##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 (Mark
One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended September 3, 2005
 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
employer incorporation or organization)
    
    (I.R.S.
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 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 3, 2005 and September 4, 2004
    
    
    2Condensed Consolidated Statements of Cash Flows - 36 weeks ended September 3, 2005 and September 4, 2004
    
    
    3Condensed Consolidated Balance Sheets - September 3, 2005 and December 25, 2004
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5-11Item 2.
    
    Management's Financial Review
    
    
    12-20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21Part II
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    22Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22-23Item 6.
    
    Exhibits
    
    
    24EX-10.1: FORM OF EMPLOYEE RESTRICTED STOCK UNIT AGREEMENTEX-11.1: COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHAREEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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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
    
    
    September3, 2005
    
    
    4, 2004
    
    
    3, 2005
    
    
    4, 2004Net revenues
    
    $
    3,214
    
    
    $
    2,934
    
    
    $
    8,223
    
    
    $
    7,676Cost of sales
    
    
    1,695
    
    
    
    1,522
    
    
    
    4,306
    
    
    
    3,951Gross profit
    
    
    1,519
    
    
    
    1,412
    
    
    
    3,917
    
    
    
    3,725Selling, delivery and administrative
expenses
    
    
    1,126
    
    
    
    1,055
    
    
    
    3,101
    
    
    
    2,945Operating income
    
    
    393
    
    
    
    357
    
    
    
    816
    
    
    
    780Interest expense, net
    
    
    56
    
    
    
    50
    
    
    
    169
    
    
    
    158Other non-operating (income) expenses, net
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    3Minority interest
    
    
    24
    
    
    
    22
    
    
    
    47
    
    
    
    43Income before income taxes
    
    
    314
    
    
    
    284
    
    
    
    600
    
    
    
    576Income tax expense
    
    
    109
    
    
    
    93
    
    
    
    208
    
    
    
    193Net income
    
    $
    205
    
    
    $
    191
    
    
    $
    392
    
    
    $
    383Basic earnings per share
    
    $
    0.84
    
    
    $
    0.75
    
    
    $
    1.60
    
    
    $
    1.49Weighted-average shares outstanding
    
    
    243
    
    
    
    254
    
    
    
    245
    
    
    
    257Diluted earnings per share
    
    $
    0.82
    
    
    $
    0.73
    
    
    $
    1.55
    
    
    $
    1.44Weighted-average shares outstanding
    
    
    250
    
    
    
    262
    
    
    
    252
    
    
    
    266Dividends declared per common share
    
    $
    0.08
    
    
    $
    0.05
    
    
    $
    0.21
    
    
    $
    0.11
  2




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##### Table of Contents



The Pepsi Bottling Group, Inc.
 
 Condensed Consolidated Statements of Cash Flows
  36 Weeks EndedSeptember
    
    
    September3, 2005
    
    
    4, 2004Cash Flows  OperationsNet income
    
    $
    392
    
    
    $
    383Adjustments to reconcile net income to net cash provided by operations:Depreciation
    
    
    420
    
    
    
    394Amortization
    
    
    10
    
    
    
    9Deferred income taxes
    
    
    (5
    )
    
    
    38Other non-cash charges and credits, net
    
    
    226
    
    
    
    208Changes in operating working capital, excluding effects of acquisitions:Accounts receivable, net
    
    
    (381
    )
    
    
    (332
    )Inventories
    
    
    (84
    )
    
    
    (91
    )Prepaid expenses and other current assets
    
    
    6
    
    
    
    (15
    )Accounts payable and other current liabilities
    
    
    115
    
    
    
    144Income taxes payable
    
    
    107
    
    
    
    80Net change in operating working capital
    
    
    (237
    )
    
    
    (214
    )Pension contributions
    
    
    (30
    )
    
    
    (72
    )Other, net
    
    
    (51
    )
    
    
    (36
    )Net Cash Provided by Operations
    
    
    725
    
    
    
    710Cash Flows  InvestmentsCapital expenditures
    
    
    (444
    )
    
    
    (425
    )Acquisitions of bottlers
    
    
    (1
    )
    
    
    (8
    )Proceeds from sale of property, plant and equipment
    
    
    20
    
    
    
    8Other investing activities, net
    
    
    1
    
    
    
    Net Cash Used for Investments
    
    
    (424
    )
    
    
    (425
    )Cash Flows  FinancingShort-term borrowings  three months or less, net
    
    
    (60
    )
    
    
    139Proceeds from long-term debt
    
    
    36
    
    
    
    23Payments of long-term debt
    
    
    (11
    )
    
    
    (1,010
    )Dividends paid
    
    
    (44
    )
    
    
    (18
    )Proceeds from exercise of stock options
    
    
    81
    
    
    
    98Purchases of treasury stock
    
    
    (340
    )
    
    
    (492
    )Net Cash Used for Financing
    
    
    (338
    )
    
    
    (1,260
    )Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    (1
    )
    
    
    (3
    )Net Decrease in Cash and Cash Equivalents
    
    
    (38
    )
    
    
    (978
    )Cash and Cash Equivalents  Beginning of Period
    
    
    305
    
    
    
    1,235Cash and Cash Equivalents  End of Period
    
    $
    267
    
    
    $
    257Supplemental Cash Flow InformationNet third-party interest paid
    
    $
    187
    
    
    $
    184Income taxes paid
    
    $
    105
    
    
    $
    75
  3




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The Pepsi Bottling Group, Inc.
 
 Condensed Consolidated Balance Sheets
  (Unaudited)September
    
    
    December3, 2005
    
    
    25, 2004ASSETSCurrent AssetsCash and cash equivalents
    
    $
    267
    
    
    $
    305Accounts receivable, net of allowances of $58 at September 3, 2005 and
$61 at December 25, 2004
    
    
    1,422
    
    
    
    1,054Inventories
    
    
    510
    
    
    
    427Prepaid expenses and other current assets
    
    
    256
    
    
    
    253Total Current Assets
    
    
    2,455
    
    
    
    2,039Property, plant and equipment, net
    
    
    3,576
    
    
    
    3,581Other intangible assets, net
    
    
    3,659
    
    
    
    3,639Goodwill
    
    
    1,440
    
    
    
    1,416Other assets
    
    
    121
    
    
    
    118Total Assets
    
    $
    11,251
    
    
    $
    10,793LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable and other current liabilities
    
    $
    1,644
    
    
    $
    1,373Short-term borrowings
    
    
    89
    
    
    
    155Current maturities of long-term debt
    
    
    87
    
    
    
    53Total Current Liabilities
    
    
    1,820
    
    
    
    1,581Long-term debt
    
    
    4,479
    
    
    
    4,489Other liabilities
    
    
    973
    
    
    
    914Deferred income taxes
    
    
    1,397
    
    
    
    1,415Minority interest
    
    
    495
    
    
    
    445Total Liabilities
    
    
    9,164
    
    
    
    8,844Shareholders EquityCommon stock, par value $0.01 per share:authorized 900 shares, issued 310 shares
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    1,701
    
    
    
    1,719Retained earnings
    
    
    2,228
    
    
    
    1,887Accumulated other comprehensive loss
    
    
    (279
    )
    
    
    (315
    )Deferred compensation
    
    
    
    
    
    
    (1
    )Treasury stock: 68 shares and 61 shares at September 3, 2005 and
December 25, 2004, respectively, at cost
    
    
    (1,566
    )
    
    
    (1,344
    )Total Shareholders Equity
    
    
    2,087
    
    
    
    1,949Total Liabilities and Shareholders Equity
    
    $
    11,251
    
    
    $
    10,793
  4




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##### Table of Contents



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/17 weeks (FY 2005)
    
    September, October,November and December
 5




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Note 2  Seasonality of Business
  Note 3  New Accounting Standards
 SFAS No. 123R
  FASB Staff Position No. FAS 109-1
 Accounting for Income Taxes
 FASB Staff Position No. FAS 109-2
  FASB Interpretation No. 47
  6




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SFAS No. 151
  Note 4  Stock-Based Employee Compensation
  12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September3, 2005
    
    
    4, 2004
    
    
    3, 2005
    
    
    4, 2004Net income:As reported
    
    $
    205
    
    
    $
    191
    
    
    $
    392
    
    
    $
    383Add: Total stock-based
employee compensation expense
included in reported
net income, net of
taxes and minority interest
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Less: Total stock-based
employee compensation
determined under fair-value
based method for all awards,
net of taxes and minority
interest
    
    
    (11
    )
    
    
    (10
    )
    
    
    (32
    )
    
    
    (29
    )Pro forma
    
    $
    194
    
    
    $
    181
    
    
    $
    361
    
    
    $
    355Earnings per share:Basic  as reported
    
    $
    0.84
    
    
    $
    0.75
    
    
    $
    1.60
    
    
    $
    1.49Basic  pro forma
    
    $
    0.80
    
    
    $
    0.71
    
    
    $
    1.47
    
    
    $
    1.38Diluted  as reported
    
    $
    0.82
    
    
    $
    0.73
    
    
    $
    1.55
    
    
    $
    1.44Diluted  pro forma
    
    $
    0.77
    
    
    $
    0.69
    
    
    $
    1.42
    
    
    $
    1.33
  7




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##### Table of Contents



Note 5  Inventories
 September
    
    
    December3, 2005
    
    
    25, 2004Raw materials and supplies
    
    $
    194
    
    
    $
    159Finished goods
    
    
    316
    
    
    
    268$
    510
    
    
    $
    427
 Note 6  Property, plant and equipment, net
 September
    
    
    December3, 2005
    
    
    25, 2004Land
    
    $
    267
    
    
    $
    257Buildings and improvements
    
    
    1,280
    
    
    
    1,263Manufacturing and distribution equipment
    
    
    3,383
    
    
    
    3,289Marketing equipment
    
    
    2,334
    
    
    
    2,237Other
    
    
    172
    
    
    
    1777,436
    
    
    
    7,223Accumulated depreciation
    
    
    (3,860
    )
    
    
    (3,642
    )$
    3,576
    
    
    $
    3,581
 Note 7  Other intangible assets, net and Goodwill
 September
    
    
    December3, 2005
    
    
    25, 2004Intangibles subject to amortization:Gross carrying amount:Customer relationships and lists
    
    $
    52
    
    
    $
    46Franchise/distribution rights
    
    
    45
    
    
    
    44Other identified intangibles
    
    
    27
    
    
    
    30124
    
    
    
    120Accumulated amortization:Customer relationships and lists
    
    
    (9
    )
    
    
    (6
    )Franchise/distribution rights
    
    
    (18
    )
    
    
    (15
    )Other identified intangibles
    
    
    (17
    )
    
    
    (16
    )(44
    )
    
    
    (37
    )Intangibles subject to amortization, net
    
    
    80
    
    
    
    83Intangibles not subject to amortization:Carrying amount:Franchise rights
    
    
    2,967
    
    
    
    2,958Distribution rights
    
    
    298
    
    
    
    288Trademarks
    
    
    216
    
    
    
    208Other identified intangibles
    
    
    98
    
    
    
    102Intangibles not subject to amortization
    
    
    3,579
    
    
    
    3,556Total other intangible assets, net
    
    $
    3,659
    
    
    $
    3,639Goodwill
    
    $
    1,440
    
    
    $
    1,416
 8




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Weighted-
    
    Estimated Aggregate Amortization Expense to be IncurredAverageAmortizationPeriod
    
    Balance of
    
    Fiscal Year Ending2005
    
    2006
    
    2007
    
    2008
    
    2009Customer
relationships and
lists
    
    18 years
    
    $
    1
    
    
    $
    3
    
    
    $
    3
    
    
    $
    3
    
    
    $
    3Franchise/distribution rights
    
    7 years
    
    $
    2
    
    
    $
    5
    
    
    $
    3
    
    
    $
    2
    
    
    $
    2Other identified
intangibles
    
    7 years
    
    $
    1
    
    
    $
    3
    
    
    $
    3
    
    
    $
    2
    
    
    $
    1
 Note 8  Pension and Postretirement Medical Benefit Plans
 Pension Benefits
   9




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12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September3, 2005
    
    
    4, 2004
    
    
    3, 2005
    
    
    4, 2004Service cost
    
    $
    11
    
    
    $
    10
    
    
    $
    32
    
    
    $
    30Interest cost
    
    
    17
    
    
    
    16
    
    
    
    52
    
    
    
    48Expected return on plan assets
    
    
    (21
    )
    
    
    (19
    )
    
    
    (63
    )
    
    
    (57
    )Amortization of prior service cost
    
    
    2
    
    
    
    2
    
    
    
    5
    
    
    
    5Amortization of net loss
    
    
    7
    
    
    
    5
    
    
    
    21
    
    
    
    16Net pension expense for the defined benefit plans
    
    
    16
    
    
    
    14
    
    
    
    47
    
    
    
    42Defined contribution plans expense
    
    
    4
    
    
    
    4
    
    
    
    13
    
    
    
    14Total U.S. pension expense recognized in the
Condensed Consolidated Statements of Operations
    
    $
    20
    
    
    $
    18
    
    
    $
    60
    
    
    $
    56
  Postretirement Medical Benefits
   12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September3, 2005
    
    
    4, 2004
    
    
    3, 2005
    
    
    4, 2004Service cost
    
    $
    1
    
    
    $
    1
    
    
    $
    2
    
    
    $
    3Interest cost
    
    
    5
    
    
    
    4
    
    
    
    15
    
    
    
    13Amortization of net loss
    
    
    1
    
    
    
    1
    
    
    
    5
    
    
    
    3U.S. postretirement
benefits expense
recognized in the
Condensed Consolidated
Statements of
Operations
    
    $
    7
    
    
    $
    6
    
    
    $
    22
    
    
    $
    19
 10




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Note 9  Geographic Data
  Net
Revenues
 12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September3, 2005
    
    
    4, 2004
    
    
    3, 2005
    
    
    4, 2004U.S
    
    $
    2,149
    
    
    $
    2,002
    
    
    $
    5,832
    
    
    $
    5,537Mexico
    
    
    330
    
    
    
    288
    
    
    
    782
    
    
    
    722Other countries
    
    
    735
    
    
    
    644
    
    
    
    1,609
    
    
    
    1,417$
    3,214
    
    
    $
    2,934
    
    
    $
    8,223
    
    
    $
    7,676
 Long-Lived
Assets
 September
    
    
    December3, 2005
    
    
    25, 2004U.S
    
    $
    5,846
    
    
    $
    5,875Mexico
    
    
    1,468
    
    
    
    1,435Other countries
    
    
    1,482
    
    
    
    1,444$
    8,796
    
    
    $
    8,754
 Note 10  Comprehensive Income
 12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September3, 2005
    
    
    4, 2004
    
    
    3, 2005
    
    
    4, 2004Net income
    
    $
    205
    
    
    $
    191
    
    
    $
    392
    
    
    $
    383Net currency translation adjustment
    
    
    45
    
    
    
    36
    
    
    
    42
    
    
    
    (21
    )Cash flow hedge adjustment (a)(b)
    
    
    (4
    )
    
    
    (2
    )
    
    
    (6
    )
    
    
    (5
    )Comprehensive income
    
    $
    246
    
    
    $
    225
    
    
    $
    428
    
    
    $
    357
 
 (a)
    
    Net of minority interest and taxes of $3 million and $1 million for the 12 weeks ended
September 3, 2005 and September 4, 2004, respectively.(b)
    
    Net of minority interest and taxes of $4 million and $4 million for the 36 weeks ended
September 3, 2005 and September 4, 2004, respectively. Note 11  Contingencies
  Note 12  Subsequent Event
  11




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Item 2.  Managements Financial Review
  OVERVIEW
   FINANCIAL PERFORMANCE SUMMARY
 12 Weeks Ended
    
    36 Weeks EndedSeptember
    
    September
    
    %
    
    September
    
    September
    
    %3, 2005
    
    4, 2004
    
    Change
    
    3, 2005
    
    4, 2004
    
    ChangeNet revenues
    
    $
    3,214
    
    
    $
    2,934
    
    
    
    10
    %
    
    $
    8,223
    
    
    $
    7,676
    
    
    
    7
    %Gross profit
    
    
    1,519
    
    
    
    1,412
    
    
    
    8
    %
    
    
    3,917
    
    
    
    3,725
    
    
    
    5
    %Operating income
    
    
    393
    
    
    
    357
    
    
    
    10
    %
    
    
    816
    
    
    
    780
    
    
    
    5
    %Net income
    
    
    205
    
    
    
    191
    
    
    
    8
    %
    
    
    392
    
    
    
    383
    
    
    
    2
    %Diluted earnings
per share
1
    
    $
    0.82
    
    
    $
    0.73
    
    
    
    13
    %
    
    $
    1.55
    
    
    $
    1.44
    
    
    
    8
    %
 
 1
     Percentage change for diluted earnings per share is calculated by using earnings per share data
that is expanded to the fourth decimal place.     12




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Outlook
 rd rd rd rd
 Pro forma Forecasted2005 versus 2004
    
    Impact of
    
    Forecasted 2005growth
    
    53rdweek
    
    versus 2004 growthWorldwide Volume
    
    
    3
    %
    
    
    1
    %
    
    
    4
    %United States Volume
    
    
    1
    %
    
    
    1
    %
    
    
    2
    %
 rd
 rd rd
  13




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##### Table of Contents



Volume
 12 Weeks Ended
    
    36 Weeks EndedSept. 3, 2005 vs.
    
    Sept. 3, 2005 vs.Sept. 4, 2004
    
    Sept. 4, 2004World-
    
    
    
    
    
    Outside
    
    World-
    
    
    
    
    
    Outsidewide
    
    U.S.
    
    the U.S.
    
    wide
    
    U.S.
    
    the U.S.Base volume
    
    
    5
    %
    
    
    4
    %
    
    
    7
    %
    
    
    3
    %
    
    
    1
    %
    
    
    5
    %Acquisitions
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %Total volume
change
    
    
    6
    %
    
    
    5
    %
    
    
    7
    %
    
    
    4
    %
    
    
    2
    %
    
    
    6
    %
   Aquafina SoBe, Frappuccino  Lipton Tropicana . epsi Tropicana Twister Pepsi Lime.
 ,
 Pepsi Lipton Iced Tea. Pepsi .
  14




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##### Table of Contents



Net Revenues
 12 Weeks Ended
    
    36 Weeks EndedSept. 3, 2005 vs.
    
    Sept. 3 , 2005 vs.Sept. 4, 2004
    
    Sept. 4, 2004World-
    
    
    
    
    
    Outside
    
    World-
    
    
    
    
    
    Outsidewide
    
    U.S.
    
    the U.S.
    
    wide
    
    U.S.
    
    the U.S.Volume impact
    
    
    5
    %
    
    
    4
    %
    
    
    7
    %
    
    
    3
    %
    
    
    1
    %
    
    
    5
    %Net price per case impact (rate/mix)
    
    
    3
    %
    
    
    2
    %
    
    
    3
    %
    
    
    2
    %
    
    
    3
    %
    
    
    2
    %Currency translations
    
    
    1
    %
    
    
    0
    %
    
    
    4
    %
    
    
    1
    %
    
    
    0
    %
    
    
    4
    %Acquisitions
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %Total Net Revenues change
    
    
    10
    %
    
    
    7
    %
    
    
    14
    %
    
    
    7
    %
    
    
    5
    %
    
    
    12
    %
     15




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##### Table of Contents



Cost of Sales
 12 Weeks Ended
    
    36 Weeks EndedSept. 3, 2005 vs.
    
    Sept. 3 , 2005 vs.Sept. 4, 2004
    
    Sept. 4, 2004World-
    
    
    
    
    
    Outside
    
    World-
    
    
    
    
    
    Outsidewide
    
    U.S.
    
    the U.S.
    
    wide
    
    U.S.
    
    the U.S.Volume impact
    
    
    5
    %
    
    
    4
    %
    
    
    7
    %
    
    
    3
    %
    
    
    1
    %
    
    
    5
    %Costs per case impact
    
    
    4
    %
    
    
    4
    %
    
    
    5
    %
    
    
    4
    %
    
    
    5
    %
    
    
    4
    %Currency translation
    
    
    1
    %
    
    
    0
    %
    
    
    4
    %
    
    
    1
    %
    
    
    0
    %
    
    
    4
    %Acquisitions
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %Total Cost of Sales change
    
    
    11
    %
    
    
    9
    %
    
    
    16
    %
    
    
    9
    %
    
    
    7
    %
    
    
    14
    %
    16




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##### Table of Contents



Selling, Delivery and Administrative Expenses
 12 Weeks Ended
    
    36 Weeks EndedSept. 3, 2005 vs.
    
    Sept. 3 , 2005 vs.Sept. 4, 2004
    
    Sept. 4, 2004World-
    
    
    
    
    
    Outside
    
    World-
    
    
    
    
    
    Outsidewide
    
    U.S.
    
    the U.S.
    
    wide
    
    U.S.
    
    the U.S.Cost
impact
    
    
    6
    %
    
    
    4
    %
    
    
    10
    %
    
    
    4
    %
    
    
    3
    %
    
    
    6
    %HFCS
Settlement
    
    
    (3
    )%
    
    
    (4
    )%
    
    
    0
    %
    
    
    (1
    )%
    
    
    (1
    )%
    
    
    0
    %Strategic Spending
Initiatives
    
    
    1
    %
    
    
    1
    %
    
    
    2
    %
    
    
    0
    %
    
    
    0
    %
    
    
    1
    %Currency
translation
    
    
    2
    %
    
    
    0
    %
    
    
    5
    %
    
    
    1
    %
    
    
    0
    %
    
    
    4
    %Acquisitions
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    1
    %
    
    
    0
    %
    
    
    1
    %Total SD&A
change
    
    
    7
    %
    
    
    2
    %
    
    
    17
    %
    
    
    5
    %
    
    
    2
    %
    
    
    12
    %
     Operating Income
   17




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##### Table of Contents



Interest Expense, net
  Income Tax Expense
  Liquidity and Financial Condition
 Cash Flows
     Liquidity and Capital Resources
    18




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##### Table of Contents



Contractual Obligations
  19




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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;
    
    restrictions imposed by PepsiCo on our raw material suppliers that could increase our costs;
    
    material changes from expectations in the cost of raw materials and ingredients;
    
    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;
    
    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;
    
    material changes in expected levels of bottler incentive payments from PepsiCo;
    
    changes in product category consumption;
    
    unfavorable weather conditions in our markets;
    
    unforeseen economic and political changes;
    
    possible recalls of our products;
    
    an inability to meet projections for performance in newly acquired territories;
    
    failure or inability to comply with laws and regulations;
    
    changes in laws and regulations governing the manufacture and sale of food and beverages, including restrictions
on the sale of carbonated soft drinks in schools;
    
    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);
    
    changes in our debt ratings;
    
    material changes in expected interest and currency exchange rates and unfavorable market performance of our
pension plan assets;
    
    interruptions of operations due to labor disagreements;
    
    loss of business from a significant customer; and
    
    limitations on the availability of water or obtaining water rights.
 20




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##### Table of Contents



Item 3.
 Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.
 Controls and Procedures
   21




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
 Legal Proceedings
   
 Item 2.
 Unregistered Sales of Equity Securities and Use of Proceeds
 PBG Purchases of Equity Securities
  Total Number of Shares
    
    
    Maximum Number ofTotal Number
    
    
    
    
    
    
    Purchased as Part of
    
    
    Shares that May Yet Beof Shares
    
    
    Average Price
    
    
    Publicly Announced
    
    
    Purchased Under thePeriod
    
    Purchased1
    
    
    Paid per Share2
    
    
    Plans or Programs3
    
    
    Plans or Programs3Period 7     
     06/12/05-07/09/05
    
    
    938,000
    
    
    $
    28.76
    
    
    
    938,000
    
    
    
    31,704,300Period 8     
     07/10/05-08/06/05
    
    
    904,700
    
    
    $
    29.39
    
    
    
    904,700
    
    
    
    30,799,600Period 9     
     08/07/05-09/03/05
    
    
    1,438,500
    
    
    $
    29.19
    
    
    
    1,438,500
    
    
    
    29,361,100Total
    
    
    3,281,200
    
    
    $
    29.12
    
    
    
    3,281,200
 
 1
    
    Shares have only been repurchased through publicly announced programs.2
    
    Average share price excludes brokerage fees. 22




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##### Table of Contents



3
    
    The PBG Board has authorized the repurchase of shares of common stock on the open
market and through negotiated transactions as follows: Number of SharesAuthorized to beDate Share Repurchase Program was Publicly Announced
    
    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
    
    
    25,000,000Total shares authorized to be repurchased as of Sept. 3, 2005
    
    
    125,000,000
  23




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##### Table of Contents



Item 6.
 Exhibits
 Exhibit No.
 10.1
    
    Form of Employee Restricted Stock
Unit Agreement under the PBG 2004 Long-Term Incentive Plan11.1
    
    Computation of Basic and Diluted Earnings Per Share31.1
    
    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
    
    Financial statements of Bottling LLC, which are incorporated
herein by reference to Bottling LLCs Quarterly Report on Form
10-Q for the quarter ended September 3, 2005, as required by
the SEC as a result of Bottling LLCs guarantee of up to
$1,000,000,000 aggregate principal amount of our 7% Senior
Notes due in 2029.
 24




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##### Table of Contents



SIGNATURES
  THE PEPSI BOTTLING GROUP, INC.(Registrant)Date:
October 6, 2005
    
    
    
    /s/ Andrea L. ForsterAndrea L. ForsterVice President and ControllerDate:
October 6, 2005
    
    
    
    /s/ Alfred H. DrewesAlfred H. DrewesSenior Vice President andChief Financial Officer