PEPSIAMERICAS, INC. 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the quarterly period ended June 28, 2008
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-15019
PEPSIAMERICAS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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13-6167838 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
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4000 Dain Rauscher Plaza, 60 South Sixth Street |
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Minneapolis, Minnesota
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55402 |
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(Address of principal executive offices)
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(Zip Code) |
(612) 661-4000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes þ No 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 Exchange Act Rule
12b-2 of the Exchange Act).
Yes o No þ
As of July 25, 2008, the registrant had 127,296,134 outstanding shares of common stock, par value
$0.01 per share, the registrants only class of common stock.
PEPSIAMERICAS, INC.
FORM 10-Q
SECOND QUARTER 2008
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
PEPSIAMERICAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in millions, except per share data)
Item 1. Financial Statements
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Second Quarter |
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First Half |
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2008 |
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2007 |
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2008 |
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2007 |
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Net sales |
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$ |
1,340.8 |
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$ |
1,198.9 |
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$ |
2,439.5 |
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$ |
2,159.1 |
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Cost of goods sold |
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794.0 |
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701.8 |
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1,468.9 |
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1,277.8 |
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Gross profit |
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546.8 |
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497.1 |
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970.6 |
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881.3 |
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Selling, delivery and administrative expenses |
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381.2 |
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351.5 |
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734.2 |
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674.9 |
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Special charges |
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0.1 |
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1.4 |
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0.6 |
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2.8 |
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Operating income |
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165.5 |
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144.2 |
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235.8 |
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203.6 |
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Interest expense, net |
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28.5 |
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26.1 |
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58.1 |
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51.8 |
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Other income (expense), net |
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1.1 |
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4.3 |
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(0.2 |
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2.9 |
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Income from continuing operations before income taxes,
minority
interest, and equity in net loss of nonconsolidated companies |
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138.1 |
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122.4 |
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177.5 |
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154.7 |
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Income taxes |
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42.3 |
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42.5 |
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55.7 |
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54.4 |
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Minority interest |
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(4.8 |
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0.2 |
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(5.7 |
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0.4 |
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Equity in net loss of nonconsolidated companies |
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(0.2 |
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(0.6 |
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Income from continuing operations |
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90.8 |
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80.1 |
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115.5 |
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100.7 |
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Loss from discontinued operations, net of tax |
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2.1 |
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2.1 |
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Net income |
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$ |
90.8 |
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$ |
78.0 |
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$ |
115.5 |
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$ |
98.6 |
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Weighted average common shares: |
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Basic |
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124.9 |
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125.7 |
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126.0 |
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126.0 |
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Incremental effect of stock options and awards |
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1.5 |
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1.9 |
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1.7 |
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1.8 |
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Diluted |
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126.4 |
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127.6 |
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127.7 |
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127.8 |
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Earnings per share: |
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Basic: |
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Income from continuing operations |
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$ |
0.73 |
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$ |
0.64 |
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$ |
0.92 |
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$ |
0.80 |
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Loss from discontinued operations |
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(0.02 |
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(0.02 |
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Total |
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$ |
0.73 |
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$ |
0.62 |
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$ |
0.92 |
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$ |
0.78 |
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Diluted: |
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Income from continuing operations |
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$ |
0.72 |
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$ |
0.63 |
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$ |
0.90 |
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$ |
0.79 |
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Loss from discontinued operations |
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(0.02 |
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(0.02 |
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Total |
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$ |
0.72 |
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$ |
0.61 |
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$ |
0.90 |
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$ |
0.77 |
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Cash dividends declared per share |
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$ |
0.135 |
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$ |
0.13 |
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$ |
0.27 |
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$ |
0.26 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
2
PEPSIAMERICAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in millions, except per share data)
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End of First |
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End of |
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Half |
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Fiscal Year |
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2008 |
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2007 |
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ASSETS: |
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Current assets: |
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Cash and cash equivalents |
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$ |
190.4 |
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$ |
189.7 |
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Receivables, net |
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448.3 |
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330.6 |
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Inventories: |
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Raw materials and supplies |
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143.4 |
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144.5 |
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Finished goods |
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187.9 |
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143.2 |
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Total inventories |
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331.3 |
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287.7 |
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Other current assets |
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124.8 |
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114.1 |
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Total current assets |
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1,094.8 |
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922.1 |
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Property and equipment |
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3,057.8 |
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2,850.5 |
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Accumulated depreciation |
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(1,624.8 |
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(1,520.9 |
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Net property and equipment |
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1,433.0 |
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1,329.6 |
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Goodwill |
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2,393.1 |
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2,432.7 |
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Intangible assets, net |
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573.8 |
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545.6 |
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Other assets |
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76.1 |
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78.0 |
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Total assets |
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$ |
5,570.8 |
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$ |
5,308.0 |
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LIABILITIES AND SHAREHOLDERS EQUITY: |
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Current liabilities: |
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Short-term debt, including current maturities of long-term debt |
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$ |
592.3 |
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$ |
337.6 |
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Payables |
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269.0 |
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224.0 |
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Other current liabilities |
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326.1 |
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341.0 |
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Total current liabilities |
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1,187.4 |
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902.6 |
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Long-term debt |
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1,651.8 |
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1,803.5 |
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Deferred income taxes |
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314.6 |
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282.5 |
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Minority interest |
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303.2 |
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273.4 |
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Other liabilities |
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188.1 |
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187.7 |
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Total liabilities |
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3,645.1 |
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3,449.7 |
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Shareholders equity: |
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Preferred stock ($0.01 par value, 12.5 million shares authorized, no shares issued) |
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Common stock ($0.01 par value, 350 million shares authorized, 137.6 million shares
issued - 2008 and 2007) |
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1,287.5 |
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1,292.7 |
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Retained income |
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751.6 |
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670.9 |
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Accumulated other comprehensive income |
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182.6 |
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98.8 |
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Treasury stock, at cost (12.9 million shares and 9.5 million shares, respectively) |
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(296.0 |
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(204.1 |
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Total shareholders equity |
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1,925.7 |
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1,858.3 |
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Total liabilities and shareholders equity |
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$ |
5,570.8 |
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$ |
5,308.0 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
PEPSIAMERICAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in millions)
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First Half |
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2008 |
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2007 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
115.5 |
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$ |
98.6 |
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Loss from discontinued operations |
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- |
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2.1 |
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Income from continuing operations |
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115.5 |
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100.7 |
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Adjustments to reconcile to net cash provided
by operating activities of continuing operations: |
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Depreciation and amortization |
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104.5 |
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97.9 |
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Deferred income taxes |
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4.7 |
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0.9 |
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Special charges |
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0.6 |
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2.8 |
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Cash outlays related to special charges |
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(0.9 |
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(11.2 |
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Equity in net loss of nonconsolidated companies |
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0.6 |
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- |
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Excess tax benefits from share-based payment arrangements |
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(0.9 |
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(3.0 |
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Gain on sale of non-core property |
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- |
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(10.2 |
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Marketable securities impairment |
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- |
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4.0 |
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Minority interest |
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5.7 |
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(0.4 |
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Other |
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12.1 |
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11.1 |
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Changes in assets and liabilities: |
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Increase in receivables |
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(103.7 |
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(85.5 |
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Increase in inventories |
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(33.8 |
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(31.9 |
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Increase in payables |
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29.7 |
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52.8 |
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Net change in other assets and liabilities |
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(22.2 |
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30.0 |
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Net cash provided by operating activities of continuing operations |
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111.9 |
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158.0 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capital investments |
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(103.3 |
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(109.4 |
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Proceeds from sales of property |
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3.4 |
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23.5 |
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Franchises and companies acquired |
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(1.0 |
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- |
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Net cash used in investing activities |
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(100.9 |
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(85.9 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Net borrowings of short-term debt |
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146.2 |
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46.4 |
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Repayment of long-term debt |
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(47.5 |
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(11.6 |
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Treasury stock purchases |
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(105.2 |
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(59.4 |
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Excess tax benefits from share-based payment arrangements |
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0.9 |
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3.0 |
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Contribution from joint venture minority shareholder |
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26.0 |
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- |
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Issuance of common stock |
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2.1 |
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17.6 |
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Cash dividends |
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(34.6 |
) |
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(32.2 |
) |
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Net cash used in financing activities |
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(12.1 |
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(36.2 |
) |
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Net operating cash flows used in discontinued operations |
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(6.0 |
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(4.3 |
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Effects of exchange rate changes on cash and cash equivalents |
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7.8 |
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(1.2 |
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Change in cash and cash equivalents |
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0.7 |
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30.4 |
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Cash and cash equivalents at beginning of fiscal year |
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|
189.7 |
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93.1 |
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Cash and cash equivalents at end of second quarter |
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$ |
190.4 |
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$ |
123.5 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
PEPSIAMERICAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Significant Accounting Policies
Quarterly Reporting. The Condensed Consolidated Financial Statements included herein have been
prepared by PepsiAmericas, Inc. (referred to herein as PepsiAmericas, we, our and us)
without audit. Certain information and disclosures normally included in financial statements
prepared in accordance with United States generally accepted accounting principles (GAAP) have
been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, although we believe that the disclosures are adequate to make the information presented
not misleading. The year end Condensed Consolidated Balance Sheet data was derived from audited
financial statements, but does not include all disclosures required by GAAP. These Condensed
Consolidated Financial Statements should be read in conjunction with the financial statements and
notes thereto included in our Annual Report on Form 10-K for the fiscal year 2007. In the opinion
of management, the information furnished herein reflects all adjustments (consisting only of
normal, recurring adjustments) necessary for a fair statement of results for the interim periods
presented.
Use of Accounting Estimates. The preparation of financial statements in conformity with 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 United States (U.S.) operations and our Caribbean operations end their
fiscal years, consisting of 52 or 53 weeks, on the Saturday closest to December 31st.
Our Central and Eastern European (CEE) operations fiscal year ends on December 31st.
Our second quarter and first half of 2008 and 2007 were based on the thirteen and twenty-six weeks
that ended June 28, 2008 and June 30, 2007, respectively. Due to the timing of the receipt of
available financial information, certain operations are reported on a one-month or one-quarter lag
basis.
Our business is seasonal with the second and third quarters generating higher sales volumes
than the first and fourth quarters. Accordingly, the operating results of any individual quarter
may not be indicative of a full years operating results.
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
nonvested 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
First Half |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Shares under nonvested restricted stock awards |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
953,111 |
|
Weighted-average grant date fair value per share |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
22.11 |
|
Reclassifications. Certain amounts in the prior period Condensed Consolidated Financial
Statements have been reclassified to conform to the current year presentation.
Recently Adopted Accounting Pronouncements. In September 2006, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (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
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. SFAS No. 157
was effective at the beginning of fiscal year 2008. In February 2008, the FASB issued FASB Staff
Position No. FAS 157-2 (FSP 157-2), Effective Date of FASB Statement No. 157, which provides a
one year deferral of the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed in the financial statements at fair
value at least annually. In accordance with this interpretation, we have only adopted the
provisions of SFAS No. 157 with respect to our financial assets and financial liabilities that are
measured at fair value as of the beginning of fiscal year 2008. The provisions of SFAS No. 157 have
not been applied to nonfinancial assets and nonfinancial liabilities. The major categories of
nonfinancial assets and nonfinancial liabilities that are measured at fair value, for which we have
not applied the provisions of SFAS No. 157, are as follows: reporting units measured at fair value
in the first step of a goodwill impairment test, long-lived assets measured at fair value for an
impairment assessment, and assets and liabilities acquired as part of a purchase business
combination. See Note 11 below for additional information, including the effects of adoption on our
Condensed Consolidated Balance Sheet.
5
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans. We have adopted the recognition and measurement provisions
of SFAS No. 158. The recognition provisions required us to fully recognize the funded status
associated with our defined benefit plans. The measurement provisions required us to measure our
plans assets and liabilities as of the end of our fiscal year rather than of our former
measurement date of September 30. We adopted the measurement date provisions at the beginning of
fiscal year 2008. We have elected the alternative method of adoption for the measurement date
provisions of SFAS No. 158. The adoption of the measurement date provisions decreased retained
income by $0.3 million ($0.2 million after tax) at the beginning of fiscal year 2008.
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 was effective at the beginning of fiscal year 2008. The adoption of SFAS No. 159 had
no impact on our Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements to be Adopted in the Future. 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, but will be expensed as incurred. SFAS No.
141(R) becomes effective with acquisitions occurring on or after the beginning of fiscal year 2009
and early adoption is prohibited.
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
for noncontrolling interests, sometimes called minority interest. SFAS No. 160 requires that the
parent report noncontrolling interests in the equity section of the balance sheet but separate from
the parents equity. SFAS No. 160 also requires clear presentation of net income attributable to
the parent and the noncontrolling interest on the face of the income statement. All changes in the
parents 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 Condensed Consolidated Financial Statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced
disclosures about an entitys derivative and hedging activities. SFAS No. 161 requires that
entities provide disclosure regarding how and when an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS No. 133 and its
related interpretations, and how derivative instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows. SFAS No. 161 becomes effective at the
beginning of fiscal year 2009. We are currently evaluating the impact SFAS No. 161 will have on our
Condensed Consolidated Financial Statements.
2. Special Charges
In the second quarter of 2008 and 2007, we recorded special charges of $0.1 and $1.4 million,
respectively, in the U.S. related to severance and relocation costs associated with our strategic
realignment to further strengthen our customer focused go-to-market strategy. We recorded special
charges of $0.6 and $2.6 million in the U.S., respectively, in the first half of 2008 and 2007.
Additionally, in the first half of 2007 we recorded special charges of $0.2 million in CEE
primarily for severance, related benefits and relocation costs.
6
The following table summarizes the activity associated with the special charges included in
Other current liabilities (in millions):
|
|
|
|
|
2008 Charges |
|
|
|
|
Balance at end of fiscal year 2007 |
|
$ |
1.1 |
|
Special charges |
|
|
0.6 |
|
Application of special charges |
|
|
(0.9 |
) |
|
|
|
|
Balance at end of the first half of 2008 |
|
$ |
0.8 |
|
|
|
|
|
The total accrued liabilities remaining at the end of the first half of 2008 were comprised of
severance payments, lease terminations and other costs. We expect the remaining special charge
liability of $0.8 million to be paid using cash from operations during the next twelve months;
accordingly, such amounts are classified as Other current liabilities in the Condensed
Consolidated Balance Sheet.
3. Interest Expense, Net
Interest expense, net was comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
First Half |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Interest expense |
|
$ |
29.4 |
|
|
$ |
26.8 |
|
|
$ |
60.0 |
|
|
$ |
53.0 |
|
Interest income |
|
|
(0.9 |
) |
|
|
(0.7 |
) |
|
|
(1.9 |
) |
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
28.5 |
|
|
$ |
26.1 |
|
|
$ |
58.1 |
|
|
$ |
51.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. 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 loss of
nonconsolidated companies, was 31.4 percent for the first half of 2008, compared to 35.1 percent in
the first half of 2007. The lower tax rate was due to favorable country mix of earnings and the
associated lower in-country tax rate, as well as a favorable adjustment recorded after the filing
of the 2007 Romania income tax return.
During the first half of 2008 our gross unrecognized tax benefits increased by $2.6 million.
The impact to our effective tax rate consisted of $1.2 million net unrecognized tax benefits and
$1.4 million of gross interest related to unrecognized tax benefits for the first half of 2008.
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 $6 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 tax years up to and including 2004. The following
table summarizes the years that are subject to examination for each primary jurisdiction as of the
end of the first half of 2008:
|
|
|
Jurisdiction |
|
Subject to Examination |
Federal (U.S.) |
|
2005-2007 |
Illinois |
|
1999-2007 |
Indiana |
|
2004-2007 |
Iowa |
|
2004-2007 |
Romania |
|
2003-2007 |
Poland |
|
2002-2007 |
Czech Republic |
|
2004-2007 |
Ukraine |
|
2005-2007 |
7
5. Comprehensive Income
Comprehensive income was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
First Half |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
90.8 |
|
|
$ |
78.0 |
|
|
$ |
115.5 |
|
|
$ |
98.6 |
|
Foreign currency translation adjustment |
|
|
60.7 |
|
|
|
14.7 |
|
|
|
84.0 |
|
|
|
16.9 |
|
Unrealized (losses) gains on investments |
|
|
(0.2 |
) |
|
|
0.4 |
|
|
|
(0.3 |
) |
|
|
- |
|
Unrealized (losses) gains on derivatives |
|
|
(0.1 |
) |
|
|
- |
|
|
|
- |
|
|
|
0.4 |
|
Amortization of unrecognized pension and
postretirement benefit cost |
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
151.2 |
|
|
$ |
93.1 |
|
|
$ |
199.3 |
|
|
$ |
115.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains on investments are shown net of income tax benefit of $0.1 million
and net of income tax expense of $0.2 million in the second quarter of 2008 and 2007, respectively,
and net of income tax benefit of $0.2 million in the first half of 2008. The income tax benefit was
not material to the unrealized (losses) gains on derivatives in the second quarter of 2008.
Unrealized (losses) gains on derivatives are shown net of income tax expense of $0.2 million in the
first half of 2007. Unrecognized pension and postretirement cost are shown net of tax expense of
$0.1 million in the first half of 2008.
6. Acquisitions
In the third quarter of 2007, a joint venture formed by PepsiAmericas and PepsiCo, Inc.
(PepsiCo) acquired an 80 percent interest in Sandora LLC (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 Condensed Consolidated Financial Statements, and PepsiCos
equity was recorded as minority interest. The preliminary purchase price of $679.4 million
increased to $680.4 million due to final payments of acquisition costs in the first half of 2008.
The total purchase price of $680.4 million was net of cash received of $3.0 million. Of the total
purchase price, our interest was $408.2 million. Additionally, we acquired $72.5 million of debt as
part of the acquisition.
The following information summarizes the allocation of the final purchase price of the Sandora
acquisition (in millions):
|
|
|
|
|
Goodwill |
|
$ |
430.6 |
|
Trademark and tradenames |
|
|
116.0 |
|
Customer relationships and lists |
|
|
48.2 |
|
Net assets assumed, net of cash acquired |
|
|
142.5 |
|
Deferred tax liabilities |
|
|
(56.9 |
) |
|
|
|
|
Total |
|
$ |
680.4 |
|
|
|
|
|
7. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by geographic segment for the first half of
2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
CEE |
|
|
Caribbean |
|
|
Total |
|
Balance at end of fiscal year 2007 |
|
$ |
1,824.1 |
|
|
$ |
592.8 |
|
|
$ |
15.8 |
|
|
$ |
2,432.7 |
|
Purchase accounting adjustments |
|
|
- |
|
|
|
(63.1 |
) |
|
|
- |
|
|
|
(63.1 |
) |
Foreign currency translation adjustment |
|
|
- |
|
|
|
23.6 |
|
|
|
(0.1 |
) |
|
|
23.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the first half of 2008 |
|
$ |
1,824.1 |
|
|
$ |
553.3 |
|
|
$ |
15.7 |
|
|
$ |
2,393.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Intangible asset balances as of the end of the first half of 2008 and end of fiscal year 2007
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
End of First |
|
|
End of Fiscal |
|
|
|
Half 2008 |
|
|
Year 2007 |
|
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
|
|
|
|
|
|
Trademarks and tradenames |
|
$ |
- |
|
|
$ |
109.0 |
|
Customer relationships and lists |
|
|
74.9 |
|
|
|
56.2 |
|
Franchise and distribution agreements |
|
|
3.3 |
|
|
|
3.3 |
|
Other |
|
|
2.9 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
Total |
|
$ |
81.1 |
|
|
$ |
171.4 |
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
Trademarks and tradenames |
|
$ |
- |
|
|
$ |
(1.2 |
) |
Customer relationships and lists |
|
|
(10.8 |
) |
|
|
(6.3 |
) |
Franchise and distribution agreements |
|
|
(1.1 |
) |
|
|
(1.1 |
) |
Other |
|
|
(0.9 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
(12.8 |
) |
|
$ |
(9.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization, net |
|
$ |
68.3 |
|
|
$ |
162.0 |
|
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
Franchise and distribution agreements |
|
|
384.8 |
|
|
|
383.6 |
|
Trademarks and tradenames |
|
|
120.7 |
|
|
|
- |
|
|
|
|
|
|
|
|
Total intangible assets, net |
|
$ |
573.8 |
|
|
$ |
545.6 |
|
|
|
|
|
|
|
|
Sandora was acquired in fiscal year 2007 by a joint venture in which we hold a 60 percent
interest. The process of valuing the assets, liabilities and intangibles acquired in connection
with the Sandora acquisition was completed in the second quarter of 2008 and resulted in an
allocation of $430.6 million to goodwill, $116.0 million to trademarks and tradenames and $48.2
million to customer relationships and lists in CEE. Preliminarily, we amortized trademarks and
tradenames over 20 to 30 years and the customer relationships and lists over 3 to 10 years. After
our final valuation of the assets, liabilities and intangibles, we assigned an indefinite life to
the trademarks and tradenames and a useful life of 7 to 10 years for the customer relationships and
lists.
Total amortization expense in the second quarter of 2008 was not material to the Condensed
Consolidated Statement of Income, because results for the second quarter of 2008 included a
cumulative benefit of $2.3 million to amortization expense related to the final Sandora valuation.
Total amortization expense in the second quarter of 2007 was $2.1 million. Total amortization
expense was $3.1 million and $2.4 million in the first half of 2008 and 2007, respectively.
8. Receivables
Receivables, net of allowance, as of the end of the first half of 2008 and fiscal year 2007
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
End of First |
|
|
End of Fiscal |
|
|
|
Half 2008 |
|
|
Year 2007 |
|
Trade receivables, net of securitization |
|
$ |
388.1 |
|
|
$ |
290.6 |
|
Funding and rebates, net |
|
|
63.1 |
|
|
|
42.3 |
|
Other receivables |
|
|
11.9 |
|
|
|
12.4 |
|
Allowance for doubtful accounts |
|
|
(14.8 |
) |
|
|
(14.7 |
) |
|
|
|
|
|
|
|
Receivables, net of allowance |
|
$ |
448.3 |
|
|
$ |
330.6 |
|
|
|
|
|
|
|
|
9
9. Payables
Payables balances as of the end of the first half of 2008 and fiscal year 2007 were as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
End of First |
|
|
End of Fiscal |
|
|
|
Half 2008 |
|
|
Year 2007 |
|
Trade payables |
|
$ |
226.2 |
|
|
$ |
189.4 |
|
Dividends payable |
|
|
16.8 |
|
|
|
16.6 |
|
Income tax and other payables |
|
|
26.0 |
|
|
|
18.0 |
|
|
|
|
|
|
|
|
Payables |
|
$ |
269.0 |
|
|
$ |
224.0 |
|
|
|
|
|
|
|
|
10. Financial Instruments
We use derivative financial instruments to reduce our exposure to fluctuations in commodity
prices, foreign currency exchange rates 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 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 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.
In anticipation of forecasted purchases of raw materials denominated in foreign currency, we
entered into foreign currency swap instruments. We accounted for these swaps as cash flow hedges,
as these instruments hedged the variability of payments of raw materials attributable to changes in
foreign currency exchange rates. These foreign currency swap instruments were considered highly
effective in eliminating the variability of cash flows associated with the forecasted purchase of
raw materials.
The following table summarizes the net derivative losses deferred into Accumulated other
comprehensive income and reclassified to income in the first half of 2008 and 2007 (in millions):
|
|
|
|
|
|
|
|
|
|
|
First Half |
|
|
|
2008 |
|
|
2007 |
|
Balance at beginning of fiscal year |
|
$ |
(2.7 |
) |
|
$ |
(3.3 |
) |
Deferral of net derivative losses in accumulated other comprehensive income |
|
|
- |
|
|
|
(0.2 |
) |
Reclassification of net derivative losses to income |
|
|
0.1 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
Balance at end of the first half |
|
$ |
(2.6 |
) |
|
$ |
(2.9 |
) |
|
|
|
|
|
|
|
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 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. At the end of the first half of 2008 and the end of
fiscal year 2007, the cumulative fair value adjustments to long-term debt were $2.3 million and
$3.6 million, respectively.
11. Fair Value Measurements
SFAS No. 157 defines and establishes a framework for measuring fair value and expands
disclosure about fair value measurements. Furthermore, SFAS No. 157 specifies a hierarchy of
valuation techniques based upon whether the
inputs to those valuation techniques reflect assumptions other market participants would use based
upon market data obtained from independent sources (observable inputs) or reflect our own
assumptions of market participant valuation (unobservable inputs). In accordance with SFAS No. 157,
we have categorized our financial assets and liabilities, based on the priority of the inputs to
the valuation technique, into a three-level fair value hierarchy as set forth below. If the inputs
used to measure the financial instruments fall within different levels of the hierarchy, the
categorization is based on the lowest level input that is significant to the fair value measurement
of the instrument.
10
Financial assets and liabilities recorded on the Condensed Consolidated Balance Sheet are
categorized on the inputs to the valuation techniques as follows:
Level 1 Financial assets and liabilities whose values are based on unadjusted quoted prices
for identical assets or liabilities in an active market that the company has the ability to access
at the measurement date (examples include active exchange-traded equity securities, listed
derivatives, and most U.S. Government and agency securities).
Level 2 Financial assets and liabilities whose values are based on quoted prices in markets
where trading occurs infrequently or whose values are based on quoted prices of instruments with
similar attributes in active markets. Level 2 inputs include the following:
|
|
|
Quoted prices for similar assets or liabilities in active markets; |
|
|
|
|
Quoted prices for identical or similar assets or liabilities in non-active markets
(examples include corporate and municipal bonds which trade infrequently); |
|
|
|
|
Inputs other than quoted prices that are observable for substantially the full term of
the asset or liability (examples include interest rate and currency swaps); and |
|
|
|
|
Inputs that are derived principally from or corroborated by observable market data for
substantially the full term of the asset or liability (examples include certain
securities and derivatives). |
Level 3 - Financial assets and liabilities whose values are based on prices or valuation
techniques that require inputs that are both unobservable and significant to the overall fair value
measurement. These inputs reflect managements own assumptions about the assumptions a market
participant would use in pricing the asset or liability.
The following table summarizes our financial assets and liabilities measured at fair value on
a recurring basis as of the end of the first half of 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
End of |
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
First Half |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Available-for-sale equity securities |
|
$ |
1.1 |
|
|
$ |
1.1 |
|
|
$ |
- |
|
|
$ |
- |
|
Deferred compensation plan assets |
|
|
4.4 |
|
|
|
4.4 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5.5 |
|
|
$ |
5.5 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
liabilities |
|
$ |
39.7 |
|
|
$ |
- |
|
|
$ |
39.7 |
|
|
$ |
- |
|
Hedge liabilities |
|
|
0.1 |
|
|
|
- |
|
|
|
0.1 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
39.8 |
|
|
$ |
- |
|
|
$ |
39.8 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-For-Sale Equity Securities. At the end of the first half of 2008, our
available-for-sale equity securities consisted of common stock of Northfield Laboratories, Inc. Our
available-for-sale equity securities are valued using quoted market prices multiplied by the number
of shares owned.
Deferred Compensation Plan Assets and Liabilities. We maintain a self-directed, non-qualified
deferred compensation plan structured as a rabbi trust for certain executives and other higher
compensated employees. Our rabbi trust funds are invested in money market accounts, which are
adjusted monthly for any accrued interest. Our unfunded deferred compensation liability is subject
to changes in our stock prices as well as price changes in other equity and fixed-income
investments. Employees deferred compensation amounts are not directly invested in these investment
vehicles. We track the performance of each employees investment selections and adjust the deferred compensation liability accordingly. The fair value of the unfunded deferred compensation liability
is primarily based on the market indices corresponding to the employees investment selections.
11
Derivative Liabilities. We calculate derivative assets and liability amounts using a variety
of valuation techniques, depending on the specific characteristics of the hedging instrument. The
fair value of our forward exchange contracts is primarily based on observable forward foreign
exchange rates.
12. Pension and Other Postretirement Benefit Plans
Net periodic pension and other postretirement benefit costs for the second quarter and first
half of 2008 and 2007 included the following components (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
|
Pension |
|
|
Other Postretirement |
|
|
|
Benefit Costs |
|
|
Benefit Costs |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Service cost |
|
$ |
0.8 |
|
|
$ |
0.8 |
|
|
$ |
- |
|
|
$ |
- |
|
Interest cost |
|
|
2.8 |
|
|
|
2.7 |
|
|
|
0.2 |
|
|
|
0.3 |
|
Expected return on plan assets |
|
|
(3.8 |
) |
|
|
(3.7 |
) |
|
|
- |
|
|
|
- |
|
Amortization of prior service cost |
|
|
0.1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Amortization of net loss (gain) |
|
|
0.5 |
|
|
|
0.7 |
|
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
0.4 |
|
|
$ |
0.5 |
|
|
$ |
- |
|
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half |
|
|
|
Pension |
|
|
Other Postretirement |
|
|
|
Benefit Costs |
|
|
Benefit Costs |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Service cost |
|
$ |
1.6 |
|
|
$ |
1.6 |
|
|
$ |
- |
|
|
$ |
- |
|
Interest cost |
|
|
5.6 |
|
|
|
5.3 |
|
|
|
0.5 |
|
|
|
0.6 |
|
Expected return on plan assets |
|
|
(7.6 |
) |
|
|
(7.4 |
) |
|
|
- |
|
|
|
- |
|
Amortization of prior service cost |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
- |
|
|
|
- |
|
Amortization of net loss (gain) |
|
|
1.0 |
|
|
|
1.4 |
|
|
|
(0.4 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
0.7 |
|
|
$ |
1.0 |
|
|
$ |
0.1 |
|
|
$ |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We previously disclosed in our consolidated financial statements for fiscal year 2007 that we
expect to make the minimum contribution to the plans in fiscal year 2008. As of the end of the
first half of 2008, we have not made any contributions to the plans; however, we expect the minimum
contribution will be made during the remainder of fiscal year 2008. We will continue to evaluate
the plans funding requirements throughout the balance of fiscal year 2008, and we will fund to
levels deemed necessary for the plans.
13. Share-Based Compensation
In February 2008, we granted 960,973 restricted shares at a weighted-average fair value of
$26.30 on the date of grant to key members of U.S. and Caribbean management and members of our
Board of Directors under our 2000 Stock Incentive Plan (the Plan). We recognized compensation
expense of $5.3 million and $4.5 million in the second quarter of 2008 and 2007, respectively, and
$10.5 million and $9.0 million in the first half of 2008 and 2007,
respectively, related to unvested restricted share grants. At the end of the first half of 2008,
there were 2,657,043 unvested restricted shares outstanding.
In February 2008, we granted 149,574 restricted stock units at a weighted average value of
$26.30 on the date of grant to key members of our CEE management team under the Plan. Restricted
stock units are considered liability awards whose fair value is remeasured at each reporting date
until settlement. As such, compensation expense associated with restricted stock units is subject
to variability based on changes in the fair value of PepsiAmericas underlying stock price.
Compensation expense in the second quarter of 2008 was immaterial to our Condensed Consolidated
Statement of Income. Due to a decline in the stock price during the first half of 2008 we
recognized a benefit to compensation expense of $0.8 million, related to unvested restricted stock
unit grants. We recognized compensation expense of $0.7 million in the second quarter of 2007 and
$1.1 million during the first half of 2007 related to unvested restricted stock unit grants. At the
end of the first half of 2008, there were 280,303 unvested restricted stock units outstanding.
12
14. Supplemental Cash Flow Information
Net cash provided by operating activities reflected cash payments and receipts for interest
and income taxes as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
First Half |
|
|
2008 |
|
2007 |
Interest paid |
|
$ |
60.9 |
|
$ |
53.1 |
Interest received |
|
|
1.9 |
|
|
1.1 |
Income taxes paid, net of refunds |
|
|
0.2 |
|
|
40.5 |
15. 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
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.
At the end of first half of 2008, we had $28.0 million accrued to cover potential
indemnification obligations, compared to $40.2 million recorded at the end of fiscal year 2007.
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, $19.1 million at the end of the first half of 2008 and $19.5 million at the end of fiscal
year 2007 were classified as a current liability. 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.
13
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 $10.7 million at the end of the first half of 2008 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 $54.5 million has been eroded, leaving a remaining self-insured
retention of $59.5 million at the end of the first half of 2008. The estimated range of
aggregate exposure related only to the remediation costs of such environmental liabilities is
approximately $15 million to $35 million. We had accrued $17.3 million at the end of the first
half of 2008 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
$17.3 million and thus reduces our future cash obligations. Amounts recorded in our Condensed
Consolidated Balance Sheets related to Finite Funding were $10.6 million at the end of the
first half of 2008 and $11.5 million at the end of fiscal year 2007 and are recorded in Other
assets, net of $4.7 million recorded in Other current assets at the end of each respective
period.
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 Trustees 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 Trustees 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 also 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 courts 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
Coopers petition for leave to appeal the appellate courts September 7, 2007 ruling. Cooper did
not file a petition for certiorari seeking discretionary review by the United States Supreme Court
by the February 27, 2008 deadline for such filing.
14
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. The sites and product liability and toxic tort claims included in the aggregate accrued
liabilities we have recorded are described more fully in our Annual Report on Form 10-K for the
fiscal year 2007. No significant changes in the status of those sites or claims occurred except as
noted in Part II, Item 1 of this Quarterly Report on Form 10-Q, and we were not notified of any
significant new sites during the first half of 2008.
16. Segment Reporting
We operate in one industry located in three geographic segments U.S., CEE and the Caribbean.
We operate in 19 states in the U.S. Internationally, we operate in Ukraine, Poland, Romania,
Hungary, the Czech Republic, Slovakia, Puerto Rico, Jamaica, the Bahamas, and Trinidad and Tobago.
We have distribution rights in Moldova, Estonia, Latvia, and Lithuania, which are recorded in the
CEE geographic segment and Barbados, which is recorded in the Caribbean geographic segment. 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, which are recorded in
the CEE geographic segment.
The following tables present net sales and operating income of our geographic segments for the
second quarter and first half of 2008 and 2007 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
Net Sales |
|
|
Operating Income |
|
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
U.S. |
|
$ |
917.2 |
|
|
$ |
929.9 |
|
|
$ |
112.6 |
|
|
$ |
113.8 |
|
|
CEE |
|
|
359.0 |
|
|
|
207.0 |
|
|
|
51.7 |
|
|
|
29.6 |
|
|
Caribbean |
|
|
64.6 |
|
|
|
62.0 |
|
|
|
1.2 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,340.8 |
|
|
$ |
1,198.9 |
|
|
$ |
165.5 |
|
|
$ |
144.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half |
|
|
|
|
Net Sales |
|
|
Operating Income (Loss) |
|
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
U.S. |
|
$ |
1,698.0 |
|
|
$ |
1,694.8 |
|
|
$ |
170.0 |
|
|
$ |
174.2 |
|
|
CEE |
|
|
622.0 |
|
|
|
350.0 |
|
|
|
66.6 |
|
|
|
30.6 |
|
|
Caribbean |
|
|
119.5 |
|
|
|
114.3 |
|
|
|
(0.8 |
) |
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,439.5 |
|
|
$ |
2,159.1 |
|
|
$ |
235.8 |
|
|
$ |
203.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17. Related Party Transactions
We are a licensed producer and distributor of Pepsi branded products in the U.S., CEE and the
Caribbean. We operate under exclusive franchise agreements with soft drink concentrate producers,
including master bottling and fountain syrup agreements with PepsiCo for the manufacture,
packaging, sale and distribution of Pepsi branded products. The franchise agreements contain
operating and marketing commitments and conditions for termination. As of the end of first half of
2008, PepsiCo beneficially owned approximately 44 percent of PepsiAmericas outstanding common
stock.
15
We purchase concentrates from PepsiCo to be used in the production of PepsiCo branded cola and
non-cola beverages. PepsiCo also provides us with various forms of bottler incentives (marketing
support programs) to promote Pepsis brands. These bottler incentives cover a variety of
initiatives including direct marketplace, shared media and advertising to support volume and market
share growth. There are no conditions or requirements that could result in the repayment of any
support payments we have received.
We manufacture and distribute fountain products and provide fountain equipment service to
PepsiCo customers in certain territories in accordance with various agreements. There are other
products that we produce and/or distribute through various arrangements with PepsiCo or partners of
PepsiCo. 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 Pepsi/Starbucks partnership.
PepsiCo provides various procurement services under a shared services agreement. Under such
agreement, PepsiCo negotiates with various suppliers the cost of certain raw materials by entering
into raw material contracts on our behalf. PepsiCo also collects and remits to us certain rebates
from the various suppliers related to our procurement volume. In addition, PepsiCo acts as our
agent in the execution of derivative contracts associated with certain anticipated raw material
purchases.
We have an existing arrangement with a subsidiary of Pohlad Companies related to the joint
ownership of an aircraft. This transaction is not material to our Condensed Consolidated Financial
Statements. Robert C. Pohlad, our Chairman and Chief Executive Officer, is the President and owner
of approximately 33 percent of the capital stock of Pohlad Companies.
See additional discussion of our related party transactions in our Annual Report on Form 10-K
for the fiscal year 2007.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 Form 10-Q refer to the 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, Inc. (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; cost 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 of our Annual Report on Form 10-K for the fiscal year 2007 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.
CRITICAL ACCOUNTING POLICIES
The preparation of the Condensed Consolidated Financial Statements in conformity with United
States generally accepted accounting principles requires management to use estimates. These
estimates are made using managements best judgment and the information available at the time these
estimates are made, including the advice of outside experts. For a better understanding of our
significant accounting policies used in preparation of the Condensed Consolidated Financial
Statements, please refer to our Annual Report on Form 10-K for fiscal year 2007. We focus your
attention on the following critical accounting policies:
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 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.
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 Note 15 to the Condensed Consolidated Financial Statements). 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.
17
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 managements 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 period. 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 Condensed 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. We use high-quality, long-term bond
rates as a guideline for establishing this rate. 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.
18
RESULTS OF OPERATIONS
BUSINESS OVERVIEW
PepsiAmericas manufactures, distributes, and markets a broad portfolio of beverage products in
the U.S., Central and Eastern Europe (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 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. We serve a
significant portion of a 19 state region in the U.S., primarily in the Midwest. Internationally we
serve Central and Eastern European and Caribbean markets, including Ukraine, Poland, Romania,
Hungary, the Czech Republic, Slovakia, Puerto Rico, Jamaica, the Bahamas, and Trinidad and Tobago.
We have distribution rights and distribute in Moldova, Estonia, Latvia, Lithuania and Barbados. 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.
We also have a 20 percent equity investment in Agrima JSC (Agrima), which gives us a market
presence in Bulgaria. Managements Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the unaudited Condensed Consolidated Financial
Statements and accompanying Notes in this Form 10-Q and our Annual Report on Form 10-K for the year
ended December 29, 2007.
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 second quarter and first half of 2008 comparisons,
this excluded the operating results of Sandora, as we fully consolidated Sandora operating results
starting in September 2007. 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 foodservice. 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 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. 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. Volume, net pricing and cost of goods sold
per unit also exclude activity associated with beer and snack food products.
Financial Results
Net income in the second quarter of 2008 was $90.8 million, or $0.72 per diluted common share,
compared to net income of $78.0 million, or $0.61 per diluted common share, in the second quarter
of 2007. Net income in the first half of 2008 was $115.5 million, or $0.90 per diluted common
share, compared to net income of $98.6 million or $0.77 per diluted common share, in the first half
of 2007. The increase in diluted earnings per share in the second quarter and first half of 2008
resulted primarily from foreign currency translation, a lower effective tax rate and the
acquisition of Sandora. Prior period results included a gain on the sale of non-core property,
partly offset by the marketable securities impairment and special charges, which had a net positive
impact of $0.03 and $0.02 per diluted common share in the second quarter and first half of 2007,
respectively. The second quarter and first half of 2007 results also included a loss from
discontinued operations, which had a negative impact of $0.02 per diluted common share in each
respective period.
In the second quarter and first half of 2008, worldwide volume grew 8.4 percent and 10.3
percent, respectively, due to acquisitions and international growth. Net pricing on a worldwide
basis increased 4.2 percent and 3.6 percent for the second quarter and first half of 2008,
respectively. The increases in net pricing were partly offset by cost of goods sold per unit
increases of 5.7 percent in both periods, which were caused by higher ingredient costs partly
offset by the impact of acquisitions.
19
2008 Outlook
Our financial outlook for fiscal year 2008 is estimated in the following table, which includes
the impact of acquisitions unless noted as constant territory:
|
|
|
|
|
|
|
|
|
|
|
Impact of 53rd |
|
|
|
|
Reported (53 weeks) |
|
week and special |
|
Adjusted comparisons (52 |
|
|
2008 vs. 2007 |
|
charges |
|
weeks) 2008 vs. 2007 |
Worldwide net sales |
|
+14 to 15 percent |
|
1 percent |
|
+13 to 14 percent |
Cost of goods sold per unit |
|
+ 6 to 7 percent |
|
-- |
|
+ 6 to 7 percent |
Worldwide SD&A expenses |
|
+11 percent |
|
1 percent |
|
+10 percent |
Operating income |
|
+13 to 14 percent |
|
1 percent |
|
+12 to 13 percent |
Interest expense |
|
$117 million |
|
$2 million |
|
$115 million |
Effective tax rate |
|
Low end of 32 to 33 percent range |
|
-- |
|
Low end of 32 to 33 percent
range |
53rd week EPS impact |
|
|
|
$0.01 |
|
|
Special charges impact |
|
|
|
($0.01) |
|
|
Estimated 2008 EPS |
|
$1.92 to $1.96 |
|
|
|
$1.92 to $1.96 |
This outlook includes an expected 7 to 8 percentage point contribution to net sales and a 4
percentage point increase to SD&A expense from acquisitions. Additionally, we estimate capital
spending to be approximately $270 million.
Seasonality
Our business is seasonal with the second and third quarters generating higher sales volumes
than the first and fourth quarters. Accordingly, the operating results of any individual quarter
may not be indicative of a full years operating results.
Items Impacting Comparability
Acquisitions
We formed 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. Beginning in September 2007, we fully consolidated the results of operations of the joint
venture and report minority interest in our Condensed Consolidated Financial Statements. Due to the
timing of the receipt of available financial information, we record results on a one-month lag
basis.
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. We record equity in net loss of nonconsolidated companies in our Condensed Consolidated
Financial Statements. Due to the timing of the receipt of available financial information, we
record results on a one-quarter lag basis.
Special Charges
In the second quarter of 2008 and 2007, we recorded special charges of $0.1 and $1.4 million,
respectively, in the U.S. related to severance and relocation costs associated with our strategic
realignment to further strengthen our customer focused go-to-market strategy. We recorded special
charges of $0.6 and $2.6 million in the U.S. in the first half of 2008 and 2007, respectively.
Additionally, in the first half of 2007 we recorded special charges of $0.2 million in CEE
primarily for severance, related benefits and relocation costs.
20
RESULTS OF OPERATIONS
2008 SECOND QUARTER COMPARED WITH 2007 SECOND QUARTER
The following is a discussion of our results of operations for the second quarter of 2008
compared to the second quarter of 2007.
Volume
Sales volume growth (decline) for the second quarter of 2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
U.S. |
|
|
(5.4 |
%) |
|
|
(3.3 |
%) |
CEE |
|
|
51.7 |
% |
|
|
56.3 |
% |
Caribbean |
|
|
1.3 |
% |
|
|
(4.1 |
%) |
Worldwide |
|
|
8.4 |
% |
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared to 2007 |
Volume Change |
|
U.S. |
|
CEE |
|
Caribbean |
|
Worldwide |
Constant territory volume |
|
|
(5.4 |
%) |
|
|
1.0 |
% |
|
|
1.3 |
% |
|
|
(3.6 |
%) |
Acquisitions |
|
|
-- |
|
|
|
50.7 |
% |
|
|
-- |
|
|
|
12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in volume |
|
|
(5.4 |
%) |
|
|
51.7 |
% |
|
|
1.3 |
% |
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the second quarter of 2008, worldwide volume increased 8.4 percent. The increase in
worldwide volume was primarily due to the incremental impact of acquisitions and constant territory
growth in CEE, partly offset by volume declines in the U.S. Worldwide constant territory volume
declined 3.6 percent compared to the prior year second quarter.
Volume in the U.S declined 5.4 percent in the second quarter of 2008 compared to the second
quarter of 2007 due, in part, to an estimated 1 percent decrease from the shift of the Easter
holiday into the first quarter of 2008, a 1 percent decline from continued softness in lower margin
Aquafina take home packages, a 1 percent decline in the tea category, and a 1 percent decrease from
the foodservice channel, including full service vending. The carbonated soft drink volume declined
4 percent compared to the second quarter of 2007. The non-carbonated beverage category declined 9
percent due to the decrease in Aquafina volume and the decrease in the tea category. Single-serve
volume declined 2 percent but improved from the prior quarters trend due to innovation and
marketplace execution.
Volume in CEE increased 51.7 percent in the second quarter of 2008 compared to the second
quarter of 2007. The increase was primarily due to the Sandora acquisition, which contributed 50.7
percentage points of the increase. The remaining growth in CEE was led by double-digit growth in
Romania and modest growth in Poland, partly offset by lower volume in Hungary. The double-digit
increase in Romania was mostly due to volume growth in carbonated soft drinks and improved market
share. In the second quarter of 2008, weather conditions negatively impacted volume growth in CEE.
Volume in the Caribbean increased 1.3 percent in the second quarter of 2008 compared to the
same period last year, which was driven mainly by Puerto Rico.
Net Sales
Net sales and net pricing statistics for the second quarter of 2008 and 2007 were as follows
(dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
2008 |
|
|
2007 |
|
|
Change |
|
U.S. |
|
$ |
917.2 |
|
|
$ |
929.9 |
|
|
|
(1.4 |
%) |
CEE |
|
|
359.0 |
|
|
|
207.0 |
|
|
|
73.4 |
% |
Caribbean |
|
|
64.6 |
|
|
|
62.0 |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
Worldwide |
|
$ |
1,340.8 |
|
|
$ |
1,198.9 |
|
|
|
11.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared to 2007 |
Net Sales Change |
|
U.S. |
|
CEE |
|
Caribbean |
|
Worldwide |
Volume impact* |
|
|
(4.7 |
%) |
|
|
0.9 |
% |
|
|
1.1 |
% |
|
|
(3.1 |
%) |
Net price per case, excluding impact of currency
translation |
|
|
3.7 |
% |
|
|
5.3 |
% |
|
|
6.2 |
% |
|
|
3.7 |
% |
Currency translation |
|
|
-- |
|
|
|
20.4 |
% |
|
|
(2.5 |
%) |
|
|
3.4 |
% |
Acquisitions |
|
|
-- |
|
|
|
50.0 |
% |
|
|
-- |
|
|
|
8.6 |
% |
Non-core |
|
|
(0.4 |
%) |
|
|
(3.2 |
%) |
|
|
(0.6 |
%) |
|
|
(0.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net sales |
|
|
(1.4 |
%) |
|
|
73.4 |
% |
|
|
4.2 |
% |
|
|
11.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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** |
|
2008 |
|
2007 |
U.S. |
|
|
3.7 |
% |
|
|
7.3 |
% |
CEE |
|
|
18.6 |
% |
|
|
19.5 |
% |
Caribbean |
|
|
3.7 |
% |
|
|
5.1 |
% |
Worldwide |
|
|
4.2 |
% |
|
|
6.0 |
% |
** Includes the impact from acquisitions and currency translation on core net sales.
Net sales increased $141.9 million, or 11.8 percent, to $1,340.8 million in the second quarter
of 2008 compared to $1,198.9 million in the second quarter of 2007. The increase was mainly
attributable to acquisitions, increases in net pricing in all geographies and the favorable impact
of foreign currency translation.
Net sales in the U.S. for the second quarter of 2008 decreased $12.7 million, or 1.4 percent,
to $917.2 million from $929.9 million in the prior year second quarter. The decrease in net sales
mainly reflected a decline in volume, partly offset by 3.7 percent growth in net pricing driven by
rate increases. Package mix also positively contributed to net pricing due to growth in the
non-carbonated beverage category.
Net sales in CEE for the second quarter of 2008 increased $152.0 million, or 73.4 percent, to
$359.0 million from $207.0 million in the second quarter of 2007. The increase was primarily due to
acquisitions, which contributed 50.0 percentage points of the increase. Foreign currency
translation contributed 20.4 percentage points to the increase in net sales, partly offset by a 3.2
percent decline in non-core sales. The remaining increase in net sales was due to an increase in
net pricing of 5.3 percent on a local currency basis.
Net sales in the Caribbean increased $2.6 million, or 4.2 percent in the second quarter of
2008 to $64.6 million from $62.0 million in the prior year second quarter. The increase was a
result of an increase in net pricing of 3.7 percent and volume growth.
Cost of Goods Sold
Cost of goods sold and cost of goods sold per unit statistics for the second quarter of 2008
and 2007 were as follows (dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
|
2008 |
|
|
2007 |
|
|
Change |
|
U.S. |
|
$ |
533.3 |
|
|
$ |
541.1 |
|
|
|
(1.4 |
%) |
CEE |
|
|
212.4 |
|
|
|
114.9 |
|
|
|
84.9 |
% |
Caribbean |
|
|
48.3 |
|
|
|
45.8 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Worldwide |
|
$ |
794.0 |
|
|
$ |
701.8 |
|
|
|
13.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared to 2007 |
Cost of Goods Sold Change |
|
U.S. |
|
CEE |
|
Caribbean |
|
Worldwide |
Volume impact* |
|
|
(4.5 |
%) |
|
|
0.8 |
% |
|
|
1.1 |
% |
|
|
(3.0 |
%) |
Cost per case, excluding impact of currency
translation |
|
|
3.4 |
% |
|
|
9.3 |
% |
|
|
6.3 |
% |
|
|
4.4 |
% |
Currency translation |
|
|
-- |
|
|
|
15.6 |
% |
|
|
(2.5 |
%) |
|
|
2.4 |
% |
Acquisitions |
|
|
-- |
|
|
|
64.4 |
% |
|
|
-- |
|
|
|
10.5 |
% |
Non-core |
|
|
(0.3 |
%) |
|
|
(5.2 |
%) |
|
|
0.6 |
% |
|
|
(1.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cost of goods sold |
|
|
(1.4 |
%) |
|
|
84.9 |
% |
|
|
5.5 |
% |
|
|
13.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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** |
|
2008 |
|
2007 |
U.S. |
|
|
3.4 |
% |
|
|
5.4 |
% |
CEE |
|
|
28.8 |
% |
|
|
10.3 |
% |
Caribbean |
|
|
3.8 |
% |
|
|
4.2 |
% |
Worldwide |
|
|
5.7 |
% |
|
|
3.1 |
% |
** Includes the impact from acquisitions and currency translation on core cost of goods sold.
Cost of goods sold increased $92.2 million, or 13.1 percent, to $794.0 million in the second
quarter of 2008 from $701.8 million in the prior year second quarter. This increase was driven
primarily by acquisitions, higher raw material costs and the negative impact of foreign currency
translation. Cost of goods sold per unit increased 5.7 percent in the second quarter of 2008
compared to the same period in 2007.
In the U.S., cost of goods sold decreased $7.8 million, or 1.4 percent, to $533.3 million in
the second quarter of 2008 from $541.1 million in the prior year second quarter. The decrease in
cost of goods sold was primarily due to a decline in volume. This was partly offset by a cost of
goods sold per unit increase of 3.4 percent in the U.S., primarily due to increases in concentrate,
sweetener and packaging costs and higher non-carbonated beverage mix related costs.
In CEE, cost of goods sold increased $97.5 million, or 84.9 percent, to $212.4 million in the
second quarter of 2008, compared to $114.9 million in the prior year second quarter. The increase
was primarily due to acquisitions, which contributed 64.4 percentage points of the increase.
Additionally, foreign currency translation contributed 15.6 percentage points to the increase in
cost of goods sold. Cost of goods sold per unit increased 28.8 percent in the second quarter of
2008 compared to second quarter of 2007 due to higher raw material costs and product mix.
In the Caribbean, cost of goods sold increased $2.5 million, or 5.5 percent, to $48.3 million
in the second quarter of 2008, compared to $45.8 million in the second quarter of 2007. The
increase was mainly driven by an increase in cost of goods sold per unit of 3.8 percent,
attributable to increases in concentrate, sweetener and packaging costs.
Selling, Delivery and Administrative Expenses
SD&A expenses and SD&A expense statistics for the second quarter of 2008 and 2007 were as
follows (dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
SD&A Expenses |
|
2008 |
|
|
2007 |
|
|
Change |
|
U.S. |
|
$ |
271.2 |
|
|
$ |
273.6 |
|
|
|
(0.9 |
%) |
CEE |
|
|
94.9 |
|
|
|
62.5 |
|
|
|
51.8 |
% |
Caribbean |
|
|
15.1 |
|
|
|
15.4 |
|
|
|
(1.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Worldwide |
|
$ |
381.2 |
|
|
$ |
351.5 |
|
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared to 2007 |
SD&A Expense Change |
|
U.S. |
|
CEE |
|
Caribbean |
|
Worldwide |
Cost impact, excluding impact of currency translation |
|
|
(0.9 |
%) |
|
|
6.9 |
% |
|
|
0.2 |
% |
|
|
0.6 |
% |
Currency translation |
|
|
-- |
|
|
|
21.6 |
% |
|
|
(2.1 |
%) |
|
|
3.7 |
% |
Acquisitions |
|
|
-- |
|
|
|
23.3 |
% |
|
|
-- |
|
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in SD&A expense |
|
|
(0.9 |
%) |
|
|
51.8 |
% |
|
|
(1.9 |
%) |
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SD&A Expenses as a Percent of Net Sales |
|
2008 |
|
2007 |
U.S. |
|
|
29.6 |
% |
|
|
29.4 |
% |
CEE |
|
|
26.4 |
% |
|
|
30.2 |
% |
Caribbean |
|
|
23.4 |
% |
|
|
24.8 |
% |
Worldwide |
|
|
28.4 |
% |
|
|
29.3 |
% |
In the second quarter of 2008, SD&A increased $29.7 million, or 8.4 percent, to $381.2 million
from $351.5 million in the comparable period of the previous year. As a percentage of net sales,
SD&A expenses decreased to 28.4 percent in the second quarter of 2008, compared to 29.3 percent in
the prior year second quarter, caused by the impact of acquisitions and effective cost management.
In the U.S., SD&A expenses decreased $2.4 million, or 0.9 percent, to $271.2 million in the
second quarter of 2008, compared to $273.6 million in the prior year second quarter. SD&A expenses
decreased in the second quarter of 2008 due to favorable compensation and benefit expenses and
effective productivity management, partly offset by higher fuel costs.
In CEE, SD&A expenses increased $32.4 million, or 51.8 percent, to $94.9 million in the second
quarter of 2008 compared to $62.5 million in the prior year second quarter. Acquisitions
contributed 23.3 percentage points of the increase and foreign currency translation contributed
21.6 percent. As a percentage of net sales, SD&A expenses improved to 26.4 percent compared to 30.2
percent in the second quarter of 2007, primarily due to lower overall operating costs for Sandora
as compared to the other markets in CEE.
In the Caribbean, SD&A expenses decreased $0.3 million, or 1.9 percent, to $15.1 million in
the second quarter of 2008 from $15.4 million in the prior year second quarter. SD&A expenses as a
percentage of net sales decreased to 23.4 percent in the second quarter of 2008 compared to 24.8
percent in the prior year second quarter reflecting effective cost management.
Special Charges
In the second quarter of 2008 and 2007, we recorded special charges in the U.S. of $0.1
million and $1.4 million, respectively, related to severance and relocation costs that were
associated with our strategic realignment to further strengthen our customer focused go-to-market
strategy.
Operating Income
Operating income for the second quarter of 2008 and 2007 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
U.S. |
|
$ |
112.6 |
|
|
$ |
113.8 |
|
|
|
(1.1 |
%) |
CEE |
|
|
51.7 |
|
|
|
29.6 |
|
|
|
74.7 |
% |
Caribbean |
|
|
1.2 |
|
|
|
0.8 |
|
|
|
50.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Worldwide |
|
$ |
165.5 |
|
|
$ |
144.2 |
|
|
|
14.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating income increased $21.3 million, or 14.8 percent, to $165.5 million in the second
quarter of 2008, compared to $144.2 million in the second quarter of 2007.
Operating income in the U.S. decreased $1.2 million or 1.1 percent, to $112.6 million in the
second quarter of 2008 from $113.8 million in the second quarter of 2007. The decrease was
primarily due to lower volume, partly offset by increased net pricing, lower cost of goods sold and
lower SD&A expenses.
24
Operating income in CEE increased to $51.7 million in the second quarter of 2008, compared to
$29.6 million in the prior year second quarter. This was mainly due to acquisitions with the
remainder of the increase due to the beneficial impact of foreign currency translation.
Operating income in the Caribbean was $1.2 million in the second quarter of 2008, compared to
$0.8 million in the prior year second quarter. The increase reflected increased sales and
effective cost management.
Interest Expense and Other Income
Net interest expense increased $2.4 million in the second quarter of 2008 to $28.5 million,
compared to $26.1 million in the second quarter of 2007. The increase was due to higher debt
levels associated with our acquisitions during fiscal year 2007, partly offset by lower interest
rates on floating rate debt.
We recorded other income, net, of $1.1 million in the second quarter of 2008 compared to other
income, net, of $4.3 million reported in the second quarter of 2007. Foreign currency transaction
gains were $3.5 million in the second quarter of 2008 compared to $0.2 million in the prior year
second quarter. The prior period results included a $10.2 million gain on the sale of non-core
property and a $4.0 million other-than-temporary impairment loss related to a marketable security
investment.
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 loss of
nonconsolidated companies was 30.6 percent for the second quarter of 2008, compared to 34.7 percent
in the second quarter of 2007. The lower tax rate was due to favorable country mix of earnings and
the associated lower in-country tax rates, as well as a favorable adjustment recorded after the
filing of the 2007 Romania income tax return.
Minority Interest
We fully consolidated the operating results of Sandora and the Bahamas in our Condensed
Consolidated Statements of Income. Minority interest represented 40 percent of Sandora results we
did not own in the second quarter of 2008 and 30 percent of the Bahamas results that we did not own
in the second quarter of 2008 and 2007.
Equity in Net Loss of Nonconsolidated Companies
In the third quarter of 2007, we purchased a 20 percent interest in a joint venture that owns
Agrima. Equity in net loss of nonconsolidated companies was $0.2 million in the second quarter of
2008.
Loss on Discontinued Operations
In the second quarter of 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 $12.8 million to $90.8 million in the second quarter of 2008, compared to
$78.0 million in the second quarter of 2007. The acquisition of Sandora had a positive impact on
net income in the second quarter. The discussion of our operating results, included above,
explains the remainder of the increase in net income.
25
RESULTS OF OPERATIONS
2008 FIRST HALF COMPARED WITH 2007 FIRST HALF
The following is a discussion of our results of operations for the first half of 2008 compared
to the first half of 2007.
Volume
Sales volume growth (decline) for the first half of 2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
U.S. |
|
|
(3.4 |
%) |
|
|
(1.6 |
%) |
CEE |
|
|
55.9 |
% |
|
|
65.7 |
% |
Caribbean |
|
|
2.9 |
% |
|
|
(5.2 |
%) |
Worldwide |
|
|
10.3 |
% |
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared to 2007 |
Volume Change |
|
U.S. |
|
CEE |
|
Caribbean |
|
Worldwide |
Constant territory volume |
|
|
(3.4 |
%) |
|
|
4.8 |
% |
|
|
2.9 |
% |
|
|
(1.2 |
%) |
Acquisitions |
|
|
-- |
|
|
|
51.1 |
% |
|
|
-- |
|
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in volume |
|
|
(3.4 |
%) |
|
|
55.9 |
% |
|
|
2.9 |
% |
|
|
10.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first half of 2008, worldwide volume increased 10.3 percent compared to the prior year.
The increase in worldwide volume was primarily due to the incremental impact of acquisitions and
constant territory growth in CEE, partly offset by volume declines in the U.S.
Volume in the U.S declined 3.4 percent in the first half of 2008 compared to the first half of
2007 due, in part, to a decline in carbonated soft drink volume of 3 percent. Single-serve volume
declined 3 percent due mainly to softness in the foodservice and convenience and gas channels.
Compared to the first half of 2007, the non-carbonated beverage category declined 5 percent, due to
a 14 percent volume decline in Aquafina and a 9 percent decline in the tea category.
Volume in CEE increased 55.9 percent in the first half of 2008 compared to the same period in
2007. The increase was primarily due to the Sandora acquisition, which contributed 51.1 percentage
points of the increase. The remaining growth in CEE was led by double-digit growth in Romania and
growth in Poland. The double-digit growth in Romania was mostly due to a 16 percent increase in
carbonated soft drink volume and an 8 percent increase in the non-carbonated beverage category. In
the second quarter of 2008, weather conditions negatively impacted volume growth in CEE.
Volume in the Caribbean increased 2.9 percent in the first half of 2008 compared to the same
period last year with the growth driven by Puerto Rico and Jamaica.
Net Sales
Net sales and net pricing statistics for the first half of 2008 and 2007 were as follows
(dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
2008 |
|
|
2007 |
|
|
Change |
|
U.S. |
|
$ |
1,698.0 |
|
|
$ |
1,694.8 |
|
|
|
0.2 |
% |
CEE |
|
|
622.0 |
|
|
|
350.0 |
|
|
|
77.7 |
% |
Caribbean |
|
|
119.5 |
|
|
|
114.3 |
|
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Worldwide |
|
$ |
2,439.5 |
|
|
$ |
2,159.1 |
|
|
|
13.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared to 2007 |
Net Sales Change |
|
U.S. |
|
CEE |
|
Caribbean |
|
Worldwide |
Volume impact* |
|
|
(2.9 |
%) |
|
|
4.3 |
% |
|
|
2.5 |
% |
|
|
(1.1 |
%) |
Net price per case, excluding impact of currency
translation |
|
|
3.4 |
% |
|
|
4.2 |
% |
|
|
4.5 |
% |
|
|
3.1 |
% |
Currency translation |
|
|
-- |
|
|
|
19.1 |
% |
|
|
(2.0 |
%) |
|
|
3.0 |
% |
Acquisitions |
|
|
-- |
|
|
|
52.4 |
% |
|
|
-- |
|
|
|
8.5 |
% |
Non-core |
|
|
(0.3 |
%) |
|
|
(2.3 |
%) |
|
|
(0.5 |
%) |
|
|
(0.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net sales |
|
|
0.2 |
% |
|
|
77.7 |
% |
|
|
4.5 |
% |
|
|
13.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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** |
|
2008 |
|
2007 |
U.S. |
|
|
3.4 |
% |
|
|
5.7 |
% |
CEE |
|
|
18.0 |
% |
|
|
19.2 |
% |
Caribbean |
|
|
2.6 |
% |
|
|
5.8 |
% |
Worldwide |
|
|
3.6 |
% |
|
|
4.5 |
% |
|
** |
|
Includes the impact from acquisitions and currency translation on core net sales. |
Net sales increased $280.4 million, or 13.0 percent, to $2,439.5 million in the first half of
2008 compared to $2,159.1 million in the first half of 2007. The increase was mainly attributable
to acquisitions, worldwide increases in net pricing, the favorable impact of foreign currency
translation and organic volume growth in our international operations.
Net sales in the U.S. in the first half of 2008 increased $3.2 million, or 0.2 percent, to
$1,698.0 million from $1,694.8 million in the first half of 2007. The increase in net sales was
primarily due to a 3.4 percent increase in net pricing driven by rate increases and favorable
product mix, partly offset by a volume decline.
Net sales in CEE in the first half of 2008 increased $272.0 million, or 77.7 percent, to
$622.0 million from $350.0 million in the first half of 2007. The increase was primarily due to
acquisitions, which contributed 52.4 percentage points of the increase. Foreign currency
translation contributed 19.1 percentage points to the increase in net sales. The remaining
increase in net sales was due to volume growth, partly offset by a decline in non-core sales. Net
pricing increased 4.2 percent on a local currency basis, driven by rate increases and favorable
product mix.
Net sales in the Caribbean increased $5.2 million, or 4.5 percent in the first half of 2008 to
$119.5 million from $114.3 million in the first half of 2007. The increase was a result of volume
growth and an increase in net pricing of 2.6 percent.
Cost of Goods Sold
Cost of goods sold and cost of goods sold per unit statistics for the first half of 2008 and
2007 were as follows (dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
|
2008 |
|
|
2007 |
|
|
Change |
|
U.S. |
|
$ |
995.9 |
|
|
$ |
989.5 |
|
|
|
0.6 |
% |
CEE |
|
|
382.5 |
|
|
|
202.9 |
|
|
|
88.5 |
% |
Caribbean |
|
|
90.5 |
|
|
|
85.4 |
|
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Worldwide |
|
$ |
1,468.9 |
|
|
$ |
1,277.8 |
|
|
|
15.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared to 2007 |
Cost of Goods Sold Change |
|
U.S. |
|
CEE |
|
Caribbean |
|
Worldwide |
Volume impact* |
|
|
(2.8 |
%) |
|
|
4.2 |
% |
|
|
2.5 |
% |
|
|
(1.0 |
%) |
Cost per case, excluding impact of currency
translation |
|
|
3.7 |
% |
|
|
6.3 |
% |
|
|
5.3 |
% |
|
|
3.9 |
% |
Currency translation |
|
|
-- |
|
|
|
14.7 |
% |
|
|
(1.9 |
%) |
|
|
2.2 |
% |
Acquisitions |
|
|
-- |
|
|
|
66.8 |
% |
|
|
-- |
|
|
|
10.6 |
% |
Non-core |
|
|
(0.3 |
%) |
|
|
(3.5 |
%) |
|
|
0.1 |
% |
|
|
(0.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cost of goods sold |
|
|
0.6 |
% |
|
|
88.5 |
% |
|
|
6.0 |
% |
|
|
15.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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** |
|
2008 |
|
2007 |
U.S. |
|
|
3.7 |
% |
|
|
5.8 |
% |
CEE |
|
|
26.9 |
% |
|
|
11.3 |
% |
Caribbean |
|
|
3.6 |
% |
|
|
5.6 |
% |
Worldwide |
|
|
5.7 |
% |
|
|
3.6 |
% |
|
** |
|
Includes the impact from acquisitions and currency translation on core cost of goods sold. |
Cost of goods sold increased $191.1 million, or 15.0 percent, to $1,468.9 million in the first
half of 2008 from $1,277.8 million in the first half of 2007. This increase was driven primarily
by acquisitions, higher raw material costs and the negative impact of foreign currency translation.
Cost of goods sold per unit increased 5.7 percent in the first half of 2008 compared to the same
period in 2007.
In the U.S., cost of goods sold increased $6.4 million, or 0.6 percent, to $995.9 million in
the first half of 2008 from $989.5 million in the first half of 2007. Cost of goods sold per unit
increased 3.7 percent in the U.S., primarily due to higher concentrate, sweetener and packaging
costs as well as higher non-carbonated mix related costs.
In CEE, cost of goods sold increased $179.6 million, or 88.5 percent, to $382.5 million in the
first half of 2008, compared to $202.9 million in the first half of 2007. The increase was
primarily due to acquisitions, which contributed 66.8 percentage points of the increase.
Additionally, foreign currency translation contributed 14.7 percentage points to the increase in
cost of goods sold. Cost of goods sold per unit increased 26.9 percent in the first half of 2008
compared to first half of 2007 due to higher raw material costs and production mix.
In the Caribbean, cost of goods sold increased $5.1 million, or 6.0 percent, to $90.5 million
in the first half of 2008, compared to $85.4 million in the first half of 2007. The increase was
mainly driven by an increase in cost of goods sold per unit of 3.6 percent, attributable to
increases in concentrate, sweetener and packaging costs.
Selling, Delivery and Administrative Expenses
SD&A expenses and SD&A expense statistics for the first half of 2008 and 2007 were as follows
(dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
SD&A Expenses |
|
2008 |
|
|
2007 |
|
|
Change |
|
U.S. |
|
$ |
531.5 |
|
|
$ |
528.5 |
|
|
|
0.6 |
% |
CEE |
|
|
172.9 |
|
|
|
116.3 |
|
|
|
48.7 |
% |
Caribbean |
|
|
29.8 |
|
|
|
30.1 |
|
|
|
(1.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Worldwide |
|
$ |
734.2 |
|
|
$ |
674.9 |
|
|
|
8.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 compared to 2007 |
SD&A Expense Change |
|
U.S. |
|
CEE |
|
Caribbean |
|
Worldwide |
Cost impact, excluding impact of currency translation |
|
|
0.6 |
% |
|
|
6.0 |
% |
|
|
0.6 |
% |
|
|
1.5 |
% |
Currency translation |
|
|
-- |
|
|
|
19.5 |
% |
|
|
(1.6 |
%) |
|
|
3.3 |
% |
Acquisitions |
|
|
-- |
|
|
|
23.2 |
% |
|
|
-- |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in SD&A expense |
|
|
0.6 |
% |
|
|
48.7 |
% |
|
|
(1.0 |
%) |
|
|
8.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SD&A Expenses as a Percent of Net Sales |
|
2008 |
|
2007 |
U.S. |
|
|
31.3 |
% |
|
|
31.2 |
% |
CEE |
|
|
27.8 |
% |
|
|
33.2 |
% |
Caribbean |
|
|
24.9 |
% |
|
|
26.3 |
% |
Worldwide |
|
|
30.1 |
% |
|
|
31.3 |
% |
In the first half of 2008, SD&A increased $59.3 million, or 8.8 percent, to $734.2 million
from $674.9 million in the comparable period of the previous year. As a percentage of net sales,
SD&A expenses decreased to 30.1 percent in the first half of 2008, compared to 31.3 percent in the
prior year first half, caused by the impact of acquisitions and effective cost management.
In the U.S., SD&A expenses increased $3.0 million, or 0.6 percent, to $531.5 million in the
first half of 2008, compared to $528.5 million in the first half of 2007. SD&A expenses increased
in the first half of 2008 due to an increase in fuel costs, partly offset by favorable compensation
and benefit expenses and effective cost management.
In CEE, SD&A expenses increased $56.6 million, or 48.7 percent, to $172.9 million in the first
half of 2008 compared to $116.3 million in the first half of 2007. Acquisitions contributed 23.2
percentage points of the increase and foreign currency translation contributed 19.5 percent. As a
percentage of net sales, SD&A expense improved to 27.8 percent compared to 33.2 percent in the
first half of 2007, primarily due to lower overall operating costs for Sandora as compared to the
other markets in CEE.
In the Caribbean, SD&A expenses decreased $0.3 million, or 1.0 percent, to $29.8 million in
the first half of 2008 from $30.1 million in the first half of 2007 reflecting effective cost
management and a foreign currency benefit. SD&A expenses as a percentage of net sales decreased to
24.9 percent in the first half of 2008 compared to 26.3 percent in the first half of 2007.
Special Charges
In the first half of 2008 and 2007, we recorded special charges of $0.6 and $2.6 million,
respectively, in the U.S. related to severance and relocation costs associated with our strategic
realignment to further strengthen our customer focused go-to-market strategy. Additionally, in the
first half of 2007 we recorded special charges of $0.2 million in CEE primarily for severance,
related benefits and relocation costs.
Operating Income
Operating income (loss) for the first half of 2008 and 2007 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
U.S. |
|
$ |
170.0 |
|
|
$ |
174.2 |
|
|
|
(2.4 |
%) |
CEE |
|
|
66.6 |
|
|
|
30.6 |
|
|
|
117.6 |
% |
Caribbean |
|
|
(0.8 |
) |
|
|
(1.2 |
) |
|
|
33.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
Worldwide |
|
$ |
235.8 |
|
|
$ |
203.6 |
|
|
|
15.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating income increased $32.2 million, or 15.8 percent, to $235.8 million in the first half
of 2008, compared to $203.6 million in prior year first half.
Operating income in the U.S. decreased $4.2 million or 2.4 percent, to $170.0 million in the
first half of 2008 from $174.2 million in the first half of 2007. The decrease was primarily due
to lower volume, higher cost of goods sold, and higher SD&A expenses, partly offset by increased
net pricing.
29
Operating income in CEE increased to $36.0 million, or 117.6 percent, to $66.6 million in the
first half of 2008, compared to $30.6 million in the first half of 2007. This was mainly due to
the beneficial impact of foreign currency translation and acquisitions.
Operating loss in the Caribbean was $0.8 million in the first half of 2008, compared to a $1.2
million loss in the first half of 2007 reflecting the increased net revenue associated with volume
growth and increased pricing.
Interest Expense and Other Income (Expense)
Net interest expense increased $6.3 million in the first half of 2008 to $58.1 million,
compared to $51.8 million in the first half of 2007. The increase was due to higher debt levels
associated with our acquisitions during fiscal year 2007, partly offset by lower interest rates on
floating rate debt.
We recorded other expense, net, of $0.2 million in the first half of 2008 compared to other
income, net, of $2.9 million in the first half of 2007. Foreign currency translation gains were
$4.2 million in the first half of 2008 compared to $0.3 million in the first half of 2007. The
prior period results included a $10.2 million gain on the sale of non-core property and a $4.0
million other-than-temporary impairment loss related to a marketable security investment.
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 loss of
nonconsolidated companies was 31.4 percent for the first half of 2008, compared to 35.1 percent in
the first half of 2007. The lower tax rate was due to favorable country mix of earnings and the
associated lower in-country tax rates, as well as a favorable adjustment recorded after the filing
of the 2007 Romania income tax return.
Minority Interest
We fully consolidated the operating results of Sandora and the Bahamas in our Condensed
Consolidated Statements of Income. Minority interest represented 40 percent of Sandora results we
did not own in the first half of 2008 and 30 percent of the Bahamas results that we did not own in
the first half of 2008 and 2007.
Equity in Net Loss of Nonconsolidated Companies
In the third quarter of 2007, we purchased a 20 percent interest in a joint venture that owns
Agrima. Equity in net loss of nonconsolidated companies was $0.6 million in the first half of 2008.
Loss on Discontinued Operations
In the first half of 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 $16.9 million to $115.5 million in the first half of 2008, compared to
$98.6 million in the first half of 2007. The acquisition of Sandora had a positive impact on net
income during the first half of 2008. The discussion of our operating results, included above,
explains the remainder of the increase in net income.
30
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Net cash provided by operating activities decreased by $46.1 million to
$111.9 million in the first half of 2008, compared to $158.0 million in the first half of 2007.
This decrease can mainly be attributed to higher compensation-related benefit payments, higher
growth in CEE and timing of working capital, partially offset by higher net income and reduced cash
outlays related to special charges.
Investing Activities. Investing activities in the first half of 2008 included capital
investments of $103.3 million, which were $6.1 million lower than the prior year period primarily
due to timing.
Proceeds from the sale of property in the first half of 2008 were $3.4 million compared to
$23.5 million in the first half of 2007. In the first half of 2007, we received $20.7 million of
proceeds related to the sale of non-core property, which consisted of railcars and locomotives.
Financing Activities. Our total debt increased $103.0 million to $2,244.1 million at the end
of the first half of 2008, from $2,141.1 million at the end of fiscal year 2007. The increase in
total debt was due to our commercial paper borrowings that were used primarily for capital
expenditures and general corporate purposes. In the second quarter of 2008, we repaid $47.5
million of long-term debt that was acquired as part of the Sandora acquisition. Included in this
payment were $2.5 million of prepayment penalty fees. As a part of the transaction, we received
$26.0 million of cash from PepsiCo that included their portion of the debt repayment. This cash
receipt is reflected in financing activities in the Condensed Consolidated Statement of Cash Flows.
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 (LIBOR). Accordingly, we have a total of $600 million available
under our commercial paper program and revolving credit facility combined. We had $435.6 million
of commercial paper borrowings at the end of the first half of 2008, compared to $269.5 million at
the end of fiscal year 2007. Internationally, we had revolving credit facility borrowings of $6.5
million at the end of the first half of 2008 compared to $22.7 million at the end of fiscal year
2007.
During the first half of 2008 and 2007, we repurchased 4.1 million and 2.7 million shares of
our common stock for $105.2 million and $59.4 million, respectively. The issuance of common stock,
including treasury shares, for the exercise of stock options resulted in cash inflows of $0.9
million in the first half of 2008, compared to $3.0 million in the first half of 2007.
On April 24, 2008, our Board of Directors declared a quarterly dividend of $0.135 per share on
PepsiAmericas common stock for the second quarter of 2008. The dividend was payable July 1, 2008 to
shareholders of record on June 13, 2008. This dividend was paid in the third quarter of 2008. In
the first half of 2008, we paid cash dividends of $34.6 million which included the fourth quarter
of 2007 dividend of $16.6 million, $1.1 million of dividends that were paid as a result of
restricted shares and restricted stock units vesting and the first quarter of 2008 dividend of
$16.9 million. The fourth quarter of 2007 and first quarter of 2008 dividends were based on a
dividend rate of $0.13 and $0.135 per share, respectively. In the first half of 2007, we paid cash
dividends of $32.2 million which included the fourth quarter of 2006 dividend of $15.9 million and
the first quarter of 2007 dividend of $16.3 million. The fourth quarter of 2006 and first quarter
of 2007 dividends were based on a dividend rate of $0.125 and $0.13 per share, respectively.
See the Annual Report on Form 10-K for fiscal year 2007 for a summary of our contractual
obligations as of the end of fiscal year 2007. During the first half of 2008, we entered into
purchase commitments of $23.2 million for production equipment related to the construction of a new
manufacturing facility in Romania. There were no other significant changes to such contractual
obligations in the first half of 2008. 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, repurchasing our stock
and making acquisitions with an appropriate economic return.
31
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 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. At the end of the first half of 2008, we had
recorded $28.0 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 amount recorded was $10.6 million at the end of the first half of
2008, of which $4.7 million is expected to be recovered in the next 12 months based on our
expenditures, and thus, is included as a current asset.
During the first half of 2008 and 2007, we paid, net of taxes, $6.0 million and $4.3 million,
respectively, related to such indemnification obligations, including the offsetting benefit of
insurance recovery settlements $4.3 million on an after-tax
basis in each respective period. Expenditures in the first half of 2008 included settlement with 68 plaintiffs in the Avila
toxic tort matter. We expect to spend approximately $19.1 million on a pre-tax basis in fiscal year
2008 related to our indemnification obligations, excluding possible insurance recoveries and the
benefit of income taxes (see Note 15 to the Condensed Consolidated Financial Statements for further
discussion of discontinued operations and related environmental liabilities).
RELATED PARTY TRANSACTIONS
We are a licensed producer and distributor of Pepsi branded products in the U.S., CEE and the
Caribbean. We operate under exclusive franchise agreements with soft drink concentrate producers,
including master bottling and fountain syrup agreements with PepsiCo for the manufacture,
packaging, sale and distribution of Pepsi branded products. The franchise agreements contain
operating and marketing commitments and conditions for termination. As of the end of the first half
of 2008, PepsiCo beneficially owned approximately 44 percent of PepsiAmericas outstanding common
stock.
We purchase concentrates from PepsiCo to be used in the production of PepsiCo branded cola and
non-cola beverages. PepsiCo also provides us with various forms of bottler incentives (marketing
support programs) to promote Pepsis brands. These bottler incentives cover a variety of
initiatives including direct marketplace, shared media and advertising to support volume and market
share growth. There are no conditions or requirements that could result in the repayment of any
support payments we have received.
We manufacture and distribute fountain products and provide fountain equipment service to
PepsiCo customers in certain territories in accordance with various agreements. There are other
products that we produce and/or distribute through various arrangements with PepsiCo or partners of
PepsiCo. 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 Pepsi/Starbucks partnership.
PepsiCo provides various procurement services under a shared services agreement. Under such
agreement, PepsiCo negotiates with various suppliers the cost of certain raw materials by entering
into raw material contracts on our behalf. PepsiCo also collects and remits to us certain rebates
from the various suppliers related to our procurement volume. In addition, PepsiCo acts as our
agent in the execution of derivative contracts associated with certain anticipated raw material
purchases.
We have an existing arrangement with a subsidiary of Pohlad Companies related to the joint
ownership of an aircraft. This transaction is not material to our Condensed Consolidated Financial
Statements. Robert C. Pohlad, our Chairman and Chief Executive Officer, is the President and owner
of approximately 33 percent of the capital stock of Pohlad Companies.
See additional discussion of our related party transactions in our Annual Report on Form 10-K
for the fiscal year 2007.
32
Item 3. 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, please see
Note 10 to the Condensed Consolidated Financial Statements.
Commodity Prices
We purchase commodity inputs such as aluminum for our cans, resin for our polyethylene
terephthalate (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 may 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. At the end of the first half of 2008, we had no outstanding
derivative contracts.
Interest Rates
In the first half of 2008, 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. At
the end of the first half of 2008, approximately 25 percent of our debt issues were variable rate
obligations. Our floating rate exposure relates to changes in the six-month LIBOR rate and the
federal funds rate. Assuming consistent levels of floating rate debt with those held at the end of
the first half of 2008, a 50 basis point change (0.5 percent) in each of these rates would have had
an impact of approximately $1.5 million on interest expense for the first half of 2008. We had
cash equivalents throughout the first half of 2008, principally invested in money market funds,
which were most closely tied to the overnight federal funds rate. Assuming a 50 basis point change
in the rate of interest associated with our short-term investments at the end of the first half of
2008, interest income for the first half of 2008 would not have changed by a significant amount.
Currency Exchange Rates
Because we operate outside 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. In
particular, our operations in CEE are subject to currency exchange rate exposure associated with
components of costs of goods sold, particularly concentrate. We may use derivative financial
instruments to hedge currency exchange rate fluctuations associated with a portion of anticipated
purchases of concentrate. Any positive cash flows generated have been reinvested in operations,
excluding repayments of intercompany loans from the manufacturing operations in Poland and the
Czech Republic. Our investment in markets outside 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 30 percent of our total
operations in the second quarter and first half of 2008. 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 one percent in the second quarter and first half of 2008, we
estimate the impact on reported operating income for those periods would have been approximately
$0.5 million and $0.7 million, respectively. Our 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.
33
Item 4. 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 SECs 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 June
28, 2008, 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 June 28, 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
34
PART II OTHER INFORMATION
Item 1. Legal Proceedings
From approximately 1945 to 1995, various entities owned and operated a facility that
manufactured hydraulic equipment in Willits, California. The plant site was 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. The same defendants were
served with a third lawsuit, entitled Nickerman v. Remco Hydraulics, on April 3, 2006. These three
lawsuits were consolidated before the same judge in the 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 and 2008 we settled a significant number of the claims. There
were 16 claims remaining for these lawsuits. Some of those claims may be settled, go to trial or
be appealed. In early July 2008, a fourth lawsuit was filed. This lawsuit has 23 plaintiffs and
is based on the same claims as the prior three lawsuits. 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.
Item 1A. Risk Factors
There have been no material changes with respect to the risk factors disclosed in Item 1A of
our Annual Report on Form 10-K for the fiscal year ended December 29, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
(c) |
|
Our share repurchase program activity for each of the three months and the quarter
ended June 28, 2008 was as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
Total Number of |
|
Maximum Number |
|
|
Number of |
|
Average |
|
Shares Purchased |
|
of Shares that May |
|
|
Shares |
|
Price |
|
as Part of Publicly |
|
Yet Be Purchased |
|
|
Purchased |
|
Paid per |
|
Announced Plans or |
|
Under the Plans or |
Period |
|
(1) |
|
Share |
|
Programs (2) |
|
Programs (3) |
March 30, 2008 - April 26, 2008 |
|
|
548,000 |
|
|
$ |
25.64 |
|
|
|
36,591,200 |
|
|
|
3,408,800 |
|
April 27, 2008 - May 24, 2008 |
|
|
249,300 |
|
|
|
25.45 |
|
|
|
36,840,500 |
|
|
|
3,159,500 |
|
May 25, 2008 - June 28, 2008 |
|
|
90,000 |
|
|
|
22.50 |
|
|
|
36,930,500 |
|
|
|
3,069,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended June 28, 2008 |
|
|
887,300 |
|
|
$ |
25.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. On July 24, 2008, we announced that our Board of
Directors authorized the repurchase of 10 million additional shares
under our previously authorized repurchase program. Such shares are not included in
the table above. |
35
|
|
|
Item 4.
|
|
Submission of Matters to a Vote of Security Holders |
|
|
|
(a)
|
|
We held our Annual Meeting of Shareholders on April 24, 2008. |
|
|
|
(b)
|
|
Election of Directors |
|
|
|
|
|
The following persons, who together constituted all of the members of our Board of
Directors at that time, were elected at the Annual Meeting of Shareholders to serve as
directors for the ensuing year: |
|
|
|
|
|
|
|
Herbert M. Baum
|
|
Jarobin Gilbert, Jr. |
|
|
Richard G. Cline
|
|
James R. Kackley |
|
|
Michael J. Corliss
|
|
Matthew M. McKenna |
|
|
Pierre S. du Pont
|
|
Robert C. Pohlad |
|
|
Archie R. Dykes
|
|
Deborah E. Powell |
Proposal 1: Election of Directors
|
|
|
|
|
The following votes were recorded with respect to this proposal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes For |
|
Votes Against |
|
Abstention |
Herbert M. Baum |
|
|
122,828,160 |
|
|
|
792,477 |
|
|
|
77,019 |
|
Richard G. Cline |
|
|
122,821,499 |
|
|
|
791,550 |
|
|
|
84,607 |
|
Michael J. Corliss |
|
|
123,201,999 |
|
|
|
421,159 |
|
|
|
74,498 |
|
Pierre S. du Pont |
|
|
122,797,678 |
|
|
|
816,131 |
|
|
|
83,845 |
|
Archie R. Dykes |
|
|
122,806,064 |
|
|
|
836,918 |
|
|
|
54,673 |
|
Jarobin Gilbert, Jr. |
|
|
122,631,405 |
|
|
|
1,003,354 |
|
|
|
55,895 |
|
James R. Kackley |
|
|
123,180,271 |
|
|
|
461,952 |
|
|
|
55,433 |
|
Matthew M. McKenna |
|
|
122,890,147 |
|
|
|
750,948 |
|
|
|
56,560 |
|
Robert C. Pohlad |
|
|
122,031,655 |
|
|
|
1,609,857 |
|
|
|
56,143 |
|
Deborah E. Powell |
|
|
123,187,187 |
|
|
|
465,896 |
|
|
|
44,573 |
|
Proposal 2: Ratification of Appointment of Independent Registered Public Accountants
|
|
|
|
|
The following votes were recorded with respect to the ratification of the appointment of
KPMG LLP as independent registered public accountants to audit our financial statements
for fiscal year 2008: |
|
|
|
|
|
Votes for |
|
|
123,572,528 |
|
Votes against |
|
|
70,135 |
|
Votes abstaining |
|
|
54,992 |
|
Broker non-votes |
|
|
|
|
|
|
|
Item 6.
|
|
Exhibits |
|
|
|
See Exhibit Index. |
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
PEPSIAMERICAS, INC.
|
|
Dated: August 1, 2008 |
By: |
/s/ ALEXANDER H. WARE
|
|
|
|
Alexander H. Ware |
|
|
|
Executive Vice President and Chief Financial
Officer
(As Principal Financial Officer and Duly Authorized
Officer of PepsiAmericas,
Inc.) |
|
|
|
|
|
|
|
|
|
|
Dated: August 1, 2008 |
By: |
/s/ TIMOTHY W. GORMAN
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Timothy W. Gorman |
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Senior Vice President and Controller
(As Chief Accounting Officer) |
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37
EXHIBIT INDEX
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3.1
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Restated Certificate of Incorporation (incorporated by reference to the Companys
Registration Statement on Form S-8 (File No. 333-64292) filed on June 29, 2001). |
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3.2
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By-Laws, as amended and restated on December 14, 2006 (incorporated by reference to the
Companys Current Report on Form 8-K (File No. 001-15019) filed on December 18, 2006). |
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31.1
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Chief Executive Officer Certification pursuant to Exchange Act Rule
13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
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31.2
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Chief Financial Officer Certification pursuant to Exchange Act Rule
13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
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32.1
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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. |
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32.2
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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. |
38