##### 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 June 14, 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 24 weeks ended June 14, 2008 and June 16, 2007
    
    
    2Condensed Consolidated Statements of Cash Flows  24 weeks ended June 14, 2008 and June 16, 2007
    
    
    3Condensed Consolidated Balance Sheets  June 14, 2008 and December 29, 2007
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5-14Item 2.
    
    
    
    Managements Financial Review
    
    
    15-22Item 3.
    
    
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4.
    
    
    
    Controls and Procedures
    
    
    23Part II
    
    
    
    Other InformationItem 1.
    
    
    
    Legal Proceedings
    
    
    24Item 1A.
    
    
    
    Risk Factors
    
    
    24Item 2.
    
    
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 4.
    
    
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 6.
    
    
    
    Exhibits
    
    
    26EX-3.1: AMENDED AND RESTATED CERTIFICATE OF INCORPORATIONEX-10.3: DISTRIBUTION AGREEMENTEX-10.4: AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENTEX-10.5: AMENDMENT NO. 1 TO AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENTEX-18: LETTER REGARDING CHANGE IN ACCOUNTING PRINCIPLESEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATIONEX-99.1: BOTTLING GROUP, LLC FORM 10-Q FOR PERIOD ENDED JUNE 14, 2008




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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
    
    
    24 Weeks EndedJune
    
    
    June
    
    
    June
    
    
    June14, 2008
    
    
    16, 2007
    
    
    14, 2008
    
    
    16, 2007Net revenues
    
    $
    3,522
    
    
    $
    3,360
    
    
    $
    6,173
    
    
    $
    5,826Cost of sales
    
    
    1,916
    
    
    
    1,825
    
    
    
    3,398
    
    
    
    3,168Gross profit
    
    
    1,606
    
    
    
    1,535
    
    
    
    2,775
    
    
    
    2,658Selling, delivery and administrative expenses
    
    
    1,256
    
    
    
    1,197
    
    
    
    2,317
    
    
    
    2,200Operating income
    
    
    350
    
    
    
    338
    
    
    
    458
    
    
    
    458Interest expense, net
    
    
    63
    
    
    
    68
    
    
    
    122
    
    
    
    134Other non-operating income, net
    
    
    (3
    )
    
    
    (3
    )
    
    
    (6
    )
    
    
    (2
    )Minority interest
    
    
    30
    
    
    
    23
    
    
    
    33
    
    
    
    31Income before income taxes
    
    
    260
    
    
    
    250
    
    
    
    309
    
    
    
    295Income tax expense
    
    
    86
    
    
    
    88
    
    
    
    107
    
    
    
    104Net income
    
    $
    174
    
    
    $
    162
    
    
    $
    202
    
    
    $
    191Basic earnings per share
    
    $
    0.80
    
    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    0.84Weighted-average shares outstanding
    
    
    218
    
    
    
    227
    
    
    
    220
    
    
    
    227Diluted earnings per share
    
    $
    0.78
    
    
    $
    0.70
    
    
    $
    0.89
    
    
    $
    0.82Weighted-average shares outstanding
    
    
    224
    
    
    
    233
    
    
    
    227
    
    
    
    233Dividends declared per common share
    
    $
    0.17
    
    
    $
    0.14
    
    
    $
    0.31
    
    
    $
    0.25
  2




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##### Table of Contents



The Pepsi Bottling Group, Inc.
Condensed Consolidated Statements of Cash Flows
 24 Weeks EndedJune
    
    
    June14, 2008
    
    
    16, 2007Cash Flows  OperationsNet income
    
    $
    202
    
    
    $
    191Adjustments to reconcile net income to net cash provided by operations:Depreciation and amortization
    
    
    306
    
    
    
    300Deferred income taxes
    
    
    14
    
    
    
    (24
    )Share-based compensation
    
    
    28
    
    
    
    30Net other non-cash charges and credits
    
    
    155
    
    
    
    150Changes in operating working capital, excluding
effects of acquisitions:Accounts receivable, net
    
    
    (410
    )
    
    
    (435
    )Inventories
    
    
    (191
    )
    
    
    (193
    )Prepaid expenses and other current assets
    
    
    (37
    )
    
    
    (26
    )Accounts payable and other current liabilities
    
    
    82
    
    
    
    201Income taxes payable
    
    
    54
    
    
    
    28Net change in operating working capital
    
    
    (502
    )
    
    
    (425
    )Casualty insurance payments
    
    
    (35
    )
    
    
    (32
    )Other, net
    
    
    (79
    )
    
    
    (32
    )Net Cash Provided by Operations
    
    
    89
    
    
    
    158Cash Flows  InvestmentsCapital expenditures
    
    
    (398
    )
    
    
    (374
    )Acquisitions, net of cash acquired
    
    
    (44
    )
    
    
    (49
    )Proceeds from sale of property, plant and equipment
    
    
    10
    
    
    
    6Other investing activities, net
    
    
    4
    
    
    
    6Net Cash Used for Investments
    
    
    (428
    )
    
    
    (411
    )Cash Flows  FinancingShort-term borrowings, net
    
    
    626
    
    
    
    321Payments of long-term debt
    
    
    (6
    )
    
    
    (10
    )Dividends paid
    
    
    (62
    )
    
    
    (51
    )Excess tax benefit from the exercise of equity awards
    
    
    2
    
    
    
    3Proceeds from exercise of stock options
    
    
    32
    
    
    
    57Share repurchases
    
    
    (388
    )
    
    
    (201
    )Other financing activities
    
    
    8
    
    
    
    Net Cash Provided by Financing
    
    
    212
    
    
    
    119Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    (3
    )
    
    
    4Net Decrease in Cash and Cash Equivalents
    
    
    (130
    )
    
    
    (130
    )Cash and Cash Equivalents  Beginning of Period
    
    
    647
    
    
    
    629Cash and Cash Equivalents  End of Period
    
    $
    517
    
    
    $
    499
  3




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##### Table of Contents



The Pepsi Bottling Group, Inc.
Condensed Consolidated Balance Sheets
 (Unaudited)June
    
    
    December14, 2008
    
    
    29, 2007ASSETSCurrent AssetsCash and cash equivalents
    
    $
    517
    
    
    $
    647Accounts receivable, net
    
    
    1,956
    
    
    
    1,520Inventories
    
    
    773
    
    
    
    577Prepaid expenses and other current assets
    
    
    395
    
    
    
    342Total Current Assets
    
    
    3,641
    
    
    
    3,086Property, plant and equipment, net
    
    
    4,181
    
    
    
    4,080Other intangible assets, net
    
    
    4,226
    
    
    
    4,181Goodwill
    
    
    1,536
    
    
    
    1,533Other assets
    
    
    234
    
    
    
    235Total Assets
    
    $
    13,818
    
    
    $
    13,115LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable and other current liabilities
    
    $
    2,078
    
    
    $
    1,968Short-term borrowings
    
    
    864
    
    
    
    240Current maturities of long-term debt
    
    
    1,305
    
    
    
    7Total Current Liabilities
    
    
    4,247
    
    
    
    2,215Long-term debt
    
    
    3,476
    
    
    
    4,770Other liabilities
    
    
    1,216
    
    
    
    1,186Deferred income taxes
    
    
    1,364
    
    
    
    1,356Minority interest
    
    
    1,052
    
    
    
    973Total Liabilities
    
    
    11,355
    
    
    
    10,500Shareholders EquityCommon stock, par value $0.01 per share: authorized 900 shares, issued 310 shares
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    1,830
    
    
    
    1,805Retained earnings
    
    
    3,243
    
    
    
    3,124Accumulated other comprehensive income (loss)
    
    
    6
    
    
    
    (48
    )Treasury stock: 96 shares and 86 shares at June 14, 2008 and December 29, 2007,
respectively, at cost
    
    
    (2,619
    )
    
    
    (2,269
    )Total Shareholders Equity
    
    
    2,463
    
    
    
    2,615Total Liabilities and Shareholders Equity
    
    $
    13,818
    
    
    $
    13,115
  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
    
    September, October, November and December
   5




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##### Table of Contents



Note 2Seasonality of Business
  Note 3New Accounting Standards
 SFAS No. 157
   SFAS No. 158
  SFAS No. 141(R)
  SFAS No. 160
  6




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##### Table of Contents



SFAS No. 161
  EITF Issue No. 07-1
  Note 4Earnings per Share
  12 Weeks Ended
    
    
    24 Weeks EndedJune
    
    
    June
    
    
    June
    
    
    JuneShares in millions
    
    14, 2008
    
    
    16, 2007
    
    
    14, 2008
    
    
    16, 2007Net income
    
    $
    174
    
    
    $
    162
    
    
    $
    202
    
    
    $
    191Weighted-average shares
outstanding during period
on which basic earnings
per share is calculated
    
    
    218
    
    
    
    227
    
    
    
    220
    
    
    
    227Effect of dilutive shares:Incremental shares
under stock
compensation plans
    
    
    6
    
    
    
    6
    
    
    
    7
    
    
    
    6Weighted-average shares
outstanding during period
on which diluted earnings
per share is calculated
    
    
    224
    
    
    
    233
    
    
    
    227
    
    
    
    233Basic earnings per share
    
    $
    0.80
    
    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    0.84Diluted earnings per share
    
    $
    0.78
    
    
    $
    0.70
    
    
    $
    0.89
    
    
    $
    0.82
  
    
    For the 12 weeks ended June 14, 2008 and June 16, 2007, options to purchase 3.5 million shares and 0.2 million shares, respectively.
 
    
    For the 24 weeks ended June 14, 2008 and June 16, 2007, options to purchase 3.2 million shares and 0.2 million shares, respectively.
 7




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##### Table of Contents



Note 5Share-Based Compensation
  12 Weeks Ended
    
    
    24 Weeks EndedJune
    
    
    June
    
    
    June
    
    
    June14, 2008
    
    
    16, 2007
    
    
    14, 2008
    
    
    16, 2007Total share-based compensation expense
    
    $
    16
    
    
    $
    16
    
    
    $
    28
    
    
    $
    30Income tax benefit
    
    
    (4
    )
    
    
    (4
    )
    
    
    (8
    )
    
    
    (8
    )Minority interest
    
    
    (2
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (2
    )Net income impact
    
    $
    10
    
    
    $
    11
    
    
    $
    18
    
    
    $
    20
    Note 6Balance Sheet Details
 June
    
    
    December14, 2008
    
    
    29, 2007Accounts Receivable, netTrade accounts receivable
    
    $
    1,740
    
    
    $
    1,319Allowance for doubtful accounts
    
    
    (65
    )
    
    
    (54
    )Accounts receivable from PepsiCo
    
    
    198
    
    
    
    188Other receivables
    
    
    83
    
    
    
    67$
    1,956
    
    
    $
    1,520InventoriesRaw materials and supplies
    
    $
    253
    
    
    $
    195Finished goods
    
    
    520
    
    
    
    382$
    773
    
    
    $
    577Property, Plant and Equipment, netLand
    
    $
    330
    
    
    $
    320Buildings and improvements
    
    
    1,571
    
    
    
    1,484Manufacturing and distribution equipment
    
    
    4,184
    
    
    
    4,091Marketing equipment
    
    
    2,434
    
    
    
    2,389Capital leases
    
    
    37
    
    
    
    36Other
    
    
    156
    
    
    
    1648,712
    
    
    
    8,484Accumulated depreciation
    
    
    (4,531
    )
    
    
    (4,404
    )$
    4,181
    
    
    $
    4,080
 8




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##### Table of Contents



Industrial Revenue Bonds
  June
    
    
    December14, 2008
    
    
    29, 2007Accounts Payable and Other Current LiabilitiesAccounts payable
    
    $
    668
    
    
    $
    615Accounts payable to PepsiCo
    
    
    369
    
    
    
    255Trade incentives
    
    
    187
    
    
    
    235Accrued compensation and benefits
    
    
    223
    
    
    
    276Other accrued taxes
    
    
    135
    
    
    
    140Accrued interest
    
    
    65
    
    
    
    70Other current liabilities
    
    
    431
    
    
    
    377$
    2,078
    
    
    $
    1,968
 Note 7Other Intangible Assets, net and Goodwill
 Other intangible assets, net
 June
    
    
    December14, 2008
    
    
    29, 2007Intangibles subject to amortization:Gross carrying amount:Customer relationships and lists
    
    $
    57
    
    
    $
    54Franchise and distribution rights
    
    
    46
    
    
    
    46Other identified intangibles
    
    
    34
    
    
    
    30137
    
    
    
    130Accumulated amortization:Customer relationships and lists
    
    
    (17
    )
    
    
    (15
    )Franchise and distribution rights
    
    
    (32
    )
    
    
    (31
    )Other identified intangibles
    
    
    (19
    )
    
    
    (17
    )(68
    )
    
    
    (63
    )Intangibles subject to amortization, net
    
    
    69
    
    
    
    67Intangibles not subject to amortization:Carrying amount:Franchise rights
    
    
    3,241
    
    
    
    3,235Licensing rights
    
    
    315
    
    
    
    315Distribution rights
    
    
    316
    
    
    
    294Trademarks
    
    
    225
    
    
    
    213Other identified intangibles
    
    
    60
    
    
    
    57Intangibles not subject to amortization
    
    
    4,157
    
    
    
    4,114Total other intangible assets, net
    
    $
    4,226
    
    
    $
    4,181
 9




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##### Table of Contents



Intangible asset amortization
  Goodwill
  U.S. &Canada
    
    
    Europe
    
    
    Mexico
    
    
    TotalBalance at December 29, 2007
    
    $
    1,290
    
    
    $
    17
    
    
    $
    226
    
    
    $
    1,533Purchase price allocations relating
to acquisitions
    
    
    
    
    
    
    9
    
    
    
    (1
    )
    
    
    8Impact of foreign currency translation
    
    
    (18
    )
    
    
    0
    
    
    
    13
    
    
    
    (5
    )Balance at June 14, 2008
    
    $
    1,272
    
    
    $
    26
    
    
    $
    238
    
    
    $
    1,536
  Accounting change
  Note 8Fair Value Measurements
  Level 1
 10




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Level 2 
 Level 3
  Level 2Financial Assets:Cash flow hedges (a)
    
    $
    19Prepaid forward contract (b)
    
    
    15Total
    
    $
    34Financial Liabilities:Unfunded deferred compensation liability (c)
    
    $
    71Foreign currency hedges (d)
    
    
    4Total
    
    $
    75
 
 (a)
    
    The fair value of our cash flow hedges is primarily based on the forward curves of
the specific indices upon which settlement is based.(b)
    
    The fair value of our forward contract is primarily based on the current value of
our stock price.(c)
    
    The fair value of our unfunded deferred compensation liability is primarily based on
the market indices corresponding to employees investment selections for their deferred
compensation accounts.(d)
    
    The fair value of our forward exchange contracts is primarily based on observable
forward foreign exchange rates. Note 9 Pension and Postretirement Medical Benefit Plans
  Components of net pension expense
 12 Weeks Ended
    
    
    24 Weeks EndedJune
    
    
    June
    
    
    June
    
    
    June14, 2008
    
    
    16, 2007
    
    
    14, 2008
    
    
    16, 2007Service cost
    
    $
    11
    
    
    $
    12
    
    
    $
    23
    
    
    $
    25Interest cost
    
    
    23
    
    
    
    21
    
    
    
    46
    
    
    
    42Expected return on plan assets  (income)
    
    
    (26
    )
    
    
    (23
    )
    
    
    (53
    )
    
    
    (47
    )Amortization of net loss
    
    
    4
    
    
    
    9
    
    
    
    7
    
    
    
    18Amortization of prior service costs
    
    
    2
    
    
    
    2
    
    
    
    4
    
    
    
    3Net pension expense for the defined
benefit plans
    
    $
    14
    
    
    $
    21
    
    
    $
    27
    
    
    $
    41
  11




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##### Table of Contents



Components of postretirement medical expense
 12 Weeks Ended
    
    
    24 Weeks EndedJune
    
    
    June
    
    
    June
    
    
    June14, 2008
    
    
    16, 2007
    
    
    14, 2008
    
    
    16, 2007Service cost
    
    $
    1
    
    
    $
    1
    
    
    $
    2
    
    
    $
    2Interest cost
    
    
    5
    
    
    
    4
    
    
    
    10
    
    
    
    9Amortization of net loss
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    2Total postretirement medical expense
    
    $
    7
    
    
    $
    6
    
    
    $
    14
    
    
    $
    13
 Defined contribution expense
  Note 10Income Taxes
  Note 11Segment Information
   12




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##### Table of Contents



12 Weeks Ended
    
    
    24 Weeks EndedJune
    
    
    June
    
    
    June
    
    
    June14, 2008
    
    
    16, 2007
    
    
    14, 2008
    
    
    16, 2007Net RevenuesU.S. & Canada
    
    $
    2,536
    
    
    $
    2,527
    
    
    $
    4,743
    
    
    $
    4,629Europe
    
    
    592
    
    
    
    468
    
    
    
    828
    
    
    
    644Mexico
    
    
    394
    
    
    
    365
    
    
    
    602
    
    
    
    553Worldwide net revenues
    
    $
    3,522
    
    
    $
    3,360
    
    
    $
    6,173
    
    
    $
    5,826Operating Income (Loss)U.S. & Canada
    
    $
    276
    
    
    $
    302
    
    
    $
    412
    
    
    $
    445Europe
    
    
    45
    
    
    
    14
    
    
    
    14
    
    
    
    (11
    )Mexico
    
    
    29
    
    
    
    22
    
    
    
    32
    
    
    
    24Worldwide operating income
    
    
    350
    
    
    
    338
    
    
    
    458
    
    
    
    458Interest expense, net
    
    
    63
    
    
    
    68
    
    
    
    122
    
    
    
    134Other non-operating income, net
    
    
    (3
    )
    
    
    (3
    )
    
    
    (6
    )
    
    
    (2
    )Minority interest
    
    
    30
    
    
    
    23
    
    
    
    33
    
    
    
    31Income before income taxes
    
    $
    260
    
    
    $
    250
    
    
    $
    309
    
    
    $
    295
 June
    
    
    December14, 2008
    
    
    29, 2007Total AssetsU.S. & Canada
    
    $
    9,935
    
    
    $
    9,737Europe
    
    
    2,094
    
    
    
    1,671Mexico
    
    
    1,789
    
    
    
    1,707Worldwide total assets
    
    $
    13,818
    
    
    $
    13,115
 Note 12Comprehensive Income
 12 Weeks Ended
    
    
    24 Weeks EndedJune
    
    
    June
    
    
    June
    
    
    June14, 2008
    
    
    16, 2007
    
    
    14, 2008
    
    
    16, 2007Net income
    
    $
    174
    
    
    $
    162
    
    
    $
    202
    
    
    $
    191Net currency translation adjustment
    
    
    40
    
    
    
    125
    
    
    
    19
    
    
    
    93Cash flow hedge adjustment (a) (b)
    
    
    4
    
    
    
    (2
    )
    
    
    8
    
    
    
    (1
    )Amortization of prior service cost and net
loss in net periodic pension /
postretirement cost to expense (c)
(d)
    
    
    3
    
    
    
    7
    
    
    
    7
    
    
    
    13Pension liability adjustment (e)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Comprehensive income
    
    $
    221
    
    
    $
    292
    
    
    $
    236
    
    
    $
    301
 
 (a)
    
    Net of minority interest and taxes of $3 million and $0 million for the 12 weeks
ended June 14, 2008 and June 16, 2007, respectively.(b)
    
    Net of minority interest and taxes of $5 million and $0 million for the 24 weeks
ended June 14, 2008 and June 16, 2007, respectively.(c)
    
    Net of minority interest and taxes of $3 million and $5 million for the 12 weeks
ended June 14, 2008 and June 16, 2007, respectively.(d)
    
    Net of minority interest and taxes of $5 million and $10 million for the 24 weeks
ended June 14, 2008 and June 16, 2007, respectively.(e)
    
    Net of minority interest and taxes of $3 million for the 24 weeks ended June 16,
2007. 13




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##### Table of Contents



Note 13Full Service Vending Rationalization and Restructuring Charges
 Full Service Vending Rationalization
   Restructuring Charges
  Note 14Contingencies
  Note 15Supplemental Cash Flow Information
  24 Weeks EndedJune
    
    June14, 2008
    
    16, 2007Interest paid
    
    $
    137
    
    
    $
    153Income taxes paid
    
    
    37
    
    
    
    96Non-cash investing and financing activities:Decrease in accounts payable related to capital expenditures
    
    
    (44
    )
    
    
    (32
    )Capital lease additions
    
    
    2
    
    
    
    2Acquisition of intangible asset
    
    
    
    
    
    
    315Liabilities assumed in conjunction with acquisition of bottlers
    
    
    13
    
    
    
    Capital-in-kind contributions(a)
    
    
    24
    
    
    
    
 
 (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. During
the first half of 2008, PepsiCo contributed $24 million in regards to this note. The remaining
balance to be contributed to the venture is $48 million as of June 14, 2008. 14




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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
  15




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##### Table of Contents



OUR FINANCIAL RESULTS
 ITEMS AFFECTING COMPARABILITY OF OUR FINANCIAL RESULTS
  12 Weeks
    
    24 WeeksEnded June
    
    Ended JuneIncome/(Expense)
    
    14, 2008
    
    14, 2008Gross ProfitPR Beverages
    
    $
    
    
    
    $
    (4
    )Operating incomePR Beverages
    
    
    
    
    
    
    (4
    )Restructuring and Full Service Vending Rationalization Charges
    
    
    (2
    )
    
    
    (5
    )Net incomeRestructuring and Full Service Vending Rationalization Charges
    
    
    (1
    )
    
    
    (3
    )Diluted earnings per shareRestructuring and Full Service Vending Rationalization Charges
    
    $
    (0.01
    )
    
    $
    (0.01
    )
 2008 Items
 PR Beverages Limited (PR Beverages)
   Restructuring Charges
   Full Service Vending Rationalization
  16




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##### Table of Contents



FINANCIAL PERFORMANCE SUMMARY AND WORLDWIDE FINANCIAL HIGHLIGHTS
 12 Weeks Ended
    
    24 Weeks EndedJune
    
    June
    
    %
    
    June
    
    June
    
    %14, 2008
    
    16, 2007
    
    Change
    
    14, 2008
    
    16, 2007
    
    ChangeNet revenues
    
    $
    3,522
    
    
    $
    3,360
    
    
    
    5
    %
    
    $
    6,173
    
    
    $
    5,826
    
    
    
    6
    %Cost of sales
    
    
    1,916
    
    
    
    1,825
    
    
    
    5
    
    
    
    3,398
    
    
    
    3,168
    
    
    
    7Gross profit
    
    
    1,606
    
    
    
    1,535
    
    
    
    5
    
    
    
    2,775
    
    
    
    2,658
    
    
    
    4Selling, delivery, and administrative
expenses
    
    
    1,256
    
    
    
    1,197
    
    
    
    5
    
    
    
    2,317
    
    
    
    2,200
    
    
    
    5Operating income
    
    
    350
    
    
    
    338
    
    
    
    4
    
    
    
    458
    
    
    
    458
    
    
    
    0Net income
    
    
    174
    
    
    
    162
    
    
    
    8
    
    
    
    202
    
    
    
    191
    
    
    
    6Diluted earnings per share (1)
    
    $
    0.78
    
    
    $
    0.70
    
    
    
    12
    %
    
    $
    0.89
    
    
    $
    0.82
    
    
    
    9
    %
 
 (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 June 14, 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 and selling, delivery and administrative expenses and
contributed two-percentage points to worldwide operating income.
 Net revenues 
 Cost of sales 
 Gross profit 
 Selling, delivery and administrative (SD&A) expenses 
 Operating income 
 17




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##### Table of Contents



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
    
    24 Weeks EndedJune 14, 2008 vs. June 16, 2007
    
    June 14, 2008 vs. June 16, 2007World
    
    U.S. &
    
    
    
    
    
    
    
    
    
    World
    
    U.S. &wide
    
    Canada
    
    Europe
    
    Mexico
    
    wide
    
    Canada
    
    Europe
    
    MexicoTotal volume change
    
    
    (3
    )%
    
    
    (4
    )%
    
    
    1
    %
    
    
    (3
    )%
    
    
    (1
    )%
    
    
    (2
    )%
    
    
    3
    %
    
    
    (1
    )%
     18




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##### Table of Contents



Net Revenues
 12 Weeks Ended
    
    24 Weeks EndedJune 14, 2008 vs. June 16, 2007
    
    June 14, 2008 vs. June 16, 2007World
    
    U.S. &
    
    
    
    
    
    
    
    
    
    World
    
    U.S. &wide
    
    Canada
    
    Europe
    
    Mexico
    
    wide
    
    Canada
    
    Europe
    
    MexicoVolume impact
    
    
    (3
    )%
    
    
    (4
    )%
    
    
    1
    %
    
    
    (3
    )%
    
    
    (1
    )%
    
    
    (2
    )%
    
    
    3
    %
    
    
    (1
    )%Net price per case
impact (rate/mix)
    
    
    5
    
    
    
    4
    
    
    
    12
    
    
    
    7
    
    
    
    4
    
    
    
    3
    
    
    
    12
    
    
    
    7Currency translation
    
    
    3
    
    
    
    1
    
    
    
    13
    
    
    
    4
    
    
    
    3
    
    
    
    1
    
    
    
    13
    
    
    
    3Total net revenues
change
    
    
    5
    %
    
    
    0
    %*
    
    
    27
    %*
    
    
    8
    %
    
    
    6
    %
    
    
    2
    %
    
    
    29
    %*
    
    
    9
    %
 
 *
    
    Does not add due to rounding to the whole percent.      Cost of Sales
 12 Weeks Ended
    
    24 Weeks EndedJune 14, 2008 vs.
    
    June 14, 2008 vs.June 16, 2007
    
    June 16, 2007Worldwide
    
    WorldwideVolume impact
    
    
    (3
    )%
    
    
    (1
    )%Cost per case impact
    
    
    5
    
    
    
    5Currency translation
    
    
    3
    
    
    
    3Total cost of sales change
    
    
    5
    %
    
    
    7
    %
  19




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##### Table of Contents



Selling, Delivery and Administrative Expenses
 12 Weeks Ended June
    
    24 Weeks Ended June14, 2008 vs. June 16,
    
    14, 2008 vs. June 16,2007
    
    2007Worldwide
    
    WorldwideCost impact
    
    
    1
    %
    
    
    2
    %Restructuring and
Full Service Vending
Rationalization
charges
    
    
    0
    
    
    
    0Currency translation
    
    
    3
    
    
    
    3Total SD&A change
    
    
    5
    %*
    
    
    5
    %
 
 *
    
    Does not add due to rounding to the whole percent.  Operating Income
     Interest Expense, net
  20




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##### Table of Contents



Other Non-operating Income, net
  Minority Interest
  Income Tax Expense
  LIQUIDITY AND FINANCIAL CONDITION
 Cash Flows
 24 Weeks Ended June 14, 2008 vs. June 16, 2007
    Liquidity and Capital Resources
      21




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##### Table of Contents



Contractual Obligations
  CAUTIONARY STATEMENTS
   22




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##### Table of Contents



Item 3.
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4.
 CONTROLS AND PROCEDURES
   23




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 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 4
03/23/0804/19/08
    
    
    1,325,000
    
    
    $
    33.92
    
    
    
    1,325,000
    
    
    
    37,083,600Period 5
04/20/0805/17/08
    
    
    1,512,000
    
    
    $
    33.24
    
    
    
    1,512,000
    
    
    
    35,571,600Period 6
05/18/0806/14/08
    
    
    3,486,200
    
    
    $
    32.37
    
    
    
    3,486,200
    
    
    
    32,085,400Total
    
    
    6,323,200
    
    
    $
    32.90
    
    
    
    6,323,200
 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 June 14, 2008
    
    
    175,000,000
  24




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##### Table of Contents



Item 4.
 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 a.
    
    The Annual Meeting of Shareholders of PBG was held on May 28, 2008.b.
    
    The names of all directors are set forth below. The proxies for the meeting were solicited
pursuant to Regulation 14A under the Securities Exchange Act of 1934. There were no
solicitations in opposition to the nominees as listed in the proxy statement and all such
nominees were elected.c.
    
    A brief description of each matter voted on and the number of votes cast are as follows:
 Number of VotesBrokerDescription of Proposals
    
    For
    
    Against
    
    Abstain
    
    Non-Votes1) Election of
Directors:Linda G. Alvarado
    
    
    223,891,633
    
    
    
    4,526,946
    
    
    
    1,078,189
    
    
    
    N/ABarry H. Beracha
    
    
    225,852,960
    
    
    
    2,561,596
    
    
    
    1,082,212
    
    
    
    N/AJohn C. Compton
    
    
    227,011,177
    
    
    
    1,482,931
    
    
    
    1,002,660
    
    
    
    N/AEric J. Foss
    
    
    227,268,540
    
    
    
    1,233,105
    
    
    
    995,123
    
    
    
    N/AIra D. Hall
    
    
    225,923,315
    
    
    
    2,562,182
    
    
    
    1,011,271
    
    
    
    N/ASusan D. Kronick
    
    
    225,340,333
    
    
    
    3,071,618
    
    
    
    1,084,817
    
    
    
    N/ABlythe J. McGarvie
    
    
    224,180,877
    
    
    
    4,231,827
    
    
    
    1,084,064
    
    
    
    N/AJohn A. Quelch
    
    
    224,124,090
    
    
    
    4,257,385
    
    
    
    1,115,293
    
    
    
    N/AJavier G. Teruel
    
    
    225,856,744
    
    
    
    2,632,028
    
    
    
    1,007,996
    
    
    
    N/ACynthia M. Trudell
    
    
    226,992,644
    
    
    
    1,496,800
    
    
    
    1,007,324
    
    
    
    N/A2) Proposal to amend
and restate the
Companys certificate
of incorporation to
adopt a plurality
standard for the
election of directors
in a contested election
and to make certain
other technical changes
    
    
    211,672,891
    
    
    
    1,835,217
    
    
    
    1,169,747
    
    
    
    14,818,9133) Proposal to approve
an amendment to the PBG
2004 Long-Term
Incentive Plan to
authorize an additional
12 million shares of
common stock to be
issued in connection
with awards and to make
certain other changes
    
    
    137,944,451
    
    
    
    75,713,930
    
    
    
    1,019,474
    
    
    
    14,818,9134) Ratification of
appointment of Deloitte
& Touche LLP as
independent auditors
    
    
    228,435,791
    
    
    
    43,934
    
    
    
    1,017,043
    
    
    
    N/A
 25




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##### Table of Contents



Item 6.
 EXHIBITS
 EXHIBIT NO.
    
    DESCRIPTION OF EXHIBIT3.1
    
    Amended and Restated Certificate of Incorporation of PBG10.1
    
    The PBG Directors Stock Plan (As Amended and Restated as of March 27,
2008), which is incorporated herein by reference to Exhibit 10.1 to PBGs
Quarterly Report on Form 10-Q for the quarter ended March 22, 200810.2
    
    PBG 2004 Long-Term Incentive Plan as amended and restated, effective May
28, 2008, which is incorporated herein by reference to Appendix B to PBGs
Proxy Statement for the 2008 Annual Meeting of Shareholders10.3
    
    Distribution Agreement between PBG and the North American Coffee Partnership10.4
    
    Amended and Restated Limited Liability Company Agreement of Bottling Group,
LLC (Bottling LLC)10.5
    
    Amendment No. 1 to Bottling LLCs Amended and Restated Limited Liability
Company Agreement18
    
    Letter regarding change in accounting principles31.1
    
    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 June 14, 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
 26




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##### Table of Contents



SIGNATURES
  THE PEPSI BOTTLING GROUP, INC.
(Registrant)Date: July 21, 2008
    /s/ Thomas M. LardieriThomas M. LardieriVice President and ControllerDate: July 21, 2008
    /s/ Alfred H. DrewesAlfred H. DrewesSenior Vice President and Chief Financial Officer