|UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-Q

/x/   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2004


/ /   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)

|Registrant's telephone number, including area 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 | /x/ | NO | / / | 
|--- | --- | -- | --- | 

|Indicate by check mark whether the registrant
is an accelerated filer (as defined in Exchange Act Rule 12b-2).
|--------------------------------------------------------------------------------------------------------------

|YES | /x/ | NO | / / | 
|--- | --- | -- | --- | 

|As of July 30, 2004 the Registrant
had 138,240,101 outstanding  shares
of common  stock,  par value  $0.01 per  share,  the
Registrant's only class of common stock.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|PEPSIAMERICAS, INC.FORM 10-QSECOND QUARTER 2004
|-----------------------------------------------

|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 | 14  
|             
|              |  | Item 3.               | Quantitative and Qualitative Disclosures About Market Risk                            | 27  
|             
|              |  | Item 4.               | Controls and Procedures                                                               | 27  
|             
|PART II       |  | OTHER INFORMATION    
|             
|              |  | Item 1.               | Legal Proceedings                                                                     | 28  
|             
|              |  | Item 2.               | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities      | 28  
|             
|              |  | Item 4.               | Submission of Matters to a Vote of Security Holders                                   | 28  
|             
|              |  | Item 5.               | Other Information                                                                     | 29  
|             
|              |  | Item 6.               | Exhibits and Reports on Form 8-K                                                      | 29  
|             
|SIGNATURE     |  |                       |                                                                                       | 30  
|             
|EXHIBIT INDEX |  |                       |                                                                                       | 31  

|1
|-

---

|PEPSIAMERICAS, INC.CONDENSED
CONSOLIDATED STATEMENTS OF INCOME(unaudited and in
millions, except per share data)
|----------------------------------------------------------------------------------------------------------------

|                                               | Second Quarter | First Half
|---------------------------------------------- | -------------- | ----------
|
|Net sales                                      |                |           
|Cost of goods sold                             |                |           
|                                               |                |           
|Gross profit                                   |                |           
|Selling, delivery and administrative expenses  |                |           
|Special charges, net                           |                |           
|                                               |                |           
|Operating income                               |                |           
|Interest expense, net                          |                |           
|Other income (expense), net                    |                |           
|                                               |                |           
|Income before income taxes                     |                |           
|Income taxes                                   |                |           
|                                               |                |           
|Net income                                     |                |           
|                                               |                |           
|Weighted average common shares:                |                |           
|Basic                                          |                |           
|Incremental effect of stock options and awards |                |           
|                                               |                |           
|Diluted                                        |                |           
|                                               |                |           
|Net income per share:                          |                |           
|Basic                                          |                |           
|Diluted                                        |                |           
|                                               |                |           
|                                               |                |           
|Cash dividends per share                       |                |           

|See
accompanying notes to condensed consolidated financial statements.
|----------------------------------------------------------------------

|2
|-

---

|PEPSIAMERICAS, INC.CONDENSED
CONSOLIDATED BALANCE SHEETS(unaudited and in
millions, except per share data)
|----------------------------------------------------------------------------------------------------------

|                                                                                    | End ofSecond Quarter2004 | End ofFiscal Year2003
|----------------------------------------------------------------------------------- | ------------------------ | ---------------------
|ASSETS:                                                                             |                          |                      
|Current assets:                                                                     |                          |                      
|Cash and equivalents                                                                |                          |                      
|Receivables                                                                         |                          |                      
|Inventories                                                                         |                          |                      
|Other current assets                                                                |                          |                      
|                                                                                    |                          |                      
|Total current assets                                                                |                          |                      
|Property (at cost)                                                                  |                          |                      
|Accumulated depreciation                                                            |                          |                      
|                                                                                    |                          |                      
|Net property                                                                        |                          |                      
|Goodwill and intangible assets, net                                                 |                          |                      
|Other assets                                                                        |                          |                      
|                                                                                    |                          |                      
|Total assets                                                                        |                          |                      
|                                                                                    |                          |                      
|LIABILITIES AND SHAREHOLDERS' EQUITY:                                               |                          |                      
|Current liabilities:                                                                |                          |                      
|Short-term debt, including current maturities of long-term debt                     |                          |                      
|Payables                                                                            |                          |                      
|Other current liabilities                                                           |                          |                      
|                                                                                    |                          |                      
|Total current liabilities                                                           |                          |                      
|Long-term debt                                                                      |                          |                      
|Deferred income taxes                                                               |                          |                      
|Other liabilities                                                                   |                          |                      
|                                                                                    |                          |                      
|Total liabilities                                                                   |                          |                      
|                                                                                    |                          |                      
|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; 167.6 million shares  |                          |                      
|issued - 2004 and 2003)                                                             |                          |                      
|Retained income                                                                     |                          |                      
|Unearned stock-based compensation                                                   |                          |                      
|Accumulated other comprehensive loss:                                               |                          |                      
|Cumulative translation adjustment                                                   |                          |                      
|Net unrealized
investment and hedging gains                                         |                          |                      
|Minimum pension liability                                                           |                          |                      
|                                                                                    |                          |                      
|Accumulated other comprehensive loss                                                |                          |                      
|Treasury stock, at cost (29.4 million shares - 2004 and 23.8 million shares - 2003) |                          |                      
|                                                                                    |                          |                      
|Total shareholders' equity                                                          |                          |                      
|                                                                                    |                          |                      
|Total liabilities and shareholders' equity                                          |                          |                      
|                                                                                    |                          |                      

See
accompanying notes to condensed consolidated financial statements.

|3
|-

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|PEPSIAMERICAS, INCCONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited and in
millions)
|--------------------------------------------------------------------------------------------

|                                                                               | First Half
|------------------------------------------------------------------------------ | ----------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                          |           
|Income from continuing operations                                              |           
|Adjustments to reconcile to net cash provided by operating activities:         |           
|Depreciation and amortization                                                  |           
|Deferred income taxes                                                          |           
|Special charges, net                                                           |           
|Cash outlays related to special charges                                        |           
|Gain on sale of investment                                                     |           
|Other                                                                          |           
|Changes in assets and liabilities, exclusive of acquisitions and divestitures: |           
|Increase in securitized receivables                                            |           
|Increase in remaining receivables                                              |           
|Increase in inventories                                                        |           
|Increase in payables                                                           |           
|Net change in other assets and liabilities                                     |           
|                                                                               |           
|Net cash provided by operating activities                                      |           
|                                                                               |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                          |           
|Capital investments                                                            |           
|Acquisitions, net of cash acquired                                             |           
|Proceeds from sales of property                                                |           
|Proceeds from sale of investment                                               |           
|                                                                               |           
|Net cash used in investing activities                                          |           
|                                                                               |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                          |           
|Net borrowings of short-term debt                                              |           
|Proceeds from issuance of long-term debt                                       |           
|Repayment of long-term debt                                                    |           
|Treasury stock purchases                                                       |           
|Issuance of common stock                                                       |           
|Cash dividends                                                                 |           
|                                                                               |           
|Net cash used in financing activities                                          |           
|                                                                               |           
|Net cash (used in) provided by discontinued operations                         |           
|Effects of exchange rate changes on cash and equivalents                       |           
|                                                                               |           
|Change in cash and equivalents                                                 |           
|Cash and equivalents at beginning of year                                      |           
|                                                                               |           
|Cash and equivalents at end of second quarter                                  |           
|                                                                               |           

See
accompanying notes to condensed consolidated financial statements.

|4
|-

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|PEPSIAMERICAS, INC.
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS(unaudited)
|------------------------------------------------------------------------------------

|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 or
us) without audit. Certain information and disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission, although we believe that the disclosures made
are adequate to make the information presented not misleading. It is suggested that these
Condensed Consolidated Financial Statements be read in conjunction with the financial
statements and notes thereto included in our Annual Report on Form 10-K for the fiscal
year 2003. 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 31. Our
2003 fiscal year contained 53 weeks and ended January 3, 2004. Our second quarters of
2004 and 2003 were based on the thirteen weeks ended July 3, 2004 and June 28, 2003,
respectively. Our business is highly seasonal; accordingly, the operating results of any
individual quarter may not be indicative of a full years operating results.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
income per share  Basic net income per share is based upon the weighted-average
number of common shares outstanding. Diluted net income per share assumes the exercise of
all options, which are dilutive, whether exercisable or not. The dilutive effects of
stock options are measured under the treasury stock method. The basic and diluted net
income per share amounts also include the impact of the accelerated share repurchase
program. The dilutive effect of the accelerated share repurchase program is measured
under the reverse treasury stock method. See the "Accelerated Share Repurchase Program" note
 for further discussion.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Options
to purchase the following shares were not included in the computation of diluted net
income per share because the exercise price was greater than the average market price of
the common shares during the related period:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                           | Second Quarter |           | First Half |  
| | ----------------------------------------- | -------------- | --------- | ---------- | -
| |                                           |                |           |            |  
| |                                           | 2004           |           | 2003       |  
| |                                           |                |           |            |  
| |                                           |                |           |            |  
| | Shares under options outstanding          |                | 2,494,356 |            |  
| | Weighted-average exercise price per share | $              | 23.03     |            | $

| | Reclassifications Certain
amounts in the prior period Condensed Consolidated Financial Statements have been
reclassified to conform to the current year presentation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5
|-

---

| | Stock-based
compensation We use the intrinsic value method of accounting for our
stock-based compensation under APB Opinion No. 25, Accounting for Stock Issued to
Employees. No stock-based employee compensation cost for options is 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. We recognized compensation expense of $2.1
million and $1.5 million in the second quarter of 2004 and 2003, respectively, and $3.9
million and $2.8 million in the first half of 2004 and 2003, respectively, related to
restricted stock award grants, which is included in Net income, as reported in
the table below. The following table illustrates the effect on net income and net income
per share if we had applied the fair value recognition provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, to stock-based employee compensation. The table (in
millions, except per share data) is presented pursuant to amended disclosure requirements
of SFAS No. 148, Accounting for Stock-Based Compensation Transition and
Disclosure.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                                                  | Second Quarter |       | First Half |  
| | ------------------------------------------------------------------------------------------------------------------------------------------------ | -------------- | ----- | ---------- | -
| |                                                                                                                                                  |                |       |            |  
| |                                                                                                                                                  | 2004           |       | 2003       |  
| |                                                                                                                                                  |                |       |            |  
| |                                                                                                                                                  |                |       |            |  
| | Net income, as reported                                                                                                                          | $              | 61.7  |            | $
| | Deduct:  total stock-based
      employee   compensation expense determined  under   fair value based method for all
      options,   net of tax |                | ( 0.9 | )          |  
| |                                                                                                                                                  |                |       |            |  
| | Pro forma net income                                                                                                                             | $              | 60.8  |            | $
| |                                                                                                                                                  |                |       |            |  
| | Net income per share:                                                                                                                            |                |       |            |  
| | Basic:     As
      reported                                                                                                                     | $              | 0.44  |            | $
| |                                                                                                                                                  |                |       |            |  
| | Pro forma                                                                                                                                        | $              | 0.44  |            | $
| |                                                                                                                                                  |                |       |            |  
| | Diluted:  As reported                                                                                                                            | $              | 0.43  |            | $
| |                                                                                                                                                  |                |       |            |  
| | Pro forma                                                                                                                                        | $              | 0.43  |            | $
| |                                                                                                                                                  |                |       |            |  

| | The
Black-Scholes model and the assumptions presented in the following table were used to
estimate the fair values of the options granted for the first half of
2004 and 2003. We did not grant any options during the second quarter of 2004 or 2003. In
the first half of 2004 and 2003, the weighted-average estimated fair values at the dates
of option grants were $4.66 and $3.28, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                       | 2004 |   | 2003
| | ------------------------------------- | ---- | - | ----
| | Risk-free interest rate               | 3.1  | % |     
| | Expected dividend yield               | 1.6  | % |     
| | Expected volatility                   | 27.0 | % |     
| | Estimated lives of options (in years) | 5.0  |   |     

|2. | Special Charges
|-- | ---------------

| | We
recorded special charges of $1.6 million in the second quarter of 2004 and $1.8 million
in the first half of 2004 in Central Europe. These special charges recorded in the first
half of 2004 included $1.2 million of severance costs and related benefits associated with to a
reduction in the workforce in Central Europe as we continued to rationalize the cost
structure. In addition, we recorded special charges of $0.6 million in Hungary related to
the continued modification of our distribution strategy to increase utilization of third
party distributors in more remote areas. These special charges in Hungary were primarily
for severance costs and related benefits.  We
anticipate these programs to be substantially complete by the fourth quarter of 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We recorded special charges of $1.1 million in the second quarter of 2003 and $7.4 million in the first half of 2003.
 In the United States
(U.S.), we recorded special charges of $5.8 million in the first half of 2004, which consisted mainly
of severance-related costs associated with the reduction of our U.S. workforce. In
Central Europe, we recorded a special charge of $0.8 million in the first half of 2004, consisting mainly of asset
write-downs, related to the modification of the distribution method in Poland, the Czech
Republic and Republic of Slovakia. In the Caribbean, we recorded a special charge of $0.8
million in the first half of 2004, which consisted mainly of asset write-downs related to the shutdown of the
Barbados manufacturing facility.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6
|-

---

| | The
following table summarizes activity associated with the special charges (in millions):
| | ------------------------------------------------------------------------------------------

| | The following table summarizes activity associated with the special charges (in millions):
| | ------------------------------------------------------------------------------------------

|2004Charge | 2002Charge                                                                                                                                  | 2001Charge | Total
|---------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | -----
|           |                                                                                                                                             |            |      
|           |                                                                                                                                             |            |      
|           | Accrued liabilities as of
                fiscal year end 2003    (employee-related, lease cancellation and
                   other costs) | $          |     
|           | Central Europe special charges                                                                                                              |            | 1.8  
|           | Asset write-downs                                                                                                                           |            | (0.2 
|           | Expenditures
for employee-related and other costs                                                                                           |            | (1.3 
|           | Expenditures
for lease terminations                                                                                                         |            |     
|           |                                                                                                                                             |            |      
|           | Accrued liabilities at the
                end of the second quarter of 2004                                                                | $          | 0.3  
|           |                                                                                                                                             |            |      

| | All
of the special charges we recorded during 2003 were utilized by the end of fiscal year
2003 and thus are not reflected in the table above. The total accrued liabilities
remaining as of the end of the second quarter of 2004 are comprised of deferred severance
payments and certain employee benefits, lease cancellation costs and other costs. We
expect to pay a significant portion of the special charge liability of $1.1 million using
cash from operations during the next twelve months; accordingly, such amounts are
classified as other current liabilities.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Interest Expense, Net
|-- | ---------------------

| | Interest
expense, net, is comprised of the following (in millions):
| | -------------------------------------------------------------------

| | Second Quarter        |  | First Half
| | --------------------- |  | ----------
|
| | Interest expense      |  |           
| | Interest income       |  |           
| |                       |  |           
| | Interest expense, net |  |           
| |                       |  |           

| | In
the first half of 2003, interest expense included $8.8 million related to the loss on the
early extinguishment of debt.
| | --------------------------------------------------------------------------------------------------------------------------

| | Interest
income in the first half of 2003 included $6.4 million related to the settlement of a tax
matter involving our previously terminated Employee Stock Ownership Plan (ESOP).
See the Income Taxes note for further discussion.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | Income Taxes
|-- | ------------

| | During
the first half of 2004, our effective income tax rate was 37.5 percent. In the first half
of 2003, we recorded a favorable settlement of a tax refund case for $12.4 million with
the Internal Revenue Service that arose from the 1990 termination of our ESOP plan. The
tax settlement consisted of approximately $6.4 million of interest income ($4.0 million
after taxes) and a tax benefit of $6.0 million recorded in Income taxes.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
also recorded additional tax accruals of $4.3 million for liabilities arising in the
first quarter of 2003. Excluding these accruals, as well as the ESOP settlement tax
benefit, the effective income tax rate for the first half of 2003 was 38.5 percent.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7
|-

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|5. | Comprehensive Income
|-- | --------------------

| | Our
comprehensive income was as follows (in millions):
| | ------------------------------------------------------

| |                                                               | Second Quarter |      | First Half |  
| | ------------------------------------------------------------- | -------------- | ---- | ---------- | -
| |                                                               |                |      |            |  
| |                                                               | 2004           |      | 2003       |  
| |                                                               |                |      |            |  
| |                                                               |                |      |            |  
| | Net income                                                    | $              | 61.7 |            | $
| | Minimum pension liability adjustment                          |                |     |            |  
| | Foreign currency translation adjustment                       |                | 4.0  |            |  
| | Net unrealized investment
and hedging    gains
      (losses) |                | (1.4 | )          |  
| |                                                               |                |      |            |  
| | Comprehensive income                                          | $              | 64.3 |            | $
| |                                                               |                |      |            |  

| | Net
unrealized investment and hedging gains (losses) are presented net of tax benefit of $0.8
million in the second quarter of 2004, net of tax expense of $5.0 million in the first
half of 2004, net of tax expense of $0.1 million in the second quarter of 2003, and net
of tax expense of $3.4 million in the first half of 2003. The minimum pension liability
adjustment is shown net of income tax benefit of $1.3 million in the first half of 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Inventory
|-- | ---------

| | As
of the end of the second quarter of 2004, our inventory was comprised of approximately 44
percent raw materials and supplies and 56 percent finished goods. This mix is relatively
consistent with the mix of inventory at the end of fiscal year 2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Intangible Assets and Goodwill
|-- | ------------------------------

| | The
changes in the carrying value of goodwill by geographic segment for the first half of
2004 were as follows (in millions):
| | -----------------------------------------------------------------------------------------------------------------------------

| |                                                  | U.S. |         | CentralEurope |   | Caribbean |   | Total |     
| | ------------------------------------------------ | ---- | ------- | ------------- | - | --------- | - | ----- | ----
| |                                                  |      |         |               |   |           |   |       |     
| |                                                  |      |         |               |   |           |   |       |     
| | Balance at end of year 2003                      | $    | 1,711.5 |               | $ | 32.2      |   | $     | 17.4
| | Acquisitions                                     |      |        |               |   |          |   |       | 2.3 
| | Cumulative translation adjustment                |      |        |               |   | (0.3      | ) |       |    
| |                                                  |      |         |               |   |           |   |       |     
| | Balance at end
        of second quarter of 2004 | $    | 1,711.5 |               | $ | 31.9      |   | $     | 19.7
| |                                                  |      |         |               |   |           |   |       |     

| |                                               | As of End ofSecond Quarter 2004 |      | As of End ofFiscal Year 2003 |  
| | --------------------------------------------- | ------------------------------- | ---- | ---------------------------- | -
| |                                               | GrossCarryingAmount             |      | AccumulatedAmortization      |  
| |                                               |                                 |      |                              |  
| |                                               |                                 |      |                              |  
| | Amortized intangible assets:                  |                                 |      |                              |  
| | Non-compete agreements                        | $                               | 1.1  |                              | $
| | Franchise and distribution agreements         |                                 | 3.7  |                              |  
| |                                               |                                 |      |                              |  
| | Total                                         | $                               | 4.8  |                              | $
| |                                               |                                 |      |                              |  
| | Unamortized intangible assets:                |                                 |      |                              |  
| | Franchise
        and distribution agreements | $                               | 17.6 |                              |  
| | Pension
        intangible assets             |                                 | 2.2  |                              |  
| |                                               |                                 |      |                              |  
| | Total                                         | $                               | 24.6 |                              |  
| |                                               |                                 |      |                              |  
| |                                               |                                 |      |                              |  
| | Aggregate amortization expense:               |                                 |      |                              |  
| | For second quarter ended 2004 and 2003        | $                               | 0.1  |                              |  
| | For first half ended 2004 and 2003            | $                               | 0.2  |                              |  

|8
|-

---

| | We
evaluate identified intangible assets with indefinite useful lives for
impairment annually. Impairment is measured as the amount by which the carrying value of
the intangible asset exceeds its estimated fair value.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | Acquisitions
|-- | ------------

| | In
January 2004, we completed the acquisition of the Dr Pepper franchise rights for a
13-county area in northeast Arkansas and certain related assets from Dr Pepper Bottling
Company of Paragould, Inc. We completed the transaction jointly with Pepsi MidAmerica
Company, which acquired the rights to separate Dr Pepper franchise territories in
connection with this transaction. We acquired the franchise rights and related assets for
$17.7 million, of which $17.6 million was paid in cash in the first quarter of 2004 with
an additional $0.1 million to be paid at a later date. The franchise rights and related
assets, primarily vending machines, were recorded at their estimated fair values of
approximately $17.6 million and $0.1 million, respectively. The franchise rights are
deemed to have an indefinite useful life, as the franchise and related bottling
agreements are granted in perpetuity.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, in March 2004 we acquired 2,000 additional shares of Pepsi-Cola Bahamas for
$3.3 million, which increased our ownership interest in the Bahamas from 30 percent to 70
percent. As a result, we have consolidated the Bahamas beginning in the first quarter of
2004, as the investment was accounted for under the equity investment method prior to
this transaction. Our cost to acquire the Bahamas has been preliminarily allocated to the
assets acquired and liabilities assumed according to estimated fair values and is subject
to adjustment when additional information concerning asset and liability valuations is
finalized. The preliminary allocation has resulted in acquired goodwill of approximately
$2.3 million, which we assigned to the Caribbean geographic segment. The assets acquired
and liabilities assumed consisted primarily of inventory, fixed assets, and long-term
debt. Minority interest associated with this investment is recorded in Other income
(expense), net in the Condensed Consolidated Income Statement and in Other
liabilities in the Condensed Consolidated Balance Sheet. The acquisition is not
material to our consolidated results of operations; therefore, pro-forma financial
information is not included in this note.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | Accelerated Share Repurchase Program
|-- | ------------------------------------

| | On
April 30, 2004, we repurchased 10 million shares, or approximately 6.8 percent, of our
common stock at a total cost of $200.6 million. The shares were purchased from an
investment bank under an accelerated share repurchase Program (the Program)
at $20.03 per share. We simultaneously entered into a forward sales contract accounted
for as a derivative, which is included in equity. The Program permitted us to repurchase the
shares immediately with the final purchase price of those shares determined by the
average market price over the duration of the Program. The completion of the Program will
be driven by the average daily trading volume of our shares; we expect the Program to be
finished in the fourth quarter of 2004. At the end of the Program, we may receive or be
required to pay a price adjustment based on the difference between the weighted average
price of our stock over the life of the Program and the initial purchase price of $20.03
per share. The price adjustment will also include certain amounts reflecting the
investment banks carrying costs or benefits from purchasing shares at prices other
than the initial price and its benefits from receiving the $200.6 million payment in
advance of its purchases. At our election, any payments we are obligated to make pursuant
to the settlement of the forward sales contract will either be in cash or in shares of
our common stock. At the end of the second quarter of 2004, the investment bank had
acquired approximately 3.7 million shares at an average price of $21.02 per share.
The fair value of the forward sales contract at inception was zero, and
pursuant to Emerging Issues Task Force Issue No. 00-19, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled In, a Companys Own Stock, changes
in the instruments fair value will not be recorded in our consolidated financial
statements until the end of the Program.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | Financial Instruments
|--- | ---------------------

| | In
addition to the derivative instrument discussed in Note 9, we use derivative financial
instruments to reduce our exposure to adverse fluctuations in commodity prices 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9
|-

---

| | Cash
Flow Hedges  We have hedged a portion of our anticipated aluminum can purchases
through November 2005. As of the end of the second quarter of 2004 and fiscal year end
2003, we had deferred $4.1 million (net of $2.5 million in deferred income taxes) and
$4.3 million (net of $2.5 million in deferred income taxes) of aluminum hedging gains,
respectively, in Accumulated other comprehensive loss in the Condensed
Consolidated Balance Sheets. We expect to reclassify a majority of the deferred aluminum
hedging gains as of second quarter of 2004 into cost of goods sold during the next 12
months.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
anticipation of the long-term debt issuance in the first quarter of 2003, we entered into
a treasury rate lock agreement with an aggregate notional amount of $150 million. We
accounted for this treasury rate lock as a cash flow hedge, as the treasury rate lock
hedged against the variability of interest payments on the forecasted issuance of
fixed-rate debt attributable to changes in interest rates. We settled the treasury rate
lock for $1.2 million concurrent with our debt issuance in the first quarter of 2003. We
also settled a treasury rate lock for $2.5 million concurrent with the debt issuance in the
third quarter of 2002.  At
the end of the second quarter of 2004 and fiscal year 2003, we had deferred approximately
$1.6 million (net of $1.0 million in deferred income taxes) and $1.9 million (net of $1.1
million in deferred income taxes) of losses, respectively, in Accumulated other
comprehensive loss in the Condensed Consolidated Balance Sheets, as the treasury
rate locks were considered highly effective in eliminating the interest rate risk on the
forecasted debt issuances. Amounts included in other comprehensive loss are
reclassified into earnings commensurate with the recognition of the interest expense on
the newly issued debt.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, in anticipation of the early extinguishment of $150 million of notes in the
first quarter of 2003, we entered into a reverse treasury rate lock agreement. We
accounted for the reverse treasury rate lock as a cash flow hedge, as the reverse
treasury rate lock hedged against the variability of interest rates related to the
forecasted extinguishment of debt. We settled and received payment for the reverse
treasury rate lock in the first quarter of 2003 for $3.2 million. This amount was
recognized in Interest expense, net in the Condensed Consolidated Statement
of Income as a reduction in the loss on the early extinguishment of debt.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. The fair value of the interest rate swaps as of the
second quarter of 2004 and fiscal year end 2003 was $8.2 million (net of $1.5 million
interest receivable), and $15.3 million (net of $2.3 million interest receivable),
respectively, which is reflected in Other assets in the Condensed
Consolidated Balance Sheets. We recorded a corresponding increase in Long-term debt representing
the change in fair value of our fixed rate debt. The fair value adjustment had no
earnings impact since the swaps are considered highly effective in eliminating the
interest rate risk of the fixed rate debt they are hedging.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11. | Pension and Other Postretirement Benefit Plans
|--- | ----------------------------------------------

| | Second Quarter                     |  | First Half
| | ---------------------------------- |  | ----------
|
| | Service cost                       |  |           
| | Interest cost                      |  |           
| | Expected return on plan assets     |  |           
| | Amortization of prior service cost |  |           
| | Amortization of net loss           |  |           
| |                                    |  |           
| | Net periodic pension cost          |  |           
| |                                    |  |           

| | We
expect to contribute approximately $6.0 million to our pension plans in fiscal year 2004, although no contribution is
required by the plans. As of the
end of the second quarter of 2004, we had contributed $1.5 million to the plans. We will
continue to evaluate the plans funding requirements throughout the year.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. | Stock Options and Awards
|--- | ------------------------

| | In
February 2004, we granted 495,743 restricted shares at a weighted-average fair value (at
the date of grant) of $18.56 to key members of management and our directors under our
Stock Incentive Plan (the Plan). We recognized compensation expense of $2.1
million and $1.5 million in the second quarter of 2004 and 2003, respectively, and $3.9
million and $2.8 million in the first half of 2004 and 2003, respectively, related to
grants in 2004, as well as prior year grants. At the end of the second quarter 2004, there were
1,443,434 unvested restricted shares outstanding under the Plan.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10
|--

---

|13. | 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 Half                                   | 
| | -------------------------------------------- | 
|
| | Interest paid, including debt extinguishment | 
| | Interest received                            | 
| | Income taxes paid, net of refunds            | 

|14. | Environmental and Other Commitments and Contingencies
|--- | -----------------------------------------------------

| | Current
Operations. We maintain a program to facilitate compliance with federal,
state and local laws and regulations relating to management of wastes, to the discharge
or emission of materials used in production, and such 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 a defendant 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 result of operations or
cash flows for that period.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 proceedings under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 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 also is subject to
private claims and lawsuits for remediation of properties owned or previously owned by Pneumo Abex and its
subsidiaries.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | There
is an inherent uncertainty in estimating the total cost of remediating a given site. This
is because of the nature of the remediation and allocation process and the fact that the
remediations are at different stages of resolution. Any assessment of expenses is
speculative until the later stages 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
the latter part of 2001, we investigated the use of insurance products to mitigate risks
related to 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 the fourth quarter of 2001. It provided a
contingent indemnification liability for all known sites operated or impacted by Pneumo
Abex and resulted in the $111.0 million charge, or $71.2 million net of tax, recorded in
the fourth quarter of 2001.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
the end of the second quarter of 2004, we had $115.1 million accrued to cover potential
indemnification obligations, compared to $119.2 million recorded at the end of fiscal
year 2003. Of the total amount accrued, $20.0 million was classified as current
liabilities at the end of the second quarter of 2004 and at the end of fiscal year 2003.
The amounts exclude possible insurance recoveries and are determined on an undiscounted
cash flow basis. 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
expenses of on-going evaluations and litigation. We expect a significant portion of the
accrued liabilities will be disbursed during the next 10 years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11
|--

---

| | Although
we have certain indemnification obligations for environmental liabilities at a number of
other sites, including Superfund sites, it is not anticipated that additional expense at
any specific site would have a material effect on us. In the case of some of the 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
the 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, 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. In conjunction with the purchase of the
insurance policies, we recorded a charge to discontinued operations of $9.8 million, or
$6.0 million after tax, in the second quarter of 2002. This charge represented amounts we
expended as well as a reduction of funds in the trust available to pay expenses related
to sites for which we have indemnification obligations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 were
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 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 $20.9 million has been eroded, leaving a
remaining self-insured retention of $93.1 million at the end of the second quarter of
2004. The estimated range of aggregate exposure related only to the remediation costs of
such environmental liabilities is approximately $50 million to $90 million. We had
accrued $71.2 million at the end of the second quarter of 2004 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 $71.2 million and thus
reduces our future cash obligations. The Finite Funding amounts recorded were $22.4
million and $24.2 million at the end of the second quarter of 2004 and fiscal year 2003,
respectively, and are recorded in Other assets, of which $3.0 million and $3.0 million,
respectively, is recorded in Other current assets in the Condensed
Consolidated Balance Sheets.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, we had recorded other receivables of $14.1 million at the end of the second
quarter of 2004 and $10.6 million at the end of fiscal year 2003 for future probable
amounts to be received from insurance companies and other responsible parties. Of this
total, $1.6 million was included in Other current assets at the end of fiscal
year 2003. No amounts were recorded in Other current assets at the end of the
second quarter of 2004. The $14.1 million and the remaining $9.0 million were recorded in
Other assets in the Condensed Consolidated Balance Sheets as of the end of
the second quarter of 2004 and fiscal year 2003, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Discontinued
OperationsProduct Liability and Toxic Tort Claims. We also have
certain indemnification obligations related to product liability and toxic tort claims,
which 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 2003. 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 half of 2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12
|--

---

|15. | Segment Reporting
|--- | -----------------

| | We
operate in three geographic areas  the U.S., Central Europe and the Caribbean. We
operate in 18 states in the U.S., and, outside the U.S., we operate in Poland, Hungary,
the Czech Republic, Republic of Slovakia, Puerto Rico, Jamaica, Barbados, the Bahamas and
Trinidad and Tobago. The following tables present net sales and operating income (loss) of
our geographic segments for the second quarter and first half of 2004 and 2003 (in
millions):
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                | Second Quarter | 
| | -------------- | -------------- | 
|
|
| | U.S.           |                | 
| | Central Europe |                | 
| | Caribbean      |                | 
| |                |                | 
| | Total          |                | 
| |                |                | 

| |                | First Half | 
| | -------------- | ---------- | 
|
|
| | U.S.           |            | 
| | Central Europe |            | 
| | Caribbean      |            | 
| |                |            | 
| | Total          |            | 
| |                |            | 

| | There
were no material changes in total assets by geographic segment since the end of fiscal
year 2003.
| | -------------------------------------------------------------------------------------------------------

|16. | Related Party Transactions
|--- | --------------------------

| | We
are a licensed producer and distributor of Pepsi 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 second quarter of 2004, PepsiCo
beneficially owned 41.5 percent of our common stock.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
purchase concentrate from PepsiCo to be used in the production of Pepsi carbonated soft
drinks and other non-alcoholic beverages. PepsiCo also provides us with various forms of
bottler incentives to promote its brands. These bottler incentives cover a variety of
initiatives, including direct marketplace, shared media and advertising support, 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, as well as finished beverage products from 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Although
we did not enter into any new agreements with Pohlad Companies or its subsidiaries
in the first half of 2004, we have an existing arrangement 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 2003.
| | -----------------------------------------------------------------------------------------------------------------------

|13
|--

---

|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
accounting principles generally accepted in the United States 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 the fiscal year 2003. We focus your attention on the following
critical accounting policies:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Goodwill
Impairment. Goodwill is tested for impairment at least annually, 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. The impairment evaluation requires the use of
considerable management judgment to determine the fair value of the reporting units 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 Environmental and Other Commitments and Contingencies note
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. 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
The tax bases of our assets and liabilities reflect managements best estimate of
the outcome of future tax audits. We have established valuation allowances against
substantially all 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14
|--

---

| | 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, including the
relatively recent increases in medical costs. 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15
|--

---

|RESULTS OF OPERATIONS2004
SECOND QUARTER COMPARED WITH 2003 SECOND QUARTER




In
the discussions of our results of operations below, the number of cases sold is referred
to as volume. 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) as well as our food service gallons. Changes in net
pricing include the impact of sales price (or rate) changes, as well as the impact of
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.
Cost of goods sold per unit is the cost of goods sold divided by the related number
of cases and gallons sold.


Our
business is highly seasonal; accordingly, the operating results of any individual quarter
may not be indicative of a full years operating results.


Volume


Sales
volume growth (declines) for the second quarter of 2004 and 2003 were as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                |  |  | 2004 |  | 2003   |   | 
| | -------------- |  |  | ---- |  | ------ | - | 
| |                |  |  |      |  |        |   | 
| | U.S.           |  |  |      |  | 1.8%   |   | 
| | Central Europe |  |  |      |  | (28.1% | ) | 
| | Caribbean      |  |  |      |  | (3.7%  | ) | 
| |                |  |  |      |  |        |   | 
| | Worldwide      |  |  |      |  | (4.4%  | ) | 

|Second
quarter 2004 worldwide volume decreased 4.4 percent compared to the prior year second
quarter. The decline in worldwide volume was attributed to volume declines of 28.1 percent
in Central Europe and 3.7 percent in the Caribbean, as volume grew in the U.S. by
1.8 percent.


The
increase in U.S. volume of 1.8 percent in the second quarter of 2004 reflected modest
growth in our core trademarks and double-digit growth in our non-carbonated beverages
category. Trademark Pepsi and Trademark Mountain Dew both experienced positive growth
during the quarter. Our diet category, driven primarily by mid single-digit growth in Diet
Pepsi and double-digit growth in Diet Mountain Dew, drove the growth in our core
trademarks. Non-carbonated beverage growth was driven by double-digit growth in Aquafina
volume and also benefited from the introduction of Tropicana juice drinks in February
2004. The single-serve category also grew at a mid single-digit rate during the second
quarter of 2004 as a result of continued emphasis on marketing, as well as solid
improvement in our on-premise channel.


Total
volume in Central Europe decreased 28.1 percent in the second quarter of 2004. The
softness in volume during the quarter was driven primarily by the short-term adverse
economic impact from the accession of our markets into the European Union
(EU), cooler weather conditions across the region as well as the lapping of
strong volumes from the same period in 2003 that had resulted from favorable promotional
activity.


Volumes
in the Caribbean decreased 3.7 percent in the second quarter of 2004 compared to the same
period last year. The Bahamas, in which we increased our ownership interest and
consolidated in the first quarter of 2004, contributed 3.5 percent to volume growth, while
Puerto Rico, Jamaica, and Trinidad and Tobago experienced volume declines of 7.2 percent,
collectively, compared to the same period in the prior year. The volume declines reflected
increased pricing in Jamaica to mitigate the impact of the devaluation of the Jamaican
dollar, as well as lapping strong prior year performance in Puerto Rico. In the Caribbean,
the carbonated soft drink volume in the second quarter of 2004 was down from the prior
year second quarter, as Trademark Pepsi declined in the mid single digits, and Trademark
Seven-Up decreased in the high single digits. Volume growth in the non-carbonated
category, including the launch of Gatorade and a local water, Essential, partially offset
the volume declines in the core trademarks. Trademark Pepsi accounts for almost 60 percent
of our business in the Caribbean, while the remainder of our business is mainly comprised
of flavored carbonated soft drinks and Trademark Seven-Up.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|16
|--

---

|Net Sales


Net
sales and net pricing statistics for the second quarter of 2004 and 2003 were as follows
(dollar amounts in millions):
|--------------------------------------------------------------------------------------------------------------------------------------

| | Net Sales                    | 2004 |       | 2003 |   | Change |   | 
| | ---------------------------- | ---- | ----- | ---- | - | ------ | - | 
| |                              |      |       |      |   |        |   | 
| | U.S.                         | $    | 774.7 |      | $ | 724.4  |   | 
| | Central Europe               |      | 84.2  |      |   | 98.7   |   | 
| | Caribbean                    |      | 50.8  |      |   | 47.8   |   | 
| |                              |      |       |      |   |        |   | 
| | Worldwide                    | $    | 909.7 |      | $ | 870.9  |   | 
| |                              |      |       |      |   |        |   | 
| |                              |      |       |      |   |        |   | 
| | Net Pricing Growth (Decline) | 2004 |       | 2003 |   |        |   | 
| |                              |      |       |      |   |        |   | 
| | U.S.                         |      | 4.2%  |      |   | 0.6%   |   | 
| | Central Europe               |      | 16.6% |      |   | 10.1%  |   | 
| | Caribbean                    |      | 8.4%  |      |   | (0.8%  | ) | 
| |                              |      |       |      |   |        |   | 
| | Worldwide                    |      | 8.1%  |      |   | 1.0%   |   | 

|Net
sales increased $38.8 million, or 4.5 percent, to $909.7 million in the second quarter of
2004 compared to $870.9 million the second quarter of 2003. The increase was driven
primarily by increased worldwide net pricing of 8.1 percent and volume growth in the U.S.,
partially offset by volume declines in Central Europe and the Caribbean.


Net
sales in the U.S. for the second quarter of 2004 increased $50.3 million, or 6.9 percent,
to $774.7 million from $724.4 million in the prior year second quarter. The increase was
primarily the result of a 4.2 percent increase in net pricing along with a 1.8 percent
increase in volume. The improvement in net pricing was driven by price increases of 3.1
percent and a package mix contribution of 1.1 percent. A continued favorable shift in our
can mix to the eightounce cans introduced in the fourth quarter of 2003, as well as
growth in the 20-ounce single serve business drove the package mix contribution. The
improvement in net sales was driven by contributions from both our on-premise and large
format channels, with double-digit contributions from our non-carbonated beverages
category and modest growth in our carbonated beverages category. In order to achieve
incremental volume growth, we continue to introduce new product and package innovations,
including the introduction of Pepsi Edge in June 2004.


Net
sales in Central Europe for the second quarter of 2004 decreased $14.5 million or 14.7
percent to $84.2 million from $98.7 million in the prior year second quarter. Net sales
decreased as volume declined by 28.1 percent, partially offset by a net pricing increase
of 16.6 percent. Our net pricing increases are a result of our efforts to mitigate the
impact of the rising costs related to the EU accession. Favorable foreign exchange rates
also contributed approximately $2.4 million to net sales in the second quarter of 2004,
compared to the same period in the prior year.


Net
sales in the Caribbean increased 6.3 percent in the second quarter of 2004 to $50.8
million from $47.8 million in the prior year second quarter. The increase in net sales
primarily resulted from the consolidation of the Bahamas beginning in the first quarter of 2004,
which contributed $2.8 million to net sales.  The remainder of the increase in net sales was a result of an increase
in net pricing of 8.4 percent offset partially by volume
declines of 3.7 percent and the unfavorable impact of foreign currency.  The increase in net pricing was driven by initiatives
to expand our product portfolio and to manage the devaluation of the Jamaican dollar.


Cost of Goods Sold
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cost
of goods sold for the second quarter of 2004 and 2003 was as follows (dollar amounts in
millions):
| | -------------------------------------------------------------------------------------------------------

| |                | 2004 |       | 2003 |   | Change |  | 
| | -------------- | ---- | ----- | ---- | - | ------ |  | 
| |                |      |       |      |   |        |  | 
| | U.S.           | $    | 435.9 |      | $ | 417.5  |  | 
| | Central Europe |      | 46.1  |      |   | 56.8   |  | 
| | Caribbean      |      | 36.6  |      |   | 36.3   |  | 
| |                |      |       |      |   |        |  | 
| | Worldwide      | $    | 518.6 |      | $ | 510.6  |  | 
| |                |      |       |      |   |        |  | 

|17
|--

---

|Cost
of goods sold increased $8.0 million, or 1.6 percent, to $518.6 million in the second
quarter of 2004 from $510.6 million in the prior year second quarter. This increase was
driven primarily by higher raw material costs, specifically aluminum and fuel costs in the
U.S. and sugar costs in Central Europe.


In
the U.S., cost of goods sold increased $18.4 million, or 4.4 percent, to $435.9 million in
the second quarter of 2004 from $417.5 million in the prior year second quarter driven
primarily by increased volumes of 1.8 percent and a higher cost of goods sold per unit.
Cost of goods sold per unit increased 2.7 percent in the U.S., primarily driven by price
increases in aluminum and fuel.


In
Central Europe, cost of goods sold decreased $10.7 million, or 18.8 percent, to $46.1
million in the second quarter of 2004, compared to $56.8 million in the prior year second
quarter. Cost of goods sold decreased mainly due to decreased volumes of 28.1 percent,
offset by higher raw materials costs and the unfavorable impact of foreign exchange of
$1.5 million. Cost of goods sold per unit in Central Europe increased 12.3 percent due to
higher sugar prices as a result of the EU accession of Poland, Hungary, the Czech Republic
and Republic of Slovakia in May 2004. In addition, we have experienced an increase in
utility costs due to the privatization of these industries after the EU accession.


In
the Caribbean, cost of goods sold increased $0.3 million, or 0.8 percent, to $36.6 million
in the second quarter of 2004, compared to $36.3 million in the second quarter of 2003, due mainly to the
incremental $1.9 million of cost of goods sold related to the consolidation of the Bahamas in the first
quarter of 2004.  This increase was offset by a $1.6 million decrease in cost of goods sold for the
remainder of the Caribbean due to a volume decrease of 3.7 percent and the favorable impact of foreign currency rates in Jamaica.


Selling, Delivery and
Administrative Expenses


Selling,
delivery and administrative expenses (SD&A) for the second quarter of 2004
and 2003 were as follows (dollar amounts in millions):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                | 2004 |       | 2003 |   | Change |  | 
| | -------------- | ---- | ----- | ---- | - | ------ |  | 
| |                |      |       |      |   |        |  | 
| | U.S.           | $    | 231.7 |      | $ | 207.5  |  | 
| | Central Europe |      | 33.7  |      |   | 36.5   |  | 
| | Caribbean      |      | 13.1  |      |   | 11.1   |  | 
| |                |      |       |      |   |        |  | 
| | Worldwide      | $    | 278.5 |      | $ | 255.1  |  | 
| |                |      |       |      |   |        |  | 

|In
the second quarter of 2004, SD&A expenses increased $23.4 million, or 9.2 percent, to
$278.5 million from $255.1 million in the comparable period of the previous year. As a
percentage of net sales, SD&A expenses increased to 30.6 percent in the second quarter
of 2004, compared to 29.3 percent in the prior year second quarter. The increase in
SD&A expenses as a percentage of net sales was primarily attributed to higher operating costs
in the U.S.


In
the U.S., SD&A expenses increased $24.2 million to $231.7 million in the second
quarter of 2004, compared to $207.5 million in the prior year second quarter. SD&A
expenses as a percentage of net sales increased to 29.9 percent compared to 28.6 percent
in the prior year second quarter, mainly as a result of higher compensation costs and an
increase in workers compensation and other insurance costs. In addition, we had
higher promotional costs related to our core trademark brands, higher
depreciation costs related to Nextgen and equipment spending, and costs associated with Pepsi Connect,
our new telephone sales center that services our small format accounts in our pre-sell
environment that began operations in the second quarter of 2003.


SD&A
expenses decreased $2.8 million, or 7.7 percent, in Central Europe to $33.7 million from
$36.5 million in the prior year second quarter. Excluding the unfavorable impact of
foreign exchange of $0.7 million, SD&A costs decreased by $3.5 million or 9.6 percent,
commensurate with the lower volume levels, as well as our successful cost management efforts driven by the migration to an alternative
sales and distribution strategy in the rural areas of Central Europe.


In
the Caribbean, SD&A expenses increased $2.0 million, or 18.0 percent, to $13.1 million
from $11.1 million in the prior year second quarter. The Bahamas contributed $1.3 million
of additional SD&A expenses in the second quarter of 2004 due to its consolidation in the first
quarter of 2004. The balance of the
increase, $0.7 million, was attributed to higher compensation and benefit costs associated
with the incremental support for our product portfolio expansion in Puerto Rico, as well
as our continued emphasis on our export business in Jamaica.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18
|--

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|Special Charges


In
the second quarter of 2004, we recorded special charges of $1.6 million in Central Europe.
The special charges recorded in the second quarter of 2004 included a $1.0 million charge
related to a reduction in the workforce in Central Europe as we continued to rationalize
the cost structure. In addition, we recorded a special charge of $0.6 million in Hungary
related to the continued modification of our distribution strategy to utilize third party
distributors in more remote areas. The special charges recorded in Central Europe in the
second quarter of 2004 were primarily for severance costs and related benefits, and we
anticipate these programs, and the related costs, to be substantially complete by the
fourth quarter of 2004.


In
the second quarter of 2003, we recorded special charges of $1.1 million, representing
special charges of $0.3 million in Central Europe and $0.8 million in the Caribbean. The
special charge of $0.3 million in Central Europe related to the continued modification of
our distribution method in Poland, the Czech Republic and Republic of Slovakia. The
Caribbean special charge of $0.8 million consisted mainly of asset write-downs related to
the shutdown of the Barbados manufacturing facility. Similar to the distribution changes
we have made in Central Europe, we rationalized our operations in Barbados. We
outsourced our distribution through a local partner and sourced production from another
manufacturing location we operate.


Operating Income


Operating
income for the second quarter of 2004 and 2003 was as follows (dollar amounts in
millions):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                | 2004 |       | 2003 |   | Change |   | 
| | -------------- | ---- | ----- | ---- | - | ------ | - | 
| |                |      |       |      |   |        |   | 
| | U.S.           | $    | 107.1 |      | $ | 99.4   |   | 
| | Central Europe |      | 2.8   |      |   | 5.1    |   | 
| | Caribbean      |      | 1.1   |      |   | (0.4   | ) | 
| |                |      |       |      |   |        |   | 
| | Worldwide      | $    | 111.0 |      | $ | 104.1  |   | 
| |                |      |       |      |   |        |   | 

| | *
Calculation of percentage change is not meaningful.
| | -----------------------------------------------------

|Operating
income increased $6.9 million, or 6.6 percent, to $111.0 million in the second quarter of
2004, compared to $104.1 million in the prior year second quarter, driven mainly by a $7.7
million improvement in U.S. operating income. The increase in operating income in the
U.S., compared to the same period in the prior year, was primarily attributed to higher
gross margins due to improved net pricing and volume growth, offset, in part, by an
increase in operating costs.


Operating
income in Central Europe declined $2.3 million to $2.8 million in the second quarter of
2004, compared to $5.1 million in the prior year second quarter, due mainly to volume
declines and higher raw material costs, partially offset by higher net pricing, lower operating costs,
and the favorable impact of foreign currency rates of approximately $0.2 million.
Operational performance in the Caribbean improved, as operating income in the Caribbean of
$1.1 million in the second quarter of 2004 was $1.5 million higher than the operating
losses of $0.4 million in the prior year due mainly to increases in net pricing.


Interest and Other Expenses


Net
interest expense decreased $2.0 million in the second quarter of 2004 to $16.2 million,
compared to $18.2 million in the second quarter of 2003, due in part to lower long-term
debt balances as a result of the payment at the maturity of the $150 million, face value
6.0 percent notes in the second quarter of 2004 and a slight shift in our fixed and floating rate debt mix.


We
recorded other income, net, of $3.8 million in the second quarter of 2004 compared to
other income, net, of $0.6 million reported in the second quarter of 2003 due primarily to
a gain of $5.2 million recorded in the second quarter of 2004 related to the sale of a
parcel of land in downtown Chicago in 2002. The gain reflected the settlement and final
payment on the promissory note related to the initial land sale, for which we had
previously provided a full allowance. In the second quarter of 2003, we recorded an
additional gain of $2.1 million on the same land sale related to the favorable resolution
of certain contingencies.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|19
|--

---

|Income Taxes


The
effective income tax rate, which is income tax expense expressed as a percentage of income
before income taxes, was 37.5 percent for the second quarter of 2004, compared to 38.5
percent in the second quarter of 2003, due primarily to a lower effective state tax rate
in the U.S.


Net Income


Net
income increased $8.5 million to $61.7 million in the second quarter of 2004, compared to
$53.2 million in the second quarter of 2003. The increase was attributed mainly to
improved worldwide net pricing and volume growth in the U.S. Other operational factors
impacting net income were previously discussed.


RESULTS OF OPERATIONS 2004
FIRST HALF COMPARED WITH 2003 FIRST HALF


Volume


Sales
volume growth (declines) for the first half of 2004 and 2003 were as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                |  |  | 2004 |  | 2003   |   | 
| | -------------- |  |  | ---- |  | ------ | - | 
| |                |  |  |      |  |        |   | 
| | U.S.           |  |  |      |  | 2.0%   |   | 
| | Central Europe |  |  |      |  | (14.5% | ) | 
| | Caribbean      |  |  |      |  | (3.9%  | ) | 
| |                |  |  |      |  |        |   | 
| | Worldwide      |  |  |      |  | (1.1%  | ) | 

|Worldwide
volume in the first half of 2004 decreased 1.1 percent compared to the same period in
2003. The decline in worldwide volume was attributed to volume declines in Central Europe
of 14.5 percent and the Caribbean of 3.9 percent, offset by volume growth in the U.S. of
2.0 percent. We anticipate worldwide volume growth to be flat to down slightly in fiscal
year 2004 compared to the prior year.


The
increase in U.S. volume of 2.0 percent in the first half of 2004 reflected growth in our
core trademarks, driven mainly by growth in our diet category, and double-digit growth in
our non-carbonated beverages category. Trademark Pepsi experienced modest growth during
the first half of the year driven mainly by mid single-digit growth in Diet Pepsi and the
introduction of Pepsi Vanilla in the third quarter of 2003. Trademark Mountain Dew grew in
the low single digits and benefited from the double-digit growth in Diet Mountain Dew as
we lapped the introduction of Mountain Dew LiveWire in the second quarter of 2004.
Non-carbonated beverage growth was driven by double-digit growth in Aquafina volume and
also benefited from the Tropicana juice drink introduction in February 2004. The
single-serve category also grew at a high single-digit rate during the first half of 2004.
Single-serve is expected to contribute to volume growth for the balance of the year
through continued emphasis on marketing and improvement in our on-premise channel. In
addition, we expect new product introductions such as Pepsi Edge in June and Mountain Dew
Pitch Black in August to contribute to our anticipated volume growth for the balance of
the year.


Total
volume in Central Europe decreased 14.5 percent in the first half of 2004. This decline
was driven primarily by an increase in net pricing in response to market-wide increases in costs
 related to the countries accession into the EU, including increases in retailer
margins, higher value-added taxes and higher utility costs as a result of privatization of
those industries. We also experienced cold
weather conditions in late spring and early summer that negatively impacted volume. We
experienced declining volume trends quarter over quarter in the first half of 2004, due
partly to a reduction in certain promotions, notably our water promotion in the first
quarter of 2004, which provided a free bottle of water when purchasing a two-liter
carbonated soft drink. Our water category, which accounts for nearly 30 percent of our
volume in Central Europe, experienced double digit declines in the first half of 2004,
despite the promotions in the first quarter. In addition, Trademark Pepsi
volume declined by double digits in the first half of 2004 compared to the same period in
the prior year.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|20
|--

---

|Volumes
in the Caribbean decreased 3.9 percent in the first half of 2004 compared to the same
period last year, primarily reflecting volume declines in Jamaica and Puerto Rico as we
lapped strong prior year performance in Puerto Rico and increased pricing in Jamaica to
mitigate the impact of the devaluation of the Jamaican dollar. Carbonated beverage volumes
declined in the mid single digits in the first half of 2004 compared to the same period in
the prior year, offset slightly by volume increases in the water category due to the
launch of the Essential water brand name and other non-carbonated brands such as SOBE
and Gatorade.


Net Sales


Net
sales and net pricing statistics for the first half of 2004 and 2003 were as follows
(dollar amounts in millions):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net Sales                    | 2004 |         | 2003 |   | Change  |   | 
| | ---------------------------- | ---- | ------- | ---- | - | ------- | - | 
| |                              |      |         |      |   |         |   | 
| | U.S.                         | $    | 1,411.0 |      | $ | 1,314.5 |   | 
| | Central Europe               |      | 144.6   |      |   | 151.6   |   | 
| | Caribbean                    |      | 91.7    |      |   | 86.9    |   | 
| |                              |      |         |      |   |         |   | 
| | Worldwide                    | $    | 1,647.3 |      | $ | 1,553.0 |   | 
| |                              |      |         |      |   |         |   | 
| |                              |      |         |      |   |         |   | 
| | Net Pricing Growth (Decline) | 2004 |         | 2003 |   |         |   | 
| |                              |      |         |      |   |         |   | 
| | U.S.                         |      | 4.6%    |      |   | 0.2%    |   | 
| | Central Europe               |      | 11.6%   |      |   | 14.8%   |   | 
| | Caribbean                    |      | 8.0%    |      |   | (0.3%   | ) | 
| |                              |      |         |      |   |         |   | 
| | Worldwide                    |      | 6.6%    |      |   | 1.6%    |   | 

|Net
sales increased $94.3 million, or 6.1 percent, to $1,647.3 million in the first half of
2004 compared to $1,553.0 million the first half of 2003. The increase was driven
primarily by increased worldwide net pricing of 6.6 percent and volume growth in the U.S.,
partially offset by volume declines in Central Europe and the Caribbean. We anticipate
that worldwide net pricing will grow approximately four percent in fiscal year 2004
compared to fiscal year 2003.


Net
sales in the U.S. for the first half of 2004 increased $96.5 million, or 7.3 percent, to
$1,411.0 million from $1,314.5 million in the first half of 2003. The increase was
primarily the result of a 4.6 percent increase in net pricing along with a 2.0 percent
increase in volume. The improvement in net pricing was driven by price increases of 3.2
percent and a package mix contribution of 1.4 percent. The top-line growth has been driven
by strong contributions from our non-carbonated beverages category, most notably
double-digit growth in Aquafina. New product and packaging innovations continue to provide
incremental growth, including the introductions of Pepsi Vanilla and recently, Pepsi Edge,
the new 8-ounce can package, and the Fridge-Mate 12-ounce can
package, which utilizes a two-by-six configuration.


Net
sales in Central Europe for the first half of 2004 decreased $7.0 million or 4.6 percent
to $144.6 million from $151.6 million in the first half of 2003. This decrease resulted
from a volume decrease of 14.5 percent, which was partly offset by an increase in net
pricing of 11.6 percent. As a result of cost pressures associated with our markets'
accession into the EU, we increased our net pricing. Promotional efforts in the first
quarter of 2004 enabled us to maintain volume while increasing our pricing. However, the
reduction of these promotional activities in the second quarter of 2004 has resulted in
lower volumes as consumers are adjusting to higher price points associated with all
consumer products. The decrease in net sales was partially offset by favorable foreign
exchange rates that contributed approximately $6.8 million to Central Europes net
sales in the first half of 2004.


Net
sales in the Caribbean increased 5.5 percent in the first half of 2004 to $91.7 million
from $86.9 million in the prior year first half. The increase in net sales resulted
primarily from a contribution of $3.9 million due to the consolidation of the Bahamas in
the first quarter of 2004.  The increase was also driven by an increase in net pricing of 8.0 percent, partially offset by volume
declines of 3.9 percent and the unfavorable impact of foreign currency.


Cost of Goods Sold


Cost
of goods sold for the first half of 2004 and 2003 was as follows (dollar amounts in
millions):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                | 2004 |       | 2003 |   | Change |  | 
| | -------------- | ---- | ----- | ---- | - | ------ |  | 
| |                |      |       |      |   |        |  | 
| | U.S.           | $    | 795.2 |      | $ | 753.1  |  | 
| | Central Europe |      | 80.5  |      |   | 87.7   |  | 
| | Caribbean      |      | 67.4  |      |   | 66.4   |  | 
| |                |      |       |      |   |        |  | 
| | Worldwide      | $    | 943.1 |      | $ | 907.2  |  | 
| |                |      |       |      |   |        |  | 

|21
|--

---

|Cost
of goods sold increased $35.9 million, or 4.0 percent, to $943.1 million in the first half
of 2004 from $907.2 million in the first half of 2003. This increase was driven primarily
by higher raw material costs. Overall, we expect that cost of goods sold per unit will
grow four to five percent during fiscal year 2004 as compared to the prior fiscal year.


In
the U.S., cost of goods sold increased $42.1 million, or 5.6 percent, to $795.2 million in
the first half of 2004 from $753.1 million in the prior year first half driven primarily
by increased volumes of 2.0 percent and a higher cost of goods sold per unit. Cost of
goods sold per unit increased 3.6 percent in the U.S., primarily driven by price increases
in aluminum and fuel and higher packaging costs related to product mix. In addition, concentrate costs, which
represent approximately 40 percent of total product costs in the U.S., will continue to be
higher, as PepsiCo concentrate prices increased on average by approximately 0.8 percent
beginning in February 2004.


In
Central Europe, cost of goods sold decreased $7.2 million, or 8.2 percent, to $80.5
million in the first half of 2004, compared to $87.7 million in the prior year first half.
Cost of goods sold decreased mainly due to decreased volumes of 14.5 percent, offset by
the unfavorable impact of foreign exchange of $4.1 million and higher raw materials costs.
Cost of goods sold per unit in Central Europe increased due to higher sugar prices
resulting from the EU accession of Poland, Hungary, the Czech Republic and Republic of
Slovakia in May 2004. Upon entry into the EU, price supports for sugar in Poland were removed and
our costs are expected to increase by approximately $6 million to $8 million for the
period May 1, 2004 through December 31, 2004. In addition we have experienced an increase
in utility costs due to the privatization of these industries after the EU accession.


In
the Caribbean, cost of goods sold increased $1.0 million, or 1.5 percent, to $67.4 million
in the first half of 2004, compared to $66.4 million in the first half of 2003.
Cost of goods sold
increased mainly due to the consolidation of the Bahamas beginning in the first quarter
of 2004 which contributed $2.8 million of the increase in cost of goods sold.  This increase
was partially offset by a decrease of $1.8 million in the remainder of the Caribbean markets
due to lower volumes and the favorable impact
of foreign currency rates in Jamaica.


Selling, Delivery and
Administrative Expenses


Selling,
delivery and administrative expenses for the first half of 2004 and 2003 were as follows
(dollar amounts in millions):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                | 2004 |       | 2003 |   | Change |  | 
| | -------------- | ---- | ----- | ---- | - | ------ |  | 
| |                |      |       |      |   |        |  | 
| | U.S.           | $    | 449.5 |      | $ | 416.1  |  | 
| | Central Europe |      | 66.6  |      |   | 69.1   |  | 
| | Caribbean      |      | 25.2  |      |   | 22.4   |  | 
| |                |      |       |      |   |        |  | 
| | Worldwide      | $    | 541.3 |      | $ | 507.6  |  | 
| |                |      |       |      |   |        |  | 

|In
the first half of 2004, SD&A expenses increased $33.7 million, or 6.6 percent, to
$541.3 million from $507.6 million in the comparable period of the previous year. As a
percentage of net sales, SD&A expenses increased to 32.9 percent in the first half of
2004, compared to 32.7 percent in the prior year first half. The increase in SD&A
expenses as a percentage of net sales was primarily attributed to higher operating costs
in the U.S. We expect an increase of approximately five percent in SD&A expenses for
fiscal year 2004, compared to fiscal year 2003.


In
the U.S., SD&A expenses increased $33.4 million to $449.5 million in the first half of
2004, compared to $416.1 million in the prior year first half. SD&A expenses as a
percentage of net sales increased to 31.9 percent compared to 31.7 percent in the prior
year first half, as a result of higher compensation and benefits costs, increased workers
compensation and other insurance costs, and higher promotional costs against our core brands.  In addition,
we had
higher repairs and maintenance costs, higher depreciation costs related to Nextgen and
equipment spending, and additional costs related to Pepsi Connect, our new telephone sales
center which began operations in the second quarter of 2003.


In
Central Europe, SD&A expenses decreased $2.5 million, or 3.6 percent, to $66.6 million
from $69.1 million in the prior year first half. Excluding the unfavorable impact of
foreign exchange of $2.5 million, SD&A costs decreased by $5.0 million or 7.2 percent,
due to lower volume and our successful cost management driven by our migration to an alternative sales and
distribution strategy in the rural areas of Central Europe.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|22
|--

---

|In
the Caribbean, SD&A expenses increased $2.8 million, or 12.5 percent, to $25.2 million
from $22.4 million in the prior year first half due mainly to the incremental SD&A costs of $1.4
million in the Bahamas, which was consolidated beginning in the first quarter of 2004, and higher compensation and
related benefit costs.


Special Charges


We
recorded special charges of $1.8 million in the first half of 2004 in Central Europe.
These special charges recorded in the first half of 2004 included $1.2 million of
severance costs and related benefits related to a reduction in the workforce in Central
Europe as we continued to rationalize the cost structure. In addition, we recorded special
charges of $0.6 million in Hungary related to the continued modification of our
distribution strategy to utilize third party distributors in more remote areas. These
special charges in Hungary were primarily for severance costs and related benefits. We
anticipate these programs to be substantially complete by the fourth quarter of 2004.


In
the first half of 2003, we recorded special charges of $7.4 million. In the U.S., we
recorded special charges of $5.8 million, which consisted mainly of severance-related
costs associated with the reduction of our U.S. workforce. In Central Europe, we recorded
a special charge of $0.8 million, consisting mainly of asset write-downs, related to the
modification of the distribution method in Poland, the Czech Republic and Republic of
Slovakia. In the Caribbean, we recorded a special charge of $0.8 million, which consisted
mainly of asset write-downs related to the shutdown of the Barbados manufacturing
facility.


Operating Income


Operating
income for the first half of 2004 and 2003 was as follows (dollar amounts in millions):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                | 2004 |       | 2003 |   | Change |   | 
| | -------------- | ---- | ----- | ---- | - | ------ | - | 
| |                |      |       |      |   |        |   | 
| | U.S.           | $    | 166.3 |      | $ | 139.5  |   | 
| | Central Europe |      | (4.3  | )    |   | (6.0   | ) | 
| | Caribbean      |      | (0.9  | )    |   | (2.7   | ) | 
| |                |      |       |      |   |        |   | 
| | Worldwide      | $    | 161.1 |      | $ | 130.8  |   | 
| |                |      |       |      |   |        |   | 

|Operating income
increased $30.3 million, or 23.2 percent, to $161.1 million in the first half of 2004,
compared to $130.8 million in the prior year first half, driven by a $26.8 million
increase in operating income in the U.S. and the $3.5 million reduction of international
operating losses. The increase in operating income in the U.S. was primarily attributed to
higher gross margins due to continued net pricing increases and volume growth, offset, in
part, by an increase in operating costs.


Operating
losses in Central Europe improved $1.7 million to $4.3 million in the first half of 2004,
compared to losses of $6.0 million in the prior year first half, due mainly to increased
net pricing and lower SD&A costs.. The impact of foreign currency rates contributed
approximately $0.3 million of the $1.7 million overall operating improvement in Central
Europe. Operational performance in the Caribbean improved by $1.8 million with operating
losses of $0.9 million in the first half of 2004 compared to operating losses of $2.7
million in the prior year.


Interest and Other Expenses


Net
interest expense decreased $5.3 million in the first half of 2004 to $32.1 million,
compared to $37.4 million in the first half of 2003, due in part to the refinancing of a
portion of our fixed-rate debt in the first quarter of 2003, payment at maturity of the
$150 million, face value 6.0 percent notes in the second quarter of 2004, and lower
average balances in our securitization and commercial paper programs in the first half of
2004 as compared to the same period in the prior year. The 2003 amount includes the loss
on the early extinguishment of debt in the first half of 2003 of $8.8 million, offset in
part, by a $6.4 million increase in interest income due to the favorable resolution of a
tax refund case related to the ESOP. See the Income Taxes note to the
Condensed Consolidated Financial Statements for further discussion.


We
recorded other income, net, of $2.4 million in the first half of 2004 compared to other
expense, net, of $1.7 million reported in the first half of 2003. Included in other
income, net, in the first half of 2004 is a gain of $5.2 million associated with sale of a
parcel of land in downtown Chicago in 2002. The gain reflected the settlement and final
payment on the promissory note related to the initial land sale, for which we had
previously provided a full allowance. In the first half of 2003, we recorded an additional
gain of $2.1 million on the same land sale related to the favorable resolution of certain
contingencies.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23
|--

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|Income Taxes


The
effective income tax rate, which is income tax expense expressed as a percentage of income
before income taxes, was 37.5 percent for the first half of 2004, compared to 36.6 percent
in the first half of 2003. Excluding the additional tax accruals recorded of $4.3 million,
as well as the tax benefit recorded of $6.0 million related to the favorable ESOP
settlement, the effective tax rate for the first half of 2003 was 38.5 percent. See the
Income Taxes note to the Condensed Consolidated Financial Statements for
further discussion of the significant items recorded in Income taxes.


Net Income


Net
income increased $24.1 million to $82.2 million in the first half of 2004, compared to
$58.1 million in the first half of 2003. The increase in net income was attributed mainly
to improved worldwide net pricing, volume growth in the U.S., and the cost savings
experienced in Central Europe, offset by higher cost of goods sold per unit and increased
U.S. operating costs. Other operational factors impacting net income were previously
discussed.


LIQUIDITY AND CAPITAL
RESOURCES


Operating
Activities. Net cash provided by operating activities increased by $92.5 million to
$221.8 million in the first half of 2004, compared to $129.3 million in the first half of
2003. This increase can mainly be attributed to our $24.1 million improvement in operating
performance to $82.2 million and an increase in our accounts receivable securitization
program of $89.1 million, offset by a lower benefit from changes in primary working
capital due to increases in receivables and inventory. Primary working capital is
comprised of inventory, accounts payable and accounts receivable, excluding securitized
receivables. The increases in accounts receivable and inventory related primarily to
timing.


Investing
Activities. Investing activities in the first half of 2004 included capital
investments of $51.3 million, compared to $72.5 million in the first half of 2003. The
decline in capital expenditures was primarily due to timing, as well as planned lower
spending, as we expect our capital spending to be in the range of $120 million to $130
million for the full year2004, compared to capital investments of $158.3
million for the full year 2003.


In
January 2004, we completed the acquisition of the Dr Pepper franchise rights for a
13-county area in northeast Arkansas and certain related assets from Dr Pepper Bottling
Company of Paragould, Inc. We acquired the franchise rights and related assets for $17.7
million, of which $17.6 million was paid in cash in the first quarter of 2004.


In
addition, in March 2004, we acquired 2,000 additional shares of Pepsi-Cola Bahamas for
$3.3 million, which increased our ownership interest in the Bahamas from 30 percent to 70
percent. As a result, we have consolidated the Bahamas beginning in the first quarter of
2004. The investment was accounted for under the equity investment method prior to this
transaction.


In
June 2004, we received $5.2 million associated with the 2002 sale of a parcel of land in
downtown Chicago. This receipt reflected the settlement and final payment on the
promissory note related to the initial sale of this property.


Financing
Activities. Our total debt increased $15.0 million to $1,293.3 million at the end of
the first half of 2004, from $1,278.3 million at the end of fiscal year 2003. In the first
half of 2004, we assumed $3.4 million of debt associated with the Pepsi-Cola Bahamas
transaction. We also had net borrowings of $169.1 million from our commercial paper
program as of the end of the second quarter of 2004. In May 2004, we paid $150.0 million
at the maturity of the $150 million, face value 6.0 percent notes.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|24
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|In
the first half of 2003, we issued $150 million of notes due in March 2013 with a coupon
rate of 4.5 percent. Net proceeds from these notes were $146.3 million, which reflected
the reduction for discount and issuance costs totaling $2.6 million, as well as a treasury
rate lock settlement payment of $1.1 million. The proceeds were used to redeem $150
million of notes that were issued in March 2001. In February 2003, the investors of the
$150 million of notes issued in March 2001 notified us that they wanted to exercise their
option to purchase and remarket the notes pursuant to the remarketing agreement, unless we
elected to redeem the notes. In March 2003, we redeemed the notes pursuant to the
agreement. We paid approximately $164.5 million for the fair value of the debt to be
extinguished, net of the reverse treasury rate lock settlement of $3.2 million. In
addition, we repaid the $125 million 7.25 percent notes that came due during the first
quarter of 2003.


We
have a revolving credit agreement with maximum borrowings of $500 million, which acts as a
back up as required by our credit rating agencies for our commercial paper program.
Accordingly, we have a total of $500 million available under the commercial paper program
and revolving credit facility combined. There were $192.5 million of commercial paper
borrowings at the end of the first half of 2004 compared to $26.0 million at the end of
fiscal year 2003.


During
the first half of 2004, we executed an accelerated stock repurchase program in which we
repurchased 10 million shares of our common stock for $200.6 million. See the
Accelerated Share Repurchase Program note in the Condensed Consolidated
Financial Statements for further discussion. During the first half of 2003, we repurchased
approximately 4.3 million shares of our common stock for $56.0 million. The issuance of
common stock, including treasury shares, for the exercise of stock options resulted in
cash inflows of $56.1 million in the first half of 2004, compared to $4.3 million in the
first half of 2003.


On
February 17, 2004, we announced that our Board of Directors declared a quarterly dividend
of $0.075 per share on PepsiAmericas common stock for the first quarter of 2004. The
dividend was payable April 1, 2004 to shareholders of record on March 12, 2004. On April
28, 2004, we announced that our Board of Directors declared quarterly dividends of $0.075
per share on PepsiAmericas common stock for the remainder of fiscal year 2004 for an
annual dividend of $0.30 per share. During the first half of 2004, we paid cash dividends
of $21.2 million based on this quarterly cash dividend rate. The remaining quarterly
dividends will be paid on October 1, 2004 and January 3, 2005 to shareholders of record on
September 15, 2004 and December 15, 2004, respectively. In the first half of 2003, we
declared cash dividends of $5.7 million based on a dividend of $0.04 per share.


See
the Annual Report on Form 10-K for fiscal year 2003 for a summary of our contractual
obligations as of the end of fiscal year 2003. There were no significant changes to such
contractual obligations in the first half of 2004. We believe that our operating cash
flows are sufficient to fund our existing operations for the foreseeable future. In
addition, we believe that with our operating cash flows, available lines of credit, and
the potential for additional debt and equity offerings, we will have sufficient resources
to fund our future growth and expansion. There are a number of options available to us and
we continue to examine the optimal uses of our cash, including repurchasing our stock and
reinvesting in the business or acquisitions, assuming a high economic return.


Discontinued
operations. We continue to be subject to certain indemnification obligations, net of
insurance, under agreements related to previously sold subsidiaries, including
indemnification expenses for potential environmental and tort liabilities of these prior
subsidiaries. There is significant uncertainty in assessing our potential expenses for
complying with our indemnification obligations, as the determination of such amounts is
subject to various factors, including possible insurance recoveries and the allocation of
liabilities among other potentially responsible and financially viable parties.
Accordingly, the ultimate settlement and timing of cash requirements related to such
indemnification obligations may vary significantly from the estimates included in our
financial statements. At the end of the first half of 2004, we had recorded $115.1 million
in liabilities for future remediation and other related costs arising out of our
indemnification obligations. This amount excludes possible insurance recoveries and is
determined on an undiscounted cash flow basis. In addition, we have funded coverage
pursuant to an insurance policy purchased in fiscal year 2002 (see the Environmental
and Other Commitments and Contingencies note to the Condensed Consolidated Financial
Statements), which reduces the cash required to be paid by us for certain environmental
sites pursuant to our indemnification obligations. The Finite Funding amount recorded was
$22.4 million at the end of the second quarter of 2004, of which $3.0 million is expected
to be recovered in the next twelve months based on our expenditures, and is thus, included as a current
asset.


During
the first half of 2004 and 2003, we paid approximately $3.6 million and received
approximately $1.3 million, respectively, related to such indemnification obligations, net
of insurance settlements of $5.0 million and $7.5 million, respectively, as well as the
benefit of taxes. We expect to spend approximately $15 million to $25 million in fiscal
year 2004 for remediation and other related costs, excluding possible insurance recoveries
(see the Environmental and Other Commitments and Contingencies note to the
Condensed Consolidated Financial Statements for further discussion of discontinued
operations and related environmental liabilities).
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|25
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|RELATED PARTY
TRANSACTIONS


We
are a licensed producer and distributor of Pepsi 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. 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 second quarter of 2004, PepsiCo
beneficially owned 41.5 percent of our common stock.


We
purchase concentrate from PepsiCo to be used in the production of Pepsi carbonated soft
drinks and other non-alcoholic beverages. PepsiCo also provides us with various forms of
bottler incentives (marketing support programs) to promote its brands. These bottler
incentives cover a variety of initiatives, including marketplace support,
equipment-related programs, and shared media and advertising support. 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, as well as finished beverage products from a Pepsi/Starbucks
partnership.


PepsiCo
provides various procurement services under a shared services agreement, including the
execution of derivatives contracts associated with certain related raw materials
purchases. PepsiCo also collects and remits to us certain rebates from the various
suppliers related to our procurement volume.


Although
we did not enter into any new agreements with Pohlad Companies or its subsidiaries in the first half of 2004, we
have an existing arrangement 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 2003.


FORWARD-LOOKING
STATEMENTS


This
quarterly report on Form 10-Q contains certain forward-looking statements of expected
future developments, as defined in the Private Securities Litigation Reform Act of 1995.
The forward-looking statements in this Form 10-Q refer to the expectations regarding
continuing operating improvement and other matters. These forward-looking statements
reflect our expectations and are based on currently available data; however, actual
results are subject to future risks and uncertainties, which could materially affect
actual performance. Risks and uncertainties that could affect such future performance
include, but are not limited to, the following: competition, including product and pricing
pressures; changing trends in consumer tastes; changes in the our relationship and/or
support programs with PepsiCo and other brand owners; market acceptance of new product
offerings; weather conditions; cost and availability of raw materials; availability of
capital; labor and employee benefit costs; unfavorable interest rate and currency
fluctuations; costs of legal proceedings; outcomes of environmental claims and litigation;
changing legislation; and general economic, business and political conditions in the
countries and territories where we operate.


These
events and uncertainties are difficult or impossible to predict accurately and many are
beyond our control. We assume no obligation to publicly release the result of any
revisions that may be made to any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|26
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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk.
|------- | -----------------------------------------------------------

|We
are subject to various market risks, including risks from changes in commodity prices,
interest rates and currency exchange rates.


Commodity Prices


The
risk from commodity price changes relates to our ability to recover higher product costs
through price increases to customers, which may be limited due to the competitive pricing
environment that exists in the soft drink business. We use derivative financial
instruments to hedge price fluctuations for a portion of our aluminum requirements over a
specified period of time. Because of the high correlation between aluminum commodity
prices and our contractual cost of these products, we consider these hedges to be highly
effective. As of the end of the second quarter of 2004, we have hedged a portion of our
anticipated aluminum can purchases through November 2005.


Interest Rates


In
the second quarter of 2004, the risk from changes in interest rates was not material to
our operations because a significant portion of our debt issues represented fixed rate
obligations. Our floating rate exposure relates to changes in the six-month London
Interbank Offered Rank (LIBOR) rate and the overnight Federal Funds rate.
Assuming consistent levels of floating rate debt with those held at the end of the second
quarter of 2004, a 50 basis point (0.5 percent) change in each of these rates would not
have had a significant impact on our second quarter and first half of 2004 interest
expense. We have entered into interest rate swaps to convert a portion of our fixed rate
debt to floating rate debt. We had cash equivalents throughout the second quarter and
first half of 2004, principally invested in money market funds and commercial paper, which
were most closely tied to overnight Federal Funds rates. Assuming a change of 50 basis
points in the rate of interest associated with our cash equivalents at the end of the
second quarter of 2004, interest income for the second quarter and first half of 2004
would not have changed by a significant amount.


Currency Exchange Rates


Because
we operate in international franchise territories, we are subject to exposure resulting
from changes in currency exchange rates. Currency exchange rates are influenced by a
variety of economic factors including local inflation, growth, interest rates and
governmental actions, as well as other factors. We currently do not hedge the translation
risks of investments in our international operations. Any positive cash flows generated by
international operations have been reinvested in the operations or used to repay
intercompany loans.


International
operations, based on net sales, represented approximately 15 percent and 14 percent of our
total operations in the second quarter and first half of 2004, respectively. Changes in
currency exchange rates impact the translation of the results of certain international
operations from their local currencies into U.S. dollars. If the currency exchange rates
had changed by five percent in the second quarter and first half of 2004, we estimate the
impact on reported operating income for those periods would not have been significant. Our
estimate reflects the fact that a portion of the international operations costs are
denominated in U.S. dollars, including concentrate purchases. This estimate does not take
into account the possibility that rates can move in opposite directions and that gains in
one category may or may not be offset by losses from another category.


Equity Prices


We are subject to
equity price risk due to the repurchase of our common stock through our accelerated stock repurchase program (see
the "Accelerated Share Repurchase Program" note in the Condensed Consolidated Financial Statements for further discussion).  At the end of the program, we
may receive or be required to pay a price adjustment based on the difference between the weighted
average price of our stock over the life of the program and the initial purchase price of $20.03 per share.  At
our election, any payments we are obligated to make pursuant to the settlement of the forward sales contract will
either be in cash or in shares of our common stock.  Changes in the fair value of our common stock will impact the final
settlement of the program.  At the end of the second quarter of 2004, the investment bank had acquired approximately 3.7
million shares at an average price of $21.02 per share.  The following table sets forth the reported high and low sales prices
of our common stock as reported on the New York Stock Exchange during the second quarter and first half of 2004:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |      | Second Quarter 2004 |       | First Half 2004 |   |      
| | ---- | ------------------- | ----- | --------------- | - | -----
| | High | $                   | 21.67 |                 | $ | 21.67
| | Low  | $                   | 19.23 |                 | $ | 17.07

|Item 4. | Controls and Procedures.
|------- | ------------------------

|We
maintain a system of disclosure controls and procedures that is designed to provide
reasonable assurance that information, which is required to be disclosed, is accumulated
and communicated to management timely. At the end of the period covered by this report, we
carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures
are effective in timely alerting them to material information relating to us required to
be included in our periodic SEC filings.


During
the second quarter of 2004, there were no significant changes in our internal control over
financial reporting or in other factors that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|27
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|PART II-OTHER
INFORMATION
|-------------------------

|Item 1. | Legal Proceedings.
|------- | ------------------

| | No
material changes to be reported for the second quarter of 2004.
| | ------------------------------------------------------------------

|Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|------- | --------------------------------------------------------------------------------

| | Our
share repurchase program activity for each of the three months ended July 3, 2004 was as
follows:
| | -----------------------------------------------------------------------------------------------------

|Period                             | Total Number of Shares Purchased (1) | Average Price Paid per Share (2) | Total Number of Share Purchased as Part of Publicly
        Announced Plans or Programs (3) | Maximum Number of Shares that May Yet Be Purchased Under
        the Plans or Programs
|---------------------------------- | ------------------------------------ | -------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------
|                                   |                                      |                                  |                                                                                             |                                                                                       
|April 4, - May 1, 2004             |                                      | 10,000,000                       |                                                                                             | $20.06                                                                                
|May 2, - May 29, 2004              |                                      |                                 |                                                                                             |                                                                                      
|May 30, - July 3, 2004             |                                      |                                 |                                                                                             |                                                                                      
|                                   |                                      |                                  |                                                                                             |                                                                                       
|For the Quarter Ended July 3, 2004 |                                      | 10,000,000                       |                                                                                             | $20.06                                                                                
|                                   |                                      |                                  |                                                                                             |                                                                                       

| | (1)   On April 30, 2004, we repurchased 10 million shares of our common stock at a
          total cost of $200.6 million under an accelerated share repurchase program.
          Refer to the "Accelerated Share Repurchase Program" note of the Condensed Consolidated Financial Statements for further
          discussion.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2)   Includes commissions of $0.03 per share.
| | ----------------------------------------------

| | (3)   On December 19, 2002, we announced that our Board of Directors authorized
the repurchase of 20 million shares under a previously authorized repurchased program.  Prior to fiscal year 2004, we repurchased
3,550,701 shares.  All
share repurchases reported above have been made pursuant to the program.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

|(a) | April 22, 2004 Annual Meeting of Shareholders
|--- | ---------------------------------------------

|(b) | Election of Directors
|--- | ---------------------

| | The
following persons were elected at the Annual Meeting of Shareholders held on April 22,
2004 to serve as directors for the ensuing year:
| | -------------------------------------------------------------------------------------------------------------------------------------------

| | Brenda C. Barnes  | Jarobin Gilbert, Jr.  
| | ----------------- | ----------------------
| | Herbert M. Baum   | Matthew M. McKenna    
| | Richard G. Cline  | Lionell L. Nowell, III
| | Pierre S. du Pont | Robert C. Pohlad      
| | Archie R. Dykes   |                       

|(c) | Matters Voted Upon
|--- | ------------------

|Proposal
1: Election of Directors
|---------------------------------

| | The
following votes were recorded with respect to this proposal:
| | ----------------------------------------------------------------

|Votes For | VotesWithheld         
|--------- | ----------------------
|          |                       
|          | Brenda C. Barnes      
|          | Herbert M. Baum       
|          | Richard G. Cline      
|          | Pierre S. du Pont     
|          | Archie R. Dykes       
|          | Jarobin Gilbert, Jr.  
|          | Matthew M. McKenna    
|          | Lionell L. Nowell, III
|          | Robert C. Pohlad      

|28
|--

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Proposal
2: Approval of Amendment to 2000 Stock Incentive Plan

| | The
following votes were recorded with respect thereto:
| | -------------------------------------------------------

| | Votes for        | 118,077,172 | 
| | ---------------- | ----------- | 
| | Votes against    | 10,537,615  | 
| | Votes abstaining | 227,565     | 
| | Broker non-votes | 6,494,168   | 

Proposal
3: Ratification of Appointment of Independent Auditors

| | The
following votes were recorded with respect thereto:
| | -------------------------------------------------------

| | Votes for        | 133,293,248 | 
| | ---------------- | ----------- | 
| | Votes against    | 1,933,397   | 
| | Votes abstaining | 109,875     | 
| | Broker non-votes |            | 

Proposal
4: Shareholder ProposalExecutive Equity Compensation Plans

| | The
following votes were recorded with respect thereto:
| | -------------------------------------------------------

| | Votes for        | 16,108,279  | 
| | ---------------- | ----------- | 
| | Votes against    | 111,795,896 | 
| | Votes abstaining | 938,176     | 
| | Broker non-votes | 6,494,168   | 

Proposal
5: Shareholder ProposalRecycling Strategy

| | The
following votes were recorded with respect thereto:
| | -------------------------------------------------------

| | Votes for        | 6,694,152   | 
| | ---------------- | ----------- | 
| | Votes against    | 117,551,781 | 
| | Votes abstaining | 4,596,420   | 
| | Broker non-votes | 6,494,168   | 

|(d). | Not applicable
|---- | --------------

|Item 5. | Other Information
|------- | -----------------

| | Effective May 4, 2004, Brenda C. Barnes resigned from
our Board of Directors.  Ms Barnes was named President and Chief Operating Officer of Sara Lee Corporation, and as a result, resigned from her role as a board member of various public companies, including our
company.  Ms. Barnes was a member of the Management Resources and Compensation Committee and the Governance,
Finance and Nominating Committee of our Board of Directors.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 6. | Exhibits and Reports on Form 8-K
|------- | --------------------------------

|(a). | Exhibits.
|---- | ---------

| | See "Exhibit Index."
| | --------------------

|(b). | Reports on Form 8-K.
|---- | --------------------

| | On
April 28, 2004, we furnished a Current Report with regards to our press release dated
April 28, 2004, PepsiAmericas Reports Strong Topline and Net Income Growth in the
First Quarter of 2004.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 4, 2004, we filed a Current Report with regards to our press release dated May 3,
2004, PepsiAmericas Announces Repurchase of 10 Million Shares.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|29
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|SIGNATURE


Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date:    August 11, 2004 | PEPSIAMERICAS, INC.
|------------------------ | -------------------

| | By:   /s/ G. MICHAEL DURKIN, JR.
| | --------------------------------

| | G. Michael Durkin, Jr.
                                                                      Executive Vice President and Chief Financial Officer
                                                                      (As Chief Accounting Officer and Duly
                                                                      Authorized Officer of PepsiAmericas, Inc.)
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|30
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|EXHIBIT INDEX
|-------------

|ExhibitNumber | Description of Exhibit
|------------- | ----------------------

|10.1 | Amended and Restated Receivables Sale Agreement Dated as of May 24, 2002 among Pepsi-Cola General
              Bottlers, Inc., Pepsi-Cola General Bottlers of Ohio, Inc., Pepsi-Cola General Bottlers of Indiana,
              Inc., Pepsi-Cola General Bottlers of Wisconsin, Inc., Pepsi-Cola General Bottlers of Iowa, Inc.,
              Iowa Vending, Inc., Marquette Bottling Works, Incorporated, Northern Michigan Vending, Inc., Delta
              Beverage Group, Inc., and Dakbev, LLC, as originators and Whitman Finance, Inc. as Buyer.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.1 | Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14, as adopted pursuant to
              Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2 | Chief Financial Officer Certification pursuant to Exchange Act Rule 13a-14, as adopted pursuant to
              Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.1 | Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
              Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 | Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
              Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|31
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