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HomeMy WebLinkAboutBUSINESS PLANUNDERGROUND STORAGE TANKS APPLICATION TO PERFORM ELD /LINE TESTING / 56989 SECONDARY CONTAINMENT TESTING (TANK TIGHTNESS TEST AND TO PERFORM FUEL MONITORING CERTIFICATION PERMIT NO. ~D,~gs ~~~ ,ter. ' ~ ''~~ " BAKERSFIELD FIRE DEPT. FIRr r'=~' Prevention Services ~.3 Q ~ART~ f 900 Truxtun Ave., Ste. 210 ~'`''"-''~. Bakersfield, CA 93301 ~:~ "" Tel.: (661) 326-3979 Fax: (661) 852-2171 Page 1 of 1 ,e5 ENHANCED LEAK DETECTION ,ES LINE TESTING ,ES SB-989 SECONDARY CONTAINMENT TESTING ,@S TANKTIGHTNESSTEST ~TO PERFORM FUEL MONITORING CERTIFICATION .,.. ,- ,~ ._ r~~. -._. - .SITE INFORMATION. , FACILITY ~~I S1- NAME & PHONE NUMBER OF CONTACT PERS N S"CU7T N-AWKr~.IS ~~(~1~~35-ll~S~ ADDRESS S C S i 1sT ~Ta2E-C--i (3 A- - 5 F ICL~ OWNERS NAME - E S Z T3D~ T' i u ht[~- (72cxtP OPERATORS NAME PEp SZ PERMIT TO OPERATE NO. NUMBER OF TANKS TO BE TESTED IS PIPING GOING TO BE TESTED? Ps YES NO TANK# VOLUME CONTENTS TANK TESTING COMPANY NAME OF TESTING COMPANY err ~vrl~'c)~[~Er[~ S62vr~~ NAME 8~ PHONE NUMBER OF CONT CT PERSON p y - ~r~) 57p7-6~o7 MAILING ADDRESS r So~PT1-F u Pou T ~ - v ~ • A t-F~1 U~i D (o NAME & PHONE NUMBER OF TESTER OR SPECIAL INSPECTOR ~~'~ CERTIFICATION #: DATE & TIME TEST TO BE CONDUCTED l~si 8" 2DO~ ID ~o0 ICC #: 5a~~~r~-uT TEST METHOD SIGNATURE OF APPLICANT DATE '~.~tl._0-? ~. APPROVED BY DATE 3 FD 2095 (Rev. 09/05) ~NT`p ~11~ ~; ~ ~ X007 BILLING & PERMIT STATEM~NY" PERMIT # T7 -O~gS B ~,~ 6 R S F I I~,~~ D ~I:i F/RE '1'~" ~IPARTMT ~ s~6 r=..sa'. ~~. '~4.9~ r.~ P BAKERSFIELD FIRE DEPARTMENT Prevention Services 1600 Truxtun Avenue, Suite 401 Bakersfield, CA 93301 Phone: 661-326-3979 • Fax: 661-852-2171 . LOCATION OF PROJECT 215 ~ 21sT 5T - ~M C>/RT Og/Og/D~ 10~M STARTING DATE D8/Og/O~ COMPLETION DATE OQ/OQ/O~ pROPERTYOWNER NAME PROJECT NAME ~>/ t~5 ( ADDRESS PHONE # PROJECT ADDRESS 215 ~i 2~sT ST CITY STATE ZIP CODE • • CONTACT NAME {~fkM ~i I~rt `r~RIC>/S CA LICENSE # b"2 D ~- T • • TYPE OF LICENSE EXPIRATION DATE pHONE # ~1'4'-Jr~0~-r0'4'O j CONTRACTOR NAME Tf~IT EN~/IT20NMENT~I_5~12V1CE5 FAX# ADDRESS 2i3i S D (~tt~0 NT D12 //~~ ^ ~y ^ CITY /"t Nt'C 1 I ~ (M STATE C/"C ZIP CODE ~ 2~0~0 All permits must be reviewed, stamped, and approved PRIOR TO BEGINNING WORK ^ ^ ^ Alarms -New & Modification (minimum charge) $280 ^ • 84 ^ 98 over 20 000 sq ft 028 x sq ft $0 ^ 84 ^ , . ^ 98 ^ Sprinklers -New & Modification (minimum charge) $280 ^ 84 ^ 98 ^ over 5 000 sq ft $0.028 x sq ft ^ 84 , ^ 98 ^ Minor Sprinkler Modification (<10 heads) $96 (inspection only) ^ 84 ^ 98 ^ Commercial Hood (New & Modification) $470 ; 84 ^ 98 ^ Additional hood $58 ^ 84 98 ^ Spray Booth (New & Modification) $470 ^ 84 ^ 98 ^ Aboveground Storage Tank (Installation/One Inspection) $180 ~ 82 ^ Additional tank $96 ~ 82 ^ Aboveground Storage Tank (Removal/Inspection) $109 ; 82 ^ Underground Storage Tank (Installation/Inspection) $878/tank ^ 82 ^ Underground Storage Tank (Modification) $878/site ^ 82 ^ Underground Storage Tank (Minor Modification) $167 ^ 82 ^ Underground Storage Tank (Removal) $573/tank ^ 84 ^ Oil well (Installation) $96 ^ ^ 84 p Mandated Leak Detection (test)/Fuel Monit Cert/SB989 NOTE: $96 for each type of test/site even if scheduled at the same time $g6/site CH-K. #200j ^ .~(^ ^ ^ 82 ^ Tent $96/tent ^ 84 ^ After hours inspection fee $121 ; 84 ^ Pyrotechnic (per event, plus inspection fee of $96/hr) $96 + (5 hrs min standby fee/insp)=$576 , 84 ^ Re-inspection/Follow-up Inspection $96/hour ^ 84 ^ Portable LPG (Propane): # Cages: $96 ^ ^ 84 ^ Explosive Storage $266 ; 84 ^ Copying & File Research (File Research fee $34/hr) $0.25/page ^ 84 ^ Miscellaneous 84 FD2021(Rev 05/07) i -ORIGINAL (Treasury) i -YELLOW (File) 1 -PINK (Customer) THE l~ E~~'~~ ~~ March 20, 2007 Bakersfield Fire Department Prevention Services 900 Truxton Avenue, Suite 210 P.O. Box 129261 Bakersfield, CA. 93301 Re: Financial Test ofSelf-Insurance For Bottling Group, LLC d/b/a The Pepsi Bottling Group Bakersfield Facility #954 Dear Prevention Services, Enclosed, please find an updated Letter From Chief Financial Officer and Certification of Financial Responsibility for Underground Storage Tanks Containing Petroleum Form submitted on behalf of Bottling Group, LLC based on 2006 financial information. I am also enclosing the Form 10-K for Bottling Group, LLC filed with the Securities and Exchange Commission as verification of our test. If you have any questions or wish to clarify some point, please give me a call to discuss. Sincerely, ~I~~~~~ David H. Patrick Senior Operations Counsel PEP51 BOTTLING GROUP cc: J. Burns THE PEPSI BOTTLING GROUP 1 PEPSI WAY, SOMERS, NY 10589 THE Letter From Chief Financial Officer PEP51 BOTTLING GROUP I am the chief financial officer of Bottling Group, LLC; 1 Pepsi Way, Somers, New York 10589. This letter is in support of the use of the financial test ofself-insurance to demonstrate financial responsibility for taking corrective action and/or compensating third parties for bodily injury and property damage caused by sudden accidental releases and/or non-sudden accidental releases in the amount of at least $1.OMM dollars per occurrence and $2.OMM dollars annual aggregate arising from operating (an) underground storage tank(s). Underground storage tanks at the following facilities are assured by this financial test or a financial test under an authorized State program by this owner or operator: Name & Address of Facili Financial Assurance Mechanism Pepsi Bottling Group (Anchorage) This Financial Test 40 CFR 280.95 521 East 104' Street Anchorage, AK Pepsi Bottling Group (Aliso Viejo) This Financial Test 40 CFR 280.95 27717 Aliso Creek Road Aliso Viejo, CA. Pepsi Bottling Group (Bakersfield) This Financial Test 40 CFR 280.95 215 East 21 S` Street Bakersfield, CA Pepsi Bottling Group (Baldwin Park) This Financial Test 40 CFR 280.95 4416 North Azusa Canyon Road Baldwin Park, CA Pepsi Bottling Group (Buena Park) This Financial Test 40 CFR 280.95 6261 Caballero Blvd. Buena Park, CA Pepsi Bottling Group (Indio) This Financial Test 40 CFR 280.95 83-801 Citrus Ave Indio, CA Pepsi Bottling Group (Riverside) This Financial Test 40 CFR 280.95 6659 Sycamore Canyon Road Riverside, CA Pepsi Bottling Group (Sacramento) This Financial Test 40 CFR 280.95 7550 Reese Road Sacramento, CA THE PEPSI BOTTLING GROUP 1 PEPSI WAY, SOMERS, NY 10589 r , - L. . THE PEP51 BOTTLING GROUP DAVID H. PATRICK SENIOR OPERATIONS COUNSEL i 4 I ONE PEPSI WAY, SOMERS, NY 10589 - ~ ~ (914) 767-7107 • FAX: (914) 767-7944 EMAIL: dave.patrickC~?pepsi.com - ti - , t Name & Address of Facili Financial Assurance Mechanism Pepsi Bottling Group (San Diego) This Financial Test 40 CFR 280.95 7995 Armour Street San Diego, CA Pepsi Bottling Group (San Fernando) This Financial Test 40 CFR 280.95 1200 Arroya Street San Fernando, CA Pepsi Bottling Group (Torrance) This Financial Test 40 CFR 280.95 19700 Figueroa Torrance, CA Pepsi Bottling Group (Denver) This Financial Test 40 CFR 280.95 3801 Brighton Blvd. Denver, CO Pepsi Bottling Group (Pueblo) This Financial Test 40 CFR 280.95 1900 S. Freeway Pueblo, CO Pepsi Bottling Group (Brookfield) This Financial Test 40 CFR 280.95 30 Pocono Road Brookfield, CT Pepsi Bottling Group (Windsor/Hartford) This Financial Test 40 CFR 280.95. 55 International Drive Windsor, CT Pepsi Bottling Group (iJncasville) This Financial Test 40 CFR 280.95 260 Gallivan Lane Uncasville, CT Pepsi Bottling Group (Miami) State Program Rule 62-761.400 F.A.C. 7777 NW 4151 Street Miami, FL Pepsi Bottling Group (Orlando) State Program Rule 62-761.400 F.A.C. 1700 Directors Row Orlando, FL Pepsi Bottling Group (Tampa) 11315 North 30~' Street State Program Rule 62-761.400 F.A.C. Tampa, FL 2 of 8 Name & Address of Facili Financial Assurance Mechanism Pepsi Bottling Group (Wichita) This Financial Test 40 CFR 280.95 101 W. 48`~ Street Wichita, KS Pepsi Bottling Group (Albany) This Financial Test 40 CFR 280.95 Route 5, Highway 1590 Albany, KY Pepsi Bottling Group (Athens) This Financial Test 40 CFR 280.95 4885 Atlanta Highway Bogart, GA. Pepsi Bottling Group (Baltimore) This Financial Test 40 CFR 280.95 1650 Union Avenue Baltimore, MD Pepsi Bottling Group (Cheverly) This Financial Test 40 CFR 280.95 1 Pepsi Place Cheverly, MD Pepsi Bottling Group (Laplata) This Financial Test 40 CFR 280.95 Route 301 South Laplate, MD Pepsi Bottling Group (Montgomery) This Financial Test 40 CFR 280.95 3325 Briggs Chaney Road Montgomery, MD Pepsi Bottling Group (Cranston) This Financial Test 40 CFR 280.95 1400 Pontiac Ave. Cranston, RI Pepsi Bottling Group (Detroit) This Financial Test 40 CFR 280.95 1555 Mack Ave Detroit, MI Pepsi Bottling Group (Howell) This Financial Test 40 CFR 280.95 755 South McPherson Park Drive Howell, MI Pepsi Bottling Group (Burnsville) This Financial Test 40 CFR 280.95 1300 East Cliff Road Burnsville, MN 3 of 8 Name & Address of Facili Financial Assurance Mechanism Pepsi Bottling Group (Reno/Elko) This Financial Test 40 CFR 280.95 355 Edison Rd. Reno, NV Pepsi Bottling Group (Columbia) This Financial Test 40 CFR 280.95 2204 Oakland Parkway Columbia, TN. Pepsi Bottling Group (Mays Landing) This Financial Test 40 CFR 280.95 1440 Pinewood Blvd. Mays Landing, NJ Pepsi Bottling Group (Piscataway) This Financial Test 40 CFR 280.95 2200 North Brunswick Ave Piscataway, NJ Pepsi Bottling Group (Albany/Latham) This Financial Test 40 CFR 280.95 1 Pepsi Drive Latham, NY Pepsi Bottling Group (Buffalo) This Financial Test 40 CFR 280.95 2770 Walden Ave Cheektowaga, NY Pepsi Bottling Group (Keeseville) This Financial Test 40 CFR 280.95 1524 Route 9 Keeseville, NY Pepsi Bottling Group (Tulsa) This Financial Test 40 CFR 280.95 510 West Skelly Drive Tulsa, OK Pepsi Bottling Group (Portland) This Financial Test 40 CFR 280.95 2505 N.E. Pacific Ave Portland, OR Pepsi Bottling Group (Salem) This Financial Test 40 CFR 280.95 3011 Silverton Road Salem, OR Pepsi Bottling Group (Philadelphia) This Financial Test 40 CFR 280.95 11701 Roosevelt Blvd Philadelphia, PA. 19154 Pepsi Bottling Group (Columbia) This Financial Test 40 CFR 280.95 6525 North Main Street Columbia, SC 4 of 8 Name & Address of Facili Financial Assurance Mechanism Pepsi Bottling Group (Sumter) This Financial Test 40 CFR 280.95 425 Boulevard Road i Sumter, SC Pepsi Bottling Group (Danville) State Program 9 VAC 25-590-60B 1001 Riverside Drive Danville, VA Pepsi Bottling Group (Fairfax) State Program 9 VAC 25-590-60B 4101 Pepsi Place Fairfax, VA Pepsi Bottling Group (Norfolk) State Program 9 VAC 25-590-60B 1194 Pineridge Road Norfolk, VA. Pepsi Bottling Group (Richmond) State Program 9 VAC 25-590-60B 3008 Mechanicsville Turnpike Richmond, VA Pepsi Bottling Group (Everett) 1118 80"' Place Southwest State Program WAC 173-360-413 Everett, WA Pepsi Bottling Group (Seattle) State Program WAC 173-360-413 2646 Rainier Ave S. Seattle, WA Pepsi Bottling Group (Tullahoma) This Financial Test 40 CFR 280.95 308 Hobb Rd Tullahoma, TN 5 of 8 A financial test is also used by this owner or operator to demonstrate evidence of financial responsibility in the following amounts under other EPA regulations or state programs authorized by EPA under 40 CFR parts 271 and 145: EPA Regulations Amount Closure (Secs. 264.143 and 265.143) .................... $ NA Post-Closure Care (Secs. 264.145 and 265.145).......... $ NA Liability Coverage (Secs. 2.64.147 and 265.147)......... $ NA Corrective Action (Secs. 264.101(b)) ................... $ NA Plugging and Abandonment (Sec. 144.63) ................. $ NA Closure ................................................. $ NA Post-Closure Care ....................................... $ NA Liability Coverage .............................. ...... NA Corrective Action ....................................... $ NA Plugging and Abandonment ................................ $ NA Total ............................................... $ NA This "owner or operator" has not received an adverse opinion, a disclaimer of opinion, or a "going concern" qualification from an independent auditor on his financial statements for the latest completed fiscal year. Alternative I 1. Amount of annual UST aggregate coverage being assured by a financial test, and/or guarantee $ 2.OMM 2. Amount of corrective action, closure and post- $ closure care costs, liability coverage, and plugging and abandonment costs covered by a financial test, and/or guarantee l.OMM 3. Sum of lines 1 and 2 $ 3.OMM 4. Total tangible assets $ 9,697.OMM 5. Total liabilities [if any of the amount $ 6,863.OMM reported on line 3 is included in total liabilities, you may deduct that amount from this line and add that amount to line 6] 6. Tangible net worth [subtract line 5 from line 4] $ 2,834.OMM Yes No 6of8 7. Is line 6 at least $10 million? 8. Is line 6 at least 10 times line 3? 9. Have financial statements for the latest fiscal year been filed with the Securities and Exchange Commission? 10. Have financial statements for the latest fiscal year been filed with the Energy Information Administration? 11. Have financial statements for the latest fiscal year been filed with the Rural Electrification Administration? 12. Has financial information been provided to Dun and Bradstreet, and has Dun and Bradstreet provided a financial strength rating of 4A or SA? Alternative II 1. Amount of annual UST aggregate coverage being assured by a test, and/or guarantee 2. Amount of corrective action, closure and post- closure care costs, liability coverage, and plugging and abandonment costs covered by a financial test, and/or guarantee 3. Sum of lines 1 and 2 4. Total tangible assets 5. Total liabilities [if any of the amount reported on line 3 is included in total liabilities, you may deduct that amount from this line and add that amount to line 6] 6. Tangible net worth [subtract line 5 from line 4] 7. Total assets in the U.S. [required only if less than 90 percent of assets are located in the U.S.] 8. Is line 6 at least $10 million? X X X X X X Yes No 7 of 8 9. Is line 6 at least 6 times line 3? ---- -- 10. Are at least 90 percent of assets located ---- -- in the U.S.? [If "No," complete line 11.] 11. Is line 7 at least 6 times line 3? ---- -- [Fill in either lines 12-15 or lines 16-18:] 12. Current assets $-------- 13. Current liabilities $-------- Yes No 14. Net working capital [subtract line 13 from line 12] ---- -- 15. Is line 14 at least 6 times line 3? 16. Current bond rating of most recent bond issue 17. Name of rating service [[Page 490]] 18. Date of maturity of bond 19. Have financial statements for the latest fiscal year been filed with the SEC, the Energy Information Administration, or the Rural Electrification Administration? [If "No," please attach a report from an independent certified public accountant certifying that there are no material differences between the data as reported in lines 4-18 above and the financial statements for the latest fiscal year. I hereby certify that the wording of this letter is identical to the wording specified in 40 CFR part 280.95(d) as such regulations were constituted on the date shown immediately below. ~~Signature: ~~~~''"" Name: A fred H. Drewes Title: Senio Vi e-President & Chief Financial Officer Date: O~D~ 8 of 8 THE Certification of Financial Responsibility Bottling Group, LLC as Owner, hereby certifies that it is in compliance with the requirements of subpart H of 40 CFR part 280. The financial assurance mechanisms} used to demonstrate financial responsibility under subpart H of 40 CFR part 280 is (are) as follows: Financial Test of Self-Insurance, issued by Bottling Group, LLC, in the amount of $1.0 MM per occurrence and 2.0 MM annual aggregate coverage, for the period March 2007 -March 2008 for taking corrective action and/or compensating third parties for bodily injury and property damage caused by either sudden accidental releases or non-sudden accidental releases or accidental releases. PEPSI BOTTLING GROUP Signature: !il/~-, _ Name: Alfre H. Drewes Title: Senior Vice-President & Chief Financial Officer Date: I~/O/~ Signature of wifiess: Name of witness: David H. Patrick, Esq Date: [).~/jl1~ ~ THE PEPSI BOTTLING GROUP 1 PEPSI WAY, SOMERS, NY 10589 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K D Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 30, 2006 or ^ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from to Commission file number 333-80361-O1 Bottling Group, LLC (Exact name of Registrant as Specified in its Charter) Organized in Delaware 13-4042452 (State or other Jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) One Pepsi Way Somers, New York 10589 (Address of Principal Executive Offices) (Zip code) Registrant's telephone number, including area code: (914) 767-6000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes 0 No ^ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ^ No 8 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YesO No ^ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 8 Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large Accelerated Filer ^ Accelerated Filer ^ Non-Accelerated Filer 8 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ^ No 8 The aggregate market value of Bottling Group, LLC Capital Stock held by non-affiliates of Bottling Group, LLC as of June 17, 2006 was $0. . TABLE OF CONTENTS PART1 Item 1. Business Item 1 A. Risk Factors Item I B. Unresoh=ed Staff Comments Item 2, Pr~pe_r..tes Item.3_._ Lebal_Pr~7ceedabs. Item ~. Submission of Matters t.o__a Vote._.ot Security H_oldz.rs PART II_ Item 5. Mtu-ket for Registrant's Common Equity. Related Stockholder Matters and Issuer PureJ~ases of Equity Securities Item (i. Selected Financial Data Item 7. Mana~cment's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative. Disclosures About IyIarket Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other information PART__III. Item 10. Directors Executi~=e Officers and_Cor~or•ate Gar~ernance ltem._L l_._ Fxecutiye Compensation Item..l_?.. Security.._Ownershi_p of Certain Beneficial_Ownzrs and._Mana~ement a~~d_Related._Stochhc~ldcr Matt~r_s. Item_1 ~, Certain Relationships anal Related Tran.sach~m5.__~tnd_~rector Independence Item 14. Principal Accountant Fees and Services PART iV Item I5. Exhibits and Financial Statement Schedules SIGNATURF..,S INDEX TO FINANCIAL..STATEMENT__SCHEDULES INDEX TO EXHIBITS EX-10.4: COMMITMENT INCREASE NOTICE EX-12: STATEMENT RE COMPUTATION OF RATIO_ S EX 21 SUBSIDIARIES OF BOTTLING LLC EX-23.1: REPORT AND CONSENT OF KPMG LLP EX-23.2: CONSENT OF DELOITTE & TOUCHE LLP EX-31.1: CERTIFICATION EX-31.2: CERTIFICATION EX-32.1: CERTIFICATION EX-32.2: CERTIFICATION EX-99.1: THE PEPSI BOTTLING GROUP, INC.'S ANNUAL REPORT ON FORM ] 0-K PARTI Item 1. Business Introduction Bottling Group, LLC ("Bottling LLC") is the principal operating subsidiary of The Pepsi Bottling Group, Ina ("PBG") and consists of substantially all of the operations and assets of PBG. Bottling LLC, which is fully consolidated by PBG, consists of bottling operations located in the United States, Canada, Spain, Greece, Russia, Turkey and Mexico. Prior to its formation, Bottling LLC was an operating unit of PepsiCo, Inc. ("PepsiCo"). When used in this Report, "Bottling LLC," "we," "us" and "our" each refers to Bottling Group, LLC and, where appropriate, its subsidiaries. PBG was incorporated in Delaware in January, 1999, as a wholly owned subsidiary of PepsiCo to effect the separation of most of PepsiCo's company-owned bottling businesses. PBG became a publicly traded company on March 31, 1999. As of January 26, 2007, PepsiCo's ownership represented 38.3% of the outstanding common stock and 100% of the outstanding Class B common stock, together representing 44.4% of the voting power of all classes of PBG's voting stock. PepsiCo and PBG contributed bottling businesses and assets used in the bottling business to Bottling LLC in connection with the formation of Bottling LLC. As result of the contributions of assets and other subsequent transactions, PBG owns 93.3% of Bottling LLC and PepsiCo owns the remaining 6.7% as of December 30, 2006. We operate in one industry, carbonated soft drinks and other ready-to-drink beverages, and all of our segments derive revenue from these products. We conduct business in all or a portion of the United States, Mexico, Canada, Spain, Russia, Greece and Turkey. Beginning with the fiscal quarter ended March 25, 2006, we changed our financial reporting methodology to three reportable segments: United States & Canada, Europe (which includes Spain, Russia, Greece and Turkey) and Mexico. The operations of the United States & Canada are aggregated into a single reportable segment due to their economic similarity as well as similarity across products, manufacturing'andthstribution methods, types of customers and regulatory environments. In 2006, approximately 78% of our net revenues were generated in the United States & Canada, 12% of our net revenues were generated in Europe, and the remaining 10% of our net revenues were generated in Mexico. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 15 to our Consolidated Financial Statements for additional information regarding the business and operating results of our reportable segments. Principal Products We are the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages. In addition, in some of our territories we have the right to manufacture, sell and distribute soft drink products of companies other than PepsiCo, including Dr Pepper and Squirt. We also have the right in some of our territories to manufacture, sell and distribute beverages under trademarks that we own, including Electropura, e-puram~ and Garci Crespo. The majority of our volume is derived from brands licensed from PepsiCo or PepsiCo joint ventures. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of 41 states and the District of Columbia in the United States, nine Canadian provinces, Spain, Greece, Russia, Turkey and all or a portion of 23 states in Mexico. In 2006, approximately 75% of our sales volume in the United States & Canada was derived from carbonated soft drinks and the remaining 25% was derived from non-carbonated beverages, 70% of our sales volume in Europe was derived from carbonated soft drinks and the remaining 30% was derived from non-carbonated beverages, and 51% of our Mexico sales volume was derived from carbonated soft drinks and the remaining 49% was derived from non-carbonated beverages. Our principal beverage brands include the following: United States & Canada Pepsi AMP Trademark Dr Pepper Diet Pepsi Mountain Dew Code Red Lipton Wild Cherry Pepsi Siena Mist SoBe Pepsi Lime Sierra Mist Free SoBe No Fear Jazz by Diet Pepsi Aquafina Starbucks Frappuccino0 Pepsi ONE Tropicana TwisterTM Soda Dole Mountain Dew Tropicana juice drinks Diet Mountain Dew Mug Root Beer Euro°e°e Pepsi Tropicana Fruko Pepsi Light Aqua Minerale Yedigun Pepsi Max Mirinda Tamek 7UP IVI Lipton KAS Fiesta Mexico Pepsi Mirinda Aguas Frescas Pepsi Light Manzanita Sol Electropura 7UP Squirt e-puraO11 KAS Garci Crespo Jarritos No customer accounted for 10% or more of our net revenues in 2006. We have an extensive direct store distribution system in the United States & Canada and in Mexico. In Europe, we use a combination of direct store distribution and distribution through wholesalers, depending on local marketplace considerations. Raw Materials and Other Supplies We purchase the concentrates to manufacture Pepsi-Cola beverages and other beverage products from PepsiCo and other beverage companies. In addition to concentrates, we purchase sweeteners, glass and plastic bottles, cans, closures, syrup containers, other packaging materials, carbon dioxide and some finished goods. We generally purchase our raw materials, other than concentrates, from multiple suppliers. PepsiCo acts as our agent for the purchase of such raw materials in the United States and Canada and, with respect to some of our raw materials, in certain of our international markets. The Pepsi beverage agreements, as described below, provide that, with respect to the beverage products of PepsiCo, all authorized containers, closures, cases, cartons and other packages and labels may be purchased only from manufacturers approved by PepsiCo. There are no materials or supplies used by PBG that are currently in short supply. The supply or cost of specific materials could be adversely affected by various factors, including price changes, strikes, weather conditions and governmental controls. Franchise Agreements We conduct our business primarily pursuant to PBG's beverage agreements with PepsiCo. Although Bottling LLC is not a direct party to these agreements as the principal operating subsidiary of PBG, Bottling LLC enjoys certain rights and is subject to certain obligations as described below. These agreements give us the exclusive right to market, distribute, and produce beverage products of PepsiCo in authorized containers and to use the related trade names and trademarks in specified territories. Set forth below is a description of the Pepsi beverage agreements and other bottling agreements from which we benefit and under which we are obligated as the principal operating subsidiary of PBG. Terms of the Master Bottling Agreement. The Master Bottling Agreement under which we manufacture, package, sell and distribute the cola beverages bearing the Pepsi-Cola and Pepsi trademarks in the United States was entered into in March of 1999. The Master Bottling Agreement gives us the exclusive and perpetual right to distribute cola beverages for sale in specified territories in authorized containers of the nature currently used by us. The Master Bottling Agreement provides that we will purchase our entire requirements of concentrates for the cola beverages from PepsiCo at prices, and on terms and conditions, determined from time to time by PepsiCo. PepsiCo may determine from time to time what types of containers to authorize for use by us. PepsiCo has no rights under the Master Bottling Agreement with respect to the prices at which we sell our products. Under the Master Bottling Agreement we are obligated to: (1) maintain such plant and equipment, staff, and distribution facilities and vending equipment that are capable of manufacturing, packaging, and distributing the cola beverages in sufficient quantities to fully meet the demand for these beverages in our territories; (2) undertake adequate quality control measures prescribed by PepsiCo; (3) push vigorously the sale of the cola beverages in our territories; (4) increase and fully meet the demand for the cola beverages in our territories; (5) use all approved means and spend such funds on advertising and other forms of marketing beverages as may be reasonably required to push vigorously the sale of cola beverages in our territories; and (6) maintain such financial capacity as may be reasonably necessary to assure performance under the Master Bottling Agreement by us. The Master Bottling Agreement requires us to meet annually with PepsiCo to discuss plans for the ensuing year and the following two years. At such meetings, we are obligated to present plans that set out in reasonable detail our marketing plan, our management plan and advertising plan with respect to the cola beverages for the year. We must also present a financial plan showing that we have the financial capacity to perform our duties and obligations under the Master Bottling Agreement for that year, as well as sales, marketing, advertising and capital expenditure plans for the two years following such year. PepsiCo has the right to approve such plans, which approval shall not be unreasonably withheld. In 2006, PepsiCo approved our plans. If we carry out our annual plan in all material respects, we will be deemed to have satisfied our obligations to push vigorously the sale of the cola beverages, increase and fully meet the demand for the cola beverages in our territories and maintain the financial capacity required under the Master Bottling Agreement. Failure to present a plan or carry out approved plans in all material respects would constitute an event of default that, if not cured within 120 days of notice of the failure, would give PepsiCo the right to terminate the Master Bottling Agreement. If we present a plan that PepsiCo does not approve, such failure shall constitute a primary consideration for determining whether we have satisfied our obligations to maintain our financial capacity, push vigorously the sale of the cola beverages and increase and fully meet the demand for the cola beverages in our territories. If we fail to carry out our annual plan in all material respects in any segment of our territory, whether defined geographically or by type of market or outlet, and if such failure is not cured within six months of notice of the failure, PepsiCo may reduce the territory covered by the Master Bottling Agreement by eliminating the territory, market or outlet with respect to which such failure has occurred. PepsiCo has no obligation to participate with us in advertising and marketing spending, but it may contribute to such expenditures and undertake independent advertising and marketing activities, as well as cooperative advertising and sales promotion programs that would require our cooperation and support. Although PepsiCo has advised us that it intends to continue to provide cooperative advertising funds, it is not obligated to do so under the Master Bottling Agreement. The Master Bottling Agreement provides that PepsiCo may in its sole discretion reformulate any of the cola beverages or discontinue them, with some limitations, so long as all cola beverages are not discontinued. PepsiCo may also introduce new beverages under the Pepsi-Cola trademarks or any modification thereof. When that occurs, we are obligated to manufacture, package, distribute and sell such new beverages with the same obligations as then exist with respect to other cola beverages. We are prohibited from producing or handling cola products, other than those of PepsiCo, or products or packages that imitate, infringe or cause confusion with the products, containers or trademarks of PepsiCo. The Master Bottling Agreement also imposes requirements with respect to the use of PepsiCo's trademarks, authorized containers, packaging and labeling. If we acquire control, directly or indirectly, of any bottler of cola beverages, we must cause the acquired bottler to amend its bottling appointments for the cola beverages to conform to the terms of the Master Bottling Agreement. Under the Master Bottling Agreement, PepsiCo has agreed not to withhold approval for any acquisition of rights to manufacture and sell Pepsi trademarked cola beverages within a specific area -currently representing approximately 11.5% 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) PBG's 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) PBG's entry into any business other than the business of manufacturing, selling or distributing non-alcoholic beverages or any business which is directly related and incidental to such beverage business; and (4) any material breach under the contract that remains uncured for 120 days after notice by PepsiCo. An event of default will also occur if any person or affiliated group acquires any contract, option, conversion privilege, or other right to acquire, directly or indirectly, beneficial ownership of more than 15%~ of any class or series of PBG's voting securities without the consent of PepsiCo. As of February 15, 2007, to our knowledge, no shareholder of PBG, other than PepsiCo, held more than 143% of PBG's common stock. We are prohibited from assigning, transferring or pledging the Master Bottling Agreement, or any interest therein, whether voluntarily, or by operation of law, including by merger or liquidation, without the prior consent of PepsiCo. The Master Bottling Agreement was entered into by PBG in the context of our separation from PepsiCo and, therefore, its provisions were not the result of arm's-length negotiations. Consequently, the agreement contains provisions that are less favorable to us than the exclusive bottling appointments for cola beverages currently in effect for independent bottlers in the United States. Terms of the Non-Cola Bottling Agreements. The beverage products covered by the non-cola bottling agreements are beverages licensed to PBG by PepsiCo, consisting of Mountain Dew, Aquafina, Siena Mist, Diet Mountain Dew, Mug Root Beer and Mountain Dew Code Red. 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. PBG's non-cola bottling agreements will terminate if PepsiCo terminates PBG's Master Bottling Agreement. The exclusivity provisions contained in the non-cola bottling agreements would prevent us from manufacturing, selling or distributing beverage products that imitate, infringe upon, or cause confusion with, the beverage products covered by the non-cola bottling agreements. PepsiCo may also elect to discontinue the manufacture, sale or distribution of a non-cola beverage and terminate the applicable non-cola bottling agreement upon six months notice to us. Terms of Certain Distribution Agreements. PBG also has agreements with PepsiCo granting us exclusive rights to distribute AMP and Dole in all of PBG's territories and SoBe in certain specified territories. The distribution agreements contain provisions generally similar to those in the Master Bottling Agreement as to use of trademarks, trade names, approved containers and labels and causes for termination. PBG also has the right to sell Tropicana juice drinks in the United States and Canada, Tropicana juices in Russia and Spain, and Gatorade in Spain, Greece and Russia and in certain limited channels of distribution in the United States and Canada. Some of these beverage agreements have limited terms and, in most instances, prohibit us from dealing in similar beverage products. Terms of the Master Syrup Agreement. The Master Syrup Agreement grants PBG the exclusive right to manufacture, sell and distribute fountain syrup to local customers in PBG's territories. We have agreed to act as a manufacturing and delivery agent for national accounts within PBG's territories that specifically request direct delivery without using a middleman. In addition, PepsiCo may appoint PBG to manufacture and deliver fountain syrup to national accounts that elect delivery through independent distributors. Under the Master Syrup Agreement, PBG has the exclusive right to service fountain 4 equipment for all of the national account customers within PBG's territories. The Master Syrup Agreement provides that the determination of whether an account is local or national is at the sole discretion of PepsiCo. The Master Syrup Agreement contains provisions that are similar to those contained in the Master Bottling Agreement with respect to concentrate pricing, territorial restrictions with respect to local customers and national customers electing direct-to-store delivery only, planning, quality control, transfer restrictions and related matters. The Master Syrup Agreement had an initial term of five years which expired in 2004 and was renewed for an additional five-year period. The Master Syrup Agreement will automatically renew for additional five-year periods, unless PepsiCo terminates it for cause. PepsiCo has the right to terminate the Master Syrup Agreement without cause at any time upon twenty-four months notice. In the event PepsiCo terminates the Master Syrup Agreement without cause, PepsiCo is required to pay PBG the fair market value of PBG's rights thereunder. Our Master Syrup Agreement will terminate if PepsiCo terminates our Master Bottling Agreement. Terms of Olher U. S. Bottling Agreements. The bottling agreements between PBG and other licensors of beverage products, including Cadbury Schweppes plc for Dr Pepper, Schweppes, Canada Dry, Hawaiian Punch and Squirt, the Pepsi/Lipton Tea Partnership for Lipton Brisk and Lipton Iced Tea, and the North American Coffee Partnership for Starbucks Frappuccino©, contain provisions generally similar to those in the Master Bottling Agreement as to use of trademarks, trade names, approved containers and labels, sales of imitations and causes for termination. Some of these beverage agreements have limited terms and, in most instances, prohibit us from dealing in similar beverage products. Terms of the Country-Specific Bottling Agreements. The country-specific bottling agreements contain provisions generally similar to those contained in the Master Bottling Agreement and the non-cola bottling agreements and, in Canada, the Master Syrup Agreement with respect to authorized containers, planning, quality control, transfer restrictions, term, causes for termination and related matters. These bottling agreements differ from the Master Bottling Agreement because, except for Canada, they include both fountain syrup and non-fountain beverages. Certain of these bottling agreements contain provisions that have been modified to ret7ect the laws and regulations of the applicable country. For example, the bottling agreements in Spain do not contain a restriction on the sale and shipment of Pepsi-Cola beverages into our territory by others in response to unsolicited orders. In addition, in Mexico and Turkey we are restricted in our ability to manufacture, sell and distribute beverages sold under non-PepsiCo trademarks. Seasonality Sales of our products are seasonal, particularly in our Europe segment, where sales volumes tend to be more sensitive to weather conditions. Our peak season across all of our segments is the warm summer months beginning in May and ending in September. More than 65% of our operating income is typically earned during the second and third quarters. More than 75% of cash flow from operations is typically generated in the third and fourth quarters. Competition The carbonated soft drink market and the non-carbonated beverage market are highly competitive. Our competitors in these markets include bottlers and distributors of nationally advertised and marketed products, bottlers and distributors of regionally advertised and marketed products, as well as bottlers of private label soft drinks sold in chain stores. Among our major competitors are bottlers that distribute products from The Coca-Cola Company including Coca-Cola Enterprises Inc., Coca-Cola Hellenic Bottling Company S.A., Coca-Cola FEMSA S.A. de C.V. and Coca-Cola Bottling Co. Consolidated. Our market share for carbonated soft drinks sold under trademarks owned by PepsiCo in our U.S. territories ranges from approximately 20% to approximately 38%. Our market share for carbonated soft drinks sold under trademarks owned by PepsiCo for each country outside the United States in which we do business is as follows: Canada 43%; Russia 23%; Turkey 18%; Spain 12% and Greece 9% (including market share for our IVI brand). In addition, market share for our territories and the territories of other Pepsi bottlers in Mexico is 14% for carbonated soft drinks sold under trademarks owned by PepsiCo. All market share figures are based on generally available data published by third parties. Actions by our major competitors and others in the beverage industry, as well as the general economic environment, could have an impact on our future market share. We compete primarily on the basis of advertising and marketing programs to create brand awareness, price and promotions, retail space management, customer service, consumer points of access, new products, packaging innovations and distribution methods. We believe that brand recognition, market place pricing, consumer value, customer service, availability and consumer and customer goodwill are primary factors affecting our competitive position. Governmental Regulation Applicable to Bottling LLC Our operations and properties are subject to regulation by various federal, state and local governmental entities and agencies in the United States as well as foreign governmental entities and agencies in Canada, Spain, Greece, Russia, Turkey and Mexico. As a producer of food products, we are subject to production, packaging, quality, labeling and distribution standards in each of the countries where we have operations, including, in the United States, those of the Federal Food, Drug and Cosmetic Act and the Public Health Security and Bioterrorism Preparedness and Response Act. The operations of our production and distribution facilities are subject to laws and regulations relating to the protection of our employees' health and safety and the environment in the countries in which we do business. In the United States, we are subject to the laws and regulations of various governmental entities, including the Department of Labor, the Environmental Protection Agency and the Department of Transportation, and various federal, state and local occupational, labor and employment and environmental laws. These laws and regulations include the Occupational Safety and Health Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Superfund Amendments and Reauthorization Act, the Federal Motor Carrier Safety Act and the Fair Labor Standards Act. We believe that our current legal, operational and environmental compliance programs are adequate and that we are in substantial compliance with applicable laws and regulations of the countries in which we do business. We do not anticipate making any material expenditures in connection with environmental remediation and compliance. However, compliance with, or any violation of, future laws or regulations could require material expenditures by us or otherwise have a material adverse effect on our business, financial condition or results of operations. Bottle and Can Legislation Legislation has been enacted in certain U.S. states and Canadian provinces where we operate that generally prohibits the sale of certain beverages in non-refillable containers unless a deposit or levy is charged for the container. These include California, Connecticut, Delaware, Hawaii, Iowa, Maine, Massachusetts, Michigan, New York, Oregon, West Virginia, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Ontario, Prince Edward Island and Quebec. Massachusetts and Michigan have statutes that require us to pay all or a portion of unclaimed container deposits to the state and Hawaii and California impose a levy on beverage containers to fund a waste recovery system. In addition to the Canadian deposit legislation described above, Ontario, Canada currently has a regulation requiring that at least 30% of all soft drinks sold in Ontario be bottled in re611ab1e containers. The European Commission issued a packaging and packing waste directive that was incorporated into the national legislation of most member states. This has resulted in targets being set for the recovery and recycling of household, commercial and industrial packaging waste and imposes substantial responsibilities upon bottlers and retailers for implementation. Similar legislation has been enacted in Turkey. Mexico adopted legislation regulating the disposal of solid waste products. In response to this legislation, PBG Mexico maintains agreements with local and federal Mexican governmental authorities as well as with civil associations, which require PBG Mexico, and other participating bottlers, to provide for collection and recycling of certain minimum amounts of plastic bottles. We are not aware of similar material legislation being enacted in any other areas served by us. We are unable to predict, however, whether such legislation will be enacted or what impact its enactment would have on our business, financial condition or results of operations. Soft Drink Excise Tax Legislation Specific soft drink excise taxes have been in place in certain states for several years. The states in which we operate that currently impose such a tax are West Virginia and Arkansas and, with respect to fountain syrup only, Washington. In Mexico, there are excise taxes on any sweetened beverage products produced without sugar, including our diet soft drinks and imported beverages that are not sweetened with sugar. Value-added taxes on soft drinks vary in our territories located in Canada, Spain, Greece, Russia, Turkey and Mexico, but are consistent with the value-added tax rate for other consumer products. In addition, there is a special consumption tax applicable to cola products in Turkey. In Mexico, bottled water in containers over 10.1 liters are exempt from value-added tax, and PBG obtained a tax exemption for containers holding less than 10.1 liters of water. 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, 6 financial condition or results of operations. Trade Regulation As a manufacturer, seller and distributor of bottled and canned soft drink products of PepsiCo and other soft drink manufacturers in exclusive territories in the United States and internationally, we are subject to antitrust and competition laws. Under the Soft Drink Interbrand Competition Act, soft drink bottlers operating in the United States, such as us, may have an exclusive right to manufacture, distribute and sell a soft drink product in a geographic territory if the soft drink product is in substantial and effective competition with other products of the same class in the same market or markets. We believe that there is such substantial and effective competition in each of the exclusive geographic territories in which we operate. School Sales Legislation; Industry Guidelines In 2004, Congress passed the Child Nutrition Act, which requires school districts to implement a school wellness policy by July 2006. In May 2006, members of the American Beverage Association, the Alliance for a Healthier Generation, the American Heart Association and The William J. Clinton Foundation entered into a memorandum of understanding that sets forth standards for what beverages can be sold in elementary, middle and high schools in the United States (the "ABA Policy"). Also, the beverage associations in the European Union and various provinces in Canada have recently issued guidelines relating to the sale of beverages in schools. PBG intends to comply fully with the ABA Policy and these guidelines. 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 requires a warning under the law. We cannot predict whether or to what extent food industry efforts to minimize the law's impact on food products will succeed. We also cannot predict what impact, either in terms of direct costs or diminished sales, imposition of the law may have. Mexican Water Regulation In Mexico, we pump water from our own wells and we purchase water directly from municipal water companies pursuant to concessions obtained from the Mexican government on a plant-by-plant basis. The concessions are generally for ten-year terms and can generally be renewed by us prior to expiration with minimal cost and effort. Our concessions may be terminated if, among other things, (a) we use materially more water than permitted by the concession, (b) we use materially less water than required by the concession, (c) we fail to pay for the rights for water usage or (d) we carry out, without governmental authorization, any material construction on or improvement to, our wells. Our concessions generally satisfy our current water requirements and we believe that we are generally in compliance in all material respects with the terms of our existing concessions. Employees As of December 30, 2006, we employed approximately 70,400 workers, of whom approximately 33,500 were employed in the United States. Approximately 9,100 of our workers in the United States are union members and approximately 18,500 of our workers outside the United States are union members. We consider relations with our employees to be good and have not experienced significant interruptions of operations due to labor disagreements. Available Information PBG has made available, free of charge, the following governance materials on its website at www.pbg.com under Investor Relations - Company Information -Corporate Governance: Certificate of Incorporation, Bylaws, Corporate Governance Principles and Practices, PBG's Worldwide Code of Conduct (including any amendment thereto), PBG's Director Independence Policy, PBG's Audit and Affiliated Transactions Committee Charter, PBG's Compensation and Management Development Committee Charter, PBG's Nominating and Corporate Governance Committee Charter and PBG's Disclosure Committee Charter. These governance materials are available in print, free of charge, to any PBG shareholder upon request. Financial Information on Industry Segments and Geographic Areas Beginning with the fiscal quarter ended March 25, 2006, we changed our financial reporting methodology to three reportable segments. Prior year financial information has been restated to reflect our current segment reporting structure. The change to segment reporting has no effect on our reported earnings. For additional information, see Note 15 to Bottling LLC's Consolidated Financial Statements included in Item 7 below. Item lA. Risk Factors Our business and operations entail a variety of risks and uncertainties, including those described below. We may not be able to respo~id successfully to consumer tre~ids related to carbonated and non-carbonated beverages. Consumers are seeking increased variety in their beverages, and there is a growing interest among the public regarding health and wellness issues. This interest has resulted in a decline in consumer demand for full-calorie carbonated soft drinks and an increase in consumer demand for products associated with health and wellness, such as water, reduced calorie carbonated soft drinks and certain non-carbonated beverages. Because we rely mainly on PepsiCo [o provide us with the products that we sell, if PepsiCo fails to develop innovative products that respond to these and other consumer trends, we could be put at a competitive disadvantage in the marketplace and our business and financial results could be adversely affected. We may not be able to respond successfully to the demands of our largest customers. Our retail customers are consolidating, leaving fewer customers with greater overall purchasing power. Because we do not operate in all markets in which these customers operate, we must rely on PepsiCo and other PepsiCo bottlers to service such customers outside of our markets. Our inability, or the inability of PepsiCo and PepsiCo bottlers as a whole, to meet the product, packaging and service demands of our largest customers could lead to a loss or decrease in business from such customers and have a material adverse effect on our business and financial results. We may not be able to co»ipete successfully within the highly competitive carbonated and non-carbonated beverage markets. The carbonated and non-carbonated beverage markets are both highly competitive. Competitive pressures in our markets could cause us to reduce prices or forego price increases required to off-set increased costs of raw materials and fuel, increase capital and other expenditures, or lose market share, any of which could have a material adverse effect on our business and financial results. Because we depend upon PepsiCo to provide us with concentrate, certain funding and various services, changes in our- relationship with PepsiCo could adversely affect our business and financial results. We conduct our business primarily under beverage agreements with PepsiCo. If our beverage agreements with PepsiCo are terminated for any reason, it would have a material adverse effect on our business and financial results. These agreements provide that we must purchase all of the concentrate for such beverages at prices and on other terms which are set by PepsiCo in its sole discretion. Any significant concentrate price increases could materially affect our business and financial results. PepsiCo has also traditionally provided bottler incentives and funding to its bottling operations. PepsiCo does not have to maintain or continue these incentives or funding. Termination or decreases in bottler incentives or funding levels could materially affect our business and financial results. Under our shared services agreement, we obtain various services from PepsiCo, including procurement of raw materials and certain administrative services. If any of the services under the shared services agreement was terminated, we would have to obtain such services on our own. This could result in a disruption of such services, and we might not be able to obtain these services on terms, including cost, that are as favorable as those we receive through PepsiCo. Our business requires a si~giiificant supply of raw materials and energy, the limited availability or increased costs of which could adversely affect our business and financial results. The production and distribution of our beverage products is highly dependent on certain raw materials and energy. In particular, we require significant amounts of aluminum and plastic bottle components, such as resin. We also require access to significant amounts of water.ln addition, we use a significant amount of electricity, natural gas and other energy sources to operate our fleet of trucks and our bottling plants. Any sustained interruption in the supply of raw materials or energy or any significant increase in their prices could have a material adverse effect on our business and financial results. PepsiCo's equity ownership of PBG could affect matters concerning us. As of January 26, 2007, PepsiCo owned approximately 44.4% of the combined voting power of PBG's voting stock (with the balance owned by the public). PepsiCo will be able to significantly affect the outcome of PBG's shareholder votes, thereby affecting matters concerning us. We may have potential conflicts of interest with PepsiCo, which could result in PepsiCo's objectives being favored over our objectives. Our past and ongoing relationship with PepsiCo could give rise to conflicts of interests. In addition, two members of PBG's Board of Directors and one of the three Managing Directors of Bottling LLC, are Senior Vice Presidents of PepsiCo, a situation which may create conflicts of interest. These potential conflicts include balancing the objectives of increasing sales volume of PepsiCo beverages and maintaining or increasing our profitability. Other possible conflicts could relate to the nature, quality and pricing of services or products provided to us by PepsiCo or by us to PepsiCo. Conflicts could also arise in the context of our potential acquisition of bottling territories and/or assets from PepsiCo or other independent PepsiCo bottlers. Under our Master Bottling Agreement, we must obtain PepsiCo's approval to acquire any independent PepsiCo bowler. PepsiCo has agreed not to withhold approval for any acquisition within agreed-upon U.S. territories 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 attempt to acquire any independent PepsiCo bottler outside of those agreed-upon territories without PepsiCo's prior written approval. Our• acquisition strategy ma>> be limited by our ability to successfully integrate ncguired businesses into ours or our faih~re to realize our expected return on acquired businesses. We intend to continue to pursue acquisitions of bottling assets and territories from PepsiCo's independent bottlers. The success of our acquisition strategy may be limited because of unforeseen costs and complexities. We may not be able to acquire, integrate successfully or manage profitably additional businesses without substantial costs, delays or other difficulties. Unforeseen costs and complexities may also prevent us from realizing our expected rate of return on an acquired business. Any of the foregoing could have a material adverse effect on our business and financial results. 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. Key management employees are not parties to employment agreements with us. The loss of the services of key personnel could have a material adverse effect on our business and financial results. If we are unable to fund our substantial capital requirements, it could cause us to reduce our planned capital expenditures and could result in a material adverse effect on our business and financial results. We require substantial capital expenditures to implement our business plans. 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 business and financial results. Our substantial indebtedness could adversely affect our finnncial healtlc. We have a substantial amount of indebtedness, which requires us to dedicate a substantial portion of our cash flow from operations to payments on our debt. This could limit our flexibility in planning for, or reacting to, changes in our business and place us at a competitive disadvantage compared to competitors that have less debt. Our indebtedness also exposes us to interest rate fluctuations, because the interest on some of our indebtedness is at variable rates, and makes us vulnerable to general adverse economic and industry conditions. All of the above could make it more difficult for us, or make us unable to satisfy our obligations with respect to all or a portion of such indebtedness and could limit our ability to obtain additional financing for future working capital expenditures, strategic acquisitions and other general corporate requirements. Our foreign operations are subject to social, political and economic risks and ma_y be adversely affected by foreign currency fluctuations. In the fiscal year ended December 30, 2006, approximately 30%n of our net revenues were generated in territories outside the United States. Social, economic and political conditions in our international markets may adversely affect our business and financial results. The overall risks to our international businesses include changes in foreign governmental policies and other political or economic developments. These developments may lead to new product pricing, tax or other policies and monetary fluctuations that may adversely impact our business and financial results. In addition, our results of operations and the value of our foreign assets are affected by fluctuations in foreign currency exchange rates. If we are unable to maintain brand image and product quality, or if we encounter other product issues such as product recalls, our business may suffer. Maintaining a good reputation globally is critical to our success. If we fail to maintain high standards for product quality, or if we fail to maintain high ethical, social and environmental standards for all of our operations and activities, our reputation could be jeopardized. In addition, we may be liable if the consumption of any of our products causes injury or illness, and we may be required to recall products if they become contaminated or are damaged or mislabeled. A significant product liability or other product-related legal judgment against us or a widespread recall of our products could have a material adverse effect on our business and financial results. Newly adopted governmental regulations could increase our costs or liabilities or impact the sale of our products. Our operations and properties are subject to regulation by various federal, state and local governmental entities and agencies as well as foreign governmental entities. Such regulations relate to, among other things, food and drug laws, environmental laws, competition laws, taxes, and accounting standards. 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 existing or new regulatory requirements. Adverse weather conditions could reduce the demand for our products. Demand for our products is influenced to some extent by the weather conditions in the markets in which we operate. Unseasonably cool temperatures in these markets could have a material adverse effect on our sales volume and financial results. Catastrophic events in the markets in which we operate could have a material adverse effect on our financial condition. Natural disasters, terrorism, pandemic, strikes or other catastrophic events could impair our ability to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to manage such events effectively if they occur, could adversely affect our sales volume, cost of raw materials, earnings and financial results. Item 1B. Unresolved Staff Comments None. Item 2. Properties Our corporate headquarters is located in leased property in Somers, New York. In addition, we have a total of 649 manufacturing and distribution facilities, as follows: _, 1tilantifacfui•ing Facilities ~ ~ ''' Owned 'Leeased ~~... Joint venture operated Total .~,. . ,.. ~ . .. Distribution Facilities Owned' Leased Total United States & Canada Europe Mexico 50 14 28 3 A _ , 1 3 ~ 4 _ ' 57 ~~ 3] 2=31 F 12- _ 90 ~~ 57 53 93 298 . -. ~ - 65= ~ x ,, 183 '~ 10 We also own or lease and operate approximately 44,000 vehicles, including delivery trucks, delivery and transport tractors and trailers and other trucks and vans used in the sale and distribution of our beverage products. We also own more than two million coolers, soft drink dispensing fountains and vending machines. With a few exceptions, leases of plants in the United States & Canada are on a long-term basis, expiring at various times, with options to renew for additional periods. Our leased plants in Europe and Mexico are generally leased for varying and usually shorter periods, with or without renewal options. We believe that our properties are in good operating condition and are adequate to serve our current operational needs. Item 3. Legal Proceedings From time to time we are a party to various litigation proceedings arising in the ordinary course of our business, none of which, in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations, including the following: At the end of the fourth quarter of 2004 and during the first three quarters of 2005, we received Notices of Violation ("NOVs") and Orders For Compliance from the Environmental Protection Agency, Region 9 ("EPA"), relating to operations at four bottling plants in California and one in Hawaii. The NOV s allege that we violated our permits and the Clean Water Act as a result of certain events relating to waste water discharge and storm water run-off. We have been cooperating with the authorities in their investigation of these matters, including responding to various document requests pertaining to our plants in California and each of our plants in Arizona and Hawaii. In August 2005, we met with representatives of the EPA to discuss the circumstances giving rise to the NOVs and our responses. We believe monetary sanctions may be sought in connection with one or more of the NOVs. We further believe that neither the sanctions nor the remediation costs associated with these NOVs will be material to our results of operations or financial condition. In addition, on May 10, 2006, we met with representatives of the Michigan Department of Environmental Quality (the "DEQ"} regarding certain previous waste water permit violations at our bottling plant in Howell, Michigan. At that meeting, we learned that the DEQ would seek monetary sanctions that we believe will exceed $100,000. We believe that in no event will such sanctions or other associated costs be material to our results of operations or financial condition. Item 4. Submission of Matters to a Vote of Security Holders None. Executive Officers of the Registrant Executive officers are elected by our Managing Directors, and their terms of office continue until the next annual meeting of our Managing Directors or until their successors are elected and have been qualified. There are no family relationships among our executive officers. Set forth below is information pertaining to our executive officers who held office as of February 15, 2007: Eric J. Foss, 48, was appointed Principal Executive Officer of Bottling LLC in July 2006. He has also been PBG's President and Chief Executive Officer and a member of PBG's Board since July 2006. Previously, Mr. Foss served as PBG's Chief Operating Officer from September 2005 to July 2006 and President of PBG North America from September 2001 to September 2005. Prior to that, Mr. Foss was the Executive Vice President and General Manager of PBG North America from August 2000 to September 2001. From October 1999 until August 2000, he served as PBG's Senior Vice President, U.S. Sales and Field Operations, and prior to that, he was PBG's Senior Vice President, Sales and Field Marketing, since March 1999. Mr. Foss joined the Pepsi-Cola Company in 1982 where he held a variety of field and headquarters-based sales, marketing and general management positions. From 1994 to 1996, Mr. Foss was General Manager of Pepsi-Cola North America's Great West Business Unit. In 1996, Mr. Foss was named General Manager for the Central Europe Region for Pepsi-Cola International, a position he held until joining PBG in March 1999. Mr. Foss is also a director of United Dominion Realty Trust, Inc. and on the Industry Affairs Council of the Grocery Manufacturers of America. Alfred H. Drewes, 51, is the Principal Financial Officer of Bottling LLC. He is also PBG's Senior Vice President and Chief Financial Officer. Appointed to this position in June 2001, Mr. Drewes previously served as Senior Vice President and Chief Financial Officer of Pepsi- Cola International ("PCI"). Mr. Drewes joined PepsiCo in 1982 as a financial analyst in New Jersey. During the next nine years, he rose through increasingly responsible finance positions within Pepsi-Cola North America in field operations and headquarters. In 1991, Mr. Drewes joined PCI as Vice President of Manufacturing Operations, with responsibility for the global concentrate supply organization. In 1994, he was appointed Vice President of Business Planning and New Business Development and, in 1996, relocated to London as the Vice President and Chief Financial Officer of the ll Europe and Sub-Saharan Africa Business Unit of PCI. Andrea L. Forster, 47, is the Principal Accounting Officer of Bottling LLC. She has also served as PBG's Vice President and Controller since September 2000. In September 2000, Ms. Forster was also named Corporate Compliance Officer for PBG. Following several years with Deloitte Haskins and Sells, Ms.'Forster joined PepsiCo in 1987 as a Senior Analyst in External Reporting. She progressed through a number of positions in the accounting and reporting functions and, in 1998, was appointed Assistant Controller of the Pepsi-Cola Company. She was named Assistant Controller of PBG in 1999. PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities There is no established public trading market for the ownership of Bottling LLC. 12 Item 6. Selected Financial Data SELECTED FINANCIAL AND OPERATING DATA in millions Fiscal years ended 2006 2005 czi 2004 2003 2002 ~.. Statementrof Ope>ra_ bons Data: - ~ ~ ~ ~ ' >_ Net revenues $ 12,730 $ 11,885 $ 10,906 ~ I x,265 $ 9,216 Cosi~of_sales `' ~ ~ ~ ~ ~ :~~6;810 ~ _ 6253~~ ~- - .;5,`656 ~5?IS - 5;001-_~ Gross profit 5,920 5,632 5,250 5,00 4,215 "`~ b ~~ ~~' ry d-adiriinistrative ex`pensest~~~ =~ Sellin delive' an~ ~~~~" 4;932 ~ _ ~ ~~4,625 ~ -~ :~ 4,-285., ~ 4,089 `" 3,31.8~~ Operating incomel~> 988 1,007 965 961 897 Interest eXpense; net' "- ': - ,. :. ~ . z ' .E .53 . ,_ " 1.10. `, x'.132 ~ .: ,~ ~~143 _~` °98 ~. Other non-operating expenses, net 10 1 1 7 7 K~ ~ mority interest ~~. "' income /' - ~ , .y, .,. ~ . .. Income before income taxes 927 895 832 81 1 783 .~°Income tax.eXpense~~>~axs~ , ~ ~ .. - t ~~. ,x .~ _. ~ s- ~,3 ~ ~„ ~ . 24~ .~ <~ 3 ~ _ _ 84 . _ ~ , X49 Income before cumulative effect of change in accounting principle 924 871 829 727 734 Y . Cumulative effectof change-in accounting principle, ~ ~ ., , . - ~ _ _.. _ _ . ~ ~ - __. ~ ~ _ -~ _ ._ net of tax _= ,.,. ,,. -v:.. _... _ - .. _ ~ ~ ~ _~ ~ , ..- _ 6 Net income $ 924 $ 871 $ 829 $ 721 $ 734 BalanceSheetData_ (at,period.end): ~-y-~ ~ ~ ~ ~ ~. - ~ ~ ~ _ _. . .. _:.- _. x. Total assets ~ ~ ~ ~ $ 14,955 $ 13,745 $ 12,724 ~ $ 12,997 $ 11,015 ~~-L.orig-term.debt~ ~ ~ ~ ~~ ~ ~ -- - $ 3;~759~ ~ $ ~~2,943 ~- - _ ~ $3;495 ~~ $~--3,497. ~_: $- 3,541" Minority interest $ 18 $ 3 $ 3 $ - $ - °Accumulateii~othei• coin Yeh" ~ ~ " ~ p ehsiveloss~b>, .'~ ;.. ".- ~. $- ~(5$9) ~_ ~ - ~ ~ $ (3.95),° ", ~ $.. ~~~447)`.,,:- ~ ~~ $__,, (503) ~~ _ ;~$" _ .(596) Owners' equity $ 8,092 $ 7,581 $ 6,620 $ 5,902 $ 5,186 (1) In fiscal year 2006, we adopted SFAS 123R resulting in a $65 million decrease in operating income. See Critical Accounting Policies in Item 7. (2) Our fiscal year 2005 results included an extra week of activity. The pre-tax income generated from the extra week was spent back in strategic initiatives within our selling, delivery and administrative expenses. The 53~d week had no impact on our net income. (3) Fiscal year 2003 includes Canada tax law change expense of $11 million. (4) Fiscal year 2004 includes Mexico tax law change benefit of $26 million. (5) Fiscal year 2006 includes a tax benefit of $12 million from tax law changes in Canada, Turkey, and in certain jurisdictions within the U.S. (6) In fiscal year 2006, we adopted SFAS 158 resulting in a $278 million adjustment to accumulated other comprehensive loss. See Critical Accounting Policies in Item 7. 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT'S FINANCIAL REVIEW Tabular dollars in millions OVERVIEW Bottling Group, LLC (referred to as "Bottling LLC," "we," "our," "us" and "Company") is the principal operating subsidiary of The Pepsi Bottling Group ("PBG") and consists of substantially all of the operations and the assets of PBG. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of the U.S., Mexico, Canada and Europe, which consists of our operations in Spain, Greece, Russia and Turkey. In 2006, Bottling LLC changed its financial reporting methodology to three reportable segments - U.S. & Canada, Europe and Mexico. Operationally, the Company is organized along geographic lines with specific regional management teams having responsibility for the financial results in each reportable segment. The Company has restated segment information contained in the Results of Operations - 2005 section of this report to conform to the current segment reporting structure. See Note 15 in the Notes to Consolidated Financial Statements for further discussion on our segments. As shown in the graph below, the U.S. & Canada segment is the dominant driver of our results, generating 68% of our volume, 78% of our net revenues and 86% of our operating income. _ _.. -, ~~~;,~ ~ i ;} ~ I e{t ~~~ i _~ ~ - ~~ - _ ~ '. (d7" t~ i C3 lv9cxicn *y(7 4, i ~ - ~ ~.Ln,1.~pe a1 [ 1 ~~ 4 C9 I.I.S. ~ ~°ana~~a , 3{7 i 2t~' I i ltd'' ' j '~`olumz. ~,~t C)pratioR Re~~t;n~tes Inc~crrtx4 At the core of Bottling LLC's business are the products we sell. Our products are some of the world's best-known brands, which span virtually every non-alcoholic liquid beverage category. The majority of our volume is derived from brands licensed from PepsiCo, Inc. ("PepsiCo") or joint ventures in which PepsiCo participates. In some of our territories we have the right to manufacture, sell and distribute soft drink products of companies other than PepsiCo, including Dr Pepper and Squirt. We also have the right in some of our territories to manufacture, sell and distribute beverages under trademarks that we own, including Electropura, e-pura'"~ and Garci Crespo. See Part I, Item 1 of the non-financial section of this report for a listing of our principal products by segment. We sell our products through either acold-drink or take-home channel. Our cold-drink channel consists of chilled products sold in the retail and foodservice channels. We earn the highest profit margins on a per-case basis in the cold-drink channel. Our take-home channel consists of unchilled products that are sold in the retail, mass and club channels for at-home future consumption. Our products are brought to market primarily through direct store delivery ("DSD") or third-party distribution, including foodservice and vending distribution networks. The hallmarks of Bottling LLC's DSD system are speed to market, flexibility and reach, all critical factors in bringing new products to market, adding accounts to our existing base and meeting increasing volume demands. Our customers span from large format accounts, including large chain foodstores, supercenters, mass merchandisers, chain drug stores, club stores and military bases to small independently owned shops and foodservice businesses. 14 Among the services we provide to our customers are proven methods to grow not only PepsiCo brand sales, but the overall beverage category. Ultimately, our goal is to help our customers grow their beverage business by making our product line-up readily available. We measure our sales in terms of physical cases as sold to our customers. Each package, regardless of configuration or number of units within a package sold to a customer, represents one physical case. Our net price and gross margin on a per-case basis are impacted by how much we charge for the product, the mix of brands and packages we sell, and the channels in which the product is sold. For example, we realize a higher net revenue and gross margin per case on a 20-ounce chilled bottle sold in a convenience store than on a 2-liter unchilled bottle sold in a grocery store. Our financial success is dependent on a number of factors, including: our strong partnership with PepsiCo, the customer relationships we cultivate, the pricing we achieve in the marketplace, our market execution, our ability to meet changing consumer preferences and the efficiency we achieve in manufacturing and distributing our products. Key indicators of our financial success are: the number of physical cases we sell, the net price and gross margin we achieve on a per-case basis, and our overall cost productivity, which reflects how well we manage our raw material, manufacturing, distribution and other overhead costs. Management's Financial Review is provided below and organized in the following sections: • Critical accounting policies • Relationship with PepsiCo • Items that affect historical or future comparability • Financial performance summary • Results of operations • Liquidity and financial condition and • Market risks and cautionary statements. The discussion and analysis throughout Management's Financial Review should be read in conjunction with the Consolidated Financial Statements and the related accompanying notes. The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us to make estimates and assumptions that affect the reported amounts in our Consolidated Financial Statements and the related accompanying notes, including various claims and contingencies related to lawsuits, taxes, environmental and other matters arising out of the normal course of business. We use our best judgment, the advice of external experts, our knowledge of existing facts and circumstances and actions that we may undertake in the future, in determining the estimates that affect our Consolidated Financial Statements. 15 CRITICAL ACCOUNTING POLICIES The preparation of our consolidated financial statements in conformity with U.S. GAAP often requires us to make judgments, estimates, and assumptions regarding uncertainties that affect the results of operations, financial position and cash flows of the Company, as well as the related footnote disclosures. Management bases its estimates on knowledge of our operations, markets in which we operate, historical trends, future expectations and other assumptions. Actual results could differ from these estimates under different assumptions or conditions. Significant accounting~policies are discussed in Note 2 in the Notes to Consolidated Financial Statements. Our critical accounting policies are those policies which management believes are most important to the portrayal of Bottling LLC's financial condition and results of operations and require the use of estimates, assumptions and the application of judgment. Management has reviewed these critical accounting policies and related disclosures with PBG's Audit and Affiliated Transactions Committee of our Board of Directors. Allowance for Doubtful Accounts -Our allowance for doubtful accounts is determined through evaluation of the aging of accounts receivable, sales return trend analysis, detailed analysis of high-risk customer accounts, overall market environment and financial conditions of our customers. Estimating an allowance for doubtful accounts requires significant management judgment and assumptions regarding the potential for losses on receivable balances. Accordingly, we estimate the amounts necessary to provide for losses on receivables by using quantitative and qualitative measures, including historical write-off experience, evaluating specific customer accounts for risk of loss, and adjusting for changes in economic conditions in which we and our customers operate. Actual collections of accounts receivable could differ from management's estimates due to changes in future economic or industry conditions or specific customers' financial condition. Recoverability of Goodwill and Intangible Assets with Indefinite Lives -Our intangible assets principally arise from the allocation of the purchase price of businesses acquired, and consist primarily of franchise rights, distribution rights, brands and residual goodwill. Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" classifies intangible assets into three categories: (1) intangible assets with finite lives subject to amortization; (2) intangible assets with indefinite lives not subject to amortization; and (3) goodwill, which is not amortized. Intangible assets with finite lives are amortized over their estimated useful lives. Tests for impairment are performed only if a triggering event indicates the carrying value may not be recoverable. For goodwill and intangible assets with indefinite lives, tests for impairment are performed at least annually or more frequently if a triggering event indicates the assets may be impaired. We evaluate goodwill for impairment at a reporting unit level. A reporting unit can be an operating segment or a business within an operating segment (component). Based on an evaluation of our reporting units, we determined that the countries in which we operate are our reporting units. We evaluate goodwill for impairment by comparing the fair value of the reporting unit with its carrying value. We measure the fair value of a reporting unit as the discounted estimated future cash flows, including a terminal value, which assumes the business continues in perpetuity. Our long-term terminal growth assumptions reflect our current long-term view of the marketplace. Our discount rate is based upon our weighted-average cost of capital for each reporting unit. If the carrying value of a reporting unit exceeds its fair value, we compare the implied fair value of the reporting unit's goodwill to its carrying amount to measure the amount of impairment loss. In determining whether our intangible assets have an indefinite useful life, we consider the following as applicable: the nature and terms of underlying agreements; our intent and ability to use the specific asset; the age and market position of the products within the territories we are entitled to sell; the historical and projected growth of those products; and costs, if any, to renew the agreement. We evaluate intangible assets with indefinite useful lives, including franchise rights, distribution rights and brands we own for impairment by comparing the estimated fair values with the carrying values. The fair value of our franchise rights and distribution rights is measured using amulti-period excess earnings method that is based upon estimated discounted future cash flows. The fair value of our brands is measured using amulti-period royalty savings method, which reflects the savings realized by owning the brand and, therefore, not having to pay a royalty fee to a third party. In the fair value calculation of these intangibles we use a discount rate that is based upon the reporting unit's weighted-average cost of capital plus an additional risk premium to reflect the risk and uncertainty inherent in separately acquiring the identified intangible asset between a willing buyer and a willing seller. The additional risk premium associated with our discount rate 16 effectively eliminates the benefit that we believe results from synergies, scale and our assembled workforce, al] of which are components of goodwill. Considerable management judgment is necessary to estimate discounted future cash flows in conducting an impairment test for goodwill . and other identified intangible assets, which may be impacted by future actions taken by us and our competitors and the volatility in the markets in which we conduct business. An inability to achieve strategic business plan targets in a reporting unit, a change in our discount rate, or other assumptions within our cash flow models could have a significant impact on the fair value of our reporting units and other intangible assets, which could then result in a material impairment charge to our results of operations. In Mexico, we have approximately $1 billion of intangible assets on our balance sheet. Prior to 2006, Mexico did not meet our profit expectations. While Mexico has met our profit expectations in 2006, an impairment charge could be required in the future if we do not achieve our long-term expected results there. We will continue to closely monitor our performance in Mexico and evaluate the realizability of each intangible asset. For further information about our goodwill and intangible assets see Note 8 in the Notes to Consolidated Financial Statements. Pension and Postretirement Medical Benefit Plans - We participate in PBG sponsored pension and other postretirement medical benefit plans in various forms in the United States and similar plans outside the United States, covering our employees who meet specified eligibility requirements. We account for our defined benefit pension plans and our postretirement medical benefit plans using actuarial models required by SFAS No. 87, "Employers' Accounting for Pensions," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS 158"). Effective for our fiscal year ending 2006, we adopted the balance sheet provisions of this standard and recognized the funded status of each of the pension and postretirement medical plans sponsored by PBG in the United States and other similar plans outside the United States. Accordingly, we recorded a decrease of approximately $278 million, net of taxes, to our owners' equity due to the adoption of SFAS 158. The assets, liabilities and expense associated with our international plans were not significant to our results of operations, and accordingly, assumptions and sensitivity analyses regarding these plans are not included in the discussion below. Assumptions Our U.S. employees participate in non-contributory defined benefit pension plans, which cover substantially all full-time salaried employees, as well as most hourly employees. Assumptions and estimates are required to calculate the expenses and obligations for these plans including discount rate, expected return on plan assets, retirement age, mortality, turnover, health care cost trend rates and compensation-rate increases. We evaluate these assumptions with our actuarial advisors on an annual basis and we believe that they are appropriate. Our assumptions are based upon historical experience of the plan and expectations for the future. These assumptions may differ materially from actual results due to changing market and economic conditions. An increase or decrease in the assumptions or economic events outside our control could have a material impact on reported net income and the related funding requirements. The discount rate is a significant assumption and is derived from the present value of our expected pension and postretirement medical benefit payment streams. The present value is calculated by utilizing a yield curve that matches the timing of our expected benefit payments. The yield curve is developed by our actuarial advisers using a portfolio of several hundred high-quality non-callable corporate bonds. The bonds are rated Aa or better by Moody's and have at least $250 million in principal amount. The bonds are denominated in U.S. dollars and have maturity dates ranging from six months to thirty years. Once the present value of all the expected payment streams has been calculated, a single discount rate is determined. The fiscal year 2007 weighted-average discount rate for our pension and postretirement medical plans is 6.00 percent and 5.80 percent, respectively. The expected return on plan assets is important, since a portion of our defined benefit pension plans is funded. In evaluating the expected rate of return on assets for a given fiscal year, we consider the actual 10 to 15-year 17 historic returns on asset classes in PBG's pension investment portfolio, reflecting the weighted-average return of our asset allocation and use them as a guide for future returns. The target asset allocation for PBG's domestic pension assets is 75 percent equity investments, of which approximately 80 percent is invested in domestic equities and 20 percent is invested in foreign equities. The remaining 25 percent of our plan assets is invested primarily in fixed income securities, which is equally divided between U.S. government and corporate bonds. PBG's current portfolio's target asset allocation for the 10 and 15-year periods had weighted average returns of 8.46 percent and 9.77 percent, respectively. Over time, the expected rate of return on pension plan assets should approximate the actual long-term returns. Based on the historic and estimated future returns of our portfolio, we estimate the long-term rate of return on assets for PBG's domestic pension plans to be 8.50 percent in 2007. The cost or benefit of plan changes, such as increasing or decreasing benefits for prior employee service, is deferred and included in expense on a straight-line basis over the average remaining service period of the employees expected to receive benefits. Gains and losses have resulted from changes in actuarial assumptions and from differences between assumed and actual experience, including among other items, changes in discount rates, actual returns on plan assets as compared to assumed returns, and changes in compensation increases. Differences between assumed and actual returns on plan assets are amortized on a straight-line basis over five years and are recognized in the net periodic pension calculation over five years. To the extent the amount of all unrecognized gains and losses exceeds 10 percent of the larger of the benefit obligation or plan assets, such amount is amortized over the average remaining service period of active participants. Net unrecognized losses, within PBG's pension and postretirement plans in the United States, totaled $558 million and $611 million at December 30, 2006 and December 31, 2005, respectively. The following table provides our current and expected weighted-average assumptions for our pension and postretirement medical plans' expense in the United States: Pension 2007 2006 Discount`iate _ -_~ ~:~. , -. ~. ~ - ~ ~, 6:00% • 5:80% _. _ _ _._ Expected return on plan assets (net of administrative expenses) 8.50% 8.50% Rate ~of,compensation,-increase _ ~> ~ ~ ~ ~ _~ e " ~ ~3.55~%_ "' .3.:53% Postretiremcnt 2007 2006 ~.. Discount rate ~ _ ~ ,~ ,^. ~ ~ . ~. ~.. ~ , _ ~ -5.80% _ ~ 5.55%~. Rate of compensation increase 3.55%n 3.53% Health care ccist tcend~~cate ~ ~ ~ ~ ~ G..z ~ ;x.,8.00_%,_ - ~ ~ 9.00:%. During 2006, PBG-sponsored defined benefit pension and postretirement medical plan expenses in the United States totaled $119 million. In 2007, our ongoing expenses will decrease by approximately $2 million to $117 million as a result of the combination of the following factors: • An increase in our weighted-average discount rate for our pension and postretirement medical expense from 5.80 percent and 5.55 percent to 6.00 percent and 5.80 percent, respectively, reflecting increases in the yields of long-term corporate bonds comprising the yield curve. This change in assumption will decrease our 2007 defined benefit pension and postretirement medical expense by approximately $8 million. • A change to our mortality assumption to reflect six years of projected mortality improvement will increase our 2007 defined benefit pension and postretirement medical expense by approximately $5 million. • Other changes will increase our 2007 defined benefit pension and postretirement medical expenses by approximately $1 million. These changes include certain benefit plan modifications, demographic changes and reflection of actual asset returns. 18 Sensitivity Analysis It is unlikely that in any given year the actual rate of return will be the same as the assumed long-term rate of return of 8.50 percent. The following table provides a summary of the last three years of actual returns versus the expected long-term returns for our U.S. pension plans: 2006 2005 2004 Expected return on plan assets (net of administrative expenses) 8.50% 8,50% 8.50% Actual return on plan assets (net of administrative expenses) 9.74% 13,33% 11.61 % Sensitivity of changes in key assumptions for our U.S. pension and postretirement plans' expense in 2007 are as follows: • Discount rate - A 25-basis point change in the discount rate would increase or decrease the expense for PBG's pension and postretirement medical benefit plans in 2007 by approximately $10 million. • Expected return on plan assets - A 25-basis point change in the expected return on plan assets would increase or decrease the expense for PBG's pension plans in 2007 by approximately $3 million. The postretirement medical benefit plans have no expected return on plan assets as they are funded from the general assets of the Company as the payments come due. For further information about PBG's pension and postretirement plans and the adoption of SFAS 158 see Notes 2 and 13 in the Notes to Consolidated Financial Statements. Share-Based Compensation -Effective January 1, 2006, we adopted SFAS No. 123 (revised), "Share-Based Payment" ("SFAS 123R"). Among its provisions, SFAS 123R requires us to recognize compensation expense for equity awards over the vesting period based on the award's grant-date fair value. Historically, we offered PBG stock option awards as our. primary form of long-term incentive compensation. These PBG stock option awards generally vest over three years and have a 10 year term. We use the Black-Scholes-Merton option valuation model to value stock option awards: Beginning in 2006, we granted a combination of PBG stock option awards and PBG restricted stock units to our middle and senior management. The fair value of restricted stock unit awards is based on the fair value of PBG stock on the date of grant. Each restricted stock unit award generally vests over three years and is settled in shares of PBG stock after the vesting period. The Black-Scholes-Merton valuation model for PBG stock option awards estimates the potential value the employee will receive based on current interest rates, expected time at which the employee will exercise the award and the expected volatility of the PBG's stock price. These assumptions are based on historical experience and future expectations of employee behavior and stock price. Another significant assumption utilized in calculating our share-based compensation is the amount of awards that we expect to forfeit. Compensation expense is recognized only for share-based payments expected to vest and we estimate forfeitures, both at the date of grant as well as throughout the vesting period, based on PBG's historical experience and future expectations. Changes in our assumptions utilized to value PBG stock options and forfeiture rates could materially affect the amount of share-based compensation expense recognized in the Consolidated Statement of Operations. For further information about our share-based compensation see Note 3 in the Notes to Consolidated Financial Statements. Income Taxes - We are a limited liability company, classified as a partnership for U.S. tax purposes and, as such, generally will pay no U.S. federal or state income taxes. Our federal and state distributive shares of income, deductions and credits are allocated to our owners based on their percentage of ownership. However, certain domestic and foreign affiliates pay taxes in their respective jurisdictions and record related deferred income tax assets and liabilities. The tax bases of our assets and liabilities reflect our best estimate of the tax benefits and costs we expect to realize. We establish valuation allowances to reduce our deferred tax assets to an amount that will 19 more likely than not be realized. A significant portion of deferred tax assets consists of net operating loss carryforwards ("NOLs"). We have NOLs totaling $962 million at December 30, 2006, which are available to reduce future taxes in the U.S., Spain, Greece, Russia, Turkey and Mexico. The majority of our NOLs are generated overseas, the largest of which is coming from our Mexican and Spanish operations. Of these NOLs, $24 million expire in 2007 and $938 million expire at various times between 2008 and 2026. Significant management judgment is required in determining our effective tax rate and in evaluating our tax position. We establish tax reserves when, based on the applicable tax law and facts and circumstances relating to a particular transaction or tax position, it becomes probable that the position will not be sustained when challenged by a taxing authority. A change in our tax reserves could have a significant impact on our results of operations. Under our tax separation agreement with PepsiCo, PepsiCo maintains full control and absolute discretion for any combined or consolidated tax filings for tax periods ended on or before our initial public offering that occurred in March 1999. However, PepsiCo may not settle any issue without our written consent, which consent cannot be unreasonably withheld. PepsiCo has contractually agreed to act in good faith with respect to all tax examination matters affecting us. In accordance with the tax separation agreement, we will bear our allocable share of any risk or benefit resulting from the settlement of tax matters affecting us for these tax periods. A number of years may elapse before a particular matter for which we have established a tax contingency reserve is audited and finally resolved. The number of years for which we have audits that are open varies depending on the tax jurisdiction. The U.S. Internal Revenue Service ("IRS") is currently examining PBG's and PepsiCo's joint tax returns for 1998 through March 1999. The statute of limitations for the IRS audit of Bottling LLC's 1999-2000 tax returns closed on December 30, 2006. The IRS is currently examining Bottling LLC's tax returns for the 2001 and 2002 tax years. While it is often difficult to predict the final outcome or the timing of the resolution, we believe that our tax reserves reflect the probable outcome of known tax contingencies. Favorable resolutions would be recognized as a reduction of our tax expense in the year of resolution. For further information about our income taxes see Note 14 in the Notes to Consolidated Financial Statements. RELATIONSHIP WITH PEPSICO PepsiCo is considered a related party due to the nature of our franchise relationship and its ownership interest in our company. More than 80 percent of our volume is derived from the sale of brands from PepsiCo. At December 30, 2006, PepsiCo owned 6.7 percent of our equity. Our business is conducted primarily under beverage agreements between PBG and PepsiCo, including a master bottling agreement, anon- cola bottling agreement and a master syrup agreement. These agreements provide PepsiCo with the ability, at its sole discretion, to establish prices, and other terms and conditions for our purchase of concentrates and finished product from PepsiCo. Additionally, under a shared services agreement, we obtain various services from PepsiCo, which include services for information technology maintenance and the procurement of raw materials. We also provide services to PepsiCo, including facility and credit and collection support. Although we are not a direct party to these contracts, as the principal operating subsidiary of PBG, we derive direct benefit from them. Because we depend on PepsiCo to provide us with concentrate, bottler incentives and various services, changes in our and PBG's relationship with PepsiCo could have a material adverse effect on our business and financial results. For further information about our relationship with PepsiCo and its affiliates see Note 16 in the Notes to Consolidated Financial Statements. 20 ITEMS THAT AFFECT HISTORICAL OR FUTURE COMPARABILITY The year-over-year comparisons of our financial results are affected by the following items: (Expense)/h~came Operating~income ~~' ~ ~~ - :.: .. ~ . _ mpact of HFCS liti atAS 123R - g on settlement - 53'd week Strategic spending mipatiyes , , .A ~ . _ , ~ ,'. ~`~ ~ s, 2006 Items SFAS 123R December December 30, 2006 31, 2005 _. $(6S 1 $ - $ 29.= - $ 24 ${48) ,. Effective January 1, 2006, we adopted SFAS 123R. Among its provisions, SFAS 123R requires us to recognize compensation expense for equity awards over the vesting period based on the award's grant-date fair value. Prior to 2006, in accordance with accounting guidelines, we were not required to recognize this expense. For further information see our Critical Accounting Policies and Note 3 in the Notes to Consolidated Financial Statements. Tax Law Changes During 2006, tax law changes were enacted in Canada, Turkey, and in certain jurisdictions within the U.S. which decreased our income tax expense, resulting in an increase to net income of $12 million. Please see our Income Tax Expense discussion in the Fitancial Performance section below for further details. 2005 Items High Fruetnse Corn Syrup ("HFCS") Litegatiati Settlement Included in our selling, delivery and administrative expenses for 2005 was apre-tax gain of $29 million in the U.S. from the settlement of the HFCS class action lawsuit. The lawsuit related to purchases of high fructose corn syrup by several companies, including bottling entities owned and operated by PepsiCo, during the period from 3uly 1, 1991 to June 30, 1995 (the "Claims Period"). Certain of the bottling entities owned by PepsiCo during the Claims Period were transferred to PBG when PepsiCo formed PBG in 1999. With respect to these entities, which we currently operate, we received $23 million in HFCS settlement proceeds. We received an additional $6 million in HFCS settlement proceeds related to bottling operations not previously owned by PepsiCo, such as manufacturing co-operatives of which we are a member. 53r~ Week Our fiscal year ends on the last Saturday in December and, as a result, a 53~d week is added every five or six years. Fiscal years 2006 and 2004 consisted of 52 weeks. In 2005, our fiscal year consisted of 53 weeks. Our 2005 results included pre-tax income of approximately $22 million due to the 53~d week, which increased our operating income by $24 million offset by additional interest expense of $2 million. Strategic Speruling Initiatives We reinvested both the pre-tax gain of $29 million from the HFCS settlement and a majority of the $22 million of pre-tax income from the 53rd week in $48 million of long-term strategic spending initiatives in the U.S., Canada and Europe. The strategic spending initiatives included programs designed primarily to enhance our customer service agenda, drive productivity and improve our management information systems. These strategic spending initiatives were recorded in selling, delivery and administrative expenses. 21 FINANCIAL PERFORMANCE SUMMARY December December Fiscal Year 30, 2006 ~ , 31, 2005 % Change Nef°revenues a~ . ' w ~ ~ ~ _ _, ~;. $12,730.;; ~ $11,;885 _ _,.. 7,% Gross profit $ 5,920 $ 5,632 5% Operating income, , ~. .~ ~, ~.~$.` ~m988 "~. . $_1,007 -_~ _~(2)%~ Net income $ 924 $ 871 6% During 2006, we delivered strong results, reflecting outstanding top-line growth which was offset by higher raw material costs and selling, delivery and administrative expenses, including the $65 million impact of adopting SFAS 123R. Worldwide operating income was down two percent mainly due to the six-percentage-point negative impact from the adoption of SFAS 123R. Net income increased six percent versus the prior year mainly as a result of a $57 million increase in net interest income driven by higher effective interest rates coupled with additional loans made to PBG and the $12 million tax gain due to income tax law changes enacted in 2006. These gains were partially offset by higher non-operating expenses in 2006 as compared to the prior year. In addition, net income in 2005 was negatively impacted by the $22 million tax charge as a result of the reorganization of our international legal entity and debt structure. Overall, we increased our worldwide revenue by seven percent and our gross profit improved by five percent. Strong results in our core operations were fueled by double-digit operating income growth in our Mexico and Europe segments and a solid performance in our U.S. & Canada segment. Reported operating income in our U.S. & Canada segment was down seven percent driven mainly by the six-percentage-point negative impact from the adoption of SFAS 123R and the net two-percentage-point positive impact in the prior year from the 53«' week, HFCS settlement and strategic initiatives. On a worldwide basis, we achieved three percent volume growth, reflecting increases across all segments. In the U.S. & Canada, volume increased two percent. Volume growth, excluding the impact from acquisitions and the impact of the 53~'~ week in 2005, was driven by strong brand performance in non-carbonated beverages. Strong volume growth in Europe of seven percent was driven by double-digit growth in Russia and Turkey. In Mexico, volume increased four percent, of which three percent was due to acquisitions. Our strong worldwide revenue growth was a result of strong brand performance across non-carbonated beverages, product and package innovation, pricing improvements and strong execution in the marketplace. Growth was driven primarily by afour-percent increase in net revenue per case, including cone-percentage-point impact from the effect of foreign currency translation, and athree-percent increase in volume. Each of our segments delivered strong increases in net revenue per case as a result of the Company's successful pricing and margin strategy. Our worldwide cost of sales increased by nine percent driven by our strong volume growth and increases in some of our raw material costs, which have continued to pressure our bottom-line results. On a per-case basis, cost of sales increased six percent, reflecting increases in raw material costs and the impact of package mix. Worldwide selling, delivery and administrative ("SD&A") expenses increased seven percent. Increases in selling, delivery and administrative costs were driven by higher volume growth, wage and benefit costs, increased pension expense and planned spending as a result of investment in high growth European markets. The impact from the adoption of SFAS 123R in 2006 offset the ne[ impact of the 53~~ week, the HFCS settlement and the strategic spending initiatives in 2005. Interest expense increased by $40 million largely due to our March 30, 2006 debt issuance and higher effective interest rates from interest rate swaps which convert our fixed-rate debt to variable-rate debt. Interest income increased by $97 million driven primarily by higher effective interest rates coupled with additional loans made to PBG. Other non-operating expenses, net increased by $9 million primarily due to foreign exchange losses associated with the devaluation of the Turkish lira. 22 Our cash flow from operations continued to be strong in 2006. We generated more than $1.5 billion of cash from operations, after contributing $68 million into our pension plans. With our strong cash flows, we utilized $721 million of cash for capital investments to grow our business. 2007 Outlook Forecasted 2007 growth vs. 2006 - "~ , ~I~%-2% Worldwide Volume ~~" ~ ~ - ~ _~ - ~ ~ ~ - - U.S. Volume Flat to 1% Worl`dcyide Net Revenaeper Case `~_ .,~. ~ " ~ - ~ _ ~ _ ~ ;3%=4% ~ ~~ __ U.S. Net Revenue per Case 4%+ ~_ _~~ __ _ - _ Worldwide Cost: of Sales per Casee ., . _ ,... _ _m '~ :: a.u. ".' _, ' . .; - .,. ;_ 6% _. In 2007, we expect to increase our net revenue per case, using rate increases where marketplace conditions allow, while also managing the mix of products we plan to sell in order to offset the cost of raw materials which is expected to continue to pressure our cost of sales. In July 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes," which provides specific guidance on the financial statement recognition, measurement, reporting and disclosure of uncertain tax positions taken or expected to be taken in a tax return. FIN 48 becomes effective beginning with our first quarter 2007 fiscal period and is likely to cause greater volatility in our quarterly statement of operations and impact the calendarization of our effective tax rate on a quarterly basis as interest on tax reserves is recognized discretely within income tax expense. Please see Note 14 in the Notes to Consolidated Financial Statements for further discussion on FIN 48. The impact from this accounting change will result in an approximate one-percentage-point increase in Bottling LLC's effective tax rate. This will increase our income tax expense by approximately $8 million. RESULTS OF OPERATIONS - 2006 Volume Fiscal Year Ended 2006 vs. 2005 World- U.S. & wide Canada Europe Mexico _ _. _.. r Base vo b~.., ~,., .....~. _ ..~. ~.... .., _. .~ ..:~. _ .Y. Acqutsitions 1% 1% 0% 3% _.. ~_. lmpaetof 53«? week- m 2005 . , ; . , . "; ~ (1)% ,~~ , (2)%=- 0% ~~ - 0%-~ Total Volume Change 3% 2% 7% 4% Our full-year reported worldwide physical case volume increased three percent in 2006 versus 2005. Worldwide volume growth reflects increases across all segments. In the U.S. & Canada, volume growth, excluding the impact from acquisitions and the impact of the 53~d week in 2005, was fueled by strong brand performance across non-carbonated beverages, innovation and our ability to capture the growth in emerging channels such as Club and Dollar stores. In the U.S., volume increased three percent due mainly to athree-percent increase in base business volume and a one percent increase from acquisitions that was offset by the impact of the 53~d week in 2005. Base business volume growth was driven by a double-digit increase in both water and other non-carbonated beverages, fueled by outstanding growth in Lipton Iced Tea and energy drinks. Our total carbonated soft drink ("CSD") portfolio decreased about one percent, mostly driven by declines in Trademark Pepsi. Our flavored CSD portfolio increased about two percent due to growth in Trademark Mountain Dew. From a channel perspective, growth in the U.S. was 23 driven by afour-percent increase in our take-home channel as a result of double-digit increases in Club and Dollar stores as well as mass retailers and drug stores, and atwo-percent increase in our cold-drink channel. Cold-drink growth was driven by strong results in the foodservice channel and in the convenience and gas channel. In Canada, volume increased about one percent in 2006 versus 2005, primarily driven by atwo-percent increase in base business and partially offset by the impact of the 53'u week in 2005. Base business growth was primarily driven by double-digit growth in both water and other non-carbonated beverages. In Europe, volume grew seven percent in 2006 versus 2005, driven by double-digit increases in Russia and Turkey. Solid growth in our non- carbonated portfolio, including bottled water and Lipton Iced Tea, Trademark Pepsi and local brands helped drive overall growth in these countries. In Mexico, excluding the impact of acquisitions, volume increased one percent in 2006 versus 2005, mainly as a result of growth in bottled water and other non-carbonated beverages and partially offset by declines in jug water and CSD volume. Net Revenues Fiscal Year Ended 2006 vs. 2005 Volume iinpacf~-- , Net price per case impact (rate/mix) Acquisitions_ Currency translation Impact of~53ia week yin 2005 ~~ ~ ~ ~ ~ ~- ~ ~~ Total Net Revenues Change world- U.S. & wide Canada Europe Mexico 3% 3% 5% 5% ~ J _ 1% 1% 0% 0% 7% 6% 12% 9% Worldwide net revenues were $12.7 billion in 2006, aseven-percent increase over the prior year. The increase in net revenues for the year was driven primarily by strong volume growth and solid increases in net price per case across all segments, coupled with the impact of acquisitions in the U.S. and Mexico and the favorable impact from foreign currency translation in Canada. This growth was partially offset by the impact of the 53~~ week in 2005 in our U.S. & Canada segment. Increases in net price per case were primarily driven by rate improvements across all segments. In the U.S. & Canada, six-percent growth in net revenues was consistent with worldwide trends. In the U.S., we achieved revenue growth of five percent with three-percent volume growth due primarily to base business volume increases in water and non-carbonated beverages. Net price per case in the U.S. increased by three percent mainly due to rate increases. In Canada, revenue growth of 12 percent was driven primarily by the favorable impact of foreign currency translation, coupled with athree-percent increase in net price per case and volume improvements of one percent. Net revenues in Europe increased 12 percent in 2006 versus 2005, driven primarily by double-digit volume growth in Russia and Turkey and strong increases in net price per case primarily as a result of rate increases. In Mexico, net revenues increased nine percent mostly due to strong increases in net price per case as a result of rate increases and the impact of acquisitions, coupled with positive volume growth. 24 Cost of Sales Fiscal Year Ended 2006 vs. 2005 Worldwide Volume impact rv . ,.. ,~~ ,.- . 3% .... Cost per case impact 5% t1 q Currency translation 1% ,Impact ofy53~d:week-in 2Q05 , .~ ~.. ..~ _._.. , ~~ ~ ..~ : ~'_ ~ q~,. ; ._ - _ " _~ - . ,_ _: ~, .. ~_ m_ ,~ , _ ~ ',~`,~)% ~ _:4 Total Cost of Sales Change 9% Worldwide cost of sales was $6.8 billion in 2006, anine-percent increase over 2005. The growth in cost of sales across all of our segments was driven by cost per case increases and volume growth. Worldwide cost-per-case increases were driven primarily by increases in raw material costs and the impact of package mix. Changes in our package mix were driven by faster volume growth in higher cost non-carbonated products. The impact of acquisitions in the U.S. and Mexico and the negative impact of foreign currency translation in Canada each contributed about one percentage point of growth to our worldwide increase, which was partially offset by the impact of the 53~' week in the prior year in our U.S. & Canada segment. Selling, Delivery and Administrative Expenses Fiscal Year Ended 20116 vs. 2005 Cost impact ..~ ~.. . _. ., : ~;: ,~ ~ ~_ .. ~ _ ~ _., ~ ~ _ __ .. .. .. ~ ._ ~ 5°Io - Adoption of SFAS 123R in 2006 1% _. Acquisitions ~.; :_ ~, ~-~, ~ .. ~.: . , ~ - _ ~ ..1 ~%~ Currency translation 1% HFCS Setflement;n'200'S ~ ~ ' ~r. ~ :: ._ ~~ ~ = ...u . ~.... . ~ ,~ , _ ~ ,~ ~ ~. , ~, :~.. __ ~~ `- ~ _ ~ :~ `~h%<~" ..: Strategic Spending Initiatives in 2005 (l )% mpact of 53 week m 2005 `, _ y; .. x ', ; : . , Total SD&A Change - 7% Worldwide SD&A expenses were $4.9 billion, aseven-percent increase over 2005. This increase was driven by volume growth and higher wage and benefit costs across all of our segments, increased pension expense in the U.S and planned spending as a result of investment in high- growth European markets. The impact from the adoption of SFAS 123R in 2006 contributed approximately one percentage point of growth to our worldwide increase in SD&A expenses. Additionally, the prior year combined impact from the strategic spending initiatives and the additional expenses from the 53~d week in our U.S. & Canada segment, partially offset by the pre-tax gain in the U.S. from the HFCS settlement decreased our worldwide SD&A growth in 2006 by approximately one percentage point. Interest Expense Interest expense increased by $40 million largely due to our March 2006 debt issuance and higher effective interest rates from interest rate swaps which convert our fixed-rate debt to variable-rate debt. Interest Income Interest income increased by $97 million driven primarily by higher effective interest rates coupled with additional loans made to PBG. 25 Other Non-Operating Expenses, net Other non-operating expenses, net increased by $9 million primarily due to foreign exchange losses associated with the devaluation of the Turkish lira. This devaluation caused transactional losses due to the revaluation of our U.S. dollar denominated liabilities in Turkey, which were repaid in June of 2006. Income Tax Expense Bottling LLC is a limited liability company, classified as a partnership for U.S. tax purposes and, as such, generally pays no U.S. federal or state income taxes. The federal and state distributive shares of income, deductions and credits of Bottling LLC are allocated to Bottling LLC's owners based on their percentage of ownership in Bottling LLC. However, certain domestic and foreign affiliates pay taxes in their respective jurisdictions. Such amounts are reflected in our Consolidated Statements of Operations. Our effective tax rates for 2006 and 2005 were 0.3 percent and 2.7 percent, respectively. The decrease in our effective tax rate versus the prior year is due primarily to changes in our international legal entity and debt structure which resulted in a $22 million tax charge during the year ended December 31, 2005 and to changes to the income tax laws in Canada, Turkey and certain jurisdictions within the U.S in 2006. These tax law changes enabled us to re-measure our net deferred tax liabilities using lower tax rates which decreased our income tax expense by approximately $12 million during the year ended December 30, 2006. RESULTS OF OPERATIONS - 2005 Volume Fiscal Year Ended 2005 ~~s. 2004 World- U.S. & wide Canada Europe Mexico Basevolame ~, ~ _: M _ ~ , ,. ~ `" ,. _ _ . 3% ~. 2%. _ ~ 8% ~~~ - -~ ~ 5%~ - Ac uisitions 1% 1% 0% 0% Impact of 53~a.we`'ek . ~.~,; . ~ . ° ~._ ~ _ _ 1% . 2%, ~ ~ 0% .;, ~. .. _ ~0% ;. Total Volume Change 5% 5% 8% 5% Our full-year reported worldwide physical case volume increased five percent in 2005 versus 2004, reflecting strong volume growth across all segments. In the U.S. & Canada, volume grew five percent in 2005 versus 2004, primarily driven by strong non-carbonated beverage sales and the impact of the 53~d week, coupled with the impact of acquisitions. In the U.S., volume grew five percent in 2005 versus 2004. Increases in volume, excluding acquisitions and the impact of the 53~ week, were driven by athree-percent increase in our take-home channel and atwo-percent increase in our cold-drink channel. These volume increases were attributable to solid results in large format businesses and foodservice venues. In the U.S., our growth reflects consumer trends. Our non- carbonated beverage volume increased 18 percent, led by 31-percent growth in Trademark Aquafina and the successful introduction of Aquafina FlavorSplash, coupled with solid performance in Trademark Starbucks and in our energy drinks. Our total CSD portfolio was down about one percent, mostly driven by declines in brand Pepsi, partially offset by the successful introduction of Pepsi Lime, double-digit growth in brand Wild Cherry Pepsi, and athree-percent increase in our diet portfolio. The 53~d week contributed two percentage points of growth. In Canada, volume increased three percent in 2005 versus 2004, primarily driven by increases in both the cold-drink and take-home channels. This growth was fueled by strong execution and strategic marketing programs that were designed to gain consumer interest. The 53~d week contributed approximately one percentage point of growth. In Europe, volume grew eight percent in 2005 versus 2004, driven by double-digit increases in Russia and Turkey. In Russia, we had solid growth in Trademark Pepsi and Aqua Minerale, coupled with strong growth in Tropicana juice drinks, Lipton Iced Tea and local brands. In Turkey, we continued to improve our customer service 26 through the consolidation of third-party distributors and the migration of selling activities to our own etnployees. These improvements and an effective advertising campaign resulted in volume increases in brand Pepsi and in local brands, such as Yedigun. Total volume in Mexico was up five percent for the year, driven largely by growth in our water business, including an 11-percent increase in our jug water business and a 13-percent increase in our bottled water business. The investments that we began making in 2004 in the marketplace and in our infrastructure in Mexico have enabled us to improve both our bottled water and jug water businesses, including expansion of our home delivery system for jug water. Our CSD portfolio in Mexico was down about one percent primarily due to competitive pressure in the Mexico City area. This decline was partially offset by solid performance in our CSD business outside the Mexico City area which accounts for 75 percent of our volume. Net Revenues Fiscal Year Ended 2005 vs. 2004 World- U.S. & wide _ Canada Europe Mexico Volume~~impact. ~ .` __ _ ~ ~ `~'` ~ ` . ~ _ - _3% ~~. ~ - ~ 2% ~_.~ ;W ~-. S% _u .. 5%` __ _ p mix) 3% 3% 3% 0% Net rice er case im act rate, _ _- _ y _. P, P (, Acquisitions _ ~ 1% l% - _. .0% ._ 1% Currency translation l % 1 % 1 % 4% _ ~ ._ Impact_of ~53~a week - , _ , . ~ . .: Total Net Revenues Change 9% 9% 12% ]0% Worldwide net revenues were $11.9 billion in 2005, anine-percent increase over 2004. The increase in net revenues for the year was driven primarily by strong volume growth and increases in net price per case, coupled with the favorable impact from foreign currency translation in Canada and Mexico, acquisitions and the impact of the 53Td week. In the U.S. & Canada, nine-percent growth in net revenues was consistent with worldwide trends. Net price per case in the U.S. increased three percent, mostly due to rate increases. In Europe, net revenues increased 12 percent in 2005 versus 2004, reflecting strong volume growth, coupled with net price per case increases. In Mexico, net revenues grew 10 percent versus 2004, driven primarily by strong volume and the favorable impact from foreign currency translation. Cost of Sales Fiscal Year Ended 2005 vs. 2004 Worldwide 4 Io Volume impact o Cost per case impact ~1% Acquisitions "~,~ ~- ~ , -. .. 1 %o .: Currency translation 1 % .. Impact'of 53'd week -. - Total Cost of Sales Change I 1 °Io Worldwide cost of sales was $6.3 billion in 2005, an 11-percent increase over 2004. The growth in cost of sales was driven primarily by strong volume growth in all of our segments and cost-per-case increases, coupled with the negative impact of foreign currency translation in Canada and Mexico, acquisitions in the U.S. and the impact of the 53~d week in the U.S. and Canada. During 2005, we continued to see increases in resin prices, exacerbated by a severe hurricane season in the U.S. These increases added approximately $100 million of costs or approximately two percentage points of growth to our worldwide cost of sales per case. 27 Selling, Delivery and Administrative Expenses Fiscal Year Ended Anna ~~ Anna vv onuw~ue Cost impact _ a, ~ w ~, S~Io ~:_ -- HFCS Settlement l l )% ate is ^S, Str .. g' ~. pending Irti iatives ~ ~ ~'~_ .. ~, ~~~. , . ~ ~ ~ ~~~ _ Acquisitions 1 °Io ~ ~ arrenc translation ,, ~ _ _.. - ,. , _ .~ ~ o __ ~ Impact of 53~d week I% Total SD&A~Change_w •~; ~ :°'z .. ~ v~.~~.. ~, "~__`.:,. ,;~ .. " ~ ~:._ _ ~ ___ .. ~.. .. ~8% ~'..~ Worldwide SD&A expenses were $4.6 billion, an eight-percent increase over 2004. Increases in selling, delivery and administrative costs across all of our segments were driven by strong volume growth, wage and benefit increases and rising fuel prices. The impact of the 53i~ week in the U.S. & Canada and the strategic spending initiatives, partially offset by the pre-tax gain of $29 million in the U.S. from the HFCS settlement contributed approximately one percentage point of a net increase in SD&A expenses. LLC invested both the HFCS gain and the additional income from the 53r~ week in long-term strategic spending initiatives, which totaled $48 million. The strategic spending initiatives included programs to enhance our customer service agenda, drive productivity, including restructuring in Europe, and improve our management information systems. In addition, SD&A expenses in Mexico were higher than expected as certain of the cost savings initiatives did not yield expected results. This increase was partially offset by the impact of a $9 million non-cash impairment charge taken in the prior year for the franchise licensing agreement associated with the Squirt trademark in Mexico. Interest Expense Interest expense increased by $21 million, when compared with 2004, largely due to higher effective interest rates from interest rate swaps, which convert our fixed-rate debt to variable debt. Interest Income Interest income increased $43 million, driven primarily by higher effective interest rates coupled with additional loans made to PBG. Income Tax Expense Bottling LLC is a limited liability company, classified as a partnership for U.S. tax purposes and, as such, generally pays no U.S. federal or state income taxes. The federal and state distributive shares of income, deductions and credits of Bottling LLC are allocated to Bottling LLC's owners based on their percentage of ownership in Bottling LLC. However, certain domestic and foreign affiliates pay taxes in their respective jurisdictions. Such amounts are reflected in our Consolidated Statements of Operations. Our effective tax rates for 2005 and 2004 were 2.7 percent and 0.4 percent, respectively. The increase in our effective tax rate versus the prior year is due largely to increased tax contingencies relating to certain historic tax positions and changes in our international legal entity and debt structure, partially offset by the reversal of valuation allowances. The reversal of the valuation allowances was due in part to improved profitability trends in Russia and a change to the Russia tax law that enables us to use a greater amount of our Russian NOLs. LIQUIDITY AND FINANCIAL CONDITION Liquidity and Capital Resources Our principal sources come from our operating activities, and the issuance of debt and bank borrowings. We believe that these cash inflows will be sufficient to fund capital expenditures, benefit plan contributions, acquisitions and working capital requirements for PBG and us for the foreseeable future. 28 2006 Long-Term Debt Activities On March 30, 2006, we issued $800 million of 5.50% senior notes due 2016 (the "Notes"). The net proceeds received, after deducting the underwriting discount and offering expenses, were approximately $793 million. The net proceeds were used to repay PBG's outstanding commercial paper balance. The balance of the proceeds was used to repay our outstanding 2.45% senior notes in October of 2006. The Notes are general unsecured obligations and rank on an equal basis with all of our other existing and i'uture unsecured indebtedness and are senior to all of our future subordinated indebtedness. 2006 Short-Term Debt Activities We had available bank credit lines of approximately $741 million at December 30, 2006. These lines were used to support the general operating needs of our businesses. As of year-end 2006, we had $242 million outstanding under these lines of credit at aweighted-average interest rate of 5.0 percent. As of year-end 2005, we had available short-term bank credit lines of approximately $435 million and $156 million was outstanding under these lines of credit at aweighted-average interest rate of 4.3 percent. Our peak borrowing timeframe varies with our working capital requirements and the seasonality of our business. Additionally, throughout the year, we may have further short-term borrowing requirements driven by other operational needs of our business. During 2006, borrowings from our line of credit facilities peaked at $244 million, reflecting payments for working capital requirements. Financial Covenants Certain of our senior notes have redemption features and non-financial covenants that will, among other things, limit our ability to create or assume liens, enter into sale and lease-back transactions, engage in mergers or consolidations and transfer or lease all or substantially all of our assets. Additionally, our new secured debt should not be greater than 10 percent of our net tangible assets. Net tangible assets are defined as total assets less current liabilities and net intangible assets. We are in compliance with all debt covenants. On December 30, 2006, we adopted the balance sheet provisions of SFAS 158, and accordingly we recorded a decrease to our owners' equity of approximately $278 million, net of tax. This did not have an impact on our liquidity or our debt covenants. Cash Flows Fiscal 2006 Compared with Fiscal 2005 Net cash provided by operations increased by $56 million to $1,527 million in 2006. Increases in net cash provided by operations were driven by higher cash profits, higher interest income received from PBG and lower pension contributions, partially offset by the impact of strong collections in the prior year. Net cash used for investments increased by $372 million to $1,494 million, principally reflecting increased notes receivable from PBG, higher acquisition costs and higher capital spending. Net cash provided by financing increased by $244 million to $61 million, driven primarily by the proceeds from the $800 million bond issuance in March of 2006, partially offset by the repayment of our $500 million note and other long-term debt. Fisca12005 Compared with Fiscal 2004 Net cash provided by operations increased by $99 million to $1,471 million in 2005. Increases in net cash provided by operations were driven primarily by higher profits and a higher mix of non-cash expenses. Net cash used for investments decreased by $82 million to $1,122 million, principally reflecting lower acquisition costs, partially offset by higher capital spending. Net cash used for financing decreased by $967 million to $183 million, driven primarily by the repayment of our $1.0 billion note in February 2004, partially offset by lower net short-term borrowings. 29 Contractual Obligations The following table summarizes our contractual obligations as of December 30, 2006: Payments Due by Period 2008- 2010- 2012 and Contractual Obligations Total 2007 2009 2011 beyond Long-term delft obligations (1) ~ ~~ $. 3,761. $ . ~ -: -10 ~ - $~ 1";301 ~ $ = $ ~ 2;450 ~.. Capital lease obligations (2) 45 9 13 1 I 12 Operating",eases (2) ~ ... ..,, , ~ :: , _ X210 - - ° ~ ~ ~ ~tisl.. . 68 _ _.~ 32 59 Interest obligations (3) 1.119 199 358 242 320 _ . Purchase obligations: °- ~ ~ -. _ _. ,~~. _ L __. _. s . _ __... ~: . .__,. -- Raw material obligations (4) ~ _180 ~ ~ 18 ~ ~ 145 ~ ~ ~~ 17 - Capital.eXpenditure obligations=(5) ~ ~ _ ~ ~;45 .. ~~~~ 45 . ~~ ~ - ~._ - " ~ ~ - Other obligations (6) 345 151 88 44 62 Other long-term liabilities (7) : r ..., :. °°' ,. 14 ,; . ., _ ~ .. 5 ~,<. ,5 .~_ ,- :_ ~ ~ 2.,.> - 2. Total $ 5,719 $ 488 $ 1,978 $ 348 $ 2,905 (I) See Note l0 in the Notes to Consolidated Financial Statements for additional information relating to our long-term debt obligations. (2) See Note 11 in the Notes to Consolidated Financial Statements for additional information relating to our lease obligations. (3) Represents interest payment obligations related to our long-term fixed-rate debt as specified in the applicable debt agreements. Additionally, a portion of our long-term debt has variable interest rates due to either existing swap agreements or interest arrangements. We estimated our variable interest payment obligations by using the interest rate forward curve. (4) Represents obligations to purchase raw materials pursuant to contracts entered into by PepsiCo on our behalf and international agreements to purchase raw materials. (5) Represents commitments to suppliers under capital expenditure related contracts or purchase orders. (6) Represents non-cancellable agreements that specify fixed or minimum quantities, price arrangements and timing of payments. Also includes agreements that provide for termination penalty clauses. (7) Primarily relates to contractual obligations associated with non-compete contracts that resulted from business acquisitions. The table excludes other long-term liabilities included in our Consolidated Financial Statements, such as pension, postretirement and other non- contractual obligations. See Note 13 in the Notes to Consolidated Financial Statements for a discussion of our future pension and postretirement contributions and corresponding expected benefit payments for years 2007 through 2016. Off-Balance Sheet Arrangements In March 2006, PBG entered into a new $450 million committed revolving credit facility ("2006 Agreement") which expires in March 201 1 and increased their existing facility, which expires in Apri12009, from $500 million to $550 million. PBG's combined committed credit facilities of $1 billion are guaranteed by us and support PBG's $1 billion commercial paper program. Subject to certain conditions stated in the 2006 Agreement, PBG may borrow, prepay and reborrow amounts, including issuing standby letters of credit up to $250 million, at any time during the term of the 2006 Agreement. Funds borrowed may be used for general corporate purposes, including supporting PBG's commercial paper program. At December 30, 2006, PBG had $115 million in outstanding commercial paper with, weighted-average interest rate of 5.4 percent. At December 31, 2005, PBG had $355 million in outstanding commercial paper with ,weighted-average interest rate of 4.3 percent. In March 1999, PBG issued $1 billion of 7°Io senior notes due 2029, which are guaranteed by us. We also guarantee that to the extent there is available cash, we will distribute pro rata to PBG and PepsiCo sufficient cash such that aggregate cash distributed to PBG will enable PBG to pay its taxes and make interest payments on the $1 billion 7%n senior notes due 2029. During 2006 and 2005, we made cash distributions to PBG and PepsiCo totaling $284 million and $181 million, respectively. Any amounts in excess of taxes and interest payments were used by PBG to repay loans to us. 30 Capital Expenditures Our business requires substantial infrastructure investments to maintain our existing level of operations and to fund investments targeted at growing our business. Capital expenditures included in our cash flows from investing activities totaled $721 million, $709 million and $688 million during 2006, 2005 and 2004, respectively. MARKET RISKS AND CAUTIONARY STATEMENTS Quantitative and Qualitative Disclosures about Market Risk In the normal course of business, our financial position is routinely subject to a variety of risks. These risks include the risk associated with the price of commodities purchased and used in our business, interest rates on outstanding debt and currency movements impacting our non- U.S. dollar denominated assets and liabilities. We are also subject to the risks associated with the business environment in which we operate, including the collectibility of accounts receivable. We regularly assess all of these risks and have policies and procedures in place to protect against the adverse effects of these exposures. Our objective in managing our exposure to fluctuations in commodity prices, interest rates and foreign currency exchange rates is to minimize the volatility of earnings and cash flows associated with changes in the applicable rates and prices. To achieve this objective, we have derivative instruments to hedge against the risk of adverse movements in commodity prices, interest rates and foreign currency. Our corporate policy prohibits the use of derivative instruments for trading or speculative purposes, and we have procedures in place to monitor and control their use. See Note 12 in the Notes to Consolidated Financial Statements for additional information relating to our derivative instruments. A sensitivity analysis has been prepared to determine the effects that market risk exposures may have on our financial instruments. We performed the sensitivity analyses for hypothetical changes in commodity prices, interest rates and foreign currency exchange rates and changes in PBG's stock price on our unfunded deferred compensation liability. Information provided by these sensitivity analyses does not necessarily represent the actual changes in fair value that we would incur under normal market conditions because, due to practical limitations, all variables other than the specific market risk factor were held constant. As a result, the reported changes in the values of some financial instruments that are affected by the sensitivity analyses are not matched with the offsetting changes in the values of the items that those instruments are designed to finance or hedge. Commodity Price Risk We are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. We use future and option contracts to hedge the risk of adverse movements in commodity prices related primarily to anticipated purchases of raw materials and energy used in our operations. With respect to commodity price risk, we currently have various contracts outstanding for commodity purchases in 2007, which establish our purchase prices within defined ranges. We estimate that a ] 0-percent decrease in commodity prices with all other variables held constant would have resulted in a decrease in the fair value of our financial instruments of $7 million and $1 million at December 30, 2006 and December 31, 2005, respectively. Interest Rate Risk Interest rate risk is present with both fixed and floating-rate debt. We use interest rate swaps to manage our interest expense risk. These instruments effectively change the interest rate of specific debt issuances. As a result, changes in interest rates on our variable debt would change our interest expense. We estimate that a 50-basis point increase in interest rates on our variable rate debt and cash equivalents with all other variables held constant would have resulted in an increase to net interest expense of $2 million and $4 million in 2006 and 2005, respectively. We also enter into treasury rate lock agreements to hedge against adverse interest rate changes on certain debt financing arrangements 31 Foreign Currency Exchange Rate Risk In 2006, approximately 30 percent of our net revenues came from outside the United States. Social, economic and political conditions in these international markets may adversely affect our results of operations, cash flows and financial condition. The overall risks to our international businesses include changes in foreign governmental policies and other political or economic developments. These developments may lead to new product pricing, tax or other policies and monetary fluctuations that may adversely impact our business. In addition, our results of operations and the value of the foreign assets and liabilities are affected by fluctuations in foreign currency exchange rates. As currency exchange rates change, translation of the statements of operations of our businesses outside the U.S. into U.S. dollars affects year-over-year comparability. We generally have not hedged against these types of currency risks because cash flows from our international operations are usually reinvested locally. We have foreign currency transactional risks in certain of our international territories for transactions that are denominated in currencies that are different from their functional currency. We have entered into forward exchange contracts to hedge portions of our forecasted U.S. dollar cash flows in our Canadian business. A 10-percent weaker U.S. dollar against the Canadian dollar, with all other variables held constant, would result in a decrease in the fair value of these contracts of $11 million and $9 million at December 30. 2006 and December 31, 2005, respectively. Foreign currency gains and losses reflect both transaction gains and losses in our foreign operations, as well as translation gains and losses arising from the re-measurement into U.S. dollars of the net monetary assets of businesses in highly inflationary countries. Beginning in 2006, Turkey was no longer considered highly inflationary, and changed its functional currency from the U.S. Dollar to the Turkish Lira. Unfunded Deferred Compensation Liability Our unfunded deferred compensation liability is subject to changes in PBG's stock price, as well as price changes in certain other equity and fixed-income investments. Employee investment elections include PBG stock and a variety of other equity and fixed-income investment options. Since the plan is unfunded, employees' deferred compensation amounts are not directly invested in these investment vehicles. Instead, we track the performance of each employee's investment selections and adjust his or her deferred compensation account accordingly. The adjustments to the employees' accounts increases or decreases the deferred compensation liability reflected on our Consolidated Balance Sheets with an offsetting increase or decrease to our selling, delivery and administrative expenses in our Consolidated Statements of Operations. We use prepaid forward contracts to hedge the portion of our deferred compensation liability that is based on PBG's stock price. Therefore, changes in compensation expense as a result of changes in PBG's stock price are substantially offset by the changes in the fair value of these contracts. We estimate that a 10-percent unfavorable change in the year-end stock price would have reduced the fair value from these forward contract commitments by $2 million in 2006 and 2005. 32 Cautionary Statements Except for the historical information and discussions contained herein, statements contained in this annual report on Form ] 0-K may constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on currently available competitive, financial and economic data and our operating plans. These statements involve a number of risks, uncertainties and other factors that could cause actual results to be materially different. Among the events and uncertainties that could adversely affect future periods are: • changes in our relationship with PepsiCo that could have a material adverse effect on our long-term and short-term business and financial results; • material changes in expected levels of bottler incentive payments from PepsiCo; • restrictions imposed by PepsiCo on our raw material suppliers that could increase our costs; • material changes from expectations in the cost or availability of raw materials, ingredients or packaging materials; • limitations on the availability of water or obtaining water rights; • an inability to achieve cost savings; • material changes in capital investment for infrastructure and an inability to achieve the expected timing for returns on cold-drink equipment and related infrastructure expenditures; • decreased demand for our product resulting from changes in consumers' preferences; • an inability to achieve volume growth through product and packaging initiatives; • impact of competitive activities on our business; • impact of customer consolidations on our business; • changes in product category consumption; • unfavorable weather conditions in our markets; • an inability to meet projections for performance in newly acquired territories; • loss of business from a significant customer; • failure or inability to comply with laws and regulations; • changes in laws, regulations and industry guidelines governing the manufacture and sale of food and beverages, including restrictions on the sale of carbonated soft drinks in schools; • litigation, other claims and negative publicity relating to alleged unhealthy properties of soft drinks; • changes in laws and regulations governing the environment, transportation, employee safety, labor and government contracts; • changes in accounting standards and taxation requirements (including unfavorable outcomes from audits performed by various tax authorities); • unforeseen economic and political changes; • possible recalls of our products; • interruptions of operations due to labor disagreements; • changes in our debt ratings; • material changes in expected interest and currency exchange rates and unfavorable market performance of PBG's pension plan assets; and • an inability to achieve strategic business plan targets that could result in an intangible asset impairment charge. 33 Bottling Group, LLC Consolidated Statements of Operations in millions Fiscal years ended December 30, 2006, December 31, 2005 and December 25, 2004 2006 2005 2004 Net_Revenues ~ ~ :. .,> ~ $ 12,730 ` ' ~ 11;885 ~ $~~10;906; Cost of sales 6,810 6,253 5,656 __ GrossrProfit ., _ . _ . ~_ ~,._ w . ~~ . ~ . .:, , -. _ _ 5,920` ° x,632 sue, ~_ ; 5,250 - _. _ . Selling, delivery and administrative expenses _ ._ ._. _.. 4,932 _ 4,625 4,285 Operating Income ~ `.._ `.. ~ >,,; ," _ ". ~ .k ~~ ~- ~ .. _ ~, ~. ~ " 988 _ ~ a ....:1,007 .. ~965~ Interest expense 227 187 166 Interest income ` ~ _ ~ ~__ ~ - ~ _ . 174; _~. ~ ~~ 77 .~_ ~ ~ ~ 34 Other non-operating expenses, net 10 1 1 Minority interest (income,)/expense _ ~.~~ ...-r _ ; .,, ~~ .. -.~....:. t ~ ,~ ..' ~ ~'... ~ ~ ~2)_:: l :. ~,, ~ - Income Before Income Taxes 927 895 832 Income tax expense _ _.. ~: ~ _ -` _'. ,'. _ _ _ _, , ":::. ...' ~ ~.,. ..... _ > .,~~ 3'~; ~~ ~ ~,' 24 ~~,::~ ~~ ~ ~ 3 Net Income $ 924 $ 871 $ 829 See accompanying notes to Consolidated Financial Statements. 34 Bottling Group, LLC Consolidated Statements of Cash Flows in millions Fiscal years ended December 30, 2006, December 31, 2005 and December 25, 2004 2006 Zoos 2ooa _, Cash Flows-Operations - ~ ,., ,~ .~ ., . Net income ~ 924 $ 871 $ 829 Adjustmentsao reconcile net income-to =net cashprovided by aperations: -- ~- ~ ~ ,~ - Depreciation 636 615 580 ~~ ~Ainortization=~~:~, ~2. •.- . - w~- _, ~-- _ ... .:12 15 .: 1~ Deferred income taxes (41) (28) (52) ;.e _Stock-based.compensation ,. , ~ -. E. ~:.. , .: ~.~ ".. _ .,,"_ 65 - , _ . _ _ - -- - : ~ -_. Other non-cash charges and credits: „"-~ --Defined'~b"enefitpensionand~postretrement;expenses ~ ~ ~ ~ ~• ~; -119 109" ~ - ~~88 Other non-cash charges and credits 66 83 62 Net other non-cash charges and credits ~ ' u __ °" - 185 192 150 Changes in operating working capital, excluding effects of acquisitions: - _ ., - . , . - ~Accounta~receivable; net ... o - ." : ~ _ (120) 7_ , ~ ~(53) Inventories (57) (29) (38) _ ;Prepaid expenses, and"other current assets ~' - ~- . :r ° ~ ~ ,u , ;. ~'., (75) , _ _' ~ (40) ~, , ~ " , __ :(22) Accounts payable and other current liabilities ___ _ _ 87 ~ 2 97 Income taxes payable :~~_.: `: ~- - ~~ ~ __.. ° :_ :~ .: ~ 25 ~. ,~ -._,g ~ (~~j Net change in operating working capital ~ ° _ (140) - ~ (52) _ (23) . . Pension contributions ~ y_, ,, , : - ~(68) ~(77 Other, net (46) (65) (42) _ _ . '~ ~,~ ~ ~ .,-.. a ~ .. Net Gash~~Provideil by Operations •. ~ ~ „~- _ ~ 1,527 ~ _ _1;471 =" ~ ,~ ~1,372~~ Cash Flows-Investments u _.. ,;: Capital expenditures ~. - - a~ - - (721) : (709) - - (688) Acquisitions of bottlers, net of cash acquired (33) (1) (96) Proceeds'from~sale of property;~plant.arid equipment ~ . = ~~ `~ . - ' "~ 18 ~ ~~ "~ ° ~ 20.; _ _ _ . 22 , Notes receivable from PBG, net (763) (436) (442) Other.investing"_aGtrvrties; net ~ 5 4 _ ,; Net Cash Used for Investments (1,494) (I ,122} (1.204) Cash;Flows-Financin"g .° ;: ,~ .. " Short-term borrowings, net-three months or less 133 (9) 1 I ~Proceeds~~from short-teriri borrowings;- more than threemonths - _ . ' ~ 96 .: 74 55 ~ Payments of short-term borrowings -more than three months (74) (68) (40) Proceeds•from issuances ofhlong-term debt ~ 793` 36 - 22 ~• Payments of long-term debt (603) (35) (1,013) I)istribptions'to owners` (284) (181 j (185)., Net Cash Provided by/(Used for) Financing 61 (183) I l , 150) „ ._- _. Effect of:Exchang,e Rate Changes_on Cash and Cash Equivalents l 3 5 ; Net Increase/(Decrease) in Cash and Cash Equivalents 95 169 (977) <. ... Cash and-Cash`Equivalents.-Beginning of Year .., : :... , . ~- 346. 177 1,154: Cash and Cash Equivalents-End of Year $ 441 $ 346 $ 177 ~. ,~ .._ , Supplemental Cash Flow Information_ - _ ...w~ _. Non Cash Investing and_Financmg Activities: ``Z'iabilitte~ ~ . ~ I ~ ~ ~ .. q T:.; . y 3 " ~~ on •with_ac uisitions of`~bottlers $ 20 $ - ~ s mcarred andlor'assumed iacon~uncti _ 20~ Change in accounts payable related to capital expenditures $ 7 $ (6) $ 29 See accompanying notes to Consolidated Financial Statements. 35 Bottling Group, LLC Consolidated Balance Sheets in millions December 30, 2006 and December 31, 2005 . 2006 2005 ASSETS - ~ ~ _ Current Assets Cash and~`cash equivalents ~ - - v ~ ~ ~.. - _ ~_ "~': ~ 44,1 ~ ea ~:.$,~ 346~~~- Accounts receivable, less allowance of $50 in 2006 and $51 in 2005 1,331 1,186 Inuentoiies.:= ~ ~ _ _ `~~ - ~ ~ - ~ , ~ ~:_ 533 ~ ,: . ~ , :458 . Prepaid expenses and other current assets 355 274 '",Total~C.ucrentAssets ~ ~ ~ " ~... ~ ". ~ ~ ~ ~ 2,660"" '' ~"2,264~~ Property, plant and equipment, net . _. _ _ - 3,776 3,643 -~_ ~ Other.intangible asse a4. - is net ,~ _', a,.. .:. . Y . _~. _- '~ ~,-_ : ;. . - °: 3,768..., _ . _ - 3,814 Goodwill ~ ~ ~ ~ ~ ~ 1,490 ~ 1,516 ~ ~ ~ Notes receivable froni'~P~BG - ~ `_: - 3,147 _~~ ~ - ~ 2,384 Other assets 114 124 . , ets _ ~~_ _ _, r. ~ ~ ~ - ;` Total-Ass "~ ~~~ ~' ~ ~~ ~ . ,$14,955 : ~ „:~ $13,745 LIABILITIES AND OWNERS' EQUITY Current Liabilities ~~ ~ _ Accounts a able and other p y current liabilities $ 1,559 $ 1,456 ~.. Short=term borrowings ~,, ~ ,. ~~ t.. ~--_~ ~ ~ _ ~ .', ~-: 242 .` ~ ~ :. .: 7~1~,. Current maturities of long-term debt , . 16 588 Total „Cui•rent~Lialiilities °_ a ...nx.; _ ~-. _ ~ - . _. ,- ~_. ",;;1;817 ~ ~_2,115~.` Lon -term debt _ .~ - ~ . ~, .g - _ - - 3, 5 2,943 _ .. ... _ . .,. - Other liabilities; ..-. _ ,~ ._. --. , _ ~ ,,, 8 3 ... _„ .: 6 ~ _- _ ., ._ ~~ z 681 Deferred income taxes 406 ~ 422 s ~ da Minority:ititerest _ . ' F ~ ,_ "~ ~ ~. I8 3''- Total Liabilities ~ 6,863 6,164 Owners''.Equity Owners' net investment 8,681. 7,990 Accumulated other comprehensive loss ,.,µ,' "" (589) (395). Deferred compensation - (14) ~,,.~,Total Clwners'._Equty ~_ .- ~~8;042 ,,. `: 7;'581'°~ Total Liabilities and Owners' Equity $ 14,955 $ 13,745 See accompanying notes to Consolidated Financial Statements. 36 Bottling Group, LLC Consolidated Statements of Changes in Owners' Equity in millions December 30, 2006, December 31, 2005 and December 25, 2004 Accumulated Owners' Other Net Deferred Comprehensive Comprehensive Investment Compensation Loss Total Income Balance at December"27, 2003 - ; $ ; 6,409 $ - (4• ,~; ) ` ~ ~$ ~~ . (503). $5,902 Comprehensive income: ~ income-- ~ ~ _, ~ ° ~ :; " - ,~ Net ~ ~ .829_,. '_. _ .-- ~~ ~w . _ __ -. 829~~ ~ $ .;~~ :° '`829` Current translation adjust ment y - ~ - 91 91 91 - Mininiurnpension-liability adjustment •- ~ ~,.__~.,.. _ `; ~ ~- ~ ' - ~e- _:.~ -... `_ (29)_. ~ _.. (29) m ':(29) Cash flow hedge adjustment - - (6) (6) (6) .. _. °~ Total comprehensive income _ ~ _. w .:_ __ .. , .. _ _ -$ -885 Cash distributions to owners (185) - - (185) Non=cash contribu"tions from owners - 17 ~ ~- ._ _sw _ m , 1 ' Stock compensation (2) 3 i . ._ ___., Balance at December. 25, 2004 _ , ~ 9 _ - ,. _ _.. ~_ 7,068 _ y; .1._ .._ O ~.... ,: (447} 6;620 ._._ _ Comprehensive income: ~ ~ ~ , ~, ~ ~ ; i_ ~~. ~ Net~~income: ~ 87L = ~-~ =-_ .. ~ ~ ~ ~.<~ ~~ 871 - :$ ~ ~~~871~. Currency translation adjustment - - 70 70 70 ,_ Min>mum~penston~aiability adju ~~~~ ~~~ ~ ~ ~ `~° ~~ ~~ ~ ~~ ~ ~ ~ ~~~ ~ :,.. ~~~~~ ~~ ~ ~ ~ ~ - ~ ~ ~ -_ ] Cash flow hedge adjustment (net of t x of $2) - - (10) (, 0) ( 0) - ~ w ,_ : Total=coiriprehensive_-income - ." .... T-= a ~ ., „f ... ., :{ $ :-". 923 Cash distributions to owners _ (181) - - (181 ) Non-cash..contributions~froin_~o.wners.. ~ ~ ~- ~ °-: 216 ~ .: _ - ~- ~" ~ ~~ - ,: ~ ~ ~ ~ _ 216 ,. .., ~. . Stock compensation 16 (13) - 3 Balanceat Deceinber:31,`2005 ~" ~ 7,990 ~ '. ~~ ... `.,:(14) ~,.~ .. ..~~ ,'(395) `.. ;T,581 Comprehensive income: „~ ~' Net'income~ 924., _ _ 924 ~ 924.. Currency translation adjustment - - 26 26 26 Minimum~ension7iability-adjustmen't - - „ _ 48 .fig 48- FAS 158 -pension liability adjustment (net of tax of $4) - - (278) (278) - Cash flow hedge adjustment (netof tax of $(3)) - - `10 10 lU Total comprehensive income $ 1,008 distribations Yo owners ~ :~- . a 284) ~~ • .> ~ ~~ = .- ~ - _. ) •~Y :,x.(284 . ~ .~ Sro k ompensation 51 14 - _.. 65 ~_. ._ _.. . . Balance at December 30, 2006 ~~ $~ ~8;68~1 -$~~ ~- -~~-~~~ ~-~ $~ (589), _$8;092 See accompanying notes to Consolidated Financial Statements. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Tabular dollars in millions Note 1-Basis of Presentation Bottling Group, LLC is the principal operating subsidiary of The Pepsi Bottling Group, Inc. ("PBG") and consists of substantially all of the operations and assets of PBG. Bottling Group, LLC, which is consolidated by PBG, has the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages, in all or a portion of the United States, Mexico, Canada, Spain, Greece, Russia and Turkey. When used in these Consolidated Financial Statements, "Bottling LLC," "we," "our," "us" and the "Company" each refers to Bottling Group, LLC: In conjunction with PBG's initial public offering and other subsequent transactions, PBG and PepsiCo, Inc. ("PepsiCo") contributed bottling businesses and assets used in the bottling businesses to Bottling LLC. As a result of the contribution of these assets, PBG owns 93.3% of Bottling LLC and PepsiCo owns the remaining 6.7% as of December 30, 2006. Certain reclassifications have been made to the prior years' Consolidated Financial Statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or owners' net investment. Note 2-Summary of Significant Accounting Policies Basis of Consolidation - We consolidate in our financial statements, entities in which we have a controlling financial interest, as well as variable interest entities where we are the primary beneficiary. We have eliminated all intercompany accounts and transactions in consolidation. Fiscal Year -Our U.S. and Canadian operations report using a fiscal year that consists of fifty-two weeks, ending on the last Saturday in December. Every five or six years afifty-third week is added. Fiscal years 2006 and 2004 consisted of t"ifty-two weeks. In 2005, our fiscal year consisted of fifty-three weeks (the additional week was added to the fourth quarter). Our remaining countries report using acalendar-year basis. Accordingly, we recognize our quarterly business results as outlined below: Qu~uter First Quarter Second Quarter Third Quarter Fourth Quarter U.S. & Canada 12 weeks 12 weeks 12 weeks 16 weeks/17 weeks (FY 2005) Mexico & Europe January and February March, April and May June, July and August September, October, November and December Revenue Recognition -Revenue, net of sales returns, is recognized when our products are delivered to customers in accordance with the written sales terms. We offer certain sales incentives on a local and national level through various customer trade agreements designed to enhance the growth of our revenue. Customer trade agreements are accounted for as a reduction to our revenues. Customer trade agreements with our customers include payments for in-store displays, volume rebates, featured advertising and other growth incentives. A number of our customer trade agreements are based on quarterly and annual targets that generally do not exceed one year. Amounts recognized in our financial statements are based on amounts estimated to be paid to our customers depending upon current performance, historical experience, forecasted volume and other performance criteria. 38 Advertising and Marketing Costs - We are involved in a variety of programs to promote our products. We include advertising and marketing costs in selling, delivery and administrative expenses. Advertising and marketing costs were $403 million, $421 million and $426 million in 2006, 2005 and 2004, respectively, before bottler incentives received from PepsiCo and other brand owners. Bottler Incentives -PepsiCo and other brand owners, at their discretion, provide us with various forms of bottler incentives. These incentives cover a variety of initiatives, including direct marketplace support and advertising support. We classify bottler incentives as follows: • Direct marketplace support represents PepsiCo's and other brand owners' agreed-upon funding to assist us in offering sales and promotional discounts to retailers and is generally recorded as an adjustment to cost of sales. If the direct marketplace support is a reimbursement for a specific, incremental and identifiable program, the funding is recorded as an offset to the cost of the program. • Advertising support represents agreed-upon funding to assist us for the cost of media time and promotional materials and is generally recorded as an adjustment to cost of sales. Advertising support that represents reimbursement for a specific, incremental and identifiable media cost, is recorded as a reduction to advertising and marketing expenses within selling, delivery and administrative expenses. Total bottler incentives recognized as adjustments to net revenues, cost of sales and selling, delivery and administrative expenses in our Consolidated Statements of Operations were as follows: Fiscal Year Ended 2006 2005 2004 Net revenues, ~ . _~ _~ _- ~ ~, ,.. ~ , .. .~ , ~ ~ a :. ,$ _. 67.~~: ~_$,_ :51 . ' _. $ ~ 22 Cost of sales 649 604 559 Selling; delivery_ and_admir-istratiye~expenses' o ;.. ~;; ~~ ~ ~ ~ _ ~'° 70~;f ~ 79 ~ ~ ~ 84 _ Total bottler incentives $ 786 $ 734 $ 665 Share-Based Compensation -Effective January 1, 2006, we adopted the fair value based method of accounting prescribed in Statement of Financial Accounting Standards ("SFAS") No. 123 (revised), "Share-Based Payment" ("SFAS 123R") for our employee stock option plans. See Note 3 in the Notes to Consolidated Financial Statements for further discussion on our share-based compensation. Shipping and Handling Costs -Our shipping and handling costs reported in the Consolidated Statements of Operations are recorded primarily within selling, delivery and administrative expenses. Such costs recorded within selling, delivery and administrative expenses totaled $1.7 billion, $1.5 billion and $1.6 billion in 2006, 2005 and 2004, respectively. Foreign Currency Gains and Losses - We translate the balance sheets of our foreign subsidiaries at the exchange rates in effect at the balance sheet date, while we translate the statements of operations at the average rates of exchange during the year. The resulting translation adjustments of our foreign subsidiaries are recorded directly to accumulated other comprehensive loss. Foreign currency gains and losses reflect both transaction gains and losses in our foreign operations, as well as translation gains and losses arising from the re-measurement into U.S. dollars of the net monetary assets of businesses in highly inflationary countries. Beginning January 1, 2006, Turkey was no longer considered to be a highly inflationary economy for accounting purposes. Pension and Postretirement Medical Benefit Plans - We sponsor pension and other postretirement medical benefit plans in various forms both in the U.S. and similar plans outside the U.S., covering employees who meet specified eligibility requirements. We account for our defined benefit pension plans and our postretirement medical benefit plans using actuarial models required by SFAS No. 87, "Employers' Accounting for Pensions," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." 39 In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS 158"). Effective for our fiscal year ending 2006, we recognized on our balance sheet the funded status of each of the pension and other postretirement medical plans sponsored by PBG in the United States and other similar plans we sponsor outside the United States. The assets, liabilities and expense associated with our international plans were not significant to our results of operations, and accordingly assumptions regarding these plans are not included in the discussion below. The assets, liabilities and assumptions, used to measure pension and postretirement medical expense for any fiscal year are determined as of September 30 of the preceding year ("measurement date"). The discount rate assumption used in PBG's pension and postretirement medical benefit plans' accounting is based on current interest rates for high-quality, long-term corporate debt as determined on each measurement date. In evaluating the expected rate of return on assets for a given fiscal year, we consider the actual ] 0 to 15-year historic returns on asset classes in PBG's pension investment portfolio, reflecting the weighted-average return of our asset allocation and use them as a guide for future returns. Differences between actual and expected returns are generally recognized in the net periodic pension calculation over five years. To the extent the amount of all unrecognized gains and losses exceeds 10 percent of the larger of the pension benefit obligation or plan assets, such amount is amortized over the average remaining service period of active participants. We amortize prior service costs on a straight-line basis over the average remaining service period of employees expected to receive benefits. Income Taxes - We are a limited liability company, classified as a partnership for U.S. tax purposes and, as such, generally will pay no U.S. federal or state income taxes. Our federal and state distributive shares of income, deductions and credits are allocated to our owners based on their percentage of ownership. However, certain domestic and foreign affiliates pay taxes in their respective jurisdictions and record related deferred income tax assets and liabilities. The tax bases of our assets and liabilities reflect our best estimate of the tax benefit and costs we expect to realize. We establish valuation allowances to reduce our deferred tax assets to an amount that will more likely than not be realized. Significant management judgment is required in determining our effective tax rate and in evaluating our tax position. We establish reserves when, based on the applicable tax law and facts and circumstances relating to a particular transaction or tax position, it becomes probable that the position will not be sustained when challenged by a taxing authority. A change in our tax reserves could have a significant impact on our results of operations. Cash Equivalents -Cash equivalents represent funds we have temporarily invested with original maturities not exceeding three months. Allowance for Doubtful Accounts - A portion of our accounts receivable will not be collected due to non-payment, bankruptcies and sales returns. Our accounting policy for the provision for doubtful accounts requires reserving an amount based on the evaluation of the aging of accounts receivable, sales return trend analysis, detailed analysis of high-risk customers' accounts, and the overall market and economic conditions of our customers. Inventories - We value our inventories at the lower of cost or net realizable value. The cost of our inventory is generally computed on the first-in, first-out method. Property, Plant and Equipment - We state property, plant and equipment ("PP&E") at cost, except for PP&E that has been impaired, for which we write down the carrying amount to estimated fair market value, which then becomes the new cost basis. Goodwill and Other Intangible Assets, net -Goodwill consists of the excess cost of acquired enterprises over the sum of the amounts assigned to assets acquired less liabilities assumed. Goodwill and intangible assets with indefinite useful lives are not amortized, but are evaluated for impairment annually, or more frequently if impairment indicators arise. The Company completed the annual impairment test for 2006 in the fiscal fourth quarter and no impairment was determined. Other intangible assets that are subject to amortization are amortized on a straight-line basis over the period in which we expect to receive economic benefit and are reviewed for impairment when facts and circumstances 40 indicate that the carrying value of the asset may not be recoverable. The determination of the expected life will be dependent upon the use anc.r underlying characteristics of the intangible asset. In our evaluation of these intangible assets, we consider the nature and terms of the underlying agreements, competitive environment, and brand history, as applicable. If the carrying value is not recoverable, impairment is measured as the amount by which the carrying value exceeds its estimated fair value. Fair value is generally estimated based on either appraised value or other valuation techniques. Financial Instruments and Risk Management - We use derivative instruments to hedge against the risk of adverse movements associated with commodity prices, interest rates and foreign currency. Our policy prohibits the use of derivative instruments for trading or speculative purposes, and we have procedures in place to monitor and control their use. All derivative instruments are recorded at fair value as either assets or liabilities in our Consolidated Balance Sheets. Derivative instruments are generally designated and accounted for as either a hedge of a recognized asset or liability ("fair value hedge") or a hedge of a forecasted transaction ("cash flow hedge"). The derivative's gain or loss recognized in earnings is recorded consistent with the expense classification of the underlying hedged item. If a fair value or cash flow hedge were to cease to qualify for hedge accounting or were terminated, it would continue to be carried on the balance sheet at fair value until settled, but hedge accounting would be discontinued prospectively. If the underlying hedged transaction ceases to exist, any associated amounts reported in accumulated other comprehensive loss are reclassified to earnings at that time. We also may enter into a derivative instrument for which hedge accounting is not required because it is entered into to offset changes in the fair value of an underlying transaction recognized in earnings ("natural hedge"). These instruments are reflected in the Consolidated Balance Sheets at fair value with changes in fair value recognized in earnings. Commitments and Contingencies - We are subject to various claims and contingencies related to lawsuits, taxes, environmental and other matters arising out of the normal course of business. Liabilities related to commitments and contingencies are recognized when a loss is probable and reasonably estimable. New Accounting Standards , SFAS No. 158 In September 2006, the FASB issued SFAS 158. Effective December 30, 2006 we adopted the balance sheet recognition provisions of this standard and accordingly recognized the funded status of each of the pension, postretirement plans, and other similar plans PBG sponsors. Effective for fiscal year ending 2008, we will be required to measure a plan's assets and liabilities as of the end of the fiscal year instead of our current measurement date of September 30. We are currently evaluating the impact of the change in measurement date on our Consolidated Financial Statements. See Note 13 in the Notes to Consolidated Financial Statements for further discussion on SFAS 158. SAB No. 108 In September 2006, the U.S. Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB 108"). The intent of SAB 108 is to reduce diversity in practice for the method companies use to quantify financial statement misstatements, including the effect of prior year uncorrected errors. SAB 108 establishes an approach that requires quantification of financial statement errors using both an income statement and a cumulative balance sheet approach. SAB 108 is effective for the fiscal year ending after November 15, 2006. The adoption of SAB 108 did not have an impact on our Consolidated Financial Statements. 41 FASB Interpretation No. 48 In July 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes," which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." FIN 48 is a new and comprehensive structured approach to accounting for uncertainty in income taxes that provides specific guidance on the financial statement recognition, measurement, reporting and disclosure of uncertain tax positions taken or expected to be taken in a tax return. FIN 48 becomes effective beginning with our first quarter 2007 fiscal period. We have determined the impact of adopting FIN 48 and the cumulative effect is an approximate $42 million decrease to our beginning retained earnings balance as of December 31, 2006. See Note 14 in the Notes to Consolidated Financial Statements for further discussion on FIN 48. SFAS No. l57 In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), which establishes a framework for reporting fair value and expands disclosures about fair value measurements. SFAS 157 becomes effective beginning with our first quarter 2008 fiscal period. We are currently evaluating the impact of this standard on our Consolidated Financial Statements. Note 3-Share-Based Compensation Accounting for Share-Based Compensation -Effective January 1, 2006, we adopted SFAS 123R. Among its provisions, SFAS 123R requires us to recognize compensation expense for equity awards over the vesting period based on their grant-date fair value. Prior to the adoption of SFAS 123R, we utilized the intrinsic-value based method of accounting under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations, and adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Under the intrinsic-value based method of accounting, compensation expense for stock options granted to the Company's employees was measured as the excess of the quoted market price of PBG's common stock at the grant date over the amount the employee must pay for the stock. The Company's policy is to grant PBG stock options at fair value on the date of grant and as a result, no compensation expense was historically recognized for stock options. We adopted SFAS 123R in the first quarter of 2006 using the modified prospective approach. Under this transition method, the measurement and our method of amortization of costs for share-based payments granted prior to, but not vested as of January 1, 2006, would be based on the same estimate of the grant-date fair value and the same amortization method that was previously used in our SFAS 123 pro forma disclosure. Results for prior periods have not been restated as provided for under the modified prospective approach. For equity awards granted after the date of adoption, we amortize share-based compensation expense on a straight-line basis over the vesting term. Compensation expense is recognized only for share-based payments expected to vest. We estimate forfeitures, both at the date of grant as well as throughout the vesting period, based on PBG's historical experience and future expectations. Prior to the adoption of SFAS 123R, the effect of forfeitures on the pro forma expense amounts was recognized based on estimated forfeitures. Total share-based compensation expense is recognized in selling, delivery and administrative expenses in the Consolidated Statement of Operations. Share-based compensation expense, both on a pre-tax and after-tax basis, was $65 million for the year ended 2006. 42 The following table shows the effect on net income for the years ended December 31, 2005 and December 25, 2004 had compensation expense been recognized based upon the estimated fair value on the grant date of awards, in accordance with SFAS 123, as amended by SFAS No. 148 "Accounting for Stock-Based Compensation -Transition and Disclosure": Fiscal Year Ended 2005 2004 ~. w ._.: ~ _. _. ~.... _.. _. Net`income: - ~ .. As reported _ $ 87 I $ 829 Add: Total share-based employee compensation included in reported 'net income I Less: Total share-based employee compensation determined under fair-value based method for all awards (64) (65) Pro,forma " . ,. ~ ~ ... , a. ~ ~ _ ~. ~ z ~ $ 808. " .. ~ ~$ " 764 Share-Based Long-Term Incentive Compensation Plans - Prior to 2006, we granted non-qualified PBG stock options to certain employees, including middle and senior management under PBG's share-based long-term incentive compensation plans ("incentive plans"). Additionally, we granted PBG restricted stock units to certain senior executives. Beginning in 2006, we granted a mix of PBG stock options and PBG restricted stock units to middle and senior management employees under PBG's incentive plans. Shares of PBG stock available for future issuance to Bottling LLC's employees under existing plans were 11.2 million at December 30, 2006. The fair value of PBG stock options was estimated at the date of grant using the Black-Scholes-Merton option-valuation model. The table below outlines the weighted average assumptions for options granted during years ended December 30, 2006, December 31, 2005 and December 25, 2004: 2006 2005 2004 Risk-freeinterest ~cate - - _~ ~ `" - ~~ ~ ~ _ ~ ~ ~4~.?% ~ _ ~ ~~._ 4.1% ~ ~ ~.~ 3:2% . Expected term (in years) 5.7 5.8 6.0 Ex'p'ected volatility .,~ _ r a g - ~. ~.. _ ~ "27:0% ~,:-28.0% ...,35..0%`, Expected dividend yield 1.5% 1.1% 0.7% The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The expected term of the options represents the estimated period of time employees will retain their vested stocks until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. Expected stock price volatility is based on a combination of historical volatility of PBG's stock and the implied volatility of its traded options. The expected dividend yield is management's long-term estimate of annual dividends to be paid as a percentage of share price. The fair value of restricted stock units is based on the fair value of PBG stock on the date of grant We receive a tax deduction for certain stock option exercises when the options are exercised, generally for the excess of the stock price when the options are exercised over the exercise price of the options. Additionally, we receive a tax deduction for restricted stock units equal to the fair market value of PBG's stock at the date of conversion to PBG stock. Prior to the adoption of SFAS 123R, the Company presented all tax benefits resulting from equity awards as operating cash inflows in the Consolidated Statements of Cash Flows. SFAS 123R requires the benefits of tax deductions in excess of the grant-date fair value for these equity awards to be classified as financing cash inflows rather than operating cash inflows, on a prospective basis. For the year ended December 30, 2006, the tax benefits from the exercise of equity awards recognized did not have a significant impact on our Consolidated Financial Statements. 43 As of December 30, 2006, there was approximately $77 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the incentive plans. That cost is expected to be recognized over aweighted-average period of 1.9 years. Stock Options -PBG stock options expire after 10 years and prior to the 2006 grant year were generally exercisable 25 percent after each of the first two years, and the remainder after three years. Beginning in 2006, new stock options granted to employees will vest ratably over three years. The following table summarizes PBG option activity for Bottling LLC employees during the year ended December 30, 2006: Weighted Weighted Average Average Remaining Exercise Contractual Aggregate Shares Price per Term Intrinsic Options (in millions) Share ~ (years) Value ing-at January 1, 2006.... ;,~-. - ~..,9 ; utstan „ .-;. -~-: : ` °_ ° 38.1.. - . .~;: _ .. ~. $22:54 - " :"~ .. ;~ o . ~- _ °~ ~_ _~ - Granted 3.2 $29.69 ,, Exercised - ° ,^ -_ , . - . , .;.. . -, ~ ~ (8.7) .- . =- . $19.39 _ Forfeited or expired (0.9) $27.51 Outstanding at December 30,2006-~~~~~ ~ ~ ~ ~~~ ~ 31'.7- - .:$24.16 ~ ~. '~~63. .: $215 Exercisable at December 30, 2006 19.9 $21.28 5.1 $191 The aggregate intrinsic value in the table above is before income taxes, based on PBG's closing stock price of $30.91 as of the last business day of the period ended December 30, 2006. During the years ended December 30, 2006 and December 31, 2005, the total intrinsic value of PBG stock options exercised was $113 million and $89 million, respectively. The weighted-average grant-date fair value of PBG stock options granted during 2006 and 2005 was $8.75 and $8.68, respectively. Restricted Stock Units -PBG restricted stock units granted to employees generally vest over three years. In addition, restricted stock unit awards to certain senior executives contain vesting provisions that are contingent upon the achievement of pre-established performance targets. All restricted stock unit awards are settled in shares of PBG common stock. 44 The following table summarizes PBG restricted stock unit activity for Bottling LLC employees during the year ended December 30, 200b: Weighted Average Weighted Remaining Average Contractual Aggregate Shares Grant-Date Term Intrinsic Restricted Stock Units (in thousands) Fair Value (years) Value Outstandinga.t.JanuarY,1,:2006_: ,n _ A.,:.~- '`-__ _ ~_ ~` ~~533 ~ - '$28:12 ~ ~~ ~Y, _, Granted 1,148 $29.52 Converted- - _ ~ - s, _ a, - . ,_ Forfeited (29) $29.44 .. ,a.... Outstanding at ~December'30, 2006 ~ ~ " ~- .. _. ~~ = r; ~ ~ -1,652 _ . ;n .a ~. '~; $29.07 ~ __ - ~.2.3~~ ~- ~-$51 ~. Convertible at December 30, 2006 - - - $- The weighted average fair value of PBG restricted stock units granted for the years ended December 30, 2006 and December 31, 2005 was $29.52 and $28.12, respectively. No restricted stock units were granted in the fiscal year of 2 004. No restricted stock units were converted in the fiscal years of 2006, 2005, and 2004. Note 4-Inventories 2006 2005 Raw materials add stipplies . `.~~ ~ ~ -~". _; _- `,_~a ~ ~ - ~_ x - ~: ~ ,.~ .... a $ ~ ,201 ~.. ~ ~ "$ -'~~173 .. . Finished goods 332 285 ` `'$ 533 ~ _ . .$ ...458 ; Note 5-Prepaid Expenses and Other Current Assets 2006 2005 ~, _ ~ - _ Prepaid~expenses _ .. `" <._ ~. ",. _ - - _" .- '$ --314 ~ ,~ .,., _ $ 226 '. Other current assets 4l 48 -, _ , :. ~ _.;: _ ~_:. >. _ . ~.`. $ ..355 ~~-Q,;~ ~ ~~. _$ ...274 -v-.. Note 6-Accounts Receivable `)rade accounts ~i•'eceivable, '~ ~ ~' Allowance for doubtful accounts °Accounts receivable f_rom_ ,PepsiCo . ~~ "~ Other receivables .~ 2006 2005 :~ $ 1 ~-163 $ ,:1,018 ,;,,. (50) (51) ~:. ~., ~ 168 - .~... ~__, .~- „ . ,o~ ._..r ,., _- ~ ;~~.~~ 143~:~~ .~, ~.,~_ ~ - -. ~~ 76 _. `. _.'~;~.~$~ .1°,331 _.~ :$ °1,186-~~~ 45 Note 7-Property, Plant and Equipment, net 2006 2005 _ Land ~...,~-~- .~. ~ ~ ~ _.A . ~ • ~ .-_ .~$. , ,.291., ' ~ .... $ - , 277 ~,; Buildings and improvements 1,404 1,299 Manufacturing aand,~distribuci,on equipment : ~ ' " ~~ _ ~ ~ `::3;705... 3,425 -~ Marketing equipment ~ ° 2,425 ~ y 2,334 ,. ~ ~ :, _ ~ Capital leases"" ~a~ _ ,_,." .. - ~, , 60 d 28 • Other 162 143 ,.. _ ;.. ~~ ._ ~_ ~~ _ ~ ~._~ - y _ ..._.~ _ a. _ _ - $.047 .~ 7;506 Accumulated depreciation (4,271) (3,863) .. .. _.. _d_- ~. _ - z a $. 3,776. $.:3,643 We calculate depreciation on a straight-line basis over the estimated lives of the assets as follows: Buildings~and improvements ~" ~ ~ ~" ~ ~, Manufacturing and distribution equipment Marketing.equipment~ - - - - - '~ . ; . ~_. ~ 20-33~years _-. - _ -. _ -. -- ~ _ 2_IS years `2-7~Tyears Note 8-Other Intangible Assets, net and Goodwill The components of other intangible assets are as follows: 2006 2005 Intangibles subjectto ~airiorti~alion: ~ ~~ ~ ~ ~ ~ . ~. ~ ~ ~. ~_ .~ Gross carrying amount: ,Customer,relationships and lists ., ~, ~, ~ ., ~ ~ ., ~ ~ ~- ~_ $, ;.54` - - ~' $ 53 Franchise/distribution rights 45 46 =a Other identified"intangibles,,, - ~ ~ ~ °~ ~ ~ .<- ~. 32 ,_ :_. ~ 39 131 138 _. _. _. _.. - _ _ °-Accurriulatedamortization: ~~ ~. • - ,_ ~- ~ _ . ~ _..~. ~...~ :, ".' Customer relationships and lists - (11) - (9) ,~,_ ., ~ ,. Franchise/distribution rights _ ~ 2° ~ ~F~ -.. ~ . - e ~~ _.. ' (27) =3 - ~~ (22j: _, Other identified intangibles (16) (18) ...y ,.. ... ~ , , Intangibles subject to amortization, net 77 89 ~,.d. Intangibles not subject tg amor~' `' _ _ _. ,- ., . ,w ,. ttzatton: ~ ...., ... ~. , ,.. Carrying amount: ., ., ~., ~,~ - Franchise. rights .. ,. , 3;128 3,093 ~, Distribution rights 297 302 Trademarks ^~ ~ . ~ - :, - ,._ _. :.._.- _ ,~, ~ ~~ _ ,._ ,,: z. _ >_ ~ ° 215 ,._ .v ..,. ~ .tt.. ..~......~..._. ~ 218 -. ,~ ~. ~. Othe r identified intangibles 51 112 Intanbtb''les not subject to`~amortiz_ ,, _ ~ ;691°~ ~ 3,725 " Total other intangible assets, net $ 3,768 $ 3,814 46 Intangible asset amortization expense was $12 million, $15 million and $13 million in 2006, 2005 and 2004, respectively. The estimated amortization expense expected to be recognized over the next five years is as follows: Fiscal Year Ending 2'007 "' _ ~ ~ .; _ ~ , :~.:..~., ~,~~ ~ ~ . ,~ ~ .;~. $10 ~.: 2008 $ 9 h 2009 .~ ~. _. ~~,~_._ ... ~ ... ___ ~ ~ .... , ., ~. ~ _.. _ . $ ~ ~~.. 2010 $ 6 ~~ _ ~ _ ... _ . - _,~.. ~ _ F - e - ~ ,._ r_ ., 01.1 ~ . ,. q ._ _ ~-.. ,$ ..6.._ In the fourth quarter of 2004, we recorded a $9 million non-cash impairment charge ($6 million net of tax) in selling, delivery and administrative expenses relating to our re-evaluation of the fair value of our franchise licensing agreement for the Squirt trademark in Mexico, as a result of a change in its estimated accounting life. Due to the reduction in the useful life of these franchise rights, we wrote the carrying value of the Squirt franchise rights down to its current estimated fair value in 2004. The remaining carrying value is amortized over the estimated useful life of 10 years. The changes in the carrying value of goodwill by reportable segment for the years ended December 31, 2005 and December 30, 2006 are as follows Balance at December 25,.2004 .: Purchase price allocations relating to acquisitions Impact of fo"reign currency translation• Balance at December 31, 2005 Purchase price allocations, relating~to acquisitions",, Impact of foreign currency translation Balance at December~~30,2006 ~; ~; ~,. '_ Mexico Total $ 253 $ 1,416 (5) 72 y .12 -,•. ~ -28 260 I,SI6 ~_ ~ X1.1).- ~._ ~ .__ ._ X22). (4) ~4) $ 245 $ 1;490: ; During the third quarter of 2006, the Company completed the acquisition of Bebidas Purificadas, S.A. de C.V. (Bepusa), a bottler in the northwestern region of Mexico. The acquisition did not have a material impact on our Consolidated Financial Statements. In September 2005, we acquired the operations and exclusive right to manufacture, sell and distribute Pepsi-Cola beverages from the Pepsi- Cola Bottling Company of Charlotte, North Carolina. As a result of the acquisition, we assigned $60 million to goodwill, $127 million to franchise rights, $12 million to non-compete arrangements and $2 million to customer relationships. The goodwill and franchise rights are not subject to amortization. The non-compete agreements are being amortized over ten years and the customer relationships are being amortized over 20 years. The acquisition did not have a material impact on our Consolidated Financial Statements. The purchase price allocations also include adjustments to goodwill as a result of changes in taxes associated with prior year acquisitions. 47 Note 9-Accounts Payable and Other Current Liabilities 2006 2005 ~~- ~ ~ ,. s,~ .. -. , Accounts payable >:. -. $~ , 525 .. $ 501: Trade incentives 194 185 Accrued:compensation_ and benefits , ` ` ~ ~~ ~ ~ ~ ~ ?37 ~~;.~ ';,••21.1 ~ R_- Other accrued taxes 11 1 123 Accrued;interest ,~x =f ~ ~ ~ ~ `"~ " - ~ - "~ ' ,.. ; . ~_ .. ~ _ _ - .. :.,~_~ ;.: ~ - ~- ~ 49 ...~ ~ . = 42~~:. , . Accounts payable to PepsiC~ ~ ~ 234 _ ~.. - ,~ 176 , Other-current l'iab'ilities ~~ - . ~~- ~,~ ~ ~ ,. a ~ - ~- ~ ~ ~ ~ ~ ~ 209. . ~ 218 ~- $ 1,559 $ 1,456 Note 10-Short-term Borrowings and Long-term Debt Long-term debt °~ ~ ~°2.45%~~ (3:9%~~effectiverate) ~ ~?~ senior notes due 2006 , ; _ ~ __ ~ ~ ~ ` - ~ ~ _. ~ ' ° ' ' ° ~ ~ $ - ~~~ ~ $" ~ ; ~ 500. 5.63% (6.3% effective rate) ~'-> ~~~ senior notes due 2009 1,300 1,300 _ 4.63%'(46% effective rate) t~~~seri%or~notes due ~2012~ ~- ~ ~- ~ _. _ . ~ ~ ~ -1,000a ~ - - 1,000- 5.00% (5.2% effective rate) senior notes due 2013 400 400 =~ 4:.t3%~(4~4,%~effective rate) senior notes~.dne~2015 ~. ~ ~ _ .. ~_ -250 n 250 „'~" 5.50% (5.4% effective rate) senior notes due 2016 800 - s - _ __ ~.., r~ - _-. Capital~leases~obligations~(dote l l~)_ ,33: 5,, _ _ Other (average rate 5.4%) 11 102 =. ~ 3,794 3;557 SFAS No. 133 adjustment ~» U 3) 119) ,,~~ Unamor~_.,, r ,.,„ tized discount,-net ; - :y . w,. - _ (6) ~ . ~ . (7) _:~. Current maturities of long-term debt, net (16) (588) <r. ~ , a ~ ; ~ $ 3;759.: $. 2,943 <` ` ~~> In accordance with the requirements of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), the portion of our fixed-rate debt obligations that is hedged is reflected in our Consolidated Balance Sheets as an amount equal to the sum of the debt's carrying value plus a SFAS 133 fair value adjustment, representing changes recorded in the fair value of the hedged debt obligations attributable to movements in market interest rates. «~ Effective interest rates include the impact of the gain/loss realized on swap instruments and represent the rates that were achieved in 2006. ~-~> These notes are guaranteed by PepsiCo. Aggregate Maturities -Long-term Debt -Aggregate maturities of long-term debt as of December 30, 2006 are as follows: 2007: $10 million, 2008: $1 million, 2009: $1,300 million and 2012 and thereafter: $2,450 million. We do not have any maturities in 2010 and 2011. The maturities of long-term debt do not include the capital lease obligations, the non-cash impact of the SFAS 133 adjustment and the interest effect of the unamortized discount. 2006 Short-Term Debt Activities - In March 2006, PBG entered into a new $450 million committed revolving credit facility ("2006 Agreement") which expires in March 2011 and increased their existing facility, which expires in April 2009, from $500 million to $550 million. PBG's combined committed credit facilities of $1 billion, which 48 are guaranteed by us, support PBG's $1 billion commercial paper program. Subject to certain conditions stated in the 2006 Agreement, the Company may borrow, prepay and reborrow amounts, including issuing standby letters of credit up to $250 million, at any time during the term of the 2006 Agreement. Funds borrowed may be used for general corporate purposes, including supporting PBG's commercial paper program. We had available bank credit lines of approximately $741 million at December 30, 2006. These lines were used to support the general operating needs of our businesses. As of year-end 2006, we had $242 million outstanding under these lines of credit at aweighted-average interest rate of 5.0 percent. As of year-end 2005, we had available short-term bank credit lines of approximately $435 million and $156 million was outstanding under these lines of credit at aweighted-average interest rate of 4.3 percent. Financial Covenants -Certain of our senior notes have redemption features and non-financial covenants that will, among other things, limit our ability to create or assume liens, enter into sale and lease-back transactions, engage in mergers or consolidations and transfer or lease all or substantially all of our assets. Additionally, our new secured debt should not be greater than 10 percent of our net tangible assets. Net tangible assets are defined as total assets less current liabilities and net intangible assets. We are in compliance with all debt covenants. Interest Payments -Amounts paid to non-related third parties for interest, net of settlements from our interest rate swaps, were $213 million, $172 million and $163 million in 2006, 2005 and 2004, respectively. Letters of Credit, Bank Guarantees and Surety Bonds - At December 30, 2006, we have outstanding letters of credit, bank guarantees and surety bonds from financial institutions valued at $50 million. Note 11-Leases We have non-cancellable commitments under both capital and long-term operating leases, principally for buildings, office equipment and vending equipment. Certain of our operating leases for our buildings contain escalation clauses, holiday rent allowances and other rent incentives. We recognize rent expense on our operating leases, including these allowances and incentives, on a straight-line basis over the lease term. Capital and operating lease commitments expire at various dates through 2072. Most leases require payment of related executory costs, which include property taxes, maintenance and insurance. The cost of buildings, office equipment and vending equipment under capital leases is included in the Consolidated Balance Sheet as property, plant and equipment. Amortization of assets under capital leases is included in depreciation expense. In 2006, we entered into a $25 million capital lease agreement with PepsiCo to lease vending equipment. See Note 16 for further discussion about our related party transactions. Capital lease additions totaled $33 million, $2 million and $0 million for 2006, 2005 and 2004, respectively. 49 The future minimum lease payments by year and in the aggregate, under capital leases and under non-cancellable operating leases consisted of the following at December 30, 2006: Amounts representing interest (12) Presentvalue of<net minimumlease payments ~- ~ ~ ~~ .x ~ ~- ~ ~ ~• ~ 33 ~, - ~<- ~~ ~- Less: current portion of net minimum lease payments 6 Lorig-term portion of net minimum lease payments- $ 27 We plan to receive a total of $ ] 0 million of sublease income during the period from 2007 through 2013. Components of net rental expense under operating leases: 2006 2005 2004 Minimum rentals $ °99 $ ~90 $ Sublease rental income (3) (2) (2) Total ~ ~ ,. - - .. ~ ,...: ~:>: _ . ~ _ _ $ ~96: $ 88 .. "~$ 75 ~. Note 12-Financial Instruments and Risk Management Cash Flow Hedges - We are subject to market risk with respect to the cost of commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. We use future and option contracts to hedge the risk of adverse movements in commodity prices related primarily to anticipated purchases of raw materials and energy used in our operations. These contracts generally range from one to 12 months in duration and qualify for cash flow hedge accounting treatment. We are subject to foreign currency transactional risks in certain of our international territories for transactions that are denominated in currencies that are different from their functional currency. Beginning in 2004, we entered into forward exchange contracts to hedge portions of our forecasted U.S. dollar purchases in our Canadian business. These contracts generally range from one to 12 months in duration and qualify for cash flow hedge accounting treatment. In anticipation of the $800 million debt issuance in March 2006, we entered into treasury rate lock agreements to hedge against adverse interest rate changes. We recognized $15 million as a deferred gain reported in accumulated other comprehensive loss ("AOCL") resulting from these treasury rate contracts. The deferred gain is released to match the underlying interest expense on the debt. In previous years, we have entered into additional treasury rate lock agreements to hedge against adverse interest rate changes on certain debt financing arrangements. These agreements qualify for cash flow hedge accounting treatment. For a cash flow hedge, the effective portion of the change in the fair value of a derivative instrument is deferred in AOCL until the underlying hedged item is recognized in earnings. The ineffective portion of a fair value change on a qualifying cash flow hedge is recognized in earnings immediately and is recorded consistent with the expense classification of the underlying hedged item. 50 The following summarizes activity in AOCL related to derivatives designated as cash flow hedges held b y the Company during the applicable periods: Before Net of Taxes Taxes Taxes Accumulated net gains as of -December- 27;-.2003 -_ ,.,.. ~ _ ~_ ". ~. ;~ -_. ' ` _ _ _, ..'~. $ " - -=23 ~~ $ e _ " ` $ ~"" 23 ~ _~ Net changes m the fair value of cash flow hedges 29 - 29 ~_. Net~gains reclassrfied.from AOCL~into~arnings' e -_ , - _ ~ __ ~ -(35) _ ~~~ _ - <" (35j ~` Accumulated net gains as of December 25, 2004 ~ 17 - 17 Net~clianges iri the fair.value of.cashflciw hedges - ". ; ' ;; ,,, ', 5 ~, ~ t .,; 3 " `" -.. 8 Net gains reclassified from AOCL into earnings (17) (1) (18) Accumulated net gains°as of December 31;2005 °. 5 ,:2 ., -. _ 7 " Net changes in the fair value of cash flow hedges 14 (2) l2 Ner mains reclassified from AOCL in b ~ toearnings.~. _. ~ ~ _ _ ~ ~1~. _. ~1)_ ~~~ " Accumulated net gains as of December 30, 2006 $ 18 $ (l) $ 17 Assuming no change in the commodity prices and foreign currency rates as measured on December 30, 2006, $3 million of deferred gain will be recognized in earnings over the next 12 months. The ineffective portion of the change in fair value of these contracts was not material to our results of operations in 2006, 2005 or 2004. Fair Value Hedges - We finance a portion of our operations through fixed-rate debt instruments. We effectively converted $550 million of our senior notes to floating-rate debt through the use of interest rate swaps with the objective of reducing our overall borrowing costs. These interest rate swaps meet the criteria for fair value hedge accounting and are 100 percent effective in eliminating the market rate risk inherent in our long-term debt. Accordingly, any gain or loss associated with these swaps is fully offset by the opposite market impact on the related debt. During 2006, the fair value of the interest rate swap liability decreased from $19 million at December 3l, 2005 to $13 million at December 30, 2006. In 2006, the fair value change of our swaps and debt was recorded in other liabilities and long-term debt in our Consolidated Balance Sheets. In 2005, the current portion of the fair value change of our swaps and debt was recorded in accounts payable and other current liabilities and current maturities of long-term debt in our Consolidated Balance Sheets. The long-term portion of the fair value change in 2005 was recorded in other liabilities and long-term debt. Unfunded Deferred Compensation Liability -Our unfunded deferred compensation liability is subject to changes in PBG's stock price as well as price changes in other eyuity and fixed-income investments. Participating employees in our deferred compensation program can elect to defer all or a portion of their compensation to be paid out on a future date or dates. As part of the deferral process, employees select from phantom investment options that determine the earnings omthe deferred compensation liability and the amount that they will ultimately receive. Employee investment elections include PBG stock and a variety of other equity and fixed-income investment options. Since the plan is unfunded, employees' deferred compensation amounts are not directly invested in these investment vehicles. Instead, we track the performance of each employee's investment selections and adjust his or her deferred compensation account accordingly. The adjustments to the employees' accounts increases or decreases the deferred compensation liability reflected on our Consolidated Balance Sheets with an offsetting increase or decrease to our selling, delivery and administrative expenses. We use prepaid forward contracts to hedge the portion of our deferred compensation liability that is based on PBG's stock price. At December 30, 2006, we had a prepaid forward contract for 660,000 of PBG shares at a price of $32.00, which was accounted for as a natural hedge. This contract requires cash settlement and has a fair value at December 30, 2006, of $20 million recorded in prepaid expenses and other current assets in our Consolidated Balance Sheets. The fair value of this contract changes based on the change in PBG's stock price compared with the contract exercise price. We recognized $2 million in income in 2006 and $1 million in income in 2005, resulting 51 from the change in fair value of these prepaid forward contracts. The earnings impact from these instruments is classified as selling, delivery and administrative expenses. Other Financial Assets and Liabilities -Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and other accrued liabilities and short-term debt. The carrying value of these financial assets and liabilities approximates fair value due to their short maturities and since interest rates approximate current market rates for short-term debt. Long-term debt at December 30, 2006, had a carrying value and fair value of $3.8 billion and $3.7 billion, respectively, and at December 31, 2005, had a carrying value and fair value of $3.6 billion. The fair value is based on interest rates that are currently available to us for issuance of debt with similar terms and remaining maturities. Note 13-Pension and Postretirement Medical Benefit Plans Employee Benefit Plans - We participate in PBG sponsored pension and other postretirement medical benefit plans in various forms in the United States and other similar plans outside the United States, covering employees who meet specified eligibility requirements. In September 2006, the FASB issued SFAS 158 which. requires, among other things, the recognition of the funded status of each defined benefit pension plan and other postretirement plan on the balance sheet. Effective for our fiscal year ending 2006, we recognized the funded status of each of the pension and other postretirement medical plans PBG sponsors in the U.S. and other similar plans outside the U.S. Accordingly, we recorded a net decrease of approximately $278 million, net of taxes, to our owners' equity through the AOCL account. The assets, liabilities and expense associated with our international plans were not significant to our results of operations and are not included in the tables and discussion presented below, except for the table describing the incremental effect of adopting SFAS 158 on our worldwide balance sheet. Defined Benefit Pension Plans -Our U.S. employees participate in PBG's non-contributory defined benefit pension plans, which cover substantially all full-time salaried employees, as well as most hourly employees. Benefits generally are based on years of service and compensation, or stated amounts for each year of service. Effective January 1, 2007, newly hired salaried and non-union hourly employees will not be eligible to participate in PBG's U.S. defined benefit pension plans. Corresponding with this change, newly hired employees who are not eligible for the defined benefit pension plan will instead receive an additional Company contribution equal to two percent of [heir compensation into their 401(k) account. All of PBG's qualified plans are funded and contributions are made in amounts not less than the minimum statutory funding requirements and not more than the maximum amount that can be deducted for U.S. income tax purposes. Postretirement Medical Plans - PBG's postretirement medical plans provide medical and life insurance benefits principally to U.S. retirees and their dependents. Employees are eligible for benefits if they meet age and service requirements and qualify for retirement benefits. The plans are not funded and since 1993 have included retiree cost sharing. In 2004, we merged the long-term disability medical plan with the postretirement medical plan. PBG's long-term disability medical plan was amended to provide coverage for two years for participants becoming disabled after January 1, 2005. Participants receiving benefits before January 1, 2005 remain eligible under the existing benefits program which does not limit benefits to a two-year period. The liabilities and respective costs associated with these participants have been added to our postretirement medical plan. The following table illustrates the incremental effect on individual line items of our worldwide balance sheet for the changes to our additional minimum liability ("AML") prior to adoption of SFAS 158 and the impact of recording the funded status provision of SFAS 158 to each of the pension and other postretirement medical plans PBG sponsors in the United States and other similar plans outside the United States. 52 Incremental Effects of Applying SFAS 158 on the Consolidated Balance Sheet at December 30, 2006: Prior to AML Prior to Post AA4L and SFAS 158 AML SFAS 158 SFAS 158 and SFAS 158 Ad-lustments Adjustments Ad-justments Ad-justments Ad-lustments ,.. Prepaid eicperises: and other •current-assets ~ `~ ~ ~ ~ $ 1365 = ~ -~ ~~ $ - ~.. $ 365 _" ~ . $ (f0) • ~~ x -~ $ .355 ~~ ". Other intangible assets, net $3,832 $ (4) $3,828 $ (60) $3,768 Other, assets .. ,:,.,. --~~: .~ .~ ~ `-,:.. ~:~.~ -. :m~.. -$;•11.1_: ,$:~= ,. ~° ~ °$_119 .: ,,$ 3 $x.;114.,_ ~„ Accounts payable and other current liabilities ~ ~ ~~ $1,551 $ - $1,551 $ 8 ~ ~ $1,559 -. -F "• ~. ~-- herliabilities -~ _. Ot F ;a$ ~ 707 -~ $(521 ~~ ~- _ $ ~. 655; :;: :'$. 208- -~~. F~$ ~ 863__ :' .~. Deferred income taxes, net $ 410 $ - $ 410 $ (4) $ 406 ther:compreh"en - - . Accumulated o' sive loss ~" . , -. (359).- $ ~~ ~ ~ ~ $ 48 ;- _ ~ $ (311) ~~•~~ ~, ~ $(278) :- r '~ $ ~(589)- Amounts Recognized in AOCL at Fiscal Year End Related to U.S. Plans: Pension Postretirement 2UU6 2UU6 Prior Sei•v~ice'Cost:~ _ ~ ~ ~ ~~ ' ' ` ~ ~ ~ ~ ~ ~ ~ $ ~ ~ 47 ~ $ ~ 3~ _ Net Loss 460 98 "Total amount~iecogniied ~in AOCL ~ ~ : ~ - ~ ` .. ", - $ ~~' 507= $ 101 ~:. Estimated Amounts in AOCL to be Recognized in 2007 for U.S. Net Periodic Benefit Cost: Pension Postretirement Prior Service Cost $ 7 $- Net Loss $38 $ 4 Defined Contribution Benefits -Nearly all of our U.S. employees are also eligible to participate in PBG's 401(k) plans, which are defined contribution savings plans. We make matching contributions to the 401(k) savings plans on behalf of participants eligible to receive such contributions. Our match will equal $0.50 for each dollar the participant elects to defer up to four percent of the participant's pay. If the participant has 10 or more years of eligible service, our match will equal $1.00 for each dollar the participant elects to defer up to four percent of the participant's pay. Corresponding with changes made to our defined benefit pension plan for certain new hires, beginning on January 1, 2007 newly hired employees who are not eligible for the defined benefit pension plan will instead receive an additional Company retirement contribution equal to two percent of their compensation into their 401(k) account. 53 Pension 2006 2005 2004 Components of"U,S. pension.expense: ~ " ~ ~ '~" Service cost $ 53 $ 46 $ 43 ~; ~:Interest~cosr _ -. _ _ .o 82 _ ._ _. 75 ~ ~ _ 69 Expected return on plan assets (income) (94) (90) (83) -,-- -Amortization=of net,loss ~ .. ~ ~ ~~~~ _ o f.~- Amortization of prior service amendments 9 7 7 _ . , tion'li'enefits - _ , ~~ S ecial teYmina~~ ~ ~ ~ ~~ - P ~-~. ~-. ~-. _ 9 :, Net pension expense for the defined benefit plans $ 88 $ 77 $ 61 ,. ~~Defined ~contr'ibution plans expense ~ - ` .. - ~ ~ ~ "~ °, `.$ ~ ~ 22 ~ ' $ ~ . 20.. ~ ~ ;;~$ ~~ 19 ~~ _ Total pension expense recognized in the Consolidated Statements of Operations $ 1 l0 $ 97 $ 80 Components'of °U.S. posfretirement benefits'expense: ~~ ~_ ~_ Service cost Interest cost ~ ~~ ~~~ - _ ~ ~ ~ ~~ Amortization of net loss Amortization'of~prior service ~amendments~ ~. ~ ~" ~ ~ ~~ Net postretirement benefits expense recognized in the Consolidated Statements of Operations Changes in the Projected Benefit Obligations Postretirement 20[16 2005 2004 $ 4 ,rw 3 $ ,: ~... ,. $ 4 . 20 .- 22 18 ,. 7 8 6 $ 31 $ 32 $ 27 Pension Postretirement 2006 2005 2006 2005 b g.. ~ - _, Obligation at~~be tnning~of year ::- .. -, ." ~ ,~ ~ :~ ~ ,_ $ 1,439 ~ ~ ~$;. I-,252. ~~' . ~,$ 384. ~ ~ ~ $ 379..._- Service cost 53 46 4 3 Interest cost. .: ,:, ~ , ,, ,, Plan amendments (8) 21 1 8 Actuarial'loss/(gain) ,r.: ~ ~ .; . t. .- ~ ~~ 43 .. Benefit a menu Y - . (69) (54) ~ f23~ 122 . - ~~.. , ,... Special-termination-benefits _ - ~ _. ... ,~.: .- ~ a ~ ._ _~ . , . ,. _ = -~ 9 .°~- w. _..,_ _ _.. - Transfers (1) (1) - - Obligation at_endof year-- ~ .. ~_ -- ;= -~ ~ E, . ~ - $ 1,539 • _ ~ $~ 1,439.; _ _,. ~~$ ~ 354 `$' 384 , 54 Changes in the Fair Value of Assets Fair,value'~at begm'ning of,year; _. Actual return on plan assets Transfers- Employer contributions Benefit payments , .. - Fair value at end of year Additional Plan Information Pension 2006 2005 _$ ~ ;1,149 ." ,$ ,w1,025~ - 114 135 _.. _ ..,..4 ~. (~1) _ -. ~_ (1) 96 44 (69) (~4),.., $ 1,289 $ 1.149 Postretirement 2006 2005 $ . - ~ - .. ?~ 27 (23) (27)M $ - $ - Pension Postretirement 2006 2005 2006 2005 Proj~ected_benefit,oblibation~ °= ~ ~ ~- ~ ~. _- _ ~ ~~ ~~, ~ - ~ ~ $1,539 ~ ~ - ~~~ ~ ~ - $1;439 =~ -~ ~ ; $354 ~ ~ ~~ -°$384 ~ ~ ~~ Accumulated benefit obligation ~ $1,407 _ . $1,330 $354 $384 ~ Fair value-of plan~assets tl> .- . ~ ~ ~. _ ~- ~,. $1,299 ~ ~ ~ $1,190 ~ ~~ ~ ~ $ ~- ,-_ - $ -' 11> Includes fourth quarter employer contributions. The accumulated and projected obligations for all plans exceed the fair value of assets. Reconciliation of Funded Status at Fiscal Year End Pension Postretirement 2006 20115 2006 2005 Funded status.at measurement date ~. __ _ $~~ ..(250) .. ` -.$ (290) $;:.(354) " .$ ;.(384) Fourth quarter employer contributions/payments ~ 10 41 5 6 Funded status at.' ~ ~ ~ "~~~~~ ~~ ~~ ~ ~~ ~endofyewar ~ :~ = $~~(240): ,. (249)~~' ~ ,$~~'(349). ,y. ~~_(378)0 Unrecognized prior service cost 11> 64 2 _ . ~ _, Unrecognizedloss.h) _ .., , . ~. 474 ~ . . ~. ~~, 137 ,,,. Total recognized in the balance sheet $ 289 $ (239) ~~~ Upon adoption of SFAS 158, the full funded status of our pension plans and poslretirement plan is now recognized on our balance sheet. Funded Status Recognized in the Consolidated Balance Sheets at Fiscal Year End Accounts,,payable,„and other,current habilittes _ ~ ~' Other liabilities '),otal'liabilities Intangible assets P o.. ~ : _ Accumulated other com rehensive loss'"" Net amounts recognized Pension Postretirement 2006 2005 2006 2005 (239) (158) (323) (239) °(240Ju ~ = _~. (1~58)* ~ . (349) _ . "(239)* - 64 - - -507- ~ ~ ~~383 ~ 101 - .. ~ - .'. $ 267 $ 289 $ (248) $ (239) * Prior to the adoption of SFAS 158 and in accordance with existing accounting guidance for pension plans, we recorded a minimum pension liability equal to the excess of the accumulated benefit obligation over the fair market value of the plan assets. Also, in accordance with then existing accounting guidance for postretirement plans, we were not required to record a minimum liability. *=" Amounts presented are before the impact of taxes. 55 Assumptions The weighted-average assumptions used to measure net expense for years ended: Pension Postretirement 2006 2005 20114 2006 20(1.5 2004 _ 'Discount, _ ~ ~ „_ -rate 5 $0% ~ _..: -= . b.15% 6:25% ~~ = ~ ~ __ -- r~ J, 5;55% , .. fi:15% ~ 6:25%,: on lan assets ~~~ Expected return p . 8.50% 8.50% 8.50% N/A N/A N/A Rate of-~com ensatton-increase . -~,. p ~ ~ ~,~3.53%~ ~ ~.< ~ ~~~ '3.6'0%-- .. ~,~4.20~% ~ `~ -. ~ 3;.53% ~' ~ _ ~ , 3.60% ~,~. ,~ ~ . .4:20%~~~~ ~t~ Expected return on plan assets is presented after administration expenses. The weighted-average assumptions used to measure the benefit liability as of the end of the year were as follows: Discount rate Rate of compensation increase Pension 2006 2005 6.00% 5.80% 3.55% 3.53% Postretirement 2006 2005 5.80% 5.55% 3.55% 3.53% We have evaluated these assumptions with our actuarial advisors and we believe that they are appropriate, although an increase or decrease in the assumptions or economic events outside our control could have a material impact on reported net income. Funding and Plan Assets Allocation Percentage Asset Category Target Actual Actual 2007 2006 2005 Equity securities 75% 76% 76% Debt securities 25% 24% 24%a The table above shows the target allocation and actual allocation. PBG's target allocations of the plan assets reflect the long-term nature of our pension liabilities. None of the assets are invested directly in equity or debt instruments issued by Bottling LLC, PBG, PepsiCo or any bottling affiliates of PepsiCo, although it is possible that insignificant indirect investments exist through our broad market indices. The plan's equity investments are diversified across all areas of the equity market (i.e., large, mid and small capitalization stocks as well as international equities). The plan's fixed income investments are also diversified and consist of both corporate and U.S. government bonds. We currently do not invest directly into any derivative investments. The plan's assets are held in a pension trust account at our trustee's bank. PBG's pension investment policy and strategy are mandated by PBG's Pension Investment Committee ("PIC") and are overseen by the PBG Board of Directors' Compensation and Management Development Committee. Plan assets are invested using a combination of enhanced and passive indexing strategies. The performance of the plan assets is benchmarked against market indices and reviewed by the PIC. Changes in investment strategies, asset allocations and specific investments are approved by the PIC prior to execution. Health Care Cost Trend Rates - We have assutned an average increase of eight percent in 2007 in the cost of postretiretnent medical benefits for employees who retired before cost sharing was introduced. This average increase is then projected to decline gradually to five percent in 2013 and thereafter. 56 Assumed health care cost trend rates have an impact on the amounts reported for postretirement medical plans. Aone-percentage point change in assumed health care costs would have the following impact: I% 1% Increase Decrease Effect on total fiscal year 2006 service and interest cost components $1* $(1)* Effect on the fiscal year 2006 postretirement benefit obligation $9 $ (8) Impact was slightly less than $0.5 million. Pension and Postretirement Cash Flow -Our contributions are made in accordance with applicable tax regulations that provide us with current tax deductions for our contributions and for taxation to the employee when the benefits are received. We do not fund our pension plan and postretirement medical plans when our contributions would not be tax deductible or when benefits would be taxable to the employee before receipt. Of the total U.S. pension liabilities at December 30, 2006, $62 million relates to plans not funded due to these unfavorable tax consequences. E~loyer Contributions to U.S. Plans Pension Postretirement 2005..; .' ~ = ;.. ~ ~, ~ ".,_ - .:. - ~ _ _ ~ ~ ~ , ~ ~ _ $77 __, ~ $27 - 2006 $66 $22 2007 (expected).. =- `~... _ ~: ::: , ~ .~. ~ . - .., _„ ~- . ~ _ ~ .~; ~ . _ ~ :` $40 ~. _- $26 .:: . Our 2007 expected contributions are intended to meet or exceed the IRS minimum requirements and provide us with current tax deductions. Expected Benefit - U.S. Plans -The expected benefit payments made from PBG's pension and postretirement medical plans (with and without the prescription drug subsidy provided by the Medicare Prescription Drug, Improvement and Modernization Act of 2003) to our participants over the next ten years are as follows: Pension Postretirement Including Excluding Medicare Medicare Effected Benefit Payments Subsidy Subsidy 2007 ,<_ - _. '~: - ~$ `58 -:$ .26 , ,$ 27 ~.>; ~. 2008 $ 64 $ 25 $ 26 2009 '. ' .:~. ' . .... __ .$ : 69 _ _ ," ~- ''$ 25 - , ~' : $ 26 2010 $ 76 $ 26 ~$ 27 .,. .~ --- - - 2~,11 t .. _._ . , - , .., .,. . ; 2012 to 2016 $577 $139 $144 57 Note 14-Income Taxes The details of our income tax provision are set forth below: 2006 2005 2004 Current: N _,. ; Federal $ 6 $ I $ 17 ~~ _ ~Foreig'n _. ~ ... ~ ,, ~. - ~ ~-. w ~,, :~ = 36 y ,~ '6 3S ~. State 2 3 _ 2 _. °~ International legal eniityJ debt.restructuring~reserves~ - - ~ ~ ~ = 22 `• _ ~ - - 44 52 54 Deferred: Federal (5) (12) (3) Foreign ~ _ ~ ~~ ,~ _~ ~ _" ~ m (22)" ; _ _~ ~ -: °(,19) _. (22j .:. State (2) 3 - Tax rate change benefit ~ ~; - - , . ~ k ~ __ . - _ _. ~ "~~12) ; ~ _ , . ~ ,~ , ~ ~~) - ~ (41) (28) (5 I ) In 2006, our tax provision includes increased taxes on non-U.S. earnings and the following significant items: • Valuation allowances -During 2006, we reversed valuation allowances resulting in a $34 million tax benefit. These reversals were due to improved profitability trends and certain restructurings in Spain, Russia and Turkey. • Tax rate changes -During 2006, changes to the income tax laws in Canada, Turkey and certain jurisdictions within the U.S. were enacted. These law changes enabled us to re-measure our net deferred tax liabilities using lower tax rates which decreased our income tax expense by approximately $12 million. In 2005, our tax provision includes increased taxes on U.S. earnings and additional contingencies related to certain historic tax positions, as well as the following significant items: • Valuation allowances - In the fourth quarter, we reversed valuation allowances resulting in a $19 million tax benefit. This reversal was due to improved profitability trends in Russia and a change to the Russia tax law [hat enables us to use a greater amount of our Russian net operating losses ("NOLs"). • International legal entity/debt restructuring - In the fourth quarter, we completed the reorganization of our international legal entity and debt structure to allow for more efficient cash mobilization, to reduce taxable foreign exchange risks and to reduce potential future tax costs. This reorganization resulted in a $22 million tax charge. In 2004, we had the following significant tax items, which decreased our tax expense by approximately $44 million: • Mexico tax rate change - In December 2004, legislation was enacted changing the Mexican statutory income tax rate. This rate change decreased our net deferred tax liabilities and resulted in a $26 million tax benefit in the fourth quarter. • Tax reserves -During 2004, we adjusted previously established liabilities for tax exposures due largely to the settlement of certain international tax audits. The adjustment of these liabilities resulted in an $18 million tax benefit for the year. 58 Our U.S. and foreign income before income taxes is set forth below: 2006 2005 2004 13.S. $. 73.1... $ 770 $ 693 Foreign 196 125 139 •; ~~ ,,~ ;.. :~, ~ ;: ~ .,$ ` 927 $ , 895 $ 832 •. Our reconciliation of income taxes calculated at the U.S. federal statutory rate to our provision for income tax es is set forth below: 2006 2005 2004 Income tares compnted~at the U.S federal statutory°rate x ~ "35.0% 35 0% ~ ~ ~ 35.0% Income taxable to owners ~ ..- ." _ (31.4) ~ (27.9) ~ (25.4) .. _ _ x beneft ;..: ~. ...~ ~ ~ State income~tax, netof federal to _ _ ~, 3.1 ~.. - 0,7 ' 0.2 Impact of foreign results _ - _ (1.3) (3.9) (8.6) _.. ~ .._... Change invaluation allowances, net "_(5.5) - (3.9) ~ .~ - X2.9 Nondeductible expenses 1.4 1.5 1.6 Qualifieddomes[ic:~production activity'deducti_on .~ „ ~, ~~ , : ~ ~_ - ~_ ~ ;- ~ „ ~ ~ ~ -«(0.6) ~~ _ _ _ - _ _ - ~ International tax audit settlements, net - - (2.2) l.7 0.3 3.4 ~. .. ,. International legal entity/debt restructu~ ring, reserves ,. _ ~ ~ - ~ ~, 2:4 ~ ~ ~ - Tax rate change benefit (1.4) - (3.0) _ ,.. _ Total effective income tax"-rate ~ ~ ~, ~ ~ ~ ~ . - ~ ~ ., 0.3% :~~. , ~ ~ 2:7% ~ ., ~0:4.°Io The details of our 2006 and 2005 deferred tax liabilities (assets) are set forth below: 2006 2005 Intangible„assets'and property'plant"and equipment' ,~'"''` ~ .. `: ~ . ~" $`;-" 437 ~ ~_~;$" '..;447 Other 88 82 Gross=ieferred taz ~liab~ilities ,.,,, `, _. "' ~ ~ "~ ~ , ~~ a ~, `~ ~ '_" '°525,_ ~, ~ ``529, _"_ Net operating loss carryforwards (262) (276) Etnployee°benefitgbligations a- .. ..~ ~ ~ . `. ~..; . s , b `~, .~ `C23) _; ~ `(1'9) Bad debts - ,. .. - - ~ ~ ~ (2) (2) _ ~ -- Various liabilities and other r~ , '; ~ ~ ` (65)~> ~ (46)~ Gross deferred tax assets (352) . (343) Deferred-tax asset'valuation allowancc ~ ~ , _ 189 ~' ~ ~ ~ ~~~~ 222"~. Net deferred tax assets (163) (121) _ _ Net deferred tax~labihty ~ ~ q_ _. ~ ~ ~~ r.. ~ $ ~ 362==~ - ~ w ~ . ~~ .~_$ - _ _ ~ ° ~408~ Consolidated Balance Sheets Classification Prepaid-expenses and other current assets. _ ~ ~ ~ ~ ~ ~ ~ $ (29) $ ~ (17)~ __ _ Other assets f21) (14) Accounts_payablc~and~other current liabilities ~ 6 ~ 17~- Deferred income taxes 406 422 ,, $.; ' ...362 $ ,. 408`-F We have NOLs totaling $962 million at December 30, 2006, which are available to reduce future taxes in the U.S., Spain, Greece, Russia, Turkey and Mexico. Of these NOLs, $24 million expire in 2007 and $938 million expire at various times between 2008 and 2026. At December 30, 2006, we have tax credit carryforwards in the U.S. of $4 million with an indefinite carryforward period and in Mexico of $27 million, which expires at various times between 2009 and 2016. 59 We establish valuation allowances for our deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. Our valuation allowances, which reduce deferred tax assets to an amount that will more likely than not be realized, decreased by $33 million in 2006 and decreased by $83 million in 2005. Approximately $14 million of our valuation allowance relating to our deferred tax assets at December 30, 2006, would be applied to reduce goodwill if reversed in future periods. Deferred taxes have not been recognized on the excess of the amount for financial reporting purposes over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. This amount becomes taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. The amount of such temporary difference totaled $858 million at December 30, 2006. Determination of the amount of unrecognized deferred income taxes related to this temporary difference is not practicable. Income taxes receivable from taxing authorities were $20 million and $29 million at December 30, 2006 and December 31, 2005, respectively. Such amounts are recorded within prepaid expenses and other current assets and other long-term assets in our Consolidated Balance Sheets. Income taxes payable to taxing authorities were $17 million and $13 million at December 30, 2006 and December 31, 2005, respectively. Such amounts are recorded within accounts payable and other current liabilities in our Consolidated Balance Sheets. Income taxes receivable from related parties were $6 million and $4 million at December 30, 2006 and December 31, 2005, respectively. Such amounts are recorded within accounts receivable in our Consolidated Balance Sheets. Amounts paid to taxing authorities and related parties for income taxes were $19 million, $43 million and $63 million in 2006, 2005 and 2004, respectively. Note 15-Segment Information We operate in one industry, carbonated soft drinks and other ready-to-drink beverages and all of our segments derive revenue from these products. We conduct business in all or a portion of the United States, Mexico, Canada, Spain, Russia, Greece and Turkey. Beginning with the fiscal quarter ended March 25, 2006, PBG changed its financial reporting methodology to three reportable segments - U.S. & Canada, Europe (which includes Spain, Russia, Greece and Turkey) and Mexico. The operating segments of the U.S. and Canada are aggregated into a single reportable segment due to their economic similarity as well as similarity across products, manufacturing and distribution methods, types of customers and regulatory environments. Operationally, the Company is organized along geographic lines with specific regional management teams having responsibility for the financial results in each reportable segment. We evaluate the performance of these segments based on operating income or loss. Operating income or loss is exclusive of net interest expense, minority interest, foreign exchange gains and losses and income taxes. The Company has restated prior periods' segment information presented in the tables below to conform to the current segment reporting structure. Net Revenues 2006 2005 2004 i7S: ~& Canada ~ ~ --_ . ~ ~ ~_. ~ .. ~~.~ ~ T ~_ ..,. ~ _ - : ~ $ -9,:910 --; __ ro- $ :~9>342 _ ,."$` _ 8;613 _. Europe . ~ 1,534 . _ - _1,366 1,222 s- ,exico t.. ~ .:,~ ~. ~ :; ~ a~ . ~ .. ~~~~ , M. s . ~r. - . _ ~ 1,286 -- ~ 1,177 ~= _ ~ _ 1,07,.1__ Worldwide net revenues $ 12,730 $ 11,885 $ 10,906 60 Net revenues in the U.S. were $8,901, $8,438 and $7,818 in 2006, 2005 and 2004, respectively. In 2006, 2005 and 2004, the Company did not have one individual customer that represented 10% of total revenues. Operating Income 2006 2005 2004 U:S & Canada ~ ,~_ ~,:. .:. _ a _: ~ $ . ~°849 $~ ,, 910 $' 860-°; Europe _ - _ 57 _..; M.,. a 3~ ,,, 54 .., Mexico ":~ ~ ~ ~ ,. 82 62 51 Worldwide operating income 988 ~ 1,007 ~ ~~ 965 liitecest expense- _" _ ~ ~ . ,-227. , 187 ~ 166 Interest Income 174 77 34 Other: non=operating expenses, :net ~~ ~ _ _ ~ _; _ ~ ~, ~- ~ 10 . ~ " 1 ~~': ~~ ~ ~ ~~ _ 1 Minority interest (income)/expense (2) 1 - r,~, Income`--before"incorrie-taxes-.:~., .y. ~ ..~ ~_ _ ~ _ ~~ ~._ ~ __. ~ :$ 927 ; $ ~ ~ '895 , ~. ~~$ _ ~ 832_. For the fiscal year ended 2006, operating income includes the impact of adopting SFAS 123R. The comparable period in 2005 has not been restated as described in Note 3. Total Assets Long-Lived Assets ~ 2006 2005 2004 2006 2005 20(14 U.S.--&~Canada _ :. ~~ _ ~ ~ . ;`. ,$,12;07.2 ; °_ "$ 11;090 $ 10,285 ~ $1.0,267 ~ °- .- ~$ .-9,544 :=" `~ $,~ 8;783.-- Europe 1,072 894 810 554 459 475 Mextco , -. ~. ~ >_.. "..~ 1.;811.:. ,~ 1;761 `" °~ 1,629" ~ 1;474 '~... ~_~1,478 ~` a 1,435 Worldwide total $ 14,955 $ 13,745 $ 12,724 $ 12,295 $ 11,481 $ 10,693 1 Long-lived assets represent Property, plant and equipment, other- intangible assets, goodwill and other assets. Long-lived assets in the U.S. were $9,224, $8,498 and $7,814 in 2006, 2005 and 2004, respectively. Capital Expenditures Depreciation and Amortization 2006 2005 2004 2006 2005 2004 U.S. & Canada" ;:: , $ :_`554... $ ..540. "' ,~$ 534: ;' _:$ 513 :.. "~. $ , : "_486..: $ " `463. Europe 99 96 82 52 63 56 Mexico, ~ .. ~ 68;,~"- :•~,~ ~;73..,,, ~. _ 72' ".~- ~:83~_ _ ~'~,81 ~ 74:~ Worldwide total $ 721 $ 709 $ 688 $ 648 $ 630 $ 593 Note 16-Related Party Transactions PepsiCo is considered a related party due to the nature of our franchise relationship and its ownership interest in our Company. PBG has entered into a number of agreements with PepsiCo. Although we are not a direct party to these contracts, as the principal operating subsidiary of PBG, we derive direct benefit from them. The most significant agreements that govern our relationship with PepsiCo consist of: (1) Master Bottling Agreement for cola beverages bearing the Pepsi-Cola and Pepsi trademarks in the United States; bottling agreements and distribution agreements for non-cola beverages; and a master fountain syrup agreement in the United States; (2) Agreements similar to the master bottling agreement and the non-cola agreement for each country in which we operate, as well as a fountain syrup agreement for Canada; (3) A shared services agreement where we obtain various services from PepsiCo and provide services to PepsiCo; and 61 (4) Transition agreements that provide certain indemnities to the parties, and provide for the allocation of tax and other assets, liabilities and obligations arising from periods prior to the initial public offering. 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. Additionally, we review our annual marketing, advertising, management and financial plans each year with PepsiCo for its approval. If we fail to submit these plans, or if we fail to carry them out in all material respects, PepsiCo can terminate our beverage agreements. If our beverage agreements with PepsiCo are terminated for this or for any other reason, it would have a material adverse effect on our business and financial results. The following income (expense) amounts are considered related party transactions as a result of our relationship with PepsiCo and its affiliates: 2006 2005 2004 Net reven ~ _ ,, _ , . r ~_ e .-., _ ues: , ~~ .. v ~ . - Bottler incentives (a) $ 67 $ 51 $ 22 ,.,. Cost of sales: Purchases of concentrate and finished products, and royalty fees (b) - ~ ~_ . - o..• ._ Bottler incentiv''es (a)_ _ __ ~, Selling';°delivery,.and-administrative expenses: Bottler incentives (a) Fountain service fee (c) , .... . . Frito-Lay purchases (d) Shared services (e); Shared services expense Shared services revenue , Net shared services $ (3,227).. $ (2_,993) ~ $ (2 741~)~ .. _ . ~ ~ 595 ~_ ~ ; 559. A:., X22 $ (2,632) ~ $ (2,434) $ (2,219) a ~ ~_ $ 69 $ 78 $~ 82 178= ..- - = ._ " , ~°-183 ~ .. ~ ~ 180. (198) (144) (75) (61) (69) (68) .. 8 _ _ '8 _ . 10. (53) (61) (58) ,_. ~ , : , $ (4) $ 79 $ 129 Income taz.benefit (g) ~. ~ ,:x -,~,,. ~ ,~, ~ - ~ -.. . , :_. x ~ $, 6 ~ ~ $~~~~; ~-3;, ~~,$~~ , l0 (a) Bottler Incentives and Other Arrangements - In order to promote PepsiCo beverages, PepsiCo, at its discretion, provides us with various forms of bottler incentives. These incentives cover a variety of initiatives, including direct marketplace support and advertising support. We record most of these incentives as an adjustment to cost of sales unless the incentive is for reimbursement of a specific, incremental and identifiable cost. Under these conditions, the incentive would be recorded as an offset against the related costs, either in revenue or selling, delivery and administrative expenses. Changes in our bottler incentives and funding levels could materially affect our business and financial results. (b) Purchase of Concentrate and Finished Product - As part of our franchise relationship, we purchase concentrate from PepsiCo, pay royalties and produce or distribute other products through various arrangements with PepsiCo or PepsiCo joint ventures. The prices we pay for concentrate, finished goods and royalties are determined by PepsiCo at its sole discretion. Concentrate prices are typically determined annually. In February 2006, PepsiCo increased the price of U.S. concentrate by two percent. PepsiCo has recently announced a further increase of approximately 3.7 percent, effective February 2007 in the United States. Significant changes in the amount we pay PepsiCo for concentrate, finished goods and royalties could materially affect our business and financial results. These amounts are reflected in cost of sales in our Consolidated Statements of Operations. 62 (c) Fountain Service Fee - We manufacture and distribute fountain products and provide fountain equipment service to PepsiCo customers in some territories in accordance with the Pepsi beverage agreements. Amounts received from PepsiCo for these transactions are offset by the cost to provide these services and are reflected in selling, delivery and administrative expenses in our Consolidated Statements of Operations. (d) Frito-Lay Purchases - We purchase snack food products from Frito-Lay, Inc. ("Frito"), a subsidiary of PepsiCo, for sale and distribution in Russia primarily to accommodate PepsiCo with the infrastructure of our distribution network. Frito would otherwise be required to source third-party distribution services to reach their customers in Russia. We make payments to PepsiCo for the cost of these snack products and retain a minimal net fee based on the gross sales price of the products. Payments for the purchase of snack products are reflected in selling, delivery and administrative expenses in our Consolidated Statements of Operations. (e) Shared Services - We provide to and receive various services from PepsiCo and PepsiCo affiliates pursuant to a shared services agreement and other arrangements. In the absence of these agreements, we would have to obtain such services on our own. We might not be able to obtain these services on terms, including cost, which are as favorable as those we receive from PepsiCo. Total expenses incurred and income generated is reflected in selling, delivery and administrative expenses in our Consolidated Statements of Operations. (f) High Fructose Corn Syrup ("HFCS") Settlement - On June 28, 2005, Bottling LLC and PepsiCo entered into a settlement agreement related to the allocation of certain proceeds from the settlement of the HFCS class action lawsuit. The lawsuit related to purchases of high fructose corn syrup by several companies, including bottling entities owned and operated by PepsiCo, during the period from July 1, 1991 to June 30, 1995 (the "Class Period"). Certain of the bottling entities owned by PepsiCo were transferred to PBG when PepsiCo formed PBG in 1999 (the "PepsiCo Bottling Entities"). Under the settlement agreement with PepsiCo, the Company ultimately received 45.8 percent (or approximately $23 million) of the total recovery related to HFCS purchases by PepsiCo Bottling Entities during the Class Period. Total proceeds are reflected in selling, delivery and administrative expenses in our Consolidated Statements of Operations. (g) Income Tax Benefit -Under our tax separation agreement with PepsiCo, PepsiCo maintains full control and absolute discretion for any combined or consolidated tax filings for tax periods ended on or before our initial public offering that occurred in March 1999. However, PepsiCo may not settle any issue without our written consent, which consent cannot be unreasonably withheld. PepsiCo has contractually agreed to act in good faith with respect to all tax examination matters affecting us. In accordance with the tax separation agreement, we will bear our allocable share of any risk or benefit resulting from the settlement of tax matters affecting us for these periods. Total settlements are recorded in income tax expense in our Consolidated Statements of Operations. We paid PepsiCo $1 million during 2004 for distribution rights relating to the SoBe brand in certain PBG-owned territories in the U.S. and Canada. We also entered into a capital lease arrangement for $25 million with PepsiCo to lease marketing equipment. The balance outstanding as of December 30, 2006, was $25 million, with $23 million recorded in our long-term debt and $2 million recorded in our current portion of long- term debt. There are certain manufacturing cooperatives whose assets, liabilities and results of operations are consolidated in our financial statements. Concentrate purchases from PepsiCo by these cooperatives for the years ended 2006, 2005 and 2004 were $72 million, $25 million and $27 million, respectively. As of December 30, 2006 and December 31, 2005, the receivables from PepsiCo and its affiliates were $168 million and $143 million, respectively. Our receivables from PepsiCo are shown as part of accounts receivable in our Consolidated Financial Statements. The payables to PepsiCo and its affiliates were $234 million and $176 million, respectively. Our payables to PepsiCo are shown as part of accounts payable and other current liabilities in our Consolidated Financial Statements. 63 PBG is considered a related party, as we are the principal operating subsidiary of PBG and we make up substantially all of the operations and assets of PBG. At December 30, 2006, PBG owned approximately 93.3% of our equity. We have loaned PBG $763 million and $436 million during 2006 and 2005, respectively, net of repayments. During 2006, these loans were made through a series of 1-year notes, with interest rates ranging from 5.0% to 5.9%. Total intercompany loans owed to us from PBG at December 30, 2006 and December 31, 2005, were $3,147 million and $2,384 million, respectively. The proceeds were used by PBG to pay for interest, taxes, dividends, share repurchases and acquisitions. Accrued interest receivable from PBG on these notes totaled $145 million and $70 million at December 30, 2006 and December 31, 2005, respectively, and is included in prepaid expenses and other current assets in our Consolidated Balance Sheets. Total interest income recognized in our Consolidated Statements of Operations relating to outstanding loans with PBG was $149 million, $71 million and $30 million, in 2006, 2005 and 2004, respectively. Beginning in 2002, PBG provides insurance and risk management services to us pursuant to a contractual agreement. Total premiums paid to PBG during 2006 and 2005 were $1 13 million and $106 million, respectively. On March 8, 1999, PBG issued $l billion of 7% senior notes due 2029, which are guaranteed by us. In March 2006, PBG entered into a new $450 million committed revolving credit facility ("2006 Agreement") which expires in March 2011 and increased their existing facility, which expires in April 2009, from $500 million to $550 million. PBG's combined committed credit facilities of $1 billion, which are guaranteed by us, support PBG's $1 billion commercial paper program. Subject to certain conditions stated in the 2006 Agreement, the Company may borrow, prepay and reborrow amounts, including issuing standby letters of credit up to $250 million, at any time during the term of the 2006 Agreement. Funds borrowed may be used for general corporate purposes, including supporting PBG's commercial paper program. At December 30, 2006, PBG had $115 million in outstanding commercial paper with aweighted-average interest rate of 5.4%. At December 31, 2005, PBG had $355 million in outstanding commercial paper with aweighted-average interest rate of 4.3%. We also guarantee that to the extent there is available cash, we will distribute pro rata to PBG and PepsiCo sufficient cash such that the aggregate cash distributed to PBG will enable PBG to pay its taxes and make interest payments on the $1 billion 7% senior notes due 2029. During 2006 and 2005, we made cash distributions to PBG and PepsiCo totaling $284 million and $181 million, respectively. Any amounts in excess of taxes and interest payments were used by PBG to repay loans to us. One of our managing directors is an employee of PepsiCo and the other managing directors and officers are employees of PBG. Note 17-Contingencies We are subject to various claims and contingencies related to lawsuits, taxes, environmental and other matters arising out of the normal course of business. We believe that the ultimate liability arising from such claims or contingencies, if any, in excess of amounts already recognized is not likely to have a material adverse effect on our results of operations, financial position or liquidity. 64 Note 18-Accumulated Other Comprehensive Loss The year-end balances related to each component of AOCL were as follows: 2006 Zoos moa Ne~ ..; ...ti . ,. tcurrency.,tr`anslation;adju"stment $ 7 $" ~ (19)`T $ (89),, Cash flow hedge adjustment ~~> 17 7 17 Mnimurti'pensiorrliability adjustment;` ° ~ ~ ~ ~_ ~ _ (33'5)- (383)r~ (375,) Adoption of SFAS 158 lz> (278) - Accurriulated other comprehensive loss• ,~ ti ~ " ~ ~~_ ~ ~~ ~._,. ` ~ ~ ~': _° $ (589) ~ ,;~a. ~ ~ $ ~ °(395) ~ •~ ~ ~~ a~ $-. (447) ~~~ Net of taxes of $(1) million in 2006, $2 million in 2005 and $0 million in 2004. «> Net of taxes of $4 million in 2006. See Note 13 in the Notes to Consolidated Financial Statements for further information on the adoption of SFAS 158. Note 19-Selected Quarterly Financial Data (unaudited) Firsl Secund Third Fourth 2006 ~~~ Quarter Quarter Quarter Quarter Full Year Netrevenues ~ .n ~ ,, ~ ~ ~ ~ ,$2,367. ~- -~ ~ $3,138- $3;460 ~~ "$3;765 $1'2,730 Gross profit 1,1 14 1,472 1,609 1,725 5,920 Operating incoriie-_" ~ LL l l9 ~ '_ -, 303 '. _ '; 381;. 185 - . ~ . ,; 988 , Net income 98 269 369 188 924 First Second Third Fourth 2005 ~~~ Quarter Quarter Quarter ~ Quarter ~ Full Year Net revenues ~=._ ~ __~_ ~__ -° - ...: ~ . _ , ...82,147 .,~ .:~ $2,862= ~... $3,214 ~ ~ °$3;662 ...- ~ m$1~1;885~ Gross rofit p __ . _ - 1,031 1,367 _ 1,519 . , 1,715 , 5,632 _ _ ,~ ~ (Jperating- tncome:: ~ _~ 119..~~_~~,-. - 293 ~ :' ~ ; : `392 . ~ m 203 ~ =1,007` Net income 88 252 355 176 871 tt~ For additional unaudited information see "items that affect historical or future comparability" in Management's Financial Review in Item 7. 65 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Owners of Bottling Group, LLC Somers, New York We have audited the accompanying consolidated balance sheets of Bottling Group, LLC and subsidiaries (the "Company") as of December 30, 2006 and December 31, 2005, and the related consolidated statements of operations, changes in owners' equity, and cash flows for the years [hen ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of the Company for the year ended December 25, 2004, before the effects of the retrospective adjustments to the disclosures for a change in the composition of reportable segments described in Note 15 to the financial statements, were audited by other auditors whose report, dated February 25, 2005, expressed an unqualified opinion on those statemenls. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such 2006 and 2005 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2006 and December 31, 2005, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 3 to the consolidated financial statements, in 2006 the Company adopted Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment," as revised, effective January 1, 2006. As discussed in Note 13 to the consolidated financial statements, in 2006 the Company adopted Statement on Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)," effective December 30, 2006 related to the requirement to recognize the funded status of a benefit plan. We also have audited the adjustments to the 2004 consolidated financial statements to retrospectively adjust the disclosures for a change in the composition of reportable segments during 2006, as discussed in Note 15 to the consolidated financial statements. Our procedures included (1) comparing the adjustment amounts of segment revenues, operating income and assets to the Company's underlying analysis obtained from management, and (2) testing the mathematical accuracy of the reconciliation of segment amounts to the consolidated financial statements. In our opinion, such retrospective adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2004 consolidated financial statements of the Company other than with respect to the retrospective adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2004 consolidated financial statements taken as a whole. /s/ Deloitte & Touche, LLP New York, New York February 27, 2007 66 Report of Independent Registered Public Accounting Firm Owners of Bottling Group, LLC: We have audited, before the effects of the change in Bottling Group, LLC's segmentation described in Note 15, the accompanying consolidated statements of operations, cash flows, and changes in owners' equity of Bottling Group, LLC and subsidiaries for the fiscal year ended December 25, 2004 (the fiscal 2004 financial statements before the effects of the change in segmentation discussed in Note 15 are not presented herein). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above, before the effects of the change in segmentation described in Note 15, present fairly, in all material respects, the results of operations and cash flows of Bottling Group, LLC and subsidiaries for the fiscal year ended December 25, 2004, in conformity with U.S. generally accepted accounting principles. We were not engaged to audit, review, or apply any procedures to the change in segmentation described in Note 15 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Deloitte and Touche LLP. /s/ KPMG LLP New York, New York February 25, 2005 67 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Included in Item 7, Management's Financial Review -Market Risks and Cautionary Statements. Item 8. Financial Statements and Supplementary Data Included in Item 7, Management's Financial Review -Financial Statements. PBG's Annual Report on Form 10-K for the fiscal year ended December 30, 2006 is attached hereto as Exhibit 99.1 as required by the Securities and Exchange Commission ("SEC") as a result of our guarantee of up to $1,000,000,000 aggregate principal amount of PBG's 7% Senior Notes due in 2029. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Bottling LLC's management carried out an evaluation, as required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), with the participation of our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of our disclosure controls and procedures, as of the end of our last fiscal quarter. Based upon this evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Annual Report on Form 10-K, such that the information relating to Bottling LLC and its consolidated subsidiaries required to be disclosed in our Exchange Act reports filed with the SEC (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to Bottling LLC's management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In addition, Bottling LLC's management carried out an evaluation, as required by Rule 13a-15(d) of the Exchange Act, with the participation of our Principal Executive Officer and our Principal Financial Officer, of changes in Bottling LLC's intemal control over financial reporting. Based on this evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 68 PART III Item 10. Directors, Executive Officers and Corporate Governance The name, age and background of each of Bottling LLC's Managing Directors is set forth below. There are no family relationships among our Managing Directors. Andrea L. Forster, 47, was appointed Managing Director of Bottling LLC in December 2006. She has also served as PBG's Vice President and Controller of PBG since September 2000. In September 2000, Ms. Forster was also named Corporate Compliance Officer for PBG. Following several years with Deloitte Haskins and Sells, Ms. Forster joined PepsiCo in 1987 as a Senior Analyst in External Reporting. She progressed through a number of positions in the accounting and reporting functions and, in 1998, was appointed Assistant Controller of the Pepsi-Cola Company. She was named Assistant Controller of PBG in 1999. Matthew M. McKenna, 56, is a Managing Director of Bottling LLC. He is also the Senior Vice President of Finance of PepsiCo. Previously he was Senior Vice President and Treasurer and before that, Senior Vice President, Taxes. Prior to joining PepsiCo in 1993 as Vice President, Taxes, he was a partner with the law firm of Winthrop, Stimson, Putnam & Roberts in New York. Steven M. Rapp, 53, is a Managing Director of Bottling LLC. He is also PBG's Senior Vice President, General Counsel and Secretary. Appointed to this position in January 2005, Mr. Rapp previously served as Vice President, Deputy General Counsel and Assistant Secretary from 1999 through 2004. Mr. Rapp joined PepsiCo as a corporate attorney in 1986 and was appointed Division Counsel of Pepsi-Cola Company in 1994. Pursuant to Item 401(b) of Regulation S-K, the requisite information pertaining to our executive officers is reported in Part I of this Report under the caption "Executive Officers of the Registrant." Executive Officers are elected by the Managing Directors of Bottling LLC, and their terms of office continue until their successors are appointed and qualified or until their earlier resignation or removal. Managing Directors are elected by a majority of members of Bottling LLC and their terms of office continue until their successors are appointed and qualified or until their earlier resignation or removal, death or disability. Bottling LLC has not adopted a Code of Ethics because PBG's Worldwide Code of Conduct applies to all of our officers and employees, including our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer. A copy of PBG's Worldwide Code of Conduct is available upon request without charge by writing to Bottling Group, LLC at One Pepsi Way, Somers, New York, ]0589, Attention: Investor Relations. Item 11. Executive Compensation Compensation Discussion and Analysis. This Compensation Discussion and Analysis ("CD&A") and the accompanying compensation tables and narratives provide information relating to the compensation and benefits provided by PBG to Bottling LLC's Principal Executive Officer and the other executive officers of Bottling LLC as of the end of PBG's 2006 fiscal year in accordance with the rules of the SEC. PBG is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages. PBG is a public company, having been spun off from PepsiCo in 1999, and has around 70,000 employees worldwide and over $12 billion in annual sales. We operate in seven countries, which are separated into three operating segments: United States & Canada, Mexico, and Europe (comprised of Greece, Russia, Spain, and Turkey). We work in a fast-paced industry under intense competition from other multi-national, as well as regional and local, beverage companies. We establish strategic plans to compete successfully in the marketplace, and our success depends on the ability of our employees to execute against these plans as they interact with customers every day. We, and many others external to our Company, measure our success by looking at PBG's year-over-year growth rates against key business measures, including profit, earnings per share, volume of product sold, and operating free cash flow. We also evaluate our success against less- formulaic, or qualitative, measures, such as strategic planning, organizational capabilities, and executive development. The leaders of our Company have a significant impact on our success and must possess the industry expertise and vision to establish strategic plans that ensure PBG's long-term growth and prosperity and the discipline to stay with those long-term plans in the face of short- term marketplace pressures. Our leaders must also have the industry knowledge and experience to create tools and processes that enable our frontline employees to win in the marketplace every day. We strive to develop and retain leaders with this industry-specific combination of skills and, as a result, we place great value on the experiences of our leadership team within PBG, the Pepsi-Cola system and our industry in general. PBG's 69 executive compensation program is designed to attract and retain the leaders we need to be successful and to motivate our leaders to achieve our key business objectives. Oversight of PBG's Executive Compensation Program PBG's executive compensation program is overseen by the Compensation and Management Development Committee of PBG's Board of Directors (the "Committee"), which is comprised solely of independent, non-management directors. Objectives of PBG's Executive Compensation Program The approach to PBG's executive compensation program has been consistent over the Company's history -the Committee, with the input of management, establishes the core objectives of the executive compensation program and the Committee is provided the tools, information and flexibility to satisfy those objectives in light of prevailing market trends, competitive pressures, regulatory changes, and company and individual considerations. The core objectives of the executive compensation program are to: Attract, retain and motivate key executives whose performance is critical to the Company's success by providing a total compensation program that is appropriately competitive within our industry and reinforces our short-term and long-term business objectives by; motivating and rewarding executives for achieving and exceeding our business objectives providing financial consequences to executives for failing to achieve our business objectives; and retaining key performers through meaningful wealth-creation opportunities. • Provide a program that is simple and straightforward so that our executives have a clear understanding of our business objectives and the results required to earn variable pay. • Align the interests of PBG shareholders, the Company, and our executives by placing particular emphasis on performance-based and equity-based compensation; • Maintain a financially responsible program that is appropriate within our financial structure and sensitive to the dilutive impact on PBG shareholders. • Establish and maintain our program in accordance with all applicable laws and regulations, as well as with corporate governance best practices. PBG achieves the above objectives through the use of various executive compensation elements that drive both short-term and long-term Company performance, deliver to our executives fixed pay as well as variable, performance-based pay, and provide significant personal exposure to PBG common stock. In 2006, these elements included base salary, an annual performance-based cash incentive (variable, short- term pay), long-term incentive awards in the form of stock options and restricted stock units (`RSUs") (variable, long-term pay), limited perquisites, and pension benefits. Executive Compensation Policies and Practices To implement the objectives set out above, the Committee has established several policies and practices that govern the design and structure of PBG's executive compensation program. 1. Process of Designing Executive Compensation Program Each year, the Committee reviews the PBG executive compensation program and establishes the target compensation level for its Chief Executive Officer who is also our Principal Executive Officer (the "CEO") and the other named executive officers who appear in the tables below and in the PBG Proxy Statement (collectively, the "Named Executive Officers"). For a description of this process, see "The Compensation and Management Development Committee" in PBG's Proxy Statement. 2. Target Compensation -Use of Peer Group Data In establishing the target total compensation for the Named Executive Officers, the Committee considers the competitive labor market, as determined by looking at PBG's peer group of companies and other compensation survey data. The Committee believes that the total compensation paid to executive officers generally should be targeted at the midpoint of the third quartile (i.e., the 50'h - 75~' percentile) of the total compensation paid to executive officers at companies within our peer group. PBG's peer group is made up of comparably sized companies, each of which is a PBG competitor, customer or peer from the consumer goods industry. PBG's total revenues approximate the median total revenues of the companies in the peer group. The peer group companies are generally world-class, industry leading companies with superior brands and/or products. The Committee, with the assistance of senior management and the Committee's independent compensation consultant, periodically reviews PBG's peer group, and the Committee views the peer group as an appropriate measure of the 70 competitive labor market for the Company's executives. In 2006, PBG's peer group included: _' BgscErCo anies, Inc: _ T,_ ~~ Buser ~~ , WP ~: .. - „ ",H.J.5Heinz ,Company ;_ _ _ ~. w _ . - Aramark Corporation Hershey Foods Corporation ~. . Campbell Soup Company-~ ~ - ~ -Kellogg Company Clorox Company, Inc. Kimberly-Clark Corporation . - _. Coca-ColaEnterprises Inc._ -_ p. ~ » M Pe siAmericas,-iuc..,, .s,.. ;_ "_ Colgate-Palmolive Company Sara Lee Corporation Dean,Foods .Company . ,.. Staples; `Inc, , ,.:°' ._ , . ` . _. FedEx Corporation Supervalu Inc. .. General 1Vl~ills, Inc,: ° _ - ~ =Yuni. Brands;=Inc. ~ = _ ~ -. - ~ ~ _ The Committee utilizes peer group data as the primary indicator of the market range of target compensation for each of the Named Executive Officers. For certain executives and with respect to certain elements of compensation, however, the Committee may also utilize other compensation survey data to establish the market range. Based on the peer group and other data, the Committee establishes the third quartile for total compensation, as well as for each element of direct compensation -base pay, annual incentive and long-term incentive. The Committee then establishes the midpoint of the third quartile as its "market target." The Committee, however, does not formulaically set the target compensation for the Named Executive Officers at the market target. In determining the appropriate target compensation for each executive, the Committee reviews each individual separately and considers a variety of factors in establishing his or her target compensation. These factors may include the executive's time in position, unique contribution or value to PBG, recent performance, and whether there is a particular need to strengthen the retention aspects of the executive's compensation. As to recent performance, the Committee, together with PBG's Nominating and Corporate Governance Committee, formally advises the Board on the annual individual performance of the CEO, and the Committee annually evaluates the performance of the other Named Executive Officers with the assistance of the CEO. Based on the individual's performance and the other factors considered by the Committee, the Committee may establish an executive's target compensation at a level which differs from the market target. 3. Ilse of Tally Sheets The Committee annually reviews a tally sheet of each Named Executive Officer's compensation. This tally sheet includes detailed data, as of the end of the prior fiscal year, for each of the following compensation elements and includes a narrative description of the material terms of any relevant plan, program or award: • Annual direct compensation: Information regarding base salary, annual incentive, and long-term incentive for the past three years; • Equity awards: Detailed chart of information regarding all PBG equity-based awards, whether vested, unvested, exercised or unexercised, including total pre-tax value to the executive and holdings relative to the executive's Stock Ownership Guidelines (see description below); • Perquisites: Line item summary showing the value of each perquisite as well as the value of the tax gross-up, if any; • Pension /Deferred Compensation: Value of pension plan benefit (qualified plan, non-qualified plan and total) and value of defined- contribution plan accounts (401(k) and deferred compensation), including the year-over-year change in value in those accounts; • Life Insurance Benefits (expressed as multiple of cash compensation as well as actual dollar value); • Description of all compensation and benefits payable upon a termination of employment. The Committee reviews the information presented in the tally sheet to ensure that it is fully informed of all the compensation and benefits the executive has received as a PBG employee. The Committee does not, however, specifically use the tally sheet in determining the executive's target compensation for a given year. 4. Fixed Versus Performance-Based Compensation The Committee believes that to appropriately motivate our senior executives to achieve our business objectives a majority of their compensation should be tied to the performance of the Company. Thus, the Committee places great emphasis on performance-based compensation and it links the level of payment of that compensation to the achievement of our business objectives. As a result of this link, for years where the Company achieves above-target performance, executives will be paid above-target compensation, and for years where the Company achieves below-target performance, executives will be paid below-target compensation. The Committee also believes that the more influence an executive has over Company performance, the more 71 the executive's compensation should be tied to our performance results. Therefore, in setting the target compensation for our executives, the Committee links the level of the executive and the percentage of his or her direct compensation that is performance-based. Thus, the more senior the executive, the greater the percentage of his or her direct compensation that is performance-based. When looking at the three principal elements of target compensation, the Committee views base salary as fixed pay (i.e., once established, it is not performance-based) and the annual incentive and long-term incentive as performance-based pay. With respect to PBG's equity-based, long-term incentive, the Committee views the market value of PBG common stock as the primary performance component. This is especially true in the case of stock options, which have no value to the executive unless the market value of PBG common stock goes up after the grant date. In the case of other equity-based awards, such as RSUs, that have value to the executive even if the market value of PBG common stock goes down after the grant date, the Committee may include a second performance component - a specific performance target - that must be satisfied in order to vest in the award. The forms of equity-based awards utilized under the program are discussed in greater detail below in "Form of Equity-Based Compensation." For 2006, the percentage of performance-based pay within the target total compensation of our senior executives ranged from around 90% for the CEO to around 70-80% for the other Named Executive Officers and around 50-65% for vice presidents. 5. Performance Targets Consistent with the objectives of PBG's program, the Committee utilizes the performance-based elements of the program to reinforce our short-term and long-term business objectives and to align shareholder and executive interests. As a result, in selecting the criteria on which to base the performance targets underlying our short-term and long-term incentive pay, the Committee chooses criteria that are leading indicators of our success, important to PBG shareholders and external market professionals, and relevant to our executives whose performance we strive to motivate towards the achievement of the particular targets. For our business and industry, the Committee believes the most relevant criteria on which to evaluate our success are PBG's profit, earnings per share ("EPS"), volume of product sold, and operating free cash flow (as defined in PBG's earnings releases). The Committee views EPS as the best composite indicator of PBG's operational performance. The Committee therefore emphasizes EPS in establishing performance targets for the Named Executive Officers. In evaluating the Company's performance against such EPS targets, however, the Committee considers the impact of unusual events on the Company's reported EPS results (e.g., acquisitions, changes in accounting practices, etc.) and may adjust the results for purposes of determining the extent to which the EPS targets were or were not achieved. Short-Term Incentive. Under PBG's short-term incentive program, the Committee establishes performance targets that are designed to motivate executives to achieve short-term business targets. Therefore, for the executives leading our geographic business units, the Committee links the payment of the executives' annual bonus to PBG's achievement of year-over-year profit and volume growth targets, which are set at levels specifically chosen for each geographic territory. The Committee believes tying these executives' annual bonuses to local profit and volume growth is the best way to motivate executives to achieve business success within the regions they manage. For Named Executive Officers, the Committee establishes a table of EPS targets that, depending on the level of EPS achieved by PBG during the year, establishes the maximum bonus payable to each executive for that year. No bonus is payable if EPS is below a certain level. The Committee then uses its discretion to determine the actual bonus paid to each executive, which is never greater, and is typically much less, than the maximum bonus payable. In exercising this discretion, the Committee refers to a separately established EPS target, as well as volume and operating free cash flow targets, which the Committee establishes at the beginning of the year. These targets are consistent with PBG's EPS, volume and operating free cash flow guidance provided to external market professionals at the beginning of the year. For the CEO in particular, the Committee's discretion is also guided by reference to certain qualitative performance targets (often related to strategic planning, organizational capabilities and/or executive development). Notably, in establishing the actual bonus paid (within the limit of the maximum bonus payable), the Committee refers to the above quantitative and qualitative factors, but reserves the right to pay a bonus at the level it deems appropriate based on the performance of the Company and each executive. The targets established by the Committee with respect to the 2006 bonus are described in the narrative to the Summary Compensation Table below. Long-Term Incentive. The Committee provides along-term incentive in the form of an equity-based award because it believes the price of PBG common stock is a strong indicator of whether PBG is meeting its long-term objectives. The Committee therefore believes it important that each executive, in particular our senior executives, have personal financial exposure to the performance of PBG common stock. Such exposure results in a link between shareholder and executive interests and motivates our executives to achieve and sustain the long-term growth of PBG. As a way of ensuring our executives remain motivated, the Committee does not provide for immediate vesting of our long-term incentive. Instead, consistent with the three-year time frame with respect to which we establish our strategic plans, the Committee typically provides for athree-year vesting period for equity-based awards. Executives must 72 remain an employee of the Company through the vesting date to vest in the award. For equity-based awards that have no value to the executive on the grant date, such as stock options, the Committee typically provides for staged vesting of such awards over the three-year vesting period (e.g., one-third vesting each year). For equity-based awards that have value to the executive on the grant date, such as RSUs, the Committee typically provides for vesting of the award only at the end of the three-year period. For awards to our Named Executive Officers that have actual value on the grant date (such as RSUs), the Committee may also establish an EPS performance target for the year in which the award is granted. The achievement of this EPS target is a prerequisite to vesting in the award at the end of the three-year vesting period. The Committee believes such an additional performance element is appropriate to ensure that the executives do not obtain significant compensation if the performance of the Company in the year of grant is significantly below our EPS target. As the long-term incentive is designed to reinforce our long-term business objectives, however, the Committee typically establishes this one-year EPS performance target at a lower level than PBG's external guidance. The Committee does so to ensure that executives only lose the RSUs granted in that year if the Company misses its EPS targets to such an extent as to indicate that a performance issue exists that is unlikely to be resolved in the near term. The implementation of this additional EPS performance target also assists to ensure that the compensation paid through the long-term incentive is deductible to the Company (see "Deductibility of Compensation Expenses" below). 6. Cash Versus Equity-Based Compensation PBG designs the executive compensation program to provide a mix of cash and equity-based compensation to our executives and views the combination of cash and equity-based compensation as an important tool to assist us in achieving the objectives of the program. PBG pays base salary in cash so that our executives have a steady, liquid source of compensation. To remain focused on their day-to-day job responsibilities, executives (and all employees) need to know that they will receive a fixed, reliable level of compensation, which will be available to pay day-to-day living expenses. PBG pays the annual incentive in cash because our annual incentive is tied to the achievement of our short-term (i.e., annual) business objectives, and PBG believes a cash bonus is the strongest way to motivate the achievement of these objectives. Cash is immediate in its recognition of a job well done as it has immediate value and liquidity and is not dependent upon future performance of the Company. Finally, PBG pays the long-term incentive in the form of PBG equity because our lonb term incentive is tied to our long-term business objectives, and PBG believes the market value of PBG equity is a strong indicator of whether PBG is achieving its long-term business objectives. In particular, the Committee is committed to paying a significant portion of executive compensation in the form of PBG equity because it believes equity is the most effective form of compensation to ensure alignment between the interests of our executives and those of PBG's shareholders. The Committee is deliberate, however, in its use of equity compensation to avoid an inappropriate dilution of PBG's current shareholders. The Committee periodically reviews the mix of cash and equity-based compensation provided under the program to ensure that the mix is appropriate in light of market trends and the Company's primary business objectives. The Committee undertook such a review in late 2005. Following this review, the Committee concluded that the executive compensation program was modestly over-weighted towards the equity- based element of the program when compared to the PBG peer group companies and the market in general. As a result, beginning in 2006, the Committee shifted some of the value provided under the program from the long-term incentive element to the annual incentive element. This shift was applied to all levels of executives. The Committee viewed this mix shift as a way to reemphasize our annual business objectives and to keep the program in line with the market. The Committee did not reduce the total value of the program. For 2006, the percentage of equity-based pay within the target total compensation of our senior executives ranged from over 60% for the CEO to around 50% for the other Named Executive Officers and around 40% for vice presidents. 7. Form of Equity-Based Compensation Under the program, each executive annually receives an equity-based, long-term incentive award. PBG's shareholder-approved Amended and Restated 2004 Long-Term Incentive Plan (the "LTIP") authorizes the Committee to grant equity-based awards in various forms, including stock options, restricted stock, and RSUs. The Committee selects the form of equity award based on its determination as to which form most effectively achieves the objectives of our program. While the amount of the award varies based on the level of executive, the form of the award has historically been the same for all company executives regardless of level. 2006 Change in Form of Award. Prior to 2006, PBG exclusively used stock options as the form of the annual long-term incentive award. PBG's use of stock options at that time was generally consistent with its peer group companies and the market. Beginning in 2006, the Committee changed [he form of the annual equity-based award from 100% stock options to 50% stock options and 50% RSUs. The Committee made this change primarily as a result of its analysis of market practice. The Committee found that, by 2005, PBG's peer companies and many companies in the market had begun to shift 73 away from the exclusive use of stock options to either exclusive or partial use of restricted stock or RSUs. The Committee believed that several of the reasons underlying this market shift also applied to PBG, including the following: 1. SFAS 123R. PBG was required to adopt the Statement of Financial Accounting Standard No. 123R, Share Based Payment ("SFAS 123R") at the start of 2006. Under SFAS 123R, PBG records as a charge to its earnings the fair value of any equity-based award, including, for the first time, stock options. The fair value of a stock option award is measured on the grant date of the award based on a compensation valuation methodology that ascribes a theoretical grant-date value to such options, even though from the executive's perspective, the options have no actual value unless the price of the underlying stock goes up and the executive vests in the award. Because the expense related to stock options is based on the theoretical value of the options on the grant date, if the price of the underlying stock does not rise after the grant date, a company would be in the undesirable position of having recorded a charge to earnings despite the fact that the executive who received the options realized no actual compensation from the options. As a result of the impact of SFAS 123R, many of PBG's peer.companies greatly reduced or eliminated their use of stock options. Similarly, while PBG believes that the price of PBG common stock will likely rise over the long-term, the Committee decided that, given the impact of SFAS 123R and in light of the market's response thereto, the exclusive use of stock options was not the most appropriate approach for PBG in 2006. 2. Dilutive Impact. The Committee reviewed market practice in light of the increasing attention given to companies' annual share utilization (or run rate) and overhang.' The Committee found that certain of PBG's peer companies, as well as the market in general, were reducing their use of stock options, in part, in an effort to reduce their run rate and, over time, their overhang. In selecting the form of equity- based award for the 2006 executive compensation program, the Committee therefore analyzed and considered the impact of various forms on the Company's run rate and overhang. The Committee found that, for PBG, stock options utilize approximately three times the number oi' shares as restricted stock/RSUs and, like other companies, the exclusive use of stock options has a greater adverse impact on run rate. In addition, unlike RSUs, which under the program are satisfied through the issuance of shares on the vesting date, stock options can remain outstanding for their entire ten-year term. Thus, stock options have a prolonged adverse impact on overhang as compared to RSUs. Due to the greater adverse impact that stock options have on PBG's run rate and overhang, the Committee believed that, to stay in line with the market, it was appropriate to reduce the use of stock options. The Committee then considered various forms of equity-based awards as a replacement for all or a part of the stock options. The Committee focused its consideration on restricted stock and RSUs based on an analysis of market trends as well as their respective tax, accounting and share usage characteristics. The Committee concluded that RSUs were the more appropriate form of equity-based award. The Committee then determined that a mix of forms would be appropriate and determined to modify the annual long-term incentive award to the form of 50% stock options and 50% RSUs. The Committee believes that, for 2006 and likely the next few years, this mix of forms is the most appropriate approach for the Company because of the balanced impact this mix has when viewed in light of several of the objectives of PBG's executive compensation program, including motivating and retaining ahigh-performing executive population, aligning the interests of shareholders and executives, and creating a program that is financially appropriate for PBG. 8. Equity Award Grant Practices PBG has a consistent practice with respect to the granting of stock options and other equity-based awards, which the Committee established early in PBG's history and which belies any concern regarding the timing or pricing of such awards, in particular stock options. Timing of Grants. Executives receive equity-based awards under three scenarios. First, as discussed above, all executives annually receive an award, which has always been comprised, entirely or in part, of stock options. Under the Company's long-established practice, the Committee approves this annual award at its first meeting of the calendar year (around February 1), and establishes the grant date of the award as March 1.Other than with respect to PBG's first year of operations following its initial public offering, March 1 has been the fixed grant date for our annual equity-based award. March 1 was selected because it aligns with several other PBG human resources processes for all employees, including the end of the annual performance review process and the effectiveness of base salary increases. Second, individuals who become an executive of the Company for the first time within six months after the March 1 date are eligible for an award equal to 50% of the annual award. This pro-rated award is granted to all new executives on the same, fixed date of September 1. Finally, senior executives may, on rare occasion, receive an additional equity-based award when they are first hired by the Company, when they are promoted to a new position, or when there is a special consideration related to an executive that the Committee seeks to address. In all cases of these awards, the grant date occurs after the award is approved. Run rate is generally a measure of the number of shares underlying equity-based awards granted to employees in a given year as a percentage of the number of shares issued and outstanding as of the end of such year. Overhang is generally a measure of the number of shares authorized to be issued pursuant to employee awards, whether outstanding or to be granted in the future ("Plan Shares"), as a percentage of the number of shares issued and outstanding at a given point in time plus the Plan Shares. 74 Pricing of Stock Options. Throughout the Company's history, the exercise price of stock options has been equal to the fair market value of PBG common stock on the grant date. PBG has never repriced stock options. Under the LTIP, Fair Market Value is defined as the average of the high and low sales prices of PBG common stock as recorded on the New York Stock Exchange ("NYSE") on the grant date, rounded up to the nearest penny. SEC regulations governing the content of the tables that appear below establish the closing price of PBG common stock on the grant date as the indicator of Fair Market Value and require companies to include an additional column to the table entitled Grants of Plan-Based Awards in Fiscal Year 2006 if the closing price is higher than the exercise price. Because PBG's methodology is different than that selected by the SEC (i.e., we use the average price on the grant date), the closing price on March 1, one of the two days on which the Committee granted options to Named Executive Officers in 2006, was slightly higher than the exercise price of the options granted on that date. For the other day, July 24, the closing price was lower than the exercise price. We have included information regarding the different prices on both grant dates in the table that appears below. The Committee believes its stock option pricing methodology is an accurate representation of the Fair Market Value of PBG common stock on the grant date. While the Committee has not approved any change to this methodology, the Committee will continue to monitor market practice in light of the SEC's regulations that identify closing price as the proxy for fair market value of the underlying stock on the grant date. 9. Perquisites PBG has a practice of providing senior executives with limited perquisites, which is consistent with its policy of ensuring that a majority of senior executives' pay is performance-based. The value of the perquisites provided to each Named Executive Officer is indicated in the footnotes to the Summary Compensation Table below. Certain perquisites provided to our senior executives are services or benefits designed to ensure that executives are fully focused on their responsibilities to the Company. For example, PBG makes annual physicals available to our senior executives so that they can efficiently address this important personal issue and, therefore, maximize their productivity at work. Other perquisites, such as our Company car program, simply represent a Company choice on how to deliver fixed pay to our executives. PBG also provides certain specific perquisites to senior executives who move to and work in international locations. Such perquisites are provided based on local and competitive practices. Perquisites such as security and housing allowances are typical in the international marketplace and are designed to ensure that the executive maintains a standard of living consistent with that of his or her home country and to encourage executives to accept the position and live within the market in which they work. For certain perquisites, the Company reimburses (or "grosses-up") the executive for the tax liability resulting from the income imputed to the executive in connection with the perquisite. PBG does so because it does not want the provision of such perquisites to result in a financial penalty to the executive and potentially discourage the executive from taking advantage of the perquisite. Thus, for example, PBG grosses-up an executive with respect to his or her annual physical. PBG does not, however, gross-up perquisites with respect to which the Company does not have an interest in encouraging, such as our executives' limited personal use of corporate transportation. 10. Stock Ownership Guidelines To achieve the program objective of aligning shareholder and executive interests, the Committee believes that our business leaders must have significant personal financial exposure to PBG common stock. The Committee, therefore, has established stock ownership guidelines for the Company's key senior executives and directors. These guidelines are described in PBG's Proxy Statement. 11. Trading Windows /Hedging PBG restricts the ability of certain employees to freely trade in PBG common stock because of their periodic access to material non- public information regarding PBG. As discussed in the Corporate Governance section of PBG's Proxy Statement, under the PBG Insider Trading Policy, all of our key executives (including the Named Executive Officers) are permitted to purchase and sell PBG common stock and exercise PBG stock options only during limited quarterly trading windows. In addition, under the PBG Worldwide Code of Conduct, all employees, including our Named Executive Officers, are prohibited from hedging against or speculating in the potential changes in the value of PBG common stock. 12. Compensation Recovery for Misconduct We believe our executives and, in particular, our senior executives conduct PBG business with the highest integrity and in full compliance with the PBG Worldwide Code of Conduct. Each executive annually certifies to his or her compliance with the Code of Conduct, and PBG maintains an internal, online training program for executives with respect to various aspects of the Code of Conduct. The Committee nevertheless believes it appropriate to ensure that PBG's compensation plans and agreements provide for financial penalties to an executive who engages in fraudulent or other inappropriate conduct. Therefore, the 75 Committee has included as a term of all equity-based awards that in the event the Committee determines that an executive has engaged in "Misconduct" (which is defined in the LTIP to include, among other things, a violation of the Code of Conduct), then all of the executive's then outstanding equity-based awards shall be immediately forfeited and the Committee, in its discretion, may require the executive to repay to the Company all gains realized by the executive in connection with any PBG equity-based award (e.g., through option exercises or the vesting of RSUs) during the twelve-month period preceding the date the Misconduct occurred. This latter concept of repayment is commonly referred to as a "claw back" provision. As a majority of the compensation paid to an executive at the vice president level or higher is equity-based, the Committee believes our approach to compensation recovery through the LTIP is the most direct and appropriate for PBG. 13. Employment /Severance Agreements Neither our CEO nor any other Named Executive Officer has (or ever has had) an individual employment or severance agreement with the Company entitling him to base salary, cash bonus, perquisites, or new equity grants following termination of employment. Indeed, as a matter of policy and practice, PBG does not generally enter into any individual agreements with executives. There are limited exceptions to this policy. First, in connection with the involuntary termination of an executive, the Company has, in light of the circu-nstances of the specific situation, entered into appropriate severance or settlement agreements. Second, in the case of an executive's retirement, the Company has, on rare occasion, entered into ashort-term consulting arrangement with the retired executive to ensure a proper transfer of the business knowledge the retired executive possesses. Finally, PBG's standard long-term incentive award agreement that applies to all executives typically provides for the accelerated vesting of outstanding, unvested awards in the case of the executive's death, disability or retirement. With respect to our CEO and other Named Executive Officers, the value of these benefits is summarized in the table below entitled Potential Payments Upon Termination or Change in Control. 14. Approved Transfers To/From PepsiCo PBG maintains a policy intended to facilitate the transfer of employees between PBG and PepsiCo. The two companies may, on a limited and mutually agreed basis, exchange employees who are considered necessary or useful to the other's business ("Approved Transfers"). Certain of PBG's benefit and compensation programs (as well as PepsiCo's) are designed to prevent an Approved Transfer's loss of compensation and benefits that would otherwise occur upon termination of his or her employment from the transferring company. For example, at the receiving company, Approved Transfers receive pension plan service credit for all years of service with the transferring company. Also, upon transfer, Approved Transfers vest in their transferring company equity awards rather than forfeit them as would otherwise be the case upon a termination of employment. One of our Named Executive Officers, Mr. Drewes, was an Approved Transfer from PepsiCo. As discussed in the footnotes to the Pension Benefits Table below, Mr. Drewes is eligible for pension benefits attributable to his service at PepsiCo prior to transfer. The Potential Payments Upon Termination of Employment or Change In Control section below sets forth in more detail the various compensation and benefits available to Approved Transfers. 15. Change in Control Protections PBG was spun off from PepsiCo in 1999, and PepsiCo holds approximately 44% of the voting power of PBG common stock. In addition, our authority to make, sell and deliver Pepsi-Cola products is governed by PBG's Master Bottling Agreement with PepsiCo. If this agreement was terminated, we would lose the ability to sell Pepsi-Cola products. The Master Bottling Agreement explicitly provides that PepsiCo may terminate the agreement in the event that, without PepsiCo's consent, any person or entity acquires more than 15% of PBG's common stock or PBG disposes of substantially all of its bottling assets. As such, an acquisition of PBG can only practically occur with PepsiCo's consent. Given this protection against anon-PepsiCo approved acquisition, the only change in control protection provided through the PBG executive compensation program is a term of the LTIP, which provides for the accelerated vesting of all outstanding, unvested equity-based awards at the time of a change in control of PBG. Given the important relationship PBG has with PepsiCo, the definition of change in control under the LTIP includes, among several other events, the acquisition by any person or entity of 20% or more of PepsiCo's outstanding voting securities. The Committee believes the protection under the LTIP is appropriate to motivate executives to remain with PBG in the unlikely event there arises a possibility of PBG's change in control. With respect to our CEO and other Named Executive Officers, the value of the change in control benefits provided under the LTIP is summarized in the section below entitled Potential Payments Upon Termination or Change in Control. The Company does not gross-up any executive for potential excise taxes that may be incurred in connection with a change in control. 16. Deductibility of Compensation Expenses Pursuant to Section 162(m) of the Internal Revenue Code, certain compensation paid to the CEO and other Named Executive Officers in excess of $1 million is not tax deductible, except to the extent such excess compensation is performance-based. The Committee has and will continue to carefully consider the impact of Section 162(m) when 76 establishing the target compensation for executive officers. For 2006, we believe that substantially all of the compensation paid to our executive officers satisfies the requirements for deductibility under Section 162(m). As one of PBG's primary program objectives, however, the Committee seeks to design the executive compensation program in a manner that furthers the best interests of the Company and PBG's shareholders. In certain cases, the Committee may determine that the amount of tax deductions lost is insignificant when compared to the potential opportunity a compensation program provides for creating shareholder value. The Committee therefore retains the ability to pay appropriate compensation to our executive officers, even if some of such compensation is non-deductible. Executive Compensation Elements 1. Base Salary Under PBG's executive compensation program, the Company's budget for base salary merit raises in 2006 was consistent with the marker and our industry. In accordance with our practices with respect to individual raises, the level of merit increase in the base salary for each Named Executive Officer in 2006 took into consideration the performance of the Company and the executive, any increase in the executive's responsibilities, and an analysis of whether the executive's base salary was within the third quartile of PBG's peer group. The base salary paid to each Named Executive Officer is set forth below in the Summary Compensation Table. 2. Annual Non-Equity Incentive Award The Committee established the 2006 annual incentive targets for our executives in February 2006. Maximum /Target Award Amounts. With respect to our Named Executive Officers, the Committee established specific EPS goals to determine the maximum bonus payable to each individual for purposes of Section 162(m). The Committee, in consultation with its independent compensation consultant, then established a specific annual incentive target award for each Named Executive Officer in order to guide the Committee's negative discretion with respect to the actual bonus paid to each executive. Each target award was expressed as a percentage of the executive's base salary and is set out in the narrative to the Summary Compensation Table and Grant of Plan-Based Awards Table. Consistent with the Committee's decision to reallocate some of the value provided under the compensation program from equity-based awards to cash-based awards (see "Executive Compensation Policies and Practices: Cash Versus Equity-Based Compensation" above), the Committee in 2006 increased by ten percent the annual incentive target awards that had been in effect for 2005 for Messrs. Cahill and Drewes and Ms. Forster. The Committee determined to keep Mr. Foss' 2006 annual incentive target at the same level as his 2005 target in light of the Committee's review of market data for positions similar to Mr. Foss'. The Committee later approved increased target awards for Mr. Foss in connection with his mid-year promotion. The Committee determined that the increase properly reflected Mr. Foss' increased responsibilities. The Committee, however, implemented the increase prospectively such that Mr. Foss' full-year target represented a blended target calculated based on the targets applicable in each his prior and new positions. Performance Goals. To further guide the Committee's discretion as to the actual bonus paid to the Named Executive Officers, the Committee established quantitative performance targets based on EPS, volume of product sold and operating free cash flow. The specific targets are set out in the narrative to the Summary Compensation Table and Grant of Plan-Based Awards Table and are consistent with the guidance PBG provided to the external market at the start of 2006. In approving the actual bonus paid to Mr. Cahill, the Committee also determined in February 2006 to consider performance against certain qualitative factors, including organizational capability, strategic long term growth and a strengthened senior leadership team. Actual Awards. In February 2007, the Committee determined that PBG's EPS performance in 2006 resulted in a maximum bonus of $5 million payable to each Named Executive Officer under Section 162(m). The Committee then reviewed PBG's 2006 performance against the pre-established EPS, volume and operating free cash flow targets, which the Committee uses to guide its negative discretion in determining the actual bonus payable to each senior executive. The Committee concluded that PBG had performed above target with respect to each performance criterion and, as a result, determined to pay each senior executive, other than Mr. Cahill, a bonus equal to 125% of the executive's individual target award. The Committee believed this percentage reflected the Company's 2006 performance and was consistent with its policy to pay above-target compensation in years where the Company has above-target performance. With respect to Mr. Cahill, the Committee determined not to exercise its negative discretion and to award Mr. Cahill the maximum bonus of $5 million. While in every instance of the Company's history, the Committee has utilized its negative discretion to pay an amount that is significantly less than the maximum bonus amount, the Committee determined that Mr. Cahill's exceptional efforts and success in planning for and ensuring a smooth and effective transition of his CEO responsibilities warranted the bonus payment. 3. Long-Term Incentive Consistent with its established practice, the Committee approved the 20061ong-term incentive awards for each of our Named Executive Officers after reviewing comparative market data for both total compensation and long-term 77 incentives. The Committee also implemented its decision to reduce the value of the long-term incentive and increase the value of the annual incentive targets for 2006 (see "Executive Compensation Policies and Practices: Cash Versus Equity-Based Compensation" above). As a result, the 2006 long-term incentive awards granted to our Named Executive Officers were, on average, less than the 2005 awards. When included with the base salary and annual incentive increases, however, the total compensation for our Named Executive Officers was increased by around 3.5°Io, which was in line with the base salary raises for all Company employees as well as the market for total compensation paid to senior executives. The 2006 awards to our Named Executive Officers included the same terms and conditions as the awards to all other executives, except that consistent with its practice (see "Executive Compensation Policies and Practices: Performance Targets" above) the Committee made the vesting of the RSU award granted to our Named Executive Officers subject to the achievement of a 2006 EPS performance target. In February 2007, the Committee determined that the 2006 EPS target had been satisfied, such that each Named Executive Officer will vest in his 20061ong-teen incentive award if he remains employed by the Company through March 1, 2009. The terms and conditions of the long-term incentive awards, as well as the 2006 EPS target, are set out in the narrative to the Summary Compensation Table and Grant of Plan-Based Awards Table. Mr. Foss' July 2006 Stock Oxon Award. In connection with his promotion to President and CEO of PBG in July 2006, the Committee determined to award Mr. Foss a special stock option award. The Committee believed the award was an important way to recognize the Board's confidence in Mr. Foss' future contributions as President and CEO and to strengthen the retentive nature of Mr. Foss' long-term incentive compensation. The award was also consistent with PBG's past practice with respect to senior-level promotions as well as market practice. Notwithstanding the Committee's practice of establishing the grant date of an equity-based award to anewly-promoted executive as the effective date of the promotion, the Committee, upon recommendation of its independent compensation consultant, granted the stock options to Mr. Foss on July 24, 2006, two trading days following the effective date of his being promoted to CEO. PBG issued a press release on July 20, 2006 announcing its change in CEO from Mr. Cahill to Mr. Foss. Due to the significance of this announcement, the Committee decided to postpone for two trading days the grant date of Mr. Foss' stock option award so that the grant price of the options was established only after any impact of the announcement was reflected in the market value of PBG stock. The Fair Market Value of PBG common stock on the date of the announcement was $34.00 and on the grant date was $33.77. 4. Perquisites In 2006, limited perquisites were provided to our Named Executive Officers, consistent with the Company practice described above under "Executive Compensation Policies and Practices: Perquisites." These perquisites are described in the footnotes to the Summary Compensation Table. 5. Pension PBG maintains a qualified defined benefit pension plan for essentially all U.S. employees hired before 2007 and anon-qualified defined benefit pension plan (the "Excess Plan") for such employees with annual compensation or pension benefits in excess of the limits imposed by the IRS. The Excess Plan provides for a benefit under the same benefit formula as provided under the qualified plan, but without regard to the IRS limits. The terms of these plans are essentially the same for all participating employees and are described in the narrative to the Pension Benefits Table. Our Named Executive Officers participate in these plans. The Company does not provide any special pension plan formulas or provisions specifically for our Named Executive Officers. 6.401(k) /Non-Qualified Deferred Compensation In 2006, our Named Executive Officers participated in the same PBG 401(k) program as provided to other U.S. employees. The Company did not provide any specia1401(k) benefits to our Named Executive Officers. PBG also maintains an Executive Income Deferral Program (the "Deferral Program"), through which all Company executives paid in U.S. dollars, including the Named Executive Officers, may elect to defer all or part of their base salaries and/or their annual cash bonus. PBG makes the Deferral Program available to executives so they have the opportunity to defer all or a portion of their cash compensation without regard to the limit imposed by the IRS for amounts that may be deferred under the 401(k) plan. The material terms of the Deferral Program are described below in the narrative to the Nonqualified Deferred Compensation Table. 78 2006 SUMMARY COMPENSATION TABLE Change in Pension Value and Nonqualified Non-Equity Deferred Stock Option Incentive Plan Compensation All Other Salary Awards Awards Compensation Earnings Compensation Total Name and Principal Position Year ($) ($)~~~ ($)~~~ ($)~~~ ($)~3j ($)~4j t$1 John T. Cahill«? ~ - ~ ~~ ~ ,: ~ =- ~- ~_ ~ a ~ '. °,'~Principal~Execuhve _ ~ _ .~< a. ,_ ,, Officer>, ~,~ ~~~ _ ~ ;;. ,_,2006,°~ $1;025,000t6~ $3 368;536 '$4;941,055 ,$5,000,000~?> ,',$660,000 ~ ° ~$77;708~s? _ , ~ $15,072,299 Eric J. Foss~yt Principal Executive Officer 2006 754,500 975,979 2,025,066 1,289,000 387,000 64,513~~~> 5,496,058 Alfred;H.'Diewes ~ , ~ ` ' .Principal Financial ~ .. ~ - ~ - . ~, Officer, ~_ ~ 2006., `-=42.5,385,- 139,141 899;853 456,150,x- 180,000 _ ~69;442i~»; .. ~,2,169,97~1 Andrea L. Forster Principal Accounting Officer 2006 262,692 80,010 399,663 214,980 65,000 29,436~1'-> 1,051,781 1. The amount included in this column is the compensation cost recognized by PBG in fiscal year 2006 related to the executive's outstanding equity awards that were unvested for all or any part of 2006, calculated in accordance with SFAS 123R without regard to forfeiture estimates. This amount encompasses equity awards that were granted in 2001, 2003, 2004, 2005 and 2006 and was determined using the assumptions set forth in Note 4, Share-Based Compensation, to PBG's Annual Report on Form 10-K for the fiscal year ended December 30, 2006 (for 2006, 2005 and 2004 awards) and Note 1 l ,Employee Stock Option Plans, to PBG's Annual Repor[ on Form ] 0- K for the fiscal year ended December 27, 2003 (for 2003 and 2001 awards). 2. In past years, these amounts were reflected in a "Bonus" column of PBG's Summary Compensation Table. 3. This amount reflects the aggregate change in 2006 in the actuarial present value of the executive's accumulated benefit under all PBG- sponsored defined benefit pension plans in which the executive participates calculated based on the material assumptions set forth in Note 14, Pension and Postretirement Medical Benefit Plans, to PBG's Annual Report on Form 10-K for the fiscal year ended December 30, 2006 and Note 12, Pension Postretirement Medical Benefit Plans, to PBG's Annual Report on Form 10-K for the fiscal year ended December 31, 2005. 4.. PBG purchases club memberships, season tickets and passes to various sporting events and other venues for purposes of business entertainment. On limited occasions, one or more of the Named Executive Officers (as well as other employees of the Company) may use such memberships, tickets or passes for personal use. There is no incremental cost [o the Company in such circumstances. Therefore, no cost of such memberships, tickets and passes is reflected in the "All Other Compensation" column. 5. Mr. Cahill relinquished his position as Bottling LLC's Principal Executive Officer effective July 20, 2006. 6. The amount of Mr. Cahill's salary in excess of $1,000,000 ($25,000) was made subject to mandatory deferral under the PBG Executive Income Deferral Program until his termination of employment. 7. As more fully described in the CD&A and footnote 4 to the Grants of Plan-Based Awards Table and the accompanying narrative, the Committee awarded this bonus amount to Mr. Cahill in recognition of his exceptional efforts and success in planning for and ensuring a smooth and effective transition of his CEO responsibilities. While this bonus amount is in excess of the maximum amount under PBG's non-equity incentive program reflected in the Grants of Plan-Based Awards Table, it was not greater than the maximum payout amount established for purposes of Section 162(m) based on the 2006 EPS performance of PBG. 8. This amount includes: (i) $43,497, which equals the total cost of all perquisites and personal benefits provided by PBG to Mr. Cahill, including an annual physical and travel expenses related to the annual physical, a car allowance and related car expenses, financial advisory services, and personal use of corporate ground transportation; (ii) $25,411, which equals all tax reimbursements paid to Mr. Cahill for the tax liability related to PBG provided perquisites and personal benefits, including his annual physical, car allowance and related car expenses, and financial advisory services; and (iii) a standard PBG matching contribution of $8,800 in PBG common stock to Mr. Cahill's 401(k) account. 79 9. Mr. Foss was appointed as Bottling LLC's Principal Executive Officer on July 20, 2006. 10. This amount includes: (i) $37,409, which equals the total cost of all perquisites and personal benefits provided by PBG to Mr. Foss, including an annual physical and travel expenses related to the annual physical, a car allowance, financial advisory services and personal use of corporate transportation; (ii) $18,304, which equals all tax reimbursements paid to Mr. Foss for the tax liability related to PBG provided perquisites and personal benefits, including his annual physical, car allowance, and financial advisory services; and (iii) a standard PBG matching contribution of $8,800 in PBG common stock to Mr. Foss' 401(k) account. 11. This amount includes: (i) $36,390, which equals the total cost of all perquisites and personal benefits provided by PBG to Mr. Drewes, including an annual physical and travel expenses related to the annual physical, a company car and related car expenses, financial advisory services and personal use of corporate ground transportation; (ii) $24,252, which equals all tax reimbursements paid to Mr. Drewes for the tax liability related to PBG provided perquisites and personal benefits, including his annual physical, a company car, and financial advisory services; and (iii) a standard PBG matching contribution of $8,800 in PBG common stock to Mr. Drewes' 401(k) account. 12. This amount includes: (i) $13,838, which equals the total cost of all perquisites and personal benefits provided by PBG to Ms. Forster, including a car allowance and related car expenses; (ii) $6,798, which equals all tax reimbursements paid to Ms. Forster for the tax liability related to PBG provided perquisites and personal benefits, including a car allowance and related car expenses; and (iii) a standard PBG matching contribution of $8,800 in PBG common stock to Ms. Forster's 401(k) account. GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2006 All Other Optinn P'stimated Possible Payouts Under Estimated Future ParouLS Under Equih Awards: Number nl' Exercise or Rase Closing Grant Date Fair Non-Equity Incentive Plan Awards~~ ~ Incentive Plan Awards=~ Securities Price of Option Mrrkel Price on Value of Stuck and Grant Date of Roard Threshold Target Maximum Threshold Target Underlying Awards Grant Option Awards Name Dale Action ($) ($) ($) 1#1 (#1 Maximum (>«1 Options(#) ($/Shl Uale ($) ($1~~~ 7. T. Cahill ~ ~ ~ ~ - , 02!02/2006 _ ,$123,000:$1,6~O,OW .$3,280.W0'^' ~ ~ ~ ~~ ~ ~ ~ ~ ~ 03/01/2006 02/02/2006 ~ 92,087 $? 699,991 03/O1%2006,_~ 02/02/2006 ° ~ "`~ ~° `~ 276,262 ~ $,29.32,:° $29.38 , ~ , 2,381.378`- E. J. Foss - 02/02/2006 77:?97 1,030.625 2,061,250 "'-'03/01/2006' °02/02/2006 _ t . ^, ° _.._ ~ u- 34,106 ,.. _: .,.... ~99;98R 03/0]/2006 02/02/2006 - _ _ - 102,319 29.32 29.38 8R 1,990 ~ .07/24/2006. ,07/19/2006 _~ ,• b. ,., ~ 200,000 , 33.77~,~ - 3350. ;> _. - ... ~, _, _- _,:2,038000_ ~. A. H. Drewes 02/02/2006 27,413 36.5,500 731,000 _ 03/01/2(]06 , :02/0?/2006 - ~ - -. „~ ; . _,~ 17,053 .. ~_ - ti ~=~ _ X499,994 , .. 03/01/20(16 02/02/2006 51.160 29.32 29.38 440.999 A.,L`For_., _. star = 02/02/?006 „12,919 172,?50 ~~ 3~4d,500. ~, ~ _._ _> _ ..._. ... ,. ,.. _ _ ~w. 03/01/2(106 03/(YL/2006 9,806 287,512 o3/OI/2006 °,,02/02/2006 - a ,29,477 °" 29:-32 ,'_ ?9:38 ."'.- - .n53;575 1. Amounts shown reflect the threshold, target and maximum payout amounts under PBG's annual incentive program which is administered under the PBG shareholder-approved 2005 Executive Incentive Compensation Plan ("EICP"). The target amount is equal to a percentage of each executive's salary, which for 2006 ranged from 65% to 160%, depending on the executive's role and level of responsibility. The threshold amount equals the minimum amount payable (above zero) to the executive and the maximum amount equals 200% of the target amount. The actual payout amount is contingent upon satisfaction of certain performance criteria. Please refer to the narrative below for more detail regarding each executive's target amount, the specific performance criteria used to determine the actual payout and how such payout is typically the result of the Committee's exercise of negative discretion with respect to separate maximum payout amounts established for purposes of Section 162(m). 2. The 2006 restricted stock unit awards were made under the LTIP, which was approved by PBG shareholders in 2005. 3. The assumptions used in calculating the SFAS 1238 grant date fair value of the option awards and stock awards are set forth in Note 4, Share-Based Compensation, to PBG's Annual Report on Form 10-K for the fiscal year ended December 30, 2006, which is available at www. pbg. com. 4. As more fully described in the CD&A, footnote 1 above and the accompanying narrative, the Committee typically uses the above-stated threshold, target and maximum amounts to guide the Committee's negative discretion in determining the actual amount paid within the maximum amount established by the Committee for purposes of Section 162(m). For 2006, based on PBG's 2006 EPS performance, the Committee determined that the maximum amount payable to each Named Executive Officer for purposes of Section 162(m) was $5 million. 1n every instance of PBG's history, the Committee has utilized its negative discretion to pay an amount that is significantly less than the Section 162(m) maximum amount and often much less than the maximum amount stated above. In light of Mr. Cahill's exceptional efforts and success in planning for and ensuring a smooth and effective transition of his CEO responsibilities, however, the Committee determined 80 not to exercise its negative discretion for 2006 and to award Mr. Cahill the Section 162(m) maximum amount of $5 million. This amount is reflected in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table above. As the Committee's decision not to exercise its negative discretion with respect to Mr. Cahill's 2006 award is not reflective of the Committee's typical practice, PBG determined it more appropriate to state as the maximum amount in the above table the maximum amount established by the Committee consistent with the framework typically applied and, in fact, utilized with respect to all other PBG executives in 2006. Narrative to Summary Compensation and Grants of Plan-Based Awards Tables Salary. The 2006 annual salary of each Named Executive Officer is set forth in the "Salary" column of the Summary Compensation Table. Compensation levels for each of the Named Executive Officers are at the discretion of the Committee. There are no written or unwritten employment agreements with any Named Executive Officer. A salary increase or decrease for a Named Executive Officer may be approved by the Committee at any time in the Committee's sole discretion. Typically, the Committee considers salary increases during the year for each of the Named Executive Officers based on considerations such as the performance of PBG and the executive and any increase in the executive's responsibilities. Stock Awards. Awards of RSUs are made under the LTIP in the discretion of the Committee. RSU awards were approved by the Committee in February 2006, with a grant date of March 1, 2006, to all executives of PBG, including the Named Executive Officers. The number of RSUs awarded was determined based on an award value established by the Committee for each executive. The actual number of RSUs awarded was calculated by dividing the respective award value by the "Fair Market Value" of a share of PBG common stock on the grant date rounded up to the next whole share. The LTIP defines Fair Market Value as the average of the high and low sales price for PBG common stock as reported on NYSE on the grant date. Vesting of the RSUs awarded to the Named Executive Officers in 2006 was made subject to the achievement of apre-established EPS performance goal as well as continued employment for three years. The EPS performance goal for 2006 was $0.50. In February 2007, the Committee determined that this EPS goal was met. Thus, the RSUs will fully vest after three years provided the Named Executive Officer remains continuously employed through the third anniversary of the grant date. The RSUs will be credited with dividend equivalents in the form of additional RSUs at the same time and in the same amount as dividends are paid to shareholders of PBG. If the underlying RSUs do not vest, no dividend equivalents are paid. RSUs are paid out in shares of PBG common stock upon vesting. Vesting of the RSUs in the event of death, disability, retirement, or Approved Transfer is the same as described below for stock options. RSUs vest and are paid out upon the occurrence of a "Change In Control" as defined under the LTIP ("CIC"), as more fully discussed in the narrative and accompanying tables entitled Potential Payments Upon Termination or Change in Control. RSUs and shares received upon certain prior payouts of RSUs, are subject to forfeiture in the event an executive engages in Misconduct. Option Awards. Stock option awards are made under the LTIP in the discretion of the Committee. Stock option awards were approved by the Committee in February 2006, with a grant date of March 1, 2006, to all executives of PBG, including the Named Executive Officers. The grant price was equal to the Fair Market Value of a share of PBG common stock on the grant date, rounded to the nearest penny. The stock options have a term of ten years and no dividends or dividend rights are payable with respect to the stock options. The 2006 stock option awards for all executives, including the Named Executive Officers, become exercisable in one-third increments, on the first, second and third anniversary of the grant date provided the executive is actively employed on each such date. However, the vesting is accelerated in the event of death, disability, retirement, a CIC or a PBG Approved Transfer to PepsiCo. In the event of death or Approved Transfer to PepsiCo, unvested stock options fully vest immediately. In the event of retirement or disability, unvested stock options immediately vest in proportion to the number of months of active employment during the vesting period over the total number of months in such period. In the event of death, disability, retirement or an Approved Transfer to PepsiCo, the vested options remain exercisable for the remainder of their original ten-year term, provided that in the case of an Approved Transfer, the Named Executive Officer remains actively employed at PepsiCo. In the event of a subsequent termination of employment from PepsiCo, the Named Executive Officer must exercise vested stock options within 90 calendar days of termination or the stock options are automatically cancelled. Vesting is also accelerated upon the occurrence of a CIC as more fully discussed in the narrative and accompanying tables entitled Potential Payments Upon Termination or Change in Control. Stock option awards, including certain gains on previously exercised stock options, are subject to forfeiture in the event an executive engages in Misconduct. On July 24, 2006, Mr. Foss received a supplemental stock option award in connection with his becoming Chief Executive Officer of PBG. The grant price for these stock options was equal to the Fair Market Value of PBG common stock on the grant date. These options become exercisable on the fifth anniversary of the grant date, provided Mr. Foss remains continuously employed through such date, subject to the special rules regarding death and disability described above. Non-Equity Incentive Plan Compensation. The 2006 annual, performance-based cash bonuses paid to the Named Executive Officers are shown in the new "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table. In past years, these amounts were reflected in the "Bonus" column of the Summary Compensation Table. These amounts were paid under the EICP which was approved by PBG shareholders in 2005. Shareholder approval of the EICP was required under Section 162(m) of the Internal Revenue Code ("Code") in order to ensure that PBG may recognize a tax 81 deduction with respect to such awards. The Section 162(nr) Goa/ m:d Maximum Payout Amount. In February 2006, the Committee established specific PBG EPS performance goals, the achievement of which in turn established the maximum annual non-equity incentive award payable to each Named Executive Officer. This EPS goal and maximum payout amount were established in order to comply with Section 162(m) of the Code ("162(m) EPS Goal") and to ensure that no bonus is payable if PBG performs significantly below expectations. Typically, the maximum incentive award payout is not paid to the Named Executive Officers even when the 162(m) EPS Goal has been met. Based on PBG's 2006 EPS performance, the Committee determined that the maximum payout amount was $5 million. Committee Discretion. Subject to the achievement of the overarching 162(m) EPS Goal, and notwithstanding the individual maximum payout amount, the Committee typically uses its negative discretion to determine each executive's actual award, if any, which is never greater, and typically much less, than the maximum payout amount established for purposes of Section 162(m) of the Code. In doing so, the Committee considers performance against pre-established quantitative and qualitative factors and establishes a minimum, target and maximum payout amount for each Named Executive Officer. These payout amounts are based upon a percentage of the Named Executive Officer's annual salary and vary among Named Executive Officers depending in large part on their role and level of responsibility within PBG. The maximum amount equals 200% of the executive's target amount. During 2006, Mr. Foss' 2006 target payout was increased from 115% to 130% upon his promotion to President and Chief Executive Officer of PBG. The increased target amount for Mr. Foss only applied prospectively from his date of promotion resulting in a blended annual target payout of 121%. In 2006, the target for each Named Executive Officer was as follows: Name Target (% of Salary) John T. Cahill ._ _.." ~ ~ ~~, .°~ : 160%:,~ _ .~ :._ _~~ ~ ,. ~~ ~ ~~: Eric J. Foss _ _ 121% AlfredrH: Drewea_ -. ~- ~ ~ ' "~ ~ : ~ _ " ', ~.. 85% Andrea L. Forster 65% Performance Factors. To guide its discretion regarding the actual award payable to each executive, in February 2006, the Committee established quantitative performance factors. The measures used by the Committee were PBG's 2006 EPS, PBG's growth in case volume over prior year and PBG's operating free cash flow, and the factors applied to each executive's target payout were as follows: 50% of the target payout was based on PBG's achievement of EPS of $1.80, 30% of target was based on increased case volume of 2.9% and 20% of target was based on the achievement of operating free cash flow of $510,000,000. Each of these quantitative performance factors was consistent with PBG's external guidance at the start of 2006. The Committee additionally considered pre-established qualitative factors in assessing the performance of PBG's CEO. The qualitative factors considered by the Committee were: organizational capability, strategic long-term growth and a strengthened senior leadership team. Results and Payouts. In February 2007, the Committee determined that each Named Executive Officer, other than Mr. Cahill, was eligible to receive a 2006 annual incentive award equal to 125% of his target payout based on PBG's achievement of adjusted EPS of $1.85, volume growth of 3.3% and operating free cash flow of $522,000,000. With respect to Mr. Cahill, the Committee determined to award Mr. Cahill a 2006 bonus equal to the Section 162(m) maximum amount of $5 million in light of Mr. Cahill's exceptional efforts and success in planning for and ensuring a smooth and effective transition of his CEO responsibilities. This amount is reflected in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table. Change in Pension Value and Nonqualified Deferred Compensation Earnings. The material terms of the pension plans governing the pension benefits provided to the Named Executive Officers are more fully discussed in the narrative accompanying the Pension Benefits Table. The material terms of the non-qualified elective deferred compensation plan are more fully discussed in the narrative accompanying the Nonqualified Deferred Compensation Table. All Other Compensation. The perquisites, tax reimbursements and all other compensation paid to or on behalf of the Named Executive Officers during 2006 are described fully in the footnotes to the Summary Compensation Table. Proportion of Salary to Total Compensation. As noted in the CD&A, we believe that the total compensation of PBG's business leaders should be closely tied to the performance of PBG. Therefore, the percentage of total compensation that is fixed generally decreases as the level of the executive increases. This is reflected in the ratio of salary in proportion to total compensation for each Named Executive Officer. 1n 2006, the ratio of salary in proportion to total compensation for Messrs. Cahill, Foss and Drewes and Ms. Forster was approximately 6.80%, 13.73%, 19.60% and 24.98%, respectively. 82 OUTSTANDING EOUITY AWARDS AT 2006 FISCAL YEAR-END Option Awards Stock Awards' N umher of Number of Securities Securities Number of Shares Markel Value of Shares Underlying Underlying or Units of Stock Thal or Units of Slnek Unexercised Options Unexercised Options Option Exercise Option Nave Thnt Have (N) (tF) Price Expiration Nat Vested Not Vested Name Grant Dale Exercisable Unexercisable ($) Date Gront Date (ql f$1a~z; John T.'Catull ~ - ~ ~ 03/Ot/2004ti~ -- ~~ 0 ~' ~` "= `~°{e~222;457- ~ 29:50 ~~03/29F2014~~ -~~10/07/20051t4t~~~ ~ 179;598 ~ $5,551',374 ~'_ ~" `° "03701'/20051?? ..'„ 0 465 9~9 ~ "_.28.25 , ,,. 02/28/20.15 ~ 03101/2006161 92;9325's' ~ 2,822,528 ." >. P . ;. F ,.p3/01/200613~ .. ". ,p ~, ~ -~ 276.262 m~ r. 29:32 ~~ ° -02/29/2016 ~ ~. _ Eric J. Foss 03/Ol/200P41 60,000 0 20.50 03/29/2011 10/07/20051151 125,718 3,885,943 09/19/3001151 160,000 0 22.50 09/30/2011 03/01/2006111 34,419119 1,063,891 03/01/20021b1 145,743 0 25.25 03/29/2012 03/01/200301 233,404 0 23.50 03/29/2013 03/01/200418> 91,187 91,186 29.50 03/29/2014 03/Ol/20051y1 53,098 159.291 28.25 0?128/2015 03/01/20061;1 0 102,319 29.32 02/29/2016 7/24/20061101 0 200.000 33.77 07/23/2016 AlfreitH~Drewes 06/25/20011111 69,758 0 20.625 03/29/2011 °03/01/200611 v1 ~ ]7,210~'0I "531,961 ~: ~ ,03101L200216i _ 113,109 ~ 0 _ ~ , ~ .25.25 ~ 03/29/2012 ~ ~ _ ~ ~ ~ ~ ~ '~~ .03/01/20030' L7,660 0~ _ 23.50 03/29/2013 _ ~ n_ '.~ ~Q3/01/2004t81 . ~ , X52;204.- ~ `52,203 :: 29.50 ~- .~ 03/29)2014 ~ ~ '~ . ~ ..~ ~~ 03/Ol/200519> ~ ~ ~ 28,319 - 84,955- ~ ~-28:25 ~ 03/28/2015 ~ ° ,, . ,. _ - °__:0 3 /0 1 /20 0 6131 _ ~ ~ 0` -~. ~ °:51,160. -_~ 29.32 021291201 ~~~ Andrea L. Forster 03/30/19991121 35,114 0 ]].50 03/29/2009 03/O]/200611~1 9,8961'11 305,885 02/01/2001113> 8,110 0 19.50 01/31/2011 03/01/200114 35,512 0 2D.50 03/29/2011 03/01/2002161 29,941 0 25.25 03/29/2012 03/01/200301 34,043 0 23.50 03/29/2013 03/OU20041s1 22,882 22,881 29.50 03/29/2014 03/01/2005191 12,850 38,548 2825 02128/2015 03/01/2006131 0 29,417 29.32 02/29/2016 1. These 2004 stock options vest on March 30, 2007, provided the executive remains employed through such date. 2. The vesting schedule with respect to this 2005 stock option award is as follows: 155,310 options will vest and become exercisable on March 30, 2007; and the remaining 310,619 options will vest and become exercisable on March 30, 2008, provided the executive remains employed through the applicable vesting dates. 3. The vesting schedule with respect to this 2006 stock option award is as follows: 33% of the options vest and become exercisable on March 1, 2007; 33% of the options vest and become exercisable on March 1, 2008; and (iii) the remaining 34% of the options vest and become exercisable on March 1, 2009, provided the executive remains employed through the applicable vesting dates. 4. The vesting schedule with respect to this 2001 stock option award is as follows: 25% of the options vested and became exercisable on March 30, 2002; 25% of the options vested and became exercisable on March 30, 2003; and the remaining 50% of the options vested and became exercisable on March 30, 2004. 5. This stock option award vested and became exercisable on September 30, 2006. 6. The vesting schedule with respect to this 2002 stock option award is as follows: 25% of the options vested and became exercisable on March 30, 2003; 25% of the options vested and became exercisable on March 30, 2004; and the remaining 50% of the options vested and became exercisable on March 30, 2005. 7. The vesting schedule with respect to this 2003 stock option award is as follows: 25% of the options vested and became exercisable on March 30, 2004; 25% of the options vested and became exercisable on March 30, 2005; and the remaining 50% of the options vested and became exercisable on March 30. 2006. 8. The vesting schedule with respect to this 2004 stock option award is as follows: 25% of the options vested and became exercisable on March 30, 2005; 25% of the options vested and became exercisable on March 30, 2006; and the remaining 50% of the options vest and become exercisable on March 30, 2007, provided the executive remains employed through the applicable vesting dates. 83 9. The vesting schedule with respect to this 2005 stock option award is as follows: 25% of the options vested and became exercisable on March 30, 2006; 25% of the options vest and become exercisable on March 30, 2007; and the remaining 50% of the options vest and become exercisable on March 30, 2008, provided the executive remains employed through the applicable vesting dates. 10. This stock option award was granted to Mr. Foss in recognition of his new role and responsibilities as President and Chief Executive Officer of PBG. The award fully vests and becomes exercisable on July 24, 2011, provided Mr. Foss remains employed through such date. 11. This stock option award vested and became exercisable on March 30, 2004. 12. This stock option award vested and became exercisable on March 30, 2002. 13. This stock option award vested and became exercisable on February 1, 2001. 14. Since the pre-established PBG earnings per share performance target was met, these restricted stock units vest as follows: 33% on December 31, 2006; 33% on December 31, 2007; and 34% on December 31, 2008, provided the executive remains employed through the applicable vesting dates. l5. Since the pre-established PBG earnings per share performance target was met, these restricted stock units fully vest on October 7, 2010, provided the executive remains employed through October 7, 2010. 16. Since the pre-established PBG earnings per share performance target was met, these restricted stock units fully vest on March 1, 2009, provided the executive remains employed through March 1, 2009. 17. These restricted stock units fully vest on March 1, 2009, provided the executive remains employed through March 1, 2009. 18. This amount includes 845 restricted stock units accumulated as a result of dividend equivalents credited to the executive at the same time and in the same amount as dividends were paid to shareholders of PBG common stock in accordance with the governing restricted stock unit agreement. 19. This amount includes 313 restricted stock units accumulated as a result of dividend equivalents credited to the executive at the same time and in the same amount as dividends were paid to shareholders of PBG common stock in accordance with the governing restricted stock unit agreement. 20. This amount includes 157 restricted stock units accumulated as a result of dividend equivalents credited to the executive at the same time and in the same amount as dividends were paid to shareholders of PBG common stock in accordance with the governing restricted stock unit agreement. 21. This amount includes 90 restricted stock units accumulated as a result of dividend equivalents credited to the executive at the same time and in the same amount as dividends were paid to shareholders of PBG common stock in accordance with the governing restricted stock unit agreement. 22. The closing price for a share of PBG common stock on December 29, 2006, the last trading day of PBG's fiscal year, was $30.91. 84 OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2006 Option Awards Number of Shares Value Realized Name Acquired on Exercise (#) on Exercise ($)~~ ~ John T. Gahlll ~ - '_- ~ ~ `"~ 1,989,053 ~ ~ $19,136~~113 Eric J. Foss 165,364 1,996,956 Stock Awards Number of Shares Value Realized Acquired on Vesting (#) on Vesting ($) _< Obi. 0 0 0 R. a.. , _. Alfred H ~~Drewes `_ _ .~ __ ,_. a ;,.~ 44;000. ~~ - -440,479 ~ 0 ~ - 0 Andrea L. Forster 67,414 1,566,897 ~ 0 0 1. The value realized on exercise reflects the pre-tax amount. 2. One-third (59,267) of Mr. Cahill's 2005 grant of restricted stock units vested on December 31, 2006, one day after PBG's 2006 fiscal year end. The value realized upon vesting was $1,831,943, determined by multiplying the number of vested restricted stock units by the closing price of $30.91 on December 29, 2006, the last trading day immediately preceding the vesting date. The restricted stock units were settled in an equal number of shares of PBG common stock at vesting and such shares were mandatorily deferred for two years following the vesting date. During the deferral period, Mr. Cahill will accrue amounts equal to the dividends that are declared on PBG common stock. Payment will be made at the end of the deferral period in shares of PBG common stock. PENSION BENEFITS FOR THE 2006 FISCAL YEAR Number of Years Present Value of Payments During Credited Service Accumulated Benefit Last Fiscal Year Name Plan Name (#)~'~ ($)~~ ($) John ~T. Cahill„ , ~ ~ - PBG Salai•ied~Empl'oyees Retirement Plan ~ 17:3 ~ $ 307,000, ~- ~ $ 0 e, .. = ~ ~ ~ ~ PBG- Pension E ualz .; q anon°Plan ":_ -'17:3 - 2,724,000_ .," 0` Eric J. Foss PBG Salaried Employees Retirement Plan 24.3 360,000 0 PBG Pension Equalization Plan 24.3 1,676,000 0 Alfred H. Drewes PBG Salaried Em to ees°`Re'tireme F. . e P .Y . , nt Plan (~) 4, 2 .3 -° 137;000 _ 0 PBG~Pension Equalizatton;Elan ~ ~24:3~3~~ '~ ~ 1.,162;000 0 Andrea L. Forster PBG Salaried Employees Retirement Plan 19.1 270,000 0 PBG Pension Equalization Plan 19.1 179,000 0 1. The number of years of service shown for each executive includes service with PepsiCo, PBG's parent company prior to March 31, 1999, at which time PBG became a separate, publicly traded company. The executive's service with PepsiCo prior to March 31, 1999 has not been separately identified and the benefit attributable to such service has not been separately quantified for such period. Any benefit amount attributable to the executive's service with PepsiCo after March 31, 1999 has been separately identified and quantified. In this regard, the period of PepsiCo service that Mr. Drewes accrued after PBG became a separate company has been separately identified and quantified in footnote 3. PBG's policy for granting extra years of credited service is discussed in more detail in the CD&A and in the narrative that follows this table. 2. The material assumptions used to quantify the present value of the accumulated benefit for each executive are set forth in Note 14, Pension and Postretirement Medical Benefit Plans, to PBG's Annual Report on Form 10-K for the fiscal year ended December 30, 2006, which is available at www.pbg.com. 3. Mr. Drewes transferred from PepsiCo on June 25, 2001. The years of credited service shown above include all prior PepsiCo service. However, only the portion of the pension benefit attributable to Mr. Drewes' PepsiCo service that accrued after March 31, 1999 (two years of service) has been separately quantified as follows: $44,000 under the PBG Salaried Employees Retirement Plan and $66,000 under the PBG Pension Equalization Plan. PepsiCo transferred to the PBG Salaried Employees 85 Retirement Plan an amount equal to the present value of Mr. Drewes pension benefit under the PepsiCo Salaried Employees Retirement Plan at the time Mr. Drewes transferred to PBG. Narrative to the Pension Benefits Table The PBG Salaried Employees Retirement Plan. The PBG Salaried Employees Retirement Plan ("Salaried Plan"), a tax qualified defined benefit pension plan, generally covers salaried employees in the U.S. who have completed one year of service. Benefits are payable under the Salaried Plan to participants with five or more years of service commencing on the later of age 65 or retirement. Benefits are determined based on a participant's earnings (which generally include base pay or salary, regular bonuses, and short term disability pay; and exclude income resulting from equity awards, extraordinary bonuses, fringe benefits, and earnings that exceed the applicable dollar limit of Section 401(a)(17) of the Code) and credited service (generally, service as an eligible employee). The primary purpose of the Salaried Plan is to provide retirement income to eligible employees. The annual retirement benefit formula for a participant with at least five years of service on December 31, 1999 is (a) 3% of the participant's average earnings in the five consecutive calendar years in which earnings were the highest for each year of credited service up to ten years, plus (b) an additional 1% of such average earnings for each year of credited service in excess of ten years, minus (c) 0.43% of average earnings up to the Social Security covered compensation multiplied by years of credited service up to 35 years ("Basic Formula"). If a participant did not have five years of service on December 31, 1999, the retirement benefit formula is 1 % of the participant's average earnings in the five consecutive calendar years in which earnings were the highest for each year of credited service ("Primary Formula"). A participant who has attained age 55 and completed ten years of vesting service may retire and begin receiving early retirement benefits. If the participant retires before age 62, benefits are reduced by 1/3 of 1% for each month (4% for each year) of payment before age 62. Retirees have several payment options under the Salaried Plan. With the exception of the single lump sum payment option, each payment form provides monthly retirement income for the life of the retiree. Survivor options provide for continuing payments in full or part for the life of a contingent annuitant and, if selected, the survivor option reduces the benefit payable to the participant during his or her lifetime. A participant with five or more years of service who terminates employment prior to attaining age 55 and completing ten years of service is entitled to a deferred vested benefit. The deferred vested benefit of a participant entitled to a benefit under the Basic Formula described above is equal to the Basic Formula amount calculated based on projected service to age 65 prorated by a fraction, the numerator of which is the participant's credited service at termination of employment and the denominator of which is the participant's potential credited service had the participant remained employed to age 65. The deferred vested benefit of a participant entitled to a benefit under the Primary Formula described above is the Primary Formula amount, determined based on earnings and credited service as of the date employment terminates. Deferred vested benefits are payable commencing at age 65. However, a participant may elect to commence benefits as early as age 55 on an actuarially reduced basis to reflect the longer payment period. Defen-ed vested benefits are payable in the form of a single life annuity or a joint and survivor annuity with the participant's spouse as co-annuitant. The Salaried Plan also provides survivor spouse benefits in the event of a participant's death prior to commencement of benefits under the Salaried Plan. After a participant's benefits have commenced, any survivor benefits are determined by the form of payment elected by the participant. The Salaried Plan provides extra years of credited service for participants who become totally and permanently disabled after completing at least ten years of vesting service, and with respect to pre-participation service in connection with specified events such as plan mergers, acquired groups of employees, designated employees who transfer to PBG from PepsiCo, and other special circumstances. Salaried Plan benefits are generally offset by any other qualified plan benefit the participant is entitled to under a plan maintained or contributed to by PBG. The PBG Pension Equalization Plan. The PBG Pension Equalization Plan ("PEP") is an unfunded nonqualified defined benefit pension plan designed to provide (i) additional benefits to participants whose Salaried Plan benefits are limited due to the annual compensation limit in Section 401(a)(17) of the Code and the annual benefit limit in Section 415 of the Code, and (ii) a subsidized 50% joint and survivor annuity for certain retirement eligible employees based on the Salaried Plan's benefit formula using the participant's total compensation including earnings that otherwise would be used to determine benefits payable under the Salaried Plan. Generally, a participant's PEP benefit is payable under the same terms and conditions of the Salaried Plan and is equal to the Salaried Plan benefit, as determined without regard to the Code's annual compensation limit and the annual benefit limit, less the actual benefit payable under the Salaried Plan. However, the PEP benefit of a participant who had eligible earnings in 1988 in excess of $75,000, including Mr. Drewes, is payable as a subsidized 50% joint and survivor annuity benefit. The subsidized 50% joint and survivor benefit pays an unreduced benefit for the lifetime of the participant and 50% of that benefit amount to the surviving spouse upon the death of the participant. If the participant terminates employment prior to attaining age 55 with ten or more years of service, the participant's deferred vested PEP benefit is calculated based on projected service to age 65, then reduced based on actual credited service over projected service to age 65. PEP benefits are payable in various actuarially equivalent forms as elected by participants, including lump sums. In addition, if the lump sum value of the PEP benefit does not exceed $10,000, the benefit is paid as a single lump sum. 86 NONQiJALIFIED DEFERRED COMPENSATION FOR THE 2006 FISCAL YEAR Aggregate Aggregate Executive Company Aggregate Earnings Withdrawals/ Balance Contributions Contributions in Last FY Distributions at Last FYE Name in Last FY ($) in Last FY ($) ($). ($) ~$)~~~ John T HGahtll _> „ .`;p ~ . ~.r-; ~~:- . $ 25;00011) ~> $ 0 w .. $875,178cz) °°:'. ., $0 .:... $7,7,65 275_(3) Eric J. Foss 0 0 56,123 0 1,712,862~4> Alfred,H. Drewes ~-: ~ ~ ~ ~ - _ ~ _,~_ 0 .._ . ~ ., ~"0 "_ ,` 137;328 „~ ,. __ `~~0 ~ ~. 1;863,99715) Andrea L. Forster 163,623 0 65,028 0 982,82216> 1. The Committee required that $25,000 of Mr. Cahill's 2006 salary be deferred until his termination of employment. This amount is reported as Salary in the Summary Compensation Table. 2. During 2006, a significant amount of Mr. Cahill's deferred compensation was invested in phantom PBG common stock units and this amount reflects the performance of PBG common stock in 2006. 3. $3,494,634 of Mr. Cahill's aggregate balance was previously reported as compensation in Summary Compensation Tables for prior years. 4. $1,062,235 of Mr. Foss' aggregate balance was previously reported as compensation in Summary Compensation Tables for prior years. 5. $139,082 of Mr. Drewes' aggregate balance was previously reported as compensation in Summary Compensation Tables for prior years. 6. Since Ms. Forster has not served as a named executive officer of PBG in any prior years, none of Ms. Forster's aggregate balance has been previously reported in the Summary Compensation Table for prior years. 7. The amounts reflected in this column for Messrs. Cahill and Drewes and Ms. Forster include compensation deferred by the Named Executive Officer over the entirety of their career at both PepsiCo, Inc. and PBG. Narrative to the Nonqualified Deferred Compensation Table The Deferral Program is the only nonqualified elective deferred compensation program sponsored by PBG. The Deferral Program is administered by the Committee. All executives on the U.S. payroll are eligible to participate in the Deferral Program. The Deferral Program allows executives to defer receipt of compensation in excess of compensation limits imposed by the Internal Revenue Code under PBG's 401 (k) plan and to defer federal and state income tax on the deferred amounts, including earnings, until such time as the deferred amounts are paid out. PBG makes no contributions to the Deferral Program on behalf of executives. The Deferral Program is unfunded and the executive's deferrals under the Deferral Program are at all times subject to the claims of the Company's general creditors. The terms and conditions of the Deferral Program vary with respect to deferrals made or vested on and after January 1, 2005. Such deferrals are subject to the requirements of Section 409A of the Code ("409A") which became effective on such date. Deferrals made or vested before January 1, 2005 are not subject to the requirements of 409A ("grandfathered deferrals"). Deferrals of Base Salary and Annual Non-Equity Incentive Award. Executives may irrevocably elect to defer up to 100% of their annual base salary and annual non-equity incentive award ("Bonus"). In addition to elective deferrals, the Committee. may mandate deferral of a portion of an executive's base salary as was the case in 2006 with respect to the amount of Mr. Cahill's salary in excess of one million dollars. Phantom Investment Options. Executives select the phantom investment option(s) from those available under the terms of the Deferral Program. The phantom investment options available under the Deferral Program are a subset of the funds available under PBG's 401(k) plan. Consequently, amounts deferred under the Deferral Program are subject to the same investment gains and losses during the deferral period as experienced by the participants in PBG's 401(k) plan. Executives may change investment option elections and transfer balances between investment options on a quarterly basis. 87 The phantom investment options currently available under the Deferral Program and their 2006 rates of return are: PHANTOM FUND FYE RETURN RATE (%) The,l?tiantom~PBG Stock~~Fund .. _ ~y.37 The Phantom Security Plus Fund 4.93 ...The, Phantom Bond Index Fund - _. ~ x:31 ,..., , The Phantom Total U.S. Equity Index Fund 15.74 ~ " ~ThePhantom~Large Cap Equity Index Fund :~ ~ 15:73 ~ - ~ ~_ ~ The Phantom Mid Cap Equity Index Fund 10.43 ~ _ . - ~ ~- :The Phantom-Small Cap Equity Index'Fund"='=' ~ ~ ~ _ ~; ~ 1~8.d 6 The Phantom International Equity Index Fund 26.31. Time and Form of Payment. Prior to deferral, executives are required to elect a specific payment date or payment event as well as the form of payment (lump sum or quarterly, semi-annual, or annual installments for a period of up to twenty years). The Committee selects the time and form of payment for mandatory deferrals. Executives with grandfathered deferrals are required to elect a specific payment date or event prior to deferral, but may elect the form of payment at a later date nearer to the payment date (not later than December 31 of the calendar year preceding the year of the scheduled payment and at least six months in advance of the scheduled payment date). Deferral Periods. Salary and Bonus deferrals are subject to minimum and maximum deferral periods. The minimum deferral period for salary deferrals is one year after the end of the applicable base salary year. The minimum deferral period for Bonus deferrals is two years after the Bonus payout would have been made but for the deferral. In both cases, distribution must be made no later than the participant's 80'h birthday. Distribution Rules. In general, deferrals are paid out in accordance with the executive's deferral election, subject to the minimum deferral periods. The Deferral Program provides that, notwithstanding the minimum deferral periods or the executive's time and form of payment elections, deferrals will automatically be paid out in a lump sum in the event of death, disability or a separation from service for reasons other than retirement (unless installment payments have already begun in which case they would continue to be paid without acceleration). Generally, payment will be made three months after the end of the quarter in which the separation from service occurred. However, special rules apply for "key employees," as defined under 409A (which would encompass all Named Executive Officers). In the event of a separation from service, the Named Executive Officers may not receive a distribution for at least six months following separation from service. This six month rule does not apply in the event of the Named Executive Officer's death or disability. Generally, payment of grandfathered deferrals is made in the form of a lump sum in the event of voluntary termination of employment or termination of employment as a result of misconduct but only after the minimum deferral periods have been satisfied. If the executive's balance is greater than $25,000, the executive will be paid out in a lump sum a year after their last day of employment. However, special distribution rules apply when an executive separates from service after reaching retirement eligibility (age 55 with ten years of service). In such case, payment is made in the time and form elected by the executive. Deferral Extensions (Second Look Elections). In general, executives may extend their original deferral period by making a subsequent deferral election. This modification of an original deferral election is often referred to as a "second-look" election. More stringent requirements apply to second look elections related to deferrals subject to 409A since 409A requires that any second look election must be made at least 12 months prior to the originally scheduled payout date and the second look election must provide for a deferral period of at least five years from the originally scheduled payment date. Grandfathered deferrals may also be extended at the election of the executive provided the election is made no later than December 31 of the year preceding the originally scheduled payout date and at least six months in advance of the originally scheduled payout date and is for a minimum deferral of at least two years from the originally scheduled payment date. Hardship Withdrawals. Accelerated distribution is only permissible upon the executive's showing of severe, extraordinary and unforeseen financial hardship. POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL The terms and conditions of PBG's compensation and benefit programs govern all payments to executives, including the Named Executive Officers. The Company does not have any separate written or unwritten agreement with any Named Executive Officer regarding payment of any kind at, following or in connection with termination of employment for any reason including, without limitation, retirement, a PBG Approved Transfer to PepsiCo, a change in responsibilities, or upon a change in control of PBG (collectively, "Termination"). As such, the Named Executive Officers are not entitled to any payment 88 outside the written terms of the LTIP or PBG-sponsored (i) qualified and nonqualified pension plans, (ii) qualified and nonqualified defined contribution plans, (iii) non-U.S. pension and severance plans, or (iv) employee welfare benefit plans. None of PBG's compensation or benefit programs provide for any perquisites or tax reimbursements by PBG upon Termination. This narrative and accompanying tables are intended to show the value of all potential payments that would be payable to the executive upon any event of Termination to the extent that the Termination would result in a payment or benefit that is not generally available to all salaried employees of PBG and that is incremental to; or an enhancement of, the payments and benefits described or shown in any preceding narrative or table in this Executive Compensation section. Nonqualified Pension Benefits. The PEP provides a deferred vested pension benefit, payable as an annual annuity for the life of the executive commencing at age 65, if he or she were to terminate employment on December 29, 2006, prior to age 55. The deferred vested PEP benefit would be payable to the executive as early as age 55, but would be reduced on an actuarially equivalent basis given the longer payment period. The deferred vested PEP benefit is significantly less than the benefit that would be payable to the executive had he or she remained employed until age 55 and is significantly less than the benefit valued in the Pension Benefits Table, which was calculated assuming the executive works until age 62, the earliest age at which unreduced benefits are available to a plan participant. No pension benefit would be payable in an enhanced form or in an amount in excess of the value shown in the Pension Benefits Table except in the event of death or disability. Therefore, we have not separately quantified pension benefits payable upon any event of Termination other than death and disability. Disability. Under the terms of the PEP, the executive's disability pension benefit would be calculated based on additional service that would be credited during the executive's period of "Disability" (as defined under PBG's broad-based long-term disability plan) up to the age of 65, assuming he or she remains Disabled and does not elect a distribution prior to such age. The executive could elect a distribution as early as age 55 but the benefit would be reduced by 4% for each year of payment prior to age 62. Death. Under the terms of the PEP, a pension benefit would be immediately payable as an annual annuity to the executive's surviving spouse for his/her lifetime. The table below reflects the PEP pension benefit that would be payable as an annual annuity to each Named Executive Officer in the event of the executive's Disability on December 29, 2006; and to the surviving spouse of each Named Executive Officer in the event of the executive's death on December 29, 2006. These payments would be in lieu of the benefit valued in [he Pension Benefits Table. Name Plan Name Disability Death John T: Cahill ~ ~ ~ ~ ~~ =~ ~ PBG Pension Equalization Plan ~ - ~ ~~ - ~ $791,300, $197,800 , _ Eric J. Foss PBG Pension Equalization Plan 547,600 136,900 Alfred,H.~Diewes- . ~ ~~~~ ~.~, ~ _ _ PBG=-Pension Equalization"Plan - ~~ ~267,30Q-~;~ ~ ~~~~66;800 a, Andrea L. Forster PBG Pension Equalization Plan 78,000 19,500 LTIP. The LTIP's provisions apply to all PBG equity awards made to employees, including the Named Executive Officers, and, with few exceptions, the terms of the individual LTIP agreements provide for accelerated vesting of stock options and restricted stock units upon death, disability, retirement and Approved Transfer to PepsiCo. This accelerated vesting is pro-rata or 100% depending on the triggering event as more fully described below. The payments that would result from each triggering event are quantified for each Named Executive Officer in the table below. The amounts were calculated based on the closing market price of PBG common stock on December 29, 2006, the last trading day of PBG's fiscal 2006, and reflect the incremental value to the executive that would result from the accelerated vesting of unvested equity awards. Disability. In the event of the Disability of a Named Executive Officer, apro-rata number of stock options vest based on the number of months the executive was actively employed during the vesting period. The stock options would remain exercisable for the remainder of their original ten-year term. Restricted stock units vest in the same pro-rata manner and would be paid out immediately upon vesting. Death. In the event of the death of a Named Executive Officer, all unvested stock options vest automatically and remain exercisable by the executive's estate for the remainder of their original ten year term. In general, restricted stock units similarly vest automatically and are immediately paid out in shares of PBG common stock to the executive's legal representative or heir. This automatic vesting does not apply to the October 7, 2005 restricted stock unit awards granted to Messrs. Cahill and Foss, reflected in the Outstanding Equity Awards At 2006 Fiscal Year-End Table, that instead provide for pro-rata vesting upon the death of the executive. The pro-rata number of restricted stock units that would vest is determined based on the number of days the executive was actively employed during the vesting period. 89 Retirement. In general, if a Named Executive Officer retires (generally, after attaining age 55 with ten or more years of service), apro-rata number of stock options and restricted stock units would vest in proportion to the number of months the executive was actively employed during the vesting period. Certain restricted stock unit awards to the Named Executive Officer contain different retirement provisions. In particular, the October 7, 2005 restricted stock unit awards granted to Messrs. Cahill and Foss, reflected in the Outstanding Equity Awards At 2006 Fiscal Year-End Table, do not provide for accelerated vesting and payout upon retirement. Since no Named Executive Officer was eligible for early or normal retirement during 2006, there is no quantification of vesting or payout based upon such occurrence. Approved Transfer to PepsiCo. In general, if a Named Executive Officer transfers to PepsiCo with the approval of PBG, all PBG stock options and restricted stock units would fully vest on the date of transfer. The stock options would remain exercisable for the remainder of their original ten-year term provided the Named Executive Officer remains actively employed at PepsiCo. In the event of termination from PepsiCo during the original term, the Named Executive Officer would have a limited number of days from the date of termination to exercise his stock options or they would be automatically cancelled. Generally, restricted stock units would vest and be paid out immediately upon an Approved Transfer to PepsiCo. However, the October 7, 2005 restricted stock unit awards to Messrs. Cahill and Foss, reflected in the Outstanding Equity Awards At 2006 Fiscal Year-End Table, do not provide for accelerated vesting and payout upon Approved Transfer. ClTange in Control. The LTIP change in control provisions apply to PBG equity awards made to all employees, including the Named Executive Officers. The LTIP defines a "Change in Control" ("CIC") in the context of two circumstances, one related to a change in control of PBG and the other related to a change in control of PepsiCo. A CIC of PBG occurs if: (i) any person or entity, other than PepsiCo, becomes a beneficial owner of 50%n or more of the combined voting power of the Company's outstanding securities entitled to vote for directors; (ii) 50%a of the directors (other than directors approved by a majority of PBG's directors or by PepsiCo) change in any consecutive two-year period; (iii) PBG is merged into or consolidated with an entity, other than PepsiCo, and is not the surviving company, unless PBG's shareholders before and after the merger or consolidation continue to hold 50% or more of the voting power of the surviving entity's outstanding securities; (iv) there is a disposition of all or substantially all of PBG's assets, other than to PepsiCo or an entity approved by PepsiCo; or (v) any event or circumstance that is intended to effect a change in control of PBG, results in any one of the events set forth in (i) through (iv). A CIC of PepsiCo occurs if: (i) any person or entity acquires 20% or more of the outstanding voting securities of PepsiCo; (ii) 50% of the directors (other than directors approved by a majority of the PepsiCo directors) change in any consecutive two-year period; (iii) PepsiCo shareholders approve, and there is completed, a merger or consolidation with another entity, and PepsiCo is not the surviving company; or, if after such transaction, the other entity owns, directly or indirectly, 50% or more of PepsiCo's outstanding voting securities; (iv) PepsiCo shareholders approve a plan of complete liquidation of PepsiCo or the disposition of all or substantially al] of PepsiCo's assets; or (v) any event or circumstance that is intended to effect a change in control of PepsiCo, results in any one of the events set forth in (i) through (iv). In general, in the event of a CIC of PBG or PepsiCo, all unvested PBG stock options immediately vest and are exercisable during their original term. Restricted stock units immediately vest in the event of a CIC of PBG or PepsiCo and are payable upon vesting. The following table reflects the incremental value the executive would receive as a result of accelerated vesting of unvested PBG stock options and restricted stock units had a triggering event occurred on December 30, 2006. The value was calculated using the closing market price of a share of PBG common stock on December 29, 2006, the last trading day of PBG's fisca12006. Approved Change Transfer In Name Disability Death to PepsiCo Control JohnT'`Cahill... ~~~ -:~_ ~ `` ~ ~ ~ ~ ~ ~ ~. ;$5;724;200 $8;425.,800 $4;864800 ~w; $];0;432,800.,.; Eric J. Foss 1,744,200 2,734,900 1,778,900 5,664,800 Alfred H:Dcewes ~, - ~ ~12,.~00 912,800 912 800. _ -~ 912;800;, Andrea L. Forster 209,000 487,500 487,500 487,500 90 Nonqualified Deferred Compensation Plan. The Named Executive Officers' deferred compensation balances under the Deferral Program and a description of the Deferral Program's payment provisions are set forth in the Nonqualified Deferred Compensation Table and accompanying narrative. No triggering event would serve to enhance such amounts. However, under the terms of the Deferral Program, the deferred compensation balances set forth in the Nonqualified Deferred Compensation Table would be payable in the form of a lump sum in the event of death, disability or separation form service for reasons other than retirement notwithstanding the Named Executive Officer's election as to time and form of payment. Severance. The Company does not have any agreement to provide any form of severance payment to a Named Executive Officer. Benefits Generally Available to All PBG Salaried Employees. There are a number of employee benefits generally available to all salaried employees upon termination of employment. In accordance with SEC guidelines, these benefits are not discussed above since they do not discriminate in scope, terms or operation in favor of PBG's executive officers. These include tax-qualified retirement benefits, life insurance, long-term disability, retiree medical, health care continuation coverage mandated by the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"). Compensation of Managing Directors. Individuals do not receive. additional compensation or benefits for serving as Managing Directors of Bottling LLC. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters PBG holds 93.3% and PepsiCo holds 6.7% of the ownership of Bottling LLC. PBG's address is One Pepsi Way, Somers, NY 10589 and PepsiCo's address is 700 Anderson Hill Road, Purchase, NY 10577. Item 13. Certain Relationships and Related Transactions, and Director Independence Although Bottling LLC may not be a direct party to the following transactions, as the principal operating subsidiary of PBG, it derives certain benefits from them. Accordingly, set forth below is information relating to certain transactions between PBG and PepsiCo. In addition. set forth below is information relating to certain transactions between Bottling LLC and PBG ("PBGBottling LLC Transactions") and certain transactions with management and others. Stock Ownership and Director Relationships with PepsiCo. PBG was initially incorporated in January 1999 as a wholly owned subsidiary of PepsiCo to effect the separation of most of PepsiCo's company-owned bottling businesses. PBG became a publicly traded company on March 31, 1999. As of January 26, 2007, PepsiCo's ownership represented 38.3% of the outstanding common stock and 100% of the outstanding Class B common stock, together representing 44.4% of the voting power of all classes of PBG's voting stock. PepsiCo also owns approximately 6.7% of the equity of Bottling LLC, PBG's principal operating subsidiary. In addition, Matthew M. McKenna, a Managing Director of Bottling LLC, is an executive officer of PepsiCo. Agreements and Transactions with PepsiCo and Affiliates. PBG and PepsiCo (and certain of its affiliates) have entered into transactions and agreements with one another, incident to our respective businesses, and PBG and PepsiCo are expected to enter into material transactions and agreements from time to time in the future. As used in this section, "PBG" includes PBG and its subsidiaries. Material agreements and transactions between PBG and PepsiCo (and certain of its affiliates) during 2006 are described below. Beverage Agreements and Purchases of Concentrates and Finished Products. PBG purchases concentrates from PepsiCo and manufactures, packages, distributes and sells carbonated and non-carbonated beverages under license agreements with PepsiCo. These agreements give PBG the right to manufacture, sell and distribute beverage products of PepsiCo in both bottles and cans and fountain syrup in specified territories. The agreements also provide PepsiCo with the ability to set prices of such concentrates, as well as the terms of payment and other terms and conditions under which PBG purchases such concentrates. In addition, PBG bottles water under the Aquafina trademark pursuant to an agreement with PepsiCo, which provides for the payment of a royalty fee to PepsiCo. In certain instances, PBG purchases finished beverage products from PepsiCo. During 2006, total payments by PBG to PepsiCo for concentrates, royalties and finished beverage products were approximately $2.8 billion. There are certain manufacturing cooperatives whose assets, liabilities and results of operations are consolidated in our financial statements. Concentrate purchases from PepsiCo by these cooperatives for the years ended 2006, 2005 and 2004 were $72 million, $25 million and $27 million, respectively. Transactions with Joint Ventures in which PepsiCo holds an equity interest. PBG purchases tea concentrate and finished beverage products from the Pepsi/Lipton Tea Partnership, a joint venture of Pepsi-Cola North America, a division of PepsiCo, and Lipton. During 2006, total amounts paid or payable to PepsiCo for the benefit of the Pepsi/Lipton Tea Partnership were approximately $209 million. 91 PBG purchases finished beverage products from the North American Coffee Partnership, a joint venture of Pepsi-Cola North America and Starbucks in which PepsiCo has a 50% interest. During 2006, amounts paid or payable to the North American Coffee Partnership by PBG were approximately $264 million. Under tax sharing arrangements we have with PepsiCo and PepsiCo joint ventures, we received approximately $6 million in tax related benefits in 2006. Purchase of Snack Food Products,from Frito-Lay, Inc. PBG purchases snack food products from Frito-Lay, Inc., a wholly owned subsidiary of PepsiCo, for sale and distribution through Russia. In 2006, amounts paid or payable by PBG to Frito-Lay, Inc. were approximately $198 million. Shared Services. PepsiCo provides various services to PBG pursuant to a shared services agreement and other arrangements, including information technology maintenance and the procurement of raw materials. During 2006, amounts paid or payable to PepsiCo for these services totaled approximately $61 million. Pursuant to the shared services agreement and other arrangements, PBG provides various services to PepsiCo, including credit and collection, international tax and supplier services. During 2006, payments to PBG from PepsiCo for these services totaled approximately $4 million. Rental Payrneuts. Amounts paid or payable by PepsiCo to PBG for rental of office space at certain PBG facilities were approximately $4 million in 2006. National Fountain Services. PBG provides certain manufacturing, delivery and equipment maintenance services to PepsiCo's national fountain customers in specified territories. In 2006, net amounts paid or payable by PepsiCo to PBG for these services were approximately $178 million. Bottler Incentives. PepsiCo provides PBG with marketing support in the form of bottler incentives. The level of this support is negotiated annually and can be increased or decreased at the discretion of PepsiCo. These bottler incentives are intended to cover a variety of programs and initiatives, including direct marketplace support (including point-of-sale materials) and advertising support. For 2006, total bottler incentives received from PepsiCo, including media costs shared by PepsiCo, were approximately $731 million. PepsiCo Guarantees. The $1.3 billion of 5.63% senior notes issued on February 9, 1999 and the $1.0 billion of 4.63% senior notes issued on November 15, 2002 by us are guaranteed by PepsiCo in accordance with the terms set forth in the related indentures. Lease Arrangement. We also entered into a capital lease arrangement for $25 million with PepsiCo to lease marketing equipment. The balance outstanding as of December 30, 2006 was $25 million, with $23 million recorded in our long-term debt and $2 million recorded in our current portion of long-term debt. PBG/Bottling LLC Transactions. PBG is considered a related party, as we are the principal operating subsidiary of PBG and we make up substantially all of the operations and assets of PBG. At December 30, 2006, PBG owned approximately 93.3% of our equity. PBG provides insurance and risk management services to us pursuant to a contractual agreement. Total premiums paid to PBG during 2006 were $113 million. On March 8, 1999, PBG issued $1 billion of 7% senior notes due 2029, which are guaranteed by us. PBG has a $1 billion commercial paper program that is supported by a $450 million credit facility and a $550 million credit facility, which expire in March 2011 and April 2009, respectively, and each of which is guaranteed by us. There are certain financial covenants associated with these credit facilities. PBG has used these credit facilities to support their commercial paper program in 2006. At December 30, 2006, PBG had $115 million in outstanding commercial paper with aweighted-average interest rate of 5.4%. Bottling LLC Distribution. We also guarantee that to the extent there is available cash, we will distribute pro rata to PBG and PepsiCo sufficient cash such that the aggregate cash distributed to PBG will enable PBG to pay its taxes and make interest payments on the $l billion 7% senior notes due 2029. During 2006, in accordance with our Limited Liability Company Agreement we made cash distributions to PepsiCo in the amount of $19 million and to PBG in the amount of $265 million. Any amounts in excess of taxes and interest payments were used by PBG to repay loans to us. Relationships azzd Transactions with Management azzd Others. One of our Managing Directors is an employee of PepsiCo and the other Managing Directors and officers are employees of PBG. Linda G. Alvarado, a member of PBG's Board of Directors, together with certain of her family members, wholly own interests in several YUM Brands franchise restaurant companies that purchase beverage products from PBG. In 2006, the total amount of these purchases was approximately $415,000. 92 In 2001, Mr. Cahill waived his right to receive $1,000,000 (plus all future earnings on such amount) from his account under the PBG Executive Income Deferral Program. Mr. Cahill's account under the program was funded solely by Mr. Cahill's voluntary deferrals of his own compensation, plus earnings on those deferrals. In exchange for Mr. Cahill's waiver, PBG made a loan of $1,750,000 to Mr. Cahill's family trust in 2001. The trust used the loan proceeds to pay the premium on a life insurance policy on the lives of Mr. Cahill and his spouse. The loan bears an interest rate of 4.99%, which rate was established under IRS regulations, and the loan (with interest) will be repaid to PBG upon payment of the proceeds from the life insurance policy. Although the loan amount was, at the time of the loan, greater than the amount of deferred compensation waived, the loan was determined to be cost neutral to PBG. The loan was previously described in the footnotes to the Summary Compensation Table contained in our Annual Reports on Form 10-K for fiscal years 2001 - 2005. Under the Sarbanes-Oxley Act of 2002, this loan may remain outstanding, so long as its terms are not materially altered. Item 14. Principal Accountant Fees and Services INDEPENDENT ACCOUNTANTS FEES AND SERVICES Deloitte &Touche LLP has served as our independent registered public accounting firm since June 2005. KPMG LLP served as our independent registered public accounting firm from January 2005 through May 2005. In addition to retaining independent accountants to audit our consolidated financial statements for 2006, we and our affiliates retained KPMG LLP and Deloitte &Touche LLP, as well as other accounting firms to provide various services in 2006. The aggregate fees billed for professional services by Deloitte &Touche LLP in 2006 and by KPMG LLP and Deloitte &Touche LLP in 2005 were as follows: Audit and Non-Audit Fees (in millions) 2006 Deloitte & Touche LLP 2005 Deloitte & Touche LLP KPMG LLP Total __ _ _ :Audit Fees tt> ~_ -- ~ e -,_ __ -. ~ :.. $52 ~, $44 ,: ~.-- ,e . $0 7 $5.1 Audit-Related Fees «> $0.9 $0.0 $0.0 $0.0 Tax Fees"t~> _ . .. ~ .. ~ ;$0.0 _ . ~- '$0.0 , ~ _ $0 1 a ~..-~ ° $0.1 . All Other Fees $0.0 $0.0 $0.0 $0.0 Total - . ;- ,. -: , ~ $6.1_ $4.4 r $0.8 ; ~ .$5.2 . ~t~ Represents fees for the audit of our consolidated financial statements, audit of internal controls, the reviews of interim financial statements included in our Forms 10-Q and all statutory audits. ~2> Represents fees primarily related to audits of employee benefit plans and other audit related services. ~3> Represents fees related primarily to assistance with tax compliance matters. Pre-Approval Policies and Procedures. We have a policy that defines audit, audit-related and non-audit services to be provided to us by our independent registered public accounting firm and requires such services to be pre-approved by the Audit and Affiliated Transactions Committee. In accordance with our policy and applicable SEC rules and regulations, the Committee or its Chairperson pre-approves such services provided by us. Pre-approval is detailed as to the particular service or category of services. If the services are required prior to a regularly scheduled Committee meeting, the Committee Chairperson is authorized to approve such services, provided that they are consistent with our policy and applicable SEC rules and regulations, and that the full Committee is advised of such services at the next regularly scheduled Committee meeting. The independent accountants and management periodically report to the Committee regarding the extent of the services provided by the independent accountants in accordance with this pre-approval, and the fees for the services performed to date. The Audit and Affiliated Transactions Committee pre-approved all audit and non-audit fees of Deloitte &Touche LLP billed for fiscal year 2006 and of Deloitte &Touche LLP and KPMG LLP billed for fiscal year 2005. 93 PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements. The following consolidated financial statements of Bottling LLC and its subsidiaries are included herein: Consolidated Statements of Operations -Fiscal years ended December 30, 2006, December 31, 2005 and December 25, 2004. Consolidated Statements of Cash Flows -Fiscal years ended December 30, 2006, December 31, 2005 and December 25, 2004. Consolidated Balance Sheets -December 30, 2006 and December 31, 2005. Consolidated Statements of Changes in Owners' Equity -Fiscal years ended December 30, 2006, December 31, 2005 and December 25, 2004. Notes to Consolidated Financial Statements. Report of Independent Registered Public Accounting Firm (Deloitte &Touche LLP) Report of Independent Registered Public Accounting Firm (KPMG LLP) 2. Financial Statement Schedules. The following financial statement schedules of Bottling LLC and its subsidiaries are included in this Report on the page indicated: Page Report of Independent Registered Public Accounting Firm (Deloitte &Touche LLP) F-2 Report and Consent of Independent Registered Public Accounting Firm (KPMG LLP) F-3 Schedule II -Valuation and Qualifying Accounts for the fiscal years ended December 30, 2006, December 31, 2005 and December 25, 2004 F-4 3. Exhibits See Index to Exhibits on pages E-1 and E-2. 94 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Bottling Group, LLC has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: February 26, 2007 Bottling Group, LLC By: /s/ Eric J. Foss Eric J. Foss Principal Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Bottling Group, LLC and in the capacities and on the date indicated. SIGNATURE TITLE DATE /s/ Eric J. Foss Principal Executive Officer February 26, 2007 Eric J. Foss /s/ Alfred H. Drewes Principal Financial Officer Alfred H. Drewes /s/ Andrea L. Forster Principal Accounting Officer and Managing Director Andrea L. Forster /s/ Steven M. Rapp Managing Director Steven M. Rapp /s/Matthew M. McKenna Managing Director Matthew M. McKenna February 26, 2007 February 26, 2007 February 26, 2007 February 26, 2007 S-1 INDEX TO FINANCIAL STATEMENT SCHEDULES Page Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) F-2 Report and Consent of Independent Registered Public Accounting Firm (KPMG LLP) F-3 Schedule II -Valuation and Qualifying Accounts for the fiscal years ended December 30, 2006, December 31, 2005 and December 25, 2004 F-4 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Owners of Bottling Group, LLC Somers, New York We have audited the consolidated financial statements of Bottling Group, LLC and subsidiaries (the "Company") as of December 30, 2006 and December 31, 2005, and for the years then ended, and have issued our report thereon dated February 27, 2007 (which report expresses an unqualified opinion and includes explanatory paragraphs referring to the Company's adoption of Statements of Financial Accounting Standards No. 123(R), "Share-Based Payment," and No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)," related to the requirement to recognize the funded status of a benefit plan); such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule for 2006 and 2005 of the Company listed in Item I5. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such 2006 and 2005 consolidated financial statement schedule, when considered in relation to the basic 2006 and 2005 consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ Deloitte & Touche LLP New York, New York February 27, 2007 F-2 Report and Consent of Independent Registered Public Accounting Firm The Owners of Bottling Group, LLC: The audit referred to in our report dated February 25, 2005 with respect to the consolidated financial statements of Bottling Group, LLC and subsidiaries, included the related financial statement schedule for the fiscal year ended December 25, 2004, included in this Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the incorporation by reference in the registration statement Nos. 333-108225 and 333-132716 on Form S-3 of Bottling Group, LLC of our report dated February 25, 2005, with respect to the consolidated statements of operations, cash flows, and changes in owners' equity of Bottling Group, LLC and subsidiaries for the fiscal year ended December 25, 2004, and our report on the related financial statement schedule dated February 25, 2005, which reports appear in the December 30, 2006, annual report nn Form 10-K of Bottling Group, LLC. /s/ KPMG LLP New York, New York Feburary 27, 2007 F-3 SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS BOTTLING GROUP, LLC IN MILLIONS Foreign Balance At Beginning Charged to Cost Accounts W ritten Currency Balance At Description Of Period and Expenses Acquisitions Off Translation End Of Period Fiscal Year;End'e'd December30, ~ ~ ,. - 2006 ~ ~ ..._ _ _ti_ __ . ~ ... ~_~ _~ __.,~ ... T__ .m _ _._ . _.. T. .-_ ~ ~ ~ - _ ..,~,,,,, e.. . ~ ~ .. . ~. . . -, __ Allowance fore osses on trade accounts receivable $51 $ 5 $- $ (7) $ 1 $50 Fiscal'Year_Enileil.Dece>Iriber;31; ~ ~ _ ~ ~ - ~ °- ' `_~-2005. -~_.... .~ ,F ... - ~ ;: .- _~. _ ~,_~ ,, ~, ~-. ~ _ - Allowance for losses on trade accounts receivable $61 $ 3 $- $(12) $(1) $51 Fiscal Year_Eniled December 25, .:~~ ~: ~ ;;. 2004 :~ ~.`.., . ~ _~ ~ " ~ ~ ~ _ _ - Allowance for losses on trade accounts receivable $72 $(5) $- $ (7) $ 1 $61 F-4 INDEX TO EXHIBITS Exhibit No. Description of Exhibit 3.1 Articles of Formation of Bottling LLC which is incorporated herein by reference to Exhibit 3.4 to Bottling LLC's Registration Statement on Form S-4 (Registration No. 333-80361). 3.2 Amended and Restated Limited Liability Company Agreement of Bottling LLC which is incorporated herein by reference to Exhibit 3.5 to Bottling LLC's Registration Statement on Form S-4 (Registration No. 333-80361). 4.1 Indenture dated as of February 8, 1999 among Pepsi Bottling Holdings, Inc., PepsiCo, Inc., as guarantor, and The Chase Manhattan Bank, as trustee, relating to $1,000,000,000 5 3/8% Senior Notes due 2004 and $1,300,000,000 5 5/8% Senior Notes due 2009, which is incorporated herein by reference to Exhibit 10.9 to The Pepsi Bottling Group, Inc. ("PBG")'s Registration Statement on Form S-1 (Registration No. 333-70291). 4.2 First Supplemental Indenture dated as of February 8, 1999 among Pepsi Bottling Holdings, Inc., Bottling Group, LLC, PepsiCo, Inc. and The Chase Manhattan Bank, as trustee, supplementing the Indenture dated as of February 8, 1999 among Pepsi Bottling Holdings, Inc., PepsiCo, Inc. and The Chase Manhattan Bank, as trustee, which is incorporated herein by reference to Exhibit 10.10 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 4.3 Indenture dated as of March 8, 1999 by and among PBG, as obligor, Bottling Group, LLC, as guarantor, and The Chase Manhattan Bank, as trustee, relating to $1,000,000,000 7% Series B Senior Notes due 2029, which is incorporated herein by reference to Exhibit 10.14 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 4.4 Indenture dated as of November 15, 2002 among Bottling LLC, PepsiCo, Inc., as guarantor, and JPMorgan Chase Bank, as trustee, relating to $1,000,000,000 4 5/8% Senior Notes due November 15, 2012, which is incorporated herein by reference to Exhibit 4.7 to Bottling LLC's Annual Report on Form 10-K for the year ended December 28, 2002. 4.5 Registration Rights Agreement dated as of November 7, 2002 relating to the $1,000,000,000 4 5/8% Senior Notes due November 15, 2012, which is incorporated herein by reference to Exhibit 4.8 to Bottling LLC's Annual Report on Form ]0-K for the year ended December 28, 2002. 4.6 Indenture, dated as of June 10, 2003 by and between Bottling LLC, as obligor, and JPMorgan Chase Bank, as trustee, relating to $250,000,000 4 1/8 % Senior Notes due June 15, 2015, which is incorporated herein by reference to Exhibit 4.1 to Bottling LLC's registration statement on Form S-4 (Registration No. 333-106285). 4.7 Registration Rights Agreement dated June 10, 2003 by and among Bottling LLC, J.P. Morgan Securities Inc., Lehman Brothers Inc., Banc of America Securities LLC, Citigroup Global Markets Inc, Credit Suisse First Boston LLC, Deutsche Bank Securities Inc., Blaylock & Partners, L.P. and Fleet Securities, Inc, relating to $250,000,000 4 I/8 % Senior Notes due June 15, 2015, which is incorporated herein by reference to Exhibit 4.3 to Bottling LLC's registration statement on Form S-4 (Registration No. 333- 106285). 4.8 Indenture, dated as of October 1, 2003, by and between Bottling LLC, as obligor, and JPMorgan Chase Bank, as trustee, which is incorporated herein by reference to Exhibit 4.1 to Bottling LLC's Form 8-K dated October 3, 2003. 4.9 Form of Note for the $400,000,000 5.00% Senior Notes due November 15, 2013, which is incorporated herein by reference to Exhibit 4.1 to Bottling LLC's Form 8-K dated November 13, 2003. 4.10 Indenture, dated as of March 30, 2006, by and between Bottling LLC, as obligor, and JPMorgan Chase Bank, N.A., as trustee, which is incorporated herein by reference to Exhibit 4.1 to Bottling LLC's Quarterly Report on Form 10-Q for the quarter ended March 25, 2006. 4.1 I Form of Note for the $800,000,000 5'/z% Senior Notes due April 1, 2016 which is incorporated herein by reference to Exhibit 4.2 to Bottling LLC's Quarterly Report on Form 10-Q for the quarter ended March 25, 2006. E- I Exhibit No. Description of Exhibit 10.1 Settlement Agreement between Bottling LLC and PepsiCo, Inc. dated June 28, 2005, which is incorporated herein by reference to Exhibit 10.4 to PBG's Quarterly Report on Form 10-Q for the quarter ended June 11, 2005. 10.2 $500,000,000 5-Year Credit Agreement dated as of April 28, 2004 among PBG, Bottling LLC, JP Morgan Chase Bank, as agent, Banc of America Securities LLC and Citigroup Global Markets Inc., as joint lead arrangers and book managers, and Bank of America, N.A., Citicorp USA, Inc., Credit Suisse First Boston and Deutsche Bank Securities Inc., as syndication agents, w hich is incorporated herein by reference to Exhibit 4.1 to PBG's Quarterly Report on Form 10-Q for the quarter ended June 12, 2004. 10.3 $450,000,000 5-Year Credit Agreement dated as of March 22, 2006 among PBG., Bottling LLC, Citibank, N.A as agent, Citigroup Global Markets Inc. and HSBC Securities (USA) Inc. as joint lead arrangers and book managers and HSBC Bank USA, N.A., as syndication agents, which is incorporated herein by reference to Exhibit 10.1 to Bottling LLC's Quarterly Report on Form 10-Q for the quarter ended March 25, 2006. 10.4* Commitment Increase Notice dated March 22, 2006 relating to the $500,000,000 5-Year Credit Agreement dated as of April 28, 2004 among PBG, Bottling LLC, JP Morgan Chase Bank, as agent, and certain banks identified in the Credit Agreement. 12* Statement re Computation of Ratios. 21 * Subsidiaries of Bottling LLC. 23.1 * Report and Consent of KPMG LLP. 23.2* Consent of Deloitte & Touche LLP. 31.1* Certification by the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification by the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification by the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 * The Pepsi Bottling Group, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 30, 2006. Filed herewith E-2 Exhibit 12 Exhibit 12 RATIO OF EARNINGS TO FIXED CHARGES. We have calculated Bottling LLC's ratio of earnings to fixed charges in the following table by dividing earnings by fixed charges. For this purpose, earnings are before [axes, minority interest and cumulative effect of change in accounting principle, plus fixed charges (excluding capitalized interest) and losses recognized from equity investments, reduced by undistributed income from equity investments. Fixed charges include interest expense, capitalized interest and one-third of net rent which is the portion of the rent deemed representative of the interest factor. Ratio of Earnings to Fixed Charges ($ in millions) Fiscal Year 2006 2005 2004 2003 ,. 2002 _ Net income before taxes; minority'interest and ~ ~ ~ ~ ~ ~ ~ ~,• `' cumulative effect of change in accounting principle. ~ $ ~~ 925 $ ~ 896 ~ $ ~~<. ~ 832 = ~ ~ ~$~ ; 811 -~ .. • $ 792 Undistributed (income) loss from equity investments 2 - (l) (1) - Fixed charges excluding,capitalized..interest , $ 260 ,$ 217 $ 191 , $ 200 `,`, 1.52 Earnings as adjusted $ 1,187 $ 1,113 $ 1,022 $ 1,010 $ 944 Fixed charges: Interest expense $ 227 $ 187 $ 166 $ l77 $ 131 '-'Capitalized interest "~ ~ .. _ _ - ~ ~ .. - ~ „ -.. Interest portion of rental expense ~ 33 30 25 23 21 Total fixed charges ...~~ ,_ , _. . , :. ~ ~ ~_$ 260 ~ _~_ _$ 217 ~... _,.,$ _ 191 , ~ ~ _ h,$ ..,.:200 ~~~ ;,:$ ~ 152.. Ratio of earnings to fixed charges 4.57 5.13 5.35 5.05 6.21 Exhibit 23.1 Exhibit 23.1 Report and Consent of Independent Registered Public Accounting Firm The Owners of Bottling Group, LLC: The audit referred to in our report dated February 25, 2005 with respect to the consolidated financial statements of Bottling Group, LLC and subsidiaries, included the related financial statement schedule for the fiscal year ended December 25, 2004, included in this Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the incorporation by reference in the registration statement Nos. 333-108225 and 333-132716 on Form S-3 of Bottling Group, LLC of our report dated February 25, 2005, with respect to the consolidated statements of operations, cash flows, and changes in owners' equity of Bottling Group, LLC and subsidiaries for the fiscal year ended December 25, 2004, and our report on the related financial statement schedule dated February 25, 2005, which reports appear in the December 30, 2006, annual report on Form 10-K of Bottling Group, LLC. /s/ KPMG LLP New York, New York Feburary 27, 2007 Exhibit 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statements (No. 333-108225, 333-132716) on Form S-3 of our reports dated February 27, 2007, relating to (1) the 2006 and 2005 financial statements and the retrospective adjustments to the 2004 financial statement disclosures of Bottling Group, LLC and subsidiaries and (2) the financial statement schedule for 2006 and 2005 of Bottling Group, LLC and subsidiaries, appearing in this Annual Report on Form 10-K of Bottling Group, LLC and subsidiaries for the year ended December 30, 2006 (which reports express unqualified opinions and which report on the 2006 and 2005 financial statements includes explanatory paragraphs referring to the Company's adoption of Statements of Financial Accounting Standards No. 123(R), "Share-Based Payment; 'and No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)," related to the requirement to recognize the funded status of a benefit plan). /s/ Deloitte & Touche LLP New York, New York February 27, 2007 Exhibit 31.1 Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Eric J. Foss, certify that: 1. I have reviewed this annual report on Form 10-K of Bottling Group, LLC; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-IS(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-IS(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of intemal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 27, 2007 /s/ Eric J. Foss Eric J. Foss Principal Executive Officer Exhibit 31.2 Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 1, Alfred H. Drewes, certify that: 1. I have reviewed this annual report on Form 10-K of Bottling Group, LLC; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 27, 2007 /s/ Alfred H. Drewes Alfred H. Drewes Principal Financial Officer Exhibit 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Sectio^ 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Bottling Group, LLC (the "Company") certities to his knowledge that: (1) The Annual Report on Form 10-K of the Company for the year ended December 30, 2006 (the "Form 10-K") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Act"); and (2) The information contained in the Form 10-K fairly presents, in all material respects, the financial conditions and results of operations of the Company as of the dates and for the periods referred to in the Form 10-K. /s/ Eric J. Foss Eric J. Foss Principal Executive Officer February 27, 2007 The foregoing certification (the "Certification") is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code). A signed original of the Certification has been provided to the Company and will be retained by the Company in accordance with Rule 12b-11 (d) of the Act and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 32.2 Exhibit 32.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Bottling Group, LLC (the "Company") certities to his knowledge that: (1) The Annual Report on Form 10-K of the Company for the year ended December 30, 2006 (the "Form 10-K") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Act"); and (2) The information contained in the Form ] 0-K fairly presents, in all material respects, the financial conditions and results of operations of the Company as of the dates and for the periods referred to in the Form 10-K. /s/ Alfred H. Drewes Alfred H. Drewes Principal Financial Officer February 27, 2007 The foregoing certification (the "Certification") is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code). A signed original of the Certification has been provided to the Company and will be retained by the Company in accordance with Rule 12b-11 (d) of the Act and furnished to the Securities and Exchange Commission or its staff upon request. ~° ~~~ `Tt-vs8~" Tact EnvironmentaB Services UST Construction Design Maintenance Compliance I ~ FedEx Tracking #:8623 4340 4730 August 17, 2007 Bakersfield Fire Department Prevention Services Attn: Steve Underwood 900 Truxtun Avenue, Suite 210 Bakersfield, CA 93301 Re: Testing Results Pepsi Bottling Group 215 East 21~ Street Bakersfield, CA Dear Steve Underswood: Please find enclosed the following test results dated August 8, 2007 for the above referenced facility: ^ Monitoring System Certification ^ Spill Bucket Testing Report Form ^ Leak Detector Testing If you have any questions regarding any of the enclosures please feel free to call me at (714) 567-6407 or email me at pyerkes@tait.com. Sincerely, 'r~~'ivt~-GU ~ (~~k~., Pamela Yerkes Project Manager PDY Enclosures cc: Scott Hawkins, Pepsi Bottling Group CA Lic #588098 AZ Lic #095984 • NV Lic #0049666 2131 South Dupont Drive, Anaheim, California 92865 714.580.8222 714.978.2615 Fax 11280 Trade Center Drive Rancho Cordova, California 95742 916.858.1090 916.858.1011 Fax www.tait.com MONITORING SYSTEM CERTIFICATION For Use By All Jurisdictions Within the State of California Author°ity Cited: Chapter 6.7, Health and Safety Code; Chapter 16, Division 3, Title 23, California Code of Regulations This form must be used to document testing and servicing of monitoring equipment. A separate certification or report must be prepared for each monitoring system control panel by the technician who perfomis the work. A copy of this form must be provided to the tank system owner/operator. The owner/operator must submit a copy of this form to the local agency regulating UST systems within 30 days of test date. A. Generallnfonmation Facility Name PEPSI BOTTLING GROUP Site Address: 215 EAST 21sT STREET Facility Contact Person: SCOTT HAWKINS City: BAKERSFIELD Zip: 93305 Contact Phone No.: (661) 635-1188 Make/Model of Monitoring System: VEEDER ROOT/SIMPLICITY Date of Testing/Service: B. Inventory of Equipment Tested/Certified Check the a ro riate boxes to indicates ecific a ui ment ins ected/serviced: 8!8/07 1~ank ID: DIESEL Tank ID: ®In-Tank Gauging Probe: Model: 847390-109 ^In-Tank Gauging Probe: Model: ®Annular Space or Vault Sensor: Model: 794380-302 ^Annular Space or Vault Sensor Model: ®Piping Sump/Trench Sensor (s): Model: 794380-352 ^Piping Sump/Trench Sensor (s): Model: ^Fill Sump Sensor (s): Model: ^Fill Sump Sensor (s): Model: ®Mechanical Line Leak Detector. Model: RED JACKET ^Mechanical Line Leak Detector. Model; FX IDV ^Electronic Line Leak Detector Model: ^Electronic Line Leak Detector Model: ®Tank Overfill/High-level Sensor: Model: FLAPPER ^Tank OverfilUHigh-level Sensor: Model: VALVE ^Other, Specify equi .type and model in Section E on Page 2 ^Other, Specify equip. t e and model in Section E on Pa e 2 Tank 1D: Tank ID: ^In-Tank Gauging Probe: Model: ^In-Tank Gauging Probe: Model: ^Annular Space or Vault Sensor: Model: ^Annular Space or Vault Sensor Model: ^Piping Sump/Trench Sensor (s): Model: ^Piping Sump/Trench Sensor (s): Model: ^Fill Sump Sensor (s): Model: ^Fill Sump Sensor (s): Model: ^Mechanical Line Leak Detector. Model: ^Mechanical Line Leak Detector. Model: ^Electronic Line Leak Detector Model: ^Electronic Line Leak Detector .Model: _ ^Tank OverfilUHigh-level Sensor: Model: ^Tank OverfilUHigh-level Sensor: Model: ^Other, S ecify equip. t e and model in Section E on Pa e 2 ^Other, S ecify equip. t e and model in Section E on Page 2 Dispenser ID: 1-2 Dispenser ID: ^Dispenser Containment Sensor(s): Model: ^Dispenser Containment Sensor(s): Model: ^ Shear Valve(s). ^ Shear Valve(s). ®Dispenser Containment Float(s) and Chain(s) ^Dis enser Containment Float(s) and Chain(s) Dispenser ID: Dispenser ID: ^Dispenser Containment Sensor(s): Model: ^Dispenser Containment Sensor(s): Model: ^ Shear Valve(s). ^ Shear Valve(s). ^Dis enser Containment Float(s) and Chain(s) ^Dis enser Containment Float(s) and Chain(s) *lf the facility contains more tanks or dispensers, copy this form. Include information for every tank and dispenser at the facility. C. CP,rtl)~1Catlori - 1 certify that the equipment identified in this document was inspected/serviced in accordance with the manufacturers' guidelines. Attached to this Certification is information (e.g. manufacturers' checklists) necessary to verify that this information is correct and a Plot Plan showing the layout of monitoring equipment. For any equipment capable of generating such reports, I have also attached a copy of the report; (check all that apply): !] System set-up larm history report Technician Name (Print): ADOLFO AGUILAR Signature: Certification No.: A20066 License No.: 588098 Testing Company Name: TAIT ENVIRONMENTAL SERVICES Phone No.: (714.560-8222 Monitoring System Certification Site Address: 215 EAST 21sT STREET, BAKERSFIELD, CA Date of Testing/Servicing: 08/08/07 D. Results of Testing/Servicing Software Version Installed: 119.05 Complete the following checklist: ® Yes ^ No* Is the audible alarm o erational? ® Yes ^ No* Is the visual alarm o erational? ® Yes ^ No* Were all sensors visually ins ected, functionally tested, and confirmed operational? ® Yes ^ No* Were all sensors installed at lowest point of secondary containment and positioned so that other equipment will not interfere with their roper o eration? ® Yes ^ No* If alarms are relayed to a remote monitoring station, is all communications equipment (e.g. modem) ^ N!A operational? ® Yes ^ No* For pressurized piping systems, does the turbine automatically shut down if the piping secondary containment ^ N/A monitoring system detects a leak, fails to operate, or is electrically disconnected? If yes: which sensors initiate positive shut-down? (Check all that apply) ®Sump/Trench Sensors; ^ Dispenser Containment Sensors. Did you confirm positive shut-down due to leaks and sensor failure/disconnection? ®Yes; ^ No. ^ Yes ^ No* For tank systems that utilize the monitoring system as the primary tank overfill warning device (i.e. no ® N/A mechanical overfill prevention valve is installed), is the overfill warning alarm visible and audible at the tank fill oint(s) and o erating ro erly? If so, at what ercent of tank ca acity does the alarm tri ger? ^ Yes* ®No Was any monitoring equipment replaced? If yes, identify specific sensors, probes, or other equipment replaced and list the manufacturer name and model for all re lacement parts in Section E, below. ^ Yes* ®No Was liquid found inside any secondary containment systems designed as dry systems? (Check all that apply) ^ Product; ^ Water. If yes, describe causes in Section E, below. ® Yes ^ No* Was monitoring system set-u reviewed to ensure pro er settings? ® Yes ^ No* Is all monitoring equipment operational per manufacturer's specifications? * In Section E below, describe how and when these deficiencies were or will be corrected. E. Comments: Page 2 of 4 Site Address: 215 EAST 21sT STREET, BAKERSFIELD, CA Date of Testing/Servicing: 08/08/07 F. In-Tank Gauging /SIR Equipment: ®Check this box if tank gauging is used only for inventory control. ^ Check this box if no tank gauging or SIR equipment is installed. This section must be completed if in-tank gauging equipment is used to perform leak detection monitoring. Complete the following checklist: ® Yes ^ No* Has all input wiring been inspected for proper entry and termination, including testing for ground faults? ® Yes ^ No* Were all tank gauging probes visually inspected for damage and residue buildup? ® Yes ^ No* Was accuracy of system product level readings tested? ® Yes ^ No* Was accuracy of system water level readings tested? ® Yes ^ No* Were all probes reinstalled properly? ® Yes ^ No* Were all items on the equipment manufacturer's maintenance checklist completed? * In the Section H, below, describe how and when these deficiencies were or will be corrected. G. Line Leak Detectors (LLD): ^Check this box if LLDs are not installed. Complete the following checklist: ® Yes ^ No* For equipment start-up or annual equipment certification, was a leak simulated to verify LLD performance? ^ N/A (Check all that apply) Simulated leak rate: ®3 g.p.h. ~; ^ 0.1 g.p.h.Z; ^ 0.2 g.p.h.z Notes: 1. Required for equipment start-up certification and annual certification. 2, Unless mandated by local agency, certification required only for electronic LLD start-up. ® Yes ^ No* Were all LLDs confirmed operational and accurate within regulatory requirements? ® Yes ^ No* Was the testing apparatus properly calibrated? ® Yes ^ No* For mechanical LLDs, does the LLD restrict product flow if it detects a leak? ^ N/A ^ Yes ^ No* For electronic LLDs, does the turbine automatically shut off if the LLD detects a leak? ® N/A ^ Yes ^ No* For electronic LLDs, does the turbine automatically shut off if any portion of the monitoring system is disabled ® N/A or disconnected? ^ Yes ^ No* For electronic LLDs, does the turbine automatically shut off if any portion of the monitoring system ® N/A malfunctions or fails a test? ^ Yes ^ No* For electronic LLDs, have all accessible wiring connections been visually inspected? ® N/A ® Yes ^ No* Were all items on the equipment manufacturer's maintenance checklist completed? * In the Section H, below, describe how and when these deficiencies were or will be corrected. H. Comments: Page 3 of 4 ite Address: pp~ Pj~ ~jp ~~~,'nf (,/br1,0 ZC S ~ 7 ! ~`~ • ~~„ ~ul,~~;~j~~ate of Testing/Servicing Monitoring System Certification UST Monitoring Site Plan _ ~'/~~~ ~ :1 :::::::::::::::::::::::::::::::::::::::........ ~ ~ . ~ ....................................... ~ ~~ps~ ao~-r>!~ ~s~~ . .~. X y Vi ~ ti {,/ V~ ./~ i .~ . Date map was drawn: ~ ~ g ~~. Instructions If you already have a diagram that shows all required information, you may include it, rather than this page, with your Monitoring System Certification. On your site plan, show the general layout of tanks and piping. Clearly identify locations of the following equipment, if installed: monitoring system control panels; sensors monitoring tank annular spaces, sumps, dispenser pans, spill containers, or other secondary containment areas; mechanical or electronic line leak detectors; and in-tank liquid level probes (if used for leak detection). In the space provided, note the date this Site Plan was prepared. Page `7 of y Page _of 9. Spill Bucket Testing Report Form This form is intended for use by contractors performing annual testing of UST spill containment structures. The completed form and printouts fr°am tests (if applicable), should be provided to the facility owner/operator for submittal to the local regulatory agency. FACILITY INFORMATION Facility Name: PEPSI BOTTLING GROUP Date of Testing: 08/08/07 Facility Address: 215 EAST 21sT STREET, BAKERSFIELD, CA 93305 Facility Contact: SCOTT HAWKINS Phone: (661) 635-1188 Date Local Agency Was Notified of Testing : 07/24/07 Name of Local Agency Inspector (if present during testing: STEVE UNDERWOOD (FIRE DEPT.) TESTING CONTRACTOR INFORMATION Company Name: TAIT ENVIRONMENTAL SERVICES Technician Conducting Test: ADOLFO AGUILAR Credentials: ®CSLB Contractor ®ICC Service Tech. ^ SWRCB Tank Tester ^ Other (Specify) License Number(s): CSLB = 588098 ICC = 5238610- UT INCON = 0106627 SPILL BUCKET TESTING INFORMATION Test Method Used: ®Hydrostatic ^ Vacuum ^ Other Test Equipment Used: INCON Equipment Resolution: ,, fi,~_.e •, ,~.. _ _ ~ _ _. .~ - ..._~ -~~~ , - _ _ F Identify Spill Bucket (By Tank -Number, Stored Product, etc.) 1 DIESEL BUCKET 3 4 Bucket Installation Type: ^ Direct Bury ®Contained in Sum ^ Direct Bury ^Contained in Sum ^ Direct Bury ^Contained in Sum ^ Direct Bury ^Contained in Sum Bucket Diameter: 12 Bucket Depth: 12 Wait time between applying vacuum/water and start of test: 15 MIN. Test Start Time (T,): 12:07 12:22 ]nitial Reading (R,): 2.3030 3.3026 Test End Time (TF): 12:22 12:37 Final Reading (Rr): 2.3025 2.3028 Test Duration (TH - T,): 15 MIN. 15 MIN. Change in Reading (RF - R,): -.0005 +.0002 Pass/Fail Threshold or Criteria: .002 .002 Test Result: ®Pass ^ Fail ^ Pass ^ Fail ^ Pass ^ Fail ^ Pass ^ Fail Comments - (include information on repairs made prior to testing, and recommended follow-up for failed tests) WATER LEFT AT SITE PROPERLY LABELED. CERTIFICATION OF TECHNICIAN RESPONSIBLE FOR CONDUCTING THIS TESTING I hereby certify that all the information contained in this report is true, accurate, and in full compliance with legal requirements. Technician's Signature: Date: 08/08/07 ~ State laws and regulations drrently require testing to be performed by a qualified contractor. However; local requirements maybe more stringent. Facility Name: PEPSI BOTTLING GROUP Technician: Location Tested: 215 E. 21 STREET BAKERSFIELD, CA 93305 Tech ID#: Contact: Test Date: 8/08/07 Test Leak Rate Metering ADOLFO AGUILAR 5238610-UT (714) 560-8722 Opening NEW Pass/ rroauct nn~rnnin rsl slow rlow rceslnenc i Ime I_.u. ran ser ~ DIESEL 189 24 12 150 2 SEC. NO PASS Leak Detector Type (Check One): ^ XLD P/N 116036 ^ PLD P/N 116030 ^ BFLD P/N 116012 ^ XLP P/N 116035 ^ BLFLD (XL Model) P/N 116039 ^ DLD P/N 116017 ^ FE PETRO ^ FX IV ® FX IDV ^ VAPORLESS LD 2000 ^ VAPORLESS LD 2200 ^ VAPORLESS LD 3000 ^ TOKHEIM ^ OTHER Technician Signature: CA Lic #588098 • AZ Lic #095984 • NV Lic #0049666 1863 North Neville Street Orange, California 92865 714.560.8222 714.685.0006 Fax 11280 Trade Center Drive• Rancho Cordova, California 95742 916.858.1090 916.858.1011 Fax www.tait.com SYSTEM SETUP AUG B. 2007 9:24 AM - -- ~i 108859 PEPSI SITE 9~ 215 EAST 21ST STREET ' ' BAKERSFIELD.CA 93306 81152324905001 • AUC; 8. '007 9:24 AM I SYSTEM STATUS REPORT -' ALL FUNCTIONS NORNIAI. INVENTORY REPGRT T 1:AIESEL FUEL VOLUME _ ?23b u^ALS ULLAGE = 7866 GALS 90~ ULLAGE= 6355 GALS TC VOLUME = 7145 GALS HEIGHT 57.71 INCHES WATER VOL = 0 GALE WATER = 0.00 INCHES TEMP 87.9 DEG F ~ ~ * ~ * ENU ~€ ~ ~ ~ ~ SYSTEM UNITS U,S. SYSTEM LANGUAGE ENGLISH SYSTEM DATE~TIME FORMAT MON DD YYYY HH:MM:S~a xM 106889 PEPSI SITE 9 215 EAST 21ST STREET 13AKERSFIELD,CA 93305 61 15,~.32d905001 SHIFT TIME 1 : 6:00 AM SHIFT TIME 2 : DISABLED SHIFT TIME 3 :' DISABLED '• SHIFT TIME 4 : DISABLED ~:~ -~~.H-i F~°_H-I->~ ~- PFti N-T+31:1TS- DISABLED DAILY HIR PRINTOUTS LISABLED TICKETED DELIVERY DISABLED TANK PER TST NEEDED WRN DISABLED TANK ANN TST NEEDED WRN DISABLED LINE RE-ENABLE METHOD PASS LINE TEST LINE PER TST NEEDED WRPJ DISABLED LINE ANN TST NEEDED WRN DISABLED PRINT TC VOLUMES ENABLED TEh1A COMPENSATION VALUE (DEG F ?: 60.0 STICK HEIGHT OFFSET DISABLED H-PROTOCOL DATA FORMAT HEIGHT DAYLIGHT SAVING T I f~lE ENABLED wTART DATE MAR WEEK 3 SUN START TIME ? : 05 Ahl END DATE NOV WEEK 1 SUN END TIME 2:00 AM RE-DIRECT LOCAL PRINTOUT DISABLED EURO PROTOCOL PREFII; S SYSTEM SECURITY coDE oooo0n COMMUNICATIONS SETUP PORT SETTINGS GOMM BOARD 2 f F?;I°IOD ) BAUD RATE 2400 PARITY ODD STOP BIT 1 STOP DATA LENGTH: 7 DATA D 1 AL T`!FE TONE ANSWER ON 1 RING RECEIVER SETUP: D B:SINPLICITY CENTER i 1-866-743-8379 RGVR TYFE: CONFUTER -P.Q.RT NO: 2 - ~RETRS' DELAY: 5 ' CONFIRMATION REPORT: UFF AUTO D T A~. T I NE SET OF : D 8: S I f°1PL I C I TY CE IdTER DIAL MONTHLY WEEK 2 FRI DIAL TIME 1:49 AM RECEIVER REFt?RTS RS-232 STCURITY GODS 000000 TEST DATE: 08/08/07 CLIENT: PEPSI BOTTLING GROUP PAGE ~ OF 215 EAST 21ST STREET, BAKERSFIELD, CA 93305 IN-TANK SETUP RS-232 EPJD OF MESSAGE DISABLED AUTO DIAL ALARM SETUP D $:SIMPLICITY CENTER IN-TANK ALARMS ALL:LEAK ALARM ALL:SUDDEN LOSS ALARhi ALL:PROBE OUT ALL:GROSS TEST FAIL ALL:PERIODIG TEST FAJL ALL:NO CSLD IDLE TIME ALL:CSLD INCR RATE WARN ALL:ACCU_CHART CAL WARN ALL:LOW TEMP WARMING ALL:GROSS FAIL LINE TNK LIQUID SENSOR ALMS ALL:FUEL ALARM ALL:SENSOR OUT ALARM ALL:SHORT ALARM ALL:WATER ALARM ALL:WATER OUT ALARM ' ALL:HIGH LIQUID ALARM ALL:LOW LIQUID ALARM ALI-:LIQUID WARNING RECEIVER ALARMS SERVJGE REPORT WARN ALARM CLEAR WARNING POWER SIDE DIM ALh1 ALL:DISABLED DIhI ALARM ALL:COMMUNICATION ALARM T 1:DIESEL FUEL PRODUCT CODE 1 THERMAL COEFF :.000450 TANK DIAhIETER 119.50 TANK FROFILE 4 PTS FULL VOL 15102 89.6 INCH VOL : 12290 59.9 INCH VOL ?580 29.9 INCH VOL 2838 METER DATA : YES END FACTOR: HEMISPHER CAL UPDATE: IMMEDIATE FLOAT SI?E: 4.0 IN. 8496 WATER WARNING 1.5 HIGH WATER LIMIT: 2.0 MAX OR LABEL VOL: 15102 OVERFILL LIMIT BBo 13289 HIGH PRODUCT 92% 13893 DELIVERY LIMIT : 20a 3020 LOW PRODUCT 1000 LEAK ALARM LIMIT: 24 SUDDEN LOSS LIMIT: 50 TANK TILT 1.51 MANIFQLDED TANKS Ttt: NONE LEAK MIN PERIODIC: 0% 0 LEAK MIN ANNUAL 0°ro 0 PERIODIC TEST TYPE STANDARD ANNUAL TEST FAIL ALARM DISABLED ' PERIODIC TEST FAIL i ALARM DISABLED GROSS TEST FA[L ALARM DISABLED ANN TEST AVERAGIIG: OFF PER TEST AVERAGING: OFF TANK TEST NOTIFY: OFF TNK TST SIPHON HREAK:OFF DELIVERY DELAY 5 MIN ': - --- "" LEA){ -TEST~METHs?D~ ~ _ - -` - - - - - - - - - - - - i TEST CSLD ALL 'I'ANI: ` Pd 99% CLIMATE~,FACTOR:MODERATE i LEAK TEST REPORT FORMAT NURI"lAL 108889 FEPSI SITE 9 215 EAST 21ST STREET HAK~ERSFiELD,CA 93305 81152324905001 AUG 8. 2007 9:25 AM FUEL MANAGEMENT SETUP DELIVERY WARN DAYS: O.a AUTQ PRINT: DISABLED T 1:DIESEL FUEL AVG SALES-SUN: 40 GAL AVG SALES-MON: 496 caAL AVG SALES-TUE: 672 GAL AVG SALI{S-WED : 722 GAL AVG SALES-T HR: 696 GAL AVG SALES-FR1: 653 GAL AVG SALES-SAT: 277 GAL LIQUID SENSOR SETUP L 1:ANNULAR SPACE DUAL FLOAT HYDROSTATIC CATEGORY ANNULAR SPACE L 2:TURBINE SUMP DUAL FLT. HIGH VAFQR CATEu^ORY STP SUMP TEST DATE: 08/08!07 CLIENT: PEPSI BOTTLING GROUP PAGE ~ OF~ 215 EAST 21 STREET, BAKERSFIELD, CA 93305 OUTPUT RELAY SETUP R 2:POSITIVE SHUTDOUHV TYPE: STANDARD NORMALLY CLOSED IN-TANK ALARMS ALL:LEAK ALARM ALL:SUDDEN LOSS ALARM LIQUID SENSOR ALMS L 2:FUEL AL-ARM-- - RECONCILIATIOfV SETUP MDIM 1: TTGG AUTOMATIC DAILY CLOSING TIME: 2:00 AM AUTO SHIFT ~1 CLOSING T 1 IHE : D I SAHLED AUTO SHIFT #2 CLOSING TIMF: DISABLED AUTO SHIFT #3 CLOSING TIME: DISABLED AUTO SHIFT #4 CLOSING TIME: 6:00 AM PERIODIC RECONCILJATION MODE: MONTHLY ALARM: DISABLED TEMP COMPENSHTION STANDARD HUS SLOT FUEL METER TANK 2 10 0 0 1 2 10 1 0 1 SOFTWARE REVISION LEVEL VERSION 119.05 SOFTWAREit 341119-100-F CREATED - 00,02.25.12.15 S-MODULEit 33G1b0-105-A SYSTEM FEATURES: PERIOD 1 C 1 IV-TANK TESTS ANNUAL IN-TANK TESTS CSLD HIR FUEL MANAGER ALARM HISTORY REPORT ----. IN-TANK ALARM ----- T 1:DIESEL FUEL H I [iH~ WATER ALARM JUL '22, 2004 11:24 AM OVERFILL ALARhI JUL 22, 2004 11:15 AM N1AR 17, E004 8:43 AM JUL 16. 2003 5:48 AM LOW PRODUCT ALAR1~1 MAY 25, 2005 2:50 PM MAY 25, 2005 2:36 PM MAY 19, 2005 10:58 Pf°1 HIGH PRODUCT ALARI°t AUG 2, 2005 5:34 AM JUL 22, 2004 11:15 AM JUL 16, 2003 9:47 Ahl I NVAL I D FUEL LE1/EL MAY 25, 2005 2:49 Phl MAY 25, 2005 2::~b PNi MAY 19, 2005 10:58 Ph9 PROBE OUT AUG 2, 2005 9:34 AM AUG 2. 2005 9:32 AM NIAY 25, 2005 3:11 PM HIGH WATER WARNING JUL 22, 2004 11 :24 Af°i DELIVERY NEEDED AUG 1 , 2007 5 : 15 PI°1 JUL ]8. 2007 4:45 PM JUL 2, 2007 4:37 AM ACCU_CHART CAL WARN JUL 30, 2001 11:30 ANI RECON WARNING JAN 2?-, 2003 5:30' AM JAN 20, 2003 2:30 PM JAN 13, 2003 2:30 PM RECON ALARM JAN 27, 2003 1 :30 PP'I JAN 20. 2003 3:30 P1°1 JAN 13, 2003 2:3G PM LOW TEMP WARNING MAY 19. 20D5 1:33 PM JUL 22, 2D04 11 :2E AM JUL 9, 2004 l1:30 AM ~€ ~ ~ ~ ~ END ~ ~ ~ TEST DATE: 08/08/07 CLIENT: PEPSI BOTTLING GROUP PAGE _~ OFT~~ 215 EAST 21ST STREET, BAKERSFIELD, CA 93305 ALARM HISTORY REPORT ----- SENSOR ALARM ----- L 1 : r;NNULAR SPACE ANNULAR SPACE - SENSOR ALARM --- LOW LIQUID ALARM ' AUry 7, 2006 12:13 Phl L 1 : ANidULAR SPACE ANNUL~,R SPACE HIGH LI~dUID ALARNi LUW LI~iUIU F~LARM AUG 7, 2006 12:11 PM AUG 8. '2DD7 1G:34 flh9 Lt}W L I Q U I D ALARM AUG 7, 2006 12:11 PM ~ ~ ~ ~ END ~ ~€ ~ ~ ~ 108889 PEPSI SITE 9 215 EAST 2LST STREET BAKERSFIELD~CA 93305 81152324905001 AUG 8, 200.' , .9:2E. AM SYSTEM STATUS REPORT ALL FUNCTIONS NORMAL - ALr=HRI°I H 1 STGR`1 REPORT ----- SENSOR ALARM ----- L 2:TURBINE SUMP STP SUMP FUEL ALARM AUG 7. 2006 12:14 PM FUEL ALARM AUG 2, 2005 10:01 AM FUEL ALARM AUG 2, 2005 9:56 AM ~ ~ ~ ~ ~ END ~ ~ ----- SENSOR fiLARr9 --- L 2:TUR8INE SUMP STP SUMP SENSOR OUT ALARP9 AUG B,. 2007 10:3h AM ----- SENSOR ALARI°I ----- L 1:ANNULAR SPACE ANNULAR SPACE SENSOR OUT ALARhI AUG 8. 2007 1D:36 AN1 1088tiyPEPSI SITE 9 215 EAST •? 1 ~;T STREET BAKERSFIELD~CA 93305 811523'?4y05001 AUG B. 200? 1'~; 10 F'M SYSTEM STATUti REFuRT D B:ALARM CLEAR WHRNINu TEST DATE: 08/08/07 CLIENT: PEPSI BOTTLING GROUP PAGE ~ OF~ 215 EAST 21ST STREET, BAKERSFIEI.D, CA 93305 OUTPUT RELA'~ SETUP R 2 : FOS IT I VE SHUTD{?WN TYPE: STANDr;RD NORMALLI' CLOSED IN-TANK ALARMS ALL:LEAK ALAR1~1 ALL:SUDDEN LOSS ALARM LIQUID SENSOR ALI°1S L 1:FUEL ALARM L 2:FUEL ALARM L 1:SENSOR OUT ALARM L 2:SENSOR OUT ALARM L 1:SHORT ALARM L 2:SHORT ALARM L 1:HIGH LI©UID ALr=+RM _-- L 1_LOW .LJ(~~ll~ AI,HRM 108689 PEFSI SITE 9 215 EAST 21ST STREET BAKERSFIELD.CA 93305 811523249u50U1 AUG 8. 20u~ 12:18 PM S'lSTEM STATUS REPORT D B:ALARM CLEAR WAF.NING PEPt~I EOTTLING GROUP '~1` E. 21'tiT. T, PAKEFlSFIELG L`r1 9330` 92833 p8/~i8~20Q7 11:56 tit~i SUMR LEVEL REPORT ^Uh1R SRBI~T 2.36` 1hd ~E F'i,I F~OTTLItJG GROUP ?15 c ~1bT. ST. ~,HKI=RSFIELA t.t! ~.}~~'.ci 7.f.. V 4 :SUMP i_,:_^iIC TEtiT ;iEPORT SP6b'..T rF T STARTED _ 12: F~7 !'M TEST STfiRTi;D @R~68~2ki6? a;Eu`TN LEUEt. ~• Z.z6~6 IN FNG TIME 1?~ 22 Rh; G.NG GATE 08~v]8~2p67 Eh~G LEVEL 2.3625 Ih! LEAK THRESHOLG 6.062 IN TEST RESULT Pt~SSGI-~ ~" ?EPSI 6OTTLING r,ROUP 215 E> ?1ST. ;3T. fiAKI=RSFIEt_t7 GA 5336 y2833 S'Ut~P LEAK TEST REPORT SPEI;`T TEST 'LTARTED 12:22 P'('f TEST STARTEC: 08~6Ec,-2a6? EEGIN LEVEL 2.3626 TN ENG TIthE I2: i7 Pf'? ENG GATE 08~08i2007 ENG LEVEL 2.3Q2$ IN LENK THRESHOLG X7.682 IN TEST RESiJL7 .... Pf3S~ ECG TEST DATE: 08/08/07 CLIENT: PEPSI BOTTLING GROUI? PAGE ~ OF~ 215 EAST 21ST STREET, BAKERSFIELD, CA 93305 '• ~, L~ a PEPSI COLA BOTTLING GROUP 954 Manager SCOTT HAWKINS Location: 215 E 21ST ST City BAKERSFIELD SiteID: 015-021-000984 1 BusPhone: (661) 635- Map 103 CommHaz High Grid: 29A FacUnits: 6 AOV: CommCode: BFD STA 02 EPA Numb: SIC Code:2086 DunnBrad: Emergency Contact / Title Emergency Contact / Title SCOTT HAWKINS / MANAGER GEORGE RIBEIRO / SUPERVISOR Business Phone: (661) 635-1188x Business Phone: (661) 635-1100x 24-Hour Phone (661) 635-1188x 24-Hour Phone (661) 635-1187x Fame-~ Phone (661) 979-3070x ~~ Phone (661) 667-1294x L Hazmat Hazards: Fire Press ImmHlth DelHlth Contact SCOTT HAWKINS Phone: (661) 635-1188x MailAddr: 215 E 21ST ST State: CA City BAKERSFIELD Zip 93305 Owner PEPSI COLA BOTTLING GROUP ~ Phone: (661) 635-1100x Address 215 E 21ST State: CA City BAKERSFIELD Zip 93305 Period to TotalASTs: = Gal Preparers TotalUSTs: = Gal Certif'd: RSs: No ParcelNo• Emergency Directives: PROG A - HAZMAT ~ ~~ '''' PROG T - ABOVEGROUND STORAGE TANK PROG U - UST ~ /a ~,/ ~~~' ~~~~ based on my inauin+ of those indi~~iduals respcnsi le ;ur ebia!ning the rnform~ition, I certify unde{ p2nalt/ o; la~~ that I have personally ~N~ O~~~REO examined and am farrrifiar with the information submitted il d b nr an e evp the information is true .-- ` ~ mss , accurate, and complete. I® 5~~~~ Pc~ // O F'F~Gb ~~~ ~tf6/O7 ~ ro ~l7 Signature -'~iQ'Tn„ ®a ~ 3 ~ ~s ~'M . -1- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ STORAGE CONTAINER DATA (UST FORM A) Last Action Type: FACILITY/SITE INFORMATION Business Name: PEPSI COLA BOTTLING GROUP 954 Cross Street Business Type: Org Type: Total Tanks 1 IndnRes/Trust: No PA Contact: Dsg Own/Oper REX ABACON ICC Nbr: 5227108-UC PROPERTY OWNER INFORMATION Name f CP,S~' 8~7Tcz.vc- (,-~c~c~p Phone : ( 6 61) 6 3 5 -110 Ox Address : ~.IS" ~' ..Z ~ g-r 5'TR ~~7 City 6.~-xs~5f~~ State: c:/4- Zip: x'33°S Type CORPORATION TANK OWNER INFORMATION Name r'F'C1RC'F T~~T Pc-as:~ g~Ti ~,~~- c~2ov.° Phone Address : o2,1S E. 2Js' s'iaEC-~ (661) 635-1100x City ,QjA-K~RSfzccr, State: C~ Zip: `~33oS Type CORPORATION BOE UST Fee# UNKNOWN Financ'1 Resp: STATE FUND & CFO LETTER Legal Notif PRvpEk`ry ow,vB~ r~~r~..r-~.,~~ A-op~~ss Date: Phone: (266) 111-00 x Name: Ttl: State UST # 015-021000 1998 Upg Cert#: 00799 -2- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Hazmat Inventory By Facility Unit ~ ~ MCP+DailyMax Order MANUFACTURING PLANT/OFFICE ~ Hazmat Common Name... SpecHaz EPA Hazards Frm DailyMax Unit MCP LIQUEFIED PETROLEUM GAS F P IH G 36980.00 FT3 Hi ACETYLENE E F P IH G 144.00 FT3 Hi DIESEL FUEL #2 F IH DH L 15000.00 GAL Low GEAR OIL F DH L 120.00 GAL Low CARBON DIOXIDE F P IH G 52700.00 LBS Min ARGON F P IH G 333.00 FT3 Min SYNTHETIC DETERGENTS DH L 165.00 GAL UnR ~,.L~ E GXY~-CN -3- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Hazmat Inventory By Facility Unit ~ ~ MCP+DailyMax Order VENDING ~ Hazmat Common Name... SpecHaz EPA Hazards Frm DailyMax Unit MCP CARBON DIOXIDE C/t'~6vt~/ DT~'~T~4E F P f f IH ~H- G G 2720.00 sQOU.Uo LBS Min ~l~S i4~ -4- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Hazmat Inventory By Facility Unit ~ ~ MCP+DailyMax Order FLEET/SUPPLY WAREHOUSE ~ Hazmat. Common Name... SpecHaz EPA Hazards Frm DailyMax Unit MCP OILY WATER F IH L 1500.00 GAL Low ~C GEAR OIL ~ F DH L 200.00 GAL Low TRANSMISSION FLUID F DH L 100.00 GAL Low MOTOR OIL F DH L 350.00 GAL Min GREASE F DH L 55.00 GAL Min ABSORBS IT #01037 DH S 600.00 LBS UnR -5- 07/13/2007 -6- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 0005 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME LIQUEFIED PETROLEUM GAS Days On Site 365 Location within this Facility Unit Map: Grid: CTR S FENCE RM 7 CAS# 74-98-6 STATE Gas TYPE PRESSURE TMixtur~Above Ambient TEMPERATURE Ambient CONTAINER TYPE ABOVE GROUND TANK AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average ~~ Cf~Q~p~ FT3 36980.00 FT3 I 18490.00 FT3 t1AGHtCLVUJ lrV1~lYV1VL"1V1~ %Wt. RS CAS# 100.00 Liquefied Petroleum Gas No 68476404 t1E~GHKL A~~L"~~S1~1J;1V'1'~ TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH / / / Hi ~ Inventory Item 0007 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME ACETYLENE Days On Site 365 Location within this Facility Unit Map: Grid: S WALL RM 5 CAS# 74-86-2 ~GasATE TPureE ~-AboveSAmbEent AboveAmbient PORTCOPRESSERCYLINDER AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average fy ~ Da FT3 144.00 FT3 72.00 FT3 - ru~ar~uu~vua ~vrir~iV~1Vl~ %Wt. RS CAS# 100.00 Acetylene Yes 74862 --- riL-~G1.1.tCL E~. 7.7L" .7J1~1L" 1V l a TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH / / / Hi -7- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 0003 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME DIESEL FUEL #2 Days On Site 365 Location within this Facility Unit Map: Grid: ISLAND CTR RM 7 CAS# 68476-34-6 Liquid ~Mixtur~ AmbRent~E ~ AmbientT~E -~ER GROIINDRTANKE AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average (~O.V O .GAL 15 0 0 0 . 0 0 GAL l ~~ pp~- ,. GAL -- riAGFittLVUS 1:V1~lYV1VL' 1V 15 %Wt. RS CAS# 100.00 Diesel Fuel No. 2 No 68476302 tiHGHK1J AJ a l'; ~ 71~1L1V 1 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F IH DH / / / Low ~ Inventory Item 0019 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME OXYGEN Days On Site 365 Location within this Facility Unit Map: Grid: S WALL RM 3 CAS# 7782447 ~GaSATE TYPE T PRESSURE ~~ TEMPERATURE ~~ CONTAINER TYPE ~ TPure I Above Ambient I Ambient I PORT. PRESS. CYLINDER I AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average OC? FT3 ~ ~ V ~ FT3 a yQ, ot~ ~~-Q,^•r- FT3 L1HGl'i[CLVUiJ 1..V1~lYV1VL"1V1.7 %Wt. RS CAS# 100.00 Oxygen, Compressed No 7782447 rLHGEiCCL H.7 .7~.7.71°1r,1V 1 A TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH DH / / / Low -8- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 0014 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME GEAR OIL Days On Site 365 Location within this Facility Unit Map: Grid: SW CRNR RM 3 CAS# 8020835 STATE TYPE PRESSURE TEMPERATURE CONTAINER TYPE Liquid Mixture Ambient Ambient DRUM/BARREL-METALLIC AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average GAL 120.00 GAL 120.00 GAL - HAZARDOUS COMPONENTS oWt. RS CAS#. 100.00 Light Machine Oil No 8020835 riAGf1K1J H5.7t~.7~1~11";1V'15 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F DH / / / Low ~ Inventory Item 0001 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME CARBON DIOXIDE Days On Site 365 Location within this Facility Unit Map: Grid: NW CRNR RMS 5 & 1 CAS# 128-38-9 STATE TYPE PRESSURE TEMPERATURE CONTAINER TYPE _ Gas TPure ~-Above Ambient Below Ambient PORT. PRESS. CYLINDER AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average 52700.00 LBS 52700.00 LBS 26350.00 LBS HAZARDOUS COMPONENTS °sWt. RS CAS# 100.00 Carbon Dioxide No 124389 riEiGE~ttL HS~~JJ1~1L'1V1.7 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH / / / Min -9- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SitelD: 015-021-000984 ~ ~ Inventory Item 0020 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME ARGON Days On Site 365 Location within this Facility Unit Map: Grid: S WALL RM 5 ~ CAS# 7440-37-1 STATE TYPE PRESSURE TEMPERATURE CONTAINER TYPE Gas Mixture Above Ambient Ambient PORT. PRESS. CYLINDER AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average 333.00 FT3 333.00 FT3 166.00 FT3 - •- t1E'aGL~tG.LVUA l..Vl°lYV1V~1V1J - - - - -- gWt. RS CAS# 100.00 Argon No 7440371 ri!-~GKKL A,55~,5~1~11;1V 1 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No. No/ Curies F P IH / / / Min ~ Inventory Item 0023 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME SYNTHETIC DETERGENTS Days On Site 365 Location within this Facility Unit Map: Grid: NW CRNR RM 7 & S WALL RM 5 CAS# • 69013-18-9 STATE TYPE PRESSURE TEMPERATURE CONTAINER TYPE _ Liquid TMixtur~ Ambient ~ Ambient DRUM/BARREL-NONMETAL AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average 165.00 GAL 165.00 GAL 80.00 GAL HAZARDOUS COMPONENTS %Wt r RSA CAS# HAGtit'CL [jam ~ ~ 7 J1~1.G1V 1 ~ TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies DH / / / UnR -10- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 0001 Facility Unit: VENDING ~ COMMON NAME / CHEMICAL NAME CARBON DIOXIDE Days On Site 365 Location within this Facility Unit Map: Grid: NE CRNR RM 4 CAS# 124-38-9 ~GaSATE TYPE PRESSURE TEMPERATURE CONTAINER TYPE -TPure Above Ambient Cryogenic INSUL.TANK / CRYOGENIC AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average 50.00 LBS 2720.00 LBS 1360.00 LBS HAZARDOUS COMPONENTS %Wt. RS CAS# 100.00 Carbon Dioxide No 124389 t1HGKKL 1-~w7~1;551~11;1V l.7 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH / / / Min -11- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 0009 Facility Unit: FLEET/SUPPLY WAREHOUSE ~ COMMON NAME / CHEMICAL NAME OILY WATER Days On Site OIL/WATER SEPARATOR 365 Location within this Facility Unit Map: Grid: UNDERGROUND AT FLEET WASH BAY CAS# 8020835 Liquid TMixtur~ Ambient~E ~ AmbientT~E ~ UNDER GROIINDRTANKE AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average 1500.00 GAL 1500.00 GAL 1300.00 GAL riHGL1tCLVU~ 1:V1~lYV1VL"1V1~J ~Wt. RS CAS# 5.00 Diesel Fuel No. 1 No 70892103 1.00 Motor Oil, Petroleum Based No 8020835 Sodium Metasilicate No 6834920 Potassium Dodecylbenzene Sulfonate No 0 tla'~GHK1J AJSL'S51~1L'1V"1"5 TSecret RS BioHaz RadioactivejAmount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F IH / / / Low ~ Inventory Item 0008 Facility Unit: FLEET/SUPPLY WAREHOUSE ~ COMMON NAME / CHEMICAL NAME OXYGEN Days On Site 365 Location within this Facility Unit Map: Grid: NW CRNR RM 2 CAS# 7782-44-7 ~GasATE TPureE ~-AboveSAmbEent AmbPeRATURE PORTCOPRESSERCYLINDER_ AMOUNTS AT THIS LOCATION Largest ContainerFT3 Daily 481100m FT3 I Daily 240r00e FT3 ntiGS3tcLVU.7 ~.v1~lrVlvrly l a °sWt. RS CAS# 100.00 Oxygen, Compressed No 7782447 I1HGEitCL H.7 .7tS.7.'7P'1~1V 1.7 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH / / / Low -12- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 ~ Inventory Item 0006 COMMON NAME / CHEMICAL NAME GEAR OIL Location within this Facility Unit CTR RM 2 STATE TYPE PRESSURE TE Liquid TMixture ~ Ambient ~ A SiteID: 015-021-000984 ~ Facility Unit: FLEET/SUPPLY WAREHOUSE ~ Days On Site 365 Map: Grid: CAS# 64742-57-0 MPERATURE CONTAINER TYPE mbient DRUM/BARREL-METALLI~ AMOUNTS AT THIS LOCATION Largest Con55~00rGAL Daily 200100m GAL I Daily 100r00e GAL titi~,tiltLVUa ~:ul~irvlvlJly l ~ %Wt. RS CAS# 100.00 Light Machine Oil No 8020835 t1AGH1tL H.7.7L"i.7~71~1L'1V1.7 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F DH / / / Low ~ Inventory Item 0003 COMMON NAME / CHEMICAL NAME TRANSMISSION FLUID Location within this Facility Unit CTR RM 2 STATE TYPE PRESSURE Liquid TMixtur~mbient Facility Unit: FLEET/SUPPLY WAREHOUSE ~ Days On Site 365 Map: Grid: CAS# TEMPERATURE CONTAINER TYPE _ Ambient DRUM/BARREL-METALLIC AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average 55.00 GAL_ 100.00 GAL I 50.00 GAL ril-1GHtCLVUw7 1.V1~lYV1VL' 1V i ~ %Wt. RS CAS# 100.00 Transmission Fluid (Petroleum-Based) No 0 tiHGl-~KL L~JJL'J~71~1L'1V1w7 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F DH / / / Low -13- 07/13/2007 Y F PEPSI COLA BOTTLING GROUP 954 ~ Inventory Item 0004 COMMON NAME / CHEMICAL NAME MOTOR OIL Location within this Facility Unit CTR RM 2 STATE TYPE' PRESSURE Liquid TMixture~Ambient SiteID: 015-021-000984 ~ Facility Unit: FLEET/SUPPLY WAREHOUSE ~ Days On Site 365 Map: Grid: CAS# 8020835 TEMPERATURE CONTAINER TYPE Ambient DRUM/BARREL-METALLI~ AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average 55.00 GAL 350.00 GAL 175.00 GAL t1AGL-1L<LVUJ 1=V1~1rV1V1;1V1J %Wt. RS CAS# 100.00 Motor Oil, Petroleum Based No 8020835 riHGKKL AaJl'~JJ1~11"~1V 1_a TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F DH / / / Min ~ Inventory Item 0002 COMMON NAME / CHEMICAL NAME GREASE Location within this Facility Unit E WALL RM 2 STATE TYPE PRESSURE Liquid Mixture ~ Ambient Facility Unit: FLEET/SUPPLY WAREHOUSE ~ Days On Site 365 Map: Grid: CAS# 8020835 TEMPERATURE CONTAINER TYPE Ambient DRUM/BARREL-METALLI~ AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average 55.00 GAL 55.00 GAL 55.00 GAL n[iGtilwVUJ L.V1~1rV1vl:,lvtJ cwt. Rs cAS# 100.00 Heavy Machine Oil No 8020835 tl.-~G1itCL LiJ .7L~~J.71~1t',1V 1 ~7 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F DH / / / Min -14- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 0007 Facility Unit: FLEET/SUPPLY WAREHOUSE ~ COMMON NAME / CHEMICAL NAME ABSORBS IT #01037 Days On Site 365 Location within this Facility Unit S WALL RM 1 CAS# 0 AMOUNTS AT THIS LOCATION Daily Maximum I Daily Average 600.00 LBS 300.00 LBS STATE TYPE PRESSURE TEMPERATURE CONTAINER TYPE Solid TMixtur~ Ambient ~ Ambient BAG Largest Container LBS %Wt. HAZARDOUS COMPONENTS Map: Grid: RSI CAS# -- l1HGLitCL H~ 7~7P~.7.7P1P~1V1~7 TSecret RS BioHaz Radioactive/Amount EPA Hazards- NFPA USDOT# MCP No No No No/ Curies DH / / / UnR ~- ~,~ ~tiv~~~~P y ~~ ~ ~ c~~,~~.~ ~~~E ~~~~~~ ~~~~ S u L fv2.p~ ~} C.~D G,D~ Z~aN E,~.~7~T~• 7~'-E f~c~c.~ty U~ $/t'"~R~~l vF w.~tc.KZE SRS 1T'~-L G 7 l'~'~t"G lt.. ~~Q~~n M~ -/~t21:t5s7 co,~2 ~SId ~~s ,Q~1-Y'S o,v 5~ ?j G S c 5# 9684-93-K P~~,$Sv/LL- °T~MPE7tA°Tu2~ ~+~-7- ~S~ti~ ~~e ~ Gos y~~3 L~~ -~ ~- S ~ C11E7 ~ S ,~17 -15 - l~~'b AtZvc ~ ~~ tQe ~1G~ 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ Fast Format ~ ~ Notif./Evacuation/Medical Overall Site ~ ~ Agency Notification 02/26/2007 ~ CHAIN OF CONIMAND: REGIONAL SALES MANAGER, RYAN HAMMER; PRODUCT AVAILABILITY MANAGER, SCOTT HAWKINS. ONE .OR MORE OF THIS GROUP WILL BE RESPONSIBLE FOR, AGENCY NOTIFICATION - CALL 911, HAZMAT 326-3979, OES 800-852-7550. Employee Notif./Evacuation 02/26/2007 VERBAL NOTIFICATION BY DEPT HEAD OR SUPERVISOR IN EACH DEPT OR AREA. USE OF PA SYSTEM AND MANUALLY-OPERATED AIR SIGNALS ARE SECONDARY TOOLS FOR WARNINGS. Public Notif./Evacuation 05/21/1996 RESPONSIBLE PERSONS WILL BE SELECTED FROM TEAM TO NOTIFY ALL PERSONS IN PROXIMITY TO THE EMERGENCY. Emergency Medical Plan 05/01/2000 CALL 911. -16- 07/13/2007 ~ r F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ Fast Format ~ ~ Mitigation/Prevent/Abatemt Overall Site ~ ~ Release Prevention 05/01/2000 ~ REGULARLY SCHEDULED INPSECTIONS AND MAINTENANCE. Release Containment 04/28/2006 EMERGENCY RESPONSE TEAM MEMBERS TO DETERMINE APPROPRIATE ACTIONS. Clean Up 02/26/2007 EMERGENCY RESPONSE TEAM MEMBERS TO SUPERVISE CLEAN-UP PROCEDURES. USE OF AN OUTSIDE AGENCY (GEMS 888-450-0907) IS STANDARD PRACTICE. vl.tiC.L 1.CC.5'VULUC EiGl.1VdG1UII -17- 07/13/2007 .. F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ Fast Format ~ ~ Site Emergency Factors Overall Site ~ ~ Special Hazards 04/28{2006 ~ LPG AT S FENCE RM 7, UNIT 1. Utility Shut-Offs 02/26/2007 A) GAS - ALLEY BETWEEEN E 21ST ST & GROVE ST B) ELECTRICAL - SHOP RM 5 UNIT 1 AND RM 2 UNIT 1 C) WATER - IN ALLEY D) SPECIAL - E) LOCK BOX - Fire Protec./Avail. Water 01/05/2007 PRIVATE FIRE PROTECTION - FIRE WALLS AND DOORS SEPARATE VARIOUS RMS AND FIRE EXTINGUISHERS THROUGHOUT FAC. SMOKE DETECTORS AND FIRE ALARM IN OFFICE OF FAC 1. FIRE SPRINKLERS 1ST AND 2ND FLRS OF MAIN OFFICE. CONNECTION AT ALLEY E SIDE OF FAC ON SONORA. FIRE HYDRANT - SONORA ST 50FT FROM SE CRNR OF FAC 4. STANDPIPE HOOK-UP IN ALLEY NE CRNR OF FAC 4 (FLEET). Building Occupancy Level 03/31/2006 151 EMPLOYEES -18- 07/13/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ Fast Format ~ ~ Training Overall Site ~ ~ Employee Training 02/26%2007 ~ MATERIAL SAFETY DATA SHEETS ON FILE. BRIEF SiTMMARY OF TRAINING PROGRAM: A SERIES OF SAFETY MEETINGS TOUCHING ON THE BASICS OF HEALTH & SAFETY ISSUES RELATED TO SPILLS, RELEASES AND OTHER EMERGENCIES. FAMILIARIZATION WITH POTENTIALLY HAZARDOUS MATERIALS USED IN THE PLANT - WHAT TO DO AND WHAT NOT TO DO. FIRE PROTOCOL. ALL PLANT EMPLOYEES ARE TRAINED IN THE FOLLOWING: 1) GENERAL SAFETY RULES AND POLICIES .OF THE COMPANY 2) SPECIFIC HAZARDS WITHIN DEPT AND JOB ASSIGNED 3) LIFTING TECHNIQUES AND BACK INJURY PREVENTION 4) HAZARDOUS MATERIALS COMMUNICATION - RIGHT TO KNOW 5) SPECIFIC MSDS TRAINING 6) EVACUATION TRAINING 7) EARTHQUAKE PREPAREDNESS 8) PROPER HANDLING OF HAZARDOUS MATERIALS 9) GENERAL SAFETY TOPICS 10)ACCIDENT REVIEWS ~f EtIC~/ ~UQRER SAFETY MANAGER IS CERTIFIED IN THE FOLLOWING: 1) HAZARDOUS MATERIALS COMMUNICATION TRAINING 2) RED CROSS FIRST AID TRAINING 3) EVACUATION PREPAREDNESS TRAINING 4) DEPARTMENT SAFETY MEETING COORDINATOR (BI-MONTHLY MEETINGS) 5 EMPLOYED ~ YEARS WITH PEPSI. 1) FIRST AID/CPR CERTIFIED 2) MARKET UNIT SAFETY MANAGER rayc ~ -19- 07/13/2007 _ r, F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ Fast Format ~ ~ Training Overall Site ~ ~ Held for Future Use nclu ivi ru~uic ~~c -20- 07/13/2007 INSPECTIONS BUSINESS PLAN & INVENTORY PROGRAM UNIFIED PROGRAM INSPECTION CHECKLIST B ~ E R S F I L D F/RE ARTM T BAKERSFIELD FIRE DEPT. Prevention Services 900 Truxtun Ave., Ste. 210 Bakersfield, CA 93301 Tel.: (661) 326-3979 Fax: (661) 852-2171 ~ ,~rj~ Page 1 of 1 FACILITY NAME: ~ Idiom ~~~ INSPECTION DATE: _T' Section 2: Underground Storage Tanks Program ^ Routine ^ Combined ^ Joint Agency ^ Multi-Agency ^ Complaint ^ Re-Inspection Type of Tank ~~~~ Number of Tanks I Type of Monitoring L`u~.. Type of Piping ~lti; OPERATION C V COMMENTS Proper tank data on file Proper owner I operator data on file Permit fees current Certification of Financial Responsibility Monitoring record adequate and current Maintenance records adequate and current Failure to correct prior UST violations Has there been an unauthorized release? ^ Yes ^ No Section 3: Aboveground Storage Tanks Program EN~~ ~~~ v ~ ~~~' Tank Size(s) a'l1© ~aa~ Aggregate Capacity P0~ q~tS Type of Tank cJL Ltld S JJ Number of Tanks / OPERATION Y N COMMENTS SPCC available (~' SPCC on file with OES Adequate secondary protection N ~ - S Proper tank placarding/labeling Is tank used to dispense MVF?) If yes, does tank have overfill I overspill protection? I/ C =Compliance V =Violation Y =Yes N = No 1 Inspector: Questions regarding this inspection? Please call us at (661) 326-3979 White -Prevention Services Pink -Business Copy e!'~ KBF-7335 FD 2156 (Rev. 09/05) <<. .5 THE PEP51 BOTTLING GROUP August 29, 2007 Bakersfield Fire Department Prevention Services 900 Truxton Avenue, Suite 210 P.O. Box 129261 Bakersfield, CA. 93301 Re: Financial Test ofSelf-Insurance For Bottling Group, LLC d/b/a The Pepsi Bottling Group Bakersfield Facility #954 Dear Prevention Services, In March of this year, The Pepsi Bottling Group ("PBG") updated its Financial Test of Self-Insurance. In that letter we may have omitted to provide an updated Certification of Financial Responsibility Form ("Form"). Enclosed, please find an updated Form. We sincerely apologize for an inconvenience this may have caused. If you have any questions or wish to clarify some point, please give me a call to discuss. Sincerely, David H. Patrick Senior Operations Counsel cc: J. Burns THE PEPSI BOTTLING GROUP 1 PEPSI WAY, SOMERS, NY 10589 t•~.. ,h State of Califomia For Sate Use only ``'"'"'' ~ State of Water Resources Control Board Division of Financial Assistance P.O. Box 944212 ~ ~ Sacramento, CA 94244-2120 " (Instructions on reverse side) CERTIFICATION OF FINANCIAL RESPONSIBILITY- FOR UNDERGROUND STORAGE TANKS CONTAINING PETROLEUM A. I am required to demonstrate Financial Responsibility in the required amounts as specified in Section 2807, Chapter 18, Div. 3, Title 23, CCR: 500,000 dollars per occurrence ~ 1 million dollars annual aggregate or AND or 1 million dollars per occurrence ® 2 million dollars annual aggregate B. hereby cert~es that it is in compliance with the requirements of (Name of Tank Owner or Operator) Califomia Code of Regulations, Title 23, Division 3, Chapter 78, Article 3, Section 2807. The mechanisms used to demonstrate financial responsibility as required by Section 2807 are as follows: C. Mechanism. Mechanism Coverage Coverage Corrective ` Third Party,, Type Name and Address of Issuer Number Amount Period Action Comp :Chief Bottling.Group, LLC N/A for $1.OMM/ Annual Yes Yes' Financial d/b/a The Pepsi this occurrence Officer BBtfiling Group mechanism $2.OMM/ Letter 1 Pepsi Way aggregate Note: If you are using the State Fund as any part of your demonstration of financial responsibility, your execution and submission of this cerf~cation also cert~es that you are in compliance and shall maintain compliance with all conditions for participation in the Fund. See instructions. D. Facility Name Facility Address Pepsi Bottling Group (Riverside, CA) 6659 Sycamore Canyon Road Riverside, CA 92506-6701 Facility Name Facility Address Pepsi Bottling Group (Aliso Viejo, CA) 27717 Aliso Creek Road Laguna Hills, CA 92656-3804. Facility Name Facility Address Pepsi Bottling Group (Bakersfield, CA) 215 East 21st Street Bakersfield, CA 93305-5115 . ,Signature of Tank O or Operator Date Name and Title of Tank Owner or Operator Signature of Witness or Notary Date Name of Witness or Notary ~ IL~I ~ ~ ~ / C~ G~~ ~ rl ~'/~ 2 Z l;~(~ ,4 CFR (Revised 08/06) FILE: Original -Local Agency Copies -Facility/Site(s) ~' ,. ~ ~,: PEPSI COLA BOTTLING GROUP 954 Manager SCOTT HAWKINS Location: 215 E 21ST ST City BAKERSFIELD CommCode: BFD STA 02 EPA Numb: SiteID: 015-021-000984 = ii~g BusPhone: (661) 635-3-~9$ Map 103 CommHaz High Grid: 29A FacUnits: 6 AOV: SIC Code:2086 DunnBrad: a,. _~ORtr 7~ Emergency Contact / Title Emergency Contact / Title SCOTT HAWKINS / MANAGER~Sf / SUPERVISOR Business Phone: (661) 635-119$x Business Phone: (661) 635-1100x 24-Hour Phone (661) 635-1188x 24-Hour Phone (661) 635-1187x Pager Phone (661) 979-3070x Pager Phone (661) Hazmat Hazards: Fire Press ImmHlth DelHlth Contact SCOTT HAWKINS Phone: (661) 635-1188x MailAddr: 215 E 21ST ST State: CA City BAKERSFIELD Zip 93305 Owner PEPSI COLA BOTTLING GROUP Phone: (661) 635-1100x Address 215 E 21ST State:~CA City BAKERSFIELD Zip 93305 Period to TotalASTs: = Gal Preparers TotalUSTs: = Gal Certif'd: RSs: No ParcelNo: Emergency Directives: PROG A - HAZMAT PROG T - ABOVEGROUND STORAGE TANK PROG U - UST -~--~ ' ~ ~ ;~, .` , y ~ri~~ ~~ 5 RECD F EB ~ 1,. `~ ~~ 8t sed on my inquiry of those individu2.ls 1 certify n ti ~~Q D~~/~~~.~ , o re~;ponsit:le i+~r obta+ning the informa f law that I have personally ~puE,~'~5 under penalty o examined and am famRiar with the information true i 7~ ~r~~~~ 2~~s~oy , s submitted and believe the information ~~-~~G6 OA' accurate, and complete. ~ j 2: U0 PM ~.-I r 5~~7 Signature date ~NT'D ~' E ~ 2 6 2007 -1- 02/05/2007 ~-- -~ F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ STORAGE CONTAINER DATA (UST FORM A) Last Action Type: - FACILITY/SITE INFORMATION Business Name: PEPSI COLA BOTTLING GROUP 954 Cross Street Business Type: Org Type: Total Tanks 1 IndnRes/Trust: No PA Contact: Dsg Own/Oper REX ABACON ICC Nbr: 5227108-UC PROPERTY OWNER INFORMATION Name pC ~s= ~,~, ~~~ ~v~~ Phone Address : 21.E E ~ 115T Sr2Ee? (661) 635-1100x city /~~Ke2sFirc..n state : CA- zip : Gi 3305 Type I~d~i ~a2PO2~ ~~o•v TANK OWNER INFORMATION Name 3~T~~~ T P ~p,S;z- Qn ,~-~.,~~ C-+Pdv/~ Phone :( 6 61) 6 3 5 -110 0 x Address : ~j5 E, ~z- sr s;~~-r City gq ~c-rsF==~ State : G,4 zip : ~133~~ Type CORPORATION BOE UST Fee# UNKNOWN ' Financ'1 Resp: STATE FUND & CFO LETTER Legal Notif : ,p~opE2~ Otv,vL~, M,,~,~~~ ,gt7o/~ESS Date: Name: State UST $# : ~~~C ~2~ppp Phone: ( 66} 111-00 x Ttl: 1998 Upg Cert#: 00799 -2- 02/05/2007 ~> -~ F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Hazmat Inventory By Facility Unit ~ ~ MCP+DailyMax Order MANUFACTURING PLANT/OFFICE ~ Hazmat Common Name... SpecHaz EPA Hazards Frm DailyMax Unit MCP LIQUEFIED PETROLEUM GAS F P IH G 36980.00 FT3 Hi ACETYLENE E F P IH G 144.00 FT3 Hi DIESEL FUEL #2 F IH DH L 15000.00 GAL Low OXYGEN F P IH DH G 281.00 FT3 Low GEAR OIL ~ F DH L 120.00 GAL Low CARBON DIOXIDE F P IH G 52700.00 Min ARGON F P IH G 333.00 FT3 Min SYNTHETIC DETERGENTS DH L 165.00 GAL UnR ~.~S -3- 02/05/2007 R. r~ F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Hazmat Inventory By Facility Unit ~ ~ MCP+DailyMax Order VENDING ~ Hazmat Common Name... SpecHaz EPA Hazards Frm DailyMax Unit MCP CARBON DIOXIDE F P IH G 50000.00 ~P3' Min CARBON DIOXIDE F P IH G 2720.00 Min t~g5 -4- 02%05/2007 F PEPSI COLA BOTTLING GROUP 954 ~ Hazmat Inventory ~ MCP+DailyMax Order SiteID: 015-021-000984 ~ By Facility Unit ~ FLEET/SUPPLY WAREHOUSE ~ Hazmat Common Name... SpecHaz EPA Hazards F DailyMax lUnitlMCPI 7.T~-r+nT n n n n ) L ./ iQ'KI]~C~~ST+ D L~ ~ V OXYGEN GEAR OIL TRANSMISSION FLUID MOTOR OIL GREASE ABSORBS IT #01037 D1T F P IH G F DH L F DH L F DH L F DH L DH S -~-~9 0 6~- -ice 481.00 FT3 Low 200.00 GAL Low 100.00 GAL Low 350.00 GAL Min 55.00 GAL Min 600.00 LBS UnR -5- 02/05/2007 '6- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 0005 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME LIQUEFIED PETROLEUM GAS ,Days On Site 365 Location within this Facility Unit Map: Grid: CTR S FENCE RM 7 CAS# 74-98-6 ~GaSATE TYPE ~~ PRESSURE TEMPERATURE CONTAINER TYPE TMixture I Above Ambient Ambient ABOVE GROUND TANK AMOUNTS AT THIS LOCATION Largest Container Daily Maximum I Daily Average FT3 36980.00 FT3 18490.00 FT3 ritlGLittLVU~ 1:v1~1rv1V1";1v17 $Wt. RS CAS# 100.00 Liquefied Petroleum Gas No 68476404 !'1EiGHKL L-~~515J~1~11"~1V 17 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH / / / Hi ~ Inventory Item 0007 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME ACETYLENE Days On Site 365 Location within this Facility Unit Map: Grid: S WALL RM 5 CAS# 74-86-2 ~GasATE TPureE ~-AboveSAmbEent AboveAmbient PORTCOPRESSERCYLINDER AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average FT3 144.00 FT3 ~ 72.00 FT3 riHGKKLVUb lrU1~lYUlVL'1V1~ %Wt. RS CAS# 100.00 Acetylene Yes 74862 IYE~GHKL 1~J~JL" ~51~1L' 1V 1 J TSecret RS BioHaz Radioactive/Amount- EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH / / / Hi -7- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 0003 Facility Unit: MANUFACTURING PLANT/OFFICE ~ ~ COMMON NAME / CHEMICAL NAME DIESEL FUEL #2 Days On Site 365 Location within this Facility Unit ISLAND CTR RM 7 STATE TYPE PRESSURE Liquid TMixture~ Ambient Map: Grid: CAS# 68476-34-6 TEMPERATURE CONTAINER TYPE Ambient -~ER GROUND TANK AMOUNTS AT THIS LOCATION Largest Container Daily Maximum I Daily Average GAL 15000.00 GAL 5000.00 GAL n.c~~r~xLw~ ~ul~irulvl;lv~1~5 %Wt. RS CAS# 100.00 Diesel Fuel No. 2 No 68476302 nta~ylcl~ ta5 5~~aln~lv.la TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F IH DH / / / Low ~ Inventory Item 0019 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME OXYGEN Days On Site 365. Location within this Facility Unit Map: Grid: 5 WALL RM 3 CAS# 7782447 STATE TYPE PRESSURE TEMPERATURE CONTAINER TYPE Gas TPure ~-Above Ambient Ambient PORT. PRESS. CYLINDER AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average FT3 281.00 FT3 281.00 FT3 ' 1-11'3GHtC1.JVU17 ~.V1YlYV1V1J1V 15 oWt. RS CAS# 100.00 Oxygen, Compressed No 7782447 ri1~GH.tCL F~5.7~5J1~11~J1V 1 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH DH / / / Low -8- 02/05/2007 P PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 00.14 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME GEAR OIL Days On Site 365 Location within this Facility Unit Map: Grid: SW CRNR RM 3 CAS# 8020835 Liquid TMixtur~ AmbRent~E ~ AmbientT~E DRUM/BARRELEMETALLI~ AMOUNTS AT THIS LOCATION Largest Container Daily Maximum I Daily Average GAL 120.00 GAL 120.00 GAL t11~GHtCLVUJ wl~irvlvL"lv-1~ %Wt. RS CAS# 100.00 Light Machine Oil ~ No 8020835 riHGHKL 1~a Jt'~J~1~1L" 1V 1 J TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F DH / / / Low ~ Inventory Item 0001 Facility Unit: MANUFACTURING PLANT/OFFICE ~ CONIMON NAME / CHEMICAL NAME CARBON DIOXIDE Days On Site 365 Location within this Facility Unit Map: Grid: NW CRNR RMS 5 & 1 CAS# 128-38-9 ~GasATE TPureE ~AboveSAmbEent Below Ambient PORTCOPRESSERCYLINDER AMOUNTS AT THIS LOCATION Largest Container L(~5 Daily Maximum L(3j Daily Average LAS 5'~ 7w, dp -~T3- 52700.00 ~ 26350.00 ~ ne~c~tircyvv~ ~:vl~trvtv~ty i ~ sWt. RS CAS# 100.00 Carbon Dioxide No 124389 riEiGFi1CL EiJ .7L" .7.71~1L' 1V 15 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH / / / Min -9- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 SitelD: 015-021-000984 ~ ~ Inventory Item 0020 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME ARGON Days On Site 365 Location within this.Facility Unit Map: Grid: S WALL RM 5 CAS# 7440-37-1 ~GaSATE TYPE ~~ PRESSURE TEMPERATURE CONTAINER TYPE Mixture I Above Ambient Ambient PORT. PRESS. CYLINDER AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average ~ FT3 333.00 FT3 166.00 FT3 t1HGKKLVUJ l;Vl~lYV1V~1V1~ %Wt. RS CAS# 100.00 Argon No 7440371 t1HGHKL f-'~J ~L' Sa1~1L1V 1 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH / / / Min ~ Inventory Item 0023 Facility Unit: MANUFACTURING PLANT/OFFICE ~ COMMON NAME / CHEMICAL NAME SYNTHETIC DETERGENTS Days On Site 365 Location within this Facility Unit Map: Grid: NW CRNR RM 7 & S WALL RM 5 CAS# 69013-18-9 Liquid TMixture TAmbient~E ~ AmbientT~E DRUM/BNARRELENONMETAL~ AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average i6c~-' - GAL 165.00 GAL 80.00 GAL HAZARDOUS COMPONENTS , %Wt. RSI CAS# HAZARD AS SESSMENTS TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies DH / / / UnR -10- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 0002 Facility Unit: VENDING ~ COMMON NAME / CHEMICAL NAME CARBON DIOXIDE Days On Site 365 Location within this Facility Unit Map: Grid: CAS# 124-38-9 STATE TYPE PRESSURE TEMP TUBE CONTAINER TYPE Gas Pure Above Ambie C ogenic INSUL.TANK / CRYOGENIC THIS LOCATION Largest Container D ly Maximum Daily Average .50000.00 FT3 50000.00 FT3 50000.0,0 FT3 t11-'i U~ 1:V1~lYV1Vl;1V lA %Wt. RS CAS# 100.00 Carbon Di xid No 124389 _~ii ri1~L,EitCL L-~b 5L' .7 51~11;1V "1 J TSecret RS BioHaz adioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH / / / Min i ~ Inventory Item 0001 Facility Unit: VENDING ~ COMMON NAME / CHEMICAL NAME CARBON DIOXIDE Days On Site 365 Location within this Facility Unit Map: Grid: NE CRNR RM 4 CAS# 124-38-9 ~GasATE TpureE ~AboveSAmbEent CryogenicRE INSULOTANKN/RCRYOGENIC AMOUNTS AT THIS LOCATION Largest Container Daily Maximum ~' Daily Average Lis ~'© tgs 2 7 2 0. 0 0 -F~-3- 13 6 0. 0 0 -~''~-3- ruyc+ru~t~vva ~.v-•irvi~al~ 1 ~ %Wt• RS CAS# 100.00 Carbon Dioxide No 124389 I1LiGt1RL ti. 7.7 L' .7 J1.1P~1V 1.7 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F P IH / / / Min -11- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory. Item 0005 Facility Unit: FLEET/SUPPLY WAREHOUSE ~ COMMON NAME / CHEMICAL NAME . NALCOOL #2000 Days On Site 365 Location within this Facility Unit Map: ,J' Grid: SE CRNR RM 2 OUTSIDE CONTAINMENT PALLET /~, / CAS# i / STATE TYPE PRESSURE TEM ~RATURE CONTAINER TYPE Liquid Mixture Ambient A .rent DRUM/BARREL-METALLIC AMOTHIS LOCATION Largest Container 1y Maximum Daily Average 55.00 GAL -~' 55.00 GAL 25.00 GAL U~ 1:V1~lYV1ViS1V 1 J %Wt. ~ RS CAS# 10.00 Sodium Nitrite No 7632000 10.00 Sodium Tetrabor e ,,~. No 1330434 ii,.. riAGHttU A.7~i'~~Ji~1t;1V 1.5 TSecret RS BioH ~-Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No N , No/ Curies DH / / / Hi ~ Inventory Item 0008 Facility Unit: FLEET/SUPPLY WAREHOUSE ~ COMMON NAME / CHEMICAL NAME OXYGEN Days On Site 365 Location within this Facility Unit Map: Grid: NW CRNR RM 2 CAS# 7782-44-7 STATE T TYPE PRESSURE ~~ TEMPERATURE ~~~ CONTAINER TYPE ~ ~GaS I Pure Above Ambient I Ambient I PORT. PRESS. CYLINDER I AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average FT3 481.00 FT3 240.00 FT3 HAZARDOUS COMPONENTS %Wt. RS CAS# 100.00 Oxygen, Compressed No 7782447 ri1~GL-1tCL E-~.> Sr,J.71~1J;1V 15 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA U5DOT# MCP No No No No/ Curies F P IH / / / Low -12- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 0006 Facility Unit: FLEET/SUPPLY WAREHOUSE ~ ~ COMMON NAME / CHEMICAL NAME GEAR OIL Days On Site 365 Location within this Facility Unit Map: Grid: CTR RM 2 CAS# 64742-57-0 STATE TYPE PRESSURE TEMPERATURE CONTAINER TYPE Liquid TMixture~ Ambient ~ Ambient DRUM/BARREL-METALLI~ AMOUNTS AT THIS LOCATION Largest Container Daily Maximum I Daily Average 55.00 GAL 200.00 GAL 100.00 GAL r~~t~ttLVUS ~vi~irvivr~ivia oWt. RS CAS# 100.00 Light Machine Oil No 8020835 riE~GHKL F~J ~JL" Ja1~1J~1V 1 a TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F DH / / / Low ~ Inventory Item 0003 COMMON NAME / CHEMICAL NAME TRANSMISSION FLUID Location within this Facility Unit CTR RM 2 Facility Unit: FLEET/SUPPLY WAREHOUSE ~ Days On Site 365 Map: Grid: CAS# STATE TYPE PRESSURE Liquid TMixture~Ambient TEMPERATURE CONTAINER TYPE _ Ambient DRUM/BARREL-METALLIC AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average 55.00 GAL 100.00 GAL I 50.00 GAL ntic~rLrcLVU~ ~.vrlrvlvalvt~ oWt. RS CAS# 100.00 Transmission Fluid (Petroleum-Based) No 0 t1EiG1-l2CL HJ.7~J51~1L'1V1.7 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F DH / / / Low -13- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 ~ Inventory Item 0004 COMMON NAME / CHEMICAL NAME MOTOR OIL Location within this Facility Unit CTR RM 2 STATE TYPE PRESSURE Liquid TMixture ~ Ambient SiteID: 015-021-000984 ~ Facility Unit: FLEET/SUPPLY WAREHOUSE ~ Days On Site 365 Map: Grid: CAS# 8020835 TEMPERATURE CONTAINER TYPE Ambient DRUM/BARREL-METALLIC AMOUNTS AT THIS LOCATION Largest Container Daily Maximum I Daily Average 55.00 GAL 350.00 GAL ` 175.00 GAL riAGKKLV U 5 1;V1~lYV1V L'~1V 1 7 oWt. RS CAS# 100.00 Motor Oil, Petroleum Based No 8020835 riHGAtCL 1-~571",551~11";1V17 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F DH / / / Min ~ Inventory Item 0002 COMMON NAME / CHEMICAL NAME GREASE Location within this Facility Unit E WALL RM 2 STATE TYPE PRESSURE Liquid TMixture ~ Ambient Facility Unit: FLEET/SUPPLY WAREHOUSE ~ Days On Site 365 Map: Grid: CAS# 8020835 TEMPERATURE CONTAINER TYPE Ambient DRUM/BARREL-METALLI~ AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average _55._00 GAL. _ 55.00 GAL 55.00 GAL r1r~~tuclJVUa ~V1~irViv~;ivta %Wt. RS CAS# 100.00 Heavy Machine Oil No 8020835 t1HGE~KL E~J~L" 5~1~1L'1V 1.7 TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies F DH / j / Min -14- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ ~ Inventory Item 0007 Facility Unit: FLEET/SUPPLY WAREHOUSE ~ COMMON NAME / CHEMICAL NAME ABSORBS IT #01037 Days On Site 365 L hi ti i i F ili U i M G id oca on w n t th s ac ty n ap: t r : S WALL RM 1 CAS# 0 STATE TYPE PRESSURE TEMPERATURE CONTAINER TYPE Solid Mixture Ambient Ambient ~ BAG AMOUNTS AT THIS LOCATION Largest Container Daily Maximum Daily Average LBS 600.00 LBS 300.00 LBS - HAZARDOUS COMPONENTS $W~ RS CAS# HAZARD ASSESSMENTS TSecret RS BioHaz Radioactive/Amount EPA Hazards NFPA USDOT# MCP No No No No/ Curies DH / / / UnR .A~ Q ~N~,~n,~y ~E~ CC~,+w~o,A~ N-+4-~~ c y €/''tL~-r4 L JW~F..^'l t O2'L ~wRTEIL EF6~-~°rv -_ _ ~.. .5" R ~Ox~y w~fTep~ G.OG~ ~,ZO.v ~v27-N.~v ~ NE ~A~~Lc..~T~r v.~'/ ~.~D~~~.,E~u~-p !t~ ~LEE7- k~.q~µ ~~4y S -"A-zc- -rye PP ES~Sv~2 r Tt~IP~lGA ~ ue~ fiM E'.%E~cr~' .+4/M F~%.E.v ~ L~}(Z,G-FS ~ CvNTii~i~-~ /' o~ G-q-L p,~}.~Ly !"1,4k~.~"l~r, 7'S t ~2E7 jas ~ p Qk(I~oA-c.~vt ~ P~ ~I~~OS ~vo ~`,~ ~ ,vo ~ .O 1~ -O~4YS ~'.~ ..~~ 3 ~s G.~9-s ~ ~0 2OJ35 ~CI/~'if{~Lr T yPb lJ s j ~ A-~i-Y .4vE2~c-E j~ 3 vv, vv ~it-~ M G/~ ~~N -15- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 SitelD: 015-021-000984 ~ Fast Format ~ ~ Notif./Evacuation/Medical Overall Site ~ Agency Notification 04/28/2006 RE6-.LANAI S!~L£5 MA-•L~FG-6-Z R~l~'N {~~i'WM~I~ CHAIN OF COMMAND: PRODUCT AVAILABILITY MANAGER, SCOTT HAWKINS. ONE OR MORE OF THIS GROUP WILL BE RESPONSIBLE FOR AGENCY NOTIFICATION - CALL 911, HAZMAT 326-3979, OES 8.00-852-7550. Employee Notif./Evacuation 05/01/2000 VERBAL NOTIFICATION BY DEPT HEAD OR SUPERVISOR IN EACH DEPT OR AREA. U5~ c~~F PR Sys, c-~+~, .~4~0 ~a~~t7 oP~r'Z~r~ s4~. S,~-~sk,~ e4R~~ SG covfl.9-r2y ~ vo~S FdR I,v,~-2.s~G.S Public Notif./Evacuation 05/21/1996 RESPONSIBLE PERSONS WILL BE SELECTED FROM TEAM TO NOTIFY ALL PERSONS IN PROXIMITY TO THE EMERGENCY. Emergency Medical Plan 05/01/2000 CALL 911. -16- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ Fast Format ~ ~ Mitigation/Prevent/Abatemt Overall Site ~ ~ Release Prevention 05/01/2000 ~ REGULARLY SCHEDULED INPSECTIONS-AND MAINTENANCE. Release Containment EMERGENCY RESPONSE TEAM MEMBERS TO DETERMINE APPROPRIATE ACTIONS. 04/28/2006 Clean Up 04/28/2006 EMERGENCY RESPONSE TEAM MEMBERS TO SUPERVISE CLEAN-UP PROCEDURES. (J,.S ~ O/~ ham' 0~,52~0~ /4 !>L~.t~G~~ ~~ EM S ~ ~ ` $ F! $ - 'Y50 ^ O~/07 ~ .~S 5 T.q-.~-1> ~ ~Ieht7,ZC~ V1.11C1 1CC .7VU1 l~C til..L1.VGiL1Vll -17- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ Fast Format ~ ~ Site Emergency Factors Overall Site ~ ~ Special Hazards 04/28/2006 ~ LPG AT S FENCE RM 7, UNIT 1. Utility Shut-Offs 02/05/2007 = f3~ i ~v~BN A) GAS - ALLEY B~°P'E 21ST ST & GROVE ST B) ELECTRICAL - SHOP RM 5 UNIT 1 AND RM 2 UNIT 1 C) WATER - ~,V .~}~~ D) SPECIAL - E) LOCK BOX - Fire Protec./Avail. Water 01/05/2007 PRIVATE FIRE PROTECTION - FIRE WALLS AND DOORS SEPARATE VARIOUS RMS AND FIRE EXTINGUISHERS THROUGHOUT FAC. SMOKE DETECTORS AND FIRE ALARM IN OFFICE OF FAC 1. FIRE SPRINKLERS 1ST AND 2ND FLRS OF MAIN OFFICE. CONNECTION AT ALLEY E SIDE OF FAC ON SONORA. FIRE HYDRANT - SONORA ST 50FT FROM SE CRNR OF FAC 4. STANDPIPE HOOK-UP IN ALLEY NE CRNR OF FAC 4 (FLEET). Building Occupancy Level 151 EMPLOYEES 03/31/2006 -18- 02/05/2007 ,~ •~ F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ Fast Format ~ ~ Training Overall Site ~ ~ Employee Training 04/28/2006 ~ MATERIAL SAFETY DATA SHEETS ON FILE. BRIEF SUMMARY OF TRAINING PROGRAM: A SERIES OF SAFETY MEETINGS TOUCHING ON THE BASICS OF HEALTH & SAFETY ISSUES RELATED TO SPILLS, RELEASES AND OTHER EMERGENCIES. FAMILIARIZATION WITH POTENTIALLY HAZARDOUS MATERIALS USED IN THE PLANT - WHAT TO DO AND WHAT NOT TO DO. FIRE PROTOCOL. ALL PLANT EMPLOYEES ARE TRAINED IN THE FOLLOWING: 1) GENERAL SAFETY RULES AND POLICIES OF THE COMPANY 2) SPECIFIC HAZARDS WITHIN DEPT AND JOB ASSIGNED 3) LIFTING TECHNIQUES AND BACK INJURY PREVENTION 4) HAZARDOUS MATERIALS COMMUNICATION - RIGHT TO KNOW 5) SPECIFIC MSDS TRAINING 6) EVACUATION TRAINING 7) EARTHQUAKE PREPAREDNESS 8) PROPER HANDLING OF HAZARDOUS MATERIALS 9) GENERAL SAFETY TOPICS 10)ACCIDENT REVIEWS SAFETY MANAGER JEFF PYLE IS CERTIFIED IN THE FOLLOWING: 1) HAZARDOUS MATERIALS COMMUNICATION TRAINING 2) RED CROSS FIRST AID TRAINING 3) EVACUATION PREPAREDNESS TRAINING 4) DEPARTMENT SAFETY MEETING COORDINATOR (BI-MONTHLY MEETINGS) i~ EMPLOYED ~s YEARS WITH PEPSI. 1) FIRST AID/CPR CERTIFIED 2) MARKET UNIT SAFETY MANAGER rcayc ~ -19- 02/05/2007 F PEPSI COLA BOTTLING GROUP 954 SiteID: 015-021-000984 ~ Fast Format ~ ~ Training Overall Site ~ Held for Future Use _ ~ ~ r _ caciu ivi i•u~..uic vac -20- 02/05/2007 .. ,. ..~~ ~ `~ l • t ~~ Tait Environmental Systems UST Construction Design Maintenance Compliance October 3, 2006 E CERTIFIED MAIL -- # c ~fi~Te,on# 91 3408 2133 3931 0099 9094 -_ ---~ --~ -- - Bakersfield Fire Department 900 Truxton Avenue Room 200 Bakersfield, California 93301 Re: Pepsi Bottling Group 215 E. 21 Street Bakersfield,California 93305 To Whom It May Concern: Please find enclosed the following test results dated September 20, 2006, for the facility shown above: • Spill Bucket Testing Report Form If you have any questions regarding any of the enclosure please feel free to call me at (714) 920-5477 or email me at pyerkes _tait.com Very Truly Yours, TAIT ENVIRONMENTAL SYSTEMS ~~~e1~-- Pamela Yerkes Project Manager PY:: mf CC: PEPSI BOTTLING GROUP_215 E. 21ST, BAKERSFIELD W/ENCLOSURE :TfrS/PEP954-02- Spill Bucket Testing Notification Letter 9-20-06 CA Lic #588098 • AZ Lic #095984 • NV Lic #0049666 1863 North Neville Street Orange, California 92865 714.560.8222 714.685.0006 Fax 3283 Luyung Drive Rancho Cordova, California 95742 916.858.1090 916.858.1011 Fax vvww.tait.com ~, SWRCB, January 2006 Spill Bucket Testing Report Form This form is intended for use by contractors performing annual testing of LIST spill containment structures. The completed form and printouts from tests (f applicable), should be provided to the facility owner/operator for submittal to the local regulatory agency. 1. FACILITY INFORMATION Facility Name: PEPSI BOTTLING GROUP Date of Testing: 9/20/06 Facility Address: 215 E. 21S` STREET, BAKERSFIELD, CA 93305 Facility Contact: SCOTT HAWKINS Phone: 661-635-1188 Date Local Agency Was Notified of Testing : 9/20/06 Name of Local Agency Inspector (if present during testing: STEVE UNDERWOOD 2. TESTING CONTRACTOR INFORMATION Company Name: TAIT ENVIRONMENTAL SYSTEMS Technician Conducting Test: JON KING Credentialsl: ®CSLB Contractor ®ICC Service Tech. #5252036-UT SWRCB Tank Tester Other (Specify) License Number(s): A B ASB C-10 HAZ License Number: 588098 3. SPILL BUCKET TESTING INFORMATION Test Method Used: ®Hydrostatic Vacuum Other Test Equipment Used: TAPE MEASURE Equipment Resolution: Identify Spill Bucket (By Tank Number, Stored Product, etc. 1 DIESEL 2 3 4 Bucket Installation Type: ®Duect Bury Contained in Sump Direct Bury Contained in Sum Direct Bury Contained in Su Direct Bury Contained in Su Bucket Diameter: 11" Bucket Depth: 13" Wait time between applying vacuum/water and start of test: 15 MINUTES Test Start Time (T,): 1:15 P.M. Initial Reading (R~): 9" Test End Time (TF): 2:15 P.M. Final Reading (Rr): 9" Test Duration (TF - T,): 1 HOUR Change in Reading (RF - RI): 0 Pass/Fail.Threshold or Criteria: +0 Test Result ~~; ", t~ ~t. ~~" . ~~ _ ~ ; :. ®Pass . Fail " ~ ~ '~ Pass ~ .'~ Fail. ~" ~ ' Pass, ;Fail " : ~ .= Pass ~ .~;'~ ~`Fail~.'~ Comments - (include information on repairs made prior to testing, and recommended follow-up for failed tests) Water left on site in 5 gallon bucket labeled non-hazardous CERTIFICATION OF I hereby certify that all the ir~rmati Technician's Signature: ~ State laws and regulations do nc~t currently require maybe more stringent. 11V RESPONSIBLE FOR CONDUCTING THIS TESTING in thisy~port is true, accurate, and in full compliance with legal requirements. Date: 9/20106 to be perfo~ed by a qualified contractor. However, local requirements rri. ;~ UNDERGROUND STORAGE TANK ~. PERMIT APPLICATION TO CONSTRUCT-INSTALL NEW TANK (NEW FACILITI~ / NEW TANK INSTALLATION (EXISTING FACILITY) / MODIFICATION / & MINOR MODIFICATION -FACILITY 8 A S P 1 D ~IR~ ARTIII t PERMIT NO. ~ --0 TYPE OF APPLICATION:.a EW TANK INSTALL/NEW FACILITY (Check one item only) N.OF FACILITY BAKERSFIELD FIRE DEPT. Prevention Services 900 Truxtun Ave., Ste. 210 Bakersfield, CA 93301 Tel.: (661) 326-3979 Fax: (661) 852-2171 Page 1 of 1 NEW TANK INSTALLATION /EXISTING FACILITY MINOR MODIFICATION OF FACILITY TARTING DATE _ 5'~i~l/3 i3 zvo~ ROPOSED COMPL ION DATE sc--~;~Nr~~. ~o ~o~ AGILITY NAME !'BPS/ ~D/TL/~G- ~-~~C~' (STING FACILITY PERMIT NO. ©!5 -O~l- ©00 9k~ AGILITY ADDRESS a ~s mss; / 5%s ~-~r ITY r~~-,~~~s~~E~b IP CODE 9~33os E OF BUSINESS ~C~SI b/S`7z /j3~li7aA/ C~lr~_. PN # ANK OWNER ~C~~I ~OTTL/~.lG- G-24G~~ HO ENO lnlo/~ 97%-~07D DDRESS ~ /5 ~/a-5~ ~/s' ~5' ~'CZ-; ITY F~RK~25~iC~~~ fP COD 33v,f` ONTRACTOR ~/~ ~vfz~~r~~/~a~ sys,~MS ~ A LICENSE NO. ' ~~~~D~~ CC NO. DDRESS I'~~3 X02 ~ ~/~Vrr i ~ 5~7~ ~~-~ ITY D~T/~C- IP CODE g.~~~.r" HONE NO. ~~/~) 5?~7 l~~ AKERSFIELD CITY BUSINESS LICENSE NO. 06 OOU5.38'.?9 ORKMANS COMP NO. P~ctz,(.113 g5o58 9! ~v~ NSURER ~z/~ei~i-/ BRIEFLY DESCRIBE THE WORK TO BE DONE B~E~KDui LIJiJG2C-Z TD EXPOSE /~~ll~ 7TP. l2EPLACF DiQEGi Du~Y jQcl i rN ;DAkE2S~l~~~ 12~ 7~LSOi. ~ 13AC,~FI ~L AND p.4~ WATER TO FACILITY PROVIDED BY DEPTH TO GROUND WATER SOIL TYPE EXPECTED AT SITE NO. OF TANKS TO BE INSTALLED ARE THEY FOR MOTOR FUEL .e5 YES .eS NO SPILL PREVENTION CONTROL AND COUNTER MEASURES PLAN ON FILE .c5 YES .eS NO TANK NO. ruts THIS SECTION IS FOR NON MOTOR FUEL STORAGE TANKS TANK NO. OLUME UNLEADED REGULAR REMIUM DIESEL VIATION The applicant has received, understands, and will comply with the attached conditions of the permit and any other state, local and federal regulations. This form has den completed underpenalty ofperjury, and to the best of my knowledge, is true and correct. APPROVED BY: APPLICANT NAME (PRINT) APPLICANT GNATURE THIS APPLICATION BECOMES A PERMIT WHEN APPROVED FD 2086 (Rev. 09105) • UNDERGROUND STORAGE TANK BAKERSFIELD FIRE DEPT. ._. •..,_.~_._ ._ - - .3 _._... ~~-- ~ • - ~-= ---~ .,~, Prevention Services ~ PERMIT APPLICATION 'T< s Bas ~ n 90o Truxtun Ave., Ste. 210 TO CONSTRUCT-INSTALL NEW TANK (NEW FACILITY) I `;: ~IRI Bakersfield, CA 93301 NEW TANK INSTALLATION (EXISTING FACILITY) / ARTM t Tel.: (661) 326-3979 MODIFICATION / & MINOR MODIFICATION - FACILITY Fax: (661) 852-2171 PERMIT N0. ~"{ Page 1 of 1 ~wll ~~ :~ TYPE OF APPLICATION:.es EW TANK INSTALL /NEW FACILITY ~S~NEW TANK INSTALLATION /EXISTING FACILITY tRhock nno itam nnivl ALAF FOCII ITY ~c MINOR MADIFICOTIC~N OF FACILITY TARTING DATE ROPOSED COMPL TION DATE 5 c-~l-~-r~rl3 ' .~ r 3 z~~ ~~ Sc.-~ ~~-r.3~z ~a ~z~~~ ~ AGILITY NAME >f%P5i fj~'~TTL /~/~- C~-~c%~~i~ EXISTING FACILITY PERMIT NO. ~ - ©r 5 -y0~ I-- c'a0 ©~k~ AGILITY ADDRESS ~ ~ l s ~ s: ~~ 5; ~ c~~ ITY i3,~,~~~~sGi~~ ~ IP CODE ~3.~c~..5" YPE OF BUSINESS pN ~ ~ - ~ - ANK OW NER P~-~~i F~~~~~f~.~~- ~-2c?c.~c~ HO ENO ~~l) ~7~-~~~7~ DDRESS '] yy _ [' -yam ,/- /~( /~ ~~,-.~i ~~~~ ce7%K~c~ YTY ~ ~~~~CfC.-.%. ~~~i~a~ ~~ ~t f IPCOD~ ~JL~~.,,JJ ONTRACTOR A LICENSE NO. ' CC N0. DDRESS ~ ITY ~ IP CODE HONE NO. (I/~/) .tjTtr•J l.~~f-a/ AKERSFIELD CITY BUSINESS LICENSE N0. C?L 1)~7C?~ ~~4'.,1 J ORKMANS COMP NO. P/iCl2,ii/3 `~ SCE U ~ ~ ~L'~:• NSURER ,ZLI~/GN BRIEFLY DESCRIBE THE W JRK TO BE DONE t3,~C--~+~ K ['Ct! ~'" (sJh.l~_P_ r~ ~ ~• ~~ ~ X ~'GjSe:~ % 7~~~t k 77~/a : l~t PLo4 C~=, D i R r_~~ i IU iCre `/~ F I t._L ~r l l._l . •t~,/_t r'_1~.~=i Per ~i C; S i ~ ~~„ n~i.r ~-~n1,a [.. i.y.S~Fr~,-~rn./ r~~ h ~--~~i WATER TO FACILITY PRGVIDEO BY • DEPTH TO GROUND WATER SOIL TYPE EXPECTED AT SITE NO. OF TANKS TO BE INST 4LLED ARE THEY FOR MOTOR FUEL SPILL PREVENTION CONTROL AND COUNTER MEASURES PLAN ON FILE ,eS YES eS NO .eS YES eS NO THIS SECTION IS FOR MJTOR FUEL TANK NO. OLUME UNLEADED REGULAR ~ REMIUM DIESEL VIATION THIS SECTION IS FOR NON MOTOR FUEL STORAGE TANKS TANK NO. OLUME UNLEADED - REGULAR PREMIUM DIESEL VIATION FOR OFFICIAL USE ONLY The applicant has received, understands, and will comply with the attached conditions of the permit and any other state, local and federal regulations. This form has den completed under penalty of perjury, and to the best of my knowledge, is true and correct. APPROVED BY: « 'f L " ~` ~ ~ ;yam } APPLICANT NAME (PRINT) APPLICANT GNATURE G THIS APP+L-11C•/ATION BECOMES A PERMIT WHEN APPROVED FD 2086 (Rev. 09105) Q ~T Tait Environmental Systems UST Construction Design Maintenance Compliance September 8, 2006 Mr. Steve Underwood Bakersfield Fire Department 900 Truxton Avenue, Suite 210 Bakersfield, r'A 93301 - - Re: Pepsi Bottling Group #954 215 E. 21~ St., Bakersfield Additional Permit Application Fee Dear Mr. Underwood: ~~ /~ C~~ I inadvertently sent you a check for $150.00 application fee for repair work to be done at the Pepsi facility in Bakersfield. Delores advised we were short $5.00 and I have enclosed a check for that amount. Delores also advised the application was essentially approved but needed your signature and the balance due on the fee. I gave her our fax number so I assume you or she will be faxing the approved permit to my attention once you have signed it. If you have any questions regarding any of the enclosures please feel free to call me at (714) 567-6400 or email me at pyerkes@tait.com. Sincerely, ~l %rn.c.2~~.. Pamela Yerkes - Project Manager ~ - PDY Enclosure CA Lic #588098 AZ Lic #095984 NV Lic #0049666 1863 North Neville Street Orange, California 92865 714.560.8222 714.685.0006 Fax 11280 Trade Center Drive Rancho Cordova, California 95742 916.858.1090 916.858.1011 Fax www.tait.com -~ i ~ ~~ Ta®t Env®r®nenerrtaB Systerrrs UST Construction Design Maintenance Compliance August 29, 2006 Mr. Steve Underwood Bakersfield Fire Department 900 Truxton Avenue, Suite 210 Bakersfield, CA 93301 Re: Pepsi Bottling Group #954 Permit Application and Permit Fee Dear Stever Please find attached the permit application and fee to replace the direct bury fill spill bucket at the following location: Pepsi Bottling Group #954 215 East 21~ Street Bakersfield, CA 93305 If you have any questions regarding any of the attachments please feel free to call me at (714) 567-6400 or email me at pyerkes@tait.com. Sincerely, ~ ~.~. Pamela Yerke Project Manager PDY Attachments CA Lic #588098 AZ Lic #095984 NV Lic #0049666 1863 North Neville Street Orange, California 92865 714.560.8222 714.685.0006 Fax 11280 Trade Center Drive Rancho Cordova, California 95742 916.858.1090 916.858.1011 Fax www.tait.com JOB CARD POST CARD AT JOB SITE INSPECTION RECORD-USTs B ~ R 8 P I D F/Rd BAKERSFIELD FIRE DEPT. Prevention Services 900 Truxtun Ave., Ste. 210 Bakersfield, CA 93301 Tel.: (661) 326-3979 Fax: (661) 852-2171 Page 1 of 1 FACILITY NAM ~ ~ OWNER - ADDRESS r ~ ~ AbbRESS ,~ CITY STATE ZIP CITY STATE ZIP BAKERSFIELD CA I~AKERSFIELD CA PHONE NO. P~FtMR N0. ~ ~ r ~~ INSTRUCTIONS: PLEASE CALL FOR AN INSPECTOR ONLY WHEN EACH GROUP OF INSPECTIONS WITH THE SAME NUMBER ARE READY. THEY WILL RUN IN CONSECUTIVE ORDER BEGINNING WITH NUMBER 1. DO NOT COVER WORK FOR ANY NUMBERED GROUP UNTIL ALL ITEMS IN THAT GROUP ARE SIGNED OFF BY THE PERMITTING AUTHORITY. FOLLOWING THESE INSt~tUCTIONS WILL REDUCE THE NUMBER OF REQUIRED INSPECTION VISITS AND THEREFORE PREVENT ASSESSMENT OF ADDITIONAL FEES. INSPECTION DATE INSPECTOR TANKS AND-6AGKFILL BACKFILL OF TANK(S) SPARK TEST CERTIFICATION OR MANUFACTURES METHOD ............... CATHODIC PROTECTION OF TANK(S) - PIPING SYSTEM PIPING & RACEWAY W/COLLECTION SUMP CORROSION PROTECTION OF PIPING, JOINTS, FILL PIPE ELECTRICAL ISOLATION OF PIPING FROM TANK(S) CATHODIC PROTECTION SYSTEM-PIPING ......_.._. DISPENSER PAN SECONDARY CONTAINMENT, OVERFILL PROTECT ION, LEAK DETECTION- LINER INSTALLATION -TANK(S) " LINER INSTALLATION -PIPING ............. VAULT WITH PRODUCT COMPATIBLE SEALER _.......... LEVEL GAUGES OR SENSORS, FLOAT VENT VALVES PRODUCT COMPATIBLE FILL BOX(ES) PRODUCT LINE LEAK DETECTOR(S) .......... _. LEAK DETECTOR(S) FOR ANNUAL SPACE-D.W. TANK(S) MONITORING WELL(S)/SUMP(S) - H2O TEST ............... LEAK DETECTION DEVICE(S) FOR VADOSE/GROUNDWATER ~ SPILL PREVENTION BOXES 8 FINAL . MONITORING WELLS, CAPS & LOCKS FILL BOX LOCK MONITORING REQUIREMENTS TYPE AUTHORIZATION FOR FUEL DROP alL CONTRACTOR ~ ~~ l?I j~Uj(' Ltl~( _ Y LICENSE NO. ~It'11g~ 9?5 ' /' CONTACT ~~~_~! ate _ PHONE NO. ~ Pte[ ' ~G~7 ' ~`1 O'~ FD 2097 (Rev. 09/05) •l f _. ~ ~ ~' ~~ Tait Environmental Systems UST Construction • Design • Maintenance • Compliance August 21, 2006 CERTIFIED MAIL -RETURN RECEIPT REQUESTED E-Certified cc tirmation ~ 91 3408 2133 3931 0122 3259 Bakersfield Fire Department 900 Truxtun Avenue, Room 200 Bakersfield, CA 93301 .,~3 ~ RE: Testing Results °`~ Pepsi #954 215 E. 21St Street Bakersfield, CA To Whom It May Concern: Enclosed are the following forms, dated August 10, 2006, for the above-referenced facilities: • Secondary Containment Testing Report Form • Monitoring System Certification • Mechanical Leak Detector Test Data Sheet Feel free to call if you have any questions. Very Truly Yours, TAIT ENVIRONMENTAL SYSTEMS ~~~~-~. PAMELA YE KES Project Manager PY:clb Enclosure Tes ~jds \pep si \ dopep05. bakersfield CA Lic #588098 • AZ Lic #095984 • NV Lic #0049666 1863 North Neville Street Orange, California 92865 714.560.8222 714.685.0006 Fax 11280 Trade Center Drive Rancho Cordova, California 95742 916.858.1090 916.858.1011 Fax www.taitenvironmental.com MONITORING SYSTEM CERTIFICATION For Use By All Jurisdictions Within the State of California Authority Cited: Chapter 6.7, Health and Safety Code; Chapter 16, Division 3, Title 23, California Code of Regulations This form must be used to document testing and servicing of monitoring equipment. A separate certification or report must be preQared for each monitoring system control panel by the technician who performs the work. A copy of this form must be provided to the tank system owner/operator. The owner/operator must submit a copy of this form to the local agency regulating UST systems within 30 days of test date. A. General Information Facility Name: _PEPSI BOTTLING GROUP Site Address: 215 EAST 21sT STREET Facility Contact Person: SCOTT HAWKINS Make/Model of Monitoring System: VEEDER-ROOT TLS-350 Service Station No.: City: BAKERSFIELD Zip: Contact Phone No.: 661-635-1188 Date of TestingJService: B. Inventory of Equipment Tested/Certified Check the appropriate boxes to indicate specific equipment inspected/serviced: 8/7/06 Tank ID: DIESEL T-1 Tank ID: ®In-Tank Gauging Probe:- --- - - - -Model:- ---847390-109 - - ^In-Tank Gauging Probe: - - - Model: -- --- ®Annular Space or Vault Sensor: Model: 794380-304 ^.Ammlar Space or Vault Sensor Model: ®Piping Sump/Trench Sensor (s): Model: 794380-352 ^Piping Sump/Trench Sensor (s): Model: ^Fill Sump Sensor (s): Model: ^Fill Sump Sensor (s): Model: ®Mechanical Line Leak Detector. Model: RJFXIDV ^Mechanical Line Leak Detector. Model: ^Electronic Line Leak Detector Model: ^Electronic Line Leak Detector Model: ^Tank Overfill/High-level Sensor: Model: ^Tank Overfill/High-level Sensor: Model: ^Other, S eci a ui a and model in Section E on Pa e 2 ^Other, S eci a ui a and model in Section E on Pa e 2 Tank ID: Tank ID: ^In-Tank Gauging Probe: Model: ^In-Tank Gauging Probe: Model: ^Annular Space or Vault Sensor: Model: ^Annular Space or Vault Sensor Model: ^Piping Sump/'I'rench Sensor (s): Model: ^Piping Sump/Trench Sensor (s): Model: ^Fill. Sump Sensor (s): Model: ^Fill Sump Sensor (s): Model: ^Mechanical Line Leak Detector. Model: ^Mechanical Line Leak Detector. Model: ^Electronic Line Leak Detector Model: ^Electronic Line Leak Detector Model: ^Tank Overfill/High-level Sensor: Model: ^Tank OverfillJHigh-level Sensor: Model: ^Other, S eci a ui a and model in Section E on Pa e 2 ^Other, S eci a ui a and model in Section E on Pa e 2 Dispenser. ID: #1 Dispenser ID: ^Dispenser Containment Sensors: Model: ^Dispenser Containment Sensor(s): Model: ^ Shear Valve(s). ^ Shear Valve(s). ®Dis enser Containment Float(s) and Chain(s) ^Dis enser Containment Float(s) and Chain(s) Dispenser ID: Dispenser ID: ^Dispenser Containment Sensors: Model: ^Dispenser Containment Sensor(s): Model: ^ Shear Valve(s). ^ Shear Valve(s). ^Dis enser Containment Floats and Chains ^Dis enser Containment Floats and Chain s Dispenser ID: Dispenser ID: ^Dispenser Containment Sensors: Model: ^Dispenser Containment Sensor(s): Model: ^ Shear Valve(s). ^ Shear Valve(s). ^Dispenser Containment Floats and Chain(s) ^Dis enser Containment Float(s) and Chains *If the facility contains more tanks or dispensers, copy this form. Include information for every tank and dispenser at this facility. C. CertlflCatlOn - I certify that the equipment identified in this document was inspected/serviced in accordance with the manufacturers' guidelines. Attached to this Certification is information (e.g. manufacturers' checklists) necessary to verify that this information is correct and a Plot Plan showing the layout of monitoring equipment. For any equipment capable of generating such reports, I have also attached a copy of the report; (check all that apply): ®System set-up ®Alarm histor r t `. ~ Technician Name (Print): RUBEN BECERRA Signature: Certification No.: 006-OS-0042 License No.: 5 Testing Company Name: TAIT ENVIRONMENTAL SYSTEMS Phone No.: X714) 560-8222 Page 1 of 3 0301 Monitoring System Certification 93305 Site Address: 21 E. 21sT STREET, BAKERSFIELD Date of Testing/Servicing: 8/7/06 D. Results of Testing/Servicing Software Version Installed: 119.05 Complete the following checklist: ® Yes ^ No* Is the audible alarm o erational? ® Yes ^ No* Is the visual alarm o erational? ® Yes ^ No* Were all sensors visually ins ected, functionall tested, and confirmed o erational? ® Yes ^ No* Were all sensors installed at lowest point of secondary containment and positioned so that other equipment will not interfere with their ro er o eration? ® Yes ^ No* If alarms are relayed to a remote monitoring station, is all communications equipment (e.g. modem) ^ N/A operational? ® Yes ^ No* For pressurized piping systems, does the turbine automatically shut down if the piping secondary containment ^ N/A monitoring system detects a leak, fails to operate, or is electrically disconnected? If yes: which sensors initiate positive shut-down? (Check all that apply) ®Sump/Trench Sensors; _^ Dispenser Containment Sensors. Did you confirm positive shut-down due to leaks and sensor failure/disconnection? ®Yes; ^ No. ^ Yes ^ No* -For tank systems- that utilize the monitoring system as the primary_tank_overfill..warning__device (i.e._ no ® N/A mechanical overfill prevention valve is installed), is the overfill warning alarm visible and audible at the tank fill oint(s and o eratin ro erl ? If so, at what ercent of tank ca aci does the alarm tri er? ????% ^ Yes* ®No Was any monitoring equipment replaced? If yes, identify specific sensors, probes, or other equipment replaced and list the manufacturer name and model for all re lacement arts in Section E, below. ^ Yes* ®No Was liquid found inside any secondary containment systems designed as dry systems? (Check all that apply) ^ Product; ^ Water. If es, describe causes in Section E, below. ® Yes ^ No* Was monitorin s stem set-u reviewed to ensure ro er settin s? ®Yes ^ No* Is all monitoring equi ment o erational er manufacturer's s ecifications? * In Section E below, describe how' and when these deficiencies were or will be corrected. E. Comments: Page 2 of 3 03/01 Site Address: 215 E. 21 sT STREET, BAKERSFIELD F. In-Tank Gauging /SIR Equipment: Date of Testing/Servicing: 8/7/06 ® Check this box if tank gauging is used only for inventory control. ^ Check this box if no tank gauging or SIR equipment is installed. This section must be completed if in-tank gauging equipment is used to perform leak detection monitoring. ('mm~lete the following checklist: ® Yes ^ No* Has all input wiring been inspected for proper entry and termination, including testing for ground faults? ® Yes ^ No* Were all tank gauging probes visually inspected for damage and residue buildup? ® Yes ^ No* Was accuracy of system product level readings tested? ® Yes ^ No* Was accuracy of system water level readings tested? ® Yes ^ No* Were all probes reinstalled properly? ® Yes ^ No* Were all items on the equipment manufacturer's maintenance checklist completed? * In the Section H, below, describe how and when these deficiencies were or will be corrected. _ _ ^ Check this- box if LLDs are not installed. _ _ _ G. Line Leak Detectors__(LLD); ('mm~lete the fnllowinQ checklist: ® Yes ^ No* For equipment start-up or annual equipment certification, was a leak simulated to verify LLD performance? ^ N/A (Check all that apply) Simulated leak rate: ®3 g.p.h.l; ^ 0.1 g.p.h.2; ^ 0.2 g.p.h.2 Notes: 1. Required for equipment start-up certification and annual certification. 2. Unless mandated by local agency, certification required only for electronic LLD start-up. ® Yes ^ No* Were all LLDs confirmed operational and accurate within regulatory requirements? ® Yes ^ No* Was the testing apparatus properly calibrated? ® Yes ^ No* For mechanical LLDs, does the LLD restrict product flow if it detects a leak? ^ N/A ^ Yes ^ No* For electronic LLDs, does the turbine automatically shut off if the LLD detects a leak? ® N/A ^ Yes ^ No* For electronic LLDs, does the turbine automatically shut off if any portion of the monitoring system is disabled ® N/A or disconnected? ^ Yes ^ No* For electronic LLDs, does the turbine automatically shut off if any portion of the monitoring system malfunctions ® N/A or fails a test? ® Yes ^ No* For electronic LLDs, have all accessible wiring connections been visually inspected? ^ N/A ® Yes ^ No* Were all items on the equipment manufacturer's maintenance checklist completed? * In the Section H, below, describe how and when these deficiencies were or will be corrected. H. Comments: Page 3 of 3 o3rol ~ 1 Monitoring System Certification UST Monitoring Site Plan Site Address: Z 1 S ~ • Z! st' S'-~ . ~k~25~, t< .::: ~ :::::::::::::::`moo ,r~ :0: 2~,,..: ~~-f-~ ::::.:::..:... .:: ~~ w~. .~ 4h. ~: . •~` . © . . . ..._. ........... . .. . . . . . ~ . . ~. ~. ~.. . r~.~. . :.~ .~ :::: :::::. ::::. ::::: ~ :::: ..::::: ~~D :: ................................. ..... .............. ... .... ............................................... ... .................................................. ..................................................... .. ............... ~~. ~;,C..,....~:c~~c ............. ... . Date map was drawn: ~~~~ G~D Instructions If you already have a diagram that shows all required information, you may include it, rather than this page, with your Monitoring System Certification. On your site plan, show the general layout of tanks and piping. Clearly identify locations of the following equipment, if installed: monitoring system control panels; sensors monitoring tank annular spaces, sumps, dispenser pans, spill containers, or other secondary containment areas; mechanical or electronic line leak detectors; and in-tank liquid level probes (if used for leak detection). In the space provided, note the date this Site Plan was prepared. Page ~ of osioo S'YS'ft~l°I Slr'1'U!' AUu^ 7, 006 12:02 PM- SYSTEM UNITS '- U.S. SYSTEM LANGUAGE ENGLISH SYSTEM DATE~TIME FORMAT ' MON DD YYYY HH:hIM:SS xM lOB8B9 PEASI SITE 9 215 ]rAST 21ST STREET HAKERSFIELD,CA 93305 911"5232g905Gt71 ' SHIFT TIME 1 6:00 AM SHIFT TIME 2 DISABLED SHIFT TIME 3 DISABLED COMMUNICATIONS SETUP ! PORT SETTINGS: COMM HOARD 2 f F}CMOD 7 BAUD kATE 2400 PARITY ODD STOP HIT : 1 STOP DATA LENGTH: 7 DATA DIAL TYFE TOIVE ANSWER GIV 1 R I NG RECEIVER SETUP: SHIFT TIME 4 DISABLED D B:SIMPLICITY CENTER I-6bb-743-8379 SHIFT BIR Pk1NTOUTS RCVR TYPE: COMPUTER -- D 1 SAHLED -- - _ _ _ P~iRT NO : 2 DAJLY HIR PRINTOUTS _ RETRY NO: 5 - DISABLED RETRY DELAY: 5 TICKETED DELIVERI' CONFIRMATION REPORT: (7FF DISABLED TANK PER TST NEEDED WRN DISABLED TANK ANN TST NEEDED bJRN . DISABLED LINE RE-ENABLE METHOD PASS LINE TEST LINE PER•TST NEEDED WRN "'' DISABLED LINE ANN TST NEEDED WRN D.ISAHLED PRINT TC VOLUMES EIVABLED TEMP COMPENSATION VALUE fDEG F ): 60.0 ;'• STICK HEIGHT OFFSET DISABLED H-PROTOCOL Dr'iTA FORMAT HEIGHT DAYLIGHT SAVING T I ME%'` ENABLED START DATE APR WEEK I SUN START TIME '3:00 AM END DATE OCT WEEK 6 SUN' ' EtdD TIME 2:00 AM RE-DIRECT LOCAL PRIIVTOUT j DISABLED " EURO FROTOCOL PREFIX S SYSTEM SECURITY CODE 000000 AUTO DIAL TIME SETUP: D B:SIMPLICITY CENTER DIAL MONTHLY WEEK 2 FRI DIAL TIME 1:49 AM REGEIVER REFORTS: RS-232 SECURITY CODE 000000 RS-23.2 END OF MESSAGE DISABLED AUTO DIAL ALARM SETUP D 13 : S I MPL I u^ I TY CEIVTEK IN-TANK ALARMS ALL:LEAK ALARM ALL:SUDDEN LOSS ALARM • ALL:PROHE OUT ALL:GROSS TEST FAIL ALL:PERIODIC TEST FAIL ALL:NO CSLD IDLE TIME ' ALL:CSLD INCR RATE WARN ALL:ACCU_CHART GAL WARN • ALL:LOW TEMP WARNING ALL:GROSS FAIL LINE TNK .LIQUID SENSOR ALMS ' ., .. ALL-=I=UEL---RL-flRM .: _ __.~.,, _. _ _- - ~~ -ALL :SENSOR -OUT ALARM- --- -~ --- ALL:SHORT ALARM ALL:WATER ALARM ALL:WATER OUT ALARM ALL:HIGH LIQUID ALARM ALL:LOW LIQUID ALARM ALL:LIQUID WARNING RECE I VI~R REARMS SERVICE REPORT WARN ALARI'1 CLEAR WARNING POWER S I DE D I hl ALM AI.L : D I SAHLED D I M ALARM ALL:GOMhiUNICATION ALARM Job # 170P~~S- Page ,~ of ~~L~e.L! IIV-TANK SETUP T 1:DIESEL FUEL PRODUCT CODE 1 THERMAL C4EFF :. 000450 TANK DIAMETER 119.50 TANK PROFILE : 4 PTS FULL VOL 15102 89.6 INCH V4L : 12290 59.8 tNCH VOL : 7580 29.9 INCH VOL 2838 METER DATA YES END FACTOR: HEMISPHER CAL UPDATE: IMMEDIATE FLOAT SI2E: 4.D IN. 8496 WATER WARNING 1.5 HIGH WATER LIMIT: 2.0 MA};-OR_--LABEL V4L : 15102 _ OVERFILL LI1~9IT 88{ . 13289 HIGH PRODUCT 92% 13893 DELIVERY L I i~l I T 20% 3420 LOW PRODUCT 1000 LEAK ALARM LIMIT: 24 SUDDEN LOSS LIMIT: 50 TANK TILT 1.51 1~1AN I FOLDED TANKS T#: NONE LEAK MIN PERIODIC: 0~ 0 LEAK MIN ANNUAL 0 0 PERIODIC TEST TYPE STANDARD ANNUAL TEST FAIL HLARih D I SABLED PERIODIC TEST FAIL ALARM DISABLED GROSS TEST FAIL ALARM DISABLED ANN TEST AVERAGING: OFF FEk TEST'. AVERAGING: OFF TANK. TEST N4TJFY: OFF TNK TST SIPHON BREAK:OFF DELIVERY DELA1~' : 5 M I N LEAK TEST METHOD TEST CSLD ALL TANK- Pd 99i CLIMATE FACTOR:M4UERATE LEAK TEST REPORT FORMAT NORMAL 108889 PEPSI SITE 9 215 EAST- 21ST STREET HAKERSFIELD,CA-93305 81152324905001 AUG. 7. 2006 12:02 PM FUEL MAIVAiuEMENT SETUP- - DELIVER .' WAR IV DA'1S : 0 , 4 AUTO PF.INT: DISABLED T 1:DIESEL FUEL AVt+ SALES-SUN: 150 GAL HVG SALES-MON: 536 GAL AVG SALES-TUE: 671 u^AL AVG SALES-WED: 74G GAL AVG SALES-THR: 781 GAL AVG SALES-FRl: 754 GAL AVG SALES-SAT: 395 GAL L1fdUID SENSOR SETUP L 1:ANNULAR SPACE DUAL FLOAT HYDROSTATIC CATEGORY :ANNULAR SPACE L ?:TURBINE SUMP DUAL FLT. HIGH VAPOR j CATEGORY : STP SUMP OUTPUT RELAY SETUF e R 2:P4SITIVE SHUTDOWN \TYPE: t~STANDARD NQRMALLY CLOSED ! N-TANK ALARMS ALL:LEAK ALARM ' ALL:SUDDEN LOSw ALARM LIQUID SENSOR ALMS L 2:FUEL ALARM RECONCILIATION SETUP MDIM 1: TTGG HUTOMATJC DAILY GL4SING TIME: 2:DD AM AUTO SHIFT <xl CL4SINu^ TIME: DISA&LED AUTO SHIFT #2 CLCsSIfVG T I f~lE : D I °ABLED AUTO SHIFT 1't3 CLOSING TIME : D I SABLED AUTO SHIFT i14 CLOSING TIME: 6:00 AM PERIODIC R$Ct~NCILIATION MODE: MONTHLY ALARM: DISABLED TEhIP CGMPENSATION STANDARD . BUS SLOT FUEL METER TANK 2 10 D 0 1 ~ 1Q 1 0 1 Job # ~DPE'PQly - Page a of 5~ SOFTWARE REVISION LEVEL VERSION 119.05 SOFTWAREtt :146119-100-F CREATED - OD.O'~.25.12.15 S-MuDULEaf 330160-105-;~ SYSTEhI FEATURES: PERIODIC IN-TANK TESTS ANNUAL I~N-TANK TESTS CSLD HIR FUEL MANAu^ER PLLD 0.10 AUTO 0.20 REPETITIV WPLLD O.10 AUTO 0.20 REPETITIV ALHRP9 H I STORY REPOF.T ----- SVSTEM ALARM ----- PAPER OUT JUN 7. 2006 8:59 AM PRINTER ERROR JUN 7, 2006 8:55 AM BATTERY IS OFF JAN 1, 1996 8:00 Ahl CLOGK IS INCORRECT ~;PR 1. 2001 3:01 AIM ~ ~ ~ END x ~ ~ ~ Job # ~~p~~~, ~~~~~~~-r~/ • ALARI°1 H I STaR :J kEPOkT ---- IN-TANK ALARM ----- T 1:DIESEL FUEL HIGH WATER ALARI°1 JUL 22. 2004 11:24 AM OVERFILL ALARM JUL 22. ~u04 11:15 AM MAR 17. 2004 B:43 AM JUL 16, 2003 9:48 AM LOW PRODUCT ALARM MAY 25, '?005 2:50 PM MAY 25, 2005 2:36 PM MAY 19. 2005 10:58 PM HIGH PRODUCT ALARM AUG 2. 2005 9:34 AM JUL 22. '004 11:15 AM JUL 16, ',003 9:47 AM -INVALID-FUEL LEVEL -- MAY 25. 2005 2:49 Phl MAY 25. 2005 2:36 FM MAY 19. 2005 10:58 PM PROHE OUT AUG 2. 2005 9:34 AM AUG 2. 2005 9:32 AM MAY 25. 2005 '3:11•FM HIGH WATER WARNING JUL 22. 2004 11:24 AM ALARM H I STORY REY~te t - --- SENSOR ALARhI --___ L 1:ANNULAR SFACE ANNULAR SPACE HIGH LI~iUID ALARM SEF 7. 2005 2:22 AIM NIGH L1C~UID ALARM SEP 7. 2005 2:2o AM HIGH LIQUID ALARM SEP 7. 20D5 2:19 AM . ALARM HISTORY FeEFORT DELIVERY NEEDED AUG 3, 2006 6:32 AM JUL 20, 2006.5:36 PM JUL 10. ~~006 11:07 AM ACCU_CHART CAL WARN JUL 30. '001 11:30 AM RECON WARMING JAN 27. 2003 9:30 AM JAN 20. 2003 2:30 PM JAN 13. 2003 2:30 Fhl kECON ALARM JAN 27. 20D3 1:30 PIM JAN 20. 2003 3:30 PM JAN 13, 2003 2::30 PM LOW TEMP WARNII+IG MAY 19, 2005 1:33 PM JUL 22. _-'004 11 :26 AM JUL 9. 2004 11:30 AM ~ ~ ~ ~ END ~ ~ * ~ x ----- SEIVSGF. ALARM -- L 1:ANNULAR 6;PACE ANNULAR SPAi:E HIGH LIQUID ALARM SEP 7, 2005 2:22 AM HIGH LIQUID ALARM SEP 7. 2005 2:20 AM HIGH LIQUJA ALARM SEP 7. 2005 2:19 AM * ~ ~ ~ ~ END ~ ~ ~ ~ ~ Page ~ of i~ ----- SENSOR ALARM ----- rLARM HISTORY REPORT L 1:fiNNULAR SPACE ANNULAR SPACE -- SENSOR ALARM ----- --- LOW`.LIGUID ALARrI ' L 2:TURBINE SUMP 1'2:11 PM AUG ~••.'~. 200n STP SUMP . FUEL RLARM _ AUG 2.-2005 10:01 AM FUEL RLARM AUG 2. 2005 9:56 r1r1 FUEL RLARM JUL 22. 2004 11:11 AM. ----- SENSOR ALARM ~---- L 1:ANNULAR SPADE ANNULr''IR SPACE HIGH LI~dUID ALARM • AUG 7. ?Ou6 12:11 PM SEtVBGR ALARM L 1:ANNULAk SPACE APJNULAR wPACE :.~-1.C)W , L L~i I I I jL i. ARM ~' AUG 7. 2006 12:13 Prl- ' 108899 PEPSI tiITE 9 215 EAST '21ST STREET BAKERSF[ELD.CA 93305 81152324905001 AUG 7. 2006 1'2:03 FM . ----- SENSOR ALRkf~l -- L 2:TURBINE SUMP STP SUMP SYSTEM STATUS REPt7RT _ `~•-;,..gUEL ALARM - ALL FUNCTIONS tJORI°1RL AUG 7. 20Ub 12:14 Prl 108899 PEPSI SITE 9 _~15 EAST 21ST STREET BAk:ERSF I ELD. t'A 93305 x1152324905001 AUu 7. 2006 12:26 PM SYSTEM STATUS REPCkT ALL FUNCTIONS NORt°IriL Job # ~OP~QIS'-- Page ~ of SWRCB, January 2002 Page _1_ of _2_ Secondary Containment Testing Report Form This form is intended for use by contractors performing periodic testing of UST secondary containment systems. Use the appropriate pages of this form to report results for all components tested. The completed form, written test procedures, and printouts from tests (if applicable), should be provided to the facility owner/operator for submittal to the local regulatory agency. 1. FACILITY INFORMATION Facility Name: PEPSI BOTTLING GROUP Date of Testing: 8/10/06 Facility Address: 215E 21sT STREET, BAKERSFIELD Facility Contact: SCOTT HAWKINS Phone: 661-635-1188 Date Local Agency Was Notified of Testing : 8/8/06 Name of Local Agency Inspector (f present during testing: N/A 2. TESTING CONTRACTOR INFORMATION Company Name: Tait Environmental Systems Technician Conducting Test: ADOLFO AGUILAR Credentials: ®CSLB Licensed Contractor SWRCB Licensed Tank Tester -License-Type: -- - - - --A ASB HAZ B-C=10 ~- License~Number: -588=098 --- --- -- -~---- - -- _ - -- Manufacturer Training Manufacturer Com onent s Date Trainin Ex ices OPW 3. SUMMARY OF TEST RESULTS Component Pass Fail Not Repairs Component Pass Fail Not Repairs Tested Made Tested Made DIESEL If hydrostatic testing was performed, describe what was done with the water after completion of tests: Water left on site. Labeled as Haz Waste. Did notify tech on site (Quan Phan) (1) 5 gallon bucket. CERTIFICATION OF TECHNICIAN RESPONSIBLE FOR CONDUCTING THIS TESTING To the best of my knowledge, the facts stated in this document are accurate and in full compliance with legal requirements `! ~ i~. Technician's Signature: ~<` ~ - Date:_8/10/06 SWRCB, January 2002 4. SPILL/OVERFILL CONTAINMENT BOXES Page _2_ of _2~ Facility is Not Equipped With Spill/Overfill Containment Boxes SpilUOverfill Containment Boxes are Present, but were Not Tested Test Method Developed By: Spill Bucket Manufacturer ®Industry Standard Professional Engineer Other (Specify) Test Method Used: Pressure Vacuum ®Hydrostatic Other (Sped) Test Equipment Used: 1NCONNISUAL & MARKED Equipment Resolution: Spill Boa # Spill Boa # Spill Bog # Spill Boa # Bucket Diameter: 11 Bucket Depth: 11 Wait time between applying pressurelvacuum/water and starting test: 15 MINUTES Test StartTitiie: _ - - _ .-.- - -- _ - --1:50 P:NI: - _ _ .- Initial Reading (R~): 1.7271 Test End Time: 2:05 P.M. Final Reading (RF): 1..6652 Test Duration: 15 MINUTES Change in Reading (RF-RI): .0619 PassJFail Threshold or Criteria: FAIL Test Result: Pass ®xFail, , . ;,: ~. ,Pass" <..' Fail Pass. Fail Pass Fail COmmerits - (include information on repairs made prior to testing,, and recommended follow-up for failed tests) Did tightened up fill adaptor gasket. Also, tightened drain screws, cleaned around drain. Bucket could not sustain water, could not find where water was escaping. In several attempts could not make it pass. In about anhour-and-a-half, it leaked 2 to 3" of water on visual test. ,~,...r ....-,_...,... .._..,.,.. ~._ _ ..~._.........-~ ~~ ~- - PEPSI BOTTLING GROUP 215 E: ~ 21ST. ST. BRKERSFIELD. CR.93305 i6x@~tx26~-- • 2:65 PM SLIMP LEflK TEST REPORT '~ EUCKET. TEST STARTED 1:59 Phl TEST•STRRTED 10x68x2066 C:EGIFI 'LEVEL 1.7271 IN END TIME 2:05 PM END DATE 10x08x2066 ENG -LEVEL 1,6552 IN -LEAK THRESHOLD 0.002 •IN _ _TEST.RESULT__. FAILED. _. ...\ PEPSI ROTTLrNG GROUP 215 E. 21ST. ST. BRKERSFIELD. CR. 9330$ 10x0$x~006 2~3d Phi SUMP LEAK TEST REPORT=. , BUCKET TEST STARTED 2:15 PM TEST STRf~TED 10x08'2006 BEGIN LEUEL 1.7502 IN EIVD"fi~ME . 2:30 Phl •~ CND DATE .. -19r'Q8~2@0~~` END LEUEL 1.640b IN LEAK THRESHOLD 0.002 IN .: TEST RESULT FAILED ~'_ • ./ ' PEPSI BOTTLING GROUP ~ •. r!5 E, 21ST. $T. BRKERSFICt.O. CA.93305 .' 1Er08x20AEi 2:57 P<t 'SUMP LEAK TEST REPORT BUCIc'ET TEST STARTED 2:42 PM TEST STARTED 18x08x2006 EEGIN LEVEL 0.8597 IN • END TIME 2:57 PM ..' END DATE 10r08x2006 END LEVEL • 0:85iS2 • Ihl .~ '~~pK THRESHOLD 0. QOz, IN . , ' TEST RESULT FAILED:•.• PEPSI BOTTLING L'+ROUP 215 E. 21ST. ST. SRKERSFIELD. CR. 93305 10x08r2006 3:18 PP1 SUMP" CERK~~'fEST -REPORT BUCKET TEST STARTED 3:03 PM TEST STARTED 10rg8x2006 BEGIN LEVEL 0.6396 IN END TIME 3:18 PM END DATE 10r08r2006 END LEVEL 0.b380 Ih~ LERK THRESHOLD 0.002 IN TEST RESULT PASSED . rEPS[ BOTTLING GROUP 215 E, 21ST, ST. BAKERSFIELD. CR.93305 10x0t3x2.006 3:36 P'M . SUMP LEAK TEST REPORT .. BUCKET TEST STARTED 3:21 PM ~ ' TEST STARTED iC9r0Gx2006 EEGIN LEVEL !3.637$ IN END TIME 3:36 PM , END DATE i0r08/2006 END LEUEL 9..6292 IN LEAK THRESHOLD 0.282 IN ' TEST RESULT FAILED _ PEPSI 130TTLING GRDUP_ 215 E. 21ST. ST. ' BRKERSFIELD. CR.93305 10x08.2006 3:51 PM SUMP LERK TEST REPORT BUCKET TEST STnRTEG 3:36 PM TEST STARTED 10x08x20t~6 iiEGIN LEVEL 9.6295 iN END TIME 3:51 Phj END DATE 10r08x246b END LEVEL 0.6198 IN LEAK THRESHOLD 9.002 IN TEST RESULT FAILED PEPSI BOTTLING GROUP ' BAKERSFIELD. CA. 93305 irarr7R~?.026 ~i:0-1.-PM . SUMP LERK TEST REPORT BUl'•KET . • 7e.ST STr1RTED 3:36 PM ~' TEST STARTED '10xFiS3+~~t06 ' BEGTN LEVEL 9.•6295. IN . , Ehlf? TT.ME • - 3= 51' Phi . END DIdTE • . 10~08r200b END LEUEL• 0.6198 iF! LERK THRESHOLD 0.002 IN ! TEST RESULT .• ~ FR I LEf? Job # i~OP~~ - Page ~ of I ~., :~ Mechanical Leak Detector Test Data Sheet Station # PEPSI BOTTLING GROUP Date 8/7 2006 Address_215 EAST 21sT STREET, BAKERSFIELD Test Information 1 2 3 4 5 Product Diesel Type_(Electronic/Mechanical)___ .Mechanical __ . ___. _... ___ _ ___ __. ____ ___ _ Manufacturer RJ Model . FXIDV Full Operating Pressure (psi} 28 Line Bleed Back (ml) 190 Trip Time (sec) 2 sec Metering Pressure (psi) 12 F/E Holding Pressure (psi) 28 Test Leak Rate (mUmin) (gph) 189 ml PASS or FAIL Pass Comments: Found weeping at base of LD, tightened and stopped weep. This letter certifies that the annual leak detector tests were performed at the above referenced facility according to the equipment manufacturers procedures and limitations and the results as listed are to my knowledge true and correct. The mechanical leak detector test pass/fail is determined using a low flow threshold trip rate of 3 gph at 10 PSI. Inspected By: Contractor TAIT ENVIRONMENTAL SYSTEMS Technician Ruben Becerra Signature. Lic# Revision 5101 UNDERGROUND STORAGE TANKS fLICATION T RFORM ELD /LINE TESTING / SB989 SECONDARY CONTAINMENT TESTING /TANK TIGHTNESS TEST AND TO PERFORM FUEL MONITORING CERTIFICATION r BAKERSFIELD FIRE DEPT. H ~ S R 9 P I D prevention Services F~Ra ABTM T 900 Truxtun Ave., Ste. 210 Bakersfield, CA 93301 Tel.: (661)326-3979 Fax: (661) 852-2171 Page t of 1 PERMIT NO. ~ ~' -"~ ~'~ ^ ENHANCED LEAK DETECTION ^ LINE TESTING ^ SB-999 SECONDARY CONTAINMENT TESTING C~ TANK TIGHTNESS TEST ~ TO PERFORM FUEL MONITORING CFRTiFiCATION SITE INFORMATION AGILITY ~EPsI 3oi-T~l,.r~- G~ou ~ q5~ NAME & PHONE. NUMBER OF CONTACT PERSON SCo~T l~4wK,~S ~~ 1~3.s DDRESS ~?/5 C~-Si ~ISr,S/~E~i' BRKE25F/~~13 G'A- 9330 WNERS NAME C L r3DTTLlhI~- puP PERATORS NAME r~v5i r3o rr~ r ~/G- (g2oU P PERMIT TO OPERATE NO. ~ ~ ~ DlS° OZ ~ - Do 0 ~~ ~ UMBER OF TANKS TO BE TESTED IS PIPING GOING TO BE TESTED? ^ YES NO TANK# VOLUME CONTENTS - TANK TESTING COMPANY AME OF TESTING COMPANY ~~,,~ £~J/2onlA~tc-~ 5`~sZ~ts NAME & PHONE NUMBER OF CONTACT PERSON. PAM Ya2Kc=~ ~~~) 5~7 G~DO MAILING ADDRESS l ~~3 ,va~,~ ,u~v~~cE s~~~ ~~ ~ ~ 9,z~~s' AME & PHONE NUMBER OF TESTER OR SPECIAL I SPECTOR t~,/ B~ ERTIFICATION #: D 06 os ~-oo~ (;l`aA~2c~o/rE~b~2 /~; DATE & TIME TEST TO BE CONDUCTED -7-D6 ~~1';0 /-1M ICC ~: 523~5`~/--Cti EST METHOD V~7C2 ~ooi {GNATURE OF APPLICANT ATE ~ 3 ~_ ~~ THIS AP ICATION BECOMES A PERMIT HEN APPROVED PPROVED BY DATE Q '' FD2106 • UNIFIED PROGRAM INSPECTION CHECKLIST a ~~> SECTION 1 Business Plan and Inventory Program __ Bakersfield Fire Dept. Environmental Services 900 Truxtun Ave., Suite 210 Bakersfield, CA 93301 ' Tel: (661) 326-3979 _ _ _ l~~ ,~ Section 1: Business Plan and Inventory Program Cd'F~utine O Combined O Joint Agency OMulti-Agency O Complaint O Re-inspection r~ LJ - - -- - - FACILITY NAME WS CTION DATE INSPECTION TIME -------jw,P -~ -------------- - ~- - -_. ____.__.. - _---__._ .- -----------------~ ~------_ ___-- ADDRESS PHONE No. No. of Employees FACILITYCONTACT Business ID Number .~ a . ~J urNS 1 s-o21- ovo 9f3~ ANY HAZARDOUS WASTE ON SITE?: ~ES lili'NO EXPLAIN: l// ~'! S~~ a / Z-- • QUESTIONS REGARDING THIS INSPECTIONS PLEASE CALL US AT ~GF)'I ~ 326-3979 - -- /-~u~~~~r G~-~~6~~ ----- ---- - ------2'~ - _____ __- -- Inspector (Please Print) Fire Prevention 1st-In/Shift of Site WhRe -Environmental Services Yellow -Station Capy Business Site Responsible Party (Please Print) B Pink -Business Copy `~ ~'~~ ~ C[TY OF BAKERSFIELD F IRE DEPAR'T'MENT _ b~ OFFICE OF ENVIRONMENTAL SERVICES yp` UNIFIED PROC>;RAlvl INSPECTION CHECKLIST W ~Rtii!';~ 1715 Chester Ave., 3r`' Floor, Bakersfield, CA 93301 FACILITY NAM Section 2: Undergroun Storage an s Program INSPEC"LION DATE tf ~~~ 8~ ^ Routine ombined ~~int Agency ^Mu1ti-Agency ^ Complaint ^ Re-inspection Type of Tank (~tlt=C ~i Number of Tanks f Type of Monitoring ~~.bi~~ Type of Piping /~1l~~ ,J OPERATION C V COMMENTS Proper tank data on the Proper owner/operator data un the Permit fees current Certification of Financial Responsibility Monitoring record adequate and current Maintenance records adequate and current ~~ ~ ~~:~~ a C~ AIL. Failure to correct prior UST violations Has there been an unauthorized release? Yes No Section 3: Aboveground Storage Tanks Program TANK SIZE(S) Type of Tank ENT q pR 21 2006 AGGREGATE CAPACITY Number of Tanks OPERATION Y N COMMENTS SPCC available SPCC on file with OES Adequate secondary protection Proper tank placarding/labeling (s tank used to dispense MVF? If yes, Does tank have overtilUoverspill protection'? C=Compliance ~ V=Violation Y=Yes N=NO i ~ .~. Inspector ~' Office of Environmental Services (661) 326-3979 N'hitc - inv. Svcs. f Pink -Business Ci~Py usiness Site Responsible Party ~ THE PEP51 BOlTI.ING GROUP DAVID H. PATRICK OPERATIONS COUNSEL ,i ONE PEPSI WAY, SOMERS, NY 10589 (914}767-7107 FAX: (914}767-7944 ' EMAIL: dave.patrickC~pepsi.com 3' ~~ _ ~1 THE PEP51 BOTTLING GROUP ,~ r Letter From Chief Financial Officer I am the chief financial officer of Bottling Group, LLC; 1 Pepsi Way, Somers, New York 10589. This letter is in support of the use of the financial test of self-insurance to cl`emonstrate financial responsibility for taking corrective action and/or compensating third parties for bodily injury and property damage caused by sudden accidental releases and/or non-sudden accidental releases in the amount of at least $1.OMM dollars per occurrence and $2.OMM dollars annual aggregate arising from operating (an) underground storage tank(s). Underground storage tanks at the following facilities are assured by this financial test or a financial test under an authorized State program by this owner or operator: Name & Address of Facility .Financial Assurance Mechanism Pepsi Bottlin~ Group (Anchorage) This Financial Test 40 CFR 280.95 521 East 104. Street Anchorage, AK Pepsi Bottling Group (Phoenix) This Financial Test 40 CFR 280.95 4242 East Raymond Street Phoenix, AZ .Pepsi Bottling Group (Aliso Viejo) This Financial Test 40 CFR 280.95 27717 Aliso Creek Road Aliso Viejo, CA Pepsi Bottling Group (Bakersfield) This Financial Test 40 CFR 280.95 215 East 21St Street Bakersfield, CA Pepsi Bottling Group (Baldwin Park) This Financial Test 40 CFR 280.95 4416 North Azusa Canyon Road Baldwin Park, CA Pepsi Bottling Group (Buena Park) This Financial Test 40 CFR 280.95 6261 Caballero Blvd. Buena Park, CA Pepsi Bottling Group (Indio) This Financial Test 40 CFR 280:95 83-801 Citrus Ave Indio, CA Pepsi Bottling Group (Riverside) This Financial Test 40 CFR 280.95 6659 Sycamore Canyon Road Riverside, CA THE PEPSI BOTTLING GROUP 1 PEPSI WAY, SOMERS, NY 10589 Name & Address of Facili Financial Assurance Mechanism Pepsi Bottling Group (Sacramento) This Financial Test 40 CFR 280.95 6550 Reese Road Sacramento, CA Pepsi Bottling Group (San Diego) This Financial Test 40 CFR 280.95 7995 Armour Street San Diego, CA Pepsi Bottling Group (San Fernando) This Financial Test 40 CFR 280.95 1200 Arroya Street San Fernando, CA Pepsi Bottling Group (Torrance) This Financial Test 40 CFR 280.95 19700 Figueroa Torrance, CA Pepsi Bottling Group (Denver) This Financial Test 40 CFR 280.95 3801 Brighton Blvd. Denver, CO Pepsi Bottling Group (Pueblo) This Financial Test 40 CFR 280.95 1900 S. Freeway Pueblo, CO Pepsi Bottling Group (Brookfield) This Financial Test 40 CFR 280.95 30 Pocono Road Brookfield, CT Pepsi Bottling Group (Windsor/Hartford) This Financial Test 40 CFR 280.95 S S International Drive Windsor, CT Pepsi Bottling Group (Uncasville) This Financial Test 40 CFR 280.95 260 Gallivan Lane Uncasville, CT Pepsi Bottling Group (Wilmington) This Financial Test 40 CFR 280.95 3501 Governor Printz Blvd Wilmington, DE Pepsi Bottling Group (Melbourne) State. Program Rule 62-761.400 F.A.C. 3951 Sarno Road Melbourne, FL 2 of 9 Name & Address of Facili Financial Assurance Mechanism Pepsi Bottling Group (Miami) State Program Rule 62-761.400 F.A.C. 7777 NW 41 S` Street Miami, FL Pepsi Bottling Group (Orlando) State Program Rule 62-761.400 F.A.C. 1700 Directors Row Orlando, FL Pepsi Bottling Group (Tampa) State Program Rule 62-761.400 F.A.C. 11315 North 30`h Street Tampa, FL Pepsi Bottling Group (Wichita) This Financial- Test 40 CFR 280.95 101 W. 48`h Street Wichita, KS Pepsi Bottling Group (Albany) This Financial Test 40 CFR 280.95 Route 5, Highway 1590 Albany, KY Pepsi Bottling Group (Bangor) This Financial Test 40 CFR 280.95 2 Rudman Road Bangor, ME Pepsi Bottling Group (Baltimore) This Financial Test 40 CFR 280.95 1650 Union Avenue Baltimore, MD Pepsi Bottling Group (Cheverly) This Financial Test 40 CFR 280.95 1 Pepsi Place Cheverly, MD Pepsi Bottling Group (Laplata) This Financial Test 40 CFR 280.95 Route 301 South Laplate, MD Pepsi Bottling Group (Montgomery) This Financial Test 40 CFR 280.95 3325 Briggs Chaney Road Montgomery, MD Pepsi Bottling Group (Allston) This Financial Test 40 CFR 280.95 130 Western Avenue Allston, MA 3 of 9 Name & Address of Facili Financial Assurance Mechanism Pepsi Bottling Group (Sagamore) This Financial Test 40 CFR 280.95 103 Route 3A, N. Sagamore, MA Pepsi Bottling Group (Taunton) This Financial Test 40 CFR 280.95 620 Myles Standish Blvd Taunton, MA Pepsi Bottling Group (Wilmington) This Financial Test 40 CFR 280.95 111 Eames Street Wilmington, MA Pepsi Bottling Group (Detroit) This Financial Test 40 CFR 280.95 1555 Mack Ave Detroit, MI Pepsi Bottling Group (Howell) This Financial Test 40 CFR 280.95 755 South McPherson Park Drive Howell, MI Pepsi Bottling Group (Burnsville) This Financial Test 40 CFR 280.95 1300 East Cliff Road Burnsville, MN Pepsi Bottling Group (Reno/Elko) This Financial Test 40 CFR 280.95 608 River Street Reno, NV Pepsi Bottling Group (Manchester) This Financial Test 40 CFR 280.95 127 Pepsi Road Manchester, NH Pepsi Bottling Group (Mays Landing) This Financial Test 40 CFR 280.95 2 Pinewood Blvd. Mays Landing, NJ Pepsi Bottling Group (Piscataway) This Financial Test 40 CFR 280.95 2200 North Brunswick Ave Piscataway, NJ Pepsi Bottling Group (Albany/Latham) This Financial Test 40 CFR 280.95 1 Pepsi Drive Latham, NY 4 of 9 Name & Address of Facili Financial Assurance Mechanism Pepsi Bottling Group (Binghamton) This Financial Test 40 CFR 280.95 5 Broad Ave Binghamton, NY Pepsi Bottling Group (Buffalo) This Financial Test 40 CFR 280.95 2770 Walden Ave Cheektowaga, NY Pepsi Bottling Group (Keeseville) This Financial Test 40 CFR 280.95 1524 Route 9 Keeseville, NY Pepsi Bottling Group (Rochester) This Financial Test 40 CFR 280:95 425 Ormond Street Rochester, NY Pepsi Bottling Group (Syracuse) This Financial Test 40 CFR 280.95 6010 Tarbell Road Syracuse, NY Pepsi Bottling Group (Watertown) This Financial Test 40 CFR 280.95 1035 Bradley Street Watertown, NY Pepsi Bottling Group (Utica) This Financial Test 40 -CFR 280.95 1140 Broad Street Utica, NY Pepsi Bottling Group (Tulsa) This Financial Test 40 CFR 280.95 510 West Skelly Drive Tulsa, OK Pepsi Bottling Group (Portland) This Financial Test 40 CFR 280.95 2505 N.E. Pacific Ave Portland, OR Pepsi Bottling Group (Salem) This Financial Test 40 CFR 280.95 3011 Silverton Road Salem, OR Pepsi Bottling Group (Newville) This Financial Test 40 CFR 280.95 375 Shippensburg Rd Newville, PA 5 of 9 Name & Address of Facili Financial Assurance Mechanism Pepsi Bottling Group (Danville) State Program 9 VAC 25-590-60B 1001 Riverside Drive Danville, VA Pepsi Bottling Group (Fairfax) State Program 9 VAC 25-590-60B 4101 Pepsi Place Fairfax, VA State Program 9 VAC 25-590-60B Pepsi Bottling Group (Norfolk) 1194 Pineridge Road Norfolk, VA. State Program 9 VAC 25-590-60B Pepsi Bottling Group (Richmond) 3008 Mechanicsville Turnpike Richmond, VA State Program WAC 173-360-413 Pepsi Bottling Group (Everett) 1118 80th Place Southwest Everett, WA State Program WAC-173-360-413 Pepsi Bottling Group (Seattle) 2646 Rainier Ave S. Seattle, WA A financial test is also used by this owner or operator to demonstrate evidence of financial responsibility in the following amounts under other EPA regulations or state programs authorized by EPA under 40 CFR parts 271 and 145: EPA Regulations Amount Closure (Secs. 264.143 and 265.143) .................... $ NA Post-Closure Care (Secs. 264.145 and 265.145).......... $ NA Liability Coverage (Secs. 264.147 and 265.147)......:.. $ NA Corrective Action (Secs. 264.101(b)) ................... $ NA Plugging and Abandonment (Sec. 144.63) ................. $ NA Closure ................................................. $ NA Post-Closure Care ....................................... $ NA Liability Coverage ..................................... $ NA Corrective Action .:..................................... $ NA Plugging and Abandonment .........:......:........:...... $ NA Total ............................................... $ NA 6 of 9 This "owner or operator" has not received an adverse opinion, a disclaimer of opinion, or a "going concern" qualification from an independent auditor on his financial statements for the latest completed fiscal year. Alternative I 1. Amount of annual UST aggregate coverage being assured by afinancial test, and/or guarantee 2.OMM 1.OMM 2. Amount of corrective action, closure and post- $ closure care costs, liability coverage, and plugging and abandonment costs covered by a financial test, and/or guarantee 3. Sum of lines 1 and 2 4. Total tangible assets 5. Total liabilities [if any of the amount reported on line 3 is included in total liabilities, you may deduct that amount from this line and add that amount to line 6] 6. Tangible net worth [subtract line 5 from line 4] 7. Is line 6 at least $10 million? 8. Is line 6 at least 10 times line 3? 9. Have financial statements for the latest fiscal year been filed with the Securities and Exchange Commission? 10. Have financial statements for the latest fiscal year been filed with the Energy Information Administration? 11. Have financial statements for the latest fiscal year been filed with the Rural Electrification Administration? 12. Has financial information been provided to Dun and Bradstreet, and has Dun and Bradstreet provided a financial strength rating of 4A or SA? $ 3.OMM $ 8,415.OMM $ 6,164.OMM $ 2,251.OMM Yes No X X X X X X 7 of 9 Alternative II 1. Amount of annual UST aggregate coverage being assured by a test, and/or guarantee 2. Amount of corrective action, closure and post- closure care costs, liability coverage, and plugging and abandonment costs covered by a financial test, and/or guarantee 3. Sum of lines 1 and 2 4. Total tangible assets 5. Total liabilities [if any of the amount reported on line 3 is included in total liabilities, you may deduct that amount from this line and add that amount to line 6] 6. Tangible net worth [subtract line 5 from line 4] 7. Total assets in the U.S. [required only if less than 90 percent of assets are located in the U.S.] 8. Is line 6 at least $10 million? 9. Is line 6 at least 6 times line 3? 10. Are at least 90 percent of assets located in the U.S.? [If "No," complete line 11.] 11. Is line 7 at least 6 times line 3? [Fill in either lines 12-15 or lines 16-18:] 12. Current assets 13. Current liabilities 14. Net working capital [subtract line 13 from line 12] 15. Is line 14 at least 6 times line 3? Yes No Yes No 8 of 9 t 16. Current bond rating of most recent bond issue 17. Name of rating service [[Page 490]] 18. Date of maturity of bond 19. Have financial statements for the latest fiscal year been filed with the SEC, the Energy Information Administration, or the Rural Electrification Administration? [If "No," please attach a report from an independent certified public accountant certifying that there are no material differences between the data as reported in lines 4-18 above and the financial statements for the latest fiscal year. I hereby certify that the wording of this letter is identical to the wording specified in 40 CFR part 280.95(d) as such regulations were constituted on the date shown immediately below. Signa ~"-` Name: ed H. Drewes Title: Senior V' a-Pr ident & Chief Financial Officer Date: D G 9 of 9 ~; •,, State of Califomia For State Use Only . State of Water Resources Control Board ' Division of Financial Assistance ;~... P.O. Box 944212 Sacramento, CA 94244-2120 (Instructions on reverse side) CERTIFICATION OF FINANCIAL RESPONSIBILITY- - FOR UNDERGROUND STORAGE TANKS CONTAWING PETROLEUM A. I am required to demonstrate Financial Responsibility in the Required amounts as specified inSection 2807, Chapter 18, Div. 3, Title 23, CCR: ^ 500,000 dollars per occurrence ^ 1 million dollars annual aggregate or AND or ate e er occurrence x^ 2 million dollars annual a llars ^x 1 illi n d ggr g m o o p g. Bottling Group, LLC hereby certifies that it is in compliance with the requirements of Section 2807, (Name or Tank Owner or Operator) Article 3, Chapter 78, Division 3, Title 23, Califomia Code of Regulations. The mechanisms used to demonstrate financial responsibility as required by Section 2807 are as follows: C. Mechanism' - - .. _. Mechanism _ Coverage, Coverage. Corrective third Party T e Name and AdcJ~ess:of Issuer Number, . _ ',' ~~ Amount ~ ~ Period Action Corn " Chief Bottling Group, LLC $1.OMM"`per Financial One Pepsi Way N/A occurrence Annual Yes _ Yes Officer Somers, NY 10589 $2.OMM Letter annual a r ate Note: If you are using the State Fund as any part of your demonstration of financial responsibility, your execution and submission of this certification also certifies that you are in compliance with all conditions for participation in the Fund. D. Facility Name Facility Address Pepsi Bottling Group (Buena Park) 6261 Cabellero Boulevard Buena Park, CA 90620 Facility Name Facility Address Pepsi Bottling Group (San Diego) 7995 Armour Street San Diego, CA 92111 Facility Name Facility Address Pepsi Bottling Group (Bakersfield 215 East 21st Street Bakersfield, CA 93305-5115 E. 'nature of Tank Owner ator Date Name and Title of Tank Owner or Operator / ~~~/d~ David H. Patrick, Operations Counsel Signature of Witness or Notary Date Name of Witness or Notary ~O ~ ~' ~~ Q~ Lisa M. Chardain ~ 1 ` ~ ~.in CFR (Revised 04/95) FILE: Original -Local Agency Copies -Facility/Site(s) THE PEP51 BOTTLING GROUP April 11, 2006 Bakersfield Fire Department Prevention Services 900 Truxton Avenue, Suite 210 P.O. Box 129261 Bakersfield, CA. 93301 Re: Financial Test of Self-Insurance For Bottling Group, LLC d/b/a The Pepsi Bottling Group Bakersfield Facility #954 Dear Prevention Services, Enclosed, please find an updated Letter From Chief Financial Officer and Certification of Financial Responsibility for Underground Storage Tanks Containing Petroleum Form submitted on behalf of Bottling Group, LLC based on 2005 financial information. I am also enclosing the Form 10-K for Bottling Group, LLC filed with the Securities and Exchange Commission as verification of our test. If you have any questions or wish to clarify some point, please give me a call to discuss. Sincerely, ~~ David H. Patrick Senior Operations Counsel cc: J. Burns THE PEPSI BOTTLING GROUP 1 PEPSI WAY, SOMERS, NY 10589 UNITED STATES SECURITIES AND EXCHANGE COMMISSION - Washington, D.C. 20549 FORM 10-K Q Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 2005 or ^ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from to Commission file number 333-80361-O1 Bottling Group, LLC (Exact name of Registrant as Specified in its Charter) Organized in Delaware 13.4042452 (State or other Jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) One Pepsi Way 10589 Somers, New York (Zip code) (Address of Principal Executive Offices) Registrant's telephone number, including area code: (914) 767-6000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes 0 No ^ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ^ No 8 Indicate by check mark whether the registrant: (1) has filed all reports required to be tiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes E~ No ^ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. a Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ^ Accelerated filer ^Non-accelerated filer 8 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ^ No 0 The aggregate market value of Bottling Group, LLC Capital Stock held by non-affiliates of Bottling Group, LLC as of June 11, 2005 was $0. TABLE OF CONTENTS PART I Item 1. Business Item 1 A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Leal Proceedings Item 4. Submission of Matters to a Vote of Shareholders PART II Item 5. Market for Registrant's Common Equity Related Shareholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors and Executive Officers of Bottling LLC Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions Item 14. Principal Accountant Fees and Services PART IV Item 1.5. Exhibits and Financial Statement Schedules SIGNATURES INDEX TO EXHIBITS PARTI Item 1. Business Introduction Bottling Group, LLC ("Bottling LLC") is the principal operating subsidiary of The Pepsi Bottling Group, Inc. ("PBG") and consists of substantially all of the operations and assets of PBG. Bottling LLC, which is fully consolidated by PBG, consists of bottling operations located in the United States, Canada, Spain, Greece, Russia, Turkey and Mexico. Prior to its formation, Bottling LLC was an operating unit of PepsiCo, Inc. ("PepsiCo"). When used in this Report, "Bottling LLC," "we," "us" and "our" each refers to Bottling Group, LLC and, where appropriate, its subsidiaries. PBG was incorporated in Delaware in January, 1999, as a wholly owned subsidiary of PepsiCo, to effect the separation of most of PepsiCo's company-owned bottling businesses. PBG became a publicly traded company on Mazch 31, 1999. As of January 27, 2006 PepsiCo's ownership represented 41.3% of the outstanding common stock and 100% of the outstanding Class B common stock, together representing 46.9% of the voting power of all classes of PBG's voting stock. PepsiCo and PBG contributed bottling businesses and assets used in the bottling business to Bottling LLC in connection with the formation of Bottling LLC. As a result of the contributions of assets and other subsequent transactions, PBG owns 93.3% and PepsiCo owns the remaining 6.7% as of December 31, 2005. PBG has made available, free of charge, the following governance materials on its website at http://www.pbe.com under Investor Relations - Company Information -Corporate Governance: Certificate of Incorporation, Bylaws, Corporate Governance Principles and Practices, PBG's Worldwide Code of Conduct (including any amendment thereto), PBG's Director Independence Policy, PBG's Audit and Affiliated Transactions Committee Charter, PBG's Compensation and Management Development Committee Charter, PBG's Nominating and Corporate Governance Committee Charter and PBG's Disclosure Committee Charter. These governance materials aze available in print, free of chazge, to any PBG shareholder upon request. Principal Products We are the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages. The beverages sold by us include PEPSI-COLA, D[ET PEPSI, MOUNTAIN DEW, AQUAFINA, LIPTON BRISK, SIERRA MIST, DIET MOUNTAIN DEW, TROPICANA JUICE DRINKS, SOB E, and STARBUCKS FRAPPUCCINO. In addition to the foregoing, the beverages we sell outside the U.S. include 7 UP, KAS, AQUA MINERALE, MIRINDA and MANZANITA soL. In some of our territories, we have the right to manufacture, sell and distribute soft drink products of companies other than PepsiCo, including DR PEPPER and SQUIRT. We also have the right in some of our territories to manufacture, sell and distribute beverages under trademarks that we own,lnClUding ELECTROPURA, EPURA and GARCI CRESPO. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of 41 states and the District of Columbia in the U.S., nine Canadian provinces, Spain, Greece, Russia, Turkey and all or a portion of 23 states in Mexico. In 2005, approximately 71% of our net revenues were generated in the United States, 10% of our net revenues were generated in Mexico and the remaining 19% of our net revenues were generated in Canada, Spain, Greece, Russia and Turkey. In 2005, worldwide sales of our products to two of our customers accounted for approximately 10% of our net revenues. We have an extensive direct store distribution system in the United States, Mexico and Canada. In Russia, Spain, Greece and Turkey, we use a combination of direct store distribution and distribution through wholesalers, depending on local marketplace considerations. Raw Materials and Other Supplies We purchase the concentrates to manufacture Pepsi-Cola beverages and other beverage products from PepsiCo and other beverage companies. In addition to concentrates, we purchase sweeteners, glass and plastic bottles, cans, closures, syrup containers, other packaging materials, carbon dioxide and some finished goods. We generally purchase our raw materials, other than concentrates, from multiple suppliers. PepsiCo acts as our agent for the purchase of such raw materials in the United States and Canada and, with respect to some of our raw materials, in certain of our international markets. The Pepsi beverage agreements, as described below, provide that, with respect to the beverage products of PepsiCo, all authorized containers, closures, cases, cartons and other packages and labels may be purchased only from manufacturers approved by PepsiCo. There are no materials or supplies used by PBG that are currently in short supply. The supply or cost of specific materials could be adversely, affected by various factors, including price changes, strikes, weather conditions and governmental controls. Patents, Trademarks and Licenses Our portfolio of beverage products includes some of the best recognized trademarks in the world and includes PEPSI-COLA, DIET PEPSI, MOUNTAIN DEW, AQUAFINA, LIPTON BRISK, SIERRA MIST, DIET MOUNTAIN DEW, TROPICANA JUICE DRINKS, SOBS, and STARBUCKS FRAPPUCCINO. In addition to the foregoing, the beverages we sell outside the U.S. include 7 UP, ICAS, AQUA MINERALE, MIRINDA and MANZANITA SoL. In some of our territories, we have the right to manufacture, sell and distribute beverage products of companies other than PepsiCo, including DR PEPPER and SQUIRT. We also have the right in some of our territories to manufacture, sell and distribute beverages under trademarks that we own, including ELECTROPURA, EPURA and GARCI CRESPO. The majority of our volume is derived from brands licensed from PepsiCo or PepsiCo joint ventures. We conduct our business primarily pursuant to PBG's beverage agreements with PepsiCo. Although Bottling LLC is no[ a direct party to these agreements as the principal operating subsidiary of PBG, Bottling LLC enjoys certain rights and is subject to certain obligations as described below. These agreements give us the exclusive right to market, distribute, and produce beverage products of PepsiCo in authorized containers in specified territories. Set forth below is a description of the Pepsi beverage agreements and other bottling agreements from which we benefit and under which we are obligated as the principal operating subsidiary of PBG. Terms of the Master Bottling Agreement. The Master Bottling Agreement under which we manufacture, package, sell and distribute the cola beverages bearing the PEPSI-COLA and PEPSI trademarks in the U.S. was entered into in March of 1999. The Master Bottling Agreement gives us the exclusive and perpetual right to distribute cola beverages for sale in specified territories in authorized containers of the nature currently used by us. The Master Bottling Agreement provides that we will purchase our entire requirements of concentrates for the cola beverages from PepsiCo at prices, and on terms and conditions, determined from time to time by PepsiCo. PepsiCo may determine from time to time what types of containers to authorize for use by us. PepsiCo has no rights under the Master Bottling Agreement with respect to the prices at which we sell our products. Under the Master Bottling Agreement we are obligated to: (1) maintain such plant and equipment, staff, and distribution facilities and vending equipment that are capable of manufacturing, packaging and distributing the cola beverages in sufficient quantities to fully meet the demand for these beverages in our temtories; (2) undertake adequate quality control measures prescribed by PepsiCo; (3) push vigorously the sale of the cola beverages in our territories; (4) increase and fully meet the demand for the cola beverages in our territories; (5) use all approved means and spend such funds on advertising and other forms of marketing beverages as may be reasonably required to push vigorously the sale of cola beverages in our temtories; and (6) maintain such financial capacity as may be reasonably necessary to assure performance under the Master Bottling Agreement by us. The Master Bottling Agreement requires us to meet annually with PepsiCo to discuss plans for the ensuing year and the following two years. At such meetings, we are obligated to present plans that set out in reasonable detail our marketing plan, our management plan and advertising plan with respect to the cola beverages for the yeaz. 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, mazketing, advertising and capital expenditure plans for the two years following such yeaz. PepsiCo has the right to approve such plans, which approval shall not be unreasonably withheld. In 2005, PepsiCo approved our plans. If we carry out our annual plan in all material respects, we will be deemed to have satisfied our obligations to push vigorously the sale of the cola beverages, increase and fully meet the demand for the cola beverages in our territories and maintain the financial capacity required under the Master Bottling Agreement. Failure to present a plan or carry out approved plans in all material respects would constitute an event of default that, if not cured within 120 days of notice of the failure, would give PepsiCo the right to terminate the Master Bottling Agreement. If we present a plan that PepsiCo does not approve, such failure shall constitute a primary consideration for determining whether we have satisfied our obligations to maintain our financial capacity, push vigorously the sale of the cola beverages and increase and fully meet the demand for the cola beverages in our territories. ff 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 mazketing spending, but it may contribute to such expenditures and undertake independent advertising and marketing activities, as well as cooperative advertising and sales promotion programs that would require our cooperation and support. Although PepsiCo has advised us that it intends to continue to provide cooperative advertising funds, it is not obligated to do so under the Master Bottling Agreement. The Master Bottling Agreement provides that PepsiCo may in its sole discretion reformulate any of the cola beverages or discontinue them, with some limitations, so long as all cola beverages are not discontinued. PepsiCo may also introduce new beverages under the PEPSI-COLA trademarks or any modification thereof. When that occurs, we are obligated to manufacture, package, distribute and sell such new beverages with the same obligations as then exist with respect to other cola beverages. We are prohibited from producing or handling cola products, other than those of PepsiCo, or products or packages that imitate, infringe or cause confusion with the products, containers or trademarks of PepsiCo. The Master Bottling Agreement also imposes requirements with respect to the use of PepsiCo's trademarks, authorized containers, packaging and labeling. If we acquire control, directly or indirectly, of any bottler of cola beverages, we must cause the acquired bottler to amend its bottling appointments for the cola beverages to conform to the terms of the Master Bottling Agreement. Under the Master Bottling Agreement, PepsiCo has agreed not to withhold approval for any acquisition of rights to manufacture and sell PEPSI trademazked cola beverages within a specific area -currently representing approximately 11.3% 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) PBG's 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) PBG's entry into any business other than the business of manufacturing, selling or distributing non-alcoholic beverages or any business which is directly related and incidental to such beverage business; and (4) any material breach under the contract that remains uncured for 120 days after notice by PepsiCo. An event of default will also occur if any person or affiliated group acquires any contract, option, conversion privilege, or other right to acquire, directly or indirectly, beneficial ownership of more than l5% of any class or series of PBG's voting securities without the consent of PepsiCo. As of February 15, 2006, to our knowledge, no shareholder of PBG, other than PepsiCo, held more than 10.2% of PBG's Common Stock. We are prohibited from assigning, transferring or pledging the Master Bottling Agreement, or any interest therein, whether voluntazily, or by operation of law, including by merger or liquidation, without the prior consent of PepsiCo. The Master Bottling Agreement was entered into by PBG in the context of our separation from PepsiCo and, therefore, its provisions were not the result of arm's-length negotiations. Consequently, the agreement contains provisions that are less favorable to us than the exclusive bottling appointments for cola beverages currently in effect for independent bottlers in the United States. Terms of the Non-Cola Bottling Agreements. The beverage products covered by the non-cola bottling agreements are beverages licensed to PBG by PepsiCo, COnSlSting Of MOUNTAIN DEW, AQUAFINA, SIERRA MIST, DIET MOUNTAIN DEW, MUC root beer and cream soda, MOUNTAIN DEw CODE REn and SLICE. The non-cola bottling agreements contain provisions that are similar to those contained in the Master Bottling Agreement with respect to pricing, territorial restrictions, authorized containers, planning, quality control, transfer restrictions, term and related matters. PBG's non-cola bottling agreements will terminate if PepsiCo terminates PBG's Master Bottling Agreement. The exclusivity provisions contained in the non-cola bottling agreements would prevent us from manufacturing, selling or distributing beverage products which imitate, infringe upon, or cause confusion with, the beverage products covered by the non-cola bottling agreements. PepsiCo may also elect to discontinue the manufacture, sale or distribution of a non-cola beverage and terminate the applicable non-cola bottling agreement upon six months notice to us. Terms of Certain Distribution Agreements. PBG also has agreements with PepsiCo granting us exclusive rights to distribute AMP and Do[.E in all of PBG's territories and SoBE in certain specified territories. The distribution agreements contain provisions generally similar to those in the Master Bottling Agreement as to use of trademarks, trade names, approved containers and labels and causes for termination. PBG also has the right to sell and distribute GATORADE in Spain, Greece and Russia and in certain limited channels of distribution in the U.S. and Canada. Some of these beverage agreements have limited terms and, in most instances, prohibit us from dealing in similar beverage products. We are also currently distributing TROPICANA JUICE DRINKS in the United States and Canada and TROPICANA JUlcss in Russia and Spain. 4 Terms of the Master Syrup Agreement. The Master Syrup Agreement grants PBG the exclusive right to manufacture, sell and distribute fountain syrup to local customers in PBG's territories. The Master Syrup Agreement also grants PBG the right to act as a manufacturing and delivery agent for national accounts within PBG's territories that specifically request direct delivery without using a middleman. )n addition, PepsiCo may appoint PBG to manufacture and deliver fountain syrup to national accounts that elect delivery through independent distributors. Under the Master Syrup Agreement, PBG has the exclusive right to service fountain equipment for all of the national account customers within PBG's territories. The Master Syrup Agreement provides that the determination of whether an account is local or national is at the sole discretion of PepsiCo. The Master Syrup Agreement contains provisions that are similar to those contained in the Master Bottling Agreement with respect to concentrate pricing, territorial restrictions with respect to local customers and national customers electing direct-to-store delivery only, planning, quality control, transfer restrictions and related matters. The Master Syrup Agreement had an initial term of five years which expired in 2004 and was renewed for an additional five-year period. The Master Syrup Agreement will automatically renew for additional five-year periods, unless PepsiCo terminates it for cause. PepsiCo has the right to terminate the Master Syrup Agreement without cause at any time upon twenty-four months notice. In the event PepsiCo terminates the Master Syrup Agreement without cause, PepsiCo is required to pay PBG the fair market value of PBG's rights thereunder. Our Master Syrup Agreement will terminate if PepsiCo terminates our Master Bottling Agreement. Terms of Other U.S. Bottling Agreements. The bottling agreements between PBG and other licensors of beverage products, including Cadbury Schweppes plc for DR PEPPER, SCHWEPPES, CANADA DRY, HAWAIIAN PUNCH and SQUIRT, the Pepsi/Lipton Tea Partnership for LtrroN BRISK and LIPTON'S ICED TEA, and the North American Coffee Partnership for STARBUCKS FRAPPUCCINO, contain provisions generally similar to those in the Master Bottling Agreement as to use of trademarks, trade names, approved containers and labels, sales of imitations and causes for termination. Some of these beverage agreements have limited terms and, in most instances, prohibit us from dealing in similar beverage products. Terms of the Country Specific Bottling Agreements. The country specific bottling agreements contain provisions generally similar to those contained in the Master Bottling Agreement and the non-cola bottling agreements and, in Canada, the Master Syrup Agreement with respect to authorized containers, planning, quality control, transfer restrictions, term, causes for termination and related matters. These bottling agreements differ from the Master Bottling Agreement because, except for Canada, they include both fountain syrup and non-fountain beverages. Certain of these bottling agreements contain provisions that have been modified to reflect the laws and regulations of the applicable country. For example, the bottling agreements in Spain do not contain a restriction on the sale and shipment of Pepsi-Cola beverages into our territory by others in response to unsolicited orders. In addition, in Mexico and Turkey we are restricted in our ability to manufacture, sell and distribute beverages sold under non-PepsiCo trademarks. Seasonality Our peak season is the warm summer months beginning in May and ending in September. More than 65% of our operating income is typically earned during the second and third quarters. More than 80% of cash flow from operations is typically generated in the third and fourth quarters. Competition The carbonated soft drink market and the non-carbonated beverage market are highly competitive. Our competitors in these markets include bottlers and distributors of nationally advertised and marketed products, bottlers and distributors of regionally advertised and marketed products, as well as bottlers of private label soft drinks sold in chain stores. Among our major competitors are bottlers that distribute products from The Coca-Cola Company including Coca-Cola Enterprises Inc., Coca-Cola Hellenic Bottling Company S.A., Coca-Cola FEMSA S.A. de C.V. and Coca-Cola Bottling Co. Consolidated. Our market share for carbonated soft drinks sold under trademarks owned by PepsiCo in our U.S. territories ranges from approximately 21 % to approximately 37%. Our market share for carbonated soft drinks sold under trademarks owned by PepsiCo for each country, outside the U.S., in which we do business is as follows: Canada 38%; Russia 25%; Turkey 19%; Spain 12% and Greece 9% (including market share for our tvt brand). In addition, market share for our territories and the territories of other Pepsi bottlers in Mexico is 13% for carbonated soft drinks sold under trademarks owned by PepsiCo. All market share figures are based on generally available data published by third-parties. Actions by our major competitors and others in the beverage industry, as well as the general economic environment, could have an impact on our future market share. We compete primarily on the basis of advertising and marketing programs to create brand awareness, price and promotions, retail space management, customer service, consumer points of access, new products, packaging innovations and distribution methods. We believe that brand recognition, market place pricing; consumer value, customer service, availability and consumer and customer goodwill are primary factors affecting our competitive position. Governmental Regulation Applicable to Bottling LLC Our operations and properties are subject to regulation by various federal, state and local governmental entities and agencies in the United States as well as foreign governmental entities and agencies in Canada, Spain, Greece, Russia, Turkey and Mexico. As a producer of food products, we are subject to production, packaging, quality, labeling and distribution standards in each of the countries where we have operations, including, in the United States, those of the Federal Food, Drug and Cosmetic Act and the Public Health Security and Bioterrorism Preparedness and Response Act. The operations of our production and distribution facilities are subject to laws and regulations relating to the protection of our employees' health and safety and the environment in the countries in which we do business. In the United States, we are subject to the laws and regulations of various governmental entities, including the Department of Labor, the Environmental Protection Agency and the Depaztment of Transportation, and various federal, state and local occupational, labor and employment and environmental laws. These laws and regulations include the Occupational Safety and Health Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Superfund Amendments and Reauthorization Act, the Federal Motor Carrier Safety Act and the Fair Labor Standards Act. We believe that our current legal, operational and environmental compliance programs are adequate and that we are in substantial compliance with applicable laws and regulations of the countries in which we do business. We do not anticipate making any material expenditures in connection with environmental remediation and compliance. However, compliance with, or any violation of, future laws or regulations could require material expenditures by us or otherwise have a material adverse effect on our business, financial condition or results of operations. Bottle and Can Legislation Legislation has been enacted in certain states and Canadian provinces where we operate that generally prohibits the sale of certain beverages in non-refillable containers unless a deposit or levy is charged for the container. These include California, Connecticut, Delaware, Hawaii, Iowa, Maine, Massachusetts, Michigan, New York, Oregon, West Virginia, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Ontario, Prince Edward Island and Quebec. Massachusetts and Michigan have statutes that require us to pay all or a portion of unclaimed container deposits to the state and Hawaii and California impose a levy on beverage containers to fund a waste recovery system. In addition to the Canadian deposit legislation described above, Ontario, Canada currently has a regulation requiring that at least 30% of all soft drinks sold in Ontario be bottled in refillable containers. The European Commission issued a packaging and packing waste directive that was incorporated into the national legislation of most member states. This has resulted in targets being set for the recovery and recycling of household, commercial and industrial packaging waste and imposes substantial 6 responsibilities upon bottlers and retailers for implementation. Similar legislation has been enacted in Turkey. Mexico adopted legislation regulating the disposal of solid waste products. In response to this legislation, PBG Mexico maintains agreements with local and federal Mexican governmental authorities as well as with civil associations, which require PBG Mexico, and other participating bottlers, to provide for collection and recycling of certain minimum amounts of plastic bottles. We are not aware of similar material legislation being enacted in any other areas served by us. We are unable to predict, however, whether such legislation will be enacted or what impact its enactment would have on our business, financial condition or results of operations. Soft Drink Excise Taz 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 and Arkansas and, with respect to fountain syrup only, Washington. In Mexico, there are excise taxes on any sweetened beverage products produced without sugar, including our diet soft drinks and imported beverages that are not sweetened with sugar. Value-added taxes on soft drinks vary in our territories located in Canada, Spain, Greece, Russia, Turkey and Mexico, but are consistent with the value-added tax rate for other consumer products. In addition, there is a special consumption tax applicable to cola products in Turkey. In Mexico, bottled water in containers over 10.1 liters are exempt from value-added tax, and PBG obtained a tax exemption for containers holding less than 10.1 liters of water. We are not aware of any material soft drink taxes that have been enacted in any other market served by us. We are unable to predict, however, whether such legislation will be enacted or what impact its enactment would have on our business, financial condition or results of operations. Trade Regulation As a manufacturer, seller and distributor of bottled and canned soft drink products of PepsiCo and other soft drink manufacturers in exclusive territories in the United States and internationally, we are subject to antitrust and competition laws. Under the Soft Drink Interbrand Competition Act, soft drink bottlers operating in the United States, such as us, may have an exclusive right to manufacture, distribute and sell a soft drink product in a geographic territory if the soft drink product is in substantial and effective competition with other products of the same class in the same market or markets. We believe that there is such substantial and effective competition in each of the exclusive geographic territories in which we operate. School Sales Legislation; Industry Guidelines In 2004, Congress passed the Child Nutrition Act which requires school districts to implement a school wellness policy by July 2006. As of December 2005, several school districts in PBG's bottling territories have imposed restrictions on soft drink sales in schools. Additionally, several states have enacted restrictions on soft drink sales in schools. Members of the American Beverage Association have endorsed a school vending policy (the "ABA Policy") that limits the types of beverages sold in elementary, middle and high schools. Also, the beverage association in the European Union and various provinces in Canada have recently issued guidelines relating to the sale of beverages in schools. PBG intends to fully comply with the ABA Policy and these guidelines. California Carcinogen and Reproductive Toxin Legislation A California law requires that any person who exposes another to a carcinogen or a reproductive toxin must provide a warning to that effect. Because the law does not define quantitative thresholds below which a warning is not required, virtually all manufacturers of food products are confronted with the possibility of having to provide warnings due to the presence of trace amounts of defined substances. Regulations implementing the law exempt manufacturers from providing the required warning if it can be demonstrated that the defined substances occur naturally in the product or are present in municipal water used to manufacture the product. We have assessed the impact of the law and its implementing regulations on our beverage products and have concluded that none of our products currently require a warning under the law. We cannot predict whether or to what extent food industry efforts to minimize the law's impact on food products will succeed. We also cannot predict what impact, either in terms of direct costs or diminished sales, imposition of the law may have. Mexican Water Regulation In Mexico, we pump water from our own wells and we purchase water directly from municipal water companies pursuant to concessions obtained from the Mexican government on a plant-by-plant basis. The concessions are generally for 10-year terms and can generally be renewed by us prior to expiration with minimal cost and effort. Our concessions may be terminated if, among other things, (a) we use materially more water than permitted by the concession, (b) we use materially less water than required by the concession, (c) we fail to pay for the rights for water usage or (d) we carry out, without government authorization, any material construction on or improvement to, our wells. Our concessions generally satisfy our current water requirements and we believe that we are generally in compliance in all material respects with the terms of our existing concessions. Employees As of December 31, 2005, we employed approximately 66,900 workers, of whom approximately 33,000 were employed in the United States. Approximately 8,900 of our workers in the United States are union members and approximately .17,300 of our workers outside the United States are union members. We consider relations with our employees to be good and have not experienced significant interruptions of operations due to labor disagreements. Financial Information on Industry Segments and Geographic Areas See Note 15 to Bottling LLC's Consolidated Financial Statements included in Item 7 below. Item lA. Risk Factors Our Business and operations entail a variety of risks and uncertainties, including those described below. We may not be able to respond successfully to consumer trends related to carbonated and non-carbonated beverages. Consumers are seeking increased variety in their beverages, and there is a growing interest among the public regarding health and wellness issues. This interest has resulted in a decline in consumer demand for full calorie carbonated soft drinks and an increase in consumer demand for products associated with health and wellness, such as water, reduced calorie carbonated soft drinks and certain non-carbonated beverages. Because we rely mainly on PepsiCo to provide us with the products that we sell, if PepsiCo fails to develop innovative products that respond to these and other consumer trends this could put us at a competitive disadvantage in the marketplace and adversely affect our business and financial results. We may not be able to respond successfully to the demands of our largest customers. Our retail customers are consolidating, leaving fewer customers with greater overall purchasing power. In addition, two of our customers together comprise approximately 10% of our annual worldwide sales. Because we do not operate in all markets in which these customers operate, we must rely on PepsiCo and other PepsiCo bottlers to service such customers outside of our markets. Our inability, or the inability of PepsiCo and PepsiCo bottlers as a whole, to meet the product, packaging and service demands of our largest customers could lead to a loss or decrease in business from such customers and have a material adverse effect on our business and financial results. We may not be able to compete successfully within the highly competitive carbonated and non-carbonated beverage markets. The carbonated and non-carbonated beverage markets are both highly competitive. Competitive pressures in our markets could cause us to reduce prices or forego price increases required to off-set increased costs of raw materials and fuel, increase capital and other expenditures, or lose market share, any of which could have a material adverse effect on our business and financial results. Because we depend upon PepsiCo to provide us with concentrate, certain funding and various services, changes in our relationship with PepsiCo could adversely affect our business and financial results. We conduct our business primarily under PBG's beverage agreements with PepsiCo. Although we are not a direct party to these agreements, as the principal operating subsidiary of PBG, we enjoy rights and are subject to obligations under these agreements. If these beverage agreements with PepsiCo are terminated for any reason, it would have a material adverse effect on our business and financial results. These agreements provide that PBG must purchase all of the concentrate for such beverages at prices and on other terms which are set by PepsiCo in its sole discretion. Any significant concentrate price increases could materially affect our business and financial results. PepsiCo has also traditionally provided bottler incentives and funding to its bottling operations. PepsiCo does not have to maintain or continue these incentives or funding. Termination or decreases in bottler incentives or funding levels could materially affect our business and financial results. Under our shared services agreement, we obtain various services from PepsiCo, including procurement of raw materials and certain administrative services. If any of the services under the shared services agreement was terminated, we would have to obtain such services on our own. This could result in a disruption of such services, and we might not be able to obtain these services on teems, including cost, that are as favorable as those we receive through PepsiCo. Our business requires a significant supply of raw materials, the limited availability or increased costs of which could adversely affect our business and financial results. The production of our beverage products is highly dependent on certain raw materials. In particular, we require significant amounts of aluminum and plastic bottle components, such as resin. We also require access to significant amounts of water. Any sustained interruption in the supply of raw materials or any significant increase in their prices could have a material adverse effect on our business and financial results. PepsiCo's equity ownership of PBG could affect matters concerning us. As of January 27, 2006, PepsiCo owned approximately 46.9% of the combined voting power of PBG's voting stock (with the balance owned by the public). PBG owns approximately 93.3% of our membership interests, and PepsiCo indirectly owned the remainder of our membership interests. PepsiCo will be able to significantly affect the outcome of PBG's stockholder votes, thereby affecting matters concerning us. We may have potential conflicts of interest with PepsiCo, which could result in PepsiCo's objectives being favored over our objectives. Our past and ongoing relationship with PepsiCo could give rise to conflicts of interests. In addition, two members of PBG's Board of Directors and one of the three Managing Members of Bottling LLC, are Senior Vice Presidents of PepsiCo, a situation which may create conflicts of interest. These potential conflicts include balancing the objectives of increasing sales volume of PepsiCo beverages and maintaining or increasing our profitability. Other possible conflicts could relate to the nature, quality and pricing of services or products provided to us by PepsiCo or by us to PepsiCo. Conflicts could also arise in the context of our potential acquisition of bottling territories and/or assets from PepsiCo or other independent PepsiCo bottlers. Under the Master Bottling Agreement, we must obtain PepsiCo's approval to acquire any independent PepsiCo bottler. PepsiCo has agreed not to withhold approval for any acquisition within agreed upon U.S. territories 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 attempt to acquire any independent PepsiCo bottler outside of those agreed-upon territories without PepsiCo's prior written approval. Our acquisition strategy maybe limited by our ability to successfully integrate acquired businesses into ours or our failure to realize our expected return on acquired businesses. We intend to continue to pursue acquisitions of bottling assets and territories from PepsiCo's independent bottlers. The success of our acquisition strategy may be limited because of unforeseen costs and complexities. We may not be able to acquire, integrate successfully or manage profitably additional businesses without substantial costs, delays or other difficulties. Unforeseen costs and complexities may also prevent us from realizing our expected rate of return on an acquired business. Any of the foregoing could have a material adverse effect on our business and financial results. 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. Key management employees are not parties to employment agreements with us. The loss of the services of key personnel could have a material adverse effect on our business and financial results. If we are unable to fund our substantial capital requirements, it could cause us to reduce our planned capital expenditures and could result in a material adverse effect on our business and financial results. We require substantial capital expenditures to implement our business plans. )f 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 business and financial results. Our substantial indebtedness could adversely affect our financial health. We have a substantial amount of indebtedness, which requires us to dedicate a substantial portion of our cash flow from operations to payments on our debt. This could limit our flexibility in planning for, 10 or reacting to, changes in our business and place us at a competitive disadvantage compared to competitors that have less debt. Our indebtedness also exposes us to interest rate fluctuations, because the interest on some of our indebtedness is at variable rates, and makes us vulnerable to general adverse economic and industry conditions. All of the above could make it more difficult for us, or make us unable, to satisfy our obligations with respect to all or a portion of such indebtedness and could limit our ability to obtain additional financing for future working capital expenditures, strategic acquisitions and other general corporate requirements. Our foreign operations are subject to social, political and economic risks and may be adversely affected by foreign currency fluctuations. In the fiscal year ended December 31, 2005, approximately 29% of our net revenues were generated in territories outside the United States. Social, economic and political conditions in our international markets may adversely affect our business and financial results. 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 and financial results. In addition, our results of operations and the value of our foreign assets are affected by fluctuations in foreign currency exchange rates. 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 or illness. We also may be required to recall products if they become contaminated or are damaged or mislabeled. A significant product liability or other product related legal judgment against us or a widespread recall of our products could have a material adverse effect on our business and financial results. Newly adopted governmental regulations could increase our costs or liabilities or impact the sale of our products. Our operations and properties are subject to regulation by various federal, state and local government entities and agencies as well as foreign governmental entities. Such regulations relate to, among other things, food and drug laws, environmental laws, competition laws, taxes, and accounting standards. We cannot assure you that we have been or will at all times be in compliance with all regulatory requirements or [hat we will not incur material costs or liabilities in connection with existing or new regulatory requirements. Item 1B. Unresolved Staff Comments None Item 2. Properties As of December 31, 2005, we operated 95 soft drink production facilities worldwide, of which 86 were owned and 7 were leased. In addition, one facility used for the manufacture of soft drink packaging materials was operated by a PBG joint venture in Turkey and one facility used for can manufacturing was operated by a PBG joint venture in Ayer, Massachusetts. Of our 546 distribution facilities, 335 are owned and 211 are leased. We believe that our bottling, canning and syrup filling lines and our distribution facilities are sufficient to meet present needs. We also lease headquarters office space in Somers, New York. We also own or lease and operate approximately 41,000 vehicles, including delivery trucks, delivery and transport tractors and trailers and other trucks and vans used in the sale and distribution of our soft drink products. We also own more than 2 million coolers, soft drink dispensing fountains and vending machines. 11 With a few exceptions, leases of plants in the United States and Canada are on a long-term basis, expiring at various times, with options to renew for additional periods. Most international plants are leased for varying and usually shorter periods, with or without renewal options. We believe that our properties are in good operating condition and are adequate to serve our current operational needs. Item 3. Legal Proceedings From time to time we are a party to various litigation proceedings arising in the ordinary course of our business, none of which, in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations, including the following proceeding: At the end of the fourth quarter of 2004 and during the first three quarters of 2005, we received Notices of Violation ("NOVs") and Orders For Compliance from the Environmental Protection Agency, Region 9 ("EPA"), relating to operations at four bottling plants in California and one in Hawaii. The NOVs allege [hat we violated our permits and the Clean Water Act as a result of certain events relating to waste water discharge and storm water run-off. We have been cooperating with the authorities in their investigation of these matters, including responding to various document requests pertaining to our plants in California and each of our plants in Arizona and Hawaii. In August 2005, we met with representatives of the EPA to discuss the circumstances giving rise to the NOVs and our responses. We believe monetary sanctions may be sought in connection with one or more of the NOVs. We further believe that neither the sanctions nor the remediation costs associated with these NOVs will be material to the Company's results of operations or financial condition. Item 4. Submission of Matters to a Vote of Shareholders None. Executive Officers of the Registrant Executive officers are elected by our Managing Directors, and their terms of office continue until the next annual meeting of the Managing Directors or until their successors are elected and have been qualified. There are no family relationships among our executive officers. Set forth below is information pertaining to our executive officers who held office as of February 15, 2006: John T. Cahill, 48, is the Principal Executive Officer of Bottling LLC. He has al$o been PBG's Chairman of the Board since January 2003 and Chief Executive Officer since September 2001. Previously, Mr. Cahill served as PBG's President and Chief Operating Officer from August 2000 to September 2001. Mr. Cahill has been a member of PBG's Board of Directors since January 1999 and served as PBG's Executive Vice President and Chief Financial Officer prior to becoming President and Chief Operating Officer in August 2000. He was Executive Vice President and Chief Financial Officer of the Pepsi-Cola Company from April 1998 until November 1998. Prior to that, Mr. Cahill was Senior Vice President and Treasurer of PepsiCo, having been appointed to that position in April 1997. In 1996, he became Senior Vice President and Chief Financial Officer of Pepsi-Cola North America. Mr. Cahill joined PepsiCo in 1989 where he held several other senior financial positions through 1996. Mr. Cahill is also a director of the Colgate-Palmolive Company. Alfred K Drewes, 50, is the Principal Financial Officer of Bottling LLC. He is also PBG's Senior Vice President and Chief Financial Officer. Appointed to this position in June 2001, Mr. Drewes previously served as Senior Vice President and Chief Financial Officer of Pepsi- Cola International ("PCI"). Mr. Drewes joined PepsiCo in 1982 as a financial analyst in New Jersey. During the next nine years, he rose through increasingly responsible finance positions within Pepsi-Cola North America in field operations 12 and headquarters. In 1991, Mr. Drewes joined PCI as Vice President of Manufacturing Operations, with responsibility for the global concentrate supply organization. In 1994, he was appointed Vice President of Business Planning and New Business Development and, in 1996, relocated to London as the Vice President and Chief Financial Officer of the Europe and Sub-Saharan Africa Business Unit of PCI. Andrea L. Forster, 46, is the Principal Accounting Officer of Bottling LLC. She is also Vice President and Controller of PBG. In September 2000, Ms. Forster was also named Corporate Compliance Officer for PBG. Following several years with Deloitte Haskins and Sells, Ms. Forster joined PepsiCo in 1987 as a Senior Analyst in External Reporting. She progressed through a number of positions in the accounting and reporting functions and, in 1998, was appointed Assistant Controller of the Pepsi-Cola Company. She was named Assistant Controller of PBG in 1999. PART II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities There is no established public trading market for the ownership of Bottling LLC. 13 Item 6. Selected Financial Data SELECTED FINANCIAL AND OPERATING DATA in millions Fiscal years ended Statement of Operations Data: :, .. Net revenues Cost of sales Gross profit 'Selling, delivery and administrative expenses , Operating income Interest expense, "net Other non-operating expenses, net Minority interest Income before income taxes Income tax expense (2)(3)(4) Income before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle, ,net of tax Net income 2005~~> 2004 $ 11,885 $ 10,906 6,253.... „ °: 5,656 ':: 5,632 5,250 4,625 ` 4,285 1,007 965 =110 . - 132 1 1 1': - 895 832 24 3 $ 8,443 4,580 3,863 . 3,185 678 78 14 586 (1) 871 829 727 734 587 - - 6 - - $ 871 $ 829 $ 721 $ 734 $ 587 2003 $ 10,265 5,215 5,050 4;089 961 143 7 811 84 2002 $ 9,216 5,001 4,215 3,318 897 98 7 9- 783 49. 2001 Balance Sheet'Data (at period end): Total assets (5) $ 13,745 $ 12,724 $ 12,997 $ 11,015 $ 8,762 Long-term debt $ 2,943 $ .3,495 $ 3,497 $ 3,541 $ 2,299 Minority interest $ 3 $ 3 $ - $ - $ 154 Accumulated other comprehensive loss ' $ (395) $ (447) $ (503) $ (596) $ (416) Owners' equity $ 7,581 $ 6,620 $ 5,902 $ 5,186 $ 4,596 (1) Our fiscal year 2005 results included an extra week of activity. The pre-tax income generated from the extra week was spent back in strategic initiatives within our selling, delivery and administrative expenses. The 53~ week had no material impact on our net income. (2) Fiscal year 2001 includes Canada tax law change benefits of $25 million. (3) Fiscal year 2003 includes Canada tax law change expense of $11 million. (4) Fiscal year 2004 includes Mexico tax law change benefit of $26 million. (5) Certain reclassifications were made in our Consolidated Financial Statements to prior year amounts to conform to the 2005 presentation. 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT'S FINANCIAL REVIEW Tabular dollars in millions OVERVIEW Bottling Group, LLC (collectively referred to as "Bottling LLC," "we," "our" and "us") is the principal operating subsidiary of The Pepsi Bottling Group ("PBG") and consists of substantially all of the operations and assets of PBG. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of the U.S., Mexico, Canada and Europe, which consists of operations in Spain, Greece, Russia and Turkey. As shown in the graph below, the U.S. business is the dominant driver of our results, generating 61% of our volume, 71% of our revenues and 83% of our operating income. 100°Iu 90°Ia 80`16 709k~ 60°k 504ra 40°rG 30°!a 20~''a 10°•~ 0°Io 1.66 $11.96 $1.06 ~£ ~ _ - m y ~. ~ Volume Re~,enues Operating Income O Europe p Mexico p Canada 0 United States PBG is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages. The beverages sold by us include PEPSI-COLA, DIET PEPSI, MOUNTAIN DEW, AQUAFINA, LIPTON BRISK, SIERRA MIST, DIET MOUNTAIN DEW, TROPICANA JUICE DRINKS, SOBS, and STARBUCKS FRAPPUCCINO. In addition to the foregoing, the beverages we sell outside the U.S. include 7 UP, KAS, AQUA MINERALS, MIRINDA and MANZANITA SoL. In some of our territories, we have the right to manufacture, sell and distribute soft drink products of companies other than PepsiCo, Inc. ("PepsiCo"), including DR PEPPER and SQUIRT. We also have the right in some of our territories to manufacture, sell and distribute beverages under trademarks that we own, 1nCluding ELECTROPURA, EPURA and GARCI CRESPO. .Our products are sold in either acold-drink or take-home format. Our cold-drink format consists of cold products sold in the retail and foodservice channels, which carry the highest profit margins on a per-case basis. Our take-home format consists of unchilled products that are sold for at-home future consumption. Physical cases represent the number of units that are actually produced, distributed and sold. Each case of product as sold to our customers, regardless of package configuration, represents one physical case. Our net price and gross margin on a per-case basis are impacted by how much we charge for the product, the mix of brands and packages we sell, and the channels in which the product is sold. For example, we realize a higher net revenue and gross margin per case on a 20-ounce chilled bottle sold in a convenience store than on a two-liter unchilled bottle sold in a grocery store. Our financial success is dependent on a number of factors, including: our strong partnership with PepsiCo, the customer relationships we cultivate, the pricing we achieve in the marketplace, our market execution, our ability to meet changing consumer preferences and the efficiency we achieve in manufacturing and distributing our products. Key indicators of our financial success are measured by the number of physical cases we sell, the net price and gross margin we achieve on a per-case basis, and our overall cost productivity, reflecting how well we manage our raw material, manufacturing, distribution and other overhead costs. 15 The following discussion and analysis covers the key drivers behind our business performance in 2005 and is categorized into the following sections: • Items that affect historical or future comparability • Financial performance summary • Critical accounting policies • Related party transactions • Results of operations • Liquidity and financial condition and • Market risks and cautionary statements. The discussion and analysis throughout Management's Financial Review should be read in conjunction with the Consolidated Financial Statements and the related accompanying notes. The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us to make estimates and assumptions that affect the reported amounts in our Consolidated Financial Statements and the related accompanying notes, including various claims and contingencies related to lawsuits, taxes, environmental and other matters arising out of the normal course of business. We use our best judgment, based on the advice of external experts and our knowledge of existing facts and circumstances and actions that we may undertake in the future, in determining the estimates that affect our Consolidated Financial Statements. 16 ITEMS THAT AFFECT HISTORICAL OR FUTURE COMPARABILITY High Fructose Corn Syrup ("HFCS") Settlement Included in our selling, delivery and administrative expenses for 2005 was apre-tax gain of $29 million in the U.S. from the settlement of the HFCS class action lawsuit. The lawsuit related to purchases of high fructose corn syrup by several companies, including bottling entities owned and operated by PepsiCo, during the period from July 1, 1991 to June 30, 1995 (the "Claims Period"). Certain of the bottling entities owned by PepsiCo during the Claims Period were transferred to PBG when PepsiCo formed PBG in 1999. With respect to these entities, which we currently operate, we received $23 million in HFCS settlement proceeds. We received an additional $6 million in HFCS settlement proceeds related to bottling operations not previously owned by PepsiCo, such as manufacturing co-operatives of which we are a member. 53''d Week Our fiscal year ends on the last Saturday in December and, as a result, a 53~d week is added every five or six years. Fiscal year 2005 consisted of 53 weeks while fiscal years 2004 and 2003 consisted of 52 weeks. Our 2005 results included pre-tax income of approximately $19 million due to the 53~d week. Strategic Spending Initiatives We reinvested both the pre-tax gain of $29 million from the HFCS settlement and the pre-tax income of $19 million from the 53~ week in long-term strategic spending initiatives in the U.S., Canada and Europe. The strategic spending initiatives included programs designed primarily to enhance our customer service agenda, drive productivity and improve our management information systems. These strategic spending initiatives were recorded in selling, delivery and administrative expenses. Non-GAAP Measurements and Adjusted Results We prepare our consolidated financial statements in conformity with U.S. GAAP. In an effort to provide investors with additional information regarding the Company's results we have included in this document certain "non-GAAP" measures as defined by the Securities and Exchange Commission. Specifically, we have presented "non-GAAP" measures to supplement our Financial Performance Summary and our 2006 Outlook. We have excluded the impact of the HFCS Settlement, the 53~ Week and the Strategic Spending Initiatives from our 2005 results and from certain items in our 2006 Outlook as we consider these items as unusual and outside of the ordinary course of our business. Management believes these "non-GAAP" financial measures provide useful information to investors regarding the underlying business performance of the Company's ongoing results and should be considered in addition to, not in lieu of, U.S. GAAP reported measures. "Non- GAAP" measures used in this document are referred to as "adjusted." 17 The tables below illustrate the approximate dollars and percentage points of operating income growth that these unusual items contributed to our 2005 operating results. Revenue ., Cost of sales Gross profit Selling, delivery and administrative expenses Operating income/(loss), ,,- Interest expense, net Other non-operating expense, net Minority interest Income before taxes Income taxes Net income Reported HF'CS Settlement ', $11;885 $, 0 6,253 0 5,632 : ' 0 4,625 29 1;007 (29) '110 0 - `1 p 1 0 895 (29) 24 (1) $ .871 $ (28) Spending ~ 53~d Week Initiatives Adjusted Results • $. (139) $ 0 '$ 11,746 (72) 0 6,181 (67) ; 0 5,565 (43) (48) 4,563 (24) 48 1,002 (2) 0 108 0 0 1 0 0 1 (22) 48 892 0 1 24 $ (22) $ 47 $ 868 Operating Income Growth Rates FY 2005 Reported.Operating Income 4% HFCS Settlement (3%) 53~.Week Impact (2%) Strategic Spending Initiatives 4% Adjusted Operating Income * 3% * See Non-GAAP Measurements and Adjusted Results for further information. 18 FINANCIAL PERFORMANCE SUMMARY (in millions) December December Fiscal Year 31, 2005 25, 2004 % Change Net:revenues - ~ _` $ 11,885 $;10;906 - 9% Gross profit $ 5,632 $ 5,250 7% Operating income $ 1,007 $ 965 4°10 Net income $ 871 $ 829 5% During 2005, we delivered strong results, reflecting robust topline growth which was partially offset by higher raw material costs and selling, delivery and administrative expenses. Overall, we grew our worldwide operating income by four percent, which includes a one percentage point benefit from the net impact of the 53rd week, the gain from the HFCS settlement and spending initiatives. These results were driven by operating income growth in the U.S. of five percent, of which two percentage points were driven by the unusual items discussed above, coupled with double-digit increases in Mexico and Canada. This growth was partially offset by a double-digit operating income decrease in Europe, driven by declines in Spain. Our operating income growth in Mexico, which includes the lapping of a $9 million impairment charge in 2004, was below our expectations due mostly to lower than anticipated cost savings in our selling, delivery and administrative expenses. Our strong worldwide topline growth was driven by innovation, including new products, pricing improvements and strong execution in the marketplace as well as the impact of the 53rd week. Growth was driven primarily by an approximate three-percent increase in volume and a three-percent increase in net revenue per case. The impact of the 53rd week, the effect of foreign currency translation and acquisitions each contributed a percentage point to our topline growth. In the U.S., we achieved afive-percent volume increase, which includes three percentage points of growth due to the 53rd week and acquisitions. The balance of the growth was due primarily to volume increases in both large format stores and our foodservice business which consists of restaurants and workplaces. These volume increases were driven by athree-percent increase in our take-home channel and atwo- percent increase in our cold-drink channel. Our portfolio growth was in line with consumer trends, with most of the volume increase coming from our water, non-carbonated and diet portfolios. In the U.S., net revenue per case increased three percent, driven primarily by rate increases. In Canada, topline growth of 14 percent was driven primarily by the favorable impact of foreign currency translation, coupled with a net revenue per case increase of three percent and volume improvements of two percent, as well as the 53rd week. Volume and pricing growth was fueled by strong execution and strategic marketing programs that were designed to gain consumer interest. In Europe, we delivered strong topline results, growing net revenues by 12 percent versus the prior year, driven by double-digit volume growth in Russia and Turkey. Our Mexico topline growth of 10 percent was driven primarily by volume growth of five percent and the favorable impact of foreign currency translation. Our volume growth in Mexico was fueled by double-digit increases in both our bottled water and jug businesses, partially offset by slight declines in our carbonated soft drink business. 19 Our strong worldwide topline growth was partially offset by increases in cost of sales, which have continued to pressure our bottom line results. On a per-case basis, cost of sales increased five percent, reflecting significant increases in raw material costs. During 2005, we continued to see increases in resin prices, exacerbated by a severe hurricane season in the U.S. These increases added approximately $100 million of costs or approximately two percentage .points of growth to our worldwide cost of sales per case. Additionally, the negative impact of foreign currency translation contributed one percentage point of growth to our cost of sales per case increase. Worldwide selling, delivery and administrative expenses increased eight percent. Increases in selling, delivery and administrative costs were driven by higher volume growth, wage and benefit increases and rising fuel prices. Additionally, the strategic spending initiatives and the additional expenses from the 53~ week, partially offset by the gain from the settlement of the HFCS class action lawsuit, added approximately one percentage point of growth to our overall selling, delivery and administrative expenses. The strategic spending initiatives included programs to implement our new customer service program, drive productivity and improve our management information systems. Interest expense increased by $21 million due to the impact of rising interest rates on approximately 26 percent of our debt that is variable, coupled with the impact of the 53~d week. Interest income increased $43 million, driven primarily by higher effective interest rates, coupled with additional loans made to PBG. The Company's cash flow from operations continued to be strong in 2005. We generated $1.5 billion of cash from operations, after contributing $77 million into our pension plans, which are adequately funded. With our strong cash flows, we utilized $709 million for capital investments to grow our business. 2006 Outlook In 2006, our fiscal year will consist of 52 weeks, while fiscal year 2005 consisted of 53 weeks.'Our U.S. and Canadian operations report on a fiscal year that consists of 52 weeks, ending on the last Saturday in December. Every five or six years a 53~d week is added. Our other countries report on a calendar-year basis. Our 2005 results included the impact of the 53'~ week. In order to provide comparable guidance for 2006, we have excluded the impact of the 53~d week from our volume outlook, as described in the table below. As discussed in Note 2 in the Notes to the Consolidated Financial Statements, the Company will adopt Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R") in the first quarter of 2006. SFAS 123R will require that all stock- based payments be expensed based on the fair value of the awards. In accordance with existing accounting guidelines, the Company did not recognize compensation expense for stock options during fiscal year 2005. Therefore, management believes that providing an adjusted measure that excludes the impact of SFAS 123R from the 2006 Outlook provides a meaningful year-over-year comparison of operating income change. The table below provides an adjusted forecast by excluding, where applicable, the impact of the 53'u week and the impact of the adoption of SFAS 123R in 2006: Impact of Adjusted Forecasted Forecasted 2006 vs. 53~d 2006 vs. 2005 2005 growth week in 2005 Impact of SFAS 123R growth Worldwide Volume 2% 1% - 3% U.S. Volume Flat to 1% 1% - 1% to 2% Worldwide Operating Income (in dollars) (2%) to (4%) - 7% 3% to 5% See Non-GAAP Measurements and Adjusted Results in Items that Affect Historical or Future Comparability for further information. 20 In 2006, we will carefully balance our net revenue per case, using rate increases where marketplace conditions allow, while also managing the mix of products we plan to sell. We expect to increase both our worldwide and U.S. net revenue per case two to three percent, driven primarily by rate improvements; coupled with a mix shift into higher-priced products. In 2006, worldwide cost of sales per case is expected to increase by approximately three percent. We are expecting the rate of growth of our raw material costs, particularly resin and sweeteners, to moderate during 2006. Nonetheless we anticipate that our raw material costs, including aluminum, resin and sweeteners will increase in the low single digits in 2006. As a result, we expect our gross margin per case to grow about two percent. Our selling, delivery and administrative expenses are expected to rise approximately four to five percent, including increases in fuel cost and higher pension expense, each contributing approximately $20 million of additional expense. The impact of adopting SFAS 123R will add approximately $70 million to our overall SD&A and result in a seven percentage point reduction in our operating income. Accordingly, we expect our operating income to be down two to four percent for the year. CRITICAL ACCOUNTING POLICIES The preparation of our consolidated financial statements in conformity with U.S. GAAP often requires us to make judgments, estimates, and assumptions regarding uncertainties that affect the results of operations, financial position and cash flows of the Company, as well as the related footnote disclosures. Management bases its estimates on knowledge of our operations, markets in which we operate, historical trends, and other assumptions. Actual results could differ from these estimates under different assumptions or conditions. Significant accounting policies are discussed in the Notes to the Consolidated Financial Statements. Our critical accounting policies aze those policies which management believes are most important to the portrayal of Bottling LLC's financial condition and results of operations and require the use of estimates, assumptions and the application of judgment. Management has reviewed these critical accounting policies and related disclosures with PBG's Audit and Affiliated Transactions Committee of the Board of Directors. Allowance for Doubtful Accounts - A portion of our accounts receivable will not be collected due to bankruptcies and sales returns. Estimating an allowance for doubtful accounts requires significant management judgment and assumptions regarding the potential for losses on receivable balances. Our accounting policy for the provision for doubtful accounts requires reserving an amount based on the evaluation of the aging of accounts receivable, sales return trend analysis, detailed analysis of high-risk customer accounts, and the overall market and economic conditions of our customers. Accordingly, we estimate the amounts necessary to provide for losses on receivables by using quantitative measures, evaluating specific customer accounts for risk of loss, and adjusting for changes in economic conditions in which we and our customers operate. We manage the risk of losses on accounts receivable by having effective credit controls and by evaluating our receivables on an ongoing basis. Our allowance for doubtful accounts represents management's best estimate of probable losses inherent in our portfolio. If a general economic downturn occurs causing the financial condition of our customers to deteriorate or if one of our customers has an unforeseen inability to pay us, the allowance for doubtful accounts and bad debt expense would be increased from our estimate. The following is an analysis of the allowance for doubtful accounts for the fiscal years ended December 31, 2005, December 25, 2004 and December 27, 2003: ' Allowance for Doubtful Accounts Beginning of the year Bad debt expense Accounts written off Foreign currency translation End of the year 2005 2004 2003 $ 61 $ 72 $ 67 3 (5) 12 (1Z) .. (7) (g) (1) 1 1 $ 51 $ 61 $ 72 21 Recoverability of Goodwill and Intangible Assets with Indefinite Lives -Goodwill and intangible assets with indefinite useful lives are no[ amortized, but instead tested annually for impairment. Our identified intangible assets principally arise from the allocation of the purchase price of businesses acquired, and consist primarily of franchise rights, distribution rights and brands. We assign amounts to such identified intangibles based on their estimated fair values at the date of acquisition. The determination of the expected life will be dependent upon the use and underlying characteristics of the identified intangible asset. In determining whether our intangible assets have an indefinite useful life, we consider the following as applicable: the nature and terms of underlying agreements; our intent and ability to use the specific asset contained in an agreement; the age and market position of the products within the territories we are entitled to sell; the historical and projected growth of those products; and costs, if any, to renew the agreement. We evaluate our identified intangible assets with indefinite useful lives for impairment annually (unless it is required more frequently because of a triggering event). We measure impairment as the amount by which the carrying value exceeds its estimated fair value. The fair value of our franchise rights and distribution rights is measured using amulti-period excess earnings method that is based upon estimated discounted future cash flows. We deduct a contributory charge from our net after-tax cash flows for the economic return attributable to our working capital, other intangible assets and property, plant and equipment, which represents the required cash flow to support these assets. The net discounted cash flows in excess of the fair returns on these assets represent the estimated fair value of our franchise rights and distribution rights. The fair value of our brands is measured using amulti-period royalty savings method, which reflects the savings realized by owning the brand and, therefore, not having to pay a royalty fee to a third party. In valuing our brands, we have selected an estimated industry royalty rate relating to each brand and then applied it to the forecasted revenues associated with each brand. The net discounted after-tax cash flows from these royalty charges represent the fair value of our brands. Our discount rate utilized in each fair value calculation is based upon our weighted-average cost of capital plus an additional risk premium to reflect the risk and uncertainty inherent in separately acquiring the identified intangible asset between a willing buyer and a willing seller. The additional risk premium associated with our discount rate effectively eliminates the benefit that we believe results from synergies, scale and our assembled workforce, all of which are components of goodwill. Each year we re-evaluate our assumptions in our discounted cash flow model to address changes in our business and marketplace conditions. We evaluate goodwill on acountry-by-country basis ("reporting unit") for impairment. We evaluate each reporting unit for impairment based upon atwo-step approach. First, we compare the fair value of our reporting unit with its carrying value. Second, if the carrying value of our reporting unit exceeds its fair value, we compare the implied fair value of the reporting unit's goodwill to its carrying amount to measure the amount of impairment loss. In measuring the implied fair value of goodwill, we would allocate the fair value of the reporting unit to each of its assets and liabilities (including any unrecognized intangible assets). Any excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. We measure the fair value of a reporting unit as the discounted estimated future cash flows, including a terminal value, which assumes the business continues in perpetuity, less net debt (net of cash and cash equivalents). Our long-term terminal growth assumptions reflect our current long-term view of the marketplace. Our discount rate is based upon our weighted-average cost of capital for each reporting unit. Each year we re-evaluate our assumptions in our discounted cash flow model to address changes in our business and marketplace conditions. Considerable management judgment is necessary to estimate discounted future cash flows in conducting an impairment test for goodwill and other identified intangible assets, which may be impacted by future actions taken by us and our competitors and the volatility in the markets in which we conduct business. A change in assumptions in our cash flows could have a significant impact on the fair value of our reporting units and other identified intangible assets, which could then result in a material impairment charge to our results of operations. For example, an inability to achieve strategic business plan targets in a reporting unit could result in an .impairment charge of one or more specific intangible assets. In Mexico, we have recorded approximately $1 billion of intangible assets. Mexico has not met our profit expectations; however, we have specific plans in place to improve our future results. We will continue to closely monitor our performance in Mexico and evaluate the realizability of each intangible asset. 22 Pension and Postretirement Medical Benefit Plans - PBG sponsors pension and other postretirement medical benefit plans in various forms, covering employees who meet specified eligibility requirements. Our U.S. employees participate in noncontributory defined benefit pension plans, which cover substantially all full-time salaried employees, as well as most hourly employees. Our net pension expense for the defined benefit plans for our operations outside the U.S. was not significant, and accordingly assumptions and sensitivity analyses regarding these plans are not included in the discussion below. Assumptions and estimates are required to calculate the expenses and obligations for these plans including discount rate, expected return on plan assets, retirement age, mortality, turnover, health care cost trend rates and compensation rate increases. We evaluate these assumptions with our actuarial advisors on an annual basis and we believe that they are appropriate. Our assumptions are based upon historical experience of the plan and expectations for the future. These assumptions may differ materially from actual results due to changing market and economic conditions. An increase or decrease in the assumptions or economic events outside our control could have a material impact on reported net income and the related funding requirements. Key Assumptions The assets, liabilities and assumptions used to measure pension and postretirement medical expense for any fiscal year are determined as of September 30~ of the preceding year ("measurement date"). The discount rate assumption is derived from the present value of our expected pension and postretirement medical benefit payment streams. The present value is calculated by utilizing a yield curve that matches the timing of our expected benefit payments. The yield curve is developed by our actuarial advisers using a portfolio of several hundred high quality non-callable corporate bonds. The bonds are rated Aa or better by Moody's and have at least $250 million in principal amount. The bonds are denominated in U.S. dollars and have maturity dates ranging from six months to thirty years. Once the present value of all the expected payment streams has been calculated, a single discount rate is determined. The weighted-average discount rate for fiscal year 2006 for PBG's pension and postretirement medical plans is 5.80 percent and 5.55 percent, respectively. In evaluating the expected rate of return on assets for a given fiscal year, we consider both projected future returns of asset classes and the actual 10 to 15-year historic returns on asset classes in PBG's pension investment portfolio, reflecting the weighted-average return of our asset allocation. The target asset allocation for PBG`s domestic pension assets is 75 percent equity investments, of which approximately 80 percent is invested in domestic equities and 20 percent is invested in foreign equities. The remaining 25 percent of plan assets is invested primarily in fixed income securities, which is equally divided between U.S. government and corporate bonds. PBG's current portfolio's target asset allocation for the 10 and 15-year periods had weighted average returns of 8.80 percent and 10.80 percent, respectively. Over time, the expected rate of return on pension plan assets should approximate the actual long-term returns. Based on the historic and estimated future returns of PBG's portfolio, we estimate the long-term rate of return on assets for PBG's domestic pension plans to be 8.50 percent in 2006. Pension and Postretirement Medical Plans Accounting Differences between actual and expected returns on plan assets are recognized in the net periodic pension calculation over five years. To the extent the amount of all unrecognized gains and losses exceeds 10 percent of the larger of the benefit obligation or plan assets, such amount is amortized over the average remaining service period of active participants. Net unrecognized losses, within PBG's pension and postretirement plans totaled $611 million and $603 million at December 31, 2005 and December 25, 2004, respectively. 23 The following table provides the current and expected weighted-average assumptions for our pension and postretirement medical plans' expense in the United States: Pension 2006 2005 Discount rate - ,.: ,. , ; ..:. 5:80% < : 6.15% _. Expected return on plan assets (net of administrative expenses) 8.50% 8.50% Rate of compensation increase. 3.53% 3.60% Postretirement 2006 2005 Discount rate 5:55%a 6.15% Rate of compensation increase 3.53% 3.60% Healthcare cost trend rate 9:00% .10.00% During 2005, our PBG-sponsored defined benefit pension and postretirement medical plan expenses in the U.S. totaled $109 million, including a special termination benefit charge of $9 million for a voluntary early.retirement enhancement program. In 2005, our ongoing pension and postretirement medical plan expenses, excluding the special termination benefit charge, were $100 million. In 2006, our ongoing expenses will increase by approximately $19 million to $119 million due primarily to the following factors: • A decrease in our weighted-average discount rate for our pension and postretirement medical expense from 6.15 percent and 6.15 percent to 5.80 percent and 5.55 percent, respectively, reflecting declines in the yields of long-term corporate bonds comprising the yield curve. This change in assumption will increase our 2006 defined benefit pension and postretirement medical expense by approximately $12 million. • Certain benefit plan enhancements and demographic changes will increase our 2006 defined benefit pension and postretirement medical expense by approximately $7 million. Sensitivity Analysis It is unlikely that in any given year the actual rate of return will be the same as the assumed long-term rate of return of 8.50 percent. The following table provides a summary of the last three years of actual returns versus the expected long-term returns for our domestic pension plans: 2005 2004 2003 Expected return on plan assets (net of administrative expenses) 8.50% 8.50% 8.50% Actual return on plan assets (net of administrative expenses) 13.33% 11.61% 19.79% Sensitivity of changes in key assumptions for our principal pension and postretirement plans' expense in 2006 are as follows: • Discount rate - A 25-basis point change in the discount rate would increase or decrease our expense for PBG's pension and postretirement medical benefit plans in 2006 by approximately $9 million. • Expected return on plan assets - A 25-basis point change in the expected return on plan assets would increase or decrease our expense for PBG's pension plans in 2006 by approximately $3 million. The postretirement medical benefit plans have no expected return on plan assets as they are funded from the general assets of the Company as the payments come due. For further information about PBG's pension and postretirement plans see Note 12 in the Notes to Consolidated Financial Statements. Income Taxes - We are a limited liability company, classified as a partnership for U.S. tax purposes and, as such, generally will pay no U.S. federal or state income taxes. Our federal and state distributive shares of income, deductions and credits are allocated to our owners based on their percentage of ownership. However, certain domestic and foreign affiliates pay taxes in their respective jurisdictions and record related deferred income tax assets and liabilities. The tax bases of our assets and liabilities reflect our best estimate of the tax benefits and costs we expect to realize. We establish valuation allowances to reduce our deferred tax assets to arr amount that will more likely than not be realized. A significant portion of deferred tax assets consists of net operating loss 24 carryforwards ("NOLs"). We have NOLs totaling $950 million at December 31, 2005, which are available to reduce future taxes in the U.S., Spain, Greece, Russia, Turkey and Mexico. The majority of our NOLs are generated overseas, the largest of which is coming from our Mexican and Spanish operations. Of these NOLs, $3 million expire in 2006 and $947 million expire at various times between 2007 and 2025. Significant management judgment is required in determining our effective tax rate and in evaluating our tax position. We establish reserves when, based on the applicable tax law and facts and circumstances relating to a particular transaction or tax position, it becomes probable that the position will not be sustained when challenged by a taxing authority. A change in our tax reserves could have a significant impact on our results of operations. Under our tax separation agreement with PepsiCo, PepsiCo maintains full control and absolute discretion for any combined or consolidated tax filings for tax periods ended on or before our initial public offering that occurred in March 1999. However, PepsiCo may not settle any issue without our written consent, which consent cannot be unreasonably withheld. PepsiCo has contractually agreed to act in good faith with respect to all tax examination matters affecting us. In accordance with the tax separation agreement, we will bear our allocable share of any risk or benefit resulting from the settlement of tax matters affecting us for these tax periods. A number of years may elapse before a particular matter for which we have established a tax contingency reserve is audited and finally resolved. The number of years for which we have audits that are open varies depending on the tax jurisdiction. The U.S. Internal Revenue Service ("IRS"} is currently examining PepsiCo's income tax returns for 1998 through March 1999 that include our operations for such tax periods and our tax returns for the 2001 and 2002 tax years. The IRS audit of our 1999 and 2000 tax returns concluded in 2005. However, pursuant to an agreement with the IRS, our 1999 and 2000 tax years remain open solely with respect to matters arising out of the IRS examination of PepsiCo involving our initial public offering transaction on March 31, 1999. While it is often difficult to predict the final outcome or the timing of the resolution, we believe that our tax reserves reflect the probable outcome of known tax contingencies. Favorable resolutions would be recognized as a reduction of our tax expense in the year of resolution. Unfavorable resolutions would be recognized as a reduction to our reserves, a cash outlay for settlement and a possible increase to our annual tax provision. For further information about our income taxes see No[e l4 in the Notes [o Consolidated Financial Statements. RELATED PARTY TRANSACTIONS PepsiCo is considered a related party due to the nature of our franchise relationship and its ownership interest in our company. More than 80 percent of our volume is derived from the sale of brands from PepsiCo. At December 31, 2005, PepsiCo owned 6.7 percent of our equity. Our business is conducted primarily under beverage agreements between PBG and PepsiCo, including a master bottling agreement, anon- cola bottling agreement and a master syrup agreement. Additionally, under a shared services agreement, we obtain various services from PepsiCo, which include services for information technology maintenance and the procurement of raw materials. We also provide services to PepsiCo, including facility and credit and collection support. Although we are not a direct party to these contracts, as the principal operating subsidiary of PBG, we derive direct benefit from them. We review our annual marketing, advertising, management and financial plans each year with PepsiCo for its approval. If we fail to submit these plans, or if we fail to carry them out in all material respects, PepsiCo can terminate our beverage agreements. Because we depend on PepsiCo to provide us with concentrate, bottler incentives and various services, changes in our relationship with PepsiCo could have a material adverse effect on our business and financial results. 25 The Consolidated Statements of Operations include the following income (expense) amounts as a result of transactions with PepsiCo and its affiliates: 2005 2004 2003 . Net revenues: - ; . Bottler incentives (a) $ 51 $ 22 $ 21 Cost of sales.: ._ ,. _ Purchases of concentrate and finished products, and AQun~[Na, royalty fees (b) $ (2,993) $ (2,741) $ (2,527) Bottler incentives (a) 559 522 527 Manufacturing and distribution service reimbursements (c) - - 6 $ (2,434) $ (2,219) $ (1,994) Selling, delivery and administrative expenses: Bottler incentives (a) $ 78 $ 82 $ 98 Fountain service fee (d) 183 180 200 Frito-Lay purchases (e) (144) (75) (51) Shared services (f): Shazed services expense (69) (68) (72) Shared services revenue 8 10 10 Net shared services ~ (61) (58) (62) HFCS (h) 23 - - $ 79 $ 129 $ 185 Income tax benefit (g) $ 3 $ 10 $ 7 (a) Bottler Incentives and Other Arrangements - In order to promote PepsiCQ beverages, PepsiCo, at their sole discretion, provides us with vazious forms of bottler incentives. These incentives cover a vaziety of initiatives, including direct marketplace support and advertising support. We record most of these incentives as an adjustment to cost of sales unless the incentive is for reimbursement of a specific, incremental and identifiable cost. Under these conditions, the incentive would be recorded as an offset against the related costs, either in revenue or selling, delivery and administrative expenses. Changes in our bottler incentives and funding levels could materially affect our business and financial results. (b) Purchase of Concentrate and Finished Product - As part of our franchise relationship, we purchase concentrate from PepsiCo, pay royalties and produce or distribute other products through various arrangements with PepsiCo or PepsiCo joint ventures. The prices we pay for concentrate, finished goods and royalties are determined by PepsiCo at its sole discretion. Concentrate prices are typically determined annually. In February 2005, PepsiCo increased the price of U.S. concentrate by two percent. PepsiCo has recently announced a further increase of approximately two percent, effective February 2006. Significant changes in the amount we pay PepsiCo for concentrate, finished goods and royalties could materially affect our business and financial results. These amounts are reflected in cost of sales in our Consolidated Statements of Operations. (c) Manufacturing and Distribution Service Reimbursements - In 2003, we provided manufacturing services to PepsiCo and PepsiCo affiliates in connection with the production of certain finished beverage products. (d) Fountain Service Fee - We manufacture and distribute fountain products and provide fountain equipment service to PepsiCo customers in some territories in accordance with the Pepsi beverage agreements. Amounts received from PepsiCo for these transactions are offset by the cost to provide these services and are reflected in our Consolidated Statements of Operations in selling, delivery and administrative expenses. 26 (e) Frito-Lay Purchases - We purchase snack food products from Frito-Lay, Inc., a subsidiazy of PepsiCo, for sale and distribution in Russia. Amounts paid to PepsiCo for these transactions are reflected in selling, delivery and administrative expenses in our Consolidated Statements of Operations. (f) Shared Services - We provide to and receive various services from PepsiCo and PepsiCo affiliates pursuant to a shared services agreement and other arrangements. In the absence of these agreements, we would have to obtain such services on our own. We might not be able to obtain these services on terms, including cost, which are as favorable as those we receive from PepsiCo. Total expenses incurred and income generated aze reflected in selling, delivery and administrative expenses in our Consolidated Statements of Operations. (g) Income Tax Benefit -Under our tax separation agreement with PepsiCo, PepsiCo maintains full control and absolute discretion for any combined or consolidated tax filings for tax periods ended on or before our initial public offering that occurred in March 1999. PepsiCo has contractually agreed to act in good faith with respect to all tax examination matters affecting us. In accordance with the tax separation agreement, we will bear our allocable share of any risk or benefit resulting from the settlement of tax matters affecting us for these periods. (h) High Fructose Corn Syrup ("HFCS") Settlement - On June 28, 2005, we entered into a settlement agreement with PepsiCo related to the allocation of certain proceeds from the settlement of the HFCS class action lawsuit. The lawsuit related to purchases of high fructose corn syrup by several companies, including bottling entities owned and operated by PepsiCo, during the period from July 1, 1991 to June 30, 1995 (the "Class Period"). Certain of the bottling entities owned by PepsiCo were transferred to PBG when PepsiCo formed PBG in 1999 (the "PepsiCo Bottling Entities"). Under the settlement agreement with PepsiCo, we ultimately received 45.8 percent (or approximately $23 million) of the total recovery related to HFCS purchases by PepsiCo Bottling Entities during the Class Period. As of December 31, 2005 and December 25, 2004, the receivables from PepsiCo and its affiliates were $143 million and $150 million, respectively. These balances are shown as part of accounts receivable in our Consolidated Financial Statements. The payables to PepsiCo and its affiliates were $176 million and $144 million, respectively. These balances are shown as part of accounts payable and other current liabilities in our Consolidated Financial Statements. For further information about our relationship with PepsiCo and its affiliates see Note 16 in Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS - 2005 Volume Fiscal Year Ended December 31, 2005 vs. December 25, 2004 World- Outside wide U.S. the U.S. Base volume - 3% 2% 5% Acquisitions 1% 1% 0% Impact of 53~ week, 1% 2% 1% Total Volume Change 5% 5% 6% Our full-year reported worldwide physical case volume increased five percent in 2005 versus 2004. Worldwide volume growth reflects increases in all of PBG territories. PBG territories are defined as U.S., Canada, Europe and Mexico. In the U.S., increases in volume, excluding acquisitions and the impact of the 53~d week, were driven by athree-percent increase in our [ake- homechannel and atwo-percent inncrease in our cold-drink channel. These volume increases were attributable to solid results in large format businesses and foodservice venues, In the U.S. our growth reflects consumer trends. Our non-cazbonated beverage volume increased 18 percent, led by 31-percent growth in Trademark AQv,a~tNA and the successful introduction of AQU,a~trtn FLAVOR SPLASH, coupled with solid 27 performance in Trademark STnttsucxs and in our energy drinks. Our total carbonated soft drink portfolio was down about one percent, mostly driven by declines in brand PEPSI, partially offset by the successful introduction of PEPSI LIME, double-digit growth in brand WILD CHERRY PEPSI, and athree-percent increase in our diet portfolio. In Canada, volume increased three percent in 2005 versus 2004, primarily driven by increases in both the cold-drink and take-home channels. This growth was fueled by strong execution and strategic marketing programs that were designed to gain consumer interest. The 53~ week contributed approximately one percentage point of growth. In Europe, volume grew eight percent in 2005 versus 2004, driven by double-digit increases in Russia and Turkey. In Russia, we had solid growth in trademark PEPSI and AQvn MINERALE, coupled with strong growth in TROPICANA JutcE, LtrroN ICED TEa, and local brands. In Turkey, we continued to improve our customer service through the consolidation of 3~d party distributors and the migration of selling activities to our own employees. These improvements and an effective advertising campaign resulted in volume increases in brand PEPSI and in local brands, such as YEDIGUN. Total volume in Mexico was up five percent for the year, driven lazgely by growth in our water business, including an 11 percent increase in our jug water business and a 13 percent increase in our bottled water business. The investments that we began making in 2004 in the marketplace and in our infrastructure in Mexico have enabled us to improve both our bottled water and jug water businesses, including expansion of our home delivery system for jug water. Our carbonated soft drink portfolio in Mexico was down about one percent primarily due to competitive pressure in the Mexico City area. This decline was partially offset by solid performance in our carbonated soft drink business outside the Mexico City azea which accounts for 75 percent of our volume. Net Revenues Fiscal Year Ended December 31, 2005 vs. December 25, 2004 Volume impact Net price per case impact (rate/mix) Acquisitions- Currency translation Impact of 53~d-week Total Net Revenues Change World- Outside wide US. the U.S. 3% 2% 5% 3% 3% 2% 1% I% 1% 1% 0% 4% 1% 2% 0% 9% 8% 12% Worldwide net revenues were $11.9 billion in 2005, anine-percent increase over the prior year. The increase in net revenues for the year was driven primarily by strong volume growth and increases in net price per case, coupled with the favorable impact from currency translation in Canada and Mexico, acquisitions and the impact of the 53~ week. In the U.S., net revenues increased eight percent in 2005 versus 2004. The increases in net revenues in the U.S. were driven primazily by increases in net price per case, solid growth in volume, and the impact of the 53~d week. Additionally, acquisitions added one percentage point of growth. Increases in net price per case in the U.S. were mostly due to rate increases. Net revenues outside the U.S. grew approximately 12 percent in 2005 versus 2004. The increases in net revenues outside the U.S. were driven primarily by growth in volume and the favorable impact of foreign exchange in Canada and Mexico, coupled with net price per case increases in Europe and Canada. 28 Cost of Sales Fiscal Year Ended December 31, 2005 vs. December 25.20114 Voldme iinpacf Cost per case impact Acquisitioas Currency translation Impact of S3rd week Total Cost of Sales Change World- Outside wide U.S. the U.S. 4% , :2%. S% 4% 4% 4% 1%~ 1%. ," 1% . 1% 0% 4% 1% 2% 0% 11% 9% 14% Worldwide cost of sales was $6.3 billion in 2005, an 11-percent increase over 2004. The growth in cost of sales was driven primarily by volume and cost per case increases, coupled with the negative impact of foreign currency translation in Canada and Mexico, acquisitions and the impact of the S3rd week. During 2005, we continued to see increases in resin prices, exacerbated by a severe hurricane season in the U.S. These increases added approximately $100 million of costs or approximately two percentage points of growth to our worldwide cost of sales per case. In the U.S., cost of sales grew nine percent in 2005 versus 2004, due to increases in cost per case and volume growth, coupled with the impact of the 53rd week and acquisitions. The increases in cost per case resulted from higher raw material costs, primarily driven by resin. Cost of sales outside the U.S. grew approximately 14 percent in 2005 versus 2004, reflecting strong volume growth and increases in cost per case, coupled with the negative impact from foreign currency translation. Growth in cost per case resulted from higher raw material costs, primarily driven by resin increases across all of our countries. Foreign currency translation contributed four percentage points of growth, reflecting the appreciation of the Canadian dollar and Mexican peso. Selling, Delivery and Administrative Expenses Fiscal Year Ended December 31, 2005 vs. December 25, 2004 Cost impact HFCS Settlement Strategic Spending Initiatives Acquisitions Currency tratslation Impact of S3rd week Tota1.SD&A`Change World- Outside wide U.S. the U.S. S% S% S% (1)% (1)% 0% 1% 1% 1% 1% 1% 1% 1% 0% 4% 1% 1% 0% 8% 7% ~ 11 % Worldwide selling, delivery and administrative expenses were $4.6 billion, an eight percent increase over 2004. Increases in selling, delivery and administrative costs were driven by higher volume growth, wage and benefit increases and rising fuel prices. The strategic spending initiatives and the impact of the S3rd week in the U.S. and Canada, partially offset by the pre-tax gain of $29 million in the U.S. from the settlement of the HFCS class action lawsuit contributed approximately one percentage point of an increase in selling, delivery and administrative expenses. LLC invested both the HFCS gain and the additional income from the 53rd week in long-term strategic spending initiatives which totaled $48 million. The.strategic spending initiatives included programs to enhance our 29 .,\ customer service agenda, drive productivity, including restructuring in Europe, and improve our management information systems. In the U.S., increases reflected higher volume growth, wage and benefit increases, additional expenses from the 53~ week and rising fuel prices, partially offset by the gain from settlement of the HFCS class action lawsuit. In addition, the strategic spending initiatives contributed more than one percentage point of growth to our increase in selling, delivery and administrative expenses for the year. Outside the U.S., increases were driven primarily by volume growth, wage and benefit increases, and the negative impact of foreign currency translation in Canada and Mexico, coupled with strategic spending initiatives. These increases were partially offset by the lapping of a $9 million non-cash impairment charge taken for the franchise licensing agreement associated with the SQutttT trademark in Mexico in the prior year. Our selling, delivery and administrative expenses in Mexico were higher than expected as certain of the cost savings initiatives have not yielded expected results. Interest Expense Interest expense increased by $21 million, when compared with 2004, largely due to higher effective interest rates from interest rate swaps, which convert our fixed-rate debt to variable debt. As of December 31, 2005 approximately 26 percent of our long-term debt was variable. Interest Income Interest income increased $43 million, driven primarily by higher effective interest rates, coupled with additional loans made to PBG. Income Tax Expense Bottling LLC is a limited liability company, classified as a partnership for U.S. tax purposes and, as such, generally pays no U.S. federal or state income taxes. The federal and state distributive shares of income, deductions and credits of Bottling LLC are allocated to Bottling LLC's owners based on their percentage ownership in Bottling LLC. However, certain domestic and foreign affiliates pay income taxes in their respective jurisdictions. Such amounts are reflected in our Consolidated Statements of Operations. Our full-year effective tax rate for 2005 was 2.7%. This rate corresponds to an effective tax rate of 0.4% in 2004. The increase in our effective tax rate versus the prior year is due largely to increased tax contingencies relating to certain historic tax positions and changes in our international legal entity and debt structure, partially offset by the reversal of valuation allowances. The reversal of the valuation allowances was due to improved profitability trends in Russia and a change to the Russia tax law that enables us to use a greater amount of our Russian NOLs. RESULTS OF OPERATIONS - 2004 Volume 52 Weeks Ended December 25, 2004 vs. December 27, 2003 World- Outside wide U.S. the U.S. Base volume::. 2% 2% 3% Acquisitions 1% 0% 1% Total-Volume Change 3% 2% 4% Our full-year reported worldwide physical case volume increased three percent in 2004 versus 2003. Worldwide volume growth reflects increases in the U.S., Europe and Canada, partially offset by a flat performance in Mexico. 30 In the U.S., volume increased by two percent in 2004 versus 2003, driven by a four percent increase in our cold-drink channel and a one percent increase in our take-home channel. During 2004, we had solid results in our convenience and gas segment and foodservice business segment, which consists of our on-premise and full-service vending account customers. From a brand perspective, Trademark PEPSI'S volume was down one percent for the year, due to declines in brand PEPS[ and PEPS[ TWIST, partially offset by solid growth from our diet portfolio. Our non-carbonated soft drink portfolio increased 11% for the full year led by the introduction of TROPICANA JUICE DRINKS and continued growth from AQuAr~NA. In Europe, volume grew ten percent in 2004 versus 2003, driven by double-digit increases in Russia and Turkey. In Russia, we had solid growth in our core brands, coupled with contributions from new product introductions, 1nCluding TROPICANA JUICE and LIPTON ICED TEA. In Turkey, we continue to improve in the areas of execution and distribution, which resulted in volume increases in brand PEPS[, AQuA~INA and local brands. Total volume in Mexico, excluding the impact of acquisitions, was flat for the year. Volume trends in Mexico improved during the second half of the year, increasing four percent versus the prior year. Improvement in the second half of the year reflected improved marketplace execution, brand and package innovation and our focus on consumer value. During the second half of the year, we saw increases in each of our jug, bottled water and carbonated soft drink categories. Increases in the second half of the year were offset by volume declines in the first half of the year driven primarily by our jug water business. Net Revenues Volume impact Net price per case impact (rate/mix) Acquisitions Currency translation Total Net Revenues Change 52 Weeks Ended December 25, 2004 vs. December 27, 2003 World- Outside wide U.S. the U.S. 2% 2% 3% 3% 3% 1% 0% 0% 1% 1% 0% 3% 6% 5% 8% Worldwide net revenues were $10.9 billion in 2004, a six percent increase over the prior year. The increase in net revenues for the year was driven by improvements in volume, growth in net price per case and the favorable impact from currency translation. In the U.S., net revenues increased five percent in 2004 versus 2003. The increases in net revenues in the U.S. were driven by growth in both volume and net price per case. Increases in net price per case in the U.S. were due to a combination of rate increases, primarily in cans, and mix benefits from the sale of higher-priced products. Net revenues outside the U.S. grew approximately eight percent in 2004 versus 2003. The increases in net revenues outside the U.S. were driven primarily by growth in volume and net price per case in Europe and Canada, coupled with the favorable impact of foreign exchange. This growth was partially offset by net revenue declines in Mexico. Net revenues in Mexico declined three percent on a full-year basis due primarily to the devaluation of the Mexican peso. In local currency, our net price per case in Mexico in 2004 was flat versus the prior year. Cost of Sales 52 Weeks Ended December 25, 2004 vs. December 27.2003 Volume impact Cost per case impact Acquisitions Currency translation Total Cost of Sales Change World- Outside wide U.S. the U.S. 2% 2% 3% 5% 5% 4% 0% 0% 1% I% 0% 3% 8% 7% 11% 31 Worldwide cost of sales was $5.7 billion in 2004, an eight percent increase over 2003. The growth in cost of sales per case was driven primarily by significant increases in raw material costs, coupled with mix shifts into more expensive products and packages and the negative impact of foreign currency translation. In the U.S., cost of sales grew seven percent in 2004 versus 2003, due to volume growth and increases in cost per case. The increases in cost per case resulted from higher commodity costs, primarily driven by aluminum and resin, coupled with the impact of mix shifts into more expensive products and packages. Cost of sales outside the U.S. grew approximately eleven percent in 2004 versus 2003, reflecting increases in cost per case and volume, coupled with the negative impact from foreign" currency translation. Growth in cost per case was driven by increases in Europe and Mexico. In Europe, we have experienced higher sweetener costs in Turkey and mix shifts into more expensive products in Russia. In Mexico, sweetener costs have increased throughout the year, coupled with a steep rise in resin costs in the fourth quarter. Foreign currency translation contributed three percentage points of growth, reflecting the appreciation of the euro and Canadian dollar, partially offset by the devaluation of the Mexican peso. Selling, Delivery and Administrative Expenses 52 Weeks Ended December 25, 2004 vs. December 27, 2003 World- Outside wide U.S. the U.S. Cosf impact 4% 4% 3% Acquisitions 0% 0% 1% Currency translation , 1% 0% 2% Total SD&A Change 5% 4% 6% Worldwide selling, delivery and administrative expenses w ere $4.3 billion, a five percent increase over 2003. Increases in selling, delivery and administrative costs were driven by higher operating costs in the U.S. and Europe coupled with the negative impact of foreign cu rrency translation. In the U.S., increases reflect higher labor and benefit costs. These increases were partially offset by reduced operating costs driven from a number of productivity initiatives we put in place during 2004, coupled with a reduction in our bad debt expense. Outside the U.S., increases were driven primarily by higher operating costs in Russia and Turkey and the negative impact of foreign currency throughout Europe and Canada. These increases were partially offset by declines in Mexico due to the devaluation of the Mexican peso and reduced operating costs. We have consolidated a number of warehouses and distribution systems in Mexico and are starting to capitalize on productivity gains and reduced costs. These results also include a $9 million non-cash impairment charge that is related to our re- evaluation of the fair value of our franchise licensing agreement for the SQutRT trademark in Mexico, as a result of a change in its estimated accounting life. See Note 6 in Notes to Consolidated Financial Statements for additional information. Interest Expense Interest expense decreased by $11 million to $166 million in 20041argely due to lower effective interest rates achieved on our long-term debt. Interest Income Interest income was $34 million in 2004. Flat performance versus the prior year reflects an increase in interest income from notes from PBG, partially offset by a decrease in interest income from third parties. Income Tax Expense Bottling LLC is a limited liability company, taxable as a partnership for U.S. tax purposes and, as such, generally pays no U.S. federal or state income taxes. The federal and state distributable share of income, deductions 32 and credits of Bottling LLC are allocated to Bottling LLC's owners based on percentage ownership. However, certain domestic and foreign affiliates pay income taxes in their respective jurisdictions. Such amounts are reflected in our Consolidated Statements of Operations. Our full- year effective tax rate for 2004 was 0.4%. This rate corresponds to an effective tax rate of 10.4% in 2003. The decrease in our effective tax rate versus the prior year is due largely to the lapping of an $11 million tax charge relating to a Canadian tax law change in the fourth quarter of 2003. Additionally, in 2004, we had the following significant tax items, which decreased our tax expense by approximately $44 million: • Mexico tax rate change - In December 2004, legislation was enacted changing the Mexican statutory income tax rate. This rate change decreased our net deferred tax liabilities and resulted in a $26 million tax benefit in the fourth quarter. • Tax reserves -During 2004, we adjusted previously established liabilities for tax exposures due largely to the settlement of certain international tax audits. The adjustment of these liabilities resulted in an $18 million tax benefit for the year. LIQUIDITY AND FINANCIAL CONDITION Cash Flows Fiscal 2005 Compared with Fiscal 2004 Net cash provided by operations increased by $99 million to $1,471 million in 2005. Increases in net cash provided by operations were driven primarily by higher profits and a higher mix of non-cash expenses. Net cash used for investments decreased by $82 million to $1,122 million, principally reflecting the lapping of our 2004 acquisitions, partially offset by higher capital spending. Net cash used for financing decreased by $967 million to $183 million driven primarily by the lapping of the repayment of our $1.0 billion note in February 2004, partially offset by lower net short term borrowings. Fiscal 2004 Compared with Fiscal 2003 Net cash provided by operations grew by $178 million to $1,372 million in 2004. Increases in net cash provided by operations were driven by higher profits, lower pension contributions and working capital improvements, which include the lapping of a one-time payment in 2003 relating to the settlement of our New Jersey wage and hour litigation. Net cash used for investments decreased by $73 million to $1,204 million, principally reflecting less notes receivable from PBG and higher proceeds from sales of property, plant and equipment, partially offset by higher capital spending. Net cash used for financing increased by $2,175 million to $1,150 million driven primarily by the repayment of our $1.0 billion note in February 2004, lower proceeds from long-term borrowings and increased distributions to owners, partially offset by higher short-term borrowings. Liquidity and Capital Resources We believe that our future cash flows from operations and borrowing capacity will be sufficient to fund capital expenditures, acquisitions and working capital requirements for PBG and us for the foreseeable future. We had available bank credit lines of approximately $435 million at December 31, 2005. These lines were used to support the general operating needs of our businesses. As of year-end 2005, we had $156 million outstanding under these lines of credit at aweighted-average interest rate of 4.33 percent. As of year-end 2004, we had available short-term bank credit lines of approximately $381 million and $77 million was outstanding under these lines of credit at aweighted-average interest rate of 3.72 percent. Certain of our other senior notes have redemption features and non-financial covenants that will, among other things, limit our ability to create or assume liens, enter into sale and lease-back transactions, engage in mergers or consolidations and transfer or lease all or substantially all of our assets. Additionally, our new secured debt should not be greater than 10% of our net tangible assets. Net tangible assets are defined as total assets less current liabilities and net intangible assets. 33 We are in compliance with all debt covenants. Our peak borrowing timeframe varies with our working capital requirements and the seasonality of our business. Borrowings from our international credit facilities peaked at $234 million, reflecting payments for working capital requirements. Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2005: Contractual Obligations Long-term debt obligations (1) Capital lease obligations (2) Operating leases (2) Interest obligations (3) Purchase obligations: Raw material obligations (4) Capital expenditure obligations (5) Other obligations (6) Other long-term liabilities {7) Total Payments Due by Period Less than 1 More than Total year 1-3 years 3-5 years 5 years $ .3,552 $ 592 $ 10 $ 1,300 $ 1,650 5 1 1 - 3 230 50 73 43 64 876 175 310 192 199 212 84 120 8 - 58 58 - 362 171 100 37 54 20 6 8 3 3 $ 5,315 $ 1,137 $ 622 $ 1,583 $ 1,973 (1) See Note 9 in Notes to Consolidated Financial Statements for additional information relating to our long-term debt obligations. (2) See Note ]0 in Notes to Consolidated Financial Statements for additional information relating to our lease obligations. (3) Represents interest payment obligations related to our long-term fixed-rate debt as specified in the applicable debt agreements. Additionally, a portion of our long-term debt has variable interest rates due to either existing swap agreements or interest arrangements. We estimated our variable interest payment obligations by using the interest rate forward curve. (4) Represents obligations to purchase raw materials pursuant to contracts entered into by PepsiCo on our behalf and international agreements to purchase raw materials. (5) Represents commitments to suppliers under capital expenditure related contracts or purchase orders. (6) Represents "non-cancelable" agreements that specify fixed or minimum quantities, price arrangements and timing of payments. Also includes agreements that provide for termination penalty clauses. (7) Primarily relates to contractual obligations associated with non-compete contracts that resulted from business acquisitions. The table excludes other long-term liabilities included in our Consolidated Financial Statements, such as pension, postretirement and other non- contractual obligations. See Note 12 in Notes to Consolidated Financial Statements for a discussion of our future pension and postretirement contributions and corresponding expected benefit payments for years 2006 through 2015. Off-Balance Sheet Arrangements PBG has a $500 million commercial paper program that is supported by a credit facility. The credit facility is guaranteed by us and expires in Apri12009. There are certain financial covenants associated with this credit facility. PBG has used this credit facility to support its commercial paper program in 2005 and 2004. At December 31, 2005, PBG had $355 million in outstanding commercial paper with a weighted-average interest rate of 4.30%. At December 25, 2004, PBG had $78 million in outstanding commercial paper with aweighted- average interest rate of 2.32%. On March 8, 1999, PBG issued $1 billion of 7% senior notes due 2029, which are guaranteed by us. We also guarantee, that to the extent there is available cash, we will distribute pro rata to all owners sufficient cash such that aggregate cash distributed to PBG will enable PBG to pay its taxes and make interest payments on the $1 billion 7% senior notes due 2029. During 2005 and 2004, we made cash distributions to our owners totaling $181 million and $185 million, respectively. Any amounts in excess of taxes and interest payments were used by PBG to repay loans to us. 34 Capital Expenditures Our business requires substantial infrastructure investments to maintain our existing level of operations and to fund investments targeted at growing our business. Capital infrastructure expenditures totaled $709 million, $688 million and $635 million during 2005, 2004 and 2003, respectively. Acquisitions In September 2005, PBG acquired the operations and exclusive right to manufacture, sell and distribute Pepsi-Cola beverages from the Pepsi-Cola Bottling Company of Charlotte, North Carolina ("Charlotte"). In connection with the acquisition, PBG contributed the business and certain net assets of Charlotte to Bottling LLC. The acquisition did not have a material impact on our Consolidated Financial Statements. As a result of the asset contribution of Charlotte from PBG, we have assigned $70 million to goodwill, $118 million to franchise rights and $12 million to non-compete arrangements. The goodwill and franchise rights are not subject to amortization. The non-compete agreements are being amortized over ten years. The allocations of the purchase price for the acquisition are still preliminary and will be determined based on the estimated fair value of assets acquired and liabilities assumed as of the date of the acquisition. The operating results of the acquisition are included in the accompanying Consolidated Financial Statements from its date of purchase. The acquisition was made to enable us to provide better service to our large retail customers. We expect the acquisition to reduce costs through economies of scale. During 2004, we acquired the operations and exclusive right to manufacture, sell and distribute Pepsi-Cola beverages from four franchise bottlers. The following acquisitions occurred for an aggregate purchase price of $95 million in cash and assumption of liabilities of $22 million: • Gaseosas, S.A. de C.V. of Mexicali, Mexico in March • Seltzer and Rydholm, Inc. of Auburn, Maine in October • Phil Gaudreault et Fils Ltee of Quebec, Canada in November • Bebidas Purificada, S.A. de C.V. of Juarez, Mexico in November As a result of these acquisitions, we have assigned $5 million to goodwill, $66 million to franchise rights and $3 million to non-compete arrangements. The goodwill and franchise rights are not subject to amortization. The non-compete agreements are being amortized over five to ten years. During 2004, we also paid $1 million for the purchase of certain distribution rights relating to SoBe. We intend to continue to pursue other acquisitions of independent PepsiCo bottlers, particularly in territories contiguous to our own, where they create value. MARKET RISKS AND CAUTIONARY STATEMENTS Quantitative and Qualitative Disclosures about Market Risk In the normal course of business, our financial position is routinely subject to a variety of risks. These risks include the risk associated with the price of commodities purchased and used in our business, interest rates on outstanding debt and currency movements of non-U.S. dollar denominated assets and liabilities. We are also subject to the risks associated with the business environment in which we operate, including the collectibility of accounts receivable. We regularly assess all of these risks and have policies and procedures in place to protect against the adverse effects of these exposures. Our objective in managing our exposure to fluctuations in commodity prices, interest rates and foreign currency exchange rates is to minimize the volatility of earnings and cash flows associated with changes in the applicable rates and prices. To achieve this objective, we have derivative instruments to hedge against the risk of adverse movements in commodity prices, interest rates and foreign currency. Our company policy prohibits the use of derivative instruments for trading or speculative purposes, and we have procedures in place to monitor and control their use. See Note 11 in Notes to Consolidated Financial Statements for additional information relating to our derivative instruments. A sensitivity analysis has been prepared to determine the effects that market risk exposures may have on our financial instruments. We performed the sensitivity analyses for hypothetical changes in 35 commodity prices, interest rates and foreign currency exchange rates and changes in our stock price on our unfunded deferred compensation liability. Information provided by these sensitivity analyses does not necessarily represent the actual changes in fair value that we would incur under normal market conditions because, due to practical limitations, all variables other than the specific market risk factor were held constant. As a result, the reported changes in the values of some financial instruments that are affected by the sensitivity analyses are not matched with the offsetting changes in the values of the items that those instruments are designed to finance or hedge. Commodity Price Risk We are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. We use futures contracts and options on futures in the normal course of business to hedge anticipated purchases of certain commodities used in our operations. With respect to commodity price risk, we currently have various contracts outstanding for commodity purchases in 2006 and 2007, which establish our purchase prices within defined ranges. We estimate that a 10-percent decrease in commodity prices with all other variables held constant would have resulted in a decrease in the fair value of our financial instruments of $1 million and' $10 million at December 31, 2005 and December 25, 2004, respectively. Interest Rate Risk Interest rate risk is present with both fixed and floating-rate debt. We use interest rate swaps to manage our interest expense risk. These instruments effectively change the interest rate of specific debt issuances. As a result, changes in interest rates on our variable debt would change our interest expense. We estimate that a 50-basis point increase in interest rates on our variable rate debt and cash equivalents with all other variables held constant would have resulted, in an increase to net interest expense of $4 million in 2005 and $5 million in 2004. Foreign Currency Exchange Rate Risk In 2005, approximately 29 percent of our net revenues came from outside the United States. Social, economic and political conditions in these international markets may adversely affect our results of operations, cash flows and financial condition. The overall risks to our international businesses include changes in foreign governmental policies and other political or economic developments. These developments may lead to new product pricing, tax or other policies and monetary fluctuations that may adversely impact our business. In addition, our results of operations and the value of the foreign assets and liabilities are affected by fluctuations in foreign currency exchange rates. As currency exchange rates change, translation of the statements of operations of our businesses outside the U.S. into U.S. dollars affects year-over-year comparability. We generally have not hedged against these types of currency risks because cash flows from our international operations are usually reinvested locally. We have foreign currency transactional risks in certain of our international territories for transactions that are denominated in currencies that are different from their functional currency. We have entered into forward exchange contracts to hedge portions of our forecasted U.S. dollar cash flows in our Canadian business. A 10-percent weaker U.S. dollar against the Canadian dollar, with all other variables held constant, would result in a decrease in the fair value of these contracts of $9 million and $10 million at December 31, 2005 and December 25, 2004, respectively. Foreign currency gains and losses reflect both transaction gains and losses in our foreign operations, as well as translation gains and losses arising from the re-measurement into U.S. dollars of the net monetary assets of businesses in highly inflationary countries. Turkey is considered a highly inflationary economy for accounting purposes. Beginning in 2006, Turkey will no longer be considered highly inflationary, and will change its functional currency from the U.S. Dollar to the Turkish Lira. We do not expect any material impact on our consolidated financial statements as a result of Turkey's change in functional currency. Unfunded Deferred Compensation Liability Our unfunded deferred compensation liability is subject to changes in PBG's stock price as well as price changes in certain other equity and fixed income investments. Employees participating in our deferred compensation program can elect to defer all or a portion of their compensation to be paid out on a future date or dates. As part of the deferral process, employees select from phantom investment options that determine the earnings on the deferred 36 compensation liability and the amount that they will ultimately receive. Employee investment elections include PBG stock and a variety of other equity and fixed-income investment options. Since the plan is unfunded, employees' deferred compensation amounts are not directly invested in these investment vehicles. Instead, we track the performance of each employee's investment selections and adjust his or her deferred compensation account accordingly. The adjustments to the employees' accounts increase or decrease the deferred compensation liability reflected on our Consolidated Balance Sheets with an offsetting increase or decrease to our selling, delivery and administrative expenses. We use prepaid forward contracts to hedge the portion of our deferred compensation liability that is based on PBG's stock price. Therefore, changes in compensation expense as a result of changes in PBG's stock price are substantially offset by the changes in the fair value of these contracts. We estimate that a 10-percent unfavorable change in PBG's year-end stock price would have reduced the fair value from these commitments by $2 million in 2005 and 2004. Cautionary Statements Except for the historical information and discussions contained herein, statements contained in this annual report on Form 10-K may constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on currently available competitive, financial and economic data and our operating plans. These statements involve a number of risks, uncertainties and other factors that could cause actual results to be materially different. Among the events and uncertainties that could adversely affect future periods are: • changes in our relationship with PepsiCo that could have a material adverse effect on our long-term and short-term business and financial results; • material changes in expected levels of bottler incentive payments from PepsiCo; • restrictions imposed by PepsiCo on our raw material suppliers that could increase our costs; • material changes from expectations in the cost or availability of raw materials, ingredients or packaging materials; • limitations on the availability of water or obtaining water rights; • an inability to achieve cost savings; • material changes in capital investment for infrastructure and an inability to achieve the expected timing for returns on cold-drink equipment and related infrastructure expenditures; • decreased demand for our product resulting from changes in consumers' preferences; • an inability to achieve volume growth through product and packaging initiatives; • impact of competitive activities on our business; • impact of customer consolidations on our business; • changes in product category consumption; • unfavorable weather conditions in our markets; • an inability to meet projections for performance in newly acquired territories; • loss of business from a significant customer; • failure or inability to comply with laws and regulations; • changes in laws, regulations and industry guidelines governing the manufacture and sale of food and beverages, including restrictions on the sale of carbonated soft drinks in schools; • litigation, other claims and negative publicity relating to alleged unhealthy properties of soft drinks; • changes in laws and regulations governing the environment, transportation, employee safety, labor and government contracts; • changes in accounting standards and taxation requirements (including unfavorable outcomes from audits performed by various tax authorities); • unforeseen economic and political changes; • possible recalls of our products; • interruptions of operations due to labor disagreements; • changes in our debt ratings; • material changes in expected interest and currency exchange rates and unfavorable market performance of PBG's pension plan assets; and • an inability to achieve strategic business plan targets that could result in an intangible asset impairment charge. 37 Bottling Group, LLC Consolidated Statements of Operations in millions Fiscal years ended December 31, 2005, December 25, 2004 and December 27, 2003 2005 2004 2003 Net Revenues $ 11,885 $ 10,906 $10,265 Cost of sales 6,253 5,656 5,215 Gross Profit .,... ,, °: 5,632 5,250 5,050 Selling, delivery and administrative expenses 4,625 4,285 4,089 Operating Income 1,007 965 961 Interest expense 187 166 177 Interest income 77 34 34 Other non-operating expenses, net 1 1 7 Minority interest 1 - - Income Before Income Taxes 895 832 811 Income tax expense 24 3 84 Income Before Cumulative Effect of Change in Accounting Principle 871 829 727 Cumulative effect of change in accounting principle, net of tax - - 6 Net Income $ 871 $ 829 $ 721 See accompanying notes to Consolidated Financial Statements. 38 Bottling Group, LLC Consolidated Statements of Cash Flows in millions Fiscal years ended December 31, 2005, December 25, 2004, and December 27, 2003 Cash Flows=Operations Net income Adjustments to reconcile net income to net cash provided.by operations: Depreciation Amortization Deferred income taxes Cumulative,effect of change in accounting principle ; Other non-cash charges and credits: Defined benefit pension and postretirement expenses Other non-cash charges and credits Net other non-cash charges and credits Changes in operating working capital, excluding effects of acquisitions: Accounts receivable, net Inventories Prepaid expenses and other current assets Accounts payable and other current liabilities Income taxes payable Net change in operating working capital Pension contributions Other, net Net Cash Provided by Operations Cash Flows-Investments Capital expenditures Acquisitions of bottlers, net of cash acquired Proceeds from sale of property, plant and equipment Notes receivable from PBG, Inc., net Other investing activities, net Net Cash Used for Investments Cash Flows=Financing Short-term borrowings, net-three months or less Proceeds from issuances of long-term debt Payments of long-term debt Distributions to owners Net Cash (Used for) Provided by Financing Effect of Exchange-Rate Changes on Cash and Cash Equivalents Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents-Beginning of Year Cash and Cash Equivalents-End of Year Supplemental Cash Flow Information ~ . Non-Cash Investing and Financing Activities: Liabilities incurred and/or assumed in conjunctiori with acquisitions of bottlers Change in accounts payable related to capital expenditures 2005 2004 2003 $ 871 $ 829 $ 721 615 580 556 15 13 12 (28) (52) 63 - - 6 109 88 77 83 62 78 192 150 155 7 (53) (23) (29) (38) 4 (40) (22) 6 2 97 (82) 8 (7) (17) (52) (23) (112) (77) (83) (162) (65) (42) (45) 1,471 1,372 1,194 (709) (688) (635) (1) (96) (100) 20 22 10 (436) (442) (552) 4 - - (1,122) (1,204) (1,277) (3) 26 8 36 22 1,141 (35) (1,013) (27) (181) (185) (97) (183) (1,150) 1,025 3 5 10 169 (977) 952 177 1,154 202 $ 346 $ 177 $ 1,154 See accompanying notes to Consolidated Financial Statements. 39 $ - $ 20 $ 146 $ (6) $ 29 $ 10 Bottling Group, LLC Consolidated Balance Sheets in millions December 31, 2005 and December 25, 2004 ASSETS ,, , Current Assets Cash and cash equivalents Accounts receivable, less allowance of $51 in 2005 and $61 in 2004 Inventories . Prepaid expenses and other current assets Total Current Assets Property, plant and equipment, net Other intangible assets, net - Goodwill Notes receivable from PBG Other assets :Total Assets LIABILITIES AND OWNERS' EQUITY Current Liabilities Accounts payable and other current liabilities Short-teen borrowings Current maturities of long-term debt Total Current Liabilities Long-term debt Other liabilities Deferred income taxes Minority interest Total Liabilities Owners' Equity Owners' net investment Accumulated other comprehensive loss , Deferred compensation Total Owners' Equity Total Liabilities and Owners' Equity See accompanying notes to Consolidated Financial Statements. 2005 2ooa $ 346 $ 177 1,186 1,204 458 427 274 223 2,264 2,031 3,643 3,581 3,814 3,639 1,516 1,416 2,384 1,948 124 109 $ 13,745 $ 12,724 $ 1,456 $ 1,423 71 77 ~ 588 52 2,115 1,552 2,943 3,495 681 618 422 436 3 3 6,164 6,104 7,990 7,068 (395) (447) (14) (1) 7,581 6,620 $ 13,745 $ 12,724 40 Bottling Group, LLC Consolidated Statements of Changes in Owners' Equity in millions Fiscal years ended December 31, 2005, December 25, 2004 and December 27, 2003 Accumulated ', Owners' Other i Net Deferred Comprehensive Comprehensive Investment Compensation Loss Total Income Balance at December 28, 2002 $- 5,782 $ - $ (596) $5,186 Comprehensive income: I Net income 721. - - 721 $ 721 I Currency translation adjustment - - 96 96 96 Minimum pension liability adjustment - - (34) (34) (34) Cash flow hedge adjustment - - 31 31 31 Total comprehensive income. ~ $ 814 Cash distributions to owners (97) - - (97) Non-cash distributions to owners (4) - - (4) Stock compensation 7 (4) - 3 Balance at December 27, 2003 6,409 (4) (503) 5,902 Comprehensive income: Net income 829 - - 829 $ 829 Currency translation adjustment - - 91 91 91 Minimum pension liability adjustment - - (29) (29) (29) Cash flow hedge adjustment - - (6) (6) (6) Total comprehensive income $ 885 Cash distributions to owners (185) - - (185) Non-cash contributions from owners 17 - - 17 Stock compensation (2) 3 - 1 Balance at December 25, 2004 7,068 (1) (447) 6,620 Comprehensive income: Net income 87:1 - - 871 $ 871 Currency translation adjustment - - 70 70 70 Minimum pension liability adjustment - - (8) (8) (8) Cash flow hedge adjustment - - (10) (10) (10) Total comprehensive income $ 923 Cash distributions to owners (181) - - (181) Non-cash contributions from owners 216 - - 216 Stock compensation ~ 16 (13) - 3 Balance at December 31,2005 $ 7,990 $ (14) $ (395) $7,581 See accompanying notes to Consolidated Financial Statements. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Tabular dollars in millions Note 1-Basis of Presentation Bottling Group, LLC (collectively referred to as "Bottling LLC," "we," "our" and "us") is the principal operating subsidiary of The Pepsi Bottling Group, Inc. ("PBG") and consists of substantially all of the operations and assets of PBG. Bottling LLC, which is consolidated by PBG, has the exclusive right to manufacture, sell and distribute from Pepsi-Cola beverages, in all or a portion of the United States, Mexico, Canada, Spain, Greece, Russia and Turkey. In conjunction with PBG's initial public offering and other subsequent transactions, PBG and PepsiCo, Inc. ("PepsiCo") contributed bottling businesses and assets used in the bottling businesses to Bottling LLC. As a result of the contribution of these assets, PBG owns 93.3% of Bottling LLC and PepsiCo owns the remaining 6.7% as of December 31, 2005. Certain reclassifications were made in our Consolidated Financial Statements to 2004 and 2003 amounts to conform to the 2005 presentation. Note 2-Summary of Significant Accounting Policies Basis of Consolidation -The accounts of all of our wholly and majority-owned subsidiaries are included in the accompanying Consolidated Financial Statements. We have eliminated intercompany accounts and transactions in consolidation. Fiscal Year -Our U.S. and Canadian operations report using a fiscal year that consists of fifty-two weeks, ending on the last Saturday in December. Every five or six years afifty-third week is added. In 2005, our fiscal year consisted of fifty-three weeks (the additional week was added to the fourth quarter). Fiscal years 2004 and 2003 consisted of fifty-two weeks. Our remaining countries report using acalendar-year basis. Accordingly, we recognize our quarterly business results as outlined below: Quarter First Quarter Second Quarter Third Quarter Fourth Quarter U.S. & Canada 12 weeks 12 weeks 12 weeks 16 weeks/17 weeks (FY 2005) Mexico & Europe January and February March, April and May June, July and August September, October, November and December Revenue Recognition -Revenue, net of sales returns, is recognized when our products are delivered or shipped to customers in accordance with the written sales terms. We offer certain sales incentives on a local and national level through various customer trade agreements designed to enhance the growth of our revenue. Customer trade agreements are accounted for as a reduction to our revenues. Customer trade agreements with our customers include payments for in-store displays, volume rebates, featured advertising and other growth incentives. A number of our customer trade agreements are based on quarterly and annual targets that generally do not exceed one year. Estimated amounts to be paid to our customers for trade agreements are based upon current performance, historical experience, forecasted volume and other performance criteria. Advertising and Marketing Costs - We are involved in a variety of programs to promote our products. We include advertising and marketing costs in selling, delivery and administrative expenses. Advertising and marketing costs were $421 million, $426 million and $453 million in 2005, 2004 and 2003, respectively, before bottler incentives received from PepsiCo and other brand owners. 42 Bottler Incentives -PepsiCo and other brand owners, at their discretion, provide us with various forms of bottler incentives. These incentives cover a variety of initiatives, including direct marketplace support and advertising support. We classify bottler incentives as follows: • Direct marketplace support represents PepsiCo's and other brand owners' agreed-upon funding to assist us in offering sales and promotional discounts to retailers and is generally recorded as an adjustment to cost of sales. If the direct marketplace support is a reimbursement for a specific, incremental and identifiable program, the funding is recorded as an adjustment to net revenues. • Advertising support represents agreed-upon funding to assist us for the cost of media time and promotional materials and is generally recorded as an adjustment to cost of sales. Advertising support that represents reimbursement for a specific, incremental and identifiable media cost, is recorded as a reduction to advertising and marketing expenses within selling, delivery and administrative expenses. Total bottler incentives recognized as adjustments to net revenues, cost of sales and selling, delivery and administrative expenses in our Consolidated Statements of Operations were as follows: Fiscal Year Ended 2005 2004 2003 Net revenues $ 51 $ 22 $ 21 Cost of sales 604 559 561 Selling, delivery and administrative expenses 79 84 108 Total bottler incentives $ 734 $ 665 $ 690 Shipping and Handling Costs -Our shipping and handling costs are recorded primarily within selling, delivery and administrative expenses. Such costs recorded within selling, delivery and administrative expenses totaled $1.5 billion, $1.6 billion and $1.4 billion in 2005, 2004 and 2003, respectively. Foreign Currency Gains and Losses - We translate the balance sheets of our foreign subsidiaries that do not operate in highly inflationary economies at the exchange rates in effect at the balance sheet date, while we translate the statements of operations at the average rates of exchange during the year. The resulting translation adjustments of our foreign subsidiaries are recorded directly to accumulated other comprehensive loss. Foreign currency gains and losses reflect both transaction gains and losses in our foreign operations, as well as translation gains and losses arising from the re-measurement into U.S. dollars of the net monetary assets of businesses in highly inflationary countries. Beginning January 1, 2006, Turkey is no longer considered to be a highly inflationary economy for accounting purposes. We do not expect any material impact on our consolidated financial statements as a result of Turkey's change in functional currency. Pension and Postretirement Medical Benefit Plans - PBG sponsors pension and other postretirement medical benefit plans in various forms covering substantially all employees who meet eligibility requirements. We account for PBG's defined benefit pension plans and our postretirement medical benefit plans using actuarial models required by Statement of Financial Accounting Standards ("SFA5") No. 87, "Employers' Accounting for Pensions," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The assets, liabilities and assumptions used to measure pension and postretirement medical expense for any fiscal year are determined as of September 30 of the preceding year ("measurement date"). The discount rate assumption used in our pension and postretirement medical benefit plans' accounting is based on current interest rates for high-quality, long-term corporate debt as determined on each measurement date. In evaluating the expected rate of return on PBG's assets for a given fiscal year, we consider both projected future returns of asset classes and the actual 10 to 15-year historic returns on asset classes in PBG's pension investment portfolio, reflecting the weighted-average return of PBG's asset allocation. Differences between actual and expected returns are recognized in the net periodic pension calculation over five years. To the extent the amount of all unrecognized gains and losses exceeds 10 percent of the larger of the pension benefit obligation or plan assets, such amount is amortized over the average remaining service period of active participants. We amortize prior service costs on a straight-line basis over the average remaining service period of employees expected to receive benefits. 43 Income Taxes - We are a limited liability company, classified as a partnership for U.S. tax purposes and, as such, generally will pay no U.S. federal or state income taxes. Our federal and state distributive shares of income, deductions and credits are allocated to our owners based on their percentage of ownership. However, certain domestic and foreign affiliates pay taxes in their respective jurisdictions and record related . deferred income tax assets and liabilities. The tax bases of our assets and liabilities reflect our best estimate of the tax benefit and costs we expect to realize. We establish valuation allowances to reduce our deferred tax assets to an amount that will more likely than not be realized. Significant management judgment is required in determining our effective tax rate and in evaluating our tax position. We establish reserves when, based on the applicable tax law and facts and circumstances relating to a particular transaction or tax position, it becomes probable that the position will not be sustained when challenged by a taxing authority. A change in our tax reserves could have a significant impact on our results of operations. Cash Equivalents -Cash equivalents represent funds we have temporarily invested with original maturities not exceeding three months. Allowance for Doubtful Accounts - A portion of our accounts receivable will not be collected due to bankruptcies and sales returns. Our accounting policy for the provision for doubtful accounts requires reserving an amount based on the evaluation of the aging of accounts receivable, sales return trend analysis, detailed analysis of high-risk customer accounts, and the overall market and economic conditions of our customers. Inventories - We value our inventories at the lower of cost or net realizable value. The cost of our inventory is generally computed on the first-in, first-out method. Property, Plant and Equipment - We state property, plant and equipment ("PP&E") at cost, except for PP&E that has been impaired, for which we write down the carrying amount to estimated fair market value, which then becomes the new cost basis. Goodwill and Other Intangible Assets, net -Goodwill and intangible assets with indefinite useful lives are not amortized, but instead tested annually for impairment. We evaluate our identified intangible assets with indefinite useful lives for impairment annually (unless it is required more frequently because of a triggering event). We measure impairment as the amount by which the carrying value exceeds its estimated fair value. Based upon our annual impairment analysis performed in the fourth quarter of 2005, the estimated fair values of our identified intangible assets with indefinite lives exceeded their carrying amounts. We evaluate goodwill on acountry-by-country basis ("reporting unit") for impairment. We evaluate each reporting unit for impairment based upon atwo-step approach. First, we compare the fair value of our reporting unit with its carrying value. Second, if the carrying value of our reporting unit exceeds its fair value, we compare the implied fair value of the reporting unit's goodwill to its carrying amount to measure the amount of impairment loss. In measuring the implied fair value of goodwill, we would allocate the fair value of the reporting unit to each of its assets and liabilities (including any unrecognized intangible assets). Any excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. Based upon our annual impairment analysis in the fourth quarter of 2005, the estimated fair value of our reporting units exceeded their carrying value, and as a result, we did not need to proceed to the second step of the impairment test. Other identified intangible assets that are subject to amortization are amortized on a straight-line basis over the period in which we expect to receive economic benefit and are reviewed for impairment when facts and circumstances indicate that the carrying value of the asset may not be recoverable. The determination of the expected life will be dependent upon the use and underlying characteristics of the intangible asset. In our evaluation of the intangible assets, we consider the nature and terms of the underlying agreements, the customer's attrition rate, competitive environment and brand history, as applicable. If the carrying value is not recoverable, impairment is measured as the amount by which the carrying value exceeds its estimated fair value. Fair value is generally estimated based on either appraised value or other valuation techniques. Financial Instruments and Risk Management - We use derivative instruments to hedge against the risk of adverse movements associated with commodity prices, interest rates and foreign currency. Our policy prohibits the 44 use of derivative instruments for trading or speculative purposes, and we have procedures in place to monitor and control their use. All derivative instruments are recorded at fair value as either assets or liabilities in our Consolidated Balance Sheets. Derivative instruments are generally designated and accounted for as either a hedge of a recognized asset or liability ("fair value hedge") or a hedge of a forecasted transaction ("cash flow hedge"). The derivative's gain or loss recognized in earnings is recorded consistent with the expense classification of the underlying hedged item. If a fair value or cash flow hedge were to cease to qualify for hedge accounting or were terminated, it would continue to be carried on the balance sheet at fair value until settled, but hedge accounting would be discontinued prospectively. Amounts previously deferred in accumulated other comprehensive loss would be recognized immediately in earnings. We also may enter into a derivative instrument for which hedge accounting is not required because it is entered into to offset changes in the fair value of an underlying transaction recognized in earnings ("natural hedge"). These instruments are reflected in the Consolidated Balance Sheets at fair value with changes in fair value recognized in earnings. Stock-Based Employee Compensation - We measure stock-based compensation expense using the intrinsic-value method in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and its related interpretations. Accordingly, compensation expense for PBG stock option grants to our employees is measured as the excess of the quoted market price of common stock a[ the grant date over the amount the employee must pay for the stock. Our policy is to grant PBG stock options at fair value on the date of grant. As allowed by SFAS No. 148, "Accounting for Stock-Based Compensation -Transition and Disclosure," we have elected to continue to apply the intrinsic-value based method of accounting described above, and have adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation.".If we had measured compensation cost for the stock awards granted to our employees under the fair-value based method prescribed by SFAS No. 123, net income would have been changed to the pro forma amounts set forth below: Net income: As reported Add.: Total stock-based employee compensation expense included in reported net income Less: Total stock-based employee compensation expense determined under fair value- based method for all awards Pro forma Fiscal Year Ended 2005 2004 2003 $ .871 $ 829 $ 721 1 - 4 (64) (65) (74) $ 808 $ 764 $ 651 Pro forma compensation cost measured for equity awards granted to employees is amortized using astraight-line basis over the vesting period, which is typically three years. The fair value of PBG stock options used to compute pro forma net income disclosures was estimated on the date of grant using the Black- Scholes-Merton option-pricing model based on the weighted-average assumption for, options granted in the following years: 2005 2004 2003 Risk-free interest rate 4.1% 3.2% 2.9% Expected life 5.8 years 6.0 years 6.0 years Expected volatility 28% 35% 37% Expected dividend yield 1.10% 0.68% 0.17% 45 SFAS No. 1238 In December 2004, the Financial Accounting Standards Board ("FASB") issued a revised Statement of Financial Accounting Standards ("SFAS") No. 123, "Share-Based Payment" ("SFAS 123R"). Among its provisions, SFAS 123R will require us to measure the value of employee services in exchange for an award of equity instruments based on the grant-date fav value of the award and to recognize the cost over the requisite service period. SFAS 123R eliminates the alternative use of Accounting Principles Board ("APB") No. 25's intrinsic-value method of accounting for awards. In fiscal year 2005 and earlier, the Company accounted for stock options according to the provisions of APB No. 25 and related interpretations, and accordingly no compensation expense was required. The Company will adopt SFAS 123R in the first quarter of 2006 by using the modified prospective approach. Under this method, we will recognize compensation expense for all share-based payments over the vesting period based on their grant-date fair value. Measurement and our method of amortization of costs for share-based payments granted prior to, but not vested as of the date of adoption, would be based on the same estimate of the grant-date fair value and the same amortization method that was previously used in our SFAS 123 pro forma disclosure. Prior periods will not be restated. Currently, the Company uses the Black-Scholes-Merton option-pricing model to estimate the value of stock options granted to employees in its pro forma disclosure and plans to continue to use this method upon adoption of SFAS 123R. The financial statement impact will be dependent on future stock-based awards and any unvested stock options outstanding at the date of adoption. We expect the adoption of SFAS 123R to result in a seven percentage point reduction in our operating income. Commitments and Contingencies - We are subject to various claims and contingencies related to lawsuits, taxes, environmental and other matters arising out of the normal course of business. Liabilities related to commitments and contingencies are recognized when a loss is probable and reasonably estimable. New Accounting Standards SFAS No. 123R See discussion in "Stock-Based Employee Compensation" above. FASB Interpretation No. 47 In March 2005, the FASB issued Interpretation No. 47 ("FIN 47"), "Accounting for Conditional Asset Retirement Obligations," that requires an entity to recognize a liability for a conditional asset retirement obligation when incurred if the liability can be reasonably estimated. FIN 47 clarifies that the term Conditional Asset Retirement Obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 also clarifies when an entity would have sufficient information to estimate reasonably the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. This standard did not have a material impact on our Consolidated Financial Statements. SFAS No. l51 In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4" ("SFAS 151 "). SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage). In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on normal capacity of production facilities. SFAS 151 is effective for the first annual reporting period beginning after June 15, 2005. The adoption of SFAS 151 did not have a material impact on our Consolidated Financial Statements. 46 Emerging Issues Task Force ("EITF") Issue No. 02-16 "Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor" The EITF reached a consensus on Issue No. 02-16 in 2003, addressing the recognition and income statement classification of various cash consideration received from a vendor. In accordance with EITF Issue No. 02-16, we have reclassified certain bottler incentives from revenue and selling, delivery and administrative expenses to cost of sales beginning in 2003. During 2003, we recorded a transition adjustment of $6 million, net of taxes of $1 million, for the cumulative effect on prior years. This adjustment reflects the amount of bottler incentives that can be attributed to our 2003 beginning inventory balances. Assuming EITF Issue No. 02-16 had been adopted for all periods presented, pro forma net income for the years ended December 31, 2005, December 25, 2004, and December 27, 2003, would have been as follows: Fiscal Year Ended December December December 31, 2005 25, 2004 27, 2003 Net income: As reported , $871 $829 $721 Pro forma $871 $829 $727 Note 3-Inventories 2005 2004 Raw materials and supplies $ 173 $ 159 Finished goods 285 268 $ 458 $ 427 Note 4-Prepaid Expenses and Other Current Assets 2005 2004 Prepaid expenses $ 226 $ 183 Other assets ~ 48 40 $ 274 $ 223 Note 5-Accounts Receivable 2005 2004 Trade accounts receivable $ 1,018 $ 1,056 Allowance for doubtful accounts (51) (61) Accounts receivable from PepsiCo 143 150 Other receivables 76 59 $ 1,186 $ 1,204 Note 6-Property, Plant and Equipment, net 2005 2004 Land $ 277 $ 257 Buildings and improvements 1,299 1,263 Manufacturing and distribution equipment 3,425 3,289 Marketing equipment 2,334 2,237 Other 171 177 7,506 7,223 Accumulated depreciation ,; (3,863) (3,642) $ 3,643 $ 3,581 47 We calculate depreciation on a straight-line basis over the estimated lives of the assets as follows: ,.. Buildings and improvements ; ,'- =':20-33`years Manufacturing and distribution equipment 2-15 years Marketing equipment ~ 3-7 years Note 7 -Other Intangible Assets, net and Goodwill 2005 2004 Intangibles subject to amortization: _ - Gross carrying amount: Customer relationships and lists $ 53 $ 46 Franchise/distribution rights 46 44 Other identified intangibles- 39 30 138 120 Accumulated amortization: Customer relationships and lists Franchise/distribution rights Other identified intangibles Intangibles subject to amortization, net Intangibles not subject to amortization: Carrying amount: Franchise rights Distribution rights Trademarks Other identified intangibles Intangibles not subject to amortization Total other intangible assets, net Goodwill (9) (6) (22) (15) (18) (16) (49) (37) 89 83 3,093 2,958 302 288 218 208 112 102 3,725 3,556 $ 3,814 $ 3,639 $ 1,516 $ 1,416 48 In 2005, total other intangible assets, net and goodwill increased by approximately $275 million due to the following: Other Intangible Goodwill Assets, net Total Balance at December 25, 2004. - $ 1,416 $" .3,639 $ 5,055 Purchase price allocations relating to recent acquisitions 72 127 199 Impact of foreign currency.translation, 28 - 49 77 Increase in pension asset - 14 14 Amortization of intangible assets - (15) (15) Balance at December 31, 2005 $ 1,516 $ 3,814 $ 5,330 In 2004, total other intangible assets, net and goodwill increased by appro ximately $107 million due to the following: Other Intangible Goodwill Assets, net Total Balance at December 27, 2003 $ 1,386 $ 3,562 $ 4,948 Purchase price allocations relating to recent acquisitions 9 65 74 Impact of foreign currency translation 21 31 52 Intangible asset impairment charge - (9) (9) Increase in pension asset - 3 3 Amortization of intangible assets - (13) (13) Balance at December 25, 2004 $ 1,416 $ 3,639 $ 5,055 During the fourth quarter of 2004 we recorded a $9 million non-cash impairment charge ($6 million net of tax) in selling, delivery and administrative expenses relating to our re-evaluation of the fair value of our franchise licensing agreement for the SQUIRT trademark in Mexico, as a result of a change in its estimated accounting life. The franchise licensing agreements for the SQul1tT trademark were considered to have an indefinite life and granted The Pepsi Bottling Group Mexico S.R.L. ("PBG Mexico") the exclusive right to produce, sell and distribute beverages under the SQuntT trademark in certain territories of Mexico. In December 2004, Cadbury Bebidas, S.A. de C.V. ("Cadbury Mexico"), the owner of the SQUIRT trademark, sent PBG Mexico notices that purportedly terminated the SQuIItT licenses for these territories effective January 15, 2005. PBG Mexico believes that these licenses continue to be in effect and that Cadbury Mexico has no legally supportable basis to terminate the licenses. However, as a result of these unanticipated actions, PBG Mexico was no longer certain that it will have the right to distribute SQUIRT in Mexico after certain of its contractual rights expire in 2015. Accordingly, we have concluded that the franchise rights relating to the SQUIRT trademark should no longer be considered to have an indefinite life, but should be treated as having a 10- year life for accounting purposes. Due to the reduction in the useful life of these franchise rights, we wrote the carrying value of the SQUIRT franchise rights down to its current estimated fair value in 2004. The remaining carrying value will be amortized over the estimated useful life of 10 years. We measured the fair value of SQuIRT's franchise rights using amulti-period excess earnings method, which was based upon estimated discounted future cash flows for 10 years. We deducted a contributory charge from our net after-tax cash flows for the economic return attributable to the working capital and property, plant and 49 equipment, for SQutttT's franchise rights. The net discounted cash flows in excess of the fair returns on these assets represent the fair value of the SQutttT franchise rights. For intangible assets subject to amortization, we calculate amortization expense over the period we expect to receive economic benefit. Total amortization expense was $15 million, $13 million and $12 million in 2005, 2004 and 2003, respectively. The weighted-average amortization period for each category of intangible assets and its estimated aggregate amortization expense expected to be recognized over the next five years are as follows: Weigbted- Estimated A ggregate Amortization Expense to be Incurred Average Amortization Fiscal Year Ending Period 2006 2007 2008 2009 2010 Customer relationships and lists 18 yeazs $ 3 $ 3 $ 3 $ 3 $ 3 Franchise/distribution rights 7 years $ 5 $ 3 $ 2 $ 2 $ 2 Other identified.intangibles 8 years $ 5 $ 4 $ 3 $ 2 $ 1 Note S-Accounts Payable and Other Current Liabilities 2005 2004 Accounts payable $ 501 $ 493 Trade incentives 185 201 Accrued compensation and benefits 211 222 Other accrued taxes 123 117 Accrued interest 42 38 Accounts payable to PepsiCo 176 144 Other current liabilities 218 208 $ 1,456 $ 1,423 50 Note 9--Short-term Borrowings and Long-term Debt Short-term'borrowings'~= ' '' Current maturities of long-term debt SFAS No. 133 adjustment t~> Unamortized discount, net .Current maturifies'of long-term debt, net Other short-term borrowings Long-term debt 2.45% (3.28% effective rate) ~Z> senior notes due 2006 5.63% (5.68% effective rate) ~2> senior notes due 2009 4.63% (4.57% effective rate) senior notes due 2012 5.00% (5.15% effective rate) senior notes due 2013 4.13% (4.35% effective rate) senior notes due 2015 Other (average rate 4.29%) SFAS No. 133 adjustment ~>> Unamortized discount, net Current maturities of long-term debt, net 2005 2004 $ 593 $ 52 (4) - . (1) 588 52 71 77 $ 659 $ 129 $ 500 $ 500 1,300 1,300 1,000 1,000 400 400 250 250 107 107 3,557 3,557 (19) (4) (7) (6)- (588) (52) $ 2,943 $ 3,495 ~~~ In accordance with the requirements of SFAS No. 133, the portion of our fixed-rate debt obligations that is hedged is reflected in our Consolidated Balance Sheets as an amount equal to the sum of the debt's carrying value plus a SFAS No. 133 fair value adjustment representing changes recorded in the fair value of the hedged debt obligations attributable to movements in market interest rates. ~2> Effective interest rates include the impact of the gain/loss realized on swap instruments and represent the rates that were achieved in 2005. Maturities of long-term debt as of December 31, 2005 are as follows: 2006: $593 million, 2007: $1l million, 2008: $0 million, 2009: $1,300 million, 2010: $0 million and thereafter, $1,653 million. The maturities of long-term debt do not include the non-cash impact of the SFAS No. 133 adjustment and the interest effect of the unamortized discount. Our $1.3 billion of 5.63 percent senior notes due in 2009 and our $1.0 billion of 4.63 percent senior notes due in 2012 are guaranteed by PepsiCo. We had available bank credit lines of approximately $435 million at December 31, 2005. These lines were used to support the general operating needs of our businesses. As of year-end 2005, we had $156 million outstanding under these lines of credit at aweighted-average interest rate of 4.33 percent. As of year-end 2004, we had available short-term bank credit lines of approximately $381 million and $77 million was outstanding under these lines of credit at aweighted-average interest rate of 3.72 percent. Certain of our senior notes have redemption features and non-financial covenants that will, among other things, limit our ability to create or assume liens, enter into sale and lease-back transactions, engage in mergers or consolidations and transfer or lease all or substantially all of our assets. Additionally, our new secured debt should not be greater than 10% of our net tangible assets (net tangible assets are defined as total assets less current liabilities and net intangible assets). We are incompliance with all debt covenants. Our peak borrowing timeframe varies with our working capital requirements and the seasonality of our business. Additionally, throughout the year, we may have further short-term borrowing requirements driven by other 51 operational needs of our business. Outside the U.S., borrowings from our international credit facilities peaked at $234 million, reflecting payments for working capital requirements. Amounts paid to non-related third parties for interest, net of cash received from our interest rate swaps, was $172 million, $163 million and $173 million in 2005, 2004 and 2003, respectively. At December 31, 2005, we have outstanding letters of credit, bank guarantees and surety bonds from financial institutions valued at $40 million. Note 10-Leases We have non-cancelable commitments under both capital and long-term operating leases, which consist principally of buildings, office equipment and machinery. Certain of our operating leases for our buildings contain escalation clauses, holiday rent allowances and other rent incentives. We recognize rent expense on our operating leases, including these allowances and incentives, on a straight-line basis over the lease term. Capital and operating lease commitments expire at various dates through 2072. Most leases require payment of related executory costs, which include property taxes, maintenance and insurance. At December 31, 2005, the present value of minimum payments under capital leases was $5 million, after deducting $1 million for imputed interest. We plan to receive $5 million of sublease income for the periods 2006 through 2013. Our future minimum commitments under non-cancelable leases as of December 31, 2005 are set forth below: Future Minimum Rental Payments 2006 2007 2008 2009 2010 Thereafter Total Components of rental expense under operating leases: Rental Expense Minimum rentals Sublease rental income Total 2005 $ 90 (2) $ 88 Leases Capital Operating $ 1 $ 50 1 42 - 31 - 24 - 19 3 64 $ 5 2004 $ 77 (2) $ 75 $ 230 2003 $ 71 (2) $ 69 Note 11-Financial Instruments and Risk Management Cash Flow Hedges - We are subject to market risk with respect to the cost of commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. We use future and option contracts to hedge the risk of adverse movements in commodity prices related primarily to anticipated purchases of aluminum and fuel used in our operations. These contracts generally range from one to 12 months in duration and qualify for cash flow hedge accounting treatment. We are subject to foreign currency transactional risks in certain of our international territories for transactions that are denominated in currencies that are different from their functional currency. Beginning in 2004, we entered into forward exchange contracts to hedge portions of our forecasted U.S. dollar purchases in our Canadian business. These contracts generally range from one to 12 months in duration and qualify for cash flow hedge accounting treatment. 52 We have also entered into several treasury rate lock agreements to hedge against adverse interest rate changes on certain debt financing arrangements. For a cash flow hedge, the effective portion of the change in the fair value of a derivative instrument, which is highly effective, is deferred in accumulated other comprehensive loss until the underlying hedged item is recognized in earnings. The ineffective portion of a fair value change on a qualifying cash flow hedge is recognized in earnings immediately and is recorded consistent with the expense classification of the underlying hedged item. The following summarizes activity in accumulated other comprehensive loss ("AOCL") related to derivatives designated as cash flow hedges held by the Company during the applicable periods: Year ended December 31 2005 Accumulated net gains as of December 25, 2004 Net changes in the fair value of cash flow hedges Net gains reclassified from AOCL into earnings Accumulated net gains as of December 31, 2005 Year ended December 25, 2004 Accumulated net gains as of December 27, 2003 Net changes in the fair value of cash flow hedges Net gains reclassified from AOCL into earnings . Accumulated net gains as of December 25, 2004 Before Taxes $ 17 5 (17) $ 5 Before Taxes $ 23 29 (35) $ 17 Assuming no change in the commodity prices and foreign currency rates as measured on December 31, 2005, $2 million of deferred loss will be recognized in earnings over the next 12 months. The ineffective portion of the change in fair value of these contracts was not material to our results of operations in 2005, 2004 or 2003. Fair Value Hedges - We finance a portion of our operations through fixed-rate debt instruments. We effectively converted $800 million of our senior notes to floating rate debt through the use of interest rate swaps with the objective of reducing our overall borrowing costs. These interest rate swaps meet the criteria for fair value hedge accounting and are 100 percent effective in eliminating the market rate risk inherent in our long-term debt. Accordingly, any gain or loss associated with these swaps is fully offset by the opposite market impact on the related debt. The change in fair value of the interest rate swaps was a decrease of $15 million and $7 million in 2005 and 2004, respectively. In 2005, the current portion of the fair value change of our swaps and debt has been recorded in accounts payable and other current liabilities and current maturities of long-term debt in our Consolidated Balance Sheets. The long-term portion of the change in 2005 has been recorded in other liabilities and long-term debt. In 2004, the fair value change of our swaps and debt has been recorded in other liabilities and long-term debt in our Consolidated Balance Sheets. Unfunded Deferred Compensation Liability -Our unfunded deferred compensation liability is subject to changes in PBG's stock price as well as price changes in other equity and fixed-income investments. Participating employees in our deferred compensation program can elect to defer all or a portion of their compensation to be paid out on a future date or dates. As part of the deferral process, employees select from phantom investment options that determine the earnings on the deferred compensation liability and the amount that they will ultimately receive. 53 Employee investment elections include PBG stock and a variety of other equity and fixed-income investment options. Since the plan is unfunded, employees' deferred compensation amounts are not directly invested in these investment vehicles. Instead, we track the performance of each employee's investment selections and adjust his or her deferred compensation account accordingly. The adjustments to the employees' accounts increases or decreases the defen•ed compensation liability reflected on our Consolidated Balance Sheets with an offsetting increase or decrease to our selling, delivery and administrative expenses. We use prepaid forward contracts to hedge the portion of our deferred compensation liability that is based on PBG's stock price. At December 31, 2005, we had a prepaid forward contract for 710,000 of PBG shares at a price of $29.34, which was accounted for as a natural hedge. This contract requires cash settlement and has a fair value at December 31, 2005, of $20 million recorded in prepaid expenses and other current assets in our Consolidated Balance Sheets. The fair value of this contract changes based on the change in PBG's stock price compared with the contract exercise price. We recognized $1 million in income in 2005 and $2 million in income in 2004, resulting from the change in fair value of these prepaid forward contracts. The earnings impact from these instruments is classified as selling, delivery and administrative expenses. Other Financial Assets and Liabilities -Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and other accrued liabilities and short-term debt. The carrying value of these financial assets and liabilities approximates fair value due to their short maturities and since interest rates approximate current market rates for short-term debt. Long-term debt at December 31, 2005, had a carrying value and fair value of $3.6 billion, and at December 25, 2004, had a carrying value and fair value of $3.5 billion and $3.6 billion, respectively. The fair value is based on interest rates that are currently available to us for issuance of debt with similar terms and remaining maturities. Note 12--Pension and Postretirement Medical Benefit Plans Pension Benefits Our U.S. employees participate in P$G's noncontributory defined benefit pension plans, which cover substantially all full-time salaried employees, as well as most hourly employees. Benefits generally are based on years of service and compensation, or stated amounts for each year of service. All of PBG's qualified plans are funded and contributions are made in amounts not less than minimum statutory funding requirements and not more than the maximum amount that can be deducted for U.S. income tax purposes. Our net pension expense for the defined benefit plans for our operations outside the U.S. was not significant and is not included in the tables presented below. Nearly all of our U.S. employees are also eligible to participate in PBG's 401(k) savings plans, which are voluntary defined contribution plans. We make matching contributions to the 401(k) savings plans on behalf of participants eligible to receive such contributions. If a participant has one or more but less than 10 years of eligible service, our match will equal $0.50 for each dollar the participant elects to defer up to 4 percent of the participant's pay. If the participant has ]0 or more years of eligible service, our match will equal $1.00 for each dollar the participant elects to defer up to 4 percent of the participant's pay. ~54 Components of U.S. pension expense: Service cost °: Interest cost Expected'retum on plan,assets - (income) Amortization of prior service amendments Amortization of net loss - Special termination benefits Net pension expense for the defined benefit plans Defined contribution plans expense Total pension expense recognized in the Consolidated Statements of Operations Postretirement Medical Benefits PBG's postretirement medical plans provide medical and life insurance benefits principally to our U.S. retirees and their dependents. Employees are eligible for benefits if they meet age and service requirements and qualify for retirement benefits. The plans are not funded and since 1993 have included retiree cost sharing. In 2004, we merged our long-term disability medical plan with our postretirement medical plan. PBG's long-term disability medical plan was amended to provide coverage for two years for participants becoming disabled after January 1, 2005. Participants receiving benefits before January 1, 2005 remain eligible under the existing benefits program which does not limit benefits to a two-year period. The liabilities and respective costs associated with these participants have been added to our postretirement medical plan. Postretirement Components of U.S. postretirement benefits expense: 2005 2004 2003 Service cost $ 3 $ 4 $ 3 Interest cost 22 18 19 Amortization of net loss 8 6 5 Amortization of prior service amendments (1) (1) (2) Net postretirement benefits expense recognized in the Consolidated Statements of Operations $ 32 $ 27 $ 25 2005 2004 2003 75 69 63 (90) (83) .: (67) 7 7 6 30 .25 13 9 - - $ 77 '$ .61 $ 52 $ 20 $ 19 $ 19 $ 97 $ 80 $ 71 Pension Changes in the Projected Benefit Obligations Obligation at beginning of year Service cost Interest cost Plan amendments Actuarial (gain)/loss Benefit payments Special termination benefits LTD medical merger Gain due to Medicaze subsidy Transfers Obligation at end of yeaz Pension 2005 2004 $ ,1;252 $ 1,129 46 43 75 69 21 11 91 48 (54) (46) 9 - (1) _~) $ 1,439 $ 1,252 Postretirement 2005 2004 $ 379 $ 312 3 4 22 18 8 - (1) 19 (27) (22) - 62 - (14) $ 384. $ 379 55 Changes in the Fair Value of Assets Fair value at beginning tif,year Actual return on plan assets Transfers Employer contributions Benefit payments Fair value at end of year Additional Plan Information Projected benefit obligation Accumulated benefit obligation Fair value of plan assets ~~> Pension 2005 2004 $ 1;025 < $ 809 135 101 (1) (2) 44 163 (54) (46) $ 1,149 $ 1,025 Pension 2005 2004 $ 1,439 $ 1,252 $ 1,330 $ 1,150 $ 1,.190 $ 1,033 ~i> Includes fourth quarter employer contributions. The accumulated and projected obligations for all plans exceed the fair value of assets. Funded Status Recognized on the Consolidated Balance Sheets Funded status at end of year Unrecognized prior service cost Unrecognized loss Fourth quarter employer contribution Net amounts recognized Net Amounts Recognized in the Consolidated Balance Sheets Other liabilities Intangible assets Accumulated other comprehensive loss Net amounts recognized Pension 2005 2004 $ (290) $ (227) 64 50 474 458 41 8 $ 289 $ 289 Pension 2005 2004 ' $ (158) $ (136) 64 50 383 375 $ 289 $ 289 Postretirement 2005 2004 $. - $ - 27 22 (27) (22) $ - $ - Postretirement 2005 2004 $ 384 $ 379 $ 384 $ 379 $ - $ - Postretirement 2005 2004 $ (384) $ (379) 2 (6) 137 145 6 8 $ (239) $ (232) Postretirement 2005 2004 $ (239) $ (232) $ (239) $ (232) Increase in minimum liability included in accumulated other comprehensive loss in Owners' Equity $ 8 $ 29 $ - $ - At December 31, 2005 and December 25, 2004, the accumulated benefit obligation of PBG's U.S. pension plans exceeded the fair market value of the plan assets resulting in the recognition of the unfunded liability as a minimum balance sheet liability. As a result of this additional liability, our intangible asset increased by $14 million to $64 million in 2005, which equals the amount of unrecognized prior service cost in our plans. The remainder of the liability that exceeded the unrecognized prior service cost was recognized as an increase to accumulated other comprehensive loss of $8 million and $29 million in 2005 and 2004, respectively, in our Consolidated Statements of Changes in Owners' Equity. 56 Assumptions The weighted-average assumptions used to measure net expense for years ended: Pension Postretirement 2005 2004 2003 2005 2004 2003 Discount-rate -=:~ 6.15% : „ 6:25% ,.. , . - . 6.75% 6.15% 6.25% 6:75%. Expected return on plan assets <<> 8.50% 8.50% 8.50% N/A N/A N/A Rate of compensation increase 3.60% 4.20% 434% 3.60% 4.20% 4.34% ~l> Expected return on plan assets is presented after administration expenses. The weighted-average assumptions used to measure the benefit liability as of the end of the year were as follows: Pension Postretirement 2005 2004 2005 2004 Discount rate 5.80% 6.15% 5.55% 6.15% Rate of compensation increase 3.53% 3.60% 3.53% 3.60% We have evaluated these assumptions with our actuarial advisors and we believe that they are appropriate, although an increase or decrease in the assumptions or economic events outside our control could have a material impact on reported net income. Funding and Plan Assets Asset Cateeorv Allocation Percentage Target Actual Actual 2006 2005 2004 Equity securities 75% 76% 75% Debt securities 25% 24% 25% The table above shows the target allocation and actual allocation. PBG's target allocations of the plan assets reflect the long-term nature of our pension liabilities. None of the assets are invested directly in debt instruments issued by Bottling LLC, PBG, PepsiCo or any bottling affiliates of PepsiCo, although it is possible that insignificant indirect investments exist through our broad market indices. The plan's equity investments are diversified across all areas of the equity market (i.e., large, mid and small capitalization stocks as well as international equities). The plan's fixed income investments are also diversified and consist of both corporate and U.S. government bonds. We currently do not invest directly into any derivative investments. The plan's assets are held in a pension trust account at our trustee's bank. PBG's pension investment policy and strategy are mandated by PBG's Pension Investment Committee ("PIC") and are overseen by the PBG Board of Directors' Compensation and Management Development Committee. The plan's assets are invested using a combination of enhanced and passive indexing strategies. The performance of the plan's assets is benchmarked against market indices and reviewed by the PIC. Changes in investment strategies, asset allocations and specific investments are approved by the PIC prior to execution. Health Care Cost Trend Rates We have assumed an average increase of 9.0 percent in 2006 in the cost of postretirement medical benefits for employees who retired before cost sharing was introduced. This average increase is then projected to decline gradually to 5.0 percent in 2013 and thereafter. Assumed health care cost trend rates have an impact on the amounts reported for postretirement medical plans. Aone-percentage point change in assumed health care costs would have the following impact: 57 I% I% Increase Decrease Effect on total fiscal year 2005 service and interest cost components $ 1 $ (1) Effect on the fiscal year 2005 accumulated postretirement benefit obligation $ 7 $ (7) On May 19, 2004, the FASB issued Staff Position No. FAS 106-2 to provide guidance relating to the prescription drug subsidy provided by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("Act"). The prescription drug benefits currently provided to all our Medicare-eligible retirees would be considered actuarially equivalent to the benefit provided under the Act based on the guidance issued by the Centers for Medicare & Medicaid Services. For the years ended 2005 and 2004, the net periodic postretirement medical benefits cost decreased by $1.7 million and $1.1 million, respectively as a result of the Act. In addition, the Obligation (accumulated projected benefit obligation) as of year end 2005 and 2004 decreased by $14.8 million and $14.3 million, respectively as a result of the Act. There were no changes in estimates of participation or per-capita claims costs as a result of the Act. Pension and Postretirement Cash Flow Our contributions are made in accordance with applicable tax regulations that provide us and our owners with current tax deductions for our contributions and for taxation to the employee when the benefits are received. We do not fund PBG's pension plan and postretirement medical plans when our contributions would not be tax deductible or when benefits would be taxable to the employee before receipt. Of the total pension liabilities at December 31, 2005, $52 million relates to plans not funded due to these unfavorable tax consequences. Employer Contributions to U.S. Plans Pension Postretirement 2004 $ 81 $ 22 2005 $ 77 $ 27 2006 (expected) $ 56 $ 28 Our 2006 expected contributions are intended to meet or exceed the IRS minimum requirements and provide us with current tax deductions. Expected Benef t Payments The expected benefit payments made from PBG's pension and postretirement medical plans (with and without the subsidy rece ived from the Act) to our participants over the next ten years are as follows: Pension Postretirement Including Excluding Medicare Medicare Expected Benefit Payments Subsidy Subsidy 2006 $ 55 $ 27 $ 28 2007 $ 60 $ 26 $ 27 2008 $ 65 $ 26 $ 28 2009 $ 69 $ 27 $ 28 2010 $ 75 $ 27 $ 28 2011 to 2015 $ 483 $ 136 $ 142 58 Note 13-Stock-Based Compensation Plans Under our stock-based long-term incentive compensation plans ("incentive plan") we grant non-qualified PBG stock options to certain employees, including middle and senior management. We also grant PBG restricted stock and restricted stock units to certain senior executives. Beginning in 2006, under our incentive plans an equal mix of PBG stock options and restricted stock units will be granted to middle and senior management employees. Restricted Stock and Restricted Stock Units PBG restricted stock and restricted stock units granted to employees have vesting periods that range from two to five years. In addition, PBG restricted stock unit awards to certain senior executives contain vesting provisions that are contingent upon the achievement of pre- established performance targets. All restricted stock and restricted stock unit awards are settled in shares of PBG common stock. Upon issuance of PBG restricted stock or restricted stock units, unearned compensation is recognized within owners' equity for the cost of the stock or units. The unearned compensation is recognized as compensation expense ratably over the vesting period of the award. The following table summarizes restricted stock and restricted stock unit activity for the years ended 2005, 2004, and 2003: Restricted Stock Restricted Stock Units Granted Weighted Outstanding Granted Weighted Outstanding during the -Average at year during the -Average at year year Grant Price end year Grant Price end 2005 - - 352,000 533,000. $28.12 533,000 2004 45,000 $24.25 394,000 - - - 2003 349,000. $23.48 349,000 - - - Stock Options PBG options granted in 2005, 2004 and 2003 had exercise prices ranging from $27.75 per share to $29.75 per share, $24.25 per share to $30.25 per share and $18.25 per share to $25.50 per share, respectively, expire in 10 years and generally become exercisable 25 percent after one year, an additional 25 percent after two years, and the remainder after three years. We measure the fair value of PBG options on the date of grant using the Black-Scholes-Merton option-pricing model. The following table summarizes option activity during 2005: Weighted -Average Exercise Options in millions Options Price Outstanding at beginning of year 38.4 $ 20.35 Granted 7.9 $ 28.24 Exercised (6.8) $ 15.93 Forfeited (1.4) $ 26.61 Outstanding at enti of year,' 38.1 $ 22.54 Exercisable at end of year 22.7 $ 19.08 Weighted-average fair value of options granted during the year $ 8.68 59 The following table summarizes option activity during 2004: Weighted -Average Exercise Options in millions lions Price Outstanding at_beginning of year ., 41:3 $ 17.19 Granted 7.1 $ 29.54 Exercised ~ ' : -'.: (93) $ 12.86 Forfeited (0.7) $ 25.38 Outstanding at end of year 38.4 $ 2035 Exercisable at end of year 23.4 $ 16.43 Weighted-average fair value of options granted during the yeaz $ 10.81 The following table summarizes option activity during 2003: Weighted -Average Exercise Options in millions [ions Price Outstanding at beginning of year 37.4 $ 15.53 Granted 8.1 $ 23.27 Exercised _ (3:1) $ 11.27 Forfeited (1.1) $ 22.44 Outstanding at end of year 41.3 $ 17.19 Exercisable at end of year 26.9 $ 13.93 Weighted-average fair value of options granted during the year $ 9.29 Stock options outstanding and exercisable at December 31, 2005: Options Outstanding Op tions Exercisable Options in millions Weighted- Average Weighted- Weighted- Remaining Average Average Contractual Exercise Exercise Range of Exercise Price Options Life In Years Price Options Price $938-$11.49 3.1 4.25 $ . 939 3.1 $ 9.39 $11.50-$15.88 4.9 3.36 $ 11.75 4.9 $ 11.75 $15.89-$22.50 `5.9 5:37 $. 20.52 5.7 $ 20.57 $22.51-$28.24 10.6 6.90 $ 2438 7.4 $ 24.57 $28.25-$30.25 13.6 ,; 8.78 $ 28.85 1.6 $ 29.51 38.1 6.66 $ 22.54 22.7 $ 19.08 60 h >~ Note 14-Income Taxes We are a limited liability company, classified as a partnership for U.S. tax purposes and, as such, generally pay no U.S. federal or state income taxes. Our federal and state distributive shares of income, deductions and credits are allocated to our owners based on their percentage of ownership. However, certain domestic and foreign affiliates pay income taxes in their respective jurisdictions. The details of our income tax provision are set forth .below: Current: Federal Foreign State 2005 $ 1 26 3 30 2004 2003 $ 17 $ 7 35 12 2 1 54 20 Deferred: Federal (12) (3) 25 I Foreign (19) (22) 26 State 3 - 2 (28) (25) 53 2 29 73 International legal entity/debt restructuring 22 - - Rate change (benefit)lexpense - (26) 11 Cumulative effect of change in accounting principle - - (1) 'i $ 24 $ 3 $ 83 In 2005, our tax provision includes increased taxes on U.S. earnings and additional contingencies related to certain historic tax positions, as well as the following significant items: ~ • Valuation allowances - In the fourth quarter, we reversed valuation allowances resulting in a $19 million tax benefit. This reversal was due to improved profitability trends in Russia and a change to the Russia tax law that enables us to use a greater amount of our Russian ne[ operating losses ("NOLs"). • International legal entity/debt restructuring - In the fourth quarter, we completed the reorganization of our international legal entity and debt structure to allow for more efficient cash mobilization, to reduce taxable foreign exchange risks and to reduce potential future tax costs. This reorganization resulted in a $22 million tax charge. In 2004, we had the following significant tax items, which decreased our tax expense by approximately $44 million: • Mexico tax rate change - In December 2004, legislation was enacted changing the Mexican statutory income tax rate. This rate change decreased our net deferred tax liabilities and resulted in a $26 million tax benefit in the fourth quarter. 61 • Tax reserves -During 2004, we adjusted previously established liabilities for tax exposures due largely to the settlement of certain international tax audits. The adjustment of these liabilities resulted in an $18 million tax benefit for the year. Our 2003 income tax provision includes an increase in income tax expense of $11 million due to enacted tax rate changes in Canada during the 2003 tax year. Our U.S. and foreign income before income taxes is set forth below: 2005 2004 2003 U.S. $ 770 $ 693 $ 684 Foreign 125 139 127 Income before income taxes and cumulative.effect of change in accounting principle $ 895. $ 832 $ -811 Cumulative effect of change in accounting principle - - (7) $ 89S $ 832 $ 804 Our reconciliation of income taxes calculated at the U.S. federal statutory rate to our provision for income taxes is set forth below: 2005 2004 2003 Income taxes computed at the U.S. federal statutory rate 35.0% 35.0% 35.0% Income taxable to owners (27.9) (25.4) (23.4) State income tax, net of federal tax benefit 0.7 0.2 0.3 Impact of foreign results (3.9) (8.6) (10.1) Change in valuation allowances, net (3.9) 2.9 4.S Nondeductible expenses 1.S 1.6 1.S International tax audit settlements, net - (2.2) - Other, net (1.2) (0.1) 1.2 0.3 3.4 9.0 Rate change (benefit)/expense - (3.0) 1.4 International legal entity/debt restructuring reserve 2.4 - - Total effective income tax rate before cumulative effect of change in accounting principle 2.7% 0.4% 10.4% Total effective income ax rate 2.7% 0.4% 10.4% 62 The details of our 2005 and 2004 deferred tax liabilities (assets) are set forth below: 2005 2004 g~ "::, Intan able assets:arid property;;plant and equipment $ .. 447.. $-;-:.::437 _; ". Other 82 98 Gross deferred tax liabilities ~ 529 535 NOL carryforwazds (276) (342) Employee benefit obligations (19) (12) Bad debt (2) - Various liabilities and other {46) (61) Gross deferred tax assets (343) (415) Deferred tax asset valuation allowance 222 305 Net deferred tax assets (121) (110) Net deferred tax liability $ 408 $ 425 Consolidated Balance Sheets Classification Prepaid expenses and other current assets $ (17) $ (11) Other assets (14) - Accounts payable and other current liabilities 17 - Deferred income taxes 422 436 $ 408 $ 425 We have NOL carryforwards totaling $950 million at December 31, 2005, which are available to reduce future taxes in the U.S., Spain, Greece, Russia, Turkey and Mexico. Of these NOL carryforwazds, $3 million expire in 2006 and $947 million expire at various times between 2007 and 2025. At December 31, 2005, we have tax credit carryforwards in the U.S. of $4 million with an indefinite carryforwazd period and in Mexico of $14 million, which expire at various times between 2009 and 2015. We establish valuation allowances for our deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. Our valuation allowances, which reduce deferred tax assets to an amount that will more likely than not be realized, decreased by $83 million in 2005 and increased by $34 million in 2004, respectively. Approximately $17 million of our valuation allowance relating to our deferred tax assets at December 31, 2005 would be applied to reduce goodwill if reversed in future periods. Deferred taxes are not recognized for temporary differences related to investments in foreign subsidiaries that are essentially permanent in duration. Determination of the amount of unrecognized deferred taxes related to these investments is not practicable. These undistributed earnings and profits of investments in foreign subsidiaries that are essentially permanent in duration are approximately $564 million at December 31, 2005. Income taxes receivable from taxing authorities were $29 million and $39 million at December 31, 2005 and December 25, 2004, respectively. Such amounts are recorded within prepaid expenses and other current assets and other long-term assets in our Consolidated Balance Sheets.. Income taxes payable to taxing authorities were $13 million at December 31, 2005 and at December 25, 2004. Such amounts are recorded within accounts payable and other current liabilities in our Consolidated Balance Sheets. Income taxes receivable from related pazties were $4 million and $5 million at December 31, 2005 and December 25, 2004, respectively. Such amounts are recorded within accounts receivable in our Consolidated Balance Sheets. Amounts paid to taxing authorities and related parties for income taxes were $43 million, $63 million and $37 million in 2005, 2004 and 2003, respectively. 63 Note 15-Geographic Data We operate in one industry, carbonated soft drinks and other ready-to-drink beverages. We conduct business in the U.S., Mexico, Canada, Spain, Russia, Greece and Turkey. Net Revenues 2005 2004 2003 U.S. $ 8,438 $ 7,818 $ 7,406 Mexico 1,177 1,071 1,105 Other countries ' 2,270 -2,017 1,754 $ 11,885 $ 10,906 $ 10,265 Long;-Lived Assefs 2005 2004 U.S. $ 8,498 $ 7,814 Mexico 1,478 1,435 Other countries 1;505 1,444 $ l l ,481 $ 10,693 Note 16-Related Party Transactions PepsiCo is considered a related party due to the nature of our franchise relationship and its ownership interest in our company. PBG has entered into a number of agreements with PepsiCo since its initial public offering. Although we are not a direct pazty to these contracts, as the principal operating subsidiary of PBG, we derive direct benefit from them. Accordingly, set forth below are the most significant agreements that govern our relationship with PepsiCo: (1) The master bottling agreement for cola beverages bearing the "PEPSI-COLA" and "PEPSI" trademarks in the United States; master bottling agreements and distribution agreements for non-cola products in the United States; and a master fountain syrup agreement in the United States; (2) Agreements similar to the master bottling agreement and the non-cola agreements for each country in which we operate, including Canada, Spain, Russia, Greece, Turkey and Mexico, as well as a fountain syrup agreement for Canada, similar to the master syrup agreement; (3) A shared services agreement where we obtain various services from PepsiCo, which includes services for information technology maintenance and the procurement of raw materials. We also provide services to PepsiCo, including facility and credit and collection support. The amounts paid or received under this contract are equal to the actual costs incurred by the company providing the service; and (4) Transition agreements that provide certain indemnities to the parties, and provide for the allocation of tax and other assets, liabilities and obligations arising from periods prior to the initial public offering. Under our tax separation agreement, PepsiCo maintains full control and absolute discretion for any combined or consolidated tax filings for tax periods ended on or before the date of our initial public offering. Additionally, we review our annual marketing, advertising, management and financial plans each year with PepsiCo for its approval. If we fail to submit these plans, or if we fail to carry them out in all material respects, PepsiCo can terminate our beverage agreements. If our beverage agreements with PepsiCo are terminated for this or for any other reason, it would have a material adverse effect on our business and financial results. 64 The Consolidated Statements of Operations include the following income (expense) amounts as a result of transactions with PepsiCo and its affiliates: 2005 2004 2003 Net revenues:: Bottler incentives (a) $ 51 $ 22 $ 2l Cost of sales: Purchases of concentrate and finished products, and AQu.aF'tNa royalty fees (b) -Bottler incentives (a) , Manufacturing and distribution service reimbursements (c) Selling, delivery and administrative expenses: Bottler incentives (a) Fountain service fee (d) Frito-Lay purchases (e) Shared services (f): .Shared services expense Shared services revenue Net shared services HFCS (h) Income tax benefit (g) $ (2,993) $ (2,741) $ (2,527) 559 522 527 - - 6 $ (2,434) $ (2,219) $ (1,994) $ 78 $ 82 $ 98 183 180 200 (144) (75) (51) (69) (68) (72) 8 ]0 10 (61) (58) (62) 23 - - $ 79 $ 129 $ 185 $ 3 $ 10 $ 7 (a) Bottler Incentives and Other Arrangements - In order to promote PepsiCo beverages, PepsiCo, at its discretion, provides us with various forms of bottler incentives. These incentives cover a variety of initiatives, including direct marketplace support and advertising support. We record most of these incentives as an adjustment to cost of sales unless the incentive is for reimbursement of a specific, incremental and identifiable cost. Under these conditions, the incentive would be recorded as an offset against the related costs, either in revenue or selling, delivery and administrative expenses. Changes in our bottler incentives and funding levels could materially affect our business and financial results. (b) Purchase of Concentrate and Finished Product - As part of our franchise relationship, we purchase concentrate from PepsiCo, pay royalties and produce or distribute other products through various arrangements with PepsiCo or PepsiCo joint ventures. The prices we pay for concentrate, finished goods and royalties are determined by PepsiCo at its sole discretion. Concentrate prices are typically determined annually. In February 2005, PepsiCo increased the price of U.S. concentrate by two percent. PepsiCo has recently announced a further increase of approximately two percent, effective February 2006. Significant changes in the amount we pay PepsiCo for concentrate, finished goods and royalties could materially affect our business and financial results. These amounts are reflected in cost of sales in our Consolidated Statements of Operations. (c) Manufacturing and Distribution Service Reimbursements - In 2003, we provided manufacturing services to PepsiCo and PepsiCo affiliates in connection with the production of certain finished beverage products. (d) Fountain Service Fee - We manufacture and distribute fountain products and provide fountain equipment service to PepsiCo customers in some territories in accordance with-the Pepsi beverage agreements. Amounts received from PepsiCo for these transactions are offset by the cost to provide these services and are reflected in our Consolidated Statements of Operations in selling, delivery and administrative expenses. 65 (e) Frito-Lay Purchases - We purchase snack food products from Frito-Lay, Inc., a subsidiary of PepsiCo, for sale and distribution in Russia. Amounts paid to PepsiCo for these transactions are reflected in selling, delivery and administrative expenses in our Consolidated Statements of Operations. (f) Shared Services - We provide to and receive various services from PepsiCo and PepsiCo affiliates pursuant to a shared services agreement and other arrangements. In the absence of these agreements, we would have to obtain such services on our own. We might not be able to obtain these services on terms, including cost, which are as favorable as those we receive from PepsiCo. Total expenses incurred and income generated is reflected in selling, delivery and administrative expenses in our Consolidated Statements of Operations. (g) Income Tax Benefit -Under our tax separation agreement with PepsiCo, PepsiCo maintains full control and absolute discretion for any combined or consolidated tax filings for tax periods ended on or before our initial public offering that occurred in March 1999. PepsiCo has contractually agreed to act in good faith with respect to alt tax examination matters affecting us. In accordance with the tax separation agreement, we will bear our allocable share of any risk or benefit resulting from the settlement of tax matters affecting us for these periods. (h) High Fructose Corn Syrup ("HFCS") Settlement - On June 28, 2005, Bottling Group LLC and PepsiCo entered into a settlement agreement related to the allocation of certain proceeds from the settlement of the HFCS class action lawsuit. The lawsuit related to purchases of high fructose corn syrup by several companies, including bottling entities owned and operated by PepsiCo, during the period from July 1, 1991 to June 30, 1995 (the "Class Period"). Certain of the bottling entities owned by PepsiCo were transferred to PBG when PepsiCo formed PBG in 1999 (the "PepsiCo Bottling Entities"). Under the settlement agreement with PepsiCo, the Company ultimately received 45.8 percent (or approximately $23 million) of the total recovery related to HFCS purchases by PepsiCo Bottling Entities during the Class Period. We are not required to gay any minimum fees to PepsiCo, nor are we obligated to PepsiCo under any minimum purchase requirements. We paid PepsiCo $1 million and $3 million during 2004 and 2003, respectively, for distribution rights relating to the SoBe brand in certain PBG-owned territories in the U.S. and Canada. As of December 31, 2005 and December 25, 2004, the receivables from PepsiCo and its affiliates were $143 million and $150 million, respectively. These balances are shown as part of accounts receivable in our Consolidated Financial Statements. The payables to PepsiCo and its affiliates were $176 million and $144 million, respectively. These balances are shown as part of accounts payable and other current liabilities in our Consolidated Financial Statements. PBG is considered a related party, as we are the principal operating subsidiary of PBG and we make up substantially all of the operations and assets of PBG. At December 31, 2005, PBG owned approximately 93.3% of our equity. Beginning in 2002, PBG provides insurance and risk management services to us pursuant to a contractual agreement. Total premiums paid to PBG during 2005 and 2004 were $106 million and $110 million, respectively. We have loaned PBG $436 million and $442 million during 2005 and 2004, respectively, net of repayments. During 2005, these loans were made through a series of 1-year notes, with interest rates ranging from 3.1% to 5.4%. Total intercompany loans owed to us from PBG at December 31, 2005 and December 25, 2004, were $2,384 million and $1,948 million, respectively. The proceeds were used by PBG to pay for interest, taxes, dividends, share repurchases and acquisitions. Accrued interest receivable from PBG on these notes totaled $70 million and $28 million at December 31, 2005 and December 25, 2004, respectively, and is included in prepaid expenses and other current assets in our Consolidated Balance Sheets. Total interest income recognized in our Consolidated Statements of Operations relating to outstanding loans with PBG was $71 million, $30 million and $26 million, in 2005, 2004 and 2003, respectively. On March 8, 1999, PBG issued $1 billion of 7% senior notes due 2029, which are guaranteed by us. PBG has a $500 million commercial paper program that is supported by a credit facility which is guaranteed by us and expires in April 2009. There are certain financial covenants associated with these credit facilities. PBG has used this credit facility [o support its commercial paper program in 2004 and 2003. At December 31, 2005, PBG 66 had $355 million in outstanding commercial paper with aweighted-average interest rate of 4.30%. At December 25, 2004, PBG had $78 million in outstanding commercial paper with aweighted-average interest rate of 2.32%. We also guarantee that to the extent there is available cash, we will distribute pro rata to PBG and PepsiCo sufficient cash such that the aggregate cash distributed to PBG will enable PBG to pay its taxes and make interest payments on the $1 billion 7% senior notes due 2029. During 2005 and 2004, we made cash distributions to PBG and PepsiCo totaling $181 million and $185 million, respectively. Any amounts in excess of taxes and interest payments were used by PBG to repay loans to us. One of our managing directors is an employee of PepsiCo and the other managing directors and officers are employees of PBG. Note 17-Contingencies We are subject to various claims and contingencies related to lawsuits, taxes, environmental and other matters arising out of the normal course of business. We believe that the ultimate liability arising from such claims or contingencies, if any, in excess of amounts already recognized is not likely to have a material adverse effect on our results of operations, financial condition or liquidity. Note 18-Acquisitions In September 2005, PBG acquired the operations and exclusive right to manufacture, sell and distribute Pepsi-Cola beverages from the Pepsi-Cola Bottling Company of Charlotte, North Carolina ("Charlotte"). In connection with the acquisition, PBG contributed the business and certain net assets of Charlotte to Bottling LLC. The acquisition did not have a material impact on our Consolidated Financial Statements. As a result of the asset contribution of Charlotte from PBG, we have assigned $70 million to goodwill, $118 million to franchise rights and $12 million to non-compete arrangements. The goodwill and franchise rights are not subject to amortization. The non-compete agreements are being amortized over ten years. The allocations of the purchase price for the acquisition are still preliminary and will be determined based on the estimated fair value of assets acquired and liabilities assumed as of the date of the acquisition. The operating results of the acquisition are included in the accompanying consolidated financial statements from its date of purchase. The acquisition was made to enable us to provide better service to our large retail customers. We expect the acquisition to reduce costs through economies of scale. During 2004, we acquired the operations and exclusive right to manufacture, sell and distribute Pepsi-Cola beverages from four franchise bottlers. The following acquisitions occurred for an aggregate purchase price of $95 million in cash and assumption of liabilities of $22 million: • Gaseosas, S.A. de C.V. of Mexicali, Mexico in March • Seltzer and Rydholm, Inc. of Auburn, Maine in October • Phil Gaudreault et Fils Ltee of Quebec, Canada in November • Bebidas Purificada, S.A. de C.V. of Juarez, Mexico in November As a result of these acquisitions, we have assigned $5 million to goodwill, $66 million to franchise rights and $3 million to non-compete arrangements. The goodwill and franchise rights are not subject to amortization. The non-compete agreements are being amortized over five to ten years. During 2004, we also paid $1 million for the purchase of certain distribution rights relating to SoBE. 67 Note 19 -Accumulated Other Comprehensive Loss The year-end balances related to each component of accumulated other comprehensive loss were as follows: 2005 2004 2003 Net currency translation adjustment $ (19) $ (89) $ (180) Cash flow hedge adjustment ~~> 7 17 23 Minimum pension liability adjustment (383) (375) .(346) Accumulated other comprehensive loss $ (395) $ (447) $ (503) ~~> Net of taxes of $2 million in 2005 and $0 million in 2004 and 2003. Note 20-Selected Quarterly Financial Data (unaudited) First Second Third Fourth 2005 Quarter Quarter Quarter Quarter Full Year Net revenues $2,147 $2,862 $3,214 $3,662 $11,885 Gross profit 1,031 1,367 1,519 1,715 5,632 Operating income 119 293 392 203 1,007 Net income 88 252 355 176 871 First Second Third Fourth 2004 Quarter Quarter Quarter Quarter(1), (2) Full Year Net revenues $2,067 $2,675 $2,934 $3,230 $10,906 Gross profit 1,016 1,297 1,412 1,525 5,250 Operating income 136 273 360 196 965 Net income 97 225 324 183 829 (1) Includes Mexico tax law change benefit of $26 million. (2) Includes a $9 million non-cash impairment charge ($6 million net of tax) relating to our re-evaluation of the fair value of o ur franchise licensing agreement for the SQUIRT trademark in Mexico. 68 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Owners of Bottling Group, LLC Somers, New York We have audited the accompanying consolidated balance sheet of Bottling Group, LLC and subsidiaries (the "Company") as of December 31, 2005, and the related consolidated statements of operations, changes in owners' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 3l , 2005, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP New York, New York February 24, 2006 69 Owners of Bottling Group, LLC: Report of Independent Registered Public Accounting Firm We have audited the accompanying consolidated balance sheet of Bottling Group, LLC and subsidiaries as of December 25, 2004, and the related consolidated statements of operations, cash flows, and changes in owners' equity for each of the fiscal years in the two-year period ended December 25, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bottling Group, LLC and subsidiaries as of December 25, 2004, and the results of their operations and their cash flows for each of the fiscal years in the two-year period ended December 25, 2004, in conformity with U.S. generally accepted accounting principles. /s/ KPMG LLP New York, New York February 25, 2005 70 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Included in Item 7, Management's Financial Review -Market Risks and Cautionary Statements. Item 8. Financial Statements and Supplementary Data Included in Item 7, Management's Financial Review -Financial Statements The financial statements of PBG, included in PBG's Annual Report on Form 10-K and filed with the SEC on February 24, 2006, are hereby incorporated by reference as required by the SEC as a result of our guarantee of up to $1,000,000,000 aggregate principal amount of our 7% Senior Notes due in 2029. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Bottling LLC's management carried out an evaluation, as required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), with the participation of our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of our disclosure controls and procedures, as of the end of our last fiscal quarter. Based upon this evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Annual Report on Form l0-K, in timely alerting them to material information relating to Bottling LLC and its consolidated subsidiaries required to be included in our Exchange Act reports filed with the SEC. Item 9B. Other Information None. PART III Item 10. Directors and Executive Officers of Bottling LLC The name, age and background of each of Bottling LLC's Managing Directors is set forth below. John T. Cahill, 48, is a Managing Director of Bottling LLC. He has also been PBG's Chairman of the Board since January 2003 and Chief Executive Officer since September 2001. Previously, Mr. Cahill served as PBG's President and Chief Operating Officer from August 2000 to September 2001. Mr. Cahill has been a member of PBG's Board of Directors since January 1999 and served as PBG's Executive Vice President and Chief Financial Officer prior to becoming President and Chief Operating Officer in August 2000. He was Executive Vice President and Chief Financial Officer of the Pepsi-Cola Company from April 1998 until November 1998. Prior to that, Mr. Cahill was Senior Vice President and Treasurer of PepsiCo, having been appointed to that position in April 1997. In 1996, he became Senior Vice President and Chief Financial Officer of Pepsi-Cola North America. Mr. Cahill joined PepsiCo in 1989 where he held several other senior financial positions through 1996. Mr. Cahill is also a director of the Colgate-Palmolive Company. Steven M. Rapp, 52, is a Managing Director of Bottling LLC. He is also PBG's Senior Vice President, General Counsel and Secretary. Appointed to this position in January 2005, Mr. Rapp previously served as Vice President, Deputy General Counsel and Assistant Secretary from 1999 through 2004. Mr. Rapp joined PepsiCo as a corporate attorney in 1986 and was appointed Division Counsel of Pepsi-Cola Company in 1994. 71 Matthew M. McKenna, 55, is a Managing Director of Bottling LLC. He is also the Senior Vice President of Finance of PepsiCo. Previously he was Senior Vice President and Treasurer and before that, Senior Vice President, Taxes. Prior to joining PepsiCo in 1993 as Vice President, Taxes, he was a partner with the law firm of Winthrop, Stimson, Putnam & Roberts in New York. Pursuant to Item 401(b) of Regulation S-K, the executive officers of Bottling LLC are reported in Part I of this Report. Executive officers are elected by the Managing Directors of Bottling LLC, and their terms of office continue until their successors are appointed and qualified or until their earlier resignation or removal. There are no family relationships among our executive officers. Managing Directors are elected by a majority of members of Bottling LLC and their terms of office continue until their successors are appointed and qualified or until their earlier resignation or removal, death or disability. 72 Item 11. Executive Compensation Summary of Cash and Certain Other Compensation. The following table provides information on compensation earned and stock options awarded for the years indicated by PBG to Bottling LLC's Principal Executive Officer and the two other executive officers of Bottling LLC as of the end of the 2005 fiscal year in accordance with the rules of the Securities and Exchange Commission. These three individuals are referred to as the named executive officers. Summary Compensation Table Long Term Compensation Annual Compensation Awards Payouts Restricted Securities All Other Name and Other Annual Stock Underlying LTIP Compensation Principal Position Year Salary($) Bonus($) Compensation ($) Awards/ Units ($) Options (#) Payouts ($) ($) John T. Cahill 2005 $984,135 $1,828,125 $52,2281t> $5,000,000~2> 621,239 $ 0 $8,58913> Principal 2004 871,154 1,531.,250- 19,139. 0 444,915 0 8,362 Executive Officer 2003 817,692 515,630 26,409 1,500,0004) 526,596 0 8,141 Alfred H. Drewes 2005 405,385 375,600 39,711 ~5> 0 113,274 0 8,400~6> Principal Financial 2004 383,462 404,250 19,171 0 97,356 0 8,200 Officer 2003 372,231 140,630 14,475 1,SOO,000~4I 127,660 241,050 8,000 Andrea L. Forster 2005 247;269 172,600 21,157~t 0 51,398. 0 8,400tbt Principal 2004 221,154 17Q250 4,695 0 45,763 0. 8,200 Accounting Officer 2003 193,307 50,000 .4,695 0 34,043 0 7,624 (1) For 2005, this amount includes (i) $33,674, which equals the total incremental cost to the Company of all perquisites and personal benefits provided to Mr. Cahill (including a car allowance, financial advisory services, personal use of corporate transportation, and an annual physical), and (ii) $18,554, which equals the amount paid to gross-up Mr. Cahill for the tax liability related to the car allowance, financial advisory services and annual physical. Mr. Cahill's personal use of corporate transportation is not grossed-up. For 2003 and 2004, this amount reflects (i) benefits from the personal use of corporate transportation and (ii) the total tax gross-up payment with respect to perquisites and personal benefits provided to Mr. Cahill. (2) This amount reflects the dollar value of 179,598 performance-based restricted stock units ("RSUs") granted to Mr. Cahill on October 7, 2005 by the Compensation and Management Development Committee. The dollar value was calculated by multiplying the number of RSUs granted by the average of the high and low trading prices of PBG Common Stock on the grant date. Mr. Cahill is eligible to vest in the RSUs only if a 2006 earnings per share goal is achieved. If such goal is achieved, one-third of the RSUs will vest on each of December 31, 2006, December 31, 2007 and December 31, 2008, provided that Mr. Cahill is actively employed by PBG on each such date. RSUs that vest will be settled in an equal number of shares of PBG Common Stock, which must be deferred for a minimum of two years after vesting. During the vesting period, with respect to the RSUs, Mr. Cahill will accrue amounts equal to the dividends that are declared and paid on PBG Common Stock. Such amounts will be paid only if, and at the same time, the underlying RSUs vest and are paid. The dollar value of the unvested RSUs as of the close of the 2005 fiscal year was $5,138,299 (determined by multiplying the number of RSUs by $28.61, the closing price of PBG Common Stock on December 30, 2005, the last trading day of PBG's fiscal year). (3) This amount reflects (i) a standard PBG matching contribution in PBG Common Stock to Mr. Cahill's 401(k) account and (ii) $189 in imputed income, based on tables used for income imputation, attributable to the annual cost of life insurance coverage equal to that purchased under the following arrangement. In 2001, Mr. Cahill waived his right to a portion of his deferred compensation. In exchange, the Company made a loan to Mr. Cahill's family trust to pay the premium on a life insurance policy on the life of Mr. Cahill and his spouse. The loan bears interest at a rate of 4.99%, which rate was established under IRS regulations, and the loan (with interest) will be repaid to the Company upon payment of the proceeds from the life insurance policy. Although 73 the loan amount was greater than the amount of deferred compensation waived, the loan was determined to be cost neutral to the Company. Under the Sarbanes-Oxley Act of 2002, this loan may remain outstanding, so long as its terms are not materially modified. (4) This amount reflects aperformance-based restricted stock award granted in 2003 that was scheduled to vest only if certain cumulative performance targets were achieved in fiscal years 2003, 2004 and 2005. The Compensation and Management Development Committee has certified that the cumulative performance targets were not achieved. Accordingly, the executive has forfeited the restricted shares reflected in the table. Upon forfeiture of the restricted shares, the accrued dividends payable with respect to such restricted shares were also forfeited. The amount set out in the table was calculated by multiplying the number of restricted shares granted to the executive by the fair market value of PBG Common Stock on March 1, 2003, the grant date. While the executive will not recognize any value from this award, SEC regulations require PBG to state the dollar value of the unvested restricted shares as of the close of the 2005 fiscal year, which was $1,826,176 (determined by multiplying the number of restricted shares awarded by $28.61, the closing price of PBG's Common Stock on December 30, 2005, the last trading day of PBG's fiscal year). (5) For 2005; this amount includes (i) $22,737, which equals the total incremental cost to the Company of all perquisites and personal benefits provided to Mr. Drewes (including a car allowance and financial advisory services), and (ii) $16,951, which equals the amount paid to gross-up Mr. Drewes for the tax liability related to the car allowance and financial advisory services. For 2003 and 2004, this amount reflects the total tax gross-up payment with respect to perquisites and personal benefits provided to Mr. Drewes. (6) This amount reflects a standard PBG matching contribution in PBG Common Stock to the executive's 401(k) account. (7) For 2005, this amount includes (i) $14,365, which equals the total incremental cost to the Company of all perquisites and personal benefits provided to Ms. Forster (including a car allowance), and (ii) $6,792, which equals the amount paid to gross-up Ms. Forster for the tax liability related to the car allowance. For 2003 and 2004, this amount reflects the total tax gross-up payment with respect to perquisites and personal benefits provided to Ms. Forster. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters PBG holds 93.3% and PepsiCo holds 6.7% of the ownership of Bottling LLC. Item 13. Certain Relationships and Related Transactions Although Bottling LLC may not be a direct party to the following transactions, as the principal operating subsidiary of PBG, it derives certain benefits from them. Accordingly, set forth below is information relating to certain transactions between PBG and PepsiCo. In addition, set forth below is information relating to certain transactions between Bottling LLC and PBG ("PBGBottling LLC Transactions"). Stock Ownership and Director Relationships with PepsiCo. PBG was initially incorporated in January 1999 as a wholly owned subsidiary of PepsiCo to effect the separation of most of PepsiCo's company-owned bottling businesses. PBG became a publicly traded company on March 31, 1999. As of January 27, 2006, PepsiCo's ownership represented 41.3% of the outstanding Common Stock and 100% of the outstanding Class B Common Stock together representing 46.9% of the voting power of all classes of PBG's voting stock. PepsiCo also owns approximately 6.7% of the equity of Bottling Group, LLC, PBG's principal operating subsidiary. In addition, Matthew M. McKenna, a Managing Director of Bottling LLC, is an executive officer of PepsiCo. Agreements and Transactions with PepsiCo and Affiliates. PBG and PepsiCo (and certain of its affiliates) have entered into transactions and agreements with one another, incident to their respective businesses, and PBG and PepsiCo are expected to enter into material transactions and agreements from time to time in the future. As used in this section, "PBG" includes PBG and its subsidiaries. Material agreements and transactions between PBG and PepsiCo (and certain of its affiliates) during 2005 are 74 described below. Beverage Agreements and Purchases of Concentrates and Finished Products. PBG purchases concentrates from PepsiCo and manufactures, packages, distributes and sells carbonated and non-carbonated beverages under license agreements with PepsiCo. These agreements give PBG the right to manufacture, sell and distribute beverage products of PepsiCo in both bottles and cans and fountain syrup in specified territories. The agreements also provide PepsiCo with the ability to set prices of such concentrates, as well as the terms of payment and other terms and conditions under which PBG purchases such concentrates. In addition, PBG bottles water under the Aquafina trademark pursuant to an agreement with PepsiCo, which provides for the payment of a royalty fee to PepsiCo. In certain instances, PBG purchases finished beverage products from PepsiCo. During 2005, total payments by PBG to PepsiCo for concentrates, royalties and finished beverage products were approximately $2.6 billion. Transactions with Joint Ventures in which PepsiCo holds an equity interest. PBG purchases tea concentrate and finished beverage products from the Pepsi/Lipton Tea Partnership, a joint venture of Pepsi-Cola North'America, a division of PepsiCo, and Lipton (the "Partnership"). During 2005, total amounts paid or payable to PepsiCo for the benefit of the Paztnership were approximately $147 million. PBG purchases finished beverage products from the North American Coffee Partnership, a joint venture of Pepsi-Cola North America and Starbucks. During 2005, amounts paid or payable to the North American Coffee Partnership by PBG were approximately $225 million. Under tax sharing arrangements we have with PepsiCo and PepsiCo joint ventures, we received $3 million in tax related benefits in 2005. Purchase of Snack Food Products from Frito-Lay, Inc. PBG purchases snack food products from Frito-Lay, Inc., a subsidiary of PepsiCo, for sale and distribution through Russia. In 2005, amounts paid or payable by PBG to Frito-Lay, Inc. were approximately $l44 million. Shared Services. PepsiCo provides various services to PBG pursuant to a shared services agreement and other arrangements, including information technology maintenance and the procurement of raw materials. During 2005, amounts paid or payable to PepsiCo for these services totaled approximately $69 million. Pursuant to the shared services agreement and other arrangements, PBG provides vazious services to PepsiCo, including employee benefit, credit and collection, international tax and accounting services. During 2005, payments to PBG from PepsiCo for these services totaled approximately $4 million. Rental Payments. Amounts paid or payable by PepsiCo to PBG for rental of office space at certain PBG facilities were approximately $4 million in 2005. National Fountain Services. PBG provides certain manufacturing, delivery and equipment maintenance services to PepsiCo's national fountain customers. In 2005, net amounts paid or payable by PepsiCo to PBG for these services were approximately $183 million. Bottler Incentives. PepsiCo provides PBG with various forms of mazketing support. The level of this support is negotiated annually and can be increased or decreased at the discretion of PepsiCo. These bottler incentives are intended to cover a vaziety of programs and initiatives, including direct marketplace support (including point-of-sale materials) and advertising support. For 2005, total bottler incentives paid or payable to PBG or on behalf of PBG by PepsiCo approximated $688 million. PepsiCo Guarantees. The $1.3 billion of 5.63% senior notes issued on February 9, 1999 and the $1.0 billion of 4.63% senior notes issued on November 15, 2002, by us are guaranteed by PepsiCo in accordance with the terms set forth in the related indentures. PBGBottling LLC Transactions. PBG is considered a related party, as we are the principal operating 75 subsidiary of PBG and we make up substantially all of the operations and assets of PBG. At December 31, 2005, PBG owned approximately 93.3% of our equity. PBG provides insurance and risk management services to us pursuant to a contractual agreement. Total premiums paid to PBG during 2005 were $106 million. We have loaned PBG $436 million during 2005 net of repayments. During 2005, these loans were made through a series of 1-year notes, with interest rates ranging from 3.1% to 5.4%. Total intercompany loans owed to us from PBG at December 3l, 2005 were $2,384 million. The proceeds were used by PBG to pay for interest, taxes, dividends, share repurchases and acquisitions. Accrued interest receivable from PBG on these notes totaled $70 mi[[ion at December 31, 2005. Total interest income recognized in our Consolidated Statements of Operations relating to outstanding loans with PBG was $71 million in 2005. On March 8, 1999, PBG issued $1 billion of 7% senior notes due 2029, which are guaranteed by us. PBG has a $500 million commercia[ paper program that is supported by a credit facility, which is guaranteed by us and expires in Apri12009. There are certain financial covenants associated with this credit facility. PBG has used this credit facility to support their commercial paper program in 2005. At December 31, 2005, PBG has $355 million in outstanding commercial paper with aweighted- averageinterest rate of 4.3%. Bottling Group, LLC Distribution. We also guarantee that to the extent there is available cash, we will distribute pro rata to PBG and PepsiCo sufficient cash such that the aggregate cash distributed to PBG will enable PBG to pay its taxes and make interest payments on the $1 billion 7% senior notes due 2029. During 2005, in accordance with our Limited Liability Company Agreement we made cash distributions to PepsiCo in the amount of $12 million and to PBG in the amount of $169 million. Any amounts in excess of taxes and interest payments were used by PBG to repay loans to us. Relationships and Transactions with Management and Others. One of our managing directors is an employee of PepsiCo and the other managing directors and officers are employees of PBG. Linda G. Alvarado, a member of PBG's Board of Directors, together with certain of her family members own interests 'in YUM Brands franchise restaurant companies that purchase beverage products from PBG. In 2005, the total amount of these purchases was approximately $320,000. 76 Item 14. Principal Accountant Fees and Services INDEPENDENT AUDITORS FEES During 2005, KPMG LLP served as Bottling LLCs independent auditors from January 2005 through May 2005 and Deloitte &Touche LLP served as the Bottling LLC's independent auditors from June 2005 through December 2005. In addition to retaining independent auditors to audit Bottling LLC's consolidated financial statements for 2005, Bottling LLC and its affiliates retained KPMG LLP, Deloitte &Touche LLP, as well as other accounting firms to provide various services in 2005. The aggregate fees billed for professional services by KPMG LLP and Deloitte &Touche LLP in 2005 and by KPMG LLP in 2004 were as follows: Audit and Non-Audit Fees (in millions) 2005 2004 Deloitte &Touche KPMG Total KPMG Audit Fees~t> $ 4.4 $ 0.7 $ S.1 $ S,4 Audit-Related Fees ~z> - - - 0.1 Tax Fees c3) - 0.1 0.1 0.2 All Other Fees - - - - Total $ 4.4 $ 0.8 $ 5.2 $ 5.7 1. Represents fees for the audit of Bottling LLC's consolidated financial statements, audit of inte rnal controls, the reviews of interim financial statements included in Bottling LLC's Forms 10-Q and all statutory audits. 2. Represents fees primarily related to audits of employee benefit plans and other audit related services. 3. Represents fees related primarily to assistance with tax compliance matters. Pre-Approval Policies and Procedures. In 2003, PBG adopted a policy that defines audit, audit-related, tax and other services to be provided to PBG, including Bottling LLC, by PBG's independent auditors ("Auditor Services") and requires such Auditor Services to be pre-approved by PBG's Audit and Affiliated Transactions Committee. In accordance with PBG's policy and applicable SEC rules and regulations, PBG's Audit Committee adopted a policy in 2003 requiring pre-approval by the Committee or its Chairperson of Auditor Services provided to PBG and its subsidiaries. If Auditor Services are required prior to a regularly scheduled Audit Committee meeting, the Committee Chairperson is authorized to approve such services, provided that they are consistent with PBG's policy and that the full Committee is advised of such services at the next regularly scheduled Committee meeting. 77 PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements. The following consolidated financial statements of Bottling LLC and its subsidiaries are included herein on the pages indicated on the index in Item 7: Consolidated Statements of Operations -Fiscal years ended December 31, 2005, December 25, 2004 and December 27, 2003. Consolidated Statements of Cash Flows -Fiscal years ended December 31, 2005, December 25, 2004 and December 27, 2003. Consolidated Balance Sheets -December 31, 2005 and December 25, 2004. Consolidated Statements of Changes in Owners' Equity -Fiscal years ended December 31, 2005, December 25, 2004 and December 27, 2003. Notes to Consolidated Financial Statements. Independent Auditors' Reports. The financial statements of PBG, included in PBG's Annual Report on Form 10-K and filed with the SEC on February 24, 2006, are hereby incorporated by reference as required by the SEC as a result of our guarantee of up to $1,000,000,000 aggregate principal amount of PBG's 7% Senior Notes due in 2029. 78 2. Financial Statement Schedules. The following financial statement schedules of Bottling LLC and its subsidiaries are included in this Report on the page indicated: Independent Auditors' Report on Schedule (Deloitte & Touche LLP) Independent Auditors' Report on Schedule and Consent (KPMG LLP) Pale F-2 F-3 Schedule II -Valuation and Qualifying Accounts for the fiscal years ended December 31, 2005, December 25, 2004 and F-4 December 27, 2003 3. Exhibits See Index to Exhibits on pages E-1 - E-5. 79 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Bottling Group, LLC has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: February 23, 2006 Bottling Group, LLC By: /s/ John T. Cahill John T. Cahill Principal Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Bottling Group, LLC and in the capacities and on the date indicated. SIGNATURE TITLE DATE /s/ John T. Cahill Principal Executive Officer and John T. Cahill Managing Director Februazy 23, 2006 /s/ Alfred H. Drewes Principal Financial Officer February 23, 2006 Alfred H. Drewes /s/ Andrea L. Forster Principal Accounting Officer February 23, 2006 Andrea L. Forster /s/ Steven M. Rapp Managing Director February 23, 2006 Steven M. Rapp /s/Matthew M. McKenna Managing Director Februazy 23, 2006 Matthew M. McKenna 80 INDEX TO FINANCIAL STATEMENT SCHEDULES Pale Independent Auditors' Report on Schedule (Deloitte & Touche LLP) F-2 Independent Auditors' Report on Schedule and Consent (KPMG LLP) F-3 Schedule II -Valuation and Qualifying Accounts for the fiscal years ended December 31, 2005, December 25, 2004 and F-4 December 27, 2003 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Owners of Bottling Group, LLC Somers, New York We have audited the consolidated financial statements of Bottling Group, LLC and subsidiaries (the "Company") as of December 31, 2005, and for the year ended December 31, 2005, and have issued our report thereon dated February 24, 2006; such report is included elsewhere in this Form 10-K. Our audit also included the financial statement schedule of the Company listed in Item 15. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ Deloitie & Touche LLP New York, New York February 24, 2006 F-2 Consent of Independent Registered Public Accounting Firm The Owners of Bottling Group, LLC: The audits referred to in our report dated February 25, 2005 with respect to the consolidated financial statements of Bottling Group, LLC and subsidiaries, included the related financial statement schedule as of December 25, 2004, and for each of the fiscal years in the two-year period ended December 25, 2004, included in this Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the incorporation by reference in the registration statement No. 333-108225 on Form S-3 of Bottling Group, LLC of our report dated February 25, 2005, with respect to the consolidated balance sheets of Bottling Group, LLC and subsidiaries as of December 25, 2004, and the related consolidated statements of operations, cash flows, and changes in owners' equity for each of the fiscal years in the two-year period ended December 25, 2004, and our report on the related financial statement schedule dated February 25, 2005 included in [he annual report on form 10-K. /s/ KPMG LLP New York, New York February 23, 2006 F-3 Description : , Fiscal Year Ended December 31, 2005 Allowance for losses on trade accounts receivable Fiscal Year Ended December 25, 2004 Allowance for losses on trade accounts receivable Fiscal Year Ended December 27, 2003 Allowance for losses on trade accounts receivable SCHEDULE II -VALUATION AND QUALIFYWG ACCOUNTS BOTTLING GROUP, LLC IN MILLIONS Balance At Charged to Accounts Beginning Cost and Written Of Period Expenses Acquisitions Off $ 72 $ (5) $ - $ 67 $ '12 $ - F-4 Foreign Balance At Currency End Of Translation Period $ (12) $ (1) $ 51 $ (7) $ 1 $ 61 ~ $ {8) $ 1 $ 72 ~ INDEX TO EXHIBITS EXHIBIT 3.1 Articles of Formation of Bottling Group, LLC ("Bottling LLC") which is incorporated herein by reference from Exhibit 3.4 to Bottling LLC's Registration Statement on Form S-4 (Registration No. 333-80361) 3.2 Amended and Restated Limited Liability Company Agreement of Bottling LLC which is incorporated herein by reference from Exhibit 3.5 to Bottling LLC's Registration Statement on Form S-4 (Registration No. 333-80361) 4.1 Indenture dated as of February 8, 1999 among Pepsi Bottling Holdings, Inc., PepsiCo, Inc. and The Chase Manhattan Bank, as trustee, relating to $1,000,000,000 5 3/8% Senior Notes due 2004 and $1,300,000,000 5 518% Senior Notes due 2009, which is incorporated herein by reference to Exhibit 10.9 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 4.2 First Supplemental Indenture dated as of February 8, 1999 among Pepsi Bottling Holdings, Inc., Bottling Group, LLC, PepsiCo, Inc. and The Chase Manhattan Bank, as trustee, supplementing the Indenture dated as of February 8, 1999 among Pepsi Bottling Holdings, Inc., PepsiCo, Inc. and The Chase Manhattan Bank, as trustee, which is incorporated herein by reference to Exhibit 10.10 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 4.3 Indenture, dated as of March 8, 1999, by and among The Pepsi Bottling Group, Inc. ("PBG"), as obligor, Bottling Group, LLC, as guarantor, and The Chase Manhattan Bank, as trustee, relating to $1,000,000,000 7% Series B Senior Notes due 2029, which is incorporated herein by reference to Exhibit 10.14 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 4.5 U.S. $250,000,000 364-Day Second Amended and Restated Credit Agreement, dated as of May 1, 2002 among PBG, Bottling Group, LLC, JPMorgan Chase Bank, Citibank, N.A., Bank of America, N.A., Deutsche Bank AG New York Branch and/or Cayman Islands Branch, Credit Suisse First Boston, The Northern Trust Company, Lehman Commercial Paper Inc., Royal Bank of Canada, Banco Bilbao Vizcaya, The Bank of New York, Fleet National Bank, Siate Street Bank and Trust Company, JPMorgan Chase Bank, as Agent, Banc of America Securities LLC and J.P. Morgan Securities Inc. as Co-Lead Arrangers and Joint Book Managers and Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, which is incorporated herein by reference to Exhibit 4.6 to Bottling LLC's Annual Report on Form 10-K for the year ended December 28, 2002. 4.6 U.S. $250,000,000 5-Year Credit Agreement, dated as of April 30, 2003 among The Pepsi Bottling Group, Inc., Bottling Group, LLC, Citibank, N.A., Bank of America, N.A., Credi[ Suisse First Boston, Cayman Islands Branch, Deutsche Bank AG New York Branch, JPMorgan Chase Bank, The Northern Trust Company, Lehman Brothers Bank, FSB, Banco Bilbao Vizcaya Argentaria, HSBC Bank USA, Fleet National Bank, The Bank of New York, State Street Bank and Trust Company, Comerica Bank, Wells Fargo Bank, N.A., JPMorgan Chase Bank, as Agent, Citigroup Global Markets Inc. and Banc of America Securities LLC, as Joint Lead Arrangers and Book Managers and Citibank, N.A., Bank of America, N.A., Credit Suisse First Boston, and Deutsche Bank Securities Inc. as Syndication Agents, which is E-1 incorporated herein by reference to Exhibit 4.7 to Bottling LLC's registration statement on Form S-4/A (Registration No. 333- 102035). 4.7 U.S. $250,000,000 364-Day Credit Agreement, dated as of Apri130, 2003 among The Pepsi Bottling Group, Inc., Bottling Group, LLC, Citibank, N.A., Bank of America, N.A., Credit Suisse First Boston, Cayman Islands Branch, Deutsche Bank AG New York Branch, JPMorgan Chase Bank, The Northern Trust Company, Lehman Brothers Bank, FSB, Banco Bilbao Vizcaya Argentaria, HSBC Bank USA, Fleet National Bank, The Bank of New York, State Street Bank and Trust Company, Comerica Bank, Wells Fargo Bank, N.A., JPMorgan Chase Bank, as Agent, Citigroup Global Markets Inc. and Banc of America Securities LLC, as Joint Lead Arrangers and Book Managers and Citibank, N.A., Bank of America, N.A., Credit Suisse First Boston, and Deutsche Bank Securities Inc. as Syndication Agents, which is incorporated herein by reference to Exhibit 4.8 to Bottling LLC's registration statement on Form S-4/A (Registration No. 333-102035). 4.8 Indenture, dated as of November 15, 2002, among Bottling Group, LLC, PepsiCo, Inc., as Guarantor, and JPMorgan Chase Bank, as Trustee, relating to $1 Billion 4- 5/8 % Senior Notes due November 15, 2012, which is incorporated herein by reference to Exhibit 4.7 to Bottling LLC's Annual Report on Form 10-K for the year ended December 28, 2002. 4.9 Registration Rights Agreement, dated as of November 7, 2002 relating to the $1 Billion 4-5/8% Senior Notes due November 15, 2012, which is incorporated herein by reference to Exhibit 4.8 to Bottling LLC's Annual Report on Form 10-K for the year ended December 28, 2002. 4.10 Indenture, dated as of June 10, 2003 by and between Bottling Group, LLC, as Obligor, and JPMorgan Chase Bank, as Trustee, relating to $250,000,000 4- 1/8 % Senior Notes due June 15, 2015, which is incorporated herein by reference to Exhibit 4.1 to Bottling LLC's registration statement on Form S-4 (Registration No. 333-106285). 4.11 Registration Rights Agreement dated June 10, 2003 by and among Bottling Group, LLC, J.P. Morgan Securities Inc., Lehman Brothers Inc., Banc of America Securities LLC, Citigroup Global Markets Inc, Credit Suisse First Boston LLC, Deutsche Bank Securities Inc., Blaylock & Partners, L.P. and Fleet Securities, Inc, relating to $250,000,000 4- 1/8 % Senior Notes due June I5, 2015, which is incorporated herein by reference to Exhibit 4.3 to Bottling LLC's registration statement on Form S-4 (Registration No. 333-106285). 4.12 Indenture, dated as of October 1, 2003, by and between Bottling Group, LLC, as Obligor, and JPMorgan Chase Bank, as Trustee, which is incorporated herein by reference to Exhibit 4.1 to Bottling LLC's Form 8-K dated October 3, 2003. 4.13 Form of Note for the $500,000,000 2.45% Senior Notes due October 16, 2006, which is incorporated herein by reference to Exhibit 4.2 to Bottling LLC's Form 8-K dated October 3, 2003. 4.14 Form of Note for the $400,000,000 5.00% Senior Notes due November 15, 2013, which is incorporated herein by reference to Exhibit 4.1 to Bottling LLC's Form 8-K dated November 13, 2003. E-2 10.1 Settlement Agreement between Bottling Group, LLC and PepsiCo, Inc. dated June 28, 2005, which is incorporated herein by reference to Exhibit 10.1 to Bottling LLC's Form 10-Q for the quarter ended June 11, 2005. 12* Statement re Computation of Ratios. 21 * Subsidiaries of Bottling LLC. 23.1 * Report and Consent of KPMG LLP. 23.2 * Consent of Deloitte & Touche LLP 31.1 * Certification by the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 * Certification by the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification by the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith E-3 Exhibit 12 Exhibit 12 RATIO OF EARNINGS TO FIXED CHARGES. We have calculated Bottling LLC's ratio of earnings to fixed charges in the following table by dividing earnings by fixed charges. For this purpose, earnings are before taxes, minority interest and cumulative effect of change in accounting principle, plus fixed charges (excluding capitalized interest) and losses recognized from equity investments, reduced by undistributed income from equity investments. Fixed charges include interest expense, capitalized interest and one-third of net rent which is the portion of the rent deemed representative of the interest factor. Ratio of Earnings to Fixed Charges (dollars in millions) Net income before taxes, minority interest and cumulative effect of change in accounting,principle .: Undistributed (income) loss from equity investments Fixed charges:excluding capitalized interest Earnings as adjusted Fixed charges: . Interest expense Capitalized interest Interest portion of rental expense Total fixed charges Ratio of earnings to fixed charges Fiscal Year 2005 2004 2003 2002 2001 $ 89b $ 832 $ 811 $ 792 $ 600 - (1) (1) - - 217 191 200 152 145 $1,113 $1,022 $ 1,010 $ 944 $ 745 $ 187 $ 166 $ 177 $ 131 $ 132 - - - - 1 30 _ 25 23 21 13 $ 217 $ 191 $ 200 $ 152 $ 146 5.13 5.35 5.05 6.2t 5.09 Exhibit 23.1 Exhibit 23.1 Consent of Independent Registered Public Accounting Firm The Owners of Bottling Group, LLC: The audits referred to in our report dated February 25, 2005 with respect to the consolidated financial statements of Bottling Group, LLC and subsidiaries, included the related financial statement schedule as of December 25, 2004, and for each of the fiscal years in the two-year period ended December 25, 2004, included in this Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the incorporation by reference in the registration statement No. 333-108225 on Form S-3 of Bottling Group, LLC of our report dated February 25, 2005, with respect to the consolidated balance sheets of Bottling Group, LLC and subsidiaries as of December 25, 2004, and the related consolidated statements of operations, cash flows, and changes in owners' equity for each of the fiscal years in the two-year period ended December 25, 2004, and our report on the related financial statement schedule dated February 25, 2005 included in the annual report on form 10-K. /s/ KPMG LLP New York, New York February 23, 2006 Exhibit 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement No. 333-108225 on Form S-3 of our reports dated February 24, 2006, relating to the financial statements and financial statement schedule of Bottling Group, LLC and subsidiaries, appearing in this Annual Report on Form 10-K of Bottling Group, LLC and subsidiaries for the year ended December 31, 2005. /s/ Deloitte & Touche LLP New York, New York February 24, 2006 Exhibit 31.1 Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John T. Cahill, certify that: 1. I have reviewed this annual report on Form 10-K of Bottling Group, LLC; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of [he registrant as of, and for, the periods presented in [his report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of [he disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record,.process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 23, 2006 /s/John T. Cahill John T. Cahill Principal Executive Officer and Managing Director Exhibit 31.2 Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Alfred H. Drewes, certify that: 1. I have reviewed this annual report on Form 10-K of Bottling Group, LLC; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepazed; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the prepazation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) [ha[ has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 23, 2006 /s/ Alfred H. Drewes Alfred H. Drewes Principal Financial Officer Exhibit 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Bottling Group, LLC (the "Company") certifies to his knowledge that: (1) The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Form 10-K") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Act"); and (Z) The information contained in the Form 10-K fairly presents, in all material respects, the financial conditions and results of operations of the Company as of the dates and for the periods referred to in the Form 10-K. /s/ John T. Cahill John T. Cahill Principal Executive Officer and Managing Director February 23, 2006 The foregoing certification (the "Certification") is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code). Exhibit 32.2 Exhibit 32.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Bottling Group, LLC (the "Company") certifies to his knowledge that: (1) The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Form 10-K"} fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Act"); and (2) The information contained in the Form 10-K fairly presents, in all material respects, the financial conditions and results of operations of the Company as of the dates and for the periods referred to in the Form 10-K. /s/ Alfred H. Drewes Alfred H. Drewes Principal Financial Officer February 23, 2006 The foregoing certification (the "Certification") is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a} and (b) of Section 1350, Chapter 63 of Title 18, United States Code). B E R S F I l~'/RE ARTM RONALD J. FRAZE FIRE CHIEF Gary Hutton, Senior Deputy Chief Administration 326-3650 Deputy Chief Dean Clason Operations/Training 326-3652 Deputy Chief Kirk Blair Fire Safety/Prevention Services 326-3653 2101 "H" Street Bakersfield, CA 93301 OFFICE: (661) 326-3941 FAX: (661) 852-2170 RALPH E. HUEY, DIRECTOR PREVENTION SERVICES FlRE SAFETY SERVICES • ENVIRONMENTAL SERVICES 900 Truxtun Avenue, Suite 210 Bakersfield, CA 93301 OFFICE: (661) 326-3979 FAX: (661) 852-2171 David Weirather Fire Plans Examiner 326-3706 Howard H. Wines, III Hazardous Materials Specialist 326-3649 December 1, 2005 Pepsi Cola 215 E. 21st Street - Bakersfield, CA 93308 FINAL REMINDER NOTICE RE: Necessary Secondary Containment Testing Requirements by December 31, 2005 of Underground Storage Tank (s) Located at the Above Stated Address Dear Valued Customer, Over the last six months this office has continued to send reminder notices regarding secondary containment testing. Code requires that all secondary containment systems must be tested 6 months post construction and every 36 months there after. Senate Bill 989 became effective January 1, 2002, section 25284.1 (California Health & Safety Code) of the new law mandates testing of secondary containment components upon installation and every 36 months, thereafter, to insure that the systems are capable of containing releases from the primary containment until they are detected and removed. Our records indicate that your facility is due prior to December 31, 2005. Those sites that have not been tested and have not pulled a permit prior to December 31, 2005, will have their permit to operate revoked. This office does not wish to take such action, which is why we will continue to send monthly reminders. Contractors are already booked several weeks in advance. I urge you to schedule your testing date as soon as possible to avoid possible revocation of your permit to operate. Should you have any questions, please feel free to call me at (661) 326-3190. Sincerely, RALPH. HUEY, Director of Prevention Services ~1 Steve Underwood Fire Prevention Officer SU:db `~ 12-09-05 02:51 Pm From-TAIT ENVIROtiENTAL 714-560-8237 T-602 P.03 F-960 -• ~ 1VIUNI~'~~NG~ SYSTElY~ ~EIt7['IF~~~'YON Far Use By All Jurisdicrwns Wirhtrr the Stare of Calffornfa Authority Clted: Chapter 6.7, ,Flealth and Safety Code; Chapter 16, Qivision 3, TFtle 23, Cal fornia Code of Regulations This form must be used to document testing and servicing of tnanitoring equipment. A scuarate eertifieatlon ar reRort must be t~repared for each monitoti~ system control p n~e1 by the technician who performs the work A copy of this form mast be provided to the alt system owner/operator. The owner/operator must submit a copy of this form to the local agency regulating UST systems within 30 days of test date. A. GeneralInfortmatioa Facility Name: P1GpS>< Service Station No.: 954 _ Sine Address: 215 E. 21ST STREET _ City: FIAIC>~2SF7EI-D Zip: Facility Contact Person: Cnratact Phone No.: Make/Model of Monitoring System: VEEDER ROdT SIMPLICITY' Date of TestingJSmrviee: 8/2/45 B. Ynve~ntoty of Equipment Tested/Certitled f''l.uwb tl.o n....rn...A9+v hnTac +n indiMYfp 4.1P1`~t IC equinment ins+nnrteAlterviCed_ Tank ID: 1 Tattle. IU: _ ®Yn-Tank Gauging probe: Model: $47390-I09 pltn-~'attk Gatrgu~g Probe: Model: •- ~Annular Space or Vault Sensor: Model: 794390.302 pt+~nttulas Sp:ice or Vault Sensor Model: ~{Pipittg SumplTrtnch Sensor (s): Model: 794384-352 QPiping Sum1~/Tnettch Sensor (s): Model: ^Fill Sump Seurat (s}: Model: ^FiLI Sump Sensor (s): Model: ®Mechatticai Line Leak Detector. Model: FX 1DV ^Mechanical Line Leak Detector. Model: ^Electrauic I,vae beak Detector Model: 1=I)clectronic Line Leak Detector Model: Q'Tank 4verfill/High-level Sensor: Model: QTank OverfilUHigh-level Sensor: Model: pother, i e and model in Section E on Pa 2 pother, e i e attd model in Section E on Pa e 2 Tank ID: Tan1c ID: _ QIn Tttt>>c Gauging Probe: Model: pla~Tank Gagging Prohe: Model: []Atnntlas Space or Vault Sensor: Model: [,~t~nnular Sp:tce ar Vauh Sensor Model: ^Piping SumpPhench Sensor {s): Model: ^Piping Surnp/'Y'rench Sensor {s): Model: pFiA Sutnp Sesser {s): Model: ©l~ill Surrtp Sensor (s): Model: [~Mechauical Line Leak Detector. Model: [JMechanical Line Leak Detector. Model: QBleetrouic Line Leak Detector Model: pBlecuonic line Leak potector Model: ^Tank OverlilUHigb level Sensor: Model: []Tonle Over1i11/Fiigh-level Sensor: Model: ^t?tber, S e and model in Section E on Pa e 2 ^Ctdter, S c.' u' a and model iu Section B on Pa e 2 DispenserlD: Dispenser ID: pDispenser Containment Sensor(s): Model: ^Dispenser (~ontaitunent Sensor(s): Model: Q Shear valve(s). ^ Shear Val~•e(s). ODis eriscK' Contaiturtent Float 3 and Chal s 1~ Containment Floa s aAd Chain(S Dispenser ID: Dispenser ID: [DDsspenser Containtrtent Seusor{s): Model: ^Fri'spenser t,antainrnent Sensar{s): Model: ^ Spar Valve(s). CII Shear Val~~e(s). QD' ettsez Containment Flog s and s OLD corer t±ontainmrm)F'laa s and s) Dispenser ID: ~a ID . ~Dispeaser Goutgiriment Sensor(s): Model: ^l~ispettser t~nntainment Sensor(s): Model: ^ Shear Valve(s)- Q'. Shear Valve(s). ^ eraser Contaittmrnt Floats and s) eraser +:atxrainrxtent Floa s and s •lf the facility Contains mare tanks ar dsspensers, copy this form Include information for every tank and dispenser at the Taeitiry. ~. CertifiCRtlt)n - I certify that the equipment identified in this document was inspeeted/serv[ced la acoardanoe with the manufacturers' ggidelines. AttaCAed to this Certification is information (e.g. rtlauufacturers' .heCWists) necessary to verify that this infortation is Correct and a Plot Plan showing the layout of monitoring equipment. l''or any equipment capable of generating retch reports, I have also attached a copy of the report; (ci6ack all tkar apply): [] System set-up [] Alarm 6isto re rt Technicidsx Name (Print}: ROBERT ALLEN Signature: ~A~n~~ .~®// Certification No.. 6b44 License Nn.: ~'-L Testing Company Name: , TA1T ENVIRONMENTAL SYSTEMS _ Phone Na.: (714) Sb0-622.2 page t of 3 o3/fil 12-09-05 02:51 Pm From-TAIT ENVIROtiENTAL 714-560-8237 T-602 P.04/17 F-960 Monitoring System Certification ''~1 ~~--~"~ Site Address: 215 E. Z I ST STREET, BALCI;]tSFIFL.D _ Dace of Testing/Servicing: 812105 .. .. ,. - D. ltesplts of Testing/Servicing Software Version Ynstalled: b_„_~!__ _L _~1~15_1. -Yes - p No# .. - Ls the audable alarm erational? ® Yes ^ No* is dre 'visual alarm tional? " ~ Yes Na* Were all sensors visuall eeted, functionall Bested, and c~nfi*R+~~ rational? ¢~ Yes ^ No• Were all sensors installed at lowest point of secondary containment and positioned so that other equipment will not interfere with their r lion? ® Yes Q No* if alarms are relayed to a remote monitoring scarion, is all carniru~nicarions equipment (e.g. modem} © N/.A operational? ~ Yes p No* For pressurized pipit systems, does the turbine automatically shut down if the piping secondary contnintnent ^ N!A monitoring system detects a leak, fails to operate, or is electrically disconnected? If yes: which sensors initiate posirive shut-down? (Check all that apply) {] Suxtrp/'I~ench Sensors; Q )Dispenser Containment Sensors. Did you confirm positive shut-down due w leaf sensor failureldiscannection? ^ Ycs; ^ No. _ Q 'Y'es ^ Na' For tank systems chat utilize the monitoring system as tt-e primary tank overfill warning device (i.a. no ® NIA mechanical overfill prevemion valve is installed}, is the ov~7fill watning alaan virable and audr'ble at the tank fill sand 1 If so, at what epr of'tank ca does the alarm tri er? Q 'Y'es* ®No was any monritoring equipment replaced? If yes,. identify sF~ecific saasors, pmbes, or other equipment replaced and list the manufacturer tiarne and model far all t lacement arts in Section l's, belaw. ' ^ Xes" ~ Na Was liquid found inside arty secondary containmt systems designed as dry systems? {Check all that apply] Q Product; ^ Water. If s, desenbe causes in Sectiion ls, beb~w. ® Yes ^ Na* Was rrloaitorin s tent set-u reviawed m ensuze sert~ ? Yes ^ Na* Is aII monit a rrt rational manufacturer's s ecifications? "' Ip Section E below, desra-ibe haw and when these deficiencies were ar wtn ttc c+orsecteq. E. Comments: DROP "TUBS Ii.AS MECHANICAL FLAPPER OVERFILL pROTEC'TTON Page 3 of 3 03/x1 "'~' • 12-09-05 02:52pm From-TAIT ENVIROaENTAL 714-560-6237 T-602 P.05/17 F-960 -~ '`..r Site Addtess~ 21S E. 21ST STREET, BAK,ERSFIELI] _ _ Date of Testingf5ervicing 8/2/05 F, III-Teak Gauging / SIR Equipment: ®Check this box if tanL• gauging is used only for inventory aoutrol. ^ Cheelc.this box if no tattle gauging or SIR equipment is installed This sectYOn must be completed if in-tank gauging equipme'~ is used to perform leak detection tnotutoririg. co fet ~ Yrs e the rollow G7 Na* caecnusz: Has all ingot wiring been inspected far proper entr7+ and terntvtauan, including resting for ground faults? ~ Yes ^ No'" Were aA tank gaugi:ag probes visually inspected far' damage atrtl residue buildup? ~ Yes Q No* Was accuracy of system product level readings tested? ® yes (=] No* Was accuracy of system water level readings tested? ~ Yes ^ No" Were all probes reinstalled properly? ~ Yes Q No* Were all items on the equipment manufactuQCr's rt~irtterance ; hecklist catnpleted7 '~ ~n the t3ectioli H, below, describe liaw and witch these aeIIelenete8 were or ~ u rre eorrecieq. G. Line Leak Detectors {LLD): ^ cheek Ibis box ifLLDsare not installed; ® Yes ~ I3~No*. For equipmett start up or annual equipment cert'ificatian, was a leak sit~tlated to verify LT,D pes#'orniallce? ^ NIA (Check all that apply) Simulated leak rate: ~ 3 g.p_h.'; (] ti.1 g.p.h x; ^ 0.2 g.p.h.Z Notes: 1. Required far equipment start up certifientian ggld atuutal ce~carion. 2. LTtiless mandated by local agextCy, eettif~ation re.Xtxired Duly for elec>rozwie LT,.D startup. ~ Yes ^ No"' Were all I,LDs confirmed operational and accurate within regulatory requirements? ~ Yee Q No* Was rite testing apparatus properly calibrated? ® Yes ^ No* For tnechauical LLDs, does the I..LD resorict product flow if it detects a leak2 ^ NJA ^ Yes ^ No* For electronic J.J.Ds, does the turbine autotatically shut off i f the LLU detects a leaiG? ® 1-UA ^ Yes ^ No"' Fos electronic LLDs, does the turbine autatnatically shut off if any portion of the monitoring system is disabled ® N/A ar disconnected? Q Yes ^ No* Far electronic LLDs, does the turbine automatically shut off if any portion of the monitoring system malfimctioms {~ NJA or fails a test? Q 'Yes ^ No* For elechoniC LLDs, have all accessible wiring catznectians teen visually inspected? NIA fl Yes [~ No* were all items on the equipmem n~saanufacttner's tnaenance checklist completed? • In the Section H, below, describe how and when these at:Ilclencles were or n~u pe correcsea. H. Comments: Page 3 of 3 o3~et i2-09-05 02:52pm From-TAIT ENVIRObENTAI ~~ ,~, Mouitnring a~stem Certtfilcation 7i4-560-6237 ~~ UST 1Vlonitoring ~~te Pla~u , Site Address: T-602 P.06/17 F-960 .~~~-. ~~~. i ~~ . : ~. .~__~. :::::::::::::::::::::::::::::a~~':::.::~~~::::::::-: Ante map was drawn; ,~./~/ G ] , ~rct.Edi~s If you already have a diagram that shows all required informaticm, you rr~ay include it, sathsr than this page, with your Monitoring System Certification. On your site plan, show the general layout of tanks and piping. Clearly identify locations of the following equipment, if installed: m,otsitoring system ccmtrol panels; sensors monitoring tank atumlar spaces, sumps, dispenser pans, spill containers, or other secondarty containment areas; mechaniC81 or electronic line leak detectors; and in-tank liquid level probes (if used far leak dttecticsn}. ~ the sp~e pro~~ note the date this Site Plan was prepared Page ~ 05t0o i ?;'~.: 12-09-05 02:52pm From-TAIT ENVIROfrENTAL 714-560-8237 T-602 P.OT/17 F-960 i _ D4 PEF4S.BAI~RS~Y,D ~ `"~ Fage _l_ of _6 Secondary Containment Testing Report Form Thrs form is intended for use by contractors performing periodic resting of UST secondary containment systems. Use the apprvpreate pages of this form ro report results for all components tested. ~'he c•ompleted form, written teat procedures, and prinmuts from tests rf applicable), should be provided to the facility owner/ope~•atar for submittal to the local regulatory agency. ~srrY rmrrrnr~nuiute~~rrnrr Facility Name: PEPSI #954 pate of Testing: 8!2/05 -Y;'acility.4ddress~ ~° ~ 215 ra. 21sT STREET BAICERSFIEY.D, CA Facility Coatac>r Plu-ne: Date T.oeal Agency Was Notified of Testing : 48 Hours Prior - At Ixast Name a#'Local Agency 1(nspector ~fpresenr during resting): None Component ~ Foss Fats Tested Made Campauent )Past Fail ,r~~ P~TNG SUMP ^ ^ ^ ^ ^ ^ Q UDC ^ ^ ^ ^ ^ ^ 0 SP]LL BUCKET ^ p ^ ^ ^ ^ ^ SUPPLY SECONbAILY p ^ ^ q ^ ^ ^ ANNULAR (W>* f ANNC7LAYt) C3 ^ ^ l7 ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ Q ^ ^ ^ ^ ^ ^ ^ ^ ^ Q Q ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ If hydrostatic testing was perfom~d, describe what was done with the water aRrr completion of tests: TEST WATER LEFT ON SITE YN (4~ 55-GALLON D-1~U'MS CERTI1t+'YCATION OF TECHNICIAN RESPONSiBI..E FOR CO1V'Yil[7CTING THIS TESTING To tke best of my knowledge, the, facts stated in this doc~u~m~ent amore accurate and in full campilance with legal requiretnenrs Tocbnicien's Signature. ~J~~f_JC!/'~ ~'~~ Date: 8/2(05 3_ SiIMMAlt'V dF TF.RT 1~FSIIY_TS T' 12-09-05 02:53pm From-TAIT ENVIROaENTAI 714-560-8237 ~ ~ DO PEPOS.BAKERSFIELI') a_ C'fi'r'(11V71nRVPT~'-1"i".'I'Ti:fi'f'tNt~ T-8D2 P.08/17 F-960 Page ~2_ of _„_6 Test Method Developed By: ®Piping Manufacturer ~ Indusir~~ Standard ^ Professional lwngitteer ^ D#her (Specify} Test Method Used: ®Pressttre C1 Vacuum ^ Hydrostaric ^ Other (Spec) Test Tquipmern Used: Equipment Resolution: Piping Run # Piping Run iD' Piping Run # Piping lRtun # Piping Material: FIBERGLASS Piping Manufacnirer; SMITH Piping Diameter: 3" Y.e~ of ~ g Run: 13' Product Stored: DYLSEL Method aad lscatiom of -tun isolation: wait time between applying ~presstue/vacuumlwater and s teat: 15 MINLJTFS ... Tact Start Time: Ini#ial Reading {R~: Test Ead Tithe: Final Reading (RF): Test Duration: Change in Reading (RP-Ril: Pass/Fail Threshold ar Criteria: 1"eat.: ,::;. ©' lP~ss . ®Fail la Pass: • C7.>6'><il Q Pass. O ~ •_: ~ Q ' ~"tltt~' ~ ~ Ftit'1 Commenfis - (include i~fornzarion on repairs made prior to testirt~, and recommended follow-up far failed tests) ~~,~~~~~Y ~ ~~U~ s 12-09-05 02:53pm From-TAIT ENVIRObENTAI • r ...i DO PEP45.BAKEItSFIELD 714-560-8237 C PTPYNl~ CTTMP'T'FCTITYI~ ~' T-602 P.09/17 F-960 Fage _3_ of _6 Test Mr'thod Developed By: ~ ^ ~ Manufacturer III Tt,dustty Standard Q PmfessionSl Engineer ^ Other (Specify] Test Method Used: D Pressure ~] Vacuum ~ YYydrostatic ^ Other (Specify] Test Equipment Used: INCON ]equipment Resolurion:.002 Sump # Sump # Surap ~ Sump # Sump Diameter: 34" Sump Depth: S7" sump l~sate:ial: r~ER~r_ASs Height froms Task Top m Top of st Pi ~ Penetration: 24" 1Eieight from Tank Top m lowest Electrical Penetration: 17" Condition trf sump prior to testing: GOOD Portion of Sump Tested' ABOVE PIPYNG ~ ' goes turbine shut down when sump sensor detects liquid (both roduct attd water ?• ^Yes ^ No ®NA Qt Yes ^ No O PJA ^Yes ^ No ^ NA ^Yes Q No QNA Turbine shutdown response time T9 system programmed for fail-soft shutdown? ^ yes q No ~I NA ~1 Yes ^ No ^ TdA q Yes q No p NA ^Yes Q No ^ NA Was fail-safe verified to be ttoual7* ^Yes ^ No ®NA ^Yes C] No p?dA iJ Yes ^ No ^ NA Q Yes ^ No ^ NA Wait time between applying pressutrlvacutem/waterond starting tlsst: 1 S MYNiTI'ES Test Stott Tinge: ]0:21 10:53 Initial Reading {R~: s.0733 5.0768 Test End Time: 10:36 11:0$ l;inal Reading (Rp): 5.0746 5.0774 Test Duration: 15 MIN 15 MIN Change is Reading (RP-Tt~: .OOi3 .0004 Pass/Fad Threshold or Criteria: .0020 _0020 rj~Cgt'A}11i •: ~ ~ Fps G Fail . p Pans ^ F~tl ~ , Q', Pass ' ~I'Fail': ~. Q pass la ~'~ .., . Vas sensor removed for testing? ®Yes ^ No p NA ^Yes Q No ^'nTA ^Yes ~! No p NA ^Yes ^ No ^ NA W~ sensor properly replaced and verified functional after tes ' ? ®~,~ p No ^ NA Q Yes ^ No ^ NA 0 Ycs ^ No ^ NA ^Yes p No p NA G'alil[Al~l#3„- (include information o~ repairs made prior to resting, and recorrimertdedfollow-up for oiled tests) ~ If the entire depth of the Sump is not tested, specify bow much was tested- If the answer to a,_„y of the questions indicated with an asterisk ("`) is '2T0" or "NA", the entire sump must be tested. (See S'IJV'1~C>3 I.G• 160) 12-09-05 02:53pm From-TAIT ENUIROtiENTAI 714-560-6237 T-602 P.10/1T F-96D DO pBPOS.BAKERSFIi?LD ~"`, ~"`' ~ 1fTwmL+v..nT4n~lyG~l7 rIINTSi7~t'M1,fTi.N1' liitlf'1 't'i,'C'7'YN[, Page 4 of,6 Test3vlethod paveiaped-Bj+~---•~ Q iTDC Manufacturer ~-Iridnsu~' Standard ^ ProfessiatfalE,tsgineer ^ Other {Specify) Test Method Used: ^ Pressure CI Vacuum ®Hydrostatic ^ Other (Specify) Test F.~iipme^* Used: YNCON Bquigment Itesoltttion: .002 UDC # UDC # 'UDC # U'DC # UDG Manufacturer: BRAVO UDC Material: STE1?I. UUG the 11" Height fiotn UDC Hottom oa Tap of Hi st p' Penctratioe: 0 Height from UDC Botfiom to I..owest Elecaical peaetration: 0 Condition of UDC prior to tes C'~QOA Portion of UDG Tasted 4 ''/z" Does turbine shut dovvtt when UDC sensor detects liquid (both roduct and water ?. ^ Yes ^ Na ®NA ^ Yes t3'iNo Q NA ^ Yes ^ No Q NA ^ Yes CI Na RNA '~trbitu shutdown r a time is sysrera progratnmed for fad- safe shutdown?• q ~,~ ^ No ¢~ NA D Yes Cl No ^ N.A ^ Yes d No Cl NA ^ Yes C! Na Q NA 'GVas fail-safe verified to be tiottal?• ^ Yes ^ No ®NA ^ Yes E~I~No Q NA q Yes fl No Q NA ^ Yes ^ No CI NA Wait time between applying pnessurelvacuum/water and s rest 151VIINC}TES Test Start Time: 10:21 10:37 initial Readin >:, : _5az7 .soya Test Fad Time: 10:31 10:52 Final ILeadin .5035 .5034 Test Dtuation 15 M1N 15 MIN itl R,e R~-l~)' _0008 .4000 P$ss/Fail Threshold or Critetla: .0020 .0020 T@Sf°6tAl~i:.: ~ ~ ~Igl`:•Pass~ ~ fa~ail :.fl.~~~: ~:;•Il~b'aill: 17~~3?AAS.. _O~fi'ail. Gl~=i..~°~.1;).~'ail:.,. Vlras sensor removed for testing? ~ Yes fl No ^ NA ^ Yes ^ Na ^ NA ^ Yes Q No ^ NA G Yes ^ Na ^ NA Was sensor properly replaced and verified functional after Des ' ~ Yes ^ Na Q NA ~ ^ Yes CI No Q 1`~A D Yes q Na ^ NA 17 Y~ ^ No ^ NA Comments - Cnclude information on repairs made prior ro tesrin~; and recommended follow-up far failed tests) MECHANICAL FLOAT SHUT FF V _~~1'.~O SE1~OR ~ If the enure deptt- of the UDC is not tested, specify how much was tested. Tf ttte answer to and of the questions indicated with an asterisk (*) is "NO" ar "NA", the entire LJDC must be tested. (See S"V11RGB LG-160) 12-09-05 02:53pm From-TAIT ENVIROtiENTAL DO PEPOS.BAKERSFIBLD 714-560-8237 T-602 P.11/17 F-960 .,_.f ~ ~ iarx t n~a~n nntvm,-n-rad~9~TT CiTMfF 'TF'C''>f'YN[~ Page _5,_ of ~6,^. •Fatility is•Nat E '4~it3i Fill Riser Cantainmeat S s q Pill Riser Containment Sumps are Present, but were Not Tested ^ TCSt Method Developed By: ^ Sump Manufacturer ^ )industry atandard ^ Professional Engineer Q Ocher (Specify) Test Method Usecb ^ Pressure fl Vacuum ^ Hydrostatic p Ocher (Sbecifyj Test Fgiupment Used: fill Sum # Fill Suva # Equipttsent Resolution: Ffill Su # Fill Su # S Diameter: S D the Height ~&vm Tank Top tD Top of YIi iu Pcnetration• I~eigbR Roan Tatalc Top to I.awest lwlecttical Penetration: Condition of sump prior to tes Portion of Tested Mateaial: Wait time between applying pressiu~e/vacuuiai/water and stattin test: Test Start Time: Iatitisl Test End Time: Pinal R.eadin RF): Test Duratiau: Chan in Readin Ri Pass/Fail Threshold or Criteria: :~'loilh~:. ~:. •. ,...:._ •. •. , ,.•> ..[7' Pass C]~Fait ~ %~?'u$S. CI~Fa~ Q Pte, ^~Fall- ~ ::~: ^• F~asr ~ ~O1$*f!. Is there a sensor iu the sump? ^ Yes ^ Na ^ 'Y'es ^ l'lo ^ Yes D No ^ Yes [3 No Does the sensor alarm when either product or water is detected'? ^ Yes D No t7 NA ^ Yes q Na CI NA ^ Yes Q Na t] NA ^ Yes R No q NA Was sensor removed for tes ' ? fl Yes Cl Na ^ NA ^ Yep ^ No C1 NA A Yes ^ Na ^ NA Ca Yes ^ No DNA Was sensor properly replaced and veaified fialctianal after testin ^ Yes ^ No q NA ^ Yes q Na C] NA ^ Yes ^ No ^ NA ^ Yes ^ No ^ NA Comments - (ineluda information on repairs made prior to resaiig, and reaommended}otlow-up for~aalerl tests) DIT~-~'7' BURY - r 12-09-05 02:54pm From-TAIT ENVIRONENTAL 714-560-8237 T-602 P.12/17 F-960 DO PEPOS.BAKERSFIEI.D ~! `-~ Page _6, of ~b~, $. S]p'II,LlOV'~XtFILL CONTAt~TNiEN'1G' BOXES Facility is Not ed With ill/Qver511 ContaixtmCnt~~Boxes Q SpiiUOverfill Catttainmtut Boxes are Present, but were Not Testrd Cl Test Method Developed By: Cl SpiI1 Bucket Manufacturer ^ Indu:;try Standard ^ Professional Engineer ^ Other (Specify} Test Method Used: ^ Pressure ^ Vacuum Q Hydrostatic ^ Othet (Specify) Test Equipme~ Used: Spill Box # Spr11 Bog # fiquipment Resolution: Spill Box # Spill Box # Bucket Diameter. 10" Bucket Depth: 10" Wait time between applying pressum/vacuum/water and st test: 15 MllrTi)TIrS Test Start Tithe: 9:30 Initial Reading {lt[): S h° - •• . Test Bnd Time: 1p:30 Final Readug (Rr): 5 'fi" Test Duration: 1 HOUR Change in Reading CRF-Rt}: 0 Pass/Fail Threshold or C~itetia: ~ Test l9iesttlt:.. , ~. ®. bass ' ^ Fat1 . ^ Pass . q Fail :c ^ Pass . 'f7 ~Bal~:: -'~ • :: ` I"I . P#~s. p 76+e31 '.~ Cg Wments - (include information on repairs made prior to resting, and reco,nanendedfollow-uP for failed rests) 12-09-05 02:54pm From-TAIT ENVIRObENTAI 714-580-823T J ~/' `~•: ~~ TAIT Envi.r~onmental Systems Genessl Comractor: CF ~~c. z548o°E LEp,K.pE7~CT~R 7ESTYMG T-602 P.13/1T F-960 . ~ may, ~9s~ S ~ I rt 't'echnician: ~ ~ .ration Tested: ~ Tech ID#;, ~v ~ ~ Contact: ~ . ~k Detector' Type iCheck Dne): ~ X~,.p P!!+1 11 B03fi ~ PLQ PIN 1 i g030 ~FLD PIN 11 fi012 ~ .. XLP PIN 116035 ~ BLFLD (XL Model) P1fV 116039 fl ~ pt.p PIN 11fi017 ~ FE pETRO FX N [~ PX IDV ~ 'WAPURLt=SS LD 2000 ~ VAPOf~I-ESS LP 2200 ~ VAPOhZLESS LD 3000 [] TO}CHE1M DTHE:R p Ys~~ Technician Signature: ~' ^c',- 'F: - ..__ - aye. `r';.GG'' ,. Test~Dart~: - ~~ 0 5" ~ . 12-OB-05 02:54pm From-TAIT ENVIROfrENTAL .. ~~! ~ ~ 1 S stems Tait Envir~nmenta y UST Consrruotion • Design • Maintenance • Co~mpl+ance September 8, 2005 -~~RTI~'I~~~A~=-~~T TxFiPT ~QuF.;~fiLD Fr~~if~ed 9]. 77.08 2133 3'30 8747 8$~6 Bakersfield Fire Department 900 T'ruxtun Avenue, Room 20Q Bakersfield, CA 93301 RE: Testing Results pegai #964 .~ 16 F. 21 Street $altersff~ld, CA To Whom It May Concern: ~' Enclosed are the following forms, dated 8/17/OSr, for the above-referenced facilities: Secondary Containment Testing Report Fo~irs Feel free to call if Y°'.~ have any questions. Very 't`ruly Yours, TAIT ENVIRONMENTAL SYSTEMS r ~ .,~,~ PAMELA YE I{ES Compliance N~anager ~:~ ~.c1osure Tes~jdslP~~\PeA 954•bakei'a~°lcl 714-560-8237 T-602 P. 14/17 F-960 CA l.ic #58809$ • A2' I.ic #09~i9f84 - NV 4ic #0049666 1863 North Neville Street Orange, California 92865 T1~+.560.8222 714.685.4046 Fax 11280 Trede Center Drive Rancho Cordova, Caiiforn~ua 95742 - 916.858.1090 • 9SF_s58.1O11 fax vrww-taltenviron rr-ental.coirt 12-09-05 02:55pm From-TAIT ENVIRONENTAL 714-560-6237 T-602 P.15/17 F-960 _ _ ~ ~~; Page _l~of~,_„34 D pEp05.BAK~RS>r~~•SPILL Secondary Containment Testi>~tg Report ~`prm Reis form is interededfor use by contractors pe~forrning periodic testing of 1JST secondary contaixmenr systems. Use the appropriate pages of this form W report results for al! components tested- 77e'e completed fare, written rest procedures, anci~ prim from tests (if'upplicable}. should be provided ro the.Jacility ownerfoperatorforsubmittal to rlee Ioca1 reguiatot'!'a~~cy. 1. FACILITY TNFUYtMATLCI-1`T Yi9r~ nfTesti~ee: ~ $!17/05 Facility Name= PEPSI Facility Address: ~ 15 E. 21 STREh"I' BA] FaciliCy s~TT gp,WKINS Date Local Agagey Was Notified of Testing Name of Local Agency ~P~br {if present during resting: Company Name- 7e~r.,;rt~n Card Credentials: I,icanse Type: Tait BnvirQnmezeta< aysrerrx Test: 1t088RT ALLEN CSLB Licetesed Contractor' ,gp}g$HA78C-10 d; CA ]Phone: 561-tX?9-3Q70 48 Hours Prior - At List ~~~~ Ncase ^ SWKG$ licersascd Tsnk Tester License Atumbtr: Sfi8-098 Data SiJ~X OF TEST StiTLTS . 3 . Not Repairs Pass ]Fail Component Pose Nd Fall .te8~$ ~~~ Made Component Tested Mt-de ~ ~ D ^ Q ^ ipIL,L BUCKE"s D ^ Q Q ^ Q D ^ ^ ^ ^ ^ a ^ a ^ ^ ^ o ^ a ^ ^ a ^ ^ o t~ o p a ^ ^ ^ a ^ 13 p ^ ^ Q ^ ^ ^ ~ ~ ^ ^ ~ ~ ^ ^ ^ ~ ^ ^ ^ ^ Q ^ A n ^ ^ ^ ^ ^ ^ ^ © D ~ ^ O ^ ^ ^ ~ ~ ^ © © ^ desci7'be ""hat was done with the water after completion of tests: exf°m~ed avas P , If hydmstamC tcstnig 'I'~ST "V~TA'~.'~R LEFT ON SITE IN S-GALLCIN DRUM _ - ~g~'ICA'I'ION OF TECHNICIAN RESPOI-T3IBLE FOR CgNDUCTING'Y"ffiS'I'E.S''<TN 9 penis To flee best of ray knmyIedge, the facts stared In this document are atecurate acrd ite full corn fiance with legal re wire ~~,/~,~~~ ~ Date:,,, 811?lOS~~~ Technician's Signazure:_ 12-09-05 02:55pm From-TAIT ENVIROfrENTAI 714-560-6237 T-602 P-16/17 F-960 o P>~as.aAYx~sl~in.sPn~. ~.r' Page 2-, of~~~ $Cillry 1S Noi ^»„~Yfep W lu+ .~~•,.,.,.~ pill/QverfiA CoIIt Boxes are 'est Method Y~evelaped By: Cest Method Uses= Test ~q Used: 1AICOl~T ~erfill Contaimnetx~ Boxes Present, but were Not Tested ^ O 3pi~]1 Bucket Manufachtrer ^ Other (~$ecify) n1~~ -rrz~~ is o:.;~~. _.. _ _ _ .. _ Spoll Box # f Bucket Diameter' 10" Bucket Daptb_ lD„ W ~ ~~~ ~ 15 MTIRLLJTTFS s ~ fret: 8:2G 8:45 Test Start 7itne: Initial l~diug (Rt): 3026 .3026 Z,~ Bnd Tizae: 8:42 9:00 Final ILeadittg (R~): .3027 .3024 Test Duration: 15 MIN 1 S MIN man ~ Raadin8 ~ ~; .0001 .0002 Pass/Fail Ttueshold os .0020 ~ .002D Criteria: esm+ ~ oc:.t~- _ _ ~ Pass . • O Ft-i1 17 lrldustry Standard Q Professio>7a1 Finger ^ Vactmm ®I3ydrostatic >;quipoment Resolutiott:.002 - Hox # Spi118o: # Seidl ~~lt i~ Cl FA1 T' . Q Pam D ~~`; ~. ~ Gomme>ats - :nclt<de to °r"`atfoa °rt r ire ir+ade ri°r t° testin , artd reconintErnded oll°w-ttpf°rfailed tests) STANDALONE SPILL BUCKET ~ NO SUMP - ~-- _~, 12-09-05 02:55pm From-TAIT ENVIROI~ENTAL 714-560-8237 T-602 P.1T/1T F-960 • - ~ ~, Page 3_~~-~'~ O PF~POS.BAKFZtSFIELD.SPIL~. SECONDARY PX1<'E TE5'1'IlVG _ ~ 5 'est Mcshod DCVeloped 8y: , ~ pig Manufacturer ®Indus~J' $tana~ard p Pro~cssional Enginer a l•~~=fv1 -- test Method Used: ~ Pressure ^ Vacunm Q Hydrostatic 1] Other (Specify) ~~ EgniprneIIt Resohrtiott: Test Eq-tipmeat Used: 4" ]aIAI-GAUGE piping Run # PiQitrg Rtm # Piping Rnn # ~p~ Raab ~~ ~ FIBERGLASS Piping Mas-ufacuuer: SMITH Piping Diameter: 3" Length of Pi g Rtm: 15' Product Stored: DiESBL Method and location of 'T'EST gpp'T fl7tr ieb~atl4II' Wait trine betweer- applying ~~r$cuum/water and 15 MIN s ttst Test Start Time: 11:12 Initial ReadinS (Rt}s 5 PSI Test End Time: 12:12 Final Readitlg (RF): 5 PSI Teel f~u'ation: 1 HOUR in Reading (~~~ ~ PassJFail Threshold or - p Giteris:_w.u. ®Pass O Fail ~ Pose Q~ 11*sil ~ Pass D FA10 . d Pam ~~ )F`ail Comments - inclsede in ormatYalt en re its made riot ro teati drid recommended_ faTiow-up_for}aileat tes~~~ ~--t -_,~, ~~ ~ti, .~---~ + PEPSI COLA BOTTLING C0 ______________________________ SiteID: 015-021-000984 + Manager $°°"'^' '~r~nTrrr Sco71- /~gwK~s BUSPhorie: (661) 635-1100 Location: 215 E 21ST ST Map 103 CommHaz High City BAKERSFIELD Grid: 29A FacUnits: 6 AOV: CommCode: BFD STA 02 SIC Code:2086 EPA Numb: DunnBrad: Emergency Contact / Title Emergency Contact / Title _ ~~~~ MANAGER JAVIER NUNEZ / SUPERVISOR Business PhoneA (661) 635-1100x Business Phone: (661) 635-1100x 24-Hour Phone (661) 635-1188x 24-Hour Phone (661) 635-1187x Pager Phone (~ ~ ) 9~~ -,~o70'x Pager Phone (66 ~) $/Q -7d7Zx Hazmat Hazards: Fire Press ~ ImmHlth DelHlth Contact .S"to7T' (~wkr,~-S Phone: (661) 635-1188x MailAddr: 215 E 21ST ST State: CA City BAKERSFIELD Zip 93305 Owner PEPSI BOTTLING GROUP Phone: (661) 635-1100x Address 215 E 21ST State: CA City BAKERSFIELD Zip 93305 Period to TotalA5Ts: = Gal Preparers TotalUSTs: = Gal Certif'd: RSs: No ParcelNo: Emergency Directives: ~ PROG A - HAZMAT PROG U - UST ~NT'p q pR ,~ 8 2 006 Based on my inquiry of those individuals responsible for obtaining the information, I certify under penalty of law that I have personally examined and am familiar with the information submitted and believe the information is true, accurate, and complete. Signature Date -1- 04/03/2006