PEPSI BOTTLING GROUP INC - 10-K Annual Report

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

FORM 10-K

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Fiscal Year Ended December 28, 2002

or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)

For the transition period from ________ to ________

Commission file number 1-14893

THE PEPSI BOTTLING GROUP, INC.
(Exact name of Registrant as Specified in its Charter)

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

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

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

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

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
7% Series B Senior Notes due 2029 New York Stock Exchange

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

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

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

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

THE NUMBER OF SHARES OF CAPITAL STOCK OF THE PEPSI BOTTLING GROUP, INC.
OUTSTANDING AS OF MARCH 11, 2003 WAS 278,552,993. THE AGGREGATE MARKET VALUE OF
THE PEPSI BOTTLING GROUP, INC. CAPITAL STOCK HELD BY NON-AFFILIATES OF THE PEPSI
BOTTLING GROUP, INC. AS OF JUNE 15, 2002 WAS $5,803,740,542.

DOCUMENTS OF WHICH PORTIONS PARTS OF FORM 10-K INTO WHICH PORTION
ARE INCORPORATED BY REFERENCE OF DOCUMENTS ARE INCORPORATED
- ----------------------------- -------------------------------------
2002 ANNUAL REPORT TO SHAREHOLDERS I, II

PROXY STATEMENT FOR THE PEPSI BOTTLING III
GROUP,INC. MAY 28, 2003 ANNUAL MEETING
OF SHAREHOLDERS

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PART I

ITEM 1. BUSINESS

INTRODUCTION

The Pepsi Bottling Group, Inc. ("PBG") was incorporated in Delaware in
January, 1999, as a wholly owned subsidiary of PepsiCo, Inc. ("PepsiCo") to
effect the separation of most of PepsiCo's company-owned bottling businesses.
PBG became a publicly traded company on March 31, 1999. As of February 21, 2003,
PepsiCo's ownership represented 38.0% of the outstanding common stock and 100%
of the outstanding Class B common stock, together representing 43.1% of the
voting power of all classes of PBG's voting stock. PepsiCo also owned
approximately 6.8% of the equity interest of Bottling Group, LLC, PBG's
principal operating subsidiary, as of February 21, 2003. We refer to our
publicly traded common stock as "Common Stock" and, together with our Class B
common stock, as our "Capital Stock." When used in this Report, "PBG," "we,"
"us" and "our" each refers to The Pepsi Bottling Group, Inc. and, where
appropriate, to Bottling Group, LLC, which we also refer to as "Bottling LLC."

We maintain a website on the World Wide Web at http://www.pbg.com. We make
available, free of charge, through the Investor Relations section of our
website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, as soon as reasonably practicable after such reports are electronically
filed with, or furnished to, the Securities and Exchange Commission (the "SEC").

RECENT ACQUISITIONS

On March 13, 2002, we acquired the operations and exclusive right to
manufacture, sell and distribute Pepsi-Cola's international beverages in Turkey
for a purchase price of approximately $75 million in cash and assumed debt.

On November 5, 2002, we acquired approximately 99.8% of all of the
outstanding capital stock of Pepsi-Gemex, S.A. de C.V. ("Gemex"), which is the
largest bottler in Mexico and the largest bottler outside the United States of
Pepsi-Cola soft drink products based on sales volume, through simultaneous
tender offers in Mexico and the United States. Following the offers, we funded a
trust for the acquisition of the balance of the outstanding capital stock and
caused Gemex to carry out a reverse stock split that eliminated for cash the
outstanding capital stock held by any remaining security holders other than us.
Our total cost for the purchase of Gemex was a net cash payment of $871 million
and assumed debt of approximately $305 million.

PRINCIPAL PRODUCTS

PBG is the world's largest manufacturer, seller and distributor of
PEPSI-COLA beverages. The beverages sold by us include PEPSI-COLA, MOUNTAIN DEW,
DIET PEPSI, AQUAFINA, LIPTON BRISK, MOUNTAIN DEW CODE RED, SIERRA MIST, SOBE,
DOLE, MUG, DIET MOUNTAIN DEW, PEPSI TWIST, STARBUCKS FRAPPUCCINO and, outside
the U.S., PEPSI-COLA, MIRINDA, 7 UP, KAS, ELECTROPURA, AQUA MINERALE, MANZANITA
SOL, SQUIRT, GARCI CRESPO, FIESTA, PEPSI LIGHT, IVI, YEDIGUN, and FRUKO.

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, after our
recent acquisition of Gemex, all or a portion of 21 states in Mexico. In some of
our U.S. territories, we also have the right to manufacture, sell and distribute
soft drink products

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of other companies, including Dr PEPPER, All SPORT and, through December 2002, 7
UP. In 2002, approximately 82% of our net revenues were generated in the United
States, and the remaining 18% was generated in Canada, Spain, Greece, Russia,
Turkey and Mexico. 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
soft drink products from PepsiCo and other soft-drink companies.

In addition to concentrates, we purchase sweeteners, glass and plastic
bottles, cans, closures, syrup containers, other packaging materials and carbon
dioxide. We generally purchase our raw materials, other than concentrates, from
multiple suppliers. PepsiCo acts as our agent for the purchase of such raw
materials 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 provide that, with respect to the soft drink products of PepsiCo, all
authorized containers, closures, cases, cartons and other packages and labels
may be purchased only from manufacturers approved by PepsiCo. There are no
materials or supplies used by 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, LICENSES AND FRANCHISES

Our portfolio of beverage products includes some of the best recognized
trademarks in the world and includes PEPSI-COLA, MOUNTAIN DEW, DIET PEPSI,
AQUAFINA, LIPTON BRISK, MOUNTAIN DEW CODE RED, SIERRA MIST, SOBE, DOLE, MUG,
DIET MOUNTAIN DEW, PEPSI TWIST, STARBUCKS FRAPPUCCINO and, outside the U.S.,
PEPSI-COLA, MIRINDA, 7 UP, KAS, ELECTROPURA, AQUA MINERALE, MANZANITA SOL,
SQUIRT, GARCI CRESPO, FIESTA, PEPSI LIGHT, IVI, YEDIGUN, and FRUKO. The majority
of our volume is derived from brands licensed from PEPSICO or PEPSICO joint
ventures. In some of our U.S. territories, we also have the right to
manufacture, sell and distribute soft drink products of other companies,
including DR PEPPER , ALL SPORT and, through December 2002, 7 UP.

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

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

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

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Under the Master Bottling Agreement we are obligated to:

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

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

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

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

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

(6) maintain such financial capacity as may be reasonably necessary to
assure performance under the Master Bottling Agreement by us.

The Master Bottling Agreement requires us to meet annually with PepsiCo to
discuss plans for the ensuing year and the following two years. At such
meetings, we are obligated to present plans that set out in reasonable detail
our marketing plan, 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 2002, PepsiCo approved our annual plan.

If we carry out our annual plan in all material respects, we will be
deemed to have satisfied our obligations to push vigorously the sale of the cola
beverages, 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

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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
12.6% of PepsiCo's U.S. bottling system in terms of volume -- if we have
successfully negotiated the acquisition and, in PepsiCo's reasonable judgment,
satisfactorily performed our obligations under the Master Bottling Agreement. We
have agreed not to acquire or attempt to acquire any rights to manufacture and
sell Pepsi trademarked cola beverages outside of that specific area without
PepsiCo's prior written approval.

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

(1) our insolvency, bankruptcy, dissolution, receivership or the like;

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

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

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

An event of default will also occur if any person or affiliated group
acquires any contract, option, conversion privilege, or other right to acquire,
directly or indirectly, beneficial ownership of more than 15% of any class or
series of our voting securities without the consent of PepsiCo. As of February
21, 2003, to our knowledge, no shareholder of PBG, other than PepsiCo, held more
than 6.0% of our Common Stock.

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

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

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

Terms of Certain Distribution Agreements. We also have agreements with
PepsiCo granting us exclusive rights to distribute AQUAFINA, AMP and DOLE in all
of our territories and SoBe in certain specified territories. We have the right
to manufacture Aquafina in certain locations depending on the availability of
appropriate equipment. The distribution agreements contain provisions generally
similar to those in the Master Bottling Agreement as to use of trademarks, trade
names, approved containers and labels and causes for termination. We recently
obtained the rights to sell and distribute GATORADE in Spain, Greece and Russia
and in certain limited channels of distribution in the U.S. Some of these
beverage agreements have limited terms and, in most instances, prohibit us from
dealing in similar beverage products.

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

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

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

Terms of Other U.S. Bottling Agreements. The bottling agreements between
us and other licensors of beverage products, including Cadbury Schweppes plc for
DR PEPPER, SCHWEPPES, CANADA DRY and HAWAIIAN PUNCH, the Pepsi/Lipton Tea
Partnership for LIPTON BRISK and LIPTON'S ICED TEA, the North American Coffee
Partnership for STARBUCKS FRAPPUCCINO, and The Monarch Beverage Company, Inc.
for ALL SPORT, contain provisions generally similar to those in the Master
Bottling Agreement as to use of trademarks, trade names, approved containers

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and labels, sales of imitations, and causes for termination. Some of these
beverage agreements have limited terms and, in most instances, prohibit us from
dealing in similar beverage products.

Terms of the Country Specific Bottling Agreements. The country specific
bottling agreements contain provisions similar to those contained in the Master
Bottling Agreement and the non-cola bottling agreements and, in Canada, the
Master Syrup Agreement with respect to authorized containers, planning, quality
control, transfer restrictions, 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.

SEASONALITY

Our peak season is the warm summer months beginning with Memorial Day and
ending with Labor Day. Approximately 73% of our operating income is typically
earned during the second and third quarters. Approximately 75% of cash flow from
operations is typically generated in the third and fourth quarters.

COMPETITION

The carbonated soft drink market and the non-carbonated beverage market
are highly competitive. Our competitors in these markets include bottlers and
distributors of nationally advertised and marketed products, bottlers and
distributors of regionally advertised and marketed products, as well as bottlers
of private label soft drinks sold in chain stores. Among our major competitors
are bottlers that distribute products from The Coca-Cola Company including
Coca-Cola Enterprises Inc., Coca-Cola Hellenic Bottling Company S.A. and
Coca-Cola FEMSA S.A. de C.V. The market shares for our U.S. territories range
from approximately 11.0% to approximately 53.0% and for our non-U.S. territories
from approximately 13.0% to approximately 40.0%. 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, availability and
consumer and customer goodwill are primary factors affecting our competitive
position.

GOVERNMENTAL REGULATION APPLICABLE TO PBG

Our operations and properties are subject to regulation by various
federal, state and local governmental entities and agencies in the United States
as well as foreign government entities and agencies in Canada, Spain, Greece,
Russia, Turkey and Mexico. As a producer of food products, we are subject to
production, packaging, quality, labeling and distribution standards in each of
the countries where we have operations, including, in the United States, those
of the federal Food, Drug and Cosmetic Act. The operations of our production and
distribution facilities are subject to laws and regulations relating to the
protection of the environment in the countries in which we do business. In the
United States, we are subject to the laws and regulations of the Department of
Transportation, and various federal, state and local occupational and
environmental laws. These laws and regulations include the Occupational Safety
and Health Act, the Clean Air Act, the

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Clean Water Act, the Resource Conservation and Recovery Act and laws relating to
the operation, maintenance of and financial responsibility for fuel storage
tanks.

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

Bottle and Can Legislation

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

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

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

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

Soft Drink Excise Tax Legislation

Specific soft drink excise taxes have been in place in certain states for
several years. The states in which we operate that currently impose such a tax
are West Virginia, Arkansas and Tennessee and, with respect to fountain syrup
only, Washington. In Mexico, there is an excise tax on mineral water and,
effective January 1, 2003, there is an excise tax applicable to any products
produced without sugar, including diet soft drinks.

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.

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.

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Trade Regulation

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

California Carcinogen and Reproductive Toxin Legislation

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

Mexican Water Regulation

In Mexico, we purchase water directly from municipal water companies and
pump water from our own wells pursuant to concessions obtained from the Mexican
government on a plant-by-plant basis. The concessions are generally for 5, 10 or
15 year terms. Our concessions may be terminated if, among other things, (a) we
use more water than permitted, (b) we fail to pay required concession-related
fees, or (c) we fail to complete agreed-upon construction or improvements. Our
concessions satisfy our current water requirements and we believe that we are in
compliance in all material respects with the terms of our existing concessions.

EMPLOYEES

As of December 28, 2002, we employed approximately 65,000 full-time
workers, of whom approximately 29,500 were employed in the United States and
approximately 25,900 were employed in Mexico. Approximately 8,700 of our
full-time workers in the United States are union members and approximately
18,800 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

For financial information on industry segments and operations in
geographic areas, see Note 13 to PBG's Consolidated Financial Statements, found
on page 52 of our Annual Report to Shareholders for the year ended December
28, 2002, which page is incorporated herein by reference and is included as
Exhibit 13 hereto.

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ITEM 2.PROPERTIES

As of December 28, 2002, we operated 95 soft drink production facilities
worldwide, of which 89 were owned and six were leased. In addition, one facility
used for the manufacture of soft drink packaging materials was operated by a PBG
joint venture in Turkey. Of our 532 distribution facilities, 360 are owned and
172 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 39,900 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 1.5 million soft drink dispensing and vending machines.

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

ITEM 3.LEGAL PROCEEDINGS

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

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

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

Set forth below, as of March 25, 2003, is information pertaining to our
executive officers who held office during our 2002 fiscal year:

JOHN T. CAHILL, 45, is our Chairman of the Board and Chief Executive Officer. He
had been our Chief Executive Officer since September 2001. Previously, Mr.
Cahill served as our President and Chief Operating Officer from August 2000 to
September 2001. Mr. Cahill has been a member of our Board of Directors since
January 1999 and served as our Executive Vice President and Chief Financial
Officer prior to becoming President and Chief Operating Officer in August 2000.
He was Executive Vice President and Chief Financial Officer of the Pepsi-Cola
Company from April 1998 until November 1998. Prior to that, Mr. Cahill was
Senior Vice President and Treasurer of PepsiCo, having been appointed to that
position in April 1997. In 1996, he became Senior Vice President and Chief
Financial Officer of Pepsi-Cola North America. Mr. Cahill joined PepsiCo in 1989
where he held several other senior financial positions through 1996.

CRAIG E. WEATHERUP, 57, was our Chairman of the Board from March 1999 to January
2003. Mr. Weatherup retired as Chairman of the Board in 2003, but continues to
serve on the Board as a

11

non-employee Director. Mr. Weatherup was also our Chief Executive Officer from
March 1999 to September 2001. Mr. Weatherup served on the Board of Directors of
PepsiCo from 1996 until March 1999. Prior to becoming our Chairman and Chief
Executive Officer, he served as Chairman and Chief Executive Officer of the
Pepsi-Cola Company since July 1996. He was appointed President of the Pepsi-Cola
Company in 1988, President and Chief Executive Officer of Pepsi-Cola North
America in 1991, and served as PepsiCo's President in 1996. Mr. Weatherup is
also a director of Federated Department Stores, Inc. and Starbucks Corporation.

ALFRED H. DREWES, 47, is our Senior Vice President and Chief Financial Officer.
Appointed to this position in June 2001, Mr. Drewes previously served as Senior
Vice President and Chief Financial Officer of Pepsi Beverages International
("PBI"). Mr. Drewes joined PepsiCo in 1982 as a financial analyst in New Jersey.
During the next nine years, he rose through increasingly responsible finance
positions within Pepsi-Cola North America in field operations and headquarters.
In 1991, Mr. Drewes joined PBI as Vice President of Manufacturing Operations,
with responsibility for the global concentrate supply organization.

ERIC J. FOSS, 44, is the President of PBG North America. Previously, Mr. Foss
was our Executive Vice President and General Manager of PBG North America from
August 2000 to September 2001. From October 1999 until August 2000, he served as
our Senior Vice President, U.S. Sales and Field Operations, and prior to that,
he was our Senior Vice President, Sales and Field Marketing, since March 1999.
Mr. Foss joined Pepsi-Cola Company in 1982 and has held a variety of other field
and headquarters-based sales, marketing and general management positions. From
1994 to 1996, Mr. Foss was General Manager of Pepsi-Cola North America's Great
West Business Unit. In 1996, Mr. Foss was named General Manager for the Central
Europe Region for Pepsi-Cola International, a position he held until joining PBG
in March 1999.

JAIME COSTA LAVIN, 50, is the Chief Executive Officer of PBG Mexico. He was
appointed to this position in November 2002. Mr. Costa previously served as the
President of Latin American operations of GRUMA, the world's largest corn flour
and tortilla producer. In 1982, Mr. Costa joined the FEMSA Group in the soft
drinks division. Following a number of increasingly responsible assignments, Mr.
Costa was named Managing Director of Coca-Cola FEMSA for Mexico in 1985, a
position he held for seven years. In 1993, he joined Grupo Lala, the largest
dairy business in Mexico, as Managing Director. Mr. Costa was named Managing
Director for Allied Domecq in Mexico in late 1994, where he remained until
joining GRUMA.

PAMELA C. MCGUIRE, 55, is our Senior Vice President, General Counsel and
Secretary. She was appointed to this position in November 1998. Ms. McGuire
joined PepsiCo in 1977 and served as Vice President and Division Counsel of
Pepsi-Cola Company from 1989 to March 1998, when she was named Vice President
and Associate General Counsel of the Pepsi-Cola Company.

YIANNIS PETRIDES, 45, is the President of PBG Europe. He was appointed to this
position in June 2000, with responsibilities for our operations in Spain,
Greece, Turkey and Russia. Most recently, he served as Business Unit General
Manager for PBG in Spain and Greece. Mr. Petrides joined PepsiCo in 1987 in the
international beverage division. In 1993, he was named General Manager of Frito
Lay's Greek operation with additional responsibility for the Balkan countries.
Two years later, he was appointed Business Unit General Manager for Pepsi
Beverages International's bottling operation in Spain.

PART II

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

Stock Trading Symbol - PBG.

12

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

Shareholders - As of March 11, 2003, there were approximately 55,000
registered and beneficial shareholders of Common Stock. PepsiCo is the holder of
all of the outstanding shares of Class B common stock.

Stock Prices - The high, low and closing prices for a share of PBG Common
Stock on the New York Stock Exchange, as reported by Bloomberg Service, for each
fiscal quarter of 2002 and 2001 were as follows (in dollars):

2002 High Low Close
---- ---- --- -----

First Quarter 26.230 21.650 26.020
Second Quarter 34.800 24.820 32.420
Third Quarter 33.850 23.000 23.850
Fourth Quarter 29.500 23.000 25.450

2001(1) High Low Close
------- ---- --- -----

First Quarter 21.250 16.781 19.055
Second Quarter 22.535 17.950 20.725
Third Quarter 22.860 19.680 22.300
Fourth Quarter 24.725 21.625 23.800

Dividend Policy - Quarterly cash dividends are usually declared in
January, March, July and November and paid at the end of March, June, September
and at the beginning of January. The dividend record dates for 2003 are expected
to be March 14, June 13, September 12 and December 12.

Cash Dividends Declared Per Share on Capital Stock:

Quarter 2002 2001(2)
- ------- ---- ----

1 $.01 $.01
2 $.01 $.01
3 $.01 $.01
4 $.01 $.01
Total $.04 $.04

ITEM 6.SELECTED FINANCIAL DATA

"Selected Financial and Operating Data" for the years 1998 through 2002, on page
59 of our Annual Report to Shareholders for the fiscal year ended December 28,
2002 is incorporated into this report by reference and is included as part of
Exhibit 13 hereto.

(1) Reflects stock prices adjusted to give retroactive effect to the 2-for-1
split of PBG Common Stock effective November 27, 2001 (the "PBG Stock
Split").

(2) Reflects dividends adjusted to give retroactive effect to the PBG Stock
Split halving PBG's previous quarterly dividend of $.02 per share.

13

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

"Management's Financial Review" on pages 18 through 33 of our Annual Report to
Shareholders for the fiscal year ended December 28, 2002 is incorporated into
this report by reference and is included as part of Exhibit 13 hereto.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

"Management's Financial Review -- Market Risks and Cautionary Statements" on
pages 32 and 33 of our Annual Report to Shareholders for the fiscal year ended
December 28, 2002 is incorporated herein by reference and is included as part of
Exhibit 13 hereto.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of PBG and our subsidiaries are
incorporated herein by reference to our Annual Report to Shareholders for the
fiscal year ended December 28, 2002, included as part of Exhibit 13 hereto, at
the pages indicated:

Consolidated Statements of Operations - Fiscal years ended December 28, 2002,
December 29, 2001 and December 30, 2000 (page 34).

Consolidated Statements of Cash Flows - Fiscal years ended December 28, 2002,
December 29, 2001 and December 30, 2000 (page 35).

Consolidated Balance Sheets - December 28, 2002 and December 29, 2001 (page 36).

Consolidated Statements of Changes in Shareholders' Equity - Fiscal years ended
December 28, 2002, December 29, 2001 and December 30, 2000 (page 37).

Notes to Consolidated Financial Statements (pages 38-56).

Report of Independent Auditors (page 58).

The following consolidated financial statements and notes thereto of Bottling
LLC for the year ended December 28, 2002 are incorporated herein by reference
and are included as Exhibit 99.1 hereto:

Consolidated Statements of Operations - Fiscal years ended December 28, 2002,
December 29, 2001 and December 30, 2000.

Consolidated Statements of Cash Flows - Fiscal years ended December 28, 2002,
December 29, 2001 and December 30, 2000.

Consolidated Balance Sheets - December 28, 2002 and December 29, 2001.

Consolidated Statements of Changes in Owners' Equity - Fiscal years ended
December 28, 2002, December 29, 2001 and December 30, 2000.

Notes to Consolidated Financial Statements.

Report of Independent Auditors.

14

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PBG

The name, age and background of each of our directors nominated for
election are contained under the caption "Election of Directors" in our Proxy
Statement for our 2003 Annual Meeting of Shareholders and such information is
incorporated herein by reference. Pursuant to Item 401(b) of Regulation S-K, the
requisite information pertaining to our executive officers is reported in Part I
of this Report.

Information on compliance with Section 16(a) of the Exchange Act is
contained in our Proxy Statement for our 2003 Annual Meeting of Shareholders
under the caption "Section 16 Beneficial Ownership Reporting Compliance" and is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information on compensation of our directors and certain named executive
officers is contained in our Proxy Statement for our 2003 Annual Meeting of
Shareholders under the captions "Directors' Compensation" and "Executive
Compensation," respectively, and is incorporated herein by reference.

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

Information on the number of shares of PBG Common Stock beneficially owned
by each director, each named executive officer and by all directors and all
executive officers as a group is contained under the caption "Ownership of
Common Stock by Directors and Executive Officers" and information on each
beneficial owner of more that 5% of PBG Common Stock is contained under the
caption "Stock Ownership of Certain Beneficial Owners" in our Proxy Statement
for our 2003 Annual Meeting of Shareholders and is incorporated herein by
reference.

15

Equity Compensation Plan Information

The table below sets forth certain information as of December 28, 2002 for
(i) all equity compensation plans previously approved by our shareholders and
(ii) all equity compensation plans not previously approved by our shareholders.

Plan Category Number of Securities Weighted-average Number of Securities
to be issued upon exercise price of remaining available
exercise of outstanding options, for future issuance
outstanding options, warrants and rights under equity
warrants and rights compensation plans
(excluding securities
reflected in column
(a))
------------- -------------------- -------------------- ---------------------
(a) (b) (c)
------------- -------------------- -------------------- ---------------------

Equity compensation
plans approved by 33,018,524 $15.84 22,522,911 (2)
security holders (1)
---------- ------ ----------
Equity compensation 4,448,560 $13.26 1,210,774
plans not approved by
security holders (3) ---------- ------ ----------
Total 37,467,084 $15.53 23,733,685
---------- ------ ----------

(1) The securities reflected in this category are authorized for issuance
under the following PBG plans: (i) 1999 Long-Term Incentive Plan; (ii)
2000 Long-Term Incentive Plan; (iii) 2002 Long-Term Incentive Plan and
(iv) Directors' Stock Plan.

(2) Excludes 383,382 shares of PBG Common Stock available for future issuance
as of December 28, 2002 in connection with the PBG phantom stock account
under the terms of our Executive Income Deferral Plan (the "Plan"). The
Plan permits the deferral of certain compensation into the PBG phantom
stock account and such deferrals may be paid out, at the discretion of our
Compensation and Management Development Committee (the "Committee") of our
Board of Directors, in cash or shares of our Common Stock. As of the date
hereof, the Committee has not issued shares of our Common Stock to pay out
deferrals from the Plan's PBG phantom stock account. The number of shares
reflected above in this footnote was calculated by reference to the
average of the high and low trading price of PBG Common Stock on the New
York Stock Exchange (the "NYSE") on December 27, 2002 (the last trading
day before the end of our fiscal year).

(3) The securities reflected in this category are authorized for issuance
under the PBG Stock Incentive Plan (the "SIP") which was approved by the
Board of Directors on March 30, 1999. The SIP is the only one of our plans
that has not been approved by our security holders. The SIP constitutes a
"broadly-based" plan within the meaning of Paragraph 312.03 of the
Shareholder Approval Policy of the NYSE Listed Company Manual and
therefore no security holder approval was required as a prerequisite to
our listing on the NYSE or for any other purpose.

The summary of the material provisions of the SIP, set forth below, is provided
pursuant to SEC requirements and is qualified in its entirety by reference to
the SIP which is filed as Exhibit 10.11 to our Annual Report on Form 10-K for
the year ended December 25, 1999.

Purpose. We established the SIP to enable us to attract, retain and motivate
employees and align their interests with those of our shareholders.

Eligibility. Each of our employees as well as employees of our subsidiaries may
be granted any of the awards under the SIP as determined by the Committee;
provided however, that no individual employee may be granted awards in the
aggregate under the SIP which, if exercised, would result in that employee
receiving more than 10% of the maximum number of shares available for issuance
under the SIP.

Awards. The SIP provides for awards to be made in the form of stock options,
restricted stock and

16

other share awards.

(A) Stock Options. The Committee may grant options under the SIP to purchase PBG
Common Stock that give the employee the right to purchase a share of PBG Common
Stock at a fixed price for a specified period of time. The purchase price of a
share of PBG Common Stock under each option shall not be less than the fair
market value of a share of PBG Common Stock on the date the option is granted
except for those stock options granted to eligible employees as of the date we
became a separate publicly held company in March 1999. The options are
exercisable in accordance with the terms established by the Committee. In
general, the Committee intends that options will vest in annual increments of
25%, 25% and 50% and become fully exercisable within three years after their
grant date. However, without regard to the vesting period assigned, the vesting
and exercisability of options shall be accelerated in connection with certain
transfers and events (disability, death and retirement), as explained below. The
full purchase price of each share of PBG Common Stock purchased upon the
exercise of any option shall be paid at the time of the exercise. Except as
otherwise determined by the Committee, the purchase price shall be payable in
cash or in PBG Common Stock (valued at fair market value as of the day of
exercise), or in any combination thereof.

(B) Restricted Stock and Other Share Awards. The Committee may grant restricted
stock awards (a grant of PBG Common Stock with such shares subject to a risk of
forfeiture or other restrictions as determined by the Committee) or share awards
(a grant of PBG Common Stock). Any such awards shall be subject to such
conditions, restrictions and contingencies as the Committee determines. However,
without regard to the vesting period assigned, the vesting of restricted and
other stock awards shall be accelerated in connection with certain transfers and
events (death, disability, retirement), as explained below.

Administration. The SIP is administered by the Committee. The Committee has the
authority and discretion to select the individuals who shall receive awards, to
determine the time or times of receipt, to determine the types of awards and the
number of shares covered by the awards, to establish the terms, conditions,
restrictions, and other provisions of such awards, and subject to certain
limits, to cancel or suspend awards. The Committee has the authority and
discretion to interpret the SIP, to establish, amend, and rescind any rules and
regulations relating to the SIP, and to make all other determinations that may
be necessary or advisable for the administration of the SIP. Any interpretation
of the SIP by the Committee and any decision made by the Committee under the SIP
is final and binding on all persons. The Committee may allocate all or any
portion of its responsibilities and powers to any one or more of its members and
may delegate all or any part of its responsibilities and powers to any person or
persons selected by it.

In the event of a corporate transaction involving PBG (including, without
limitation, any stock dividend, stock split, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination or exchange of shares), the Committee may adjust awards to preserve
the benefits or potential benefits of the awards. Action by the Committee may
include: (i) adjustment of the number and kind of shares which may be delivered
under the SIP; (ii) adjustment of the number and kind of shares subject to
outstanding awards; (iii) adjustment of the exercise price of outstanding
options; and (iv) any other adjustments that the Committee determines to be
equitable.

Except as otherwise provided by the Committee, awards under the SIP are not
transferable except as designated by the participant by will or by the laws of
descent and distribution.

Limit on Shares. The maximum number of shares of stock that may be delivered to
participants under the SIP shall not exceed an aggregate number of shares of
Common Stock to be determined from time to time by the Committee, subject to
certain adjustments described above. The current maximum number of shares that
may be delivered under the SIP is 7.4 million, representing the number of shares
that the

17

Committee has authorized for registration on the SIP's Form S-8 Registration
Statement filed May 26, 1999. PBG management will not request that the
Committee increase this maximum number of shares.

Certain Transfers. In connection with certain PBG-approved transfers to certain
allied organizations, as described in the SIP, the transferred participant's
outstanding options will become fully exercisable and restricted stock awards
will become fully vested. Employment by the allied organization will be treated
as employment by PBG in determining the participant's right to exercise and in
applying the SIP's misconduct provisions.

Death, Disability, Termination of Employment, Misconduct. In the event of the
participant's death, all restrictions upon Restricted Stock lapse and stock
options then held by the participant become immediately exercisable as of the
date of death and may be exercised by the participant's executor or legal
representative in accordance with their terms. In the event that the participant
becomes "Totally Disabled" within the meaning of the SIP, all restrictions upon
Restricted Stock lapse and stock options then held by the participant continue
to be exercisable in accordance with their terms. In the event of the
participant's "Retirement" within the meaning of the SIP, Restricted Stock held
by the participant which remains subject to restrictions as of such date, shall
be cancelled and forfeited unless otherwise determined by the Committee; and all
stock options then held by the participant become immediately exercisable and
may be exercised in accordance with their terms. In the event of the
participant's termination of employment for any reason other than the above, or
for "Misconduct" within the meaning of the SIP, Restricted Stock held by the
participant which remains subject to restrictions as of such date shall be
cancelled and forfeited unless otherwise determined by the Committee; and all
stock options then held by the participant which are exercisable on such date,
shall continue to be exercisable until the earlier of 90 days from the date of
such termination or in accordance with their terms. Unless otherwise determined
by the Committee, all stock options which are not exercisable as of the date of
termination automatically terminate and lapse. In the event the participant is
determined to have engaged in Misconduct, within the meaning of the SIP, a
participant forfeits all rights to unexercised stock options and all outstanding
options automatically terminate and lapse.

Amendment and Termination. The Committee may, at any time, amend or terminate
the SIP, provided that no amendment or termination may, in the absence of
consent to the change by the affected participant, adversely affect the rights
of any participant or beneficiary under any award granted under the SIP prior to
the date such amendment or termination is adopted by the Committee.

Withholding of Taxes. We may withhold amounts to satisfy withholding tax
requirements from amounts due to participants. Subject to guidelines established
by the Committee, participants may have PBG Common Stock withheld from awards to
satisfy tax withholding requirements.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information relating to certain transactions between PBG, PepsiCo and
their affiliates and certain other persons is set forth under the caption
"Certain Relationships and Related Transactions" in our Proxy Statement for our
2003 Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

EVALUATION OF OUR DISCLOSURE CONTROLS AND INTERNAL CONTROLS.

Within 90 days prior to the date of this report, PBG carried out an
evaluation, under the supervision and with the participation of our management,
including the Chief Executive Officer and the Chief Financial Officer of PBG, of
the effectiveness and design and operation of our disclosure controls and
procedures pursuant to the Exchange Act Rule 13a-14. Based upon that evaluation,
the Chief

18

Executive Officer and the Chief Financial Officer concluded, subject to the
limitations set forth below, that our disclosure controls and procedures are
effective in timely alerting them to material information relating to PBG and
its consolidated subsidiaries required to be included in PBG's periodic filings
with the SEC. In addition, subject to the limitations set forth below, there
were no significant changes in our internal controls or in other factors that
could significantly affect these internal controls subsequent to the date of our
most recent evaluation.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS.

Our management, including the Chief Executive Officer and the Chief
Financial Officer, does not expect that our disclosure controls or our internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues within our company have
been detected. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
may not be detected.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) 1. Financial Statements. The following consolidated financial
statements of PBG and its subsidiaries, included in our Annual Report to
Shareholders for the year ended December 28, 2002, are incorporated by reference
into Part II, Item 8 of this report:

Consolidated Statements of Operations - Fiscal years ended December 28,
2002, December 29, 2001 and December 30, 2000.

Consolidated Statements of Cash Flows - Fiscal years ended December 28,
2002, December 29, 2001 and December 30, 2000.

Consolidated Balance Sheets - December 28, 2002 and December 29, 2001.

Consolidated Statements of Changes in Shareholders' Equity - Fiscal years
ended December 28, 2002, December 29, 2001 and December 30, 2000.

Notes to Consolidated Financial Statements.

Report of Independent Auditors.

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

Page

Independent Auditors' Report on Schedule and Consent............................................ F-2

Schedule II - Valuation and Qualifying Accounts for the fiscal years ended
December 28, 2002, December 29, 2001 and December 30,
2000 ........................................................................... F-3

19

3. Exhibits

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

(b) Reports on Form 8-K

1. On November 6, 2002, we filed a Current Report on Form 8-K
announcing the successful completion of our tender offers in the United
States and Mexico to acquire Pepsi-Gemex S.A. de C.V. and also announcing
financial guidance for the year 2003 to incorporate the impact of the
Pepsi - Gemex acquisition and an adjustment in pension expense.

2. On November 12, 2002, we filed a Current Report on Form 8-K
announcing the retirement of Craig E. Weatherup as Chairman of the Company
and the intention to elect John T. Cahill as successor.

20

SIGNATURES

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

Dated: March 27, 2003
The Pepsi Bottling Group, Inc.

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

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

SIGNATURE TITLE DATE

/s/ John T. Cahill Chairman of the Board and Chief March 27, 2003
- ------------------ Executive Officer
John T. Cahill

/s/ Alfred H. Drewes Senior Vice President and Chief March 27, 2003
- ------------------- Financial Officer (Principal
Alfred H. Drewes Financial Officer)

/s/ Andrea L. Forster Vice President and Controller March 27, 2003
- --------------------- (Principal Accounting Officer)
Andrea L. Forster

/s/ Linda G. Alvarado Director March 27, 2003
- ---------------------
Linda G. Alvarado

/s/ Barry H. Beracha Director March 27, 2003
- --------------------
Barry H. Beracha

Director
- --------------------
Ira D. Hall

/s/ Thomas H. Kean Director March 27, 2003
- ------------------
Thomas H. Kean

/s/ Susan D. Kronick Director March 27, 2003
- --------------------
Susan D. Kronick

/s/ Blythe J. McGarvie Director March 27, 2003
- ----------------------
Blythe J. McGarvie

/s/ Margaret D. Moore Director March 27, 2003
- ---------------------
Margaret D. Moore

/s/ Clay G. Small Director March 27, 2003
- -----------------
Clay G. Small

/s/ Craig E. Weatherup Director March 27, 2003
- ----------------------
Craig E. Weatherup

S-1

I, John T. Cahill, certify that:

1. I have reviewed this annual report on Form 10-K of The Pepsi Bottling
Group, Inc.;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual
report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) Designed such disclosure controls and procedures 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 annual
report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

1

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: March 24, 2003

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

2

I, Alfred H. Drewes, certify that:

1. I have reviewed this annual report on Form 10-K of The Pepsi Bottling
Group, Inc.;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual
report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) Designed such disclosure controls and procedures 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 annual
report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

1

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: March 25, 2003

By: /s/ Alfred H. Drewes
--------------------
Alfred H. Drewes
Chief Financial Officer

2

INDEX TO FINANCIAL STATEMENT SCHEDULE

PAGE

Independent Auditors' Report on Schedule and Consent .............................................. F-2
Schedule II - Valuation and Qualifying Accounts for the fiscal years ended
December 28, 2002, December 29, 2001 and December 30, 2000 .................................. F-3

F-1

INDEPENDENT AUDITORS' REPORT AND CONSENT

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

The audits referred to in our report dated January 28, 2003, included the
related financial statement schedule as of December 28, 2002, and for each of
the fiscal years in the three-year period ended December 28, 2002, incorporated
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 use of reports included herein or incorporated herein by
reference in the registration statements (Nos. 333-79357, 333-79369, 333-79375,
333-79365, 333-80647, 333-69622, 333-60428, 333-73302, 333-100786) on Form S-8
of The Pepsi Bottling Group, Inc. Our report on the consolidated financial
statements referred to the adoption of FASB No. 142, "Goodwill and Other
Intangible Assets," as of December 30, 2001.

/s/ KPMG LLP

New York, New York
March 28, 2003

F-2

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

Balance At Charged to Accounts Foreign
Beginning Cost and Written Currency Balance At
Of Period Expenses Acquisitions Off Translation End Of Period

DESCRIPTION

FISCAL YEAR ENDED

DECEMBER 28, 2002

Allowance
for losses
on trade
accounts
receivable ............... $42 $32 $ 14 $(22) $ 1 $67

DECEMBER 29, 2001

Allowance
for losses
on trade
accounts
receivable ............... $42 $ 9 $ -- $ (9) $-- $42

DECEMBER 30, 2000
Allowance
for losses
on trade
accounts
receivable ............... $48 $ 3 $ -- $ (8) $(1) $42

F-3

INDEX TO EXHIBITS

EXHIBIT

3.1 Articles of Incorporation of The Pepsi Bottling Group, Inc. ("PBG"), which
are incorporated herein by reference to Exhibit 3.1 to PBG's Registration
Statement on Form S-1 (Registration No. 333-70291).

3.2 By-Laws of PBG, which are incorporated herein by reference to Exhibit 3.2
to PBG's Registration Statement on Form S-1 (Registration No. 333-70291).

3.3 Amendment to Articles of Incorporation of PBG, which is incorporated
herein by reference to Exhibit 3.3 to PBG's Registration Statement on Form
S-1 (Registration No. 333-70291).

3.4 Amendment to Articles of Incorporation of PBG dated as of November 27,
2001, which is incorporated herein by reference to Exhibit 3.4 to PBG's
Annual Report on Form 10-K for the year ended December 29, 2001.

4.1 Form of common stock certificate, which is incorporated herein by
reference to Exhibit 4 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).

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

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

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

E-1

EXHIBIT

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

4.6 U.S. $250,000,000 364 Day Credit Agreement, dated as of May 3, 2000 among
PBG, Bottling Group, LLC, The Chase Manhattan Bank, Bank of America, N.
A., Citibank, N.A., Credit Suisse First Boston, UBS AG, Lehman Commercial
Paper Inc., The Northern Trust Company, Deutsche Bank AG New York Branch
and/or Cayman Islands Branch, Royal Bank of Canada, Banco Bilbao Vizcaya,
Fleet National Bank, The Bank of New York, The Chase Manhattan Bank, as
Agent, Salomon Smith Barney Inc and Banc of America Securities LLC as
Co-Lead Arrangers and Book Managers and Citibank, N.A. and Bank of
America, N.A., as Co-Syndication Agents, which is incorporated herein by
reference to Exhibit 4.7 to PBG's Annual Report on Form 10-K for the year
ended December 30, 2000.

4.7 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,
State 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.

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.

4.9 Registration Rights Agreement dated as of November 7, 2002 relating to the
4 5/8% Senior Notes due November 15, 2012.

4.10 Agreement to Tender, dated as of October 4, 2002, among PBG Grupo
Embotellador Hispano-Mexicano S.L., Bottling Group, LLC and PepsiCo, Inc.,
which is incorporated herein by reference to Exhibit (d)(1) to Schedule to
Tender Offer Statement as filed by PBG (SEC File Number 005-46036).

4.11 Agreement to Tender, dated as of October 4, 2002, among PBG Grupo
Embotellador Hispano-Mexicano S.L., Bottling Group, LLC and Enrique C.
Molina Sobrino, which is incorporated herein by reference to Exhibit
(d)(2) to Schedule to Tender Offer Statement as filed by PBG (SEC File
Number 005-46036).

E-2

Exhibit

4.12 Escrow Agreement, dated as of October 4, 2002, among PBG Grupo Embotellador
Hispano-Mexicano S.L., Bottling Group, LLC, Enrique C. Molina Sobrino
and The Bank of New York, which is incorporated herein by reference to
Exhibit (d)(3) to Schedule to Tender Offer Statement as filed by PBG (SEC
File Number 005-46036).

10.1 Form of Master Bottling Agreement, which is incorporated herein by
reference to Exhibit 10.1 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).

10.2 Form of Master Syrup Agreement, which is incorporated herein by reference
to Exhibit 10.2 to PBG's Registration Statement on Form S-1 (Registration
No. 333-70291).

10.3 Form of Non-Cola Bottling Agreement, which is incorporated herein by
reference to Exhibit 10.3 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).

10.4 Form of Separation Agreement, which is incorporated herein by reference to
Exhibit 10.4 to PBG's Registration Statement on Form S-1 (Registration No.
333-70291).

10.5 Form of Shared Services Agreement, which is incorporated herein by
reference to Exhibit 10.5 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).

10.6 Form of Tax Separation Agreement, which is incorporated herein by
reference to Exhibit 10.6 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).

10.7 Form of Employee Programs Agreement, which is incorporated herein by
reference to Exhibit 10.7 to PBG's Registration Statement on Form S-1
(Registration No. 333-70291).

10.8 PBG Executive Income Deferral Plan, which is incorporated herein by
reference to Exhibit 10.8 to PBG's Annual Report on Form 10-K for the year
ended December 25, 1999.

10.9 PBG 1999 Long-Term Incentive Plan, which is incorporated herein by
reference to Exhibit 10.9 to PBG's Annual Report on Form 10-K for the year
ended December 25, 1999.

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

10.11 PBG Stock Incentive Plan, which is incorporated herein by reference to
Exhibit 10.11 to PBG's Annual Report on Form 10-K for the year ended
December 25, 1999.

10.12 Amended PBG Executive Income Deferral Program, which is incorporated
herein by reference to Exhibit 10.12 to PBG's Annual Report on Form 10-K
for the year ended December 30, 2000.

10.13 PBG Long Term Incentive Plan, which is incorporated herein by reference to
Exhibit 10.13 to PBG's Annual Report on Form 10-K for the year ended
December 30, 2000.

E-3

Exhibit

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

10.15 2002 PBG Long-Term Incentive Plan.

10.16 Form of International Master Bottling Agreement for Mexico.

12 Statement re Computation of Ratios.

13 PBG 2002 Annual Report to Shareholders. (Pages 18 through 59)

21 Subsidiaries of PBG.

23 Report and Consent of KPMG LLP.

24 Copy of Power of Attorney.

99.1 Bottling LLC consolidated financial statements and notes thereto for the
year ended December 28, 2002.

E-4