UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

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

For the quarterly period ended June 28, 2008

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

For the transition period from                      to                     

PEPSIAMERICAS, INC.

(Exact name of registrant as specified in its charter)

Delaware		13-6167838
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
4000 Dain Rauscher Plaza, 60 South Sixth Street
Minneapolis, Minnesota		55402
(Address of principal executive offices)		(Zip Code)

(612) 661-4000

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 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 þ		Accelerated filer o		Non-accelerated filer o		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 Exchange Act Rule 12b-2 of the Exchange Act).

Yes o No þ

As of July 25, 2008, the registrant had 127,296,134 outstanding shares of common stock, par value $0.01 per share, the registrant’s only class of common stock.

 

 

PEPSIAMERICAS, INC.
FORM 10-Q
SECOND QUARTER 2008

TABLE OF CONTENTS

		Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income		2
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Cash Flows		4
Notes to Condensed Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		33
Item 4. Controls and Procedures		34
PART II OTHER INFORMATION
Item 1. Legal Proceedings		35
Item 1A. Risk Factors		35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		35
Item 4. Submission of Matters to a Vote of Security Holders		36
Item 6. Exhibits		36
SIGNATURES		37
EXHIBIT INDEX		38
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

PEPSIAMERICAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in millions, except per share data)

Item 1. Financial Statements

		Second Quarter								First Half
		2008				2007				2008				2007
Net sales		$	1,340.8			$	1,198.9			$	2,439.5			$	2,159.1
Cost of goods sold			794.0				701.8				1,468.9				1,277.8
Gross profit			546.8				497.1				970.6				881.3
Selling, delivery and administrative expenses			381.2				351.5				734.2				674.9
Special charges			0.1				1.4				0.6				2.8
Operating income			165.5				144.2				235.8				203.6
Interest expense, net			28.5				26.1				58.1				51.8
Other income (expense), net			1.1				4.3				(0.2	)			2.9
Income from continuing operations before income taxes, minority interest, and equity in net loss of nonconsolidated companies			138.1				122.4				177.5				154.7
Income taxes			42.3				42.5				55.7				54.4
Minority interest			(4.8	)			0.2				(5.7	)			0.4
Equity in net loss of nonconsolidated companies			(0.2	)			—				(0.6	)			—
Income from continuing operations			90.8				80.1				115.5				100.7
Loss from discontinued operations, net of tax			—				2.1				—				2.1
Net income		$	90.8			$	78.0			$	115.5			$	98.6
Weighted average common shares:
Basic			124.9				125.7				126.0				126.0
Incremental effect of stock options and awards			1.5				1.9				1.7				1.8
Diluted			126.4				127.6				127.7				127.8
Earnings per share:
Basic:
Income from continuing operations		$	0.73			$	0.64			$	0.92			$	0.80
Loss from discontinued operations			—				(0.02	)			—				(0.02	)
Total		$	0.73			$	0.62			$	0.92			$	0.78
Diluted:
Income from continuing operations		$	0.72			$	0.63			$	0.90			$	0.79
Loss from discontinued operations			—				(0.02	)			—				(0.02	)
Total		$	0.72			$	0.61			$	0.90			$	0.77
Cash dividends declared per share		$	0.135			$	0.13			$	0.27			$	0.26

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

PEPSIAMERICAS, INC.

		End of First				End of
		Half				Fiscal Year
		2008				2007
ASSETS:
Current assets:
Cash and cash equivalents		$	190.4			$	189.7
Receivables, net			448.3				330.6
Inventories:
Raw materials and supplies			143.4				144.5
Finished goods			187.9				143.2
Total inventories			331.3				287.7
Other current assets			124.8				114.1
Total current assets			1,094.8				922.1
Property and equipment			3,057.8				2,850.5
Accumulated depreciation			(1,624.8	)			(1,520.9	)
Net property and equipment			1,433.0				1,329.6
Goodwill			2,393.1				2,432.7
Intangible assets, net			573.8				545.6
Other assets			76.1				78.0
Total assets		$	5,570.8			$	5,308.0
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Short-term debt, including current maturities of long-term debt		$	592.3			$	337.6
Payables			269.0				224.0
Other current liabilities			326.1				341.0
Total current liabilities			1,187.4				902.6
Long-term debt			1,651.8				1,803.5
Deferred income taxes			314.6				282.5
Minority interest			303.2				273.4
Other liabilities			188.1				187.7
Total liabilities			3,645.1				3,449.7
Shareholders’ equity:
Preferred stock ($0.01 par value, 12.5 million shares authorized, no shares issued)			—				—
Common stock ($0.01 par value, 350 million shares authorized, 137.6 million shares issued - 2008 and 2007)			1,287.5				1,292.7
Retained income			751.6				670.9
Accumulated other comprehensive income			182.6				98.8
Treasury stock, at cost (12.9 million shares and 9.5 million shares, respectively)			(296.0	)			(204.1	)
Total shareholders’ equity			1,925.7				1,858.3
Total liabilities and shareholders’ equity		$	5,570.8			$	5,308.0

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

PEPSIAMERICAS, INC.

		First Half
		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	115.5			$	98.6
Loss from discontinued operations			-				2.1
Income from continuing operations			115.5				100.7
Adjustments to reconcile to net cash provided by operating activities of continuing operations:
Depreciation and amortization			104.5				97.9
Deferred income taxes			4.7				0.9
Special charges			0.6				2.8
Cash outlays related to special charges			(0.9	)			(11.2	)
Equity in net loss of nonconsolidated companies			0.6				-
Excess tax benefits from share-based payment arrangements			(0.9	)			(3.0	)
Gain on sale of non-core property			-				(10.2	)
Marketable securities impairment			-				4.0
Minority interest			5.7				(0.4	)
Other			12.1				11.1
Changes in assets and liabilities:
Increase in receivables			(103.7	)			(85.5	)
Increase in inventories			(33.8	)			(31.9	)
Increase in payables			29.7				52.8
Net change in other assets and liabilities			(22.2	)			30.0
Net cash provided by operating activities of continuing operations			111.9				158.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital investments			(103.3	)			(109.4	)
Proceeds from sales of property			3.4				23.5
Franchises and companies acquired			(1.0	)			-
Net cash used in investing activities			(100.9	)			(85.9	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of short-term debt			146.2				46.4
Repayment of long-term debt			(47.5	)			(11.6	)
Treasury stock purchases			(105.2	)			(59.4	)
Excess tax benefits from share-based payment arrangements			0.9				3.0
Contribution from joint venture minority shareholder			26.0				-
Issuance of common stock			2.1				17.6
Cash dividends			(34.6	)			(32.2	)
Net cash used in financing activities			(12.1	)			(36.2	)
Net operating cash flows used in discontinued operations			(6.0	)			(4.3	)
Effects of exchange rate changes on cash and cash equivalents			7.8				(1.2	)
Change in cash and cash equivalents			0.7				30.4
Cash and cash equivalents at beginning of fiscal year			189.7				93.1
Cash and cash equivalents at end of second quarter		$	190.4			$	123.5

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

PEPSIAMERICAS, INC.

1. Significant Accounting Policies

     Quarterly Reporting. The Condensed Consolidated Financial Statements included herein have been prepared by PepsiAmericas, Inc. (referred to herein as “PepsiAmericas,” “we,” “our” and “us”) without audit. Certain information and disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although we believe that the disclosures are adequate to make the information presented not misleading. The year end Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year 2007. In the opinion of management, the information furnished herein reflects all adjustments (consisting only of normal, recurring adjustments) necessary for a fair statement of results for the interim periods presented.

     Use of Accounting Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and use assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

     Fiscal Year. Our United States (“U.S.”) operations and our Caribbean operations end their fiscal years, consisting of 52 or 53 weeks, on the Saturday closest to December 31^st. Our Central and Eastern European (“CEE”) operations’ fiscal year ends on December 31^st. Our second quarter and first half of 2008 and 2007 were based on the thirteen and twenty-six weeks that ended June 28, 2008 and June 30, 2007, respectively. Due to the timing of the receipt of available financial information, certain operations are reported on a one-month or one-quarter lag basis.

     Our business is seasonal with the second and third quarters generating higher sales volumes than the first and fourth quarters. Accordingly, the operating results of any individual quarter may not be indicative of a full year’s operating results.

     Earnings Per Share. Basic earnings per share is based upon the weighted-average number of common shares outstanding. Diluted earnings per share assumes the exercise of all options which are dilutive, whether exercisable or not. The dilutive effects of stock options, warrants, and nonvested restricted stock awards are measured under the treasury stock method.

     The following options and restricted stock awards were not included in the computation of diluted earnings per share because they were antidilutive:

		Second Quarter								First Half
		2008				2007				2008				2007
Shares under nonvested restricted stock awards			-				-				-				953,111
Weighted-average grant date fair value per share		$	-			$	-			$	-			$	22.11

     Reclassifications. Certain amounts in the prior period Condensed Consolidated Financial Statements have been reclassified to conform to the current year presentation.

     Recently Adopted Accounting Pronouncements. In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements,” to provide enhanced guidance when using fair value to measure assets and liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS No. 157 applies whenever other pronouncements require or permit assets or liabilities to be measured by fair value. SFAS No. 157 was effective at the beginning of fiscal year 2008. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (“FSP 157-2”), “Effective Date of FASB Statement No. 157”, which provides a one year deferral of the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. In accordance with this interpretation, we have only adopted the provisions of SFAS No. 157 with respect to our financial assets and financial liabilities that are measured at fair value as of the beginning of fiscal year 2008. The provisions of SFAS No. 157 have not been applied to nonfinancial assets and nonfinancial liabilities. The major categories of nonfinancial assets and nonfinancial liabilities that are measured at fair value, for which we have not applied the provisions of SFAS No. 157, are as follows: reporting units measured at fair value in the first step of a goodwill impairment test, long-lived assets measured at fair value for an impairment assessment, and assets and liabilities acquired as part of a purchase business combination. See Note 11 below for additional information, including the effects of adoption on our Condensed Consolidated Balance Sheet.

     In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” We have adopted the recognition and measurement provisions of SFAS No. 158. The recognition provisions required us to fully recognize the funded status associated with our defined benefit plans. The measurement provisions required us to measure our plans’ assets and liabilities as of the end of our fiscal year rather than of our former measurement date of September 30. We adopted the measurement date provisions at the beginning of fiscal year 2008. We have elected the alternative method of adoption for the measurement date provisions of SFAS No. 158. The adoption of the measurement date provisions decreased retained income by $0.3 million ($0.2 million after tax) at the beginning of fiscal year 2008.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115.” FASB No. 159 provides guidance on the measurement of financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis under a fair value option provided by the FASB. SFAS No. 159 was effective at the beginning of fiscal year 2008. The adoption of SFAS No. 159 had no impact on our Condensed Consolidated Financial Statements.

     Recently Issued Accounting Pronouncements to be Adopted in the Future. In December 2007, the FASB issued a revised SFAS No. 141, “Business Combinations.” SFAS No. 141(R) amends the guidance relating to the use of the purchase method in a business combination. SFAS No. 141(R) requires that we recognize and measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired business at fair value. SFAS No. 141(R) also requires that we recognize and measure the goodwill acquired in the business combination or a gain from a bargain purchase. Acquisition costs to effect the acquisition and any integration costs are no longer considered a component of the cost of the acquisition, but will be expensed as incurred. SFAS No. 141(R) becomes effective with acquisitions occurring on or after the beginning of fiscal year 2009 and early adoption is prohibited.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment to ARB No. 51,” to establish accounting and reporting standards for noncontrolling interests, sometimes called minority interest. SFAS No. 160 requires that the parent report noncontrolling interests in the equity section of the balance sheet but separate from the parent’s equity. SFAS No. 160 also requires clear presentation of net income attributable to the parent and the noncontrolling interest on the face of the income statement. All changes in the parent’s ownership interest in the subsidiary must be accounted for consistently. Deconsolidation of the subsidiary requires the recognition of a gain or loss using the fair value of the noncontrolling equity investment rather than the carrying value. SFAS No. 160 becomes effective at the beginning of fiscal year 2009. We are currently evaluating the impact SFAS No. 160 will have on our Condensed Consolidated Financial Statements.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. SFAS No. 161 requires that entities provide disclosure regarding how and when an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 becomes effective at the beginning of fiscal year 2009. We are currently evaluating the impact SFAS No. 161 will have on our Condensed Consolidated Financial Statements.

2. Special Charges

     In the second quarter of 2008 and 2007, we recorded special charges of $0.1 and $1.4 million, respectively, in the U.S. related to severance and relocation costs associated with our strategic realignment to further strengthen our customer focused go-to-market strategy. We recorded special charges of $0.6 and $2.6 million in the U.S., respectively, in the first half of 2008 and 2007. Additionally, in the first half of 2007 we recorded special charges of $0.2 million in CEE primarily for severance, related benefits and relocation costs.

     The following table summarizes the activity associated with the special charges included in “Other current liabilities” (in millions):

2008 Charges
Balance at end of fiscal year 2007		$	1.1
Special charges			0.6
Application of special charges			(0.9	)
Balance at end of the first half of 2008		$	0.8

     The total accrued liabilities remaining at the end of the first half of 2008 were comprised of severance payments, lease terminations and other costs. We expect the remaining special charge liability of $0.8 million to be paid using cash from operations during the next twelve months; accordingly, such amounts are classified as “Other current liabilities” in the Condensed Consolidated Balance Sheet.

3. Interest Expense, Net

     Interest expense, net was comprised of the following (in millions):

		Second Quarter								First Half
		2008				2007				2008				2007
Interest expense		$	29.4			$	26.8			$	60.0			$	53.0
Interest income			(0.9	)			(0.7	)			(1.9	)			(1.2	)
Interest expense, net		$	28.5			$	26.1			$	58.1			$	51.8

4. Income Taxes

     The effective income tax rate, which is income tax expense expressed as a percentage of income from continuing operations before income taxes, minority interest and equity in net loss of nonconsolidated companies, was 31.4 percent for the first half of 2008, compared to 35.1 percent in the first half of 2007. The lower tax rate was due to favorable country mix of earnings and the associated lower in-country tax rate, as well as a favorable adjustment recorded after the filing of the 2007 Romania income tax return.

     During the first half of 2008 our gross unrecognized tax benefits increased by $2.6 million. The impact to our effective tax rate consisted of $1.2 million net unrecognized tax benefits and $1.4 million of gross interest related to unrecognized tax benefits for the first half of 2008.

     During the next 12 months it is reasonably possible that a reduction of gross unrecognized tax benefits will occur in a range of $4 million to $6 million as a result of the resolution of positions taken on previously filed returns.

     We are subject to U.S. federal income tax, state income tax in multiple state tax jurisdictions, and foreign income tax in our CEE and Caribbean tax jurisdictions. We have concluded all U.S. federal income tax examinations for tax years up to and including 2004. The following table summarizes the years that are subject to examination for each primary jurisdiction as of the end of the first half of 2008:

Jurisdiction		Subject to Examination
Federal (U.S.)		2005-2007
Illinois		1999-2007
Indiana		2004-2007
Iowa		2004-2007
Romania		2003-2007
Poland		2002-2007
Czech Republic		2004-2007
Ukraine		2005-2007

5. Comprehensive Income

     Comprehensive income was as follows (in millions):

		Second Quarter								First Half
		2008				2007				2008				2007
Net income		$	90.8			$	78.0			$	115.5			$	98.6
Foreign currency translation adjustment			60.7				14.7				84.0				16.9
Unrealized (losses) gains on investments			(0.2	)			0.4				(0.3	)			-
Unrealized (losses) gains on derivatives			(0.1	)			-				-				0.4
Amortization of unrecognized pension and postretirement benefit cost			-				-				0.1				-
Comprehensive income		$	151.2			$	93.1			$	199.3			$	115.9

     Unrealized (losses) gains on investments are shown net of income tax benefit of $0.1 million and net of income tax expense of $0.2 million in the second quarter of 2008 and 2007, respectively, and net of income tax benefit of $0.2 million in the first half of 2008. The income tax benefit was not material to the unrealized (losses) gains on derivatives in the second quarter of 2008. Unrealized (losses) gains on derivatives are shown net of income tax expense of $0.2 million in the first half of 2007. Unrecognized pension and postretirement cost are shown net of tax expense of $0.1 million in the first half of 2008.

6. Acquisitions

     In the third quarter of 2007, a joint venture formed by PepsiAmericas and PepsiCo, Inc. (“PepsiCo”) acquired an 80 percent interest in Sandora LLC (“Sandora”). Sandora manufactures and distributes a variety of juice brands and is the market leader in the high growth juice category in Ukraine. In the fourth quarter of 2007, the joint venture acquired the remaining 20 percent interest in Sandora. Under the terms of the joint venture agreement, we hold a 60 percent interest and PepsiCo holds a 40 percent interest in the joint venture. The joint venture financial statements have been consolidated in our Condensed Consolidated Financial Statements, and PepsiCo’s equity was recorded as minority interest. The preliminary purchase price of $679.4 million increased to $680.4 million due to final payments of acquisition costs in the first half of 2008. The total purchase price of $680.4 million was net of cash received of $3.0 million. Of the total purchase price, our interest was $408.2 million. Additionally, we acquired $72.5 million of debt as part of the acquisition.

     The following information summarizes the allocation of the final purchase price of the Sandora acquisition (in millions):

Goodwill		$	430.6
Trademark and tradenames			116.0
Customer relationships and lists			48.2
Net assets assumed, net of cash acquired			142.5
Deferred tax liabilities			(56.9	)
Total		$	680.4

7. Goodwill and Intangible Assets

     The changes in the carrying amount of goodwill by geographic segment for the first half of 2008 were as follows (in millions):

		U.S.				CEE				Caribbean				Total
Balance at end of fiscal year 2007		$	1,824.1			$	592.8			$	15.8			$	2,432.7
Purchase accounting adjustments			-				(63.1	)			-				(63.1	)
Foreign currency translation adjustment			-				23.6				(0.1	)			23.5
Balance at end of the first half of 2008		$	1,824.1			$	553.3			$	15.7			$	2,393.1

     Intangible asset balances as of the end of the first half of 2008 and end of fiscal year 2007 were as follows (in millions):

		End of First				End of Fiscal
		Half 2008				Year 2007
Intangible assets subject to amortization:
Gross carrying amount
Trademarks and tradenames		$	-			$	109.0
Customer relationships and lists			74.9				56.2
Franchise and distribution agreements			3.3				3.3
Other			2.9				2.9
Total		$	81.1			$	171.4
Accumulated amortization
Trademarks and tradenames		$	-			$	(1.2	)
Customer relationships and lists			(10.8	)			(6.3	)
Franchise and distribution agreements			(1.1	)			(1.1	)
Other			(0.9	)			(0.8	)
Total		$	(12.8	)		$	(9.4	)
Intangible assets subject to amortization, net		$	68.3			$	162.0
Intangible assets not subject to amortization:
Franchise and distribution agreements			384.8				383.6
Trademarks and tradenames			120.7				-
Total intangible assets, net		$	573.8			$	545.6

     Sandora was acquired in fiscal year 2007 by a joint venture in which we hold a 60 percent interest. The process of valuing the assets, liabilities and intangibles acquired in connection with the Sandora acquisition was completed in the second quarter of 2008 and resulted in an allocation of $430.6 million to goodwill, $116.0 million to trademarks and tradenames and $48.2 million to customer relationships and lists in CEE. Preliminarily, we amortized trademarks and tradenames over 20 to 30 years and the customer relationships and lists over 3 to 10 years. After our final valuation of the assets, liabilities and intangibles, we assigned an indefinite life to the trademarks and tradenames and a useful life of 7 to 10 years for the customer relationships and lists.

     Total amortization expense in the second quarter of 2008 was not material to the Condensed Consolidated Statement of Income, because results for the second quarter of 2008 included a cumulative benefit of $2.3 million to amortization expense related to the final Sandora valuation. Total amortization expense in the second quarter of 2007 was $2.1 million. Total amortization expense was $3.1 million and $2.4 million in the first half of 2008 and 2007, respectively.

8. Receivables

     Receivables, net of allowance, as of the end of the first half of 2008 and fiscal year 2007 were as follows (in millions):

		End of First				End of Fiscal
		Half 2008				Year 2007
Trade receivables, net of securitization		$	388.1			$	290.6
Funding and rebates, net			63.1				42.3
Other receivables			11.9				12.4
Allowance for doubtful accounts			(14.8	)			(14.7	)
Receivables, net of allowance		$	448.3			$	330.6

9. Payables

     Payables balances as of the end of the first half of 2008 and fiscal year 2007 were as follows (in millions):

		End of First				End of Fiscal
		Half 2008				Year 2007
Trade payables		$	226.2			$	189.4
Dividends payable			16.8				16.6
Income tax and other payables			26.0				18.0
Payables		$	269.0			$	224.0

10. Financial Instruments

     We use derivative financial instruments to reduce our exposure to fluctuations in commodity prices, foreign currency exchange rates and interest rates. These financial instruments are “over-the-counter” instruments and generally were designated at their inception as hedges of underlying exposures. We do not use derivative financial instruments for speculative or trading purposes.

     Cash Flow Hedges. In anticipation of long-term debt issuances, we entered into treasury rate lock instruments and a forward starting swap agreement. We accounted for these treasury rate lock instruments and the forward starting swap agreement as cash flow hedges, as each hedged the variability of interest payments attributable to changes in interest rates on the forecasted issuance of fixed-rate debt. These treasury rate locks and the forward starting swap agreement were considered highly effective in eliminating the variability of cash flows associated with the forecasted debt issuance.

     In anticipation of forecasted purchases of raw materials denominated in foreign currency, we entered into foreign currency swap instruments. We accounted for these swaps as cash flow hedges, as these instruments hedged the variability of payments of raw materials attributable to changes in foreign currency exchange rates. These foreign currency swap instruments were considered highly effective in eliminating the variability of cash flows associated with the forecasted purchase of raw materials.

     The following table summarizes the net derivative losses deferred into “Accumulated other comprehensive income” and reclassified to income in the first half of 2008 and 2007 (in millions):

		First Half
		2008				2007
Balance at beginning of fiscal year		$	(2.7	)		$	(3.3	)
Deferral of net derivative losses in accumulated other comprehensive income			-				(0.2	)
Reclassification of net derivative losses to income			0.1				0.6
Balance at end of the first half		$	(2.6	)		$	(2.9	)

     Fair Value Hedges. Periodically, we enter into interest rate swap contracts to convert a portion of our fixed rate debt to floating rate debt, with the objective of reducing overall borrowing costs. We account for these swaps as fair value hedges, since they hedge against the change in fair value of fixed rate debt resulting from fluctuations in interest rates. In fiscal year 2004, we terminated all outstanding interest rate swap contracts and received $14.4 million for the fair value of the interest rate swap contracts. Amounts included in the cumulative fair value adjustment to long-term debt will be reclassified into earnings commensurate with the recognition of the related interest expense. At the end of the first half of 2008 and the end of fiscal year 2007, the cumulative fair value adjustments to long-term debt were $2.3 million and $3.6 million, respectively.

11. Fair Value Measurements

     SFAS No. 157 defines and establishes a framework for measuring fair value and expands disclosure about fair value measurements. Furthermore, SFAS No. 157 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs) or reflect our own assumptions of market participant valuation (unobservable inputs). In accordance with SFAS No. 157, we have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

     Financial assets and liabilities recorded on the Condensed Consolidated Balance Sheet are categorized on the inputs to the valuation techniques as follows:

     Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the company has the ability to access at the measurement date (examples include active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities).

     Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:

	•		Quoted prices for similar assets or liabilities in active markets;
	•		Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds which trade infrequently);
	•		Inputs other than quoted prices that are observable for substantially the full term of the asset or liability (examples include interest rate and currency swaps); and
	•		Inputs that are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability (examples include certain securities and derivatives).

     Level 3 - Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

     The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of the end of the first half of 2008 (in millions):

						Quoted Prices
						in Active				Significant
						Markets for				Other				Significant
		End of				Identical				Observable				Unobservable
		First Half				Assets				Inputs				Inputs
		2008				(Level 1)				(Level 2)				(Level 3)
Available-for-sale equity securities		$	1.1			$	1.1			$	-			$	-
Deferred compensation plan assets			4.4				4.4				-				-
Total assets		$	5.5			$	5.5			$	-			$	-
Deferred compensation plan liabilities		$	39.7			$	-			$	39.7			$	-
Hedge liabilities			0.1				-				0.1				-
Total liabilities		$	39.8			$	-			$	39.8			$	-

     Available-For-Sale Equity Securities. At the end of the first half of 2008, our available-for-sale equity securities consisted of common stock of Northfield Laboratories, Inc. Our available-for-sale equity securities are valued using quoted market prices multiplied by the number of shares owned.

     Deferred Compensation Plan Assets and Liabilities. We maintain a self-directed, non-qualified deferred compensation plan structured as a rabbi trust for certain executives and other higher compensated employees. Our rabbi trust funds are invested in money market accounts, which are adjusted monthly for any accrued interest. Our unfunded deferred compensation liability is subject to changes in our stock prices as well as price changes in other equity and fixed-income investments. Employees’ deferred compensation amounts are not directly invested in these investment vehicles. We track the performance of each employee’s investment selections and adjust the deferred compensation liability accordingly. The fair value of the unfunded deferred compensation liability is primarily based on the market indices corresponding to the employees’ investment selections.

     Derivative Liabilities. We calculate derivative assets and liability amounts using a variety of valuation techniques, depending on the specific characteristics of the hedging instrument. The fair value of our forward exchange contracts is primarily based on observable forward foreign exchange rates.

12. Pension and Other Postretirement Benefit Plans

     Net periodic pension and other postretirement benefit costs for the second quarter and first half of 2008 and 2007 included the following components (in millions):

		Second Quarter
		Pension								Other Postretirement
		Benefit Costs								Benefit Costs
		2008				2007				2008				2007
Service cost		$	0.8			$	0.8			$	-			$	-
Interest cost			2.8				2.7				0.2				0.3
Expected return on plan assets			(3.8	)			(3.7	)			-				-
Amortization of prior service cost			0.1				-				-				-
Amortization of net loss (gain)			0.5				0.7				(0.2	)			(0.1	)
Net periodic pension cost		$	0.4			$	0.5			$	-			$	0.2

		First Half
		Pension								Other Postretirement
		Benefit Costs								Benefit Costs
		2008				2007				2008				2007
Service cost		$	1.6			$	1.6			$	-			$	-
Interest cost			5.6				5.3				0.5				0.6
Expected return on plan assets			(7.6	)			(7.4	)			-				-
Amortization of prior service cost			0.1				0.1				-				-
Amortization of net loss (gain)			1.0				1.4				(0.4	)			(0.2	)
Net periodic pension cost		$	0.7			$	1.0			$	0.1			$	0.4

     We previously disclosed in our consolidated financial statements for fiscal year 2007 that we expect to make the minimum contribution to the plans in fiscal year 2008. As of the end of the first half of 2008, we have not made any contributions to the plans; however, we expect the minimum contribution will be made during the remainder of fiscal year 2008. We will continue to evaluate the plans’ funding requirements throughout the balance of fiscal year 2008, and we will fund to levels deemed necessary for the plans.

13. Share-Based Compensation

     In February 2008, we granted 960,973 restricted shares at a weighted-average fair value of $26.30 on the date of grant to key members of U.S. and Caribbean management and members of our Board of Directors under our 2000 Stock Incentive Plan (the “Plan”). We recognized compensation expense of $5.3 million and $4.5 million in the second quarter of 2008 and 2007, respectively, and $10.5 million and $9.0 million in the first half of 2008 and 2007, respectively, related to unvested restricted share grants. At the end of the first half of 2008, there were 2,657,043 unvested restricted shares outstanding.

     In February 2008, we granted 149,574 restricted stock units at a weighted average value of $26.30 on the date of grant to key members of our CEE management team under the Plan. Restricted stock units are considered liability awards whose fair value is remeasured at each reporting date until settlement. As such, compensation expense associated with restricted stock units is subject to variability based on changes in the fair value of PepsiAmericas’ underlying stock price. Compensation expense in the second quarter of 2008 was immaterial to our Condensed Consolidated Statement of Income. Due to a decline in the stock price during the first half of 2008 we recognized a benefit to compensation expense of $0.8 million, related to unvested restricted stock unit grants. We recognized compensation expense of $0.7 million in the second quarter of 2007 and $1.1 million during the first half of 2007 related to unvested restricted stock unit grants. At the end of the first half of 2008, there were 280,303 unvested restricted stock units outstanding.

14. Supplemental Cash Flow Information

     Net cash provided by operating activities reflected cash payments and receipts for interest and income taxes as follows (in millions):

		First Half
		2008				2007
Interest paid		$	60.9			$	53.1
Interest received			1.9				1.1
Income taxes paid, net of refunds			0.2				40.5

15. Environmental and Other Commitments and Contingencies

     Current Operations. We maintain compliance with federal, state and local laws and regulations relating to materials used in production and to the discharge of wastes, and other laws and regulations relating to the protection of the environment. The capital costs of such management and compliance, including the modification of existing plants and the installation of new manufacturing processes, are not material to our continuing operations.

     We are defendants in lawsuits that arise in the ordinary course of business, none of which is expected to have a material adverse effect on our financial condition, although amounts recorded in any given period could be material to the results of operations or cash flows for that period.

     We participate in a number of trustee-managed multi-employer pension and health and welfare plans for employees covered under collective bargaining agreements. Several factors, including unfavorable investment performance, changes in demographics and increased benefits to participants could result in potential funding deficiencies, which could cause us to make higher future contributions to these plans.

     Discontinued Operations — Remediation. Under the agreement pursuant to which we sold our subsidiaries, Abex Corporation and Pneumo Abex Corporation (collectively, “Pneumo Abex”), in 1988 and a subsequent settlement agreement entered into in September 1991, we have assumed indemnification obligations for certain environmental liabilities of Pneumo Abex, after any insurance recoveries. Pneumo Abex has been and is subject to a number of environmental cleanup proceedings, including responsibilities under the Comprehensive Environmental Response, Compensation and Liability Act and other related federal and state laws regarding release or disposal of wastes at on-site and off-site locations. In some proceedings, federal, state and local government agencies are involved and other major corporations have been named as potentially responsible parties. Pneumo Abex is also subject to private claims and lawsuits for remediation of properties previously owned by Pneumo Abex and its subsidiaries.

     There is an inherent uncertainty in assessing the total cost to investigate and remediate a given site. This is because of the evolving and varying nature of the remediation and allocation process. Any assessment of expenses is more speculative in an early stage of remediation and is dependent upon a number of variables beyond the control of any party. Furthermore, there are often timing considerations, in that a portion of the expense incurred by Pneumo Abex, and any resulting obligation of ours to indemnify Pneumo Abex, may not occur for a number of years.

     In fiscal year 2001, we investigated the use of insurance products to mitigate risks related to our indemnification obligations under the 1988 agreement, as amended. We oversaw a comprehensive review of the former facilities operated or impacted by Pneumo Abex. Advances in the techniques of retrospective risk evaluation and increased experience (and therefore available data) at our former facilities made this comprehensive review possible. The review was completed in fiscal year 2001 and was updated in fiscal year 2005.

     At the end of first half of 2008, we had $28.0 million accrued to cover potential indemnification obligations, compared to $40.2 million recorded at the end of fiscal year 2007. This indemnification obligation includes costs associated with approximately 15 sites in various stages of remediation or negotiations. At the present time, the most significant remaining indemnification obligation is associated with the Willits site, as discussed below, while no other single site has significant estimated remaining costs associated with it. Of the total amount accrued, $19.1 million at the end of the first half of 2008 and $19.5 million at the end of fiscal year 2007 were classified as a current liability. The amounts exclude possible insurance recoveries and are determined on an undiscounted cash flow basis. The estimated indemnification liabilities include expenses for the investigation and remediation of identified sites, payments to third parties for claims and expenses (including product liability and toxic tort claims), administrative expenses, and the expenses of on-going evaluations and litigation. We expect a significant portion of the accrued liabilities will be spent during the next five years.

     Included in our indemnification obligations is financial exposure related to certain remedial actions required at a facility that manufactured hydraulic and related equipment in Willits, California. Various chemicals and metals contaminate this site. A final consent decree was issued in August 1997 and amended in December 2000 in the case of the People of the State of California and the City of Willits, California v. Remco Hydraulics, Inc. The final consent decree established a trust (the “Willits Trust”) which is obligated to investigate and clean up this site. We are currently funding the Willits Trust and the investigation and interim remediation costs on a year-to-year basis as required in the final amended consent decree. We have accrued $10.7 million at the end of the first half of 2008 for future remediation and trust administration costs, with the majority of this amount to be spent over the next several years.

     Although we have certain indemnification obligations for environmental liabilities at a number of sites other than the site discussed above, including Superfund sites, it is not anticipated that additional expense at any specific site will have a material effect on us. At some sites, the volumetric contribution for which we have an obligation has been estimated and other large, financially viable parties are responsible for substantial portions of the remainder. In our opinion, based upon information currently available, the ultimate resolution of these claims and litigation, including potential environmental exposures, and considering amounts already accrued, should not have a material effect on our financial condition, although amounts recorded in a given period could be material to our results of operations or cash flows for that period.

     Discontinued Operations-Insurance. During fiscal year 2002, as part of a comprehensive program concerning environmental liabilities related to the former Whitman Corporation subsidiaries, we purchased new insurance coverage related to the sites previously owned and operated or impacted by Pneumo Abex and its subsidiaries. In addition, a trust, which was established in 2000 with the proceeds from an insurance settlement (the “Trust”), purchased insurance coverage and funded coverage for remedial and other costs (“Finite Funding”) related to the sites previously owned and operated or impacted by Pneumo Abex and its subsidiaries.

     Essentially all of the assets of the Trust were expended by the Trust in connection with the purchase of the insurance coverage, the Finite Funding and related expenses. These actions were taken to fund remediation and related costs associated with the sites previously owned and operated or impacted by Pneumo Abex and its subsidiaries and to protect against additional future costs in excess of our self-insured retention. The original amount of self-insured retention (the amount we must pay before the insurance carrier is obligated to begin payments) was $114.0 million, of which $54.5 million has been eroded, leaving a remaining self-insured retention of $59.5 million at the end of the first half of 2008. The estimated range of aggregate exposure related only to the remediation costs of such environmental liabilities is approximately $15 million to $35 million. We had accrued $17.3 million at the end of the first half of 2008 for remediation costs, which is our best estimate of the contingent liabilities related to these environmental matters. The Finite Funding may be used to pay a portion of the $17.3 million and thus reduces our future cash obligations. Amounts recorded in our Condensed Consolidated Balance Sheets related to Finite Funding were $10.6 million at the end of the first half of 2008 and $11.5 million at the end of fiscal year 2007 and are recorded in “Other assets,” net of $4.7 million recorded in “Other current assets” at the end of each respective period.

     On May 31, 2005, Cooper Industries, LLC (“Cooper”) filed and later served a lawsuit against us, Pneumo Abex, LLC, and the Trustee of the Trust (the “Trustee”), captioned Cooper Industries, LLC v. PepsiAmericas, Inc., et al., Case No. 05 CH 09214 (Cook Cty. Cir. Ct.). The claims involve the Trust and insurance policy described above. Cooper asserts that it was entitled to access $34 million that previously was in the Trust and was used to purchase the insurance policy. Cooper claims that Trust funds should have been distributed for underlying Pneumo Abex asbestos claims indemnified by Cooper. Cooper complains that it was deprived of access to money in the Trust because of the Trustee’s decision to use the Trust funds to purchase the insurance policy described above. Pneumo Abex, LLC, the corporate successor to our prior subsidiary, has been dismissed from the suit.

     During the second quarter of 2006, the Trustee’s motion to dismiss, in which we had joined, was granted and three counts against us based on the use of Trust funds were dismissed with prejudice, as were all counts against the Trustee, on the grounds that Cooper lacks standing to pursue these counts because it is not a beneficiary under the Trust. We then filed a separate motion to dismiss the remaining counts against us. Our motion was also granted during the second quarter of 2006 and all remaining counts against us were dismissed with prejudice. Cooper subsequently filed a notice of appeal with regard to all rulings by the court dismissing the counts against us and the Trustee. Prior to any oral argument, the appellate court on September 7, 2007 issued an opinion affirming the trial court’s opinion. Cooper subsequently filed motion papers asking the Illinois Supreme Court to accept a discretionary appeal of the rulings. The Trustee then filed an opposition brief explaining why the Illinois Supreme Court should not allow another appeal, and we joined in that brief. On November 29, 2007, the Supreme Court of Illinois denied Cooper’s petition for leave to appeal the appellate court’s September 7, 2007 ruling. Cooper did not file a petition for certiorari seeking discretionary review by the United States Supreme Court by the February 27, 2008 deadline for such filing.

     Discontinued Operations-Product Liability and Toxic Tort Claims. We also have certain indemnification obligations related to product liability and toxic tort claims that might emanate out of the 1988 agreement with Pneumo Abex. Other companies not owned by or associated with us also are responsible to Pneumo Abex for the financial burden of all asbestos product liability claims filed against Pneumo Abex after a certain date in 1998, except for certain claims indemnified by us. The sites and product liability and toxic tort claims included in the aggregate accrued liabilities we have recorded are described more fully in our Annual Report on Form 10-K for the fiscal year 2007. No significant changes in the status of those sites or claims occurred except as noted in Part II, Item 1 of this Quarterly Report on Form 10-Q, and we were not notified of any significant new sites during the first half of 2008.

16. Segment Reporting

     We operate in one industry located in three geographic segments — U.S., CEE and the Caribbean. We operate in 19 states in the U.S. Internationally, we operate in Ukraine, Poland, Romania, Hungary, the Czech Republic, Slovakia, Puerto Rico, Jamaica, the Bahamas, and Trinidad and Tobago. We have distribution rights in Moldova, Estonia, Latvia, and Lithuania, which are recorded in the CEE geographic segment and Barbados, which is recorded in the Caribbean geographic segment. Through our Sandora investment, we sell Sandora-branded products to third party distributors in Belarus, Azerbaijan, Russia and other countries in Eastern Europe and Central Asia, which are recorded in the CEE geographic segment.

     The following tables present net sales and operating income of our geographic segments for the second quarter and first half of 2008 and 2007 (in millions):

			Second Quarter
			Net Sales								Operating Income
			2008				2007				2008				2007
	U.S.		$	917.2			$	929.9			$	112.6			$	113.8
	CEE			359.0				207.0				51.7				29.6
	Caribbean			64.6				62.0				1.2				0.8
	Total		$	1,340.8			$	1,198.9			$	165.5			$	144.2

			First Half
			Net Sales								Operating Income (Loss)
			2008				2007				2008				2007
	U.S.		$	1,698.0			$	1,694.8			$	170.0			$	174.2
	CEE			622.0				350.0				66.6				30.6
	Caribbean			119.5				114.3				(0.8	)			(1.2	)
	Total		$	2,439.5			$	2,159.1			$	235.8			$	203.6

17. Related Party Transactions

     We are a licensed producer and distributor of Pepsi branded products in the U.S., CEE and the Caribbean. We operate under exclusive franchise agreements with soft drink concentrate producers, including “master” bottling and fountain syrup agreements with PepsiCo for the manufacture, packaging, sale and distribution of Pepsi branded products. The franchise agreements contain operating and marketing commitments and conditions for termination. As of the end of first half of 2008, PepsiCo beneficially owned approximately 44 percent of PepsiAmericas’ outstanding common stock.

     We purchase concentrates from PepsiCo to be used in the production of PepsiCo branded cola and non-cola beverages. PepsiCo also provides us with various forms of bottler incentives (marketing support programs) to promote Pepsi’s brands. These bottler incentives cover a variety of initiatives including direct marketplace, shared media and advertising to support volume and market share growth. There are no conditions or requirements that could result in the repayment of any support payments we have received.

     We manufacture and distribute fountain products and provide fountain equipment service to PepsiCo customers in certain territories in accordance with various agreements. There are other products that we produce and/or distribute through various arrangements with PepsiCo or partners of PepsiCo. We also purchase finished beverage products from PepsiCo and certain of its affiliates including tea, concentrate and finished beverage products from a Pepsi/Lipton partnership, as well as finished beverage products from a Pepsi/Starbucks partnership.

     PepsiCo provides various procurement services under a shared services agreement. Under such agreement, PepsiCo negotiates with various suppliers the cost of certain raw materials by entering into raw material contracts on our behalf. PepsiCo also collects and remits to us certain rebates from the various suppliers related to our procurement volume. In addition, PepsiCo acts as our agent in the execution of derivative contracts associated with certain anticipated raw material purchases.

     We have an existing arrangement with a subsidiary of Pohlad Companies related to the joint ownership of an aircraft. This transaction is not material to our Condensed Consolidated Financial Statements. Robert C. Pohlad, our Chairman and Chief Executive Officer, is the President and owner of approximately 33 percent of the capital stock of Pohlad Companies.

     See additional discussion of our related party transactions in our Annual Report on Form 10-K for the fiscal year 2007.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

     This Quarterly Report on Form 10-Q contains certain forward-looking statements of expected future developments, as defined in the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this Form 10-Q refer to the expectations regarding continuing operating improvement and other matters. These forward-looking statements reflect our expectations and are based on currently available data; however, actual results are subject to future risks and uncertainties, which could materially affect actual performance. Risks and uncertainties that could affect such performance include, but are not limited to, the following: competition, including product and pricing pressures; changing trends in consumer tastes; changes in our relationship and/or support programs with PepsiCo, Inc. (“PepsiCo”) and other brand owners; market acceptance of new product and package offerings; weather conditions; cost and availability of raw materials; changing legislation, including tax laws; cost and outcome of environmental claims; availability and cost of capital, including changes in our debt ratings; labor and employee benefit costs; unfavorable foreign currency rate fluctuations; cost and outcome of legal proceedings; integration of acquisitions; failure of information technology systems; and general economic, business, regulatory and political conditions in the countries and territories where we operate. See “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year 2007 for additional information.

     These events and uncertainties are difficult or impossible to predict accurately and many are beyond our control. We assume no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

CRITICAL ACCOUNTING POLICIES

     The preparation of the Condensed Consolidated Financial Statements in conformity with United States generally accepted accounting principles requires management to use estimates. These estimates are made using management’s best judgment and the information available at the time these estimates are made, including the advice of outside experts. For a better understanding of our significant accounting policies used in preparation of the Condensed Consolidated Financial Statements, please refer to our Annual Report on Form 10-K for fiscal year 2007. We focus your attention on the following critical accounting policies:

Recoverability of Goodwill and Intangible Assets with Indefinite Lives. Goodwill and intangible assets with indefinite useful lives are not amortized, but instead tested annually for impairment or more frequently if events or changes in circumstances indicate that an asset might be impaired.

Goodwill is tested for impairment using a two-step approach at the reporting unit level: U.S., CEE and the Caribbean. First, we estimate the fair value of the reporting units primarily using discounted future cash flows. If the carrying amount exceeds the fair value of the reporting unit, the second step of the goodwill impairment test is performed to measure the amount of the potential loss. Goodwill impairment is measured by comparing the “implied fair value” of goodwill with its carrying amount.

Our identified intangible assets with indefinite lives principally arise from the allocation of the purchase price of businesses acquired and consist primarily of trademarks and tradenames and franchise and distribution agreements. Impairment is measured as the amount by which the carrying amount of the intangible asset exceeds its estimated fair value. The estimated fair value is generally determined on the basis of discounted future cash flows.

The impairment evaluation requires the use of considerable management judgment to determine the fair value of the goodwill and intangible assets with indefinite lives using discounted future cash flows, including estimates and assumptions regarding the amount and timing of cash flows, cost of capital and growth rates.

Environmental Liabilities. We continue to be subject to certain indemnification obligations under agreements related to previously sold subsidiaries, including potential environmental liabilities (see Note 15 to the Condensed Consolidated Financial Statements). We have recorded our best estimate of our probable liability under those indemnification obligations. The estimated indemnification liabilities include expenses for the remediation of identified sites, payments to third parties for claims and expenses (including product liability and toxic tort claims), administrative expenses, and the expense of on-going evaluations and litigation. Such estimates and the recorded liabilities are subject to various factors, including possible insurance recoveries, the allocation of liabilities among other potentially responsible parties, the advancement of technology for means of remediation, possible changes in the scope of work at the contaminated sites, as well as possible changes in related laws, regulations, and agency requirements. We do not discount environmental liabilities.

Income Taxes. Our effective income tax rate is based on income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. We have established valuation allowances against a portion of the foreign net operating losses and state-related net operating losses to reflect the uncertainty of our ability to fully utilize these benefits given the limited carryforward periods permitted by the various jurisdictions. The evaluation of the realizability of our net operating losses requires the use of considerable management judgment to estimate the future taxable income for the various jurisdictions, for which the ultimate amounts and timing of such realization may differ. The valuation allowance can also be impacted by changes in the tax regulations.

Significant judgment is required in determining our uncertain tax positions. We have established accruals for uncertain tax positions using management’s best judgment and adjust these liabilities as warranted by changing facts and circumstances. A change in our uncertain tax positions in any given period could have a significant impact on our results of operations and cash flows for that period.

Casualty Insurance Costs. Due to the nature of our business, we require insurance coverage for certain casualty risks. We are self-insured for workers’ compensation, product and general liability up to $1 million per occurrence and automobile liability up to $2 million per occurrence. The casualty insurance costs for our self-insurance program represent the ultimate net cost of all reported and estimated unreported losses incurred during the period. We do not discount casualty insurance liabilities.

Our liability for casualty costs is estimated using individual case-based valuations and statistical analyses and is based upon historical experience, actuarial assumptions and professional judgment. These estimates are subject to the effects of trends in loss severity and frequency and are based on the best data available to us. These estimates, however, are also subject to a significant degree of inherent variability. We evaluate these estimates on an annual basis and we believe that they are appropriate and within acceptable industry ranges, although an increase or decrease in the estimates or economic events outside our control could have a material impact on our results of operations and cash flows. Accordingly, the ultimate settlement of these costs may vary significantly from the estimates included in our Condensed Consolidated Financial Statements.

Pension and Postretirement Benefits. Our pension and other postretirement benefit obligations and related costs are calculated using actuarial assumptions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of plan expense and liability measurement. We evaluate these critical assumptions annually. Other assumptions involve demographic factors such as retirement, mortality, turnover, health care cost trends and rate of compensation increases.

The discount rate is used to calculate the present value of expected future pension and postretirement cash flows as of the measurement date. We use high-quality, long-term bond rates as a guideline for establishing this rate. A lower discount rate increases the present value of benefit obligations and increases pension expense. The expected long-term rate of return on plan assets is based on current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. A lower-than-expected rate of return on pension plan assets will increase pension expense.

RESULTS OF OPERATIONS

BUSINESS OVERVIEW

     PepsiAmericas manufactures, distributes, and markets a broad portfolio of beverage products in the U.S., Central and Eastern Europe (“CEE”) and the Caribbean. We sell a variety of brands that we bottle under franchise agreements with various brand owners, the majority with PepsiCo or PepsiCo joint ventures. In some territories, we manufacture, package, sell and distribute products under brands licensed by companies other than PepsiCo, and in some territories we distribute our own brands, such as Toma brands in CEE and the Caribbean and Sandora brands in Ukraine. We serve a significant portion of a 19 state region in the U.S., primarily in the Midwest. Internationally we serve Central and Eastern European and Caribbean markets, including Ukraine, Poland, Romania, Hungary, the Czech Republic, Slovakia, Puerto Rico, Jamaica, the Bahamas, and Trinidad and Tobago. We have distribution rights and distribute in Moldova, Estonia, Latvia, Lithuania and Barbados. In addition, through our Sandora investment, we sell Sandora-branded products to third-party distributors in Belarus, Azerbaijan, Russia and other countries in Eastern Europe and Central Asia. We also have a 20 percent equity investment in Agrima JSC (“Agrima”), which gives us a market presence in Bulgaria. Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and accompanying Notes in this Form 10-Q and our Annual Report on Form 10-K for the year ended December 29, 2007.

     In the discussion of our results of operations below, the number of bottle and can cases sold is referred to as volume. Constant territory refers to the results of operations excluding the non-comparable territories year-over-year. For second quarter and first half of 2008 comparisons, this excluded the operating results of Sandora, as we fully consolidated Sandora operating results starting in September 2007. Net pricing is net sales divided by the number of cases and gallons sold for our core businesses, which include bottles and cans (including bottle and can volume from vending equipment sales), as well as foodservice. Changes in net pricing include the impact of sales price (or rate) changes, as well as the impact of foreign currency translation and brand, package and geographic mix. Net pricing and reported volume amounts exclude contract, commissary, and vending (other than bottles and cans) transactions. Contract sales represent sales of manufactured product to other franchise bottlers and typically decline as excess manufacturing capacity is utilized. Cost of goods sold per unit is the cost of goods sold for our core businesses divided by the related number of cases and gallons sold. Volume, net pricing and cost of goods sold per unit also exclude activity associated with beer and snack food products.

Financial Results

     Net income in the second quarter of 2008 was $90.8 million, or $0.72 per diluted common share, compared to net income of $78.0 million, or $0.61 per diluted common share, in the second quarter of 2007. Net income in the first half of 2008 was $115.5 million, or $0.90 per diluted common share, compared to net income of $98.6 million or $0.77 per diluted common share, in the first half of 2007. The increase in diluted earnings per share in the second quarter and first half of 2008 resulted primarily from foreign currency translation, a lower effective tax rate and the acquisition of Sandora. Prior period results included a gain on the sale of non-core property, partly offset by the marketable securities impairment and special charges, which had a net positive impact of $0.03 and $0.02 per diluted common share in the second quarter and first half of 2007, respectively. The second quarter and first half of 2007 results also included a loss from discontinued operations, which had a negative impact of $0.02 per diluted common share in each respective period.

     In the second quarter and first half of 2008, worldwide volume grew 8.4 percent and 10.3 percent, respectively, due to acquisitions and international growth. Net pricing on a worldwide basis increased 4.2 percent and 3.6 percent for the second quarter and first half of 2008, respectively. The increases in net pricing were partly offset by cost of goods sold per unit increases of 5.7 percent in both periods, which were caused by higher ingredient costs partly offset by the impact of acquisitions.

2008 Outlook

     Our financial outlook for fiscal year 2008 is estimated in the following table, which includes the impact of acquisitions unless noted as constant territory:

				Impact of 53rd
		Reported (53 weeks)		week and special		Adjusted comparisons (52
		2008 vs. 2007		charges		weeks) 2008 vs. 2007
Worldwide net sales		+14 to 15 percent		1 percent		+13 to 14 percent
Cost of goods sold per unit		+ 6 to 7 percent		--		+ 6 to 7 percent
Worldwide SD&A expenses		+11 percent		1 percent		+10 percent
Operating income		+13 to 14 percent		1 percent		+12 to 13 percent
Interest expense		$117 million		$2 million		$115 million
Effective tax rate		Low end of 32 to 33 percent range		--		Low end of 32 to 33 percent range
53rd week EPS impact				$0.01
Special charges impact				($0.01)
Estimated 2008 EPS		$1.92 to $1.96				$1.92 to $1.96

     This outlook includes an expected 7 to 8 percentage point contribution to net sales and a 4 percentage point increase to SD&A expense from acquisitions. Additionally, we estimate capital spending to be approximately $270 million.

Seasonality

     Our business is seasonal with the second and third quarters generating higher sales volumes than the first and fourth quarters. Accordingly, the operating results of any individual quarter may not be indicative of a full year’s operating results.

Items Impacting Comparability

Acquisitions

     We formed a joint venture with PepsiCo to acquire an interest in Sandora, the leading juice company in Ukraine. Under the terms of the joint venture agreement, we hold a 60 percent interest and PepsiCo holds a 40 percent interest. In August 2007, the joint venture acquired 80 percent of Sandora. In November 2007, the joint venture completed the acquisition of the remaining 20 percent interest. Beginning in September 2007, we fully consolidated the results of operations of the joint venture and report minority interest in our Condensed Consolidated Financial Statements. Due to the timing of the receipt of available financial information, we record results on a one-month lag basis.

     In the third quarter of 2007, we purchased a 20 percent interest in a joint venture that owns Agrima. Agrima produces, sells and distributes PepsiCo products and other beverages throughout Bulgaria. We record equity in net loss of nonconsolidated companies in our Condensed Consolidated Financial Statements. Due to the timing of the receipt of available financial information, we record results on a one-quarter lag basis.

Special Charges

     In the second quarter of 2008 and 2007, we recorded special charges of $0.1 and $1.4 million, respectively, in the U.S. related to severance and relocation costs associated with our strategic realignment to further strengthen our customer focused go-to-market strategy. We recorded special charges of $0.6 and $2.6 million in the U.S. in the first half of 2008 and 2007, respectively. Additionally, in the first half of 2007 we recorded special charges of $0.2 million in CEE primarily for severance, related benefits and relocation costs.

RESULTS OF OPERATIONS
2008 SECOND QUARTER COMPARED WITH 2007 SECOND QUARTER

     The following is a discussion of our results of operations for the second quarter of 2008 compared to the second quarter of 2007.

Volume

     Sales volume growth (decline) for the second quarter of 2008 and 2007 was as follows:

		2008				2007
U.S.			(5.4	%)			(3.3	%)
CEE			51.7	%			56.3	%
Caribbean			1.3	%			(4.1	%)
Worldwide			8.4	%			6.2	%

		2008 compared to 2007
Volume Change		U.S.				CEE				Caribbean				Worldwide
Constant territory volume			(5.4	%)			1.0	%			1.3	%			(3.6	%)
Acquisitions			--				50.7	%			--				12.0	%
Change in volume			(5.4	%)			51.7	%			1.3	%			8.4	%

     In the second quarter of 2008, worldwide volume increased 8.4 percent. The increase in worldwide volume was primarily due to the incremental impact of acquisitions and constant territory growth in CEE, partly offset by volume declines in the U.S. Worldwide constant territory volume declined 3.6 percent compared to the prior year second quarter.

     Volume in the U.S declined 5.4 percent in the second quarter of 2008 compared to the second quarter of 2007 due, in part, to an estimated 1 percent decrease from the shift of the Easter holiday into the first quarter of 2008, a 1 percent decline from continued softness in lower margin Aquafina take home packages, a 1 percent decline in the tea category, and a 1 percent decrease from the foodservice channel, including full service vending. The carbonated soft drink volume declined 4 percent compared to the second quarter of 2007. The non-carbonated beverage category declined 9 percent due to the decrease in Aquafina volume and the decrease in the tea category. Single-serve volume declined 2 percent but improved from the prior quarter’s trend due to innovation and marketplace execution.

     Volume in CEE increased 51.7 percent in the second quarter of 2008 compared to the second quarter of 2007. The increase was primarily due to the Sandora acquisition, which contributed 50.7 percentage points of the increase. The remaining growth in CEE was led by double-digit growth in Romania and modest growth in Poland, partly offset by lower volume in Hungary. The double-digit increase in Romania was mostly due to volume growth in carbonated soft drinks and improved market share. In the second quarter of 2008, weather conditions negatively impacted volume growth in CEE.

     Volume in the Caribbean increased 1.3 percent in the second quarter of 2008 compared to the same period last year, which was driven mainly by Puerto Rico.

Net Sales

     Net sales and net pricing statistics for the second quarter of 2008 and 2007 were as follows (dollar amounts in millions):

Net Sales		2008				2007				Change
U.S.		$	917.2			$	929.9				(1.4	%)
CEE			359.0				207.0				73.4	%
Caribbean			64.6				62.0				4.2	%
Worldwide		$	1,340.8			$	1,198.9				11.8	%

		2008 compared to 2007
Net Sales Change		U.S.				CEE				Caribbean				Worldwide
Volume impact*			(4.7	%)			0.9	%			1.1	%			(3.1	%)
Net price per case, excluding impact of currency translation			3.7	%			5.3	%			6.2	%			3.7	%
Currency translation			--				20.4	%			(2.5	%)			3.4	%
Acquisitions			--				50.0	%			--				8.6	%
Non-core			(0.4	%)			(3.2	%)			(0.6	%)			(0.8	%)
Change in net sales			(1.4	%)			73.4	%			4.2	%			11.8	%

*   The amounts in this table represent the dollar impact on net sales due to changes in volume and are not intended to equal the absolute
     change in volume.

Net Pricing Growth**		2008				2007
U.S.			3.7	%			7.3	%
CEE			18.6	%			19.5	%
Caribbean			3.7	%			5.1	%
Worldwide			4.2	%			6.0	%

**   Includes the impact from acquisitions and currency translation on core net sales.

     Net sales increased $141.9 million, or 11.8 percent, to $1,340.8 million in the second quarter of 2008 compared to $1,198.9 million in the second quarter of 2007. The increase was mainly attributable to acquisitions, increases in net pricing in all geographies and the favorable impact of foreign currency translation.

     Net sales in the U.S. for the second quarter of 2008 decreased $12.7 million, or 1.4 percent, to $917.2 million from $929.9 million in the prior year second quarter. The decrease in net sales mainly reflected a decline in volume, partly offset by 3.7 percent growth in net pricing driven by rate increases. Package mix also positively contributed to net pricing due to growth in the non-carbonated beverage category.

     Net sales in CEE for the second quarter of 2008 increased $152.0 million, or 73.4 percent, to $359.0 million from $207.0 million in the second quarter of 2007. The increase was primarily due to acquisitions, which contributed 50.0 percentage points of the increase. Foreign currency translation contributed 20.4 percentage points to the increase in net sales, partly offset by a 3.2 percent decline in non-core sales. The remaining increase in net sales was due to an increase in net pricing of 5.3 percent on a local currency basis.

     Net sales in the Caribbean increased $2.6 million, or 4.2 percent in the second quarter of 2008 to $64.6 million from $62.0 million in the prior year second quarter. The increase was a result of an increase in net pricing of 3.7 percent and volume growth.

Cost of Goods Sold

     Cost of goods sold and cost of goods sold per unit statistics for the second quarter of 2008 and 2007 were as follows (dollar amounts in millions):

Cost of Goods Sold		2008				2007				Change
U.S.		$	533.3			$	541.1				(1.4	%)
CEE			212.4				114.9				84.9	%
Caribbean			48.3				45.8				5.5	%
Worldwide		$	794.0			$	701.8				13.1	%

		2008 compared to 2007
Cost of Goods Sold Change		U.S.				CEE				Caribbean				Worldwide
Volume impact*			(4.5	%)			0.8	%			1.1	%			(3.0	%)
Cost per case, excluding impact of currency translation			3.4	%			9.3	%			6.3	%			4.4	%
Currency translation			--				15.6	%			(2.5	%)			2.4	%
Acquisitions			--				64.4	%			--				10.5	%
Non-core			(0.3	%)			(5.2	%)			0.6	%			(1.2	%)
Change in cost of goods sold			(1.4	%)			84.9	%			5.5	%			13.1	%

* The amounts in this table represent the dollar impact on cost of goods sold due to changes in volume and are not intended to equal the absolute change in volume.

Cost of Goods Sold per Unit Increase**		2008				2007
U.S.			3.4	%			5.4	%
CEE			28.8	%			10.3	%
Caribbean			3.8	%			4.2	%
Worldwide			5.7	%			3.1	%

** Includes the impact from acquisitions and currency translation on core cost of goods sold.

     Cost of goods sold increased $92.2 million, or 13.1 percent, to $794.0 million in the second quarter of 2008 from $701.8 million in the prior year second quarter. This increase was driven primarily by acquisitions, higher raw material costs and the negative impact of foreign currency translation. Cost of goods sold per unit increased 5.7 percent in the second quarter of 2008 compared to the same period in 2007.

     In the U.S., cost of goods sold decreased $7.8 million, or 1.4 percent, to $533.3 million in the second quarter of 2008 from $541.1 million in the prior year second quarter. The decrease in cost of goods sold was primarily due to a decline in volume. This was partly offset by a cost of goods sold per unit increase of 3.4 percent in the U.S., primarily due to increases in concentrate, sweetener and packaging costs and higher non-carbonated beverage mix related costs.

     In CEE, cost of goods sold increased $97.5 million, or 84.9 percent, to $212.4 million in the second quarter of 2008, compared to $114.9 million in the prior year second quarter. The increase was primarily due to acquisitions, which contributed 64.4 percentage points of the increase. Additionally, foreign currency translation contributed 15.6 percentage points to the increase in cost of goods sold. Cost of goods sold per unit increased 28.8 percent in the second quarter of 2008 compared to second quarter of 2007 due to higher raw material costs and product mix.

     In the Caribbean, cost of goods sold increased $2.5 million, or 5.5 percent, to $48.3 million in the second quarter of 2008, compared to $45.8 million in the second quarter of 2007. The increase was mainly driven by an increase in cost of goods sold per unit of 3.8 percent, attributable to increases in concentrate, sweetener and packaging costs.

Selling, Delivery and Administrative Expenses

     SD&A expenses and SD&A expense statistics for the second quarter of 2008 and 2007 were as follows (dollar amounts in millions):

SD&A Expenses		2008				2007				Change
U.S.		$	271.2			$	273.6				(0.9	%)
CEE			94.9				62.5				51.8	%
Caribbean			15.1				15.4				(1.9	%)
Worldwide		$	381.2			$	351.5				8.4	%

		2008 compared to 2007
SD&A Expense Change		U.S.				CEE				Caribbean				Worldwide
Cost impact, excluding impact of currency translation			(0.9	%)			6.9	%			0.2	%			0.6	%
Currency translation			--				21.6	%			(2.1	%)			3.7	%
Acquisitions			--				23.3	%			--				4.1	%
Change in SD&A expense			(0.9	%)			51.8	%			(1.9	%)			8.4	%

SD&A Expenses as a Percent of Net Sales		2008				2007
U.S.			29.6	%			29.4	%
CEE			26.4	%			30.2	%
Caribbean			23.4	%			24.8	%
Worldwide			28.4	%			29.3	%

     In the second quarter of 2008, SD&A increased $29.7 million, or 8.4 percent, to $381.2 million from $351.5 million in the comparable period of the previous year. As a percentage of net sales, SD&A expenses decreased to 28.4 percent in the second quarter of 2008, compared to 29.3 percent in the prior year second quarter, caused by the impact of acquisitions and effective cost management.

     In the U.S., SD&A expenses decreased $2.4 million, or 0.9 percent, to $271.2 million in the second quarter of 2008, compared to $273.6 million in the prior year second quarter. SD&A expenses decreased in the second quarter of 2008 due to favorable compensation and benefit expenses and effective productivity management, partly offset by higher fuel costs.

     In CEE, SD&A expenses increased $32.4 million, or 51.8 percent, to $94.9 million in the second quarter of 2008 compared to $62.5 million in the prior year second quarter. Acquisitions contributed 23.3 percentage points of the increase and foreign currency translation contributed 21.6 percent. As a percentage of net sales, SD&A expenses improved to 26.4 percent compared to 30.2 percent in the second quarter of 2007, primarily due to lower overall operating costs for Sandora as compared to the other markets in CEE.

     In the Caribbean, SD&A expenses decreased $0.3 million, or 1.9 percent, to $15.1 million in the second quarter of 2008 from $15.4 million in the prior year second quarter. SD&A expenses as a percentage of net sales decreased to 23.4 percent in the second quarter of 2008 compared to 24.8 percent in the prior year second quarter reflecting effective cost management.

Special Charges

     In the second quarter of 2008 and 2007, we recorded special charges in the U.S. of $0.1 million and $1.4 million, respectively, related to severance and relocation costs that were associated with our strategic realignment to further strengthen our customer focused go-to-market strategy.

Operating Income

     Operating income for the second quarter of 2008 and 2007 was as follows (in millions):

		2008				2007				Change
U.S.		$	112.6			$	113.8				(1.1	%)
CEE			51.7				29.6				74.7	%
Caribbean			1.2				0.8				50.0	%
Worldwide		$	165.5			$	144.2				14.8	%

     Operating income increased $21.3 million, or 14.8 percent, to $165.5 million in the second quarter of 2008, compared to $144.2 million in the second quarter of 2007.

     Operating income in the U.S. decreased $1.2 million or 1.1 percent, to $112.6 million in the second quarter of 2008 from $113.8 million in the second quarter of 2007. The decrease was primarily due to lower volume, partly offset by increased net pricing, lower cost of goods sold and lower SD&A expenses.

     Operating income in CEE increased to $51.7 million in the second quarter of 2008, compared to $29.6 million in the prior year second quarter. This was mainly due to acquisitions with the remainder of the increase due to the beneficial impact of foreign currency translation.

     Operating income in the Caribbean was $1.2 million in the second quarter of 2008, compared to $0.8 million in the prior year second quarter. The increase reflected increased sales and effective cost management.

Interest Expense and Other Income

     Net interest expense increased $2.4 million in the second quarter of 2008 to $28.5 million, compared to $26.1 million in the second quarter of 2007. The increase was due to higher debt levels associated with our acquisitions during fiscal year 2007, partly offset by lower interest rates on floating rate debt.

     We recorded other income, net, of $1.1 million in the second quarter of 2008 compared to other income, net, of $4.3 million reported in the second quarter of 2007. Foreign currency transaction gains were $3.5 million in the second quarter of 2008 compared to $0.2 million in the prior year second quarter. The prior period results included a $10.2 million gain on the sale of non-core property and a $4.0 million other-than-temporary impairment loss related to a marketable security investment.

Income Taxes

     The effective income tax rate, which is income tax expense expressed as a percentage of income from continuing operations before income taxes, minority interest and equity in net loss of nonconsolidated companies was 30.6 percent for the second quarter of 2008, compared to 34.7 percent in the second quarter of 2007. The lower tax rate was due to favorable country mix of earnings and the associated lower in-country tax rates, as well as a favorable adjustment recorded after the filing of the 2007 Romania income tax return.

Minority Interest

     We fully consolidated the operating results of Sandora and the Bahamas in our Condensed Consolidated Statements of Income. Minority interest represented 40 percent of Sandora results we did not own in the second quarter of 2008 and 30 percent of the Bahamas results that we did not own in the second quarter of 2008 and 2007.

Equity in Net Loss of Nonconsolidated Companies

     In the third quarter of 2007, we purchased a 20 percent interest in a joint venture that owns Agrima. Equity in net loss of nonconsolidated companies was $0.2 million in the second quarter of 2008.

Loss on Discontinued Operations

     In the second quarter of 2007, we recorded a charge of $2.1 million, net of taxes, related to revised estimates for environmental remediation, legal and related administrative costs.

Net Income

     Net income increased $12.8 million to $90.8 million in the second quarter of 2008, compared to $78.0 million in the second quarter of 2007. The acquisition of Sandora had a positive impact on net income in the second quarter. The discussion of our operating results, included above, explains the remainder of the increase in net income.

RESULTS OF OPERATIONS
2008 FIRST HALF COMPARED WITH 2007 FIRST HALF

     The following is a discussion of our results of operations for the first half of 2008 compared to the first half of 2007.

Volume

     Sales volume growth (decline) for the first half of 2008 and 2007 was as follows:

		2008				2007
U.S.			(3.4	%)			(1.6	%)
CEE			55.9	%			65.7	%
Caribbean			2.9	%			(5.2	%)
Worldwide			10.3	%			8.1	%

		2008 compared to 2007
Volume Change		U.S.				CEE				Caribbean				Worldwide
Constant territory volume			(3.4	%)			4.8	%			2.9	%			(1.2	%)
Acquisitions			--				51.1	%			--				11.5	%
Change in volume			(3.4	%)			55.9	%			2.9	%			10.3	%

     In the first half of 2008, worldwide volume increased 10.3 percent compared to the prior year. The increase in worldwide volume was primarily due to the incremental impact of acquisitions and constant territory growth in CEE, partly offset by volume declines in the U.S.

     Volume in the U.S declined 3.4 percent in the first half of 2008 compared to the first half of 2007 due, in part, to a decline in carbonated soft drink volume of 3 percent. Single-serve volume declined 3 percent due mainly to softness in the foodservice and convenience and gas channels. Compared to the first half of 2007, the non-carbonated beverage category declined 5 percent, due to a 14 percent volume decline in Aquafina and a 9 percent decline in the tea category.

     Volume in CEE increased 55.9 percent in the first half of 2008 compared to the same period in 2007. The increase was primarily due to the Sandora acquisition, which contributed 51.1 percentage points of the increase. The remaining growth in CEE was led by double-digit growth in Romania and growth in Poland. The double-digit growth in Romania was mostly due to a 16 percent increase in carbonated soft drink volume and an 8 percent increase in the non-carbonated beverage category. In the second quarter of 2008, weather conditions negatively impacted volume growth in CEE.

     Volume in the Caribbean increased 2.9 percent in the first half of 2008 compared to the same period last year with the growth driven by Puerto Rico and Jamaica.

Net Sales

     Net sales and net pricing statistics for the first half of 2008 and 2007 were as follows (dollar amounts in millions):

Net Sales		2008				2007				Change
U.S.		$	1,698.0			$	1,694.8				0.2	%
CEE			622.0				350.0				77.7	%
Caribbean			119.5				114.3				4.5	%
Worldwide		$	2,439.5			$	2,159.1				13.0	%

		2008 compared to 2007
Net Sales Change		U.S.				CEE				Caribbean				Worldwide
Volume impact*			(2.9	%)			4.3	%			2.5	%			(1.1	%)
Net price per case, excluding impact of currency translation			3.4	%			4.2	%			4.5	%			3.1	%
Currency translation			--				19.1	%			(2.0	%)			3.0	%
Acquisitions			--				52.4	%			--				8.5	%
Non-core			(0.3	%)			(2.3	%)			(0.5	%)			(0.5	%)
Change in net sales			0.2	%			77.7	%			4.5	%			13.0	%

*

The amounts in this table represent the dollar impact on net sales due to changes in volume and are not intended to equal the absolute change in volume.

Net Pricing Growth**		2008				2007
U.S.			3.4	%			5.7	%
CEE			18.0	%			19.2	%
Caribbean			2.6	%			5.8	%
Worldwide			3.6	%			4.5	%

**

Includes the impact from acquisitions and currency translation on core net sales.

     Net sales increased $280.4 million, or 13.0 percent, to $2,439.5 million in the first half of 2008 compared to $2,159.1 million in the first half of 2007. The increase was mainly attributable to acquisitions, worldwide increases in net pricing, the favorable impact of foreign currency translation and organic volume growth in our international operations.

     Net sales in the U.S. in the first half of 2008 increased $3.2 million, or 0.2 percent, to $1,698.0 million from $1,694.8 million in the first half of 2007. The increase in net sales was primarily due to a 3.4 percent increase in net pricing driven by rate increases and favorable product mix, partly offset by a volume decline.

     Net sales in CEE in the first half of 2008 increased $272.0 million, or 77.7 percent, to $622.0 million from $350.0 million in the first half of 2007. The increase was primarily due to acquisitions, which contributed 52.4 percentage points of the increase. Foreign currency translation contributed 19.1 percentage points to the increase in net sales. The remaining increase in net sales was due to volume growth, partly offset by a decline in non-core sales. Net pricing increased 4.2 percent on a local currency basis, driven by rate increases and favorable product mix.

     Net sales in the Caribbean increased $5.2 million, or 4.5 percent in the first half of 2008 to $119.5 million from $114.3 million in the first half of 2007. The increase was a result of volume growth and an increase in net pricing of 2.6 percent.

Cost of Goods Sold

     Cost of goods sold and cost of goods sold per unit statistics for the first half of 2008 and 2007 were as follows (dollar amounts in millions):

Cost of Goods Sold		2008				2007				Change
U.S.		$	995.9			$	989.5				0.6	%
CEE			382.5				202.9				88.5	%
Caribbean			90.5				85.4				6.0	%
Worldwide		$	1,468.9			$	1,277.8				15.0	%

		2008 compared to 2007
Cost of Goods Sold Change		U.S.				CEE				Caribbean				Worldwide
Volume impact*			(2.8	%)			4.2	%			2.5	%			(1.0	%)
Cost per case, excluding impact of currency translation			3.7	%			6.3	%			5.3	%			3.9	%
Currency translation			--				14.7	%			(1.9	%)			2.2	%
Acquisitions			--				66.8	%			--				10.6	%
Non-core			(0.3	%)			(3.5	%)			0.1	%			(0.7	%)
Change in cost of goods sold			0.6	%			88.5	%			6.0	%			15.0	%

*

The amounts in this table represent the dollar impact on cost of goods sold due to changes in volume and are not intended to equal the absolute change in volume.

Cost of Goods Sold per Unit Increase**		2008				2007
U.S.			3.7	%			5.8	%
CEE			26.9	%			11.3	%
Caribbean			3.6	%			5.6	%
Worldwide			5.7	%			3.6	%