##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION Washington, D.C.
    20549
      FORM 10-K
   þ

Annual report pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934
    For the Fiscal Year Ended December 27, 2008oro

Transition report pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934 (No Fee Required)
    For the transition period from
    
    to     The Pepsi
    Bottling Group, Inc.
 (Exact name of Registrant as
    Specified in its Charter)
  Incorporated in Delaware

13-4038356(State or other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)One Pepsi Way, Somers, New York

10589(Address of Principal Executive Offices)

(Zip code)   Registrants telephone
    number, including area code:
    (914) 767-6000
    Securities registered pursuant
    to Section 12(b) of the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $.01 per share

New York Stock Exchange      þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o(Do not check if a smaller reporting company)   Rule 12b-2 o þ
    Documents of Which Portions Are Incorporated by Reference

Parts of Form 10-K into Which Portion of Documents Are
    IncorporatedProxy Statement for The Pepsi Bottling Group, Inc.
    May 27, 2009 Annual Meeting of Shareholders

III




---



##### 





Table of
    Contents    
 PART IItem 1.

Business

3Item 1A.

Risk Factors

8Item 1B.

Unresolved Staff Comments

11Item 2.

Properties

11Item 3.

Legal Proceedings

11Item 4.

Submission of Matters to a Vote of Security
    Holders

11PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

12Item 6.

Selected Financial Data

14Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations

15Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk

56Item 8.

Financial Statements and Supplementary Data

56Item 9.

Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure

56Item 9A.

Controls and Procedures

56Item 9B.

Other Information

57PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance

58Item 11.

Executive Compensation

59Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters

59Item 13.

Certain Relationships and Related Transactions,
    and Director Independence

59Item 14.

Principal Accountant Fees and Services

59PART IVItem 15.

Exhibits and Financial Statement Schedules

60SIGNATURES

61INDEX TO FINANCIAL
    STATEMENT SCHEDULES

62INDEX TO
    EXHIBITS

64EX-10.29: AMENDED AND RESTATED PBG DIRECTORS' STOCK PLANEX-10.30: AMENDED AND RESTATED PBG 2004 LONG-TERM INCENTIVE PLANEX-10.31: PBG DIRECTOR DEFERRAL PROGRAMEX-10.32: AMENDED AND RESTATED PBG PENSION EQUALIZATION PLANEX-10.33: PBG 409A EXECUTIVE INCOME DEFERRAL PROGRAMEX-10.34: AMENDED AND RESTATED PBG SUPPLEMENTAL SAVINGS PROGRAMEX-10.35: DISTRIBUTION AGREEMENTEX-12: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-21: SUBSIDIARIESEX-23.1: CONSENT OF DELOITTE & TOUCHE LLPEX-23.2: CONSENT OF DELOITTE & TOUCHE LLPEX-24: POWER OF ATTORNEYEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATIONEX-99.1: BOTTLING GROUP, LLC'S 2008 ANNUAL REPORT




---



##### Table of Contents



PART
    I    ITEM 1.
    BUSINESS  Introduction
    ready-to-drink
    Principal
    Products
  e-pura
      U.S. &
    CanadaPepsi

Sierra Mist

LiptonDiet Pepsi

Sierra Mist Free

SoBeDiet Pepsi Max

Aquafina

SoBe No FearWild Cherry Pepsi

Aquafina FlavorSplash

SoBe Life WaterPepsi Lime

G2 from Gatorade

Starbucks
    Frappuccino®Pepsi ONE

Propel

DoleMountain Dew

Crush

Muscle MilkDiet Mountain Dew

Tropicana juice drinksAMP

Mug Root BeerMountain Dew Code Red

Trademark Dr PepperEuropePepsi

Tropicana

FrukoPepsi Light

Aqua Minerale

YedigunPepsi Max

Mirinda

Tamek7UP

IVI

LiptonKAS

FiestaMexicoPepsi

Mirinda

ElectropuraPepsi Light

Manzanita Sol

e-pura7UP

Squirt

JarritosKAS

Garci CrespoBelight

Aguas Frescas     Raw
    Materials and Other Supplies




---



##### Table of Contents



PART
    I(continued)     Franchise
    and Venture Agreements
      Terms of the Master Bottling
    Agreement.
    (1)
    maintain such plant and equipment, staff, distribution
    facilities and vending equipment that are capable of
    manufacturing, packaging, and distributing the cola beverages in
    sufficient quantities to fully meet the demand for these
    beverages in our territories;(2)
    undertake adequate quality control measures prescribed by
    PepsiCo;(3)
    push vigorously the sale of the cola beverages in our
    territories;(4)
    increase and fully meet the demand for the cola beverages in our
    territories;(5)
    use all approved means and spend such funds on advertising and
    other forms of marketing beverages as may be reasonably required
    to push vigorously the sale of cola beverages in our
    territories; and(6)
    maintain such financial capacity as may be reasonably necessary
    to assure performance under the Master Bottling Agreement by us.




---



##### Table of Contents



(1)
    our insolvency, bankruptcy, dissolution, receivership or the
    like;(2)
    any disposition of any voting securities of one of our bottling
    subsidiaries or substantially all of our bottling assets without
    the consent of PepsiCo;(3)
    our entry into any business other than the business of
    manufacturing, selling or distributing non-alcoholic beverages
    or any business which is directly related and incidental to such
    beverage business; and(4)
    any material breach under the contract that remains uncured for
    120 days after notice by PepsiCo.        Terms of the Non-Cola Bottling
    Agreements.
  Terms of Certain Distribution
    Agreements.
  Terms of the Master Syrup
    Agreement.
  direct-to-store
    Terms of Other
    U.S. Bottling Agreements. ®
  Terms of the Country-Specific
    Bottling Agreements.




---



##### Table of Contents



PART
    I(continued)     Terms of the Russia Venture
    Agreement.
  Terms of Russia Snack Food
    Distribution Agreement.
  Seasonality
    Competition
  Coca-Cola Coca-Cola Coca-Cola Coca-Cola Coca-Cola
    Governmental
    Regulation Applicable to PBG
      Bottle and Can
    Legislation.




---



##### Table of Contents



Soft Drink Excise Tax
    Legislation.
      Trade Regulation.
  School Sales Legislation;
    Industry Guidelines.
  California Carcinogen and
    Reproductive Toxin Legislation.
  Mexican Water Regulation. plant-by-plant




---



##### Table of Contents



PART
    I(continued)   Employees
    Available
    Information
  www.pbg.com Form 10-K, Form 10-Q, Form 8-K,
  www.pbg.com
  Financial
    Information on Industry Segments and Geographic Areas
     ITEM 1A.
    RISK FACTORS    We
    may not be able to respond successfully to consumer trends
    related to carbonated and
    non-carbonated
    beverages.
      We
    may not be able to respond successfully to the demands of our
    largest customers.
    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.




---



##### Table of Contents



Changes
    in the legal and regulatory environment, including those related
    to climate change, could increase our costs or liabilities or
    impact the sale of our products.
    and/or
    PepsiCos
    equity ownership of PBG could affect matters concerning
    us.
    Because
    we depend upon PepsiCo to provide us with concentrate, certain
    funding and various services, changes in our relationship with
    PepsiCo could adversely affect our business and financial
    results.
        We
    may have potential conflicts of interest with PepsiCo, which
    could result in PepsiCos objectives being favored over our
    objectives.
      and/or agreed-upon agreed-upon




---



##### Table of Contents



PART
    I(continued)    Our
    acquisition strategy may be limited by our ability to
    successfully integrate acquired businesses into ours or our
    failure to realize our expected return on acquired
    businesses.
    We
    may not be able to compete successfully within the highly
    competitive carbonated and non-carbonated beverage
    markets.
    If
    we are unable to fund our substantial capital requirements, it
    could cause us to reduce our planned capital expenditures and
    could result in a material adverse effect on our business and
    financial results.
    The
    level of our indebtedness could adversely affect our financial
    health.
    We
    are unable to predict the impact of the recent downturn in the
    credit markets and the resulting costs or constraints in
    obtaining financing on our business and financial
    results.
    Our
    foreign operations are subject to social, political and economic
    risks and may be adversely affected by foreign currency
    fluctuations.
    If
    we are unable to maintain brand image and product quality, or if
    we encounter other product issues such as product recalls, our
    business may suffer.




---



##### Table of Contents



Our
    success depends on key members of our management, the loss of
    whom could disrupt our business operations.
    If
    we are unable to renew collective bargaining agreements on
    satisfactory terms, or if we experience strikes, work stoppages
    or labor unrest, our business may suffer.
    Benefits
    cost increases could reduce our profitability or cash
    flow.
    Our
    failure to effectively manage our information technology
    infrastructure could disrupt our operations and negatively
    impact our business.
    Adverse
    weather conditions could reduce the demand for our
    products.
    Catastrophic
    events in the markets in which we operate could have a material
    adverse effect on our financial condition.
   ITEM 1B.
    UNRESOLVED STAFF COMMENTS   ITEM 2.
    PROPERTIES    U.S. & Canada


Europe


MexicoManufacturing FacilitiesOwned


51



14



22Leased


2







3Other


4







Total


57



14



25Distribution FacilitiesOwned


222



12



84Leased


49



48



80Total


271



60



164      ITEM 3.
    LEGAL PROCEEDINGS   ITEM 4.
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




---



##### Table of Contents





PART
    II     ITEM 5.
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
    MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES  Our common stock is listed on the
    New York Stock Exchange under the symbol PBG. Our
    Class B common stock is not publicly traded. On
    February 6, 2009, the last sales price for our common stock
    on the New York Stock Exchange was $21.02 per share. The
    following table sets forth the high and low sales prices per
    share of our common stock during each of our fiscal quarters in
    2008 and 2007.
  2008

High


LowFirst Quarter

$
41.74


$
32.15Second Quarter

$
34.74


$
30.71Third Quarter

$
31.46


$
26.47Fourth Quarter

$
32.47


$
16.49   2007

High


LowFirst Quarter

$
32.54


$
30.13Second Quarter

$
35.23


$
31.55Third Quarter

$
36.76


$
32.35Fourth Quarter

$
43.38


$
34.72   Shareholders
  Dividend
    Policy
    Quarter

2008


20071

$
.14


$
.112

$
.17


$
.143

$
.17


$
.144

$
.17


$
.14Total

$
.65


$
.53     Performance
    Graph Coca-Cola Coca-Cola Coca-Cola Coca-Cola
  
  Year-ended2003


2004


2005


2006


2007


2008PBG(1)


100



114



122



134



175



99Bottling Group Index


100



106



116



140



205



105Standard & Poors 500 Index


100



112



118



137



145



88   (1)
    The closing price for a share of
    our common stock on December 26, 2008, the last trading day
    of our fiscal year, was $22.00.




---



##### Table of Contents



PBG Purchases of Equity
    Securities
  MaximumNumber (orTotal Number


Approximateof Shares


Dollar Value)(or Units)


of SharesPurchased


(or Units)Total





as Part of


that May YetNumber


Average


Publicly


Be Purchasedof Shares


Price Paid


Announced


Under the(or Units)


per Share


Plans or


Plans orPeriod

Purchased(1)


(or
    Unit)(2)


Programs(3)


Programs(3)Period 1009/07/08-10/04/08














28,540,400Period 1110/05/08-11/01/08














28,540,400Period 1211/02/08-11/29/08














28,540,400Period 1311/30/08-12/27/08














28,540,400Total










   (1)
    Shares have only been repurchased
    through publicly announced programs.(2)
    Average share price excludes
    brokerage fees.(3)
    Our Board has authorized the
    repurchase of shares of our common stock on the open market and
    through negotiated transactions as follows:  Number of SharesDate Share Repurchase Programs

Authorized to bewere 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
    December 27, 2008


175,000,000




---



##### Table of Contents



PART
    II(continued)   ITEM 6.
    SELECTED FINANCIAL DATA  SELECTED
    FINANCIAL AND OPERATING DATA
 in millions, except per share data
  Fiscal years ended

2008(1)


2007(2)


2006(3)(4)


2005(3)(5)


2004(3)Statement of Operations Data:Net revenues

$
13,796


$
13,591


$
12,730


$
11,885


$
10,906Cost of sales


7,586



7,370



6,900



6,345



5,656Gross profit


6,210



6,221



5,830



5,540



5,250Selling, delivery and administrative expenses


5,149



5,150



4,813



4,517



4,274Impairment charges


412















Operating income


649



1,071



1,017



1,023



976Interest expense, net


290



274



266



250



230Other non-operating expenses (income), net


25



(6
)


11



1



1Minority interest


60



94



59



59



56Income before income taxes


274



709



681



713



689Income tax
    expense(6)(7)(8)


112



177



159



247



232Net income

$
162


$
532


$
522


$
466


$
457Per Share Data:Basic earnings per share

$
0.75


$
2.35


$
2.22


$
1.91


$
1.79Diluted earnings per share

$
0.74


$
2.29


$
2.16


$
1.86


$
1.73Cash dividends declared per share

$
0.65


$
0.53


$
0.41


$
0.29


$
0.16Weighted-average basic shares outstanding


216



226



236



243



255Weighted-average diluted shares outstanding


220



233



242



250



263Other Financial Data:Cash provided by operations

$
1,284


$
1,437


$
1,228


$
1,219


$
1,222Capital expenditures

$
(760
)

$
(854
)

$
(725
)

$
(715
)

$
(688
)Balance Sheet Data (at period end):Total assets

$
12,982


$
13,115


$
11,927


$
11,524


$
10,937Long-term debt

$
4,784


$
4,770


$
4,754


$
3,939


$
4,489Minority interest

$
1,148


$
973


$
540


$
496


$
445Accumulated other comprehensive
    loss(9)

$
(938
)

$
(48
)

$
(361
)

$
(262
)

$
(315
)Shareholders equity

$
1,343


$
2,615


$
2,084


$
2,043


$
1,949   (1)
    Our fiscal year 2008 results
    include a $412 million pre-tax non-cash impairment charge
    related primarily to distribution rights and product brands in
    Mexico and an $83 million pre-tax charge related to
    restructuring charges. See Items Affecting Comparability of
    Our Financial Results in Item 7.(2)
    Our fiscal year 2007 results
    include a $30 million pre-tax charge related to
    restructuring charges and a $23 million pre-tax charge
    related to our asset disposal plan. See Items Affecting
    Comparability of Our Financial Results in Item 7.(3)
    In 2007, we made a classification
    correction for certain miscellaneous costs incurred from product
    losses in the trade. Approximately $90 million and
    $92 million of costs incurred, which were incorrectly
    included in selling, delivery and administrative expenses, were
    reclassified to cost of sales in our Consolidated Statements of
    Operations for the years ended 2006 and 2005, respectively. We
    have not reclassified these expenses for the 2004 fiscal year.(4)
    In fiscal year 2006, we adopted
    Statement of Financial Accounting Standards (SFAS)
    No. 123 (revised 2004), Share-Based Payment
    resulting in a $65 million decrease in operating income or
    $0.17 per diluted earnings per share. Results for prior periods
    have not been restated as provided for under the modified
    prospective approach.(5)
    Our fiscal year 2005 results
    include an extra week of activity. The pre-tax income generated
    from the extra week was spent back in strategic initiatives
    within our selling, delivery and administrative expenses and,
    accordingly, had no impact on our diluted earnings per share.(6)
    Our fiscal year 2007 results
    include a non-cash tax benefit of $46 million due to the
    reversal of net tax contingency reserves and a net non-cash
    benefit of $13 million due to tax law changes in Canada and
    Mexico. See Note 13 in the Notes to Consolidated Financial
    Statements.(7)
    Our fiscal year 2006 results
    include a tax benefit of $11 million from tax law changes
    in Canada, Turkey, and in various U.S. jurisdictions and a
    $55 million tax benefit from the reversal of tax
    contingency reserves due to completion of our IRS audit of our
    1999-2000
    income tax returns. See Note 13 in the Notes to
    Consolidated Financial Statements.(8)
    Our fiscal year 2004 results
    include Mexico tax law change benefit of $26 million and
    international tax restructuring charge of $30 million.(9)
    In fiscal year 2006, we adopted
    SFAS No. 158, Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans and
    recorded a $159 million loss, net of taxes and minority
    interest, to accumulated other comprehensive loss.




---



##### Table of Contents



ITEM 7.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
    AND RESULTS OF OPERATIONS  TABLE
    OF CONTENTS
  MANAGEMENTS
    FINANCIAL REVIEW
  Our Business


16Critical Accounting Policies


17Other Intangible Assets net, and Goodwill


17Pension and Postretirement Medical Benefit Plans


17Casualty Insurance Costs


19Income Taxes


19Relationship with PepsiCo


20Items Affecting Comparability of Our Financial Results


20Financial Performance Summary and Worldwide Financial Highlights
    for Fiscal Year 2008


22Results of Operations By Segment


22Liquidity and Financial Condition


26Market Risks and Cautionary Statements


28   AUDITED
    CONSOLIDATED FINANCIAL STATEMENTS
  Consolidated Statements of Operations


31Consolidated Statements of Cash Flows


32Consolidated Balance Sheets


33Consolidated Statements of Changes in Shareholders Equity


34Notes to Consolidated Financial StatementsNote 1  Basis of Presentation


35Note 2  Summary of Significant Accounting
    Policies


35Note 3  Earnings per Share


38Note 4  Share-Based Compensation


39Note 5  Balance Sheet Details


41Note 6  Other Intangible Assets, net and Goodwill


41Note 7  Investment in Noncontrolled Affiliate


42Note 8  Fair Value Measurements


42Note 9  Short-Term Borrowings and Long-Term Debt


43Note 10  Leases


44Note 11  Financial Instruments and Risk
    Management


44Note 12  Pension and Postretirement Medical
    Benefit Plans


46Note 13  Income Taxes


49Note 14  Segment Information


51Note 15  Related Party Transactions


52Note 16  Restructuring Charges


53Note 17  Accumulated Other Comprehensive Loss


54Note 18  Supplemental Cash Flow Information


54Note 19  Contingencies


54Note 20  Selected Quarterly Financial Data
    (unaudited)


54Note 21  Subsequent Event


54Report of Independent Registered Public Accounting Firm


55




---



##### Table of Contents



PART
    II(continued)    MANAGEMENTS
    FINANCIAL REVIEW
  Tabular dollars in millions, except per share data
  OUR
    BUSINESS
      VolumeTotal: 1.6 Billion Raw Cases

RevenueTotal: $13.8 Billion(BAR GRAPH)

(BAR GRAPH)   e-pura




---



##### Table of Contents



CRITICAL
    ACCOUNTING POLICIES
    Other
    Intangible Assets, net and Goodwill
                    Pension
    and Postretirement Medical Benefit Plans




---



##### Table of Contents



PART
    II(continued)        Assumptions
                     Pension

2009


2008Discount rate


6.20%



6.70%Expected rate of return on plan assets (net of administrative
    expenses)


8.00%



8.50%Rate of compensation increase


3.53%



3.56%   Postretirement

2009


2008Discount rate


6.50%



6.35%Rate of compensation increase


3.53%



3.56%Health care cost trend rate


8.75%



9.50%     
    A decrease in our weighted-average discount rate for our pension
    expense from 6.70 percent to 6.20 percent, reflecting
    decreases in the yields of long-term corporate bonds comprising
    the yield curve. This




---



##### Table of Contents




    Asset losses during 2008 will increase our pension expense by
    $20 million.
    A decrease in the rate of return on plan asset assumption from
    8.5 percent to 8.0 percent, due to revised asset
    allocation, historical trends and our projected long-term
    outlook. This change in assumption will increase our 2009
    pension expense by approximately $8 million.
    The pension design change, which will freeze benefits of certain
    salaried and non-union hourly employees, will decrease our 2009
    pension expense by approximately $20 million.
    Additional expected contributions to the pension trust will
    decrease 2009 pension expense by $11 million.
    Other factors, including improved health care claim experience,
    will decrease our 2009 defined benefit pension and
    postretirement medical expenses by approximately $4 million.    Sensitivity
    Analysis
   2008


2007


2006Expected rates of return on plan assets (net of administrative
    expenses)


8.50
%


8.50
%


8.50
%Actual rates of return on plan assets (net of administrative
    expenses)


(28.50
)%


12.64
%


9.74
%     
    Discount rate  A 25 basis point change in the
    discount rate would increase or decrease the 2009 expense for
    the pension and postretirement medical benefit plans by
    approximately $9 million.
    Expected rate of return on plan assets  A
    25 basis point change in the expected return on plan assets
    would increase or decrease the 2009 expense for the pension
    plans by approximately $4 million. The postretirement
    medical benefit plans have no expected return on plan assets as
    they are funded from the general assets of the Company as the
    payments come due.
    Contribution to the plan  A $20 million decrease
    in planned contributions to the plan for 2009 will increase our
    pension expense by $1 million.  Funding
     Casualty
    Insurance Costs
        Income
    Taxes




---



##### Table of Contents



PART
    II(continued)         RELATIONSHIP
    WITH PEPSICO
            ITEMS AFFECTING
    COMPARABILITY OF OUR FINANCIAL RESULTS
    December 27,


December 29,


December 30,Income/(Expense)

2008


2007


2006Gross ProfitPR Beverages

$



$
29


$
Operating IncomeImpairment Charges

$
(412
)

$



$
2008 Restructuring Charges


(83
)






2007 Restructuring Charges


(3
)


(30
)


Asset Disposal Charges


(2
)


(23
)


PR Beverages






29



Total Operating Income Impact

$
(500
)

$
(24
)

$
Net IncomeImpairment Charges

$
(277
)

$



$
2008 Restructuring Charges


(58
)






2007 Restructuring Charges


(2
)


(22
)


Asset Disposal Charges


(1
)


(13
)


Tax Audit Settlement






46



55Tax Law Changes






10



10Total Net Income Impact

$
(338
)

$
21


$
65Diluted Earnings Per ShareImpairment Charges

$
(1.26
)

$



$
2008 Restructuring Charges


(0.26
)






2007 Restructuring Charges


(0.01
)


(0.09
)


Asset Disposal Charges






(0.06
)


Tax Audit Settlement






0.20



0.22Tax Law Changes






0.04



0.05Total Diluted Earnings Per Share Impact

$
(1.53
)

$
0.09


$
0.27
   Items impacting comparability described below are shown in
    the year the action was initiated.




---



##### Table of Contents



2008
    Items
  Impairment
    Charges
   2008
    Restructuring Charges
           2007
    Items
  2007
    Restructuring Charges
     Asset
    Disposal Charges
     PR
    Beverages
   Tax
    Audit Settlement
   Tax
    Law Changes




---



##### Table of Contents



PART
    II(continued)     2006
    Items
  Tax
    Audit Settlement
 1999-2000
  Tax
    Law Changes
   FINANCIAL
    PERFORMANCE SUMMARY AND WORLDWIDE FINANCIAL HIGHLIGHTS FOR
    FISCAL YEAR 2008
  December 27,


December 29,


Fiscal Year2008


2007


% ChangeNet Revenues

$
13,796


$
13,591



2
%Cost of Sales

$
7,586


$
7,370



3
%Gross Profit

$
6,210


$
6,221




%Selling, Delivery and Administrative Expenses

$
5,149


$
5,150




%Operating Income

$
649


$
1,071



(39
)%Net Income

$
162


$
532



(69
)%Diluted Earnings Per
    Share(1)

$
0.74


$
2.29



(68
)%  (1)

    Percentage change for diluted earnings per share is calculated
    by using earnings per share data that is expanded to the fourth
    decimal place.  Volume
  Net revenues
  Cost of
    sales
  Gross
    profit
  Selling, Delivery and
    Administrative (SD&A)
    expenses
  Operating
    income
  Net
    income
  RESULTS
    OF OPERATIONS BY SEGMENT
  Except where noted, tables and discussion are presented as
    compared to the prior fiscal year. Growth rates are rounded to
    the nearest whole percentage.
  Volume
  2008
    vs. 2007
  U.S. &Worldwide


Canada


Europe


MexicoTotal Volume Change


(4
)%


(4
)%


(3
)%


(5
)%   U.S.
    & Canada
   Europe




---



##### Table of Contents



Mexico
   2007
    vs. 2006
  U.S. &Worldwide


Canada


Europe


MexicoBase volume



%



%


4
%


(2
)%Acquisitions


1











3Total Volume Change


1
%



%


4
%


1
%   U.S.
    & Canada
     Europe
   Mexico
   Net
    Revenues
  2008
    vs. 2007
  Worldwide


U.S. & Canada


Europe


Mexico2008 Net revenues

$
13,796


$
10,300


$
2,115


$
1,3812007 Net revenues

$
13,591


$
10,336


$
1,872


$
1,383% Impact of:Volume


(4
)%


(4
)%


(3
)%


(5
)%Net price per case (rate/mix)


5



4



10



6Currency translation


1







6



(1
)Total Net Revenues Change


2
%



%


13
%



%   U.S.
    & Canada
   Europe
   Mexico
   2007
    vs. 2006
  U.S. &Worldwide


Canada

Europe

Mexico2007 Net revenues

$
13,591



$
10,336


$
1,872


$
1,3832006 Net revenues

$
12,730



$
9,910


$
1,534


$
1,286% Impact of:Volume



%




%


4
%


(2
)%Net price per case (rate/mix)


4




4



9



7Acquisitions


1












3Currency translation


2








9



Total Net Revenues Change


7
%



4
%


22
%


8
%   U.S.
    & Canada




---



##### Table of Contents



PART
    II(continued)    Europe
   Mexico
   Operating
    Income
  2008
    vs. 2007
  U.S. &Worldwide

Canada

Europe

Mexico2008 Operating income

$
649


$
886


$
101


$
(338
)2007 Operating income

$
1,071


$
893


$
106


$
72% Impact of:Operations


1
%


1
%


2
%


(3
)%Currency translation


1







12



2Impairment charges


(38
)






(3
)


(571
)2008 Restructuring charges


(8
)


(6
)


(25
)


(4
)2007 Restructuring charges


3



2



8



4Asset disposal charges


2



2







Total Operating Income Change


(39
)%


(1
)%


(5
)%*


(572
)%   *
    
    Does not add due to rounding to the
    whole percentage.  U.S.
    & Canada
       Europe
       Mexico
       2007
    vs. 2006
  U.S. &Worldwide


Canada


Europe


Mexico2007 Operating income

$
1,071


$
893


$
106


$
722006 Operating income

$
1,017


$
878


$
57


$
82% Impact of:Operations


6
%


6
%


41
%


(11
)%Currency translation


1



1



11



1PR Beverages


3







50



2007 Restructuring


(3
)


(2
)


(15
)


(4
)Asset disposal charges


(2
)


(3
)






Acquisitions














2Total Operating Income Change


5
%


2
%


86
%*


(13
)%*   *
    
    Does not add due to rounding to the
    whole percentage.  U.S.
    & Canada




---



##### Table of Contents



Europe
       Mexico
       Interest
    Expense, net
  2008
    vs. 2007
    2007
    vs. 2006
    Other
    Non-Operating Expenses (Income), net
  2008
    vs. 2007
    2007
    vs. 2006
    Minority
    Interest
  2008
    vs. 2007
    2007
    vs. 2006




---



##### Table of Contents



PART
    II(continued)    Income
    Tax Expense
  2008
    vs. 2007
    
    In 2008, we had pre-tax impairment charges related primarily to
    Mexico which resulted in a tax provision benefit of
    $115 million as well as pre-tax restructuring charges,
    which provided a tax provision benefit of $21 million. The
    net effect of these items increased our effective tax rate by
    7.7 percentage points as most of these charges were in our
    international jurisdictions, which have lower effective tax
    rates.
    In 2007, we had a tax audit settlement which reduced our tax
    provision by $46 million, coupled with tax law changes that
    reduced our deferred income tax provision by $13 million.
    These items decreased our effective tax rate by
    8.3 percentage points.  2007
    vs. 2006
    Diluted
    Weighted-Average Shares Outstanding
      LIQUIDITY
    AND FINANCIAL CONDITION
  Cash
    Flows
  2008
    vs. 2007
        2007
    vs. 2006
        Capital
    Expenditures
    Liquidity
    and Capital Resources




---



##### Table of Contents



Acquisitions
    and Investments
     Long-Term
    Debt Activities
     Short-Term
    Debt Activities
       Debt
    Covenants and Credit Ratings
     Pensions
   Dividends







---



##### Table of Contents



PART
    II(continued)    Contractual
    Obligations
    Payments Due by Period2010-


2012-


2014 andContractual Obligations

Total



2009


2011


2013


beyondLong-term debt
    obligations(1)

$
6,087



$
1,301


$
36


$
1,400


$
3,350Capital lease
    obligations(2)


9




4



3







2Operating
    leases(2)


279




58



69



34



118Interest
    obligations(3)


2,638




307



560



516



1,255Purchase obligations:Raw material
    obligations(4)


821




718



100







3Capital expenditure
    obligations(5)


33




33











Other
    obligations(6)


325




135



114



38



38Other long-term
    liabilities(7)


23




5



8



6



4$
10,215



$
2,561


$
890


$
1,994


$
4,770   (1)
    See Note 9 in the Notes to Consolidated Financial
    Statements for additional information relating to our long-term
    debt obligations.(2)
    Lease obligation balances include imputed interest. See
    Note 10 in the Notes to Consolidated Financial Statements
    for additional information relating to our lease obligations.(3)
    Represents interest payment obligations related to our long-term
    fixed-rate debt as specified in the applicable debt agreements.
    A portion of our long-term debt has variable interest rates due
    to either existing swap agreements or interest arrangements. We
    have estimated our variable interest payment obligations by
    using the interest rate forward curve where practical. Given
    uncertainties in future interest rates we have not included the
    beneficial impact of interest rate swaps after the year 2010.(4)
    Represents obligations to purchase raw materials pursuant to
    contracts entered into by PepsiCo on our behalf and
    international agreements to purchase raw materials.(5)
    Represents commitments to suppliers under capital expenditure
    related contracts or purchase orders.(6)
    Represents legally binding agreements to purchase goods or
    services that specify all significant terms, including: fixed or
    minimum quantities, price arrangements and timing of payments.
    If applicable, penalty, notice, or minimum purchase amount is
    used in the calculation. Balances also include non-cancelable
    customer contracts for sports marketing arrangements.(7)
    Primarily represents non-compete contracts that resulted from
    business acquisitions. The non-current portion of unrecognized
    tax benefits recorded on the balance sheet as of
    December 27, 2008 is not included in the table. There was
    no current portion of unrecognized tax benefits as of
    December 27, 2008. For additional information about our
    income taxes see Note 13 in the Notes to Consolidated
    Financial Statements.    Off-Balance
    Sheet Arrangements
    MARKET
    RISKS AND CAUTIONARY STATEMENTS
  Quantitative
    and Qualitative Disclosures
    about Market Risk
  non-U.S. dollar
      Commodity
    Price Risk




---



##### Table of Contents



Interest
    Rate Risk
   Foreign
    Currency Exchange Rate Risk
       Unfunded
    Deferred Compensation Liability
   Cautionary
    Statements
  Form 10-K
  
    changes in our relationship with PepsiCo;
    PepsiCos ability to affect matters concerning us through
    its equity ownership of PBG, representation on our Board and
    approval rights under our Master Bottling Agreement;
    material changes in expected levels of bottler incentive
    payments from PepsiCo;
    restrictions imposed by PepsiCo on our raw material suppliers
    that could increase our costs;
    material changes from expectations in the cost or availability
    of ingredients, packaging materials, other raw materials or
    energy;
    limitations on the availability of water or obtaining water
    rights;
    an inability to achieve strategic business plan targets that
    could result in a non-cash intangible asset impairment charge;
    an inability to achieve cost savings;
    material changes in capital investment for infrastructure and an
    inability to achieve the expected timing for returns on
    cold-drink equipment and related infrastructure expenditures;
    decreased demand for our product resulting from changes in
    consumers preferences;
    an inability to achieve volume growth through product and
    packaging initiatives;
    impact of competitive activities on our business;
    impact of customer consolidations on our business;
    unfavorable weather conditions in our markets;




---



##### Table of Contents



PART
    II(continued)   
    an inability to successfully integrate acquired businesses or to
    meet projections for performance in newly acquired territories;
    loss of business from a significant customer;
    loss of key members of management;
    failure or inability to comply with laws and regulations;
    litigation, other claims and negative publicity relating to
    alleged unhealthy properties or environmental impact of our
    products;
    changes in laws and regulations governing the manufacture and
    sale of food and beverages, 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);
    an increase in costs of pension, medical and other employee
    benefit costs;
    unfavorable market performance of assets in our pension plans or
    material changes in key assumptions used to calculate the
    liability of our pension plans, such as discount rate;
    unforeseen social, economic and political changes;
    possible recalls of our products;
    interruptions of operations due to labor disagreements;
    limitations on our ability to invest in our business as a result
    of our repayment obligations under our existing indebtedness;
    changes in our debt ratings, an increase in financing costs or
    limitations on our ability to obtain credit; and
    material changes in expected interest and currency exchange
    rates.




---



##### Table of Contents





CONSOLIDATED
    STATEMENTS OF OPERATIONS
   Fiscal years ended December 27, 2008, December 29,
    2007 and December 30, 2006in millions, except per share data

2008


2007


2006Net Revenues

$
13,796


$
13,591


$
12,730Cost of sales


7,586



7,370



6,900Gross Profit


6,210



6,221



5,830Selling, delivery and administrative expenses


5,149



5,150



4,813Impairment charges


412







Operating Income


649



1,071



1,017Interest expense, net


290



274



266Other non-operating expenses (income), net


25



(6
)


11Minority interest


60



94



59Income Before Income Taxes


274



709



681Income tax expense


112



177



159Net Income

$
162


$
532


$
522Basic Earnings per Share

$
0.75


$
2.35


$
2.22Weighted-average shares outstanding


216



226



236Diluted Earnings per Share

$
0.74


$
2.29


$
2.16Weighted-average shares outstanding


220



233



242Dividends declared per common share

$
0.65


$
0.53


$
0.41   See accompanying notes to
    Consolidated Financial Statements.




---



##### Table of Contents



PART
    II(continued)    CONSOLIDATED
    STATEMENTS OF CASH FLOWS
   Fiscal years ended December 27, 2008, December 29,
    2007 and December 30, 2006in millions

2008


2007


2006Cash Flows  OperationsNet income

$
162


$
532


$
522Adjustments to reconcile net income to net cash provided by
    operations:Depreciation and amortization


673



669



649Deferred income taxes


(47
)


(42
)


(61
)Stock-based compensation


56



62



65Impairment charges


412







Defined benefit pension and postretirement expenses


114



121



119Minority interest expense


60



94



59Casualty self-insurance expense


87



90



80Other non-cash charges and credits


95



79



67Changes in operating working capital, excluding effects of
    acquisitions:Accounts receivable, net


40



(110
)


(120
)Inventories


3



(19
)


(57
)Prepaid expenses and other current assets


10



(17
)


1Accounts payable and other current liabilities


(134
)


185



88Income taxes payable


14



9



(2
)Net change in operating working capital


(67
)


48



(90
)Casualty insurance payments


(79
)


(70
)


(67
)Pension contributions to funded plans


(85
)


(70
)


(68
)Other, net


(97
)


(76
)


(47
)Net Cash Provided by Operations


1,284



1,437



1,228Cash Flows  InvestmentsCapital expenditures


(760
)


(854
)


(725
)Acquisitions, net of cash acquired


(279
)


(49
)


(33
)Investments in noncontrolled affiliates


(742
)






Proceeds from sale of property, plant and equipment


24



14



18Other investing activities, net


(1
)


6



9Net Cash Used for Investments


(1,758
)


(883
)


(731
)Cash Flows  FinancingShort-term borrowings, net  three months or less


(108
)


(106
)


(107
)Proceeds from short-term borrowings  more than three
    months


117



167



96Payments of short-term borrowings  more than three
    months


(91
)


(211
)


(74
)Proceeds from issuances of long-term debt


1,290



24



793Payments of long-term debt


(10
)


(42
)


(604
)Minority interest distribution


(73
)


(17
)


(19
)Dividends paid


(135
)


(113
)


(90
)Excess tax benefit from the exercise of equity awards


2



14



19Proceeds from the exercise of stock options


42



159



168Share repurchases


(489
)


(439
)


(553
)Contributions from minority interest holder


308







Other financing activities


(3
)






Net Cash Provided by (Used for) Financing


850



(564
)


(371
)Effect of Exchange Rate Changes on Cash and Cash
    Equivalents


(57
)


28



1Net Increase in Cash and Cash Equivalents


319



18



127Cash and Cash Equivalents  Beginning of Year


647



629



502Cash and Cash Equivalents  End of Year

$
966


$
647


$
629   See accompanying notes to
    Consolidated Financial Statements.




---



##### Table of Contents



CONSOLIDATED
    BALANCE SHEETS
   December 27, 2008 and December 29, 2007in millions, except per share data

2008


2007ASSETSCurrent AssetsCash and cash equivalents

$
966


$
647Accounts receivable, net


1,371



1,520Inventories


528



577Prepaid expenses and other current assets


276



342Total Current Assets


3,141



3,086Property, plant and equipment, net


3,882



4,080Other intangible assets, net


3,751



4,181Goodwill


1,434



1,533Investments in noncontrolled affiliates


619



Other assets


155



235Total Assets

$
12,982


$
13,115LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable and other current liabilities

$
1,675


$
1,968Short-term borrowings


103



240Current maturities of long-term debt


1,305



7Total Current Liabilities


3,083



2,215Long-term debt


4,784



4,770Other liabilities


1,658



1,186Deferred income taxes


966



1,356Minority interest


1,148



973Total Liabilities


11,639



10,500Shareholders EquityCommon stock, par value $0.01 per share:authorized 900 shares, issued 310 shares


3



3Additional paid-in capital


1,851



1,805Retained earnings


3,130



3,124Accumulated other comprehensive loss


(938
)


(48
)Treasury stock: 99 shares and 86 shares in 2008 and
    2007, respectively, at cost


(2,703
)


(2,269
)Total Shareholders Equity


1,343



2,615Total Liabilities and Shareholders Equity

$
12,982


$
13,115   See accompanying notes to
    Consolidated Financial Statements.




---



##### Table of Contents



PART
    II(continued)    CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
   Fiscal years ended
    December 27, 2008, December 29, 2007 and
    December 30, 2006
  AccumulatedOtherCommon


Additional


Deferred


Retained


Comprehensive


Treasury





Comprehensivein millions, except per share data

Stock


Paid-In Capital


Compensation


Earnings


Loss


Stock


Total


Income (Loss)Balance at December 31, 2005

$
3


$
1,709


$
(14
)

$
2,283


$
(262
)

$
(1,676
)

$
2,043Comprehensive income:Net income














522











522


$
522Net currency translation adjustment


















25







25



25Cash flow hedge adjustment (net of tax and minority interest of
    $(5))


















8







8



8Minimum pension liability adjustment (net of tax and minority
    interest of $(21))


















27







27



27Total comprehensive income





























$
582FAS 158  pension liability adjustment (net of
    tax and minority interest of $124)


















(159
)






(159
)Stock option exercises: 9 shares






(44
)














212



168Tax benefit  equity awards






35



















35Share repurchases: 18 shares






















(553
)


(553
)Stock compensation






51



14















65Cash dividends declared on common stock (per share: $0.41)














(97
)










(97
)Balance at December 30, 2006


3



1,751







2,708



(361
)


(2,017
)


2,084Comprehensive income:Net income














532











532


$
532Net currency translation adjustment


















220







220



220Cash flow hedge adjustment (net of tax and minority interest of
    $(1))


















(1
)






(1
)


(1
)Pension and postretirement medical benefit plans adjustment (net
    of tax and minority interest of $(72))


















94







94



94Total comprehensive income





























$
845Stock option exercises: 7 shares






(28
)














187



159Tax benefit  equity awards






22



















22Share repurchases: 13 shares






















(439
)


(439
)Stock compensation






60



















60Impact from adopting FIN 48














5











5Cash dividends declared on common stock (per share: $0.53)














(121
)










(121
)Balance at December 29, 2007


3



1,805







3,124



(48
)


(2,269
)


2,615Comprehensive income (loss):Net income














162











162


$
162Net currency translation adjustment


















(554
)






(554
)


(554
)Cash flow hedge adjustment (net of tax and minority interest of
    $28)


















(33
)






(33
)


(33
)Pension and postretirement medical benefit plans adjustment (net
    of tax and minority interest of $242)


















(322
)






(322
)


(322
)Total comprehensive loss





























$
(747
)FAS 158  measurement date adjustment (net of tax
    and minority interest of $(5))














(16
)


19







3Equity awards exercises: 2 shares






(13
)














55



42Tax benefit and withholding tax  equity awards






2



















2Share repurchases: 15 shares






















(489
)


(489
)Stock compensation






57



















57Cash dividends declared on common stock (per share: $0.65)














(140
)










(140
)Balance at December 27, 2008

$
3


$
1,851


$



$
3,130


$
(938
)

$
(2,703
)

$
1,343   See accompanying notes to
    Consolidated Financial Statements.




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
   Tabular dollars in millions, except
    per share data
  Note 1 
    Basis of Presentation
          Note 2 
    Summary of Significant Accounting Policies
    Basis of
    Consolidation
  Fiscal
    Year
  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   Revenue
    Recognition
    Advertising and Marketing
    Costs
  Bottler
    Incentives
  
    Direct marketplace support represents PepsiCos and other
    brand owners
    agreed-upon
    funding to assist us in offering sales and promotional discounts
    to retailers and is generally recorded as an adjustment to cost
    of sales. If the direct marketplace support is a reimbursement
    for a specific, incremental and identifiable program, the
    funding is recorded as an offset to the cost of the program
    either in net revenues or selling, delivery and administrative
    expenses.
    Advertising support represents
    agreed-upon
    funding to assist us with the cost of media time and promotional
    materials and is generally recorded as an adjustment to cost of
    sales. Advertising support that represents reimbursement for a
    specific, incremental and identifiable media cost, is recorded
    as a reduction to advertising and marketing expenses within
    selling, delivery and administrative expenses.




---



##### Table of Contents



PART
    II(continued)      Fiscal Year Ended2008


2007


2006Net revenues

$
93


$
66


$
67Cost of sales


586



626



612Selling, delivery and administrative expenses


57



67



70Total bottler incentives

$
736


$
759


$
749   Share-Based
    Compensation
  Shipping and Handling
    Costs
  Foreign Currency Gains and
    Losses and Currency Translation
  Pension and Postretirement
    Medical Benefit Plans
              Income
    Taxes




---



##### Table of Contents



Earnings Per
    Share
  Cash and Cash
    Equivalents
  Allowance for Doubtful
    Accounts
  Inventories first-in,
  Property, Plant and
    Equipment
  Other Intangible Assets, net and
    Goodwill
          Casualty Insurance
    Costs
  Minority
    Interest
  Treasury
    Stock
  Financial Instruments and Risk
    Management




---



##### Table of Contents



PART
    II(continued)    Commitments and
    Contingencies
  New
    Accounting Standards
  SFAS No. 157
   No. FAS 157-2, (FSP 157-2). FSP 157-2 FSP 157-2
  SFAS No. 141(R)
   SFAS No. 160
   SFAS No. 161
   EITF
    Issue
    No. 07-1
 No. 07-1, (EITF 07-1), EITF 07-1
  Note 3 
    Earnings
    per Share    Fiscal Year EndedShares in millions

2008


2007


2006Net Income

$
162


$
532


$
522Weighted-average shares outstanding during period on which basic
    earnings per share is calculated


216



226



236Effect of dilutive sharesIncremental shares under stock compensation plans


4



7



6Weighted-average shares outstanding during period on which
    diluted earnings per share is calculated


220



233



242Basic earnings per share

$
0.75


$
2.35


$
2.22Diluted earnings per share

$
0.74


$
2.29


$
2.16




---



##### Table of Contents



Note 4 
    Share-Based
    Compensation  Accounting for Share-Based
    Compensation
      Fiscal Year Ended2008


2007


2006Total share-based compensation expense

$
56


$
62


$
65Income tax benefit


(16
)


(17
)


(18
)Minority interest


(3
)


(5
)


(4
)Net income impact

$
37


$
40


$
43   Share-Based Long-Term Incentive
    Compensation Plans
        2008


2007


2006Risk-free interest rate


2.8
%


4.5
%


4.7
%Expected term (in years)


5.3



5.6



5.7Expected volatility


24
%


25
%


27
%Expected dividend yield


2.0
%


1.8
%


1.5
%           Stock
    Options




---



##### Table of Contents



PART
    II(continued)      Weighted-AverageWeighted-Average


Remaining


AggregateShares


Exercise Price


Contractual


Intrinsic(in millions)


per Share


Term (years)


ValueOutstanding at December 29, 2007


26.9


$
25.27



5.9


$
395Granted


3.7


$
33.69Exercised


(1.9
)

$
21.70Forfeited


(0.7
)

$
30.46Outstanding at December 27, 2008


28.0


$
26.50



5.5


$
35Vested or expected to vest at December 27, 2008


27.6


$
26.42



5.4


$
35Exercisable at December 27, 2008


21.4


$
24.81



4.5


$
35       Restricted Stock Units
    Weighted-AverageWeighted-Average


Remaining


AggregateShares


Grant-Date


Contractual


Intrinsic(in thousands)


Fair Value


Term (years)


ValueOutstanding at December 29, 2007


2,379


$
29.96



1.7


$
95Granted


1,319


$
35.38Converted


(163
)

$
30.63Forfeited


(182
)

$
31.61Outstanding at December 27, 2008


3,353


$
31.97



1.3


$
74Vested or expected to vest at December 27, 2008


2,826


$
32.25



1.4


$
62Convertible at December 27, 2008


190


$
28.81






$
4




---



##### Table of Contents



Note 5 
    Balance
    Sheet Details  2008


2007Accounts Receivable, netTrade accounts receivable

$
1,208


$
1,319Allowance for doubtful accounts


(71
)


(54
)Accounts receivable from PepsiCo


154



188Other receivables


80



67$
1,371


$
1,520InventoriesRaw materials and supplies

$
185


$
195Finished goods


343



382$
528


$
577Prepaid Expenses and Other Current AssetsPrepaid expenses

$
244


$
290Other current assets


32



52$
276


$
342Property, Plant and Equipment, netLand

$
300


$
320Buildings and improvements


1,542



1,484Manufacturing and distribution equipment


3,999



4,091Marketing equipment


2,246



2,389Capital leases


23



36Other


154



1648,264



8,484Accumulated depreciation


(4,382
)


(4,404
)$
3,882


$
4,080       Buildings and improvements

2033 yearsManufacturing and distribution equipment

215 yearsMarketing equipment

27 years   Industrial Revenue
    Bonds
  2008


2007Accounts Payable and Other Current LiabilitiesAccounts payable

$
444


$
615Accounts payable to PepsiCo


217



255Trade incentives


189



235Accrued compensation and benefits


240



276Other accrued taxes


128



140Accrued interest


85



70Other current liabilities


372



377$
1,675


$
1,968   Note 6 
    Other Intangible Assets, net and Goodwill
    2008


2007Intangibles subject to amortization:Gross carrying amount:Customer relationships and lists

$
45


$
54Franchise and distribution rights


41



46Other identified intangibles


34



30120



130Accumulated amortization:Customer relationships and lists


(15
)


(15
)Franchise and distribution rights


(31
)


(31
)Other identified intangibles


(21
)


(17
)(67
)


(63
)Intangibles subject to amortization, net


53



67Intangibles not subject to amortization:Carrying amount:Franchise rights


3,244



3,235Licensing rights


315



315Distribution rights


49



294Brands


39



213Other identified intangibles


51



57Intangibles not subject to amortization


3,698



4,114Total other intangible assets, net

$
3,751


$
4,181   non-amortizable
  non-amortizable




---



##### Table of Contents



PART
    II(continued)   non-amortizable
  non-amortizable
    Intangible Asset
    Amortization
  Goodwill
  U.S. & Canada


Europe


Mexico


TotalBalance at December 30, 2006

$
1,229


$
16


$
245


$
1,490Purchase price allocations


1







(16
)


(15
)Impact of foreign currency translation and other


60



1



(3
)


58Balance at December 29, 2007


1,290



17



226



1,533Purchase price allocations


20



13



(6
)


27Impact of foreign currency translation and other


(75
)


(4
)


(47
)


(126
)Balance at December 27, 2008

$
1,235


$
26


$
173


$
1,434       Annual Impairment
    Testing
    Note 7 
    Investment in Noncontrolled Affiliate
      Note 8 
    Fair Value Measurements
    Level 1




---



##### Table of Contents



Level 2
  Level 3
      Level
    2Financial Assets:Foreign currency forward
    contracts(1)

$
13Prepaid forward
    contracts(2)


13Interest rate
    swaps(3)


8$
34Financial Liabilities:Commodity
    contracts(1)

$
57Foreign currency
    contracts(1)


6Interest rate
    swaps(3)


1$
64   (1)
    Based primarily on the forward rates of the specific indices
    upon which the contract settlement is based.(2)
    Based primarily on the value of our stock price.(3)
    Based primarily on the London Inter-Bank Offer Rate
    (LIBOR) index.  Note 9 
    Short-Term Borrowings and Long-Term Debt
  2008


2007Short-term borrowingsCurrent maturities of long-term debt

$
1,305


$
7Other short-term borrowings


103



240$
1,408


$
247Long-term debt5.63% (5.2% effective
    rate)(2)(3) senior

    notes due 2009

$
1,300


$
1,3004.63% (4.6% effective
    rate)(3) senior

    notes due 2012


1,000



1,0005.00% (5.2% effective rate) senior notes due 2013


400



4006.95% (7.4% effective
    rate)(4) senior

    notes due 2014


1,300



4.13% (4.4% effective rate) senior notes due 2015


250



2505.50% (5.3% effective
    rate)(2) senior

    notes due 2016


800



8007.00% (7.1% effective rate) senior notes due 2029


1,000



1,000Capital lease obligations (Note 10)


8



9Other (average rate 14.43%)


37



296,095



4,788SFAS 133
    adjustment(1)


6



Unamortized discount, net


(12
)


(11
)Current maturities of long-term debt


(1,305
)


(7
)$
4,784


$
4,770   (1)
    In accordance with the requirements of SFAS No. 133,
    Accounting for Derivative Instruments and Hedging
    Activities (SFAS 133), the portion of our
    fixed-rate debt obligations that is hedged is reflected in our
    Consolidated Balance Sheets as an amount equal to the sum of the
    debts carrying value plus a SFAS 133 fair value
    adjustment, representing changes recorded in the fair value of
    the hedged debt obligations attributable to movements in market
    interest rates.(2)
    Effective interest rates include the impact of the gain/loss
    realized on swap instruments and represent the rates that were
    achieved in 2008.(3)
    These notes are guaranteed by PepsiCo.(4)
    Effective interest rate excludes the impact of the loss realized
    on Treasury Rate Locks in 2008.  Aggregate Maturities 
    Long-Term Debt
    2008 Short-Term Debt
    Activities




---



##### Table of Contents



PART
    II(continued)         Debt
    Covenants
  
    Our debt to capitalization ratio should not be greater than .75
    on the last day of a fiscal quarter when PepsiCos ratings
    are A- by S&P and A3 by Moodys or higher. Debt is
    defined as total long-term and short-term debt plus accrued
    interest plus total standby letters of credit and other
    guarantees less cash and cash equivalents not in excess of
    $500 million. Capitalization is defined as debt plus
    shareholders equity plus minority interest, excluding the
    impact of the cumulative translation adjustment.
    Our debt to EBITDA ratio should not be greater than five on the
    last day of a fiscal quarter when PepsiCos ratings are
    less than A- by S&P or A3 by Moodys. EBITDA is
    defined as the last four quarters of earnings before
    depreciation, amortization, net interest expense, income taxes,
    minority interest, net other non-operating expenses and
    extraordinary items.
    New secured debt should not be greater than 15 percent of
    our net tangible assets. Net tangible assets are defined as
    total assets less current liabilities and net intangible assets.    Interest Payments and
    Expense
  Letters of Credit, Bank
    Guarantees and Surety Bonds
  Note 10 
    Leases
          LeasesCapital


Operating2009

$
4


$
582010


2



432011


1



262012






202013






14Thereafter


2



118$
9


$
279Less: amount representing interest


1Present value of net minimum lease payments


8Less: current portion of net minimum lease payments


3Long-term portion of net minimum lease payments

$
5   Components
    of Net Rental Expense Under Operating Leases:
  2008


2007


2006Minimum rentals

$
120


$
114


$
99Sublease rental income


(1
)


(2
)


(3
)Net rental expense

$
119


$
112


$
96   Note 11 
    Financial Instruments and Risk Management
    Cash Flow
    Hedges




---



##### Table of Contents



Before








Net ofMinority








MinorityInterest


Minority





Interestand Taxes


Interest


Taxes


and TaxesAccumulated net gains as of December 31, 2005

$
5


$



$
(2
)

$
3Net changes in the fair value of cash flow hedges


14



(1
)


(5
)


8Net gains reclassified from AOCL into earnings


(1
)






1



Accumulated net gains as of December 30, 2006


18



(1
)


(6
)


11Net changes in the fair value of cash flow hedges


(4
)










(4
)Net losses reclassified from AOCL into earnings


4







(1
)


3Accumulated net gains as of December 29, 2007


18



(1
)


(7
)


10Net changes in the fair value of cash flow hedges


(57
)


4



23



(30
)Net gains reclassified from AOCL into earnings


(4
)






1



(3
)Accumulated net losses as of December 27, 2008

$
(43
)

$
3


$
17


$
(23
)     Fair Value
    Hedges
  Foreign Currency
    Hedges
  Unfunded Deferred Compensation
    Liability




---



##### Table of Contents



PART
    II(continued)         Other Financial Assets and
    Liabilities
    Note 12 
    Pension and Postretirement Medical Benefit Plans
  Employee Benefit
    Plans
  Defined Benefit Pension
    Plans
  Postretirement Medical
    Plans
  Defined Contribution
    Benefits
  Components
    of Net Pension Expense and Other Amounts Recognized in Other
    Comprehensive Loss/(Income)
  Pension2008


2007


2006Net pension expenseService cost

$
51


$
55


$
53Interest cost


100



90



82Expected return on plan assets  (income)


(116
)


(102
)


(94
)Amortization of net loss


15



38



38Amortization of prior service amendments


7



7



9Curtailment charge


20







Special termination benefits


7



4



Net pension expense for the defined benefit plans


84



92



88Other comprehensive loss (income)Prior service cost arising during the year


14



8



N/ANet loss (gain) arising during the year


619



(114
)


N/AAmortization of net loss


(15
)


(38
)


N/AAmortization of prior service
    amendments(1)


(27
)


(7
)


N/ATotal recognized in other comprehensive loss
    (income)(2)


591



(151
)


N/ATotal recognized in net pension expense and other comprehensive
    loss (income)

$
675


$
(59
)

$
88   (1)
    
    2008 includes curtailment charge of
    $20 million.(2)
    
    Prior to taxes and minority
    interest.




---



##### Table of Contents



Components
    of Postretirement Medical Expense and Other Amounts Recognized
    in Other Comprehensive Loss/(Income)
  Postretirement2008


2007


2006Net postretirement expenseService cost


$
5


$
5


$
4Interest cost



21



20



20Amortization of net loss



3



4



7Special termination benefits



1







Net postretirement expense



30



29



31Other comprehensive loss (income)Net (gain) arising during the year



(30
)


(4
)


N/AAmortization of net loss



(3
)


(4
)


N/ATotal recognized in other comprehensive loss
    (income)(1)



(33
)


(8
)


N/ATotal recognized in net postretirement expense and other
    comprehensive loss (income)


$
(3
)

$
21


$
31   (1)
    
    Prior to taxes and minority
    interest.  Changes
    in Benefit Obligations
  Pension


Postretirement2008


2007


2008


2007Obligation at beginning of year

$
1,585


$
1,539


$
353


$
354SFAS 158 adoption


(53
)






(5
)


Service cost


51



55



5



5Interest cost


100



90



21



20Plan amendments


14



8







Plan curtailment


(50
)










Actuarial (gain) loss


141



(53
)


(30
)


(4
)Benefit payments


(69
)


(57
)


(19
)


(23
)Special termination benefits


7



4



1



Adjustment for Medicare subsidy










1



1Transfers


(2
)


(1
)






Obligation at end of year

$
1,724


$
1,585


$
327


$
353   Changes
    in the Fair Value of Plan Assets
  
 Pension


Postretirement2008


2007


2008


2007Fair value of plan assets at beginning of year

$
1,455


$
1,289


$



$
SFAS 158 adoption


(17
)










Actual return on plan assets


(412
)


163







Transfers


(2
)


(1
)






Employer contributions


90



61



18



22Adjustment for Medicare subsidy










1



1Benefit payments


(69
)


(57
)


(19
)


(23
)Fair value of plan assets at end of year

$
1,045


$
1,455


$



$
   Amounts
    Included in
    AOCL(1)
  Pension


Postretirement2008


2007


2008


2007Prior service cost

$
38


$
48


$
3


$
3Net loss


879



308



49



90Total

$
917


$
356


$
52


$
93   (1)
    
    Prior to taxes and minority interest  Estimated
    Gross Amounts in AOCL to be Amortized in 2009
  Pension


PostretirementPrior service cost

$
6


$
Net loss

$
35


$
1     Selected
    Information for Plans with Liabilities in Excess of Plan
    Assets
  Pension


Postretirement2008


2007(1)


2008


2007(1)Projected benefit obligation

$
1,724


$
777


$
327


$
353Accumulated benefit obligation

$
1,636


$
649


$
327


$
353Fair value of plan assets

$
1,045


$
598


$



$
   (1)
    
    2007 balances were measured on
    September 30, 2007. Fair value of plan assets for 2007
    includes fourth quarter employer contributions.  Reconciliation
    of Funded Status
  Pension


Postretirement2008


2007


2008


2007Funded status at measurement date

$
(679
)

$
(130
)

$
(327
)

$
(353
)Fourth quarter employer contributions/payments


N/A



23



N/A



4Funded status at end of year

$
(679
)

$
(107
)

$
(327
)

$
(349
)Amounts recognizedOther assets

$



$
69


$



$
Accounts payable and other current liabilities


(10
)


(5
)


(24
)


(26
)Other liabilities


(669
)


(171
)


(303
)


(323
)Total net liabilities


(679
)


(107
)


(327
)


(349
)Accumulated other comprehensive
    loss(1)


917



356



52



93Net amount recognized

$
238


$
249


$
(275
)

$
(256
)   (1)
    
    Prior to taxes and minority interest




---



##### Table of Contents



PART
    II(continued)    Weighted
    Average Assumptions
  Pension


Postretirement2008


2007


2006


2008


2007


2006Expense discount rate


6.70
%


6.00
%


5.80
%


6.35
%


5.80
%


5.55
%Liability discount rate


6.20
%


6.35
%


6.00
%


6.50
%


6.20
%


5.80
%Expected rate of return on plan
    assets(1)


8.50
%


8.50
%


8.50
%


N/A



N/A



N/AExpense rate of compensation increase


3.56
%


3.55
%


3.53
%


3.56
%


3.55
%


3.53
%Liability rate of compensation increase


3.53
%


3.56
%


3.55
%


3.53
%


3.56
%


3.55
%   (1)
    
    Expected rate of return on plan
    assets is presented after administration expenses.    Funding
    and Plan Assets
  Allocation PercentageTarget


Actual


ActualAsset Category

2009


2008


2007Equity securities


65
%


60
%


75
%Debt securities


35
%


40
%


25
%       Health Care Cost Trend
    Rates
    1% Increase


1% DecreaseEffect on total fiscal year 2008 service and interest cost
    components

$



$
Effect on total fiscal year 2008 postretirement benefit
    obligation

$
6


$
(5
)   Pension and Postretirement Cash
    Flow
  Employer Contributions

Pension


Postretirement2007

$
74


$
212008

$
90


$
182009 (expected)

$
160


$
25   Expected
    Benefits
  Pension


PostretirementIncluding


ExcludingMedicare


MedicareExpected Benefit Payments




Subsidy


Subsidy2009

$
80


$
25


$
262010

$
73


$
25


$
262011

$
80


$
26


$
272012

$
88


$
27


$
282013

$
96


$
27


$
282014 to 2018

$
627


$
141


$
146




---



##### Table of Contents



Note 13 
    Income Taxes
    2008


2007


2006Current:Federal

$
93


$
168


$
154Foreign


46



25



36State


20



26



30159



219



220Deferred:Federal


56



(41
)


(26
)Foreign


(96
)


5



(35
)State


(7
)


(6
)


(47
)


(42
)


(61
)$
112


$
177


$
159     
    Tax impact from impairment
    charge  During 2008, we recorded a
    deferred tax benefit of $115 million associated with
    impairment charges primarily related to our business in Mexico.
    Tax impact from
    restructuring  We incurred restructuring
    charges in the fourth quarter of 2008 which resulted in a tax
    benefit of $21 million.    
    Valuation
    allowances  During 2007, we reversed
    deferred tax asset valuation allowances resulting in an
    $11 million tax benefit. These reversals were due to
    improved profitability trends in Russia.
    Tax audit
    settlement  The statute of limitations for
    the IRS audit of our
    2001-2002
    tax returns closed on June 30, 2007, and we released
    approximately $46 million in reserves for uncertain tax
    benefits relating to such audit.
    Tax rate
    changes  During 2007, changes to the
    income tax laws in Canada, Mexico and certain state
    jurisdictions in the U.S. were enacted. These law changes
    required us to re-measure our net deferred tax liabilities which
    resulted in a net decrease to our income tax expense of
    approximately $13 million before the impact of minority
    interest.    
    Valuation
    allowances  During 2006, we reversed
    deferred tax asset valuation allowances resulting in a
    $34 million tax benefit. These reversals were due to
    improved profitability trends and certain restructurings in
    Spain, Russia and Turkey.
    Tax audit
    settlement  The statute of limitations for
    the IRS audit of our
    1999-2000
    tax returns closed on December 30, 2006, and we released
    approximately $55 million in tax contingency reserves
    relating to such audit.
    Tax rate
    changes  During 2006, changes to the
    income tax laws in Canada, Turkey and certain jurisdictions
    within the U.S. were enacted. These law changes required us
    to re-measure our net deferred tax liabilities using lower tax
    rates which decreased our income tax expense by approximately
    $11 million before the impact of minority interest.    2008


2007


2006U.S.

$
428


$
474


$
485Foreign


(154
)


235



196$
274


$
709


$
681     2008


2007


2006Income taxes computed at the U.S. federal statutory rate


35.0
%


35.0
%


35.0
%State income tax, net of federal tax benefit


(0.5
)


2.2



4.2Impact of foreign results


(17.7
)


(4.5
)


(1.8
)Change in valuation allowances, net


4.2



(3.5
)


(7.5
)Nondeductible expenses


11.9



2.6



1.9Other, net


(3.5
)


1.5



1.3Impairment charges


10.5







Release of tax reserves from audit settlements






(6.5
)


(8.0
)Tax rate change charge (benefit)


0.8



(1.8
)


(1.7
)Total effective income tax rate


40.7
%


25.0
%


23.4
%




---



##### Table of Contents



PART
    II(continued)        2008


2007Intangible assets and property, plant and equipment

$
1,464


$
1,585Investments


305



178Other


26



41Gross deferred tax liabilities


1,795



1,804Net operating loss carryforwards


(445
)


(366
)Employee benefit obligations


(441
)


(248
)Various liabilities and other


(279
)


(229
)Gross deferred tax assets


(1,165
)


(843
)Deferred tax asset valuation allowance


227



244Net deferred tax assets


(938
)


(599
)Net deferred tax liability

$
857


$
1,205Classification within the Consolidated Balance SheetsPrepaid expenses and other current assets

$
(86
)

$
(129
)Other assets


(26
)


(24
)Accounts payable and other current liabilities


3



2Deferred income taxes


966



1,356Net amount recognized

$
857


$
1,205                   Years Subject toJurisdiction

Examination


Years Under AuditU.S. Federal


2003-2007



2003-2005Mexico


2002-2007



2002-2003Canada


2006-2007



2006Russia


2005-2007



2005-2007




---



##### Table of Contents



2003-2005
      2008


2007Reserves (excluding interest and penalties)Balance at beginning of year

$
220


$
239Increases due to tax positions related to prior years


18



32Increases due to tax positions related to the current year


13



15Decreases due to tax positions related to prior years


(11
)


(19
)Decreases due to settlements with taxing authorities


(2
)


(6
)Decreases due to lapse of statute of limitations


(7
)


(49
)Currency translation adjustment


(19
)


8Balance at end of year

$
212


$
220Classification within the Consolidated Balance SheetsOther liabilities

$
209


$
212Accounts payable and other current liabilities






5Deferred income taxes


3



3Total amount of reserves recognized

$
212


$
220     2008


2007Interest and penalties accrued

$
95


$
77     Note 14 
    Segment
    Information      Net Revenues2008


2007


2006U.S. & Canada

$
10,300


$
10,336


$
9,910Europe


2,115



1,872



1,534Mexico


1,381



1,383



1,286Worldwide net revenues

$
13,796


$
13,591


$
12,730     Operating Income / (Loss)2008


2007


2006U.S. & Canada

$
886


$
893


$
878Europe


101



106



57Mexico


(338
)


72



82Worldwide operating income


649



1,071



1,017Interest expense, net


290



274



266Other non-operating expenses (income), net


25



(6
)


11Minority interest


60



94



59Income before income taxes

$
274


$
709


$
681


Total Assets


Long-Lived
    Assets(1)2008


2007


2006


2008


2007


2006U.S. & Canada

$
9,815


$
9,737


$
9,044


$
7,466


$
7,572


$
7,150Europe(2)


2,222



1,671



1,072



1,630



1,014



554Mexico


945



1,707



1,811



745



1,443



1,474Worldwide total

$
12,982


$
13,115


$
11,927


$
9,841


$
10,029


$
9,178   (1)
    
    Long-lived assets represent
    property, plant and equipment, other intangible assets,
    goodwill, investments in noncontrolled affiliates and other
    assets.(2)
    
    Long-lived assets include an equity
    method investment in Lebedyansky with a net book value of
    $617 million as of December 27, 2008.




---



##### Table of Contents



PART
    II(continued)      Capital Expenditures


Depreciation and Amortization2008


2007


2006


2008


2007


2006U.S. & Canada

$
528


$
626


$
558


$
499


$
510


$
514Europe


147



146



99



86



72



52Mexico


85



82



68



88



87



83Worldwide total

$
760


$
854


$
725


$
673


$
669


$
649   Note 15 
    Related
    Party Transactions    (1)
    Master Bottling Agreement for cola beverages bearing the
    Pepsi-Cola and Pepsi trademarks in the U.S.; bottling agreements
    and distribution agreements for non-cola beverages; and a master
    fountain syrup agreement in the U.S.;(2)
    Agreements similar to the Master Bottling Agreement and the
    non-cola agreement for each country in which we operate, as well
    as a fountain syrup agreement for Canada;(3)
    A shared services agreement where we obtain various services
    from PepsiCo and provide services to PepsiCo;(4)
    Russia Venture Agreement related to the formation of PR
    Beverages;(5)
    Russia Snack Food Distribution Agreement pursuant to which our
    PR Beverages venture purchases snack food products from
    Frito-Lay, Inc. (Frito), a subsidiary of PepsiCo,
    for sale and distribution in the Russian Federation; and(6)
    Transition agreements that provide certain indemnities to the
    parties, and provide for the allocation of tax and other assets,
    liabilities and obligations arising from periods prior to the
    initial public offering.        2008


2007


2006Net revenues:Bottler incentives and other
    arrangements(a)

$
93


$
66


$
67Cost of sales:Purchases of concentrate and 
    finished products, and 
    royalty
    fees(b)

$
(3,451
)

$
(3,406
)

$
(3,227
)Bottler incentives and other
    arrangements(a)


542



582



570Total cost of sales

$
(2,909
)

$
(2,824
)

$
(2,657
)Selling, delivery and administrative expenses:Bottler incentives and other
    arrangements(a)

$
56


$
66


$
69Fountain service
    fee(c)


187



188



178Frito-Lay
    purchases(d)


(355
)


(270
)


(198
)Shared
    services:(e)Shared services expense


(52
)


(57
)


(61
)Shared services revenue


7



8



8Net shared services


(45
)


(49
)


(53
)Total selling, delivery and
    administrative expenses

$
(157
)

$
(65
)

$
(4
)Income tax
    benefit:(f)

$
1


$
7


$
6   Bottler Incentives and
    Other Arrangements
  Purchases of
    Concentrate and Finished Product




---



##### Table of Contents



Fountain Service
    Fee
  Frito-Lay
    Purchases
  Shared
    Services
  Income Tax
    Benefit
  Other
    Related Party Transactions
             Note 16 
    Restructuring
    Charges




---



##### Table of Contents



PART
    II(continued)     U.S. &Worldwide


Canada


Mexico


EuropeCosts incurred through December 27, 2008

$
83


$
53


$
3


$
27Costs expected to be incurred through December 26, 2009


57-87



36-47



20-35



1-5Total costs expected to be incurred

$
140-$170


$
89-$100


$
23-$38


$
28-$32     AssetPension &


Disposal,Severance


Other


Employee& Related


Related


RelocationTotal


Benefits


Costs


& OtherCosts accrued

$
83


$
47


$
29


$
7Cash payments


(11
)


(10
)






(1
)Non-cash settlements


(30
)


(1
)


(23
)


(6
)Remaining costs accrued at December 27, 2008

$
42


$
36


$
6


$
   Note 17 
    Accumulated
    Other Comprehensive Loss    2008


2007


2006Net currency translation adjustment

$
(355
)

$
199


$
(21
)Cash flow hedge
    adjustment(1)


(23
)


10



11Minimum pension liability
    adjustment(2)










(192
)Adoption of
    SFAS 158(3)










(159
)Pension and postretirement medical benefit plans
    adjustment(4)


(560
)


(257
)


Accumulated other comprehensive loss

$
(938
)

$
(48
)

$
(361
)   (1)
    Net of minority interest and taxes of $20 million in 2008,
    $(8) million in 2007 and $(7) million in 2006.(2)
    Net of minority interest and taxes of $143 million in 2006.(3)
    Net of minority interest and taxes of $124 million in 2006.(4)
    Net of minority interest and taxes of $421 million in 2008
    and $195 million in 2007.  Note 18 
    Supplemental
    Cash Flow Information    2008


2007


2006Non-cash investing and financing activities:(Decrease) Increase in accounts payable related to capital
    expenditures

$
(67
)

$
15


$
7Acquisition of intangible asset

$



$
315


$
Liabilities assumed in conjunction with acquisition of bottlers

$
22


$
1


$
20Capital-in-kind
    contributions

$
34


$
15


$
Share compensation

$
4


$



$
   Note 19 
    Contingencies    Note 20 
    Selected
    Quarterly Financial Data (unaudited)    First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Full Year2008(1)Net revenues

$
2,651


$
3,522


$
3,814


$
3,809


$
13,796Gross profit

$
1,169


$
1,606


$
1,737


$
1,698


$
6,210Operating income (loss)

$
108


$
350


$
455


$
(264
)

$
649Net income (loss)

$
28


$
174


$
231


$
(271
)

$
162Diluted earnings (loss) per
    share(2)

$
0.12


$
0.78


$
1.06


$
(1.28
)

$
0.74   First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Full Year2007(1)Net revenues

$
2,466


$
3,360


$
3,729


$
4,036


$
13,591Gross profit

$
1,123


$
1,535


$
1,726


$
1,837


$
6,221Operating income

$
120


$
338


$
433


$
180


$
1,071Net income

$
29


$
162


$
260


$
81


$
532Diluted earnings per
    share(2)

$
0.12


$
0.70


$
1.12


$
0.35


$
2.29   (1)
    For additional unaudited information see Items affecting
    comparability of our financial results in
    Managements Financial Review in Item 7.(2)
    Diluted earnings per share are computed independently for each
    of the periods presented.  Note 21 
    Subsequent
    Event




---



##### Table of Contents



REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  The Board of
    Directors and Shareholders of
              Internal Control Integrated Framework
    New York,
    New York




---



##### Table of Contents



PART
    II(continued)    ITEM 7A.
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK   ITEM 8.
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA    Form 10-K Form 10-K
 ITEM 9.
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   ITEM 9A.
    CONTROLS AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(b) Form 10-K,
  Managements
    Annual Report on Internal Control Over Financial
    Reporting
        Form 10-K.




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  The Board of
    Directors and Shareholders of
    The Pepsi Bottling Group, Inc.
    Somers, New York
  Internal Control 
    Integrated Framework
        Internal Control  Integrated Framework
         Changes
    in Internal Control Over Financial Reporting
  Rule 13a-15(d)
 ITEM 9B.
    OTHER INFORMATION




---



##### Table of Contents



PART
    III    ITEM 10. DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE      John L. Berisford,
  Victor L. Crawford
  Alfred H. Drewes
  Eric J. Foss
  Robert C. King
  Yiannis Petrides
  Steven M. Rapp
          www.pbg.com




---



##### Table of Contents



ITEM 11. EXECUTIVE
    COMPENSATION       ITEM 12. SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS  Securities
    Authorized for Issuance Under Equity Compensation
    Plans
   Number of securitiesremaining available forNumber of securities

Weighted-average

future issuance underto be issued upon exercise

exercise price of

equity compensation plansof outstanding options,

outstanding options,

(excluding securitiesPlan Category

warrants and rights

warrants and rights

reflected in column (a))(a)

(b)

(c)Equity compensation plans approved by security holders


30,000,777
(1)


24.01



16,407,474Equity compensation plans not approved by security holders


1,403,460
(2)


14.81Total


31,404,237



23.60



16,407,474
(3)   (1)
    The securities reflected in this
    category are authorized for issuance (i) under exercise of
    awards granted under the Directors Stock Plan and the 2004
    Long-Term Incentive Plan and (ii) upon exercise of awards
    granted prior to May 26, 2004 under the following PBG
    plans: (A) 1999 Long-Term Incentive Plan; (B) 2000
    Long-Term Incentive Plan and (C) 2002 Long-Term Incentive
    Plan. Effective May 26, 2004, no securities were available
    for future issuance under the 1999 Long-Term Incentive Plan, the
    2000 Long-Term Incentive Plan or the 2002 Long-Term Incentive
    Plan.(2)
    The securities reflected in this
    category are authorized for issuance upon exercise of awards
    granted prior to May 26, 2004 under the PBG Stock Incentive
    Plan (the SIP). Effective May 26, 2004, no
    securities were available for future issuance under the SIP.(3)
    The 2004 Long-Term Incentive Plan
    and the Directors Stock Plan, both of which have been
    approved by our shareholders, are the only equity compensation
    plans that provide securities remaining available for future
    issuance.  Description
    of the PBG Stock Incentive Plan
  Form 10-K
  Security
    Ownership
   ITEM 13. CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE     ITEM 14. PRINCIPAL
    ACCOUNTANT FEES AND SERVICES




---



##### 



PART IV    ITEM 15. EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES                   
 PageSchedule II  Valuation and Qualifying Accounts
    for the fiscal years ended December 27, 2008,
    December 29, 2007 and December 30, 2006


63




---



##### Table of Contents



SIGNATURES               SIGNATURE

TITLE

DATE/s/  Eric
    J. FossEric
    J. Foss

Chairman of the Board and Chief Executive Officer (Principal
    Executive Officer)

February 19, 2009/s/  Alfred
    H. DrewesAlfred
    H. Drewes

Senior Vice President and Chief Financial Officer (Principal
    Financial Officer)

February 19, 2009/s/  Thomas
    M. LardieriThomas
    M. Lardieri

Vice President and Controller (Principal Accounting Officer)

February 19, 2009/s/  Linda
    G. AlvaradoLinda
    G. Alvarado

Director

February 19, 2009/s/  Barry
    H. BerachaBarry
    H. Beracha

Director

February 19, 2009/s/  John
    C. ComptonJohn
    C. Compton

Director

February 19, 2009/s/  Ira
    D. HallIra
    D. Hall

Director

February 19, 2009/s/  Susan
    D. KronickSusan
    D. Kronick

Director

February 19, 2009/s/  Blythe
    J. McGarvieBlythe
    J. McGarvie

Director

February 19, 2009/s/  John
    A. QuelchJohn
    A. Quelch

Director

February 19, 2009/s/  Javier
    G. TeruelJavier
    G. Teruel

Director

February 19, 2009/s/  Cynthia
    M. TrudellCynthia
    M. Trudell

Director

February 19, 2009




---



##### 



INDEX TO
    FINANCIAL STATEMENT SCHEDULES   
 PageSchedule II  Valuation and Qualifying Accounts
    for the fiscal years ended December 27, 2008,
    December 29, 2007 and December 30, 2006


63




---



##### Table of Contents



SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
    THE PEPSI BOTTLING GROUP, INC.
  Balance At


Charges to





Accounts


Foreign


Balance AtBeginning


Cost and





Written


Currency


End OfIn millions

Of Period


Expenses


Acquisitions


Off


Translation


PeriodFiscal Year Ended December 27, 2008Allowance for losses on trade accounts receivable

$
54


$
30


$



$
(9
)

$
(4
)

$
71Fiscal Year Ended December 29, 2007Allowance for losses on trade accounts receivable

$
50


$
11


$



$
(10
)

$
3


$
54Fiscal Year Ended December 30, 2006Allowance for losses on trade accounts receivable

$
51


$
5


$



$
(7
)

$
1


$
50




---



##### Table of Contents



Index to
    Exhibits    EXHIBIT NO.

DESCRIPTION OF EXHIBIT3.1

Amended and Restated Certificate of Incorporation of PBG, which
    is incorporated herein by reference to Exhibit 3.1 to
    PBGs Quarterly Report on
    Form 10-Q
    for the quarter ended June 14, 2008.3.2

By-Laws of PBG, which are incorporated herein by reference to
    Exhibit 3.2 to PBGs Registration Statement on
    Form S-1
    (Registration
    No. 333-70291).4.1

Form of common stock certificate, which is incorporated herein
    by reference to Exhibit 4 to PBGs Registration
    Statement on
    Form S-1
    (Registration
    No. 333-70291).4.2

Indenture dated as of March 8, 1999 by and among PBG, as
    obligor, Bottling Group, LLC, as guarantor, and The Chase
    Manhattan Bank, as trustee, relating to $1,000,000,000 7%
    Series B Senior Notes due 2029, which is incorporated
    herein by reference to Exhibit 10.14 to PBGs
    Registration Statement on
    Form S-1
    (Registration
    No. 333-70291).4.3

Indenture dated as of November 15, 2002 among Bottling
    Group, LLC, PepsiCo, Inc., as guarantor, and JPMorgan Chase
    Bank, as trustee, relating to $1,000,000,000
    45/8% Senior
    Notes due November 15, 2012, which is incorporated herein
    by reference to Exhibit 4.8 to PBGs Annual Report on
    Form 10-K
    for the year ended December 28, 2002.4.4

Registration Rights Agreement dated as of November 7, 2002
    relating to the $1,000,000,000
    45/8% Senior
    Notes due November 15, 2012, which is incorporated herein
    by reference to Exhibit 4.8 to Bottling Group LLCs
    Annual Report on
    Form 10-K
    for the year ended December 28, 2002.4.5

Indenture, dated as of June 10, 2003 by and between
    Bottling Group, LLC, as obligor, and JPMorgan Chase Bank, as
    trustee, relating to $250,000,000
    41/8% Senior
    Notes due June 15, 2015, which is incorporated herein by
    reference to Exhibit 4.1 to Bottling Group, LLCs
    registration statement on
    Form S-4
    (Registration
    No. 333-106285).4.6

Registration Rights Agreement dated June 10, 2003 by and
    among Bottling Group, LLC, J.P. Morgan Securities Inc.,
    Lehman Brothers Inc., Banc of America Securities LLC, Citigroup
    Global Markets Inc, Credit Suisse First Boston LLC, Deutsche
    Bank Securities Inc., Blaylock & Partners, L.P. and
    Fleet Securities, Inc, relating to $250,000,000
    41/8% Senior
    Notes due June 15, 2015, which is incorporated herein by
    reference to Exhibit 4.3 to Bottling Group, LLCs
    registration statement on
    Form S-4
    (Registration
    No. 333-106285).4.7

Indenture, dated as of October 1, 2003, by and between
    Bottling Group, LLC, as obligor, and JPMorgan Chase Bank, as
    trustee, which is incorporated herein by reference to
    Exhibit 4.1 to Bottling Group, LLCs Current Report on
    Form 8-K
    dated October 3, 2003.4.8

Form of Note for the $400,000,000 5.00% Senior Notes due
    November 15, 2013, which is incorporated herein by
    reference to Exhibit 4.1 to Bottling Group, LLCs
    Current Report on
    Form 8-K
    dated November 13, 2003.4.9

Indenture, dated as of March 30, 2006, by and between
    Bottling Group, LLC, as obligor, and JPMorgan Chase Bank, N.A.,
    as trustee, which is incorporated herein by reference to
    Exhibit 4.1 to PBGs Quarterly Report on
    Form 10-Q
    for the quarter ended March 25, 2006.4.10

Form of Note for the $800,000,000
    51/2% Senior
    Notes due April 1, 2016, which is incorporated herein by
    reference to Exhibit 4.2 to PBGs Quarterly Report on
    Form 10-Q
    for the quarter ended March 25, 2006.4.11

Indenture, dated as of October 24, 2008, by and among
    Bottling Group, LLC, as obligor, PepsiCo, Inc., as guarantor,
    and The Bank of New York Mellon, as trustee, relating to
    $1,300,000,000 6.95% Senior Notes due March 15, 2014,
    which is incorporated herein by reference to Exhibit 4.1 to
    Bottling Group, LLCs Current Report on
    Form 8-K
    dated October 21, 2008.4.12

Form of Note for the $1,300,000,000 6.95% Senior Notes due
    March 15, 2014, which is incorporated herein by reference
    to Exhibit 4.2 to Bottling Group, LLCs Current Report
    on
    Form 8-K
    dated October 21, 2008.4.13

Form of Note for the $750,000,000 5.125% Senior Notes due
    January 15, 2019, which is incorporated herein by reference
    to Exhibit 4.1 to Bottling Group, LLCs Current Report
    on
    Form 8-K
    dated January 14, 2009.10.1

Form of Master Bottling Agreement, which is incorporated herein
    by reference to Exhibit 10.1 to PBGs Registration
    Statement on
    Form S-1
    (Registration
    No. 333-70291).10.2

Form of Master Syrup Agreement, which is incorporated herein by
    reference to Exhibit 10.2 to PBGs Registration
    Statement on
    Form S-1
    (Registration
    No. 333-70291).10.3

Form of Non-Cola Bottling Agreement, which is incorporated
    herein by reference to Exhibit 10.3 to PBGs
    Registration Statement on
    Form S-1
    (Registration
    No. 333-70291).10.4

Form of Separation Agreement, which is incorporated herein by
    reference to Exhibit 10.4 to PBGs Registration
    Statement on
    Form S-1
    (Registration
    No. 333-70291).10.5

Form of Shared Services Agreement, which is incorporated herein
    by reference to Exhibit 10.5 to PBGs Registration
    Statement on
    Form S-1
    (Registration
    No. 333-70291).




---



##### Table of Contents



EXHIBIT NO.

DESCRIPTION OF EXHIBIT10.6

Form of Tax Separation Agreement, which is incorporated herein
    by reference to Exhibit 10.6 to PBGs Registration
    Statement on
    Form S-1
    (Registration
    No. 333-70291).10.7

Form of Employee Programs Agreement, which is incorporated
    herein by reference to Exhibit 10.7 to PBGs
    Registration Statement on
    Form S-1
    (Registration
    No. 333-70291).10.8

PBG 1999 Long-Term Incentive Plan, which is incorporated herein
    by reference to Exhibit 10.9 to PBGs Annual Report on
    Form 10-K
    for the year ended December 25, 1999.10.9

PBG Stock Incentive Plan, which is incorporated herein by
    reference to Exhibit 10.11 to PBGs Annual Report on
    Form 10-K
    for the year ended December 25, 1999.10.10

PBG Executive Income Deferral Program as amended, which is
    incorporated herein by reference to Exhibit 10.12 to
    PBGs Annual Report on
    Form 10-K
    for the year ended December 30, 2000.10.11

PBG Long Term Incentive Plan, which is incorporated herein by
    reference to Exhibit 10.13 to PBGs Annual Report on
    Form 10-K
    for the year ended December 30, 2000.10.12

2002 PBG Long-Term Incentive Plan, which is incorporated herein
    by reference to Exhibit 10.15 to PBGs Annual Report
    on
    Form 10-K
    for the year ended December 28, 2002.10.13

Form of Mexican Master Bottling Agreement, which is incorporated
    herein by reference to Exhibit 10.16 to PBGs Annual
    Report on
    Form 10-K
    for the year ended December 28, 2002.10.14

Form of Employee Restricted Stock Agreement under the PBG 2004
    Long-Term Incentive Plan, which is incorporated herein by
    reference to Exhibit 10.1 to PBGs Quarterly Report on
    Form 10-Q
    for the quarter ended September 4, 2004.10.15

Form of Employee Stock Option Agreement under the PBG 2004
    Long-Term Incentive Plan, which is incorporated herein by
    reference to Exhibit 10.2 to PBGs Quarterly Report on
    Form 10-Q
    for the quarter ended September 4, 2004.10.16

Form of Non-Employee Director Annual Stock Option Agreement
    under the PBG Directors Stock Plan which is incorporated
    herein by reference to Exhibit 10.3 to PBGs Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 4, 2004.10.17

Form of Non-Employee Director Restricted Stock Agreement under
    the PBG Directors Stock Plan, which is incorporated herein
    by reference to Exhibit 10.4 to PBGs Quarterly Report
    on
    Form 10-Q
    for the quarter ended September 4, 2004.10.18

Summary of the material terms of the PBG Executive Incentive
    Compensation Plan, which is incorporated herein by reference to
    Exhibit 10.6 to PBGs Quarterly Report on
    Form 10-Q
    for the quarter ended September 4, 2004.10.19

Description of the compensation paid by PBG to its
    non-management directors which is incorporated herein by
    reference to the Directors Compensation section in
    PBGs Proxy Statement for the 2009 Annual Meeting of
    Shareholders.10.20

Form of Director Indemnification, which is incorporated herein
    by reference to Exhibit 10.1 to PBGs Quarterly Report
    on
    Form 10-Q
    for the quarter ended June 11, 2005.10.21

PBG 2005 Executive Incentive Compensation Plan, which is
    incorporated herein by reference to Appendix A to
    PBGs Proxy Statement for the 2005 Annual Meeting of
    Shareholders.10.22

Form of Employee Restricted Stock Unit Agreement, which is
    incorporated herein by reference to Exhibit 10.1 to
    PBGs Quarterly Report on
    Form 10-Q
    for the quarter ended September 3, 2005.10.23

Form of Non-Employee Director Restricted Stock Unit Agreement
    under the Amended and Restated PBG Directors Stock Plan
    which is incorporated herein by reference to Exhibit 10.32
    to PBGs Annual Report on
    Form 10-K
    for the year ended December 31, 2005.10.24

Private Limited Company Agreement of PR Beverages Limited dated
    as of March 1, 2007 among PBG Beverages Ireland Limited,
    PepsiCo (Ireland), Limited and PR Beverages Limited, which is
    incorporated herein by reference to Exhibit 10.1 to
    PBGs Quarterly Report on
    Form 10-Q
    for the quarter ended March 24, 2007.10.25

U.S. $1,200,000,000 First Amended and Restated Credit Agreement
    dated as of October 19, 2007 among The Pepsi Bottling
    Group, Inc., as borrower; Bottling Group, LLC, as guarantor;
    Citigroup Global Markets Inc. and HSBC Securities (USA) Inc., as
    joint lead arrangers and book managers; Citibank, N.A., as
    agent; HSBC Bank USA, N.A., as syndication agent; and certain
    other banks identified in the First Amended and Restated Credit
    Agreement, which is incorporated herein by reference to
    Exhibit 10.1 to PBGs Current Report on
    Form 8-K
    dated October 19, 2007 and filed October 25, 2007.10.26

Distribution Agreement between PBG and the North American Coffee
    Partnership, which is incorporated herein by reference to
    Exhibit 10.3 to PBGs Quarterly Report on
    Form 10-Q
    for the quarter ended June 14, 2008.




---



##### Table of Contents



EXHIBIT NO.

DESCRIPTION OF EXHIBIT10.27

Amended and Restated Limited Liability Company Agreement of
    Bottling Group, LLC, which is incorporated herein by reference
    to Exhibit 10.4 to PBGs Quarterly Report on
    Form 10-Q
    for the quarter ended June 14, 2008.10.28

Amendment No. 1 to Bottling Group, LLCs Amended and
    Restated Limited Liability Company Agreement, which is
    incorporated herein by reference to Exhibit 10.5 to
    PBGs Quarterly Report on
    Form 10-Q
    for the quarter ended June 14, 2008.10.29*

Amended and Restated PBG Directors Stock Plan effective as
    of October 2, 2008.10.30*

Amended and Restated PBG 2004 Long-Term Incentive Plan effective
    as of January 1, 2009.10.31*

PBG Director Deferral Program effective as of January 1,
    2009.10.32*

Amended and Restated PBG Pension Equalization Plan effective as
    of January 1, 2009.10.33*

PBG 409A Executive Income Deferral Program as amended effective
    as of January 1, 2009.10.34*

Amended and Restated PBG Supplemental Savings Program effective
    as of January 1, 2009.10.35*

Distribution Agreement between PepsiCo Holdings LLC and
    Frito-Lay Manufacturing LLC effective as of January 1, 2009.12*

Computation of Ratio of Earnings to Fixed Charges.21*

Subsidiaries of The Pepsi Bottling Group, Inc.23.1*

Consent of Deloitte & Touche LLP.23.2*

Consent of Deloitte & Touche LLP, independent
    registered public accounting firm of Bottling Group, LLC.24*

Power of Attorney.31.1*

Certification by the Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31.2*

Certification by the Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32.1*

Certification by the Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32.2*

Certification by the Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.99.1*

Bottling Group, LLCs Annual Report on
    Form 10-K
    for the fiscal year ended December 27, 2008.     *
    
    Filed herewith.