DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES

UNIVERSITY OF CALICUT

CHAIR SPEAK REPORT SUBMISSION

COMPANY: PEPSICO

CEO: INDRA K NOOYI

SUBMITTED TO

Dr.P.MOHAN

FACULTY, DCMS

UNIVERSITY OF CALICUT

SUBMITTED BY

AKSHARA C V

VIDYA KRISHNA

SUBMITTED ON 21-10-2014

INDUSRTY PROFILE

The beverage industry refers to the industry that produces drinks. Beverage production can

vary greatly depending on which beverage is being made. The website

ManufacturingDrinks.com explains that, "bottling facilities differ in the types of bottling lines

they operate and the types of products they can run". Other bits of required information include

the knowledge of if said beverage is canned or bottled, hot-fill or cold-fill, and natural or

conventional. Innovations in the beverage industry, catalyzed by requests for non-alcoho lic

beverages, include beverage plants, beverage processing, and beverage packing. The beverage

industry is a major driver of economic growth. A National Council of Applied Economic

Research (NCAER) study on the carbonated soft-drink industry indicates that this industry has

an output multiplier effect of 2.1. This means that if one unit of output of beverage is increased,

the direct and indirect effect on the economy will be twice of that. In terms of employment, the

NCAER study notes that "an extra production of 1000 cases generates an extra employment of

410 man days."

Barbara Murray (2006c) explained the soft drink industry by stating, “For years the

story in the nonalcoholic sector centered on the power struggle between…Coke and Pepsi. But

as the pop fight has topped out, the industry's giants have begun relying on new product

flavors…and looking to noncarbonated beverages for growth.” In order to fully understand the

soft drink industry, the following should be considered: the dominant economic factors, five

competitive sources, industry trends, and the industry’s key factors. Based on the analyses of

the industry, specific recommendations for competitors can then be created.

The soft drink/beverage industry is dominated by two major competitors, PepsiCo and

Coca-Cola. The industry is highly profitable, with an average return on assets rate of 14.70%,

much higher than average return on assets rate for S&P 500 companies of roughly 7.00%. In

spite of market maturity and saturation during recent years in the United States, the growth in

international market is very strong and promising. Both PepsiCo and Coca-Cola had large

market shares, dominated distribution channels, well-established brand names and consumer

loyalty. And both companies possess their own secrete formulas. All of these serve as entry

barriers that make it very difficult for a new company to enter soft drink/beverage industry.

These high entry barriers also protect the profitability of the industry.

Dominant Economic Factors

Market size, growth rate and overall profitability are three economic indicators that can

be used to evaluate the soft drink industry. The market size of this industry has been

changing.Soft drink consumption has a market share of 46.8% within the non-alcoholic drink

industry, Datamonitor (2005) also found that the total market value of soft drinks

reached $307.2 billion in 2004 with a market value forecast of $367.1 billion in 2009. Further,

the 2004 soft drink volume was 325,367.2 million liters (see Table 2). Clearly, the soft drink

industry is lucrative with a potential for high profits, but there are several obstacles to overcome

in order to capture the market share.

The growth rate has been recently criticized due to the U.S. market saturation of soft

drinks. Datamonitor (2005) stated, “Looking ahead, despite solid growth in consumption, the

global soft drinks market is expected to slightly decelerate, reflecting stagnation of market

prices.” The change is attributed to the other growing sectors of the non-alcoholic industry

including tea and coffee (11.8%) and bottled water (9.3%). Sports drinks and energy drinks are

also expected to increase in growth as competitors start adopting new product lines.

Profitability in the soft drink industry will remain rather solid, but market saturation

especially in the U.S. has caused analysts to suspect a slight deceleration of growth in the

industry (2005). Because of this, soft drink leaders are establishing themselves in alternative

markets such as the snack, confections, bottled water, and sports drinks industries (Barbara

Murray, 2006c). In order for soft drink companies to continue to grow and increase profits they

will need to diversify their product offerings.The geographic scope of the competitive rivalry

explains some of the economic features found in the soft drink industry. According to Barbara

Murray (2006c), “The sector is dominated by three major players…Coca-Cola is king of the

soft drink-empire and boasts a global market share of around 50%, followed by PepsiCo at

about 21%, and Cadbury Schweppes at 7%.” Aside from these major players, smaller

companies such as Cott Corporation and National Beverage Company make up the remaining

market share. All five of these companies make a portion of their profits outside of the United

States. The US does not hold the highest percentage of the global market share, therefore

companies need to be able to compete globally in order to be successful. Coca-Cola has a

similar distribution of sales in Europe, North America, and Asia. On the other hand, the

majority of PepsiCo’s profits come from the United. Compared to PepsiCo, Cadbury

Schweppes has a stronger global presence with their global mix). Smaller companies are also

trying to establish a global presence. Cott Corporation is a good example. The saturation of the

US markets has increased the global expansion by soft drink leaders to increase their profits.

The ease of entry and exit does not cause competitive pressure on the major soft drink

companies. It would be very difficult for a new company to enter this industry because they

would not be able to compete with the established brand names, distribution channels, and high

capital investment. Likewise, leaving this industry would be difficult with the significant loss

of money from the fixed costs, binding contracts with distribution channels, and advertisements

used to create the strong brand images. This industry is well established already, and it would

be difficult for any company to enter or exit successfully.

Three leading companies have prominent presence in the soft drink industry. The

leaders include the Coca-Cola Company, PepsiCo, and Cadbury Schweppes. According to the

Coca-Cola annual report (2004), it has the most soft drink sales with $22 billion. The Coca-

Cola product line has several popular soft drinks including Coca-Cola, Diet Coke, Fanta,

Barq’s, and Sprite, selling over 400 drink brands in about 200 nations (Murray 2006a). PepsiCo

is the next top competitor with soft drink sales grossing $18 billion for the two beverage

subsidiaries, PepsiCo Beverages North America and PepsiCo International (PepsiCo Inc.,

2004). PepsiCo’s soft drink product line includes Pepsi, Mountain Dew, and Slice which make

up more than onequarter of its sales. Cadbury Schweppes had soft drink sales of $6 billion with

a product line consisting of soft drinks such as A&W Root Beer, Canada Dry, and Dr. Pepper

(Cadbury Schweppes, 2004).

Financial Analysis

The carbonated beverage industry is a highly competitive global industry as illustrated

in the financial statements. According to John Sicher of Beverage Digest (2005), Coca-Cola

was the number one brand with around 4.5 billion cases sold in 2004. Pepsi followed with 3.2

billion cases, and Cadbury had 1.5 billion cases sold. However, the market share shows a

different picture. Coca-Cola and PepsiCo control the market share with Coca-Cola holding

43.1% and Pepsi with 31.7% (see Graph 1); however these market shares for both Coca-Cola

and PepsiCo have slightly decreased from 2003 to 2004. Coca-Cola’s volume has also

decreased 1.0% since 2003, whereas PepsiCo’s volume has increased 0.4% (see Graph 1). Diet

Coke posted a 5% growth, but Coca-Cola’s other top 10 brands declined (Sicher, 2005).

Overall, Coca-Cola’s market position has declined in 2004. The strategic group map (see Graph

1) also shows the growth of Cott Corp. of 18% which is significantly higher than that of Coca-

Cola and PepsiCo.

The American Beverage Association (2006) states that in 2004, the retail sales for the

entire soft-drink industry were $65.9 billion. Barbara Murray (2006e) analyzed the industry

averages for 2004 and average net profit margin was 11.29%. The current ratio average was

1.11 and the quick ratio average was 0.8. These figures help analyze the financial statements

of the major corporations in the industry. Coca-Cola has seen their net profit margin increase

from 20.7% to 22.1% from 2003 to 2004. According to Coca-Cola’s annual report (2004), 80%

of their sales are from soft drinks; therefore the total sales amount was used for their financ ia l

analysis. These figures show that their profits are increasing, but at a slow rate. This is in line

with what is happening in the soft drink industry. The market is highly competitive and growth

has remained at a stable level. The slight increase in Coca-Cola’s profit margin is most likely

from their new energy drink product line. This industry is currently expanding rapidly, and is

allowing the major beverage companies to increase their profits.

Coca-Cola’s working capital was around $1.1 billion in 2004. This is a large increase

from 2003 at only $500 million. This shows that they have sufficient funds to pursue new

opportunities. However, their current ratio and quick ratio are a cause for concern.

A current ratio of 2 or better is considered good and Coca-Cola’s was 1.102. This number

shows that they may not have enough funds to cover short term claims. The quick ratio for

2004 was at 0.906 and is considered good when it is greater than 1. This illustrates that Coca-

Cola may not have the ability to pay short term debt without selling inventory. These two

numbers are a concern because they are not able to satisfy their short term obligations. The

current and quick ratios are in line with the industry averages, however (Murray, 2006e), Coca-

Cola needs to improve these ratios in order focus on long-term plans (Coca-Cola Company,

2004).

PepsiCo’s financial statements cannot be analyzed for only the soft drinks industry

because they do not distinguish between businesses. Over half their profits are from snacks or

other beverage items; however there are sales and profit figures for their two beverage

subsidiaries. These sales figures grew from almost $16.5 billion in 2003 to $18 billion in 2004

(Pepsi Co. Inc., 2004). Their operating profit margin also increased 1% from 2003 to 2004.

This shows that beverage profits are increasing for them, but also at a slow rate. The increase

could be due to the increase in market share that the Pepsi products gained in 2004 (Sicher

2004). The PepsiCo. Annual Report (2004) stated that beverage volume increased 3% in 2004,

but was driven by the high growth of the non-carbonated beverage industry.

Cadbury’s current and quick ratios are very similar to those of Coca-Cola. The current

ratio and quick ratio for Cadbury Schweppes for 2004 were both 0.917. Again,

the current ratio should be 2 or more, and the quick ratio should be over 1. This illustrates that

Cadbury also has difficulty paying short term debt and claims. Cadbury’s net profit margin has

increased by 0.7% from 2003 to 2004. This can be attributed to their market share growth in

2004 of 0.2% (Sicher, 2005). One ratio that is concerning is their debt to equity ratio for 2004.

They have almost two times as much debt as they do to equity, which means that their funds

are mainly provided by creditors as opposed to owners. This is concerning because they owe a

lot of money, and must make a decent profit to be able to pay it off. The industry average for

debt to equity is 81%, and Cadbury is far from that number (2006e). Also, Cadbury has a

negative working capital for both 2003 and 2004, meaning they have more liabilities than

assets. This shows that they do not have any funds to pursue new opportunities, as their current

assets are being used to pay off liabilities (Cadbury, 2004).

Overall, the financial statements of the three top competitors in the soft drink industry

show that the industry is highly competitive and has little growth. Net profit margins increased

for all three corporations, however only at a small rate. It also seems that all three companies

lack sufficient current and quick ratios, but are all within a reasonable range of the industry

average (2006e). This may be due to expanding their product lines to include energy drinks

and non-carbonated beverages in order to increase profits and diversify their business. The soft

drinks market is now in the matured stage of the life cycle. Growth in the industry has remained

stagnant, and the financial statements of the major corporations in the industry illustrate that

their sales and income are following this trend.

The companies are in good financial positions; gross profits and net profit margins are

continuing to increase each year. The leverage and activity ratios are all within reasonable

range. However, one area all three corporations need to improve on is the liquidity ratios. Their

quick and current ratios are low and need to be increased so they are able to meet short-term

obligations.

Industry Changes

The soft drink industry is affected by macro environmental factors of the industry that

will lead to change. First, the entry/exit of major firms is a trend in the industry that will likely

lead to change. More specifically, merger and consolidation has been prevalent in the soft

drinks market, causing some firms to exit the industry and then re-enter themselves. Several

leading companies have been looking to drive revenue growth and improve market share

through the increased economies of scale found through mergers and acquisitions. One specific

example is how PepsiCo acquired Quaker Oats, who bought Gatorade which will help expand

PepsiCo’s energy drink sector (Datamonitor, 2005). This trend has increased competition as

firms’ diversification of products is increasing. A second trend in the macro environment is

globalization. With the growing use of the internet and other electronic technologies, global

communication is rapidly increasing. This is allowing firms to collaborate within the country

market and expand into world markets. It has driven competition greatly as companies strive

to be first-movers. Specifically, the global soft

drink market’s compound annual growth rate (CAGR) is expected to expand to 3.6% from

2004 to 2009 (Datamonitor, 2005). Third, changing societal concerns, attitudes, and lifestyles

are important trends. In the United States and Europe, people are becoming more concerned

with a healthy lifestyle.

“Consumer awareness of health problems arising from obesity and inactive lifestyles

represent a serious risk to the carbonated drinks sector” (Datamonitor, 2005, p. 15). The trend

is causing the industry’s business environment to change, as firms are differentiating their

products in order to increase sales in a stagnant market. Thus, the long-term industry growth

rate, the fourth trend, shows low growth in recent years. Since 2000, the CAGR is 1.5 per cent

(Datamonitor, 2005). The low growth rates are of concern for soft drink companies, and several

are creating new strategies to combat the low rates. This leads to the fifth trend of growing

buyer preferences for differentiated products. Because soft drinks have been around since as

early as 1798 (American Beverage Association, 2006), buyers want innovation with the

products they buy. In today’s globalizing society, being plain is not good enough.

According to Barbara Murray (2006c), “The key for all of these beverage companies is

differentiation. The giants have new formulations and appearances. Whatever the strategy, be

it a new color, flavor, or formula, companies will strive to create the greatest brand awareness

in the minds of the consumer in the hopes of crowding out its competitors.” Thus, the last trend,

product innovation, is necessary to combat buyers need for a variety of tastes.

Key Success Factors

Key factors for competitive success within the soft drink industry branch from the

trends of the macroenvironment. Primarily, constant product innovation is imperative. A

company must be able to recognize consumer wants and needs, while maintaining the ability

to adjust with the changing market. They must keep up with the changing trends (Murray,

2006c).Another key factor is the size of the organization, especially in terms of market share.

Large distributors have the ability to negotiate with stadiums, universities and school systems,

making them the exclusive supplier for a specified period of time. Additionally, they have the

ability to commit to mass purchases that significantly lower their costs. They must implement

effective distribution channels to remain competitive. Taste of the product is also a key factor

for success. Furthermore, established brand loyalty is a large aspect of the soft drink industry.

Many consumers of carbonated beverages are extremely dedicated to a particular product, and

rarely purchase other varieties. This stresses the importance of developing and maintaining a

superior brand image. Price, however, is also a key factor because consumers without a strong

brand preference will select the product with the most competitive price. Finally, global

expansion is a vital factor in the success of a company within the soft drink industry. The

United States has reached relative market saturation, requiring movement into the global

industry to maintain growth (Datamonitor, 2005).

Recommendations

Looking towards the future, the most important recommendation to Coca-Cola is

continuing product innovation and expansion of their product line. The soft-drinks industry is

fully saturated with competitors. Also, the industry is no longer expanding, and market share

is actually decreasing as more consumers are looking to healthier options. By continually

introducing new products, Coca-Cola will be able to increase their profits and allow the

company to continue to grow. Also, having a diverse product line will make the corporation

very stable, which is appealing to investors and creditors.

A second recommendation would be to sustain or increase the global market share.

Coca-Cola is very well-established globally, and is the global soft-drinks leader. This is very

important to sustain because it is the source of the majority of their profits. If they lose global

market share, their profits will decline dramatically. A final recommendation for Coca-Cola is

to maintain and try to increase their brand loyalty. Diet Coke has the second highest brand

loyalty of all the soft-drink competitors’ brands, and solid advertising campaigns will help

maintain the brand loyalty. They can also strive to obtain higher brand loyalty in all other

brands, not solely Diet Coke. The brand loyalty is important because it will allow Coca-Cola

to sustain profits and maintain their market share.

PepsiCo CEO Indra K. Nooyi

“Indra Nooyi is one of the most respected and inspiring CEOs in the world. She has

guided PepsiCo to incredible heights and built a culture of respect, collaboration and success.

Her business and life lessons are both inspirational and transferable to the challenges that

bowling center business owners face every day,” said Steve Johnson, executive director of

BPAA. “Indra and PepsiCo have also been tremendous friends to bowling. The partnership

that we’ve enjoyed with PepsiCo has been so important in fueling our industry’s continued

national growth, while also helping to drive the success of the thousands of small business

owners who make up our industry.”

Nooyi, who was named PepsiCo’s CEO in 2006, leads a $65 billion global food and

beverage powerhouse with a portfolio that includes 22 brands that generate more than $1 billion

each in annual retail sales. The company’s main businesses – Quaker, Tropicana, Gatorade,

Frito-Lay and Pepsi-Cola – make hundreds of snacks and beverages sold around the world.

Nooyi has been frequently ranked by such media as Forbes, Fortune, Wall Street Journal,

TIME and U.S. News and World Report as one the most influential and powerful people in

business. She is recognized for consistently delivering strong business and financial results,

while also taking steps to set the company on a course toward sustainable, long-term growth.

A message from PepsiCo’s President & CFO, Indra Nooyi

I recently had the privilege of speaking to the 2005 graduating class of Columbia

University’s Business School in New York City. Recognizing that these talented new leaders

will influence both America and the world, I tried to provide some advice as they embark on

their careers. I chose to speak about the powerful role that America, and we as Americans, hold

in the world today. I hoped to encourage these graduates to be sure they make a positive and

personal difference as representatives of our great country.

In my comments, I used the analogy of a human hand to illustrate that people in

countries around the globe need to join together to make the world work in harmony – just as

all the fingers of a hand work together. It is an illustration that I learned when I was a student,

and that I have shared with others on many different occasions. As part of this illustration, I

assigned five of the world’s continents to the different fingers and thumb. I refer to North

America and particularly the U.S. as the middle finger because it is the longest and anchors

every function the hand performs. The middle finger also is key to all the fingers working

together effectively. That is how I view America’s place of importance in the world. The point

of my analogy was to emphasize America’s leadership position. Equally critical is the need for

each of us as citizens to take a constructive role in whatever we choose to do in life to ensure

the U.S. continues as the world’s “helping hand.”

Unfortunately, my remarks at Columbia University were misconstrued and depicted in

a different context as unpatriotic. Although nothing could be further from the truth, I regret any

confusion or concern that I may have inadvertently created. As I shared with the audience at

Columbia, this country that I am proud and honored to call home is a “promised land” that I

love dearly. I would never say or do anything to detract from our great nation and its people

who have done so much for so many, including myself.

Thank you for your understanding and allowing me to set the record straight.

Indra K. Nooyi President & CFO, PepsiCo

Q. You come home one day as president of the company, just appointed, and your mom

is not that impressed. Would you tell that story?

This is about 14 years ago. I was working in the office. I work very late, and we were in the

middle of the Quaker Oats acquisition. And I got a call about 9:30 in the night from the existing

chairman and CEO at that time. He said, Indra, we're going to announce you as president and

put you on the board of directors... I was overwhelmed, because look at my background and

where I came from—to be president of an iconic American company and to be on the board of

directors, I thought something special had happened to me.

Why Women Still Can't Have It All

So rather than stay and work until midnight which I normally would've done because I had so

much work to do, I decided to go home and share the good news with my family. I got home

about 10, got into the garage, and my mother was waiting at the top of the stairs. And I said,

"Mom, I've got great news for you." She said, "let the news wait. Can you go out and get some

milk?" I looked in the garage and it looked like my husband was home. I said, "what time did

he get home?" She said "8 o'clock." I said, "Why didn't you ask him to buy the milk?" "He's

tired." Okay. We have a couple of help at home, "why didn't you ask them to get the milk?"

She said, "I forgot." She said just get the milk. We need it for the morning. So like a dutiful

daughter, I went out and got the milk and came back.

I banged it on the counter and I said, "I had great news for you. I've just been told that I'm going

to be president on the Board of Directors. And all that you want me to do is go out and get the

milk, what kind of a mom are you?" And she said to me, "let me explain something to you.

You might be president of PepsiCo. You might be on the board of directors. But when you

enter this house, you're the wife, you're the daughter, you're the daughter-in- law, you're the

mother. You're all of that. Nobody else can take that place. So leave that damned crown in the

garage. And don't bring it into the house. You know I've never seen that crown."

Q. What's your opinion about whether women can have it all?

I don't think women can have it all. I just don't think so. We pretend we have it all. We pretend

we can have it all. My husband and I have been married for 34 years. And we have two

daughters. And every day you have to make a decision about whether you are going to be a

wife or a mother, in fact many times during the day you have to make those decisions. And you

have to co-opt a lot of people to help you. We co-opted our families to help us. We plan our

lives meticulously so we can be decent parents. But if you ask our daughters, I'm not sure they

will say that I've been a good mom. I'm not sure. And I try all kinds of coping mechanisms.

In 2009, PepsiCo made a promise. For the next 10 years, we promised to deliver sustainab le

growth by investing in a healthier future for our consumers, our planet, our associates and

external partners and the communities we serve.

This promise is the cornerstone of our 'Performance with Purpose' mission: our belief that our

financial success Performance must go hand-in-hand with our social and environmenta l

responsibilities our Purpose. We call this 'The Promise of PepsiCo', a manifesto that includes

ambitious global goals 47 commitments in all that will guide our company this decade.

As the world's second-largest food and beverage business, we have a responsibility to help

devise solutions to key global challenges where we can have the most impact. We categorize

these responsibilities in three distinct areas: Human Sustainability addressing diverse and

complex global nutrition needs; Environmental Sustainability being a good steward of our

planet's natural resources; and Talent Sustainability creating meaningful employment

opportunities in the communities where we operate and developing our associates while

fostering a diverse and inclusive workplace.

Our strategy for long-term growth is an integral part of our 'Performance with Purpose' mission.

In fact, we design our business plans to ensure that the work we do and the investments we

make have a positive impact on society that's why our 2009 corporate citizenship report is titled

Performance with Purpose: Investing in Sustainable Growth.

Challenging economic times are still ahead, but we will not reduce our commitment to

responsible business, and we are taking action to ensure sustainable, profitable growth across

all our businesses. Despite many challenges, we see enormous opportunity for continued

growth.

One way is through the game-changing merger transaction with our two anchor bottlers. This

merger allows us to create a lean, agile organization with an optimized supply chain, a flexib le

go-to-market system and enhanced innovation capabilities. Another critical path to growth is

to continue to expand our R&D capabilities and increase investments to develop more

nutritious products that taste great and add positive nutrition such as fiber, vitamins and

calcium, among other benefits.

Our 'Performance with Purpose' mission guides the way we conduct ourselves as we continue

to seek valuable counsel from key external stakeholders like Ceres, the Carbon Trust and global

experts in the nutrition, science and global health policy communities. Together, these actions

will help us maintain our long-term commitment to the overall sustainability of our company.

MAY 07 2014 /1.00 PM, PEP – PepsiCo Annual Shareholder Meeting

C O R P O R A T E P A R T I C I P A N T S

Indra Nooyi PepsiCo, Inc. - Chairman, CEO

Larry Thompson PepsiCo, Inc. - EVP, Government Affairs, General Counsel and Corporate

Secretary

C O N F E R E N C E C A L L P A R T I C I P A N T S

James Mackie - Shareholder

Tamara Williams - Representative of Shareholder

James Kiszka Computershare - Senior Relationship Manager

P R E S E N T A T I O N

Unidentified Company Representative

Before we begin, please take note of our cautionary statement. This presentation

includes forward-looking statements based on currently available information. Forward-

looking statements inherently involve risks and uncertainties that could cause our actual results

to differ materially from those predicted in such forward-looking statements.

Statements made in this presentation should be considered together with the cautionary

statements and other information contained in our most recent earnings release and in our most

recent periodic reports filed with the SEC.

Also, to find reconciliations of non-GAAP measures that we may use when discussing

PepsiCo's financial results, please refer to the "Investors" section of PepsiCo's website under

the "Events and Presentations" tab as well as our 2013 annual report.

And now, please welcome the Chairman and Chief Executive Officer of PepsiCo, Indra

Nooyi.

Indra Nooyi - PepsiCo, Inc. - Chairman, CEO

Good morning everyone and welcome. On behalf of PepsiCo's Board of Directors and

our senior leadership team, welcome to PepsiCo's 2014.

Annual Meeting of Shareholders.

Whether you're here in New Bern, North Carolina or listening via webcast, I want to

thank you for joining us this morning.

You know, this is our third straight year of coming home to New Bern, the birthplace

of Pepsi-Cola for our shareholder meeting. And for us, there are few things more humbling and

more inspiring than the special connection between PepsiCo and New Bern. From the moment

we arrive in town, we can feel a sense of pride. Our shareholders, here and across the country,

are proud to own a part of PepsiCo.

It's a pride in knowing that this town, this country and PepsiCo all hold the same values

dear. Values like ingenuity, dependability and accountability, the cornerstones of great

communities and great institutions alike. They are the values we demonstrate every day and

they are the values that Caleb Bradham demonstrated when, after closing up his drugstore in

the corner of Middle and Pollock for the day, he would go to work perfecting his recipe for

Brad's Drink, which would later become Pepsi-Cola.

You know, we outgrew that drugstore but we have not outgrown our values. And as we

continue to transform and grow, they will guide us and help us achieve the strong and consistent

performance that has defined PepsiCo for decades.

It's in that spirit that I want to take a few minutes to discuss our performance from last

year and the steps we've taken to position ourselves to continue delivering the sustainab le

performance you, our shareholders, have come to expect. Before we officially get underway,

I'd like to take a moment and recognize some special attendees.

First, I'd like to thank Mr. James Mackie as well as Ms. Tamara Williams, who's here

on behalf of Mr. Kenneth Steiner, for being here today. Each of them will be presenting a

shareholder proposal this morning.

And it's wonderful to have a number of our partners and members of the PepsiCo family

here in attendance today. I'd like to take a special welcome to my predecessor, our former

chairman and CEO, Steve Reinemund, who's finishing a fantastic stint as the Dean of the Wake

Forest School of Business. Steve Reinemund. Where is Steve? Steve. Welcome.

And it's a great honor for all of us to have Jan Calloway join us this morning, whose

late husband Wayne Calloway, a proud native of North Carolina.

I may add, who also served as PepsiCo Chairman and CEO. Welcome, Jan. Where's

Jan? Hi, Jan.

We're also very happy to be joined by Jeff Minges, the President and CEO of Minges

Bottling Group, a respected local business leader and our franchise partner for a number of

counties here in North Carolina. Jeff is joined by his son Miles. Jeff and Miles, welcome to the

shareholder meeting.

And I want to extend a very special welcome to members of the Brown family. They're

long-time PepsiCo shareholders who've also been important distributors for PepsiCo in the

Wilmington, North Carolina area over the years. I want to say thank you to Debbie, Bill, Pam,

Allison, Amy and Clint for coming, the Brown family. Where are you? Welcome.

Now I'd like to recognize our Board Members in attendance today who will each stand

as his or her name is read. Shona Brown, George Buckley, Ian Cook, Dina Dublon, Ray Hunt,

Alberto Ibarguen, Sharon Percy Rockefeller, Lloyd Trotter, Dan Vasella, Alberto Weisser, and

our newest Board Member, former chairman and CEO of the Financial Times Group, Rona

Fairhead. Rona welcome to your first PepsiCo shareholder meeting. One member of the board,

Jim Schiro, is unable to attend today's meeting.

Next, I'd like to introduce you to the members of the PepsiCo leadership team who are

in the audience today. Will each member please stand as I say his or her name? Here on stage

with me is Larry Thompson, Executive Vice President, Government Affairs, General Counsel

and Corporate Secretary.

We're also joined by Zein Abdalla, President of PepsiCo; Al Carey, Chief Executive

Officer of PepsiCo Americas Beverages; Brian Cornell, Chief Executive Officer of PepsiCo

Americas Foods; Hugh Johnston, Executive Vice President, Chief Financial Officer; Jim

Wilkinson, Executive Vice President of Communications; Mehmood Khan, Executive Vice

President, Chief Scientific Officer, Global Research and Development; and Cynthia Trudell,

Executive Vice President of Human Resources and the Chief Human Resources Officer. Thank

you all for joining us today.

And now let me take a few minutes to talk about the state of PepsiCo, where we are

today and where we are headed. Since the transformation of PepsiCo began in 2009, we have

operated in service of two goals: to deliver top tier financial performance and to create

long-term sustainable growth. I'm proud to say that in 2013 we met both of these goals. We

performed as we transformed.

Last year we met or exceeded each and every one of the financial goals we announced

to you, our shareholders, at the beginning of the year. Our organic revenue grew 4%, core

constant currency earnings per share grew 9%, core gross margins improved by 90 basis points

and core operating margins improved by 40 basis points, even while we increased investment

in the company.

We captured more than $900 million of productivity, exceeding our target, and keeping us on

track to deliver the three-year, $3 billion productivity program that we set for ourselves for the

years 2012 to 2014.

In fact, this success gave a confidence to extend this goal of $1 billion in annual

productivity savings for five years beyond the 2014 timeframe. Core net return on invested

capital improved 110 basis points, 60 points, 60 basis points, ahead of our target. And free cash

flow excluding certain items was strong at $8.2 billion.

And finally, we returned $6.4 billion of cash to shareholders through dividends and

share repurchases. Returning cash to shareholders remains a top priority. Yesterday, our board

of directors increased our annual dividend by 15% to an annual rate of $2.62 per share, which

is our 42nd consecutive annual dividend increase. And in 2014, we expect to increase total cash

returns by 35%, with $5 billion in share repurchases and $3.7 billion in dividends. You know,

2013 was a great year for us, not just for our immediate successes, because it showed that the

investments we've made to future-proof the company are beginning to pay off.

Our actions in 2013 were a continuation of six concrete steps we've taken over the past

five years to position ourselves for the long-term. First, we invested to enhance the equity of

our portfolio of $22 billion brands.

And because of those stepped up investments, today we have 9 of the 40 largest

packaged good trademarks in the United States, which is more than any other company out

there; 9 of the top 50 packaged food and soft drink brands in Russia, again, number one; 7 of

the top 50 in Mexico; and 6 of the top 50 in the United Kingdom.

And a great example of our brand push is Pepsi's global "Live for Now" campaign,

which is generating worldwide buzz. And this year it's getting even bigger with new spots

featuring soccer superstars like Lionel Messi with Pepsi and Lay's. So that's the brands.

The second thing we did was fine-tune and ramped up our innovation machine. And

2013 was PepsiCo's best year for innovation. We had nine of the top 15 new food and beverage

product introductions across all measured channels in the United States, including Mountain

Dew Kickstart, Tostitos Cantina Tortilla Chips, Starbucks Ice Coffee, Lipton Pure Leaf Tea,

Muller Quaker Yogurt and Tropicana Farmstand, so great year for innovation.

Third, we continued to invest in the developing and emerging markets that are critical

to PepsiCo's long-term growth. Despite significant volatility in many key regions, our

developing and emerging markets posted 10% organic revenue growth. With particula r ly

strong performances in China, Pakistan, Saudi Arabia, Mexico, Brazil and Turkey. So

investments in these markets are beginning to pay off.

Fourth, we increased investment in, and expanded our portfolio of, nutritious products,

which in 2013 accounted for approximately 20% of PepsiCo's total revenue. Building from

positions of strength across four platforms and brands - Quaker, Tropicana, Gatorade and

Naked Juice - we've developed new products that will unlock growth opportunities, categories

such as dairy, hummus, baked grain snacks are all showing special promise.

Fifth, we reinforced PepsiCo's global go-to-market capability, which is a critical

strategic advantage for us. We increased number of routes in key markets, we improved our in-

store presence and put mobile technology in the hands of our sales team. And sixth, we

redoubled and refocused our efforts on talent development. And we prioritized comprehens ive

leadership training for our leadership positions.

And these are some of the reasons why our 2013 Organization Health Survey scores

are impressive, 89% of our professional executive populations responded that they are proud

to work for PepsiCo, which is well above the industry standard. All these efforts have been

financially rewarding for PepsiCo and our shareholders too.

Over the past decade our net revenue compound annual growth rate was 9%, earnings

per share over the past decade has grown at 8% and through year-end 2013 we returned $57

billion to shareholders.

Today our operating margins stands at 15% which puts us in the top tier of our food

and beverage peer group. From 2000 to year-end 2013 PepsiCo's cumulative total shareholder

returns outpaced the S&P 500 on an annualize basis by 170 basis points. And these numbers

tell the story of a company that's been a model of durability, delivering for our consumers, our

customers and most importantly our shareholders. We are poised to win now and for years to

come.

But that future success is continued in our ability to capitalize on the trend shaping the

marketplace, and there are five trends in particular I want to spend a moment highlighting.

First, as we look out over the next 5 to 10 years, growth in developing and emerging

markets will continue to outpace the growth in developed markets. Additionally, by 2030,

experts estimate that another 3 billion people might join the middle class, all in developing and

emerging markets.

These are both enormous opportunities we're committed to maximizing by further

developing our people, skills and tools.

Second trend, the ongoing consumer shift towards more nutritious products will

continue to accelerate. You know, we anticipated these trends early, we took the necessary

steps to transform our portfolio. And in 2014 and beyond, we will keep innovating to deliver

the convenient and functional nutritious snacks and beverages that consumers demand today,

while never sacrificing on taste.

Third, digital technology will disrupt business at every point in the value chain. The

way we interact with retailers, shoppers and consumers is changing dramatically. To keep up

with the technological advancement and adapt to the dynamic digital landscape, we are laser

focused on evolving all points where technology touches our business.

Fourth, geopolitical and social instability is now the norm and it requires new levels of

vigilance against threats to our people and supply chains. Fortunately our PepsiCo local teams

have an intimate understanding of the communities and how to do business in volatile

environments.

And finally we are facing increasingly extreme weather affecting everything from

commodity prices to our ability to operate during extreme weather events. While our size and

scale allows us to manage the risks, our R&D team is working on developing formulations for

new products to be able to cope with changes in raw material availability and prices.

We believe these five mega-trends make up the "new normal." And with our focus,

investment strategy, product diversity, operating model and people, we believe PepsiCo is well

prepared to deliver great returns going forward. As we look to the future, we believe one of

PepsiCo's important strategic advantages as we address global challenges is the power of our

combined food and beverage portfolio. Our consumers can wake up to a breakfast of Quaker

Real Medleys and Trop 50, enjoy Pepsi Max and Sun Chips at lunch and unwind in the

afternoon with Stacey's Pita Chips, Sabra hummus, and Lipton Iced Tea after work. No matter

the time of day or the occasion, PepsiCo has a product for you.

Our combined portfolio along with our scale and relationships with retailers allows us

to create in-store destinations featuring a wide range of PepsiCo products. You know, for

example during the fourth of July season last year, the combination of Pepsi and Lay's at one

major retail chain drove about a 40% increase in display inventory.

Our relationships with retailers also help us grow complementary categories. For

example, an existing PepsiCo beverage business in a market can enable us to enter the snacks

business in that market. And this advantage extends to food service as well.

Look at one of our biggest wins last year, Buffalo Wild Wings. We will now serve our

products at more than 1,000 Buffalo Wild Wings locations because of the combined strength

of our food and beverage portfolio. And for structural standpoint, a combined business model

has driven numerous cost benefits saving us approximately $1 billion a year by integrat ing

everything from procurement, to go-to-market, to human resources.

And because PepsiCo is a food and beverage company, we have the ability to find

growth and efficiencies in places that competitors just don't have access to. And this

combination has proven successful in the past and is positioned to do so in the future.

To ensure our continued success, we must keep an eye on the long term and take actions

that result in sustainable growth. And I believe the way we do that is by continuing to

demonstrate our commitment to Performance with Purpose. This means that we at PepsiCo

will continue to uphold our promise to provide a range of products from treats to healthy eats,

minimize our impact on the environment, provide a safe and inclusive workplace for our

employees globally and respect, support and invest in local communities in which we operate.

Performance with Purpose is how we "future-proof" our company at a time of increased

unpredictability and competition, and today it's more important than ever. By staying true to

Performance with Purpose, we will uphold our promises to shareholders and stakeholders and

remainstrong not just for future quarters, but for future generations.

. You know, I began this morning talking about values. Value that define a community

and a company. As shareholders, these values are what you are investing in when you invest

in PepsiCo.

So when we tell you that our goals are to give you the highest quality, best tasting

products, contribute to the communities in which we operate, and focus on principled, long-

term success for the benefit of all of our shareholders and all those who have a stake in PepsiCo,

you'll know that it's not just talk, it's the core way we do business.

When you invest in PepsiCo, you're investing in a lasting American born and bred

institution that is now global. When PepsiCo is strong, you are strong, because after all PepsiCo

is your company and these values are your values.

So to all of PepsiCo's shareholders - you are stewards of a great legacy and a great

company. A company committed to responsible, sustainable growth. A global company rooted

in fundamental great American values. And a company that will work every day to do right by

its consumers, customers, shareholders and communities just like this one.

Thank you very much for your time.

Now I'll turn the meeting over to Larry Thompson. Larry?

Larry Thompson - PepsiCo, Inc. - EVP, Government Affairs, General Counsel and Corporate

Secretary

Thank you Madam Chairman. I am pleased to report that a majority of the votes entitled

to be cast at this meeting are represented today in person or by proxy and therefore we have

the necessary quorum under state law and our bylaws. If anyone has not yet voted and would

like to do so by ballot during the meeting, please raise your hand. We have staff assistants who

will distribute ballots to you.

Now these ballots must be completed and turned in before the Inspectors of Election

announce the closing of the polls. If you are a holder of convertible preferred stock, please tell

our staff assistant so he or she can give you the appropriate ballot. Please remember to vote on

all items, not just those on which you may want to change an earlier vote.

Please also remember to print your name clearly and sign your ballot. If you have

previously voted by proxy, you do not need to vote today unless you wish to change your vote.

If you have a legal proxy, please hand it in with your ballot.

Now the ballots and proxies will be held in the possession of our Inspectors of Election,

James Kiszka and Sharon Tucker-Lockett, from Computershare Trust Company, who have

previously taken their oath as Inspectors of Election at this meeting. Mr. Kiszka and Ms.

Tucker-Lockett will you please stand and be recognized. Thank you.

Consistent with state law and our bylaws, a list of the shareholders entitled to notice of

this meeting is available for inspection at the registration desk throughout the meeting.

Indra Nooyi - PepsiCo, Inc. - Chairman, CEO

Now that we have a quorum, I declare this meeting to be duly convened for purposes

of transacting such business as may properly come before it in accordance with state law and

our bylaws. It is now in order to proceed with the meeting. Will the Inspectors of Elections

please open the polls?

James Kiszka - Computershare - Senior Relationship Manager

I hereby declare the polls to be open.

Indra Nooyi - PepsiCo, Inc. - Chairman, CEO

We have six agenda items this morning: the first is the election of directors, the second

is the ratification of the appointment of KPMG LLP as the company's independent registered

public accountants for fiscal year 2014.

The third is the advisory approval of executive compensation, the fourth is the approval

of the material terms of the performance goals of the PepsiCo, Inc. Executive Incentive

Compensation Plan, and two shareholder proposals will then be voted on if properly presented.

In proceeding with the meeting, we will introduce all agenda items and then we will

open the floor to questions on just the agenda items. I ask you to hold all questions on our

agenda items until we actually open the floor and to please direct your questions only to me.

The proponents of the shareholder proposals, or their representatives, will have five minutes to

present each shareholder proposal. Because we did not receive notice in accordance with our

bylaws of any additional matters to be considered, no other proposals or nominations may be

introduced at this meeting.

After we address any questions regarding the agenda items, we will collect all the

ballots and then ask our Inspectors of Election to tabulate the voting results. And at the end of

the meeting, we will open the floor to general questions. You should have a copy of the rules

of procedure that we will follow in the conduct of the meeting. And we please appreciate your

cooperation.

I've asked Larry Thompson to address any issues that arise under those rules. So let's

begin with our first item, which is the election of directors. I place before the meeting to serve

as directors for the coming year the 13 individuals whose names and biographies appear in our

proxy statement. Our board recommends a vote "for" each of the nominees for director.

We now turn to our second agenda item, the ratification of the appointment of KPMG as our

independent registered public accountants for 2014, which I place before the meeting. Doug

Ruud and Alan Colaco are here with us representing KPMG and will be available to answer

questions or make a statement, if they would like to do so, later in the meeting. Our board

recommends a vote "for" the ratification of the appointment of KMPG as our independent

registered public accountants for 2014.

The third agenda item is the advisory vote to approve the compensation of the executive

officers named in our proxy statement, which I place before the meeting. Our board

recommends a vote "for" the advisory resolution to approve executive compensation.

We now come to our fourth agenda item, the approval of the material terms of the

performance goals of PepsiCo Inc. Executive Incentive Compensation Plan, which I place

before the meeting. Our board recommends a vote "for" approval of this agenda item.

We'll now move on to the shareholder proposals in the order in which they appear in

the agenda. Each of the shareholders or their representatives will present their respective

proposals.

Now we turn to our first shareholder proposal submitted by Mr. James W. Mackie

regarding a political contributions policy. Would Mr. Mackie please introduce himself and the

proposal?

James Mackie - - Shareholder

Madam Chairman and directors, my name is James W. Mackie, I reside in Bryn Mawr,

Pennsylvania. Madam Chairman, directors and officers, thank you for the opportunity to

present my proposal concerning political contributions. I move the adoption of the proposal

concerning political contributions as stated in the proxy statement. I bring this proposal strictly

on my own and do not represent any group, any organization or political party. In the simplest

terms, I'm requesting that the board of directors prepare a clear and easily understood policy

stating the circumstances under which PepsiCo will make political contributions in cash or in

kind and submit the proposal to the stockholders for approval.

After the stockholder approval, no political contributions would be permitted unless

they were in accordance with the corporate policy. In the current political environment, we

have seen candidates at all levels spend enormous sums of money to win an election. This has

been spent to elect individuals who support political and, in particular, positions that may or

may not in the best interest of the public.

The use of super PACs and the large individual contributors has raised the stakes in the

pay to play political arena and often the super PAC donors are not identified until after the

election is over. The unfettered ability of a corporation or organization to contribute large sums

to political campaigns can only lead to a lowering of the quality of governance and regulat ion.

And that would be detrimental to both PepsiCo and the public.

I chose to present my proposals to PepsiCo because I hold the current management in

high esteem. And believe that Pepsi can be a leader in corporate governance with the

publication of a corporate policy setting forth clear parameters for making politica l

contributions. This would also benefit the directors and management if and when pressured by

political groups to make a significant contribution.

The current PepsiCo policy on political contribution relies on the integrity of the current

management. With changing management in the future and without a stated corporate policy,

stockholders might find PepsiCo funding candidates with whom they have severe differences

of opinion.

Having been employed by a large corporation, where I worked with state and federal

regulatory agencies and with the state legislature, I recognize a need for business to provide

honest and accurate input through direct and indirect contact with government and regulatory

agencies.

PepsiCo products are subject to many regulatory requirements, and it is imperative that

the company provide transparent and truthful communication with appropriate agencies and

regulatory bodies. I move that PepsiCo adopt a corporate policy clearly stating the criteria for

making political contributions and have the policy submitted to the stockholders for approval.

Thank you.

Indra Nooyi - PepsiCo, Inc. - Chairman, CEO

Thank you Mr. Mackie and thank you for taking the time to share your proposal with

us.

And let me take a minute to share with you our board's position on this matter as

outlined in our proxy statement. You know, your proposal calls for a political contributions

policy to be approved by at least 75% of shares outstanding and provides that no politica l

contributions can be made by PepsiCo unless they are consistent with that policy.

PepsiCo's active participation in public policy matters, including political expenditures and

participation in lobbying activities on topics of relevance to our business, is essential and

appropriate for our company and PepsiCo has already adopted a political contributions policy

which we've clearly stated on our website.

We've also developed various processes designed to further promote corporate

accountability and transparency to shareholders including a requirement that all contributions

must reflect PepsiCo's business or strategic interests and not that of individual officers or

directors. It is important to note that PepsiCo's political contributions are focused on business

issues that are critical to our company and our stakeholders.

And PepsiCo's Public Policy and Government Affairs team works with the senior

management to develop annual and long-term public policy priorities.

And our board has active oversight of PepsiCo's public policy activities through the

Nominating and Corporate Governance Committee which

annually reviews and assesses PepsiCo's political expenditures.

MAY 07, 2014 / 1:00PM, PEP - PepsiCo Annual Shareholder Meeting

All political expenditures are made in a non-partisan manner and after careful consideration of

specific criteria, including a candidate's commitment to the long-term public policy goals of

PepsiCo. We understand that our engagement in public policy matters is an important issue for

shareholders and we too believe that transparency and accountability are warranted.

Accordingly our shareholders can obtain very detailed information on PepsiCo's

website about our policy and procedures governing public policy matters including politica l

contributions.

On our website, you will find the specific criteria that are considered in connection with

all political contributions. You will also find disclosure of the total amount of PepsiCo's annual

corporate political contributions in the United States, as well as our annual expenditures on

federal lobbying-related activities in the United States.

I note that PepsiCo follows all applicable campaign finance, disclosure and other rules

regarding both political giving and reporting on lobbying activities and has implemented

internal controls to promote compliance with all these rules.

We recommend that shareholders do not support this proposal. By setting an unduly

high standard for shareholder approval, this proposal would be impractical to adopt and would

virtually shut down PepsiCo's ability to make political expenditures in support of public policy

issues that are critical to the success of our business.

The final item on the ballot today is a shareholder proposal submitted by Mr. Kenneth

Steiner requesting adoption of a policy requiring our senior executives to retain a significant

portion of stock. Will Tamara Williams, the representative of Kenneth Steiner please introduce

herself and the proposal?

Tamara Williams - - Representative of Shareholder

Hello, my name is Tamara Williams and this is proxy item number six, policy regarding

executive retention of stock by Kenneth Steiner of Great Neck, New York. Resolved:

Executives to retain significant stock. Shareholders urge that our executive pay committee

adopt a policy requiring senior executives to retain a significant percentage of shares acquired

through equity pay programs until reaching normal retirement age and to

report to shareholders regarding the policy before our company's next annual meeting.

For the purpose of this policy, normal retirement age would be an age of at least 60 and

determined by our executive pay committee. Shareholders recommend that the committee

adopt a share retention percentage requirement of 50% of net after-tax shares. This single

unified policy shall prohibit hedging transactions for shares subject to this policy which are not

sales but reduce the risk of loss to the executives.

This policy shall supplement any other share ownership requirements that have been

established for senior executives and should be implemented so as not to violate our company's

existing contractual obligations or the terms of any pay or benefit plan currently in effect.

Requiring senior executives to hold a significant portion of stock obtained through executive

pay plans would focus our executives on our company's long-term success. A Conference

Board Task Force report stated that hold-to-retirement requirements give executives an ever-

growing incentive to focus on the long-term stock price performance.

Indra Nooyi - PepsiCo, Inc. - Chairman, CEO

Thank you, Ms. Williams. And let me share with you our board's point of view on this

topic as outlined in our proxy statements. Our board agrees with the proponent's view th, l,lat

our executive officers should own a significant amount of PepsiCo stock in order to align their

interest with those of shareholders.

However, PepsiCo's executive compensation programs and robust governance policies

are already designed to accomplish the objectives of this proposal. Our proxy statement

contains substantial detail regarding these programs and policies, but here are some key points

I'd like to highlight for you.

. First, PepsiCo's executive officers are already subject to strong stock ownership

requirements. As PepsiCo's Chief Executive Officer, I'm required to hold PepsiCo's stock

having a value equal to eight times my annual salary. As noted in the proxy statement, I own

PepsiCo stock worth more than 19 times my annual salary.

Other executive officers of the company are required to hold PepsiCo stock having a

value equal to either four or two times their annual salary, depending on their position. So while

the shareholder proposal seeks a policy requiring executive officers to retain a certain

percentage of the total shares granted to them, our current policies require stock ownership

based on an executives' annual salary.

Second, executive officers who have not yet achieved their stock ownership

requirement are subject to PepsiCo's strict share retention policies.

Our executive officers have five years from the date of appointment to their position to

meet their ownership requirement. Until the ownership requirement is satisfied, our policies

limit the cash proceeds that executive officers may receive upon exercise of stock options and

upon payout of any PepsiCo units, which is PepsiCo's performance share rewards.

Additional policies we already have in place to motivate our executive officers to

deliver long-term performance include post-employment stock holding requirements, a strong

clawback policy that continues to apply following an executive officer's retirement or

termination and a prohibition on our executive officers engaging in any hedging involving

PepsiCo stock.

Finally, given that our executive compensation programs are designed with the

objective of focusing our executive officers on PepsiCo's long-term success, our board is very

confident that the underlying goal of this proposal has already been met.

The annual long-term incentive award, which rewards business performance measured

through a combination of critical internal operating metrics and market-based stock

performance, is weighted more heavily than any other component of total direct compensation

for our executive officers.

And for all these reasons, we recommend that shareholders do not support this proposal.

We will open the floor to general questions on other topics at the end of the meeting. For now,

are there any questions on the agenda items we just reviewed?

As reminder, in order to accommodate all of you who wish to pose a question, each

shareholder will be limited to three minutes for questions or comments. And to facilitate this

process, you will hear a chime indicating when it's time for you to begin to finalize your

question or remarks.

So questions on just on the agenda items? Comments on just the agenda items?

Comments, questions, yes, what we just talked about. Thank you.

Has everyone voted who wishes to do so? Please put your hand up if somebody has a

ballot to be collected. Have all the ballots have been collected?

Anyone? Two outstanding, okay.

All the votes collected, good.

We now seem to have all of the ballots and since those desiring to vote have done so, I

will ask our Inspectors of Election to close the polls. Mr. Kiszka and Ms. Tucker-Lockett?

James Kiszka - Computershare - Senior Relationship Manager

I now declare the polls closed.

Indra Nooyi - PepsiCo, Inc. - Chairman, CEO

All right., 2014 / 1:00PM, PEP - PepsiCo Annual Shareholder Meeting

Larry Thompson - PepsiCo, Inc. - EVP, Government Affairs, General Counsel and Corporate

Secretary

The responsibility of the Inspectors of Election is to tabulate the voting results and they

will begin to do so now while we will take a brief break.

Indra Nooyi - PepsiCo, Inc. - Chairman, CEO

Larry Thompson will now announce the preliminary results of the balloting. Larry?

Larry Thompson - PepsiCo, Inc. - EVP, Government Affairs, General Counsel and Corporate

Secretary

Thank you, Madam Chairman. I'd like to report the preliminary results of the voting. I

remind everyone that the holders of our common stock and the holders of our convertib le

preferred stock vote together on all matters as a single class. With respect to the nominees for

director, I'd like to report that all director nominees have been duly elected by the affirma tive

vote of a majority of the votes cast.

Ballot item number two, the appointment of KPMG as our independent auditors for

2014, has been ratified by the affirmative vote of approximately 99% of the votes cast.

Ballot item number three, the advisory vote on executive compensation, has been

approved on an advisory basis by the affirmative vote of approximately 89% of the votes cast.

Ballot item number four, the material terms of the performance goals of PepsiCo

Executive Compensation Plan, has been approved by the affirmative

vote of approximately 96% of the votes cast.

Ballot item number five, a stockholder proposal calling for a political contributions

policy, has received approximately 3.6% of the votes cast and thus did not receive enough votes

to pass.

Ballot item number six, a shareholder proposal regarding a policy on executive

retention of stock, has received approximately 25% of the votes cast and thus did not receive

enough votes to pass.

Again, I remind you that these are preliminary voting results and final results will be

available after the votes have been certified by our Inspectors of Election. The final results will

be disclosed on a Form 8-K that will be filed with the SEC.

Indra Nooyi - PepsiCo, Inc. - Chairman, CEO

Thank you, Larry. And this concludes the business portion of our meeting. I thank you

all for your time and attention today. All of the proposals eligible for consideration by the

shareholders at this annual meeting have been presented and the formal business portion of the

meeting is now adjourned.

COMPANY PROFILE

About PepsiCo

PepsiCo is a global food and beverage leader with net revenues of more than $65 billion

and a product portfolio that includes 22 brands that generate more than $1 billion each in annual

retail sales. Our main businesses – Quaker, Tropicana, Gatorade, Frito-Lay and Pepsi-Cola –

make hundreds of enjoyable foods and beverages that are loved throughout the world.

PepsiCo’s people are united by our unique commitment to sustainable growth by investing in

a healthier future for people and our planet, which we believe also means a more successful

future for PepsiCo. We call this commitment Performance with Purpose: PepsiCo’s promise to

provide a wide range of foods and beverages from treats to healthy eats; to find innovative

ways to minimize our impact on the environment by conserving energy and water and reducing

packaging volume; to provide a great workplace for our associates; and to respect, support and

invest in the local communities where we operate.

PepsiCo India Region: Leadership through Performance with Purpose

PepsiCo entered India in 1989 and in a short period, has grown into one of the largest

food and beverage businesses in the country. PepsiCo growth in India has been guided by its

global vision of “Performance with Purpose”. This means that while businesses maximize

shareholder value, they have a responsibility to all the stakeholders, including the communit ies

in which they operate, the consumers they serve and the environment whose resources they

use.

Large investor and one of the largest food & beverage businesses in India

One of the largest US multinational investors in the country, PepsiCo has been

consistently investing in India and has built an expansive beverage and snack food business

supported by 38 beverage plants and 3 food plants. PepsiCo and its partners recently announced

an additional targeted investment of Rs. 33,000 Crore in India by 2020 in the areas of product

innovation, increasing manufacturing capacity, ramping up market infrastructure,

strengthening supply chain and expanding company’s agriculture programme. PepsiCo India’s

diverse portfolio includes iconic brands like Pepsi, Lay’s, Kurkure, Tropicana, Gatorade and

Quaker. In two decades, the company has been able to organically grow eight brands that

generate Rs. 1000 crores or more in estimated annual retails sales and are household names,

trusted across the country.

A growing portfolio of enjoyable and wholesome snacks and beverages

PepsiCo India’s portfolio reflects its commitment to nourish consumers with a diverse

range of fun and healthier products. The portfolio includes several healthier treats like Quaker

Oats, Tropicana juices, Tropicana fruit powders, rehydrator Gatorade, Tata Water plus, Lay’s

baked range, Quaker flavoured oats and Quaker Nutri Upma & Nutri Poha breakfast range with

the power of wholegrain.

Model partnership with over 24,000 farmers

PepsiCo India has pioneered and established a model of partnership with farmers and

now works with over 24,000 happy farmers across nine states. More than 45 percent of these

are small and marginal farmers with a land holding of one acre or less. PepsiCo provides 360-

degree support to the farmer through assured buy back of their produce at pre-agreed prices,

quality seeds, extension services, disease control packages, bank loans, weather insurance, and

the latest technological practices. The association with PepsiCo India has not only raised the

incomes of small and marginal farmers, but also their social standing.

Global leader in water conservation

In 2009, PepsiCo India achieved a significant milestone, by becoming the first business

to achieve ‘Positive Water Balance’ in the beverage world, and has been Water Positive since

then. This fact has been independently assured by Deloitte Touché Tohmatsu India Pvt. Ltd. In

2012, PepsiCo India saved 8.2 billion litres more that it consumed in its manufactur ing

operations. The company made this possible through innovative irrigation practices like direct

seeding, community water recharging initiatives, and by reducing the consumption of water in

its manufacturing facilities. PepsiCo is lauded for its efforts for water conservation and has

received numerous awards such as CII National award for water management, Water Digest

award for water practices and Golden Peacock award for water conservation amongst others.

Care for the environment

PepsiCo India is now focused on reducing its carbon footprint. More than 40 per cent

of its energy is today generated from renewable sources such as bio mass & rice husk boilers

and wind turbines. Initiatives such as reduction in use of chemicals, eco-friendly packaging

initiatives and efficient waste management help reduce load on the environment. PepsiCo in

partnership with the NGO Exnora and local municipalities has also been working on a unique

waste collection and treatment program called ‘Waste-to-Wealth’. The award winning

programme has positively impacted more than 5,00,000 people.

Exemplary employment practices

PepsiCo India provides direct and indirect employment to almost 2,00,000 people. The

company believes in providing employment and growth opportunities to local talent. Its

‘College of Leadership’, ensures early identification of talent, and employees’ focused

development through critical experiences. PepsiCo firmly believes that encouraging diversity

means encouraging policies and systems that respect people’s special needs. Not only does

PepsiCo have a vibrant and diverse workforce, it takes the utmost care to make dynamic

business leaders of its employees and foster their career and personal growth through

differentiated experiences and a robust leadership development model.

External Awards received by PepsiCo India in 2013

Doc T.S.R. Murali, Head R&D, was awarded a Gold Medal by Secretary, Ministry of Food

Processing, Government of India for his outstanding contribution in supporting R&D,

Innovation and growth of Food Processing Sector in India.

Satharia plant was awarded LEED (Leadership in Energy and Environmental Design) Gold

Green Certification by Indian Green Building Council.

India Region Finance and BIS team won UK’s Adam Smith award in collaboration with

Citibank for Best practices and innovation under the section Asia Pacific Regional Award for

Best Practices in the “Highly Commended’ category.

PepsiCo India won the award for “Excellence in Developing the Leaders of Tomorrow” at the

second edition of the SHRM (Society for Human Resource Management) India HR Awards.

PepsiCo India’s Sangareddy Plant was recognized by CII with “Commendation Certificate for

Strong Commitment to Excel in Food Safety” in the category of “Large Manufacturing Food

Businesses – Beverages.

PepsiCo India’s Sathariya, plant won the CII Award for Outstanding Performance in Food

Safety Excellence in the Category of ‘Rising Star; Large Manufacturing Food Businesses –

Beverages.’

Performance with Purpose

At PepsiCo, 'Performance with Purpose' means delivering sustainable growth by

investing in a healthier future for people and our planet.

As a global food and beverage company with brands that stand for quality and are

respected household names — Pepsi, Frito-Lay, Quaker Oats, Tropicana and Gatorade to name

a few — we will continue to build a portfolio of enjoyable and wholesome foods and beverages;

find innovative ways to reduce the use of energy, water and packaging; and provide a great

workplace for our employees. Additionally, we will respect, support and invest in the local

communities where we operate by hiring local people, creating products designed for local

tastes and partnering with local farmers, governments and community groups. Because a

healthier future for all people and our planet means a more successful future for PepsiCo. This

is our promise.

Performance

To all of our investors, it's a promise to strive to deliver superior, sustainable financ ia l

performance.

Human Sustainability

To the people of the world, it is a promise to encourage people to live healthier lives by

offering a portfolio of both enjoyable and wholesome foods and beverages.

As the world's nutrition needs continue to evolve, we are committed to encouraging people to

live healthier by offering a portfolio of both enjoyable and wholesome foods and beverages.

We're adding more whole grains, nuts, fruits and vegetables while reducing added sugars,

lowering sodium and saturated fat levels and moving to heart-healthier oils and natural

sweeteners. We're also embarking on many initiatives to improve calorie labeling, support

nutrition education, bring physical education to schools and feed malnourished people in lower -

income communities. Our R&D investment has increased by more than 40 percent over three

years, helping us step across industry boundaries to address core challenges to make our

products more nutritious.

Environmental Sustainability

To the planet we all share, it is a promise to be a good citizen of the world, protecting

the Earth's natural resources through innovation and more efficient use of land, energy, water

and packaging in our operations.

While we continue to make great strides on our portfolio transformation, we are also committed

to improving the environmental profile of our operations worldwide. Most recently, we opened

a facility in Chongqing, China, that is designed to use 22 percent less water and 23 percent less

energy than our existing in-country facilities. In the U.S., our Frito-Lay business developed a

fully compostable bag for our SunChips multigrain snacks, and the facility in Arizona that

produces these snacks just received the Environmental Contribution of the Year award at the

2010 Global Water Awards. One of our goals is to achieve positive water balance across all

our businesses. For every liter we use, we intend to return one to the Earth. Sound impossib le?

We already did it across our India beverage operations. And India is just one step in our

journey.

Talent Sustainability

To the employees of PepsiCo, it is a promise to invest in them to help them succeed, to

work continually to develop and retain exceptional people and to create employment

opportunities in the communities we serve.

Another crucial element of our promise is our commitment to invest in our associates so they

can succeed and develop the skills needed to drive our sustainable growth. To advance these

imperatives, we have made our training and development regimen more robust, providing

additional experiential learning to build leadership skills and functional capabilities across our

businesses. Our efforts have earned external recognition in key talent and workplace rankings,

including Fortune magazine's 'Top Companies for Leaders' list in 2009. We also remain

committed to strengthening a diverse, inclusive and empowering workplace culture in which

all our associates can thrive while helping to raise standards of living in the communities in

which we operate. We are proud of the progress we continue to make, including increasing the

number of women in management globally, reducing diversity turnover and creating thousands

of new jobs in growing markets.

Human Sustainability

It's a promise to encourage people to live healthier by offering a portfolio of both enjoyable

and wholesome foods and beverages.

Global goals include:

Increasing the whole grains, fruits and vegetables, nuts, seeds and low-fat dairy in its product

portfolio.

Reducing the average sodium per serving in key global food brands in key markets by 25

percent by 2015.

Reducing the average saturated fat per serving in key global food brands in key markets by 15

percent by 2020.

Reducing the average added sugar per serving in key global beverage brands in key markets

by 25 percent by 2020.

PepsiCo India has been at the forefront of leading the human sustainability agenda and some

of the initiatives include:

The decision to eliminate the direct sale of full-sugar soft drinks to primary and secondary

schools around the globe.

Frito Lay's products are MSG and trans-fat free and contain voluntary on pack nutritiona l

labeling.

Breakfast cereal, Quaker Oats, is rich in soluble fibre, beta-glucan which helps in lowering

cholesterol.

The new Lay's Classic Salted has been launched with 25 percent less sodium.

Lehar Gluco+ is a lemon-flavored drink with glucose, electrolytes and iron that provides instant

energy and refreshment to consumers.

Tropicana 100% juice range provides fruit nutrients

PepsiCo offers products with zero or reduced calories such as Diet Pepsi, and Aquafina

packaged water and bulk water.

Gatorade, the world's leading sports drink, has valuable re-hydration benefits and is

scientifically formulated to replenish electrolytes, and refuel carbohydrate energy.

Most of PepsiCo's products are available in a range of packages so consumers can choose a

size suited to particular consumption occasion, and offering choices for portion control.

Lehar Iron Chusti is an extruded snack fortified with best form of iron (NaEDTA) to address

pervasive problem of Iron Deficiency Anaemia for base of pyramid population at an affordable

price. Nutritionally a single pack delivers 25 percent of iron RDA and 50 percent of Vitamin

B1, B12 and folate RDA for adolescent girls. The product has been specifically designed for

adolescent girls recognizing the impact of micronutrient deficiency in context of

intergenerational cycle of malnutrition. The product is made with wholesome local grains like

ragi, soya and rice.

Aquafina packaged water for safe hydration

Environmental Sustainability

To the planet we all share

It is a promise to be a good citizen of the world, protecting the Earth's natural resources through

innovation and more efficient use of land, energy, water and packaging in our operations.

Our business focuses on sustainable growth and relies on the Earth's natural resources every

day. As our business grows in developed, developing and emerging countries, we remain

committed to minimizing the impact it has on the environment. We strive to use only methods

and tools that are scientifically proven, socially responsible and economically sound.

In India, we operate three ongoing initiatives to better the environment. These are closely linked

to our business and are areas in which we believe we can make a very positive impact.

Our initiative to replenish water has been a major success. 2009 was a milestone for us – we

were able to achieve a positive water balance, giving back more water than we consumed

through our various initiatives of recharging, replenishing and reusing water. Click here to

know more

Our efforts to convert waste to wealth have been very fruitful. We have educated community

members on how to segregate and recycle their waste. In a project employing over 500 people,

we transform bio-degradable waste into organic manure through vermi-culture. Click here to

know more

We have also partnered with farmers across the country to help them boost their productivity

and income. We have pioneered contract farming, developed robust, high-quality potato seeds,

arranged for farmer loans, and aided citrus growers in a variety of ways.

Our Goals and Commitments

In 2009, we announced 15 global goals and commitments to guide our work to protect the

Earth's natural resources through innovation and more efficient use of land, energy, water and

packaging in our operations. We are focusing our work where we can make the most positive

impact (water, packaging, climate change and agriculture) and on key policies and partnerships

to help provide solutions to address the world's environmental challenges.

Water: Respect the human right to water through world-class efficiency in our

operations, preserving water resources and enabling access to safe water

Improve our water use efficiency by 20 percent per unit of production by 2015.

Strive for positive water balance in our operations in water-distressed areas.

Provide access to safe water to 3 million people in developing countries by the end of 2015.

Land and Packaging: Rethink the way we grow, source, create, package and deliver our

products to minimize our impact on land

Continue to lead the industry by incorporating at least 10 percent recycled polyethylene

terephthalate (rPET) in our primary soft drink containers in the US, and broadly expand the use

of rPET across key international markets.

Reduce packaging weight by 350 million pounds, avoiding the creation of 1 billion pounds of

landfill waste by 2012.

Work to eliminate all solid waste to landfills from our production facilities.

Climate Change: Reduce the carbon footprint of our operations

Improve our electricity use efficiency by 20 percent per unit of production by 2015.

Reduce our fuel use intensity by 25 percent per unit of production by 2015.

Commit to an absolute reduction in GHG emissions across global operations.

Community: Respect and responsibly use natural resources in our businesses and in the

local communities we serve

Apply proven sustainable agricultural practices on our farmed land.

Provide funding, technical support and training to local farmers.

Promote environmental education and best practices among our associates and business

partners.

Integrate our policies and actions on human health, agriculture and the environment to make

sure they support each other.

Partnership with Farmers

At PepsiCo India, we see ourselves as an agriculture company. Since our entry into India in

1989, we have worked closely with farmers to help improve both their livelihoods and

agricultural yield. Our journey began with our successful introduction of a high-yield ing

variety of tomato, and we went on to help paddy farmers increase their crop. Today our ventures

into crop diversification and the farming of high-quality potatoes and other edibles have

transformed the lives of thousands of Indian farmers.

We continue to strengthen our partnerships with farmers across the country to boost their

productivity and income. We plan to strengthen farmer connect from 21,000 in 2009 to 50,000

by 2012.

HELPING FARMERS IMPROVE YIELD AND INCOME

The company’s vision is to create a cost-effective, localized agri-supply chain for its business

by:

Building PepsiCo’s stature as a development partner by helping farmers grow more and earn

more.

Introducing new high-yielding varieties of potato and other edibles.

Introducing sustainable farming methods and practising contact farming.

Making world-class agricultural practices available to farmers and helping them raise farm

productivity.

Working closely with farmers and state governments to improve agri-sustainability and crop

diversification.

Providing customized solutions to suit specific geographies and locations.

Facilitating financial and insurance services in order to de-risk farming.

THE JOURNEY SO FAR

Where we stand today, at a glimpse

Today PepsiCo India’s potato farming programme reaches out to more than 12,000 farmer

families across six states. We provide farmers with superior seeds, timely agricultural inputs

and supply of agricultural implements free of charge.

We have an assured buy-back mechanism at a prefixed rate with farmers. This insulates them

from market price fluctuations.

Through our tie-up with State Bank of India, we help farmers get credit at a lower rate of

interest.

We have arranged weather insurance for farmers through our tie-up with ICICI Lombard.

We have a retention ratio of over 90%, which reveals the depth and success of our partnership.

In 2010, our contract farmers in West Bengal registered a phenomenal 100% growth in crop

output, creating in a huge increase in farm income.

The remarkable growth has resulted in farmers receiving a profit between Rs. 20,000– 40,000

per acre, as compared to Rs. 10000–20,000 per acre in 2009.

Contact farming

PepsiCo pioneered contact farming in India in 1989, when in order to improve the

performance of a tomato processing plant in Punjab, it imported and tested high-yield ing

varieties that thrived best in India. Consequently, yield improved by over 300% and the length

of the tomato season more than doubled, resulting in a substantial increase of farmer incomes.

Today, the success of contact farming has spread and PepsiCo engages with over 22,000

farmers across the country to grow a variety of crops. Through this partnership, PepsiCo has

transformed the lives of thousands of farmers by helping them refine their farming techniques

and raise farm productivity.

Our high-quality seed programme

In order to provide our farmers the ‘best quality potato seeds’, PepsiCo collaborated with the

Thapar Institute of Technology to develop quality potato mini-tubers.

PepsiCo has also invested in a world-class potato mini-tuber facility at Zahura in Punjab which

helps getting robust and disease-free seeds to our company’s contact farmers.

Potato farming

PepsiCo India has introduced world-class, top-quality, high-yielding potato varieties.

High-yielding potato seeds have allowed farmers to produce world-class potatoes and obtain

higher returns.

We have partnered with more than 11,000 farmers working across Punjab, Uttar Pradesh,

Karnataka, Bihar, West Bengal, Gujarat and Maharashtra for the supply of world-class chip-

grade potatoes.

We have partnered with State Bank of India to get soft loans to all our contact farmers, thus

reducing their cost of cultivation and saving them from the clutches of moneylenders (higher

interest rates)

Replenishing Water

Conserving the world's most precious asset: Water

PepsiCo India has pioneered several major initiatives to replenish water in communities. Our

goal is to conserve, replenish and thus offset the water used in our manufacturing process

through community water recharge projects and water conservation projects in agriculture.

2009 was a year of immense pride and joy for PepsiCo India. We were able to give back more

water than we consumed through our various initiatives of recharging, replenishing and reusing

water.

Positive water balance

In 2009, PepsiCo India achieved a significant milestone, by becoming the first business to

achieve ‘Positive Water Balance’ in the beverage world, a fact verified by Deloitte Touché

Tohmatsu India Pvt. Ltd. The company has been Water Positive since then.

PepsiCo's community water initiatives

Aurangabad

Neelamangala

Panipat

Sangareddy

PepsiCo Community Check–Dam Project Paithan, Aurangabad:

The initiative PepsiCo conducted a water resource assessment study near its

Aurangabad plant. In partnership with a civil society organization, Alternative Development

initiatives (ADI), PepsiCo selected the village, Wahegaon, as well as Mudhalwadi,Rahatgaon

and Esarwadi, as the core areas to implement its interventions to replenish ground water.

PepsiCo India facilitated construction of 13 check-dams and recharged 100 wells.

Impact

The project created the potential to recharge more than 1 billion litres of water. It benefits

nearly 12,000 community members through improved access to water, additional crops,

increase in yield of rain-fed crops and the opportunity for a second cultivation cycle during the

Rabi season due to improved availability of water. Water levels have visibly risen after

implementation; old dry wells now have water and farmers’ incomes have improved by Rs.

20,000/acre. PepsiCo has also provided safe drinking water to Nagnath Vidyalaya, Wahegaon,

by laying an underground pipeline, an overhead tank and taps.

Waste to Wealth

PepsiCo Solid Waste Management Programme

PepsiCo India continues to strengthen its Solid Waste Management initiatives in

partnership with Exnora, an environmental NGO. This award-winning, income-

generating partnership provides a clean environment to more than 500,000 people across

India.

A unique income-generating partnership with leading environmental NGO, Exnora, a pioneer

in waste management.

Community members enjoy the benefits of a clean environment and are educated on how to

recycle waste, not just relocate it.

Households segregate their bio-degradable waste from their recyclable waste, and the

programme recycles 80 percent of household garbage. Bio-degradable waste is converted into

organic manure through the process of vermi-culture. This project provides livelihood to more

than 600 community green ambassadors memers.

Recyclable waste such as PET and plastics, waste paper and tetra packs are recycled.

The community awareness programme includes door-to-door campaigns and street plays to

motivate people to segregate organic and inorganic garbage at source to enable recycling.

Every aspect of the programme is built around community and government participation to

help the programme evolve into a self-sustaining model.

The initiative recycled nearly 35,000 tons that would have otherwise been relocated to landfills.

Awards

The unique PepsiCo–Exnora initiative in Pammal was awarded the environmental Golden

Peacock Award for Innovation in 2006.

The Zero Solid Waste Centre in Pammal was recognized as a model project by UNICEF in

2007.

PepsiCo–Exnora Waste to Wealth programme won the BSE NASSCOM Social and Corporate

Governance Award 2008.

Talent Sustainability

To the employees of PepsiCo…

It is a promise to invest in them to help them succeed, to work continually to develop and retain

exceptional people and to create employment opportunities in the communities we serve.

As PepsiCo continues its journey of sustainable growth, we must continue to hire, retain and

develop our leadership bench and a highly skilled and diverse workforce. After all, our

employees are our greatest strength.

We have an extraordinary talent base across our organization — in our manufacturing facilit ies,

our sales and distribution organization, our marketing groups, our staff functions and our

general managers.

As we expand our business, we are heightening our focus on ensuring that we maintain an

inclusive environment and develop the careers of our employees. Our goal is to continue to

have the leadership talent, capabilities and experience necessary to grow our business well into

the future.

Our Goals and Commitments

In 2009, we announced 12 new goals and commitments to achieve Talent Sustainability. These

reinforce our promise to develop our employees. Our commitments include enabling our

associates to thrive in a diverse, inclusive culture; providing a safe and empowering workplace;

providing opportunities that strengthen our associates' skills and capabilities; and contributing

to better living standards in the communities we serve.

Culture: Enable our people to thrive by providing a supportive and empowering

workplace.

Ensure high levels of employee engagement and satisfaction as compared with

other Fortune500 companies.

Foster diversity and inclusion by developing a workforce that reflects local communities.

Encourage our employees to lead healthier lives by offering workplace wellness programmes.

Ensure a safe workplace by continuing to reduce Lost-Time Injury Rates while striving to

improve other occupational health and safety metrics through best practices.

Support ethical and legal compliance through annual training in our Code of Conduct, which

outlines PepsiCo's unwavering commitment to its human rights policy, including treating every

employee with dignity and respect.

Career: Provide opportunities that strengthen our employees' skills and capabilities to

drive sustainable growth.

Become universally recognized through top rankings as one of the best companies in the world

for leadership development.

Create a work environment in which employees know that their skills, talents and interests can

fully develop.

Conduct training for employees from the frontline to senior management, in order to ensure

that employees have the knowledge and skills required to achieve performance goals.

Community: Contribute to better living standards in the communities we serve.

Create local jobs by expanding operations in developing countries.

Support education through PepsiCo Foundation grants.

Support associate volunteerism and community involvement through company-sponsored

programmes and initiatives.

Goals & Commitments

At PepsiCo, Performance with Purpose means delivering sustainable growth by investing in a

healthier future for people and our planet. As a global food and beverage company with brands

that stand for quality and are respected household names – Quaker Oats, Tropicana, Gatorade,

Lay's and Pepsi-Cola, to name a few – we will continue to build a portfolio of enjoyable and

wholesome foods and beverages, find innovative ways to reduce the use of energy, water and

packaging, and provide a great workplace for our employees. Additionally, we will respect,

support and invest in the local communities where we operate, by hiring local people, creating

products designed for local tastes and partnering with local farmers, governments and

community groups. Because a healthier future for all people and our planet means a more

successful future for PepsiCo. This is our promise.

Other Community Initiatives

Some of the Other Initiatives taken by PepsiCo:

PepsiCo India HIV/AIDS Initiative

PepsiCo India embarked on the HIV / AIDS journey in 2005, along with our Technical partner

The International Labor Organization (ILO), with the purpose of spreading awareness amongst

all our stakeholders. We have built the whole program in a manner to build capacity within and

externally and have focused on the “Each one Teach one” approach to ensure sustainability.

The program was kicked off by creating a pool of Master Trainers and Peer Educators who

could cascade the program across all our work locations along with NGOs who were also

trained along with PepsiCo employees. We started the program by cascading HIV / AIDS

awareness amongst our employees. This was progressively enhanced to cover other

stakeholders including spouses of employees, business partners, distributors, contractual

workers, and our bottling partners. We further strengthened the impact of our efforts through

community outreach programs where we leveraged our NGO partners across the country.

Today we have 58 Master Trainers and 175 Peer Educators across both businesses and our

endeavor is to continue to create more and most Master Trainers and Peer Educators. PepsiCo

India has been awarded TERI Corporate Award for Business Response to HIV/AIDS in 2009.

PepsiCo India – Akshay Patra Partnership

PepsiCo India has partnered with Akshaya Patra, an NGO that supports the "Mid-day meal"

program launched by Government of India feeding over 1.4 million underprivileged students

every day of the school year, in 20 locations, across 9 states in India. For children belonging to

the weaker economic sections of society, a full meal, even once a day, is a strong incentive to

stay in school. This program enables hunger free education and it has lead to a significant rise

in enrollment and attendance. So this partnership has a simple but powerful mission - to change

the trajectory of countless lives in our community. In the first stage, PepsiCo India is funding

equipment and vehicles to set up a kitchen, near Kapashera, Delhi which has the capacity to

feed 75,000 children through the mid-day meal program. Through this program PepsiCo India

employees can participate in this cause by contributing as little as Rs 3375 (@ Rs. 675 per

child) to keep 5 children in a school in a year. PepsiCo foundation will match the employee

contribution and double the impact.

FINANCIAL STATEMENTS OF PEPSICO

INCOME STATEMENTS

Fiscal year is January-December.

All values USD millions. 2009 2010 2011 2012 2013

Sales/Revenue 43.23B 57.84B 66.5B 65.49B 66.42B

Cost of Goods Sold (COGS) incl.

D&A 20.14B 26.62B 31.74B 31.34B 31.18B

COGS excluding D&A 18.57B 24.38B 29.13B 28.73B 28.52B

Depreciation &

Amortization Expense 1.56B 2.24B 2.61B 2.61B 2.66B

Depreciation 1.5B 2.12B 2.48B 2.49B 2.55B

Amortization of

Intangibles 63M 117M 133M 119M 110M

Gross Income 23.1B 31.21B 34.77B 34.15B 35.23B

2009 2010 2011 2012 2013

SG&A Expense 15.3B 21.81B 24.41B 24.62B 25.18B

Research & Development 414M 488M 525M 552M 665M

Other SG&A 14.88B 21.32B 23.89B 24.07B 24.52B

Other Operating Expense 0 0 0 0 0

Unusual Expense (40M) 887M 643M 464M 415M

EBIT after Unusual Expense 40M (887M) (643M) (464M) (415M)

Non Operating Income/Expense 0 (120M) 0 0 (32M)

Non-Operating Interest Income 67M 68M 57M 91M 97M

Equity in Affiliates (Pretax) 365M 735M 0 0 -

Interest Expense 191M 970M 938M 858M 809M

Gross Interest Expense 194M 976M 948M 863M 816M

Interest Capitalized 3M 6M 10M 5M 7M

Pretax Income 8.08B 8.23B 8.83B 8.3B 8.89B

Income Tax 2.1B 1.89B 2.37B 2.09B 2.1B

2009 2010 2011 2012 2013

Income Tax - Current

Domestic 1.36B 1.07B 735M 1.06B 1.22B

Income Tax - Current

Foreign 473M 728M 882M 940M 807M

Income Tax - Deferred

Domestic 244M 79M 843M 181M 70M

Income Tax - Deferred

Foreign 21M 18M (88M) (95M) 11M

Income Tax Credits - - - - -

Equity in Affiliates - - - - -

Other After Tax Income

(Expense) 0 0 0 0 (7M)

Consolidated Net Income 5.98B 6.34B 6.46B 6.21B 6.78B

Minority Interest Expense 33M 18M 19M 36M 47M

Net Income 5.95B 6.32B 6.44B 6.18B 6.73B

Extraordinaries &

Discontinued Operations 0 0 0 0 0

Extra Items & Gain/Loss

Sale Of Assets 0 0 0 0 0

Cumulative Effect -

Accounting Chg 0 0 0 0 0

Discontinued Operations 0 0 0 0 0

Net Income After Extraordinaries 5.95B 6.32B 6.44B 6.18B 6.73B

Preferred Dividends 6M 6M 7M 7M 1M

Net Income Available to

Common 5.94B 6.31B 6.44B 6.17B 6.73B

EPS (Basic) 3.81 3.97 4.08 3.96 4.37

Basic Shares Outstanding 1.56B 1.59B 1.58B 1.56B 1.54B

EPS (Diluted) 3.77 3.91 4.03 3.92 4.32

Diluted Shares Outstanding 1.58B 1.61B 1.6B 1.58B 1.56B

EBITDA 9.36B 11.65B 12.97B 12.14B 12.71B

RATIOS FROM INCOME STATEMENT

2009 2010 2011 2012 2013

SG&A Expense 15.3B 21.81B 24.41B 24.62B 25.18B

Research & Development 414M 488M 525M 552M 665M

Other SG&A 14.88B 21.32B 23.89B 24.07B 24.52B

SGA Growth - 42.55% 11.93% 0.85% 2.29%

Other Operating Expense 0 0 0 0 0

Unusual Expense (40M) 887M 643M 464M 415M

EBIT after Unusual Expense 40M (887M) (643M) (464M) (415M)

Non Operating Income/Expense 0 (120M) 0 0 (32M)

Non-Operating Interest Income 67M 68M 57M 91M 97M

Equity in Affiliates (Pretax) 365M 735M 0 0 -

Interest Expense 191M 970M 938M 858M 809M

Interest Expense Growth - 407.85% -3.30% -8.53% -5.71%

Fiscal year is January-December.

All values USD millions. 2009 2010 2011 2012 2013

Sales/Revenue 43.23B 57.84B 66.5B 65.49B 66.42B

Sales Growth - 33.79% 14.98% -1.52% 1.41%

Cost of Goods Sold (COGS) incl.

D&A 20.14B 26.62B 31.74B 31.34B 31.18B

COGS excluding D&A 18.57B 24.38B 29.13B 28.73B 28.52B

Depreciation &

Amortization Expense 1.56B 2.24B 2.61B 2.61B 2.66B

Depreciation 1.5B 2.12B 2.48B 2.49B 2.55B

Amortization of

Intangibles 63M 117M 133M 119M 110M

COGS Growth - 32.22% 19.20% -1.25% -0.50%

Gross Income 23.1B 31.21B 34.77B 34.15B 35.23B

Gross Income Growth - 35.15% 11.39% -1.77% 3.16%

Gross Profit Margin - - - - 53.05%

2009 2010 2011 2012 2013

Gross Interest Expense 194M 976M 948M 863M 816M

Interest Capitalized 3M 6M 10M 5M 7M

Pretax Income 8.08B 8.23B 8.83B 8.3B 8.89B

Pretax Income Growth - 1.89% 7.31% -6.00% 7.07%

Pretax Margin - - - - 13.39%

Income Tax 2.1B 1.89B 2.37B 2.09B 2.1B

Income Tax - Current Domestic 1.36B 1.07B 735M 1.06B 1.22B

Income Tax - Current Foreign 473M 728M 882M 940M 807M

Income Tax - Deferred

Domestic 244M 79M 843M 181M 70M

Income Tax - Deferred Foreign 21M 18M (88M) (95M) 11M

Income Tax Credits - - - - -

Equity in Affiliates - - - - -

Other After Tax Income (Expense) 0 0 0 0 (7M)

Consolidated Net Income 5.98B 6.34B 6.46B 6.21B 6.78B

Minority Interest Expense 33M 18M 19M 36M 47M

Net Income 5.95B 6.32B 6.44B 6.18B 6.73B

Net Income Growth - 6.29% 1.95% -4.11% 8.98%

Net Margin Growth - - - - 10.14%

Extraordinaries & Discontinued

Operations 0 0 0 0 0

Extra Items & Gain/Loss

Sale Of Assets 0 0 0 0 0

Cumulative Effect -

Accounting Chg 0 0 0 0 0

Discontinued Operations 0 0 0 0 0

Net Income After Extraordinaries 5.95B 6.32B 6.44B 6.18B 6.73B

Preferred Dividends 6M 6M 7M 7M 1M

Net Income Available to Common 5.94B 6.31B 6.44B 6.17B 6.73B

EPS (Basic) 3.81 3.97 4.08 3.96 4.37

2009 2010 2011 2012 2013

EPS (Basic) Growth - 4.20% 2.77% -2.94% 10.35%

Basic Shares Outstanding 1.56B 1.59B 1.58B 1.56B 1.54B

EPS (Diluted) 3.77 3.91 4.03 3.92 4.32

EPS (Diluted) Growth - 3.71% 3.07% -2.73% 10.20%

Diluted Shares Outstanding 1.58B 1.61B 1.6B 1.58B 1.56B

EBITDA 9.36B 11.65B 12.97B 12.14B 12.71B

EBITDA Growth - 24.42% 11.33% -6.35% 4.69%

EBITDA Margin - - - - 19.14%

BALANCES HEET

Assets

Fiscal year is January-

December. All values USD

millions.

2009 2010 2011 2012 2013

Cash & Short Term

Investments 4.14B 6.37B 4.43B 6.62B 9.68B

Cash Only 3.94B 5.94B 4.07B 6.3B 9.38B

Short-Term

Investments

192M 426M 358M 322M 303M

Total Accounts Receivable 4.62B 6.32B 6.91B 7.04B 6.95B

Accounts

Receivables, Net 4.03B 5.51B 6.04B 6.22B 6.18B

Accounts

Receivables, Gross 4.12B 5.66B 6.19B 6.37B 6.32B

Bad Debt/Doubtful

Accounts (90M) (144M) (157M) (157M) (145M)

Other Receivables 598M 809M 876M 826M 776M

Inventories 2.62B 3.37B 3.83B 3.58B 3.41B

Finished Goods 1.18B 1.59B 1.74B 1.53B 1.51B

Fiscal year is January-

December. All values USD

millions.

2009 2010 2011 2012 2013

Work in Progress 165M 128M 207M 173M 168M

Raw Materials 1.27B 1.65B 1.88B 1.88B 1.73B

Progress Payments &

Other - - - - -

Other Current Assets 1.05B 1.35B 2.11B 1.39B 2.09B

Miscellaneous Current

Assets 1.05B 1.35B 2.11B 1.39B 2.09B

Total Current Assets 12.43B 17.41B 17.28B 18.63B 22.14B

2009 2010 2011 2012 2013

Net Property, Plant & Equipment 12.67B 19.06B 19.7B 19.14B 18.58B

Property, Plant &

Equipment - Gross 24.91B 33.04B 35.14B 36.16B 36.96B

Buildings 5.08B 7.05B 7.57B 7.79B 7.83B

Land & Improvements 1.21B 1.98B 1.95B 1.89B 1.88B

Computer Software and

Equipment 1.1B 1.1B 1.3B 1.1B 1.1B

Other Property, Plant &

Equipment - - - - -

Accumulated Depreciation 12.24B 13.98B 15.44B 17.03B 18.39B

Total Investments and Advances 4.48B 2.02B 1.57B 2.35B 2.62B

Other Long-Term

Investments 0 653M 89M 718M 782M

Long-Term Note Receivable 118M 165M 159M 136M 105M

Intangible Assets 9.16B 28.47B 33.25B 33.5B 32.65B

Net Goodwill 6.53B 14.66B 16.8B 16.97B 16.61B

Net Other Intangibles 2.62B 13.81B 16.45B 16.53B 16.04B

Other Assets 990M 1.03B 936M 887M 1.39B

2009 2010 2011 2012 2013

Tangible Other Assets 601M 547M 522M 542M 419M

Total Assets 39.85B 68.15B 72.88B 74.64B 77.48B

Liabilities & Shareholders' Equity

2009 2010 2011 2012 2013

ST Debt & Current Portion LT

Debt 464M 4.9B 6.21B 4.82B 5.31B

Short Term Debt 362M 4.79B 3.66B 1.91B 3.08B

Current Portion of Long

Term Debt 102M 113M 2.55B 2.9B 2.22B

Accounts Payable 2.88B 3.87B 4.08B 4.45B 4.87B

Income Tax Payable 165M 71M 192M 371M 0

Other Current Liabilities 5.25B 7.06B 7.67B 7.45B 7.66B

Dividends Payable 706M 766M 813M 838M 877M

Accrued Payroll 1.29B 1.78B 1.77B 1.71B 1.79B

Miscellaneous Current

Liabilities 3.25B 4.51B 5.09B 4.91B 4.99B

Total Current Liabilities 8.76B 15.89B 18.15B 17.09B 17.84B

Long-Term Debt 7.3B 19.89B 20.45B 23.42B 24.2B

Long-Term Debt excl.

Capitalized Leases 7.3B 19.89B 20.45B 23.42B 24.2B

Non-Convertible Debt 7.3B 19.89B 20.45B 23.42B 24.2B

Convertible Debt 0 0 0 0 0

Capitalized Lease

Obligations 0 0 0 0 0

Provision for Risks & Charges 1.7B 2.02B 2.17B 0 1.27B

Deferred Taxes 659M 4.06B 5B 5.06B 5.99B

Deferred Taxes – Credit 659M 4.06B 5B 5.06B 5.99B

Deferred Taxes – Debit 0 0 0 0 0

Other Liabilities 3.89B 4.71B 6.1B 6.54B 3.66B

2009 2010 2011 2012 2013

Other Liabilities (excl.

Deferred Income) 3.89B 4.71B 6.1B 6.54B 3.66B

Deferred Income 0 0 0 0 0

Total Liabilities 22.3B 46.57B 51.87B 52.12B 52.96B

Non-Equity Reserves 0 0 0 0 0

Preferred Stock (Carrying

Value) 0 0 0 0 0

Redeemable Preferred

Stock 0 0 0 0 0

Non-Redeemable

Preferred Stock 0 0 0 0 0

Common Equity (Total) 16.91B 21.27B 20.7B 22.42B 24.41B

Common Stock Par/Carry

Value 30M 31M 31M 26M 25M

Retained Earnings 33.81B 37.09B 40.32B 43.16B 46.42B

ESOP Debt Guarantee 0 0 0 0 0

Cumulative Translation

Adjustment/Unrealized

For. Exch. Gain

(1.51B) (1.26B) (2.86B) (2.04B) (3.32B)

Unrealized Gain/Loss

Marketable Securities 47M 70M 62M 80M 109M

Revaluation Reserves 0 0 0 0 0

Treasury Stock (13.38B) (16.75B) (17.88B) (19.46B) (21B)

Total Shareholders' Equity 16.91B 21.27B 20.7B 22.42B 24.41B

Accumulated Minority Interest 638M 312M 311M 105M 110M

Total Equity 17.55B 21.59B 21.02B 22.52B 24.52B

Liabilities & Shareholders '

Equity 39.85B 68.15B 72.88B 74.64B 77.48B

RATIOS FROM THE BALANCE SHEET

Assets

Fiscal year is January-

December. All values

USD millions.

2009 2010 2011 2012 2013

Cash & Short Term

Investments 4.14B 6.37B 4.43B 6.62B 9.68B

Cash Only 3.94B 5.94B 4.07B 6.3B 9.38B

Short-Term

Investments 192M 426M 358M 322M 303M

Cash & Short Term

Investments Growth - 54.03% -30.52% 49.58% 46.22%

Cash & ST

Investments / Total

Assets

10.38% 9.35% 6.07% 8.87% 12.49%

Total Accounts

Receivable 4.62B 6.32B 6.91B 7.04B 6.95B

Accounts

Receivables, Net 4.03B 5.51B 6.04B 6.22B 6.18B

Accounts

Receivables,

Gross

4.12B 5.66B 6.19B 6.37B 6.32B

Bad

Debt/Doubtful

Accounts

(90M) (144M) (157M) (157M) (145M)

Other Receivables 598M 809M 876M 826M 776M

Accounts

Receivable Growth - 36.74% 9.32% 1.87% -1.24%

Accounts

Receivable

Turnover

9.35 9.15 9.62 9.30 9.55

Inventories 2.62B 3.37B 3.83B 3.58B 3.41B

Finished Goods 1.18B 1.59B 1.74B 1.53B 1.51B

Work in Progress 165M 128M 207M 173M 168M

Raw Materials 1.27B 1.65B 1.88B 1.88B 1.73B

Progress Payments

& Other - - - - -

Other Current Assets 1.05B 1.35B 2.11B 1.39B 2.09B

Fiscal year is January-

December. All values

USD millions.

2009 2010 2011 2012 2013

Miscellaneous

Current Assets 1.05B 1.35B 2.11B 1.39B 2.09B

Total Current Assets 12.43B 17.41B 17.28B 18.63B 22.14B

2009 2010 2011 2012 2013

Net Property, Plant & Equipment 12.67B 19.06B 19.7B 19.14B 18.58B

Property, Plant & Equipment -

Gross 24.91B 33.04B 35.14B 36.16B 36.96B

Buildings 5.08B 7.05B 7.57B 7.79B 7.83B

Land & Improvements 1.21B 1.98B 1.95B 1.89B 1.88B

Computer Software and

Equipment 1.1B 1.1B 1.3B 1.1B 1.1B

Other Property, Plant &

Equipment - - - - -

Accumulated Depreciation 12.24B 13.98B 15.44B 17.03B 18.39B

Total Investments and Advances 4.48B 2.02B 1.57B 2.35B 2.62B

Other Long-Term Investments 0 653M 89M 718M 782M

Long-Term Note Receivable 118M 165M 159M 136M 105M

Intangible Assets 9.16B 28.47B 33.25B 33.5B 32.65B

Net Goodwill 6.53B 14.66B 16.8B 16.97B 16.61B

Net Other Intangibles 2.62B 13.81B 16.45B 16.53B 16.04B

Other Assets 990M 1.03B 936M 887M 1.39B

Tangible Other Assets 601M 547M 522M 542M 419M

Total Assets 39.85B 68.15B 72.88B 74.64B 77.48B

Assets - Total - Growth - 71.03% 6.94% 2.41% 3.81%

Liabilities & Shareholders' Equity

2009 2010 2011 2012 2013

ST Debt & Current Portion

LT Debt 464M 4.9B 6.21B 4.82B 5.31B

Short Term Debt 362M 4.79B 3.66B 1.91B 3.08B

2009 2010 2011 2012 2013

Current Portion of

Long Term Debt 102M 113M 2.55B 2.9B 2.22B

Accounts Payable 2.88B 3.87B 4.08B 4.45B 4.87B

Accounts Payable

Growth - 34.15% 5.64% 9.01% 9.50%

Income Tax Payable 165M 71M 192M 371M 0

Other Current Liabilities 5.25B 7.06B 7.67B 7.45B 7.66B

Dividends Payable 706M 766M 813M 838M 877M

Accrued Payroll 1.29B 1.78B 1.77B 1.71B 1.79B

Miscellaneous Current

Liabilities 3.25B 4.51B 5.09B 4.91B 4.99B

Total Current Liabilities 8.76B 15.89B 18.15B 17.09B 17.84B

Long-Term Debt 7.3B 19.89B 20.45B 23.42B 24.2B

Long-Term Debt excl.

Capitalized Leases 7.3B 19.89B 20.45B 23.42B 24.2B

Non-Convertible

Debt 7.3B 19.89B 20.45B 23.42B 24.2B

Convertible Debt 0 0 0 0 0

Capitalized Lease

Obligations 0 0 0 0 0

Provision for Risks &

Charges 1.7B 2.02B 2.17B 0 1.27B

Deferred Taxes 659M 4.06B 5B 5.06B 5.99B

Deferred Taxes –

Credit 659M 4.06B 5B 5.06B 5.99B

Deferred Taxes – Debit 0 0 0 0 0

Other Liabilities 3.89B 4.71B 6.1B 6.54B 3.66B

Other Liabilities (excl.

Deferred Income) 3.89B 4.71B 6.1B 6.54B 3.66B

Deferred Income 0 0 0 0 0

Total Liabilities 22.3B 46.57B 51.87B 52.12B 52.96B

Non-Equity Reserves 0 0 0 0 0

2009 2010 2011 2012 2013

Total Liabilities / Total

Assets 55.97% 68.33% 71.17% 69.83% 68.35%

Preferred Stock (Carrying

Value) 0 0 0 0 0

Redeemable Preferred

Stock 0 0 0 0 0

Non-Redeemable

Preferred Stock 0 0 0 0 0

Common Equity (Total) 16.91B 21.27B 20.7B 22.42B 24.41B

Common Stock

Par/Carry Value 30M 31M 31M 26M 25M

Retained Earnings 33.81B 37.09B 40.32B 43.16B 46.42B

ESOP Debt Guarantee 0 0 0 0 0

Cumulative

Translation

Adjustment/Unrealized

For. Exch. Gain

(1.51B) (1.26B) (2.86B) (2.04B) (3.32B)

Unrealized Gain/Loss

Marketable Securities 47M 70M 62M 80M 109M

Revaluation Reserves 0 0 0 0 0

Treasury Stock (13.38B) (16.75B) (17.88B) (19.46B) (21B)

Common Equity /

Total Assets 42.43% 31.21% 28.41% 30.03% 31.50%

Total Shareholders' Equity 16.91B 21.27B 20.7B 22.42B 24.41B

Total Shareholders'

Equity / Total Assets 42.43% 31.21% 28.41% 30.03% 31.50%

Accumulated Minority

Interest 638M 312M 311M 105M 110M

Total Equity 17.55B 21.59B 21.02B 22.52B 24.52B

Liabilities &

Shareholders' Equity 39.85B 68.15B 72.88B 74.64B 77.48B

CASH FLOW

Operating

Activities

Fiscal year is January-December. All

values USD millions. 2009 2010 2011 2012 2013

Net Income before Extraordinaries 5.98B 6.34B 6.46B 6.21B 6.79B

Depreciation, Depletion & Amortization 1.56B 2.24B 2.61B 2.61B 2.66B

Depreciation and Depletion 1.5B 2.12B 2.48B 2.49B 2.55B

Amortization of Intangible Assets 63M 117M 133M 119M 110M

Deferred Taxes & Investment Tax Credit 284M 500M 495M 321M (1.06B)

Deferred Taxes 284M 500M 495M 321M (1.06B)

Investment Tax Credit - - - - -

Other Funds (1.29B) (1.39B) 222M (1.1B) 338M

Funds from Operations 6.53B 7.69B 9.79B 8.05B 8.73B

Extraordinaries 0 0 0 0 -

Changes in Working Capital 264M 763M (844M) 345M 958M

Receivables 188M (268M) (666M) (250M) (88M)

Accounts Payable (133M) 488M 520M 548M 1.01B

Other Assets/Liabilities (127M) 144M (27M) 0 (51M)

Net Operating Cash Flow 6.8B 8.45B 8.94B 8.39B 9.69B

Investing Activities

2009 2010 2011 2012 2013

Capital Expenditures (2.13B) (3.25B) (3.34B) (2.71B) (2.8B)

Capital Expenditures (Fixed Assets) (2.13B) (3.25B) (3.34B) (2.71B) (2.8B)

Capital Expenditures (Other Assets) 0 0 0 0 0

Net Assets from Acquisitions 0 0 0 0 0

Sale of Fixed Assets & Businesses 58M 81M 84M 95M 109M

Purchase/Sale of Investments (346M) (4.48B) (2.35B) (398M) 82M

2009 2010 2011 2012 2013

Purchase of Investments (529M) (4.52B) (3.19B) (459M) (112M)

Sale/Maturity of Investments 183M 41M 846M 61M 194M

Other Uses 0 (17M) (16M) 0 (21M)

Other Sources 15M 0 0 12M 0

Net Investing Cash Flow (2.4B) (7.67B) (5.62B) (3.01B) (2.63B)

Financing Activities

2009 2010 2011 2012 2013

Cash Dividends Paid – Total (2.73B) (2.98B) (3.16B) (3.31B) (3.43B)

Common Dividends (2.73B) (2.98B) (3.16B) (3.31B) (3.43B)

Preferred Dividends 0 0 0 0 0

Change in Capital Stock 406M (3.95B) (1.55B) (2.1B) (1.89B)

Repurchase of Common

& Preferred Stk. (7M) (4.98B) (2.5B) (3.23B) (3.01B)

Sale of Common &

Preferred Stock 413M 1.04B 945M 1.12B 1.12B

Proceeds from Stock

Options 0 0 0 0 0

Other Proceeds from

Sale of Stock 413M 1.04B 945M 1.12B 1.12B

Issuance/Reduction of Debt,

Net (187M) 8.37B 936M 2.09B 1.47B

Change in Current Debt (1.02B) 2.48B 303M (1.46B) 1.17B

Change in Long-Term

Debt 831M 5.89B 633M 3.55B 301M

Issuance of Long-

Term Debt 1.06B 6.45B 3B 6B 4.2B

Reduction in Long-

Term Debt (226M) (559M) (2.37B) (2.45B) (3.89B)

Other Funds 16M (65M) (1.36B) 14M 64M

Other Uses (26M) (172M) (1.43B) (110M) (53M)

Other Sources 42M 107M 70M 124M 117M

2009 2010 2011 2012 2013

Net Financing Cash Flow (2.5B) 1.39B (5.14B) (3.31B) (3.79B)

Exchange Rate Effect (19M) (166M) (67M) 62M (196M)

Miscellaneous Funds 0 0 0 0 0

Net Change in Cash 1.88B 2B (1.88B) 2.14B 3.08B

Free Cash Flow 4.67B 5.2B 5.61B 5.68B 6.89B

RATIOS FROM THE CASH FLOW STATEMENTS

Operating Activities

Fiscal year is January-December. All

values USD millions. 2009 2010 2011 2012 2013

Net Income before Extraordinaries 5.98B 6.34B 6.46B 6.21B 6.79B

Net Income Growth - 6.00% 1.96% -3.84% 9.22%

Depreciation, Depletion & Amortization 1.56B 2.24B 2.61B 2.61B 2.66B

Depreciation and Depletion 1.5B 2.12B 2.48B 2.49B 2.55B

Amortization of Intangible Assets 63M 117M 133M 119M 110M

Deferred Taxes & Investment Tax Credit 284M 500M 495M 321M (1.06B)

Deferred Taxes 284M 500M 495M 321M (1.06B)

Investment Tax Credit - - - - -

Other Funds (1.29B) (1.39B) 222M (1.1B) 338M

Funds from Operations 6.53B 7.69B 9.79B 8.05B 8.73B

Extraordinaries 0 0 0 0 -

Changes in Working Capital 264M 763M (844M) 345M 958M

Receivables 188M (268M) (666M) (250M) (88M)

Accounts Payable (133M) 488M 520M 548M 1.01B

Other Assets/Liabilities (127M) 144M (27M) 0 (51M)

Net Operating Cash Flow 6.8B 8.45B 8.94B 8.39B 9.69B

Net Operating Cash Flow Growth - 24.31% 5.87% -6.19% 15.47%

Fiscal year is January-December. All

values USD millions. 2009 2010 2011 2012 2013

Net Operating Cash Flow / Sales 15.72% 14.61% 13.45% 12.81% 14.59%

Investing Activities

2009 2010 2011 2012 2013

Capital Expenditures (2.13B) (3.25B) (3.34B) (2.71B) (2.8B)

Capital Expenditures (Fixed

Assets) (2.13B) (3.25B) (3.34B) (2.71B) (2.8B)

Capital Expenditures (Other

Assets) 0 0 0 0 0

Capital Expenditures Growth - -52.87% -2.64% 18.72% -2.98%

Capital Expenditures / Sales -4.92% -5.62% -5.02% -4.14% -4.21%

Net Assets from Acquisitions 0 0 0 0 0

Sale of Fixed Assets & Businesses 58M 81M 84M 95M 109M

Purchase/Sale of Investments (346M) (4.48B) (2.35B) (398M) 82M

Purchase of Investments (529M) (4.52B) (3.19B) (459M) (112M)

Sale/Maturity of Investments 183M 41M 846M 61M 194M

Other Uses 0 (17M) (16M) 0 (21M)

Other Sources 15M 0 0 12M 0

Net Investing Cash Flow (2.4B) (7.67B) (5.62B) (3.01B) (2.63B)

Net Investing Cash Flow Growth - -219.37% 26.73% 46.51% 12.65%

Net Investing Cash Flow -5.55% -13.26% -8.45% -4.59% -3.95%

Financing Activities

2009 2010 2011 2012 2013

Cash Dividends Paid – Total (2.73B) (2.98B) (3.16B) (3.31B) (3.43B)

Common Dividends (2.73B) (2.98B) (3.16B) (3.31B) (3.43B)

Preferred Dividends 0 0 0 0 0

Change in Capital Stock 406M (3.95B) (1.55B) (2.1B) (1.89B)

2009 2010 2011 2012 2013

Repurchase of Common &

Preferred Stk. (7M) (4.98B) (2.5B) (3.23B) (3.01B)

Sale of Common &

Preferred Stock 413M 1.04B 945M 1.12B 1.12B

Proceeds from Stock

Options 0 0 0 0 0

Other Proceeds from

Sale of Stock 413M 1.04B 945M 1.12B 1.12B

Issuance/Reduction of Debt, Net (187M) 8.37B 936M 2.09B 1.47B

Change in Current Debt (1.02B) 2.48B 303M (1.46B) 1.17B

Change in Long-Term Debt 831M 5.89B 633M 3.55B 301M

Issuance of Long-Term

Debt 1.06B 6.45B 3B 6B 4.2B

Reduction in Long-

Term Debt (226M) (559M) (2.37B) (2.45B) (3.89B)

Other Funds 16M (65M) (1.36B) 14M 64M

Other Uses (26M) (172M) (1.43B) (110M) (53M)

Other Sources 42M 107M 70M 124M 117M

Net Financing Cash Flow (2.5B) 1.39B (5.14B) (3.31B) (3.79B)

Net Financing Cash Flow

Growth - 155.51% -470.49% 35.62% -14.61%

Net Financing Cash Flow /

Sales -5.78% 2.40% -7.72% -5.05% -5.71%

Exchange Rate Effect (19M) (166M) (67M) 62M (196M)

Miscellaneous Funds 0 0 0 0 0

Net Change in Cash 1.88B 2B (1.88B) 2.14B 3.08B

Free Cash Flow 4.67B 5.2B 5.61B 5.68B 6.89B

Free Cash Flow Growth - 11.29% 7.89% 1.27% 21.44%

Free Cash Flow Yield - - - - 2.68%

Financial Ratios for Coca-Cola, PepsiCo, and the Industry Average

Profitability Measures Coca-Cola 2010 PepsiCo 2010 Industry Average

2010

1. Gross margin ratio 63.9 percent 54.1 percent 56.1 percent

2. Profit margin ratio 33.6 percent 10.9 percent 19.2 percent

3. Return on assets 19.4 percent 11.7 percent 14.2 percent

4. Return on common

shareholders’ equity 41.7 percent 32.3 percent 34.7 percent

5. Earnings per share $5.12 $3.97 Not applicable

Short-Term Liquidity Measures

6. Current ratio 1.17 to 1 1.11 to 1 1.20 to 1

7. Quick ratio 0.85 to 1 0.80 to 1 1.10 to 1

8. Receivables turnover ratio 8.58 times 10.57 times 9.70 times

9. Average collection period 42.54 days 34.53 days 37.63 days

10. Inventory turnover ratio 5.07 times 8.87 times 7.50 times

11. Average sale period 71.99 days 41.15 days 48.67 days

Long-Term Solvency Measures

12. Debt to assets 0.57 to 1 0.68 to 1 0.48 to 1

13. Debt to equity 1.33 to 1 2.17 to 1 0.94 to 1

14. Times interest earned 20.36 times 10.10 times 10.70 times

Market Valuation Measures

15. Market capitalization $146,500,000,000 $100,700,000,000 $87,500,000,000

16. Price-earnings ratio 12.48 times 16.04 times 14.60 times

Before we discuss the various ratios, it is important to note that different terms are often

used in financial statements to describe the same item. For example, some companies use the

term net revenues instead of net sales, and the income statement is often called the statement

of earnings, orconsolidated statement of earnings. Also be sure to review the income statement

and balance sheet information for Coca-Cola shown in "Common-Size Income Statement

Analysis for " and "Common-Size Balance Sheet Analysis for ".

Profitability Ratios

The five ratios used to evaluate profitability are as follows:

1. Gross margin ratio

2. Profit margin ratio

3. Return on assets

4. Return on common shareholders’ equity

5. Earnings per share

Gross Margin Ratio

The gross margin ratio indicates the gross margin generated for each dollar in net sales

and is calculated as gross margin (which is net sales minus cost of goods sold) divided by net

sales:

The gross margin ratio for Coca-Cola using 2010 information is calculated as follows,

with PepsiCoand industry average information following it:

Coca-Cola

2010

Coca-Cola

2009

PepsiCo

2010

Industry Average

2010

Gross margin

ratio 63.9 percent 64.2 percent 54.1 percent 56.1 percent

The gross margin ratio indicates Coca-Cola generated 63.9 cents in gross margin for

every dollar in net sales. This ratio decreased slightly from 2009 to 2010 and is substantia l ly

higher than PepsiCo’s54.1 percent. Coca-Cola is also higher than the industry average of 56.1

percent. (Alternative terms: Gross margin is often called gross profit, net sales is often

called net revenues, and cost of goods sold is often called cost of sales.)

Profit Margin Ratio

The profit margin ratio shows the profit generated for each dollar in net sales. It is

calculated as net income divided by net sales:

The profit margin ratio for Coca-Cola using 2010 information is calculated as follows,

with PepsiCoand industry average information following it:

Coca-Cola

2010

Coca-Cola

2009

PepsiCo

2010

Industry Average

2010

Profit margin

ratio 33.6 percent 22.0 percent 10.9 percent 19.2 percent

The profit margin ratio indicates Coca-Cola generated 33.6 cents in net income for

every dollar in net sales. This ratio increased significantly from 2009 to 2010 and is

substantially higher than PepsiCo’s10.9 percent. Coca-Cola is also higher than the industry

average of 19.2 percent. (Alternative term: Net income is often called net earnings.)

Return on Assets

The return on assets ratio is used to evaluate how much net income was generated from

each dollar in average assets invested. Return on assets is net income divided by average total

assets:

The average total assets amount is found by adding together total assets at the end of

the current year and previous year (2010 and 2009 for this example) and dividing by two. The

return on assets ratio forCoca-Cola for 2010 is calculated as follows, with PepsiCo and

industry average information following it:

Coca-Cola

2010

Coca-Cola

2009

PepsiCo

2010

Industry Average

2010

Return on

assets 19.4 percent 15.3 percent 11.7 percent 14.2 percent

The return on assets ratio indicates Coca-Cola generated 19.4 cents in net income for

every dollar in average assets. This ratio increased from 2009 to 2010 and is higher

than PepsiCo’s 11.7 percent.Coca-Cola exceeded the industry average of 14.2 percent.

Return on Common Shareholders’ Equity

Common shareholders are interested in the return on common shareholders’ equityrat io

because this ratio tells them how much net income was generated from each dollar of common

shareholders’ equity. The return on common shareholders’ equity ratio is calculated as follows:

Note that preferred dividends are deducted from net income in the numerator. If the

company does not have any outstanding preferred stock, as is the case with Coca-Cola, the

preferred dividends amount is zero.

Average common shareholders’ equity in the denominator is found by adding together

all items in the shareholders’ equity section of the balance sheet at the end of the current year

and previous year (2010 and 2009 for this example), except preferred stock items, and dividing

by two.

Because Coca-Cola does not have preferred stock, an average of all items in the

shareholders’ equity section is in the denominator. The return on common shareholders’ equity

ratio for Coca-Cola for 2010 is calculated as follows, with PepsiCo and industry average

information following it:

Coca-Cola

2010

Coca-Cola

2009

PepsiCo

2010

Industry

Average 2010

Return on common

shareholders’ equity 41.7 percent 29.5 percent

32.3

percent 34.7 percent

The return on common shareholders’ equity ratio indicates Coca-Cola generated 41.7

cents in net income for every dollar in average common shareholders’ equity. This ratio

increased significantly from 2009 to 2010 and is higher than PepsiCo’s 32.3 percent. Coca-

Cola exceeded the industry average of 34.7 percent.

Coca-Cola’s return on common shareholders’ equity of 41.7 percent is higher than its

return on assets of 19.4 percent, indicating that the company has positive financial

leverage. Financial leverage describes a company’s ability to leverage common shareholders’

equity by taking on debt at an interest rate lower than the company’s return on assets. For

example, assume a company has equity of $10,000 earning 10 percent. The company can

leverage this equity by borrowing $8,000 with a 6 percent interest rate. Assuming the company

uses this $8,000 to purchase assets that earn 10 percent, the company has created positive

financial leverage since the cost of borrowing is lower than the return on assets. This results in

a return on equity that is higher than the return on assets. (Note: For a one-year period, the

return on assets is $1,800 [= $18,000 × 10 percent] less the cost of debt of $480 [= 6 percent ×

$8,000], or $1,320. This results in a return on assets of 7.3 percent [= $1,320 ÷ $18,000].

Positive financial leverage causes the return on equity to be much higher at 13.2 percent [=

$1,320 ÷ $10,000 equity].)

Although some level of financial leverage is generally regarded as healthy, companies

that are highly leveraged tend to be riskier than similar companies with less leverage. Analysts

and shareholders should avoid drawing quick conclusions that increases in return on common

shareholders’ equity are always better than decreases without thoroughly reviewing the rest of

the data.

Return on Assets and Return on Equity for Coca-Cola, PepsiCo, and the Industry Average

Earnings per Share: Earnings per share indicates how much net income was earned for each

share of common stock outstanding. The earnings per share ratio states net income on a per

share basis and is calculated as the following:

Note that preferred dividends are deducted from net income in the numerator. If the

company does not have any outstanding preferred stock, as is the case with Coca-Cola, the

preferred dividends amount is zero.

The weighted average common shares outstanding amount used in the denominator is

typically provided in the financial statements, either on the income statement or in the notes to

the financial statements. Earnings per share for Coca-Cola using 2010 information is

calculated as follows, with PepsiCo and industry average information following it (dollar

amount and shares are in millions, except per share amount):

Coca-Cola

2010

Coca-Cola

2009

PepsiCo

2010

Industry Average

2010

Earnings per

share $5.12 $2.95 $3.97 Not applicable

The earnings per share amount at Coca-Cola indicates the company earned $5.12 for

each share of common stock outstanding. This ratio increased from 2009 to 2010. Although

earnings per share is useful for looking at trends over time within a company, it cannot be

compared in any meaningful way from one company to another because different companies

have different numbers of shares outstanding.

COKE AND PEPSI: APPLYING DUPONT ANALYSIS

The Coca-Cola Company (KO) and PepsiCo Inc. (PEP) are two iconic American

brands and corporate behemoths based largely on their ability to sell sugar water. In 2013, KO

tallied $46.9 billion in revenue while PEP, with the added benefit of its snack business, rang

up $66.4 billion in sales.

ROE = Profit Margin (Net Profit/Sales) X Asset Turnover (Sales/Total Assets) X Equity

Multipliers (Total Assets/Total Equity)

Introduction to DuPont Analysis

Using DuPont Analysis is one way to dig a little further into the companies to see what

similarities (or differences) there might be. DuPont Analysis is a view of breaking down Return

on Equity (ROE) into factors that can be further analyzed. These factors are commonly a

profitability measure, a turnover measure, and a leverage measure. DuPont Analysis was

created by E. I. du Pont de Nemours and Company (DD) in the 1920s. For this analysis, I

looked at a 5 factor analysis:

DuPont Analysis Factors

Factor Calculation

Asset Turnover Revenue/ Average Assets

Profitability EBIT/ Revenue

Interest Burden (EBIT - Interest Expense)/EBIT

Tax Efficiency 1 - Tax Expense/(EBIT - Interest Expense)

Leverage Average Assets/Average Equity

More simplified versions of the DuPont Analysis will treat the middle three factors as

a single profitability factor that looks at Net Income to Revenue. However, companies have

become more focused on tax reporting, and this increases the overall complexity. While

leverage is calculated in the Asset to Equity ratio, the cost of the leverage is lost in the

profitability margin. Possibly one company has obtained lower cost debt than another, and that

financial engineering is different from how it runs its day to day operations.

It should also be noted that the values for tax expense are book accounting values, and

not the same as the ones reported to the IRS, which are tax accounting values. It should also be

noted that one should make adjustments for minority interests which has some impact on these

results - hence the difference in the implied and calculated ROEs.

Applying DuPont to KO and PEP

Using basic financial data from Yahoo!Finance and 10-Ks for both KO and PEP, I

assembled the following ROE breakdowns. The first table shows the financial data used for

KO.

KO Basic Financial Data ($ Millions)

Financial data 2008 2009 2010 2011 2012 2013

Revenue 31,944 30,990 35,119 46,542 48,017 46,854

EBIT 7,877 9,301 14,976 11,875 12,206 11,940

Interest 438 355 733 417 397 463

Tax Expense 1,632 2,040 2,384 2,812 2,723 2,851

Net Income 5,807 6,824 11,809 8,584 9,019 8,584

Assets 40,519 48,671 72,921 79,974 86,174 90,055

Equity of

Shareholders

20,472 24,799 31,003 31,635 32,790 33,173

Source: Yahoo!Finance, SEC 10-Ks

The next table shows KO ROE breakdown over the past 5 years.

KO DuPont Analysis ROE Breakdown

Lever 2009 2010 2011 2012 2013

Asset Turnover 0.69x 0.58x 0.61x 0.58x 0.53x

Profitability 30.0% 42.6% 25.5% 25.4% 25.5%

Interest Burden 96.2% 95.1% 96.5% 96.7% 96.1%

Tax Efficiency 77.2% 83.3% 75.5% 76.9% 75.2%

Leverage 1.97x 2.18x 2.44x 2.58x 2.67x

Implied ROE 30.5% 42.5% 27.6% 28.2% 26.2%

Calculated

ROE 30.1% 42.3% 27.4% 28.0% 26.0%

Source: Author Calculations

The first observation is that asset turnover and profitability are declining. These are

offset by increasing leverage. The hit to profitability in 2011 was a result of KO's acquisition of

the North American bottling operations of Coca-Cola Enterprises Inc. (CCE) in 2010. This also

attributed to a greater share of assets. KO relies upon other bottling operations outside of North

America. Tax efficiency and interest burden remain similar over time.

The next table shows the basic financial information for PEP.

PEP Basic Financial Data ($ Millions)

Financial data 2008 2009 2010 2011 2012 2013

Revenue 43,251 43,232 57,838 66,504 65,492 66,415

EBIT 7,350 8,476 9,135 9,690 9,203 9,802

Interest 329 397 903 856 899 911

Tax Expense 1,879 2,100 1,894 2,372 2,090 2,104

Net Income 5,142 5,946 6,320 6,443 6,178 6,740

Assets 35,994 39,848 68,153 72,882 74,638 77,478

Equity of

Shareholders 12,203 16,908 21,273 20,704 22,399 24,389

Source: Yahoo!Finance, SEC 10-Ks

One can see similar trends in this financial data.

PEP DuPont Analysis ROE Breakdown

Lever 2009 2010 2011 2012 2013

Asset Turnover 1.14x 1.07x 0.94x 0.89x 0.87x

Profitability 19.6% 15.8% 14.6% 14.1% 14.8%

Interest Burden 95.3% 90.1% 91.2% 90.2% 90.7%

Tax Efficiency 74.0% 77.0% 73.1% 74.8% 76.3%

Leverage 2.61x 2.83x 3.36x 3.42x 3.25x

Implied ROE 41.1% 33.2% 30.8% 28.8% 29.0%

Calculated ROE 40.9% 33.1% 30.7% 28.7% 28.8%

Source: Yahoo!Finance, SEC 10-Ks, Author Calculations

This is pretty much the same story as KO. However, PEP has substantially more

leverage, asset turnover and substantially lower profitability. Despite the higher leverage

figure, PEP's leverage has increased at a slower pace. This is due to a greater portion of

integrated production in contrast to KO's outsourced bottling in other parts of the world. PEP

has superior turnover when compared to KO and comparable tax efficiency. It does have a

higher interest burden as expected with its higher leverage. Its ROE has declined less from its

5 year peak value as well.

Looking Beyond DuPont Analysis

By no stretch of the imagination is DuPont Analysis the only work you should do prior

to making an investment decision. The first comment is that operating income and EBIT do

not align as well for KO as they do for PEP. KO has several other impacts, including $534

million of interest income and over $1 billion in other income. The $534 million of interest

income in 2013 exceeds KO's interest expense of just $463 million. In contrast, PEP had just

$97 million of interest income - a fraction of its $911 million of interest expense. This

difference is from KO's over $30 billion in cash, short term investments and long term

investments. In contrast, PEP has a little over $10 billion in those categories.

Another key consideration about DuPont Analysis is that it offers no perspective on

valuation. While high ROEs suggest the potential to sustain higher organic growth, it does not

provide much insight as to what you should pay for the company or stock. The following table

shows that despite similar ROEs - suggesting the potential for similar growth, KO trades at a

higher PE multiple.

PE Multiple Comparison

Dimension KO PEP KO

Premium

Price $41.01 $85.25 na

2014 EPS $2.09 $4.54 na

2015 EPS $2.24 $4.89 na

2014 F PE 19.6x 18.8x 4.5%

2015 F PE 18.3x 17.4x 5.0%

EPS growth 14-15 7.2% 7.7% -6.9%

EPS Long term growth 6.7% 7.2% -6.9%

Source: Yahoo!Finance, Author calculations

So it appears, from a quick simple look, that KO is somewhat overvalued - paying more

for less growth. However, both companies appear to have slightly lower multiples than the

broader S&P 500, which makes sense given their lower projected earnings growth.

Some possible explanations would be that KO has a more valuable brand - it

does. Forbes values KO's brand at $54.9 billion as the third most valuable brand, while PEP's

brand is just $18.1 billion, good for 25th place. Another consideration would be the translation

from earnings to cash flow. However, PEP generates almost as much operating cash flow as

KO, despite a much lower enterprise value of $151.5 billion to $197.9 billion.

Conclusion

Based on this analysis, We would have to lean towards PEP due to a higher ROE and lower

valuation. Furthermore, PEP appears to be able to grow its business without the same

incremental asset needs of KO. However, there is substantial space for other considerations

and clearly this is not the only analysis that should be done.

Z score

PepsiCo Inc (NYSE:PEP)

Altman Z-Score

3.63 (As on 29-10-2014)

Z-Score model is an accurate forecaster of failure up to two years prior to distress. It can be

considered the assessment of the distress of industrial corporations.

PepsiCo Inc's Altman Z-Score for today is calculated with this formula:

Z = 1.2 * X1 + 1.4 * X2 + 3.3 * X3 + 0.6 * X4 + 1.0 * X5

= 1.2 * 0.0466 + 1.4 * 0.606 + 3.3 * 0.1247 + 0.6 * 2.484 + 1.0 * 0.8308

= 3.64

X1: The Working Capital/Total Assets (WC/TA) ratio is a measure of the net liquid assets of

the firm relative to the total capitalization. Working capital is defined as the difference between

current assets and current liabilities. Ordinarily, a firm experiencing consistent operating losses

will have shrinking current assets in relation to total assets. Altman found this one proved to

be the most valuable liquidity ratio comparing with the current ratio and the quick ratio. This

is however the least significant of the five factors.

X2: Retained Earnings/Total Assets: the RE/TA ratio measures the leverage of a firm. Retained

earnings is the account which reports the total amount of reinvested earnings and/or losses of

a firm over its entire life. Those firms with high RE, relative to TA, have financed their assets

through retention of profits and have not utilized as much debt.

X3, Earnings Before Interest and Taxes/Total Assets (EBIT/TA): This ratio is a measure of the

true productivity of the firm’s assets, independent of any tax or leverage factors. Since a firm's

ultimate existence is based on the earning power of its assets, this ratio appears to be

particularly appropriate for studies dealing with corporate failure. This ratio continua lly

outperforms other profitability measures, including cash flow.

X4, Market Value of Equity/Book Value of Total Liabilities (MVE/TL): The measure shows

how much the firm’s assets can decline in value (measured by market value of equity plus debt)

before the liabilities exceed the assets and the firm becomes insolvent.

X5, Revenue/Total Assets (S/TA): The capital-turnover ratio is a standard financial ratio

illustrating the sales generating ability of the firm’s assets.

PepsiCo Inc has a Z-score of 3.64, indicating it is in Safe Zones. This implies the Z-Score is

strong.

The zones of discrimination were as such:

When Z-Score is less than 1.81, it is in Distress” Zones.

When Z-Score is greater than 2.99, it is in Safe Zones.

When Z-Score is between 1.81 and 2.99, it is in Grey” Zones.

PEP' s 10-Year Altman Z-Score Range

Min: 2.73 Max: 7.61

Current: 3.63

During the past 13 years, PepsiCo Inc's highest Altman Z-Score was 7.61.

The lowest was 2.73. And the medianwas 5.44.

Trailing Twelve Months (TTM) ended in Sep. 2014:

Total Assets was $80,466 Mil.

Total Current Assets was $26,590 Mil.

Total Current Liabilities was $22,844 Mil.

Retained Earnings was $48,764 Mil.

Pretax Income was 2655 + 2705 + 1616 + 2164 = $9,140 Mil.

Interest Expense was -215 + -209 + -201 + -269 = $-894 Mil.

Revenue was 17218 + 16894 + 12623 + 20118 = $66,853 Mil.

Market Capitalization (Today) was $142,567 Mil.

Total Liabilities was $57,395 Mil.

X1 = Working Capital / Total Assets

= (Total Current Assets - Total Current Liabilities) / Total Assets

= (26590 - 22844) / 80466

= 0.0466

X2 = Retained Earnings / Total Assets

= 48764 / 80466

= 0.606

X3 = Earnings Before Interest and Taxes / Total Assets

= (Pretax Income - Interest Expense) / Total Assets

= (9140 - -894) / 80466

= 0.1247

X4 = Market Value Equity / Book Value of Total Liabilities

= Market Capitalization / Total Liabilities

= 142566.700 / 57395

= 2.484

X5 = Revenue / Total Assets

= 66853 / 80466

= 0.8308

The zones of discrimination were as such:

Distress” Zones - 1.81 < “Grey” Zones < 2.99 - “Safe” Zones

PepsiCo Inc has a Z-score of 3.64 indicating it is in Safe Zones.

Study by Altman found that companies that are in Distress Zone have more than 80% of

chances of bankruptcy in two years.

HISTORICAL DATA

PepsiCo Inc Annual Data

Dec04 Dec05 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13

X1 0.0674 0.033 0.0758 0.0693 0.0561 0.0957 0.0246 -0.0098 0.0219 0.0563

X2 0.6692 0.6656 0.8298 0.8139 0.8512 0.8483 0.5442 0.5532 0.5782 0.5991

X3 0.2041 0.2092 0.2415 0.2268 0.2049 0.2127 0.134 0.133 0.1233 0.1265

X4 6.0999 5.6314 7.0919 7.024 3.561 4.1291 2.1981 1.9844 2.0185 2.3838

X5 1.0455 1.0263 1.174 1.1399 1.2016 1.0849 0.8486 0.9125 0.8775 0.8572

Z-score

6.40 6.07 7.48 7.33 5.27 5.57 3.40 3.30 3.33 3.61

Zone s

Safe Zones

Safe Zones

Safe Zones

Safe Zones

Safe Zones

Safe Zones

Safe Zones

Safe Zones

Safe Zones

Safe Zones

PepsiCo Inc Quarterly Data

Jun12 Sep12 Dec12 Mar13 Jun13 Sep13 Dec13 Mar14 Jun14 Sep14

X1 -0.0033 0.0412 0.0219 0.0254 0.0365 0.0581 0.0563 0.0494 0.0692 0.0466

X2 0.5702 0.5719 0.5782 0.5759 0.5808 0.593 0.5991 0.6035 0.5936 0.606

X3 0.1284 0.1245 0.1233 0.1213 0.1259 0.1253 0.1265 0.1282 0.1238 0.1247

X4 2.1198 2.0876 2.0185 2.306 2.3434 2.2409 2.3838 2.3179 2.3699 2.4393

X5 0.9204 0.8876 0.8775 0.8711 0.8609 0.8625 0.8572 0.8576 0.8273 0.8308

Z-

sco

re

3.41 3.40 3.33 3.49 3.54 3.52 3.61 3.58 3.57 3.61

Zo

nes

Safe

Zones

Safe

Zones

Safe

Zones

Safe

Zones

Safe

Zones

Safe

Zones

Safe

Zones

Safe

Zones

Safe

Zones

Safe

Zones

INDUSTRY ANALYSIS

General Environment

The beverage industry is a maturing, dynamic and fragmented industry. The industry

greatly depends on movements of the external environment. The external environmental factors

affecting the industry are illustrated below.Global demographic plays a vital role in the

beverage industry. The global population is expected to rise by 2.2 billion to 9 billion by 2050.

With the growing demand on food and beverage, it is predicted the food and beverage supply

will increase by 70% (IMAP, 2010).In terms of the economy, most of the countries are

suffering from the global recession since 2008. Yet, the beverage industry had grown at an

incredibly fast rate even in such a harsh 3environment for the past years. From 2008 to 2013,

the annual global consumer expenditure on beverages went from USD $327,436 million to

USD $425,570 million (Euromonitor, 2014).

With the slowly recovering economy, the industry is likely to bloom in the close

future.Other than economic factors, government policies also greatly affect the beverage

industry. Beverage manufacturing must abide by the regulatory guidelines everywhere they do

business (Epstein, 2008). In addition, in light of the health issues in most first world countries,

numerous governments had raised concern regarding obesity of their citizens. Various policies

against sugar-sweetened beverages have been implemented. In United States, 33 states had

imposed a sales tax on soft drinks in 2009 (Kelly D. Brownell, 2009). In 2012, France followed

and introduced a tax on soft drinks (Sparks, 2011). With this trend, countries are likely to enact

various constraints to reduce the demand of sweetened beverages in the close future. Although

health policies may lower beverage demand, the other advances in technology may aid the

industry.

With advances in technology and research, companies in the beverage industry

developed and marketed sugarless beverages in the past decade and became a hit sincethey

were released. Apart from creating sugar-less beverages, technology has allowed beverage

manufacturers to develop drinks with distinct flavors and explore undeveloped markets. The

advancement of technology also includes wide spread Internet use in the last decade. In one

hand, the World Wide Web allows potential customers to conveniently reach beverage

distributors. In the other hand, companies within the beverage industry can interact with

customers via an extra channel .

The competition within the beverage industry is great and vigorous, mostly because of

the race between PepsiCo and its nemesis, Coca-Cola Company (Coca-Cola). PepsiCo has been

4competing with Coca-Cola over prices, suppliers, spokespeople, retail space and customers’

changing needs over years (BHASIN, 2011). The attacks and responses between the two

leading firms have created a great tension and high standards on products within the industry.

This has forced other rivals to follow, differentiate their products, or exits the industry.Subject

to the competition between the Coca-Cola and PepsiCo, the two companies havecreated great

entry barriers. New entrants require tremendous capital investments and explies information

for future development.

Subject to the competition between the Coca-Cola and PepsiCo, the two companies

havecreated great entry barriers. New entrants require tremendous capital investments and

explicit research on beverages customer demands to begin their business. Yet, the two

companies have developed tremendous beverages and patented most of their existing products.

Despite the entry barriers, the production, distribution, and sales of beverages are also subject

to environmental laws and governmental regulations in most countries, making the new

entrants difficult to enter the beverage industry (Vulpala, 2007).The level of threats posed by

suppliers, buyers and substitutes are near to the ground. Common ingredients of most beverages

are usually sugar, water and common chemicals such as caffeine and carbonic acid. These

materials are sold by plentiful of suppliers. Furthermore, products from different suppliers have

minimal differentiation. Firms in the beverage industry can easily change suppliers. Buyers in

the soft drink industry are mainly wholesalers or distributors. Their bargaining power was

supposed to be higher than the suppliers. However, the rapid development and differentia t ion

of products in the beverage industry has attracted more buyers and thus, lowered their

bargaining power. Lastly, the beverage industry has almost no substitutes since it covers most

edible liquids. Products such as soup or congee can hardly be classified as substitutes because

tho Products such as soup or congee can hardly be classified as substitutes because those

products have different functionality and are usually recognized as meal alternatives, rather

than drinks.

Current Situation

As of 2013, PepsiCo Inc. is the second largest food and beverage multinationa l

companyin the world (MarketLine, 2013). PepsiCo manufactures and sells twenty-two major

brands of beverages and snack foods in more than 200 countries and territories (PepsiCo,

2013), each generating over $1 billion in sales each year (MarketLine, 2013). Brands under

PepsiCo such as Pepsi-Cola, Lays Chips, Mountain Dew and Gatorade allow the firm to

dominate a decent portion of the food and beverage industry. PepsiCo is in fact slowly losing

its market share and competitiveness to its rivals in the industry every year. In 2012, the

PepsiCo’s sales amounted to $65,492 million worldwide (PepsiCo, 2012). Although PepsiCo

was performing exceptionally, it recorded a fall of 1% in net revenue compared to its

performance in 2011. PepsiCo’s market share in the soft drink industry had also dropped from

10.3% to 9.9% in 2012 (Euromonitor, 2014).

PepsiCo is also facing pressure from its stock price. PepsiCo’s stock had gone nowhere

since Nooyi became CEO, while Coca-Cola’s stock price had increased by about 40% (Colvin,

2012). The fall on stock price began the day PepsiCo announced not to spin off its drink

business in spite of the market share problems in North America; PepsiCo Inc. c.’s share price

fell by 2.21% that day (Abrams. 2014).Current StrategyBusiness Strategy-Integrated Cost

Leadership/differentiated Strategy.Integrated cost leadership/differentiated strategy allows

PepsiCo to minimize production budgets and seize market share at low cost. PepsiCo is

currently implementing the “Hybrid Every Day Value” strategy. By simply cutting down the

discount on holidays but lower prices all through the year, the strategy aims to eliminate

customers’ habit on buying soda only when it’s on sale (Reuters, 2013).

Corporate Strategy-Brand Portfolio Strategy

PepsiCo is using brand portfolio strategy to achieve synergistic benefit through

economies of scope and market power. PepsiCo categorizes its products into different

portfolios. The Fun-for-You brands cater to global and regional flavors, such as Lay’s, Doritos,

Cheetos, and Pepsi, etc. The Better-for-You brands include snacks with lower fat content and

whole grains, and beverages with fewer or zero calories and less sugar. Good-for-You brands

are comprised of nutritious foods and beverages that include fruits, vegetables, whole grains,

and low-fat dairy like Tropicana, Quaker; and also healthy products with functional benefit,

like Gatorade (PepsiCo Inc., 2014).

Creation of a new Global Nutrition GroupComplementing the Corporate Level strategy,

PepsiCo launched Global Nutrition Group (GNG) in 2010 as a long term strategy growing the

“Good-For-You” portfolio, the GNG’s work focuses on innovation and brand development on

the products within the portfolio. PepsiCo dedicates itself to offer consumers with a wide range

of healthy products with the reduction of sodium, sugar, and saturated fat content (Kanter et.

al, 2012).

Global Strategy-Strategic Alliance Strategy

PepsiCo deliberately invests in market development in the Asia, Middle East and Africa

(AMEA) region. Katty Lam, chairman of PepsiCo Greater China Region, describes China is

one of the important emerging markets in PepsiCo’s global strategies. Katty highlights

PepsiCo's success in China lies in developing products suited local customers’ preferences and

tastes (Qindexing, 2013).

To further understand Chinese’ preferences, PepsiCo formed a partnership with Tingyi

Holding Corp. - a Chinese Food and Beverage Company. Meanwhile increasing its market

share and enhance its brand leadership in the AMEA region. By creating the largest alliance in

the Chinese beverage industry, the two companies are leading the second largest competitor by

about 1.6% of relative market share (Sosland, 2012).

Besides from expanding in the AMEA region, PepsiCo is also actively growing in other

regions. In 2010, PepsiCo acquired Lebedyansky and the Wimm-Bill-Dann to expand its

market in Russia. About the same period, Pepsico also acquired Mablel cookies and Lucky

snakes in Brazil, and Dilexis cookies in Argentina to further enlarge its product range (PepsiCo

Inc., 2014).

Main Strategic Challenges

1. Resistance on increasing Beverage Market Share

PepsiCo’s third quarter result in 2013 indicates the organic revenue of PepsiCo

Americas Beverage has declined by 1.5% (PepsiCo’s Report, 2013). The main origin to the

drop is the lack of innovation within PepsiCo. Even though PepsiCo has launched new products

to the market, it is no match to Coca-Cola’s hugely successful Coke Zero and attention-

grabbing bottle and can designs (Colvin, 2012). Currently, Coca-Cola is dominating the market

with a market share of 15.4%, while PepsiCo’s only has a share of 8.9% in the global soft drink

market (Euromonitor, 2014). Even if PepsiCo is performing well on the beverage industry and

in the future, PepsiCo is unlikely to catch up the difference.

2. Challenges on making Profit on PepsiCo’s Nutrition Business

The Chief Executive Officer of PepsiCo, Nooyi, adjusted the focus of the company

from the “fun for you” product portfolio to the “good for you” portfolio. She projected the

revenues of “good for you” product lines would contribute to the company’s revenue by 10%

more (Reingold, 8 2011). However, the fact remains that “good for you” products were not as

profitable as the branded carbonated beverages (Colvin, 2012). With such miscalculation, from

2010 to 2013, the company’s return on capital had dropped from 22% to 11% (Hooper, 2014).

Investors expecting high returns on investment capital were greatly disappointed and demanded

PepsiCo to restore emphasis on profitable product lines instead.

3. Challenges on expanding to Overseas Markets - Financial

Since current markets are saturated, international markets are great platforms for

PepsiCo to widen its profit margin. Yet, the global strategy creates transitional challenges while

Implementing. Actions such as the forming partnership with Tingyi and exiting the Mexican

Bottling operations have increased reintegration and restructuring costs (Trefis Team, 2013).

The global expansion strategy requires tremendous investments in order to develop new

markets and please new target customers. Hence, it is challenging for PepsiCo to convince its

investors to put more money to establish new markets.

4. Challenges on expanding Overseas Markets – Sociocultural & Political

With the current global strategy, PepsiCo focuses on developing the AMEA region.

Without a doubt, the AMEA region has great market potential. However, expansion here comes

with great political risk. Unlike any first world countries, countries in the AMEA region have

relatively poor hardware and policies to support the establishment of international firms like

PepsiCo. For example, copyright infringement is common in most second world countries like

China. In addition, their local governments do not usually have well-developed laws and

regulations in these matters. As a result, PepsiCo may suffer from a loss on profit margin. Even

worse, the plagiarized goods may damage PepsiCo’s reputation when consumers realize the

existence of the pirate goods and stop purchasing any PepsiCo products.

Five Forces Model

Competitive Force 1: Rivalry Among Existing Firms

Due to the fact that this industry’s growth has had relevantly little growth over the

years, there is tremendous competition within the industry. This industry has low concentration.

Three major firms account for 80% of the global market. These firms include PepsiCo, Coca-

Cola, and Cadbury Schweppes. Coca-Cola has achieved 50% in global market share, while

PepsiCo controls 21%, and Cadbury Schweppes maintains . Competition amongst these firms

is not mainly based on price competition but rather product differentiation. Many firms rely on

new flavors and have also branched into non-carbonated beverages and snack foods to give

there firm a competitive advantage over others. PepsiCo has also been exceeding in this by

acquiring Quaker Oats which owns Gatorade. PepsiCo has also added Tropicana, Aquafina,

and Lipton into its product line making PepsiCo number one in the non-carbonated beverage

industry. Coca-Cola has also entered into this arena by emerging with Nestea, Powerade, and

Minute Maid brands to compete in this movement. PepsiCo has also branched into the breakfast

and snack food industry with Quaker Oats and Frito-Lay. While PepsiCo has remained at

number two in soft drinks, this diversification has helped make up the difference in

competition. Switching costs are virtually inexistent in this industry as there are no costs for

consumers to switch products.

The only costs to switching would be a different taste, appearance, and appeal. This is

mainly due to the fact that firms have cooperated to maintain the same price for there products.

Consumers are faced with a decision of choosing a product not based on price but rather on

style, taste, and other contributing factors. Under these circumstances, companies have spent

considerable energy to market there products to achieve brand awareness. There is also a

tremendous learning curve for these companies, resulting in extreme barriers to entrance of

other emerging companies. Most companies have developed extensive distribution systems

and have created relationships with suppliers and buyers. Also there are extensive economies

of scale resulting in companies with massive size. This has been created by obtaining extreme

amounts of capital and diversifying the company into other markets. In this type of industry

there are relatively few exiting barriers which have left only a few companies to compete in.

Competitive Force 2: Threat of New Entrants

Within this industry there are large economies of scale. This results in an extreme

amount of capital to propel the company. Using capital for manufacturing isn’t much of a

concern as there are generic brands which cost less. Much capital is used to market and

advertise there products to achieve brand awareness and differentiate there products from

others. PepsiCo has done a tremendous job by creating a household name rivaling that of Coca-

Cola’s. Such common household names are Pepsi, Mountain Dew, Gatorade, Tropicana,

Lipton, and Quaker and Frito-Lay products. New companies trying to emerge into the industry

have a distinct disadvantage due to the fact that the top companies have already developed such

traits. This has caused new companies to not be able to compete head on with rivals. Also

companies within the industry have developed extensive arrangements and relationships with

manufactures and distributors. PepsiCo for example has Pepsi Bottling Group. This

independent entity makes, sells, and distributes Pepsi brands around the world.

Competitive Force 3: Threat of Substitute Products

In PepsiCo’s industry there is a considerable threat of product substitution. Products

offering the same qualities and features at a lower price can initiate customers to substitute. In

this day of age of health consciousness, new products have been developed to meet this trend.

To meet this concern many of the companies offer healthier alternatives that ultimately cut into

their other brands profits. Brands such as Pepsi One, Diet Pepsi, and Coca-Cola’s C2, and Diet

Coke have been developed to meet this concern head on. Another concern is that of generic

brands such as grocery store brands. The relative concern is based on price. For example most

grocery stores have their own brands of soda, juices, breakfast, and snack items. While the top

companies have there own distinct image, these generic brands offer a similar taste but at a

much lower price. This industry’s main concern is if customers become price conscious and

stray away from popular brands such as PepsiCo products. As long as consumers place value

on these companies products there shouldn’t be that much of a concern.

Competitive Force 4: Bargaining Power of Buyers

PepsiCo is more sensitive to price due to the fact that there are low switching costs

involved in producing their products. Because the total cost of manufacturing their product

comes from packaging, PepsiCo is more apt to search for the lowest price of their raw materia ls

being that are readily available and are a common material (i.e. plastics and aluminum). Being

that PepsiCo is such a large producer enables them to hold a strong bargaining position. Since

they buy so many raw materials they are able to get lower prices for them buying in such bulk.

Also the number of readily available materials to PepsiCo increases their bargaining power due

to the fact if a specific supplier can not match a price or does not have the material availab le;

it is not difficult to find it quickly and inexpensively. However these packaging and distribution

expenses are taken by Pepsi Bottling Group which is a separate entity of PepsiCo and became

publicly traded in early 1999. Even though PBG is a separate company; PepsiCo owns 40% of

PBG’s equity interest.

Competitive Force 5: Bargaining Power of Suppliers

There are many different suppliers in PepsiCo’s industry. These suppliers are the

bottlers and metal can suppliers. PepsiCo is in a unique position in which it used to own Pepsi

Bottling Group. In 1999, Pepsi Bottling Group became independent and in which PepsiCo

retains 40% of its shares. Because of this suppliers of bottlers have a relatively low bargaining

power relative to PepsiCo because they are a continued vested interest of PepsiCo. This makes

PepsiCo able to have a distinct advantage over other competitors in production and distribution.

Pepsi Bottling Group also provides other ingredients that are used in the food and beverage

businesses, these include: almonds, cocoa, corn, flavorings, flour, juice, oranges, potatoes, and

different kind of fruits.This gives PepsiCo the chance to produce low cost products over

competitors. PepsiCo also employs specialists to secure the best suppliers that are in the market

for many of these items in order to produce quality products too.

Competitive Strategy Analysis

The beverage and snack industry is very competitive. Their competitive strategy is

based on differentiation instead of cost leadership. This means that the giants of the business

like PepsiCo should explore new formulas, flavors and appearances to compete with each other.

This is what PepsiCo is already doing by introducig two different lime flavor drinks by the end

of this month. PepsiCo is known for producing a variety of salty, sweet and grain-based snacks,

carbonated and non-carbonated beverages and foods. They invest many resources to produce

superior products and in marketing for brand awareness. This is one of the reasons that PepsiCo

has been one of the leaders in the beverage and snack industry.

Another competitive advantage that PepsiCo has is its non-carbonated beverage.

PepsiCo has lost the war against Coke for the carbonated beverages, but they are the leader in

the non-carbonated beverages category. They have done this by adding Gatorade’s 73% share

of the sports drink market to its Tropicana and Lipton tea holdings. This means that PepsiCo is

not only focusing on competing with Coke on the carbonated beverages but they are looking

to win battles in other competitive areas. This is going to make PepsiCo maintain a competitive

advantage over a wider array of its competitors.

Another competitive advantage of PepsiCo is their flexibility of their distribution

network. PepsiCo products are brought to the market through direct-store delivery, vending

distribution networks and broker-warehouse. This distribution system is developed in a way to

satisfy customer needs and to show product characteristic. By having a flexible distribution

network PepsiCo is going to maintain their great reputation and their product are going to

satisfy their customers.

The last competitive advantage that PepsiCo has is its capital. PepsiCo is number one

in the snack industry, number two in the non-alcoholic industry and they have revenue of about

$29 billion. This means that they have excess money to spend on advertising, quality of

products and differentiation. PepsiCo by having such great capital provides advertising, sales

and promotional support to their beverage and food customers. That’s why PepsiCo has some

of the most-recognized advertising in the world. By having such extensive capital PepsiCo is

making some research and development to find new flavors and to produce an even higher

quality product. In conclusion PepsiCo believes that their capital, differentiation, flexibility of

their distribution network and their non-carbonated beverage is going to allow them to compete

efficiently.

Key Success Factor

Strengths:

One of the biggest strengths of PepsiCo is its Officers and Directors. They They are a

master of being honest, having analytical assessment and they have no shyness in terms doing

what needs to be done. Minority Business News names PepsiCo Chairman and CEO Steve

Reinemund “Executive of the Year.” (www.Forbes.com). It is because of them that the PepsiCo

is one of the best companies in the beverage and food industry. Another strength of this

company is their division Frito-Lay which has surpassed companies of all sizes through a

combination of restructuring, new products, and lower prices. While Coke is synonymous with

soda, so are Frito-Lay’s Fritos is with corn chips demonstrating its product-name association.

Like James Stack an editor of InvesTech Research says, “While the company trails Coca Cola

on the soft-drink industry, in the snack foods, Frito-Lay which controls 60% of the U.S. salty

snack-food market, has the number one position in corn chips, potato chips, tortilla chips and

pretzels.” They are the best-run company in the food business. For the twelve months ended

Sept, 4, 2004 PepsiCo earned $3.93 billion on sales of $16.49 billion. This shows that company

is very profitable, has a good financial footing, and is continuing to grow.

While the soft drink segment is, as ever, PepsiCo is number 2, but is an extremely strong

number 2. They control 21% of the soft-drink market. It is going to be hard to compete with

Coke in the soft drink industry but PepsiCo is not just staying and accepting defeat. The

company’s purchase of The Quaker Oats Company and its Gatorade brand show that they are

still highly competitive.

Weaknesses:

Pepsi maybe is one of the weaknesses of PepsiCo due that is really far from the leader Coca-

Cola in the international market. Coke is three times Pepsi's size in fountain sales and has more

than ten times as many salespeople as Pepsi. In the U.S., Pepsi's market share lags behind

Coke's by the widest margin in over two decades. The net sales of PepsiCo had increase in the

past years but it is important to notice that this increase is only because of sales in USA.

Internationally, Pepsi's drink business was a mess. They still haven’t figured out a way to

increase their sales in the international market. But lately they have improved internationa lly

and especially after Coke have lost a lot of sales in Europe. But PepsiCo has showed difficult ies

in the past in the international market and they are trying very hard to improve these

weaknesses. Another weakness is their historically late entrance into carbonated beverage

industry. Coca-Cola entered the market in 1886 while Pepsi emerged in 1919 giving Coca-Cola

a three decade head start. Regardless of PepsiCo’s size, diversification, business acumen or

bottom line, consumers still see the company as only Pepsi, a product. While Coke has fans

(collector’s clubs, items, Christmas tree ornaments, etc.), Pepsi has purchasers.

Opportunities:

There are still some undeveloped markets in the world that PepsiCo should try to

penetrate. They need to look for these markets and get established there before their

competitors. PepsiCo traditional carbonated soft drinks and salty snacks continue to symbolize

the company and it is going to do so for a long time. But you have to be risky to succeed in

business and to beat your competition. We know that we live in a society where many people

are worried about their nutrition. We hear about this topic through the media and we read it in

magazines all the time. New good-for-you products from PepsiCo are going to include soon

dairy products, more whole-grain items in its Frito-Lay line of salty snacks, products based on

olive oil and a soy-enhanced Tropicana orange juice. This is going to be a great opportunity

for PepsiCo to make healthier product and to expand its market.

The key for the beverage companies is differentiation. The giants of the industry have

different formulas and appearances. PepsiCo for being one of these giants has the opportunity

to make better formulas and appearances for their customers so they can beat their competition.

PepsiCo is going to introduce a lime-flavored soda that is going to compete with a similar

offering of their rival Coca-Cola. By using a better formula and appearance and a great

advertising plan in these new drinks, they have the opportunity to beat Coca-Cola.

Threats:

The prices of the items that PepsiCo purchase are subject of fluctuation. For example the

increase the prices of the raw materials or the fuel can cause an increase of the costs of the

production of their product, and in the business environment that PepsiCo operates, it is not

possible to increase the product price because they are part in a very competitive environment.

In the marketing department the PepsiCo brand image is very much linked to Pepsi image,

which has label of second best brand. This can still give them the label of ‘loser’, linking its

image to the rest of firm’s company. This can give them a bad brand image in their markets.

They need to improve in their marketing department through advertising campaigns where they

are appeared together with other PepsiCo Brands.

Conclusion:

PepsiCo has established itself as a very stable and profitable company in North America and

all over the world.

As we mentioned above they are number two in the non- alcoholic beverage industry and

number one in the snack industry by owning Frito-Lay.PepsiCo, Inc operates four major

businesses: Frito-Lay North America, 34% of the sales and 41% of operating profit; PepsiCo

Beverages 29% of sales and 30% of operating profit; Quaker Food 5% of sales and 9% of

operating profit; PepsiCo Int’l 32% of sales and 20% of operating profit. (Value Line) All these

brands have a strong market position in North America and because of these PepsiCo has a

growth potential for the years to come.