e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 29, 2007.
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission File Number
001-15019
PEPSIAMERICAS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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13-6167838
(I.R.S. Employer
Identification Number)
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4000 Dain Rauscher Plaza, 60 South Sixth Street
Minneapolis, Minnesota
(Address of principal
executive offices)
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55402
(Zip Code)
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(612) 661-4000
(Registrant’s telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 par value
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Each class is registered on:
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Preferred Stock, $0.01 par value
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New York Stock Exchange
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Preferred Share Purchase Rights
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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, and (2) has been subject to such
filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 30, 2007, the aggregate market value of the
registrant’s common stock held by non-affiliates (assuming
for the sole purpose of this calculation, that all directors and
officers of the registrant are “affiliates”) was
$1,415.0 million (based on the closing sale price of the
registrant’s common stock as reported on the New York Stock
Exchange). The number of shares of common stock outstanding at
that date was 128,231,175 shares.
The number of shares of common stock outstanding as of
February 22, 2008 was 128,647,121.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information required by Part III of this document
is incorporated by reference to specified portions of the
registrant’s definitive proxy statement for the annual
meeting of shareholders to be held April 24, 2008.
PEPSIAMERICAS,
INC.
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2007
TABLE OF CONTENTS
2
PART I
General
On November 30, 2000, Whitman Corporation merged with
PepsiAmericas, Inc. (the “former PepsiAmericas”), and
in January 2001, the combined entity changed its name to
PepsiAmericas, Inc. (referred to as “PepsiAmericas,”
“we,” “our” and “us”). We
manufacture, distribute and market a broad portfolio of beverage
products in the United States (“U.S.”), Central and
Eastern Europe (“CEE”) and the Caribbean, and have
expanded our distribution to include snack foods and beer in
certain markets.
We sell a variety of brands that we bottle under licenses from
PepsiCo, Inc. (“PepsiCo”) or PepsiCo joint ventures,
which accounted for approximately 90 percent of our total
net sales in fiscal year 2007. We account for approximately
19 percent of all PepsiCo beverage products sold in the
U.S. In some territories, we manufacture, package, sell and
distribute products under brands licensed by companies other
than PepsiCo, and in some territories we distribute our own
brands, such as Toma brands in CEE and the Caribbean and Sandora
brands in Ukraine.
Our distribution channels for the retail sale of our products
include supermarkets, supercenters, club stores, mass
merchandisers, convenience stores, gas stations, small grocery
stores, dollar stores and drug stores. We also distribute our
products through various other channels, including restaurants
and cafeterias, vending machines and other formats that provide
for immediate consumption of our products. In fiscal year 2007,
our largest distribution channels were supermarkets and
supercenters, and our fastest growing channels were club stores,
drug stores, and dollar stores.
We deliver our products through these channels primarily using a
direct store delivery system. In our territories, we are
responsible for selling products, providing timely service to
our existing customers, and identifying and obtaining new
customers. We are also responsible for local advertising and
marketing, as well as executing national and regional selling
programs created by brand owners in our territories. The
bottling business is capital intensive. Manufacturing operations
require specialized high-speed equipment, and distribution
requires investment in trucks and warehouse facilities as well
as extensive placement of fountain equipment, cold drink vending
machines and coolers.
In the third quarter of 2007, a PepsiAmericas and PepsiCo joint
venture acquired an 80 percent interest in Sandora LLC
(“Sandora”). In the fourth quarter of 2007, the joint
venture acquired the remaining 20 percent. Sandora
manufactures and distributes a variety of juice brands and is
the market leader in the high growth juice category in Ukraine.
Under the terms of the joint venture agreement, we hold a
60 percent interest and PepsiCo holds a 40 percent
interest in the joint venture. In the third quarter of 2007, we
purchased a 20 percent interest in a joint venture that
owns Agrima JSC (“Agrima”). Agrima produces, sells and
distributes PepsiCo products and other beverages throughout
Bulgaria.
In June 2005, we acquired 49 percent of the outstanding
stock of
Quadrant-Amroq
Bottling Company Limited (“QABCL” or
“Romania”). In July 2006, we completed the acquisition
of the remaining 51 percent of QABCL. QABCL, through its
subsidiaries, produces, sells, and distributes Pepsi and other
beverages throughout Romania. In January 2005, we completed the
acquisition of Central Investment Corporation (“CIC”),
the seventh largest Pepsi bottler in the U.S. CIC had
bottling operations in southeast Florida and central Ohio.
Our annual, quarterly and current reports, and all amendments to
those reports, are included on our website at
www.pepsiamericas.com, and are made available, free of charge,
as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the Securities and
Exchange Commission. Our corporate governance guidelines, code
of conduct, code of ethics and key committee charters are
available on our website and in print upon written request to
PepsiAmericas, Inc., 4000 Dain Rauscher Plaza, 60 South Sixth
Street, Minneapolis, Minnesota 55402, Attention: Investor
Relations.
3
Business
Segments
See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Item 7 and
Note 21 to the Consolidated Financial Statements for
additional information regarding business and operating results
of our geographic segments. See “Risk Factors” in
Item 1A for additional information regarding specific risks
in our international operations.
Relationship
with PepsiCo
PepsiCo beneficially owned approximately 44 percent of
PepsiAmericas’ outstanding common stock as of the end of
fiscal year 2007.
While we manage all phases of our operations, including pricing
of our products, PepsiAmericas and PepsiCo exchange production,
marketing and distribution information, which benefits both
companies’ respective efforts to lower costs, improve
quality and productivity and increase product sales. We have a
significant ongoing relationship with PepsiCo and have entered
into a number of significant transactions and agreements with
PepsiCo. We expect to enter into additional transactions and
agreements with PepsiCo in the future.
We purchase concentrates from PepsiCo, pay royalties related to
Aquafina products, and manufacture, package, sell, and
distribute cola and non-cola beverages under various bottling
agreements with PepsiCo. These agreements give us the right to
manufacture, package, sell and distribute beverage products of
PepsiCo in both bottles and cans, as well as fountain syrup in
specified territories. These agreements provide PepsiCo with the
ability to set prices of concentrates, as well as the terms of
payment and other terms and conditions under which we purchase
such concentrates. See “Franchise Agreements” for
discussion of significant agreements. We also purchase finished
beverage and snack food products from PepsiCo, as well as
products from certain affiliates of PepsiCo.
Other significant transactions and agreements with PepsiCo
include arrangements for marketing, promotional and advertising
support; manufacturing services related to PepsiCo’s
national account customers; procurement of raw materials; and
the acquisition of Sandora (see “Related Party
Transactions” in Item 7 and Note 22 to the
Consolidated Financial Statements for further discussion).
Products
and Packaging
Our portfolio of beverage products includes some of the
best-recognized trademarks in the world. Our three largest
brands in terms of volume are Pepsi, Diet Pepsi and
Mountain Dew. While the majority of our volume is derived
from brands licensed from PepsiCo and PepsiCo joint ventures, we
also sell and distribute brands licensed from others, as well as
some of our own brands. Our top five beverage brands in fiscal
year 2007 by geographic segment are listed below:
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U.S.
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CEE
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Caribbean
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Pepsi
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Pepsi
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Pepsi
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Mountain Dew
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Toma Water
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7UP
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Diet Pepsi
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Slice
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Desnoes and Geddes
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Aquafina
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Lipton Iced Teas
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Malta Polar
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Diet Mountain Dew
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Kristalyviz
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Aquafina
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In addition to the beverage products described above, we
distribute snack food products in Trinidad and Tobago, the Czech
Republic, and Hungary pursuant to a distribution agreement with
Frito-Lay, Inc., a subsidiary of PepsiCo.
Our beverages are available in different package types,
including but not limited to, aluminum cans, glass and
polyethylene terephthalate (“PET”) bottles, paperboard
cartons and
bag-in-box
packages for fountain use. The can and bottle packages are
available in both single-serve and multi-pack offerings.
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Territories
In the U.S., we serve a significant portion of a 19-state
region, primarily in the Midwest. Internationally, we serve
Central and Eastern European and Caribbean markets, including
Poland, Hungary, the Czech Republic, Republic of Slovakia,
Romania, Ukraine, Puerto Rico, Jamaica, the Bahamas, and
Trinidad and Tobago. We have distribution rights and distribute
in Moldova, Estonia, Latvia, Lithuania and Barbados. We serve
areas with a total population of approximately 200 million
people in these markets. In addition, through our Sandora
investment, we sell Sandora-branded products to third-party
distributors in Belarus, Azerbaijan, Russia and other countries
in Eastern Europe and Central Asia. Although we distribute
Frito-Lay products in Ukraine, we currently do not distribute
any Pepsi branded beverage products in the Ukraine. We also have
a 20 percent equity investment in Agrima which gives us a
market presence in Bulgaria. In fiscal year 2007, we derived
approximately 76 percent of our net sales from
U.S. operations and approximately 24 percent of our
net sales from international operations (see Note 21 to the
Consolidated Financial Statements for further discussion).
Sales,
Marketing and Distribution
Our sales and marketing approach varies by region and channel to
respond to unique local competitive environments. In the U.S.,
channels with larger stores can accommodate a number of beverage
suppliers and, therefore, marketing efforts tend to focus on
increasing the amount of shelf space and the number of displays
in any given outlet. In locations where our products are
purchased for immediate consumption, marketing efforts are aimed
not only at securing the account but also on providing equipment
that facilitates the sale of cold beverages, such as vending
machines, coolers and fountain equipment.
Package mix is an important consideration in the development of
our marketing plans. Although some packages are more expensive
to produce and distribute, in certain channels those packages
may have higher average selling prices. For example, a packaged
product that is sold cold for immediate consumption generally
has better margins than a product that is sold to take home.
This cold drink channel includes vending machines and coolers.
We own a majority of the vending machines used to dispense our
products. We refurbish a majority of our cold drink equipment in
our refurbishment centers in the U.S. and Puerto Rico.
In the U.S., we distribute directly to a majority of customers
in our licensed territories through a direct store distribution
system. Our sales force is key to our selling efforts as it
continually interacts with our customers to promote and sell our
products. We utilize Next Generation, a pre-sell system, that
allows sales managers to call accounts in advance to determine
how much product and promotional material to deliver. We have
continued to address internal capabilities and efficiencies
throughout our organization. In fiscal year 2007, we realigned
our organization in the U.S. from a sales organization
based on geography to one built around customer channels. This
new structure enables us to dedicate more resources and sales
support to channels and customers that are growing and helps us
to align more directly with the way our customers do business.
We also operate a call center, Pepsi Connect, in Fargo, North
Dakota, which enables us to provide the level of service our
customers require in a manner that is cost effective.
In the U.S., the direct store distribution system is used for
all packaged goods and certain fountain accounts. We have the
exclusive right to sell and deliver fountain syrup to local
customers in our territories. We have a number of sales people
who are responsible for calling on prospective fountain
accounts, developing relationships, selling products and
interacting with customers on an ongoing basis. We also
manufacture and distribute fountain products and provide
fountain equipment service to PepsiCo customers in certain of
our territories in accordance with various agreements with
PepsiCo.
In our international markets, we use both direct store
distribution systems and third-party distributors. In these less
developed markets, small retail outlets represent a large
percentage of the market. However, with the emergence of larger,
more sophisticated retailers in CEE, the percentage of total
soft drinks sold to supermarkets and other larger accounts is
increasing. In order to optimize the infrastructure in CEE and
the Caribbean, we use an alternative sales and distribution
strategy in which third-party distributors are utilized in
certain locations in an effort to reduce delivery costs and
expand our points of distribution.
5
Franchise
Agreements
We conduct our business primarily under franchise agreements
with PepsiCo. These agreements give us the exclusive right in
specified territories to manufacture, package, sell and
distribute PepsiCo beverages, and to use the related PepsiCo
tradenames and trademarks. These agreements require us, among
other things, to purchase concentrates for the beverages solely
from PepsiCo, at prices established by PepsiCo, to use only
PepsiCo authorized containers, packages and labeling, and to
diligently promote the sale and distribution of PepsiCo
beverages. We also have similar agreements with other brand
owners such as Cadbury Schweppes plc.
Set forth below is a summary of our Master Bottling Agreement
with PepsiCo, pursuant to which we manufacture, package, sell
and distribute cola and non-cola beverages in the U.S and in
certain countries outside the U.S. In addition, we have
similar arrangements with other companies whose brands we
produce and distribute. Generally, the franchise agreements
exist in perpetuity and contain operating and marketing
commitments and conditions for termination. Also set forth below
is a summary of our Master Fountain Syrup Agreement with
PepsiCo, pursuant to which we manufacture, sell and distribute
fountain syrup for PepsiCo beverages.
Master Bottling Agreement. The Master
Bottling Agreement (the “Bottling Agreement”) under
which we manufacture, package, sell and distribute cola and
non-cola beverages bearing the Pepsi-Cola and Pepsi
trademarks was entered into in November 2000. The Bottling
Agreement gives us the exclusive and perpetual right to
distribute cola beverages for sale in specified territories in
authorized containers, with the exception of Romania. In
Romania, our agreement has certain performance measures that, if
exceeded, enable the agreement to automatically renew. The
Bottling Agreement provides that we will purchase our entire
requirements of concentrates for cola beverages from PepsiCo at
prices, and on terms and conditions, determined from time to
time by PepsiCo. PepsiCo has no rights under the Bottling
Agreement with respect to the prices at which we sell our
products. PepsiCo may determine from time to time what types of
containers we are authorized to use.
Under the Bottling Agreement, we are obligated to:
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(1)
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maintain plants, equipment, staff and facilities capable of
manufacturing, packaging and distributing the beverages in the
authorized containers, and in compliance with all requirements
in sufficient quantities, to meet the demand of the territories;
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(2)
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make necessary adaptations to equipment to permit the successful
introduction and delivery of products in sufficient quantities;
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(3)
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undertake adequate quality control measures prescribed by
PepsiCo and allow PepsiCo representatives to inspect all
equipment and facilities to ensure compliance;
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(4)
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vigorously advance the sale of the beverages throughout the
territories;
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(5)
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increase and fully meet the demand for the cola beverages in our
territories using all approved means and spend such funds on
advertising and other forms of marketing beverages as may be
reasonably required to meet the objective; and
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(6)
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maintain such financial capacity as may be reasonably necessary
to assure our performance under the Bottling Agreement.
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The Bottling Agreement requires that we meet with PepsiCo on an
annual basis to discuss the business plan for the following
three years. At these meetings, we are obligated to present the
plans necessary to perform the duties required under the
Bottling Agreement. These include marketing, management,
advertising and financial plans.
The Bottling Agreement provides that PepsiCo may, in its sole
discretion, reformulate any of the cola beverages or discontinue
them, with some limitations, so long as all cola beverages are
not discontinued. PepsiCo may also introduce new beverages under
the Pepsi-Cola trademarks or any modification thereof. If
that occurs, we will be obligated to manufacture, package, sell
and distribute such new beverages with the
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same obligations as then exist with respect to other cola
beverages. We are prohibited from producing or handling cola
products, other than those of PepsiCo, or products or packages
that imitate, infringe or cause confusion with the products,
containers or trademarks of PepsiCo. The Bottling Agreement also
imposes requirements with respect to the use of PepsiCo’s
trademarks, authorized containers, packaging and labeling.
PepsiCo can terminate the Bottling Agreement if any of the
following occur:
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(1)
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we become insolvent, file for bankruptcy or adopt a plan of
dissolution or liquidation;
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(2)
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any person or group of persons, without PepsiCo’s consent,
acquires the right of beneficial ownership of more than
15 percent of any class of voting securities of
PepsiAmericas, and if that person or group of persons does not
terminate that ownership within 30 days;
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(3)
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any disposition of any voting securities of one of our bottling
subsidiaries or substantially all of our bottling assets without
PepsiCo’s consent;
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(4)
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we do not make timely payments for concentrate purchases;
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(5)
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we fail to meet quality control standards on products, equipment
and facilities; or
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(6)
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we fail to present or carry out approved plans in all material
respects and do not rectify the situation within 120 days.
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We are prohibited from assigning, transferring or pledging the
Bottling Agreement without PepsiCo’s prior consent.
Master Fountain Syrup Agreement. The
Master Fountain Syrup Agreement (the “Syrup
Agreement”) grants us the exclusive right to manufacture,
sell and distribute fountain syrup to local customers in our
territories. The Syrup Agreement also grants us the right to act
as a manufacturing and delivery agent for national accounts
within our territories that specifically request direct delivery
without using a middleman. In addition, PepsiCo may appoint us
to manufacture and deliver fountain syrup to national accounts
that elect delivery through independent distributors. Under the
Syrup Agreement, we have the exclusive right to service fountain
equipment for all of the national account customers within our
territories. The Syrup Agreement provides that the determination
of whether an account is local or national is at the sole
discretion of PepsiCo.
The Syrup Agreement contains provisions that are similar to
those contained in the Bottling Agreement with respect to
pricing, territorial restrictions with respect to local
customers and national customers electing direct-to-store
delivery only, planning, quality control, transfer restrictions
and related matters. The Syrup Agreement, which we entered into
in November 2000, had an initial term of five years and was
automatically renewed for an additional five-year period in
November 2005 on the same terms and conditions. The Syrup
Agreement is automatically renewable for additional five-year
periods unless PepsiCo terminates it for cause. PepsiCo has the
right to terminate the Syrup Agreement without cause at any time
upon 24 months’ notice. If PepsiCo terminates the
Syrup Agreement without cause, PepsiCo is required to pay us the
fair market value of our rights thereunder. The Syrup Agreement
will terminate if PepsiCo terminates the Bottling Agreement.
Advertising
We obtain the benefits of national advertising campaigns
conducted by PepsiCo and the other beverage companies whose
products we sell. We supplement PepsiCo’s national ad
campaigns by purchasing advertising in our local markets,
including the use of television, radio, print and billboards. We
also make extensive use of in-store, point-of-sale displays to
reinforce national and local advertising and to stimulate demand.
Raw
Materials and Manufacturing
Expenditures for concentrates constitute our largest individual
raw material cost. We buy various soft drink concentrates from
PepsiCo and other soft drink companies, and mix them with other
ingredients in our plants, including water, carbon dioxide and
sweeteners. Artificial sweeteners are included in the
concentrates we purchase for diet soft drinks. In addition to
soft drink concentrates, we buy juice concentrates for our Toma
and Sandora juice brands.
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In addition to concentrates, we purchase sweeteners, glass and
PET bottles, aluminum cans, closures, paperboard cartons,
bag-in-box
packages, syrup containers, other packaging materials and carbon
dioxide. We purchase raw materials and supplies, other than
concentrates, from multiple suppliers. PepsiCo acts as our agent
for the purchase of several such raw materials (see
“Related Party Transactions” in Item 7 and
Note 22 to the Consolidated Financial Statements for
further discussion of PepsiCo’s procurement services).
A portion of our contractual cost of cans, PET bottles and
sweeteners is subject to price fluctuations based on commodity
price changes in aluminum, PET resin, corn and sugar. We
periodically use derivative financial instruments to hedge the
price risk associated with anticipated purchases of commodities.
The inability of suppliers to deliver concentrates or other
products to us could adversely affect operating results. None of
the raw materials or supplies in use is currently in short
supply, although factors outside of our control could adversely
impact the future availability of these supplies.
Seasonality
Sales of our products are seasonal, with the second and third
quarters generating higher net sales than the first and fourth
quarters. Approximately 53 percent of our net sales in
fiscal year 2007 was generated during the second and third
quarters. Net sales in our CEE operations tend to be more
seasonal and sensitive to weather conditions than our
U.S. and Caribbean operations.
Competition
The carbonated soft drink and the non-carbonated beverage
markets are highly competitive. Our principal competitors are
bottlers who produce, package, sell and distribute
Coca-Cola
products. Additionally, in both the carbonated soft drink and
non-carbonated beverage markets, we also compete with bottlers
and distributors of nationally advertised and marketed products,
bottlers and distributors of regionally advertised and marketed
products, and bottlers of private label products sold in chain
stores. The industry competes primarily on the basis of
advertising to create brand awareness, price and price
promotions, retail space management, customer service, consumer
points of access, new products, packaging innovations and
distribution methods. We believe that brand recognition is a
primary factor affecting our competitive position.
Employees
We employed approximately 20,700 people worldwide as of the
end of fiscal year 2007. This included approximately
12,200 employees in our U.S. operations and
approximately 8,500 employees in our international
operations. Employment levels are subject to seasonal
variations. We are a party to collective bargaining agreements
covering approximately 5,700 employees in the U.S. and
Puerto Rico. Fourteen agreements covering approximately
1,570 employees will be renegotiated in 2008. We regard our
employee relations as generally satisfactory.
Government
Regulation
Our operations and properties are subject to regulation by
various federal, state and local governmental entities and
agencies in the U.S., as well as foreign governmental entities.
As a producer of beverage products, we are subject to
production, packaging, quality, labeling and distribution
standards in each of the countries where we have operations
including, in the U.S., those of the Federal Food, Drug and
Cosmetic Act. In the U.S., we are also subject to the Soft Drink
Interbrand Competition Act, which permits us to retain an
exclusive right to manufacture, distribute and sell a soft drink
product in a geographic territory if the soft drink product is
in substantial and effective competition with other products of
the same class in the same market or markets. We believe that
there is such substantial and effective competition in each of
the exclusive territories in which we operate. The operations of
our production and distribution facilities are subject to
various federal, state and local environmental laws and
workplace regulations both in the U.S. and abroad. These
laws and regulations include, in the U.S., the Occupational
Safety and Health Act, the Unfair Labor Standards Act, the Clean
Air Act, the Clean Water Act and laws relating to the
maintenance of fuel storage tanks. We believe
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that our current legal and environmental compliance programs
adequately address these areas and that we are in substantial
compliance with applicable laws and regulations.
Environmental
Matters
Current Operations. We maintain
compliance with federal, state and local laws and regulations
relating to materials used in production and to the discharge of
wastes, and other laws and regulations relating to the
protection of the environment. The capital costs of such
management and compliance, including the modification of
existing plants and the installation of new manufacturing
processes, are not material to our continuing operations.
We are defendants in lawsuits that arise in the ordinary course
of business, none of which is expected to have a material
adverse effect on our financial condition, although amounts
recorded in any given period could be material to the results of
operations or cash flows for that period.
Discontinued Operations —
Remediation. Under the agreement pursuant to
which we sold our subsidiaries, Abex Corporation and Pneumo Abex
Corporation (collectively, “Pneumo Abex”), in 1988 and
a subsequent settlement agreement entered into in September
1991, we have assumed indemnification obligations for certain
environmental liabilities of Pneumo Abex, after any insurance
recoveries. Pneumo Abex has been and is subject to a number of
environmental cleanup proceedings, including responsibilities
under the Comprehensive Environmental Response, Compensation and
Liability Act and other related federal and state laws regarding
release or disposal of wastes at
on-site and
off-site locations. In some proceedings, federal, state and
local government agencies are involved and other major
corporations have been named as potentially responsible parties.
Pneumo Abex is also subject to private claims and lawsuits for
remediation of properties previously owned by Pneumo Abex and
its subsidiaries.
There is an inherent uncertainty in assessing the total cost to
investigate and remediate a given site. This is because of the
evolving and varying nature of the remediation and allocation
process. Any assessment of expenses is more speculative in an
early stage of remediation and is dependent upon a number of
variables beyond the control of any party. Furthermore, there
are often timing considerations, in that a portion of the
expense incurred by Pneumo Abex, and any resulting
obligation of ours to indemnify Pneumo Abex, may not occur for a
number of years.
In fiscal year 2001, we investigated the use of insurance
products to mitigate risks related to our indemnification
obligations under the 1988 agreement, as amended. We oversaw a
comprehensive review of the former facilities operated or
impacted by Pneumo Abex. Advances in the techniques of
retrospective risk evaluation and increased experience (and
therefore available data) at our former facilities made this
comprehensive review possible. The review was completed in
fiscal year 2001 and was updated in fiscal year 2005.
During fiscal year 2007, we recorded a charge of
$2.1 million, net of taxes, related to revised estimates
for environmental remediation, legal and related administrative
costs. As of the end of fiscal year 2007, we had
$40.2 million accrued to cover potential indemnification
obligations, compared to $60.3 million recorded as of the
end of fiscal year 2006. The decrease was primarily due to
payments made during the year for remediation activities, legal
and administrative fees and settlement costs or negotiations.
This indemnification obligation includes costs associated with
approximately 15 sites in various stages of remediation or
negotiations. At the present time, the most significant
remaining indemnification obligation is associated with the
Willits site, as discussed below, while no other single site has
significant estimated remaining costs associated with it. Of the
total amount accrued, $19.5 million and $26.2 million
were classified as a current liability as of the end of fiscal
year 2007 and 2006, respectively. The amounts exclude possible
insurance recoveries and are determined on an undiscounted cash
flow basis. The estimated indemnification liabilities include
expenses for the investigation and remediation of identified
sites, payments to third parties for claims and expenses
(including product liability and toxic tort claims),
administrative expenses, and the expenses of on-going
evaluations and litigation. We expect a significant portion of
the accrued liabilities will be spent during the next five years.
9
Included in our indemnification obligations is financial
exposure related to certain remedial actions required at a
facility that manufactured hydraulic and related equipment in
Willits, California. Various chemicals and metals contaminate
this site. A final consent decree was issued in August 1997 and
amended in December 2000 in the case of the People of the
State of California and the City of Willits, California v.
Remco Hydraulics, Inc. The final consent decree established
a trust (the “Willits Trust”) which is obligated to
investigate and clean up this site. We are currently funding the
Willits Trust and the investigation and interim remediation
costs on a year-to-year basis as required in the final amended
consent decree. We have accrued $15.4 million for future
remediation and trust administration costs, with the majority of
this amount to be spent over the next several years.
Although we have certain indemnification obligations for
environmental liabilities at a number of sites other than the
site discussed above, including Superfund sites, it is not
anticipated that additional expense at any specific site will
have a material effect on us. At some sites, the volumetric
contribution for which we have an obligation has been estimated
and other large, financially viable parties are responsible for
substantial portions of the remainder. In our opinion, based
upon information currently available, the ultimate resolution of
these claims and litigation, including potential environmental
exposures, and considering amounts already accrued, should not
have a material effect on our financial condition, although
amounts recorded in a given period could be material to our
results of operations or cash flows for that period.
Discontinued Operations —
Insurance. During fiscal year 2002, as part
of a comprehensive program concerning environmental liabilities
related to the former Whitman Corporation subsidiaries, we
purchased new insurance coverage related to the sites previously
owned and operated or impacted by Pneumo Abex and its
subsidiaries. In addition, a trust, which was established in
2000 with the proceeds from an insurance settlement (the
“Trust”), purchased insurance coverage and funded
coverage for remedial and other costs (“Finite
Funding”) related to the sites previously owned and
operated or impacted by Pneumo Abex and its subsidiaries.
Essentially all of the assets of the Trust were expended by the
Trust in connection with the purchase of the insurance coverage,
the Finite Funding and related expenses. These actions were
taken to fund remediation and related costs associated with the
sites previously owned and operated or impacted by Pneumo Abex
and its subsidiaries and to protect against additional future
costs in excess of our self-insured retention. The original
amount of self-insured retention (the amount we must pay before
the insurance carrier is obligated to begin payments) was
$114.0 million of which $50.2 million has been eroded,
leaving a remaining self-insured retention of $63.8 million
as of the end of fiscal year 2007. The estimated range of
aggregate exposure related only to the remediation costs of such
environmental liabilities is approximately $20 million to
$45 million. We had accrued $23.7 million at the end
of fiscal year 2007 for remediation costs, which is our best
estimate of the contingent liabilities related to these
environmental matters. The Finite Funding may be used to pay a
portion of the $23.7 million and thus reduces our future
cash obligations. Amounts recorded in our Consolidated Balance
Sheets related to Finite Funding were $11.5 million and
$13.7 million as of the end of fiscal years 2007 and 2006,
respectively, and were recorded in “Other assets,” net
of $4.7 million and $4.2 million recorded in
“Other current assets” as of the end of fiscal years
2007 and 2006, respectively.
In addition, we had recorded other receivables of
$2.6 million and $7.8 million as of the end of fiscal
years 2007 and 2006, respectively, for future probable amounts
to be received from insurance companies and other responsible
parties. These amounts were recorded in “Other current
assets” as of the end of fiscal year 2007 and in
“Other assets” as of the end of fiscal year 2006 in
the Consolidated Balance Sheets. Of this total, no portion of
the receivable was reflected as current as of the end of fiscal
year 2006.
On May 31, 2005, Cooper Industries, LLC
(“Cooper”) filed and later served a lawsuit against
us, Pneumo Abex, LLC, and the Trustee of the Trust (the
“Trustee”), captioned Cooper Industries,
LLC v. PepsiAmericas, Inc., et al., Case No. 05 CH
09214 (Cook Cty. Cir. Ct.). The claims involve the Trust and
insurance policy described above. Cooper asserts that it was
entitled to access $34 million that previously was in the
Trust and that was used to purchase the insurance policy. Cooper
claims that Trust funds should have been distributed for
underlying Pneumo Abex asbestos claims indemnified by Cooper.
Cooper complains that it was deprived of access to money in the
Trust because of the Trustee’s decision to use the Trust
funds to purchase the
10
insurance policy described above. Pneumo Abex, LLC, the
corporate successor to our prior subsidiary, has been dismissed
from the suit.
During the second quarter of 2006, the Trustee’s motion to
dismiss, in which we had joined, was granted and three counts
against us based on the use of Trust funds were dismissed with
prejudice, as were all counts against the Trustee, on the
grounds that Cooper lacks standing to pursue these counts
because it is not a beneficiary under the Trust. We then filed a
separate motion to dismiss the remaining counts against us. Our
motion was granted during the second quarter of 2006 and all
remaining counts against us were dismissed with prejudice.
Cooper subsequently filed a notice of appeal with regard to all
rulings by the court dismissing the counts against us and the
Trustee. Prior to any oral argument, the appellate court on
September 7, 2007 issued an opinion affirming the trial
court’s opinion. Cooper subsequently filed motion papers
asking the Illinois Supreme Court to accept a discretionary
appeal of the rulings. The Trustee then filed an opposition
brief explaining why the Illinois Supreme Court should not allow
another appeal, and we joined in that brief. On
November 29, 2007, the Supreme Court of Illinois denied
Cooper’s petition for leave to appeal the appellate
court’s September 7, 2007 ruling. Cooper has until
February 27, 2008 to file a petition for certiorari seeking
discretionary review by the United States Supreme Court.
Discontinued Operations — Product Liability and
Toxic Tort Claims. We also have certain
indemnification obligations related to product liability and
toxic tort claims that might emanate out of the 1988 agreement
with Pneumo Abex. Other companies not owned by or associated
with us also are responsible to Pneumo Abex for the financial
burden of all asbestos product liability claims filed against
Pneumo Abex after a certain date in 1998, except for certain
claims indemnified by us.
In fiscal year 2004, we noted that three mass-filed lawsuits
accounted for thousands of claims for which Pneumo Abex claimed
indemnification. During the fourth quarter of fiscal year 2005,
these and other related claims were resolved for an amount we
viewed as reasonable given all of the circumstances and
consistent with our prior judgments as to valuation. We have
received year-end 2007 claim statistics from law firms and
Pneumo Abex which reflect the resolution of those claims and the
remaining cases for which Pneumo Abex claims indemnification
from PepsiAmericas. After giving effect to the noted resolution
of prior mass-filed claims, there are less than 7,500 claims for
which indemnification is claimed at the end of fiscal year 2007.
Of these claims, approximately 5,500 are filed in federal court
and are subject to orders issued by the Multi-District
Litigation panel, which effectively stay all federal claims,
subject to specific requests to activate a particular claim or a
discrete group of claims. The remaining cases are in state court
and some are in “pleural registries” or other similar
classifications that cause a case not to be allowed to go to
trial unless there is a specific showing as to a particular
plaintiff. Over 50 percent of the state court claims were
filed prior to or in 1998. Prior to 1980, sales ceased for the
asbestos-containing product claimed to have generated the
largest subset of the open cases, and, therefore, we expect a
decreasing rate of individual claims for that subset of cases.
We oversee monitoring of the defense of the underlying claims
that are or may be indemnifiable by us.
At the end of fiscal years 2007 and 2006, we had accrued
$4.0 million and $5.5 million, respectively, related
to product liability. These accruals primarily relate to
probable asbestos claim settlements and legal defense costs. We
also have additional amounts accrued for legal and other costs
associated with obtaining insurance recoveries for previously
resolved and currently open claims and their related costs.
These amounts are included in the total liabilities of
$40.2 million accrued as of the end of fiscal year 2007. In
addition to the known and probable asbestos claims, we may be
subject to additional asbestos claims that are possible for
which no reserve had been established as of the end of fiscal
year 2007. These additional reasonably possible claims are
primarily asbestos related and the aggregate exposure related to
these possible claims is estimated to be in the range of
$4 million to $17 million. These amounts are
undiscounted and do not reflect any insurance recoveries that we
will pursue from insurers for these claims.
In addition, three lawsuits have been filed in California, which
name several defendants including certain of our prior
subsidiaries. The lawsuits allege that we and our former
subsidiaries are liable for personal injury
and/or
property damage resulting from environmental contamination at
the Willits facility. There are approximately 125 personal
injury plaintiffs in the lawsuits seeking an unspecified amount
of damages, punitive
11
damages, injunctive relief and medical monitoring damages. We
are actively defending the lawsuits. At this time, we do not
believe these lawsuits are material to our business or financial
condition.
We have other indemnification obligations related to product
liability matters. In our opinion, based on the information
currently available and the amounts already accrued, these
claims should not have a material effect on our financial
condition.
We also participate in and monitor insurance-recovery efforts
for the claims against Pneumo Abex. Recoveries from insurers
vary year by year because certain insurance policies exhaust and
other insurance policies become responsive. Recoveries also vary
due to delays in litigation, limits on payments in particular
periods, and because insurers sometimes seek to avoid their
obligations based on positions that we believe are improper. We,
assisted by our consultants, monitor the financial ratings of
insurers that issued responsive coverage and the claims
submitted by Pneumo Abex.
Executive
Officers of the Registrant
Our executive officers and their ages as of February 22,
2008 were as follows:
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Name
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Age
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Position
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Robert C. Pohlad
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53
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Chairman of the Board and Chief Executive Officer
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Kenneth E. Keiser
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56
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President and Chief Operating Officer
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Alexander H. Ware
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45
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Executive Vice President, Chief Financial Officer
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G. Michael Durkin, Jr.
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48
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Executive Vice President, U.S.
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James R. Rogers
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53
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Executive Vice President, International
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Jay S. Hulbert
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54
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Executive Vice President, Worldwide Supply Chain
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Anne D. Sample
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44
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Executive Vice President, Human Resources
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Kenneth L. Johnsen
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46
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Senior Vice President, Chief Information Officer
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Timothy W. Gorman
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47
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Senior Vice President, Controller
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Andrew R. Stark
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44
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Vice President, Treasurer
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Each executive officer has been appointed to serve until his or
her successor is duly appointed or his or her earlier removal or
resignation from office. There are no familial relationships
between any director or executive officer. The following is a
brief description of the business background of each of our
executive officers.
Mr. Pohlad became Chief Executive Officer of PepsiAmericas
in November 2000, was named Vice Chairman in January 2001 and
became Chairman of the Board in January 2002. From 1987 to
present, Mr. Pohlad has also served as President of Pohlad
Companies. Mr. Pohlad is also a director of MAIR Holdings,
Inc. and has served as its Chairman since March 2006.
Mr. Keiser was named President and Chief Operating Officer
in January 2002 with responsibilities for the global operations
of PepsiAmericas. Mr. Keiser is also a director of C.H.
Robinson Worldwide, Inc.
Mr. Ware was named Executive Vice President, Chief
Financial Officer in March 2005. From January 2003 to March
2005, Mr. Ware had served as Senior Vice President,
Planning and Corporate Development.
Mr. Durkin was named Executive Vice President, U.S. in
March 2005. Prior to this role, Mr. Durkin served as Chief
Financial Officer of PepsiAmericas since 2000. Mr. Durkin
also serves on the Board of Directors of The Schwan Food
Company, Inc.
Mr. Rogers was named Executive Vice President,
International in September 2004. Prior to this appointment, he
served as Executive Vice President/General Manager of Central
Europe since August 2000.
Mr. Hulbert was named Executive Vice President, Worldwide
Supply Chain in January 2008. Prior to this appointment, he
served as Senior Vice President, Supply Chain since December
2002.
12
Ms. Sample was named Executive Vice President, Human
Resources in January 2008. Prior to this appointment, she served
as Senior Vice President, Human Resources since May 2001.
Mr. Johnsen was named Senior Vice President, Chief
Information Officer in July 2001. From November 1997 to June
2001, he served as Chief of Information Technology.
Mr. Gorman was named Senior Vice President, Controller in
January 2008. Prior to this appointment, he served as Vice
President and Controller since May 2003, and Vice President,
Planning and Reporting from August 1999 to May 2003.
Mr. Stark was named Vice President, Treasurer in July 2002.
Prior to his appointment, Mr. Stark served as Assistant
Treasurer since August 1998.
The following are certain risk factors that could affect our
business, financial condition, operating results and cash flows.
These risk factors should be considered in connection with
evaluating the forward-looking statements contained in this
Annual Report on
Form 10-K
because these risk factors could cause our actual results to
differ materially from those expressed in any forward-looking
statement. The risks we have highlighted below are not the only
ones we face. If any of these events actually occur, our
business, financial condition, operating results or cash flows
could be negatively affected. We caution you to keep in mind
these risk factors and to refrain from attributing undue
certainty to any forward-looking statements, which speak only as
of the date of this report.
Our
operating results may fluctuate based on changes in marketplace
conditions, especially customer and competitor consolidation;
changes in consumer preferences, including our consumers’
shift from carbonated soft drinks to non-carbonated beverages;
and unfavorable weather conditions in the territories in which
we operate.
We face intense competition in the carbonated soft drink market
and the non-carbonated beverage market and are impacted by both
customer and competitor consolidation. Our response to
marketplace competition and retailer consolidations may result
in lower than expected net pricing of our products. Retail
consolidation has increased the importance of our major
customers and further consolidation is expected. In addition,
competitive pressures may cause channel and product mix to shift
from more profitable channels and packages and adversely affect
our overall pricing. Our efforts to improve pricing may result
in lower than expected volumes. Changes in net pricing and
volume could have an adverse effect on our business, results of
operations and financial condition.
Health and wellness trends have decreased demand for sugared
carbonated soft drinks and shifted interest to diet soft drinks
and non-carbonated beverages. In the U.S., carbonated soft drink
volume, which represented approximately 80 percent of our
volume mix, declined 4 percent in both fiscal years 2007
and 2006. In response to changes in consumers’ preferences,
we have increased our emphasis on diet carbonated soft drinks
and non-carbonated beverages, including Aquafina, Sobe,
Tropicana juice drinks, Lipton Iced Tea and energy drinks. Our
business could be adversely impacted by a significant decline in
sales of sugared carbonated soft drinks and our inability to
offset that decline with sales of diet soft drinks and
non-carbonated beverages. Because we rely mainly on PepsiCo to
provide us with the products that we sell, if PepsiCo fails to
develop innovative products that respond to these and other
consumer trends, this could put us at a competitive disadvantage
in the marketplace and adversely affect our business and
financial results.
Our business could also be adversely affected by other consumer
trends, such as consumer health concerns about obesity, product
attributes and ingredients. Consumer preferences may change due
to a variety of factors, including the aging of the general
population, changes in social trends, changes in travel,
vacation or leisure activity patterns or a downturn in economic
conditions.
Additionally, our business is highly seasonal and unfavorable
weather conditions in our markets may impact sales volume. Sales
volumes in our CEE operations tend to be more sensitive to
weather conditions than our U.S. and Caribbean operations.
13
Our
business may be adversely impacted by unfavorable global and
local economic, political and regulatory developments or other
risks in the countries in which we operate.
Our operations are affected by local and global economic
environments, including inflation, recession and currency
volatility. Political and regulatory changes, some of which may
be disruptive, can interfere with our supply chain, our
customers and all of our activities in a particular location.
An
increase in the price of raw materials, natural gas and fuel or
a decrease in the availability of raw materials, natural gas and
fuel could adversely affect our financial condition. Disruption
of our supply chain also could have an adverse effect on our
business, financial condition and operating
results.
Increases in the price of ingredients, packaging materials,
other raw materials, natural gas and fuel could adversely impact
our earnings and financial condition if we are unable to pass
along these higher costs to our customers. The inability of
suppliers to deliver concentrate, raw materials, other
ingredients and products to us could also adversely affect
operating results. The inability of our suppliers to meet our
requirements could result in short-term shortages until
alternative sources of supply could be located. In particular,
we require significant amounts of aluminum cans and PET bottle
containers to support our requirements. Failure of our suppliers
to meet our purchase requirements could reduce our
profitability. In addition, we also require access to
significant amounts of water. Any sustained interruption in the
supply of these materials or any significant increase in their
prices could have a material adverse effect on our business and
financial results.
Energy prices, including the price of natural gas, gasoline and
diesel fuel, are cost drivers for our business. Sustained high
energy or commodity prices could negatively impact our operating
results and demand for our products. Events such as natural
disasters could impact the supply of fuel and could impact the
timely delivery of our products to our customers.
Our ability to make, move and sell products is critical to our
success. Damage or disruption to our supply chain, including our
manufacturing or distribution capabilities, due to weather,
natural disaster, fire or explosion, terrorism, pandemic,
strikes or other reasons could impair our ability to
manufacture, package, sell and distribute our products. Failure
to take adequate steps to mitigate the likelihood or potential
impact of such events, or to effectively manage such events if
they occur, could adversely affect our business, financial
condition and results of operations, as well as require
additional resources to restore our supply chain.
The
successful operation of our business depends upon our
relationship with PepsiCo, including its level of advertising,
bottler incentives and brand innovation. We may also have
conflicts of interest with PepsiCo.
We operate under various bottling agreements with PepsiCo that
allow us to manufacture, package, sell and distribute carbonated
and non-carbonated beverages. Our inability to comply with the
terms and conditions established in these agreements could
result in termination of bottling agreements which would have a
material adverse impact on our short-term and long-term
business. These agreements provide that we must purchase all of
the concentrates for PepsiCo beverages at prices and on terms
which are set by PepsiCo in its sole discretion. Any significant
concentrate price increases could materially affect our business
and financial results.
PepsiCo’s advertising campaigns and their effectiveness,
bottler incentives provided by PepsiCo, and PepsiCo’s brand
innovation directly impact our operations. Bottler incentives
cover a variety of initiatives to support volume and market
share growth. The level of support is negotiated regularly and
can be increased or decreased at the discretion of PepsiCo.
PepsiCo is under no obligation to continue past levels of
support in the future. Material changes in expected levels of
bottler incentive payments and other support arrangements could
adversely affect future results of operations. Furthermore, if
the sales volume of sugared carbonated soft drinks continues to
decline, our sales volume growth will increasingly depend on
product innovation by PepsiCo. Even if PepsiCo maintains a
robust pipeline of new products, we may be unable to achieve
volume growth through product and packaging initiatives.
PepsiCo also provides procurement services for certain raw
materials which result in rebates from vendors as a result of
procurement volume. Cost of goods sold may be negatively
impacted if we are unable to
14
maintain targeted volume levels to secure such anticipated
rebates or if PepsiCo no longer provides this service on our
behalf.
Our past and ongoing relationship with PepsiCo could give rise
to conflicts of interest. These potential conflicts include
balancing the objectives of increasing sales volume of PepsiCo
beverages and maintaining or increasing our profitability. Other
possible conflicts could relate to the nature, quality and
pricing of services or products provided to us from PepsiCo or
by us to PepsiCo.
In addition, under our Master Bottling Agreement, we must obtain
PepsiCo’s approval to acquire any independent PepsiCo
bottler. PepsiCo has agreed not to withhold approval for any
acquisition within
agreed-upon
U.S. territories if we have successfully negotiated the
acquisition and, in PepsiCo’s reasonable judgment,
satisfactorily performed our obligations under the Master
Bottling Agreement.
As of the end of fiscal year 2007, PepsiCo beneficially owned
approximately 44 percent of our common stock. As a result,
PepsiCo is able to significantly affect the outcome of our
shareholder votes, thereby affecting matters concerning us.
PepsiCo has expressed its intent to reduce its ownership status
to 37 percent over the next several years to return to the
ownership levels at the time of the Whitman Corporation and
PepsiAmericas merger, which may impact the market price of our
common stock.
A
negative change in our credit rating or the availability of
capital could impact borrowing costs and financial
results.
We depend, in part, upon the issuance of unsecured debt to fund
our operations and contractual commitments. A number of factors
could cause us to incur increased borrowing costs and to have
greater difficulty accessing public and private markets for
unsecured debt. These factors include the global capital market
environment and outlook, our financial performance and outlook,
and our credit ratings as determined primarily by rating
agencies. It is possible that our other sources of funds,
including available cash, bank facilities and cash flow from
operations, may not provide adequate liquidity to fund our
operations and contractual commitments.
Because
our international operations are conducted under multiple local
currencies, our operating results experience foreign currency
fluctuations.
Our international operations are exposed to foreign exchange
rate fluctuations resulting from foreign currency transactions
and translation of the operations’ financial results from
local currency into U.S. dollars upon consolidation. As
exchange rates vary, revenue, capital spending and other
operating results, when translated, may differ materially from
expectations.
The
cost to remediate environmental concerns associated with
previously owned subsidiaries could be materially different than
our estimates.
We are subject to federal and state requirements for protection
of the environment, including those for the remediation of
contaminated sites related to previously owned subsidiaries. We
routinely assess our environmental exposure, including
obligations and commitments for remediation of contaminated
sites and assessments of ranges and probabilities of recoveries
from other potentially responsible parties, including insurance
providers. Due to the regulatory complexities and risk of
unidentified contaminants on our former properties, the
potential exists for remediation costs to be materially
different from the costs we have estimated.
We
cannot predict the outcome of legal proceedings and an adverse
determination could negatively impact our financial results, nor
can we predict the nature or outcome of future legal
proceedings.
The nature of operations of previously owned subsidiaries
exposes us to the potential for various claims and litigation
related to, among other things, personal injury and asbestos
product liability claims. The nature of assets we currently own
and operate exposes us to the potential for various claims and
litigation related to, among other things, personal injury and
property damage. The resolution of outstanding claims and
assessments may be materially different than what we have
estimated.
15
In addition, litigation or other claims based on alleged
unhealthful properties of soft drinks could be filed against us
and would require our management to devote significant time and
resources to dealing with such claims. While we would not
believe such claims to be meritorious, any such claims would be
accompanied by unfavorable publicity that could adversely affect
the sales of certain of our products. Our failure to abide by
laws, orders or other legal commitments could subject us to
fines, penalties or other damages, including costs associated
with recalling products. We could be required to recall products
if they become contaminated or damaged.
Increases
in the cost of compliance with applicable regulations, including
those governing the production, packaging, quality, labeling and
distribution of beverage products, could negatively impact our
financial results.
Our operations and properties are subject to various federal,
state and local laws and regulations, including those governing
the production, packaging, quality, labeling and distribution of
beverage products, environmental laws, competition laws, taxes
and accounting standards. We are also subject to the
jurisdiction of regulatory agencies of foreign countries. New
laws or regulations or changes in existing laws or regulations
could negatively impact our financial results by restricting our
ability to distribute products in certain venues or through
higher operating costs to achieve compliance.
Changes
in tax laws or in the tax status of our international operations
could increase our tax liability and negatively impact our
financial results.
We are subject to taxes in the U.S. and various foreign
jurisdictions. As a result, our effective tax rate could be
adversely affected by changes in the mix of earnings in the
U.S. and foreign countries with differing statutory tax
rates, legislative changes impacting statutory tax rates,
including the impact on recorded deferred tax assets and
liabilities, changes in tax laws or material audit assessments.
In addition, deferred tax balances reflect the benefit of net
operating loss carryforwards, the realization of which will
depend upon generating future taxable income in the
corresponding tax jurisdiction.
A
strike or work stoppage by our union employees, which represent
approximately one-fourth of our workforce, could disrupt our
business.
Approximately 28 percent of our employees are covered by
collective bargaining agreements. These agreements expire at
various dates, including some in fiscal year 2008. Our inability
to successfully renegotiate these agreements could cause work
stoppages and interruptions, which may adversely impact our
operating results. The terms and conditions of existing or
renegotiated agreements could also increase our costs or
otherwise affect our ability to fully implement future
operational changes to enhance our efficiency.
Our
acquisition strategy may be limited by our ability to
successfully consummate proposed acquisitions or integrate
acquired businesses.
We intend to continue to pursue acquiring businesses that would
strategically fit within our operations. We may be unable to
consummate, successfully integrate and manage acquired
businesses without substantial costs, delay or difficulties.
Technology
failures could disrupt our operations and negatively impact our
business.
We rely on information technology systems to process, transmit
and store electronic information. If we do not effectively
manage our information technology infrastructure, we could be
subject to transaction errors, processing inefficiencies, the
loss of customers, and business disruptions.
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Item 1B.
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Unresolved
Staff Comments.
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None.
16
Our U.S. manufacturing facilities include ten owned and one
leased combination bottling/canning plants, four owned bottling
plants and two owned canning plants. International manufacturing
facilities include four owned plants in Ukraine; two owned
plants each in Poland, Hungary, the Czech Republic and Romania;
and one owned plant each in Puerto Rico, the Bahamas, Jamaica
and Trinidad. The total manufacturing area is approximately
2.9 million square feet. In addition, we operate 127
distribution facilities in the U.S., 51 distribution facilities
in CEE and 9 distribution facilities in the Caribbean.
Seventy-nine of the distribution facilities are leased and
almost 6 percent of our U.S. production is from one
leased domestic plant. We believe all facilities are adequately
equipped and maintained and capacity is sufficient for our
current needs. We currently operate a fleet of approximately
5,200 vehicles in the U.S. and approximately 2,000 vehicles
internationally to service and support our distribution system.
In addition, we own and lease various industrial and commercial
real estate properties in the U.S.
In fiscal year 2007, we sold the operating assets of a leasing
company, Whitman Leasing, which leased approximately 1,800
railcars comprised of locomotives, flatcars and hopper cars to
the successor of the former Illinois Central Railroad Company.
The lessee exercised a purchase option at the end of the lease
agreement.
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Item 3.
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Legal
Proceedings.
|
From approximately 1945 to 1995, various entities owned and
operated a facility that manufactured hydraulic equipment in
Willits, California. The plant site is contaminated by various
chemicals and metals. On August 23, 1999, an action
entitled Donna M. Avila, et al. v. Willits Environmental
Remediation Trust, Remco Hydraulics, Inc., M-C Industries, Inc.,
Pneumo Abex Corporation and Whitman Corporation, Case
No. C99-3941
CAL, was filed in U.S. District Court for the Northern
District of California. On January 16, 2001, a second
lawsuit, entitled Pamela Jo Alrich, et al. v.
Willits Environmental Remediation Trust, et al., Case
No. C 01 0266 SI, against essentially the same defendants
was filed in the same court. In 2006, a third lawsuit, entitled
Nickerman v. Remco Hydraulics, was filed against the
same defendants. These three lawsuits are before the same judge
in U.S. District Court for the Northern District of
California. In these lawsuits, individual plaintiffs claim that
PepsiAmericas is liable for personal injury
and/or
property damage resulting from environmental contamination at
the facility. There were over 1,000 claims filed in the three
lawsuits. The Court dismissed a large portion of the claims; and
in 2006, we settled a significant number of the claims. Some of
the remaining claims may be settled, go to trial or be appealed.
As of the end of fiscal year 2007, there were approximately
125 personal injury plaintiffs in the lawsuits seeking an
unspecified amount of damages, punitive damages, injunctive
relief and medical monitoring damages from PepsiAmericas. We are
actively defending the lawsuits. At this time, we do not believe
these lawsuits are material to the business or financial
condition of PepsiAmericas.
On May 31, 2005, Cooper Industries, LLC
(“Cooper”) filed and later served a lawsuit against
us, Pneumo Abex, LLC, and the Trustee of the Trust (the
“Trustee”), captioned Cooper Industries,
LLC v. PepsiAmericas, Inc., et al., Case No. 05 CH
09214 (Cook Cty. Cir. Ct.). The claims involve the Trust and
insurance policy described in “Environmental Matters”
in Item 1. Cooper asserts that it was entitled to access
$34 million that previously was in the Trust and that was
used to purchase the insurance policy. Cooper claims that Trust
funds should have been distributed for underlying Pneumo Abex
claims indemnified by Cooper. Cooper complains that we deprived
it of access to money in the Trust because of the Trustee’s
decision to use money in the Trust to purchase the insurance
policy. Pneumo Abex, LLC, the corporate successor to our prior
subsidiary, has been dismissed from the suit.
During the second quarter of 2006, the Trustee’s motion to
dismiss, in which we had joined, was granted and three counts
against us based on the use of Trust funds were dismissed with
prejudice, as were all counts against the Trustee, on the
grounds that Cooper lacks standing to pursue these counts
because it is not a beneficiary under the Trust. We then filed a
separate motion to dismiss the remaining counts against us. Our
motion was granted during the second quarter of 2006 and all
remaining counts against us were dismissed with prejudice.
Cooper subsequently filed a notice of appeal with regard to all
rulings by the court dismissing the counts against us and the
Trustee. Prior to any oral argument, the appellate court on
September 7, 2007
17
issued an opinion affirming the trial court’s opinion.
Cooper subsequently filed motion papers asking the Illinois
Supreme Court to accept a discretionary appeal of the rulings.
The Trustee then filed an opposition brief explaining why the
Illinois Supreme Court should not allow another appeal, and we
joined in that brief. On November 29, 2007, the Supreme
Court of Illinois denied Cooper’s petition for leave to
appeal the appellate court’s September 7, 2007 ruling.
Cooper has until February 27, 2008 to file a petition for
certiorari seeking discretionary review by the United States
Supreme Court.
We and our subsidiaries are defendants in numerous other
lawsuits in the ordinary course of business, none of which, in
the opinion of management, is expected to have a material
adverse effect on our financial condition, although amounts
recorded in any given period could be material to the results of
operations or cash flows for that period.
See also “Environmental Matters” in Item 1 and
Note 20 to the Consolidated Financial Statements for
further discussion.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
Not applicable.
18
PART II
|
|
Item 5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
The common stock of PepsiAmericas is listed and traded on the
New York Stock Exchange under the stock trading symbol
“PAS.” The table below sets forth the reported high
and low sales prices as reported for New York Stock
Exchange Composite Transactions for our common stock and
indicates our dividends declared for each quarterly period for
the fiscal years 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
22.32
|
|
|
$
|
20.50
|
|
|
$
|
0.13
|
|
Second quarter
|
|
|
26.60
|
|
|
|
22.27
|
|
|
|
0.13
|
|
Third quarter
|
|
|
32.96
|
|
|
|
23.47
|
|
|
|
0.13
|
|
Fourth quarter
|
|
|
35.99
|
|
|
|
31.27
|
|
|
|
0.13
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
24.82
|
|
|
$
|
23.25
|
|
|
$
|
0.125
|
|
Second quarter
|
|
|
24.98
|
|
|
|
21.15
|
|
|
|
0.125
|
|
Third quarter
|
|
|
23.41
|
|
|
|
20.94
|
|
|
|
0.125
|
|
Fourth quarter
|
|
|
21.59
|
|
|
|
19.52
|
|
|
|
0.125
|
|
19
Performance
Graph
The following performance graph compares the performance of PAS
common stock to the Standard & Poor’s MidCap 400
Index (“MidCap 400”) and to an index of peer companies
selected by us (the “Bottling Group Index”). In the
past, we compared ourselves to PBG and CCE, individually; hence
they are included in this graph for comparison purposes. The
Bottling Group Index (“BGI”) consists of The Pepsi
Bottling Group, Inc. (“PBG”),
Coca-Cola
Enterprises, Inc. (“CCE”),
Coca-Cola
Bottling Company Consolidated,
Coca-Cola
FEMSA S.A.B. de C.V. ADRs, and
Coca-Cola
Hellenic Bottling Company S.A. ADRs. As a result of our
expanding international footprint and its increasingly
significant contribution to profit growth, the peer companies
were broadened to include bottlers with greater international
presence in similar markets. The graph assumes the return on
$100 invested on December 28, 2002 until December 29,
2007. The returns of each member of the Bottling Group Index are
weighted according to the respective issuers’ stock market
capitalization at the beginning of the return period and include
the subsequent reinvestment of dividends into the respective
stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
PAS
|
|
|
100.00
|
|
|
|
130.66
|
|
|
|
164.53
|
|
|
|
182.79
|
|
|
|
168.61
|
|
|
|
282.33
|
|
MidCap 400
|
|
|
100.00
|
|
|
|
136.39
|
|
|
|
158.89
|
|
|
|
178.85
|
|
|
|
197.31
|
|
|
|
214.27
|
|
BGI
|
|
|
100.00
|
|
|
|
128.96
|
|
|
|
143.42
|
|
|
|
150.46
|
|
|
|
174.23
|
|
|
|
185.07
|
|
PBG
|
|
|
100.00
|
|
|
|
94.80
|
|
|
|
107.08
|
|
|
|
114.44
|
|
|
|
125.24
|
|
|
|
164.36
|
|
CCE
|
|
|
100.00
|
|
|
|
102.08
|
|
|
|
98.66
|
|
|
|
91.42
|
|
|
|
98.55
|
|
|
|
128.36
|
|
The closing price of our stock on December 28, 2007 was
$34.45.
Shareholders
There were 8,371 shareholders of record as of
February 22, 2008.
20
Share
Repurchase Program
See “Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters” in Item 12
for information regarding securities authorized for issuance
under our equity compensation plans.
Our share repurchase program activity during the fourth quarter
ended December 29, 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Maximum Number
|
|
|
|
Total
|
|
|
as Part of
|
|
|
of Shares that May
|
|
|
|
Number of
|
|
|
Publicly
|
|
|
Yet Be Purchased
|
|
|
|
Shares
|
|
|
Announced Plans
|
|
|
Under the Plans
|
|
Period
|
|
Purchased(1)
|
|
|
or Programs(2)
|
|
|
or Programs(3)
|
|
|
September 30 — October 27, 2007
|
|
|
—
|
|
|
|
32,840,500
|
|
|
|
7,159,500
|
|
October 28 — November 24, 2007
|
|
|
—
|
|
|
|
32,840,500
|
|
|
|
7,159,500
|
|
November 25 — December 29, 2007
|
|
|
—
|
|
|
|
32,840,500
|
|
|
|
7,159,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended, December 29, 2007
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents shares purchased in open-market transactions pursuant
to our publicly announced repurchase program. |
|
(2) |
|
Represents cumulative shares purchased under previously
announced share repurchase authorizations by the Board of
Directors. Share repurchases began in 1999 under an
authorization for 15 million shares announced on
November 19, 1999. These amounts are not included in the
table above. On December 19, 2002, the Board of Directors
authorized the repurchase of 20 million additional shares.
The Board of Directors later authorized the repurchase of
20 million additional shares as announced on July 21,
2005. Share repurchase activity for the last two authorizations
is included in the table above. |
|
(3) |
|
As noted above, on July 21, 2005 we announced that our
Board of Directors authorized the repurchase of 20 million
additional shares under a previously authorized repurchase
program. This repurchase authorization does not have a scheduled
expiration date. |
21
|
|
Item 6.
|
Selected
Financial Data.
|
The following table presents summary operating results and other
information of PepsiAmericas and should be read along with
Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” the
Consolidated Financial Statements and accompanying notes
included elsewhere in this Annual Report on
Form 10-K
(in millions, except per share and employee data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
OPERATING RESULTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
3,384.9
|
|
|
$
|
3,245.8
|
|
|
$
|
3,156.1
|
|
|
$
|
2,825.8
|
|
|
$
|
2,739.4
|
|
CEE
|
|
|
849.4
|
|
|
|
484.1
|
|
|
|
343.5
|
|
|
|
309.4
|
|
|
|
310.4
|
|
Caribbean
|
|
|
245.2
|
|
|
|
242.5
|
|
|
|
226.4
|
|
|
|
209.5
|
|
|
|
187.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
4,479.5
|
|
|
$
|
3,972.4
|
|
|
$
|
3,726.0
|
|
|
$
|
3,344.7
|
|
|
$
|
3,236.8
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
331.6
|
|
|
$
|
330.1
|
|
|
$
|
387.7
|
|
|
$
|
332.3
|
|
|
$
|
315.7
|
|
CEE
|
|
|
100.5
|
|
|
|
20.9
|
|
|
|
1.5
|
|
|
|
2.0
|
|
|
|
0.5
|
|
Caribbean
|
|
|
4.0
|
|
|
|
5.0
|
|
|
|
4.2
|
|
|
|
5.4
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
|
436.1
|
|
|
|
356.0
|
|
|
|
393.4
|
|
|
|
339.7
|
|
|
|
316.3
|
|
Interest expense, net
|
|
|
109.2
|
|
|
|
101.3
|
|
|
|
89.9
|
|
|
|
62.1
|
|
|
|
69.6
|
|
Other (expense) income, net
|
|
|
(0.6
|
)
|
|
|
(11.7
|
)
|
|
|
(5.0
|
)
|
|
|
4.7
|
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and equity in net
earnings (loss) of nonconsolidated companies
|
|
|
326.3
|
|
|
|
243.0
|
|
|
|
298.5
|
|
|
|
282.3
|
|
|
|
240.5
|
|
Income taxes
|
|
|
112.0
|
|
|
|
90.5
|
|
|
|
108.8
|
|
|
|
100.4
|
|
|
|
82.6
|
|
Minority interest
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
—
|
|
Equity in net earnings (loss) of nonconsolidated companies
|
|
|
—
|
|
|
|
5.6
|
|
|
|
4.9
|
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
214.2
|
|
|
|
158.3
|
|
|
|
194.7
|
|
|
|
181.9
|
|
|
|
157.6
|
|
Loss from discontinued operations, net of tax
|
|
|
(2.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
212.1
|
|
|
$
|
158.3
|
|
|
$
|
194.7
|
|
|
$
|
181.9
|
|
|
$
|
157.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
126.7
|
|
|
|
127.9
|
|
|
|
134.7
|
|
|
|
139.2
|
|
|
|
143.1
|
|
Incremental effect of stock options and awards
|
|
|
2.5
|
|
|
|
1.9
|
|
|
|
2.5
|
|
|
|
2.6
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
129.2
|
|
|
|
129.8
|
|
|
|
137.2
|
|
|
|
141.8
|
|
|
|
144.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.69
|
|
|
$
|
1.24
|
|
|
$
|
1.45
|
|
|
$
|
1.31
|
|
|
$
|
1.10
|
|
Loss from discontinued operations
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.67
|
|
|
$
|
1.24
|
|
|
$
|
1.45
|
|
|
$
|
1.31
|
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.66
|
|
|
$
|
1.22
|
|
|
$
|
1.42
|
|
|
$
|
1.28
|
|
|
$
|
1.09
|
|
Loss from discontinued operations
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.64
|
|
|
$
|
1.22
|
|
|
$
|
1.42
|
|
|
$
|
1.28
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
|
$
|
0.52
|
|
|
$
|
0.50
|
|
|
$
|
0.34
|
|
|
$
|
0.30
|
|
|
$
|
0.04
|
|
OTHER INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,308.0
|
|
|
$
|
4,207.4
|
|
|
$
|
4,053.8
|
|
|
$
|
3,529.8
|
|
|
$
|
3,596.8
|
|
Long-term debt
|
|
$
|
1,803.5
|
|
|
$
|
1,490.2
|
|
|
$
|
1,285.9
|
|
|
$
|
1,006.6
|
|
|
$
|
1,078.4
|
|
Capital investments
|
|
$
|
264.6
|
|
|
$
|
169.3
|
|
|
$
|
180.3
|
|
|
$
|
121.8
|
|
|
$
|
158.3
|
|
Depreciation and amortization
|
|
$
|
204.4
|
|
|
$
|
193.4
|
|
|
$
|
184.7
|
|
|
$
|
176.4
|
|
|
$
|
170.2
|
|
Number of employees
|
|
|
20,700
|
|
|
|
17,100
|
|
|
|
16,000
|
|
|
|
15,100
|
|
|
|
14,500
|
|
22
The following were recorded during the periods presented:
In fiscal year 2007:
|
|
|
|
•
|
We recorded an other-than-temporary marketable securities
impairment loss of $4.0 million related to our common stock
investment in Northfield Laboratories, Inc. that is classified
as available-for-sale. The loss was recorded in “Other
(expense) income, net.”
|
|
|
•
|
We recorded special charges of $6.3 million. In the U.S.,
we recorded $4.8 million of special charges primarily
related to severance and relocation costs associated with our
strategic realignment announced in the fourth quarter of 2006.
In CEE, we recorded special charges of $1.5 million related
to lease termination in Hungary and associated severance costs.
|
|
|
•
|
We recorded a gain of $10.2 million related to the sale of
railcars and locomotives, which was reflected in “Other
(expense) income, net.”
|
|
|
•
|
We recorded a discontinued operations charge of
$2.1 million after taxes. The charge related to revised
estimates for environmental remediation, legal, and related
administrative costs.
|
In fiscal year 2006:
|
|
|
|
•
|
We recorded an other-than-temporary marketable securities
impairment loss of $7.3 million related to our common stock
investment in Northfield Laboratories, Inc. that is classified
as available-for-sale. The loss was recorded in the “Other
(expense) income, net.”
|
|
|
•
|
We recorded special charges in CEE of $2.2 million. The
special charges related primarily to a reduction in the
workforce. These special charges were primarily for severance
costs and related benefits.
|
|
|
•
|
We recorded special charges of $11.5 million in the
U.S. related to our strategic realignment to further
strengthen our customer focused go-to-market strategy. These
special charges were primarily for severance and other
employee-related costs, including the acceleration of vesting of
certain restricted stock awards. In addition, we incurred costs
associated with consulting services in connection with the
realignment project which were included in special charges.
|
In fiscal year 2005:
|
|
|
|
•
|
We recorded income of $16.6 million related to the proceeds
from the settlement of a class action lawsuit. The lawsuit
alleged price fixing related to high fructose corn syrup
purchased in the U.S. from July 1, 1991 through
June 30, 1995.
|
|
|
•
|
We recorded a $5.6 million benefit associated with a real
estate tax refund concerning a previously sold parcel of land in
downtown Chicago. The gain was recorded in “Other (expense)
income, net.”
|
|
|
•
|
We recorded a $1.1 million net benefit to net income
related to the reversal of valuation allowances for certain net
operating loss carryforwards offset by tax contingency
requirements. This net benefit was comprised of interest expense
of $0.6 million ($0.4 million after tax) for the tax
contingency requirements recorded in “Interest expense,
net” and $1.5 million of tax benefit recorded in
“Income taxes.”
|
|
|
•
|
We recorded an expense of $6.1 million related to lease
exit costs, which resulted from the relocation of our corporate
offices in the Chicago area. This expense was recorded in
“Selling, delivery and administrative expenses.”
|
|
|
•
|
We recorded an expense of $5.6 million related to the loss
on the extinguishment of debt. During fiscal year 2005, we
completed a cash tender offer related to $550 million of
our outstanding debt. The total amount of securities tendered
was $388 million. The loss was recorded in “Interest
expense, net.”
|
|
|
•
|
We recorded special charges in CEE of $2.5 million. The
special charges related to a reduction in the workforce and the
consolidation of certain production facilities as we
rationalized our cost structure. These special charges were
primarily for severance costs, related benefits and asset
write-downs.
|
23
In fiscal year 2004:
|
|
|
|
•
|
In CEE, we recorded special charges of $3.9 million related
to the consolidation of certain production facilities and a
reduction in the workforce. These special charges were primarily
for severance costs and related benefits, as well as asset
write-downs. Special charges are net of reversals of
approximately $0.4 million recorded in the fourth quarter
due to revisions of estimates of the related liabilities as CEE
substantially completed the plans to modify the distribution
strategy in all markets.
|
|
|
•
|
We recorded an additional gain of $5.2 million associated
with the 2002 sale of a parcel of land in downtown Chicago. The
gain reflected the settlement and final payment on the
promissory note related to the initial sale, for which we had
previously provided a full allowance.
|
|
|
•
|
We recorded a net gain of $2.7 million relating to a state
income tax refund. This gain was comprised of $0.7 million
for consulting expenses (recorded in “Selling, delivery and
administrative expenses”), $0.8 million of interest
income (recorded in “Interest expense, net”) and
$2.6 million of income tax benefit, net (recorded in
“Income taxes”).
|
|
|
•
|
We recorded a $3.5 million benefit to net income relating
to the reversal of certain tax liabilities due to the settlement
of income tax audits through the 2002 tax year. This benefit was
comprised of interest income of $1.1 million
($0.7 million after tax) recorded in “Interest
expense, net” and $2.8 million of tax benefit recorded
in “Income taxes.”
|
In fiscal year 2003:
|
|
|
|
•
|
Our fiscal year ends on the Saturday closest to December 31 and
resulted in an additional week, or fifty-three weeks, of
operating results in fiscal year 2003 in our
U.S. operations. PepsiAmericas’ fiscal year end policy
only impacts the U.S. operations. The CEE and Caribbean
operations were based upon a calendar year end and, therefore,
did not have an additional week of operating results in fiscal
year 2003. All other fiscal years presented in the table of
“Selected Financial Data” contain fifty-two weeks of
operating results in the U.S. The 53rd week
contributed $33.9 million to net sales and
$4.9 million to operating income in the U.S. in fiscal
year 2003.
|
|
|
•
|
We recorded special charges, net of $6.4 million. These
charges consisted primarily of a $5.8 million charge
related to the reduction in workforce in the U.S. and
charges related to changes in the production, marketing and
distribution strategies in our international operations. The
U.S. special charges were primarily for severance costs and
related benefits, including the acceleration of restricted stock
awards. In addition, as a result of excess severance costs
identified, we recorded a reversal of $0.2 million related
to the fiscal year 2003 charge in the U.S. We also recorded
special charges of $0.8 million related to a change in the
production and distribution strategy in Barbados, which
consisted primarily of asset write-downs. In addition, we
recorded additional special charges of $2.1 million related
to the changes in the marketing and distribution strategy in
Poland, the Czech Republic, and Republic of Slovakia, offset by
a special charge reversal of $2.1 million related primarily
to favorable outcomes with outstanding lease commitments and
severance in Poland. The initial special charge was based on an
estimate that no sublease income would offset our lease
commitments.
|
|
|
•
|
Investors in our $150 million, face value 5.79 percent
notes notified us that they would exercise their option to
purchase and resell the notes pursuant to the remarketing
agreement, unless we elected to redeem the notes. We exercised
our option and elected to redeem the notes at fair value
pursuant to the remarketing agreement. As a result, we recorded
a loss on the extinguishment of debt of $8.8 million in
“Interest expense, net.”
|
|
|
•
|
We recorded a gain of $2.1 million on the previous sale of
a parcel of land in downtown Chicago for the reversal of
accruals related to the favorable resolution of certain
contingencies. The gain was reflected in “Other (expense)
income, net.”
|
|
|
•
|
We favorably settled a tax refund case with the Internal Revenue
Service that arose from the 1990 termination of our Employee
Stock Ownership Plan (“ESOP”). The tax settlement
consisted of $6.4 million of interest income and a tax
benefit of $6.0 million recorded in “Income
taxes.” During
|
24
|
|
|
|
|
fiscal year 2003, we recorded a net tax benefit of
$7.7 million related primarily to the reversal of certain
tax accruals, offset by additional tax liabilities recorded.
Included in the net tax benefit of $7.7 million are tax
benefits of $6.0 million from the favorable settlement of
the ESOP case and a tax benefit of $6.0 million related
mainly to the reversal of tax liabilities due to the settlement
of various income tax audits through the 1999 tax year. These
tax benefits were offset, in part, by net additional tax
accruals of $4.3 million for contingent liabilities arising
in fiscal year 2003.
|
|
|
Item 7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Forward-Looking
Statements
This Annual Report on
Form 10-K
contains certain forward-looking statements of expected future
developments, as defined in the Private Securities Litigation
Reform Act of 1995. The forward-looking statements in this
Annual Report on
Form 10-K
refer to our expectations regarding continuing operating
improvement and other matters. These forward-looking statements
reflect our expectations and are based on currently available
data; however, actual results are subject to future risks and
uncertainties, which could materially affect actual performance.
Risks and uncertainties that could affect such performance
include, but are not limited to, the following: competition,
including product and pricing pressures; changing trends in
consumer tastes; changes in our relationship
and/or
support programs with PepsiCo and other brand owners; market
acceptance of new product and package offerings; weather
conditions; cost and availability of raw materials; changing
legislation, including tax laws; cost and outcome of
environmental claims; availability and cost of capital including
changes in our debt ratings; labor and employee benefit costs;
unfavorable foreign currency rate fluctuations; costs and
outcome of legal proceedings; integration of acquisitions;
failure of information technology systems; and general economic,
business, regulatory and political conditions in the countries
and territories where we operate. See “Risk Factors”
in Item 1A for additional information.
These events and uncertainties are difficult or impossible to
predict accurately and many are beyond our control. We assume no
obligation to publicly release the result of any revisions that
may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
Executive
Overview
What We
Do
We manufacture, distribute, and market a broad portfolio of
beverage products in the U.S., CEE and the Caribbean. We sell a
variety of brands that we bottle under franchise agreements with
various brand owners, the majority with PepsiCo or PepsiCo joint
ventures. In some territories, we manufacture, package, sell and
distribute our own brands, such as Toma brands in CEE and the
Caribbean and Sandora brands in Ukraine. We operate in a
significant portion of a 19 state region in the
U.S. In CEE, we serve Poland, Hungary, the Czech Republic,
Republic of Slovakia, Romania and Ukraine, with distribution
rights in Moldova, Estonia, Latvia and Lithuania. In addition,
we have an equity investment in Agrima, which gives us a market
presence in Bulgaria. In the Caribbean, we serve Puerto Rico,
Jamaica, the Bahamas, and Trinidad and Tobago, with distribution
rights in Barbados.
Results
of Operations
In the discussion of our results of operations below, the number
of bottle and can cases sold is referred to as volume.
Constant territory refers to the results of operations
excluding the non-comparable territories
year-over-year.
For fiscal year 2007 comparisons, this excluded the operating
results of Sandora and the first seven months of Romania, as we
fully consolidated Romania operating results starting in August
2006. For fiscal year 2006, this excluded the operating results
of Romania. Net pricing is net sales divided by the
number of cases and gallons sold for our core businesses, which
include bottles and cans (including bottle and can volume from
vending equipment sales), as well as food service. Changes in
net pricing include the impact of sales price (or rate) changes,
as well as the impact of foreign currency translation and brand,
package and
25
geographic mix. Net pricing and reported volume amounts exclude
contract, commissary, and vending (other than bottles and cans)
transactions. Contract sales represent sales of manufactured
product to other franchise bottlers and typically decline as
excess manufacturing capacity is utilized. Net pricing and
volume also exclude activity associated with beer and snack food
products. Cost of goods sold per unit is the cost of
goods sold for our core businesses divided by the related number
of cases and gallons sold.
Fiscal
Year 2007 Key Financial Results
|
|
|
|
•
|
Worldwide net sales increased 12.8 percent, due to volume
growth of 7.8 percent and net selling price increases of
4.8 percent.
|
|
|
•
|
Worldwide cost of goods sold per unit increased 3.9 percent.
|
|
|
•
|
Operating margins increased 70 basis points to
9.7 percent.
|
|
|
•
|
In fiscal year 2007, we generated operating income of
$436.1 million, which included special charges of
$6.3 million. Operating income in fiscal year 2006 of
$356.0 million included special charges of
$13.7 million.
|
|
|
•
|
We reported diluted earnings per share of $1.64 for the fiscal
year 2007, which includes a loss from discontinued operations of
$0.02, compared to diluted earnings per share of $1.22 in the
prior year.
|
|
|
•
|
We generated cash from operating activities of
$433.5 million in fiscal year 2007 compared to
$343.8 million in fiscal year 2006.
|
Our Focus
in Fiscal Year 2007
Worldwide. Our results for fiscal year 2007
were generated by both the consistent execution of our overall
strategy and external factors, including the favorable impact of
foreign currency translation. Our strategy was driven by three
items. First, we rebuilt our U.S. sales organization from
one based on geography to one built around customer channels.
This new structure enables us to dedicate more resources and
sales support to channels and customers, which resulted in our
ability to manage a difficult cost environment, as we executed
on innovation, pricing and single-serve distribution. Second, we
have made significant progress in building scale and
profitability organically and through acquisitions in CEE.
During fiscal year 2007, we added Ukraine to our operations and
entered into Bulgaria through an equity investment. Lastly, the
diversity of our markets and continued capability investment
drove our strong performance in fiscal year 2007.
On a worldwide basis, revenue was 12.8 percent higher than
the prior year, due to volume growth of 7.8 percent and net
selling price increases of 4.8 percent. These increases
covered higher raw material costs and contributed to diluted
earnings per share growth of 34.4 percent.
U.S. operations. Price increases in raw
materials continued to challenge our business in fiscal year
2007. We were able to successfully offset these higher costs
through higher net pricing, product innovation and the execution
of our single-serve initiative. We had a strong innovation
calendar, which included the introduction of
Diet Pepsi Max and Lipton White Tea. We also grew our
higher margin single-serve package approximately 1 percent.
Volume declined 1.4 percent during fiscal year 2007. We
grew our non-carbonated portfolio 10 percent during the
year, which partly offset a 4 percent decline in carbonated
soft drink volume. Non-carbonated beverages are now
20 percent of our portfolio, a two percentage point
increase from last year. This success was driven by volume
growth in Trademark Lipton and the successful execution of our
hydration and energy strategy, which will continue in fiscal
year 2008.
International operations. We continue to focus
on our international markets as a key driver of growth. These
markets now generate over $1 billion in net sales. Constant
territory volume grew 7.9 percent. Operating income in CEE
was $100.5 million, an increase of $79.6 million
compared to the prior year. Organic growth contributed one
quarter of the increase and the impact of foreign currency
translation contributed approximately 30 percentage points
of growth. The remainder of the increase was related to
acquisitions.
26
In CEE, our expanded product portfolio performed well.
Carbonated soft drinks grew in the high single digits due, in
part, to strong growth in Trademark Pepsi. Non-carbonated
beverages in our portfolio experienced double-digit growth led
by Trademark Lipton. In each CEE market, we held either the
number one or number two position in the fast-growing,
ready-to-drink tea category. As a result of the successful
execution of our strategies, volume grew in all CEE countries,
with Poland and Romania each experiencing double-digit volume
growth. We added selling resources to increase SKU distribution
in existing accounts and increase business in the less-developed
traditional trade. The flexibility in our distribution system
allowed us to effectively utilize third parties for delivery in
more rural areas.
In the Caribbean, volume declined 5.0 percent due to
continued soft economic conditions and competitive pressures in
Puerto Rico partly offset by volume growth in Jamaica. Operating
income decreased $1.0 million to $4.0 million in
fiscal year 2007. Net pricing increased during fiscal year 2007
to offset increases in raw material and utilities costs.
Focusing
on Fiscal Year 2008
In fiscal year 2008, we will continue to execute the strategies
already in place. We expect to capture market share and cash
flow opportunities in the U.S., while continuing to focus on
growing net sales and operating income in CEE.
In the U.S., we will focus on non-carbonated beverage growth
through our tea, energy and hydration initiatives. We expect our
non-carbonated beverage mix to increase 2 to 3 percentage
points to represent approximately 22 to 23 percent of our
portfolio. We plan to strengthen our share position in
ready-to-drink teas with programs and innovation for our
three-tea strategy: Lipton Pureleaf, Lipton Iced Tea and Lipton
Brisk. In the energy category, we will focus on Mountain Dew AMP
with innovation and marketing. To support our hydration
initiative, we have implemented a multi-brand strategy with the
relaunches of SoBe LifeWater and Aquafina Alive in the enhanced
water category and the recently introduced Propel along with the
distribution of G2 by Gatorade in the convenience and gas
channel. While we anticipate carbonated soft drink volume
declines will be consistent with fiscal year 2007, we expect
that the product innovation from fiscal year 2007, specifically
Diet Pepsi Max, will benefit fiscal year 2008. We will also
support carbonated soft drinks through the new Trademark
Mountain Dew program, DEWmocracy. Lastly, we will drive local
marketing efforts to support single-serve growth.
We expect to increase pricing in fiscal year 2008 to cover
anticipated higher cost of goods sold. We will leverage our new
revenue management structure for even more targeted pricing
opportunities.
We also will continue progress in our supply chain productivity
initiative, Customer Optimization to the Third Power or CO3,
with the goal of improving forecasting accuracy and reducing
out-of-stocks at our customers. During fiscal year 2007, we
completed the rollout of our demand planning and forecasting
tools. During fiscal year 2008, we will complete our rollout of
our new power pre-sell hand-held technology and will implement
warehouse processes including voice-pick and ASN technology,
which we expect will drive pallet accuracy to 99.9 percent.
We have also expanded our supply chain initiatives to include
formalized SKU rationalization, route optimization and warehouse
standardization. We believe that these efforts will result in
greater productivity in fiscal year 2008.
Internationally, we anticipate opportunities for growth in net
sales and operating income in CEE. Like fiscal year 2007, growth
in fiscal year 2008 should be across all categories. We expect
relatively strong macroeconomic factors to continue and
favorably impact consumer spending. We anticipate additional
opportunities to add categories in key markets like Ukraine,
Romania and Poland. We will continue to invest in advertising
and marketing to build brand equity, which is important as the
markets in CEE are fragmented. Our growth in CEE requires us to
add manufacturing capacity with a new aseptic line in Poland, an
improved logistics center in Hungary and a new production
facility in Romania. The addition of Sandora adds diversity to
our products and provides opportunities to further expand our
portfolio.
In fiscal year 2008, we expect diluted earnings per share to be
in the range of $1.77 to $1.83, including an estimated impact of
$0.01 for special charges in the U.S. and Hungary, offset
by an estimated $0.01 benefit
27
from the impact of the 53rd week in fiscal year 2008. This
compares to fiscal year 2007 diluted earnings per share of $1.64
which included a $0.02 reduction related to discontinued
operations. We expect worldwide volume to increase in the range
of 13 to 14 percent, and to improve average net selling
price by 2.5 to 3.5 percent. We expect cost of goods sold
per unit to increase approximately 6 to 7 percent, and
selling, delivery and administrative (“SD&A”)
expenses to be higher by 9 to 10 percent compared to fiscal
year 2007. Overall, we expect to generate operating income
growth of 10 to 12 percent. The outlook described above
includes the impact of the 53rd week, which is expected to
contribute 1 percent growth in volume, SD&A expenses
and operating income, as well as the impact of the Sandora
acquisition, which is expected to contribute 10 percent
growth in volume, reduce pricing by 2 percent, raise
SD&A expenses by 4 percent and raise operating income
by 5 percent to 6 percent.
Our ability to generate significant operating cash flow makes
several options available to us, including reinvesting in our
existing business, pursuing acquisitions with an appropriate
expected economic return, repurchasing our stock and paying
dividends to our shareholders. We will continue to examine the
optimal uses of cash to maximize shareholder value.
The above overview should not be considered by itself in
determining full disclosure and should be read in conjunction
with the other sections of this Annual Report on
Form 10-K.
Items Impacting
Comparability
Acquisitions
In the second quarter of 2007, we completed the formation of a
joint venture with PepsiCo to acquire an interest in Sandora,
the leading juice company in Ukraine. Under the terms of the
joint venture agreement, we hold a 60 percent interest and
PepsiCo holds a 40 percent interest. In August 2007, the
joint venture acquired 80 percent of Sandora. In November
2007, the joint venture completed the acquisition of the
remaining 20 percent interest. We fully consolidated the
results of operations of the joint venture and report minority
interest in our Consolidated Financial Statements. Due to the
timing of the receipt of available financial information, we
record results on a one-month lag basis.
QABCL is a holding company that, through its subsidiaries
produces, sells and distributes Pepsi and other beverages
throughout Romania and also has distribution rights in Moldova.
In June 2005, we acquired a 49 percent interest in QABCL.
This initial investment was recorded under the equity method in
accordance with Accounting Principles Board (“APB”)
Opinion No. 18, “The Equity Method of Accounting for
Investments in Common Stock”. We recorded our share of
QABCL earnings in “Equity in net earnings of
nonconsolidated companies” in the Consolidated Statements
of Income. Equity in net earnings of nonconsolidated companies
was $5.6 million in fiscal year 2006. In July 2006, we
acquired the remaining 51 percent interest in QABCL. QABCL
is now a wholly-owned subsidiary which was consolidated in the
third quarter of 2006. Due to the timing of the receipt of
available financial information from QABCL, we record results on
a one-month lag basis.
Special
Charges
In fiscal year 2007, we recorded special charges of
$6.3 million. In the U.S., we recorded $4.8 million of
special charges primarily related to severance and relocation
costs associated with our strategic realignment announced in the
fourth quarter of 2006. In CEE, we recorded special charges of
$1.5 million related to lease termination costs in Hungary
and associated severance costs.
In fiscal year 2006, we recorded special charges of
$11.5 million in the U.S. related to our strategic
realignment to further strengthen our customer focused
go-to-market strategy. These special charges were primarily for
severance and other employee related costs, including the
acceleration of vesting of certain restricted stock awards. We
also incurred costs for consulting services associated with the
strategic realignment which were included in the special
charges. In addition, we recorded special charges of
$2.2 million in CEE, primarily for a reduction in the
workforce. These special charges were primarily for severance
costs and related benefits.
28
In fiscal year 2005, we recorded special charges of
$2.5 million in CEE, primarily for a reduction in the
workforce in CEE and the consolidation of certain production
facilities as we rationalized our cost structure. These special
charges were primarily for severance costs, related benefits and
asset write-downs.
Marketable
Securities Impairment
In fiscal years 2007 and 2006, we recorded other-than-temporary
impairment losses of $4.0 million and $7.3 million,
respectively, related to a common stock investment that is
classified as available-for-sale on our Consolidated Balance
Sheets. The loss was recorded in “Other expense, net.”
Gain
on Sale of Non-Core Property
In fiscal year 2007, we recorded a gain of $10.2 million
related to the sale of non-core property, which consisted of
railcars and locomotives. The gain was recorded in “Other
expense, net.”
Fructose
Settlement
In fiscal year 2005, we recorded income of $16.6 million
related to proceeds we received from the settlement of a class
action lawsuit. The lawsuit alleged price fixing related to high
fructose corn syrup purchased from July 1, 1991 through
June 30, 1995.
Lease
Exit Costs
In fiscal year 2005, we recorded $1.4 million of expense
for the early termination of a real estate lease for our
corporate offices in the Chicago area and $6.1 million of
expense related to the remaining obligations under this lease.
Operating
Results — 2007 compared with 2006
Volume. Sales volume growth (decline)
for fiscal years 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
U.S.
|
|
|
(1.4
|
)%
|
|
|
0.6
|
%
|
CEE
|
|
|
49.5
|
%
|
|
|
34.5
|
%
|
Caribbean
|
|
|
(5.0
|
)%
|
|
|
1.6
|
%
|
Worldwide
|
|
|
7.8
|
%
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Compared to 2006
|
|
Volume Change
|
|
U.S.
|
|
|
CEE
|
|
|
Caribbean
|
|
|
Worldwide
|
|
|
Constant territory volume
|
|
|
(1.4
|
)%
|
|
|
7.9
|
%
|
|
|
(5.0
|
)%
|
|
|
0.1
|
%
|
Acquisitions
|
|
|
—
|
%
|
|
|
41.6
|
%
|
|
|
—
|
%
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in volume
|
|
|
(1.4
|
)%
|
|
|
49.5
|
%
|
|
|
(5.0
|
)%
|
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal year 2007, worldwide volume increased 7.8 percent
compared to the prior year. The increase in worldwide volume was
attributable to volume growth of 49.5 percent in CEE, due
to the incremental impact of acquisitions and constant territory
growth, which was partly offset by volume declines in the
U.S. and the Caribbean.
Volume in the U.S. declined 1.4 percent compared to
fiscal year 2006 due to a decline in carbonated soft drink
volume of approximately 4 percent, which was consistent
with fiscal year 2006. The non-carbonated beverage category,
excluding water, grew approximately 17 percent driven
primarily by Trademark Lipton. Aquafina volume grew
1.5 percent in fiscal year 2007. Non-carbonated beverages
represented 20 percent of our volume mix during fiscal year
2007 compared to 18 percent in the prior year. Single-serve
volume grew 1 percent due mainly to innovation, including
Diet Pepsi Max and Mountain Dew Game Fuel, and strong marketing
programs.
29
Volume in CEE increased 49.5 percent in fiscal year 2007
compared to fiscal year 2006. The increase was primarily due to
acquisitions, which contributed 41.6 percentage points of
the increase. The remaining growth in CEE was due to growth in
the non-carbonated beverage category, driven by double-digit
growth in Trademark Lipton and juices and single-digit growth in
the water category. Carbonated soft drink volume grew in the
mid-single digits due to growth in Trademark Pepsi.
Volume in the Caribbean declined 5.0 percent in fiscal year
2007 compared to fiscal year 2006. The volume decline was driven
primarily by soft economic conditions and competitive pressures
in Puerto Rico, partly offset by volume growth in Jamaica.
Carbonated soft drink volume declined 11 percent and was
partly offset by double-digit growth in non-carbonated beverages.
Net Sales. Net sales and net pricing
statistics for fiscal years 2007 and 2006 were as follows
(dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
U.S.
|
|
$
|
3,384.9
|
|
|
$
|
3,245.8
|
|
|
|
4.3
|
%
|
CEE
|
|
|
849.4
|
|
|
|
484.1
|
|
|
|
75.5
|
%
|
Caribbean
|
|
|
245.2
|
|
|
|
242.5
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
4,479.5
|
|
|
$
|
3,972.4
|
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Compared to 2006
|
|
Net Sales Change
|
|
U.S.
|
|
|
CEE
|
|
|
Caribbean
|
|
|
Worldwide
|
|
|
Volume impact *
|
|
|
(1.2
|
)%
|
|
|
7.1
|
%
|
|
|
(4.3
|
)%
|
|
|
0.1
|
%
|
Net price per case, excluding impact of currency translation
|
|
|
5.1
|
%
|
|
|
4.6
|
%
|
|
|
6.8
|
%
|
|
|
4.7
|
%
|
Acquisitions
|
|
|
—
|
%
|
|
|
45.3
|
%
|
|
|
—
|
%
|
|
|
5.6
|
%
|
Currency translation
|
|
|
—
|
%
|
|
|
15.9
|
%
|
|
|
(1.2
|
)%
|
|
|
1.9
|
%
|
Non-core
|
|
|
0.4
|
%
|
|
|
2.6
|
%
|
|
|
(0.2
|
)%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net sales
|
|
|
4.3
|
%
|
|
|
75.5
|
%
|
|
|
1.1
|
%
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The amounts in this table represent the dollar impact on net
sales due to changes in volume and are not intended to equal the
absolute change in volume. |
|
|
|
|
|
|
|
|
|
Net Pricing Growth **
|
|
2007
|
|
|
2006
|
|
|
U.S.
|
|
|
5.1
|
%
|
|
|
1.1
|
%
|
CEE
|
|
|
19.2
|
%
|
|
|
7.2
|
%
|
Caribbean
|
|
|
5.6
|
%
|
|
|
5.4
|
%
|
Worldwide
|
|
|
4.8
|
%
|
|
|
0.5
|
%
|
|
|
|
** |
|
Includes the impact from acquisitions and currency translation
on core revenue. |
Net sales increased $507.1 million, or 12.8 percent,
to $4,479.5 million in fiscal year 2007 compared to
$3,972.4 million in fiscal year 2006. The increase was
primarily due to acquisitions, worldwide rate and mix increases,
volume growth in CEE and the favorable impact of foreign
currency translation, which added 1.9 percentage points of
the increase.
Net sales in the U.S. in fiscal year 2007 increased
$139.1 million, or 4.3 percent, to
$3,384.9 million from $3,245.8 million in fiscal year
2006. The increase in net sales was due to a 5.1 percent
increase in net pricing, driven primarily by rate increases
necessary to cover the higher raw material costs, partly offset
by a decline in volume. Package mix also positively contributed
to net pricing by approximately 1 percent due to stronger
single-serve package and non-carbonated beverage performance and
lower take-home water volume.
Net sales in CEE in fiscal year 2007 increased
$365.3 million, or 75.5 percent, to
$849.4 million from $484.1 million in fiscal year
2006. The increase was primarily due to acquisitions, which
contributed
30
45.3 percentage points of the increase. The remainder of
the growth was contributed by our existing markets, led by
Romania and Poland. Net pricing increased 19.2 percent,
driven by the favorable impact of foreign currency translation
and improvement in mix.
Net sales in the Caribbean increased $2.7 million, or
1.1 percent, in fiscal year 2007 to $245.2 million
from $242.5 million in fiscal year 2006. The increase was a
result of an increase in net pricing of 5.6 percent, partly
offset by a volume decline of 5.0 percent. The increase in
net pricing was driven by both rate and mix increases and from
growth in the single-serve package.
Cost of Goods Sold. Cost of goods sold
and cost of goods sold per unit statistics for fiscal years 2007
and 2006 were as follows (dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
U.S.
|
|
$
|
1,982.0
|
|
|
$
|
1,891.6
|
|
|
|
4.8
|
%
|
CEE
|
|
|
491.4
|
|
|
|
292.7
|
|
|
|
67.9
|
%
|
Caribbean
|
|
|
182.8
|
|
|
|
180.0
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
2,656.2
|
|
|
$
|
2,364.3
|
|
|
|
12.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Compared to 2006
|
|
Cost of Goods Sold Change
|
|
U.S.
|
|
|
CEE
|
|
|
Caribbean
|
|
|
Worldwide
|
|
|
Volume impact *
|
|
|
(1.1
|
)%
|
|
|
7.0
|
%
|
|
|
(4.3
|
)%
|
|
|
0.1
|
%
|
Cost per case impact, excluding impact obf currency translation
|
|
|
5.2
|
%
|
|
|
1.3
|
%
|
|
|
6.8
|
%
|
|
|
4.1
|
%
|
Acquisitions
|
|
|
—
|
%
|
|
|
46.0
|
%
|
|
|
—
|
%
|
|
|
5.7
|
%
|
Currency translation
|
|
|
—
|
%
|
|
|
10.4
|
%
|
|
|
(1.2
|
)%
|
|
|
1.2
|
%
|
Non-core
|
|
|
0.7
|
%
|
|
|
3.2
|
%
|
|
|
0.3
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cost of goods sold
|
|
|
4.8
|
%
|
|
|
67.9
|
%
|
|
|
1.6
|
%
|
|
|
12.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The amounts in this table represent the dollar impact on cost of
goods sold due to changes in volume and are not intended to
equal the absolute change in volume. |
|
|
|
|
|
|
|
|
|
Cost of Goods Sold per Unit Increase **
|
|
2007
|
|
|
2006
|
|
|
U.S.
|
|
|
5.2
|
%
|
|
|
4.3
|
%
|
CEE
|
|
|
13.0
|
%
|
|
|
5.4
|
%
|
Caribbean
|
|
|
5.6
|
%
|
|
|
6.4
|
%
|
Worldwide
|
|
|
3.9
|
%
|
|
|
3.2
|
%
|
|
|
|
** |
|
Includes the impact from acquisitions and currency translation
on core cost of goods sold. |
Cost of goods sold increased $291.9 million, or
12.3 percent, to $2,656.2 million in fiscal year 2007
from $2,364.3 million in fiscal year 2006. This increase
was driven primarily by the impact of acquisitions, higher raw
material costs and the unfavorable impact of foreign currency
translation, which added 1.2 percentage points to the
increase.
In the U.S., cost of goods sold increased $90.4 million, or
4.8 percent, to $1,982.0 million in fiscal year 2007
from $1,891.6 million in the prior year. Cost of goods sold
per unit increased 5.2 percent in the U.S., due to price
increases in ingredient costs and a 1 percentage point
increase in mix due to a shift to more expensive non-carbonated
beverages.
In CEE, cost of goods sold increased $198.7 million, or
67.9 percent, to $491.4 million in fiscal year 2007,
compared to $292.7 million in the prior year. Acquisitions
contributed 46.0 percentage points of the increase.
Constant territory volume growth of 7.9 percent and higher
ingredient costs also contributed to the increase of cost of
goods sold. The remainder of the increase was mainly due to the
unfavorable impact of foreign currency translation, which
contributed a 10.4 percent increase in cost of goods sold.
31
In the Caribbean, cost of goods sold increased
$2.8 million, or 1.6 percent, to $182.8 million
in fiscal year 2007, compared to $180.0 million in fiscal
year 2006. The increase was mainly driven by an increase in cost
of goods sold per unit of 5.6 percent, attributable to
increases in the price of raw materials, partly offset by a
volume decline of 5.0 percent.
Selling, Delivery and Administrative
Expenses. SD&A expenses and SD&A
expense statistics for fiscal years 2007 and 2006 were as
follows (dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
SD&A Expenses
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
U.S.
|
|
$
|
1,066.5
|
|
|
$
|
1,012.6
|
|
|
|
5.3
|
%
|
CEE
|
|
|
256.0
|
|
|
|
168.3
|
|
|
|
52.1
|
%
|
Caribbean
|
|
|
58.4
|
|
|
|
57.5
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
1,380.9
|
|
|
$
|
1,238.4
|
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Compared to 2006
|
|
SD&A Expense Change
|
|
U.S.
|
|
|
CEE
|
|
|
Caribbean
|
|
|
Worldwide
|
|
|
Cost impact
|
|
|
5.3
|
%
|
|
|
9.4
|
%
|
|
|
2.5
|
%
|
|
|
5.8
|
%
|
Acquisitions
|
|
|
—
|
%
|
|
|
29.1
|
%
|
|
|
—
|
%
|
|
|
3.9
|
%
|
Currency translation
|
|
|
—
|
%
|
|
|
13.6
|
%
|
|
|
(0.9
|
)%
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in SD&A expense
|
|
|
5.3
|
%
|
|
|
52.1
|
%
|
|
|
1.6
|
%
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SD&A Expenses as a Percent of Net Sales
|
|
2007
|
|
|
2006
|
|
|
U.S.
|
|
|
31.5
|
%
|
|
|
31.2
|
%
|
CEE
|
|
|
30.1
|
%
|
|
|
34.8
|
%
|
Caribbean
|
|
|
23.8
|
%
|
|
|
23.7
|
%
|
Worldwide
|
|
|
30.8
|
%
|
|
|
31.2
|
%
|
In fiscal year 2007, SD&A expenses increased
$142.5 million, or 11.5 percent, to
$1,380.9 million from $1,238.4 million in the previous
year. The unfavorable impact of foreign currency translation
added 1.8 percentage points of the increase. As a
percentage of net sales, SD&A expenses decreased to
30.8 percent in fiscal year 2007, compared to
31.2 percent in fiscal year 2006 due primarily to lower
operating costs in Romania.
In the U.S., SD&A expenses increased $53.9 million, or
5.3 percent, to $1,066.5 million in fiscal year 2007,
compared to $1,012.6 million in the prior year. As a
percentage of net sales, SD&A expenses were
31.5 percent in fiscal year 2007 compared to
31.2 percent in the prior year. SD&A expenses
increased in fiscal year 2007 primarily due to higher
compensation and benefit costs. In fiscal year 2007, SD&A
expenses also included $3.8 million in realized gains from
the settlement of derivative financial instruments. These
instruments were used to manage the risks associated with the
variability in the market price for forecasted purchases of
diesel fuel. Comparisons between periods were also impacted by
various items in fiscal year 2006, including a $3.7 million
benefit recorded as a result of a change in our estimate of
healthcare costs and a $9.0 million benefit from lower
medical costs, partly offset by a fixed asset charge of
$6.5 million for marketing and merchandising equipment.
In CEE, SD&A expenses increased $87.7 million, or
52.1 percent, to $256.0 million from
$168.3 million in the prior year. Acquisitions contributed
29.1 percentage points of this increase. The remainder of
the increase was due to the unfavorable impact of foreign
currency translation, volume growth and higher advertising and
marketing expenses. As a percentage of net sales, SD&A
expenses improved to 30.1 percent compared to
34.8 percent in the prior year, primarily due to lower
overall operating costs in Romania as compared to the other
markets in CEE.
32
In the Caribbean, SD&A expenses increased
$0.9 million, or 1.6 percent, to $58.4 million in
fiscal year 2007 from $57.5 million in the prior year.
SD&A expenses as a percentage of net sales in fiscal year
2007 were essentially flat compared to the prior year.
Special Charges. In fiscal year 2007,
we recorded special charges of $6.3 million. In the U.S.,
we recorded $4.8 million of special charges associated with
our strategic alignment to further strengthen our customer
focused go-to-market strategy, primarily related to severance
and relocation costs. In CEE, we recorded special charges of
$1.5 million related to a lease termination in Hungary and
associated severance costs.
Operating Income. Operating income for
fiscal years 2007 and 2006 was as follows (dollar amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
U.S.
|
|
$
|
331.6
|
|
|
$
|
330.1
|
|
|
|
0.5
|
%
|
CEE
|
|
|
100.5
|
|
|
|
20.9
|
|
|
|
380.9
|
%
|
Caribbean
|
|
|
4.0
|
|
|
|
5.0
|
|
|
|
(20.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
436.1
|
|
|
$
|
356.0
|
|
|
|
22.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income increased $80.1 million, or
22.5 percent, to $436.1 million in fiscal year 2007,
compared to $356.0 million in fiscal year 2006. The
favorable impact of foreign currency translation added
approximately 7 percentage points to the growth in
worldwide operating income and acquisitions added approximately
10 percentage points of growth.
Operating income in the U.S. increased $1.5 million to
$331.6 million in fiscal year 2007, compared to
$330.1 million in fiscal year 2006. The increase was due to
lower special charges and higher net pricing, partly offset by
volume declines, higher cost of goods sold and higher SD&A
expenses.
Operating income in CEE increased $79.6 million to
$100.5 million in fiscal year 2007, compared to operating
income of $20.9 million in fiscal year 2006. This increase
was primarily due to acquisitions, which contributed
approximately 45 percentage points of this growth. The
remainder of the growth was primarily due to volume growth,
increases in net pricing and the beneficial impact of foreign
currency translation, which contributed approximately
30 percentage points of operating income growth.
Operating income in the Caribbean decreased $1.0 million to
$4.0 million in fiscal year 2007, compared to
$5.0 million in fiscal year 2006. The decline in operating
income was caused by the soft economic environment in Puerto
Rico, which was partly offset by operating income growth in
Jamaica.
Interest Expense and Other
Expenses. Net interest expense increased
$7.9 million in fiscal year 2007 to $109.2 million,
compared to $101.3 million in fiscal year 2006, due
primarily to higher interest rates on floating rate debt and
higher overall debt levels related to our acquisitions, partly
offset by lower interest expense related to our securitization
program.
We recorded other expense, net, of $0.6 million in fiscal
year 2007 compared to other expense, net, of $11.7 million
reported in fiscal year 2006. The decrease in other expense,
net, was due primarily to a $10.2 million gain on the sale
of non-core property in fiscal year 2007, offset partly by a
$4.0 million other-than-temporary impairment related to an
equity security investment in Northfield Laboratories, Inc.
Income Taxes. The effective income tax
rate, which is income tax expense expressed as a percentage of
income from continuing operations before income taxes, minority
interest and equity in net earnings of nonconsolidated
companies, was 34.3 percent for fiscal year 2007, compared
to 37.2 percent in fiscal year 2006. The effective tax rate
decreased from the prior year due, in part, to the mix of
country results and the associated lower in-country tax rates.
The effective income tax rate was also favorably impacted by a
reorganization of the legal entity structure in CEE in the
second quarter of 2007.
Equity in Net Earnings of Nonconsolidated
Companies. In the second quarter of 2005, we
acquired a 49 percent interest in QABCL. Equity in net
earnings of nonconsolidated companies was $5.6 million in
fiscal
33
year 2006. With the acquisition of the remaining
51 percent, we consolidated QABCL results beginning in the
third quarter of fiscal year 2006.
Loss on Discontinued Operations. In
fiscal year 2007, we recorded a charge of $2.1 million, net
of taxes, related to revised estimates for environmental
remediation, legal and related administrative costs.
Net Income. Net income increased
$53.8 million to $212.1 million in fiscal year 2007,
compared to $158.3 million in fiscal year 2006. The
discussion of our operating results, included above, explains
the increase in net income.
Operating
Results — 2006 compared with 2005
Volume. Sales volume growth for fiscal
years 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
As Reported
|
|
2006
|
|
|
2005
|
|
|
U.S.
|
|
|
0.6
|
%
|
|
|
7.4
|
%
|
CEE
|
|
|
34.5
|
%
|
|
|
3.3
|
%
|
Caribbean
|
|
|
1.6
|
%
|
|
|
3.4
|
%
|
Worldwide
|
|
|
5.6
|
%
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Compared to 2005
|
|
Volume Change
|
|
U.S.
|
|
|
CEE
|
|
|
Caribbean
|
|
|
Worldwide
|
|
|
Constant territory volume
|
|
|
0.6
|
%
|
|
|
10.0
|
%
|
|
|
1.6
|
%
|
|
|
2.0
|
%
|
Acquisitions
|
|
|
—
|
%
|
|
|
24.5
|
%
|
|
|
—
|
%
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in volume
|
|
|
0.6
|
%
|
|
|
34.5
|
%
|
|
|
1.6
|
%
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal year 2006, worldwide volume increased 5.6 percent
compared to the prior year driven by growth in all three
geographic segments, coupled with the impact of the QABCL
acquisition.
Total volume in the U.S. grew 0.6 percent in fiscal
year 2006. Non-carbonated beverages grew approximately
30 percent during fiscal year 2006, driven by the strong
growth in both Trademark Aquafina and Lipton Iced Teas.
Trademark Aquafina volume increased approximately
39 percent and Trademark Lipton volume increased
approximately 42 percent during fiscal year 2006. This
growth was partially offset by softness in our carbonated soft
drink category, which declined 4 percent compared to fiscal
year 2005. This softness was due in part to our consumers’
continued shift into the non-carbonated beverage category.
Non-carbonated beverages constituted 18 percent of our
sales volume during fiscal year 2006, an increase of
4 percentage points compared to fiscal year 2005.
Total volume in CEE increased 34.5 percent during fiscal
year 2006. The acquisition of QABCL in fiscal year 2006
contributed 24.5 percentage points of volume growth during
the period. The remaining growth was driven by strong
performances across all brands and categories. Carbonated soft
drink volume grew approximately 10 percent during fiscal
year 2006, which reflected strong growth in Trademark Slice and
Trademark Pepsi. Non-carbonated beverage growth of approximately
16 percent in fiscal year 2006 was driven by double-digit
growth in Lipton products and the juice category, which includes
Tropicana and Toma.
Volume in the Caribbean increased 1.6 percent during fiscal
year 2006 compared to fiscal year 2005. Volume grew despite the
challenging business environment in Puerto Rico and Jamaica
during the second quarter of 2006. Volume growth was driven by
35 percent growth in the non-carbonated beverage category,
partly offset by flat growth in Trademark Pepsi. The
non-carbonated beverage category growth was driven primarily by
contributions from Tropicana and energy drinks.
34
Net Sales. Net sales and net pricing
statistics for fiscal years 2006 and 2005 were as follows
(dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
U.S.
|
|
$
|
3,245.8
|
|
|
$
|
3,156.1
|
|
|
|
2.8
|
%
|
CEE
|
|
|
484.1
|
|
|
|
343.5
|
|
|
|
40.9
|
%
|
Caribbean
|
|
|
242.5
|
|
|
|
226.4
|
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
3,972.4
|
|
|
$
|
3,726.0
|
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Compared to 2005
|
|
Net Sales Change
|
|
U.S.
|
|
|
CEE
|
|
|
Caribbean
|
|
|
Worldwide
|
|
|
Volume impact *
|
|
|
0.5
|
%
|
|
|
8.8
|
%
|
|
|
1.4
|
%
|
|
|
1.8
|
%
|
Net price per case, excluding impact of currency translation
|
|
|
1.1
|
%
|
|
|
3.6
|
%
|
|
|
6.6
|
%
|
|
|
1.2
|
%
|
Acquisitions
|
|
|
—
|
%
|
|
|
23.5
|
%
|
|
|
—
|
%
|
|
|
2.2
|
%
|
Currency translation
|
|
|
—
|
%
|
|
|
3.1
|
%
|
|
|
(1.2
|
)%
|
|
|
0.2
|
%
|
Non-core
|
|
|
1.2
|
%
|
|
|
1.9
|
%
|
|
|
0.3
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net sales
|
|
|
2.8
|
%
|
|
|
40.9
|
%
|
|
|
7.1
|
%
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The amounts in this table represent the dollar impact on net
sales due to changes in volume and are not intended to equal the
absolute change in volume. |
|
|
|
|
|
|
|
|
|
Net Pricing Growth **
|
|
2006
|
|
|
2005
|
|
|
U.S.
|
|
|
1.1
|
%
|
|
|
3.6
|
%
|
CEE
|
|
|
7.2
|
%
|
|
|
4.3
|
%
|
Caribbean
|
|
|
5.4
|
%
|
|
|
4.2
|
%
|
Worldwide
|
|
|
0.5
|
%
|
|
|
3.9
|
%
|
|
|
|
** |
|
Includes the impact from acquisitions and currency translation
on core revenue. |
Net sales in fiscal year 2006 increased $246.4 million, or
6.6 percent, to $3,972.4 million. The acquisition of
QABCL contributed 2.2 percentage points of growth, with the
remaining increase driven by volume growth and an increase in
net pricing.
Net sales in the U.S. in fiscal year 2006 increased
$89.7 million, or 2.8 percent, to
$3,245.8 million. The increase in net sales was due to the
1.1 percent increase in net pricing and 0.6 percent
volume growth. The improvement in net pricing was driven by rate
increases of 2.0 percent, partly offset by a negative
package mix. During fiscal year 2006, a shift in package mix
from single-serve to take-home packages caused a decrease in
overall net pricing.
Net sales in CEE increased $140.6 million, or
40.9 percent, to $484.1 million in fiscal year 2006.
The increase reflected the QABCL acquisition, which contributed
23.5 percentage points of growth in net sales. The
remainder of the increase resulted from volume growth and higher
net pricing, including a 3.1 percent contribution to net
sales from foreign currency translation. The net pricing
increase on a local currency basis was primarily driven by a
higher mix of the single-serve package.
Caribbean net sales increased $16.1 million, or
7.1 percent, to $242.5 million in fiscal year 2006.
Both a net selling price increase of 5.4 percent and volume
growth of 1.6 percent drove the increase in net sales. This
level of net selling price increase was necessitated by higher
raw materials costs, including sugar.
35
Cost of Goods Sold. Cost of goods sold
and cost of goods sold per unit statistics for fiscal years 2006
and 2005 were as follows (dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
U.S.
|
|
$
|
1,891.6
|
|
|
$
|
1,784.9
|
|
|
|
6.0
|
%
|
CEE
|
|
|
292.7
|
|
|
|
211.3
|
|
|
|
38.5
|
%
|
Caribbean
|
|
|
180.0
|
|
|
|
167.3
|
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
2,364.3
|
|
|
$
|
2,163.5
|
|
|
|
9.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Compared to 2005
|
|
Cost of Goods Sold Change
|
|
U.S.
|
|
|
CEE
|
|
|
Caribbean
|
|
|
Worldwide
|
|
|
Volume impact *
|
|
|
0.5
|
%
|
|
|
8.7
|
%
|
|
|
1.4
|
%
|
|
|
1.2
|
%
|
Cost per case impact, excluding impact of currency translation
|
|
|
4.3
|
%
|
|
|
3.1
|
%
|
|
|
7.7
|
%
|
|
|
4.0
|
%
|
Acquisitions
|
|
|
—
|
%
|
|
|
22.4
|
%
|
|
|
—
|
%
|
|
|
2.2
|
%
|
Currency translation
|
|
|
—
|
%
|
|
|
2.6
|
%
|
|
|
(1.3
|
)%
|
|
|
0.2
|
%
|
Non-core
|
|
|
1.2
|
%
|
|
|
1.7
|
%
|
|
|
(0.2
|
)%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cost of goods sold
|
|
|
6.0
|
%
|
|
|
38.5
|
%
|
|
|
7.6
|
%
|
|
|
9.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The amounts in this table represent the dollar impact on cost of
goods sold due to changes in volume and are not intended to
equal the absolute change in volume. |
|
|
|
|
|
|
|
|
|
Cost of Goods Sold per Unit Increase**
|
|
2006
|
|
|
2005
|
|
|
U.S.
|
|
|
4.3
|
%
|
|
|
3.4
|
%
|
CEE
|
|
|
5.4
|
%
|
|
|
11.1
|
%
|
Caribbean
|
|
|
6.4
|
%
|
|
|
5.8
|
%
|
Worldwide
|
|
|
3.2
|
%
|
|
|
4.5
|
%
|
|
|
|
** |
|
Includes the impact from acquisitions and currency translation
on core cost of goods sold. |
Cost of goods sold increased $200.8 million, or
9.3 percent, to $2,364.3 million. The growth in cost
of goods sold during fiscal year 2006 was driven primarily by
cost of goods sold per unit increases, volume growth and the
impact of acquisitions. Worldwide cost of goods sold per unit
increases were driven primarily by increases in raw material
costs, including higher concentrate costs, and package mix
shifts on a constant territory basis. Package mix changes were
driven by shifts to higher cost products as a result of volume
growth in our non-carbonated beverage portfolio. The worldwide
cost of goods sold per unit was favorably impacted by the
consolidation of QABCL during fiscal year 2006.
In the U.S., cost of goods sold increased $106.7 million,
or 6.0 percent, to $1,891.6 million during fiscal year
2006. The increase was primarily driven by a higher cost of
goods sold per unit. Cost of goods sold per unit increased
4.3 percent in the U.S., primarily due to higher raw
material prices across all commodities, as well as the impact of
mix shifts to higher cost non-carbonated beverages.
In CEE, cost of goods sold increased $81.4 million, or
38.5 percent, to $292.7 million during fiscal year
2006. Cost of goods sold increased due to the acquisition of
QABCL, which contributed 22.4 percentage points of growth.
The remainder of the increase was due to volume growth of
10.0 percent on a constant territory basis, higher cost of
goods sold per unit, and the unfavorable impact of foreign
currency translation, which increased cost of goods sold
2.6 percent. Cost of goods sold per unit increased
5.4 percent due to higher concentrate, resin and sugar
costs.
In the Caribbean, cost of goods sold increased
$12.7 million, or 7.6 percent, to $180.0 million
during fiscal year 2006. The increase was mainly driven by an
increase in cost of goods sold per unit of 6.4 percent and
volume growth of 1.6 percent. Cost of goods sold per unit
increased due to higher raw material costs, including
concentrate and sweeteners, and higher utility costs.
36
Selling, Delivery and Administrative
Expenses. SD&A expenses and SD&A
statistics for fiscal years 2006 and 2005 were as follows
(dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
SD&A Expenses
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
U.S.
|
|
$
|
1,012.6
|
|
|
$
|
1,000.1
|
|
|
|
1.2
|
%
|
CEE
|
|
|
168.3
|
|
|
|
128.2
|
|
|
|
31.3
|
%
|
Caribbean
|
|
|
57.5
|
|
|
|
54.9
|
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
1,238.4
|
|
|
$
|
1,183.2
|
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Compared to 2005
|
|
SD&A Expense Change
|
|
U.S.
|
|
|
CEE
|
|
|
Caribbean
|
|
|
Worldwide
|
|
|
Cost impact
|
|
|
1.2
|
%
|
|
|
14.2
|
%
|
|
|
5.7
|
%
|
|
|
2.8
|
%
|
Acquisitions
|
|
|
—
|
%
|
|
|
16.2
|
%
|
|
|
—
|
%
|
|
|
1.8
|
%
|
Currency translation
|
|
|
—
|
%
|
|
|
0.9
|
%
|
|
|
(1.0
|
)%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in SD&A expense
|
|
|
1.2
|
%
|
|
|
31.3
|
%
|
|
|
4.7
|
%
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SD&A Expenses as a Percent of Net Sales
|
|
2006
|
|
|
2005
|
|
|
U.S.
|
|
|
31.2
|
%
|
|
|
31.7
|
%
|
CEE
|
|
|
34.8
|
%
|
|
|
37.3
|
%
|
Caribbean
|
|
|
23.7
|
%
|
|
|
24.2
|
%
|
Worldwide
|
|
|
31.2
|
%
|
|
|
31.8
|
%
|
In fiscal year 2006, SD&A expenses increased
$55.2 million, or 4.7 percent, to
$1,238.4 million from $1,183.2 million in the prior
year. As a percentage of net sales, SD&A expenses decreased
to 31.2 percent in fiscal year 2006, compared to
31.8 percent in fiscal year 2005 due primarily to the lower
operating costs as a result of cost containment initiatives in
both the U.S. and CEE. The QABCL acquisition did not have a
material impact on worldwide SD&A expenses as a percent of
net sales.
In the U.S., SD&A expenses increased $12.5 million to
$1,012.6 million in fiscal year 2006. The increase in
SD&A expenses was due, in part, to higher fuel costs, costs
related to the airforce Nutrisoda brand investment and stock
option expense related to the adoption of
SFAS No. 123(R). In addition, we recorded fixed asset
charges of $6.5 million in fiscal year 2006 for marketing
and merchandising equipment. These higher costs were partly
offset by lower workers’ compensation costs and lower costs
for employee benefits, driven by a $3.7 million benefit
recorded as a result of a change in our estimate of healthcare
costs and a $9.0 million benefit from lower medical
spending. In fiscal year 2005, we recorded a $1.4 million
expense for the early termination of a real estate lease for our
corporate offices in the Chicago area and $6.1 million of
expense related to the remaining obligations under this lease.
As a percentage of net sales, SD&A expenses decreased to
31.2 percent in fiscal year 2006, compared to
31.7 percent in the prior year.
In CEE, SD&A expenses increased $40.1 million, or
31.3 percent, to $168.3 million in fiscal year 2006.
The QABCL acquisition contributed 16.2 percentage points of
the increase. The remaining increase was driven by
10.0 percent constant territory volume growth and the
unfavorable impact of foreign currency translation, which
increased SD&A expenses 0.9 percent. In addition,
spending on advertising and marketing was higher than in fiscal
year 2005 to build brand awareness. Fiscal year 2006 was
benefited by a $0.7 million gain on a sale of land in the
Czech Republic, while fiscal year 2005 was benefited by a
$1.1 million gain from the sale of a facility in Hungary.
SD&A expenses as a percentage of net sales improved to
34.8 percent in fiscal year 2006, compared to
37.3 percent in the prior year primarily driven by the
QABCL acquisition which benefited this measure by
1.8 percentage points.
SD&A expenses in the Caribbean increased $2.6 million
to $57.5 million in fiscal year 2006. SD&A expenses as
a percentage of net sales was 23.7 percent in fiscal year
2006, a decline from 24.2 percent in the prior year.
SD&A expenses in fiscal year 2006 benefited
$0.6 million from the sale of a warehouse in
37
Barbados, partly offset by severance costs incurred as a result
of our entry into a new third-party distributor arrangement in
Jamaica.
Special Charges. In fiscal year 2006,
we recorded special charges of $11.5 million in the
U.S. related to our strategic realignment to further
strengthen our customer focused go-to-market strategy. These
special charges were primarily for severance and other employee
related costs, including the acceleration of vesting of certain
restricted stock awards. We also incurred costs associated with
consulting services in connection with the realignment project,
which were included in the special charges.
In addition, in fiscal year 2006, we recorded special charges of
$2.2 million in CEE, primarily for a reduction in the
workforce. These special charges were primarily for severance
costs and related benefits.
Operating Income. Operating income for
fiscal years 2006 and 2005 was as follows (dollar amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
U.S.
|
|
$
|
330.1
|
|
|
$
|
387.7
|
|
|
|
(14.9
|
)%
|
CEE
|
|
|
20.9
|
|
|
|
1.5
|
|
|
|
|
*
|
Caribbean
|
|
|
5.0
|
|
|
|
4.2
|
|
|
|
19.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide
|
|
$
|
356.0
|
|
|
$
|
393.4
|
|
|
|
(9.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Calculation of percentage is not meaningful |
Operating income decreased $37.4 million, or
9.5 percent, to $356.0 million in fiscal year 2006.
This was driven by special charges, the operating performance in
the U.S. during fiscal year 2006 and fructose settlement
income in fiscal year 2005. The decrease was partly offset by
the contribution of the QABCL acquisition and the strong
operating performance in CEE.
Operating income in the U.S. decreased $57.6 million,
or 14.9 percent, to $330.1 million in fiscal year
2006. Fiscal year 2005 included $16.6 million of fructose
settlement income. The remaining decline in U.S. operating
income was attributed to higher cost of goods sold, continued
carbonated soft drink volume declines, a shift in our package
mix to less profitable products and higher SD&A expenses.
Operating income in CEE increased $19.4 million to
$20.9 million in fiscal year 2006, due to the contribution
made by the QABCL acquisition and the operating performance of
the constant territories. Fiscal year 2006 was favorably
impacted by foreign currency translation of $3.9 million.
Operating income in the Caribbean increased $0.8 million to
$5.0 million in fiscal year 2006 compared to
$4.2 million in fiscal year 2005. Volume growth and the
increase in net pricing contributed to this improvement.
Interest and Other Expenses. Net
interest expense increased $11.4 million to
$101.3 million in fiscal year 2006 compared to
$89.9 million in the prior year. This increase was due
primarily to higher interest rates on floating rate debt and
higher overall debt levels. The higher debt levels were
primarily due to the acquisition of the remaining interest in
QABCL in fiscal year 2006. Interest expense in fiscal year 2005
included a $5.6 million loss related to the early
extinguishment of debt, partly offset by the receipt of
$1.5 million of interest income related to a real estate
tax appeals refund on a previously sold parcel of land.
We recorded other expense, net, of $11.7 million in fiscal
year 2006 compared to other expense, net, of $5.0 million
in fiscal year 2005. In fiscal year 2006, we recorded a
$7.3 million other-than-temporary impairment related to an
equity security investment in Northfield Laboratories, Inc. This
was partially offset by foreign currency transaction gains of
$1.3 million and a gain of $0.9 million on the sale of
investments. Fiscal year 2005 included foreign currency
transaction losses of $3.3 million.
Income Taxes. The effective income tax
rate, which is income tax expense expressed as a percentage of
income from continuing operations before income taxes, minority
interest and equity in net earnings of
38
nonconsolidated companies, was 37.2 percent for fiscal year
2006 compared to 36.4 percent for fiscal year 2005. The
current year’s rate was unfavorably impacted by the mix of
our international operations.
In fiscal year 2005, we recorded a $1.6 million benefit
related to the reversal of valuation allowances for certain net
operating loss carryforwards offset by tax contingency
requirements. In addition, we recorded a $0.9 million
benefit from a state income tax law change in the state of Ohio.
Equity in Net Earnings of Nonconsolidated
Companies. In June 2005, we acquired a
49 percent interest in QABCL. Equity in net earnings of
nonconsolidated companies was $5.6 million in fiscal year
2006, which reflects our equity interest in QABCL until we
acquired the remaining 51 percent of the outstanding common
stock at the beginning of the third quarter of 2006.
Net Income. Net income decreased
$36.4 million to $158.3 million in fiscal year 2006,
compared to $194.7 million in fiscal year 2005. The
discussion of our operating results, included above, explains
the decrease in net income.
Liquidity
and Capital Resources
Operating Activities. Net cash provided
by operating activities of continuing operations increased by
$89.7 million to $433.5 million in fiscal year 2007,
compared to $343.8 million in fiscal year 2006. This
increase can mainly be attributed to higher net income and the
favorable year-over-year benefit from changes in primary working
capital. The benefit from changes in primary working capital was
due to improvements in cash flows from all components of primary
working capital, namely accounts receivable, inventory and
accounts payable, due to the timing of cash flows and management
of working capital items.
Net cash provided by operating activities was favorably impacted
by the year-over-year decrease in contributions made to our
pension plans. We contributed $0.9 million to our pension
plans in fiscal year 2007 compared to $10.0 million in
fiscal year 2006. A minimum contribution of $0.4 million to
our pension plans is required under the minimum funding
standards in fiscal year 2008. At the current time, we do not
anticipate making any additional contributions to our pension
plans during 2008. We do not believe that any known trends or
uncertainties related to our pension plans will result in a
material change in our results of operations, financial
condition, or our liquidity.
Investing Activities. Investing
activities during fiscal year 2007 included capital investments
of $264.6 million, an increase of $95.3 million from
capital investments of $169.3 million in fiscal year 2006.
Capital spending in fiscal year 2007 increased primarily due to
higher spending on machinery and equipment, marketing equipment
and a progress payment on a corporate aircraft. Capital spending
in fiscal year 2008 is expected to be in the range of
$250 million to $260 million.
In the third quarter of 2007, a PepsiAmericas and PepsiCo joint
venture acquired an 80 percent interest in Sandora. In the
fourth quarter of 2007, the joint venture acquired the remaining
20 percent. Under the terms of the joint venture agreement,
we hold a 60 percent interest and PepsiCo holds a
40 percent interest in the joint venture. The total
purchase price of $679.4 million was net of cash received
of $3.0 million. Of the total purchase price, our interest
was $407.6 million. Reflected in financing activities was
cash received from PepsiCo of $271.8 million. Additionally,
we acquired $72.5 million of debt as part of the
acquisition. As of the end of fiscal year 2007,
$45.0 million of total long-term debt was classified in
“Short-term debt, including current maturities of long-term
debt” in the Consolidated Balance Sheet as we intend to
refinance this debt with short-term financing in fiscal year
2008.
In the third quarter of 2007, we purchased a 20 percent
interest in a joint venture that owns Agrima. Agrima produces,
sells and distributes PepsiCo products and other beverages
throughout Bulgaria.
Proceeds from the sale of property and equipment in fiscal year
2007 were $29.2 million compared to $9.7 million in
fiscal year 2006. In fiscal year 2007, we received proceeds of
$20.7 million related to the sale of non-core property,
which consisted of railcars and locomotives.
In fiscal year 2005, we acquired 49 percent of the
outstanding stock of QABCL for $51.0 million. During fiscal
year 2006, we acquired the remaining 51 percent of the
outstanding stock of QABCL for $81.9 million,
39
net of $17.0 million cash acquired. We acquired
$55.4 million of debt as part of the acquisition. The
increased purchase price for the remainder of QABCL was due to
the improved operating performance subsequent to the initial
acquisition of our 49 percent minority investment.
In fiscal year 2006, we also completed the acquisition of Ardea
Beverage Co., the maker of the airforce Nutrisoda line of drinks
for $6.6 million. The purchase agreement contained
contingent consideration of $3.3 million that was finalized
and paid in fiscal year 2007.
Financing Activities. Our total debt
increased $438.0 million to $2,141.1 million as of the
end of fiscal year 2007, from $1,703.1 million as of the
end of fiscal year 2006. During fiscal year 2007, we paid
$11.6 million at maturity of the 8.25 percent notes
due February 2007 and $27.4 million at maturity of the
3.875 notes due September 2007.
In fiscal year 2007, we issued $300 million of notes with a
coupon rate of 5.75 percent due July 2012. The securities
are unsecured, senior debt obligations and rank equally with all
other unsecured and unsubordinated indebtedness. Net proceeds
from this transaction were $297.2 million, which reflected
the discount reduction of $0.8 million and the debt
issuance costs of $2.0 million. The net proceeds from the
issuance of the notes were used to fund the acquisition of
Sandora, to repay commercial paper and for other general
corporate purposes. In fiscal year 2007, we also borrowed
$1.0 million in long-term debt in the Bahamas.
In fiscal year 2006, we issued $250 million of notes due
May 2011 with a coupon rate of 5.625 percent. Net proceeds
from this issuance were $247.4 million, which included a
reduction for discount and issuance costs. The proceeds from the
issuance were used primarily to repay our commercial paper
obligations and for other general corporate purposes.
In January 2005, we issued $300 million of notes due
January 2015 with a coupon rate of 4.875 percent. Net
proceeds from the transaction were $297.0 million, which
reflected the reduction for discount and issuance costs. The
proceeds from this issuance were used to fund the acquisition of
CIC.
In May 2005, we issued $250 million of notes due May 2017
with a coupon rate of 5.0 percent and $250 million of
notes due May 2035 with a coupon rate of 5.5 percent. Net
proceeds from these issuances were $492.3 million, which
reflected the reduction for discount and issuance costs. The
proceeds from these issuances were used, in part, to fund the
debt tender offer in May 2005.
In May 2005, we completed a cash tender offer related to
$550 million of our outstanding debt. The total principal
amount of securities tendered was $388.0 million. The cash
payment to the bondholders for this transaction, including
accrued interest and premiums, was $395.3 million. As a
result of the tender offer we recorded a loss on the early
extinguishment of debt in fiscal year 2005 of $5.6 million,
which is recorded in “Interest expense, net” on our
Consolidated Statement of Income.
We utilize revolving credit facilities both in the U.S. and
in our international operations to fund short-term financing
needs, primarily for working capital. In the U.S., we have an
unsecured revolving credit facility under which we can borrow up
to an aggregate of $600 million. The facility is for
general corporate purposes, including commercial paper backstop.
It is our policy to maintain a committed bank facility as backup
financing for our commercial paper program. The interest rates
on the revolving credit facility, which expires in 2011, are
based primarily on the London Interbank Offered Rate.
Accordingly, we have a total of $600 million available
under our commercial paper program and revolving credit facility
combined. We had $269.5 million of commercial paper
borrowings at the end of fiscal year 2007, compared to
$164.5 million at the end of fiscal year 2006.
Internationally, excluding Sandora, we had revolving credit
facility borrowings of $8.7 million as of the end of fiscal
year 2007 compared to $9.2 million as of the end of fiscal
year 2006. We acquired $15.8 million of short-term debt
associated with Sandora, which decreased to $14.0 million
at the end of fiscal year 2007.
Since fiscal year 2001, we have executed a strategy to
repurchase our stock. On July 21, 2005, our Board of
Directors approved the repurchase of 20 million additional
shares under a previously authorized repurchase program. This
authorization was in addition to previous authorizations
approved in both fiscal years 2001 and
40
2002. At the end of fiscal year 2007, 7.2 million shares
remained available for repurchase under the 2005 authorization.
During fiscal year 2007, we repurchased 2.7 million shares
of our common stock for $59.4 million. During fiscal year
2006, we repurchased 6.3 million shares of our common stock
for $150.7 million. During fiscal year 2005, we repurchased
10.1 million shares of our common stock for
$239.2 million.
Our Board of Directors has declared quarterly dividends of $0.13
per share on PepsiAmericas common stock for each quarter in
fiscal year 2007. The fourth quarter dividend was payable
January 2, 2008 to shareholders of record on
December 14, 2007. We paid cash dividends of
$65.2 million in fiscal year 2007, which included the
fourth quarter of 2006 dividend of $15.9 million. The
fourth quarter of 2006 dividend was based on a dividend rate of
$0.125 per share. As of the end of fiscal year 2007,
$16.6 million of dividends were declared and not yet paid
and were included in “Payables” in the Consolidated
Balance Sheets. During fiscal year 2006 and 2005, we paid cash
dividends of $59.3 million and $35.1 million,
respectively, based on a quarterly dividend rate of $0.125 and
$0.085 per share, respectively.
Our debt agreements contain a number of covenants that limit,
among other things, the creation of liens, sale and leaseback
transactions and the general sale of assets. Our revolving
credit agreement requires us to maintain an interest coverage
ratio. We are in compliance with all of our financial covenants.
We believe that our operating cash flows are sufficient to fund
our existing operations and contractual obligations for the
foreseeable future. In addition, we believe that our operating
cash flows, available lines of credit, and the potential for
additional debt and equity offerings will provide sufficient
resources to fund our future growth and expansion. There are a
number of options available to us and we continue to examine the
optimal uses of our cash, including reinvesting in our existing
business, pursuing acquisitions with an appropriate expected
economic return, repurchasing our stock and paying dividends to
our shareholders.
Contractual
Obligations
The following table provides a summary of our contractual
obligations as of the end of fiscal year 2007, by due date.
Long-term debt obligations do not include amounts related to the
fair value adjustment for interest rate swaps and unamortized
discount from debt issuance. Our short-term and long-term debt,
lease commitments, purchase obligations and advertising and
exclusivity rights are more fully described in Notes 12, 13
and 20, respectively, in the Notes to the Consolidated Financial
Statements. Our interest obligations relate to our contractual
obligations under our fixed-rate long-term debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Commercial paper and notes payable
|
|
$
|
288.8
|
|
|
$
|
288.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Long-term debt obligations
|
|
|
1,834.3
|
|
|
|
45.1
|
|
|
|
150.1
|
|
|
|
0.1
|
|
|
|
250.1
|
|
|
|
300.1
|
|
|
|
1,088.8
|
|
Interest obligations
|
|
|
975.9
|
|
|
|
99.1
|
|
|
|
93.6
|
|
|
|
88.9
|
|
|
|
81.9
|
|
|
|
74.2
|
|
|
|
538.2
|
|
Advertising commitments and exclusivity rights
|
|
|
75.1
|
|
|
|
28.5
|
|
|
|
16.3
|
|
|
|
11.6
|
|
|
|
7.3
|
|
|
|
3.8
|
|
|
|
7.6
|
|
Raw material purchase obligations
|
|
|
27.8
|
|
|
|
23.6
|
|
|
|
0.3
|
|
|
|
3.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Lease obligations
|
|
|
119.9
|
|
|
|
20.3
|
|
|
|
16.5
|
|
|
|
13.2
|
|
|
|
10.0
|
|
|
|
8.6
|
|
|
|
51.3
|
|
Other purchase obligations
|
|
|
5.0
|
|
|
|
—
|
|
|
|
5.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
3,326.8
|
|
|
$
|
505.4
|
|
|
$
|
281.8
|
|
|
$
|
117.7
|
|
|
$
|
349.3
|
|
|
$
|
386.7
|
|
|
$
|
1,685.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not included in the table above are contingent payments for
uncertain tax positions of $36.4 million. These amounts
were not included due to our inability to predict the timing of
the settlement of these amounts.
Discontinued Operations. We continue to
be subject to certain indemnification obligations, net of
insurance, under agreements related to previously sold
subsidiaries, including indemnification expenses for potential
environmental and tort liabilities of these former subsidiaries.
There is significant uncertainty in
41
assessing our potential expenses for complying with our
indemnification obligations, as the determination of such
amounts is subject to various factors, including possible
insurance recoveries and the allocation of liabilities among
other potentially responsible and financially viable parties.
Accordingly, the ultimate settlement and timing of cash
requirements related to such indemnification obligations may
vary significantly from the estimates included in our financial
statements. As of the end of fiscal year 2007, we had recorded
$40.2 million in liabilities for future remediation and
other related costs arising out of our indemnification
obligations. This amount excludes possible insurance recoveries
and is determined on an undiscounted cash flow basis. In
addition, we have funded coverage pursuant to an insurance
policy (the “Finite Funding”) purchased in fiscal year
2002, which reduces the cash required to be paid by us for
certain environmental sites pursuant to our indemnification
obligations. The Finite Funding receivable amount recorded was
$11.5 million as of the end of fiscal year 2007, of which
$4.7 million is expected to be recovered in 2008 based on
our expenditures, and thus, was included as a current asset in
the Consolidated Balance Sheet.
During fiscal years 2007 and 2006, we paid, net of taxes,
$10.4 million and $11.1 million, respectively, related
to such indemnification obligations, including the offsetting
benefit of insurance recovery settlements of $4.9 million
and $6.5 million, respectively, on an after-tax basis. We
expect to spend approximately $19 million on a pretax basis
in fiscal year 2008 related to our indemnification obligations,
excluding possible insurance recoveries and the benefit of
income taxes (See “Environmental Matters” in
Item 1 and Note 20 to the Consolidated Financial
Statements for further discussion of discontinued operations and
related environmental liabilities).
Off-Balance
Sheet Arrangements
It is not our business practice to enter into off-balance sheet
arrangements, other than in the normal course of business, nor
is it our policy to issue guarantees to nonconsolidated
affiliates or third parties.
Critical
Accounting Policies
The preparation of the Consolidated Financial Statements in
conformity with U.S generally accepted accounting principles
requires management to use estimates. We base our estimates on
historical experience, available information and various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about carrying amounts of assets and liabilities that
are not readily apparent from other sources. Actual results
could differ from those estimates, and revisions to estimates
are included in our results for the period in which the actual
amounts or revisions become known. Presented in our notes to the
Consolidated Financial Statements is a summary of our most
significant accounting policies used in the preparation of such
statements. Significant estimates in the Consolidated Financial
Statements include recoverability of goodwill and intangible
assets with indefinite lives, environmental liabilities, income
taxes, casualty insurance costs and pension and post-retirement
benefits, which are described in further detail below:
Recoverability of Goodwill and Intangible Assets with
Indefinite Lives. Goodwill and intangible
assets with indefinite useful lives are not amortized, but
instead tested annually for impairment or more frequently if
events or changes in circumstances indicate that an asset might
be impaired.
Goodwill is tested for impairment using a two-step approach at
the reporting unit level: U.S., CEE and the Caribbean. First, we
estimate the fair value of the reporting units primarily using
discounted estimated future cash flows. If the carrying amount
exceeds the fair value of the reporting unit, the second step of
the goodwill impairment test is performed to measure the amount
of the potential loss. Goodwill impairment is measured by
comparing the “implied fair value” of goodwill with
its carrying amount.
Our identified intangible assets with indefinite lives
principally arise from the allocation of the purchase price of
businesses acquired, and consist primarily of trademarks and
tradenames and franchise and distribution agreements. Impairment
is measured as the amount by which the carrying amount of the
intangible asset exceeds its estimated fair value. The estimated
fair value is generally determined on the basis of discounted
future cash flows.
42
The impairment evaluation requires the use of considerable
management judgment to determine the fair value of the goodwill
and intangible assets with indefinite lives using discounted
future cash flows, including estimates and assumptions regarding
the amount and timing of cash flows, cost of capital and growth
rates.
Environmental Liabilities. We continue
to be subject to certain indemnification obligations under
agreements related to previously sold subsidiaries, including
potential environmental liabilities (see “Environmental
Matters” in Item 1 and Note 20 to the
Consolidated Financial Statements for further discussion). We
have recorded our best estimate of our probable liability under
those indemnification obligations. The estimated indemnification
liabilities include expenses for the remediation of identified
sites, payments to third parties for claims and expenses
(including product liability and toxic tort claims),
administrative expenses, and the expense of on-going evaluations
and litigation. Such estimates and the recorded liabilities are
subject to various factors, including possible insurance
recoveries, the allocation of liabilities among other
potentially responsible parties, the advancement of technology
for means of remediation, possible changes in the scope of work
at the contaminated sites, as well as possible changes in
related laws, regulations, and agency requirements. We do not
discount environmental liabilities.
Income Taxes. Our effective income tax
rate is based on income, statutory tax rates and tax planning
opportunities available to us in the various jurisdictions in
which we operate. We have established valuation allowances
against a portion of the foreign net operating losses and
state-related net operating losses to reflect the uncertainty of
our ability to fully utilize these benefits given the limited
carryforward periods permitted by the various jurisdictions. The
evaluation of the realizability of our net operating losses
requires the use of considerable management judgment to estimate
the future taxable income for the various jurisdictions, for
which the ultimate amounts and timing of such realization may
differ. The valuation allowance can also be impacted by changes
in the tax regulations.
Significant judgment is required in determining our uncertain
tax positions. We have established accruals for uncertain tax
positions using management’s best judgment and adjust these
liabilities as warranted by changing facts and circumstances. A
change in our uncertain tax positions in any given period could
have a significant impact on our results of operations and cash
flows for that period.
Casualty Insurance Costs. Due to the
nature of our business, we require insurance coverage for
certain casualty risks. We are self-insured for workers
compensation, product and general liability up to
$1 million per occurrence and automobile liability up to
$2 million per occurrence. The casualty insurance costs for
our self-insurance program represent the ultimate net cost of
all reported and estimated unreported losses incurred during the
fiscal year. We do not discount casualty insurance liabilities.
Our liability for casualty costs is estimated using individual
case-based valuations and statistical analyses and is based upon
historical experience, actuarial assumptions and professional
judgment. These estimates are subject to the effects of trends
in loss severity and frequency and are based on the best data
available to us. These estimates, however, are also subject to a
significant degree of inherent variability. We evaluate these
estimates on an annual basis and we believe that they are
appropriate and within acceptable industry ranges, although an
increase or decrease in the estimates or economic events outside
our control could have a material impact on our results of
operations and cash flows. Accordingly, the ultimate settlement
of these costs may vary significantly from the estimates
included in our Consolidated Financial Statements.
Pension and Postretirement
Benefits. Our pension and other
postretirement benefit obligations and related costs are
calculated using actuarial assumptions. Two critical
assumptions, the discount rate and the expected return on plan
assets, are important elements of plan expense and liability
measurement. We evaluate these critical assumptions annually.
Other assumptions involve demographic factors such as
retirement, mortality, turnover, health care cost trends and
rate of compensation increases.
The discount rate is used to calculate the present value of
expected future pension and postretirement cash flows as of the
measurement date. The guideline for establishing this rate is
high-quality, long-term bond rates. A lower discount rate
increases the present value of benefit obligations and increases
pension
43
expense. The expected long-term rate of return on plan assets is
based on current and expected asset allocations, as well as
historical and expected returns on various categories of plan
assets. A lower-than-expected rate of return on pension plan
assets will increase pension expense. A 100 basis point
increase in the discount rate would decrease our annual pension
expense by $1.6 million. A 100 basis point decrease in
the discount rate would increase our annual pension expense by
$2.4 million. A 100 basis point increase in our
expected return on plan assets would decrease our annual pension
expense by $1.8 million. A 100 basis point decrease in
our expected return on plan assets would increase our annual
pension expense by $1.8 million. See Note 15 to the
Consolidated Financial Statements for additional information
regarding these assumptions.
Related
Party Transactions
Transactions
with PepsiCo
PepsiCo is considered a related party due to the nature of our
franchise relationship and PepsiCo’s ownership interest in
us. As of the end of fiscal year 2007, PepsiCo beneficially
owned approximately 44 percent of PepsiAmericas’
outstanding common stock. These shares are subject to a
shareholder agreement with our company. During fiscal year 2007,
approximately 90 percent of our total net sales were
derived from the sale of PepsiCo products. We have entered into
transactions and agreements with PepsiCo from time to time, and
we expect to enter into additional transactions and agreements
with PepsiCo in the future. Material agreements and transactions
between our company and PepsiCo are described below.
Pepsi franchise agreements are subject to termination only upon
failure to comply with their terms. Termination of these
agreements can occur as a result of any of the following: our
bankruptcy or insolvency; change of control of greater than
15 percent of any class of our voting securities; untimely
payments for concentrate purchases; quality control failure; or
failure to carry out the approved business plan communicated to
PepsiCo.
Bottling Agreements and Purchases of Concentrate and
Finished Product. We purchase concentrates
from PepsiCo and manufacture, package, distribute and sell cola
and non-cola beverages under various bottling agreements with
PepsiCo. These agreements give us the right to manufacture,
package, sell and distribute beverage products of PepsiCo in
both bottles and cans and fountain syrup in specified
territories. These agreements include a Master Bottling
Agreement and a Master Fountain Syrup Agreement for beverages
bearing the “Pepsi-Cola” and “Pepsi”
trademarks, including Diet Pepsi, in the United States. The
agreements also include bottling and distribution agreements for
non-cola products in the United States, and international
bottling agreements for countries outside the United States.
These agreements provide PepsiCo with the ability to set prices
of concentrates, as well as the terms of payment and other terms
and conditions under which we purchase such concentrates.
Concentrate purchases from PepsiCo included in cost of goods
sold totaled $892.4 million, $829.8 million and
$763.2 million for the fiscal years 2007, 2006 and 2005,
respectively. In addition, we bottle water under the
“Aquafina” trademark pursuant to an agreement with
PepsiCo that provides for payment of a royalty fee to PepsiCo,
which totaled $54.3 million, $50.2 million and
$36.9 million for the fiscal years 2007, 2006 and 2005,
respectively, and was included in cost of goods sold. We also
purchase finished beverage products from PepsiCo and certain of
its affiliates, including tea, concentrate and finished beverage
products from a Pepsi/Lipton partnership, as well as finished
beverage products from a PepsiCo/Starbucks partnership. Such
purchases are reflected in cost of goods sold and totaled
$210.0 million, $188.0 million and $161.0 million
for the fiscal years 2007, 2006 and 2005, respectively.
Bottler Incentives and Other Support
Arrangements. We share a business objective
with PepsiCo of increasing availability and consumption of
Pepsi-Cola beverages. Accordingly, PepsiCo provides us with
various forms of bottler incentives to promote its brands. The
level of this support is negotiated regularly and can be
increased or decreased at the discretion of PepsiCo. To support
volume and market share growth, the bottler incentives cover a
variety of initiatives, including direct marketplace, shared
media and advertising support. Worldwide bottler incentives from
PepsiCo totaled approximately $230.2 million,
$226.8 million, and $203.3 million for the fiscal
years ended 2007, 2006 and 2005, respectively. There are no
conditions or requirements that could result in the repayment of
any support payments we have received.
44
In accordance with Emerging Issues Task Force (“EITF”)
Issue
No. 02-16,
“Accounting by a Customer (including a Reseller) for
Certain Consideration Received from a Vendor,” bottler
incentives that are directly attributable to incremental
expenses incurred are reported as either an increase to net
sales or a reduction to SD&A expenses, commensurate with
the recognition of the related expense. Such bottler incentives
include amounts received for direct support of advertising
commitments and exclusivity agreements with various customers.
All other bottler incentives are recognized as a reduction of
cost of goods sold when the related products are sold based on
the agreements with vendors. Such bottler incentives primarily
include base level funding amounts which are fixed based on the
previous year’s volume and variable amounts that are
reflective of the current year’s volume performance.
Based on information received from PepsiCo, PepsiCo also
provided indirect marketing support to our marketplace, which
consisted primarily of media expenses. This indirect support is
not reflected or included in our Consolidated Financial
Statements, as these amounts were paid by PepsiCo on our behalf
to third parties.
Manufacturing and National Account
Services. We provide manufacturing services
to PepsiCo in connection with the production of certain finished
beverage products, and also provide certain manufacturing,
delivery and equipment maintenance services to PepsiCo’s
national account customers. Net amounts paid or payable by
PepsiCo to us for these services were $19.6 million,
$19.3 million, and $17.2 million for fiscal years
2007, 2006 and 2005, respectively.
Sandora Joint Venture. During fiscal
year 2007, we entered into a joint venture agreement with
PepsiCo to purchase the outstanding common stock of Sandora. We
hold a 60 percent interest in the joint venture and PepsiCo
holds a 40 percent interest. The joint venture financial
statements have been consolidated in our Consolidated Financial
Statements.
Other Transactions. PepsiCo provides
procurement services to us pursuant to a shared services
agreement. Under this agreement, PepsiCo acts as our agent and
negotiates with various suppliers the cost of certain raw
materials by entering into raw material contracts on our behalf.
The raw material contracts obligate us to purchase certain
minimum volumes. PepsiCo also collects and remits to us certain
rebates from the various suppliers related to our procurement
volume. In addition, PepsiCo executes certain derivative
contracts on our behalf and in accordance with our hedging
strategies. In fiscal years 2007, 2006 and 2005, we paid
$3.9 million, $3.9 million, and $3.4 million,
respectively, to PepsiCo for such services.
Net amounts paid to PepsiCo and its affiliates for snack food
products recorded in cost of goods sold were $17.6 million,
$12.5 million and $11.4 million in fiscal years 2007,
2006 and 2005 respectively.
During fiscal year 2005, we received payment of
$2.1 million related to the settlement of the fructose
lawsuit for the former Heartland territories, which we acquired
in 1999. The payment was originally made to PepsiCo out of the
settlement trust, and then the funds were remitted to us by
PepsiCo. The amount is included in “Fructose settlement
income” on the Consolidated Statement of Income.
As of the end of fiscal years 2007 and 2006, net amounts due
from PepsiCo were $3.1 million and $24.2 million,
respectively.
45
In summary, the Consolidated Statements of Income include the
following income and (expense) transactions with PepsiCo (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bottler incentives
|
|
$
|
32.9
|
|
|
$
|
30.6
|
|
|
$
|
32.9
|
|
Manufacturing and national account services
|
|
|
19.6
|
|
|
|
19.3
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52.5
|
|
|
$
|
49.9
|
|
|
$
|
50.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of concentrate
|
|
$
|
(892.4
|
)
|
|
$
|
(829.8
|
)
|
|
$
|
(763.2
|
)
|
Purchases of finished beverage products
|
|
|
(210.0
|
)
|
|
|
(188.0
|
)
|
|
|
(161.0
|
)
|
Purchases of finished snack food products
|
|
|
(17.6
|
)
|
|
|
(12.5
|
)
|
|
|
(11.4
|
)
|
Bottler incentives
|
|
|
180.7
|
|
|
|
182.3
|
|
|
|
156.4
|
|
Aquafina royalty fee
|
|
|
(54.3
|
)
|
|
|
(50.2
|
)
|
|
|
(36.9
|
)
|
Procurement services
|
|
|
(3.9
|
)
|
|
|
(3.9
|
)
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(997.5
|
)
|
|
$
|
(902.1
|
)
|
|
$
|
(819.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, delivery and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bottler incentives
|
|
$
|
16.6
|
|
|
$
|
13.9
|
|
|
$
|
14.0
|
|
Purchases of advertising materials
|
|
|
(2.0
|
)
|
|
|
(1.8
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14.6
|
|
|
$
|
12.1
|
|
|
$
|
11.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Bottlers in Which PepsiCo Holds an
Equity Interest. We sell finished beverage
products to other bottlers, including The Pepsi Bottling Group,
Inc. and Pepsi Bottling Ventures LLC, bottlers in which PepsiCo
owns an equity interest. These sales occur in instances where
the proximity of our production facilities to the other
bottlers’ markets or lack of manufacturing capability, as
well as other economic considerations, make it more efficient or
desirable for the other bottlers to buy finished product from
us. Our sales to other bottlers, including those in which
PepsiCo owns an equity interest, were approximately
$213.0 million, $170.1 million, and
$128.8 million in fiscal years 2007, 2006, and 2005,
respectively. Our purchases from such other bottlers were
$0.3 million, $2.0 million, and $0.2 million in
fiscal years 2007, 2006, and 2005, respectively.
Agreements
and Relationships with Dakota Holdings, LLC, Starquest
Securities, LLC and Mr. Pohlad
Under the terms of the PepsiAmericas merger agreement, Dakota
Holdings, LLC (“Dakota”), a Delaware limited liability
company whose members at the time of the PepsiAmericas merger
included PepsiCo and Pohlad Companies, became the owner of
14,562,970 shares of our common stock, including
377,128 shares purchasable pursuant to the exercise of a
warrant. In November 2002, the members of Dakota entered into a
redemption agreement pursuant to which the PepsiCo membership
interests were redeemed in exchange for certain assets of
Dakota. As a result, Dakota became the owner of
12,027,557 shares of our common stock, including
311,470 shares purchasable pursuant to the exercise of a
warrant. In June 2003, Dakota converted from a Delaware limited
liability company to a Minnesota limited liability company
pursuant to an agreement and plan of merger. In January 2006,
Starquest Securities, LLC (“Starquest”), a Minnesota
limited liability company, obtained the shares of our common
stock previously owned by Dakota, including the shares of common
stock purchasable upon exercise of the above-referenced warrant,
pursuant to a contribution agreement. Such warrant expired
unexercised in January 2006, resulting in Starquest holding
11,716,087 shares of our common stock. In February 2008,
Starquest acquired an additional 400,000 shares of our
common stock pursuant to open market purchases, bringing its
holdings to 12,116,087 shares of common stock, or
9.4 percent, as of February 22, 2008. The shares held
by Starquest are subject to a shareholder agreement with our
company.
46
Mr. Pohlad, our Chairman and Chief Executive Officer, is
the President and the owner of one-third of the capital stock of
Pohlad Companies. Pohlad Companies is the controlling member of
Dakota. Dakota is the controlling member of Starquest. Pohlad
Companies may be deemed to have beneficial ownership of the
securities beneficially owned by Dakota and Starquest and
Mr. Pohlad may be deemed to have beneficial ownership of
the securities beneficially owned by Starquest, Dakota and
Pohlad Companies.
Transactions
with Pohlad Companies
In fiscal year 2005, we entered into an Aircraft Joint Ownership
Agreement with Pohlad Companies for a one-eighth interest in an
aircraft and paid Pohlad Companies approximately
$1.7 million. SD&A expenses associated with the
aircraft in fiscal years 2007, 2006, and 2005 were
$0.1 million, $0.2 million and $0.2 million,
respectively.
Recently
Issued Accounting Pronouncements
See Note 1 of the Consolidated Financial Statements for a
summary of new accounting pronouncements that may impact our
business.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk.
|
We are subject to various market risks, including risks from
changes in commodity prices, interest rates and currency
exchange rates, which are addressed below. In addition, see
Note 14 to the Consolidated Financial Statements.
Commodity Prices. We purchase commodity
inputs such as aluminum for our cans, resin for our PET bottles,
natural gas, diesel fuel, unleaded gasoline, high fructose corn
syrup, and sugar to be used in our operations. These commodities
are subject to price fluctuations that may create price risk.
Our ability to recover higher product costs through price
increases to customers may be limited due to the competitive
pricing environment that exists in the soft drink business. We
use derivative financial instruments to hedge price fluctuations
for a portion of anticipated purchases of certain commodities
used in our operations. We have policies governing the hedging
instruments we may use, including a policy to not enter into
derivative contracts for speculative or trading purposes. As of
the end of fiscal year 2007, we had no outstanding hedges.
Interest Rates. During fiscal year
2007, the risk from changes in interest rates was not material
to our operations because a significant portion of our debt
issues represented fixed rate obligations. As of the end of
fiscal year 2007, approximately 20 percent of our debt
issues were variable rate obligations. Our floating rate
exposure relates to changes in the six-month London Interbank
Offered Rate (“LIBOR”) and the federal funds rate.
Assuming consistent levels of floating rate debt with those held
as of the end of fiscal year 2007, a 50 basis point
(0.5 percent) change in each of these rates would have an
impact of approximately $2.2 million on our annual interest
expense. During fiscal year 2007, we had cash equivalents
throughout the year, principally invested in money market funds,
which were most closely tied to the federal funds rate. Assuming
a 50 basis point change in the rate of interest associated
with our short-term investments, interest income would not have
changed by a significant amount.
Currency Exchange Rates. Because we
operate outside of the U.S., we are subject to risk resulting
from changes in currency exchange rates. Currency exchange rates
are influenced by a variety of economic factors including local
inflation, growth, interest rates and governmental actions, as
well as other factors. Any positive cash flows generated have
been reinvested in the operations, excluding repayments of
intercompany loans from the manufacturing operations in Poland
and the Czech Republic. Our investment in markets outside of the
U.S. has increased during the past several years and as
such, our exposure to currency risk has increased.
Based on net sales, international operations represented
approximately 24 percent of our total operations in fiscal
year 2007. Changes in currency exchange rates impact the
translation of the operations’ results from their local
currencies into U.S. dollars. If the currency exchange
rates had changed by ten percent in fiscal year 2007, we
estimate the impact on operating income would have been
approximately $12 million. Our
47
estimate reflects the fact that a portion of the international
operations costs are denominated in U.S. dollars, including
concentrate purchases. This estimate does not take into account
the possibility that rates can move in opposite directions and
that gains in one category may or may not be offset by losses
from another category.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
See Index to Financial Information on
page F-1.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
48
|
|
Item 9A.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures that
is designed to ensure that information required to be disclosed
in our Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosures.
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of our disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e)).
Based on this evaluation, our Chief Executive Officer and our
Chief Financial Officer concluded that, as of December 29,
2007, our disclosure controls and procedures were effective.
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting that occurred during the quarter ended
December 29, 2007 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
Management’s
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting, as defined in Exchange Act
Rule 13a-15(f),
is a process designed by, or under the supervision of, our
principal executive and principal financial officers and
effected by our Board of Directors, management and other
personnel, 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 and includes those
policies and procedures that:
|
|
|
|
•
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of our assets;
|
|
|
•
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in
accordance with authorizations of our management and
directors; and
|
|
|
•
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
our assets that could have a material effect on the financial
statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. All
internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
The scope of management’s assessment of the effectiveness
of internal control over financial reporting includes all of our
company’s consolidated entities except for Sandora LLC
(“Sandora”), a business acquired by a joint venture in
which we hold a 60 percent interest during fiscal year
2007. Our company’s consolidated net sales for fiscal year
2007 were $4,479.5 million, of which Sandora represented
approximately $88.7 million. Our company’s
consolidated total assets as of the end of fiscal year 2007 were
approximately $5,308.0 million, of which Sandora
represented approximately $812.2 million.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 29, 2007.
In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in “Internal Control-Integrated
Framework.” Based on this assessment, management believes
that, as of December 29, 2007, our internal control over
financial reporting was effective based on those criteria.
49
Report
of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of PepsiAmericas, Inc.:
We have audited PepsiAmericas, Inc.’s (the Company)
internal control over financial reporting as of
December 29, 2007, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a
process designed 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. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 29, 2007, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
The scope of management’s assessment of the effectiveness
of internal control over financial reporting as of
December 29, 2007 includes all of the Company’s
consolidated entities except for Sandora LLC (Sandora), a
business acquired by a joint venture in which the Company holds
a 60 percent interest during fiscal year 2007. The
Company’s consolidated net sales for fiscal year 2007 were
approximately $4,479.5 million, of which Sandora
represented approximately $88.7 million. The Company’s
consolidated total assets as of the end of fiscal year 2007 were
approximately $5,308.0 million, of which Sandora
represented approximately $812.2 million. Our audit of
internal control over financial reporting of the Company also
excluded an evaluation of the internal control over the
financial reporting of Sandora.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of PepsiAmericas, Inc. and
subsidiaries as of the end of fiscal years 2007 and 2006, and
the related consolidated statements of income,
shareholders’ equity and comprehensive income, and cash
flows for each of the fiscal years 2007, 2006 and 2005, and our
report dated February 26, 2008 expressed an unqualified
opinion on those consolidated financial statements.
Minneapolis, Minnesota
February 26, 2008
50
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
We incorporate by reference the information contained under the
captions “Proposal 1: Election of Directors”,
“Our Board of Directors and Committees” and
“Section 16(a) Beneficial Ownership Reporting
Compliance” in our definitive proxy statement for the
annual meeting of shareholders to be held April 24, 2008.
Pursuant to General Instruction G(3) to the Annual Report
on
Form 10-K
and Instruction 3 to Item 401(b) of
Regulation S-K,
information regarding executive officers of PepsiAmericas is
provided in Part I of this Annual Report on
Form 10-K
under separate caption.
We have adopted a code of ethics that applies to our principal
executive officer, principal financial officer and principal
accounting officer. This code of ethics is available on our
website at www.pepsiamericas.com and in print upon written
request to PepsiAmericas, Inc., 4000 Dain Rauscher Plaza, 60
South Sixth Street, Minneapolis, Minnesota 55402, Attention:
Investor Relations. Any amendment to, or waiver from, a
provision of our code of ethics will be posted to the
above-referenced website.
|
|
Item 11.
|
Executive
Compensation.
|
We incorporate by reference the information contained under the
captions “Our Board of Directors and Committees —
Management Resources and Compensation Committee Interlocks and
Insider Participation”, “Our Board of Directors and
Committees — Management Resources and Compensation
Committee Report”, “Non-Employee Director
Compensation” and “Executive Compensation” in our
definitive proxy statement for the annual meeting of
shareholders to be held April 24, 2008.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
We incorporate by reference the information contained under the
captions “Our Largest Shareholders” and “Shares
Held by Our Directors and Executive Officers” in our
definitive proxy statement for the annual meeting of
shareholders to be held April 24, 2008.
Equity Compensation Plan
Information. The following table summarizes
information regarding common stock that may be issued under our
existing equity compensation plans as of the end of fiscal year
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
Number of Securities
|
|
|
|
to be Issued
|
|
|
Weighted Average
|
|
|
Remaining Available
|
|
|
|
upon Exercise of
|
|
|
Exercise Price of
|
|
|
for Future Issuance
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Under Equity
|
|
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Compensation Plans
|
|
|
Equity compensation plans approved by security holders
|
|
|
4,282,141
|
(1)
|
|
$
|
15.57
|
(2)
|
|
|
4,212,792
|
|
Equity compensation plans not approved by security holders
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,282,141
|
|
|
|
|
|
|
|
4,212,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This number includes stock options, as well as
2,463,899 shares underlying unvested restricted stock
awards, granted or issued under stock incentive plans approved
by our shareholders. |
|
(2) |
|
The weighted average exercise price of outstanding options and
rights excludes unvested restricted stock awards. |
51
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
We incorporate by reference the information contained under the
captions “Our Board of Directors and Committees” and
“Certain Relationships and Related Transactions” in
our definitive proxy statement for the annual meeting of
shareholders to be held April 24, 2008.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
We incorporate by reference the information contained under the
caption “Proposal 2: Ratification of Appointment of
Independent Registered Public Accountants” in our
definitive proxy statement for the annual meeting of
shareholders to be held April 24, 2008.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) See Index to Financial Information on
page F-1
and Exhibit Index on
page E-1.
(b) See Exhibit Index on
page E-1.
(c) Not applicable.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 27th day of February 2008.
PEPSIAMERICAS, INC.
|
|
|
|
By:
|
/s/ ALEXANDER
H. WARE
|
Alexander H. Ware
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
the 27th day of February 2008.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
/s/ ROBERT
C. POHLAD
Robert
C. Pohlad
|
|
Chairman of the Board and Chief Executive Officer
and Director (Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/ ALEXANDER
H. WARE
Alexander
H. Ware
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/s/ TIMOTHY
W. GORMAN
Timothy
W. Gorman
|
|
Senior Vice President and Controller
(Principal Accounting Officer)
|
|
|
|
|
|
*
|
|
/s/ HERBERT
M. BAUM
Herbert
M. Baum
|
|
Director
|
|
|
|
|
|
*
|
|
/s/ RICHARD
G. CLINE
Richard
G. Cline
|
|
Director
|
|
|
|
|
|
*
|
|
/s/ MICHAEL
J. CORLISS
Michael
J. Corliss
|
|
Director
|
|
|
|
|
|
*
|
|
/s/ PIERRE
S. du PONT
Pierre
S. du Pont
|
|
Director
|
|
|
|
|
|
*
|
|
/s/ ARCHIE
R. DYKES
Archie
R. Dykes
|
|
Director
|
|
|
|
|
|
*
|
|
/s/ JAROBIN
GILBERT Jr.
Jarobin
Gilbert Jr.
|
|
Director
|
|
|
|
|
|
*
|
|
/s/ JAMES
R. KACKLEY
James
R. Kackley
|
|
Director
|
|
|
|
|
|
*
|
|
/s/ MATTHEW
M. McKENNA
Matthew
M. Mckenna
|
|
Director
|
|
|
|
|
|
*
|
|
/s/ DEBORAH
E. POWELL
Deborah
E. Powell
|
|
Director
|
|
|
|
|
|
*By:
|
|
/s/ ALEXANDER
H. WARE
Alexander
H. Ware
Attorney-in-Fact
February 27, 2008
|
|
|
53
PEPSIAMERICAS,
INC.
FINANCIAL
INFORMATION
FOR
INCLUSION IN ANNUAL REPORT ON
FORM 10-K
FISCAL
YEAR 2007
PEPSIAMERICAS,
INC.
Index to
Financial Information
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
Financial Statement Schedules:
|
|
|
|
|
Financial statement schedules have been omitted because they are
not applicable or the required information is shown in the
financial statements or related notes.
|
F-1
Report
of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of PepsiAmericas, Inc.:
We have audited the accompanying consolidated balance sheets of
PepsiAmericas, Inc. and subsidiaries (the Company) as of the end
of fiscal years 2007 and 2006, and the related consolidated
statements of income, shareholders’ equity and
comprehensive income, and cash flows for each of the fiscal
years 2007, 2006 and 2005. These consolidated financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of the end of fiscal years 2007 and
2006, and the results of their operations and their cash flows
for each of the fiscal years 2007, 2006 and 2005, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Company’s internal control over
financial reporting as of December 29, 2007, based on the
criteria established in “Internal Control —
Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated February 26, 2008 expressed an unqualified opinion on
the effectiveness of the Company’s internal control over
financial reporting.
/s/ KPMG LLP
Minneapolis, Minnesota
February 26, 2008
F-2
PEPSIAMERICAS,
INC.
(in
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
4,479.5
|
|
|
$
|
3,972.4
|
|
|
$
|
3,726.0
|
|
Cost of goods sold
|
|
|
2,656.2
|
|
|
|
2,364.3
|
|
|
|
2,163.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,823.3
|
|
|
|
1,608.1
|
|
|
|
1,562.5
|
|
Selling, delivery and administrative expenses
|
|
|
1,380.9
|
|
|
|
1,238.4
|
|
|
|
1,183.2
|
|
Fructose settlement income
|
|
|
—
|
|
|
|
—
|
|
|
|
16.6
|
|
Special charges
|
|
|
6.3
|
|
|
|
13.7
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
436.1
|
|
|
|
356.0
|
|
|
|
393.4
|
|
Interest expense, net
|
|
|
109.2
|
|
|
|
101.3
|
|
|
|
89.9
|
|
Other expense, net
|
|
|
0.6
|
|
|
|
11.7
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes,
minority interest, and equity in net earnings of nonconsolidated
companies
|
|
|
326.3
|
|
|
|
243.0
|
|
|
|
298.5
|
|
Income taxes
|
|
|
112.0
|
|
|
|
90.5
|
|
|
|
108.8
|
|
Minority interest
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
|
|
0.1
|
|
Equity in net earnings of nonconsolidated companies
|
|
|
—
|
|
|
|
5.6
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
214.2
|
|
|
|
158.3
|
|
|
|
194.7
|
|
Loss from discontinued operations, net of tax
|
|
|
2.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
212.1
|
|
|
$
|
158.3
|
|
|
$
|
194.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
126.7
|
|
|
|
127.9
|
|
|
|
134.7
|
|
Incremental effect of stock options and awards
|
|
|
2.5
|
|
|
|
1.9
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
129.2
|
|
|
|
129.8
|
|
|
|
137.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.69
|
|
|
$
|
1.24
|
|
|
$
|
1.45
|
|
Loss from discontinued operations
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.67
|
|
|
$
|
1.24
|
|
|
$
|
1.45
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.66
|
|
|
$
|
1.22
|
|
|
$
|
1.42
|
|
Loss from discontinued operations
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.64
|
|
|
$
|
1.22
|
|
|
$
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
|
$
|
0.52
|
|
|
$
|
0.50
|
|
|
$
|
0.34
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
PEPSIAMERICAS,
INC.
(in
millions, except per share data)
|
|
|
|
|
|
|
|
|
As of Fiscal Year End
|
|
2007
|
|
|
2006
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
189.7
|
|
|
$
|
93.1
|
|
Receivables, net of allowance of $14.7 million and
$16.1 million, respectively
|
|
|
330.6
|
|
|
|
267.1
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials and supplies
|
|
|
144.5
|
|
|
|
104.2
|
|
Finished goods
|
|
|
143.2
|
|
|
|
128.8
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
287.7
|
|
|
|
233.0
|
|
Other current assets
|
|
|
114.1
|
|
|
|
81.9
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
922.1
|
|
|
|
675.1
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
78.5
|
|
|
|
63.7
|
|
Buildings and improvements
|
|
|
508.2
|
|
|
|
445.7
|
|
Machinery and equipment
|
|
|
2,263.8
|
|
|
|
2,067.0
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
2,850.5
|
|
|
|
2,576.4
|
|
Less: accumulated depreciation
|
|
|
(1,520.9
|
)
|
|
|
(1,437.7
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
1,329.6
|
|
|
|
1,138.7
|
|
Goodwill
|
|
|
2,432.7
|
|
|
|
2,027.1
|
|
Intangible assets, net
|
|
|
545.6
|
|
|
|
299.9
|
|
Other assets
|
|
|
78.0
|
|
|
|
66.6
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,308.0
|
|
|
$
|
4,207.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt, including current maturities of long-term debt
|
|
$
|
337.6
|
|
|
$
|
212.9
|
|
Payables
|
|
|
224.0
|
|
|
|
189.4
|
|
Accrued expenses
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
|
93.3
|
|
|
|
53.9
|
|
Customer incentives
|
|
|
88.8
|
|
|
|
71.6
|
|
Interest
|
|
|
26.6
|
|
|
|
21.5
|
|
Other
|
|
|
132.3
|
|
|
|
144.5
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
902.6
|
|
|
|
693.8
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,803.5
|
|
|
|
1,490.2
|
|
Deferred income taxes
|
|
|
282.5
|
|
|
|
243.1
|
|
Minority interest
|
|
|
273.4
|
|
|
|
0.1
|
|
Other liabilities
|
|
|
187.7
|
|
|
|
175.6
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,449.7
|
|
|
|
2,602.8
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock ($0.01 par value, 12.5 million shares
authorized; no shares issued)
|
|
|
—
|
|
|
|
—
|
|
Common stock ($0.01 par value, 350 million shares
authorized; 137.6 million shares issued — 2007
and 2006)
|
|
|
1,292.7
|
|
|
|
1,283.4
|
|
Retained income
|
|
|
670.9
|
|
|
|
525.4
|
|
Accumulated other comprehensive income
|
|
|
98.8
|
|
|
|
21.7
|
|
Treasury stock, at cost (9.5 million shares and
10.6 million shares, respectively)
|
|
|
(204.1
|
)
|
|
|
(225.9
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
1,858.3
|
|
|
|
1,604.6
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
5,308.0
|
|
|
$
|
4,207.4
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
PEPSIAMERICAS,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
212.1
|
|
|
$
|
158.3
|
|
|
$
|
194.7
|
|
Loss from discontinued operations
|
|
|
2.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
214.2
|
|
|
|
158.3
|
|
|
|
194.7
|
|
Adjustments to reconcile to net cash provided by operating
activities of continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
204.4
|
|
|
|
193.4
|
|
|
|
184.7
|
|
Deferred income taxes
|
|
|
6.1
|
|
|
|
(2.5
|
)
|
|
|
(7.2
|
)
|
Special charges
|
|
|
6.3
|
|
|
|
13.7
|
|
|
|
2.5
|
|
Cash outlays related to special charges
|
|
|
(14.3
|
)
|
|
|
(2.6
|
)
|
|
|
(1.6
|
)
|
Pension contributions
|
|
|
(0.9
|
)
|
|
|
(10.0
|
)
|
|
|
(16.8
|
)
|
Lease exit costs
|
|
|
—
|
|
|
|
—
|
|
|
|
6.1
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
5.6
|
|
Gain on sale of investment
|
|
|
—
|
|
|
|
(0.9
|
)
|
|
|
—
|
|
Equity in net earnings of nonconsolidated companies
|
|
|
—
|
|
|
|
(5.6
|
)
|
|
|
(4.9
|
)
|
Excess tax benefits from share-based payment arrangements
|
|
|
(12.5
|
)
|
|
|
(6.8
|
)
|
|
|
—
|
|
Gain on sale of non-core property
|
|
|
(10.2
|
)
|
|
|
—
|
|
|
|
—
|
|
Marketable securities impairment
|
|
|
4.0
|
|
|
|
7.3
|
|
|
|
—
|
|
Other
|
|
|
28.6
|
|
|
|
18.2
|
|
|
|
17.8
|
|
Changes in assets and liabilities, exclusive of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in receivables
|
|
|
(30.0
|
)
|
|
|
(37.0
|
)
|
|
|
0.6
|
|
Increase in inventories
|
|
|
(19.3
|
)
|
|
|
(24.2
|
)
|
|
|
(5.9
|
)
|
Increase in payables
|
|
|
23.5
|
|
|
|
0.5
|
|
|
|
13.7
|
|
Net change in other assets and liabilities
|
|
|
33.6
|
|
|
|
42.0
|
|
|
|
42.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing
operations
|
|
|
433.5
|
|
|
|
343.8
|
|
|
|
431.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises and companies acquired, net of cash acquired
|
|
|
(682.7
|
)
|
|
|
(88.5
|
)
|
|
|
(354.6
|
)
|
Capital investments
|
|
|
(264.6
|
)
|
|
|
(169.3
|
)
|
|
|
(180.3
|
)
|
Purchase of equity investment
|
|
|
(2.3
|
)
|
|
|
—
|
|
|
|
(51.0
|
)
|
Proceeds from sales of property and equipment
|
|
|
29.2
|
|
|
|
9.7
|
|
|
|
5.3
|
|
Proceeds from sales of investments
|
|
|
—
|
|
|
|
0.9
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(920.4
|
)
|
|
|
(247.2
|
)
|
|
|
(580.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings of short-term debt
|
|
|
105.9
|
|
|
|
13.6
|
|
|
|
75.3
|
|
Proceeds from issuance of long-term debt
|
|
|
298.2
|
|
|
|
247.4
|
|
|
|
793.3
|
|
Repayment of long-term debt
|
|
|
(39.0
|
)
|
|
|
(185.8
|
)
|
|
|
(457.1
|
)
|
Contribution from joint venture minority shareholder
|
|
|
271.8
|
|
|
|
—
|
|
|
|
—
|
|
Excess tax benefits from share-based payment arrangements
|
|
|
12.5
|
|
|
|
6.8
|
|
|
|
—
|
|
Issuance of common stock
|
|
|
61.1
|
|
|
|
24.9
|
|
|
|
61.4
|
|
Treasury stock purchases
|
|
|
(59.4
|
)
|
|
|
(150.7
|
)
|
|
|
(239.2
|
)
|
Cash dividends
|
|
|
(65.2
|
)
|
|
|
(59.3
|
)
|
|
|
(35.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
585.9
|
|
|
|
(103.1
|
)
|
|
|
198.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flows used in discontinued operations
|
|
|
(10.4
|
)
|
|
|
(11.1
|
)
|
|
|
(10.1
|
)
|
Effects of exchange rate changes on cash and cash equivalents
|
|
|
8.0
|
|
|
|
(5.3
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
96.6
|
|
|
|
(22.9
|
)
|
|
|
41.1
|
|
Cash and cash equivalents at beginning of year
|
|
|
93.1
|
|
|
|
116.0
|
|
|
|
74.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
189.7
|
|
|
$
|
93.1
|
|
|
$
|
116.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Retained
|
|
|
Based
|
|
|
Income
|
|
|
Treasury Stock
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Compensation
|
|
|
(Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
As of fiscal year end 2004
|
|
|
167.6
|
|
|
$
|
1,535.3
|
|
|
$
|
579.6
|
|
|
$
|
(8.7
|
)
|
|
$
|
16.0
|
|
|
|
(29.0
|
)
|
|
$
|
(499.0
|
)
|
|
$
|
1,623.2
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
194.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194.7
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(23.5
|
)
|
Unrealized loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(8.7
|
)
|
Unrealized loss on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.6
|
)
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.1
|
)
|
|
|
(239.2
|
)
|
|
|
(239.2
|
)
|
Treasury stock retirements
|
|
|
(30.0
|
)
|
|
|
(276.3
|
)
|
|
|
(296.0
|
)
|
|
|
|
|
|
|
|
|
|
|
30.0
|
|
|
|
572.3
|
|
|
|
—
|
|
Stock compensation plans
|
|
|
|
|
|
|
8.1
|
|
|
|
|
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
4.5
|
|
|
|
77.7
|
|
|
|
78.0
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
(46.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of fiscal year end 2005
|
|
|
137.6
|
|
|
$
|
1,267.1
|
|
|
$
|
432.0
|
|
|
$
|
(16.5
|
)
|
|
$
|
(25.1
|
)
|
|
|
(4.6
|
)
|
|
$
|
(88.2
|
)
|
|
$
|
1,569.3
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
158.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158.3
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40.7
|
|
|
|
|
|
|
|
|
|
|
|
40.7
|
|
Unrealized loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(4.1
|
)
|
Unrealized loss on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(12.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment from the adoption of SFAS No. 158, net of
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.2
|
|
|
|
|
|
|
|
|
|
|
|
23.2
|
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.3
|
)
|
|
|
(150.7
|
)
|
|
|
(150.7
|
)
|
Stock compensation plans
|
|
|
|
|
|
|
16.3
|
|
|
|
|
|
|
|
16.5
|
|
|
|
|
|
|
|
0.3
|
|
|
|
13.0
|
|
|
|
45.8
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
(64.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of fiscal year end 2006
|
|
|
137.6
|
|
|
$
|
1,283.4
|
|
|
$
|
525.4
|
|
|
$
|
—
|
|
|
$
|
21.7
|
|
|
|
(10.6
|
)
|
|
$
|
(225.9
|
)
|
|
$
|
1,604.6
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
212.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212.1
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66.6
|
|
|
|
|
|
|
|
|
|
|
|
66.6
|
|
Unrealized loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
Unrealized gain on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Change in unrecognized pension and postretirement cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment from the adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
(59.4
|
)
|
|
|
(59.4
|
)
|
Stock compensation plans
|
|
|
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
|
|
81.2
|
|
|
|
90.5
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
(67.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of fiscal year end 2007
|
|
|
137.6
|
|
|
$
|
1,292.7
|
|
|
$
|
670.9
|
|
|
$
|
—
|
|
|
$
|
98.8
|
|
|
|
(9.5
|
)
|
|
$
|
(204.1
|
)
|
|
$
|
1,858.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
PEPSIAMERICAS,
INC.
|
|
1.
|
Significant
Accounting Policies
|
Nature of operations. PepsiAmericas,
Inc. (referred to herein as “PepsiAmericas,”
“we,” “our,” or “us”) manufactures
and distributes a broad portfolio of beverage products in the
United States (“U.S.”), Central and Eastern Europe
(“CEE”) and the Caribbean. We operate under exclusive
franchise agreements with soft drink concentrate producers,
including master bottling and fountain syrup agreements with
PepsiCo, Inc. (“PepsiCo”) for the manufacture,
packaging, sale and distribution of PepsiCo branded products.
There are similar agreements with other companies whose brands
we produce and distribute. The franchise agreements, in most
instances, exist in perpetuity and contain operating and
marketing commitments and conditions for termination.
We distribute beverage products to various customers in our
designated territories and through various distribution
channels. We are vulnerable to certain concentrations of risk,
mostly impacting the brands we sell, as well as the customer
base to which we sell, as we are exposed to a risk of loss
greater than if we would have mitigated these risks through
diversification. Approximately 90 percent of our net sales
were derived from brands that we bottle under licenses from
PepsiCo or PepsiCo joint ventures. Wal-Mart Stores, Inc. is our
largest customer which constituted 13.6 percent,
11.8 percent and 10.2 percent of our net sales in our
U.S. operations for fiscal years 2007, 2006 and 2005,
respectively.
Principles of consolidation. The
Consolidated Financial Statements include all wholly and
majority-owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation. We have an
ownership interest in a joint venture that is considered a
variable interest entity. Under the terms of the joint venture
agreement, we hold a 60 percent interest and PepsiCo holds
a 40 percent interest in the joint venture. Pursuant to
Financial Accounting Standards Boards (“FASB”)
Interpretation No. 46(R) (“FIN 46(R)”),
“Consolidation of Variable Interest Entities”,
PepsiAmericas was determined to be the primary beneficiary and,
therefore, the joint venture financial statements have been
consolidated in our financial statements. Due to the timing of
the receipt of available financial information, the results of
Quadrant-Amroq
Bottling Company Limited (“QABCL” or
“Romania”) and Sandora LLC (“Sandora”) are
recorded on a one-month lag basis.
Use of accounting estimates. The
preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(“GAAP”) requires management to make estimates and use
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual
results could differ from these estimates.
Fiscal year. Our U.S. operations
report using a fiscal year that consists of 52 or 53 weeks
ending on the Saturday closest to December 31. Our 2007,
2006 and 2005 fiscal years consisted of 52 weeks and ended
on December 29, 2007, December 30, 2006 and
December 31, 2005, respectively.
Beginning in fiscal year 2007, our Caribbean operations aligned
their reporting calendar with our U.S. operations.
Previously, our Caribbean operations fiscal years ended on
December 31. The change to the Caribbean fiscal year was
not material to our Consolidated Financial Statements. Our CEE
operations fiscal year ends on December 31 and therefore, are
not impacted by the 53rd week.
Cash and cash equivalents. Cash and
cash equivalents consist of deposits with banks and financial
institutions which are unrestricted as to withdrawal or use, and
which have original maturities of three months or less.
Sale of receivables. Our
U.S. subsidiaries sell their receivables to Whitman
Finance, a special purpose entity and wholly-owned subsidiary,
which in turn sells an undivided interest in a revolving pool of
receivables to a major U.S. financial institution. The sale
of receivables is accounted for under Statement of Financial
F-7
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Accounting Standards (“SFAS”) No. 140,
“Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities.”
Inventories. Inventories are recorded
at the lower of cost or net realizable value. Inventory is
valued using the average cost method.
Derivative financial instruments. Due
to fluctuations in the market prices for certain commodities, we
use derivative financial instruments to hedge against volatility
in future cash flows related to anticipated purchases of
commodities. We also use derivative instruments to hedge against
the risk of adverse movements in interest rates and foreign
currency exchange rates. We use derivative financial instruments
to lock interest rates on future debt issues and to convert
fixed rate debt to floating rate debt. Our corporate policy
prohibits the use of derivative instruments for trading or
speculative purposes, and we have procedures in place to monitor
and control their use.
All derivative instruments are recorded at fair value as either
assets or liabilities in our Consolidated Balance Sheets.
Derivative instruments are generally designated and accounted
for as either a hedge of a recognized asset or liability
(“fair value hedge”), a hedge of a forecasted
transaction (“cash flow hedge”), or they are not
designated as a hedge.
For a fair value hedge, both the effective and ineffective
portions of the change in fair value of the derivative
instrument, along with an adjustment to the carrying amount of
the hedged item for fair value changes attributable to the
hedged risk, are recognized in earnings. For derivative
instruments that hedge interest rate risk, the fair value
adjustments are recorded in “Interest expense, net,”
in the Consolidated Statements of Income.
For a cash flow hedge, the effective portion of changes in the
fair value of the derivative instrument that are highly
effective are deferred in “Accumulated other comprehensive
income” until the underlying hedged item is recognized in
earnings. The applicable gain or loss recognized in earnings is
recorded consistent with the expense classification of the
underlying hedged item. If a fair value or cash flow hedge were
to cease to qualify for hedge accounting or be terminated, it
would continue to be carried on the Consolidated Balance Sheets
at fair value until settled, but hedge accounting would be
discontinued prospectively. If a forecasted transaction was no
longer probable of occurring, amounts previously deferred in
“Accumulated other comprehensive income” would be
recognized immediately in earnings.
We may also enter into derivative instruments for which hedge
accounting is not elected, because they are entered into to
offset changes in the fair value of an underlying transaction
recognized in earnings. These instruments are reflected in the
Consolidated Balance Sheets at fair value with changes in fair
value recognized in earnings.
Cash received or paid upon settlement of derivative financial
instruments designated as cash flow hedges or fair value hedges
are classified in the same category as the cash flows from items
being hedged in the Consolidated Statements of Cash Flow. Cash
flows from the settlement of commodity and interest rate
derivative instruments are included in “Cash provided by
operating activities” in the Consolidated Statements of
Cash Flow.
Property and equipment. Depreciation is
computed on the straight-line method. Generally, when property
is sold or retired, the cost and accumulated depreciation are
eliminated from the accounts and gains or losses are recorded in
operating income. Expenditures for maintenance and repairs are
expensed as incurred. Generally, the estimated useful lives of
depreciable assets are 15 to 40 years for buildings and
improvements and 5 to 13 years for machinery and equipment.
Goodwill and intangible
assets. Goodwill and intangible assets with
indefinite lives are not amortized, but instead tested annually
for impairment or more frequently if events or changes in
circumstances indicate that an asset might be impaired. Goodwill
is tested for impairment using a two-step approach at the
reporting
F-8
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
unit level: U.S., CEE, and Caribbean. First, we estimate the
fair value of the reporting units primarily using discounted
estimated future cash flows. If the carrying amount exceeds the
fair value of the reporting unit, the second step of the
goodwill impairment test is performed to measure the amount of
the potential impairment loss. Goodwill impairment is measured
by comparing the “implied fair value” of goodwill with
its carrying amount. Our annual impairment evaluation for
goodwill is performed in the fourth quarter and no impairment of
goodwill has been indicated.
Our identified intangible assets with indefinite lives
principally arise from the allocation of the purchase price of
businesses acquired and consist primarily of franchise and
distribution agreements. Impairment is measured as the amount by
which the carrying amount of the intangible asset exceeds its
estimated fair value. The estimated fair value is generally
determined on the basis of discounted future cash flows. Based
on our impairment analysis performed in fiscal year 2007, the
estimated fair value of our identified intangible assets with
indefinite lives exceeded the carrying amount.
The impairment evaluation requires the use of considerable
management judgment to determine the fair value of the goodwill
and intangible assets with indefinite lives using discounted
future cash flows, including estimates and assumptions regarding
the amount and timing of cash flows, cost of capital and growth
rates.
Our definite lived intangible assets consist primarily of
trademarks and tradenames, franchise and distribution
agreements, and customer relationships and lists. We compute
amortization of definite lived intangible assets using the
straight-line method. The approximate lives used for annual
amortization are 20 to 30 years for trademarks and
tradenames, 20 years for franchise and distribution
agreements, and 3 to 14 years for customer relationships
and lists.
Carrying amounts of long-lived
assets. We evaluate the carrying amounts of
our long-lived assets by reviewing projected undiscounted cash
flows. Such evaluations are performed whenever events and
circumstances indicate that the carrying amount of an asset may
not be recoverable. If the sum of the projected undiscounted
cash flows over the estimated remaining lives of the related
asset group does not exceed the carrying amount, the carrying
amount would be adjusted for the difference between the fair
value and the related carrying amount.
Investments. Investments are included
in “Other assets” on the Consolidated Balance Sheets
and include investments recorded under the equity method,
available-for-sale equity securities, securities that are not
publicly traded, and other investments, including real estate.
The equity method of accounting is used for investments in
affiliated companies which are not controlled by our company and
in which our interest is generally between 20 and
50 percent. Our share of earnings or losses of affiliated
companies is included in the Consolidated Statements of Income.
Available-for-sale equity securities are carried at fair value,
with unrecognized gains and losses, net of taxes, recorded in
“Accumulated other comprehensive income.” Fair values
of available-for-sale securities are determined based on
prevailing market prices. Unrealized losses determined to be
other-than-temporary are recorded in “Other expense,
net” on the Consolidated Statements of Income. Securities
that are not publicly traded and real estate investments are
carried at cost, which management believes is lower than net
realizable value.
Environmental liabilities. We are
subject to certain indemnification obligations under agreements
related to previously sold subsidiaries, including potential
environmental liabilities. We have recorded our best estimate of
the probable liability under those indemnification obligations.
The estimated indemnification liabilities include expenses for
the remediation of identified sites, payments to third parties
for claims and expenses (including product liability and toxic
tort claims), administrative expenses, and the expense of
on-going evaluations and litigation. Such estimates and the
recorded liabilities are subject to various factors, including
possible insurance recoveries, the allocation of liabilities
among other potentially responsible parties, the advancement of
technology for means of remediation, possible changes in the
scope of work at the
F-9
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
contaminated sites, as well as possible changes in related laws,
regulations, and agency requirements. We do not discount
environmental liabilities.
Pension and Postretirement
Benefits. Our pension and other
postretirement benefit obligations and related costs are
calculated using actuarial assumptions. Two critical
assumptions, the discount rate and the expected return on plan
assets, are important elements of plan expense and liability
measurement. We evaluate these critical assumptions annually.
Other assumptions involve demographic factors such as
retirement, mortality, turnover, health care cost trends and
rate of compensation increases.
The discount rate is used to calculate the present value of
expected future pension and postretirement cash flows as of the
measurement date. The guideline for establishing this rate is
high-quality, long-term bond rates. A lower discount rate
increases the present value of benefit obligations and increases
pension expense. The expected long-term rate of return on plan
assets is based on current and expected asset allocations, as
well as historical and expected returns on various categories of
plan assets. A lower-than-expected rate of return on pension
plan assets will increase pension expense. See Note 15 to
the Consolidated Financial Statements for additional information
regarding these assumptions.
Revenue recognition. Revenue is
recognized when title to a product is transferred to the
customer. Payments made to customers for the exclusive rights to
sell our products in certain venues are recorded as a reduction
of net sales over the term of the agreement. Customer discounts
and allowances are recorded in accordance with Emerging Issues
Task Force (“EITF”) Issue
No. 01-9,
“Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor’s
Products)” and are reflected as a reduction of net sales
based on actual customer sales volume during the period and
Bottler incentives. PepsiCo and other
brand owners, at their sole discretion, provide us with various
forms of marketing support. To promote volume and market share
growth, the marketing support is intended to cover a variety of
initiatives, including direct marketplace, shared media and
advertising support. Worldwide bottler incentives totaled
approximately $243.5 million, $240.8 million, and
$217.2 million for the fiscal years 2007, 2006 and 2005,
respectively. There are no conditions or requirements that could
result in the repayment of any support payments we have
received. Over 94 percent of the bottler incentives
received in fiscal year 2007 were from PepsiCo or its affiliates.
In accordance with EITF Issue
No. 02-16,
“Accounting by a Customer (including a Reseller) for
Certain Consideration Received from a Vendor,” bottler
incentives that are directly attributable to incremental
expenses incurred are reported as either an increase to net
sales or a reduction to selling, delivery and administrative
(“SD&A”) expenses, commensurate with the
recognition of the related expense. Such bottler incentives
include amounts received for direct support of advertising
commitments and exclusivity agreements with various customers.
All other bottler incentives are recognized as a reduction of
cost of goods sold when the related products are sold based on
the agreements with vendors. Such bottler incentives primarily
include base level funding amounts, which are fixed based on the
previous year’s volume and variable amounts that are
reflective of the current year’s volume performance.
PepsiCo also provided indirect marketing support to our
marketplace, which consisted primarily of media expenses. This
indirect support is not reflected or included in our financial
statements, as these amounts were paid by PepsiCo on our behalf
to third parties. Other brand owners provide similar indirect
marketing support.
F-10
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The Consolidated Statements of Income include the following
bottler incentives recorded as income or as a reduction of
expense (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
36.3
|
|
|
$
|
34.2
|
|
|
$
|
36.6
|
|
Cost of goods sold
|
|
|
188.0
|
|
|
|
191.7
|
|
|
|
165.5
|
|
Selling, delivery and administrative expenses
|
|
|
19.2
|
|
|
|
14.9
|
|
|
|
15.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
243.5
|
|
|
$
|
240.8
|
|
|
$
|
217.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing costs. We are
involved in a variety of programs to promote our products.
Advertising and marketing costs are expensed in the year
incurred. Certain advertising and marketing costs incurred by us
are partially reimbursed by PepsiCo and other brand owners in
the form of marketing support. Advertising and marketing
expenses were $153.2 million, $122.5 million and
$104.3 million in fiscal years 2007, 2006 and 2005,
respectively. These amounts are net of bottler incentives of
$10.1 million, $10.5 million and $11.2 million in
fiscal years 2007, 2006 and 2005, respectively.
Shipping and handling costs. We record
shipping and handling costs in SD&A expenses. Such costs
totaled $291.5 million, $278.7 million and
$267.1 million in fiscal years 2007, 2006 and 2005,
respectively.
Casualty insurance costs. Due to the
nature of our business, we require insurance coverage for
certain casualty risks. We are self-insured for workers
compensation, product and general liability up to
$1 million per occurrence and automobile liability up to
$2 million per occurrence. The casualty insurance costs for
our self-insurance program represent the ultimate net cost of
all reported and estimated unreported losses incurred during the
fiscal year. We do not discount casualty insurance liabilities.
Our liability for casualty costs is estimated using individual
case-based valuations and statistical analyses and is based upon
historical experience, actuarial assumptions and professional
judgment. These estimates are subject to the effects of trends
in loss severity and frequency and are based on the best data
available to us. These estimates, however, are also subject to a
significant degree of inherent variability. We evaluate these
estimates on an annual basis and we believe that they are
appropriate and within acceptable industry ranges, although an
increase or decrease in the estimates or economic events outside
our control could have a material impact on our results of
operations and cash flows. Accordingly, the ultimate settlement
of these costs may vary significantly from the estimates
included in our Consolidated Financial Statements.
Stock-based compensation. We adopted
the fair value based method of accounting for our stock-based
compensation of the revised SFAS No. 123,
“Share-Based Payment” in fiscal year 2006. We used the
modified prospective method of adoption of
SFAS No. 123(R). We measure the cost of employee
services in exchange for an award of equity instruments based on
the grant-date fair value of the award. The total cost is
reduced for estimated forfeitures over the awards’ vesting
period and the cost is recognized over the requisite service
period. Forfeiture estimates are reviewed on an annual basis.
During fiscal year 2007 and 2006, the forfeiture rate for
restricted stock awards was 3.6 and 3.3 percent,
respectively, and 2.0 percent for stock options during both
fiscal years.
Prior to fiscal year 2006, we used the intrinsic value method of
accounting for our stock-based compensation under Accounting
Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees.” No
stock-based employee compensation cost for stock options was
reflected in net income, as all stock options granted had an
exercise price equal to the market value of the underlying
common stock on the date of grant. Compensation expense for
restricted stock awards was reflected in net income, and this
expense was recognized ratably over the awards’ vesting
period.
Income taxes. Our effective income tax
rate is based on income, statutory tax rates and tax planning
opportunities available to us in the various jurisdictions in
which we operate. We have established valuation
F-11
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
allowances against a portion of the foreign net operating losses
and state-related net operating losses to reflect the
uncertainty of our ability to fully utilize these benefits given
the limited carryforward periods permitted by the various
jurisdictions. The evaluation of the realizability of our net
operating losses requires the use of considerable management
judgment to estimate the future taxable income for the various
jurisdictions, for which the ultimate amounts and timing of such
realization may differ. The valuation allowance can also be
impacted by changes in the tax regulations.
Significant judgment is required in determining our uncertain
tax positions. We have established accruals for uncertain tax
positions using management’s best judgment and adjust these
liabilities as warranted by changing facts and circumstances. A
change in our uncertain tax positions in any given period could
have a significant impact on our results of operations and cash
flows for that period.
Foreign currency translation. The
assets and liabilities of our operations that have functional
currencies other than the U.S. dollar are translated at
exchange rates in effect at year end, and income statements are
translated at the weighted average exchange rates for the year.
In accordance with SFAS No. 52, “Foreign Currency
Translation”, gains and losses resulting from the
translation of foreign currency financial statements are
recorded as a separate component of “Accumulated other
comprehensive income” in the shareholders’ equity
section of the Consolidated Balance Sheets.
Earnings per share. Basic earnings per
share is based upon the weighted-average number of common shares
outstanding. Diluted earnings per share assumes the exercise of
all options which are dilutive, whether exercisable or not. The
dilutive effects of stock options, warrants, and non-vested
restricted stock awards are measured under the treasury stock
method.
The following options and restricted stock awards were not
included in the computation of diluted earnings per share
because they were antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Shares under options outstanding
|
|
|
—
|
|
|
|
1,337,700
|
|
|
|
471,410
|
|
Weighted-average exercise price per share
|
|
$
|
—
|
|
|
$
|
22.63
|
|
|
$
|
24.79
|
|
Shares under nonvested restricted stock awards
|
|
|
—
|
|
|
|
—
|
|
|
|
12,500
|
|
Weighted-average grant date fair value per share
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24.83
|
|
Reclassifications. Certain amounts in
the prior period Consolidated Financial Statements have been
reclassified to conform to the current year presentation.
Recently Issued Accounting
Pronouncements. In September 2006, the FASB
issued SFAS No. 157, “Fair Value
Measurements,” to provide enhanced guidance when using fair
value to measure assets and liabilities. SFAS No. 157
defines fair value, establishes a framework for measuring fair
value in U.S. GAAP and expands disclosures about fair value
measurements. SFAS No. 157 applies whenever other
pronouncements require or permit assets or liabilities to be
measured by fair value and, while not requiring new fair value
measurements, may change current practices.
SFAS No. 157 becomes effective at the beginning of
fiscal year 2008. We are currently evaluating the impact
SFAS No. 157 will have on our Consolidated Financial
Statements.
In September 2006, the FASB issued SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans.” We have adopted the
recognition provisions of SFAS No. 158, which required
us to fully recognize the funded status associated with our
defined benefit plans. We will also be required to measure our
plans’ assets and liabilities as of the end of our fiscal
year instead of our current measurement date of
September 30. The measurement date provisions will be
effective as of the end of fiscal year 2008. We have elected the
alternative method of adoption for the measurement date
provisions of SFAS No. 158. We estimate that the
adoption of the measurement date provisions will decrease
retained income by $0.3 million.
F-12
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115.” FASB No. 159 provides guidance on the
measurement of financial instruments and certain other assets
and liabilities at fair value on an
instrument-by-instrument
basis under a fair value option provided by the FASB.
SFAS No. 159 becomes effective at the beginning of
fiscal year 2008. We are currently evaluating the impact
SFAS No. 159 will have on our Consolidated Financial
Statements.
In December 2007, the FASB issued a revised
SFAS No. 141, “Business Combinations.”
SFAS No. 141(R) amends the guidance relating to the
use of the purchase method in a business combination.
SFAS No. 141(R) requires that we recognize and measure
the identifiable assets acquired, the liabilities assumed and
any noncontrolling interest in the acquired business at fair
value. SFAS No. 141(R) also requires that we recognize
and measure the goodwill acquired in the business combination or
a gain from a bargain purchase. Acquisition costs to effect the
acquisition and any integration costs are no longer considered a
component of the cost of the acquisition.
SFAS No. 141(R) becomes effective with acquisitions
occurring on or after the beginning of fiscal year 2009.
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements-an amendment to ARB No. 51,” to establish
accounting and reporting standards on minority interest.
SFAS No. 160 requires that the parent report minority
interest in the equity section of the balance sheet but separate
from the parent’s equity. SFAS No. 160 also
requires net income attributable to the parent and the
noncontrolling interest be clearly identified and presented on
the face of the income statement. All changes in the
parent’s ownership interest in the subsidiary must be
accounted for consistently. Deconsolidation of the subsidiary
requires the recognition of a gain or loss using the fair value
of the noncontrolling equity investment rather than the carrying
value. SFAS No. 160 becomes effective at the beginning
of fiscal year 2009. We are currently evaluating the impact
SFAS No. 160 will have on our Consolidated Financial
Statements.
We adopted FASB Interpretation No. 48
(“FIN 48”), “Accounting for Uncertainty in
Income Taxes — an Interpretation of FASB Statement
No. 109” at the beginning of fiscal year 2007.
FIN 48 provides guidance regarding the financial statement
recognition and measurement of a tax position either taken or
expected to be taken in a tax return. It requires the
recognition of a tax position if it is more likely than not that
the position would be sustained during an examination based on
the technical merits of the position. See Note 8 below for
additional information, including the effects of adoption on our
Consolidated Balance Sheet.
Equity securities classified as available-for-sale are carried
at fair value and included in “Other assets” in the
Consolidated Balance Sheets. Estimated fair values were
$1.6 million and $6.1 million as of the end of fiscal
years 2007 and 2006, respectively. Unrealized gains and losses
representing the difference between carrying amounts and fair
value are recorded in the “Accumulated other comprehensive
income” component of shareholders’ equity. This
unrealized loss, net of tax, was $0.3 million as of the end
of fiscal year 2007. There were no unrealized gains or losses
recorded as of the end of fiscal year 2006.
As of the end of fiscal year 2007, investments included common
stock of Northfield Laboratories, Inc. (“Northfield”).
As a result of a significant decline in market valuation of our
investment in Northfield, and in accordance with
SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities”, and EITF Issue
No. 03-1,
“The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments”, we adjusted our
investment in Northfield as of the end of fiscal year 2006 and
as of the end of the second quarter of 2007 to reflect the fair
value and recorded these adjustments into income. The realized
marketable securities impairment on the Northfield investment
resulted in a non-cash charge to income of $4.0 million and
$7.3 million in fiscal years 2007 and 2006, respectively.
F-13
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
In fiscal year 2007, we purchased a 20 percent interest in
a joint venture that owns Agrima JSC (“Agrima”).
Agrima produces, sells and distributes PepsiCo branded products
and other beverages throughout Bulgaria. This investment was
recorded under the equity method in accordance with APB Opinion
No. 18, “The Equity Method of Accounting for
Investment in Common Stock,” and was reflected in
“Other assets” on the Consolidated Balance Sheet. Due
to the timing of the receipt of available financial information,
we record equity in net earnings on a one-month lag basis.
In the third quarter of 2007, a joint venture formed by
PepsiAmericas and PepsiCo acquired an 80 percent interest
in Sandora. Sandora manufactures and distributes a variety of
juice brands and is the market leader in the high growth juice
category in Ukraine. In the fourth quarter of 2007, the joint
venture acquired the remaining 20 percent interest in
Sandora. Under the terms of the joint venture agreement, we hold
a 60 percent interest and PepsiCo holds a 40 percent
interest in the joint venture. The joint venture financial
statements have been consolidated in our Consolidated Financial
Statements, and PepsiCo’s equity was recorded as minority
interest. The total purchase price of $679.4 million was
net of cash received of $3.0 million. Of the total purchase
price, our interest was $407.6 million. Additionally, we
acquired $72.5 million of debt as part of the acquisition.
Due to the timing of the receipt of available financial
information from Sandora, we record results from such operations
on a one-month lag basis.
In fiscal year 2005, we had acquired 49 percent of the
outstanding stock of QABCL for $51.0 million. QABCL is a
holding company that, through subsidiaries, produces, sells and
distributes PepsiCo branded and other beverages throughout
Romania with distribution rights in Moldova. In fiscal year
2006, we acquired the remaining 51 percent of the
outstanding stock of QABCL for $81.9 million, net of
$17.0 million cash acquired. We acquired $55.4 million
of debt as part of the acquisition. The increase in the purchase
price for the remainder of QABCL compared to the original
investment was due to the improved operating performance
subsequent to the initial acquisition of our 49 percent
minority interest. In fiscal year 2006, we also completed the
acquisition of Ardea Beverage Co. (“Ardea”), the maker
of the airforce Nutrisoda line of soft drinks, for
$6.6 million. The purchase agreement contained contingent
consideration that was finalized in fiscal year 2007. The amount
of additional consideration paid for Ardea was $3.3 million.
In fiscal year 2005, we completed the acquisition of the capital
stock of Central Investment Corporation (“CIC”) and
the capital stock of FM Vending for $354.6 million. CIC had
bottling operations in southeast Florida and central Ohio and
was the seventh largest Pepsi bottler in the U.S.
The following information summarizes the allocation of the
initial purchase price of the Sandora acquisition (in millions):
|
|
|
|
|
Goodwill
|
|
$
|
493.8
|
|
Trademarks and tradenames
|
|
|
109.0
|
|
Customer relationships and lists
|
|
|
31.8
|
|
Net assets assumed, net of cash acquired
|
|
|
80.5
|
|
Deferred tax liabilities
|
|
|
(35.7
|
)
|
|
|
|
|
|
Total
|
|
$
|
679.4
|
|
|
|
|
|
|
F-14
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The following information summarizes the allocation of the
purchase price of the QABCL acquisition (in millions):
|
|
|
|
|
Goodwill
|
|
$
|
46.4
|
|
Franchise and distribution agreements
|
|
|
92.5
|
|
Customer relationships and lists
|
|
|
16.0
|
|
Net liabilities assumed, net of cash acquired
|
|
|
(1.9
|
)
|
Deferred tax liabilities
|
|
|
(20.1
|
)
|
|
|
|
|
|
Total
|
|
$
|
132.9
|
|
|
|
|
|
|
The following unaudited pro forma information is provided for
acquisitions assuming the Sandora acquisition occurred as of the
beginning of fiscal year 2006 and the QABCL acquisition occurred
as of the beginning of fiscal year 2005 (in millions, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
4,713.3
|
|
|
$
|
4,286.9
|
|
|
$
|
3,872.0
|
|
Operating income
|
|
|
473.7
|
|
|
|
402.8
|
|
|
|
413.8
|
|
Net income
|
|
|
210.6
|
|
|
|
151.2
|
|
|
|
195.2
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.66
|
|
|
$
|
1.18
|
|
|
$
|
1.45
|
|
Diluted
|
|
|
1.63
|
|
|
|
1.16
|
|
|
|
1.42
|
|
|
|
4.
|
Goodwill
and Intangible Assets
|
The changes in the carrying amount of goodwill by geographic
segment for fiscal years 2007 and 2006 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
CEE
|
|
|
Caribbean
|
|
|
Total
|
|
|
Balance at end of fiscal year 2005
|
|
$
|
1,821.3
|
|
|
$
|
21.2
|
|
|
$
|
16.5
|
|
|
$
|
1,859.0
|
|
Acquisitions
|
|
|
7.7
|
|
|
|
148.8
|
|
|
|
—
|
|
|
|
156.5
|
|
Purchase accounting adjustments
|
|
|
(3.8
|
)
|
|
|
1.5
|
|
|
|
(0.3
|
)
|
|
|
(2.6
|
)
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
14.2
|
|
|
|
—
|
|
|
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of fiscal year 2006
|
|
$
|
1,825.2
|
|
|
$
|
185.7
|
|
|
$
|
16.2
|
|
|
$
|
2,027.1
|
|
Acquisitions
|
|
|
—
|
|
|
|
493.8
|
|
|
|
—
|
|
|
|
493.8
|
|
Purchase accounting adjustments
|
|
|
(1.1
|
)
|
|
|
(103.4
|
)
|
|
|
(0.3
|
)
|
|
|
(104.8
|
)
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
16.7
|
|
|
|
(0.1
|
)
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of fiscal year 2007
|
|
$
|
1,824.1
|
|
|
$
|
592.8
|
|
|
$
|
15.8
|
|
|
$
|
2,432.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Intangible asset balances as of the end of fiscal years 2007 and
2006 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
|
|
|
|
|
|
Trademarks and tradenames
|
|
$
|
109.0
|
|
|
$
|
—
|
|
Customer relationships and lists
|
|
|
56.2
|
|
|
|
8.0
|
|
Franchise and distribution agreements
|
|
|
3.3
|
|
|
|
3.3
|
|
Other
|
|
|
2.9
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
171.4
|
|
|
$
|
14.2
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
Trademarks and tradenames
|
|
$
|
(1.2
|
)
|
|
$
|
—
|
|
Customer relationships and lists
|
|
|
(6.3
|
)
|
|
|
(1.3
|
)
|
Franchise and distribution agreements
|
|
|
(1.1
|
)
|
|
|
(0.9
|
)
|
Other
|
|
|
(0.8
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(9.4
|
)
|
|
$
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization, net
|
|
$
|
162.0
|
|
|
$
|
11.4
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
Franchise and distribution agreements
|
|
$
|
383.6
|
|
|
$
|
288.5
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
$
|
545.6
|
|
|
$
|
299.9
|
|
|
|
|
|
|
|
|
|
|
For intangible assets subject to amortization, we calculate
amortization expense over the period we expect to receive
economic benefit. Total amortization expense was
$6.6 million, $1.2 million and $0.9 million in
fiscal years 2007, 2006, and 2005, respectively. The increase in
amortization expense in fiscal year 2007 was due to the
recognition and amortization of intangible assets associated
with the Romania and Sandora acquisitions. The estimated
aggregate amortization expense over each of the next five years
is expected to be $12.4 million per year.
The acquisition of Sandora in fiscal year 2007 resulted in a
preliminary allocation of $493.8 million to goodwill,
$109.0 million to trademarks and tradenames and
$31.8 million in customer relationships and lists in CEE.
The trademarks and tradenames are being amortized preliminarily
over 20 to 30 years. The customer relationships and lists
are being amortized over 3 to 10 years. We are in the
process of finalizing the valuation of the assets, liabilities
and intangibles acquired in connection with the Sandora
acquisition, and we anticipate that the valuation will be
completed in the second quarter of 2008.
The process of valuing the assets, liabilities and intangibles
acquired in connection with the acquisition of QABCL was
completed in the second quarter of 2007 and resulted in an
allocation of $46.4 million to goodwill and
$108.5 million to other intangibles in CEE. We recorded
$92.5 million and $16.0 million in franchise and
distribution agreements and customer relationships and lists,
respectively. We have assigned an indefinite life to the
franchise and distribution agreement intangible asset. The
customer relationships and lists are being amortized over eight
years.
Also in fiscal year 2006, we acquired Ardea which resulted in an
allocation of $7.4 million to goodwill and
$2.4 million to other intangibles. The process of valuing
the assets, liabilities and intangibles acquired in connection
with the Ardea acquisition was completed in the second quarter
of 2006.
We reduced goodwill by $0.8 million and $3.3 million
in fiscal years 2007 and 2006, respectively, due to adjustments
associated with net operating loss carryforwards acquired in
prior year acquisitions.
F-16
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
5.
|
Fructose
Settlement Income
|
In fiscal year 2005, we recorded income of $16.6 million
before taxes related to proceeds from the settlement of a class
action lawsuit (In re: High Fructose Corn Syrup Antitrust
Litigation, MDL, No. 1087, Master File
No. 95-1447,
in the United States District Court for the Central District
of Illinois, Peoria Division). The lawsuit alleged price fixing
related to high fructose corn syrup purchased in the
U.S. from July 1, 1991 through June 30, 1995. We
received all proceeds from the lawsuit settlement during fiscal
year 2005.
2007 Charges. In fiscal year 2007, we
recorded special charges of $6.3 million. In the U.S., we
recorded $4.8 million of special charges primarily related
to severance and relocation costs associated with our strategic
realignment to further strengthen our customer focused
go-to-market strategy. In CEE, we recorded special charges of
$1.5 million related to lease termination costs in Hungary
and associated severance costs.
2006 Charges. In fiscal year 2006, we
recorded special charges of $11.5 million in the
U.S. related to our strategic realignment. These special
charges were primarily for severance and other employee related
costs, including the acceleration of vesting of certain
restricted stock awards. In addition, we incurred costs
associated with consulting services in connection with the
realignment project, which were included in the special charges.
We also recorded special charges of $2.2 million in CEE for
a reduction in the workforce, primarily for severance costs and
related benefits.
2005 Charges. In fiscal year 2005, we
recorded special charges of $2.5 million in CEE, primarily
for a reduction in the workforce in CEE and the consolidation of
certain production facilities as we rationalized our cost
structure. These special charges were primarily for severance
costs and related benefits and asset write-downs.
The following table summarizes the activity associated with
special charges during the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
End of
|
|
|
|
Fiscal Year
|
|
|
Special
|
|
|
Application of
|
|
|
Other
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
Charges
|
|
|
Special Charges
|
|
|
Adjustments
|
|
|
End 2007
|
|
|
2007 Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee related costs
|
|
$
|
9.1
|
|
|
$
|
5.4
|
|
|
$
|
(14.3
|
)
|
|
$
|
—
|
|
|
$
|
0.2
|
|
Vesting of restricted stock awards
|
|
|
2.0
|
|
|
|
—
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
—
|
|
Lease terminations and other costs
|
|
|
—
|
|
|
|
0.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accrued Liabilities
|
|
$
|
11.1
|
|
|
$
|
6.3
|
|
|
$
|
(16.3
|
)
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
End of
|
|
|
|
Fiscal Year
|
|
|
Special
|
|
|
Application of
|
|
|
Other
|
|
|
Fiscal Year
|
|
|
|
2006
|
|
|
Charges
|
|
|
Special Charges
|
|
|
Adjustments
|
|
|
End 2006
|
|
|
2006 Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee related costs
|
|
$
|
—
|
|
|
$
|
11.5
|
|
|
$
|
(2.4
|
)
|
|
$
|
—
|
|
|
$
|
9.1
|
|
Vesting of restricted stock awards
|
|
|
—
|
|
|
|
2.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.0
|
|
Lease terminations and other costs
|
|
|
—
|
|
|
|
0.1
|
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
|
|
—
|
|
Asset write-downs
|
|
|
—
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accrued Liabilities
|
|
$
|
—
|
|
|
$
|
13.7
|
|
|
$
|
(2.7
|
)
|
|
$
|
0.1
|
|
|
$
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
End of
|
|
|
|
Fiscal Year
|
|
|
Special
|
|
|
Application of
|
|
|
Other
|
|
|
Fiscal Year
|
|
|
|
2005
|
|
|
Charges
|
|
|
Special Charges
|
|
|
Adjustments
|
|
|
End 2005
|
|
|
2002 Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee related costs
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Lease terminations and other costs
|
|
|
(0.2
|
)
|
|
|
—
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
0.1
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
—
|
|
2004 Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee related costs
|
|
|
0.1
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
0.1
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
—
|
|
2005 Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee related costs
|
|
|
—
|
|
|
|
1.4
|
|
|
|
(1.4
|
)
|
|
|
—
|
|
|
|
—
|
|
Asset write-downs
|
|
|
—
|
|
|
|
1.1
|
|
|
|
(1.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
—
|
|
|
|
2.5
|
|
|
|
(2.5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accrued Liabilities
|
|
$
|
0.2
|
|
|
$
|
2.5
|
|
|
$
|
(2.7
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net, was comprised of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Interest expense
|
|
$
|
112.4
|
|
|
$
|
105.2
|
|
|
$
|
93.4
|
|
Interest income
|
|
|
(3.2
|
)
|
|
|
(3.9
|
)
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
109.2
|
|
|
$
|
101.3
|
|
|
$
|
89.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes were comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
78.2
|
|
|
$
|
85.2
|
|
|
$
|
88.4
|
|
Foreign
|
|
|
19.8
|
|
|
|
1.9
|
|
|
|
0.2
|
|
State and local
|
|
|
7.9
|
|
|
|
5.9
|
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
105.9
|
|
|
|
93.0
|
|
|
|
98.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
0.9
|
|
|
|
(7.4
|
)
|
|
|
14.4
|
|
Foreign
|
|
|
5.2
|
|
|
|
4.0
|
|
|
|
(3.7
|
)
|
State and local
|
|
|
—
|
|
|
|
0.9
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
6.1
|
|
|
|
(2.5
|
)
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
112.0
|
|
|
$
|
90.5
|
|
|
$
|
108.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The U.S. and foreign income (loss) before income taxes,
minority interest and equity in net earnings of nonconsolidated
companies is set forth in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
U.S
|
|
$
|
232.5
|
|
|
$
|
231.1
|
|
|
$
|
301.6
|
|
Foreign
|
|
|
93.8
|
|
|
|
11.9
|
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and equity in net
earnings of nonconsolidated companies
|
|
$
|
326.3
|
|
|
$
|
243.0
|
|
|
$
|
298.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below reconciles the income tax provision at the
U.S. federal statutory rate to our actual income tax
provision (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Income taxes at the federal statutory rate
|
|
$
|
114.2
|
|
|
|
35.0
|
|
|
$
|
85.1
|
|
|
|
35.0
|
|
|
$
|
104.5
|
|
|
|
35.0
|
|
State income taxes, net of federal income tax benefit
|
|
|
5.8
|
|
|
|
1.8
|
|
|
|
6.3
|
|
|
|
2.6
|
|
|
|
5.1
|
|
|
|
1.7
|
|
Foreign rate differential
|
|
|
(8.5
|
)
|
|
|
(2.6
|
)
|
|
|
4.0
|
|
|
|
1.6
|
|
|
|
0.3
|
|
|
|
0.1
|
|
Enacted rate change
|
|
|
2.0
|
|
|
|
0.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.9
|
|
|
|
0.3
|
|
Change in valuation allowance
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.8
|
)
|
|
|
(0.7
|
)
|
|
|
(4.1
|
)
|
|
|
(1.4
|
)
|
Other items, net
|
|
|
(1.5
|
)
|
|
|
(0.5
|
)
|
|
|
(3.1
|
)
|
|
|
(1.3
|
)
|
|
|
2.1
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
112.0
|
|
|
|
34.3
|
|
|
$
|
90.5
|
|
|
|
37.2
|
|
|
$
|
108.8
|
|
|
|
36.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Deferred income taxes are attributable to temporary differences,
which exist between the financial statement bases and tax bases
of certain assets and liabilities. As of the end of fiscal years
2007 and 2006, deferred income taxes (including discontinued
operations) are attributable to (in millions):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Foreign net operating loss and tax credit carryforwards
|
|
$
|
23.5
|
|
|
$
|
35.5
|
|
U.S. state net operating loss and tax credit carryforwards
|
|
|
14.0
|
|
|
|
13.9
|
|
Provision for special charges and previously sold businesses
|
|
|
14.1
|
|
|
|
23.5
|
|
Unrealized net losses on investments and cash flow hedges
|
|
|
14.7
|
|
|
|
13.4
|
|
Pension and postretirement benefits
|
|
|
0.4
|
|
|
|
6.5
|
|
Deferred compensation
|
|
|
25.3
|
|
|
|
15.9
|
|
Other
|
|
|
10.3
|
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
102.3
|
|
|
|
119.0
|
|
Valuation allowance
|
|
|
(30.2
|
)
|
|
|
(38.3
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
72.1
|
|
|
|
80.7
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property
|
|
|
(129.2
|
)
|
|
|
(156.7
|
)
|
Intangible assets
|
|
|
(202.0
|
)
|
|
|
(143.3
|
)
|
Other
|
|
|
(2.2
|
)
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(333.4
|
)
|
|
|
(303.6
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(261.3
|
)
|
|
$
|
(222.9
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability included in:
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
21.2
|
|
|
$
|
20.2
|
|
Deferred income taxes
|
|
|
(282.5
|
)
|
|
|
(243.1
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(261.3
|
)
|
|
$
|
(222.9
|
)
|
|
|
|
|
|
|
|
|
|
In connection with the merger with the former PepsiAmericas, we
became the successor to U.S. federal, state and foreign net
operating losses (“NOLs”) and tax credit
carryforwards. As of the end fiscal year 2005, all of our
U.S. NOLs related to the merger had been utilized. We also
have, and continue to generate, NOLs related to certain
U.S. states and certain foreign jurisdictions. As of the
end of fiscal year 2007, our foreign NOLs amounted to
$95.0 million, which expire at various periods from 2008
through 2015, except for $13.1 million that do not expire.
Utilization of state NOLs and foreign NOLs is limited by various
state and international tax laws. We have provided a valuation
allowance against all of our state NOLs and a portion of the
foreign NOLs. These valuation allowances reflect the uncertainty
of our ability to fully utilize these benefits given the limited
carryforward periods permitted by the various taxing
jurisdictions. Any future reductions to the valuation allowances
related to the NOLs succeeded to us in connection with the
merger with the former PepsiAmericas will be recorded as an
adjustment to goodwill.
Deferred taxes are not recognized for temporary differences
related to investments in foreign subsidiaries that are
essentially permanent in duration. As of the end of fiscal year
2007, we have cumulative undistributed earnings of approximately
$78.5 million.
In fiscal years 2006 and 2005, we recorded a net change of
$1.8 million and $4.1 million, respectively, for tax
benefits related to the reversal of valuation allowances for
certain net operating loss carryforwards on our international
businesses due in part to the improved operating performance of
those operations. These
F-20
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
changes in the valuation allowance and an increase in federal
tax deductions related to the opening CIC balance sheet also
resulted in a $3.3 million and $14.2 million reduction
of goodwill, in fiscal years 2006 and 2005, respectively.
Additionally, in fiscal year 2005, we recorded a
$0.9 million benefit from a state income tax law change in
Ohio. In fiscal year 2007, we recorded a $0.8 million
decrease to goodwill to record NOLs for the Ardea acquisition.
We adopted FIN 48 at the beginning of fiscal year 2007. As
a result of the implementation, we recorded a $0.6 million
increase to the beginning balance in retained income on the
Consolidated Balance Sheet. At the beginning of fiscal year
2007, we had approximately $25.9 million of total
unrecognized tax benefits. Of this total, $15.4 million
(net of the federal income tax benefit on state tax issues and
interest) would favorably impact the effective income tax rate
in any future period, if recognized.
During fiscal year 2007, our gross unrecognized tax benefits
increased by $10.5 million, of which $6.7 million was
due to tax positions from prior periods for which a deferred tax
asset was recorded.
The table below reconciles the changes in the gross unrecognized
tax benefits for fiscal year 2007:
|
|
|
|
|
|
|
2007
|
|
|
Unrecognized tax benefits at beginning of year
|
|
$
|
25.9
|
|
Increases due to tax positions in prior period
|
|
|
7.8
|
|
Decreases due to tax positions in prior period
|
|
|
(0.1
|
)
|
Increases due to tax positions in current period
|
|
|
5.2
|
|
Lapse of statute of limitations
|
|
|
(2.4
|
)
|
|
|
|
|
|
Unrecognized tax benefits at end of year
|
|
$
|
36.4
|
|
|
|
|
|
|
During fiscal year 2007, the net unrecognized tax benefits that
impacted our effective tax rate was $1.6 million. Of the
$36.4 million total unrecognized tax benefits at year end
2007, $17.0 million (net of the federal income tax benefit
on state tax issues and interest) would favorably impact the
effective income tax rate in any future period, if recognized.
During fiscal year 2007, we recorded $2.4 million of gross
interest related to unrecognized tax benefits.
During the next 12 months it is reasonably possible that a
reduction of gross unrecognized tax benefits will occur in a
range of $4 million to $7 million as a result of the
resolution of positions taken on previously filed returns.
We are subject to U.S. federal income tax, state income tax
in multiple state tax jurisdictions, and foreign income tax in
our CEE and Caribbean tax jurisdictions. We have concluded all
U.S. federal income tax examinations for years through
2004. The following table summarizes the years that are subject
to examination for each primary jurisdiction as of the end of
fiscal year 2007:
|
|
|
|
|
Jurisdiction
|
|
Subject to Examination
|
|
|
Federal
|
|
|
2005-2006
|
|
Illinois
|
|
|
1999-2006
|
|
Indiana
|
|
|
2004-2006
|
|
Iowa
|
|
|
2004-2006
|
|
Romania
|
|
|
2002-2006
|
|
Poland
|
|
|
2001-2006
|
|
Czech Republic
|
|
|
2003-2006
|
|
Ukraine
|
|
|
2005-2006
|
|
F-21
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Upon adoption of FIN 48, our policy is to recognize
interest and penalties related to income tax matters in income
tax expense. Formerly, interest was recorded in interest
expense. We had $6.5 million and $4.1 million accrued
for interest and no amount accrued for penalties as of the end
of fiscal year 2007 and upon adoption of FIN 48,
respectively.
In fiscal year 2002, Whitman Finance, our special purpose entity
and wholly-owned subsidiary, entered into an agreement (the
“Securitization”) with a major U.S. financial
institution to sell an undivided interest in its receivables.
The Securitization involves the sale of receivables, on a
revolving basis, by our U.S. bottling subsidiaries to
Whitman Finance, which in turn sells an undivided interest in
the revolving pool of receivables to the financial institution.
The potential amount of receivables eligible for sale is
determined based on the size and characteristics of the
receivables pool but cannot exceed $150 million based on
the terms of the agreement. As of the end of fiscal year 2007,
the maximum amount of receivables eligible for sale was
$150 million. Costs related to this arrangement, including
losses on the sale of receivables, are included in
“Interest expense, net.”
The receivables sold to Whitman Finance under the Securitization
program totaled $261.8 million and $250.0 million as
of the end of fiscal years 2007 and 2006, respectively.
Receivables for which an undivided ownership interest was sold
to the financial institution were $150 million as of the
end of fiscal years 2007 and 2006, which were reflected as a
reduction in our receivables in the Consolidated Balance Sheets.
The receivables were sold to the financial institution at a
discount, which resulted in losses of $7.0 million,
$8.1 million and $5.3 million in fiscal years 2007,
2006 and 2005, respectively, and are recorded in “Interest
expense, net” on the Consolidated Statements of Income. The
retained interests of $108.1 million and $94.7 million
are included in receivables at fair value as of the end of
fiscal years 2007 and 2006, respectively. The fair value
incorporates expected credit losses, which are based on specific
identification of uncollectible accounts and application of
historical collection percentages by aging category. Since
substantially all receivables sold to Whitman Finance carry
30-day
payment terms, the retained interest is not discounted. The
weighted-average key credit loss assumption used in measuring
the retained interests as of the end of fiscal years 2007 and
2006, including the sensitivity of the current fair value of
retained interests as of the end of fiscal year 2007 to
immediate 10 percent and 20 percent adverse changes in
the credit loss assumption, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of Fiscal Year End 2007
|
|
|
|
As of Fiscal
|
|
|
|
|
|
10% Adverse
|
|
|
20% Adverse
|
|
|
|
Year End 2006
|
|
|
Actual
|
|
|
Change
|
|
|
Change
|
|
|
Expected credit losses
|
|
|
2.2
|
%
|
|
|
1.4
|
%
|
|
|
1.6
|
%
|
|
|
1.7
|
%
|
Fair value of retained interests
|
|
$
|
94.7
|
|
|
$
|
108.1
|
|
|
$
|
107.7
|
|
|
$
|
107.3
|
|
The above sensitivity analysis is hypothetical and should be
used with caution. Changes in fair value based on a
10 percent or 20 percent variation should not be
extrapolated because the relationship of the change in
assumption to the change in fair value may not always be linear.
Whitman Finance had $1.6 million and $2.1 million of
net receivables over 60 days past due as of the end of
fiscal years 2007 and 2006, respectively. Whitman Finance’s
credit (recoveries) losses were ($0.4) million,
$0.7 million and $1.5 million in fiscal years 2007,
2006 and 2005, respectively.
F-22
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
10.
|
Receivables
and Allowance for Doubtful Accounts
|
Receivables, net of allowance, as of the end of fiscal year 2007
and 2006 consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Trade receivables, net of securitization
|
|
$
|
290.6
|
|
|
$
|
220.0
|
|
Funding and rebates, net
|
|
|
42.3
|
|
|
|
45.2
|
|
Other receivables
|
|
|
12.4
|
|
|
|
18.0
|
|
Allowance for doubtful accounts
|
|
|
(14.7
|
)
|
|
|
(16.1
|
)
|
|
|
|
|
|
|
|
|
|
Receivables, net of allowance
|
|
$
|
330.6
|
|
|
$
|
267.1
|
|
|
|
|
|
|
|
|
|
|
The changes in the allowance for doubtful accounts for fiscal
years 2007 and 2006 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance at the beginning of the year
|
|
$
|
16.1
|
|
|
$
|
15.2
|
|
|
$
|
15.1
|
|
Provision for losses
|
|
|
0.6
|
|
|
|
2.8
|
|
|
|
3.5
|
|
Write-offs and recoveries
|
|
|
(3.3
|
)
|
|
|
(3.7
|
)
|
|
|
(3.2
|
)
|
Acquisitions
|
|
|
0.1
|
|
|
|
0.8
|
|
|
|
0.4
|
|
Foreign currency translation
|
|
|
1.2
|
|
|
|
1.0
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
14.7
|
|
|
$
|
16.1
|
|
|
$
|
15.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The purpose of the allowance is to provide an estimate of losses
with respect to trade receivables. Our estimate in each period
requires consideration of historical loss experience, judgments
about the impact of present economic conditions, in addition to
specific losses for known accounts.
Payables as of the end of fiscal year 2007 and 2006 consisted of
the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Trade payables
|
|
$
|
189.4
|
|
|
$
|
159.4
|
|
Dividends payable
|
|
|
16.6
|
|
|
|
15.9
|
|
Income tax and other payables
|
|
|
18.0
|
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
|
Payables
|
|
$
|
224.0
|
|
|
$
|
189.4
|
|
|
|
|
|
|
|
|
|
|
F-23
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Long-term debt as of the end of fiscal year 2007 and 2006
consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
3.875% notes due 2007
|
|
$
|
—
|
|
|
$
|
27.4
|
|
6.375% notes due 2009
|
|
|
150.0
|
|
|
|
150.0
|
|
5.625% notes due 2011
|
|
|
250.0
|
|
|
|
250.0
|
|
5.75% notes due 2012
|
|
|
300.0
|
|
|
|
—
|
|
4.5% notes due 2013
|
|
|
150.0
|
|
|
|
150.0
|
|
4.875% notes due 2015
|
|
|
300.0
|
|
|
|
300.0
|
|
5.00% notes due 2017
|
|
|
250.0
|
|
|
|
250.0
|
|
7.44% notes due 2026 (due 2008 at option of note holder)
|
|
|
25.0
|
|
|
|
25.0
|
|
7.29% notes due 2026
|
|
|
100.0
|
|
|
|
100.0
|
|
5.50% notes due 2035
|
|
|
250.0
|
|
|
|
250.0
|
|
Various other debt
|
|
|
59.3
|
|
|
|
24.9
|
|
Capital lease obligations
|
|
|
20.3
|
|
|
|
2.0
|
|
Fair value adjustment from interest rate swaps
|
|
|
3.6
|
|
|
|
6.1
|
|
Unamortized discount
|
|
|
(5.8
|
)
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,852.4
|
|
|
|
1,529.4
|
|
Less: amount included in short-term debt
|
|
|
48.9
|
|
|
|
39.2
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,803.5
|
|
|
$
|
1,490.2
|
|
|
|
|
|
|
|
|
|
|
Our debt agreements contain a number of covenants that limit,
among other things, the creation of liens, sale and leaseback
transactions and the general sale of assets. Our revolving
credit agreement requires us to maintain an interest coverage
ratio. We are in compliance with all of our financial covenants.
Substantially all of our debt securities are unsecured, senior
debt obligations and rank equally with all of our other
unsecured and unsubordinated indebtedness.
In July 2007, we issued $300 million of notes with a coupon
rate of 5.75 percent due July 2012. Net proceeds from this
transaction were $297.2 million, which reflected the
discount reduction of $0.8 million and the debt issuance
costs of $2.0 million. The net proceeds from the issuance
of the notes were used to fund the acquisition of Sandora, to
repay commercial paper and for other general corporate purposes.
The notes were issued from our automatic shelf registration
statement filed May 16, 2006 (the “Registration
Statement”). Additional debt securities may be offered
under the Registration Statement. In fiscal year 2007, we also
borrowed $1.0 million in long-term debt in the Bahamas.
In May 2006, we issued $250 million of notes with a coupon
rate of 5.625 percent due May 2011. Net proceeds from this
transaction were $247.4 million, which reflected the
discount reduction of $1.0 million and debt issuance costs
of $1.6 million. A portion of the proceeds from the
issuance was used to repay our commercial paper and other
general obligations. The notes were issued under the
Registration Statement.
During fiscal year 2007, we paid $11.6 million at maturity
of the 8.25 percent notes due February 2007 and
$27.4 million at maturity of the 3.875 notes due September
2007. In February 2006, we repaid $134.7 million of the
6.5 percent notes and the 5.95 percent notes. In
addition, in December 2006 we paid $51.1 million of
long-term debt acquired in the QABCL acquisition.
We utilize revolving credit facilities both in the U.S. and
in our international operations to fund short-term financing
needs, primarily for working capital. In the U.S., we have an
unsecured revolving credit facility
F-24
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
under which we can borrow up to an aggregate of
$600 million. The facility is for general corporate
purposes, including commercial paper backstop. It is our policy
to maintain a committed bank facility as backup financing for
our commercial paper program. The interest rates on the
revolving credit facility, which expires in 2011, are based
primarily on the London Interbank Offered Rate. Accordingly, we
have a total of $600 million available under our commercial
paper program and revolving credit facility combined. There were
$269.5 million and $164.5 million of borrowings under
the commercial paper program as of the end of fiscal years 2007
and 2006, respectively. The weighted-average borrowings under
the commercial paper program during fiscal years 2007 and 2006
were $209.9 million and $279.4 million, respectively.
The weighted-average interest rate for borrowings outstanding
under the commercial paper program as of the end of fiscal years
2007 and 2006 were 5.1 percent and 5.0 percent,
respectively.
Certain wholly-owned subsidiaries maintain operating lines of
credit. The total amount available under these lines is
$127.7 million. Interest rates are based primarily upon
Interbank Offered Rates for borrowings in the subsidiaries’
local currencies. The outstanding balances were
$19.2 million and $9.2 million as of the end of fiscal
years 2007 and 2006, respectively.
As of the end of fiscal year 2007, $45.0 million of
long-term debt acquired as part of the Sandora acquisition, and
included in the caption “Various other debt” in the
table above, was classified as “Short-term debt, including
current maturities of long-term debt” in the Consolidated
Balance Sheet as we intend to refinance this debt with
short-term debt in fiscal year 2008.
The amounts of long-term debt, excluding obligations under
capital leases, scheduled to mature in the next five years are
as follows (in millions):
|
|
|
|
|
2008
|
|
|
45.1
|
*
|
2009
|
|
|
150.1
|
|
2010
|
|
|
0.1
|
|
2011
|
|
|
250.1
|
|
2012
|
|
|
300.1
|
|
|
|
|
* |
|
The 7.44 percent notes due in 2026 are subject to a
one-time investor put option of $25 million in fiscal year
2008. We do not expect the noteholders to exercise this put
option; therefore, the notes are not included in the table above. |
We have entered into noncancelable lease commitments under
operating and capital leases for fleet vehicles, computer
equipment (including both software and hardware), land,
buildings, machinery and equipment.
F-25
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
As of the end of fiscal year 2007, annual minimum rental
payments required under capital leases and operating leases that
have initial noncancelable terms in excess of one year were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2008
|
|
$
|
4.7
|
|
|
$
|
15.6
|
|
2009
|
|
|
4.3
|
|
|
|
12.2
|
|
2010
|
|
|
4.2
|
|
|
|
9.0
|
|
2011
|
|
|
4.2
|
|
|
|
5.8
|
|
2012
|
|
|
4.3
|
|
|
|
4.3
|
|
Thereafter
|
|
|
4.0
|
|
|
|
47.3
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
25.7
|
|
|
$
|
94.2
|
|
|
|
|
|
|
|
|
|
|
Less: imputed interest
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
20.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense applicable to operating leases was
$26.7 million, $26.4 million and $34.1 million in
fiscal years 2007, 2006 and 2005, respectively. A majority of
our leases provide that we pay taxes, maintenance, insurance and
certain other operating expenses. In fiscal year 2005, we
recorded $1.4 million of expense for the early termination
of a real estate lease and $6.1 million of expense related
to lease exit costs as a result of the relocation of our
corporate offices in the Chicago area.
|
|
14.
|
Financial
Instruments
|
We use derivative financial instruments to reduce our exposure
to adverse fluctuations in commodity prices and interest rates.
These financial instruments are “over-the-counter”
instruments and generally were designated at their inception as
hedges of underlying exposures. We do not use derivative
financial instruments for speculative or trading purposes.
Cash flow hedges. In anticipation of
long-term debt issuances, we had entered into treasury rate lock
instruments and a forward starting swap agreement. We accounted
for these treasury rate lock instruments and the forward
starting swap agreement as cash flow hedges, as each hedged
against the variability of interest payments attributable to
changes in interest rates on the forecasted issuance of
fixed-rate debt. These treasury rate locks and the forward
starting swap agreement were considered highly effective in
eliminating the variability of cash flows associated with the
forecasted debt issuance.
The following table summarizes the net derivative losses
deferred into “Accumulated other comprehensive income”
and reclassified to income in fiscal years 2007, 2006 and 2005
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Unrealized (losses) gains on derivatives at beginning of year
|
|
$
|
(3.3
|
)
|
|
$
|
(2.4
|
)
|
|
$
|
1.2
|
|
Deferral of net derivative losses in accumulated other
comprehensive income
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
(10.7
|
)
|
Reclassification of net derivative gains (losses) to income
|
|
|
0.8
|
|
|
|
(0.8
|
)
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on derivatives at end of year
|
|
$
|
(2.7
|
)
|
|
$
|
(3.3
|
)
|
|
$
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges. Periodically, we
enter into interest rate swap contracts to convert a portion of
our fixed rate debt to floating rate debt, with the objective of
reducing overall borrowing costs. We account for these swaps as
fair value hedges, since they hedge against the change in fair
value of fixed rate debt resulting from fluctuations in interest
rates. In fiscal year 2004, we terminated all outstanding
interest rate swap
F-26
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
contracts and received $14.4 million for the fair value of
the interest rate swap contracts. Amounts included in the
cumulative fair value adjustment to long-term debt will be
reclassified into earnings commensurate with the recognition of
the related interest expense. As of the end of fiscal years 2007
and 2006, the cumulative fair value adjustments to long-term
debt were $3.6 million and $6.1 million, respectively.
Derivatives not designated as
hedges. During fiscal year 2007, we entered
into heating oil swap contracts to hedge against volatility in
future cash flows on anticipated purchases of diesel fuel. These
derivative financial instruments were not designated as hedging
instruments. All outstanding heating oil swap contracts were
settled by the end of fiscal year 2007, and therefore, we have
not recorded any unrealized gains or losses associated with
these contracts. Realized gains and losses were recorded in cost
of goods sold and SD&A expenses, where the associated
diesel fuel purchases were recorded. During fiscal year 2007,
$2.7 million and $3.8 million of realized gains were
recorded in cost of goods sold and SD&A expenses,
respectively.
Other financial instruments. The
carrying amounts of other financial assets and liabilities,
including cash and cash equivalents, accounts receivable,
accounts payable and other accrued expenses, approximate fair
values due to their short maturity.
The fair value of our floating rate debt as of the end of fiscal
years 2007 and 2006 approximated its carrying amount. Our fixed
rate debt, which includes capital lease obligations, had a
carrying amount of $1,852.4 million and an estimated fair
value of $1,845.7 million as of fiscal year end 2007. As of
the end of fiscal year 2006, our fixed rate debt had a carrying
amount of $1,529.4 million, and an estimated fair value of
$1,520.0 million. The fair value of the fixed rate debt was
based upon quotes from financial institutions for instruments
with similar characteristics or upon discounting future cash
flows.
|
|
15.
|
Pension
and Other Postretirement Plans
|
Company-sponsored defined benefit pension
plans. Prior to December 31, 2001,
salaried employees were provided pension benefits based on years
of service that generally were limited to a maximum of
20 percent of the employee’s average annual
compensation during the five years preceding retirement. Plans
covering non-union hourly employees generally provided benefits
of stated amounts for each year of service. Plan assets are
invested primarily in common stocks, corporate bonds and
government securities. In connection with the integration of the
former Whitman Corporation and the former PepsiAmericas
U.S. benefit plans during the first quarter of 2001, we
amended our pension plans to freeze pension benefit accruals for
substantially all salaried and non-union employees effective
December 31, 2001. Employees age 50 or older with 10
or more years of vesting service were grandfathered such that
they will continue to accrue benefits after December 31,
2001 based on their final average pay as of December 31,
2001. The existing U.S. salaried and non-union pension
plans were replaced by an additional employer contribution to
the 401(k) plan beginning January 1, 2002.
Postretirement benefits other than
pensions. We provide substantially all former
U.S. salaried employees who retired prior to July 1,
1989 and certain other employees in the U.S., including certain
employees in the territories acquired from PepsiCo, with certain
life and health care benefits. U.S. salaried employees
retiring after July 1, 1989, except covered employees in
the territories acquired from PepsiCo in 1999, generally are
required to pay the full cost of these benefits. Effective
January 1, 2000, non-union hourly employees are also
eligible for coverage under these plans, but are also required
to pay the full cost of the benefits. Eligibility for these
benefits varies with the employee’s classification prior to
retirement. Benefits are provided through insurance contracts or
welfare trust funds. The insured plans generally are financed by
monthly insurance premiums and are based upon the prior
year’s experience. Benefits paid from the welfare trust are
financed by monthly deposits that approximate the amount of
current claims and expenses. We have the right to modify or
terminate these benefits.
F-27
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
In September 2006, the FASB issued SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans.” SFAS No. 158
requires, among other things, that we fully recognize the funded
status associated with our defined benefit pension and other
post-employment benefit plans on the Consolidated Balance
Sheets. Each overfunded plan is recognized as an asset and each
underfunded plan is recognized as a liability. Any unrecognized
prior service costs or credits and net actuarial gains and
losses as well as subsequent changes in the funded status is
recognized as a component of “Accumulated other
comprehensive income” in shareholders’ equity. The
recognition provisions of SFAS No. 158 were effective
as of the end of fiscal year 2006. We are also required to
measure our plans’ assets and liabilities as of the end of
our fiscal year instead of our current measurement date of
September 30. The measurement date provisions will be
effective as of the end of fiscal year 2008.
The following tables outline the changes in benefit obligations
and fair values of plan assets for our pension plans and
postretirement benefits other than pensions and reconcile the
pension plans’ funded status to the amounts recognized in
our Consolidated Balance Sheets as of the end of fiscal years
2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Pension Plans
|
|
|
Postretirement Plan
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
176.6
|
|
|
$
|
181.6
|
|
|
$
|
20.1
|
|
|
$
|
21.7
|
|
Service cost
|
|
|
3.4
|
|
|
|
3.4
|
|
|
|
—
|
|
|
|
0.1
|
|
Interest cost
|
|
|
10.7
|
|
|
|
10.1
|
|
|
|
1.1
|
|
|
|
1.1
|
|
Plan participant contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
1.2
|
|
|
|
1.1
|
|
Amendments
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
Actuarial gain
|
|
|
(5.5
|
)
|
|
|
(10.8
|
)
|
|
|
(2.0
|
)
|
|
|
(1.9
|
)
|
Benefits paid
|
|
|
(8.4
|
)
|
|
|
(8.2
|
)
|
|
|
(2.0
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
177.4
|
|
|
$
|
176.6
|
|
|
$
|
18.4
|
|
|
$
|
20.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Fair Value of Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at beginning of year
|
|
$
|
176.5
|
|
|
$
|
149.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
|
|
23.2
|
|
|
|
14.1
|
|
|
|
0.8
|
|
|
|
0.8
|
|
Employer contributions
|
|
|
0.9
|
|
|
|
21.1
|
|
|
|
1.2
|
|
|
|
1.1
|
|
Benefits paid
|
|
|
(8.4
|
)
|
|
|
(8.2
|
)
|
|
|
(2.0
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at end of year
|
|
$
|
192.2
|
|
|
$
|
176.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
$
|
14.8
|
|
|
$
|
(0.1
|
)
|
|
$
|
(18.4
|
)
|
|
$
|
(20.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The following table summarizes the net prior service cost
(credit) and net actuarial loss (gain) deferred into
“Accumulated other comprehensive income” and
reclassified to income in fiscal year 2007 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
Net Prior Service Cost (Credit), net of tax
|
|
Pension Plan
|
|
|
Plan
|
|
|
Total
|
|
|
Unrealized losses (gains) on net prior service cost at beginning
of year
|
|
$
|
1.5
|
|
|
$
|
(0.4
|
)
|
|
$
|
1.1
|
|
Deferral of net prior service cost in accumulated other
comprehensive income
|
|
|
0.4
|
|
|
|
—
|
|
|
|
0.4
|
|
Reclassification of net prior service cost to income
|
|
|
(0.2
|
)
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on net prior service cost at end of
year
|
|
$
|
1.7
|
|
|
$
|
(0.4
|
)
|
|
$
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Actuarial Loss (Gain),
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses (gains) on net actuarial (gain) loss at
beginning of year
|
|
$
|
30.4
|
|
|
$
|
(3.5
|
)
|
|
$
|
26.9
|
|
Deferral of net actuarial gains in accumulated other
comprehensive income
|
|
|
(8.0
|
)
|
|
|
(1.1
|
)
|
|
|
(9.1
|
)
|
Reclassification of net actuarial (losses) gains to income
|
|
|
(1.8
|
)
|
|
|
0.5
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses (gains) on net actuarial (gain) loss at end of
year
|
|
$
|
20.6
|
|
|
$
|
(4.1
|
)
|
|
$
|
16.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of net prior service cost and net actuarial loss for
our pension and other postretirement plans expected to be
reclassified into income during fiscal year 2008 are
$0.3 million and $1.9 million, respectively. The
amount of net actuarial gain for our other post-employment plan
expected to be reclassified into income during fiscal year 2008
is $0.9 million. The amount of net prior service credit
expected to be reclassified into income for the other
postretirement plan is not material.
Net periodic pension and other postretirement benefit costs for
fiscal years 2007, 2006 and 2005 included the following
components (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit Costs
|
|
|
Other Postretirement Benefit Costs
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
3.4
|
|
|
$
|
3.4
|
|
|
$
|
3.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Interest cost
|
|
|
10.7
|
|
|
|
10.1
|
|
|
|
9.5
|
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
1.1
|
|
Expected return on plan assets
|
|
|
(14.7
|
)
|
|
|
(13.8
|
)
|
|
|
(11.8
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Amortization of net loss
|
|
|
2.8
|
|
|
|
3.8
|
|
|
|
2.8
|
|
|
|
(0.8
|
)
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
Amortization of prior service cost
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
$
|
2.5
|
|
|
$
|
3.7
|
|
|
$
|
3.7
|
|
|
$
|
0.3
|
|
|
$
|
0.7
|
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income amounts are reflected in
the Consolidated Balance Sheets net of tax of $15.7 million
and $16.6 million at the end of fiscal year 2007 and 2006,
respectively. We use September 30 as the measurement date for
plan assets and obligations. The plan assets of our pension
plans as of fiscal year end 2007 were approximately
$4.4 million lower than plan assets at the September 30
measurement date.
F-29
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Pension costs are funded in amounts not less than minimum levels
required by regulation. The principal economic assumptions used
in the determination of net periodic pension cost and benefit
obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Pension Cost:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rates
|
|
|
6.16
|
%
|
|
|
5.75
|
%
|
|
|
6.00
|
%
|
Expected long-term rates of return on assets
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligation:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rates
|
|
|
6.49
|
%
|
|
|
6.16
|
%
|
|
|
5.75
|
%
|
Expected long-term rates of return on assets
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
Discount Rate. Since pension
liabilities are measured on a discounted basis, the discount
rate is a significant assumption. An assumed discount rate is
required to be used in each pension plan actuarial valuation.
The discount rate assumption reflects the market rate for high
quality (for example, rated “AA” or higher by
Moody’s or Standard & Poor’s in the U.S.),
fixed-income debt instruments based on the expected duration of
the benefit payments for our pension plans as of the annual
measurement date and is subject to change each year.
A 100 basis point increase in the discount rate would
decrease our annual pension expense by $1.6 million. A
100 basis point decrease in the discount rate would
increase our annual pension expense by $2.4 million.
Expected Return on Plan Assets. The
expected long-term return on plan assets should, over time,
approximate the actual long-term returns on pension plan assets.
The expected return on plan assets assumption is based on
historical returns and the future expectation for returns for
each asset class, as well as the target asset allocation of the
asset portfolio.
A 100 basis point increase in our expected return on plan
assets would decrease our annual pension expense by
$1.8 million. A 100 basis point decrease in our
expected return on plan assets would increase our annual pension
expense by $1.8 million.
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with accumulated
benefit obligations in excess of plan assets were
$13.7 million, $13.7 million and $10.6 million,
respectively, as of the end of fiscal year 2007 and
$14.0 million, $14.0 million and $9.4 million,
respectively, as of fiscal year end 2006. Plans with a projected
benefit obligation, accumulated benefit obligation, and fair
value of plan assets that were overfunded were
$163.7 million, $163.7 million and
$181.6 million, respectively, as of the end of fiscal year
2007 and $162.6 million, $162.6 million and
$167.1 million, respectively, as of the end of fiscal year
2006.
Our pension plans’ weighted-average asset allocations as of
September 30, 2007 and 2006 by asset category were as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
70
|
%
|
|
|
66
|
%
|
Debt securities
|
|
|
26
|
%
|
|
|
25
|
%
|
Other
|
|
|
4
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The plan’s assets are invested in the PepsiAmericas Defined
Benefit Master Trust (“Master Trust”). The Master
Trust’s investment objectives are to seek capital
appreciation with a level of current income and long-
F-30
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
term income growth. Broad diversification by security and
moderate diversification by asset class are achieved by
investing in domestic and international equity index funds, a
domestic bond index fund, and money market funds. The Master
Trust’s target investment allocations are 60 percent
to 75 percent equities, 25 percent to 35 percent
bonds, and up to 5 percent in other assets. The Master
Trust does not hold any of our common stock.
Health care assumptions. The principal
economic assumptions used in the determination of net periodic
benefit cost for the post-employment benefit plan were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rates
|
|
|
5.97
|
%
|
|
|
5.75
|
%
|
|
|
6.00
|
%
|
Health care cost trend rate assumed for next year
|
|
|
9.0
|
%
|
|
|
10.0
|
%
|
|
|
10.0
|
%
|
Rate to which the cost trend rate is assumed to decline (the
ultimate rate)
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
Year that the rate reached the ultimate trend rate
|
|
|
2011
|
|
|
|
2011
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligation:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rates
|
|
|
6.34
|
%
|
|
|
5.97
|
%
|
|
|
5.75
|
%
|
Health care cost trend rate assumed for next year
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
10.0
|
%
|
Rate to which the cost trend rate is assumed to decline (the
ultimate rate)
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
Year that the rate reached the ultimate trend rate
|
|
|
2012
|
|
|
|
2011
|
|
|
|
2011
|
|
Expected benefit payments. A minimum
contribution of $0.4 million is required under the minimum
funding standards in fiscal year 2008. We do not expect to make
any additional contributions in fiscal year 2008. The following
benefit payments, which reflect expected future service, as
appropriate, are expected to be paid (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
2008
|
|
$
|
8.9
|
|
|
$
|
1.4
|
|
2009
|
|
|
9.3
|
|
|
|
1.4
|
|
2010
|
|
|
9.7
|
|
|
|
1.4
|
|
2011
|
|
|
10.2
|
|
|
|
1.5
|
|
2012
|
|
|
10.8
|
|
|
|
1.6
|
|
2013-2017
|
|
|
63.3
|
|
|
|
7.9
|
|
Company-sponsored defined contribution
plans. Substantially all U.S. salaried
employees and certain U.S. hourly employees participate in
voluntary, contributory defined contribution plans to which we
make partial matching contributions. Also, in connection with
the aforementioned freeze of our pension plans, we began making
supplemental contributions in 2002 to substantially all
U.S. salaried employees’ and eligible hourly
employees’ 401(k) accounts, regardless of the level of each
employee’s contributions. In addition, we make
contributions to a supplemental, deferred compensation plan that
provides eligible U.S. executives with the opportunity for
contributions that could not be credited to their individual
401(k) accounts due to Internal Revenue Code limitations. The
expense recorded amounted to $20.6 million,
$19.7 million and $18.9 million in fiscal years 2007,
2006 and 2005, respectively.
Multi-employer pension plans. We
participate in a number of multi-employer pension plans, which
provide benefits to certain union employee groups. Amounts
contributed to the plans totaled $5.2 million,
$5.3 million and $4.7 million in fiscal years 2007,
2006 and 2005, respectively.
F-31
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Multi-employer post-retirement medical and life
insurance. We participate in a number of
multi-employer plans, which provide health care and survivor
benefits to union employees during their working lives and after
retirement. Portions of the benefit contributions, which cannot
be disaggregated, relate to post-retirement benefits for plan
participants. Total amounts charged against income and
contributed to the plans (including benefit coverage during
participating employees’ working lives) amounted to
$19.2 million, $17.9 million and $14.8 million in
fiscal years 2007, 2006 and 2005, respectively.
|
|
16.
|
Stock
Repurchase Program
|
During fiscal year 2007, we repurchased a total of
2.7 million common shares at an average price of $22.19 per
share for an aggregate purchase price of $59.4 million.
During fiscal year 2006, we repurchased a total of
6.3 million shares at an average price of $23.77 per share
for an aggregate purchase price of $150.7 million. The
purchases of these shares were made pursuant to the share
repurchase program previously authorized by our Board of
Directors. As of fiscal year end 2007, the total remaining
shares authorized under the repurchase program was
7.2 million shares.
During fiscal year 2005, we retired 30 million shares of
PepsiAmericas common stock. The stock retirement resulted in a
reduction to the treasury stock account of $572.3 million,
a reduction to retained income of $296.0 million and a
reduction to common stock of $276.3 million.
|
|
17.
|
Share-Based
Compensation and Warrants
|
Our 2000 Stock Incentive Plan (the “2000 Plan”),
originally approved by shareholders in fiscal year 2000,
provides for granting incentive stock options, nonqualified
stock options, related stock appreciation rights
(“SARs”), restricted stock awards, performance awards
or any combination of the foregoing. These awards have various
vesting provisions. All awards vest immediately upon a change in
control as defined by the 2000 Plan, with settlement of those
awards in cash.
Generally, outstanding nonqualified stock options are
exercisable during a ten-year period beginning one to three
years after the date of grant. The exercise price of all options
is equal to the fair market value on the date of grant. We
generally use shares from treasury to satisfy option exercises.
There are no outstanding stock appreciation rights under the
2000 Plan as of the end of fiscal year 2007.
Restricted stock awards are granted to key members of our
U.S. and Caribbean management teams and members of our
Board of Directors under the 2000 Plan. Beginning with shares
granted in fiscal year 2004, restricted stock awards granted to
employees vest in their entirety on the third anniversary of the
award. Restricted stock awards granted to employees before 2004
vest ratably on an annual basis over a three-year period.
Employees must complete the requisite service period in order
for their awards to vest. Restricted stock awards granted to
directors vest immediately upon grant. Pursuant to the terms of
such awards, directors may not sell such stock while they serve
on the Board of Directors. Dividends are paid to the holders of
restricted stock awards either at the dividend payment date or
upon vesting, depending on the terms of the restricted stock
award. We have a policy of using shares from treasury to satisfy
restricted stock award vesting. We measure the fair value of
restricted stock based upon the market price of the underlying
common stock at the date of grant.
Restricted stock units are granted to key members of our CEE
management team. The restricted stock units are payable to these
employees in cash upon vesting at the prevailing market value of
PepsiAmericas common stock plus accrued dividends. Restricted
stock units vest after three years, which equals the
employees’ requisite service period. We measure the fair
value of the restricted stock unit award liability based upon
the market price of the underlying common stock at the date of
grant and each subsequent reporting date.
F-32
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Under the 2000 Plan, 14 million shares were originally
reserved for share-based awards. As of the end of fiscal year
2007, there were 4,212,792 shares available for future
grants.
Our Stock Incentive Plan (the “1982 Plan”), originally
established and approved by the shareholders in 1982, has been
subsequently amended from time to time. Most recently in 1999,
the shareholders approved an allocation of additional shares to
this plan. The types of awards and terms of the 1982 Plan are
similar to the 2000 Plan. There are no outstanding stock
appreciation rights under the 1982 Plan as of the end of fiscal
year 2007.
Effective January 1, 2006, we adopted the provisions of
SFAS No. 123(R), “Share-Based Payment”. We
used the modified prospective method of adoption as provided by
SFAS No. 123(R). Accordingly, financial statement
amounts for the prior periods presented in this Annual Report on
Form 10-K
have not been restated.
Changes in options outstanding are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
Range of
|
|
|
Weighted-Average
|
|
Options
|
|
Shares
|
|
|
Exercise Prices
|
|
|
Exercise Price
|
|
|
Balance, fiscal year end 2004
|
|
|
10,900,873
|
|
|
$
|
10.81 - 22.66
|
|
|
$
|
16.36
|
|
Exercised
|
|
|
(3,842,314
|
)
|
|
|
10.81 - 22.66
|
|
|
|
15.98
|
|
Forfeited
|
|
|
(117,064
|
)
|
|
|
11.97 - 18.92
|
|
|
|
16.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, fiscal year end 2005
|
|
|
6,941,495
|
|
|
|
10.81 - 22.63
|
|
|
|
16.57
|
|
Exercised
|
|
|
(1,677,651
|
)
|
|
|
10.81 - 22.63
|
|
|
|
14.84
|
|
Forfeited
|
|
|
(20,558
|
)
|
|
|
12.01 - 22.63
|
|
|
|
17.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, fiscal year end 2006
|
|
|
5,243,286
|
|
|
|
10.81 - 22.63
|
|
|
|
17.11
|
|
Exercised
|
|
|
(3,404,899
|
)
|
|
|
10.81 - 22.63
|
|
|
|
17.93
|
|
Forfeited
|
|
|
(20,145
|
)
|
|
|
12.01 - 18.92
|
|
|
|
18.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, fiscal year end 2007
|
|
|
1,818,242
|
|
|
|
10.81 - 22.63
|
|
|
|
15.57
|
|
The Black-Scholes model was used to estimate the grant date fair
values of options. There were no options granted during fiscal
years 2007, 2006 and 2005. We recorded $0.3 million
($0.2 million net of tax) and $2.4 million
($1.5 million net of tax) of compensation expense related
to options in SD&A expenses in the Consolidated Statements
of Income for fiscal years 2007 and 2006, respectively, related
to the fiscal year 2004 option grant. The total intrinsic value
of options exercised during fiscal years 2007 and 2006 were
$33.2 million and $14.0 million, respectively. The
total intrinsic value of fully vested options as of the end of
fiscal year 2007 was $34.3 million.
The following table summarizes information regarding stock
options outstanding and exercisable as of the end of fiscal year
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
Range of
|
|
Options
|
|
|
Remaining Life
|
|
|
Average
|
|
Exercise Prices
|
|
Outstanding
|
|
|
(in years)
|
|
|
Exercise Price
|
|
|
$10.81 - 12.75
|
|
|
955,460
|
|
|
|
3.9
|
|
|
$
|
12.32
|
|
14.37 - 17.72
|
|
|
212,732
|
|
|
|
2.8
|
|
|
|
16.12
|
|
18.48 - 22.63
|
|
|
650,050
|
|
|
|
4.3
|
|
|
|
20.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Options
|
|
|
1,818,242
|
|
|
|
3.9
|
|
|
|
15.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Changes in nonvested restricted stock awards are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Range of Grant-Date
|
|
|
Grant-Date Fair
|
|
Nonvested Shares
|
|
Shares
|
|
|
Fair Value
|
|
|
Value
|
|
|
Balance, fiscal year end 2005
|
|
|
1,645,292
|
|
|
|
$12.01 - 24.83
|
|
|
|
$19.15
|
|
Granted
|
|
|
970,877
|
|
|
|
24.31
|
|
|
|
24.31
|
|
Vested
|
|
|
(405,026
|
)
|
|
|
12.01 - 24.31
|
|
|
|
12.54
|
|
Forfeited
|
|
|
(70,512
|
)
|
|
|
18.92 - 24.31
|
|
|
|
22.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, fiscal year end 2006
|
|
|
2,140,631
|
|
|
|
18.92 - 24.83
|
|
|
|
22.62
|
|
Granted
|
|
|
990,278
|
|
|
|
22.11
|
|
|
|
22.11
|
|
Vested
|
|
|
(532,352
|
)
|
|
|
18.92 - 24.31
|
|
|
|
20.00
|
|
Forfeited
|
|
|
(134,658
|
)
|
|
|
18.92 - 24.31
|
|
|
|
22.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, fiscal year end 2007
|
|
|
2,463,899
|
|
|
|
22.11 - 24.31
|
|
|
|
22.96
|
|
The weighted-average fair value (at the date of grant) for
restricted stock awards granted in fiscal years 2007, 2006 and
2005 was $22.11, $24.31, and $22.55, respectively. We recognized
compensation expense of $18.0 million ($11.8 million
net of tax), $14.5 million ($9.1 million net of tax),
and $10.2 million ($6.5 million net of tax) in fiscal
years 2007, 2006 and 2005, respectively, related to restricted
stock award grants. In addition, we recognized an acceleration
of vesting of certain restricted stock awards of
$2.0 million related to our U.S. strategic
realignment. This amount is recorded in “Special
charges” in fiscal year 2006 in the Consolidated Statement
of Income. The fair value of restricted stock awards that vested
during fiscal years 2007, 2006 and 2005 was $10.6 million,
$9.3 million and $12.0 million, respectively.
We grant restricted stock units to key members of management in
CEE. In fiscal years 2007, 2006 and 2005, we granted 83,675,
72,900 and 78,440 restricted stock units, respectively, at a
weighted average fair value of $22.11, $24.31 and $22.52,
respectively, on the date of grant. We recognized compensation
expense of $3.5 million, $1.0 million and
$0.6 million in fiscal years 2007, 2006 and 2005,
respectively, related to restricted stock unit grants. There are
currently 227,765 restricted stock units outstanding as of the
end of fiscal year 2007, and no restricted stock units vested
during fiscal years 2007, 2006 or 2005.
Upon the adoption of SFAS No. 123(R), cash retained as
a result of excess tax benefits relating to stock-based
compensation is presented in cash flows from financing
activities on the Consolidated Statement of Cash Flows.
Previously, cash retained as a result of excess tax benefits was
presented in cash flows from operating activities. Tax benefits
resulting from stock-based compensation deductions in excess of
amounts reported for financial reporting purposes were
$12.5 million and $6.8 million during fiscal years
2007 and 2006, respectively.
As of the end of fiscal year 2007, there was $21.3 million
of total unrecognized compensation cost, net of estimated
forfeitures of $2.2 million, related to nonvested
stock-based compensation arrangements. This compensation cost is
expected to be recognized over the next 1.8 years.
In periods prior to the adoption of SFAS No. 123(R),
we used the intrinsic value method of accounting for our
stock-based compensation under Accounting Principles Board
(“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees.” No stock-based employee
compensation cost for options was reflected in net income, as
all options granted had an exercise price equal to the market
value of the underlying common stock on the date of grant.
Compensation expense for restricted stock awards and restricted
stock units was reflected in net income, and this expense was
recognized ratably over the awards’ vesting period. The
following table illustrates the effect on net income and
earnings per share had compensation expense been recognized
based upon the estimated fair value on the grant date of the
awards in accordance with SFAS No. 123,
“Accounting
F-34
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
for Stock-Based Compensation,” as amended by
SFAS No. 148, “Accounting for Stock-Based
Compensation — Transition and Disclosure” (in
millions, except per share data):
|
|
|
|
|
|
|
2005
|
|
|
Net income, as reported
|
|
$
|
194.7
|
|
Add: total stock-based compensation expense included in net
income as reported, net of tax
|
|
|
6.8
|
|
Deduct: total stock-based compensation expense determined under
fair value based method for all options and restricted stock,
net of tax
|
|
|
(9.3
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
192.2
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
Basic: As reported
|
|
$
|
1.45
|
|
|
|
|
|
|
Pro forma
|
|
$
|
1.43
|
|
|
|
|
|
|
Diluted: As reported
|
|
$
|
1.42
|
|
|
|
|
|
|
Pro forma
|
|
$
|
1.40
|
|
|
|
|
|
|
In connection with the merger with the former PepsiAmericas, we
converted former PepsiAmericas warrants into warrants to acquire
shares of our stock. The warrants were exercisable originally by
Dakota Holdings, LLC, PepsiCo and V. Suarez & Co.,
Inc. for the purchase of 311,470, 65,658, and
94,282 shares, respectively, of our common stock at $24.79
per share, anytime until January 17, 2006. None of these
warrants were exercised by the expiration date.
|
|
18.
|
Shareholder
Rights Plan and Preferred Stock
|
On May 20, 1999, we adopted a Shareholder Rights Plan and
declared a dividend of one preferred share purchase right (a
“Right”) for each outstanding share of our common
stock, par value $0.01 per share. The dividend was paid on
June 11, 1999 to the shareholders of record on that date.
Each Right entitles the registered holder to purchase from us
one one-hundredth of a share of our Series A Junior
Participating Preferred Stock, par value $0.01 per share, at a
price of $61.25 per one one-hundredth of a share of such
Preferred Stock, subject to adjustment. The Rights will become
exercisable if someone buys 15 percent or more of our
common stock or following the commencement of, or announcement
of an intention to commence, a tender or exchange offer to
acquire 15 percent or more of our common stock. In
addition, if someone buys 15 percent or more of our common
stock, each right will entitle its holder (other than that
buyer) to purchase, at the Right’s $61.25 purchase price, a
number of shares of our common stock having a market value of
twice the Right’s $61.25 exercise price. If we are acquired
in a merger, each Right will entitle its holder to purchase, at
the Right’s $61.25 purchase price, a number of the
acquiring company’s common shares having a market value at
the time of twice the Right’s exercise price. The plan was
subsequently amended on August 18, 2000 in connection with
the merger agreement with the former PepsiAmericas. The
amendment to the rights agreement provides that:
|
|
|
|
•
|
None of Pohlad Companies, any affiliate of Pohlad Companies,
Robert C. Pohlad, affiliates of Robert C. Pohlad or the former
PepsiAmericas will be deemed an “Acquiring Person” (as
defined in the rights agreement) solely by virtue of
(1) the consummation of the transactions contemplated by
the merger agreement, (2) the acquisition by Dakota
Holdings, LLC of shares of our common stock in connection with
the merger, or (3) the acquisition of shares of our common
stock permitted by the Pohlad shareholder agreement;
|
F-35
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
|
|
•
|
Dakota Holdings, LLC will not be deemed an “Acquiring
Person” (as defined in the rights agreement) so long as it
is owned solely by Robert C. Pohlad, affiliates of Robert C.
Pohlad, PepsiCo
and/or
affiliates of PepsiCo; and
|
|
|
•
|
A “Distribution Date” (as defined in the rights
agreement) will not occur solely by reason of the execution,
delivery and performance of the merger agreement or the
consummation of any of the transactions contemplated by such
merger agreement.
|
Prior to the acquisition of 15 percent or more of our
stock, the Rights can be redeemed by the Board of Directors for
one cent per Right. Our Board of Directors also is authorized to
reduce the threshold to 10 percent. The Rights will expire
on May 20, 2009. The Rights do not have voting or dividend
rights, and until they become exercisable, they have no dilutive
effect on our per-share earnings.
We have 12.5 million authorized shares of Preferred Stock.
There is no Preferred Stock issued or outstanding.
|
|
19.
|
Supplemental
Cash Flow Information
|
Net cash provided by operating activities reflected cash
payments and receipts for interest and income taxes as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Interest paid
|
|
$
|
104.4
|
|
|
$
|
105.7
|
|
|
$
|
91.3
|
|
Interest received
|
|
|
3.1
|
|
|
|
3.9
|
|
|
|
3.7
|
|
Income taxes paid
|
|
|
115.5
|
|
|
|
87.7
|
|
|
|
102.5
|
|
Income tax refunds
|
|
|
1.9
|
|
|
|
0.1
|
|
|
|
13.6
|
|
|
|
20.
|
Environmental
and Other Commitments and Contingencies
|
Current Operations. We maintain
compliance with federal, state and local laws and regulations
relating to materials used in production and to the discharge of
wastes, and other laws and regulations relating to the
protection of the environment. The capital costs of such
management and compliance, including the modification of
existing plants and the installation of new manufacturing
processes, are not material to our continuing operations.
We are defendants in lawsuits that arise in the ordinary course
of business, none of which is expected to have a material
adverse effect on our financial condition, although amounts
recorded in any given period could be material to the results of
operations or cash flows for that period.
We participate in a number of trustee-managed multi-employer
pension and health and welfare plans for employees covered under
collective bargaining agreements. Several factors, including
unfavorable investment performance, changes in demographics and
increased benefits to participants could result in potential
funding deficiencies, which could cause us to make higher future
contributions to these plans.
Discontinued Operations —
Remediation. Under the agreement pursuant to
which we sold our subsidiaries, Abex Corporation and Pneumo Abex
Corporation (collectively, “Pneumo Abex”), in 1988 and
a subsequent settlement agreement entered into in September
1991, we have assumed indemnification obligations for certain
environmental liabilities of Pneumo Abex, after any insurance
recoveries. Pneumo Abex has been and is subject to a number of
environmental cleanup proceedings, including responsibilities
under the Comprehensive Environmental Response, Compensation and
Liability Act and other related federal and state laws regarding
release or disposal of wastes at
on-site and
off-site locations. In some proceedings, federal, state and
local government agencies are involved and other major
corporations have been named as potentially
F-36
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
responsible parties. Pneumo Abex is also subject to private
claims and lawsuits for remediation of properties previously
owned by Pneumo Abex and its subsidiaries.
There is an inherent uncertainty in assessing the total cost to
investigate and remediate a given site. This is because of the
evolving and varying nature of the remediation and allocation
process. Any assessment of expenses is more speculative in an
early stage of remediation and is dependent upon a number of
variables beyond the control of any party. Furthermore, there
are often timing considerations, in that a portion of the
expense incurred by Pneumo Abex, and any resulting obligation of
ours to indemnify Pneumo Abex, may not occur for a number of
years.
In fiscal year 2001, we investigated the use of insurance
products to mitigate risks related to our indemnification
obligations under the 1988 agreement, as amended. We oversaw a
comprehensive review of the former facilities operated or
impacted by Pneumo Abex. Advances in the techniques of
retrospective risk evaluation and increased experience (and
therefore available data) at our former facilities made this
comprehensive review possible. The review was completed in
fiscal year 2001 and was updated in fiscal year 2005.
During fiscal year 2007, we recorded a charge of
$2.1 million, net of taxes, related to revised estimates
for environmental remediation, legal and related administrative
costs. As of the end of fiscal year 2007, we had
$40.2 million accrued to cover potential indemnification
obligations, compared to $60.3 million recorded as of the
end of fiscal year 2006. The decrease was primarily due to
payments made during the year for remediation activities, legal
and administrative fees and settlement costs or negotiations.
This indemnification obligation includes costs associated with
approximately 15 sites in various stages of remediation or
negotiations. At the present time, the most significant
remaining indemnification obligation is associated with the
Willits site, as discussed below, while no other single site has
significant estimated remaining costs associated with it. Of the
total amount accrued, $19.5 million and $26.2 million
were classified as a current liability as of the end of fiscal
year 2007 and 2006, respectively. The amounts exclude possible
insurance recoveries and are determined on an undiscounted cash
flow basis. The estimated indemnification liabilities include
expenses for the investigation and remediation of identified
sites, payments to third parties for claims and expenses
(including product liability and toxic tort claims),
administrative expenses, and the expenses of on-going
evaluations and litigation. We expect a significant portion of
the accrued liabilities will be spent during the next five years.
Included in our indemnification obligations is financial
exposure related to certain remedial actions required at a
facility that manufactured hydraulic and related equipment in
Willits, California. Various chemicals and metals contaminate
this site. A final consent decree was issued in August 1997 and
amended in December 2000 in the case of the People of the
State of California and the City of Willits, California v.
Remco Hydraulics, Inc. The final consent decree established
a trust (the “Willits Trust”) which is obligated to
investigate and clean up this site. We are currently funding the
Willits Trust and the investigation and interim remediation
costs on a year-to-year basis as required in the final amended
consent decree. We have accrued $15.4 million for future
remediation and trust administration costs, with a majority of
this amount to be spent over the next several years.
Although we have certain indemnification obligations for
environmental liabilities at a number of sites other than the
site discussed above, including Superfund sites, it is not
anticipated that additional expense at any specific site will
have a material effect on us. At some sites, the volumetric
contribution for which we have an obligation has been estimated
and other large, financially viable parties are responsible for
substantial portions of the remainder. In our opinion, based
upon information currently available, the ultimate resolution of
these claims and litigation, including potential environmental
exposures, and considering amounts already accrued, should not
have a material effect on our financial condition, although
amounts recorded in a given period could be material to our
results of operations or cash flows for that period.
F-37
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Discontinued Operations —
Insurance. During fiscal year 2002, as part
of a comprehensive program concerning environmental liabilities
related to the former Whitman Corporation subsidiaries, we
purchased new insurance coverage related to the sites previously
owned and operated or impacted by Pneumo Abex and its
subsidiaries. In addition, a trust, which was established in
2000 with the proceeds from an insurance settlement (the
“Trust”), purchased insurance coverage and funded
coverage for remedial and other costs (“Finite
Funding”) related to the sites previously owned and
operated or impacted by Pneumo Abex and its subsidiaries.
Essentially all of the assets of the Trust were expended by the
Trust in connection with the purchase of the insurance coverage,
the Finite Funding and related expenses. These actions were
taken to fund remediation and related costs associated with the
sites previously owned and operated or impacted by Pneumo Abex
and its subsidiaries and to protect against additional future
costs in excess of our self-insured retention. The original
amount of self-insured retention (the amount we must pay before
the insurance carrier is obligated to begin payments) was
$114.0 million of which $50.2 million has been eroded,
leaving a remaining self-insured retention of $63.8 million
at the end of fiscal year 2007. The estimated range of aggregate
exposure related only to the remediation costs of such
environmental liabilities is approximately $20 million to
$45 million. We had accrued $23.7 million as of the
end of fiscal year 2007 for remediation costs, which is our best
estimate of the contingent liabilities related to these
environmental matters. The Finite Funding may be used to pay a
portion of the $23.7 million and thus reduces our future
cash obligations. Amounts recorded in our Consolidated Balance
Sheets related to Finite Funding were $11.5 million and
$13.7 million as of the end of fiscal years 2007 and 2006,
respectively, and were recorded in “Other assets,” net
of $4.7 million and $4.2 million recorded in
“Other current assets,” as of the end of fiscal years
2007 and 2006, respectively.
In addition, we had recorded other receivables of
$2.6 million and $7.8 million as of the end of fiscal
years 2007 and 2006, respectively, for future probable amounts
to be received from insurance companies and other responsible
parties. These amounts were recorded in “Other current
assets” as of the end of fiscal year 2007 and “Other
assets” as of the end of fiscal year 2006 in the
Consolidated Balance Sheets. Of this total, no portion of the
receivable was reflected as current as of the end of fiscal year
2006.
On May 31, 2005, Cooper Industries, LLC
(“Cooper”) filed and later served a lawsuit against
us, Pneumo Abex, LLC, and the Trustee of the Trust (the
“Trustee”), captioned Cooper Industries,
LLC v. PepsiAmericas, Inc., et al., Case No. 05 CH
09214 (Cook Cty. Cir. Ct.). The claims involve the Trust and
insurance policy described above. Cooper asserts that it was
entitled to access $34 million that previously was in the
Trust and was used to purchase the insurance policy. Cooper
claims that Trust funds should have been distributed for
underlying Pneumo Abex asbestos claims indemnified by Cooper.
Cooper complains that it was deprived of access to money in the
Trust because of the Trustee’s decision to use the Trust
funds to purchase the insurance policy described above. Pneumo
Abex, LLC, the corporate successor to our prior subsidiary, has
been dismissed from the suit.
During the second quarter of 2006, the Trustee’s motion to
dismiss, in which we had joined, was granted and three counts
against us based on the use of Trust funds were dismissed with
prejudice, as were all counts against the Trustee, on the
grounds that Cooper lacks standing to pursue these counts
because it is not a beneficiary under the Trust. We then filed a
separate motion to dismiss the remaining counts against us. Our
motion was granted during the second quarter of 2006 and all
remaining counts against us were dismissed with prejudice.
Cooper subsequently filed a notice of appeal with regard to all
rulings by the court dismissing the counts against us and the
Trustee. Prior to any oral argument, the appellate court on
September 7, 2007 issued an opinion affirming the trial
court’s opinion. Cooper subsequently filed motion papers
asking the Illinois Supreme Court to accept a discretionary
appeal of the rulings. The Trustee then filed an opposition
brief explaining why the Illinois Supreme Court should not allow
another appeal, and we joined in that brief. On
November 29, 2007, the Supreme Court of Illinois denied
Cooper’s petition for leave to appeal the
F-38
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
appellate court’s September 7, 2007 ruling. Cooper has
until February 27, 2008 to file a petition for certiorari
seeking discretionary review by the United States Supreme Court.
Discontinued Operations — Product Liability and
Toxic Tort Claims. We also have certain
indemnification obligations related to product liability and
toxic tort claims that might emanate out of the 1988 agreement
with Pneumo Abex. Other companies not owned by or associated
with us also are responsible to Pneumo Abex for the financial
burden of all asbestos product liability claims filed against
Pneumo Abex after a certain date in 1998, except for certain
claims indemnified by us.
In fiscal year 2004, we noted that three mass-filed lawsuits
accounted for thousands of claims for which Pneumo Abex claimed
indemnification. During the fourth quarter of fiscal year 2005,
these and other related claims were resolved for an amount we
viewed as reasonable given all of the circumstances and
consistent with our prior judgments as to valuation. We have
received year-end 2007 claim statistics from law firms and
Pneumo Abex which reflect the resolution of those claims and the
remaining cases for which Pneumo Abex claims indemnification
from PepsiAmericas. After giving effect to the noted resolution
of prior mass-filed claims, there are less than 7,500 claims for
which indemnification is claimed at the end of fiscal year 2007.
Of these claims, approximately 5,500 are filed in federal court
and are subject to orders issued by the Multi-District
Litigation panel, which effectively stay all federal claims,
subject to specific requests to activate a particular claim or a
discrete group of claims. The remaining cases are in state court
and some are in “pleural registries” or other similar
classifications that cause a case not to be allowed to go to
trial unless there is a specific showing as to a particular
plaintiff. Over 50 percent of the state court claims were
filed prior to or in 1998. Prior to 1980, sales ceased for the
asbestos-containing product claimed to have generated the
largest subset of the open cases, and, therefore, we expect a
decreasing rate of individual claims for that subset of cases.
We oversee monitoring of the defense of the underlying claims
that are or may be indemnifiable by us.
As of the end of fiscal years 2007 and 2006, we had accrued
$4.0 million and $5.5 million, respectively, related
to product liability. These accruals primarily relate to
probable asbestos claim settlements and legal defense costs. We
also have additional amounts accrued for legal and other costs
associated with obtaining insurance recoveries for previously
resolved and currently open claims and their related costs.
These amounts are included in the total liabilities of
$40.2 million accrued as of the end of fiscal year 2007. In
addition to the known and probable asbestos claims, we may be
subject to additional asbestos claims that are possible for
which no reserve had been established as of the end of fiscal
year 2007. These additional reasonably possible claims are
primarily asbestos related and the aggregate exposure related to
these possible claims is estimated to be in the range of
$4 million to $17 million. These amounts are
undiscounted and do not reflect any insurance recoveries that we
will pursue from insurers for these claims.
In addition, three lawsuits have been filed in California, which
name several defendants including certain of our prior
subsidiaries. The lawsuits allege that we and our former
subsidiaries are liable for personal injury
and/or
property damage resulting from environmental contamination at
the Willits facility. There are approximately 125 personal
injury plaintiffs in the lawsuits seeking an unspecified amount
of damages, punitive damages, injunctive relief and medical
monitoring damages. We are actively defending the lawsuits. At
this time, we do not believe these lawsuits are material to our
business or financial condition.
We have other indemnification obligations related to product
liability matters. In our opinion, based on the information
currently available and the amounts already accrued, these
claims should not have a material effect on our financial
condition.
We also participate in and monitor insurance-recovery efforts
for the claims against Pneumo Abex. Recoveries from insurers
vary year by year because certain insurance policies exhaust and
other insurance policies become responsive. Recoveries also vary
due to delays in litigation, limits on payments in particular
periods, and because insurers sometimes seek to avoid their
obligations based on positions that we believe are
F-39
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
improper. We, assisted by our consultants, monitor the financial
ratings of insurers that issued responsive coverage and the
claims submitted by Pneumo Abex.
Advertising commitments and exclusivity
rights. We have entered into various
long-term agreements with our customers in which we pay the
customers for the exclusive right to sell our products in
certain venues. We have also committed to pay certain customers
for advertising and marketing programs in various long-term
contracts. These agreements typically range from one to ten
years. As of the end of fiscal year 2007, we have committed
approximately $75.1 million related to such programs and
advertising commitments.
Purchase obligations. In addition,
PepsiCo has entered into various raw material contracts on our
behalf pursuant to a shared services agreement in which PepsiCo
provides procurement services to us. Certain raw material
contracts obligate us to purchase minimum volumes. As of the end
of fiscal year 2007, we had total purchase obligations of
$27.8 million related to such raw material contracts.
We operate in one industry located in three geographic
areas — U.S., CEE and the Caribbean. We operate in
19 states in the U.S. Internationally, we operate in
Poland, Hungary, the Czech Republic, Republic of Slovakia,
Romania, Ukraine, Puerto Rico, Jamaica, the Bahamas, and
Trinidad and Tobago. We have distribution rights in Moldova,
Estonia, Latvia, and Lithuania which is recorded in the CEE
geographic segment and Barbados, which was recorded in the
Caribbean geographic segment. Net sales and operating income
from the Sandora acquisition since the date Sandora was
consolidated were included in the CEE geographic segment in the
table below.
Operating income is exclusive of net interest expense, other
miscellaneous income and expense items, and income taxes.
Operating income is inclusive of net special charges of
$6.3 million, $13.7 million and $2.5 million in
fiscal years 2007, 2006 and 2005, respectively (see Note 6
for further discussion).
In fiscal year 2005, U.S. operating income was impacted by
a gain of $16.6 million from the settlement of a class
action lawsuit (see Note 5 for further discussion). Also
impacting U.S. operating income was $1.4 million of
expense recorded for the early termination of a real estate
lease and $6.1 million of expense related to lease exit
costs as a result of the relocation of our corporate
headquarters in Chicago.
Non-operating assets are principally cash and cash equivalents,
investments, property and miscellaneous other assets. Long-lived
assets represent net property, investments, net intangible
assets and other miscellaneous assets.
Selected financial information related to our geographic
segments is shown below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
Operating Income
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
U.S.
|
|
$
|
3,384.9
|
|
|
$
|
3,245.8
|
|
|
$
|
3,156.1
|
|
|
$
|
331.6
|
|
|
$
|
330.1
|
|
|
$
|
387.7
|
|
CEE
|
|
|
849.4
|
|
|
|
484.1
|
|
|
|
343.5
|
|
|
|
100.5
|
|
|
|
20.9
|
|
|
|
1.5
|
|
Caribbean
|
|
|
245.2
|
|
|
|
242.5
|
|
|
|
226.4
|
|
|
|
4.0
|
|
|
|
5.0
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,479.5
|
|
|
$
|
3,972.4
|
|
|
$
|
3,726.0
|
|
|
|
436.1
|
|
|
|
356.0
|
|
|
|
393.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109.2
|
|
|
|
101.3
|
|
|
|
89.9
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
11.7
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and equity in net
earnings of nonconsolidated companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
326.3
|
|
|
$
|
243.0
|
|
|
$
|
298.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Depreciation
|
|
|
|
Investments
|
|
|
and Amortization
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
U.S.
|
|
$
|
190.4
|
|
|
$
|
129.6
|
|
|
$
|
142.9
|
|
|
$
|
148.2
|
|
|
$
|
151.8
|
|
|
$
|
146.5
|
|
CEE
|
|
|
56.6
|
|
|
|
24.9
|
|
|
|
19.4
|
|
|
|
42.7
|
|
|
|
27.8
|
|
|
|
25.1
|
|
Caribbean
|
|
|
17.6
|
|
|
|
14.8
|
|
|
|
18.0
|
|
|
|
12.6
|
|
|
|
11.6
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
|
|
$
|
264.6
|
|
|
$
|
169.3
|
|
|
$
|
180.3
|
|
|
|
203.5
|
|
|
|
191.2
|
|
|
|
182.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
2.2
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
204.4
|
|
|
$
|
193.4
|
|
|
$
|
184.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Long-Lived Assets
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
U.S.
|
|
$
|
3,241.5
|
|
|
$
|
3,205.8
|
|
|
$
|
3,001.9
|
|
|
$
|
2,953.2
|
|
CEE
|
|
|
1,603.8
|
|
|
|
590.3
|
|
|
|
1,223.2
|
|
|
|
396.8
|
|
Caribbean
|
|
|
215.8
|
|
|
|
215.7
|
|
|
|
136.7
|
|
|
|
133.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
|
|
|
5,061.1
|
|
|
|
4,011.8
|
|
|
|
4,361.8
|
|
|
|
3,483.7
|
|
Non-operating
|
|
|
246.9
|
|
|
|
195.6
|
|
|
|
24.1
|
|
|
|
48.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,308.0
|
|
|
$
|
4,207.4
|
|
|
$
|
4,385.9
|
|
|
$
|
3,532.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.
|
Related
Party Transactions
|
Transactions
with PepsiCo
PepsiCo is considered a related party due to the nature of our
franchise relationship and PepsiCo’s ownership interest in
us. As of the end of fiscal year 2007, PepsiCo beneficially
owned approximately 44 percent of PepsiAmericas’
outstanding common stock. These shares are subject to a
shareholder agreement with our company. During fiscal year 2007,
approximately 90 percent of our total net sales were
derived from the sale of Pepsi-Cola products. We have entered
into transactions and agreements with PepsiCo from time to time,
and we expect to enter into additional transactions and
agreements with PepsiCo in the future. Material agreements and
transactions between our company and PepsiCo are described below.
Pepsi franchise agreements are subject to termination only upon
failure to comply with their terms. Termination of these
agreements can occur as a result of any of the following: our
bankruptcy or insolvency; change of control of greater than
15 percent of any class of our voting securities; untimely
payments for concentrate purchases; quality control failure; or
failure to carry out the approved business plan communicated to
PepsiCo.
Bottling Agreements and Purchases of Concentrate and
Finished Product. We purchase concentrates
from PepsiCo and manufacture, package, distribute and sell cola
and non-cola beverages under various bottling agreements with
PepsiCo. These agreements give us the right to manufacture,
package, sell and distribute beverage products of PepsiCo in
both bottles and cans and fountain syrup in specified
territories. These agreements include a Master Bottling
Agreement and a Master Fountain Syrup Agreement for beverages
bearing the “Pepsi-Cola” and “Pepsi”
trademarks, including Diet Pepsi in the United States. The
agreements also include bottling and distribution agreements for
non-cola products in the United States, and international
bottling agreements for countries outside the United States.
These agreements provide PepsiCo with the ability to set prices
of concentrates, as well as the terms of payment and other terms
and conditions under which we purchase such concentrates.
Concentrate purchases from PepsiCo included in cost of goods
sold totaled
F-41
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
$892.4 million, $829.8 million and $763.2 million
for the fiscal years 2007, 2006 and 2005, respectively. In
addition, we bottle water under the “Aquafina”
trademark pursuant to an agreement with PepsiCo that provides
for payment of a royalty fee to PepsiCo, which totaled $54.3
million, $50.2 million and $36.9 million for the
fiscal years 2007, 2006 and 2005, respectively, and was included
in cost of goods sold. We also purchase finished beverage
products from PepsiCo and certain of its affiliates, including
tea, concentrate and finished beverage products from a
Pepsi/Lipton partnership, as well as finished beverage products
from a PepsiCo/Starbucks partnership. Such purchases are
reflected in cost of goods sold and totaled $210.0 million,
$188.0 million and $161.0 million for the fiscal years
2007, 2006 and 2005, respectively.
Bottler Incentives and Other Support
Arrangements. We share a business objective
with PepsiCo of increasing availability and consumption of
Pepsi-Cola
beverages. Accordingly, PepsiCo provides us with various forms
of bottler incentives to promote its brands. The level of this
support is negotiated regularly and can be increased or
decreased at the discretion of PepsiCo. To support volume and
market share growth, the bottler incentives cover a variety of
initiatives, including direct marketplace, shared media and
advertising support. Worldwide bottler incentives from PepsiCo
totaled approximately $230.2 million, $226.8 million,
and $203.3 million for the fiscal years ended 2007, 2006
and 2005. There are no conditions or requirements that could
result in the repayment of any support payments we received.
In accordance with EITF Issue
No. 02-16,
“Accounting by a Customer (including a Reseller) for
Certain Consideration Received from a Vendor,” bottler
incentives that are directly attributable to incremental
expenses incurred are reported as either an increase to net
sales or a reduction to SD&A expenses, commensurate with
the recognition of the related expense. Such bottler incentives
include amounts received for direct support of advertising
commitments and exclusivity agreements with various customers.
All other bottler incentives are recognized as a reduction of
cost of goods sold when the related products are sold based on
the agreements with vendors. Such bottler incentives primarily
include base level funding amounts which are fixed based on the
previous year’s volume and variable amounts that are
reflective of the current year’s volume performance.
Based on information received from PepsiCo, PepsiCo also
provided indirect marketing support to our marketplace, which
consisted primarily of media expenses. This indirect support is
not reflected or included in our Consolidated Financial
Statements, as these amounts were paid by PepsiCo on our behalf
to third parties.
Manufacturing and National Account
Services. We provide manufacturing services
to PepsiCo in connection with the production of certain finished
beverage products, and also provide certain manufacturing,
delivery and equipment maintenance services to PepsiCo’s
national account customers. Net amounts paid or payable by
PepsiCo to us for these services were $19.6 million,
$19.3 million, and $17.2 million for fiscal years
2007, 2006 and 2005, respectively.
Sandora Joint Venture. During fiscal
year 2007, we entered into a joint venture agreement with
PepsiCo to purchase the outstanding common stock of Sandora. We
hold a 60 percent interest in the joint venture and PepsiCo
holds a 40 percent interest. The joint venture financial
statements have been consolidated in our Consolidated Financial
Statements.
Other Transactions. PepsiCo provides
procurement services to us pursuant to a shared services
agreement. Under this agreement, PepsiCo acts as our agent and
negotiates with various suppliers the cost of certain raw
materials by entering into raw material contracts on our behalf.
The raw material contracts obligate us to purchase certain
minimum volumes. PepsiCo also collects and remits to us certain
rebates from the various suppliers related to our procurement
volume. In addition, PepsiCo executes certain derivative
contracts on our behalf and in accordance with our hedging
strategies. In fiscal years 2007, 2006 and 2005, we paid
$3.9 million, $3.9 million, and $3.4 million,
respectively, to PepsiCo for such services.
Net amounts paid to PepsiCo and its affiliates for snack food
products recorded in cost of goods sold were $17.6 million,
$12.5 million and $11.4 million in fiscal years 2007,
2006 and 2005, respectively.
F-42
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
During fiscal year 2005, we received payment of
$2.1 million related to the settlement of the fructose
lawsuit for the former Heartland territories, which we acquired
in 1999. The payment was originally made to PepsiCo out of the
settlement trust, and then the funds were remitted to us by
PepsiCo. The amount is included in “Fructose settlement
income” on the Consolidated Statement of Income.
As of the end of fiscal years 2007 and 2006, net amounts due
from PepsiCo were $3.1 million and $24.2 million,
respectively.
In summary, the Consolidated Statements of Income include the
following income and (expense) transactions with PepsiCo (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bottler incentives
|
|
$
|
32.9
|
|
|
$
|
30.6
|
|
|
$
|
32.9
|
|
Manufacturing and national account services
|
|
|
19.6
|
|
|
|
19.3
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52.5
|
|
|
$
|
49.9
|
|
|
$
|
50.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of concentrate
|
|
$
|
(892.4
|
)
|
|
$
|
(829.8
|
)
|
|
$
|
(763.2
|
)
|
Purchases of finished beverage products
|
|
|
(210.0
|
)
|
|
|
(188.0
|
)
|
|
|
(161.0
|
)
|
Purchases of finished snack food products
|
|
|
(17.6
|
)
|
|
|
(12.5
|
)
|
|
|
(11.4
|
)
|
Bottler incentives
|
|
|
180.7
|
|
|
|
182.3
|
|
|
|
156.4
|
|
Aquafina royalty fee
|
|
|
(54.3
|
)
|
|
|
(50.2
|
)
|
|
|
(36.9
|
)
|
Procurement services
|
|
|
(3.9
|
)
|
|
|
(3.9
|
)
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(997.5
|
)
|
|
$
|
(902.1
|
)
|
|
$
|
(819.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, delivery and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bottler incentives
|
|
$
|
16.6
|
|
|
$
|
13.9
|
|
|
$
|
14.0
|
|
Purchases of advertising materials
|
|
|
(2.0
|
)
|
|
|
(1.8
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14.6
|
|
|
$
|
12.1
|
|
|
$
|
11.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with Bottlers in Which PepsiCo Holds an
Equity Interest. We sell finished beverage
products to other bottlers, including The Pepsi Bottling Group,
Inc. and Pepsi Bottling Ventures LLC, bottlers in which PepsiCo
owns an equity interest. These sales occur in instances where
the proximity of our production facilities to the other
bottlers’ markets or lack of manufacturing capability, as
well as other economic considerations, make it more efficient or
desirable for the other bottlers to buy finished product from
us. Our sales to other bottlers, including those in which
PepsiCo owns an equity interest, were approximately
$213.0 million, $170.1 million, and
$128.8 million in fiscal years 2007, 2006, and 2005,
respectively. Our purchases from such other bottlers were
$0.3 million, $2.0 million, and $0.2 million in
fiscal years 2007, 2006, and 2005, respectively.
Agreements
and Relationships with Dakota Holdings, LLC, Starquest
Securities, LLC and Mr. Pohlad
Under the terms of the PepsiAmericas merger agreement, Dakota
Holdings, LLC (“Dakota”), a Delaware limited liability
company whose members at the time of the PepsiAmericas merger
included PepsiCo and Pohlad Companies, became the owner of
14,562,970 shares of our common stock, including
377,128 shares purchasable pursuant to the exercise of a
warrant. In November 2002, the members of Dakota entered into a
redemption agreement pursuant to which the PepsiCo membership
interests were redeemed in exchange for certain assets of
Dakota. As a result, Dakota became the owner of
12,027,557 shares of our common stock, including
F-43
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
311,470 shares purchasable pursuant to the exercise of a
warrant. In June 2003, Dakota converted from a Delaware limited
liability company to a Minnesota limited liability company
pursuant to an agreement and plan of merger. In January 2006,
Starquest Securities, LLC (“Starquest”), a Minnesota
limited liability company, obtained the shares of our common
stock previously owned by Dakota, including the shares of common
stock purchasable upon exercise of the above-referenced warrant,
pursuant to a contribution agreement. Such warrant expired
unexercised in January 2006, resulting in Starquest holding
11,716,087 shares of our common stock. In February 2008,
Starquest acquired an additional 400,000 shares of our
common stock pursuant to open market purchases, bringing its
holdings to 12,116,087 shares of common stock, or
9.4 percent, as of February 22, 2008. The shares held
by Starquest are subject to a shareholder agreement with our
company.
Mr. Pohlad, our Chairman and Chief Executive Officer, is
the President and the owner of one-third of the capital stock of
Pohlad Companies. Pohlad Companies is the controlling member of
Dakota. Dakota is the controlling member of Starquest. Pohlad
Companies may be deemed to have beneficial ownership of the
securities beneficially owned by Dakota and Starquest and
Mr. Pohlad may be deemed to have beneficial ownership of
the securities beneficially owned by Starquest, Dakota and
Pohlad Companies.
Transactions
with Pohlad Companies
In fiscal year 2005, we entered into an Aircraft Joint Ownership
Agreement with Pohlad Companies for a one-eighth interest in an
aircraft and paid Pohlad Companies approximately
$1.7 million. SD&A expenses associated with the
aircraft in fiscal years 2007, 2006, and 2005 were
$0.1 million, $0.2 million and $0.2 million,
respectively.
|
|
23.
|
Accumulated
Other Comprehensive Income (Loss)
|
The components of accumulated other comprehensive income (loss)
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Accumulated
|
|
|
|
Currency
|
|
|
Unrealized
|
|
|
(Losses)
|
|
|
Pension and
|
|
|
Other
|
|
|
|
Translation
|
|
|
Gains (Losses)
|
|
|
Gains on
|
|
|
Postretirement
|
|
|
Comprehensive
|
|
|
|
Adjustment
|
|
|
on Investments
|
|
|
Derivatives
|
|
|
Liability Adjustment
|
|
|
Income (Loss)
|
|
|
As of fiscal year end 2004
|
|
$
|
35.8
|
|
|
$
|
12.8
|
|
|
$
|
1.2
|
|
|
$
|
(33.8
|
)
|
|
$
|
16.0
|
|
Other comprehensive loss
|
|
|
(23.5
|
)
|
|
|
(8.7
|
)
|
|
|
(3.6
|
)
|
|
|
(5.3
|
)
|
|
|
(41.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of fiscal year end 2005
|
|
|
12.3
|
|
|
|
4.1
|
|
|
|
(2.4
|
)
|
|
|
(39.1
|
)
|
|
|
(25.1
|
)
|
Other comprehensive income (loss)
|
|
|
40.7
|
|
|
|
(4.1
|
)
|
|
|
(0.9
|
)
|
|
|
11.1
|
|
|
|
46.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of fiscal year end 2006
|
|
|
53.0
|
|
|
|
—
|
|
|
|
(3.3
|
)
|
|
|
(28.0
|
)
|
|
|
21.7
|
|
Other comprehensive income (loss)
|
|
|
66.6
|
|
|
|
(0.3
|
)
|
|
|
0.6
|
|
|
|
10.2
|
|
|
|
77.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of fiscal year end 2007
|
|
$
|
119.6
|
|
|
$
|
(0.3
|
)
|
|
$
|
(2.7
|
)
|
|
$
|
(17.8
|
)
|
|
$
|
98.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on investments are shown net of
reclassifications into net income of $(2.5) million and
$6.5 million in fiscal years 2007 and 2006, respectively.
Unrealized (losses) gains on derivatives are shown net of
reclassifications into net income of $0.8 million,
$(0.8) million, and $7.1 million in fiscal years 2007,
2006 and 2005, respectively. Unrealized losses on pension and
other postretirement costs are shown net of reclassifications
into net income of $1.5 million, $2.3 million, and
$1.5 million, respectively.
Unrealized gains (losses) on investments are shown net of income
tax benefit of $0.2 million, $2.4 million, and
$5.2 million in fiscal years 2007, 2006 and 2005,
respectively. Unrealized (losses) gains on derivatives are shown
net of income tax (expense) benefit of $(0.3) million,
$0.5 million, and $2.2 million in fiscal years 2007,
2006 and 2005, respectively. Unrecognized pension and
postretirement costs are shown net of income tax (expense)
benefit of $(5.3) million, $(6.6) million, and
$3.2 million in fiscal years 2007, 2006 and 2005,
respectively.
F-44
PEPSIAMERICAS,
INC.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
24.
|
Selected
Quarterly Financial Data (unaudited)
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
Fiscal Year 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
960.2
|
|
|
$
|
1,198.9
|
|
|
$
|
1,183.1
|
|
|
$
|
1,137.3
|
|
|
$
|
4,479.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
384.2
|
|
|
$
|
497.1
|
|
|
$
|
483.9
|
|
|
$
|
458.1
|
|
|
$
|
1,823.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20.6
|
|
|
$
|
78.0
|
|
|
$
|
71.5
|
|
|
$
|
42.0
|
|
|
$
|
212.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
126.2
|
|
|
|
125.7
|
|
|
|
126.6
|
|
|
|
127.9
|
|
|
|
126.7
|
|
Incremental effect of stock options and awards
|
|
|
1.8
|
|
|
|
1.9
|
|
|
|
2.4
|
|
|
|
2.6
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
128.0
|
|
|
|
127.6
|
|
|
|
129.0
|
|
|
|
130.5
|
|
|
|
129.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.16
|
|
|
$
|
0.64
|
|
|
$
|
0.56
|
|
|
$
|
0.33
|
|
|
$
|
1.69
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.16
|
|
|
$
|
0.62
|
|
|
$
|
0.56
|
|
|
$
|
0.33
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.16
|
|
|
$
|
0.63
|
|
|
$
|
0.55
|
|
|
$
|
0.32
|
|
|
$
|
1.66
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.16
|
|
|
$
|
0.61
|
|
|
$
|
0.55
|
|
|
$
|
0.32
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
848.5
|
|
|
$
|
1,065.2
|
|
|
$
|
1,064.2
|
|
|
$
|
994.5
|
|
|
$
|
3,972.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
347.8
|
|
|
$
|
429.5
|
|
|
$
|
433.6
|
|
|
$
|
397.2
|
|
|
$
|
1,608.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14.1
|
|
|
$
|
65.0
|
|
|
$
|
53.1
|
|
|
$
|
26.1
|
|
|
$
|
158.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
130.3
|
|
|
|
127.7
|
|
|
|
126.6
|
|
|
|
126.9
|
|
|
|
127.9
|
|
Incremental effect of stock options and awards
|
|
|
2.1
|
|
|
|
1.9
|
|
|
|
1.8
|
|
|
|
1.7
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
132.4
|
|
|
|
129.6
|
|
|
|
128.4
|
|
|
|
128.6
|
|
|
|
129.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
0.51
|
|
|
$
|
0.42
|
|
|
$
|
0.21
|
|
|
$
|
1.24
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.50
|
|
|
$
|
0.41
|
|
|
$
|
0.20
|
|
|
$
|
1.22
|
|
Quarterly and full year computations of basic and diluted
earnings per share are made independently. As such, the
summation of the quarterly amounts may not equal the total basic
and diluted earnings per share reported for the year.
F-45
PEPSIAMERICAS, INC.
EXHIBITS
FOR INCLUSION IN ANNUAL REPORT ON
FORM 10-K
FISCAL YEAR ENDED DECEMBER 29, 2007
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description of Exhibit
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation (incorporated by reference
to the Company’s Registration Statement on
Form S-8
(File
No. 333-64292)
filed on June 29, 2001).
|
|
3
|
.2
|
|
By-Laws, as amended and restated on December 14, 2006
(incorporated by reference to the Company’s Current Report
on
Form 8-K
(File
No. 001-15019)
filed on December 18, 2006).
|
|
4
|
.1
|
|
First Supplemental Indenture dated as of May 20, 1999, to
the Indenture dated as of January 15, 1993, between Whitman
Corporation and The First National Bank of Chicago, as Trustee
(incorporated by reference to Post-Effective Amendment
No. 1 to the Company’s Registration Statement on
Form S-8
(File
No. 333-64292)
filed on December 29, 2005).
|
|
4
|
.2
|
|
Rights Agreement, dated as of May 20, 1999, between Whitman
Corporation and First Chicago Trust Company of New York, as
Rights Agent (incorporated by reference to the Company’s
Registration Statement on
Form 8-A
(File
No. 001-15019)
filed on May 25, 1999).
|
|
4
|
.3
|
|
Amendment, as of August 18, 2000, to the Rights Agreement,
dated as of May 20, 1999, between Whitman Corporation and
First Chicago Trust Company of New York, as Rights Agent
(incorporated by reference to the Company’s Registration
Statement on
Form S-4
(File
No. 333-46368)
filed on September 22, 2000).
|
|
4
|
.4
|
|
Appointment of Successor Rights Agent, dated as of
September 9, 2002 (incorporated by reference to the
Company’s Annual Report on
Form 10-K
(File No.
(001-15019)
filed on March 28, 2003).
|
|
4
|
.5
|
|
Indenture dated as of August 15, 2003 between
PepsiAmericas, Inc. and Wells Fargo Bank Minnesota, National
Association, as Trustee (incorporated by reference to the
Company’s Registration Statement on
Form S-3
(File
No. 333-108164)
filed on August 22, 2003).
|
|
4
|
.6
|
|
PepsiAmericas, Inc. Salaried 401(k) Plan (incorporated by
reference to Post-Effective Amendment No. 1 to the
Company’s Registration Statement on
Form S-8
(File
No. 333-64292)
filed on December 29, 2005).
|
|
4
|
.7
|
|
PepsiAmericas, Inc. Hourly 401(k) Plan (incorporated by
reference to Post-Effective Amendment No. 1 to the
Company’s Registration Statement on
Form S-8
(File
No. 333-64292)
filed on December 29, 2005).
|
|
4
|
.8
|
|
Form of Debt Security (incorporated by reference to the
Company’s Current Report on
Form 8-K
(File
No. 001-15019)
filed on May 24, 2006).
|
|
4
|
.9
|
|
Form of 5.75% Note due 2012 (incorporated by reference to
the Company’s Current Report on
Form 8-K
(File
No. 001-15019)
filed on July 12, 2007).
|
|
10
|
.1
|
|
Stock Incentive Plan, as amended through May 20, 1999
(incorporated by reference to the Company’s Quarterly
Report on
Form 10-Q
(File
No. 001-15019)
filed on August 17, 1999).
|
|
10
|
.2
|
|
PepsiAmericas, Inc. Deferred Compensation Plan for Directors, as
Amended and Restated January 1, 2006 (incorporated by
reference to the Company’s Annual Report on
Form 10-K
(File
No. 001-15019)
filed on March 6, 2006).
|
|
10
|
.3
|
|
PepsiAmericas, Inc. Executive Deferred Compensation Plan as
Amended and Restated Effective January 1, 2003
(incorporated by reference to the Company’s Annual Report
on
Form 10-K
(File
No. 001-15019)
filed on March 15, 2004).
|
|
10
|
.4
|
|
PepsiAmericas, Inc. Supplemental Pension Plan, as Amended and
Restated Effective January 1, 2001 (incorporated by
reference to the Company’s Annual Report on
Form 10-K
(File
No. 001-15019)
filed on March 15, 2004).
|
|
10
|
.5
|
|
2000 Stock Incentive Plan, as amended through February 17,
2004 (incorporated by reference to the Company’s Definitive
Schedule 14A (Proxy Statement) (File
No. 001-15019)
filed on March 12, 2004).
|
|
10
|
.6
|
|
PepsiAmericas, Inc. 1999 Stock Option Plan (incorporated by
reference to the Company’s Registration Statement on
Form S-8
(File
No. 333-46368)
filed on December 21, 2000).
|
|
10
|
.7
|
|
Pepsi-Cola Puerto Rico Bottling Company Qualified Stock Option
Plan (incorporated by reference to the Company’s
Registration Statement on
Form S-8
(File
No. 333-46368)
filed on December 21, 2000).
|
E-1
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description of Exhibit
|
|
|
10
|
.8
|
|
Pepsi-Cola Puerto Rico Bottling Company Non-Qualified Stock
Option Plan (incorporated by reference to the Company’s
Registration Statement on
Form S-8
(File
No. 333-46368)
filed on December 21, 2000).
|
|
10
|
.9
|
|
Form of Master Bottling Agreement between PepsiCo, Inc. and
PepsiAmericas, Inc. (incorporated by reference to the
Company’s Annual Report on
Form 10-K
(File
No. 001-15019)
filed on March 25, 2002).
|
|
10
|
.10
|
|
Form of Master Fountain Syrup Agreement between PepsiCo, Inc.
and PepsiAmericas, Inc. (incorporated by reference to the
Company’s Annual Report on
Form 10-K
(File
No. 001-15019)
filed on March 25, 2002).
|
|
10
|
.11
|
|
Amended and Restated Receivables Sale Agreement Dated as of
May 24, 2002 among Pepsi-Cola General Bottlers, Inc.,
Pepsi-Cola General Bottlers of Ohio, Inc., Pepsi-Cola General
Bottlers of Indiana, Inc., Pepsi-Cola General Bottlers of
Wisconsin, Inc., Pepsi-Cola General Bottlers of Iowa, Inc., Iowa
Vending, Inc., Marquette Bottling Works, Incorporated, Northern
Michigan Vending, Inc., Delta Beverage Group, Inc. and Dakbev,
LLC, as originators and Whitman Finance, Inc. as Buyer
(incorporated by reference to the Company’s Quarterly
Report on
Form 10-Q
(File
No. 001-15019)
filed on August 11, 2004).
|
|
10
|
.12
|
|
Amendment No. 3 to the Company’s 2000 Stock Incentive
Plan (incorporated by reference to the Company’s Current
Report on
Form 8-K
(File
No. 001-15019)
filed on February 25, 2005).
|
|
10
|
.13
|
|
Form of Restricted Stock Award under the Company’s 2000
Stock Incentive Plan (incorporated by reference to the
Company’s Annual Report on
Form 10-K
(File
No. 001-15019)
filed on February 28, 2007).
|
|
10
|
.14
|
|
Form of Restricted Stock Unit Award under the Company’s
2000 Stock Incentive Plan (incorporated by reference to the
Company’s Annual Report on
Form 10-K
(File
No. 001-15019)
filed on February 28, 2007).
|
|
10
|
.15
|
|
Form of Nonqualified Stock Option under the Company’s 2000
Stock Incentive Plan (incorporated by reference to the
Company’s Registration Statement on
Form S-8
(File
No. 333-36994)
filed on May 12, 2000).
|
|
10
|
.16
|
|
Form of Incentive Stock Option under the Company’s 1999
Stock Option Plan (incorporated by reference to the
Company’s Current Report on
Form 8-K
(File
No. 001-15019)
filed on February 25, 2005).
|
|
10
|
.17
|
|
Form of Restricted Stock Award under the Company’s Revised
Stock Incentive Plan (incorporated by reference to the
Company’s Current Report on
Form 8-K
(File
No. 001-15019)
filed on February 25, 2005).
|
|
10
|
.18
|
|
Form of Nonqualified Stock Option under the Company’s
Revised Stock Incentive Plan (incorporated by reference to the
Company’s Quarterly Report on
Form 10-Q
(File
No. 001-15019)
filed on August 17, 1999).
|
|
10
|
.19
|
|
Form of Stock Option Agreement under the Pepsi-Cola Puerto Rico
Bottling Company Non-Qualified Stock Option Plan (incorporated
by reference to the Company’s Current Report on
Form 8-K
(File
No. 001-15019)
filed on February 25, 2005).
|
|
10
|
.20
|
|
Form of Stock Option Agreement under the Pepsi-Cola Puerto Rico
Bottling Company Qualified Stock Option Plan (incorporated by
reference to the Company’s Current Report on
Form 8-K
(File
No. 001-15019)
filed on February 25, 2005).
|
|
10
|
.21
|
|
Form of Agreement for Separation and Waiver under the
PepsiAmericas Severance Policy (incorporated by reference to the
Company’s Annual Report on
Form 10-K
(File
No. 001-15019)
filed on February 28, 2007).
|
|
10
|
.22
|
|
Second Amended and Restated Shareholder Agreement by and between
PepsiAmericas, Inc. and PepsiCo., dated September 6, 2005
(incorporated by reference to the Company’s Current Report
on
Form 8-K
(File
No. 001-15019)
filed on September 7, 2005).
|
|
10
|
.23
|
|
Amended and Restated Shareholder Agreement by and between
PepsiAmericas, Inc., Pohlad Companies and Robert C. Pohlad,
dated September 6, 2005 (incorporated by reference to the
Company’s Current Report on
Form 8-K
(File
No. 001-15019)
filed on September 7, 2005).
|
E-2
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description of Exhibit
|
|
|
10
|
.24
|
|
10b5-1 Repurchase Plan between PepsiAmericas, Inc. and Banc of
America Securities LLC, dated February 28, 2006
(incorporated by reference to the Company’s Current Report
on
Form 8-K
(File
No. 001-15019)
filed on March 1, 2006).
|
|
10
|
.25
|
|
Underwriting Agreement by and among PepsiAmericas, Inc., Banc of
America Securities LLC, and J.P. Morgan Securities, Inc.,
dated May 23, 2006 (incorporated by reference to the
Company’s Current Report on
Form 8-K
(File
No. 001-15019)
filed on May 24, 2006).
|
|
10
|
.26
|
|
U.S. $600,000,000 Five Year Credit Agreement, dated as of
June 6, 2006, among PepsiAmericas, Inc. as a borrower,
certain initial lenders and initial issuing bank, JP Morgan
Chase Bank, N.V., as a syndication agent, Bank of America, N.V.
and Wachovia Bank, National Association, as documentation
agents, Citigroup Global Markets Inc. and J.P. Morgan
Securities Inc., as joint lead arrangers, and Citibank, N.V., as
agent for the lenders (incorporated by reference to the
Company’s
8-K (File
No. 001-15019)
filed on June 8, 2006).
|
|
10
|
.27
|
|
Put and Call Option Agreement by and among PepsiAmericas, Inc.,
PepsiCo, Inc., Marina Bezzub and Agne Tumenaite dated as of
June 7, 2007 (incorporated by reference to the
Company’s Quarterly Report on
Form 10-Q
(File
No. 001-15019)
filed on August 3, 2007).
|
|
10
|
.28
|
|
Shareholder Agreement between PAS Luxembourg s.a.r.1. and
Linkbay Limited (PepsiCo Cyprus) and Sandora Holdings, B.V.
dated as of August 14, 2007 (incorporated by reference to
the Company’s Quarterly Report on
Form 10-Q
(File
No. 001-15019)
filed on November 1, 2007).
|
|
10
|
.29
|
|
Amended and Restated Stock Purchase Agreement by and among
PepsiAmericas, Inc., PepsiCo, Inc., Igor Yevgenovych Bezzub, and
Raimondas Tumenas dated as of August 17, 2007 (incorporated
by reference to the Company’s Quarterly Report on
Form 10-Q
(File
No. 001-15019)
filed on November 1, 2007).
|
|
10
|
.30
|
|
Amended and Restated Stock Purchase Agreement by and among
PepsiAmericas, Inc., PepsiCo, Sergiy Oleksandrovych Sypko, Olena
Mykhailivna Sypko, Oleksiy Sergiyovich Sypko and Andriy
Sergiyovich Sypko dated as of August 17, 2007 (incorporated
by reference to the Company’s Quarterly Report on
Form 10-Q
(File
No. 001-15019)
filed on November 1, 2007).
|
|
10
|
.31
|
|
Underwriting Agreement by and among PepsiAmericas, Inc.,
Citigroup Global Markets Inc. and Morgan Stanley & Co.
Incorporated, as representatives of the several underwriters,
dated July 11, 2007 (incorporated by reference to the
Company’s Current Report on
Form 8-K
(File
No. 001-15019)
filed on July 12, 2007).
|
|
12
|
|
|
Statement of Calculation of Ratio of Earnings to Fixed Charges.
|
|
21
|
|
|
Subsidiaries of the Company.
|
|
23
|
|
|
Consent of KPMG, LLP, Independent Registered Public Accounting
Firm.
|
|
24
|
|
|
Powers of Attorney.
|
|
31
|
.1
|
|
Chief Executive Officer Certification pursuant to Exchange Act
Rule 13a-14,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
31
|
.2
|
|
Chief Financial Officer Certification pursuant to Exchange Act
Rule 13a-14,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32
|
.1
|
|
Chief Executive Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Chief Financial Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
E-3