rights.......................................... (16) (15) Other identified intangibles........................................... (18) (16) ------ ------ (40) (37) ------ ------ Intangibles subject to amortization, net........................................ 81 83 ------ ------ Intangibles not subject to amortization: Carrying amount: Franchise rights....................................................... 2,965 2,958 Distribution rights.................................................... 289 288 Trademarks............................................................. 209 208 Other identified intangibles........................................... 101 102 ------ ------ Intangibles not subject to amortization.................................... 3,564 3,556 ------ ------ Total other intangible assets, net.............................................. $ 3,645 $ 3,639 ====== ====== Goodwill........................................................................ $ 1,422 $ 1,416 ====== ======
Goodwill increased by approximately $6 million in 2005 due to the impact from foreign currency translation. - 8 - For intangible assets subject to amortization, we calculate amortization expense over the period we expect to receive economic benefit. Total amortization expense was $3 million for the twelve weeks ended March 19, 2005 and March 20, 2004. 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:
Weighted-Average Estimated Aggregate Amortization Expense to be Incurred ---------------- ------------------------------------------------------- Amortization ------------- Period ------- Balance of Fiscal Year Ending ---------- ------------------ 2005 2006 2007 2008 2009 ---- ---- ---- ---- ---- Customer relationships and lists................................ 17 years $2 $3 $3 $3 $3 Franchise/distribution rights........ 7 years $5 $5 $3 $2 $2 Other identified intangibles......... 7 years $3 $3 $3 $2 $1
Note 8 - Pension and Postretirement Medical Benefit Plans Pension Benefits Our U.S. employees participate in noncontributory defined benefit pension plans, which cover substantially all full-time salaried employees, as well as most hourly employees. Benefits generally are based on years of service and compensation, or stated amounts for each year of service. All of our qualified plans are funded and contributions are made in amounts not less than the minimum statutory funding requirements and not more than the maximum amount that can be deducted for U.S. income tax purposes. Our net pension expense for the defined benefit plans for our operations outside the U.S. was not significant and is not included in the tables presented below. Nearly all of our U.S. employees are also eligible to participate in our 401(k) savings plans, which are voluntary defined contribution plans. We make matching contributions to the 401(k) savings plans on behalf of participants eligible to receive such contributions. If a participant has one or more but less than 10 years of eligible service, our match will equal $0.50 for each dollar the participant elects to defer up to 4% of the participant's pay. If the participant has 10 or more years of eligible service, our match will equal $1.00 for each dollar the participant elects to defer up to 4% of the participant's pay. - 9 - Components of our U.S. pension expense for the twelve weeks ended March 19, 2005 and March 20, 2004 are as follows: 12 Weeks Ended -------------- March March 19, 2005 20, 2004 -------- -------- Service cost............................................. $ 11 $ 10 Interest cost............................................ 17 16 Expected return on plan assets........................... (21) (19) Amortization of prior service cost....................... 2 1 Amortization of net loss................................. 7 6 --- --- Net pension expense for the defined benefit plans........ 16 14 --- --- Defined contribution plans expense....................... 4 5 --- --- Total U.S. pension expense recognized in the Condensed Consolidated Statements of Operations.................... $ 20 $ 19 === === As of March 19, 2005, we have contributed $20 million to our U.S. pension plans in 2005. Postretirement Medical Benefits Our postretirement medical plans provide medical and life insurance benefits principally to U.S. retirees and their dependents. Employees are eligible for benefits if they meet age and service requirements and qualify for retirement benefits. The plans are not funded and since 1993 have included retiree cost sharing. Components of our U.S. postretirement benefits expense for the twelve weeks ended March 19, 2005 and March 20, 2004 are as follows:
12 Weeks Ended -------------- March March 19, 2005 20, 2004 -------- -------- Service cost.................................................. $ 1 $ 1 Interest cost................................................. 5 4 Amortization of net loss...................................... 1 1 --- --- U.S. postretirement benefits expense recognized in the Condensed Consolidated Statements of Operations............... $ 7 $ 6 === ===
Note 9 - 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 - ------------ -------------- March March 19, 2005 20, 2004 -------- -------- U.S................................................... $ 1,688 $ 1,626 Mexico................................................ 153 158 Other countries....................................... 306 283 ------ ------ $ 2,147 $ 2,067 ====== ====== - 10 - Long-Lived Assets - ----------------- March December 19, 2005 25, 2004 -------- -------- U.S..................................................... $ 5,841 $ 5,875 Mexico.................................................. 1,431 1,435 Other countries......................................... 1,451 1,444 ------ ------ $ 8,723 $ 8,754 ====== ====== Note 10 - Comprehensive Income 12 Weeks Ended -------------- March March 19, 2005 20, 2004 -------- -------- Net income.............................................. $ 39 $ 50 Net currency translation adjustment..................... 13 2 Cash flow hedge adjustment (a) ......................... (1) 1 ---- ---- Comprehensive income.................................... $ 51 $ 53 ==== ==== (a) Net of minority interest and taxes of $1 million and $1 million for the 12 weeks ended March 19, 2005 and March 20, 2004, respectively. Note 11 - 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 likely to have a material adverse effect on our results of operations, financial condition or liquidity. In 1995, a class action suit was filed against three of our suppliers for price fixing on the sale of high fructose corn syrup during the years between 1991 and 1995. During this time period we were still part of PepsiCo. During 2004, these suppliers settled their respective charges. The settlement amount will be allocated to each class action recipient based on the proportion of its purchases of high fructose corn syrup from these suppliers during the period 1991 through 1995 to the total of such purchases by all class action recipients. As the allocation of the settlement to each class action recipient has not been finalized and we do not have reliable information as to the total of such purchases, we can not accurately estimate with reasonable assurance the amount of proceeds we will receive from the settlement. Accordingly, we have not recorded a gain in our Condensed Consolidated Financial Statements. However, our preliminary estimate of the proceeds we will receive from settlement of this case is approximately $20 million. We believe the claims process for the allocation of settlement to each class action recipient will be finalized during 2005. - 11- Report of Independent Registered Public Accounting Firm ------------------------------------------------------- The Board of Directors & Shareholders of The Pepsi Bottling Group, Inc.: We have reviewed the accompanying condensed consolidated balance sheet of The Pepsi Bottling Group, Inc. and subsidiaries as of March 19, 2005, and the related condensed consolidated statements of operations and cash flows for the twelve-week periods ended March 19, 2005 and March 20, 2004. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 the standards of the Public Company Accounting Oversight Board (United States), 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 reviews, 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 U.S. generally accepted accounting principles. We have previously audited, in accordance with standards established by the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Pepsi Bottling Group, Inc. and subsidiaries as of December 25, 2004, and the related consolidated statements of operations, cash flows, and changes in shareholders' equity, for the fiscal year then ended (not presented herein), and in our report dated February 25, 2005, 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 25, 2004, 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 April 27, 2005 - 12 - Item 2. Management's Financial Review - ----------------------------- Tabular dollars in millions, except per share data OVERVIEW - -------- The Pepsi Bottling Group, Inc. ("PBG" or the "Company") 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 and Europe, which consists of operations in Spain, Greece, Russia and Turkey. When used in these Condensed Consolidated Financial Statements, "PBG," "we," "our" and "us" each refers to The Pepsi Bottling Group, Inc. and, where appropriate, to Bottling Group, LLC ("Bottling LLC"), our principal operating subsidiary. Management's Financial Review should be read in conjunction with the accompanying unaudited financial statements and our Annual Report on Form 10-K for the fiscal year ended December 25, 2004, which include additional information about our accounting policies, practices and the transactions that underlie our financial results. FINANCIAL PERFORMANCE SUMMARY - ----------------------------------------------------------------------------- 12 Weeks Ended -------------- March March % 19, 2005 20, 2004 Change -------- -------- ------ Net revenues.................... $2,147 $2,067 4% Gross profit.................... $1,031 $1,016 2% Operating income................ $ 120 $ 137 (12)% Net income...................... $ 39 $ 50 (22)% Diluted earnings per share 1 ... $ 0.15 $ 0.19 (17)% - ----------------------------------------------------------------------------- 1 - Percentage change for diluted earnings per share is calculated by using earnings per share data that is expanded to the fourth decimal place. For the first quarter, we achieved diluted earnings per share of $0.15, a 17% decrease over the similar period in the prior year. As we expected at the beginning of the year, our performance in the quarter reflected soft volume results and continued increases in raw material costs. However, from a net revenue per case perspective, we have continued to generate strong results. Excluding the impact of acquisitions, worldwide physical case volume was flat in the first quarter of 2005 versus the prior year. In the U.S., volume was down 1% as we lapped last year's strong innovation in the form of Tropicana and Pepsi Vanilla, coupled with declines in brand Pepsi. In Europe, we generated 3% volume growth in the quarter due to a strong performance in Turkey and Russia. In Mexico, volume was flat driven primarily by declines in the metro Mexico City region, offset by growth in our other regions in Mexico. Worldwide net revenue per case grew by 3% during the first quarter of 2005 versus the prior year, driven by a 4% increase in the United States. Our pricing actions in the U.S. have continued to hold in the market place as two thirds of the growth in net revenue per case was due to rate increases with the remainder coming from the mix of products we sell. Cost of sales per case for the quarter increased 6% versus the prior year driven by increases in raw material costs, coupled with the mix of products we sell. As expected in the quarter, we have experienced increases in packaging and sweetener costs. We expect our raw material costs to - 13 - continue to increase through the remainder of 2005, with the majority of the cost of sales growth occurring in the first half of the year. Even with these increased raw material costs, we were able to grow our gross profit per case by 1% in the quarter versus the prior year, driven by our strong net revenue performance. Outlook In 2005, our fiscal year will include a 53rd week, while fiscal year 2004 consisted of 52 weeks. Our U.S. and Canadian operations report on 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 other countries report on a calendar-year basis. In order to provide comparable guidance for 2005, we have excluded the impact of the 53rd week from our outlook. The table and the 2005 outlook discussion below provide pro forma disclosure by excluding the projected impact of the 53rd week in 2005: - -------------------------------------------------------------------------------- Pro forma Forecasted Forecasted 2005 versus Impact of 2005 versus 2004 growth 53rd week 2004 growth - -------------------------------------------------------------------------------- Worldwide Volume 2% to 3% 1% 3% to 4% - -------------------------------------------------------------------------------- SD&A Expenses 3% to 4% 1% 4% to 5% - -------------------------------------------------------------------------------- Operating Income 1% to 3% 1% 2% to 4% - -------------------------------------------------------------------------------- Pro forma Full-Year Full-Year Forecasted Impact of Forecasted 2005 Results 53rd week 2005 Results - -------------------------------------------------------------------------------- Diluted Earnings Per Share $1.78 to $1.84 $0.02 to $0.03 $1.80 to $1.87 - -------------------------------------------------------------------------------- Pro forma worldwide volume is expected to increase 2% to 3% for the full year of 2005 versus 2004, excluding the impact of the 53rd week. We expect to increase our worldwide net revenue per case 3%, which reflects a 3% increase in the United States. Additionally, as raw material costs continue to increase, we expect our cost of sales per case to grow about 5% for the full year of 2005 versus 2004. Pro forma selling, delivery and administrative expenses (excluding the impact of the 53rd week) is expected to grow approximately 3% to 4% for the full year of 2005 versus 2004, which reflects additional costs associated with rising fuel rates and the negative impact of foreign currency. We expect these results to drive pro forma operating income (excluding the impact of the 53rd week) growth of 1% to 3% for the full year of 2005 versus 2004. We expect to deliver a pro forma diluted earnings per share of $1.78 to $1.84 (excluding the impact of the 53rd week). Our 2005 outlook does not reflect the effect of the implementation of the final accounting standard on the expensing of share-based payments, which will have a material impact on our results. We are in the process of evaluating the impact of the standard. See Note 3 in Notes to Condensed Consolidated Financial Statements for more information. Additionally, the American Jobs Creation Act of 2004 was enacted allowing for special tax breaks for the repatriation of earnings from foreign subsidiaries. We are evaluating whether to repatriate our undistributed foreign earnings in 2005. - 14 - Volume - ------------------------------------------------------------------------------- 12 Weeks Ended March 19, 2005 vs. March 20, 2004 -------------- World- Outside wide U.S. the U.S. ------ ---- --------- Base volume.......................... 0% (1)% 0% Acquisitions......................... 0% 1% 1% --- --- --- Total Volume change.............. 0% 0% 1% === === === - ------------------------------------------------------------------------------- Excluding the impact of acquisitions, our reported worldwide physical case volume was flat in the first quarter of 2005 versus the prior year, driven by declines in the U.S. and Canada, partially offset by growth in Europe and a flat performance in Mexico. Excluding the impact of acquisitions, volume in the U.S. declined by approximately 1% reflecting a 1% decrease in our take-home channel, partially offset by a 1% increase in our cold-drink channel. During the quarter, the cold-drink channel was positively impacted by our important twenty-ounce package business. From a brand perspective, our carbonated soft drink portfolio was down 2% driven primarily by declines in brand Pepsi and the lapping of the introduction of Pepsi Vanilla. Our non-carbonated beverage portfolio continued to perform well in the quarter, with an increase of 3% versus the prior year, reflecting growth from Aquafina and SoBe and the introduction of Aquafina Flavor Splash, partially offset by the lapping of the Tropicana launch in 2004. Excluding the impact of acquisitions, volume performance for our operations outside the U.S., was flat. Volume trends in Canada were similar to those in the U.S., with declines in take home, partially offset by a slight increase in cold drink. In Mexico, physical case volume was essentially flat for the quarter, with a 4% decline in both carbonated soft drinks and bottled water volume, partially offset by a 7% increase in our jug water business. In Europe, volume grew 3%, driven by a 15% increase in Turkey and a 6% increase in Russia. In Turkey, we continued to improve in the areas of execution and distribution, which resulted in volume increases in brand Pepsi and local brands. In Russia, we had solid growth in our non-carbonated beverage portfolio, driven by Tropicana Juice and Lipton Iced Tea. These increases were partially offset by declines in Spain, where we faced steep overlaps in the first quarter of 2004. - 15 - Net Revenues - -------------------------------------------------------------------------------- 12 Weeks Ended March 19, 2005 vs. March 20, 2004 -------------- World- Outside wide U.S. the U.S. ---- ---- -------- Volume impact............................ 0 % (1)% 0 % Net price per case impact (rate/mix)..... 3 % 4 % 0 % Acquisitions............................. 1 % 1 % 1 % Currency translation..................... 0 % 0 % 3 % ---- ---- ---- Total Net Revenues change........... 4 % 4 % 4 % ==== ==== ==== - -------------------------------------------------------------------------------- Net revenues were $2.1 billion for the first quarter of 2005, a 4% increase over the similar period in the prior year. The increase in net revenues for the quarter was driven primarily by growth in net price per case. In the first quarter, approximately 79% of our net revenues was generated in the U.S., 7% of our net revenues was generated in Mexico and the remaining 14% was generated outside the U.S. and Mexico. In the U.S., net revenues increased 4% in the first quarter of 2005 versus the prior year, reflecting solid growth in net price per case and contributions from our prior year acquisitions, partially offset by volume declines. The 4% increase in net price per case in the U.S. for the quarter was due to a combination of rate increases within bottles and cans, and the mix of products we sold. Net revenues outside the U.S. grew approximately 4% in the first quarter of 2005 versus the prior year. The increase in net revenues outside the U.S. was driven by the favorable impact of foreign currency translation in Canada, coupled with contributions from our prior year acquisitions in Mexico. In Mexico, net price per case declined by 4% in the quarter driven primarily by mix. This change in mix reflects increased sales of our jug water business, which carries a lower net price per case. Cost of Sales - ------------------------------------------------------------------------------- 12 Weeks Ended March 19, 2005 vs. March 20, 2004 --------------- World- Outside wide U.S. the U.S. ------ ---- -------- Volume impact............................ 0 % (1)% 0 % Cost per case impact..................... 5 % 6 % 2 % Acquisitions............................. 1 % 1 % 1 % Currency translation..................... 0 % 0 % 3 % ---- ---- ---- Total Cost of Sales change.......... 6 % 6 % 6 % ==== ==== ==== - ------------------------------------------------------------------------------- -16 - Cost of sales was $1.1 billion in the first quarter of 2005, a 6% increase over the prior year. The growth in cost of sales was driven primarily by cost per case increases coupled with contributions from our prior year acquisitions. In the U.S., cost of sales increased 6% due primarily to increases in cost per case. The increases in cost per case resulted from rate increases in packaging and concentrate, coupled with the impact of mix shifts into higher cost products. Cost of sales outside the U.S. grew approximately 6% due primarily to the negative impact of foreign currency translation in Canada, coupled with increases in cost per case in Europe. Cost per case increases in Europe were driven by a mix shift into higher priced products and packages, coupled with an increase in packaging and sweetener costs. In Mexico, cost per case declined by 3%, driven primarily by mix shifts into the jug water business, partially offset by higher raw material costs. Selling, Delivery and Administrative Expenses - ------------------------------------------------------------------------------ 12 Weeks Ended March 19, 2005 vs. March 20, 2004 -------------- World- Outside wide U.S. the U.S. ---- ---- -------- Cost impact.............................. 2 % 1 % 5 % Acquisitions............................. 1 % 1 % 1 % Currency translation..................... 1 % 0 % 2 % ---- ---- ---- Total SD&A change................... 4 % 2 % 8 % ==== ==== ==== - ------------------------------------------------------------------------------ Selling, delivery and administrative expenses were $911 million in the first quarter of 2005, a 4% percent increase over the prior year. Growth in selling, delivery and administrative expenses was driven by a 2% increase from operations, coupled with a two percentage point contribution from the negative impact of foreign currency translation and acquisitions. Excluding acquisitions and foreign currency, we limited our selling, delivery and administrative expenses to 2% growth, reflecting the positive impact from a number of ongoing productivity initiatives we put in place, partially offset by higher benefits and fuel costs. Operating Income Operating income was $120 million in the first quarter of 2005, representing a 12% decrease over the prior year, driven by declines in the U.S. and Mexico. Operating income declines in the U.S. were due to higher raw material costs and soft volume results during the quarter. In Mexico, declines in operating income were driven by mix shifts into the jug water business, which delivers a lower gross profit than the remainder of our portfolio. Interest Expense, net Interest expense, net remained flat in the first quarter of 2005 versus the prior year. During the quarter, we incurred higher effective interest rates on our long-term debt from the use of interest rate swaps. This was partially offset by less interest incurred in the quarter resulting from the repayment of our $1 billion senior note in February 2004. - 17 - Income Tax Expense Our effective tax rate for the first quarter of 2005 was 33.7%, compared with our effective tax rate of 34.4% in the first quarter of 2004. The decrease in our effective tax rate versus the prior year is due largely to an increase in anticipated pre-tax income in jurisdictions with lower effective tax rates. Liquidity and Financial Condition - --------------------------------- Cash Flows Net cash from operations decreased by $121 million to a use of $10 million in the first quarter of 2005. Decreases in net cash used for operations were driven by lower profits in the quarter, coupled with a decrease in working capital due to higher incentive compensation payouts and the timing of certain disbursements. Net cash used for investments decreased by $8 million to $93 million in the first quarter of 2005, reflecting lower capital spending. Net cash from financing increased by $1,022 million to a source of $48 million in the first quarter of 2005 driven primarily by the lapping of the repayment of our $1.0 billion note in February 2004 and higher short-term borrowings, partially offset by higher share repurchases. For the full year in 2005, we expect to generate net cash provided by operations of about $1.2 billion. In addition, we expect capital expenditures to be between $675 million and $725 million. Liquidity and Capital Resources We believe that our future cash flows from operations and borrowing capacity will be sufficient to fund capital expenditures, acquisitions, dividends and working capital requirements for the foreseeable future. We have a $500 million commercial paper program in the U.S. that is supported by a credit facility, which is guaranteed by Bottling LLC and expires in April 2009. There are certain financial covenants associated with this credit facility. We had $194 million and $84 million outstanding in commercial paper, at March 19, 2005 and March 20, 2004, respectively. Due to the nature of our business, we require insurance coverage for certain casualty risks. Given the rapidly increasing costs associated with obtaining third-party insurance coverage for our casualty risks in the U.S., we moved to a self-insurance program in 2002. In 2005, we are self-insured for workers' compensation and automobile risks for occurrences up to $10 million, and product and general liability risks for occurrences up to $5 million. For losses exceeding these self-insurance thresholds, we purchase casualty insurance from a third-party provider. Contractual Obligations As of March 19, 2005, there have been no material changes outside the normal course of business in the contractual obligations disclosed in Item 7 to our Annual Report on Form 10-K for the fiscal year ended December 25, 2004, under the caption "Contractual Obligations." - 18 - 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: o changes in our relationship with PepsiCo that could have a material adverse effect on our long-term and short-term business and financial results; o restrictions imposed by PepsiCo on our raw material suppliers that could increase our costs; o material changes from expectations in the cost of raw materials and ingredients; o decreased demand for our product resulting from changes in consumers' preferences; o an inability to achieve volume growth through product and packaging initiatives; o impact of competitive activities on our business; o impact of customer consolidations on our business; o an inability to achieve cost savings; o material changes in capital investment for infrastructure and an inability to achieve the expected timing for returns on cold-drink equipment and related infrastructure expenditures; o material changes in expected levels of bottler incentive payments from PepsiCo; o changes in product category consumption; o unfavorable weather conditions in our markets; o unforeseen economic and political changes; o possible recalls of our products; o an inability to meet projections for performance in newly acquired territories; o failure or inability to comply with laws and regulations; o changes in laws and regulations governing the manufacture and sale of food and beverages, including restrictions on the sale of carbonated soft drinks in schools; o changes in laws and regulations governing the environment, transportation, employee safety, labor and government contracts; o changes in accounting standards and taxation requirements (including unfavorable outcomes from audits performed by various tax authorities); o changes in our debt ratings; o material changes in expected interest and currency exchange rates and unfavorable market performance of our pension plan assets; o interruptions of operations due to labor disagreements; o loss of business from a significant customer; and o limitations on the availability of water or obtaining water rights. - 19 - 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 our 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. There have been no material changes to our market risks as disclosed in Item 7 to our Annual Report on Form 10-K for the year ended December 25, 2004. Item 4. Controls and Procedures - ----------------------- PBG's management carried out an evaluation, as required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as of the end of our last fiscal quarter. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Quarterly Report on Form 10-Q, in timely alerting them to material information relating to PBG and its consolidated subsidiaries required to be included in our Exchange Act reports filed with the SEC. In addition, PBG's management carried out an evaluation, as required by Rule 13a-15(d) of the Exchange Act, with the participation of our Chief Executive Officer and our Chief Financial Officer, of changes in PBG's internal control over financial reporting. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. - 20 - PART II - OTHER INFORMATION Item 1. Legal Proceedings - ----------------- At the end of the fourth quarter of 2004 and during the first quarter of 2005, we received Notices of Violation ("NOVs") and Orders For Compliance from the Environmental Protection Agency, Region 9, relating to operations at three bottling plants in California and one in Hawaii. The NOVs allege that we violated our permits and the Clean Water Act as a result of certain events relating to waste water discharge and storm water run-off. We believe monetary sanctions may be sought in connection with one or more of these NOVs. We further believe that neither the sanctions nor the remediation costs associated with these NOVs will be material to the Company's business or financial condition. Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities - -------------------------------------------------------------------------------- PBG Purchases of Equity Securities - ---------------------------------- In the first quarter of 2005, we repurchased approximately 4 million shares of PBG common stock. Since the inception of our share repurchase program in October 1999, we have repurchased 88 million shares of PBG common stock. Our share repurchases for the first quarter of 2005, are as follows: - ------------------------------------------------------------------------------- Maximum Number (or Approximate Total Number of Dollar Value) of Shares (or Shares (or Units) Total Number Units) Purchased that May Yet Be of Shares Average Price as Part of Purchased Under Period (or Units) Paid per Share Publicly Announced the Plans or Purchased 1 (or Unit) 2 Plans or Programs 3 Programs 3, 4 - ------------------------------------------------------------------------------- Period 1 1,429,800 $26.63 1,429,800 15,027,200 - -------- 12/26/04- 01/22/05 - ------------------------------------------------------------------------------- Period 2 1,452,200 $27.21 1,452,200 13,575,000 - -------- 01/23/05- 02/19/05 - ------------------------------------------------------------------------------- Period 3 1,465,500 $27.44 1,465,500 12,109,500 - -------- 02/20/05- 03/19/05 - ------------------------------------------------------------------------------- Total 4,347,500 $27.10 4,347,500 - ------------------------------------------------------------------------------- 1 Shares have only been repurchased through publicly announced programs. 2 Average share price excludes brokerage fees. - 21 - 3 The PBG Board has authorized the repurchase of shares of common stock on the open market and through negotiated transactions as follows: Number of Shares Authorized to be Date Share Repurchase Program was Publicly Announced Repurchased October 14, 1999...................................... 20,000,000 July 13, 2000......................................... 10,000,000 July 11, 2001......................................... 20,000,000 May 28, 2003.......................................... 25,000,000 March 25, 2004........................................ 25,000,000 ---------- Total shares authorized to be repurchased as of March 19, 2005........................................ 100,000,000 =========== Unless terminated by resolution of the PBG Board, each share repurchase program expires when we have repurchased all shares authorized for repurchase thereunder. 4 Number of shares does not include an additional 25 million shares of PBG common stock that was publicly announced for repurchase on March 24, 2005. This brings the total number of shares authorized for repurchase to 125 million since the Company initiated its share repurchase program in October 1999. - 22- Item 6. Exhibits - -------- ITEM 6 (a). EXHIBITS - -------------------- Exhibit No. - ----------- 11.1 Computation of Basic and Diluted Earnings Per Share 15.1 Accountants' Acknowledgement 31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.1 Financial statements of Bottling LLC, which are incorporated herein by reference to Bottling LLC's Quarterly Report on Form 10-Q for the quarter ended March 19, 2005, as required by the SEC as a result of Bottling LLC's guarantee of up to $1,000,000,000 aggregate principal amount of our 7% Senior Notes due in 2029. - 23 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE PEPSI BOTTLING GROUP, INC. ------------------------------ (Registrant) Date: April 25, 2005 /s/ Andrea L. Forster -------------- --------------------- Andrea L. Forster Vice President and Controller Date: April 25, 2005 /s/ Alfred H. Drewes -------------- -------------------- Alfred H. Drewes Senior Vice President and Chief Financial Officer EX-11 2 pbg1q10qexhibit11_1.txt PEPSI BOTTLING GROUP (EXHIBIT 11.1) Exhibit 11.1 The Pepsi Bottling Group, Inc. Computation of Basic and Diluted Earnings Per Share (in millions, except per share data) 12 Weeks Ended -------------- March March 19, 2005 20, 2004 ------- -------- Number of shares on which basic earnings per share is based: Average outstanding during period................ 248 260 Add - Incremental shares under stock compensation plans............................. 6 9 ---- ---- Number of shares on which diluted earnings per share is based...................... 254 269 Net earnings applicable to common shareholders ................................... $ 39 $ 50 Net earnings on which diluted earnings per share is based ............................. $ 39 $ 50 Basic earnings per share........................... $0.16 $0.19 Diluted earnings per share......................... $0.15 $0.19 EX-15 3 pbg1q10qexhibit15_1.txt PEPSI BOTTLING GROUP (EXHIBIT 15.1) Exhibit 15.1 Accountants' Acknowledgment The Board of Directors The Pepsi Bottling Group, Inc.: The Owners of Bottling Group, LLC: With respect to the registration statements listed below, we acknowledge our awareness of the use therein of our reports dated April 27, 2005 related to our reviews of The Pepsi Bottling Group, Inc. and Bottling Group, LLC interim financial information. o Form S-8 dated May 26, 1999 (File No. 333-79357) o Form S-8 dated May 26, 1999 (File No. 333-79369) o Form S-8 dated May 26, 1999 (File No. 333-79375) o Form S-8 dated May 26, 1999 (File No. 333-79365) o Form S-8 dated June 14, 1999 (File No. 333-80647) o Form S-8 dated May 8, 2001 (File No. 333-60428) o Form S-8 dated September 19, 2001 (File No. 333-69622) o Form S-8 dated November 14, 2001 (File No. 333-73302) o Form S-8 dated October 28, 2002 (File No. 333-100786) o Form S-8 dated August 3, 2004 (File No. 333-117894) Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such reports are not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or reports prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act. /s/ KPMG LLP New York, New York April 27, 2005 EX-31 4 pbg1q10qexhibit31_1.txt PEPSI BOTTLING GROUP (EXHIBIT 31.1) Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John T. Cahill, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Pepsi Bottling Group, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 25, 2005 /s/ John T. Cahill -------------- ------------------ John T. Cahill Chief Executive Officer EX-31 5 pbg1q10qexhibit31_2.txt PEPSI BOTTLING GROUP (EXHIBIT 31.2) Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Alfred H. Drewes, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Pepsi Bottling Group, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 25, 2005 /s/ Alfred H. Drewes -------------- -------------------- Alfred H. Drewes Senior Vice President and Chief Financial Officer EX-32 6 pbg1q10qexhibit32_1.txt PEPSI BOTTLING GROUP (EXHIBIT 32.1) Exhibit 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of The Pepsi Bottling Group, Inc. (the "Company") certifies to his knowledge that: (1) The Quarterly Report on Form 10-Q of the Company for the quarter ended March 19, 2005 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Act"); and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial conditions and results of operations of the Company as of the dates and for the periods referred to in the Form 10-Q. /s/ John T. Cahill ------------------ John T. Cahill Chief Executive Officer April 25, 2005 The foregoing certification (the "Certification") is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code). A signed original of the Certification has been provided to the Company and will be retained by the Company in accordance with Rule 12b-11(d) of the Act and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 7 pbg1q10qexhibit32_2.txt PEPSI BOTTLING GROUP (EXHIBIT 32.2) Exhibit 32.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of The Pepsi Bottling Group, Inc. (the "Company") certifies to his knowledge that: (1) The Quarterly Report on Form 10-Q of the Company for the quarter ended March 19, 2005 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Act"); and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial conditions and results of operations of the Company as of the dates and for the periods referred to in the Form 10-Q. /s/ Alfred H. Drewes -------------------- Alfred H. Drewes Senior Vice President and Chief Financial Officer April 25, 2005 The foregoing certification (the "Certification") is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code). A signed original of the Certification has been provided to the Company and will be retained by the Company in accordance with Rule 12b-11(d) of the Act and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----