During 1999, we completed a series of transactions creating our anchor bottlers that manufacture, sell and distribute carbonated and non-carbonated Pepsi-Cola beverages under master bottling agreements with us.

In April 1999, certain wholly-owned bottling businesses, referred to as The Pepsi Bottling Group (PBG), completed an initial public offering with PepsiCo retaining a direct noncontrolling ownership interest of 35.5%. We received $5.5 billion of debt proceeds as settlement of pre-existing intercompany amounts due to us and recognized a pre-tax gain of $1.0 billion ($476 million after-tax or $0.26 per share) as a result of the transaction. In May, we combined certain other bottling operations with Whitman Corporation to create new Whitman, retaining a noncontrolling ownership interest of approximately 38%. The transaction resulted in an after-tax loss to PepsiCo of $206 million or $0.11 per share. In July, we combined certain other bottling operations with PepCom Industries, Inc. retaining a noncontrolling interest of 35% in the combined entity renamed Pepsi Bottling Ventures, LLC. This transaction was accounted for as a nonmonetary exchange for book purposes. However, a portion of the transaction was taxable and resulted in income tax expense of $25 million or $0.01 per share. In October, we formed a business venture with Pohlad Companies, a Pepsi-Cola franchisee, retaining a noncontrolling ownership interest of approximately 24% in the venture's principal operating subsidiary, PepsiAmericas, Inc. The transaction was structured as a fair value exchange with no resulting gain or loss.

In December 2000, Whitman merged with PepsiAmericas. At year-end 2001, we owned approximately 37% of the combined company. As part of the merger, we participate in an earn-out option whereby we may receive additional shares when certain performance targets are met. Effective January 2001, the name of the combined company was changed to PepsiAmericas.

PBG
In addition to approximately 38% of PBG's outstanding common stock that we own at year-end 2001, we own 100% of PBG's class B common stock and approximately 7% of the equity of Bottling Group, LLC, PBG's principal operating subsidiary. This gives us economic ownership of approximately 42% of PBG's combined operations.

PBG's summarized financial information is as follows:

The excess of our investment in PBG over our equity in the underlying net assets, net of amortization, was approximately $24 million at year-end 2001. Based upon the quoted closing price of PBG shares at year-end 2001, the calculated market value of our direct investment in PBG, excluding our investment in Bottling Group, LLC, exceeded our carrying value by approximately $1.9 billion.

PepsiAmericas (formerly Whitman)
PepsiAmericas' summarized financial information is as follows:

The above financial information for 2000 includes the results of the former PepsiAmericas after the date of the merger with Whitman.

The excess of our investment in PepsiAmericas over our equity in the underlying net assets, net of amortization, was approximately $212 million at year-end 2001. Based upon the quoted closing price at year-end 2001, the calculated market value of our investment in PepsiAmericas exceeded our carrying value by approximately $68 million.

Other Equity Investments
Summarized financial information regarding our principal equity investments, other than PBG and PepsiAmericas, follows. These investments are noncontrolling interests in bottling and snack food businesses. Information is presented in the aggregate and generally from the acquisition date.

Related Party Transactions
Our significant related party transactions involve our investments in unconsolidated bottling affiliates. We sell concentrate to these affiliates that is used in the production of carbonated soft drinks and non-carbonated beverages. We also sell certain finished goods and we receive royalties for the use of our trademark for certain products. The affiliates purchase sweeteners and certain other raw materials through us. The raw material purchases on behalf of these bottling affiliates, related payments to suppliers and collections from the bottlers are not reflected in our consolidated financial statements. We also provide certain administrative and other services to these bottling affiliates under negotiated fee arrangements.

Further, because we share a common business objective with these bottling affiliates of increasing the availability and consumption of Pepsi-Cola beverages, we provide various forms of marketing support to or on behalf of them to promote our beverages. This support covers a variety of initiatives, including marketplace support, marketing programs, capital equipment investment and shared media expense. Based on the objective of the programs and initiatives, we record marketing support as an adjustment to net sales or as selling, general and administrative expenses.

These transactions with our unconsolidated bottling affiliates are reflected in the Consolidated Statement of Income as follows:

As of December 29, 2001, the receivables from these bottling affiliates are $119 million and payables to these affiliates are $108 million. As of December 30, 2000, the receivables from these bottling affiliates were $187 million and payables to these affiliates were $125 million. Such amounts are settled on terms consistent with other trade receivables and payables. See Notes 13 and 20 regarding our guarantee of PBG related debt.

<-- note 9

index of notes

note 11 -->