Pepsi 2006 Annual Report Download - page 73

Related Party Transactions
Our significant related party transactions
involve our noncontrolled bottling affil-
iates. We sell concentrate to these
affiliates, which they use in the produc-
tion of CSDs and non-carbonated bever-
ages. We also sell certain finished goods
to these affiliates and we receive royal-
ties for the use of our trademarks for
certain products. Sales of concentrate
and finished goods are reported net of
bottler funding. For further unaudited
information on these bottlers, see “Our
Customers” in Management’s Discussion
and Analysis.
Note 8 — Noncontrolled Bottling Affiliates
Our investment in PBG, which
includes the related goodwill, was
$500 million and $400 million higher
than our ownership interest in their
net assets at year-end 2006 and 2005,
respectively. Based upon the quoted
closing price of PBG shares at year-end
2006 and 2005, the calculated market
value of our shares in PBG, excluding
our investment in Bottling Group, LLC,
exceeded our investment balance by
approximately $1.4 billion and
$1.5 billion, respectively.
Our most significant noncontrolled bot-
tling affiliates are PBG and PAS.
Approximately 10% of our total net
revenue in 2006, 2005 and 2004 reflects
sales to PBG.
The Pepsi Bottling Group
In addition to approximately 38% and
41% of PBG’s outstanding common
stock that we own at year-end 2006 and
2005, respectively, we own 100% of
PBG’s class B common stock and approx-
imately 7% of the equity of Bottling
Group, LLC, PBG’s principal operating
subsidiary. This gives us economic own-
ership of approximately 43% and 45%
of PBG’s combined operations at year-
end 2006 and 2005, respectively.
Bottling equity income includes
$186 million and $126 million of pre-
tax gains on our sales of PBG stock in
2006 and 2005, respectively.
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PBG’s summarized financial information is as follows:
2006 2005 2004
Current assets $ 2,749 $ 2,412
Noncurrent assets 9,178 9,112
Total assets $11,927 $11,524
Current liabilities $2,051 $2,598
Noncurrent liabilities 7,252 6,387
Minority interest 540 496
Total liabilities $9,843 $9,481
Our investment $1,842 $1,738
Net revenue $12,730 $11,885 $10,906
Gross profit $5,920 $5,632 $5,250
Operating profit $1,017 $1,023 $976
Net income $522 $466 $457
Our investment in PAS, which
includes the related goodwill, was
$316 million and $292 million higher
than our ownership interest in their net
assets at year-end 2006 and 2005,
respectively. Based upon the quoted
closing price of PAS shares at year-end
2006 and 2005, the calculated market
value of our shares in PepsiAmericas
exceeded our investment balance by
approximately $173 million and
$364 million, respectively.
In January 2005, PAS acquired a
regional bottler, Central Investment
Corporation. The table includes the
results of Central Investment
Corporation from the transaction
date forward.
PepsiAmericas
At year-end 2006 and 2005, we owned approximately 44% and 43% of
PepsiAmericas, respectively, and their summarized financial information is as follows:
2006 2005 2004
Current assets $ 675 $ 598
Noncurrent assets 3,532 3,456
Total assets $4,207 $4,054
Current liabilities $ 694 $ 722
Noncurrent liabilities 1,909 1,763
Total liabilities $2,603 $2,485
Our investment $1,028 $968
Net revenue $3,972 $3,726 $3,345
Gross profit $1,608 $1,562 $1,423
Operating profit $356 $393 $340
Net income $158 $195 $182
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