-----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, VzgpIbRsSsElQVyGQDJJLSWZwoWmfZH2oeX+kIVp2Z18ThnzCtPBiJ4lzeiRNQ0d zCeYsIwELu0in4YNCFrK6w== 0001157523-06-009610.txt : 20061003 0001157523-06-009610.hdr.sgml : 20061003 20061003105020 ACCESSION NUMBER: 0001157523-06-009610 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20061003 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20061003 DATE AS OF CHANGE: 20061003 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14893 FILM NUMBER: 061122691 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 8-K 1 a5240173.txt THE PEPSI BOTTLING GROUP, INC. 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 October 3, 2006 -------------------------------------------------- Date of Report (Date of earliest event reported) THE PEPSI BOTTLING GROUP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware ------------------------------------------------ (State or Other Jurisdiction of Incorporation) 1-14893 13-4038356 (Commission File Number) (IRS Employer Identification No.) One Pepsi Way, Somers, NY 10589 ---------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (914) 767-6000 ---------------------------------------------------- (Registrant's telephone number, including area code) N/A -------------------------------------------------------------- (Former name or former address, if changed since last report.) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Section 2 - Financial Information Item 2.02 Results of Operations and Financial Condition. On October 3, 2006, The Pepsi Bottling Group, Inc. announced its financial results for its third quarter of 2006 as described in the press release furnished hereto as Exhibit 99.1, which is incorporated herein by reference. Section 9 - Financial Statements and Exhibits Item 9.01 Financial Statements and Exhibits. (a) Not Applicable. (b) Not Applicable. (c) Not Applicable. (d) Exhibit 99.1 - Press release dated October 3, 2006, which is being furnished hereto pursuant to Item 2.02. 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 hereunto duly authorized. THE PEPSI BOTTLING GROUP, INC. (Registrant) Date: October 3, 2006 By: /s/ David Yawman --------------------------------------- (Signature) David Yawman, Vice President, Assistant General Counsel and Assistant Secretary EX-99.1 2 a5240173ex991.txt THE PEPSI BOTTLING GROUP, INC. EXHIBIT 99.1 Exhibit 99.1 The Pepsi Bottling Group Delivers Balanced Topline Growth across Geographies and Solid Third Quarter Earnings SOMERS, N.Y.--(BUSINESS WIRE)--Oct. 3, 2006--The Pepsi Bottling Group, Inc. (NYSE: PBG) today reported third quarter 2006 net income of $207 million, or diluted earnings per share (EPS) of $0.86. These results include a $0.04 EPS expense due to the 2006 adoption of FAS 123(r) Share-Based Payment and a $0.05 EPS net gain due to income tax law changes. In the third quarter 2005, PBG reported net income of $205 million, or $0.82 of EPS, which included a net pretax gain of $16 million from the high fructose corn syrup (HFCS) litigation settlement, or $0.04 of EPS on an after-tax basis. "PBG delivered another solid quarter in what's shaping up to be a great year. Each of our businesses contributed to our strong results," said Eric J. Foss, PBG President and Chief Executive Officer. "In the U.S. and Canada, our broad portfolio of non-carbonated products fueled our growth, with Lipton Iced Teas, Starbucks Frappuccino and energy drinks leading the way. We were very pleased with the strong performance we saw in the non-measured channels where we believe our ongoing work in the area of customer service is helping to boost our results. This was further validated by the positive movement we saw in our annual customer satisfaction survey, which was completed this past quarter." Mr. Foss continued, "Our business in Europe delivered outstanding results in the third quarter, with volume and profit up significantly. In Mexico, our ongoing work in the area of revenue management is beginning to gain traction, with solid net revenue per case growth and notable profit improvement for the quarter." -- The Company generated another quarter of strong revenue growth in all geographic segments, up eight percent on a worldwide basis with one percentage point coming from acquisition territories. -- PBG's worldwide physical case volume increased two percent in the third quarter. Volume in its U.S. and Canada segment improved two percent as well. PBG's European business delivered an impressive eight-percent volume growth. In Mexico, physical case volume was down one percent for the quarter, though the Company's two-year growth rate was up six percent. All volume results are on a constant territory basis. (See Editor's Note.) -- The Company continued its solid revenue management track record, delivering worldwide net revenue per case growth of four percent for the quarter. PBG's U.S. business generated a three-percent increase. -- Worldwide reported operating income was down three percent in the third quarter. This result includes the four-percentage point negative impact of FAS 123(r) and reflects the lapping of the four-percentage point net gain from the high fructose corn syrup litigation proceeds included in PBG's 2005 results. Excluding these items, worldwide operating income grew five percent, driven by strong growth in Europe as well as improved profitability in Mexico. Q3 Operating Q3 2006 EPS Q3 2005 EPS Income Growth Rates - ---------------------------------------------------------------------- Reported Results (3%) $0.86 $0.82 - ---------------------------------------------------------------------- Tax Law Change Gain - ($0.05) - - ---------------------------------------------------------------------- Subtotal - $0.81 - - ---------------------------------------------------------------------- Impact of FAS 123(r) +4% $0.04 - - ---------------------------------------------------------------------- Net Gain from HFCS litigation settlement - ($0.04) - ---------------------------------------------------------------------- Lapping of Net Gain from HFCS litigation settlement +4% - ---------------------------------------------------------------------- Comparable Results +5% $0.85 $0.78 - ---------------------------------------------------------------------- Physical case volume growth in the U.S. was helped by a combination of innovation and strong marketplace execution. The Company's U.S. take-home volume was up two percent, while cold drink was flat in the third quarter. PBG Europe's eight-percent volume growth came from strong sales in Russia and Turkey, where the Company's carbonated and non-carbonated portfolios both performed well. In Mexico, carbonated soft drinks were down one percent on a physical case basis, though on an eight-ounce basis volume was flat. PBG Mexico's water business was also soft in the quarter, with bottled water down two percent and jug water volume down four percent. These compare to double-digit volume growth in the third quarter of last year. Each of PBG's geographic segments delivered net revenue per case improvement, reflecting the Company's strong focus on revenue management. In the U.S., the three-percent growth was driven primarily by rate increases. PBG's worldwide cost of goods sold (COGS) per case increased five percent in the third quarter. Gross profit improved six percent in total dollars, while gross profit per case was up two percent in the third quarter. The Company's selling, delivery and administrative (SD&A) expenses grew nine percent on a worldwide basis, including a one-and-one-half percentage point increase due to the impact of FAS 123(r). An additional one-and-one-half percentage point of this growth comes from lapping the benefit of the HFCS litigation settlement proceeds included in PBG's third quarter 2005 results. During the third quarter, PBG repurchased 2.2 million shares of common stock. Year to date, the Company has repurchased 10 million shares. PBG expects to generate worldwide volume growth of about four percent in 2006, with the U.S. growing around three percent. The Company believes its reported operating income will be down one to up one percent for the year, including the seven-percentage point negative impact from the adoption of FAS 123(r). Excluding this impact, adjusted operating income is likely to grow six to eight percent for the year. Reported diluted EPS are forecast to be in the range of $1.90 to $1.93, which includes the $0.18 per share expense from FAS 123(r) and the $0.05 EPS gain from the tax law changes in the third quarter. Excluding the gain from the tax law changes, diluted EPS are projected to be $1.85 to $1.88. PBG expects to generate operating free cash flow in the range of $510 to $530 million for the year. The Pepsi Bottling Group, Inc. (www.pbg.com) is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages with operations in the U.S., Canada, Greece, Mexico, Russia, Spain and Turkey. To receive company news releases by e-mail, please visit www.pbg.com. Listen in live to PBG's third quarter 2006 earnings discussion with financial analysts on October 3rd at 11 a.m. (EDT) at http://www.pbg.com. Editor's Note: Constant territory calculations assume a 52-week year and all significant acquisitions made in the prior year were made at the beginning of that year. These calculations exclude all significant acquisitions made in the current year. PBG's fiscal year ends on the last Saturday in December and, as a result, a 53rd week was added to fiscal year 2005. Fiscal year 2006 has 52 weeks. Forward-Looking Statements: Statements made in this press release that relate to future performance or financial results of the Company are forward-looking statements which involve uncertainties that could cause actual performance or results to materially differ. PBG undertakes no obligation to update any of these statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. Accordingly, any forward-looking statement should be read in conjunction with the additional information about risks and uncertainties set forth in PBG's Securities and Exchange Commission reports, including PBG's annual report on Form 10-K for the year ended December 31, 2005. Non-GAAP Measures We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). In an effort to provide investors with additional information regarding the Company's results we sometimes use "non-GAAP" measures, as defined by the Securities and Exchange Commission. Non-GAAP financial measures in this press release are generally accompanied by the most directly comparable GAAP financial measure. The differences between the GAAP and non-GAAP financial measures are reconciled either in the text of the press release or in the attachments. The Company presents "non-GAAP" financial measures when it believes such measures will provide investors with a meaningful year-over-year comparison of the Company's financial performance and when management uses the non-GAAP financial measures to evaluate the Company's financial performance against internal budgets and targets. Importantly, the Company believes non-GAAP financial measures should be considered in addition to, and not in lieu of, GAAP financial measures. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. FAS 123(r) Effective in 2006, the Company adopted FAS 123(r) Share-Based Payment, which requires that all stock-based payments be expensed based on the fair value of the awards at the time of grant. Prior to 2006, in accordance with existing accounting guidelines, the Company was not required to recognize this expense, and the Company's financial results during fiscal year 2005 do not reflect this expense. As a result, in order to provide investors with a meaningful year-over-year comparison of the Company's financial performance, the Company has presented its third quarter actual results and its 2006 outlook relating to diluted earnings per share (EPS) and operating income change under two methods - on a reported basis, which includes the impact of FAS 123(r) and on an adjusted basis, which excludes the impact of FAS 123(r). Management uses the latter, non-GAAP financial measure, to evaluate the Company's financial performance against internal budgets and targets (including under the Company's incentive compensation plans). In addition, management internally reviews the results of the Company excluding the impact of FAS 123(r) as we believe that these non-GAAP financial measures are useful for evaluating the Company's core operating results and facilitating comparison across reporting periods. High Fructose Corn Syrup (HFCS) Litigation Settlement During the third quarter of 2005, the Company recorded a gain, net of strategic spending initiatives, related to the settlement of the HFCS class action lawsuit. The lawsuit related to purchases of high fructose corn syrup: please see our Form 10-Q for the quarterly period ended September 3, 2005 for further details. Management considers this settlement as an unusual and material settlement of a type that the Company has not received in the past and does not expect to receive in the near future. As a result of the HFCS settlement, the Company decided to accelerate the implementation of strategic spending initiatives into 2005. Although strategic spending initiatives may not be unusual or outside the ordinary course of business in a general sense, the timing of the spending was unusual as such initiatives would not have been accelerated into 2005 without the HFCS settlement. As a result, in order to provide investors with a meaningful year-over-year comparison, the Company has presented its third quarter 2005 actual results under two methods - on a reported basis, which includes the impact of the net HFCS settlement and on an adjusted basis, which excludes the impact of the net HFCS settlement. Tax Law Changes During the third quarter of 2006, tax rate changes were enacted in Canada, Turkey, and in various U.S. jurisdictions resulting in a net decrease in income tax expense. Management believes that presentation of results excluding these tax law changes provides meaningful supplemental information to both management and investors that is indicative of the Company's core operating results across reporting periods. As a result, the Company has presented its third quarter actual results relating to EPS under two methods - on a reported basis, which includes the impact of these tax law changes and on an adjusted basis, which excludes the impact of the tax law changes. Operating Free Cash Flow (OFCF) Under FAS 123(r), excess tax benefits from the exercise of stock options are now required to be included in Cash Provided by Financing activities instead of Cash Provided by Operations. Therefore, effective first quarter of 2006, the Company has revised its definition of Operating Free Cash Flow (OFCF) to add back excess tax benefits from the exercise of stock options. We now define OFCF as Cash Provided by Operations, less capital expenditures, plus excess tax benefits from the exercise of stock options. The Company uses OFCF to evaluate the performance of its businesses, and management considers OFCF an important indicator of the Company's liquidity, including its ability to satisfy debt obligations, fund future acquisitions, pay dividends to common shareholders and repurchase Company stock. OFCF is a non-GAAP measurement and should be considered in addition to, not as a substitute for, Cash Provided by Operations, as well as other measures of financial performance and liquidity reported in accordance with U.S. GAAP. The Company's OFCF may not be comparable to similarly titled measures reported by other companies. PBG expects its full year 2006 OFCF to be in the range of $510 to $530 million. We anticipate capital expenditures of approximately $735 million and Cash Provided by Operations plus the excess tax benefits from the exercise of stock options to be over $1.2 billion. We are unable to separately estimate the excess tax benefits from the exercise of stock options. THE PEPSI BOTTLING GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS in millions, except per share amounts, unaudited 12 Weeks Ended 36 Weeks Ended ------------------ ------------------ Sept. 9, Sept. 3, Sept. 9, Sept. 3, 2006 2005 2006 2005 -------- -------- -------- -------- Net revenues $3,460 $ 3,214 $ 8,965 $ 8,223 Cost of sales 1,851 1,695 4,770 4,306 -------- -------- -------- -------- Gross profit 1,609 1,519 4,195 3,917 Selling, delivery and administrative expenses 1,226 1,126 3,376 3,101 -------- -------- -------- -------- Operating income 383 393 819 816 Interest expense, net 62 56 186 169 Other non-operating expenses (income), net 1 (1) 11 - Minority interest 24 24 48 47 -------- -------- -------- -------- Income before income taxes 296 314 574 600 Income tax expense 89 109 185 208 -------- -------- -------- -------- Net income $ 207 $ 205 $ 389 $ 392 ======== ======== ======== ======== Basic earnings per share $ 0.88 $ 0.84 $ 1.65 $ 1.60 ======== ======== ======== ======== Weighted-average shares outstanding 235 243 236 245 Diluted earnings per share $ 0.86 $ 0.82 $ 1.61 $ 1.55 ======== ======== ======== ======== Weighted-average shares outstanding 242 250 242 252 THE PEPSI BOTTLING GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS in millions, unaudited 36 Weeks Ended ---------------------- Sept. 9, Sept. 3, 2006 2005 ---------- ---------- Cash Flows - Operations Net income $ 389 $ 392 Adjustments to reconcile net income to net cash provided by operations: Depreciation 434 420 Amortization 9 10 Stock based compensation 46 - Changes in working capital and other non-cash charges (85) 74 Casualty insurance payments (47) (45) Pension contributions (1) (30) Other, net (40) (51) ---------- ---------- Net Cash Provided by Operations 705 770 ---------- ---------- Cash Flows - Investments Capital expenditures (525) (489) Proceeds from sale of property, plant and equipment 6 20 Acquisitions of bottlers, net of cash acquired (33) (1) Other investing activities, net 8 1 ---------- ---------- Net Cash Used for Investments (544) (469) ---------- ---------- Cash Flows - Financing Borrowing activities, net 415 (35) Dividends paid (64) (44) Excess tax benefit from exercise of stock options 17 - Treasury stock transactions (167) (259) ---------- ---------- Net Cash Provided by (Used for) Financing 201 (338) ---------- ---------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (2) (1) ---------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents 360 (38) Cash and Cash Equivalents - Beginning of Period 502 305 ---------- ---------- Cash and Cash Equivalents - End of Period $ 862 $ 267 ========== ========== Supplemental Information - ----------------------------------------------- Capital expenditures incurred (487) (444) Change in accounts payable related to capital expenditures (38) (45) ---------- ---------- Cash paid for capital expenditures (525) (489) Note: Certain reclassifications were made to our 2005 Condensed Consolidated Statement of Cash Flows to conform to the 2006 presentation. THE PEPSI BOTTLING GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS in millions, except per share amounts Sept. 9, Dec. 31, 2006 2005 ----------- --------- Assets (unaudited) Current Assets Cash and cash equivalents $ 862 $ 502 Accounts receivable, net 1,736 1,186 Inventories 638 458 Prepaid expenses and other current assets 262 266 ----------- --------- Total Current Assets 3,498 2,412 Property, plant and equipment, net 3,747 3,649 Other intangible assets, net 3,804 3,814 Goodwill 1,547 1,516 Other assets 146 133 ----------- --------- Total Assets $ 12,742 $ 11,524 =========== ========= Liabilities and Shareholders' Equity Current Liabilities Accounts payable and other current liabilities $ 1,948 $ 1,583 Short-term borrowings 163 426 Current maturities of long-term debt 514 589 ----------- --------- Total Current Liabilities 2,625 2,598 Long-term debt 4,741 3,939 Other liabilities 1,142 1,027 Deferred income taxes 1,362 1,421 Minority interest 563 496 ----------- --------- Total Liabilities 10,433 9,481 ----------- --------- Shareholders' Equity Common stock, par value $0.01 per share: Authorized 900 shares, issued 310 shares 3 3 Additional paid-in capital 1,733 1,709 Retained earnings 2,601 2,283 Accumulated other comprehensive loss (224) (262) Deferred compensation - (14) Treasury stock: 74 shares and 71 shares at September 9, 2006 and December 31, 2005, respectively, at cost (1,804) (1,676) ----------- --------- Total Shareholders' Equity 2,309 2,043 ----------- --------- Total Liabilities and Shareholders' Equity $ 12,742 $ 11,524 =========== ========= The Pepsi Bottling Group, Inc. Third Quarter 2006 Earnings Release Segment Data by Quarter (unaudited) (in millions) 12 Weeks Ended ---------------------- Sept. 9, Sept. 3, Growth vs. 2006 2005 Prior Year* ----------------------------------- Net Revenues - ---------------------------------- U.S./Canada $ 2,559 $ 2,397 7% Europe 554 487 14% Mexico 347 330 5% ----------------------------------- Total net revenues $ 3,460 $ 3,214 8% =================================== Operating Income - ---------------------------------- U.S./Canada $ 281 $ 311 -10% Europe 71 53 36% Mexico 31 29 5% ----------------------------------- Total operating income 383 393 -3% Interest expense, net 62 56 11% Other non-operating expenses **NM (income), net 1 (1) Minority interest 24 24 -2% ----------------------------------- Income before income taxes $ 296 $ 314 -6% =================================== 36 Weeks Ended ---------------------- Sept. 9, Sept. 3, Growth vs. 2006 2005 Prior Year* ----------------------------------- Net Revenues - ---------------------------------- U.S./Canada $ 7,017 $ 6,453 9% Europe 1,088 988 10% Mexico 860 782 10% ----------------------------------- Total net revenues $ 8,965 $ 8,223 9% =================================== Operating Income - ---------------------------------- U.S./Canada $ 697 $ 728 -4% Europe 61 45 35% Mexico 61 43 43% ----------------------------------- Total operating income 819 816 0% Interest expense, net 186 169 10% Other non-operating expenses, net 11 - **NM Minority interest 48 47 1% ----------------------------------- Income before income taxes $ 574 $ 600 -4% =================================== * Percentage change calculated using whole dollar amounts ** calculation not meaningful For the twelve and thirty-six weeks ended September 9, 2006, operating income includes the impact of adopting FAS 123(r). The comparable periods in 2005 have not been restated. CONTACT: For The Pepsi Bottling Group, Inc. Public Relations: Kelly McAndrew, 914-767-7690 or Investor Relations: Mary Winn Settino, 914-767-7216 -----END PRIVACY-ENHANCED MESSAGE-----