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

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

Commission file number 333-80361-01

BOTTLING GROUP, LLC

(Exact Name of Registrant as Specified in Its Charter)

Delaware		13-4042452
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
One Pepsi Way, Somers, New York		10589
(Address of Principal Executive Offices)		(Zip Code)

914-767-6000

N/A

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

 

 

Bottling Group, LLC
Index

				Page No.
Part I		Financial Information
Item 1.		Financial Statements
		Condensed Consolidated Statements of Operations — 12 and 36 weeks ended September 5, 2009 and September 6, 2008			2
		Condensed Consolidated Statements of Cash Flows — 36 weeks ended September 5, 2009 and September 6, 2008			3
		Condensed Consolidated Balance Sheets — September 5, 2009 and December 27, 2008			4
		Condensed Consolidated Statements of Changes in Equity — 36 weeks ended September 5, 2009 and September 6, 2008			5
		Condensed Consolidated Statements of Comprehensive Income — 12 and 36 weeks ended September 5, 2009 and September 6, 2008			6
		Notes to Condensed Consolidated Financial Statements			7-22
Item 2.		Management’s Financial Review			23-34
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			34
Item 4.		Controls and Procedures			34
Part II		Other Information
Item 1.		Legal Proceedings			35
Item 1A.		Risk Factors			35-36
Item 6.		Exhibits			37
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1.

Bottling Group, LLC

in millions, unaudited

		12 Weeks Ended								36 Weeks Ended
		September				September				September				September
		5, 2009				6, 2008				5, 2009				6, 2008
Net revenues		$	3,633			$	3,814			$	9,414			$	9,987
Cost of sales			2,012				2,077				5,245				5,475
Gross profit			1,621				1,737				4,169				4,512
Selling, delivery and administrative expenses			1,163				1,284				3,286				3,610
Operating income			458				453				883				902
Interest expense			56				52				181				151
Interest income			24				34				74				108
Other non-operating expenses (income), net			—				5				(4	)			—
Income before income taxes			426				430				780				859
Income tax (benefit) expense			(20	)			29				(29	)			57
Net income			446				401				809				802
Less: Net income attributable to noncontrolling interests			28				17				32				23
Net income attributable to Bottling LLC		$	418			$	384			$	777			$	779

See accompanying notes to Condensed Consolidated Financial Statements.

Bottling Group, LLC

Condensed Consolidated Statements of Cash Flows
in millions, unaudited

		36 Weeks Ended
		September				September
		5, 2009				6, 2008
Cash Flows — Operations
Net income		$	809			$	802
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization			436				468
Deferred income taxes			—				26
Share-based compensation			40				40
Net other non-cash charges and credits			94				121
Changes in operating working capital, excluding effects of acquisitions:
Accounts receivable, net			(580	)			(469	)
Inventories			(120	)			(104	)
Prepaid expenses and other current assets			52				(67	)
Accounts payable and other current liabilities			495				198
Income taxes payable			(44	)			15
Net change in operating working capital			(197	)			(427	)
Pension contributions			(106	)			—
Other operating activities, net			(55	)			(105	)
Net Cash Provided by Operations			1,021				925
Cash Flows — Investments
Capital expenditures			(357	)			(574	)
Acquisitions, net of cash acquired			(112	)			(22	)
Investments in noncontrolled affiliates			(2	)			(608	)
Proceeds from sale of property, plant and equipment			8				15
Note receivable from PBG, net			(246	)			(157	)
Issuance of note receivable from noncontrolled affiliate			(92	)			—
Repayments of note receivable from noncontrolled affiliate			19				—
Other investing activities, net			(3	)			(139	)
Net Cash Used for Investments			(785	)			(1,485	)
Cash Flows — Financing
Short-term borrowings, net			109				209
Proceeds from long-term debt			741				—
Payments of long-term debt			(1,326	)			(7	)
Contributions from noncontrolling interest holder			33				308
Other financing activities			(9	)			(1	)
Net Cash (Used for) Provided by Financing			(452	)			509
Effect of Exchange Rate Changes on Cash and Cash Equivalents			5				(10	)
Net Decrease in Cash and Cash Equivalents			(211	)			(61	)
Cash and Cash Equivalents — Beginning of Period			786				459
Cash and Cash Equivalents — End of Period		$	575			$	398

See accompanying notes to Condensed Consolidated Financial Statements.

Bottling Group, LLC

Condensed Consolidated Balance Sheets
in millions, unaudited

		September				December
		5, 2009				27, 2008
ASSETS
Current Assets
Cash and cash equivalents		$	575			$	786
Accounts receivable, net			1,985				1,371
Inventories			667				528
Prepaid expenses and other current assets			312				337
Total Current Assets			3,539				3,022
Property, plant and equipment, net			3,842				3,869
Other intangible assets, net			3,923				3,751
Goodwill			1,480				1,434
Investments in noncontrolled affiliates			597				619
Notes receivable from PBG			3,938				3,692
Other assets			155				108
Total Assets		$	17,474			$	16,495
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and other current liabilities		$	2,045			$	1,529
Short-term borrowings			223				103
Current maturities of long-term debt			10				1,305
Total Current Liabilities			2,278				2,937
Long-term debt			4,477				3,789
Other liabilities			1,183				1,284
Deferred income taxes			292				279
Total Liabilities			8,230				8,289
Equity
Owners’ net investment			9,713				8,907
Accumulated other comprehensive loss			(1,195	)			(1,373	)
Total Bottling LLC Owners’ Equity			8,518				7,534
Noncontrolling interests			726				672
Total Equity			9,244				8,206
Total Liabilities and Equity		$	17,474			$	16,495

See accompanying notes to Condensed Consolidated Financial Statements.

Bottling Group, LLC

Condensed Consolidated Statements of Changes in Equity
36 Weeks Ended September 5, 2009 and September 6, 2008
in millions, unaudited

						Accumulated				Total
						Other				Bottling
		Owners’				Compre-				LLC				Noncon-								Compre-
		Net				hensive				Owners’				trolling				Total				hensive
		Investment				Loss				Equity				Interests				Equity				Income
Balance at December 29, 2007		$	9,418			$	(189	)		$	9,229			$	379			$	9,608
Comprehensive income:
Net income			779				—				779				23				802			$	802
Net currency translation adjustment			—				(29	)			(29	)			6				(23	)			(23	)
Cash flow hedge adjustment, net of tax of $(2)			—				(30	)			(30	)			—				(30	)			(30	)
Pension and postretirement medical benefit plans adjustment			—				19				19				—				19				19
Total comprehensive income																						$	768
SFAS 158 — measurement date adjustment			(27	)			36				9				—				9
Share-based compensation			40				—				40				—				40
Contributions from owners			26				—				26				332				358
Balance at September 6, 2008		$	10,236			$	(193	)		$	10,043			$	740			$	10,783
Balance at December 27, 2008		$	8,907			$	(1,373	)		$	7,534			$	672			$	8,206
Comprehensive income:
Net income			777				—				777				32				809			$	809
Net currency translation adjustment			—				85				85				(27	)			58				58
Cash flow hedge adjustment, net of tax of $7			—				63				63				—				63				63
Pension and postretirement medical benefit plans adjustment			—				30				30				—				30				30
Total comprehensive income																						$	960
Tax benefit — equity awards			1				—				1				—				1
Withholding tax — equity awards			(7	)			—				(7	)			—				(7	)
Share-based compensation			38				—				38				—				38
Cash distributions to owner			(3	)			—				(3	)			—				(3	)
Contributions from noncontrolling interest holder			—				—				—				49				49
Balance at September 5, 2009		$	9,713			$	(1,195	)		$	8,518			$	726			$	9,244

See accompanying notes to Condensed Consolidated Financial Statements.

Bottling Group, LLC

Condensed Consolidated Statements of Comprehensive Income
in millions, unaudited

		12 Weeks Ended								36 Weeks Ended
		September				September				September				September
		5, 2009				6, 2008				5, 2009				6, 2008
Net income		$	446			$	401			$	809			$	802
Net currency translation adjustment			11				(55	)			58				(23	)
Cash flow hedge adjustment, net of tax			21				(42	)			63				(30	)
Pension and postretirement medical benefit plans adjustment			9				7				30				19
Comprehensive income			487				311				960				768
Less: Comprehensive income attributable to noncontrolling interests			24				12				5				29
Comprehensive income attributable to Bottling LLC		$	463			$	299			$	955			$	739

See accompanying notes to Condensed Consolidated Financial Statements.

Notes to Condensed Consolidated Financial Statements
Tabular dollars in millions

Note 1—Basis of Presentation

     Bottling Group, LLC (referred to as “Bottling LLC,” “we,” “our,” “us” and the “Company”) is the principal operating subsidiary of The Pepsi Bottling Group, Inc. (“PBG”) and consists of substantially all of the operations and assets of PBG. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages, in all or a portion of the United States, Mexico, Canada, Spain, Russia, Greece and Turkey.

     We prepare our unaudited Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America, which requires us to make judgments, estimates and assumptions that affect the results of operations, financial position and cash flows, as well as the related footnote disclosures. We evaluate our estimates on an ongoing basis using our historical experience as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effect cannot be determined with precision, actual results may differ from these estimates.

     These interim financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include certain information and disclosures required for comprehensive annual financial statements. Therefore, the Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 27, 2008 as presented in our Current Report on Form 8-K dated September 16, 2009. 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 52 weeks, ending on the last Saturday in December. Every five or six years a 53rd week is added. Fiscal years 2009 and 2008 consist of 52 weeks. Our remaining countries report on 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		September, October, November and December

     In preparation of these financial statements, we have evaluated and assessed all events occurring subsequent to the third quarter end and through October 9, 2009, which is the date our financial statements were issued.

     In conjunction with PBG’s initial public offering and other subsequent transactions, PBG and PepsiCo, Inc. (“PepsiCo”) contributed bottling businesses and assets used in the bottling businesses to Bottling LLC. As a result of the contribution of these assets, PBG owns 93.4 percent of Bottling LLC and PepsiCo owns the remaining 6.6 percent as of September 5, 2009. In addition, PepsiCo has a 40 percent ownership interest in PR Beverages Limited (“PR Beverages”), a consolidated venture for our Russian operations.

     We consolidate in our financial statements entities in which we have a controlling financial interest, as well as variable interest entities for which we are the primary beneficiary. Noncontrolling interests in earnings and ownership has been recorded for the percentage of these entities not owned by Bottling LLC. We have eliminated all intercompany accounts and transactions in consolidation.

Note 2—Seasonality of Business

     The results for the third quarter are not necessarily indicative of the results that may be expected for the full year because sales of our products are seasonal. 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. 141(R) as amended

     In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141(revised 2007), “Business Combinations” (“SFAS 141(R)”), which addresses the accounting and disclosure for identifiable assets acquired, liabilities assumed, and noncontrolling interests in a business combination. In April 2009, the FASB issued FASB Staff Position No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP FAS 141(R)-1”), which amended certain provisions of SFAS 141(R) related to the recognition, measurement, and disclosure of assets acquired and liabilities assumed in a business combination that arise from contingencies. SFAS 141(R) and FSP FAS 141(R)-1 became effective in 2009, and did not have a material impact on our Condensed Consolidated Financial Statements, but will continue to be evaluated on the outcome of future matters.

SFAS No. 160

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”), which addresses the accounting and reporting framework for noncontrolling interests by a parent company. SFAS 160 also addresses disclosure requirements to distinguish between interests of the parent and interests of the noncontrolling owners of a subsidiary. SFAS 160 became effective in the first quarter of 2009. The provisions of SFAS 160 require that minority interest be renamed noncontrolling interests and that a company present a consolidated net income measure that includes the amount attributable to such noncontrolling interests for all periods presented. In addition, SFAS 160 requires reporting noncontrolling interests as a component of equity in our Condensed Consolidated Balance Sheets and below income tax expense in our Condensed Consolidated Statements of Operations. As required by SFAS 160, we have retrospectively applied the presentation to our prior year balances in our Condensed Consolidated Financial Statements.

SFAS No. 161

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”), which requires enhanced disclosures for derivative and hedging activities. SFAS 161 became effective in the first quarter of 2009. See Note 8 for required disclosure.

FSP FAS 132(R)-1

     In December 2008, the FASB issued FASB Staff Position No. SFAS 132(revised 2003)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”), which requires employers to disclose information about fair value measurements of plan assets that are similar to the disclosures about fair value measurements required by SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). FSP FAS 132(R)-1 will become effective for our annual financial statements for 2009. We are currently evaluating the impact of this standard on our Consolidated Financial Statements.

FSP FAS 107-1 and APB 28-1

     In April 2009, the FASB issued FASB Staff Position No. SFAS 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”), which requires quarterly disclosure of information about the fair value of financial instruments within the scope of FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments.” FSP FAS 107-1 and APB 28-1 has an effective date requiring adoption by the third quarter of 2009 with early adoption permitted. We adopted the provisions of FSP FAS 107-1 and APB 28-1 in the first quarter of 2009. See Note 7 for required disclosures.

SFAS No. 165

     In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), which sets forth general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 became effective in the third quarter of 2009 and did not have a material impact on our Consolidated Financial Statements.

SFAS No. 167

     In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”), which amends FASB Interpretation No. 46(revised December 2003) to address the elimination of the concept of a qualifying special purpose entity. SFAS 167 also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, SFAS 167 provides more timely and useful information about an enterprise’s involvement with a variable interest entity. SFAS 167 will become effective in the first quarter of 2010. We are currently evaluating the impact of this standard on our Consolidated Financial Statements.

SFAS No. 168

     In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification^TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“SFAS 168”), which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with generally accepted accounting principles. SFAS 168 explicitly recognizes rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under federal securities laws as authoritative GAAP for SEC registrants. SFAS 168 will become effective in the fourth quarter of 2009 and will require the Company to update all existing GAAP references to the new codification references for all future filings.

Note 4—Share-Based Compensation

     The total impact of share-based compensation recognized in the Condensed Consolidated Statements of Operations was $14 million and $13 million for the 12 week periods ended September 5, 2009 and September 6, 2008, respectively, and $40 million and $40 million for the 36 week periods ended September 5, 2009 and September 6, 2008, respectively.

     During the 36 weeks ended September 5, 2009 and September 6, 2008, we granted 6 million and 3 million of PBG stock option awards at a weighted-average fair value of $4.55 and $7.12, respectively.

     During the 36 weeks ended September 5, 2009 and September 6, 2008, we granted 2 million and 1 million of PBG restricted stock unit awards at a weighted-average fair value of $18.82 and $35.33, respectively.

     Unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the incentive plans amounted to $88 million as of September 5, 2009. That cost is expected to be recognized over a weighted-average period of 2.0 years.

Note 5—Balance Sheet Details

		September				December
		5, 2009				27, 2008
Accounts Receivable, net
Trade accounts receivable		$	1,758			$	1,208
Allowance for doubtful accounts			(70	)			(71	)
Accounts receivable from PepsiCo			237				154
Other receivables			60				80
		$	1,985			$	1,371
Inventories
Raw materials and supplies		$	227			$	185
Finished goods			440				343
		$	667			$	528
Prepaid Expenses and Other Current Assets
Prepaid expenses		$	195			$	187
Accrued interest receivable from PBG			55				118
Other current assets			62				32
		$	312			$	337
Property, Plant and Equipment, net
Land		$	305			$	300
Buildings and improvements			1,663				1,542
Manufacturing and distribution equipment			4,060				3,999
Marketing equipment			2,208				2,246
Capital leases			45				23
Other			141				139
			8,422				8,249
Accumulated depreciation			(4,580	)			(4,380	)
		$	3,842			$	3,869
Other Assets
Note receivable from noncontrolled affiliate		$	79			$	—
Other assets			76				108
		$	155			$	108

Note Receivable from Noncontrolled Affiliate

     During the first quarter of 2009, we issued a ruble-denominated three-year note with an interest rate of 10.0 percent (“Note receivable from noncontrolled affiliate”) to JSC Lebedyansky (“Lebedyansky”), a consolidated subsidiary of PepsiCo and a noncontrolled affiliate of Bottling LLC, valued at $79 million on September 5, 2009. This funding was contemplated as part of the initial capitalization of the purchase of Lebedyansky between PepsiCo and us. This note receivable is recorded in other assets in our Condensed Consolidated Balance Sheets.

		September				December
		5, 2009				27, 2008
Accounts Payable and Other Current Liabilities
Accounts payable		$	613			$	444
Accounts payable to PepsiCo			324				217
Trade incentives			253				189
Accrued compensation and benefits			254				240
Other accrued taxes			130				128
Accrued interest			93				62
Other current liabilities			378				249
		$	2,045			$	1,529

Note 6—Other Intangible Assets, net and Goodwill

The components of other intangible assets are as follows:

		September				December
		5, 2009				27, 2008
Intangibles subject to amortization
Gross carrying amount
Customer relationships and lists		$	47			$	45
Franchise and distribution rights			79				41
Other identified intangibles			29				34
			155				120
Accumulated amortization
Customer relationships and lists			(17	)			(15	)
Franchise and distribution rights			(34	)			(31	)
Other identified intangibles			(10	)			(21	)
			(61	)			(67	)
Intangibles subject to amortization, net			94				53
Intangibles not subject to amortization
Carrying amount
Franchise rights			3,371				3,244
Licensing rights			315				315
Distribution rights			51				49
Brands			40				39
Other identified intangibles			52				51
Intangibles not subject to amortization			3,829				3,698
Total other intangible assets, net		$	3,923			$	3,751

     During the first quarter of 2009, we acquired distribution rights for certain energy drinks in the United States and Canada and protein-enhanced functional beverages in the United States. As a result of these acquisitions, we recorded approximately $36 million of amortizable distribution rights, with a weighted-average amortization period of 10 years.

     During the second quarter, we acquired a Pepsi-Cola and Dr Pepper franchise bottler serving portions of central Texas. As a result of this acquisition we recorded approximately $56 million of non-amortizable franchise rights and $8 million of non-compete agreements, with a weighted-average amortization period of 10 years.

     During the third quarter, we acquired a Pepsi-Cola franchise bottler serving northeastern Massachusetts. As a result of this acquisition we recorded approximately $24 million of non-amortizable franchise rights and $1 million of non-compete agreements, with a weighted-average amortization period of 10 years.

Intangible asset amortization

     Intangible asset amortization expense was $3 million for both the 12 weeks ended September 5, 2009 and September 6, 2008. Intangible asset amortization expense was $7 million for both the 36 weeks ended September 5, 2009 and September 6, 2008. Amortization expense for each of the next five years is estimated to be approximately $11 million.

Goodwill

     The changes in the carrying value of goodwill by reportable segment for the 36 weeks ended September 5, 2009 are as follows:

						U.S. &
		Total				Canada				Europe				Mexico
Balance at December 27, 2008		$	1,434			$	1,235			$	26			$	173
Purchase price allocations relating to acquisitions			6				4				2				—
Impact of foreign currency translation			40				34				(1	)			7
Balance at September 5, 2009		$	1,480			$	1,273			$	27			$	180

Note 7—Fair Value Measurements

     We adopted SFAS 157 at the beginning of the 2008 fiscal year for all financial instruments valued on a recurring basis, at least annually. Additionally, beginning in the first quarter of 2009, in accordance with the provisions of FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”) we now apply SFAS 157 to financial and nonfinancial assets and liabilities. FSP 157-2 delayed the effective date of SFAS 157 for nonfinancial assets and liabilities, except for certain items that are recognized or disclosed at fair value in the financial statements on a recurring basis. In accordance with SFAS 157, we have categorized our assets and liabilities that are measured at fair value into a three-level fair value hierarchy as set forth below. If the inputs used to measure fair value fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement. The three levels of the hierarchy are defined as follows:

     Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.

     Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for identical assets and liabilities in non-active markets, quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for substantially the full term of the asset or liability.

     Level 3 — Unobservable inputs reflecting management’s own assumptions about the input used in pricing the asset or liability.

     The following table summarizes the financial assets and liabilities we measure at fair value on a recurring basis as of September 5, 2009 and December 27, 2008:

		Level 2
		September				December
		5, 2009				27, 2008
Financial Assets
Commodity (1)		$	34			$	—
Foreign currency contracts (1)			—				13
Prepaid forward contract (2)			21				13
Interest rate swaps (3)			—				8
Total		$	55			$	34
Financial Liabilities
Commodity (1)		$	18			$	57
Foreign currency contracts (1)			9				6
Interest rate swaps (3)			48				1
Total		$	75			$	64

Other Financial Assets and Liabilities

     Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and other accrued liabilities and short-term debt. The carrying value of these financial assets and liabilities approximates fair value due to their short maturities and due to their interest rates approximating current market rates for short-term debt.

     Long-term debt, which includes the current maturities of long-term debt, at September 5, 2009, had a carrying value and fair value of $4.5 billion and $5.0 billion, respectively, and at December 27, 2008, had a carrying value and fair value of $5.1 billion and $5.3 billion, respectively. The fair value is based on interest rates that are currently available to us for issuance of debt with similar terms and remaining maturities.

Note 8—Financial Instruments and Risk Management

     We are subject to the risk of loss arising from adverse changes in commodity prices, foreign currency exchange rates, interest rates and PBG’s stock price. In the normal course of business, we manage these risks through a variety of strategies, including the use of derivatives. Our corporate policy prohibits the use of derivative instruments for trading or speculative purposes, and we have procedures in place to monitor and control their use.

     All derivative instruments are recorded at fair value as either assets or liabilities in our Condensed Consolidated Balance Sheets. Derivative instruments are generally designated and accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) as either a hedge of a recognized asset or liability (“fair value hedge”) or a hedge of a forecasted transaction (“cash flow hedge”). Certain of these derivatives are not designated as hedging instruments under SFAS 133 and are used as “economic hedges” to manage certain risks in our business.

     We are exposed to counterparty credit risk on all of our derivative financial instruments. We have established and maintained counterparty credit guidelines and enter into transactions only with financial institutions of investment grade or better. We monitor our counterparty credit risk and utilize numerous counterparties to minimize our exposure to potential defaults. We do not require collateral under these agreements.

     For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the change in the fair value of a derivative instrument is deferred in accumulated other comprehensive loss (“AOCL”) until the underlying hedged item is recognized in earnings. The derivative gain or loss recognized in earnings is recorded consistent with the expense classification of the underlying hedged item. The ineffective portion of a fair value change on a qualifying cash flow hedge is recognized in earnings immediately.

     Derivative instruments that are not designated as hedging instruments under SFAS 133, but are used as economic hedges to manage certain risks in our business, are marked to market on a periodic basis and recognized currently in earnings consistent with the expense classification of the underlying hedged item.

     Commodity — We use forward and option contracts to hedge the risk of adverse movements in commodity prices related primarily to anticipated purchases of raw materials and energy used in our operations. These contracts generally range from one to 24 months in duration. Our open commodity derivative contracts that qualify for cash flow hedge accounting have a notional value, based on the contract price, of $336 million as of September 5, 2009. Our open commodity derivative contracts that act as economic hedges but do not qualify for hedge accounting have a notional value, based on the contract price, of $8 million as of September 5, 2009.

     Foreign Currency — We are subject to foreign currency transactional risks in certain of our international territories primarily for the purchase of commodities that are denominated in currencies that are different from their functional currency. We enter into forward contract agreements to hedge a portion of this foreign currency risk. These contracts generally range from one to 24 months in duration. Our open foreign currency derivative contracts that qualify for cash flow hedge accounting have a notional value, based on the contract price, of $89 million as of September 5, 2009.

     We have foreign currency derivative contracts that act as economic hedges, which have a notional value, based on the contract price, of $47 million as of September 5, 2009. Additionally, we fair value certain vendor and customer contracts that have embedded foreign currency derivative components. These contracts generally range from one year to three years and as of September 5, 2009, have a notional value, based on the contract price, of $13 million.

     Interest — We have entered into treasury rate lock agreements to hedge against adverse interest rate changes relating to the issuance of certain fixed rate debt financing arrangements. Gains and losses from these treasury rate lock agreements that are considered effective are deferred in AOCL and amortized to interest expense over the duration of the debt term. The Company has a $3 million net deferred gain in AOCL related to these instruments, which will be amortized over the next seven years. For the 36 weeks ended September 5, 2009, we recognized, in interest expense, a loss of $0.3 million.

     We effectively converted $1.25 billion of our fixed-rate debt to floating-rate debt through the use of interest rate swaps with the objective of reducing our overall borrowing costs. These interest rate swaps meet the criteria for fair value hedge accounting and are assumed to be 100 percent effective in eliminating the market-rate risk inherent in our long-term debt. Accordingly, any gain or loss associated with these swaps is fully offset by the opposite market impact on the related debt and recognized currently in earnings.

     Unfunded Deferred Compensation Liability — Our unfunded deferred compensation liability is subject to changes in PBG’s stock price as well as price changes in other equity and fixed-income investments. We use prepaid forward contracts to hedge the portion of our deferred compensation liability that is based on PBG’s stock price. At September 5, 2009, we had a prepaid forward contract for 585,000 shares of PBG’s stock.

Balance Sheet Classification

     The following summarizes the fair values and location in our Condensed Consolidated Balance Sheet of all derivatives held by the Company as of September 5, 2009:

Derivatives Designated as Hedging						Fair
Instruments under SFAS 133		Balance Sheet Classification				Value
Assets
Commodity		Prepaid expenses and other current assets				$	24
Commodity		Other assets					10
						$	34
Liabilities
Foreign currency		Accounts payable and other current liabilities				$	4
Commodity		Accounts payable and other current liabilities					16
Commodity		Other liabilities					2
Interest rate swaps		Other liabilities					48
						$	70

Derivatives Not Designated as Hedging						Fair
Instruments under SFAS 133		Balance Sheet Classification				Value
Assets
Prepaid forward contract		Prepaid expenses and other current assets				$	21
Liabilities
Foreign currency		Accounts payable and other current liabilities				$	4
Foreign currency		Other liabilities					1
						$	5

Cash Flow Hedge Gains (Losses) Recognition

     The following summarizes the gains (losses) recognized in the Condensed Consolidated Statements of Operations and Other Comprehensive Income (“OCI”) of derivatives designated and qualifying as cash flow hedges for the 12 and 36 weeks ended September 5, 2009:

		Amount of										Amount of Gain (Loss)
		Gain (Loss)										Reclassified
		Recognized in										from AOCL into
		OCI										Income
Derivatives in SFAS		12 Weeks				36 Weeks						12 Weeks				36 Weeks
133 Cash Flow		Ended				Ended				Location of Gain (Loss)		Ended				Ended
Hedging		September				September				Reclassified from AOCL into		September				September
Relationships		5, 2009				5, 2009				Income		5, 2009				5, 2009
Foreign currency		$	(1	)		$	(15	)		Cost of sales		$	(6	)		$	(1	)
Commodity			16				35			Cost of sales			5				2
Commodity			(8	)			2			Selling, delivery and administrative expenses			(9	)			(35	)
		$	7			$	22					$	(10	)		$	(34	)

     For the 12 and 36 weeks ended September 5, 2009, we recorded approximately $3 million and $6 million of income, respectively, from ineffectiveness relating to our commodity cash flow hedges.

     Assuming no change in the commodity prices and foreign currency rates as measured September 5, 2009, $2 million of unrealized net gains will be reclassified from AOCL and recognized in earnings over the next 12 months.

Other Derivatives Gains (Losses) Recognition

     The following summarizes the gains (losses) and the location in the Condensed Consolidated Statements of Operations of derivatives designated and qualifying as fair value hedges and derivatives not designated as hedging instruments for the 12 and 36 weeks ended September 5, 2009:

						Amount of
						Gain (Loss)
						Recognized in
						Income on
						Derivative
						12 Weeks				36 Weeks
						Ended				Ended
		Location of Gain (Loss) Recognized in				September				September
		Income on Derivative				5, 2009				5, 2009
Derivatives in SFAS 133 Fair Value Hedging Relationship
Interest rate swaps		Interest expense, net				$	7			$	17
Derivatives Not Designated as Hedging Instruments under SFAS 133
Prepaid forward contract		Selling, delivery and administrative expenses				$	1			$	8
Foreign currency		Other non-operating expenses (income), net					—				(3	)
						$	1			$	5

     The Company has recorded a $0.1 million loss and a $4 million gain of net foreign currency transactions in other non-operating expenses (income), net in the Condensed Consolidated Statements of Operations for the 12 weeks and 36 weeks ended September 5, 2009, respectively.

Note 9—Pension and Postretirement Medical Benefit Plans

     We participate in PBG sponsored pension and other postretirement medical benefit plans in various forms in the United States and other similar pension plans in our international locations, covering employees who meet specified eligibility requirements.

     The assets, liabilities and expense associated with our international plans were not significant to our results of operations and our financial position and are not included in the tables and discussion presented below.

Components of Net Pension Expense

		12 Weeks Ended								36 Weeks Ended
		September				September				September				September
		5, 2009				6, 2008				5, 2009				6, 2008
Service cost		$	9			$	12			$	32			$	35
Interest cost			24				23				73				69
Expected return on plan assets — (income)			(28	)			(27	)			(82	)			(80	)
Amortization of net loss			8				4				24				11
Amortization of prior service costs			2				1				5				5
Net pension expense for the defined benefit plans		$	15			$	13			$	52			$	40

     For the 36 weeks ended September 5, 2009, we made $106 million of contributions to the U.S. defined benefit pension trust. On September 15, 2009, we made an additional $105 million of contributions to the U.S. defined benefit pension trust.

Components of Postretirement Medical Expense

		12 Weeks Ended								36 Weeks Ended
		September				September				September				September
		5, 2009				6, 2008				5, 2009				6, 2008
Service cost		$	1			$	1			$	4			$	3
Interest cost			5				5				14				15
Amortization of net loss			—				1				1				2
Total postretirement medical expense		$	6			$	7			$	19			$	20

Defined Contribution Benefits

     Defined contribution expense was $9 million and $6 million for the 12 weeks ended September 5, 2009 and September 6, 2008, respectively, and $30 million and $21 million for the 36 weeks ended September 5, 2009 and September 6, 2008, respectively.

Note 10—Income Taxes

     During the second quarter of 2009, we reached a settlement with the Canadian tax authorities on an issue related to the 1999-2005 tax years. As a result, our gross reserves for uncertain tax benefits, excluding interest, decreased by $19 million which was reflected as a benefit in income tax expense in our Condensed Consolidated Statements of Operations. In addition, we decreased our related reserves for interest by approximately $6 million and recognized a tax benefit from interest refunds of approximately $4 million, for a total net tax benefit of $29 million as a result of these items.

     During the third quarter of 2009, we settled various audits in our international jurisdictions. As a result, our gross reserves for uncertain tax benefits, excluding interest, decreased by $36 million. In addition, we decreased our related reserves for interest by approximately $30 million. Of these amounts, $46 million was reflected as a benefit in income tax expense in our Condensed Consolidated Statements of Operations and $20 million was paid.

     We currently have on-going income tax audits in our major tax jurisdictions. We believe that it is reasonably possible that our reserves for uncertain tax benefits could further decrease by up to $2 million within the next 12 months as a result of the completion of audits in various jurisdictions or the expiration of statute of limitations.

Note 11—Segment Information

     We operate in one industry, carbonated soft drinks and other ready-to-drink beverages, and all of our segments derive revenue from these products. We conduct business in all or a portion of the United States, Mexico, Canada, Spain, Russia, Greece and Turkey. PBG manages and reports operating results through

three reportable segments — U.S. & Canada, Europe (which includes Spain, Russia, Greece and Turkey) and Mexico.

     Operationally, the Company is organized along geographic lines with specific regional management teams having responsibility for the financial results in each reportable segment. We evaluate the performance of these segments based on operating income or loss. Operating income or loss is exclusive of net interest expense, noncontrolling interests, foreign exchange gains and losses and income taxes.

     The Company’s corporate headquarters centrally manages commodity derivatives on behalf of our segments. During 2009, we expanded our hedging program to mitigate price changes associated with certain commodities utilized in our production process. These derivatives hedge the underlying price risk associated with the commodity and are not entered into for speculative purposes. Certain commodity derivatives do not qualify for hedge accounting treatment. Others receive hedge accounting treatment but may have some element of ineffectiveness based on the accounting standard. These commodity derivatives are marked-to-market each period until settlement, resulting in gains and losses being reflected in corporate headquarters’ results. The gains and losses are subsequently reflected in the segment results when the underlying commodity’s cost is recognized. Therefore, segment results reflect the contract purchase price of these commodities. The Company did not have any comparable activity in the prior year periods.

     The following tables summarize select financial information related to our reportable segments:

		12 Weeks Ended								36 Weeks Ended
		September				September				September				September
		5, 2009				6, 2008				5, 2009				6, 2008
Net Revenues
U.S. & Canada		$	2,665			$	2,652			$	7,393			$	7,395
Europe			641				770				1,239				1,598
Mexico			327				392				782				994
Worldwide net revenues		$	3,633			$	3,814			$	9,414			$	9,987
Operating Income
U.S. & Canada		$	301			$	298			$	717			$	701
Europe			123				123				117				137
Mexico			30				32				45				64
Total segments			454				453				879				902
Corporate — net impact of mark-to-market on commodity hedges			4				—				4				—
Worldwide operating income			458				453				883				902
Interest expense			56				52				181				151
Interest income			24				34				74				108
Other non-operating expenses (income), net			—				5				(4	)			—
Income before income taxes		$	426			$	430			$	780			$	859

		September				December
		5, 2009				27, 2008
Total Assets
U.S. & Canada		$	13,989			$	13,328
Europe			2,534				2,222
Mexico			946				945
Total segments			17,469				16,495
Corporate			5				—
Worldwide total assets		$	17,474			$	16,495

Note 12—Restructuring Charges

     In the fourth quarter of 2008, we announced a restructuring program to enhance the Company’s operating capabilities in each of our reporting segments with the objective to strengthen customer service and selling effectiveness; simplify decision making and streamline the organization; drive greater cost productivity to adapt to current macroeconomic challenges; and rationalize the Company’s supply chain infrastructure. As part of the restructuring program, approximately 3,600 positions will be eliminated across all reporting segments, four facilities will be closed in the United States, three plants and about 30 distribution centers will be closed in Mexico and about 700 routes will be eliminated in Mexico. In addition, PBG modified its U.S. defined benefit pension plans, which will generate long-term savings and significantly reduce future financial obligations.

     The Company expects to record pre-tax charges of $140 million to $170 million in selling, delivery and administrative expenses over the course of the restructuring program, which are primarily for severance and related benefits, pension and other employee-related costs and other charges, including employee relocation and asset disposal costs. Certain of the restructuring actions have been delayed due to the pending merger with PepsiCo, therefore, the restructuring actions may not be completed by the end of 2009, as originally intended.

     Since the inception of the program and through September 5, 2009, we eliminated approximately 2,650 positions across all reporting segments and closed four facilities in the United States, three plants and 15 distribution centers in Mexico and eliminated 470 routes in Mexico.

     The Company expects to incur approximately $130 million in pre-tax cash expenditures from these restructuring actions, of which $60 million was paid since the inception of the program, with the balance expected to occur in 2009 and 2010. This includes $6 million of employee benefit payments pursuant to existing unfunded termination indemnity plans. These benefit payments have been accrued for in previous periods, and therefore, are not included in our estimated cost for this program or the tables below.

     The following tables summarize the pre-tax costs associated with the restructuring program.

By Reportable Segment

						U.S. &
		Worldwide				Canada				Mexico				Europe
Costs incurred through December 27, 2008		$	83			$	53			$	3			$	27
Costs incurred through the 24 weeks ended June 13, 2009			14				7				6				1
Costs incurred during the third quarter ended September 5, 2009			5				1				4				—
Costs expected to be incurred through December 25, 2010			38-68				28-39				10-25				0-4
Total costs expected to be incurred		$	140-$170			$	89-$100			$	23-$38			$	28-$32

By Activity

														Asset
										Pension &				Disposal,
						Severance				Other				Employee
						& Related				Related				Relocation
		Total				Benefits				Costs				& Other
Costs incurred through December 27, 2008		$	83			$	47			$	29			$	7
Cash payments			(11	)			(10	)			—				(1	)
Non-cash settlements			(30	)			(1	)			(23	)			(6	)
Remaining costs accrued at December 27, 2008			42				36				6				—
Costs incurred through the second quarter ended June 13, 2009			14				5				1				8
Cash payments			(36	)			(29	)			(2	)			(5	)
Non-cash settlements			(3	)			—				(1	)			(2	)
Remaining costs accrued at June 13, 2009			17				12				4				1
Costs incurred during the third quarter ended September 5, 2009			5				1				—				4
Cash payments			(7	)			(2	)			(2	)			(3	)
Non-cash settlements			(2	)			—				—				(2	)
Remaining costs accrued at September 5, 2009		$	13			$	11			$	2			$	—

Note 13—Supplemental Cash Flow Information

     The table below presents the Company’s supplemental cash flow information:

		36 Weeks Ended
		September				September
		5, 2009				6, 2008
Interest paid		$	146			$	143
Income taxes paid		$	14			$	15

Note 14—Contingencies

     We are subject to various claims and contingencies related to lawsuits, environmental and other matters arising from 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 is not likely to have a material adverse effect on our results of operations, financial condition or liquidity.

     On April 19, 2009, PBG received an unsolicited proposal from PepsiCo to acquire all of the outstanding shares of the PBG’s common stock not already owned by PepsiCo for $29.50 per share. The proposal consisted of $14.75 in cash plus 0.283 shares of PepsiCo common stock for each share of PBG common stock. Immediately following receipt of the proposal, PBG’s Board of Directors formed a special committee to review the adequacy of the proposal. On May 4, 2009, PBG’s Board of Directors rejected the proposal.

     On August 3, 2009, PBG and PepsiCo entered into a definitive merger agreement, under which PepsiCo will acquire all outstanding shares of PBG common stock it does not already own for the price of $36.50 in cash or 0.6432 shares of PepsiCo common stock, subject to proration such that the aggregate consideration to be paid to PBG shareholders shall be 50 percent in cash and 50 percent in PepsiCo common stock. The transaction is subject to PBG shareholder approval and certain regulatory approvals and is expected to be finalized in late 2009 or early 2010.

     As discussed below, PBG and members of its Board of Directors have been named in a number of lawsuits relating to the PepsiCo proposal. It is not presently possible to accurately forecast the outcome or

the ultimate cost of these lawsuits. In the event of prolonged proceedings or a determination adverse to PBG or its directors or officers, PBG may incur substantial monetary liability and expense, which could have a material adverse effect on our business and financial results.

     Beginning on April 22, 2009, seven putative stockholder class action complaints challenging the April 19 proposal were filed against PBG and the individual members of its Board of Directors in the Court of Chancery of the State of Delaware (the “Delaware Lawsuits”). The complaints alleged, among other things, that the defendants had breached or would breach their fiduciary duties owed to the public stockholders of PBG in connection with the April 19 proposal. The Delaware Lawsuits were consolidated on June 5, 2009, and an amended complaint was filed on June 19, 2009. The amended complaint seeks, among other things, damages and declaratory, injunctive, and other equitable relief alleging, among other things, that the defendants have breached or will breach their fiduciary duties owed to the public stockholders of PBG, that the April 19 proposal and the transactions contemplated thereunder were not entirely fair to the public stockholders, that PepsiCo had retaliated or would retaliate against PBG for rejecting the April 19 proposal, and that certain provisions of PBG’s certificate of incorporation are invalid and/or inapplicable to the April 19 proposal and the pending merger. On July 23, 2009, motions for partial summary judgment were filed concerning the plaintiffs’ allegations relating to PBG’s certificate of incorporation.

     Beginning on April 29, 2009, two putative stockholder class action complaints were filed against PBG and members of its Board of Directors in the Supreme Court of the State of New York, County of Westchester. The complaints seek, among other things, damages and declaratory, injunctive, and other equitable relief and allege, among other things, that the defendants have breached or will breach their fiduciary duties owed to the public stockholders of PBG, that the April 19 proposal and the transactions contemplated thereunder were not entirely fair to the public stockholders of PBG, and that the defensive measures implemented by PBG were not being used to maximize stockholder value. On June 8, 2009, PBG filed Motions to Dismiss (or, in the alternative, to Stay), the actions in favor of the previously filed actions pending in the Delaware Court of Chancery. As of June 26, 2009, PBG’s Motions were fully briefed and submitted to the Court.

     On May 8, 2009, a putative stockholder class action complaint was filed against PBG and the members of its Board of Directors other than John C. Compton and Cynthia M. Trudell in the Supreme Court of the State of New York, County of New York. The complaint alleged that the defendants had breached their fiduciary duties owed to the public stockholders of PBG by depriving those stockholders of the full and fair value of their shares by failing to accept PepsiCo’s April 19 proposal to acquire PBG or to negotiate with PepsiCo after that proposal was made and by adopting certain defensive measures. On June 8, 2009, PBG filed Motions to Dismiss (or, in the alternative, to Stay) this action in favor of the previously filed actions pending in the Delaware Court of Chancery. The plaintiff failed to file a timely opposition to the Motion. On August 10, 2009, the plaintiff filed an amended class action complaint, adding as defendants PepsiCo, Mr. Compton and Ms. Trudell. The amended complaint seeks, among other things, damages and declaratory, injunctive, and other equitable relief and alleges, among other things, that the defendants have breached or will breach their fiduciary duties owed to the public stockholders of PBG and that the pending merger is not entirely fair to the public stockholders of PBG. On August 27, 2009, PBG again filed Motions to Dismiss (or, in the alternative, to Stay) this action in favor of the previously filed actions pending in the Delaware Court of Chancery.

     On May 11, 2009, PepsiCo, Inc., along with Mr. Compton and Ms. Trudell (PepsiCo employees who are members of PBG’s Board of Directors) filed a complaint against PBG and the other members of its Board of Directors in Delaware Chancery Court. The complaint sought declaratory and injunctive relief and alleged that the defendants had breached their fiduciary duties owed to the public stockholders of PBG by, among other things, holding a meeting of PBG’s Board of Directors and taking certain actions at that meeting without providing notice to Mr. Compton and Ms. Trudell, adopting a stockholder rights plan that restricts PepsiCo’s rights as a stockholder by, for example, limiting its ability to solicit consents, and adopting a stockholder rights plan that was an unreasonable and disproportionate response to the April 19 proposal. On August 5, 2009, following PBG’s entry into the merger agreement with PepsiCo, PepsiCo voluntarily dismissed this action with prejudice.

Note 15—Guarantees

     PBG has a committed revolving credit facility of $1.2 billion and an uncommitted credit facility of $500 million. Both of these credit facilities are guaranteed by us and will be used to support PBG’s commercial paper program and our working capital requirements. PBG had no outstanding commercial paper as of September 5, 2009 and December 27, 2008.

     In March 1999, PBG issued $1 billion of seven percent senior notes due 2029, which are guaranteed by us. We also guarantee that to the extent there is available cash, we will distribute pro rata to PBG and PepsiCo sufficient cash such that the aggregate cash distributed to PBG will enable PBG to pay its taxes, repurchase shares, distribute dividends and make interest payments for its internal and external debt.

Item 2.

MANAGEMENT’S FINANCIAL REVIEW

Tabular dollars in millions

OUR BUSINESS

     Bottling Group, LLC (referred to as “Bottling LLC,” “we,” “our,” “us” and “Company”) is the principal operating subsidiary of The Pepsi Bottling Group, Inc. (“PBG”) and consists of substantially all of the operations and the assets of PBG. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of the U.S., Mexico, Canada, Spain, Russia, Greece and Turkey.

     We operate in one industry, carbonated soft drinks and other ready-to-drink beverages, and all of our segments derive revenue from these products. We manage and report operating results through three reportable segments – U.S. & Canada, Europe (which includes Spain, Russia, Greece and Turkey) and Mexico. Operationally, the Company is organized along geographic lines with specific regional management teams having responsibility for the financial results in each reportable segment.

     Management’s Financial Review should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the accompanying notes for the fiscal year ended December 27, 2008 included in our Current Report on Form 8-K dated September 16, 2009, which include additional information about our accounting policies, practices and the transactions that underlie our financial results. The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires us to make estimates and assumptions that affect the reported amounts in our Condensed Consolidated Financial Statements and the accompanying notes, including various claims and contingencies related to lawsuits, taxes, environmental and other matters arising out of the normal course of business. We apply our best judgment, our knowledge of existing facts and circumstances and actions that we may undertake in the future in determining the estimates that affect our Condensed Consolidated Financial Statements. We evaluate our estimates on an ongoing basis using our historical experience as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effect cannot be determined with precision, actual results may differ from these estimates.

OUR CRITICAL ACCOUNTING POLICIES

     As discussed in Item 7 included within the Company’s Current Report on Form 8-K dated September 16, 2009, management believes the following policies, which require the use of estimates, assumptions and the application of judgment, to be the most critical to the portrayal of Bottling LLC’s financial condition and results of operations:

•		Other Intangible Assets, net and Goodwill;
•		Pension and Postretirement Medical Benefit Plans; and
•		Income Taxes.

OUR FINANCIAL RESULTS

ITEMS AFFECTING COMPARABILITY OF OUR FINANCIAL RESULTS

     The period-over-period comparisons of our financial results are affected by the following items included in our reported results:

		12 Weeks Ended								36 Weeks Ended
		September				September				September				September
Income/(Expense)		5, 2009				6, 2008				5, 2009				6, 2008
Operating Income
2008 Restructuring Actions		$	(5	)		$	—			$	(19	)		$	—
2007 Restructuring Actions and Asset Disposal Charges			—				—				—				(5	)
Mark-to-Market Net Impact			4				—				4				—
Operating Income Impact		$	(1	)		$	—			$	(15	)		$	(5	)
Net Income Attributable to Bottling LLC
2008 Restructuring Actions		$	(4	)		$	—			$	(17	)		$	—
2007 Restructuring Actions and Asset Disposal Charges			—				—				—				(5	)
Mark-to-Market Net Impact			4				—				4				—
Tax Audit Settlements			43				—				72				—
Net Income Attributable to Bottling LLC Impact		$	43			$	—			$	59			$	(5	)