SEC Info - Pepsi Bottling Group Inc - IPO: ‘424B4’ on 3/31/99

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Pepsi Bottling Group Inc – IPO: ‘424B4’ on 3/31/99

As of: Wednesday, 3/31/99 · Accession #: 1047469-99-12852 · File #: 333-70291

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/31/99  Pepsi Bottling Group Inc          424B4                  1:354K                                   Merrill Corp/New/FA

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Prospectus                                           111    520K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Additional Information Bad weather in our peak season could result in lower sales Business of PBG Capitalization Certain United States Federal Tax Considerations for Non-U.S. Holders of Common Stock Common Stock Craig D. Jung Craig E. Weatherup December 26, 1998 December 27, 1997 and December 26, 1998 Description of Capital Stock Dividend Policy Employees of PBG Experts Fiscal year ended December 26, 1998 Fiscal years ended December 28, 1996, December 27, 1997 and December 26, 1998 Forward-Looking Statements Index to Financial Statements John T. Cahill Legal Matters Management Management's Discussion and Analysis of Results of Operations and Financial Condition Margaret D. Moore Net income (loss) Net sales Notes to unaudited Pro Forma Condensed Combined Financial Statements Offering, The Over-allotment option Pamela C. McGuire Principal Stockholder Pro Forma Rationale for the Separation of PBG from PepsiCo Relationship with PepsiCo and Certain Transactions Risk Factors Selected Combined Financial and Operating Data Shares Eligible for Future Sale Short-term borrowings Summary The offering The U.S Unaudited Underwriting U.S Use of Proceeds U.S, The Year 2000 2000
1	1st Page - Filing Submission
"	Common Stock
5	Summary
"	Rationale for the Separation of PBG from PepsiCo
8	The offering
10	Pro Forma
11	Risk Factors
13	Bad weather in our peak season could result in lower sales
18	Forward-Looking Statements
20	Use of Proceeds
"	Dividend Policy
21	Capitalization
22	Selected Combined Financial and Operating Data
24	Management's Discussion and Analysis of Results of Operations and Financial Condition
35	Year 2000
37	Business of PBG
48	Employees of PBG
51	Management
55	Craig E. Weatherup
"	Craig D. Jung
"	John T. Cahill
"	Margaret D. Moore
"	Pamela C. McGuire
60	Relationship with PepsiCo and Certain Transactions
66	Principal Stockholder
67	Description of Capital Stock
70	Shares Eligible for Future Sale
71	Certain United States Federal Tax Considerations for Non-U.S. Holders of Common Stock
74	Underwriting
76	The U.S
"	Over-allotment option
79	Legal Matters
"	Experts
"	Additional Information
80	Index to Financial Statements
82	Fiscal years ended December 28, 1996, December 27, 1997 and December 26, 1998
84	December 27, 1997 and December 26, 1998
93	Short-term borrowings
95	U.S
99	Net income (loss)
101	Net sales
103	Unaudited
105	2000
107	Fiscal year ended December 26, 1998
108	December 26, 1998
109	Notes to unaudited Pro Forma Condensed Combined Financial Statements

424B4 1st Page of 111 TOC ↑Top Previous Next ↓Bottom Just 1st
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-70291

[Download Table]

PROSPECTUS [LOGO]

100,000,000 SHARES

[LOGO]

COMMON STOCK
--------------

This is The Pepsi Bottling Group, Inc.'s initial public offering of common
stock.

Prior to the offering, there has been no public market for the common stock.
The common stock has been approved for listing on The New York Stock Exchange
under the symbol "PBG," subject to official notice of issuance.

INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 11 OF THIS PROSPECTUS.

-----------------

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PER SHARE TOTAL
---------- ----------------

Public Offering Price........................................ $23.00 $ 2,300,000,000
Underwriting Discount........................................ $.9177 $91,770,000
Proceeds, before expenses, to The Pepsi Bottling Group,
Inc........................................................ $ 22.0823 $ 2,208,230,000

The underwriters may also purchase up to an additional 15,000,000 shares of
common stock at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Merrill Lynch & Co. is acting as book-running lead manager for the offering.
Merrill Lynch & Co. and Morgan Stanley & Co. Incorporated are acting as joint
lead managers. The shares of common stock will be ready for delivery in New
York, New York on or about April 6, 1999.

------------------

JOINT LEAD MANAGERS

MERRILL LYNCH & CO. MORGAN STANLEY DEAN WITTER
-----------

BEAR, STEARNS & CO. INC.

CREDIT SUISSE FIRST BOSTON

GOLDMAN, SACHS & CO.

LEHMAN BROTHERS

NATIONSBANC MONTGOMERY SECURITIES LLC

SALOMON SMITH BARNEY

SANFORD C. BERNSTEIN & CO., INC.

SCHRODER & CO. INC.

UTENDAHL CAPITAL PARTNERS, L.P.

------------

The date of this prospectus is March 30, 1999.

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[PHOTOGRAPHS OF PBG'S OPERATIONS AND PRODUCTS TO BE INCLUDED HERE]

[MAP OF PBG TERRITORIES TO BE INCLUDED HERE]

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TABLE OF CONTENTS

[Enlarge/Download Table]

PAGE

Summary....................................................................................... 5
Risk Factors.................................................................................. 11
Forward-Looking Statements.................................................................... 18
Rationale for the Separation of PBG from PepsiCo.............................................. 19
Use of Proceeds............................................................................... 20
Dividend Policy............................................................................... 20
Capitalization................................................................................ 21
Selected Combined Financial and Operating Data................................................ 22
Management's Discussion and Analysis of Results of Operations and Financial Condition......... 24
Business of PBG............................................................................... 37
Management.................................................................................... 51
Relationship with PepsiCo and Certain Transactions............................................ 60
Principal Stockholder......................................................................... 66
Description of Capital Stock.................................................................. 67
Shares Eligible for Future Sale............................................................... 70
Certain United States Federal Tax Considerations for Non-U.S. Holders of Common Stock......... 71
Underwriting.................................................................................. 74
Legal Matters................................................................................. 79
Experts....................................................................................... 79
Additional Information........................................................................ 79
Index to Financial Statements................................................................. F-1
Pro Forma Condensed Combined Financial Statements............................................. P-1

------------------------

In this prospectus, "PBG," "we," "us" and "our" each refers to The Pepsi
Bottling Group, Inc. and, where appropriate, to our principal operating
subsidiary, Bottling Group, LLC, which we refer to as "Bottling LLC."

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[This Page Intentionally Left Blank]

424B4 5th Page of 111 TOC 1st Previous Next ↓Bottom Just 5th
SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully.

THE PEPSI BOTTLING GROUP, INC.

The Pepsi Bottling Group, Inc. is the world's largest manufacturer, seller
and distributor of carbonated and non-carbonated Pepsi-Cola beverages. Our sales
of Pepsi-Cola beverages account for 55% of the Pepsi-Cola beverages sold in the
United States and Canada and 32% worldwide. We have the exclusive right to
manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of 41
states, the District of Columbia, eight Canadian provinces, Spain, Greece and
Russia. Approximately 92% of our volume is sold in the United States and Canada.

The brands we sell are some of the best recognized trademarks in the world
and include PEPSI-COLA, DIET PEPSI, MOUNTAIN DEW, LIPTON BRISK, LIPTON'S ICED
TEA, 7UP outside the U.S., PEPSI MAX, PEPSI ONE, SLICE, MUG, AQUAFINA, STARBUCKS
FRAPPUCCINO and MIRINDA, which we bottle under licenses from PepsiCo or PepsiCo
joint ventures. In some of our territories, we also have the right to
manufacture, sell and distribute soft drink products of other companies,
including DR PEPPER and 7UP in the U.S. During the period from 1993 through
1998, the volume of Pepsi-Cola beverages sold in our U.S. territories grew at a
compound annual rate of approximately 5%, using a standard measure of cases
containing the equivalent of 24 eight-ounce bottles.

In the U.S. in 1998, the Pepsi-Cola beverages we sell had a 31% share of the
carbonated soft drink market as compared to the brands of The Coca-Cola Company,
which had a 45% share. However, excluding fountain sales, where the consumer
typically does not have a choice due to exclusive agreements, the market share
difference narrowed significantly, with Pepsi-Cola beverages having 26% and
Coca-Cola brands having 28%, according to our estimates. In convenience and gas
stores, where retail pricing, packaging and presentation are generally similar
among brands, and therefore consumers are free to choose based on brand
preference and taste, Pepsi-Cola beverages had the leading share, with 41%, as
compared to 36% for Coca-Cola brands.

We have an extensive distribution system through which we deliver our
products directly to stores without using wholesalers as middlemen. Our U.S. and
Canadian distribution system utilizes approximately 7,000 trucks and covers over
7,400 routes. Working seven days a week, our sales force sells and delivers over
100 million eight-ounce servings per day. Our products are produced in 72
manufacturing facilities worldwide.

Our management team has substantial experience in the soft drink bottling
business and a proven operating record with respect to manufacturing operations,
sales, distribution and financial management. For example, Craig Weatherup, our
Chairman and Chief Executive Officer, has over 24 years of experience in the
beverage industry and our 11 field operations managers have an average of nearly
15 years of experience in the beverage business.

RATIONALE FOR THE SEPARATION OF PBG FROM PEPSICO

We were organized in November 1998 to effect the separation of most of
PepsiCo's company-owned bottling business from its brand ownership. As an
independent entity, we believe we will benefit from a sharper definition of our
role and be able to execute our business strategy more effectively on a local
market level. The most significant advantages of the separation include:

- We will be free to focus more closely on sales and service in our
territories.

- We will be able to shift our performance emphasis to growth in operating
cash flow.

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- We will have incentives for management and employees based upon our
results.

- We will have a capital structure and financial policies that are more
appropriate for a bottling company, allowing us to make better capital
allocation and investment decisions.

After the offering, our business interests will continue to be aligned with
those of PepsiCo, which shares our objective of increasing availability and
consumption of Pepsi-Cola beverages. We plan to work closely with PepsiCo and
expect to benefit from this relationship in a number of ways including:

- We will have the benefit of PepsiCo's worldwide marketing expertise and
advertising programs.

- We expect that PepsiCo will continue to provide us with significant
marketing support and funding.

- Under a shared services agreement, we will have the benefit of PepsiCo's
scale and efficiencies in the procurement of raw materials, transaction
processing such as accounts payable and credit and collection and other
corporate services.

- We believe we benefit from lower interest rates resulting from our
relationship with PepsiCo, including PepsiCo's guarantee of $2.3 billion
of debt of our principal operating subsidiary, Bottling LLC.

- We expect that PepsiCo will help us identify and acquire other independent
PepsiCo bottlers principally in the United States and Canada.

THE LIQUID REFRESHMENT BEVERAGE INDUSTRY

Liquid refreshment beverage annual retail sales in 1997 were more than $73
billion in the United States and Canada, including carbonated soft drink
products, as well as non-carbonated beverages sold in bottles and cans, such as
waters, shelf-stable juices and juice drinks, sports drinks and tea and coffee
drinks.

We believe that the following are the significant trends in the industry:

- Liquid refreshment beverage sales have grown at a 6% average annual rate
in recent years and we expect that this growth will continue.

- Changes in lifestyle have resulted in increased demand for convenient
ready-to-drink beverages instead of drinks prepared at home.

- The bottling industry is consolidating to achieve the scale necessary to
remain competitive and to better serve large regional and national
accounts which are also consolidating.

- International opportunities will arise as per capita consumption levels of
carbonated soft drinks outside the United States grow.

STRATEGY TO ACHIEVE OUR GOALS

We have designed our strategy to enable us to achieve our goals of growing
our cash flow, earning a return on our investments in excess of our cost of
capital and increasing our market share. Our strengths include our broad
portfolio of global brands, our extensive distribution system, our scale in
operations and purchasing and our experienced management team. We intend to use
these strengths to capitalize on the key trends in the beverage industry
outlined above. In addition, our strategy focuses on improving our competitive
position in areas where we have lagged our largest competitor in recent years.
These areas are: the amount of investment in the cold drink business; the pace
of consolidation

424B4 7th Page of 111 TOC 1st Previous Next ↓Bottom Just 7th
of the bottling system in the United States and Canada; and improvement in
market share outside the United States and Canada. The key elements of our
strategy include:

- We intend to invest significantly in placements of vending machines and
coolers to increase cold drink availability in the marketplace.

- We expect to play a key role in the consolidation of PepsiCo's U.S. and
Canadian bottling system.

- We are undertaking a number of initiatives to reduce costs by improving
productivity and becoming more efficient in our operations.

- We intend to grow our business with key retail customers by improving our
retail presence with them--on the shelf, on display and in the
cooler--while remaining price competitive.

- We intend to increase penetration of established brands such as MOUNTAIN
DEW and new brands such as PEPSI ONE and AQUAFINA.

- Internationally, low per capita consumption levels present opportunities
for volume growth. We intend to implement distribution and marketing
initiatives to take advantage of these opportunities.

- We intend to improve our results in Russia, where infrastructure
investments and the recent economic crisis have resulted in losses.

PEPSICO'S OWNERSHIP INTEREST IN PBG

Following the offering, if the underwriters do not exercise their
over-allotment option, PepsiCo will own 35.4% of our outstanding common stock
and 100% of our outstanding Class B common stock, together representing 43.5% of
the voting power of all classes of our voting stock. PepsiCo will also own 7.1%
of the equity of Bottling LLC, our principal operating subsidiary, giving
PepsiCo economic ownership of 40.0% of our combined operations. We anticipate
that PepsiCo's voting power of all classes of our voting stock will be 40.1% and
its economic ownership of our combined operations will be 37.1% if the
underwriters exercise their over-allotment option in full. We have been advised
by PepsiCo that it has no present intention of disposing of any of the shares of
our capital stock that it will own after the offering.

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THE OFFERING

Unless we specifically state otherwise, the information in this prospectus
does not take into account the possible issuance of up to 15,000,000 additional
shares of common stock which the underwriters have the option to purchase solely
to cover over-allotments. If the underwriters exercise their over-allotment
option in full, 170,000,000 shares of capital stock will be outstanding after
the offering.

[Enlarge/Download Table]

Common stock offered......................... 100,000,000 shares

Capital stock to be outstanding after the
offering:

Common stock............................... 154,912,000 shares

Class B common stock....................... 88,000 shares
---------------------------------------------

Total.................................... 155,000,000 shares

Over-allotment option........................ 15,000,000 shares of common stock

Use of proceeds.............................. The net proceeds from the offering will be
approximately $2.2 billion. We intend to use
all of these net proceeds to repay
indebtedness.

Dividend policy.............................. We intend to declare and pay quarterly cash
dividends of $0.02 per share, depending on
our financial results and action by our board
of directors. We expect the first dividend to
be payable with respect to the second quarter
of 1999.

Voting rights:

Common stock............................... One vote per share

Class B common stock....................... 250 votes per share

Other common stock provisions................ Apart from the different voting rights, the
holders of common stock and Class B common
stock generally have identical rights. See
"Description of Capital Stock."

Risk factors................................. See "Risk Factors" and the other information
included in this prospectus for a discussion
of factors you should carefully consider
before deciding to invest in shares of the
common stock.

NYSE symbol.................................. "PBG"

Our principal executive offices are located at One Pepsi Way, Somers, New
York 10589 and our telephone number is (914) 767-6000.

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SUMMARY FINANCIAL AND OPERATING DATA

The following table presents summary financial and operating data of PBG.
You should read this along with "Management's Discussion and Analysis of Results
of Operations and Financial Condition," the Combined Financial Statements, the
unaudited Pro Forma Condensed Combined Financial Statements and the accompanying
notes and the definition of EBITDA contained in the section entitled "Selected
Combined Financial and Operating Data."

The summary pro forma statement of operations data gives effect to the
following as if they had actually occurred on the first day of our 1998 fiscal
year:

- The offering;

- The 1998 acquisitions of Pepsi-Cola Allied Bottlers, Inc., Gray Beverage
Inc. and Pepsi International Bottlers, LLC;

- The completed and expected 1999 acquisitions of certain U.S. and Russian
territories from Whitman Corporation;

- The change in interest expense on $3.3 billion of debt expected to be
outstanding after giving effect to the offering; and

- PepsiCo's 7.1% minority interest in Bottling LLC.

The summary pro forma combined balance sheet data gives effect to the
following as if such transactions actually occurred on December 26, 1998:

- The offering;

- The $3.3 billion of debt expected to be outstanding after the offering;
and

- The completed and expected 1999 acquisitions of certain U.S. and Russian
territories from Whitman Corporation.

Earnings per share data are based upon the 55 million shares of capital
stock owned by PepsiCo and outstanding prior to the offering. Pro forma earnings
per share is based upon an assumed 155 million shares of capital stock
outstanding after the offering.

The Statement of Operations Data set forth below includes unusual items and
events that affect comparability with other years:

- 1994 consisted of 53 weeks. The fifty-third week increased 1994 net sales
by $68 million, income before income taxes by $3 million, and net income
by $2 million.

- 1994 also reflects the cumulative effect of accounting changes arising
from Statement of Financial Accounting Standards 112, "Employers
Accounting for Postemployment Benefits," and changing to a preferable
method for calculating pension plan assets. The adoption of SFAS 112
reduced income before income taxes by $28 million and net income by $17
million, while the pension change increased income before income taxes by
$9 million and net income by $6 million.

- 1998 reflects unusual impairment and other charges, as well as an income
tax benefit arising from resolving a disputed claim with the Internal
Revenue Service. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and Note 3 to the Combined Financial
Statements for more information on the 1998 items.

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FISCAL YEAR ENDED
-----------------------------------------------------
DEC. 31 DEC. 30 DEC. 28 DEC. 27 DEC. 26
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------

(IN MILLIONS, EXCEPT PER SHARE AND PER CASE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $ 5,950 $ 6,393 $ 6,603 $ 6,592 $ 7,041
Cost of sales.................................................. 3,432 3,771 3,844 3,832 4,181
--------- --------- --------- --------- ---------
Gross profit................................................... 2,518 2,622 2,759 2,760 2,860
Selling, delivery and administrative expenses.................. 2,221 2,273 2,392 2,425 2,583
Unusual impairment and other charges........................... -- -- -- -- 222
--------- --------- --------- --------- ---------
Operating income............................................... 297 349 367 335 55
Interest expense, net.......................................... 231 239 225 222 221
Foreign currency loss (gain)................................... 3 -- 4 (2) 26
--------- --------- --------- --------- ---------
Income (loss) before income taxes, cumulative effect of
accounting changes and minority interest..................... 63 110 138 115 (192)
Income tax expense (benefit)................................... 46 71 89 56 (46)
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of accounting changes
and minority interest........................................ 17 39 49 59 (146)
Cumulative effect of accounting changes........................ (11) -- -- -- --
Minority interest.............................................. -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss).............................................. $ 6 $ 39 $ 49 $ 59 $ (146)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Basic and diluted earnings (loss) per share.................... $ 0.11 $ 0.71 $ 0.89 $ 1.07 $ (2.65)
Weighted average shares outstanding............................ 55 55 55 55 55

OTHER FINANCIAL DATA:
EBITDA......................................................... $ 681 $ 767 $ 792 $ 774 $ 721
Cash provided by operations.................................... 484 431 451 548 625
Cash used for investments...................................... (310) (355) (376) (564) (1,046)
Cash provided by (used for) financing.......................... (160) (66) (66) 63 370
Capital expenditures........................................... (432) (358) (418) (472) (507)

OTHER OPERATING DATA:
Net sales per case............................................. $ 6.57 $ 6.92 $ 6.97 $ 6.74 $ 6.70
Cost of sales per case......................................... 3.79 4.08 4.06 3.92 3.98

BALANCE SHEET DATA (AT PERIOD END):
Total assets................................................... $ 6,847 $ 7,082 $ 7,052 $ 7,188 $ 7,322
Long-term debt:
Allocation of PepsiCo long-term debt......................... 3,300 3,300 3,300 3,300 3,300
Due to third parties......................................... 135 131 127 96 61
--------- --------- --------- --------- ---------
Total long-term debt....................................... 3,435 3,431 3,427 3,396 3,361
Advances from PepsiCo.......................................... 1,265 1,251 1,162 1,403 1,605
Minority interest.............................................. -- -- -- -- --
Accumulated comprehensive loss................................. (112) (66) (102) (184) (238)
Stockholders' equity (deficit)................................. (112) (66) (102) (184) (238)

PRO FORMA
DEC. 26
1998
-----------

STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $ 7,323
Cost of sales.................................................. 4,341
-----------
Gross profit................................................... 2,982
Selling, delivery and administrative expenses.................. 2,686
Unusual impairment and other charges........................... 222
-----------
Operating income............................................... 74
Interest expense, net.......................................... 201
Foreign currency loss (gain)................................... 27
-----------
Income (loss) before income taxes, cumulative effect of
accounting changes and minority interest..................... (154)
Income tax expense (benefit)................................... (31)
-----------
Income (loss) before cumulative effect of accounting changes
and minority interest........................................ (123)
Cumulative effect of accounting changes........................ --
Minority interest.............................................. 3
-----------
Net income (loss).............................................. $ (120)
-----------
-----------
Basic and diluted earnings (loss) per share.................... $ (0.77)
Weighted average shares outstanding............................ 155
OTHER FINANCIAL DATA:
EBITDA.........................................................
Cash provided by operations....................................
Cash used for investments......................................
Cash provided by (used for) financing..........................
Capital expenditures...........................................
OTHER OPERATING DATA:
Net sales per case............................................. $ 6.76
Cost of sales per case......................................... 4.01
BALANCE SHEET DATA (AT PERIOD END):
Total assets................................................... $ 7,489
Long-term debt:
Allocation of PepsiCo long-term debt......................... --
Due to third parties......................................... 3,300
-----------
Total long-term debt....................................... 3,300
Advances from PepsiCo.......................................... --
Minority interest.............................................. 181
Accumulated comprehensive loss................................. (238)
Stockholders' equity (deficit)................................. 1,517

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RISK FACTORS

Investing in our common stock will provide you with an equity ownership
interest in PBG. As a stockholder of PBG, you may be exposed to risks inherent
in our business. The performance of your shares will reflect the performance of
our business relative to, among other things, competition, industry conditions
and general economic and market conditions. The value of your investment may
increase or decrease and could result in a loss. You should carefully consider
the following factors as well as other information contained in this prospectus
before deciding to invest in shares of our common stock.

WE MAY BE UNABLE TO COMPETE SUCCESSFULLY IN THE HIGHLY COMPETITIVE CARBONATED
SOFT DRINK MARKET AND NON-CARBONATED BEVERAGE MARKET.

The carbonated soft drink market and non-carbonated beverage market are both
highly competitive. We compete primarily on the basis of advertising to create
brand awareness, price and price promotions, retail space management, customer
service, consumer points of access, new products, packaging innovation and
distribution methods. Competition in our various markets could cause us to
reduce pricing, increase capital and other expenditures or lose market share,
which could have a material adverse effect on our business and financial
results. 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. Our most significant competitors in
these markets are Coca-Cola Enterprises Inc. and other Coca-Cola bottlers.

BECAUSE WE DEPEND UPON PEPSICO TO PROVIDE US WITH CONCENTRATE, FUNDING AND
VARIOUS SERVICES, CHANGES IN OUR RELATIONSHIP WITH PEPSICO COULD REDUCE OUR
OPERATING INCOME.

In early 1999, we entered into the master bottling agreement with PepsiCo
for cola products in the United States as well as agreements with PepsiCo
relating to non-cola products and fountain syrup in the United States and
similar agreements relating to Pepsi-Cola beverages in Canada, Spain, Greece and
Russia. Those agreements provide that we must purchase all of our concentrate
for such beverages at prices and on other terms which are set by PepsiCo in its
sole discretion. Any concentrate price increases could materially affect our
financial results. Prices under the Pepsi beverage agreements may increase
materially and we may not be able to pass on any increased costs to our
customers.

PepsiCo has also traditionally provided marketing support and funding to its
bottling operations. PepsiCo does not have to continue to provide support under
the Pepsi beverage agreements and any support provided to us by PepsiCo will be
at PepsiCo's discretion. Decreases in marketing support and funding levels could
materially affect our operating income.

In addition, PepsiCo is a 50% owner of the joint ventures that license
LIPTON BRISK, LIPTON'S ICED TEA and STARBUCKS FRAPPUCCINO to us. The joint
ventures also have the right to increase concentrate pricing. The joint ventures
are not obligated to continue to provide marketing support and funding to us
under their bottling agreements with us.

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

Under a shared services agreement, after the offering we will continue to
obtain various services from PepsiCo. These services include obtaining raw
materials, transaction processing services including accounts payable and credit
and collection, various tax and treasury services and information technology

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maintenance and systems development. If the shared services agreement is
terminated, we will have to obtain such services on our own. We may not be able
to replace these services in a timely manner or on terms, including cost, that
are as favorable as those we received from PepsiCo. We also sublease our
headquarters from PepsiCo. The agreements with PepsiCo were negotiated in the
context of our separation from PepsiCo and are not the result of arm's-length
negotiations between independent parties. For more information about these
arrangements, see "Relationship with PepsiCo and Certain Transactions."

PEPSICO WILL HAVE UP TO APPROXIMATELY 43.5% OF THE COMBINED VOTING POWER OF ALL
OF OUR CLASSES OF OUR VOTING STOCK AND WILL BE ABLE TO SIGNIFICANTLY AFFECT
THE OUTCOME OF STOCKHOLDER VOTING.

WE MAY HAVE POTENTIAL CONFLICTS OF INTEREST WITH PEPSICO BECAUSE OF OUR PAST AND
ONGOING RELATIONSHIPS WHICH COULD RESULT IN PEPSICO'S OBJECTIVES BEING FAVORED
OVER OUR OBJECTIVES.

These conflicts could arise over:

- the nature, quality and pricing of services or products provided to us by
PepsiCo or by us to PepsiCo;

- potential acquisitions of bottling territories and/or assets from PepsiCo
or other independent PepsiCo bottlers;

- the divestment of parts of our bottling operations;

- the payment of dividends by us; or

- balancing the objectives of increasing sales volume of Pepsi-Cola
beverages and maintaining or increasing our profitability.

We also have obligations to other brand owners which may compete with our
obligations to PepsiCo.

TWO OF OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST BECAUSE THEY ARE ALSO
PEPSICO DIRECTORS OR OFFICERS.

Two of our directors are also directors or officers of PepsiCo, a situation
which may create conflicts of interest. Our certificate of incorporation permits
PepsiCo to engage in the same or similar activities as we do. Our certificate
also provides that PepsiCo does not have to tell us about a corporate
opportunity, may pursue that opportunity or acquire it for itself, or may direct
that opportunity to another person without liability to us or our stockholders.

OUR FOREIGN OPERATIONS ARE SUBJECT TO SOCIAL, POLITICAL AND ECONOMIC RISKS AND
MAY BE ADVERSELY AFFECTED BY FOREIGN CURRENCY FLUCTUATIONS.

In the past two years, approximately 16% of our net sales came from Canada,
Spain, Greece and Russia. 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 which may adversely impact our
business. In addition, our results of operations and the value of our foreign
assets are affected by fluctuations in foreign currency exchange rates.

Our operations in Russia have resulted in significant losses. These losses
have largely been due to significant investments to fund start-up manufacturing
and distribution costs. Recent economic turmoil in Russia had a further adverse
effect on our results of operations, cash flows and financial condition during
our 1998 fourth fiscal quarter. Net sales in Russia are denominated in rubles,
which in

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August 1998 experienced significant devaluation against the U.S. dollar. In
addition, the current Russian economic crisis has caused a significant drop in
demand, resulting in lower net sales and increased operating losses.

For the foreseeable future, we expect that our Russian operations will incur
losses and require significant amounts of cash to fund operations. In the fourth
quarter of 1998, we recorded a charge of $212 million comprised of an asset
impairment charge of $194 million and costs to restructure our operations of $18
million. For more information about our Russian operations, see "Management's
Discussion and Analysis of Results of Operations and Financial Condition."

Recent events in Russia also may expose our operations to increased risks as
a result of political instability, higher taxes, cancellation of contracts or
currency shortages and controls.

BAD WEATHER IN OUR PEAK SEASON COULD RESULT IN LOWER SALES.

Our peak season is the warm summer months beginning with Memorial Day and
ending with Labor Day. Bad weather conditions during our peak selling season
could adversely affect operating income and cash flow and could therefore have a
disproportionate impact on our results for the full year. More than 90% of our
operating income is typically earned during the second and third quarters and we
typically report a net loss in the first and fourth quarters. Over 75% of cash
flow from operations is typically generated in the third and fourth quarters.

OUR SUBSTANTIAL INDEBTEDNESS COULD LIMIT OUR GROWTH AND OUR ABILITY TO RESPOND
TO CHANGING CONDITIONS.

We have incurred substantial indebtedness. Our level of indebtedness could
have important consequences to our stockholders such as:

- limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
pay interest;

- limiting our ability to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service requirements
or other purposes; and

- limiting our ability to react to changing market conditions, changes in
our industry and economic downturns.

After giving effect to the offering and the application of the net proceeds,
at December 26, 1998 we would have had $3.3 billion of indebtedness outstanding.
Our historical financial statements reflect an allocation of PepsiCo's interest
expense based upon the indebtedness expected to be outstanding after giving
effect to the application of proceeds from the offering. We may incur additional
indebtedness in the future to finance acquisitions, capital expenditures,
working capital and for other purposes.

OUR AGREEMENTS WITH PEPSICO RESTRICT OUR SOURCES OF SUPPLY FOR SOME RAW
MATERIALS WHICH COULD INCREASE OUR COSTS.

We generally purchase our raw materials, other than concentrates, from
multiple suppliers. With respect to the soft drink products of PepsiCo, all
authorized containers, closures, cases, cartons and other packages and labels
may be purchased only from manufacturers approved by PepsiCo. This may restrict
our ability to obtain raw materials. Expenditures for concentrates and packaging
constitute approximately 43% and 47%, respectively, of our total raw material
costs.

The supply or cost of specific materials could be adversely affected by
price changes, strikes, weather conditions, governmental controls or other
factors. Any sustained interruption in the supply of these raw materials or any
significant increase in their price could have a material adverse effect on our
business and financial results.

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SUCCESS OF OUR ACQUISITION STRATEGY MAY BE LIMITED BY GEOGRAPHICAL RESTRICTIONS
ON ACQUISITIONS, BY OUR ABILITY TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES
INTO OURS AND BY THE REQUIREMENT THAT WE OBTAIN PEPSICO'S APPROVAL OF ANY
ACQUISITION OF AN INDEPENDENT PEPSICO BOTTLER.

We intend to grow in part through the acquisition of bottling assets and
territories from PepsiCo's independent bottlers. This strategy will involve
reviewing and potentially reorganizing acquired business operations, corporate
infrastructure and systems and financial controls. The success of our
acquisition strategy may be limited because of unforeseen expenses,
difficulties, complications and delays encountered in connection with the
expansion of our operations through acquisitions. We may not be able to acquire
or manage profitably additional businesses or to integrate successfully any
acquired businesses into our business without substantial costs, delays or other
operational or financial difficulties. In addition, we may be required to incur
additional debt or issue equity to pay for future acquisitions.

We must obtain PepsiCo's approval to acquire any independent PepsiCo
bottler. Under the master bottling agreement, PepsiCo has agreed not to withhold
approval for any acquisition within a specific area--currently representing
approximately 14% of PepsiCo's U.S. bottling system in terms of volume-- if we
have successfully negotiated the acquisition and, in PepsiCo's reasonable
judgment, satisfactorily performed our obligations under the master bottling
agreement. We have agreed not to acquire or attempt to acquire any independent
PepsiCo bottler outside of that specific area without PepsiCo's prior written
approval.

AFTER THE OFFERING, PEPSICO WILL NO LONGER CONTINUE TO FUND OUR SUBSTANTIAL
CAPITAL REQUIREMENTS AND WE MAY BE UNABLE TO OBTAIN REPLACEMENT FUNDING ON
SIMILAR TERMS OR IN THE AMOUNTS WE EXPECT TO REQUIRE, WHICH COULD CAUSE US TO
REDUCE OUR PLANNED CAPITAL EXPENDITURES AND COULD RESULT IN A MATERIAL ADVERSE
EFFECT ON OUR GROWTH PROSPECTS AND THE MARKET PRICE OF OUR COMMON STOCK.

We will require substantial capital expenditures to implement our business
strategy. If we do not have sufficient funds or if we are unable to obtain
financing in the amounts desired or on acceptable terms, we may have to reduce
our planned capital expenditures which could have a material adverse effect on
our growth prospects and the market price of our common stock. In the past, our
capital needs, including those for working capital, have been satisfied by
PepsiCo as part of its overall capital plan. Following our separation from
PepsiCo, PepsiCo will no longer be required to provide financing for our
operations. It may not be possible to obtain financing with interest rates or on
terms that are as favorable as those historically enjoyed by PepsiCo.

WE HAVE NEVER OPERATED AS A STAND-ALONE COMPANY AND MAY NOT BE ABLE TO
SUCCESSFULLY IMPLEMENT OUR STRATEGY WITHOUT PEPSICO'S SUPPORT.

Before November 1998, we were fully integrated with PepsiCo and we depended
upon PepsiCo for various services and for the financing of our activities. In
anticipation of our establishment as a stand-alone entity, in late 1998, we made
significant organizational and strategic changes which are intended to promote
future growth. We cannot assure you that such changes will have the intended
effect or that we will be successful in implementing our strategy as a
stand-alone entity.

OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS
A SEPARATE COMPANY.

The historical financial information we have included in this prospectus may
not reflect what our results of operations, financial position and cash flows
would have been had we been a separate, stand-alone entity during the periods
presented or what our results of operations, financial position and cash flows
will be in the future. This is because PepsiCo did not account for us as, and we
were not operated as, a single stand-alone business for the periods presented.

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For more information about the carve-out of our financial statements from
the financial statements of PepsiCo, see "Management's Discussion and Analysis
of Results of Operations and Financial Condition."

OUR SUCCESS DEPENDS ON KEY MEMBERS OF OUR MANAGEMENT, THE LOSS OF WHOM COULD
DISRUPT OUR BUSINESS OPERATIONS.

Our success depends largely on the efforts and abilities of key management
employees. The loss of the services of those key personnel could have a material
adverse effect on our business and financial results. Key management employees
are not parties to employment agreements with us.

The implementation of our strategic plan will depend on our ongoing ability
to attract and retain additional qualified employees. Because of competition for
qualified personnel, we may not be successful in attracting and retaining the
personnel we require. See "Business of PBG--Employees of PBG" and "Management"
for more information about our key personnel.

IF OUR YEAR 2000 PROGRAM IS NOT SUCCESSFUL, THE HIGH VOLUME TRANSACTION
PROCESSING SYSTEMS ON WHICH WE DEPEND MAY BE DISRUPTED.

Our business could be adversely affected by information technology issues
related to the Year 2000. Many existing computer programs were designed and
developed without considering the upcoming change in the century, which could
lead to the failure of computer applications or create erroneous results by or
at the Year 2000. The Year 2000 issue is a broad business issue, whose impact
extends beyond traditional computer hardware and software to possible failure of
automated plant systems and instrumentation, as well as to third parties with
whom we do business.

We have implemented a Year 2000 program and we believe we have allocated
adequate resources for this purpose. Our most significant exposure arises from
our dependence on high volume transaction processing systems, particularly for
production scheduling, inventory cost accounting, purchasing, customer billing
and collection, and payroll. We cannot assure you that any corrective actions to
these applications will be completed on time. The ability of third parties with
whom we do business to address adequately their Year 2000 issues is outside our
control. Our failure or the failure of such third parties to address adequately
their respective Year 2000 issues may have a material adverse effect on our
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--Year
2000" for a detailed discussion of the status of our Year 2000 program.

WE MAY INCUR MATERIAL LOSSES AND COSTS AS A RESULT OF PRODUCT LIABILITY CLAIMS
THAT MAY BE BROUGHT AGAINST US OR ANY PRODUCT RECALLS WE HAVE TO MAKE.

We may be liable if the consumption of any of our products causes injury,
illness or death. We also may be required to recall some of our products if they
become contaminated or are damaged or mislabeled. A significant product
liability judgment against us or a widespread product recall could have a
material adverse effect on our business, financial condition and results of
operations.

THE GOVERNMENT MAY ADOPT REGULATIONS THAT COULD INCREASE OUR COSTS OR OUR
LIABILITIES.

Our operations and properties are subject to regulation by various federal,
state and local government entities and agencies as well as foreign government
entities. We cannot assure you that we have been or will at all times be in
compliance with all regulatory requirements or that we will not incur material
costs or liabilities in connection with regulatory requirements.

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

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States, those of the federal Food, Drug and Cosmetic Act. The operations of our
production and distribution facilities are subject to various federal, state and
local environmental laws and workplace regulations. These laws and regulations
include, in the United States, the Occupational Safety and Health Act, the
Unfair Labor Standards Act, the Clean Air Act, the Clean Water Act and laws
relating to the maintenance of fuel storage tanks. Compliance with, or any
violation of, current and future laws or regulations could require material
expenditures by us or otherwise have a material adverse effect on our business,
financial condition and results of operations.

WE ARE A HOLDING COMPANY AND WILL DEPEND ON DISTRIBUTIONS FROM OUR PRINCIPAL
OPERATING SUBSIDIARY, BOTTLING LLC, TO ENABLE US TO MEET OUR FINANCIAL
OBLIGATIONS.

We are primarily a holding company with limited direct operations and
limited assets other than our 92.9% interest in Bottling LLC. We will be
dependent on distributions from Bottling LLC to pay dividends to our
stockholders and to meet our obligations, including the payment of principal and
interest on our indebtedness.

The determination of the amount of distributions, if any, to be paid to us
by Bottling LLC will depend upon the terms of Bottling LLC's indebtedness, as
well as Bottling LLC's financial condition, results of operations, cash flow and
future business prospects. We will receive 92.9% of any distribution made by
Bottling LLC based on our 92.9% ownership interest and PepsiCo will receive the
remaining 7.1% of any such distribution.

At December 26, 1998, on a pro forma basis after giving effect to the
offering, Bottling LLC would have had $2.3 billion of indebtedness. Any right of
ours to participate in the assets of Bottling LLC upon any liquidation or
reorganization of Bottling LLC will be subject to the prior claims of Bottling
LLC's creditors, including trade creditors and holders of indebtedness, except
to the extent that we are a creditor of Bottling LLC.

OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AFTER THE OFFERING AND YOU COULD
LOSE ALL OR PART OF YOUR INVESTMENT AS A RESULT.

Prior to this offering, there has been no public market for our common
stock. The common stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance. We do not know how the common
stock will trade in the future. The initial public offering price was determined
through negotiations between the underwriters and us. You may not be able to
resell your shares at or above the initial public offering price due to a number
of factors, including:

- actual or anticipated fluctuations in our operating results;

- changes in expectations as to our future financial performance or changes
in financial estimates of securities analysts; and

- the operating and stock price performance of other comparable companies.

In addition, the stock market in general has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations may adversely affect the
trading price of our common stock, regardless of our actual operating
performance.

PEPSICO'S APPROXIMATELY 43.5% VOTING POWER AND ITS RIGHTS UNDER THE PEPSI
BEVERAGE AGREEMENTS COULD DELAY OR PREVENT A CHANGE IN CONTROL OF OUR COMPANY.

In addition to its voting rights, PepsiCo will have the right to terminate
the Pepsi beverage agreements upon the occurrence of certain events, including
any disposition of any voting securities of any bottler subsidiary without the
consent of PepsiCo, the assignment or transfer of the Pepsi beverage

424B4 17th Page of 111 TOC 1st Previous Next ↓Bottom Just 17th
agreements or the acquisition of 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 by a person or
affiliated group, without the consent of PepsiCo.

PROVISIONS IN OUR CORPORATE DOCUMENTS COULD DELAY OR PREVENT A CHANGE IN CONTROL
OF OUR COMPANY.

Our certificate of incorporation and bylaws contain several provisions which
may be deemed to have anti-takeover effects and may discourage, delay or prevent
a takeover attempt that a stockholder might consider in its best interest. These
provisions include the requirement that:

- the number of directors shall be no more than 15; and

- with respect to annual stockholders' meetings, stockholders must comply
with the timing and procedural requirements of the federal proxy rules in
order for a stockholder proposal to be included in our proxy statement.

Our board of directors has the authority to authorize the issuance of
preferred stock. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of our company, and may
adversely affect the voting and other rights of the holders of our capital
stock.

A SUBSTANTIAL NUMBER OF OUR SHARES WILL BE AVAILABLE FOR SALE IN THE PUBLIC
MARKET AFTER THE OFFERING AND SALES OF THOSE SHARES COULD ADVERSELY AFFECT OUR
STOCK PRICE.

Sales of a substantial number of shares of common stock into the public
market after this offering, or the perception that such sales could occur, could
materially and adversely affect our stock price or could impair our ability to
obtain capital through an offering of equity securities. After the offering, we
will have outstanding 154,912,000 shares of common stock. Of these shares, the
shares sold in this offering will be freely transferable without restriction or
further registration under the Securities Act, except for any shares purchased
by our affiliates as defined in Rule 144.

We have entered into a registration rights agreement with PepsiCo which
enables PepsiCo to require us to register shares of our common stock owned by
PepsiCo and to include those shares in registrations of common stock made by us
in the future.

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FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. Our actual results could differ materially from those anticipated
in these forward-looking statements. These forward-looking statements are
affected by risks, uncertainties and assumptions about PBG, including, among
other things:

- our anticipated growth strategies;

- competition in the beverage industry;

- our continuing relationship with PepsiCo;

- anticipated trends in the beverage industry;

- social, political and economic situations in foreign countries where we
have operations;

- our ability to continue to control costs; and

- the risks described above in "Risk Factors."

We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.

------------------------

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.

424B4 19th Page of 111 TOC 1st Previous Next ↓Bottom Just 19th
RATIONALE FOR THE SEPARATION OF PBG FROM PEPSICO

- FOCUS ON SALES AND SERVICE IN OUR TERRITORIES. We will be free to focus
more closely on sales and service in our territories. Prior to separation,
we assisted PepsiCo in managing its relationships with independent PepsiCo
bottlers, including the coordination of regional and national marketing
initiatives. This responsibility has now been assumed by PepsiCo.

- SHIFT IN PERFORMANCE MEASURES. We will be able to shift our performance
emphasis to growth in operating cash flow. We believe this shift in
emphasis is appropriate given our higher levels of indebtedness and
significant non-cash depreciation and amortization charges resulting from
our capital investments and acquisitions. We intend to generate sufficient
cash flow to fund an aggressive investment program in vending machines,
coolers and other revenue generating assets.

- TARGETED INCENTIVES FOR MANAGEMENT AND EMPLOYEES. Our performance will now
be measurable and rewardable based upon the results we achieve. Our equity
securities will provide a basis for management and employee incentives
that are directly related to our performance.

- CAPITAL STRUCTURE AND FINANCIAL POLICIES APPROPRIATE FOR A BOTTLING
COMPANY. As a separate entity, we will have a capital structure and
financial policies that are more appropriate for a bottling company,
allowing us to make better capital allocation and investment decisions. In
addition, our equity securities will provide an additional form of
consideration for possible future acquisitions and financings.

- MARKETING SUPPORT AND FUNDING. We will have the benefit of PepsiCo's
worldwide marketing expertise and advertising programs and we expect that
PepsiCo will continue to provide us with significant marketing support and
funding. This support covers a variety of initiatives, including consumer
marketing programs, trade incentives, capital equipment investment and
shared media expense.

- SHARED SERVICES. Under the terms of a shared services agreement, we will
have the benefit of PepsiCo's scale and efficiencies in certain areas such
as the procurement of raw materials, transaction processing such as
accounts payable and credit and collection, certain tax and treasury
services and information technology maintenance and systems development.

- CREDIT ENHANCEMENT. We believe we benefit from lower interest rates
resulting from PepsiCo's guarantee of $2.3 billion of debt of our
principal operating subsidiary, Bottling LLC. In addition, our association
with PepsiCo is viewed favorably by rating agencies.

- ACQUISITIONS. We expect that PepsiCo will help us identify and acquire
other independent PepsiCo bottlers principally in the United States and
Canada.

Bottling LLC is a limited liability company which was formed in January 1999
and 92.9% of its equity is owned by us. Bottling LLC owns substantially all of
the property, plant and equipment used in our operations. PepsiCo is the
guarantor of $2.3 billion aggregate principal amount of Bottling LLC's
indebtedness. Use of a limited liability company rather than a corporation is
advantageous to us and PepsiCo. It allows PepsiCo, which holds a minority
interest in Bottling LLC, to take into account its allocable share of Bottling
LLC's income without imposition of a second level of tax. The limited liability
company structure also provides an attractive acquisition platform since
prospective sellers of bottling operations may prefer to receive a minority
limited liability company interest for those operations, rather than a minority
interest in a corporation.

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USE OF PROCEEDS

The net proceeds we will receive from the sale of our common stock in the
offering, after deducting estimated offering and transaction expenses of $32
million and underwriting discounts and commissions, will be approximately $2.2
billion. If the underwriters exercise their over-allotment option in full, we
estimate that the net proceeds we will receive will be $2.5 billion.

All of the net proceeds of this offering together with available cash will
be used to repay $2.5 billion of short-term indebtedness. This short-term
indebtedness bears interest at a rate of 5.25% and matures on March 6, 2000. The
short-term indebtedness to be repaid was incurred by us:

- to repay $2.4 billion of pre-existing obligations due to PepsiCo; and

- to pay $100 million of the purchase price of bottling businesses acquired
and to be acquired by PBG which are reflected in the unaudited Pro Forma
Condensed Combined Financial Statements and the accompanying notes
included elsewhere in this prospectus.

DIVIDEND POLICY

Our board of directors expects to declare and pay quarterly cash dividends
of $0.02 per share, commencing with a dividend payable with respect to the
second quarter of 1999. The declaration of dividends by us and the amount of
those dividends will, however, be determined by our board of directors and will
depend upon our results of operations, financial condition, cash requirements,
future prospects and other factors deemed relevant by our board.

We are a newly formed corporation and as such have never declared or paid
any cash dividends on our capital stock.

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CAPITALIZATION

The following table sets forth our actual capitalization as of December 26,
1998 as adjusted to reflect:

- $1.0 billion of debt that PBG incurred on March 8, 1999 through a sale of
notes.

- $2.3 billion of debt that Bottling LLC incurred on February 9, 1999
through a sale of notes. PepsiCo has unconditionally guaranteed this
indebtedness which we expect to remain outstanding after the offering.

- A substantial portion of the proceeds of our short-term indebtedness has
been applied against advances from PepsiCo. The amounts applied exceeded
the recorded amounts of advances from PepsiCo by $682 million because the
amounts applied are based, in part, on the fair value of certain assets
transferred to us in connection with our formation and the formation of
Bottling LLC, which exceeded the book carrying value. The excess amount of
proceeds applied to advances from PepsiCo is treated for financial
reporting purposes as a reduction of additional paid-in capital.

The table is further adjusted to reflect the offering and the application of the
net proceeds as described under "Use of Proceeds." The table does not include
the impact of completed and expected 1999 acquisitions of some U.S. and Russian
territories for an aggregate purchase price of $137 million. These acquisitions
are reflected in the unaudited Pro Forma Condensed Combined Financial Statements
and the accompanying notes included elsewhere in this prospectus. You should
read the table in conjunction with the Combined Financial Statements, the
unaudited Pro Forma Condensed Combined Financial Statements and the accompanying
notes included elsewhere in this prospectus.

[Enlarge/Download Table]

AS OF DECEMBER 26, 1998
-----------------------------------

AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
--------- ----------- -----------

(IN MILLIONS, EXCEPT SHARE DATA)

Short-term borrowings.......................................................... $ 112 $ 2,500 $ --
--------- ----------- -----------
Long-term debt:
Allocation of PepsiCo long-term debt......................................... 3,300 -- --
Due to third parties......................................................... 61 -- --
PBG debt..................................................................... -- 1,000 1,000
Bottling LLC debt............................................................ -- 2,300 2,300
--------- ----------- -----------
Total long-term debt....................................................... 3,361 3,300 3,300
--------- ----------- -----------

Advances from PepsiCo.......................................................... 1,605 (682) --

Minority interest.............................................................. -- -- 181

Stockholders' equity:

Preferred stock, par value $.01 per share; 20.0 million shares authorized; no
shares issued or outstanding as adjusted and as further adjusted........... -- -- --
Common stock, par value $.01 per share; 300.0 million shares
authorized; 154.9 million shares issued and outstanding as further
adjusted................................................................... -- -- 2
Class B common stock, par value $.01 per share; 100,000 shares authorized;
88,000 shares issued and outstanding as further adjusted................... -- -- --
Additional paid-in capital................................................... -- -- 1,635
Accumulated other comprehensive loss......................................... (238) (238) (238)
--------- ----------- -----------
Total stockholders' equity (deficit)..................................... (238) (238) 1,399
--------- ----------- -----------
Total capitalization................................................. $ 4,840 $ 4,880 $ 4,880
--------- ----------- -----------
--------- ----------- -----------

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SELECTED COMBINED FINANCIAL AND OPERATING DATA

The following table presents selected financial and operating data of PBG.
It should be read along with "Management's Discussion and Analysis of Results of
Operations and Financial Condition," the Combined Financial Statements, the
unaudited Pro Forma Condensed Combined Financial Statements and the accompanying
notes included elsewhere in this prospectus. The financial information for the
fiscal years 1996, 1997 and 1998 has been derived from, and is qualified
completely by reference to, our Combined Financial Statements appearing
elsewhere in this prospectus.

The summary pro forma data set forth below is derived from the unaudited Pro
Forma Condensed Combined Financial Statements included elsewhere in this
prospectus. The unaudited Pro Forma Condensed Combined Financial Statements give
effect to the 1998 acquisitions of Pepsi-Cola Allied Bottlers, Inc., Gray
Beverage Inc. and Pepsi International Bottlers, LLC and the completed and
expected 1999 acquisitions of certain U.S. and Russian territories from Whitman
Corporation, as well as the offering and related transactions. These
transactions have been recorded as if they had actually occurred on the first
day of our 1998 fiscal year with respect to pro forma statement of operations
data and, except to the extent that a transaction occurred earlier, on December
26, 1998 with respect to pro forma balance sheet data. The pro forma data does
not necessarily represent what our financial position or results of operations
would have been had such transactions been completed on such dates nor does it
give effect to any events other than those discussed in the notes to the
unaudited Pro Forma Condensed Combined Financial Statements. The pro forma data
also does not project our financial position or results of operations as of any
future date or for any future period.

The Statement of Operations Data set forth below includes unusual items and
events that affect comparability with other years:

- 1994 consisted of 53 weeks. The fifty-third week increased 1994 net sales
by $68 million, income before income taxes by $3 million and net income by
$2 million.

- 1994 also reflects the cumulative effect of accounting changes arising
from SFAS 112, "Employers Accounting for Postemployment Benefits," and
changing to a preferable method for calculating pension plan assets. The
adoption of SFAS 112 reduced income before income taxes by $28 million and
net income by $17 million, while the pension change increased income
before income taxes by $9 million and net income by $6 million.

- 1998 reflects unusual impairment and other charges, as well as an income
tax benefit arising from resolving a disputed claim with the Internal
Revenue Service.

EBITDA is computed as operating income plus the sum of depreciation and
amortization expense and, for 1998, the non-cash portion of the unusual
impairment referred to above. We have included information concerning EBITDA as
we believe that it is useful to an investor in evaluating PBG because this
measure is widely used in the bottling industry to evaluate a company's
operating performance. EBITDA is not required under GAAP, and should not be
considered an alternative to net income or any other measure of performance
required by GAAP, and should be read along with the Combined Statements of Cash
Flows contained in the Combined Financial Statements. EBITDA should also not be
used as a measure of liquidity or cash flows under GAAP. In addition, PBG's
EBITDA may not be comparable to similar measures reported by other companies.

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[Enlarge/Download Table]

FISCAL YEAR ENDED
-----------------------------------------------------
DEC. 31 DEC. 30 DEC. 28 DEC. 27 DEC. 26
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------

Basic and diluted earnings (loss) per share.................... $ 0.11 $ 0.71 $ 0.89 $ 1.07 $ (2.65)
Weighted average shares outstanding............................ 55 55 55 55 55

PRO FORMA
DEC. 26
1998
-----------

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

GENERAL

FINANCIAL STATEMENTS. Our Combined Financial Statements and the
accompanying notes, which are included elsewhere in this prospectus, reflect the
results of operations, financial condition and cash flows of the business
transferred to us from PepsiCo. Our Combined Financial Statements have been
carved-out from the financial statements of PepsiCo using the historical results
of operations and assets and liabilities of such business. Certain costs have
been reflected in the Combined Financial Statements which are not necessarily
indicative of the costs that we would have incurred had we operated as an
independent, stand-alone entity for all periods presented. Such costs include
allocated PepsiCo corporate overhead, an allocation of PepsiCo interest expense
and income taxes.

- Corporate overhead related to PepsiCo's corporate administrative functions
has been allocated to us based on a specific identification of PepsiCo's
administrative costs relating to the bottling operations and, to the
extent that such identification was not practicable, based upon the
percentage of our sales to PepsiCo's consolidated net sales. These
allocated costs of $42 million in 1996 and 1997 and $40 million in 1998,
have been included in selling, delivery and administrative expenses in the
Combined Statements of Operations. We believe that such allocation
methodology is reasonable. In addition, PBG expects to change from a non-
compensatory broad-based stock option program to an alternative program.
While this alternative program has not been finalized or approved by the
board of directors, management anticipates that the new plan could cost up
to an additional $12 million per year.

- Interest expense included in the Combined Financial Statements reflects an
allocation of PepsiCo's interest costs based upon debt expected to be
outstanding after the offering and application of the proceeds from the
offering. Because PBG was not a stand-alone entity and did not
historically have its own debt, we believe that PepsiCo's weighted average
borrowing rate is the best approximation of the interest actually paid on
the debt allocated to PBG. For information regarding interest rates we
expect to pay on the third party debt we anticipate to be outstanding at
the offering date, see the unaudited Pro Forma Condensed Combined
Financial Statements.

- Income tax expense has been reflected in the Combined Financial Statements
as if we had actually filed a separate income tax return. In the Combined
Financial Statements, our effective tax rate differs from the 35% U.S.
federal statutory rate. This is primarily due to state and local income
taxes and the amortization of goodwill which is not deductible for U.S.
income tax purposes. In addition, in 1998 we settled a disputed claim with
the Internal Revenue Service regarding the deductibility of the
amortization of acquired franchise rights. Also in 1998, our effective tax
rate increased due to the Russia impairment and other charges for which we
have not recognized a tax benefit. In the future, our effective tax rate
will depend on our structure and tax strategies as a separate, independent
company.

Our fiscal year ends on the last Saturday in December and generally consists
of 52 weeks, though occasionally our fiscal years will consist of 53 weeks. This
last occurred in 1994 and will next occur in 2000. Fiscal years 1996, 1997 and
1998 consisted of 52 weeks. Each of the first three quarters of each fiscal year
consists of 12 weeks and the fourth quarter consists of 16 or 17 weeks.

We recognize sales when we deliver our products to customers. Any discounts
are recognized at the same time as a reduction of sales. Our sales terms do not
allow a right of return unless the product freshness date expires, in which case
we will typically replace the product.

Cost of sales is comprised of raw materials, which include concentrates,
sweeteners, carbon dioxide and other ingredients; packaging, which is primarily
cans and plastic bottles; and other direct costs,

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including labor and manufacturing overhead. Expenditures for concentrate and
packaging constitute our largest individual raw material costs, representing
approximately 43% and 47%, respectively, of our total raw material costs. We
depend primarily on PepsiCo for our concentrates and we purchase our other raw
materials from multiple suppliers.

Selling, delivery and administrative expenses include labor and benefit
costs, depreciation of facilities and equipment and advertising and marketing
expenses. These expenses also include significant non-cash charges for
amortization of franchise rights, goodwill and other intangible assets.

BOTTLER INCENTIVES. PepsiCo and other brand owners, at their sole
discretion, provide us with various forms of marketing support. This marketing
support is intended to cover a variety of programs and initiatives, including
direct marketplace support, capital equipment funding and shared media and
advertising support. Direct marketplace support is primarily funding by PepsiCo
and other brand owners of sales discounts and similar programs and is recorded
as an adjustment to net sales. Capital equipment funding is designed to support
the purchase and placement of marketing equipment and is recorded within
selling, delivery and administrative expenses. Shared media and advertising
support is recorded as a reduction to advertising and marketing expense within
selling, delivery and administrative expenses.

The total amount of bottler incentives received from PepsiCo and other brand
owners in the form of marketing support amounted to $421 million, $463 million,
and $536 million for 1996, 1997 and 1998, respectively. Of these amounts, $238
million, $235 million, and $247 million for 1996, 1997 and 1998 were recorded in
net sales, and the remainder was recorded in selling, delivery and
administrative expenses. The amount of our bottler incentives received from
PepsiCo was more than 90% of our bottler incentives in each of the three years,
with the balance received from the other brand owners. We negotiate the level of
funding with PepsiCo and other brand owners as part of our annual planning
process.

In February 1999 PepsiCo announced an increase of approximately 5% in the
U.S. price of its concentrate. The cost of this price increase will be offset in
substantial part with increases in the 1999 level of marketing support and
funding from PepsiCo. We spent $1,013 million, $1,077 million and $1,222 million
on concentrate in 1996, 1997 and 1998, respectively.

Because of economic conditions in Russia, PepsiCo has stated its intention
to provide approximately $35 million of funding for our Russian operations in
1999. This amount is based on our current operating plan for Russia and may
change if conditions change in Russia. PepsiCo may also provide comparable
levels of funding in subsequent years. PepsiCo has contributed $37 million, $39
million and $61 million in funding for Russia in each of the years 1996, 1997
and 1998, respectively.

While we expect that PepsiCo and other brand owners will continue to provide
us with significant marketing support and funding, they have no obligation to
continue to provide funding at current levels.

EFFECT OF SEASONALITY. Our business is seasonal. You should read the risk
factor entitled "Bad weather in our peak season could result in lower sales"
contained in "Risk Factors" for an explanation of the effects and risks of the
seasonality of our business.

RECENT ACQUISITIONS. In 1998 and 1999, we made several acquisitions which
increased our ownership of the PepsiCo system in the U.S. from approximately 51%
to 53% and in Canada from approximately 64% to 78%. In 1998, we acquired the
remaining interest in our Russian joint venture. The unaudited Pro Forma
Condensed Combined Statement of Operations reflect these transactions as though
they had been made on the first day of fiscal 1998.

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VARIABILITY OF RESULTS IN INTERNATIONAL MARKETS. Operating results in our
international markets vary considerably based on economic and industry
development. In Spain and Greece, which contribute approximately 7% of net sales
and 8% of volume and provide positive cash flow, there is low inflation,
economic stability and a carbonated soft drink industry that has been in
existence for some time.

In recent years, we have invested in Russia to build infrastructure and to
fund start-up manufacturing and distribution costs. Approximately 1% of our net
sales in fiscal 1997 and 2% in 1998 were attributable to our operations in
Russia. During such periods, operating losses, before the 1998 unusual charges,
amounted to $48 million and $80 million, respectively. Cash requirements for
investing activities and to fund operations were $71 million and $156 million in
1997 and 1998, respectively. Cash for investing activities was used to build our
existing infrastructure and fund our purchase of a 25% interest in a Russian
bottler in 1997, and our purchase of the remaining interest in that bottler in
1998.

The economic turmoil in Russia which accompanied the August 1998 devaluation
of the ruble had an adverse impact on our operations. Consequently in our fourth
quarter we experienced a significant drop in demand, resulting in lower net
sales and increased operating losses. Additionally, since net sales in Russia
are denominated in rubles, while a substantial portion of our costs and expenses
are denominated in U.S. dollars, operating margins were further eroded. In
response to these conditions, we have reduced our cost structure primarily
through closing facilities, renegotiating manufacturing contracts and reducing
the number of employees. We have also evaluated the resulting impairment of our
long-lived assets, triggered by the reduction in utilization of assets caused by
the lower demand, the adverse change in the business climate and the expected
continuation of operating losses and cash deficits in that market. This has
resulted in a fourth quarter charge of $212 million comprised of an asset
impairment charge of $194 million and costs to restructure our operations of $18
million. The impairment charge reduced the net book value of the assets to their
estimated fair market value, based on values paid for similar assets in that
marketplace. In 1999, the reduction in depreciation and amortization expense as
a result of the asset impairment charge will be $18 million.

For the foreseeable future, we anticipate that our Russian operations will
incur losses and require significant amounts of cash to fund operations.
However, capital requirements will be minimal because our existing
infrastructure is adequate for current operations. We plan to review our Russian
operations on a regular basis and to consider changes in our distribution
systems and other operations as circumstances dictate.

IMPACT OF EARLY VESTING OF PEPSICO OPTIONS

Prior to the consummation of the offering, substantially all non-vested
PepsiCo stock options held by PBG employees will vest. As a result, PBG will
incur a non-cash compensation charge equal to the difference between the market
price of PepsiCo capital stock and the exercise price of these options at that
vesting date. Based on a PepsiCo capital stock price per share of $39.50, on
February 23, 1999 the pre-tax and after-tax compensation charge would have been
$70 million. Each $1.00 increase in the market price of PepsiCo capital stock
would increase the pre-tax and after-tax compensation charge by approximately
$12 million.

USE OF EBITDA

As a separate entity, we will have a capital structure and financial
policies that are more appropriate for a bottling company, allowing us to make
better capital allocation and investment decisions. We will be able to shift our
performance emphasis to growth in EBITDA. We believe this shift in emphasis is
appropriate given our higher levels of indebtedness and significant non-cash
depreciation and amortization charges resulting from our capital investments and
acquisitions. Our discretionary use of funds depicted by EBITDA may be limited
by working capital, debt service, tax payment and capital expenditure
requirements, and by restrictions related to legal requirements,

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commitments and uncertainties. You should refer to the section entitled
"Selected Combined Financial and Operating Data" for a definition of EBITDA.

RESULTS OF OPERATIONS

The following discussion and analysis of our results of operations,
financial condition and cash flows should be read along with the Combined
Financial Statements and the accompanying notes appearing elsewhere in this
prospectus.

The table below sets forth, for the periods indicated, Combined Statements
of Operations data as a percentage of net sales.

[Enlarge/Download Table]

FISCAL YEAR
-------------------------------

1996 1997 1998
--------- --------- ---------
Net sales.......................................................................... 100.0% 100.0% 100.0%
Cost of sales...................................................................... 58.2 58.1 59.4
--------- --------- ---------
Gross profit....................................................................... 41.8 41.9 40.6
Selling, delivery and administrative expenses...................................... 36.2 36.8 36.7
Unusual impairment and other charges............................................... -- -- 3.1
--------- --------- ---------
Operating income................................................................... 5.6% 5.1% 0.8%
--------- --------- ---------
--------- --------- ---------

The table below sets forth volume growth, excluding the impact of
acquisitions, by brand for the periods indicated.

[Enlarge/Download Table]

% GROWTH 1997 BRAND % GROWTH 1998 BRAND
1997 VS. 1996 PORTFOLIO 1998 VS. 1997 PORTFOLIO
----------------- --------------- ----------------- ---------------

PEPSI-COLA Trademark................... 0% 58% 4% 57%
MOUNTAIN DEW........................... 11 14 8 14
DR PEPPER.............................. 7 6 3 6
7UP.................................... 2 3 (2) 3
LIPTON BRISK........................... 17 3 17 3
MUG.................................... 10 2 19 2
AQUAFINA............................... 85 1 63 2
All Other.............................. 8 13 6 13
-- --
--- ---
Total.................................. 4% 100% 5% 100%
--- ---
--- ---

FISCAL 1998 COMPARED TO FISCAL 1997

[Enlarge/Download Table]

AMOUNTS IN MILLIONS 1997 1998 $ CHANGE % CHANGE
------------------------------------------------------------------------ --------- --------- ----------- -----------

REPORTED
Net sales............................................................... $ 6,592 $ 7,041 $ 449 6.8%
Operating income........................................................ 335 55 (280) (83.6)
EBITDA.................................................................. 774 721 (53) (6.8)

ONGOING*
Net sales............................................................... $ 6,592 $ 7,041 $ 449 6.8%
Operating income........................................................ 335 277 (58) (17.3)
EBITDA.................................................................. 774 721 (53) (6.8)

* Operating income excludes $222 million of unusual impairment and other
charges in 1998. See Note 3 to the Combined Financial Statements.

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The table below sets forth volume and net sales growth by specified
geographic region, excluding the impact of acquisitions and foreign currency
fluctuations by assuming constant foreign exchange rates for the years
presented.

[Enlarge/Download Table]

CONTRIBUTION
CONTRIBUTION NET TO TOTAL
VOLUME TO TOTAL SALES NET SALES
GROWTH VOLUME GROWTH GROWTH GROWTH
----------- ----------------- ----------- ---------------

U.S. and Canada.................................................. 5% 89% 5% 91%
Spain............................................................ 6 8 7 9
Greece........................................................... 2 0 7 2
Russia........................................................... 21 3 (11) (2)
-- --
--- ---
Total.......................................................... 5% 100% 5% 100%
--- ---
--- ---

Worldwide case volume, based upon physical cases sold regardless of the
volume contained in these cases, grew 7% with our combined U.S. and Canadian
markets increasing 6% and international increasing 18%. International volume
growth was led by Russia which increased 21%, excluding the impact of
acquisitions, and Spain which increased 6%. Excluding the impact of
acquisitions, volume increased 5% in our combined U.S. and Canadian markets, 6%
in our international markets and 5% overall. Volume growth was led by cola
products which were up 4%, led by the U.S. introduction of PEPSI ONE in the
fourth quarter of 1998, which contributed one percentage point of total growth.
MOUNTAIN DEW increased 8% and expanded distribution increased AQUAFINA volume by
63%.

Worldwide net sales growth of 6.8% was fueled by strong volume gains and
acquisitions of bottlers in the U.S., Canada and Russia. Net sales grew 5%,
excluding the impact of acquisitions and foreign currency fluctuations. Volume
gains contributed five percentage points of net sales growth. Unfavorable
foreign currency fluctuations in Canada, Spain and Greece reduced net sales
growth by one percentage point, while bottler acquisitions contributed three
percentage points to net sales growth. Pricing was essentially flat in 1998 as
compared to 1997 as a greater percentage of higher priced "single-serve"
packages sold was offset by lower "take-home" package pricing in the combined
U.S. and Canadian markets and promotional pricing relating to the U.S.
introduction of PEPSI ONE in the fourth quarter of 1998.

Ongoing operating income declined $58 million or 17.3% compared to 1997.
Higher raw material costs in the U.S. and Canada, increases in selling and
delivery expenses associated with significant investments in cold drink
equipment consisting primarily of vending machines and coolers, and higher
losses in Russia more than offset strong worldwide volume growth.

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

- Selling, delivery and administrative expenses increased $158 million or
6.5% in 1998. Selling and delivery expenses grew at a rate faster than
volume while our other administrative costs grew less than 1% in 1998. Our
costs associated with selling and delivery grew faster than volume largely
because we continued our program of heavy investment in vending machines
and coolers, consistent with our long-term strategy to increase our
presence in the cold drink segment of the industry in the U.S. and Canada.
Spending on vending machines and coolers at customer locations in the
combined U.S. and Canadian markets was approximately 20% higher in 1998 as
compared to 1997, driving increases in the costs associated with placing,
depreciating and servicing these assets.

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- Operating losses in Russia were $80 million in 1998 compared to $48
million in 1997. Volume increased 21% over 1997. However, net sales,
excluding the impact of acquisitions, declined 11% in U.S. dollars due to
the devaluation and the reduction in pricing resulting from the economic
downturn. Our operating margins were further adversely affected since a
substantial portion of our expenses are denominated in U.S. dollars. In
addition, in February 1998 we acquired the remaining 75% interest in a
Russian bottling joint venture that held the Pepsi franchise for part of
that country. Our 1998 results reflect the full consolidation of this
operation. Approximately 40% of our operating losses in Russia were the
result of the additional 75% interest in this Russian bottling joint
venture.

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

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

- A charge of $10 million for employee related costs, mainly relocation and
severance, resulting from the separation of Pepsi-Cola bottling and
concentrate organizations to more effectively service retail customers in
light of the expected conversion of PBG to public ownership.

EBITDA declined $53 million or 6.8% in 1998 compared to 1997. This decline
in EBITDA was lower than the decline in ongoing operating income due primarily
to a significant increase in depreciation expense resulting from our investments
in cold drink equipment, a non-cash expense not included in EBITDA.

FOREIGN CURRENCY EXCHANGE GAINS/LOSSES

Foreign currency exchange losses increased $28 million from a gain of $2
million in 1997 to a loss of $26 million in 1998. The devaluation of the Russian
ruble in 1998 drove $21 million of this increase.

INTEREST EXPENSE, NET

Interest expense decreased $1 million in 1998 compared to 1997, reflecting
higher interest income in Spain offset by an increase in PepsiCo's average
borrowing rate from 6.2% to 6.4%.

INCOME TAX EXPENSE

Our effective tax rate in 1998 was a benefit of 24.0% compared to an expense
of 48.7% in 1997. In 1998, we settled a dispute with the Internal Revenue
Service regarding the deductibility of the amortization of acquired franchise
rights resulting in a $46 million tax benefit in the fourth quarter. Also in
1998, our effective tax rate was increased due to the Russia impairment and
other unusual charges for which we did not recognize a tax benefit. Excluding
these items, our effective tax rate in 1998 would have been an expense of 0.9%,
on income before income taxes of $20 million, driven by an increase in the mix
of international income taxed at lower rates.

FISCAL 1997 COMPARED TO FISCAL 1996

[Enlarge/Download Table]

AMOUNTS IN MILLIONS 1996 1997 $ CHANGE % CHANGE
------------------------------------------------------------------------ --------- --------- ----------- -------------

Net sales............................................................... $ 6,603 $ 6,592 $ (11) (0.2)%
Operating income........................................................ 367 335 (32) (8.7)
EBITDA.................................................................. 792 774 (18) (2.3)

424B4 30th Page of 111 TOC 1st Previous Next ↓Bottom Just 30th
The table set forth below shows volume and net sales growth by specified
geographic region, excluding the impact of acquisitions and foreign currency
fluctuations by assuming constant foreign exchange rates for the years
presented.

[Enlarge/Download Table]

CONTRIBUTION NET CONTRIBUTION
VOLUME TO TOTAL SALES TO TOTAL
GROWTH VOLUME GROWTH GROWTH GROWTH
----------- ----------------- ------------- ---------------

U.S. and Canada.................................................. 4% 111% 2% 116%
Spain............................................................ (2) (5) (2) (9)
Greece........................................................... (4) (2) (4) (4)
Russia........................................................... (18) (4) (4) (3)
-- -
--- ---
Total.......................................................... 4% 100% 1% 100%
--- ---
--- ---

Worldwide case volume, based upon physical cases sold regardless of the
volume contained in the cases, grew 3% reflecting 4% growth in our combined U.S.
and Canadian markets offset by an 8% decline in our international markets. Our
international volume, excluding our St. Petersburg, Russia operations which we
sold in 1997, was 4% lower than in the prior year, led by Russia which was down
18% and Spain which was down 2%. Excluding the impact of divestitures, worldwide
volume grew 4%. The growth was driven by 11% volume growth in MOUNTAIN DEW, a
17% increase in LIPTON BRISK and a 10% increase in MUG. In addition, expanded
distribution drove AQUAFINA volume up 85%, while the growth of cola products was
flat.

Worldwide net sales in 1997 declined by 0.2% compared to 1996. Excluding the
impact of the sale of our St. Petersburg, Russia operations and foreign currency
fluctuations, net sales grew 1%. Volume gains contributed four percentage points
of net sales growth. Pricing declines resulting from the competitive pricing
environment in the U.S. and Canada offset volume growth by approximately two
percentage points. In addition, the combined effect of unfavorable foreign
currency fluctuations, primarily in Spain, and the sale of our St. Petersburg,
Russia operations also reduced net sales growth by two percentage points.

Operating income in 1997 declined $32 million or 8.7% as compared to 1996.
Results were impacted by significant competitive pricing pressures in our U.S.
and Canadian markets and lower international volumes. These items more than
offset the positive U.S. and Canadian volume growth and lower raw material costs
in the majority of our markets.

- Cost of sales as a percentage of net sales improved from 58.2% in 1996 to
58.1% in 1997. Significant declines in aluminum, plastic bottles and
sweetener costs in 1997 were greater than the effect of the decline in
pricing on net sales.

- Selling, delivery and administrative expenses increased $33 million or
1.4% in 1997, somewhat slower than volume growth. Beginning in 1997, we
began a multi-year investment in vending machines and coolers to increase
our U.S. and Canadian presence in the cold drink channel. However,
financial support received from PepsiCo for this initiative more than
offset the incremental costs for placement and servicing of this
equipment.

EBITDA in 1997 declined $18 million or 2.3% as compared to 1996. This
decline was lower than the decline in operating income due to increases in
depreciation expense associated with our cold drink investment strategy.

FOREIGN CURRENCY EXCHANGE GAINS/LOSSES

Foreign currency exchange losses decreased $6 million from a loss of $4
million in 1996 to a gain of $2 million in 1997 driven primarily by favorable
exchange rate movements in Spain.

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INTEREST EXPENSE, NET

In 1997, net interest expense decreased $3 million or 1.3% due primarily to
external debt reductions in our international markets.

INCOME TAX EXPENSE

Our effective tax rate in 1997 was 48.7% compared to 64.5% in 1996. The
change was due primarily to no longer accruing for a disputed claim with the
Internal Revenue Service regarding deductibility of the amortization of acquired
franchise rights because we made substantial progress towards a satisfactory
resolution of the dispute. The other significant factor was a change in the tax
structure of some of our international operations, which enabled us to recognize
a tax benefit on operating losses.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY PRIOR TO AND UPON OUR SEPARATION FROM PEPSICO AND THE OFFERING

Our capital investments and acquisitions have been financed by cash flow
from operations and advances from PepsiCo. Under PepsiCo's centralized cash
management system, PepsiCo deposited sufficient cash in our bank accounts to
meet our daily obligations, and withdrew excess funds from those accounts. These
transactions are included in advances from PepsiCo in the Combined Balance
Sheets and Combined Statements of Cash Flows.

FINANCING TRANSACTIONS

On February 9, 1999, Bottling LLC issued $1 billion of 5 3/8% Senior Notes
due 2004 and $1.3 billion of 5 5/8% Senior Notes due 2009. These Bottling LLC
Notes are irrevocably and unconditionally guaranteed on a senior, unsecured
basis by PepsiCo. The net proceeds from the sale of the Bottling LLC Notes were
distributed by Bottling LLC to a subsidiary of PepsiCo.

On February 25, 1999, PepsiCo sold $750 million of its Series A Senior Notes
due 2000. PepsiCo's obligations under the Series A notes were assumed by us and
became our unsecured senior obligations.

On March 5, 1999, we issued $2.5 billion Series B Senior Notes due 2000.
These notes were irrevocably and unconditionally guaranteed on a senior,
unsecured basis by Bottling LLC. A substantial portion of the net proceeds from
the sale of the Series B notes was applied against our intercompany obligations,
which include advances from PepsiCo, and the balance is being used to pay a
portion of the purchase price of bottling businesses acquired and to be acquired
by us. The amounts applied exceeded the recorded amounts of advances from
PepsiCo based on amounts at December 26, 1998 by $682 million because the
amounts applied are based, in part, on the fair value of certain assets
transferred to us in connection with our formation and the formation of Bottling
LLC, which exceeded the book carrying value. The excess amount of proceeds
applied to advances from PepsiCo will be treated for financial reporting
purposes as a reduction of additional paid-in capital. These transactions are
reflected in the unaudited Pro Forma Condensed Combined Financial Statements and
the accompanying notes included elsewhere in this prospectus. All of the net
proceeds of the offering, together with available cash will be used to repay the
$2.5 billion Series B notes.

On March 8, 1999, we issued $1.0 billion of Senior Notes due 2029. These
notes were irrevocably and unconditionally guaranteed on a senior, unsecured
basis by Bottling LLC. The net proceeds from the sale of these long-term notes
will be used to repay the Series A notes described above, to repay intercompany
obligations to PepsiCo and to pay a portion of the purchase price of bottling
businesses to be acquired by us which are reflected in the unaudited Pro Forma
Condensed Combined Financial Statements and the accompanying notes included
elsewhere in the prospectus.

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We are currently in the process of negotiating a senior bank debt agreement
as well as a commercial paper program, each of which will be guaranteed by
Bottling LLC. We expect the bank debt agreement and the commercial paper program
will provide $500 million of revolving credit capacity and be available for
general corporate purposes, including working capital requirements. We expect
these arrangements to be finalized around the time of the consummation of this
offering. The revolving credit capacity is intended to replace our reliance on
PepsiCo's centralized cash management system.

Upon completion of the initial public offering and after giving effect to
the foregoing financing transactions, we expect that we will have outstanding $1
billion of long-term indebtedness, guaranteed by Bottling LLC, and Bottling LLC
will have outstanding $2.3 billion of long-term indebtedness guaranteed by
PepsiCo.

The debt levels reflected in our historical combined financial statements
are based upon the debt we anticipate to have outstanding upon consummation of
this offering and the application of the net proceeds. However, in the future,
our level of debt will change depending on our liquidity needs and capital
expenditure requirements, as well as our cash flow.

Based upon current and anticipated levels of operations, we believe that our
cash on hand and cash flow from operations, combined with borrowings available
under the proposed bank facility, will be sufficient to enable us to meet our
current and anticipated cash operating requirements, capital expenditures and
working capital needs for the foreseeable future. However, actual capital
requirements may change, particularly as a result of any acquisition which we
may make. Our ability to meet current and anticipated operating requirements
will depend upon our future performance, which, in turn, will be subject to
general economic and competitive conditions and to financial, business and other
factors, some of which may be beyond our control.

CAPITAL EXPENDITURES

We have incurred and will require capital for ongoing infrastructure,
including investment in developing markets and acquisitions.

- 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 $418
million, $472 million and $507 million during 1996, 1997 and 1998,
respectively. We believe that capital infrastructure spending will
continue to be significant, driven by our increased investment in the cold
drink channel. We anticipate investing approximately $2 billion in
infrastructure over the next three years.

- We intend to pursue acquisitions of independent PepsiCo bottlers in the
U.S. and Canada, particularly in territories contiguous to our own, and
expect that PepsiCo will help us identify these bottlers. These
acquisitions will enable us to provide better service to our large retail
customers as well as to reduce costs through economies of scale. We also
plan to evaluate international acquisition opportunities as they become
available.

CUMULATIVE TRANSLATION ADJUSTMENT

The cumulative translation adjustment account increased unfavorably by $35
million in 1998 as compared to 1997 due to erosion in the value of the Canadian
dollar against the U.S. dollar, partially offset by a strengthening of the
Spanish peseta. In 1997, the cumulative translation adjustment increased
unfavorably by $82 million as compared to 1996 due primarily to declines in the
value of the Spanish peseta and Canadian dollar against the U.S. dollar.

Translation gains and losses arising from the re-measurement into U.S.
dollars of the net monetary assets of our Russian operations are reflected as
foreign exchange gains and losses in the Combined

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Statements of Operations since Russia is considered a highly inflationary
economy for accounting purposes.

CASH FLOWS

FISCAL 1998 COMPARED TO FISCAL 1997

Net cash provided by operations in 1998 improved to $625 million from $548
million in 1997 due primarily to the favorable effect of a three year insurance
prepayment to a PepsiCo affiliate in 1997 and our continued focus on working
capital management.

Net cash used for investments was $1,046 million in 1998 compared to $564
million in 1997. In 1998, $546 million was utilized for the acquisition of
bottlers in the U.S., Canada and Russia compared to $3 million in 1997. In
addition, we continued to invest heavily in cold drink equipment in the U.S. and
Canada.

The net cash used for investments in 1998 was financed through normal
operating activities, advances from PepsiCo and proceeds from short-term
borrowings. The total net cash provided by financing activities in 1998 was $370
million.

FISCAL 1997 COMPARED TO FISCAL 1996

Net cash provided by operations in 1997 increased to $548 million from $451
million in 1996. This improvement was driven by a focus on working capital
management, partially offset by prepayment of insurance to an affiliate of
PepsiCo.

Net cash used for investments was $564 million in 1997, as compared to $376
million in 1996. In 1997, we began an initiative to significantly increase the
amount of cold drink equipment in the combined U.S. and Canadian markets. Also
contributing to this increase were additional investments made in the Russian
joint venture and increased payments for non-current and other assets.

In 1997, we received $161 million in advances from PepsiCo. This financing
was primarily used to repay short and long-term borrowings and make capital
investments. Our remaining capital needs were funded by normal operating
activities.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

COMMODITY PRICE RISK

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

We use futures contracts and options on futures in the normal course of
business to hedge anticipated purchases of certain raw materials used in our
manufacturing operations. There were no

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outstanding contracts at December 27, 1997. The table below presents information
on contracts outstanding at December 26, 1998 for aluminum purchases. All of
these contracts mature in 1999.

[Enlarge/Download Table]

FUTURES CONTRACTS OPTIONS
--------------------- -----------
(DOLLARS IN MILLIONS)

Volume (thousands of metric tons)........................................... 13 38
Carrying amount............................................................. $ -- $ 1
Fair value amount........................................................... $ (1) $ 1
Notional amount............................................................. $ 17 $ 53

INTEREST RATE RISK

Historically, we have had no material interest rate risk associated with
debt used to finance our operations due to limited third party borrowings.
Subsequent to the offering, we intend to manage our interest rate exposure using
both financial derivative instruments and a mix of fixed and floating interest
rate debt.

FOREIGN CURRENCY EXCHANGE RATE RISK

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

Operations outside the U.S. constitute approximately 16% of our net sales.
As currency exchange rates change, translation of the statements of operations
of our international businesses into U.S. dollars affects year-over-year
comparability. We have not hedged translation risks because cash flows from
international operations have generally been reinvested locally, nor
historically have we entered into hedges to minimize the volatility of reported
earnings. We estimate that a 10% change in foreign exchange rates would affect
reported operating income by less than $25 million.

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

On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between their existing, or legacy, currencies
and one common currency, the Euro. The Euro trades on currency exchanges and may
be used in business transactions. Conversion to the Euro eliminated currency
exchange rate risk between member countries. Beginning in January 2002, new
Euro-denominated bills and coins will be issued, and legacy currencies will be
withdrawn from circulation.

Spain is one of the member countries that instituted the Euro and we have
established plans to address the issues raised by the Euro currency conversion.
These issues include, among others, the need to adapt computer and financial
systems, business processes and equipment such as vending machines, to
accommodate Euro-denominated transactions and the impact of one common currency
on cross-border pricing. Since financial systems and processes currently
accommodate multiple currencies, we do not expect the system and equipment
conversion costs to be material. Due to numerous uncertainties, we cannot
reasonably estimate the long-term effects one common currency may have on
pricing, costs and the resulting impact, if any, on financial condition or
results of operations.

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YEAR 2000

Many computerized systems and microprocessors that are embedded in a variety
of products used by us have the potential for operational problems if they lack
the ability to handle the transition to the Year 2000. We have established teams
to identify and correct Year 2000 issues. We have engaged IBM to help set
testing strategy and complete some of the offsite remediation. Information
technology systems with non-compliant code are expected to be modified or
replaced with systems that are Year 2000 compliant. Similar actions are being
taken with respect to systems embedded in manufacturing and other facilities.
The teams are also charged with investigating the Year 2000 readiness of
suppliers, customers and other third parties and with developing contingency
plans where necessary.

Key information technology systems have been inventoried and assessed for
compliance, and detailed plans are in place for required system modifications or
replacements. Remediation and testing activities are well underway with
approximately 81% of the systems already compliant. This percentage is expected
to increase to 95% and 99% by the end of the first and second quarters of 1999,
respectively. Inventories and assessments of systems embedded in manufacturing
and other facilities are in progress and expected to be complete by year-end;
remediation began in the fourth quarter of 1998 with a mid-year 1999 target
completion date. Independent consultants are monitoring progress against
remediation programs and performing tests at certain key locations. In addition,
the progress of the programs is also monitored by senior management and the
boards of directors of PepsiCo and PBG.

Our most significant exposure arises from our dependence on high volume
transaction processing systems, particularly for production scheduling,
inventory cost accounting, purchasing, customer billing and collection, and
payroll. We anticipate that any corrective actions to these applications will be
completed by the end of the second quarter in 1999.

We have contacted the key suppliers that are critical to our production
processes. There are approximately 150 key suppliers, all of whom responded to
our initial request for information about their remediation plans. We are now in
the process of visiting the 60 suppliers we have identified as presenting the
greatest risk. These suppliers have been selected either because of our
dependence on them or because of concerns regarding their remediation plans. To
date we have not identified any key suppliers who will not be Year 2000
compliant. We will, however, develop contingency plans for the non-compliance of
key suppliers during 1999. We have also contacted significant customers and
PepsiCo joint venture partners who manufacture certain LIPTON and STARBUCKS
products that we sell and have begun to survey their Year 2000 remediation
programs. Risk assessments and contingency plans, where necessary, will be
finalized in the second quarter of 1999.

Costs directly related to Year 2000 issues are estimated to be $56 million,
of which $26 million was spent in 1998 and $7 million in 1997. We have
redeployed approximately 160 employees to support this work as well as engaged
over 100 independent contractors. Approximately one-half of the total estimated
spending represents costs to modify existing systems, which includes the
inventory, assessment, remediation, testing and rollout phases. The remaining
dollars represent spending for the development, testing and rollout of new
systems to replace older, non-compliant applications. This estimate assumes that
we will not incur any costs on behalf of our suppliers, customers or other third
parties. These costs will not necessarily increase our normal level of spending
on information technology due to the deferral of other projects to enable us to
focus on Year 2000 remediation.

Contingency plans for Year 2000 related interruptions are being developed
and will include, but not be limited to, the development of emergency backup and
recovery procedures, remediation of existing systems parallel with installation
of new systems, replacement of electronic applications with manual processes,
identification of alternate suppliers and an increase in raw material and
finished goods inventory levels. All plans are expected to be completed by the
end of the second quarter in 1999.

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In light of the foregoing, we do not currently anticipate that we will
experience a significant disruption to our business as a result of the Year 2000
issue. Our most likely potential risk is a temporary inability of suppliers to
provide supplies of raw materials or of customers to pay on a timely basis. We
typically experience below average sales volume in January due to the
seasonality of our business. In addition, we are not dependent on any single
supplier location or PBG location for a critical commodity or product.
Consequently we believe that in a worst case scenario any supply disruption can
be minimized by drawing down inventories or increasing production at unaffected
plants with some increase in distribution costs. We are testing electronic
billing and payment systems during 1999 as part of our overall Year 2000
strategy and will work with customers that experience disruptions that might
impact payment to us.

Our Year 2000 efforts are ongoing and our overall plan, as well as the
consideration of contingency plans, will continue to evolve as new information
becomes available. While we anticipate no major interruption to our business
activities, there is still uncertainty about the broader scope of the Year 2000
issue as it may affect us and third parties, including our suppliers and
customers. For example, lack of readiness by electrical and water utilities and
other providers of general infrastructure such as rail transportation, could, in
some geographic areas, pose significant impediments to our ability to carry on
normal operations in the areas affected. Accordingly, while we believe our
actions in this regard should have the effect of lessening Year 2000 risks, we
are unable to eliminate such risks or to estimate the ultimate effect of Year
2000 risks on our operating results.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.

We are currently reviewing contracts with suppliers and others in order to
determine whether there are terms in those contracts that represent embedded
derivative instruments that, under SFAS 133, require separate accounting
treatment. We have not yet completed that review. Historically, we did not
utilize foreign currency or interest rate derivative financial instruments
because we had no material interest rate risk due to our limited third party
borrowings and did not hedge our foreign currency translation risk. We may
utilize certain derivative financial instruments subsequent to the offering and,
under SFAS 133, those instruments would be required to be recorded in the
balance sheet at their fair value at the date of adoption. Since our review of
our contracts is not complete and we have not yet made a determination of the
nature and extent of our future use of derivative financial instruments, we are
not yet able to make a determination of the impact of the adoption of SFAS 133
on our financial position and results of operations.

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BUSINESS OF PBG

PBG is the world's largest manufacturer, seller and distributor of
Pepsi-Cola beverages, accounting for 55% of the Pepsi-Cola beverages sold in the
United States and Canada and 32% worldwide. Pepsi-Cola beverages sold by us
include PEPSI-COLA, DIET PEPSI, MOUNTAIN DEW, LIPTON BRISK, LIPTON'S ICED TEA,
7UP outside the U.S., PEPSI MAX, PEPSI ONE, SLICE, MUG, AQUAFINA, STARBUCKS
FRAPPUCCINO and MIRINDA. In some of our territories, we also have the right to
manufacture, sell and distribute soft drink products of other companies,
including DR PEPPER and 7UP in the U.S. Approximately 92% of our volume is sold
in the United States and Canada and the remaining 8% is sold in Spain, Greece
and Russia.

THE LIQUID REFRESHMENT BEVERAGE INDUSTRY

OVERVIEW

We believe we are well positioned to capitalize on industry trends in the
liquid refreshment beverage industry. Liquid refreshment beverage annual retail
sales in 1997 were more than $73 billion in the United States and Canada, and
included the carbonated soft drink market, as well as markets for non-carbonated
beverages sold in bottles and cans, such as waters, shelf-stable juices and
juice drinks, sports drinks and tea and coffee drinks. PBG participates in a
number of different markets in the liquid refreshment beverage industry.

The following chart sets forth the category mix by volume for the U.S.:

1997 CATEGORY MIX BY VOLUME--U.S. LIQUID REFRESHMENT BEVERAGE INDUSTRY

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

[Download Table]

SPORTS DRINKS 3%

Ready-to-drink Tea and Coffee 3%
Bottled Water 16%
Shelf-stable Juices and Juice
Drinks 8%
Carbonated Soft Drinks 70%

Source: Beverage World

The owners of beverage brands either manufacture and sell products
themselves or appoint bottlers to sell, distribute and, in some cases,
manufacture these products pursuant to licenses. Brand owners, such as PepsiCo,
generally own both the beverage trademarks and the secret formulas for the
concentrates, which they also manufacture and sell to their licensed bottlers.
Brand owners also develop new products and packaging for use by their bottlers.
Brand owners develop national marketing, promotion and advertising programs to
support their brands and brand image, and lead and coordinate selling efforts
with respect to national fountain, supermarket and mass merchandising accounts.
They also provide local marketing support to their bottlers.

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Bottlers, such as PBG, are generally responsible for manufacturing, selling
and distributing their products under the brand names they license from brand
owners in their exclusive territories. For carbonated soft drink products, the
bottler combines soft drink concentrate with sweeteners and carbonated water and
packages this mixture in bottles or cans. Bottlers may also have licenses to
manufacture syrup for sale to fountain accounts. Under these licenses, bottlers
combine soft drink concentrate with sweeteners to manufacture syrup for delivery
to fountain customers. For non-carbonated beverages, the bottler either
manufactures and packages such products or purchases such products in finished
form and sells them through its distribution system.

The primary distribution channels for the retail sale of products in the
beverage industry are supermarkets, mass merchandisers, vending machines,
convenience and gas stores, fountain, such as restaurants or cafeterias, and
other, which includes small groceries, drug stores and educational institutions.
Channel mix refers to the relative size of the various distribution channels
through which beverage products are sold. The largest channel in the United
States and Canada is supermarkets but the fastest growing channels have been
mass merchandisers, fountain and convenience and gas stores.

The following chart sets forth the carbonated soft drink channel mix by
volume in the U.S.:

1998 U.S. CARBONATED SOFT DRINK CHANNEL MIX

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

[Download Table]

VENDING 11%

Mass Merchandisers 9%
Supermarkets and Other Retail 44%
Fountain and Restaurants 25%
Convenience and Gas Stores 11%

Source: Beverage Marketing Corporation

Depending upon the size of the bottler and the particular market, a bottler
delivers products through these channels using either a direct delivery system
or a warehouse system. In a direct delivery system, a bottler delivers its
product to a store, stocks the store's shelves and orders additional product
when needed by the store. In a warehouse system, the bottler delivers beverages
to a warehouse, and then the retailer or a third party delivers the product to a
store. In its exclusive territories, each bottler is responsible for selling
products and providing timely service to its existing customers and identifying
and obtaining new customers. Bottlers are also responsible for local advertising
and marketing, as well as the execution in their territories of national and
regional selling programs instituted by brand owners. The bottling business is
capital intensive. Manufacturing operations require specialized high-speed
equipment, and distribution requires extensive placement of cold drink, vending
and fountain equipment as well as investment in trucks and warehouse facilities.

There are three soft drink bottling networks in the United States and
Canada:

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(1) the PepsiCo system, which includes PBG, Whitman Corporation and other
independent PepsiCo bottlers;

(2) the Coca-Cola system, which includes Coca-Cola Enterprises and Coca-Cola
Bottling Co. Consolidated, as well as other independent Coca-Cola
bottlers; and

(3) the smaller independent bottlers of brands not associated with either
PepsiCo or Coca-Cola.

TRENDS IN THE LIQUID REFRESHMENT BEVERAGE INDUSTRY

We believe that the following are the significant trends in the industry:

- GROWTH IN BEVERAGE SALES

Liquid refreshment beverage sales have grown in recent years and this
growth is expected to continue. From 1992 to 1997, average annual case
sales of liquid refreshment beverages in the U.S. increased 6%, using a
standard measure of cases containing the equivalent of 24 eight-ounce
bottles. Carbonated soft drink sales increased 4% and non-carbonated soft
drink sales increased 20% per annum over the same period. The volume
contained in each physical case of product may differ because our
products come in different package sizes.

- CHANGES IN CONSUMER LIFESTYLE

The emergence of an "on-the-go" lifestyle in developed countries has
resulted in increased dining out and demand for ready-to-drink beverages
instead of drinks prepared at home. In addition, consumers are demanding
packages that are easy to carry, close and reuse and that are available
at convenient locations. As a result, convenience, packaging and product
innovation have become important factors in consumers' purchasing
decisions. To capitalize on this trend, bottlers and brand owners are:

- making products easier to purchase and more readily available for
consumption by expanding points of access, especially for cold
single-serve products;

- creating innovative packaging; and

- developing new products.

The market for cold drinks sold for immediate consumption is one of
the fastest growing segments in the liquid refreshment beverage industry
in the United States and Canada. Since a key to making a sale is having
products close at hand, pursuing sales opportunities requires the
placement of equipment that keeps products cold, including vending
machines, glass door coolers and fountain dispensers, in a location where
the consumer is likely to purchase a drink. As a result, bottlers,
especially PBG and Coca-Cola Enterprises, are investing significant
capital to increase the number of cold drink vending machines and coolers
in the marketplace. Locations include restaurants, convenience and gas
stores, schools and businesses and supermarkets and video stores. From
1995 through 1997, the number of vending machines in the U.S. marketplace
increased more than 35%.

Innovations in packaging have also addressed consumers' desire for
convenience. Over the last 30 years, a variety of new sizes, shapes and
configurations of packaging has been introduced. For instance, use of the
20-ounce plastic bottle has become increasingly popular because of its
larger size and resealable cap, which allows for better portability in a
single-serve package.

In the past five years, the number of new product introductions in
the liquid refreshment beverage industry has increased to satisfy
consumers' desire for a wider choice of flavors and products. New
products have included bottled teas, waters, juices, new age drinks and
sports drinks, as well as new carbonated soft drinks. From 1992 to 1997,
the volume of

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non-carbonated beverages in the U.S. has grown more than 80%, from
approximately 700 million cases to 1.3 billion cases, using a standard
measure of cases containing the equivalent of 24 eight-ounce bottles.

- CONSOLIDATION OF BOTTLERS

The bottling industry has experienced significant consolidation in
recent years. The reasons for this consolidation are the need to generate
economies of scale and cost savings and the need to better sell to and
service large regional and national accounts, such as supermarkets,
restaurants and mass merchandisers, which have themselves been
consolidating. Consolidation has also been driven by the estate planning
needs of family-owned independent bottlers and competitive pressures to
invest in manufacturing, distribution and information systems. We believe
that these factors will result in continued consolidation of the bottling
industry.

- INCREASE IN INTERNATIONAL OPPORTUNITIES

Per capita carbonated soft drink beverage consumption varies
considerably around the world. In 1998, U.S. per capita consumption was
878 eight-ounce servings. International per capita consumption is
dramatically lower than in the United States and Canada. However, in many
international markets consumption is growing rapidly. The following chart
sets forth 1997 per capita consumption of carbonated soft drinks in
selected countries:

CARBONATED SOFT DRINK CONSUMPTION PER CAPITA IN 1997

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

[Download Table]

COUNTRIES IN WHICH WE OPERATE

U.S. 859
Mexico 495
Canada 460
UK 336
Greece 281
Spain 227
Poland 141
Russia 65
China 17
8 OZ. SERVINGS PER YEAR

Generally, in international markets the variety of soft drink
products is not as broad and the distribution channels are less developed
than in the United States and Canada. In many markets outside the United
States and Canada, soft drinks are established products but many
opportunities for volume growth remain through basic improvements in
distribution infrastructure, packaging innovation, the introduction of
cold drink equipment and, in developed countries, modern large store
merchandising and promotional techniques.

Given the relatively low per capita consumption levels of carbonated
soft drinks outside the United States and Canada, bottlers in
international markets are increasingly focused on opportunities to grow
through expansion of their distribution channels and product and
packaging innovation. We believe that the greatest potential for volume
growth lies in several less-developed markets, including Eastern Europe,
Russia, China and India. In these markets,

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bottlers are attempting to take advantage of increases in consumers'
disposable income, shifts in consumers' tastes to soft drinks and, in
certain countries, the development of the local economy and its retail
trade and infrastructure. Significant investments are being made in these
markets by PepsiCo and others to develop basic infrastructure and build
brand awareness.

STRATEGY TO ACHIEVE OUR GOALS

Our strategy is intended to capitalize on the key trends in the beverage
industry as well as our strengths, which include our broad portfolio of global
brands supported by PepsiCo's marketing programs, an extensive range of
products, an effective distribution system, scale in operations and purchasing
and an experienced management team. In addition, our strategy focuses on
improving our competitive position in areas where we have lagged our largest
competitor in recent years. These areas are: the amount of investment in the
cold drink business; the pace of consolidation of the U.S. and Canadian bottling
system; and the improvement in market share outside the United States and
Canada.

We have designed our strategy to enable us to achieve our goals of growing
EBITDA, earning a return on our investments in excess of our cost of capital and
increasing our market share. The key elements of our strategy include:

- INCREASE COLD DRINK AVAILABILITY

We intend to continue to invest significantly in placements of
vending machines and coolers to increase cold drink availability in the
marketplace. The market for cold drinks sold from vending machines and
coolers for immediate consumption is one of the fastest growing and most
profitable segments within the liquid refreshment beverage industry in
the United States and Canada because of the emergence of an on-the-go
lifestyle and the consumer's desire for convenience. This market is
particularly attractive for us because the gross margins for product sold
through cold drink equipment are significantly higher than those from
sales of products for consumption at home. In the U.S., beverages sold
cold constituted approximately 31% of our volume and 43% of our net sales
in fiscal 1998. Since the key to making the sale is having our products
close at hand, pursuing this sales opportunity requires the placement of
equipment that keeps our product cold, including vending machines, glass
door coolers and fountain dispensers, in a location where consumers live,
work or play. Because consumers frequently desire to take the product
with them, we have installed vending machines that can dispense the
larger single-serve 20-ounce plastic bottles, which can be resealed and
easily carried. In 1997, we began to increase significantly our placement
of cold drink equipment, doubling the spending for new pieces of
equipment placed in the market as compared to the prior year. In 1998, we
added almost 300 employees in positions designed to service the equipment
in the market. In 1997 and 1998, we placed approximately 175,000 new
pieces of equipment into the market. We expect to continue this rapid
pace of investment over the next several years.

- PURSUE ACQUISITIONS IN THE UNITED STATES AND CANADA

We expect to play a key role in the consolidation of PepsiCo's United
States and Canadian bottling system. We intend to pursue acquisitions of
independent PepsiCo bottlers in the United States and Canada,
particularly in territories contiguous to our own, and expect that
PepsiCo will help us identify and acquire these bottlers. For example, in
1999, we acquired a small bottler in Watertown, New York and we have a
preliminary understanding to acquire another small bottler in Fairfield,
Connecticut. In the United States and Canada, we own 55% of the PepsiCo
bottling system in terms of 1998 case sales using a standard measure of
cases containing the equivalent of 24 eight-ounce bottles. More than 100
bottlers own the remaining 45%. Under the Pepsi beverage agreements, we
may acquire independent PepsiCo

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bottlers in a significant portion of the remaining 45% of the United
States and Canada, subject to PepsiCo's approval. These acquisitions will
enable us to provide better service to our large retail customers as well
as to reduce costs through economies of scale.

- INCREASE PRODUCTIVITY

We are undertaking a number of initiatives to reduce costs by
improving productivity and becoming more efficient in our operations.
Over the last two years, in the United States and Canada, we have been
engaged in a manufacturing and warehousing productivity program designed
to maximize the capacity and efficiency of our production and warehousing
labor and assets. As a result of this program, our manufacturing line
efficiency increased 13%, resulting in lower annual operating costs and
in capital investment savings. We expect to complete the first phase of
this program by the end of 1999, and have already begun planning for a
second phase, which we believe will generate additional labor and asset
productivity gains by further improving our product supply chain
management, from buying raw materials to stocking retailers' shelves.

- EXPAND BUSINESS WITH OUR KEY RETAIL CUSTOMERS

In addition to adding points of access for cold drinks, we intend to
grow our business with key retail customers. Our principal method will be
to improve our retail presence through increased promotional frequency
and in-store product inventory--on the shelf, on display and in the
cooler--while remaining price competitive. In 1998, we reorganized our
field sales teams to provide dedicated focus on large retail customers,
small retail customers and on-premise or cold drink accounts. We believe
this step will enable us to provide significantly better customer service
and will stimulate growth.

We believe our "category management" selling technique and "Power of
One" approach to marketing provide us with a competitive advantage in
retail chains. Our category management selling approach involves
recommending to our retailers merchandising strategies and retail space
allocation policies for a portfolio of beverage categories, as opposed to
a specific brand. These policies maximize the strength and profitability
of the entire beverage category for the retailer, not just a particular
brand. Given the strength of the products we distribute in channels where
the consumer is free to choose any brand, we believe the category
management approach aligns our objectives with those of the retailer and
constitutes a competitive advantage.

In the last two years, we have expanded our joint selling and
promotional efforts with PepsiCo's snack division, Frito-Lay, a concept
we call "Power of One." This includes take-home promotional and display
programs in supermarkets as well as single serve promotions in
convenience and gas stores, such as combo pricing for a snack and
beverage. The synergies of soft drinks and salty snacks and Frito-Lay's
strength in the salty snack category make this combination a competitive
advantage.

- CAPITALIZE ON DISTRIBUTION AND BRAND STRENGTHS

We intend to take advantage of opportunities to increase our
penetration in our exclusive territories and capitalize on the strength
of PepsiCo's brand portfolio, which are some of the world's best
recognized trademarks. For instance, MOUNTAIN DEW has been the fastest
growing major soft drink brand in the U.S. over the last ten years and is
now the fourth largest carbonated soft drink brand, after Coca-Cola,
PEPSI-COLA and Diet Coke, sold in the U.S., using a standard measure of
cases containing the equivalent of 24 eight-ounce bottles. It is larger
than Sprite and more than twice the size of 7UP. Nevertheless, there
remain many markets and distribution channels where MOUNTAIN DEW is
under-represented. In addition, we intend to build upon the initial
success of PEPSI ONE, our new one calorie cola which was

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introduced across the United States in October 1998. Although AQUAFINA
only reached national distribution in 1998, it is already the number two
bottled water in convenience and gas stores and number six in
supermarkets. AQUAFINA presents significant opportunities for sales
expansion because the bottled water segment is highly fragmented and
growing rapidly. Our non-carbonated beverage portfolio, in addition to
AQUAFINA, includes the number one ready-to-drink packaged tea, LIPTON,
and the only national ready-to-drink coffee beverage, STARBUCKS
FRAPPUCCINO. Taken together, our broad product portfolio provides an
advantage in selling to many customers.

In the U.S. in 1998, the Pepsi-Cola beverages we sell had a 31% share
of the carbonated soft drink market as compared to the brands of
Coca-Cola, which had a 45% share. However, excluding fountain sales,
where the consumer typically does not have a choice due to exclusive
agreements, the market share difference narrowed significantly, with
Pepsi-Cola beverages having 26% and Coca-Cola brands having 28%,
according to our estimates. In convenience and gas stores, where retail
pricing, packaging and presentation are generally similar among brands,
and therefore consumers are free to choose based on brand preference and
taste, Pepsi-Cola beverages had the leading share, with 41%, as compared
to 36% for Coca-Cola brands.

- GROW OUR INTERNATIONAL BUSINESS

Internationally, low per capita consumption levels present
opportunities for volume growth. We will implement distribution and
marketing initiatives tailored to each of our international markets in
order to take advantage of these opportunities. We intend to improve our
operating and financial performance in Spain and Greece. Spain and Greece
currently have per capita consumption of carbonated soft drinks of about
230 and 280 eight-ounce servings per year, respectively, less than
one-third the U.S. per capita consumption. With low inflation, economic
stability and a well-established carbonated soft drink industry, Spain
and Greece offer many opportunities with respect to channel development
and product and package innovation. Since a significant and growing
portion of the volume is sold through traditional supermarkets and
over-sized supermarkets, known as hypermarkets, there is opportunity to
grow sales with modern merchandising and promotional programs focused on
specific target audiences.

We intend to improve our results in Russia, where infrastructure
investments and the recent economic crisis have resulted in losses. In
Russia, which is the world's seventh most populous nation, per capita
consumption of carbonated soft drinks is only about 65 eight-ounce
servings per year, less than 10% of the U.S. per capita consumption. For
per capita consumption growth to occur in Russia, our products need to be
affordable for a large part of the population. Accordingly, we have taken
steps to streamline our Russian operations and control costs in order to
lower prices. Although the current economic and social situation in
Russia presents significant challenges, we believe we have the expertise
to take advantage of the longer-term opportunities Russia presents. We
also plan to evaluate international acquisition opportunities as they
become available.

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PBG'S LIQUID REFRESHMENT BEVERAGE PRODUCTS AND PACKAGING

Our portfolio of beverage products includes some of the best recognized
trademarks in the world. While the majority of our volume is derived from brands
licensed from PepsiCo and PepsiCo joint ventures, we also sell and distribute
brands licensed from others. Our principal beverage brands are set forth below:

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UNITED STATES AND CANADA
----------------------------------------------------------------------------------------------
BRANDS LICENSED
BRANDS LICENSED FROM PEPSICO BRANDS LICENSED
FROM PEPSICO JOINT VENTURES FROM OTHERS
------------------------------ ------------------------------ ------------------------------

PEPSI-COLA LIPTON BRISK 7UP(2)
DIET PEPSI LIPTON'S ICED TEA DIET 7UP(2)
MOUNTAIN DEW STARBUCKS FRAPPUCCINO(2) DR PEPPER
DIET MOUNTAIN DEW HAWAIIAN PUNCH(2)
CAFFEINE FREE PEPSI SCHWEPPES
CAFFEINE FREE DIET PEPSI OCEAN SPRAY
7UP(1)
7UP LIGHT(1)
PEPSI ONE(2)
PEPSI MAX(3)
WILD CHERRY PEPSI(2)
SLICE(2)
MUG
AQUAFINA
ALL SPORT

SPAIN GREECE RUSSIA
------------------------------ ------------------------------ ------------------------------
BRANDS LICENSED FROM PEPSICO
----------------------------------------------------------------------------------------------

PEPSI-COLA PEPSI-COLA PEPSI-COLA
PEPSI-COLA LIGHT PEPSI-COLA LIGHT 7UP
PEPSI MAX PEPSI MAX 7UP LIGHT
7UP 7UP MIRINDA (flavors)
7UP LIGHT 7UP LIGHT KAS (flavors and mixers)
KAS (juices, flavors and IVI (waters and flavors)
mixers)
RADICAL FRUIT

------------------------

(1) The 7UP brand is owned by PepsiCo in Canada and by Cadbury Schweppes in
the U.S.

(2) U.S. only

(3) Canada only

Pepsi-Cola beverages have an approximately 31% share of the United States
carbonated soft drink market. International market share measurements are less
precise and change rapidly, particularly in developing markets. However,
Pepsi-Cola beverages sold by us occupy a significant market position in their
category in each of our international markets giving us critical mass in these
markets. PEPSI-COLA consistently wins taste tests versus its primary competitor
and has the leading market share in convenience and gas stores. Our three
largest brands in terms of volume are PEPSI-COLA, DIET PEPSI and MOUNTAIN DEW,
which together account for 75% of our volume in the U.S. as shown in the chart
below:

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1998 PBG U.S. BRAND MIX

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

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DIET PEPSI PEPSI OTHER MOUNTAIN DEW

16% 42% 25% 17%

Our beverages are available in different package types, including two liter,
one liter and 20-ounce bottles, and multi-packs of 6, 12, and 24 cans. Syrup is
also sold in larger packages for fountain use. In our international markets,
more than 75% of our volume is sold in cans or in non-returnable plastic
bottles, using a standard measure of cases containing the equivalent of 24
eight-ounce bottles. Cans are the dominant package in the U.S., however, use of
the resealable 20-ounce bottle has grown rapidly in the convenience and gas
store channel where it is now 26% of physical cases sold in bottles and cans.

PBG'S EXCLUSIVE OPERATING TERRITORIES

We have the exclusive right to manufacture, sell and distribute Pepsi-Cola
beverages in all or a portion of 41 states, the District of Columbia, eight
Canadian provinces, Spain, Greece and Russia.

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In the U.S., where we bottle about 53% of total Pepsi-Cola beverages sold,
our strongest regions include the northern New England states, the Mid-Atlantic
states, Michigan and certain Southwestern states, as well as parts of northern
and central California. We sold approximately 80% of the volume of all
Pepsi-Cola beverages sold in Canada. Our strongest regions in Canada are Quebec
and the Maritime Provinces, where we have a market share of approximately 40%.

We focus on growing in local markets because there can be substantial
differences with respect to share position, trade structure, channel mix and
package mix not only between our international and combined U.S. and Canadian
markets but also within the U.S. and Canadian market itself. For example, our
share of the supermarket channel of carbonated soft drink beverages ranges from
a low of 12% in Houston to 48% in Pittsburgh. In most markets, our share ranges
from 25% to 35%.

SALES, MARKETING AND DISTRIBUTION OF PBG'S LIQUID REFRESHMENT BEVERAGE PRODUCTS

Our sales and marketing approach varies by region and channel to respond to
the unique local competitive environment. For us, the fastest growing channels
are mass merchandisers, convenience and gas stores and vending. Developing a
sales and marketing plan that manages channel mix and package mix is critical to
our success. The following chart shows the relative importance of our U.S. and
Canadian distribution channels by volume of physical cases:

PBG U.S. AND CANADA 1998 PHYSICAL CASE VOLUME CHANNEL MIX

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

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SUPERMARKETS AND OTHER RETAIL 64%

Fountain and Restaurants 6%
Convenience and Gas Stores 12%
Vending 10%
Mass Merchandisers 8%

In the United States and Canada, the channels with larger stores can
accommodate a number of beverage suppliers and, therefore, marketing efforts
tend to focus on increasing the amount of shelf space and the number of displays
in any given outlet. In locations where our products are purchased for immediate
consumption, marketing efforts are aimed not only at securing the account but
also on providing equipment that facilitates the sale of cold product, such as
vending machines, glass door coolers and fountain equipment.

An important aspect of our sales and marketing strategy involves working
closely with PepsiCo to ensure that the mix of new products and packages it is
developing meets the needs of customers in our particular markets. Product
introductions such as PEPSI ONE, a one calorie cola launched in the fourth
quarter of 1998, and AQUAFINA, PepsiCo's water brand, which achieved national
distribution in 1998, further strengthen our portfolio of products. Package mix
is an important consideration in the development of our marketing plans.
Although some packages are more expensive to produce, in certain channels those
packages may have a higher and more stable selling price. For example,

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packaged product that is sold cold for immediate consumption generally has
better margins than product sold to take home.

On a local level, we market our products with a number of specific programs
and promotions, including sweepstakes, product tie-ins, associations with
entertainment or athletic events, and joint marketing programs with local
retailers. In addition, we have programs with local schools, universities and
businesses through which we support certain programs or pay sponsorship fees in
exchange for vending and fountain rights. We also implement local advertising
campaigns on a cooperative basis with PepsiCo and work with PepsiCo on local
media plans and signage promotions.

In the United States and Canada, we distribute directly to a majority of
customers in our licensed territories through a distribution system without
using warehouse middlemen. Our approximately 10,000 member sales force is key to
our selling efforts because its members interact continually with our customers
to promote and sell our products. The members of our sales force deliver
products on company-owned trucks directly to our retail customers. They then
arrange the product on the shelves, build any displays previously agreed upon
with the retailer and take the next delivery order. To ensure they have selling
incentive, a large part of our route salesmen's compensation is made up of
commissions based on revenues. Although route salesmen are responsible for
selling to their customers, in certain markets and channels we use a pre-sell
system, where we call accounts in advance to determine how much product to
deliver and whether we will provide any additional displays. We are in the
process of expanding this system because it is efficient and cost effective for
many accounts. In our efforts to obtain new accounts we use 700 retail sales
representatives who are responsible for calling on prospective new accounts,
developing relationships, selling accounts and interacting with such accounts on
an ongoing basis.

In the United States and Canada, this direct delivery system is used for all
packaged goods and some fountain accounts. We deliver fountain syrup to local
customers in large containers rather than in packaged form. We have the
exclusive right to sell and deliver fountain syrup to local customers in our
territories. We have 400 managers who are responsible for calling on prospective
fountain accounts, developing relationships, selling accounts and interacting
with accounts on an ongoing basis. We also serve as PepsiCo's exclusive delivery
agent in our territories for PepsiCo national fountain account customers that
request direct delivery. We are also the exclusive equipment service agent for
all of PepsiCo's national account customers in our territories.

We believe our distribution system is highly effective. For example, we
introduced PEPSI ONE in October 1998 and within four weeks achieved more than
80% distribution in the convenience and gas store, mass merchandise and
supermarket channels in our exclusive territories in the United States.

In international markets, we use both our direct distribution system and
third party distributors or wholesalers. In the early stages of market
development, it is more common to use third party distributors. As the market
grows and reaches critical mass, there is generally a move toward direct
distribution systems.

In the less developed international markets, small format retail outlets
play a larger role. However, with the emergence of larger, more sophisticated
retailers in Spain and Greece, the marketing focus is increasingly similar to
that of the United States and Canada.

RAW MATERIALS AND PROCESSES USED IN THE MANUFACTURING OF PBG'S PRODUCTS

Expenditures for concentrate and packaging constitute our largest individual
raw material costs, representing approximately 43% and 47%, respectively, of our
total raw material costs.

We buy various soft drink concentrates from PepsiCo and other soft drink
companies whose products we bottle, and mix them in our plants with other
ingredients, including carbon dioxide and sweeteners. Artificial sweeteners are
included in the concentrates we purchase for diet soft drinks. The product is
then bottled in a variety of containers ranging from 12-ounce cans to two liter
plastic bottles to various glass packages, depending on market requirements.

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In addition to concentrates, we purchase sweeteners, glass and plastic
bottles, cans, closures, syrup containers, other packaging materials and carbon
dioxide. We generally purchase our raw materials, other than concentrates, from
multiple suppliers. The Pepsi beverage agreements provide that, with respect to
the soft drink products of PepsiCo, all authorized containers, closures, cases,
cartons and other packages and labels may be purchased only from manufacturers
approved by PepsiCo.

We manufacture soft drink products using state-of-the-art processes that
produce high quality finished products. The first step of the manufacturing
process is to combine concentrate with sweeteners and other ingredients. Cans or
bottles are then conveyed to a filling area, where syrups from the mixing tanks
are combined with purified water. The liquid is then carbonated and filled at
speeds frequently in excess of 1,200 cans per minute. Sealed cans and bottles
are imprinted with date codes that permit us to monitor and replace inventory to
provide fresh products.

INFORMATION TECHNOLOGY USED IN PBG'S OPERATIONS

Information technology systems are critical to our ability to manage our
business. Every day in the U.S. more than 7,000 trucks, on average, are
dispatched to make deliveries to our customers. Our information technology
systems enable us to coordinate this activity, from production scheduling and
raw material ordering to truck routing and loading and customer delivery and
invoicing.

We depend upon standardized systems that can be maintained centrally but are
available for decision making by our front line employees. We believe this is
the most effective strategy to optimize our significant investment in
information technology. We also believe that several recent initiatives have
significantly contributed to our ability to service customers, reduce costs and
improve efficiency.

- HANDHELD SALES COMPUTERS. Handheld computers are used by all of our route
salesmen in the United States and Canada and have been upgraded to
provide customer sales trends, pricing and promotional information.

- CUSTOMER SERVICE CENTER. Customer support activities in the U.S. such as
telephone selling, billing and collection have been centralized in one
location to best utilize investments in technology, people and process.

- CUSTOMER EQUIPMENT TRACKING SYSTEM. With the significant investment in
cold drink equipment, our customer equipment tracking system enables us
to track equipment and coordinate service needs in the U.S., minimizing
lost sales and equipment down-time.

COMPETITION

The carbonated soft drink market and the non-carbonated beverage market are
highly competitive. Our competitors in these markets include bottlers and
distributors of nationally advertised and marketed products, bottlers and
distributors of regionally advertised and marketed products, as well as bottlers
of private label soft drinks sold in chain stores. We estimate that in 1997 the
carbonated soft drink products of PepsiCo represented 31% of total carbonated
soft drink sales in the United States. We estimate that in each U.S. territory
in which we operate, between 65% and 85% of soft drink sales from supermarkets,
drug stores and mass merchandisers are accounted for by us and our major
competitor--Coca-Cola Enterprises or the local Coca-Cola bottler. We compete
primarily on the basis of advertising to create brand awareness, price and price
promotions, retail space management, customer service, consumer points of
access, new products, packaging innovations and distribution methods. We believe
that brand recognition is a primary factor affecting our competitive position.

EMPLOYEES OF PBG

As of December 1998, we employed approximately 36,900 full-time workers, of
whom approximately 33,000 were employed in the United States and Canada and
approximately 11,500 of whom were union members. We consider relations with our
employees to be good and have not experienced significant interruptions of
operations due to labor disagreements.

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We have 159 contracts with our union employees worldwide, which expire at
various times over the next five years. There are contracts covering
approximately 2,350 employees that are up for renewal in 1999.

PBG'S PROPERTIES

We operate 72 soft drink production facilities, eight of which are solely
production facilities and 64 of which are combination production/distribution
facilities. We also operate 319 distribution facilities. We believe that our
bottling, canning and syrup filling lines and our distribution facilities are
sufficient to meet present needs.

We also own or lease and operate more than 16,500 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 or lease approximately 1.0 million soft drink dispensing and vending
machines.

In addition, we sublease our headquarters in Somers, New York from PepsiCo.

We believe that our properties are in good operating condition and are
adequate to serve our current operational needs.

LEGAL PROCEEDINGS RELATING TO PBG

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

GOVERNMENTAL REGULATION APPLICABLE TO PBG

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

BOTTLE AND CAN LEGISLATION

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

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

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

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

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

SOFT DRINK EXCISE TAX LEGISLATION

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

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

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

TRADE REGULATION RELATING TO THE LIQUID REFRESHMENT BEVERAGE INDUSTRY

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

Our operations in Spain and Greece are subject to the antitrust laws of the
European Union, Spain and Greece. As a result of antitrust laws in the European
Union, the beverage agreements applicable in Spain, unlike the Pepsi beverage
agreements relating to our U.S. operations, do not prohibit the transshipment of
Pepsi-Cola beverages into our exclusive territories in response to unsolicited
orders. Our operations in Russia are subject to the trade practices laws of
Russia.

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.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS OF PBG

The following table sets forth certain information regarding our executive
officers, senior management and directors, as of February 1999:

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NAME AGE POSITION
----------------------------------------------------- --- -----------------------------------------------------

DIRECTORS AND EXECUTIVE OFFICERS:
Craig E. Weatherup................................... 53 Chairman of the Board, Chief Executive Officer and
Director
Craig D. Jung........................................ 45 Chief Operating Officer
John T. Cahill....................................... 41 Executive Vice President, Chief Financial Officer and
Director
Pamela C. McGuire.................................... 51 Senior Vice President, General Counsel and Secretary
Margaret D. Moore.................................... 51 Senior Vice President and Treasurer
Peter A. Bridgman.................................... 46 Senior Vice President and Controller

SENIOR MANAGEMENT:
Donald W. Blair...................................... 40 Senior Vice President, Finance
Kevin L. Cox......................................... 35 Senior Vice President and Chief Personnel Officer
Eric J. Foss......................................... 40 Senior Vice President, Sales and Field Marketing
Gary K. Wandschneider................................ 46 Senior Vice President, Operations

DIRECTORS OF PBG

Our certificate of incorporation provides that the number of directors may
be altered from time to time by a resolution adopted by our board of directors.
However, the number of directors may not be less than two nor more than fifteen.

The following individuals are directors of PBG. They will hold office until
the first annual meeting of our stockholders after the offering, which is
expected to be held in 2000.

CRAIG E. WEATHERUP, 53, is the Chairman of our board and our Chief Executive
Officer, and has served as a director of PepsiCo since 1996. Mr. Weatherup
intends to resign as a director of PepsiCo on the date the offering is
completed. Prior to becoming our Chairman and Chief Executive Officer, he served
as Chairman and Chief Executive Officer of the Pepsi-Cola Company since July
1996. He was appointed President of the Pepsi-Cola Company in 1988, President
and Chief Executive Officer of Pepsi-Cola North America in 1991, and served as
PepsiCo's President in 1996. Mr. Weatherup is also a director of Federated
Department Stores, Inc. and Starbucks Corporation.

JOHN T. CAHILL, 41, is our Executive Vice President and Chief Financial
Officer. He held the same position at the Pepsi-Cola Company from March 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. Mr. Cahill
joined PepsiCo in 1989, became Senior Vice President, Finance and Chief
Financial Officer for KFC Corporation, a former subsidiary of PepsiCo, in 1993,
and in 1996 he became Senior Vice President and Chief Financial Officer of
Pepsi-Cola North America.

The following individuals have agreed to serve as our directors and are
expected to be elected at our first regular board meeting following the
offering:

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LINDA G. ALVARADO, 46, is the President of Alvarado Construction, Inc., a
general contracting firm specializing in commercial, industrial, environmental
and heavy engineering projects. Ms. Alvarado assumed her present position in
1976. She is also a director of Pitney Bowes, Inc., Cyprus Amax Minerals
Company, Engelhard Corp. and U.S. West, Inc.

BARRY H. BERACHA, 57, has been the Chairman of the Board and Chief Executive
Officer of The Earthgrains Company since 1993. Earthgrains was formerly part of
Anheuser-Busch Companies, where Mr. Beracha served from 1967 to 1996. From 1979
to 1993, he held the position of Chairman of the Board of Anheuser-Busch
Recycling Corporation. From 1976 to 1995, Mr. Beracha was also Chairman of the
Board of Metal Container Corporation. Mr. Beracha is also a director of St.
Louis University.

THOMAS H. KEAN, 63, has been the President of Drew University since 1990 and
was the Governor of the State of New Jersey from 1982 to 1990. Mr. Kean is also
a director of Amerada Hess Corporation, Aramark Corporation, Bell Atlantic,
Fiduciary Trust Company International and United Healthcare Corporation. He is
also Chairman of Carnegie Corporation of New York.

THOMAS W. JONES, 49, is the Co-Chairman and Chief Executive Officer of SSB
Citi Asset Management Group, a position he assumed in October 1998. Previously
Mr. Jones was Chairman and Chief Executive Officer of Salomon Smith Barney Asset
Management. From 1989 to 1993, Mr. Jones was Chief Financial Officer of the
Teachers Insurance and Annuity Association-College Retirement Equities Fund,
where he also served as President and Chief Operating Officer from 1993 to 1997,
and Vice Chairman from 1995 to 1997. He is also a director of Federal Home Loan
Mortgage Corporation and Thomas & Betts.

SUSAN KRONICK, 47, is Chairman and Chief Executive Officer of Burdines, a
division of Federated Department Stores, a position she has held since June
1997. From 1993 to 1997, Ms. Kronick served as President of Federated's
Rich's/Lazarus/Goldsmith's division. She spent the previous 20 years at
Bloomingdale's, where her last position was as Senior Executive Vice President
and Director of Stores. Ms. Kronick is also a director of Union Planters
National Bank and Bank of Miami.

ROBERT F. SHARPE, JR., 47, is Senior Vice President, Public Affairs, General
Counsel and Secretary of PepsiCo. He joined PepsiCo in January 1998 as Senior
Vice President, General Counsel and Secretary. Mr. Sharpe was Senior Vice
President and General Counsel of RJR Nabisco Holdings Corp. from 1996 until
1998. He was previously Vice President, Tyco International Ltd. from 1994 to
1996 and Vice President, Assistant General Counsel and Secretary of RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc. from 1989 to 1994.

KARL M. VON DER HEYDEN, 62, is a Director and Vice Chairman of the Board of
PepsiCo, a position he has held since September 1996. He also served as Chief
Financial Officer of PepsiCo until March 1998. Mr. von der Heyden was
Co-Chairman and Chief Executive Officer of RJR Nabisco from March through May
1993 and Chief Financial Officer from 1989 to 1993. He served as President and
Chief Executive Officer of Metallgesellschaft Corp. from 1993 to 1994, Mr. von
der Heyden is also a director of Federated Department Stores, Inc. and Zeneca
Group PLC.

BOARD COMPENSATION AND BENEFITS

Employee directors will not receive additional compensation for serving on
our board of directors. Non-employee directors will be compensated entirely in
options to purchase our common stock and will receive an initial grant of
options to purchase approximately $225,000 of common stock at the offering
price. Options will be granted at fair market value at the grant date and be
exercisable for ten years. Directors may annually convert their stock options
into our common stock at a ratio of three options for each share of common
stock. If a director converts all of his or her stock option grant, he or she
would receive $75,000 of our common stock. Directors may also defer payment of
their stock grant. The deferral will be in our common stock equivalents.
Non-employee directors will also receive a

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one-time $25,000 grant of our common stock at the initial public offering price,
which shares may not be sold until a director retires or resigns from our board
of directors. Directors will not receive retirement, health or life insurance
benefits.

COMMITTEES OF THE BOARD

Our board has established an audit committee, an executive development and
compensation committee, a nominating committee and an affiliated transactions
committee. The members will all be non-employee directors.

AUDIT/AFFILIATED TRANSACTIONS COMMITTEE RESPONSIBILITIES. Our
audit/affiliated transactions committee will:

- recommend to the board the selection, retention or termination of our
independent auditors;

- approve the level of non-audit services provided by the independent
auditors;

- review the scope and results of the work of our internal auditors;

- review the scope and approve the estimated cost of the annual audit;

- review the annual financial statements and the results of the audit with
management and the independent auditors;

- review with management and the independent auditors the adequacy of our
internal accounting controls;

- review with management and the independent auditors the significant
recommendations made by the auditors with respect to changes in accounting
procedures and internal accounting controls;

- review and approve any transaction between us and PepsiCo, or any entity
in which PepsiCo has a 20% or greater ownership interest, where the
transaction is other than in the ordinary course of business and has a
value of more than $10 million; and

- report to the board on its review and make such recommendations as it
deems appropriate.

EXECUTIVE DEVELOPMENT AND COMPENSATION COMMITTEE RESPONSIBILITIES. Our
executive development and compensation committee will:

- administer our Long-Term Incentive Plan, Executive Incentive Compensation
Plan and related programs;

- approve, or refer to the board of directors for approval, changes in such
plans and the compensation programs to which they relate; and

- review and approve the compensation and development of our senior
executives.

NOMINATING COMMITTEE RESPONSIBILITIES. The nominating committee will:

- identify candidates for future board membership;

- develop criteria for selection of candidates for election as directors;

- propose to the board a slate of directors for election by the stockholders
at each annual meeting; and

- propose to the board candidates to fill board vacancies as they occur.

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EXECUTIVE OFFICERS OF PBG

In addition to Messrs. Weatherup and Cahill, the following persons are
executive officers of PBG:

CRAIG D. JUNG, 45, is our Chief Operating Officer. After joining PepsiCo
more than 12 years ago, Mr. Jung worked in a variety of domestic and
international operating assignments at Frito-Lay. He was named a Vice President
of Sales at Frito-Lay in 1992, and became President of Hostess Frito-Lay in
Canada in 1994. He joined Pepsi-Cola International as the Business Unit General
Manager for South America in 1996, and was named President of the Pepsi-Cola
Bottling Co. in 1997.

PAMELA C. MCGUIRE, 51, is our Senior Vice President, General Counsel and
Secretary. Ms. McGuire has had more than twenty years experience in the beverage
business, serving as Vice President and Division Counsel of Pepsi-Cola since
1989, and, in March 1998, she was named Vice President and Associate General
Counsel of the Pepsi-Cola Company.

MARGARET D. MOORE, 51, is our Senior Vice President and Treasurer. In
addition to serving in PepsiCo's Treasury, Planning and Human Resources
Departments from 1973 to 1986, Ms. Moore has been PepsiCo's Vice President,
Investor Relations, since 1987. Ms. Moore is also a director of Michael Foods,
Inc.

PETER A. BRIDGMAN, 46, is our Senior Vice President and Controller. Mr.
Bridgman had been Vice President and Controller of the Pepsi-Cola Company since
1992, and had previously been Controller and Finance Director at Pepsi-Cola
International.

SENIOR MANAGEMENT OF PBG

DONALD W. BLAIR, 40, is our Senior Vice President of Finance. Mr. Blair was
Pepsi-Cola International's Vice President of Finance from 1993 until 1996, when
he joined Pizza Hut, Inc., a former subsidiary of PepsiCo, as Vice President,
Planning. In 1997, he became Chief Financial Officer of the Pepsi-Cola Bottling
Company.

KEVIN L. COX, 35, is our Senior Vice President and Chief Personnel Officer.
Mr. Cox has served as Director, Organizational Capability and Sales Development
in the Pepsi-Cola Company from 1994 to 1995, and as Vice President,
Organizational Capability from 1996 to 1997. Prior to assuming his present
position, he was Senior Vice President, Human Resources, Pepsi-Cola Bottling Co.

ERIC J. FOSS, 40, is our Senior Vice President of Sales and Field Marketing.
From 1994 to 1996 Mr. Foss was General Manager of Pepsi-Cola North America's
Great West Business Unit. Prior to assuming his present position, he was General
Manager for the Central Europe Region for Pepsi-Cola International. Mr. Foss
joined Pepsi-Cola in 1982, and has held a variety of other field and
headquarters-based sales, marketing and general management positions.

GARY K. WANDSCHNEIDER, 46, is our Senior Vice President, Operations, a
position he held with the Pepsi-Cola Company since 1997. He also served as Vice
President, Manufacturing and Logistics from 1995 to 1997, and, in 1994, as a
General Manager of two of Pepsi-Cola's business units.

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS OF PBG

All of our capital stock is currently owned by PepsiCo and therefore none of
our executive officers or directors own any of our capital stock. Certain
officers, including the executive officers named in the Summary Compensation
Table below, will be granted options to purchase shares of our common stock. No
director or executive officer will own in excess of 1% of our common stock.

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EXECUTIVE COMPENSATION

Prior to the offering, all compensation paid to our executive officers was
paid by PepsiCo and was attributable, at least in part, to services provided to
PepsiCo's bottling business.

The following table sets forth information concerning the compensation paid
to our Chief Executive Officer and our four other most highly compensated
executive officers during our fiscal year ended December 26, 1998.

SUMMARY COMPENSATION TABLE

[Enlarge/Download Table]

1998 LONG-TERM
1998 ANNUAL COMPENSATION COMPENSATION
------------------------------------- -------------------------

AWARDS PAYOUTS
----------- ------------

PEPSICO
SECURITIES LONG-TERM
OTHER ANNUAL UNDERLYING INCENTIVE ALL OTHER
SALARY BONUS COMPENSATION OPTIONS PLAN PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) (#) ($) ($)(1)
--------------------------------------- ---------- ---------- ------------- ----------- ------------ -------------

Craig E. Weatherup
Chairman and Chief Executive
Officer.............................. $ 792,307 $ 844,000 $ 131,182(2) 156,486(3) -- $ 11,698(4)

Craig D. Jung
Chief Operating Officer.............. 307,731 144,220 7,065 53,625(3) -- --

John T. Cahill
Executive Vice President and Chief
Financial Officer.................... 357,577 237,500 7,065 51,490(3) -- --

Margaret D. Moore
Senior Vice President and
Treasurer............................ 264,708 136,450 6,224 31,428(3) -- --

Pamela C. McGuire
Senior Vice President, General
Counsel and Secretary................ 217,408 93,680 4,949 17,066(3) -- --

------------------------

(1) We pay a portion of the annual cost of life insurance policies on the lives
of certain of our key employees. These amounts are included here. If a
covered employee dies while employed by us, we are reimbursed for our
payments from the proceeds of the policy.

(2) This amount includes $107,153 from the use of corporate transportation in
1998.

(3) All such options will vest and become exercisable at the date the offering
is completed.

(4) Of this amount, $2,086 is for life insurance, as discussed in note (1)
above, and $9,612 is preferential earnings on income deferred by Mr.
Weatherup since 1986. In order to earn a preferential return, Mr. Weatherup
elected a risk feature under which, if he terminated his employment, he
would forfeit all his deferred income.

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STOCK OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning grants of stock
options made to the named executive officers during our fiscal year ended
December 26, 1998. All grants relate to PepsiCo capital stock.

PEPSICO OPTION GRANTS IN LAST FISCAL YEAR

[Enlarge/Download Table]

POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------------------ --------------------------

NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#)(1) FISCAL YEAR(2) ($/SHARE) DATE 5%($)(3) 10%($)(3)
----------------------------------- ----------- --------------- ----------- ----------- ------------ ------------
Craig E. Weatherup................. 156,486 0.507 $ 36.50 1/31/08 $ 3,592,082 $ 9,103,041
Craig D. Jung...................... 53,625 0.174 36.50 1/31/08 1,230,943 3,179,452
John T. Cahill..................... 51,490 0.167 36.50 1/31/08 1,181,935 2,995,256
Margaret D. Moore.................. 31,428 0.102 36.50 1/31/08 721,419 1,828,217
Pamela C. McGuire.................. 17,066 0.055 36.50 1/31/08 391,744 992,757

------------------------

(1) These options become exercisable on February 1, 2001. However, if the
offering is completed, each of these options will vest and become
exercisable on the date of the offering.

(2) Includes approximately 14,700,000 options granted to employees under
PepsiCo's SharePower Stock Option Plan.

(3) The 5% and 10% rates of appreciation were set by the Securities and Exchange
Commission and are not intended to forecast future appreciation, if any, of
PepsiCo's capital stock. If PepsiCo's capital stock does not increase in
value, then the option grants described in the table will be valueless.

In addition to the option grants to executive officers named in the table
above, each of these officers may receive an additional option grant or cash
payment based upon achievement of PepsiCo performance objectives. The payments
and option grants, if any, would be made on or about February 1, 2001. The
obligations to make these grants will be assumed by us at the date of the
offering, and we intend to set new performance targets based on our performance.

PEPSICO OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES

The following table sets forth information concerning option exercises with
respect to PepsiCo capital stock by our executive officers named in the table
above during our fiscal year ended December 26, 1998.

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AGGREGATED PEPSICO OPTION EXERCISES IN LAST FISCAL YEAR

[Enlarge/Download Table]

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS AT FY-END MONEY OPTIONS AT FY-END (1)
ACQUIRED ON VALUE ------------------------- ----------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------------- ------------ ------------- ---------- ------------- ------------- -------------

Craig E. Weatherup.......... 565,057 $18,521,040 1,236,238 1,945,326(2) $ 31,842,379 $ 35,860,759
Craig D. Jung............... -- -- 114,958 162,311(3) 2,666,813 1,403,184
John T. Cahill.............. -- -- 209,523 153,858(3) 5,242,681 1,416,124
Margaret D. Moore........... 26,751 770,488 131,119 87,730(3) 3,085,501 864,181
Pamela C. McGuire........... 26,917 770,657 125,799 58,364(3) 3,219,509 610,244

------------------------

(1) The closing price of PepsiCo capital stock on December 24, 1998, the last
trading day prior to PepsiCo's fiscal year end, was $40.4375 per share.

(2) If the offering is completed, 453,901 of these options will be cancelled and
the remainder will become exercisable on the date the offering is completed.

(3) If the offering is completed, all of these options will become exercisable
on the date the offering is completed.

PENSION PLANS

Many of our salaried employees have been participants in PepsiCo's Salaried
Employees Retirement Plan. At or prior to the consummation of the offering, we
intend to adopt a PBG Salaried Employees Retirement Plan and a PBG Pension
Equalization Plan on terms substantially similar to the comparable PepsiCo
plans.

Under the PBG plan, when an executive retires at the normal retirement age
of 65, the approximate annual benefits payable after January 1, 1999 for the
following pay classifications and years of service are:

[Download Table]

YEARS OF SERVICE
----------------------------------------
REMUNERATION 30 35 40
------------- ------------ ------------ ------------

$ 250,000 $ 120,740 $ 132,530 $ 145,030
500,000 245,740 270,030 295,030
750,000 370,740 407,530 445,030
1,000,000 495,740 545,030 595,030
1,250,000 620,740 682,530 745,030
1,500,000 745,740 820,030 895,030
1,750,000 870,740 957,530 1,045,030
2,000,000 995,740 1,095,030 1,195,030
2,250,000 1,120,740 1,232,530 1,345,030
2,500,000 1,245,740 1,370,030 1,495,030

The pay covered by the pension plans noted above is based on the salary and
bonus shown in the Summary Compensation Table above for each of the named
executive officers. The years of credited service as of January 1, 1999 for the
named executive officers are as follows: 24 years for Mr. Weatherup; 13 years
for Mr. Jung; 9 years for Mr. Cahill; 25 years for Ms. Moore; and 21 years for
Ms. McGuire.

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NEW STOCK-BASED AND INCENTIVE PLANS OF PBG

PBG 1999 LONG-TERM INCENTIVE PLAN

GENERALLY. The PBG 1999 Long-Term Incentive Plan has been approved by our
board of directors and by PepsiCo as our sole stockholder. The PBG 1999
Long-Term Incentive Plan provides for the grant of various types of long-term
incentive awards to key employees. These awards may include non-qualified
options to purchase shares of our common stock, performance units, incentive
stock options, stock appreciation rights and restricted stock grants. The term
of the PBG 1999 Long-Term Incentive Plan is two years.

ADMINISTRATION. The PBG 1999 Long-Term Incentive Plan vests broad powers in
the executive development and compensation committee of our board of directors
to administer and interpret the PBG 1999 Long-Term Incentive Plan. The
committee's powers include authority to select persons to be granted awards, to
determine terms and conditions of awards, including the type, size and term of
awards, to determine the time when awards will be granted and any conditions for
receiving awards, to establish objectives and conditions for earning awards, and
to determine whether such conditions have been met. The committee also has
authority to determine whether payment of an award will be made at the end of an
award period, or at the time of exercise, or deferred, and to determine whether
payment of an award should be reduced or eliminated. The PBG 1999 Long-Term
Incentive Plan grants powers to the executive development and compensation
committee to amend and terminate the PBG 1999 Long-Term Incentive Plan.

ELIGIBILITY. Key employees of PBG and its divisions, subsidiaries and
affiliates have or will be granted awards under the PBG 1999 Long-Term Incentive
Plan. The executive development and compensation committee may also grant awards
to employees of a joint venture or other business in which we have a substantial
investment, and may make awards to non-executive employees who are in a position
to contribute to our success.

STOCK OPTION GRANTS AS OF THE OFFERING

As of the offering, the executive development and compensation committee of
our board of directors intends to make the following stock option grants to our
executive officers named in the tables above:

[Enlarge/Download Table]

POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
----------------------------------------------------------- ----------------------------

NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE 5%(3) 10%(3)
------------------------- ---------- ----------------- ----------- --------------- ------------- -------------
Craig E. Weatherup....... 1,086,956 8.9% $ 23.00 (1) $ 15,722,366 $ 39,843,562
Craig D. Jung............ 264,130 2.2 23.00 (1) 3,820,535 9,681,985
John T. Cahill........... 264,130 2.2 23.00 (1) 3,820,535 9,681,985
Margaret D. Moore........ 117,394 1.0 23.00 (1) 1,698,015 4,303,105
Pamela C. McGuire........ 143,478 1.2 23.00 (1) 2,075,352 5,259,350

------------------------

(1) These options will be granted as of the date the offering is completed and
consist of non-qualified stock options. Except for the options granted to
Mr. Weatherup, these options will become exercisable three years after the
completion of the offering. One-third of Mr. Weatherup's options become
exercisable one year after the offering date, one-third become exercisable
two years after

424B4 59th Page of 111 TOC 1st Previous Next ↓Bottom Just 59th
the offering date, and the remaining one-third become exercisable three
years after the offering date. All of these options expire ten years after
the offering date.

(2) Based upon the public offering price of $23.00 per share.

(3) The 5% and 10% rates of appreciation were set by the Securities and Exchange
Commission and are not intended to forecast future appreciation, if any, of
our common stock. If our common stock does not increase in value, than the
option grants described in the table will be valueless.

PBG 1999 EXECUTIVE INCENTIVE COMPENSATION PLAN

GENERALLY. PBG's 1999 Executive Incentive Compensation Plan has been
approved by our board of directors and by PepsiCo as our sole stockholder. The
PBG 1999 Executive Incentive Compensation Plan provides for our executives to be
granted annual cash incentive awards. The term of the plan is expected to be ten
years.

ADMINISTRATION. The PBG 1999 Executive Incentive Compensation Plan vests
broad powers in the executive development and compensation committee to
administer and interpret the PBG 1999 Executive Incentive Compensation Plan. The
committee's powers include authority to select the persons to be granted awards,
to determine the time when awards will be granted, and to determine and certify
whether objectives and conditions for earning awards have been met. The
committee also has authority to determine whether payment of an award will be
made at the end of an award period or deferred, and to determine whether an
award or payment of an award should be reduced or eliminated. The PBG 1999
Executive Incentive Compensation Plan grants broad powers to the executive
development and compensation committee to amend and terminate the Plan.

OTHER STOCK OWNERSHIP PROGRAMS

OWNERSHIP GUIDELINES. We have adopted stock ownership guidelines for all of
our senior executives. The guidelines provide that, within five years of the
offering:

- our Chief Executive Officer will own shares of our common stock with a
value of at least five times his annual salary;

- our Chief Operating and Chief Financial Officers will own shares with a
value of at least three times their respective annual salaries; and

- our other officers will own shares with a value at least equal to their
respective annual salaries.

Messrs. Weatherup and Cahill and Ms. Moore each have PepsiCo deferred income
which will be transferred to PBG as of the offering. They have elected to
transfer approximately $4,000,000, $1,000,000 and $250,000, respectively, from
their deferral investments into a PBG phantom stock investment as of the
offering. This transfer will satisfy all or substantially all of their
respective PBG stock ownership requirements.

FOUNDER'S GRANT. The executive development and compensation committee
intends to make a one-time grant to each of our full-time employees below the
middle-management level of options to purchase 100 shares of our common stock.
These options will have an exercise price equal to the initial public offering
price; will vest in three years; and will be exercisable for ten years after the
date of grant.

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RELATIONSHIP WITH PEPSICO AND CERTAIN TRANSACTIONS

In 1998 and prior years, there have been significant transactions between us
and PepsiCo involving purchases of concentrate from PepsiCo, the provision of
marketing and other support by PepsiCo, as well as the provision to us of
administrative and other services by PepsiCo. See Note 17 to the notes to
Combined Financial Statements. For purposes of governing certain on-going
relationships between us and PepsiCo, we will enter into, or continue in effect,
various agreements and relationships, including those described below. The
agreements described below were negotiated in the context of our separation from
PepsiCo and therefore are not the result of arm's-length negotiations between
independent parties. There can be no assurance, therefore, that these
agreements, or the transactions which they provide for will be on terms as
favorable to us as could have been obtained from unaffiliated third parties.

Some of the agreements summarized below are included as exhibits to the
registration statement of which this prospectus is a part, and the following
summaries are qualified completely by reference to such exhibits which are
incorporated in this prospectus by reference.

RELATIONSHIP WITH PEPSICO AFTER THE OFFERING

STOCK OWNERSHIP AND PARTICIPATION IN MANAGEMENT. Following the offering,
PepsiCo will have approximately 43.5% of the combined voting power of all
classes of our voting stock. We have been advised that PepsiCo has no present
intention of disposing of any of the shares of our capital stock that it will
own after the offering. As a major stockholder of PBG, PepsiCo will be able to
significantly influence the outcome of all matters requiring stockholder action.
Of the persons to be elected to our board, two are executive officers of
PepsiCo, two are executive officers of PBG and the remainder are independent.

CORPORATE OPPORTUNITIES. Our certificate of incorporation provides that
PepsiCo has no duty to refrain from engaging in the same or similar activities
as we do. Our certificate also provides that PepsiCo need not communicate to us,
may pursue or acquire for itself, or may direct to another person, a corporate
opportunity, without liability to us or our stockholders.

DESCRIPTION OF BOTTLING AGREEMENTS. We have recently entered into a number
of bottling agreements with PepsiCo. These bottling agreements consist of:

(1) the master bottling agreement for cola beverages bearing the
"PEPSI-COLA" and "PEPSI" trademark, including DIET PEPSI and PEPSI ONE in
the United States;

(2) bottling and distribution agreements for non-cola products in the United
States;

(3) a master fountain syrup agreement for fountain syrup in the United
States; and

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

The master bottling agreement, the master syrup agreement, the non-cola
bottling agreements and the country specific bottling agreements are referred to
in this prospectus as the Pepsi beverage agreements.

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 was entered into in March 1999. The master
bottling agreement gives us the exclusive right

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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. The prices at which we purchase concentrate under
the master bottling agreement and the level of advertising and marketing support
provided by PepsiCo may vary materially from the levels provided historically.
PepsiCo may determine from time to time what types of containers to authorize
for use by us. PepsiCo has no rights under the master bottling agreement with
respect to the prices at which we sell our products.

Under the master bottling agreement we are obligated to:

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

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

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

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

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

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

The master bottling agreement requires us to meet annually with PepsiCo to
discuss plans for the ensuing year and the following two years. At such
meetings, we are obligated to present plans that set out in reasonable detail
our marketing plan, including the introduction of any new beverage product or
any change in the geographic area in which existing beverage products are
distributed, 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.

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

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

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

PepsiCo has no obligation to participate with us in advertising and
marketing spending, but it may contribute to such expenditures and undertake
independent advertising and marketing activities, as well

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as cooperative advertising and sales promotion programs that would require our
cooperation and support. Although PepsiCo has advised us that it intends to
continue to provide cooperative advertising funds, it is not obligated to do so
under the master bottling agreement.

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

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

Under the master bottling agreement, PepsiCo has agreed not to withhold
approval for any acquisition of rights to manufacture and sell PEPSI trademarked
cola beverages within a specific area-- currently representing approximately 14%
of PepsiCo's U.S. bottling system in terms of volume--if we have successfully
negotiated the acquisition and, in PepsiCo's reasonable judgment, satisfactorily
performed our obligations under the master bottling agreement. We have agreed
not to acquire or attempt to acquire any rights to manufacture and sell PEPSI
trademarked cola beverages outside of that specific area without PepsiCo's prior
written approval.

The master bottling agreement is perpetual, but may be terminated by PepsiCo
in the event of 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. If the master
bottling agreement is terminated, PepsiCo also has the right to terminate its
other bottling agreements with us.

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.

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

We also have an agreement with PepsiCo granting us the exclusive right to
distribute AQUAFINA in our territories. We have the right to manufacture
AQUAFINA in certain locations depending on the availability of appropriate
equipment. The distribution agreement contains provisions generally similar to
those in the master bottling agreement as to use of trademarks, trade names,
approved containers and labels and causes for termination. However, the
distribution agreement does not prevent us from distributing other bottled
waters. The distribution agreement is for a limited term. Upon expiration of
this term, PepsiCo may issue a perpetual license depending on whether we meet
volume, distribution and marketing objectives described in the distribution
license.

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, we are granted a right of first refusal to act as the
manufacturer for fountain syrup to be delivered to national accounts that elect
delivery through independent distributors. Under the master syrup agreement, we
will 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 in
the sole discretion of PepsiCo.

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

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

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

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

DESCRIPTION OF OTHER AGREEMENTS WITH PEPSICO

We have entered into, or will enter into, other agreements with PepsiCo,
governing the relationships between us and PepsiCo after the offering, and
providing for the allocation of tax and other liabilities and obligations
relating to periods prior to and after the offering. Copies of the forms of such
agreements are filed as exhibits to the registration statement of which this
prospectus is a part. We currently estimate that the fees that we will pay
PepsiCo during fiscal 1999 under the agreements described below will be
approximately $100 million in the aggregate. In addition, we anticipate that we
will pay approximately $7 million in 1999 to PepsiCo for the sublease of our
headquarters in Somers, New York.

TERMS OF THE SHARED SERVICES AGREEMENT. We have entered into a shared
services agreement with PepsiCo providing for various services to be provided by
PepsiCo to us after the offering, and the fees and payment terms for each
service. The shared services agreement provides that we will have the benefit of
PepsiCo's scale and efficiencies in areas such as the procurement of raw
materials, processing of accounts payable and credit and collection, certain tax
and treasury services and information technology maintenance and systems
development. In addition, we will continue to provide certain employee benefits
services to PepsiCo.

TERMS OF THE TAX SEPARATION AGREEMENT. We have entered into a tax
separation agreement with PepsiCo, on our own behalf and on behalf of our
respective consolidated tax groups, that reflects each party's rights and
obligations with respect to payments and refunds of taxes attributable to
periods beginning prior to and including the offering date and taxes resulting
from transactions effected in connection with the offering. The tax separation
agreement also expresses each party's intention with respect to certain of our
tax attributes after the offering. The tax separation agreement provides for
payments between the two companies for certain tax adjustments made after the
offering that cover pre-offering tax liabilities. Other provisions cover the
handling of audits, settlements, stock options, elections, accounting methods
and return filing in cases where both companies have an interest in the results
of these activities.

TERMS OF THE EMPLOYEE PROGRAMS AGREEMENT. We have entered into an employee
programs agreement with PepsiCo, which allocates assets, liabilities and
responsibilities between the two parties with respect to employee compensation
and benefit plans and programs and other related matters.

TERMS OF THE SEPARATION AGREEMENT. We have entered into a separation
agreement with PepsiCo which provides for books, records and personnel which we
and PepsiCo will make available to each other from and after the offering. The
separation agreement also provides for the assumption by us of liabilities
relating to our bottling businesses and indemnification of PepsiCo with respect
to such liabilities, other than the $2.3 billion of debt of Bottling LLC that
has been unconditionally guaranteed by PepsiCo.

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Under the terms of the separation agreement, we have agreed to use our best
efforts to release, terminate or replace, prior to August 1, 1999, all letters
of credit, guarantees, other than the guarantee of the $2.3 billion of debt
issued by Bottling LLC, and contingent liabilities relating to our bottling
businesses for which PepsiCo is liable. After August 1, 1999, PepsiCo may remain
liable for some of the letters of credit, guarantees and contingent liabilities
which were not terminated or replaced and from which PepsiCo was not released
prior to that date. Under the separation agreement, after August 1, 1999 we will
pay a fee to PepsiCo with respect to any such letters of credit, guarantees,
other than the guarantee of Bottling LLC's $2.3 billion of debt and contingent
liabilities, until such time as they are released, terminated or replaced by our
guarantee, a qualified letter of credit or cash collateral provided by us or on
our behalf. We will be required to indemnify PepsiCo with respect to such
letters of credit, guarantees, other than the guarantee of Bottling LLC's $2.3
billion of debt and contingent liabilities.

TERMS OF THE REGISTRATION RIGHTS AGREEMENT. We have entered into a
registration rights agreement with PepsiCo which allows PepsiCo to require us to
register shares of our common stock owned by PepsiCo and to include such shares
in any registration of common stock made by us in the future. We have agreed to
cooperate fully in connection with any such registration and with any offering
made under the registration rights agreement and to pay all costs and expenses,
other than underwriting discounts and commissions, related to shares sold by
PepsiCo in connection with any such registration.

PEPSICO'S AGREEMENT TO COMBINE BOTTLING BUSINESSES WITH WHITMAN. On January
25, 1999, PepsiCo signed an agreement with Whitman Corporation providing for the
combination of certain of PepsiCo's bottling businesses and assets in the
Midwestern United States and Central Europe with those of Whitman in a newly
created Whitman entity. The agreement provides that Whitman will assume
liabilities associated with the U.S. operations of PepsiCo being transferred to
it and will acquire certain of PepsiCo's operations in Central Europe for cash.
PepsiCo will receive $300 million in net proceeds plus 35% of the common stock
in the newly created Whitman entity. Whitman has agreed to undertake a stock
repurchase program that is anticipated to raise PepsiCo's stake in the new
Whitman to 40%. The transaction is subject to approval by regulators and by a
majority vote of Whitman shareholders.

The new Whitman will operate under bottling agreements with PepsiCo,
containing terms which are similar to the Pepsi beverage agreements, including
that:

(1) Whitman will not acquire or attempt to acquire the right to manufacture
or sell Pepsi-Cola trademark beverages outside of a specified area
without PepsiCo's prior written consent; and

(2) an acquisition in the specified territory would be subject to PepsiCo's
approval.

Because of the territorial restrictions on acquisitions in our master
bottling agreement and the Whitman bottling agreements, PBG and Whitman will
generally not be competing for acquisitions of Pepsi-Cola bottling territories
in the United States unless PepsiCo consents. The new Whitman could also acquire
international bottling territories which are of interest to us, with PepsiCo's
consent.

PepsiCo has agreed not to increase its ownership of the new Whitman's equity
securities beyond 49%, except with the approval of the the new Whitman board of
directors or under the terms of an offer made to all new Whitman shareholders.

Whitman will also transfer to us prior to the offering bottling operations
in Virginia, West Virginia and St. Petersburg, Russia. This transfer is not
subject to approval by Whitman shareholders.

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PRINCIPAL STOCKHOLDER

Prior to this offering, PepsiCo owned 100% of our capital stock. Following
the offering, PepsiCo will own 35.4% of our outstanding common stock and 100% of
our outstanding Class B common stock.

The following table sets forth, as of March 3, 1999, the beneficial
ownership of PepsiCo's Capital Stock by each of our executive officers named in
the Summary Compensation Table, each of our directors and all of our directors
and executive officers as a group. Beneficial ownership is determined in
accordance with the rules and regulations of the Securities and Exchange
Commission. Shares of PepsiCo capital stock subject to options that are
currently exercisable or exercisable within 60 days of March 3, 1999 are deemed
to be outstanding and beneficially owned by the person holding such options for
the purpose of computing the number of shares beneficially owned and the
percentage ownership of such person, but are not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person. Except as
indicated in the text below this table, and subject to applicable community
property laws, such persons have sole voting and investment power with respect
to all shares of the PepsiCo capital stock shown as beneficially owned by them.

The shares shown in the table include 4,100,010 shares of PepsiCo capital
stock which certain directors and executive officers have a right to acquire
within 60 days. These shares include 1,457,678 shares which may be acquired
pursuant to stock options which will become exercisable upon completion of the
offering.

The shares shown in the table do not include 310 shares held by children or
spouses of directors or executive officers, or by trusts for the benefit of
directors or executive officers, as to which beneficial ownership is disclaimed.
The shares shown also include the following number of PepsiCo capital stock
equivalents, which are held in PepsiCo's deferred income program: Craig E.
Weatherup, 112,821; and all directors and executive officers as a group, 117,029
shares.

Directors and executive officers as a group own less than 1% of outstanding
capital stock.

OWNERSHIP OF PEPSICO CAPITAL STOCK BY PBG EXECUTIVE OFFICERS AND DIRECTORS

[Enlarge/Download Table]

NUMBER OF SHARES OF
PEPSICO CAPITAL
NAME AND ADDRESS OF STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED
--------------------------------------------------------------------- --------------------

Craig E. Weatherup................................................... 2,769,807
John T. Cahill....................................................... 368,381
Linda G. Alvarado.................................................... --
Barry H. Beracha..................................................... --
Thomas H. Kean....................................................... 6,000
Thomas W. Jones...................................................... --
Susan Kronick........................................................ --
Robert F. Sharpe, Jr................................................. 1,000
Karl M. von der Heyden............................................... 352,890
Craig D. Jung........................................................ 277,513
Pamela C. McGuire.................................................... 202,763
Margaret D. Moore.................................................... 249,620
All directors and executive officers as a group (13 persons)......... 4,366,697

One executive officer shares voting and investment control over 3,862 shares
with his spouse.

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DESCRIPTION OF CAPITAL STOCK

The following summarizes important provisions of our capital stock and
describes all material provisions of our certificate of incorporation and
bylaws. This summary is qualified by our certificate of incorporation and
bylaws, copies of which have been filed as exhibits to the registration
statement of which this prospectus is a part and by the provisions of applicable
law.

DESCRIPTION OF COMMON STOCK AND CLASS B COMMON STOCK

Our certificate of incorporation provides for two classes of capital stock,
common stock, par value $.01, and Class B common stock, par value $.01, which
are substantially identical, except with respect to voting rights. We refer to
our common stock together with our Class B common stock as our capital stock.
Our capital stock has no preemptive rights with respect to new stock we issue
and no redemption or sinking fund provisions. All the shares of our capital
stock to be issued upon completion of this offering will be fully paid and
non-assessable.

VOTING AND CONVERSION RIGHTS. Holders of common stock and Class B common
stock generally have identical voting rights and vote together as a single
class, except that holders of common stock are entitled to one vote per share
and holders of Class B common stock are entitled to 250 votes per share. In
addition, holders of common stock may not vote on an alteration or change in the
powers or rights of the Class B common stock that does not adversely affect the
rights of the common stock. Any amendment to our certificate of incorporation
which would alter or change the powers, preferences or rights of the common
stock or the Class B common stock must be approved by a majority of the votes
cast by holders of shares affected by the proposed amendment, in addition to
approval by a majority of the votes cast by holders of capital stock.

Other than as set forth above, all matters to be voted on by stockholders
must be approved by a majority of the votes cast by holders of the outstanding
shares of common stock and Class B common stock. This would change if voting
rights were granted in the future to holders of outstanding preferred stock.
Holders of capital stock may not cumulate their votes for the election of
directors.

Each share of Class B common stock held by PepsiCo is, at PepsiCo's option,
convertible into one share of common stock. Any Class B common stock transferred
by PepsiCo to any person other than a PepsiCo affiliate or subsidiary will
automatically convert into shares of common stock upon such transfer.

DIVIDENDS AND DISTRIBUTIONS. Holders of common stock and holders of Class B
common stock shall share equally on a per share basis in any dividends or
distributions declared by our board of directors, unless in the future, holders
of preferred stock have preferential dividend or distribution rights. In the
case of dividends or distributions payable in capital stock, only shares of
common stock shall be paid or distributed with respect to common stock and only
shares of Class B common stock shall be paid or distributed with respect to
Class B common stock. The number of shares of common stock and Class B common
stock distributed on each share shall be equal in number. The shares of common
stock and Class B common stock may not be reclassified, subdivided or combined
unless such reclassification, subdivision or combination occurs simultaneously
and in the same proportion for each class.

In the event of any dissolution, liquidation or winding up of our affairs,
after payment of amounts due to holders of preferred stock, our remaining assets
and funds shall be distributed pro rata to the holders of capital stock, and the
holders of common stock and Class B common stock shall be entitled to the same
amount per share.

MERGER. If we reorganize or consolidate or merge with another corporation,
and shares of common stock or Class B common stock are converted into shares of
stock and/or securities or property of another entity, the holders of common
stock and Class B common stock will be entitled to

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receive the same per share consideration, unless unequal consideration is
approved by a majority of the votes cast by holders of each class of capital
stock.

PREFERRED STOCK

Our board of directors has the authority, as limited by the Delaware General
Corporation Law to authorize the issuance of preferred stock. The preferred
stock may be divided into two or more series, with such preferences, limitations
and relative rights as the Board may determine. However, no holder of preferred
stock shall be entitled to receive, if we involuntarily liquidate, an amount in
excess of $100 per share of preferred stock. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of PBG,
and may adversely affect the voting and other rights of the holders of our
common stock and Class B common stock. We have no current plan to issue any
preferred stock.

DESCRIPTION OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS

CHANGE IN CONTROL. Under the terms of our certificate of incorporation, we
have "opted-out" of Delaware's anti-takeover law. In general, Section 203 of the
Delaware corporate law prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date the person became an interested
stockholder, unless, with certain exceptions, the "business combination" or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the interested stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior to
the determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. It does not include "interested stockholders" prior
to the time our common stock is listed on the NYSE. The existence of this
provision would have an anti-takeover effect with respect to transactions not
approved in advance by our Board of Directors, including discouraging takeover
attempts that might result in a premium over the market price for the shares of
our common stock.

SPECIAL MEETINGS. The bylaws provide that special meetings of stockholders
may be called at any time by our Chairman of the board or the board, and must be
called by our Secretary upon the written request of stockholders holding of
record at least 25% of the voting power of our capital stock issued and
outstanding and entitled to vote at such meeting. Following the offering,
PepsiCo will own capital stock representing 43.5% of the voting power of the
capital stock. As a result, PepsiCo will be able to call a special meeting of
stockholders to consider various corporate actions.

STOCKHOLDER PROPOSALS. Our bylaws provide that for business proposed by a
stockholder, other than director nominations, to be a proper subject for action
at an annual meeting of stockholders, the stockholder must timely request that
the proposal be included in our proxy statement for the meeting and such request
must satisfy all of the provisions of Rule 14a-8 under the Securities Exchange
Act of 1934, as amended. This provision may limit the ability of stockholders to
bring business before an annual stockholders' meeting.

CORPORATE OPPORTUNITIES. Our certificate of incorporation provides that
PepsiCo shall have no duty to refrain from engaging in the same or similar
activities as we do and, except as set out below, neither PepsiCo nor any of its
officers, directors, or employees shall be liable to us or our stockholders by
reason of any such activities. In the event that PepsiCo acquires knowledge of a
potential transaction or matter which may be a corporate opportunity for both
PepsiCo and us, PepsiCo shall have no duty to communicate or offer such
corporate opportunity to us. PepsiCo shall not be liable to us or our
stockholders for breach of any fiduciary duty to us by reason of the fact that
PepsiCo pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another person, or

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does not communicate information regarding such corporate opportunity to us.
PepsiCo currently owns interests in other domestic and international bottling
companies and may offer opportunities to them which may be of interest to us.

Where corporate opportunities are offered to persons who are directors or
officers of both us and PepsiCo, our certificate of incorporation provides that
such director or officer shall have fully satisfied his or her fiduciary duty to
us and to our stockholders and will have no liability to us or our stockholders
if such person acts in a manner consistent with the following policy:

(1) a corporate opportunity offered to any person who is an officer of PBG
and also a director of PepsiCo shall belong to us;

(2) a corporate opportunity offered to any person who is one of our
directors but is not one of our officers, and who is also a director or
officer of PepsiCo, shall belong to us if such opportunity is expressly
offered to such person in writing solely in his or her capacity as one of
our directors, and otherwise shall belong to PepsiCo; and

(3) a corporate opportunity offered to any person who is an officer of both
us and PepsiCo shall belong to us.

LIABILITY AND INDEMNIFICATION OF DIRECTORS. Our certificate of
incorporation provides that, to the full extent from time to time permitted by
law, no director shall be personally liable for monetary damages for breach of
any duty as a director. Neither the amendment or repeal of this provision, nor
the adoption of any provision of our certificate of incorporation which is
inconsistent with this provision, shall eliminate or reduce the protection
afforded by this provision with respect to any matter which occurred, or any
suit or claim which, but for this provision would have accrued or arisen, prior
to such amendment, repeal or adoption.

While our certificate of incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, they do not
eliminate such duty. As a result, our certificate of incorporation will have no
effect on the availability of equitable remedies such as an injunction or
recission based on a director's breach of his or her duty of care.

Our certificate of incorporation also provides that we shall, to the fullest
extent from time to time permitted by law, indemnify our directors and officers
against all liabilities and expenses in any suit or proceeding, arising out of
their status as an officer or director or their activities in these capacities.
We shall also indemnify any person who, at our request, is or was serving as a
director, officer, partner, trustee, employee or agent of another corporation,
joint venture, trust or other enterprise, or as a trustee or administrator under
any employee benefit plan.

The right to be indemnified shall include the right of an officer or a
director to be paid expenses in advance of the final disposition of any
proceeding, if we receive an undertaking to repay such amount unless it shall be
determined that he or she is entitled to be indemnified. A person entitled to
indemnification shall also be paid reasonable costs, expenses and attorneys'
fees in connection with the enforcement of his or her indemnification rights.

Our board of directors may take such action as it deems necessary to carry
out these indemnification provisions, including adopting procedures for
determining and enforcing indemnification rights and purchasing insurance
policies. Our board of directors may also adopt bylaws, resolutions or contracts
implementing indemnification arrangements as may be permitted by law. Neither
the amendment or repeal of these indemnification provisions, nor the adoption of
any provision of our certificate of incorporation inconsistent with these
indemnification provisions, shall eliminate or reduce any rights to
indemnification relating to their status or any activities prior to such
amendment, repeal or adoption.

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LISTING OF PBG COMMON STOCK

The common stock has been approved for listing on the New York Stock
Exchange under the symbol "PBG," subject to official notice of issuance.

TRANSFER AGENT AND REGISTRAR FOR PBG COMMON STOCK

The Transfer Agent and Registrar for the common stock is The Bank of New
York.

SHARES ELIGIBLE FOR FUTURE SALE

After this offering, we will have 154,912,000 shares of common stock
outstanding. If the underwriters exercise their over-allotment option in full,
we will have a total of 169,912,000 shares of common stock outstanding. All of
the common stock sold in this offering will be freely transferable without
restriction or further registration under the Securites Act, except for shares
acquired by our directors and senior officers. PepsiCo and our directors and
senior officers who are purchasing common stock in this offering have agreed not
to sell or dispose of any common stock for a period of 180 days after the date
of this prospectus, without Merrill Lynch, Pierce, Fenner & Smith Incorporated's
prior written consent. We can give no assurance concerning how long these
parties will continue to hold their common stock after this offering.

After this offering, PepsiCo will own 54,912,000 shares of our common stock.
Any common stock held by one of our affiliates will be subject to the resale
limitations required by Rule 144 under the Securities Act. Rule 144 defines an
affiliate as a person that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with
the issuer.

After this offering, PepsiCo will be our affiliate. Therefore, as long as
PepsiCo remains an affiliate, PepsiCo may sell our common stock only:

- under an effective registration statement under the Securities Act;

- under Rule 144; or

- under another exemption from registration.

PepsiCo is not under any contractual obligation to retain our common stock,
except during the 180-day period noted above.

In general, a stockholder subject to Rule 144 who has owned common stock of
an issuer for at least one year may, within any three-month period, sell up to
the greater of:

- 1% of the total number of shares of common stock then outstanding; and

- the average weekly trading volume of the common stock during the four
weeks preceding the stockholder's required notice of sale.

Rule 144 requires stockholders to aggregrate their sales with other
affiliated stockholders for purposes of complying with this volume limitation. A
stockholder who has owned common stock for at least two years, and who has not
been an affiliate of the issuer for at least 90 days, may sell common stock free
from the volume limitation and notice requirements of Rule 144.

PepsiCo is entitled to require us to register our shares of common stock
held by it for sale under the Securities Act after the expiration of the 180-day
period noted above. See "Relationship with PepsiCo and Certain Transactions."

We cannot estimate the number of shares of common stock that may be sold by
third parties in the future because such sales will depend on market prices, the
circumstances of sellers and other factors.

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In connection with this offering, we are granting options to purchase
approximately 11,700,000 shares of our outstanding common stock. Immediately
after this offering, we intend to file a registration statement on Form S-8
covering all options granted under the PBG 1999 Long-Term Incentive Plan. Shares
of our common stock registered under this registration statement will be
available for sale in the open market, subject to vesting restrictions. Any
sales of these shares will be subject to the volume limitations of Rule 144
described above.

Prior to this offering, there has been no public market for our common
stock. We cannot predict the effect, if any, that future sales of shares of our
common stock or the availability of shares for sale would have on the prevailing
market price of our common stock. Nevertheless, future sales by us or by PepsiCo
of substantial amounts of our common stock, or the perception that such sales
may occur, could adversely affect the prevailing market price of our common
stock.

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of our common stock by
a beneficial owner that is a non-U.S. holder. A non-U.S. holder is a person or
entity that, for U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership, or a foreign estate or
trust.

This discussion is based on the Internal Revenue Code of 1986, as amended,
and administrative interpretations as of the date of this prospectus, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to non-U.S. holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign jurisdiction. Prospective holders are advised to
consult their tax advisors with respect to the particular tax consequences to
them of owning and disposing of our common stock, including the consequences
under the laws of any state, local or foreign jurisdiction.

DIVIDENDS

Subject to the discussion below, dividends, if any, paid to a non-U.S.
holder of our common stock generally will be subject to withholding tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
For purposes of determining whether tax is to be withheld at a 30% rate or at a
reduced rate as specified by an income tax treaty, we ordinarily will presume
that dividends paid on or before December 31, 1999 to an address in a foreign
country are paid to a resident of such country, absent knowledge that such
presumption is not warranted.

Under the United States Treasury Regulations applicable to dividends paid
after December 31, 1999, to obtain a reduced rate of withholding under a treaty,
a non-U.S. holder generally will be required to provide an Internal Revenue
Service Form W-8 BEN certifying such non-U.S. holder's entitlement to benefits
under a treaty. These regulations also provide special rules to determine
whether, for purposes of determining the applicability of a tax treaty,
dividends paid to a non-U.S. holder that is an entity should be treated as paid
to the entity or those holding an interest in that entity.

There will be no withholding tax on dividends paid to a non-U.S. holder that
are effectively connected with the non-U.S. holder's conduct of a trade or
business within the United States if a Form 4224, or, after December 31, 1999, a
Form W-8 ECI, stating that the dividends are so connected is filed with us.
Instead, the effectively connected dividends will be subject to regular U.S.
income tax in the same manner as if the non-U.S. holder were a U.S. resident. A
non-U.S. corporation receiving effectively connected dividends may also be
subject to an additional "branch profits tax" which is imposed, under certain
circumstances, at a rate of 30%, or such lower rate as may be specified by an

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applicable treaty, of the non-U.S. corporation's effectively connected earnings
and profits, subject to certain adjustments.

Generally, we must report to the U.S. Internal Revenue Service the amount of
dividends paid, the name and address of the recipient, and the amount, if any,
of tax withheld. A similar report is sent to the holder. Under the terms of tax
treaties or other agreements, the U.S. Internal Revenue Service may make its
reports available to tax authorities in the recipient's country of residence.

Dividends paid to a non-U.S. holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the non-U.S.
holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and certain other information to us.

Under current United States federal income tax law, backup withholding
generally will not apply to dividends paid on or before December 31, 1999 to a
non-U.S. holder at an address outside the United States, unless the payer has
knowledge that the payee is a U.S. person. Under the regulations described
above, however, a non-U.S. holder will be subject to backup withholding unless
applicable certification requirements are met.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of our common stock
unless:

(1) the gain is effectively connected with a trade or business of such
holder in the United States;

(2) in the case of certain non-U.S. holders who are non-resident alien
individuals and hold our common stock as a capital asset, such
individuals are present in the United States for 183 or more days in the
taxable year of the disposition;

(3) the non-U.S. holder is subject to tax pursuant to the provisions of the
Internal Revenue Code regarding the taxation of U.S. expatriates; or

(4) we are or have been a "U.S. real property holding corporation" within
the meaning of Section 897(c)(2) of the Internal Revenue Code at any time
within the shorter of the five-year period preceding such disposition or
such holder's holding period.

We are not, and do not anticipate becoming, a U.S. real property holding
corporation.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
COMMON STOCK

Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of our common stock effected by or through a U.S. office of a broker
unless the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds where the
transaction is effected outside the United States through a non-U.S. office of a
non-U.S. broker. However, U.S. information reporting requirements will apply to
a payment of disposition proceeds where the transaction is effected outside the
United States by or through an office outside the United States of a broker that
fails to maintain documentary evidence that the holder is a non-U.S. holder and
that certain conditions are met or that the holder otherwise is entitled to an
exemption, and the broker is:

(1) a U.S. person;

(2) a foreign person which derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United
States;

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(3) a "controlled foreign corporation" for U.S. federal income tax purposes;
or

(4) effective after December 31, 1999, a foreign partnership (A) at least
50% of the capital or profits interest in which is owned by U.S. persons,
or (B) that is engaged in a U.S. trade or business.

Effective after December 31, 1999, backup withholding will apply to a
payment of those disposition proceeds if the broker has actual knowledge that
the holder is a U.S. person.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.

FEDERAL ESTATE TAX

An individual non-U.S. holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in our common stock will be required
to include the value of that interest in his gross estate for U.S. federal
estate tax purposes, and may be subject to U.S. federal estate tax unless an
applicable estate tax treaty provides otherwise.

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UNDERWRITING

GENERAL

We intend to offer our common stock in the United States and Canada through
a number of U.S. underwriters as well as outside the United States and Canada
through international managers. Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc.,
Credit Suisse First Boston Corporation, Goldman, Sachs & Co., Lehman Brothers
Inc., NationsBanc Montgomery Securities LLC, Salomon Smith Barney Inc., Sanford
C. Bernstein & Co., Inc., Schroder & Co. Inc. and Utendahl Capital Partners,
L.P. are acting as U.S. representatives of each of the U.S. underwriters named
below. Subject to the terms and conditions set forth in a U.S. purchase
agreement between us and the U.S. underwriters, and concurrently with the sale
of 15,000,000 shares of our common stock to the international managers, we have
agreed to sell to the U.S. underwriters, and each of the U.S. underwriters
severally and not jointly has agreed to purchase from us, the number of shares
of common stock set forth opposite its name below.

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NUMBER OF
U.S. UNDERWRITER SHARES
------------------------------------------------------------------------------------------ ------------

Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................................... 12,320,000
Morgan Stanley & Co. Incorporated......................................................... 12,320,000
Bear, Stearns & Co. Inc................................................................... 6,417,750
Credit Suisse First Boston Corporation.................................................... 6,417,750
Goldman, Sachs & Co....................................................................... 6,417,750
Lehman Brothers Inc....................................................................... 6,417,750
NationsBanc Montgomery Securities LLC..................................................... 6,417,750
Salomon Smith Barney Inc.................................................................. 6,417,750
Sanford C. Bernstein & Co., Inc........................................................... 6,417,750
Schroder & Co. Inc........................................................................ 6,417,750
Utendahl Capital Partners, L.P............................................................ 500,000
Blaylock & Partners, L.P. ................................................................ 400,000
Guzman & Company.......................................................................... 400,000
CIBC Oppenheimer Corp..................................................................... 352,000
Cazenove Incorporated..................................................................... 352,000
Chase Securities Inc...................................................................... 352,000
Deutsche Bank Securities Inc.............................................................. 352,000
Donaldson, Lufkin & Jenrette Securities Corporation....................................... 352,000
Dresdner Kleinwort Benson North America LLC............................................... 352,000
A.G. Edwards & Sons, Inc.................................................................. 352,000
HSBC Securities, Inc...................................................................... 352,000
Lazard Freres & Co. LLC................................................................... 352,000
J.P. Morgan Securities Inc................................................................ 352,000
PaineWebber Incorporated.................................................................. 352,000
Prudential Securities Incorporated........................................................ 352,000
RBC Dominion Securities Corporation....................................................... 352,000
Wasserstein Perella Securities, Inc....................................................... 352,000
Arnhold and S. Bleichroeder, Inc.......................................................... 160,000
Crowell, Weedon & Co...................................................................... 160,000
Davenport & Company LLC................................................................... 160,000
D.A. Davidson & Co........................................................................ 160,000
First Albany Corporation.................................................................. 160,000
Gabelli & Company, Inc.................................................................... 160,000
Janney Montgomery Scott Inc............................................................... 160,000

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NUMBER OF
U.S. UNDERWRITER SHARES
------------------------------------------------------------------------------------------ ------------

Edward D. Jones & Co., L.P................................................................ 160,000
C.L. King & Associates, Inc............................................................... 160,000
Legg Mason Wood Walker, Incorporated...................................................... 160,000
Neuberger Berman, LLC..................................................................... 160,000
Ormes Capital Markets, Inc................................................................ 160,000
Pryor, McClendon, Counts & Co., Inc....................................................... 160,000
Ragen MacKenzie Incorporated.............................................................. 160,000
Samuel A. Ramirez & Co. Inc............................................................... 160,000
Muriel Siebert & Co., Inc................................................................. 160,000
Sutro & Co. Incorporated.................................................................. 160,000
May Davis Group Inc....................................................................... 70,000
------------
Total........................................................................... 85,000,000
------------
------------

We have also entered into an international purchase agreement with certain
underwriters outside the United States and Canada who we call international
managers and, together with the U.S. underwriters, the underwriters, for whom
Merrill Lynch International, Morgan Stanley & Co. International Limited, Bear,
Stearns International Limited, Credit Suisse First Boston (Europe) Limited,
Goldman Sachs International, Lehman Brothers International (Europe), Salomon
Brothers International Limited, J. Henry Schroder & Co. Limited and UBS AG,
acting through its division Warburg Dillon Read, are acting as lead managers.
Subject to the terms and conditions set forth in the international purchase
agreement, and concurrently with the sale of 85,000,000 shares of our common
stock to the U.S. underwriters under the terms of the U.S. purchase agreement,
we have agreed to sell to the international managers, and the international
managers severally have agreed to purchase from us, an aggregate of 15,000,000
shares of our common stock. The initial public offering price per share and the
total underwriting discount per share of common stock are identical under the
U.S. purchase agreement and the international purchase agreement.

In the U.S. purchase agreement and the international purchase agreement, the
several U.S. underwriters and the several international managers, respectively,
have agreed, subject to the terms and conditions set forth in those agreements,
to purchase all of the shares of common stock being sold under the terms of each
such agreement if any of the shares of common stock being sold under the terms
of that agreement are purchased. Under certain circumstances, under the U.S.
purchase agreement and the international purchase agreement, the commitments of
non-defaulting underwriters may be increased. The closings with respect to the
sale of shares of common stock to be purchased by the U.S. underwriters and the
international managers are conditioned upon one another.

We and PepsiCo have agreed to indemnify the U.S. underwriters and the
international managers against some liabilities, including some liabilities
under the Securities Act, or to contribute to payments the U.S. underwriters and
international managers may be required to make in respect of those liabilities.

The expenses of the offering, exclusive of the underwriting discount, are
estimated at $7.5 million and are payable by us and PepsiCo. The underwriters
have agreed to reimburse PepsiCo for certain expenses payable by it.

The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.

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COMMISSIONS AND DISCOUNTS

The U.S. representatives have advised us that the U.S. underwriters propose
initially to offer the shares of our common stock to the public at the initial
public offering price set forth on the cover page of this prospectus, and to
certain dealers at such price less a concession not in excess of $.56 per share
of common stock. The U.S. underwriters may allow, and such dealers may reallow,
a discount not in excess of $.10 per share of common stock to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.

The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the U.S. underwriters and the
international managers and the proceeds before expenses to us. This information
is presented assuming either no exercise or full exercise by the U.S.
underwriters and the international managers of their over-allotment options.

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WITHOUT WITH
PER SHARE OPTION OPTION
---------- ---------------- ----------------

Public offering price............................. $23.00 $ 2,300,000,000 $ 2,645,000,000
Underwriting discount............................. $.9177 $91,770,000 $105,535,500
Proceeds, before expenses, to PBG................. $ 22.0823 $ 2,208,230,000 $ 2,539,464,500

INTERSYNDICATE AGREEMENT

The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the U.S. underwriters and the
international managers are permitted to sell shares of our common stock to each
other for purposes of resale at the initial public offering price, less an
amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they sell
shares of our common stock will not offer to sell or sell shares of our common
stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the international managers and any dealer to whom they sell shares of our
common stock will not offer to sell or sell shares of our common stock to U.S.
persons or to Canadian persons or to persons they believe intend to resell to
U.S. or Canadian persons, except in the case of transactions under the terms of
the intersyndicate agreement.

OVER-ALLOTMENT OPTION

We have granted an option to the U.S. underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of 12,750,000
additional shares of our common stock at the initial public offering price set
forth on the cover page of this prospectus, less the underwriting discount. The
U.S. underwriters may exercise this option solely to cover over-allotments, if
any, made on the sale of our common stock offered hereby. To the extent that the
U.S. underwriters exercise this option, each U.S. underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares of our
common stock proportionate to such U.S. underwriter's initial amount reflected
in the foregoing table.

We also have granted an option to the international managers, exercisable
for 30 days after the date of this prospectus, to purchase up to an aggregate of
2,250,000 additional shares of our common stock to cover over-allotments, if
any, on terms similar to those granted to the U.S. underwriters.

RESERVED SHARES

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 1% of the shares offered hereby to be sold to some
of our directors and officers. The number of shares of our common stock
available for sale to the general public will be reduced to the extent that
those persons purchase the reserved shares. Any reserved shares which are not
orally confirmed for purchase

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within one day of the pricing of the offering will be offered by the
underwriters to the general public on the same terms as the other shares offered
by this prospectus.

NO SALES OF SIMILIAR SECURITIES

We and our executive officers and directors and PepsiCo have agreed, with
certain exceptions, not to directly or indirectly:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant for the sale of, lend or otherwise dispose of or transfer any
shares of our common stock or securities convertible into or exchangeable
or exercisable for or repayable with our common stock, whether now owned
or later acquired by the person executing the agreement or with respect to
which the person executing the agreement later acquires the power of
disposition, or file a registration statement under the Securities Act
relating to any shares of our common stock; or

- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise, without the prior written
consent of Merrill Lynch on behalf of the underwriters for a period of 180
days after the date of this prospectus. See "Shares Eligible for Future
Sale."

NEW YORK STOCK EXCHANGE LISTING

Before this offering, there has been no public market for our common stock.
The initial public offering price was determined through negotiations between us
and the U.S. representatives and the lead managers. The factors considered in
determining the initial public offering price, in addition to prevailing market
conditions, are the valuation multiples of publicly traded companies that the
U.S. representatives and the lead managers believe to be comparable to us,
certain of our financial information, the history of, and the prospects for, PBG
and the industry in which we compete, and an assessment of our management, its
past and present operations, the prospects for, and timing of, future revenues
of our company, the present state of our development, and the above factors in
relation to market values and various valuation measures of other companies
engaged in activities similar to ours. There can be no assurance that an active
trading market will develop for our common stock or that our common stock will
trade in the public market subsequent to the offerings at or above the initial
public offering price.

Our common stock has been approved for listing on the New York Stock
Exchange, subject to notice of issuance, under the symbol "PBG." In order to
meet the requirements for listing of our common stock on that exchange, the U.S.
underwriters and the international managers have undertaken to sell lots of 100
or more shares to a minimum of 2,000 beneficial owners.

The underwriters do not expect sales of our common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered under this prospectus.

PRICE STABILIZATION AND SHORT POSITIONS

Until the distribution of our common stock is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members to bid for and purchase our common stock. As an exception to these
rules, Merrill Lynch is permitted to engage in certain transactions that
stabilize the price of our common stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of our
common stock.

If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus, Merrill Lynch may
reduce that short position by purchasing our common stock in the open

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market. Merrill Lynch may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.

PENALTY BIDS

Merrill Lynch may also impose a penalty bid on certain underwriters and
selling group members. This means that if Merrill Lynch purchases shares of our
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of our common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.

Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.

OTHER RELATIONSHIPS

Some of the underwriters or their affiliates have provided investment
banking, financial advisory and banking services to our company, PepsiCo and our
respective affiliates, for which they have received customary compensation. The
underwriters may continue to render these services in the future.

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LEGAL MATTERS

Legal matters with respect to the validity of the issuance of the shares of
our common stock offered hereby will be passed upon for us by Pamela C. McGuire,
Senior Vice President, General Counsel and Secretary of PBG, and Davis Polk &
Wardwell, New York, New York. Legal matters relating to our common stock offered
hereby will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher
& Flom LLP, New York, New York. Each of Davis Polk & Wardwell and Skadden, Arps,
Slate, Meagher & Flom LLP has from time to time represented, and may continue to
represent, PepsiCo and its affiliates in certain legal matters, and is one of
several firms that have provided advice on taxation matters in connection with
the formation of PBG.

EXPERTS

Our combined financial statements and schedules as of December 26, 1998 and
December 27, 1997, and for each of the three years in the period ended December
26, 1998 included in this prospectus have been audited by KPMG LLP, independent
auditors, as stated in their reports appearing in this prospectus and elsewhere
in the registration statement, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act, and the rules and regulations
promulgated thereunder, with respect to the common stock offered under this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement and the attached exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract or other document that is filed as
an exhibit to the registration statement are not necessarily complete and each
such statement is qualified in all respects by reference to the full text of
such contract or document. For further information about us and our common
stock, refer to the registration statement and the attached exhibits and
schedules, which may be inspected and copied at the principal office of the
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any
part of those documents may be obtained at prescribed rates from the
Commission's Public Reference Section at such addresses. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. Also, the Commission maintains a world Wide Web
Site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Upon approval of our common stock for
listing on the New York Stock Exchange, such reports, proxy and information
statements and other information can be inspected also at the offices of the New
York Stock Exchange at 20 Broad Street, New York, New York 10005.

Upon completion of this offering, we will be required to comply with the
informational requirements of the Securities and Exchange Act of 1934 and,
accordingly, will file periodic reports, proxy statements and other information
with the Commission. Those reports, proxy statements and other information will
be available for inspection and copying at the regional offices, public
reference facilities and Web site of the Commission referred to above.

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THE PEPSI BOTTLING GROUP, INC.

INDEX TO FINANCIAL STATEMENTS

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PAGE

COMBINED FINANCIAL STATEMENTS

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

Combined Statements of Operations--
Fiscal years ended December 28, 1996, December 27, 1997 and December 26, 1998................... F-3

Combined Statements of Cash Flows--
Fiscal years ended December 28, 1996, December 27, 1997 and December 26, 1998................... F-4

Combined Balance Sheets--
December 27, 1997 and December 26, 1998......................................................... F-5

Combined Statements of Accumulated Other Comprehensive Loss--
Fiscal years ended December 28, 1996, December 27, 1997 and December 26, 1998................... F-6

Notes to Combined Financial Statements............................................................ F-7

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--UNAUDITED...................................... P-1

Pro Forma Condensed Combined Statement of Operations--
Fiscal year ended December 26, 1998............................................................. P-2

Pro Forma Condensed Combined Balance Sheet--
December 26, 1998............................................................................... P-3

Notes to unaudited Pro Forma Condensed Combined Financial Statements.............................. P-4

F-1

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THE PEPSI BOTTLING GROUP, INC.
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholder
The Pepsi Bottling Group, Inc.

We have audited the accompanying combined balance sheets of The Pepsi
Bottling Group, Inc. as of December 27, 1997 and December 26, 1998 and the
related combined statements of operations, cash flows and accumulated other
comprehensive loss for each of the fiscal years in the three-year period ended
December 26, 1998. These combined financial statements are the responsibility of
management of The Pepsi Bottling Group, Inc. Our responsibility is to express an
opinion on these combined financial statements based on our audits.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Pepsi Bottling
Group, Inc. as of December 27, 1997 and December 26, 1998, and the results of
its operations and its cash flows for each of the fiscal years in the three-year
period ended December 26, 1998, in conformity with generally accepted accounting
principles.

New York, New York
March 8, 1999

/s/ KPMG LLP

F-2

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THE PEPSI BOTTLING GROUP, INC.

COMBINED STATEMENTS OF OPERATIONS

IN MILLIONS, EXCEPT PER SHARE DATA

FISCAL YEARS ENDED DECEMBER 28, 1996,
DECEMBER 27, 1997 AND DECEMBER 26, 1998

[Enlarge/Download Table]

1996 1997 1998
--------- --------- ---------

NET SALES............................................................................ $ 6,603 $ 6,592 $ 7,041
Cost of sales........................................................................ 3,844 3,832 4,181
--------- --------- ---------
GROSS PROFIT......................................................................... 2,759 2,760 2,860
Selling, delivery and administrative expenses........................................ 2,392 2,425 2,583
Unusual impairment and other charges................................................. -- -- 222
--------- --------- ---------
OPERATING INCOME..................................................................... 367 335 55
Interest expense, net................................................................ 225 222 221
Foreign currency loss (gain)......................................................... 4 (2) 26
--------- --------- ---------
Income (loss) before income taxes.................................................... 138 115 (192)
Income tax expense (benefit)......................................................... 89 56 (46)
--------- --------- ---------
NET INCOME (LOSS).................................................................... $ 49 $ 59 $ (146)
--------- --------- ---------
--------- --------- ---------
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE.......................................... $ 0.89 $ 1.07 $ (2.65)

WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING................................ 55 55 55

See accompanying notes to Combined Financial Statements.

F-3

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THE PEPSI BOTTLING GROUP, INC.

COMBINED STATEMENTS OF CASH FLOWS

IN MILLIONS

FISCAL YEARS ENDED DECEMBER 28, 1996,
DECEMBER 27, 1997 AND DECEMBER 26, 1998

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1996 1997 1998
--------- --------- ---------

CASH FLOWS--OPERATIONS
Net income (loss)................................................................. $ 49 $ 59 $ (146)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation.................................................................... 296 316 351
Amortization.................................................................... 129 123 121
Non-cash impairment charge...................................................... -- -- 194
Non-cash portion of tax settlement.............................................. -- -- (46)
Deferred income taxes........................................................... 8 17 47
Other non-cash charges and credits, net......................................... 1 12 88
Changes in operating working capital, excluding effects of acquisitions and
dispositions:
Trade accounts receivable................................................... (87) 26 46
Inventories................................................................. 21 -- (25)
Prepaid expenses, deferred income taxes and other current assets............ 35 (54) 8
Accounts payable and other current liabilities.............................. (5) 56 39
Trade accounts payable to PepsiCo........................................... (9) 7 --
Income taxes payable........................................................ 13 (14) (52)
--------- --------- ---------
Net change in operating working capital....................................... (32) 21 16
--------- --------- ---------
NET CASH PROVIDED BY OPERATIONS................................................... 451 548 625
--------- --------- ---------
CASH FLOWS--INVESTMENTS
Capital expenditures.............................................................. (418) (472) (507)
Acquisitions of bottlers and investments in affiliates............................ (26) (49) (546)
Sales of bottling operations and property, plant and equipment.................... 55 23 31
Other, net........................................................................ 13 (66) (24)
--------- --------- ---------
NET CASH USED FOR INVESTMENTS..................................................... (376) (564) (1,046)
--------- --------- ---------
CASH FLOWS--FINANCING
Short-term borrowings--three months or less....................................... 54 (90) 52
Proceeds from third party debt.................................................... 4 3 50
Payments of third party debt...................................................... (7) (11) (72)
Increase (decrease) in advances from PepsiCo...................................... (117) 161 340
--------- --------- ---------
NET CASH PROVIDED BY (USED FOR) FINANCING......................................... (66) 63 370
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS...................... -- (1) 1
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. 9 46 (50)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR...................................... 31 40 86
--------- --------- ---------
CASH AND CASH EQUIVALENTS--END OF YEAR............................................ $ 40 $ 86 $ 36
--------- --------- ---------
--------- --------- ---------

SUPPLEMENTAL CASH FLOW INFORMATION
NON-CASH INVESTING AND FINANCING ACTIVITIES:
PepsiCo capital stock issued in conjunction with acquisitions of bottlers..... $ -- $ 14 $ --
Liabilities incurred and/or assumed in conjunction with acquisitions of
bottlers.................................................................... 2 3 161

See accompanying notes to Combined Financial Statements.

F-4

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THE PEPSI BOTTLING GROUP, INC.

COMBINED BALANCE SHEETS

IN MILLIONS

DECEMBER 27, 1997 AND DECEMBER 26, 1998

[Enlarge/Download Table]

1998
PRO FORMA
1997 1998 (UNAUDITED)
--------- --------- -------------

(SEE NOTE 19)
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................................... $ 86 $ 36 $ 36
Trade accounts receivable, less allowance of $45 and $46, in 1997 and 1998,
respectively.................................................................. 808 808 808
Inventories..................................................................... 257 296 296
Prepaid expenses, deferred income taxes and other current assets................ 185 178 178
--------- --------- ------
TOTAL CURRENT ASSETS.......................................................... 1,336 1,318 1,318

Property, plant and equipment, net.............................................. 1,918 2,055 2,055
Intangible assets, net.......................................................... 3,679 3,806 3,806
Other assets.................................................................... 255 143 183
--------- --------- ------
TOTAL ASSETS.................................................................. $ 7,188 $ 7,322 $ 7,362
--------- --------- ------
--------- --------- ------
LIABILITIES AND ACCUMULATED OTHER COMPREHENSIVE LOSS
CURRENT LIABILITIES
Accounts payable and other current liabilities.................................. $ 811 $ 881 $ 881
Trade accounts payable to PepsiCo............................................... 23 23 23
Income taxes payable............................................................ 273 9 9
Short-term borrowings........................................................... 40 112 2,500
--------- --------- ------
TOTAL CURRENT LIABILITIES..................................................... 1,147 1,025 3,413

Allocation of PepsiCo long-term debt............................................ 3,300 3,300 --
Long-term debt due to third parties............................................. 96 61 3,300
Other liabilities............................................................... 350 367 367
Deferred income taxes........................................................... 1,076 1,202 1,202
Advances from PepsiCo........................................................... 1,403 1,605 (682)
--------- --------- ------
TOTAL LIABILITIES............................................................. 7,372 7,560 7,600

Accumulated other comprehensive loss............................................ (184) (238) (238)
--------- --------- ------
TOTAL LIABILITIES AND ACCUMULATED OTHER COMPREHENSIVE LOSS.................... $ 7,188 $ 7,322 $ 7,362
--------- --------- ------
--------- --------- ------

See accompanying notes to Combined Financial Statements.

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THE PEPSI BOTTLING GROUP, INC.

COMBINED STATEMENTS OF
ACCUMULATED OTHER COMPREHENSIVE LOSS

IN MILLIONS
FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 27, 1997

AND DECEMBER 26, 1998

[Enlarge/Download Table]

ACCUMULATED
OTHER
COMPREHENSIVE COMPREHENSIVE
INCOME/(LOSS) LOSS
--------------- ---------------

BALANCE AT DECEMBER 30, 1995...................................................... $ (66)
Comprehensive income:
Net income.................................................................... $ 49
Currency translation adjustment............................................... (36) (36)
----- -----
Total comprehensive income...................................................... $ 13
-----
-----

BALANCE AT DECEMBER 28, 1996...................................................... (102)
Comprehensive loss:
Net income.................................................................... $ 59
Currency translation adjustment............................................... (82) (82)
----- -----
Total comprehensive loss........................................................ $ (23)
-----
-----

BALANCE AT DECEMBER 27, 1997...................................................... (184)
Comprehensive loss:
Net loss...................................................................... $ (146)
Currency translation adjustment............................................... (35) (35)
Minimum pension liability adjustment.......................................... (19) (19)
----- -----
Total comprehensive loss........................................................ $ (200)
-----
-----
BALANCE AT DECEMBER 26, 1998...................................................... $ (238)
-----
-----

See accompanying notes to Combined Financial Statements.

F-6

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THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

NOTE 1--BASIS OF PRESENTATION

The Pepsi Bottling Group, Inc. consists of bottling operations located in
the United States, Canada, Spain, Greece and Russia. Prior to its formation, PBG
was an operating unit of PepsiCo, Inc. These bottling operations manufacture,
sell and distribute Pepsi-Cola beverages including PEPSI-COLA, DIET PEPSI,
MOUNTAIN DEW and other brands of carbonated soft drinks and other ready-to-drink
beverages. Approximately 88% of PBG's 1998 net sales were derived from the sale
of Pepsi-Cola beverages.

Following the offering, if the underwriters do not exercise their
over-allotment option, PepsiCo will own 35.4% of PBG's outstanding common stock
and 100% of PBG's outstanding Class B common stock, together representing 43.5%
of the voting power of all classes of PBG's voting stock. PepsiCo will also own
7.1% of the equity of Bottling LLC, PBG's principal operating subsidiary, giving
PepsiCo economic ownership of 40.0% of PBG's combined operations. PBG
anticipates that PepsiCo's voting power of all classes of PBG's voting stock
will be 40.1% and its economic ownership of our combined operations will be
37.1% if the underwriters exercise their over-allotment option in full.

PBG was incorporated in Delaware in January 1999. Its amended certificate of
incorporation provides for initial authorized capital of 300,000,000 shares of
common stock, par value $.01 per share, 100,000 shares of Class B common stock,
par value $.01 per share, and 20,000,000 shares of preferred stock, par value
$.01 per share. In connection with the transfer of bottling assets to it, PBG
issued 389,805 shares of its common stock and 665 shares of its Class B common
stock to PepsiCo and its subsidiaries. Pursuant to a stock split declared by
PBG's board of directors and the conversion by PepsiCo and its subsidiaries of a
portion of its Class B common stock immediately after the stock split, prior to
the offering PBG had 55,000,000 shares of its capital stock outstanding,
consisting of 54,912,000 shares of common stock and 88,000 shares of its Class B
common stock. The PBG board has authorized issuance of 100,000,000 shares of
common stock in connection with the offering and issuance of up to an additional
15,000,000 shares of common stock if the underwriters exercise their
overallotment option in full in connection with the offering.

The two classes of capital stock are substantially identical, except for
voting rights. Holders of common stock are entitled to one vote per share and
holders of Class B common stock are entitled to 250 votes per share. Each share
of Class B common stock held by PepsiCo is, at PepsiCo's option, convertible
into one share of common stock. Holders of common stock and holders of Class B
common stock shall share equally on a per share basis in any dividend
distributions declared by PBG's board of directors. PBG has no current plan to
issue any preferred stock.

PBG and PepsiCo will enter into agreements providing for the separation of
the companies and governing various relationships between PBG and PepsiCo,
including a separation agreement, tax separation agreement, employee programs
agreement, registration rights agreement and shared services agreement. In
connection with the offering, PBG expects to enter into a master bottling
agreement, non-cola bottling agreements, master syrup agreement and country
specific bottling agreements which will govern the preparation, bottling and
distribution of beverages in PBG's territories. The Pepsi beverage agreements
permit PBG to use the concentrates purchased from PepsiCo to bottle and
distribute a variety of beverages under certain authorized brand names, and to
utilize, under certain conditions, trademarks of PepsiCo to promote such
products.

The accompanying Combined Financial Statements are presented on a carve-out
basis and include the historical results of operations and assets and
liabilities directly related to PBG and have been prepared from PepsiCo's
historical accounting records.

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THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

PBG was allocated $42 million of overhead costs related to PepsiCo's
corporate administrative functions in 1996 and 1997 and $40 million in 1998. The
allocation was based on a specific identification of PepsiCo's administrative
costs attributable to PBG and, to the extent that such identification was not
practicable, on the basis of PBG's sales as a percentage of PepsiCo's sales. The
allocated costs are included in selling, delivery and administrative expenses in
the Combined Statements of Operations. Management believes that such allocation
methodology is reasonable. Subsequent to the offering, PBG will be required to
manage these functions and will be responsible for the expenses associated with
the operations of a public company. In addition, PBG expects to change from a
non-compensatory, broad-based stock option program to an alternative program.
While this alternative program has not been finalized or approved by the board
of directors, management anticipates that the new plan could cost up to an
additional $12 million per year.

PBG's operations have been financed through its operating cash flows and
advances from PepsiCo. PBG's interest expense includes an allocation of
PepsiCo's interest expense based on PepsiCo's weighted average interest rate
applied to a debt level of $3.3 billion. The $3.3 billion of debt has been
determined by management to be an appropriate allocation in the historical
financial statements related to PBG's operations because it is the amount of
long-term debt that is expected to be outstanding as of the date the offering is
completed. PBG was allocated interest expense of $205 million in 1996 and 1997
and $210 million in 1998. This allocation reflects PepsiCo's weighted average
interest rate of 6.2% in 1996 and 1997 and 6.4% in 1998.

Income tax was calculated as if PBG had filed separate income tax returns.
PBG's future effective tax rate will depend largely on its structure and tax
strategies as a separate, independent company.

Allocations of corporate overhead and interest costs have been deemed to
have been paid by PBG to PepsiCo, in cash, in the period in which the cost was
incurred. Amounts paid to third parties for interest were $18 million, $21
million and $20 million in 1996, 1997 and 1998, respectively. Amounts paid to
third parties for income taxes were not significant in the years presented.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

BASIS OF COMBINATION The accounts of all wholly-owned subsidiaries of PBG
are included in the accompanying Combined Financial Statements. Intercompany
accounts and transactions have been eliminated in combination.

FISCAL YEAR PBG's fiscal year ends on the last Saturday in December and, as
a result, a fifty-third week is added every five or six years. Fiscal years
1996, 1997 and 1998 consisted of 52 weeks.

REVENUE RECOGNITION PBG recognizes revenue when goods are delivered to
customers. Sales terms do not allow a right of return unless product freshness
dating has expired. At fiscal year-end 1996, 1997 and 1998, reserves for
returned product were $2 million.

ADVERTISING AND MARKETING COSTS PBG is involved in a variety of programs to
promote its products. Advertising and marketing costs included in selling,
delivery and administrative expenses are

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THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

expensed in the year incurred. Advertising and marketing costs were $213
million, $210 million and $233 million in 1996, 1997 and 1998, respectively.

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

The total amount of bottler incentives received from PepsiCo and other brand
owners in the form of marketing support amounted to $421 million, $463 million,
and $536 million for 1996, 1997 and 1998, respectively. Of these amounts, $238
million, $235 million, and $247 million for 1996, 1997 and 1998 were recorded in
net sales, and the remainder was recorded in selling, delivery and
administrative expenses. The amount of bottler incentives received from PepsiCo
was more than 90% of total bottler incentives in each of the three years, with
the balance received from the other brand owners.

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

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

INVENTORIES Inventories are valued at the lower of cost computed on the
first-in, first-out method or net realizable value.

PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at
cost. Depreciation is calculated on a straight-line basis over the estimated
useful lives of the assets as follows: 20 to 33 years for buildings and
improvements and 3 to 10 years for equipment.

INTANGIBLE ASSETS Intangible assets, which are principally franchise rights
and goodwill, arose from the allocations of purchase prices of businesses
acquired. Franchise rights and goodwill are evaluated at the date of acquisition
and amortized on a straight-line basis over their estimated useful lives which
is in most cases between 20 to 40 years.

RECOVERABILITY OF LONG-LIVED ASSETS PBG reviews all long-lived assets,
including intangible assets, when facts and circumstances indicate that the
carrying value of the asset may not be recoverable.

An impaired asset is written down to its estimated fair value based on the
best information available. Estimated fair value is generally based on either
appraised value or measured by discounting

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THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

estimated future cash flows. Considerable management judgment is necessary to
estimate discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT PBG uses futures contracts and
options on futures to hedge against the risk of adverse movements in the price
of certain commodities used in the manufacture of its products. In order to
qualify for deferral hedge accounting of unrealized gains and losses, such
instruments must be designated and effective as a hedge of an anticipatory
transaction. Changes in the value of instruments that PBG uses to hedge
commodity prices are highly correlated to the changes in the value of the
purchased commodity. Management reviews the correlation and effectiveness of
these financial instruments on a periodic basis. Financial instruments that do
not meet the criteria for hedge accounting treatment are marked-to-market with
the resulting unrealized gain or loss recorded as other income and expense.

Realized gains and losses that result from the early termination of
financial instruments used for hedging purposes are deferred and are included in
cost of sales when the anticipated transaction actually occurs.

Premiums paid for the purchase of options on futures are recorded as a
prepaid expense in the Combined Balance Sheets and are amortized as an
adjustment to cost of sales over the duration of the option contract.

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

NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and display
of net income and other gains and losses affecting stockholder's equity that are
excluded from net income. The only components of comprehensive income or loss
are net income, foreign currency translation and a minimum pension liability
adjustment. These financial statements reflect the adoption of SFAS 130.

In June 1997, the FASB issued Statement of Financial Accounting Standard
131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes standards for reporting information about operating segments
and related disclosures about products and services, geographic areas and major
customers. SFAS 131 requires that the definition of operating segments align
with the measurements used internally to assess performance. These financial
statements reflect the adoption of SFAS 131.

In February 1998, the FASB issued Statement of Financial Accounting Standard
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
SFAS 132 standardized the disclosures of pensions and other postretirement
benefits into a combined disclosure but did not affect results of operations or
financial position. These financial statements reflect the adoption of SFAS 132.

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THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

In June 1998, the FASB issued Statement of Financial Accounting Standard
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts which are collectively referred to as derivatives, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. PBG is currently assessing the effects of adopting
SFAS 133, and has not yet made a determination of the impact on its financial
position or results of operations. SFAS 133 will be effective for PBG's first
quarter of fiscal year 2000.

EARNINGS PER SHARE Basic and diluted earnings per share attributed to PBG
common stock were determined based on net income divided by the 55 million
shares of common stock and Class B common stock outstanding prior to the
offering. For purposes of the earnings per share calculation, the shares
outstanding prior to the offering are treated as outstanding for all periods
presented. There were no potentially dilutive securities outstanding during the
periods presented.

NOTE 3--UNUSUAL IMPAIRMENT AND OTHER CHARGES AFFECTING COMPARABILITY

[Enlarge/Download Table]

1998
---------

RUSSIA
Asset impairment charges
Buildings..................................................................................... $ 35
Production equipment.......................................................................... 63
Marketing, distribution and other assets...................................................... 59
Intangible assets............................................................................. 37
---------
194
Restructuring costs
Manufacturing contract renegotiations......................................................... 5
Employee severance............................................................................ 6
Facility closure.............................................................................. 7
---------
Total Russia charges............................................................................ 212

U.S. AND CANADA
Employee related costs.......................................................................... 10
---------
TOTAL UNUSUAL ITEMS............................................................................... $ 222
---------
---------
After tax....................................................................................... $ 218
---------
---------

The 1998 unusual impairment and other charges of $222 million are comprised
of the following:

- A fourth quarter charge of $212 million for asset impairment of $194
million and other charges of $18 million related to the restructuring of
PBG's Russian bottling operations. The economic turmoil in Russia which
accompanied the devaluation of the ruble in August 1998 had an adverse
impact on these operations. Consequently in the fourth quarter PBG
experienced a significant drop in demand, resulting in lower net sales and
increased operating losses. Additionally, since net sales in Russia are
denominated in rubles, whereas a substantial portion of costs and expenses
are denominated in U.S. dollars, operating margins were further eroded. In
response to these conditions, PBG has reduced its cost structure primarily
through closing

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THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

four of its 26 distribution facilities, renegotiating manufacturing
contracts and reducing the number of employees, primarily in sales and
operations, from approximately 4,500 to 2,000. PBG has also evaluated the
resulting impairment of long-lived assets, triggered by the reduction in
utilization of assets caused by the lower demand, the adverse change in
the business climate and the expected continuation of operating losses and
cash deficits in that market. The impairment charge reduced the net book
value of the assets from $245 million to $51 million, their estimated fair
market value based primarily on values recently paid for similar assets in
that marketplace.

Although PBG does not believe that additional charges will be required in
Russia based on current conditions, additional charges could be required
if there were significant further deterioration in economic conditions.

At year end 1998, $14 million remained in other accrued liabilities
relating to these actions, of which $7 million relates to lease
termination costs on facilities, $4 million for manufacturing contract
renegotiation and the balance for employee severance. PBG anticipates that
most of these accrued liabilities will be paid by the end of the first
quarter of 1999.

- A fourth quarter charge of $10 million for employee related costs, mainly
relocation and severance, resulted from the separation of Pepsi-Cola North
America's concentrate and bottling organizations. This charge comprises $8
million for relocation and $2 million for the severance of approximately
60 sales, general management and other employees of which approximately 50
ceased employment prior to year end. At year end 1998, $9 million remained
in other accrued liabilities relating to these actions. PBG anticipates
that substantially all of these accrued liabilities will be paid by the
end of the first quarter 1999.

INCOME TAX BENEFIT PBG recognized an income tax benefit of $46 million in
the fourth quarter of 1998 upon the settlement of a disputed claim with the
Internal Revenue Service relating to the deductibility of the amortization of
acquired franchise rights. The settlement also resulted in the reduction of
goodwill and income taxes payable by $194 million.

NOTE 4--INVENTORIES

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1997 1998
--------- ---------

Raw materials and supplies............................................... $ 104 $ 120
Finished goods........................................................... 153 176
--------- ---------
$ 257 $ 296
--------- ---------
--------- ---------

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THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

NOTE 5--PROPERTY, PLANT AND EQUIPMENT, NET

[Enlarge/Download Table]

1997 1998
--------- ---------

Land..................................................................... $ 141 $ 151
Buildings and improvements............................................... 699 813
Production and distribution equipment.................................... 1,815 1,989
Marketing equipment...................................................... 1,164 1,368
Other.................................................................... 102 95
--------- ---------
3,921 4,416
Accumulated depreciation................................................. (2,003) (2,361)
--------- ---------
$ 1,918 $ 2,055
--------- ---------
--------- ---------

NOTE 6--INTANGIBLE ASSETS, NET

[Enlarge/Download Table]

1997 1998
--------- ---------

Franchise rights and other identifiable intangibles...................... $ 3,175 $ 3,460
Goodwill................................................................. 1,580 1,539
--------- ---------
4,755 4,999
Accumulated amortization................................................. (1,076) (1,193)
--------- ---------
$ 3,679 $ 3,806
--------- ---------
--------- ---------

Identifiable intangible assets principally arise from the allocation of the
purchase price of businesses acquired and consist primarily of territorial
franchise rights. Amounts assigned to such identifiable intangibles were based
on their estimated fair value at the date of acquisition. Goodwill represents
the residual purchase price after allocation to all identifiable net assets.

NOTE 7--ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

[Enlarge/Download Table]

1997 1998
--------- ---------

Accounts payable......................................................... $ 313 $ 328
Accrued compensation and benefits........................................ 151 174
Trade incentives......................................................... 148 163
Other current liabilities................................................ 199 216
--------- ---------
$ 811 $ 881
--------- ---------
--------- ---------

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THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

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

[Enlarge/Download Table]

1997 1998
--------- ---------

Short-term borrowings
Current maturities of long-term debt..................................... $ 29 $ 48
Borrowings under lines of credit......................................... 11 64
--------- ---------
$ 40 $ 112
--------- ---------
--------- ---------
Long-term debt due to third parties
5.1% notes due 2003...................................................... $ -- $ 39
17.5% notes due 1999..................................................... 35 35
6.2% notes due 2000...................................................... 33 --
Other loans due 1999-2012 with interest rates of 6%-12%.................. 27 28
--------- ---------
95 102
Capital lease obligations................................................ 30 7
--------- ---------
125 109
Less current maturities of long-term debt................................ 29 48
--------- ---------
$ 96 $ 61
--------- ---------
--------- ---------
Allocation of PepsiCo long-term debt....................................... $ 3,300 $ 3,300

Maturities of long-term debt as of December 26, 1998 are: 1999--$46 million,
2000-$1 million, 2001--$3 million, 2002--$4 million, 2003--$41 million and
thereafter, $7 million.

The $3.3 billion allocation of PepsiCo long-term debt has been determined by
management to be an appropriate allocation in the financial statements related
to PBG's operations. PBG's interest expense includes an allocation of PepsiCo's
weighted average interest rate of 6.2% in 1996 and 1997 and 6.4% in 1998. The
related allocated interest expense was $205 million in 1996 and 1997 and $210
million in 1998. See note 19 for refinancing subsequent to December 26, 1998.

PBG has available short-term bank credit lines of approximately $81 million
and $95 million at December 27, 1997 and December 26, 1998, respectively. These
lines are denominated in various foreign currencies to support general operating
needs in their respective countries. The weighted average interest rate of these
lines of credit outstanding at December 27, 1997 and December 26, 1998 was 8.6%
and 8.7%, respectively.

NOTE 9--LEASES

PBG has noncancelable commitments under both capital and long-term operating
leases. Capital and operating lease commitments expire at various dates through
2021. Most leases require payment of related executory costs, which include
property taxes, maintenance and insurance.

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THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

Future minimum commitments under noncancelable leases are set forth below:

[Enlarge/Download Table]

COMMITMENTS
------------------------

CAPITAL OPERATING
----------- -----------
1999..................................................................... $ 2 $ 46
2000..................................................................... 2 41
2001..................................................................... 1 37
2002..................................................................... 1 33
2003..................................................................... 1 23
Later years.............................................................. 4 107
--- -----
$ 11 $ 287
--- -----
--- -----

At December 26, 1998, the present value of minimum payments under capital
leases was $7 million after deducting $4 million representing imputed interest.

Rental expense was $42 million, $35 million and $45 million for 1996, 1997
and 1998, respectively.

NOTE 10--FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

COMMODITY PRICES PBG uses futures contracts and options on futures in the
normal course of business to hedge anticipated purchases of certain raw
materials used in PBG's manufacturing operations.

Deferred gains and losses at year end 1997 and 1998, as well as gains and
losses recognized as part of cost of sales in 1996, 1997 and 1998 were not
significant. There were no outstanding commodity contracts at December 27, 1997.
At December 26, 1998, commodity contracts involving notional amounts of $71
million were outstanding. These notional amounts do not represent amounts
exchanged by the parties and thus are not a measure of PBG's exposure; rather,
they are used as the basis to calculate the amounts due under the agreements.

INTEREST RATE RISK Prior to the offering, PBG had minimal external interest
rate risk to manage. Subsequent to this offering, however, PBG intends to manage
any significant interest rate exposure by using financial derivative instruments
as part of a program to manage the overall cost of borrowing.

FOREIGN EXCHANGE RISK As currency exchange rates change, translation of the
statements of operations of our international business into U.S. dollars affects
year-over-year comparability. PBG has not historically hedged translation risks
because cash flows from international operations have generally been reinvested
locally, nor historically have we entered into hedges to minimize the volatility
of reported earnings.

FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of PBG's financial
instruments approximates fair value due to the short maturity of PBG's financial
instruments and since interest rates approximate fair value for long-term debt.
PBG does not use any financial instruments for trading or speculative purposes.

F-15

424B4 95th Page of 111 TOC 1st Previous Next ↓Bottom Just 95th
THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

NOTE 11--PENSION AND POSTRETIREMENT BENEFIT PLANS

PENSION BENEFITS

U.S. employees of PBG participate in PepsiCo sponsored noncontributory
defined benefit pension plans which cover substantially all full-time salaried
employees, as well as certain hourly employees. Benefits generally are based on
years of service and compensation or stated amounts for each year of service.
All plans are funded and contributions are made in amounts not less than minimum
statutory funding requirements nor more than the maximum amount that can be
deducted for U.S. income tax purposes. Net pension expense for the defined
benefit pension plans for PBG's foreign operations was not significant.

It is intended that PBG will assume the existing defined benefit pension
plan obligations for its employees as of the offering date and trust assets from
the funded plans will be transferred based upon actuarial determinations in
accordance with regulatory requirements.

POSTRETIREMENT BENEFITS

PepsiCo has historically provided postretirement health care benefits to
eligible retired employees and their dependents, principally in the United
States. Retirees who have 10 years of service and attain age 55 are eligible to
participate in the postretirement benefit plans. The plans are not funded and
since 1993 have included retiree cost sharing. It is intended that PBG will
assume the related obligations from PepsiCo for PBG employees.

[Enlarge/Download Table]

PENSION
-------------------------------
Components of net periodic benefit cost: 1996 1997 1998
----------------------------------------------------------------------------------------- --------- --------- ---------

Service cost............................................................................. $ 17 $ 22 $ 24
Interest cost............................................................................ 28 35 37
Expected return on plan assets........................................................... (34) (41) (45)
Amortization of transition asset......................................................... (3) (4) (2)
Amortization of prior service amendments................................................. 3 4 4
--- --------- ---------
Net periodic benefit cost................................................................ 11 16 18
Settlement loss.......................................................................... -- -- 1
--- --------- ---------
Net periodic benefit cost including settlements.......................................... $ 11 $ 16 $ 19
--- --------- ---------
--- --------- ---------

[Enlarge/Download Table]

POSTRETIREMENT
-------------------------------
Components of net periodic benefit cost: 1996 1997 1998
----------------------------------------------------------------------------------------- --------- --------- ---------

Service cost............................................................................. $ 4 $ 3 $ 4
Interest cost............................................................................ 15 15 12
Amortization of prior service amendments................................................. (5) (5) (5)
Amortization of net loss................................................................. 2 -- --
--- --------- ---------
Net periodic benefit cost................................................................ $ 16 $ 13 $ 11
--- --------- ---------
--- --------- ---------

F-16

424B4 96th Page of 111 TOC 1st Previous Next ↓Bottom Just 96th
THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

Prior service costs are amortized on a straight-line basis over the average
remaining service period of employees expected to receive benefits.

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PENSION POSTRETIREMENT
-------------------- --------------------
Change in the benefit obligation: 1997 1998 1997 1998
-------------------------------------------------------------------------- --------- --------- --------- ---------

Obligation at beginning of year........................................... $ 485 $ 545 $ 180 $ 164
Service cost.............................................................. 22 24 3 4
Interest cost............................................................. 35 37 15 12
Plan amendments........................................................... 5 5 -- --
Actuarial (gain)/loss..................................................... 24 78 (23) 19
Benefit payments.......................................................... (26) (36) (11) (12)
Settlement gain........................................................... -- (5) -- --
--------- --------- --------- ---------
Obligation at end of year................................................. $ 545 $ 648 $ 164 $ 187
--------- --------- --------- ---------
--------- --------- --------- ---------

PENSION POSTRETIREMENT
-------------------- --------------------
Change in the fair value of assets: 1997 1998 1997 1998
-------------------------------------------------------------------------- --------- --------- --------- ---------

Fair value at beginning of year........................................... $ 480 $ 602 $ -- $ --
Actual return on plan assets.............................................. 134 (26) -- --
Employer contributions.................................................... 14 5 11 12
Benefit payments.......................................................... (26) (36) (11) (12)
Settlement gain........................................................... -- (4) -- --
--------- --------- --------- ---------
Fair value at end of year................................................. $ 602 $ 541 $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
[Enlarge/Download Table]

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

PENSION POSTRETIREMENT
-------------------- --------------------
1997 1998 1997 1998
--------- --------- --------- ---------
Projected benefit obligation............................. $ (23) $ (648) $ (164) $ (187)

Accumulated benefit obligation........................... (7) (575) (164) (187)
Fair value of plan assets................................ -- 541 N/A N/A

Funded status as recognized on the Combined Balance Sheets:

PENSION POSTRETIREMENT
-------------------- --------------------
1997 1998 1997 1998
--------- --------- --------- ---------

Funded status at end of year............................. $ 57 $ (107) $ (164) $ (187)
Unrecognized prior service cost.......................... 34 34 (27) (22)
Unrecognized (gain)/loss................................. (65) 82 1 20
Unrecognized transition asset............................ (3) (1) -- --
--- --------- --------- ---------
Net amounts recognized................................... $ 23 $ 8 $ (190) $ (189)
--- --------- --------- ---------
--- --------- --------- ---------

F-17

424B4 97th Page of 111 TOC 1st Previous Next ↓Bottom Just 97th
THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

Weighted-average assumptions at end of year:

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PENSION
-------------------------------

1996 1997 1998
--------- --------- ---------
Discount rate for benefit obligation...................................... 7.7% 7.2% 6.8%
Expected return on plan assets............................................ 10.0 10.0 10.0
Rate of compensation increase............................................. 4.8 4.8 4.8

The discount rate assumptions used to compute the postretirement benefit
obligation at year-end were 7.4% in 1997 and 6.9% in 1998.

COMPONENTS OF PENSION ASSETS

The pension plan assets are principally stocks and bonds.

HEALTH CARE COST TREND RATES

An average increase of 6.7% in the cost of covered postretirement medical
benefits is assumed for 1999 for employees who retired before cost sharing was
introduced. This average increase is then projected to decline gradually to 5.5%
in 2005 and thereafter.

An average increase of 6.5% in the cost of covered postretirement medical
benefits is assumed for 1999 for employees who retired after cost sharing was
introduced. This average increase is then projected to decline gradually to zero
in 2000 and thereafter.

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

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1% 1%
INCREASE DECREASE
------------- -------------

Effect on total of 1998 service and interest cost components................................. $ 1 $ (1)
Effect on the 1998 accumulated postretirement benefit obligation............................. 8 (7)

NOTE 12--EMPLOYEE STOCK OPTION PLANS

At the offering date PBG expects to offer its full-time employees below the
middle-management level a one-time founder's grant of options to purchase 100
shares of PBG stock. These options will have an exercise price equal to the
initial public offering price. Approximately 3.6 million shares of common stock
have been reserved and will be issuable upon exercise of these options.

In addition, PBG has adopted a long-term incentive plan for middle and
senior management employees. Middle and senior management employees will receive
an option grant that will vary according to salary and level within PBG. These
options will have an exercise price equal to the initial public offering price.
Approximately 8 million shares of common stock have been reserved and will be
issuable upon exercise of these options.

When employed by PepsiCo, PBG employees were granted stock options under
PepsiCo's three long-term incentive plans: the SharePower Stock Option Plan; the
Long-Term Incentive Plan; and the Stock Option Incentive Plan.

F-18

424B4 98th Page of 111 TOC 1st Previous Next ↓Bottom Just 98th
THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

- Prior to 1997, SharePower options were granted annually to essentially all
full-time employees and become exercisable ratably over 5 years from the
grant date and must be exercised within 10 years from the grant date.
There were no SharePower options granted in 1997. All SharePower options
granted in 1998 become exercisable in 3 years from the grant date and must
be exercised within 10 years from the grant date.

- Most LTIP options were granted every other year to senior management
employees. Most of these options become exercisable after 4 years and must
be exercised within 10 years from the grant date. In addition, the LTIP
allows for grants of performance share units. The maximum value of a unit
is fixed at the value of a share of PepsiCo stock at the grant date and
vests 4 years from the grant date. Payment of units are made in cash
and/or stock and the payment amount is determined based on the attainment
of prescribed performance goals. Amounts expensed for performance share
units for PBG employees in 1996, 1997 and 1998 were not significant.

In 1998 the LTIP was modified. Under the revised program, executives are
granted stock options which vest over a three year period and must be
exercised within 10 years from the grant date. In addition to these option
grants, executives may receive an additional grant or cash based upon the
achievement of PepsiCo performance objectives over three years. PBG
accrues compensation expense for the cash portion of the LTIP grant.

- Stock Option Incentive Plan options are granted to middle-management
employees and, prior to 1997, were granted annually. These options are
exercisable after one year and must be exercised within 10 years after
their grant date. In 1998, this plan was combined with the LTIP.

The amounts presented below represent options granted under PepsiCo employee
stock option plans. The pro forma amounts below are not necessarily
representative of the effects of stock-based awards on future net income because
the plans eventually adopted by PBG may differ from PepsiCo stock option plans
and accordingly (1) future grants of employee stock options to PBG management
may not be comparable to awards made to employees while PBG was a part of
PepsiCo, and (2) the assumptions used to compute the fair value of any stock
option awards will be specific to PBG and, therefore, may not be comparable to
the PepsiCo assumptions used.

[Enlarge/Download Table]

1996 1997 1998
------------------------------ ------------------------------ ------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
(OPTIONS IN MILLIONS) OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
----------- ----------------- ----------- ----------------- ----------- -----------------

Outstanding at beginning of year.... 24.1 $ 16.76 26.4 $ 19.87 24.5 $ 19.13
Granted........................... 5.2 32.43 0.2 33.97 7.4 36.50
Exercised......................... (2.1) 14.97 (3.2) 14.97 (4.4) 15.35
Forfeited......................... (0.8) 20.76 (0.6) 23.24 (0.6) 28.68
PepsiCo modification (a).......... -- -- 1.7 -- -- --
--- ------ --- ------ --- ------
Outstanding at end of year.......... 26.4 $ 19.87 24.5 $ 19.13 26.9 $ 24.33
--- ------ --- ------ --- ------
--- ------ --- ------ --- ------
Exercisable at end of year.......... 13.3 $ 15.04 14.7 $ 15.90 14.2 $ 17.26
--- ------ --- ------ --- ------
--- ------ --- ------ --- ------
Weighted average fair value of
options granted during the year... $ 9.32 $ 9.64 $ 9.74
------ ------ ------
------ ------ ------

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424B4 99th Page of 111 TOC 1st Previous Next ↓Bottom Just 99th
THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

(a) In 1997, PepsiCo spun off its restaurant businesses to its shareholders. In
connection with this spin-off, the number of options for PepsiCo capital
stock were increased and their exercise prices were decreased to preserve
the economic value of those options that existed just prior to the spin-off
for the holders of PepsiCo stock options.

Stock options outstanding at December 26, 1998:

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OPTIONS OUTSTANDING
--------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
RANGE OF REMAINING CONTRACTUAL WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE OPTIONS LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
---------------------------------- ----------- ------------------------- ----------------- ----------- -----------------

$ 8.17 to $16.37 8.3 3.40 $ 13.47 7.7 $ 13.42
$16.87 to $37.72 18.6 7.48 29.09 6.5 21.87
--- -----------
26.9 6.17 24.33 14.2 17.26
--- -----------
--- -----------

PBG adopted the disclosure provisions of Statement of Financial Accounting
Standard 123, "Accounting for Stock-Based Compensation," but continues to
measure stock-based compensation cost in accordance with APB Opinion 25 and its
related interpretations. If PBG had measured compensation cost for the PepsiCo
stock options granted to its employees in 1996, 1997 and 1998 under the fair
value based method prescribed by SFAS 123, net income or loss would have been
changed to the pro forma amounts set forth below:

[Enlarge/Download Table]

1996 1997 1998
----- ----- ---------

Net Income (Loss)
Reported......................................................... $ 49 $ 59 $ (146)
Pro forma........................................................ 43 44 (164)

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

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1996 1997 1998
--------- --------- ---------

Risk free interest rate........................................ 6.0% 5.8% 4.7%
Expected life.................................................. 6 years 3 years 5 years
Expected volatility............................................ 20% 20% 23%
Expected dividend yield........................................ 1.5% 1.32% 1.14%

See Note 18 for more information related to accelerated vesting of PepsiCo
stock options in connection with this offering.

F-20

424B4 100th Page of 111 TOC 1st Previous Next ↓Bottom Just 100th
THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

NOTE 13--INCOME TAXES

The details of the provision for income taxes are set forth below:

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1996 1997 1998
--------- --------- ---------

Current: Federal................................................. $ 65 $ 31 $ (84)
Foreign................................................. 6 3 4
State................................................... 10 5 (13)
--------- --------- ---------
81 39 (93)
--------- --------- ---------
Deferred: Federal................................................. 7 17 45
Foreign................................................. -- (2) (5)
State................................................... 1 2 7
--------- --------- ---------
8 17 47
--------- --------- ---------
$ 89 $ 56 $ (46)
--------- --------- ---------
--------- --------- ---------

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1996 1997 1998
--------- --------- ---------

Income (loss) before income taxes:
U.S................................................................. $ 213 $ 177 $ 116
Foreign............................................................. (75) (62) (308)
--------- --------- ---------
$ 138 $ 115 $ (192)
--------- --------- ---------
--------- --------- ---------

A reconciliation of income taxes calculated at the U.S. federal tax
statutory rate to PBG's provision for income taxes is set forth below:

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1996 1997 1998
--------- --------- ---------

Income taxes computed at the U.S. federal statutory rate............... 35.0% 35.0% (35.0)%
State income tax, net of federal tax benefit........................... 4.8 4.4 --
Effect of lower taxes on foreign results............................... (0.2) (9.5) (12.2)
U.S. goodwill and other nondeductible expenses......................... 11.8 14.8 7.5
U.S. franchise rights.................................................. 10.7 -- (24.0)
Russia impairment and other charges.................................... -- -- 38.7
Other, net............................................................. 2.4 4.0 1.0
--- --- ---------
Total effective income tax rate........................................ 64.5% 48.7% (24.0)%
--- --- ---------
--- --- ---------

F-21

424B4 101st Page of 111 TOC 1st Previous Next ↓Bottom Just 101st
THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

The details of the 1997 and 1998 deferred tax liabilities (assets) are set forth
below:

[Enlarge/Download Table]

1997 1998
--------- ---------

Intangible assets and property, plant and equipment...................... $ 1,201 $ 1,252
Other.................................................................... 35 112
--------- ---------
Gross deferred tax liabilities........................................... 1,236 1,364
--------- ---------
Net operating loss carryforwards......................................... (76) (123)
Employee benefit obligations............................................. (85) (85)
Bad debts................................................................ (20) (20)
Various liabilities and other............................................ (152) (164)
--------- ---------
Gross deferred tax assets................................................ (333) (392)
Deferred tax asset valuation allowance................................... 80 135
--------- ---------
Net deferred tax assets.................................................. (253) (257)
--------- ---------
Net deferred tax liability............................................... $ 983 $ 1,107
--------- ---------
--------- ---------
Included in:
Prepaid expenses, deferred income taxes and other current assets......... $ (93) $ (95)
Deferred income taxes.................................................... 1,076 1,202
--------- ---------
$ 983 $ 1,107
--------- ---------
--------- ---------

Valuation allowances, which reduce deferred tax assets to an amount that
will more likely than not be realized, have increased by $47 million in 1996,
decreased by $4 million in 1997 and increased by $55 million in 1998.

Net operating loss carryforwards totaling $464 million at December 26, 1998,
are available to reduce future taxes in Spain and Russia. Of these
carryforwards, $8 million expire in 1999 and $456 million expire at various
times between 2000 and 2005. A full valuation allowance has been established for
these net operating loss carryforwards based upon PBG's projection that these
losses will expire before they can be used.

NOTE 14--GEOGRAPHIC DATA

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

[Enlarge/Download Table]

NET SALES
-------------------------------

1996 1997 1998
--------- --------- ---------
U.S.............................................................. $ 5,476 $ 5,584 $ 5,886
Other countries.................................................. 1,127 1,008 1,155
--------- --------- ---------
$ 6,603 $ 6,592 $ 7,041
--------- --------- ---------
--------- --------- ---------

F-22

424B4 102nd Page of 111 TOC 1st Previous Next ↓Bottom Just 102nd
THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

[Enlarge/Download Table]

LONG-LIVED ASSETS
-------------------------------
1996 1997 1998
--------- --------- ---------

U.S.............................................................. $ 4,792 $ 4,918 $ 5,024
Other countries.................................................. 982 934 980
--------- --------- ---------
$ 5,774 $ 5,852 $ 6,004
--------- --------- ---------
--------- --------- ---------

Included in other assets on the Combined Balance Sheets are $32 million, $64
million and $1 million of investments in joint ventures at December 28, 1996,
December 27, 1997 and December 26, 1998, respectively. PBG's equity loss in such
joint ventures was $1 million, $12 million and $5 million in 1996, 1997 and
1998, respectively, which is included in selling, delivery and administrative
expenses.

NOTE 15--TRANSACTIONS WITH PEPSICO

PBG purchases concentrate from PepsiCo to be used in the production of
carbonated soft drinks and other ready-to-drink beverages. PBG also produces or
distributes other products and purchases finished goods and concentrate through
various arrangements with PepsiCo or PepsiCo joint ventures. Such purchases are
reflected in cost of sales.

PepsiCo and PBG share a business objective of increasing availability and
consumption of Pepsi-Cola beverages. Accordingly, PepsiCo provides PBG with
various forms of marketing support to promote Pepsi-Cola beverages. This support
covers a variety of initiatives, including marketplace support, marketing
programs, capital equipment investment and shared media expense. PepsiCo and PBG
each record their share of the cost of marketing programs in their financial
statements. Based on the objective of the programs and initiatives, marketing
support is recorded as an adjustment to net sales or a reduction of selling,
delivery and administrative expense.

PBG manufactures and distributes fountain products and provides fountain
equipment service to PepsiCo customers in some territories in accordance with
the Pepsi beverage agreements. PBG pays a royalty fee to PepsiCo for the
AQUAFINA trademark.

PepsiCo provides certain administrative support to PBG, including
procurement of raw materials, transaction processing such as accounts payable
and credit and collection, certain tax and treasury services and information
technology maintenance and systems development. Beginning in 1998, a PepsiCo
affiliate has provided casualty insurance to PBG. PBG also subleases its
headquarters building from PepsiCo. These services are more fully described in
the shared services agreement between the two companies.

The Combined Statements of Operations include the following income (expense)
amounts as a result of transactions with PepsiCo:

[Enlarge/Download Table]

1996 1997 1998
--------- --------- ---------

Net sales..................................................... $ 220 $ 216 $ 228
Cost of sales................................................. (1,067) (1,187) (1,349)
Selling, delivery and administrative expenses................. 167 206 213

There are no minimum fees or payments that PBG is required to make to
PepsiCo, nor is PBG obligated to PepsiCo under any minimum purchase
requirements. There are no conditions or requirements that could result in the
repayment of any marketing support payments received by PBG from PepsiCo.

F-23

424B4 103rd Page of 111 TOC 1st Previous Next ↓Bottom Just 103rd
THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

The table below presents the activity in advances from PepsiCo. The amount
of net income to or loss for each period is deemed to be payable to or
receivable from PepsiCo and is included as an adjustment to the advances from
PepsiCo.

[Enlarge/Download Table]

1996 1997 1998
--------- --------- ---------

Balance at beginning of period................................... $ 1,251 $ 1,162 $ 1,403
Net income (loss)................................................ 49 59 (146)
Amounts received to fund bottler acquisitions and investments in
affiliates..................................................... 26 49 546
Insurance prepayment to a PepsiCo affiliate...................... -- 165 --
Short-term borrowings and long-term debt......................... (51) 98 (30)
Cash collections less trade disbursements, transferred to
PepsiCo........................................................ (113) (130) (168)
--------- --------- ---------
Balance at end of period......................................... $ 1,162 $ 1,403 $ 1,605
--------- --------- ---------
--------- --------- ---------
Average balance during period.................................... $ 1,513 $ 1,371 $ 1,651
--------- --------- ---------
--------- --------- ---------

NOTE 16--CONTINGENCIES

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

NOTE 17--ACQUISITIONS

During 1998, PBG acquired independent PepsiCo bottlers in the U.S., Canada
and the remaining interest in its bottling joint venture in Russia for an
aggregate cash purchase price of $546 million. The aggregate purchase price
exceeded the fair value of the net assets acquired, including the resulting tax
effect, by approximately $474 million which was recorded in intangible assets.
Of this amount, $37 million related to PBG's Russian acquisition which was part
of the fourth quarter 1998 unusual impairment and other charges. See Note 3. The
following table presents the unaudited pro forma combined results of PBG and the
acquisitions noted above as if they had occurred at the beginning of fiscal year
1997 and 1998. The pro forma information does not necessarily represent what the
actual combined results would have been for these periods and is not intended to
be indicative of future results.

[Enlarge/Download Table]

UNAUDITED
--------------------

1997 1998
--------- ---------
Net sales............................................................................ $ 6,984 $ 7,248
Net income (loss).................................................................... 50 (135)

NOTE 18--SUBSEQUENT EVENTS (UNAUDITED)

Subject to the completion of the offering, substantially all non-vested
PepsiCo stock options held by PBG employees will vest on a date determined by
PepsiCo. As a result, PBG will incur a non-cash charge equal to the difference
between the market price of PepsiCo capital stock and the exercise price

F-24

424B4 104th Page of 111 TOC 1st Previous Next ↓Bottom Just 104th
THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

of these options at the vesting date. Based on a PepsiCo capital stock price of
$39.50, the market price on February 23, 1999, the pre-tax and after-tax
compensation charge would have been $70 million. Each $1.00 increase in the
market price of PepsiCo capital stock would increase the pre-tax and after-tax
compensation charge by $12 million.

During 1999, PBG acquired and agreed to acquire certain U.S. and Russia
territories from Whitman Corporation for an aggregate cash purchase price of
$137 million. These acquisitions will be accounted for by the purchase method.
The purchase prices have been preliminarily allocated to the estimated fair
value of the assets acquired and liabilities assumed. Franchise rights, goodwill
and other intangibles that will be recorded in connection with these
acquisitions are $77 million and will be amortized over 40 years.

NOTE 19--REFINANCING

PBG has obtained debt funding and will use substantially all of the proceeds
to settle certain amounts due to PepsiCo prior to the offering. On February 9,
1999, Bottling Group, LLC issued $2.3 billion of debt. The debt, which is
guaranteed by PepsiCo, is comprised of $1 billion of 5 3/8% notes due 2004 and
$1.3 billion of 5 5/8% notes due 2009. In addition, on March 8, 1999, PBG issued
$1 billion of 7% senior notes, due 2029, which are guaranteed by Bottling Group
LLC.

In addition, prior to the offering, PBG issued or assumed an aggregate $3.25
billion of short-term indebtedness. This indebtedness will be repaid using the
proceeds of the long-term debt issued on March 8, 1999, the offering and, if
necessary, available cash. The 1998 unaudited Pro Forma Condensed Combined
Balance Sheet reflects these debt transactions prior to the receipt of the
offering proceeds. $2,287 million of the proceeds of PBG's short-term
indebtedness has been applied against advances from PepsiCo. The amounts applied
exceeded the recorded amounts of advances from PepsiCo. The amounts applied
exceeded the recorded amounts of advances from PepsiCo by $682 million as set
forth in the accompanying unaudited Pro Forma Condensed Combined Balance Sheet
because the amounts applied are based, in part, on the fair value of certain
assets transferred to PBG in connection with the formation of PBG and Bottling
LLC, which exceeded the book carrying value. The excess amount of proceeds
applied to advances from PepsiCo will not be repaid and will be treated for
financial reporting purposes as a reduction of additional paid-in capital.

NOTE 20--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Our fiscal year ends on the last Saturday in December and generally consists
of 52 weeks, though certain of our fiscal years will consist of 53 weeks. This
last occurred in 1994 and will next occur in

F-25

424B4 105th Page of 111 TOC 1st Previous Next ↓Bottom Just 105th
THE PEPSI BOTTLING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS --CONTINUED

TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA

2000. Fiscal years 1996, 1997 and 1998 consisted of 52 weeks. Each of the first
three quarters of each fiscal year consists of 12 weeks and the fourth quarter
consists of 16 weeks.

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FIRST SECOND THIRD FOURTH FISCAL YEAR ENDED
1997 QUARTER QUARTER QUARTER QUARTER DECEMBER 27, 1997
----------------------------------- ----------- ----------- ----------- ----------- -----------------

Net sales.......................... $ 1,306 $ 1,585 $ 1,786 $ 1,915 $ 6,592
Gross profit....................... 561 673 735 791 2,760
Operating income (loss)............ 47 141 159 (12) 335
Net income (loss).................. (3) 52 54 (44) 59

[Enlarge/Download Table]

FIRST SECOND THIRD FOURTH FISCAL YEAR ENDED
1998 QUARTER QUARTER QUARTER QUARTER DECEMBER 26, 1998
----------------------------------- ----------- ----------- ----------- ----------- -----------------

Net sales.......................... $ 1,340 $ 1,686 $ 1,963 $ 2,052 $ 7,041
Gross profit....................... 563 696 794 807 2,860
Operating income (loss)............ 39 103 156 (243)(1) 55
Net income (loss).................. (6) 22 45 (207)(2) (146)

(1) Includes $222 million for unusual impairment and other charges. See Note 3
of the Combined Financial Statements.

(2) Includes a $46 million tax benefit as a result of reaching final agreement
to settle a disputed claim with the Internal Revenue Service. See Notes 3
and 13 of the Combined Financial Statements.

F-26

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THE PEPSI BOTTLING GROUP, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The unaudited Pro Forma Condensed Combined Balance Sheet as of December 26,
1998 and the unaudited Pro Forma Condensed Combined Statement of Operations for
the fiscal year ended December 26, 1998 have been prepared from the Combined
Financial Statements presented elsewhere in this prospectus.

In 1998, PBG acquired Pepsi-Cola Allied Bottlers, Inc., Gray Beverage Inc.
and Pepsi International Bottlers, LLC for aggregate cash consideration of $546
million. During 1999 PBG acquired and has agreed to acquire certain U.S. and
Russian territories from Whitman Corporation for an aggregate purchase price of
$137 million.

In connection with the formation of PBG and Bottling LLC, Bottling LLC
incurred $2.3 billion of indebtedness through a sale of notes, which is
unconditionally guaranteed by PepsiCo and is expected to remain outstanding
after the offering. Also, on March 8, 1999, PBG incurred $1 billion of
indebtedness through a sale of notes. Accordingly, PBG is expected to have $3.3
billion of long-term indebtedness outstanding after the offering and the
application of the net proceeds of the offering.

In addition, prior to the offering, PBG issued or assumed an aggregate of
$3.25 billion of short-term indebtedness. This indebtedness will be repaid using
the proceeds of the long-term debt issued by PBG on March 8, 1999, the offering
and available cash.

PBG and its primary operating subsidiary, Bottling LLC were formed in
January 1999. In connection with the formation of PBG and Bottling LLC, PepsiCo
contributed bottling businesses and assets used in the bottling businesses to
PBG which will be held by Bottling LLC. As a result of the contribution of the
assets, PBG will own 92.9% of Bottling LLC and PepsiCo will own the remaining
7.1%. Accordingly, the unaudited Pro Forma Condensed Combined Financial
Statements reflect PepsiCo's 7.1% share of the combined net income (loss) and
net assets of Bottling LLC as minority interest.

The accompanying unaudited Pro Forma Condensed Combined Financial Statements
of PBG as of and for the fiscal year ended December 26, 1998 give effect to the
acquisitions of certain bottlers, the indebtedness described above, and, with
respect to the Pro Forma Condensed Combined Balance Sheet, gives effect to the
offering and the application of the estimated net proceeds therefrom and related
transactions as described in the notes. For purposes of the Pro Forma Condensed
Combined Statement of Operations, such transactions are assumed to have occurred
on the first day of fiscal 1998. For purposes of the Pro Forma Condensed
Combined Balance Sheet, the transactions are assumed to have occurred on
December 26, 1998.

Management believes that the assumptions used provide a reasonable basis for
presenting the significant effects directly attributable to the acquisitions of
certain bottlers, the indebtedness incurred, the offering and the application of
the net proceeds therefrom. The unaudited Pro Forma Condensed Combined Financial
Statements do not necessarily reflect what PBG's results of operations or
financial position would have been had such transactions been completed as of
the dates indicated nor does it give effect to any events other than those
discussed in the notes to the unaudited Pro Forma Condensed Combined Financial
Statements or to project the results of operations or financial position of PBG
for any future period or date. These unaudited Pro Forma Condensed Combined
Financial Statements should be read in conjunction with the Combined Financial
Statements, "Use of Proceeds," and "Management's Discussion and Analysis of
Results of Operations and Financial Condition," included elsewhere in this
prospectus.

P-1

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THE PEPSI BOTTLING GROUP, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

IN MILLIONS, EXCEPT PER SHARE DATA, UNAUDITED

FISCAL YEAR ENDED DECEMBER 26, 1998

[Enlarge/Download Table]

PRO FORMA ADJUSTMENTS
--------------------------------------------------------

PRO FORMA
PRO FORMA AS FURTHER
ACTUAL FINANCING AS ADJUSTED ACQUISITIONS(A) ADJUSTED
--------- ----------- ----------- ----------------- -----------
NET SALES.......................................... $ 7,041 $ -- $ 7,041 $ 282 $ 7,323
Cost of sales...................................... 4,181 -- 4,181 160 4,341
--------- --- ----------- ----- -----------
GROSS PROFIT....................................... 2,860 -- 2,860 122 2,982
Selling, delivery and administrative expenses...... 2,583 -- 2,583 103 2,686
Unusual impairment and other charges............... 222 -- 222 -- 222
--------- --- ----------- ----- -----------
OPERATING INCOME................................... 55 -- 55 19 74
Interest expense, net.............................. 221 (20)(b) 201 -- 201
Foreign currency loss.............................. 26 -- 26 1 27
--------- --- ----------- ----- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY
INTEREST......................................... (192) 20 (172) 18 (154)
Income tax expense (benefit)....................... (46) 8(c) (38) 7(c) (31)
--------- --- ----------- ----- -----------
NET INCOME (LOSS) BEFORE MINORITY INTEREST......... (146) 12 (134) 11 (123)
Minority interest.................................. -- 4(d) 4 (1)(d) 3
--------- --- ----------- ----- -----------
NET INCOME (LOSS).................................. $ (146) $ 16 $ (130) $ 10 $ (120)
--------- --- ----------- ----- -----------
--------- --- ----------- ----- -----------
BASIC AND DILUTED NET LOSS PER SHARE (E)
Historical--based on 55 million shares
outstanding...................................... $ (2.65)
---------
---------
Pro Forma--based on 155 million shares
outstanding...................................... $ (0.84) $ (0.77)
----------- -----------
----------- -----------

See accompanying notes to unaudited Pro Forma Condensed Combined Financial
Statements.

P-2

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THE PEPSI BOTTLING GROUP, INC.

PRO FORMA CONDENSED COMBINED BALANCE SHEET

IN MILLIONS, UNAUDITED

DECEMBER 26, 1998

[Enlarge/Download Table]

PRO FORMA PRO FORMA
PRO FORMA AS FURTHER AS FURTHER
ACTUAL FINANCING (A) AS ADJUSTED OFFERING (B) ADJUSTED ACQUISITIONS (C) ADJUSTED
--------- ------------- ------------- ------------- ----------- ----------------- -----------

ASSETS
CURRENT ASSETS
Cash and cash equivalents...... $ 36 $ -- $ 36 $ -- $ 36 $ 2 $ 38
Trade accounts receivable...... 808 -- 808 -- 808 9 817
Other current assets........... 474 -- 474 -- 474 8 482
--------- ------ ------ ------ ----------- ----- -----------
TOTAL CURRENT ASSETS........... 1,318 -- 1,318 -- 1,318 19 1,337
Property, plant and equipment,
net.......................... 2,055 -- 2,055 -- 2,055 30 2,085
Intangible assets, net......... 3,806 -- 3,806 -- 3,806 77 3,883
Other assets................... 143 40 183 -- 183 1 184
--------- ------ ------ ------ ----------- ----- -----------
TOTAL ASSETS................... $ 7,322 $ 40 $ 7,362 $ -- $ 7,362 $ 127 $ 7,489
--------- ------ ------ ------ ----------- ----- -----------
--------- ------ ------ ------ ----------- ----- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other
current liabilities.......... $ 881 $ -- $ 881 $ -- $ 881 $ 8 $ 889
Short-term borrowings.......... 112 2,388 2,500 (2,500) -- -- --
Other.......................... 32 -- 32 -- 32 -- 32
--------- ------ ------ ------ ----------- ----- -----------
TOTAL CURRENT LIABILITIES...... 1,025 2,388 3,413 (2,500) 913 8 921
Allocation of PepsiCo long-term
debt......................... 3,300 (3,300) -- -- -- -- --
Long-term debt due to third
parties...................... 61 3,239 3,300 -- 3,300 -- 3,300
Other liabilities.............. 367 -- 367 -- 367 1 368
Deferred income taxes.......... 1,202 -- 1,202 -- 1,202 -- 1,202
Advances from PepsiCo.......... 1,605 (2,287) (682) 682 -- -- --
Minority interest(d)........... -- -- -- 181 181 -- 181
--------- ------ ------ ------ ----------- ----- -----------
TOTAL LIABILITIES.............. 7,560 40 7,600 (1,637) 5,963 9 5,972
STOCKHOLDERS' EQUITY
Common stock................... -- -- -- 2 2 -- 2
Additional paid in capital..... -- -- -- 1,635 1,635 118 1,753
Accumulated other comprehensive
loss......................... (238) -- (238) -- (238) -- (238)
--------- ------ ------ ------ ----------- ----- -----------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT).................... (238) -- (238) 1,637 1,399 118 1,517
--------- ------ ------ ------ ----------- ----- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY......... $ 7,322 $ 40 $ 7,362 $ -- $ 7,362 $ 127 $ 7,489
--------- ------ ------ ------ ----------- ----- -----------
--------- ------ ------ ------ ----------- ----- -----------

See accompanying notes to unaudited Pro Forma Condensed Combined Financial
Statements.

P-3

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THE PEPSI BOTTLING GROUP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(1) PRO FORMA ADJUSTMENTS FOR THE CONDENSED COMBINED STATEMENT OF OPERATIONS

(a) Reflects the impact of certain 1998 and completed and expected 1999
acquisitions of bottlers, for aggregate cash consideration of $683
million. The acquisitions have been accounted for using the purchase
method. These acquisitions do not reflect any adjustments for marketplace
support PBG may receive for these territories.

(b) Reflects a reduction in interest of $24 million resulting from the net
effect of eliminating the PepsiCo interest expense allocation and
recording interest expense based on the actual weighted average interest
rate of 6.0% on $3.3 billion of external debt issued. Pro forma interest
expense also includes $4.0 millon of amortization of deferred financing
costs related to the issuance of the $3.3 billion of external debt.

(d) In connection with the formation of PBG and Bottling LLC, PepsiCo
contributed bottling businesses and assets used in the bottling
businesses to PBG which will be held by Bottling LLC. As a result of the
contribution of the assets, PBG will own 92.9% of Bottling LLC and
PepsiCo will own the remaining 7.1%. Accordingly, the unaudited Pro Forma
Statement of Operations reflects PepsiCo's share of the combined net loss
of Bottling LLC as minority interest.

(e) Reflects the sale of 100 million shares of common stock in the offering.

(2) PRO FORMA ADJUSTMENTS FOR THE CONDENSED COMBINED BALANCE SHEET

(a) Reflects the $3.3 billion of combined external debt and $40 million of
deferred financing costs PBG incurred prior to the offering to settle
certain amounts due to PepsiCo. This debt is made up of the following:

- $1 billion, 5 3/8% notes due 2004 and $1.3 billion, 5 5/8% notes due
2009 both issued on February 9, 1999 by Bottling LLC.

- $1 billion, 7% notes due 2029, issued on March 8, 1999.

In addition, prior to the offering, PBG issued or assumed an aggregate of
$3.25 billion of short-term indebtedness. This indebtedness will be
repaid using the proceeds of the long-term debt issued by PBG on March 8,
1999 and the offering and available cash.

(b) Reflects the estimated net proceeds from issuance of 100 million shares
of PBG common stock from this offering. $2,287 million of the proceeds of
PBG's short-term indebtedness has been applied against advances from
PepsiCo. The amounts applied exceeded the recorded amounts of advances
from PepsiCo by $682 million because the amounts applied are based, in
part, on the fair value of certain assets transferred to PBG in
connection with the formation of PBG and Bottling LLC, which exceeded the
book carrying value. The excess amount of proceeds applied to advances
from PepsiCo is treated for financial reporting purposes as a reduction
of additional paid-in capital.

(c) Reflects the net assets acquired and expected to be acquired in 1999
including resulting goodwill of $77 million from acquisitions of certain
U.S. and Russian territories from Whitman Corporation for cash
consideration of $137 million. Goodwill will be amortized over 40 years.

P-4

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THE PEPSI BOTTLING GROUP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)

(d) In connection with the formation of PBG and Bottling LLC, PepsiCo
contributed bottling businesses and assets used in the bottling business
to PBG which will be held by Bottling LLC. As a result of the
contribution of the assets, PBG will own 92.9% of Bottling LLC and
PepsiCo will own the remaining 7.1%. Accordingly, the unaudited Pro Forma
Combined Balance Sheet reflects PepsiCo's share of the combined net
assets of Bottling LLC as minority interest.

(3) INCREMENTAL CORPORATE OVERHEAD COSTS

PBG expects to change from a non-compensatory, broad-based stock option
program to an alternative program. Since this alternative program has not
been finalized or approved by the board of directors, this charge is not
reflected in the Pro Forma Condensed Combined Statement of Operations.
Management anticipates that the new plan could cost up to an additional $12
million per year.

(4) NON-CASH COMPENSATION CHARGE

Subject to the completion of the offering, substantially all non-vested
PepsiCo options held by PBG employees will vest. As a result, PBG will incur
a non-cash charge equal to the difference between the market price of
PepsiCo capital stock and the exercise price of these options at the vesting
date. Based on a PepsiCo capital stock price of $39.50, the market price on
February 23, 1999, the pre-tax and after tax compensation charge would have
been $70 million. Each $1.00 increase in the market price of PepsiCo capital
stock would increase the pre-tax and after-tax compensation charge by $12
million. Since this charge would be a one-time event, the charge is not
reflected in the Pro Forma Condensed Combined Statement of Operations.

P-5

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--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Through and including April 24, 1999 (the 25(th) day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

100,000,000 SHARES

[LOGO]

COMMON STOCK

------------------

PROSPECTUS

------------------

MERRILL LYNCH & CO. MORGAN STANLEY DEAN WITTER

BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY
SANFORD C. BERNSTEIN & CO., INC.
SCHRODER & CO. INC.
UTENDAHL CAPITAL PARTNERS, L.P.

MARCH 30, 1999

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

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Dates Referenced Herein

		Referenced-On Page
This ‘424B4’ Filing	Date	First	Last	Other Filings

	2/1/01	56		None on these Dates
	3/6/00	20
	12/31/99	71	73
	8/1/99	65
	4/24/99	111
	4/6/99	1
Filed on:	3/31/99
	3/30/99	1	111
	3/8/99	21	109
	3/5/99	31
	3/3/99	66
	2/25/99	31
	2/23/99	26	110
	2/9/99	21	109
	1/25/99	65
	1/1/99	34	57
	12/26/98	9	108
	12/24/98	57
	12/27/97	34	105
	12/28/96	85	102
	12/30/95	85
				List all Filings

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Filing Submission 0001047469-99-012852 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Pepsi Bottling Group Inc – IPO: ‘424B4’ on 3/31/99

As of: Wednesday, 3/31/99 · Accession #: 1047469-99-12852 · File #: 333-70291

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)
Filing Table of Contents