##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 8, 2007 (12 weeks)
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from  to
 Commission file number 1-14893
 
 THE PEPSI BOTTLING GROUP, INC.
  Delaware
    
    13-4038356(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)One Pepsi Way, Somers, New York
    
    10589(Address of principal executive offices)
    
    (Zip Code)
 914-767-6000
 N/A
 þ o
  þ o o
 o þ




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##### 



The Pepsi Bottling Group, Inc.  Index
 Page No.Part I
    
    Financial InformationItem 1.
    
    Financial StatementsCondensed Consolidated Statements of Operations  12 and 36 weeks ended September 8, 2007 and September 9, 2006
    
    
    2Condensed Consolidated Statements of Cash Flows  36 weeks ended September 8, 2007 and September 9, 2006
    
    
    3Condensed Consolidated Balance Sheets  September 8, 2007 and December 30, 2006
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5-15Item 2.
    
    Managements Financial Review
    
    
    16-27Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4.
    
    Controls and Procedures
    
    
    28Part II
    
    Other InformationItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 6.
    
    Exhibits
    
    
    30EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATIONEX-99.1: BOTTLING GROUP, LLC FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 8, 2007




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
 
 The Pepsi Bottling Group, Inc.
Condensed Consolidated Statements of Operations
 12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September8, 2007
    
    
    9, 2006
    
    
    8, 2007
    
    
    9, 2006Net revenues
    
    $
    3,729
    
    
    $
    3,460
    
    
    $
    9,555
    
    
    $
    8,965Cost of sales
    
    
    2,003
    
    
    
    1,872
    
    
    
    5,171
    
    
    
    4,828Gross profit
    
    
    1,726
    
    
    
    1,588
    
    
    
    4,384
    
    
    
    4,137Selling, delivery and administrative expenses
    
    
    1,293
    
    
    
    1,205
    
    
    
    3,493
    
    
    
    3,318Operating income
    
    
    433
    
    
    
    383
    
    
    
    891
    
    
    
    819Interest expense, net
    
    
    65
    
    
    
    62
    
    
    
    199
    
    
    
    186Other non-operating expenses (income), net
    
    
    
    
    
    
    1
    
    
    
    (2
    )
    
    
    11Minority interest
    
    
    41
    
    
    
    24
    
    
    
    72
    
    
    
    48Income before income taxes
    
    
    327
    
    
    
    296
    
    
    
    622
    
    
    
    574Income tax expense
    
    
    67
    
    
    
    89
    
    
    
    171
    
    
    
    185Net income
    
    $
    260
    
    
    $
    207
    
    
    $
    451
    
    
    $
    389Basic earnings per share
    
    $
    1.16
    
    
    $
    0.88
    
    
    $
    1.99
    
    
    $
    1.65Weightedaverage shares outstanding
    
    
    226
    
    
    
    235
    
    
    
    227
    
    
    
    236Diluted earnings per share
    
    $
    1.12
    
    
    $
    0.86
    
    
    $
    1.94
    
    
    $
    1.61Weightedaverage shares outstanding
    
    
    232
    
    
    
    242
    
    
    
    233
    
    
    
    242Dividends declared per common share
    
    $
    0.14
    
    
    $
    0.11
    
    
    $
    0.39
    
    
    $
    0.30
  2




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##### Table of Contents



The Pepsi Bottling Group, Inc.
Condensed Consolidated Statements of Cash Flows
 36 Weeks EndedSeptember
    
    
    September8, 2007
    
    
    9, 2006Cash Flows  OperationsNet income
    
    $
    451
    
    
    $
    389Adjustments to reconcile net income to net cash provided by operations:Depreciation and amortization
    
    
    457
    
    
    
    443Deferred income taxes
    
    
    (57
    )
    
    
    (68
    )Stock-based compensation
    
    
    43
    
    
    
    46Other non-cash charges and credits, net
    
    
    260
    
    
    
    239Changes in operating working capital, excluding effects of acquisitions:Accounts receivable, net
    
    
    (533
    )
    
    
    (532
    )Inventories
    
    
    (97
    )
    
    
    (162
    )Prepaid expenses and other current assets
    
    
    (13
    )
    
    
    (5
    )Accounts payable and other current liabilities
    
    
    325
    
    
    
    288Income taxes payable
    
    
    131
    
    
    
    155Net change in operating working capital
    
    
    (187
    )
    
    
    (256
    )Casualty insurance payments
    
    
    (48
    )
    
    
    (47
    )Pension contributions
    
    
    (1
    )
    
    
    (1
    )Other, net
    
    
    (44
    )
    
    
    (40
    )Net Cash Provided by Operations
    
    
    874
    
    
    
    705Cash Flows  InvestmentsCapital expenditures
    
    
    (563
    )
    
    
    (525
    )Acquisitions, net of cash acquired
    
    
    (49
    )
    
    
    (33
    )Proceeds from sale of property, plant and equipment
    
    
    9
    
    
    
    6Other investing activities, net
    
    
    6
    
    
    
    8Net Cash Used for Investments
    
    
    (597
    )
    
    
    (544
    )Cash Flows  FinancingShort-term borrowings, net
    
    
    126
    
    
    
    (279
    )Proceeds from long-term debt
    
    
    1
    
    
    
    793Payments of long-term debt
    
    
    (12
    )
    
    
    (99
    )Dividends paid
    
    
    (82
    )
    
    
    (64
    )Excess tax benefit from the exercise of stock options
    
    
    6
    
    
    
    17Proceeds from exercise of stock options
    
    
    92
    
    
    
    142Share repurchases
    
    
    (331
    )
    
    
    (309
    )Net Cash (Used for) Provided by Financing
    
    
    (200
    )
    
    
    201Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    3
    
    
    
    (2
    )Net Increase in Cash and Cash Equivalents
    
    
    80
    
    
    
    360Cash and Cash Equivalents  Beginning of Period
    
    
    629
    
    
    
    502Cash and Cash Equivalents  End of Period
    
    $
    709
    
    
    $
    862Supplemental Cash Flow InformationInterest paid
    
    $
    233
    
    
    $
    208Income taxes paid
    
    $
    91
    
    
    $
    80Changes in accounts payable related to capital expenditures
    
    $
    (36
    )
    
    $
    (38
    )Capital lease additions
    
    $
    3
    
    
    $
    19Liabilities incurred and/or assumed in conjunction with acquisitions of bottlers
    
    $
    1
    
    
    $
    20Capital-in-kind contributions
    
    $
    5
    
    
    $
    Acquisition of intangible asset
    
    $
    315
    
    
    $
    
  3




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##### Table of Contents



The Pepsi Bottling Group, Inc.
Condensed Consolidated Balance Sheets
 (Unaudited)September
    
    
    December8, 2007
    
    
    30, 2006ASSETSCurrent AssetsCash and cash equivalents
    
    $
    709
    
    
    $
    629Accounts receivable, less allowance of $52 at September 8, 2007 and $50 at
December 30, 2006
    
    
    1,892
    
    
    
    1,332Inventories
    
    
    641
    
    
    
    533Prepaid expenses and other current assets
    
    
    253
    
    
    
    255Total Current Assets
    
    
    3,495
    
    
    
    2,749Property, plant and equipment, net
    
    
    3,900
    
    
    
    3,785Other intangible assets, net
    
    
    4,138
    
    
    
    3,768Goodwill
    
    
    1,503
    
    
    
    1,490Other assets
    
    
    177
    
    
    
    135Total Assets
    
    $
    13,213
    
    
    $
    11,927LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable and other current liabilities
    
    $
    2,147
    
    
    $
    1,677Short-term borrowings
    
    
    498
    
    
    
    357Current maturities of long-term debt
    
    
    11
    
    
    
    17Total Current Liabilities
    
    
    2,656
    
    
    
    2,051Long-term debt
    
    
    4,762
    
    
    
    4,754Other liabilities
    
    
    1,275
    
    
    
    1,205Deferred income taxes
    
    
    1,211
    
    
    
    1,293Minority interest
    
    
    938
    
    
    
    540Total Liabilities
    
    
    10,842
    
    
    
    9,843Shareholders EquityCommon stock, par value $0.01 per share: authorized 900 shares, issued 310 shares
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    1,787
    
    
    
    1,751Retained earnings (includes impact from adopting FIN 48 in fiscal year 2007 of $5)
    
    
    3,076
    
    
    
    2,708Accumulated other comprehensive loss
    
    
    (256
    )
    
    
    (361
    )Treasury stock: 86 shares and 80 shares at September 8, 2007 and December 30,
2006, respectively, at cost
    
    
    (2,239
    )
    
    
    (2,017
    )Total Shareholders Equity
    
    
    2,371
    
    
    
    2,084Total Liabilities and Shareholders Equity
    
    $
    13,213
    
    
    $
    11,927
  4




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Notes to Condensed Consolidated Financial Statements
 
 Note 1  Basis of Presentation
     Quarter
    
    U.S. & Canada
    
    Mexico & EuropeFirst Quarter
    
    12 weeks
    
    January and FebruarySecond Quarter
    
    12 weeks
    
    March, April and MayThird Quarter
    
    12 weeks
    
    June, July and AugustFourth Quarter
    
    16 weeks
    
    September, October, November and December
    5




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Note 2  Seasonality of Business
  Note 3  New Accounting Standards
 SFAS No. 157
  SFAS No. 158
  SFAS No. 159
  6




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EITF Issue No. 06-11
  Note 4  Earnings per Share
  12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    SeptemberShares in millions
    
    8, 2007
    
    
    9, 2006
    
    
    8, 2007
    
    
    9, 2006Average number of shares
outstanding during period
on which basic earnings
per share is based
    
    
    226
    
    
    
    235
    
    
    
    227
    
    
    
    236Add  Incremental shares
under stock compensation
plans
    
    
    6
    
    
    
    7
    
    
    
    6
    
    
    
    6Number of shares on which
diluted earnings per
share is based
    
    
    232
    
    
    
    242
    
    
    
    233
    
    
    
    242Basic and diluted net
income applicable to
common shareholders
    
    $
    260
    
    
    $
    207
    
    
    $
    451
    
    
    $
    389Basic earnings per share
    
    $
    1.16
    
    
    $
    0.88
    
    
    $
    1.99
    
    
    $
    1.65Diluted earnings per share
    
    $
    1.12
    
    
    $
    0.86
    
    
    $
    1.94
    
    
    $
    1.61
   
    
    For the 12 weeks ended September 8, 2007, there were no antidilutive options. For the
12 weeks ended September 9, 2006, options to purchase 0.2 million shares.
    
    For the 36 weeks ended September 8, 2007 and September 9, 2006, options to purchase 0.2
and 2.1 million shares, respectively.
 Note 5  Share-Based Compensation
   7




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12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September8, 2007
    
    
    9, 2006
    
    
    8, 2007
    
    
    9, 2006Total share-based compensation expense
    
    $
    13
    
    
    $
    14
    
    
    $
    43
    
    
    $
    46Income tax benefit
    
    
    (3
    )
    
    
    (4
    )
    
    
    (12
    )
    
    
    (13
    )Minority interest
    
    
    (1
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    (3
    )Net income impact
    
    $
    9
    
    
    $
    9
    
    
    $
    28
    
    
    $
    30
    Note 6  Balance Sheet Details
 September
    
    
    December8, 2007
    
    
    30, 2006Accounts
ReceivableTrade accounts receivable
    
    $
    1,701
    
    
    $
    1,163Allowance for doubtful accounts
    
    
    (52
    )
    
    
    (50
    )Accounts receivable from PepsiCo.
    
    
    184
    
    
    
    168Other receivables
    
    
    59
    
    
    
    51$
    1,892
    
    
    $
    1,332InventoriesRaw materials and supplies
    
    $
    237
    
    
    $
    201Finished goods
    
    
    404
    
    
    
    332$
    641
    
    
    $
    533Property,
Plant and Equipment, netLand
    
    $
    306
    
    
    $
    291Buildings and improvements
    
    
    1,433
    
    
    
    1,404Manufacturing and distribution equipment
    
    
    3,836
    
    
    
    3,705Marketing equipment
    
    
    2,427
    
    
    
    2,425Capital leases
    
    
    62
    
    
    
    60Other
    
    
    170
    
    
    
    1728,234
    
    
    
    8,057Accumulated depreciation
    
    
    (4,334
    )
    
    
    (4,272
    )$
    3,900
    
    
    $
    3,785
 8




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September
    
    
    December8, 2007
    
    
    30, 2006Accounts
Payable and Other Current LiabilitiesAccounts payable
    
    $
    606
    
    
    $
    525Accounts payable to PepsiCo
    
    
    326
    
    
    
    234Trade incentives
    
    
    251
    
    
    
    194Accrued compensation and benefits
    
    
    254
    
    
    
    237Other accrued taxes
    
    
    121
    
    
    
    111Accrued interest
    
    
    51
    
    
    
    74Other current liabilities
    
    
    538
    
    
    
    302$
    2,147
    
    
    $
    1,677
 Note 7  Other Intangible Assets, net and Goodwill
  September
    
    
    December8, 2007
    
    
    30, 2006Intangibles subject to amortization:Gross carrying amount:Customer relationships and lists
    
    $
    54
    
    
    $
    54Franchise/distribution rights
    
    
    46
    
    
    
    45Other identified intangibles
    
    
    30
    
    
    
    32130
    
    
    
    131Accumulated amortization:Customer relationships and lists
    
    
    (14
    )
    
    
    (11
    )Franchise/distribution rights
    
    
    (30
    )
    
    
    (27
    )Other identified intangibles
    
    
    (16
    )
    
    
    (16
    )(60
    )
    
    
    (54
    )Intangibles subject to amortization, net
    
    
    70
    
    
    
    77Intangibles not subject to amortization:Carrying amount:Franchise rights
    
    
    3,198
    
    
    
    3,128Licensing rights
    
    
    315
    
    
    
    Distribution rights
    
    
    291
    
    
    
    297Trademarks
    
    
    211
    
    
    
    215Other identified intangibles
    
    
    53
    
    
    
    51Intangibles not subject to amortization
    
    
    4,068
    
    
    
    3,691Total other intangible assets, net
    
    $
    4,138
    
    
    $
    3,768
   Intangible asset amortization
  9




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Goodwill
  U.S. &Canada
    
    
    Europe
    
    
    Mexico
    
    
    TotalBalance at December 30, 2006
    
    $
    1,229
    
    
    $
    16
    
    
    $
    245
    
    
    $
    1,490Purchase price allocations relating
to acquisitions
    
    
    1
    
    
    
    
    
    
    
    (16
    )
    
    
    (15
    )Impact of foreign currency translation
    
    
    33
    
    
    
    
    
    
    
    (5
    )
    
    
    28Balance at September 8, 2007
    
    $
    1,263
    
    
    $
    16
    
    
    $
    224
    
    
    $
    1,503
  Note 8  Pension and Postretirement Medical Benefit Plans
 Employee Benefit Plans
  Defined Benefit Pension Plans
  Defined Contribution Benefits
   10




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12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September8, 2007
    
    
    9, 2006
    
    
    8, 2007
    
    
    9, 2006Service cost
    
    $
    13
    
    
    $
    12
    
    
    $
    38
    
    
    $
    36Interest cost
    
    
    21
    
    
    
    19
    
    
    
    63
    
    
    
    57Expected return on plan assets
    
    
    (24
    )
    
    
    (21
    )
    
    
    (71
    )
    
    
    (65
    )Amortization of prior service cost
    
    
    2
    
    
    
    2
    
    
    
    5
    
    
    
    6Amortization of net loss
    
    
    8
    
    
    
    9
    
    
    
    26
    
    
    
    27Special termination benefits
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    Net pension expense for the defined benefit plans
    
    
    24
    
    
    
    21
    
    
    
    65
    
    
    
    61Defined contribution plans expense
    
    
    6
    
    
    
    5
    
    
    
    19
    
    
    
    15Total U.S. pension expense recognized in theCondensed Consolidated Statements of Operations
    
    $
    30
    
    
    $
    26
    
    
    $
    84
    
    
    $
    76
   Postretirement Medical Benefits
   12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September8, 2007
    
    
    9, 2006
    
    
    8, 2007
    
    

9, 2006Service cost
    
    $
    1
    
    
    $
    1
    
    
    $
    3
    
    
    $
    3Interest cost
    
    
    5
    
    
    
    5
    
    
    
    14
    
    
    
    14Amortization of net loss
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    4Total U.S.
postretirement benefits
expense recognized in
the Condensed
Consolidated Statements
of Operations
    
    $
    7
    
    
    $
    7
    
    
    $
    20
    
    
    $
    21
 Note 9  Income Taxes
 ,
 11




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Note 10  Segment Information
  12




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12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September8, 2007
    
    
    9, 2006
    
    
    8, 2007
    
    
    9, 2006Net
RevenuesU.S. & Canada
    
    $
    2,665
    
    
    $
    2,559
    
    
    $
    7,294
    
    
    $
    7,017Europe
    
    
    683
    
    
    
    554
    
    
    
    1,327
    
    
    
    1,088Mexico
    
    
    381
    
    
    
    347
    
    
    
    934
    
    
    
    860Worldwide net revenues
    
    $
    3,729
    
    
    $
    3,460
    
    
    $
    9,555
    
    
    $
    8,965
 12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September8, 2007
    
    
    9, 2006
    
    
    8, 2007
    
    
    9, 2006Operating
IncomeU.S. & Canada
    
    $
    300
    
    
    $
    281
    
    
    $
    745
    
    
    $
    697Europe
    
    
    110
    
    
    
    71
    
    
    
    99
    
    
    
    61Mexico
    
    
    23
    
    
    
    31
    
    
    
    47
    
    
    
    61Worldwide operating income
    
    
    433
    
    
    
    383
    
    
    
    891
    
    
    
    819Interest expense, net
    
    
    65
    
    
    
    62
    
    
    
    199
    
    
    
    186Other non-operating expenses (income), net
    
    
    
    
    
    
    1
    
    
    
    (2
    )
    
    
    11Minority interest
    
    
    41
    
    
    
    24
    
    
    
    72
    
    
    
    48Income before income taxes
    
    $
    327
    
    
    $
    296
    
    
    $
    622
    
    
    $
    574
 September
    
    
    December8, 2007
    
    
    30, 2006Total
AssetsU.S. & Canada
    
    $
    9,670
    
    
    $
    9,044Europe
    
    
    1,745
    
    
    
    1,072Mexico
    
    
    1,798
    
    
    
    1,811Worldwide total assets
    
    $
    13,213
    
    
    $
    11,927
 13




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Note 11  Comprehensive Income
 12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September8, 2007
    
    
    9, 2006
    
    
    8, 2007
    
    
    9, 2006Net income
    
    $
    260
    
    
    $
    207
    
    
    $
    451
    
    
    $
    389Net currency translation adjustment
    
    
    (10
    )
    
    
    53
    
    
    
    84
    
    
    
    32Cash flow hedge adjustment (a)(b)
    
    
    (2
    )
    
    
    
    
    
    
    (3
    )
    
    
    6Amortization of prior service cost
/ net loss in net periodic
pension/postretirement cost to
expense (c)
    
    
    6
    
    
    
    N/A
    
    
    
    19
    
    
    
    N/APension liability adjustment (d)
    
    
    
    
    
    
    N/A
    
    
    
    5
    
    
    
    N/AComprehensive income
    
    $
    254
    
    
    $
    260
    
    
    $
    556
    
    
    $
    427
 
 (a)
    
    Net of minority interest and taxes of $(1) million for the 12 weeks ended September 8, 2007
and September 9, 2006.(b)
    
    Net of minority interest and taxes of $(1) million and $4 million for the 36 weeks ended
September 8, 2007 and September 9, 2006, respectively.(c)
    
    Net of minority interest and taxes of $5 million and $15 million for the 12 and 36 weeks
ended September 8, 2007, respectively.(d)
    
    Net of minority interest and taxes of $3 million for the 36 weeks ended September 8, 2007. Note 12  Restructuring Charges
  
    
    Reduced the number of business units in the U.S. & Canada from eight to six to
centralize decision making and increase speed to market. This resulted in the elimination
of approximately 190 positions.
    
    Realigned our workforce in select territories in Europe and Mexico to improve
productivity, resulting in the elimination of approximately 660 positions, many of which
are hourly frontline positions in warehouse and production.
   14




---



##### Table of Contents



U.S. &Worldwide
    
    
    Canada
    
    
    EuropeTotal costs expected
    
    
    $30-$35
    
    
    $
    22-$27
    
    
    $
    8Costs incurred through September 8, 2007
    
    
    (20
    )
    
    
    (12
    )
    
    
    (8
    )Remaining costs to be incurred
    
    
    $10-$15
    
    
    $
    10-$15
    
    
    $
    
  Severance
    
    
    Enhanced& Related
    
    
    Pension
    
    
    RelocationTotal
    
    
    Benefits
    
    
    Benefits
    
    
    & OtherCosts incurred through September
8, 2007
    
    $
    20
    
    
    $
    15
    
    
    $
    4
    
    
    $
    1Cash payments (pre-tax)
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    Non-cash
settlements
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Costs accrued at September 8, 2007
    
    $
    18
    
    
    $
    14
    
    
    $
    4
    
    
    $
    
 Note 13  Contingencies
  15




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##### Table of Contents



Item 2.
 Managements Financial Review
  Overview
    Critical Accounting Policies
   
    
    Allowance for Doubtful Accounts;
    
    Recoverability of Goodwill and Intangible Assets with Indefinite Lives;
    
    Pension and Postretirement Medical Benefit Plans;
    
    Casualty Insurance Costs;
    
    Share-Based Compensation; and
    
    Income Taxes.
 16




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##### Table of Contents



Critical Accounting Policy Update  Income Taxes
 ,
  Items Affecting Comparability of our Financial Results
  12 weeks endedSeptember
    
    SeptemberIncome/(Expense)
    
    8, 2007
    
    9, 2006Gross profitPR Beverages
    
    $
    26
    
    
    $
    Operating incomePR Beverages
    
    
    26
    
    
    
    Organizational Realignment
    
    
    (20
    )
    
    
    Net incomeOrganizational Realignment
    
    
    (15
    )
    
    
    Tax Contingency Reversal
    
    
    46
    
    
    
    Tax Law Changes
    
    
    
    
    
    
    12Diluted earnings per shareOrganizational Realignment
    
    $
    (0.06
    )
    
    $
    Tax Contingency Reversal
    
    $
    0.20
    
    
    $
    Tax Law Changes
    
    $
    
    
    
    $
    0.05
 2007 Items
 PR Beverages Limited (PR Beverages)
   17




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##### Table of Contents



Organizational Realignment
  Tax Contingency Reversal
  2006 Item
 Tax Law Changes
  Financial Performance Summary
 12 Weeks Ended
    
    36 Weeks EndedSeptember
    
    September
    
    %
    
    September
    
    September
    
    %8, 2007
    
    9, 2006
    
    Change
    
    8, 2007
    
    9, 2006
    
    ChangeNet revenues
    
    $
    3,729
    
    
    $
    3,460
    
    
    
    8
    %
    
    $
    9,555
    
    
    $
    8,965
    
    
    
    7
    %Cost of sales
    
    
    2,003
    
    
    
    1,872
    
    
    
    7
    %
    
    
    5,171
    
    
    
    4,828
    
    
    
    7
    %Gross profit
    
    
    1,726
    
    
    
    1,588
    
    
    
    9
    %
    
    
    4,384
    
    
    
    4,137
    
    
    
    6
    %Selling, delivery,
and administrative
expenses
    
    
    1,293
    
    
    
    1,205
    
    
    
    7
    %
    
    
    3,493
    
    
    
    3,318
    
    
    
    5
    %Operating income
    
    
    433
    
    
    
    383
    
    
    
    13
    %
    
    
    891
    
    
    
    819
    
    
    
    9
    %Net income
    
    
    260
    
    
    
    207
    
    
    
    26
    %
    
    
    451
    
    
    
    389
    
    
    
    16
    %Diluted earnings
per
share1
    
    $
    1.12
    
    
    $
    0.86
    
    
    
    31
    %
    
    $
    1.94
    
    
    $
    1.61
    
    
    
    21
    %
 
 1
    
    Percentage change for diluted earnings per share is calculated by using earnings per share data
that is expanded to the fourth decimal place. Worldwide Financial Highlights for the 12 weeks ended September 8, 2007
 The impact of foreign currency translation contributed approximately two percentage points of
growth in net revenues, cost of sales, gross profit, and selling, delivery and administrative
expenses, and contributed three percentage points of growth in operating income.
 Net revenues 
 Cost of sales 
 18




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##### Table of Contents



Gross profit 
 Selling, delivery and administrative (SD&A) expenses 
 Operating income 
 Net income
 2007 Financial Performance Discussion
 Except where noted, tables and discussion are presented as compared to the similar periods in
the prior year. Growth rates are rounded to the nearest whole percentage. When used in these
tables, N/A describes the transaction categories that did not contribute any impact to the
overall cause of change.
 Volume
 12 Weeks Ended
    
    36 Weeks EndedSeptember 8, 2007 vs. September 9, 2006
    
    September 8, 2007 vs. September 9, 2006World
    
    U.S. &
    
    
    
    
    
    
    
    
    
    World
    
    U.S. &wide
    
    Canada
    
    Europe
    
    Mexico
    
    wide
    
    Canada
    
    Europe
    
    MexicoBase volume
    
    
    1
    %
    
    
    0
    %
    
    
    4
    %
    
    
    (1
    )%
    
    
    0
    %
    
    
    0
    %
    
    
    5
    %
    
    
    (2
    )%Acquisitions
    
    
    0
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    2
    %
    
    
    1
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    4
    %Total Volume change
    
    
    1
    %
    
    
    0
    %
    
    
    4
    %
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    5
    %
    
    
    2
    %
     19




---



##### Table of Contents



Net Revenues
 12 Weeks Ended
    
    36 Weeks EndedSeptember 8, 2007 vs. September 9, 2006
    
    September 8, 2007 vs. September 9, 2006World
    
    U.S. &
    
    
    
    
    
    
    
    
    
    World
    
    U.S. &wide
    
    Canada
    
    Europe
    
    Mexico
    
    wide
    
    Canada
    
    Europe
    
    MexicoVolume impact
    
    
    1
    %
    
    
    0
    %
    
    
    4
    %
    
    
    (1
    )%
    
    
    0
    %
    
    
    0
    %
    
    
    5
    %
    
    
    (2
    )%Net price per case impact
(rate/mix)
    
    
    5
    %
    
    
    3
    %
    
    
    10
    %
    
    
    7
    %
    
    
    5
    %
    
    
    4
    %
    
    
    9
    %
    
    
    6
    %Acquisitions
    
    
    0
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    2
    %
    
    
    1
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    5
    %Currency translation
    
    
    2
    %
    
    
    1
    %
    
    
    9
    %
    
    
    2
    %
    
    
    1
    %
    
    
    0
    %
    
    
    8
    %
    
    
    0
    %Total Net Revenues change
    
    
    8
    %
    
    
    4
    %
    
    
    23
    %
    
    
    10
    %
    
    
    7
    %
    
    
    4
    %
    
    
    22
    %
    
    
    9
    %
      20




---



##### Table of Contents



Cost of Sales
 12 Weeks Ended
    
    36 Weeks EndedSeptember 8, 2007 vs.
    
    September 8, 2007 vs.September 9, 2006
    
    September 9, 2006Worldwide
    
    WorldwideVolume impact
    
    
    1
    %
    
    
    0
    %Cost per case impact
    
    
    5
    %
    
    
    6
    %Acquisitions
    
    
    0
    %
    
    
    1
    %PR Beverages
    
    
    (1
    )%
    
    
    (1
    )%Currency translation
    
    
    2
    %
    
    
    1
    %Total Cost of Sales change
    
    
    7
    %
    
    
    7
    %
     21




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##### Table of Contents



Selling, Delivery and Administrative Expenses
 12 Weeks Ended
    
    36 Weeks EndedSeptember 8, 2007 vs.
    
    September 8, 2007 vs.September 9, 2006
    
    September 9, 2006Worldwide
    
    WorldwideCost impact
    
    
    3
    %
    
    
    3
    %Organizational Realignment
    
    
    2
    %
    
    
    1
    %Currency translation
    
    
    2
    %
    
    
    1
    %Total SD&A change
    
    
    7
    %
    
    
    5
    %
    Operating Income
 12 Weeks Ended
    
    36 Weeks EndedSeptember 8, 2007 vs.
    
    September 8, 2007 vs.September 9, 2006
    
    September 9, 2006Worldwide
    
    WorldwideVolume
    
    
    2
    %
    
    
    2
    %Net price per case impact (rate/mix)
    
    
    43
    %
    
    
    50
    %Cost per case impact
    
    
    (27
    )%
    
    
    (33
    )%SD&A expenses
    
    
    (10
    )%
    
    
    (12
    )%PR Beverages
    
    
    7
    %
    
    
    3
    %Organizational Realignment
    
    
    (5
    )%
    
    
    (2
    )%Currency translation
    
    
    3
    %
    
    
    1
    %Total Operating Income change
    
    
    13
    %
    
    
    9
    %
  22




---



##### Table of Contents



Interest Expense, net
  Other Non-operating Expenses (Income), net
  Income Tax Expense
   23




---



##### Table of Contents



Restructuring Charges
 Organizational Realignment
  
    
    Reduced the number of business units in the U.S. & Canada from eight to six, to
centralize decision making and increase speed to market. This resulted in the elimination
of approximately 190 positions.
    
    Realigned our workforce to improve productivity in select territories in Europe and
Mexico, resulting in the elimination of approximately 660 positions, many of which are
hourly frontline positions in warehouse and production.
    
    Will recognize annual cost savings of approximately $30 million.
   Full Service Vending Rationalization
   24




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##### Table of Contents



Liquidity and Financial Condition
 Cash Flows
 36 Weeks Ended September 8, 2007 vs. September 9, 2006
    Liquidity and Capital Resources
    Contractual Obligations
  Full-Year 2007 Outlook
   25




---



##### Table of Contents



Operating income
    
    Full Year 2007Consolidation of PR Beverages
    
    
    3%Organizational Realignment
    
    
    (3%)FSV Rationalization
    
    
    (2)%  (3)%
  Diluted earnings per share
    
    Full Year 2007Organizational Realignment
    
    
    $(0.08)FSV Rationalization
    
    
    $(0.05)  $(0.08)Tax Contingency Reversal
    
    
    $0.20
  26




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##### Table of Contents



Cautionary Statements
  
    
    changes in our relationship with PepsiCo that could have a material adverse effect on our
long-term and short-term business and financial results;
 
    
    material changes in expected levels of bottler incentive payments from PepsiCo;
 
    
    restrictions imposed by PepsiCo on our raw material suppliers that could increase our
costs;
 
    
    material changes from expectations in the cost or availability of raw materials,
ingredients or packaging materials;
 
    
    limitations on the availability of water or obtaining water rights;
 
    
    an inability to achieve cost savings;
 
    
    material changes in capital investment for infrastructure and an inability to achieve the
expected timing for returns on cold-drink equipment and related infrastructure expenditures;
 
    
    decreased demand for our product resulting from changes in consumers preferences;
 
    
    an inability to achieve volume growth through product and packaging initiatives;
 
    
    impact of competitive activities on our business;
 
    
    impact of customer consolidations on our business;
 
    
    changes in product category consumption;
 
    
    unfavorable weather conditions in our markets;
 
    
    an inability to meet projections for performance in newly acquired territories;
 
    
    loss of business from a significant customer;
 
    
    failure or inability to comply with laws and regulations;
 
    
    changes in laws, regulations and industry guidelines governing the manufacture and sale of
food and beverages, including restrictions on the sale of carbonated soft drinks in schools;
 
    
    litigation, other claims and negative publicity relating to the alleged unhealthy
properties of soft drinks;
 
    
    changes in laws and regulations governing the environment, transportation, employee safety,
labor and government contracts;
 
    
    changes in accounting standards and taxation requirements (including unfavorable outcomes
from audits performed by various tax authorities);
 
    
    unforeseen economic and political changes;
 
    
    possible recalls of our products;
 
    
    interruptions of operations due to labor disagreements;
 
    
    changes in our debt ratings;
 
    
    material changes in expected interest and currency exchange rates and unfavorable market
performance of our pension plan assets; and
 
    
    an inability to achieve strategic business plan targets that could result in an intangible
asset impairment charge.
 27




---



##### Table of Contents



Item 3.  Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.  Controls and Procedures
   28




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 PBG Purchases of Equity Securities
  Total Number of Shares
    
    Maximum Number ofTotal Number
    
    Average Price
    
    Purchased as Part of
    
    Shares that May Yet Beof Shares
    
    Paid per
    
    Publicly Announced
    
    Purchased Under thePeriod
    
    Purchased 1
    
    Share2
    
    Plans or Programs 3
    
    Plans or Programs 3Period 7
06/17/0707/14/07
    
    
    830,000
    
    
    $
    34.18
    
    
    
    830,000
    
    
    
    24,253,500Period 8
07/15/0708/11/07
    
    
    1,000,000
    
    
    $
    34.95
    
    
    
    1,000,000
    
    
    
    23,253,500Period 9
08/12/0709/08/07
    
    
    1,907,500
    
    
    $
    34.63
    
    
    
    1,907,500
    
    
    
    21,346,000Total
    
    
    3,737,500
    
    
    $
    34.62
    
    
    
    3,737,500
 1
    
    Shares have only been repurchased through publicly announced programs.2
    
    Average share price excludes brokerage fees.3
    
    The PBG Board has authorized the repurchase of shares of common stock on the open market
and through negotiated transactions as follows:
 Date Share Repurchase Program was Publicly Announced
    
    Number of Shares Authorized to be RepurchasedOctober 14, 1999
    
    
    20,000,000July 13, 2000
    
    
    10,000,000July 11, 2001
    
    
    20,000,000May 28, 2003
    
    
    25,000,000March 25, 2004
    
    
    25,000,000March 24, 2005
    
    
    25,000,000December 15, 2006
    
    
    25,000,000Total shares authorized to be repurchased as of September 8, 2007
    
    
    150,000,000
  29




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##### Table of Contents



Item 6.  Exhibits
 Exhibit No.31.1
    
    Certification by the Chief Executive Officer pursuant to
Section 302 of the SarbanesOxley Act of 200231.2
    
    Certification by the Chief Financial Officer pursuant to
Section 302 of the SarbanesOxley Act of 200232.1
    
    Certification by the Chief Executive Officer pursuant to
Section 906 of the SarbanesOxley Act of 200232.2
    
    Certification by the Chief Financial Officer pursuant to
Section 906 of the SarbanesOxley Act of 200299.1
    
    Bottling Group, LLC Form 10-Q for the quarterly period ended
September 8, 2007, as required by the SEC as a result of
Bottling Group, LLCs guarantee of up to $1,000,000,000
aggregate principal amount of our 7% Senior Notes due in 2029.
 30




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##### Table of Contents



SIGNATURES
  THE PEPSI BOTTLING GROUP, INC.
                    (Registrant)Date: October 12, 2007
    /s/ Thomas M. LardieriThomas M. LardieriVice President and ControllerDate: October 12, 2007
    /s/ Alfred H. DrewesAlfred H. DrewesSenior Vice President and
Chief Financial Officer