<PAGE>   1
                                                                   NO. 333-80361

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                                  ANNUAL REPORT
          Pursuant to Section 13 of the Securities Exchange Act of 1934
                   For the Fiscal Year Ended December 25, 1999



                               BOTTLING GROUP, LLC
                                  ONE PEPSI WAY
                             SOMERS, NEW YORK 10589
                                 (914) 767-6000


INCORPORATED IN DELAWARE                             13-4042452
(JURISDICTION OF INCORPORATION)            (I.R.S. EMPLOYER IDENTIFICATION NO.)


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT
OF 1934: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE SECURITIES EXCHANGE ACT
OF 1934: NONE


         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 IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ X ]




<PAGE>   2
                                     PART I

ITEM 1.   BUSINESS

INTRODUCTION

     Bottling Group, LLC ("Bottling LLC") is the principal operating subsidiary
of The Pepsi Bottling Group, Inc. ("PBG") and consists of substantially all of
the operations and assets of PBG. Bottling LLC, which is fully consolidated by
PBG, consists of bottling operations located in the United States, Canada,
Spain, Greece and Russia. Prior to its formation, Bottling LLC was an operating
unit of PepsiCo, Inc. ("PepsiCo"). When used in this Report, "Bottling LLC,"
"we," "us" and "our" each refers to Bottling Group, LLC.

     PBG was incorporated in Delaware in January, 1999 as a wholly-owned
subsidiary of PepsiCo to effect the separation of most of PepsiCo's
company-owned bottling businesses. PBG became a publicly traded company on March
31, 1999. At February 22, 2000, PepsiCo's ownership represented 36.9% of PBG's
outstanding common stock and 100% of its outstanding Class B common stock,
together representing 45.0% of the voting power of all classes of PBG's voting
stock.

      PepsiCo and PBG contributed bottling businesses and assets used in the
bottling business to Bottling LLC in connection with the formation of Bottling
LLC. As a result of the contribution of assets, PBG owns 92.9% of Bottling LLC
and PepsiCo owns the remaining 7.1%.

PRINCIPAL PRODUCTS

     We are the world's largest manufacturer, seller and distributor of
Pepsi-Cola beverages. Pepsi-Cola beverages sold by us include PEPSI-COLA, DIET
PEPSI, MOUNTAIN DEW, LIPTON BRISK, LIPTON'S ICED TEA, 7UP outside the U.S.,
PEPSI MAX, PEPSI ONE, SLICE, MUG, AQUAFINA, STARBUCKS FRAPPUCCINO and KAS. We
have the exclusive right to manufacture, sell and distribute Pepsi-Cola
beverages in all or a portion of 41 states, the District of Columbia, eight
Canadian provinces, Spain, Greece and Russia. In some of our territories, we
also have the right to manufacture, sell and distribute soft drink products of
other companies, including DR PEPPER and 7UP in the U.S. Approximately 91% of
our volume is sold in North America, which consists of the United States and
Canada, and the remaining 9% is sold in Spain, Greece and Russia. We have an
extensive distribution system in North America. In Russia, Spain and Greece, we
use a combination of direct store distribution and distribute through
wholesalers, depending on local marketplace considerations.

RAW MATERIALS AND OTHER SUPPLIES

     We acquire the concentrate to manufacture Pepsi-Cola beverages and other
soft drink products from PepsiCo and other soft-drink companies pursuant to
PBG's contractual arrangements with PepsiCo and other soft-drink companies.

     In addition to concentrates, we purchase sweeteners, glass and plastic
bottles, cans, closures, syrup containers, other packaging materials and carbon
dioxide. We generally purchase our raw materials, other than concentrates, from
multiple suppliers. PepsiCo acts as our agent for the purchase of such raw
materials. The Pepsi beverage agreements provide that, with respect to the soft
drink products of PepsiCo, all authorized containers, closures, cases, cartons
and other packages and labels may be purchased only from manufacturers approved
by PepsiCo. There are no materials or supplies used by us which are currently
in short supply. The supply or cost of specific materials could be adversely
affected by price changes, strikes, weather conditions, governmental controls or
other factors.

PATENTS, TRADEMARKS, LICENSES AND FRANCHISES

<PAGE>   3

     Our portfolio of beverage products includes some of the best recognized
trademarks in the world and include PEPSI-COLA, DIET PEPSI, MOUNTAIN DEW, LIPTON
BRISK, LIPTON'S ICED TEA, 7UP outside the U.S., PEPSI MAX, PEPSI ONE, SLICE,
MUG, AQUAFINA, STARBUCKS FRAPPUCCINO and KAS. The majority of our volume is
derived from brands licensed from PepsiCo or PepsiCo joint ventures. In some of
our territories, we also have the right to manufacture, sell and distribute soft
drink products of other companies, including DR PEPPER and 7UP in the U.S.

     We conduct our business primarily pursuant to PBG's beverage agreements
with PepsiCo. Although Bottling LLC is not a direct party to these agreements,
as the principal operating subsidiary of PBG, it enjoys certain rights and is
subject to certain obligations as described below. These agreements give us the
exclusive right to market, distribute, and produce beverage products of PepsiCo
in authorized containers in specified territories.

     Set forth below is a description of the Pepsi beverage agreements and other
bottling agreements from which we benefit and under which we are obligated as
the principal operating subsidiary of PBG.

     Terms of the Master Bottling Agreement. The master bottling agreement
pursuant to which we manufacture, package, sell and distribute the cola
beverages bearing the PEPSI-COLA and PEPSI trademarks was entered into in March
1999. The master bottling agreement gives us the exclusive and perpetual right
to distribute cola beverages for sale in specified territories in authorized
containers of the nature currently used by us. The master bottling agreement
provides that we will purchase our entire requirements of concentrates for the
cola beverages from PepsiCo at prices, and on terms and conditions, determined
from time to time by PepsiCo. PepsiCo may determine from time to time what types
of containers to authorize for use by us. PepsiCo has no rights under the master
bottling agreement with respect to the prices at which we sell our products.

     Under the master bottling agreement we are obligated to:

         (1)      maintain such plant and equipment, staff, and distribution and
                  vending facilities that are capable of manufacturing,
                  packaging and distributing the cola beverages in sufficient
                  quantities to fully meet the demand for these beverages in our
                  territories;

         (2)      undertake adequate quality control measures prescribed by
                  PepsiCo;

         (3)      push vigorously the sale of the cola beverages in our
                  territories;

         (4)      increase and fully meet the demand for the cola beverages in
                  our territories;

         (5)      use all approved means and spend such funds on advertising and
                  other forms of marketing beverages as may be reasonably
                  required to meet the objective; and

         (6)      maintain such financial capacity as may be reasonably
                  necessary to assure performance under the master bottling
                  agreement by us.

     The master bottling agreement requires us to meet annually with PepsiCo to
discuss plans for the ensuing year and the following two years. At such
meetings, we are obligated to present plans that set out in reasonable detail
our marketing plan, including the introduction of any new beverage product or
any change in the geographic area in which existing beverage products are
distributed, our management plan and advertising plan with respect to the cola
beverages for the year. We must also present a financial plan showing that we
have the financial capacity to perform our duties and obligations under the
master bottling agreement for that year, as well as sales, marketing,
advertising and capital expenditure plans for the two years following such
<PAGE>   4
year. PepsiCo has the right to approve such plans, which approval shall not
be unreasonably withheld. In 1999, PepsiCo approved our annual plan.

     If we carry out our annual plan in all material respects, we will be deemed
to have satisfied our obligations to push vigorously the sale of the cola
beverages and to increase and fully meet the demand for the cola beverages in
our territories and to maintain the financial capacity required under the master
bottling agreement. Failure to present a plan or carry out approved plans in all
material respects would constitute an event of default that, if not cured within
120 days of notice of the failure, would give PepsiCo the right to terminate the
master bottling agreement.

     If we present a plan that PepsiCo does not approve, such failure shall
constitute a primary consideration for determining whether we have satisfied our
obligations to maintain our financial capacity and to push vigorously the sale
of the cola beverages and to increase and fully meet the demand for the cola
beverages in our territories.

     If we fail to carry out our annual plan in all material respects in any
segment of our territory, whether defined geographically or by type of market or
outlet, and if such failure is not cured within six months of notice of the
failure, PepsiCo may reduce the territory covered by the master bottling
agreement by eliminating the territory, market or outlet with respect to which
such failure has occurred.

     PepsiCo has no obligation to participate with us in advertising and
marketing spending, but it may contribute to such expenditures and undertake
independent advertising and marketing activities, as well as cooperative
advertising and sales promotion programs that would require our cooperation and
support. Although PepsiCo has advised us that it intends to continue to provide
cooperative advertising funds, it is not obligated to do so under the master
bottling agreement.

     The master bottling agreement provides that PepsiCo may in its sole
discretion reformulate any of the cola beverages or discontinue them, with some
limitations, so long as all cola beverages are not discontinued. PepsiCo may
also introduce new beverages under the PEPSI-COLA trademarks or any modification
thereof. If that occurs, we will be obligated to manufacture, package,
distribute and sell such new beverages with the same obligations as then exist
with respect to other cola beverages. We are prohibited from producing or
handling cola products, other than those of PepsiCo, or products or packages
that imitate, infringe or cause confusion with the products, containers or
trademarks of PepsiCo. The master bottling agreement also imposes requirements
with respect to the use of PepsiCo's trademarks, authorized containers,
packaging and labeling.

     If we acquire control, directly or indirectly, of any bottler of cola
beverages, we must cause the acquired bottler to amend its bottling appointments
for the cola beverages to conform to the terms of the master bottling agreement.

     Under the master bottling agreement, PepsiCo has agreed not to withhold
approval for any acquisition of rights to manufacture and sell PEPSI trademarked
cola beverages within a specific area -- currently representing approximately
13.9% of PepsiCo's U.S. bottling system in terms of volume -- if we have
successfully negotiated the acquisition and, in PepsiCo's reasonable judgment,
satisfactorily performed our obligations under the master bottling agreement. We
have agreed not to acquire or attempt to acquire any rights to manufacture and
sell PEPSI trademarked cola beverages outside of that specific area without
PepsiCo's prior written approval.

     The master bottling agreement is perpetual, but may be terminated by
PepsiCo in the event of PBG's default. Events of default include:

      (1)  PBG's insolvency, bankruptcy, dissolution, receivership or the like;

<PAGE>   5

         (2)      any disposition of any of PBG's or our voting securities or
                  the voting securities of any of our bottling subsidiaries or
                  substantially all of our bottling assets without the consent
                  of PepsiCo;

         (3)      PBG's entry into any business other than the business of
                  manufacturing, selling or distributing non-alcoholic beverages
                  or any business which is directly related and incidental to
                  such beverage business; and

         (4)      any material breach under the contract that remains uncured
                  for 120 days after notice by PepsiCo.

     An event of default will also occur if any person or affiliated group
acquires any contract, option, conversion privilege, or other right to acquire,
directly or indirectly, beneficial ownership of more than 15% of any class or
series of PBG's voting securities without the consent of PepsiCo. As of February
22, 2000, AXA Financial, Inc., formerly known as The Equitable Companies
Incorporated, and its parent, AXA Assurances I.A.R.D. Mutuelle (collectively,
"AXA"), held 12.9% of PBG's Common Stock and PepsiCo has consented to AXA
acquiring up to 20% of PBG's Common Stock. If the master bottling agreement is
terminated, PepsiCo also has the right to terminate its other bottling
agreements with us.

     PBG is prohibited from assigning, transferring or pledging the master
bottling agreement, or any interest therein, whether voluntarily, or by
operation of law, including by merger or liquidation, without the prior consent
of PepsiCo.

     The master bottling agreement was entered into by PBG in the context of its
separation from PepsiCo and, therefore, its provisions were not the result of
arm's-length negotiations. Consequently, the agreement contains provisions that
are less favorable to us than the exclusive bottling appointments for cola
beverages currently in effect for independent bottlers in the United States.

     Terms of the Non-Cola Bottling Agreements. The beverage products covered by
the non-cola bottling agreements are beverages licensed to PBG by PepsiCo,
consisting of MOUNTAIN DEW, DIET MOUNTAIN DEW, SLICE, MUG root beer and cream
soda and ALL SPORT. The non-cola bottling agreements contain provisions that are
similar to those contained in the master bottling agreement with respect to
pricing, territorial restrictions, authorized containers, planning, quality
control, transfer restrictions, term, and related matters. Our non-cola bottling
agreements will terminate if PepsiCo terminates our master bottling agreement.
The exclusivity provisions contained in the non-cola bottling agreements would
prevent us from manufacturing, selling or distributing beverage products which
imitate, infringe upon, or cause confusion with, the beverage products covered
by the non-cola bottling agreements. PepsiCo may also elect to discontinue the
manufacture, sale or distribution of a non-cola beverage and terminate the
applicable non-cola bottling agreement upon six months notice to us.

     PBG also has an agreement with PepsiCo granting us the exclusive right to
distribute AQUAFINA in our territories. We have the right to manufacture
AQUAFINA in certain locations depending on the availability of appropriate
equipment. The distribution agreement contains provisions generally similar to
those in the master bottling agreement as to use of trademarks, trade names,
approved containers and labels and causes for termination. However, the
distribution agreement does not prevent us from distributing other bottled
waters. The distribution agreement is for a limited term. Prior to the
expiration of this term, PepsiCo and PBG will negotiate a renewal agreement.

     Terms of the Master Syrup Agreement. The master syrup agreement grants us
the exclusive right to manufacture, sell and distribute fountain syrup to local
customers in our territories. The master syrup agreement also grants us the
right to act as a manufacturing and delivery agent for national accounts within
our territories that specifically request direct delivery, without using a
middleman. In addition, PepsiCo may appoint us to manufacture and deliver
fountain syrup to national accounts that elect delivery through independent
distributors. Under the master syrup agreement, we will have the exclusive right
to service
<PAGE>   6
fountain equipment for all of the national account customers within our
territories. The master syrup agreement provides that the determination of
whether an account is local or national is in the sole discretion of PepsiCo.

     The master syrup agreement contains provisions that are similar to those
contained in the master bottling agreement with respect to pricing, territorial
restrictions with respect to local customers and national customers electing
direct-to-store delivery only, planning, quality control, transfer restrictions
and related matters. The master syrup agreement has an initial term of five
years and is automatically renewable for additional five year periods unless
PepsiCo terminates it for cause. PepsiCo has the right to terminate the master
syrup agreement without cause at the conclusion of the initial five year period
or at any time during a renewal term upon twenty-four months notice. In the
event PepsiCo terminates the master syrup agreement without cause, PepsiCo is
required to pay us the fair market value of our rights under such agreement.

     Our master syrup agreement will terminate if PepsiCo terminates our master
bottling agreement.

     Terms of Other U.S. Bottling Agreements. The bottling agreements between
PBG and other licensors of beverage products, including Cadbury Schweppes plc --
for DR PEPPER, 7UP, SCHWEPPES and CANADA DRY, the Pepsi/Lipton Tea Partnership
-- for LIPTON BRISK and LIPTON'S ICED TEA and the North American Coffee
Partnership -- for STARBUCKS FRAPPUCCINO, contain provisions generally similar
to those in the master bottling agreement as to use of trademarks, trade names,
approved containers and labels, sales of imitations, and causes for termination.
Some of these beverage agreements have limited terms and, in most instances,
prohibit us from dealing in similar beverage products.

     Terms of the Country Specific Bottling Agreements. The country specific
bottling agreements contain provisions similar to those contained in the master
bottling agreement and the non-cola bottling agreements and, in Canada, the
master syrup agreement with respect to authorized containers, planning, quality
control, transfer restrictions, causes for termination and related matters.
These bottling agreements differ from the master bottling agreement because,
except for Canada, they include both fountain syrup and non-fountain beverages.
These bottling agreements also differ from the master bottling agreement with
respect to term and contain certain provisions that have been modified to
reflect the laws and regulations of the applicable country. For example, the
bottling agreements in Spain do not contain a restriction on the sale and
shipment of Pepsi-Cola beverages into our territory by others in response to
unsolicited orders.

SEASONALITY

     Our peak season is the warm summer months beginning with Memorial Day and
ending with Labor Day. Approximately 90% of our operating income is typically
earned during the second and third quarters. Over 75% of cash flow from
operations is typically generated in the third and fourth quarters.

COMPETITION

     The carbonated soft drink market and the non-carbonated beverage market are
highly competitive. Our competitors in these markets include bottlers and
distributors of nationally advertised and marketed products, bottlers and
distributors of regionally advertised and marketed products, as well as bottlers
of private label soft drinks sold in chain stores. We compete primarily on the
basis of advertising and marketing programs to create brand awareness, price and
price promotions, retail space management, customer service, consumer points of
access, new products, packaging innovations and distribution methods. We believe
that brand recognition, availability and consumer and customer goodwill are
primary factors affecting our competitive position.



<PAGE>   7
GOVERNMENTAL REGULATION APPLICABLE TO BOTTLING LLC

     Our operations and properties are subject to regulation by various federal,
state and local governmental entities and agencies as well as foreign government
entities. As a producer of food products, we are subject to production,
packaging, quality, labeling and distribution standards in each of the countries
where we have operations, including, in the United States, those of the federal
Food, Drug and Cosmetic Act. The operations of our production and distribution
facilities are subject to various federal, state and local environmental laws.
These laws and regulations include, in the United States, the Occupational
Safety and Health Act, the Unfair Labor Standards Act, the Clean Air Act, the
Clean Water Act and laws relating to the maintenance of fuel storage tanks. We
believe that our current legal and environmental compliance programs adequately
address such concerns and that we are in substantial compliance with applicable
laws and regulations. We do not anticipate making any material expenditures in
connection with environmental remediation and compliance. However, compliance
with, or any violation of, current and future laws or regulations could require
material expenditures by us or otherwise have a material adverse effect on our
business, financial condition and results of operations.

     Bottle and Can Legislation

     In all but a few of our United States and Canadian markets, we offer our
bottle and can beverage products in non-returnable containers. Legislation has
been enacted in certain states and Canadian provinces where we operate that
generally prohibits the sale of certain beverages unless a deposit is charged
for the container. These include Connecticut, Delaware, Maine, Massachusetts,
Michigan, New York, Oregon, California, British Columbia, Alberta, Saskatchewan,
Manitoba, New Brunswick, Nova Scotia and Quebec.

     Maine, Massachusetts and Michigan have statutes that require us to pay all
or a portion of unclaimed container deposits to the state and California imposes
a levy on beverage containers to fund a waste recovery system.

     In addition to the Canadian deposit legislation described above, Ontario,
Canada currently has a regulation requiring that 30% of all soft drinks sold in
Ontario be bottled in refillable containers. This regulation is currently being
reviewed by the Ministry of the Environment.

     The European Commission has issued a packaging and packing waste directive,
which is in the process of being incorporated into the national legislation of
the member states. This will result in targets being set for the recovery and
recycling of household, commercial and industrial packaging waste and impose
substantial responsibilities upon bottlers and retailers for implementation.

     We are not aware of similar material legislation being proposed or enacted
in any other areas served by us. We are unable to predict, however, whether such
legislation will be enacted or what impact its enactment would have on our
business, financial condition or results of operations.

     Soft Drink Excise Tax Legislation

     Specific soft drink excise taxes have been in place in certain states for
several years. The states in which we operate that currently impose such a tax
are West Virginia, Arkansas, North Carolina, South Carolina, Tennessee and, with
respect to fountain syrup only, Washington. Although soft drink excise tax
legislation is currently in place in North Carolina and South Carolina, new
legislation has been enacted that phases out such taxes by the end of the year
2000 in North Carolina and 2002 in South Carolina.

     Value-added taxes on soft drinks vary in our territories located in Canada,
Spain, Greece and Russia, but are consistent with the value-added tax rate for
other consumer products.

     We are not aware of any material soft drink taxes that have been enacted in
any other market served by us. We are unable to predict, however, whether such
legislation will be enacted or what impact its enactment would have on our
business, financial condition or results of operations.

<PAGE>   8
     Trade Regulation

     As a manufacturer, seller and distributor of bottled and canned soft drink
products of PepsiCo and other soft drink manufacturers in exclusive territories
in the United States and internationally, we are subject to antitrust laws.
Under the Soft Drink Interbrand Competition Act, soft drink bottlers operating
in the United States, such as us, may have an exclusive right to manufacture,
distribute and sell a soft drink product in a geographic territory if the soft
drink product is in substantial and effective competition with other products of
the same class in the same market or markets. We believe that there is such
substantial and effective competition in each of the exclusive geographic
territories in which we operate.

     California Carcinogen and Reproductive Toxin Legislation

     A California law requires that any person who exposes another to a
carcinogen or a reproductive toxin must provide a warning to that effect.
Because the law does not define quantitative thresholds below which a warning is
not required, virtually all manufacturers of food products are confronted with
the possibility of having to provide warnings due to the presence of trace
amounts of defined substances. Regulations implementing the law exempt
manufacturers from providing the required warning if it can be demonstrated that
the defined substances occur naturally in the product or are present in
municipal water used to manufacture the product. We have assessed the impact of
the law and its implementing regulations on our beverage products and have
concluded that none of our products currently require a warning under the law.
We cannot predict whether or to what extent food industry efforts to minimize
the law's impact on food products will succeed. We also cannot predict what
impact, either in terms of direct costs or diminished sales imposition of the
law may have.

EMPLOYEES

     As of December 25, 1999, we employed approximately 38,700 full-time
workers, of whom approximately 35,000 were employed in North America.
Approximately 10,500 of our full-time workers in North America are union
members. We consider relations with our employees to be good and have not
experienced significant interruptions of operations due to labor disagreements.

FINANCIAL INFORMATION ON INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS

     See Note 16 of Bottling LLC's Consolidated Financial Statements set forth
in Item 8 below.

ITEM 2.  PROPERTIES

     We operate 67 soft drink production facilities worldwide, of which 60 are
owned and 7 are leased. Of our 320 distribution facilities, 258 are owned and 62
are leased. We believe that our bottling, canning and syrup filling lines and
our distribution facilities are sufficient to meet present needs.

     We also own or lease and operate approximately 18,000 vehicles, including
delivery trucks, delivery and transport tractors and trailers and other trucks
and vans used in the sale and distribution of our soft drink products. We also
own approximately 1 million soft drink dispensing and vending machines.

     With a few exceptions, leases of plants in North America are on a long-term
basis, expiring at various times, with options to renew for additional periods.
Most international plants are leased for varying and usually shorter periods,
with or without renewal options. We believe that our properties are in good
operating condition and are adequate to serve our current operational needs.



<PAGE>   9
ITEM 3.   LEGAL PROCEEDINGS

     From time to time we are a party to various litigation matters incidental
to the conduct of our business. There is no pending or, to Bottling LLC's best
knowledge, threatened legal proceeding to which we are a party that, in the
opinion of management, is likely to have a material adverse effect on our future
financial results.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

      None.

EXECUTIVE OFFICERS OF THE REGISTRANT

     Set forth below is information pertaining to the executive officers of
Bottling LLC as of March 10, 2000:

CRAIG E. WEATHERUP, 54, is the Principal Executive Officer of Bottling LLC. He
is also the Chairman and Chief Executive Officer of PBG. Mr. Weatherup served as
a Director of PepsiCo from 1996 until March 1999. He served as Chairman and
Chief Executive Officer of The Pepsi-Cola Company, a division of PepsiCo, from
1996 to 1999 and served as PepsiCo's President in 1996. Mr. Weatherup is also a
director of Federated Department Stores, Inc. and Starbucks Corporation.

JOHN T. CAHILL, 42, is the Principal Financial Officer and a Managing Director
of Bottling LLC. He is also Executive Vice President, Chief Financial Officer
and a member of the Board of Directors of PBG. He was Executive Vice President
and Chief Financial Officer of the Pepsi-Cola Company from April 1998 until
November 1998. Prior to that, Mr. Cahill was Senior Vice President and Treasurer
of PepsiCo, having been appointed to that position in April 1997. In 1996 he
became Senior Vice President and Chief Financial Officer of Pepsi-Cola North
America. Mr. Cahill joined PepsiCo in 1989 and held several other senior
financial positions through 1996.

PETER A. BRIDGMAN, 47, is the Principal Accounting Officer of Bottling LLC. He
is also PBG's Senior Vice President and Controller. Mr. Bridgman was Vice
President and Controller of the Pepsi-Cola Company from 1992 to 1999, and had
previously been Controller and Finance Director at Pepsi-Cola International.


                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     There is no public trading market for the ownership interests in Bottling
LLC.



<PAGE>   10
ITEM 6.   SELECTED FINANCIAL DATA



<TABLE>
<CAPTION>

(in millions)                                                                                      FISCAL YEAR ENDED
                                                             --------------------------------------------------------------------
                                                             DEC. 25        DEC. 26        DEC. 27        DEC. 28         DEC. 30
                                                               1999           1998           1997           1996           1995
                                                              -------        -------        -------        -------        -------
STATEMENT OF OPERATIONS DATA:
<S>                                                           <C>            <C>            <C>            <C>            <C>
   Net Revenues                                               $ 7,505        $ 7,041        $ 6,592        $ 6,603        $ 6,393
   Cost of sales                                                4,296          4,181          3,832          3,844          3,771
                                                              -------        -------        -------        -------        -------
   Gross profit                                                 3,209          2,860          2,760          2,759          2,622
   Selling, delivery and administrative expenses                2,813          2,583          2,425          2,392          2,273
   Unusual impairment and other charges and credits (1)           (16)           222             --             --             --
                                                              -------        -------        -------        -------        -------
   Operating income                                               412             55            335            367            349
   Interest expense, net                                          129            157            160            163            173
   Foreign currency loss (gain)                                     1             26             (2)             4             --
   Minority interest                                                5              4              4              7              3
                                                              -------        -------        -------        -------        -------
   Income (loss) before income taxes                              277           (132)           173            193            173
   Income tax expense (benefit)                                     4             (1)             1              6              8
                                                              -------        -------        -------        -------        -------
   Net Income (Loss)                                          $   273        $  (131)       $   172        $   187        $   165
                                                              =======        =======        =======        =======        =======

BALANCE SHEET DATA (AT PERIOD END):
   Total assets                                               $ 7,795        $ 7,227        $ 7,095        $ 6,947        $ 6,957
   Long-term debt:
      Allocation of PepsiCo long-term debt                         --          2,300          2,300          2,300          2,300
      Due to third parties                                      2,284             61             96            127            131
                                                              -------        -------        -------        -------        -------
        Total long-term debt                                    2,284          2,361          2,396          2,427          2,431
   Minority interest                                              141            112             93            102            105
   Accumulated other comprehensive loss                          (222)          (238)          (184)          (102)           (66)
   Owners' equity                                               3,928          3,283          3,336          3,128          3,186
</TABLE>

(1)  Unusual impairment and other charges and credits is comprised of the
     following:

-    $45 million non-cash compensation charge in the second quarter of 1999.

-    $53 million vacation accrual reversal in the fourth quarter of 1999.

-    $8 million restructuring reserve reversal in the fourth quarter of 1999.

-    $222 million charge related to the restructuring of our Russian bottling
     operations and our separation from Pepsi-Cola North America's concentrate
     and bottling organizations in the fourth quarter of 1998.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

See "Management's Financial Review" set forth in Item 8 below.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See "Management's Financial Review" set forth in Item 8 below.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT'S FINANCIAL REVIEW

OVERVIEW
--------

     Bottling Group, LLC (collectively referred to as "Bottling LLC," "we,"
"our" and "us") is the principal operating subsidiary of The Pepsi Bottling
Group, Inc. ("PBG") and consists of substantially all of the operations and
assets of PBG. Bottling LLC, which is 92.9% owned by PBG and is fully
consolidated, consists of bottling
<PAGE>   11
operations located in the United States, Canada, Spain, Greece and Russia. Prior
to our formation, we were an operating unit of PepsiCo, Inc ("PepsiCo").


     The following discussion and analysis covers the key drivers behind our
success in 1999 and is broken down into five major sections. The first two
sections provide an overview and focus on items that affect the comparability of
historical or future results. The next two sections provide an analysis of our
results of operations and liquidity and financial condition. The last section
contains a discussion of our market risks and cautionary statements. The
discussion and analysis throughout management's financial review should be read
in conjunction with the Consolidated Financial Statements and the related
accompanying notes.


Constant Territory

     We believe that constant territory performance results are the most
appropriate indicators of operating trends and performance, particularly in
light of our stated intention of acquiring additional bottling territories, and
is consistent with industry practice. Constant territory operating results are
achieved by adjusting current year results to exclude current year acquisitions
and adjusting prior year results to include the results of prior year
acquisitions as if they had occurred on the first day of the prior fiscal year.
Constant territory results also exclude any unusual impairment and other charges
and credits.

Use of EBITDA

     EBITDA, which is computed as operating income plus the sum of depreciation
and amortization, is a key indicator management and the industry use to evaluate
operating performance. It is not, however, required under generally accepted
accounting principles and should not be considered an alternative to
measurements required by GAAP such as net income or cash flows. In addition,
EBITDA for 1999 and 1998 excludes the impact of the non-cash portion of the
unusual impairment and other charges and credits discussed below and in Note 4
of the Consolidated Financial Statements.

ITEMS THAT AFFECT HISTORICAL OR FUTURE COMPARABILITY
----------------------------------------------------

PBG's Initial Public Offering

     PBG was incorporated in Delaware in January 1999 and, prior to its
formation, PBG was an operating unit of PepsiCo. PBG's initial public offering
consisted of 100,000,000 shares of common stock sold to the public on March 31,
1999, equivalent to 65% of its outstanding common stock, leaving PepsiCo the
owner of the remaining 35% of outstanding common stock. PepsiCo's ownership has
increased to 36.7% as a result of net repurchases of 5.3 million shares under
its share repurchase program. In addition, in conjunction with its initial
public offering, PBG and PepsiCo contributed bottling businesses and assets used
in the bottling businesses to Bottling LLC. As a result of the contribution of
these assets, PBG owns 92.9% of Bottling LLC and PepsiCo owns the remaining
7.1%, giving PepsiCo economic ownership of 41.2% of PBG's combined operations.

     For the periods prior to PBG's initial public offering and the formation of
Bottling LLC, we prepared our Consolidated Financial Statements as a "carve-out"
from the financial statements of PepsiCo using the historical results of
operations and assets and liabilities of our business. Certain costs reflected
in our Consolidated Financial Statements may not necessarily be indicative of
the costs that we would have incurred had we operated as an independent,
stand-alone entity for all periods presented. These costs include an allocation
of PepsiCo corporate overhead and interest expense:

-         We included corporate overhead related to PepsiCo's corporate
          administrative functions based on a specific identification of
          PepsiCo's administrative costs relating to the bottling operations
          and, to the extent that such identification was not practicable, based
          upon the percentage of our revenues to PepsiCo's consolidated net
          revenues. These costs are included in selling, delivery and
          administrative expenses in our Consolidated Statements of Operations.

<PAGE>   12

-         We allocated $2.3 billion of PepsiCo debt to our business and charged
          interest expense on this debt using PepsiCo's weighted-average
          interest rate. Once we issued $2.3 billion of third-party debt in the
          first quarter of 1999, our actual interest rates were used to
          determine interest expense for the remainder of the year.

     The amounts, by year, of the historical allocations described above are as
follows:

(dollars in millions)

<TABLE>
<CAPTION>
                                             1999*       1998        1997
                                             ----        ----        ----
<S>                                          <C>         <C>         <C>
Corporate overhead expense                   $  3        $ 40        $ 42
Interest expense                             $ 16        $147        $143
PepsiCo weighted-average interest rate        5.8%        6.4%        6.2%
</TABLE>

* Prior to PBG's initial public offering.

Unusual Impairment and Other Charges and Credits

Our operating results were affected by the following unusual charges and credits
in 1999 and 1998:

     (dollars in millions)

<TABLE>
<CAPTION>
                                                 1999         1998
                                                 -----        -----
<S>                                              <C>          <C>
Non-cash compensation charge                     $  45        $  --
Vacation policy change                             (53)          --
Asset impairment and restructuring charges          (8)         222
                                                 -----        -----
                                                 $ (16)       $ 222
                                                 =====        =====
</TABLE>

-    Non-cash Compensation Charge

          In connection with the completion of PBG's initial public offering and
     the formation of Bottling LLC, PepsiCo vested substantially all non-vested
     PepsiCo stock options held by Bottling LLC employees. As a result, we
     incurred a $45 million non-cash compensation charge in the second quarter
     of 1999, equal to the difference between the market price of the PepsiCo
     capital stock and the exercise price of these options at the vesting date.

-    Vacation Policy Change

         As a result of changes to our employee benefit and compensation plans,
     employees will now earn vacation time evenly throughout the year based upon
     service rendered. Previously, employees were fully vested at the beginning
     of each year. As a result of this change, we have reversed an accrual of
     $53 million into income.

-    Asset Impairment and Restructuring Charges

     In the fourth quarter of 1998, we recorded $222 million of charges relating
to the following:

     -    A charge of $212 million for asset impairment of $194 million and
          other charges of $18 million related to restructuring our Russian
          operations.

     -    A charge of $10 million for employee-related and other costs, mainly
          relocation and severance, resulting from the separation of Pepsi-Cola
          bottling and concentrate organizations.

     In the fourth quarter of 1999, $8 million of the remaining 1998
     restructuring reserves was reversed into income, as actual costs incurred
     to renegotiate manufacturing and leasing contracts in Russia and to reduce
     the number of employees were less than the amounts originally estimated.

Comparability of our operating results may also be affected by the following:

Concentrate Supply

     We buy concentrate, the critical flavor ingredients for our products, from
PepsiCo, its affiliates and other brand owners who are the sole authorized
suppliers. Concentrate prices are typically determined annually.

     In February 1999, PepsiCo announced an increase of approximately 5% in the
price of U.S. concentrate. The cost of this increase was offset in substantial
part with increases in the level of marketing support and funding we
<PAGE>   13
received from PepsiCo. PepsiCo has recently announced a further increase of
approximately 7%, effective February 2000, which will be available for use by
PepsiCo to support brand-building initiatives aimed at driving volume. Amounts
paid or payable to PepsiCo and its affiliates for concentrate were $1,418
million, $1,283 million and $1,135 million in 1999, 1998 and 1997, respectively.

Bottler Incentives

     PepsiCo and other brand owners provide us with various forms of marketing
support. The level of this support is negotiated annually and can be increased
or decreased at the discretion of the brand owners. This marketing support is
intended to cover a variety of programs and initiatives, including direct
marketplace support, capital equipment funding and shared media and advertising
support. Direct marketplace support is primarily funding by PepsiCo and other
brand owners of sales discounts and similar programs, and is recorded as an
adjustment to net revenues. Capital equipment funding is designed to support the
purchase and placement of marketing equipment and is recorded as a reduction to
selling, delivery and administrative expenses. Shared media and advertising
support is recorded as a reduction to advertising and marketing expense within
selling, delivery and administrative expenses.

     The total bottler incentives we received from PepsiCo and other brand
owners were $563 million, $536 million and $463 million for 1999, 1998 and 1997,
respectively. Of these amounts, we recorded $263 million, $247 million and $235
million for 1999, 1998 and 1997, respectively, in net revenues, and the
remainder as a reduction to selling, delivery and administrative expenses. The
amount of our bottler incentives received from PepsiCo was more than 90% of our
total bottler incentives in each of the three years, with the balance received
from the other brand owners. We negotiate the level of funding with PepsiCo and
other brand owners as part of the annual planning process.

Our Investment in Russia

     In recent years, we have invested in Russia to build infrastructure and to
fund start-up manufacturing and distribution costs. During the first half of
1998, our volumes were growing at approximately 50% over 1997 levels. However,
following the August 1998 devaluation of the ruble, we experienced a significant
drop in demand, resulting in lower net revenues and increased operating losses.
As a result of the economic crisis and the under-utilization of assets, we
incurred a charge of $212 million in the fourth quarter of 1998 to write down
our assets and reduce our fixed-cost structure. The economic conditions in 1999
have been more stable. However, volumes and revenues have not yet returned to
levels achieved immediately prior to the devaluation as Russian consumers have
switched from branded products to lower-cost alternatives. In response to this
environment, we have focused on developing alternative means of leveraging our
existing asset base while significantly reducing costs. Most notably, we have
begun to distribute Frito-Lay(R) snack products throughout all of Russia, except
Moscow. In addition, we have recently launched our own value brand beverage
products.

     We anticipate that our Russian operations will continue to incur losses and
require cash to fund operations for at least the fiscal year 2000. However,
capital requirements will be minimal because our existing infrastructure is
adequate for current operations. Cash requirements for investing activities and
to fund operations were $45 million, $156 million and $71 million in 1999, 1998
and 1997, respectively. Volume in Russia accounted for 1%, 2% and 1% of our
total volume in 1999, 1998 and 1997, respectively. We will continue to review
our Russian operations on a regular basis and to consider changes in our
distribution systems and other operations as circumstances dictate.

Employee Benefit Plan Changes

     We are making several changes to our employee benefit plans that will take
effect in fiscal year 2000. Our objective is to ensure that the overall
compensation and benefit plans offered to our employees are competitive with our
industry. The changes that have been made to our vacation policy, pension and
retiree medical plans include some benefit enhancements as well as cost
containment provisions. We do not believe that the net impact of these changes
will be material to our financial results in fiscal year 2000.

     In addition, we are not continuing the broad-based stock option program
provided by PepsiCo. In its place we are implementing a matching company
contribution to our 401(k) plan to begin in 2000. The match will be made in PBG
stock and the amount will depend upon the employee's contribution and years of
service. We anticipate that the matching company contribution will cost
approximately $12 million in fiscal year 2000.

<PAGE>   14

     Finally, in the fourth quarter of 1999 we recognized a $16 million
compensation charge related to full-year 1999 performance. This expense is
one-time in nature and is for the benefit of our management employees,
reflecting our successful operating results as well as providing certain
incentive-related features.

Fiscal Year

     Our fiscal year ends on the last Saturday in December and, as a result, a
fifty-third week is added every five or six years. Fiscal years 1999, 1998 and
1997 consisted of 52 weeks. Fiscal year 2000 will have 53 weeks.


<PAGE>   15
BOTTLING GROUP, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions)

Fiscal Years Ended December 25, 1999, December 26, 1998 And December 27, 1997

<TABLE>
<CAPTION>
                                                        1999           1998           1997
                                                       -------        -------        -------
<S>                                                    <C>            <C>            <C>
NET REVENUES                                           $ 7,505        $ 7,041        $ 6,592
Cost of sales                                            4,296          4,181          3,832
                                                       -------        -------        -------
GROSS PROFIT                                             3,209          2,860          2,760

Selling, delivery and administrative expenses            2,813          2,583          2,425
Unusual impairment and other charges and credits           (16)           222             --
                                                       -------        -------        -------
OPERATING INCOME                                           412             55            335

Interest expense, net                                      129            157            160
Foreign currency loss (gain)                                 1             26             (2)
Minority interest                                            5              4              4
                                                       -------        -------        -------

INCOME (LOSS) BEFORE INCOME TAXES                          277           (132)           173
Income tax expense (benefit)                                 4             (1)             1
                                                       -------        -------        -------

NET INCOME (LOSS)                                      $   273        $  (131)       $   172
                                                       =======        =======        =======
</TABLE>



See accompanying notes to Consolidated Financial Statements.

<PAGE>   16

MANAGEMENT'S FINANCIAL REVIEW

RESULTS OF OPERATIONS
---------------------

<TABLE>
<CAPTION>
                                                          FISCAL 1999 VS. 1998         FISCAL 1998 VS. 1997
                                                          --------------------         --------------------
                                                                        CONSTANT                   CONSTANT
                                                         REPORTED       TERRITORY     REPORTED     TERRITORY
                                                          CHANGE          CHANGE       CHANGE        CHANGE
                                                          ------          ------       ------        ------
<S>                                                       <C>           <C>           <C>          <C>
   EBITDA                                                     25%           13%           (7)%          0%
   Volume                                                      4%            0%            7 %          5%
   Net Revenue per Case                                        3%            3%           (1)%          0%
</TABLE>


EBITDA

     Reported EBITDA was $901 million in 1999, representing a 25% increase over
1998. On a constant territory basis, EBITDA growth of 13% was driven by a strong
pricing environment particularly in the U.S. take-home segment, solid volume
growth in our higher-margin cold drink segment and reduced operating losses in
Russia.

     In 1998, EBITDA declined 7% on a reported basis and was flat on a constant
territory basis. Strong volume gains were more than offset by higher raw
material costs in North America, increased selling and delivery expenses
associated with our investment in the cold drink segment and higher losses in
our Russian operations. The reported decline in 1998 was also impacted by $28
million of cash restructuring charges.

VOLUME

     Our worldwide raw case volume grew 4% on a reported basis in 1999, and was
flat on a constant territory basis. Raw cases are physical cases sold,
regardless of the volume contained in these cases. In North America, which
consists of the U.S. and Canada, constant territory volume improved 1%. Growth
in our cold drink segment was offset by declines in the take-home business as we
raised prices in the take-home segment. Outside North America, our constant
territory volumes declined 6%, driven by the continued impact of the economic
conditions in Russia, which began to deteriorate in August 1998 with the
devaluation of the ruble.

     In 1998, worldwide case volume grew 7% compared to 1997, with North America
increasing 6% and countries outside North America increasing 18%. Constant
territory volume increased 5% in the North American markets, 6% outside North
America and 5% worldwide. North American results were driven by solid growth in
our cold drink segment, modest gains in the take-home segment and the favorable
impact of the launch of Pepsi ONE in the fourth quarter of 1998. Constant
territory volume growth outside North America was positive in all of our
markets, led by Russia, which increased 21%.


NET REVENUES

     On a reported basis, net revenues were $7,505 million in 1999, representing
a 7% increase over 1998. On a constant territory basis, net revenues increased
3%, with increases in North America offsetting a revenue decline outside North
America. North American constant territory growth was driven by a 1% increase in
volume, and a 4% increase in net revenue per case. The net revenue per case
increase was driven by strong pricing, led by advances in the take-home segment
and an increased mix of higher-revenue cold drink volume. Initial volume
declines partially offset the revenue impact of higher take-home pricing,
although volumes rebounded in the fourth quarter of 1999. Outside North America,
revenue declines were impacted by the August 1998 ruble devaluation in Russia.
On a worldwide basis, constant territory revenue per physical case was up 3%.

     Worldwide net revenues grew 7% from 1997 to 1998 on a reported basis and 5%
on a constant territory basis. Volume gains contributed five percentage points
to constant territory revenue growth while pricing remained essentially flat.
Flat pricing reflected an increased mix of higher-priced single-serve cold drink
packages sold, offset by lower take-home package pricing in North American
markets, and promotional pricing relating to the U.S. introduction of Pepsi ONE
in the fourth quarter of 1998.

<PAGE>   17


COST OF SALES

     Cost of sales as a percentage of net revenues decreased from 59.4% in 1998
to 57.3% in 1999. This trend was driven by higher net revenue per case and
relatively flat cost of sales per case, as higher concentrate prices were
offset by lower packaging costs and the favorable effect of renegotiating our
raw material contracts in Russia to a ruble denomination instead of U.S.
dollars.

     Cost of sales as a percentage of net revenues increased from 58.1% in 1997
to 59.4% in 1998. This increase was primarily a result of margin declines in the
take-home segment and increases in concentrate costs. An increased mix of
revenues in the higher-margin cold drink segment in 1998 was insufficient to
offset margin declines in the take-home segment.


SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES

     Selling, delivery and administrative expenses increased $230 million, or
9%, in 1999. This increase was driven by acquisitions and higher selling and
delivery costs, which resulted from our continued investment in our North
American cold drink infrastructure. Additional headcount, delivery routes and
depreciation increases resulted from this initiative in 1999. We anticipate that
the investments we are making in the cold drink business will be more than
recovered through the resulting revenue growth in this higher-margin business.
In addition, higher advertising and marketing spending was offset by reduced
operating costs in Russia, as our cost structure benefited from our fourth
quarter 1998 restructuring actions. Administrative costs were impacted by
increased performance-related compensation due to our stronger operating results
in 1999 compared to 1998. Excluding the impact of performance-related
compensation, our administrative costs were relatively flat year-over-year.

     In 1998, selling, delivery and administrative expenses increased $158
million, or 7%. Selling and delivery costs grew at a rate faster than volume
while our other administrative costs grew less than 1% in 1998. The costs
associated with selling and delivery grew faster than volume largely because of
our heavy investment in vending machines and coolers, consistent with our
long-term strategy to increase our presence in the cold drink segment of the
industry in North America. Spending on vending machines and coolers at customer
locations in the North American markets was approximately 20% higher in 1998
than in 1997, driving increases in the costs associated with placing,
depreciating and providing service for these assets.

FOREIGN CURRENCY EXCHANGE GAINS/LOSSES

     Our foreign currency exchange gains and losses arise from our operations in
Russia. Since Russia is considered a highly inflationary economy for accounting
purposes, we are required to remeasure the net monetary assets of our Russian
operations in U.S. dollars and reflect any resulting gain or loss in the
Consolidated Statements of Operations. The August 1998 devaluation of the
Russian ruble resulted in a significant foreign exchange loss in 1998. In 1999,
foreign exchange losses have been minimized due to a more stable ruble exchange
rate.


INTEREST EXPENSE, NET

     Net interest expense decreased by $28 million to $129 million in 1999, due
primarily to a lower average interest rate on PBG's $2.3 billion of long-term
debt. Our average interest rate decreased from 6.4% in 1998, when we used
PepsiCo's average interest rate, to 5.7% in the current year when we issued our
own debt in the first quarter of 1999. Our lower 1999 interest rates reflect
market conditions at the time we issued our debt. In addition, we had reduced
levels of external debt outside North America.

     In 1998, interest expense decreased $3 million compared to 1997, reflecting
higher interest income in Spain, offset by an increase in PepsiCo's average
borrowing rate from 6.2% to 6.4%.

PROVISION FOR INCOME TAXES

     Bottling LLC is a limited liability company, taxable as a partnership for
U.S. tax purposes and, as such, generally pays no U.S. federal or state income
taxes. The federal and state distributable share of income, deductions and
credits of Bottling LLC are allocated to Bottling LLC's owners based on
percentage ownership. However,
<PAGE>   18

certain domestic and foreign affiliates pay taxes in their respective
jurisdictions. Such amounts are reflected in our Consolidated Statements of
Operations.



<PAGE>   19



BOTTLING GROUP, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)
Fiscal Years Ended December 25, 1999, December 26, 1998 And December 27, 1997

<TABLE>
<CAPTION>
                                                                                       1999           1998           1997
                                                                                     -------        -------        -------
CASH FLOWS -- OPERATIONS
<S>                                                                                  <C>            <C>            <C>
Net income (loss)                                                                    $   273        $  (131)       $   172
Adjustments to reconcile net income (loss) to net cash provided by operations:
   Depreciation                                                                          374            351            316
   Amortization                                                                          131            121            123
   Non-cash unusual impairment and other charges and credits                             (16)           194             --
   Other non-cash charges and credits, net                                               124            102              1
   Changes in operating working capital, excluding effects of acquisitions and
      dispositions:
      Trade accounts receivable                                                          (30)            46             26
      Inventories                                                                          3            (25)            --
      Prepaid expenses, deferred income taxes and other current assets                     7             10            (66)
      Accounts payable and other current liabilities                                      41             64             55
                                                                                     -------        -------        -------
        Net change in operating working capital                                           21             95             15
                                                                                     -------        -------        -------
NET CASH PROVIDED BY OPERATIONS                                                          907            732            627
                                                                                     -------        -------        -------
CASH FLOWS -- INVESTMENTS
Capital expenditures                                                                    (560)          (507)          (472)
Acquisitions of bottlers and investments in affiliates                                  (176)          (546)           (49)
Sales of bottling operations and property, plant and equipment                            22             31             23
Notes receivable from PBG, Inc.                                                         (259)            --             --
Other, net                                                                               (19)            (5)           (80)
                                                                                     -------        -------        -------
NET CASH USED FOR INVESTMENTS                                                           (992)        (1,027)          (578)
                                                                                     -------        -------        -------
CASH FLOWS -- FINANCING
Short-term borrowings -- three months or less                                            (58)            52            (90)
Proceeds from third-party debt                                                         2,276             50              3
Replacement of PepsiCo allocated debt                                                 (2,300)            --             --
Payments of third-party debt                                                             (90)           (72)           (11)
Increase in owners' net investment                                                       416            214             96
                                                                                     -------        -------        -------
NET CASH PROVIDED BY (USED FOR) FINANCING                                                244            244             (2)
                                                                                     -------        -------        -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                              (5)             1             (1)
                                                                                     -------        -------        -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     154            (50)            46
CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR                                            36             86             40
                                                                                     -------        -------        -------
CASH AND CASH EQUIVALENTS -- END OF YEAR                                             $   190        $    36        $    86
                                                                                     =======        =======        =======
SUPPLEMENTAL CASH FLOW INFORMATION

NON-CASH INVESTING AND FINANCING ACTIVITIES:
      Liabilities incurred and/or assumed in conjunction with acquisitions of
        bottlers                                                                     $    65         $  161        $     3
                                                                                     =======         ======        =======
</TABLE>

See accompanying notes to Consolidated Financial Statements.

<PAGE>   20


BOTTLING GROUP, LLC
CONSOLIDATED BALANCE SHEETS

(in millions)
December 25, 1999 And December 26, 1998

<TABLE>
<CAPTION>
                                                                                   1999           1998
                                                                                  -------        -------

ASSETS
  CURRENT ASSETS
<S>                                                                               <C>            <C>
Cash and cash equivalents                                                         $   190        $    36
Trade accounts receivable, less allowance of $48 and $46, in 1999 and 1998,
   respectively                                                                       827            808
Inventories                                                                           293            296
Prepaid expenses, deferred income taxes and other current assets                      100             83
                                                                                  -------        -------
  TOTAL CURRENT ASSETS                                                              1,410          1,223
Property, plant and equipment, net                                                  2,218          2,055
Intangible assets, net                                                              3,819          3,806
Notes receivable from PBG, Inc.                                                       259             --
Other assets                                                                           89            143
                                                                                  -------        -------
      TOTAL ASSETS                                                                $ 7,795        $ 7,227
                                                                                  =======        =======

LIABILITIES AND OWNERS' EQUITY
  CURRENT LIABILITIES
Accounts payable and other current liabilities                                    $   904        $   904
Short-term borrowings                                                                  23            112
                                                                                  -------        -------
   TOTAL CURRENT LIABILITIES                                                          927          1,016
Allocation of PepsiCo long-term debt                                                   --          2,300
Long-term debt due to third parties                                                 2,284             61
Other liabilities                                                                     315            321
Deferred income taxes                                                                 200            134
Minority interest                                                                     141            112
                                                                                  -------        -------
  TOTAL LIABILITIES                                                                 3,867          3,944
  OWNERS' EQUITY
Owners' net investment                                                              4,150          3,521
Accumulated other comprehensive loss                                                 (222)          (238)
                                                                                  -------        -------
   TOTAL OWNERS' EQUITY                                                             3,928          3,283
                                                                                  -------        -------
      TOTAL LIABILITIES AND OWNERS' EQUITY                                        $ 7,795        $ 7,227
                                                                                  =======        =======
</TABLE>



See accompanying notes to Consolidated Financial Statements.
<PAGE>   21
LIQUIDITY AND FINANCIAL CONDITION
---------------------------------

LIQUIDITY AND CAPITAL RESOURCES

     Liquidity Prior to our Separation from PepsiCo and PBG's Initial Public
Offering:

     We financed our capital investments and acquisitions through cash flow from
operations and owner contributions prior to our separation from PepsiCo and
PBG's initial public offering. Under PepsiCo's centralized cash management
system, PepsiCo deposited sufficient cash in our bank accounts to meet our daily
obligations, and withdrew excess funds from those accounts. These transactions
are included in owners' net investment in our Consolidated Balanced Sheets and
Consolidated Statements of Cash Flows.

     Liquidity After PBG's Initial Public Offering:

     Subsequent to PBG's initial public offering, we have financed our capital
investments and acquisitions substantially through cash flow from operations. We
believe that our future cash flow from operations and borrowing capacity will be
sufficient to fund capital expenditures, acquisitions and other working capital
requirements.

     Financing Transactions

     We issued $1.3 billion of 5 5/8% senior notes and $1.0 billion of 5 3/8%
senior notes on February 9, 1999, which are guaranteed by PepsiCo. During the
second quarter of 1999, we executed an interest rate swap converting 4% of our
fixed-rate debt to floating-rate debt.

     Capital Expenditures

     We have incurred and will require capital for ongoing infrastructure,
including acquisitions and investments in developing market opportunities.

-         Our business requires substantial infrastructure investments to
          maintain our existing level of operations and to fund investments
          targeted at growing our business. Capital infrastructure expenditures
          totaled $560 million, $507 million and $472 million during 1999, 1998
          and 1997, respectively. We believe that capital infrastructure
          spending will continue to be significant, driven by our investments in
          the cold drink segment.

-         We intend to continue to pursue acquisitions of independent PepsiCo
          bottlers in the U.S. and Canada, particularly in territories
          contiguous to our own. These acquisitions will enable us to provide
          better service to our large retail customers, as well as to reduce
          costs through economies of scale. We also plan to evaluate
          international acquisition opportunities as they become available. Cash
          spending on acquisitions was $176 million, $546 million and $49
          million in 1999, 1998 and 1997, respectively.

CASH FLOWS

     Fiscal 1999 Compared to Fiscal 1998

     Net cash provided by operations in 1999 improved to $907 million from $732
million in 1998, due primarily to strong growth in EBITDA and favorable working
capital cash flows resulting from the timing of cash payments and our continued
focus on working capital management.

     Net cash used for investments was $992 million in 1999 compared to $1,027
million in 1998. In 1999, $176 million was utilized for the acquisition of
bottlers in the U.S., Canada and Russia, compared to $546 million in 1998. In
addition, we continued to invest heavily in cold drink equipment in North
America, resulting in increased capital spending from $507 million in 1998 to
$560 million in 1999. Cash used for investments in 1999 also includes $259
million of loans to PBG, which were used by PBG to pay interest, taxes,
dividends and share repurchases.


<PAGE>   22

     Net cash provided by financing was $244 million in both 1999 and 1998. In
1999, an increase of owner contributions of $202 million was offset by the net
pay-down of $58 million of short-term borrowings and the payment in the
first quarter of 1999 of borrowings in Russia related to the purchase of Pepsi
International Bottlers, LLC. The proceeds from the issuance of third-party debt
of $2.3 billion were used to repay obligations to PepsiCo and fund acquisitions.

     Fiscal 1998 Compared to Fiscal 1997

     Net cash provided by operations in 1998 improved to $732 million from $627
million in 1997 due primarily to the favorable effect of a three-year insurance
prepayment to a PepsiCo affiliate in 1997, and our continued focus on working
capital management.

     Net cash used for investments was $1,027 million in 1998 compared to $578
million in 1997. In 1998, $546 million was utilized for the acquisition of
bottlers and investments in affiliates in the U.S., Canada and Russia, compared
to $49 million in 1997. In addition, we continued to increase our investment in
cold drink equipment in North America.

     Net cash provided by financing in 1998 reflected normal operating
activities, owner contributions and proceeds from short-term borrowings. The
total net cash from financing activities in 1998 was $244 million.

MARKET RISKS AND CAUTIONARY STATEMENTS
--------------------------------------

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to various market risks including commodity prices, interest
rates on our debt and foreign exchange rates.

     Commodity Price Risk

     We are subject to market risks with respect to commodities because our
ability to recover increased costs through higher pricing may be limited by the
competitive environment in which we operate.

      We use futures contracts and options on futures in the normal course of
business to hedge anticipated purchases of certain raw materials used in our
manufacturing operations. Currently we have various contracts outstanding for
aluminum purchases in 2000, which establish our purchase price within defined
ranges.

     Interest Rate Risk

     Historically, we have had no material interest rate risk associated with
debt used to finance our operations due to limited third-party borrowings. We
intend to manage our interest rate exposure using both financial derivative
instruments and a mix of fixed and floating interest rate debt. During the
second quarter of 1999, we executed an interest rate swap converting 4% of our
fixed-rate debt to floating-rate debt.

     Foreign Currency Exchange Rate Risk

     Operating in international markets involves exposure to movements in
currency exchange rates. Currency exchange rate movements typically also affect
economic growth, inflation, interest rates, government actions and other
factors. These changes can cause us to adjust our financing and operating
strategies. The discussion below of changes in currency exchange rates does not
incorporate these other economic factors. For example, the sensitivity analysis
presented in the foreign exchange discussion below does not take into account
the possibility that the impact of an exchange rate movement may or may not be
offset by the impact of changes in other categories.

     Operations outside the U.S. constitute approximately 15% of our net
revenues. As currency exchange rates change, translation of the statements of
operations of our international businesses into U.S. dollars affects
year-over-year comparability. We have not hedged translation risks because cash
flows from international operations have generally been reinvested locally, nor
historically have we entered into hedges to minimize the volatility of reported
<PAGE>   23

earnings. We estimate that a 10% change in foreign exchange rates would affect
reported operating income by less than $10 million.

     Foreign exchange gains and losses reflect transaction and translation gains
and losses arising from the re-measurement into U.S. dollars of the net monetary
assets of businesses in highly inflationary countries. Russia is considered a
highly inflationary economy for accounting purposes and all foreign exchange
gains and losses are included in the Consolidated Statements of Operations.

     The table below presents information on contracts outstanding at December
25, 1999:


      in millions

<TABLE>
<CAPTION>
                                                                  NOTIONAL      CARRYING      FAIR
                                                                    AMOUNT       AMOUNT       VALUE
                                                                  --------       --------     ------
<S>                                                               <C>            <C>          <C>
     Raw material futures contracts                                  $91            $ -         $ 6
     Raw material options                                             61              1          12
     Interest rate swap                                              100              -          (2)
</TABLE>


EURO

     On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between existing currencies and one common
currency, the Euro. Beginning in January 2002, new Euro-denominated bills and
coins will be issued, and existing currencies will be withdrawn from
circulation. Spain is one of the member countries that instituted the Euro, and
we have established plans to address the issues raised by the Euro currency
conversion. These issues include, among others, the need to adapt computer and
financial systems, business processes and equipment such as vending machines to
accommodate Euro-denominated transactions and the impact of one common currency
on cross-border pricing. Since financial systems and processes currently
accommodate multiple currencies, we do not expect the system and equipment
conversion costs to be material. Due to numerous uncertainties, we cannot
reasonably estimate the long-term effects one common currency may have on
pricing, costs and the resulting impact, if any, on our financial condition or
results of operations.


YEAR 2000

     Over the past three years, we have taken a number of steps to minimize any
potential disruption from the transition of computerized systems and
microprocessors to the Year 2000. Such steps included the inventory and
assessment of our key information technology systems, together with any
necessary remediation and testing. In addition, we contacted and surveyed
suppliers critical to our production process and significant customers as to
their compliance status. Finally, we established an Event Management Center to
monitor the status of key business processes during and after the year-end
crossover. The Center was available to all of our locations and key suppliers
and customers in the event of any breakdown in processing.

     We are pleased to report that as a result of these precautions, we
experienced no disruption to our business in any of the countries in which we
operate. This included no external infrastructure issues such as disruptions to
utilities and telecommunications, nor any indication of problems with any of our
key suppliers or customers. Our own production and selling activities commenced
in the new year as originally scheduled.

     We have spent $51 million in costs directly related to Year 2000 issues.
This included $18 million in 1999, $26 million in 1998 and $7 million in 1997.
These costs did not necessarily increase our normal level of spending on
information technology due to the deferral of other projects that enabled us to
focus on Year 2000 remediation. Consequently, in fiscal year 2000, resources
dedicated to Year 2000 projects are now being redirected to support initiatives
that had previously been postponed. Any carryover costs to fiscal year 2000 for
expenses such as the Event Management Center are not expected to be significant.


<PAGE>   24
CAUTIONARY STATEMENTS

     Except for the historical information and discussions contained herein,
statements contained in this Form 10-K may constitute forward-looking statements
as defined by the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on currently available competitive,
financial and economic data and our operating plans. These statements involve a
number of risks, uncertainties and other factors that could cause actual results
to be materially different. Among the events and uncertainties that could
adversely affect future periods are lower-than-expected net pricing resulting
from marketplace competition, material changes from expectations in the cost of
raw materials and ingredients, an inability to achieve the expected timing for
returns on cold drink equipment and related infrastructure expenditures,
material changes in expected levels of marketing support payments from PepsiCo,
an inability to meet projections for performance in newly acquired territories,
unexpected costs associated with conversion to the common European currency and
unfavorable interest rate and currency fluctuations.



<PAGE>   25

BOTTLING GROUP, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY

(in millions)

Fiscal Years Ended December 25, 1999, December 26, 1998 And December 27, 1997

<TABLE>
<CAPTION>
                                                               ACCUMULATED
                                                   OWNERS'        OTHER
                                                     NET      COMPREHENSIVE             COMPREHENSIVE
                                                 INVESTMENT        LOSS         TOTAL    INCOME/(LOSS)
<S>                                              <C>            <C>            <C>           <C>
BALANCE AT DECEMBER 28, 1996                     $ 3,230        $  (102)       $ 3,128
   Comprehensive income:
      Net income                                     172             --            172        $   172
      Owner contributions                            118             --            118             --
      Currency translation adjustment                 --            (82)           (82)           (82)
                                                 -------        -------        -------        -------
   Total comprehensive income                                                                 $    90
                                                                                              =======
BALANCE AT DECEMBER 27, 1997                       3,520           (184)         3,336
   Comprehensive loss:
      Net loss                                      (131)            --           (131)       $  (131)
      Owner contributions                            132             --            132             --
      Currency translation adjustment                 --            (35)           (35)           (35)
      Minimum pension liability adjustment            --            (19)           (19)           (19)
                                                 -------        -------        -------        -------
   Total comprehensive loss                                                                   $  (185)
                                                                                              =======
BALANCE AT DECEMBER 26, 1998                       3,521           (238)         3,283
   Comprehensive income:
      Net income                                     273             --            273        $   273
      Owner contributions                            356             --            356             --
      Currency translation adjustment                 --             (3)            (3)            (3)
      Minimum pension liability adjustment            --             19             19             19
                                                 -------        -------        -------        -------
   Total comprehensive income                                                                 $   289
                                                                                              =======
BALANCE AT DECEMBER 25, 1999                     $ 4,150        $  (222)       $ 3,928
                                                 =======        =======        =======
</TABLE>

See accompanying notes to Consolidated Financial Statements.

<PAGE>   26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular dollars in millions

NOTE 1 -- BASIS OF PRESENTATION

     Bottling Group, LLC (collectively referred to as "Bottling LLC," "we,"
"our" and "us") is the principal operating subsidiary of The Pepsi Bottling
Group, Inc. ("PBG") and consists of substantially all of the operations and
assets of PBG. Bottling LLC, which is consolidated by PBG, consists of bottling
operations located in the United States, Canada, Spain, Greece and Russia. For
the periods presented prior to our formation, we were an operating unit of
PepsiCo, Inc ("PepsiCo").

     PBG was incorporated in Delaware in January 1999 and, prior to its
formation, PBG was an operating unit of PepsiCo. PBG's initial public offering
consisted of 100,000,000 shares of common stock sold to the public on March 31,
1999, equivalent to 65% of its outstanding common stock, leaving PepsiCo the
owner of the remaining 35% of outstanding common stock. PepsiCo's ownership has
increased to 36.7% as a result of net repurchases of 5.3 million shares under
its share repurchase program.

     In addition, in conjunction with its initial public offering, PBG and
PepsiCo contributed bottling businesses and assets used in the bottling
businesses to Bottling LLC. As a result of the contribution of these assets, PBG
owns 92.9% of Bottling LLC and PepsiCo owns the remaining 7.1%, giving PepsiCo
economic ownership of 41.2% of PBG's combined operations.

     The accompanying Consolidated Financial Statements include information that
has been presented on a "carve-out" basis for the periods prior to PBG's initial
public offering and our formation. This information includes the historical
results of operations and assets and liabilities directly related to Bottling
LLC, and has been prepared from PepsiCo's historical accounting records.

     On March 8, 1999, PBG issued $1 billion of 7% senior notes due 2029, which
are guaranteed by us. We also guarantee that to the extent there is available
cash, we will distribute pro rata to all owners sufficient cash such that
aggregate cash distributed to PBG will enable PBG to pay its taxes and make
interest payments on the $1 billion 7% senior notes due 2029.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Our preparation of the Consolidated Financial Statements in conformity with
generally accepted accounting principles requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of net revenues and expenses during the
reporting period. Actual results could differ from our estimates.

     BASIS OF CONSOLIDATION The accounts of all of our wholly and majority-owned
subsidiaries are included in the accompanying Consolidated Financial Statements.
We have eliminated intercompany accounts and transactions in consolidation.

     FISCAL YEAR Our fiscal year ends on the last Saturday in December and, as a
result, a fifty-third week is added every five or six years. Fiscal years 1999,
1998 and 1997 consisted of 52 weeks. Fiscal year 2000 will have 53 weeks.

     REVENUE RECOGNITION We recognize revenue when goods are delivered to
customers. Sales terms do not allow a right of return unless product freshness
dating has expired. Reserves for returned product were $2 million at fiscal
year-end 1999, 1998 and 1997, respectively.

     ADVERTISING AND MARKETING COSTS We are involved in a variety of programs to
promote our products. We include advertising and marketing costs in selling,
delivery and administrative expenses and expense such costs in the year
incurred. Advertising and marketing costs were $298 million, $233 million and
$210 million in 1999, 1998 and 1997, respectively.

<PAGE>   27
     BOTTLER INCENTIVES PepsiCo and other brand owners, at their sole
discretion, provide us with various forms of marketing support. This marketing
support is intended to cover a variety of programs and initiatives, including
direct marketplace support, capital equipment funding and shared media and
advertising support. Based on the objective of the programs and initiatives, we
record marketing support as an adjustment to net revenues or as a reduction of
selling, delivery and administrative expenses. Direct marketplace support is
primarily funding by PepsiCo and other brand owners of sales discounts and
similar programs and is recorded as an adjustment to net revenues. Capital
equipment funding is designed to support the purchase and placement of marketing
equipment and is recorded as a reduction to selling, delivery and administrative
expenses. Shared media and advertising support is recorded as a reduction to
advertising and marketing expense within selling, delivery and administrative
expenses. There are no conditions or other requirements that could result in a
repayment of marketing support received.

     The total bottler incentives we received from PepsiCo and other brand
owners were $563 million, $536 million and $463 million for 1999, 1998 and 1997,
respectively. Of these amounts, we recorded $263 million, $247 million and $235
million for 1999, 1998 and 1997, respectively, in net revenues, and the
remainder as a reduction to selling, delivery and administrative expenses. The
amount of our bottler incentives received from PepsiCo was more than 90% of our
bottler incentives in each of the three years, with the balance received from
the other brand owners.

     STOCK-BASED EMPLOYEE COMPENSATION We measure stock-based compensation
expense in accordance with Accounting Principles Board Opinion 25, "Accounting
for Stock Issued to Employees," and its related interpretations. Accordingly,
compensation expense for PBG stock option grants to our employees is measured as
the excess of the quoted market price of PBG's common stock at the grant date
over the amount the employee must pay for the stock. Our policy is to grant PBG
stock options at fair value on the date of grant.

     CASH EQUIVALENTS Cash equivalents represent funds we have temporarily
invested with original maturities not exceeding three months.

     INVENTORIES We value our inventories at the lower of cost computed on the
first-in, first-out method or net realizable value.

     PROPERTY, PLANT AND EQUIPMENT We state property, plant and equipment
("PP&E") at cost, except for PP&E that has been impaired, for which we write
down the carrying amount to estimated fair-market value, which then becomes the
new cost basis.

     INTANGIBLE ASSETS Intangible assets include both franchise rights and
goodwill arising from the allocation of the purchase price of businesses
acquired. Goodwill represents the residual purchase price after allocation of
all identifiable net assets. Franchise rights and goodwill are evaluated at the
date of acquisition and amortized on a straight-line basis over their estimated
useful lives, which in most cases is between 20 to 40 years.

     RECOVERABILITY OF LONG-LIVED ASSETS We review all long-lived assets,
including intangible assets, when facts and circumstances indicate that the
carrying value of the asset may not be recoverable. When necessary, we write
down an impaired asset to its estimated fair value based on the best information
available. Estimated fair value is generally based on either appraised value or
measured by discounting estimated future cash flows. Considerable management
judgment is necessary to estimate discounted future cash flows. Accordingly,
actual results could vary significantly from such estimates.

     INCOME TAXES We are a limited liability company, taxable as a partnership
for U.S. tax purposes and, as such, generally will pay no U.S. federal or state
income taxes. Our federal and state distributable share of income, deductions
and credits will be allocated to our owners based on their percentage of
ownership. However, certain domestic and foreign affiliates will pay taxes in
their respective jurisdictions and will record the appropriate deferred tax
results in consolidation. Deferred income taxes reflect the impact of temporary
differences between assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes. In accordance with
Statement of Financial Accounting Standards 109, "Accounting for Income Taxes,"
these deferred taxes are measured by applying currently enacted tax laws. With
the exception of one of our
<PAGE>   28

subsidiaries for which we have recorded deferred taxes in our Consolidated
Financial Statements, deferred taxes associated with our U.S. operations are
recorded directly by our owners.

     MINORITY INTEREST PBG has direct minority ownership in one of our
subsidiaries. PBG's share of combined income or loss and assets and liabilities
in the subsidiary is accounted for as minority interest.

     FINANCIAL INSTRUMENTS AND RISK MANAGEMENT We use futures contracts and
options on futures to hedge against the risk of adverse movements in the price
of certain commodities used in the manufacture of our products. In order to
qualify for deferral hedge accounting of unrealized gains and losses, such
instruments must be designated and effective as a hedge of an anticipatory
transaction. Changes in the value of instruments that we use to hedge commodity
prices are highly correlated to the changes in the value of the purchased
commodity.

     We review the correlation and effectiveness of these financial instruments
on a periodic basis. Gains and losses on futures contracts that are designated
and effective as hedges of future commodity purchases are deferred and included
in the cost of the related raw materials when purchased. Financial instruments
that do not meet the criteria for hedge accounting treatment are
marked-to-market with the resulting unrealized gain or loss recorded as other
income and expense within selling, delivery and administrative expenses.
Realized gains and losses that result from the early termination of
financial instruments used for hedging purposes are deferred and are included
in cost of sales when the anticipated transaction actually occurs. Premiums
paid for the purchase of options on futures are recorded as a prepaid expense
in the Consolidated Balance Sheets and are amortized as an adjustment to cost
of sales over the duration of the option contract.

     From time to time, we utilize interest rate swaps to hedge our exposure to
fluctuations in interest rates. The interest differential to be paid or received
on an interest rate swap is recognized as an adjustment to interest expense as
the differential occurs. The interest differential not yet settled in cash is
reflected in the accompanying Consolidated Balance Sheets as a receivable or
payable within the appropriate current asset or liability caption. If we
terminate an interest rate swap position, the gain or loss realized upon
termination would be deferred and amortized to interest expense over the
remaining term of the underlying debt instrument it was intended to modify, or
would be recognized immediately if the underlying debt instrument was settled
prior to maturity.

     FOREIGN EXCHANGE GAINS AND LOSSES We translate the balance sheets of our
foreign subsidiaries that do not operate in highly inflationary economies at the
exchange rates in effect at the balance sheet date, while we translate the
statements of operations at the average rates of exchange during the year. The
resulting translation adjustments of our foreign subsidiaries are recorded
directly to accumulated other comprehensive loss. Foreign exchange gains and
losses reflect transaction and translation gains and losses arising from the
re-measurement into U.S. dollars of the net monetary assets of businesses in
highly inflationary countries. Russia is considered a highly inflationary
economy for accounting purposes and we include all foreign exchange gains and
losses in the Consolidated Statements of Operations.

     NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standard 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for hedging activities and
derivative instruments, including certain derivative instruments embedded in
other contracts, which are collectively referred to as derivatives. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. We
are currently assessing the effects of adopting SFAS 133, and have not yet made
a determination of the impact on our financial position or results of
operations.

     In July 1999, the FASB issued Statement of Financial Accounting Standard
137, delaying the implementation of SFAS 133 for one year. SFAS 133 will now be
effective for our first quarter of fiscal year 2001.

NOTE 3 -- COMPARABILITY OF RESULTS

     For the periods prior to PBG's initial public offering and the formation of
Bottling LLC, our Consolidated Financial Statements have been carved out from
the financial statements of PepsiCo using the historical results of operations
and assets and liabilities of our business. The Consolidated Financial
Statements reflect certain costs that may not necessarily be indicative of the
costs we would have incurred had we operated as an independent,

<PAGE>   29
stand-alone entity for all periods presented. These costs include an allocation
of PepsiCo corporate overhead and interest expense.

-        We included corporate overhead related to PepsiCo's corporate
         administrative functions based on a specific identification of
         PepsiCo's administrative costs relating to the bottling
         operations and, to the extent that such identification was not
         practicable, based upon the percentage of our revenues to
         PepsiCo's consolidated net revenues. These costs are included
         in selling, delivery and administrative expenses in our
         Consolidated Statements of Operations.

-        We allocated $2.3 billion of PepsiCo debt to our business. We
         charged interest expense on this debt using PepsiCo's
         weighted-average interest rate. Once we issued $2.3 billion of
         third-party debt in the first quarter of 1999, our actual
         interest rates were used to determine interest expense for the
         remainder of the year.

         The amounts, by year, of the historical allocations described above are
as follows:

<TABLE>
<CAPTION>
                                                              1999*            1998             1997
                                                              -----            ----             ----
<S>                                                           <C>              <C>              <C>
         Corporate overhead expense                           $  3             $ 40             $ 42
         Interest expense                                     $ 16             $147             $143
         PepsiCo weighted-average interest rate                5.8%             6.4%             6.2%
         * Prior to PBG's initial public offering
</TABLE>

NOTE 4 -- UNUSUAL IMPAIRMENT AND OTHER CHARGES AND CREDITS

<TABLE>
<CAPTION>
                                                               1999               1998
                                                               ----               ----
<S>                                                            <C>                <C>
         Non-cash compensation charge                          $  45             $  --
         Vacation policy change                                  (53)               --
         Asset impairment and restructuring charges               (8)              222
                                                               -----             -----
                                                               $ (16)            $ 222
                                                               =====             =====
</TABLE>

The 1999 unusual items comprise the following:

-        In connection with the completion of PBG's initial public offering and
         the formation of Bottling LLC, PepsiCo vested substantially all
         non-vested PepsiCo stock options held by our employees. As a result, we
         incurred a $45 million non-cash compensation charge in the second
         quarter, equal to the difference between the market price of the
         PepsiCo capital stock and the exercise price of these options at the
         vesting date.

-        Employees will now earn vacation time evenly throughout the year based
         upon service rendered. Previously, employees were fully vested for the
         current year at the beginning of each year. As a result of this change,
         we have reversed an accrual of $53 million into income.

-        In the fourth quarter, $8 million of the remaining 1998 restructuring
         reserves was reversed into income, as actual costs incurred to
         renegotiate manufacturing and leasing contracts in Russia and to reduce
         the number of employees were less than the amounts originally
         estimated.

The 1998 unusual items comprise the following:

-        A fourth-quarter charge of $212 million for asset impairment of $194
         million and other charges of $18 million related to the restructuring
         of our Russian bottling operations. The economic turmoil in Russia,
         which accompanied the devaluation of the ruble in August 1998, had an
         adverse impact on our operations. Consequently, in the fourth quarter
         we experienced a significant drop in demand, resulting in lower net
         revenues and increased operating losses. Additionally, since net
         revenues in Russia are denominated in rubles, whereas a substantial
         portion of costs and expenses at that time were denominated in U.S.
         dollars, our operating margins were further eroded. In response to
         these conditions, we reduced our cost structure primarily through
         closing four of our 26 distribution facilities, renegotiating
         manufacturing and leasing contracts and reducing the number of
         employees, primarily in sales and operations, from approximately 4,500
         to 2,000. We also evaluated the resulting impairment of long-lived
         assets, triggered by the reduction in utilization of assets caused by
         the lower demand, the adverse change in the business climate and the
         expected continuation of operating losses and cash deficits in that
         market. The impairment charge reduced the net book value of these
         assets from $245
<PAGE>   30

         million to $51 million, their estimated fair market value based
         primarily on values paid for similar assets in Russia.

         A fourth-quarter charge of $10 million for employee-related and other
         costs, mainly relocation and severance, resulting from the separation
         of Pepsi-Cola North America's concentrate and bottling organizations.

         At year-end 1999, $3 million remained in accounts payable and other
         current liabilities relating to remaining lease termination costs on
         facilities and employee costs to be paid in 2000.

NOTE 5 -- INVENTORIES

<TABLE>
<CAPTION>
                                                                                   1999           1998
                                                                                   ----           ----
<S>                                                                                <C>            <C>
         Raw materials and supplies                                                $110           $120
         Finished goods                                                             183            176
                                                                                   ----           ----
                                                                                   $293           $296
                                                                                   ====           ====
</TABLE>

NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT, NET

<TABLE>
<CAPTION>
                                                                                 1999           1998
                                                                                -------        -------
<S>                                                                             <C>            <C>
         Land                                                                   $   145        $   151
         Buildings and improvements                                                 852            813
         Production and distribution equipment                                    2,112          1,989
         Marketing equipment                                                      1,596          1,368
         Other                                                                       84             95
                                                                                -------        -------
                                                                                  4,789          4,416
         Accumulated depreciation                                                (2,571)        (2,361)
                                                                                -------        -------
                                                                                $ 2,218        $ 2,055
                                                                                =======        =======
</TABLE>

We calculate depreciation on a straight-line basis over the estimated lives of
the assets as follows:

<TABLE>
<S>                                                                                       <C>
         Building and improvements                                                        20-33 years
         Production equipment                                                             10 years
         Distribution equipment                                                           5-8 years
         Marketing equipment                                                              3-7 years
</TABLE>

NOTE 7 -- INTANGIBLE ASSETS, NET

<TABLE>
<CAPTION>
                                                                                  1999          1998
                                                                                -------        -------
<S>                                                                             <C>            <C>
         Franchise rights and other identifiable intangibles                    $ 3,565        $ 3,460
         Goodwill                                                                 1,582          1,539
                                                                                -------        -------
                                                                                  5,147          4,999
         Accumulated amortization                                                (1,328)        (1,193)
                                                                                -------        -------
                                                                                $ 3,819        $ 3,806
                                                                                =======        =======
</TABLE>

         Identifiable intangible assets arise principally from the allocation of
the purchase price of businesses acquired, and consist primarily of territorial
franchise rights. Our franchise rights are typically perpetual in duration,
subject to compliance with the underlying franchise agreement. We assign amounts
to such identifiable intangibles based on their estimated fair value at the date
of acquisition. Goodwill represents the residual purchase price after allocation
to all identifiable net assets.

NOTE 8 -- NOTES RECEIVABLE FROM PBG, INC.

         During 1999, we lent PBG $259 million through a series of notes at a
7.2% interest rate. The notes mature on April 19, 2005, and were used by PBG to
pay interest, taxes, dividends and share repurchases.

<PAGE>   31
NOTE 9 -- ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES


<TABLE>
<CAPTION>
                                                                                             1999                      1998
                                                                                             ----                      ----
<S>                                                                                          <C>                       <C>
         Accounts payable                                                                    $334                      $328
         Accrued compensation and benefits                                                    147                       174
         Trade incentives                                                                     201                       163
         Accrued interest                                                                      43                        --
         Other current liabilities                                                            179                       239
                                                                                             ----                      ----
                                                                                             $904                      $904
                                                                                             ====                      ====


NOTE 10 -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT


                                                                                             1999                      1998
                                                                                            -----                     -----
Short-term borrowings
     Current maturities of long-term debt                                                  $   10                    $   48
     Borrowings under lines of credit                                                          13                        64
                                                                                           ------                    ------
                                                                                           $   23                    $  112
                                                                                           ======                    ======
Long-term debt due to third parties
     5 5/8% senior notes due 2009                                                          $1,300                    $   --
     5 3/8% senior notes due 2004                                                           1,000                        --
     Other                                                                                     13                       102
                                                                                           ------                    ------
                                                                                            2,313                       102
     Capital lease obligations                                                                  2                         7
                                                                                           ------                    ------
                                                                                            2,315                       109
     Less: Unamortized discount                                                                21                        --
           Current maturities of long-term debt                                                10                        48
                                                                                           ------                    ------
                                                                                           $2,284                    $   61
                                                                                           ======                    ======
Allocation of PepsiCo long-term debt                                                       $   --                    $2,300
                                                                                           ======                    ======
</TABLE>

         Maturities of long-term debt as of December 25, 1999 are: 2000 -- $9
million, 2001 -- $1 million, 2002 -- $0, 2003 -- $0, 2004 -- $1,000 million and
thereafter, $1,303 million.

         The $1.3 billion of 5 5/8% senior notes and the $1.0 billion of 5 3/8%
senior notes were issued on February 9, 1999, and are guaranteed by PepsiCo.
During the second quarter we executed an interest rate swap converting 4% of our
fixed-rate debt to floating-rate debt.

         We allocated $2.3 billion of PepsiCo long-term debt in our financial
statements prior to issuing the senior notes referred to above. Our interest
expense includes the related allocated interest expense of $16 million in 1999,
$147 million in 1998 and $143 million in 1997, and is based on PepsiCo's
weighted-average interest rate of 5.8%, 6.4% and 6.2% in 1999, 1998 and 1997,
respectively.

         We have available short-term bank credit lines of approximately $121
million and $95 million at December 25, 1999 and December 26, 1998,
respectively. These lines are denominated in various foreign currencies to
support general operating needs in their respective countries. The
weighted-average interest rate of these lines of credit outstanding at December
25, 1999, December 26, 1998 and December 27, 1997 was 12.0%, 8.7% and 8.6%,
respectively.

         On March 8, 1999, PBG issued $1 billion of 7% senior notes due 2029,
which are guaranteed by us.

         Amounts paid to third parties for interest were $74 million, $20
million and $21 million in 1999, 1998 and 1997, respectively. In 1998 and 1997,
allocated interest expense was deemed to have been paid to PepsiCo, in cash, in
the period in which the cost was incurred.


<PAGE>   32
NOTE 11 -- LEASES

         We have noncancellable commitments under both capital and long-term
operating leases. Capital and operating lease commitments expire at various
dates through 2023. Most leases require payment of related executory costs,
which include property taxes, maintenance and insurance.

         Our future minimum commitments under noncancellable leases are set
forth below:


<TABLE>
<CAPTION>
                                                                                            COMMITMENTS
                                                                                            -----------
                                                                                       CAPITAL        OPERATING
                                                                                       -------        ---------
<S>                                                                                    <C>            <C>
         2000                                                                            $  1            $ 33
         2001                                                                              --              29
         2002                                                                              --              25
         2003                                                                              --              14
         2004                                                                              --              12
         Later years                                                                        3              58
                                                                                         ----            ----
                                                                                         $  4            $171
                                                                                         ====            ====
</TABLE>

         At December 25, 1999, the present value of minimum payments under
capital leases was $2 million, after deducting $2 million for imputed interest.
Our rental expense was $55 million, $45 million and $35 million for 1999, 1998
and 1997, respectively.

NOTE 12 -- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

         As of December 25, 1999, our use of derivative instruments was limited
to interest rate swaps entered into with financial institutions, and commodity
futures and option contracts traded on national exchanges. Our corporate policy
prohibits the use of derivative instruments for trading purposes, and we have
procedures in place to monitor and control their use.

         FAIR VALUE Financial assets with carrying values approximating fair
value include cash and cash equivalents and trade accounts receivable. Financial
liabilities with carrying values approximating fair value include accounts
payable and other accrued liabilities and short-term debt. The carrying value of
these financial assets and liabilities approximates fair value due to the short
maturity of our financial assets and liabilities and since interest rates
approximate fair value for short-term debt.

         Long-term debt at December 25, 1999 has a carrying value and fair value
of $2.3 billion and $2.1 billion, respectively.

         COMMODITY PRICES We use futures contracts and options on futures in the
normal course of business to hedge anticipated purchases of certain raw
materials used in our manufacturing operations.

         Deferred gains and losses at year-end 1999 and 1998, as well as gains
and losses recognized as part of the cost of sales in 1999, 1998 and 1997, were
not significant. At year-end 1999 and 1998, we had commodity contracts involving
notional amounts of $152 million and $71 million outstanding, respectively.
These notional amounts do not represent amounts exchanged by the parties and
thus are not a measure of our exposure; rather, they are used as the basis to
calculate the amounts due under the agreements.

         INTEREST RATE RISK Prior to PBG's initial public offering and our
formation, we had minimal external interest rate risk to manage. Subsequent to
this offering, as interest rate risk has grown, we have begun to manage interest
rate exposure through the use of an interest rate swap, which converted 4% of
our fixed-rate debt to floating-rate debt. Credit risk from the swap agreement
is dependent both on the movement in interest rates and the possibility of
non-payment by the swap counterparty. We mitigate credit risk by only entering
into swap agreements with high credit-quality counterparties and by netting swap
payments within each contract.
<PAGE>   33
<TABLE>
<CAPTION>
                                                                   AT DECEMBER 25, 1999
                                                            ---------------------------------
                                                            NOTIONAL     CARRYING     FAIR
                                                             AMOUNT       AMOUNT      VALUE
                                                            --------     --------     -----
<S>                                                         <C>          <C>          <C>
         Raw material futures contracts                       $ 91         $ --        $  6
         Raw material options                                   61            1          12
         Interest rate swap                                    100           --          (2)
</TABLE>

NOTE 13 -- PENSION AND POSTRETIREMENT BENEFIT PLANS

PENSION BENEFITS

        Prior to PBG's initial public offering and the formation of Bottling
LLC, our U.S. employees participated in PepsiCo sponsored noncontributory
defined benefit pension plans, which covered substantially all full-time
salaried employees, as well as most hourly employees. In conjunction with the
offering and our formation, we assumed the sponsorship of the PepsiCo plan
covering most hourly employees and established a plan for the salaried employees
mirroring the PepsiCo-sponsored plan. In 2000, the related pension assets will
be transferred from the PepsiCo trust to a separate trust for our pension plans.

        Benefits generally are based on years of service and compensation, or
stated amounts for each year of service. All of our qualified plans are funded
and contributions are made in amounts not less than minimum statutory funding
requirements nor more than the maximum amount that can be deducted for U.S.
income tax purposes. Our net pension expense for the defined benefit pension
plans for our operations outside the U.S. was not significant.

POSTRETIREMENT BENEFITS

        PepsiCo has historically provided postretirement health care benefits to
eligible retired employees and their dependents, principally in the United
States. Employees are eligible for benefits if they meet age and service
requirements and qualify for retirement benefits. The plans are not funded and
since 1993 have included retiree cost sharing. With PBG's initial public
offering and our formation, we have assumed the related obligations from PepsiCo
for our employees, as we are providing benefits similar to those previously
provided by PepsiCo.

<TABLE>
<CAPTION>
                                                                                       PENSION
                                                                              ------------------------
Components of net periodic benefit costs:                                     1999      1998      1997
                                                                              ----      ----      ----
<S>                                                                           <C>       <C>       <C>
         Service cost                                                         $ 30      $ 24      $ 22
         Interest cost                                                          42        37        35
         Expected return on plan assets                                        (49)      (45)      (41)
         Amortization of transition asset                                       --        (2)       (4)
         Amortization of net loss                                                4        --        --
         Amortization of prior service amendments                                5         4         4
                                                                              ----      ----      ----
         Net periodic benefit cost                                              32        18        16
         Settlement loss                                                        --         1        --
                                                                              ----      ----      ----
         Net periodic benefit cost including settlements                      $ 32      $ 19      $ 16
                                                                              ====      ====      ====
</TABLE>

<TABLE>
<CAPTION>
                                                                                   POSTRETIREMENT
                                                                              ------------------------
Components of net periodic benefit costs:                                     1999      1998      1997
                                                                              ----      ----      ----
<S>                                                                           <C>       <C>       <C>
         Service cost                                                         $  4      $  4      $  3
         Interest cost                                                          12        12        15
         Amortization of prior service amendments                               (5)       (5)       (5)
                                                                              ----      ----      ----
         Net periodic benefit cost                                            $ 11      $ 11      $ 13
                                                                              ====      ====      ====
</TABLE>

         We amortize prior service costs on a straight-line basis over the
average remaining service period of employees expected to receive benefits.

<TABLE>
<CAPTION>
                                                                 PENSION                   POSTRETIREMENT
                                                            ----------------              ----------------
Changes in the benefit obligation:                          1999       1998                1999      1998
                                                            -----      -----               -----     -----
<S>                                                         <C>        <C>                 <C>       <C>
         Obligation at beginning of year                    $ 648      $ 545               $ 187     $ 164
         Service cost                                          30         24                   4         4
         Interest cost                                         42         37                  12        12
</TABLE>
<PAGE>   34
<TABLE>
<S>                                                         <C>                <C>                <C>                <C>
         Plan amendments                                        3                  5                 --                 --
         Actuarial (gain)/loss                                (57)                78                 14                 19
         Benefit payments                                     (38)               (36)               (11)               (12)
         Acquisitions and other                                19                 --                 --                 --
         Settlement gain                                       --                 (5)                --                 --
                                                            -----              -----              -----              -----
         Obligation at end of year                          $ 647              $ 648              $ 206              $ 187
                                                            =====              =====              =====              =====
</TABLE>

<TABLE>
<CAPTION>
                                                                       PENSION                          POSTRETIREMENT
                                                               -----------------------              ----------------------
Changes in the fair value of assets:                           1999               1998              1999             1998
                                                               -----              -----              ---             -----
<S>                                                            <C>                <C>                <C>              <C>
         Fair value at beginning of year                       $ 541              $ 602              $--              $--
         Actual return on plan assets                             85                (26)              --               --
         Employer contributions                                   --                  5               11               12
         Benefit payments                                        (38)               (36)             (11)             (12)
         Acquisitions and other                                    9                 --               --               --
         Settlement gain                                          --                 (4)              --               --
                                                               -----              -----              ---             ----
         Fair value at end of year                             $ 597              $ 541              $--              $--
                                                               =====              =====              ===             ====
</TABLE>

         Selected information for the plans with accumulated benefit obligations
in excess of plan assets:

<TABLE>
<CAPTION>
                                                                                       PENSION                 POSTRETIREMENT
                                                                                 ------------------         -------------------
                                                                                 1999          1998          1999          1998
                                                                                 ----          ----          ----          ----
<S>                                                                             <C>           <C>           <C>           <C>
         Projected benefit obligation                                           $ (32)        $(648)        $(206)        $(187)
         Accumulated benefit obligation                                           (12)         (575)         (206)         (187)
         Fair value of plan assets                                                 --           541            --            --
</TABLE>

         Funded status recognized on the Consolidated Balance Sheets:

<TABLE>
<CAPTION>
                                                                            PENSION                     POSTRETIREMENT
                                                                     ---------------------          ----------------------
                                                                     1999            1998            1999            1998
                                                                     -----           -----           -----           -----
<S>                                                                  <C>             <C>             <C>             <C>
         Funded status at end of year                                $ (50)          $(107)          $(206)          $(187)
         Unrecognized prior service cost                                33              34             (17)            (22)
         Unrecognized (gain)/loss                                      (14)             84              35              20
         Unrecognized special termination benefits                      (2)             (2)             --              --
         Employer contributions                                         --              --               3              --
         Unrecognized transition asset                                  --              (1)             --              --
                                                                     -----           -----           -----           -----
         Net amounts recognized                                      $ (33)          $   8           $(185)          $(189)
                                                                     =====           =====           =====           =====
</TABLE>

         The weighted-average assumptions used to compute the above information
are set forth below:

<TABLE>
<CAPTION>
                                                                                                 PENSION
                                                                                ------------------------------------------
                                                                                1999               1998               1997
                                                                                ----               ----               ----
<S>                                                                              <C>                <C>                <C>
         Discount rate for benefit obligation                                     7.8%               6.8%               7.2%
         Expected return on plan assets                                          10.0               10.0               10.0
         Rate of compensation increase                                            4.3                4.8                4.8
</TABLE>

<TABLE>
<CAPTION>
                                                                                               POSTRETIREMENT
                                                                                ------------------------------------------
                                                                                 1999               1998               1997
                                                                                 ----               ----               ----
<S>                                                                              <C>                <C>                <C>
         Discount rate for benefit obligation                                    7.8%               6.9%               7.4%
</TABLE>

COMPONENTS OF PENSION ASSETS

         The pension plan assets are principally invested in stocks and bonds.

HEALTH CARE COST TREND RATES
<PAGE>   35
         We have assumed an average increase of 6.0% in 2000 in the cost of
postretirement medical benefits for employees who retired before cost sharing
was introduced. This average increase is then projected to decline gradually to
5.5% in 2005 and thereafter.

        Assumed health care cost trend rates have a significant effect on the
amounts reported for postretirement medical plans. A one-percentage point change
in assumed health care costs would have the following effects:

<TABLE>
<CAPTION>
                                                                                               1%         1%
                                                                                            INCREASE   DECREASE
                                                                                            --------   --------
<S>                                                                                         <C>        <C>
Effect on total fiscal year 1999 service and interest cost components                          $ 1       $(1)
Effect on fiscal year 1999 accumulated postretirement benefit obligation                         6        (6)
</TABLE>

OTHER EMPLOYEE BENEFIT PLANS

         In the fourth quarter of 1999, we contributed $16 million to a defined
contribution plan as a one-time payment for the benefit of management employees.
The amount was based on full-year 1999 performance and included other
incentive-related features.

         We implemented a matching company contribution to our 401(k) plan to
begin in 2000. The match will be made in PBG stock and the amount will depend
upon the employee's contribution and years of service. We anticipate that the
matching company contribution will cost approximately $12 million in fiscal year
2000.


NOTE 14 -- EMPLOYEE STOCK OPTION PLANS

         In connection with the completion of PBG's initial public offering and
the formation of Bottling LLC, PepsiCo vested substantially all non-vested
PepsiCo stock options held by our employees. As a result, we incurred a $45
million non-cash compensation charge in the second quarter, equal to the
difference between the market price of the PepsiCo capital stock and the
exercise price of these options at the vesting date.

         Also at the time of PBG's initial public offering and our formation,
PBG issued a one-time founders' grant of options to all of our full-time
non-management employees to purchase 100 shares of PBG stock. These options have
an exercise price equal to PBG's initial public offering price of $23 per share,
are exercisable after three years, and expire in 10 years. At December 25, 1999,
approximately 3 million options were outstanding.

         In addition, we have adopted a long-term incentive stock option plan
for middle and senior management employees. PBG issued an option grant to our
middle and senior management employees that varied according to salary and
level. These options' exercise prices range from $19.25 per share to $23 per
share and, with the exception of PBG's chairman's options, are exercisable after
three years and expire in 10 years. PBG's chairman's options are exercisable
ratably over the three years following PBG's initial public offering date. At
December 25, 1999, approximately 8.2 million options were outstanding.

        The following table summarizes option activity during 1999:

<TABLE>
<CAPTION>
                                                                              1999
                                                                     ---------------------------
                                                                               WEIGHTED- AVERAGE
(OPTIONS IN MILLIONS)                                                OPTIONS     EXERCISE PRICE
                                                                     ------    -----------------
<S>                                                                  <C>       <C>
Outstanding at beginning of year                                          --         $   --
     Granted                                                            12.1          22.98
     Exercised                                                            --             --
     Forfeited                                                          (0.9)         23.00
                                                                      ------         ------
Outstanding at end of year                                              11.2         $22.98
                                                                      ======         ======
Exercisable at end of year                                                --         $   --
                                                                      ======         ======
Weighted-average fair value of options granted during the year                       $10.29
                                                                                     ======

</TABLE>
<PAGE>   36
         We adopted the disclosure provisions of Statement of Financial
Accounting Standard 123, "Accounting for Stock-Based Compensation," but continue
to measure stock-based compensation cost in accordance with the Accounting
Principles Board Opinion 25 and its related interpretations. If we had measured
compensation cost for the stock options granted to our employees in 1999 under
the fair value based method prescribed by SFAS 123, net income would have been
changed to the pro forma amounts set forth below:

<TABLE>
<CAPTION>
                                                                  1999
                                                                  ----
<S>                                                               <C>
         Net Income
           Reported                                               $273
           Pro forma                                               244
</TABLE>

         The fair value of PBG stock options used to compute pro forma net
income disclosures was estimated on the date of grant using the Black-Scholes
option-pricing model based on the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                                  1999
                                                                  ----
<S>                                                             <C>
         Risk-free interest rate                                  5.8%
         Expected life                                         7 years
         Expected volatility                                       30%
         Expected dividend yield                                 0.09%
</TABLE>

NOTE 15 -- INCOME TAXES

         We are a limited liability company, taxable as a partnership for U.S.
tax purposes and, as such, generally pays no U.S. federal or state income
taxes. Our federal and state distributable share of income, deductions and
credits are allocated to our owners based on their percentage of
ownership. However, certain domestic and foreign affiliates pay taxes in
their respective jurisdictions. In 1999, we had a current tax expense of $4
million. Our tax benefit for 1998 was $1 million and our 1997 tax expense was
$1 million. These amounts were comprised of current tax expenses of $4 million
and $3 million and deferred tax benefits of $5 million and $2 million in 1998
and 1997, respectively.


                The details of our 1999 and 1998 deferred tax liabilities
(assets) are set forth below:

<TABLE>
<CAPTION>
                                                                        1999          1998
                                                                        -----         -----
<S>                                                                     <C>           <C>
Intangible assets and property, plant and equipment                     $ 191         $ 131
Other                                                                       3            17
                                                                        -----         -----
Gross deferred tax liabilities                                            194           148
                                                                        -----         -----

Foreign net operating loss carryforwards                                 (132)         (123)
Various liabilities and other                                             (26)          (26)
                                                                        -----         -----
Gross deferred tax assets                                                (158)         (149)
Deferred tax asset valuation allowance                                    147           135
                                                                        -----         -----
Net deferred tax assets                                                   (11)          (14)
                                                                        -----         -----

Net deferred tax liability                                              $ 183         $ 134
                                                                        =====         =====

Included in:
Prepaid expenses, deferred income taxes and other current assets        $ (17)        $  --
Deferred income taxes                                                     200           134
                                                                        -----         -----
                                                                        $ 183         $ 134
                                                                        =====         =====
</TABLE>

         We have net operating loss carryforwards totaling $465 million at
December 25, 1999, which are available to reduce future taxes in Spain, Greece
and Russia. Of these carryforwards, $37 million expire in 2000 and $428 million
expire at various times between 2001 and 2006. We have established a full
valuation allowance for these net operating loss carryforwards based upon our
projection that these losses will expire before they can be used.
<PAGE>   37
         Our valuation allowances, which reduce deferred tax assets to an amount
that will more likely than not be realized, have increased by $12 million and
$55 million in 1999 and 1998, respectively.

         Amounts paid to taxing authorities for income taxes were $3 million in
1999. In 1998 and 1997 our allocable share of income taxes was deemed to have
been paid to PepsiCo, in cash, in the period in which the cost was incurred.

NOTE 16 -- GEOGRAPHIC DATA

         We operate in one industry, carbonated soft drinks and other
ready-to-drink beverages. We do business in 41 states and the District of
Columbia in the U.S. Outside the U.S., we do business in eight Canadian
provinces, Spain, Greece and Russia.

<TABLE>
<CAPTION>
                                                                                                  NET REVENUES
                                                                                       ---------------------------------
                                                                                          1999        1998       1997
                                                                                         ------      ------     ------
<S>                                                                                   <C>         <C>        <C>
         U.S                                                                             $6,352      $5,886     $5,584
         Other countries                                                                  1,153       1,155      1,008
                                                                                         ------      ------     ------
                                                                                         $7,505      $7,041     $6,592
                                                                                         ======      ======     ======
</TABLE>

<TABLE>
<CAPTION>
                                                                                                 LONG-LIVED ASSETS
                                                                                        ---------------------------------
                                                                                         1999          1998          1997
                                                                                        ------        ------        ------
<S>                                                                                     <C>           <C>           <C>
         U.S                                                                            $5,398        $5,024        $4,918
         Other countries                                                                   987           980           934
                                                                                        ------        ------        ------
                                                                                        $6,385        $6,004        $5,852
                                                                                        ======        ======        ======
</TABLE>

        We have included in other assets on the Consolidated Balance Sheets $2
million, $1 million and $64 million of investments in joint ventures at December
25, 1999, December 26, 1998 and December 27, 1997, respectively. Our equity loss
in such joint ventures was $0 million, $5 million and $12 million in 1999, 1998
and 1997, respectively, which is included in selling, delivery and
administrative expenses.

NOTE 17 -- RELATIONSHIP WITH PEPSICO

        At the time of PBG's initial public offering, PBG entered into a number
of agreements with PepsiCo. Although we are not a direct party to these
agreements, as the principal operating subsidiary of PBG, we derive direct
benefit from them. Accordingly, set forth below are the most significant
agreements that govern the relationship with PepsiCo:

         (1)      the master bottling agreement for cola beverages bearing the
                  "Pepsi-Cola" and "Pepsi" trademark, including Pepsi, Diet
                  Pepsi and Pepsi ONE in the United States; bottling and
                  distribution agreements for non-cola products in the United
                  States, including Mountain Dew; and a master fountain syrup
                  agreement in the United States;

         (2)      agreements similar to the master bottling agreement and the
                  non-cola agreements for each specific country, including
                  Canada, Spain, Greece and Russia, as well as a fountain syrup
                  agreement similar to the master syrup agreement for Canada;

         (3)      a shared services agreement whereby PepsiCo provides us with
                  certain administrative support, including procurement of raw
                  materials, transaction processing, such as accounts payable
                  and credit and collection, certain tax and treasury services,
                  and information technology maintenance and systems
                  development. Beginning in 1998, a PepsiCo affiliate has
                  provided casualty insurance to us; and

         (4)      transition agreements that provide certain indemnities to the
                  parties, and provide for the allocation of tax and other
                  assets, liabilities and obligations arising from periods prior
                  to the initial public offering. Under our tax separation
                  agreement, PepsiCo maintains full control and absolute
                  discretion for any combined or consolidated tax filings for
                  tax periods ending on or before PBG's initial public offering
                  and our formation.
<PAGE>   38
                  PepsiCo has contractually agreed to act in good faith with
                  respect to all tax audit matters affecting us. In addition,
                  PepsiCo has agreed to use their best efforts to settle all
                  joint interests in any common audit issue on a basis
                  consistent with prior practice.

        We purchase concentrate from PepsiCo that is used in the production of
carbonated soft drinks and other ready-to-drink beverages. We also produce or
distribute other products and purchase finished goods and concentrate through
various arrangements with PepsiCo or PepsiCo joint ventures. We reflect such
purchases in cost of sales.

        We share a business objective with PepsiCo of increasing the
availability and consumption of Pepsi-Cola beverages. Accordingly, PepsiCo
provides us with various forms of marketing support to promote its beverages.
This support covers a variety of initiatives, including marketplace support,
marketing programs, capital equipment investment and shared media expense. Based
on the objective of the programs and initiatives, we record marketing support as
an adjustment to net revenues or as a reduction of selling, delivery and
administrative expense.

        We manufacture and distribute fountain products and provide fountain
equipment service to PepsiCo customers in some territories in accordance with
the Pepsi beverage agreements. We pay a royalty fee to PepsiCo for the AQUAFINA
trademark.

        The Consolidated Statements of Operations include the following income
(expense) amounts as a result of transactions with PepsiCo and its affiliates:

<TABLE>
<CAPTION>
                                                                                   1999            1998            1997
                                                                                   ----            ----            ----
<S>                                                                                <C>             <C>             <C>
         Net revenue                                                             $   236         $   228         $   216
         Cost of sales                                                            (1,488)         (1,396)         (1,235)
         Selling, delivery and administrative expenses                               285             260             254
</TABLE>

         We are not required to make any minimum fees or payments to PepsiCo,
nor are we obligated to PepsiCo under any minimum purchase requirements. There
are no conditions or requirements that could result in the repayment of any
marketing support payments received by us from PepsiCo.

         Net amounts payable to PepsiCo and its affiliates were $5 million and
$23 million at December 25, 1999 and December 26, 1998, respectively. Such
amounts are recorded within accounts payable and other current liabilities in
our Consolidated Balance Sheets.

NOTE 18 -- CONTINGENCIES

         We are subject to various claims and contingencies related to lawsuits,
taxes, environmental and other matters arising out of the normal course of
business. We believe that the ultimate liability arising from such claims or
contingencies, if any, in excess of amounts already recognized is not likely to
have a material adverse effect on our results of operations, financial condition
or liquidity.

NOTE 19 -- ACQUISITIONS

         During 1999 and 1998, we acquired the exclusive right to manufacture,
sell and distribute Pepsi-Cola beverages from several independent PepsiCo
franchise bottlers. These acquisitions were accounted for by the purchase
method. During 1999, the following acquisitions occurred for an aggregate
purchase price of $185 million in cash and assumed debt:

-        Jeff Bottling Company, Inc. of New York in January.

-        Pepsi-Cola General Bottlers of Princeton, Inc. and Pepsi-Cola General
         Bottlers of Virginia, Inc. of West Virginia and Virginia in March.

-        Pepsi-Cola General Bottlers of St. Petersburg, Russia in March.

-        Leader Beverage Corporation of Connecticut in April.

-        Guillemette & Frere, Ltee. of Quebec, Canada in September.

-        The Pepsi-Cola Bottling Company of Bainbridge, Inc. of Georgia in
         December.
<PAGE>   39
        During 1998, the following acquisitions occurred for an aggregate cash
purchase price of $546 million:

-        The remaining 75% interest in our Russian bottling joint venture, Pepsi
         International Bottlers, LLC in February.

-        Gray Beverages, Inc. of Alberta and British Columbia, Canada in May.

-        Pepsi-Cola Allied Bottlers, Inc. of New York and Connecticut in
         November.

         The 1999 and 1998 aggregate purchase price exceeded the fair value of
net assets acquired, by approximately $174 million and $474 million,
respectively. The excess was recorded in intangible assets.

         The following table presents our unaudited pro forma consolidated
results and the acquisitions noted above as if they had occurred at the
beginning of the year in which they were acquired. The pro forma information
does not necessarily represent what the actual results would have been for these
periods and is not intended to be indicative of future results.

<TABLE>
<CAPTION>
                                                                                     Unaudited
                                                                                     ---------
                                                                                 1999           1998
                                                                                 ----           ----
<S>                                                                             <C>            <C>
         Pro forma net revenues                                                 $ 7,522        $ 7,248
                                                                                =======        =======

         Pro forma net income (loss)                                            $   272        $  (120)
                                                                                =======        =======
</TABLE>

NOTE 20 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                FIRST          SECOND              THIRD           FOURTH
         1999                                  QUARTER         QUARTER            QUARTER          QUARTER            FULL YEAR
         ----                                  -------         -------            -------          -------            ---------
<S>                                            <C>             <C>                <C>             <C>                 <C>
         Net revenues                          $1,452          $1,831             $2,036            $2,186              $7,505
         Gross profit                             617             785                874               933               3,209
         Operating income                          42              92(1)             205                73(2)              412
         Net income                                12              55                171                35                 273
</TABLE>

<TABLE>
<CAPTION>
                                                FIRST          SECOND              THIRD           FOURTH
         1998                                  QUARTER         QUARTER            QUARTER          QUARTER            FULL YEAR
         ----                                  -------         -------            -------           -------           ---------
<S>                                            <C>            <C>               <C>                <C>                <C>
         Net revenues                         $ 1,340         $ 1,686            $ 1,963           $ 2,052             $ 7,041
         Gross profit                             563             696                794               807               2,860
         Operating income (loss)                   39             103                156              (243)(3)              55
         Net income (loss)                          2              63                109              (305)               (131)
</TABLE>


(1)      Includes a $45 million non-cash compensation charge.

(2)      Includes $61 million of income for vacation policy changes and
         restructuring accrual reversal.

(3)      Includes $222 million for asset impairment and restructuring costs.


The first, second and third quarters of each year consist of 12 weeks, while the
fourth quarter consists of 16 weeks. See Note 4 of the Consolidated Financial
Statements for further information regarding unusual impairment and other
charges and credits included in the table above.

<PAGE>   40

                        REPORT OF INDEPENDENT AUDITORS

Owners of
Bottling Group, LLC

     We have audited the accompanying Consolidated Balance Sheets of Bottling
Group, LLC as of December 25, 1999 and December 26, 1998 and the related
Consolidated Statements of Operations, Cash Flows and Changes in Owners' Equity
for each of the fiscal years in the three-year period ended December 25, 1999.
These Consolidated Financial Statements are the responsibility of management of
Bottling Group, LLC. Our responsibility is to express an opinion on these
Consolidated Financial Statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the Consolidated Financial Statements referred to above
present fairly, in all material respects, the financial position of Bottling
Group, LLC as of December 25, 1999 and December 26, 1998, and the results of its
operations and its cash flows for each of the fiscal years in the three-year
period ended December 25, 1999, in conformity with generally accepted accounting
principles.



 /s/ KPMG LLP

New York, New York
January 25, 2000







ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 10. MANAGING DIRECTORS AND EXECUTIVE OFFICERS OF BOTTLING LLC

         The name, age and background of each of the Bottling LLC's Managing
Directors is set forth below:

JOHN T. CAHILL.  See Item 4, above.
<PAGE>   41
PAMELA C. MCGUIRE, 52, is a Managing Director of Bottling LLC. She is also the
Senior Vice President, General Counsel and Secretary of PBG. She was the Vice
President and Division Counsel of the Pepsi-Cola Company from 1989 to March
1998, at which time she was named its Vice President and Associate General
Counsel. Ms. McGuire joined PepsiCo in 1977 and held several other positions in
its legal department through 1989.

MATTHEW M. MCKENNA, 49, is a Managing Director of Bottling LLC. He is also the
Senior Vice President and Treasurer of PepsiCo. Prior to becoming Senior Vice
President and Treasurer, he served as PepsiCo's Senior Vice President, Taxes.
Prior to joining PepsiCo in 1993 as Vice President, Taxes, he was a partner with
the law firm of Winthrop, Stimson, Putnam & Roberts in New York.

         Pursuant to Item 401(b) of Regulation S-K, the executive officers of
Bottling LLC are reported in Part I of this Report. Executive officers are
elected by the Managing Directors of Bottling LLC, and their terms of office
continue until their successors are appointed and qualified or until their
earlier resignation or removal. There are no family relationships among our
executive officers. Managing Directors are elected by a majority of owners of
Bottling LLC and their terms of office continue until their successors are
appointed and qualified or until their earlier resignation or removal,
resignation, death or disability.



<PAGE>   42
ITEM 11. EXECUTIVE COMPENSATION

         Summary of Cash and Certain Other Compensation. The following table
provides information on compensation earned and stock options awarded for the
years indicated by PBG to Bottling LLC's Chief Executive Officer and the two
other executive officers of Bottling LLC as of the end of the 1999 fiscal year
in accordance with the rules of the Securities and Exchange Commission. These
three individuals are referred to as the named executive officers. Amounts shown
include compensation paid or awarded to the named executive officers for periods
prior to the initial public offering.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                               LONG-TERM COMPENSATION
                                                     ANNUAL COMPENSATION                               AWARDS
                                     ---------------------------------------------------   -----------------------------
                                                                                            SECURITIES
                                                                                              UNDER-
                                                                            OTHER ANNUAL       LYING         ALL OTHER
NAME AND PRINCIPAL                                                          COMPENSATION      OPTIONS      COMPENSATION
POSITION                             YEAR     SALARY ($)      BONUS ($)         ($)            (#)(1)           ($)
------------------                   ----     ----------    ------------    ------------   ------------    -------------
<S>                                  <C>      <C>           <C>             <C>            <C>             <C>
Craig E. Weatherup                   1999     $  800,000     $1,200,000      $168,143(2)    1,086,957      $   12,411(3)
Principal Executive Officer          1998        792,307        844,000       131,182         156,486          11,698

John T. Cahill                       1999        468,077        531,250         7,608         264,130       1,000,000(4)
Principal Financial Officer          1998        357,577        237,500         7,065          51,490              --
and Managing Director

Peter A. Bridgman                    1999        241,000        206,250         5,831          97,826         500,000(4)
Principal Accounting Officer         1998        211,846         83,570         5,830          25,058              --
</TABLE>


(1) Represents "Founders' Grant" stock options awarded March 30, 1999 and
PepsiCo stock options awarded in 1998.

(2) This amount includes, but is not limited to, benefits from the use of
corporate transportation and reimbursement for appropriate tax-related expenses.

(3) This amount includes $11,526 in preferential earnings on income deferred by
Mr. Weatherup. In order to earn a preferential return, Mr. Weatherup elected a
risk feature under which, if he terminated his employment, he would forfeit all
his deferred income. In addition, this amount includes $885, which reflects a
portion of the annual cost of a life insurance policy on the life of Mr.
Weatherup paid for by PBG. If Mr. Weatherup dies while employed by the Company,
the Company is reimbursed for its payments from the proceeds of the policy.

(4) This amount reflects a one-time supplemental executive incentive
compensation award (under the Executive Incentive Compensation Plan) to
recognize key managers for superior business results, to ensure management
continuity and a smooth transition as a public company. The cash amount was paid
into a defined contribution trust by the Company and invested in PBG Common
Stock to strengthen the link between compensation and value creation for PBG
shareholders. Generally, in order for the executive officer to receive payment
of the award, he or she must remain employed by



<PAGE>   43
the Company through the vesting date of March 30, 2003. Mr. Weatherup did not
receive this supplemental award.



<PAGE>   44
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         PBG holds 92.9% and PepsiCo indirectly holds 7.1% of the ownership in
Bottling LLC.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Although Bottling LLC is not a direct party to the following
transactions, as the principal operating subsidiary of PBG, it derives certain
benefits from them. Accordingly, set forth below is information relating to
certain transactions between PBG and PepsiCo.

         STOCK OWNERSHIP AND DIRECTOR RELATIONSHIPS WITH PEPSICO. PBG was
initially incorporated in January 1999 as a wholly owned subsidiary of PepsiCo
to effect the separation of most of PepsiCo's company-owned bottling businesses.
PBG became a publicly traded company on March 31, 1999. At February 22, 2000,
PepsiCo's ownership represented 36.9% of the outstanding common stock and 100%
of the outstanding Class B common stock together representing 45% of the voting
power of all classes of PBG's voting stock. PepsiCo also owns 7.1% of the equity
of Bottling Group, LLC, PBG's principal operating subsidiary, giving PepsiCo
economic ownership of 41.4% of PBG's combined operations. In addition, two
directors of PBG, Robert F. Sharpe, Jr. and Karl M. von der Heyden, are
executive officers of PepsiCo.

         AGREEMENTS AND TRANSACTIONS WITH PEPSICO AND AFFILIATES. PBG and
PepsiCo (and certain of its affiliates) have entered into transactions and
agreements with one another, incident to their respective businesses, and PBG
and PepsiCo are expected to enter into material transactions and agreements from
time to time in the future. The term PBG as used in this section includes PBG
and its subsidiaries.

         Material agreements and transactions between PBG and PepsiCo (and
certain of its affiliates) during 1999 are described below.

         Beverage Agreements and Purchases of Concentrates and Finished
Products. We purchase concentrate from PepsiCo and manufacture, package,
distribute and sell carbonated and non-carbonated beverages under license
agreements with PepsiCo. These agreements give PBG the right to manufacture,
sell and distribute beverage products of PepsiCo in both bottles and cans and
fountain syrup in specified territories. The agreements also provide PepsiCo
with the ability to set prices of such concentrates, as well as the terms of
payment and other terms and conditions under which PBG purchases such
concentrates. In addition, PBG bottles water under the Aquafina trademark
pursuant to an agreement with PepsiCo, which provides for the payment of a
royalty fee to PepsiCo. In certain instances, PBG purchases finished beverage
products from PepsiCo.

         During 1999, total payments by PBG to PepsiCo for concentrates,
royalties and finished beverage products were approximately $1.4 billion.

         PBG Manufacturing Services. PBG provides manufacturing services to
PepsiCo in connection with the production of certain finished beverage products.
In 1999, amounts paid or payable by PepsiCo to PBG for these services were
approximately $25.5 million.

         Purchase of Finished Product from Joint Ventures. PBG purchases tea,
concentrate and finished beverage products from the Pepsi/Lipton Tea
Partnership, a joint venture of Pepsi-Cola North America, a division of PepsiCo,
and Lipton (the "Partnership"). During 1999, total amounts paid or payable to
PepsiCo for the benefit of the Partnership were approximately $114.5 million. In
addition,



<PAGE>   45
PBG provides certain manufacturing services in connection with the hot-filled
tea products of the Partnership to PepsiCo for the benefit of the Partnership.
In 1999, amounts paid or payable by PepsiCo to PBG for these services were
approximately $12.6 million.

         PBG purchases finished beverage products from the North American Coffee
Partnership, a joint venture of Pepsi-Cola North America and Starbucks. During
1999, amounts paid or payable to the Pepsi/Starbucks Coffee Partnership by PBG
were approximately $81.8 million.

         Purchase of Snack Food Products from Frito-Lay, Inc. PBG purchases
snack food products from Frito-Lay, Inc., a subsidiary of PepsiCo, for the sale
and distribution through all of Russia except for Moscow. In 1999, amounts paid
or payable by PBG to Frito-Lay, Inc. were approximately $3.6 million.

         Shared Services. PepsiCo provides various services to PBG pursuant to a
shared services agreement, including procurement of raw materials, processing of
accounts payable and credit and collection, certain tax and treasury services
and information technology maintenance and systems development. During 1999,
amounts paid or payable to PepsiCo for shared services totaled approximately
$112.7 million.

         Pursuant to the shared services agreement PBG provides certain employee
benefit services to PepsiCo. During 1999, payments to PBG from PepsiCo for these
services totaled approximately $182,000.

         Insurance Services. Hillbrook Insurance Company, Inc., a subsidiary of
PepsiCo, provides insurance and risk management services to PBG pursuant to a
contractual arrangement. Costs associated with such services in 1999 totaled
approximately $58.3 million.

         National Accounts Services. PBG provides certain manufacturing,
delivery and equipment maintenance services to PepsiCo's national account
customers. In 1999, net amounts paid or payable by PepsiCo to PBG for these
services were approximately $188.2 million.

         Marketing and Other Support Arrangements. PepsiCo provides PBG with
various forms of marketing support. The level of this support is negotiated
annually and can be increased or decreased at the discretion of PepsiCo. This
marketing support is intended to cover a variety of programs and initiatives,
including direct marketplace support (including point-of-sale materials),
capital equipment funding and shared media and advertising support. For 1999,
total direct marketing support funding paid or payable to PBG by PepsiCo
approximated $521.8 million.

         Transactions with Bottlers in which PepsiCo holds an Equity Interest.
PBG and Whitman Corporation, a bottler in which PepsiCo owns an equity interest,
and PBG and Pepsi Bottling Ventures LLC, a bottler in which PepsiCo owns an
equity interest, bought from and sold to each other finished beverage products.
These transactions occurred in instances where the proximity of one party's
production facilities to the other party's markets or lack of manufacturing
capability, as well as other economic considerations, made it more efficient or
desirable for one bottler to buy finished product from another. In 1999, PBG's
sales to those bottlers totaled approximately $35.3 million and purchases were
approximately $7.0 million.

         PBG provides certain administrative support services to Whitman
Corporation and Pepsi Bottling Ventures LLC. In 1999, amounts paid or payable by
Whitman Corporation and Pepsi Bottling Ventures LLC to PBG for these services
were approximately $1.6 million.



<PAGE>   46
         Relationships and Transactions with Management and Others. Linda G.
Alvarado, a member of PBG's Board of Directors, together with her husband and
children, own and operate Taco Bell and Pizza Hut restaurant companies that
purchase beverage products from PBG. In 1999, the total amount of these
purchases was approximately $360,000.

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

         (a) 1. Financial Statements. The following consolidated financial
statements of Bottling LLC and its subsidiaries are incorporated by reference
into Part II, Item 8 of this report:

         Consolidated Statements of Operations - Fiscal years ended December 25,
         1999, December 26, 1998 and December 27, 1997.

         Consolidated Statements of Cash Flows - Fiscal years ended December 25,
         1999, December 26, 1998 and December 27, 1997.

         Consolidated Balance Sheets - December 25, 1999 and December 26, 1998.

         Consolidated Statements of Changes in Owners' Equity - Fiscal years
         ended December 25, 1999, December 26, 1998 and December 27, 1997.

         Notes to Consolidated Financial Statements.

         Report of Independent Auditors.

             2. Financial Statement Schedule. The following financial statement
schedule of Bottling LLC and its subsidiaries is included in this report on the
page indicated:

                                                                            Page

Report of Independent Auditors........................................       F-2

Schedule II - Valuation and Qualifying Accounts for the fiscal years
              ended December 25, 1999, December 26, 1998 and December
              27, 1997.................................................      F-3

             3. Exhibits

                    See Index to Exhibits on pages E-1 - E-2.

         (b) Reports on Form 8-K

                None.



<PAGE>   47
                                   SIGNATURES

         Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934 Bottling Group, LLC has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


Dated:  March 21, 2000



                                         Bottling Group, LLC


                                    By:  /s/ Craig E. Weatherup
                                         Craig E. Weatherup
                                         Principal Executive Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Bottling
Group, LLC and in the capacities and on the date indicated.


<TABLE>
<CAPTION>
SIGNATURE                    TITLE                                DATE
<S>                          <C>                                  <C>
/s/ Craig E. Weatherup       Principal Executive Officer          March 21, 2000
Craig E. Weatherup

/s/ John T. Cahill           Principal Financial Officer and      March 21, 2000
John T. Cahill               Managing Director

/s/ Peter A. Bridgman        Principal Accounting Officer         March 21, 2000
Peter A. Bridgman

/s/ Pamela C. McGuire        Managing Director                    March 21, 2000
Pamela C. McGuire

/s/ Matthew M. McKenna       Managing Director                    March 21, 2000
Matthew M. McKenna
</TABLE>


                                      S-1
<PAGE>   48
                      INDEX TO FINANCIAL STATEMENT SCHEDULE

                                                                           PAGE
                                                                           ----

Report of Independent Auditors.........................................     F-2
Schedule II - Valuation and Qualifying Accounts for the fiscal years
     ended December 25, 1999, December 26, 1998 and December 27, 1997..     F-3


                                      F-1
<PAGE>   49


                        REPORT OF INDEPENDENT AUDITORS


Owners of
Bottling Group, LLC:

Under date of January 25, 2000 we reported on the Consolidated Balance
Sheets of Bottling Group, LLC, as of December 25, 1999 and December 26, 1998 and
the related Consolidated Statements of Operations, Cash Flows and Changes in
Owners' Equity for each of the fiscal years in the three-year period ended
December 25, 1999, which are included in the Bottling Group, LLC Annual Report
on Form 10-K. In connection with our audits of the aforementioned Consolidated
Financial Statements, we also audited the related financial statement schedule
included in the Bottling Group, LLC Annual Report on Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic Consolidated Financial Statements taken as a whole, presents fairly
in all material respects the information set forth therein.




/S/KPMG LLP


New York, New York
January 25, 2000











                                      F-2
<PAGE>   50
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                               BOTTLING GROUP, LLC
                                   IN MILLIONS



<TABLE>
<CAPTION>
                                                               ADDITIONS
                                                   ---------------------------------
                                    Balance At     Charged To Cost      Charged To
                                    Beginning            and              Other                            Balance At
            DESCRIPTION             Of Period          Expenses          Accounts(a)     Deductions(b)     End of Period
            -----------             ---------      ---------------      ------------     -------------     -------------
<S>                                 <C>            <C>                  <C>            <C>                <C>
FISCAL YEAR ENDED

DECEMBER 25, 1999
    Allowance for losses on
      trade accounts
      receivable                       $46               $ 6               $ 3              $ 7                $48

DECEMBER 26, 1998
    Allowance for losses on
      trade accounts
      receivable                       $45               $13               $--              $12                $46

DECEMBER 27, 1997
    Allowance for losses on
      trade accounts
      receivable                       $65               $ 6               $ 2              $28                $45
</TABLE>

----------
(a) Represents recoveries of amounts previously written off.

(b) Charge off of uncollectable accounts.


                                       F-3
<PAGE>   51
                               INDEX TO EXHIBITS
                                  ITEM 14(a)(3)

EXHIBIT

3.1               Articles of Formation of Bottling LLC which is incorporated
                  herein by reference from Exhibit 3.4 to Bottling LLC's
                  Registration Statement on Form S-4 (Registration No.
                  333-80361)

3.2               Amended and Restated Limited Liability Agreement of Bottling
                  LLC which is incorporated herein by reference from Exhibit 3.5
                  to Bottling LLC's Registration Statement on Form S-4
                  (Registration No. 333-80361)

4.1               Indenture dated as of February 8, 1999 among Pepsi Bottling
                  Holdings, Inc., PepsiCo, Inc. and The Chase Manhattan Bank, as
                  trustee, relating to $1,000,000,000 5 3/8% Senior Notes due
                  2004 and $1,300,000,000 5 5/8% Senior Notes due 2009
                  incorporated herein by reference to Exhibit 10.9 to PBG's
                  Registration Statement on Form S-1 (Registration No.
                  333-70291).

4.2               First Supplemental Indenture dated as of February 8, 1999
                  among Pepsi Bottling Holdings, Inc., Bottling Group, LLC,
                  PepsiCo, Inc. and The Chase Manhattan Bank, as trustee,
                  supplementing the Indenture dated as of February 8, 1999 among
                  Pepsi Bottling Holdings, Inc., PepsiCo, Inc. and The Chase
                  Manhattan Bank, as trustee is incorporated herein by reference
                  to Exhibit 10.10 to PBG's Registration Statement on Form S-1
                  (Registration No. 333-70291).

4.3               Indenture, dated as of March 8, 1999, by and among The Pepsi
                  Bottling Group, Inc., as obligor, Bottling Group, LLC, as
                  guarantor, and The Chase Manhattan Bank, as trustee, relating
                  to $1,000,000,000 7% Series B Senior Notes due 2029 which is
                  incorporated herein by reference to Exhibit 10.14 to PBG's
                  Registration Statement on Form S-1 (Registration No.
                  333-70291).

4.4               U.S. $250,000,000 364 Day Credit Agreement, dated as of April
                  22, 1999 among Pepsi Bottling Group, Inc., Bottling Group,
                  LLC, The Chase Manhattan Bank, Bank of America National Trust
                  and Savings Association, , Citibank, N.A., Credit Suisse First
                  Boston, UBS AG, Lehman Commercial Paper Inc., Royal Bank of
                  Canada, Banco Bilbao Vizcaya, Deutsche Bank AG New York Branch
                  and/or Cayman Islands Branch, Fleet National Bank, Hong Kong &
                  Shanghai Banking Corp., The Bank of New York, The Northern
                  Trust Company, The Chase Manhattan Bank, as Agent, Chase
                  Securities Inc. as Arranger and Nationsbanc Montgomery
                  Securities LLC and Solomon Smith Barney Inc. as Co-Syndication
                  Agents which is incorporated herein by reference from Exhibit
                  4.5 to PBG's Annual Report on Form 10-K for the fiscal year
                  ended December 25, 1999.




                                       E-1
<PAGE>   52
4.5               U.S. $250,000,000 5 Year Credit Agreement, dated as of April
                  22, 1999 among The Pepsi Bottling Group, Inc., Bottling Group,
                  LLC, The Chase Manhattan Bank, Bank of America National Trust
                  and Savings Association, , Citibank, N.A., Credit Suisse First
                  Boston, UBS AG, Lehman Commercial Paper Inc., Royal Bank of
                  Canada, Banco Bilbao Vizcaya, Deutsche Bank AG New York Branch
                  and/or Cayman Islands Branch, Fleet National Bank, Hong Kong &
                  Shanghai Banking Corp., The Bank of New York, The Northern
                  Trust Company, The Chase Manhattan Bank, as Agent, Chase
                  Securities Inc. as Arranger and Nationsbanc Montgomery
                  Securities LLC and Solomon Smith Barney Inc. as Co-Syndication
                  Agents which is incorporated herein by reference from Exhibit
                  4.6 to PBG's Annual Report on Form 10-K for the fiscal year
                  ended December 25, 1999.

21                Subsidiaries of Bottling LLC.

27                Financial Data Schedule for Bottling Group, LLC for the
                  fiscal year ended December 25, 1999.


                                      E-2