10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 3, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-14893

THE PEPSI BOTTLING GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	13-4038356
(State or other jurisdiction of employer incorporation or organization)	(I.R.S. Identification No.)
One Pepsi Way, Somers, New York	10589
(Address of principal executive offices)	(Zip Code)

914-767-6000
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES þ NO o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

Number of shares of Common Stock outstanding as of September 30, 2005:
240,527,130

The Pepsi Bottling Group, Inc.
Index

		Page No.
Part I	Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations - 12 and 36 weeks ended September 3, 2005 and September 4, 2004		2
	Condensed Consolidated Statements of Cash Flows - 36 weeks ended September 3, 2005 and September 4, 2004		3
	Condensed Consolidated Balance Sheets - September 3, 2005 and December 25, 2004		4
	Notes to Condensed Consolidated Financial Statements		5-11
Item 2.	Management's Financial Review		12-20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21
Item 4.	Controls and Procedures		21
Part II	Other Information
Item 1.	Legal Proceedings		22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		22-23
Item 6.	Exhibits		24
EX-10.1: FORM OF EMPLOYEE RESTRICTED STOCK UNIT AGREEMENT
EX-11.1: COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

PART I - FINANCIAL INFORMATION

Item 1.

The Pepsi Bottling Group, Inc.

Condensed Consolidated Statements of Operations

in millions, except per share amounts, unaudited

	12 Weeks Ended					36 Weeks Ended
	September			September		September		September
	3, 2005			4, 2004		3, 2005		4, 2004
Net revenues	$	3,214		$	2,934	$	8,223	$	7,676
Cost of sales		1,695			1,522		4,306		3,951
Gross profit		1,519			1,412		3,917		3,725
Selling, delivery and administrative expenses		1,126			1,055		3,101		2,945
Operating income		393			357		816		780
Interest expense, net		56			50		169		158
Other non-operating (income) expenses, net		(1	)		1		—		3
Minority interest		24			22		47		43
Income before income taxes		314			284		600		576
Income tax expense		109			93		208		193
Net income	$	205		$	191	$	392	$	383
Basic earnings per share	$	0.84		$	0.75	$	1.60	$	1.49
Weighted-average shares outstanding		243			254		245		257
Diluted earnings per share	$	0.82		$	0.73	$	1.55	$	1.44
Weighted-average shares outstanding		250			262		252		266
Dividends declared per common share	$	0.08		$	0.05	$	0.21	$	0.11

See accompanying notes to Condensed Consolidated Financial Statements.

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The Pepsi Bottling Group, Inc.

Condensed Consolidated Statements of Cash Flows

in millions, unaudited

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

See accompanying notes to Condensed Consolidated Financial Statements.

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The Pepsi Bottling Group, Inc.

Condensed Consolidated Balance Sheets

in millions, except per share amounts

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

See accompanying notes to Condensed Consolidated Financial Statements.

4

Notes to Condensed Consolidated Financial Statements

Tabular dollars in millions, except per share amounts

Note 1 — Basis of Presentation

     The Pepsi Bottling Group, Inc. (“PBG” or the “Company”) is the world’s largest manufacturer, seller and distributor of Pepsi-Cola beverages. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of the United States, Mexico, Canada and Europe, which consists of operations in Spain, Greece, Russia and Turkey. When used in these Condensed Consolidated Financial Statements, “PBG,” “we,” “our” and “us” each refers to The Pepsi Bottling Group, Inc. and, where appropriate, to Bottling Group, LLC (“Bottling LLC”), our principal operating subsidiary.

     At September 3, 2005, PepsiCo, Inc. (“PepsiCo”) owned 99,811,403 shares of our common stock, consisting of 99,711,403 shares of common stock and 100,000 shares of Class B common stock. All shares of Class B common stock that have been authorized have been issued to PepsiCo. At September 3, 2005, PepsiCo owned approximately 41.1% of our outstanding common stock and 100% of our outstanding Class B common stock, together representing 46.6% of the voting power of all classes of our voting stock. In addition, PepsiCo owns approximately 6.8% of the equity of Bottling LLC. We fully consolidate the results of Bottling LLC and present PepsiCo’s share as minority interest in our Condensed Consolidated Financial Statements.

     The accompanying Condensed Consolidated Balance Sheet at September 3, 2005, the Condensed Consolidated Statements of Operations for the 12 weeks and 36 weeks ended September 3, 2005 and September 4, 2004 and the Condensed Consolidated Statements of Cash Flows for the 36 weeks ended September 3, 2005 and September 4, 2004 have not been audited, but have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. Actual results could differ from these estimates. These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 25, 2004, as presented in our Annual Report on Form 10-K. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation.

     Our U.S. and Canadian operations report using a fiscal year that consists of fifty-two weeks, ending on the last Saturday in December. Every five or six years a fifty-third week is added. Fiscal year 2004 consisted of fifty-two weeks. In 2005, our fiscal year consists of fifty-three weeks (the additional week is added to the fourth quarter). Our remaining countries report using a calendar-year basis. Accordingly, we recognize our quarterly business results as outlined below:

Quarter	U.S. & Canada	Mexico & Europe
First Quarter	12 weeks	January and February
Second Quarter	12 weeks	March, April and May
Third Quarter	12 weeks	June, July and August
Fourth Quarter	16 weeks/17 weeks (FY 2005)	September, October,
		November and December

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Note 2 — Seasonality of Business

     The results for the quarter are not necessarily indicative of the results that may be expected for the full year because of business seasonality. The seasonality of our operating results arises from higher sales in the second and third quarters versus the first and fourth quarters of the year, combined with the impact of fixed costs, such as depreciation and interest, which are not significantly impacted by business seasonality. From a cash flow perspective, the majority of our cash flow from operations is generated in the third and fourth quarters.

Note 3 — New Accounting Standards

     SFAS No. 123R

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revised Statement of Financial Accounting Standards (“SFAS”) No. 123, “Share-Based Payment” (“SFAS 123R”). Among its provisions, SFAS 123R will require us to measure the value of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize the cost over the requisite service period. The Company will adopt SFAS 123R in the first quarter of 2006. We are currently evaluating the impact of this proposed standard on our Consolidated Financial Statements.

     FASB Staff Position No. FAS 109-1

     In December 2004, the FASB issued Staff Position No. FAS 109-1 (“FSP 109-1”), “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” FSP 109-1 clarifies SFAS No. 109’s guidance that applies to the new tax deduction for qualified domestic production activities. We have adopted the standard at the beginning of 2005. This standard did not have a material impact to our Consolidated Financial Statements.

     FASB Staff Position No. FAS 109-2

     In December 2004, the FASB issued Staff Position No. FAS 109-2 (“FSP 109-2”), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” FSP 109-2 provides that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the new tax law on its plan for applying SFAS No. 109. PBG evaluated the new tax law and will not repatriate undistributed foreign earnings in 2005.

     FASB Interpretation No. 47

     In March 2005, the FASB issued Interpretation No. 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations,” that requires an entity to recognize a liability for a conditional asset retirement obligation when incurred if the liability can be reasonably estimated. FIN 47 clarifies that the term Conditional Asset Retirement Obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.

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FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. We are currently evaluating the impact of this standard on our Consolidated Financial Statements.

     SFAS No. 151

     In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage). In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on normal capacity of production facilities. SFAS 151 is effective for the first annual reporting period beginning after June 15, 2005. The adoption of SFAS 151 is not expected to have a material impact on our Consolidated Financial Statements.

Note 4 — Stock-Based Employee Compensation

     We measure stock-based compensation expense using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations. Accordingly, compensation expense for stock option grants to our employees is measured as the excess of the quoted market price of common stock at the grant date over the amount the employee must pay for the stock. Our policy is to grant stock options at fair value on the date of grant. As allowed by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” we have elected to continue to apply the intrinsic-value based method of accounting described above, and have adopted the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation.” If we had measured compensation cost for the stock awards granted to our employees under the fair-value based method prescribed by SFAS No. 123, net income would have been changed to the pro forma amounts set forth below:

	12 Weeks Ended						36 Weeks Ended
	September			September			September			September
	3, 2005			4, 2004			3, 2005			4, 2004
Net income:
As reported	$	205		$	191		$	392		$	383
Add: Total stock-based employee compensation expense included in reported net income, net of taxes and minority interest		—			—			1			1
Less: Total stock-based employee compensation determined under fair-value based method for all awards, net of taxes and minority interest		(11	)		(10	)		(32	)		(29	)
Pro forma	$	194		$	181		$	361		$	355
Earnings per share:
Basic — as reported	$	0.84		$	0.75		$	1.60		$	1.49
Basic — pro forma	$	0.80		$	0.71		$	1.47		$	1.38
Diluted — as reported	$	0.82		$	0.73		$	1.55		$	1.44
Diluted — pro forma	$	0.77		$	0.69		$	1.42		$	1.33

     Pro forma compensation cost measured for stock options granted to employees is amortized using a straight-line basis over the vesting period, which is typically three years.

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     The fair value of PBG stock options used to compute pro forma net income disclosures was estimated on the date of grant using the Black-Scholes-Merton option-pricing model.

Note 5 — Inventories

	September		December
	3, 2005		25, 2004
Raw materials and supplies	$	194	$	159
Finished goods		316		268
	$	510	$	427

Note 6 — Property, plant and equipment, net

	September			December
	3, 2005			25, 2004
Land	$	267		$	257
Buildings and improvements		1,280			1,263
Manufacturing and distribution equipment		3,383			3,289
Marketing equipment		2,334			2,237
Other		172			177
		7,436			7,223
Accumulated depreciation		(3,860	)		(3,642	)
	$	3,576		$	3,581

Note 7 — Other intangible assets, net and Goodwill

	September			December
	3, 2005			25, 2004
Intangibles subject to amortization:
Gross carrying amount:
Customer relationships and lists	$	52		$	46
Franchise/distribution rights		45			44
Other identified intangibles		27			30
		124			120
Accumulated amortization:
Customer relationships and lists		(9	)		(6	)
Franchise/distribution rights		(18	)		(15	)
Other identified intangibles		(17	)		(16	)
		(44	)		(37	)
Intangibles subject to amortization, net		80			83
Intangibles not subject to amortization:
Carrying amount:
Franchise rights		2,967			2,958
Distribution rights		298			288
Trademarks		216			208
Other identified intangibles		98			102
Intangibles not subject to amortization		3,579			3,556
Total other intangible assets, net	$	3,659		$	3,639
Goodwill	$	1,440		$	1,416

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     Goodwill increased by approximately $24 million in 2005 due to purchase price allocations of $5 million related to a recent acquisition and the impact from foreign currency translation of $19 million.

     For intangible assets subject to amortization, we calculate amortization expense over the period we expect to receive economic benefit. Total amortization expense was $10 million and $9 million for the thirty-six weeks ended September 3, 2005 and September 4, 2004. The weighted-average amortization period for each category of intangible assets and its estimated aggregate amortization expense expected to be recognized over the next five years are as follows:

	Weighted-	Estimated Aggregate Amortization Expense to be Incurred
	Average
	Amortization
	Period	Balance of		Fiscal Year Ending
		2005		2006		2007		2008		2009
Customer relationships and lists	18 years	$	1	$	3	$	3	$	3	$	3
Franchise/distribution rights	7 years	$	2	$	5	$	3	$	2	$	2
Other identified intangibles	7 years	$	1	$	3	$	3	$	2	$	1

Note 8 — Pension and Postretirement Medical Benefit Plans

     Pension Benefits

     Our U.S. employees participate in noncontributory defined benefit pension plans, which cover substantially all full-time salaried employees, as well as most hourly employees. Benefits generally are based on years of service and compensation, or stated amounts for each year of service. All of our qualified plans are funded and contributions are made in amounts not less than the minimum statutory funding requirements and not more than the maximum amount that can be deducted for U.S. income tax purposes. Our net pension expense for the defined benefit plans for our operations outside the U.S. was not significant and is not included in the tables presented below.

     Nearly all of our U.S. employees are also eligible to participate in our 401(k) savings plans, which are voluntary defined contribution plans. We make matching contributions to the 401(k) savings plans on behalf of participants eligible to receive such contributions. If a participant has one or more but less than 10 years of eligible service, our match will equal $0.50 for each dollar the participant elects to defer up to 4% of the participant’s pay. If the participant has 10 or more years of eligible service, our match will equal $1.00 for each dollar the participant elects to defer up to 4% of the participant’s pay.

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     Components of our U.S. pension expense for the twelve weeks and thirty-six weeks ended September 3, 2005 and September 4, 2004 are as follows:

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

     For the thirty-six weeks ended September 3, 2005, we contributed $30 million to our U.S. pension plans.

     Postretirement Medical Benefits

     Our postretirement medical plans provide medical and life insurance benefits principally to U.S. retirees and their dependents. Employees are eligible for benefits if they meet age and service requirements and qualify for retirement benefits. The plans are not funded and since 1993 have included retiree cost sharing.

     Components of our U.S. postretirement benefits expense for the twelve and thirty-six weeks ended September 3, 2005 and September 4, 2004 are as follows:

	12 Weeks Ended				36 Weeks Ended
	September		September		September		September
	3, 2005		4, 2004		3, 2005		4, 2004
Service cost	$	1	$	1	$	2	$	3
Interest cost		5		4		15		13
Amortization of net loss		1		1		5		3
U.S. postretirement benefits expense recognized in the Condensed Consolidated Statements of Operations	$	7	$	6	$	22	$	19

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Note 9 — Geographic Data

     We operate in one industry, carbonated soft drinks and other ready-to-drink beverages. We conduct business in all or a portion of the United States, Mexico, Canada, Spain, Greece, Russia and Turkey.

Net Revenues

	12 Weeks Ended				36 Weeks Ended
	September		September		September		September
	3, 2005		4, 2004		3, 2005		4, 2004
U.S	$	2,149	$	2,002	$	5,832	$	5,537
Mexico		330		288		782		722
Other countries		735		644		1,609		1,417
	$	3,214	$	2,934	$	8,223	$	7,676

Long-Lived Assets

	September		December
	3, 2005		25, 2004
U.S	$	5,846	$	5,875
Mexico		1,468		1,435
Other countries		1,482		1,444
	$	8,796	$	8,754

Note 10 — Comprehensive Income

	12 Weeks Ended						36 Weeks Ended
	September			September			September			September
	3, 2005			4, 2004			3, 2005			4, 2004
Net income	$	205		$	191		$	392		$	383
Net currency translation adjustment		45			36			42			(21	)
Cash flow hedge adjustment (a)(b)		(4	)		(2	)		(6	)		(5	)
Comprehensive income	$	246		$	225		$	428		$	357

(a)	Net of minority interest and taxes of $3 million and $1 million for the 12 weeks ended September 3, 2005 and September 4, 2004, respectively.
(b)	Net of minority interest and taxes of $4 million and $4 million for the 36 weeks ended September 3, 2005 and September 4, 2004, respectively.

Note 11 — Contingencies

     We are subject to various claims and contingencies related to lawsuits, taxes and environmental and other matters arising out of the normal course of business. We believe that the ultimate liability arising from such claims or contingencies, if any, in excess of amounts already recognized will not have a material adverse effect on our results of operations, financial condition or liquidity.

Note 12 — Subsequent Event

     On September 30, 2005 we acquired Pepsi-Cola Bottling Company of Charlotte (North Carolina). This acquisition will not have a material impact to our Consolidated Financial Statements.

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Item 2.
Management’s Financial Review

Tabular dollars in millions, except per share data

OVERVIEW

     The Pepsi Bottling Group, Inc. (“PBG” or the “Company”) is the world’s largest manufacturer, seller and distributor of Pepsi-Cola beverages. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of the United States, Mexico, Canada and Europe, which consists of operations in Spain, Greece, Russia and Turkey. When used in these Condensed Consolidated Financial Statements, “PBG,” “we,” “our” and “us” each refers to The Pepsi Bottling Group, Inc. and, where appropriate, to Bottling Group, LLC (“Bottling LLC”), our principal operating subsidiary.

     Management’s Financial Review should be read in conjunction with the accompanying unaudited financial statements and our Annual Report on Form 10-K for the fiscal year ended December 25, 2004, which include additional information about our accounting policies, practices and the transactions that underlie our financial results.

FINANCIAL PERFORMANCE SUMMARY

	12 Weeks Ended							36 Weeks Ended
	September		September		%			September		September		%
	3, 2005		4, 2004		Change			3, 2005		4, 2004		Change
Net revenues	$	3,214	$	2,934		10	%	$	8,223	$	7,676		7	%
Gross profit		1,519		1,412		8	%		3,917		3,725		5	%
Operating income		393		357		10	%		816		780		5	%
Net income		205		191		8	%		392		383		2	%
Diluted earnings per share 1	$	0.82	$	0.73		13	%	$	1.55	$	1.44		8	%

¹ – Percentage change for diluted earnings per share is calculated by using earnings per share data that is expanded to the fourth decimal place.

     For the third quarter, diluted earnings per share increased 13% to $0.82 and operating income grew 10% to $393 million, reflecting strong volume growth, coupled with solid pricing improvements. These results include a pretax gain of $26 million from the settlement of the high fructose corn syrup (“HFCS”) class action lawsuit, offset by $10 million of strategic spending initiatives, (“net litigation settlement” of $16 million or $0.04 of diluted EPS on an after-tax basis). Third quarter, 2004 net income of $191 million, or $0.73 per diluted share, included a $0.02 gain from the settlement of certain international tax audits.

     Excluding the impact of acquisitions, worldwide volume increased 5% in the third quarter, reflecting 4% growth in the U.S. and Canada, 8% growth in Europe and 6% growth in Mexico.

     Worldwide net revenue per case grew 4% in the third quarter, which includes a 1% favorable impact from foreign currency translation. In the U.S., net revenue per case increased by 2% driven primarily by rate increases.

     Worldwide cost of sales per case for the quarter increased by 5%, primarily due to higher raw material costs when compared to 2004. The increase in raw material costs was driven mostly by higher resin

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costs. A percentage point of the cost of sales per case growth was attributable to the negative impact of foreign currency translation.

     Worldwide selling, delivery and administrative expenses increased 7% in the third quarter, when compared to 2004, driven primarily by volume growth, wage and benefit increases and rising fuel costs, coupled with the negative impact of foreign currency translation. This increase was partially offset by the net litigation settlement which reduced selling, delivery and administrative growth by about 2 percentage points.

     Outlook

     In 2005, our fiscal year will include a 53^rd week, while fiscal year 2004 consisted of 52 weeks. Our U.S. and Canadian operations report on a fiscal year that consists of 52 weeks, ending on the last Saturday in December. Every five or six years a 53^rd week is added. Our other countries report on a calendar-year basis. In order to provide comparable volume guidance for 2005, we have excluded the impact of the 53^rd week from our outlook. The table and the 2005 outlook discussion below regarding volume provide pro forma disclosure by excluding the projected impact of the 53^rd week in 2005.

	Pro forma Forecasted
	2005 versus 2004			Impact of			Forecasted 2005
	growth			53rd week			versus 2004 growth
Worldwide Volume		3	%		1	%		4	%
United States Volume		1	%		1	%		2	%

     Based on our results for the first thirty-six weeks of 2005 and our intention to reinvest our 53^rd week profits in long-term, strategic spending initiatives, we expect our full-year 2005 operating income growth to be within a range of 3% to 5%. In light of the recent cost pressure on resin and rising fuel prices, we have adjusted our full-year diluted earnings per share to be $1.83 to $1.87.

     Given the strength of our year-to-date volume results, we expect our pro forma volume to increase 3% for the full year of 2005 versus 2004, excluding the impact of the 53^rd week. In the U.S., pro forma volume is expected to be approximately 1% for the full year, excluding the impact of the 53^rd week. Volume in Mexico is expected to increase 4% to 5% for the full year.

     We expect to increase our worldwide net revenue per case by approximately 3%.

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Volume

	12 Weeks Ended									36 Weeks Ended
	Sept. 3, 2005 vs.									Sept. 3, 2005 vs.
	Sept. 4, 2004									Sept. 4, 2004
	World-						Outside			World-						Outside
	wide			U.S.			the U.S.			wide			U.S.			the U.S.
Base volume		5	%		4	%		7	%		3	%		1	%		5	%
Acquisitions		1	%		1	%		0	%		1	%		1	%		1	%
Total volume change		6	%		5	%		7	%		4	%		2	%		6	%

     Excluding the impact of acquisitions, worldwide physical case volume increased 5% in the third quarter and 3% in the first thirty-six weeks of 2005, when compared with similar periods of 2004. The increase in volume for the quarter and on a year-to-date basis was driven by strong growth across the U.S., Canada, Mexico and Europe.

     In the U.S., our reported volume increased by 5% in the third quarter and 2% on a year-to-date basis versus 2004. Excluding acquisitions, our take home channel volume grew 5% and 2% for the quarter and year-to-date period, respectively, and our cold-drink channel volume increased 3% in the quarter and 1% for the year-to-date period.

     In the U.S., our non-carbonated beverage volume increased over 20% for the quarter and 15% for the year-to-date period, driven primarily by double digit growth in the Aquafina, SoBe, and Frappuccino trademarksand solid volume growth in the Lipton and Tropicana trademarks. Total carbonated soft drink volume was down approximately 1% in the quarter and 2% on a year-to-date basis, driven primarily by declines in brand Pepsi. Declines in carbonated soft drinks were partially offset by product innovation including the introduction of Tropicana Twister and Pepsi Lime. In addition, our diet carbonated soft drink portfolio grew 4% in the quarter and 3% for the year-to-date period.

     In Canada, reported volume increased 4% for the third quarter versus the prior year with 4% increases in both the cold-drink channel and the take-home channel. On a year-to-date basis, volume increased 2% with increases in both the cold-drink channel and take-home channel.

     In Europe, reported volume grew 8% in the third quarter and 7% on a year-to-date basis driven by a strong performance in both Russia and Turkey. In Russia, double digit volume growth in the third quarter and on year-to-date basis was driven by strong sales of trademarks Pepsi and Lipton Iced Tea. In Turkey, double digit volume growth both in the third quarter and on year-to-date basis was due primarily to strong sales of trademark Pepsi. In Spain, volume was flat for the third quarter and the year-to-date period, as we continued to encounter competitive pressure in the marketplace and a challenging pricing environment.

     In Mexico, reported volume increased 7% in the third quarter and 6% on a year-to-date basis, mostly due to strong jug and bottled water sales. Both jugs and bottled water had double digit increases in the quarter and year-to-date period. Total carbonated soft drink volume in Mexico was down approximately 1% in both the third quarter and on a year-to-date basis, mostly due to competitive pressure from bargain-priced brands.

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Net Revenues

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

     Worldwide net revenues were $3.2 billion for the third quarter and $8.2 billion for the first thirty-six weeks in 2005, increasing 10% and 7% respectively, over similar periods in 2004. The increases in worldwide net revenues for the quarter and on a year-to-date basis were driven primarily by improvements in volume and growth in net price per case. The favorable impact of foreign currency translation contributed one percentage point in the quarter and in the year-to-date period. Net revenues from our prior year acquisitions contributed a percentage point to our worldwide growth in both the third quarter and year-to-date period.

     In the U.S., net revenues increased by 7% in the third quarter and 5% on a year-to-date basis driven by volume and net price per case growth, coupled with a percentage point increase from the impact of acquisitions. Our net price per case improvement for both the quarter and year-to-date period was driven mostly by rate increases.

     Net revenues outside the U.S. grew approximately 14% in the third quarter and 12% for the first thirty-six weeks of 2005. The increases in net revenues outside the U.S. for the quarter and on a year-to-date basis were driven primarily by strong volume growth, coupled by rate increases and the favorable impact of foreign currency translation. In Mexico, net price per case increased slightly for the quarter versus the prior year, and was down approximately 1% on a year-to-date basis, versus the prior year. The year-to-date decline reflected a volume mix shift into bottled water and jugs, which carries a lower net price per case.

     In the third quarter, approximately 67% of our net revenues was generated in the U.S., 10% of our net revenues was generated in Mexico and the remaining 23% was generated outside the U.S. and Mexico. On a year-to-date basis, approximately 71% of our net revenues was generated in the U.S., 9% of our net revenues was generated in Mexico and the remaining 20% was generated outside the U.S. and Mexico.

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Cost of Sales

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

     Worldwide cost of sales were $1.7 billion in the third quarter and $4.3 billion for the first thirty-six weeks of 2005, increasing 11% and 9% respectively, over similar periods in 2004. The growth in cost of sales for the quarter and on a year-to-date basis was driven primarily by volume and costs per case increases, coupled with the negative impact of foreign currency translation in Canada and Mexico. Growth in volume contributed 5 percentage points of change in the quarter and 3 percentage points of change for the year-to-date period.

     In the U.S., cost of sales grew 9% in the second quarter and 7% on a year-to-date basis versus 2004. Growth in the quarter and on a year-to-date basis was driven primarily by volume and costs per case increases. Costs per case increases for both the quarter and year-to-date period were mostly due to increases in resin costs compared to 2004.

     Cost of sales outside the U.S. grew approximately 16% in the third quarter and 14% for the first thirty-six weeks of 2005, reflecting strong volume growth, the negative impact of foreign currency translation and cost per case increases. Costs per case increases outside the U.S. were driven primarily by growth in resin costs versus 2004.

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Selling, Delivery and Administrative Expenses

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

     Worldwide selling, delivery and administrative expenses were $1.1 billion in the third quarter and $3.1 billion for the first thirty-six weeks of 2005, a 7% and 5% respective increase over similar periods in 2004. This increase was driven by higher volume growth, wage and benefit increases and rising fuel prices, partially offset by the net litigation settlement. Included in our selling, delivery and administrative expenses for the quarter was a gain of $26 million in the U.S. from the settlement of the HFCS class action lawsuit, offset by $10 million of strategic spending initiatives spent in the U.S., Canada and Europe. The net litigation settlement reduced our selling, delivery and administrative worldwide growth for the quarter by approximately 2 percentage points and by 1 percentage point for the year-to-date period.

     The strategic spending initiatives included programs to enhance our customer service agenda, drive productivity and improve our management information systems. We plan to spend the balance of the proceeds from the HFCS class action lawsuit on these strategic spending initiatives during the fourth quarter.

     In the U.S., selling, delivery and administrative expenses increased approximately 2% for both the quarter and on a year-to-date basis. This increase was driven by higher volume growth, wage and benefit increases and rising fuel prices, partially offset by the gain from the settlement of the HFCS class action lawsuit. In addition, the strategic spending initiatives and acquisitions each accounted for approximately one percentage point of the increase in the quarter.

     The increases in selling, delivery and administrative expenses outside the U.S. for the quarter and on a year-to-date basis were primarily due to volume growth, wage and benefit increases and the negative impact of foreign currency translation, coupled with strategic spending initiatives.

Operating Income

     Worldwide operating income was $393 million in the third quarter, a 10% increase over 2004. On a year-to-date basis worldwide operating income was $816 million, a 5% increase over 2004. Growth in operating income for the quarter and year-to-date period was driven primarily by higher volume and pricing improvements, partially offset by higher raw material costs and increased operating costs. These results include the net litigation settlement of $16 million, which contributed 4 percentage points and 2 percentage points to our operating income growth in the quarter and year-to-date period, respectively.

     In the U.S., growth in operating income of 16% for the quarter and 6% on a year-to-date basis was driven primarily by strong revenue growth and the settlement of the HFCS class action lawsuit,

17

partially offset by higher raw material costs and higher selling, delivery and administrative expenses.

     Outside the U.S., operating income declined slightly both in the quarter and on a year-to-date basis, driven primarily by the strategic spending initiatives for improving productivity in Europe.

Interest Expense, net

     Interest expense, net increased by $6 million in the third quarter and $11 million for the first thirty-six weeks of 2005, when compared with similar periods of 2004, largely due to higher effective interest rates on our long-term debt.

Income Tax Expense

     Our effective tax rate for the thirty-six weeks ended 2005 and 2004 was 34.8% and 33.6%, respectively. The increase in the effective tax rate is primarily due to the lapping of the settlement of certain international tax audits, which allowed the Company to reverse certain previously established liabilities for tax exposures in 2004. This had resulted in a $0.02 diluted earnings per share benefit in the third quarter of 2004.

Liquidity and Financial Condition

Cash Flows

     Net cash from operations increased by $15 million to $725 million in the first thirty-six weeks of 2005. Increases in net cash provided by operations was driven by a higher mix of non-cash expenses such as depreciation charges, coupled with the timing of our pension contributions, partially offset by higher incentive compensation payouts and the expiration of certain tax incentives.

     Net cash used for investments decreased by $1 million to $424 million in the first thirty-six weeks of 2005, primarily due to higher proceeds from the sale of property, plant and equipment and offset by increases in capital expenditures.

     Net cash used for financing decreased by $922 million to $338 million in the first thirty-six weeks of 2005 driven primarily by the lapping of the repayment of our $1.0 billion note in February 2004 and lower purchases of treasury stock, partially offset by higher dividends and short-term borrowing repayments.

     For the full year in 2005, we expect to generate net cash provided by operations of about $1.2 billion. In addition, we expect capital expenditures to be between $675 million and $725 million.

Liquidity and Capital Resources

     We believe that our future cash flows from operations and borrowing capacity will be sufficient to fund capital expenditures, acquisitions, dividends and working capital requirements for the foreseeable future.

     We have a $500 million commercial paper program in the U.S. that is supported by a credit facility, which is guaranteed by Bottling LLC and expires in April 2009. We had no commercial paper outstanding at September 3, 2005. We had $86 million and $78 million outstanding in commercial paper at September 4, 2004 and December 25, 2004, respectively.

     Due to the nature of our business, we require insurance coverage for certain casualty risks. In 2005, we are self-insured for workers’ compensation and automobile risks for occurrences up to $10 million, and product and general liability risks for occurrences up to $5 million. For losses

18

exceeding these self-insurance thresholds, we purchase casualty insurance from a third-party provider.

Contractual Obligations

     As of September 3, 2005, there have been no material changes outside the normal course of business in the contractual obligations disclosed in Item 7 to our Annual Report on Form 10-K for the fiscal year ended December 25, 2004, under the caption “Contractual Obligations.”

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Cautionary Statements

     Except for the historical information and discussions contained herein, statements contained in this Form 10-Q may constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on currently available competitive, financial and economic data and our operating plans. These statements involve a number of risks, uncertainties and other factors that could cause actual results to be materially different. Among the events and uncertainties that could adversely affect future periods are:

• changes in our relationship with PepsiCo that could have a material adverse effect on our long-term and short-term business and financial results;

• restrictions imposed by PepsiCo on our raw material suppliers that could increase our costs;

• material changes from expectations in the cost of raw materials and ingredients;

• decreased demand for our product resulting from changes in consumers’ preferences;

• an inability to achieve volume growth through product and packaging initiatives;

• impact of competitive activities on our business;

• impact of customer consolidations on our business;

• an inability to achieve cost savings;

• material changes in capital investment for infrastructure and an inability to achieve the expected timing for returns on cold-drink equipment and related infrastructure expenditures;

• material changes in expected levels of bottler incentive payments from PepsiCo;

• changes in product category consumption;

• unfavorable weather conditions in our markets;

• unforeseen economic and political changes;

• possible recalls of our products;

• an inability to meet projections for performance in newly acquired territories;

• failure or inability to comply with laws and regulations;

• changes in laws and regulations governing the manufacture and sale of food and beverages, including restrictions on the sale of carbonated soft drinks in schools;

• changes in laws and regulations governing the environment, transportation, employee safety, labor and government contracts;

• changes in accounting standards and taxation requirements (including unfavorable outcomes from audits performed by various tax authorities);

• changes in our debt ratings;

• material changes in expected interest and currency exchange rates and unfavorable market performance of our pension plan assets;

• interruptions of operations due to labor disagreements;

• loss of business from a significant customer; and

• limitations on the availability of water or obtaining water rights.

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

     The overall risks to our international businesses include changes in foreign governmental policies and other political or economic developments. These developments may lead to new product pricing, tax or other policies and monetary fluctuations, which may adversely impact our business. In addition, our results of operations and the value of our foreign assets are affected by fluctuations in foreign currency exchange rates. Foreign currency gains and losses reflect transaction gains and losses as well as translation gains and losses arising from the re-measurement into U.S. dollars of the net monetary assets of businesses in highly inflationary countries. There have been no material changes to our market risks as disclosed in Item 7 to our Annual Report on Form 10-K for the year ended December 25, 2004.

Item 4.

Controls and Procedures

     PBG’s management carried out an evaluation, as required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as of the end of our last fiscal quarter. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

     In addition, PBG’s management carried out an evaluation, as required by Rule 13a-15(d) of the Exchange Act, with the participation of our Chief Executive Officer and our Chief Financial Officer, of changes in PBG’s internal control over financial reporting. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

21

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

     At the end of the fourth quarter of 2004 and during the first three quarters of 2005, we received Notices of Violation (“NOVs”) and Orders For Compliance from the Environmental Protection Agency, Region 9 (“EPA”), relating to operations at four bottling plants in California and one in Hawaii. The NOVs allege that we violated our permits and the Clean Water Act as a result of certain events relating to waste water discharge and storm water run-off.

     We have been cooperating with the authorities in their investigation of these matters, including responding to various document requests pertaining to our plants in California and each of our plants in Arizona and Hawaii. In August 2005, we met with representatives of EPA to discuss the circumstances giving rise to the NOVs and our responses. We believe monetary sanctions may be sought in connection with one or more of the NOVs. We further believe that neither the sanctions nor the remediation costs associated with these NOVs will be material to the Company’s business or financial condition.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

PBG Purchases of Equity Securities

     In the third quarter of 2005, we repurchased approximately 3 million shares of PBG common stock. Since the inception of our share repurchase program in October 1999, we have repurchased 96 million shares of PBG common stock. Our share repurchases for the third quarter of 2005, are as follows:

					Total Number of Shares		Maximum Number of
	Total Number				Purchased as Part of		Shares that May Yet Be
	of Shares		Average Price		Publicly Announced		Purchased Under the
Period	Purchased 1		Paid per Share 2		Plans or Programs 3		Plans or Programs 3
Period 7      –     06/12/05-07/09/05		938,000	$	28.76		938,000		31,704,300
Period 8      –     07/10/05-08/06/05		904,700	$	29.39		904,700		30,799,600
Period 9      –     08/07/05-09/03/05		1,438,500	$	29.19		1,438,500		29,361,100
Total		3,281,200	$	29.12		3,281,200

1	Shares have only been repurchased through publicly announced programs.
2	Average share price excludes brokerage fees.

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³ The PBG Board has authorized the repurchase of shares of common stock on the open market and through negotiated transactions as follows:

	Number of Shares
	Authorized to be
Date Share Repurchase Program was Publicly Announced	Repurchased
October 14, 1999		20,000,000
July 13, 2000		10,000,000
July 11, 2001		20,000,000
May 28, 2003		25,000,000
March 25, 2004		25,000,000
March 24, 2005		25,000,000
Total shares authorized to be repurchased as of Sept. 3, 2005		125,000,000

Unless terminated by resolution of the PBG Board, each share repurchase program expires when we have repurchased all shares authorized for repurchase thereunder.

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Item 6.

Exhibits

Exhibit No.

10.1	Form of Employee Restricted Stock Unit Agreement under the PBG 2004 Long-Term Incentive Plan
11.1	Computation of Basic and Diluted Earnings Per Share
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	Financial statements of Bottling LLC, which are incorporated herein by reference to Bottling LLC’s Quarterly Report on Form 10-Q for the quarter ended September 3, 2005, as required by the SEC as a result of Bottling LLC’s guarantee of up to $1,000,000,000 aggregate principal amount of our 7% Senior Notes due in 2029.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE PEPSI BOTTLING GROUP, INC.
		(Registrant)
Date: October 6, 2005		/s/ Andrea L. Forster
		Andrea L. Forster
		Vice President and Controller
Date: October 6, 2005		/s/ Alfred H. Drewes
		Alfred H. Drewes
		Senior Vice President and
		Chief Financial Officer

EX-10.1

EXHIBIT 10.1

FORM OF EMPLOYEE RESTRICTED STOCK UNIT AGREEMENT

     AGREEMENT made as of the [  ] (the “Grant Date”), by and between The Pepsi Bottling Group, Inc., a Delaware corporation having its principal office at One Pepsi Way, Somers, New York 10589 (“PBG”), and [  ] (“you” or the “Grantee”).

W I T N E S S E T H:

     WHEREAS, the Board of Directors of PBG (the “Board”) has approved PBG’s Long Term Incentive Plan (the “Plan”), for the purposes and subject to the provisions set forth in the Plan; and

     WHEREAS, the Compensation and Management Development Committee of the Board or its delegate (the “Committee”) (which is authorized to administer the Plan) has decided to grant you an award of restricted stock units as described herein pursuant to the Plan (the “Restricted Stock Units”); and

     WHEREAS, the Restricted Stock Units are to be evidenced by an Agreement in such form and containing such terms and conditions, as the Committee shall determine;

     NOW, THEREFORE, it is mutually agreed as follows:

     1. Grant. In consideration of your remaining in the employ of PBG, or one of its direct or indirect subsidiaries (collectively, the “Company”), PBG hereby grants to you, on the terms and conditions set forth herein, an aggregate of [  ] Restricted Stock Units subject to, and in accordance with, the terms set forth in this Agreement.

     2. Lapse of Restrictions. Subject to the terms and conditions set forth herein, your Restricted Stock Units shall become fully vested on [        ] [subject to achievement of one or more pre-established performance condition(s) permitted by the Plan] so long as you remain an employee of the Company through such date and shall be payable as soon as practicable [after such date] [[or alternatively] following a period of [insert period] after such date]; provided, however, that if your employment terminates as a result of your [Retirement (as defined below [and provided the performance condition(s) is (are) met]),] Total Disability (as defined below), or death, then you, or in the event of your death, your legal representative (or any person to whom the Restricted Stock Units may be transferred by will or the applicable laws of descent and distribution), shall be vested as of the date of such employment termination with a portion of the Restricted Stock Units which is in proportion to your active service during the period commencing on the Grant Date and ending on [        ] and such vested portion of Restricted Stock Units shall be paid as soon as practicable after such accelerated vesting date (except as provided in Section 9)[; and provided further, however, that with respect to Restricted Stock Units that are not subject to section 409A of the Internal Revenue Code of 1986 as amended (the “Code”), if you become eligible for Retirement (as defined below) during the vesting period, then with respect to each calendar year during the vesting period after you become eligible for Retirement, the portion of Restricted Stock Units that would have vested had you retired on the last day of such calendar year shall vest as of such day and shall be paid to you within two and one-half months following the end of such calendar year, solely to the extent that nonpayment would cause the Restricted Stock Units to be subject to section 409A of the Code.] Notwithstanding anything herein to the contrary (except as provided in Section 16 hereof), unless otherwise determined by the Committee, no Restricted Stock Units shall become vested after the date your employment with the Company terminates.

     3. Payment. Restricted Stock Units that vest and become payable shall be settled in shares of PBG Common Stock [[or alternatively], cash]. You shall receive one share of PBG Common Stock for each vested Restricted Stock Unit. Any amount that the Company may be required to withhold upon the settlement of Restricted Stock Units and/or the payment of dividend equivalents in respect of applicable foreign, federal (including FICA), state and local taxes, must be paid in full at the time of the issuance of shares. The Company may, in its discretion, establish procedures to ensure

proper withholding of applicable taxes, which may include issuance of the number of shares remaining net of the minimum withholding obligation.

     4. Dividend Equivalents. During the vesting period and any deferral period, you shall accumulate dividend equivalents with respect to the Restricted Stock Units, which dividend equivalents shall be paid in cash (without interest) to you only if and when the applicable Restricted Stock Units vest and become payable. Dividend equivalents shall equal the dividends actually paid with respect to PBG Common Stock during the vesting period and any deferral period.

     5. Misconduct. If the Committee or its delegate determines that the Grantee has committed “Misconduct” at any time prior to, or within twelve months after, the payment of any Restricted Stock Units, then the Committee may, in its sole discretion: (i) cancel any outstanding Restricted Stock Units and/or (ii) require the Grantee to pay to the Company the value of any Restricted Stock Units which was paid within the twelve month period immediately preceding the date of such cancellation (or if there is no cancellation, the date on which such claim for payment is made). The Grantee commits Misconduct if the Committee or its delegate determines that the Grantee: (a) violated any agreement between the Company and the Grantee, including but not limited to a violation relating to the disclosure of confidential information or trade secrets, the solicitation of employees, customers, suppliers, licensors or contractors, or the performance of competitive services; (b) engaged in any act which is considered by the Committee to be contrary to the Company’s best interests, including, but not limited to, recruiting or soliciting employees of the Company; (c) violated the Company’s Code of Conduct or engaged in any other activity which constitutes gross misconduct; (d) engaged in unlawful trading in the securities of PBG or of any other company based on information gained as a result of his or her employment with the Company; (e) disclosed to an unauthorized person or misused confidential information or trade secrets of the Company; (f) made any statement (whether written, oral or electronic), or conveyed any information about the Company which is disparaging or which reflects negatively upon the Company unless required by law or pursuant to a Company policy; or (g) Competed (as defined below) with the Company. This paragraph shall also apply if the Grantee commits Misconduct after his or her employment with the Company terminates.

     6. Adjustment for Change in Common Stock. In the event of (a) any change in the outstanding shares of PBG Common Stock by reason of any split, stock dividend, recapitalization, merger, reorganization, consolidation, combination or exchange of shares, (b) any separation of a corporation (including a spin-off or other distribution of assets of the Company to its shareholders), (c) any partial or complete liquidation, or (d) other similar corporate change, such equitable adjustments shall be made in your Restricted Stock Unit award as the Committee determines are necessary and appropriate, including, if necessary, an adjustment in the maximum number or kind of shares subject to the Restricted Stock Unit award (including the conversion of shares subject to the Restricted Stock Unit award from PBG Common Stock to stock of another entity). Such adjustment shall be conclusive and binding for all purposes of the Plan and this Agreement.

     7. Registration, Listing and Qualification of Shares. The Restricted Stock Units shall be subject to the requirements that if, at any time, the Committee determines that the registration, listing or qualification of shares covered hereby upon any securities exchange or under any foreign, federal, state or local law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in conjunction with, the granting of the Restricted Stock Units, no shares shall be issued until such registration, listing, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Committee. The Committee may require that you make such representations

and agreements and furnish such information as the Committee deems appropriate to assure compliance with or exemption from the foregoing or any other applicable legal requirement, and may cause the certificate or certificates issued to you to bear a legend indicating the existence of any restriction resulting from such representations or agreements.

     8. Nontransferability. Unless the Committee specifically determines otherwise, the Restricted Stock Units are personal to the Grantee and shall not be transferable or assignable, other than by will or the laws of descent and distribution, and any such purported transfer or assignment shall be null and void.

     9. Definitions. As used in this Agreement, the following terms shall have the meanings set forth below:

          (a) “Competed” shall mean (i) worked for, managed, operated, controlled or participated in the ownership, arrangement, operation, or control of, or be connected with or served on the board of directors of any company or entity which engages in the production, marketing or sale of any product or service produced, marketed or sold by the Company; or (ii) any action or omission which is injurious to the Company or which diverts customers or suppliers from the Company.

          [(b) “Retirement” shall have the meaning (i) used in the PBG Salaried Employees Retirement Plan (the “Retirement Plan”), as then in effect, whether it occurs (without limitation) on the Grantee’s Early Retirement Date, Normal Retirement Date or Late Retirement Date (each as defined in the Retirement Plan), or (ii) in the absence of such Retirement Plan being applicable to the Grantee, as determined by the Committee in its sole discretion.] [Notwithstanding the preceding sentence, if the Restricted Stock Units are covered by section 409A of the Code, then for purposes of determining the time of payment (but not vesting), Retirement shall not be deemed to occur unless the Grantee has incurred a “separation from service,” as that term is defined in Code section 409A, and the age and service requirements for Retirement shall be those specified under the Retirement Plan on the Grant Date (and these shall apply without regard to whether the Retirement Plan is applicable to the Grantee). If a Retirement occurs for vesting at a time when Retirement has not occurred for payment, payment will be made as soon as practicable after the date payment would have been made if the Grantee had remained in employment until vesting without regard to Retirement. If the Grantee is a “key employee” within the meaning of Code section 409A, the time of payment that is related to Retirement will be delayed as required by Code section 409A.]

          (c) “Total Disability” shall mean becoming totally and permanently disabled, as determined for purposes of the Company’s Long Term Disability Plan (or in the absence of such Disability Plan being applicable to the Grantee, as determined by the Committee in its sole discretion). [Notwithstanding the preceding sentence, if the Restricted Stock Units are covered by Code section 409A, then for purposes of time of payment but not for vesting “Total Disability” shall mean becoming “disabled” within the meaning of Code section 409A(a)(2)(C).

     If a Disability occurs for vesting at a time when Disability has not occurred for payment, payment will be made as soon as practicable after the date payment would have been made if the Grantee had remained in employment until vesting without regard to Disability. ]

          (d) “Change in Control” shall mean the occurrence of an event described in the Plan.

     10. Notices. Any notice to be given to PBG under the terms of this Agreement shall be addressed to PBG’s Executive Compensation Group at One Pepsi Way, Somers, New York 10589, or such other address as PBG may hereafter designate to the Grantee. Any such notice shall be deemed to have been duly given when personally delivered, addressed as aforesaid, or when enclosed in a properly sealed envelope or wrapper, addressed as aforesaid, and deposited, postage prepaid, with the federal postal service.

     11. Binding Effect.

          (a) This Agreement shall be binding upon and inure to the benefit of any assignee or successor in interest to PBG, whether by merger, consolidation or the sale of all or substantially all of PBG’s assets. PBG will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of PBG to expressly assume and agree to perform this Agreement in the same manner and to the same extent that PBG would be required to perform it if no such succession had taken place.

          (b) This Agreement shall be binding upon and inure to the benefit of the Grantee or his legal representative and any person to whom the Restricted Stock Unit award may be transferred by will or the applicable laws of descent and distribution.

     12. No Contract of Employment; Agreement’s Survival. This Agreement is not a contract of employment, nor does it impose on the Company any obligation to retain the Grantee in its employ. This Agreement shall survive the termination of the Grantee’s employment for any reason.

     13. Amendment; Waiver. No provision of this Agreement may be amended or waived unless agreed to in writing and signed by the Committee, and no such amendment or waiver shall cause the Agreement to violate Code section 409A. Any such amendment to this Agreement that is adverse to the Grantee shall not be effective unless and until the Grantee consents, in writing, to such amendment (provided that any amendment that is required to comply with Code section 409A shall be effective without consent unless the Grantee expressly denies consent to such amendment in writing). The failure to exercise, or any delay in exercising, any right, power or remedy under this Agreement shall not waive any right, power or remedy which the Company has under this Agreement.

     14. Severability or Reform by Court. In the event that any provision of this Agreement is deemed by a court to be broader than permitted by applicable law, then such provision shall be reformed (or otherwise revised or narrowed) so that it is enforceable to the fullest extent permitted by applicable law. If any provision of this Agreement shall be declared by a court to be invalid or unenforceable to any extent, the validity or enforceability of the remaining provisions of this Agreement shall not be affected.

     15. Prospectus. The Grantee consents to receive copies of the Plan, the Plan Prospectus and other Plan information, including, if applicable, information prepared to comply with laws outside the United States, from the Company’s employee intranet at http:\\.execcomp.pbg.pvt, following the receipt of the Restricted Stock Unit Agreement. The Grantee also consents to receive stockholder information, including copies of any annual report, proxy and Form 10K, from the investor relations section of the PBG web site at www.pbg.com. The Grantee acknowledges that this consent may be withdrawn only by written notice in accordance with Section 10, which notice may be given at any time, and that written copies of the Plan, Plan Prospectus, other Plan information and stockholder information are available by written request to the Company secretary.

     16. Plan Controls. The Restricted Stock Unit award and the terms and conditions set forth herein are subject in all respects to the terms and conditions of the Plan and any operating guidelines or other policies or regulations which govern administration of the Plan (“Plan Guidelines”), which shall be controlling, except to the extent this Agreement is more restrictive than is required under the Plan or Plan Guidelines and except to the extent provided in this Section 16. [Notwithstanding Section 4(c)(i) of the Plan, a Company approved transfer to an allied organization shall not result in immediate vesting, but employment with the allied organization shall be treated as employment with the Company for purposes of vesting.] If the Restricted Stock Units are covered by Code section 409A, then notwithstanding Section 9 of the Plan, payment of the Restricted Stock Units shall not be accelerated in connection with any change in control that is not a change event described in Code section 409A(a)(2)(A)(v). PBG reserves its rights to amend or terminate the Plan at any time without the consent of the Grantee; provided, however, that the Restricted Stock Unit award outstanding under the Plan at the time of such action shall not be adversely affected thereby and such amendment shall not cause the Agreement to violate Code section 409A. All interpretations or determinations of the Committee or its delegate shall be final, binding and conclusive upon the Grantee (and his legal representatives and any recipient of a transfer of the Restricted Stock Unit award) on any question arising hereunder or under the Plan, the Plan Guidelines or other policies or regulations which govern administration of the Plan.

     17. Rights to Future Grants. By entering into this Agreement, the Grantee acknowledges and agrees that (i) the award and acceptance of Restricted Stock Units pursuant to this Agreement does not entitle the Grantee to future grants of stock options or other awards in the future under the Plan or any other plan; (ii) the Plan is established voluntarily by the Company, is discretionary in nature, and may be modified, amended or terminated by the Company at any time unless otherwise provided in the Plan or in this Agreement; (iii) this Restricted Stock Unit award is not part of normal or expected compensation or salary for any purposes, including, but not limited to calculating any severance, termination, redundancy, bonuses, retirement payments or similar payment insofar as permitted by law; (iv) no claim or entitlement to compensation or damages shall arise from termination or diminution in value of this Restricted Stock Unit award resulting from the termination of Grantee’s employment by the Company.

     18. Compliance with Law. The Grantee further agrees to seek all necessary approval under, make all required notifications under and comply with all laws, rules and regulations applicable to the ownership of stock options, rights and stock and the payment of the Restricted Stock Units, including, without limitation, currency and exchange laws, rules and regulations.

     19. Data Transfer. By accepting the Restricted Stock Units, the Grantee has voluntarily consented to the collection, use, processing and transfer of personal data about the Grantee, including the Grantee’s name, home address and telephone number, date of birth, social security number or other employee identification number, salary, nationality, job title, and details of the Restricted Stock Units and all other equity awards from the Company for the purpose of managing and administering the Plan (“Plan Administration Data”). The Company will transfer Plan Administration Data internally as necessary for the purpose of implementation, administration and management of the Grantee’s participation in the Plan, and PBG and any subsidiary included in the Company may each further transfer Plan Administration Data to any third parties assisting the Company in the implementation, administration and management of the Plan, including the transfer of Plan Administration Data within and outside of the Grantee’s country of residence.

     20. Governing Law and Documents. This Agreement shall be governed by, construed and enforced in accordance with the laws of the state of Delaware, without giving effect to conflict of laws principles. If the Grantee has received this or any other document related to the

Plan translated into a language other than English (and if the translated version is different than the English version), the English version will control in all cases.

     Please indicate your understanding and acceptance of the foregoing by signing and returning a copy of this Agreement.

The Pepsi Bottling Group, Inc.

BY:
 

I confirm my understanding of the foregoing
and accept the Restricted Stock Unit award described above subject
to the terms and conditions described herein.

Grantee

EX-11.1

Exhibit 11.1

The Pepsi Bottling Group, Inc.
Computation of Basic and Diluted Earnings Per Share
(in millions, except per share data)

	12 Weeks Ended				36 Weeks Ended
	Sept. 3,		Sept. 4,		Sept. 3,		Sept. 4,
	2005		2004		2005		2004
Number of shares on which basic earnings per share is based:
Average outstanding during period		243		254		245		257
Add – Incremental shares under stock compensation plans		7		8		7		9
Number of shares on which diluted earnings per share is based		250		262		252		266
Net earnings applicable to common shareholders	$	205	$	191	$	392	$	383
Net earnings on which diluted earnings per share is based	$	205	$	191	$	392	$	383
Basic earnings per share	$	0.84	$	0.75	$	1.60	$	1.49
Diluted earnings per share (1)	$	0.82	$	0.73	$	1.55	$	1.44

(1) Diluted earnings per share reflect the potential dilution that could occur if the stock options or other equity awards from our stock compensation plans were exercised and converted into common stock that would then participate in net income.

The following shares are not included in the computation of diluted earnings per share because the option’s exercise price was greater than the average market price of the common shares and the effect of including the options in the computation would be antidilutive:

• For the twelve weeks ended September 3, 2005 and September 4, 2004, options to purchase 6.4 million shares and 6.9 million shares, respectively.

• For the thirty-six weeks ended September 3, 2005 and September 4, 2004, options to purchase 11.5 million shares and 6.7 million shares, respectively.

Total options outstanding at September 3, 2005 and September 4, 2004 were 40.0 million and 40.3 million, respectively.

EX-31.1

Exhibit 31.1

CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John T. Cahill, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of The Pepsi Bottling Group, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 6, 2005	/s/ John T. Cahill
	John T. Cahill
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Alfred H. Drewes, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of The Pepsi Bottling Group, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 6, 2005	/s/ Alfred H. Drewes
	Alfred H. Drewes
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of The Pepsi Bottling Group, Inc. (the “Company”) certifies to his knowledge that:

(1)	The Quarterly Report on Form 10-Q of the Company for the quarter ended September 3, 2005 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Act”); and
(2)	The information contained in the Form 10-Q fairly presents, in all material respects, the financial conditions and results of operations of the Company as of the dates and for the periods referred to in the Form 10-Q.

/s/ John T. Cahill

John T. Cahill

Chief Executive Officer

October 6, 2005

The foregoing certification (the “Certification”) is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

A signed original of the Certification has been provided to the Company and will be retained by the Company in accordance with Rule 12b-11(d) of the Act and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of The Pepsi Bottling Group, Inc. (the “Company”) certifies to his knowledge that:

(1)	The Quarterly Report on Form 10-Q of the Company for the quarter ended September 3, 2005 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Act”); and
(2)	The information contained in the Form 10-Q fairly presents, in all material respects, the financial conditions and results of operations of the Company as of the dates and for the periods referred to in the Form 10-Q.

/s/ Alfred H. Drewes

Alfred H. Drewes

Senior Vice President and

Chief Financial Officer

October 6, 2005

The foregoing certification (the “Certification”) is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

A signed original of the Certification has been provided to the Company and will be retained by the Company in accordance with Rule 12b-11(d) of the Act and furnished to the Securities and Exchange Commission or its staff upon request.