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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    ----------
                                    FORM 10-K

[x]   Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
            Act of 1934 For the Fiscal Year Ended December 25, 2004

                                       or

[ ]   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.
             (Exact name of Registrant as Specified in its Charter)

      INCORPORATED IN DELAWARE                          13-4038356
      (STATE OR OTHER JURISDICTION OF                (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

                ONE PEPSI WAY
               SOMERS, NEW YORK                             10589
  (Address of Principal Executive Offices)               (Zip code)

       Registrant's telephone number, including area code: (914) 767-6000

                            -------------------------
           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
                                                   NAME OF EACH EXCHANGE
        TITLE OF EACH CLASS                         ON WHICH REGISTERED
        -------------------                         -------------------
<S>                                               <C>
Common Stock, par value $.01 per share            New York Stock Exchange
</TABLE>

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

      INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]

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

<PAGE>

      INDICATE BY CHECKMARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN EXCHANGE ACT RULE 12b-2). YES [X] NO [ ]

      THE NUMBER OF SHARES OF CAPITAL STOCK OF THE PEPSI BOTTLING GROUP, INC.
OUTSTANDING AS OF FEBRUARY 11, 2005 WAS 247,152,311. 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 12, 2004 WAS $4,418,472,073.

<TABLE>
<CAPTION>
      DOCUMENTS OF WHICH PORTIONS               PARTS OF FORM 10-K INTO WHICH
      ARE INCORPORATED BY REFERENCE         PORTION OF DOCUMENTS ARE INCORPORATED
      -----------------------------         ------------------------------------
<S>                                         <C>
PROXY STATEMENT FOR THE PEPSI BOTTLING                          III
GROUP, INC. MAY 25,2005 ANNUAL MEETING
OF SHAREHOLDERS
</TABLE>

<PAGE>

                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

      The Pepsi Bottling Group, Inc. ("PBG") was incorporated in Delaware in
January, 1999, as a wholly owned subsidiary of PepsiCo, Inc. ("PepsiCo") to
effect the separation of most of PepsiCo's company-owned bottling businesses.
PBG became a publicly traded company on March 31, 1999. As of January 22, 2005,
PepsiCo's ownership represented 42.7% of the outstanding common stock and 100%
of the outstanding Class B common stock, together representing 47.9% of the
voting power of all classes of PBG's voting stock. PepsiCo also owned
approximately 6.8% of the equity interest of Bottling Group, LLC, PBG's
principal operating subsidiary, as of January 22, 2005. We refer to our publicly
traded common stock as "Common Stock" and, together with our Class B common
stock, as our "Capital Stock." When used in this Report, "PBG," "we," "us" and
"our" each refers to The Pepsi Bottling Group, Inc. and, where appropriate, to
Bottling Group, LLC, which we also refer to as "Bottling LLC."

      We maintain a website at http://www.pbg.com. We make available, free of
charge, through the Investor Relations - Financial Information - SEC Filings
section of our website, our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and any amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended, as soon as reasonably practicable after such reports
are electronically filed with, or furnished to, the Securities and Exchange
Commission (the "SEC"). Additionally, we have made available, free of charge,
the following governance materials on our website at http://www.pbg.com under
Investor Relations - Company Information - Corporate Governance: Corporate
Governance Principles and Practices, Worldwide Code of Conduct, Director
Independence Policy, the Audit and Affiliated Transactions Committee Charter,
the Compensation and Management Development Committee Charter, the Nominating
and Corporate Governance Committee Charter and the Disclosure Committee Charter.
These governance materials are available in print, free of charge, to any PBG
shareholder upon request.

PRINCIPAL PRODUCTS

      PBG is the world's largest manufacturer, seller and distributor of
Pepsi-Cola beverages. The beverages sold by us include PEPSI-COLA, DIET PEPSI,
MOUNTAIN DEW, AQUAFINA, SIERRA MIST, DIET MOUNTAIN DEW, LIPTON BRISK, SOBE,
STARBUCKS FRAPPUCCINO and TROPICANA JUICE DRINKS and, outside the U.S.,
PEPSI-COLA, 7 UP, KAS, MIRINDA and AQUA MINERALE. In some of our territories, we
have the right to manufacture, sell and distribute soft drink products of
companies other than PepsiCo, including DR PEPPER and SQUIRT. We also have the
right in some of our territories to manufacture, sell and distribute beverages
under trademarks that we own, including ELECTROPURA, EPURA and GARCI CRESPO.

      We have the exclusive right to manufacture, sell and distribute Pepsi-Cola
beverages in all or a portion of 41 states and the District of Columbia in the
U.S., nine Canadian provinces, Spain, Greece, Russia, Turkey and all or a
portion of 23 states in Mexico. In 2004, approximately 72% of our net revenues
were generated in the United States, 10% of our net revenues were generated in
Mexico and the remaining 18% of our net revenues were generated in Canada,
Spain, Greece, Russia and Turkey. In 2004, worldwide sales of our products to
two of our customers accounted for approximately 10% of our net revenues. We
have an extensive direct store distribution system in the United States, Mexico
and Canada. In Russia, Spain, Greece and Turkey, we use a combination of direct
store distribution and distribution through wholesalers, depending on local
marketplace considerations.

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RAW MATERIALS AND OTHER SUPPLIES

      We purchase the concentrates to manufacture Pepsi-Cola beverages and other
beverage products from PepsiCo and other beverage companies.

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

PATENTS, TRADEMARKS AND LICENSES

      Our portfolio of beverage products includes some of the best recognized
trademarks in the world and includes PEPSI-COLA, DIET PEPSI, MOUNTAIN DEW,
AQUAFINA, SIERRA MIST, DIET MOUNTAIN DEW, LIPTON BRISK, SOBE, STARBUCKS
FRAPPUCCINO and TROPICANA JUICE DRINKS and, outside the U.S., PEPSI-COLA, 7 UP,
KAS, MIRINDA and AQUA MINERALE. In some of our territories, we have the right to
manufacture, sell and distribute beverage products of companies other than
PepsiCo, including DR PEPPER and SQUIRT. We also have the right in some of our
territories to manufacture, sell and distribute beverages under trademarks that
we own, including ELECTROPURA, EPURA and GARCI CRESPO. The majority of our
volume is derived from brands licensed from PepsiCo or PepsiCo joint ventures.

      We conduct our business primarily under agreements with PepsiCo. These
agreements give us the exclusive right to market, distribute, and produce
beverage products of PepsiCo in authorized containers in specified territories.

      Set forth below is a description of the Pepsi beverage agreements and
other bottling agreements to which we are a party.

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

      Under the Master Bottling Agreement we are obligated to:

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

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

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

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

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      (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.

      The Master Bottling Agreement requires us to meet annually with PepsiCo to
discuss plans for the ensuing year and the following two years. At such
meetings, we are obligated to present plans that set out in reasonable detail
our marketing plan, our management plan and advertising plan with respect to the
cola beverages for the year. We must also present a financial plan showing that
we have the financial capacity to perform our duties and obligations under the
Master Bottling Agreement for that year, as well as sales, marketing,
advertising and capital expenditure plans for the two years following such year.
PepsiCo has the right to approve such plans, which approval shall not be
unreasonably withheld. In 2004, PepsiCo approved our plans.

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

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

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

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

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

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

      Under the Master Bottling Agreement, PepsiCo has agreed not to withhold
approval for any acquisition of rights to manufacture and sell PEPSI trademarked
cola beverages within a specific area - currently representing approximately
11.2% of PepsiCo's U.S. bottling system in terms of volume - if we have
successfully negotiated the acquisition and, in PepsiCo's reasonable judgment,
satisfactorily performed our obligations under the Master Bottling Agreement. We
have agreed not to acquire or attempt

                                       3

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to acquire any rights to manufacture and sell PEPSI trademarked cola beverages
outside of that specific area without PepsiCo's prior written approval.

      The Master Bottling Agreement is perpetual, but may be terminated by
PepsiCo in the event of our default. Events of default include:

      (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.

      An event of default will also occur if any person or affiliated group
acquires any contract, option, conversion privilege, or other right to acquire,
directly or indirectly, beneficial ownership of more than 15% of any class or
series of our voting securities without the consent of PepsiCo. As of February
11, 2005, to our knowledge, no shareholder of PBG, other than PepsiCo, held more
than 12.5% of our Common Stock.

      We are prohibited from assigning, transferring or pledging the Master
Bottling Agreement, or any interest therein, whether voluntarily, or by
operation of law, including by merger or liquidation, without the prior consent
of PepsiCo.

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

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

      Terms of Certain Distribution Agreements. We also have agreements with
PepsiCo granting us exclusive rights to distribute AMP and DOLE in all of our
territories and SOBE in certain specified territories. The distribution
agreements contain provisions generally similar to those in the Master Bottling
Agreement as to use of trademarks, trade names, approved containers and labels
and causes for termination. We also have the right to sell and distribute
GATORADE in Spain, Greece and Russia and in certain limited channels of
distribution in the U.S. Some of these beverage agreements have limited terms
and, in most instances, prohibit us from dealing in similar beverage products.
We are also currently distributing TROPICANA JUICE DRINKS in the United States
and Canada and TROPICANA JUICES in Russia.

      Terms of the Master Syrup Agreement. The Master Syrup Agreement grants us
the exclusive right to manufacture, sell and distribute fountain syrup to local
customers in our territories. The Master Syrup Agreement also grants us the
right to act as a manufacturing and delivery agent for national accounts within
our territories that specifically request direct delivery without using a
middleman. In addition,

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PepsiCo may appoint us to manufacture and deliver fountain syrup to national
accounts that elect delivery through independent distributors. Under the Master
Syrup Agreement, we have the exclusive right to service fountain equipment for
all of the national account customers within our territories. The Master Syrup
Agreement provides that the determination of whether an account is local or
national is at the sole discretion of PepsiCo.

      The Master Syrup Agreement contains provisions that are similar to those
contained in the Master Bottling Agreement with respect to concentrate pricing,
territorial restrictions with respect to local customers and national customers
electing direct-to-store delivery only, planning, quality control, transfer
restrictions and related matters. The Master Syrup Agreement had an initial term
of five years which expired in 2004 and was renewed for an additional five-year
period. The Master Syrup Agreement will automatically renew for additional
five-year periods, unless PepsiCo terminates it for cause. PepsiCo has the right
to terminate the Master Syrup Agreement without cause at any time upon
twenty-four months notice. In the event PepsiCo terminates the Master Syrup
Agreement without cause, PepsiCo is required to pay us the fair market value of
our rights thereunder.

      Our Master Syrup Agreement will terminate if PepsiCo terminates our Master
Bottling Agreement.

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

      Terms of the Country Specific Bottling Agreements. The country specific
bottling agreements contain provisions generally similar to those contained in
the Master Bottling Agreement and the non-cola bottling agreements and, in
Canada, the Master Syrup Agreement with respect to authorized containers,
planning, quality control, transfer restrictions, term, causes for termination
and related matters. These bottling agreements differ from the Master Bottling
Agreement because, except for Canada, they include both fountain syrup and
non-fountain beverages. Certain of these bottling agreements contain provisions
that have been modified to reflect the laws and regulations of the applicable
country. For example, the bottling agreements in Spain do not contain a
restriction on the sale and shipment of Pepsi-Cola beverages into our territory
by others in response to unsolicited orders. In addition, in Mexico and Turkey
we are restricted in our ability to manufacture, sell and distribute beverages
sold under non-PepsiCo trademarks.

SEASONALITY

      Our peak season is the warm summer months beginning in May and ending in
September. Approximately 66% of our operating income is typically earned during
the second and third quarters. Approximately 75% of cash flow from operations is
typically generated in the third and fourth quarters.

COMPETITION

      The carbonated soft drink market and the non-carbonated beverage market
are highly competitive. Our competitors in these markets include bottlers and
distributors of nationally advertised and marketed products, bottlers and
distributors of regionally advertised and marketed products, as well as bottlers
of private label soft drinks sold in chain stores. Among our major competitors
are bottlers that distribute products from The Coca-Cola Company including
Coca-Cola Enterprises Inc., Coca-Cola Hellenic Bottling Company S.A., Coca-Cola
FEMSA S.A. de C.V. and Coca-Cola Bottling Co. Consolidated. Our market share for
carbonated soft drinks sold under trademarks owned by PepsiCo in our U.S.
territories ranges from approximately 22% to approximately 37%. Our market share
for carbonated soft drinks sold under trademarks owned by PepsiCo for each
country, outside the U.S., in which we do business is as follows: Canada 37%;
Russia 25%; Turkey 18%; Spain 13% and Greece 11% (including market share for
our IVI brand). In addition, market share for our territories and the
territories of other Pepsi

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bottlers in Mexico is 15% for carbonated soft drinks sold under trademarks
owned by PepsiCo. Actions by our major competitors and others in the beverage
industry, as well as the general economic environment could have an impact on
our future market share.

      We compete primarily on the basis of advertising and marketing programs to
create brand awareness, price and promotions, retail space management, customer
service, consumer points of access, new products, packaging innovations and
distribution methods. We believe that brand recognition, market place pricing,
consumer value, availability and consumer and customer goodwill are primary
factors affecting our competitive position.

GOVERNMENTAL REGULATION APPLICABLE TO PBG

      Our operations and properties are subject to regulation by various
federal, state and local governmental entities and agencies in the United States
as well as foreign governmental entities and agencies in Canada, Spain, Greece,
Russia, Turkey and Mexico. As a producer of food products, we are subject to
production, packaging, quality, labeling and distribution standards in each of
the countries where we have operations, including, in the United States, those
of the federal Food, Drug and Cosmetic Act. The operations of our production and
distribution facilities are subject to laws and regulations relating to the
protection of the environment in the countries in which we do business. In the
United States, we are subject to the laws and regulations of various
governmental entities, including the Department of Labor and the Department of
Transportation, and various federal, state and local occupational, labor and
employment and environmental laws. These laws and regulations include the
Occupational Safety and Health Act, the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, the Federal Motor Carrier Safety Act,
the Fair Labor Standards Act and laws relating to the operation, maintenance of
and financial responsibility for fuel storage tanks.

      We believe that our current legal, operational and environmental
compliance programs are adequate and that we are in substantial compliance with
applicable laws and regulations of the countries in which we do business. We do
not anticipate making any material expenditures in connection with environmental
remediation and compliance. However, compliance with, or any violation of,
future laws or regulations could require material expenditures by us or
otherwise have a material adverse effect on our business, financial condition or
results of operations.

      Bottle and Can Legislation

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

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

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

      The European Commission issued a packaging and packing waste directive
that was incorporated into the national legislation of most member states. This
has resulted in targets being set for the recovery and recycling of household,
commercial and industrial packaging waste and imposes substantial
responsibilities upon bottlers and retailers for implementation. Similar
legislation has been enacted in Turkey.

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      Mexico adopted legislation regulating the disposal of solid waste
products. In response to this legislation, PBG Mexico maintains agreements with
local and federal Mexican governmental authorities as well as with civil
associations, which require PBG Mexico, and other participating bottlers, to
provide for collection and recycling of certain minimum amounts of plastic
bottles.

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

      Soft Drink Excise Tax Legislation

      Specific soft drink excise taxes have been in place in certain states for
several years. The states in which we operate that currently impose such a tax
are West Virginia, Arkansas and Tennessee and, with respect to fountain syrup
only, Washington. In Mexico, there are excise taxes on any sweetened beverage
products produced without sugar, including our diet soft drinks. Effective
January 1, 2005, this excise tax also affects imported beverages that are not
sweetened with sugar.

      Value-added taxes on soft drinks vary in our territories located in
Canada, Spain, Greece, Russia, Turkey and Mexico, but are consistent with the
value-added tax rate for other consumer products. In addition, there is a
special consumption tax applicable to cola products in Turkey. In Mexico,
bottled water in containers over 10.1 liters are exempt from value-added tax.

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

      Trade Regulation

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

      California Carcinogen and Reproductive Toxin Legislation

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

      Mexican Water Regulation

      In Mexico, we pump water from our own wells and we purchase water directly
from municipal water companies pursuant to concessions obtained from the Mexican
government on a plant-by-plant basis. The concessions are generally for 10-year
terms and can generally be renewed by us prior to expiration with minimal cost
and effort. Our concessions may be terminated if, among other things, (a) we use
materially more water than permitted by the concession, (b) we use materially
less water than required by the concession, (c) we fail to pay for the rights
for water usage or (d) we carry out, without government

                                       7

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authorization, any material construction on or improvement to, our wells. Our
concessions generally satisfy our current water requirements and we believe that
we are generally in compliance in all material respects with the terms of our
existing concessions.

EMPLOYEES

      As of December 25, 2004, we employed approximately 64,700 workers, of whom
approximately 31,700 were employed in the United States. Approximately 8,900 of
our workers in the United States are union members and approximately 16,900 of
our workers outside the United States are union members. We consider relations
with our employees to be good and have not experienced significant interruptions
of operations due to labor disagreements.

FINANCIAL INFORMATION ON INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS

      See Note 14 to PBG's Consolidated Financial Statements included in Item 7
below.

ITEM 2. PROPERTIES

      As of December 25, 2004, we operated 96 soft drink production facilities
worldwide, of which 86 were owned and 8 were leased. In addition, one facility
used for the manufacture of soft drink packaging materials was operated by a PBG
joint venture in Turkey and one facility used for can manufacturing was operated
by a PBG joint venture in Ayer, Massachusetts. Of our 521 distribution
facilities, 335 are owned and 186 are leased. We believe that our bottling,
canning and syrup filling lines and our distribution facilities are sufficient
to meet present needs. We also lease headquarters office space in Somers, New
York.

      We also own or lease and operate approximately 40,000 vehicles, including
delivery trucks, delivery and transport tractors and trailers and other trucks
and vans used in the sale and distribution of our soft drink products. We also
own more than 2 million coolers, soft drink dispensing fountains and vending
machines.

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

ITEM 3. LEGAL PROCEEDINGS

      From time to time we are a party to various litigation proceedings arising
in the ordinary course of our business, none of which, in the opinion of
management, is likely to have a material adverse effect on our financial
condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

      None.

EXECUTIVE OFFICERS OF THE REGISTRANT

      Executive officers are elected by our Board of Directors, and their terms
of office continue until the next annual meeting of the Board or until their
successors are elected and have been qualified. There are no family
relationships among our executive officers.

      Set forth below is information pertaining to our executive officers who
held office as of February 11, 2005:

                                       8

<PAGE>

JOHN T. CAHILL, 47, is our Chairman of the Board and Chief Executive Officer. He
has been our Chairman of the Board since January 2003 and Chief Executive
Officer since September 2001. Previously, Mr. Cahill served as our President and
Chief Operating Officer from August 2000 to September 2001. Mr. Cahill has been
a member of our Board of Directors since January 1999 and served as our
Executive Vice President and Chief Financial Officer prior to becoming President
and Chief Operating Officer in August 2000. He was Executive Vice President and
Chief Financial Officer of the Pepsi-Cola Company from April 1998 until November
1998. Prior to that, Mr. Cahill was Senior Vice President and Treasurer of
PepsiCo, having been appointed to that position in April 1997. In 1996, he
became Senior Vice President and Chief Financial Officer of Pepsi-Cola North
America. Mr. Cahill joined PepsiCo in 1989 where he held several other senior
financial positions through 1996.

L. KEVIN COX, 41, is our Executive Vice President. Appointed to this position in
September 2004, Mr. Cox previously served as Senior Vice President and Chief
Personnel Officer of PBG since 1998. From 1997 to 1998, he served as Senior Vice
President of Human Resources for Pepsi-Cola Bottling Company. Prior to that, Mr.
Cox was Vice President, Organization Capabilities for the Pepsi-Cola Company in
1996. Mr. Cox joined PepsiCo in 1989 and held a variety of field and
headquarters-based human resources positions.

ALFRED H. DREWES, 49, is our Senior Vice President and Chief Financial Officer.
Appointed to this position in June 2001, Mr. Drewes previously served as Senior
Vice President and Chief Financial Officer of Pepsi Beverages International
("PBI"). Mr. Drewes joined PepsiCo in 1982 as a financial analyst in New Jersey.
During the next nine years, he rose through increasingly responsible finance
positions within Pepsi-Cola North America in field operations and headquarters.
In 1991, Mr. Drewes joined PBI as Vice President of Manufacturing Operations,
with responsibility for the global concentrate supply organization.

ERIC J. FOSS, 46, is the President of PBG North America. Previously, Mr. Foss
was our Executive Vice President and General Manager of PBG North America from
August 2000 to September 2001. From October 1999 until August 2000, he served as
our Senior Vice President, U.S. Sales and Field Operations, and prior to that,
he was our Senior Vice President, Sales and Field Marketing, since March 1999.
Mr. Foss joined Pepsi-Cola Company in 1982 and has held a variety of other field
and headquarters-based sales, marketing and general management positions. From
1994 to 1996, Mr. Foss was General Manager of Pepsi-Cola North America's Great
West Business Unit. In 1996, Mr. Foss was named General Manager for the Central
Europe Region for Pepsi-Cola International, a position he held until joining PBG
in March 1999. In addition, Mr. Foss is a director of United Dominion Realty
Trust, Inc.

STEVEN M. RAPP, 51, is our Senior Vice President, General Counsel and Secretary.
Appointed to this position in January 2005, Mr. Rapp previously served as Vice
President, Deputy General Counsel and Assistant Secretary from 1999 through
2004. Mr. Rapp joined PepsiCo as a corporate attorney in 1986 and was appointed
Division Counsel of Pepsi-Cola Company in 1994. Mr. Rapp succeeds Pamela C.
McGuire who was Senior Vice President, General Counsel and Secretary of PBG from
1998 through 2004.

YIANNIS PETRIDES, 46, is the President of PBG Europe. He was appointed to this
position in June 2000, with responsibilities for our operations in Spain,
Greece, Turkey and Russia. Most recently, he served as Business Unit General
Manager for PBG in Spain and Greece. Mr. Petrides joined PepsiCo in 1987 in the
international beverage division. In 1993, he was named General Manager of Frito
Lay's Greek operation with additional responsibility for the Balkan countries.
Two years later, he was appointed Business Unit General Manager for Pepsi
Beverages International's bottling operation in Spain.

ROGELIO REBOLLEDO, 60, was appointed President and Chief Executive Officer of
PBG Mexico in January 2004 and elected to PBG's Board in May 2004. From 2000 to
2003, Mr. Rebolledo was President and Chief Executive Officer of Frito-Lay
International ("FLI"), a subsidiary of PepsiCo, Inc., operating in Latin
America, Asia Pacific, Australia, Europe, Middle East and Africa. From 1997 to
2000, Mr. Rebolledo was the President of the Latin America/Asia Pacific region
for FLI. Mr. Rebolledo joined PepsiCo, Inc. in 1976 and held several senior
positions including serving as President and Chief Executive Officer of the
Latin America Region of PepsiCo Foods International ("PFI") and President of the
Sabritas, Gamesa, Brazil and Spain PFI operations.

                                       9

<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

      Stock Trading Symbol - PBG.

      Stock Exchange Listings - PBG's Common Stock is listed on the New York
Stock Exchange. Our Class B common stock is not publicly traded.

      Shareholders - As of February 11, 2005, there were approximately 52,769
registered and beneficial shareholders of Common Stock. PepsiCo is the holder of
all of the outstanding shares of Class B common stock.

      Stock Prices - The high and low sales prices for a share of PBG Common
Stock on the New York Stock Exchange, as reported by Bloomberg Service, for each
fiscal quarter of 2004 and 2003 were as follows (in dollars):

<TABLE>
<CAPTION>
2004            High    Low
----            ----    ---
<S>             <C>     <C>
First Quarter   29.99   23.75
Second Quarter  30.69   27.60
Third Quarter   31.40   26.00
Fourth Quarter  29.46   25.70
</TABLE>

<TABLE>
<CAPTION>
2003            High    Low
-----           ----    ---
<S>             <C>     <C>
First Quarter   27.62   17.00
Second Quarter  21.45   17.75
Third Quarter   24.65   19.54
Fourth Quarter  24.00   20.39
</TABLE>

                                       10

<PAGE>
                                    PART II

      Dividend Policy - Quarterly cash dividends are usually declared in
January, March, July and November and paid at the end of March, June, September
and at the beginning of January. The dividend record dates for 2005 are expected
to be March 11, June 10, September 9 and December 9.

      Cash Dividends Declared Per Share on Capital Stock:

<TABLE>
<CAPTION>
Quarter   2004    2003
-------   ----    ----
<S>       <C>     <C>
1         $.01    $.01
2         $.05    $.01
3         $.05    $.01
4         $.05    $.01
Total     $.16    $.04
</TABLE>

      PBG Purchase of Equity Securities - In the fourth quarter of 2004, we
repurchased approximately 3.3 million shares of PBG Common Stock. Since the
inception of our share repurchase program in October 1999, approximately 84
million shares of PBG Common Stock have been repurchased. Our share repurchases
for the fourth quarter of 2004 are as follows:

<TABLE>
<CAPTION>
                   Total Number of                  Total Number of Shares (or     Maximum Number (or Approximate
                       Shares        Average Price  Units)Purchased as Part of   Dollar Value)of Shares(or Units)that
                     (or Units)     Paid per Share  Publicly Announced Plans or  May Yet Be Purchased Under the Plans
Period               Purchased(1)     (or Unit)(2)          Programs(3)                      or Programs(3)
---------            ---------        ---------             ---------                        ------------
<S>                <C>              <C>             <C>                          <C>
Period 10
09/05/04-
10/02/04              1,225,000         $26.82              1,225,000                         18,541,200

Period 11
10/03/04-
10/30/04               395,000          $27.75               395,000                          18,146,200

Period 12
10/31/04-
11/27/04               635,500          $28.20               635,500                          17,510,700

Period 13
11/28/04-
12/25/04              1,053,700         $27.32             1,053,700                          16,457,000

Total                 3,309,200         $27.35             3,309,200
</TABLE>

(1)Shares have only been repurchased through publicly announced programs.

(2)Average share price excludes brokerage fees.

(3)The PBG Board has authorized the repurchase of shares of PBG Common Stock on
   the open market and through negotiated transactions as follows:

<TABLE>
<CAPTION>
                                                                 Number of Shares
                                                                 Authorized to be
    Date Share Repurchase Programs were Publicly Announced         Repurchased
<S>                                                              <C>
October 14, 1999...............................................    20,000,000
July 13, 2000..................................................    10,000,000
July 11, 2001..................................................    20,000,000
May 28, 2003...................................................    25,000,000
March 25, 2004.................................................    25,000,000
                                                                   ----------
Total shares authorized to be repurchased as of December 25,
2004                                                              100,000,000
                                                                  ===========

Unless terminated by resolution of the PBG Board, each share repurchase
program expires when we have repurchased all shares authorized for
repurchase thereunder.
</TABLE>

                                       11

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
in millions, except per share data
FISCAL YEARS ENDED                                         2004      2003      2002      2001     2000(1)
                                                           ----      ----      ----      ----     ------
<S>                                                       <C>       <C>       <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA:
   Net revenues.......................................    $10,906   $10,265   $ 9,216   $ 8,443   $7,982
   Cost of sales......................................      5,656     5,215     5,001     4,580    4,405
                                                          -------   -------   -------   -------   ------
   Gross profit.......................................      5,250     5,050     4,215     3,863    3,577
   Selling, delivery and administrative expenses......      4,274     4,094     3,317     3,187    2,987
                                                          -------   -------   -------   -------   ------
   Operating income...................................        976       956       898       676      590
   Interest expense, net..............................        230       239       191       194      192
   Other non-operating expenses, net..................          1         7         7        --        1
   Minority interest..................................         56        50        51        41       33
                                                          -------   -------   -------   -------   ------
   Income before income taxes.........................        689       660       649       441      364
   Income tax expense (2)(3)(4).......................        232       238       221       136      135
                                                          -------   -------   -------   -------   ------
   Income before cumulative effect of change in
      accounting principle............................        457       422       428       305      229
   Cumulative effect of change in accounting
      principle, net of tax and minority interest.....         --         6        --        --       --
                                                          -------   -------   -------   -------   ------
   Net income.........................................    $   457   $   416   $   428   $   305   $  229
                                                          =======   =======   =======   =======   ======
PER SHARE DATA: (5)
   Basic earnings per share...........................    $  1.79   $  1.54   $  1.52   $  1.07   $ 0.78
   Diluted earnings per share.........................    $  1.73   $  1.50   $  1.46   $  1.03   $ 0.77
   Cash dividend per share............................    $  0.16   $  0.04   $  0.04   $  0.04   $ 0.04
   Weighted-average basic shares outstanding..........        255       270       282       286      294
   Weighted-average diluted shares outstanding........        263       277       293       296      299
OTHER FINANCIAL DATA:
   Cash provided by operations........................    $ 1,251   $ 1,084   $ 1,014   $   882   $  779
   Capital expenditures...............................    $  (717)  $  (644)  $  (623)  $  (593)  $ (515)

BALANCE SHEET DATA (AT PERIOD END):

   Total assets.......................................    $10,793   $11,544   $10,043   $ 7,857   $7,736
   Long-term debt.....................................    $ 4,489   $ 4,493   $ 4,539   $ 3,285   $3,271
   Minority interest..................................    $   445   $   396   $   348   $   319   $  306
   Accumulated other comprehensive loss...............    $  (315)  $  (380)  $  (468)  $  (370)  $ (254)
   Shareholders' equity...............................    $ 1,949   $ 1,881   $ 1,824   $ 1,601   $1,646
</TABLE>

(1)   Our fiscal year 2000 results were impacted by the inclusion of an extra
      week in our fiscal year. The extra week increased net income by $7
      million, or $0.02 per share.

(2)   Fiscal year 2001 includes Canada tax law change benefits of $25 million.

(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)   Reflects the 2001 two-for-one stock split.

                                       12
<PAGE>

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

     The Pepsi Bottling Group, Inc. ("PBG" or the "Company") is the world's
largest manufacturer, seller and distributor of Pepsi-Cola beverages. When used
in these Consolidated Financial Statements, "PBG," "we," "our" and "us" each
refers to The Pepsi Bottling Group, Inc. and, where appropriate, to Bottling
Group, LLC, our principal operating subsidiary.

     We have the exclusive right to manufacture, sell and distribute Pepsi-Cola
beverages in all or a portion of the U.S., Mexico, Canada and Europe, which
consists of operations in Spain, Greece, Russia and Turkey. As shown in the
table below, the U.S. business is the dominant driver of our results, generating
61% of our volume, 72% of our revenues and 82% of our operating income.

2004 RESULTS SUMMARY

<TABLE>
<CAPTION>
                                             Operating
                    Volume    Revenues        Income
                    ------    --------       ---------
<S>                 <C>       <C>            <C>
United States         61%        72%             82%
Canada                 7%         7%              7%
Mexico                18%        10%              5%
Europe                14%        11%              6%
                     ---        ---             ---
Total                100%       100%            100%
                     ===        ===             ===
</TABLE>

     The brands we sell are some of the best recognized trademarks in the world
and include PEPSI-COLA, DIET PEPSI, MOUNTAIN DEW, AQUAFINA, SIERRA MIST, DIET
MOUNTAIN DEW, LIPTON BRISK, SOBE, STARBUCKS FRAPPUCCINO and TROPICANA JUICE
DRINKS, and outside the U.S., PEPSI-COLA, 7 UP, KAS, MIRINDA, AND AQUA MINERALE.
In some of our territories, we also have the right to manufacture, sell and
distribute soft drink products of companies other than PepsiCo, Inc.
("PepsiCo"), including DR PEPPER and SQUIRT and trademarks we own including
ELECTROPURA, EPURA and GARCI CRESPO.

     Our products are sold in either a cold-drink or take-home format. Our cold-
drink format consists of cold products sold in the retail and foodservice
channels, which carry the highest profit margins on a per-case basis. Our
take-home format consists of unchilled products that are sold for at-home future
consumption.

     Physical cases represent the number of units that are actually produced,
distributed and sold. Each case of product as sold to our customers, regardless
of package configuration, represents one physical case. Our net price and gross
margin on a per-case basis is impacted by how much we charge for the product,
the mix of brands and packages we sell, and the channels in which the product is
sold. For example, we realize a higher net revenue and gross margin per case on
a 20-ounce chilled bottle sold in a convenience store than on a two-liter
unchilled bottle sold in a grocery store.

     Our financial success is dependent on a number of factors, including: our
strong partnership with PepsiCo, the customer relationships we cultivate,
pricing we achieve in the marketplace, our market execution and the efficiency
we achieve in manufacturing and distributing our products. Key indicators of our
financial success are measured by the number of physical cases we sell, the net
price and gross margin we achieve on a per-case basis, and our overall cost
productivity, reflecting how well we manage our raw material, manufacturing,
distribution and other overhead costs.


                                       13
<PAGE>
     The following discussion and analysis covers the key drivers behind our
business performance in 2004 and is categorized into the following sections:

          -    Financial performance summary;

          -    Critical accounting policies;

          -    Related party transactions;

          -    Items that affect historical or future comparability;

          -    Results of operations;

          -    Liquidity and financial condition; and

          -    Market risks and cautionary statements.

     The discussion and analysis throughout Management's Financial Review should
be read in conjunction with the Consolidated Financial Statements and the
related accompanying notes. The preparation of our Consolidated Financial
Statements in conformity with accounting principles generally accepted in the
United States of America ("U.S. GAAP") requires us to make estimates and
assumptions that affect the reported amounts in our Consolidated Financial
Statements and the related accompanying notes, including various claims and
contingencies related to lawsuits, taxes, environmental and other matters
arising out of the normal course of business. We use our best judgment, based on
the advice of external experts and our knowledge of existing facts and
circumstances and actions that we may undertake in the future, in determining
the estimates that affect our Consolidated Financial Statements.


                                       14
<PAGE>
FINANCIAL PERFORMANCE SUMMARY

<TABLE>
<CAPTION>
                                                                     52 WEEKS ENDED
                                                              ----------------------------
                                                              DECEMBER   DECEMBER      %
                                                              25, 2004   27, 2003   CHANGE
                                                              --------   --------   ------
<S>                                                           <C>        <C>        <C>
NET REVENUES ..............................................    $10,906    $10,265      6%

GROSS PROFIT ..............................................    $ 5,250    $ 5,050      4%

OPERATING INCOME ..........................................    $   976    $   956      2%

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (1) .............................................    $   457    $   422      8%

NET INCOME ................................................    $   457    $   416     10%

DILUTED EARNINGS PER SHARE (2) ............................    $  1.73    $  1.50     15%
</TABLE>

(1)- Cumulative effect of change in accounting principle for the fifty-two weeks
     ended December 27, 2003, reflects the impact of adoption of EITF Issue No.
     02-16. See Note 2--Summary of Significant Accounting Policies in the Notes
     to Consolidated Financial Statements for more information.

(2)- 2003 diluted earnings per share include the following items:

<TABLE>
<CAPTION>
                                                             2003
                                                            ------
<S>                                                         <C>
Non-cash charge related to the adoption of EITF 02-16 ...   $(0.02)
Non-cash charge related to a Canadian tax law change
   (See Results of Operations) ..........................   $(0.04)
                                                            ------
Total ...................................................   $(0.06)
                                                            ======
</TABLE>

     During 2004, we delivered solid results, reflecting strong topline growth,
which was partially offset by higher raw material costs and selling, delivery
and administrative expenses. Overall, we grew our worldwide operating income by
two percent, driven by a four percent increase in the U.S. and double-digit
increases in Canada and Europe, partially offset by an operating income decline
in Mexico of 40%. These results include a $9 million non-cash impairment charge
recorded in the fourth quarter related to our re-evaluation of the fair value of
our franchise licensing agreement with Cadbury Bebidas, S.A. de C.V. for the
SQUIRT trademark in Mexico, as a result of a change in its estimated accounting
life.

     Our strong topline growth was driven by innovation and solid execution in
the marketplace. This growth has been balanced, reflecting three percent growth
in net revenue per case and two percent growth in volume, with the remaining
percentage of growth coming from foreign currency translation. In the U.S., we
achieved a two percent volume increase due primarily to the successful
introduction of TROPICANA JUICE DRINKS and growth in AQUAFINA and our diet
portfolio. In Europe, we delivered strong results, growing net revenues by 19
percent versus the prior year, driven by double-digit volume growth in Russia
and Turkey. In Canada, TROPICANA TWISTER was introduced in 2004, and was a key
player in the growth of non-carbonated drinks in that geography. Our product
portfolio and packaging has been well positioned to capture the opportunity
presented by changing consumer preferences geared toward health and wellness,
variety and convenience.

     Our strong topline growth was partially offset by increases in cost of
sales, which has continued to pressure our bottom line results. On a per-case
basis, cost of sales increased five percent, reflecting significant increases in
raw material costs coupled with mix shifts into more expensive products and
packages. During 2004, we have experienced increases in concentrate prices,
coupled with growth in aluminum, sweeteners and resin prices, which added more
than $80 million of costs or one and a half percentage points of growth to our
worldwide cost of sales per case.


                                       15
<PAGE>
Additionally, the negative impact of foreign currency translation contributed
one percentage point of growth to our cost of sales increase.

     Selling, delivery and administrative expenses increased four percent, which
includes one percentage point of growth from foreign currency. The remaining
three percentage points of growth were due primarily to higher labor and benefit
costs. These increases were partially offset by cost savings driven from a
number of worldwide productivity initiatives we put in place during 2004 and a
reduction in our bad debt expense.

     In Mexico, we faced a number of challenges throughout the year including
competitive pressures, increased commodity costs and the devaluation of the
Mexican peso. Low-priced bargain brands continue to be an important factor in
the marketplace, which has made it difficult for us and all soft drink
suppliers to increase pricing. Cost of sales in Mexico has also been impacted by
rising sweetener costs throughout the year and a steep rise in resin costs in
the fourth quarter. We have made a number of investments in the marketplace and
in our infrastructure in Mexico, which should provide long-term benefits,
particularly in our water business and in our operating efficiency. Trends are
improving in Mexico, with volume increasing by four percent in the second half
of the year, bringing our volume to flat for the full year. Innovation and
execution in the marketplace played a key role in our volume improvement during
the year. During 2004, we introduced a number of new products and packages,
added 13,000 new accounts to our customer base and placed 24,000 net new
coolers.

     From a cash flow perspective, we continued our strong track record of
growing our cash from operations. We generated $1.3 billion of cash from
operations, after contributing $83 million into our pension plans, which are
solidly funded. With our strong cash flows, we utilized $717 million for capital
investments to grow our business and returned $613 million to our shareholders
through share repurchases and dividends during the year. During 2004, we
increased our annual dividend, raising it from $0.04 to $0.20 per share.

OUTLOOK

     In 2005, our fiscal year will include a 53rd week, while fiscal year 2004
consisted of 52 weeks. Our U.S. and Canadian operations report on a fiscal year
that consists of 52 weeks, ending on the last Saturday in December. Every five
or six years a 53rd week is added. Our other countries report on a calendar-year
basis. In order to provide comparable guidance for 2005, we have excluded the
impact of the 53rd week from our outlook. The table and the 2005 outlook
discussion below provide pro forma disclosure by excluding the projected impact
of the 53rd week in 2005:

<TABLE>
<CAPTION>
                                            PRO FORMA FORECASTED    IMPACT OF 53RD     FORECASTED 2005 VERSUS
                                          2005 VERSUS 2004 GROWTH         WEEK               2004 GROWTH
                                          -----------------------   ----------------   ----------------------
<S>                                       <C>                       <C>                <C>
Worldwide Volume                                   2% to 3%                1%                 3% to 4%
   U.S. and Canada Volume                        Flat to 1%                1%                 1% to 2%
Worldwide SD&A (in dollars)                        2% to 3%                1%                 3% to 4%
Worldwide Operating Profit (in dollars)          Flat to 3%                1%                 1% to 4%
</TABLE>

<TABLE>
<CAPTION>
                                            PRO FORMA FULL-YEAR     IMPACT OF  53RD    FULL-YEAR FORECASTED
                                          FORECASTED 2005 RESULTS         WEEK             2005 RESULTS
                                          -----------------------   ----------------   --------------------
<S>                                       <C>                       <C>                <C>
Interest Expense, net                       $240 to $245 million     ~  $4 million     $244 to $249 million
Diluted Earnings Per Share                     $1.76 to $1.84        $0.02 to $0.03        $1.78 to $1.87
</TABLE>

     In 2005, we expect our pro forma worldwide volume to grow between two and
three percent, with the U.S. and Canada each expected to be flat to up one
percent, Mexico up three to four percent and Europe up mid to high-single
digits. We will carefully balance our net revenue per case, using rate increases
where marketplace conditions allow, while also managing the mix of products we
plan to sell. We expect to increase our worldwide net revenue per case one to
two percent, which reflects a three percent increase in the U.S., partially
offset by larger contributions from our international territories that
typically have lower net revenue per case than the U.S., coupled with an
expected mid-single digit decline in the value of the Mexican peso.

     In 2005, worldwide cost of sales per case is expected to increase by four
to five percent. We are expecting the prices of resin, sweetener and aluminum to
continue to increase, driving higher costs in excess of $100 million during 2005
versus the prior year. As a result, we expect our gross margin per case growth
to be flat. Our pro forma selling,


                                       16
<PAGE>
delivery and administrative expenses are expected to rise two to three percent,
reflecting increases in labor and benefits, partially offset by productivity
initiatives in the U.S. and Mexico. Due to the increasing costs of our business,
we expect pro forma operating income growth to be flat to up three percent. In
2005, we expect pro forma interest expense to increase to approximately $240
million to $245 million, reflecting the impact of rising interest rates on
approximately 20% of our debt that is variable.

     We expect to deliver a pro forma diluted earnings per share of $1.76 to
$1.84, excluding the impact of the 53rd week. We are considering reinvestment of
the additional profit from the 53rd week in long-term strategic initiatives. Our
2005 outlook does not reflect the effect of the implementation of the final
accounting standard on the expensing of share-based payments, which will have a
material impact on our results. We are in the process of evaluating the impact
of the standard. See Note 2 in Notes to Consolidated Financial Statements for
more information. Additionally, the American Jobs Creation Act of 2004 was
enacted allowing for special tax breaks for the repatriation of earnings from
foreign subsidiaries. We are evaluating whether to repatriate our undistributed
foreign earnings in 2005.

     From a cash flow perspective, we expect to generate net cash provided by
operations of about $1.2 billion and we plan to spend between $675 million and
$725 million in capital investments. Our cash flows from operations in 2005 are
expected to decline versus 2004 due to the expiration of legislated tax
incentives. During 2005, two U.S. tax stimulus packages will expire, which
allowed for accelerated tax deductions. Additionally, due to improved
performance during 2004, we will be paying out higher incentive compensation in
2005, which will also drive some year-over-year unfavorability.

CRITICAL ACCOUNTING POLICIES

     ALLOWANCE FOR DOUBTFUL ACCOUNTS - A portion of our accounts receivable will
not be collected due to customer disputes, bankruptcies and sales returns.
Estimating an allowance for doubtful accounts requires significant management
judgment and is dependent upon the overall economic environment and our
customers' viability. We provide reserves for these situations based on the
evaluation of the aging of our trade receivable portfolio and an in-depth
analysis of our high-risk customers. Our reserves contemplate our historical
loss rate on receivables, specific customer situations and the economic
environments in which we operate. We have effective credit controls in place to
manage these exposures and believe that our allowance for doubtful accounts
adequately provides for these risks.

     Our allowance for doubtful accounts was $61 million, $72 million and $67
million as of December 25, 2004, December 27, 2003 and December 28, 2002,
respectively. Our allowance for doubtful accounts represents management's best
estimate of probable losses inherent in our portfolio. The following is an
analysis of the allowance for doubtful accounts for the fiscal years ended
December 25, 2004, December 27, 2003 and December 28, 2002:

<TABLE>
<CAPTION>
                                   ALLOWANCE FOR DOUBTFUL
                                          ACCOUNTS
                                   ----------------------
                                     2004   2003   2002
                                     ----   ----   ----
<S>                                <C>      <C>    <C>
Beginning of the year ..........     $72    $67    $ 42
Bad debt expense ...............      (5)    12      32
Additions from acquisitions ....      --     --      14
Accounts written off ...........      (7)    (8)    (22)
Foreign currency translation ...       1      1       1
                                     ---    ---    ----
End of the year ................     $61    $72    $ 67
                                     ===    ===    ====
</TABLE>

     RECOVERABILITY OF GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE LIVES -
Goodwill and intangible assets with indefinite useful lives are not amortized,
but instead tested annually for impairment.

     Our identified intangible assets principally arise from the allocation of
the purchase price of businesses acquired, and consist primarily of franchise
rights, distribution rights and brands. We assign amounts to such identified
intangibles based on their estimated fair values at the date of acquisition. The
determination of the expected life will be dependent upon the use and underlying
characteristics of the identified intangible asset. In determining whether our
intangible assets have an indefinite useful life, we consider the following as
applicable: the nature and terms of underlying agreements; our intent and
ability to use the specific asset contained in an agreement; the age and market
position of the products within the territories we are entitled to sell; the
historical and projected growth of those products; and costs, if any, to renew
the agreement.


                                       17
<PAGE>
     We evaluate our identified intangible assets with indefinite useful lives
for impairment annually (unless it is required more frequently because of a
triggering event) on an individual basis or by asset groups on a
country-by-country basis, depending on the nature of the intangible asset. We
measure impairment as the amount by which the carrying value exceeds its
estimated fair value.

     The fair value of our franchise rights and distribution rights is measured
using a multi-period excess earnings method that is based upon estimated
discounted future cash flows, including a terminal value, which assumes the
franchise rights and distribution rights will continue in perpetuity. We deduct
a contributory charge from our net after-tax cash flows for the economic return
attributable to our working capital, other intangible assets and property, plant
and equipment, which represents the required cash flow to support these assets.
The net discounted cash flows in excess of the fair returns on these assets
represent the estimated fair value of our franchise rights and distribution
rights.

     The fair value of our brands is measured using a multi-period royalty
saving method, which reflects the savings realized by owning the brand and,
therefore, not having to pay a royalty fee to a third party. In valuing our
brands, we have selected an estimated industry royalty rate relating to each
brand and then applied it to the forecasted revenues associated with each brand.
The net discounted after-tax cash flows from these royalty charges represent the
fair value of our brands.

     Our discount rate utilized in each fair value calculation is based upon our
weighted-average cost of capital plus an additional risk premium to reflect the
risk and uncertainty inherent in separately acquiring the identified intangible
asset between a willing buyer and a willing seller. The additional risk premium
associated with our discount rate effectively eliminates the benefit that we
believe results from synergies, scale and our assembled workforce, all of which
are components of goodwill. Each year we re-evaluate our assumptions in our
discounted cash flow model to address changes in our business and marketplace
conditions.

     We evaluate goodwill on a country-by-country basis ("reporting unit") for
impairment. We evaluate each reporting unit for impairment based upon a two-step
approach. First, we compare the fair value of our reporting unit with its
carrying value. Second, if the carrying value of our reporting unit exceeds its
fair value, we compare the implied fair value of the reporting unit's goodwill
to its carrying amount to measure the amount of impairment loss. In measuring
the implied fair value of goodwill, we would allocate the fair value of the
reporting unit to each of its assets and liabilities (including any unrecognized
intangible assets). Any excess of the fair value of the reporting unit over the
amounts assigned to its assets and liabilities is the implied fair value of
goodwill.

     We measure the fair value of a reporting unit as the discounted estimated
future cash flows, including a terminal value, which assumes the business
continues in perpetuity, less its respective minority interest and net debt (net
of cash and cash equivalents). Our long-term terminal growth assumptions reflect
our current long-term view of the marketplace. Our discount rate is based upon
our weighted-average cost of capital for each reporting unit. Each year we
re-evaluate our assumptions in our discounted cash flow model to address changes
in our business and marketplace conditions.

     Considerable management judgment is necessary to estimate discounted future
cash flows in conducting an impairment test for goodwill and other identified
intangible assets, which may be impacted by future actions taken by us and our
competitors and the volatility in the markets in which we conduct business. A
change in assumptions in our cash flows could have a significant impact on the
fair value of our reporting units and other identified intangible assets, which
could then result in a material impairment charge to our results of operations.

     PENSION AND POSTRETIREMENT MEDICAL BENEFIT PLANS - We sponsor pension and
other postretirement medical benefit plans in various forms, covering employees
who meet specified eligibility requirements. We account for our defined benefit
pension plans and our postretirement medical benefit plans using actuarial
models required by SFAS No. 87, "Employers' Accounting for Pensions," and SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The amounts necessary to fund future payouts under these plans are
subject to numerous assumptions and variables including anticipated discount
rate, expected rate of return on plan assets, historical health care cost trends
and future compensation levels. We evaluate these assumptions with our actuarial
advisors on an annual basis and we believe that they are appropriate, although
an increase or decrease in the assumptions or economic events outside our
control could have a material impact on reported net income.

     The assets, liabilities and assumptions used to measure pension and
postretirement medical expense for any fiscal year are determined as of
September 30 of the preceding year ("measurement date"). The discount rate
assumption used in our pension and postretirement medical benefit plans'
accounting is based on current interest rates for high-quality, long-term
corporate debt as determined on each measurement date. In evaluating our rate of


                                       18
<PAGE>
return on assets for a given fiscal year, we consider the 10-15 year historical
return of our pension investment portfolio, reflecting the weighted return of
our asset allocation. Over the past three fiscal years, the composition of our
pension assets in the U.S. was approximately 70%-75% equity investments and
25%-30% fixed income securities, which primarily consist of U.S. government and
corporate bonds. Differences between actual and expected returns are generally
recognized in the net periodic pension calculation over five years. To the
extent the amount of all unrecognized gains and losses exceeds 10% of the larger
of the benefit obligation or plan assets, such amount is amortized over the
average remaining service life of active participants. The rate of future
compensation increases is based upon our historical experience and management's
best estimate regarding future expectations. We amortize prior service costs on
a straight-line basis over the average remaining service period of employees
expected to receive benefits.

     We used the following weighted-average assumptions to compute our pension
and postretirement medical expense in the United States:

<TABLE>
<CAPTION>
PENSION                                  2004   2003   2002
-------                                  ----   ----   ----
<S>                                      <C>    <C>    <C>
Discount rate.........................   6.25%  6.75%  7.50%
Expected return on plan assets
   (net of administrative expenses)...   8.50%  8.50%  9.50%
Rate of compensation increase.........   4.20%  4.34%  4.33%
</TABLE>

<TABLE>
<CAPTION>
POSTRETIREMENT                           2004    2003   2002
--------------                           ----    ----   ----
<S>                                     <C>     <C>     <C>
Discount rate.........................   6.25%   6.75%  7.50%
Rate of compensation increase.........   4.20%   4.34%  4.33%
Health care cost trend rate...........  11.00%  12.00%  8.00%
</TABLE>

     During 2004, our Company sponsored defined benefit pension and
postretirement medical expenses in the U.S. totaled $88 million. In 2005, these
expenses will increase by $12 million to $100 million due primarily to the
following factors:

     -    A decrease in our weighted-average discount rate for our pension and
          postretirement medical expense from 6.25% to 6.15%, reflecting
          declines in the yields of long-term corporate bonds. This assumption
          change will increase our 2005 defined benefit pension and
          postretirement medical expense by approximately $3 million.

     -    Changes in demographics assumptions, including mortality, and other
          plan changes will increase our 2005 defined benefit pension and
          postretirement medical expense by approximately $5 million.

     -    Merging our long-term disability medical plan with our postretirement
          medical plan. In 2004, we amended our long-term disability medical
          plan to provide coverage for two years for participants becoming
          disabled after January 1, 2005. Participants currently receiving
          benefits will be grandfathered under the existing benefits program.
          The costs of $4 million associated with these participants will be
          reclassified from our long-term disability medical plan to our
          postretirement medical plan beginning in 2005.

     CASUALTY INSURANCE COSTS - Due to the nature of our business, we require
insurance coverage for certain casualty risks. In the United States we are
self-insured for workers' compensation and automobile risks for occurrences up
to $10 million, and product and general liability risks for occurrences up to $5
million. For losses exceeding these self-insurance thresholds, we purchase
casualty insurance from a third-party provider.

     Our liability for casualty costs of $169 million and $127 million as of
December 25, 2004 and December 27, 2003, respectively, is estimated using
individual case-based valuations and statistical analyses and is based upon
historical experience, actuarial assumptions and professional judgment. We do
not discount our loss expense reserves. These estimates are subject to the
effects of trends in loss severity and frequency and are subject to a
significant degree of inherent variability. We evaluate these estimates with our
actuarial advisors periodically during the year and we believe that they are
appropriate, although an increase or decrease in the estimates or events outside
our control could have a material impact on reported net income. Accordingly,
the ultimate settlement of these costs may vary significantly from the estimates
included in our financial statements.


                                       19
<PAGE>

     INCOME TAXES - Our effective tax rate is based on pre-tax income, statutory
tax rates, tax regulations and tax planning strategies available to us in the
various jurisdictions in which we operate. The tax bases of our assets and
liabilities reflect our best estimate of the tax benefit and costs we expect to
realize. We establish valuation allowances to reduce our deferred tax assets to
an amount that will more likely than not be realized. A significant portion of
deferred tax assets consists of net operating loss carryforwards. We have net
operating loss carryforwards totaling $1,362 million at December 25, 2004, which
are available to reduce future taxes in the U.S., Spain, Greece, Russia, Turkey
and Mexico. The majority of our net operating loss carryforwards is generated
overseas, the largest of which is coming from our Mexican and Spanish
operations due to the financing put in place when we purchased the business of
Pepsi-Gemex, S.A. de C.V. Of these carryforwards, $10 million expire in 2005 and
$1,352 million expire at various times between 2006 and 2024.

     Significant management judgment is required in determining our effective
tax rate and in evaluating our tax position. We establish reserves when, despite
our belief that our tax return positions are supportable, we believe these
positions may be challenged. We adjust these reserves as warranted by changing
facts and circumstances. A change in our tax reserves could have a significant
impact on our results of operations.

     Under our tax separation agreement with PepsiCo, Inc., PepsiCo maintains
full control and absolute discretion for any combined or consolidated tax
filings for tax periods ended on or before our initial public offering that
occurred in March 1999. However, PepsiCo may not settle any issue without our
written consent, which consent cannot be unreasonably withheld. PepsiCo has
contractually agreed to act in good faith with respect to all tax audit matters
affecting us. In accordance with the tax separation agreement, we will bear our
allocable share of any risk or upside resulting from the settlement of tax
matters affecting us for these periods.

     A number of years may elapse before a particular matter for which we have
established a reserve is audited and finally resolved. The number of years for
which we have audits that are open varies depending on the tax jurisdiction. The
U.S. Internal Revenue Service is currently examining our and PepsiCo's joint tax
returns for 1998 through March 1999 and our tax returns for the balance of 1999
and 2000. While it is often difficult to predict the final outcome or the timing
of the resolution, we believe that our reserves reflect the probable outcome of
known tax contingencies. Favorable resolutions would be recognized as a
reduction of our tax expense in the year of resolution. Unfavorable resolutions
would be recognized as a reduction to our reserves, a cash outlay for settlement
and a possible increase to our annual tax provision.

RELATED PARTY TRANSACTIONS

     PepsiCo is considered a related party due to the nature of our franchise
relationship and its ownership interest in our company. Over 80% of our volume
is derived from the sale of brands from PepsiCo. At December 25, 2004, PepsiCo
owned approximately 42.5% of our outstanding common stock and 100% of our
outstanding class B common stock, together representing approximately 47.7% of
the voting power of all classes of our voting stock. In addition, PepsiCo owns
6.8% of the equity of Bottling Group, LLC, our principal operating subsidiary.
We fully consolidate the results of Bottling Group, LLC and present PepsiCo's
share as minority interest in our Consolidated Financial Statements.

     Our business is conducted primarily under beverage agreements with PepsiCo,
including a master bottling agreement, non-cola bottling agreement and a master
syrup agreement. Additionally, under a shared services agreement, we obtain
various services from PepsiCo, which include services for information technology
maintenance and the procurement of raw materials. We also provide services to
PepsiCo, including facility and credit and collection support.

     We review our annual marketing, advertising, management and financial plans
each year with PepsiCo for its approval. If we fail to submit these plans, or if
we fail to carry them out in all material respects, PepsiCo can terminate our
beverage agreements. Because we depend on PepsiCo to provide us with
concentrate, bottler incentives and various services, changes in our
relationship with PepsiCo could have a material adverse effect on our business
and financial results.

     BOTTLER INCENTIVES AND OTHER ARRANGEMENTS - In order to promote PepsiCo
beverages, PepsiCo, at its discretion, provides us with various forms of bottler
incentives. These incentives are mutually agreed upon between PepsiCo and us and
cover a variety of initiatives, including direct marketplace support, capital
equipment funding and advertising support. Based on the objectives of the
programs and initiatives, we record bottler incentives as an adjustment to net
revenues, cost of sales or selling, delivery and administrative expenses.
Beginning in 2003, due to the adoption of Emerging Issues Task Force ("EITF")
Issue No. 02-16, "Accounting by a Customer (Including a


                                       20
<PAGE>
Reseller) for Certain Consideration Received from a Vendor," we have changed our
accounting methodology for the way we record certain bottler incentives. See
Note 2 in Notes to Consolidated Financial Statements for a discussion on the
change in classification of these bottler incentives in our Consolidated
Statements of Operations. Bottler incentives received from PepsiCo, including
media costs shared by PepsiCo, were $626 million, $646 million and $560 million
for 2004, 2003 and 2002, respectively. Changes in our bottler incentives and
funding levels could materially affect our business and financial results.

     PURCHASE OF CONCENTRATE AND FINISHED PRODUCT - As part of our franchise
relationship, we purchase concentrate from PepsiCo, pay royalties and produce or
distribute other products through various arrangements with PepsiCo or PepsiCo
joint ventures. The prices we pay for concentrate, finished goods and royalties
are determined by PepsiCo at its sole discretion. Significant changes in the
amount we pay PepsiCo for concentrate, finished goods and royalties could
materially affect our business and financial results. Total net amounts paid or
payable to PepsiCo or PepsiCo joint ventures for these arrangements were $2,741
million, $2,527 million and $2,163 million in 2004, 2003 and 2002, respectively.
These amounts are reflected in cost of sales in our Consolidated Statements of
Operations.

     MANUFACTURING AND DISTRIBUTION SERVICE REIMBURSEMENTS - In 2003 and 2002,
we provided manufacturing services to PepsiCo and PepsiCo affiliates in
connection with the production of certain finished beverage products. During
2003 and 2002, total amounts paid or payable by PepsiCo for these transactions
were $6 million and $10 million, respectively.

     FOUNTAIN SERVICE FEE - We manufacture and distribute fountain products and
provide fountain equipment service to PepsiCo customers in some territories in
accordance with the Pepsi beverage agreements. Amounts received from PepsiCo for
these transactions are offset by the cost to provide these services and are
reflected in our Consolidated Statements of Operations in selling, delivery and
administrative expenses. Net amounts paid or payable by PepsiCo to us for these
services were approximately $180 million, $200 million and $200 million, in
2004, 2003 and 2002, respectively.

     SHARED SERVICES - We provide and receive various services from PepsiCo and
PepsiCo affiliates pursuant to a shared services agreement and other
arrangements. In the absence of these agreements, we would have to obtain such
services on our own. We might not be able to obtain these services on terms,
including cost, which are as favorable as those we receive from PepsiCo. Total
expenses incurred with PepsiCo and PepsiCo affiliates were approximately $68
million, $72 million and, $70 million during 2004, 2003 and 2002, respectively,
and are reflected in selling, delivery and administrative expenses in our
Consolidated Statements of Operations. Total income generated for services
provided to PepsiCo and PepsiCo affiliates was approximately $10 million, $10
million and, $13 million during 2004, 2003 and 2002, respectively, and is
reflected in selling, delivery and administrative expenses in our Consolidated
Statements of Operations.

     FRITO-LAY PURCHASES - We purchase snack food products from Frito-Lay, Inc.,
a subsidiary of PepsiCo, for sale and distribution in Russia. Amounts paid or
payable to PepsiCo and its affiliates for snack food products were $75 million,
$51 million and $44 million in 2004, 2003 and 2002, respectively, and are
reflected in selling, delivery and administrative expenses in our Consolidated
Statements of Operations.

     INCOME TAX EXPENSE - Under tax sharing arrangements we have with PepsiCo,
we recorded $17 million, $7 million and $3 million in tax-related benefits from
PepsiCo in 2004, 2003 and 2002, respectively.


                                       21
<PAGE>
     The Consolidated Statements of Operations include the following income
(expense) amounts as a result of transactions with PepsiCo and its affiliates:

<TABLE>
<CAPTION>
                                                                2004      2003      2002
                                                              -------   -------   -------
<S>                                                           <C>       <C>       <C>
Net revenues:
   Bottler incentives......................................   $    22   $    21   $   257
                                                              =======   =======   =======

Cost of sales:
   Purchases of concentrate and finished products,
      and AQUAFINA royalty fees............................   $(2,741)  $(2,527)  $(2,163)
   Bottler incentives......................................       522       527        --
   Manufacturing and distribution service reimbursements...        --         6        10
                                                              -------   -------   -------
                                                              $(2,219)  $(1,994)  $(2,153)
                                                              =======   =======   =======

Selling, delivery and administrative expenses:
   Bottler incentives......................................   $    82   $    98   $   303
   Fountain service fee....................................       180       200       200
   Frito-Lay purchases.....................................       (75)      (51)      (44)
   Shared services.........................................       (58)      (62)      (57)
                                                              -------   -------   -------
                                                              $   129   $   185   $   402
                                                              =======   =======   =======

Income tax expense                                            $    17   $     7   $     3
                                                              =======   =======   =======
</TABLE>

     For further information about our relationship with PepsiCo and its
affiliates see Note 15 in Notes to Consolidated Financial Statements.

ITEMS THAT AFFECT HISTORICAL OR FUTURE COMPARABILITY

     Gemex Acquisition

     In November 2002, we acquired all of the outstanding capital stock of
Pepsi-Gemex, S.A. de C.V. of Mexico ("Gemex"). Our total acquisition cost
consisted of a net cash payment of $871 million and assumed debt of
approximately $318 million.

     The following unaudited pro forma operating information summarizes our
consolidated results of operations as if the Gemex acquisition had occurred on
the first day of fiscal year 2002.

<TABLE>
<CAPTION>
                                       2002
                                     -------
<S>                                  <C>
Net revenues......................   $10,297
Income before income taxes........   $   676
Net income........................   $   446
Earnings per share
   Basic..........................   $  1.58
   Diluted........................   $  1.52
</TABLE>

     EITF Issue No. 02-16

     In January 2003, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 02-16, "Accounting by a Customer (Including a Reseller)
for Certain Consideration Received from a Vendor," addressing the recognition
and income statement classification of various cash consideration given by a
vendor to a customer. The consensus requires that certain cash consideration
received by a customer from a vendor is presumed to be a reduction of the price
of the vendor's products, and therefore should be characterized as a reduction
of cost of sales when recognized in the customer's income statement, unless
certain criteria are met to overcome this presumption. EITF Issue No. 02-16
became effective beginning in our fiscal year 2003. Prior to 2003, we classified
worldwide bottler incentives received from PepsiCo and other brand owners as
adjustments to net revenues and selling, delivery


                                       22
<PAGE>
and administrative expenses, depending on the objective of the program. In
accordance with EITF Issue No. 02-16, we have classified certain bottler
incentives as a reduction of cost of sales beginning in 2003.

     See Note 2 in Notes to Consolidated Financial Statements, for additional
information and pro forma adjustments for bottler incentives that would have
been made to our reported results for the fifty-two weeks ended December 28,
2002 assuming that EITF Issue No. 02-16 had been in place for all periods
presented.

     Concentrate Supply

     We buy concentrate, the critical flavor ingredient for our products, from
PepsiCo, its affiliates and other brand owners who are the sole authorized
suppliers. Concentrate prices are typically determined annually. PepsiCo
determines concentrate prices at its sole discretion. In February 2004, PepsiCo
increased the price of U.S. concentrate by 0.7%. PepsiCo has recently announced
a further increase of approximately 2%, effective February 2005.

RESULTS OF OPERATIONS - 2004

VOLUME

<TABLE>
<CAPTION>
                                             52 WEEKS ENDED
                                         DECEMBER 25, 2004 VS.
                                           DECEMBER 27, 2003
                                       ------------------------
                                       WORLD-           OUTSIDE
                                        WIDE    U.S.   THE U.S.
                                       ------   ----   --------
<S>                                    <C>      <C>    <C>
Base volume ........................      2%      2%       3%
Acquisitions .......................      1%      0%       1%
                                        ---     ---      ---
   Total Volume Change .............      3%      2%       4%
                                        ===     ===      ===
</TABLE>

     Our full-year reported worldwide physical case volume increased three
percent in 2004 versus 2003. Worldwide volume growth reflects increases in the
U.S., Europe and Canada, partially offset by a flat performance in Mexico.

     In the U.S., volume increased by two percent in 2004 versus 2003, driven by
a four percent increase in our cold-drink channel and a one percent increase in
our take-home channel. During 2004, we had solid results in our convenience and
gas segment and foodservice business segment, which consists of our on-premise
and full-service vending account customers. From a brand perspective, Trademark
PEPSI's volume was down one percent for the year, due to declines in brand PEPSI
and PEPSI TWIST, partially offset by solid growth from our diet portfolio. Our
non-carbonated soft drink portfolio increased 11% for the full year led by the
introduction of TROPICANA JUICE DRINKS and continued growth from AQUAFINA.

     In Europe, volume grew ten percent in 2004 versus 2003, driven by double-
digit increases in Russia and Turkey. In Russia, we had solid growth in our core
brands, coupled with contributions from new product introductions, including
TROPICANA JUICE and LIPTON ICED TEA. In Turkey, we continue to improve in the
areas of execution and distribution, which resulted in volume increases in brand
PEPSI, AQUAFINA and local brands.

     Total volume in Mexico, excluding the impact of acquisitions, was flat for
the year. Volume trends in Mexico improved during the second half of the year,
increasing four percent versus the prior year. Improvement in the second half of
the year reflected improved marketplace execution, brand and package innovation
and our focus on consumer value. During the second half of the year, we saw
increases in each of our jug, bottled water and carbonated soft drink
categories. Increases in the second half of the year were offset by volume
declines in the first half of the year driven primarily by our jug water
business.


                                       23
<PAGE>
NET REVENUES

<TABLE>
<CAPTION>
                                                   52 WEEKS ENDED
                                               DECEMBER 25, 2004 VS.
                                                 DECEMBER 27, 2003
                                             ------------------------
                                             WORLD-           OUTSIDE
                                              WIDE    U.S.   THE U.S.
                                             ------   ----   --------
<S>                                          <C>      <C>    <C>
Volume impact ............................      2%      2%       3%
Net price per case impact (rate/mix) .....      3%      3%       1%
Acquisitions .............................      0%      0%       1%
Currency translation .....................      1%      0%       3%
                                              ---     ---      ---
   Total Net Revenues Change .............      6%      5%       8%
                                              ===     ===      ===
</TABLE>

     Worldwide net revenues were $10.9 billion in 2004, a six percent increase
over the prior year. The increase in net revenues for the year was driven by
improvements in volume, growth in net price per case and the favorable impact
from currency translation.

     In the U.S., net revenues increased five percent in 2004 versus 2003. The
increases in net revenues in the U.S. were driven by growth in both volume and
net price per case. Increases in net price per case in the U.S. were due to a
combination of rate increases, primarily in cans, and mix benefits from the sale
of higher-priced products.

     Net revenues outside the U.S. grew approximately eight percent in 2004
versus 2003. The increases in net revenues outside the U.S. were driven
primarily by growth in volume and net price per case in Europe and Canada,
coupled with the favorable impact of foreign exchange. This growth was partially
offset by net revenue declines in Mexico. Net revenues in Mexico declined three
percent on a full-year basis due primarily to the devaluation of the Mexican
peso. In local currency, our net price per case in Mexico in 2004 was flat
versus the prior year.

COST OF SALES

<TABLE>
<CAPTION>
                                            52 WEEKS ENDED
                                        DECEMBER 25, 2004 VS.
                                          DECEMBER 27, 2003
                                      ------------------------
                                      WORLD-           OUTSIDE
                                       WIDE    U.S.   THE U.S.
                                      ------   ----   --------
<S>                                   <C>      <C>    <C>
Volume impact .....................      2%      2%       3%
Cost per case impact ..............      5%      5%       4%
Acquisitions ......................      0%      0%       1%
Currency translation ..............      1%      0%       3%
                                       ---     ---      ---
Total Cost of Sales Change ........      8%      7%      11%
                                       ===     ===      ===
</TABLE>

     Worldwide cost of sales was $5.7 billion in 2004, an eight percent increase
over 2003. The growth in cost of sales per case was driven primarily by
significant increases in raw material costs, coupled with mix shifts into more
expensive products and packages and the negative impact of foreign currency
translation.

     In the U.S., cost of sales grew seven percent in 2004 versus 2003, due to
volume growth and increases in cost per case. The increases in cost per case
resulted from higher commodity costs, primarily driven by aluminum and resin,
coupled with the impact of mix shifts into more expensive products and packages.

     Cost of sales outside the U.S. grew approximately eleven percent in
2004 versus 2003, reflecting increases in cost per case and volume, coupled
with the negative impact from foreign currency translation. Growth in cost per
case was driven by increases in Europe and Mexico. In Europe, we have
experienced higher sweetener costs in Turkey and mix shifts into more expensive
products in Russia. In Mexico, sweetener costs have increased throughout the
year, coupled with a steep rise in resin costs in the fourth quarter. Foreign
currency translation contributed three percentage points of growth, reflecting
the appreciation of the euro and Canadian dollar, partially offset by the
devaluation of the Mexican peso.


                                       24
<PAGE>

SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                                52 WEEKS ENDED
                                             DECEMBER 25, 2004 VS.
                                               DECEMBER 27, 2003
                                           ------------------------
                                           WORLD-           OUTSIDE
                                            WIDE    U.S.   THE U.S.
                                           ------   ----   --------
<S>                                        <C>      <C>    <C>
Cost impact ............................      3%      4%       3%
Acquisitions ...........................      0%      0%       1%
Currency translation ...................      1%      0%       2%
                                            ---     ---      ---
   Total SD&A Change ...................      4%      4%       6%
                                            ===     ===      ===
</TABLE>

     Worldwide selling, delivery and administrative expenses were $4.3 billion,
a four percent increase over 2003. Increases in selling, delivery and
administrative costs were driven by higher operating costs in the U.S. and
Europe coupled with the negative impact of foreign currency translation.

     In the U.S., increases reflect higher labor and benefit costs. These
increases were partially offset by reduced operating costs driven from a number
of productivity initiatives we put in place during 2004, coupled with a
reduction in our bad debt expense.

     Outside the U.S., increases were driven primarily by higher operating costs
in Russia and Turkey and the negative impact of foreign currency throughout
Europe and Canada. These increases were partially offset by declines in Mexico
due to the devaluation of the Mexican peso and reduced operating costs. We have
consolidated a number of warehouses and distribution systems in Mexico and are
starting to capitalize on productivity gains and reduced costs. These results
also include a $9 million non-cash impairment charge that is related to our
re-evaluation of the fair value of our franchise licensing agreement for the
SQUIRT trademark in Mexico, as a result of a change in its estimated accounting
life. See Note 6 in Notes to Consolidated Financial Statements for additional
information.

INTEREST EXPENSE, NET

     Interest expense, net decreased by $9 million to $230 million, when
compared with 2003, largely due to lower effective interest rates achieved on
our long-term debt.

MINORITY INTEREST

     Minority interest represents PepsiCo's approximate 6.8% ownership in our
principal operating subsidiary, Bottling Group, LLC.

INCOME TAX EXPENSE

     Our effective tax rate for 2004 and 2003 was 33.7% and 36.3%, respectively.
The decrease in our effective tax rate versus the prior year is due largely to
the lapping of an $11 million ($0.04 per diluted share) tax charge relating to a
Canadian tax law change in the fourth quarter of 2003. In 2004, we had the
following significant tax items, which decreased our tax expense by
approximately $4 million:

     -    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 (or $0.02 per diluted share) tax benefit for the
          year.

     -    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 potential future tax costs.
          This reorganization triggered a $30 million tax charge ($0.11 per
          diluted share) in the fourth quarter.

     -    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 ($0.09 per diluted share) tax benefit in the fourth quarter.


                                       25
<PAGE>
EARNINGS PER SHARE

<TABLE>
<CAPTION>
Shares in millions                                       2004    2003    2002
                                                        -----   -----   -----
<S>                                                     <C>     <C>     <C>
Basic earnings per share on reported net income .....   $1.79   $1.54   $1.52
Basic weighted-average shares outstanding ...........     255     270     282

Diluted earnings per share on reported net income ...   $1.73   $1.50   $1.46
Diluted weighted-average shares outstanding .........     263     277     293
</TABLE>

     Dilution

     Diluted earnings per share reflects the potential dilution that could occur
if equity awards from our stock compensation plans were exercised and converted
into common stock that would then participate in net income. Our employee equity
award issuances have resulted in $0.06, $0.04 and $0.06 per share of dilution in
2004, 2003 and 2002, respectively.

     Diluted Weighted-Average Shares Outstanding

     The decrease in shares outstanding reflects the effect of our share
repurchase program, which began in October 1999, partially offset by share
issuances from the exercise of stock options. The amount of shares authorized by
the Board of Directors to be repurchased totals 100 million shares, of which we
have repurchased approximately 21 million shares in 2004 and 84 million shares
since the inception of our share repurchase program.

RESULTS OF OPERATIONS - 2003

VOLUME

<TABLE>
<CAPTION>
                                                52 WEEKS ENDED
                                             DECEMBER 27, 2003 VS.
                                               DECEMBER 28, 2002
                                           ------------------------
                                           WORLD-           OUTSIDE
                                            WIDE    U.S.   THE U.S.
                                           ------   ----   --------
<S>                                        <C>      <C>    <C>
Acquisitions ...........................     20%      0%      74%
Base business ..........................      0%     (2)%      4%
                                            ---     ---      ---
   Total Volume Change .................     20%     (2)%     78%
                                            ===     ===      ===
</TABLE>

     Our full-year reported worldwide physical case volume increased 20% in 2003
versus 2002. The increase in reported worldwide volume was due entirely to our
acquisitions. Our acquisition of Gemex contributed more than 90% of the growth
resulting from acquisitions.

     In the U.S., our base business volume decreased 2% versus 2002 due to
changes in consumer preferences, declines in our cold drink business and
weakness in retail traffic. (The term "base business" reflects territories that
we owned and operated for comparable periods in both the current year and the
prior year.) However, during the second half of 2003, we saw improvement in our
cold drink business as we began to implement changes to ensure that we have the
right consumer value and the right space allocation for our products in the cold
vaults. From a brand perspective, as consumers sought more variety, we saw
declines in brand PEPSI, partially offset by strong growth in AQUAFINA and
lemon-lime volume, led by SIERRA MIST, coupled with product introductions such
as PEPSI VANILLA and MOUNTAIN DEW LIVEWIRE.

     Outside the U.S., our base business volume increased by 4%. The increase in
base business volume outside the U.S. was driven by warm summer weather in
Europe, coupled with a strong performance in Russia, resulting from growth in
AQUA MINERALE and the launch of PEPSI X.


                                       26
<PAGE>
NET REVENUES

<TABLE>
<CAPTION>
                                                52 WEEKS ENDED
                                             DECEMBER 27, 2003 VS.
                                               DECEMBER 28, 2002
                                           ------------------------
                                           WORLD-           OUTSIDE
                                            WIDE    U.S.   THE U.S.
                                           ------   ----   --------
<S>                                        <C>      <C>    <C>
Acquisitions ...........................     11%      1%      61%
                                            ---     ---      ---
Base business:
   EITF Issue No. 02-16 impact .........     (3)%    (3)%     (4)%
   Currency translation ................      2%      0%      10%
   Rate/mix impact (pricing) ...........      1%      2%       3%
   Volume impact .......................      0%     (2)%      4%
                                            ---     ---      ---
Base business change ...................      0%     (3)%     13%
                                            ---     ---      ---
Total Net Revenues Change ..............     11%     (2)%     74%
                                            ===     ===      ===
</TABLE>

     Net revenues were $10.3 billion in 2003, an 11% increase over the prior
year. Approximately 72% of our net revenues was generated in the United States,
11% of our net revenues was generated in Mexico and the remaining 17% was
generated outside the United States and Mexico. The increase in net revenues in
2003 was driven primarily by our acquisition of Gemex, which contributed more
than 85% of the growth resulting from acquisitions. Our base business net
revenues were flat in 2003 versus 2002. In 2003, base business net revenues were
favorably impacted by foreign currency translation and price increases, offset
by the reclassification of certain bottler incentives from net revenues to cost
of sales resulting from the adoption of EITF Issue No. 02-16.

     In the U.S., net revenues decreased 2% in 2003 versus 2002. The decrease in
U.S. net revenues was due to a decline in volume and the impact of adopting EITF
Issue No. 02-16. This was partially offset by a 2% increase in marketplace
pricing and incremental revenue from acquisitions. Net revenues outside the U.S.
grew approximately 74% in 2003 versus 2002. The increase in net revenues outside
the U.S. was driven by our Gemex acquisition and an increase in our base
business revenues of 13%. The increase in base business net revenues outside the
U.S. was the result of favorable foreign currency translation in Canada and
Europe, volume growth, and a 3% increase in pricing, partially offset by a
decline due to the impact of adopting EITF Issue No. 02-16.

COST OF SALES

<TABLE>
<CAPTION>
                                                52 WEEKS ENDED
                                             DECEMBER 27, 2003 VS.
                                               DECEMBER 28, 2002
                                           ------------------------
                                           WORLD-           OUTSIDE
                                            WIDE    U.S.   THE U.S.
                                           ------   ----   --------
<S>                                        <C>      <C>    <C>
Acquisitions ...........................     10%      1%      51%
                                            ---     ---      ---
Base business:
   EITF Issue No. 02-16 impact .........    (10)%    (9)%    (17)%
   Cost per case impact ................      2%      3%       4%
   Currency translation ................      2%      0%       8%
   Volume impact .......................      0%     (2)%      4%
                                            ---     ---      ---
Base business change ...................     (6)%    (8)%     (1)%
                                            ---     ---      ---

Total Cost of Sales Change .............      4%     (7)%     50%
                                            ===     ===      ===
</TABLE>

     Cost of sales was $5.2 billion in 2003, a 4% increase over 2002. The
increase in cost of sales was due primarily to our acquisition of Gemex, which
contributed more than 80% of the growth resulting from acquisitions, partially
offset by a decline in our base business costs. The decline in base business
cost of sales was due primarily to the reclassification of certain bottler
incentives from net revenues and selling, delivery and administrative expenses
to


                                       27
<PAGE>
cost of sales resulting from the adoption of EITF Issue No. 02-16, partially
offset by increases in cost per case and the negative impact of foreign currency
translation.

     In the U.S., cost of sales decreased 7% in 2003 versus 2002. The decrease
in U.S. cost of sales was driven by volume declines and the impact of adopting
EITF Issue No. 02-16, partially offset by cost per case increases and
incremental costs from acquisitions. In the U.S., cost per case increased by 3%
resulting from higher concentrate and resin costs, coupled with the mix of
products we sell.

     Our base business cost of sales outside the U.S. decreased approximately 1%
in 2003 versus 2002. The decrease in base business cost of sales outside the
U.S. was driven from the impact of adopting EITF Issue No. 02-16, partially
offset by the negative impact of foreign currency translation in Canada and
Europe, and increases in both cost per case and volume.

SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                                52 WEEKS ENDED
                                             DECEMBER 27, 2003 VS.
                                               DECEMBER 28, 2002
                                           ------------------------
                                           WORLD-           OUTSIDE
                                            WIDE    U.S.   THE U.S.
                                           ------   ----   --------
<S>                                        <C>      <C>    <C>
Acquisitions ...........................     14%      1%      76%
                                            ---     ---      ---
Base business:
   EITF Issue No. 02-16 impact .........      6%      4%      18%
   Currency translation ................      2%      0%      11%
   Cost performance ....................      1%      0%       4%
                                            ---     ---      ---
Base business change ...................      9%      4%      33%
                                            ---     ---      ---
Total SD&A Change ......................     23%      5%     109%
                                            ===     ===      ===
</TABLE>

     Selling, delivery and administrative expenses were $4.1 billion in 2003, a
23% increase over 2002. The increase in selling, delivery and administrative
expenses was driven primarily by our acquisition of Gemex and increases in our
base business costs. Gemex contributed more than 90% of the growth resulting
from acquisitions. The 9% increase in our base business selling, delivery and
administrative expenses was due to the reclassification of certain bottler
incentives from selling, delivery and administrative expenses to cost of sales
resulting from the adoption of EITF Issue No. 02-16, coupled with the impact of
foreign currency translation in Canada and Europe and an increase in our base
business cost performance. Our base business cost performance increased 1% as a
result of higher pension, employee benefit and casualty costs, partially offset
by a reduction in our bad debt expense and productivity gains due to
improvements in our operational efficiencies and selling execution to the
marketplace.

OPERATING INCOME

     Operating income was $956 million in 2003, a 7% increase over 2002. The
increase in operating income was due primarily to our acquisition of Gemex,
partially offset by a 1% decrease in our base business. The decrease in our base
business operating income resulted from increased selling, delivery and
administrative expenses, partially offset by the improvement in the net impact
of gross margin rate and mix in the U.S. and Europe, coupled with the favorable
impact of foreign currency translation in Canada and Europe.

INTEREST EXPENSE, NET

     Interest expense, net increased by $48 million to $239 million, when
compared with 2002, largely due to the additional interest associated with the
$1 billion 4.63% senior notes used to finance our acquisition of Gemex in
November 2002 and the additional $1.2 billion of debt issued during 2003. This
was partially offset by the lower effective interest rate achieved on our fixed
rate long-term debt from the use of interest rate swaps.

MINORITY INTEREST

     Minority interest represents PepsiCo's approximate 6.8% ownership in our
principal operating subsidiary, Bottling Group, LLC.


                                       28
<PAGE>
INCOME TAX EXPENSE BEFORE RATE CHANGE

     Our full-year effective tax rate for 2003 was 34.4% before our income tax
rate change expense. This rate corresponds to an effective tax rate of 34.0% in
2002. The increase in the effective tax rate is primarily due to the unfavorable
mix in pre-tax income in jurisdictions with higher effective tax rates.

INCOME TAX RATE CHANGE EXPENSE (BENEFIT)

     In December 2003, legislation was enacted changing certain Canadian
provincial income tax rates. These rate changes increased deferred tax
liabilities by $11 million and resulted in a non-cash charge in 2003.

LIQUIDITY AND FINANCIAL CONDITION

CASH FLOWS

     Fiscal 2004 Compared with Fiscal 2003

     Net cash provided by operations grew by $167 million to $1,251 million in
2004. Increases in net cash provided by operations were driven by higher
profits, lower pension contributions, and working capital improvements, which
includes the lapping of a one-time payment in 2003 relating to the settlement of
our New Jersey wage and hour litigation. These increases were partially offset
by higher tax payments.

     Net cash used for investments increased by $57 million to $791 million,
principally reflecting higher capital spending, partially offset by higher
proceeds from sales of property, plant, and equipment.

     Net cash used for financing increased by $2,048 million to $1,395 million
driven primarily by the repayment of our $1.0 billion note in February 2004,
lower proceeds from long-term borrowings and higher share repurchases, partially
offset by increased stock option exercises and higher short-term borrowings.

     Fiscal 2003 Compared with Fiscal 2002

     Our net cash provided by operations of $1,084 million was driven by the
strong cash flow generated from the sale of our products. Net operating cash
flow grew by $70 million over the prior year due primarily to the incremental
cash generated by our Mexican business. This increase was partially offset by
higher worldwide tax payments, U.S. casualty insurance payments and the
settlement of our New Jersey wage and hour litigation.

     Net cash used for investments decreased by $1.0 billion to $734 million,
reflecting lower acquisition spending during 2003 and the lapping of a $181
million investment in our debt defeasance trust in the prior year, partially
offset by increases in capital expenditures.

     Net cash provided by financing decreased by $20 million to $653 million,
driven by higher share repurchases and lower stock option exercises, offset by
an increase in our proceeds from long-term debt.

LIQUIDITY AND CAPITAL RESOURCES

     We believe that our future cash flows from operations and borrowing
capacity will be sufficient to fund capital expenditures, acquisitions,
dividends and working capital requirements for the foreseeable future.

     During the first quarter we repaid our $1 billion 5.38% senior notes with
the proceeds we received from debt issued in the prior year.

     In 2002, we purchased $181 million in U.S. government securities and placed
those securities into an irrevocable trust, for the sole purpose of funding
payments of principal and interest on the $160 million of 9.75% senior notes
maturing in March 2004, in order to defease their respective covenants. In March
2004, we repaid our $160 million of 9.75% senior notes by liquidating our
investments in our debt defeasance trust.

     We have a $500 million commercial paper program in the U.S. that is
supported by a credit facility, which is guaranteed by Bottling Group, LLC and
expires in April 2009. At December 25, 2004, we had $78 million in outstanding
commercial paper with a weighted-average interest rate of 2.32%. At December 27,
2003, we had no outstanding commercial paper.

     We had available short-term bank credit lines of approximately $381 million
and $302 million at December 25, 2004 and December 27, 2003, respectively. These
lines were used to support the general operating needs of our


                                       29
<PAGE>
businesses outside the United States. As of year-end 2004, we had $77 million
outstanding under these lines of credit at a weighted-average interest rate of
3.72%. As of year-end 2003, we had $67 million outstanding under these lines of
credit at a weighted-average interest rate of 4.17%.

     Certain of our senior notes have redemption features and non-financial
covenants that will, among other things, limit our ability to create or assume
liens, enter into sale and lease-back transactions, engage in mergers or
consolidations and transfer or lease all or substantially all of our assets.
Additionally, certain of our credit facilities and senior notes have financial
covenants consisting of the following:

     -    Our debt to capitalization ratio should not be greater than .75 on the
          last day of a fiscal quarter when PepsiCo Inc.'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 Inc.'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 10% of Bottling Group,
          LLC's net tangible assets. Net tangible assets are defined as total
          assets less current liabilities and net intangible assets.

     We are in compliance with all debt covenants.

     Our peak borrowing timeframe varies with our working capital requirements
and the seasonality of our business. Additionally, throughout the year, we may
have further short-term borrowing requirements driven by other operational needs
of our business. During 2004, borrowings from our commercial paper program in
the U.S. peaked at $171 million. Outside the U.S., borrowings from our
international credit facilities peaked at $130 million, reflecting payments for
working capital requirements.

CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations as of December 25,
2004:

<TABLE>
<CAPTION>
                                                                 PAYMENTS DUE BY PERIOD
                                         ---------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS                   TOTAL   LESS THAN 1 YEAR   1-3 YEARS   3-5 YEARS   MORE THAN 5 YEARS
-----------------------                  ------   ----------------   ---------   ---------   -----------------
<S>                                      <C>      <C>                <C>         <C>         <C>
Long-term debt obligations (1)           $4,555         $ 51           $  547      $1,304          $2,653
Capital lease obligations (2)                 6            2                1           1               2
Operating leases (2)                        222           45               68          43              66
Interest obligations (3)                  2,743          233              461         408           1,641
Purchase obligations:
   Raw material obligations (4)             161            1              107          53              --
   Capital expenditure obligations (5)       48           48               --          --              --
   Other obligations (6)                    292          178               62          30              22
Other long-term liabilities (7)              31            6               13           7               5
                                         ------         ----           ------      ------          ------
TOTAL                                    $8,058         $564           $1,259      $1,846          $4,389
                                         ======         ====           ======      ======          ======
</TABLE>

(1)  See Note 8 in Notes to Consolidated Financial Statements for additional
     information relating to our long-term debt obligations.

(2)  See Note 9 in 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.


                                       30
<PAGE>
(5)  Represents commitments to suppliers under capital expenditure related
     contracts or purchase orders.

(6)  Represents noncancellable 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 11 in Notes to Consolidated Financial Statements for
     a discussion of our future pension and postretirement contributions and
     corresponding expected benefit payments for years 2005 through 2014.

OFF-BALANCE SHEET ARRANGEMENTS

     There are no off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on our financial condition,
results of operations, liquidity, capital expenditures or capital resources.

CAPITAL EXPENDITURES

     Our business requires substantial infrastructure investments to maintain
our existing level of operations and to fund investments targeted at growing our
business. Capital infrastructure expenditures totaled $717 million, $644 million
and $623 million during 2004, 2003 and 2002, respectively.

ACQUISITIONS

     During 2004, we acquired the operations and exclusive right to manufacture,
sell and distribute Pepsi-Cola beverages from four franchise bottlers. The
following acquisitions occurred for an aggregate purchase price of $95 million
in cash and assumption of liabilities of $22 million:

     -    Gaseosas, S.A. de C.V. of Mexicali, Mexico in March

     -    Seltzer and Rydholm, Inc. of Auburn, Maine in October

     -    Phil Gaudreault et Fils Ltee of Quebec, Canada in November

     -    Bebidas Purificada, S.A. de C.V. of Juarez, Mexico in November

     As a result of these acquisitions, we have assigned $5 million to goodwill,
$66 million to franchise rights and $3 million to non-compete arrangements. The
goodwill and franchise rights are not subject to amortization. The non-compete
agreements are being amortized over five to ten years. The allocations of the
purchase price for these acquisitions are still preliminary and will be
determined based on the estimated fair value of assets acquired and liabilities
assumed as of the dates of acquisitions. The operating results of each of our
acquisitions are included in the accompanying consolidated financial statements
from its respective date of purchase. These acquisitions were made to enable us
to provide better service to our large retail customers. We expect these
acquisitions to reduce costs through economies of scale.

     During 2004, we also paid $1 million for the purchase of certain
distribution rights relating to SOBE.

     During 2003, we acquired the operations and exclusive right to manufacture,
sell and distribute beverages from three franchise bottlers. The following
acquisitions occurred for an aggregate purchase price of $91 million in cash and
the assumption of liabilities of $13 million:

     -    Pepsi-Cola Buffalo Bottling Corp. of Buffalo, New York in February

     -    Cassidy's Beverage Limited of New Brunswick, Canada in February

     -    Olean Bottling Works, Inc. of Olean, New York in August

     During 2003, we also paid $5 million for the purchase of certain
distribution rights relating to SOBE and DR PEPPER. In addition, we paid $4
million for purchase obligations relating to acquisitions made in the prior
year.

     We intend to continue to pursue other acquisitions of independent PepsiCo
bottlers in the U.S., Mexico and Canada, particularly in territories contiguous
to our own, where they create shareholder value. We also intend to continue to
evaluate other international acquisition opportunities as they become available.


                                       31
<PAGE>
MARKET RISKS AND CAUTIONARY STATEMENTS

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     In the normal course of business, our financial position is routinely
subject to a variety of risks. These risks include the risk associated with the
price of commodities purchased and used in our business, interest rates on
outstanding debt and currency movements of non-U.S. dollar denominated assets
and liabilities. We are also subject to the risks associated with the business
environment in which we operate, including the collectibility of accounts
receivable. We regularly assess all of these risks and have policies and
procedures in place to protect against the adverse effects of these exposures.

     Our objective in managing our exposure to fluctuations in commodity prices,
interest rates and foreign currency exchange rates is to minimize the
volatility of earnings and cash flows associated with changes in the applicable
rates and prices. To achieve this objective, we have derivative instruments to
hedge against the risk of adverse movements in commodity prices, interest rates
and foreign currency. Our corporate policy prohibits the use of derivative
instruments for trading or speculative purposes, and we have procedures in place
to monitor and control their use. See Note 10 in Notes to Consolidated Financial
Statements for additional information relating to our derivative instruments.

     A sensitivity analysis has been prepared to determine the effects that
market risk exposures may have on the fair values of our debt and other
financial instruments. To perform the sensitivity analysis, we assessed the risk
of loss in fair values from the hypothetical changes in commodity prices,
interest rates and foreign currency exchange rates on market-sensitive
instruments. Information provided by this sensitivity analysis does not
necessarily represent the actual changes in fair value that we would incur under
normal market conditions because, due to practical limitations, all variables
other than the specific market risk factor were held constant. In addition, the
results of the analysis are constrained by the fact that certain items are
specifically excluded from the analysis, while the financial instruments that
relate to the financing or hedging of those items are included. As a result, the
reported changes in the values of some financial instruments that affect the
results of the sensitivity analysis are not matched with the offsetting changes
in the values of the items that those instruments are designed to finance or
hedge.

     Commodity Price Risk

     We are subject to market risks with respect to commodities because our
ability to recover increased costs through higher pricing may be limited by the
competitive environment in which we operate. We use futures contracts and
options on futures in the normal course of business to hedge anticipated
purchases of certain commodities used in our operations. With respect to
commodity price risk, we currently have various contracts outstanding for
commodity purchases in 2005, which establish our purchase prices within defined
ranges. We estimate that a 10% decrease in commodity prices with all other
variables held constant would have resulted in a decrease in the fair value of
our financial instruments of $10 million and $17 million at December 25, 2004
and December 27, 2003, respectively.

     Interest Rate Risk

     The fair value of our fixed-rate long-term debt is sensitive to changes in
interest rates. Interest rate changes would result in gains or losses in the
fair market value of our debt, representing differences between market interest
rates and the fixed-rate on the debt. As a result of the market risk, we
effectively converted a portion of our fixed-rate debt to floating-rate debt
through the use of interest rate swaps. We estimate that a 10% decrease in
interest rates with all other variables held constant would have resulted in a
net increase in the fair value of our financial instruments (which includes both
our fixed-rate debt and our interest rate swaps) of $149 million and $160
million at December 25, 2004 and December 27, 2003, respectively.


                                       32
<PAGE>
     Foreign Currency Exchange Rate Risk

     In 2004, approximately 28% of our net revenues came from outside the United
States. Social, economic and political conditions in these international
markets may adversely affect our results of operations, cash flows and
financial condition. The overall risks to our international businesses include
changes in foreign governmental policies and other political or economic
developments. These developments may lead to new product pricing, tax or other
policies and monetary fluctuations that may adversely impact our business. In
addition, our results of operations and the value of the foreign assets and
liabilities are affected by fluctuations in foreign currency exchange rates.

     As currency exchange rates change, translation of the statements of
operations of our businesses outside the U.S. into U.S. dollars affects
year-over-year comparability. We generally have not hedged against these types
of currency risks because cash flows from our international operations are
usually reinvested locally.

     We have foreign currency transactional risks in certain of our
international territories for transactions that are denominated in currencies
that are different from their functional currency. Beginning in 2004, we have
entered into forward exchange contracts to hedge portions of our forecasted U.S.
dollar cash flows in our Canadian business. At December 25, 2004, a 10% weaker
U.S. dollar against the Canadian dollar, with all other variables held constant,
would result in a decrease in the fair value of our financial instruments of $10
million. Conversely, a 10% stronger U.S. dollar against the Canadian dollar,
with all other variables held constant, would result in an increase in the fair
value of our financial instruments of $9 million.

     Foreign currency gains and losses reflect both transaction gains and losses
in our foreign operations, as well as translation gains and losses arising from
the re-measurement into U.S. dollars of the net monetary assets of businesses in
highly inflationary countries. Turkey and Russia were considered highly
inflationary economies for accounting purposes in 2002. Beginning in 2003,
Russia was no longer considered highly inflationary, and as a result, changed
its functional currency from the U.S. dollar to the Russian ruble. There was no
material impact on our consolidated financial statements as a result of Russia's
change in functional currency. For 2004 and 2003, Turkey was still considered a
highly inflationary economy for accounting purposes.

     Unfunded Deferred Compensation Liability

     Our unfunded deferred compensation liability is subject to changes in our
stock price as well as price changes in certain other equity and fixed income
investments. Employees participating in our deferred compensation program can
elect to defer all or a portion of their compensation to be paid out on a future
date or dates. As part of the deferral process, employees select from phantom
investment options that determine the earnings on the deferred compensation
liability and the amount that they will ultimately receive. Employee investment
elections include PBG stock and a variety of other equity and fixed-income
investment options.

     Since the plan is unfunded, employees' deferred compensation amounts are
not directly invested in these investment vehicles. Instead, we track the
performance of each employee's investment selections and adjust his or her
deferred compensation account accordingly. The adjustments to the employees'
accounts increase or decrease the deferred compensation liability reflected on
our Consolidated Balance Sheets with an offsetting increase or decrease to our
selling, delivery and administrative expenses.

     We use prepaid forward contracts to hedge the portion of our deferred
compensation liability that is based on our stock price. Therefore, changes in
compensation expense as a result of changes in our stock price are substantially
offset by the changes in the fair value of these contracts. We estimate that a
10% unfavorable change in the year-end stock price would have reduced the fair
value from these commitments by $2 million in 2004 and 2003.


                                       33
<PAGE>
CAUTIONARY STATEMENTS

     Except for the historical information and discussions contained herein,
statements contained in this annual report on Form 10-K and in the annual report
to the shareholders may constitute forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based on currently available competitive, financial and economic
data and our operating plans. These statements involve a number of risks,
uncertainties and other factors that could cause actual results to be materially
different. Among the events and uncertainties that could adversely affect future
periods are:

-    changes in our relationship with PepsiCo that could have a material adverse
     effect on our long-term and short-term business and financial results;

-    restrictions imposed by PepsiCo on our raw material suppliers that could
     increase our costs;

-    material changes from expectations in the cost of raw materials and
     ingredients;

-    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;

-    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;

-    material changes in expected levels of bottler incentive payments from
     PepsiCo;

-    changes in product category consumption;

-    unfavorable weather conditions in our markets;

-    unforeseen economic and political changes;

-    possible recalls of our products;

-    an inability to meet projections for performance in newly acquired
     territories;

-    failure or inability to comply with laws and regulations;

-    changes in laws and regulations governing the manufacture and sale of food
     and beverages, including restrictions on the sale of carbonated soft drinks
     in schools;

-    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);

-    changes in our debt ratings;

-    material changes in expected interest and currency exchange rates and
     unfavorable market performance of our pension plan assets;

-    interruptions of operations due to labor disagreements;

-    loss of business from a significant customer; and

-    limitations on the availability of water or obtaining water rights.


                                       34
<PAGE>
THE PEPSI BOTTLING GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
in millions, except per share data

FISCAL YEARS ENDED DECEMBER 25, 2004, DECEMBER 27, 2003 AND DECEMBER 28, 2002

<TABLE>
<CAPTION>
                                                        2004      2003     2002
                                                      -------   -------   ------
<S>                                                   <C>       <C>       <C>
NET REVENUES ......................................   $10,906   $10,265   $9,216
Cost of sales .....................................     5,656     5,215    5,001
                                                      -------   -------   ------
GROSS PROFIT ......................................     5,250     5,050    4,215

Selling, delivery and administrative expenses .....     4,274     4,094    3,317
                                                      -------   -------   ------
OPERATING INCOME ..................................       976       956      898

Interest expense, net .............................       230       239      191
Other non-operating expenses, net .................         1         7        7
Minority interest .................................        56        50       51
                                                      -------   -------   ------

INCOME BEFORE INCOME TAXES ........................       689       660      649
Income tax expense ................................       232       238      221
                                                      -------   -------   ------

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
   IN ACCOUNTING PRINCIPLE ........................       457       422      428
Cumulative effect of change in accounting
   principle, net of tax and minority interest ....        --         6       --
                                                      -------   -------   ------
NET INCOME ........................................   $   457   $   416   $  428
                                                      =======   =======   ======

BASIC EARNINGS PER SHARE BEFORE CUMULATIVE
   EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE .......   $  1.79   $  1.56   $ 1.52
Cumulative effect of change in accounting
   principle ......................................        --      0.02       --
                                                      -------   -------   ------
BASIC EARNINGS PER SHARE ..........................   $  1.79   $  1.54   $ 1.52
                                                      =======   =======   ======

Weighted-average shares outstanding ...............       255       270      282

DILUTED EARNINGS PER SHARE BEFORE CUMULATIVE
   EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE .......   $  1.73   $  1.52   $ 1.46
Cumulative effect of change in accounting
   principle ......................................        --      0.02       --
                                                      -------   -------   ------
DILUTED EARNINGS PER SHARE ........................   $  1.73   $  1.50   $ 1.46
                                                      =======   =======   ======

Weighted-average shares outstanding ...............       263       277      293
</TABLE>

See accompanying notes to Consolidated Financial Statements.


                                       35
<PAGE>
THE PEPSI BOTTLING GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
in millions

FISCAL YEARS ENDED DECEMBER 25, 2004, DECEMBER 27, 2003 AND DECEMBER 28, 2002

<TABLE>
<CAPTION>
                                                       2004     2003      2002
                                                     -------   ------   -------
<S>                                                  <C>       <C>      <C>
CASH FLOWS--OPERATIONS
Net income .......................................   $   457   $  416   $   428
Adjustments to reconcile net income to
   net cash provided by operations:
   Depreciation ..................................       580      556       443
   Amortization ..................................        13       12         8
   Deferred income taxes .........................        31      125       131
   Cumulative effect of change
      in accounting principle ....................        --        6        --
   Other non-cash charges and credits, net .......       298      303       228
   Changes in operating working capital,
      excluding effects of acquisitions:
      Accounts receivable, net ................          (41)     (20)      (19)
      Inventories, net ........................          (38)       4        13
      Prepaid expenses and other
         current assets ..........................       (16)       7        (7)
      Accounts payable and other current
         liabilities .............................        92     (118)      (10)
                                                     -------   ------   -------
         Net change in operating working
            capital ..............................        (3)    (127)      (23)
                                                     -------   ------   -------
   Pension contributions .........................       (83)    (162)     (151)
   Other, net ....................................       (42)     (45)      (50)
                                                     -------   ------   -------
NET CASH PROVIDED BY OPERATIONS ..................     1,251    1,084     1,014
                                                     -------   ------   -------
CASH FLOWS--INVESTMENTS
Capital expenditures .............................      (717)    (644)     (623)
Acquisitions of bottlers .........................       (96)    (100)     (936)
Sales of property, plant and equipment ...........        22       10         6
Investment in debt defeasance trust ..............        --       --      (181)
                                                     -------   ------   -------
NET CASH USED FOR INVESTMENTS ....................      (791)    (734)   (1,734)
                                                     -------   ------   -------
CASH FLOWS--FINANCING
Short-term borrowings, net--three months
   or less .......................................       104        8       (78)
Net proceeds from issuances of long-term debt ....        23    1,141     1,031
Payments of long-term debt .......................    (1,014)     (30)     (120)
Minority interest distribution ...................       (13)      (7)      (11)
Dividends paid ...................................       (31)     (11)      (11)
Proceeds from exercise of stock options ..........       118       35        93
Purchases of treasury stock ......................      (582)    (483)     (231)
                                                     -------   ------   -------
NET CASH (USED FOR) PROVIDED BY FINANCING ........    (1,395)     653       673
                                                     -------   ------   -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
   AND CASH EQUIVALENTS ..........................        5        10        (8)
                                                     -------   ------   -------
NET (DECREASE) INCREASE IN CASH AND
   CASH EQUIVALENTS...............................      (930)   1,013       (55)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR .....     1,235      222       277
                                                     -------   ------   -------
CASH AND CASH EQUIVALENTS--END OF YEAR ...........   $   305   $1,235   $   222
                                                     =======   ======   =======

SUPPLEMENTAL CASH FLOW INFORMATION

NON-CASH INVESTING AND FINANCING ACTIVITIES:
      Liabilities incurred and/or assumed in
         conjunction with acquisitions of
         bottlers.................................   $    20   $  146   $   813
</TABLE>

See accompanying notes to Consolidated Financial Statements.


                                       36
<PAGE>
THE PEPSI BOTTLING GROUP, INC.
CONSOLIDATED BALANCE SHEETS
in millions, except per share data

DECEMBER 25, 2004 AND DECEMBER 27, 2003

<TABLE>
<CAPTION>
                                                                2004      2003
                                                              -------   -------
<S>                                                           <C>       <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................   $   305   $ 1,235
Accounts receivable, less allowance of
   $61 in 2004 and $72 in 2003 ............................     1,054       994
Inventories ...............................................       427       374
Prepaid expenses and other current assets .................       253       268
Investment in debt defeasance trust .......................        --       168
                                                              -------   -------
   TOTAL CURRENT ASSETS ...................................     2,039     3,039

Property, plant and equipment, net ........................     3,581     3,423
Other intangible assets, net ..............................     3,639     3,562
Goodwill ..................................................     1,416     1,386
Other assets ..............................................       118       134
                                                              -------   -------
      TOTAL ASSETS ........................................   $10,793   $11,544
                                                              =======   =======

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current liabilities ............   $ 1,373   $ 1,231
Short-term borrowings .....................................       155        67
Current maturities of long-term debt ......................        53     1,180
                                                              -------   -------
   TOTAL CURRENT LIABILITIES ..............................     1,581     2,478
Long-term debt ............................................     4,489     4,493
Other liabilities .........................................       914       875
Deferred income taxes .....................................     1,415     1,421
Minority interest .........................................       445       396
                                                              -------   -------
   TOTAL LIABILITIES ......................................     8,844     9,663
                                                              -------   -------

SHAREHOLDERS' EQUITY
Common stock, par value $0.01 per share:
   authorized 900 shares, issued 310 shares ...............         3         3
Additional paid-in capital ................................     1,719     1,743
Retained earnings .........................................     1,887     1,471
Accumulated other comprehensive loss ......................      (315)     (380)
Deferred compensation .....................................        (1)       (4)
Treasury stock: 61 shares and 49 shares in 2004
   and 2003, respectively, at cost ........................    (1,344)     (952)
                                                              -------   -------
   TOTAL SHAREHOLDERS' EQUITY .............................     1,949     1,881
                                                              -------   -------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..........   $10,793   $11,544
                                                              =======   =======
</TABLE>

See accompanying notes to Consolidated Financial Statements.


                                       37
<PAGE>
THE PEPSI BOTTLING GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
in millions, except per share data

FISCAL YEARS ENDED DECEMBER 25, 2004, DECEMBER 27, 2003 AND DECEMBER 28, 2002

<TABLE>
<CAPTION>
                                                                                            ACCUMU-
                                                                                             LATED
                                                                                             OTHER
                                                         ADDITIONAL   DEFERRED              COMPRE-                        COMPRE-
                                                COMMON     PAID-IN     COMPEN-   RETAINED   HENSIVE   TREASURY             HENSIVE
                                                 STOCK     CAPITAL     SATION    EARNINGS     LOSS      STOCK     TOTAL     INCOME
                                                ------   ----------   --------   --------   -------   --------   -------   -------
<S>                                             <C>      <C>          <C>        <C>        <C>       <C>        <C>       <C>
BALANCE AT DECEMBER 29, 2001 ................     $ 3      $1,739       $--       $  649     $(370)   $  (420)   $1,601
Comprehensive income:
   Net income ...............................      --          --        --          428        --         --       428     $ 428
   Net currency translation adjustment ......      --          --        --           --        18         --        18        18
   Cash flow hedge adjustment (net of
      tax and minority interest of $4) ......      --          --        --           --         7         --         7         7
   Minimum pension liability adjustment (net
      of tax and minority interest of $93) ..      --          --        --           --      (123)        --      (123)     (123)
                                                                                                                            -----
Total comprehensive income ..................                                                                               $ 330
                                                                                                                            =====
Stock option exercises: 8 shares ............      --         (31)       --           --        --        124        93
Tax benefit - stock option exercises ........      --          42        --           --        --         --        42
Purchase of treasury stock: 9 shares ........      --          --        --           --        --       (231)     (231)
Cash dividends declared on common stock
   (per share: $0.04) .......................      --          --        --          (11)       --         --       (11)
                                                  ---      ------       ---       ------     -----    -------    ------

BALANCE AT DECEMBER 28, 2002 ................       3       1,750        --        1,066      (468)      (527)    1,824
Comprehensive income:
   Net income ...............................      --          --        --          416        --         --       416     $ 416
   Net currency translation adjustment ......      --          --        --           --        90         --        90        90
   Cash flow hedge adjustment (net of tax and
      minority interest of $13) .............      --          --        --           --        18         --        18        18
   Minimum pension liability adjustment (net
      of tax and minority interest of $14)         --          --        --           --       (20)        --       (20)      (20)
                                                                                                                            -----
Total comprehensive income ..................                                                                               $ 504
                                                                                                                            =====
Stock option exercises: 3 shares ............      --         (23)       --           --        --         58        35
Tax benefit - stock option exercises ........      --           8        --           --        --         --         8
Purchase of treasury stock: 23 shares .......      --          --        --           --        --       (483)     (483)
Stock compensation ..........................      --           8        (4)          --        --         --         4
Cash dividends declared on common stock
   (per share: $0.04) .......................      --          --        --          (11)       --         --       (11)
                                                  ---      ------       ---       ------     -----    -------    ------

 BALANCE AT DECEMBER 27, 2003 ...............       3       1,743        (4)       1,471      (380)      (952)    1,881
 Comprehensive income:
   Net income ...............................      --          --        --          457        --         --       457     $ 457
   Net currency translation adjustment ......      --          --        --           --        84         --        84        84
   Cash 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 ..................                                                                               $ 522
                                                                                                                            =====
Stock option exercises: 9 shares ............      --         (72)       --           --        --        190       118
Tax benefit - stock option exercises ........      --          51        --           --        --         --        51
Purchase 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)   $1,949
                                                  ===      ======       ===       ======     =====    =======    ======
</TABLE>

See accompanying notes to Consolidated Financial Statements.


                                       38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Tabular dollars in millions, except per share data

NOTE 1--BASIS OF PRESENTATION

     The Pepsi Bottling Group, Inc. ("PBG" or the "Company") is the world's
largest manufacturer, seller and distributor of Pepsi-Cola beverages, consisting
of bottling operations located in the United States, Mexico, Canada, Spain,
Greece, Russia and Turkey. When used in these Consolidated Financial Statements,
"PBG," "we," "our" and "us" each refers to The Pepsi Bottling Group, Inc. and,
where appropriate, to Bottling Group, LLC, our principal operating subsidiary.

     At December 25, 2004, PepsiCo, Inc. ("PepsiCo") owned 106,011,358 shares of
our common stock, consisting of 105,911,358 shares of common stock and 100,000
shares of Class B common stock. All shares of Class B common stock that have
been authorized have been issued to PepsiCo. At December 25, 2004, PepsiCo owned
approximately 42.5% of our outstanding common stock and 100% of our outstanding
Class B common stock, together representing approximately 47.7% of the voting
power of all classes of our voting stock. In addition, PepsiCo owns 6.8% of the
equity of Bottling Group, LLC, our principal operating subsidiary. We fully
consolidate the results of Bottling Group, LLC and present PepsiCo's share as
minority interest in our Consolidated Financial Statements.

     The common stock and Class B common stock both have a par value of $0.01
per share and are substantially identical, except for voting rights. Holders of
our common stock are entitled to one vote per share and holders of our Class B
common stock are entitled to 250 votes per share. Each share of Class B common
stock is convertible into one share of common stock. Holders of our common stock
and holders of our Class B common stock share equally on a per-share basis in
any dividend distributions.

     Our Board of Directors has the authority to issue up to 20,000,000 shares
of preferred stock, and to determine the price and terms, including, but not
limited to, preferences and voting rights of those shares without stockholder
approval. At December 25, 2004, there was no preferred stock outstanding.

     Certain reclassifications were made in our Consolidated Financial
Statements to 2003 amounts to conform to the 2004 presentation.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America ("U.S.
GAAP") requires us to make estimates and assumptions that affect reported
amounts of assets, liabilities, revenues, expenses and disclosure of contingent
assets and liabilities. Actual results could differ from these estimates. For
additional unaudited information on certain accounting policies, see "Critical
Accounting Policies" in Management's Financial Review.

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

     FISCAL YEAR - Our U.S. and Canadian operations report using a fiscal year
that consists of fifty-two weeks, ending on the last Saturday in December. Every
five or six years a fifty-third week is added. Fiscal years 2004, 2003 and 2002
each consisted of fifty-two weeks. In 2005, our fiscal year will consist of
fifty-three weeks (the additional week is added to the fourth quarter). Our
remaining countries report using a calendar-year basis. Accordingly, we
recognize our quarterly business results as outlined below:

<TABLE>
<CAPTION>
   Quarter       U.S. & Canada          Mexico & Europe
--------------   -------------   ----------------------------
<S>              <C>             <C>
First Quarter       12 weeks          January and February
Second Quarter      12 weeks          March, April and May
Third Quarter       12 weeks         June, July and August
Fourth Quarter      16 weeks     September, October, November
                                         and December
</TABLE>

     REVENUE RECOGNITION - We recognize revenue when our products are delivered
to customers. We offer certain sales incentives to our customers, which are
accounted for as a reduction in our net revenues when the sales incentives are
earned. A number of these arrangements are based upon annual and quarterly
targets that generally


                                       39
<PAGE>
do not exceed one year. Based upon forecasted volume and other performance
criteria, net revenues are reduced by the expected amounts to be paid out to our
customers.

     ADVERTISING AND MARKETING COSTS - We are involved in a variety of programs
to promote our products. We include advertising and marketing costs in selling,
delivery and administrative expenses and expense such costs during the fiscal
year incurred, generally in proportion to revenue, based on annual targets.
Advertising and marketing costs were $426 million, $453 million and $441 million
in 2004, 2003 and 2002, respectively, before bottler incentives received from
PepsiCo and other brand owners.

     BOTTLER INCENTIVES - PepsiCo and other brand owners provide us with various
forms of bottler incentives. These incentives are mutually agreed upon between
us and PepsiCo and other brand owners and cover a variety of initiatives,
including direct marketplace support, capital equipment funding and advertising
support. Based on the objective of the programs and initiatives, we record
bottler incentives as an adjustment to net revenues, cost of sales or selling,
delivery and administrative expenses. Beginning in 2003, due to the adoption of
Emerging Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor," we
changed our accounting methodology for the way we record bottler incentives.
Prior to 2003, we classified worldwide bottler incentives received from PepsiCo
and other brand owners as adjustments to net revenues and selling, delivery and
administrative expenses depending on the objective of the program. Beginning in
2003, we have classified bottler incentives as follows:

-    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 adjustment to net revenues. Prior to 2003, all direct marketplace
     support was recorded as an adjustment to net revenues.

-    Capital equipment funding is designed to help offset the costs of
     purchasing and installing marketing equipment, such as vending machines and
     glass door coolers at customer locations and is recorded as a reduction of
     cost of sales. Prior to 2003, capital equipment funding was recorded as a
     reduction to selling, delivery and administrative expenses.

-    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. Prior to 2003, all funding
     for media costs was recorded as an adjustment to selling, delivery and
     administrative expenses.

     Total bottler incentives recognized as adjustments to net revenues, cost of
sales and selling, delivery and administrative expenses in our Consolidated
Statements of Operations were as follows:

<TABLE>
<CAPTION>
                                                     52 WEEKS ENDED
                                                   ------------------
                                                   2004   2003   2002
                                                   ----   ----   ----
<S>                                                <C>    <C>    <C>
Net revenues....................................   $ 22   $ 21   $293
Cost of sales...................................    559    561     --
Selling, delivery and administrative expenses...     84    108    311
                                                   ----   ----   ----
   Total bottler incentives.....................   $665   $690   $604
                                                   ====   ====   ====
</TABLE>

     See "New Accounting Standards" for the pro forma disclosure to our reported
results for the fifty-two weeks ended December 28, 2002, assuming that EITF
Issue No. 02-16 had been in place for all periods presented.

     SHIPPING AND HANDLING COSTS - Our shipping and handling costs are recorded
primarily within selling, delivery and administrative expenses. Such costs
recorded within selling, delivery and administrative expenses totaled $1,564
million, $1,438 million and $1,213 million in 2004, 2003 and 2002, respectively.

     FOREIGN CURRENCY GAINS AND LOSSES - We translate the balance sheets of our
foreign subsidiaries that do not operate in highly inflationary economies at the
exchange rates in effect at the balance sheet date, while we translate the
statements of operations at the average rates of exchange during the year. The
resulting translation adjustments of our foreign subsidiaries are recorded
directly to accumulated other comprehensive loss. Foreign currency gains and
losses reflect both transaction gains and losses in our foreign operations, as
well as translation gains and losses arising from the remeasurement into U.S.
dollars of the net monetary assets of businesses in highly inflationary


                                       40
<PAGE>
countries. Turkey and Russia were considered highly inflationary economies for
accounting purposes in 2002. Beginning in 2003, Russia was no longer considered
highly inflationary, and as a result, changed its functional currency from the
U.S. dollar to the Russian ruble. There was no material impact on our
consolidated financial statements as a result of Russia's change in functional
currency. For 2004 and 2003, Turkey was still considered a highly inflationary
economy for accounting purposes.

     PENSION AND POSTRETIREMENT MEDICAL BENEFIT PLANS - We sponsor pension and
other postretirement medical benefit plans in various forms covering
substantially all employees who meet eligibility requirements. We account for
our defined benefit pension plans and our postretirement medical benefit plans
using actuarial models required by Statement of Financial Accounting Standards
("SFAS") No. 87, "Employers' Accounting for Pensions," and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."

     The assets, liabilities and assumptions used to measure pension and
postretirement medical expense for any fiscal year are determined as of
September 30 of the preceding year ("measurement date"). The discount rate
assumption used in our pension and postretirement medical benefit plans'
accounting is based on current interest rates for high-quality, long-term
corporate debt as determined on each measurement date. In evaluating our rate of
return on assets for a given fiscal year, we consider the 10-15 year historical
return of our pension investment portfolio, reflecting the weighted return of
our pension plan asset allocation. Differences between actual and expected
returns are generally recognized in the net periodic pension calculation over
five years. To the extent the amount of all unrecognized gains and losses
exceeds 10% of the larger of the pension benefit obligation or plan assets, such
amount is amortized over the average remaining service life of active
participants. We amortize prior service costs on a straight-line basis over the
average remaining service period of employees expected to receive benefits.

     INCOME TAXES - Our effective tax rate is based on pre-tax income, statutory
tax rates, tax regulations and tax planning strategies available to us in the
various jurisdictions in which we operate. The tax bases of our assets and
liabilities reflect our best estimate of the tax benefit and costs we expect to
realize. We establish valuation allowances to reduce our deferred tax assets to
an amount that will more likely than not be realized.

     Significant management judgment is required in determining our effective
tax rate and in evaluating our tax position. We establish reserves when, despite
our belief that our tax return positions are supportable, we believe these
positions may be challenged. We adjust these reserves as warranted by changing
facts and circumstances. A change in our tax reserves could have a significant
impact on our results of operations.

     EARNINGS PER SHARE - We compute basic earnings per share by dividing net
income by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised and
converted into common stock that would then participate in net income.

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

     ALLOWANCE FOR DOUBTFUL ACCOUNTS - A portion of our accounts receivable will
not be collected due to customer disputes, bankruptcies and sales returns. We
provide reserves for these situations based on the evaluation of the aging of
our trade receivable portfolio and an in-depth analysis of our high-risk
customers. Our reserves contemplate our historical loss rate on receivables,
specific customer situations and the economic environments in which we operate.

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

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

     GOODWILL AND OTHER INTANGIBLE ASSETS, NET - Goodwill and intangible assets
with indefinite useful lives are not amortized, but instead tested annually for
impairment.

     We evaluate our identified intangible assets with indefinite useful lives
for impairment annually (unless it is required more frequently because of a
triggering event) on an individual basis or by asset groups on a
country-by-country basis, depending on the nature of the intangible asset. We
measure impairment as the amount by which the


                                       41
<PAGE>
carrying value exceeds its estimated fair value. Based upon our annual
impairment analysis performed in the fourth quarter of 2004, the estimated fair
values of our identified intangible assets with indefinite lives exceeded their
carrying amounts. However, we recorded a $9 million non-cash impairment charge
in the fourth quarter due to our re-evaluation of the fair value of our
franchise licensing agreement for SQUIRT resulting from our negotiations with
Cadbury in December 2004. See Note 6-Other Intangible Assets, Net and Goodwill
for additional information.

     We evaluate goodwill on a country-by-country basis ("reporting unit") for
impairment. We evaluate each reporting unit for impairment based upon a two-step
approach. First, we compare the fair value of our reporting unit with its
carrying value. Second, if the carrying value of our reporting unit exceeds its
fair value, we compare the implied fair value of the reporting unit's goodwill
to its carrying amount to measure the amount of impairment loss. In measuring
the implied fair value of goodwill, we would allocate the fair value of the
reporting unit to each of its assets and liabilities (including any unrecognized
intangible assets). Any excess of the fair value of the reporting unit over the
amounts assigned to its assets and liabilities is the implied fair value of
goodwill. Based upon our annual impairment analysis in the fourth quarter of
2004, the estimated fair value of our reporting units exceeded their carrying
value, and as a result, we did not need to proceed to the second step of the
impairment test.

     Other identified intangible assets that are subject to amortization are
amortized on a straight-line basis over the period in which we expect to receive
economic benefit and are reviewed for impairment when facts and circumstances
indicate that the carrying value of the asset may not be recoverable. The
determination of the expected life will be dependent upon the use and underlying
characteristics of the intangible asset. In our evaluation of the intangible
assets, we consider the nature and terms of the underlying agreements, the
customer's attrition rate, competitive environment and brand history, as
applicable. If the carrying value is not recoverable, impairment is measured as
the amount by which the carrying value exceeds its estimated fair value. Fair
value is generally estimated based on either appraised value or other valuation
techniques.

     CASUALTY INSURANCE COSTS - In the United States we are self-insured for
workers' compensation and automobile risks for occurrences up to $10 million,
and product and general liability risks for occurrences up to $5 million. For
losses exceeding these self-insurance thresholds, we purchase casualty insurance
from a third-party provider. Our liability for casualty costs was $169 million
as of December 25, 2004 of which $55 million was reported in accounts payable
and other current liabilities and $114 million was recorded in other liabilities
in our Consolidated Balance Sheets. Our liability for casualty costs is
estimated using individual case-based valuations and statistical analyses and is
based upon historical experience, actuarial assumptions and professional
judgment. We do not discount our loss expense reserves.

     MINORITY INTEREST - PBG and PepsiCo contributed bottling businesses and
assets used in the bottling businesses to Bottling Group, LLC, our principal
operating subsidiary, in connection with the formation of Bottling Group, LLC in
February 1999. At December 25, 2004, PBG owns 93.2% of Bottling Group, LLC and
PepsiCo owns the remaining 6.8%. Accordingly, the Consolidated Financial
Statements reflect PepsiCo's share of the consolidated net income of Bottling
Group, LLC as minority interest in our Consolidated Statements of Operations,
and PepsiCo's share of consolidated net assets of Bottling Group, LLC as
minority interest in our Consolidated Balance Sheets.

     TREASURY STOCK - We record the repurchase of shares of our common stock at
cost and classify these shares as treasury stock within shareholders' equity.
Repurchased shares are included in our authorized and issued shares but not
included in our shares outstanding. We record shares reissued using an average
cost. Since the inception of our share repurchase program in October 1999, we
have repurchased approximately 84 million shares and have reissued approximately
23 million for stock option exercises.

     FINANCIAL INSTRUMENTS AND RISK MANAGEMENT - We use derivative instruments
to hedge against the risk of adverse movements associated with commodity prices,
interest rates and foreign currency. Our corporate policy prohibits the use of
derivative instruments for trading or speculative purposes, and we have
procedures in place to monitor and control their use.

     All derivative instruments are recorded at fair value as either assets or
liabilities in our Consolidated Balance Sheets. Derivative instruments are
generally designated and accounted for as either a hedge of a recognized asset
or liability ("fair value hedge") or a hedge of a forecasted transaction ("cash
flow hedge"). The derivative's gain or loss recognized in earnings is recorded
consistent with the expense classification of the underlying hedged item.

     If a fair value or cash flow hedge were to cease to qualify for hedge
accounting or were terminated, it would continue to be carried on the balance
sheet at fair value until settled, but hedge accounting would be discontinued
prospectively. If a forecasted transaction was no longer probable of occurring,
amounts previously deferred in accumulated other comprehensive loss would be
recognized immediately in earnings.


                                       42
<PAGE>
     On occasion, we enter into derivative instruments that do not qualify for
hedge accounting. These instruments are reflected in the Consolidated Balance
Sheets at fair value with changes in fair value recognized in earnings.

     We also may enter into a derivative instrument for which hedge accounting
is not required because it is entered into to offset changes in the fair value
of an underlying transaction recognized in earnings ("natural hedge"). These
instruments are reflected in the Consolidated Balance Sheets at fair value with
changes in fair value recognized in earnings.

     STOCK-BASED EMPLOYEE COMPENSATION - We measure stock-based compensation
expense using the intrinsic value method in accordance with Accounting
Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees,"
and its related interpretations. Accordingly, compensation expense for stock
option and restricted stock grants to our employees is measured as the excess of
the quoted market price of common stock at the grant date over the amount the
employee must pay for the stock. Our policy is to grant stock options based upon
the fair value of the PBG stock on the date of grant. As allowed by SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an
Amendment of FASB Statement No. 123," we have elected to continue to apply the
intrinsic value-based method of accounting described above, and have adopted the
disclosure requirements of SFAS No. 123 "Accounting for Stock-Based
Compensation." If we had measured compensation cost for the stock-based awards
granted to our employees under the fair value-based method prescribed by SFAS
No. 123, net income would have been changed to the pro forma amounts set forth
below:

<TABLE>
<CAPTION>
                                                                    52 WEEKS ENDED
                                                                ---------------------
                                                                 2004    2003    2002
                                                                -----   -----   -----
<S>                                                             <C>     <C>     <C>
Net income:
As reported .................................................   $ 457   $ 416   $ 428
Add:  Total stock-based employee compensation expense
      included in reported net income, net of taxes and
      minority interest .....................................      --       2      --
Less: Total stock-based employee compensation expense
      under fair value-based method for all awards, net of
      taxes and minority interest ...........................     (37)    (42)    (40)
                                                                -----   -----   -----
Pro forma ...................................................   $ 420   $ 376   $ 388
                                                                =====   =====   =====

Earnings per share:
   Basic - as reported ......................................   $1.79   $1.54   $1.52
   Basic - pro forma ........................................   $1.64   $1.39   $1.38

   Diluted - as reported ....................................   $1.73   $1.50   $1.46
   Diluted - pro forma ......................................   $1.59   $1.35   $1.32
</TABLE>

     Pro forma compensation cost measured for equity awards granted to employees
is amortized using a straight-line basis over the vesting period, which is
typically three years.

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

<TABLE>
<CAPTION>
                                2004      2003      2002
                              -------   -------   -------
<S>                           <C>       <C>       <C>
Risk-free interest rate....       3.2%      2.9%      4.5%
Expected life..............   6 years   6 years   6 years
Expected volatility........        35%       37%       37%
Expected dividend yield....      0.68%     0.17%     0.16%
</TABLE>

     COMMITMENTS AND CONTINGENCIES - We are subject to various claims and
contingencies related to lawsuits, taxes, environmental and other matters
arising out of the normal course of business. Liabilities related to commitments
and contingencies are recognized when a loss is probable and reasonably
estimable.


                                       43
<PAGE>
     NEW ACCOUNTING STANDARDS

     EITF ISSUE NO. 02-16

     As discussed above in Note 2, the EITF reached a consensus on Issue No.
02-16 in 2003, addressing the recognition and income statement classification of
various cash consideration given by a vendor to a customer. In accordance with
EITF Issue No. 02-16, we have classified certain bottler incentives as a
reduction of cost of sales beginning in 2003. During 2003, we recorded a
transition adjustment of $6 million, net of taxes and minority interest of $1
million, for the cumulative effect on prior years. This adjustment reflects the
amount of bottler incentives that can be attributed to our 2003 beginning
inventory balances. Assuming that EITF Issue No. 02-16 had been in place for all
periods presented, the following pro forma adjustments would have been made to
our reported results for the fifty-two weeks ended December 28, 2002:

<TABLE>
<CAPTION>
                                                     52 WEEKS ENDED DECEMBER 28, 2002
                                                    ---------------------------------
                                                       AS      EITF 02-16   PRO FORMA
                                                    REPORTED   ADJUSTMENT    RESULTS
                                                    --------   ----------   ---------
<S>                                                 <C>        <C>          <C>
Net revenues ....................................    $9,216      $(290)       $8,926
Cost of sales ...................................     5,001       (491)        4,510
Selling, delivery and administrative expenses ...     3,317        201         3,518
                                                     ------      -----        ------
Operating income ................................    $  898      $  --        $  898
                                                     ======      =====        ======
</TABLE>

     Assuming EITF Issue No. 02-16 had been adopted for all periods presented,
pro forma net income and earnings per share for the fifty-two weeks ended
December 25, 2004, December 27, 2003, and December 28, 2002, would have been as
follows:

<TABLE>
<CAPTION>
                                       52 WEEKS ENDED
                               ------------------------------
                               DECEMBER   DECEMBER   DECEMBER
                               25, 2004   27, 2003   28, 2002
                               --------   --------   --------
<S>                            <C>        <C>        <C>
Net income:
   As reported .............     $ 457      $ 416      $ 428
   Pro forma ...............     $ 457      $ 422      $ 428

Earnings per share:
   Basic - as reported .....     $1.79      $1.54      $1.52
   Basic - pro forma .......     $1.79      $1.56      $1.52

   Diluted - as reported ...     $1.73      $1.50      $1.46
   Diluted - pro forma .....     $1.73      $1.52      $1.46
</TABLE>

     FASB STAFF POSITION FAS 106-2

     During the second quarter of 2004, the Financial Accounting Standards Board
("FASB") issued FASB Staff Position FAS 106-2, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003." See Note 11 - Pension and Postretirement Medical
Benefit Plans for further details regarding the impact of FASB Staff Position
FAS 106-2.

     SHARE-BASED PAYMENTS

     During the fourth quarter of 2004, the FASB issued SFAS No. 123R,
"Share-Based Payments: an amendment of FASB Statements 123 and 95," which
requires companies to expense the fair value of share-based payments provided to
employees. The grant-date fair value of the employee share options and similar
instruments will be estimated using option-pricing models. SFAS No. 123R becomes
effective for interim periods beginning after June 15, 2005. We are currently
evaluating the impact of this proposed standard on our financial statements.


                                       44
<PAGE>
NOTE 3--INVENTORIES

<TABLE>
<CAPTION>
                                               2004   2003
                                               ----   ----
<S>                                            <C>    <C>
Raw materials and supplies .................   $159   $140
Finished goods .............................    268    234
                                               ----   ----
                                               $427   $374
                                               ====   ====
</TABLE>

NOTE 4--PREPAID EXPENSES AND OTHER CURRENT ASSETS

<TABLE>
<CAPTION>
                                               2004   2003
                                               ----   ----
<S>                                            <C>    <C>
Prepaid expenses ...........................   $198   $223
Other assets ...............................     55     45
                                               ----   ----
                                               $253   $268
                                               ====   ====
</TABLE>

NOTE 5--PROPERTY, PLANT AND EQUIPMENT, NET

<TABLE>
<CAPTION>
                                                 2004      2003
                                               -------   -------
<S>                                            <C>       <C>
Land .......................................   $   257   $   241
Buildings and improvements .................     1,263     1,185
Manufacturing and distribution equipment ...     3,289     3,028
Marketing equipment ........................     2,237     2,131
Other ......................................       177       176
                                               -------   -------
                                                 7,223     6,761
Accumulated depreciation ...................    (3,642)   (3,338)
                                               -------   -------
                                               $ 3,581   $ 3,423
                                               =======   =======
</TABLE>

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

<TABLE>
<S>                                            <C>
Buildings and improvements .................   20-33 years
Manufacturing and distribution equipment ...   2-15 years
Marketing equipment ........................   3-7 years
</TABLE>

NOTE 6--OTHER INTANGIBLE ASSETS, NET AND GOODWILL

<TABLE>
<CAPTION>
                                                2004     2003
                                               ------   ------
<S>                                            <C>      <C>
Intangibles subject to amortization:
   Gross carrying amount:
      Customer relationships and lists .....   $   46   $   42
      Franchise/distribution rights ........       44       23
      Other identified intangibles .........       30       27
                                               ------   ------
                                                  120       92
                                               ------   ------
   Accumulated amortization:
      Customer relationships and lists .....       (6)      (3)
      Franchise/distribution rights ........      (15)     (10)
      Other identified intangibles .........      (16)     (12)
                                               ------   ------
                                                  (37)     (25)
                                               ------   ------
Intangibles subject to amortization, net ...       83       67
                                               ------   ------
Intangibles not subject to amortization:
   Carrying amount:
      Franchise rights .....................    2,958    2,908
      Distribution rights ..................      288      286
      Trademarks ...........................      208      207
      Other identified intangibles .........      102       94
                                               ------   ------
Intangibles not subject to amortization ....    3,556    3,495
                                               ------   ------
Total other intangible assets, net .........   $3,639   $3,562
                                               ======   ======

Goodwill ...................................   $1,416   $1,386
                                               ======   ======
</TABLE>


                                       45
<PAGE>
     In 2004, total other intangible assets, net and goodwill increased by
approximately $107 million due to the following:

<TABLE>
<CAPTION>
                                                                                  OTHER
                                                                                INTANGIBLE
                                                                    GOODWILL   ASSETS, NET    TOTAL
                                                                    --------   -----------   ------
<S>                                                                 <C>        <C>           <C>
Balance at December 27, 2003 ....................................    $1,386      $3,562      $4,948
   Purchase price allocations relating to recent acquisitions ...         9          65          74
   Impact of foreign currency translation .......................        21          31          52
   Intangible asset impairment charge ...........................        --          (9)         (9)
   Increase in pension asset ....................................        --           3           3
   Amortization of intangible assets ............................        --         (13)        (13)
                                                                     ------      ------      ------
Balance at December 25, 2004 ....................................    $1,416      $3,639      $5,055
                                                                     ======      ======      ======
</TABLE>

     During the fourth quarter we recorded a $9 million non-cash impairment
charge ($6 million net of tax and minority interest) in selling, delivery and
administrative expenses relating to our re-evaluation of the fair value of our
franchise licensing agreement for the SQUIRT trademark in Mexico, as a result of
a change in its estimated accounting life. The franchise licensing agreements
for the SQUIRT trademark were considered to have an indefinite life and granted
The Pepsi Bottling Group Mexico S.R.L. ("PBG Mexico") the exclusive right to
produce, sell, and distribute beverages under the SQUIRT trademark in certain
territories of Mexico. In December 2004, Cadbury Bebidas, S.A. de C.V. ("Cadbury
Mexico"), the owner of the SQUIRT trademark, sent PBG Mexico notices that
purportedly terminated the SQUIRT licenses for these territories effective
January 15, 2005. PBG Mexico believes that these licenses continue to be in
effect and that Cadbury Mexico has no legally supportable basis to terminate the
licenses. However, as a result of these recent unanticipated actions, PBG Mexico
is no longer certain that it will have the right to distribute SQUIRT in Mexico
after certain of its contractual rights expire in 2015. Accordingly, we have
concluded that the franchise rights relating to the SQUIRT trademark should no
longer be considered to have an indefinite life, but should be treated as having
a 10-year life for accounting purposes. Due to the reduction in the useful life
of these franchise rights, we wrote the carrying value of the SQUIRT franchise
rights down to its current estimated fair value. The remaining carrying value
will be amortized over the estimated useful life of 10 years, resulting in
approximately $2 million of expense each year, starting in 2005.

     We measured the fair value of SQUIRT's franchise rights using a
multi-period excess earnings method, which was based upon estimated discounted
future cash flows for 10 years. We deducted a contributory charge from our net
after-tax cash flows for the economic return attributable to the working capital
and property, plant and equipment, for SQUIRT's franchise rights. The net
discounted cash flows in excess of the fair returns on these assets represent
the fair value of the SQUIRT franchise rights.

     In 2003, total other intangible assets, net and goodwill increased by
approximately $261 million due to the following:

<TABLE>
<CAPTION>
                                                                                  OTHER
                                                                                INTANGIBLE
                                                                    GOODWILL   ASSETS, NET    TOTAL
                                                                    --------   -----------   ------
<S>                                                                 <C>        <C>           <C>
Balance at December 28, 2002 ....................................    $1,192      $3,495      $4,687
   Purchase price allocations relating to recent acquisitions ...       163          66         229
   Impact of foreign currency translation .......................        31           8          39
   Increase in pension asset ....................................        --           5           5
   Amortization of intangible assets ............................        --         (12)        (12)
                                                                     ------      ------      ------
Balance at December 27, 2003 ....................................    $1,386      $3,562      $4,948
                                                                     ======      ======      ======
</TABLE>


                                       46
<PAGE>
     For intangible assets subject to amortization, we calculate amortization
expense over the period we expect to receive economic benefit. Total
amortization expense was $13 million, $12 million and $8 million in 2004, 2003
and 2002, respectively. The weighted-average amortization period for each
category of intangible assets and its estimated aggregate amortization expense
expected to be recognized over the next five years are as follows:

<TABLE>
<CAPTION>
                                         WEIGHTED-    ESTIMATED AGGREGATE AMORTIZATION EXPENSE TO BE INCURRED
                                          AVERAGE                        FISCAL YEAR ENDING
                                       AMORTIZATION   -------------------------------------------------------
                                          PERIOD                  2005   2006   2007   2008   2009
                                       ------------               ----   ----   ----   ----   ----
<S>                                    <C>            <C>                <C>    <C>    <C>    <C>
Customer relationships and lists ...     17 years                  $3     $3     $3     $3     $3
Franchise/distribution rights ......      7 years                  $6     $4     $3     $2     $2
Other identified intangibles .......      7 years                  $5     $4     $3     $2     $1
</TABLE>

NOTE 7--ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

<TABLE>
<CAPTION>
                                                                  2004     2003
                                                                 ------   ------
<S>                                                              <C>      <C>
Accounts payable .............................................   $  493   $  392
Trade incentives .............................................      201      220
Accrued compensation and benefits ............................      222      162
Other accrued taxes ..........................................      117      114
Accrued interest .............................................       60       86
Other current liabilities ....................................      280      257
                                                                 ------   ------
                                                                 $1,373   $1,231
                                                                 ======   ======
</TABLE>

NOTE 8--SHORT-TERM BORROWINGS AND LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                  2004     2003
                                                                 ------   ------
<S>                                                              <C>      <C>
Short-term borrowings
   Current maturities of long-term debt ......................   $   53   $1,180
   Other short-term borrowings ...............................      155       67
                                                                 ------   ------
                                                                 $  208   $1,247
                                                                 ======   ======
Long-term debt
   5.63% (4.85% effective rate)(1) senior notes due 2009 .....   $1,300   $1,300
   5.38% (3.53% effective rate)(1) senior notes due 2004 .....       --    1,000
   7.00% (7.10% effective rate)    senior notes due 2029 .....    1,000    1,000
   4.63% (4.57% effective rate)    senior notes due 2012 .....    1,000    1,000
   2.45% (2.26% effective rate)(1) senior notes due 2006 .....      500      500
   5.00% (5.12% effective rate)    senior notes due 2013 .....      400      400
   4.13% (4.35% effective rate)    senior notes due 2015 .....      250      250
   9.75% (3.70% effective rate)(2) senior notes due 2004 .....       --      160
   Other (average rate 3.34%) ................................      109       71
                                                                 ------   ------
                                                                  4,559    5,681
   Add:  SFAS No. 133 adjustment (3) .........................       (4)       3
         Fair value adjustment relating to purchase accounting       --        3
   Less: Unamortized discount, net ...........................       13       14
         Current maturities of long-term debt ................       53    1,180
                                                                 ------   ------
                                                                 $4,489   $4,493
                                                                 ======   ======
</TABLE>


                                       47
<PAGE>
(1)  Effective interest rates include the impact of the gain/loss realized on
     swap instruments and represent the rates that were achieved in 2004.

(2)  Effective interest rate includes the impact resulting from the fair value
     adjustment relating to our acquisition of Gemex.

(3)  In accordance with the requirements of SFAS No. 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 No. 133 fair value adjustment representing changes recorded in
     the fair value of the hedged debt obligations attributable to movements in
     market interest rates.

     Maturities of long-term debt as of December 25, 2004, are 2005: $53
million, 2006: $510 million, 2007: $38 million, 2008: $4 million, 2009: $1,300
million and thereafter, $2,654 million. The maturities of long-term debt do not
include the non-cash impact of the SFAS No. 133 adjustment and the interest
effect of the unamortized discount.

     Our $1.3 billion of 5.63% senior notes due in 2009 and our $1.0 billion of
4.63% senior notes due in 2012 are guaranteed by PepsiCo.

     During the first quarter we repaid our $1 billion 5.38% senior notes with
the proceeds we received from debt issued in the prior year.

     In 2002, we purchased $181 million in U.S. government securities and placed
those securities into an irrevocable trust, for the sole purpose of funding
payments of principal and interest on the $160 million of 9.75% senior notes
maturing in March 2004, in order to defease their respective covenants. In March
2004, we repaid our $160 million of 9.75% senior notes by liquidating our
investments in our debt defeasance trust.

     We have a $500 million commercial paper program in the U.S. that is
supported by a credit facility, which is guaranteed by Bottling Group, LLC and
expires in April 2009. At December 25, 2004, we had $78 million in outstanding
commercial paper with a weighted-average interest rate of 2.32%. At December 27,
2003, we had no outstanding commercial paper.

     We had available short-term bank credit lines of approximately $381 million
and $302 million at December 25, 2004 and December 27, 2003, respectively. These
lines were used to support the general operating needs of our businesses outside
the United States. As of year end 2004, we had $77 million outstanding under
these lines of credit at a weighted-average interest rate of 3.72%. As of year
end 2003, we had $67 million outstanding under these lines of credit at a
weighted-average interest rate of 4.17%.

     Certain of our senior notes have redemption features and non-financial
covenants and will, among other things, limit our ability to create or assume
liens, enter into sale and lease-back transactions, engage in mergers or
consolidations and transfer or lease all or substantially all of our assets.
Additionally, certain of our credit facilities and senior notes have financial
covenants consisting of the following:

     -    Our debt to capitalization ratio should not be greater than .75 on the
          last day of a fiscal quarter when PepsiCo Inc.'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 Inc.'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 10% of Bottling Group,
          LLC's net tangible assets. Net tangible assets are defined as total
          assets less current liabilities and net intangible assets.

     We are in compliance with all debt covenants.

     Amounts paid to third parties for interest, net of cash received from our
interest rate swaps, was $232 million, $243 million and $198 million in 2004,
2003 and 2002, respectively. Total interest expense incurred during 2004, 2003
and 2002 was $236 million, $247 million and, $200 million, respectively.

     At December 25, 2004, we have outstanding letters of credit, bank
guarantees and surety bonds valued at $217 million from financial institutions
primarily to provide collateral for estimated self-insurance claims and other
insurance requirements.


                                       48
<PAGE>
NOTE 9--LEASES

     We have noncancellable commitments under both capital and long-term
operating leases, which consist principally of buildings, office equipment and
machinery. Capital and operating lease commitments expire at various dates
through 2072. Most leases require payment of related executory costs, which
include property taxes, maintenance and insurance.

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

<TABLE>
<CAPTION>
                                                          LEASES
                                                    -------------------
                                                    CAPITAL   OPERATING
                                                    -------   ---------
<S>                                                 <C>       <C>
2005 ............................................      $2        $ 45
2006 ............................................       1          37
2007 ............................................       -          31
2008 ............................................       -          23
2009 ............................................       1          20
Later years .....................................       2          66
                                                      ---        ----
                                                       $6        $222
                                                      ===        ====
</TABLE>

     At December 25, 2004, the present value of minimum payments under capital
leases was $4 million, after deducting $2 million for imputed interest. Our
rental expense was $75 million, $69 million and $62 million for 2004, 2003 and
2002, respectively. We plan to receive $6 million of sublease income for the
periods 2005 through 2013.

NOTE 10--FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

     CASH FLOW HEDGES - We are subject to market risk with respect to the cost
of commodities because our ability to recover increased costs through higher
pricing may be limited by the competitive environment in which we operate. We
use future and option contracts to hedge the risk of adverse movements in
commodity prices related primarily to anticipated purchases of aluminum and fuel
used in our operations. These contracts generally range from one to 12 months in
duration and qualify for cash flow hedge accounting treatment.

     We are subject to foreign currency transactional risks in certain of our
international territories for transactions that are denominated in currencies
that are different from their functional currency. Beginning in 2004, we have
entered into forward exchange contracts to hedge portions of our forecasted U.S.
dollar purchases in our Canadian business. These contracts generally range from
one to 12 months in duration and qualify for cash flow hedge accounting
treatment.

     We have also entered into treasury rate future contracts to hedge against
adverse interest rate changes on debt issued in 2003 and 2002.

     For a cash flow hedge, the effective portion of the change in the fair
value of a derivative instrument, which is highly effective, is deferred in
accumulated other comprehensive loss until the underlying hedged item is
recognized in earnings. The ineffective portion of a fair value change on a
qualifying cash flow hedge is recognized in earnings immediately and is recorded
consistent with the expense classification of the underlying hedged item.


                                       49
<PAGE>
     The following summarizes activity in accumulated other comprehensive loss
(AOCL) related to derivatives designated as cash flow hedges held by the Company
during the applicable periods:

<TABLE>
<CAPTION>
                                                         BEFORE                        NET OF
                                                        MINORITY                      MINORITY
                                                        INTEREST                      INTEREST
                                                           AND     MINORITY              AND
YEAR ENDED DECEMBER 25, 2004                              TAXES    INTEREST   TAXES     TAXES
----------------------------                            --------   --------   -----   --------
<S>                                                     <C>        <C>        <C>     <C>
Accumulated net gains as of December 27, 2003 .......     $ 22       $(1)      $ (8)    $ 13
Net changes in the fair value of cash flow hedges ...       29        (2)       (10)      17
Net gains reclassified from AOCL into earnings ......      (34)        2         12      (20)
                                                          ----       ---       ----     ----
ACCUMULATED NET GAINS AS OF DECEMBER 25, 2004 .......     $ 17       $(1)      $ (6)    $ 10
                                                          ====       ===       ====     ====
</TABLE>

<TABLE>
<CAPTION>
                                                         BEFORE                        NET OF
                                                        MINORITY                      MINORITY
                                                        INTEREST                      INTEREST
                                                           AND     MINORITY              AND
YEAR ENDED DECEMBER 27, 2003                              TAXES    INTEREST   TAXES     TAXES
----------------------------                            --------   --------   -----   --------
<S>                                                     <C>        <C>        <C>     <C>
Accumulated net losses as of December 28, 2002 ......     $(9)       $ 1       $  3     $(5)
Net changes in the fair value of cash flow hedges ...      29         (2)       (10)     17
Net losses reclassified from AOCL into earnings .....       2          -         (1)      1
                                                          ---        ---       ----     ---
ACCUMULATED NET GAINS AS OF DECEMBER 27, 2003 .......     $22        $(1)      $ (8)    $13
                                                          ===        ===       ====     ===
</TABLE>

     Assuming no change in the commodity prices and foreign currency rates as
measured on December 25, 2004, $14 million of the deferred gain will be
recognized in earnings over the next 12 months. The ineffective portion of the
change in fair value of these contracts was not material to our results of
operations in 2004, 2003 or 2002.

     FAIR VALUE HEDGES - We finance a portion of our operations through
fixed-rate debt instruments. We effectively converted $800 million of our senior
notes to floating rate debt through the use of interest rate swaps with the
objective of reducing our overall borrowing costs. These interest rate swaps
meet the criteria for fair value hedge accounting and are 100% effective in
eliminating the market rate risk inherent in our long-term debt. Accordingly,
any gain or loss associated with these swaps is fully offset by the opposite
market impact on the related debt. The change in fair value of the interest rate
swaps was a decrease of $7 million and $20 million in 2004 and 2003,
respectively. In 2004, the fair value change of our swaps and debt has been
recorded in other liabilities and long-term debt in our Consolidated Balance
Sheets. In 2003, the fair value change of our swaps and debt have been recorded
in other assets and long-term debt in our Consolidated Balance Sheets.

     UNFUNDED DEFERRED COMPENSATION LIABILITY - Our unfunded deferred
compensation liability is subject to changes in our stock price as well as price
changes in other equity and fixed-income investments. Participating employees in
our deferred compensation program can elect to defer all or a portion of their
compensation to be paid out on a future date or dates. As part of the deferral
process, employees select from phantom investment options that determine the
earnings on the deferred compensation liability and the amount that they will
ultimately receive. Employee investment elections include PBG stock and a
variety of other equity and fixed-income investment options.

     Since the plan is unfunded, employees' deferred compensation amounts are
not directly invested in these investment vehicles. Instead, we track the
performance of each employee's investment selections and adjust his or her
deferred compensation account accordingly. The adjustments to the employees'
accounts increases or decreases the deferred compensation liability reflected on
our Consolidated Balance Sheets with an offsetting increase or decrease to our
selling, delivery and administrative expenses.


                                       50
<PAGE>
     We use prepaid forward contracts to hedge the portion of our deferred
compensation liability that is based on our stock price. At December 25, 2004,
we had a prepaid forward contract for 638,000 shares at an exercise price of
$26.90, which was accounted for as a natural hedge. This contract requires cash
settlement and has a fair value at December 25, 2004, of $17 million recorded in
prepaid expenses and other current assets in our Consolidated Balance Sheets.
The fair value of this contract changes based on the change in our stock price
compared with the contract exercise price. We recognized $2 million in income in
2004 and $1 million in losses in 2003, resulting from the change in fair value
of these prepaid forward contracts. The earnings impact from these instruments
is classified as selling, delivery and administrative expenses.

     OTHER FINANCIAL ASSETS AND LIABILITIES - Financial assets with carrying
values approximating fair value include cash and cash equivalents and accounts
receivable. Financial liabilities with carrying values approximating fair value
include accounts payable and other accrued liabilities and short-term debt. The
carrying value of these financial assets and liabilities approximates fair value
due to their short maturities and since interest rates approximate current
market rates for short-term debt.

     Long-term debt at December 25, 2004, had a carrying value and fair value of
$4.6 billion and $4.8 billion, respectively, and at December 27, 2003, had a
carrying value and fair value of $5.7 billion and $6.0 billion, respectively.
The fair value is based on interest rates that are currently available to us for
issuance of debt with similar terms and remaining maturities.

NOTE 11--PENSION AND POSTRETIREMENT MEDICAL BENEFIT PLANS

     PENSION BENEFITS

     Our U.S. employees participate in noncontributory defined benefit pension
plans, which cover substantially all full-time salaried employees, as well as
most hourly employees. Benefits generally are based on years of service and
compensation, or stated amounts for each year of service. All of our qualified
plans are funded and contributions are made in amounts not less than minimum
statutory funding requirements and not more than the maximum amount that can be
deducted for U.S. income tax purposes. Our net pension expense for the defined
benefit plans for our operations outside the U.S. was not significant and is not
included in the tables presented below.

     Nearly all of our U.S. employees are also eligible to participate in our
401(k) savings plans, which are voluntary defined contribution plans. We make
matching contributions to the 401(k) savings plans on behalf of participants
eligible to receive such contributions. If a participant has one or more but
less than 10 years of eligible service, our match will equal $0.50 for each
dollar the participant elects to defer up to 4% of the participant's pay. If the
participant has 10 or more years of eligible service, our match will equal $1.00
for each dollar the participant elects to defer up to 4% of the participant's
pay.

<TABLE>
<CAPTION>
                                                                    PENSION
                                                              ------------------
                                                              2004   2003   2002
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Components of U.S. pension expense:
   Service cost ...........................................   $ 43   $ 37   $ 28
   Interest cost ..........................................     69     63     56
   Expected return on plan assets .........................    (83)   (67)   (66)
   Amortization of prior service amendments ...............      7      6      6
   Amortization of net loss ...............................     25     13     --
   Special termination benefits ...........................     --     --      1
                                                              ----   ----   ----
   Net pension expense for the defined benefit plans ......   $ 61   $ 52   $ 25
                                                              ----   ----   ----

   Defined contribution plans expense .....................   $ 19   $ 19   $ 18
                                                              ----   ----   ----

   Total pension expense recognized in the Consolidated
      Statements of Operations ............................   $ 80   $ 71   $ 43
                                                              ====   ====   ====
</TABLE>


                                       51
<PAGE>
     POSTRETIREMENT MEDICAL BENEFITS

     Our postretirement medical plans provide medical and life insurance
benefits principally to U.S. retirees and their dependents. Employees are
eligible for benefits if they meet age and service requirements and qualify for
retirement benefits. The plans are not funded and since 1993 have included
retiree cost sharing.

<TABLE>
<CAPTION>
                                                                POSTRETIREMENT
                                                              ------------------
                                                              2004   2003   2002
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Components of U.S. postretirement benefits expense:
   Service cost ...........................................    $ 4    $ 3    $ 3
   Interest cost ..........................................     18     19     17
   Amortization of net loss ...............................      6      5      2
   Amortization of prior service amendments ...............     (1)    (2)    (6)
                                                               ---    ---    ---
   Net postretirement benefits expense recognized in the
      Consolidated Statements of Operations ...............    $27    $25    $16
                                                               ===    ===    ===
</TABLE>

     CHANGES IN THE PROJECTED BENEFIT OBLIGATIONS

<TABLE>
<CAPTION>
                                                                  PENSION       POSTRETIREMENT
                                                              ---------------   --------------
                                                               2004     2003      2004   2003
                                                              ------   ------     ----   ----
<S>                                                           <C>      <C>      <C>      <C>
Obligation at beginning of year ...........................   $1,129   $  953     $312   $286
Service cost ..............................................       43       37        4      3
Interest cost .............................................       69       63       18     19
Plan amendments ...........................................       11       11       --     --
Actuarial loss ............................................       48      112       19     22
Benefit payments ..........................................      (46)     (47)     (22)   (18)
LTD medical merger(1)......................................       --       --       62     --
Gain due to Medicare subsidy ..............................       --       --      (14)    --
Transfers .................................................       (2)      --       --     --
                                                              ------   ------     ----   ----
Obligation at end of year .................................   $1,252   $1,129     $379   $312
                                                              ======   ======     ====   ====
</TABLE>

(1)  In 2004, we merged our long-term disability medical plan with our
     postretirement medical plan. Our long-term disability medical plan has been
     amended to provide coverage for two years for participants becoming
     disabled after January 1, 2005. Participants currently receiving benefits
     will be grandfathered under the existing benefits program. The liabilities
     and respective costs associated with these participants have been added to
     our postretirement medical plan. If we merged our long-term disability
     medical plan into our postretirement medical plan in 2003, our projected
     benefit obligation would have increased by $53 million.

     CHANGES IN THE FAIR VALUE OF ASSETS

<TABLE>
<CAPTION>
                                                                 PENSION      POSTRETIREMENT
                                                              -------------   --------------
                                                               2004    2003     2004   2003
                                                              ------   ----     ----   ----
<S>                                                           <C>      <C>    <C>      <C>
Fair value at beginning of year ...........................   $  809   $538     $ --   $ --
Actual return on plan assets ..............................      101    121       --     --
Transfers .................................................       (2)    --       --     --
Employer contributions ....................................      163    197       22     18
Benefit payments ..........................................      (46)   (47)     (22)   (18)
                                                              ------   ----     ----   ----
Fair value at end of year .................................   $1,025   $809     $ --   $ --
                                                              ======   ====     ====   ====
</TABLE>


                                       52
<PAGE>
     ADDITIONAL PLAN INFORMATION

<TABLE>
<CAPTION>
                                                    PENSION       POSTRETIREMENT
                                                ---------------   --------------
                                                 2004     2003      2004   2003
                                                ------   ------     ----   ----
<S>                                             <C>      <C>      <C>      <C>
Projected benefit obligation ................   $1,252   $1,129     $379   $312
Accumulated benefit obligation ..............   $1,150   $1,006     $379   $312
Fair value of plan assets (1) ...............   $1,033   $  899     $ --   $ --
</TABLE>
(1) Includes fourth quarter employer contributions.

     The accumulated and projected obligations for all plans exceed the fair
value of assets.

     FUNDED STATUS RECOGNIZED ON THE CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                     PENSION      POSTRETIREMENT
                                                  -------------   --------------
                                                   2004    2003    2004    2003
                                                  -----   -----   -----   ------
<S>                                               <C>     <C>     <C>     <C>
Funded status at end of year ..................   $(227)  $(320)  $(379)  $(312)
Unrecognized prior service cost ...............      50      46      (6)     (7)
Unrecognized loss .............................     458     453     145     127
Fourth quarter employer contribution ..........       8      90       8       6
                                                  -----   -----   -----   -----
Net amounts recognized ........................   $ 289   $ 269   $(232)  $(186)
                                                  =====   =====   =====   =====
</TABLE>

     NET AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                     PENSION      POSTRETIREMENT
                                                  -------------   --------------
                                                   2004    2003     2004    2003
                                                  -----   -----    -----   -----
<S>                                               <C>     <C>      <C>     <C>
Other liabilities .............................   $(136)  $(124)   $(232)  $(186)
Intangible assets .............................      50      47       --      --
Accumulated other comprehensive loss ..........     375     346       --      --
                                                  -----   -----    -----   -----
Net amounts recognized ........................   $ 289   $ 269    $(232)  $(186)
                                                  =====   =====    =====   =====
Increase in minimum liability included in
   accumulated other comprehensive loss in
   Shareholders' Equity .......................   $  29   $  34    $  --   $  --
                                                  =====   =====    =====   =====
</TABLE>

     At December 25, 2004, and December 27, 2003, the accumulated benefit
obligation of PBG's U.S. pension plans exceeded the fair market value of the
plan assets resulting in the recognition of the unfunded liability as a minimum
balance sheet liability. As a result of this additional liability, our
intangible asset increased by $3 million to $50 million in 2004, which equals
the amount of unrecognized prior service cost in our plans. The remainder of the
liability that exceeded the unrecognized prior service cost was recognized as an
increase to accumulated other comprehensive loss of $29 million and $34 million
in 2004 and 2003, respectively, before taxes and minority interest. The
adjustments to accumulated other comprehensive loss are reflected after minority
interest of $2 million and $2 million, and deferred income taxes of $11 million
and $12 million in 2004 and 2003, respectively, in our Consolidated Statements
of Changes in Shareholders' Equity.

     ASSUMPTIONS

     The weighted-average assumptions used to measure net expense for years
ended:

<TABLE>
<CAPTION>
                                               PENSION          POSTRETIREMENT
                                         ------------------   ------------------
                                         2004   2003   2002   2004   2003   2002
                                         ----   ----   ----   ----   ----   ----
<S>                                      <C>    <C>    <C>    <C>    <C>    <C>
Discount rate ........................   6.25%  6.75%  7.50%  6.25%  6.75%  7.50%
Expected return on plan assets (1) ...   8.50%  8.50%  9.50%   N/A    N/A    N/A
Rate of compensation increase ........   4.20%  4.34%  4.33%  4.20%  4.34%  4.33%
</TABLE>
(1) Expected return on plan assets is presented after administration expenses.


                                       53
<PAGE>
     The weighted-average assumptions used to measure the benefit liability as
of the end of the year were as follows:

<TABLE>
<CAPTION>
                                      PENSION     POSTRETIREMENT
                                    -----------   --------------
                                    2004   2003    2004    2003
                                    ----   ----    ----   -----
<S>                                 <C>    <C>    <C>     <C>
Discount rate ...................   6.15%  6.25%   6.15%  6.25%
Rate of compensation increase ...   3.60%  4.20%   3.60%  4.20%
</TABLE>

     We have evaluated these assumptions with our actuarial advisors and we
believe that they are appropriate, although an increase or decrease in the
assumptions or economic events outside our control could have a material impact
on reported net income.

     FUNDING AND PLAN ASSETS

<TABLE>
<CAPTION>
                                      ALLOCATION PERCENTAGE
                                    ------------------------
                                    TARGET   ACTUAL   ACTUAL
Asset Category                       2005     2004     2003
--------------                      ------   ------   ------
<S>                                 <C>      <C>      <C>
Equity securities ...............   70%-75%    75%      74%
Debt securities .................   25%-30%    25%      26%
</TABLE>

     The table above shows the target allocation and actual allocation. Our
target allocations of our plan assets reflect the long-term nature of our
pension liabilities. None of the assets are invested directly in equity or debt
instruments issued by PBG, PepsiCo or any bottling affiliates of PepsiCo,
although it is possible that insignificant indirect investments exist through
our broad market indices. Our equity investments are diversified across all
areas of the equity market (i.e., large, mid and small capitalization stocks as
well as international equities). Our fixed income investments are also
diversified and consist of both corporate and U.S. government bonds. We
currently do not invest directly into any derivative investments. PBG's assets
are held in a pension trust account at our trustee's bank.

     PBG's pension investment policy and strategy are mandated by PBG's Pension
Investment Committee (PIC) and are overseen by the PBG Board of Directors'
Compensation and Management Development Committee. The plan assets are invested
using a combination of enhanced and passive indexing strategies. The performance
of the plan assets is benchmarked against market indices and reviewed by the
PIC. Changes in investment strategies, asset allocations and specific
investments are approved by the PIC prior to execution.

     HEALTH CARE COST TREND RATES

     We have assumed an average increase of 10.0% in 2005 in the cost of
postretirement medical benefits for employees who retired before cost sharing
was introduced. This average increase is then projected to decline gradually to
5.0% in 2013 and thereafter.

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

<TABLE>
<CAPTION>
                                                                1%         1%
                                                             INCREASE   DECREASE
                                                             --------   --------
<S>                                                          <C>        <C>
Effect on total fiscal year 2004 service and
   interest cost components .................................   $1        $ (-)
Effect on the fiscal year 2004 accumulated postretirement
   benefit obligation .......................................   $8        $ (7)
</TABLE>

     On May 19, 2004, FASB Staff Position No. FAS 106-2 ("FSP") was issued by
FASB to provide guidance relating to the prescription drug subsidy provided by
the Medicare Prescription Drug, Improvement and Modernization Act of 2003
("Act"). We currently provide postretirement medical benefits to a group of
retirees (employees who retired prior to the beginning of 1989) with little or
no cost sharing. Additionally, we provide postretirement medical benefits to
another group of retirees (employees who retired between 1989 and 1992) that
will have cost sharing once their annual costs are twice the 2004 costs. For
these retiree groups, the prescription drug benefit provided by us would be
considered to be actuarially equivalent to the benefit provided under the Act.
Therefore, we retroactively applied the FSP to the date of enactment. As a
result:


                                       54
<PAGE>
          -    The obligation (accumulated projected benefit obligation)
               decreased by $14.3 million, and

          -    The net periodic postretirement medical benefits cost decreased
               by $1.1 million for the year ended December 25, 2004.

     There were no changes in estimates of participation or per capita claims
costs as a result of the Act.

     The specific authoritative guidance on the accounting for the Act is
pending and that guidance, when issued, could require us to change previously
reported information.

     We also provide postretirement medical benefits to another group of
retirees (employees who retired after 1992) with cost sharing. At present, due
to the lack of clarifying regulations related to the Act, we cannot determine if
the benefit provided by us would be considered actuarially equivalent to the
benefit provided under the Act and therefore, we cannot determine its impact on
our financial statements.

     PENSION AND POSTRETIREMENT CASH FLOW

     Our contributions are made in accordance with applicable tax regulations
that provide us with current tax deductions for our contributions and for
taxation to the employee when the benefits are received. We do not fund our
pension plan and postretirement medical plans when our contributions would not
be tax deductible or when benefits would be taxable to the employee before
receipt. Of the total pension liabilities at December 25, 2004, $49 million
relates to plans not funded due to these unfavorable tax consequences.

<TABLE>
<CAPTION>
EMPLOYER CONTRIBUTIONS TO U.S. PLANS   PENSION   POSTRETIREMENT
------------------------------------   -------   --------------
<S>                                    <C>       <C>
2003 ...............................     $162         $18
2004 ...............................     $ 81         $22
2005 (expected) ....................     $ 56         $29
</TABLE>

     Our 2005 expected contributions are intended to meet or exceed the IRS
minimum requirements and provide us with current tax deductions.

     EXPECTED BENEFIT PAYMENTS

     The expected benefit payments made from our pension and postretirement
medical plans (with and without the subsidy received from the Act) to our
participants over the next ten years are as follows:

<TABLE>
<CAPTION>
                            PENSION     POSTRETIREMENT
                            -------   ---------------------
                                      INCLUDING   EXCLUDING
                                       MEDICARE    MEDICARE
EXPECTED BENEFIT PAYMENTS              SUBSIDY     SUBSIDY
-------------------------             ---------   ---------
<S>                         <C>       <C>         <C>
2005 ....................     $ 48       $ 29        $ 29
2006 ....................     $ 51       $ 27        $ 29
2007 ....................     $ 55       $ 28        $ 29
2008 ....................     $ 59       $ 28        $ 29
2009 ....................     $ 63       $ 28        $ 30
2010 to 2014 ............     $400       $143        $150
</TABLE>

NOTE 12--EMPLOYEE STOCK OPTION PLANS

     Under our long-term incentive plan, stock options are issued to middle and
senior management employees and vary according to salary and level within PBG.
Except as noted below, options granted in 2004, 2003 and 2002 had exercise
prices ranging from $24.25 per share to $30.25 per share, $18.25 per share to
$25.50 per share and $23.25 per share to $29.25 per share, respectively, expire
in 10 years and generally become exercisable 25% after one year, an additional
25% after two years, and the remainder after three years. We measure the fair
value of our options on the date of grant using the Black-Scholes-Merton
option-pricing model.


                                       55
<PAGE>
     The following table summarizes option activity during 2004:

<TABLE>
<CAPTION>
                                                                               WEIGHTED
                                                                               -AVERAGE
                                                                               EXERCISE
Options in millions                                                  OPTIONS     PRICE
                                                                     -------   --------
<S>                                                                  <C>       <C>
Outstanding at beginning of year .................................    41.3      $17.19
   Granted .......................................................     7.1      $29.54
   Exercised .....................................................    (9.3)     $12.86
   Forfeited .....................................................    (0.7)     $25.38
                                                                      ----
Outstanding at end of year .......................................    38.4      $20.35
                                                                      ====      ======
Exercisable at end of year .......................................    23.4      $16.43
                                                                      ====      ======
Weighted-average fair value of options granted during the year ...              $10.81
                                                                                ======
</TABLE>

     The following table summarizes option activity during 2003:

<TABLE>
<CAPTION>
                                                                               WEIGHTED
                                                                               -AVERAGE
                                                                               EXERCISE
Options in millions                                                  OPTIONS     PRICE
                                                                     -------   --------
<S>                                                                  <C>       <C>
Outstanding at beginning of year .................................    37.4      $15.53
   Granted .......................................................     8.1      $23.27
   Exercised .....................................................    (3.1)     $11.27
   Forfeited .....................................................    (1.1)     $22.44
                                                                      ----
Outstanding at end of year .......................................    41.3      $17.19
                                                                      ====      ======
Exercisable at end of year .......................................    26.9      $13.93
                                                                      ====      ======
Weighted-average fair value of options granted during the year ...              $ 9.29
                                                                                ======
</TABLE>

     The following table summarizes option activity during 2002:

<TABLE>
<CAPTION>
                                                                               WEIGHTED
                                                                               -AVERAGE
                                                                               EXERCISE
Options in millions                                                  OPTIONS     PRICE
                                                                     -------   --------
<S>                                                                  <C>       <C>
Outstanding at beginning of year .................................    39.7      $13.20
   Granted .......................................................     6.4      $25.32
   Exercised .....................................................    (8.1)     $11.63
   Forfeited .....................................................    (0.6)     $16.89
                                                                      ----
Outstanding at end of year .......................................    37.4      $15.53
                                                                      ====      ======
Exercisable at end of year .......................................    19.9      $12.59
                                                                      ====      ======
Weighted-average fair value of options granted during the year ...              $10.89
                                                                                ======
</TABLE>


                                       56
<PAGE>
Stock options outstanding and exercisable at December 25, 2004:

<TABLE>
<CAPTION>
                                  OPTIONS OUTSTANDING           OPTIONS EXERCISABLE
                          -----------------------------------   -------------------
Options in millions
                                      WEIGHTED-
                                       AVERAGE      WEIGHTED-             WEIGHTED-
                                      REMAINING      AVERAGE               AVERAGE
                                     CONTRACTUAL     EXERCISE              EXERCISE
RANGE OF EXERCISE PRICE   OPTIONS   LIFE IN YEARS     PRICE     OPTIONS     PRICE
-----------------------   -------   -------------   ---------   -------   ---------
<S>                       <C>       <C>             <C>         <C>       <C>
$9.38-$11.49...........      4.7         5.25         $ 9.40       4.7      $ 9.40
$11.50-$15.88..........      6.9         4.34         $11.69       6.9      $11.69
$15.89-$22.50..........      7.9         6.38         $20.47       7.5      $20.52
$22.51-$30.25..........     18.9         8.33         $26.21       4.3      $24.65
                            ----                                  ----
                            38.4         6.83         $20.35      23.4      $16.43
                            ====         ====         ======      ====      ======
</TABLE>

     RESTRICTED STOCK

For the years ended 2004, 2003, and 2002, we had 403,000, 359,000 and 8,000
shares, respectively, of restricted stock outstanding. During 2004, we granted
45,000 restricted shares with a weighted-average share price of $24.25. During
2003, we granted 351,000 restricted shares with a weighted-average share price
of $23.46. During 2002, we granted 2,000 restricted shares with a
weighted-average share price of $28.67.

NOTE 13--INCOME TAXES

     The details of our income tax provision are set forth below:

<TABLE>
<CAPTION>
                                               2004   2003   2002
                                               ----   ----   ----
<S>                                            <C>    <C>    <C>
Current:
   Federal .................................   $135   $ 93   $ 61
   Foreign .................................     35     12     12
   State ...................................     17      8     17
                                               ----   ----   ----
                                                187    113     90
                                               ----   ----   ----
Deferred:
   Federal .................................     54     74    115
   Foreign .................................    (22)    26      2
   State ...................................      9     14     14
                                               ----   ----   ----
                                                 41    114    131
                                               ----   ----   ----
                                                228    227    221
      International tax structure change ...     30     --     --
      Rate change (benefit)/expense ........    (26)    11     --
                                               ----   ----   ----
                                                232    238    221
      Cumulative effect of change in
         accounting principle ..............     --     (1)    --
                                               ----   ----   ----
                                               $232   $237   $221
                                               ====   ====   ====
</TABLE>

     In 2004, we had the following significant tax items, which decreased our
tax expense by approximately $4 million:

     -    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.


                                       57
<PAGE>
     -    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.

     Our 2003 income tax provision includes an increase in income tax expense of
$11 million due to enacted tax rate changes in Canada during the 2003 tax year.

     Our U.S. and foreign income before income taxes is set forth below:

<TABLE>
<CAPTION>
                                                              2004   2003   2002
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
U.S........................................................   $550   $533   $573
Foreign....................................................    139    127     76
                                                              ----   ----   ----
Income before income taxes and cumulative effect of
   change in accounting principle..........................   $689   $660   $649
Cumulative effect of change in accounting principle........     --     (7)    --
                                                              ----   ----   ----
                                                              $689   $653   $649
                                                              ====   ====   ====
</TABLE>

     Our reconciliation of income taxes calculated at the U.S. federal statutory
rate to our provision for income taxes is set forth below:

<TABLE>
<CAPTION>
                                                               2004    2003    2002
                                                              -----   -----   -----
<S>                                                           <C>     <C>     <C>
Income taxes computed at the U.S. federal statutory rate ..    35.0%   35.0%   35.0%
State income tax, net of federal tax benefit ..............     2.2     1.9     2.8
Impact of foreign results (1)..............................   (10.4)  (11.4)   (7.8)
Change in valuation allowances (1).........................     3.4     5.6     1.7
Nondeductible expenses ....................................     2.1     1.9     1.0
Net international tax audit settlements ...................    (1.2)     --      --
Other, net ................................................     2.0     1.4     1.3
                                                              -----   -----   -----
                                                               33.1    34.4    34.0
Legal entity restructuring ................................     4.3      --      --
Rate change (benefit)/expense .............................    (3.7)    1.7      --
                                                              -----   -----   -----
Total effective income tax rate before cumulative
   effect of change in accounting principle ...............    33.7%   36.1%   34.0%
Cumulative effect of change in accounting principle .......      --     0.2      --
                                                              -----   -----   -----
Total effective income tax rate ...........................    33.7%   36.3%   34.0%
                                                              =====   =====   =====
</TABLE>

(1)  In 2004, we have reclassified certain Mexican net operating losses and
     their respective valuation allowances, which were recorded in 2003, to
     equity. We have determined that certain net operating losses resulting from
     the impact of a tax structure's foreign currency translational costs,
     correctly belong in equity. This reclassification had no impact on our
     Consolidated Financial Statements.


                                       58
<PAGE>
     The details of our 2004 and 2003 deferred tax liabilities (assets) are set
forth below:

<TABLE>
<CAPTION>
                                                               2004     2003
                                                              ------   ------
<S>                                                           <C>      <C>
Intangible assets and property, plant and equipment .......   $1,575   $1,596
Other .....................................................      112       52
                                                              ------   ------
Gross deferred tax liabilities ............................    1,687    1,648
                                                              ------   ------

Net operating loss carryforwards ..........................     (356)    (255)
Employee benefit obligations ..............................     (179)    (181)
Bad debts .................................................      (17)     (21)
Various liabilities and other .............................      (91)    (112)
                                                              ------   ------
Gross deferred tax assets .................................     (643)    (569)
Deferred tax asset valuation allowance ....................      320      271
                                                              ------   ------
Net deferred tax assets ...................................     (323)    (298)
                                                              ------   ------

Net deferred tax liability ................................   $1,364   $1,350
                                                              ======   ======

CONSOLIDATED BALANCE SHEETS CLASSIFICATION
Prepaid expenses and other current assets .................   $  (51)  $  (71)
Deferred income taxes .....................................    1,415    1,421
                                                              ------   ------
                                                              $1,364   $1,350
                                                              ======   ======
</TABLE>

     We have net operating loss carryforwards totaling $1,362 million at
December 25, 2004, which are available to reduce future taxes in the U.S.,
Spain, Greece, Russia, Turkey and Mexico. Of these carryforwards, $10 million
expire in 2005 and $1,352 million expire at various times between 2006 and 2024.
At December 25, 2004, we have tax credit carryforwards in the U.S. of $4 million
with an indefinite carryforward period and in Mexico of $15 million, which
expire at various times between 2008 and 2014.

     We establish valuation allowances for our deferred tax assets when the
amount of expected future taxable income is not likely to support the use of the
deduction or credit. Our valuation allowances, which reduce deferred tax assets
to an amount that will more likely than not be realized, have increased by $49
million in 2004 and increased by $124 million in 2003.

     Approximately $17 million of our valuation allowance relating to our
deferred tax assets at December 25, 2004 would be applied to reduce goodwill if
reversed in future periods.

     Deferred taxes are not recognized for temporary differences related to
investments in foreign subsidiaries that are essentially permanent in duration.
Determination of the amount of unrecognized deferred taxes related to these
investments is not practicable. These undistributed earnings are approximately
$546 million at December 25, 2004. The American Jobs Creation Act of 2004 was
enacted allowing for special tax breaks for the repatriation of earnings from
foreign subsidiaries. We are evaluating whether to repatriate our undistributed
foreign earnings in 2005.

     Income taxes receivable from taxing authorities were $50 million and $68
million at December 25, 2004, and December 27, 2003, respectively. Such amounts
are recorded within prepaid expenses and other current assets and other
long-term assets in our Consolidated Balance Sheets. Income taxes payable to
taxing authorities were $17 million and $24 million at December 25, 2004, and
December 27, 2003, respectively. Such amounts are recorded within accounts
payable and other current liabilities in our Consolidated Balance Sheets.

     Income taxes receivable from related parties were $5 million and $6 million
at December 25, 2004, and December 27, 2003, respectively. Such amounts are
recorded within prepaids and other current assets in our Consolidated Balance
Sheets. Amounts paid to taxing authorities and related parties for income taxes
were $172 million, $115 million and $49 million in 2004, 2003 and 2002,
respectively.

     Under our tax separation agreement with PepsiCo, PepsiCo maintains full
control and absolute discretion for any combined or consolidated tax filings for
tax periods ended on or before our initial public offering that occurred in
March 1999. PepsiCo has contractually agreed to act in good faith with respect
to all tax audit matters affecting us. In accordance with the tax separation
agreement, we will share on a pro-rata basis any risk or upside resulting from
the settlement of tax matters affecting us for these periods.


                                       59
<PAGE>
NOTE 14--GEOGRAPHIC DATA

     We operate in one industry, carbonated soft drinks and other ready-to-drink
beverages. We conduct business in the U.S., Mexico, Canada, Spain, Russia,
Greece and Turkey.

<TABLE>
<CAPTION>
                                                               NET REVENUES
                                                      --------------------------
                                                        2004      2003     2002
                                                      -------   -------   ------
<S>                                                   <C>       <C>       <C>
U.S. ..............................................   $ 7,818   $ 7,406   $7,572
Mexico ............................................     1,071     1,105      164
Other countries ...................................     2,017     1,754    1,480
                                                      -------   -------   ------
                                                      $10,906   $10,265   $9,216
                                                      =======   =======   ======
</TABLE>

<TABLE>
<CAPTION>
                                                      LONG-LIVED ASSETS
                                                      -----------------
                                                        2004     2003
                                                       ------   ------
<S>                                                   <C>       <C>
U.S ...............................................    $5,875   $5,723
Mexico ............................................     1,435    1,432
Other countries ...................................     1,444    1,350
                                                       ------   ------
                                                       $8,754   $8,505
                                                       ======   ======
</TABLE>

NOTE 15--RELATED PARTY TRANSACTIONS

     PepsiCo is considered a related party due to the nature of our franchise
relationship and its ownership interest in our company. The most significant
agreements that govern our relationship with PepsiCo consist of:

     (1)  The master bottling agreement for cola beverages bearing the
          "PEPSI-COLA" and "PEPSI" trademarks in the United States; master
          bottling agreements and distribution agreements for non-cola products
          in the United States; and a master fountain syrup agreement in the
          United States;

     (2)  Agreements similar to the master bottling agreement and the non-cola
          agreements for each country in which we operate, including Canada,
          Spain, Russia, Greece, Turkey and Mexico, as well as a fountain syrup
          agreement for Canada, similar to the master syrup agreement;

     (3)  A shared services agreement where we obtain various services from
          PepsiCo, which includes services for information technology
          maintenance and the procurement of raw materials. We also provide
          services to PepsiCo, including facility and credit and collection
          support. The amounts paid or received under this contract are equal to
          the actual costs incurred by the company providing the service; and

     (4)  Transition agreements that provide certain indemnities to the parties,
          and provide for the allocation of tax and other assets, liabilities
          and obligations arising from periods prior to the initial public
          offering. Under our tax separation agreement, PepsiCo maintains full
          control and absolute discretion for any combined or consolidated tax
          filings for tax periods ended on or before the initial public
          offering.

     Additionally, we review our annual marketing, advertising, management and
financial plans each year with PepsiCo for its approval. If we fail to submit
these plans, or if we fail to carry them out in all material respects, PepsiCo
can terminate our beverage agreements. If our beverage agreements with PepsiCo
are terminated for this or for any other reason, it would have a material
adverse effect on our business and financial results.

     BOTTLER INCENTIVES AND OTHER ARRANGEMENTS - We share a business objective
with PepsiCo of increasing the availability and consumption of Pepsi-Cola
beverages. Accordingly, PepsiCo, at its discretion, provides us with various
forms of bottler incentives to promote its beverages. These incentives are
mutually agreed upon between us and PepsiCo and cover a variety of initiatives,
including direct marketplace support, capital equipment funding and advertising
support. Based on the objectives of the programs and initiatives, we record
bottler incentives as an adjustment to net revenues, cost of sales or selling,
delivery and administrative expenses. Beginning in 2003, due to the adoption of
EITF Issue No. 02-16, we changed our accounting methodology for the way we
record bottler incentives. See Note 2 - Summary of Significant Accounting
Policies for a discussion of the change in classification of these bottler
incentives in our Consolidated Statements of Operations.


                                       60
<PAGE>
     Bottler incentives received from PepsiCo, including media costs shared by
PepsiCo, were $626 million, $646 million and $560 million for 2004, 2003 and
2002, respectively. Changes in our bottler incentives and funding levels could
materially affect our business and financial results.

     PURCHASES OF CONCENTRATE AND FINISHED PRODUCT - We purchase concentrate
from PepsiCo, which is the critical flavor ingredient used in the production of
carbonated soft drinks and other ready-to-drink beverages. PepsiCo determines
the price of concentrate annually at its discretion. We also pay a royalty fee
to PepsiCo for the AQUAFINA trademark. Amounts paid or payable to PepsiCo and
its affiliates for concentrate and royalty fees were $2,075 million, $1,971
million and $1,699 million in 2004, 2003 and 2002, respectively.

     We also produce or distribute other products and purchase finished goods
and concentrate through various arrangements with PepsiCo or PepsiCo joint
ventures. During 2004, 2003 and 2002, total amounts paid or payable to PepsiCo
or PepsiCo joint ventures for these transactions were $666 million, $556 million
and $464 million, respectively.

     MANUFACTURING AND DISTRIBUTION SERVICE REIMBURSEMENTS - In 2003 and 2002,
we provided manufacturing services to PepsiCo and PepsiCo affiliates in
connection with the production of certain finished beverage products. During
2003 and 2002, total amounts paid or payable by PepsiCo for these transactions
were $6 million and $10 million, respectively.

     FOUNTAIN SERVICE FEE - We manufacture and distribute fountain products and
provide fountain equipment service to PepsiCo customers in some territories in
accordance with the Pepsi beverage agreements. Amounts received from PepsiCo for
these transactions are offset by the cost to provide these services and are
reflected in our Consolidated Statements of Operations in selling, delivery and
administrative expenses. Net amounts paid or payable by PepsiCo to us for these
services were approximately $180 million, $200 million and $200 million, in
2004, 2003 and 2002, respectively.

      SHARED SERVICES - We provide and receive various services from PepsiCo and
PepsiCo affiliates pursuant to a shared services agreement and other
arrangements. Total expenses incurred with PepsiCo and PepsiCo affiliates were
approximately $68 million, $72 million and, $70 million during 2004, 2003 and
2002, respectively, and are reflected in selling, delivery and administrative
expenses in our Consolidated Statements of Operations. Total income generated
for services provided to PepsiCo and PepsiCo affiliates was approximately $10
million, $10 million and $13 million during 2004, 2003 and 2002, respectively,
and is reflected in selling, delivery and administrative expenses in our
Consolidated Statements of Operations.

     FRITO-LAY PURCHASES - We purchase snack food products from Frito-Lay, Inc.,
a subsidiary of PepsiCo, for sale and distribution in Russia. Amounts paid or
payable to PepsiCo and its affiliates for snack food products were $75 million,
$51 million and $44 million in 2004, 2003 and 2002, respectively.


                                       61
<PAGE>
     INCOME TAX EXPENSE - Under tax sharing arrangements we have with PepsiCo,
we received $17 million, $7 million and $3 million in tax-related benefits from
PepsiCo in 2004, 2003 and 2002, respectively.

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

<TABLE>
<CAPTION>
                                                      2004     2003      2002
                                                    -------   -------   -------
<S>                                                 <C>       <C>       <C>
Net revenues:
 Bottler incentives ..............................  $    22   $    21   $   257
                                                    =======   =======   =======

Cost of sales:
 Purchases of concentrate and finished products,
    and AQUAFINA royalty fees ....................  $(2,741)  $(2,527)  $(2,163)
 Bottler incentives ..............................      522       527        --
 Manufacturing and distribution service
    reimbursements ...............................       --         6        10
                                                    -------   -------   -------
                                                    $(2,219)  $(1,994)  $(2,153)
                                                    =======   =======   =======

Selling, delivery and administrative expenses:
 Bottler incentives ..............................  $    82   $    98   $   303
 Fountain service fee ............................      180       200       200
 Frito-Lay purchases .............................      (75)      (51)      (44)
 Shared services .................................      (58)      (62)      (57)
                                                    -------   -------   -------
                                                    $   129   $   185   $   402
                                                    =======   =======   =======

Income tax expense ...............................  $    17   $     7   $     3
                                                    =======   =======   =======
</TABLE>

     We are not required to pay any minimum fees to PepsiCo, nor are we
obligated to PepsiCo under any minimum purchase requirements.

     We paid PepsiCo $1 million, $3 million and $10 million during 2004, 2003
and 2002, respectively, for distribution rights relating to the SOBE brand in
certain PBG-owned territories in the U.S. and Canada.

     Bottling Group, LLC will distribute pro rata to PepsiCo and PBG, based upon
membership interest, sufficient cash such that aggregate cash distributed to us
will enable us to pay our income taxes and interest on our $1 billion 7.0%
senior notes due 2029. PepsiCo's pro-rata cash distribution during 2004, 2003
and 2002 from Bottling Group, LLC was $13 million, $7 million and $11 million,
respectively.

     Amounts receivable from PepsiCo and its affiliates at December 25, 2004
were $6 million. Such amounts are recorded in prepaid and other current assets
in our Consolidated Balance Sheets. Amounts payable to PepsiCo and its
affiliates at December 27, 2003 were $20 million. Such amounts are recorded
within accounts payable and other current liabilities in our Consolidated
Balance Sheets.

     Board of Directors

     Two of our board members are employees of PepsiCo. Neither of these board
members serves on our Audit and Affiliated Transactions Committee, Compensation
and Management Development Committee or Nominating and Corporate Governance
Committee. In addition, one of the managing directors of Bottling Group, LLC,
our principal operating subsidiary, is an employee of PepsiCo.


                                       62
<PAGE>
NOTE 16--CONTINGENCIES

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

     In 1995, a class action suit was filed against three of our suppliers for
price fixing on the sale of high fructose corn syrup during the years between
1991 and 1995. During this time period we were still part of PepsiCo. During
2004, these suppliers have settled their respective charges. Settlement of
damages will be allocated to each class action recipient based on their
percentage of purchases of the high fructose corn syrup from these suppliers
during the period 1991 through 1995. We believe the claims process for the
allocation of settlement to each class action recipient will be finalized during
2005. Currently, we can not reasonably estimate the amount of proceeds we will
receive from the settlement of this case and accordingly have not recorded a
gain during 2004.

     As of December 25, 2004, we employed approximately 64,700 workers, of whom
approximately 31,700 were employed in the United States. Approximately 8,900 of
our workers in the United States are union members and approximately 16,900 of
our workers outside the United States are union members. Approximately 50% of
the union members in the United States are covered under contracts that will
expire in 2005. We consider relations with our employees to be good and have not
experienced significant interruptions of operations due to labor disagreements
in the past.

NOTE 17--ACQUISITIONS

     During 2004, we acquired the operations and exclusive right to manufacture,
sell and distribute Pepsi-Cola beverages from four franchise bottlers. The
following acquisitions occurred for an aggregate purchase price of $95 million
in cash and assumption of liabilities of $22 million:

     _    Gaseosas, S.A. de C.V. of Mexicali, Mexico in March

     _    Seltzer and Rydholm, Inc. of Auburn, Maine in October

     _    Phil Gaudreault et Fils Ltee of Quebec, Canada in November

     _    Bebidas Purificada, S.A. de C.V. of Juarez, Mexico in November

     As a result of these acquisitions, we have assigned $5 million to goodwill,
$66 million to franchise rights and $3 million to non-compete arrangements. The
goodwill and franchise rights are not subject to amortization. The non-compete
agreements are being amortized over five to ten years. The allocations of the
purchase price for these acquisitions are still preliminary and will be
determined based on the estimated fair value of assets acquired and liabilities
assumed as of the dates of acquisitions. The operating results of each of our
acquisitions are included in our Consolidated Financial Statements from its
respective date of purchase. These acquisitions were made to enable us to
provide better service to our large retail customers. We expect these
acquisitions to reduce costs through economies of scale.

     During 2004, we also paid $1 million for the purchase of certain
distribution rights relating to SOBE.

     During 2003, we acquired the operations and exclusive right to manufacture,
sell and distribute Pepsi-Cola beverages from three franchise bottlers. The
following acquisitions occurred for an aggregate purchase price of $91 million
in cash and assumption of liabilities of $13 million:

     _    Pepsi-Cola Buffalo Bottling Corp. of Buffalo, New York in February

     _    Cassidy's Beverage Limited of New Brunswick, Canada in February

     _    Olean Bottling Works, Inc. of Olean, New York in August

     As a result of these acquisitions, we have assigned $7 million to goodwill,
$76 million to franchise rights and $5 million to non-compete arrangements. The
goodwill and franchise rights are not subject to amortization. The non-compete
agreements are being amortized over five years.


                                       63
<PAGE>
     During 2003, we also paid $5 million for the purchase of certain
distribution rights relating to SOBE and DR PEPPER and paid $4 million for
purchase obligations relating to acquisitions made in the prior year.

NOTE 18--ACCUMULATED OTHER COMPREHENSIVE LOSS

     The year-end balances related to each component of accumulated other
comprehensive loss were as follows:

<TABLE>
<CAPTION>
                                                       2004    2003    2002
                                                      -----   -----   -----
<S>                                                   <C>     <C>     <C>
Net currency translation adjustment ...............   $(111)  $(195)  $(285)
Cash flow hedge adjustment (1) ....................      10      13      (5)
Minimum pension liability adjustment (2) ..........    (214)   (198)   (178)
                                                      -----   -----   -----

Accumulated other comprehensive loss ..............   $(315)  $(380)  $(468)
                                                      =====   =====   =====
</TABLE>

(1)  Net of minority interest and taxes of $(7) million in 2004, $(9) million in
     2003 and $4 million in 2002.

(2)  Net of minority interest and taxes of $161 million in 2004, $148 million in
     2003 and $134 million in 2002.

NOTE 19--COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE

<TABLE>
<CAPTION>
(shares in thousands)                                   2004       2003       2002
                                                      --------   --------   --------
<S>                                                   <C>        <C>        <C>
Number of shares on which basic earnings
   per share are based:
   Weighted-average outstanding during period .....    255,061    269,933    281,674
   Add - Incremental shares under stock
      compensation plans ..........................      8,423      6,986     11,116
                                                      --------   --------   --------

Number of shares on which diluted
   earnings per share are based ...................    263,484    276,919    292,790

Basic and diluted net income applicable to
   common shareholders ............................   $    457   $    416   $    428
Basic earnings per share ..........................   $   1.79   $   1.54   $   1.52
Diluted earnings per share ........................   $   1.73   $   1.50   $   1.46
</TABLE>

     Diluted earnings per share reflect the potential dilution that could occur
if the stock options or other equity awards from our stock compensation plans
were exercised and converted into common stock that would then participate in
net income. Options to purchase 6.8 million shares at December 25, 2004, 14.3
million shares at December 27, 2003, and 0.2 million shares at December 28, 2002
are not included in the computation of diluted earnings per share because the
effect of including the options in the computation would be antidilutive.

                                       64
<PAGE>
NOTE 20--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                        FIRST     SECOND    THIRD         FOURTH
2004                   QUARTER   QUARTER   QUARTER   QUARTER (1),(2)   FULL YEAR
----                   -------   -------   -------   ---------------   ---------
<S>                    <C>       <C>       <C>       <C>               <C>
Net revenues .......    $2,067    $2,675    $2,934        $3,230        $10,906
Gross profit .......     1,016     1,297     1,412         1,525          5,250
Operating income ...       137       286       357           196            976
Net income .........        50       142       191            74            457
</TABLE>

(1)  Includes Mexico tax law change benefit of $26 million and international tax
     restructuring charge of $30 million.

(2)  Includes a $9 million non-cash impairment charge ($6 million net of tax and
     minority interest) relating to our re-evaluation of the fair value of our
     franchise licensing agreement for the SQUIRT trademark in Mexico.

<TABLE>
<CAPTION>
                        FIRST     SECOND    THIRD     FOURTH
2003                   QUARTER   QUARTER   QUARTER   QUARTER(3)   FULL YEAR
----                   -------   -------   -------   ----------   ---------
<S>                    <C>       <C>       <C>       <C>          <C>
Net revenues........    $1,874    $2,532    $2,810     $3,049      $10,265
Gross profit........       947     1,242     1,372      1,489        5,050
Operating income....       120       271       358        207          956
Net income..........        33       131       183         69          416
</TABLE>

(3)  Includes Canada tax law change expense of $11 million.


                                       65
<PAGE>

             Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
The Pepsi Bottling Group, Inc.:

We have audited the accompanying consolidated balance sheets of The Pepsi
Bottling Group, Inc. and subsidiaries as of December 25, 2004 and December 27,
2003, and the related consolidated statements of operations, cash flows and
changes in shareholders' equity for each of the fiscal years in the three-year
period ended December 25, 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Pepsi Bottling
Group, Inc. and subsidiaries as of December 25, 2004 and December 27, 2003, and
the results of their operations and their cash flows for each of the fiscal
years in the three-year period ended December 25, 2004, in conformity with U.S.
generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Company
adopted Emerging Issues Task Force Issue No. 02-16, "Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor," as of
December 29, 2002.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of The Pepsi
Bottling Group, Inc.'s internal control over financial reporting as of December
25, 2004, based on criteria established in "Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO)," and our report dated February 25, 2005 expressed an
unqualified opinion on management's assessment of, and the effective operation
of, internal control over financial reporting.


/s/ KPMG LLP

New York, New York
February 25, 2005


                                       66
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Included in Item 7, Management's Financial Review - Market Risks and
      Cautionary Statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      Included in Item 7, Management's Financial Review - Financial Statements

      The financial statements of Bottling LLC, included in Bottling LLC's
Annual Report on Form 10-K and filed with the SEC on February 28, 2005, are
hereby incorporated by reference as required by the SEC as a result of Bottling
LLC's guarantee of up to $1,000,000,000 aggregate principal amount of our 7%
Senior Notes due in 2029.

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

      None.

ITEM 9A. CONTROLS AND PROCEDURES

      Evaluation of Disclosure Controls and Procedures

      PBG's management carried out an evaluation, as required by Rule 13a-15(b)
of the Securities Exchange Act of 1934 (the "Exchange Act"), with the
participation of our Chief Executive Officer and our Chief Financial Officer, of
the effectiveness of our disclosure controls and procedures, as of the end of
our last fiscal quarter. Based upon this evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that our disclosure controls and
procedures were effective, as of the end of the period covered by this Annual
Report on Form 10-K, in timely alerting them to material information relating to
PBG and its consolidated subsidiaries required to be included in our Exchange
Act reports filed with the SEC.

      Management's Report on Internal Control Over Financial Reporting

      PBG's management is responsible for establishing and maintaining adequate
internal control over financial reporting for PBG. Internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements in accordance with generally accepted accounting principles
and includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of PBG's assets, (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
PBG's receipts and expenditures are being made only in accordance with
authorizations of PBG's management and directors, and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of PBG's assets that could have a material effect on the
financial statements.

      As required by Section 404 of the Sarbanes-Oxley Act of 2002 and the
related rule of the SEC, management assessed the effectiveness of PBG's internal
control over financial reporting using the "Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO)."

      Based on this assessment, management concluded that PBG's internal control
over financial reporting was effective as of December 25, 2004. Management has
not identified any material weaknesses in PBG's internal control over financial
reporting as of December 25, 2004.

                                       67
<PAGE>

      Our independent auditors, KPMG LLP ("KPMG"), who have audited and reported
on our financial statements, issued an attestation report on our assessment of
PBG's internal control over financial reporting. KPMG's reports are included in
this annual report.

      Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
The Pepsi Bottling Group, Inc.:

      We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that The Pepsi
Bottling Group, Inc. maintained effective internal control over financial
reporting as of December 25, 2004, based on criteria established in "Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO)." The Pepsi Bottling Group,
Inc.'s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of The Pepsi
Bottling Group, Inc.'s internal control over financial reporting based on our
audit.

      We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

      A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles. A company's
internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S.
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.

      Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management's assessment that The Pepsi Bottling Group,
Inc. maintained effective internal control over financial reporting as of
December 25, 2004, is fairly stated, in all material respects, based on criteria
established in "Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO)." Also, in our
opinion, The Pepsi Bottling Group, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 25, 2004,
based on criteria established in "Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)."

      We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of The Pepsi Bottling Group, Inc. and subsidiaries as of December 25,
2004 and December 27, 2003, and the related consolidated statements of
operations, cash flows and changes in shareholders' equity for each of the
fiscal years in the three-year period ended December 25, 2004, and our report
dated February 25, 2005, expressed an unqualified opinion on those consolidated
financial statements.

/s/ KPMG LLP
New York, New York
February 25, 2005

      Changes in Internal Controls

      PBG's management also carried out an evaluation, as required by Rule
13a-15(d) of the Exchange Act, with the participation of our Chief Executive
Officer and our Chief Financial Officer, of changes in PBG's internal control
over financial reporting. Based on this evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that there were no changes in our
internal control over financial reporting that occurred during our last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

      None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PBG

      The name, age and background of each of our directors nominated for
election are contained under the caption "Election of Directors" in our Proxy
Statement for our 2005 Annual Meeting of Shareholders. The identification of our
Audit Committee and our Audit Committee financial expert is contained in PBG's
Proxy Statement for our 2005 Annual Meeting of Shareholders under the captions
"CORPORATE GOVERNANCE - Committees of the Board of Directors - The Audit and
Affiliated Transactions Committee." Information regarding the adoption of our
Worldwide Code of Conduct, any material amendments thereto and any related
waivers are contained in our Proxy Statement for our 2005 Annual Meeting of
Shareholders under the captions "CORPORATE GOVERNANCE - Worldwide Code of
Conduct." All of the foregoing information is incorporated herein by reference.
The Worldwide Code of Conduct is posted on the PBG Website at http://
www.pbg.com under Investor Relations - Company Information - Corporate
Governance. Pursuant to Item 401(b) of Regulation S-K, the requisite information
pertaining to our executive officers is reported in Part I of this Report.

      Information on compliance with Section 16(a) of the Exchange Act is
contained in our Proxy Statement for our 2005 Annual Meeting of Shareholders
under the captions "OWNERSHIP OF PBG COMMON STOCK - Section 16 Beneficial
Ownership Reporting Compliance" and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

      Information on compensation of our directors and certain named executive
officers is contained in our Proxy Statement for our 2005 Annual Meeting of
Shareholders under the captions "Directors' Compensation" and "EXECUTIVE
COMPENSATION," respectively, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

      Information relating to securities authorized for issuance under PBG's
equity compensation plans is contained in PBG's Proxy Statement for our 2005
Annual Meeting of Shareholders under the captions "EXECUTIVE COMPENSATION -
Equity Compensation Plan Information" and is incorporated herein by reference.

                                       68
<PAGE>

      Information on the number of shares of PBG Common Stock beneficially owned
by each director, each named executive officer and by all directors and all
executive officers as a group is contained under the captions "OWNERSHIP OF PBG
COMMON STOCK - Ownership of Common Stock by Directors and Executive Officers"
and information on each beneficial owner of more that 5% of PBG Common Stock is
contained under the captions "OWNERSHIP OF PBG COMMON STOCK-Stock Ownership of
Certain Beneficial Owners" in our Proxy Statement for our 2005 Annual Meeting of
Shareholders and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Information relating to certain transactions between PBG, PepsiCo and
their affiliates and certain other persons is set forth under the caption
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in our Proxy Statement for our
2005 Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Information relating to audit fees, audit-related fees, tax fees and all
other fees billed in fiscal 2003 and 2004 by KPMG, LLP for services rendered to
PBG is set forth under the caption "INDEPENDENT AUDITORS" in the Proxy Statement
for our 2005 Annual Meeting of Shareholders and is incorporated herein by
reference. In addition, information relating to the pre-approval policies and
procedures of the Audit and Affiliated Transactions Committee is set forth under
the caption "INDEPENDENT AUDITORS - Pre-Approval Policies and Procedures" in the
Proxy Statement for our 2005 Annual Meeting of Shareholders and is incorporated
herein by reference.

                                     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 in Item 7:

Consolidated Statements of Operations - Fiscal years ended December 25, 2004,
December 27, 2003 and December 28, 2002.

Consolidated Statements of Cash Flows - Fiscal years ended December 25, 2004,
December 27, 2003 and December 28, 2002.

Consolidated Balance Sheets - December 25, 2004 and December 27, 2003.

Consolidated Statements of Changes in Shareholders' Equity - Fiscal years ended
December 25, 2004, December 27, 2003 and December 28, 2002.

Notes to Consolidated Financial Statements.

Independent Auditors' Report.

      The financial statements of Bottling LLC, included in Bottling LLC's
Annual Report on Form 10-K and filed with the SEC on February 28, 2005, are
hereby incorporated by reference as required by the SEC as a result of Bottling
LLC's guarantee of up to $1,000,000,000 aggregate principal amount of our 7%
Senior Notes due in 2029.

                                       69
<PAGE>

            2.    Financial Statement Schedules. The following financial
statement schedules of PBG and its subsidiaries are included in this Report on
the page indicated:

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>                                                                                  <C>
Independent Auditors' Report on Schedule and Consent............................      F-2

Schedule II - Valuation and Qualifying Accounts for the fiscal years ended
              December 25, 2004, December 27, 2003 and December 28, 2002........      F-3
</TABLE>

            3.    Exhibits

                  See Index to Exhibits on pages E-1 - E-4.

                                       70
<PAGE>

                                   SIGNATURES

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

Dated:  February 22, 2005

                                    The Pepsi Bottling Group, Inc.

                                    By: /s/ John T. Cahill
                                        --------------------------------------
                                        John T. Cahill
                                        Chairman and Chief Executive Officer

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

<TABLE>
<CAPTION>
     SIGNATURE                                   TITLE                           DATE
<S>                                   <C>                                  <C>
/s/ John T. Cahill                    Chairman of the Board and Chief      February 22, 2005
-------------------------             Executive Officer
John T. Cahill

/s/ Alfred H. Drewes                  Senior Vice President and Chief      February 22, 2005
-------------------------             Financial Officer (Principal
Alfred H. Drewes                      Financial Officer)

/s/ Andrea L. Forster                 Vice President and Controller        February 22, 2005
-------------------------             (Principal Accounting Officer)
Andrea L. Forster

/s/ Linda G. Alvarado                 Director                             February 22, 2005
-------------------------
Linda G. Alvarado

/s/ Barry H. Beracha                  Director                             February 22, 2005
-------------------------
Barry H. Beracha

/s/ Ira D. Hall                       Director                             February 22, 2005
-------------------------
Ira D. Hall

/s/ Thomas H. Kean                    Director                             February 22, 2005
-------------------------
Thomas H. Kean

/s/ Susan D. Kronick                  Director                             February 22, 2005
-------------------------
Susan D. Kronick

/s/ Blythe J. McGarvie                Director                             February 22, 2005
-------------------------
Blythe J. McGarvie

/s/ Margaret D. Moore                 Director                             February 22, 2005
-------------------------
Margaret D. Moore

/s/ Rogelio Rebolledo                 Director                             February 22, 2005
-------------------------
Rogelio Rebolledo
</TABLE>

                                      S-1

<PAGE>

<TABLE>
<S>                                   <C>                                  <C>
/s/ Clay G. Small                     Director                             February 22, 2005
-------------------------
Clay G. Small

_________________________             Director
John A. Quelch*
</TABLE>

* Mr. Quelch became a Director of The Pepsi Bottling Group, Inc. on January 28,
2005.

                                      S-2

<PAGE>

                     INDEX TO FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
                                                                                                       PAGE
                                                                                                       ----
<S>                                                                                                    <C>
Independent Auditors' Report on Schedule and Consent...........................................         F-2
Schedule II - Valuation and Qualifying Accounts for the fiscal years ended December 25, 2004
    December 27, 2003 and December 28,2002.....................................................         F-3
</TABLE>

                                       F-1

<PAGE>

      Report and Consent of Independent Registered Public Accounting Firm

The Board of Directors
The Pepsi Bottling Group, Inc.:

The audits referred to in our report dated February 25, 2005, with respect to
the consolidated financial statements of The Pepsi Bottling Group, Inc. and
subsidiaries, included the related financial statement schedule as of December
25, 2004, and for each of the fiscal years in the three-year period ended
December 25, 2004, included in this Form 10-K. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

We consent to the incorporation by reference in the registration statement (No.
333-60428, 333-79357, 333-79369, 333-79375, 333-79365, 333-80647, 333-69622,
333-73302, 333-100786, 333-117894) on Form S-8 of The Pepsi Bottling Group,
Inc. of our reports (incorporated by reference in the December 25, 2004, annual
report on Form 10-K of The Pepsi Bottling Group, Inc.) dated February 25, 2005,
with respect to the consolidated balance sheets of The Pepsi Bottling Group,
Inc. and subsidiaries, as of December 25, 2004 and December 27, 2003, and the
related consolidated statements of operations, cash flows, and changes in
shareholders' equity for each of the fiscal years in the three-year period ended
December 25, 2004, and our report on the related financial statement schedule,
management's assessment of the effectiveness of internal control over financial
reporting as of December 25, 2004 and the effectiveness of internal control over
financial reporting as of December 25, 2004, dated February 25, 2005 (which
appears above). Our report on the consolidated financial statements refers to
the adoption of Emerging Issues Task Force Issue No. 02-16, "Accounting by a
Customer (Including a Reseller) for Certain Consideration Received from a
Vendor," as of December 29, 2002.

/s/ KPMG LLP

New York, New York
February 25, 2005

                                      F-2
<PAGE>

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                         THE PEPSI BOTTLING GROUP, INC.
                                   IN MILLIONS

<TABLE>
<CAPTION>
                      Balance At   Charged to                    Accounts      Foreign       Balance At
                       Beginning    Cost and                      Written      Currency        End Of
                       Of Period    Expenses     Acquisitions       Off       Translation      Period
                      ----------   ----------    ------------    --------     -----------    -----------
<S>                   <C>          <C>           <C>             <C>          <C>            <C>
DESCRIPTION

FISCAL YEAR ENDED
DECEMBER 25, 2004
   Allowance
   for losses
   on trade
   accounts
   receivable.......     $ 72        $ (5)           $ --         $  (7)         $  1           $ 61

FISCAL YEAR ENDED
DECEMBER 27, 2003
   Allowance
   for losses
   on trade
   accounts
   receivable.......     $ 67        $ 12            $ --         $  (8)         $  1           $ 72

FISCAL YEAR ENDED
DECEMBER 28, 2002
   Allowance
   for losses
   on trade
   accounts
   receivable.......     $ 42        $ 32            $ 14         $ (22)         $  1           $ 67
</TABLE>

                                       F-3

<PAGE>

                                       INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
<S>               <C>

3.1               Articles of Incorporation of The Pepsi Bottling Group, Inc. ("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               U.S. $500,000,000 5-Year Credit Agreement dated as of April 28, 2004 among
                  The Pepsi Bottling Group Inc., 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.

4.6               Indenture, dated as of November 15, 2002, among Bottling Group, LLC,
                  PepsiCo, Inc., as Guarantor, and JPMorgan Chase Bank, as Trustee, relating
                  to $1 Billion 4-5/8% Senior Notes due November 15, 2012, which is
                  incorporated herein by reference
</TABLE>

                                       E-1

<PAGE>

<TABLE>
<S>               <C>
                  to Exhibit 4.8 to PBG's Annual Report on Form 10-K for the year ended December
                  28, 2002.

4.7               Registration Rights Agreement, dated as of November 7, 2002 relating to the
                  $1 Billion 4-5/8% Senior Notes due November 15, 2012, which is incorporated
                  herein by reference to Exhibit 4.9 to PBG's Annual Report on Form 10-K for
                  the year ended December 28, 2002.

4.8               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).

4.9               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).

4.10              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.

4.11              Form of Note for the $500,000,000 2.45% Senior Notes due October 16, 2006,
                  which is incorporated herein by reference to Exhibit 4.2 to Bottling Group,
                  LLC's Form 8-K dated October 3, 2003.

4.12              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.

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).

</TABLE>

                                       E-2
<PAGE>

<TABLE>
<S>               <C>
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 Directors' Stock Plan, which is incorporated herein by reference to
                  Exhibit 10.10 to PBG's Annual Report on Form 10-K for the year ended
                  December 25, 1999.

10.11             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.

10.12             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.

10.13             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.

10.14             PBG Directors' Stock Plan, which is incorporated by reference to Exhibit
                  10.14. to PBG's Annual Report on Form 10-K for the year ended December 29,
                  2001.

10.15             Amendment No. 1 to the PBG Directors' Stock Plan, which is incorporated herein by
                  reference to Exhibit 10 to PBG's Quarterly Report on Form 10-Q for the
                  quarter ended June 14, 2003.

10.16             2002 PBG Long-Term Incentive Plan, which is incorporated by reference to Exhibit
                  10.15. to PBG's Annual Report on Form 10-K for the year ended December 28,
                  2002.

10.17             Form of Mexican Master Bottling Agreement, which is incorporated by
                  reference to Exhibit 10.16. to PBG's Annual Report on Form 10-K for the year
                  ended December 28, 2002.

10.18             PBG 2004 Long-Term Incentive Plan which is incorporated herein by reference
                  to Appendix B to PBG's Proxy Statement for the 2004 Annual Meeting of
                  Shareholders.

10.19             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.

</TABLE>

                                       E-3

<PAGE>

<TABLE>
<S>               <C>
10.20             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.

10.21             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.

10.22             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.

10.23             PBG Executive Incentive Compensation Plan which is incorporated herein by
                  reference to Exhibit B to PBG's Proxy Statement for the 2000 Annual Meeting
                  of Shareholders.

10.24             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.

10.25             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 2004 Annual Meeting of Shareholders as
                  updated by the Form 8-K filed with the SEC on January 31, 2005.

12*               Statement re Computation of Ratios.

21*               Subsidiaries of PBG.

23*               Report and Consent of KPMG LLP.

24*               Copy of 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.
</TABLE>

-------------
* Filed herewith

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