Indra K.

Nooyi, Chairman and Chief Executive Officer

Dear Fellow
Shareholders,
A Roman author said more than two millennia ago that anyone
can steer the ship when the sea is calm. The true test of endur-
ance and stamina, he went on, is to navigate through rough
waters. Well, this year has seen some of the roughest possible
waters. The economic tempest of 2008 turned into the perfect
storm of 2009. Business was battered by volatile commodity
costs, frozen credit markets, fluctuating currencies and negative
GDP rates.
At PepsiCo, it seemed as if each day brought a new challenge.
Every one of them tested the strength and capabilities of our
organization. And I can declare with great pride that we passed
the test of endurance and stamina wonderfully well. We are a
company with great resilience. The ability of our associates to
pull together has left me excited about our momentum from
2009 into 2010 and beyond.
I don’t think this is due just to the ability of all the great
people we have. I think our company is more than the sum of This acknowledges that businesses have a responsibility to the
those considerable parts; we draw extra strength from the solid communities in which they operate, to the consumers they
foundation of values and principles upon which PepsiCo is built. serve and to the environment whose resources they use.
The business community and government did a great deal of We provide great-tasting products, outstanding quality and
soul-searching in the midst of the challenging global economy, supreme value to consumers worldwide, while maintaining an
seeking to uncover the source of our world’s financial problems underpinning of integrity and responsibility. We have instilled this
and how best to share responsibility to address the situation. As fundamental belief into all of our brands—Quaker Oats, Tropicana,
debates raged on issues that are core to a vibrant, functioning Sabritas, Walkers, Lay’s, Gatorade and Pepsi-Cola, to name a few—
marketplace, it became increasingly clear as the year went on to ensure we offer consumers a diverse portfolio of enjoyable and
that corporate ethics are inexorably linked to a healthy economy. wholesome nutritious foods and beverages. We take seriously
A former American president, Dwight Eisenhower, once our responsibility to find innovative ways to use less energy,
said, “A people that values its privileges above its principles water and packaging, our responsibility to hire local people in
soon loses both.” The same is true of a company, and the past the communities where we operate, create products designed
18 months have proved the wisdom of the remark. for local tastes, and partner with local producers and suppliers.
Here at PepsiCo, we are fortunate to have embedded And, we have expanded our responsibility to partner with local
Performance with Purpose into our culture and fabric long governments and NGOs to address the growing twin problems
before this current downturn. It is one of the fundamental of malnutrition and obesity acute to different parts of the world.
factors that kept PepsiCo on the leading edge in 2009. Performance with Purpose means that we will continue to
Our basic belief—that companies today must marry bring together what is good for society and what is good for
performance with ethical concerns—is resonating more than business. It encourages us to think globally while acting locally. It
ever before. For consumers, this translates into receiving value, has helped us break into new regions and harness local products
both economic and social, from trusted brands. For govern- and talent to drive our growth. It drives our commitment to
ments and the wider public, it translates into responsibility. increase diversity in the workforce, enhancing our ability to

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 recruit the brightest and most talented associates from around and brought exciting innovation to market with the launch of
the world. And it helps keep us focused on staying strong over zero-calorie SoBe Lifewater and Trop50 orange juice beverage,
the long term so that we are well-prepared to capitalize on all both naturally sweetened with purified stevia extract. We also
growth opportunities. Most importantly, the promise of PepsiCo reached agreement on merging into PepsiCo our two anchor
is to continue to generate solid value for our shareholders. bottlers, Pepsi Bottling Group and PepsiAmericas, in order to cre-
ate a more agile, efficient, innovative and competitive beverage
PEPSICO DELIVERED SOLID FINANCIAL  system, which will enable us to extend our leadership position in
PERFORMANCE IN 2009 the North American Liquid Refreshment Beverage business.
Amidst the most challenging global macroeconomic environ- With the merger of our anchor bottlers, PepsiCo will be a
ment in decades, we demonstrated the strength and resilience nearly $60 billion company in terms of annual revenue. We are
of both our people and portfolio by delivering solid operating the largest food and beverage business in North America and the
performance and generating significant operating cash flow. second-largest food and beverage business in the world, making
• Net revenue grew 5% on a constant currency basis.* us a critical partner for all retailers. We will have a new business
• Core division operating profit rose 6% on a constant structure and, as outlined below, clear strategies to support con-
currency basis.* tinued strong growth—growth that will enable us to continue to
• Core EPS grew 6% on a constant currency basis.* be both an attractive place to work and an attractive investment.
• Management operating cash flow, excluding certain items,
reached $5.6 billion, up 16%.* STRATEGIES TO DRIVE OUR GROWTH
• And, we raised the annual dividend by 6%. We continue to focus on delivering top-quartile financial perfor-
mance in both the near term and the long term, while making
Let me offer a few highlights from 2009: the global investments in key regions and targeted product
  PepsiCo Americas Foods (PAF) had another exceptional categories to drive sustainable growth. The next chapter in our
year with strong net revenue and operating profit growth despite growth is founded on six long-term growth strategies:
significant commodity inflation. We held or grew share across the
region, sustaining consumer momentum with solid innovation 1.   Expand the Global Leadership Position of Our Snacks 
and targeted value offerings. Business. PepsiCo is the global snacks leader, with the No. 1
Although all of Europe was hit hard by the economic savory category share position in virtually every key region
recession, PepsiCo Europe outpaced its peers and delivered across the globe. We have advantaged positions across the
solid results through excellent revenue management, tight entire value chain in more than 40 developed and develop-
cost controls and outstanding productivity. ing regions in which we operate as we capitalize on local
PepsiCo Asia Middle East and Africa (AMEA) had another manufacturing and optimized go-to-market capabilities in
excellent year, with solid net revenue and operating profit each region, as well as the ability to introduce locally relevant
growth driven by strong volume growth across the region, with products using global capabilities. And we have significant
exceptional growth in our India beverage business. growth opportunities as we expand our current businesses
PepsiCo Americas Beverages (PAB), which faced con- in these regions, extend our reach into new geographies and
siderable category pressures in North America, continued to enter adjacent categories. Importantly, we will continue to
make significant progress in rejuvenating the entire beverage make our core snacks healthier through innovations in heart-
portfolio. We successfully launched the Pepsi “Refresh Everything” healthier oil, sodium reduction and the addition of whole
campaign, gained traction on our Gatorade transformation to “G,” grains, nuts and seeds.

* Core results and core results on a constant currency basis are non-GAAP measures that exclude certain items.
Please refer to pages 91 and 92 for a reconciliation to the most directly comparable financial measure in
accordance with GAAP. PepsiCo, Inc. 2009 Annual Report 3
2.  Ensure Sustainable, Profitable Growth in Global Gatorade (for athletes); the new dairy joint venture with
Beverages. The merger with our anchor bottlers creates a Almarai; and local “Good-for-You” products and brands. We will
lean, agile organization in North America with an optimized build on this core with an increasing stream of science-based
supply chain, a flexible go-to-market system and enhanced innovation derived from the R&D capabilities that we have
innovation capabilities. When combined with the actions we been ramping up over the past couple of years, as well as from
are taking to refresh our brands across the entire beverage targeted acquisitions and joint ventures. We will be investing
category, we believe this game-changing transaction will to accelerate the growth of these platforms, and we will use
enable us to accelerate our top-line growth and also improve the knowledge from these initiatives to improve our core
our profitability. We continue to see significant areas of snack and beverage offerings and also to develop highly nutri-
global beverage growth, particularly in developing markets tious products for undernourished people across the world.
and in evolving categories. We will invest in those attractive
opportunities, concentrating in geographies and categories 5.  Continue to Deliver on Our Environmental
in which we are the leader or a close second, or where the Sustainability Goals and Commitments. We are commit-
competitive game remains wide open. Additionally, we will ted to protecting the Earth’s natural resources and are well
use our R&D capabilities to develop low- and zero-calorie on our way to meeting our public goals for meaningful re-
beverages that taste great and add positive nutrition such ductions in water, electricity and fuel usage. Our businesses
as fiber, vitamins and calcium. around the world are implementing innovative approaches
to be significantly more efficient in the use of land, energy,
3.  U
 nleash the Power of “Power of One.” PepsiCo is in the water and packaging—and we are actively working with the
unique position to leverage two extraordinary consumer communities in which we operate to be responsive to their
categories that have special relevance to retailers across the resource needs. In 2009, we formalized our commitment
globe. Our snacks and beverages are both high-velocity cat- to water as a human right, and we will focus not only on
egories; both generate retail traffic; both are very profitable; world-class efficiency in our operations, but also on preserv-
and both deliver exceptional cash flow. The combination of ing water resources and enabling access to safe water. Our
snacks and beverages—with our high-demand global and climate change focus is on reducing our carbon footprint,
local brands—makes PepsiCo an essential partner for large- including a reduction in absolute greenhouse gas emissions
format as well as small-format retailers. We will increasingly through continued improvement in energy efficiency and
use this portfolio and the high coincidence of consumption the use of alternative energy sources. We actively work with
of these products through integrated offerings (products, our farmers to promote sustainable agriculture—and we are
marketing and merchandising) to create value for consumers developing new packaging alternatives in both snacks and
and deliver greater top-line growth for retailers. We also will beverages to reduce our impact on the environment.  
be accelerating Power of One supply chain and back-office
synergies in many regions to improve profitability and 6.  Cherish Our Associates and Develop the Leadership to
enhance customer service. Sustain Our Growth. We have an extraordinary talent base
across our global organization—in our manufacturing facilities,
4.  Rapidly Expand Our “Good-for-You” Portfolio. PepsiCo our sales and distribution organizations, our marketing groups,
currently has a roughly $10 billion core of “Good-for-You” our staff functions and with our general managers. As we
products anchored by: Tropicana, Naked juice, Lebedyansky, expand our businesses, we are placing heightened focus on
Sandora and our other juice brands; Aquafina; Quaker Oats; ensuring that we maintain an inclusive environment and on

4 PepsiCo, Inc. 2009 Annual Report

 developing the careers of our associates—all with the goal Our sincerest thanks...
of continuing to have the leadership talent, capabilities and During his 20-year career at PepsiCo, Mike White contributed
experience necessary to grow our businesses well into the significantly to PepsiCo—as CFO of Frito-Lay, CFO of Pepsi-Cola
future. As an example, we are implementing tailored training Company worldwide, CFO of PepsiCo, CEO of Frito-Lay Europe
programs to provide our managers and senior executives with and then CEO of PepsiCo International. He served admirably as
the strategic and leadership capabilities required in a rapidly PepsiCo’s Vice Chairman from 2006–2009, and played a major
changing environment. role in executing many of the company’s acquisitions during
that time. All of us at PepsiCo—from the Board to the Executive
These six strategies are being implemented across PepsiCo by Team to the countless others he supported and mentored—
our experienced leadership team that is geographically focused thank Mike for his many contributions to PepsiCo and wish
and coordinated through global centers of excellence and global him and his family the very best.
functional leadership.

• John Compton, a 26-year PepsiCo veteran, leads PepsiCo with our solid foundations for growth, that give me great
Americas Foods, which spans all of our snack and food optimism for 2010 and beyond. While we cannot underesti-
businesses in the Americas. mate the challenges that lie ahead as countries, businesses
• PepsiCo Americas Beverages, which encompasses our and consumers around the world begin to recover from what
beverage businesses across the Americas, is led by Eric Foss has been a turbulent and traumatic 18 months, I am confident
and Massimo d’Amore. Eric has 28 years in the PepsiCo that PepsiCo is starting from a strong position financially,
family and brings extensive operational experience to his operationally and culturally.
role as the leader of our bottling company. Massimo, with Our commitment to the principles and values of Performance
his 30 years in the global consumer space and 15 years with Purpose has helped us earn trust and respect from our
with PepsiCo, provides leadership for all brands as well as consumers and partners, and the communities in which we
operational leadership for Gatorade, Tropicana and our operate across the world. By staying true to this foundation
Latin America franchise business. and continuing to execute on our strategies, we are sure that
• Zein Abdalla, with more than 30 years in consumer goods PepsiCo will continue to provide long-term sustainable growth
and more than 14 years with PepsiCo, leads our food and for all stakeholders.
beverage business in Europe. The Performance with Purpose initiatives that we have chosen
• Saad Abdul-Latif, a 28-year veteran of PepsiCo, leads our to showcase in this year’s annual report demonstrate that what’s
food and beverage businesses in Asia, Middle East and right for society is also what’s right for business. It is a belief to
Africa, our fastest-growing regions. which we are deeply committed. It has stood the test in difficult
years, and we believe it will stand the test of time to come.
These general managers are supported by functional leaders
and other executives who ably manage every aspect of our
growing enterprise. Taken together, our top 15 leaders have
more than 260 years of combined experience in the consumer
space, with an average of 18 years each!
It is the true dedication, commitment, hard work and INDRA K. NOOYI
unity of purpose of PepsiCo’s management teams, combined Chairman and Chief Executive Officer

PepsiCo, Inc. 2009 Annual Report 5