|UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-Q

/x/   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 1, 2006


/ /   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
                incorporation or organization) |  | (I.R.S. Employer
                Identification Number)

|4000 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) 661-4000


Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Yes | /x/ | No | / / |  | 
| | --- | --- | -- | --- |  | 

|Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Large accelerated filer | /x/ | Accelerated filer | / / | Non-accelerated filer | / /
| | ----------------------- | --- | ----------------- | --- | --------------------- | ---

|Indicate by check mark whether the registrant
is a shell company (as defined in Exchange Act Rule 12b-2).
|---------------------------------------------------------------------------------------------------------

| | Yes | / / | No | /x/ |  | 
| | --- | --- | -- | --- |  | 

|As of July 28, 2006 the Registrant
had 128,796,522 outstanding  shares
of common  stock,  par value  $0.01 per  share,  the
Registrant's only class of common stock.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|PEPSIAMERICAS, INC.FORM 10-QSECOND QUARTER 2006
|-----------------------------------------------

|TABLE OF CONTENTS
|-----------------

|              |  |                       |                                                                                       |     
|------------- |  | --------------------- | ------------------------------------------------------------------------------------- | ----
|              |  |                       |                                                                                       | Page
|              |  |                       |                                                                                       |     
|PART I        |  | FINANCIAL INFORMATION
|             
|              |  | Item 1.               | Financial Statements                                                                  |     
|              |  |                       | Condensed Consolidated Statements of Income                                           | 2   
|              |  |                       | Condensed Consolidated Balance Sheets                                                 | 3   
|              |  |                       | Condensed Consolidated Statements of Cash Flows                                       | 4   
|              |  |                       | Notes to Condensed Consolidated Financial Statements                                  | 5   
|             
|              |  | Item 2.               | Managements Discussion and Analysis of Financial Condition
and Results of Operations | 17  
|             
|              |  | Item 3.               | Quantitative and Qualitative Disclosures About Market Risk                            | 30  
|             
|              |  | Item 4.               | Controls and Procedures                                                               | 31  
|             
|PART II       |  | OTHER INFORMATION    
|             
|              |  | Item 1.               | Legal Proceedings                                                                     | 32  
|             
|              |  | Item 1A.              | Risk Factors                                                                          | 32  
|             
|              |  | Item 2.               | Unregistered Sales of Equity Securities and Use of Proceeds                           | 32  
|             
|              |  | Item 4.               | Submission of Matters to a Vote of Security Holders                                   | 32  
|             
|              |  | Item 5.               | Other Information                                                                     | 33  
|             
|              |  | Item 6.               | Exhibits                                                                              | 33  
|             
|SIGNATURE     |  |                       |                                                                                       | 34  
|             
|EXHIBIT INDEX |  |                       |                                                                                       | 35  

|1
|-

---

|PART I - FINANCIAL INFORMATION
|------------------------------

|Item 1.    Financial Statements
|-------------------------------

|PEPSIAMERICAS, INC.CONDENSED
CONSOLIDATED STATEMENTS OF INCOME(unaudited and in
millions, except per share data)
|----------------------------------------------------------------------------------------------------------------

|                                                                                              | Second Quarter | First Half
|--------------------------------------------------------------------------------------------- | -------------- | ----------
|
|                                                                                              |                |           
|Net sales                                                                                     |                |           
|Cost of goods sold                                                                            |                |           
|                                                                                              |                |           
|Gross profit                                                                                  |                |           
|Selling, delivery and administrative expenses                                                 |                |           
|Fructose settlement income                                                                    |                |           
|Special charges, net                                                                          |                |           
|                                                                                              |                |           
|Operating income                                                                              |                |           
|Interest expense, net                                                                         |                |           
|Other (expense) income, net                                                                   |                |           
|                                                                                              |                |           
|Income before income taxes
        and equity in net earnings    of nonconsolidated companies |                |           
|Income taxes                                                                                  |                |           
|Equity in net earnings of nonconsolidated companies                                           |                |           
|                                                                                              |                |           
|Net income                                                                                    |                |           
|                                                                                              |                |           
|Weighted average common shares:                                                               |                |           
|Basic                                                                                         |                |           
|Incremental effect of stock options and awards                                                |                |           
|                                                                                              |                |           
|Diluted                                                                                       |                |           
|                                                                                              |                |           
|Earnings per share:                                                                           |                |           
|Basic                                                                                         |                |           
|Diluted                                                                                       |                |           
|                                                                                              |                |           
|                                                                                              |                |           
|Cash dividends declared per share                                                             |                |           

|The accompanying notes are an integral
part of these condensed consolidated financial statements.
|-------------------------------------------------------------------------------------------------

|2
|-

---

|PEPSIAMERICAS, INC.CONDENSED
CONSOLIDATED BALANCE SHEETS(unaudited and in
millions, except per share data)
|----------------------------------------------------------------------------------------------------------

|                                                                                    | End ofSecond Quarter2006 | End ofFiscal Year2005
|----------------------------------------------------------------------------------- | ------------------------ | ---------------------
|ASSETS:                                                                             |                          |                      
|Current assets:                                                                     |                          |                      
|Cash and equivalents                                                                |                          |                      
|Receivables, net                                                                    |                          |                      
|Inventories:                                                                        |                          |                      
|Raw materials and supplies                                                          |                          |                      
|Finished goods                                                                      |                          |                      
|                                                                                    |                          |                      
|Total inventories                                                                   |                          |                      
|Other current assets                                                                |                          |                      
|                                                                                    |                          |                      
|Total current assets                                                                |                          |                      
|Property and equipment                                                              |                          |                      
|Accumulated depreciation                                                            |                          |                      
|                                                                                    |                          |                      
|Net property and equipment                                                          |                          |                      
|Goodwill                                                                            |                          |                      
|Intangible assets, net                                                              |                          |                      
|Other assets                                                                        |                          |                      
|                                                                                    |                          |                      
|Total assets                                                                        |                          |                      
|                                                                                    |                          |                      
|LIABILITIES AND SHAREHOLDERS' EQUITY:                                               |                          |                      
|Current liabilities:                                                                |                          |                      
|Short-term debt, including current maturities of long-term debt                     |                          |                      
|Payables                                                                            |                          |                      
|Other current liabilities                                                           |                          |                      
|                                                                                    |                          |                      
|Total current liabilities                                                           |                          |                      
|Long-term debt                                                                      |                          |                      
|Deferred income taxes                                                               |                          |                      
|Other liabilities                                                                   |                          |                      
|                                                                                    |                          |                      
|Total liabilities                                                                   |                          |                      
|                                                                                    |                          |                      
|Shareholders' equity:                                                               |                          |                      
|Preferred stock ($0.01 par
value, 12.5 million shares authorized; no shares issued) |                          |                      
|Common stock ($0.01 par value, 350 million
shares authorized; 137.6 million shares  |                          |                      
|issued - 2006 and 2005)                                                             |                          |                      
|Retained income                                                                     |                          |                      
|Unearned stock-based compensation                                                   |                          |                      
|Accumulated other comprehensive loss                                                |                          |                      
|Treasury stock, at cost (13.2 million shares -
 2006 and 4.6 million shares - 2005) |                          |                      
|                                                                                    |                          |                      
|Total shareholders' equity                                                          |                          |                      
|                                                                                    |                          |                      
|Total liabilities and shareholders' equity                                          |                          |                      
|                                                                                    |                          |                      

|The accompanying notes are an integral
part of these condensed consolidated financial statements.
|-------------------------------------------------------------------------------------------------

|3
|-

---

|PEPSIAMERICAS, INCCONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited and in
millions)
|--------------------------------------------------------------------------------------------

|                                                                                                  | First Half
|------------------------------------------------------------------------------------------------- | ----------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                             |           
|Income from continuing operations                                                                 |           
|Adjustments to reconcile to net cash provided by
  operating activities of continuing operations: |           
|Depreciation and amortization                                                                     |           
|Deferred income taxes                                                                             |           
|Special charges, net                                                                              |           
|Cash outlays related to special charges                                                           |           
|Loss on
        extinguishment of debt                                                            |           
|Pension contributions                                                                             |           
|Equity in
        net earnings of nonconsolidated companies                                       |           
|Excess tax
        benefits from share-based payment arrangements                                 |           
|Other                                                                                             |           
|Changes in assets and liabilities, exclusive of acquisitions:                                     |           
|Increase in receivables                                                                           |           
|Increase in inventories                                                                           |           
|Increase in payables                                                                              |           
|Net change in other assets and liabilities                                                        |           
|                                                                                                  |           
|Net cash provided by operating activities
of continuing operations                                |           
|                                                                                                  |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                             |           
|Franchises and companies acquired, net of cash acquired                                           |           
|Capital investments                                                                               |           
|Purchase of equity investment                                                                     |           
|Proceeds from sales of property                                                                   |           
|                                                                                                  |           
|Net cash used in investing activities                                                             |           
|                                                                                                  |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                             |           
|Net borrowings of short-term debt                                                                 |           
|Proceeds from issuance of long-term debt                                                          |           
|Repayment of long-term debt                                                                       |           
|Treasury stock purchases                                                                          |           
|Excess tax benefits from share-based payment arrangements                                         |           
|Issuance of common stock                                                                          |           
|Cash dividends                                                                                    |           
|                                                                                                  |           
|Net cash provided by financing activities                                                         |           
|                                                                                                  |           
|Net operating cash flows used in discontinued operations                                          |           
|Effects of exchange rate changes on cash and cash equivalents                                     |           
|                                                                                                  |           
|Change in cash and cash equivalents                                                               |           
|Cash and cash equivalents at beginning of fiscal year                                             |           
|                                                                                                  |           
|Cash and cash equivalents at end of second quarter                                                |           
|                                                                                                  |           

|The accompanying notes are an integral
part of these condensed consolidated financial statements.
|-------------------------------------------------------------------------------------------------

|4
|-

---

|PEPSIAMERICAS, INC.NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(unaudited)
|----------------------------------------------------------------------------------

|1. | Significant Accounting Policies
|-- | -------------------------------

| | Quarterly
reporting.The Condensed Consolidated Financial Statements included herein have been
prepared by PepsiAmericas, Inc. (referred to herein as PepsiAmericas,
we, our and us) without audit. Certain information and
disclosures normally included in financial statements prepared in accordance with United
States generally accepted accounting principles have been condensed or omitted pursuant to
the rules and regulations of the Securities and Exchange Commission, although we believe
that the disclosures are adequate to make the information presented not misleading. The
year-end Condensed Consolidated Balance Sheet data was derived from audited financial
statements, but does not include all disclosures required by United States generally
accepted accounting principles. These Condensed Consolidated Financial Statements should
be read in conjunction with the financial statements and notes thereto included in our
Annual Report on Form 10-K for the fiscal year 2005. In the opinion of management, the
information furnished herein reflects all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair statement of results for the interim periods
presented.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Our fiscal year consists of 52 or 53 weeks ending on the Saturday closest to December
31st. Our 2005 fiscal year contained 52 weeks and ended December 31, 2005. Our
second quarter and first half of 2006 and 2005 were based on the thirteen and twenty-six
weeks ended July 1, 2006 and July 2, 2005, respectively. Our business is seasonal;
accordingly, the operating results and cash flow from operations of any individual quarter
may not be indicative of a full years results.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Earnings
per share.Basic earnings per share is based upon the weighted-average number of
common shares outstanding. Diluted earnings per share includes dilutive common stock
equivalents, using the treasury stock method.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following options and restricted stock awards were not included in the computation of
diluted earnings per share because they were antidilutive:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                  | Second Quarter |         | First Half |  
| | ------------------------------------------------ | -------------- | ------- | ---------- | -
| |                                                  |                |         |            |  
| |                                                  | 2006           |         | 2005       |  
| |                                                  |                |         |            |  
| |                                                  |                |         |            |  
| | Shares under options outstanding                 |                |        |            |  
| | Weighted-average exercise price per share        | $              |        |            | $
| |                                                  |                |         |            |  
| | Shares under nonvested restricted stock awards   |                | 929,256 |            |  
| | Weighted-average grant date fair value per share | $              | 24.31   |            | $

| | Reclassifications.
         Certain amounts in the prior period Condensed Consolidated Financial
          Statements have been reclassified to conform to the current years
          presentation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Recently
Issued Accounting Pronouncements. In June 2006, the Financial Accounting Standards
Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN
48 provides guidance regarding the financial statement recognition and measurement of a
tax position either taken or expected to be taken in a tax return. It requires the
recognition of a tax position if it is more likely than not that position would be
sustained during an examination based on the technical merits of the position. The
provisions of FIN 48 are effective as of the beginning of fiscal year 2007. We are
currently evaluating the impact FIN 48 will have on the Consolidated Financial Statements
upon adoption.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5
|-

---

|2. | Special Charges
|-- | ---------------

| | In the first half of 2006 and 2005, we recorded special charges in Central Europe of $2.2 million
and $2.5 million, respectively.  These special charges related to a reduction in the workforce, primarily
for severance costs and related benefits.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table summarizes activity associated with the special charges (in millions):
| | ------------------------------------------------------------------------------------------

| |                                     | Beginning of
        Fiscal Year 2006 |   | Special Charges,Net |   | Applicationof
        SpecialCharges |  | OtherAdjustments |      | End of theFirst
        Halfof 2006 |  
| | ----------------------------------- | ------------------------------------- | - | ------------------- | - | ------------------------------------ |  | ---------------- | ---- | ----------------------------------- | -
| |                                     |                                       |   |                     |   |                                      |  |                  |      |                                     |  
| |                                     |                                       |   |                     |   |                                      |  |                  |      |                                     |  
| | Employee related costs              | $                                     |  |                     | $ | 2.0                                  |  | $                | (1.7 | )                                   | $
| | Lease terminations and  other costs |                                       |  |                     |   | 0.1                                  |  |                  |     |                                     |  
| | Asset write-downs                   |                                       |  |                     |   | 0.1                                  |  |                  | (0.1 | )                                   |  
| |                                     |                                       |   |                     |   |                                      |  |                  |      |                                     |  
| | Total accrued liabilities           | $                                     |  |                     | $ | 2.2                                  |  | $                | (1.8 | )                                   | $
| |                                     |                                       |   |                     |   |                                      |  |                  |      |                                     |  

| | The
total accrued liabilities remaining at the end of the first half of 2006 were comprised of
deferred severance payments and certain employee benefits, lease obligations and other
costs. We expect the remaining special charge liability of $0.4 million to be paid using
cash from operations during the next twelve months; accordingly, such amounts are
classified as Other current liabilities in the Condensed Consolidated Balance
Sheet.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Interest Expense, Net
|-- | ---------------------

| | Interest
expense, net, is comprised of the following (in millions):
| | -------------------------------------------------------------------

| | Second Quarter        |  | First Half
| | --------------------- |  | ----------
|
| | Interest expense      |  |           
| | Interest income       |  |           
| |                       |  |           
| | Interest expense, net |  |           
| |                       |  |           

|4. | Income Taxes
|-- | ------------

| | The
effective income tax rate, which is income tax expense expressed as a percentage of income
before income taxes, was 38.0 percent for the first half of 2006, compared to 37.1 percent
in the first half of 2005. The effective income tax rate was impacted by the mix of our
international operations. In addition, we recorded a $0.9 million benefit in the second
quarter of 2005 due to a state income tax law change in Ohio.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | Comprehensive Income
|-- | --------------------

| | Comprehensive income was as follows (in millions):
| | --------------------------------------------------

| |                                                               | Second Quarter |      | First Half |  
| | ------------------------------------------------------------- | -------------- | ---- | ---------- | -
| |                                                               |                |      |            |  
| |                                                               | 2006           |      | 2005       |  
| |                                                               |                |      |            |  
| |                                                               |                |      |            |  
| | Net income                                                    | $              | 65.0 |            | $
| | Foreign currency translation adjustment                       |                | 5.0  |            |  
| | Net unrealized investment
and hedging    gains
      (losses) |                | 0.1  |            |  
| |                                                               |                |      |            |  
| | Comprehensive income                                          | $              | 70.1 |            | $
| |                                                               |                |      |            |  

| | Net
unrealized investment and hedging gains (losses) are presented net of income tax expense
of $0.1 million and net of tax benefit of $2.1 million in the second quarter of 2006 and
2005, respectively, and net of income tax benefit of $2.0 million and $6.6 million in the
first half of 2006 and 2005, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6
|-

---

|6. | Goodwill and Intangible Assets
|-- | ------------------------------

| | The
changes in the carrying value of goodwill by geographic segment for the first half of 2006
were as follows (in millions):
| | -----------------------------------------------------------------------------------------------------------------------------

| |                                              | U.S. |         | CentralEurope |   | Caribbean |  | Total |     
| | -------------------------------------------- | ---- | ------- | ------------- | - | --------- |  | ----- | ----
| |                                              |      |         |               |   |           |  |       |     
| |                                              |      |         |               |   |           |  |       |     
| | Balance at beginning of fiscal year 2006     | $    | 1,821.3 |               | $ | 21.2      |  | $     | 16.5
| | Acquisitions                                 |      | 7.7     |               |   |          |  |       |    
| | Purchase accounting adjustments              |      | 0.2     |               |   |          |  |       | (0.3
| | Foreign currency translation adjustment      |      |        |               |   | 1.5       |  |       |    
| |                                              |      |         |               |   |           |  |       |     
| | Balance at end
        of first half of 2006 | $    | 1,829.2 |               | $ | 22.7      |  | $     | 16.2
| |                                              |      |         |               |   |           |  |       |     

| | Intangible asset balances were as follows (in millions):
| | --------------------------------------------------------

| |                                                        | End of FirstHalf of 2006 |       |   |  | End of FiscalYear 2005 |  |   |      
| | ------------------------------------------------------ | ------------------------ | ----- | - |  | ---------------------- |  | - | -----
| |                                                        |                          |       |   |  |                        | 
| | Intangible assets subject to amortization              |                          |       |   |  |                        |  |   |      
| | Gross carrying amount                                  |                          |       |   |  |                        |  |   |      
| | Franchise and distribution agreements                  | $                        | 3.3   |   |  |                        |  | $ | 3.6  
| | Customer relationships and lists                       |                          | 8.0   |   |  |                        |  |   | 8.0  
| | Other                                                  |                          | 2.9   |   |  |                        |  |   | 0.5  
| |                                                        |                          |       |   |  |                        | 
| | Total                                                  | $                        | 14.2  |   |  |                        |  | $ | 12.1 
| | Accumulated amortization                               |                          |       |   |  |                        |  |   |      
| | Franchise
        and distribution agreements          | $                        | (0.8  | ) |  |                        |  | $ | (1.0 
| | Customer relationships and lists                       |                          | (1.0  | ) |  |                        |  |   | (0.7 
| | Other                                                  |                          | (0.5  | ) |  |                        |  |   | (0.3 
| |                                                        |                          |       |   |  |                        | 
| | Total                                                  | $                        | (2.3  | ) |  |                        |  | $ | (2.0 
| |                                                        |                          |       |   |  |                        |  |   |      
| | Intangible
        assets subject to amortization, net | $                        | 11.9  |   |  |                        |  | $ | 10.1 
| |                                                        |                          |       |   |  |                        |  |   |      
| | Intangible
        assets not subject to amortization: |                          |       |   |  |                        |  |   |      
| | Franchise and distribution agreements                  | $                        | 288.5 |   |  |                        |  | $ | 288.5
| | Pension intangible assets                              |                          | 2.5   |   |  |                        |  |   | 2.5  
| |                                                        |                          |       |   |  |                        | 
| | Intangible assets not
        subject to amortization  | $                        | 291.0 |   |  |                        |  | $ | 291.0
| |                                                        |                          |       |   |  |                        |  |   |      
| | Total intangible assets, net                           | $                        | 302.9 |   |  |                        |  | $ | 301.1
| |                                                        |                          |       |   |  |                        | 

| | Total
amortization expense was $0.3 million in the second quarter of 2006 and was not
material to the Condensed Consolidated Statement of Income in the second quarter of 2005.
Total amortization expense was $0.6 million and $0.1 million in the first half of 2006 and
2005, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the first half of 2006, we acquired Ardea Beverage Co., resulting in an allocation of $7.7
million to goodwill and $2.4 million to other intangibles. The process of valuing the
assets, liabilities and intangibles acquired in connection with the Ardea acquisition was
completed in the second quarter of 2006.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
decrease in gross carrying amount of franchise and distribution agreements and related
accumulated amortization since the end of fiscal year 2005 reflected the write-off of
fully amortized franchise rights for products we no longer distribute.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Acquisitions
|-- | ------------

| | On
January 23, 2006, we completed the acquisition of Ardea Beverage Co., the maker of the
airforce Nutrisoda line of soft drinks.
| | ---------------------------------------------------------------------------------------------------------------------------------

|7
|-

---

| | In
the first half of fiscal year 2005, we completed the acquisition of the capital stock of
Central Investment Corporation (CIC) and the capital stock of FM Vending. CIC
had bottling operations in southeast Florida and central Ohio, and was the seventh largest
Pepsi bottler in the U.S. In addition, we acquired a 49 percent minority interest in
Quadrant-Amroq Bottling Company Limited (QABCL), a holding company that,
through subsidiaries, produces, sells and distributes Pepsi and other beverages throughout
Romania with distribution rights in Moldova.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
results of operations for the acquisitions described above are included in the Condensed
Consolidated Statements of Income since the date of acquisition. These acquisitions are
not material to our consolidated results of operations; therefore, pro forma financial
information is not included in this note.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | Debt
|-- | ----

| | In
the first half of 2006, we repaid the remaining outstanding principal of $134.7 million of the 6.5 percent notes and 5.95 percent
notes, both due February 2006. We had $219.0 million of commercial paper borrowings at the
end of the first half of 2006, compared to $141.5 million at the end of fiscal year 2005.
The increase in commercial paper borrowings was primarily due to funding maturing debt.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2006, we issued $250 million of notes with a coupon rate of 5.625% due May 2011. Net
proceeds from this transaction were $247.4 million, which reflected the discount reduction
of $1.0 million and debt issuance costs of $1.6 million. A portion of the proceeds from
the issuance was used to repay our commercial paper and other general obligations. The
notes were issued from our automatic shelf registration statement filed May 16, 2006 (the
Registration Statement). Under the Registration Statement, additional debt
securities may be offered. The debt securities are unsecured, senior debt obligations and
rank equally with all of our other unsecured and unsubordinated indebtedness.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
June 6, 2006, we entered into a new five-year, $600 million unsecured revolving credit
facility. The facility is for general corporate purposes, including commercial paper
backstop. It replaces our previous five-year, $500 million credit facility on
substantially similar terms.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | Financial Instruments
|-- | ---------------------

| | We
use derivative financial instruments to reduce our exposure to adverse fluctuations in
commodity prices, foreign currency transactions and interest rates. These financial
instruments are over-the-counter instruments and were designated at their
inception as hedges of underlying exposures. We do not use derivative financial
instruments for speculative or trading purposes.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
Flow Hedges. We enter into derivative financial instruments to hedge against
volatility in future cash flows on anticipated aluminum purchases and diesel fuel
purchases, the prices of which are indexed to their respective market prices. We consider
these hedges to be highly effective, because of the high correlation between the commodity
prices and our contractual costs. There were no significant changes in our derivative
financial instrument positions for aluminum and bulk diesel fuel in the first half of 2006.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
anticipation of a long-term debt issuance, we had entered into treasury rate lock
instruments and a forward starting swap agreement. We accounted for these treasury rate
lock instruments and forward starting swap agreement as cash flow hedges, as each hedged
against the variability of interest payments attributable to changes in interest rates on
the forecasted issuance of fixed-rate debt. These treasury rate locks and forward starting
swap agreement are considered highly effective in eliminating the variability of cash
flows associated with the forecasted debt issuance.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8
|-

---

| | The
following table summarizes the net derivative gains or losses deferred in
Accumulated other comprehensive loss and reclassified to earnings in the first
half of 2006 and 2005 (in millions):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | First Half2006                                                                               | First Half2005
| | -------------------------------------------------------------------------------------------- | --------------
| | Unrealized (losses) gains on derivatives at beginning
        of fiscal year                 |               
| | Deferral of net derivative gains (losses) in accumulated other
           comprehensive loss |               
| | Reclassification of net derivative losses (gains) to income                                  |               
| |                                                                                              |               
| | Unrealized losses on derivatives at end of second quarter                                    |               
| |                                                                                              |               

| | Fair
Value Hedges. Periodically, we enter into interest rate swap contracts to convert a
portion of our fixed rate debt to floating rate debt, with the objective of reducing
overall borrowing costs. We account for these swaps as fair value hedges, since they hedge
against the change in fair value of fixed rate debt resulting from fluctuations in
interest rates. In the third quarter of 2004, we terminated all outstanding interest rate
swap contracts and received $14.4 million for the fair value of the interest rate swap
contracts. Amounts included in the cumulative fair value adjustment to long-term debt will
be reclassified into earnings commensurate with the recognition of the related interest
expense. At the end of the first half of 2006 and the end of fiscal year 2005, the
cumulative fair value adjustments to long-term debt were $7.4 million and $8.7 million,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Amounts
recorded for all derivatives on the Condensed Consolidated Balance Sheets were as follows
(in millions):
| | ----------------------------------------------------------------------------------------------------------------

| |                           | End of FirstHalf of 2006 |      | End of FiscalYear 2005 |   |      |   |  | 
| | ------------------------- | ------------------------ | ---- | ---------------------- | - | ---- | - |  | 
| |                           |                          |      |                        |   |      |  
| | Unrealized gains:         |                          |      |                        |   |      |   |  | 
| | Commodities               | $                        | 0.9  |                        | $ | 1.4  |   |  | 
| | Interest rate instruments |                          | 9.6  |                        |   | 11.1 |   |  | 
| |                           |                          |      |                        |   |      |   |  | 
| | Unrealized losses:        |                          |      |                        |   |      |   |  | 
| | Commodities               | $                        |     |                        | $ | (0.1 | ) |  | 
| | Interest rate instruments |                          | (7.3 | )                      |   | (7.7 | ) |  | 

| | Net
Investment Hedges. We use foreign currency forward contracts as net investment
hedges of long-term investments in the corresponding foreign currency. Hedges that meet
the effectiveness requirements are accounted for under net investment hedging rules. At
the end of the first half of 2006, net losses of $1.0 million arising from effective
hedges of net investments have been reflected in cumulative foreign currency translation
in Accumulated other comprehensive loss on the Condensed Consolidated Balance
Sheet.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | Pension and Other Postretirement Benefit
Plans
|--- | ----------------------------------------------

| | Net periodic pension cost for the second quarter and first half of 2006 and 2005 included the following components (in millions):
| | ---------------------------------------------------------------------------------------------------------------------------------

| | Second Quarter                     |  | First Half
| | ---------------------------------- |  | ----------
|
| | Service cost                       |  |           
| | Interest cost                      |  |           
| | Expected return on plan assets     |  |           
| | Amortization of prior service cost |  |           
| | Amortization of net loss           |  |           
| |                                    |  |           
| | Net periodic pension cost          |  |           
| |                                    |  |           

|9
|-

---

| | As
of the end of the first half of 2006, we have contributed $10.0 million to the plans.
Although we do not expect to make any additional contributions in the remainder of fiscal
year 2006, we will continue to evaluate the plans funding requirements and will fund
to levels deemed necessary for the plans.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11. | Share-Based Compensation
|--- | ------------------------

| | Our
2000 Stock Incentive Plan (the 2000 Plan), originally approved by shareholders
in fiscal year 2000, provides for granting incentive stock options, nonqualified stock
options, related stock appreciation rights (SARs), restricted stock awards,
performance awards or any combination of the foregoing. Generally, outstanding
nonqualified stock options are exercisable during a ten-year period beginning one to three
years after the date of grant. The exercise price of all options is equal to the fair
market value on the date of grant. We generally use shares from treasury to satisfy option
exercises. There are no outstanding stock appreciation rights under the 2000 Plan at
the end of the first half of 2006.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Restricted
stock awards are granted to key members of our U.S. and Caribbean management teams and
members of our Board of Directors under the 2000 Plan. Restricted stock awards granted to
employees beginning with shares granted in 2004 vest in their entirety on the third
anniversary of the award. Restricted stock awards granted to employees before 2004 vest
ratably on an annual basis over a three-year period. Employees must complete the requisite
service period in order for their awards to vest. Restricted stock awards granted to
directors vest immediately upon grant. Pursuant to the terms of such awards, directors may
not sell such stock while they serve on the Board of Directors. Dividends are paid to the
holders of restricted stock awards either at the dividend payment date or upon vesting,
depending on the terms of the restricted stock award. We have a policy of using shares
from treasury to satisfy restricted stock award vesting. We measure the fair value of
restricted stock based upon the market price of the underlying common stock at the date of
grant.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Restricted
stock units are granted to key members of our Central Europe management team. The
restricted stock units are payable to these employees in cash upon vesting at the
prevailing market value of PepsiAmericas common stock plus accrued dividends. Restricted
stock units vest after three years, equal to the employees requisite service period.
We measure the fair value of restricted stock units based upon the market price of the
underlying common stock at the date of grant and each subsequent reporting date.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the 2000 Plan, 14,000,000 shares were originally reserved for share-based awards. As of
the end of the first half of 2006, there were 5,008,399 shares available for future
grants.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Our
Stock Incentive Plan (the 1982 Plan), originally established and approved by
the shareholders in 1982, has been subsequently amended from time to time, most recently
in 1999 when the shareholders approved an allocation of additional shares to this plan.
The types of awards and terms of the 1982 Plan are similar to the 2000 Plan. There are no
outstanding stock appreciation rights under the 1982 Plan as of the end of the first half
of 2006.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 123(R), Share-Based Payment. We adopted using the
modified prospective method as provided by SFAS No. 123(R). Accordingly, financial
statement amounts for the prior periods presented in this Quarterly Report on
Form 10-Q have not been restated.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Changes
in options outstanding are summarized as follows:
|---------------------------------------------------------

| |                                                        |            |   |                 |       | Weighted-
| | ------------------------------------------------------ | ---------- | - | --------------- | ----- | ---------
| |                                                        |            |   |                 |       | Average  
| |                                                        |            |   | Range of        |       | Exercise 
| | Options                                                | Shares     |   | Exercise Prices |       | Price    
| |                                                        |            |   |                 |       |          
| | Balance, beginning of fiscal
                year 2006 | 6,941,495  |   | $               | 10.81 |         
| | Exercised or surrendered                               | (1,295,173 | ) |                 | 10.81 |         
| | Recaptured or terminated                               | (15,755    | ) |                 | 12.01 |         
| |                                                        |            |   |                 |       |          
| | Balance, end of first half of 2006                     | 5,630,567  |   |                 | 10.81 |         
| |                                                        |            |   |                 |       |          
| |                                                        |            |   |                 |       |          
| | Exercisable, end of first half
of 2006                 | 5,209,873  |   |                 | 10.81 |         

|10
|--

---

| | The
Black-Scholes model was used to estimate the grant date fair values of options. There were
no options granted during the first half of 2006 and 2005. We recorded $0.5 million ($0.3
million net of tax) and $1.3 million ($0.8 million net of tax) of compensation expense
related to options in Sales, delivery and administrative expenses in the
Condensed Consolidated Statements of Income in the second quarter and first half of 2006,
respectively. The total intrinsic value of options exercised during the second quarter of
2006 and 2005 was $4.5 million and $11.1 million, respectively, and during the first half
of 2006 and 2005 was $10.7 million and $21.9 million, respectively. The total intrinsic
value of fully vested options and options expected to vest as of the end of the first half
of 2006 was $28.5 million.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table summarizes information regarding stock options outstanding and exercisable
at the end of the first half of 2006:
| | ------------------------------------------------------------------------------------------------------------------------------------

|                |       | Options Outstanding |   | Options Exercisable
|--------------- | ----- | ------------------- | - | -------------------
|                |       |                     |   |                    
|                |       |                     |   | Weighted-          
|                |       |                     |   | Average            
|Range of        |       | Options             |   | Remaining Life     
|Exercise Prices |       | Outstanding         |   | (in years)         
|                |       |                     |   |                    
|$               | 10.81 |                    | $ | 12.75              
|                | 14.37 |                    |   | 18.06              
|                | 18.48 |                    |   | 22.63              
|                |       |                     |   |                    
|Total Options   |       | 5,630,567           |   | 4.6                
|                |       |                     |   |                    

|Changes
in nonvested restricted stock awards are summarized as follows:
|-----------------------------------------------------------------------

| | Nonvested Shares                                 | Shares    |   | Range of Grant-Date Fair Value |       | Weighted-Average Exercise Grant-Date Fair Value
| | ------------------------------------------------ | --------- | - | ------------------------------ | ----- | -----------------------------------------------
| |                                                  |           |   |                                |       |                                                
| | Nonvested at the beginning of fiscal   year 2006 | 1,645,292 |   | $                              | 12.01 |                                               
| | Granted                                          | 970,877   |   |                                |       |                                                
| | Vested                                           | (404,776  | ) |                                | 12.01 |                                               
| | Forfeited                                        | (35,447   | ) |                                | 18.92 |                                               
| |                                                  |           |   |                                |       |                                                
| | Nonvested at the end of the first half 2006      | 2,175,946 |   |                                | 18.92 |                                               

| | The
weighted-average fair value (at the date of grant) for restricted stock awards granted in
the first half of 2006 and 2005 was $24.31 and $22.55, respectively, and for restricted
stock awards granted in the second quarter of 2005 was $24.83. We did not grant any
restricted stock awards in the second quarter of 2006. We recognized compensation expense
of $3.0 million ($1.8 million net of tax) and $2.5 million ($1.6 million net of tax) in
the second quarter of 2006 and 2005, respectively, and $6.7 million ($4.2 million net of
tax) and $5.2 million ($3.3 million net of tax) in the first half of 2006 and 2005,
respectively, related to restricted stock award grants. The fair value of restricted stock
awards that vested during the first half of 2006 and 2005 was $9.3 million and $12.0
million, respectively. No restricted stock awards vested in the second quarter of 2006 and
2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
February 2006, we granted 72,900 restricted stock units at a weighted average fair value
of $24.31 on the date of grant to key members of management. In the first half of 2005, we
granted 78,440 restricted stock units at a weighted-average fair value of $22.52 on the
date of grant. We recognized compensation expense of $0.2 million and $0.2 million in the
second quarter of 2006 and 2005, respectively, and we recognized compensation expense of
$0.4 million and $0.3 million in the first half of 2006 and 2005, respectively, related to
restricted stock unit grants. There are currently 144,090 restricted stock units
outstanding, and no restricted stock units vested during the first half of 2006 and 2005.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Upon
the adoption of SFAS No. 123(R), cash retained as a result of excess tax benefits relating
to stock-based compensation is presented in cash flows from financing activities on the
Condensed Consolidated Statement of Cash Flows. Previously, cash retained as a result of
excess tax benefits was presented in cash flows from operating activities. Tax benefits
resulting from stock-based compensation deductions in excess of amounts reported for
financial reporting purposes were $1.6 million and $5.6 million during the second quarter
and first half of 2006, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
the end of the first half of 2006, there was $33.1 million of total unrecognized
compensation cost, net of estimated forfeitures of $3.2 million, related to nonvested
stock-based compensation arrangements. This compensation cost is expected to be recognized
over the next 2.1 years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11
|--

---

| | In
periods prior to the adoption of SFAS No. 123(R), we used the intrinsic value method of
accounting for our stock-based compensation under Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees. No
stock-based employee compensation cost for options was reflected in net income, as all
options granted had an exercise price equal to the market value of the underlying common
stock on the date of grant. Compensation expense for restricted stock awards and
restricted stock units was reflected in net income, and this expense was recognized
ratably over the awards vesting period. The following table illustrates the effect
on net income and earnings per share had compensation expense been recognized based upon
the estimated fair value on the grant date of the awards in accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure (in
millions, except per share data):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                                                                    |  |  | SecondQuarter2005 |   | FirstHalf2005 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ----------------- | - | ------------- | -
|                                                                                                                                                                                    |  |  |                   |   |               |  
|Net income, as reported                                                                                                                                                             |  |  |                   | $ | 72.6          |  
|Add:  Total stock-based compensation expense included 
                             in net income as reported, net of tax                                                           |  |  |                   |   | 1.6           |  
|Deduct:  Total stock-based compensation expense determined under
        fair             value method for all options and
        restricted stock awards,              net of tax |  |  |                   |   | (2.1          | )
|                                                                                                                                                                                    |  |  |                   |   |               |  
|Pro forma net income                                                                                                                                                                |  |  |                   | $ | 72.1          |  
|                                                                                                                                                                                    |  |  |                   |   |               |  
|Basic:     As reported                                                                                                                                                              |  |  |                   | $ | 0.54          |  
|                                                                                                                                                                                    |  |  |                   |   |               |  
|Pro forma                                                                                                                                                                           |  |  |                   | $ | 0.53          |  
|                                                                                                                                                                                    |  |  |                   |   |               |  
|Diluted:  As reported                                                                                                                                                               |  |  |                   | $ | 0.53          |  
|                                                                                                                                                                                    |  |  |                   |   |               |  
|Pro forma                                                                                                                                                                           |  |  |                   | $ | 0.52          |  
|                                                                                                                                                                                    |  |  |                   |   |               |  

|12. | Supplemental Cash Flow Information
|--- | ----------------------------------

| | Net
cash provided by operating activities reflected cash payments and receipts for interest
and income taxes as follows (in millions):
| | --------------------------------------------------------------------------------------------------------------------------------------

| |                                   | First Half |     
| | --------------------------------- | ---------- | ----
| |                                   |            |     
| |                                   | 2006       |     
| |                                   |            |     
| |                                   |            |     
| | Interest paid                     | $          | 51.0
| | Interest received                 |            | 2.1 
| | Income taxes paid, net of refunds |            | 12.0

| | Income
taxes paid, net of refunds includes $12.8 million of tax refunds received in the first
half of 2005 relating to the utilization of a portion of our net operating loss
carryforwards for tax returns filed through fiscal year 2002.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. | Environmental and Other Commitments
        and Contingencies
|--- | -------------------------------------------------------------

| | Current
Operations. We maintain compliance with federal, state and local laws and
regulations relating to materials used in production and to the discharge or emission of
wastes, and other laws and regulations relating to the protection of the environment. The
capital costs of such management and compliance, including the modification of existing
plants and the installation of new manufacturing processes, are not material to our
continuing operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
are defendants in lawsuits that arise in the ordinary course of business, none of which is
expected to have a material adverse effect on our financial condition, although amounts
recorded in any given period could be material to the results of operations or cash flows
for that period.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
participate in a number of trustee-managed multi-employer pension and health and welfare
plans for employees covered under collective bargaining agreements. Several factors,
including unfavorable investment performance, changes in demographics and increased
benefits to participants could result in potential funding deficiencies, which could cause
us to make higher future contributions to these plans.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12
|--

---

| | Discontinued
Operations  Remediation. Under the agreement pursuant to which we
sold our subsidiaries, Abex Corporation and Pneumo Abex Corporation (collectively,
Pneumo Abex), in 1988 and a subsequent settlement agreement entered into in
September 1991, we have assumed indemnification obligations for certain environmental
liabilities of Pneumo Abex, after any insurance recoveries. Pneumo Abex has been and is
subject to a number of environmental cleanup proceedings, including responsibilities under
the Comprehensive Environmental Response, Compensation and Liability Act and other related
federal and state laws regarding release or disposal of wastes at on-site and off-site
locations. In some proceedings, federal, state and local government agencies are involved
and other major corporations have been named as potentially responsible parties. Pneumo
Abex is also subject to private claims and lawsuits for remediation of properties
previously owned by Pneumo Abex and its subsidiaries.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | There
is an inherent uncertainty in assessing the total cost to investigate and remediate a
given site. This is because of the evolving and varying nature of the remediation and
allocation process. Any assessment of expenses is more speculative in an early stage of
remediation and is dependent upon a number of variables beyond the control of any party.
Furthermore, there are often timing considerations, in that a portion of the expense
incurred by Pneumo Abex, and any resulting obligation of ours to indemnify Pneumo Abex,
may not occur for a number of years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
fiscal year 2001, we investigated the use of insurance products to mitigate risks related
to our indemnification obligations under the 1988 agreement, as amended. The insurance
carriers required that we employ an outside consultant to perform a comprehensive review
of the former facilities operated or impacted by Pneumo Abex. Advances in the techniques
of retrospective risk evaluation and increased experience (and therefore available data)
at our former facilities made this comprehensive review possible. The consultants
review was completed in fiscal year 2001 and was updated in the fourth quarter of 2005. We
have recorded our best estimate of our probable liability under our indemnification
obligations using this consultants review and the assistance of other professionals.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
the end of the first half of 2006, we had $74.1 million accrued to cover potential
indemnification obligations, compared to $87.5 million recorded at the end of fiscal year
2005. This indemnification obligation includes costs associated with approximately 20
sites in various stages of remediation. At the present time, the most significant
remaining indemnification obligation is associated with the Willits site, as discussed
below, while no other single site has significant estimated remaining costs associated
with it. Of the total amount accrued, $27.8 million was classified as a current liability
at the end of the first half of 2006 and at the end of fiscal year 2005. The amounts
exclude possible insurance recoveries and are determined on an undiscounted cash flow
basis. The estimated indemnification liabilities include expenses for the investigation
and remediation of identified sites, payments to third parties for claims and expenses
(including product liability and toxic tort claims), administrative expenses, and the
expenses of on-going evaluations and litigation. We expect a significant portion of the
accrued liabilities will be resolved during the next 10 years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Included
in our indemnification obligations is financial exposure related to certain remedial
actions required at a facility that manufactured hydraulic and related equipment in
Willits, California. Various chemicals and metals contaminate this site. 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 which is obligated to investigate and
clean up this site. We are currently funding the investigation and interim remediation
costs on a year-to-year basis according to the final consent decree. We have accrued $22.8
million for future remediation and trust administration costs, with the majority of this
amount to be spent over the next several years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Although
we have certain indemnification obligations for environmental liabilities at a number of
sites other than the site discussed above, including Superfund sites, it is not
anticipated that additional expense at any specific site will have a material effect on
us. At some sites, the volumetric contribution for which we have an obligation has been
estimated and other large, financially viable parties are responsible for substantial
portions of the remainder. In our opinion, based upon information currently available, the
ultimate resolution of these claims and litigation, including potential environmental
exposures, and considering amounts already accrued, should not have a material effect on
our financial condition, although amounts recorded in a given period could be material to
our results of operations or cash flows for that period.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13
|--

---

| | Discontinued
OperationsInsurance. During the second quarter of 2002, as part of a
comprehensive program concerning environmental liabilities related to the former Whitman
Corporation subsidiaries, we purchased new insurance coverage related to the sites
previously owned and operated or impacted by Pneumo Abex and its subsidiaries. In
addition, a trust, which was established in 2000 with the proceeds from an insurance
settlement (the Trust), purchased insurance coverage and funded coverage for
remedial and other costs (Finite Funding) related to the sites previously
owned and operated or impacted by Pneumo Abex and its subsidiaries.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Essentially
all of the assets of the Trust were expended by the Trust in connection with the purchase
of the insurance coverage, the Finite Funding and related expenses. These actions have
been taken to fund remediation and related costs associated with the sites previously
owned and operated or impacted by Pneumo Abex and its subsidiaries and to protect against
additional future costs in excess of our self-insured retention. The original amount of
self-insured retention (the amount we must pay before the insurance carrier is obligated
to begin payments) was $114.0 million of which $39.5 million has been eroded, leaving a
remaining self-insured retention of $74.5 million at the end of the second quarter of
2006. The estimated range of aggregate exposure related only to the remediation costs of
such environmental liabilities is approximately $31 million to $50 million. We had accrued
$32.3 million at the end of the first half of 2006 for remediation costs, which is our
best estimate of the contingent liabilities related to these environmental matters. The
Finite Funding may be used to pay a portion of the $32.3 million and thus reduces our
future cash obligations. Amounts recorded in our Condensed Consolidated Balance Sheets
related to Finite Funding were $15.0 million and $19.6 million at the end of the first
half of 2006 and the end of fiscal year 2005, respectively, and are recorded in
Other assets, net of $3.5 million and $5.4 million recorded in Other
current assets, at the end of the first half of 2006 and the end of fiscal year
2005, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, we had recorded other receivables of $8.4 million and $11.4 million at the end
of the first half of 2006 and at the end of fiscal year 2005, respectively, for future
probable amounts to be received from insurance companies and other responsible parties.
These amounts were recorded in Other assets in the Condensed Consolidated
Balance Sheets as of the end of each respective period. Of this total, no portion of the
receivable was reflected as current at the end of the first half of 2006 or at the end of fiscal
year 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 31, 2005, Cooper Industries, LLC (Cooper) filed and later served a lawsuit
against us, Pneumo Abex, LLC, and the Trustee of the Trust (the Trustee),
captioned Cooper Industries, LLC v. PepsiAmericas, Inc., et al., Case No.
05 CH 9214 (Cook Cty. Cir. Ct.). The claims involve the Trust and insurance policy
described above. Cooper asserts that it was entitled to access the $34 million that
previously was in the Trust and used to purchase the insurance policy. Cooper claims that
Trust funds should have been distributed for underlying Pneumo Abex asbestos claims
indemnified by Cooper. Cooper complains that it was deprived of access to money in the
Trust because of the Trustees decision to use the Trust funds to purchase the
insurance policy described above. We joined a motion by the Trustee to dismiss the lawsuit
on the grounds that Cooper lacks standing to pursue its claims because it is not a
beneficiary under the Trust. Pneumo Abex, LLC, the corporate successor to our prior
subsidiary, has been dismissed from the suit. During the second quarter of 2006, the
Trustees motion to dismiss was granted and three counts against us were dismissed
with prejudice as were all counts against the Trustee. Two counts of the complaint remain
pending against us. We have since filed a separate motion to dismiss the remaining counts
and we are awaiting a hearing on the motion.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Discontinued
OperationsProduct Liability and Toxic Tort Claims. We also have
certain indemnification obligations related to product liability and toxic tort claims
that might emanate out of the 1988 agreement with Pneumo Abex. Other companies not owned
by or associated with us also are responsible to Pneumo Abex for the financial burden of
all asbestos product liability claims filed against Pneumo Abex after a certain date in
1998, except for certain claims indemnified by us. The sites and product liability and
toxic tort claims included in the aggregate accrued liabilities we have recorded are
described more fully in our Annual Report on Form 10-K for the fiscal year 2005. No
significant changes in the status of those sites or claims occurred and we were not
notified of any significant new sites or claims during the first half of 2006.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14
|--

---

|14. | Segment Reporting
|--- | -----------------

| | We
operate in one industry located in three geographic areas  the U.S., Central Europe
and the Caribbean. We operate in 19 states in the U.S. Outside the U.S., we operate in
Poland, Hungary, the Czech Republic, Republic of Slovakia, Puerto Rico, Jamaica, Barbados,
the Bahamas and Trinidad and Tobago. The operating income of the Central Europe geographic
segment excludes the results of our nonconsolidated investment in Quadrant-Amroq Bottling
Company Limited, the Pepsi bottler in Romania with distribution rights in Moldova.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following tables present net sales and operating income (loss) of our geographic segments
for the second quarter and first half of 2006 and 2005 (in millions):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                | Second Quarter | 
| | -------------- | -------------- | 
|
|
| | U.S.           |                | 
| | Central Europe |                | 
| | Caribbean      |                | 
| |                |                | 
| | Total          |                | 
| |                |                | 

| |                | First Half | 
| | -------------- | ---------- | 
|
|
| | U.S.           |            | 
| | Central Europe |            | 
| | Caribbean      |            | 
| |                |            | 
| | Total          |            | 
| |                |            | 

|15. | Related Party Transactions
|--- | --------------------------

| | We
are a licensed producer and distributor of PepsiCo branded carbonated and non-carbonated
soft drinks and other non-alcoholic beverages in the U.S., Central Europe and the
Caribbean. We operate under exclusive franchise agreements with soft drink concentrate
producers, including master bottling and fountain syrup agreements with
PepsiCo, Inc. (PepsiCo) for the manufacture, packaging, sale and distribution
of PepsiCo branded products. The franchise agreements exist in perpetuity and contain
operating and marketing commitments and conditions for termination. As of the end of the
first half of 2006, PepsiCo beneficially owned approximately 44 percent of
PepsiAmericas outstanding common stock.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
purchase concentrate from PepsiCo to be used in the production of PepsiCo branded
carbonated soft drinks and other non-alcoholic beverages. PepsiCo also provides us with
various forms of bottler incentives (marketing support programs) to promote Pepsis
brands. These bottler incentives cover a variety of initiatives, including direct
marketplace, shared media and advertising, to support volume and market share growth.
There are no conditions or requirements that could result in the repayment of any support
payments we have received.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
manufacture and distribute fountain products and provide fountain equipment service to
PepsiCo customers in certain territories in accordance with various agreements. There are
other products that we produce and/or distribute through various arrangements with PepsiCo
or partners of PepsiCo. We also purchase finished beverage products from PepsiCo and
certain of its affiliates including tea, concentrate and finished beverage products from a
Pepsi/Lipton partnership, as well as finished beverage products from a Pepsi/Starbucks
partnership.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | PepsiCo
provides various procurement services under a shared services agreement. Under such
agreement, PepsiCo negotiates with various suppliers the cost of certain raw materials by
entering into raw material contracts on our behalf. PepsiCo also collects and remits to us
certain rebates from the various suppliers related to our procurement volume. In addition,
PepsiCo acts as our agent for the execution of derivative contracts associated with
certain anticipated raw material purchases.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15
|--

---

| | We
have an existing arrangement with a subsidiary of the Pohlad Companies related to the
joint ownership of an aircraft. This transaction is not material to our Condensed
Consolidated Financial Statements. Robert C. Pohlad, our Chairman and Chief Executive
Officer, is the President and owner of approximately 33 percent of the capital stock of
Pohlad Companies.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | See
additional discussion of our related party transactions in our Annual Report on Form 10-K
for the fiscal year 2005.
| | -----------------------------------------------------------------------------------------------------------------------

|16. | Subsequent Event
|--- | ----------------

| | On
July 3, 2006, we acquired the remaining 51 percent interest in Quadrant-Amroq Bottling
Company Limited (QABCL) for approximately $81 million, net of approximately
$17 million of cash received. QABCL had approximately $55 million of debt which remains outstanding
following the transaction. QABCL is now a wholly-owned subsidiary which will be consolidated in the
third quarter of 2006. QABCL produces, sells and distributes Pepsi and other beverages
throughout Romania with distribution rights in Moldova.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|16
|--

---

|Item 2. 
   Management's
Discussion and Analysis of Financial Condition and Results of Operations
|-------------------------------------------------------------------------------------------------

|CRITICAL ACCOUNTING POLICIES
|----------------------------

|The
preparation of the Condensed Consolidated Financial Statements in conformity with United
States generally accepted accounting principles requires management to use estimates.
These estimates are made using managements best judgment and the information
available at the time these estimates are made, including the advice of outside experts.
For a better understanding of our significant accounting policies used in preparation of
the Condensed Consolidated Financial Statements, please refer to our Annual Report on Form
10-K for fiscal year 2005. We focus your attention on the following critical accounting
policies:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Goodwill
Impairment. Goodwill is tested for impairment at least annually, using a two-step
approach at the reporting unit level: U.S., Central Europe and the Caribbean. First, we
estimate the fair value of the reporting units primarily using discounted estimated future
cash flows. If the carrying value exceeds the fair value of the reporting unit, the second
step of the goodwill impairment test is performed to measure the amount of the potential
loss. Goodwill impairment is measured by comparing the implied fair value of
goodwill with its carrying amount. The impairment evaluation requires the use of
considerable management judgment to determine the fair value of the reporting units using
discounted future cash flows, including estimates and assumptions regarding the amount and
timing of cash flows, cost of capital and growth rates.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Environmental
Liabilities. We continue to be subject to certain indemnification obligations under
agreements related to previously sold subsidiaries, including potential environmental
liabilities (see Note 13 to the Condensed Consolidated Financial Statements). We have
recorded our best estimate of our probable liability under those indemnification
obligations, with the assistance of outside consultants and other professionals. The
estimated indemnification liabilities include expenses for the remediation of identified
sites, payments to third parties for claims and expenses (including product liability and
toxic tort claims), administrative expenses, and the expense of on-going evaluations and
litigation. Such estimates and the recorded liabilities are subject to various factors,
including possible insurance recoveries, the allocation of liabilities among other
potentially responsible parties, the advancement of technology for means of remediation,
possible changes in the scope of work at the contaminated sites, as well as possible
changes in related laws, regulations, and agency requirements. We do not discount
environmental liabilities.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income
Taxes. Our effective income tax rate is based on income, statutory tax rates and tax
planning opportunities available to us in the various jurisdictions in which we operate.
We have established valuation allowances against a portion of the nonU.S. net
operating losses to reflect the uncertainty of our ability to fully utilize these benefits
given the limited carryforward periods permitted by the various jurisdictions. The
evaluation of the realizability of our net operating losses requires the use of
considerable management judgment to estimate the future taxable income for the various
jurisdictions, for which the ultimate amounts and timing of such estimates may differ. The
valuation allowance can also be impacted by changes in the tax regulations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Significant
judgment is required in determining our contingent tax liabilities. We have established
contingent tax liabilities using managements best judgment and adjust these
liabilities as warranted by changing facts and circumstances. A change in our tax
liabilities in any given period could have a significant impact on our results of
operations and cash flows for that period.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Casualty
Insurance Costs. Due to the nature of our business, we require insurance coverage for
certain casualty risks. We are self-insured for workers compensation, product and
general liability up to $1 million per occurrence and automobile liability up to $2
million per occurrence. The casualty insurance costs for our self-insurance program
represent the ultimate net cost of all reported and estimated unreported losses incurred
during the period. We do not discount insurance liabilities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|17
|--

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| | Our
liability for casualty costs is estimated using individual case-based valuations and
statistical analyses and is based upon historical experience, actuarial assumptions and
professional judgment. These estimates are subject to the effects of trends in loss
severity and frequency and are based on the best data available to us. These estimates,
however, are also subject to a significant degree of inherent variability. We evaluate
these estimates with our actuarial advisors on an annual basis and we believe that they
are appropriate and within acceptable industry ranges, although an increase or decrease in
the estimates or economic events outside our control could have a material impact on our
results of operations and cash flows. Accordingly, the ultimate settlement of these costs
may vary significantly from the estimates included in our Condensed Consolidated Financial
Statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18
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|RESULTS OF OPERATIONS2006
SECOND QUARTER COMPARED WITH 2005 SECOND QUARTER
|--------------------------------------------------------------------------

|In
the discussions of our results of operations below, the number of cases sold is referred
to as volume. Constant territory refers to the results of operations
excluding acquisitions. Net pricing is
net sales divided by the number of cases and gallons sold for our core businesses, which
include bottles and cans (including bottle and can volume from vending equipment sales) as
well as food service. Changes in net pricing include the impact of sales price (or rate)
changes, as well as the impact of foreign currency translation and brand, package and
geographic mix. Net pricing and reported volume amounts exclude contract, commissary,
private label, concentrate, and vending (other than bottles and cans) revenue and volume.
Contract sales represent sales of manufactured product to other franchise bottlers and
typically decline as excess manufacturing capacity is utilized. Net pricing and volume
also exclude activity associated with beer and snack food products. Cost of goods sold
per unit is the cost of goods sold for our core business divided by the related number
of cases and gallons sold.


Our
business is seasonal; accordingly, the operating results and cash flow from operations of
any individual quarter may not be indicative of a full years results.


Volume


Sales
volume growth (decline) for the second quarter of 2006 and 2005 was as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                |  |  | 2006 |  | 2005  |   | 
| | -------------- |  |  | ---- |  | ----- | - | 
| |                |  |  |      |  |       |   | 
| | U.S.           |  |  |      |  | 3.6%  |   | 
| | Central Europe |  |  |      |  | 11.4% |   | 
| | Caribbean      |  |  |      |  | (4.4% | ) | 
| | Worldwide      |  |  |      |  | 4.3%  |   | 

|In
the second quarter of 2006, worldwide volume increased 4.3 percent compared to the prior
year second quarter. The increase in worldwide volume was attributed to volume growth of
3.6 percent in the U.S. and 11.4 percent in Central Europe, offset partly by a volume
decline of 4.4 percent in the Caribbean.


Total
volume in the U.S grew 3.6 percent in the second quarter of 2006 compared to the second
quarter of 2005 due to strong growth in the non-carbonated beverage category and the shift
of the Easter holiday into the second quarter of 2006. Carbonated soft drink volume
declined 1 percent overall, reflecting continued softness in Trademark Pepsi, while the
flavored carbonated soft drink business grew 1 percent in the quarter, led by Trademark
Mountain Dew and Trademark Sierra Mist. The non-carbonated beverage category grew 31
percent in the quarter. Aquafina volume grew 41 percent, while the balance of the
non-carbonated beverage portfolio grew 22 percent, led by Lipton Iced Tea and SOBE. Due to
promotional activities for our take-home can and water packages, we experienced a shift
into these lower margin package categories. Single-serve package volume declined 0.8
percent in the second quarter of 2006 compared to the same period in the prior year. In
addition, less product innovation during the second quarter of 2006 prevented us from
matching the single-serve package growth provided by product innovation in the second
quarter of 2005, such as Pepsi Lime and Tropicana Twisters.


Total
volume in Central Europe increased 11.4 percent in the second quarter of 2006 compared to
the second quarter of 2005. Volume growth was driven by strong performance in our
non-carbonated beverage portfolio, strong promotional activity surrounding the World Cup
soccer tournament, and the shift of the Easter holiday into the second quarter of 2006.
Promotional activity helped grow our carbonated soft drink volume by approximately 13
percent, driven by double-digit growth for Trademark Pepsi and Trademark Slice. Our non-carbonated
beverage volume growth was driven by the Lipton brand, which almost doubled in sales
volume, and single-digit growth in the water category.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|19
|--

---

|Total
volume in the Caribbean decreased 4.4 percent in the second quarter of 2006 compared to
the same period last year. Business in the Caribbean was impacted by macroeconomic issues
that provided a challenge during the quarter. In Puerto Rico, sales volume was adversely
impacted by a government shutdown in the first part of the second quarter of 2006. The
government stabilized and volume rebounded in the latter part of the quarter. In Jamaica,
we completed negotiations with Red Stripe to provide distribution services in Kingston,
which will eliminate our direct-store delivery. This caused business interruption in the
form of a driver strike that had a negative impact on volume. Despite these challenges, we
were able to grow the non-carbonated beverage category, including water, at a double-digit
rate during the second quarter of 2006. Carbonated soft drink volume declined in the high
single-digits, despite growth in Trademark Pepsi in Jamaica and the Bahamas. Unlike our
other geographic regions, the impact of the Easter shift was not significant to our
Caribbean markets.


Net Sales


Net
sales and net pricing statistics for the second quarter of 2006 and 2005 were as follows
(dollar amounts in millions):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net Sales                    | 2006 |         | 2005 |   | Change  |  | 
| | ---------------------------- | ---- | ------- | ---- | - | ------- |  | 
| |                              |      |         |      |   |         |  | 
| | U.S.                         | $    | 892.1   |      | $ | 862.6   |  | 
| | Central Europe               |      | 111.9   |      |   | 97.0    |  | 
| | Caribbean                    |      | 61.2    |      |   | 59.8    |  | 
| |                              |      |         |      |   |         |  | 
| | Worldwide                    | $    | 1,065.2 |      | $ | 1,019.4 |  | 
| |                              |      |         |      |   |         |  | 
| |                              |      |         |      |   |         |  | 
| | Net Pricing Growth (Decline) | 2006 |         | 2005 |   |         |  | 
| |                              |      |         |      |   |         |  | 
| | U.S.                         |      | (0.5%   | )    |   | 4.0%    |  | 
| | Central Europe               |      | 4.7%    |      |   | 4.8%    |  | 
| | Caribbean                    |      | 6.6%    |      |   | 2.4%    |  | 
| | Worldwide                    |      | 0.1%    |      |   | 3.9%    |  | 

|Net
sales increased $45.8 million, or 4.5 percent, to $1,065.2 million in the second quarter
of 2006 compared to $1,019.4 million the second quarter of 2005. The increase was driven
by worldwide volume growth of 4.3 percent.


Net
sales in the U.S. for the second quarter of 2006 increased $29.5 million, or 3.4 percent,
to $892.1 million from $862.6 million in the prior year second quarter. The increase in
net sales was primarily due to 3.6 percent volume growth, offset partly by the 0.5 percent
decline in net pricing. The decrease in net pricing was driven by a change in package mix, partly offset
by rate increases of approximately 2 percent.


Net
sales in Central Europe for the second quarter of 2006 increased $14.9 million, or 15.4
percent, to $111.9 million from $97.0 million in the prior year second quarter. The
increase was primarily due to volume growth of 11.4 percent and higher net pricing. The
impact of foreign currency translation provided a benefit to net sales of $1.9 million.
Net pricing on a local currency basis grew 2.8 percent during the second quarter of 2006.


Net
sales in the Caribbean increased $1.4 million, or 2.3 percent in the second quarter of
2006 to $61.2 million from $59.8 million in the prior year second quarter. The increase
was a result of an increase in net pricing of 6.6 percent, reflecting a broad based
pricing increase on most packages in our carbonated soft drink portfolio. Net pricing
increased in part due to higher anticipated sugar prices for the balance of fiscal year
2006.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|20
|--

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|Cost of Goods Sold


Cost
of goods sold and cost of goods sold per unit statistics for the second quarter of 2006
and 2005 were as follows (dollar amounts in millions):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cost of Goods Sold | 2006 |       | 2005 |   | Change |  | 
| | ------------------ | ---- | ----- | ---- | - | ------ |  | 
| |                    |      |       |      |   |        |  | 
| | U.S.               | $    | 524.1 |      | $ | 486.2  |  | 
| | Central Europe     |      | 66.1  |      |   | 57.8   |  | 
| | Caribbean          |      | 45.5  |      |   | 44.6   |  | 
| |                    |      |       |      |   |        |  | 
| | Worldwide          | $    | 635.7 |      | $ | 588.6  |  | 
| |                    |      |       |      |   |        |  | 

| | Cost of Goods Sold per Unit | 2006 |      | 2005 |  |       |  | 
| | --------------------------- | ---- | ---- | ---- |  | ----- |  | 
| | Increase                    |      |      |      |  |       |  | 
| |                             |      |      |      |  |       |  | 
| | U.S.                        |      | 3.7% |      |  | 3.9%  |  | 
| | Central Europe              |      | 4.2% |      |  | 12.9% |  | 
| | Caribbean                   |      | 6.6% |      |  | 7.5%  |  | 
| | Worldwide                   |      | 3.4% |      |  | 5.0%  |  | 

|Cost
of goods sold increased $47.1 million, or 8.0 percent, to $635.7 million in the second
quarter of 2006 from $588.6 million in the prior year second quarter. This increase was
driven by the volume increase of 4.3 percent, higher raw material costs, including higher
concentrate costs, and a shift in package mix. Package mix changes were driven by shifts
to higher priced products as a result of volume growth in our non-carbonated beverage
portfolio. Cost of goods sold per unit increased 3.4 percent in the first quarter of 2006
compared to the same period in 2005.


In
the U.S., cost of goods sold increased $37.9 million, or 7.8 percent, to $524.1 million in
the second quarter of 2006 from $486.2 million in the prior year second quarter. Cost of
goods sold per unit increased 3.7 percent in the U.S., primarily due to price increases in
concentrate and packaging, including aluminum and resin, higher fuel costs, and the shift
to more expensive non-carbonated beverage packages.


In
Central Europe, cost of goods sold increased $8.3 million, or 14.4 percent, to $66.1
million in the second quarter of 2006, compared to $57.8 million in the prior year second
quarter. Cost of goods sold increased due to volume growth of 11.4 percent and higher
concentrate prices, offset partly by the favorable impact of foreign currency translation
of $0.9 million. Cost of goods sold per unit moderated in the second quarter of 2006
compared to the prior year as the markets in which we operate have fully transitioned from
the impact of the accession to the European Union (EU) in May 2004. The prior
year cost of goods sold per unit figure reflected the sharp increase in costs after the EU
accession.


In
the Caribbean, cost of goods sold increased $0.9 million, or 2.0 percent, to $45.5 million
in the second quarter of 2006, compared to $44.6 million in the second quarter of 2005.
The increase was mainly driven by an increase in cost of goods sold per unit of 6.6
percent, offset partly by a volume decline of 4.4 percent. The cost of goods sold per unit
increased due to a mix shift into non-carbonated beverages as well as increases in the
prices for ingredients, including concentrate and sweeteners.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21
|--

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|Selling, Delivery and
Administrative Expenses


Selling,
delivery and administrative (SD&A) expenses and SD&A statistics for the second quarter of 2006
and 2005 were as follows (dollar amounts in millions):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SD&A Expenses  | 2006 |       | 2005 |   | Change |  | 
| | -------------- | ---- | ----- | ---- | - | ------ |  | 
| |                |      |       |      |   |        |  | 
| | U.S.           | $    | 252.1 |      | $ | 257.0  |  | 
| | Central Europe |      | 38.1  |      |   | 33.1   |  | 
| | Caribbean      |      | 14.8  |      |   | 14.1   |  | 
| |                |      |       |      |   |        |  | 
| | Worldwide      | $    | 305.0 |      | $ | 304.2  |  | 
| |                |      |       |      |   |        |  | 

| | SD&A as Percent of Net Sales | 2006 |       | 2005 |  |       |  | 
| | ---------------------------- | ---- | ----- | ---- |  | ----- |  | 
| |                              |      |       |      |  |       |  | 
| | U.S.                         |      | 28.3% |      |  | 29.8% |  | 
| | Central Europe               |      | 34.0% |      |  | 34.1% |  | 
| | Caribbean                    |      | 24.2% |      |  | 23.6% |  | 
| | Worldwide                    |      | 28.6% |      |  | 29.8% |  | 

|In
the second quarter of 2006, SD&A increased $0.8 million, or 0.3 percent, to $305.0
million from $304.2 million in the comparable period of the previous year. As a percentage
of net sales, SD&A expenses decreased to 28.6 percent in the second quarter of 2006,
compared to 29.8 percent in the prior year second quarter.


In
the U.S., SD&A expenses decreased $4.9 million, or 1.9 percent, to $252.1 million in
the second quarter of 2006, compared to $257.0 million in the prior year second quarter.
The decrease in SD&A expenses in the second quarter of 2006 was due to lower costs for
employee compensation and benefits, driven by a $3.7 million benefit recorded as a result
of a change in our estimate of healthcare costs and a $5.4 million benefit from lower
medical spending. In addition, workers compensation costs were lower in the second
quarter of 2006. This decrease was partly offset by higher fuel costs, a fixed asset
charge of $4.8 million for marketing and merchandising equipment, and stock option expense
related to the adoption of SFAS No. 123(R). In the first half of 2005, we recorded a $1.4
million expense due to the early termination of the building lease for our corporate
headquarters in Rolling Meadows, Illinois.


In
Central Europe, SD&A expenses increased $5.0 million in the second quarter of 2006
compared to the prior year second quarter. The increase was driven by higher advertising
and marketing expenses, mostly related to efforts surrounding the World Cup soccer
tournament. In addition, transportation costs were higher in the second quarter of 2006
due to an increase in direct selling efforts and higher fuel costs. Foreign currency
translation had an unfavorable impact of $0.1 million in the second quarter of 2006.
SD&A expenses in the second quarter of 2005 included a $1.1 million gain from the sale
of a facility in Hungary.


In
the Caribbean, SD&A expenses increased $0.7 million, or 5.0 percent, to $14.8 million
in the second quarter of 2006 from $14.1 million in the prior year second quarter.
SD&A expenses as a percentage of net sales increased to 24.2 percent in the second
quarter of 2006 compared to 23.6 percent in the prior year second quarter.


Fructose Settlement


In
the second quarter of 2005, we recorded a gain of $13.3 million related to initial
proceeds from the settlement of a class action lawsuit. The lawsuit alleged price fixing
related to high fructose corn syrup purchased from July 1, 1991 through June 30, 1995. The
total proceeds of $16.6 million were received by the end of the third quarter of 2005.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|22
|--

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|Operating Income


Operating
income for the second quarter of 2006 and 2005 was as follows (dollar amounts in
millions):
|------------------------------------------------------------------------------------------------------------------------

| |                | 2006 |       | 2005 |   | Change |  | 
| | -------------- | ---- | ----- | ---- | - | ------ |  | 
| |                |      |       |      |   |        |  | 
| | U.S.           | $    | 115.9 |      | $ | 132.7  |  | 
| | Central Europe |      | 7.7   |      |   | 6.1    |  | 
| | Caribbean      |      | 0.9   |      |   | 1.1    |  | 
| |                |      |       |      |   |        |  | 
| | Worldwide      | $    | 124.5 |      | $ | 139.9  |  | 
| |                |      |       |      |   |        |  | 

|Operating
income decreased $15.4 million, or 11.0 percent, to $124.5 million in the second quarter
of 2006, compared to $139.9 million in the prior year second quarter. This was primarily
driven by the receipt of the fructose settlement proceeds in the second quarter of 2005.


Operating
income in the U.S. decreased $16.8 million to $115.9 in the second quarter of 2006 from
$132.7 million in the second quarter of 2005. The second quarter of 2005 included $13.3
million of fructose settlement income. The remaining decrease was due to higher raw
material costs and the negative impact of package mix shift, partly offset by lower
SD&A expenses.


Operating
income in Central Europe increased $1.6 million to $7.7 million in the second quarter of
2006, compared $6.1 million in the prior year second quarter, due primarily to volume
growth.


Operating
income in the Caribbean declined to $0.9 million in the second quarter of 2006, $0.2
million lower than the operating income of $1.1 million in the prior year second quarter,
due to a decrease in volume and higher raw material costs.


Interest Expense and
Other Expenses


Net
interest expense decreased $1.7 million in the second quarter of 2006 to $24.4 million,
compared to $26.1 million in the second quarter of 2005. Interest expense in the second
quarter of 2005 included a $5.6 million loss related to the early extinguishment of debt
and $1.5 million of interest income related to a real estate tax appeals refund on a
previously sold parcel of land. Excluding these items, net interest expense increased due
to higher interest rates on floating rate debt and higher overall debt levels.


We
recorded other expense, net, of $2.1 million in the second quarter of 2006 compared to
other income, net, of $1.3 million reported in the second quarter of 2005. Other expense,
net, for the second quarter of 2006 included foreign currency transaction losses of $0.3
million in the current quarter compared to foreign currency transaction losses of $1.5
million in the previous years second quarter. In addition, the second quarter of
2005 included income of $4.1 million associated with the property tax refund related to a
previously sold parcel of land.


Income Taxes


The
effective income tax rate, which is income tax expense expressed as a percentage of income
before income taxes, was 38.0 percent for the second quarter of 2006, compared to 36.9
percent in the second quarter of 2005. The effective income tax rate was impacted by the
mix of our international operations. In addition, we recorded a $0.9 million benefit in
the second quarter of 2005 due to a state income tax law change in Ohio.


Equity in Net Earnings of
Nonconsolidated Companies


In
June 2005, we acquired a 49 percent minority interest in Quadrant-Amroq Bottling
Company Limited, the Pepsi bottler in Romania with distribution rights in Moldova. Equity
in net earnings of nonconsolidated companies was $4.2 million in the second quarter of
2006. Since we record equity earnings on a one-month lag basis, no equity earnings were
reflected in the Condensed Consolidated Statement of Income for the second quarter of
2005.


On
July 3, 2006, we acquired the remaining 51 percent of QABCL. We anticipate that this
acquisition will be accretive to earnings.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23
|--

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|Net Income


Net
income decreased $7.6 million to $65.0 million in the second quarter of 2006, compared to
$72.6 million in the second quarter of 2005. The discussion of our operating results,
included above, explains the decrease in net income.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|RESULTS OF OPERATIONS2006
FIRST HALF COMPARED WITH 2005 FIRST HALF


Volume


Sales
volume growth (decline) for the first half of 2006 and 2005 was as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                |  |  | 2006 |  | 2005  |   | 
| | -------------- |  |  | ---- |  | ----- | - | 
| |                |  |  |      |  |       |   | 
| | U.S.           |  |  |      |  | 1.1%  |   | 
| | Central Europe |  |  |      |  | 7.6%  |   | 
| | Caribbean      |  |  |      |  | (0.5% | ) | 
| |                |  |  |      |  |       |   | 
| | Worldwide      |  |  |      |  | 1.9%  |   | 

|Worldwide
volume in the first half of 2006 increased 1.9 percent compared to the same period in
2005. The increase in worldwide volume was attributed to volume increases of 1.1 percent
in the U.S. and 7.6 percent in Central Europe. This was partly offset by the 0.5 percent
volume decline in the Caribbean. We anticipate worldwide volume growth for the full year
to be approximately two to three percent compared to the prior year on a constant
territory basis.


In
the first half of 2006, U.S. volume grew 1.1 percent compared to the same period in fiscal
year 2005. We managed our overall net pricing to remain competitive in the marketplace,
while also finding a balance to grow volume. We used promotional efforts for our take-home
carbonated soft drink package and leveraged new delivery methods for our warehouse channel
to grow Aquafina volume. Non-carbonated beverages grew approximately 27 percent in the
first half of 2006, driven by the growth in Trademark Aquafina of approximately 39
percent. Our continued focus on non-carbonated beverage sales coupled with product line
expansions and innovation are anticipated to drive volume during the balance of fiscal
year 2006. We believe that through increased promotional activity and innovation,
appropriate pricing levels, and continued focus on growth channels during the balance of
fiscal year 2006, we will be able to maintain the one to two percent domestic volume
growth target that we anticipated at the beginning of the year.


Total
volume in Central Europe increased 7.6 percent in the first half of 2006 compared to the
same period in fiscal year 2005. The 11 percent increase in carbonated soft drink volume
reflected strong growth in Trademark Slice and Trademark Pepsi. Non-carbonated beverage
growth of 9 percent in the second quarter of 2006 was driven by double-digit growth in
Lipton products and the juice category, which includes Tropicana and Toma.


Volume
in the Caribbean decreased 0.5 percent in the first half of 2006 compared to the same
period last year and was driven by a two percent decline in carbonated soft drinks. As
previously discussed in the second quarter analysis, the business environment in Puerto
Rico and Jamaica contributed to this decline. A decline in carbonated soft drinks was
mostly offset by the growth in non-carbonated beverages. The water category grew
approximately 21 percent in the first half of 2006 due to strong contributions from
Trademark Aquafina and Essential. All other non-carbonated beverages grew approximately 11
percent driven by contributions from Tropicana juice drinks, energy drinks and Gatorade.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|24
|--

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|Net Sales


Net
sales and net pricing statistics for the first half of 2006 and 2005 were as follows
(dollar amounts in millions):
|----------------------------------------------------------------------------------------------------------------------------------

| | Net Sales          | 2006 |         | 2005 |   | Change  |  | 
| | ------------------ | ---- | ------- | ---- | - | ------- |  | 
| |                    |      |         |      |   |         |  | 
| | U.S.               | $    | 1,620.5 |      | $ | 1,574.6 |  | 
| | Central Europe     |      | 180.3   |      |   | 167.1   |  | 
| | Caribbean          |      | 112.9   |      |   | 107.1   |  | 
| |                    |      |         |      |   |         |  | 
| | Worldwide          | $    | 1,913.7 |      | $ | 1,848.8 |  | 
| |                    |      |         |      |   |         |  | 
| |                    |      |         |      |   |         |  | 
| | Net Pricing Growth | 2006 |         | 2005 |   |         |  | 
| |                    |      |         |      |   |         |  | 
| | U.S.               |      | 1.3%    |      |   | 3.5%    |  | 
| | Central Europe     |      | 0.9%    |      |   | 10.6%   |  | 
| | Caribbean          |      | 6.0%    |      |   | 3.3%    |  | 
| |                    |      |         |      |   |         |  | 
| | Worldwide          |      | 1.2%    |      |   | 4.4%    |  | 

|Net
sales increased $64.9 million, or 3.5 percent, to $1,913.7 million in the first half of
2006 compared to $1,848.8 million the first half of 2005. The increase was driven
primarily by increased worldwide net pricing of 1.2 percent and volume growth in the U.S.
and Central Europe. We anticipate that worldwide net pricing will grow 1 to 2
percent in fiscal year 2006 as compared to the prior
year on a constant territory basis.


Net
sales in the U.S. for the first half of 2006 increased $45.9 million, or 2.9 percent, to
$1,620.5 million from $1,574.6 million in the first half of 2005. The increase was
primarily the result of volume growth and an increase in net pricing. The moderate
increase in net pricing was driven by price increases offset partly by package mix.
Unfavorable market reaction to higher net pricing in the first quarter of 2006 required a
reduction to our net selling price toward the end of the first quarter that continued
throughout the second quarter of 2006. The market reacted favorably to decreases in net
pricing, which led to the volume growth experienced in the second quarter of 2006.


Net
sales in Central Europe for the first half of 2006 increased $13.2 million, or 7.9
percent, to $180.3 million from $167.1 million in the first half of 2005. The increase
reflected growth in volume and higher net pricing, offset partly by unfavorable foreign
currency translation of $2.9 million. Net pricing increased primarily due to growth in the
single-serve package as well as a higher rate.


Net
sales in the Caribbean increased $5.8 million, or 5.4 percent, in the first half of 2006
to $112.9 million from $107.1 million in the prior year first half. The increase was
driven by an increase in net pricing of 6.0 percent.


Cost of Goods Sold


Cost
of goods sold and cost of goods sold per unit statistics for the first half of 2006 and 2005 were as follows (dollar amounts in
millions):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cost of Goods Sold | 2006 |         | 2005 |   | Change  |  | 
| | ------------------ | ---- | ------- | ---- | - | ------- |  | 
| |                    |      |         |      |   |         |  | 
| | U.S.               | $    | 941.9   |      | $ | 885.0   |  | 
| | Central Europe     |      | 110.3   |      |   | 102.7   |  | 
| | Caribbean          |      | 84.2    |      |   | 80.0    |  | 
| |                    |      |         |      |   |         |  | 
| | Worldwide          | $    | 1,136.4 |      | $ | 1,067.7 |  | 
| |                    |      |         |      |   |         |  | 

| | Cost of Goods Sold per Unit | 2006 |      | 2005 |  |       |  | 
| | --------------------------- | ---- | ---- | ---- |  | ----- |  | 
| | Increase                    |      |      |      |  |       |  | 
| |                             |      |      |      |  |       |  | 
| | U.S.                        |      | 4.5% |      |  | 2.9%  |  | 
| | Central Europe              |      | 0.3% |      |  | 20.0% |  | 
| | Caribbean                   |      | 6.1% |      |  | 5.1%  |  | 
| | Worldwide                   |      | 3.9% |      |  | 4.9%  |  | 

|25
|--

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|Cost
of goods sold increased $68.7 million, or 6.4 percent, to $1,136.4 million in the first
half of 2006 from $1,067.7 million in the first half of 2005. This increase was driven
primarily by higher raw material costs, including concentrate costs, and a mix shift into
our higher cost non-carbonated beverage portfolio. Cost of goods sold per unit increased
3.9 percent in the first half of 2006 compared to the same period in 2005. Overall, we
expect that cost of goods sold per unit will grow approximately 4 percent during fiscal year 2006
as compared to the prior year on a constant territory basis.


In
the U.S., cost of goods sold increased $56.9 million, or 6.4 percent, to $941.9 million in
the first half of 2006 from $885.0 million in the prior year first half. Cost of goods
sold per unit increased 4.5 percent in the U.S., due to price increases in concentrate
costs, aluminum and fuel and an increase in sales of non-carbonated beverages, which have
higher package costs.


In
Central Europe, cost of goods sold increased $7.6 million, or 7.4 percent, to $110.3
million in the first half of 2006, compared to $102.7 million in the prior year first half
of 2006. Cost of goods sold increased due to volume growth of 7.6 percent and higher concentrate prices
offset partly by the favorable impact on foreign currency translation of $1.6 million.


In
the Caribbean, cost of goods sold increased $4.2 million, or 5.3 percent, to $84.2 million
in the first half of 2006, compared to $80.0 million in the first half of 2005. The
increase was mainly driven by an increase in cost of goods sold per unit. The cost of
goods sold per unit increased due to increases in the prices for ingredients, including
concentrate and sweeteners.


Selling, Delivery and
Administrative Expenses


Selling,
delivery and administrative expenses ("SD&A) and SD&A statistics for the first half of 2006 and 2005 were as follows
(dollar amounts in millions):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SD&A Expenses  | 2006 |       | 2005 |   | Change |  | 
| | -------------- | ---- | ----- | ---- | - | ------ |  | 
| |                |      |       |      |   |        |  | 
| | U.S.           | $    | 505.0 |      | $ | 503.1  |  | 
| | Central Europe |      | 71.1  |      |   | 66.1   |  | 
| | Caribbean      |      | 28.8  |      |   | 27.7   |  | 
| |                |      |       |      |   |        |  | 
| | Worldwide      | $    | 604.9 |      | $ | 596.9  |  | 
| |                |      |       |      |   |        |  | 

| | SD&A as Percent of Net Sales | 2006 |       | 2005 |  |       |  | 
| | ---------------------------- | ---- | ----- | ---- |  | ----- |  | 
| |                              |      |       |      |  |       |  | 
| | U.S.                         |      | 31.2% |      |  | 32.0% |  | 
| | Central Europe               |      | 39.4% |      |  | 39.6% |  | 
| | Caribbean                    |      | 25.5% |      |  | 25.9% |  | 
| | Worldwide                    |      | 31.6% |      |  | 32.3% |  | 

|In
the first half of 2005, SD&A expenses increased $8.0 million, or 1.3 percent, to
$604.9 million from $596.9 million in the comparable period of the previous year. As a
percentage of net sales, SD&A expenses decreased to 31.6 percent in the first half of
2006, compared to 32.3 percent in the prior year first half. The decrease in SD&A
expenses as a percentage of net sales was primarily attributed to lower operating costs
achieved in the U.S. and Central Europe associated with the cost reduction programs
implemented during fiscal year 2004 and the first quarter of 2005. We expect an increase
of approximately 2 to 3 percent in SD&A expenses for fiscal year 2006
compared to fiscal year 2005 on a constant territory basis.


In
the U.S., SD&A expenses increased $1.9 million, or 0.4 percent, to $505.0 million in
the first half of 2006, compared to $503.1 million in the prior year first half. The
increase was due to in part to higher fuel costs and stock option expense related to the
adoption of SFAS No. 123(R). In addition, we recorded a fixed asset charge of $4.8 million
in the first half of 2006 for marketing and merchandising equipment. These higher costs
were partly offset by lower workers compensation costs and lower costs for employee
compensation and benefits, driven by a $3.7 million benefit recorded as a result of a
change in our estimate of healthcare costs and a $5.4 million benefit from lower medical
spending. In the first half of 2005, we recorded a $1.4 million expense due to the early
termination of the building lease for our corporate headquarters in Rolling Meadows,
Illinois. SD&A expenses as a percentage of net sales decreased to 31.2 percent in the
first half of 2006 compared to 32.0 percent in the prior year first half.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|26
|--

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|In
Central Europe, SD&A expenses increased $5.0 million, or 7.6 percent, to $71.1 million
from $66.1 million in the prior year first half. The increase in SD&A expenses was
related to volume growth during the first half of 2006. Foreign currency translation
provided a $1.8 million benefit to SD&A expenses during the first half of 2006. In the
first half of 2005, SD&A expenses included a $1.1 million gain from the sale of a
facility in Hungary.


In
the Caribbean, SD&A expenses increased $1.1 million, or 4.0 percent, to $28.8 million
in the first half of 2006 from $27.7 million in the prior year first half. SD&A
expense as a percentage of net sales was 25.5 percent in the first half of 2006, a decline
from 25.9 percent in the prior year, which reflected our continued emphasis on cost
control.


Fructose Settlement


In
the first half of 2005, we recorded a gain of $13.3 million related to initial proceeds
from the settlement of a class action lawsuit. The lawsuit alleged price fixing related to
high fructose corn syrup purchased from July 1, 1991 through June 30, 1995. The total
proceeds of $16.6 million were received by the end of the third quarter of 2005.


Special Charges


In
the first half of 2006, we recorded special charges of $2.2 million in Central Europe
primarily related to a reduction in the workforce. These special charges were primarily
for severance costs and related benefits. Special charges of $2.5 million were recorded in
the first half of 2005 in Central Europe primarily for severance costs and related
benefits and asset write-downs.


Operating Income (Loss)


Operating
income (loss) for the first half of 2006 and 2005 was as follows (dollar amounts in
millions):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                | 2006 |       | 2005 |   | Change |   | 
| | -------------- | ---- | ----- | ---- | - | ------ | - | 
| |                |      |       |      |   |        |   | 
| | U.S.           | $    | 173.6 |      | $ | 199.8  |   | 
| | Central Europe |      | (3.3  | )    |   | (4.2   | ) | 
| | Caribbean      |      | (0.1  | )    |   | (0.6   | ) | 
| |                |      |       |      |   |        |   | 
| | Worldwide      | $    | 170.2 |      | $ | 195.0  |   | 
| |                |      |       |      |   |        |   | 

|Worldwide
operating income decreased $24.8 million, or 12.7 percent, to $170.2 million in the first
half of 2006, compared to $195.0 million in the prior year first half. This was driven by
operating performance in the U.S. and the receipt of fructose settlement proceeds in the
first half of 2005.


Operating
income in the U.S. decreased $26.2 million, or 13.1 percent, to $173.6 million in the
first half of 2006 compared to $199.8 million in the same period in 2005. The first half
of 2005 included $13.3 million of fructose settlement income. The remaining decline in
U.S. operating income was attributed to higher cost of goods sold and a shift in our
package mix to less profitable products, partly offset by volume growth.


The
operating loss in Central Europe improved $0.9 million to $3.3 million in the first half
of 2006, compared to an operating loss of $4.2 million in the prior year first half, due
mainly to volume growth. The impact of foreign currency translation benefited operating
results in Central Europe by approximately $0.5 million.


The
operating performance in the Caribbean improved by $0.5 million with an operating loss of
$0.1 million in the first half of 2006 compared to an operating loss of $0.6 million in
the prior year. The increase in net pricing contributed to this improvement.


Interest Expense and
Other Expenses


Net
interest expense increased $2.3 million in the first half of 2006 to $47.5 million,
compared to $45.2 million in the first half of 2005. This increase was due primarily to
higher interest rates on floating rate debt and higher overall debt levels. Interest
expense in the first half of 2005 included a $5.6 million loss related to the early
extinguishment of debt, partly offset by the receipt of $1.5 million of interest income
related to a real estate tax appeals refund on a previously sold parcel of land.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|27
|--

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|We recorded other expense, net, of
$3.9 million in the first half of 2006 compared to $1.4 million reported in the first half
of 2005. Other expense, net, for the first half of 2006 included foreign currency
transaction losses of $0.6 million. Other expense, net, for the first half of 2005
included foreign currency transaction losses of $2.8 million and income of $4.1 million
associated with the property tax refund related to a previously sold parcel of land.


Income Taxes


The
effective income tax rate, which is income tax expense expressed as a percentage of income
before income taxes, was 38.0 percent for the first half of 2006, compared to 37.1 percent
in the first half of 2005. The increase in the rate was impacted by the mix of our
international operations. In addition, the first half of 2005 included a $0.9 million
benefit from a state income tax law change in Ohio.


Equity in Net Earnings of
Nonconsolidated Companies


Equity
in net earnings of nonconsolidated companies was $5.4 million in the first half of 2006.
A 49 percent interest in QABCL was acquired in June 2005 and equity earnings are recorded on a one-month lag basis;
therefore, no equity earnings were reflected in the Condensed Consolidated Statement of
Income for the first half of 2005.


On
July 3, 2006, we acquired the remaining 51 percent of QABCL. We anticipate that this
acquisition will be accretive to earnings.


Net Income


Net
income decreased $14.3 million to $79.1 million in the first half of 2006, compared to
$93.4 million in the first half of 2005. The discussion of our operating results, included above, explains
the decrease in net income.


LIQUIDITY AND CAPITAL
RESOURCES


Operating
Activities. Net cash provided by operating activities decreased by $108.6 million to
$85.0 million in the first half of 2006, compared to $193.6 million in the first half of
2005. This decrease was mainly attributed to a lower benefit from changes in primary
working capital due to timing of cash flows. Primary working capital is comprised of
inventory, accounts payable and accounts receivable, excluding securitized receivables.
The changes in primary working capital are expected to reverse in the second half of 2006
and benefit our cash flow from operating activities. Additionally impacting net cash
provided by operating activities was the unfavorable year-over-year timing of payments to
our pension plans, the receipt of a federal income tax refund of $13.3 million in the
first quarter of 2005, and the impact of excess tax benefits for share-based compensation
arrangements.


Investing
Activities. Investing activities in the first half of 2006 included capital
investments of $89.2 million which were $25.0 million higher than the prior year period
primarily due to the timing of our fleet and machinery spending. The increase in capital
investments was in line with our expectations, as we anticipate our fiscal year 2006
capital spending to be approximately $170 million to $180 million, comparable to fiscal
year 2005. We expect capital spending to be consistent in both the first and second half
of fiscal year 2006, which differs from fiscal year 2005 when a large portion of capital
spending occurred in the fourth quarter.


Financing
Activities. Our total debt increased $183.3 million to $1,759.6 million at the end of
the first half of 2006, from $1,576.3 million at the end of fiscal year 2005. In the first
half of 2006, we paid $134.7 million at maturity of the 6.5 percent notes and 5.95 percent
notes, both due February 2006.


In
the first half of 2006, we issued $250 million of notes due May 2011 with a coupon rate of
5.625 percent. Net proceeds from this issuance were $247.4 million, which included a
reduction for discount and issuance costs. The proceeds from the issuance were used
primarily to repay our commercial paper obligations and for other general corporate
purposes.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|28
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|On
June 6, 2006, we entered into a new five-year, $600 million unsecured revolving credit
facility. The facility is for general corporate purposes, including commercial paper
backstop, and it is required by our credit rating agencies. It replaces our previous
five-year, $500 million credit facility on substantially similar terms. It is our policy
to maintain committed bank facility backup financing for our commercial paper program.
Accordingly, we have a total of $600 million available under the commercial paper program
and revolving credit facility combined. We had $219.0 million of commercial paper
borrowings at the end of the first half of 2006, compared to $141.5 million at the end of
fiscal year 2005.


During
the first half of 2006, we repurchased 6.3 million shares of our common stock for $150.7
million. During the first half of 2005, we repurchased 5.6 million shares for $127.8
million. The issuance of common stock, including treasury shares, for the exercise of
stock options resulted in cash inflows of $19.5 million in the first half of 2006,
compared to $45.7 million in the first half of 2005.


Our
Board of Directors has declared quarterly dividends of $0.125 per share on PepsiAmericas
common stock for the first and second quarters of 2006. The second quarter dividend was
payable July 3, 2006 to shareholders of record on June 15, 2006. We paid cash dividends of
$16.7 million in the first half 2006 based on this quarterly cash dividend rate. We also
paid $11.2 million in the first quarter of 2006 related to dividends that were declared in
the fourth quarter of 2005, but not paid until 2006. In the first half of 2005, we paid
cash dividends of $23.4 million based on a quarterly dividend rate of $0.085 per share.


See
the Annual Report on Form 10-K for fiscal year 2005 for a summary of our contractual
obligations as of the end of fiscal year 2005. There were no significant changes to such
contractual obligations in the first half of 2006. We believe that our operating cash
flows are sufficient to fund our existing operations and contractual obligations for the
foreseeable future. In addition, we believe that our operating cash flows, available lines
of credit, and the potential for additional debt and equity offerings will provide
sufficient resources to fund our future growth and expansion. There are a number of
options available to us and we continue to examine the optimal uses of our cash, including
reinvesting in our existing business, acquisitions with an appropriate economic return and
repurchasing our stock.


Discontinued
operations. We continue to be subject to certain indemnification obligations, net of
insurance, under agreements related to previously sold subsidiaries, including
indemnification expenses for potential environmental and tort liabilities of these former
subsidiaries. There is significant uncertainty in assessing our potential expenses for
complying with our indemnification obligations, as the determination of such amounts is
subject to various factors, including possible insurance recoveries and the allocation of
liabilities among other potentially responsible and financially viable parties.
Accordingly, the ultimate settlement and timing of cash requirements related to such
indemnification obligations may vary significantly from the estimates included in our
financial statements. At the end of the first half of 2006, we had recorded $74.1 million
in liabilities for future remediation and other related costs arising out of our
indemnification obligations. This amount excludes possible insurance recoveries and is
determined on an undiscounted cash flow basis. In addition, we have funded coverage
pursuant to an insurance policy purchased in fiscal year 2002 (see Note 13 to the
Condensed Consolidated Financial Statements), which reduces the cash required to be paid
by us for certain environmental sites pursuant to our indemnification obligations. The
Finite Funding amount recorded was $15.0 million at the end of the first half of 2006, of
which $3.5 million is expected to be recovered in 2006 based on our expenditures, and
thus, is included as a current asset.


During
the first half of 2006 and 2005, we paid approximately $3.6 million and $4.2 million,
respectively, related to such indemnification obligations, net of insurance settlements of
$2.3 million and $0.8 million, respectively, as well as the benefit of taxes. We expect to
spend approximately $20 million in fiscal year 2006 for remediation and other related
costs, excluding possible insurance recoveries and the benefit of income taxes (see Note
13 to the Condensed Consolidated Financial Statements for further discussion of
discontinued operations and related environmental liabilities).


RELATED PARTY
TRANSACTIONS


We
are a licensed producer and distributor of PepsiCo branded carbonated and non-carbonated
soft drinks and other non-alcoholic beverages in the U.S., Central Europe and the
Caribbean. We operate under exclusive franchise agreements with soft drink concentrate
producers, including master bottling and fountain syrup agreements with
PepsiCo, Inc. for the manufacture, packaging, sale and distribution of PepsiCo branded
products. The franchise agreements exist in perpetuity and contain operating and marketing
commitments and conditions for termination. As of the end of the first half of 2006,
PepsiCo beneficially owned approximately 44 percent of PepsiAmericas outstanding
common stock.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|29
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|We
purchase concentrate from PepsiCo to be used in the production of PepsiCo branded
carbonated soft drinks and other non-alcoholic beverages. PepsiCo also provides us with
various forms of bottler incentives (marketing support programs) to promote Pepsis
brands. These bottler incentives cover a variety of initiatives, including direct
marketplace, shared media and advertising, to support volume and market share growth.
There are no conditions or requirements that could result in the repayment of any support
payments we have received.


We
manufacture and distribute fountain products and provide fountain equipment service to
PepsiCo customers in certain territories in accordance with various agreements. There are
other products that we produce and/or distribute through various arrangements with PepsiCo
or partners of PepsiCo. We also purchase finished beverage products from PepsiCo and
certain of its affiliates including tea, concentrate and finished beverage products from a
Pepsi/Lipton partnership, as well as finished beverage products from a Pepsi/Starbucks
partnership.


PepsiCo
provides various procurement services under a shared services agreement. Under such
agreement, PepsiCo negotiates with various suppliers the cost of certain raw materials by
entering into raw material contracts on our behalf. PepsiCo also collects and remits to us
certain rebates from the various suppliers related to our procurement volume. In addition,
PepsiCo acts as our agent for the execution of derivative contracts associated with
certain anticipated raw material purchases.


We
have an existing arrangement with a subsidiary of the Pohlad Companies related to the
joint ownership of an aircraft. This transaction is not material to our Condensed
Consolidated Financial Statements. Robert C. Pohlad, our Chairman and Chief Executive
Officer, is the President and owner of approximately 33 percent of the capital stock of
Pohlad Companies.


See
additional discussion of our related party transactions in our Annual Report on Form 10-K
for the fiscal year 2005.


FORWARD-LOOKING
STATEMENTS


This
Quarterly Report on Form 10-Q contains certain forward-looking statements of expected
future developments, as defined in the Private Securities Litigation Reform Act of 1995.
The forward-looking statements in this Form 10-Q refer to the expectations regarding
continuing operating improvement and other matters. These forward-looking statements
reflect our expectations and are based on currently available data; however, actual
results are subject to future risks and uncertainties, which could materially affect
actual performance. Risks and uncertainties that could affect such performance include,
but are not limited to, the following: competition, including product and pricing
pressures; changing trends in consumer tastes; changes in our relationship and/or support
programs with PepsiCo and other brand owners; market acceptance of new product and package
offerings; weather conditions; cost and availability of raw materials; changing
legislation; outcomes of environmental claims and litigation; availability of capital
including changes in our debt ratings; labor and employee benefit costs; unfavorable
interest rate and currency fluctuations; costs of legal proceedings; and general economic,
business and political conditions in the countries and territories where we operate. See
Risk Factors in Item 1A. of our Annual Report on Form 10-K for the fiscal year
2005 for additional information.


These
events and uncertainties are difficult or impossible to predict accurately and many are
beyond our control. We assume no obligation to publicly release the result of any
revisions that may be made to any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.


Item 3.    Quantitative and
Qualitative Disclosures About Market Risk


We
are subject to various market risks, including risks from changes in commodity prices,
interest rates and currency exchange rates, which are addressed below. In addition, please
see Note 9 to the Condensed Consolidated Financial Statements.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|30
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|Commodity Prices


The
risk from commodity price changes relates to our 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. We use derivative financial
instruments to hedge price fluctuations for a portion of anticipated purchases of certain
commodities used in our operations, including aluminum and diesel fuel. Due to the high
correlation between such commodity prices and our cost of these products, we consider
these hedges to be highly effective. As of the end of the first half of 2006, we have
hedged a portion of our anticipated aluminum purchases through November 2006, and we have
hedged a portion of our anticipated bulk diesel fuel purchases through December 2006.


Interest Rates


In
the first half of 2006, the risk from changes in interest rates was not material to our
operations because a significant portion of our debt issues represented fixed rate
obligations. At the end of the first half of 2006, approximately twenty percent of our
debt issues were variable rate obligations. Our floating rate exposure relates to changes
in the six-month London Interbank Offered Rate (LIBOR) rate and the
federal funds rate. Assuming consistent levels of floating rate debt with those held at
the end of the first half of 2006, a 50 basis-point (0.5 percent) change in each of these
rates would not have had a significant impact on our second quarter and first half of 2006
interest expense. We had cash equivalents throughout the first half of 2006, principally
invested in money market funds, which were most closely tied to overnight Federal Funds
rates. Assuming a 50 basis-point change in the rate of interest associated with our cash
equivalents at the end of the first half of 2006, interest income for the second quarter
and first half of 2006 would not have changed by a significant amount.


Currency Exchange Rates


Because
we operate in non-U.S. franchise territories, we are subject to risk resulting from
changes in currency exchange rates. Currency exchange rates are influenced by a variety of
economic factors including local inflation, growth, interest rates and governmental
actions, as well as other factors. Any positive cash flows generated have been reinvested
in the operations, excluding repayments of intercompany loans from the manufacturing
operations in Poland.


Based
on net sales, non-U.S. operations represented approximately 16 percent and 15 percent of
our total operations in the second quarter and first half of 2006, respectively. Changes
in currency exchange rates impact the translation of the non-U.S. operations results
from their local currencies into U.S. dollars. If the currency exchange rates had changed
by ten percent in the second quarter and first half of 2006, we estimate the impact on
reported operating income for those periods would not have been significant. Our estimate
reflects the fact that a portion of the non-U.S. operations costs are denominated in U.S.
dollars, including concentrate purchases. This estimate does not take into account the
possibility that rates can move in opposite directions and that gains in one category may
or may not be offset by losses from another category.


Item 4. Controls and
Procedures


Disclosure Controls and
Procedures


We
maintain a system of disclosure controls and procedures that is designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and
forms, and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosures.


Under
the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)). Based on this evaluation, our Chief Executive Officer and our Chief Financial
Officer concluded that, as of July 1, 2006, our disclosure controls and procedures were
effective.


Internal Control over
Financial Reporting


There
were no changes in our internal control over financial reporting that occurred during the
quarter ended July 1, 2006 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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|31
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|PART II - OTHER
INFORMATION
|---------------------------

|Item 1. | Legal Proceedings.
|------- | ------------------

| | No new legal proceedings and no material changes to previously reported legal proceedings to be
reported for the second quarter of 2006.
| | ----------------------------------------------------------------------------------------------------------------------------------------

|Item 1A. | Risk Factors.
|-------- | -------------

| | There have been no material changes with respect to the risk factors disclosed in Item 1A. of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

| | (a)  
Not applicable.
| | ---------------------

| | (b)  
Not applicable.
| | ---------------------

| | (c)  
Our
share repurchase program activity for each of the three months and the quarter ended July 2, 2005 was as
follows:
| | ---------------------------------------------------------------------------------------------------------------------------

|Period                             | Total Number of Shares Purchased (1) | Average Price Paid per Share (2) | Total Number of Share Purchased as Part of Publicly
        Announced Plans or Programs (3) | Maximum Number of Shares that May Yet Be Purchased Under
        the Plans or Programs
|---------------------------------- | ------------------------------------ | -------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------
|                                   |                                      |                                  |                                                                                             |                                                                                       
|April 2, - April 29, 2006          |                                      | 1,210,500                        |                                                                                             | $24.29                                                                                
|April 30, - May 27, 2006           |                                      | 1,185,100                        |                                                                                             | 22.94                                                                                 
|May 28, - July 1, 2006             |                                      | 684,300                          |                                                                                             | 21.93                                                                                 
|                                   |                                      |                                  |                                                                                             |                                                                                       
|For the Quarter Ended July 1, 2006 |                                      | 3,079,900                        |                                                                                             | 23.25                                                                                 
|                                   |                                      |                                  |                                                                                             |                                                                                       

| | (1) | Represents shares purchased in open-market transactions pursuant to our publicly
announced repurchase program
| | --- | -------------------------------------------------------------------------------------------------------------

| | (2) | Includes commissions of $0.02 per share.
| | --- | ----------------------------------------

| | (3) | On July 21, 2005, we announced that our Board of Directors authorized the repurchase of 20 million
                additional shares under a previously authorized repurchase program. This repurchase authorization
                does not have a scheduled expiration date.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

|(a) | We held our Annual Meeting of Shareholders on April 27, 2006.
|--- | -------------------------------------------------------------

|(b) | Election of Directors
|--- | ---------------------

| | The following persons, who together constitute all of the members of our Board of Directors, were elected at the
Annual Meeting of Shareholders to serve as directors for the ensuing year:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Herbert M. Baum   | Jarobin Gilbert, Jr.
| | ----------------- | --------------------
| | Richard G. Cline  | James R. Kackley    
| | Pierre S. du Pont | Matthew M. McKenna  
| | Archie R. Dykes   | Robert C. Pohlad    

|32
|--

---

|(c) | Matters Voted Upon
|--- | ------------------

|Proposal
1: Election of Directors
|---------------------------------

| | The
following votes were recorded with respect to this proposal:
| | ----------------------------------------------------------------

|Votes For | VotesWithheld       
|--------- | --------------------
|          |                     
|          | Herbert M. Baum     
|          | Richard G. Cline    
|          | Pierre S. du Pont   
|          | Archie R. Dykes     
|          | Jarobin Gilbert, Jr.
|          | James R. Kackley    
|          | Matthew M. McKenna  
|          | Robert C. Pohlad    

|Proposal
2: Ratification of Appointment of Independent Registered Public Accountants
|------------------------------------------------------------------------------------

| | The
following votes were recorded with respect to the ratification of the appointment of KPMG LLP as independent registered
public accountants to audit our financial statements for fiscal year 2006:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Votes for        | 123,909,263 | 
| | ---------------- | ----------- | 
| | Votes against    | 396,815     | 
| | Votes abstaining | 77,411      | 
| | Broker non-votes |            | 

Proposal
3: Shareholder Proposal - Election of Directors by Majority of Shareholders

| | The
following votes were recorded with respect to a proposed amendment to our governance document to provide that
director nominees be elected by the affirmative vote of the majority of votes cast rather than a plurality of votes cast:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Votes for        | 32,411,854 | 
| | ---------------- | ---------- | 
| | Votes against    | 86,101,108 | 
| | Votes abstaining | 309,668    | 
| | Broker non-votes | 5,560,859  | 

|(d). | Not applicable
|---- | --------------

|Item5. | Other Information
|------ | -----------------

|(a) | Item 8.01. Other Events.  On July 13, 2006, our Board of Directors declared a dividend of $0.125 per
           share on PepsiAmericas common stock.  The dividend is payable October 2, 2006 to shareholders of
           record on September 15, 2006.  Our Board of Directors reviews the dividend policy on a quarterly basis.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Not applicable.
|--- | ---------------

|Item 6. | Exhibits
|------- | --------

| | See "Exhibit Index."
| | --------------------

|33
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|SIGNATURE


Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date:    August 4, 2006 | PEPSIAMERICAS, INC.
|----------------------- | -------------------

| | By:   /s/ ALEXANDER H. WARE
| | ---------------------------

| | Alexander H. Ware.
                                                                      Executive Vice President and Chief Financial Officer
                                                                      (As Chief Accounting Officer and Duly
                                                                      Authorized Officer of PepsiAmericas, Inc.)
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|34
|--

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|EXHIBIT INDEX
|-------------

|ExhibitNumber | Description of Exhibit
|------------- | ----------------------

|4 | Form of Debt Security (incorporated by reference to the Company's Form 8-K (File No. 001-15019) filed
            May 24, 2006).
|- | --------------------------------------------------------------------------------------------------------------------------------

|10.1 | Underwriting Agreement by and among PepsiAmericas, Inc., Banc of America Securities LLC, J.P. Morgan
            Securities Inc., Citigroup Global Markets Inc., BNP Paribas Securities Corp., Wachovia Capital
            Markets, LLC, Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
            and Wells Fargo Brokerage  Services, LLC, dated May 23, 2006 (incorporated by reference to the
            Company's Form 8-K (File No. 001-15019) filed May 24, 2006).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | U.S. $600,000,000 Five Year Credit Agreement, dated as of June 6, 2006, among PepsiAmericas, Inc. as
            borrower, certain initial lenders and initial issuing banks, JPMorgan Chase Bank, N.A., as syndication
            agent, Bank of America, N.A. and Wachovia Bank, National Association, as documentation agents,
            Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., as joint lead arrangers, and Citibank,
            N.A., as agent for the lenders (incorporated by reference to the Company's Form 8-K (File No.
            001-15019) filed June 8, 2006).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | Rule 10b5-1 Trading Plan between PepsiAmericas, Inc. and Banc of America Securities LLC, dated May
              23, 2005 (incorporated by reference to the Company's Current Report on Form 8-K (File No.
              001-15019) filed May 23, 2005).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.1 | Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14, as adopted pursuant to
              Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2 | Chief Financial Officer Certification pursuant to Exchange Act Rule 13a-14, as adopted pursuant to
              Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.1 | Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
              Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 | Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
              Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|35
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