##### 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 6, 2008 (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
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)One Pepsi Way, Somers, New York
    
    10589(Address of Principal Executive Offices)
    
    (Zip Code)
 
  
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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 6, 2008 and September 8, 2007
    
    
    2Condensed Consolidated Statements of Cash Flows  36 weeks ended September 6, 2008 and September 8, 2007
    
    
    3Condensed Consolidated Balance Sheets  September 6, 2008 and December 29, 2007
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5-15Item 2.
    
    Managements Financial Review
    
    
    16-24Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    25Part II
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 6.
    
    Exhibits
    
    
    28EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATIONEX-99.1: BOTTLING GROUP, LLC FORM 10-Q




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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
    
    
    September6, 2008
    
    
    8, 2007
    
    
    6, 2008
    
    
    8, 2007Net revenues
    
    $
    3,814
    
    
    $
    3,729
    
    
    $
    9,987
    
    
    $
    9,555Cost of sales
    
    
    2,077
    
    
    
    2,003
    
    
    
    5,475
    
    
    
    5,171Gross profit
    
    
    1,737
    
    
    
    1,726
    
    
    
    4,512
    
    
    
    4,384Selling, delivery and administrative expenses
    
    
    1,282
    
    
    
    1,293
    
    
    
    3,599
    
    
    
    3,493Operating income
    
    
    455
    
    
    
    433
    
    
    
    913
    
    
    
    891Interest expense, net
    
    
    65
    
    
    
    65
    
    
    
    187
    
    
    
    199Other non-operating expenses (income), net
    
    
    5
    
    
    
    
    
    
    
    (1
    )
    
    
    (2
    )Minority interest
    
    
    43
    
    
    
    41
    
    
    
    76
    
    
    
    72Income before income taxes
    
    
    342
    
    
    
    327
    
    
    
    651
    
    
    
    622Income tax expense
    
    
    111
    
    
    
    67
    
    
    
    218
    
    
    
    171Net income
    
    $
    231
    
    
    $
    260
    
    
    $
    433
    
    
    $
    451Basic earnings per share
    
    $
    1.09
    
    
    $
    1.16
    
    
    $
    1.99
    
    
    $
    1.99Weighted-average shares outstanding
    
    
    212
    
    
    
    226
    
    
    
    217
    
    
    
    227Diluted earnings per share
    
    $
    1.06
    
    
    $
    1.12
    
    
    $
    1.94
    
    
    $
    1.94Weighted-average shares outstanding
    
    
    217
    
    
    
    232
    
    
    
    223
    
    
    
    233Dividends declared per common share
    
    $
    0.17
    
    
    $
    0.14
    
    
    $
    0.48
    
    
    $
    0.39
  2




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##### Table of Contents



The Pepsi Bottling Group, Inc.
Condensed Consolidated Statements of Cash Flows
 36 Weeks EndedSeptember
    
    
    September6, 2008
    
    
    8, 2007Cash Flows  OperationsNet income
    
    $
    433
    
    
    $
    451Adjustments to reconcile net income to net cash provided by operations:Depreciation and amortization
    
    
    468
    
    
    
    457Deferred income taxes
    
    
    35
    
    
    
    (57
    )Share-based compensation
    
    
    41
    
    
    
    43Net other non-cash charges and credits
    
    
    259
    
    
    
    260Changes in operating working capital, excluding effects of acquisitions:Accounts receivable, net
    
    
    (469
    )
    
    
    (533
    )Inventories
    
    
    (104
    )
    
    
    (97
    )Prepaid expenses and other current assets
    
    
    (6
    )
    
    
    (13
    )Accounts payable and other current liabilities
    
    
    98
    
    
    
    325Income taxes payable
    
    
    121
    
    
    
    131Net change in operating working capital
    
    
    (360
    )
    
    
    (187
    )Casualty insurance payments
    
    
    (55
    )
    
    
    (48
    )Other, net
    
    
    (104
    )
    
    
    (45
    )Net Cash Provided by Operations
    
    
    717
    
    
    
    874Cash Flows  InvestmentsCapital expenditures
    
    
    (579
    )
    
    
    (563
    )Acquisitions, net of cash acquired
    
    
    (44
    )
    
    
    (49
    )Investments in noncontrolled affiliates
    
    
    (608
    )
    
    
    Proceeds from sale of property, plant and equipment
    
    
    15
    
    
    
    9Other investing activities, net
    
    
    (139
    )
    
    
    6Net Cash Used for Investments
    
    
    (1,355
    )
    
    
    (597
    )Cash Flows  FinancingShort-term borrowings, net
    
    
    751
    
    
    
    126Proceeds from long-term debt
    
    
    
    
    
    
    1Payments of long-term debt
    
    
    (7
    )
    
    
    (12
    )Dividends paid
    
    
    (99
    )
    
    
    (82
    )Excess tax benefit from the exercise of equity awards
    
    
    2
    
    
    
    6Proceeds from the exercise of stock options
    
    
    36
    
    
    
    92Share repurchases
    
    
    (489
    )
    
    
    (331
    )Contributions from minority interest holder
    
    
    308
    
    
    
    Other financing activities
    
    
    (4
    )
    
    
    Net Cash Provided by (Used for) Financing
    
    
    498
    
    
    
    (200
    )Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    (10
    )
    
    
    3Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (150
    )
    
    
    80Cash and Cash Equivalents  Beginning of Period
    
    
    647
    
    
    
    629Cash and Cash Equivalents  End of Period
    
    $
    497
    
    
    $
    709
  3




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##### Table of Contents



The Pepsi Bottling Group, Inc.
Condensed Consolidated Balance Sheets
 (Unaudited)September
    
    
    December6, 2008
    
    
    29, 2007ASSETSCurrent AssetsCash and cash equivalents
    
    $
    497
    
    
    $
    647Accounts receivable, net
    
    
    1,989
    
    
    
    1,520Inventories
    
    
    680
    
    
    
    577Prepaid expenses and other current assets
    
    
    486
    
    
    
    342Total Current Assets
    
    
    3,652
    
    
    
    3,086Property, plant and equipment, net
    
    
    4,160
    
    
    
    4,080Other intangible assets, net
    
    
    4,208
    
    
    
    4,181Goodwill
    
    
    1,526
    
    
    
    1,533Investments in noncontrolled affiliates
    
    
    608
    
    
    
    Other assets
    
    
    239
    
    
    
    235Total Assets
    
    $
    14,393
    
    
    $
    13,115LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable and other current liabilities
    
    $
    2,150
    
    
    $
    1,968Short-term borrowings
    
    
    980
    
    
    
    240Current maturities of long-term debt
    
    
    1,306
    
    
    
    7Total Current Liabilities
    
    
    4,436
    
    
    
    2,215Long-term debt
    
    
    3,474
    
    
    
    4,770Other liabilities
    
    
    1,225
    
    
    
    1,186Deferred income taxes
    
    
    1,367
    
    
    
    1,356Minority interest
    
    
    1,384
    
    
    
    973Total Liabilities
    
    
    11,886
    
    
    
    10,500Shareholders EquityCommon stock, par value $0.01 per share: authorized 900 shares, issued 310 shares
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    1,841
    
    
    
    1,805Retained earnings
    
    
    3,438
    
    
    
    3,124Accumulated other comprehensive loss
    
    
    (60
    )
    
    
    (48
    )Treasury stock: 99 shares and 86 shares at September 6, 2008 and December 29,
2007, respectively, at cost
    
    
    (2,715
    )
    
    
    (2,269
    )Total Shareholders Equity
    
    
    2,507
    
    
    
    2,615Total Liabilities and Shareholders Equity
    
    $
    14,393
    
    
    $
    13,115
  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. 141(R)
  6




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SFAS No. 160
  SFAS No. 161
  EITF Issue No. 07-1
  Note 4Earnings per Share
  12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    SeptemberShares in millions
    
    6, 2008
    
    
    8, 2007
    
    
    6, 2008
    
    
    8, 2007Net income
    
    $
    231
    
    
    $
    260
    
    
    $
    433
    
    
    $
    451Weighted-average shares
outstanding during period
on which basic earnings
per share is calculated
    
    
    212
    
    
    
    226
    
    
    
    217
    
    
    
    227Effect of dilutive shares:Incremental shares
under stock
compensation plans
    
    
    5
    
    
    
    6
    
    
    
    6
    
    
    
    6Weighted-average shares
outstanding during period
on which diluted earnings
per share is calculated
    
    
    217
    
    
    
    232
    
    
    
    223
    
    
    
    233Basic earnings per share
    
    $
    1.09
    
    
    $
    1.16
    
    
    $
    1.99
    
    
    $
    1.99Diluted earnings per share
    
    $
    1.06
    
    
    $
    1.12
    
    
    $
    1.94
    
    
    $
    1.94
  7




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
    
    For the 12 weeks ended September 6, 2008, options to purchase 13 million shares. For the 12
weeks ended September 8, 2007, there were no antidilutive options.
 
    
    For the 36 weeks ended September 6, 2008 and September 8, 2007, options to purchase 6.5
million shares and 0.2 million shares, respectively.
 Note 5Share-Based Compensation
  12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September6, 2008
    
    
    8, 2007
    
    
    6, 2008
    
    
    8, 2007Total share-based compensation expense
    
    $
    13
    
    
    $
    13
    
    
    $
    41
    
    
    $
    43Income tax benefit
    
    
    (3
    )
    
    
    (3
    )
    
    
    (12
    )
    
    
    (12
    )Minority interest
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (3
    )Net income impact
    
    $
    9
    
    
    $
    9
    
    
    $
    27
    
    
    $
    28
    Note 6Balance Sheet Details
 September
    
    
    December6, 2008
    
    
    29, 2007Accounts Receivable, netTrade accounts receivable
    
    $
    1,802
    
    
    $
    1,319Allowance for doubtful accounts
    
    
    (64
    )
    
    
    (54
    )Accounts receivable from PepsiCo
    
    
    182
    
    
    
    188Other receivables
    
    
    69
    
    
    
    67$
    1,989
    
    
    $
    1,520InventoriesRaw materials and supplies
    
    $
    239
    
    
    $
    195Finished goods
    
    
    441
    
    
    
    382$
    680
    
    
    $
    577Prepaid Expenses and Other Current
AssetsPrepaid expenses
    
    $
    310
    
    
    $
    290Other current assets
    
    
    176
    
    
    
    52$
    486
    
    
    $
    342
 8




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##### Table of Contents



September
    
    
    December6, 2008
    
    
    29, 2007Property, Plant and Equipment, netLand
    
    $
    325
    
    
    $
    320Buildings and improvements
    
    
    1,585
    
    
    
    1,484Manufacturing and distribution equipment
    
    
    4,197
    
    
    
    4,091Marketing equipment
    
    
    2,414
    
    
    
    2,389Capital leases
    
    
    37
    
    
    
    36Other
    
    
    162
    
    
    
    1648,720
    
    
    
    8,484Accumulated depreciation
    
    
    (4,560
    )
    
    
    (4,404
    )$
    4,160
    
    
    $
    4,080
 Industrial Revenue Bonds
  September
    
    
    December6, 2008
    
    
    29, 2007Accounts Payable and Other Current LiabilitiesAccounts payable
    
    $
    608
    
    
    $
    615Accounts payable to PepsiCo
    
    
    353
    
    
    
    255Trade incentives
    
    
    221
    
    
    
    235Accrued compensation and benefits
    
    
    238
    
    
    
    276Other accrued taxes
    
    
    157
    
    
    
    140Accrued interest
    
    
    48
    
    
    
    70Other current liabilities
    
    
    525
    
    
    
    377$
    2,150
    
    
    $
    1,968
 9




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Note 7Other Intangible Assets, net and Goodwill
 Other intangible assets, net
 September
    
    
    December6, 2008
    
    
    29, 2007Intangibles subject to amortization:Gross carrying amount:Customer relationships and lists
    
    $
    57
    
    
    $
    54Franchise and distribution rights
    
    
    47
    
    
    
    46Other identified intangibles
    
    
    34
    
    
    
    30138
    
    
    
    130Accumulated amortization:Customer relationships and lists
    
    
    (18
    )
    
    
    (15
    )Franchise and distribution rights
    
    
    (33
    )
    
    
    (31
    )Other identified intangibles
    
    
    (20
    )
    
    
    (17
    )(71
    )
    
    
    (63
    )Intangibles subject to amortization, net
    
    
    67
    
    
    
    67Intangibles not subject to amortization:Carrying amount:Franchise rights
    
    
    3,226
    
    
    
    3,235Licensing rights
    
    
    315
    
    
    
    315Distribution rights
    
    
    317
    
    
    
    294Trademarks
    
    
    226
    
    
    
    213Other identified intangibles
    
    
    57
    
    
    
    57Intangibles not subject to amortization
    
    
    4,141
    
    
    
    4,114Total other intangible assets, net
    
    $
    4,208
    
    
    $
    4,181
   Intangible asset amortization
  10




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Goodwill
  U.S. &Canada
    
    
    Europe
    
    
    Mexico
    
    
    TotalBalance at December 29, 2007
    
    $
    1,290
    
    
    $
    17
    
    
    $
    226
    
    
    $
    1,533Purchase price allocations relating
to acquisitions
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    9Impact of foreign currency translation
    
    
    (30
    )
    
    
    
    
    
    
    14
    
    
    
    (16
    )Balance at September 6, 2008
    
    $
    1,260
    
    
    $
    26
    
    
    $
    240
    
    
    $
    1,526
  Accounting change
   Note 8  Investment in Noncontrolled Affiliate
    11




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Note 9Fair Value Measurements
  Level 1
 Level 2 
 Level 3
  Level 2Financial Assets:Prepaid forward contract (a)
    
    $
    15Foreign currency forward contracts (b)
    
    
    3Interest rate swaps (c)
    
    
    2Total
    
    $
    20Financial Liabilities:Treasury rate locks (d)
    
    $
    21Commodity contracts (b)
    
    
    5Foreign currency forward contracts (b)
    
    
    1Total
    
    $
    27
 
 (a)
    
    Based primarily on the value of our stock price.(b)
    
    Based primarily on the forward curves of the specific indices upon which settlement is based.(c)
    
    Based primarily on the LIBOR index.(d)
    
    Based primarily on the 10-year Treasury-Note rate. 12




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Note 10 Pension and Postretirement Medical Benefit Plans
   Components of net pension expense
 12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September6, 2008
    
    
    8, 2007
    
    
    6, 2008
    
    
    8, 2007Service cost
    
    $
    12
    
    
    $
    13
    
    
    $
    35
    
    
    $
    38Interest cost
    
    
    23
    
    
    
    21
    
    
    
    69
    
    
    
    63Expected return on plan assets  (income)
    
    
    (27
    )
    
    
    (24
    )
    
    
    (80
    )
    
    
    (71
    )Amortization of net loss
    
    
    4
    
    
    
    8
    
    
    
    11
    
    
    
    26Amortization of prior service costs
    
    
    1
    
    
    
    2
    
    
    
    5
    
    
    
    5Special termination benefits
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Net pension expense for the defined
benefit plans
    
    $
    13
    
    
    $
    24
    
    
    $
    40
    
    
    $
    65
  Components of postretirement medical expense
 12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September6, 2008
    
    
    8, 2007
    
    
    6, 2008
    
    
    8, 2007Service cost
    
    $
    1
    
    
    $
    1
    
    
    $
    3
    
    
    $
    3Interest cost
    
    
    5
    
    
    
    5
    
    
    
    15
    
    
    
    14Amortization of net loss
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    3Total postretirement medical expense
    
    $
    7
    
    
    $
    7
    
    
    $
    20
    
    
    $
    20
 Defined contribution expense
  Note 11Income Taxes
  13




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Note 12Segment Information
    12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September6, 2008
    
    
    8, 2007
    
    
    6, 2008
    
    
    8, 2007Net RevenuesU.S. & Canada
    
    $
    2,652
    
    
    $
    2,665
    
    
    $
    7,395
    
    
    $
    7,294Europe
    
    
    770
    
    
    
    683
    
    
    
    1,598
    
    
    
    1,327Mexico
    
    
    392
    
    
    
    381
    
    
    
    994
    
    
    
    934Worldwide net revenues
    
    $
    3,814
    
    
    $
    3,729
    
    
    $
    9,987
    
    
    $
    9,555Operating IncomeU.S. & Canada
    
    $
    300
    
    
    $
    300
    
    
    $
    712
    
    
    $
    745Europe
    
    
    123
    
    
    
    110
    
    
    
    137
    
    
    
    99Mexico
    
    
    32
    
    
    
    23
    
    
    
    64
    
    
    
    47Worldwide operating income
    
    
    455
    
    
    
    433
    
    
    
    913
    
    
    
    891Interest expense, net
    
    
    65
    
    
    
    65
    
    
    
    187
    
    
    
    199Other non-operating expenses (income), net
    
    
    5
    
    
    
    
    
    
    
    (1
    )
    
    
    (2
    )Minority interest
    
    
    43
    
    
    
    41
    
    
    
    76
    
    
    
    72Income before income taxes
    
    $
    342
    
    
    $
    327
    
    
    $
    651
    
    
    $
    622
 September
    
    
    December6, 2008
    
    
    29, 2007Total AssetsU.S. & Canada
    
    $
    9,800
    
    
    $
    9,737Europe
    
    
    2,776
    
    
    
    1,671Mexico
    
    
    1,817
    
    
    
    1,707Worldwide total assets
    
    $
    14,393
    
    
    $
    13,115
 14




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Note 13Comprehensive Income
 12 Weeks Ended
    
    
    36 Weeks EndedSeptember
    
    
    September
    
    
    September
    
    
    September6, 2008
    
    
    8, 2007
    
    
    6, 2008
    
    
    8, 2007Net income
    
    $
    231
    
    
    $
    260
    
    
    $
    433
    
    
    $
    451Net currency translation adjustment
    
    
    (46
    )
    
    
    (10
    )
    
    
    (27
    )
    
    
    84Cash flow hedge adjustment (a) (b)
    
    
    (23
    )
    
    
    (2
    )
    
    
    (15
    )
    
    
    (3
    )Amortization of prior service cost and net
loss in net periodic pension /
postretirement cost to expense
(c) (d)
    
    
    4
    
    
    
    6
    
    
    
    11
    
    
    
    19Pension liability adjustment (e)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Comprehensive income
    
    $
    166
    
    
    $
    254
    
    
    $
    402
    
    
    $
    556
 
 (a)
    
    Net of minority interest and taxes of $(18) million and $(1) million for the 12
weeks ended September 6, 2008 and September 8, 2007, respectively.(b)
    
    Net of minority interest and taxes of $(13) million and $(1) million for the 36
weeks ended September 6, 2008 and September 8, 2007, respectively.(c)
    
    Net of minority interest and taxes of $2 million and $5 million for the 12 weeks
ended September 6, 2008 and September 8, 2007, respectively.(d)
    
    Net of minority interest and taxes of $8 million and $15 million for the 36 weeks
ended September 6, 2008 and September 8, 2007, respectively.(e)
    
    Net of minority interest and taxes of $3 million for the 36 weeks ended September 8,
2007. Note 14Contingencies
  Note 15Supplemental Cash Flow Information
  36 Weeks EndedSeptember
    
    September6, 2008
    
    8, 2007Interest paid
    
    $
    218
    
    
    $
    233Income taxes paid
    
    
    60
    
    
    
    91Non-cash investing and financing activities:Decrease in accounts payable related to capital expenditures
    
    
    (42
    )
    
    
    (36
    )Capital lease additions
    
    
    3
    
    
    
    3Acquisition of intangible asset
    
    
    
    
    
    
    315Liabilities assumed in conjunction with acquisition of bottlers
    
    
    13
    
    
    
    1Capital-in-kind contributions (a)
    
    
    27
    
    
    
    5Share compensation
    
    
    1
    
    
    
    
 
 (a)
    
    On March 1, 2007, together with PepsiCo we formed PR Beverages Limited, our Russian
venture. In connection with the formation of this venture, PepsiCo agreed to contribute an
additional $83 million plus accrued interest to the venture in the form of property, plant and
equipment. PepsiCo has contributed $27 million in regards to this note during 2008. The
remaining balance to be contributed to the venture is $45 million as of September 6, 2008. 15




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##### Table of Contents



Item 2.
 MANAGEMENTS FINANCIAL REVIEW
  OUR BUSINESS
    OUR CRITICAL ACCOUNTING POLICIES
  
    
    Other Intangible Assets, net and Goodwill;
    
    Pension and Postretirement Medical Benefit Plans;
    
    Casualty Insurance Costs; and
    
    Income Taxes.
 Critical Accounting Policy Update  Other Intangible Assets, net and Goodwill
  16




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##### Table of Contents



OUR FINANCIAL RESULTS
 ITEMS AFFECTING COMPARABILITY OF OUR FINANCIAL RESULTS
  12 Weeks Ended
    
    36 Weeks EndedSeptember
    
    September
    
    September
    
    SeptemberIncome/(Expense)
    
    6, 2008
    
    8, 2007
    
    6, 2008
    
    8, 2007Gross profitPR Beverages
    
    $
    
    
    
    $
    
    
    
    $
    (4
    )
    
    $
    Operating incomePR Beverages
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    Restructuring and Full
Service Vending
Rationalization Charges
    
    
    
    
    
    
    (20
    )
    
    
    (5
    )
    
    
    (20
    )Net incomeRestructuring and Full
Service Vending
Rationalization Charges
    
    
    
    
    
    
    (15
    )
    
    
    (3
    )
    
    
    (15
    )Tax Audit Settlement
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    46Diluted earnings per shareRestructuring and Full
Service Vending
Rationalization Charges
    
    $
    
    
    
    $
    (0.06
    )
    
    $
    (0.01
    )
    
    $
    (0.06
    )Tax Audit Settlement
    
    $
    
    
    
    $
    0.20
    
    
    $
    
    
    
    $
    0.20
 PR Beverages Limited (PR Beverages)
   Restructuring Charges
  17




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##### Table of Contents



Full Service Vending Rationalization
  Tax Audit Settlement
  FINANCIAL PERFORMANCE SUMMARY AND WORLDWIDE FINANCIAL HIGHLIGHTS
 12 Weeks Ended
    
    36 Weeks EndedSeptember
    
    September
    
    %
    
    September
    
    September
    
    %6, 2008
    
    8, 2007
    
    Change
    
    6, 2008
    
    8, 2007
    
    ChangeNet revenues
    
    $
    3,814
    
    
    $
    3,729
    
    
    
    2
    %
    
    $
    9,987
    
    
    $
    9,555
    
    
    
    5
    %Cost of sales
    
    
    2,077
    
    
    
    2,003
    
    
    
    4
    
    
    
    5,475
    
    
    
    5,171
    
    
    
    6Gross profit
    
    
    1,737
    
    
    
    1,726
    
    
    
    1
    
    
    
    4,512
    
    
    
    4,384
    
    
    
    3Selling, delivery
and administrative
expenses
    
    
    1,282
    
    
    
    1,293
    
    
    
    (1
    )
    
    
    3,599
    
    
    
    3,493
    
    
    
    3Operating income
    
    
    455
    
    
    
    433
    
    
    
    5
    
    
    
    913
    
    
    
    891
    
    
    
    2Net income
    
    
    231
    
    
    
    260
    
    
    
    (12
    )
    
    
    433
    
    
    
    451
    
    
    
    (4
    )Diluted earnings
per share
(1)
    
    $
    1.06
    
    
    $
    1.12
    
    
    
    (5
    %)
    
    $
    1.94
    
    
    $
    1.94
    
    
    
    0
    %
 
 (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 6, 2008
 The impact of foreign currency translation, driven by the strength of all our foreign
functional currencies, contributed approximately three-percentage points of growth in worldwide net
revenues, cost of sales, gross profit, selling, delivery and administrative expenses and operating
income.
 Net revenues 
 Cost of sales 
 Gross profit 
 18




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##### Table of Contents



Selling, delivery and administrative (SD&A) expenses 
 Operating income 
 Net
income 
 2008 RESULTS OF OPERATIONS
 Tables and discussion are presented as compared to the similar periods in the prior year.
Growth rates are rounded to the nearest whole percentage.
 Volume
 12 Weeks Ended
    
    36 Weeks EndedSeptember 6, 2008 vs. September 8, 2007
    
    September 6, 2008 vs. September 8, 2007U.S. &
    
    
    
    
    
    
    
    
    
    
    
    U.S. &Worldwide
    
    Canada
    
    Europe
    
    Mexico
    

Worldwide
    
    Canada
    
    Europe
    
    MexicoTotal volume change
    
    
    (6
    )%
    
    
    (6
    )%
    
    
    (6
    )%
    
    
    (9
    )%
    
    
    (3
    )%
    
    
    (3
    )%
    
    
    (1
    )%
    
    
    (4
    )%
     19




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##### Table of Contents



Net Revenues
 12 Weeks Ended
    
    36 Weeks EndedSeptember 6, 2008 vs. September 8, 2007
    
    September 6, 2008 vs. September 8, 2007Worldwide
    
    U.S. & Canada
    
    Europe
    
    Mexico
    
    Worldwide
    
    U.S. & Canada
    
    Europe
    
    MexicoVolume impact
    
    
    (6
    )%
    
    
    (6
    )%
    
    
    (6
    )%
    
    
    (9
    )%
    
    
    (3
    )%
    
    
    (3
    )%
    
    
    (1
    )%
    
    
    (4
    )%Net price per case
impact (rate/mix)
    
    
    6
    
    
    
    5
    
    
    
    8
    
    
    
    5
    
    
    
    5
    
    
    
    3
    
    
    
    10
    
    
    
    6Currency translation
    
    
    3
    
    
    
    0
    
    
    
    10
    
    
    
    6
    
    
    
    3
    
    
    
    1
    
    
    
    12
    
    
    
    4Total net revenues
change
    
    
    2
    %*
    
    
    0
    %*
    
    
    13
    %*
    
    
    3
    %*
    
    
    5
    %
    
    
    1
    %
    
    
    20
    %*
    
    
    6
    %
 
 *
    
    Does not add due to rounding to the whole percent.      20




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##### Table of Contents



Cost of Sales
 12 Weeks Ended
    
    36 Weeks EndedSeptember 6, 2008 vs.
    
    September 6, 2008 vs.September 8, 2007
    
    September 8, 2007Worldwide
    
    WorldwideVolume impact
    
    
    (6
    )%
    
    
    (3
    )%Cost per case impact
    
    
    7
    
    
    
    6Currency translation
    
    
    3
    
    
    
    3Total cost of sales change
    
    
    4
    %
    
    
    6
    %
  Selling, Delivery and Administrative Expenses
 12 Weeks Ended
    
    36 Weeks EndedSeptember 6, 2008 vs.
    
    September 6, 2008 vs.September 8, 2007
    
    September 8, 2007Worldwide
    
    WorldwideCost impact
    
    
    (2
    )%
    
    
    0
    %Restructuring and
Full Service Vending
Rationalization
charges
    
    
    (2
    )
    
    
    0Currency translation
    
    
    3
    
    
    
    3Total SD&A change
    
    
    (1
    )%
    
    
    3
    %
   Operating Income
  21




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##### Table of Contents



Interest Expense, net
  Other Non-operating Expenses (Income), net
  Minority Interest
  Income Tax Expense
  22




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##### Table of Contents



LIQUIDITY AND FINANCIAL CONDITION
 Cash Flows
 36 Weeks Ended September 6, 2008 vs. September 8, 2007
    Liquidity and Capital Resources
       23




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##### Table of Contents



Contractual Obligations
  CAUTIONARY STATEMENTS
   24




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##### Table of Contents



Item 3.
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4.
 CONTROLS AND PROCEDURES
   25




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Our business requires a significant supply of raw materials and energy, the limited availability or
increased costs of which could adversely affect our business and financial results.
    26




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##### Table of Contents



Item 2.
 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 PBG PURCHASES OF EQUITY SECURITIES
  Total Number of
    
    Maximum Number ofShares Purchased as
    
    Shares that May YetTotal Number
    
    
    
    
    
    Part of Publicly
    
    Be Purchased Underof Shares
    
    Average Price Paid
    
    Announced Plans or
    
    the Plans orPeriod
    
    Purchased 1
    
    per Share 2
    
    Programs 3
    
    Programs 3Period 7
06/15/0807/12/08
    
    
    1,000,000
    
    
    $
    30.88
    
    
    
    1,000,000
    
    
    
    31,085,400Period 8
07/13/0808/09/08
    
    
    2,425,000
    
    
    $
    27.70
    
    
    
    2,425,000
    
    
    
    28,660,400Period 9
08/10/0809/06/08
    
    
    120,000
    
    
    $
    28.79
    
    
    
    120,000
    
    
    
    28,540,400Total
    
    
    3,545,000
    
    
    $
    28.63
    
    
    
    3,545,000
 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:
 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
    
    
    25,000,000December 15, 2006
    
    
    25,000,000March 27, 2008
    
    
    25,000,000Total shares authorized to be repurchased as of September 6, 2008
    
    
    175,000,000
  27




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##### Table of Contents



Item 6.
 EXHIBITS
 EXHIBIT NO.
    
    DESCRIPTION OF EXHIBIT31.1
    
    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 6, 2008, 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
 28




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##### Table of Contents



SIGNATURES
  THE PEPSI BOTTLING GROUP, INC.
(Registrant)Date: October 14, 2008
    /s/ Thomas M. LardieriThomas M. LardieriVice President and ControllerDate: October 14, 2008
    /s/ Alfred H. DrewesAlfred H. DrewesSenior Vice President and Chief Financial Officer