UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from ___to ___

Commission File Number 001-15019

PEPSIAMERICAS, INC.

(Exact name of registrant as specified in its charter)

Delaware		13-6167838
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
4000 Dain Rauscher Plaza, 60 South Sixth Street
Minneapolis, Minnesota		55402
(Address of principal executive offices)		(Zip Code)

(612) 661-4000

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 þ  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ  Accelerated filer o  Non-accelerated filer o

Indicate by check mark whether the registrant is shell company (as defined in Exchange Act Rule 12b-2).

Yes o  Noþ

As of October 27, 2006, the Registrant had 129,044,554 outstanding shares of common stock, par value $0.01 per share, the Registrant’s only class of common stock.

 

 

PEPSIAMERICAS, INC.
FORM 10-Q
THIRD QUARTER 2006

TABLE OF CONTENTS

						Page
PART I		FINANCIAL INFORMATION
		Item 1.		Financial Statements
				Condensed Consolidated Statements of Income			2
				Condensed Consolidated Balance Sheets			3
				Condensed Consolidated Statements of Cash Flows			4
				Notes to Condensed Consolidated Financial Statements			5
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk			32
		Item 4.		Controls and Procedures			33
PART II		OTHER INFORMATION
		Item 1.		Legal Proceedings			34
		Item 1A.		Risk Factors			34
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			34
		Item 5.		Other Information			34
		Item 6.		Exhibits			34
SIGNATURE							35
EXHIBIT INDEX							36
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PEPSIAMERICAS, INC.

		Third Quarter								First Nine Months
		2006				2005				2006				2005
Net sales		$	1,064.2			$	982.9			$	2,977.9			$	2,831.7
Cost of goods sold			630.6				569.8				1,767.0				1,637.5
Gross profit			433.6				413.1				1,210.9				1,194.2
Selling, delivery and administrative expenses			323.6				293.6				928.5				890.5
Fructose settlement income			—				1.8				—				15.1
Special charges, net			—				—				2.2				2.5
Operating income			110.0				121.3				280.2				316.3
Interest expense, net			27.0				22.3				74.5				67.5
Other expense, net			0.1				1.9				4.0				3.3
Income before income taxes and equity in net earnings of nonconsolidated companies			82.9				97.1				201.7				245.5
Income taxes			30.0				36.6				75.1				91.6
Equity in net earnings of nonconsolidated companies			0.2				3.2				5.6				3.2
Net income		$	53.1			$	63.7			$	132.2			$	157.1
Weighted average common shares:
Basic			126.6				134.2				128.2				135.7
Incremental effect of stock options and awards			1.8				2.5				2.0				2.4
Diluted			128.4				136.7				130.2				138.1
Earnings per share:
Basic		$	0.42			$	0.47			$	1.03			$	1.16
Diluted			0.41				0.47				1.02				1.14
Cash dividends declared per share		$	0.125			$	0.085			$	0.375			$	0.255

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

PEPSIAMERICAS, INC.

		End of				End of
		Third Quarter				Fiscal Year
		2006				2005
ASSETS:
Current assets:
Cash and cash equivalents		$	154.4			$	116.0
Receivables, net			294.2				213.8
Inventories:
Raw materials and supplies			94.5				88.2
Finished goods			139.3				106.0
Total inventories			233.8				194.2
Other current assets			75.9				74.2
Total current assets			758.3				598.2
Property and equipment			2,534.0				2,387.0
Accumulated depreciation			(1,402.5	)			(1,272.9	)
Net property and equipment			1,131.5				1,114.1
Goodwill			2,019.6				1,859.0
Intangible assets, net			302.7				301.1
Other assets			120.4				181.4
Total assets		$	4,332.5			$	4,053.8
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Short-term debt, including current maturities of long-term debt		$	287.8			$	290.4
Payables			249.7				208.4
Other current liabilities			228.2				223.2
Total current liabilities			765.7				722.0
Long-term debt			1,541.7				1,285.9
Deferred income taxes			243.7				245.1
Other liabilities			226.9				231.5
Total liabilities			2,778.0				2,484.5
Shareholders’ equity:
Preferred stock ($0.01 par value, 12.5 million shares authorized; no shares issued)			—				—
Common stock ($0.01 par value, 350 million shares authorized; 137.6 million shares issued - 2006 and 2005)			1,279.4				1,267.1
Retained income			515.4				432.0
Unearned stock-based compensation			—				(16.5	)
Accumulated other comprehensive loss			(11.7	)			(25.1	)
Treasury stock, at cost (10.7 million shares - 2006 and 4.6 million shares - 2005)			(228.6	)			(88.2	)
Total shareholders’ equity			1,554.5				1,569.3
Total liabilities and shareholders’ equity		$	4,332.5			$	4,053.8

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

PEPSIAMERICAS, INC.

		First Nine Months
		2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations		$	132.2			$	157.1
Adjustments to reconcile to net cash provided by operating activities of continuing operations:
Depreciation and amortization			146.2				139.8
Deferred income taxes			3.5				(3.8	)
Special charges, net			2.2				2.5
Cash outlays related to special charges			(2.0	)			(1.2	)
Loss on extinguishment of debt			—				5.6
Pension contributions			(10.0	)			(6.7	)
Gain on sale of investment			(0.9	)			—
Equity in net earnings of nonconsolidated companies			(5.6	)			(3.2	)
Excess tax benefits from shared-based payment arrangements			(6.4	)			—
Other			14.8				21.7
Changes in assets and liabilities, exclusive of acquisitions:
Increase in receivables			(62.7	)			(17.5	)
Increase in inventories			(25.0	)			(18.1	)
Increase in payables			15.6				1.3
Net change in other assets and liabilities			25.1				34.5
Net cash provided by operating activities of continuing operations			227.0				312.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Franchises and companies acquired, net of cash acquired			(88.5	)			(354.6	)
Capital investments			(127.7	)			(98.4	)
Purchase of equity investment			—				(51.0	)
Proceeds from the sale of investment			0.9				—
Proceeds from sales of property			6.8				3.4
Net cash used in investing activities			(208.5	)			(500.6	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of short-term debt			84.6				52.9
Proceeds from issuance of long-term debt			247.4				793.3
Repayment of long-term debt			(134.7	)			(457.0	)
Treasury stock purchases			(150.7	)			(196.1	)
Excess tax benefits from share-based payment arrangements			6.4				—
Issuance of common stock			23.0				59.6
Cash dividends			(43.3	)			(23.6	)
Net cash provided by financing activities			32.7				229.1
Net operating cash flows used in discontinued operations			(11.5	)			(6.9	)
Effects of exchange rate changes on cash and cash equivalents			(1.3	)			1.3
Change in cash and cash equivalents			38.4				34.9
Cash and cash equivalents at beginning of fiscal year			116.0				74.9
Cash and cash equivalents at end of third quarter		$	154.4			$	109.8

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

PEPSIAMERICAS, INC.

1.		Significant Accounting Policies
		Quarterly reporting. The Condensed Consolidated Financial Statements included herein have been prepared by PepsiAmericas, Inc. (referred to herein as “PepsiAmericas,” “we,” “our” and “us”) without audit. Certain information and disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although we believe that the disclosures are adequate to make the information presented not misleading. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by United States generally accepted accounting principles. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year 2005. In the opinion of management, the information furnished herein reflects all adjustments (consisting only of normal, recurring adjustments) necessary for a fair statement of results for the interim periods presented.
		Our fiscal year consists of 52 or 53 weeks ending on the Saturday closest to December 31st. Our 2005 fiscal year contained 52 weeks and ended December 31, 2005. Our third quarter and first nine months of 2006 and 2005 were based on the thirteen and thirty-nine weeks ended September 30, 2006 and October 1, 2005, respectively. Due to the timing of the receipt of available financial information from Quadrant-Amroq Bottling Company Limited (“QABCL”), we record results from such operations on a one-month lag basis. Our business is seasonal; accordingly, the operating results and cash flow from operations of any individual quarter may not be indicative of a full year’s results.
		Earnings per share. Basic earnings per share is based upon the weighted-average number of common shares outstanding. Diluted earnings per share includes dilutive common stock equivalents, using the treasury stock method.
		The following options and restricted stock awards were not included in the computation of diluted earnings per share because they were antidilutive:

		Third Quarter								First Nine Months
		2006				2005				2006				2005
Shares under options outstanding			1,338,700				471,410				—				471,410
Weighted-average exercise price per share		$	22.63			$	24.79			$	—			$	24.79
Shares under nonvested restricted stock awards			—				—				941,956				12,500
Weighted-average grant date fair value per share		$	—			$	—			$	24.31			$	24.83

		Reclassifications. Certain amounts in the prior period Condensed Consolidated Financial Statements have been reclassified to conform to the current year’s presentation.
		Recently Issued Accounting Pronouncements. In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements,” which establishes a framework for reporting fair value and expands disclosures about fair value measurements. SFAS No. 157 becomes effective beginning in the first quarter of 2007. We are currently evaluating the impact SFAS No. 157 will have on our Consolidated Financial Statements.
		In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” We will be required to fully recognize the funded status associated with our defined benefit plans. We will also be required to measure our plans’ assets and liabilities as of the end of our fiscal year instead of our current measurement date of September 30. The recognition provisions of SFAS No. 158 will be effective as of the end of fiscal year 2006. The measurement date provisions will be effective as of the end of fiscal year 2008. We anticipate that the impact of adopting SFAS No. 158 will reduce total assets by approximately $45 million and reduce total liabilities by approximately $35 million, resulting in a reduction of shareholders’ equity of approximately $10 million with no impact to the Consolidated Statements of Income or Cash Flows. We do not anticipate that the impact of the measurement date provisions will have a material impact on our Consolidated Financial Statements.

		In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” to address diversity in practice in quantifying financial statement misstatements. SAB No. 108 requires that we quantify misstatements based on their impact on each of our financial statements and related disclosures. SAB No. 108 is effective as of the end of fiscal year 2006, allowing a one-time transitional cumulative effect adjustment to retained earnings as of January 1, 2006 for errors that were not previously deemed material, but are material under the guidance in SAB No. 108. We are currently evaluating the impact SAB No. 108 will have on our Consolidated Financial Statements upon adoption.
		In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 provides guidance regarding the financial statement recognition and measurement of a tax position either taken or expected to be taken in a tax return. It requires the recognition of a tax position if it is more likely than not that position would be sustained during an examination based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of fiscal year 2007. We are currently evaluating the impact FIN 48 will have on the Consolidated Financial Statements upon adoption.
2.		Special Charges
		In the first nine months of 2006 and 2005, we recorded special charges in Central Europe of $2.2 million and $2.5 million, respectively. These special charges related to a reduction in the workforce, primarily for severance costs and related benefits.
		The following table summarizes activity associated with the special charges (in millions):

		Beginning of				Special				Application								End of the
		Fiscal Year				Charges,				of Special				Other				Third Quarter
		2006				Net				Charges				Adjustments				of 2006
Employee related costs		$	—			$	2.0			$	(1.9	)		$	—			$	0.1
Lease terminations and other costs			—				0.1				(0.1	)			0.1				0.1
Asset write-downs			—				0.1				(0.1	)			—				—
Total accrued liabilities		$	—			$	2.2			$	(2.1	)		$	0.1			$	0.2

		The total accrued liabilities remaining at the end of the third quarter of 2006 were comprised of deferred severance payments and certain employee benefits, lease obligations and other costs. We expect the remaining special charge liability of $0.2 million to be paid using cash from operations during the next twelve months; accordingly, such amounts are classified as “Other current liabilities” in the Condensed Consolidated Balance Sheet.
3.		Interest Expense, Net
		Interest expense, net was comprised of the following (in millions):

		Third Quarter								First Nine Months
		2006				2005				2006				2005
Interest expense		$	27.9			$	22.8			$	77.5			$	70.4
Interest income			(0.9	)			(0.5	)			(3.0	)			(2.9	)
Interest expense, net		$	27.0			$	22.3			$	74.5			$	67.5

4.		Income Taxes
		The effective income tax rate, which is income tax expense expressed as a percentage of income before income taxes, was 37.2 percent for the first nine months of 2006, compared to 37.3 percent in the first nine months of 2005. The effective income tax rate was favorably impacted by the mix of our international operations. In addition, we recorded a $0.9 million benefit in the second quarter of 2005 due to a state income tax law change in Ohio.
5.		Comprehensive Income
		Comprehensive income was as follows (in millions):

		Third Quarter								First Nine Months
		2006				2005				2006				2005
Net income		$	53.1			$	63.7			$	132.2			$	157.1
Foreign currency translation adjustment			5.3				2.6				13.4				(21.3	)
Net unrealized investment and hedging gains (losses)			3.3				0.3				—				(10.7	)
Comprehensive income		$	61.7			$	66.6			$	145.6			$	125.1

		Net unrealized investment and hedging gains (losses) are presented net of income tax expense of $2.0 million and $0.2 million in the third quarter of 2006 and 2005, respectively, and net of income tax benefit of $6.5 million in the first nine months of 2005.
6.		Goodwill and Intangible Assets
		The changes in the carrying value of goodwill by geographic segment for the first nine months of 2006 were as follows (in millions):

						Central
		U.S.				Europe				Caribbean				Total
Balance at beginning of fiscal year 2006		$	1,821.3			$	21.2			$	16.5			$	1,859.0
Acquisitions			7.7				148.8				—				156.5
Purchase accounting adjustments			0.2				—				(0.3	)			(0.1	)
Foreign currency translation adjustment			—				4.2				—				4.2
Balance at end of third quarter of 2006		$	1,829.2			$	174.2			$	16.2			$	2,019.6

Intangible asset balances were as follows (in millions):

		End of Third				End of Fiscal
		Quarter of 2006				Year 2005
Intangible assets subject to amortization
Gross carrying amount
Franchise and distribution agreements		$	3.3			$	3.6
Customer relationships and lists			8.0				8.0
Other			2.9				0.5
Total		$	14.2			$	12.1
Accumulated amortization
Franchise and distribution agreements		$	(0.8	)		$	(1.0	)
Customer relationships and lists			(1.2	)			(0.7	)
Other			(0.5	)			(0.3	)
Total		$	(2.5	)		$	(2.0	)
Intangible assets subject to amortization, net		$	11.7			$	10.1
Intangible assets not subject to amortization:
Franchise and distribution agreements		$	288.5			$	288.5
Pension intangible assets			2.5				2.5
Intangible assets not subject to amortization		$	291.0			$	291.0
Total intangible assets, net		$	302.7			$	301.1

		Total amortization expense was $0.3 million and $0.1 million in the third quarter of 2006 and 2005, respectively. Total amortization expense was $0.9 million and $0.2 million in the first nine months of 2006 and 2005, respectively.
		In the first nine months of 2006, we acquired the remaining 51 percent interest in QABCL, resulting in an allocation of $148.8 million to goodwill. This preliminary allocation included the goodwill that was associated with the first step of the acquisition completed in fiscal year 2005. This initial investment was recorded under the equity method in accordance with APB Opinion No. 18, “The Equity Method of Accounting for Investment in Common Stock,” and this amount was previously recorded in “Other assets” on the Condensed Consolidated Balance Sheet. We are in the process of valuing the assets and liabilities acquired in connection with the acquisition. We anticipate that the valuation will be completed in the first quarter of 2007.
		During the first nine months of 2006, we acquired Ardea Beverage Co., resulting in an allocation of $7.7 million to goodwill and $2.4 million to other intangibles. The process of valuing the assets, liabilities and intangibles acquired in connection with the Ardea acquisition was completed in the second quarter of 2006.
		The decrease in gross carrying amount of franchise and distribution agreements and related accumulated amortization since the end of fiscal year 2005 reflected the write-off of fully amortized franchise rights for products we no longer distribute.
7.		Acquisitions
		On July 3, 2006, we acquired the remaining 51 percent of the outstanding stock of QABCL for $81.9 million, net of $17.0 million cash acquired. We acquired $55.4 million of debt as part of the acquisition. QABCL is a holding company that, through subsidiaries, produces, sells and distributes Pepsi and other beverages throughout Romania with distribution rights in Moldova. On June 16, 2005, we had initially acquired 49 percent of the outstanding stock of QABCL for $51.0 million. The increased purchase price for the remainder of QABCL was due to the improved operating performance subsequent to the initial acquisition of our 49 percent minority interest. Due to the timing of the receipt of available financial information from QABCL, we record results from such operations on a one-month lag basis. Equity in net earnings of nonconsolidated companies was $0.2 million in the third quarter of 2006 and $3.2 million in the third quarter of 2005. Equity in net earnings of nonconsolidated companies was $5.6 million in the first nine months of 2006 compared to $3.2 million in the first nine months of 2005.

		On January 23, 2006, we completed the acquisition of Ardea Beverage Co., the maker of the airforce Nutrisoda line of soft drinks.
		During the first nine months of 2005, we completed the acquisition of the capital stock of Central Investment Corporation (“CIC”) and the capital stock of FM Vending. CIC had bottling operations in southeast Florida and central Ohio, and was the seventh largest Pepsi bottler in the U.S.
		The results of operations for the acquisitions described above are included in the Condensed Consolidated Statements of Income since the date of acquisition. These acquisitions are not material to our consolidated results of operations; therefore, pro forma financial information is not included in this note.
8.		Debt
		In the first nine months of 2006, we repaid the remaining outstanding principal of $134.7 million of the 6.5 percent notes and 5.95 percent notes, both due February 2006. We had $237.5 million of commercial paper borrowings at the end of the third quarter of 2006, compared to $141.5 million at the end of fiscal year 2005. The increase in commercial paper borrowings was primarily due to funding maturing debt.
		In May 2006, we issued $250 million of notes with a coupon rate of 5.625 percent due May 2011. Net proceeds from this transaction were $247.4 million, which reflected the discount reduction of $1.0 million and debt issuance costs of $1.6 million. A portion of the proceeds from the issuance was used to repay our commercial paper and other general obligations. The notes were issued from our automatic shelf registration statement filed May 16, 2006 (the “Registration Statement”). Under the Registration Statement, additional debt securities may be offered. The debt securities are unsecured, senior debt obligations and rank equally with all of our other unsecured and unsubordinated indebtedness.
		On June 6, 2006, we entered into a new five-year, $600 million unsecured revolving credit facility. The facility is for general corporate purposes, including commercial paper backstop. It replaces our previous five-year, $500 million credit facility on substantially similar terms. During the first nine months of 2006, there were no borrowings made on the revolving credit facility.
9.		Financial Instruments
		We use derivative financial instruments to reduce our exposure to adverse fluctuations in commodity prices, foreign currency transactions and interest rates. These financial instruments are “over-the-counter” instruments and were designated at their inception as hedges of underlying exposures. We do not use derivative financial instruments for speculative or trading purposes.
		Cash Flow Hedges. We enter into derivative financial instruments to hedge against volatility in future cash flows on anticipated aluminum purchases and diesel fuel purchases, the prices of which are indexed to their respective market prices. We consider these hedges to be highly effective, because of the high correlation between the commodity prices and our contractual costs. There were no significant changes in our derivative financial instrument positions for aluminum and bulk diesel fuel in the first nine months of 2006.
		In anticipation of a long-term debt issuance, we had entered into treasury rate lock instruments and a forward starting swap instrument. We accounted for these treasury rate locks and forward starting swap as cash flow hedges, as each hedged against the variability of interest payments attributable to changes in interest rates on the forecasted issuance of fixed-rate debt. These treasury rate locks and forward starting swap were considered highly effective in eliminating the variability of cash flows associated with the forecasted debt issuance.

The following table summarizes the net derivative gains or losses deferred in “Accumulated other comprehensive loss” and reclassified to earnings in the first nine months of 2006 and 2005 (in millions):

		First Nine				First Nine
		Months 2006				Months 2005
Unrealized (losses) gains on derivatives at beginning of fiscal year		$	(2.4	)		$	1.2
Deferral of net derivative losses in accumulated other comprehensive loss			(0.5	)			(6.5	)
Reclassification of net derivative (gains) losses to income			(0.4	)			4.9
Unrealized losses on derivatives at end of third quarter		$	(3.3	)		$	(0.4	)

		Fair Value Hedges. Periodically, we enter into interest rate swap contracts to convert a portion of our fixed rate debt to floating rate debt, with the objective of reducing overall borrowing costs. We account for these swaps as fair value hedges, since they hedge against the change in fair value of fixed rate debt resulting from fluctuations in interest rates. In the third quarter of 2004, we terminated all outstanding interest rate swap contracts and received $14.4 million for the fair value of the interest rate swap contracts. Amounts included in the cumulative fair value adjustment to long-term debt will be reclassified into earnings commensurate with the recognition of the related interest expense. At the end of the third quarter of 2006 and the end of fiscal year 2005, the cumulative fair value adjustments to long-term debt were $6.8 million and $8.7 million, respectively.
		Amounts recorded for all derivatives on the Condensed Consolidated Balance Sheets were as follows (in millions):

		End of Third				End of Fiscal
		Quarter 2006				Year 2005
Unrealized gains:
Commodities		$	0.2			$	1.4
Interest rate instruments			8.9				11.1
Unrealized losses:
Commodities		$	(0.7	)		$	(0.1	)
Interest rate instruments			(7.0	)			(7.7	)

		Net Investment Hedges. We use foreign currency forward contracts as net investment hedges of long-term investments in the corresponding foreign currency. Hedges that meet the effectiveness requirements are accounted for under net investment hedging rules. At the end of the third quarter of 2006, net losses of $1.0 million arising from effective hedges of net investments have been reflected in cumulative foreign currency translation in “Accumulated other comprehensive loss” on the Condensed Consolidated Balance Sheet.
10.		Pension and Other Postretirement Benefit Plans
		Net periodic pension cost for the third quarter and first nine months of 2006 and 2005 included the following components (in millions):

		Third Quarter								First Nine Months
		2006				2005				2006				2005
Service cost		$	0.9			$	0.9			$	2.8			$	2.5
Interest cost			2.5				2.4				7.6				7.2
Expected return on plan assets			(3.5	)			(2.9	)			(10.4	)			(8.8	)
Amortization of prior service cost			0.1				—				0.2				—
Amortization of net loss			1.0				0.5				2.9				1.7
Net periodic pension cost		$	1.0			$	0.9			$	3.1			$	2.6

		During the first nine months of 2006, we have contributed $10.0 million to the plans. Although we do not expect to make any additional contributions in the remainder of fiscal year 2006, we will continue to evaluate our funding requirements and will fund to levels deemed necessary for the plans.
11.		Share-Based Compensation
		Our 2000 Stock Incentive Plan (the “2000 Plan”), originally approved by shareholders in fiscal year 2000, provides for granting incentive stock options, nonqualified stock options, related stock appreciation rights (“SARs”), restricted stock awards, performance awards or any combination of the foregoing. Generally, outstanding nonqualified stock options are exercisable during a ten-year period beginning one to three years after the date of grant. The exercise price of all options is equal to the fair market value on the date of grant. We generally use shares from treasury to satisfy option exercises. There are no outstanding stock appreciation rights under the 2000 Plan at the end of the third quarter of 2006.
		Restricted stock awards are granted to key members of our U.S. and Caribbean management teams and members of our Board of Directors under the 2000 Plan. Beginning with shares granted in fiscal year 2004, restricted stock awards granted to employees vest in their entirety on the third anniversary of the award. Restricted stock awards granted to employees before 2004 vest ratably on an annual basis over a three-year period. Employees must complete the requisite service period in order for their awards to vest. Restricted stock awards granted to directors vest immediately upon grant. Pursuant to the terms of such awards, directors may not sell such stock while they serve on the Board of Directors. Dividends are paid to the holders of restricted stock awards either at the dividend payment date or upon vesting, depending on the terms of the restricted stock award. We have a policy of using shares from treasury to satisfy restricted stock award vesting. We measure the fair value of restricted stock based upon the market price of the underlying common stock at the date of grant.
		Restricted stock units are granted to key members of our Central Europe management team. The restricted stock units are payable to these employees in cash upon vesting at the prevailing market value of PepsiAmericas common stock plus accrued dividends. Restricted stock units vest after three years, equal to the employees’ requisite service period. We measure the fair value of the restricted stock unit award liability based upon the market price of the underlying common stock at the date of grant and each subsequent reporting date.
		Under the 2000 Plan, 14,000,000 shares were originally reserved for share-based awards. As of the end of the third quarter of 2006, there were 5,009,551 shares available for future grants.
		Our Stock Incentive Plan (the “1982 Plan”), originally established and approved by the shareholders in 1982, has been subsequently amended from time to time, most recently in 1999 when the shareholders approved an allocation of additional shares to this plan. The types of awards and terms of the 1982 Plan are similar to the 2000 Plan. There are no outstanding stock appreciation rights under the 1982 Plan as of the end of the third quarter of 2006.
		Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R), “Share-Based Payment”. We adopted using the modified prospective method as provided by SFAS No. 123(R). Accordingly, financial statement amounts for the prior periods presented in this Quarterly Report on Form 10-Q have not been restated.
		Changes in options outstanding are summarized as follows:

						Range of				Weighted-Average
Options		Shares				Exercise Prices				Exercise Price
Balance, beginning of fiscal year 2006			6,941,495			$	10.81 - $22.63			$	16.57
Exercised			(1,548,438	)			10.81 -   22.63				14.86
Forfeited			(16,357	)			12.01 -   22.63				17.24
Balance, end of third quarter of 2006			5,376,700				10.81 -   22.63				17.06
Exercisable, end of third quarter of 2006			4,957,675				10.81 -   22.63				16.90

		The Black-Scholes model was used to estimate the grant date fair values of options. There were no options granted during the first nine months of 2006 and 2005. We recorded $0.5 million ($0.3 million net of tax) and $1.9 million ($1.2 million net of tax) of compensation expense related to options in “Sales, delivery and administrative expenses” in the Condensed Consolidated Statements of Income in the third quarter and first nine months of 2006, respectively. The total intrinsic value of options exercised during the third quarter of 2006 and 2005 was $2.2 million and $4.2 million, respectively, and during the first nine months of 2006 and 2005 was $12.9 million and $26.1 million, respectively. The total intrinsic value of fully vested options and options expected to vest as of the end of the third quarter of 2006 was $23.7 million.
		The following table summarizes information regarding stock options outstanding and exercisable at the end of the third quarter of 2006:

		Options Outstanding												Options Exercisable
						Weighted-
						Average				Weighted-								Weighted-
Range of		Options				Remaining Life				Average				Options				Average
Exercise Prices		Outstanding				(in years)				Exercise Price				Exercisable				Exercise Price
$10.81 - $12.75			1,783,431				5.1			$	12.30				1,783,431			$	12.30
14.37 -   18.06			1,041,758				2.8				15.78				1,041,758				15.78
18.48 -   22.63			2,551,511				4.3				20.91				2,132,486				21.30
Total Options			5,376,700				4.3				17.06				4,957,675				16.90

Changes in nonvested restricted stock awards are summarized as follows:

										Weighted-Average
						Range of Grant-Date				Grant-Date Fair
Nonvested Shares		Shares				Fair Value				Value
Nonvested at the beginning of fiscal year 2006			1,645,292			$	12.01 - $24.83			$	19.15
Granted			970,877				24.31				24.31
Vested			(404,776	)			12.01 -   24.31				12.54
Forfeited			(35,997	)			18.92 -   24.31				21.96
Nonvested at the end of the third quarter 2006			2,175,396				18.92 -   24.83				22.64

		The weighted-average fair value (at the date of grant) for restricted stock awards granted in the first nine months of 2006 and 2005 was $24.31 and $22.55, respectively. We did not grant any restricted stock awards in the third quarter of 2006 or 2005. We recognized compensation expense of $3.9 million ($2.4 million net of tax) and $2.6 million ($1.6 million net of tax) in the third quarter of 2006 and 2005, respectively, and $10.6 million ($6.6 million net of tax) and $7.8 million ($4.9 million net of tax) in the first nine months of 2006 and 2005, respectively, related to restricted stock award grants. The fair value of restricted stock awards that vested during the first nine months of 2006 and 2005 was $9.3 million and $12.0 million, respectively. No restricted stock awards vested in the third quarter of 2006 or 2005.
		In February 2006, we granted 72,900 restricted stock units at a weighted average fair value of $24.31 on the date of grant to key members of management. In the first nine months of 2005, we granted 78,440 restricted stock units at a weighted-average fair value of $22.52 on the date of grant. We recognized compensation expense of $0.2 million and $0.1 million in the third quarter of 2006 and 2005, respectively, and we recognized compensation expense of $0.7 million and $0.4 million in the first nine months of 2006 and 2005, respectively, related to restricted stock unit grants. There are currently 144,090 restricted stock units outstanding, and no restricted stock units vested during the first nine months of 2006 or 2005.
		Upon the adoption of SFAS No. 123(R), cash retained as a result of excess tax benefits relating to stock-based compensation is presented in cash flows from financing activities on the Condensed Consolidated Statement of Cash Flows. Previously, cash retained as a result of excess tax benefits was presented in cash flows from operating activities. Tax benefits resulting from stock-based compensation deductions in excess of amounts reported for financial reporting purposes were $0.8 million and $6.4 million during the third quarter and first nine months of 2006, respectively.
		At the end of the third quarter of 2006, there was $28.5 million of total unrecognized compensation cost, net of estimated forfeitures of $2.8 million, related to nonvested stock-based compensation arrangements. This compensation cost is expected to be recognized over the next 1.9 years.

In periods prior to the adoption of SFAS No. 123(R), we used the intrinsic value method of accounting for our stock-based compensation under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” No stock-based employee compensation cost for options was reflected in net income, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Compensation expense for restricted stock awards and restricted stock units was reflected in net income, and this expense was recognized ratably over the awards’ vesting period. The following table illustrates the effect on net income and earnings per share had compensation expense been recognized based upon the estimated fair value on the grant date of the awards in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (in millions, except per share data):

				Third				First
				Quarter				Nine Months
				2005				2005
Net income, as reported				$	63.7			$	157.1
Add: Total stock-based compensation expense included in net income as reported, net of tax					1.6				4.9
Deduct: Total stock-based compensation expense determined under fair value method for all options and     restricted stock awards, net of tax					(2.2	)			(6.8	)
Pro forma net income				$	63.1			$	155.2
Basic:		As reported		$	0.47			$	1.16
		Pro forma		$	0.47			$	1.14
Diluted:		As reported		$	0.47			$	1.14
		Pro forma		$	0.46			$	1.12

12.		Supplemental Cash Flow Information
		Net cash provided by operating activities reflected cash payments and receipts for interest and income taxes as follows (in millions):

		First Nine Months
		2006				2005
Interest paid		$	74.0			$	69.8
Interest received			3.0				3.1
Income taxes paid, net of refunds			63.5				54.2

		Income taxes paid, net of refunds includes $12.8 million of tax refunds received in the first nine months of 2005 relating to the utilization of a portion of our net operating loss carryforwards for tax returns filed through fiscal year 2002.
13.		Environmental and Other Commitments and Contingencies
		Current Operations. We maintain compliance with federal, state and local laws and regulations relating to materials used in production and to the discharge or emission of wastes, and other laws and regulations relating to the protection of the environment. The capital costs of such management and compliance, including the modification of existing plants and the installation of new manufacturing processes, are not material to our continuing operations.
		We are defendants in lawsuits that arise in the ordinary course of business, none of which is expected to have a material adverse effect on our financial condition, although amounts recorded in any given period could be material to the results of operations or cash flows for that period.
		We participate in a number of trustee-managed multi-employer pension and health and welfare plans for employees covered under collective bargaining agreements. Several factors, including unfavorable investment performance, changes in demographics and increased benefits to participants could result in potential funding deficiencies, which could cause us to make higher future contributions to these plans.
		Discontinued Operations — Remediation. Under the agreement pursuant to which we sold our subsidiaries, Abex Corporation and Pneumo Abex Corporation (collectively, “Pneumo Abex”), in 1988 and a subsequent settlement agreement entered into in September 1991, we have assumed indemnification obligations for certain environmental liabilities of Pneumo Abex, after any insurance recoveries. Pneumo Abex has been and is subject to a number of environmental cleanup proceedings, including responsibilities under the Comprehensive Environmental Response, Compensation and Liability Act and other related federal and state laws regarding release or disposal of wastes at on-site and off-site locations. In some proceedings, federal, state and local government agencies are involved and other major corporations have been named as potentially responsible parties. Pneumo Abex is also subject to private claims and lawsuits for remediation of properties previously owned by Pneumo Abex and its subsidiaries.

		There is an inherent uncertainty in assessing the total cost to investigate and remediate a given site. This is because of the evolving and varying nature of the remediation and allocation process. Any assessment of expenses is more speculative in an early stage of remediation and is dependent upon a number of variables beyond the control of any party. Furthermore, there are often timing considerations, in that a portion of the expense incurred by Pneumo Abex, and any resulting obligation of ours to indemnify Pneumo Abex, may not occur for a number of years.
		In fiscal year 2001, we investigated the use of insurance products to mitigate risks related to our indemnification obligations under the 1988 agreement, as amended. The insurance carriers required that we employ an outside consultant to perform a comprehensive review of the former facilities operated or impacted by Pneumo Abex. Advances in the techniques of retrospective risk evaluation and increased experience (and therefore available data) at our former facilities made this comprehensive review possible. The consultant’s review was completed in fiscal year 2001 and was updated in the fourth quarter of 2005. We have recorded our best estimate of our probable liability under our indemnification obligations using this consultant’s review and the assistance of other professionals.
		At the end of the third quarter of 2006, we had $63.7 million accrued to cover potential indemnification obligations, compared to $87.5 million recorded at the end of fiscal year 2005. This indemnification obligation includes costs associated with approximately 20 sites in various stages of remediation. At the present time, the most significant remaining indemnification obligation is associated with the Willits site, as discussed below, while no other single site has significant estimated remaining costs associated with it. Of the total amount accrued, $27.8 million was classified as a current liability at the end of the third quarter of 2006 and $30.5 million at the end of fiscal year 2005. The amounts exclude possible insurance recoveries and are determined on an undiscounted cash flow basis. The estimated indemnification liabilities include expenses for the investigation and remediation of identified sites, payments to third parties for claims and expenses (including product liability and toxic tort claims), administrative expenses, and the expenses of on-going evaluations and litigation. We expect a significant portion of the accrued liabilities will be resolved during the next 10 years.
		Included in our indemnification obligations is financial exposure related to certain remedial actions required at a facility that manufactured hydraulic and related equipment in Willits, California. Various chemicals and metals contaminate this site. In August 1997, a final consent decree was issued in the case of the People of the State of California and the City of Willits, California v. Remco Hydraulics, Inc. This final consent decree was amended in December 2000 and established a trust which is obligated to investigate and clean up this site. We are currently funding the investigation and interim remediation costs on a year-to-year basis according to the final consent decree. We have accrued $22.8 million for future remediation and trust administration costs, with the majority of this amount to be spent over the next several years.
		Although we have certain indemnification obligations for environmental liabilities at a number of sites other than the site discussed above, including Superfund sites, it is not anticipated that additional expense at any specific site will have a material effect on us. At some sites, the volumetric contribution for which we have an obligation has been estimated and other large, financially viable parties are responsible for substantial portions of the remainder. In our opinion, based upon information currently available, the ultimate resolution of these claims and litigation, including potential environmental exposures, and considering amounts already accrued, should not have a material effect on our financial condition, although amounts recorded in a given period could be material to our results of operations or cash flows for that period.
		Discontinued Operations—Insurance. During the second quarter of 2002, as part of a comprehensive program concerning environmental liabilities related to the former Whitman Corporation subsidiaries, we purchased new insurance coverage related to the sites previously owned and operated or impacted by Pneumo Abex and its subsidiaries. In addition, a trust, which was established in 2000 with the proceeds from an insurance settlement (the “Trust”), purchased insurance coverage and funded coverage for remedial and other costs (“Finite Funding”) related to the sites previously owned and operated or impacted by Pneumo Abex and its subsidiaries.

		Essentially all of the assets of the Trust were expended by the Trust in connection with the purchase of the insurance coverage, the Finite Funding and related expenses. These actions have been taken to fund remediation and related costs associated with the sites previously owned and operated or impacted by Pneumo Abex and its subsidiaries and to protect against additional future costs in excess of our self-insured retention. The original amount of self-insured retention (the amount we must pay before the insurance carrier is obligated to begin payments) was $114.0 million of which $41.5 million has been eroded, leaving a remaining self-insured retention of $72.5 million at the end of the third quarter of 2006. The estimated range of aggregate exposure related only to the remediation costs of such environmental liabilities is approximately $31 million to $50 million. We had accrued $31.4 million at the end of the third quarter of 2006 for remediation costs, which is our best estimate of the contingent liabilities related to these environmental matters. The Finite Funding may be used to pay a portion of the $31.4 million and thus reduces our future cash obligations. Amounts recorded in our Condensed Consolidated Balance Sheets related to Finite Funding were $14.2 million and $19.6 million at the end of the third quarter of 2006 and the end of fiscal year 2005, respectively, and are recorded in “Other assets,” net of $3.5 million and $5.4 million recorded in “Other current assets,” at the end of the third quarter of 2006 and the end of fiscal year 2005, respectively.
		In addition, we had recorded other receivables of $7.9 million and $11.4 million at the end of the third quarter of 2006 and at the end of fiscal year 2005, respectively, for future probable amounts to be received from insurance companies and other responsible parties. These amounts were recorded in “Other assets” in the Condensed Consolidated Balance Sheets as of the end of each respective period. Of this total, no portion of the receivable was reflected as current at the end of the third quarter of 2006 or at the end of fiscal year 2005.
		On May 31, 2005, Cooper Industries, LLC (“Cooper”) filed and later served a lawsuit against us, Pneumo Abex, LLC, and the Trustee of the Trust (the “Trustee”), captioned Cooper Industries, LLC v. PepsiAmericas, Inc., et al., Case No. 05 CH 9214 (Cook Cty. Cir. Ct.). The claims involve the Trust and insurance policy described above. Cooper asserts that it was entitled to access the $34 million that previously was in the Trust and used to purchase the insurance policy. Cooper claims that Trust funds should have been distributed for underlying Pneumo Abex asbestos claims indemnified by Cooper. Cooper complains that it was deprived of access to money in the Trust because of the Trustee’s decision to use the Trust funds to purchase the insurance policy described above. Pneumo Abex, LLC, the corporate successor to our prior subsidiary, has been dismissed from the suit.
		During the second quarter of 2006, the Trustee’s motion to dismiss was granted and three counts against us based on Cooper’s claims against the Trust were dismissed with prejudice as were all counts against the Trustee on the grounds that Cooper lacks standing to pursue its claims because it is not a beneficiary under the Trust. We then filed a separate motion to dismiss the remaining counts against us. Our motion was granted during the third quarter of 2006 and all remaining counts against us were dismissed with prejudice. Cooper subsequently filed a notice of appeal with regard to all rulings by the court dismissing the counts against us and the Trustee. Briefing of Cooper’s appeal is expected to take place during the first or second quarter of 2007.
		Discontinued Operations—Product Liability and Toxic Tort Claims. We also have certain indemnification obligations related to product liability and toxic tort claims that might emanate out of the 1988 agreement with Pneumo Abex. Other companies not owned by or associated with us also are responsible to Pneumo Abex for the financial burden of all asbestos product liability claims filed against Pneumo Abex after a certain date in 1998, except for certain claims indemnified by us. The sites and product liability and toxic tort claims included in the aggregate accrued liabilities we have recorded are described more fully in our Annual Report on Form 10-K for the fiscal year 2005. No significant changes in the status of those sites or claims occurred and we were not notified of any significant new sites or claims during the first nine months of 2006.
14.		Segment Reporting
		We operate in one industry located in three geographic areas — the U.S., Central Europe and the Caribbean. We operate in 19 states in the U.S. Outside the U.S., we operate in Poland, Hungary, the Czech Republic, Republic of Slovakia, Romania, Puerto Rico, Jamaica, the Bahamas and Trinidad and Tobago. We have distribution rights and distribute in Moldova, Barbados, Estonia, Latvia and Lithuania. Net sales and operating income from the QABCL acquisition since the date QABCL was consolidated are included in the Central Europe geographic segment in the table below.

The following tables present net sales and operating income of our geographic segments for the third quarter and first nine months of 2006 and 2005 (in millions):

		Third Quarter
		Net Sales								Operating Income
		2006				2005				2006				2005
U.S.		$	841.5			$	822.8			$	90.1			$	111.5
Central Europe			157.2				99.6				18.0				7.8
Caribbean			65.5				60.5				1.9				2.0
Total		$	1,064.2			$	982.9			$	110.0			$	121.3

		First Nine Months
		Net Sales								Operating Income
		2006				2005				2006				2005
U.S.		$	2,462.0			$	2,397.4			$	263.7			$	311.3
Central Europe			337.5				266.7				14.7				3.6
Caribbean			178.4				167.6				1.8				1.4
Total		$	2,977.9			$	2,831.7			$	280.2			$	316.3

15.		Related Party Transactions
		We are a licensed producer and distributor of PepsiCo branded carbonated and non-carbonated soft drinks and other non-alcoholic beverages in the U.S., Central Europe and the Caribbean. We operate under exclusive franchise agreements with soft drink concentrate producers, including “master” bottling and fountain syrup agreements with PepsiCo, Inc. (“PepsiCo”) for the manufacture, packaging, sale and distribution of PepsiCo branded products. The franchise agreements exist in perpetuity and contain operating and marketing commitments and conditions for termination. As of the end of the third quarter of 2006, PepsiCo beneficially owned approximately 44 percent of PepsiAmericas’ outstanding common stock.
		We purchase concentrate from PepsiCo to be used in the production of PepsiCo branded carbonated soft drinks and other non-alcoholic beverages. PepsiCo also provides us with various forms of bottler incentives (marketing support programs) to promote Pepsi’s brands. These bottler incentives cover a variety of initiatives, including direct marketplace, shared media and advertising, to support volume and market share growth. There are no conditions or requirements that could result in the repayment of any support payments we have received.
		We manufacture and distribute fountain products and provide fountain equipment service to PepsiCo customers in certain territories in accordance with various agreements. There are other products that we produce and/or distribute through various arrangements with PepsiCo or partners of PepsiCo. We also purchase finished beverage products from PepsiCo and certain of its affiliates including tea, concentrate and finished beverage products from a Pepsi/Lipton partnership and a Pepsi/Starbucks partnership.
		PepsiCo provides various procurement services under a shared services agreement. Under such agreement, PepsiCo negotiates with various suppliers the cost of certain raw materials by entering into raw material contracts on our behalf. PepsiCo also collects and remits to us certain rebates from the various suppliers related to our procurement volume. In addition, PepsiCo acts as our agent for the execution of derivative contracts associated with certain anticipated raw material purchases.
		We have an existing arrangement with a subsidiary of the Pohlad Companies related to the joint ownership of an aircraft. This transaction is not material to our Condensed Consolidated Financial Statements. Robert C. Pohlad, our Chairman and Chief Executive Officer, is the President and owner of approximately 33 percent of the capital stock of Pohlad Companies.
		See additional discussion of our related party transactions in our Annual Report on Form 10-K for the fiscal year 2005.

16.		Subsequent Event
		On October 25, 2006, we publicly announced a plan to strategically realign our U.S. business to further strengthen our customer focused go-to-market strategy. The U.S. operations will be aligned by customer and channel with dedicated functional support teams to better service our customers and foster mutual growth and our plan is to put this new structure in place at the beginning of 2007. We expect to incur certain charges related to severance and other termination costs with the majority of the charge recorded in the fourth quarter of 2006 with the remainder of the charge recorded in fiscal year 2007. We are unable to make an estimate of the anticipated charge at this time.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CRITICAL ACCOUNTING POLICIES

      The preparation of the Condensed Consolidated Financial Statements in conformity with United States generally accepted accounting principles requires management to use estimates. These estimates are made using management’s best judgment and the information available at the time these estimates are made, including the advice of outside experts. For a better understanding of our significant accounting policies used in preparation of the Condensed Consolidated Financial Statements, please refer to our Annual Report on Form 10-K for fiscal year 2005. We focus your attention on the following critical accounting policies:

Recoverability of Goodwill and Intangible Assets with Indefinite Lives. Goodwill and intangible assets with indefinite useful lives are not amortized, but instead tested annually for impairment or more frequently if events or changes in circumstances indicate that an asset might be impaired.

Goodwill is tested for impairment using a two-step approach at the reporting unit level: U.S., Central Europe and the Caribbean. First, we estimate the fair value of the reporting units primarily using discounted estimated future cash flows. If the carrying value exceeds the fair value of the reporting unit, the second step of the goodwill impairment test is performed to measure the amount of the potential loss. Goodwill impairment is measured by comparing the “implied fair value” of goodwill with its carrying amount.

Our identified intangible assets principally arise from the allocation of the purchase price of businesses acquired, and consist primarily of franchise and distribution agreements. Impairment is measured as the amount by which the carrying value of the intangible asset exceeds its estimated fair value. The estimated fair value is generally determined on the basis of discounted future cash flows.

The impairment evaluation requires the use of considerable management judgment to determine the fair value of the goodwill and intangible assets with indefinite lives using discounted future cash flows, including estimates and assumptions regarding the amount and timing of cash flows, cost of capital and growth rates.

Environmental Liabilities. We continue to be subject to certain indemnification obligations under agreements related to previously sold subsidiaries, including potential environmental liabilities (see Note 13 to the Condensed Consolidated Financial Statements). We have recorded our best estimate of our probable liability under those indemnification obligations, with the assistance of outside consultants and other professionals. The estimated indemnification liabilities include expenses for the remediation of identified sites, payments to third parties for claims and expenses (including product liability and toxic tort claims), administrative expenses, and the expense of on-going evaluations and litigation. Such estimates and the recorded liabilities are subject to various factors, including possible insurance recoveries, the allocation of liabilities among other potentially responsible parties, the advancement of technology for means of remediation, possible changes in the scope of work at the contaminated sites, as well as possible changes in related laws, regulations, and agency requirements. We do not discount environmental liabilities.

Income Taxes. Our effective income tax rate is based on income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. We have established valuation allowances against a portion of the non-U.S. net operating losses to reflect the uncertainty of our ability to fully utilize these benefits given the limited carryforward periods permitted by the various jurisdictions. The evaluation of the realizability of our net operating losses requires the use of considerable management judgment to estimate the future taxable income for the various jurisdictions, for which the ultimate amounts and timing of such estimates may differ. The valuation allowance can also be impacted by changes in the tax regulations.

Significant judgment is required in determining our contingent tax liabilities. We have established contingent tax liabilities using management’s best judgment and adjust these liabilities as warranted by changing facts and circumstances. A change in our tax liabilities in any given period could have a significant impact on our results of operations and cash flows for that period.

Casualty Insurance Costs. Due to the nature of our business, we require insurance coverage for certain casualty risks. We are self-insured for workers’ compensation, product and general liability up to $1 million per occurrence and automobile liability up to $2 million per occurrence. The casualty insurance costs for our self-insurance program represent the ultimate net cost of all reported and estimated unreported losses incurred during the period. We do not discount insurance liabilities.

Our liability for casualty costs is estimated using individual case-based valuations and statistical analyses and is based upon historical experience, actuarial assumptions and professional judgment. These estimates are subject to the effects of trends in loss severity and frequency and are based on the best data available to us. These estimates, however, are also subject to a significant degree of inherent variability. We evaluate these estimates with our actuarial advisors on an annual basis and we believe that they are appropriate and within acceptable industry ranges, although an increase or decrease in the estimates or economic events outside our control could have a material impact on our results of operations and cash flows. Accordingly, the ultimate settlement of these costs may vary significantly from the estimates included in our Condensed Consolidated Financial Statements.

RESULTS OF OPERATIONS
2006 THIRD QUARTER COMPARED WITH 2005 THIRD QUARTER

BUSINESS OVERVIEW

      PepsiAmericas, Inc. (“we”, “our” or “us”) manufactures, distributes, and markets a broad portfolio of beverage products in the U.S., Central Europe and the Caribbean. We sell a variety of brands that we bottle under franchise agreements with various brand owners, the majority with PepsiCo or PepsiCo joint ventures. In some territories, we manufacture, package, sell and distribute our own brands, such as Toma brands in Central Europe. We operate in a significant portion of a 19 state region in the U.S. In Central Europe, we serve Poland, Hungary, the Czech Republic, Republic of Slovakia, and Romania. In the Caribbean, our territories include Puerto Rico, Jamaica, the Bahamas, and Trinidad and Tobago. We have distribution rights and distribute in Moldova, Barbados, Estonia, Latvia and Lithuania. Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and accompanying Notes in this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2005.

      In the discussions of our results of operations below, the number of cases sold is referred to as volume. Constant territory refers to the results of operations excluding acquisitions. Net pricing is net sales divided by the number of cases and gallons sold for our core businesses, which include bottles and cans (including bottle and can volume from vending equipment sales) as well as food service. Changes in net pricing include the impact of sales price (or rate) changes, as well as the impact of foreign currency translation and brand, package and geographic mix. Net pricing and reported volume amounts exclude contract, commissary, private label, concentrate, and vending (other than bottles and cans) revenue and volume. Contract sales represent sales of manufactured product to other franchise bottlers and typically decline as excess manufacturing capacity is utilized. Net pricing and volume also exclude activity associated with beer and snack food products. Cost of goods sold per unit is the cost of goods sold for our core business divided by the related number of cases and gallons sold.

Seasonality

      Our business is seasonal; accordingly, the operating results and cash flow from operations of any individual quarter may not be indicative of a full year’s results.

Items Impacting Comparability

Acquisition

      Quadrant-Amroq Bottling Company Limited (“QABCL”) is a holding company that through its subsidiaries produces, sells and distributes Pepsi and other beverages throughout Romania with distribution rights in Moldova. In June 2005, we acquired a 49 percent interest in QABCL for a purchase price of $51.0 million. This initial investment was recorded under the equity method in accordance with APB Opinion No. 18, “The Equity Method of Accounting for Investment in Common Stock” and was included in “Other Assets” in the Condensed Consolidated Balance Sheet. We recorded our share of QABCL earnings in “Equity in net earnings of nonconsolidated companies” in the Condensed Consolidated Statements of Income. Equity in net earnings of nonconsolidated companies was $0.2 million in the third quarter of 2006 and $3.2 million in the third quarter of 2005. Equity in net earnings of nonconsolidated companies was $5.6 million in the first nine months of 2006 compared to $3.2 million in the first nine months of 2005.

      In July 2006, we acquired the remaining 51 percent interest in QABCL for a purchase price of $81.9 million, net of $17.0 million cash received. We acquired $55.4 million of debt as part of the acquisition. QABCL is now a wholly-owned subsidiary which was consolidated in the third quarter of 2006. The increased purchase price for the remainder of QABCL was due to the improved operating performance subsequent to the initial acquisition of our 49 percent minority interest. Due to the timing of the receipt of available financial information from QABCL, we record results on a one-month lag basis.

Fructose Settlement

      In the third quarter of 2005, we recorded a gain of $1.8 million related to additional proceeds from the settlement of a class action lawsuit. The lawsuit alleged price fixing related to high fructose corn syrup purchased from July 1, 1991 through June 30, 1995. The amount received in the third quarter of 2005 related to the Heartland territories purchased from PepsiCo in 1999. In the first nine months of 2005, we recorded a gain of $15.1 million. Total proceeds of $16.6 million were received by the end of fiscal year 2005.

Special Charges

      In the first nine months of 2006 and 2005, we recorded special charges of $2.2 million and $2.5 million, respectively, in Central Europe primarily related to a reduction in the workforce. These special charges were primarily for severance costs, related benefits and asset write-downs.

Financial Results

      Our net income in the third quarter of 2006 was $53.1 million, or $0.41 per diluted common share, compared to net income of $63.7 million, or $0.47 per diluted common share, in the third quarter of 2005. The acquisition of QABCL had an incremental impact of $0.01 per diluted common share in the third quarter of 2006. The prior year results include a $0.01 per diluted common share benefit related to the fructose settlement proceeds received in the third quarter of 2005.

      Our financial results in the third quarter of 2006 were impacted by market factors that limited our volume growth in the U.S. In the U.S., we experienced continued softness in our carbonated soft drink category which was partially offset by significant growth in the non-carbonated beverage portfolio. In Central Europe we achieved strong volume and pricing gains. We also experienced higher cost of goods sold per unit across all regions due to increases in raw material costs across all commodities, as well as higher product costs associated with growth in the non-carbonated portfolio. Selling, delivery and administrative (“SD&A”) expenses were higher due to international volume growth, a fixed asset charge related to marketing and merchandising equipment, investment into the airforce Nutrisoda brand and higher fuel costs.

2006 Outlook

      For our full year outlook on a constant territory basis, we expect worldwide volume growth to be in the 2 percent range and worldwide net pricing growth to be approximately 1 percent. Cost of goods sold per unit is expected to increase approximately 4.5 percent, which reflects the impact of higher commodity costs in all regions. Full year SD&A expense is anticipated to increase approximately 3 percent. For fiscal year 2006, we expect QABCL to contribute 2 to 3 percentage points to volume, 1 to 2 percentage points to SD&A expenses and 2 to 3 percentage points to operating income.

RESULTS OF OPERATIONS

Volume

      Sales volume growth (decline) for the third quarter of 2006 and 2005 was as follows:

As reported		2006				2005
U.S.			0.6	%			7.9	%
Central Europe			50.5	%			4.3	%
Caribbean			3.8	%			(0.4	%)
Worldwide			9.0	%			6.7	%

Constant territory		2006				2005
U.S.			0.6	%			0.4	%
Central Europe			13.1	%			4.3	%
Caribbean			3.8	%			(0.4	%)
Worldwide			2.8	%			1.0	%

      In the third quarter of 2006, worldwide volume increased 9.0 percent compared to the prior year third quarter. The increase in volume was driven by growth in all geographic segments, coupled with the impact of the QABCL acquisition.

      Volume in the U.S grew 0.6 percent in the third quarter of 2006 compared to the third quarter of 2005 due to strong growth in the non-carbonated beverage category. The non-carbonated beverage category grew 32 percent in the quarter. Aquafina volume grew 40 percent, while the balance of the non-carbonated beverage portfolio grew 26 percent, led by Lipton Iced Tea, Frappuccino and SOBE. Growth in our non-carbonated category was partially offset by decreases in our carbonated soft drink category. A mid single-digit decline in carbonated soft drink volume reflected continued overall softness in that category. Less innovation in the carbonated soft drink category also contributed to the decline in volume. Single-serve package volume was flat in the third quarter of 2006 compared to the prior year due, in part, to timing of product innovations, while take-home package growth slowed to 1 percent.

      Total volume in Central Europe increased 50.5 percent in the third quarter of 2006 compared to the third quarter of 2005, with approximately 37 percentage points of growth coming from the acquisition of QABCL. On a constant territory basis, volume in Central Europe increased 13.1 percent due to strong performances in all categories and across all markets. Carbonated soft drink volume grew in the high single digits driven by growth in Trademark Pepsi and Trademark Slice. Our non-carbonated beverage volume growth of 26 percent was driven by the Lipton brand, which grew 65 percent compared to the third quarter of 2005, Tropicana juice drinks which grew approximately 22 percent during the quarter and growth of almost 20 percent in the water category.

      Total volume in the Caribbean increased 3.8 percent in the third quarter of 2006 compared to the same period last year. Non-carbonated beverages and flavored carbonated soft drinks drove volume growth in the third quarter of 2006. Growth in the non-carbonated beverage category was driven by Tropicana juice drinks and energy drinks.

Net Sales

      Net sales and net pricing statistics for the third quarter of 2006 and 2005 were as follows (dollar amounts in millions):

Net Sales		2006				2005				Change
U.S.		$	841.5			$	822.8				2.3	%
Central Europe			157.2				99.6				57.8	%
Caribbean			65.5				60.5				8.3	%
Worldwide		$	1,064.2			$	982.9				8.3	%
Net Pricing Growth—as reported		2006				2005
U.S.			1.3	%			3.2	%
Central Europe			8.3	%			2.5	%
Caribbean			4.6	%			6.2	%
Worldwide			(0.2	%)			3.6	%
Net Pricing Growth—constant territory		2006				2005
U.S.			1.3	%			3.4	%
Central Europe			8.5	%			2.5	%
Caribbean			4.6	%			6.2	%
Worldwide			1.5	%			3.3	%

      Worldwide net sales of $1,064.2 million increased 8.3 percent in the third quarter of 2006 compared with the same period last year. Approximately 4 percentage points of growth was attributable to the acquisition of QABCL and the remaining increase was driven by a 2.8 percent increase in volume and a 1.5 percent increase in net pricing, both on a constant territory basis.

      Net sales in the U.S. of $841.5 million increased 2.3 percent in the third quarter of 2006 compared with the same period last year primarily due to increases in net pricing and volume. The increase in net pricing of 1.3 percent was primarily driven by rate increases and package mix.

      Net sales in Central Europe of $157.2 million increased 57.8 percent in the third quarter compared with the same period last year. Approximately 35 percentage points of growth was attributable to the acquisition of QABCL in the third quarter of 2006. Constant territory volume growth and higher net pricing also contributed to the increase in net sales. Foreign currency translation provided a $4.2 million benefit to net sales, which had a 3.9 percent favorable impact to constant territory net pricing. Constant territory net pricing on a local currency basis grew 4.6 percent during the third quarter of 2006.

      Net sales in the Caribbean increased due to higher net pricing of 4.6 percent, reflecting an initiative to increase pricing in the can package and single-serve category.

Cost of Goods Sold

      Cost of goods sold and cost of goods sold per unit statistics for the third quarter of 2006 and 2005 were as follows (dollar amounts in millions):

Cost of Goods Sold		2006				2005				Change
U.S.		$	490.8			$	467.1				5.1	%
Central Europe			91.5				58.6				56.1	%
Caribbean			48.3				44.1				9.5	%
Worldwide		$	630.6			$	569.8				10.7	%
Cost of Goods Sold per Unit Increase—as reported		2006				2005
U.S.			4.0	%			3.3	%
Central Europe			7.2	%			6.8	%
Caribbean			7.2	%			3.6	%
Worldwide			2.2	%			3.8	%
Cost of Goods Sold per Unit Increase—constant territory		2006				2005
U.S.			4.0	%			3.7	%
Central Europe			8.2	%			6.8	%
Caribbean			7.2	%			3.6	%
Worldwide			4.1	%			3.8	%

      Cost of goods sold increased $60.8 million, or 10.7 percent, to $630.6 million in the third quarter of 2006. The growth in cost of goods sold for the quarter was driven primarily by cost of goods sold per unit increases, volume growth and the impact of acquisitions. Worldwide cost of good sold per unit increases were driven primarily by increases in raw material costs, including higher concentrate costs, and package mix shifts on a constant territory basis. Package mix changes were driven by shifts to higher cost products as a result of volume growth in our non-carbonated beverage portfolio.

      In the U.S., cost of goods sold increased $23.7 million, or 5.1 percent, to $490.8 million in the third quarter of 2006. This increase was driven primarily by increases in cost of goods sold per unit coupled with volume growth. Cost of goods sold per unit increased 4.0 percent due to higher raw material costs across all commodities, as well as the impact of mix shifts to higher cost non-carbonated beverages.

      In Central Europe, cost of goods sold increased $32.9 million, or 56.1 percent to $91.5 million in the third quarter of 2006. Cost of goods sold increased due to the acquisition of QABCL in the third quarter of 2006, volume growth of 13.1 percent on a constant territory basis, higher raw material costs, and the unfavorable impact of foreign currency translation of $2.7 million. Cost of goods sold per unit increased 8.2 percent on a constant territory basis due to higher concentrate, resin and sugar costs.

      In the Caribbean, cost of goods sold increased $4.2 million, or 9.5 percent, to $48.3 million in the third quarter of 2006. The increase was mainly driven by an increase in cost of goods sold per unit of 7.2 percent and volume growth of 3.8 percent. The cost of goods sold per unit increased due to higher raw material costs, including concentrate and sweeteners, and higher utility costs.

Selling, Delivery and Administrative Expenses

      SD&A expenses and SD&A statistics for the third quarter of 2006 and 2005 were as follows (dollar amounts in millions):

SD&A Expenses		2006				2005				Change
U.S.		$	260.6			$	246.0				5.9	%
Central Europe			47.7				33.2				43.7	%
Caribbean			15.3				14.4				6.3	%
Worldwide		$	323.6			$	293.6				10.2	%
SD&A as Percent of Net Sales		2006				2005
U.S.			31.0	%			29.9	%
Central Europe			30.3	%			33.3	%
Caribbean			23.4	%			23.8	%
Worldwide			30.4	%			29.9	%

      In the third quarter of 2006, SD&A expenses increased $30.0 million, or 10.2 percent, to $323.6 million. As a percentage of net sales, SD&A expenses increased to 30.4 percent in the third quarter of 2006, compared to 29.9 percent in the prior year third quarter.

      In the U.S., SD&A expenses increased $14.6 million, or 5.9 percent, to $260.6 million in the third quarter of 2006. SD&A expenses as a percentage of net sales increased to 31.0 percent in the third quarter of 2006 compared to 29.9 percent in the prior year. The increase was mainly due to a fixed asset charge for marketing and merchandising equipment, investment in the airforce Nutrisoda brand and higher fuel costs. The increase in SD&A expenses in the third quarter of 2006 was partly offset by lower costs for employee benefits, driven by favorable healthcare costs and lower workers’ compensation costs.

      In Central Europe, SD&A expenses increased $14.5 million, or 43.7 percent, in the third quarter of 2006 compared to the prior year third quarter. The QABCL acquisition contributed 26 percentage points of the SD&A expense increase. The remaining increase was primarily due to higher advertising and marketing costs, compensation and benefits costs, and higher transportation costs in the constant territories. Foreign currency translation unfavorably impacted SD&A expense by $0.5 million in the third quarter of 2006.

      In the Caribbean, SD&A expenses increased $0.9 million, or 6.3 percent, to $15.3 million in the third quarter of 2006. The increase in SD&A expenses was due, in part, to severance costs incurred as a result of our entry into a new third-party distributor arrangement in Jamaica.

Operating Income

      Operating income for the third quarter of 2006 and 2005 was as follows (dollar amounts in millions):

		2006				2005				Change
U.S.		$	90.1			$	111.5				(19.2	%)
Central Europe			18.0				7.8				130.8	%
Caribbean			1.9				2.0				(5.0	%)
Worldwide		$	110.0			$	121.3				(9.3	%)

      Operating income decreased $11.3 million, or 9.3 percent, to $110.0 million in the third quarter of 2006.

      Operating income in the U.S. decreased $21.4 million to $90.1 million in the third quarter of 2006. The third quarter of 2005 included $1.8 million of fructose settlement income. The remaining decrease was due to higher raw material costs, the negative impact of package mix shift and higher SD&A expenses.

      Operating income in Central Europe increased $10.2 million, or 130.8 percent, to $18.0 million in the third quarter of 2006. This growth was due primarily to the 89 percentage points contributed by the QABCL acquisition as well as volume growth on a constant territory basis, higher net selling prices and lower SD&A expenses as a percentage of net sales.

      Operating income in the Caribbean declined to $1.9 million in the third quarter of 2006, slightly lower than the operating income of $2.0 million in the prior year third quarter, due to higher raw material costs and SD&A expenses, partly offset by volume growth and higher net selling prices.

Interest Expense and Other Expenses

      Net interest expense increased $4.7 million in the third quarter of 2006 to $27.0 million, compared to $22.3 million in the third quarter of 2005. Net interest expense increased due to higher interest rates on floating rate debt and higher overall debt levels. The higher debt levels were primarily due to the acquisition of the remaining interest in QABCL in the third quarter of 2006.

      We recorded other expense, net, of $0.1 million in the third quarter of 2006 compared to other expense, net, of $1.9 million reported in the third quarter of 2005. Other expense, net, for the third quarter of 2006 included foreign currency transaction gains of $0.6 million compared to foreign currency transaction losses of $0.1 million in the previous year’s third quarter. In addition, we recorded a pre-tax gain of $0.9 million on the sale of investments in the third quarter of 2006.

Income Taxes

      The effective income tax rate, which is income tax expense expressed as a percentage of income before income taxes, was 36.2 percent for the third quarter of 2006, compared to 37.7 percent in the third quarter of 2005. The current year’s rate was favorably impacted by the mix of our international operations.

Net Income

      Net income decreased $10.6 million to $53.1 million in the third quarter of 2006, compared to $63.7 million in the third quarter of 2005. The discussion of our operating results, included above, explains the decrease in net income.

RESULTS OF OPERATIONS
2006 FIRST NINE MONTHS COMPARED WITH 2005 FIRST NINE MONTHS

Volume

      Sales volume growth for the first nine months of 2006 and 2005 was as follows:

As reported		2006				2005
U.S.			0.9	%			7.5	%
Central Europe			24.0	%			2.8	%
Caribbean			1.1	%			8.5	%
Worldwide			4.3	%			6.8	%

Constant territory		2006				2005
U.S.			0.9	%			0.2	%
Central Europe			9.7	%			2.8	%
Caribbean			1.1	%			8.5	%
Worldwide			2.2	%			1.1	%

      Worldwide volume in the first nine months of 2006 increased 4.3 percent compared to the same period in 2005. The increase in worldwide volume was attributed to volume increases of 24.0 percent in Central Europe, 1.1 percent in the Caribbean and 0.9 percent in the U.S.

      In the first nine months of 2006, U.S. volume grew 0.9 percent compared to the same period in fiscal year 2005. Non-carbonated beverages grew approximately 29 percent in the first nine months of 2006, driven by the strong double-digit growth in Trademark Aquafina. Growth in our non-carbonated category was partially offset by decreases in our carbonated soft drink category. A mid single-digit decline in carbonated soft drink volume reflected continued overall softness in that category. Less innovation in the carbonated soft drink category also contributed to the decline in volume.

      Total volume in Central Europe increased 24.0 percent in the first nine months of 2006 compared to the same period in fiscal year 2005. The acquisition of QABCL in the third quarter of 2006 contributed approximately 14 percentage points of volume growth during the period. The remaining growth was driven by strong performances across all categories. Carbonated soft drink volume grew approximately 10 percent during the first nine months of 2006 which reflected strong growth in Trademark Slice and Trademark Pepsi. Non-carbonated beverage growth of approximately 16 percent in the first nine months of 2006 was driven by double-digit growth in Lipton products and the juice category, which includes Tropicana and Toma.

      Volume in the Caribbean increased 1.1 percent in the first nine months of 2006 compared to the same period last year. Volume grew despite the challenging business environment in Puerto Rico and Jamaica during the second quarter of 2006. Volume growth was driven by 28 percent growth in the non-carbonated beverage category, 13 percent growth in the water category and 3 percent growth in flavored carbonated soft drinks. The non-carbonated beverage category growth was driven primarily by contributions from Tropicana juice drinks and energy drinks.

Net Sales

      Net sales and net pricing statistics for the first nine months of 2006 and 2005 were as follows (dollar amounts in millions):

Net Sales		2006				2005				Change
U.S.		$	2,462.0			$	2,397.4				2.7	%
Central Europe			337.5				266.7				26.5	%
Caribbean			178.4				167.6				6.4	%
Worldwide		$	2,977.9			$	2,831.7				5.2	%
Net Pricing Growth-as reported		2006				2005
U.S.			1.3	%			3.4	%
Central Europe			4.0	%			7.4	%
Caribbean			5.5	%			3.8	%
Worldwide			0.7	%			4.1	%
Net Pricing Growth-constant territory		2006				2005
U.S.			1.3	%			3.5	%
Central Europe			3.8	%			7.4	%
Caribbean			5.5	%			3.8	%
Worldwide			1.3	%			3.8	%

      Net sales increased $146.2 million, or 5.2 percent, to $2,977.9 million in the first nine months of 2006. The increase was driven primarily by the acquisition of QABCL, increased worldwide net pricing on a constant territory basis and volume growth in all geographic segments.

      Net sales in the U.S. for the first nine months of 2006 increased $64.6 million, or 2.7 percent, to $2,462.0 million. The increase was primarily the result of volume growth and an increase of 1.3 percent in average net pricing. The increase in net pricing was mostly driven by rate increases offset partly by package mix. Net pricing increased in the third quarter of 2006 compared to the second quarter of 2006 as a result of a more balanced package mix.

      Net sales in Central Europe for the first nine months of 2006 increased $70.8 million, or 26.5 percent, to $337.5 million. The increase reflected the QABCL acquisition, which contributed approximately 13 percentage points of growth in net sales during the first nine months of 2006. The remainder of the increase was due to volume growth and higher net pricing, offset partly by favorable foreign currency translation of $1.3 million in the constant territories. Net pricing increased primarily due to growth in the single-serve package as well as a higher rate.

      Net sales in the Caribbean increased $10.8 million, or 6.4 percent, in the first nine months of 2006 to $178.4 million. The increase was driven by an increase in net pricing of 5.5 percent and volume growth of 1.1 percent.

Cost of Goods Sold

      Cost of goods sold and cost of goods sold per unit statistics for the first nine months of 2006 and 2005 were as follows (dollar amounts in millions):

Cost of Goods Sold		2006				2005				Change
U.S.		$	1,432.7			$	1,352.1				6.0	%
Central Europe			201.8				161.3				25.1	%
Caribbean			132.5				124.1				6.8	%
Worldwide		$	1,767.0			$	1,637.5				7.9	%
Cost of Goods Sold per Unit Increase-as reported		2006				2005
U.S.			4.3	%			3.1	%
Central Europe			2.7	%			14.9	%
Caribbean			6.5	%			4.6	%
Worldwide			3.3	%			4.5	%
Cost of Goods Sold per Unit Increase-constant territory		2006				2005
U.S.			4.3	%			2.9	%
Central Europe			3.2	%			14.9	%
Caribbean			6.5	%			4.6	%
Worldwide			4.0	%			4.2	%

      Cost of goods sold increased $129.5 million, or 7.9 percent, to $1,767.0 million in the first nine months of 2006. This increase was driven primarily by higher raw material costs, including concentrate costs, and a mix shift into our higher cost non-carbonated beverage portfolio. Cost of goods sold per unit increased 4.0 percent on a constant territory basis in the first nine months of 2006 compared to the same period in 2005.

      In the U.S., cost of goods sold increased $80.6 million, or 6.0 percent, to $1,432.7 million in the first nine months of 2006. Cost of goods sold per unit increased 4.3 percent in the U.S., due mainly to price increases in concentrate, commodities and fuel as well as an increase in sales of non-carbonated beverages, which have higher product costs.

      In Central Europe, cost of goods sold increased $40.5 million, or 25.1 percent, to $201.8 million in the first nine months of 2006. Cost of goods sold increased due to the acquisition of QABCL, which contributed almost half of the increase in cost of goods sold, and volume growth of 9.7 percent in the constant territories. Cost of goods sold per unit increased 3.2 percent on a constant territory basis due to higher concentrate, resin and sugar costs offset partly by the unfavorable impact of foreign currency translation of $1.1 million.

      In the Caribbean, cost of goods sold increased $8.4 million, or 6.8 percent, to $132.5 million in the first nine months of 2006. The increase was mainly driven by an increase in cost of goods sold per unit of 6.5 percent. The cost of goods sold per unit increased primarily due to increases in the prices for ingredients, including concentrate and sweeteners.

Selling, Delivery and Administrative Expenses

      SD&A expenses and SD&A statistics for the first nine months of 2006 and 2005 were as follows (dollar amounts in millions):

SD&A Expenses		2006				2005				Change
U.S.		$	765.6			$	749.1				2.2	%
Central Europe			118.8				99.3				19.6	%
Caribbean			44.1				42.1				4.8	%
Worldwide		$	928.5			$	890.5				4.3	%
SD&A as Percent of Net Sales		2006				2005
U.S.			31.1	%			31.2	%
Central Europe			35.2	%			37.2	%
Caribbean			24.7	%			25.1	%
Worldwide			31.2	%			31.4	%