PBG » Topics » Agreements and Transactions with PepsiCo and Affiliates.

This excerpt taken from the PBG DEF 14A filed Mar 31, 2006.
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 the Company and its subsidiaries.

      Material agreements and transactions between PBG and PepsiCo (and certain of its affiliates) during 2005 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 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 Partnership 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 approximately $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 $144 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 various 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.

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      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 specified territories. In 2005, net amounts paid or payable by PepsiCo to PBG for these services were approximately $183 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 2005, total bottler incentives received from PepsiCo, including media costs shared by PepsiCo, were approximately $688 million.

      Bottling Group, LLC Distribution. PepsiCo has approximately a 6.7% ownership interest in Bottling Group, LLC, our principal operating subsidiary. In accordance with Bottling Group, LLC’s Limited Liability Company Agreement, PepsiCo received a $12 million distribution from Bottling Group, LLC in 2005.

     

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