< Previous | 8 of 14 | Next >

Notes to Consolidated Financial Statements

Note 8. Noncontrolled Bottling Affiliates

Our most significant noncontrolled bottling affiliates are PBG and PAS. Sales to PBG reflected approximately 8%, 9% and 10% of our total net revenue in 2008, 2007 and 2006, respectively.

The Pepsi Bottling Group

In addition to approximately 33% and 35% of PBG’s outstanding common stock that we owned at year-end 2008 and 2007, respectively, we owned 100% of PBG’s class B common stock and approximately 7% of the equity of Bottling Group, LLC, PBG’s principal operating subsidiary.

PBG’s summarized financial information is as follows:

                 
   
2008
   
2007
   
2006
 
Current assets
$
3,141
 
$
3,086
       
Noncurrent assets
 
9,841
   
10,029
       
Total assets
$
12,982
 
$
13,115
       
Current liabilities
$
3,083
 
$
2,215
       
Noncurrent liabilities
 
7,408
   
7,312
       
Minority interest
 
1,148
   
973
       
Total liabilities
$
11,639
 
$
10,500
       
Our investment
$
1,457
 
$
2,022
       
Net revenue
$
13,796
 
$
13,591
 
$
12,730
 
Gross profit
$
6,210
 
$
6,221
 
$
5,830
 
Operating profit
$
649
 
$
1,071
 
$
1,017
 
Net income
$
162
 
$
532
 
$
522
 

Our investment in PBG, which includes the related goodwill, was $536 million and $507 million higher than our ownership interest in their net assets at year-end 2008 and 2007, respectively. Based upon the quoted closing price of PBG shares at year-end 2008, the calculated market value of our shares in PBG exceeded our investment balance, excluding our investment in Bottling Group, LLC, by approximately $567 million.

Additionally, in 2007, we formed a joint venture with PBG, comprising our concentrate and PBG’s bottling businesses in Russia. PBG holds a 60% majority interest in the joint venture and consolidates the entity. We account for our interest of 40% under the equity method of accounting.

During 2008, together with PBG, we jointly acquired Russia’s leading branded juice company, Lebedyansky. Lebedyansky is owned 25% and 75% by PBG and us, respectively. See Note 14 for further information on this acquisition.

PepsiAmericas

At year-end 2008 and 2007, we owned approximately 43% and 44%, respectively, of the outstanding common stock of PAS.

PAS summarized financial information is as follows:

                 
   
2008
   
2007
   
2006
 
Current assets
$
906
 
$
922
       
Noncurrent assets
 
4,148
   
4,386
       
Total assets
$
5,054
 
$
5,308
       
Current liabilities
$
1,048
 
$
903
       
Noncurrent liabilities
 
2,175
   
2,274
       
Minority interest
 
307
   
273
       
Total liabilities
$
3,530
 
$
3,450
       
Our investment
$
972
 
$
1,118
       
Net revenue
$
4,937
 
$
4,480
 
$
3,972
 
Gross profit
$
1,982
 
$
1,823
 
$
1,608
 
Operating profit
$
473
 
$
436
 
$
356
 
Net income
$
226
 
$
212
 
$
158
 

Our investment in PAS, which includes the related goodwill, was $318 million and $303 million higher than our ownership interest in their net assets at year-end 2008 and 2007, respectively. Based upon the quoted closing price of PAS shares at year-end 2008, the calculated market value of our shares in PAS exceeded our investment balance by approximately $143 million.

Additionally, in 2007, we completed the joint purchase of Sandora, LLC, a juice company in the Ukraine, with PAS. PAS holds a 60% majority interest in the joint venture and consolidates the entity. We account for our interest of 40% under the equity method of accounting.

Related Party Transactions

Our significant related party transactions include our noncontrolled bottling affiliates. We sell concentrate to these affiliates, which they use in the production of CSDs and non-carbonated beverages. We also sell certain finished goods to these affiliates, and we receive royalties for the use of our trademarks for certain products. Sales of concentrate and finished goods are reported net of bottler funding. For further unaudited information on these bottlers, see “Our Customers” in Management’s Discussion and Analysis. These transactions with our bottling affiliates are reflected in our consolidated financial statements as follows:

                 
   
2008
   
2007
   
2006
 
Net revenue
$
4,919
 
$
4,874
 
$
4,837
 
Selling, general and administrative expenses
$
131
 
$
91
 
$
87
 
Accounts and notes receivable
$
153
 
$
163
       
Accounts payable and other current liabilities
$
104
 
$
106
       

Such amounts are settled on terms consistent with other trade receivables and payables. See Note 9 regarding our guarantee of certain PBG debt.

In addition, we coordinate, on an aggregate basis, the contract negotiations of sweeteners and other raw material requirements for certain of our bottlers. Once we have negotiated the contracts, the bottlers order and take delivery directly from the supplier and pay the suppliers directly. Consequently, these transactions are not reflected in our consolidated financial statements. As the contracting party, we could be liable to these suppliers in the event of any nonpayment by our bottlers, but we consider this exposure to be remote.