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This excerpt taken from the PBG 8-K filed Jun 3, 2009. Judy Hong
-
Goldman Sachs - Analyst
Thanks, Goldman
Sachs. Can you first confirm whether the special committee is still in
discussions with PepsiCo as we speak? And, secondly, some have argued that the
PepsiCo really has the unilateral power to raise concentrate prices and
essentially get more of your cash flow. Can you just respond to that
argument?
Eric Foss
- Pepsi Bottling Group, Inc. -
Chairman & CEO
Sure, Judy, it's
Eric. On the first question, as I mentioned earlier, I am not going to comment
on any discussions or negotiations that have or haven't taken place or will or
won't take place relative to PepsiCo, so that is going to be our answer on any
questions related to that.
I
think on your second question, on this idea that the concentrate company
controls the bottler's cash flow by raising concentrate pricing we think it's a
fairly ridiculous theory quite honestly. If you look at the history here of PBG
specifically, we have a very strong track record in terms of our operating
profit track record and cash flow track record.
Our operating
profit is up over 2.5 times and our operating free cash flow is up threefold, so
it certainly hasn't been the case historically. And I don't believe it's the
case under any circumstances. The reality is that the concentrate company does
establish concentrate price, but the bottler sets the wholesale
pricing.
And so in the type
of environment that has been hypothesized where the concentrate company is
punitive relative to raising concentrate price, the offset of that is our
ability to raise pricing at retail. And in that scenario what would happen is
Blue System volume could decline, which would have a negative impact on
PepsiCo's profit and a negative system scenario.
So
I actually think that scenario ends up hurting the concentrate company much more
than the bottler. Also, I would add that I think any effort by PepsiCo to
depress PBG's earnings as part of its strategy to acquire us would expose
PepsiCo to potential litigation if that was an approach that was
taken.
Mary Winn Settino
-
Pepsi Bottling Group, Inc. - VP, IR and Public Relations
Operator, we will
take the next question.
Operator
Kaumil
Gajrawala.
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