Pbg Annual Report Analysis

Pepsi Bottling Group, Inc., PBG, is most established in the refreshment industry. PBG is the world's largest manufacturer, seller and distributor of PepsiCo beverages. They have done enough research to know that "when it comes to beverages, consumers crave refreshment. They also crave variety." Some of the major beverages that PBG markets in the refreshment industry are, of course, Pepsi, Aquafina, Mountain Dew, Sierra Mist, Lipton, Tropican, Starbucks Frappuccino, SoBe, including some only international brands like e-pura and Mirinda in Mexico. Aquafina is the leading national bottled water in the U.S. and a growing brand in Canada and Turkey. Also PBG sales of Pepsi-Cola beverages account for more than one-half of the Pepsi-Cola beverages sold in the United States and Canada and about 40 percent worldwide.

The carbonated soft drink market and the non-carbonated beverage market are highly competitive. PBG 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. PBG's market share for carbonated soft drinks sold under trademarks owned by PepsiCo in our U.S. territories ranges from approximately 20% to approximately 38%.

Direct competitors of PBG are Coca-Cola Bottling Co. Consolidated and Coca-Cola Enterprises Inc. Some indirect competitors are Cadbury Schweppes Americas Beverages, Groupe Danone World Water Division, Nestle, and Red Bull.

PBG competes 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. They believe that brand recognition, market place pricing, consumer value, customer service, availability and consumer and customer goodwill are primary factors affecting our competitive position.

PBG is also affected by PepsiCo. PBG must meet annually with PepsiCo to discuss plans for year and the following two years. At such meetings plans are presented in reasonable detail PBG's marketing plan, management plan and advertising plan with respect to the cola beverages for the year.

Advertising and marketing costs for 2006 were $403 million before bottler incentives received from PepsiCo and other brand owners.

PBG requires substantial infrastructure investments to maintain it's existing level of operations and to fund investments targeted at growing the business. Capital expenditures included in cash flows from investing activities totaled $725 million in 2006. Net cash used for investments decreased by $111 million to $731 million, principally reflecting lower acquisition costs, partially offset by higher capital spending. Net cash used for financing increased by $188 million to $371 million, driven primarily by the repayment of our $500 million note and other long-term debt, reduction in our short-term borrowings and higher dividend payments, partially offset by the proceeds from the $800 million bond issuance in March of 2006.

Cash Flows - Investments: 2006 2005 2004

Capital expenditures -725 -715 -688

Acquisitions of bottlers, net of cash acquired -33 -155 -96

Proceeds from sale of property, plant and equipment 18 29 22

Other investing activities, net 9 -1 -

Net Cash Used for Investments -731 -842 -762

Cash Flows - Financing: 2006 2005 2004

Short-term borrowings, net - three months