##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Fiscal Year Ended December 30, 2006
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 (No Fee Required)
 For
the transition period from

to
 Commission file number 1-14893
 The Pepsi Bottling Group, Inc.
  Incorporated in Delaware
    
    13-4038356(State or other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification No.)One Pepsi WaySomers, New York
    
    10589(Address of Principal Executive Offices)
    
    (Zip code)
 (914) 767-6000
 
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    
    
    Name of Each Exchange
on Which RegisteredCommon Stock, par value $.01 per share

    
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act: None
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities
Act.  Yes þ No o
 Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.  Yes o No þ
 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 þ No o
 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 . þ
 Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
 Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
 The number of shares of Capital Stock of The Pepsi Bottling Group, Inc. outstanding as of
February 15, 2007 was 226,665,468. The aggregate market value of The Pepsi Bottling Group,
Inc. Capital Stock held by non-affiliates of The Pepsi Bottling Group, Inc. as of June 17, 2006 was
$4,430,692,479.
 Documents of Which Portions 
Are Incorporated by Reference
    
    
    
    Parts of Form 10-K into Which Portion of
Documents Are IncorporatedProxy Statement for The Pepsi Bottling Group, Inc.

    
    
    IIIMay 23, 2007 Annual Meeting of Shareholders




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##### 



TABLE OF CONTENTS
 PART IItem 1.     BusinessItem 1A.  Risk FactorsItem 1B.  Unresolved Staff CommentsItem 2.     PropertiesItem 3.     Legal ProceedingsItem 4.     Submission of Matters to a Vote of Security HoldersPART IIItem 5.     Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6.     Selected Financial DataItem 7.     Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A.  Quantitative and Qualitative Disclosures About Market RiskItem 8.     Financial Statements and Supplementary DataItem 9.     Changes in and Disagreements With Accountants on Accounting and Financial DisclosureItem 9A.  Controls and ProceduresItem 9B.   Other InformationPART IIIItem 10.     Directors, Executive Officers and Corporate GovernanceItem 11.     Executive CompensationItem 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13.     Certain Relationships and Related Transactions, and Director IndependenceItem 14.     Principal Accountant Fees and ServicesPART IVItem 15.     Exhibits and Financial Statement SchedulesSIGNATURESINDEX TO FINANCIAL STATEMENT SCHEDULESINDEX TO EXHIBITSEX-10.29: COMMITMENT INCREASE NOTICEEX-10.31: AMENDED AND RESTATED PBG PENSION EQUALIZATION PLANEX-12: STATEMENT RE COMPUTATION OF RATIOSEX-21: SUBSIDIARIES OF PBGEX-23.1: REPORT AND CONSENT OF KPMG LLPEX-23.2: CONSENT OF DELOITTE & TOUCHE LLPEX-24: POWER OF ATTORNEYEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATIONEX-99.1: BOTTLING GROUP, LLC'S ANNUAL REPORT ON FORM 10-K




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PART I
 
 Item 1. Business
 Introduction
    Principal Products
 mr
   United States & Canada
 Pepsi

    AMP
    
    Trademark Dr PepperDiet Pepsi

    Mountain Dew Code Red
    
    LiptonWild Cherry Pepsi

    Sierra Mist
    
    SoBePepsi Lime

    Sierra Mist Free
    
    SoBe No FearJazz
by Diet Pepsi

    Aquafina
    
    Starbucks Frappuccino®Pepsi ONE

    Tropicana Twister Soda
    
    DoleMountain Dew

    Tropicana juice drinksDiet Mountain Dew

    Mug Root Beer
 1




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Europe
 Pepsi
    
    Tropicana
    
    FrukoPepsi Light
    
    Aqua Minerale
    
    YedigunPepsi Max
    
    Mirinda
    
    Tamek7UP
    
    IVI
    
    LiptonKAS
    
    Fiesta
 Mexico
 Pepsi
    
    Mirinda
    
    Aguas FrescasPepsi Light
    
    Manzanita Sol
    
    Electropura7UP
    
    Squirt
    
    e-puramrKAS
    
    Garci Crespo
    
    Jarritos
  Raw Materials and Other Supplies
   Franchise Agreements
   Terms of the Master Bottling Agreement.
 2




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(1)
    
    maintain such plant and equipment, staff, and distribution facilities and
vending equipment 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 push vigorously the sale of cola
beverages in our territories; and(6)
    
    maintain such financial capacity as may be reasonably necessary to assure
performance under the Master Bottling Agreement by us.
        3




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(1)
    
    our insolvency, bankruptcy, dissolution, receivership or the like;(2)
    
    any disposition of any voting securities of one of our bottling subsidiaries or
substantially all of our bottling assets without the consent of PepsiCo;(3)
    
    our 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.
    Terms of the Non-Cola Bottling Agreements.
 Terms of Certain Distribution Agreements.
 Terms of the Master Syrup Agreement.
  4




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Terms of Other U.S. Bottling Agreements. ®
 Terms of the Country-Specific Bottling Agreements.
 Seasonality
  Competition
   Governmental Regulation Applicable to PBG
  5




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Bottle and Can Legislation
       Soft Drink Excise Tax Legislation
    Trade Regulation
  6




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School Sales Legislation; Industry Guidelines
  California Carcinogen and Reproductive Toxin Legislation
  Mexican Water Regulation
  Employees
  Available Information
 www.pbg.com
 www.pbg.com
 Financial Information on Industry Segments and Geographic Areas
  7




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Item 1A.
Risk Factors
  We may not be able to respond successfully to consumer trends related to carbonated and non-carbonated beverages.
  We may not be able to respond successfully to the demands of our largest customers.
  We may not be able to compete successfully within the highly competitive carbonated and non-carbonated beverage markets.
  Because we depend upon PepsiCo to provide us with concentrate, certain funding and various
services, changes in our relationship with PepsiCo could adversely affect our business and
financial results.
    Our business requires a significant supply of raw materials and energy, the limited availability or
increased costs of which could adversely affect our business and financial results.
  8




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PepsiCos equity ownership of PBG could affect matters concerning us.
  We may have potential conflicts of interest with PepsiCo, which could result in PepsiCos
objectives being favored over our objectives.
    Our acquisition strategy may be limited by our ability to successfully integrate acquired
businesses into ours or our failure to realize our expected return on acquired businesses.
  Our success depends on key members of our management, the loss of whom could disrupt our business
operations.
  If we are unable to fund our substantial capital requirements, it could cause us to reduce our
planned capital expenditures and could result in a material adverse effect on our business and
financial results.
  Our substantial indebtedness could adversely affect our financial health.
  Our foreign operations are subject to social, political and economic risks and may be adversely
affected by foreign currency fluctuations.
  9




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If we are unable to maintain brand image and product quality, or if we encounter other product
issues such as product recalls, our business may suffer.
  Newly adopted governmental regulations could increase our costs or liabilities or impact the sale
of our products.
  Adverse weather conditions could reduce the demand for our products.
  Catastrophic events in the markets in which we operate could have a material adverse effect on our
financial condition.
  
 Item 1B.
Unresolved Staff Comments
  
 Item 2. Properties
  United States& Canada
    
    Europe
    
    MexicoManufacturing FacilitiesOwned
    
    
    50
    
    
    
    14
    
    
    
    28Leased
    
    
    3
    
    
    
    1
    
    
    
    3Joint venture operated
    
    
    4
    
    
    
    
    
    
    
    Total
    
    
    57
    
    
    
    15
    
    
    
    31Distribution FacilitiesOwned
    
    
    241
    
    
    
    12
    
    
    
    90Leased
    
    
    57
    
    
    
    53
    
    
    
    93Total
    
    
    298
    
    
    
    65
    
    
    
    183
  10




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Item 3. Legal Proceedings
     
 Item 4. Submission of Matters to a Vote of Security Holders
  Executive Officers of the Registrant
   John T. Cahill ,
 Eric J. Foss
 11




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Alfred
H. Drewes
 Robert C. King
 Pablo Lagos
 Yiannis Petrides
 Steven
M. Rapp
 12




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  2006
    
    
    High
    
    LowFirst Quarter
    
    
    $
    31.00
    
    
    $
    27.99Second Quarter
    
    
    $
    32.68
    
    
    $
    30.30Third Quarter
    
    
    $
    35.23
    
    
    $
    30.81Fourth Quarter
    
    
    $
    35.83
    
    
    $
    30.592005
    
    
    High
    
    LowFirst Quarter
    
    
    $
    29.13
    
    
    $
    26.00Second Quarter
    
    
    $
    30.04
    
    
    $
    26.95Third Quarter
    
    
    $
    30.20
    
    
    $
    27.77Fourth Quarter
    
    
    $
    30.35
    
    
    $
    26.66
 Shareholders
  Dividend Policy
   Quarter
    
    
    2006
    
    20051
    
    
    $
    .08
    
    
    $
    .052
    
    
    $
    .11
    
    
    $
    .083
    
    
    $
    .11
    
    
    $
    .084
    
    
    $
    .11
    
    
    $
    .08Total
    
    
    $
    .41
    
    
    $
    .29
 13




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Performance Graph
  
 Year-ended2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006PBG*
    
    
    100
    
    
    
    107
    
    
    
    100
    
    
    
    114
    
    
    
    123
    
    
    
    134Bottling Group Index
    
    
    100
    
    
    
    106
    
    
    
    121
    
    
    
    133
    
    
    
    135
    
    
    
    154Standard & Poors 500 Index
    
    
    100
    
    
    
    77
    
    
    
    98
    
    
    
    110
    
    
    
    115
    
    
    
    134
 
 *
    
    The closing price for a share of our common stock on December 29, 2006, that last
trading day of our fiscal year, was $30.91. 14




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PBG Purchases of Equity Securities
  Total Number of Shares
    
    Maximum Number (or(or Units) Purchased as
    
    Approximate Dollar Value) ofTotal Number of
    
    
    
    
    
    Part of Publicly
    
    Shares (or Units) that May YetShares (or Units)
    
    Average Price Paid per
    
    Announced
    
    Be Purchased UnderPeriod
    
    
    Purchased(1)
    
    Share (or Unit)(2)
    
    Plans or Programs(3)
    
    the Plans or Programs(3)Period 1009/10/06-10/07/06
    
    
    
    615,000
    
    
    $
    34.47
    
    
    
    615,000
    
    
    
    13,384,700Period 1110/08/06-11/04/06
    
    
    
    1,970,000
    
    
    $
    32.15
    
    
    
    1,970,000
    
    
    
    11,414,700Period 1211/05/06-12/02/06
    
    
    
    2,316,700
    
    
    $
    31.98
    
    
    
    2,316,700
    
    
    
    9,098,000Period 1312/03/06-12/30/06
    
    
    
    2,699,800
    
    
    $
    31.63
    
    
    
    2,699,800
    
    
    
    31,398,200Total
    
    
    
    7,601,500
    
    
    $
    32.10
    
    
    
    7,601,500
 
 1
    
    Shares have only been repurchased through publicly announced programs.2
    
    Average share price excludes brokerage fees.3
    
    Our Board has authorized the repurchase of shares of our common stock on the
open market and through negotiated transactions as follows: Number of SharesAuthorized to beDate Share Repurchase Programs were Publicly Announced
    
    RepurchasedOctober 14, 1999
    
    
    20,000,000July 13, 2000
    
    
    10,000,000July 11, 2001
    
    
    20,000,000May 28, 2003
    
    
    25,000,000March 25, 2004
    
    
    25,000,000March 24, 2005
    
    
    25,000,000December 15, 2006
    
    
    25,000,000Total shares authorized to be repurchased as of December 30, 2006
    
    
    150,000,000
  15




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Item 6. Selected Financial Data
 SELECTED FINANCIAL AND OPERATING DATA
 in millions, except per share dataFiscal years ended
    
    2006
    
    
    2005(2)
    
    
    2004
    
    
    2003
    
    
    2002Statement of Operations Data:Net revenues
    
    $
    12,730
    
    
    $
    11,885
    
    
    $
    10,906
    
    
    $
    10,265
    
    
    $
    9,216Cost of sales
    
    
    6,810
    
    
    
    6,253
    
    
    
    5,656
    
    
    
    5,215
    
    
    
    5,001Gross profit
    
    
    5,920
    
    
    
    5,632
    
    
    
    5,250
    
    
    
    5,050
    
    
    
    4,215Selling, delivery and administrative expenses(1)
    
    
    4,903
    
    
    
    4,609
    
    
    
    4,274
    
    
    
    4,094
    
    
    
    3,317Operating income(1)
    
    
    1,017
    
    
    
    1,023
    
    
    
    976
    
    
    
    956
    
    
    
    898Interest expense, net
    
    
    266
    
    
    
    250
    
    
    
    230
    
    
    
    239
    
    
    
    191Other non-operating expenses, net
    
    
    11
    
    
    
    1
    
    
    
    1
    
    
    
    7
    
    
    
    7Minority interest
    
    
    59
    
    
    
    59
    
    
    
    56
    
    
    
    50
    
    
    
    51Income before income taxes
    
    
    681
    
    
    
    713
    
    
    
    689
    
    
    
    660
    
    
    
    649Income tax expense(3)(4)(5)
    
    
    159
    
    
    
    247
    
    
    
    232
    
    
    
    238
    
    
    
    221Income before cumulative effect of change in accounting
principle
    
    
    522
    
    
    
    466
    
    
    
    457
    
    
    
    422
    
    
    
    428Cumulative effect of change in accounting principle, net
of tax and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    Net income
    
    $
    522
    
    
    $
    466
    
    
    $
    457
    
    
    $
    416
    
    
    $
    428Per Share Data:Basic earnings per share
    
    $
    2.22
    
    
    $
    1.91
    
    
    $
    1.79
    
    
    $
    1.54
    
    
    $
    1.52Diluted earnings per share
    
    $
    2.16
    
    
    $
    1.86
    
    
    $
    1.73
    
    
    $
    1.50
    
    
    $
    1.46Cash dividends declared per share
    
    $
    0.41
    
    
    $
    0.29
    
    
    $
    0.16
    
    
    $
    0.04
    
    
    $
    0.04Weighted-average basic shares outstanding
    
    
    236
    
    
    
    243
    
    
    
    255
    
    
    
    270
    
    
    
    282Weighted-average diluted shares outstanding
    
    
    242
    
    
    
    250
    
    
    
    263
    
    
    
    277
    
    
    
    293Other Financial Data:Cash provided by operations
    
    $
    1,228
    
    
    $
    1,219
    
    
    $
    1,222
    
    
    $
    1,075
    
    
    $
    1,009Capital expenditures
    
    $
    (725
    )
    
    $
    (715
    )
    
    $
    (688
    )
    
    $
    (635
    )
    
    $
    (618
    )Balance Sheet Data (at period end):Total assets
    
    $
    11,927
    
    
    $
    11,524
    
    
    $
    10,937
    
    
    $
    11,655
    
    
    $
    10,142Long-term debt
    
    $
    4,754
    
    
    $
    3,939
    
    
    $
    4,489
    
    
    $
    4,493
    
    
    $
    4,539Minority interest
    
    $
    540
    
    
    $
    496
    
    
    $
    445
    
    
    $
    396
    
    
    $
    348Accumulated other comprehensive loss(6)
    
    $
    (361
    )
    
    $
    (262
    )
    
    $
    (315
    )
    
    $
    (380
    )
    
    $
    (468
    )Shareholders equity
    
    $
    2,084
    
    
    $
    2,043
    
    
    $
    1,949
    
    
    $
    1,881
    
    
    $
    1,824
 
 (1)
    
    In fiscal year 2006, we adopted SFAS 123R resulting in a $65 million or $0.17 per diluted
earnings per share decrease in operating income. See Critical
Accounting Policies in Item 7.(2)
    
    Our fiscal year 2005 results included an extra week of activity. The pre-tax income
generated from the extra week was spent back in strategic initiatives within our selling,
delivery and administrative expenses. The 53rd week had no impact on our net
income or diluted earnings per share.(3)
    
    Fiscal year 2003 includes Canada tax law change expense of $11 million.(4)
    
    Fiscal year 2004 includes Mexico tax law change benefit of $26 million and international tax
restructuring charge of $30 million.(5)
    
    Fiscal year 2006 includes a tax benefit of $11 million or $0.05 per diluted earnings per
share from tax law changes in Canada, Turkey, and in various U.S. jurisdictions and a $55
million or $0.22 per diluted earnings per share tax benefit from the reversal of tax
contingency reserves due to completion of our IRS audit of our 1999-2000 income tax returns.(6)
    
    In fiscal year 2006, we adopted SFAS 158 resulting in a
$159 million adjustment to accumulated other comprehensive loss. See Critical
Accounting Policies in Item 7. 16




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 MANAGEMENTS FINANCIAL REVIEW  Tabular dollars in millions, except per share data
 OVERVIEW
   
 mr
    17




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
    
    Critical accounting policies
    
    Relationship with PepsiCo
    
    Items that affect historical or future comparability
    
    Financial performance summary
    
    Results of operations
    
    Liquidity and financial condition and
    
    Market risks and cautionary statements.
 .
 18




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CRITICAL ACCOUNTING POLICIES
  Allowance for Doubtful Accounts
 Recoverability of Goodwill and Intangible Assets with Indefinite Lives
    19




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Pension and Postretirement Medical Benefit Plans
    Assumptions
     20




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Pension
    
    2007
    
    2006Discount rate
    
    
    6.00
    %
    
    
    5.80
    %Expected return on plan assets (net of administrative expenses)
    
    
    8.50
    %
    
    
    8.50
    %Rate of compensation increase
    
    
    3.55
    %
    
    
    3.53
    %
 Postretirement
    
    2007
    
    2006Discount rate
    
    
    5.80
    %
    
    
    5.55
    %Rate of compensation increase
    
    
    3.55
    %
    
    
    3.53
    %Health care cost trend rate
    
    
    8.00
    %
    
    
    9.00
    %
  
    
    An increase in our weighted-average discount rate for our pension and postretirement
medical expense from 5.80 percent and 5.55 percent to 6.00 percent and 5.80 percent,
respectively, reflecting increases in the yields of long-term corporate bonds comprising
the yield curve. This change in assumption will decrease our 2007 defined benefit pension
and postretirement medical expense by approximately $8 million.
    
    A change to our mortality assumption to reflect six years of projected mortality
improvement will increase our 2007 defined benefit pension and postretirement medical
expense by approximately $5 million.
    
    Other changes will increase our 2007 defined benefit pension and postretirement medical
expenses by approximately $1 million. These changes include certain benefit plan
modifications, demographic changes and reflection of actual asset returns.
 21




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Sensitivity Analysis
  2006
    
    2005
    
    2004Expected return on plan assets (net of administrative expenses)
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %Actual return on plan assets (net of administrative expenses)
    
    
    9.74
    %
    
    
    13.33
    %
    
    
    11.61
    %
  
    
    Discount rate  A 25-basis point change in the discount rate would increase or decrease
the expense for our pension and postretirement medical benefit plans in 2007 by approximately
$10 million.
    
    Expected return on plan assets  A 25-basis point change in the expected return on plan
assets would increase or decrease the expense for our pension plans in 2007 by
approximately $3 million. The postretirement medical benefit plans have no expected return
on plan assets as they are funded from the general assets of the Company as the payments come
due.
  Casualty Insurance Costs 
  Share-Based Compensation 
   22




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Income Taxes 
     RELATIONSHIP WITH PEPSICO
  23




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ITEMS THAT AFFECT HISTORICAL OR FUTURE COMPARABILITY
  December
    
    December(Expense)/Income
    
    30, 2006
    
    31, 2005Operating incomeImpact of SFAS 123R
    
    $
    (65
    )
    
    $
    HFCS litigation settlement
    
    
    
    
    
    $
    2953rd week
    
    
    
    
    
    $
    24Strategic spending initiatives
    
    
    
    
    
    $
    (48
    )Diluted earnings per shareImpact of SFAS 123R
    
    $
    (0.17
    )
    
    
    Tax law changes
    
    $
    0.05
    
    
    
    Tax audit settlement
    
    $
    0.22
    
    
    
    HFCS litigation settlement
    
    
    
    
    
    $
    0.0753rd week
    
    
    
    
    
    $
    0.05Strategic spending initiatives
    
    
    
    
    
    $
    (0.12
    )
 2006 Items
 SFAS 123R
  Tax Law Changes
  Tax Audit Settlement
  24




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2005 Items
 High Fructose Corn Syrup (HFCS) Litigation Settlement
  53 rd Week
 rd rd
 Strategic Spending Initiatives
 rd
 FINANCIAL PERFORMANCE SUMMARY
 December
    
    December
    
    Fiscal Year30, 2006
    
    31, 2005
    
    % ChangeNet revenues
    
    $
    12,730
    
    
    $
    11,885
    
    
    
    7
    %Gross profit
    
    $
    5,920
    
    
    $
    5,632
    
    
    
    5
    %Operating income
    
    $
    1,017
    
    
    $
    1,023
    
    
    
    (1
    )%Net income
    
    $
    522
    
    
    $
    466
    
    
    
    12
    %Diluted earnings per share
    
    $
    2.16
    
    
    $
    1.86
    
    
    
    16
    %
   25




---



##### Table of Contents



rd
 rd
   rd
   2007 Outlook
 Forecasted 2007 growth vs. 2006Worldwide Volume
    
    
    1%-2%U.S. Volume
    
    Flat to 1%Worldwide Net Revenue per Case
    
    
    3%-4%U.S. Net Revenue per Case
    
    
    4%+Worldwide Cost of Sales per Case
    
    
    6%Worldwide SD&A Expenses
    
    4% to 5%Worldwide Operating Income
    
    2% to 4%Full-Year Forecasted 2007 ResultsReported Diluted Earnings Per Share
(including the unfavorable impact of
$0.02 from FIN 48)
    
    $
    1.90 to $1.98
 26




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##### Table of Contents



RESULTS OF OPERATIONS  2006
 Volume
 Fiscal Year Ended2006 vs. 2005Worldwide
    
    U.S. & Canada
    
    Europe
    
    MexicoBase volume
    
    
    3
    %
    
    
    3
    %
    
    
    7
    %
    
    
    1
    %Acquisitions
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    3
    %Impact of 53rd week in 2005
    
    
    (1
    )%
    
    
    (2
    )%
    
    
    0
    %
    
    
    0
    %Total Volume Change
    
    
    3
    %
    
    
    2
    %
    
    
    7
    %
    
    
    4
    %
  rd
 rd
 rd
  27




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##### Table of Contents



Net Revenues
 Fiscal Year Ended2006 vs. 2005Worldwide
    
    U.S. & Canada
    
    Europe
    
    MexicoVolume impact
    
    
    3
    %
    
    
    3
    %
    
    
    7
    %
    
    
    1
    %Net price per case impact (rate/mix)
    
    
    3
    %
    
    
    3
    %
    
    
    5
    %
    
    
    5
    %Acquisitions
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    3
    %Currency translation
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    0
    %Impact of 53rd week in 2005
    
    
    (1
    )%
    
    
    (2
    )%
    
    
    0
    %
    
    
    0
    %Total Net Revenues Change
    
    
    7
    %
    
    
    6
    %
    
    
    12
    %
    
    
    9
    %
 rd
    Cost of Sales
 Fiscal Year Ended2006 vs. 2005WorldwideVolume impact
    
    
    3
    %Cost per case impact
    
    
    5
    %Acquisitions
    
    
    1
    %Currency translation
    
    
    1
    %Impact of 53rd week in 2005
    
    
    (1
    )%Total Cost of Sales Change
    
    
    9
    %
  28




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##### Table of Contents



rd
 Selling, Delivery and Administrative Expenses
 Fiscal Year Ended2006 vs. 2005WorldwideCost impact
    
    
    5
    %Adoption of SFAS 123R in 2006
    
    
    1
    %Acquisitions
    
    
    1
    %HFCS Settlement in 2005
    
    
    1
    %Strategic Spending Initiatives in 2005
    
    
    (1
    )%Impact of 53rd week in 2005
    
    
    (1
    )%Total SD&A Change
    
    
    6
    %
 rd
 Interest Expense, net
  Other Non-Operating Expenses, net
  Minority Interest
  Income Tax Expense
  Diluted Weighted-Average Shares Outstanding
   29




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##### Table of Contents



RESULTS OF OPERATIONS  2005
 Volume
 Fiscal Year Ended2005 vs. 2004Worldwide
    
    U.S. & Canada
    
    Europe
    
    MexicoBase volume
    
    
    3
    %
    
    
    2
    %
    
    
    8
    %
    
    
    5
    %Acquisitions
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    0
    %Impact of 53rd week
    
    
    1
    %
    
    
    2
    %
    
    
    0
    %
    
    
    0
    %Total Volume Change
    
    
    5
    %
    
    
    5
    %
    
    
    8
    %
    
    
    5
    %
  rd
 rd ,  . , , rd
 rd
 
  30




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##### Table of Contents



Net Revenues
 Fiscal Year Ended2005 vs. 2004Worldwide
    
    U.S. & Canada
    
    Europe
    
    MexicoVolume impact
    
    
    3
    %
    
    
    2
    %
    
    
    8
    %
    
    
    5
    %Net price per case impact (rate/mix)
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %
    
    
    0
    %Acquisitions
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    1
    %Currency translation
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %
    
    
    4
    %Impact of 53rd week
    
    
    1
    %
    
    
    2
    %
    
    
    0
    %
    
    
    0
    %Total Net Revenues Change
    
    
    9
    %
    
    
    9
    %
    
    
    12
    %
    
    
    10
    %
 rd
    Cost of Sales
 Fiscal Year Ended2005 vs. 2004WorldwideVolume impact
    
    
    4
    %Cost per case impact
    
    
    4
    %Acquisitions
    
    
    1
    %Currency translation
    
    
    1
    %Impact of 53rd week
    
    
    1
    %Total Cost of Sales Change
    
    
    11
    %
 rd
 31




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##### Table of Contents



Selling, Delivery and Administrative Expenses
 Fiscal Year Ended2005 vs. 2004WorldwideCost impact
    
    
    5
    %HFCS Settlement
    
    
    (1)
    %Strategic Spending Initiatives
    
    
    1
    %Acquisitions
    
    
    1
    %Currency translation
    
    
    1
    %Impact of 53rd week
    
    
    1
    %Total SD&A Change
    
    
    8
    %
 rd rd
  Interest Expense, net
 rd
 Minority Interest
  Income Tax Expense
  LIQUIDITY AND FINANCIAL CONDITION
 Liquidity and Capital Resources
  2006 Long-Term Debt Activities
  32




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##### Table of Contents



2006 Short-Term Debt Activities
     Financial Covenants
   Cash Flows
 Fiscal 2006 Compared with Fiscal 2005
    33




---



##### Table of Contents



Fiscal 2005 Compared with Fiscal 2004
    Contractual Obligations
  Payments Due by Period2008
    
    
    2010
    
    
    2012 andContractual Obligations
    
    Total
    
    
    2007
    
    
    2009
    
    
    2011
    
    
    beyondLong-term debt obligations (1)
    
    $
    4,763
    
    
    $
    11
    
    
    $
    1,302
    
    
    $
    
    
    
    $
    3,450Capital lease obligations (2)
    
    
    45
    
    
    
    9
    
    
    
    13
    
    
    
    11
    
    
    
    12Operating leases (2)
    
    
    210
    
    
    
    51
    
    
    
    68
    
    
    
    32
    
    
    
    59Interest obligations (3)
    
    
    2,694
    
    
    
    269
    
    
    
    498
    
    
    
    382
    
    
    
    1,545Purchase obligations:Raw material obligations (4)
    
    
    180
    
    
    
    18
    
    
    
    145
    
    
    
    17
    
    
    
    Capital expenditure obligations (5)
    
    
    45
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    Other obligations (6)
    
    
    345
    
    
    
    151
    
    
    
    88
    
    
    
    44
    
    
    
    62Other long-term liabilities (7)
    
    
    30
    
    
    
    7
    
    
    
    10
    
    
    
    6
    
    
    
    7Total
    
    $
    8,312
    
    
    $
    561
    
    
    $
    2,124
    
    
    $
    492
    
    
    $
    5,135
 
 (1)
    
    See Note 11 in the Notes to Consolidated Financial Statements for additional information
relating to our long-term debt obligations.(2)
    
    See Note 12 in the Notes to Consolidated Financial Statements for additional information
relating to our lease obligations.(3)
    
    Represents interest payment obligations related to our long-term fixed-rate debt as specified
in the applicable debt agreements. Additionally, a portion of our long-term debt has
variable interest rates due to either existing swap agreements or interest arrangements. We
estimated our variable interest payment obligations by using the interest rate forward curve.(4)
    
    Represents obligations to purchase raw materials pursuant to contracts entered into by
PepsiCo on our behalf and international agreements to purchase raw materials.(5)
    
    Represents commitments to suppliers under capital expenditure related contracts or purchase
orders.(6)
    
    Represents non-cancellable agreements that specify fixed or minimum quantities, price
arrangements and timing of payments. Also includes agreements that provide for termination
penalty clauses.(7)
    
    Primarily relates to contractual obligations associated with non-compete contracts that
resulted from business acquisitions. The table excludes other long-term liabilities included
in our Consolidated Financial Statements, such as pension, postretirement and other
non-contractual obligations. See Note 14 in the Notes to Consolidated Financial Statements
for a discussion of our future pension and postretirement contributions and corresponding
expected benefit payments for years 2007 through 2016. Off-Balance Sheet Arrangements
  Capital Expenditures
  MARKET RISKS AND CAUTIONARY STATEMENTS
 Quantitative and Qualitative Disclosures about Market Risk
  34




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##### Table of Contents



Commodity Price Risk
  Interest Rate Risk
   Foreign Currency Exchange Rate Risk
    35




---



##### Table of Contents



Unfunded Deferred Compensation Liability
  36




---



##### Table of Contents



Cautionary Statements
  
    
    changes in our relationship with PepsiCo that could have a material adverse effect on our long-term and short-term
business and financial results;
 
    
    material changes in expected levels of bottler incentive payments from PepsiCo;
 
    
    restrictions imposed by PepsiCo on our raw material suppliers that could increase our costs;
 
    
    material changes from expectations in the cost or availability of raw materials, ingredients or packaging materials;
 
    
    limitations on the availability of water or obtaining water rights;
 
    
    an inability to achieve cost savings;
 
    
    material changes in capital investment for infrastructure and an inability to achieve the expected timing for returns
on cold-drink equipment and related infrastructure expenditures;
 
    
    decreased demand for our product resulting from changes in consumers preferences;
 
    
    an inability to achieve volume growth through product and packaging initiatives;
 
    
    impact of competitive activities on our business;
 
    
    impact of customer consolidations on our business;
 
    
    changes in product category consumption;
 
    
    unfavorable weather conditions in our markets;
 
    
    an inability to meet projections for performance in newly acquired territories;
 
    
    loss of business from a significant customer;
 
    
    failure or inability to comply with laws and regulations;
 
    
    changes in laws, regulations and industry guidelines governing the manufacture and sale of food and beverages,
including restrictions on the sale of carbonated soft drinks in schools;
 
    
    litigation, other claims and negative publicity relating to alleged unhealthy properties of soft drinks;
 
    
    changes in laws and regulations governing the environment, transportation, employee safety, labor and government
contracts;
 
    
    changes in accounting standards and taxation requirements (including unfavorable outcomes from audits performed by
various tax authorities);
 
    
    unforeseen economic and political changes;
 
    
    possible recalls of our products;
 
    
    interruptions of operations due to labor disagreements;
 
    
    changes in our debt ratings;
 
    
    material changes in expected interest and currency exchange rates and unfavorable market performance of our pension
plan assets; and
 
    
    an inability to achieve strategic business plan targets that could result in an intangible asset impairment charge.
 37




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##### Table of Contents



The Pepsi Bottling Group, Inc.  Consolidated Statements of Operations
 Fiscal years ended December 30, 2006, December 31, 2005 and December 25, 2004
 2006
    
    
    2005
    
    
    2004Net Revenues
    
    $
    12,730
    
    
    $
    11,885
    
    
    $
    10,906Cost of sales
    
    
    6,810
    
    
    
    6,253
    
    
    
    5,656Gross Profit
    
    
    5,920
    
    
    
    5,632
    
    
    
    5,250Selling, delivery and administrative expenses
    
    
    4,903
    
    
    
    4,609
    
    
    
    4,274Operating Income
    
    
    1,017
    
    
    
    1,023
    
    
    
    976Interest expense, net
    
    
    266
    
    
    
    250
    
    
    
    230Other non-operating expenses, net
    
    
    11
    
    
    
    1
    
    
    
    1Minority interest
    
    
    59
    
    
    
    59
    
    
    
    56Income Before Income Taxes
    
    
    681
    
    
    
    713
    
    
    
    689Income tax expense
    
    
    159
    
    
    
    247
    
    
    
    232Net Income
    
    $
    522
    
    
    $
    466
    
    
    $
    457Basic Earnings Per Share
    
    $
    2.22
    
    
    $
    1.91
    
    
    $
    1.79Weighted-average shares outstanding
    
    
    236
    
    
    
    243
    
    
    
    255Diluted Earnings Per Share
    
    $
    2.16
    
    
    $
    1.86
    
    
    $
    1.73Weighted-average shares outstanding
    
    
    242
    
    
    
    250
    
    
    
    263Dividends declared per common share
    
    $
    0.41
    
    
    $
    0.29
    
    
    $
    0.16
  38




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##### Table of Contents



The Pepsi Bottling Group, Inc.  Consolidated Statements of Cash Flows
 Fiscal years ended December 30, 2006, December 31, 2005 and December 25, 2004
 2006
    
    
    2005
    
    
    2004Cash FlowsOperationsNet income
    
    $
    522
    
    
    $
    466
    
    
    $
    457Adjustments to reconcile net income to net cash provided by operations:Depreciation
    
    
    637
    
    
    
    615
    
    
    
    580Amortization
    
    
    12
    
    
    
    15
    
    
    
    13Deferred income taxes
    
    
    (61
    )
    
    
    (65
    )
    
    
    31Stock-based compensation
    
    
    65
    
    
    
    
    
    
    
    Other non-cash charges and credits:Defined benefit pension and postretirement expenses
    
    
    119
    
    
    
    109
    
    
    
    88Minority interest expense
    
    
    59
    
    
    
    59
    
    
    
    56Casualty self-insurance expense
    
    
    80
    
    
    
    85
    
    
    
    93Other non-cash charges and credits
    
    
    67
    
    
    
    84
    
    
    
    61Net other non-cash charges and credits
    
    
    325
    
    
    
    337
    
    
    
    298Changes in operating working capital, excluding effects of acquisitions:Accounts receivable, net
    
    
    (120
    )
    
    
    7
    
    
    
    (53
    )Inventories
    
    
    (57
    )
    
    
    (29
    )
    
    
    (38
    )Prepaid expenses and other current assets
    
    
    1
    
    
    
    1
    
    
    
    (16
    )Accounts payable and other current liabilities
    
    
    88
    
    
    
    4
    
    
    
    98Income taxes payable
    
    
    (2
    )
    
    
    77
    
    
    
    30Net change in operating working capital
    
    
    (90
    )
    
    
    60
    
    
    
    21Casualty insurance payments
    
    
    (67
    )
    
    
    (66
    )
    
    
    (53
    )Pension contributions
    
    
    (68
    )
    
    
    (77
    )
    
    
    (83
    )Other, net
    
    
    (47
    )
    
    
    (66
    )
    
    
    (42
    )Net Cash Provided by Operations
    
    
    1,228
    
    
    
    1,219
    
    
    
    1,222Cash FlowsInvestmentsCapital expenditures
    
    
    (725
    )
    
    
    (715
    )
    
    
    (688
    )Acquisitions of bottlers, net of cash acquired
    
    
    (33
    )
    
    
    (155
    )
    
    
    (96
    )Proceeds from sale of property, plant and equipment
    
    
    18
    
    
    
    29
    
    
    
    22Other investing activities, net
    
    
    9
    
    
    
    (1
    )
    
    
    Net Cash Used for Investments
    
    
    (731
    )
    
    
    (842
    )
    
    
    (762
    )Cash FlowsFinancingShort-term borrowings, netthree months or less
    
    
    (107
    )
    
    
    268
    
    
    
    89Proceeds from short-term borrowings  more than three months
    
    
    96
    
    
    
    74
    
    
    
    55Payments of short-term borrowings  more than three months
    
    
    (74
    )
    
    
    (68
    )
    
    
    (40
    )Proceeds from issuances of long-term debt
    
    
    793
    
    
    
    36
    
    
    
    23Payments of long-term debt
    
    
    (604
    )
    
    
    (36
    )
    
    
    (1,014
    )Minority interest distribution
    
    
    (19
    )
    
    
    (12
    )
    
    
    (13
    )Dividends paid
    
    
    (90
    )
    
    
    (64
    )
    
    
    (31
    )Excess tax benefit from exercise of stock options
    
    
    19
    
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    168
    
    
    
    109
    
    
    
    118Purchases of treasury stock
    
    
    (553
    )
    
    
    (490
    )
    
    
    (582
    )Net Cash Used for Financing
    
    
    (371
    )
    
    
    (183
    )
    
    
    (1,395
    )Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    1
    
    
    
    3
    
    
    
    5Net Increase/(Decrease) in Cash and Cash Equivalents
    
    
    127
    
    
    
    197
    
    
    
    (930
    )Cash and Cash EquivalentsBeginning of Year
    
    
    502
    
    
    
    305
    
    
    
    1,235Cash and Cash EquivalentsEnd of Year
    
    $
    629
    
    
    $
    502
    
    
    $
    305Supplemental Cash Flow InformationNon-Cash Investing and Financing Activities:Liabilities incurred and/or assumed in conjunction with acquisitions of bottlers
    
    $
    20
    
    
    $
    22
    
    
    $
    20Change in accounts payable related to capital expenditures
    
    $
    7
    
    
    $
    (6
    )
    
    $
    29
  39




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##### Table of Contents



The Pepsi Bottling Group, Inc.  Consolidated Balance Sheets
 December 30, 2006 and December 31, 2005
 2006
    
    
    2005ASSETSCurrent AssetsCash and cash equivalents
    
    $
    629
    
    
    $
    502Accounts receivable, less allowance of $50 in 2006 and $51 in 2005
    
    
    1,332
    
    
    
    1,186Inventories
    
    
    533
    
    
    
    458Prepaid expenses and other current assets
    
    
    255
    
    
    
    266Total Current Assets
    
    
    2,749
    
    
    
    2,412Property, plant and equipment, net
    
    
    3,785
    
    
    
    3,649Other intangible assets, net
    
    
    3,768
    
    
    
    3,814Goodwill
    
    
    1,490
    
    
    
    1,516Other assets
    
    
    135
    
    
    
    133Total Assets
    
    $
    11,927
    
    
    $
    11,524LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable and other current liabilities
    
    $
    1,677
    
    
    $
    1,583Short-term borrowings
    
    
    357
    
    
    
    426Current maturities of long-term debt
    
    
    17
    
    
    
    589Total Current Liabilities
    
    
    2,051
    
    
    
    2,598Long-term debt
    
    
    4,754
    
    
    
    3,939Other liabilities
    
    
    1,205
    
    
    
    1,027Deferred income taxes
    
    
    1,293
    
    
    
    1,421Minority interest
    
    
    540
    
    
    
    496Total Liabilities
    
    
    9,843
    
    
    
    9,481Shareholders EquityCommon stock, par value $0.01 per share:authorized 900 shares, issued 310 shares
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    1,751
    
    
    
    1,709Retained earnings
    
    
    2,708
    
    
    
    2,283Accumulated other comprehensive loss
    
    
    (361
    )
    
    
    (262
    )Deferred compensation
    
    
    
    
    
    
    (14
    )Treasury stock: 80 shares and 71 shares in 2006 and 2005, respectively, at cost
    
    
    (2,017
    )
    
    
    (1,676
    )Total Shareholders Equity
    
    
    2,084
    
    
    
    2,043Total Liabilities and Shareholders Equity
    
    $
    11,927
    
    
    $
    11,524
  40




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##### Table of Contents



The Pepsi Bottling Group, Inc.
Consolidated Statements of Changes in Shareholders Equity
Fiscal years ended December 30, 2006, December 31, 2005 and December 25, 2004
 AccumulatedOtherAdditional
    
    
    
    
    
    
    
    
    
    
    Compre-Common
    
    
    Paid-In
    
    
    Deferred
    
    
    Retained
    
    
    hensive
    
    
    Treasury
    
    
    
    
    
    
    Comprehensivein millions, except per share data
    
    Stock
    
    
    Capital
    
    

Compensation
    
    
    Earnings
    
    
    Loss
    
    
    Stock
    
    
    Total
    
    
    IncomeBalance at December 27, 2003
    
    $
    3
    
    
    $
    1,743
    
    
    $
    (4
    )
    
    $
    1,471
    
    
    $
    (380
    )
    
    $
    (952
    )
    
    $
    1,881Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    $
    457Net currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    84
    
    
    
    84Cash flow hedge adjustment (net of
tax and minority interest of $2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Minimum pension liability
adjustment (net of tax and
minority interest of $13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )
    
    
    (16
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    522Stock option exercises: 9 shares
    
    
    
    
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    190
    
    
    
    118Tax benefit  equity awards
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51Purchase of treasury stock: 21 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (582
    )
    
    
    (582
    )Stock compensation
    
    
    
    
    
    
    (3
    )
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends declared on common
stock (per share: $0.16)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    
    
    
    
    (41
    )Balance at December 25, 2004
    
    
    3
    
    
    
    1,719
    
    
    
    (1
    )
    
    
    1,887
    
    
    
    (315
    )
    
    
    (1,344
    )
    
    
    1,949Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    466
    
    
    
    
    
    
    
    
    
    
    
    466
    
    
    $
    466Net currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    65
    
    
    
    65Cash flow hedge adjustment (net of
tax and minority interest of $5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )Minimum pension liability
adjustment (net of tax and
minority interest of $3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    519Stock option exercises: 7 shares
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158
    
    
    
    109Tax benefit  equity awards
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Purchase of treasury stock: 17 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (490
    )
    
    
    (490
    )Stock compensation
    
    
    
    
    
    
    16
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Cash dividends declared on common
stock (per share: $0.29)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )
    
    
    
    
    
    
    
    
    
    
    (70
    )Balance at December 31, 2005
    
    
    3
    
    
    
    1,709
    
    
    
    (14
    )
    
    
    2,283
    
    
    
    (262
    )
    
    
    (1,676
    )
    
    
    2,043Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    522
    
    
    
    
    
    
    
    
    
    
    
    522
    
    
    $
    522Net currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    25
    
    
    
    25Cash flow hedge adjustment (net of
tax and minority interest of $(5))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    8
    
    
    
    8Minimum pension liability
adjustment (net of tax and
minority interest of $(21))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    27
    
    
    
    27FAS 158  pension liability
adjustment (net of tax and
minority interest of $124)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (159
    )
    
    
    
    
    
    
    (159
    )
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    582Stock option exercises: 9 shares
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212
    
    
    
    168Tax benefit  equity awards
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Purchase of treasury stock: 18 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (553
    )
    
    
    (553
    )Stock compensation
    
    
    
    
    
    
    51
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65Cash dividends declared on common
stock (per share: $0.41)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (97
    )
    
    
    
    
    
    
    
    
    
    
    (97
    )Balance at December 30, 2006
    
    $
    3
    
    
    $
    1,751
    
    
    $
    
    
    
    $
    2,708
    
    
    $
    (361
    )
    
    $
    (2,017
    )
    
    $
    2,084
  41




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Note 1Basis of Presentation
      Note 2Summary of Significant Accounting Policies
 Basis of Consolidation 
 Fiscal Year 
 Quarter
    
    U.S. & Canada
    
    Mexico & EuropeFirst Quarter
    
    12 weeks
    
    January and FebruarySecond Quarter
    
    12 weeks
    
    March, April and MayThird Quarter
    
    12 weeks
    
    June, July and AugustFourth Quarter
    
    16 weeks/17 weeks (FY 2005)
    
    September, October,
November and December
 Revenue Recognition 
 42




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##### Table of Contents



Advertising and Marketing Costs 
 Bottler Incentives 
 
    
    Direct marketplace support represents PepsiCos and other brand
owners agreed-upon funding to assist us in offering sales and
promotional discounts to retailers and is generally recorded as an
adjustment to cost of sales. If the direct marketplace support is
a reimbursement for a specific, incremental and identifiable
program, the funding is recorded as an offset to the cost of the
program.
    
    Advertising support represents agreed-upon funding to assist us
for the cost of media time and promotional materials and is
generally recorded as an adjustment to cost of sales. Advertising
support that represents reimbursement for a specific, incremental
and identifiable media cost, is recorded as a reduction to
advertising and marketing expenses within selling, delivery and
administrative expenses.
  Fiscal Year Ended2006
    
    
    2005
    
    
    2004Net revenues
    
    $
    67
    
    
    $
    51
    
    
    $
    22Cost of sales
    
    
    649
    
    
    
    604
    
    
    
    559Selling, delivery and administrative expenses
    
    
    70
    
    
    
    79
    
    
    
    84Total bottler incentives
    
    $
    786
    
    
    $
    734
    
    
    $
    665
 Share-Based Compensation
 Shipping and Handling Costs
 Foreign Currency Gains and Losses 
 43




---



##### Table of Contents



Pension and Postretirement Medical Benefit Plans 
     Income Taxes
  Earnings Per Share 
 Cash Equivalents 
 Allowance for Doubtful Accounts 
 Inventories 
 44




---



##### Table of Contents



Property, Plant and Equipment 
 Goodwill and Other Intangible Assets, net 
  Casualty Insurance Costs 
 Minority Interest 
 Treasury Stock 
 Financial Instruments and Risk Management 
  45




---



##### Table of Contents



Commitments and Contingencies 
 New Accounting Standards
 SFAS No. 158
  SAB No. 108
  FASB Interpretation No. 48
  SFAS No. 157
  46




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##### Table of Contents



Note 3Earnings per Share
  Fiscal Year EndedShares in millions
    
    2006
    
    
    2005
    
    
    2004Average number of shares outstanding during
period on which basic earnings per share is
based
    
    
    236
    
    
    
    243
    
    
    
    255Add  Incremental shares under stock
compensation plans
    
    
    6
    
    
    
    7
    
    
    
    8Number of shares on which diluted
earnings per share is based
    
    
    242
    
    
    
    250
    
    
    
    263Basic and diluted net income applicable to
common shareholders
    
    $
    522
    
    
    $
    466
    
    
    $
    457Basic earnings per share
    
    $
    2.22
    
    
    $
    1.91
    
    
    $
    1.79Diluted earnings per share
    
    $
    2.16
    
    
    $
    1.86
    
    
    $
    1.73
  Note 4Share-Based Compensation
 Accounting for Share-Based Compensation 
  47




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##### Table of Contents



Fiscal Year Ended2005
    
    
    2004Net income:As reported
    
    $
    466
    
    
    $
    457Add: Total share-based employee compensation
included in reported net income, net of taxes and
minority interest
    
    
    1
    
    
    
    Less: Total share-based employee
compensation determined under fair-value based
method for all awards, net of taxes and minority
interest
    
    
    (43
    )
    
    
    (37
    )Pro forma
    
    $
    424
    
    
    $
    420Earnings per share:Basic  as reported
    
    $
    1.91
    
    
    $
    1.79Basic  pro forma
    
    $
    1.74
    
    
    $
    1.64Diluted  as reported
    
    $
    1.86
    
    
    $
    1.73Diluted  pro forma
    
    $
    1.68
    
    
    $
    1.59
 Share-Based Long-Term Incentive Compensation Plans 
    2006
    
    2005
    
    2004Risk-free interest rate
    
    
    4.7
    %
    
    
    4.1
    %
    
    
    3.2
    %Expected term (in years)
    
    
    5.7
    
    
    
    5.8
    
    
    
    6.0Expected volatility
    
    
    27.0
    %
    
    
    28.0
    %
    
    
    35.0
    %Expected dividend yield
    
    
    1.5
    %
    
    
    1.1
    %
    
    
    0.7
    %
 48




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##### Table of Contents



Stock Options 
  Weighted AverageWeighted Average
    
    RemainingShares
    
    Exercise Price
    
    Contractual
    
    AggregateOptions
    
    (in millions)
    
    per Share
    
    Term (years)
    
    Intrinsic ValueOutstanding at January 1, 2006
    
    
    38.1
    
    
    $
    22.54Granted
    
    
    3.7
    
    
    $
    29.70Exercised
    
    
    (8.8
    )
    
    $
    19.30Forfeited or expired
    
    
    (0.9
    )
    
    $
    27.51Outstanding at December 30, 2006
    
    
    32.1
    
    
    $
    24.11
    
    
    
    6.2
    
    
    $
    219Exercisable at December 30, 2006
    
    
    20.3
    
    
    $
    21.27
    
    
    
    5.1
    
    
    $
    196
   49




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##### Table of Contents



Restricted Stock Units 
  Weighted AverageWeighted Average
    
    RemainingShares
    
    Grant-Date Fair
    
    Contractual
    
    AggregateRestricted Stock Units
    
    (in thousands)
    
    Value
    
    Term (years)
    
    Intrinsic ValueOutstanding at January 1, 2006
    
    
    567
    
    
    $
    27.52Granted
    
    
    1,166
    
    
    $
    29.55Converted
    
    
    (7
    )
    
    $
    9.89Forfeited
    
    
    (29
    )
    
    $
    29.44Outstanding at December 30, 2006
    
    
    1,697
    
    
    $
    28.96
    
    
    
    2.3
    
    
    $
    52Convertible at December 30, 2006
    
    
    45
    
    
    $
    24.74
    
    
    
    
    
    
    $
    1
  Note 5Inventories
 2006
    
    
    2005Raw materials and supplies
    
    $
    201
    
    
    $
    173Finished goods
    
    
    332
    
    
    
    285$
    533
    
    
    $
    458
 Note 6Prepaid Expenses and Other Current Assets
 2006
    
    
    2005Prepaid expenses
    
    $
    214
    
    
    $
    214Other current assets
    
    
    41
    
    
    
    52$
    255
    
    
    $
    266
 Note 7Accounts Receivable
 2006
    
    
    2005Trade accounts receivable
    
    $
    1,163
    
    
    $
    1,018Allowance for doubtful accounts
    
    
    (50
    )
    
    
    (51
    )Accounts receivable from PepsiCo
    
    
    168
    
    
    
    143Other receivables
    
    
    51
    
    
    
    76$
    1,332
    
    
    $
    1,186
 50




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##### Table of Contents



Note 8Property, Plant and Equipment, net
 2006
    
    
    2005Land
    
    $
    291
    
    
    $
    277Buildings and improvements
    
    
    1,404
    
    
    
    1,299Manufacturing and distribution equipment
    
    
    3,705
    
    
    
    3,425Marketing equipment
    
    
    2,425
    
    
    
    2,334Capital leases
    
    
    60
    
    
    
    28Other
    
    
    172
    
    
    
    1498,057
    
    
    
    7,512Accumulated depreciation
    
    
    (4,272
    )
    
    
    (3,863
    )$
    3,785
    
    
    $
    3,649
  Buildings and improvements
    
    20-33 yearsManufacturing and distribution equipment
    
    2-15 yearsMarketing equipment
    
    2-7 years
 Note 9Other Intangible Assets, net and Goodwill
  2006
    
    
    2005Intangibles subject to amortization:Gross carrying amount:Customer relationships and lists
    
    $
    54
    
    
    $
    53Franchise/distribution rights
    
    
    45
    
    
    
    46Other identified intangibles
    
    
    32
    
    
    
    39131
    
    
    
    138Accumulated amortization:Customer relationships and lists
    
    
    (11
    )
    
    
    (9
    )Franchise/distribution rights
    
    
    (27
    )
    
    
    (22
    )Other identified intangibles
    
    
    (16
    )
    
    
    (18
    )(54
    )
    
    
    (49
    )Intangibles subject to amortization, net
    
    
    77
    
    
    
    89Intangibles not subject to amortization:Carrying amount:Franchise rights
    
    
    3,128
    
    
    
    3,093Distribution rights
    
    
    297
    
    
    
    302Trademarks
    
    
    215
    
    
    
    218Other identified intangibles
    
    
    51
    
    
    
    112Intangibles not subject to amortization
    
    
    3,691
    
    
    
    3,725Total other intangible assets, net
    
    $
    3,768
    
    
    $
    3,814
 51




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##### Table of Contents



Fiscal Year Ending2007
    
    $
    102008
    
    $
    92009
    
    $
    72010
    
    $
    62011
    
    $
    6
   U.S. & Canada
    
    
    Europe
    
    
    Mexico
    
    
    TotalBalance at December 25, 2004
    
    $
    1,147
    
    
    $
    16
    
    
    $
    253
    
    
    $
    1,416Purchase price allocations relating to acquisitions
    
    
    77
    
    
    
    
    
    
    
    (5
    )
    
    
    72Impact of foreign currency translation
    
    
    16
    
    
    
    
    
    
    
    12
    
    
    
    28Balance at December 31, 2005
    
    
    1,240
    
    
    
    16
    
    
    
    260
    
    
    
    1,516Purchase price allocations relating to acquisitions
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )
    
    
    (22
    )Impact of foreign currency translation
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Balance at December 30, 2006
    
    $
    1,229
    
    
    $
    16
    
    
    $
    245
    
    
    $
    1,490
    52




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##### Table of Contents



Note 10Accounts Payable and Other Current Liabilities
 2006
    
    
    2005Accounts payable
    
    $
    525
    
    
    $
    501Trade incentives
    
    
    194
    
    
    
    185Accrued compensation and benefits
    
    
    237
    
    
    
    211Other accrued taxes
    
    
    111
    
    
    
    123Accrued interest
    
    
    74
    
    
    
    65Accounts payable to PepsiCo
    
    
    234
    
    
    
    176Other current liabilities
    
    
    302
    
    
    
    322$
    1,677
    
    
    $
    1,583
 Note 11Short-term Borrowings and Long-term Debt
 2006
    
    
    2005Short-term borrowingsCurrent maturities of long-term debt and capital leases
    
    $
    17
    
    
    $
    594SFAS No. 133 adjustment (1)
    
    
    
    
    
    
    (4
    )Unamortized discount, net
    
    
    
    
    
    
    (1
    )Current maturities of long-term debt, net
    
    
    17
    
    
    
    589Other short-term borrowings
    
    
    357
    
    
    
    426$
    374
    
    
    $
    1,015Long-term debt2.45% (3.9% effective rate) (2) senior notes due 2006
    
    $
    
    
    
    $
    5005.63% (6.3% effective rate) (2)(3) senior notes due 2009
    
    
    1,300
    
    
    
    1,3004.63% (4.6% effective rate)(3) senior notes due 2012
    
    
    1,000
    
    
    
    1,0005.00% (5.2% effective rate) senior notes due 2013
    
    
    400
    
    
    
    4004.13% (4.4% effective rate) senior notes due 2015
    
    
    250
    
    
    
    2505.50% (5.4% effective rate) senior notes due 2016
    
    
    800
    
    
    
    7.00% (7.1% effective rate) senior notes due 2029
    
    
    1,000
    
    
    
    1,000Capital leases obligations (Note 12)
    
    
    33
    
    
    
    5Other (average rate 5.2%)
    
    
    13
    
    
    
    1064,796
    
    
    
    4,561SFAS No. 133 adjustment (1)
    
    
    (13
    )
    
    
    (19
    )Unamortized discount, net
    
    
    (12
    )
    
    
    (14
    )Current maturities of long-term debt, net
    
    
    (17
    )
    
    
    (589
    )$
    4,754
    
    
    $
    3,939
 
 (1)
    
    In accordance with the requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133), the portion of our fixed-rate debt obligations that is hedged is reflected in our Consolidated Balance
Sheets as an amount equal to the sum of the debts carrying value plus a SFAS 133 fair value adjustment, representing changes
recorded in the fair value of the hedged debt obligations attributable to movements in market interest rates.(2)
    
    Effective interest rates include the impact of the gain/loss realized on swap instruments and represent the rates
that were achieved in 2006.(3)
    
    These notes are guaranteed by PepsiCo. Aggregate Maturities  Long-term Debt 
 2006 Short-Term Debt Activities 
 53




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##### Table of Contents



Financial Covenants 
 
    
    Our debt to capitalization ratio should not be greater than .75 on the last day of a
fiscal quarter when PepsiCos ratings are A- by S&P and A3 by Moodys or higher. Debt is
defined as total long-term and short-term debt plus accrued interest plus total standby
letters of credit and other guarantees less cash and cash equivalents not in excess of $500
million. Capitalization is defined as debt plus shareholders equity plus minority
interest, excluding the impact of the cumulative translation adjustment.
    
    Our debt to EBITDA ratio should not be greater than five on the last day of a fiscal
quarter when PepsiCos ratings are less than A- by S&P or A3 by Moodys. EBITDA is defined
as the last four quarters of earnings before depreciation, amortization, net interest
expense, income taxes, minority interest, net other non-operating expenses and
extraordinary items.
    
    New secured debt should not be greater than 15 percent
of our net tangible
assets. Net tangible assets are defined as total assets less current liabilities and net
intangible assets.
 .
 Interest Payments and Expense 
 Letters of Credit, Bank Guarantees and Surety Bonds 
 Note 12Leases
  54




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##### Table of Contents



LeasesFuture Minimum Rental Payments
    
    Capital
    
    
    Operating2007
    
    $
    9
    
    
    $
    512008
    
    
    7
    
    
    
    392009
    
    
    6
    
    
    
    292010
    
    
    5
    
    
    
    222011
    
    
    6
    
    
    
    10Thereafter
    
    
    12
    
    
    
    59Total
    
    $
    45
    
    
    $
    210Amounts representing interest
    
    
    (12
    )Present value of net minimum lease payments
    
    
    33Less: current portion of net minimum lease payments
    
    
    6Long-term portion of net minimum lease payments
    
    $
    27
  Components of net rental expense under operating leases:
 2006
    
    
    2005
    
    
    2004Minimum rentals
    
    $
    99
    
    
    $
    90
    
    
    $
    77Sublease rental
income
    
    
    (3
    )
    
    
    (2
    )
    
    
    (2
    )Total
    
    $
    96
    
    
    $
    88
    
    
    $
    75
 Note 13Financial Instruments and Risk Management
 Cash Flow Hedges
   55




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##### Table of Contents



Before
    
    
    
    
    
    
    
    
    
    
    Net ofMinority
    
    
    
    
    
    
    
    
    
    
    MinorityInterest
    
    
    
    
    
    
    
    
    
    
    Interestand
    
    
    Minority
    
    
    
    
    
    
    andTaxes
    
    
    Interest
    
    
    Taxes
    
    
    TaxesAccumulated net gains as of December 27, 2003
    
    $
    22
    
    
    $
    (1
    )
    
    $
    (8
    )
    
    $
    13Net changes in the fair value of cash flow hedges
    
    
    29
    
    
    
    (2
    )
    
    
    (10
    )
    
    
    17Net gains reclassified from AOCL into earnings
    
    
    (34
    )
    
    
    2
    
    
    
    12
    
    
    
    (20
    )Accumulated net gains as of December 25, 2004
    
    
    17
    
    
    
    (1
    )
    
    
    (6
    )
    
    
    10Net changes in the fair value of cash flow hedges
    
    
    5
    
    
    
    
    
    
    
    (2
    )
    
    
    3Net gains reclassified from AOCL into earnings
    
    
    (17
    )
    
    
    1
    
    
    
    6
    
    
    
    (10
    )Accumulated net gains as of December 31, 2005
    
    
    5
    
    
    
    
    
    
    
    (2
    )
    
    
    3Net changes in the fair value of cash flow hedges
    
    
    14
    
    
    
    (1
    )
    
    
    (5
    )
    
    
    8Net gains reclassified from AOCL into earnings
    
    
    (1
    )
    
    
    
    
    
    
    1
    
    
    
    Accumulated net gains as of December 30, 2006
    
    $
    18
    
    
    $
    (1
    )
    
    $
    (6
    )
    
    $
    11
  Fair Value Hedges 
 Unfunded Deferred Compensation Liability 
 56




---



##### Table of Contents



Other Financial Assets and Liabilities 
  Note 14Pension and Postretirement Medical Benefit Plans
 Employee Benefit Plans
   Defined Benefit Pension Plans
 57




---



##### Table of Contents



Postretirement Medical Plans
  Incremental Effects of Applying SFAS 158 on the Consolidated Balance Sheet at December 30, 2006:
 Prior to AML
    
    
    
    
    
    Prior to
    
    
    
    
    
    Post AML andand SFAS 158
    
    AML
    
    SFAS 158
    
    SFAS 158
    
    SFAS 158Adjustments
    
    Adjustments
    
    Adjustments
    
    Adjustments
    
    AdjustmentsPrepaid expenses and other
current assets
    
    $
    265
    
    
    $
    
    
    
    $
    265
    
    
    $
    (10
    )
    
    $
    255Other intangible assets, net
    
    $
    3,832
    
    
    $
    (4
    )
    
    $
    3,828
    
    
    $
    (60
    )
    
    $
    3,768Other assets
    
    $
    132
    
    
    $
    
    
    
    $
    132
    
    
    $
    3
    
    
    $
    135Accounts payable and other
current liabilities
    
    $
    1,669
    
    
    $
    
    
    
    $
    1,669
    
    
    $
    8
    
    
    $
    1,677Other liabilities
    
    $
    1,049
    
    
    $
    (52
    )
    
    $
    997
    
    
    $
    208
    
    
    $
    1,205Deferred income taxes, net
    
    $
    1,380
    
    
    $
    18
    
    
    $
    1,398
    
    
    $
    (105
    )
    
    $
    1,293Minority interest
    
    $
    556
    
    
    $
    3
    
    
    $
    559
    
    
    $
    (19
    )
    
    $
    540Accumulated other
comprehensive loss
    
    $
    (229
    )
    
    $
    27
    
    
    $
    (202
    )
    
    $
    (159
    )
    
    $
    (361
    )
 Amounts
Recognized in AOCL at Fiscal Year End Related to U.S. Plans:
 Pension
    
    
    Postretirement2006
    
    
    2006Prior Service Cost
    
    $
    47
    
    
    $
    3Net Loss
    
    
    460
    
    
    
    98Total amount recognized in AOCL
    
    $
    507
    
    
    $
    101
 Estimated Amounts in AOCL to be Recognized in 2007 for U.S. Net Periodic Benefit Cost:
 Pension
    
    PostretirementPrior Service Cost
    
    $
    7
    
    
    $
    Net Loss
    
    $
    38
    
    
    $
    4
 58




---



##### Table of Contents



Defined Contribution Benefits
 Pension2006
    
    
    2005
    
    
    2004Components of U.S. pension expense:Service cost
    
    $
    53
    
    
    $
    46
    
    
    $
    43Interest cost
    
    
    82
    
    
    
    75
    
    
    
    69Expected return on plan assets  (income)
    
    
    (94
    )
    
    
    (90
    )
    
    
    (83
    )Amortization of net loss
    
    
    38
    
    
    
    30
    
    
    
    25Amortization of prior service amendments
    
    
    9
    
    
    
    7
    
    
    
    7Special termination benefits
    
    
    
    
    
    
    9
    
    
    
    Net pension expense for the defined benefit plans
    
    $
    88
    
    
    $
    77
    
    
    $
    61Defined contribution plans expense
    
    $
    22
    
    
    $
    20
    
    
    $
    19Total pension expense recognized in the
Consolidated Statements of Operations
    
    $
    110
    
    
    $
    97
    
    
    $
    80
 Postretirement2006
    
    
    2005
    
    
    2004Components of U.S. postretirement benefits expense:Service cost
    
    $
    4
    
    
    $
    3
    
    
    $
    4Interest cost
    
    
    20
    
    
    
    22
    
    
    
    18Amortization of net loss
    
    
    7
    
    
    
    8
    
    
    
    6Amortization of prior service amendments
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Net postretirement benefits expense recognized in
the Consolidated Statements of Operations
    
    $
    31
    
    
    $
    32
    
    
    $
    27
 Changes in the Projected Benefit Obligations
 Pension
    
    
    Postretirement2006
    
    
    2005
    
    
    2006
    
    
    2005Obligation at beginning of year
    
    $
    1,439
    
    
    $
    1,252
    
    
    $
    384
    
    
    $
    379Service cost
    
    
    53
    
    
    
    46
    
    
    
    4
    
    
    
    3Interest cost
    
    
    82
    
    
    
    75
    
    
    
    20
    
    
    
    22Plan amendments
    
    
    (8
    )
    
    
    21
    
    
    
    1
    
    
    
    8Actuarial loss/(gain)
    
    
    43
    
    
    
    91
    
    
    
    (32
    )
    
    
    (1
    )Benefit payments
    
    
    (69
    )
    
    
    (54
    )
    
    
    (23
    )
    
    
    (27
    )Special termination benefits
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    Transfers
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    Obligation at end of year
    
    $
    1,539
    
    
    $
    1,439
    
    
    $
    354
    
    
    $
    384
 59




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##### Table of Contents



Changes in the Fair Value of Assets
 Pension
    
    
    Postretirement2006
    
    
    2005
    
    
    2006
    
    
    2005Fair value at beginning of year
    
    $
    1,149
    
    
    $
    1,025
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    114
    
    
    
    135
    
    
    
    
    
    
    
    Transfers
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    Employer contributions
    
    
    96
    
    
    
    44
    
    
    
    23
    
    
    
    27Benefit payments
    
    
    (69
    )
    
    
    (54
    )
    
    
    (23
    )
    
    
    (27
    )Fair value at end of year
    
    $
    1,289
    
    
    $
    1,149
    
    
    $
    
    
    
    $
    
 Additional Plan Information
 Pension
    
    Postretirement2006
    
    2005
    
    2006
    
    2005Projected benefit obligation
    
    $
    1,539
    
    
    $
    1,439
    
    
    $
    354
    
    
    $
    384Accumulated benefit obligation
    
    $
    1,407
    
    
    $
    1,330
    
    
    $
    354
    
    
    $
    384Fair value of plan assets (1)
    
    $
    1,299
    
    
    $
    1,190
    
    
    $
    
    
    
    $
    
 
 
 (1)
    
    Includes fourth quarter employer contributions.  Reconciliation of Funded Status at Fiscal Year End
 Pension
    
    
    Postretirement2006
    
    
    2005
    
    
    2006
    
    
    2005Funded status at measurement date
    
    $
    (250
    )
    
    $
    (290
    )
    
    $
    (354
    )
    
    $
    (384
    )Fourth quarter employer contributions/payments
    
    
    10
    
    
    
    41
    
    
    
    5
    
    
    
    6Funded status at end of year
    
    $
    (240
    )
    
    
    (249
    )
    
    $
    (349
    )
    
    
    (378
    )Unrecognized prior service cost (1)
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    2Unrecognized loss (1)
    
    
    
    
    
    
    474
    
    
    
    
    
    
    
    137Total recognized in the balance sheet
    
    
    
    
    
    $
    289
    
    
    
    
    
    
    $
    (239
    )
 
 
 (1)
    
    Upon adoption of SFAS 158, the full funded status of our
pension plans and postretirement plan is now
recognized on our balance sheet. Funded Status Recognized in the Consolidated Balance Sheets at Fiscal Year End
 Pension
    
    
    Postretirement2006
    
    
    2005
    
    
    2006
    
    
    2005Accounts payable and other current liabilities
    
    $
    (1
    )
    
    $
    
    
    
    $
    (26
    )
    
    $
    Other liabilities
    
    
    (239
    )
    
    
    (158
    )
    
    
    (323
    )
    
    
    (239
    )Total liabilities
    
    
    (240
    )
    
    
    (158)
    *
    
    
    (349
    )
    
    
    (239)
    *Intangible assets
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    Accumulated other comprehensive loss **
    
    
    507
    
    
    
    383
    
    
    
    101
    
    
    
    Net amounts recognized
    
    $
    267
    
    
    $
    289
    
    
    $
    (248
    )
    
    $
    (239
    )
 
 
 *
    
    Prior to the adoption of SFAS 158 and in accordance with existing accounting guidance for
pension plans, we recorded a minimum pension liability equal to the excess of the accumulated benefit
obligation over the fair market value of the plan assets. Also, in accordance with then existing accounting
guidance for postretirement plans, we were not required to record a minimum liability.**
    
    Amounts presented are before the impact of taxes and minority interest. 60




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##### Table of Contents



Assumptions
  Pension
    
    Postretirement2006
    
    2005
    
    2004
    
    2006
    
    2005
    
    2004Discount rate
    
    
    5.80
    %
    
    
    6.15
    %
    
    
    6.25
    %
    
    
    5.55
    %
    
    
    6.15
    %
    
    
    6.25
    %Expected return on plan assets (1)
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    3.53
    %
    
    
    3.60
    %
    
    
    4.20
    %
    
    
    3.53
    %
    
    
    3.60
    %
    
    
    4.20
    %
 
 
 (1)
    
    Expected return on plan assets is presented after administration expenses.  Pension
    
    Postretirement2006
    
    2005
    
    2006
    
    2005Discount rate
    
    
    6.00
    %
    
    
    5.80
    %
    
    
    5.80
    %
    
    
    5.55
    %Rate of compensation increase
    
    
    3.55
    %
    
    
    3.53
    %
    
    
    3.55
    %
    
    
    3.53
    %
  Funding and Plan Assets
 Allocation PercentageTarget
    
    Actual
    
    ActualAsset Category
    
    2007
    
    2006
    
    2005Equity securities
    
    
    75
    %
    
    
    76
    %
    
    
    76
    %Debt securities
    
    
    25
    %
    
    
    24
    %
    
    
    24
    %
   Health Care Cost Trend Rates
  61




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##### Table of Contents



1% Increase
    
    1% DecreaseEffect on total fiscal year 2006 service and interest cost components
    
    $
    1
    *
    
    $
    (1)
    *Effect on the fiscal year 2006 postretirement benefit obligation
    
    $
    9
    
    
    $
    (8
    )
 *
    
    Impact was slightly less than $0.5 million. Pension and Postretirement Cash Flow 
 Employer Contributions to U.S. Plans
    
    Pension
    
    Postretirement2005
    
    $
    77
    
    
    $
    272006
    
    $
    66
    
    
    $
    222007 (expected)
    
    $
    40
    
    
    $
    26
  Expected Benefit  U.S. Plans 
 PostretirementIncluding Medicare
    
    Excluding MedicareExpected Benefit Payments
    
    Pension
    
    Subsidy
    
    Subsidy2007
    
    $
    58
    
    
    $
    26
    
    
    $
    272008
    
    $
    64
    
    
    $
    25
    
    
    $
    262009
    
    $
    69
    
    
    $
    25
    
    
    $
    262010
    
    $
    76
    
    
    $
    26
    
    
    $
    272011
    
    $
    85
    
    
    $
    27
    
    
    $
    282012 to 2016
    
    $
    577
    
    
    $
    139
    
    
    $
    144
 62




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##### Table of Contents



Note 15Income Taxes
  2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    203
    
    
    $
    238
    
    
    $
    135Foreign
    
    
    36
    
    
    
    26
    
    
    
    35State
    
    
    36
    
    
    
    26
    
    
    
    17International legal entity/ debt restructuring reserves
    
    
    
    
    
    
    22
    
    
    
    30Release of tax reserves from audit settlements
    
    
    (55
    )
    
    
    
    
    
    
    220
    
    
    
    312
    
    
    
    217Deferred:Federal
    
    
    (26
    )
    
    
    (36
    )
    
    
    54Foreign
    
    
    (22
    )
    
    
    (19
    )
    
    
    (22
    )State
    
    
    (2
    )
    
    
    (10
    )
    
    
    9Tax rate change benefit
    
    
    (11
    )
    
    
    
    
    
    
    (26
    )(61
    )
    
    
    (65
    )
    
    
    15$
    159
    
    
    $
    247
    
    
    $
    232
  
    
    Valuation allowances  During 2006, we reversed valuation allowances resulting in a $34
million tax benefit. These reversals were due to improved profitability trends and certain
restructurings in Spain, Russia and Turkey.
    
    Tax audit settlement  The statute of limitations for the IRS audit of our 1999-2000
tax returns closed on December 30, 2006, and we released approximately $55 million in tax
contingency reserves relating to such audit.
    
    Tax rate changes  During 2006, changes to the income tax laws in Canada, Turkey and
certain jurisdictions within the U.S. were enacted. These law changes enabled us to
re-measure our net deferred tax liabilities using lower tax rates which decreased our
income tax expense by approximately $11 million before the impact of minority interest.
  
    
    Valuation allowances  In the fourth quarter, we reversed valuation allowances
resulting in a $27 million tax benefit. These reversals were due in part to improved
profitability trends in Russia and a change to the Russia tax law that enables us to use a
greater amount of our Russian net operating loss carryforwards (NOLs). Additionally, the
implementation of U.S. legal entity restructuring contributed to the remainder of the
valuation allowance reversal.
    
    International legal entity/debt restructuring  In the fourth quarter, we completed the
reorganization of our international legal entity and debt structure to allow for more
efficient cash mobilization, to reduce taxable foreign exchange risks and to reduce
potential future tax costs. This reorganization resulted in a $22 million tax charge.
 63




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##### Table of Contents




    
    International tax structure change  In December 2004, we initiated a reorganization of
our international tax structure to allow for more efficient cash mobilization and to reduce
future tax costs. This reorganization triggered a $30 million tax charge in the fourth
quarter, of which $14 million was recorded as part of our current provision and $16 million
was recorded in our deferred tax provision.
    
    Mexico tax rate change  In December 2004, legislation was enacted changing the Mexican
statutory income tax rate. This rate change decreased our net deferred tax liabilities and
resulted in a $26 million tax benefit in the fourth quarter.
    
    Tax reserves  During 2004, we adjusted previously established liabilities for tax
exposures due largely to the settlement of certain international tax audits. The
adjustment of these liabilities resulted in an $8 million tax benefit for the year.
  2006
    
    
    2005
    
    
    2004U.S.
    
    $
    485
    
    
    $
    588
    
    
    $
    550Foreign
    
    
    196
    
    
    
    125
    
    
    
    139$
    681
    
    
    $
    713
    
    
    $
    689
  2006
    
    
    2005
    
    
    2004Income taxes computed at the U.S. federal statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income tax, net of federal tax benefit
    
    
    4.2
    
    
    
    2.1
    
    
    
    2.2Impact of foreign results
    
    
    (1.8
    )
    
    
    (4.4
    )
    
    
    (10.4
    )Change in valuation allowances, net
    
    
    (7.5
    )
    
    
    (6.0
    )
    
    
    3.4Nondeductible expenses
    
    
    1.9
    
    
    
    1.8
    
    
    
    2.1Qualified domestic production activity deduction
    
    
    (0.8
    )
    
    
    (0.9
    )
    
    
    International tax audit settlements, net
    
    
    
    
    
    
    
    
    
    
    (1.2
    )Other, net
    
    
    2.1
    
    
    
    4.1
    
    
    
    2.033.1
    
    
    
    31.7
    
    
    
    33.1International legal entity/debt restructuring reserves
    
    
    
    
    
    
    3.0
    
    
    
    4.3Release of tax reserves from audit settlements
    
    
    (8.0
    )
    
    
    
    
    
    
    Tax rate change benefit
    
    
    (1.7
    )
    
    
    
    
    
    
    (3.7
    )Total effective income tax rate
    
    
    23.4
    %
    
    
    34.7
    %
    
    
    33.7
    %
 64




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##### Table of Contents



2006
    
    
    2005Intangible assets and property, plant and equipment
    
    $
    1,620
    
    
    $
    1,627Other
    
    
    107
    
    
    
    94Gross deferred tax liabilities
    
    
    1,727
    
    
    
    1,721Net operating loss carryforwards
    
    
    (275
    )
    
    
    (291
    )Employee benefit obligations
    
    
    (310
    )
    
    
    (196
    )Bad debts
    
    
    (12
    )
    
    
    (16
    )Various liabilities and other
    
    
    (105
    )
    
    
    (83
    )Gross deferred tax assets
    
    
    (702
    )
    
    
    (586
    )Deferred tax asset valuation allowance
    
    
    195
    
    
    
    228Net deferred tax assets
    
    
    (507
    )
    
    
    (358
    )Net deferred tax liability
    
    $
    1,220
    
    
    $
    1,363Consolidated Balance Sheets ClassificationPrepaid expenses and other current assets
    
    $
    (58
    )
    
    $
    (61
    )Other assets
    
    
    (21
    )
    
    
    (14
    )Accounts payable and other current liabilities
    
    
    6
    
    
    
    17Deferred income taxes
    
    
    1,293
    
    
    
    1,421$
    1,220
    
    
    $
    1,363
       65




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##### Table of Contents



Note 16Segment Information
    Net Revenues2006
    
    
    2005
    
    
    2004U.S. & Canada
    
    $
    9,910
    
    
    $
    9,342
    
    
    $
    8,613Europe
    
    
    1,534
    
    
    
    1,366
    
    
    
    1,222Mexico
    
    
    1,286
    
    
    
    1,177
    
    
    
    1,071Worldwide net revenues
    
    $
    12,730
    
    
    $
    11,885
    
    
    $
    10,906
  Operating Income2006
    
    
    2005
    
    
    2004U.S. & Canada
    
    $
    878
    
    
    $
    926
    
    
    $
    871Europe
    
    
    57
    
    
    
    35
    
    
    
    54Mexico
    
    
    82
    
    
    
    62
    
    
    
    51Worldwide operating income
    
    
    1,017
    
    
    
    1,023
    
    
    
    976Interest expense, net
    
    
    266
    
    
    
    250
    
    
    
    230Other non-operating expenses, net
    
    
    11
    
    
    
    1
    
    
    
    1Minority interest
    
    
    59
    
    
    
    59
    
    
    
    56Income before income taxes
    
    $
    681
    
    
    $
    713
    
    
    $
    689
 66




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##### Table of Contents



Total Assets
    
    
    Long-Lived Assets12006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004U.S. & Canada
    
    $
    9,044
    
    
    $
    8,869
    
    
    $
    8,498
    
    
    $
    7,150
    
    
    $
    7,175
    
    
    $
    6,844Europe
    
    
    1,072
    
    
    
    894
    
    
    
    810
    
    
    
    554
    
    
    
    459
    
    
    
    475Mexico
    
    
    1,811
    
    
    
    1,761
    
    
    
    1,629
    
    
    
    1,474
    
    
    
    1,478
    
    
    
    1,435Worldwide total
    
    $
    11,927
    
    
    $
    11,524
    
    
    $
    10,937
    
    
    $
    9,178
    
    
    $
    9,112
    
    
    $
    8,754
 
 1
    
    Long-lived assets represent property, plant and equipment, other intangible assets, goodwill and other assets.  Capital Expenditures
    
    
    Depreciation and Amortization2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004U.S. & Canada
    
    $
    558
    
    
    $
    546
    
    
    $
    534
    
    
    $
    514
    
    
    $
    486
    
    
    $
    463Europe
    
    
    99
    
    
    
    96
    
    
    
    82
    
    
    
    52
    
    
    
    63
    
    
    
    56Mexico
    
    
    68
    
    
    
    73
    
    
    
    72
    
    
    
    83
    
    
    
    81
    
    
    
    74Worldwide total
    
    $
    725
    
    
    $
    715
    
    
    $
    688
    
    
    $
    649
    
    
    $
    630
    
    
    $
    593
 Note 17Related Party Transactions
  (1)
    
    Master Bottling Agreement for cola beverages bearing the Pepsi-Cola and Pepsi
trademarks in the United States; bottling agreements and distribution agreements for
non-cola beverages; and a master fountain syrup agreement in the United States;(2)
    
    Agreements similar to the master bottling agreement and the non-cola agreement for each
country in which we operate, as well as a fountain syrup agreement for Canada;(3)
    
    A shared services agreement where we obtain various services from PepsiCo and provide
services to PepsiCo; 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.
  67




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Net revenues:Bottler incentives (a)
    
    $
    67
    
    
    $
    51
    
    
    $
    22Cost of sales:Purchases of concentrate and finished products,
and royalty fees (b)
    
    $
    (3,227
    )
    
    $
    (2,993
    )
    
    $
    (2,741
    )Bottler incentives (a)
    
    
    595
    
    
    
    559
    
    
    
    522$
    (2,632
    )
    
    $
    (2,434
    )
    
    $
    (2,219
    )Selling, delivery and administrative expenses:Bottler incentives (a)
    
    $
    69
    
    
    $
    78
    
    
    $
    82Fountain service fee (c)
    
    
    178
    
    
    
    183
    
    
    
    180Frito-Lay purchases (d)
    
    
    (198
    )
    
    
    (144
    )
    
    
    (75
    )Shared services (e):Shared services expense
    
    
    (61
    )
    
    
    (69
    )
    
    
    (68
    )Shared services revenue
    
    
    8
    
    
    
    8
    
    
    
    10Net shared services
    
    
    (53
    )
    
    
    (61
    )
    
    
    (58
    )HFCS (f)
    
    
    
    
    
    
    23
    
    
    
    $
    (4
    )
    
    $
    79
    
    
    $
    129Income tax benefit (g)
    
    $
    6
    
    
    $
    3
    
    
    $
    17
 (a) Bottler Incentives and Other Arrangements 
 (b) Purchase of Concentrate and Finished Product  
 (c) Fountain Service Fee  
 (d) Frito-Lay Purchases 
 68




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(e) Shared Services 
 (f) High Fructose Corn Syrup (HFCS) Settlement 
 (g) Income Tax Benefit 
        69




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Note 18Contingencies
  Note 19Accumulated Other Comprehensive Loss
  2006
    
    
    2005
    
    
    2004Net currency translation adjustment
    
    $
    (21
    )
    
    $
    (46
    )
    
    $
    (111
    )Cash flow hedge adjustment (1)
    
    
    11
    
    
    
    3
    
    
    
    10Minimum pension liability adjustment (2)
    
    
    (192
    )
    
    
    (219
    )
    
    
    (214
    )Adoption of SFAS 158 (3)
    
    
    (159
    )
    
    
    
    
    
    
    Accumulated other comprehensive loss
    
    $
    (361
    )
    
    $
    (262
    )
    
    $
    (315
    )
 
 (1)
    
    Net of minority interest and taxes of $(7) million in 2006, $(2) million in 2005 and $(7)
million in 2004.(2)
    
    Net of minority interest and taxes of $143 million in 2006, $164 million in 2005 and $161 million in
2004.(3)
    
    Net of minority interest and taxes of $124 million in 2006. See Note 14 in the Notes to
Consolidated Financial Statements for further information on the adoption of SFAS 158. Note 20Selected Quarterly Financial Data (unaudited)
 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Full Year2006(1)Net revenues
    
    $
    2,367
    
    
    $
    3,138
    
    
    $
    3,460
    
    
    $
    3,765
    
    
    $
    12,730Gross profit
    
    
    1,114
    
    
    
    1,472
    
    
    
    1,609
    
    
    
    1,725
    
    
    
    5,920Operating income
    
    
    121
    
    
    
    315
    
    
    
    383
    
    
    
    198
    
    
    
    1,017Net income
    
    
    34
    
    
    
    148
    
    
    
    207
    
    
    
    133
    
    
    
    522Diluted earnings per share (2)
    
    $
    0.14
    
    
    $
    0.61
    
    
    $
    0.86
    
    
    $
    0.55
    
    
    $
    2.16
 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Full Year2005(1)Net revenues
    
    $
    2,147
    
    
    $
    2,862
    
    
    $
    3,214
    
    
    $
    3,662
    
    
    $
    11,885Gross profit
    
    
    1,031
    
    
    
    1,367
    
    
    
    1,519
    
    
    
    1,715
    
    
    
    5,632Operating income
    
    
    120
    
    
    
    303
    
    
    
    393
    
    
    
    207
    
    
    
    1,023Net income
    
    
    39
    
    
    
    148
    
    
    
    205
    
    
    
    74
    
    
    
    466Diluted earnings per share (2)
    
    $
    0.15
    
    
    $
    0.59
    
    
    $
    0.82
    
    
    $
    0.30
    
    
    $
    1.86
 
 (1)
    
    For additional unaudited information see Items that affect historical or future comparability in Managements Financial Review in Item 7.(2)
    
    Diluted earnings per share are computed independently for each of the periods presented. 70




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71




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Report of Independent Registered Public Accounting Firm
 
     /s/ KPMG LLPNew York, New YorkFebruary 25, 2005 72




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Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
  
 Item 8. Financial Statements and Supplementary Data
   
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
     73




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74




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Changes in Internal Controls
  
 Item 9B. Other Information
  75




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PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
      www.pbg.com
 
 Item 11. Executive Compensation
    76




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Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 Securities Authorized for Issuance Under Equity Compensation Plans
  Number of securitiesremaining available forNumber of securities
    
    Weighted-average
    
    future issuance underto be issued upon exercise
    
    exercise price of
    
    equity compensation plansof outstanding options,
    
    outstanding options,
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    warrants and rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    31,817,201
    (1)
    
    $
    23.41
    
    
    
    11,526,173Equity compensation
plans not approved
by security holders
    
    
    2,015,172
    (2)
    
    $
    14.60
    
    
    
    0
    (3)Total
    
    
    33,832,373
    
    
    $
    22.89
    
    
    
    11,526,173
 
 (1)
    
    The securities reflected in this category are authorized for issuance (i) upon
exercise of awards granted under the Directors Stock Plan and the 2004 Long-Term Incentive
Plan and (ii) upon exercise of awards granted prior to May 26, 2004 under the following PBG
plans: (A) 1999 Long-Term Incentive Plan; (B) 2000 Long-Term Incentive Plan and (C) 2002
Long-Term Incentive Plan. Effective May 26, 2004, no securities were available for future
issuance under the 1999 Long-Term Incentive Plan, the 2000 Long-Term Incentive Plan or the
2002 Long-Term Incentive Plan.(2)
    
    The securities reflected in this category are authorized for issuance upon exercise
of awards granted prior to May 26, 2004 under the PBG Stock Incentive Plan (the SIP).
Effective May 26, 2004, no securities were available for future issuance under the SIP.(3)
    
    The 2004 Long-Term Incentive Plan and the Directors Stock Plan, both of which have
been approved by our shareholders, are the only equity compensation plans that provide
securities remaining available for future issuance. Description of the PBG Stock Incentive Plan
  Security Ownership
  77




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Item 13. Certain Relationships and Related Transactions, and Director Independence
   
 Item 14. Principal Accountant Fees and Services
  78




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PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)  1.
    
    Financial Statements. The following consolidated financial statements of PBG and its subsidiaries are included
herein:Consolidated Statements of Operations  Fiscal years ended December 30, 2006, December 31, 2005 and December
25, 2004.Consolidated Statements of Cash Flows  Fiscal years ended December 30, 2006, December 31, 2005 and December
25, 2004.Consolidated Balance Sheets  December 30, 2006 and December 31, 2005.Consolidated Statements of Changes in Shareholders Equity  Fiscal years ended December 30, 2006, December 31,
2005 and December 25, 2004.Notes to Consolidated Financial Statements.Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)Report of Independent Registered Public Accounting Firm (KPMG LLP)2.
    
    Financial Statement Schedules. The following financial statement schedules of
PBG and its subsidiaries are included in this Report on the page indicated:
 PageReport of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)
    
    F-2Report and Consent of Independent Registered Public Accounting Firm (KPMG LLP)
    
    F-3Schedule II  Valuation and Qualifying Accounts for the fiscal years ended
December 30, 2006, December 31, 2005 and
                         December 25, 2004
    
    F-4
 3.
    
    ExhibitsSee Index to Exhibits on pages E-1- E-4.
 79




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SIGNATURES
   The Pepsi Bottling Group, Inc.By:
    /s/ Eric J. FossEric J. FossPresident and Chief Executive Officer  SIGNATURE
    
    TITLE
    
    DATE/s/ Eric J. Foss
    
    President, Chief Executive Officer and Director
    
    February 26, 2007Eric J. Foss
    
    (Principal Executive Officer)/s/ Alfred H. Drewes
    
    Senior Vice President and Chief
    
    February 26, 2007Alfred H. Drewes
    
    Financial Officer 
(Principal Financial Officer)/s/ Andrea L. Forster
    
    Vice President and Controller
    
    February 26, 2007Andrea L. Forster
    
    (Principal Accounting Officer)/s/ John T. Cahill
    
    Executive Chairman of the Board
    
    February 26, 2007John T. Cahill/s/ Linda G. Alvarado
    
    Director
    
    February 26, 2007Linda G. Alvarado/s/ Barry H. Beracha
    
    Director
    
    February 26, 2007Barry H. Beracha/s/ Ira D. Hall
    
    Director
    
    February 26, 2007Ira D. Hall/s/ Thomas H. Kean
    
    Director
    
    February 26, 2007Thomas H. Kean/s/ Susan D. Kronick
    
    Director
    
    February 26, 2007Susan D. Kronick/s/ Blythe J. McGarvie
    
    Director
    
    February 26, 2007Blythe J. McGarvie/s/ Margaret D. Moore
    
    Director
    
    February 26, 2007Margaret D. Moore/s/ John A. Quelch
    
    Director
    
    February 26, 2007John A. Quelch/s/ Clay G. Small
    
    Director
    
    February 26, 2007Clay G. Small
 S-1




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INDEX TO FINANCIAL STATEMENT SCHEDULES
 PageReport of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)
    
    F-2Report and Consent of Independent Registered Public Accounting Firm (KPMG LLP)
    
    F-3Schedule II  Valuation and Qualifying Accounts for the fiscal years ended December 30, 2006,

                         December 31, 2005 and December 25, 2004
    
    F-4
 F-1




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F-2




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Report and Consent of Independent Registered Public Accounting Firm
 
    
 F-3




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SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
THE PEPSI BOTTLING GROUP, INC.
IN MILLIONS
 Balance At
    
    
    
    
    
    
    
    
    
    
    
    
    
    ForeignBeginning
    
    Charged to Cost
    
    
    
    
    
    Accounts
    
    Currency
    
    Balance At EndDescription
    
    Of Period
    
    and Expenses
    
    Acquisitions
    
    Written Off
    
    Translation
    

Of PeriodFiscal Year Ended
December 30, 2006Allowance for
losses on trade
accounts
receivable
    
    $
    51
    
    
    $
    5
    
    
    $
    
    
    
    $
    (7
    )
    
    $
    1
    
    
    $
    50Fiscal Year Ended
December 31, 2005Allowance for
losses on trade
accounts
receivable
    
    $
    61
    
    
    $
    3
    
    
    $
    
    
    
    $
    (12
    )
    
    $
    (1
    )
    
    $
    51Fiscal Year Ended
December 25, 2004Allowance for
losses on trade
accounts
receivable
    
    $
    72
    
    
    $
    (5
    )
    
    $
    
    
    
    $
    (7
    )
    
    $
    1
    
    
    $
    61
 F-4




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description of Exhibit3.1
    
    Articles of Incorporation of PBG, which are incorporated herein by reference to Exhibit 3.1
to PBGs Registration Statement on Form S-1 (Registration No. 333-70291).3.2
    
    By-Laws of PBG, which are incorporated herein by reference to Exhibit 3.2 to PBGs
Registration Statement on Form S-1 (Registration No. 333-70291).3.3
    
    Amendment to Articles of Incorporation of PBG, which is incorporated herein by reference to
Exhibit 3.3 to PBGs Registration Statement on Form S-1 (Registration No. 333-70291).3.4
    
    Amendment to Articles of Incorporation of PBG, dated as of November 27, 2001, which is
incorporated herein by reference to Exhibit 3.4 to PBGs Annual Report on Form 10-K for the
year ended December 29, 2001.4.1
    
    Form of common stock certificate, which is incorporated herein by reference to Exhibit 4 to
PBGs Registration Statement on Form S-1 (Registration No. 333-70291).4.2
    
    Indenture dated as of February 8, 1999 among Pepsi Bottling Holdings, Inc., PepsiCo, Inc., as
guarantor, 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, which is incorporated herein
by reference to Exhibit 10.9 to PBGs Registration Statement on Form S-1 (Registration No.
333-70291).4.3
    
    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, which is incorporated herein by
reference to Exhibit 10.10 to PBGs Registration Statement on Form S-1 (Registration No.
333-70291).4.4
    
    Indenture dated as of March 8, 1999 by and among PBG, 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).4.5
    
    Indenture dated as of November 15, 2002 among Bottling Group, LLC, PepsiCo, Inc., as
guarantor, and JPMorgan Chase Bank, as trustee, relating to $1,000,000,000 4 5/8% Senior Notes
due November 15, 2012, which is incorporated herein by reference to Exhibit 4.8 to PBGs
Annual Report on Form 10-K for the year ended December 28, 2002.4.6
    
    Registration Rights Agreement dated as of November 7, 2002 relating to the $1,000,000,000 4
5/8% Senior Notes due November 15, 2012, which is incorporated herein by reference to Exhibit
4.8 to Bottling Group LLCs Annual Report on Form 10-K for the year ended December 28, 2002.4.7
    
    Indenture, dated as of June 10, 2003 by and between Bottling Group, LLC, as obligor, and
JPMorgan Chase Bank, as trustee, relating to $250,000,000 4 1/8 % Senior Notes due June 15,
2015, which is incorporated herein by reference to Exhibit 4.1 to Bottling Group, LLCs
registration statement on Form S-4 (Registration No. 333-106285).4.8
    
    Registration Rights Agreement dated June 10, 2003 by and among Bottling Group, LLC, J.P.
Morgan Securities Inc., Lehman Brothers Inc., Banc of America Securities LLC, Citigroup Global
Markets Inc, Credit Suisse First Boston LLC, Deutsche Bank Securities Inc., Blaylock &
Partners, L.P. and Fleet Securities, Inc, relating to $250,000,000 4 1/8 % Senior Notes due
June 15, 2015, which is incorporated herein by reference to Exhibit 4.3 to Bottling Group,
LLCs registration statement on Form S-4 (Registration No. 333-106285).4.9
    
    Indenture, dated as of October 1, 2003, by and between Bottling Group, LLC, as obligor, and
JPMorgan Chase Bank, as trustee, which is incorporated herein by reference to Exhibit 4.1 to
Bottling Group, LLCs Form 8-K dated October 3, 2003.
 E-1




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Exhibit No.
    
    Description of Exhibit4.10
    
    Form of Note for the $400,000,000 5.00% Senior Notes due November 15, 2013, which is
incorporated herein by reference to Exhibit 4.1 to Bottling Group, LLCs Form 8-K dated
November 13, 2003.4.11
    
    Indenture, dated as of March 30, 2006, by and between Bottling Group, LLC, as obligor, and
JPMorgan Chase Bank, N.A., as trustee, which is incorporated herein by reference to Exhibit
4.1 to PBGs Quarterly Report on Form 10-Q for the quarter ended March 25, 2006.4.12
    
    Form of Note for the $800,000,000 51/2% Senior Notes due April 1, 2016, which is incorporated
herein by reference to Exhibit 4.2 to PBGs Quarterly Report on Form 10-Q for the quarter
ended March 25, 2006.10.1
    
    Form of Master Bottling Agreement, which is incorporated herein by reference to Exhibit 10.1
to PBGs Registration Statement on Form S-1 (Registration No. 333-70291).10.2
    
    Form of Master Syrup Agreement, which is incorporated herein by reference to Exhibit 10.2 to
PBGs Registration Statement on Form S-1 (Registration No. 333-70291).10.3
    
    Form of Non-Cola Bottling Agreement, which is incorporated herein by reference to Exhibit
10.3 to PBGs Registration Statement on Form S-1 (Registration No. 333-70291).10.4
    
    Form of Separation Agreement, which is incorporated herein by reference to Exhibit 10.4 to
PBGs Registration Statement on Form S-1 (Registration No. 333-70291).10.5
    
    Form of Shared Services Agreement, which is incorporated herein by reference to Exhibit 10.5
to PBGs Registration Statement on Form S-1 (Registration No. 333-70291).10.6
    
    Form of Tax Separation Agreement, which is incorporated herein by reference to Exhibit 10.6
to PBGs Registration Statement on Form S-1 (Registration No. 333-70291).10.7
    
    Form of Employee Programs Agreement, which is incorporated herein by reference to Exhibit
10.7 to PBGs Registration Statement on Form S-1 (Registration No. 333-70291).10.8
    
    PBG Executive Income Deferral Plan, which is incorporated herein by reference to Exhibit 10.8
to PBGs Annual Report on Form 10-K for the year ended December 25, 1999.10.9
    
    PBG 1999 Long-Term Incentive Plan, which is incorporated herein by reference to Exhibit 10.9
to PBGs Annual Report on Form 10-K for the year ended December 25, 1999.10.10
    
    PBG Stock Incentive Plan, which is incorporated herein by reference to Exhibit 10.11 to
PBGs Annual Report on Form 10-K for the year ended December 25, 1999.10.11
    
    Amended PBG Executive Income Deferral Program, which is incorporated herein by reference to
Exhibit 10.12 to PBGs Annual Report on Form 10-K for the year ended December 30, 2000.10.12
    
    PBG Long Term Incentive Plan, which is incorporated herein by reference to Exhibit 10.13 to
PBGs Annual Report on Form 10-K for the year ended December 30, 2000.10.13
    
    2002 PBG Long-Term Incentive Plan, which is incorporated herein by reference to Exhibit
10.15 to PBGs Annual Report on Form 10-K for the year ended December 28, 2002.10.14
    
    Form of Mexican Master Bottling Agreement, which is incorporated herein by reference to
Exhibit 10.16 to PBGs Annual Report on Form 10-K for the year ended December 28, 2002.10.15
    
    Form of Employee Restricted Stock Agreement under the PBG 2004 Long-Term Incentive Plan,
which is incorporated herein by reference to Exhibit 10.1 to PBGs Quarterly Report on Form
10-Q for the quarter ended September 4, 2004.
 E-2




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Exhibit No.
    
    Description of Exhibit10.16
    
    Form of Employee Stock Option Agreement under the PBG 2004 Long-Term Incentive Plan, which
is incorporated herein by reference to Exhibit 10.2 to PBGs Quarterly Report on Form 10-Q for
the quarter ended September 4, 2004.10.17
    
    Form of Non-Employee Director Annual Stock Option Agreement under the PBG Directors Stock
Plan which is incorporated herein by reference to Exhibit 10.3 to PBGs Quarterly Report on
Form 10-Q for the quarter ended September 4, 2004.10.18
    
    Form of Non-Employee Director Restricted Stock Agreement under the PBG Directors Stock
Plan, which is incorporated herein by reference to Exhibit 10.4 to PBGs Quarterly Report on
Form 10-Q for the quarter ended September 4, 2004.10.19
    
    Summary of the material terms of the PBG Executive Incentive Compensation Plan, which is
incorporated herein by reference to Exhibit 10.6 to PBGs Quarterly Report on Form 10-Q for
the quarter ended September 4, 2004.10.20
    
    Description of the compensation paid by PBG to its non-management directors which is
incorporated herein by reference to the Directors Compensation section in PBGs Proxy
Statement for the 2006 Annual Meeting of Shareholders.10.21
    
    Form of Director Indemnification, which is incorporated herein by reference to Exhibit 10.1
to PBGs Quarterly Report on Form 10-Q for the quarter ended June 11, 2005.10.22
    
    PBG 2005 Executive Incentive Compensation Plan, which is incorporated herein by reference to
Appendix A to PBGs Proxy Statement for the 2005 Annual Meeting of Shareholders (the 2005
Proxy Statement).10.23
    
    PBG 2004 Long-Term Incentive Plan as amended and restated, effective May 25, 2005, which is
incorporated herein by reference to Appendix B to the 2005 Proxy Statement.10.24
    
    Settlement Agreement between Bottling Group, LLC and PepsiCo, Inc. dated June 28, 2005,
which is incorporated herein by reference to Exhibit 10.4 to PBGs Quarterly Report on Form
10-Q for the quarter ended June 11, 2005.10.25
    
    Form of Employee Restricted Stock Unit Agreement, which is incorporated herein by reference
to Exhibit 10.1 to PBGs Quarterly Report on Form 10-Q for the quarter ended September 3,
2005.10.26
    
    Form of Non-Employee Director Restricted Stock Unit Agreement under the Amended and Restated
PBG Directors Stock Plan which is incorporated herein by reference to Exhibit 10.32 to PBGs
Annual Report on Form 10-K for the year ended December 31, 2005.10.27
    
    $500,000,000 5-Year Credit Agreement dated as of April 28, 2004 among PBG, Bottling Group,
LLC, JP Morgan Chase Bank, as agent, Banc of America Securities LLC and Citigroup Global
Markets Inc., as joint lead arrangers and book managers, and Bank of America, N.A., Citicorp
USA, Inc., Credit Suisse First Boston and Deutsche Bank Securities Inc., as syndication
agents, which is incorporated herein by reference to Exhibit 4.1 to PBGs Quarterly Report on
Form 10-Q for the quarter ended June 12, 2004.10.28
    
    $450,000,000 5-Year Credit Agreement dated as of March 22, 2006 among The Pepsi Bottling
Group Inc., Bottling Group, LLC, Citibank, N.A as agent, Citigroup Global Markets Inc. and
HSBC Securities (USA) Inc. as joint lead arrangers and book managers and HSBC Bank USA, N.A.,
as syndication agents, which is incorporated herein by reference to Exhibit 10.1 to PBGs
Quarterly Report on Form 10-Q for the quarter ended March 25, 2006.10.29*
    
    Commitment Increase Notice dated March 22, 2006 relating to the $500,000,000 5-Year Credit
Agreement dated as of April 28, 2004 among PBG, Bottling Group, LLC, JP Morgan Chase Bank, as
agent, and certain banks identified in the Credit Agreement.10.30
    
    Amended and Restated PBG Directors Stock Plan dated as of July 19, 2006, which is
incorporated herein by reference to Exhibit 10.1 to PBGs Quarterly Report on Form 10-Q for
the quarter ended September 9, 2006.10.31*
    
    Amended and Restated PBG Pension Equalization Plan.
 E-3




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit12*
    
    Statement re Computation of Ratios.21*
    
    Subsidiaries of PBG.23.1*
    
    Report and Consent of KPMG LLP.23.2*
    
    Consent of Deloitte & Touche LLP.24*
    
    Power of Attorney.31.1*
    
    Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2*
    
    Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1*
    
    Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.2*
    
    Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.99.1*
    
    Bottling Group, LLCs Annual Report on Form 10-K for the fiscal year ended December 30,
2006.
 
 *
    
    Filed herewith E-4