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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0001084230-02-000004.txt : 20020415
<SEC-HEADER>0001084230-02-000004.hdr.sgml : 20020415
ACCESSION NUMBER: 0001084230-02-000004
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20011229
FILED AS OF DATE: 20020325
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PEPSIAMERICAS INC/IL/
CENTRAL INDEX KEY: 0001084230
STANDARD INDUSTRIAL CLASSIFICATION: BOTTLED & CANNED SOFT DRINKS CARBONATED WATERS [2086]
IRS NUMBER: 136167838
STATE OF INCORPORATION: DE
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-15019
FILM NUMBER: 02584985
BUSINESS ADDRESS:
STREET 1: 3880 DAIN RAUSCHER PLAZA
STREET 2: 60 SOUTH SIXTH STREET
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55402
BUSINESS PHONE: 612-661-3883
MAIL ADDRESS:
STREET 1: 3880 DAIN RAUSCHER PLAZA
STREET 2: 60 SOUTH SIXTH STREET
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55402
FORMER COMPANY:
FORMER CONFORMED NAME: WHITMAN CORP/NEW/
DATE OF NAME CHANGE: 19990525
FORMER COMPANY:
FORMER CONFORMED NAME: HEARTLAND TERRITORIES HOLDINGS INC
DATE OF NAME CHANGE: 19990414
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>pas10k_2001.txt
<DESCRIPTION>PEPSIAMERICAS, INC. 2001 FORM 10-K
<TEXT>
2001
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 29, 2001.
[ ] 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)
Delaware 13-6167838
- ----------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3880 Dain Rauscher Plaza, 60 South Sixth Street
Minneapolis, Minnesota 55402
- ----------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 661-3883
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.01 par value Each class is registered on:
Preferred Stock, $0.01 par value New York Stock Exchange
Preferred Share Purchase Rights Chicago Stock Exchange
Pacific Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 28, 2002, the aggregate market value of the registrant's
common stock held by non-affiliates was $2,119.6 million. The number of shares
of common stock outstanding at that date was 154,491,681 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part III of this document is incorporated by
reference to specified portions of the registrant's definitive proxy statement
for the annual meeting of shareholders to be held April 25, 2002.
<PAGE>
Forward-Looking Statements
This annual report on Form 10-K contains certain forward-looking statements
of expected future developments, as defined in the Private Securities Litigation
Reform Act of 1995. The forward-looking statements in this Form 10-K refer to
the expectations regarding continuing operating improvement and other matters.
These forward-looking statements reflect management's 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 the Company's relationship and/or
support programs with PepsiCo and other brand owners; market acceptance of new
product offerings; weather conditions; cost and availability of raw materials;
availability of capital; labor and employee benefit costs; unfavorable interest
rate and currency fluctuations; costs of legal proceedings; outcomes of
environmental claims and litigation; and general economic, business and
political conditions in the countries and territories where the Company
operates.
These events and uncertainties are difficult or impossible to predict
accurately and many are beyond the Company's control. The Company assumes 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.
PART I
Item 1. Business.
General
On November 30, 2000, Whitman Corporation merged with PepsiAmericas, Inc.
(the "former PepsiAmericas"), and in January 2001, the combined entity changed
its name to PepsiAmericas, Inc. ("PepsiAmericas" or the "Company"). See Note 2
to the Consolidated Financial Statements. The Company manufactures, distributes
and markets a broad portfolio of Pepsi-Cola and Cadbury brands in the United
States, Central Europe and the Caribbean. In connection with the merger with the
former PepsiAmericas, the Company expanded its distribution rights to portions
of Arkansas, Louisiana, Minnesota, Mississippi, North Dakota, South Dakota,
Tennessee, Texas and further territories in Iowa, as well as Puerto Rico,
Jamaica and the Bahamas.
In May 1999, the Company entered into a new business relationship with
PepsiCo, Inc. ("PepsiCo"). See Note 2 to the Consolidated Financial Statements.
As part of the new business relationship, the Company sold its franchises in
Marion, Virginia; Princeton, West Virginia and the St. Petersburg area of Russia
to PepsiCo. Territories acquired from or contributed by PepsiCo included
domestic franchises in Cleveland, Ohio; Dayton, Ohio; Indianapolis, Indiana; St.
Louis, Missouri and southern Indiana, and international franchises in Hungary,
the Czech Republic, Republic of Slovakia and Poland.
The Company accounts for about 19 percent of all Pepsi-Cola products sold
in the U.S. It serves a significant portion of an 18 state region, primarily in
the Midwest. Outside the U.S., the Company serves Central European and Caribbean
markets, including Poland, Hungary, the Czech Republic, Republic of Slovakia,
Puerto Rico, Jamaica, the Bahamas, Barbados, and Trinidad and Tobago. The
Company serves areas with a total population of more than 117 million people.
As a result of the new business relationship in 1999 and the merger with
the former PepsiAmericas in 2000, PepsiCo holds, directly and indirectly, 37.3
percent of the Company's outstanding common stock as of fiscal year end 2001.
Such number includes PepsiCo's proportionate interest in shares held by Dakota
Holdings, LLC.
The Company sells a variety of brands that it bottles under licenses from
PepsiCo or PepsiCo joint ventures. In some territories, the Company
manufactures, packages, sells and distributes products under brands licensed by
companies other than PepsiCo, and in some territories the Company distributes
its own brands, such as the Toma brands in Central Europe. See "Products and
Packaging."
While the Company manages all phases of its operations, including pricing
of its products, the Company and PepsiCo exchange production, marketing and
distribution information, benefiting both companies' respective efforts to lower
costs, improve productivity and increase product sales.
1
<PAGE>
The owners of beverage brands either manufacture and sell products
themselves or appoint bottlers to sell, distribute and, in some cases,
manufacture these products under license. Brand owners, such as PepsiCo,
generally own both the beverage trademarks and the secret formulas for the
concentrates, which they also manufacture and sell to their licensed bottlers.
Brand owners also develop new products and packaging for use by their bottlers.
Brand owners develop national marketing, promotion and advertising programs to
support their brands and brand image, and coordinate selling efforts with
respect to national fountain, supermarket and mass merchandising accounts. They
also provide local marketing support to their bottlers.
Bottlers, such as the Company, are generally responsible for manufacturing,
packaging, selling and distributing products under the brand names they license
from brand owners in their exclusive territories. For carbonated soft drink
products, the bottler combines soft drink concentrate with sweeteners and
carbonated water and packages this mixture in bottles or cans. Bottlers may also
have licenses to manufacture syrup for sale to fountain accounts. Under these
licenses, bottlers combine soft drink concentrate with sweeteners to manufacture
syrup for delivery to fountain customers. For non-carbonated beverages, the
bottler either manufactures and packages the beverages or purchases the
beverages in finished form and sells them through its distribution system.
The primary distribution channels for the retail sale of carbonated soft
drink products are supermarkets, mass merchandisers, vending machines,
convenience stores, gas stations, fountain channels, such as restaurants or
cafeterias, and other channels, such as small grocery stores, drug stores and
educational institutions. The largest channel in the United States is
supermarkets, but the Company's fastest growing channels have been mass
merchandisers; supercenters; the cold drink channel, which includes sales
through vending machines, coolers and fountain equipment; and convenience stores
and gas stations.
Depending upon the size of the bottler and the particular market, a bottler
delivers products through these channels using either a direct-to-store delivery
system or a warehouse distribution system. In its exclusive territories, each
bottler is responsible for selling products and providing timely service to its
existing customers and identifying and obtaining new customers. Bottlers are
also responsible for local advertising and marketing, as well as the execution
in their territories of national and regional selling programs instituted by
brand owners. The bottling business is capital intensive. Manufacturing
operations require specialized high-speed equipment, and distribution requires
extensive placement of fountain equipment and cold drink vending machines and
coolers, as well as investment in trucks and warehouse facilities.
2
<PAGE>
Products and Packaging
The Company's portfolio of beverage products includes some of the best
recognized trademarks in the world. The Company's three largest brands in terms
of volume are Pepsi-Cola, Diet Pepsi and Mountain Dew. While the majority of the
Company's volume is derived from brands licensed from PepsiCo and PepsiCo joint
ventures, the Company also sells and distributes brands licensed from others, as
well as some of its own brands. The Company's principal beverage brands are
listed below:
<TABLE>
<CAPTION>
Domestic Operations
- ---------------------------------------------------------------------------------------------------------------------------
Brands Licensed from PepsiCo
Brands Licensed from PepsiCo Joint Ventures Brands Licensed from Others
- ------------------------------------ ------------------------------------ -----------------------------------
<S> <C> <C>
Pepsi Lipton Iced Teas Dr Pepper
Diet Pepsi Starbucks Frappuccino Diet Dr Pepper
Mountain Dew Hawaiian Punch
Diet Mountain Dew Citrus Hill
Mountain Dew Code Red Seven-Up
Mountain Dew Amp Diet Seven-Up
Caffeine Free Pepsi Avalon
Caffeine Free Diet Pepsi Sunny Delight
Pepsi Twist Juice Tyme
Diet Pepsi Twist Seagram's
Pepsi One Nesbitt Lemonade
Wild Cherry Pepsi Country Time
Sierra Mist Crush
Slice Squirt
Mug Root Beer Sunkist
Aquafina Canada Dry
All Sport Schweppes
Fruit Works Monarch
Dole Yoo-Hoo
South Beach (SoBe) Klarbrunn
</TABLE>
<TABLE>
<CAPTION>
Central European Operations
- ---------------------------------------------------------------------------------------------------------------------------
Brands Licensed from PepsiCo Company-Owned Brands Brands Licensed from Others
- ------------------------------------ ------------------------------------ -----------------------------------
<S> <C> <C>
Pepsi Toma (carbonated soft drinks, Schweppes Sodas, Tonic and Water
Pepsi Max juices and waters) Dr Pepper
Pepsi Light Switezianka Water Canada Dry Ginger Ale
Mirinda Swezi Water Hortex Fruit Juices
Seven-Up Kristalykeserv soft drinks Rauch Iced Tea and Fruit Juices
Kristalyviz Lipton Iced Teas
Aqua Minerale American Bull - Energy Drink
Aqua Maria Water
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Caribbean Operations
----------------------------------------------------------------------------------------
Brands Licensed from PepsiCo Brands Licensed from Others
----------------------------------- -----------------------------------
<S> <C>
Pepsi Seven-Up**
Diet Pepsi Diet Seven-Up**
Caffeine Free Pepsi Juice Tyme
Caffeine Free Diet Pepsi Sunkist
Pepsi One Schweppes
Wild Cherry Pepsi Welch Foods Fruit Juice
Mountain Dew Canada Dry Ginger Ale
Diet Mountain Dew Cristalia Water
Mug Root Beer Coral Springs Water
Aquafina Guarana Antarctica
Teem
Slice
Ting*
Mirinda
Desnoes & Geddes*
Junkanoo
Ju-C
</TABLE>
* This brand is owned by PepsiCo in the Caribbean but is owned by the Company
outside the Caribbean.
** Brand owned by Cadbury Schweppes in Puerto Rico and owned by PepsiCo
elsewhere in the Caribbean.
In addition to the above brands, the Company formerly distributed beer
products for Miller Brewing Company, Heineken USA and other brewers or licensors
through a joint venture. In March 2001, the Company sold its interest in its
beer business to the joint venture's minority partner and retained sole
ownership of the soft drink operations of the joint venture.
The Company's beverages are available in different package types, including
two-liter bottles; multi-pack and single serve offerings of one-liter, 20-ounce
and 24-ounce bottles; and multi-packs of 6, 12, and 24 cans. Syrup is also sold
in larger packages for fountain use.
Territories
The Company currently has the exclusive right to manufacture, sell and
distribute Pepsi-Cola beverages in all or a portion of 18 states, primarily in
the Midwest, and in Poland, Hungary, the Czech Republic, Republic of Slovakia,
Puerto Rico, Jamaica, the Bahamas, Barbados, and Trinidad and Tobago. The
Company derives approximately 86 percent of its revenue from domestic operations
and approximately 14 percent of its revenue from international operations.
Sales, Marketing and Distribution
The Company's business is highly seasonal and subject to weather
conditions, which have a significant impact on sales. The Company's sales and
marketing approach varies by region and channel to respond to the unique local
competitive environment. In the U.S., the channels with larger stores can
accommodate a number of beverage suppliers and, therefore, marketing efforts
tend to focus on increasing the amount of shelf space and the number of displays
in any given outlet. In locations where the Company's products are purchased for
immediate consumption, marketing efforts are aimed not only at securing the
account but also on providing equipment that facilitates the sale of cold
product, such as vending machines, visi-coolers and fountain equipment.
Package mix is an important consideration in the development of the
Company's marketing plans. Although some packages are more expensive to produce,
in certain channels those packages may have higher and more stable selling
prices. For example, a packaged product that is sold cold for immediate
consumption generally has better margins than a product sold to take home. This
cold drink channel includes vending machines and coolers. The full service
vending channel has the highest gross margin of any distribution channel,
because it eliminates the middleman and enables the Company to establish the
retail price. The Company owns a majority of the vending machines used to
dispense its products and will continue to invest in vending machines in the
near term, specifically those dispensing product in 20-ounce polyethylene
("PET") bottles. In January 2001, the Company announced that it is building a
refurbishment center for cold drink equipment in its production facility in Fort
Wayne, Indiana, which was closed in the first quarter of 2001. This is expected
to reduce capital spending on cold drink equipment.
4
<PAGE>
In the U.S., the Company distributes directly to a majority of customers in
the Company's licensed territories through a direct-to-store distribution
system. The Company's sales force is key to its selling efforts because they
interact continually with the Company's customers to promote and sell its
products. A large part of route salespersons' compensation is made up of
commissions based on volumes. Although route salespeople are responsible for
selling to their customers, in some markets and channels, the Company uses a
pre-sell system, where the Company calls accounts in advance to determine how
much product and promotional material to deliver. The Company is moving to a
pre-sell system in a significant portion of its U.S. markets over the next three
years.
In the U.S., this direct-to-store distribution system is used for all
packaged goods and some fountain accounts. The Company has the exclusive right
to sell and deliver fountain syrup to local customers in its territories. The
Company has a number of managers who are responsible for calling on prospective
fountain accounts, developing relationships, selling accounts and interacting
with accounts on an ongoing basis. The Company also serves as PepsiCo's
exclusive delivery agent in the Company's territories for PepsiCo's national
fountain account customers that request direct-to-store delivery. The Company is
also the exclusive equipment service agent for all of PepsiCo's national account
customers in the Company's territories.
In international markets, the Company uses both direct-to-store
distribution systems and third party distributors. In the less developed
international markets, small retail outlets play a larger role and represent a
large percentage of the market. However, with the emergence of larger, more
sophisticated retailers in Central Europe, the percentage of total soft drinks
sold to supermarkets and other larger accounts is increasing. The Company
recorded a charge in the fourth quarter of 2001 in connection with changing its
marketing and distribution strategy in Hungary. This change involves higher use
of third party distributors, which is expected to reduce delivery costs and
increase consumer points of access in Hungary.
Franchise Agreements
The Company's franchise agreements with PepsiCo give the Company exclusive
rights to produce, market and distribute Pepsi-Cola products in authorized
containers and to use the related trade names and trademarks in the specified
territories. These agreements require the Company, among other things, to
purchase its concentrate requirements solely from PepsiCo, at prices established
by PepsiCo, and to promote diligently the sale and distribution of Pepsi brand
products.
Pepsi franchise agreements are issued in perpetuity, subject to termination
only upon failure to comply with their terms. The Company has similar
arrangements with other companies whose brands it produces and distributes.
Advertising
The Company obtains the benefits of national advertising campaigns
conducted by PepsiCo and the other beverage companies whose products it sells.
The Company supplements PepsiCo's national ad campaign by purchasing advertising
in its local markets, including the use of television, radio, print and
billboards. The Company also makes extensive use of in-store point-of-sale
displays to reinforce the national and local advertising and to stimulate
demand.
Raw Materials and Manufacturing
Expenditures for concentrate and packaging constitute the Company's largest
individual raw material costs. The Company buys various soft drink concentrates
from PepsiCo and other soft drink companies and mixes them in the Company's
plants with other ingredients, including carbon dioxide and sweeteners.
Artificial sweeteners are included in the concentrates the Company purchases for
diet soft drinks. The product is then bottled in a variety of containers ranging
from 12-ounce cans to two-liter plastic bottles to various glass packages,
depending on market requirements.
In addition to concentrates, the Company purchases sweeteners, glass and
plastic bottles, cans, closures, syrup containers, other packaging materials and
carbon dioxide. The Company purchases all raw materials and supplies, other than
concentrates, from multiple suppliers.
A portion of the Company's contractual cost of cans, plastic bottles and
fructose is subject to price fluctuations based on commodity price changes in
aluminum, resin and corn, respectively. The Company uses derivative financial
instruments to hedge the price risk associated with anticipated purchases of
cans. See Item 7A, Quantitative and Qualitative Disclosures about Market Risks.
The inability of suppliers to deliver concentrates or other products to the
Company could adversely affect operating results. None of the raw materials or
supplies currently in use is in short supply, although factors outside of the
control of the Company could adversely impact the future availability of these
supplies.
5
<PAGE>
Competition
The carbonated soft drink business is highly competitive. The Company's
principal competitors are bottlers who produce, package, sell and distribute
Coca-Cola carbonated soft drink products. In addition to Coca-Cola bottlers, the
Company competes with bottlers and distributors of nationally advertised and
marketed carbonated soft drink products, bottlers and distributors of regionally
advertised and marketed carbonated soft drink products, as well as bottlers of
private label carbonated soft drink products sold in chain stores. In 2001, the
carbonated soft drink products of PepsiCo represented approximately 33 percent
of total carbonated soft drink sales in the U.S. The Company estimates that in
each U.S. territory in which the Company operates, between 65 percent and 85
percent of soft drink sales from supermarkets, drug stores and mass
merchandisers are accounted for by the Company and Coca-Cola bottlers. The
industry competes primarily on the basis of advertising to create brand
awareness, price and price promotions, retail space management, customer
service, consumer points of access, new products, packaging innovations and
distribution methods. The Company believes that brand recognition is a primary
factor affecting its competitive position.
Employees
The Company employed approximately 15,400 people worldwide as of fiscal
year end 2001. This included approximately 10,200 employees in its domestic
operations and approximately 5,200 people employed in its international
operations. Employment levels are subject to seasonal variations. The Company is
a party to collective bargaining agreements covering approximately 5,300
employees. Twenty-two agreements covering approximately 1,800 employees will be,
or have been, renegotiated in 2002. In January 2002, the Company successfully
renegotiated its Puerto Rican union contract covering approximately 300
employees. The Company regards its employee relations as generally satisfactory.
Government Regulation
The Company's operations and properties are subject to regulation by
various federal, state and local governmental entities and agencies as well as
foreign government entities. As a producer of food products, the Company is
subject to production, packaging, quality, labeling and distribution standards
in each of the countries where the Company has operations, including, in the
U.S., those of the Federal Food, Drug and Cosmetic Act. The operations of the
Company's production and distribution facilities are subject to various federal,
state and local environmental laws and workplace regulations both in the U.S.
and abroad. These laws and regulations include, in the U.S., the Occupational
Safety and Health Act, the Unfair Labor Standards Act, the Clean Air Act, the
Clean Water Act and laws relating to the maintenance of fuel storage tanks. The
Company believes that its current legal and environmental compliance programs
adequately address these concerns and that the Company is in substantial
compliance with applicable laws and regulations with the exception of its
operations in Puerto Rico and Jamaica, as described below.
In Puerto Rico, wastewater from the Company's bottling plant is discharged
pursuant to a permit to a collection and treatment system owned by the Puerto
Rico Aqueduct and Sewer Authority ("PRASA"). The former PepsiAmericas previously
entered into a stipulation with PRASA which allowed the former PepsiAmericas to
discharge wastewater in excess of pretreatment standards, for which the former
PepsiAmericas paid a surcharge. In 1998, the former PepsiAmericas applied to
have the permit reissued. On October 29, 1998, PRASA reissued the permit but
without the excess wastewater and surcharge provision. The Company is
negotiating with PRASA regarding the new permit and required effluent standards.
If an agreement with PRASA cannot be reached, the Company will be required to
construct an on-site wastewater treatment system. The cost of new treatment
system may have a material adverse effect on the Company's future financial
performance in Puerto Rico.
In Jamaica, the Company is subject to the regulatory oversight of the
Ministry of Labor and Bureau of Standards. The Company is required to obtain and
maintain licenses relating to the safety and operation of its bottling plant in
Jamaica. The Company is currently in compliance with such requirements. In
addition, the Company is subject to the regulatory oversight of the National
Resources Conservation Authority ("NRCA"). A plan to reduce the discharge of
effluent from the Company's bottling plant has been submitted to the NRCA. The
NRCA requires the Company to monitor wastewater discharge and submit relevant
periodic data to the NRCA. Although levels of effluent discharge are currently
in excess of the NRCA's Trade Effluent Standards, no penalties or fines have
been incurred to date. If an agreement with the NRCA cannot be reached with
respect to wastewater discharge, the NRCA may require the Company to construct a
water treatment facility, the cost of which may have a material adverse effect
on the Company's future financial performance in Jamaica. The cost of any such
treatment facility would be shared by a bottler operating on the property
contiguous to the Company's leased property in Jamaica.
6
<PAGE>
Environmental Matters
The Company maintains a continuous program in its continuing operations to
facilitate compliance with federal, state and local laws and regulations
relating to management of wastes and to the discharge or emission of materials
used in production, and such other laws and regulations relating to the
protection of the environment. The capital costs of such management and
compliance, including the costs of the modification of existing plants and the
installation of new manufacturing processes incorporating pollution control
technology, are not material to continuing operations.
Under the agreement pursuant to which the Company sold its subsidiaries,
Abex Corporation and Pneumo Abex Corporation, in 1988 and a subsequent
settlement agreement entered into in September 1991, the Company has assumed
indemnification obligations for certain environmental liabilities of Pneumo
Abex, net of any insurance recoveries. Pneumo Abex has been and is subject to a
number of environmental cleanup proceedings, including proceedings under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA) regarding 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 (PRPs).
Pneumo Abex also has been and is subject to private claims and lawsuits for
remediation of properties currently or previously owned by Pneumo Abex or
certain other entities.
In fiscal 2001, the Company engaged outside consultants to assist it in
estimating its liabilities. The outside consultants provided the Company with an
estimate of the most likely costs of remediating the sites. Their estimates are
based on their evaluations of the characteristics and parameters of the sites,
including results from field inspections, test borings and water flows. Their
estimates are based upon the use of current technology and remediation
techniques, and do not take into consideration any inflationary trends upon such
claims or expenses. Based upon these estimates, the Company recorded a charge to
discontinued operations in the fourth quarter of 2001 of $111 million. The
estimated costs associated with each of the sites discussed below are included
in the aggregate accrued liabilities the Company has recorded. The Company
expects a significant portion of the accrued liabilities will be disbursed
during the next 10 years.
In 1992, the Environmental Protection Agency (EPA) issued a Record of
Decision (ROD) under the provisions of CERCLA setting forth the scope of
expected remedial action at a Pneumo Abex facility in Portsmouth, Virginia. The
EPA had estimated that the cost of the remedial action necessary to comply with
an Amended ROD, issued in 1994, would total $31 million. In January 1996, Pneumo
Abex executed a Consent Decree with the EPA agreeing to implement remediation of
areas associated with the former Portsmouth facility operations. The Company
expects to substantially complete this remediation effort in the next several
years. Additionally, in a lawsuit brought against other PRPs that did not
execute the Consent Decree, Pneumo Abex and the Company recovered approximately
$3.1 million in settlements relating to response costs at the Portsmouth site.
These recoveries were recorded prior to 1999.
The Company also has financial exposure related to certain remedial actions
required at a facility which manufactured hydraulic and related equipment in
Willits, California. The plant site is contaminated by various chemicals and
metals. In August 1997, a final consent decree was issued in the case of the
People of the State of California and the City of Willits, California v. Remco
Hydraulics, Inc. This final consent decree was amended in December 2000 and
established a trust whose officers are obligated to investigate and clean up
this site. The Company is currently funding the investigation and interim
remediation costs on a year to year basis according to the final consent decree.
Through 2001, the Company has made indemnity payments of an estimated $18
million for investigation and remediation at the Willits site (consisting
principally of soil removal, groundwater and surface/water treatment). The
Company has accrued $45 million for future remediation and trust administration
costs, with the majority of this amount being spent in the next several years.
In addition, two lawsuits have been filed in California, which name several
defendants including former subsidiaries of the Company. The lawsuits allege
that the Company and its former subsidiaries are liable for personal injury
and/or property damage resulting from environmental contamination at the
facility. There are currently approximately 1,000 plaintiffs in the lawsuits
seeking an unspecified amount of damages, punitive damages, injunctive relief
and medical monitoring damages. The Company is actively defending the lawsuits.
At this time, the Company does not believe these lawsuits are material to the
business or financial condition of the Company, although the outcome of the
lawsuits cannot be predicted with certainty and could be material to the
Company's results of operations or cash flows in a given period.
The Company also has certain liability related to several investigations
regarding alleged on-site and off-site disposal of wastes generated at a
facility in Mahwah, New Jersey, for which the Company has certain indemnity
obligations. Through 2001, the Company has not made significant remediation
payments but has accrued $18 million for certain remediation, long-term
monitoring and administration expenses, which are expected to be incurred over
the next several years.
7
<PAGE>
There is an inherent uncertainty in assessing the total cost of remediating
a given site and in determining any individual party's share in that cost. This
is because of the nature of the remediation and allocation process and due to
the fact that the liabilities are at different stages in terms of their ultimate
resolution, and any assessment and determination are inherently speculative
during the early stages, depending 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
the Company to indemnify Pneumo Abex, may not occur for a number of years.
The Company has contingent liabilities from various pending
claims and litigation on a number of matters, including indemnification claims
under agreements with previously sold subsidiaries for product liability and
toxic torts. The ultimate liability for these claims cannot be determined. In
the opinion of management, 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 the Company's financial condition, although amounts
recorded in a given period could be material to the results of operations or
cash flows for that period.
Management believes that potential insurance recoveries will defray a
portion of the expenses involved in meeting indemnification obligations. The
Company is pursuing claims against certain of its insurance carriers.
Executive Officers of the Registrant
The executive officers of the Company and their ages as of February 1, 2002
were as follows:
Age Position
--- --------
Robert C. Pohlad.................47 Chairman and Chief Executive Officer
Kenneth E. Keiser................50 President and Chief Operating Officer
Worldwide
Larry D. Young...................47 President and Chief Operating Officer
International
John F. Bierbaum.................57 Executive Vice President Investor
Relations and Corporate Growth
G. Michael Durkin Jr.............42 Senior Vice President and Chief
Financial Officer
Matthew E. Carter................40 Senior Vice President Strategic
Planning
The following is a brief description of the business background of each of
the Company's executive officers.
Mr. Pohlad became Chief Executive Officer of the Company on November 30,
2000, was named Vice Chairman in January 2001 and became Chairman in January
2002. Mr. Pohlad served as Chairman, Chief Executive Officer and director of the
former PepsiAmericas prior to the merger with Whitman Corporation, a position he
had held since 1998. From 1987 to present, Mr. Pohlad has also served as
President of the Pohlad Companies. Prior to 1987, Mr. Pohlad was Northwest Area
Vice President of the Pepsi-Cola Bottling Group. Mr. Pohlad is also a director
of Mesala Holdings, Inc.
Mr. Keiser was named President and Chief Operating Officer Worldwide in
January 2002 with responsibilities for the entire operations of the Company. Mr.
Keiser was President and Chief Operating Officer, Domestic of the Company since
November 30, 2000. Mr. Keiser served as President and Chief Operating Officer of
the former PepsiAmericas prior to the merger with Whitman Corporation, a
position he had held since 1998. Mr. Keiser was President and Chief Operating
Officer of Delta Beverage Group, Inc., a wholly-owned subsidiary of the former
PepsiAmericas, from 1990 to November 30, 2000.
Mr. Young has been with the Company since 1984. He served as Vice President
and Managing Director of the Company's operations in Poland in 1996 and later
that year became President of the Company's Central Europe operations. He became
Executive Vice President and Chief Operating Officer in 1998. In February 2000,
Mr. Young was elected to the position of President and Chief Operating Officer.
In connection with the merger with the former PepsiAmericas in November 2000,
Mr. Young was named President and Chief Operating Officer International.
Mr. Bierbaum has served as Executive Vice President Investor Relations and
Corporate Growth of the Company since November 2000. Mr. Bierbaum served as
Chief Financial Officer of the former PepsiAmericas from July 1998 to November
2000. Mr. Bierbaum was a director (from 1993 to November 2000) and Chief
Financial Officer (from 1988 to November 2000) of Delta. Mr. Bierbaum was also
Chief Financial Officer of Pohlad Companies, a holding and management services
company, which had a beneficial ownership interest in and provided management
services to the former PepsiAmericas. Mr. Bierbaum was associated with Pohlad
Companies in a variety of capacities from 1975 to 2000.
8
<PAGE>
Mr. Durkin has served as Senior Vice President and Chief Financial Officer
since November 2000. Prior to November 2000, Mr. Durkin served as Senior Vice
President, Eastern Group, for the Company. Prior to this position, Mr. Durkin
was Vice President, Customer Development of PepsiCo's Heartland Business Unit,
which was acquired by the Company from PepsiCo in 1999.
Mr. Carter joined the former PepsiAmericas in 2000 as Senior Vice President
Strategic Planning. Prior to joining the former PepsiAmericas, Mr. Carter was
Finance Director at Pepsi-Cola International where he was responsible for
developing PepsiCo's beverage franchise business for the Caribbean and Central
America. Mr. Carter has 15 years experience in international operations in Latin
America and the Caribbean, and nine years experience in the beverage industry.
Item 2. Properties.
The Company's domestic manufacturing facilities include three bottling
plants, 10 combination bottling/canning plants, two canning plants and one
fountain plant with a total manufacturing area of approximately 1.1 million
square feet. International manufacturing facilities include two owned plants in
Poland, three owned plants in Hungary, two owned plants in the Czech Republic,
one owned plant in the Republic of Slovakia, one owned plant in Puerto Rico, one
leased plant in Jamaica, one owned plant in Barbados, one owned plant in the
Bahamas and one owned plant in Trinidad. In addition, the Company operates 102
distribution facilities in the U.S., 36 distribution facilities in Central
Europe and 9 distribution facilities in the Caribbean. Fifty-three of the
distribution facilities are leased and less than seven percent of the Company's
domestic production is from its one leased domestic plant. The Company believes
all facilities are adequately equipped and maintained and capacity is sufficient
for its current needs. The Company currently operates a fleet of approximately
6,300 vehicles in the U.S. and approximately 2,600 vehicles internationally to
service and support its distribution system.
In addition, the Company owns various industrial and commercial real estate
properties in the U.S. The Company also owns a leasing company, which leases
approximately 2,000 railcars, comprised of locomotives, flatcars and hopper
cars, to the Illinois Central Railroad Company.
Item 3. Legal Proceedings.
From approximately 1945 to 1995, various entities owned and operated a
facility which manufactured hydraulic equipment in Willits, California. The
plant site is contaminated by various chemicals and metals. On August 23, 1999,
an action entitled Donna M. Avila, et al. v. Willits Environmental Remediation
Trust, Remco Hydraulics, Inc., M-C Industries, Inc., Pneumo Abex Corporation and
Whitman Corporation, Case No. C99-3941 CAL, was filed in U.S. District Court for
the Northern District of California. On January 16, 2001, a second lawsuit,
entitled Pamela Jo Alrich, et al. v. Willits Environmental Remediation Trust, et
al., Case No. C 01 0266 SI, against essentially the same defendants was filed in
the same court. In the two lawsuits, individual plaintiffs claim that the
Company is liable for personal injury and/or property damage resulting from
environmental contamination at the facility. As of fiscal year end 2001, there
were approximately 1,000 plaintiffs in the lawsuits seeking an unspecified
amount of damages, punitive damages, injunctive relief and medical monitoring
damages from the Company. The Company is actively defending the lawsuits. At
this time, the Company does not believe these lawsuits are material to the
business or financial condition of the Company, although the outcome of the
lawsuits cannot be predicted with certainty.
The Company and its subsidiaries are defendants in numerous other lawsuits
in the ordinary course of business, none of which, in the opinion of management,
is expected to have a material adverse effect on the Company's financial
condition, although amounts recorded in any given period could be material to
the results of operations or cash flows for that period.
See also "Environmental Matters" in Item 1.
9
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The common stock of the Company is listed and traded on the New York,
Chicago and Pacific stock exchanges. The table below sets forth the reported
high and low sales prices as reported for New York Stock Exchange Composite
Transactions for the Company's common stock and indicates the Company's
dividends for each quarterly period for the fiscal years 2001 and 2000.
Common Stock
----------------------------------
High Low Dividend
------ ------ --------
2001:
----
1st quarter $17.00 $13.96 $ --
2nd quarter 15.98 13.10 0.04
3rd quarter 15.99 12.25 --
4th quarter 14.98 12.35 --
2000:
----
1st quarter $13.938 $10.688 $ --
2nd quarter 12.688 11.125 0.04
3rd quarter 15.125 11.563 --
4th quarter 16.375 11.000 --
There were 13,408 shareholders of record as of fiscal year end 2001.
Item 6. Selected Financial Data.
The following table presents summary operating results and other
information of the Company, and should be read along with Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
Consolidated Financial Statements and accompanying notes included elsewhere in
this Form 10-K.
Comparability in the table is impacted by the merger with the former
PepsiAmericas on November 30, 2000, as well as the territories acquired from
PepsiCo in 1999. See Note 2 to the Consolidated Financial Statements.
The following were recorded during the periods presented:
In fiscal year 2001:
o The Company recorded special charges of $13.8 million ($8.5 million after
tax). These charges included fourth quarter charges of $9.2 million ($5.7
million after tax) for severance costs and other costs related to changing
the Company's marketing and distribution strategy in Hungary, as well as
for the write-down of marketing equipment in the U.S. Also included in the
charges was a first quarter charge of $4.6 million ($2.8 million after tax)
related to further organizational changes resulting from the merger with
the former PepsiAmericas. This charge was principally composed of severance
and related benefits. See further information in Management's Discussion
and Analysis of Financial Condition and Results of Operations and in Note 4
to the Consolidated Financial Statements. These charges reduced domestic
and international operating income by $6.3 million and $7.5 million,
respectively.
o The Company recorded a gain on pension curtailment of $8.9 million ($5.4
million after tax) in connection with the integration of the former Whitman
Corporation and former PepsiAmericas domestic benefit plans. See Note 11 to
the Consolidated Financial Statements. This gain increased domestic
operating income by $8.9 million.
o Loss from discontinued operations includes a charge of $111 million ($71.2
million after tax) for environmental liabilities related to previously sold
businesses.
10
<PAGE>
In fiscal year 2000:
o The Company recorded special charges of $21.7 million ($13.2 million after
tax) for employee related costs of $17.1 million in connection with the
merger with the former PepsiAmericas, as well as charges of $4.6 million
for the closure of one of its existing production facilities to remove
excess capacity.
o Income from discontinued operations includes the reversal of prior accruals
resulting from certain insurance settlements for environmental matters
related to a former subsidiary, Pnuemo Abex, net of increased environmental
and related accruals.
o The Company sold its operations in the Baltics and recorded a gain of $2.6
million ($1.4 million after tax), which is reflected in "other (expense)
income, net."
In fiscal year 1999:
o The Company recorded special charges of $27.9 million related to staff
reduction costs and non-cash asset write-downs, principally related to the
acquisition of the domestic and international territories from PepsiCo (see
Note 4 to the Consolidated Financial Statements). These charges reduced
domestic and international operating income by $7.3 million and $20.6
million, respectively.
o The Company entered into a contract for the sale of property in downtown
Chicago and recorded a charge of $56.3 million ($35.9 million after tax) to
reduce the book value of the property. This pretax charge is reflected in
"other (expense) income, net."
o The Company recorded a pretax gain of $13.3 million ($7.8 million after tax
and minority interest), related to the sale of franchises in Marion,
Virginia; Princeton, West Virginia and the St. Petersburg area of Russia.
This pretax gain is reflected in "other (expense) income, net."
o Loss from discontinued operations after taxes of $51.7 million includes
after tax amounts related to a $12 million settlement of environmental
litigation filed against Pneumo Abex, as well as increases of $69.8 million
in accruals related to the indemnification obligation to Pneumo Abex,
primarily for environmental matters.
In fiscal year 1998:
o The Company recorded an extraordinary loss, net of income tax benefits of
$10.4 million, resulting from the early extinguishment of debt.
In fiscal year 1997:
o The Company recorded special charges of $49.3 million ($31.6 million after
tax and minority interest) related to the restructuring of the Company's
organization, the severance of essentially all of the Whitman corporate
management and staff, and expenses associated with the spin-offs of
Hussmann and Midas (see Note 4 to the Consolidated Financial Statements).
These charges reduced domestic and international operating income by $45.6
million and $3.7 million, respectively.
o Hussmann and Midas, which are classified as discontinued operations,
recorded special charges with an after-tax cost of $93.4 million.
11
<PAGE>
PepsiAmericas, Inc.
SELECTED FINANCIAL DATA
(in millions, except per share and employee data)
<TABLE>
<CAPTION>
For the fiscal years 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales:
Domestic $ 2,726.4 $ 2,242.8 $ 1,951.4 $ 1,534.0 $ 1,445.3
International 444.3 284.8 186.8 83.5 93.5
---------- ---------- ---------- ---------- ----------
Total $ 3,170.7 $ 2,527.6 $ 2,138.2 $ 1,617.5 $ 1,538.8
========== ========== ========== ========== ==========
Operating income (loss):
Domestic $ 297.0 $ 246.7 $ 228.3 $ 221.0 $ 148.9
International (28.6) (23.7) (46.8) (17.2) (18.7)
---------- ---------- ---------- ---------- -----------
Total 268.4 223.0 181.5 203.8 130.2
Interest expense, net (90.8) (84.0) (63.9) (36.1) (42.3)
Other (expense) income, net (3.7) 2.1 (46.0) (15.5) (18.0)
---------- ---------- ---------- ---------- ----------
Income before income taxes
and minority interest 173.9 141.1 71.6 152.2 69.9
Income taxes 83.8 69.6 22.1 69.7 37.9
Minority interest -- -- 6.6 20.0 16.2
---------- ---------- ---------- ---------- ----------
Income from continuing operations 90.1 71.5 42.9 62.5 15.8
Income (loss) from discontinued
operations after taxes (71.2) 8.9 (51.7) (0.5) (11.7)
Extraordinary loss on early
extinguishment of debt after taxes -- -- -- (18.3) --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 18.9 $ 80.4 $ (8.8) $ 43.7 $ 4.1
========== ========== ========== ========== ==========
Cash dividends per share $ 0.04 $ 0.04 $ 0.08 $ 0.20 $ 0.45
========== ========== ========== ========== ==========
Weighted average common shares:
Basic 155.9 139.0 123.3 101.1 101.6
Incremental effect of stock options 0.7 0.5 0.9 1.8 1.3
---------- ---------- ---------- ---------- ----------
Diluted 156.6 139.5 124.2 102.9 102.9
========== ========== ========== ========== ==========
Income (loss) per share - basic:
Continuing operations $ 0.58 $ 0.51 $ 0.35 $ 0.62 $ 0.16
Discontinued operations (0.46) 0.07 (0.42) (0.01) (0.12)
Extraordinary loss on early debt
extinguishment -- -- -- (0.18) --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 0.12 $ 0.58 $ (0.07) $ 0.43 $ 0.04
========== ========== ========== ========== ==========
Income (loss) per share - diluted:
Continuing operations $ 0.58 $ 0.51 $ 0.35 $ 0.61 $ 0.15
Discontinued operations (0.46) 0.07 (0.42) (0.01) (0.11)
Extraordinary loss on early debt
extinguishment -- -- -- (0.18) --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 0.12 $ 0.58 $ (0.07) $ 0.42 $ 0.04
========== ========== ========== ========== ==========
OTHER INFORMATION:
Total assets $ 3,419.3 $ 3,335.6 $ 2,864.3 $ 1,569.3 $ 2,029.7
Long-term debt $ 1,083.4 $ 860.1 $ 809.0 $ 603.6 $ 604.7
Capital investments $ 218.6 $ 165.4 $ 165.4 $ 159.1 $ 83.4
Depreciation and amortization $ 202.1 $ 166.4 $ 126.6 $ 77.7 $ 73.8
Number of employees at year end 15,400 15,400 11,700 6,500 6,400
</TABLE>
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Operating Results - 2001 compared with 2000
Due to the merger with the former PepsiAmericas completed in November 2000,
the Company believes that comparison to pro forma results for 2000 provides a
better indication of current operating trends than reported results. Therefore,
included within the following discussion are explanations of both reported
results and the pro forma results.
Pro forma operating results assume the merger with the former PepsiAmericas
occurred at the beginning of 2000. Pro forma operating results also exclude the
impact of special charges and credits recorded in 2001 and 2000.
Net Sales
Net sales for 2001 and 2000 were as follows (in millions):
<TABLE>
<CAPTION>
Reported Pro Forma (unaudited)
--------------------- Percent --------------------- Percent
2001 2000 Change 2001 2000 Change
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Domestic $2,726.4 $2,242.8 21.6 $2,726.4 $2,680.8 1.7
International 444.3 284.8 56.0 444.3 424.1 4.8
-------- -------- -------- --------
Total Sales $3,170.7 $2,527.6 25.4 $3,170.7 $3,104.9 2.1
======== ======== ======== ========
</TABLE>
On a reported basis, net sales increased by $643.1 million, or 25.4
percent, in 2001 compared with 2000, primarily reflecting sales contributed by
the additional territories acquired in the merger with the former PepsiAmericas,
as well as the acquisition of the Trinidad and Tobago territory in December
2000. The balance of the growth in net sales reflected improved pricing and
slightly higher volumes in the domestic markets and higher sales in Central
Europe.
On a pro forma basis, net sales increased by $65.8 million, or 2.1 percent.
The growth in net sales includes an increase in domestic sales of $45.6 million
and an increase in international sales of $20.2 million. Excluding sales
contributed in 2001 and 2000 by the beer operations, which the Company divested
in the first quarter of 2001, domestic sales increased $81.6 million, or 3.1
percent. The increase in domestic sales resulted from a 2.9 percent improvement
in pricing and a .4 percent increase in volume. Although volume growth was low,
principally due to an approximately two percent volume decline in trademark
Pepsi products, Aquafina volume grew nearly 50 percent, trademark Mountain Dew
grew approximately two percent and flavored carbonated soft drinks grew
approximately 15 percent. The higher international sales resulted from improved
volume, up 5.6 percent, and higher net pricing, up 4.2 percent. These factors
were partially offset by a planned reduction in international private label
revenues.
Gross Profit
The consolidated gross profit margin on a reported basis decreased to 39.7
percent of sales in 2001 compared with 40.9 percent of sales in 2000, driven
primarily by a lower domestic gross profit margin attributable to the inclusion
in 2001 of a full year of results of lower margin territories within the former
PepsiAmericas.
On a pro forma basis, and excluding results from the divested beer
operations, the consolidated gross profit margin decreased to 39.8 percent of
sales in 2001 compared with 40 percent in 2000. The domestic gross profit margin
was down slightly, as the benefits of higher net selling prices were offset by
increased ingredient and packaging costs. The increase in packaging costs was
primarily related to the Company's shift in sales mix to non-returnable PET
containers supporting Aquafina and other non-carbonated beverage growth. The
2001 international gross profit margin was flat as compared to 2000.
Selling, Delivery and Administrative Expenses
Reported selling, delivery and administrative (SD&A) expenses represented
29.5 percent of sales in 2001, compared with 29.6 percent in 2000. The decline
in the percentage of SD&A expenses is primarily attributable to the impact of
the lower cost structure of the Caribbean operations of the former
PepsiAmericas, which were included in reported results for only one month in
2000.
13
<PAGE>
On a pro forma basis, and excluding results from the divested beer
operations, SD&A expenses as a percent of sales were 29.5 percent in 2001
compared with 29.4 percent in 2000. Domestic SD&A costs as a percent of sales
were slightly higher in 2001. The increase in domestic SD&A was driven in part
by increased costs associated with the growth in Aquafina and other
non-carbonated beverage offerings, as well as new product introductions. Costs
were driven in part by previous investment in cold drink equipment and
information technology investments associated with the integration of the former
PepsiAmericas and Heartland territories, resulting in higher depreciation in the
current year. Costs were also driven by investments in inventory systems, which
are partially deployed across the domestic operations, and the next generation
selling system, which is in the early stages of development. The next generation
selling system is expected to be deployed over the next three years. Upon final
deployment, a significant portion of the Company's domestic distribution system
will be converted to a pre-sell environment. As expected, the benefits of the
merger with the former PepsiAmericas were offset almost entirely by
non-recurring integration costs of approximately $10 million to $11 million.
International SD&A costs as a percent of sales were lower due to cost
improvements and the benefits of volume growth and increased pricing.
Special Charges
In 2001, the Company recorded special charges of $9.2 million ($5.7 million
after tax) in the fourth quarter for severance costs and other costs related to
changing the Company's marketing and distribution strategy in Hungary, as well
as for the write-down of obsolete marketing equipment in the U.S. In addition,
the Company recorded a charge of $4.6 million ($2.8 million after tax) in the
first quarter of 2001 related to further organizational changes resulting from
the merger with the former PepsiAmericas. This charge was principally composed
of severance and related benefits.
As a result of the actions taken resulting in the special charges of $9.2
million, the Company expects to realize approximately $3 million to $4 million
in annual pretax savings, principally resulting from reductions in employee
related costs and lower distribution costs. The Company expects to realize these
savings beginning in 2002, with full benefits realized in 2003.
In 2000, the Company recorded special charges of $21.7 million ($13.2
million after tax), including $17.1 million in costs for severance and other
benefits and $4.6 million of costs resulting from a decision to close the
Company's production facility in Ft. Wayne, Indiana. The charge for the closure
of the production facility included a write-down of building and equipment and
$0.5 million for severance payments and other benefits.
As a result of the actions taken with respect to the merger with the former
PepsiAmericas, which resulted in the special charge of $4.6 million in the first
quarter of 2001 and the special charges of $21.7 million in 2000, the Company
expects to realize annual savings of approximately $16 million, primarily in
2002 and 2003. This includes reduced employee related costs in both the existing
territories and the territories of the former PepsiAmericas and the benefits of
centralized procurement through PepsiCo. A portion of the charges recorded in
2001 and 2000 resulted from payments to former executives of the Company, which
will not result in future savings or benefits.
In 1999, the Company recorded special charges of $27.9 million ($19 million
after tax), including $9.6 million of staff reduction costs, principally related
to the acquisition of the domestic and international territories from PepsiCo;
$7.6 million of non-cash asset write-downs associated with the exit from the
plastic returnable package in the Company's existing international territories;
$5.9 million of other asset write-downs principally related to the acquisition
of the international territories from PepsiCo; and a $4.8 million write-down of
the investment in the Baltic operations resulting from the Company's decision to
seek the sale of those operations to a third party.
As a result of the actions taken resulting in the special charges of $27.9
million, the Company expected to realize approximately $18 million to $20
million in annual pretax savings, resulting principally from reductions in
employee related costs. A substantial portion of these savings was realized in
the year 2000.
During 2001 and 2000, the Company paid employee benefits of $17.8 million
and $12.8 million, respectively, related to charges recorded in 1997, 1999, 2000
and 2001, which included the elimination of approximately 170 positions, 310
positions, 50 positions and 475 positions, respectively. The payments made
during 2001 and 2000 included deferred severance payments made to previously
terminated employees. At the end of fiscal year 2001, $6.5 million of employee
related costs were accrued. The Company expects to pay substantially all of
these costs during the next twelve months and has included them in current
liabilities.
14
<PAGE>
Gain on Pension Curtailment
In connection with the integration of the former Whitman and former
PepsiAmericas domestic benefit plans during the first quarter of 2001, the
Company amended its pension plans to freeze pension benefit accruals for
substantially all salaried and non-union employees effective December 31, 2001.
Employees age 50 or older with 10 or more years of vesting service were
grandfathered such that they will continue to accrue benefits after December 31,
2001 based on their final average pay as of December 31, 2001. As a result of
this plan amendment, the Company recognized a one-time curtailment gain of $8.9
million ($5.4 million after tax). The existing domestic salaried and non-union
pension plans were replaced by an additional Company contribution to the 401(K)
plan beginning January 1, 2002.
Operating Income
Operating income for 2001 and 2000 was as follows (in millions):
<TABLE>
<CAPTION>
Reported Pro Forma (unaudited)
--------------------- Percent --------------------- Percent
2001 2000 Change 2001 2000 Change
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Domestic $ 297.0 $ 246.7 20.4 $ 294.4 $ 300.5 (2.0)
International (28.6) (23.7) (20.7) (21.1) (26.0) 18.8
-------- -------- --------- --------
Total Operating Income $ 268.4 $ 223.0 20.4 $ 273.3 $ 274.5 (0.4)
======== ======== ======== ========
</TABLE>
In 2001, operating income on a reported basis increased $45.4 million,
which primarily reflects the additional operating income contributed by the
domestic territories of the former PepsiAmericas. The reported domestic
operating income included a gain on pension curtailment of $8.9 million in 2001
and special charges of $6.3 million and $21.7 million in 2001 and 2000,
respectively. Excluding the gain on pension curtailment and the charges, the
domestic operating income increased $26 million, or 9.7 percent. The operating
income contributed by the former PepsiAmericas territories is primarily
responsible for the improved results. The operating losses in 2001 reported by
the international operations included special charges of $7.5 million. Excluding
the impact of these charges, operating losses were reduced by $2.6 million. The
improved trend in operating losses was primarily the result of improved results
in Central Europe, driven by higher volumes and improved pricing.
On a pro forma basis, operating income declined $1.2 million, or .4
percent, in 2001 compared with 2000, including a $4.9 million improvement in
international operating losses, partially offset by a $6.1 million reduction in
domestic operating income. The improved results in the international operations
are principally the result of higher volumes and improved pricing. The lower
domestic operating income principally resulted from the decline in trademark
Pepsi volume as overall volume growth was .4 percent in 2001. Increased SD&A,
concentrate and packaging costs associated with Aquafina growth, new product
introductions and other non-carbonated growth more than offset the benefits of
improved pricing.
Interest and Other Expenses
Net interest expense increased $6.8 million in 2001 to $90.8 million. The
increase was due principally to an increase in the average outstanding net debt
resulting from the merger with the former PepsiAmericas, partially offset by
lower borrowing costs resulting from the refinancing of debt in the first
quarter of 2001, the swap of a portion of the Company's debt portfolio from
fixed rate to floating rate, and lower overall interest rates on short-term
borrowings.
The Company reported other expense of $3.7 million in 2001 compared with
other income of $2.1 million in 2000. Included in other income in 2000 is a gain
of $2.6 million resulting from the sale of the franchise operations in the
Baltics. Absent this gain, other expense was $3.2 million unfavorable to 2000,
which is not attributed to any individually significant item.
15
<PAGE>
Discontinued Operations
Loss from discontinued operations after taxes of $71.2 million in 2001
represents a charge of $111 million for environmental liabilities related to a
former subsidiary, Pneumo Abex. In the fourth quarter of 2001, the Company
engaged third party consultants with expertise in environmental remediation,
insurance and risk containment to review the Company's environmental
liabilities. The consultants developed estimates of the most likely cost of
remediating contamination related to Pneumo Abex's past operations and disposal
practices. The Company also estimated additional consulting and legal expenses
related to such remediation. After recording these charges, the Company has
reserves of approximately $165 million, including amounts held in outside
trusts, for future remediation and other related costs arising out of its
indemnification of previously sold businesses. The Company expects to spend
approximately $15 million to $20 million in 2002 for remediation and other
related costs.
Income from discontinued operations after taxes of $8.9 million in 2000
resulted from the reversal of prior accruals resulting from certain insurance
settlements for environmental matters related to Pneumo Abex, partially offset
by increased environmental and related accruals.
Environmental Liabilities
Environmental liabilities are discussed further in Note 15 to the
Consolidated Financial Statements and within "Discontinued Operations" above.
Operating Results - 2000 compared with 1999
Due to the merger with the former PepsiAmericas completed in November 2000
and the transaction with PepsiCo completed in May 1999, the Company believes
that pro forma results provide a better indication of current operating trends
than reported results. Therefore, included within the following discussion are
explanations of both reported results and the pro forma results.
Pro forma operating results assume the merger with the former PepsiAmericas
and other acquisitions and divestitures, with the exception of Trinidad and
Tobago, as well as any related transactions, completed in 1999 and 2000 occurred
at the beginning of 1999. Pro forma operating results also exclude the impact of
special charges and other non-recurring items recorded in either year.
Net Sales
Net sales for 2000 and 1999 were as follows (in millions):
<TABLE>
<CAPTION>
Reported Pro Forma (unaudited)
--------------------- Percent --------------------- Percent
2000 1999 Change 2000 1999 Change
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Domestic $2,242.8 $1,951.4 14.9 $2,680.8 $2,608.9 2.8
International 284.8 186.8 52.5 424.1 410.8 3.2
-------- -------- -------- --------
Total Sales $2,527.6 $2,138.2 18.2 $3,104.9 $3,019.7 2.8
======== ======== ======== ========
</TABLE>
On a reported basis, net sales increased by $389.4 million, or 18.2
percent, in 2000 compared with 1999, primarily reflecting sales contributed by
the additional territories acquired in the merger with the former PepsiAmericas
and the transaction with PepsiCo, as well as the acquisition of Toma in December
1999. The balance of the growth in net sales reflected improved pricing in the
domestic markets offset by a decline in volume.
On a pro forma basis, net sales increased by $85.2 million, or 2.8 percent.
The growth in net sales includes an increase in domestic sales of $71.9 million
and an increase in international sales of $13.3 million. The increase in
domestic sales resulted from improved pricing, up nearly five percent, offset by
a decline in volume, down 2.5 percent for the full year. Despite the decline in
volume, principally the result of volume declines in trademark Pepsi products,
Aquafina volume grew nearly 30 percent and lemon-lime volume growth was
bolstered by the introduction of Sierra Mist. The higher international sales
resulted from improved volume, up 8.5 percent, offset by a decline in net
pricing, down 4.6 percent. The lower net pricing in international is indicative
of the currency devaluation impact in the Central European territories. The
impact of currency devaluation is estimated to have reduced sales by
approximately $32 million in 2000 compared with the previous year.
16
<PAGE>
Gross Profit
The consolidated gross profit margin on a reported basis decreased to 40.9
percent of sales in 2000 compared with 41.6 percent of sales in 1999. The
domestic gross profit margin was essentially unchanged, while the international
gross profit margin declined due to the inclusion of lower margin Toma products
for the entire year in 2000 compared with only one month in 1999 and the
unfavorable impacts of foreign currency. A portion of the product costs in the
international operations is fixed in U.S. dollars and therefore was not
favorably affected by currency devaluation.
The consolidated gross profit margin on a pro forma basis decreased to 39.7
percent of sales in 2000 compared with 40.1 percent in 1999. The domestic gross
profit margin improved slightly, while the international gross profit margin
declined by 4.3 percentage points. The decline in the international gross profit
margin is due to a portion of the product costs in the international operations
being fixed in U.S. dollars as discussed previously.
Selling, Delivery and Administrative Expenses
Reported SD&A expenses represented 29.6 percent of sales in 2000, compared
with 30.4 percent in 1999. The decline in the percentage of SD&A expenses is
primarily attributable to the international operations, which reflects the
benefits of currency devaluation on expenses as reported in U.S. dollars and the
lower SD&A expenses incurred by the Toma operations. On a reported basis, Toma
was included for only one month in 1999 due to the acquisition being completed
on December 1, 1999.
On a pro forma basis, SD&A expenses as a percent of sales were 29.2 percent
compared with 30.7 percent in 1999. The 150 basis point improvement was
primarily the result of the benefits from currency devaluation experienced in
Central Europe, which resulted in lower expenses as reported in U.S. dollars. In
addition, SD&A expenses in the domestic operations reflected the benefits of
cost reduction efforts begun in 1999 in domestic territories acquired from
PepsiCo.
Operating Income
Operating income for 2000 and 1999 was as follows (in millions):
<TABLE>
<CAPTION>
Reported Pro Forma (unaudited)
--------------------- Percent --------------------- Percent
2000 1999 Change 2000 1999 Change
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Domestic $ 246.7 $ 228.3 8.1 $ 300.5 $ 274.5 9.4
International (23.7) (46.8) 49.4 (26.0) (38.3) 32.1
-------- -------- -------- --------
Total Operating Income $ 223.0 $ 181.5 22.9 $ 274.5 $ 236.5 16.2
======== ======== ======== ========
</TABLE>
In 2000, operating income on a reported basis increased $41.5 million,
which primarily reflects the additional operating income contributed by the
domestic territories acquired in 1999. The reported domestic operating income
included special charges of $21.7 million and $7.3 million in 2000 and 1999,
respectively. Excluding these charges, the domestic operating income increased
$32.8 million, or 13.9 percent. The operating income contributed by the acquired
territories is primarily responsible for the improved results. The operating
losses in 1999 reported by the international operations included special charges
of $20.6 million. Excluding the impact of these charges, operating losses were
reduced by $2.5 million. The improved trend in operating losses was the result
of one month of operating results included for the Caribbean territories and
improved results in Central Europe, despite the adverse impact of currency
devaluation.
On a pro forma basis, operating income increased $38.2 million in 2000
compared with 1999. The improvement included an increase of $25.9 million in
operating income in the domestic operations and a $12.3 million reduction in
operating losses in the international operations. The improved results in the
domestic operations are principally the result of improved pricing in the
domestic markets, offset by lower volumes, and cost reduction efforts initiated
in the domestic territories acquired from PepsiCo. The domestic operating
margins improved 70 basis points to 11.2 percent in 2000. On a pro forma basis
in international, improvements occurred in both Central Europe and the
Caribbean. The improvements reflect lower operating costs in Central Europe and
improved gross profit margins in the Caribbean.
Interest and Other Expenses
Net interest expense increased $20.1 million in 2000 to $84 million. The
increase was due principally to an increase in the average outstanding net debt
resulting from the acquisitions completed during 1999 and 2000. In addition,
increases in interest rates on the Company's floating rate debt and the three
million shares of common stock repurchased in the first quarter of 2000
contributed to the increase in interest.
17
<PAGE>
The Company reported other income of $2.1 million in 2000 compared with
other expense of $46 million in 1999. Included in other income in 2000 is a gain
of $2.6 million resulting from the sale of the franchise operations in the
Baltics, while other expense in 1999 included a $56.3 million charge recorded to
reduce the book value of non-operating real estate, as well as a $13.3 million
gain on the sale of franchise territories in connection with the transaction
completed with PepsiCo in 1999. Absent these items, other expense decreased to
$0.5 million in 2000 compared with $3 million in 1999. The decrease is not
attributed to any individually significant item.
Discontinued Operations
Income from discontinued operations after taxes of $8.9 million resulted
from the reversal of prior accruals resulting from certain insurance settlements
for environmental matters related to a former subsidiary, Pneumo Abex, net of
certain increased environmental and related accruals. Loss from discontinued
operations after taxes of $51.7 million in 1999 includes after-tax amounts
related to a $12 million settlement of environmental litigation filed against
Pneumo Abex, as well as increases of $69.8 million in accruals for other
environmental matters related to Pneumo Abex.
Liquidity and Capital Resources
The Company owns a special purpose entity, Whitman Finance, which has
entered into an agreement (the Securitization) with a major U.S. financial
institution to sell an undivided interest in its receivables. The agreement
involves the sale of receivables by certain of the Company's domestic
subsidiaries to Whitman Finance, which in turn sells an undivided interest in a
revolving pool of receivables to the financial institution. See Note 7 to the
Consolidated Financial Statements.
Net cash provided by continuing operations decreased by $9.3 million to
$316.8 million in 2001. The decrease was due primarily to the cash provided by
the Securitization which contributed $150 million of cash flow in 2000,
partially offset by operating cash flow contributed in 2001 by the former
PepsiAmericas territories acquired from the former PepsiAmercias and lower
income tax payments made in 2001. Whitman Finance currently does not purchase
any receivables associated with the former PepsiAmericas domestic territories.
It is expected those territories' receivables will be included in activity with
Whitman Finance beginning in 2002 upon completing the integration of the
accounts receivable systems. Those receivables are expected to yield additional
proceeds from the revolving facility of $30 million to $40 million.
Investing activities during 2001 included $7.7 million paid for
acquisitions, including cash paid to acquire the minority partner's interest in
the soft drink operations in New Orleans, cash paid to acquire the bottling
operations in Barbados from Bottlers (Barbados) Limited, cash paid to acquire a
Dr Pepper franchise in Illinois, and payments related to the acquisition of
Trinidad and Tobago. Investing activities during 2000 included proceeds from the
sale of the franchises in the Baltics and $69.2 million paid for mergers and
acquisitions, including the transaction with the former PepsiAmericas and
Trinidad and Tobago, and final payments related to Toma. The Company made
capital investments of $215 million, net of proceeds from asset sales, up $55.3
million from capital expenditures, net of proceeds from asset sales, of $159.7
million in 2000. Capital spending increased in 2001 primarily due to spending in
the former PepsiAmericas territories, as well as accelerated spending on certain
capacity projects and on the next generation selling systems. It is expected
that capital spending in 2002, excluding potential acquisitions, will be
slightly lower than 2001 due to the timing of the aforementioned projects.
The Company's total debt decreased $34.8 million to $1,338.6 million as of
fiscal year end 2001, from $1,373.4 million as of fiscal year end 2000. During
February and March 2001, the Company issued $200 million and $150 million of
notes with coupon rates of 5.95 percent due 2006 and 5.79 percent due 2013,
respectively. The notes issued in March 2001 will be mandatorily redeemed by the
Company in March 2003. At that time, the underwriter has the option to purchase
and reissue the notes with an additional 10 years to maturity and a new stated
interest rate. Proceeds from these notes were used to repay outstanding
commercial paper. On August 1, 2001, the Company announced that it would resume
purchasing its common stock under a previously authorized repurchase program,
under which 8.9 million shares remained available for repurchase as of fiscal
year end 2001. The Company repurchased 3 million shares of its common stock in
both 2001 and 2000 for $39.2 million and $35.7, respectively. The Company paid
cash dividends of $6.2 million in 2001 based on an annual cash dividend of
$0.04, compared with $5.5 million paid in 2000, based on the same dividend rate.
The issuance of common stock, including treasury shares, for the exercise of
stock options resulted in cash inflows of $10.7 million in 2001, compared with
$27.1 million in 2000. The decrease in cash inflows in 2001 is due to shares
issued to shareholders of the former PepsiAmericas under the share subscription
rights in 2000 (see Note 2 to the Consolidated Financial Statements).
18
<PAGE>
The Company has revolving credit agreements with maximum borrowings of $500
million, which act as back-up for the Company's commercial paper program;
accordingly, the Company has a total of $500 million available under the
commercial paper program and revolving credit facility combined. Total
commercial paper borrowings were $244.5 million as of the end of fiscal year
2001. The Company believes that with its existing operating cash flows,
available lines of credit and potential for additional debt and equity
offerings, the Company will have sufficient resources to fund its future growth
and expansion.
Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the
purchase method of accounting to be used for all business combinations initiated
after June 30, 2001. The Company does not expect SFAS No. 141 to significantly
impact its consolidated financial statements. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Goodwill and other intangible assets that have an indefinite life will
not be amortized, but rather will be tested for impairment annually or whenever
an event occurs indicating that the asset may be impaired. The Company adopted
SFAS No. 142 effective the beginning of fiscal 2002 and has ceased amortization
of substantially all intangible assets, which principally represent franchise
rights granted in perpetuity. The Company estimates that had SFAS No. 142 been
adopted as of the beginning of fiscal 2001, net income would have increased by
$48.3 million, or $0.31 per share. The Company will test its intangible assets
for impairment in fiscal 2002, as required by SFAS No. 142, but does not
currently expect to record an impairment.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
Commodity Prices
The risk from commodity price changes correlates to the Company's ability
to recover higher product costs through price increases to customers, which may
be limited due to the competitive pricing environment that exists in the soft
drink business. The Company uses derivative financial instruments to hedge price
fluctuations for a portion of its aluminum and fuel requirements. Each
instrument hedges price fluctuations on a portion of the Company's aluminum can
and fuel requirements over a specified period of time. Because of the high
correlation between aluminum and fuel commodity prices and the Company's
contractual cost of these products, the Company considers these hedges to be
highly effective. As of fiscal year end 2001, the Company has hedged a portion
of its future aluminum and fuel requirements into fiscal 2003.
Interest Rates
The Company's floating rate exposure relates to changes in the six-month
LIBOR rate and the overnight Federal Funds rate. Assuming consistent levels of
floating rate debt with those held as of fiscal year end 2001, a 50 basis point
change in each of these rates would have an impact of approximately $3 million
on the Company's annual interest expense. In the third quarter of 2001, the
Company entered into interest rate swaps to convert a portion of its fixed rate
debt to floating rate. In 2001, the Company had short-term investments
throughout a majority of the year, principally invested in money market funds
and commercial paper, which were most closely tied to the overnight Federal
Funds rate. The amount of these investments was not significant throughout the
year. Assuming a 50 basis point change in the rate of interest associated with
the Company's short-term investments, interest income would not have changed by
a significant amount.
Currency Exchange Rates
Because the Company operates in international franchise territories, it is
subject to exposure 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. The Company currently does not hedge the translation risks of
investments in its international operations. Any positive cash flows generated
have been reinvested in the operations, excluding repayments of intercompany
loans from the manufacturing operations in Poland.
Based on sales, international operations represented approximately 14
percent of the Company's total operations in 2001. Changes in currency exchange
rates impact the translation of the results of the international operations from
their local currencies into U.S. dollars. If the currency exchange rates had
changed by five percent in 2001, the Company estimates the impact on reported
operating income would have been approximately $2.2 million. 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.
19
<PAGE>
Item 8. Financial Statements and Supplementary Data.
See Index to Financial Information on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Company incorporates by reference the information contained under the
captions "Proposal 1: Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in its definitive proxy statement for the annual
meeting of shareholders to be held April 25, 2002.
Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K, information regarding executive officers of the
Company is provided in Part I of this Form 10-K under separate caption.
Item 11. Executive Compensation.
The Company incorporates by reference the information contained under the
captions "Executive Compensation" and "Director Compensation" in its definitive
proxy statement for the annual meeting of shareholders to be held April 25,
2002.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Company incorporates by reference the information contained under the
captions "Our Largest Shareholders" and "Shares Held by Our Directors and
Executive Officers" in its definitive proxy statement for the annual meeting of
shareholders to be held April 25, 2002.
Item 13. Certain Relationships and Related Transactions.
The Company incorporates by reference the information contained under the
caption "Certain Relationships and Related Transactions" in its definitive proxy
statement for the annual meeting of shareholders to be held April 25, 2002.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) See Index to Financial Information on page F-1 and Exhibit Index
filed electronically.
(b) No reports on Form 8-K were filed during the fourth quarter of 2001.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 25th day of
March, 2002.
PEPSIAMERICAS, INC.
By: /s/ G. MICHAEL DURKIN JR.
--------------------------
G. Michael Durkin Jr.
Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 25th day of March, 2002.
Signature Title
--------- -----
* Robert C. Pohlad Chairman and Chief
-------------------------- Executive Officer and Director
ROBERT C. POHLAD (principal executive officer)
/s/ G. Michael Durkin Jr. Senior Vice President and Chief Financial
-------------------------- Officer
G. MICHAEL DURKIN JR. (principal financial and accounting officer)
* Brenda C. Barnes Director
--------------------------
BRENDA C. BARNES
* Herbert M. Baum Director
--------------------------
HERBERT M. BAUM
* Richard G. Cline Director *By: /s/ G. MICHAEL DURKIN JR.
-------------------------- -------------------------
RICHARD G. CLINE G. Michael Durkin Jr.
Attorney-in-Fact
* Pierre S. du Pont Director March 25, 2002
--------------------------
PIERRE S. du PONT
* Archie R. Dykes Director
--------------------------
ARCHIE R. DYKES
* Charles W. Gaillard Director
--------------------------
CHARLES W. GAILLARD
* Jarobin Gilbert, Jr. Director
--------------------------
JAROBIN GILBERT, JR.
* Victoria B. Jackson Director
--------------------------
VICTORIA B. JACKSON
* Matthew M. McKenna Director
--------------------------
MATTHEW M. MCKENNA
* Lionel L. Nowell III Director
--------------------------
LIONEL L. NOWELL III
21
<PAGE>
PEPSIAMERICAS, INC. AND SUBSIDIARIES
---------------------
FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR 2001
<PAGE>
PEPSIAMERICAS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
Page
Statement of Financial Responsibility F-2
Report of Independent Auditors F-3
Consolidated Statements of Income for the fiscal years 2001,
2000 and 1999 F-4
Consolidated Balance Sheets as of fiscal year end 2001 and 2000 F-5
Consolidated Statements of Cash Flows for the fiscal years 2001,
2000 and 1999 F-6
Consolidated Statements of Shareholders' Equity for the fiscal
years 2001, 2000 and 1999 F-7
Notes to Consolidated Financial Statements F-8
Financial Statement Schedules:
Financial statement schedules have been omitted because they are not
applicable or the required information is shown in the financial statements
or related notes.
F-1
<PAGE>
STATEMENT OF FINANCIAL RESPONSIBILITY
The consolidated financial statements of PepsiAmericas, Inc. and
subsidiaries have been prepared by management, which is responsible for their
integrity and content. These statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
include amounts which reflect certain estimates and judgments made by
management. Actual results could differ from these estimates.
The Board of Directors, acting through the Audit Committee of the Board,
has responsibility for determining that management fulfills its duties in
connection with the preparation of these consolidated financial statements. The
Audit Committee meets periodically and privately with the independent auditors
and with the internal auditors to review matters relating to the quality of the
financial reporting of the Company, the related internal controls and the scope
and results of their audits. The Committee also meets with management to review
the affairs of the Company.
To meet management's responsibility for the fair and objective reporting of
the results of operations and financial condition, the Company maintains systems
of internal controls and procedures to provide reasonable assurance of the
reliability of its accounting records. These systems include written policies
and procedures, a program of internal audit and the careful selection and
training of the Company's financial staff.
The Company's independent auditors, KPMG LLP, are engaged to audit the
consolidated financial statements of the Company and to issue their report
thereon. Their audit has been conducted in accordance with auditing standards
generally accepted in the United States of America. Their report appears on page
F-3.
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
of PepsiAmericas, Inc.:
We have audited the accompanying consolidated balance sheets of
PepsiAmericas, Inc. and subsidiaries as of the end of fiscal years 2001 and
2000, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the fiscal years 2001, 2000 and 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
PepsiAmericas, Inc. and subsidiaries as of the end of fiscal years 2001 and 2000
and the results of their operations and their cash flows for each of the fiscal
years 2001, 2000 and 1999 in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
Chicago, Illinois
February 6, 2002
F-3
<PAGE>
PepsiAmericas, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
<TABLE>
<CAPTION>
Fiscal years 2001 2000 1999
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 3,170.7 $ 2,527.6 $ 2,138.2
Cost of goods sold 1,912.1 1,494.2 1,248.7
----------- ----------- -----------
Gross profit 1,258.6 1,033.4 889.5
Selling, delivery and administrative expenses 935.3 747.7 650.8
Amortization expense 50.0 41.0 29.3
Special charges 13.8 21.7 27.9
Gain on pension curtailment (8.9) -- --
------------ ----------- -----------
Operating income 268.4 223.0 181.5
Interest expense, net (90.8) (84.0) (63.9)
Other (expense) income, net (3.7) 2.1 (46.0)
----------- ----------- -----------
Income before income taxes and minority interest 173.9 141.1 71.6
Income taxes 83.8 69.6 22.1
Minority interest -- -- 6.6
----------- ----------- -----------
Income from continuing operations 90.1 71.5 42.9
Income (loss) from discontinued operations after taxes (71.2) 8.9 (51.7)
----------- ----------- -----------
Net income (loss) $ 18.9 $ 80.4 $ (8.8)
=========== =========== ===========
Weighted average common shares:
Basic 155.9 139.0 123.3
Incremental effect of stock options 0.7 0.5 0.9
----------- ----------- -----------
Diluted 156.6 139.5 124.2
=========== =========== ===========
Income (loss) per share - basic:
Continuing operations $ 0.58 $ 0.51 $ 0.35
Discontinued operations (0.46) 0.07 (0.42)
----------- ----------- -----------
Net income (loss) $ 0.12 $ 0.58 $ (0.07)
=========== =========== ===========
Income (loss) per share - diluted:
Continuing operations $ 0.58 $ 0.51 $ 0.35
Discontinued operations (0.46) 0.07 (0.42)
----------- ----------- -----------
Net income (loss) $ 0.12 $ 0.58 $ (0.07)
=========== =========== ===========
Cash dividends per share $ 0.04 $ 0.04 $ 0.08
=========== =========== ===========
</TABLE>
The following notes are an integral part of these statements.
F-4
<PAGE>
PepsiAmericas, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
As of fiscal year end 2001 2000
------------ -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and equivalents $ 64.4 $ 51.2
Receivables, net of allowance of $14.2 million - 2001 and $13.1 million - 2000 197.1 203.0
Inventories:
Raw materials and supplies 78.3 81.3
Finished goods 95.1 82.7
----------- -----------
Total inventories 173.4 164.0
Other current assets 45.9 58.8
----------- -----------
Total current assets 480.8 477.0
----------- -----------
Property (at cost):
Land 47.7 40.4
Buildings and improvements 313.9 302.2
Machinery and equipment 1,459.4 1,304.2
----------- -----------
Total property 1,821.0 1,646.8
Accumulated depreciation (753.9) (642.1)
----------- -----------
Net property 1,067.1 1,004.7
----------- -----------
Intangible assets, net of accumulated amortization of $253.6 million - 2001
and $203.6 million - 2000 1,749.3 1,740.7
Other assets 122.1 113.2
----------- -----------
Total assets $ 3,419.3 $ 3,335.6
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Short-term debt, including current maturities of long-term debt - 2000 $ 255.2 $ 513.3
Payables 216.5 199.1
Accrued expenses:
Salaries and wages 45.4 50.2
Interest 20.7 17.0
Other 114.9 107.4
----------- -----------
Total current liabilities 652.7 887.0
----------- -----------
Long-term debt 1,083.4 860.1
Deferred income taxes 68.9 47.0
Other liabilities 184.0 92.0
Shareholders' equity:
Preferred stock ($0.01 par value, 12.5 million shares authorized; no shares issued) -- --
Common stock ($0.01 par value, 350 million shares authorized; 167.6 million
shares issued - 2001 and 167.3 million shares issued - 2000) 1,546.7 1,546.8
Retained income 163.3 151.6
Accumulated other comprehensive loss:
Cumulative translation adjustment (25.1) (30.3)
Net unrealized investment gain and cash flow hedging losses (4.7) 1.6
Minimum pension liability adjustment (4.1) --
------------ -----------
Accumulated other comprehensive loss (33.9) (28.7)
----------- -----------
Treasury stock (14 million shares - 2001 and 11.7 million shares - 2000) (245.8) (220.2)
----------- -----------
Total shareholders' equity 1,430.3 1,449.5
----------- -----------
Total liabilities and shareholders' equity $ 3,419.3 $ 3,335.6
=========== ===========
</TABLE>
The following notes are an integral part of these statements.
F-5
<PAGE>
PepsiAmericas, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Fiscal years 2001 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 90.1 $ 71.5 $ 42.9
Adjustments to reconcile to net cash provided by operating activities
of continuing operations:
Depreciation and amortization 202.1 166.4 126.6
Deferred income taxes 39.2 14.7 (44.5)
Gain on pension curtailment (8.9) -- --
Gain on sale of franchises -- (1.4) (7.8)
Special charges and real estate impairment 13.8 21.7 84.2
Cash outlays related to special charges (19.0) (12.8) (11.5)
Other (4.8) 0.6 7.2
Changes in assets and liabilities, exclusive of acquisitions and divestitures:
Decrease (increase) in receivables 2.5 127.6 (44.5)
Decrease (increase) in inventories (15.5) (9.5) 9.6
Increase (decrease) in payables 9.1 (21.9) 22.6
Net change in other assets and liabilities 8.2 (30.8) (3.0)
----------- ----------- ----------
Net cash provided by operating activities of continuing operations 316.8 326.1 181.8
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of franchises, net of cash divested -- 2.5 112.0
Franchises and companies acquired, net of cash acquired (7.7) (69.2) (134.6)
Capital investments (218.6) (165.4) (165.4)
Proceeds from sales of property 3.6 5.7 4.5
Proceeds from sales of investments and joint ventures 2.1 0.3 8.2
----------- ----------- ----------
Net cash used in investing activities (220.6) (226.1) (175.3)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings of short-term debt (185.6) 137.0 (14.4)
Proceeds from issuance of long-term debt 352.7 -- 298.0
Repayment of long-term debt (204.4) (263.0) --
Issuance of common stock 10.7 27.1 3.2
Treasury stock purchases (39.2) (35.7) (290.1)
Cash dividends (6.2) (5.5) (8.8)
----------- ----------- ----------
Net cash used in financing activities (72.0) (140.1) (12.1)
----------- ----------- ----------
Net cash used in discontinued operations (11.3) (22.7) (26.1)
Effects of exchange rate changes on cash and equivalents 0.3 (0.5) (1.4)
----------- ----------- ----------
Change in cash and equivalents 13.2 (63.3) (33.1)
Cash and equivalents at beginning of year 51.2 114.5 147.6
----------- ----------- ----------
Cash and equivalents at end of year $ 64.4 $ 51.2 $ 114.5
=========== =========== ==========
</TABLE>
The following notes are an integral part of these statements.
F-6
<PAGE>
PepsiAmericas, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Treasury Stock Total
-------------------- Retained Comprehensive ------------------ Shareholders'
Shares Amount Income Loss Shares Amount Equity
------ ------ ------ ------------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
As of fiscal year end 1998 113.3 $ 499.8 $ 94.3 $ (8.6) (12.3) $(259.1) $ 326.4
----- -------- ------ ------ ----- ------- --------
Comprehensive loss:
Net loss (8.8) (8.8)
--------
Other comprehensive loss:
Translation adjustments (12.4) (12.4)
Unrealized investment loss (net of
tax benefit of $0.7 million) (1.3) (1.3)
------
Other comprehensive loss (13.7)
------
Total comprehensive loss (22.5)
Treasury stock purchases (16.1) (290.1) (290.1)
Common stock issued for acquisitions 54.0 1,134.0 1,134.0
Stock compensation plans 0.6 0.2 2.6 3.2
Dividends declared (8.8) (8.8)
----- -------- ------ ------ ----- ------- --------
As of fiscal year end 1999 167.3 1,634.4 76.7 (22.3) (28.2) (546.6) 1,142.2
----- -------- ------ ------ ----- ------- --------
Comprehensive income:
Net income 80.4 80.4
--------
Other comprehensive loss:
Translation adjustments (5.9) (5.9)
Unrealized investment loss (net of
tax benefit of $0.3 million) (0.5) (0.5)
--------
Other comprehensive loss (6.4)
--------
Total comprehensive income 74.0
Treasury stock purchases (3.0) (35.7) (35.7)
Common stock issued for acquisition (80.4) 17.4 327.3 246.9
Common stock issued under stock
subscription rights and value of rights (5.9) 1.7 32.1 26.2
Stock compensation plans (1.3) 0.4 2.7 1.4
Dividends declared (5.5) (5.5)
----- -------- ------- ------ ----- ------- --------
As of fiscal year end 2000 167.3 1,546.8 151.6 (28.7) (11.7) (220.2) 1,449.5
----- -------- ------- ------ ----- ------- --------
Comprehensive income:
Net income 18.9 18.9
Other comprehensive loss:
Translation adjustments 5.2 5.2
Unrealized investment loss (net of
tax benefit of $0.8 million) (1.5) (1.5)
Cash flow hedges, net of related taxes:
Cumulative effect of accounting
change 1.0 1.0
Net derivative losses (5.1) (5.1)
Reclassification to net income (0.7) (0.7)
Minimum pension liability adjustment (4.1) (4.1)
---------
Other comprehensive loss (5.2)
---------
Total comprehensive income 13.7
Treasury stock purchases (3.0) (39.2) (39.2)
Common stock issued for acquisition 0.2 2.8 2.8
Stock compensation plans 0.1 (2.9) (1.0) 0.7 13.6 9.7
Dividends declared (6.2) (6.2)
----- -------- ------- ------ ----- ------- --------
As of fiscal year end 2001 167.6 $1,546.7 $ 163.3 $(33.9) (14.0) $(245.8) $1,430.3
===== ======== ======= ====== ===== ======= ========
</TABLE>
The following notes are an integral part of these statements.
F-7
<PAGE>
PepsiAmericas, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Principles of consolidation. On November 30, 2000, Whitman Corporation merged
with PepsiAmericas, Inc. (the former PAS) and subsequently, in January 2001,
changed its name to PepsiAmericas, Inc. (the Company or PAS). The consolidated
financial statements, which are comprised of all subsidiaries, include the
results of operations of the former Whitman Corporation for all periods and of
the former PAS from the date of its merger.
Nature of operations. The Company manufactures, packages, sells and distributes
carbonated and non-carbonated Pepsi-Cola beverages and a variety of other
beverages in the United States, Central Europe and the Caribbean. The Company
operates under exclusive franchise agreements with soft drink concentrate
producers, including "master" bottling and fountain syrup agreements with
PepsiCo, Inc. (PepsiCo) for the manufacture, packaging, sale and distribution of
PepsiCo branded products. There are similar agreements with Cadbury Schweppes
and other brand owners. The franchise agreements exist in perpetuity and contain
operating and marketing commitments and conditions for termination.
Use of accounting estimates. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America 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 the reported results.
Fiscal year. The Company's fiscal year consists of 52 or 53 weeks ending on the
Saturday closest to December 31. The Company's 2001, 2000 and 1999 fiscal years,
each containing 52 weeks, ended December 29, 2001, December 30, 2000 and January
1, 2000, respectively.
Cash and equivalents. Cash and equivalents consist of deposits with banks and
financial institutions which are unrestricted as to withdrawal or use, and which
have original maturities of three months or less.
Sale of receivables. Certain of the Company's domestic subsidiaries sell their
receivables to Whitman Finance, a special purpose entity and wholly-owned
subsidiary of the Company, which in turn sells an undivided interest in a
revolving pool of receivables to a major U.S. financial institution. The sale of
receivables is accounted for under Statement of Financial Accounting Standards
(SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." See further discussion in Note 7.
Inventories. Inventories are valued at the lower of cost (principally determined
on the average method) or net realizable value.
Investments. Investments include real estate held for sale, principally at
Illinois Center, a large single location. This mixed use development is located
on the Chicago lakefront. In 1999, the Company entered into an agreement for the
sale of this property and recorded a charge of $56.3 million ($35.9 million
after tax) to reduce the book value of the property. This charge is reflected in
other (expense) income, net, on the Consolidated Statements of Income. The close
of the sale is subject to completion of due diligence and the buyer obtaining
financing and final zoning approval. The Company expects to complete this sale
within the next 12 months. All other investments in real estate are carried at
cost, which management believes is lower than net realizable value. Investments
are included in other assets on the Consolidated Balance Sheets.
Derivative financial instruments. Due to fluctuations in the market prices for
aluminum and fuel, the Company uses derivative financial instruments to hedge
against volatility in future cash flows on anticipated aluminum can and fuel
purchases, the prices of which are indexed to aluminum and market prices.
Realized gains and losses on these instruments are deferred until the related
finished products are sold or the fuel is purchased, at which time they are
recorded in cost of goods sold. The Company also uses derivative financial
instruments to lock interest rates on debt issues and to convert fixed rate debt
to floating rate debt. Changes in the fair values of interest rate swaps
increase or decrease the carrying amount of the debt issues associated with the
swaps. The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS Nos. 137 and 138, as of the
beginning of fiscal 2001. SFAS No. 133 requires companies to record derivatives
on the balance sheet as assets and liabilities measured at fair value. Upon
adoption, the Company recognized an asset for the fair value of aluminum hedges
of $1.4 million and reclassified $0.4 million of previously deferred hedging
losses to accumulated other comprehensive income, which was reclassified into
cost of goods sold during 2001. Prior to adopting this standard, deferred gains
and losses on aluminum hedges were classified within assets or liabilities, as
appropriate, rather than in other comprehensive income, and no fair value
adjustment was recorded on these hedges.
F-8
<PAGE>
Property. Depreciation is computed on the straight-line method. When property is
sold or retired, the cost and accumulated depreciation are eliminated from the
accounts and gains or losses are recorded in other (expense) income, net.
Expenditures for maintenance and repairs are expensed as incurred. The
approximate ranges of annual depreciation rates are 2.5 percent to 6.7 percent
for buildings and improvements and eight percent to 20 percent for machinery and
equipment.
Intangible assets. Intangible assets principally represent franchise rights,
which are the excess of cost over fair market values of net tangible and
identifiable intangible assets of acquired businesses. Such amounts generally
are being amortized on a straight-line basis over 40 years. The principal
factors considered in determining the use of a 40-year amortization period
include: 1) the franchise agreements with PepsiCo and other brand owners are
granted in perpetuity and provide the exclusive right to manufacture and sell
the branded products within the territories prescribed in the agreements, and 2)
the existing and projected cash flows are adequate to support the carrying
values of intangible assets. As of the beginning of fiscal 2002, the Company has
ceased substantially all amortization expense (see "Recently issued accounting
pronouncements").
Carrying values of long-lived assets. The Company evaluates the carrying values
of its long-lived assets, including intangible assets, by reviewing undiscounted
cash flows by operating unit. Such evaluations are performed whenever events and
circumstances indicate that the carrying value of an asset may not be
recoverable. If the sum of the projected undiscounted cash flows over the
estimated remaining lives of the related assets does not exceed the carrying
value, the carrying value would be adjusted for the difference between the fair
value, based on projected discounted cash flows, and the carrying value.
Revenue recognition. Revenue is recognized when title to a product is
transferred to the customer. Payments made to third parties as commissions
related to vending activity are recorded as a reduction of revenues.
Bottler incentives. PepsiCo and other brand owners, at their sole discretion,
provide the Company with various forms of marketing support. This marketing
support is intended to cover a variety of programs and initiatives, including
direct marketplace support, capital equipment-related programs and shared media
and advertising support. Based on the objectives of the programs and
initiatives, domestic marketing support is recorded as an adjustment to net
sales or a reduction of selling, delivery and administrative expenses. Direct
marketplace support is primarily the funding of sales discounts and similar
programs by PepsiCo and other brand owners and is recorded as an adjustment to
net sales. Capital equipment-related program funding is designed to support
marketing equipment programs and is recorded within selling, delivery and
administrative expenses. Shared media and advertising support is recorded as a
reduction to advertising and marketing expense within selling, delivery and
administrative expenses. Support in the Company's Central European operations is
primarily recorded as a reduction in cost of goods sold. There are no conditions
or other requirements which could result in repayment of marketing support
received. Bottler incentives were $130.1 million, $109.7 million and $97.8
million in 2001, 2000 and 1999, respectively, over 90 percent of which was
received from PepsiCo or its affiliates.
Advertising and marketing costs. The Company is involved in a variety of
programs to promote its products. Advertising and marketing costs are expensed
in the year incurred. Certain advertising and marketing costs incurred by the
Company are partially reimbursed by PepsiCo and other brand owners in the form
of marketing support. Advertising and marketing expenses were $53.5 million,
$45.4 million and $32.2 million in 2001, 2000 and 1999, respectively. These
amounts are net of support of $36.1 million, $30.5 million and $37.7 million in
2001, 2000 and 1999, respectively.
Stock-based compensation. The Company uses the intrinsic value method of
accounting for its stock-based compensation.
Income taxes. Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Income (loss) per share. Basic earnings per share are based upon the
weighted-average number of common shares outstanding. Diluted earnings per share
assume the exercise of all options and warrants which are dilutive, whether
exercisable or not. The dilutive effects of stock options and warrants are
measured under the treasury stock method.
Options and warrants to purchase 7,116,354 shares, 8,708,974 shares and
3,757,844 shares at an average price of $18.89, $18.23 and $20.83 per share that
were outstanding at the end of fiscal 2001, 2000 and 1999, respectively, were
not included in the computation of diluted EPS because the exercise price was
greater than the average market price of the common shares.
F-9
<PAGE>
Recently issued accounting pronouncements. In July 2001, the Financial
Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the
purchase method of accounting to be used for all business combinations initiated
after June 30, 2001. The Company does not expect SFAS No. 141 to significantly
impact its consolidated financial statements. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Goodwill and other intangible assets that have an indefinite life will
not be amortized, but rather will be tested for impairment annually or whenever
an event occurs indicating that the asset may be impaired. The Company adopted
SFAS No. 142 effective the beginning of fiscal 2002 and has ceased amortization
of substantially all intangible assets beginning in the first quarter of fiscal
2002, which principally represent franchise rights granted in perpetuity. The
Company estimates that had SFAS No. 142 been adopted as of the beginning of
fiscal 2001, net income would have increased by $48.3 million, or $0.31 per
share. The Company will test its intangible assets for impairment in fiscal
2002, as required by SFAS No. 142, but does not currently expect to record an
impairment.
2. Acquisitions and Divestitures
A. PAS Merger as of November 2000
On November 30, 2000, the former PAS merged into a wholly-owned subsidiary
of the Company. The former PAS was the third largest publicly-held U.S.-based
Pepsi anchor bottler, with distribution rights in portions of Arkansas, Iowa,
Louisiana, Minnesota, Mississippi, North Dakota, South Dakota, Tennessee and
Texas. The former PAS also operated in Puerto Rico, the Bahamas and Jamaica and
had certain rights and preferences for expansion of its business with PepsiCo,
including further expansion in the Caribbean.
In connection with this merger, the Company issued 17.4 million shares of common
stock and paid $30.6 million to former PAS shareholders electing to receive cash
for their shares of the former PAS. The value assigned to the shares issued in
the merger was based on the average closing price for the period including the
day immediately preceding and following the date the maximum number of shares to
be issued was known, which occurred on November 22, 2000. Based upon the average
price for this period, the value assigned to each share issued was $14.167. The
Company also assumed $316.9 million in debt and recorded an increase in
intangible assets of $348.1 million. In addition, the Company issued 1.7 million
shares of common stock at $14.6125 per share under the terms of the share
subscription rights issued to former PAS shareholders electing the earn-out
provision. Including costs associated with the merger and debt assumed in the
merger, the total purchase price was $603.4 million. Details of the merger with
the former PAS, as adjusted during 2001 for the final valuation of property, and
U.S. net operating loss carryforwards and certain other adjustments, are as
follows (in millions):
Merger costs:
Common stock issued to former PAS shareholders $ 246.9
Cash paid to former PAS shareholders 30.6
Value of share subscription rights issued to former
PAS shareholders 1.2
Transaction costs incurred by the former Whitman Corporation 9.0
-----------
Initial merger costs, excluding contingent payment 287.7
-----------
Allocation of merger costs:
Fair value of net liabilities of the former PAS (88.4)
Transaction costs incurred by the former PAS (7.0)
-----------
(95.4)
Excess of merger costs over fair value of net liabilities $ 383.1
===========
Shareholders of the former PAS could elect to receive a lesser amount of
shares at closing plus the right to receive in the future additional shares of
the Company. This right is based on the former PAS business units achieving
certain performance levels in the years 2000 through 2002. The total aggregate
value of shares to be received in the future could be up to 0.1095 shares of
Company common stock for each former PAS share held at the time of closing.
Based upon the elections made, a total of 6.9 million additional shares of the
Company could be issued in 2002 and 2003 if the performance levels are met.
Issuance of such shares would result in an increase in intangible assets related
to the acquisition.
F-10
<PAGE>
In connection with the merger, cash paid, net of cash acquired, totaled $21
million and the Company also funded $32.5 million for the purchase of the
preferred stock of Delta Beverage Group, a subsidiary of the former PAS. In
addition, the Company recorded $1.4 million of liabilities associated with the
termination of approximately 100 employees of the former PAS as a result of the
merger.
Pohlad Companies and PepsiCo hold interests in Dakota Holdings, LLC which
currently owns approximately 14.2 million shares of the Company's common stock.
B. New Business Relationship with PepsiCo as of May 1999
The Company entered into a new business relationship with PepsiCo in May
1999. As a part of the Amended and Restated Contribution and Merger Agreement
(the Agreement) with PepsiCo, on May 20, 1999 PepsiCo contributed certain assets
of several domestic franchise territories to the Company, including Cleveland,
Ohio; Dayton, Ohio; Indianapolis, Indiana; St. Louis, Missouri and portions of
southern Indiana. The Company acquired PepsiCo's international operations in
Hungary, the Czech Republic, Republic of Slovakia and Poland on May 31, 1999. In
exchange for the territories acquired from and contributed by PepsiCo and the
elimination of PepsiCo's 20 percent minority interest in the Company's
subsidiary, Pepsi-Cola General Bottlers, Inc. (Pepsi General), the Company
issued 54 million shares of its common stock to PepsiCo. As of fiscal year end
2001, PepsiCo holds, directly and indirectly, 57.3 million shares, or 37.3
percent, of the Company's outstanding common stock. Such number includes
PepsiCo's proportionate interest in shares held by Dakota Holdings, LLC. In
addition, the Company paid PepsiCo cash totaling $133.7 million, assumed bank
debt of $42.3 million, and assumed $241.8 million of notes payable to PepsiCo,
which were repaid on August 31, 1999. As part of the Agreement, the Company
agreed to repurchase up to 16 million shares, or $400 million of its common
stock, whichever was less, during the 12-month period following the close of the
transaction. The Company satisfied this repurchase commitment in 1999.
The Agreement provided for the Company to sell to PepsiCo its operations in
Marion, Virginia; Princeton, West Virginia and the St. Petersburg area of
Russia. On March 19, 1999, the Company completed the sale to PepsiCo of the
franchises in Marion, Virginia and Princeton, West Virginia. The sale of the
franchise in Russia was completed on March 31, 1999. Net proceeds from these
sales were $112 million and the Company recorded a pretax gain of $13.3 million,
which is reflected in other (expense) income, net, on the Consolidated
Statements of Income. The gain, after taxes and minority interest, was $7.8
million.
Details of the acquired franchises, as adjusted during 2000 for the final
valuation of property and certain other adjustments, are as follows (in
millions):
Acquisition costs:
Common stock issued to PepsiCo $ 1,134.0
Assumption of notes payable to PepsiCo 241.8
Elimination of PepsiCo's 20 percent minority interest
in Pepsi General (243.2)
-----------
Net acquisition costs 1,132.6
Less: fair value of net tangible assets acquired 89.5
-----------
Excess of acquisition costs over fair value of net
tangible assets $ 1,043.1
===========
Cash paid for this acquisition, net of cash acquired, totaled $115.6
million. In connection with the acquisition of the Central European franchises
from PepsiCo, the Company wrote down $23.7 million of certain assets in the new
territories, including equipment and other assets related to plastic returnable
bottles to reflect the exit of that package. In addition, the Company recorded
$1.1 million of liabilities for certain employees who were terminated as a
result of the acquisition. These items resulted in an increase in intangible
assets related to the acquisition.
The merger with the former PAS and the acquisitions of domestic and Central
European territories have been accounted for under the purchase method;
accordingly, the results of operations of the acquired territories have been
included in the Company's consolidated financial statements since the dates of
acquisition. The excess of the aggregate purchase price over the fair value of
net assets acquired has been amortized on a straight-line basis using a 40 year
useful life based on the reasons previously discussed. Such amortization ceased
as of the beginning of fiscal 2002 in accordance with the provisions of SFAS No.
142, as discussed in Note 1.
F-11
<PAGE>
C. Other Acquisitions and Divestitures
In the fourth quarter of 2001, the Company acquired the bottling operations
in Barbados from Bottlers (Barbados) Limited, which had closed operations in
2000. In the third quarter of 2001, the Company acquired a Dr Pepper franchise
in Illinois. During the first quarter of 2001, the Company reached an agreement
with Crescent Distributing, LLC (Crescent), a wholly-owned subsidiary of Poydras
Street Investors LLC (Poydras). Under the agreement, the joint venture between
the Company and Poydras was terminated with Crescent retaining sole ownership of
the rights to the beer operations and related assets and the Company assuming
sole ownership of the rights to the soft drink operations and related assets.
The results derived from the beer operations were not material to the Company's
overall business. On December 29, 2000, the Company acquired the Pepsi bottling
operations in Trinidad and Tobago. On December 1, 1999, the Company acquired
Toma, a leading soft drink company in the Czech Republic. These acquisitions
were accounted for under the purchase method; accordingly, the operating results
of the acquired companies are included in the Company's consolidated financial
statements since the dates of acquisition. The effect of these acquisitions, had
they been made as of the beginning of 1999, would not have been significant to
the Company's operating results, and consideration paid for these acquisitions
was not significant. In the first quarter of 2000, the Company sold its
operations in the Baltics. This sale resulted in a gain of $2.6 million ($1.4
million after taxes), which is reflected in other (expense) income, net on the
Consolidated Statements of Income. There were no other acquisitions or
divestitures during 2001, 2000 or 1999. Acquisitions completed after June 30,
2001 were recorded in accordance with the requirements of SFAS Nos. 141 and 142.
No amortization expense was recorded for the acquisitions completed in the third
and fourth quarters of fiscal 2001.
D. Pro Forma Financial Information (unaudited and in millions, except per
share data)
The pro forma condensed consolidated results of continuing operations
presented below for 2001 and 2000 assume the following:
o The merger with the former PAS occurred as of the beginning of fiscal 2000.
o The after-tax gain from the divestiture of the Baltics in 2000 was excluded.
o The special charges recorded in 2001 and 2000 were excluded, as well as other
non-recurring items recorded by the Company and the former PAS.
o Interest expense has been adjusted to assume the interest rates in effect
in 2000 for the Company would have been in effect for debt assumed from the
former PAS business units.
o The effective tax rate, excluding special charges and non-recurring items,
was approximately 48 percent in 2001 and 50 percent in 2000.
<TABLE>
<CAPTION>
2001 2000
-------- --------
<S> <C> <C>
Sales $3,170.7 $3,104.9
Income from continuing operations, adjusted as described above 93.2 84.3
Income per common share-basic 0.60 0.54
Income per common share-diluted 0.60 0.53
</TABLE>
The above pro forma results are for informational purposes only and may not
be indicative of actual results that would have occurred had the merger with the
former PAS taken place as of the beginning of fiscal 2000.
3. Discontinued Operations
Loss from discontinued operations in 2001 resulted from a charge of $111
million ($71.2 million after taxes) recorded in the fourth quarter for
environmental liabilities (see Note 15) related to a former subsidiary of the
Company, Pneumo Abex. Income from discontinued operations in 2000 includes the
reversal of prior accruals resulting from certain insurance settlements for
environmental matters related to Pneumo Abex, net of certain increased
environmental and related accruals. Income in 2000 is net of $5.8 million in
income tax expense. Loss from discontinued operations in 1999 includes after-tax
amounts related to a second quarter $12 million settlement of environmental
litigation filed against Pneumo Abex, as well as second quarter and fourth
quarter increases of $30.8 million and $39 million, respectively, in accruals
for other environmental matters related to Pneumo Abex. Loss in 1999 is net of
$30.1 million in tax benefit.
F-12
<PAGE>
4. Special Charges
In the fourth quarter of 2001, the Company recorded special charges
totaling $9.2 million ($5.7 million after tax) primarily for severance costs and
other costs related to changing the Company's marketing and distribution
strategy in Hungary, as well as for the write-down of marketing equipment in the
U.S. The write-down of marketing equipment was recorded in conjunction with the
start-up of the Ft. Wayne, Indiana refurbishment operations.
In the first quarter of 2001, the Company recorded a special charge of $4.6
million ($2.8 million after tax) related to further organization changes
resulting from the merger with the former PAS. This charge was principally
composed of severance and related benefits.
In the fourth quarter of 2000, the Company recorded a special charge of
$21.7 million ($13.2 million after tax). The charge, related to the merger with
the former PAS, included severance, related benefits and other payments to
executives and employees of the Company totaling $17.1 million. Further, in
connection with the closure of its production facility in Ft. Wayne, Indiana,
the Company recorded a charge of $4.6 million, which included a write-down of
building and equipment and $0.5 million for severance payments and other
benefits.
In the third quarter of 1999, the Company recorded a special charge of $4.5
million ($2.8 million after tax) for staff reduction costs in certain domestic
markets.
In the second quarter of 1999, the Company recorded a special charge of
$23.4 million, which included $18.6 million ($11.4 million after tax) for staff
reduction costs and non-cash asset write-downs, principally related to the
acquisition of the domestic and international territories from PepsiCo. In
addition, the Company announced it would seek the sale of the Baltic operations
to a third party and recorded a write-down of the Company's investment by $4.8
million, which is included in special charges.
In 1997, the Company recorded special charges totaling $49.3 million,
consisting of $14.8 million to consolidate a number of the Company's domestic
divisions, including reductions in staffing levels, and to write-down certain
assets in its domestic and international operations, and $34.5 million relating
to the severance of essentially all of the former Whitman corporate management
and staff and for expenses associated with the spin-offs. The final payments of
severance and related benefits for the 1997 charges were made in January 2000.
F-13
<PAGE>
The following table summarizes the activity associated with special charges
during the periods presented (in millions):
<TABLE>
<CAPTION>
2001 2000 1999 1997
Charges Charges Charges Charges Total
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Accrued liabilities as of fiscal year end 1998 $ 14.5 $ 14.5
------- -------
Special charges:
Asset write-downs associated with exit
of plastic returnable bottle package in
existing international territories $ 7.6 7.6
Other asset write-downs 5.9 5.9
Employee related costs 9.6 9.6
Write-down of Baltic operations 4.8 4.8
------- -------
Total 27.9 27.9
Expenditures and asset write-downs:
Asset write-downs (18.3) (18.3)
Expenditures for employee related costs (5.3) (6.2) (11.5)
------- ------- -------
Accrued liabilities as of fiscal year end 1999 4.3 8.3 12.6
------- ------- -------
Special charges:
Employee related costs $ 17.6 17.6
Asset write-downs associated with Ft. Wayne
production facility closure 4.1 4.1
------- -------
Total 21.7 21.7
Expenditures and asset write-downs:
Asset write-downs (4.1) (4.1)
Expenditures for employee related costs (0.2) (4.3) (8.3) (12.8)
------- ------- ------- -------
Accrued liabilities as of fiscal year end 2000 17.4 -- -- 17.4
------- ------- ------- -------
Special charges:
Employee related costs $ 8.1 8.1
Asset write-downs 2.9 2.9
Lease terminations and other costs 2.8 2.8
------- -------
Total 13.8 13.8
Application of special charges:
Asset write-downs (2.9) (2.9)
Acceleration of stock awards vesting (1.2) (1.2)
Expenditures for employee related costs (2.1) (15.7) (17.8)
Expenditures for lease terminations and other costs (1.2) (1.2)
------- ------- ------- ------- -------
Accrued liabilities as of fiscal year end 2001 $ 6.4 $ 1.7 $ -- $ -- $ 8.1
======= ======= ======= ======= =======
</TABLE>
F-14
<PAGE>
Employee related costs of $8.1 million recorded in the fourth quarter of
2001 include $3.5 million of severance and other payments to employees affected
by changes to the Company's marketing and distribution strategy in Hungary.
These changes affected 470 employees in total, of which 444 remain at the end of
fiscal 2001. The balance of the employee related costs of $4.6 million recorded
in 2001 and $17.6 million recorded in 2000 include severance payments to
employees affected by management changes related to the merger with the former
PAS, including executives and other employees, as well as employees of the Ft.
Wayne, Indiana production facility. These changes affected approximately 55
employees in total, of which two remain at the end of fiscal 2001. Employee
related costs of $9.6 million recorded in the 1999 special charges include
severance payments for management and staff affected by the consolidation of
international headquarters and operations in Poland and management changes in
certain domestic markets. The charges recorded in 1999 resulted in the
elimination of approximately 310 positions, all of which were eliminated as of
fiscal year end 2000.
The accrued liabilities remaining as of fiscal year end 2001 are comprised
primarily of deferred severance payments, certain employee benefits and expected
lease termination payments. The Company expects to pay substantially all of the
$8.1 million accrued, using cash from operations, during the next 12 months;
accordingly, such amounts are classified as other current liabilities.
5. Interest Expense, Net
Interest expense, net, consisted of the following (in millions):
2001 2000 1999
-------- -------- --------
Interest expense $ (92.6) $ (85.8) $ (67.1)
Interest income 1.8 1.8 3.2
-------- -------- --------
Interest expense, net $ (90.8) $ (84.0) $ (63.9)
======== ======== ========
6. Income Taxes
Income taxes (benefits) related to continuing operations consisted of the
following (in millions):
2001 2000 1999
------- ------- -------
Current:
Federal $ 33.9 $ 43.2 $ 34.9
Non-U.S. 0.2 0.9 --
State and local 5.7 5.9 7.2
------- ------- -------
Total current 39.8 50.0 42.1
------- ------- -------
Deferred:
Federal 40.4 18.5 (19.4)
Non-U.S. -- (2.0) 1.5
State and local 3.6 3.1 (2.1)
------- ------- -------
Total deferred 44.0 19.6 (20.0)
------- ------- -------
Total income taxes $ 83.8 $ 69.6 $ 22.1
======= ======= =======
F-15
<PAGE>
In the second quarter of 1999, as a result of the Central European
territory acquisitions, the Company assessed certain previous tax positions
related to its international operations and eliminated $19.8 million of deferred
tax liabilities recorded in prior periods. Beginning in the second quarter of
1999, the Company no longer defers the U.S. tax benefits on international
losses. The table below reconciles the income tax provision for continuing
operations at the U.S. federal statutory rate to the Company's actual income tax
provision on continuing operations (in millions):
<TABLE>
<CAPTION>
2001 2000 1999
------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income taxes computed at the U.S. federal statutory rate
on income from continuing operations, excluding
non-recurring items $ 62.5 35.0 $ 56.1 35.0 $ 48.3 35.0
State income taxes, net of federal income tax benefit 6.2 3.5 6.3 3.9 6.0 4.3
Non-deductible portion of amortization-intangible assets 16.1 9.0 13.2 8.2 9.2 6.7
Other items, net 0.8 0.5 1.3 0.9 2.5 1.8
--------- ------- --------- ------- --------- -------
Income tax on continuing operations, excluding
non-recurring items $ 85.6 48.0 $ 76.9 48.0 $ 66.0 47.8
Tax benefit of special charges and credits and elimination
of deferred tax liabilities recorded in prior periods (1.8) (7.3) (43.9)
-------- --------- ---------
$ 83.8 $ 69.6 $ 22.1
========= ========= =========
</TABLE>
The Company has settled Federal income tax audits with the IRS through the
1995 tax year. Adjustments to accruals resulting from these audits are reflected
in "other items, net" in the table above.
Deferred income taxes are attributable to temporary differences which exist
between the financial statement bases and tax bases of certain assets and
liabilities. As of fiscal year end 2001 and 2000, deferred income taxes are
attributable to (in millions):
<TABLE>
<CAPTION>
2001 2000
----------- -----------
<S> <C> <C>
Deferred tax assets:
Non-U.S. net operating loss and tax credit carryforwards $ 87.8 $ 99.1
U.S. net operating loss and tax credit carryforwards 37.5 42.1
Provision for special charges and previously sold businesses 50.6 18.5
Lease transactions 5.2 8.1
Unrealized losses on investments 6.7 7.6
Pension and postretirement benefits 9.7 12.6
Deferred compensation 2.7 6.5
Other 20.5 19.9
----------- -----------
Gross deferred tax assets 220.7 214.4
Valuation allowance on net operating loss and tax
credit carryforwards (110.1) (99.1)
----------- -----------
Net deferred tax assets 110.6 115.3
----------- -----------
Deferred tax liabilities:
Property (106.7) (93.5)
Intangible assets (15.3) (16.1)
Deferred state taxes (9.5) (7.5)
Other (33.5) (28.8)
----------- -----------
Total deferred tax liabilities (165.0) (145.9)
----------- -----------
Net deferred tax liability $ (54.4) $ (30.6)
=========== ===========
Net deferred tax asset (liability) included in:
Other current assets $ 14.5 $ 16.4
Deferred income taxes (68.9) (47.0)
----------- -----------
Net deferred tax liability $ (54.4) $ (30.6)
=========== ===========
</TABLE>
F-16
<PAGE>
There currently is no undistributed non-U.S. income because the Company's
international operations have accumulated pretax losses. Pretax losses from
international operations were $44.2 million, $32.9 million and $45.3 million in
2001, 2000 and 1999, respectively. In connection with the merger with the former
PAS, the Company became the successor to U.S. Federal net operating loss (NOLs)
and tax credit carryforwards, as well as non-U.S. NOLs. The Company also has
NOLs related to its Central European operations. As of fiscal year end 2001, the
U.S. NOLs were $107.1 million and expire in 2003 through 2019, while the
non-U.S. NOLs amounted to $289.3 million. Utilization of U.S. and non-U.S. NOLs
is limited by both the U.S. Internal Revenue Code and by various international
tax laws. The Company has provided a valuation allowance against substantially
all of the non-U.S. NOLs. During 2001, the Company provided an after tax
valuation allowance of $23 million against the U.S. NOLs, which was recorded as
an adjustment to intangible assets. These valuation allowances reflect the
uncertainty of the Company's ability to fully utilize these benefits given the
limited carryforward periods permitted by the various taxing jurisdictions. Any
future adjustments to the NOLs succeeded to the Company, in connection with the
merger with the former PAS, will be recorded as an adjustment to intangible
assets.
7. Sales of Receivables
In the fourth quarter of 2000, Whitman Finance, a special purpose entity
and wholly-owned subsidiary of the Company, entered into an agreement (the
Securitization) with a major U.S. financial institution to sell an undivided
interest in its receivables. The agreement involves the sale of receivables by
certain of the Company's domestic subsidiaries to Whitman Finance, which in turn
sells an undivided interest in a revolving pool of receivables to the financial
institution. Costs related to this arrangement, including losses on the sale of
receivables, are included in interest expense.
The facility was fully utilized as of fiscal year end 2001 and 2000. As a
result, receivables for which an undivided ownership interest was sold under the
program totaled $210.8 million and $217.4 million at fiscal year end 2001 and
2000, respectively, yielding cash proceeds from the revolving facility of $150
million. This resulted in a $150 million reduction in the Company's balances of
receivables and short-term debt. The receivables were sold to the financial
institution at a discount, which resulted in losses of $6.3 million and $0.7
million in 2001 and 2000, respectively. The retained undivided interest of $56.5
million and $63.1 million is included in receivables, at fair value, as of
fiscal year end 2001 and 2000, respectively. The fair value incorporates
expected credit losses, which are based on specific identification of
uncollectible accounts and application of historical collection percentages by
aging category. Since substantially all receivables sold to Whitman Finance
carry 30-day terms of payment, the retained interest is not discounted. The
weighted-average key credit loss assumption used in measuring the retained
interests at the date of the Securitization and as of fiscal year end 2001 and
2000, including the sensitivity of the current fair value of retained interests
as of fiscal year end 2001 to immediate 10 percent and 20 percent adverse
changes in the credit loss assumption, are as follows (in millions):
<TABLE>
<CAPTION>
As of Fiscal Year End 2001
------------------------------------
Date of Initial As of Fiscal 10% Adverse 20% Adverse
Securitization Year End 2000 Actual Change Change
-------------- ------------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Expected credit losses 3.3% 3.3% 2.6% 2.9% 3.1%
Fair value of retained interests $66.7 $63.1 $56.5 $56.0 $55.5
</TABLE>
The above sensitivity analysis is hypothetical and should be used with
caution. Changes in fair value based on a 10 or 20 percent variation should not
be extrapolated because the relationship of the change in assumption to the
change in fair value may not always be linear. Whitman Finance's total
delinquencies (receivables over 60 days past due) as of fiscal year end 2001 and
2000 were $7.8 million and $9.8 million, respectively. Whitman Finance's credit
losses were $3.7 million in 2001. Due to the timing of the Securitization,
Whitman Finance's credit losses were not significant in 2000.
F-17
<PAGE>
8. Debt
Long-term debt as of fiscal year end 2001 and 2000 consisted of the
following (in millions):
<TABLE>
<CAPTION>
2001 2000
----------- -----------
<S> <C> <C>
5.79% notes due 2013 (remarketable in 2003) $ 150.0 $ --
5.95% notes due 2006 200.0 --
6.0% notes due 2004 150.0 150.0
6.375% notes due 2009 150.0 150.0
9.75% notes due 2003 -- 125.9
7.5% notes due 2003 125.0 125.0
7.29% and 7.44% notes due 2026 ($100 million and
$25 million due 2004 and 2008, respectively, at option of note
holder) 125.0 125.0
6.5% notes due 2006 100.0 100.0
7.5% notes due 2001 -- 75.0
6.9% notes due 2005 60.0 60.0
Various other debt 21.6 27.0
Fair value adjustment from interest rate swaps (1.1) --
Unamortized premium (discount) 2.9 (2.7)
----------- -----------
Total debt 1,083.4 935.2
Less: amount classified as short-term debt -- 75.1
----------- -----------
Total long-term debt $ 1,083.4 $ 860.1
=========== ===========
</TABLE>
The Company maintains revolving credit agreements with maximum borrowings
of $500 million, which act as a back-up for the Company's commercial paper
program; giving the Company a total of $500 million available under the
commercial paper program and revolving credit facilities combined. In addition,
the Company from time to time borrows funds under unsecured money market loans.
The interest rates on the revolving credit facility, expiring in 2004, are based
primarily on the London Interbank Offered Rate (LIBOR). There were no borrowings
under the revolving credit facility as of fiscal year end 2001 or 2000. The
weighted-average borrowings under the commercial paper program and money market
loans during 2001 and 2000 were $272.3 million and $372.1 million, respectively.
The Company is in compliance with all covenants under its debt agreements.
In January 2001, the Company redeemed the 9.75 percent notes due 2003 with
a face value of $120 million at a rate, including premium, of 104.875. During
February and March 2001, the Company issued $200 million and $150 million of
notes with coupon rates of 5.95 percent due 2006 and 5.79 percent due 2013,
respectively. The notes issued in March 2001 will be mandatorily redeemed by the
Company in March 2003. At that time, the underwriter has the option to purchase
and reissue the notes with an additional 10 years to maturity and a new stated
interest rate.
The amounts of long-term debt, excluding obligations under capital leases,
scheduled to mature in the next five years are as follows (in millions):
Fiscal
Year Amount
------ ------
2002 $ --
2003 275.0
2004 250.0
2005 61.0
2006 300.0
The fair market value of the Company's floating rate debt as of fiscal year
end 2001 approximated its carrying value. The Company's fixed rate debt had a
carrying value of $884.5 million, as adjusted for the conversion of certain
fixed rate notes to floating rate through the use of swap contracts (see Note
10), and an estimated fair market value of $912.6 million as of fiscal year end
2001. The fair market value of the fixed rate debt was based upon quotes from
financial institutions for instruments with similar characteristics or upon
discounting future cash flows.
F-18
<PAGE>
9. Leases
As of fiscal year end 2001, annual minimum rental payments required under
capital leases and operating leases that have initial noncancelable terms in
excess of one year were as follows (in millions):
Capital Operating
Leases Leases
------ ------
2002 $ 0.7 $ 17.7
2003 0.4 14.8
2004 0.1 11.7
2005 -- 7.3
2006 -- 4.8
Thereafter -- 16.1
------ ------
Total minimum lease payments 1.2 $ 72.4
====== ======
Less: imputed interest (0.1)
------
Present value of minimum lease payments $ 1.1
======
Total rent expense applicable to operating leases amounted to $21.5
million, $17.8 million and $19.1 million in 2001, 2000 and 1999, respectively.
During 2000, the Company assumed the operating lease commitments of the former
PAS (see Note 2) and renewed several long-term operating lease commitments. A
majority of the Company's leases provide that the Company pays taxes,
maintenance, insurance and certain other operating expenses.
10. Financial Instruments
The Company uses derivative financial instruments to reduce the Company's
exposure to adverse fluctuations in commodity prices. These financial
instruments are "over-the-counter" instruments and were designated at their
inception as hedges of underlying exposures. The Company does not use derivative
financial instruments for trading purposes.
The Company enters into derivative financial instruments to hedge future
fluctuations in aluminum prices. Each instrument hedges price fluctuations on a
portion of the Company's aluminum can requirements. Because of the high
correlation between aluminum commodity prices and the Company's contractual cost
of aluminum cans, the Company considers these hedges to be highly effective.
During 2001, the Company began entering into derivative financial instruments to
hedge against volatility in future cash flows on anticipated diesel fuel
purchases, the prices of which are indexed to diesel fuel market prices. As of
fiscal year end 2001, the Company has hedged a portion of its future domestic
aluminum and diesel fuel requirements into fiscal 2003. As of fiscal year end
2001, the Company had deferred $7.9 million ($4.8 million net of tax) of
aluminum and fuel hedging losses in accumulated other comprehensive income, a
majority of which will be reclassified into cost of goods sold during fiscal
2002.
During 2001, the Company entered into swap contracts with an aggregate
notional amount of $200 million to convert a portion of its fixed rate debt to
floating rate debt, with the objective of reducing overall borrowing costs.
These swaps are accounted for as fair value hedges, since they hedge against the
fair value of fixed rate debt resulting from fluctuations in interest rates. The
fair value of the interest rate swaps as of fiscal year end 2001 was ($1.1)
million, which is reflected in "Other liabilities" on the Consolidated Balance
Sheets, with a corresponding decrease in "Long-term debt" representing the
change in fair value of the fixed rate debt. The fair value adjustment had no
earnings impact since the swaps are considered highly effective in eliminating
the interest rate risk of the fixed rate debt they are hedging.
11. Pension and Other Postretirement Plans
Company-sponsored defined benefit pension plans. Salaried employees were
provided pension benefits based on years of service and generally were limited
to a maximum of 20 percent of the employee's average annual compensation during
the five years preceding retirement. Plans covering non-union hourly employees
generally provided benefits of stated amounts for each year of service. Plan
assets are invested primarily in common stocks, corporate bonds and government
securities. In connection with the integration of the former Whitman Corporation
and former PAS domestic benefit plans during the first quarter of 2001, the
Company amended its pension plans to freeze pension benefit accruals for
substantially all salaried and non-union employees effective December 31, 2001.
Employees age 50 or older with 10 or more years of vesting service were
grandfathered such that they will continue to accrue benefits after December 31,
2001 based on their final average pay as of December 31, 2001. As a result of
this plan amendment, the Company recognized a one-time curtailment gain of $8.9
million ($5.4 million after taxes). The existing domestic salaried and non-union
pension plans were replaced by an additional Company contribution to the 401(K)
plan beginning January 1, 2002.
F-19
<PAGE>
Net periodic pension cost for 2001, 2000 and 1999 included the following
components (in millions):
2001 2000 1999
------ ------ ------
Service cost $ 5.2 $ 5.4 $ 5.1
Interest cost 8.0 7.7 7.0
Expected return on plan assets (11.3) (9.4) (8.6)
Amortization of actuarial loss (0.7) (0.9) --
Amortization of transition asset (0.2) (0.2) (0.2)
(Curtailment) settlement (8.9) 0.1 --
Amortization of prior service cost (0.2) 1.0 1.0
------ ------ ------
Net periodic pension (benefit) cost $ (8.1) $ 3.7 $ 4.3
====== ====== ======
The following tables outline the changes in benefit obligations and fair
values of plan assets for the Company's pension plans and reconciles the pension
plans' funded status to the amounts recognized in the Company's balance sheets
as of fiscal year end 2001 and 2000 (in millions):
2001 2000
------- -------
Benefit obligation at beginning of year $ 115.6 $ 104.5
Service cost 5.2 5.4
Interest cost 8.0 7.7
Amendments, including curtailment (14.5) 0.3
Actuarial loss (gain) 11.8 (2.9)
Acquisition -- 7.1
Benefits paid (9.9) (6.5)
------- -------
Benefit obligation at end of year $ 116.2 $ 115.6
------- -------
Fair value of plan assets at beginning of year $ 137.2 $ 115.2
Actual return on plan assets (23.0) 16.5
Employer contributions 7.5 2.4
Acquisition -- 9.6
Benefits paid (9.9) (6.5)
------- -------
Fair value of plan assets at end of year $ 111.8 $ 137.2
------- -------
Funded status $ (4.4) $ 21.6
Unrecognized net actuarial loss (gain) 15.9 (30.6)
Unrecognized prior service cost (1.1) 4.2
Unrecognized transition asset -- (0.2)
------- -------
Net amount recognized $ 10.4 $ (5.0)
======= =======
Net amounts recognized in the balance sheets consist of:
2001 2000
------- -------
Prepaid pension cost $ 12.8 $ 2.5
Accrued pension liability (11.5) (7.5)
Intangible assets 2.4 --
Accumulated other comprehensive loss 6.7 --
------- -------
Net amount recognized $ 10.4 $ (5.0)
======= =======
Accumulated other comprehensive loss is reflected in the Consolidated
Balance Sheets net of tax. The Company uses September 30 as the measurement date
for plan assets and obligations. Due in part to the depressed condition of the
U.S. stock markets on September 30, 2001, the Company's pension plans are in a
$4.4 million underfunded status overall according to the information presented
above. The plan assets of the Company's pension plans as of fiscal year end 2001
were approximately $6.5 million higher than plan assets at the September 30
measurement date.
F-20
<PAGE>
Pension costs are funded in amounts not less than minimum levels required
by regulation. The principal economic assumptions used in the determination of
net periodic pension cost and benefit obligations were as follows:
<TABLE>
<CAPTION>
Net periodic pension cost: 2001 2000 1999
-------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Discount rates 7.75% 7.5% 6.5%
Expected long-term rates of return on assets 9.50% 9.5% 9.5%
Rates of increase in future compensation levels 5.25% 5.0% 4.0%
Benefit obligation: 2001 2000
------------------- ---------- ----------
Discount rates 7.25% 7.75%
Rates of increase in future compensation levels 4.75% 5.25%
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $38.5 million, $38.3 million and $30 million,
respectively, as of fiscal year end 2001 and $4.6 million, $3.7 million and
zero, respectively, as of fiscal year end 2000.
Company-sponsored defined contribution plans. Substantially all U.S. salaried
employees and certain U.S. hourly employees participate in voluntary,
contributory defined contribution plans to which the Company makes partial
matching contributions. Also, in connection with the aforementioned freeze of
the Company's pension plans, the Company began making supplemental contributions
in 2002 to substantially all U.S. salaried employees' and eligible hourly
employees' 401(K) accounts regardless of the level of each employee's
contributions. Company contributions to these plans amounted to $8.5 million, $7
million and $6.1 million in 2001, 2000 and 1999, respectively.
Multi-employer pension plans. The Company's subsidiaries participate in a number
of multi-employer pension plans, which provide benefits to certain union
employee groups of the Company. Amounts contributed to the plans totaled $3.9
million, $2.9 million and $3.9 million in 2001, 2000 and 1999, respectively.
Post-retirement benefits other than pensions. The Company provides substantially
all former U.S. salaried employees who retired prior to July 1, 1989 and certain
other employees in the U.S., including certain employees in the territories
acquired from PepsiCo, with certain life and health care benefits. U.S. salaried
employees retiring after July 1, 1989, except covered employees in the
territories acquired from PepsiCo in 1999, generally are required to pay the
full cost of these benefits. Effective January 1, 2000, non-union hourly
employees are also eligible for coverage under these plans, but are also
required to pay the full cost of the benefits. Eligibility for these benefits
varies with the employee's classification prior to retirement. Benefits are
provided through insurance contracts or welfare trust funds. The insured plans
generally are financed by monthly insurance premiums and are based upon the
prior year's experience. Benefits paid from the welfare trust are financed by
monthly deposits which approximate the amount of current claims and expenses.
The Company has the right to modify or terminate these benefits.
Net periodic cost of post-retirement benefits other than pensions for 2001,
2000 and 1999 amounted to $1.2 million, $0.8 million and $0.6 million,
respectively. The Company's post-retirement life and health benefits are not
funded. The unfunded accrued post-retirement benefits amounted to $25.5 million
as of fiscal year end 2001 and $25 million as of fiscal year end 2000.
Multi-employer post-retirement medical and life insurance. The Company's
subsidiaries participate in a number of multi-employer plans which provide
health care and survivor benefits to union employees during their working lives
and after retirement. Portions of the benefit contributions, which cannot be
disaggregated, relate to post-retirement benefits for plan participants. Total
amounts charged against income and contributed to the plans (including benefit
coverage during their working lives) amounted to $10.1 million, $10 million and
$4.9 million in 2001, 2000 and 1999, respectively. Effective at the beginning of
2000, certain union employee groups terminated participation in
PepsiCo-sponsored plans and began participation in multi-employer plans, which
added $4.4 million of expense relative to multi-employer plans in 2000.
F-21
<PAGE>
12. Stock Options and Warrants
The Company's Stock Incentive Plan (the Plan), originally approved by
shareholders in 1982 and subsequently amended from time to time, provides for
granting incentive stock options, nonqualified stock options, related stock
appreciation rights (SARs), restricted stock awards, and performance awards or
any combination of the foregoing. Generally, outstanding nonqualified stock
options are exercisable during a ten-year period beginning one to three years
after the date of grant. All options are granted at fair market value at the
date of grant. There are no outstanding stock appreciation rights as of fiscal
year end 2001.
In connection with the merger with the former PAS (see Note 2), all
outstanding stock options of the former PAS were converted to options to acquire
shares of the Company's stock. No cash or other consideration was issued to
employees, and the aggregate intrinsic value of each option immediately after
the merger was not greater than the aggregate intrinsic value of each former PAS
option immediately before the merger. Further, the ratio of the exercise price
for each option to the market value per share was not reduced, and the vesting
provisions and option period of each original grant remained the same.
Accordingly, no new measurement date was established relative to the converted
options.
In connection with the transaction with PepsiCo, all shares granted prior
to 1999 were vested in full during 1999.
Changes in options outstanding are summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------------------------------
Range of Weighted-Average
Options Exercise Prices Exercise Price
------- --------------- ----------------
<S> <C> <C> <C>
Balance, fiscal year end 1998 6,881,921 7.04 - 22.66 13.21
Granted 3,744,600 13.91 - 22.63 20.76
Exercised or surrendered (231,416) 7.04 - 16.13 10.61
Recaptured or terminated (154,489) 14.46 - 22.63 21.58
----------
Balance, fiscal year end 1999 10,240,616 7.04 - 22.66 15.90
Granted 2,322,597 11.97 - 14.66 12.49
Exercised or surrendered (262,798) 7.04 - 12.19 8.39
Recaptured or terminated (500,622) 11.45 - 22.63 16.66
Converted from former PAS options 1,451,087 10.81 - 22.53 14.44
----------
Balance, fiscal year end 2000 13,250,880 7.37 - 22.66 15.14
Granted 1,504,179 12.17 - 16.48 15.68
Exercised or surrendered (727,166) 7.37 - 15.88 9.27
Recaptured or terminated (1,003,782) 11.97 - 22.63 17.30
----------
Balance fiscal year end 2001 13,024,111 8.08 - 22.66 15.49
==========
</TABLE>
The number of options exercisable as of fiscal year end 2001 was 9,861,793,
with a weighted-average exercise price of $15.77, compared with options
exercisable of 9,066,069 as of fiscal year end 2000 and 7,010,916 as of fiscal
year end 1999 with weighted-average exercise prices of $15.37 and $13.79,
respectively. As of fiscal year end 2001, there were 6,247,763 shares available
for future grants, which includes shares remaining from the 8,000,000 shares
provided for by the adoption of the 2000 Stock Incentive Plan in May, 2000. The
following table summarizes information regarding stock options outstanding and
exercisable as of fiscal year end 2001:
<TABLE>
Options Outstanding Options Exercisable
-------------------------------------------------------- --------------------------------------------
Weighted-Average
Range of Options Remaining Life Weighted-Average Options Weighted-Average
Exercise Prices Outstanding (in years) Exercise Price Exercisable Exercise Price
- ------------------ ------------------ ------------------ ------------------ --------------------- ----------------------
<S> <C> <C> <C> <C> <C>
$8.08 - $10.82 1,039,954 1.4 $ 8.85 1,036,903 $ 8.85
$11.26 - $16.78 8,700,797 6.7 14.23 5,944,344 14.40
$16.94 - $22.66 3,283,360 7.1 20.94 2,880,546 21.08
------------- ---------------
Total Options 13,024,111 6.4 15.49 9,861,793 15.77
============= ===============
</TABLE>
F-22
<PAGE>
SFAS No. 123, "Accounting for Stock-Based Compensation" requires, among
other items, the Company to disclose either in the Consolidated Statements of
Income or in the Notes to the Consolidated Financial Statements an estimate of
the cost of stock options granted to employees. The Company has elected to
continue to account for stock options granted to employees in accordance with
the intrinsic value method under Accounting Principles Board Opinion No. 25.
However, using the Black-Scholes model and the assumptions presented in the
following table, the weighted-average estimated fair values at the dates of
grant of options in 2001, 2000 and 1999 were $5.61, $4.60 and $6.43,
respectively.
The following table contains the Black-Scholes assumptions used:
<TABLE>
<CAPTION>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 4.9% 6.6% 5.0%
Expected dividend yield 0.4% 0.4% 0.9%
Expected volatility 32.2% 28.9% 27.8%
Estimated lives of options (in years) 5.0 5.0 5.0
</TABLE>
Based upon the above assumptions, the Company's net income (loss) and
income (loss) per share, adjusted to reflect the disclosures required under SFAS
No. 123, would have been (in millions, except per share amounts):
<TABLE>
<CAPTION>
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Pro forma income (loss):
Income from continuing operations $ 82.4 $ 64.4 $ 37.3
Income (loss) from discontinued operations (71.2) 8.9 (51.7)
-------- -------- --------
Net income (loss) $ 11.2 $ 73.3 $ (14.4)
======== ======== ========
Pro forma income (loss) per share - basic:
Continuing operations $ 0.53 $ 0.46 $ 0.30
Discontinued operations (0.46) 0.07 (0.42)
-------- -------- --------
Net income (loss) $ 0.07 $ 0.53 $ (0.12)
======== ======== ========
Pro forma income (loss) per share - diluted:
Continuing operations $ 0.53 $ 0.46 $ 0.30
Discontinued operations ( 0.46) 0.07 (0.42)
-------- -------- --------
Net income (loss) $ 0.07 $ 0.53 $ (0.12)
======== ======== ========
</TABLE>
The Company granted 136,014 restricted shares of stock at a
weighted-average fair value (at the date of grant) of $16.475 in 2001, to key
members of management under the Plan. The Company recognized compensation
expense of $0.4 million in 2001 relating to these grants. At December 29, 2001,
there were 101,612 restricted shares outstanding under the Plan. No restricted
shares were granted in 2000 or 1999.
In connection with the merger with the former PAS (see Note 2), the Company
converted former PAS warrants to warrants to acquire shares of the Company's
stock. The warrants are exercisable by Dakota Holdings, LLC and by V. Suarez &
Co., Inc. for the purchase of 377,128 and 94,282 shares, respectively, of the
Company's common stock at $24.79 per share, exercisable anytime until February
17, 2006. Dakota Holdings, LLC currently owns approximately 14.2 million shares
of the Company's common stock.
F-23
<PAGE>
13. Shareholder Rights Plan and Preferred Stock
On May 20, 1999, the Company adopted a Shareholder Rights Plan and declared
a dividend of one preferred share purchase right (a Right) for each outstanding
share of common stock, par value $0.01 per share, of the Company. The dividend
was paid on June 11, 1999 to the shareholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $0.01 per
share, of the Company at a price of $61.25 per one one-hundredth of a share of
such Preferred Stock, subject to adjustment. The Rights will become exercisable
if someone buys 15 percent or more of the Company's common stock or following
the commencement of, or announcement of an intention to commence, a tender or
exchange offer to acquire 15 percent or more of the Company's common stock. In
addition, if someone buys 15 percent or more of the Company's common stock, each
right will entitle its holder (other than that buyer) to purchase, at the
Right's $61.25 purchase price, a number of shares of the Company's common stock
having a market value of twice the Right's $61.25 exercise price. If the Company
is acquired in a merger, each Right will entitle its holder to purchase, at the
Right's $61.25 purchase price, a number of the acquiring company's common shares
having a market value at the time of twice the Right's exercise price. The plan
was subsequently amended on August 18, 2000 in connection with the merger
agreement with the former PAS. The amendment to the rights agreement provides
that:
o None of Pohlad Companies, any affiliate of Pohlad Companies, Robert C.
Pohlad, affiliates of Robert C. Pohlad or the former PepsiAmericas will be
deemed an "Acquiring Person" (as defined in the rights agreement) solely by
virtue of (1) the consummation of the transactions contemplated by the merger
agreement, (2) the acquisition by Dakota Holdings of shares of the Company's
common stock in connection with the merger, or (3) the acquisition of shares
of the Company's common stock permitted by the Pohlad shareholder agreement;
o Dakota Holdings will not be deemed an "Acquiring Person" (as defined in the
rights agreement) so long as it is owned solely by Robert C. Pohlad,
affiliates of Robert C. Pohlad, PepsiCo and/or affiliates of PepsiCo; and
o A "Distribution Date" (as defined in the rights agreement) will not occur
solely by reason of the execution, delivery and performance of the
PepsiAmericas merger agreement or the consummation of any of the transactions
contemplated by such merger agreement.
Prior to the acquisition of 15 percent or more of the Company's stock, the
Rights can be redeemed by the Board of Directors for one cent per Right. The
Company's Board of Directors also is authorized to reduce the threshold to 10
percent. The Rights will expire on May 20, 2009. The Rights do not have voting
or dividend rights, and until they become exercisable, they have no dilutive
effect on the per-share earnings of the Company.
The Company has 12.5 million authorized shares of Preferred Stock. There is
no Preferred Stock issued or outstanding.
14. Supplemental Cash Flow Information
Net cash provided by continuing operations reflects cash payments and cash
receipts as follows (in millions):
2001 2000 1999
------- ------- -------
Interest paid $ 85.8 $ 84.7 $ 64.4
Interest received 1.7 1.8 3.8
Income taxes paid 23.3 47.1 37.5
Income tax refunds 0.5 2.1 1.0
15. Environmental and Other Contingencies
The Company is subject to certain indemnification obligations under certain
agreements with previously sold subsidiaries, including potential environmental
liabilities. There is significant uncertainty in assessing the Company's share
of the potential liability for such indemnification. The assessment and
determination for cleanup at the various sites involved is inherently
speculative during the early stages, and the Company's indemnification
obligation for such costs is subject to various factors, including the
allocation of liabilities among many other potentially responsible and
financially viable parties.
F-24
<PAGE>
In fiscal 2001, the Company engaged outside consultants to assist it in
estimating its liabilities. The outside consultants provided the Company with an
estimate of the most likely costs of remediating the sites. Their estimates are
based on their evaluations of the characteristics and parameters of the sites,
including results from field inspections, test borings and water flows. Their
estimates are based upon the use of current technology and remediation
techniques, and do not take into consideration any inflationary trends upon such
claims or expenses. Based upon these estimates, the Company recorded a charge to
discontinued operations in the fourth quarter of 2001 of $111 million. The
estimated costs associated with each of the sites discussed below are included
in the aggregate accrued liabilities the Company has recorded. The Company
expects a significant portion of the accrued liabilities will be disbursed
during the next 10 years.
The Company continues to have environmental exposure related to the
remedial action required at a facility in Portsmouth, Virginia for which the
Company has an indemnity obligation. This is a superfund site which the United
States Environmental Protection Agency (EPA) required be remediated. Through
2001, the Company had made indemnity payments of an estimated $38.5 million (net
of $3.1 million of recoveries from other responsible parties) for remediation of
the Portsmouth site (consisting principally of soil treatment and removal) and
has accrued and expects to incur an estimated $4.9 million to complete the
remediation, administration and legal defense costs over the next several years.
The Company also has financial exposure related to certain remedial actions
required at a facility which manufactured hydraulic and related equipment in
Willits, California. The plant site is contaminated by various chemicals and
metals. In August 1997, a final consent decree was issued in the case of the
People of the State of California and the City of Willits, California v. Remco
Hydraulics, Inc. This final consent decree was amended in December 2000 and
established a trust whose officers are obligated to investigate and clean up
this site. The Company is currently funding the investigation and interim
remediation costs on a year to year basis according to the final consent decree.
Through 2001, the Company has made indemnity payments of an estimated $18
million for investigation and remediation at the Willits site (consisting
principally of soil removal, groundwater and surface/water treatment). The
Company has accrued $45 million for future remediation and trust administration
costs, with the majority of this amount being spent in the next several years.
In addition, two lawsuits have been filed in California, which name several
defendants including former subsidiaries of the Company. The lawsuits allege
that the Company and its former subsidiaries are liable for personal injury
and/or property damage resulting from environmental contamination at the
facility. There are currently approximately 1,000 plaintiffs in the lawsuits
seeking an unspecified amount of damages, punitive damages, injunctive relief
and medical monitoring damages. The Company is actively defending the lawsuits.
At this time, the Company does not believe these lawsuits are material to the
business or financial condition of the Company, although the outcome of the
lawsuits cannot be predicted with certainty and could be material to the
Company's results of operations or cash flows in a given period.
The Company also has liability related to several investigations regarding
on-site and off-site disposal of wastes generated at a facility in Mahwah, New
Jersey, for which the Company has certain indemnity obligations. Through 2001,
the Company has not indemnified a significant amount for remediation but has
accrued $18 million for certain remediation, long-term monitoring and
administration expenses, which are expected to be incurred over the next several
years.
Although the Company has certain indemnification obligations for
environmental liabilities at a number of other sites, including several
superfund sites, it is not anticipated that the expense involved at any specific
site would have a material effect on the Company. In the case of some of the
other sites, the volumetric contribution for which the Company has an obligation
has in most cases been estimated and other large, financially viable parties are
responsible for substantial portions of the remainder.
As of fiscal year end 2001, the Company had $131.2 million accrued to cover
potential indemnification obligations, including $20 million classified as
current liabilities, which excludes possible insurance recoveries and is
determined on an undiscounted cash flow basis. The estimated indemnification
liabilities include expenses for the remediation of identified sites, payments
to third parties for claims and expenses, and the expenses of on-going
evaluations and litigation.
During the second quarter of 2000, a trust was established that will be
used to satisfy a portion of the future indemnification obligations. As a result
of the establishment of the trust, the Company removed from its consolidated
balance sheet a portion of its existing liabilities to which the trust is
expected to be responsive. No payments were made by the Trust during 2000 or
2001, and the Trust held $34.3 million as of fiscal year end 2001. The Company
and its previously sold subsidiaries have in the past successfully negotiated
settlements with insurance companies and other responsible parties related to
underlying liabilities, including recoveries of $6.2 million in 2001.
Receivables of $25 million for future amounts anticipated from insurance
companies and other responsible parties were included as assets on the Company's
consolidated balance sheet as of fiscal year end 2001.
F-25
<PAGE>
The Company has contingent liabilities from various pending claims and
litigation on a number of matters, including indemnification claims under
agreements with certain previously sold subsidiaries for products liability and
toxic torts. The ultimate liability for these claims cannot be determined. In
the opinion of management, 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 the Company's financial condition, although amounts
recorded in a given period could be material to the results of operations or
cash flows for that period.
Existing environmental liabilities associated with the Company's continuing
operations are not material.
16. Segment Reporting
The Company operates in one industry, carbonated soft drinks and other
ready-to-drink beverages, split into two geographic areas - Domestic and
International. The Company does business in 18 states in the U.S., and outside
the U.S. the Company does business in Poland, Hungary, the Czech Republic,
Republic of Slovakia, Puerto Rico, Jamaica, Barbados, the Bahamas and Trinidad
and Tobago.
Selected financial information related to the Company's geographic segments
is shown below (in millions):
<TABLE>
<CAPTION>
Sales Operating Income (Loss)
------------------------------ ------------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Domestic $2,726.4 2,242.8 $1,951.4 $ 297.0 $ 246.7 $ 228.3
International 444.3 284.8 186.8 (28.6) (23.7) (46.8)
-------- -------- -------- -------- -------- --------
Total $3,170.7 $2,527.6 $2,138.2 268.4 223.0 181.5
======== ======== ========
Interest expense, net (90.8) (84.0) (63.9)
Other (expense) income, net ` (3.7) 2.1 (46.0)
-------- -------- --------
Pretax income $ 173.9 $ 141.1 $ 71.6
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Capital Depreciation
Investments and Amortization
------------------------------ ------------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Domestic $ 180.5 $ 137.7 $ 145.9 $ 160.8 $ 132.5 $ 99.3
International 38.1 27.7 19.5 38.9 31.5 24.9
-------- -------- -------- -------- -------- --------
Total operating $ 218.6 $ 165.4 $ 165.4 199.7 164.0 124.2
======== ======== ========
Non-operating 2.4 2.4 2.4
-------- -------- --------
Total $ 202.1 $ 166.4 $ 126.6
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Assets Long-Lived Assets
------------------- -------------------
2001 2000 2001 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Domestic $2,931.9 $2,833.2 $2,518.8 $2,437.3
International 376.0 396.0 274.1 282.3
-------- -------- -------- --------
Total operating 3,307.9 3,229.2 2,792.9 2,719.6
Non-operating 111.4 106.4 68.1 74.2
--------- -------- -------- --------
Total $3,419.3 $3,335.6 $2,861.0 $2,793.8
======== ======== ======== ========
</TABLE>
F-26
<PAGE>
Operating income is exclusive of net interest expense, other miscellaneous
income and expense items, and income taxes. In 2001, the Company recorded
special charges of $13.8 million (see Note 4), which reduced reported operating
income for domestic and international operations by $6.3 million and $7.5
million, respectively. Also in 2001, the Company recorded a gain on pension
curtailment (see Note 11) that increased reported domestic operating income by
$8.9 million. In 2000, the Company recorded special charges of $21.7 million
(see Note 4), which reduced the reported domestic operating income. In 1999, the
Company recorded special charges of $27.9 million (see Note 4), which reduced
reported operating income for domestic and international operations by $7.3
million and $20.6 million, respectively. Foreign currency gains or losses in the
periods presented above were not significant. There were no export sales, and
sales between geographic areas were insignificant. Sales to any single customer
and sales to domestic or non-U.S. governments were individually less than ten
percent of consolidated sales.
Non-operating assets are principally cash and equivalents, investments,
property and miscellaneous other assets, including $29.1 million and $30.3
million of real estate investments as of fiscal year end 2001 and 2000,
respectively. Long-lived assets represent net property, investments and net
intangible assets. Certain prior year amounts have been reclassified to conform
to the current year presentation.
17. Transactions with PepsiCo
The Company is a licensed producer and distributor of Pepsi carbonated soft
drinks and other non-alcoholic beverages. The Company purchases concentrate from
PepsiCo to be used in the production of these carbonated soft drinks and other
non-alcoholic beverages.
PepsiCo and the Company share a business objective of increasing
availability and consumption of Pepsi's brands. Accordingly, PepsiCo provides
the Company with various forms of marketing support to promote Pepsi's brands.
This support covers a variety of initiatives, including market place support,
marketing programs, marketing equipment and related program support and shared
media expense. PepsiCo and the Company each record their share of the cost of
marketing programs in their financial statements. Based on the objectives of the
programs and initiatives, domestic marketing support is recorded as an
adjustment to net sales or as a reduction of selling, delivery and
administrative expenses. There are no conditions or requirements which could
result in the repayment of any support payments received by the Company.
The Company manufactures and distributes fountain products and provides
fountain equipment service to PepsiCo customers in certain territories in
accordance with various agreements. There are other products which the Company
produces and/or distributes through various arrangements with PepsiCo or
partners of PepsiCo. The Company purchases concentrate from the Lipton Tea
Partnership and finished goods from the North American Coffee Partnership. The
Company pays a royalty fee to PepsiCo for the use of the Aquafina trademark.
The Consolidated Statements of Income include the following income and
(expense) transactions with PepsiCo:
<TABLE>
<CAPTION>
2001 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 71.5 $ 49.2 $ 39.8
Cost of goods sold (694.1) (505.0) (384.8)
Selling, delivery and administrative expenses 45.5 29.2 43.9
</TABLE>
Increased support reflected in net sales and selling, delivery and
administrative expenses in 2001, as well as higher purchases reflected in cost
of goods sold in 2001, are due in part to increased activity associated with the
additional territories acquired in the merger with the former PAS.
F-27
<PAGE>
18. Selected Quarterly Financial Data
(unaudited and in millions, except for earnings per share)
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
2001:
- ----
Sales $ 705.4 $ 856.8 $ 847.1 $ 761.4 $ 3,170.7
---------- ---------- ---------- ---------- ----------
Gross profit $ 277.1 $ 343.0 $ 339.5 $ 299.0 $ 1,258.6
---------- ---------- ---------- ---------- ----------
Income from continuing operations $ 12.8 $ 35.4 $ 32.7 $ 9.2 $ 90.1
Loss from discontinued operations -- -- -- (71.2) (71.2)
---------- ---------- ---------- ---------- ---------
Net income (loss) $ 12.8 $ 35.4 $ 32.7 $ (62.0) $ 18.9
========== ========== ========== ========== ==========
Weighted average common shares:
Basic 155.8 156.3 156.3 155.2 155.9
Incremental effect of stock options 1.0 0.7 0.6 0.4 0.7
---------- ---------- ---------- ---------- ----------
Diluted 156.8 157.0 156.9 155.6 156.6
========== ========== ========== ========== ==========
Income (loss) per share - basic:
Continuing operations $ 0.08 $ 0.23 $ 0.21 $ 0.06 $ 0.58
Discontinued operations -- -- -- (0.46) (0.46)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 0.08 $ 0.23 $ 0.21 $ (0.40) $ 0.12
========== ========== ========== ========== ==========
Income (loss) per share - diluted:
Continuing operations $ 0.08 $ 0.23 $ 0.21 $ 0.06 $ 0.58
Discontinued operations -- -- -- (0.46) (0.46)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 0.08 $ 0.23 $ 0.21 $ (0.40) $ 0.12
========== ========== ========== ========== ==========
2000:
- ----
Sales $ 548.9 $ 682.6 $ 655.2 $ 640.9 $ 2,527.6
---------- ---------- ---------- ---------- ----------
Gross profit $ 229.2 $ 279.1 $ 269.0 $ 256.1 $ 1,033.4
---------- ---------- ---------- ---------- ----------
Income from continuing operations $ 10.2 $ 30.6 $ 28.9 $ 1.8 $ 71.5
Income from discontinued operations -- 8.9 -- -- 8.9
---------- ---------- ---------- ---------- ----------
Net income $ 10.2 $ 39.5 $ 28.9 $ 1.8 $ 80.4
========== ========== ========== ========== ==========
Weighted average common shares:
Basic 138.1 136.4 136.3 145.4 139.0
Incremental effect of stock options 0.4 0.3 0.6 0.6 0.5
---------- ---------- ---------- ---------- ----------
Diluted 138.5 136.7 136.9 146.0 139.5
========== ========== ========== ========== ==========
Income per share - basic:
Continuing operations $ 0.07 $ 0.22 $ 0.21 $ 0.01 $ 0.51
Discontinued operations -- 0.07 -- -- 0.07
---------- ---------- ---------- ---------- ----------
Net income $ 0.07 $ 0.29 $ 0.21 $ 0.01 $ 0.58
========== ========== ========== ========== ==========
Income per share - diluted:
Continuing operations $ 0.07 $ 0.22 $ 0.21 $ 0.01 $ 0.51
Discontinued operations -- 0.07 -- -- 0.07
---------- ---------- ---------- ---------- ----------
Net income $ 0.07 $ 0.29 $ 0.21 $ 0.01 $ 0.58
========== ========== ========== ========== ==========
</TABLE>
F-28
<PAGE>
PEPSIAMERICAS, INC. AND SUBSIDIARIES
----------------------
EXHIBITS
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 29, 2001
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
3.1 Restated Certificate of Incorporation (incorporated by reference to
the Company's Registration Statement on Form S-8 (File No.
333-64292) filed on June 29, 2001).
3.2 By-Laws, as amended and restated on February 16, 2001 (incorporated
by reference to the Company's Registration Statement on Form S-8
(File No. 333-64292) filed on June 29, 2001).
4.1 First Supplemental Indenture dated as of May 20, 1999, to the
Indenture dated as of January 15, 1993, between Whitman Corporation
and The First National Bank of Chicago, as Trustee, (incorporated
by reference to the Company's Quarterly Report on Form 10-Q (File
No. 001-15019) filed on August 17, 1999).
4.2 Rights Agreement, dated as of May 20, 1999, between Whitman
Corporation and First Chicago Trust Company of New York
(incorporated by reference to the Company's Registration Statement
on Form 8-A (File No. 001-15019) filed on May 25, 1999).
4.3 Amendment, as of August 18, 2000, to the Rights Agreement, dated as
of May 20, 1999, between Whitman Corporation and First Chicago
Trust Company of New York as amended and restated on February 16,
2001, dated as of May 20, 1999, between the Company and First
Chicago Trust Company of New York, as Rights Agent (incorporated by
reference to the Company's Registration Statement on Form S-4 (File
No. 333-64292) filed on September 22, 2000).
10.1 Revised Stock Incentive Plan, as Adopted May 20, 1999 (incorporated
by reference to the Company's Quarterly Report on Form 10-Q (File
No. 001-15019) filed on August 17, 1999).
10.2 Form of Change in Control Agreement dated May 21, 1999
(incorporated by reference to the Company's Quarterly Report on
Form 10-Q (File No. 001-15019) filed on August 17, 1999).
10.3 Deferred Compensation Plan for Directors, as Adopted May 20, 1999
(incorporated by reference to the Company's Quarterly Report on
Form 10-Q (File No. 001-15019) filed on August 17, 1999).
10.4 1982 Stock Option, Restricted Stock Award and Performance Award
Plan (as amended through June 16, 1989) (incorporated by reference
to the Company's Quarterly Report on Form 10-Q (File No. 001-15019)
filed on August 17, 1999).
10.5 Amendment No. 2, as of September 1, 1992, to 1982 Stock Option,
Restricted Stock Award and Performance Award Plan made as of
September 1, 1992 (incorporated by reference to the Company's
Quarterly Report on Form 10-Q (File No. 001-15019) filed on August
17, 1999).
10.6 Stock Incentive Plan, as amended through February 19, 1993
(incorporated by reference to the Company's Quarterly Report on
Form 10-Q (File No. 001-15019) filed on August 17, 1999).
10.7 Executive Retirement Plan, as Amended and Restated Effective
January 1, 1998 (incorporated by reference to the Company's
Quarterly Report on Form 10-Q (File No. 001-15019) filed on August
17, 1999).
10.8 Employment Extension Agreement dated as of January 1, 2000 between
the Company and Bruce S. Chelberg (incorporated by reference to the
Company's Annual Report on Form 10-K (File No. 001-15019) filed on
March 15, 2000).
10.9 Employment Extension Agreement dated as of January 1, 2000 between
the Company and Lawrence J. Pilon (incorporated by reference to the
Company's Annual Report on Form 10-K (File No. 001-15019) filed on
March 15, 2000).
10.10 Letter Agreement dated November 30, 2000 between the Company and
Dr. Archie R. Dykes (incorporated by reference to the Company's
Annual Report on Form 10-K (File No. 001-15019) filed on March 27,
2001).
10.11 2000 Stock Incentive Plan (incorporated by reference to Exhibit 4.4
to the Company's Registration Statement on Form S-8 (File No.
333-36994) filed on May 12, 2000.
10.12 PepsiAmericas, Inc. 1999 Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8 (File
No. 333-46368) filed on December 21, 2000).
i
<PAGE>
10.13 Pepsi-Cola Puerto Rico Bottling Company Qualified Stock Option Plan
(incorporated by reference to the Company's Registration Statement
on Form S-8 (File No. 333-46368) filed on December 21, 2000).
10.14 Pepsi-Cola Puerto Rico Bottling Company Non-Qualified Stock Option
Plan (incorporated by reference to the Company's Registration
Statement on Form S-8 (File No. 333-46368) filed on December 21,
2000).
10.15 Letter Agreements dated November 30, 2000 between the Company and
Peter M. Perez (incorporated by reference to the Company's Annual
Report on Form 10-K (File No. 001-15019) filed on March 27, 2001).
10.16 Letter Agreements dated November 30, 2000 between the Company and
Larry D. Young (incorporated by reference to the Company's Annual
Report on Form 10-K (File No. 001-15019) filed on March 27, 2001).
10.17 Amended and Restated Shareholder Agreement, dated as of November
30, 2000, between Whitman Corporation and PepsiCo, Inc.
(incorporated by reference to the Company's Current Report on Form
8-K (File No. 001-15019) filed on December 1, 2000).
10.18 Shareholder Agreement, dated November 30, 2000, among Whitman
Corporation, Pohlad Companies, Dakota Holdings, LLC and Robert
Pohlad (incorporated by reference to the Company's Current Report
on Form 8-K (File No. 001-15019) filed on December 1, 2000).
10.19 Form of Master Bottling Agreement between PepsiCo, Inc. and
PepsiAmericas, Inc.
10.20 Form of Master Fountain Syrup Agreement between PepsiCo, Inc. and
PepsiAmericas, Inc.
10.21 Amendment, dated December 12, 2001, to Letter Agreement dated
November 30, 2000 between the Company and Dr. Archie R. Dykes.
12 Statement of Calculation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Company.
23 Consent of Independent Auditors.
24 Powers of Attorney.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>pas10k_exh10-19.txt
<DESCRIPTION>MASTER BOTTLING AGREEMENT
<TEXT>
Exhibit 10.19
MASTER BOTTLING AGREEMENT
Between
PEPSICO, INC.
and
PEPSIAMERICAS, INC.
<PAGE>
MASTER BOTTLING AGREEMENT
THIS AGREEMENT, (this "Agreement") effective as of November 30, 2000 is
made and entered into by and between PEPSICO, INC., a corporation organized and
existing under the laws of the State of North Carolina having its principal
place of business in Purchase, New York (the "Company"), and PEPSIAMERICAS,
INC., a corporation organized and existing under the laws of the State of
Delaware having its principal place of business in Rolling Meadows, Illinois
(the "Bottler").
W I T N E S S E T H :
-------------------
WHEREAS
A. The Company manufactures and sells the concentrates (the
"Concentrates") for the Beverages (as hereinafter defined). The Company
authorizes others to manufacture the syrups prepared from the
Concentrates for the Beverages (the "Syrups") and to manufacture from
the Syrups and sell the soft drinks identified on Schedule A (as
modified from time to time under paragraphs 21 and 22, the
"Beverages"). The formulas for the Concentrates, Syrups and Beverages
constitute trade secrets owned by the Company;
B. The Company is the owner of the trademarks identified on Schedule B
(together with such other trademarks as may be authorized by the
Company from time to time for current use by the Bottler under this
Agreement, the "Trademarks"), which, among other things, identify and
distinguish the Concentrates, the Syrups and the Beverages;
C. The primary business of the Bottler is to act as a Bottler of the
Beverages, either directly pursuant to certain agreements previously
entered into with the Company (collectively, together with all
amendments thereto, the "Existing Bottling Appointments"), or
indirectly through one or more persons controlling, controlled by or
under common control with the Bottler (the "Bottler Affiliates");
D. The reputation of the Beverages as being of consistently superior
quality has been a major factor in stimulating and sustaining demand
for the Beverages, and special technical skill and constant diligence
on the part of the Bottler and the Company are required in order for
the Beverages to maintain the excellence that consumers expect; and
E. Conditions affecting the production, sale and distribution of Beverages
have changed since the Company and the Bottler, or its
predecessors-in-interest, entered into the Existing Bottling
Appointments, and as a consequence, the Company and the Bottler desire
to amend the Existing Bottling Appointments, the terms of the Existing
Bottling Appointments, as so amended, being replaced and restated in
the form of this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Bottler agree
as follows:
ARTICLE I
The Authorization
1. The Company authorizes the Bottler, and the Bottler undertakes, to
manufacture and package the Beverages and to distribute and sell the
Beverages only in Authorized Containers, as hereinafter defined, under
the Trademarks in and throughout the territories identified in Schedule
C (together with any territories added under paragraph 31, and subject
to the possible elimination of subterritories under paragraph 29, the
"Territories").
2. The Company will, from time to time, in its discretion, approve
containers of certain types, sizes, shapes and other distinguishing
characteristics (collectively, subject to any additions, deletions and
modifications by the Company, the "Authorized Containers"). A list of
Authorized Containers for each Beverage will be provided by the Company
to the Bottler, which list may be amended by the Company from time to
time by additions, deletions or modifications. The Bottler is
authorized to use only Authorized Containers in the manufacture,
distribution and sale of the Beverages. The Company reserves the right
to withdraw from time to time its approval of any of the Authorized
Containers upon six (6) months notice to the Bottler, and, in such
event, the repurchase provisions of subparagraph 28(e) shall apply to
containers so disapproved that are owned by the Bottler. The Company
will exercise its right to approve, and to withdraw its approval of,
specific Authorized Containers in good faith so as to permit the
Bottler to continue to fully meet the demand in the Territories as a
whole for Beverages in containers of the nature identified on Schedule
D.
<PAGE>
ARTICLE II
Exclusive Authorization
3. The Company appoints the Bottler as its sole and exclusive purchaser of
the Concentrates for the purpose of manufacture, packaging and
distribution of the Beverages under the Trademarks in Authorized
Containers for sale in the Territories;
4. The Company agrees not to authorize any other party whatsoever to use
the Trademarks on Beverages in Authorized Containers, or any other
containers of the nature identified on Schedule D, for purposes of
resale in the Territories.
5. The Bottler shall purchase its entire requirements of Concentrates
exclusively from the Company and shall not use any other syrup,
beverage base, concentrate or other ingredient in the Beverages than as
specified by the Company.
ARTICLE III
Obligations of Bottler
Relating to Trademarks and Other Matters
6. The Bottler acknowledges that the Company is the sole and exclusive
owner of the Trademarks, and the Bottler agrees not to question or
dispute the validity of the Trademarks or their exclusive ownership by
the Company. By this Agreement, the Company extends to the Bottler
only: (i) a nonexclusive license to use the trademark "Pepsi-Cola" as
part of the corporate name of the Bottler; and (ii) an exclusive
license to use the Trademarks solely in connection with the
manufacture, packaging, distribution, and sale of the Beverages in
Authorized Containers in the Territories subject to the rights reserved
to the Company under this Agreement. Nothing herein, nor any act or
failure to act by the Bottler or the Company, shall give the Bottler
any proprietary or ownership interest of any kind in the Trademarks or
in the goodwill associated therewith.
7. The Bottler agrees during the term of this Agreement and in accordance
with any requirements imposed upon the Bottler under applicable laws:
(a) Not to produce, manufacture, package, sell, deal in or
otherwise use or handle, directly or indirectly, any "Cola
Product" (herein defined to mean any soft drink beverage which
is generally marketed as a cola product or which is generally
perceived as being a cola product) other than a soft drink
manufactured, packaged, distributed or sold by the Bottler
under authority of the Company;
(b) Not to manufacture, package, sell, deal in or otherwise use or
handle, directly or indirectly, any concentrate, beverage
base, syrup, beverage or any other product which is likely to
be confused with, or passed off for, any of the Concentrates,
Syrups or Beverages;
(c) Not to manufacture, package, sell, deal in or otherwise use or
handle, directly or indirectly, any product under any trade
dress or in any container that is an imitation of a trade
dress or container in which the Company claims a proprietary
interest or which is likely to be confused or cause confusion
or be confusingly similar to or be passed off as such trade
dress or container;
(d) Not to manufacture, package, sell, deal in or otherwise use or
handle, directly or indirectly, any product under any
trademark or other designation that is an imitation,
counterfeit, copy or infringement of, or confusingly similar
to, any of the Trademarks; and
(e) Not to acquire or hold, directly or indirectly, any ownership
interest in, or, directly or indirectly, enter into any
contract or arrangement with respect to, the management or
control of, any person within or without the Territories that
engages in any of the activities prohibited by subparagraphs
(a), (b), (c) or (d) of this paragraph 7.
ARTICLE IV
Obligations of Bottler Relating to
Manufacture and Packaging of the Beverages
8. (a) The Bottler represents and warrants that the Bottler
possesses, or will possess, in the Territories, prior to the
manufacture, packaging and distribution of the Beverages, and
will maintain during the term of this Agreement, such plant or
plants, machinery and equipment, trained staff, and
distribution and vending facilities as are capable of
manufacturing, packaging and distributing the Beverages in
Authorized Containers in accordance with this Agreement, in
compliance with all applicable governmental and administrative
requirements, and in sufficient quantities to fully meet the
demand for the Beverages in Authorized Containers in the
Territories.
(b) The Company and the Bottler acknowledge that each is or may
become a party to one or more agreements authorizing a bottler
or other Company-authorized entity to produce Beverages for
sale by another bottler. Such agreements include, but are not
limited to (i) agreements permitting bottlers, subject to
certain conditions, to commence or continue to manufacture the
Beverages for other bottlers, and (ii) agreements pursuant to
which bottlers may have the Beverages manufactured for them by
other Company-authorized entities. It is hereby agreed that
the Company shall not unreasonably withhold (i) any consents
required by such agreements, or (ii) approval of Bottler's
participation in such agreements. All such existing agreements
shall remain in full force and effect in accordance with their
terms.
9. The Bottler recognizes that increases in the demand for the Beverages,
as well as changes in the list of Authorized Containers, may, from time
to time, require adaptation of its existing manufacturing, packaging or
delivery equipment or the purchase of additional manufacturing,
packaging and delivery equipment. The Bottler agrees to make such
modifications and adaptations as necessary and to purchase and install
such equipment, in time to permit the introduction and manufacture,
packaging and delivery of sufficient quantities of the Beverages in the
Authorized Containers, to fully meet the demand for the Beverages in
Authorized Containers in the Territories.
10. The Bottler warrants that the handling and storage of the Concentrates;
the manufacture, handling and storage of the Syrups; and the
manufacture, handling, storage, and packaging of the Beverages shall be
accomplished in accordance with the Company's quality control and
sanitation standards, as reasonably established by the Company and
communicated to the Bottler from time to time, and shall, in any event,
conform with all food, labeling, health, packaging and other relevant
laws and regulations applicable in the Territories.
11. The Bottler, in accordance with such instructions as may be given from
time to time by the Company, shall submit to the Company, at the
Bottler's expense, samples of the Syrups, the Beverages and the raw
materials used in the manufacture of the Syrups and the Beverages. The
Bottler shall permit representatives of the Company to have access to
the premises of the Bottler during ordinary business hours to inspect
the plant, equipment, and methods used by the Bottler in order to
ascertain whether the Bottler is complying with the instructions and
standards prescribed for the manufacturing, handling, storage and
packaging of the Beverages.
12. (a) For the packaging, distribution and sale of the Beverages,
the Bottler shall use only such Authorized Containers,
closures, cases, cartons and other packages and labels as
shall be authorized from time to time by the Company for the
Bottler and shall purchase such items only from manufacturers
approved by the Company, which approval shall not be
unreasonably withheld. Such approval by the Company does not
relieve the Bottler of the Bottler's independent
responsibility to assure that the Authorized Containers,
closures, cases, cartons and other packages and labels
purchased by the Bottler are suitable for the purpose
intended, and in accordance with the good reputation and image
of excellence of the Trademarks and Beverages.
(b) The Bottler shall maintain at all times a stock of Authorized
Containers, closures, labels, cases, cartons, and other
essential related materials bearing the Trademarks, sufficient
to fully meet the demand for Beverages in Authorized
Containers in the Territories, and the Bottler shall not use
or permit the use of Authorized Containers, or such closures,
labels, cases, cartons and other materials, if they bear the
Trademarks or contain any Beverages, for any purpose other
than the packaging and distribution of the Beverages. The
Bottler further agrees not to refill or otherwise reuse
nonreturnable containers.
13. If the Company determines the existence of quality or technical
difficulties with any Beverage, or any package used for such product,
the Company shall have the right, immediately and at its sole option,
to withdraw such product or any such package from the market. The
Company shall notify the Bottler in writing of such withdrawal, and the
Bottler shall, upon receipt of notice, immediately cease distribution
of such product or such package therefor. If so directed by the
Company, the Bottler shall recall and reacquire the product or package
involved from any purchaser thereof. If any recall of any product or
any of the packages used therefor is caused by (i) quality or technical
defects in the Concentrate, or other materials prepared by the Company
from which the product involved was prepared by the Bottler, or (ii)
quality or technical defects in the Company's designs and design
specifications of packages which it has imposed on the Bottler or the
Bottler's third party suppliers if such designs and specifications were
negligently established by the Company (and specifically excluding
designs and specifications of other parties and the failure of other
parties to manufacture packages in strict conformity with the designs
and specifications of the Company), the Company shall reimburse the
Bottler for the Bottler's total expenses incident to such recall.
Conversely, if any recall is caused by the Bottler's failure to comply
with instructions, quality control procedures or specifications for the
preparation, packaging and distribution of the product involved, the
Bottler shall bear its total expenses of such recall and reimburse the
Company for the Company's total expenses incident to such recall.
ARTICLE V
Conditions of Purchase and Sale
14. The Company reserves the right to establish and to revise at any time,
in its sole discretion, the price of any of the Concentrates, the terms
of payment, and the other terms and conditions of supply, any such
revision to be effective immediately upon notice to the Bottler. If
Bottler rejects a change in price or the other terms and conditions
contained in any such notice, then the Bottler shall so notify the
Company within thirty (30) days of receipt of the Company's notice, and
this Agreement will terminate ninety (90) days after the date of such
notification by the Bottler, without further liability of the Company
or the Bottler. The change in price or other terms and conditions so
rejected by the Bottler shall not apply to purchases of such
Concentrate by the Bottler during such ninety (90) day period preceding
termination. Failure by the Bottler to notify the Company of its
rejection of the changes in price or such other terms and conditions
shall be deemed acceptance thereof by the Bottler.
15. The Bottler shall purchase from the Company only such quantities of the
Concentrates as shall be necessary and sufficient to carry out the
Bottler's obligations under this Agreement. The Bottler shall use the
Concentrates exclusively for its manufacture of the Syrups and shall
use the Syrups exclusively for its manufacture of the Beverages. The
Bottler shall not sell or otherwise transfer any Concentrate or Syrup
or permit the same to get into the hands of third parties.
16. (a) The Bottler agrees not to distribute or sell any Beverage
outside the Territories. The Bottler shall not sell any
Beverage to any person (other than another Bottler pursuant to
subparagraph 8(b)) for ultimate sale outside the Territories.
If any Beverage distributed by the Bottler is found outside of
the Territories, Bottler shall be deemed to have transshipped
such Beverage and shall be deemed to be a "Transshipping
Bottler" for purposes hereof. For purposes of this Agreement,
"Offended Bottler" shall mean a Bottler in any territory into
which any Beverage is transshipped.
(b) In addition to all other remedies the Company may have against
any Transshipping Bottler for violation of this paragraph 16,
the Company may impose upon any Transshipping Bottler a charge
for each case of Beverage transshipped by such Bottler. The
per-case amount of such charge shall be determined by the
Company in its sole discretion. The Company and the Bottler
agree that the amount of such charge shall be deemed to
reflect the damages to the Company, the Offended Bottler and
the bottling system. In addition, the Company may directly
charge the Transshipping Bottler the full amount of all
investigative and other costs incurred by the Company in
connection with the transshipment and such Transshipping
Bottler shall be obligated to pay such amount. The Company
shall forward to the Offended Bottler, upon receipt from the
Transshipping Bottler, the full amount of the per case charge
so received (but not including investigative and other costs
charged to the Transshipping Bottler by the Company). If the
Company or its agent recalls any Beverage which has been
transshipped, the Transshipping Bottler shall, in addition to
any other obligation it may have hereunder, reimburse the
Company for its costs of purchasing, transporting, and/or
destroying such Beverage.
<PAGE>
ARTICLE VI
Obligations of the Bottler
Relating to the Marketing of the Beverages
Financial Capacity and Planning
17. The continuing responsibility to increase and fully meet the demand for
the Beverages in Authorized Containers within the Territories rests
upon the Bottler. The Bottler agrees to use all approved means as may
be reasonably necessary to meet this responsibility.
18. (a) The Bottler will push vigorously the sale of the Beverages
in Authorized Containers throughout the entire Territories.
Without in any way limiting the Bottler's obligation under
this Paragraph 18, the Bottler must fully meet and increase
the demand for the Beverages throughout the Territories and
secure full distribution up to the maximum sales potential
therein through all distribution channels or outlets available
to soft drinks, using any and all equipment reasonably
necessary to secure such distribution; must service all
accounts with frequency adequate to keep them at all times
fully supplied with the Beverages and must use its own
salesmen and trucks, (or salesmen and trucks of independent
distributors, of whom the Company approves), in quantity
adequate for all seasons.
(b) The parties agree that to fully meet and increase demand for
the Beverages in Authorized Containers advertising and other
forms of marketing activities are required. Therefore, the
Bottler will spend such funds in advertising and marketing the
Beverages as may be reasonably required to increase, as well
as maintain, demand for the Beverages in Authorized Containers
in the Territories. The Bottler shall fully cooperate in and
vigorously push all cooperative advertising and sales
promotion programs and campaigns that may be reasonably
established by the Company for the Territories. The Bottler
will use and publish only such advertising, promotional
materials or other items bearing the Trademarks relating to
the Beverages as the Company has approved and authorized. The
expenditures required by this Article VI shall be made by the
Bottler. The Company may, in its sole discretion, contribute
to such expenditures. The Company may also undertake, at its
expense, independently of the Bottler's marketing programs,
any advertising or promotional activity that the Company deems
appropriate to conduct in the Territories, but this shall in
no way affect the responsibility of the Bottler for increasing
the demand for the Beverages in Authorized Containers in the
Territories.
19. The Bottler and all Bottler Affiliates shall maintain the consolidated
financial capacity reasonably necessary to assure that the Bottler and
all Bottler Affiliates directly or indirectly controlled by the Bottler
will be financially able to perform their respective duties and
obligations under this Agreement and under all other agreements between
the Company and Bottler Affiliates regarding the manufacture,
packaging, distribution and sale of the Beverages in "authorized
containers" (as defined in such agreements).
20. (a) The Company and the Bottler have agreed upon a business
plan for the first three years occurring during the term of
this Agreement. Since periodic planning is essential for the
proper implementation of this Agreement, the Bottler and the
Company shall meet each year at such date as the parties may
set (but no later than ninety (90) days prior to the
commencement of any calendar year during the term of this
Agreement beginning with the commencement of the calendar year
closest to the anniversary date of this Agreement), to discuss
the Bottler's plans for the ensuing three (3) year period. At
such meeting, the Bottler shall present a plan that sets out
in reasonable detail satisfactory to the Company: (i) the
marketing plans, management plans and advertising plans of the
Bottler with respect to the Beverages for the ensuing year,
including a financial plan showing that the Bottler and all
Bottler Affiliates have the consolidated financial capacity to
perform their respective duties and obligations under this
Agreement, and (ii) the projected sales, marketing and
advertising plans and related equipment placements for the two
years immediately following such year. Senior management of
the Company and the Bottler shall discuss this plan and this
plan, upon approval by the Company (represented by such senior
management), which shall not be unreasonably withheld, shall
define the Bottler's obligation herein to maintain such
consolidated financial capacity and to increase and fully meet
the demand for the Beverages in Authorized Containers in the
Territories for the period of time covered by the plan.
(b) The Bottler shall report to the Company periodically, but not
less than quarterly, as to its implementation of the approved
plan; it is understood, however, that the Bottler shall report
sales on a regular basis as requested by the Company and in
such format and detail, and containing such information as may
be reasonably requested by the Company. The failure by the
Bottler to carry out the plan, or if the plan is not presented
or is not approved, will constitute a primary consideration
for determining whether the Bottler has fulfilled its
obligation to maintain the consolidated financial capacity
required under paragraph 19 and to push vigorously the sale of
Beverages in Authorized Containers throughout the Territories
and to increase and fully meet the demand for the Beverages in
Authorized Containers in the Territories. If the Bottler
carries out the plan in all material respects, it shall be
deemed to have satisfied the obligations of the Bottler under
paragraphs 17, 18, 19 and 20 for the period of time covered by
the plan.
ARTICLE VII
Reformulation, New Products and Related Matters
21. The Company has the sole and exclusive right and discretion to
reformulate any of the Beverages. In addition, the Company has the sole
and exclusive right and discretion to discontinue any of the Beverages
under this Agreement, provided (i) such Beverage is discontinued on a
national basis in Authorized Containers and in such other containers as
may have been authorized for use by other Bottlers under their
respective bottle contracts, and (ii) the Company does not discontinue
all Beverages under this Agreement. In the event that the Company
discontinues any Beverage, Schedule A to this Agreement shall be deemed
amended by deleting the discontinued Beverage from the list of
Beverages set forth on Schedule A.
22. In the event that the Company introduces any new beverage in the
Territories under the trademarks "Pepsi-Cola" or "Pepsi" or any
modification thereof (herein defined to mean the addition of a prefix,
suffix or other modifier used in conjunction with the trademarks
"Pepsi-Cola" or "Pepsi"), the Bottler shall be obligated to
manufacture, package, distribute and sell such new beverage in
Authorized Containers in the Territories pursuant to the terms and
conditions of this Agreement, and Schedule A to this Agreement shall be
deemed amended by adding such new beverage to the list of beverages set
forth on Schedule A.
23. The Company has the unrestricted right to use the Trademarks on the
Beverages and on all other products and merchandise other than the
Beverages in Authorized Containers in the Territories.
ARTICLE VIII
Term and Termination of the Agreement
24. The term of this Agreement shall commence on the effective date hereof
and, unless earlier terminated in accordance with its provisions, will
continue perpetually.
25. The obligation to supply Concentrates to the Bottler and the Bottler's
obligation to purchase Concentrates from the Company and to
manufacture, package, distribute and sell the Beverages under this
Agreement shall be suspended during any period when any of the
following conditions exist:
(a) There shall occur a change in the law or regulation
(including, without limitation, any government permission or
authorization regarding customs, health or manufacturing) in
such a manner as to render unlawful or commercially
impracticable:
(i) the importation of Concentrate or any of its
essential ingredients, which cannot be produced in
quantities sufficient to satisfy the demand therefor
by existing Company facilities in the United States;
or
(ii) the manufacture and distribution of the Concentrates
or Beverages; or
(b) There shall occur any inability or commercial impracticability
of either of the parties to perform resulting from an act of
god, or "force majeure," public enemies, boycott, quarantine,
riot, strike, or insurrection, or due to a declared or
undeclared war, belligerency or embargo, sanctions,
blacklisting, or other hazard or danger incident to the same,
or resulting from any other cause whatsoever beyond its
control.
If any of the conditions described in this paragraph 25 persists so
that either party's obligation to perform is suspended for a period of
six (6) months or more, the other party may terminate this Agreement
forthwith, upon notice to the party whose obligation to perform is
suspended.
26. (a) The Company may terminate this Agreement in the event of
the occurrence of any of the following events of default:
(i) If the Bottler or Bottler Subsidiary becomes
insolvent; if a petition in bankruptcy is filed
against or on behalf of the Bottler or Bottler
Subsidiary which is not stayed or dismissed within
sixty (60) days; if the Bottler or Bottler Subsidiary
is put in liquidation or placed under sequester; if a
receiver is appointed to manage the business of the
Bottler or Bottler Subsidiary; or if the Bottler or
Bottler Subsidiary enters into any judicial or
voluntary arrangement or composition with its
creditors, or concludes any similar arrangements with
them or makes an assignment for the benefit of
creditors;
(ii) If the Bottler or Bottler Subsidiary adopts a plan of
dissolution or liquidation;
(iii) If any person or any Affiliated Group (as hereinafter
defined), other than any person or any Affiliated
Group acting with the consent of the Company,
acquires, or obtains any contract, option, conversion
privilege or other right to acquire, directly or
indirectly, Beneficial Ownership (as hereinafter
defined), of more than fifteen percent (15%) of any
class or series of voting securities of the Bottler
or Bottler Subsidiary and if such person or
Affiliated Group does not divest itself of Beneficial
Ownership of such voting securities or otherwise
terminate any such contract, option, conversion
privilege or other right to a level equal to or below
fifteen percent (15%) within thirty (30) days after
the Company notifies the Bottler that the failure of
such person or Affiliated Group to thus divest or
terminate may result in termination of this
Agreement;
(iv) If any Disposition (as hereinafter defined) is made
without the consent of the Company by Bottler or by
any Bottler Subsidiary of any voting securities of
any Bottler Subsidiary;
(v) If any agreement regarding the manufacture,
packaging, distribution or sale of the Beverages in
"authorized containers" (as defined in such
agreement) between the Company and any person that
controls, directly or indirectly, the Bottler is
terminated, unless the Company agrees in writing that
this subparagraph 26(a)(v) will not be applied by the
Company to such termination;
(vi) If the Bottler or any person in which the Bottler has
Beneficial Ownership of any equity or voting
securities, or in which the Bottler has a right or
control of management, or which controls or is under
common control with the Bottler, should engage
directly or indirectly in the manufacture,
distribution or marketing of any product specified in
subparagraphs (a), (b), (c) or (d) of paragraph 7
above, or should obtain a right or license to do the
same, and if the Company has given the Bottler notice
that such condition exists and that the Company will
terminate this Agreement within six (6) months if
such condition is not eliminated, and if such
condition has not been eliminated within the six (6)
month period.
(vii) If all or substantially all of the Bottler's or
Bottler Subsidiary's bottling assets are sold,
transferred or otherwise disposed of (including any
transfer by operation of law) other than sales,
transfers or other dispositions by the Bottler or one
or more Bottler Subsidiary to one or more
wholly-owned subsidiary of such Bottler or such
Bottler Subsidiary.
(b) The Bottler covenants and agrees with the Company:
(i) to notify the Company promptly in the event of or
upon obtaining knowledge of any third party action
which may or will result in any change in ownership
described in Section 26(a)(iii) above;
(ii) to make available from time to time and at the
request of the Company complete records of current
ownership of the Bottler and full information
concerning any entities or parties by whom it is
controlled directly or indirectly or which it
controls; and
(c) For the purposes of this Agreement:
(i) "Affiliated Group" shall mean two or more persons
acting as a partnership, limited partnership,
syndicate or other group, or who agrees to act
together, for the purpose of acquiring, holding,
voting or making any Disposition of any voting
securities of the Bottler; provided further that the
Affiliated Group formed thereby shall be deemed to
have acquired Beneficial Ownership of all voting
securities of the Bottler beneficially owned by any
such persons.
(ii) "Beneficial Ownership" shall mean (i) voting power
which includes the power to vote, or to direct the
voting of, any securities, or (ii) investment power
which includes the power to dispose, or to direct
the Disposition of, any securities; provided further
Beneficial Ownership shall include any such voting
power or investment power which any person has or
shares, directly or indirectly, through any
contract, arrangement, understanding, relationship
or otherwise; provided, however, that the following
persons shall not be deemed to have acquired
Beneficial Ownership under the circumstances
described: (a) a person engaged in business as an
underwriter of securities who acquires securities
through his participation in good faith in a firm
commitment underwriting registered under the
Securities Act of 1933 shall not be deemed to be the
Beneficial Owner of such securities until such time
as such underwriter completes his participation in
the underwriting and shall not thereupon or
thereafter be deemed to be the Beneficial Owner of
the securities acquired by other members of any
underwriting syndicate or selected dealers in
connection with such underwriting solely by reason
of customary underwriting or selected dealer
arrangements; (b) a member of a national securities
exchange shall not be deemed to be a Beneficial
Owner of securities held directly or indirectly by
it on behalf of another person solely because such
member is the record holder of such securities and,
pursuant to the rules of such exchange, may direct
the vote of such securities, without instruction, on
other than contested matters or matters that may
affect substantially the rights or privileges of the
holders of the securities to be voted, but is
otherwise precluded by the rules of such exchange
from voting without instruction; and (c) the holder
of a proxy solicited by the Board of Directors of
the Bottler for the voting of securities of such
Bottler at any annual or special meeting and any
adjournment or adjournments thereof of the
stockholders of such Bottler shall not be deemed to
be a Beneficial Owner of the securities that are the
subject of the proxy solely for such reason.
(iii) "Bottler Subsidiary" shall mean any person that is
controlled directly or indirectly by the Bottler, and
either participates in the manufacture, packaging,
distribution or sale of the Beverages in "Authorized
Containers" or has a direct or indirect equity
interest in another Bottler Subsidiary that does so
participate;
(iv) "Disposition" shall mean any sale, merger, issuance
of securities, or other transaction in which, or as a
result of which, any person other than Bottler or a
wholly owned subsidiary of Bottler, acquires, or
obtains any contract, option, conversion privilege or
other right to acquire Beneficial Ownership of any
securities.
(d) Upon the occurrence of any of the events of default specified
in subparagraphs 26(a) and (b), the Company may terminate this
Agreement by giving the Bottler notice to that effect,
effective immediately.
27. (a) In addition to the events of a default described in
paragraph 26, the Company may also terminate this Agreement,
subject to the limitations of subparagraph 27(b), in the
event of the occurrence of any of the following events of
default:
(i) If the Bottler fails to make timely payment for
Concentrate or of any other debt owing to the
Company;
(ii) If the condition of the plant or equipment used by
the Bottler in manufacturing, packaging or
distributing the Beverages fails to meet the sanitary
standards reasonably established by the Company;
(iii) If the Syrups or Beverages manufactured by the
Bottler fail to meet the quality control standards
reasonably established by the Company;
(iv) If the Beverages are not manufactured in strict
conformity with such standards and instructions as
the Company may reasonably establish;
(v) If the Bottler fails to present or carry out a plan
approved under paragraph 20 in all material respects;
or
(vi) If the Bottler materially breaches any of the
Bottler's other obligations under this Agreement.
The standards and instructions of the Company comprise
privately published information concerning the manufacture,
handling and storage of the Beverages under good manufacturing
practices, as well as technical instructions, bulletins and
other communications issued or amended from time to time by
the Company.
(b) Upon the occurrence of any of the foregoing events of default,
the Company shall, as a condition to termination of this
Agreement under this paragraph 27, give the Bottler notice
thereof. The Bottler shall then have a period of sixty (60)
days within which to cure the default, including, at the
instruction of the Company and at the Bottler's expense, by
the prompt withdrawal from the market and destruction of any
Syrup or Beverage that fails to meet the quality control
standards of the Company or any Beverage that is not
manufactured in accordance with the instructions of the
Company. If such default has not been cured within such
period, then the Company may, by giving the Bottler further
notice to such effect, suspend sales to the Bottler of
Concentrates and require the Bottler to cease production of
the Syrups and the Beverages and the packaging and
distribution of Beverages in Authorized Containers. During
such second period of sixty (60) days, the Company also may
supply, or cause or permit others to supply, the Beverages in
Authorized Containers under the Trademarks in the Territories.
If such default has not been cured during such second period
of sixty (60) days, then the Company may terminate this
Agreement, by giving the Bottler notice to such effect,
effective immediately.
<PAGE>
28. Upon the termination of this Agreement:
(a) The Bottler shall forthwith take such action as necessary to
eliminate the trademark "Pepsi-Cola" from its corporate name;
(b) Any other agreement between the Company and the Bottler
regarding the manufacture, packaging, distribution, sale or
promotion of soft drinks in "authorized containers" (as
defined in such agreement) may, at the election of the
Company, be automatically terminated and thereby become of no
further force or effect.
(c) The Bottler shall not thereafter continue to manufacture,
package, distribute or sell any of the Beverages in Authorized
Containers or to make any use of the Trademarks or Authorized
Containers, or any closures, cases, labels or advertising
material bearing the Trademarks;
(d) The Bottler shall forthwith remove and efface all reference to
the Company, the Beverages and the Trademarks from the
business premises and equipment of the Bottler and from all
business papers and advertising used or maintained by the
Bottler; and it shall not thereafter hold forth in any manner
whatsoever that it has any connection with the Company or the
Beverages; and,
(e) The Bottler shall forthwith deliver all Concentrate, Syrup,
Beverage, usable returnable or any nonreturnable containers,
cases, closures, labels, and advertising material bearing the
Trademarks, still in the Bottler's possession or under the
Bottler's control, to the Company or the Company's nominee, as
instructed, and, upon receipt, the Company shall pay to the
Bottler a sum equal to the reasonable market value of such
supplies or materials. The Company will accept and pay for
only such articles as are, in the opinion of the Company, in
first-class and usable condition, and all other such articles
shall be destroyed at the Bottler's expense. Containers,
closures and advertising material and all other items bearing
the name of the Bottler, in addition to the Trademarks, that
have not been purchased by the Company shall be destroyed
without cost to the Company, or otherwise disposed of in
accordance with instructions given by the Company, unless the
Bottler can remove or obliterate the Trademarks therefrom to
the satisfaction of the Company. The provisions for repurchase
contained in subparagraph 28(e) shall apply with regard to any
Authorized Container, approval of which has been withdrawn by
the Company under paragraph 2; upon termination by either
party under paragraph 25; and upon termination by the Bottler
under subparagraph 14. In all other cases, the Company shall
have the right, but not the obligation, to purchase the
aforementioned items from the Bottler.
29. (a) Subject to the limitations set forth in subparagraph
29(b), in the event that the Bottler at any time fails to
carry out a plan approved under paragraph 20 in all material
respects in any segment of the Territories, whether defined
geographically or by type of market or outlet, which segment
shall be defined by the Company (hereinafter "Subterritory"),
the Company may reduce the Territories covered by this
Agreement, and thereby restrict the Bottler's authorization
hereunder to the remainder of the Territories, by eliminating
the Subterritory from the Territories covered by this
Agreement.
(b) In the event of such failure, the Company may eliminate
Subterritories from the Territories covered by this Agreement
by giving the Bottler notice to that effect, which notice
shall define the Subterritory or Subterritories to which the
notice applies. The Bottler shall then have a period of six
(6) months within which to cure such failure. If the Bottler
has not cured such failure in such six (6) month period, the
Company may eliminate such Subterritory or Subterritories from
the Territories by giving the Bottler further notice to that
effect, effective immediately.
(c) Upon elimination of any Subterritory from the Territory:
(i) Schedule C to this Agreement shall be deemed amended
by eliminating such Subterritory from the Territories
described on Schedule C;
(ii) The Company may manufacture, package, distribute and
sell the Beverages in Authorized Containers under the
Trademarks in such Subterritory, or authorize others
to do so;
(iii) Any other agreement between the Bottler and the
Company regarding the manufacture, packaging,
distribution or sale of soft drinks in "authorized
containers" (as defined in such agreement) in such
Subterritory may, at the election of the Company, be
automatically terminated and thereby become of no
further force or effect in such Subterritory;
(iv) The Bottler shall not thereafter continue to
manufacture, package, distribute or sell any of the
Beverages in Authorized Containers in such
Subterritory, or to make any use of the Trademarks,
Authorized Containers, closures, cases, labels or
advertising material bearing the Trademarks in
connection with the sale or distribution of the
Beverages in such Subterritory; and
(v) The Bottler shall not thereafter hold forth in such
Subterritory in any manner whatsoever that it has any
connection with the Beverages.
ARTICLE IX
Transferability/Additional Territories
30. The Bottler hereby acknowledges the personal nature of the Bottler's
obligations under this Agreement with respect to the performance
standards applicable to the Bottler, the dependence of the Trademarks
on proper quality control, the level of marketing effort required of
the Bottler to increase demand for the Beverages in Authorized
Containers, and the confidentiality required for protection of the
Company's trade secrets and confidential information. In recognition of
the personal nature of these and other obligations of the Bottler under
this Agreement, the Bottler may not assign, transfer or pledge this
Agreement or any interest therein, in whole or in part, whether
voluntarily, involuntarily, or by operation of law (including, but not
limited to, by merger or liquidation), or delegate any material element
of the Bottler's performance thereof, or sublicense its rights
hereunder, in whole or in part, to any third party or parties, without
the prior consent of the Company. Any attempt to take such action
without such consent shall be void and shall be deemed to be a material
breach of this Agreement.
31. (a) The Company shall designate an area (the "Specified Area")
consisting of territories proximate to the Territories
representing, as of the date hereof, approximately 7.59% of
all United States sales of Beverages in Authorized Containers.
The Bottler hereby agrees that it will not acquire or attempt
to acquire, directly or indirectly, without the prior written
consent of the Company, the right to manufacture and sell any
of the Beverages in Authorized Containers, or any equity or
economic interest in any entity having such rights, in any
territory located outside the Specified Area. Any acquisition
of such rights by the Bottler within the Specified Area shall
be subject to the approval of the Company which approval shall
not be withheld if, (i) the Bottler has successfully
negotiated the acquisition of such rights for any such
territories with the holder thereof and (ii) in the reasonable
judgment of the Company, the Bottler has satisfactorily
performed its obligations under this Agreement.
(b) In the event that the Bottler acquires the right to
manufacture and sell any of the Beverages in any container
that has been designated as an Authorized Container in any
territory in the United States outside of the Territories,
such additional territory shall automatically be deemed to be
included within the Territories covered by this Agreement for
all purposes. Any separate agreement that may exist concerning
such additional territory shall be ipso facto amended to
conform to the terms of this Agreement. In addition, if the
Bottler acquires control, directly or indirectly, of any
person which is a party, or which controls directly or
indirectly a party, to an agreement whereby such party has the
right to manufacture and sell any of the Beverages in any
territory in the United States in any container that has been
designated as an Authorized Container, the Bottler shall cause
such party to amend such agreement, effective as of the date
of acquisition of control of such party, to conform to the
terms of this Agreement with respect to all such territory in
the United States.
ARTICLE X
Litigation
32. (a) The Company reserves the right to institute any civil,
administrative or criminal proceeding or action, and generally
to take or seek any available legal remedy it deems desirable,
for the protection of its good reputation and industrial
property rights (including, but not limited to, the
Trademarks), as well as for the protection of the
Concentrates, the Syrups, the Beverages and the formulas
therefor, and to defend any action affecting these matters. At
the request of the Company, the Bottler will render reasonable
assistance in any such action. The Bottler may not claim any
right against the Company as a result of such action or for
any failure to take such action. The Bottler shall promptly
notify the Company of any litigation or proceeding instituted
or threatened affecting these matters. The Bottler shall not
institute any legal or administrative proceeding against any
third party which may affect the interests of the Company in
connection with this Agreement without the Company's prior
consent.
(b) The Company has the sole and exclusive right and
responsibility to prosecute and defend all suits relating to
the Trademarks. The Company may prosecute or defend any suit
relating to the Trademarks in the name of the Bottler whenever
an issue in such suit involves the Territories and therefore
it is appropriate to act in the Bottler's name, or may proceed
alone in the name of the Company, provided that the Company
shall take no action in the Bottler's name which the Company
knows or should know will materially prejudice or impair the
rights or interests of the Bottler under this Agreement.
(c) The Bottler recognizes the importance and benefit to itself
and all other bottlers of the Beverages of protecting the
interest of the Company in the Beverages, Authorized
Containers and the goodwill associated with the trademarks.
Therefore, the Bottler agrees to consult with the Company on
all products liability claims or lawsuits brought against the
Bottler in connection with the Beverages or Authorized
Containers and to take such action with respect to the defense
of any such claim or lawsuit as the Company may reasonably
request in order to protect the interest of the company in the
Beverages, Authorized Containers and goodwill associated with
the Trademarks. Further, the Bottler shall supervise, control
and direct the defense of all such products liability claims
and lawsuits brought against them whether individually or
jointly, provided, however, that the Bottler and the Company
expressly reserve all rights of contribution and indemnity as
prescribed by law.
ARTICLE XI
Automatic Amendment
33. In the event that bottlers, which purchased for their own account
eighty percent (80%) or more of all of the Concentrate for Beverages
purchased for the account of all bottlers who are parties to agreements
with the Company containing substantially the same terms as this
Agreement, agree with the Company to any different provisions to be
included in this Agreement, then the Bottler hereby agrees to include
an amendment containing such different provisions in this Agreement.
The gallons of Concentrate purchased by such bottlers shall be
determined based on the most recently-ended calendar year prior to the
date such amendment was first offered to bottlers.
ARTICLE XII
General
34. For purposes of this Agreement, the following terms shall have the
meanings set forth below:
(a) "person" means an individual, a corporation, a partnership, a
limited partnership, an association, a joint-stock company, a
trust, any unincorporated organization, or a government or
political subdivision thereof.
(b) "control" (including terms "controlling", "controlled by" and
"under common control with") means: (i) Beneficial Ownership
of a majority of any class or series of voting securities of a
person; or (ii) the power or authority, directly or
indirectly, to elect or designate a majority of the members of
the board of directors, or other governing body of a person.
35. The Company hereby reserves for its exclusive benefit all rights of
the Company not expressly granted to the Bottler under the terms of
this Agreement.
36. (a) Without relieving the Bottler of any of its responsibilities
under this Agreement, the Company, from time to time during
the term of this Agreement, at its option and either free of
charge or on such terms and conditions as the Company may
propose, may offer technology to the Bottler which the Company
possesses, develops or acquires (and is free to furnish to
third parties without obligation) relating to the design,
installation, operation and maintenance of the plant and
equipment appropriate for the maintenance of product quality,
sanitation and safety as well as for the efficient
manufacture and packaging of the Beverages; or relating to
personnel training, accounting methods, electronic data
processing and marketing and distribution techniques.
(b) The Bottler covenants and agrees that, so long as this
agreement is in effect the Bottler shall install and maintain
management information systems that are capable of interfacing
and sharing required data with the management information
systems of the Company in accordance with standards
established by the Company.
37. The Bottler agrees:
(a) it will not disclose to any third party any nonpublic
information whatsoever concerning the composition of the
Concentrates, the Syrup or the Beverages, without the prior
consent of the Company, and it will use any such information
solely to perform its obligations hereunder;
(b) It will at all times treat and maintain as confidential, all
nonpublic information that it may receive at any time from the
Company, including, but not limited to:
(i) Information or instructions of a technical or other
nature, relating to the mixing, sale, marketing and
distribution of the product.
(ii) Information about projects or plans worked out in the
course of this Agreement; and
(iii) Information constituting manufacturing or commercial
trade secrets.
The Bottler, further agrees to disclose such information, as necessary
to perform its obligations hereunder, only to employees of its
enterprise: (i) who have a reasonable need to know such information;
(ii) who have agreed to keep such information secret; and (iii) whom
the Bottler has no reason to believe is untrustworthy; and
(c) Upon the termination of this Agreement, Bottler will promptly
surrender to the Company all original documents and all
photocopies or other reproductions in its possession
(including, but not limited to, any extracts or digests
thereof) containing or relating to any nonpublic information
described in this paragraph 37. Following such termination,
and the surrender of such materials, the Bottler and its
employees shall continue to hold any nonpublic information in
confidence and refrain from any further use or disclosure
thereof whatsoever, provided that such obligation shall expire
as to any nonpublic information that does not constitute trade
secrets ten (10) years following such termination.
38. The Bottler agrees that it will not enter into any contract or other
arrangement to manage or participate in the management of any other
Pepsi-Cola bottler without the prior consent of the Company.
39. The Bottler is an independent manufacturer and not the agent of the
Company. The Bottler agrees that it will not represent that it is an
agent of the Company nor hold itself out as such.
40. The Bottler covenants and agrees that, so long as this Agreement is in
effect the Bottler shall deliver to Company:
(i) Quarterly Statements. As soon as such statements are made
available to the public, or if such statements are not
regularly made available to the public, within thirty days
after such fiscal quarter, an unaudited income and expense
statement and balance sheet for the Bottler; and
(ii) Annual Audit Statement. As soon as such statements are made
available to the public, or if such statements are not
regularly made available to the public, within 120 days after
the end of each fiscal year, statements of income and retained
earnings of the Bottler for the just-ended fiscal year, and a
balance sheet of the Bottler as of the end of such year,
accompanied by an opinion from the independent public
accountants of the Bottler; and
(iii) Other information. With reasonable promptness such other
financial information as the Company may reasonably request in
such format as the Company may reasonably request.
41. The Bottler shall maintain its books, accounts and records in
accordance with generally accepted accounting principles and shall
permit any person designated in writing by the Company to visit and
inspect any of its properties, corporate books and financial records
(including, but not limited to, auditor's workpapers), and make copies
thereof and take extracts therefrom, and to discuss the accounts and
finances of the Bottler with the principal officers thereof, all at
such times as the Company may reasonably request. The Company's rights
of inspection under this paragraph 41 shall be exercised reasonably,
and only for purposes of determining Bottler's compliance with its
obligations under paragraph 19, so as not to interfere with the normal
operation of the Bottler's business. The Company will treat and
maintain as confidential for a period of one year all nonpublic
financial information received from the Bottler.
42. The parties agree:
(a) All Existing Bottling Appointments, and other waivers,
authorizations or similar documents related to such Existing
Bottling Appointments, to the extent that they are
inconsistent with this Agreement, are hereby superseded and
restated in their entirety, and all rights, duties and
obligations of the Company and the Bottler regarding the
Trademarks and the manufacture, packaging, distribution and
sale of the Beverages in Authorized Containers shall be
determined under this Agreement, without regard to the terms
of any prior agreement and without regard to any prior course
of conduct between the parties;
(b) As to all matters addressed herein, this Agreement sets forth
the entire agreement between the Company and the Bottler, and
all prior understandings, commitments or agreements relating
to such matters between the parties or their predecessors
-in-interest are of no force or effect; and
(c) Any waiver or modification of this Agreement or any of its
provisions, and any notices given or consents made under this
Agreement shall not be binding upon the Bottler or the Company
unless made in writing, signed by an officer of the Company or
by a duly qualified and authorized representative of the
Bottler, and personally delivered or sent by telegram, telex
or certified mail to an officer of the Company (if from the
Bottler) or a duly qualified and authorized representative of
the Bottler (if from the Company) at the principal address of
such party.
43. Failure of the Company to exercise promptly any option or right herein
granted or to require strict performance of any such option or right
shall not be deemed to be a waiver of such option or right, or of the
right to demand subsequent performance of any and all obligations
herein imposed upon the Bottler.
44. The Company may delegate any of its rights, performance or obligations
under this Agreement to any subsidiaries or affiliates of the Company
upon notice to the Bottler, but no such delegation shall relieve the
Company of its obligations hereunder.
45. If any provision of this Agreement, or the application thereof to any
party or circumstance shall ever be prohibited by or held invalid under
applicable law, such provision shall be ineffective to the extent of
such prohibition without invalidating the remainder of such provision
or any other provision hereof, or the application of such provision to
other parties or circumstances.
46. This Agreement shall be governed, construed and interpreted under the
laws of the State of New York.
IN WITNESS WHEREOF, the parties have duly executed this Agreement in triplicate
effective as of the day and year first above written.
PEPSICO, INC. PEPSIAMERICAS, INC.
By: By:
--------------------------------- -------------------------------------
Title: Title:
----------------------------- ----------------------------------
Date: Date:
------------------------------ ----------------------------------
<PAGE>
SCHEDULE A
BEVERAGES - COLAS
Pepsi
Diet Pepsi
Pepsi One
Caffeine Free Pepsi
Caffeine Free Diet Pepsi
Wild Cherry Pepsi
Diet Wild Cherry Pepsi
<PAGE>
SCHEDULE B
TRADEMARKS - COLAS
Pepsi
Pepsi-Cola
Diet Pepsi
Diet Pepsi-Cola
Pepsi One
Caffeine Free Pepsi
Caffeine Free Pepsi-Cola
Caffeine Free Diet Pepsi
Caffeine Free Diet Pepsi-Cola
Wild Cherry Pepsi
Diet Wild Cherry Pepsi
<PAGE>
SCHEDULE C
TERRITORIES
Master Bottling Agreement
STATE TERRITORY FORMER ANCHOR NAME
----- --------- ------------------
AR Camden PepsiAmericas, Inc.
AR Jonesboro PepsiAmericas, Inc.
AR Little Rock PepsiAmericas, Inc.
IA Carroll Whitman Corp.
IA Cedar Rapids Whitman Corp.
IA Des Moines Whitman Corp.
IA Estherville PepsiAmericas, Inc.
IA Mason City Whitman Corp.
IA Waterloo Whitman Corp.
IL Alton Whitman Corp.
IL Bloomington Whitman Corp.
IL Chicago Whitman Corp.
IL Danville Whitman Corp.
IL Havana Whitman Corp.
IL Peoria Whitman Corp.
IN Brookville Whitman Corp.
IN Evansville Whitman Corp.
IN Fort Wayne Whitman Corp.
IN Indianapolis Whitman Corp.
IN Muncie Whitman Corp.
IN Munster Whitman Corp.
IN South Bend Whitman Corp.
IN Vincennes Whitman Corp.
KY Hopkinsville Whitman Corp.
KY Louisville Whitman Corp.
LA Monroe PepsiAmericas, Inc.
LA New Orleans PepsiAmericas, Inc.
LA Shreveport PepsiAmericas, Inc.
MI Marquette Whitman Corp.
MN Ortonville PepsiAmericas, Inc.
MN Thief River Falls PepsiAmericas, Inc.
MS Carthage PepsiAmericas, Inc.
MS Columbus PepsiAmericas, Inc.
MS Greenville PepsiAmericas, Inc.
MS Tupelo PepsiAmericas, Inc.
MS Winona PepsiAmericas, Inc.
MO Albany Whitman Corp.
MO Columbia Whitman Corp.
MO Excelsior Springs Whitman Corp.
MO Flat River Whitman Corp.
MO Kansas City Whitman Corp.
MO St. Louis Whitman Corp.
MO Sedalia Whitman Corp.
<PAGE>
STATE TERRITORY FORMER ANCHOR NAME
----- --------- ------------------
MO Springfield Whitman Corp.
ND Bismark PepsiAmericas, Inc.
ND Fargo PepsiAmericas, Inc.
ND Grand Forks PepsiAmericas, Inc.
OH Akron Whitman Corp.
OH Ashtabula Whitman Corp.
OH Bryan Whitman Corp.
OH Cincinnati Whitman Corp.
OH Cleveland Whitman Corp.
OH Dayton Whitman Corp.
OH Dover Whitman Corp.
OH Lima Whitman Corp.
OH Springfield Whitman Corp.
OH Toledo Whitman Corp.
OH Youngstown Whitman Corp.
SD Aberdeen PepsiAmericas, Inc.
SD Sioux Falls PepsiAmericas, Inc.
TN Jackson PepsiAmericas, Inc.
TN Memphis PepsiAmericas, Inc.
TX Texarkana PepsiAmericas, Inc.
WI Beloit Whitman Corp.
WI Kenosha Whitman Corp.
WI Milwaukee Whitman Corp.
WI Oshkosh Whitman Corp.
WI Wisconsin Rapids Whitman Corp.
<PAGE>
SCHEDULE D
AUTHORIZED CONTAINERS
<TABLE>
<CAPTION>
Container Container Container Container
ID Description Display Name Size Type
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
749 .5L NR 1/20 .5L NR 1/20 0.5 LITER BOTTLE
969 .5L PL 6/4 W/SPTCAP .5L PL 6/4SC 0.5 LITER BOTTLE
766 .5L RR 1/24 SHELL .5L RR 1/24S 0.5 LITER BOTTLE
376 .5L RR 6/4 .5L RR 6/4 0.5 LITER BOTTLE
776 .5L RR 6/4S .5L RR 6/4S 0.5 LITER BOTTLE
377 .5L RR 8/3 .5L RR 8/3 0.5 LITER BOTTLE
767 1.5L PL 6/2 1.5L PL 6/2 1.5 LITER BOTTLE
896 10OZ NR1/24 SHELL 10OZ NR 1/24S 10 OUNCE BOTTLE
688 10OZ NR 15/2 10OZ NR 15/2 10 OUNCE BOTTLE
864 10OZ NR 6/4 KIESTER WR 10OZ NR 6/4KW 10 OUNCE BOTTLE
828 10OZ PL1/24 10OZ PL1/24 10 OUNCE BOTTLE
360 10OZ RR 6/4 10OZ RR6/4 10 OUNCE BOTTLE
382 10OZ RR 8/3 WRAP 10OZ RR8/3W 10 OUNCE BOTTLE
845 11.5OZ 11.5OZ 11.5 OUNCE CAN
757 11.5OZ CN 24/1 11.5OZ CN 24/1 11.5 OUNCE CAN
841 11.5OZ NR 4/6 11.5OZ NR 4/6 11.5 OUNCE BOTTLE
838 11OZ CN FSV 6/4 11OZ CN FSV 6/4 11 OUNCE CAN
936 11OZ NR 1/12 11OZ NR 1/12 11 OUNCE BOTTLE
894 11OZ NR 1/24 11OZ NR 1/24 11 OUNCE BOTTLE
750 11OZ NR 6/4 11OZ NR 6/4 11 OUNCE BOTTLE
372 11OZ RR 6/4 11OZ RR 6/4 11 OUNCE BOTTLE
910 12OZ BAG 12/CS 12OZ BAG 12/CS 12 OUNCE BAG
702 12OZ CN 12/2 MILITARY 12OZ CN 12/2MIL 12 OUNCE CAN
871 12OZ CN 15/1 12OZ CN 15/1 12 OUNCE CAN
494 12OZ CN 15/2 WRAP 12OZ CN 21/1W 12 OUNCE CAN
807 12OZ CN 18/1 WRAP 12OZ CN 18/1W 12 OUNCE CAN
427 12OZ CN 2/15 12OZ CN 2/15 12 OUNCE CAN
903 12OZ CN 24/1 MILITARY 12OZ CN 2/1 MLTY 12 OUNCE CAN
957 12OZ CN36/1 12OZ CN 36/1 12 OUNCE CAN
706 12OZ CN 4/6 12OZ CN 4/6 12 OUNCE CAN
904 12OZ CN 6/4 MILITARY SW 12OZ CN MSW 12 OUNCE CAN
804 12OZ CN DEPOSIT 12/2 12OZ CN DEP 12/2 12 OUNCE CAN
853 12OZ CN DEPOSIT 20/1 12OZ CN DEP 20/1 12 OUNCE CAN
866 12OZ CN DEPOSIT 24/1 CUBE 12OZ CN DP 24/1CB 12 OUNCE CAN
857 12OZ CN DEPOSIT 36/1 CUBE 12OZ CN DP 36/1CB 12 OUNCE CAN
780 12OZ CN DEPOSIT 6/4 12OZ CN DEP 6/4 12 OUNCE CAN
782 12OZ CN DEPOSIT FSV 12OZ CN DEP FSV 12 OUNCE CAN
387 12OZ NR 6/4 12OZ NR 6/4 12 OUNCE BOTTLE
877 12OZ RR 1/24 12OZ RR 1/24 12 OUNCE BOTTLE
878 12OZ RR 4/6 12OZ RR 4/6 12 OUNCE BOTTLE
692 16 OZ CN 12/2 16OZ CN 12/2 16 OUNCE CAN
709 16OZ CN 4/6 16OZ CN 4/6 16 OUNCE CAN
397 16OZ NR 12/2 16OZ NR 12/2 16 OUNCE BOTTLE
774 16OZ NR 4/6 SHELL 16OZ NR 4/6S 16 OUNCE BOTTLE
392 16OZ NR 6/4 PAR 16OZ NR 6/4 FSV 16 OUNCE BOTTLE
726 16OZ NR 6/4 WRAP 16OZ NR 6/4W 16 OUNCE BOTTLE
395 16OZ NR 8/3 16OZ NR 8/3 16 OUNCE BOTTLE
</TABLE>
<PAGE>
SCHEDULE D
AUTHORIZED CONTAINERS
<TABLE>
<CAPTION>
Container Container Container Container
ID Description Display Name Size Type
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
684 16OZ PL 1/24 TRIAL PRICE 16OZ PL 1/24 TP 16 OUNCE BOTTLE
756 16OZ PL 12/2 16OZ PL 12/2 16 OUNCE BOTTLE
827 16OZ PLDEPOSIT 1/24 16OZ PL DEP 1/24 16 OUNCE BOTTLE
460 16OZ PL SPECS 1/24 16OZ PL SP 1/24 16 OUNCE BOTTLE
365 16OZ RR 6/4 16OZ RR 6/4 16 OUNCE BOTTLE
367 16OZ RR FSV 16OZ RR FSV 16 OUNCE BOTTLE
850 16OZ SLAM CAN 6/4 16OZ SLAM CAN 16 OUNCE CAN
831 16OZ WM NR 1/24 SHELL 16OZ WM NR 1/24S 16 OUNCE WIDE MOUTH
868 16OZ WM NR 12/2 16OZ WM NR 12/2 16 OUNCE WIDE MOUTH
480 1G CAN POST 1/6 1G CN PO 1/6 1 GALLON CAN
481 1G JUG 1G JUG 1 GALLON JUG
854 1G JUG 1/6 1G JUG 1/6 1 GALLON JUG
485 1G PURE-PAK 1G PP 1 GALLON JUG
924 1G SPECIAL EVENT POS TK 1G SE POS TK 1 GALLON TANK
935 1G SPECIAL EVNT POS BIB 1G SE POS BIB 1 GALLON BAG IN BOX
834 1L NR 1/15 1L NR 1/15 1 LITER BOTTLE
406 1L NR 1/6 1L NR 1/6 1 LITER BOTTLE
881 1L WM 1/15 1L WM 1/15 1 LITER WIDE MOUTH
788 1L PL 1/8 1L PL 1/8 1 LITER BOTTLE
920 1L PL BG SLM 6/2 1L BG SLM 6/2 1 LITER WIDE MOUTH
361 1L RR 6/2 1L RR 6/2 1 LITER BOTTLE
825 1L RR 6/2 SHELL 1L RR 6/2S 1 LITER BOTTLE
681 2.25L PL 1/6 SHELL 2.25L PL 1/6S 2.25 LITER BOTTLE
677 2.25L PL 1/8 2.25L PL 1/8 2.25 LITER BOTTLE
678 2.25L PL 1/8 SHELL 2.25L PL 1/8S 2.25 LITER BOTTLE
705 20OZ 25% MORE FREE 1/24 20OZ PL 25MF 1/24 20 OUNCE BOTTLE
839 20OZ NR FSV 20OZ NR FSV 20 OUNCE BOTTLE
916 20OZ PL 12/1 20OZ PL 12/1 20 OUNCE BOTTLE
889 20OZ PL 4/6 SHELL 20OZ PL 4/6S 20 OUNCE WIDE MOUTH
867 20OZ PL DEPOSIT FSV 20OZ PL DEP FSV 20 OUNCE BOTTLE
731 20OZ WM NR 1/24 20OZ WM NR 1/24 20 OUNCE WIDE MOUTH
732 20OZ WM NR 6/4 20OZ WM NR 6/4 20 OUNCE WIDE MOUTH
808 21.5OZ NR 1/12 21.5OZ NR 1/12 21.5 OUNCE BOTTLE
837 23OZ NR 1/24 23OZ NR 1/24 23 OUNCE BOTTLE
917 24OZ 6/4 24 OZ 6/4 24 OUNCE BOTTLE
401 28OZ NR 1/12 28OZ NR 1/12 28 OUNCE BOTTLE
408 2L NR 1/8 2L NR 1/8 2 LITER BOTTLE
814 2L PL 1/6S TRIAL PRICE 2L PL 1/6S TP 2 LITER BOTTLE
459 2L PL 1/8 TRIAL PRICE 2L PL 1/8 TP 2 LITER BOTTLE
461 2L PL 1/8 W/ATTACH 2L PL 1/8 AT 2 LITER BOTTLE
453 2L PL 1/8 W/CLUSTER CUP 2L PL 1/8 CL 2 LITER BOTTLE
495 2L PL 1/8S TRIAL PRICE 2L PL 1/8S TP 2 LITER BOTTLE
872 2L PL DEP 1/8 2L PL DEP 1/8 2 LITER BOTTLE
450 2L PL DEP PK 4/2 2L PL DEP PK 4/2 2 LITER BOTTLE
456 2L NR 1/8 DO NOT USE 2L PL 1/8 DO NOT 2 LITER BOTTLE
886 32OZ NR 1/12 SHELL 32OZ NR 1/12S 32 OUNCE BOTTLE
402 32OZ NR 6/2 32OZ NR 6/2 32 OUNCE BOTTLE
371 32OZ RR 1/12 32OZ RR 1/12 32 OUNCE BOTTLE
370 32OZ RR 1/6 SHELL 32OZ RR 1/6S 32 OUNCE BOTTLE
</TABLE>
<PAGE>
SCHEDULE D
AUTHORIZED CONTAINERS
<TABLE>
<CAPTION>
Container Container Container Container
ID Description Display Name Size Type
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
369 32OZ RR 6/2 32OZ RR 6/2 32 OUNCE BOTTLE
832 32OZ WM NR 1/12 32 OZ WM NR 1/12 32 OUNCE WIDE MOUTH
741 3G PREMIX 3G PREMIX 3 GALLON TANK
865 3L DEPOSIT 1/6S 3L DEPOSIT 1/6S 3 LITER BOTTLE
727 3L PL 1/6 DO NOT USE THIS 3L PL XXXXX 3 LITER BOTTLE
484 45G TANK 45G TK 45 GALLON TANK
900 5G PL JUG 5G PL JUG 5 GALLON JUG
409 6.5OZ NR 6/4 6.5 OZ NR 6/4 6.5 OUNCE BOTTLE
59 64OZ NR 1/6 64OZ NR 1/6 64 OUNCE BOTTLE
751 8.4OZ NR 1/24 8.4OZ NR 1/24 8.4 OUNCE BOTTLE
781 8OZ CN 1/24 8OZ CN 1/24 8 OUNCE CAN
680 8OZ CN 6/4 8OZ CN 6/4 8 OUNCE CAN
795 8OZ CN 8/3 8OZ CN 8/3 8 OUNCE CAN
940 9.5OZ NR 12/1 9.5OZ NR 12/1 9.5 OUNCE BOTTLE
413 9.5OZ NR 6/4 9.5OZ NR 6/4 9.5 OUNCE BOTTLE
952 INVALID PKG INVALID PKG 1 LITER BOTTLE
22 LITER 3 PL 1/6 CLUSTER 3L PL 1/6C 3 LITER BOTTLE
11 OUNCES 10 REFILLABLE 10 RR 10 OUNCE BOTTLE
12 OUNCES 12 REFILLABLE 12 RR 12 OUNCE BOTTLE
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>pas10k_exh10-20.txt
<DESCRIPTION>MASTER FOUNTAIN SYRUP AGREEMENT
<TEXT>
Exhibit 10.20
MASTER FOUNTAIN SYRUP AGREEMENT
Between
PEPSICO, INC.
and
PEPSIAMERICAS, INC.
<PAGE>
MASTER FOUNTAIN SYRUP AGREEMENT
THIS AGREEMENT, (this "Agreement") effective as of November 30, 2000,
is made and entered into by and between PEPSICO, INC., a corporation organized
and existing under the laws of the State of North Carolina having its principal
place of business in Purchase, New York (the "Company"), and PEPSIAMERICAS,
INC., a corporation organized and existing under the laws of the State of
Delaware having its principal place of business in Rolling Meadows, Illinois
(the "Bottler").
W I T N E S S E T H :
-------------------
WHEREAS
A. The Company manufactures and sells the concentrates (the
"Concentrates") for the manufacture of fountain beverage syrups (the
"Fountain Syrups"). The Company authorizes others to manufacture the
Fountain Syrups from the Concentrates and to distribute and sell the
Fountain Syrups to certain customers for use in preparing the fountain
soft drinks identified on Schedule A (as modified from time to time
under paragraphs 18 and 19, the "Beverages"). The formulas for the
Concentrates, Fountain Syrups and the Beverages constitute trade
secrets owned by the Company;
B. The Company is the owner of the trademarks identified on Schedule B
(together with such other trademarks as may be authorized by the
Company from time to time for current use by the Bottler under this
Agreement, the "Trademarks"), which, among other things, identify and
distinguish the Fountain Syrups;
C. A significant business of the Bottler is the manufacture and
distribution of the Fountain Syrups either pursuant to certain
agreements previously entered into with the Company, (collectively,
together with all amendments thereto, the "Existing Syrup
Appointments"), or indirectly through one or more persons controlling,
controlled by or under common control with the Bottler (the "Bottler
Affiliates");
D. The reputation of the Fountain Syrups as being of consistently superior
quality has been a major factor in stimulating and sustaining demand
for the Fountain Syrups, and special technical skill and constant
diligence on the part of the Bottler and the Company are required in
order for the Fountain Syrups to maintain the excellence that consumers
expect; and
E. Conditions affecting the production, sale and distribution of Fountain
Syrups have changed since the Company and the Bottler, or its
predecessors-in-interest, entered into the Existing Syrup Appointments,
and as a consequence, the Company and the Bottler desire to amend the
Existing Syrup Appointments, the terms of the Existing Syrup
Appointments, as so amended, being replaced and restated in the form of
this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Bottler agree
as follows:
ARTICLE I
The Authorization
1. (a) The Company authorizes the Bottler, and the Bottler
undertakes, to: (i) manufacture and package the Fountain
Syrups and (ii) distribute and sell the Fountain Syrups under
the Trademarks in and throughout the Territories (as
hereinafter defined) for Local Account Customers (as
hereinafter defined) only.
(b) The Company appoints the Bottler as its sole and exclusive
purchaser of the Concentrates for the purpose of manufacturing
and packaging the Fountain Syrups under the Trademarks for
distribution and sale in the Territories to Local Account
Customers.
(c) (i) "Territories" means each of the territories identified
Schedule C hereto subject to the possible elimination of
Subterritories under paragraph 26 hereof and including any
Territories added in accordance with paragraph 28 hereof.
(ii) "Local Account Customers" means a single outlet, chain or
multiple outlet operations and cup vending machine operators
that have all of their outlets located within only one of the
Territories.
(iii) "National Account Customers" means chain or multiple
outlet operations and cup vending machine operators that have
outlets in (x) more than one of the Territories or (y) in at
least one of the Territories and in one or more other PepsiCo
licensed territories.
(iv) "Program Customer" means any of the following (a) any
National Account Customer that enters into an agreement with
the Company's Fountain Beverage Division or National Sales
Business Unit (or successors thereto) after the date hereof,
(b) any National Account Customer listed on Schedule D annexed
hereto and made a part hereof, (c) any existing National
Account Customer, not otherwise designated as a Program
Customer hereunder, if and when such National Account Customer
converts from DSD (as defined below) to Commissary (as defined
below) delivery, or (d) any National Account Customer, not
otherwise designated as a Program Customer hereunder, that
Bottler and Company agree should be deemed to be a Program
Customer.
(v) "Commissary" means a distributor of food or beverage or
related items to restaurants, hotels, theatres, stadiums or
any other entity serving food or beverages that do not receive
beverage shipments to their outlets through DSD.
ARTICLE II
Reservation of Company's Rights; Agency Arrangements
2. (a) The Company reserves the right to (i) manufacture and
package the Fountain Syrups and (ii) distribute and sell the
Fountain Syrups under the Trademarks in and throughout the
Territories for all National Account Customers.
Notwithstanding the foregoing, if a National Account Customer
elects to receive shipments of Fountain Syrup through direct
store door delivery ("DSD") in one or more of the Territories,
the Company shall appoint the Bottler, and upon appointment
the Bottler hereby undertakes to serve, as the Company's
exclusive agent in such Territories for the (i) manufacture
and packaging of the Fountain Syrups and (ii) distribution of
the Fountain Syrup under the Trademarks to such National
Account Customer. In the event the National Account Customer
elects to discontinue DSD of the Fountain Syrups at any time,
or if the bottler refuses to serve as the Company's exclusive
agent, the exclusive agency granted to the Bottler pursuant to
this paragraph shall immediately terminate without any
liability whatsoever to the Company in connection therewith.
If a National Account Customer does not elect DSD, the Company
may in its sole discretion appoint the Bottler as its
non-exclusive agent for manufacturing and packaging Fountain
Syrups for the Company's sale to National Account Customers.
(b) The Company authorizes the Bottler, and the Bottler
undertakes, to maintain and service the equipment used to
dispense the Beverages located at the premises of all National
Account Customers (unless the National Account Customer elects
to handle its service requirements independently) in and
throughout the Territories provided that the Bottler complies
with all of the Company's requirements and service performance
standards.
(c) The Company and the Bottler agree that the rights and
authorizations set forth in Article I and Article II
paragraphs 2(a) and (b) are necessary to effectively promote
the development and growth of the Fountain Syrup business in
the Territories. In this regard the Company and the Bottler
agree to certain fees and incentive payments as set forth in
Schedules E-1 through E-6 hereto, as may be amended by the
parties from time to time. The categories addressed by
Schedules E-1 through E-6 are as follows: Bottler Delivery
Remittance, Brand Development Fee, Equipment Service Standards
and Fees, New Equipment Program, Production Fee, and Service
Incentive.
ARTICLE III
Obligations of Bottler
Relating to Trademarks and Other Matters
3. The Bottler acknowledges that the Company is the sole and exclusive
owner of the Trademarks, and the Bottler agrees not to question or
dispute the validity of the Trademarks or their exclusive ownership by
the Company. By this Agreement, the Company extends to the Bottler
only: (i) an exclusive license to use the Trademarks solely in
connection with the manufacture, packaging and sale of the Fountain
Syrups for distribution and sale to Local Account Customers in the
Territories as set forth in Article I hereof; (ii) an exclusive license
to use the Trademarks solely in connection with the manufacture,
packaging and sale of the Fountain Syrups for distribution and sale to
National Account Customers in the Territories who elect DSD, as set
forth in paragraph 2(a) hereof; and (iii) a non-exclusive license to
use the Trademarks solely in connection with the manufacture and
packaging of the Fountain Syrups for distribution to National Account
Customers in the Territories, who do not elect DSD, as set forth in
subparagraph 2(a) hereof. Nothing herein, nor any act or failure to act
by the Bottler or the Company, shall give the Bottler any proprietary
or ownership interest of any kind in the Trademarks or in the goodwill
associated therewith.
4. The Bottler agrees during the term of this Agreement and in accordance
with any requirements imposed upon the Bottler under applicable laws:
(a) Not to manufacture, package, sell, deal in or otherwise use or
handle, directly or indirectly, any "Cola Product" (herein
defined to mean any soft drink beverage or syrup which is
generally marketed as a cola product or which is generally
perceived as being a cola product) other than a soft drink or
syrup manufactured, packaged, distributed or sold by the
Bottler under authority of the Company;
(b) Not to manufacture, package, sell, deal in or otherwise use or
handle, directly or indirectly, any concentrate, beverage
base, syrup, beverage or any other product which is likely to
be confused with, or passed off for, any of the Concentrates,
Fountain Syrups or Beverages;
(c) Not to manufacture, package, sell, deal in or otherwise use or
handle, directly or indirectly, any product or syrup under any
trademark or other designation that is an imitation,
counterfeit, copy or infringement of, or confusingly similar
to, any of the Trademarks; and
(d) Not to acquire or hold, directly or indirectly, any ownership
interest in, or, directly or indirectly, enter into any
contract or arrangement with respect to, the management or
control of, any person within or without the Territories that
engages in any of the activities prohibited by subparagraphs
(a), (b), (c) or (d) of this paragraph 4.
ARTICLE IV
Obligations of Bottler Relating to
Manufacture and Packaging of the Fountain Syrups
5. (a) The Bottler represents and warrants that the Bottler
possesses, or will possess, in the Territories, prior to the
manufacture, packaging and distribution of the Fountain
Syrups, and will maintain during the term of this Agreement,
such plant or plants, machinery and equipment, trained staff,
and distribution and fountain vending facilities as are
capable of manufacturing, packaging and distributing the
Fountain Syrups in accordance with this Agreement, in
compliance with all applicable governmental and administrative
requirements, and in sufficient quantities to fully meet the
demand for the Fountain Syrups in the Territories.
(b) The Company and the Bottler acknowledge that each is or may
become a party to one or more agreements authorizing a bottler
or other Company-authorized entity to produce Fountain Syrups
for sale by another bottler. Such agreements include, but are
not limited to (i) agreements permitting bottlers, subject to
certain conditions, to commence or continue to manufacture the
Fountain Syrups for other bottlers, and (ii) agreements
pursuant to which bottlers may have the Fountain Syrups
manufactured for them by other Company-authorized entities. It
is hereby agreed that the Company shall not unreasonably
withhold (i) any consents required by such agreements, or (ii)
approval of Bottler's participation in such agreements. All
such existing agreements shall remain in full force and effect
in accordance with their terms.
6. The Bottler recognizes that increases in the demand for the Fountain
Syrups, as well as changes in the packaging used for the Fountain
Syrups, may, from time to time, require adaptation of its existing
manufacturing, packaging or delivery equipment or the purchase of
additional manufacturing, packaging and delivery equipment. The Bottler
agrees to make such modifications and adaptations as necessary and to
purchase and install such equipment, in time to permit the introduction
and manufacture, packaging and delivery of sufficient quantities of the
Fountain Syrups, to fully meet the demand for the Fountain Syrups in
the Territories.
7. The Bottler warrants that the handling and storage of the Concentrates
and the manufacture, handling, storage, and packaging of the Fountain
Syrups shall be accomplished in accordance with the Company's quality
control and sanitation standards, as reasonably established by the
Company and communicated to the Bottler from time to time, and shall,
in any event, conform with all food, labeling, health, packaging and
other relevant laws and regulations applicable in the Territories.
8. The Bottler, in accordance with such instructions as may be given from
time to time by the Company, shall submit to the Company, at the
Bottler's expense, samples of the Fountain Syrups and the raw materials
used in the manufacture of the Fountain Syrups. The Bottler shall
permit representatives of the Company to have access to the premises of
the Bottler during ordinary business hours to inspect the plant,
equipment, and methods used by the Bottler in order to ascertain
whether the Bottler is complying with the instructions and standards
prescribed for the manufacturing, handling, storage and packaging of
the Fountain Syrups.
9. (a) For the packaging, distribution and sale of the Fountain
Syrups, the Bottler shall use only such packaging and labels
as shall be authorized from time to time by the Company for
the Bottler and shall purchase such items only from
manufacturers approved by the Company, which approval shall
not be unreasonably withheld. Such approval by the Company
does not relieve the Bottler of the bottler's independent
responsibility to assure that the packaging and labels
purchased by the Bottler are suitable for the purpose
intended, and in accordance with the good reputation and image
of excellence of the Trademarks and Beverages.
(b) The Bottler shall maintain at all times a stock of packages,
labels, and other essential related materials bearing the
Trademarks, sufficient to fully meet the demand for Fountain
Syrups in the Territories, and the Bottler shall not use or
permit the use of any packages, labels or other materials, if
they bear the Trademarks or contain any Fountain Syrups, for
any purpose other than the packaging and distribution of the
Fountain Syrups. The Bottler further agrees not to refill or
otherwise reuse nonreturnable containers.
10. If the Company determines the existence of quality or technical
difficulties with any Fountain Syrup, or any package used for the
Fountain Syrup, the Company shall have the right, immediately and at
its sole option, to withdraw the Fountain Syrup or any such package
from the market. The Company shall notify the Bottler in writing of
such withdrawal, and the Bottler shall, upon receipt of notice,
immediately cease distribution of the Fountain Syrup or such package
therefor. If so directed by the Company, the Bottler shall recall and
reacquire the Fountain Syrup or package involved from any purchaser
thereof. If any recall of any product or any of the packages used
therefor is caused by (i) quality or technical defects in the
Concentrate, or other materials prepared by the Company from which the
Fountain Syrup involved was prepared by the Bottler, or (ii) quality or
technical defects in the Company's designs and design specifications of
packages which it has imposed on the Bottler or the Bottler's third
party suppliers if such designs and specifications were negligently
established by the Company (and specifically excluding designs and
specifications of other parties and the failure of other parties to
manufacture packages in strict conformity with the designs and
specifications of the Company), the Company shall reimburse the Bottler
for the Bottler's total expenses incident to such recall. Conversely,
if any recall is caused by the Bottler's failure to comply with
instructions, quality control procedures or specifications for the
preparation, packaging and distribution of the Fountain Syrup involved,
the Bottler shall bear its total expenses of such recall and reimburse
the Company for the Company's total expenses incident to such recall.
ARTICLE V
Conditions of Purchase and Sale
11. The Company reserves the right to establish and to revise at any time,
in its sole discretion, the price of any of the Concentrates, the terms
of payment, and the other terms and conditions of supply, any such
revision to be effective immediately upon notice to the Bottler. If
Bottler rejects a change in price or the other terms and conditions
contained in any such notice, then the Bottler shall so notify the
Company within thirty (30) days of receipt of the Company's notice, and
this Agreement will terminate ninety (90) days after the date of such
notification by the Bottler, without further liability of the Company
or the Bottler. The change in price or other terms and conditions so
rejected by the Bottler shall not apply to purchases of such
Concentrate by the Bottler during such ninety (90) day period preceding
termination. Failure by the Bottler to notify the Company of its
rejection of the changes in price or such other terms and conditions
shall be deemed acceptance thereof by the Bottler.
12. The Bottler shall purchase from the Company only such quantities of the
Concentrates as shall be necessary and sufficient to carry out the
Bottler's obligations under this Agreement. The Bottler shall use the
Concentrates exclusively for its manufacture of the Fountain Syrups.
The Bottler shall not sell or otherwise transfer any Concentrate or
permit the same to get into the hands of third parties.
13. (a) The Bottler agrees not to distribute or sell any Fountain
Syrups outside the Territories. The Bottler shall not
distribute or sell any Fountain Syrups to any person (other
than another Bottler pursuant to subparagraph 5(b) and other
than as a delivery agent for the Company to National Account
Customers outside of the Territories which elect to receive
Fountain Syrup through distribution methods other than direct
store delivery as provided in subparagraph 2(a) hereof) for
ultimate sale outside the Territories. If any Fountain Syrup
distributed by the Bottler is found outside of the Territories
in violation of this paragraph 13, Bottler shall be deemed to
have transshipped such Fountain Syrup and shall be deemed to
be a "Transshipping Bottler" for purposes hereof. For purposes
of this Agreement, "Offended Bottler" shall mean a Bottler in
any Territories into which any Fountain Syrup is transshipped.
(b) In addition to all other remedies the Company may have against
any Transshipping Bottler for violation of this paragraph 13,
the Company may impose upon any Transshipping Bottler a charge
for each gallon of Fountain Syrup transshipped by such
Bottler. The per-gallon amount of such charge shall be
determined by the Company in its sole discretion. The Company
and the Bottler agree that the amount of such charge shall be
deemed to reflect the damages to the Company, the Offended
Bottler and the bottling system. In addition, the Company may
directly charge the Transshipping Bottler the full amount of
all investigative and other costs incurred by the Company in
connection with the transshipment and such Transshipping
Bottler shall be obligated to pay such amount. The Company
shall forward to the Offended Bottler, upon receipt from the
Transshipping Bottler, the full amount of the per gallon
charge so received (but not including investigative and other
costs charged to the Transshipping Bottler by the Company). If
the Company or its agent recalls any Beverage which has been
transshipped, the Transshipping Bottler shall, in addition to
any other obligation it may have hereunder, reimburse the
Company for its costs of purchasing, transporting, and/or
destroying such Beverage.
ARTICLE VI
Obligations of the Bottler
Relating to the Marketing of the Beverages
Financial Capacity and Planning
14. The continuing responsibility to increase and fully meet the demand for
the Fountain Syrups within the Territories rests upon the Bottler. The
Bottler agrees to use all approved means as may be reasonably necessary
to meet this responsibility.
15. (a) The Bottler will push vigorously the sale of the Fountain
Syrups throughout all of the Territories. Without in any way
limiting the Bottler's obligation under this Paragraph 15, the
Bottler must (i) fully meet and increase the demand for the
Fountain Syrups throughout the Territories and secure full
distribution up to the maximum sales potential therein through
all channels or outlets available to fountain beverages, using
any and all equipment reasonably necessary to secure such
distribution; (ii) service all accounts with frequency
adequate to keep them at all times fully supplied with the
Fountain Syrups and (iii) keep the fountain dispensing
equipment located at such channels and outlets in good working
order in accordance with requirements and performance
standards established by the Company.
(b) The parties agree that to fully meet and increase demand for
the Fountain Syrups advertising and other forms of marketing
activities are required. Therefore, the Bottler will spend
such funds in advertising and marketing the Fountain Syrups as
may be reasonably required to increase, as well as maintain,
demand for the Fountain Syrups in the Territories. The Bottler
shall fully cooperate in and vigorously push all cooperative
advertising and sales promotion programs and campaigns that
may be reasonably established by the Company for the
Territories. The Bottler will use and publish only such
advertising, promotional materials or other items bearing the
Trademarks relating to the Fountain Syrups as the Company has
approved and authorized. The expenditures required by this
Article VI shall be made by the Bottler. The Company may, in
its sole discretion, contribute to such expenditures. The
Company may also undertake, at its expense, independently of
the Bottler's marketing programs, any advertising or
promotional activity that the Company deems appropriate to
conduct in the Territories, but this shall in no way affect
the responsibility of the Bottler for increasing the demand
for the Fountain Syrups.
(c) The obligations set forth in Paragraphs 14, 15(a)(i) and 15(b)
above shall be modified as follows. In the case of Program
Customers only, the Bottler and the Company agree that such
obligations shall be joint obligations of both the Bottler and
the Company.
16. The Bottler and all Bottler Affiliates shall maintain the consolidated
financial capacity reasonably necessary to assure that the Bottler and
all Bottler Affiliates directly or indirectly controlled by the Bottler
will be financially able to perform their respective duties and
obligations under this Agreement and under all other agreements between
the Company and Bottler Affiliates regarding the manufacture,
packaging, distribution and sale of the Fountain Syrups.
17. (a) The Company and the Bottler have agreed upon a business
plan for the first three years of the term of this Agreement.
Since periodic planning is essential for the proper
implementation of this Agreement, the Bottler and the Company
shall meet each year at such date as the parties may set (but
no later than ninety (90) days prior to the commencement of
any calendar year during the term of this Agreement beginning
with the commencement of the calendar year closest to the
anniversary date of this Agreement), to discuss the Bottler's
plans for the ensuing three (3) year period. At such meeting,
the Bottler shall present a plan that sets out in reasonable
detail satisfactory to the Company: (i) the marketing plans,
management plans and advertising plans of the Bottler with
respect to the Fountain Syrups for the ensuing year, including
a financial plan showing that the Bottler and all Bottler
Affiliates have the consolidated financial capacity to perform
their respective duties and obligations under this Agreement,
and (ii) the projected sales and related equipment placements
for the two years immediately following such year. The Company
and the Bottler shall discuss this plan and this plan, upon
approval by the Company, which shall not be unreasonably
withheld, shall define the Bottler's obligation herein to
maintain such consolidated financial capacity and to increase
and fully meet the demand for the Fountain Syrups in the
Territories for the period of time covered by the plan.
(b) The Bottler shall report to the Company periodically, but not
less than quarterly, as to its implementation of the approved
plan; it is understood, however, that the Bottler shall report
sales on a regular basis as requested by the Company and in
such format and detail, and containing such information as may
be reasonably requested by the Company. The failure by the
Bottler to carry out the plan, or if the plan is not presented
or is not approved, will constitute a primary consideration
for determining whether the Bottler has fulfilled its
obligation to maintain the consolidated financial capacity
required under paragraph 16 to push vigorously the sale of the
Fountain Syrups throughout the Territories and to increase and
fully meet the demand for the Fountain Syrups in the
Territories as set forth in Paragraphs 14 and 15 hereof. If
the Bottler carries out the plan in all material respects, it
shall be deemed to have satisfied the obligations of the
Bottler under Paragraphs 14, 15 and 16 for the period of time
covered by the plan.
ARTICLE VII
Reformulation, New Products and Related Matters
18. The Company has the sole and exclusive right and discretion to
reformulate any of the Fountain Syrups. In addition, the Company has
the sole and exclusive right and discretion to discontinue any of the
Fountain Syrups under this Agreement, provided such Fountain Syrups are
discontinued on a national basis. In the event that the Company
discontinues any Fountain Syrup, Schedule A to this Agreement shall be
deemed amended by deleting the discontinued Fountain Syrups from the
list of Fountain Syrups set forth on Schedule A.
19. In the event that the Company introduces any new Fountain Syrup in the
Territories under the trademarks "Pepsi-Cola" or "Pepsi" or any
modification thereof (herein defined to mean the addition of a prefix,
suffix or other modifier used in conjunction with the trademarks
"Pepsi-Cola" or "Pepsi"), the Bottler shall be obligated to
manufacture, package, distribute and sell such new Fountain Syrup in
the Territories pursuant to the terms and conditions of this Agreement,
and Schedule A to this Agreement shall be deemed amended by adding such
new Fountain Syrup to the list of beverages set forth on Schedule A.
20. The Company has the unrestricted right to use the Trademarks on the
Fountain Syrups and on all other products and merchandise other than
the Fountain Syrups in the Territories.
ARTICLE VIII
Term and Termination of the Agreement
21. (a) The term of this Agreement shall commence on the effective
date hereof and, unless earlier terminated in accordance with
its provisions, will end on the fifth anniversary of the
effective date hereof (the "Initial Term"). The Initial Term
thereafter shall be extended automatically for additional
periods of five (5) years (each a "Renewal Term").
Notwithstanding the foregoing, the Company may terminate this
Agreement without cause at any time during any Renewal Term
upon twenty-four (24) months notice.
(b) Upon termination of this Agreement in accordance with
subparagraph 21(a) hereof and completion of the valuation
process referred to in subparagraph 21(c) below, the Company
shall make a payment to the Bottler in an amount equal to the
fair market value of the business conducted by the Bottler
pursuant to the rights and authorizations set forth in
Articles I and II hereof, referred to collectively as the
"Bottler's Fountain Business".
(c) In the event that the Company must compensate the Bottler
under the circumstance described in Paragraph 21(b) hereof,
the procedures set forth on Schedule F shall apply.
22. The obligation to supply Concentrates to the Bottler and the Bottler's
obligation to purchase Concentrates from the Company and to
manufacture, package, distribute and sell the Fountain Syrups under
this Agreement shall be suspended during any period when any of the
following conditions exist:
(a) There shall occur a change in the law or regulation
(including, without limitation, any government permission or
authorization regarding customs, health or manufacturing) in
such a manner as to render unlawful or commercially
impracticable:
(i) the importation of Concentrate or any of its
essential ingredients, which cannot be produced in
quantities sufficient to satisfy the demand therefor
by existing Company facilities in the United States;
or
(ii) the manufacture and distribution of the Concentrates
or Fountain Syrups; or
(b) There shall occur any inability or commercial impracticability
of either of the parties to perform resulting from an act of
God, or "force majeure," public enemies, boycott, quarantine,
riot, strike, or insurrection, or due to a declared or
undeclared war, belligerency or embargo, sanctions,
blacklisting, or other hazard or danger incident to the same,
or resulting from any other cause whatsoever beyond its
control.
If any of the conditions described in this paragraph 22 persists so
that either party's obligation to perform is suspended in any
substantial respect for a period of six (6) months or more, the other
party may terminate this Agreement forthwith, upon notice to the party
whose obligation to perform is suspended.
23. (a) The Company may terminate this Agreement in the event of
the occurrence of any of the following events of default:
(i) If the Bottler or Bottler Subsidiary becomes
insolvent; if a petition in bankruptcy is filed
against or on behalf of the Bottler or Bottler
Subsidiary which is not stayed or dismissed within
sixty (60) days; if the Bottler or Bottler Subsidiary
is put in liquidation or placed under sequester; if a
receiver is appointed to manage the business of the
Bottler or Bottler Subsidiary; or if the Bottler or
Bottler Subsidiary enters into any judicial or
voluntary arrangement or composition with its
creditors, or concludes any similar arrangements with
them or makes an assignment for the benefit of
creditors;
(ii) If the Bottler or Bottler Subsidiary adopts a plan of
dissolution or liquidation;
(iii) If any person or any Affiliated Group, other than any
person or any Affiliated Group acting with the
consent of the Company, acquires, or obtains any
contract, option, conversion privilege or other right
to acquire, directly or indirectly, Beneficial
Ownership of more than fifteen percent (15%) of any
class or series of voting securities of the Bottler
and if such person or Affiliated Group does not
divest itself of Beneficial Ownership of such voting
securities or otherwise terminate any such contract,
option, conversion privilege or other right to a
level equal to or below fifteen percent (15%) within
thirty (30) days after the Company notifies the
Bottler that the failure of such person or Affiliated
Group to thus divest or terminate may result in
termination of this Agreement;
(iv) If any Disposition is made without the consent of the
Company by Bottler or by any Bottler Subsidiary of
any voting securities of any Bottler Subsidiary;
(v) If the Master Bottling Agreement between the Company
and the Bottler or any person that controls, directly
or indirectly, the Bottler is terminated, unless the
Company agrees in writing that this subparagraph
23(a)(v) will not be applied by the Company to such
termination;
(vi) If the Bottler or any person in which the Bottler has
Beneficial Ownership of any equity or voting
securities, or in which the Bottler has a right or
control of management, or which controls or is under
common control with the Bottler, should engage
directly or indirectly in the manufacture,
distribution or marketing of any product specified in
subparagraphs (a), (b), (c) or (d) of paragraph 4
above, or should obtain a right or license to do the
same, and if the Company has given the Bottler notice
that such condition exists and that the Company will
terminate this Agreement within six (6) months if
such condition is not eliminated, and if such
condition has not been eliminated within the six (6)
month period.
(vii) If all or substantially all of the Bottler's or
Bottler Subsidiary's bottling assets are sold,
transferred or otherwise disposed of (including any
transfer by operation of law) other than sales,
transfers or other dispositions by the Bottler or one
or more Bottler Subsidiary to one or more wholly
owned Bottler Subsidiary.
(b) The Bottler covenants and agrees with the Company:
(i) to notify the Company promptly in the event of or
upon obtaining knowledge of any third party action
which may or will result in any change in ownership
described in Section 23(a)(iii) above; and
(ii) to make available from time to time and at the
request of the Company complete records of current
ownership of the Bottler and full information
concerning any entities or parties by whom it is
controlled directly or indirectly or which it
controls.
(c) For the purposes of this Agreement:
(i) "Affiliated Group" shall mean two or more persons
acting as a partnership, limited partnership,
syndicate or other group, or who agrees to act
together, for the purpose of acquiring, holding,
voting or making any Disposition of any voting
securities of the Bottler; provided further that the
Affiliated Group formed thereby shall be deemed to
have acquired Beneficial Ownership of all voting
securities of the Bottler beneficially owned by any
such persons.
(ii) "Beneficial Ownership" shall mean (i) voting power
which includes the power to vote, or to direct the
voting of, any securities, or (ii) investment power
which includes the power to dispose, or to direct the
Disposition of, any securities; provided further
Beneficial Ownership shall include any such voting
power or investment power which any person has or
shares, directly or indirectly, through any contract,
arrangement, understanding, relationship or
otherwise; provided, however, that the following
persons shall not be deemed to have acquired
Beneficial Ownership under the circumstances
described: (a) a person engaged in business as an
underwriter of securities who acquires securities
through his participation in good faith in a firm
commitment underwriting registered under the
Securities Act of 1933 shall not be deemed to be the
Beneficial Owner of such securities until such time
as such underwriter completes his participation in
the underwriting and shall not thereupon or
thereafter be deemed to be the Beneficial Owner of
the securities acquired by other members of any
underwriting syndicate or selected dealers in
connection with such underwriting solely by reason of
customary underwriting or selected dealer
arrangements; (b) a member of a national securities
exchange shall not be deemed to be a Beneficial Owner
of securities held directly or indirectly by it on
behalf of another person solely because such member
is the record holder of such securities and, pursuant
to the rules of such exchange, may direct the vote of
such securities, without instruction, on other than
contested matters or matters that may affect
substantially the rights or privileges of the holders
of the securities to be voted, but is otherwise
precluded by the rules of such exchange from voting
without instruction; and (c) the holder of a proxy
solicited by the Board of Directors of the Bottler
for the voting of securities of the Bottler at any
annual or special meeting and any adjournment or
adjournments thereof of the stockholders of the
Bottler shall not be deemed to be a Beneficial Owner
of the securities that are the subject of the proxy
solely for such reason.
(iii) "Bottler Subsidiary" shall mean any person that is
controlled directly or indirectly by the Bottler, and
either participates in the manufacture, packaging,
distribution or sale of the Beverages in "authorized
containers" or has a direct or indirect equity
interest in another Bottler Subsidiary that does so
participate;
(iv) "Disposition" shall mean any sale, merger, issuance
of securities, or other transaction in which, or as a
result of which, any person other than Bottler or a
wholly owned subsidiary of Bottler, acquires, or
obtains any contract, option, conversion privilege or
other right to acquire Beneficial Ownership of any
securities.
(d) Upon the occurrence of any of the events of default specified
in subparagraph 23(a), the Company may terminate this
Agreement by giving the Bottler notice to that effect,
effective immediately.
24. (a) In addition to the events of a default described in
paragraph 23, the Company may also terminate this Agreement,
subject to the limitations of subparagraph 24(b), in the event
of the occurrence of any of the following events of default:
(i) If the Bottler fails to make timely payment for
Concentrate or of any other debt owing to the
Company;
(ii) If the condition of the plant or equipment used by
the Bottler in manufacturing, packaging or
distributing the Fountain Syrups fails to meet the
sanitary standards reasonably established by the
Company;
(iii) If the Fountain Syrups manufactured by the Bottler
fail to meet the quality control standards reasonably
established by the Company;
(iv) If the Fountain Syrups are not manufactured in strict
conformity with such standards and instructions as
the Company may reasonably establish;
(v) If the Bottler fails to present or carry out a plan
approved under paragraph 17 in all material respects;
or
(vi) If the Bottler materially breaches any of the
Bottler's other obligations under this Agreement.
The standards and instructions of the Company comprise
privately published information concerning the manufacture,
handling and storage of the Fountain Syrups under good
manufacturing practices, as well as technical instructions,
bulletins and other communications issued or amended from time
to time by the Company.
(b) Upon the occurrence of any of the foregoing events of default,
the Company shall, as a condition to termination of this
Agreement under this paragraph 24, give the Bottler notice
thereof. The Bottler shall then have a period of sixty (60)
days within which to cure the default, including, at the
instruction of the Company and at the Bottler's expense, by
the prompt withdrawal from the market and destruction of any
Fountain Syrup that fails to meet the quality control
standards of the Company or any Beverage that is not
manufactured in accordance with the instructions of the
Company. If such default has not been cured within such
period, then the Company may, by giving the Bottler further
notice to such effect, suspend sales to the Bottler of
Concentrates and require the Bottler to cease production of
the Fountain Syrups and the packaging and distribution of
Beverages in Authorized Containers. During such second period
of sixty (60) days, the Company also may supply, or cause or
permit others to supply, the Beverages in Authorized
Containers under the Trademarks in the Territories. If such
default has not been cured during such second period of sixty
(60) days, then the Company may terminate this Agreement, by
giving the Bottler notice to such effect, effective
immediately.
25. Upon the termination of this Agreement:
(a) The Bottler shall forthwith take such action as necessary to
eliminate the trademark "Pepsi-Cola" from its corporate name;
(b) Any other agreement between the Company and the Bottler
regarding the manufacture, packaging, distribution, sale or
promotion of Fountain Syrups may, at the election of the
Company, be automatically terminated and thereby become of no
further force or effect.
(c) The Bottler shall not thereafter continue to manufacture,
package, distribute or sell any of the Fountain Syrups or to
make any use of the Trademarks or any packaging, labels or
advertising material bearing the Trademarks;
(d) The Bottler shall forthwith remove and efface all reference to
the Company, the Fountain Syrups and the Trademarks from the
business premises and equipment of the Bottler and from all
business papers and advertising used or maintained by the
Bottler; and it shall not thereafter hold forth in any manner
whatsoever that it has any connection with the Company or the
Beverages; and,
(e) The Bottler shall forthwith deliver all Concentrate, Fountain
Syrup, usable returnable or any nonreturnable containers,
packaging, labels, and advertising material bearing the
Trademarks, still in the Bottler's possession or under the
Bottler's control, to the Company or the Company's nominee, as
instructed, and, upon receipt, the Company shall pay to the
Bottler a sum equal to the reasonable market value of such
supplies or materials. The Company will accept and pay for
only such articles as are, in the opinion of the Company, in
first-class and usable condition, and all other such articles
shall be destroyed at the Bottler's expense. Containers and
advertising material and all other items bearing the name of
the Bottler, in addition to the Trademarks, that have not been
purchased by the Company shall be destroyed without cost to
the Company, or otherwise disposed of in accordance with
instructions given by the Company, unless the Bottler can
remove or obliterate the Trademarks therefrom to the
satisfaction of the Company. The provisions for repurchase
contained in subparagraph 25(e) shall apply upon termination
by either party under paragraph 22; and upon termination by
the Bottler under subparagraph 11. In all other cases, the
Company shall have the right, but not the obligation, to
purchase the aforementioned items from the Bottler.
26. (a) Subject to the limitations set forth in subparagraph
26(b), in the event that the Bottler at any time fails to
carry out a plan approved under paragraph 17 in all material
respects in any segment of the Territories, whether defined
geographically or by type of market or outlet, which segment
shall be defined by the Company (hereinafter a
"Subterritory"), the Company may reduce the Territories
covered by this Agreement, and thereby restrict the Bottler's
authorization hereunder to the remainder of the Territories,
by eliminating the Subterritory from the Territories covered
by this Agreement.
(b) In the event of such failure, the Company may eliminate the
Subterritory from the Territories covered by this Agreement by
giving the Bottler notice to that effect, which notice shall
define the Subterritory or Subterritories to which the notice
applies. The Bottler shall then have a period of six (6)
months within which to cure such failure. If the Bottler has
not cured such failure in such six (6) month period, the
Company may eliminate such Subterritory or Subterritories from
the Territories by giving the Bottler further notice to that
effect, effective immediately.
(c) Upon elimination of any Subterritory from the Territories:
(i) Schedule C to this Agreement shall be deemed amended
by eliminating such Subterritory from the
Territories;
(ii) The Company may manufacture, package, distribute and
sell the Fountain Syrups under the Trademarks in such
Subterritory, or authorize others to do so;
(iii) Any other agreement between the Bottler and the
Company regarding the manufacture, packaging,
distribution or sale of Fountain Syrups in such
Subterritory may, at the election of the Company, be
automatically terminated and thereby become of no
further force or effect in such Subterritory;
(iv) The Bottler shall not thereafter continue to
manufacture, package, distribute or sell any of the
Fountain Syrups in such Subterritory, or to make any
use of the Trademarks, packaging, labels or
advertising material bearing the Trademarks in
connection with the sale or distribution of the
Fountain Syrups in such Subterritory; and
(v) The Bottler shall not thereafter hold forth in such
Subterritory in any manner whatsoever that it has any
connection with the Fountain Syrups.
ARTICLE IX
Transferability/Additional Territories
27. The Bottler hereby acknowledges the personal nature of the Bottler's
obligations under this Agreement with respect to the performance
standards applicable to the Bottler, the dependence of the Trademarks
on proper quality control, the level of marketing effort required of
the Bottler to increase demand for the Fountain Syrups, and the
confidentiality required for protection of the Company's trade secrets
and confidential information. In recognition of the personal nature of
these and other obligations of the Bottler under this Agreement, the
Bottler may not assign, transfer or pledge this Agreement or any
interest therein, in whole or in part, whether voluntarily,
involuntarily, or by operation of law (including, but not limited to,
by merger or liquidation), or delegate any material element of the
Bottler's performance thereof, or sublicense its rights hereunder, in
whole or in part, to any third party or parties, without the prior
consent of the Company. Any attempt to take such action without such
consent shall be void and shall be deemed to be a material breach of
this Agreement.
28. (a) The Bottler hereby agrees that it will not acquire or
attempt to acquire, directly or indirectly, without the prior
written consent of the Company, the right to manufacture and
sell any of the Fountain Syrups or any equity or economic
interest in any entity having such rights in any territory
located outside the Specified Area (the term "Specified Area"
shall have the meaning as set forth in the Master Bottling
Agreement between the parties hereto). Any acquisition of such
rights by the Bottler within the Specified Area shall be
subject to the approval of the Company, which approval shall
not be withheld if (i) the Bottler has successfully negotiated
the acquisition of such rights for any such territories with
the holder thereof and (ii) in the reasonable judgment of the
Company, the Bottler has satisfactorily performed its
obligations under this Agreement.
(b) In the event that the Bottler acquires the right to
manufacture and sell any of the Fountain Syrups in any
territories in the United States outside of the Territories,
such additional territories shall automatically be deemed to
be included within the Territories covered by this Agreement
for all purposes, except as set forth below. Any separate
agreement that may exist concerning such additional
territories shall be ipso facto amended to conform to the
terms of this Agreement, except as set forth below. In
addition, if the Bottler acquires control, directly or
indirectly, of any person which is a party, or which controls
directly or indirectly a party, to an agreement whereby such
party has the right to manufacture and sell any of the
Fountain Syrups in any territory in the United States, the
Bottler shall cause such party to amend such agreement,
effective as of the date of acquisition of control of such
party, to conform to the terms of this Agreement with respect
to all such territory in the United States, except as set
forth below. Notwithstanding the foregoing, in the event the
Bottler makes any such acquisition after the date hereof, the
Bottler's right to receive the Brand Development Fee and the
Bottler Delivery Remittance applicable to such acquired
territories shall continue to be governed by the agreement
that existed between the Company and the former bottler on the
date of acquisition, provided however that (i) such agreement
shall be deemed to expire five years from the date such
territory was acquired after which date this Agreement shall
become applicable as if it were in effect from the date of the
acquisition and (ii) such agreement shall only be applicable
to those National Account Customers under contract with the
former bottler or the Company on the date of the acquisition.
ARTICLE X
Litigation
29. (a) The Company reserves the right to institute any civil,
administrative or criminal proceeding or action, and generally
to take or seek any available legal remedy it deems desirable,
for the protection of its good reputation and industrial
property rights (including, but not limited to, the
Trademarks), as well as for the protection of the Concentrates
and the Fountain Syrups, and the formulas therefor, and to
defend any action affecting these matters. At the request of
the Company, the Bottler will render reasonable assistance in
any such action. The Bottler may not claim any right against
the Company as a result of such action or for any failure to
take such action. The Bottler shall promptly notify the
Company of any litigation or proceeding instituted or
threatened affecting these matters. The Bottler shall not
institute any legal or administrative proceeding against any
third party which may affect the interests of the Company in
connection with this Agreement without the Company's prior
consent.
(b) The Company has the sole and exclusive right and
responsibility to prosecute and defend all suits relating to
the Trademarks. The Company may prosecute or defend any suit
relating to the Trademarks in the name of the Bottler whenever
an issue in such suit involves the Territories and therefore
it is appropriate to act in the Bottler's name, or may proceed
alone in the name of the Company, provided that the Company
shall take no action in the Bottler's name which the Company
knows or should know will materially prejudice or impair the
rights or interests of the Bottler under this Agreement.
(c) The Bottler recognizes the importance and benefit to itself
and all other licensed manufacturers and distributors of the
Fountain Syrups of protecting the interest of the Company in
the Fountain Syrups and the goodwill associated with the
trademarks. Therefore, the Bottler agrees to consult with the
Company on all products liability claims or lawsuits brought
against the Bottler in connection with the Fountain Syrups and
to take such action with respect to the defense of any such
claim or lawsuit as the Company may reasonably request in
order to protect the interest of the company in the Fountain
Syrups and goodwill associated with the Trademarks. Further,
the Bottler shall supervise, control and direct the defense of
all such products liability claims and lawsuits brought
against them whether individually or jointly, provided,
however, that the Bottler and the Company expressly reserve
all rights of contribution and indemnity as prescribed by law.
ARTICLE XI
Automatic Amendment
30. In the event that bottlers which purchased for their own account eighty
percent (80%) or more of all of the Concentrate for Fountain Syrups
purchased for the account of all bottlers who are parties to agreements
with the Company containing substantially the same terms as this
Agreement, agree with the Company to any different provisions to be
included in this Agreement, then the Bottler hereby agrees to include
an amendment containing such different provisions in this Agreement.
The gallons of Concentrate purchased by such bottlers shall be
determined based on the most recently-ended calendar year prior to the
date such amendment was first offered to bottlers. Such gallons of
Concentrate purchased shall include purchases which were concluded in
any bottler's territory through Commissary delivery or otherwise to
National Account Customers.
ARTICLE XII
General
31. For purposes of this Agreement, the following terms shall have the
meanings set forth below:
(a) "person" means an individual, a corporation, a partnership, a
limited partnership, an association, a joint-stock company, a
trust, any unincorporated organization, or a government or
political subdivision thereof.
(b) "control" (including terms "controlling", "controlled by" and
"under common control with") means: (i) Beneficial Ownership
of a majority of any class or series of voting securities of a
person; or (ii) the power or authority, directly or
indirectly, to elect or designate a majority of the members of
the board of directors, or other governing body of a person.
32. The Company hereby reserves for its exclusive benefit all rights of the
Company not expressly granted to the Bottler under the terms of this
Agreement.
33. (a) Without relieving the Bottler of any of its responsibilities
under this Agreement, the Company, from time to time during
the term of this Agreement, at its option and either free of
charge or on such terms and conditions as the Company may
propose, may offer technology to the Bottler which the Company
possesses, develops or acquires (and is free to furnish to
third parties without obligation) relating to the design,
installation, operation and maintenance of the plant and
equipment appropriate for the maintenance of product quality,
sanitation and safety as well as for the efficient manufacture
and packaging of the Fountain Syrups; or relating to personnel
training, accounting methods, electronic data processing and
marketing and distribution techniques.
(b) The Bottler covenants and agrees that, so long as this
agreement is in effect the Bottler shall install and maintain
management information systems that are capable of interfacing
and sharing required data with the management information
systems of the Company in accordance with standards
established by the Company.
34. The Bottler agrees:
(a) it will not disclose to any third party any nonpublic
information whatsoever concerning the composition of the
Concentrates or the Fountain Syrups, without the prior consent
of the Company, and it will use any such information solely to
perform its obligations hereunder;
(b) It will at all times treat and maintain as confidential, all
nonpublic information that it may receive at any time from the
Company, including, but not limited to:
(i) Information or instructions of a technical or other
nature, relating to the mixing, sale, marketing and
distribution of the product.
(ii) Information about projects or plans worked out in the
course of this Agreement; and
(iii) Information constituting manufacturing or commercial
trade secrets.
The Bottler, further agrees to disclose such information, as necessary
to perform its obligations hereunder, only to employees of its
enterprise: (i) who have a reasonable need to know such information;
(ii) who have agreed to keep such information secret; and (iii) whom
the Bottler has no reason to believe is untrustworthy; and
(c) Upon the termination of this Agreement, Bottler will promptly
surrender to the Company all original documents and all
photocopies or other reproductions in its possession
(including, but not limited to, any extracts or digests
thereof) containing or relating to any nonpublic information
described in this paragraph 34. Following such termination,
and the surrender of such materials, the Bottler and its
employees shall continue to hold any nonpublic information in
confidence and refrain from any further use or disclosure
thereof whatsoever, provided that such obligation shall expire
as to any nonpublic information that does not constitute trade
secrets ten (10) years following such termination.
35. The Bottler agrees that it will not enter into any contract or other
arrangement to manage or participate in the management of any other
Pepsi-Cola bottler without the prior consent of the Company.
36. The Bottler is an independent manufacturer and not the agent of the
Company except with regard to its provision of certain services to
National Account Customers.
37. The Bottler covenants and agrees that, so long as this Agreement is in
effect the Bottler shall deliver to Company:
(i) Quarterly Statements. As soon as such statements are made
available to the public, or if such statements are not
regularly made available to the public, an unaudited income
and expense statement and balance sheet for the Bottler; and
(ii) Annual Audit Statement. As soon as such statements are made
available to the public, statements of income and retained
earnings of the Bottler for the just-ended fiscal year, and a
balance sheet of the Bottler as of the end of such year,
accompanied by an opinion from the independent public
accountants of the Bottler; and
(iii) Other information. With reasonable promptness such other
financial information as the Company may reasonably request in
such format as the Company may reasonably request.
38. The Bottler shall maintain its books, accounts and records in
accordance with generally accepted accounting principles and shall
permit any person designated in writing by the Company to visit and
inspect any of its properties, corporate books and financial records
(including, but not limited to, auditor's workpapers), and make copies
thereof and take extracts therefrom, and to discuss the accounts and
finances of the Bottler with the principal officers thereof, all at
such times as the Company may reasonably request. The Company's rights
of inspection under this paragraph 38 shall be exercised reasonably,
and only for purposes of determining Bottler's compliance with its
obligations under paragraph 16, so as not to interfere with the normal
operation of the Bottler's business. The Company will treat and
maintain as confidential for a period of one year all nonpublic
financial information received from the Bottler.
39. The parties agree:
(a) All Existing Syrup Appointments and other waivers,
authorizations, or similar documents related to such existing
Syrup Appointments, to the extent they are inconsistent with
this Agreement, are hereby superseded and restated in their
entirety, and all rights, duties and obligations of the
Company and the Bottler regarding the Trademarks and the
manufacture, packaging, distribution and sale of the Fountain
Syrups shall be determined under this Agreement, without
regard to the terms of any prior agreement and without regard
to any prior course of conduct between the parties;
(b) As to all matters addressed herein, this Agreement sets forth
the entire agreement between the Company and the Bottler, and
all prior understandings, commitments or agreements relating
to such matters between the parties or their
predecessors-in-interest are of no force or effect; and
(c) Any waiver or modification of this Agreement or any of its
provisions, and any notices given or consents made under this
Agreement shall not be binding upon the Bottler or the Company
unless made in writing, signed by an officer of the Company or
by a duly qualified and authorized representative of the
Bottler, and personally delivered or sent by telegram, telex
or certified mail to an officer of the Company (if from the
Bottler) or a duly qualified and authorized representative of
the Bottler (if from the Company) at the principal address of
such party.
40. Failure of the Company to exercise promptly any option or right herein
granted or to require strict performance of any such option or right
shall not be deemed to be a waiver of such option or right, or of the
right to demand subsequent performance of any and all obligations
herein imposed upon the Bottler.
41. The Company may delegate any of its rights, performance or obligations
under this Agreement to any subsidiaries or affiliates of the Company
upon notice to the Bottler, but no such delegation shall relieve the
Company of its obligations hereunder.
42. If any provision of this Agreement, or the application thereof to any
party or circumstance shall ever be prohibited by or held invalid under
applicable law, such provision shall be ineffective to the extent of
such prohibition without invalidating the remainder of such provision
or any other provision hereof, or the application of such provision to
other parties or circumstances.
43. This Agreement shall be governed, construed and interpreted under the
laws of the State of New York.
IN WITNESS WHEREOF, the parties have duly executed this Agreement in triplicate
effective as of the day and year first above written.
PEPSICO, INC. PEPSIAMERICAS, INC.
By:_______________________ By:______________________
Title:______________________ Title:_____________________
Date:______________________ Date:_____________________
<PAGE>
SCHEDULE A
BEVERAGES - COLAS
Pepsi
Diet Pepsi
Pepsi One
Caffeine Free Pepsi
Caffeine Free Diet Pepsi
Wild Cherry Pepsi
<PAGE>
SCHEDULE B
TRADEMARKS - COLAS
Pepsi
Pepsi-Cola
Diet Pepsi
Diet Pepsi-Cola
Pepsi One
Caffeine Free Pepsi
Caffeine Free Pepsi-Cola
Caffeine Free Diet Pepsi
Caffeine Free Diet Pepsi-Cola
Wild Cherry Pepsi
<PAGE>
SCHEDULE C
TERRITORIES
Master Fountain Syrup Agreement
STATE TERRITORY FORMER BOTTLING ENTITY
- ----- --------- ----------------------
AR Camden PepsiAmericas, Inc.
AR Jonesboro PepsiAmericas, Inc.
AR Little Rock PepsiAmericas, Inc.
IA Carroll Whitman Corp.
IA Cedar Rapids Whitman Corp.
IA Des Moines Whitman Corp.
IA Estherville PepsiAmericas, Inc.
IA Mason City Whitman Corp.
IA Waterloo Whitman Corp.
IL Alton Whitman Corp.
IL Bloomington Whitman Corp.
IL Chicago Whitman Corp.
IL Danville Whitman Corp.
IL Havana Whitman Corp.
IL Peoria Whitman Corp.
IN Brookville Whitman Corp.
IN Evansville Whitman Corp.
IN Fort Wayne Whitman Corp.
IN Indianapolis Whitman Corp.
IN Muncie Whitman Corp.
IN Munster Whitman Corp.
IN South Bend Whitman Corp.
IN Vincennes Whitman Corp.
KY Hopkinsville Whitman Corp.
KY Louisville Whitman Corp.
LA Monroe PepsiAmericas, Inc.
LA New Orleans PepsiAmericas, Inc.
LA Shreveport PepsiAmericas, Inc.
MI Marquette Whitman Corp.
MN Ortonville PepsiAmericas, Inc.
MN Thief River Falls PepsiAmericas, Inc.
MS Carthage PepsiAmericas, Inc.
MS Columbus PepsiAmericas, Inc.
MS Greenville PepsiAmericas, Inc.
MS Tupelo PepsiAmericas, Inc.
MS Winona PepsiAmericas, Inc.
MO Albany Whitman Corp.
MO Columbia Whitman Corp.
MO Excelsior Springs Whitman Corp.
MO Flat River Whitman Corp.
MO Kansas City Whitman Corp.
MO St. Louis Whitman Corp.
MO Sedalia Whitman Corp.
<PAGE>
STATE TERRITORY FORMER BOTTLING ENTITY
- ----- --------- ----------------------
MO Springfield Whitman Corp.
ND Bismark PepsiAmericas, Inc.
ND Fargo PepsiAmericas, Inc.
ND Grand Forks PepsiAmericas, Inc.
OH Akron Whitman Corp.
OH Ashtabula Whitman Corp.
OH Bryan Whitman Corp.
OH Cincinnati Whitman Corp.
OH Cleveland Whitman Corp.
OH Dayton Whitman Corp.
OH Dover Whitman Corp.
OH Lima Whitman Corp.
OH Springfield Whitman Corp.
OH Toledo Whitman Corp.
OH Youngstown Whitman Corp.
SD Aberdeen PepsiAmericas, Inc.
SD Sioux Falls PepsiAmericas, Inc.
TN Jackson PepsiAmericas, Inc.
TN Memphis PepsiAmericas, Inc.
TX Texarkana PepsiAmericas, Inc.
WI Beloit Whitman Corp.
WI Kenosha Whitman Corp.
WI Milwaukee Whitman Corp.
WI Oshkosh Whitman Corp.
WI Wisconsin Rapids Whitman Corp.
<PAGE>
SCHEDULE D
NATIONAL ACCOUNT/PROGRAM CUSTOMERS
<TABLE>
<CAPTION>
<S> <C> <C>
Acupulco Restaurants Dillon Companies Planet Hollywood
Ala Foods, Inc. Discovery Zone Pollo Tropical
Alfy's Pizza & Pasta Doctor's Associates Popeyes
Alternative Retail Concept Duncan Donuts QuickTrip
Amoco Oil Durango Steakhouse R&J Concessions
Aramark Corporation Equiva Services Red Robin
Arby's, Inc. Flash Foods Roasters, Inc.
Arco Frontier Enterprises Rodizio Grill-
Arthur Teachers Galardi Group Runza Drive Inns of America
Au Bon Pain Gateway Foods of Altoona Rusty Pelican
Auto Vendors of America General Cinema Sbarro's
AVI GZK, Inc. Shoney's, Inc.
Azteca Hard Rock Cafe Sizzler Restaurants
Backyard Burgers Hardees Sonic Industries
Best Beef High Nooner Southland Corp.
Big K Oil Co. Hilton Hotels Steak and Ale
Biscuitville, Inc. Hot N Now Taco Bell
Bojangles John C Young/Rolla Texaco
Boston Concessions Kerasotes Theatres Travel Port
Brueggers Bagel Bakery KFC Tubby's Sub Shops
Buca Di Beppo La Pizza Loca Una Mas
California Pizza Kitchen Lee's Famous Chicken Valentino's
Cambell Enterprises Long John Silver Vendors Supply of America
Captain D's Marriott Corp. Villa Enterprises
Casey's Gerneral Stores Metro Media Wal-Mart Stores
Chevron Stores Metropolitan Theatres Corp. WaWa
Church's Chicken Mobil Oil Wendy's
Cinamerica Morrison Hospitality Western Sizzlin
Circle K National Amusements White Swan
Clearview Cinema National JIB Purchasing Woody's Hot Dogs
Coastal Mart Inc. O'Charlyes Yancey's Food Service
Coffee Beanery O'Rion Yoshinoya West
Compass Group Pacific Basin Foods
Culver's Franchising System Panda Express
Cumberland Farms Panera Bread
Dairy Queen Papa Gino's
Daka International People Feeders/Square Pan
D'Angel, Inc. Pick Up Stix, Inc.
Dari-Mart Stores Pizza Hut
Delaware Valley Purchase Group Pizza Inn
</TABLE>
<PAGE>
SCHEDULE E-1
BOTTLER DELIVERY REMITTANCE
The Company will pay a per-gallon fee (the "Bottler Delivery
Remittance" as hereinafter defined) to the Bottler as the
Company's agent for manufacturing and delivering the Fountain
Syrup to National Account Customers electing DSD in accordance
with the provisions of paragraph 2(a) above. Such fees shall
be established by the Company on an annual basis in accordance
with the terms of this agreement. If the Bottler, as agent of
the Company, collects payments from a National Account
Customer for Fountain Syrup it has delivered to a National
Account Customer, the amount due and payable by the Bottler to
the Company with respect to such Fountain Syrup (the "Bottler
Delivery Fee Charge") shall be equal to the difference between
(i) the price per gallon of such Fountain Syrup for National
Account Customers as established by the Company (the "National
Account List Price") and (ii) the amount of the corresponding
Bottler Delivery Remittance.
Subject to paragraph 28(b) of the Master Fountain Syrup
Agreement, the Company and the Bottler agree that for those
National Account Customers included in the categories listed
below, the Company will reduce the amount of the Bottler
Delivery Remittance paid to the Bottler by a specified per
gallon amount.
CATEGORIES:
I. National Account Customers that are not under contract
on the date hereof and are sold during the Initial Term or
any Renewal Term by the Company's Fountain Beverage
Division or National Sales Business Unit (or successors)
and that elect DSD. The Bottler Delivery Remittance
applicable to such National Account Customers shall be
reduced by $0.40 per gallon.
<PAGE>
SCHEDULE E-1 (continued)
II. A reduced Bottler Delivery Remittance will apply to
any National Account Customer described at Paragraph
1(c)(iv) (b) and (d) of this Agreement, if and when such
National Account Customer enters into a new National
Account agreement or extends or renews its current
agreement with the Company. The Bottler Delivery
Remittance applicable to such National Account Customers
shall be reduced by $0.10 per gallon during the first 12
months following such new agreement, extension or renewal
and such reduction shall increase by $0.10 per gallon in
each 12 month period following the date the initial
reduction became applicable to such National Account
Customer, to a maximum of $0.40 per gallon.
If during the Initial Term or any Renewal Term there is an
increase in the National Account List Price for any Fountain
Syrup (a "National Account Price Increase") that exceeds any
corresponding increase in the cost of concentrate for the
manufacture of a gallon of such Fountain Syrup (a "Concentrate
Cost Increase"), the amount of the Bottler Delivery Remittance
shall be increased by at least an amount equal to the sum of
the Concentrate Cost Increase plus 25% of the amount by which
the National Account Price Increase exceeds the Concentrate
Cost Increase.
If during the Initial Term and the Renewal Term there is a
National Account price increase for any Fountain Syrup that is
no more than any corresponding Concentrate Cost Increase, the
amount of the Bottler Delivery Remittance shall be increased
by the National Account Price Increase.
<PAGE>
SCHEDULE E-1 (continued)
By way of examples, the following chart sets forth adjustments
to the Bottler Delivery Remittance and the Bottler Delivery
Fee Charge under various scenarios (all amounts in cents per
gallon):
<TABLE>
<CAPTION>
Minimum Increase in Maximum Increase in
National Account Concentrate Cost Bottler Delivery Bottler Delivery Fee
Price Increase Increase Remittance Charge
---------------- ---------------- ------------------- --------------------
<S> <C> <C> <C>
0 0 0 0
5 8 5 0
10 10 10 0
20 8 11* 9
</TABLE>
*8(cent)Concentrate Cost Increase plus 3(cent)(i.e. 25% of the 12(cent)excess of
the 20(cent)National Account Price Increase over the 8(cent)Concentrate Cost
Increase)
SCHEDULE E-2
BRAND DEVELOPMENT FEE
The Company will pay a fee (hereafter called the "Brand
Development Fee") to the Bottler for each gallon of Fountain
Syrup sold by the Company to National Account Customers (other
than National Account Customers serviced through DSD as set
forth in Paragraph 2(a) above). The Brand Development Fee will
be equal to eight percent (8%) of the Company's list price for
Fountain Syrup.
For those National Account Customers included in the
categories listed below, the Company will reduce the Brand
Development Fee paid to the Bottler by a specified per gallon
amount.
CATEGORIES:
I. New National Account Customers that are not under
contract on the date hereof and are sold by the
Company's Fountain Beverage Division or National
Sales Business Unit (or successors) during the
Initial Term or any Renewal Term. The Bottler will
not receive any Brand Development Fee or National
Account Customers in this category.
<PAGE>
SCHEDULE E-2 (continued)
II. Any National Account Customer described at
Paragraph 1(c)(iv)(b), (c) and (d) of this Agreement
will be subject to a reduced Brand Development Fee if
and when the National Account Customer enters into a
new National Account agreement or extends or renews
its current agreement with the Company, or in the
case of those accounts listed on Exhibit E-2 hereto
converts from DSD to commissary delivery. The Brand
Development Fee applicable to such National Account
Customers shall be reduced from 8% to 6% of the
Company's list price in the first 12 months following
such and shall decrease by an equal amount in each 12
month new agreement extension or renewal service
following the date the initial reduction became
applicable to such National Account Customer until
such Brand Development Fee no longer applies.
<PAGE>
Exhibit E-2
Taco Bell
KFC
Pizza Hut
<PAGE>
SCHEDULE E-3
EQUIPMENT SERVICE STANDARDS AND FEES
Company has established a service program as set forth
hereafter (the "Service Program") for the Initial Term and any
Renewal Term, which applies to Program Customers. The Service
Program contains the following elements:
(i) The Bottler (assuming it is in compliance with the
Company's reasonable service standards) shall have a right of
first refusal to provide service as the Company's service
agent.
(ii) If the Bottler agrees to act as the Company's service
agent the Bottler will provide service according to the
existing Sudden Service standards attached hereto as Exhibit
E-3(i).
(iii) If the Company adopts new or revised service standards,
any such new standards must be reasonable. In the event any
such new or revised service standards result in increases or
decreases to the Bottler's costs, the Company's payments in
Exhibit E-3(ii) (described in sub-paragraph (iv) below) will
be increased or decreased accordingly.
(iv) The Bottler, as the Company's service agent will be paid
a fee for service calls at regional market rates established
by the Company on an annual basis, which in no event shall be
less than set forth in Exhibit E-3(ii) (subject to
modification in accordance with paragraph (iii) above). The
Company will make such payments if and to the extent that such
payments are not made by a Program Customer. This program will
apply to all Program Customers regardless of whether the
Program Customer is receiving delivery through a Commissary or
through DSD.
<PAGE>
Exhibit E-3(i)
Sudden Service Standards -- Bottler Coverage
24 hour - 7 day/week repair answering service
7 a.m. to 11 p.m. dispatching - 7 days per week
4 hour response time during regular dispatching hours
Reimbursement for service call will be computed on the basis of a one
hour minimum plus fifteen minute increment (or portion thereof) in
excess of one hour. Drive time will not be included in the above
computation except where special circumstances related to an outlet
location apply.
One preventative maintenance check per outlet every 6 months (taking
20-30 minutes to complete).
<PAGE>
Exhibit E-3(ii)
Bottler Service Rates
---------------------
Rate per Call Geography
------------- ---------
$65 Los Angeles, Miami, Chicago, Boston,
Baltimore/Washington D.C., Alaska, New York City
$55 HI, CA, WA, MD, IL, SC, AR, NV
$50 CT, FL, GA, VA, MN, OR, NY, IN, NJ, WI, ME, NC,
OH, AZ, DL, MA, LA, PA, RI, WV, MO, ND, AL, MS
$45 NE, MI, CO, IA, TX, TN, SD, KS, MT, OK, UT, KY,
NH, VT
$40 WY, ID, NM
<PAGE>
SCHEDULE E-4
NEW EQUIPMENT PROGRAM
The Company has established a new equipment program for the
Initial Term and any Renewal Term which will be applicable
only to the Program Customers. The equipment program contains
the following elements:
(i) The Company will provide equipment to National
Account Customers that enter into agreements with the
Company's Fountain Beverage Division or National Sales
Business Unit (or successors thereto) after the date hereof.
(ii) The Company will offer to purchase from the
Bottler any equipment on loan from the Bottler to a National
Account Customer that converts from DSD to commissary
delivery. The purchase price will be the fair market value of
such equipment. As used herein, fair market value will take
into account cost, age, condition, and resale opportunities.
The Bottler will grant the Company such reasonable access to
the Bottler's books and records as is necessary to determine
identity, age, and cost of equipment.
(iii) If the Company and the Bottler fail to agree on
the amount of the purchase price, the Bottler will retain
title to such equipment, but agrees not to remove such
equipment from the outlets of such National Account Customer
for a period of at least 90 days after which time the Company
and Bottler will agree on a reasonable equipment replacement
schedule.
SCHEDULE E-5
PRODUCTION FEE
During the Initial Term and any Renewal Term the Company will
pay a fee to the Bottler for production of all Fountain Syrup
produced by the Bottler for delivery to a Commissary at brand
specific per gallon rates reasonably established by the
Company. The rates shall be calculated to include a margin
that is 3.3% above product average variable costs, adjusted
for concentrate increases and cumulative increases or
decreases in the price of high fructose corn syrup which
exceed $0.05 per gallon of Fountain Syrup. Transportation will
be reimbursed separately according to a regional delivery rate
table to be reasonably established by the Company on an annual
basis.
<PAGE>
SCHEDULE E-6
SERVICE INCENTIVE
The Company has established an equipment service incentive
fund, to be paid to the Bottler in accordance with the
following formula. Initially, this fund will be paid at the
rate of $0.15 per gallon on all Fountain Syrup delivered by a
Commissary to those National Account Customers in the
Territories whose gallons do not qualify the Bottler to
receive any Brand Development Fee provided that the Bottler
meets the service criteria set forth in Schedule E-3, as
amended from time to time. This fund may be adjusted in
subsequent years at the sole discretion of the Company.
<PAGE>
Schedule F
Compensation Upon Termination
1. At least 90 days prior to the end of a period for which a notice of
termination is delivered by the Company to the Bottler, the Company and the
Bottler shall decide on a mutually acceptable appraiser for determining the
amount of the Exit Value (as defined below). If the parties cannot agree, each
party shall choose a recognized, experienced independent appraiser, which
appraisers shall in turn choose a third appraiser who shall be responsible for
conducting the appraisal and determining the Exit Value (any such appraiser is
referred to herein as the "Appraiser").
2. The parties shall provide the Appraiser with a letter setting forth the
guidelines for the conduct of the appraisal proceedings. Such guidelines shall
specify (a) that the Appraiser utilize 5 years of Projected Cash Flow (as
defined below), (b) that the Appraiser assume that such cash flows would be
derived from the value of the Bottler's Fountain Business, with normal capital
expenditures and investments in the Bottler's Fountain Business.
3. The Appraiser shall deliver a preliminary report of the Exit Value within 90
days of appointment.
<PAGE>
Schedule F (continued)
4. Definitions:
(a) "Projected Cash Flow" means the projected After-Tax Cash Flow of
the Bottler's Fountain Business, based on (i) the actual After-Tax Cash Flow (as
defined below) of the Bottler's Fountain Business for the four (4) 12-month
periods ending six months prior to termination, and (ii) revenue, cost and
gallon sales growth trends for each segment of the Bottler's Fountain Business.
(b) "After-Tax Cash Flow" means net income, after taxes, plus reversal
of any provisions for depreciation or amortization and plus or minus net
interest expense or income, as the case may be, all determined in accordance
with generally accepted accounting principles then in effect.
(c) "Exit Value" shall mean five (5) years of discounted Projected Cash
Flow (as defined below); plus, in either case, the net book value (determined in
accordance with U.S. generally accepted accounting principles then in effect) of
the tangible assets of the Bottler used in the conduct of Bottler's Fountain
Business, less related liabilities assumed by the Company. The discount factor
to be used in connection with any calculation of Exit Value shall be the
Company's weighted average after-tax cost of capital calculated in accordance
with Exhibit F-1 attached hereto.
<PAGE>
Exhibit F-1
WEIGHTED AVERAGE COST OF CAPITAL
--------------------------------
(WACC)
PepsiCo's WACC is determined by taking the average of the long term expected
return on debt and equity, weighted by their proportion in PepsiCo's capital
structure:
WACC = Rd x D% + Rd x E%
Rd = Expected after-tax return on debt
D% = Percentage of Net Debt to Total Capital
Re = Expected return on Equity
E% = Percentage of Equity to Total Capital
Rd is the after-tax yield on a 30-year PepsiCo bond.
Re is determined by using the Capital Asset Pricing Model.
Re = Rf + Beta x (Rm-Rf)
Rf = 30-year Treasury yield
Beta = PepsiCo's Beta, (value line)
Rf-Rm = Market risk premium, (Alcar)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>pas10k_exh10-21.txt
<DESCRIPTION>ARCHIE R. DYKES LETTER AGREEMENT
<TEXT>
Exhibit 10.21
December 12, 2001
Dr. Archie R. Dykes
Chairman
Capital City Holdings Inc.
Rivergate Executive Park
907 Two Mile Parkway
Suite D-5
Goodlettsville, TN 37072
Dear Archie:
You and PepsiAmericas, Inc. (f/k/a Whitman Corporation) (the "Company") entered
into a letter agreement dated November 30, 2000 (the "Agreement"). The Agreement
sets forth the terms of your service to the Company as non-executive Chairman of
the Board of the Company. In recognition of your new title, Senior Chairman of
the Board, approved by the Board effective as of January 1, 2002, this letter
(the "Letter") amends the Agreement as follows:
1. Paragraph 3: Paragraph 3 of the Agreement is hereby amended and
restated in its entirety to read as follows:
"3. Your duties as Senior Chairman will include those customarily
performed by a senior chairman of a publicly-owned corporation,
including those set forth on Amended and Restated Exhibit A to this
Agreement."
2. Exhibit A: Exhibit A shall be replaced in its entirety by Amended and
Restated Exhibit A attached to this Letter.
3. Remaining Terms: Except as expressly set forth in this Letter, all
other terms and provisions of the Agreement shall remain in full force
and effect and are hereby ratified, adopted, approved and confirmed.
4. Binding Effect: This Letter shall be binding upon the parties hereto
and their respective successors and permitted assigns.
5. Capitalized Terms: Any capitalized terms used but not defined herein
shall, unless the context otherwise requires, have the meanings
assigned to such terms in the Agreement.
If these terms are acceptable to you, please execute a copy of this Letter and
return it to me.
Very truly yours,
PEPSIAMERICAS, INC.
By:
---------------------------------------
Robert C. Pohlad
Chief Executive Officer
Accepted and agreed:
Archie R. Dykes
cc: Chairman, Compensation Committee
Corporate Secretary
Legal Counsel
<PAGE>
PRIVILEGED AND CONFIDENTIAL
AMENDED AND RESTATED
EXHIBIT A
The duties of Dr. Dykes as Senior Chairman shall include:
o Recommending to the Board policies and procedures for the Board itself,
and, along with the Chairman and CEO, assuring that the Board is
organized appropriately and the committee structure is functioning
properly as measured against best practices of corporate boards.
o With the Chairman and CEO, leading the Board in commitment to
strategies that will enhance shareholder value, improve the business,
secure growth, and align the Company as an anchor bottler.
o With the Chairman and CEO, ensuring that the Board appropriately
addresses issues before the Company in a timely and effective manner.
o Providing counsel and support to the Chairman and CEO's plans for
significant organizational changes and human resource deployment.
o Sharing with the Chairman and CEO insights from Dr. Dykes' experience
and past practices which can be useful in the general management of the
Company.
o Serving as a sounding board for the Chairman and CEO.
o With the Board, Chairman and CEO, determining qualities and talents
needed in new directors and participating in the recruitment and
selection process of such directors.
o Carrying out such other responsibilities, consistent with Dr. Dykes'
position as Senior Chairman, as the Board may from time to time
reasonably request.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>7
<FILENAME>pas10k_exh12.txt
<DESCRIPTION>RATIO OF EARNINGS TO FIXED CHARGES
<TEXT>
Exhibit 12
PEPSIAMERICAS, INC.
STATEMENT OF CALCULATION
OF RATIO OF EARNINGS TO FIXED CHARGES
(in millions, except ratios)
<TABLE>
<CAPTION>
Fiscal Years
-------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations before taxes and
minority interest $ 173.9 $ 141.1 $ 71.6 $ 152.2 $ 69.9
Fixed charges 99.8 91.7 73.5 51.5 75.6
---------- ---------- ---------- ---------- ----------
Earnings as adjusted $ 273.7 $ 232.8 $ 145.1 $ 203.7 $ 145.5
========== ========== ========== ========== ==========
Fixed charges:
Interest expense $ 92.6 $ 85.8 $ 67.1 $ 46.4 $ 69.0
Preferred stock dividend requirement of majority
owned subsidiary -- -- -- -- 1.7
Portion of rents representative of interest factor 7.2 5.9 6.4 5.1 4.9
---------- ---------- ---------- ---------- ----------
Total fixed charges $ 99.8 $ 91.7 $ 73.5 $ 51.5 $ 75.6
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges* 2.7x 2.5x 2.0x 4.0x 1.9x
========== ========== ========== ========== ==========
</TABLE>
* In the fourth quarter of 2001, PepsiAmericas, Inc. recorded special charges
totaling $9.2 million. Additionally, the Company recorded a gain on pension
curtailment of $8.9 million in the first quarter of 2001, as well as a
special charge of $4.6 million. Excluding these special charges and
credits, the ratio of earnings to fixed charges for 2001 would have been
2.8x.
PepsiAmericas, Inc. recorded a special charge of $21.7 million during 2000.
Excluding this charge, the ratio of earnings to fixed charges for 2000
would have been 2.8x.
PepsiAmericas, Inc. recorded special charges of $27.9 million during 1999,
as well as a $56.3 million pretax charge to reduce the book value of
non-operating real estate. In addition, PepsiAmericas, Inc. recorded a
$13.3 million pretax gain on the sale of operations in Marion, Virginia;
Princeton, West Virginia; and the St. Petersburg area of Russia. Excluding
these charges and credits, the ratio of earnings to fixed charges for 1999
would have been 2.9x.
Intercompany interest income from Hussmann and Midas was $1.6 million and
$23.1 million in 1998 and 1997, respectively. If the fixed charges had been
reduced by this intercompany interest income, the ratio of earnings to
fixed charges for 1998 and 1997 would have been 4.1x and 2.3x,
respectively.
PepsiAmericas, Inc. also recorded special charges of $49.3 million during
1997. Excluding these special charges, the 1997 ratio of earnings to fixed
charges would have been 2.6x. Additionally, if the fixed charges for 1997
were adjusted for the intercompany interest income noted above, the ratio
of earnings to fixed charges would have been 3.3x.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>8
<FILENAME>pas10k_exh21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
As of February 1, 2002
Place of
Name Organization
PepsiAmericas, Inc..........................................Delaware
Pepsi-Cola General Bottlers, Inc.........................Delaware
Algonquin Leasing, Inc.................................Delaware
Globe Transport, Inc...................................Delaware
Genadco Advertising Agency, Inc........................Illinois
Iowa Vending, Inc......................................Delaware
Marquette Bottling Works, Inc..........................Michigan
Northern Michigan Vending, Inc.........................Michigan
PCGB, Inc..............................................Illinois
Pepsi-Cola General Bottlers of Wisconsin, Inc..........Wisconsin
Pepsi-Cola General Bottlers of Indiana, Inc............Delaware
Pepsi-Cola General Bottlers of Iowa, Inc...............Iowa
Pepsi-Cola General Bottlers of Ohio, Inc...............Delaware
GB International, Inc..................................Delaware
Pepsi-Cola General Bottlers Poland Sp.zo.o.............Poland
General Bottlers CR s.r.o............................. The Czech Republic
Pepsi-Cola SR s.r.o....................................Republic of Slovakia
General Bottlers of Hungary, Inc.......................Delaware
PepsiAmericas Kft......................................Hungary
GB Slovak LLC..........................................Delaware
GB Czech LLC...........................................Delaware
P-Americas, Inc..........................................Delaware
PepsiAmericas Caribbean, Inc...........................Delaware
Pepsi-Cola Jamaica Bottling Company Limited............Jamaica
Pepsi-Cola Puerto Rico Distributing, LLP...............Delaware
Pepsi-Cola Puerto Rico Manufacturing, LLC..............Delaware
P-A Barbados Bottling Company..........................Delaware
P-A Bottlers (Barbados) SRL............................Barbados
Beverage Plastics, LLC.................................Delaware
DakBev, LLC............................................Delaware
Pepsi-Cola Trinidad Bottling Company Limited...........Trinidad and Tobago
Delta Beverage Group, Inc..............................Delaware
Illinois Center Corporation..............................Delaware
Mid-America Improvement Corp.............................Illinois
South Properties, Inc....................................Illinois
Whitman Insurance Co., Ltd...............................Vermont
Whitman Leasing, Inc.....................................Delaware
Whitman Finance, Inc.....................................Delaware
The names of certain subsidiaries are omitted because such subsidiaries,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>9
<FILENAME>pas10k_exh23.txt
<DESCRIPTION>INDEPENDENT AUDITORS' CONSENT
<TEXT>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
PepsiAmericas, Inc.:
We consent to the incorporation by reference in Registration Statement Nos.
333-64292, 333-76549, 333-79095 and 333-36994 on Forms S-8, Registration
Statement Nos. 333-46368 and 333-51324 on Forms S-4 and Registration Statement
No. 333-36614 on Form S-3 of PepsiAmericas, Inc. and subsidiaries of our report
dated February 6, 2002, with respect to the consolidated balance sheets of
PepsiAmericas, Inc. and subsidiaries as of December 29, 2001 and December 30,
2000, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the fiscal years 2001, 2000 and 1999, which report
appears in the December 29, 2001, annual report on Form 10-K of PepsiAmericas,
Inc. and subsidiaries.
/s/ KPMG LLP
Chicago, Illinois
March 22, 2002
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>10
<FILENAME>pas10k_exh24.txt
<DESCRIPTION>POWER OF ATTORNEY
<TEXT>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and or
Officer of PEPSIAMERICAS, INC., a Delaware corporation (the "Company"), hereby
constitutes and appoints ROBERT C. POHLAD and G. MICHAEL DURKIN JR., and each of
them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign the Company's Annual Report on
Form 10-K for the fiscal year ended December 29, 2001, and any and all
amendments thereto, and to file the same, with all exhibits and schedules
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do if personally present, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set my hand and seal.
Date Date
------- -------
/s/ Robert C. Pohlad 3/25/02 /s/ Archie R. Dykes 3/25/02
- ------------------------- --------------------------
Robert C. Pohlad Archie R. Dykes
/s/ G. Michael Durkin Jr. 3/25/02 /s/ Charles W. Gaillard 3/25/02
- ------------------------- --------------------------
G. Michael Durkin Jr. Charles W. Gaillard
/s/ Brenda C. Barnes 3/25/02 /s/ Jarobin Gilbert, Jr. 3/25/02
- ------------------------- --------------------------
Brenda C. Barnes Jarobin Gilbert, Jr.
/s/ Herbert M. Baum 3/25/02 /s/ Victoria B. Jackson 3/25/02
- ------------------------- --------------------------
Herbert M. Baum Victoria B. Jackson
/s/ Richard G. Cline 3/25/02 /s/ Matthew M. McKenna 3/25/02
- ------------------------- --------------------------
Richard G. Cline Matthew M. McKenna
/s/ Pierre S. du Pont 3/25/02 /s/ Lionel L. Nowell III 3/25/02
- ------------------------- --------------------------
Pierre S. du Pont Lionel L. Nowell III
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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