PepsiCo Annual Report 2010

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FY2010 Annual Report · PepsiCo

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Performance
with Purpose
The Promise of PepsiCo

2010 Annual Report

Good for
all...

Shareholder Services

BuyDIRECT Plan

Interested investors can make their initial pur-

chase directly through BNY Mellon Shareowner

Services, transfer agent for PepsiCo and

Administrator for the Plan. A brochure detailing

the Plan is available on our website

Corporate Headquarters

PepsiCo, Inc.

700 Anderson Hill Road

Purchase, NY 10577

Telephone: 914-253-2000

PepsiCo Website

www.pepsico.com

www.pepsico.com or from our transfer agent:

All of the inks used in this annual report were

formulated with soy-based products. Soy ink

is naturally low in VOCs (volatile organic com-

pounds, chemical compounds that evaporate

and react to sunlight) and its usage can reduce

emissions causing air pollution.

PepsiCo continues to reduce the costs and envi-

ronmental impact of annual report printing and

mailing by utilizing a distribution model that

PepsiCo, Inc.

PepsiCo’s annual report contains many of the

drives increased online readership and fewer

c/o BNY Mellon Shareowner Services

valuable trademarks owned and/or used by

printed copies.

PepsiCo and its subsidiaries and affiliates in the

United States and internationally to distinguish

products and services of outstanding quality.

All other trademarks featured herein are the

property of their respective owners.

We hope you can agree that this is truly

Performance with Purpose in action. You can

learn more about our environmental efforts at

www.pepsico.com.

Copies of PepsiCo’s SEC filings, earnings and

Speak with truth and candor.

other financial releases, corporate news and

Balance short term and long term.

additional company information are available

Win with diversity and inclusion.

on our website www.pepsico.com.

Respect others and succeed together.

P.O. Box 358015

Pittsburgh, PA 15252-8015

Telephone: 800-226-0083

800-231-5469 (TDD for hearing impaired)

201-680-6685 (Outside the U.S.)

201-680-6610 (TDD outside the U.S.)

E-mail: shrrelations@bnymellon.com

Website: www.bnymellon.com/

shareowner/equityaccess

Other services include dividend reinvestment,

direct deposit of dividends, optional cash

investments by electronic funds transfer or

check drawn on a U.S. bank, sale of shares,

online account access and electronic delivery

of shareholder materials.

Financial and Other Information

PepsiCo’s 2011 quarterly earnings releases are

expected to be issued the weeks of April 25, July

18, October 10, 2011 and February 6, 2012.

PepsiCo’s CEO and CFO Certifications required

under Sarbanes-Oxley Section 302 were filed as

an exhibit to our Form 10-K filed with the SEC

on February 18, 2011. PepsiCo’s 2010 Domestic

Company Section 303A CEO Certification was

filed with the New York Stock Exchange

(NYSE). In addition, we have a written state-

ment of Management’s Report on Internal

Control over Financial Reporting on page 103 of

this annual report. If you have questions regard-

ing PepsiCo’s financial performance contact:

Independent Auditors

KPMG LLP

345 Park Avenue

New York, NY 10154-1002

Telephone: 212-758-9700

PepsiCo Values

Our commitment:

To deliver SUSTAINED GROWTH

through EMPOWERED PEOPLE

acting with RESPONSIBILITY

and building TRUST.

Guiding Principles

We must always strive to:

Care for customers, consumers and the world

we live in.

Sell only products we can be proud of.

Environmental Profile

This annual report paper is Forest Stewardship

Council (FSC) certified, which promotes envi-

ronmentally appropriate, socially beneficial

and economically viable management of the

world’s forests. This report was printed with

the use of 100 percent certified renewable wind

power resources, preventing approximately

14,000 pounds of carbon dioxide greenhouse

gas emissions from reaching the environment.

This amount of wind-generated electricity is

equivalent to approximately 12,000 miles not

driven in an automobile or approximately 1,000

trees being planted.

QR Codes

A QR (Quick Response) code is a two-dimensional

code that directs users to a specific web des-

tination, video or application. Readers should

scan the code using the camera on their

smartphone and an application specific to the

phone’s operating system. Here are a few

QR code readers we recommend:

www.scanlife.com, www.i-nigma.com,

www.neoreader.com. The URLs that are coded

into the four QR codes are:

Walkers “Do Us a Flavour” Campaign

www.tinyurl.com/pepsico1

Frito-Lay All-Natural Ingredients

www.tinyurl.com/pepsico2

PepsiCo India

www.tinyurl.com/pepsico3

PepsiCo Talent Sustainability

www.tinyurl.com/pepsico4

is good for
business.

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-Cola, Lay’s, Quaker Oats, Tropicana
and Gatorade, to name but a few — we will
continue to build a portfolio of enjoyable and
healthier foods and beverages, find innovative
ways to reduce the use of energy, water and
packaging, and provide a great workplace for our
associates. Additionally, we 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.

Human Sustainability

Providing
people with
choices...

At PepsiCo, our promise is to encourage
people to live balanced and healthier lives.
We’re committed to offering balance in
our portfolio for consumers to have a
range of enjoyable and wholesome foods
and beverages. We believe it’s about
providing people with choices, options to
manage their portions, better nutrition

education and compelling programs to
encourage physical activity. But choice is
the key. By 2020, we intend to triple
our portfolio of wholesome and enjoyable
offerings, while staying committed to
the great taste and convenience that are
expected of our great brands.

PepsiCo, Inc. 2010 Annual Report

Health-conscious consumers who
seek more wholesome food and beverage
choices are increasingly a large and
powerful force in the marketplace. At the
same time, the changing global economy
has deepened the demand for both
quality and value. As the world’s second-
largest food and beverage business

with an unparalleled distribution system,
we are uniquely situated to lead the way
in these changing market dynamics.
We believe the expansion of our Good-
for-You portfolio will help PepsiCo attain
a competitive advantage in a global
packaged-nutrition market valued today
at $500 billion — and growing.

is good for business.Environmental Sustainability

Supporting
our planet...

Respecting humanity’s right to water and
other natural resources is a priority for
PepsiCo. That’s why we have invested in
research, systems and facilities improvements.
All of which decrease waste to landfills,
create more sustainable packaging, reduce
our carbon footprint, lower our energy and
water use and improve the efficiency of our
operations. It’s also why we continue to work

with global non-governmental organizations,
national governments, local farmers and
agronomists to pursue more sustainable
growing practices, improve crop yields and
support local growing collaboratives.
These initiatives are simply the right thing to
do, and they also demonstrate PepsiCo’s
interest in the development of the agricul-
tural supply chain in emerging markets.

PepsiCo, Inc. 2010 Annual Report

Being a “good company” is good for
society and the communities where we
operate, and it is an imperative for
increasing our profitability. Environmental
initiatives help us identify business syner-
gies and cut our operating costs. Equally
important is improving efficiencies in
packaging materials, water and energy

use, so we may continue to minimize
waste and move toward significant
environmental goals. These actions are
helping to protect the communities
where we operate, while strategically
transforming our operations for long-
term efficiency and sustainable growth.

is good for business.Talent Sustainability

Investing
in our people...

Helping our associates succeed and
acquire the skills that enable growth also
will help to sustain PepsiCo’s long-term
growth. A key component is attracting
and developing the best people and
empowering them to be innovative, take
on new responsibilities and pursue
exciting opportunities for themselves and
the company. We’re also committed to

supporting our associates, their families
and the communities where they live and
we operate through local job creation,
wellness initiatives and matching charitable
contributions. We do all of this because
we care about our associates, and
because PepsiCo is successful when our
people are empowered to develop their
skills and lead healthier lives.

PepsiCo, Inc. 2010 Annual Report

To maintain a leadership position in a
changing world, we must rethink how we
work, implement efficient new ways to
collaborate on a global scale and share
operational best practices throughout
our organization. Our commitment to diversity
in the workforce means we understand,

firsthand, what our consumers seek in
local markets around the world. Equally
important is investing in our associates
and the communities where they live.
The result of these efforts is more engaged
and productive associates who can
seize opportunities to grow the company.

is good for business.2010 Scorecard

And good
business...

We understand that companies succeed
when society succeeds, and what’s
good for the world is good for business.
Performance with Purpose ensures that
this powerful idea is woven into everything
we do at PepsiCo. But equally important,
it is proving to be a driver of financial
performance for our shareholders today
and into the future. We continue to strike
the balance between the short term and
the long term through investments in
acquisitions, research and development
and emerging markets.

+33%

Net revenue grew 33 percent on a constant
currency basis.1

+7%

Raised the annual dividend by 7 percent.

+12%

Core EPS grew 12 percent on a constant
currency basis.2

Core Earnings Per Share2
$4.13

$3.68

$3.71

$119 Billion
Estimated
Worldwide
Retail Sales

+23%

Management operating cash flow,
excluding certain items, reached
$6.9 billion, up 23 percent.1

Management Operating Cash
Flow, Excluding Certain Items3
(in millions)

$6,892

+23%

Core division operating profit rose 23 percent
on a constant currency basis.1

$5,583

$4,831

1 Core results and core results on a constant currency basis are non-GAAP measures that exclude certain items. See page 108 for

a reconciliation to the most directly comparable financial measure in accordance with GAAP.

2 Core results and core results on a constant currency basis are non-GAAP measures that exclude certain items. See page

64 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.

3 Core results and core results on a constant currency basis are non-GAAP measures that exclude certain items. See page 70

for a reconciliation to the most directly comparable financial measure in accordance with GAAP.

PepsiCo, Inc. 2010 Annual Report

Watch an introductory video with PepsiCo’s Chairman at
www.PepsiCo.com/annual10.

Letter to Shareholders

is good
for all.

industry while we generated signifi-
cant operating cash flow.

• Net revenue grew 33 percent on a

constant currency basis.1

• Core division operating profit
rose 23 percent on a constant
currency basis.1

• Core EPS grew 12 percent on a

constant currency basis.2

• Management operating cash flow,
excluding certain items, reached
$6.9 billion, up 23 percent.1

• $8 billion was returned to our

shareholders through share repur-
chases and dividends.

• We raised the annual dividend by

7 percent.

We can confidently say that PepsiCo
continues to operate from a position
of balance and strength. We are the
second-largest food and beverage
business in the world, and the larg-
est food and beverage business in
North America.

Dear Fellow
Shareholders,

2010 was a good year for PepsiCo. I
am delighted with the success we have
achieved, and I am sure you are too.

Amid the continuing challenge of the
most difficult global macroeconomic
environment in decades, we deliv-
ered strong operating performance
that puts us in the top tier in our

2010 Snapshot

Net Revenue1
Division Op. Profit1
EPS2
Mgmt OCF1
Annual Dividend

%PY
+33%
+23%
+12%
+23%
+ 7%

We are increasingly global. More
than 45 percent of our revenue comes
from outside the United States, with
approximately 30 percent coming
from emerging and developing mar-
kets, where we have tremendous
growth opportunities. Globally,
PepsiCo operates more than 100,000
routes, serves approximately 10 mil-
lion outlets almost every week and
generates more than $300 million in
retail sales every day.

We are performing today to deliver
top-tier financial performance, while
investing to ensure that our perfor-
mance levels can be sustained in the
long term. For example, in 2010 we
stepped up our investments in brand
building, R&D, emerging markets
infrastructure and our people.

PepsiCo has 19 brands that gen-
erate more than $1 billion of retail
sales each — up from just 11 in 2000.
Brands are our lifeblood — we
invest to sustain and improve brand
equity in existing global brands
while judiciously focusing on our
local and regional brands. In 2010,
all of our $1 billion brands grew
revenues, thanks in part to our
brand-building activities.

Differentiated products help us drive
sales and pricing. In 2010, we again
increased our R&D investments
in sweetener technologies, next-
generation processing and packaging
and nutrition products. For example,
SoBe Lifewater Zero Calorie, a

1 Core results and core results on a constant currency basis are non-GAAP measures that exclude certain items.
See page 108 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.

2 Core results and core results on a constant currency basis are non-GAAP measures that exclude certain

items. See page 64 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.

PepsiCo, Inc. 2010 Annual Report

product made with an all-natural,

PepsiCo, and we remain committed

zero-calorie sweetener, was a direct

to delivering top-tier financial

result of that investment — the SoBe

returns. But we went a step further.

Lifewater brand grew volume 46 per-

We laid out additional short- and

cent in 2010 alone. Similarly, our

long-term goals for ourselves that

technology investments allowed us to

included metrics related to our per-

reduce sodium levels in some of our

formance in the eyes of our retail

salty snacks without compromising

partners, our consumers and, of

taste and to use 100 percent recycled

course, our investors. Importantly,

PET in our Naked Juice bottles.

this is not at the cost of creating value

for shareholders. It is the source of

We increased our investment in

emerging markets’ selling and deliv-

that value.

ery systems by putting more coolers

It’s all about bringing our company

in the market and adding route

performance and our social and envi-

and distribution capacity ahead of

ronmental commitments together.

growth in India, China, Russia

and other countries.

In 2010, we also increased our

We set a series of long-term targets,

but ensured that they also supported

our short-term needs. Our business

empha sis on our people — from

and our ethics are intertwined, and

leadership development to rota-

that is an enormous source of

tional assignments to experiential

pride for everyone at PepsiCo. So

learning programs. Our people set

let me explain the three Purpose

us apart and attracting, retaining,

planks that lead to outstanding per-

retraining and developing them

formance: Human, Environmental,

remain our biggest advantages and

and Talent sustainability.

continuing challenges.

Performance with Purpose

Human sustainability is our promise

In addition to sustainable financial

to encourage people to live balanced

Human Sustainability

performance, we made major

strides in our Performance with

Purpose journey.

Four years ago, we recognized that

the environment was changing:

increasingly, focus was shifting from

corporate capabilities to include

corporate character. A new under-

standing took shape: that ethics

and healthy lives. It’s about offering

balance in our portfolio for consum-

ers to have a range of enjoyable and

wholesome foods and beverages. It’s

about providing people with choices,

attractive options to manage their

portions, better nutrition education

and compelling programs to encour-

age physical activity.

and growth are not just linked, but

But the key is choice. By expanding

inseparable; a belief long treasured

our portfolio, we are making sure our

by PepsiCo.

Performance with Purpose means

delivering sustainable growth by

investing in a healthier future for

people and our planet. Performance

has always been the lifeblood of

consumers can treat themselves

when they want enjoyable products,

but are able to buy a range of appetiz-

ing and healthier snacks when they

are being health-conscious.

“ We are performing

today to deliver

top-tier financial

performance,

while investing to

ensure that our

performance

levels can be

sustained in the

long term.”

Indra K. Nooyi Chairman and Chief Executive Officer
Watch an introductory video with PepsiCo’s Chairman at

www.PepsiCo.com/annual10.

Letter to Shareholders

is good

for all.

2010 Snapshot

Net Revenue1

Division Op. Profit1

EPS2

Mgmt OCF1

Annual Dividend

%PY

+33%

+23%

+12%

+23%

+ 7%

We are increasingly global. More

than 45 percent of our revenue comes

from outside the United States, with

approximately 30 percent coming

from emerging and developing mar-

kets, where we have tremendous

growth opportunities. Globally,

PepsiCo operates more than 100,000

routes, serves approximately 10 mil-

lion outlets almost every week and

generates more than $300 million in

retail sales every day.

We are performing today to deliver

top-tier financial performance, while

investing to ensure that our perfor-

mance levels can be sustained in the

long term. For example, in 2010 we

stepped up our investments in brand

building, R&D, emerging markets

infrastructure and our people.

PepsiCo has 19 brands that gen-

erate more than $1 billion of retail

sales each — up from just 11 in 2000.

Brands are our lifeblood — we

industry while we generated signifi-

cant operating cash flow.

• Net revenue grew 33 percent on a

constant currency basis.1

• Core division operating profit

rose 23 percent on a constant

currency basis.1

• Core EPS grew 12 percent on a

constant currency basis.2

• Management operating cash flow,

excluding certain items, reached

$6.9 billion, up 23 percent.1

• $8 billion was returned to our

invest to sustain and improve brand

shareholders through share repur-

equity in existing global brands

Dear Fellow

Shareholders,

2010 was a good year for PepsiCo. I

am delighted with the success we have

achieved, and I am sure you are too.

Amid the continuing challenge of the

most difficult global macroeconomic

environment in decades, we deliv-

ered strong operating performance

that puts us in the top tier in our

chases and dividends.

• We raised the annual dividend by

7 percent.

We can confidently say that PepsiCo

continues to operate from a position

of balance and strength. We are the

second-largest food and beverage

business in the world, and the larg-

est food and beverage business in

North America.

while judiciously focusing on our

local and regional brands. In 2010,

all of our $1 billion brands grew

revenues, thanks in part to our

brand-building activities.

Differentiated products help us drive

sales and pricing. In 2010, we again

increased our R&D investments

in sweetener technologies, next-

generation processing and packaging

and nutrition products. For example,

SoBe Lifewater Zero Calorie, a

1 Core results and core results on a constant currency basis are non-GAAP measures that exclude certain items.

See page 108 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.

2 Core results and core results on a constant currency basis are non-GAAP measures that exclude certain

items. See page 64 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.

product made with an all-natural,
zero-calorie sweetener, was a direct
result of that investment — the SoBe
Lifewater brand grew volume 46 per-
cent in 2010 alone. Similarly, our
technology investments allowed us to
reduce sodium levels in some of our
salty snacks without compromising
taste and to use 100 percent recycled
PET in our Naked Juice bottles.

We increased our investment in
emerging markets’ selling and deliv-
ery systems by putting more coolers
in the market and adding route
and distribution capacity ahead of
growth in India, China, Russia
and other countries.

In 2010, we also increased our
empha sis on our people — from
leadership development to rota-
tional assignments to experiential
learning programs. Our people set
us apart and attracting, retaining,
retraining and developing them
remain our biggest advantages and
continuing challenges.

Performance with Purpose
In addition to sustainable financial
performance, we made major
strides in our Performance with
Purpose journey.

Four years ago, we recognized that
the environment was changing:
increasingly, focus was shifting from
corporate capabilities to include
corporate character. A new under-
standing took shape: that ethics
and growth are not just linked, but
inseparable; a belief long treasured
by PepsiCo.

Performance with Purpose means
delivering sustainable growth by
investing in a healthier future for
people and our planet. Performance
has always been the lifeblood of

PepsiCo, and we remain committed
to delivering top-tier financial
returns. But we went a step further.
We laid out additional short- and
long-term goals for ourselves that
included metrics related to our per-
formance in the eyes of our retail
partners, our consumers and, of
course, our investors. Importantly,
this is not at the cost of creating value
for shareholders. It is the source of
that value.

It’s all about bringing our company
performance and our social and envi-
ronmental commitments together.

We set a series of long-term targets,
but ensured that they also supported
our short-term needs. Our business
and our ethics are intertwined, and
that is an enormous source of
pride for everyone at PepsiCo. So
let me explain the three Purpose
planks that lead to outstanding per-
formance: Human, Environmental,
and Talent sustainability.

Human Sustainability
Human sustainability is our promise
to encourage people to live balanced
and healthy lives. It’s about offering
balance in our portfolio for consum-
ers to have a range of enjoyable and
wholesome foods and beverages. It’s
about providing people with choices,
attractive options to manage their
portions, better nutrition education
and compelling programs to encour-
age physical activity.

But the key is choice. By expanding
our portfolio, we are making sure our
consumers can treat themselves
when they want enjoyable products,
but are able to buy a range of appetiz-
ing and healthier snacks when they
are being health-conscious.

PepsiCo, Inc. 2010 Annual Report

“ We are performing
today to deliver
top-tier financial
performance,
while investing to
ensure that our
performance
levels can be
sustained in the
long term.”

Indra K. Nooyi Chairman and Chief Executive Officer
Wholesome and Enjoyable
Foods and Beverages

Fun-for-You
Portfolio

These products are part of PepsiCo’s
core food and beverage businesses.

Pepsi:
The bold,
refreshing,
robust cola

Better-for-You
Portfolio

These are foods and beverages that have levels of
total fat, saturated fat, sodium and/or added sugar
that are in line with global dietary intake recommen-
dations. Included in this category are products such
as baked snacks with lower-fat content and bever-
ages with fewer or no calories and less added sugar.

Baked! Lay’s:
Baked potato
crisps with
zero trans fats

Good-for-You
Portfolio

These are foods and beverages that deliver positive
nutrition through the inclusion of whole grains, fruits,
vegetables, low-fat dairy, nuts and seeds or signifi-
cant amounts of important nutrients, while moderating
total fat, saturated fat, sodium and/or added sugar.
We also include products that have been specifically
formulated to provide a functional benefit, such
as addressing the performance needs of athletes.

Quaker Instant
Oatmeal:
Made with heart-
healthy whole-
grain oats

Red Rock Deli
Potato Chips:
Seasoned
with delicious
deli-inspired
flavors

Propel Zero:
Zero-calorie
enhanced water
beverage with
antioxidant and
other vitamins

Naked Juice:
100 percent
juice smoothie
made from
real fruit

We are a founding member of the
Healthy Weight Commitment
Foundation, which is a first-of-its-
kind coalition dedicated to helping
Americans achieve healthy weight
through energy balance — calories
in and calories out. We also support
programs across the world to help
people lead healthier lives, from
Vive Saludable Escuelas in Latin
America, to our Get Active program
in India, to our partnership with the
United Kingdom’s Department of
Health on its Change4Life obesity
campaign, to our work with the
YMCA — America’s largest provider
of fitness programs — on its Activate
America initiative.

Environmental Sustainability
Environmental sustainability is our
promise to protect the Earth’s natu-
ral resources. We are investing in a
healthier planet by reducing water
usage, increasing recycling levels
and minimizing our carbon footprint.
We are engaging in sustainable farm-
ing and helping communities in
which we operate in the areas of
water conservation, efficient agricul-
tural methods and increasing access
to safe water. In doing so, we are
ensuring PepsiCo can continue long
into the future. But in the here and
now, we are reducing our energy
and waste costs, and gaining real
credibility with consumers and
policymakers alike as we prove our-
selves to be a company which takes
its responsibilities seriously.

In 2010, we advanced our land and
packaging commitments by launch-
ing the Dream Machine recycling
partnership with Waste Management,
Greenopolis and Keep America
Beautiful, with a goal of increasing
the U.S. beverage container recycling
rate from 38 percent in 2009 to

50 percent by 2018. We made prog-
ress on our commitment to reduce
our carbon footprint, opening LEED-
certified plants in China in both
2009 and 2010, while managing the
largest private-delivery fleet of elec-
tric vehicles in North America.
Meanwhile, we strengthened our
community pledge to be responsible
in our use of natural resources,
achieving positive water balance in
India in 2009 and creating a new
Agricultural Development Center in
Peru in 2010.

Talent Sustainability
Talent sustainability is our promise
to invest in our associates. Our goal
is to help them succeed and develop
the skills needed to drive the company’s
growth, while also contributing to
the local communities where we live.
It’s about creating an environment
where associates feel they can bring
their whole selves to work. It’s about
building a diverse workforce where
our associate base reflects our
consumer base.

In 2010, our efforts focused on
making training and development
a priority, as we introduced new
PepsiCo University leadership pro-
grams. Our ongoing efforts to create
a culture where associates can
bring their whole selves to work was
affirmed with numerous “best
employer” awards, from Turkey to
India to Spain to Brazil.

2011 and Beyond
There is little debate that the pace
of change in the world today can be
challenging. It means that there is
never a chance to rest on your laurels.
No company can afford to stop awhile
to congratulate itself on its success.
You can be assured that our vigilance

remains undimmed. To that end, we
have identified six business impera-
tives on which we will focus.

Our first imperative is to build and
extend our macro snack portfolio.
PepsiCo is the largest player in this
category, and we still have tremen-
dous room for growth. Our goal is to
grow the core salty snack brands that
are loved and respected around the
world, while expanding into adjacent
categories. We will continue to grow
top products in our portfolio such as
Lay’s, Doritos, Fritos and Cheetos,
while also adding products that are
baked, that incorporate whole grains
or contain fruits and vegetables.
We also will strive to create new
flavors in tune with local tastes, which
reflect local culture and traditions.
In doing so, we will position ourselves
to gain share, while continuing to
grow the top and bottom line in our
macro snack business.

Our second imperative is to sustain-
ably and profitably grow our
beverage business worldwide.
Our beverage business is a large,
highly profitable one, accounting
for 51 percent of the company’s rev-
enues. We are a full-line liquid
refreshment beverage company
with a portfolio of much-loved
brands, from the iconic Pepsi to Diet
Pepsi, Pepsi Max, Mountain Dew,
7Up (International), Sierra Mist
and Mirinda in carbonated bever-
ages; Gatorade, Lipton Iced Tea,
SoBe, Tropicana, Frappuccino and
Naked Juice in the non-carbonated
space. In this highly competitive
category, our goal is to grow our
developed market beverage business
profitably while continuing to
aggressively invest in fast-growing
emerging and developing markets.
In 2010, we revitalized both the
Gatorade brand and the no-calorie

Letter to Shareholders

carbonated category by putting a lot
of weight behind Pepsi Max. In 2011,
we have a laser-like focus on taking
our profitable North America
beverage business and growing it
sustainably for the future. We are
continuing, at the same time, to
invest in emerging and developing
markets — including, of course, the
vital China and India markets.

Our third imperative is to unleash
the power of the Power of One.
Studies show that, 85 percent of the
time, when a person eats a snack, he
or she also reaches for a beverage.
No company on earth is better posi-
tioned to fulfill both sides of that
equation. To truly unleash the power
of the Power of One, in 2010, we
successfully completed the acquisi-
tions of our anchor bottlers, which
enabled us to better service our cus-
tomers. As an integrated operating
company across snacks and bever-
ages, we now can provide incredible
benefits to our retail partners and
consumers. For example, we can
respond to retailer needs with
increased speed and agility; we can
incubate new products in our distri-
bution systems for a longer time; we
can offer integrated in-store displays
tuned to occasions and day parts; we
can leverage our in-store merchan-
dising better and we can truly bring
the power of PepsiCo to all our retail
partners. The opportunities to grow
our top and bottom line through the
Power of One are exciting indeed.

Our fourth imperative is to build and
expand our nutrition business to
rapidly grow our Good-for-You port-
folio of products. With the acquisi-
tion of Wimm-Bill-Dann, PepsiCo’s
annual revenues from nutritious
and functional foods have risen from
$10 billion to nearly $13 billion.

With the Global Nutrition Group,
we will be able to harness the best of
PepsiCo by retaining the operating
capability within each sector while
centralizing the innovation and
development of these increasingly
in-demand healthier, wholesome
and tasty products.

The fifth imperative is to cherish
our PepsiCo associates. We are
fortunate to employ, worldwide,
a truly remarkable set of associates.
The market becomes more competi-
tive every day. It is people who hold
the key to great performance. To be
a good employer is one of the most
important strategic decisions a
company has to make. In this regard,
Performance with Purpose is an
absolutely central part of our recruit-
ment and retention processes.
Many of our new associates come to
us precisely because we are a com-
pany that respects them and
respects the causes that they care
passionately about.

The sixth and final imperative is the
sum total of the other five. It is vital,
in the end, that everything we do adds
up to excellent financial perfor-
mance. When we widen our horizons
we are not, at the same time, losing
our focus on performance. I can make
this commitment — that we have a
laser-like attention on being the best
possible company, financially, that
we can be.

Conclusion
I am sure you will agree that we
have delivered strong and consistent
performance. Any student of the
numbers could be forgiven for think-
ing that we sailed along the calm
waters with little to concern the
crew. And, in one sense, that would
be right. The crew of PepsiCo is a
remarkably consistent and dedicated
group. I want to pay tribute to every

PepsiCo, Inc. 2010 Annual Report

one of the associates who have done,
as they always do, a magnificent
job during trying circumstances.
We all owe every one of them a debt
of gratitude!

That is especially the case when you
consider that business is conducted
against the backdrop of a constantly
shifting scene. It can be disconcert-
ing. It can be challenging. But it
can also be exciting, and the sense
of commitment and desire that I
feel from the associates in this com-
pany is the thing that keeps our
company fresh and the thing that
keeps our company successful.

Let me close by saying that this has
been another year of excellent per-
formance. We returned $8 billion
to you, our shareholders — of that
we are proud. Now that Performance
with Purpose is no longer new, we
can see that the evidence is mount-
ing — what is good for society and
what is good for our business are the
same thing. We are making progress
on all fronts. It is hugely encouraging
and, though the backdrop can be
difficult, we have the resources, the
ingenuity and the desire to keep
moving forward successfully. Of
that, I am certain.

Indra K. Nooyi
Chairman and
Chief Executive Officer

51%

Beverage

53%

U.S.

Financial Highlights

PepsiCo, Inc. and subsidiaries
(in millions except per share data; all per share amounts assume dilution)

2010

2009

Chg(a) Currency(a)(f)

Chg

Constant

Mix of Net Revenue

Food

49%

Summary of Operations
Total net revenue
Core division operating profit(b)
Core total operating profit(c)
Core net income attributable to PepsiCo(d)
Core earnings per share attributable to PepsiCo(d)

$57,838
$10,626
$ 9,773
$ 6,675
$ 4.13

$43,232
$ 8,647
$ 7,856
$ 5,846
$ 3.71

34%
23%
24%
14%
12%

33%
23%

12%

Outside
the U.S.

47%

Other Data
Management operating cash flow,
excluding certain items(e)
Net cash provided by operating activities
Capital spending
Common share repurchases
Dividends paid
Long-term debt

Cumulative Total Shareholder Return

$ 6,892
$ 8,448
$ 3,253
$ 4,978
$ 2,978
$19,999

23%
$ 5,583
24%
$ 6,796
53%
$ 2,128
n/m
–
$ 2,732
9%
$ 7,400 170%

Return on PepsiCo stock investment (including dividends), the S&P 500 and the S&P Average of Industry Groups

PepsiCo, Inc. S&P 500® S&P® Average of Industry Groups***

150

100

s
r
a

l
l

o
D

S
U

2005

2006

2007

2008

2009

2010

*** The S&P Average of Industry Groups is derived by weighting the returns of two applicable S&P Industry Groups
(Non-Alcoholic Beverages and Food) by PepsiCo’s sales in its beverages and foods businesses. The returns for
PepsiCo, the S&P 500 and the S&P Average indices are calculated through December 31, 2010.

PepsiCo Inc.
S&P 500®
S&P® Avg. of Industry Groups***

Dec. 05
$100
$100
$100

Dec. 06
$108
$116
$116

Dec. 07
$134
$122
$129

Dec. 08
$ 99
$ 77
$106

Dec. 09
$113
$ 97
$128

Dec. 10
$125
$112
$151

Net Revenues

PepsiCo
AMEA

12%

16%

PepsiCo
Europe

PepsiCo
Americas
Beverages

35%

37%

PepsiCo
Americas
Foods

Division Operating Profit

PepsiCo
AMEA

PepsiCo
Europe

10%

29%

PepsiCo
Americas
Beverages

53%

PepsiCo
Americas
Foods

(a) Percentage changes are based on unrounded amounts.
(b) Excludes corporate unallocated expenses and merger and integration charges in both years. In 2010, also excludes certain inventory fair value adjustments in connection with
our bottling acquisitions and a one-time net charge related to the currency devaluation in Venezuela. In 2009, also excludes restructuring and impairment charges. See page
108 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.

(c) Excludes merger and integration charges and the net mark-to-market impact of our commodity hedges in both years. In 2010, also excludes certain inventory fair value

adjustments in connection with our bottling acquisitions, a one-time net charge related to the currency devaluation in Venezuela, an asset write-off charge for SAP software
and a contribution to The PepsiCo Foundation, Inc. In 2009, also excludes restructuring and impairment charges. See page 108 for a reconciliation to the most directly
comparable financial measure in accordance with GAAP.

(d) Excludes merger and integration charges and the net mark-to-market impact of our commodity hedges in both years. In 2010, also excludes a gain on previously held equity
interests and certain inventory fair value adjustments in connection with our bottling acquisitions, a one-time net charge related to the currency devaluation in Venezuela, an
asset write-off charge for SAP software, a contribution to The PepsiCo Foundation, Inc. and interest expense incurred in connection with our debt repurchase. In 2009, also
excludes restructuring and impairment charges. See pages 64 and 108 for reconciliations to the most directly comparable financial measures in accordance with GAAP.
(e) Includes the impact of net capital spending, and excludes merger and integration payments and restructuring payments in both years. In 2010, also excludes discretionary
pension and retiree medical payments, a contribution to The PepsiCo Foundation, Inc., interest paid related to our debt repurchase and capital expenditures related to the
integration of our bottlers. In 2009, also excludes discretionary pension payments. See also “Our Liquidity and Capital Resources” in Management’s Discussion and Analysis.
See page 108 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.

(f) Assumes constant currency exchange rates used for translation based on the rates in effect in 2009. See pages 64 and 108 for reconciliations to the most directly comparable

financial measures in accordance with GAAP.

PepsiCo Mega Brands

19PepsiCo, Inc. has 19 mega brands that each generated

$1 billion or more in 2010 in annual retail sales (estimated
worldwide retail sales in billions).

$10

$15

$20

$25

Pepsi-Cola

Mountain Dew / Mtn Dew

Lay’s Potato Chips

Gatorade (Thirst Quencher, G2, Propel)

Tropicana Beverages

Diet Pepsi

7UP (outside U.S.)

Lipton Teas (PepsiCo/Unilever Partnership)

Doritos Tortilla Chips

Quaker Foods and Snacks

Cheetos Cheese Flavored Snacks

Mirinda

Ruffles Potato Chips

Aquafina Bottled Water

Pepsi Max

Tostitos Tortilla Chips

Sierra Mist

Fritos Corn Chips

Walkers Potato Crisps

PepsiCo, Inc. 2010 Annual Report

PepsiCo Board of Directors

Shona L. Brown
Senior Vice President,
Business Operations,
Google Inc.
45. Elected 2009.

Arthur C. Martinez
Former Chairman of the Board,
President and Chief Executive Officer,
Sears, Roebuck and Co.
71. Elected 1999.

Ian M. Cook
Chairman of the Board,
President and Chief Executive Officer,
Colgate-Palmolive Company
58. Elected 2008.

Indra K. Nooyi
Chairman of the Board and
Chief Executive Officer,
PepsiCo, Inc.
55. Elected 2001.

Dina Dublon
Consultant,
Former Executive Vice President
and Chief Financial Officer,
JPMorgan Chase & Co.
57. Elected 2005.

Sharon Percy Rockefeller
President and Chief Executive Officer,
WETA Public Radio
and Television Stations
66. Elected 1986.

Victor J. Dzau, M.D.
Chancellor for Health Affairs,
Duke University;
President and Chief Executive Officer,
Duke University Health Systems
65. Elected 2005.

James J. Schiro
Former Chief Executive Officer,
Zurich Financial Services
65. Elected 2003.

Presiding Director

Ray L. Hunt
Chairman of the Board,
President and Chief Executive Officer,
Hunt Consolidated, Inc.
67. Elected 1996.

Lloyd G. Trotter
Managing Partner,
GenNx360 Capital Partners
65. Elected 2008.

Alberto Ibargüen
President and
Chief Executive Officer,
John S. and James L. Knight
Foundation
67. Elected 2005.

Daniel Vasella
Chairman of the Board and
Former Chief Executive Officer,
Novartis AG
57. Elected 2002.

PepsiCo Leadership

In photo, left to right: Eric J. Foss, John C. Compton, Zein Abdalla, Indra K. Nooyi, Hugh Johnston, Massimo F. d’Amore,
Mehmood Khan, Saad Abdul-Latif

PepsiCo Executive Officers4

Indra K. Nooyi
Chairman of the Board,
Chief Executive Officer, PepsiCo

John C. Compton
Chief Executive Officer,
PepsiCo Americas Foods

Zein Abdalla
Chief Executive Officer,
PepsiCo Europe

Saad Abdul-Latif
Chief Executive Officer,
PepsiCo Asia, Middle
East & Africa

Peter A. Bridgman
Senior Vice President,
Controller, PepsiCo

Albert P. Carey
President and Chief Executive
Officer, Frito-Lay North America

Massimo F. d’Amore
Chief Executive Officer,
PepsiCo Beverages Americas

Eric J. Foss
Chief Executive Officer,
Pepsi Beverages Company

Richard Goodman
Executive Vice President,
PepsiCo Global Operations

Hugh Johnston
Executive Vice President,
Chief Financial Officer, PepsiCo

Donald M. Kendall
Co-founder of PepsiCo

4 PepsiCo Executive Officers subject to Section 16 of the Securities and Exchange Act of 1934 as of March 8, 2011.

PepsiCo, Inc. 2010 Annual Report

Mehmood Khan
Chief Executive Officer,
Global Nutrition Group and
Senior Vice President,
Chief Scientific Officer, PepsiCo

Larry Thompson
Senior Vice President,
Government Affairs,
General Counsel and Secretary,
PepsiCo

Cynthia M. Trudell
Senior Vice President,
Chief Personnel Officer, PepsiCo

Performance with
Purpose: The
Promise of PepsiCo

In 2009, PepsiCo made a promise to
deliver sustainable growth by investing in
a healthier future for our consumers,
our planet, our associates and our com-
munities. Every day we deliver on this
promise by striving to meet the goals and
commitments we’ve made in four key
areas: Performance, Human sustainability,
Environmental sustainability and Talent
sustainability. With these as our guide,
PepsiCo is strategically transforming itself
for success in a changing global environ-
ment. The following pages provide a
snapshot of our 2010 activities and progress,
and the beginning stages of defining,
measuring and tracking the data underlying
each goal or commitment. PepsiCo’s
2010 Corporate Citizenship Report, due for
release later this year, will continue to
offer a deeper look at our progress as we
advance on our journey. We are proud of our
Performance with Purpose achievements
to date, but realize that fulfilling the
Promise of PepsiCo will be a continuously
challenging and rewarding journey.

page 20

Human Sustainability
page 26

1–9Performance
1–9
10–20
10–20
21–35
21–35
36–47
36–47

Environmental Sustainability
page 32

Talent Sustainability
page 40

Certain metrics in the following commitments and goals exclude the impact of
significant acquisitions, such as the acquisitions of PBG, PAS and Lebedyansky,
due to challenges in obtaining certain data for periods prior to our acquisitions.
We continue to work to collect and aggregate this data and intend to incorporate
such data into our externally reported metrics as soon as it has been collected,
aggregated and verified. We have identified in this report the instances in which
the underlying data for such acquisitions has been excluded through the use of
the symbol (*).

1–9

Performance

To all our investors … It’s a promise to strive to
deliver superior, sustainable financial performance.

PepsiCo, Inc. 2010 Annual Report

Performance
Top Line

1Grow international

revenues at two
times real global GDP
growth rate.

As the world’s second-largest food and
beverage business, we make, market or
sell our products in more than 200
countries. In fact, more than 45 percent
of our business comes from outside the
U.S. In 2010, our revenues outside
the U.S. grew approximately 30 percent,
significantly above our target of two
times the real global GDP growth rate.
Notably, our India business grew at
about 2.5 times India’s real GDP growth
rate and our Brazil business grew at

about 3.5 times Brazil’s real GDP growth
rate. And we continue to strengthen our
growth potential with strategic invest-
ments in key markets. In 2011, for
example, we acquired a controlling inter-
est in Wimm-Bill-Dann, Russia’s
largest food and beverage business, and
made plans in 2010 to build a new
plant, part of a $1 billion investment
program there. We also initiated a
$2.5 billion investment program in
China in 2010, which includes plans to
open 10 to 12 new food and beverage
plants and R&D facilities over three
years. With these and other investments,
we expect to continue increasing our
international revenues at a faster pace
than that of the world economy.

We opened a snacks plant in Azov, Russia, in
2009, and announced plans to build a beverage
plant on the same property in 2010. This is just
part of our commitment to growing international
revenues through investments.

Grow savory snack and
liquid refreshment bev-
erage market share in the
top 20 markets.

We’re committed to growing our
businesses faster than the market.
In 2010, we grew share in many
of our top 20 markets where we
increased the relevance of our
brands to consumers, intro-
duced new products that meet
changing tastes or extended our
portfolio into fast-growing
category sub-segments. For
example, Pepsi Max offers a
zero-calorie beverage option in
markets where consumers are
looking for healthier choices
while maintaining great taste.
In 2011, we are pursuing similar
strategies: 50 percent of Frito-
Lay’s snacks will be made with
all-natural ingredients,
a highly demanded consumer
product sub-category.

3Sustain or improve

brand equity scores for
PepsiCo’s 19 billion-
dollar brands in the top
10 markets.

The reputation and performance of our
brands are critical to building brand
equity scores. We have sustained or grown
brand equity in the majority of the top
markets for most of our 19 billion-dollar
brands. Driving these overall positive
results have been very successful con-
sumer engagement programs on our
billion-dollar brands across the globe,
such as the “Do Us a Flavour” competi-
tions in the U.K. (Walkers), the
Netherlands (Lay’s) and India (Lay’s).
These programs allow consumers to
have a say in selecting new flavors
introduced by the brands, through text
and online messages. Mountain Dew
developed a partnership with consum-
ers in the DEWmocracy 2 campaign
to create three new DEW flavor innova-
tions. And through the Gatorade
Mission Control social media platform,
which tracks online sports perfor-
mance conversations in real time and
then uses the information to deepen
consumer engagement, we are able to
adjust marketing plans and influence
product innovation.

Gatorade’s Mission Control monitors, reacts
and engages with consumers in real time across
the social web, building awareness of the brand.

PepsiCo, Inc. 2010 Annual Report

number one for insights. Inter nationally,
we had strong results in the Advantage
Group International’s Advantage Report
in a number of countries. In the U.K.,
Walkers was ranked number two for
overall performance among sixteen con-
fectionery and snack food companies.
Tropicana, in the U.K., was ranked num-
ber one out of thirteen companies in the
refrigerated dairy and juice category. In
Canada, Frito-Lay was ranked number
three among a total of 23 fast-moving
consumer goods companies in the grocery
channel. Going forward, we plan to
expand our Power of One approach to a
broader set of key customers and expect
the efforts to translate into positive
results in future surveys.

Learn more about the Walkers
“Do Us a Flavour” campaign at
www.tinyurl.com/pepsico1.

Rank among the top two
suppliers in customer (retail
partner) surveys where
third-party measures exist.

We know that being viewed as a premier
supplier by our customers is part of our
success, and we pride ourselves on deliv-
ering superior value and expertise to our
customers in important areas, including
consumer insights, innovative market-
ing and supply chain management.
Assessing our performance through our
customers’ eyes ensures we are focused
on the areas they believe are most
important. Many retailers today have
supplier scorecards that measure impor-
tant sales and operational metrics. In
addition, we also leverage third-party
benchmarking tools from the U.S.’s
Kantar Retail surveys and globally through
the Advantage Group International
survey. In Kantar Retail’s 2010 surveys,
PepsiCo ranked among the top two food-
service suppliers in the U.S. and ranked
number four among retail customers.
We delivered year-over-year improve-
ments in the areas of supply chain man-
agement and customer sales teams.
Where we have dedicated PepsiCo
Power of One retail customer teams, we
ranked number three overall and

Performance
Bottom Line

5Continue to expand

division operating
margins.

PepsiCo is committed to delivering
sustainable operating performance. In
order to succeed, we know it’s important
to balance both the short and the long
term. The 2010 acquisition of our
anchor bottlers in North America and
Europe, for example, enables us to drive
growth, ensure a dynamic future for
PepsiCo and create a more integrated
supply chain. As expected, the decision
to acquire these bottlers reduced overall
division operating margins in 2010.
However, we also understood that real-
izing operational synergies would better
position us to increase margins over the
long term. We also invested in some key
growth drivers of our business, includ-
ing expanding our business in China
(one of our priority growth markets) and
increasing advertising and marketing
spending in our North America beverage
and U.S. Quaker Foods businesses.
Through these and other investments,
we expect to increase overall division
operating margins over time.

PepsiCo, Inc. 2010 Annual Report

Three years
ended 2010:
operating
cash flow >
net income

Increase cash flow in
proportion to net income
growth over three-year
windows.

In the three years ended 2010, operating
cash flow significantly outpaced the
rate of net income. We believe that our
disciplined approach to cash flow man-
agement will enable us to continue to
meet or exceed this goal in the future.

Deliver total shareholder
returns in the top quartile of
our industry group.

We deliver strong returns to our share-
holders through substantial profit
growth, sound investment decisions
and disciplined cash flow management.
We increased our annual dividend in
2010 for the 38th consecutive year, from
$1.80 to $1.92, or 7 percent, and we
returned a total of $8 billion to share-
holders in the form of share repurchases
and dividends. From 2001-2005, our
total cash returned to shareholders was
$18 billion. Over the five-year period
from 2006 to 2010, which included the
economic turmoil of recent years, our

Performance
Corporate Governance and Values

total cash returned to shareholders was
$29 billion. While delivering top-
quartile returns remains a goal we
continue to strive for, we’re proud that
we delivered above-average total
shareholder returns among the top
15 global consumer product companies
in 2010, as well as in six of the last
10 years.

Utilize a robust corporate
governance structure to best
represent the interests of
PepsiCo and its shareholders.

PepsiCo maintains the highest stan-
dards of corporate governance, sup-
ported and monitored by a diverse and
annually elected Board of Directors,
and widely recognized by proxy advi-
sory firms such as Institutional
Shareholder Services (ISS) and
GovernanceMetrics International
(GMI). In 2010, Ethisphere magazine
rated PepsiCo one of the world’s most
ethical companies. And again in 2010,
we were included in the Dow Jones
Sustainability Indexes (DJSI World
and DJSI North America) with a “best
in class” score for corporate gover-
nance in our industry group. We con-
tinue to achieve this level of success
because we not only operate with strict
corporate standards, but also track
accountability and train our associates
in our Worldwide Code of Conduct.

(*) See page 19.

measuring how well our values are
embraced company-wide and have
received very positive ratings. In our last
all-employee survey in 2009, we again
received very favorable ratings in all
levels of the company, from the front line
to senior executives. The aggregate global
score from employees regarding our
commitment to living our values was
82 percent favorable, a rating we continu-
ally strive to increase. In 2011, as part
of our biannual survey process, we will
once again seek feedback on our commit-
ment to our values from our associates,
including those from our recently
acquired bottling organizations. (*)

9Ensure our PepsiCo

value commitment to
deliver sustained
growth through
empowered people
acting with responsibility
and building trust.

With clear values at the core of
PepsiCo’s culture, empowered associ-
ates have the guidance they need to act
and work responsibly. We have rein-
forced the importance of our values
through training, annual Code of
Conduct certification and our new-hire
orientation processes. In our 2006
Organizational Health Survey we began

10–20

Human
Sustainability

To the people of the world … It’s a promise to
encourage people to live healthier by offering a
portfolio of both enjoyable and healthier foods
and beverages.

PepsiCo, Inc. 2010 Annual Report

Human Sustainability
Products

10Increase the amount of

whole grains, fruits,
vegetables, nuts, seeds
and low-fat dairy in our
global product portfolio.

We’ve made great strides in increasing
the amount of wholesome foods across
our global portfolio. Through estimated
2010 U.S. data, the Quaker division
is expected to have contributed nearly
500 million pounds of whole grains
to the American diet. In Russia, with the
acquisition of Lebedyansky in 2009, we
became the number one juice company
across Europe and expect to have sold
230 million servings of 100 percent juice
in Russia in 2010. During the same year,
Sabritas is estimated to have delivered
more than 19 million pounds of nuts
and seeds to Mexican consumers through
its varied nuts and seeds product port-
folio. In 2010, we also formed our Global
Nutrition Group, which we believe will
help us strive to become the leading
provider of Good-for-You foods and
beverages. This groundbreaking initia-
tive is intended to help accelerate the
growth of our Good-for-You products
from $10 billion in net revenue in 2010
to $30 billion by 2020.

$10 billion

In 2010, our Good-for-You portfolio
delivered $10 billion in net revenue.

Learn more about Frito-Lay’s
natural ingredients at
www.tinyurl.com/pepsico2.

Reduce the average amount of
sodium per serving in key global
food brands, in key countries,
by 25 percent by 2015, compared
to a 2006 baseline.

We are making good progress in reduc-
ing sodium in many of our key global
food brands. In the U.K., Walkers has
significantly reduced sodium by 25 to
55+ percent in its products since 2005,
while continuing to be the country’s
number one selling brand of crisps. In
the U.S., Frito-Lay developed “Lightly
Salted” versions of Fritos corn chips and
Rold Gold Tiny Twist pretzels in 2010,
each with 50 percent less sodium than
their original versions. And in 2011,
Frito-Lay in the U.S. will reduce sodium
by nearly 25 percent, on average, across
its entire flavored potato chip portfolio,
including Lay’s. In Brazil, we reduced
sodium in one of our most popular snacks,
Fandangos, by more than 30 percent,
while expecting to achieve volume growth
of more than 50 percent from 2006 to
2010. In 2011, we will continue to invest
in developing different approaches to
sodium reduction in our food brands,
including the development of different
salt crystal shapes that deliver great
taste with less sodium. With these and
other initiatives, we believe we are on
track to meet our 2015 goal.

Reduce the average
amount of saturated fat
per serving in key global
food brands, in key
countries, by 15 percent
by 2020, compared to
a 2006 baseline.

We’ve been an industry leader in
eliminating nearly all trans fats
from our U.S. product portfolio
and many of our global products;
and now we’re committed to
reducing the saturated fat content
of our key global food brands. In
India, for example, we’re using
blended rice bran oil, which
has led to a 40 percent decrease
in saturated fat in leading
products such as Kurkure nam-
keen snacks and Lay’s potato
chips. In China, increased sales
of our Quaker products has
been a driver behind a 10 percent
decrease in saturated fat per
serving across our foods portfo-
lio. And in Russia, saturated
fat levels have been reduced by
almost 13 percent through the
introduction of lower-saturated-
fat versions of Cheetos and the
more than 300 percent growth
of low-saturated-fat Hrusteam
products since 2006. In 2010, we
launched versions of Cheetos
and Fandangos in Brazil made
with heart-healthier sunflower
oil, and expect to incorporate it
into other products throughout
the world. To reach our 2020
goal, however, we will need to
continue developing products
that are great tasting with less
saturated fat.

PepsiCo, Inc. 2010 Annual Report

13Reduce the average

amount of added sugar
per serving in key global
beverage brands, in key
countries, by 25 percent
by 2020, compared to
a 2006 baseline.

While reducing added sugars in bever-
ages is challenging — due to strong
consumer taste preferences for sugar
and complex regulatory processes for
alternatives — we have set aggressive

Human Sustainability
Marketplace

Display calorie count and
key nutrients on our food and
beverage packaging by 2012.

We’re working to ensure that by 2012,
basic nutritional information is avail-
able to consumers on packages (where
feasible to print on the packaging and
where permissible by local regulations)
for all of our food and beverage products
in key markets. In countries where
we’ve already met this standard, we’re
also working toward an additional
goal — displaying calorie or energy counts
on the fronts of packages. We have
already implemented front-of-pack label-
ing on many products in the U.K. and
many other European countries, as well
as in Australia. And we are rapidly
expanding implementation in a number
of countries around the globe, including
the U.S., Canada, Mexico and Brazil. (*)

Advertise to children
under 12 only products
that meet our global
science-based nutrition
standards.

PepsiCo has taken a firm stand
on responsible marketing to
children by joining other global
food and beverage manufacturers
in adopting a voluntary commit-
ment to advertise to children
under the age of 12 only products
that meet specific nutrition
criteria. In 2010, we announced
strict science-based criteria that
ensure only our most nutritious
products meet the standard for
advertising to children under the
age of 12. As verified by an inde-
pendent third party, we achieved
98.5 percent compliance by the
end of 2010 in globally represen-
tative markets such as India,
China, Mexico and six countries
in the European Union, all of
which were monitored for com-
pliance with our advertising-to-
children policy. Additionally, we
achieved 100 percent compliance
with our U.S. and Canada adver-
tising-to-children pledges, as
verified by the Children’s Food &
Beverage Advertising Initiative
in the U.S. and Advertising
Standards Canada.

goals and are making progress toward
achieving our 25 percent reduction
target by 2020. In the U.S., for example,
we have further expanded the successful
SoBe Lifewater zero-calorie line of
products to now offer 11 different flavors
with all-natural, zero-calorie sweetener.
In Turkey, a leading beverage, Fruko
Gazoz, has been reformulated with a
sweetener blend that reduces added
sugar content by 32 percent. Looking
longer term, we established partner-
ships that help develop an all-natural
sweetener designed to replicate the
taste and feel of sugar; and we expect to
continue to invest in sweetener tech-
nologies that will help us deliver prod-
ucts with fewer calories while preserving
the great taste consumers expect.

(*) See page 19.

16Eliminate the direct

sale of full-sugar soft
drinks to primary
and secondary schools
around the globe by 2012.

PepsiCo continues to implement a global
policy for beverage sales in schools —
focused on water, juice, milk and low-
calorie beverages that support healthy
nutrition habits among students. By
2012, when the global school beverage
policy is fully implemented, we will no
longer sell full-sugar soft drinks directly
to primary or secondary schools world-
wide. These changes have already been
made in a number of key markets. For
example, between 2006 and 2009, we
voluntarily discontinued direct sales of
full-sugar soft drinks to K–12 schools in
the U.S. and replaced them with smaller-
portioned and lower-calorie beverage
options. We also do not sell full-sugar soft
drinks directly to primary and, in some
cases, secondary schools in most of
Europe, Canada, Australia and the major-
ity of countries in the Arabian Peninsula.

Increase the range of foods
and beverages that offer
solutions for managing calories,
like portion sizes.

In 2010, we continued to provide con-
sumers with options to manage calorie
intake, from launching new products
with zero- and low-calorie sweeteners
to reformulating existing products with
fewer calories. Naked Juice, for example,
introduced two 100 percent juice
smoothies that have 35 percent fewer
calories than regular Naked Juice
Smoothies, and Tropicana added new
flavors — such as Pomegranate Blueberry,
Pineapple Mango and Farmstand
Apple — to its Trop50 line, which offers
50 percent less sugar and fewer calories

with no artificial sweeteners. In the
U.K., we launched a 600ml zero-calorie
cola at the same recommended retail
price as a 500ml full-sugar cola. And in
Brazil, we recently acquired Amacoco
that positions us to broaden the distri-
bution and sales of our lower-sugar
coconut water product line. On the foods
side, we utilized our expertise in baking
and air-popping technologies to manage
calories. In Mexico, a baking technique
is used to produce a version of Sabritas
potato chips that has 20 percent fewer
calories. Several of our products, includ-
ing SunChips, Sabra, Quaker’s Quakes
and True Delights rice snacks were rec-
ognized on Good Housekeeping’s “Best
Low-Calorie Snack” list.

PepsiCo, Inc. 2010 Annual Report

Human Sustainability
Community

Invest in our business and
research and development to
expand our offerings of more
affordable, nutritionally
relevant products for under-
served and lower-income
communities.

We have strengthened our efforts to
introduce affordable nutrition and are
making strides to meet this long-term
goal. For example, we developed a plan
to launch affordable, fortified snacks
and biscuits in India to address iron-
deficiency anemia, with a pilot launch
scheduled for Andhra Pradesh in India
in 2011. Additionally, we are investing
in research to identify key nutrient-
dense staple crops that can be used in
locally produced nutritious foods
and snacks for sub-Saharan Africa.

Expand PepsiCo Foundation
and PepsiCo corporate
contribution initiatives to
promote healthier communities,
including enhancing diet
and physical activity programs.

The PepsiCo Foundation is committed
to helping people with the greatest health
disparities achieve improved health and
nutrition through effective and sustain-
able programs. Through a combination
of Foundation grants and corporate
contributions, we increased our annual
investment from $4.2 million in 2006 to
$4.7 million in 2010. In the U.S., the
Foundation has contributed $2.5 million
to the Healthy Weight Commitment
Foundation — a coalition of businesses,
nonprofit organizations and athletes
committed to reducing obesity by 2015.

The grant is being used for a public
education campaign for moms and kids,
and to implement a school-based
program. PepsiCo continued to support
the YMCA of the USA to improve the
health, nutrition and well-being of
underserved African-American and
Latino populations — a collaborative
program that has reached nearly
40,000 people in 85 communities. The
Foundation’s strong partnership with
Save the Children has reached approxi-
mately 850,000 people in India and
Bangladesh to help improve health and
nutrition. And the Foundation’s part-
nership with the World Food Program
(WFP), which leverages PepsiCo’s sup-
ply chain expertise to improve the
WFP’s logistics efficiency, will indi-
rectly benefit approximately 90 million
people served by the program.

Integrate our policies and
actions on human health,
agriculture and the environ-
ment to make sure that
they support each other.

Human health and environmental pro-
tection are two critical components of
sustainable development. To ensure that
our efforts in these areas are as cohesive
and productive as possible, we have
begun to develop a formal policy to coor-
dinate our human health, agriculture
and environment-related initiatives. In
2010, we championed a coordinated
approach within the World Economic
Forum (WEF) and, in partnership with
some of the world’s foremost thinkers
in these key areas, called for govern-
ments and corporations to embrace an
integrated approach to sustainable
development and nutrition. In 2011 and
beyond, we will accelerate our efforts,
engaging our internal team of experts to
create an integrated framework for
company policies and practices that can
be used to reach our goal and to serve as
a basis for our Global Nutrition Group.

21–35

Environmental
Sustainability

To the planet we all share … It’s 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.

PepsiCo, Inc. 2010 Annual Report

Environmental Sustainability
Water

21Improve our water-use

efficiency by 20 percent
per unit of production
by 2015.

Water efficiency has long been an envi-
ronmental focus at PepsiCo. Through
the third quarter of 2010, our global food
and beverage businesses reduced water-
use intensity by 19.5 percent versus
2006. And we’re on track to achieve our
2015 target for company-owned facili-
ties. Upgrading our facilities with new
technologies is one important way we
are reaching this goal. For example, our
Frito-Lay facility in Casa Grande,
Arizona has been equipped with a state-
of-the-art water filtration and

purification system that can recycle and
reuse up to 75 percent of the water
used in production. Similar technology
is also being deployed in our Tingalpa
facility in Australia, a water-stressed
area. We will continue to apply lessons
learned in one facility to others across
our global footprint. (*)

Reduced water-
use intensity by
19.5 percent as of
third quarter 2010,
compared to our
2006 baseline.(*)

At our Frito-Lay facility in Casa Grande, Arizona,
we are applying membrane bioreactor and low-
pressure reverse osmosis technology to purify and
recycle up to 75 percent of the site’s process water.

Strive for positive
water balance in our
operations in water-
distressed areas.

In 2009, PepsiCo’s operations in
India achieved positive water
balance, enabling us to give back
to society more water than we
used to manufacture our prod-
ucts. To expand this achieve-
ment to other water-distressed
areas where we have a presence,
we have launched a number of
projects. In 2010, for example,
we began working with The
Nature Conservancy to develop
ways to identify areas of high
water risk, so we can focus our
attention and resources on
achieving “net positive water
impact” in the most vulnerable
areas where we operate. We
have selected watersheds in
China, Mexico, Europe, India
and the U.S. to pilot the develop-
ment of a flexible and robust
system that allows PepsiCo
plants not only to characterize
their water risk, but also iden-
tify locally relevant restoration
initiatives that will improve
water availability. (*)

(*) See page 19.

Environmental Sustainability
Land and Packaging

Learn more about
how PepsiCo India is
conserving water at
www.tinyurl.com/pepsico3.

Provide access to safe
water to three million
people in developing
countries by the end
of 2015.

Having pledged more than
$15 million since 2005 toward
water projects, the PepsiCo
Foundation is working to allevi-
ate water scarcity in developing
countries. In fact, the Foundation
expects to provide access to
safe water for one million people
by the end of 2011, and to
increase the number to three
million people by 2015. The bulk
of the Foundation’s work is
being done in partnership with
Water.org, Safe Water Network,
China Women’s Development
Foundation and Earth Institute
at Columbia University.
Together, we make vitally impor-
tant water kiosks, household
connections and municipal
village systems available. At
the village level, with the
Foundation’s funds, our partners
can install farming irrigation,
rainwater-harvesting systems,
construct cisterns, and support
sanitation and hygiene educa-
tion programs.

Continue to lead the industry
by incorporating at least
10 percent recycled polyethylene
terephthalate (rPET) in our
primary soft drink containers
in the U.S., and broadly
expand the use of rPET across
key international markets.

We’ve been an industry leader in the
innovative use of food-grade rPET in
beverage containers in the U.S. market.
In 2010, we continued to meet our com-
mitment by including an average of
10 percent rPET in our primary soft
drink containers in the U.S. We’re par-
ticularly proud that our Naked Juice
brand has commercialized a 100 percent
post-consumer-recycled plastic bottle
in the domestic grocery channel.
Innovation is also driving our effort to
expand the use of rPET internationally.
For example, in France, during the third
quarter of 2010, we began selling
1.5-liter containers of Tropicana that
incorporated 50 percent rPET. This
change represents an annual savings of
approximately 1.1 million pounds of
resin. In 2011, we have plans to expand
our use of rPET in countries outside the
U.S. by more than 2.5 million pounds.

PepsiCo, Inc. 2010 Annual Report

25Create partnerships

that promote the
increase of U.S. beverage
container recycling rates
to 50 percent by 2018.

We’re creating national partnerships
and developing new technologies to

Reduce packaging weight
by 350 million pounds —
avoiding the creation of
one billion pounds of
landfill waste by 2012.

We have made significant prog-
ress in reducing the amount of
packaging we use to supply many
of our products to consumers.
For example, the 500ml Eco-Fina
bottle weighs 10.9 grams, using
50 percent less plastic than
the similar Aquafina packaging
produced in 2002. This change
helped us achieve a total packag-
ing weight reduction of 103 mil-
lion pounds in 2009 — getting
us close to 30 percent of our
350-million-pound goal. We are
confident that moves like this and
other new initiatives in beverage
and food product packaging
will help us reach our 2012 goal.

103-million-
pound

reduction in packaging weight
in 2009.

PepsiCo’s Dream Machine was developed to
support PepsiCo’s goal of increasing the U.S.
beverage container recycling rate from 38 percent
in 2009 to 50 percent by 2018.

encourage consumers to recycle and
other organizations to establish recy-
cling systems, because we can’t reach
this goal alone. We need everyone —
industry and consumers — to join us.

make recycling easier and more effi-
cient. Last year, we launched the Dream
Machine recycling initiative with Waste
Management, Greenopolis and Keep
America Beautiful, to promote increas-
ing the U.S. beverage container recy-
cling rate from 38 percent in 2009 to
50 percent by 2018. The program, which
includes reward-point incentives,
encourages beverage container collection
at public locations — such as grocery
stores, gas stations, sports arenas, college
campuses and schools — using intelli-
gent kiosks equipped with scanners.
With these and other efforts, we hope to

Environmental Sustainability
Climate Change

Nine PepsiCo
U.K. sites
send zero
waste to
landfill.

Work to eliminate all
solid waste to landfills
from our production
facilities.

Across our snack businesses in
the U.S. and U.K., we’ve made
considerable progress toward
achieving the goal of sending
zero waste to landfills. In 2009,
PepsiCo generated an estimated
984,000 metric tons of solid
waste from our global manufac-
turing facilities. Of that total,
17 percent was discarded in
a landfill, and 82 percent was
sent off-site for beneficial uses,
such as recycling. Currently,
nine PepsiCo U.K. sites send
zero waste to landfill. In 2010,
13 Frito-Lay North America
manufacturing sites averaged
less than 1 percent of solid waste
disposed to landfill. In 2011,
Frito-Lay North America
expects that 20 facilities will
achieve this mark, and we
believe 10 facilities will send
zero waste to landfills by the end
of the year. We are now intro-
ducing waste-reduction plans
and training in many of our
facilities around the world to
further our progress. (*)

(*) See page 19.

28Improve our electricity-

use efficiency by
20 percent per unit of
production by 2015.

We’re achieving solid results by rolling
out best practices throughout our

manufacturing network to improve our
electricity-use efficiency. For our global
food and beverage manufacturing oper-
ations, we registered a nearly 9 percent
improvement as of third quarter 2010,
compared to the 2006 baseline, and
we’re on target to achieve our 2015 goal.
This improvement in electricity effi-
ciency was accomplished through
numerous lighting, compressed air and
motor efficiency projects across all
PepsiCo business units. These reduc-
tions in electricity use helped enable
Frito-Lay to receive six additional

PepsiCo, Inc. 2010 Annual Report

Reduce our fuel-use
intensity by 25 percent
per unit of production
by 2015.

Fuel-use intensity for our global
food and beverage manufactur-
ing operations has improved
by more than 12 percent as of the
third quarter 2010 versus the
2006 baseline. Our progress is
the result of a number of innova-
tions being introduced in facili-
ties around the world. In 2010,
we extended the deployment of
our new high-efficiency heat
exchangers to production plants
in the U.K., Portugal, Spain and
India. This device, which was
piloted in Australia and Russia,
significantly improves heat trans-
fer and recaptures heat lost in
the potato chip frying process.
Frito-Lay’s Topeka, Kansas
facility has reduced its natural
gas consumption per pound of
product by 40 percent since 1999
by installing new technologies,
including high-efficiency oven
burners and a high-efficiency
biomass boiler. In addition to
these and other technologies, our
resource conservation programs
are providing an essential foun-
dation for helping our plants to
reduce fuel-use intensity and
keeping us on track to meet this
2015 goal. (*)

Commit to a goal of reducing
greenhouse gas (GHG)
intensity for U.S. operations
by 25 percent through our
partnership with the U.S.
Environmental Protection
Agency Climate Leaders
program.

We have made important progress by
establishing a rigorous new internal
framework to drive our energy conser-
vation efforts and are on track to meet
our U.S. GHG intensity goal. Frito-Lay’s
transition to a more fuel-efficient fleet
included a significant investment in
electric-powered commercial trucks.
In 2010, 13 electric Frito-Lay delivery
trucks began their routes in the U.S. and
Canada, with another 163 scheduled
for launch in 2011. We believe this will
make Frito-Lay the largest operator
of all-electric private delivery trucks in
North America. These trucks are esti-
mated to emit 75 percent less greenhouse
gas than conventional diesel trucks and
will eliminate the need for approximately
500,000 gallons of fuel annually. (*)

The solar power system at Frito-Lay’s Casa Grande,
Arizona plant is one way the facility hopes to
operate almost entirely on renewable energy sources.

LEED awards for Existing Buildings
Gold Certifications in 2010 from the U.S.
Green Building Council Leadership in
Energy and Environmental Design.
The Perry, Georgia; Topeka, Kansas;
Modesto, California; Beloit, Wisconsin;
Jonesboro, Arkansas; and Killingly,
Connecticut manufacturing sites joined
the Casa Grande site in 2010. (*)

(*) See page 19.

33Provide funding,

technical support and
training to local farmers.

PepsiCo is supporting local farmers
globally through funding and training. In
2010, together with 350 British farmers,
PepsiCo launched an important initia-
tive to cut our carbon emissions and
water use by 50 percent over five years.

Commit to an absolute
reduction in GHG emissions
across global operations.

We’re making progress on our goal to
reduce GHG emissions in our global
manufacturing facilities and transpor-
tation systems. In South America, for
example, the Green Stamp Program is
optimizing vehicle efficiency through
preventive maintenance and regular
vehicle inspections, as well as through
guidance on improving fuel-efficiency
procedures for truck drivers and route
salespeople. To date, approximately
80 percent of PepsiCo’s fleet in Peru,
Ecuador, Chile, Colombia, Argentina
and Venezuela has participated in
the program, with plans for further
improvements underway. In the U.S.
and Canada, the new Enterprise
Transportation Management System
is also driving route efficiency, produc-
tivity and cost savings. (*)

Environmental Sustainability
Community

Apply proven sustainable
agricultural practices
on our farmed land.

We’ve been committed to sus-
tainable agriculture practices
for many years. In 2009, we
launched our Global Sustainable
Agriculture Policy — designed to
encourage all of us, and our
growers, to operate in a way that
protects and nourishes land and
communities. For example, we
worked with a grower to deter-
mine whether alternative fertil-
izers could significantly reduce
the carbon footprint associated
with the agricultural production
of oranges. If successful, these
fertilizers could reduce the total
carbon footprint of Tropicana
Pure Premium juice by as much
as 15 percent. We’re also work-
ing to develop the first certifica-
tion program of sustainable
practices for our global suppli-
ers. In 2011, the program will be
piloted in the U.S. and then
adopted worldwide. By including
industry peers in the develop-
ment process, we hope to estab-
lish a standard for all consumer
goods companies interested in
certifying their farming practices
in areas such as water and energy
management, soil conservation,
nutrient and pesticide use.

(*) See page 19.

PepsiCo, Inc. 2010 Annual Report

agriculture practices, and helping 12,000
farmers form a cooperative and establish
credit through the State Bank of India.

The web-based “precision farming” technology
in the U.K., i-crop™, is designed to help farmers
produce more while using less water.

To achieve this, we’re exploring a host of
innovations with our growers, including
i-crop™ “precision farming” technology
(developed with Cambridge University);
new low-carbon fertilizers; a plan to
replace more than 75 percent of our
current potato stock with varieties that
give greater yields with less waste and
The Cool Farm Tool software for mea-
suring carbon emissions. As the U.K.’s
largest buyer of potatoes and a major
purchaser of oats and apples, we expect a
significant, positive environmental
impact from these steps. Similar agricul-
tural initiatives are underway on every
continent. In India, for example, we are
teaching contract farmers sustainable

Promote environmental
education and best practices
among our associates and
business partners.

We have launched a host of initiatives
with associates and partners that accel-
erate the adoption of environmental
sustainability practices through educa-
tion. In April 2010, more than 700 asso-
ciates, suppliers and vendors, including
representatives from 16 countries and
every PepsiCo division, convened at the
Global Sustainability Summit in Dallas,
Texas, to share best practices in envi-
ronmental sustainability. The PepsiCo
Green volunteer organization inspires
associates across the globe to set the
standard for environmental sustainabil-
ity by voluntarily raising awareness
and inspiring wider eco-friendly prac-
tices both in the workplace and at home.
From its 2007 launch, PepsiCo Green
has grown virally in the U.S. and glob-
ally, expanding to 19 countries in 2010.

Integrate our policies
and actions on human
health, agriculture
and the environment
to make sure that they
support each other.

Human health and environmen-
tal protection are two critical
components of sustainable
development. To ensure that our
efforts in these areas are as
cohesive and productive as pos-
sible, we have begun to develop
a formal policy to coordinate our
human health, agriculture and
environment-related initiatives.
In 2010, we championed a coor-
dinated approach within the
World Economic Forum (WEF)
and, in partnership with some
of the world’s foremost thinkers
in these key areas, called for
governments and corporations
to embrace an integrated
approach to sustainable devel-
opment and nutrition. In 2011
and beyond, we will accelerate
our efforts, engaging our inter-
nal team of experts to create an
integrated framework for com-
pany policies and practices that
can be used to reach our goal
and to serve as a basis for our
Global Nutrition Group.

Please note that this commitment and copy is
the same as commitment 20.

36–47

Talent
Sustainability

To the associates of PepsiCo … It’s a promise to
invest in our associates to help them succeed and
develop the skills needed to drive the company’s
growth, while creating employment opportunities
in the communities we serve.

PepsiCo, Inc. 2010 Annual Report

Talent Sustainability
Culture

Ensure high levels of
associate engagement
and satisfaction as
compared with other
Fortune 500 companies.

We seek the insights of our asso-
ciates through our biannual
Organizational Health Survey
to help us increase associate
engagement and satisfaction
globally, regionally and locally. By
conducting the survey every two
years, we’re able to analyze the
data, create meaningful action
plans and measure plan effective-
ness. We also benchmark our
results against other highly
respected companies from differ-
ent industries, using data from
the Mayflower Group, a survey
consortium of companies to
which PepsiCo belongs. In our
last full survey, conducted in
2009, we learned that 73 percent
of our associates rated PepsiCo
as a favorable place to work
compared with other companies,
11 percentage points higher than
the Mayflower benchmark. Our
overall associate engagement
index was also favorable at
75 percent. And our associate
response rate of 89 percent was
well above survey industry
benchmarks. In 2011, we will
again conduct our Organizational
Health Survey of all associates,
including those in our recently
acquired bottling organizations,
in approximately 80 countries
and in 38 languages.

37Foster diversity and

inclusion by developing
a workforce that reflects
local communities.

We have a core belief that making the
most of diverse strengths and talents
helps make our company successful.
We take great care to weave diversity
and inclusion (D&I) into the very fabric
of our culture to improve as a global,
multicultural and multigenerational
company capable of serving the world’s
communities effectively. To ensure
that our focus on D&I is supported at
all levels of the company, we seek the
feedback of our associates as part of our
biannual Organizational Health Survey.
The feedback is encouraging. In 2009,
our last full survey, 80 percent of our
associates said their managers support
their involvement in D&I activities, a
14 percentage point improvement since

the question was first asked in 2004.
Feedback externally is also positive.
PepsiCo is frequently benchmarked for
its global D&I initiatives, often by many
of our most-valued retail customers.
And in 2010, our D&I leadership and
initiatives were once again recognized
by numerous organizations and pub-
lications. The chart below provides a
snapshot of PepsiCo’s 2010 diversity
statistics after the integration of our
anchor bottlers and other acquisitions
by the company.

2010 Diversity and Inclusion Statistics

People

Total Women % of Color %
Board of Directorsa
4 33
4 33
Senior Executivesb
3 23
2 15
600 20
915 31
Executives
All Managers
4,690 26
5,690 32
All Associatesc 100,415 19,530 19 29,360 29

12
13
2,970
17,790

At year-end, we had approximately 294,000 associates
worldwide.
a Our Board of Directors is pictured on page 17.
b Composed of PepsiCo Executive Officers listed on page 18.
c Includes full-time associates only.

Executives, All Managers and All Associates are approximate
numbers as of 12/25/10 for U.S. associates only.
Data in this chart is based on the U.S. definition for
people of color.

Encourage our associates
to lead healthier lives by
offering workplace wellness
programs globally.

Our global wellness strategy is designed
to engage associates and their families
in developing and sustaining healthy
behaviors to improve their overall qual-
ity of life. To support associate wellness,
we offer on-site health and wellness
services in many countries around the
world, including China, India, Mexico,
South Africa, the U.K. and the U.S.
These initiatives, which vary by loca-
tion, include routine medical care at
work sites, education programs on
health, nutrition and exercise, programs
on smoking cessation, on-site fitness
centers and organized programs to
encourage exercise. In 2010, we con-
ducted an inventory of our wellness
efforts globally with the intent of help-
ing accelerate improvements, share best
practices and grow beyond the 36 coun-
tries in which we currently offer pro-
grams. Our associate wellness efforts
have been recognized in the U.S. by the
National Business Group on Health,
which awarded PepsiCo the 2010 Best
Employers for Healthy Lifestyles
Platinum Award. In addition to helping
our associates, our focus on health and
wellness brings a financial benefit. A
2009 study of our U.S. medical claims
data found that associate participation
in these programs significantly reduced
healthcare and insurance costs over
time. We are looking to track the impact
of our programs around the world to
identify sustained cost-saving trends.

39Ensure a safe work-

place by continuing to
reduce lost-time injury
rates, while striving
to improve other
occupational health
and safety metrics
through best practices.

The health and safety of our associates
is of paramount importance to PepsiCo.
We are continually working across our
businesses to prevent occupational
injuries and illnesses, striving for an
incident-free workplace. In 2011, we
created a new Global Operations organi-
zation, which will help us strengthen
health and safety governance in our
supply chain globally as we leverage best
practices across sectors while imple-
menting locally relevant safety strate-
gies. The new organization builds on the
progress we made with the creation of
the PepsiCo Health and Safety
Leadership Council in 2008 to ensure

PepsiCo, Inc. 2010 Annual Report

process. Our Code of Conduct, in 2010,
also included in-person training for
more than 100,000 associates outside of
the target group. Distributed to associ-
ates, either electronically or in hard
copy, our Code of Conduct is translated
into 38 languages. In addition to our
2010 ranking as one of the world’s most
ethical companies by Ethisphere maga-
zine, we also ranked in the top quartile
for compliance performance for the
beverage industry in the 2010 Dow Jones
Sustainability World Index.

we have the strategies, frameworks and
systems to effectively manage risks,
build health and safety leadership capa-
bilities, identify global metrics and track
performance. Areas of focus include
machinery safety, fleet safety, activities
requiring a permit to work and sales
security. We are currently in the process
of developing and implementing mea-
surement tools to consistently track
safety data on a global basis. These
processes have been put in place due to
the significant growth of the PepsiCo
organization in recent years with the
acquisitions of our two largest bottlers
and the Lebedyansky juice business
in Russia — all of which have increased
the number of our manufacturing
facilities, sales activities, associates
and contractors worldwide.

Two of Frito-Lay North America’s 500 “Million
Milers,” pictured below, have career milestones
of more than one million accident-free miles.

Support ethical and legal
compliance through annual
training in our Code of Conduct,
which outlines PepsiCo’s
unwavering commitment to
its human rights policy to treat
every associate with dignity
and respect.

We are fully committed to compliance
with applicable laws and regulations and
doing the right thing consistently, with-
out compromise. To ensure ethical and
legal compliance, we provide annual
training on our Code of Conduct to sala-
ried associates with e-mail accounts,
who must certify that they have read and
understand the Code and agree to abide
by it. In 2010, approximately 57,000
associates in this target group com-
pleted this training and certification

Talent Sustainability
Career

72 percent of our
associates said they
had opportunities
to improve their skills
at PepsiCo

Become universally recognized
through top rankings as one of
the best companies in the world
for leadership development.

We are committed to a robust and sys-
tematic approach to managerial and
executive development and succession
planning. Our agenda includes formal
leadership-development programs as
well as annual 360-degree feedback
processes and other measurement tools.
To effectively prepare our managers and
executives to lead in a challenging mac-
roeconomic environment and to develop
other associates, we have launched
four new development programs in the
last two years, spanning from first-time
managers to senior leaders that provide
leadership training to more than 2,700
associates around the world. To further
support our leadership-development
efforts, our Employee Resource Groups —
with company sponsorship — offer
additional avenues for leadership devel-
opment that have demonstrated impact.
We are pleased to be included in Fortune
magazine’s most recent global ranking
of the 2009 25 “Top Companies for
Leaders” and the Hay Group’s 2010 rank-
ing of the global top 20 “Best Companies
for Leadership.” In 2010, we were
also recognized as a “Best Company for
Leadership Development” in India
by the Great Places to Work Institute.

Learn more about Talent
sustainability at
www.tinyurl.com/pepsico4.

Create a work environ-
ment in which associates
know that their skills,
talents and interests can
fully develop.

We have established many pro-
grams that help our associates
improve their skills and abili-
ties. For example, we launched
our annual Manager Quality
Performance Index (MQPI)
process in 2009 to collect data
from associates on how well
their managers provide feedback,
develop “stretch” assignments
and recognize and reward
achievements. With this annual
input, and with input from man-
agers and leaders, we have
the opportunity to shape a work-
place in which our associates
can grow. In 2010, we saw a
positive increase in the overall
MQPI scores across our execu-
tive population, as compared to
the baseline established in
2009. Our ongoing efforts enable
us to build from a position of
strength. In the Organizational
Health Survey conducted in
2009, 72 percent of our associ-
ates said they had opportunities
to improve their skills, 10 per-
centage points above the
Mayflower benchmark, while
77 percent said they had
received the training needed to
do a quality job, 7 percentage
points above the average.

PepsiCo, Inc. 2010 Annual Report

Conduct training for associates
from the front line to senior
management, to ensure that
associates have the knowledge
and skills required to achieve
performance goals.

Training is an integral component of our
talent and performance agendas. For
example, more than 2,900 associates in
2010 registered and completed at least

Talent Sustainability
Community

44Create local jobs by

expanding operations in
developing countries.

In 2010, we announced numerous
investments that will lead to job cre-
ation, including $2.5 billion in China
over the next three years (in addition to
the company’s $1 billion investment
announced in 2008); $250 million in
Vietnam over the next three years; and
$3 million in Peru over the next three
years. We also signed a memorandum
outlining plans to invest $140 million
to build our tenth plant in Russia — part
of a $1 billion investment program
announced in 2009. The number of
jobs created by these investments will
be determined in the next few years.
Meanwhile, last year we expanded our
Sangareddy and Mahul beverage pro-
duction facilities in India, as well as
their corresponding beverage and food
sales organization, creating 5,000 direct
and indirect jobs. In Brazil, we grew
production in São Paulo and Feira de
Santana, and opened up a new business
unit in Cachoeiro do Itapemirim,
that created 360 jobs. Meanwhile, we
are also creating jobs in the U.S. The
investments we are making in our new
Global Nutrition Group is one example,
with many new positions based in
Chicago, while in Virginia the Sabra
Dipping Company joint venture opened
its new manufacturing plant in
Colonial Heights.

one course from our award-winning
Finance University. And, more than
1,000 non-finance associates completed
one or more Finance University courses
in 2010 with the aim of increasing their
skills and improving their performance
in their current roles. In another training
initiative, supporting our commercial-
ization competencies, a robust and
continuously updated sales and customer
management curriculum is available for
all U.S. sales professionals. And, to
enable us to deliver on our Research &
Development (R&D)-related goals, we

A PepsiCo associate doing a final quality check
on the Pepsi line at PepsiCo’s Chongqing facility;
China’s first “green” beverage plant is an example
of our commitment to create jobs locally.

launched an R&D curriculum in 2010,
available to our associates globally.
Meanwhile, our operating groups con-
tinued to provide training for their
frontline sales and operations teams.
We were pleased last year to be named
by Actualidad Económica magazine
as “One of the Best Companies in Spain”
for investment in training.

Match eligible associate
charitable contributions
globally, dollar for dollar,
through the PepsiCo
Foundation.

In 2010, the PepsiCo Foundation matched
$5.1 million in associate charitable
contributions. And over the past 12 years,
the Foundation has provided $47 mil-
lion in matching gifts to qualified non-
profit agencies working in environmental,
educational, civic, arts and health and
human services fields. Available to asso-
ciates worldwide, matching gifts
leverage and increase the impact of
individual contributions. The matching
gifts program also helped associates
provide aid to populations affected by
disaster. In 2010, for example, the
PepsiCo Foundation matched associates’
contributions to assist those affected
by the Haiti earthquake, the Chile earth-
quake and the Pakistan floods, supple-
menting additional disaster relief aid
provided by the Foundation and PepsiCo
business units.

$47 million

in matching contributions since 1999

Contribution Summary
(in millions)

PepsiCo Foundation
Corporate Contributions
Division Contributions
Estimated PepsiCo In-Kind Donations
Total

2010
$25.9
2.0
13.0
37.7
$78.6

Support associate volun-
teerism and community
involvement through
company-sponsored
programs and initiatives.

All around the world, thousands of
PepsiCo associates are engaged
in volunteer activities that improve
their communities. In 2010, for
example, 200 associates in Mexico
worked with United Way to help
renovate a school for children with
disabilities, and — for the fourth
year — we continued our commit-
ment to Vive Saludable Escuelas,
which provides education on diet
and physical activity to elementary
and high school students through-
out the country. In India, our
HIV Prevention Education initiative
reached more than one million
people in the communities where
we operate. The initiative is run by
a large network of company volun-
teers in association with the country’s
International Labour Organization.
And in the U.S., the 2010 Pepsi
Refresh Project awarded more than
$20 million in small grants to help
communities move forward in
the areas of health, arts and culture,
food and shelter, the environment,
neighborhoods and education. One
of the original projects included a
$10,000 grant to Mosaic, our African-
American Employee Resource
Group, which coordinated the efforts
of nearly 1,400 associate volunteers
in 30 food banks across the U.S.
The Pepsi Refresh Project will be
expanding to additional markets
(Europe, Latin America and the
Middle East) in 2011.

Support education through
PepsiCo Foundation grants.

In 2010, the PepsiCo Foundation con-
tributed a total of $7.6 million in grants
to support education. The Foundation is
proud to be the founding private-sector
partner of Diplomas Now, an innovative
school turnaround model that keeps
at-risk students in school and on track
to graduate. In three years, the Foundation
will have committed $11 million to
the program. The Foundation also funds
the ExCEL Scholarship Program —
available to children of active, full-time
associates of PepsiCo. The program was
created by the PepsiCo Foundation to
help those who have the ability to
achieve their full potential in college but
have limited means to attend. Each year,
the program awards up to 250 renew-
able scholarships worldwide, ranging
from $1,000 to $10,000, for study at four-
year colleges and universities, two-year
colleges and vocational-technical schools
in any country. In 2010 alone, the
PepsiCo Foundation provided $3.1 mil-
lion in scholarships.

PepsiCo, Inc. 2010 Annual Report

Financials

Management’s Discussion and Analysis

Notes to Consolidated Financial Statements

Our Business
Executive Overview
Our Operations
Our Customers
Our Distribution Network
Our Competition
Other Relationships
Our Business Risks

Our Critical Accounting Policies
Revenue Recognition
Goodwill and Other Intangible Assets
Income Tax Expense and Accruals
Pension and Retiree Medical Plans

Our Financial Results
Items Affecting Comparability
Results of Operations — Consolidated Review
Results of Operations — Division Review
Frito-Lay North America
Quaker Foods North America
Latin America Foods
PepsiCo Americas Beverages
Europe
Asia, Middle East & Africa
Our Liquidity and Capital Resources

Consolidated Statement of Income

Consolidated Statement of Cash Flows

Consolidated Balance Sheet

Consolidated Statement of Equity

48
49
50
51
51
51
51

58
58
59
60

61
63
65
65
66
66
67
67
68
69

Note 1 Basis of Presentation and Our Divisions
Note 2 Our Significant Accounting Policies
Note 3 Restructuring, Impairment and Integration Charges
Note 4 Property, Plant and Equipment and Intangible Assets
Note 5 Income Taxes
Note 6 Stock-Based Compensation
Note 7 Pension, Retiree Medical and Savings Plans
Note 8 Noncontrolled Bottling Affiliates
Note 9 Debt Obligations and Commitments
Note 10 Financial Instruments
Note 11 Net Income Attributable to PepsiCo per Common Share
Note 12 Preferred Stock
Note 13 Accumulated Other Comprehensive Loss

Attributable to PepsiCo

Note 14 Supplemental Financial Information
Note 15 Acquisitions

77
80
81
82
84
85
86
91
92
94
97
97

98
98
99

Management’s Responsibility for Financial Reporting 102

Management’s Report on Internal Control
Over Financial Reporting

Report of Independent Registered
Public Accounting Firm

Selected Financial Data

Reconciliation of GAAP and
Non-GAAP Information

Glossary

103

104

105

107

109

Management’s Discussion and Analysis

Our discussion and analysis is an integral part of our consolidated
financial statements and is provided as an addition to, and should
be read in connection with, our consolidated financial statements
and the accompanying notes. Definitions of key terms can be found
in the glossary on page 109. Tabular dollars are presented in mil-
lions, except per share amounts. All per share amounts reflect
common per share amounts, assume dilution unless noted, and are
based on unrounded amounts. Percentage changes are based on
unrounded amounts.

Our Business

Executive Overview
We are a leading global food, snack and beverage company. Our
brands — which include Quaker Oats, Tropicana, Gatorade,
Lay’s and Pepsi — are household names that stand for quality
throughout the world. As a global company, we also have strong
regional brands such as Walkers, Gamesa and Sabritas. Either
independently or through contract manufacturers, we make,
market and sell a variety of convenient, enjoyable and whole-
some foods and beverages in over 200 countries. Our portfolio
includes oat, rice and grain-based foods, as well as carbonated
and non-carbonated beverages. Our largest operations are in
North America (United States and Canada), Mexico, Russia and
the United Kingdom. Additional information concerning our
divisions and geographic areas is presented in Note 1.

We are united by our unique commitment to Performance with

Purpose, which means delivering sustainable growth by invest-
ing in a healthier future for people and our planet. Our goal is to
continue to build a balanced portfolio of enjoyable and whole-
some foods and beverages, find innovative ways to reduce the use
of energy, water and packaging and provide a great workplace
for our associates. Additionally, we are committed to respect-
ing, supporting and investing 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. We make this commitment because we are a
responsible company and a healthier future for all people and our
planet means a more successful future for PepsiCo.

In recognition of our continuing sustainability efforts, we were
again included on the Dow Jones Sustainability North America
Index and the Dow Jones Sustainability World Index in
September 2010. These indices are compiled annually.

Our management monitors a variety of key indicators to evalu-

ate our business results and financial conditions. These indica-
tors include market share, volume, net revenue, operating profit,
management operating cash flow, earnings per share and return
on invested capital.

Strategies to Drive Our Growth into the Future
We remain focused on growing our business with the objectives
of improving our financial results and increasing returns for our
shareholders. We continue to focus on delivering strong finan-
cial performance in both the near term and the long term, while

PepsiCo, Inc. 2010 Annual Report

making global investments in key regions and targeted product
categories to drive sustainable growth. We have identified six key
challenges and related strategic business imperatives that we
believe will enable us to drive growth into the future:

Build and extend our macro snack portfolio
Our first imperative is to build and extend our macro snack port-
folio. Building and extending our profitable macro snack business
is important to our future. PepsiCo is the largest player in the
macro snack category, and we believe there is still room for
growth. Our goal in the macro snack business is to grow our core
salty snack brands that are loved and respected around the world,
while expanding into adjacent categories like crackers, bread
bites and baked snacks. We will work to continue to grow our
portfolio from Fun-for-You to Better-for-You products — while
adding many Good-for-You products that are designed to meet
growing global demand for wholesome and convenient nutrition.
We will also strive to create new flavors in tune with local tastes,
which reflect local culture and traditions. We believe that by
doing so, we will position ourselves to gain share, while continu-
ing to grow the top and bottom line in our macro snack business.

Sustainably and profitably grow our beverage
business worldwide
Our second imperative is to sustainably and profitably grow our
beverage business worldwide. The U.S. liquid refreshment bever-
age category and challenging economic conditions facing consum-
ers continue to place pressure on our beverage business worldwide.
In the face of this pressure, we continue to take action to ensure
sustainable profitable growth in our beverage business worldwide.
In 2010, we revitalized both the Gatorade brand and the no-calorie
carbonated category by promoting Pepsi Max. Our focus in 2011
will be on taking our North American beverage business and
growing it sustainably for the future, while continuing to invest in
emerging and developing markets — including the vital China and
India markets.

Unleash the power of the Power of One to provide better value
for our customers
Our third imperative is to unleash the power of the Power of One
to provide better value for customers. We must maintain mutually
beneficial relationships with our customers to effectively com-
pete. We are a leader in two extraordinary consumer categories
that have special relevance to our customers across the globe. Our
snacks and beverages are both high-velocity categories; both gen-
erate retail traffic; both are profitable; and both deliver strong cash
flow. Studies show that 85 percent of the time, when a person eats
a snack, he or she also reaches for a beverage. To realize the value
of Power of One in 2010, we successfully completed our bottling
acquisitions, which enabled us to better service our customers.
We also continued, with a critical mass of SAP implementations,
to standardize processes, improve organizational alignment and
benchmark performance. In 2011, we are re-focusing our efforts
with a systematic approach to unlock the Power of One across
the entire value chain. We believe the opportunities in the U.S., in
particular, are vast. We will work to make Power of One changes

at every level: from the way our products reach our customers; to
how our products are displayed; to the channels through which our
products are marketed and advertised.

Build and expand our nutrition business
Our fourth imperative is to build and expand our nutrition
business and our global nutrition initiatives, to rapidly grow
our Good-for-You portfolio of products — both organically and
through strategic tuck-in acquisitions. Consumer tastes and
preferences are constantly changing and our success depends on
our ability to respond to consumer trends, including responding
to consumers’ desire for healthier choices. Our basic belief is that
companies succeed when society succeeds, and what is good for
the world should be good for business. This includes encouraging
people to live healthier lives by offering a portfolio of both enjoy-
able and wholesome foods and beverages. With the acquisition
of Wimm-Bill-Dann Foods OJSC (WBD), PepsiCo’s annual rev-
enues from nutritious and functional foods are expected to rise
from $10 billion to nearly $13 billion. We also are expanding our
portfolio of products made with all-natural ingredients, increas-
ing the amount of whole grains, fruits, vegetables, nuts, seeds and
low-fat dairy in certain of our products and taking steps to reduce
the average amount of sodium, saturated fat and added sugar per
serving in certain of our products.

Cherish our PepsiCo associates
Our fifth imperative is to cherish our PepsiCo associates.
Our continued growth requires us to hire, retain and develop our
leadership bench. We are fortunate to employ, worldwide, a truly
remarkable set of associates. The market becomes more competi-
tive every day and innovation is the key to success. It is people
who hold that key and to be a good employer is one of the most
important strategic decisions a company has to make.

Achieve excellent performance
Our sixth and final imperative is the sum total of the other five.
Our continued success requires that we do everything we can to
position ourselves to achieve excellent performance in each of
the areas mentioned above. By focusing on the five key challenges
and related strategic business imperatives discussed above, we
believe we can achieve this goal.

Our Operations
We are organized into four business units, as follows:
1) PepsiCo Americas Foods (PAF), which includes Frito-Lay
North America (FLNA), Quaker Foods North America
(QFNA) and all of our Latin American food and snack busi-
nesses (LAF), including our Sabritas and Gamesa businesses
in Mexico;

2) PepsiCo Americas Beverages (PAB), which includes PepsiCo

Beverages Americas and Pepsi Beverages Company;

3) PepsiCo Europe, which includes all beverage, food and snack

businesses in Europe; and

4) PepsiCo Asia, Middle East and Africa (AMEA), which

includes all beverage, food and snack businesses in AMEA.

Our four business units are comprised of six reportable

segments (referred to as divisions), as follows:
• FLNA,
• QFNA,
• LAF,
• PAB,
• Europe, and
• AMEA.

Frito-Lay North America
Either independently or through contract manufacturers, FLNA
makes, markets, sells and distributes branded snack foods.
These foods include Lay’s potato chips, Doritos tortilla chips,
Cheetos cheese flavored snacks, Tostitos tortilla chips, branded
dips, Ruffles potato chips, Fritos corn chips, Quaker Chewy
granola bars and SunChips multigrain snacks. FLNA branded
products are sold to independent distributors and retailers. In
addition, FLNA’s joint venture with Strauss Group makes, mar-
kets, sells and distributes Sabra refrigerated dips and spreads.

Quaker Foods North America
Either independently or through contract manufacturers, QFNA
makes, markets and sells cereals, rice, pasta and other branded
products. QFNA’s products include Quaker oatmeal, Aunt
Jemima mixes and syrups, Cap’n Crunch cereal, Quaker grits,
Life cereal, Rice-A-Roni, Pasta Roni and Near East side dishes.
These branded products are sold to independent distributors
and retailers.

Latin America Foods
Either independently or through contract manufacturers, LAF
makes, markets and sells a number of snack food brands includ-
ing Doritos, Marias Gamesa, Cheetos, Ruffles, Emperador,
Saladitas, Sabritas and Lay’s, as well as many Quaker-brand
cereals and snacks. These branded products are sold to indepen-
dent distributors and retailers.

PepsiCo Americas Beverages
Either independently or through contract manufacturers, PAB
makes, markets, sells and distributes beverage concentrates,
fountain syrups and finished goods, under various beverage
brands including Pepsi, Mountain Dew, Gatorade, 7UP (outside
the U.S.), Tropicana Pure Premium, Electropura, Sierra Mist,
Epura and Mirinda. PAB also, either independently or through
contract manufacturers, makes, markets and sells ready-to-
drink tea, coffee and water products through joint ventures with
Unilever (under the Lipton brand name) and Starbucks. In addi-
tion, PAB licenses the Aquafina water brand to its independent
bottlers and markets this brand. Furthermore, PAB manufac-
tures and distributes certain brands licensed from Dr Pepper
Snapple Group, Inc. (DPSG), including Dr Pepper and Crush. PAB
sells concentrate and finished goods for some of these brands to
authorized bottlers, and some of these branded finished goods
are sold directly by us to independent distributors and retailers.
The bottlers sell our brands as finished goods to independent
distributors and retailers. PAB’s volume reflects sales to its

Management’s Discussion and Analysis

independent distributors and retailers, as well as the sales of
beverages bearing our trademarks that bottlers have reported as
sold to independent distributors and retailers. Bottler case sales
(BCS) and concentrate shipments and equivalents (CSE) are
not necessarily equal during any given period due to seasonality,
timing of product launches, product mix, bottler inventory prac-
tices and other factors. However, the difference between BCS and
CSE measures has been greatly reduced since our acquisitions
of our anchor bottlers, The Pepsi Bottling Group, Inc. (PBG) and
PepsiAmericas, Inc. (PAS), on February 26, 2010, as we now con-
solidate these bottlers and thus eliminate the impact of differ-
ences between BCS and CSE for a substantial majority of PAB’s
total volume. While our revenues are not entirely based on BCS
volume, as there continue to be independent bottlers in the supply
chain, we believe that BCS is a valuable measure as it quantifies
the sell-through of our products at the consumer level.

See Note 15 for additional information about our acquisitions

of PBG and PAS in 2010.

Europe
Either independently or through contract manufacturers,
Europe makes, markets and sells a number of leading snack foods
including Lay’s, Walkers, Doritos, Cheetos and Ruffles, as well as
many Quaker-brand cereals and snacks, through consolidated
businesses as well as through noncontrolled affiliates. Europe
also, either independently or through contract manufacturers,
makes, markets and sells beverage concentrates, fountain syr-
ups and finished goods under various beverage brands including
Pepsi, 7UP and Tropicana. These branded products are sold
to authorized bottlers, independent distributors and retailers.
In certain markets, however, Europe operates its own bottling
plants and distribution facilities. In addition, Europe licenses
the Aquafina water brand to certain of its authorized bottlers.
Europe also, either independently or through contract manu-
facturers, makes, markets and sells ready-to-drink tea products
through an international joint venture with Unilever (under the
Lipton brand name).

Europe reports two measures of volume. Snacks volume is
reported on a system-wide basis, which includes our own sales
and the sales by our noncontrolled affiliates of snacks bearing
Company-owned or licensed trademarks. Beverage volume
reflects Company-owned or authorized bottler sales of bev-
erages bearing Company-owned or licensed trademarks to
independent distributors and retailers (see PepsiCo Americas
Beverages above).

See Note 15 for additional information about our acquisitions

of PBG and PAS in 2010 and our acquisition of WBD.

Asia, Middle East & Africa
AMEA makes, markets and sells a number of leading snack food
brands including Lay’s, Chipsy, Kurkure, Doritos, Cheetos and
Smith’s, through consolidated businesses as well as through
noncontrolled affiliates. Further, either independently or
through contract manufacturers, AMEA makes, markets and
sells many Quaker-brand cereals and snacks. AMEA also makes,

PepsiCo, Inc. 2010 Annual Report

markets and sells beverage concentrates, fountain syrups and
finished goods, under various beverage brands including Pepsi,
Mirinda, 7UP and Mountain Dew. These branded products
are sold to authorized bottlers, independent distributors and
retailers. However, in certain markets, AMEA operates its own
bottling plants and distribution facilities. In addition, AMEA
licenses the Aquafina water brand to certain of its authorized
bottlers. AMEA also, either independently or through contract
manufacturers, makes, markets and sells ready-to-drink tea
products through an international joint venture with Unilever
(under the Lipton brand name). AMEA reports two measures of
volume (see Europe above).

New Organizational Structure
Beginning in the first quarter of 2011, we realigned certain of our
reportable segments to reflect changes in management respon-
sibility. As a result, as of the beginning of our 2011 fiscal year, our
Quaker snacks business in North America will be reported within
our QFNA segment. Prior to this change, Quaker snacks in North
America was reported as part of our FLNA segment. Additionally,
as of the beginning of the first quarter of 2011, our South Africa
snacks business will be reported within our Europe segment.
Prior to this change, this business was reported as part of our
AMEA segment. These changes did not impact our other exist-
ing reportable segments. Our historical segment reporting will
be reclassified in 2011 to reflect the new organizational structure.
The reportable segment amounts and discussions reflected in
this annual report reflect the management reporting that existed
through the end of our 2010 fiscal year.

Our Customers
Our primary customers include wholesale distributors, grocery
stores, convenience stores, mass merchandisers, member-
ship stores, authorized independent bottlers and foodservice
distributors, including hotels and restaurants. We normally
grant our independent bottlers exclusive contracts to sell and
manufacture certain beverage products bearing our trademarks
within a specific geographic area. These arrangements provide
us with the right to charge our independent bottlers for con-
centrate, finished goods and Aquafina royalties and specify the
manufacturing process required for product quality.

Since we do not sell directly to the consumer, we rely on
and provide financial incentives to our customers to assist in
the distribution and promotion of our products. For our indepen-
dent distributors and retailers, these incentives include volume-
based rebates, product placement fees, promotions and displays.
For our independent bottlers, these incentives are referred to as
bottler funding and are negotiated annually with each bottler to
support a variety of trade and consumer programs, such as con-
sumer incentives, advertising support, new product support, and
vending and cooler equipment placement. Consumer incentives
include coupons, pricing discounts and promotions, and other
promotional offers. Advertising support is directed at advertising
programs and supporting independent bottler media. New prod-
uct support includes targeted consumer and retailer incentives

and direct marketplace support, such as point-of-purchase mate-
rials, product placement fees, media and advertising. Vending
and cooler equipment placement programs support the acquisi-
tion and placement of vending machines and cooler equipment.
The nature and type of programs vary annually.

Retail consolidation and the current economic environment
continue to increase the importance of major customers. In 2010,
sales to Wal-Mart (including Sam’s) represented approximately
12% of our total net revenue. Our top five retail customers rep-
resented approximately 31% of our 2010 North American net
revenue, with Wal-Mart (including Sam’s) representing approxi-
mately 18%. These percentages include concentrate sales to our
independent bottlers (including concentrate sales to PBG and
PAS prior to the February 26, 2010 acquisition date) which were
used in finished goods sold by them to these retailers.

See Note 15 for additional information about our acquisitions

of PBG and PAS in 2010.

Our Related Party Bottlers
Prior to our acquisitions of PBG and PAS on February 26, 2010,
we had noncontrolling interests in these bottlers. Because our
ownership was less than 50%, and since we did not control
these bottlers, we did not consolidate their results. Instead, we
included our share of their net income based on our percentage of
economic ownership in our income statement as bottling equity
income. On February 26, 2010, in connection with our acquisi-
tions of PBG and PAS, we began to consolidate the results of these
bottlers. Our share of the net income of Pepsi Bottling Ventures
LLC (PBV) is reflected in bottling equity income. Our share of
income or loss from other noncontrolled affiliates is recorded as
a component of selling, general and administrative expenses.
See Note 8 for additional information on these related parties
and related party commitments and guarantees.

Our Distribution Network
Our products are brought to market through DSD, customer
warehouse and foodservice and vending distribution networks.
The distribution system used depends on customer needs, prod-
uct characteristics and local trade practices.

Direct-Store-Delivery
We, our independent bottlers and our distributors operate DSD
systems that deliver snacks and beverages directly to retail
stores where the products are merchandised by our employees
or our bottlers. DSD enables us to merchandise with maximum
visibility and appeal. DSD is especially well-suited to products
that are restocked often and respond to in-store promotion and
merchandising.

Customer Warehouse
Some of our products are delivered from our manufacturing
plants and warehouses to customer warehouses and retail stores.
These less costly systems generally work best for products that
are less fragile and perishable, have lower turnover, and are less
likely to be impulse purchases.

Foodservice and Vending
Our foodservice and vending sales force distributes snacks, foods
and beverages to third-party foodservice and vending distribu-
tors and operators. Our foodservice and vending sales force also
distributes certain beverages through our independent bottlers.
This distribution system supplies our products to restaurants,
businesses, schools, stadiums and similar locations.

Our Competition
Our businesses operate in highly competitive markets. We
compete against global, regional, local and private label manu-
facturers on the basis of price, quality, product variety and
distribution. In U.S. measured channels, our chief beverage
competitor, The Coca-Cola Company, has a larger share of CSD
consumption, while we have a larger share of liquid refreshment
beverages consumption. In addition, The Coca-Cola Company
has a significant CSD share advantage in many markets outside
the United States. Further, our snack brands hold significant
leadership positions in the snack industry worldwide. Our snack
brands face local, regional and private label competitors, as well
as national and global snack competitors, and compete on the
basis of price, quality, product variety and distribution. Success
in this competitive environment is dependent on effective pro-
motion of existing products, the introduction of new products
and the effectiveness of our advertising campaigns, marketing
programs and product packaging. We believe that the strength of
our brands, innovation and marketing, coupled with the quality
of our products and flexibility of our distribution network, allow
us to compete effectively.

Other Relationships
Certain members of our Board of Directors also serve on the
boards of certain vendors and customers. Those Board members
do not participate in our vendor selection and negotiations nor in
our customer negotiations. Our transactions with these vendors
and customers are in the normal course of business and are con-
sistent with terms negotiated with other vendors and customers.
In addition, certain of our employees serve on the boards of PBV
and other affiliated companies and do not receive incremental
compensation for their Board services.

Our Business Risks

Demand for our products may be adversely affected by
changes in consumer preferences and tastes or if we are
unable to innovate or market our products effectively.
We are a consumer products company operating in highly com-
petitive markets and rely on continued demand for our products.
To generate revenues and profits, we must sell products that
appeal to our customers and to consumers. Any significant
changes in consumer preferences or any inability on our part
to anticipate or react to such changes could result in reduced
demand for our products and erosion of our competitive and
financial position. Our success depends on our ability to respond
to consumer trends, including concerns of consumers regarding

Management’s Discussion and Analysis

health and wellness, obesity, product attributes and ingredients,
and to expand into adjacent categories. For example, if we are
unable to grow our core salty snack brands while expanding into
adjacent categories like crackers, bread bites and baked snacks,
our growth rate may be adversely affected. In addition, changes
in product category consumption or consumer demographics
could result in reduced demand for our products. Consumer
preferences may shift due to a variety of factors, including the
aging of the general population, changes in social trends, changes
in travel, vacation or leisure activity patterns, weather, seasonal
consumption cycles, negative publicity resulting from regula-
tory action or litigation against companies in our industry, a
downturn in economic conditions or taxes specifically target-
ing the consumption of our products. Any of these changes may
reduce consumers’ willingness to purchase our products. See
also “Any damage to our reputation could have an adverse effect
on our business, financial condition and results of operations.”,
“Changes in the legal and regulatory environment could limit our
business activities, increase our operating costs, reduce demand
for our products or result in litigation.”, “Unfavorable economic
conditions in the countries in which we operate may have an
adverse impact on our business results or financial condition.”
and “Our financial performance could suffer if we are unable to
compete effectively.”

Our continued success is also dependent on our product inno-
vation, including maintaining a robust pipeline of new products
and improving the quality of existing products, and the effective-
ness of our advertising campaigns, marketing programs and
product packaging. Although we devote significant resources to
meet this goal, including the development of our Global Nutrition
Group, there can be no assurance as to our continued ability to
develop and launch successful new products or variants of exist-
ing products, to grow our nutrition business or to effectively
execute advertising campaigns and marketing programs. In
addition, both the launch and ongoing success of new products
and advertising campaigns are inherently uncertain, especially
as to their appeal to consumers. Our failure to successfully
launch new products could decrease demand for our existing
products by negatively affecting consumer perception of existing
brands, as well as result in inventory write-offs and other costs.

Any damage to our reputation could have an adverse effect on
our business, financial condition and results of operations.
Maintaining a good reputation globally is critical to selling our
branded products. Product contamination or tampering or the
failure to maintain high standards for product quality, safety and
integrity, including with respect to raw materials obtained from
suppliers, may reduce demand for our products or cause produc-
tion and delivery disruptions. If any of our products becomes
unfit for consumption, misbranded or causes injury, we may
have to engage in a product recall and/or be subject to liability. A
widespread product recall or a significant product liability judg-
ment could cause our products to be unavailable for a period of
time, which could further reduce consumer demand and brand
equity. Our reputation could also be adversely impacted by any
of the following, or by adverse publicity (whether or not valid)

PepsiCo, Inc. 2010 Annual Report

relating thereto: the failure to maintain high ethical, social and
environmental standards for all of our operations and activi-
ties; the failure to achieve our human, environmental and talent
sustainability goals, including our goals with respect to sodium,
saturated fat and sugar reduction and the development of our
nutrition business; or our environmental impact, including
use of agricultural materials, packaging, energy use and waste
management, or our responses to any of the foregoing. In addi-
tion, water is a limited resource in many parts of the world. Our
reputation could be damaged if we do not act responsibly with
respect to water use. Failure to comply with local laws and regu-
lations, to maintain an effective system of internal controls or
to provide accurate and timely financial statement information
could also hurt our reputation. Damage to our reputation or loss
of consumer confidence in our products for any of these or other
reasons could result in decreased demand for our products and
could have a material adverse effect on our business, financial
condition and results of operations, as well as require additional
resources to rebuild our reputation.

Our financial performance could be adversely affected if we
are unable to grow our business in developing and emerging
markets or as a result of unstable political conditions, civil
unrest or other developments and risks in the markets where
we operate.
Our operations outside of the United States contribute signifi-
cantly to our revenue and profitability, and we believe that our
businesses in developing and emerging markets, particularly
China, present an important future growth opportunity for us.
However, there can be no assurance that our existing products,
variants of our existing products or new products that we develop
will be accepted or successful in any particular developing or
emerging market, due to local competition, cultural differences
or otherwise. If we are unable to expand our businesses in emerg-
ing and developing markets as a result of economic and political
conditions, increased competition, an inability to acquire or form
strategic business alliances or to make necessary infrastructure
investments or for any other reason, our financial performance
could be adversely affected. Unstable political conditions, civil
unrest or other developments and risks in the markets where we
operate, including in the Middle East and Egypt, could also have
an adverse impact on our business results or financial condi-
tion. Factors that could adversely affect our business results in
these markets include: import and export restrictions; foreign
ownership restrictions; nationalization of our assets; regulations
on the repatriation of funds which, from time to time, result in
significant cash balances in countries such as Venezuela; and
currency hyperinflation or devaluation. In addition, disruption
in these markets due to political instability or civil unrest could
result in a decline in consumer purchasing power, thereby reduc-
ing demand for our products. See also “Demand for our products
may be adversely affected by changes in consumer preferences
and tastes or if we are unable to innovate or market our products
effectively.” and “Our financial performance could suffer if we are
unable to compete effectively.”

Trade consolidation or the loss of any key customer could
adversely affect our financial performance.
We must maintain mutually beneficial relationships with our
key customers, including Wal-Mart, as well as other retailers, to
effectively compete. There is a greater concentration of our cus-
tomer base around the world, generally due to the continued con-
solidation of retail trade and the loss of any of our key customers,
including Wal-Mart, could have an adverse effect on our financial
performance. In addition, as retail ownership becomes more con-
centrated, retailers demand lower pricing and increased promo-
tional programs. Further, as larger retailers increase utilization
of their own distribution networks and private label brands, the
competitive advantages we derive from our go-to-market sys-
tems and brand equity may be eroded. Failure to appropriately
respond to these trends or to offer effective sales incentives and
marketing programs to our customers could reduce our ability to
secure adequate shelf space at our retailers and adversely affect
our financial performance.

Changes in the legal and regulatory environment could limit
our business activities, increase our operating costs, reduce
demand for our products or result in litigation.
The conduct of our businesses, and the production, distribu-
tion, sale, advertising, labeling, safety, transportation and use of
many of our products, are subject to various laws and regulations
administered by federal, state and local governmental agencies
in the United States, as well as to foreign laws and regulations
administered by government entities and agencies in markets
in which we operate. These laws and regulations and interpre-
tations thereof may change, sometimes dramatically, as a result
of political, economic or social events. Such regulatory envi-
ronment changes may include changes in: food and drug laws;
laws related to advertising and deceptive marketing practices;
accounting standards; taxation requirements, including taxes
specifically targeting the consumption of our products; competi-
tion laws; privacy laws; and environmental laws, including laws
relating to the regulation of water rights and treatment. Changes
in laws, regulations or governmental policy and the related
interpretations may alter the environment in which we do busi-
ness and, therefore, may impact our results or increase our costs
or liabilities.

Governmental entities or agencies in jurisdictions where we

operate may also impose new labeling, product or production
requirements, or other restrictions. For example, studies are
underway by various regulatory authorities and others to assess
the effect on humans due to acrylamide in the diet. Acrylamide
is a chemical compound naturally formed in a wide variety of
foods when they are cooked (whether commercially or at home),
including french fries, potato chips, cereal, bread and coffee.
It is believed that acrylamide may cause cancer in laboratory
animals when consumed in significant amounts. Studies are
also underway by third parties to assess the health implications
of carbonated soft drink consumption. If consumer concerns
about acrylamide or carbonated soft drinks increase as a result
of these studies, other new scientific evidence, or for any other
reason, whether or not valid, demand for our products could

decline and we could be subject to lawsuits or new regulations
that could affect sales of our products, any of which could have
an adverse effect on our business, financial condition or results
of operations.

We are also subject to Proposition 65 in California, a law
which requires that a specific warning appear on any product
sold in California that contains a substance listed by that State
as having been found to cause cancer or birth defects. If we were
required to add warning labels to any of our products or place
warnings in certain locations where our products are sold,
sales of those products could suffer not only in those locations
but elsewhere.

In many jurisdictions, compliance with competition laws is
of special importance to us due to our competitive position in
those jurisdictions. Regulatory authorities under whose laws we
operate may also have enforcement powers that can subject us to
actions such as product recall, seizure of products or other sanc-
tions, which could have an adverse effect on our sales or damage
our reputation.

In addition, we and our subsidiaries are party to a variety of
legal and environmental remediation obligations arising in the
normal course of business, as well as environmental remedia-
tion, product liability, toxic tort and related indemnification
proceedings in connection with certain historical activities and
contractual obligations of businesses acquired by our subsidiar-
ies. Due to regulatory complexities, uncertainties inherent in
litigation and the risk of unidentified contaminants on current
and former properties of ours and our subsidiaries, the potential
exists for remediation, liability and indemnification costs to
differ materially from the costs we have estimated. We cannot
assure you that our costs in relation to these matters will not
exceed our established liabilities or otherwise have an adverse
effect on our results of operations.

If we are not able to build and sustain proper information
technology infrastructure, successfully implement our
ongoing business transformation initiative or outsource
certain functions effectively, our business could suffer.
We depend on information technology as an enabler to improve
the effectiveness of our operations and to interface with our cus-
tomers, as well as to maintain financial accuracy and efficiency.
If we do not allocate and effectively manage the resources neces-
sary to build and sustain the proper technology infrastructure,
we could be subject to transaction errors, processing inefficien-
cies, the loss of customers, business disruptions, the loss of or
damage to intellectual property through security breach, or the
loss of sensitive data through security breach or otherwise.

We have embarked on multi-year business transformation
initiatives to migrate certain of our financial processing sys-
tems to an enterprise-wide systems solution. There can be no
certainty that these initiatives will deliver the expected benefits.
The failure to deliver our goals may impact our ability to (1) pro-
cess transactions accurately and efficiently and (2) remain in
step with the changing needs of the trade, which could result
in the loss of customers. In addition, the failure to either deliver

Management’s Discussion and Analysis

the application on time, or anticipate the necessary readiness
and training needs, could lead to business disruption and loss of
customers and revenue.

In addition, we have outsourced certain information technol-
ogy support services and administrative functions, such as pay-
roll processing and benefit plan administration, to third-party
service providers and may outsource other functions in the
future to achieve cost savings and efficiencies. If the service
providers that we outsource these functions to do not perform
effectively, we may not be able to achieve the expected cost sav-
ings and may have to incur additional costs to correct errors
made by such service providers. Depending on the function
involved, such errors may also lead to business disruption, pro-
cessing inefficiencies, the loss of or damage to intellectual prop-
erty through security breach, the loss of sensitive data through
security breach or otherwise, or harm employee morale.

Our information systems could also be penetrated by outside

parties intent on extracting information, corrupting informa-
tion or disrupting business processes. Such unauthorized access
could disrupt our business and could result in the loss of assets.

Unfavorable economic conditions in the countries in which
we operate may have an adverse impact on our business
results or financial condition.
Many of the countries in which we operate, including the
United States, have experienced and continue to experience
unfavorable economic conditions. Our business or financial
results may be adversely impacted by these unfavorable eco-
nomic conditions, including: adverse changes in interest rates
or tax rates; volatile commodity markets; contraction in the
availability of credit in the market place, potentially impairing
our ability to access the capital markets on terms commercially
acceptable to us; the effects of government initiatives to manage
economic conditions; reduced demand for our products resulting
from a slowdown in the general global economy or a shift in con-
sumer preferences for economic reasons or otherwise to regional,
local or private label products or other economy products, or to
less profitable channels; or a decrease in the fair value of pension
assets that could increase future employee benefit costs and/or
funding requirements of our pension plans. In addition, we can-
not predict how current or worsening economic conditions will
affect our critical customers, suppliers and distributors and any
negative impact on our critical customers, suppliers or distribu-
tors may also have an adverse impact on our business results or
financial condition.

Fluctuations in foreign exchange rates may have an adverse
impact on our business results or financial condition.
We hold assets and incur liabilities, earn revenues and pay
expenses in a variety of currencies other than the U.S. dollar.
Because our consolidated financial statements are presented
in U.S. dollars, the financial statements of our foreign subsid-
iaries are translated into U.S. dollars. In 2010, our operations
outside of the U.S. generated a significant portion of our net

revenue. Fluctuations in foreign exchange rates may there-
fore adversely impact our business results or financial condi-
tion. See also “Market Risks” and Note 1 to our consolidated
financial statements.

Our financial performance could suffer if we are unable to
compete effectively.
The food and beverage industries in which we operate are highly
competitive. We compete with major international food and
beverage companies that, like us, operate in multiple geographic
areas, as well as regional, local and private label manufactur-
ers and other value competitors. In many countries where we do
business, including the United States, The Coca-Cola Company
is our primary beverage competitor. We compete on the basis of
brand recognition, price, quality, product variety, distribution,
marketing and promotional activity, convenience, service and
the ability to identify and satisfy consumer preferences. If we are
unable to compete effectively, we may be unable to gain or main-
tain share of sales or gross margins in the global market or in
various local markets. This may have a material adverse impact
on our revenues and profit margins. See also “Unfavorable eco-
nomic conditions in the countries in which we operate may have
an adverse impact on our business results or financial condition.”

Our operating results may be adversely affected by increased
costs, disruption of supply or shortages of raw materials and
other supplies.
We and our business partners use various raw materials and
other supplies in our business, including apple and pineapple
juice and other juice concentrates, aspartame, corn, corn sweet-
eners, flavorings, flour, grapefruits and other fruits, oats, oranges,
potatoes, rice, seasonings, sucralose, sugar, vegetable and
essential oils, and wheat. Our key packaging materials include
plastic resins, including polyethylene terephthalate (PET) and
polypropylene resin used for plastic beverage bottles and film
packaging used for snack foods, aluminum used for cans, glass
bottles, closures, cardboard and paperboard cartons. Fuel and
natural gas are also important commodities due to their use in
our plants and in the trucks delivering our products. Some of
these raw materials and supplies are available from a limited
number of suppliers. We are exposed to the market risks arising
from adverse changes in commodity prices, affecting the cost
of our raw materials and energy. The raw materials and energy
which we use for the production of our products are largely com-
modities that are subject to price volatility and fluctuations in
availability caused by changes in global supply and demand,
weather conditions, agricultural uncertainty or governmental
controls. We purchase these materials and energy mainly in the
open market. If commodity price changes result in unexpected
increases in raw materials and energy costs, we may not be able
to increase our prices to offset these increased costs without
suffering reduced volume, revenue and operating results. In addi-
tion, we use derivatives to hedge price risk associated with fore-
casted purchases of raw materials. Certain of these derivatives

PepsiCo, Inc. 2010 Annual Report

that do not qualify for hedge accounting treatment can result in
increased volatility in our net earnings in any given period due
to changes in the spot prices of the underlying commodities. See
also “Unfavorable economic conditions in the countries in which
we operate may have an adverse impact on our business results
or financial condition.”, “Market Risks” and Note 1 to our consoli-
dated financial statements.

Disruption of our supply chain could have an adverse impact
on our business, financial condition and results of operations.
Our ability and that of our suppliers, business partners, including
our independent bottlers, contract manufacturers, independent
distributors and retailers, to make, move and sell products is
critical to our success. Damage or disruption to our or their man-
ufacturing or distribution capabilities due to adverse weather
conditions, government action, natural disaster, fire, terrorism,
the outbreak or escalation of armed hostilities, pandemic, strikes
and other labor disputes or other reasons beyond our or their
control, could impair our ability to manufacture or sell our prod-
ucts. Failure to take adequate steps to mitigate the likelihood or
potential impact of such events, or to effectively manage such
events if they occur, could adversely affect our business, financial
condition and results of operations, as well as require additional
resources to restore our supply chain.

Climate change, or legal, regulatory or market measures to
address climate change, may negatively affect our business
and operations.
There is growing concern that carbon dioxide and other green-
house gases in the atmosphere may have an adverse impact on
global temperatures, weather patterns and the frequency and
severity of extreme weather and natural disasters. In the event
that such climate change has a negative effect on agricultural
productivity, we may be subject to decreased availability or less
favorable pricing for certain commodities that are necessary for
our products, such as sugar cane, corn, wheat, rice, oats, pota-
toes and various fruits. We may also be subjected to decreased
availability or less favorable pricing for water as a result of such
change, which could impact our manufacturing and distribution
operations. In addition, natural disasters and extreme weather
conditions may disrupt the productivity of our facilities or the
operation of our supply chain. The increasing concern over cli-
mate change also may result in more regional, federal and/or
global legal and regulatory requirements to reduce or mitigate
the effects of greenhouse gases. In the event that such regula-
tion is enacted and is more aggressive than the sustainability
measures that we are currently undertaking to monitor our
emissions and improve our energy efficiency, we may experience
significant increases in our costs of operation and delivery. In
particular, increasing regulation of fuel emissions could substan-
tially increase the distribution and supply chain costs associated
with our products. As a result, climate change could negatively
affect our business and operations. See also “Disruption of our
supply chain could have an adverse impact on our business,
financial condition and results of operations.”

If we are unable to hire or retain key employees or a highly
skilled and diverse workforce, it could have a negative impact
on our business.
Our continued growth requires us to hire, retain and develop our
leadership bench and a highly skilled and diverse workforce. We
compete to hire new employees and then must train them and
develop their skills and competencies. Any unplanned turnover
or our failure to develop an adequate succession plan to back-
fill current leadership positions or to hire and retain a diverse
workforce could deplete our institutional knowledge base and
erode our competitive advantage. In addition, our operating
results could be adversely affected by increased costs due to
increased competition for employees, higher employee turnover
or increased employee benefit costs.

A portion of our workforce belongs to unions. Failure to
successfully renew collective bargaining agreements, or
strikes or work stoppages could cause our business to suffer.
Many of our employees are covered by collective bargaining
agreements. These agreements expire on various dates. Strikes
or work stoppages and interruptions could occur if we are unable
to renew these agreements on satisfactory terms, which could
adversely impact our operating results. The terms and conditions
of existing or renegotiated agreements could also increase our
costs or otherwise affect our ability to fully implement future
operational changes to enhance our efficiency.

Failure to successfully complete or integrate acquisitions
and joint ventures into our existing operations could have
an adverse impact on our business, financial condition and
results of operations.
In 2010, we acquired PBG and PAS and we recently acquired
approximately 77% of WBD. We also regularly evaluate opportu-
nities for strategic growth through tuck-in acquisitions and joint
ventures. Potential issues associated with these and other acqui-
sitions and joint ventures could include, among other things, our
ability to realize the full extent of the benefits or cost savings that
we expect to realize as a result of the completion of the acquisi-
tion or the formation of the joint venture within the anticipated
time frame, or at all; receipt of necessary consents, clearances
and approvals in connection with the acquisition or joint ven-
ture; diversion of management’s attention from base strategies
and objectives; and, with respect to acquisitions, our ability to
successfully combine our businesses with the business of the
acquired company in a manner that permits cost savings to be
realized, including integrating the manufacturing, dis tribution,
sales and administrative support activities and information
technology systems among our company and the acquired
company, motivating, recruiting and retaining executives and
key employees, conforming standards, controls, procedures
and policies, business cultures and compensation structures
among our company and the acquired company, consolidating
and streamlining corporate and administrative infrastructures,
consolidating sales and marketing operations, retaining existing

Management’s Discussion and Analysis

customers and attracting new customers, identifying and elimi-
nating redundant and underperforming operations and assets,
coordinating geographically dispersed organizations, and man-
aging tax costs or inefficiencies associated with integrating our
operations following completion of the acquisitions. In addition,
acquisitions outside of the United States, including the WBD
acquisition, increase our exposure to risks associated with for-
eign operations, including fluctuations in foreign exchange rates
and compliance with foreign laws and regulations. If an acquisi-
tion or joint venture is not successfully completed or integrated
into our existing operations, our business, financial condition
and results of operations could be adversely impacted.

Forward-Looking and Cautionary Statements
We discuss expectations regarding our future performance, such
as our business outlook, in our annual and quarterly reports, press
releases, and other written and oral statements. These forward-
looking statements are based on currently available information,
operating plans and projections about future events and trends.
They inherently involve risks and uncertainties that could cause
actual results to differ materially from those predicted in any such
forward-looking statements. Investors are cautioned not to place
undue reliance on any such forward-looking statements, which
speak only as of the date they are made. We undertake no obliga-
tion to update any forward-looking statement, whether as a result
of new information, future events or otherwise. The discussion of
risks below and elsewhere in this report is by no means all inclusive
but is designed to highlight what we believe are important factors
to consider when evaluating our future performance.

Market Risks
We are exposed to market risks arising from adverse changes in:
commodity prices, affecting the cost of our raw materials
•
and energy;

• foreign exchange rates; and
• interest rates.

In the normal course of business, we manage these risks

through a variety of strategies, including productivity initiatives,
global purchasing programs and hedging strategies. Ongoing
productivity initiatives involve the identification and effective
implementation of meaningful cost-saving opportunities or
efficiencies. Our global purchasing programs include fixed-price
purchase orders and pricing agreements. See Note 9 for further
information on our non-cancelable purchasing commitments.
Our hedging strategies include the use of derivatives. Certain
derivatives are designated as either cash flow or fair value hedges
and qualify for hedge accounting treatment, while others do not
qualify and are marked to market through earnings. Cash flows
from derivatives used to manage commodity, foreign exchange or
interest risks are classified as operating activities. We do not use
derivative instruments for trading or speculative purposes. We
perform assessments of our counterparty credit risk regularly,
including a review of credit ratings, credit default swap rates

PepsiCo, Inc. 2010 Annual Report

and potential nonperformance of the counterparty. Based on
our most recent assessment of our counterparty credit risk,
we consider this risk to be low. In addition, we enter into deriva-
tive contracts with a variety of financial institutions that we
believe are creditworthy in order to reduce our concentration of
credit risk and generally settle with these financial institutions
on a net basis.

The fair value of our derivatives fluctuates based on market

rates and prices. The sensitivity of our derivatives to these
market fluctuations is discussed below. See Note 10 for further
discussion of these derivatives and our hedging policies. See “Our
Critical Accounting Policies” for a discussion of the exposure of
our pension plan assets and pension and retiree medical liabili-
ties to risks related to market fluctuations.

Inflationary, deflationary and recessionary conditions impact-
ing these market risks also impact the demand for and pricing of
our products.

Commodity Prices
We expect to be able to reduce the impact of volatility in our raw
material and energy costs through our hedging strategies and
ongoing sourcing initiatives.

Our open commodity derivative contracts that qualify
for hedge accounting had a face value of $590 million as of
December 25, 2010 and $151 million as of December 26, 2009.
These contracts resulted in net unrealized gains of $46 million as
of December 25, 2010 and net unrealized losses of $29 million
as of December 26, 2009. At the end of 2010, the potential change
in fair value of commodity derivative instruments, assuming a
10% decrease in the underlying commodity price, would have
decreased our net unrealized gains in 2010 by $64 million.

Our open commodity derivative contracts that do not qualify

for hedge accounting had a face value of $266 million as of
December 25, 2010 and $231 million as of December 26, 2009.
These contracts resulted in net gains of $26 million in 2010 and
net losses of $57 million in 2009. At the end of 2010, the poten-
tial change in fair value of commodity derivative instruments,
assuming a 10% decrease in the underlying commodity price,
would have decreased our net gains in 2010 by $29 million.

Foreign Exchange
Financial statements of foreign subsidiaries are translated into
U.S. dollars using period-end exchange rates for assets and liabil-
ities and weighted-average exchange rates for revenues and
expenses. Adjustments resulting from translating net assets
are reported as a separate component of accumulated other com-
prehensive loss within shareholders’ equity under the caption
currency translation adjustment.

Our operations outside of the U.S. generate over 45% of our net

revenue, with Mexico, Canada, Russia and the United Kingdom
comprising approximately 20% of our net revenue. As a result,
we are exposed to foreign currency risks. During 2010, favorable
foreign currency contributed 1 percentage point to net revenue
growth, primarily due to appreciation of the Mexican peso,

Canadian dollar and Brazilian real, partially offset by depre-
ciation of the Venezuelan bolivar. Currency declines against
the U.S. dollar which are not offset could adversely impact our
future results.

In addition, we continue to use the official exchange rate to
translate the financial statements of our snack and beverage
businesses in Venezuela. We use the official rate as we cur-
rently intend to remit dividends solely through the government-
operated Foreign Exchange Administration Board (CADIVI).
As of the beginning of our 2010 fiscal year, the results of our
Venezuelan businesses were reported under hyperinflation-
ary accounting. This determination was made based upon
Venezuela’s National Consumer Price Index (NCPI) which indi-
cated cumulative inflation in Venezuela in excess of 100% for
the three-year period ended November 30, 2009. Consequently,
the functional currency of our Venezuelan entities was changed
from the bolivar fuerte (bolivar) to the U.S. dollar. Effective
January 11, 2010, the Venezuelan government devalued the
bolivar by resetting the official exchange rate from 2.15 bolivars
per dollar to 4.3 bolivars per dollar; however, certain activities
were permitted to access an exchange rate of 2.6 bolivars per
dollar. Effective June 2010, the Central Bank of Venezuela began
accepting and approving applications, under certain conditions,
for non-CADIVI exchange transactions at the weighted-average
implicit exchange rate obtained from the Transaction System
for Foreign Currency Denominated Securities (SITME). As
of December 25, 2010, this rate was 5.3 bolivars per dollar. We
continue to use all available options, including CADIVI, SITME
and bond auctions, to obtain U.S. dollars to meet our operational
needs. In 2010, the majority of our transactions were remeasured
at the 4.3 exchange rate, and as a result of the change to hyper-
inflationary accounting and the devaluation of the bolivar, we
recorded a one-time net charge of $120 million in the first quarter
of 2010. In 2010, our operations in Venezuela comprised 4% of our
cash and cash equivalents balance and generated less than 1% of
our net revenue. As of January 1, 2011, the Venezuelan govern-
ment unified the country’s two official exchange rates (4.3 and
2.6 bolivars per dollar) by eliminating the 2.6 bolivars per dollar
rate, which was previously permitted for certain activities. This
change did not, nor is expected to, have a material impact on our
financial statements.

Exchange rate gains or losses related to foreign currency
transactions are recognized as transaction gains or losses in
our income statement as incurred. We may enter into deriva-
tives, primarily forward contracts with terms of no more than
two years, to manage our exposure to foreign currency trans-
action risk. Our foreign currency derivatives had a total face
value of $1.7 billion as of December 25, 2010 and $1.2 billion
as of December 26, 2009. The contracts that qualify for hedge
accounting resulted in net unrealized losses of $15 million as
of December 25, 2010 and $20 million as of December 26, 2009.
At the end of 2010, we estimate that an unfavorable 10% change
in the exchange rates would have increased our net unrealized
losses by $119 million. The contracts that do not qualify for hedge

accounting resulted in net losses of $6 million in 2010 and a net
gain of $1 million in 2009. All losses and gains were offset by
changes in the underlying hedged items, resulting in no net mate-
rial impact on earnings.

Interest Rates
We centrally manage our debt and investment portfolios con-
sidering investment opportunities and risks, tax consequences
and overall financing strategies. We use various interest rate
derivative instruments including, but not limited to, interest
rate swaps, cross-currency interest rate swaps, Treasury locks
and swap locks to manage our overall interest expense and for-
eign exchange risk. These instruments effectively change the
interest rate and currency of specific debt issuances. Certain of
our fixed rate indebtedness has been swapped to floating rates.
The notional amount, interest payment and maturity date of
the interest rate and cross-currency swaps match the prin-
cipal, interest payment and maturity date of the related debt.
Our Treasury locks and swap locks are entered into to protect
against unfavorable interest rate changes relating to forecasted
debt transactions.

Assuming year-end 2010 variable rate debt and investment
levels, a 1-percentage-point increase in interest rates would have
increased net interest expense by $43 million in 2010.

Risk Management Framework
The achievement of our strategic and operating objectives will
necessarily involve taking risks. Our risk management pro-
cess is intended to ensure that risks are taken knowingly and
purposefully. As such, we leverage an integrated risk manage-
ment framework to identify, assess, prioritize, manage, monitor
and communicate risks across the Company. This framework
includes:
•

The PepsiCo Risk Committee (PRC), comprised of a cross-
functional, geographically diverse, senior management group
which meets regularly to identify, assess, prioritize and
address strategic and reputational risks;
Division Risk Committees (DRCs), comprised of cross-
functional senior management teams which meet regularly to
identify, assess, prioritize and address division-specific oper-
ating risks;
PepsiCo’s Risk Management Office, which manages the overall
risk management process, provides ongoing guidance, tools
and analytical support to the PRC and the DRCs, identifies and
assesses potential risks and facilitates ongoing communication
between the parties, as well as to PepsiCo’s Audit Committee
and Board of Directors;
PepsiCo Corporate Audit, which evaluates the ongoing effec-
tiveness of our key internal controls through periodic audit
and review procedures; and
PepsiCo’s Compliance Department, which leads and coordi-
nates our compliance policies and practices.

•

Management’s Discussion and Analysis

Our Critical Accounting Policies

An appreciation of our critical accounting policies is neces-
sary to understand our financial results. These policies may
require management to make difficult and subjective judg-
ments regarding uncertainties, and as a result, such estimates
may significantly impact our financial results. The precision
of these estimates and the likelihood of future changes depend
on a number of underlying variables and a range of possible out-
comes. Other than our accounting for pension plans, our critical
accounting policies do not involve the choice between alterna-
tive methods of accounting. We applied our critical accounting
policies and estimation methods consistently in all material
respects, and for all periods presented, and have discussed these
policies with our Audit Committee.

Our critical accounting policies arise in conjunction with

the following:
• revenue recognition;
• goodwill and other intangible assets;
• income tax expense and accruals; and
• pension and retiree medical plans.

Revenue Recognition
Our products are sold for cash or on credit terms. Our credit
terms, which are established in accordance with local and indus-
try practices, typically require payment within 30 days of deliv-
ery in the U.S., and generally within 30 to 90 days internationally,
and may allow discounts for early payment. We recognize rev-
enue upon shipment or delivery to our customers based on writ-
ten sales terms that do not allow for a right of return. However,
our policy for DSD and certain chilled products is to remove and
replace damaged and out-of-date products from store shelves to
ensure that consumers receive the product quality and freshness
they expect. Similarly, our policy for certain warehouse-distrib-
uted products is to replace damaged and out-of-date products.
Based on our experience with this practice, we have reserved for
anticipated damaged and out-of-date products.

Our policy is to provide customers with product when needed.
In fact, our commitment to freshness and product dating serves
to regulate the quantity of product shipped or delivered. In addi-
tion, DSD products are placed on the shelf by our employees with
customer shelf space and storerooms limiting the quantity of
product. For product delivered through our other distribution
networks, we monitor customer inventory levels.

As discussed in “Our Customers,” we offer sales incentives
and discounts through various programs to customers and con-
sumers. Sales incentives and discounts are accounted for as a
reduction of revenue and totaled $29.1 billion in 2010, $12.9 bil-
lion in 2009 and $12.5 billion in 2008. Sales incentives include
payments to customers for performing merchandising activities
on our behalf, such as payments for in-store displays, payments
to gain distribution of new products, payments for shelf space

PepsiCo, Inc. 2010 Annual Report

and discounts to promote lower retail prices. A number of our
sales incentives, such as bottler funding to independent bottlers
and customer volume rebates, are based on annual targets, and
accruals are established during the year for the expected payout.
These accruals are based on contract terms and our historical
experience with similar programs and require management
judgment with respect to estimating customer participation and
performance levels. Differences between estimated expense
and actual incentive costs are normally insignificant and are
recognized in earnings in the period such differences are deter-
mined. The terms of most of our incentive arrangements do not
exceed a year, and therefore do not require highly uncertain long-
term estimates. For interim reporting, we estimate total annual
sales incentives for most of our programs and record a pro rata
share in proportion to revenue. Certain arrangements, such as
fountain pouring rights, may extend beyond one year. Payments
made to obtain these rights are recognized over the shorter
of the economic or contractual life, as a reduction of revenue, and
the remaining balances of $296 million, as of both December 25,
2010 and December 26, 2009, are included in current assets and
other assets on our balance sheet.

We estimate and reserve for our bad debt exposure based on

our experience with past due accounts and collectibility, the
aging of accounts receivable and our analysis of customer data.
Bad debt expense is classified within selling, general and admin-
istrative expenses in our income statement.

Goodwill and Other Intangible Assets
We sell products under a number of brand names, many of which
were developed by us. The brand development costs are expensed
as incurred. We also purchase brands in acquisitions. Upon
acquisition, the purchase price is first allocated to identifiable
assets and liabilities, including brands, based on estimated fair
value, with any remaining purchase price recorded as good-
will. Determining fair value requires significant estimates and
assumptions based on an evaluation of a number of factors, such
as marketplace participants, product life cycles, market share,
consumer awareness, brand history and future expansion expec-
tations, amount and timing of future cash flows and the discount
rate applied to the cash flows.

We believe that a brand has an indefinite life if it has a history

of strong revenue and cash flow performance, and we have the
intent and ability to support the brand with marketplace spend-
ing for the foreseeable future. If these perpetual brand criteria
are not met, brands are amortized over their expected useful
lives, which generally range from five to 40 years. Determining
the expected life of a brand requires management judgment and
is based on an evaluation of a number of factors, including market
share, consumer awareness, brand history and future expansion
expectations, as well as the macroeconomic environment of the
countries in which the brand is sold.

Perpetual brands and goodwill, including the goodwill that
is part of our noncontrolled bottling investment balances, are
not amortized. Perpetual brands and goodwill are assessed for
impairment at least annually. If the carrying amount of a perpet-
ual brand exceeds its fair value, as determined by its discounted
cash flows, an impairment loss is recognized in an amount equal
to that excess. Goodwill is evaluated using a two-step impair-
ment test at the reporting unit level. A reporting unit can be a
division or business within a division. The first step compares
the book value of a reporting unit, including goodwill, with its
fair value, as determined by its discounted cash flows. If the book
value of a reporting unit exceeds its fair value, we complete the
second step to determine the amount of goodwill impairment
loss that we should record. In the second step, we determine an
implied fair value of the reporting unit’s goodwill by allocating
the fair value of the reporting unit to all of the assets and liabili-
ties other than goodwill (including any unrecognized intangible
assets). The amount of impairment loss is equal to the excess
of the book value of the goodwill over the implied fair value of
that goodwill.

Amortizable brands are only evaluated for impairment upon a

significant change in the operating or macroeconomic environ-
ment. If an evaluation of the undiscounted future cash flows
indicates impairment, the asset is written down to its estimated
fair value, which is based on its discounted future cash flows.

In connection with our acquisitions of PBG and PAS, we reac-

quired certain franchise rights which provided PBG and PAS
with the exclusive and perpetual rights to manufacture and/or
distribute beverages for sale in specified territories. In determin-
ing the useful life of these reacquired franchise rights, we con-
sidered many factors including the existing perpetual bottling
arrangements, the indefinite period expected for the reacquired
rights to contribute to our future cash flows, as well as the lack
of any factors that would limit the useful life of the reacquired
rights to us, including legal, regulatory, contractual, competitive,
economic or other factors. Therefore, certain reacquired fran-
chise rights, as well as perpetual brands and goodwill, will not
be amortized, but instead will be tested for impairment at least
annually. Certain reacquired and acquired franchise rights are
amortizable over the remaining contractual period of the con-
tract in which the right was granted.

On December 7, 2009, we reached an agreement with DPSG to

manufacture and distribute Dr Pepper and certain other DPSG
products in the territories where they were previously sold by
PBG and PAS. Under the terms of the agreement, we made an
upfront payment of $900 million to DPSG on February 26, 2010.
Based upon the terms of the agreement with DPSG, the amount of
the upfront payment has been capitalized and will not be amor-
tized, but instead will be tested for impairment at least annually.

Significant management judgment is necessary to evaluate the
impact of operating and macroeconomic changes and to estimate
future cash flows. Assumptions used in our impairment evalu-
ations, such as forecasted growth rates and our cost of capital,

are based on the best available market information and are con-
sistent with our internal forecasts and operating plans. These
assumptions could be adversely impacted by certain of the risks
discussed in “Our Business Risks.”

We did not recognize any impairment charges for perpetual

brands or goodwill in the years presented. In addition, as of
December 25, 2010, we did not have any reporting units that
were at risk of failing the first step of the goodwill impairment
test. As of December 25, 2010, we had $26.4 billion of perpetual
brands and goodwill, of which approximately 65% related to the
goodwill and other nonamortizable intangible assets from
the acquisitions of PBG and PAS.

Income Tax Expense and Accruals
Our annual tax rate is based on our income, statutory tax rates
and tax planning opportunities available to us in the various
jurisdictions in which we operate. Significant judgment is
required in determining our annual tax rate and in evaluating
our tax positions. We establish reserves when, despite our
belief that our tax return positions are fully supportable,
we believe that certain positions are subject to challenge and
that we may not succeed. We adjust these reserves, as well as the
related interest, in light of changing facts and circumstances,
such as the progress of a tax audit.

An estimated effective tax rate for a year is applied to our
quarterly operating results. In the event there is a significant
or unusual item recognized in our quarterly operating results,
the tax attributable to that item is separately calculated and
recorded at the same time as that item. We consider the tax
adjustments from the resolution of prior year tax matters to be
among such items.

Tax law requires items to be included in our tax returns at
different times than the items are reflected in our financial state-
ments. As a result, our annual tax rate reflected in our financial
statements is different than that reported in our tax returns (our
cash tax rate). Some of these differences are permanent, such as
expenses that are not deductible in our tax return, and some dif-
ferences reverse over time, such as depreciation expense. These
temporary differences create deferred tax assets and liabilities.
Deferred tax assets generally represent items that can be used
as a tax deduction or credit in our tax returns in future years for
which we have already recorded the tax benefit in our income
statement. We establish valuation allowances for our deferred
tax assets if, based on the available evidence, it is more likely
than not that some portion or all of the deferred tax assets will
not be realized. Deferred tax liabilities generally represent tax
expense recognized in our financial statements for which pay-
ment has been deferred, or expense for which we have already
taken a deduction in our tax return but have not yet recognized as
expense in our financial statements.

In 2010, our annual tax rate was 23.0% compared to 26.0% in
2009, as discussed in “Other Consolidated Results.” The tax rate
in 2010 decreased 3.0 percentage points primarily reflecting the

Management’s Discussion and Analysis

impact of our acquisitions of PBG and PAS, which includes
the reversal of deferred taxes attributable to our previously held
equity interests in PBG and PAS, as well as the favorable resolu-
tion of certain tax matters in 2010.

Pension and Retiree Medical Plans
Our pension plans cover full-time employees in the U.S. and
certain international employees. Benefits are determined based
on either years of service or a combination of years of service and
earnings. U.S. and Canada retirees are also eligible for medical
and life insurance benefits (retiree medical) if they meet age and
service requirements. Generally, our share of retiree medical
costs is capped at specified dollar amounts which vary based
upon years of service, with retirees contributing the remainder
of the cost.

See Note 7 for information about certain changes to our U.S.

pension and retiree medical plans and changes in connection
with our acquisitions of PBG and PAS.

Our Assumptions
The determination of pension and retiree medical plan obliga-
tions and related expenses requires the use of assumptions to
estimate the amount of benefits that employees earn while work-
ing, as well as the present value of those benefits. Annual pension
and retiree medical expense amounts are principally based on
four components: (1) the value of benefits earned by employees for
working during the year (service cost), (2) increase in the liability
due to the passage of time (interest cost), and (3) other gains and
losses as discussed below, reduced by (4) the expected return on
plan assets for our funded plans.

Significant assumptions used to measure our annual pension

and retiree medical expense include:
•

the interest rate used to determine the present value of liabili-
ties (discount rate);
certain employee-related factors, such as turnover, retirement
age and mortality;

•

• the expected return on assets in our funded plans;
•

for pension expense, the rate of salary increases for plans
where benefits are based on earnings; and

• for retiree medical expense, health care cost trend rates.

Our assumptions reflect our historical experience and man-
agement’s best judgment regarding future expectations. Due to
the significant management judgment involved, our assumptions
could have a material impact on the measurement of our pension
and retiree medical benefit expenses and obligations.

At each measurement date, the discount rates are based on
interest rates for high-quality, long-term corporate debt securi-
ties with maturities comparable to those of our liabilities. Our
U.S. discount rate is determined using the Mercer Pension
Discount Yield Curve (Mercer Yield Curve). The Mercer Yield
Curve uses a portfolio of high-quality bonds rated Aa or higher
by Moody’s. The Mercer Yield Curve includes bonds that closely
match the timing and amount of our expected benefit payments.

PepsiCo, Inc. 2010 Annual Report

The expected return on pension plan assets is based on our
pension plan investment strategy, our expectations for long-term
rates of return by asset class, taking into account volatilities and
correlation among asset classes and our historical experience.
We also review current levels of interest rates and inflation to
assess the reasonableness of the long-term rates. We evaluate
our expected return assumptions annually to ensure that they
are reasonable. Our pension plan investment strategy includes
the use of actively managed securities and is reviewed annually
based upon plan liabilities, an evaluation of market conditions,
tolerance for risk and cash requirements for benefit payments.
Our investment objective is to ensure that funds are available to
meet the plans’ benefit obligations when they become due. Our
overall investment strategy is to prudently invest plan assets in
a well-diversified portfolio of equity and high-quality debt secu-
rities to achieve our long-term return expectations. Our invest-
ment policy also permits the use of derivative instruments which
are primarily used to reduce risk. Our expected long-term rate
of return on U.S. plan assets is 7.8%. Our target investment allo-
cation is 40% for U.S. equity allocations, 20% for international
equity allocations and 40% for fixed income allocations. Actual
investment allocations may vary from our target investment
allocations due to prevailing market conditions. We regularly
review our actual investment allocations and periodically rebal-
ance our investments to our target allocations. To calculate the
expected return on pension plan assets, we use a market-related
valuation method that recognizes investment gains or losses
(the difference between the expected and actual return based on
the market-related value of assets) for securities included in our
equity allocations over a five-year period. This has the effect of
reducing year-to-year volatility. For all other asset categories, the
actual fair value is used for the market-related value of assets.
The difference between the actual return on plan assets and

the expected return on plan assets is added to, or subtracted
from, other gains and losses resulting from actual experience
differing from our assumptions and from changes in our assump-
tions determined at each measurement date. If this net accumu-
lated gain or loss exceeds 10% of the greater of the market-related
value of plan assets or plan liabilities, a portion of the net gain or
loss is included in expense for the following year based upon the
average remaining service period of active plan participants,
which is approximately 11 years for pension expense and approxi-
mately eight years for retiree medical expense. The cost or ben-
efit of plan changes that increase or decrease benefits for prior
employee service (prior service cost/(credit)) is included in earn-
ings on a straight-line basis over the average remaining service
period of active plan participants.

The health care trend rate used to determine our retiree medi-
cal plan’s liability and expense is reviewed annually. Our review
is based on our claim experience, information provided by our
health plans and actuaries, and our knowledge of the health care
industry. Our review of the trend rate considers factors such
as demographics, plan design, new medical technologies and
changes in medical carriers.

Weighted-average assumptions for pension and retiree medi-

cal expense are as follows:

Our Financial Results

Pension
Expense discount rate
Expected rate of return on plan assets
Expected rate of salary increases
Retiree medical
Expense discount rate
Expected rate of return on plan assets
Current health care cost trend rate

2011

2010

2009

5.6%
7.6%
4.1%

5.2%
7.8%
7.0%

6.0%
7.6%
4.4%

6.2%
7.6%
4.4%

5.8%

6.2%

7.5%

8.0%

Based on our assumptions, we expect our pension and retiree

medical expenses to increase in 2011, as a result of assump-
tion changes, an increase in experience loss amortization, plan
changes and normal growth, partially offset by expected asset
returns on contributions. The most significant assumption
changes result from the use of lower discount rates.

Sensitivity of Assumptions
A decrease in the discount rate or in the expected rate of return
assumptions would increase pension expense. The estimated
impact of a 25-basis-point decrease in the discount rate on 2011
pension expense is an increase of approximately $55 million. The
estimated impact on 2011 pension expense of a 25-basis-point
decrease in the expected rate of return is an increase of approxi-
mately $28 million.

See Note 7 regarding the sensitivity of our retiree medical cost

assumptions.

Funding
We make contributions to pension trusts maintained to provide
plan benefits for certain pension plans. These contributions are
made in accordance with applicable tax regulations that provide
for current tax deductions for our contributions and taxation to
the employee only upon receipt of plan benefits. Generally, we
do not fund our pension plans when our contributions would
not be currently tax deductible. As our retiree medical plans
are not subject to regulatory funding requirements, we generally
fund these plans on a pay-as-you-go basis, although we periodi-
cally review available options to make additional contributions
toward these benefits.

Our pension contributions for 2010 were $1.5 billion, of which

$1.3 billion was discretionary. Our U.S. retiree medical con-
tributions for 2010 were $270 million, of which $170 million
was discretionary.

In 2011, we expect to make pension contributions of approxi-

mately $160 million, with up to approximately $15 million
expected to be discretionary. Our cash payments for retiree med-
ical benefits are estimated to be approximately $145 million in
2011. Our pension and retiree medical contributions are subject
to change as a result of many factors, such as changes in interest
rates, deviations between actual and expected asset returns and
changes in tax or other benefit laws. For estimated future benefit
payments, including our pay-as-you-go payments as well as those
from trusts, see Note 7.

Items Affecting Comparability
The year-over-year comparisons of our financial results are
affected by the following items:

2010

2009

2008

Operating profit
Mark-to-market net impact (gain/(loss))
Restructuring and impairment charges
Merger and integration charges
Inventory fair value adjustments
Venezuela currency devaluation
Asset write-off
Foundation contribution
Bottling equity income
PepsiCo share of PBG restructuring

and impairment charges

Gain on previously held equity interests
Merger and integration charges
Interest expense
Merger and integration charges
Debt repurchase
Net income attributable to PepsiCo
Mark-to-market net impact (gain/(loss))
Restructuring and impairment charges
PepsiCo share of PBG restructuring and

impairment charges

Gain on previously held equity interests
Merger and integration charges
Inventory fair value adjustments
Venezuela currency devaluation
Asset write-off
Foundation contribution
Debt repurchase
Net income attributable to PepsiCo

per common share — diluted

Mark-to-market net impact (gain/(loss))
Restructuring and impairment charges
PepsiCo share of PBG restructuring and

impairment charges

Gain on previously held equity interests
Merger and integration charges
Inventory fair value adjustments
Venezuela currency devaluation
Asset write-off
Foundation contribution
Debt repurchase

$ 91
–

$ (346)
$ 274
$ (36) $ (543)
–
–
–
–
–

$ (769) $ (50)
–
$ (398)
–
$ (120)
–
$ (145)
–
$ (100)

–
–
–
$ 735
$ (9) $ (11)

$ (138)
–
–

$ (30)
$ (178)

–
–

$ 58
–

$ 173
$ (223)
$ (29) $ (408)

–
–
–
$ 958
$ (648) $ (44)
–
$ (333)
–
$ (120)
–
$ (92)
–
$ (64)
–
$ (114)

$ (114)
–
–
–
–
–
–
–

$ 0.04
–

$ 0.11
$(0.02)

$(0.14)
$(0.25)

–
$ 0.60

–
–
$(0.40) $(0.03)
–
$(0.21)
–
$(0.07)
–
$(0.06)
–
$(0.04)
–
$(0.07)

$(0.07)
–
–
–
–
–
–
–

Mark-to-Market Net Impact
We centrally manage commodity derivatives on behalf of our
divisions. These commodity derivatives include energy, fruit,
aluminum and other raw materials. Certain of these commodity
derivatives do not qualify for hedge accounting treatment and are
marked to market with the resulting gains and losses recognized
in corporate unallocated expenses. These gains and losses are
subsequently reflected in division results when the divisions take

Management’s Discussion and Analysis

delivery of the underlying commodity. Therefore, the divisions
realize the economic effects of the derivative without experienc-
ing any resulting mark-to-market volatility, which remains in
corporate unallocated expenses.

In 2010, we recognized $91 million ($58 million after-tax or

$0.04 per share) of mark-to-market net gains on commodity
hedges in corporate unallocated expenses.

In 2009, we recognized $274 million ($173 million after-tax
or $0.11 per share) of mark-to-market net gains on commodity
hedges in corporate unallocated expenses.

In 2008, we recognized $346 million ($223 million after-tax
or $0.14 per share) of mark-to-market net losses on commodity
hedges in corporate unallocated expenses.

Restructuring and Impairment Charges
In 2009, we incurred charges of $36 million ($29 million after-
tax or $0.02 per share) in conjunction with our Productivity
for Growth program that began in 2008. The program includes
actions in all divisions of the business, including the closure of
six plants that we believe will increase cost competitiveness
across the supply chain, upgrade and streamline our product
portfolio, and simplify the organization for more effective and
timely decision-making. These initiatives were completed in the
second quarter of 2009.

In 2008, we incurred charges of $543 million ($408 million
after-tax or $0.25 per share) in conjunction with our Productivity
for Growth program.

Gain on Previously Held Equity Interests
In 2010, in connection with our acquisitions of PBG and PAS,
we recorded a gain on our previously held equity interests of
$958 million ($0.60 per share), comprising $735 million which
is non-taxable and recorded in bottling equity income and
$223 million related to the reversal of deferred tax liabilities
associated with these previously held equity interests.

Merger and Integration Charges
In 2010, we incurred merger and integration charges of
$799 million related to our acquisitions of PBG and PAS, as
well as advisory fees in connection with our acquisition of WBD.
$467 million of these charges were recorded in the PAB seg-
ment, $111 million recorded in the Europe segment, $191 mil-
lion recorded in corporate unallocated expenses and $30 million
recorded in interest expense. The merger and integration
charges related to our acquisitions of PBG and PAS are being
incurred to help create a more fully integrated supply chain
and go-to-market business model, to improve the effectiveness
and efficiency of the distribution of our brands and to enhance
our revenue growth. These charges also include closing costs,
one-time financing costs and advisory fees related to our acqui-
sitions of PBG and PAS. In addition, we recorded $9 million of
merger-related charges, representing our share of the respective
merger costs of PBG and PAS, in bottling equity income. In total,
the above charges had an after-tax impact of $648 million or
$0.40 per share.

PepsiCo, Inc. 2010 Annual Report

In 2009, we incurred $50 million of merger-related charges,
as well as an additional $11 million of merger-related charges,
representing our share of the respective merger costs of PBG and
PAS, recorded in bottling equity income. In total, these charges
had an after-tax impact of $44 million or $0.03 per share.

Inventory Fair Value Adjustments
In 2010, we recorded $398 million ($333 million after-tax or
$0.21 per share) of incremental costs related to fair value adjust-
ments to the acquired inventory and other related hedging
contracts included in PBG’s and PAS’s balance sheets at the
acquisition date. Substantially all of these costs were recorded
in cost of sales.

Venezuela Currency Devaluation
As of the beginning of our 2010 fiscal year, we recorded a one-
time $120 million net charge related to our change to hyperin-
flationary accounting for our Venezuelan businesses and the
related devaluation of the bolivar. $129 million of this net charge
was recorded in corporate unallocated expenses, with the bal-
ance (income of $9 million) recorded in our PAB segment. In
total, this net charge had an after-tax impact of $120 million
or $0.07 per share.

Asset Write-Off
In 2010, we recorded a $145 million charge ($92 million after-tax
or $0.06 per share) related to a change in scope of one release in
our ongoing migration to SAP software. This change was driven,
in part, by a review of our North America systems strategy fol-
lowing our acquisitions of PBG and PAS. This change does not
impact our overall commitment to continue our implementation
of SAP across our global operations over the next few years.

Foundation Contribution
In 2010, we made a $100 million ($64 million after-tax or
$0.04 per share) contribution to The PepsiCo Foundation, Inc.,
in order to fund charitable and social programs over the next
several years. This contribution was recorded in corporate
unallocated expenses.

Debt Repurchase
In 2010, we paid $672 million in a cash tender offer to repurchase
$500 million (aggregate principal amount) of our 7.90% senior
unsecured notes maturing in 2018. As a result of this debt repur-
chase, we recorded a $178 million charge to interest expense
($114 million after-tax or $0.07 per share), primarily represent-
ing the premium paid in the tender offer.

PepsiCo Share of PBG’s Restructuring and
Impairment Charges
In 2008, PBG implemented a restructuring initiative across
all of its geographic segments. In addition, PBG recognized
an asset impairment charge related to its business in Mexico.
Consequently, a non-cash charge of $138 million was included in
bottling equity income ($114 million after-tax or $0.07 per share)
as part of recording our share of PBG’s financial results.

Non-GAAP Measures
Certain measures contained in this annual report are financial
measures that are adjusted for items affecting comparability (see
“Items Affecting Comparability” for a detailed list and description
of each of these items), as well as, in certain instances, adjusted
for foreign currency. These measures are not in accordance
with Generally Accepted Accounting Principles (GAAP). Items
adjusted for currency assume foreign currency exchange rates
used for translation based on the rates in effect for the comparable
prior-year period. We believe investors should consider these
non-GAAP measures in evaluating our results as they are more
indicative of our ongoing performance and with how management
evaluates our operational results and trends. These measures are
not, and should not be viewed as, a substitute for U.S. GAAP report-
ing measures. See “Management Operating Cash Flow.”

Results of Operations — Consolidated Review
In the discussions of net revenue and operating profit below,
effective net pricing reflects the year-over-year impact of discrete

pricing actions, sales incentive activities and mix resulting from
selling varying products in different package sizes and in dif-
ferent countries. Additionally, acquisitions reflect all mergers
and acquisitions activity, including the impact of acquisitions,
divestitures and changes in ownership or control in consolidated
subsidiaries and nonconsolidated equity investees.

Servings
Since our divisions each use different measures of physical unit
volume (i.e., kilos, gallons, pounds and case sales), a common
servings metric is necessary to reflect our consolidated physical
unit volume. Our divisions’ physical volume measures are con-
verted into servings based on U.S. Food and Drug Administration
guidelines for single-serving sizes of our products.

In 2010, total servings increased 7% compared to 2009, as
servings for snacks increased 2% while servings for beverages
increased 9%. In 2009, total servings increased slightly com-
pared to 2008, as servings for snacks increased 1% while servings
for beverages decreased 1%.

Total Net Revenue and Operating Profit

Total net revenue

Operating profit
FLNA
QFNA
LAF
PAB
Europe
AMEA
Corporate Unallocated

Mark-to-market net (gains/(losses))
Merger and integration charges
Restructuring and impairment charges
Venezuela currency devaluation
Asset write-off
Foundation contribution
Other

Total operating profit

Total operating profit margin

2010
$57,838

2009
$43,232

2008
$43,251

Change

2010

34%

2009
−

$ 3,549
568
1,004
2,776
1,020
742

91
(191)
–
(129)
(145)
(100)
(853)
$ 8,332

$ 3,258
628
904
2,172
932
716

274
(49)
–
–
–
–
(791)
$ 8,044

$ 2,959
582
897
2,026
910
592

(346)
–
(10)
–
–
–
(651)
$ 6,959

9%
(10)%
11%
28%
9%
4%

(67)%
284%
–
n/m
n/m
n/m

8%
4%

14.4%

18.6%

16.1%

(4.2)

10%
8%
1%
7%
2%
21%

n/m
n/m
n/m
–
–
–
21%
16%

2.5

n/m represents year-over-year changes that are not meaningful.

2010
Total operating profit increased 4% and operating margin
decreased 4.2 percentage points. Operating profit performance
was impacted by items affecting comparability (see “Items
Affecting Comparability”) which reduced operating profit by
21 percentage points and contributed 2.9 percentage points to
the total operating margin decline. Operating profit performance
also reflects the incremental operating results from our acquisi-
tions of PBG and PAS.

2009
Total operating profit increased 16% and operating margin
increased 2.5 percentage points. These increases were driven
by the net favorable mark-to-market impact of our commodity

hedges and lower restructuring and impairment charges related
to our Productivity for Growth program, collectively contribut-
ing 17 percentage points to operating profit growth, partially
offset by 1 percentage point from costs associated with our acqui-
sitions of PBG and PAS. Foreign currency reduced operating
profit growth by 6 percentage points, and acquisitions contrib-
uted 2 percentage points to the operating profit growth.

Other corporate unallocated expenses increased 21%, primar-
ily reflecting deferred compensation losses, compared to gains in
2008. The deferred compensation losses are offset (as an increase
to interest income) by gains on investments used to economically
hedge these costs.

Management’s Discussion and Analysis

Other Consolidated Results

Bottling equity income
Interest expense, net
Annual tax rate
Net income attributable to PepsiCo
Net income attributable to PepsiCo per common share — diluted
Mark-to-market net (gains)/losses
Restructuring and impairment charges
PepsiCo share of PBG’s restructuring and impairment charges
Gain on previously held equity interests
Merger and integration charges
Inventory fair value adjustments
Venezuela currency devaluation
Asset write-off
Foundation contribution
Debt repurchase
Net income attributable to PepsiCo per common share — diluted,

excluding above items*

2010
$ 735
$ (835)

2009
$ 365
$ (330)

2008
$ 374
$ (288)

23.0%

26.0%

26.7%

$6,320
$ 3.91
(0.04)
−
−
(0.60)
0.40
0.21
0.07
0.06
0.04
0.07

$5,946
$ 3.77
(0.11)
0.02
−
−
0.03
−
−
−
−
−

$5,142
$ 3.21
0.14
0.25
0.07
−
−
−
−
−
−
−

$ 4.13**

$ 3.71

$ 3.68**

Impact of foreign currency translation
Growth in net income attributable to PepsiCo per common share — diluted,

excluding above items, on a constant currency basis*

* See “Non-GAAP Measures”
** Does not sum due to rounding

Change

2010
$ 370
$(505)

6%
4%

2009
$ (9)
$(42)

16%
17%

12%

12%**

As discussed in “Our Customers,” prior to our acquisitions of
PBG and PAS on February 26, 2010, we had noncontrolling interests
in each of these bottlers and consequently included our share of
their net income in bottling equity income. Upon consummation
of the acquisitions in the first quarter of 2010, we began to consoli-
date the results of these bottlers and recorded a $735 million gain
in bottling equity income associated with revaluing our previously
held equity interests in PBG and PAS to fair value. Our share of the
net income of PBV is reflected in bottling equity income.

2010
Bottling equity income increased $370 million, primarily reflect-
ing the gain on our previously held equity interests in connection
with our acquisitions of PBG and PAS, partially offset by the con-
solidation of the related financial results of the acquired bottlers.
Net interest expense increased $505 million, primarily reflect-

ing higher average debt balances, interest expense incurred in
connection with our cash tender offer to repurchase debt, and
bridge and term financing costs in connection with our acquisi-
tions of PBG and PAS. These increases were partially offset by
lower average rates on our debt balances.

The reported tax rate decreased 3.0 percentage points com-
pared to the prior year, primarily reflecting the impact of our
acquisitions of PBG and PAS, which includes the reversal of
deferred taxes attributable to our previously held equity interests
in PBG and PAS, as well as the favorable resolution of certain tax
matters in 2010.

Net income attributable to PepsiCo increased 6% and net income

attributable to PepsiCo per common share increased 4%. Items

affecting comparability (see “Items Affecting Comparability”)
decreased net income attributable to PepsiCo and net income
attributable to PepsiCo per common share by 8 percentage points.

2009
Bottling equity income decreased $9 million, primarily reflect-
ing pre-tax gains on our sales of PBG and PAS stock in 2008,
mostly offset by a 2008 non-cash charge of $138 million related to
our share of PBG’s 2008 restructuring and impairment charges.
Net interest expense increased $42 million, primarily reflect-

ing lower average rates on our investment balances and higher
average debt balances. This increase was partially offset by gains
in the market value of investments used to economically hedge a
portion of our deferred compensation costs.

The tax rate decreased 0.7 percentage points compared to
2008, primarily due to the favorable resolution of certain foreign
tax matters and lower taxes on foreign results in 2009.

Net income attributable to PepsiCo increased 16% and net
income attributable to PepsiCo per common share increased
17%. The favorable net mark-to-market impact of our commodity
hedges and lower restructuring and impairment charges in
2009 were partially offset by the merger costs related to our
acquisitions of PBG and PAS; these items affecting comparability
(see “Items Affecting Comparability”) increased net income
attributable to PepsiCo by 16 percentage points and net
income attributable to PepsiCo per common share by 17 percent-
age points. Net income attributable to PepsiCo per common
share was also favorably impacted by share repurchases in 2008.

PepsiCo, Inc. 2010 Annual Report

Results of Operations — Division Review
The results and discussions below are based on how our Chief Executive Officer monitors the performance of our divisions. See
“Items Affecting Comparability” for a discussion of items to consider when evaluating our results and related information regarding
non-GAAP measures.

Net Revenue, 2010
Net Revenue, 2009
% Impact of:
Volume(a)
Effective net pricing(b)
Foreign exchange
Acquisitions
% Change(c)

Net Revenue, 2009
Net Revenue, 2008
% Impact of:
Volume(a)
Effective net pricing(b)
Foreign exchange

FLNA
$13,397
$13,224

QFNA
$1,832
$1,884

LAF
$6,315
$5,703

PAB
$20,401
$10,116

Europe
$9,254
$6,727

AMEA
$6,639
$5,578

Total
$57,838
$43,232

–%
–
1
–
1%

(1)%
(3)
1
–
(3)%

3%
6
1
–
11%

*
*
–
*
102%

*
*
(2)
*
38%

12%
3
4
1
19%

*
*
1
*
34%

FLNA
$13,224
$12,507

5.5
(1)

QFNA
$1,884
$1,902

LAF
$5,703
$5,895

PAB
$10,116
$10,937

Europe
$6,727
$6,891

AMEA
$5,578
$5,119

Total
$43,232
$43,251

–%
–
(1)

(2)%

12
(14)

(7)%
–
(1)

(3)%
5
(12)

7%
4
(3)

(1)%
5
(5)

1.5

–%

Acquisitions
% Change(c)
(a) Excludes the impact of acquisitions. In certain instances, volume growth varies from the amounts disclosed in the following divisional discussions due

–
(1)%

8
(2)%

–
(8)%

–
(3)%

–
6%

1
9%

to nonconsolidated joint venture volume, and, for our beverage businesses, temporary timing differences between BCS and CSE. Our net revenue excludes
nonconsolidated joint venture volume, and, for our beverage businesses, is based on CSE.

(b) Includes the year-over-year impact of discrete pricing actions, sales incentive activities and mix resulting from selling varying products in different package sizes and

in different countries.

(c) Amounts may not sum due to rounding.
* It is impractical to separately determine and quantify the impact of our acquisitions of PBG and PAS from changes in our pre-existing beverage business since we now

manage these businesses as an integrated system.

Frito-Lay North America

Net revenue
Impact of foreign currency translation
Net revenue growth, on a constant currency basis*

Operating profit
Restructuring and impairment charges
Operating profit, excluding above item*

Impact of foreign currency translation
Operating profit growth excluding above item, on a constant currency basis*

* See “Non-GAAP Measures”
** Does not sum due to rounding

2010
$13,397

$ 3,549
–
$ 3,549

2009
$13,224

2008
$12,507

$ 3,258
2
$ 3,260

$ 2,959
108
$ 3,067

% Change

2010
1
(1)
0.5**

(1)
8

2009
6
1
6**

0.5

7**

2010
Pound volume decreased 1%, primarily due to the overlap of
the 2009 “20% More Free” promotion, as well as a double-digit
decline in SunChips, partially offset by mid-single-digit growth
in trademark Lay’s. Net revenue grew 1%, primarily reflecting
mid-single-digit revenue growth in trademark Lay’s, double-digit
revenue growth in variety packs and high-single-digit revenue
growth in trademark Ruffles. These gains were partially offset
by a double-digit revenue decline in SunChips and a mid-single-
digit revenue decline in Tostitos. Foreign currency contributed
1 percentage point to the net revenue growth.

Operating profit grew 9%, reflecting lower commodity costs,

primarily cooking oil.

2009
Net revenue grew 6% and pound volume increased 1%. The
volume growth reflects high-single-digit growth in dips, double-
digit growth from our Sabra joint venture and low-single-digit
growth in trademark Lay’s. These volume gains were partially off-
set by high-single-digit declines in trademark Ruffles. Net revenue
growth also benefited from effective net pricing. Foreign currency
reduced net revenue growth by almost 1 percentage point.

Operating profit grew 10%, primarily reflecting the net revenue

growth, partially offset by higher commodity costs, primarily
cooking oil and potatoes. Lower restructuring and impairment
charges in 2009 related to our Productivity for Growth program
increased operating profit growth by nearly 4 percentage points.

Management’s Discussion and Analysis

Quaker Foods North America

Net revenue
Impact of foreign currency translation
Net revenue growth, on a constant currency basis*

Operating profit
Restructuring and impairment charges
Operating profit, excluding above item*

Impact of foreign currency translation
Operating profit growth excluding above item, on a constant currency basis*

* See “Non-GAAP Measures”
** Does not sum due to rounding

2010
Net revenue declined 3% and volume declined 1%. The volume
decline primarily reflects low-single-digit declines in Oatmeal
and ready-to-eat cereals. Unfavorable mix and net pricing
also contributed to the net revenue decline. Favorable foreign
currency positively contributed 1 percentage point to the net
revenue performance.

Operating profit declined 10%, primarily reflecting the net
revenue performance, as well as insurance settlement recover-
ies recorded in the prior year related to the Cedar Rapids flood,
which negatively impacted operating profit performance by
3 percentage points.

Latin America Foods

Net revenue
Impact of foreign currency translation
Net revenue growth, on a constant currency basis*

Operating profit
Restructuring and impairment charges
Operating profit excluding above item*

Impact of foreign currency translation
Operating profit growth excluding above item, on a constant currency basis*

* See “Non-GAAP Measures”
** Does not sum due to rounding

2010
$1,832

2009
$1,884

2008
$1,902

$ 568
–
$ 568

$ 628
1
$ 629

$ 582
31
$ 613

% Change

2010
(3)
(1)
(4)

(10)

(1)
(10)**

2009
(1)
1
–

–
3

2009
Net revenue declined 1% and volume was flat. Low-single-digit
volume declines in Oatmeal and high-single-digit declines in
trademark Roni were offset by high-single-digit growth in ready-
to-eat cereals. Favorable net pricing, driven by price increases
taken in 2008, was offset by unfavorable mix. Unfavorable for-
eign currency reduced net revenue growth by 1 percentage point.

Operating profit increased 8%, primarily reflecting the

absence of 2008 restructuring and impairment charges related
to our Productivity for Growth program, which increased operat-
ing profit growth by 5 percentage points. Lower advertising and
marketing, and selling and distribution expenses, also contrib-
uted to the operating profit growth.

2010
$6,315

2009
$5,703

2008
$5,895

$1,004
–
$1,004

$ 904
3
$ 907

$ 897
40
$ 937

% Change

2010
11
(1)
10

–
11

2009
(3)
14
10**

(3)

17
13**

2010
Volume increased 4%, reflecting mid-single-digit increases at
Sabritas in Mexico and Brazil. Additionally, Gamesa in Mexico
grew at a low-single-digit rate.

Net revenue increased 11%, primarily reflecting favorable
effective net pricing and the volume growth. Net revenue growth
reflected 1 percentage point of favorable foreign currency,
which was net of a 6-percentage-point unfavorable impact
from Venezuela.

Operating profit grew 11%, primarily reflecting the net rev-
enue growth. Unfavorable foreign currency reduced operating
profit growth slightly, as an 8-percentage-point unfavorable
impact from Venezuela was offset by favorable foreign currency
in other markets.

2009
Volume declined 2%, largely reflecting pricing actions to cover
commodity inflation. A mid-single-digit decline at Sabritas in
Mexico and a low-single-digit decline at Gamesa in Mexico were
partially offset by mid-single-digit growth in Brazil.

Net revenue declined 3%, primarily reflecting an unfavorable

foreign currency impact of 14 percentage points. Favorable
effective net pricing was partially offset by the volume declines.

Operating profit grew 1%, reflecting favorable effective
net pricing, partially offset by the higher commodity costs.
Unfavorable foreign currency reduced operating profit by
17 percentage points. Operating profit growth benefited from
lower restructuring and impairment charges in 2009 related to
our Productivity for Growth program.

PepsiCo, Inc. 2010 Annual Report

PepsiCo Americas Beverages

Net revenue
Impact of foreign currency translation
Net revenue growth, on a constant currency basis*

Operating profit
Restructuring and impairment charges
Merger and integration costs
Inventory fair value adjustments
Venezuela currency devaluation
Operating profit, excluding above items*

Impact of foreign currency translation
Operating profit, excluding above items, on a constant currency basis*

* See “Non-GAAP Measures”
** Does not sum due to rounding

2010
Volume increased 10%, primarily reflecting volume from incre-
mental brands related to our acquisition of PBG’s operations in
Mexico, which contributed over 6 percentage points to volume
growth, as well as incremental volume related to our DPSG man-
ufacturing and distribution agreement, entered into in connec-
tion with our acquisitions of PBG and PAS, which contributed
over 5 percentage points to volume growth. North America
volumes, excluding the impact of the incremental DPSG volume,
declined 1%, driven by a 3% decline in CSD volume, partially
offset by a 1% increase in non-carbonated beverage volume. The
non-carbonated beverage volume growth primarily reflected a
mid-single-digit increase in Gatorade sports drinks and a high-
single-digit increase in Lipton ready-to-drink teas, mostly offset
by mid-single-digit declines in our base Aquafina water and
Tropicana businesses.

Net revenue increased 102%, primarily reflecting the incre-
mental finished goods revenue related to our acquisitions of PBG
and PAS.

Reported operating profit increased 28%, primarily reflect-
ing the incremental operating results from our acquisitions of
PBG and PAS, partially offset by the items affecting compara-
bility in the above table (see “Items Affecting Comparability”).

Europe

Net revenue
Impact of foreign currency translation
Net revenue growth, on a constant currency basis*

Operating profit
Restructuring and impairment charges
Merger and integration costs
Inventory fair value adjustments
Operating profit, excluding above items*

Impact of foreign currency translation
Operating profit growth excluding above items, on a constant currency basis*

* See “Non-GAAP Measures”
** Does not sum due to rounding

2010
$20,401

2009
$10,116

2008
$10,937

$ 2,776
–
467
358
(9)
$ 3,592

$ 2,172
16
–
–
–
$ 2,188

$ 2,026
289
–
–
–
$ 2,315

% Change

2010
102
–
102

2009
(8)
1
(6)**

4
68

(5.5)

3
(3)**

Excluding the items affecting comparability, operating profit
increased 64%. Unfavorable foreign currency reduced operating
profit performance by 4 percentage points, driven primarily by a
6- percentage-point unfavorable impact from Venezuela.

2009
BCS volume declined 6%, reflecting continued softness in the
North America liquid refreshment beverage category.

In North America, non-carbonated beverage volume declined
11%, primarily driven by double-digit declines in Gatorade sports
drinks and in our base Aquafina water business. CSD volumes
declined 5%.

Net revenue declined 8%, primarily reflecting the volume
declines. Unfavorable foreign currency contributed over 1 per-
centage point to the net revenue decline.

Operating profit increased 7%, primarily reflecting lower
restructuring and impairment charges in 2009 related to our
Productivity for Growth program. Excluding restructuring and
impairment charges, operating profit declined 5.5%, primarily
reflecting the net revenue performance. Operating profit was
also negatively impacted by unfavorable foreign currency which
reduced operating profit growth by almost 3 percentage points.

2010
$9,254

2009
$6,727

2008
$6,891

$1,020
–
111
40
$1,171

$ 932
1
1
–
$ 934

$ 910
50
–
–
$ 960

% Change

2010
38
2
40

2009
(2)
12
10

1
26

(3)

17
13**

Management’s Discussion and Analysis

2010
Snacks volume increased 2%, reflecting a double-digit increase in
France, high-single-digit growth in Quaker in the United Kingdom
and mid-single-digit increases in Russia and Turkey. These gains
were partially offset by a double-digit decline in Romania and a
low-single-digit decline in Spain. Additionally, Walkers in the
United Kingdom experienced low-single-digit growth.

Beverage volume increased 10%, reflecting double-digit
increases in Russia and Turkey, high-single-digit growth
in Poland and France and a mid-single-digit increase in the
United Kingdom. These gains were partially offset by a double-
digit decline in Romania. Additionally, incremental brands
related to our acquisitions of PBG and PAS contributed 5 percent-
age points to the beverage volume growth.

Net revenue grew 38%, primarily reflecting the incremental
finished goods revenue related to our acquisitions of PBG and
PAS. Unfavorable foreign currency reduced net revenue growth
by 2 percentage points.

Operating profit grew 9%, primarily reflecting incremen-
tal operating results from our acquisitions of PBG and PAS.
Operating profit growth was also adversely impacted by the
items affecting comparability in the above table (see “Items
Affecting Comparability”). Excluding these items, operating
profit increased 25%. Unfavorable foreign currency reduced
operating profit growth by 1 percentage point.

2009
Snacks volume declined 1%, reflecting continued macroeconomic
challenges and planned weight outs in response to higher input
costs. High-single-digit declines in Spain and Turkey and a dou-
ble-digit decline in Poland were partially offset by low-single-digit
growth in Russia. Additionally, Walkers in the United Kingdom
declined at a low-single-digit rate. Our acquisition in the fourth
quarter of 2008 of a snacks company in Serbia positively contrib-
uted 2 percentage points to the volume performance.

Beverage volume grew 3.5%, primarily reflecting our acqui-
sition of Lebedyansky in Russia in the fourth quarter of 2008
which contributed 8 percentage points to volume growth. A high-
single-digit increase in Germany and mid-single-digit increases
in the United Kingdom and Poland were more than offset by
double-digit declines in Russia and the Ukraine.

Net revenue declined 2%, primarily reflecting adverse foreign
currency which contributed 12 percentage points to the decline,
partially offset by acquisitions which positively contributed 8 per-
centage points to net revenue performance. Favorable effective net
pricing positively contributed to the net revenue performance.

Operating profit grew 2%, primarily reflecting the favorable
effective net pricing and lower restructuring and impairment
costs in 2009 related to our Productivity for Growth program.
Acquisitions positively contributed 5 percentage points
to the operating profit growth and adverse foreign currency
reduced operating profit growth by 17 percentage points.

Asia, Middle East & Africa

Net revenue
Impact of foreign currency translation
Net revenue growth, on a constant currency basis*

Operating profit
Restructuring and impairment charges
Operating profit, excluding above items*

Impact of foreign currency translation
Operating profit growth excluding above items, on a constant currency basis*

* See “Non-GAAP Measures”

2010
Snacks volume grew 15%, reflecting broad-based increases driven
by double-digit growth in India, the Middle East and China, par-
tially offset by a low-single-digit decline in Australia. Acquisitions
contributed 2 percentage points to the snacks volume growth.
Beverage volume grew 7%, driven by double-digit growth

in India and China, partially offset by a low-single-digit decline in
the Middle East. Acquisitions had a nominal impact on the bever-
age volume growth rate.

Net revenue grew 19%, reflecting the volume growth and favor-

able effective net pricing. Foreign currency contributed nearly
4 percentage points to the net revenue growth. The net impact of

2010
$6,639

2009
$5,578

2008
$5,119

$ 742
–
$ 742

$ 716
13
$ 729

$ 592
15
$ 607

Change

2010
19
(4)
15

(4)
(2)

2009
9
3
12

3
23

acquisitions and divestitures contributed 1 percentage point to
the net revenue growth.

Operating profit grew 4%, driven primarily by the net revenue
growth, partially offset by higher commodity costs and increased
investments in strategic markets. The net impact of acquisitions
and divestitures reduced operating profit growth by 10 percentage
points, primarily as a result of a one-time gain in the prior year asso-
ciated with the contribution of our snacks business in Japan to form
a joint venture with Calbee Foods Company (Calbee). Favorable for-
eign currency contributed 4 percentage points to the operating profit
growth and the absence of restructuring and impairment charges in
the current year contributed 2 percentage points.

PepsiCo, Inc. 2010 Annual Report

2009
Snacks volume grew 9%, reflecting broad-based increases driven
by double-digit growth in India and the Middle East, partially
offset by a low-single-digit decline in China. Additionally, South
Africa grew volume at a low-single-digit rate and Australia grew
volume slightly. The net impact of acquisitions and divestitures
contributed 2 percentage points to the snacks volume growth.

Beverage volume grew 8%, reflecting broad-based increases

driven by double-digit growth in India and high-single-digit
growth in Pakistan. Additionally, the Middle East grew at a
mid-single-digit rate and China grew at a low-single-digit rate.
Acquisitions had a nominal impact on the beverage volume
growth rate.

Net revenue grew 9%, reflecting volume growth and favor-
able effective net pricing. Foreign currency reduced net revenue
growth by over 3 percentage points. The net impact of acquisi-
tions and divestitures contributed 1 percentage point to the net
revenue growth.

Operating profit grew 21%, driven primarily by the net rev-
enue growth. The net impact of acquisitions and divestitures
contributed 11 percentage points to the operating profit growth
and included a one-time gain associated with the contribution of
our snacks business in Japan to form a joint venture with Calbee.
Foreign currency reduced operating profit growth by 3 percent-
age points.

Our Liquidity and Capital Resources
We believe that our cash-generating capability and financial
condition, together with our revolving credit facilities and other
available methods of debt financing (including long-term debt
financing which, depending upon market conditions, we may
use to replace a portion of our commercial paper borrowings),
will be adequate to meet our operating, investing and financ-
ing needs. However, there can be no assurance that volatility in
the global capital and credit markets will not impair our ability
to access these markets on terms commercially acceptable to
us or at all. See Note 9 for a description of our credit facilities.
See also “Unfavorable economic conditions in the countries in
which we operate may have an adverse impact on our business
results or financial condition.”

In addition, currency restrictions enacted by the government

in Venezuela have impacted our ability to pay dividends out-
side of the country from our snack and beverage operations in
Venezuela. As of December 25, 2010, our operations in Venezuela
comprised 4% of our cash and cash equivalents balance.

Furthermore, our cash provided from operating activities is
somewhat impacted by seasonality. Working capital needs are
impacted by weekly sales, which are generally highest in the
third quarter due to seasonal and holiday-related sales patterns,
and generally lowest in the first quarter. On a continuing basis,
we consider various transactions to increase shareholder value
and enhance our business results, including acquisitions, dives-
titures, joint ventures and share repurchases. These transactions
may result in future cash proceeds or payments.

Operating Activities
During 2010, net cash provided by operating activities was
$8.4 billion, compared to net cash provided of $6.8 billion in the
prior year. The increase over the prior year primarily reflects
the incremental operating results from our acquisitions of PBG
and PAS, as well as favorable working capital comparisons to
the prior year. Also see “Management Operating Cash Flow”
below for certain other items impacting net cash provided by
operating activities.

In 2009, our operations provided $6.8 billion of cash, com-
pared to $7.0 billion in 2008, reflecting a $1.0 billion ($0.6 bil-
lion after-tax) discretionary pension contribution to our U.S.
pension plans, $196 million of restructuring payments related
to our Productivity for Growth program and $49 million of
merger cost payments related to our acquisitions of PBG and
PAS. Operating cash flow also reflected net favorable working
capital comparisons to 2008.

Investing Activities
During 2010, net cash used for investing activities was $7.7 bil-
lion, primarily reflecting $3.2 billion for net capital spending,
$2.8 billion of net cash paid in connection with our acquisitions
of PBG and PAS, and $0.9 billion of cash paid in connection with
our manufacturing and distribution agreement with DPSG.
We also paid $0.5 billion to acquire WBD American Depositary
Shares in the open market.

In 2009, net cash used for investing activities was $2.4 billion,

primarily reflecting $2.1 billion for capital spending and
$0.5 billion for acquisitions.

Subsequent to year-end 2010, we paid $0.2 billion to acquire
WBD American Depositary Shares in the open market. We also
spent approximately $3.8 billion to acquire approximately 66% of
WBD’s outstanding ordinary shares, increasing our total owner-
ship of WBD to approximately 77%. In addition to these transac-
tions, we expect to incur an additional $1.4 billion of investing
cash outflows in connection with our intended purchase of the
remaining outstanding WBD shares, funded primarily through
existing international cash. See Note 15.

We anticipate net capital spending in 2011 of about $3.7 billion,

which includes about $150 million of capital spending related
to the integration of PBG and PAS, as well as capital spending
related to our acquisition of WBD.

Financing Activities
During 2010, net cash provided by financing activities was
$1.4 billion, primarily reflecting proceeds from issuances of
long-term debt of $6.5 billion, mostly in connection with our
acquisitions of PBG and PAS, and net proceeds from short-term
borrowings of $2.5 billion. These increases were largely offset
by the return of operating cash flow to our shareholders through
share repurchases and dividend payments of $8.0 billion.

In 2009, net cash used for financing activities was $2.5 billion,

primarily reflecting the return of operating cash flow to our
shareholders through dividend payments of $2.7 billion. Net

In 2010, management operating cash flow was used primarily

to repurchase shares and pay dividends. In 2009, management
operating cash flow was used primarily to pay dividends. In 2008,
management operating cash flow was used primarily to repur-
chase shares and pay dividends. We expect to continue to return
management operating cash flow to our shareholders through
dividends and share repurchases while maintaining short-term
credit ratings that ensure appropriate financial flexibility and
ready access to global and capital credit markets at favorable
interest rates. However, see “Our Business Risks” for certain fac-
tors that may impact our operating cash flows.

Credit Ratings
Our objective is to maintain credit ratings that provide us with
ready access to global capital and credit markets at favorable
interest rates. On February 24, 2010, Moody’s Investors Service
(Moody’s) lowered the corporate credit rating of PepsiCo and
its supported subsidiaries and the rating of PepsiCo’s senior
unsecured long-term debt to Aa3 from Aa2. Moody’s rating for
PepsiCo’s short-term indebtedness was confirmed at Prime-1
and the outlook is stable. On March 17, 2010, Standard & Poor’s
Ratings Services (S&P) lowered PepsiCo’s corporate credit rat-
ing to A from A+ and lowered the rating of PepsiCo’s senior unse-
cured long-term debt to A- from A+. S&P’s rating for PepsiCo’s
short-term indebtedness was confirmed at A-1 and the outlook
is stable. Any downgrade of our credit ratings by either Moody’s
or S&P, including any downgrade to below investment grade,
could increase our future borrowing costs or impair our ability to
access capital markets on terms commercially acceptable to us or
at all. See “Our Business Risks” and Note 9.

Credit Facilities and Long-Term Contractual Commitments
See Note 9 for a description of our credit facilities and long-term
contractual commitments.

Off-Balance-Sheet Arrangements
It is not our business practice to enter into off-balance-sheet
arrangements, other than in the normal course of business.
Additionally, we do not enter into off-balance-sheet transactions
specifically structured to provide income or tax benefits or to
avoid recognizing or disclosing assets or liabilities. See Note 9 for
a description of our off-balance-sheet arrangements.

Management’s Discussion and Analysis

proceeds from issuances of long-term debt of $0.8 billion and
stock option proceeds of $0.4 billion were mostly offset by net
repayments of short-term borrowings of $1.0 billion.

We annually review our capital structure with our Board,
including our dividend policy and share repurchase activity.
In the first quarter of 2010, our Board of Directors approved a
7% dividend increase from $1.80 to $1.92 per share and autho-
rized the repurchase of up to $15.0 billion of PepsiCo common
stock through June 30, 2013. This authorization was in addition
to our $8.0 billion repurchase program authorized by our Board
of Directors, publicly announced on May 2, 2007 and which
expired on June 30, 2010. We anticipate share repurchases of
approximately $2.5 billion in 2011.

Management Operating Cash Flow
We focus on management operating cash flow as a key element
in achieving maximum shareholder value, and it is the primary
measure we use to monitor cash flow performance. However,
it is not a measure provided by accounting principles generally
accepted in the U.S. Therefore, this measure is not, and should
not be viewed as, a substitute for U.S. GAAP cash flow measures.
Since net capital spending is essential to our product innova-
tion initiatives and maintaining our operational capabilities, we
believe that it is a recurring and necessary use of cash. As such,
we believe investors should also consider net capital spending
when evaluating our cash from operating activities. Additionally,
we consider certain items (included in the table below), in evalu-
ating management operating cash flow. We believe investors
should consider these items in evaluating our management oper-
ating cash flow results.

The table below reconciles net cash provided by operating
activities, as reflected in our cash flow statement, to our manage-
ment operating cash flow excluding the impact of the items below.

Net cash provided by operating activities
Capital spending
Sales of property, plant and equipment
Management operating cash flow
Discretionary pension and retiree
medical contributions (after-tax)

Payments related to 2009

restructuring charges (after-tax)

Merger and integration payments (after-tax)
Foundation contribution (after-tax)
Debt repurchase (after-tax)
Capital investments related to the

PBG/PAS integration

Management operating cash flow

excluding above items

2010

2009

2008
$ 8,448 $ 6,796 $ 6,999
(2,446)
98
4,651

(3,253)
81
5,276

(2,128)
58
4,726

983

640

–

20
299
64
112

138

168
49
–
–

180
–
–
–

–

$ 6,892 $ 5,583 $ 4,831

PepsiCo, Inc. 2010 Annual Report

Consolidated Statement of Income

PepsiCo, Inc. and Subsidiaries

(in millions except per share amounts)
Fiscal years ended December 25, 2010, December 26, 2009 and December 27, 2008
Net Revenue
Cost of sales
Selling, general and administrative expenses
Amortization of intangible assets
Operating Profit
Bottling equity income
Interest expense
Interest income
Income before income taxes
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interests
Net Income Attributable to PepsiCo

Net Income Attributable to PepsiCo per Common Share
Basic
Diluted
Cash dividends declared per common share

See accompanying notes to consolidated financial statements.

2010
$57,838
26,575
22,814
117
8,332
735
(903)
68
8,232
1,894
6,338
18
$ 6,320

$ 3.97
$ 3.91
$ 1.89

2009
$43,232
20,099
15,026
63
8,044
365
(397)
67
8,079
2,100
5,979
33
$ 5,946

$ 3.81
$ 3.77
$ 1.775

2008
$43,251
20,351
15,877
64
6,959
374
(329)
41
7,045
1,879
5,166
24
$ 5,142

$ 3.26
$ 3.21
$ 1.65

Consolidated Statement of Cash Flows

PepsiCo, Inc. and Subsidiaries

2010

2009

2008

$ 6,338
2,327
299
–
(31)
808
(385)
(958)
145
120
(107)
(1,734)
453
42
500
(268)
276
144
488
123
(132)
8,448

(3,253)
81
(2,833)
(900)
(463)
(83)
12
–
–

(12)
29
(229)
(17)
(7,668)

$ 5,979
1,635
227
36
(196)
50
(49)
–
–
–
(42)
(1,299)
423
(235)
284
188
17
(127)
(133)
319
(281)
6,796

(2,128)
58
–
–
–
(500)
99
15
–

(29)
71
13
–
(2,401)

$ 5,166
1,543
238
543
(180)
–
–
–
–
–
(107)
(219)
459
(202)
573
(549)
(345)
(68)
718
(180)
(391)
6,999

(2,446)
98
–
–
–
(1,925)
6
(40)
358

(156)
62
1,376
–
(2,667)

(in millions)
Fiscal years ended December 25, 2010, December 26, 2009 and December 27, 2008
Operating Activities
Net income
Depreciation and amortization
Stock-based compensation expense
Restructuring and impairment charges
Cash payments for restructuring charges
Merger and integration costs
Cash payments for merger and integration costs
Gain on previously held equity interests in PBG and PAS
Asset write-off
Non-cash foreign exchange loss related to Venezuela devaluation
Excess tax benefits from share-based payment arrangements
Pension and retiree medical plan contributions
Pension and retiree medical plan expenses
Bottling equity income, net of dividends
Deferred income taxes and other tax charges and credits
Change in accounts and notes receivable
Change in inventories
Change in prepaid expenses and other current assets
Change in accounts payable and other current liabilities
Change in income taxes payable
Other, net
Net Cash Provided by Operating Activities
Investing Activities
Capital spending
Sales of property, plant and equipment
Acquisitions of PBG and PAS, net of cash and cash equivalents acquired
Acquisition of manufacturing and distribution rights from DPSG
Investment in WBD
Other acquisitions and investments in noncontrolled affiliates
Divestitures
Cash restricted for pending acquisitions
Cash proceeds from sale of PBG and PAS stock
Short-term investments, by original maturity
More than three months — purchases
More than three months — maturities
Three months or less, net
Other investing, net
Net Cash Used for Investing Activities

(Continued on following page)

PepsiCo, Inc. 2010 Annual Report

Consolidated Statement of Cash Flows
(continued)

PepsiCo, Inc. and Subsidiaries

(in millions)
Fiscal years ended December 25, 2010, December 26, 2009 and December 27, 2008
Financing Activities
Proceeds from issuances of long-term debt
Payments of long-term debt
Debt repurchase
Short-term borrowings, by original maturity
More than three months — proceeds
More than three months — payments
Three months or less, net
Cash dividends paid
Share repurchases — common
Share repurchases — preferred
Proceeds from exercises of stock options
Excess tax benefits from share-based payment arrangements
Acquisition of noncontrolling interest in Lebedyansky from PBG
Other financing
Net Cash Provided by/(Used for) Financing Activities
Effect of exchange rate changes on cash and cash equivalents
Net Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year

Non-cash activity:
Issuance of common stock and equity awards in connection with our acquisitions of PBG and PAS,

as reflected in investing and financing activities

See accompanying notes to consolidated financial statements.

2010

2009

2008

$ 6,451
(59)
(500)

227
(96)
2,351
(2,978)
(4,978)
(5)
1,038
107
(159)
(13)
1,386
(166)
2,000
3,943
$ 5,943

$ 1,057
(226)
–

26
(81)
(963)
(2,732)
–
(7)
413
42
–
(26)
(2,497)
(19)
1,879
2,064
$ 3,943

$ 3,719
(649)
–

89
(269)
625
(2,541)
(4,720)
(6)
620
107
–
–
(3,025)
(153)
1,154
910
$ 2,064

$ 4,451

–

Consolidated Balance Sheet

PepsiCo, Inc. and Subsidiaries

(in millions except per share amounts)
December 25, 2010 and December 26, 2009
ASSETS
Current Assets
Cash and cash equivalents
Short-term investments
Accounts and notes receivable, net
Inventories
Prepaid expenses and other current assets
Total Current Assets
Property, Plant and Equipment, net
Amortizable Intangible Assets, net
Goodwill
Other nonamortizable intangible assets
Nonamortizable Intangible Assets
Investments in Noncontrolled Affiliates
Other Assets

Total Assets

LIABILITIES AND EQUITY
Current Liabilities
Short-term obligations
Accounts payable and other current liabilities
Income taxes payable
Total Current Liabilities
Long-Term Debt Obligations
Other Liabilities
Deferred Income Taxes
Total Liabilities
Commitments and Contingencies
Preferred Stock, no par value
Repurchased Preferred Stock
PepsiCo Common Shareholders’ Equity
Common stock, par value 12/3¢ per share (authorized 3,600 shares, issued 1,865 and 1,782 shares, respectively)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Repurchased common stock, at cost (284 and 217 shares, respectively)
Total PepsiCo Common Shareholders’ Equity
Noncontrolling interests
Total Equity

Total Liabilities and Equity

See accompanying notes to consolidated financial statements.

2010

2009

$ 5,943
426
6,323
3,372
1,505
17,569
19,058
2,025
14,661
11,783
26,444
1,368
1,689
$ 68,153

$ 4,898
10,923
71
15,892
19,999
6,729
4,057
46,677

$ 3,943
192
4,624
2,618
1,194
12,571
12,671
841
6,534
1,782
8,316
4,484
965
$ 39,848

$ 464
8,127
165
8,756
7,400
5,591
659
22,406

41
(150)

41
(145)

31
4,527
37,090
(3,630)
(16,745)
21,273
312
21,476
$ 68,153

30
250
33,805
(3,794)
(13,383)
16,908
638
17,442
$ 39,848

PepsiCo, Inc. 2010 Annual Report

Consolidated Statement of Equity

PepsiCo, Inc. and Subsidiaries

(in millions)
Fiscal years ended December 25, 2010,
December 26, 2009 and December 27, 2008

Preferred Stock
Repurchased Preferred Stock
Balance, beginning of year
Redemptions
Balance, end of year
Common Stock
Balance, beginning of year
Shares issued in connection with our acquisitions of PBG and PAS
Balance, end of year
Capital in Excess of Par Value
Balance, beginning of year
Stock-based compensation expense
Stock option exercises/RSUs converted(a)
Withholding tax on RSUs converted
Equity issued in connection with our acquisitions of PBG and PAS
Other
Balance, end of year
Retained Earnings
Balance, beginning of year
Measurement date change
Adjusted balance, beginning of year
Net income attributable to PepsiCo
Cash dividends declared — common
Cash dividends declared — preferred
Cash dividends declared — RSUs
Other
Balance, end of year
Accumulated Other Comprehensive Loss
Balance, beginning of year
Measurement date change
Adjusted balance, beginning of year
Currency translation adjustment
Cash flow hedges, net of tax:

Net derivative (losses)/gains
Reclassification of net losses to net income

Pension and retiree medical, net of tax:

(0.6)
(−)
(0.6)

1,782
83
1,865

Net pension and retiree medical (losses)/gains
Reclassification of net losses to net income
Unrealized gains/(losses) on securities, net of tax
Other
Balance, end of year
Repurchased Common Stock
Balance, beginning of year
Share repurchases
Stock option exercises
Other
Balance, end of year
Total Common Shareholders’ Equity
(a) Includes total tax benefits of $75 million in 2010, $31 million in 2009 and $95 million in 2008.

(217)
(76)
24
(15)
(284)

(Continued on following page)

2010

2009

2008

Shares
0.8

Amount
$ 41

Shares
0.8

Amount
$ 41

Shares
0.8

Amount
$ 41

(145)
(5)
(150)

30
1
31

250
299
(500)
(68)
4,451
95
4,527

33,805
−
33,805
6,320
(3,028)
(1)
(12)
6
37,090

(3,794)
−
(3,794)
312

(111)
53

(280)
166
23
1
(3,630)

(13,383)
(4,978)
1,487
129
(16,745)
21,273

(0.5)
(0.1)
(0.6)

1,782
−
1,782

(229)
−
11
1
(217)

(138)
(7)
(145)

30
−
30

351
227
(292)
(36)
−
−
250

30,638
−
30,638
5,946
(2,768)
(2)
(9)
−
33,805

(4,694)
−
(4,694)
800

(55)
28

21
86
20
−
(3,794)

(14,122)
−
649
90
(13,383)
16,908

(0.5)
(−)
(0.5)

1,782
−
1,782

(177)
(68)
15
1
(229)

(132)
(6)
(138)

30
−
30

450
238
(280)
(57)
−
−
351

28,184
(89)
28,095
5,142
(2,589)
(2)
(8)
−
30,638

(952)
51
(901)
(2,484)

16
5

(1,376)
73
(21)
(6)
(4,694)

(10,387)
(4,720)
883
102
(14,122)
12,203

Consolidated Statement of Equity
(continued)

PepsiCo, Inc. and Subsidiaries

(in millions)
Fiscal years ended December 25, 2010,
December 26, 2009 and December 27, 2008
Noncontrolling Interests
Balance, beginning of year
Net income attributable to noncontrolling interests

(Distributions to)/contributions from noncontrolling interests, net

Currency translation adjustment
Other, net
Balance, end of year
Total Equity

Comprehensive Income
Net income

Other Comprehensive Income/(Loss)
Currency translation adjustment
Cash flow hedges, net of tax
Pension and retiree medical, net of tax:

Net prior service credit/(cost)
Net (losses)/gains

Unrealized gains/(losses) on securities, net of tax
Other

Comprehensive Income

Comprehensive (income)/loss attributable to noncontrolling interests

Comprehensive Income Attributable to PepsiCo
See accompanying notes to consolidated financial statements.

2010

2009

$ 638
18
(332)
(13)
1
312
$ 21,476

$ 476
33
150
(12)
(9)
638
$ 17,442

2008

$ 62
24
450
(48)
(12)
476
$ 12,582

$ 6,338

$ 5,979

$ 5,166

299
(58)

22
(136)
23
1
151
6,489
(5)
$ 6,484

788
(27)

(3)
110
20
−
888
6,867
(21)
$ 6,846

(2,532)
21

55
(1,358)
(21)
(6)
(3,841)
1,325
24
$ 1,349

PepsiCo, Inc. 2010 Annual Report

Notes to Consolidated Financial Statements

Note 1 Basis of Presentation
and Our Divisions

Basis of Presentation
Our financial statements include the consolidated accounts of
PepsiCo, Inc. and the affiliates that we control. In addition, we
include our share of the results of certain other affiliates based
on our economic ownership interest. We do not control these
other affiliates, as our ownership in these other affiliates is gen-
erally less than 50%. Intercompany balances and transactions
are eliminated. Our fiscal year ends on the last Saturday of each
December, resulting in an additional week of results every five or
six years.

On February 26, 2010, we completed our acquisitions of The
Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS).
The results of the acquired companies in the U.S. and Canada are
reflected in our consolidated results as of the acquisition date,
and the international results of the acquired companies have
been reported as of the beginning of our second quarter of 2010,
consistent with our monthly international reporting calendar.
The results of the acquired companies in the U.S., Canada and
Mexico are reported within our PAB segment, and the results
of the acquired companies in Europe, including Russia, are
reported within our Europe segment. Prior to our acquisitions
of PBG and PAS, we recorded our share of equity income or loss
from the acquired companies in bottling equity income in our
income statement. Our share of the net income of PBV is reflected
in bottling equity income and our share of income or loss from
other noncontrolled affiliates is reflected as a component of sell-
ing, general and administrative expenses. Additionally, in the
first quarter of 2010, in connection with our acquisitions of
PBG and PAS, we recorded a gain on our previously held equity
interests of $958 million, comprising $735 million which is
non-taxable and recorded in bottling equity income and
$223 million related to the reversal of deferred tax liabilities
associated with these previously held equity interests. See
Notes 8 and 15 and for additional unaudited information on
items affecting the comparability of our consolidated results, see
“Items Affecting Comparability” in Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
As of the beginning of our 2010 fiscal year, the results of our
Venezuelan businesses are reported under hyperinflationary
accounting. See “Our Business Risks” and “Items Affecting
Comparability” in Management’s Discussion and Analysis of
Financial Condition and Results of Operations.

Raw materials, direct labor and plant overhead, as well as
purchasing and receiving costs, costs directly related to pro-
duction planning, inspection costs and raw material handling
facilities, are included in cost of sales. The costs of moving,
storing and delivering finished product are included in selling,
general and administrative expenses.

The preparation of our consolidated financial statements
in conformity with generally accepted accounting principles
requires us to make estimates and assumptions that affect
reported amounts of assets, liabilities, revenues, expenses and
disclosure of contingent assets and liabilities. Estimates are used
in determining, among other items, sales incentives accruals, tax
reserves, stock-based compensation, pension and retiree medical
accruals, useful lives for intangible assets, and future cash flows
associated with impairment testing for perpetual brands, good-
will and other long-lived assets. We evaluate our estimates on
an ongoing basis using our historical experience, as well as other
factors we believe appropriate under the circumstances, such as
current economic conditions, and adjust or revise our estimates
as circumstances change. As future events and their effect can-
not be determined with precision, actual results could differ
significantly from these estimates.

While the majority of our results are reported on a weekly
calendar basis, most of our international operations report on a
monthly calendar basis. The following chart details our quarterly
reporting schedule:

Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

U.S. and Canada
12 weeks
12 weeks
12 weeks
16 weeks

International
January, February
March, April and May
June, July and August
September, October,
November and December

See “Our Divisions” below and for additional unaudited informa-
tion on items affecting the comparability of our consolidated results,
see “Items Affecting Comparability” in Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
Tabular dollars are in millions, except per share amounts. All
per share amounts reflect common per share amounts, assume
dilution unless noted, and are based on unrounded amounts.
Certain reclassifications were made to prior years’ amounts to
conform to the 2010 presentation.

Our Divisions
We manufacture or use contract manufacturers, market and
sell a variety of salty, convenient, sweet and grain-based
snacks, carbonated and non-carbonated beverages, and foods
in over 200 countries with our largest operations in North
America (United States and Canada), Mexico, Russia and the
United Kingdom. Division results are based on how our Chief
Executive Officer assesses the performance of and allocates
resources to our divisions. For additional unaudited informa-
tion on our divisions, see “Our Operations” in Management’s
Discussion and Analysis of Financial Condition and Results of
Operations. The accounting policies for the divisions are the
same as those described in Note 2, except for the following alloca-
tion methodologies:
• stock-based compensation expense;
• pension and retiree medical expense; and
• derivatives.

Notes to Consolidated Financial Statements

Stock-Based Compensation Expense
Our divisions are held accountable for stock-based compensation
expense and, therefore, this expense is allocated to our divisions
as an incremental employee compensation cost. The allocation
of stock-based compensation expense in 2010 was approxi-
mately 17% to FLNA, 2% to QFNA, 5% to LAF, 32% to PAB,
11% to Europe, 8% to AMEA and 25% to corporate unallocated
expenses. We had similar allocations of stock-based compensa-
tion expense to our divisions in 2009 and 2008. The expense
allocated to our divisions excludes any impact of changes in our
assumptions during the year which reflect market conditions
over which division management has no control. Therefore, any
variances between allocated expense and our actual expense are
recognized in corporate unallocated expenses.

Pension and Retiree Medical Expense
Pension and retiree medical service costs measured at a fixed
discount rate, as well as amortization of costs related to certain
pension plan amendments and gains and losses due to demo-
graphics, including salary experience, are reflected in divi-
sion results for North American employees. Division results
also include interest costs, measured at a fixed discount rate,
for retiree medical plans. Interest costs for the pension plans,

pension asset returns and the impact of pension funding, and
gains and losses other than those due to demographics, are all
reflected in corporate unallocated expenses. In addition, cor-
porate unallocated expenses include the difference between
the service costs measured at a fixed discount rate (included in
division results as noted above) and the total service costs deter-
mined using the plans’ discount rates as disclosed in Note 7.

Derivatives
We centrally manage commodity derivatives on behalf of our
divisions. These commodity derivatives include energy, fruit
and other raw materials. Certain of these commodity deriva-
tives do not qualify for hedge accounting treatment and are
marked to market with the resulting gains and losses recognized
in corporate unallocated expenses. These gains and losses are
subsequently reflected in division results when the divisions take
delivery of the underlying commodity. Therefore, the divisions
realize the economic effects of the derivative without experi-
encing any resulting mark-to-market volatility, which remains
in corporate unallocated expenses. These derivatives hedge
underlying commodity price risk and were not entered into for
speculative purposes.

FLNA
QFNA
LAF
PAB(b)
Europe(b)
AMEA
Total division
Corporate Unallocated
Net impact of mark-to-market on commodity hedges
Merger and integration costs
Restructuring and impairment charges
Venezuela currency devaluation
Asset write-off
Foundation contribution
Other

2010

2009

2008

2010

$13,397
1,832
6,315
20,401
9,254
6,639
57,838

–
–
–
–
–
–
–
$57,838

Net Revenue
$13,224
1,884
5,703
10,116
6,727
5,578
43,232

–
–
–
–
–
–
–
$43,232

$12,507
1,902
5,895
10,937
6,891
5,119
43,251

–
–
–
–
–
–
–
$43,251

$3,549
568
1,004
2,776
1,020
742
9,659

91
(191)
–
(129)
(145)
(100)
(853)
$8,332

2009
Operating Profit(a)
$3,258
628
904
2,172
932
716
8,610

2008

$2,959
582
897
2,026
910
592
7,966

274
(49)
–
–
–
–
(791)
$8,044

(346)
–
(10)
–
–
–
(651)
$6,959

(a) For information on the impact of restructuring, impairment and integration charges on our divisions, see Note 3.
(b) Changes in 2010 relate primarily to our acquisitions of PBG and PAS.

Net Revenue

AMEA

Europe

12%

23%

FLNA

QFNA
3%

11%

35%

LAF

16%

PAB

Division Operating Profit

AMEA

Europe

10%

29%

PAB

FLNA

37%

10%

LAF

QFNA
6%

Corporate
Corporate includes costs of our corporate headquarters, centrally managed initiatives, such as our ongoing business transformation
initiative and research and development projects, unallocated insurance and benefit programs, foreign exchange transaction gains and
losses, certain commodity derivative gains and losses and certain other items.

PepsiCo, Inc. 2010 Annual Report

Other Division Information

FLNA
QFNA
LAF
PAB(a)
Europe(a)
AMEA
Total division
Corporate(b)
Investments in bottling affiliates(a)

2010

2009

2008

2010

2009

2008

$ 6,284
960
4,053
31,622
12,853
5,748
61,520
6,394
239
$68,153

Total Assets
$ 6,337
997
3,575
7,670
9,321
4,937
32,837
3,933
3,078
$39,848

$ 6,284
1,035
3,023
7,673
8,840
3,756
30,611
2,729
2,654
$35,994

$ 526
37
370
973
503
624
3,033
220
–
$3,253

Capital Spending
$ 490
33
310
182
357
585
1,957
171
–
$2,128

$ 553
43
351
344
401
479
2,171
275
–
$2,446

(a) Changes in total assets in 2010 relate primarily to our acquisitions of PBG and PAS.
(b) Corporate assets consist principally of cash and cash equivalents, short-term investments, derivative instruments and property, plant and equipment.

Total Assets

Other

AMEA

11% 9%

19%

Europe

FLNA

QFNA 1%
LAF

46%

PAB

FLNA
QFNA
LAF
PAB(a)
Europe(a)
AMEA
Total division
Corporate

Capital Spending

Corporate

FLNA

AMEA

16%

QFNA 1%

19%

16%

Europe

11%

LAF

30%

PAB

2010

2009

2008

2010

2009

2008

Amortization of Intangible Assets
$ 7
–
6
56
35
13
117
–
$117

$ 7
–
5
18
22
11
63
–
$63

$ 9
–
6
16
23
10
64
–
$64

Depreciation and Other Amortization
$ 441
$ 440
$ 462
34
36
38
194
189
213
334
345
749
210
227
343
213
248
306
1,426
1,485
2,111
53
87
99
$1,479
$1,572
$2,210

(a) Increases in 2010 relate primarily to our acquisitions of PBG and PAS.

U.S.(a)
Mexico(a)
Canada(a)
Russia(a)
United Kingdom
All other countries

2010

$30,618
4,531
3,081
1,890
1,888
15,830
$57,838

2009
Net Revenue(b)
$22,446
3,210
1,996
1,006
1,826
12,748
$43,232

$22,525
3,714
2,107
585
2,099
12,221
$43,251

2008

2009
Long-Lived Assets(c)
$12,496
1,044
688
2,094
1,358
8,632
$26,312

$12,095
904
556
577
1,509
6,889
$22,530

$28,631
1,671
3,133
2,744
1,019
11,697
$48,895

2008

2010

(a) Increases in 2010 relate primarily to our acquisitions of PBG and PAS.
(b) Represents net revenue from businesses operating in these countries.
(c) Long-lived assets represent property, plant and equipment, nonamortizable intangible assets, amortizable intangible assets and investments in noncontrolled

affiliates. These assets are reported in the country where they are primarily used.

Net Revenue

Other

28%

United Kingdom 3%
Russia 3%
Canada 5%

Mexico

53%

United
States

Long-Lived Assets

Other

24%

United Kingdom 2%
Russia 6%

Canada 6%

Mexico 3%

59% United
States

Notes to Consolidated Financial Statements

Note 2 Our Significant
Accounting Policies

Revenue Recognition
We recognize revenue upon shipment or delivery to our custom-
ers based on written sales terms that do not allow for a right of
return. However, our policy for DSD and certain chilled products
is to remove and replace damaged and out-of-date products from
store shelves to ensure that our consumers receive the product
quality and freshness that they expect. Similarly, our policy for
certain warehouse-distributed products is to replace damaged
and out-of-date products. Based on our experience with this
practice, we have reserved for anticipated damaged and out-of-
date products. For additional unaudited information on our rev-
enue recognition and related policies, including our policy on bad
debts, see “Our Critical Accounting Policies” in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations. We are exposed to concentration of credit risk
by our customers, including Wal-Mart. In 2010, Wal-Mart
(including Sam’s) represented approximately 12% of our total
net revenue, including concentrate sales to our bottlers (includ-
ing concentrate sales to PBG and PAS prior to the February 26,
2010 acquisition date) which are used in finished goods sold by
them to Wal-Mart. We have not experienced credit issues with
these customers.

Sales Incentives and Other Marketplace Spending
We offer sales incentives and discounts through various pro-
grams to our customers and consumers. Sales incentives and
discounts are accounted for as a reduction of revenue and totaled
$29.1 billion in 2010, $12.9 billion in 2009 and $12.5 billion in
2008. While most of these incentive arrangements have terms of
no more than one year, certain arrangements, such as fountain
pouring rights, may extend beyond one year. Costs incurred to
obtain these arrangements are recognized over the shorter of
the economic or contractual life, as a reduction of revenue, and the
remaining balances of $296 million, as of both December 25,
2010 and December 26, 2009, are included in current assets
and other assets on our balance sheet. For additional unaudited
information on our sales incentives, see “Our Critical Accounting
Policies” in Management’s Discussion and Analysis of Financial
Condition and Results of Operations.

Other marketplace spending, which includes the costs of

advertising and other marketing activities, totaled $3.4 billion in
2010, $2.8 billion in 2009 and $2.9 billion in 2008 and is reported
as selling, general and administrative expenses. Included in
these amounts were advertising expenses of $1.9 billion in 2010
and $1.7 billion in both 2009 and 2008. Deferred advertising
costs are not expensed until the year first used and consist of:
• media and personal service prepayments;
• promotional materials in inventory; and
• production costs of future media advertising.

PepsiCo, Inc. 2010 Annual Report

Deferred advertising costs of $158 million and $143 million at

year-end 2010 and 2009, respectively, are classified as prepaid
expenses on our balance sheet.

Distribution Costs
Distribution costs, including the costs of shipping and handling
activities, are reported as selling, general and administrative
expenses. Shipping and handling expenses were $7.7 billion in
2010 and $5.6 billion in both 2009 and 2008.

Cash Equivalents
Cash equivalents are investments with original maturities
of three months or less which we do not intend to rollover
beyond three months.

Software Costs
We capitalize certain computer software and software develop-
ment costs incurred in connection with developing or obtaining
computer software for internal use when both the preliminary
project stage is completed and it is probable that the software
will be used as intended. Capitalized software costs include only
(i) external direct costs of materials and services utilized in
developing or obtaining computer software, (ii) compensation
and related benefits for employees who are directly associated
with the software project and (iii) interest costs incurred while
developing internal-use computer software. Capitalized soft-
ware costs are included in property, plant and equipment on our
balance sheet and amortized on a straight-line basis when placed
into service over the estimated useful lives of the software, which
approximate five to ten years. Software amortization totaled
$137 million in 2010, $119 million in 2009 and $58 million in
2008. Net capitalized software and development costs were
$1.1 billion as of both December 25, 2010 and December 26, 2009.

Commitments and Contingencies
We are subject to various claims and contingencies related
to lawsuits, certain taxes and environmental matters, as well
as commitments under contractual and other commercial
obligations. We recognize liabilities for contingencies and
commitments when a loss is probable and estimable. For addi-
tional information on our commitments, see Note 9.

Research and Development
We engage in a variety of research and development activi-
ties. These activities principally involve the development of
new products, improvement in the quality of existing products,
improvement and modernization of production processes, and
the development and implementation of new technologies to
enhance the quality and value of both current and proposed
product lines. Consumer research is excluded from research
and development costs and included in other marketing costs.
Research and development costs were $488 million in 2010,
$414 million in 2009 and $388 million in 2008 and are reported
within selling, general and administrative expenses.

Other Significant Accounting Policies
Our other significant accounting policies are disclosed as follows:
•

Property, Plant and Equipment and Intangible Assets — Note 4,
and for additional unaudited information on goodwill and
other intangible assets, see “Our Critical Accounting Policies”
in Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Income Taxes — Note 5, and for additional unaudited informa-
tion, see “Our Critical Accounting Policies” in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.
Stock-Based Compensation — Note 6.
Pension, Retiree Medical and Savings Plans — Note 7, and
for additional unaudited information, see “Our Critical
Accounting Policies” in Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
Financial Instruments — Note 10, and for additional unau-
dited information, see “Our Business Risks” in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.

•

Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) amended its guidance on accounting for business
combinations to improve, simplify and converge internationally
the accounting for business combinations. The new accounting
guidance continues the movement toward the greater use of
fair value in financial reporting and increased transparency
through expanded disclosures. We adopted the provisions of the
new guidance as of the beginning of our 2009 fiscal year. The
new accounting guidance changes how business acquisitions are
accounted for and will impact financial statements both on the
acquisition date and in subsequent periods. Additionally, under
the new guidance, transaction costs are expensed rather than
capitalized. Future adjustments made to valuation allowances
on deferred taxes and acquired tax contingencies associated with
acquisitions that closed prior to the beginning of our 2009 fiscal
year apply the new provisions and will be evaluated based on the
outcome of these matters.

In June 2009, the FASB amended its accounting guidance on
the consolidation of variable interest entities (VIE). Among other
things, the new guidance requires a qualitative rather than a
quantitative assessment to determine the primary beneficiary
of a VIE based on whether the entity (1) has the power to direct
matters that most significantly impact the activities of the VIE
and (2) has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the
VIE. In addition, the amended guidance requires an ongoing
reconsideration of the primary beneficiary. The provisions of
this new guidance were effective as of the beginning of our
2010 fiscal year, and the adoption did not have a material impact
on our financial statements.

In the second quarter of 2010, the Patient Protection and
Affordable Care Act (PPACA) was signed into law. The PPACA

changes the tax treatment related to an existing retiree drug sub-
sidy (RDS) available to sponsors of retiree health benefit plans
that provide a benefit that is at least actuarially equivalent to the
benefits under Medicare Part D. As a result of the PPACA, RDS
payments will effectively become taxable in tax years beginning
in 2013, by requiring the amount of the subsidy received to be
offset against our deduction for health care expenses. The provi-
sions of the PPACA required us to record the effect of this tax
law change beginning in our second quarter of 2010, and conse-
quently we recorded a one-time related tax charge of $41 million
in the second quarter of 2010. We continue to evaluate the longer-
term impacts of this new legislation.

Note 3 Restructuring, Impairment
and Integration Charges

In 2010, we incurred merger and integration charges of
$799 million related to our acquisitions of PBG and PAS, as well
as advisory fees in connection with our acquisition of WBD.
$467 million of these charges were recorded in the PAB segment,
$111 million recorded in the Europe segment, $191 million recorded
in corporate unallocated expenses and $30 million recorded in
interest expense. All of these charges, other than the interest
expense portion, were recorded in selling, general and admin-
istrative expenses. The merger and integration charges related
to our acquisitions of PBG and PAS are being incurred to help
create a more fully integrated supply chain and go-to-market
business model, to improve the effectiveness and efficiency of the
distribution of our brands and to enhance our revenue growth.
These charges also include closing costs, one-time financing
costs and advisory fees related to our acquisitions of PBG and
PAS. In addition, we recorded $9 million of merger-related
charges, representing our share of the respective merger costs of
PBG and PAS, in bottling equity income. Substantially all cash
payments related to the above charges are expected to be paid by
the end of 2011. In total, these charges had an after-tax impact of
$648 million or $0.40 per share.

In 2009, we incurred $50 million of charges related to the
merger of PBG and PAS, of which substantially all was paid in
2009. In 2009, we also incurred charges of $36 million ($29 mil-
lion after-tax or $0.02 per share) in conjunction with our
Productivity for Growth program that began in 2008. The pro-
gram includes actions in all divisions of the business, including
the closure of six plants that we believe will increase cost com-
petitiveness across the supply chain, upgrade and streamline our
product portfolio, and simplify the organization for more effec-
tive and timely decision-making. These charges were recorded in
selling, general and administrative expenses. These initiatives
were completed in the second quarter of 2009 and substantially
all cash payments related to these charges were paid by the end
of 2010.

Notes to Consolidated Financial Statements

In 2008, we incurred charges of $543 million ($408 million
after-tax or $0.25 per share) in conjunction with our Productivity
for Growth program. Approximately $455 million of the charge
was recorded in selling, general and administrative expenses,
with the remainder recorded in cost of sales.

A summary of our merger and integration activity in 2010 is

as follows:

Severance
and Other
Employee

Asset
Costs(a) Impairment

$ 396
(114)
(103)

$ 132
–
(132)

Other
Costs

$ 280
(271)
16

2010 merger and

integration charges

Cash payments
Non-cash charges
Liability as of

December 25, 2010

$ 179
(a) Primarily reflects termination costs for approximately 2,370 employees.

$ 25

$ –

Total

$ 808
(385)
(219)

$ 204

A summary of our restructuring and impairment charges in

2009 is as follows:

FLNA
QFNA
LAF
PAB
Europe
AMEA

Severance
and Other
Employee

Costs(a)
$ –
–
3
6
1
7
$17

Other
Costs
$ 2
1
–
10
–
6
$19

Total
$ 2
1
3
16
1
13
$36

A summary of our Productivity for Growth program activity is

as follows:

Severance
and Other
Employee
Costs

2008 restructuring and
impairment charges

Cash payments
Non-cash charge
Currency translation
Liability as of

December 27, 2008
2009 restructuring and
impairment charges

Cash payments
Currency translation
Liability as of

December 26, 2009

Cash payments
Non-cash charge
Currency translation
Liability as of

$ 212
(50)
(27)
(1)

134

17
(128)
(14)

9
(6)
(2)
–

Asset
Impairment

Other
Costs

$ 149
–
(149)
–

$ 182
(109)
(9)
–

Total

$ 543
(159)
(185)
(1)

–

198

12
–
(12)

–
–
–
–

7
(68)
25

28
(25)
(1)
(1)

36
(196)
(1)

37
(31)
(3)
(1)

December 25, 2010

$ 1

$ –

$ 1

$ 2

Note 4 Property, Plant and
Equipment and Intangible Assets

Average
Useful Life

2010

2009

2008

(a) Primarily reflects termination costs for approximately 410 employees.

A summary of our restructuring and impairment charges in

2008 is as follows:

Property, plant and
equipment, net

Land and improvements
Buildings and improvements
Machinery and equipment,

10–34 yrs. $ 1,976 $ 1,208
5,080
15–44 yrs.

7,054

including fleet and software

Construction in progress

Accumulated depreciation

Depreciation expense

Amortizable intangible

assets, net

Acquired franchise rights
Reacquired franchise rights
Brands
Other identifiable intangibles

Accumulated amortization

1,920

5–15 yrs. 22,091 17,183
1,441

33,041 24,912
(13,983) (12,241)

$ 19,058 $ 12,671

$ 2,124 $ 1,500

$1,422

56–60 yrs. $ 949 $ –
–
1,465
505
1,970
(1,129)

1–14 yrs.
5–40 yrs.
10–24 yrs.

$ 2,025 $ 841

110
1,463
747
3,269
(1,244)

Amortization expense

$ 117 $ 63

$ 64

FLNA
QFNA
LAF
PAB
Europe
AMEA
Corporate

Severance
and Other
Employee
Costs
$ 48
14
30
68
39
11
2
$212

Asset
Impairment
$ 38
3
8
92
6
2
–
$149

Other
Costs
$ 22
14
2
129
5
2
8
$182

Total
$108
31
40
289
50
15
10
$543

Severance and other employee costs primarily reflect termina-
tion costs for approximately 3,500 employees. Asset impairments
relate to the closure of six plants and changes to our beverage
product portfolio. Other costs include contract exit costs and
third-party incremental costs associated with upgrading our
product portfolio and our supply chain.

PepsiCo, Inc. 2010 Annual Report

Property, plant and equipment is recorded at historical cost.
Depreciation and amortization are recognized on a straight-line
basis over an asset’s estimated useful life. Land is not depreci-
ated and construction in progress is not depreciated until ready
for service. Amortization of intangible assets for each of the next
five years, based on existing intangible assets as of December 25,
2010 and using average 2010 foreign exchange rates, is expected
to be $121 million in 2011, $114 million in 2012, $106 million in
2013, $89 million in 2014 and $81 million in 2015.

Depreciable and amortizable assets are only evaluated for
impairment upon a significant change in the operating or macro-
economic environment. In these circumstances, if an evaluation
of the undiscounted cash flows indicates impairment, the asset is
written down to its estimated fair value, which is based on dis-
counted future cash flows. Useful lives are periodically evaluated
to determine whether events or circumstances have occurred
which indicate the need for revision. For additional unaudited
information on our policies for amortizable brands, see “Our
Critical Accounting Policies” in Management’s Discussion and
Analysis of Financial Condition and Results of Operations.

Nonamortizable Intangible Assets
Perpetual brands and goodwill are assessed for impairment at least annually. If the carrying amount of a perpetual brand exceeds its fair
value, as determined by its discounted cash flows, an impairment loss is recognized in an amount equal to that excess. No impairment
charges resulted from these impairment evaluations. The change in the book value of nonamortizable intangible assets is as follows:

FLNA
Goodwill
Brands

QFNA
Goodwill

LAF
Goodwill
Brands

PAB(a)
Goodwill
Reacquired franchise rights
Acquired franchise rights
Brands
Other

Europe(a)
Goodwill
Reacquired franchise rights
Acquired franchise rights
Brands

AMEA
Goodwill
Brands

Total goodwill
Total reacquired franchise rights
Total acquired franchise rights
Total brands
Total other

Balance,
Beginning

2009 Acquisitions

Translation
and Other

Balance,
End of

2009 Acquisitions

Translation
and Other

$ 277
–
277

$ 6
26
32

$ 23
4
27

$ 306
30
336

$ –
–
–

$ 7
1
8

Balance,
End of
2010

$ 313
31
344

–

175

424
127
551

2,355
–
–
59
–
2,414

1,469
–
–
844
2,313

424
98
522

5,124
–
–
1,128
–
$6,252

–

17
1
18

62
–
–
48
–
110

1,291
–
–
572
1,863

4
–
4

1,380
–
–
647
–
$2,027

–

–
–
–

7,476
7,229
660
66
10
15,441

583
810
232
88
1,713

116
26
142

–

175

18
7
25

39
54
905(b)
4
–
1,002

(168)
(17)
(5)
(86)
(276)

56
17
73

497
143
640

9,946
7,283
1,565
182
10
18,986

3,039
793
227
1,380
5,439

691
169
860

479
136
615

2,431
–
–
112
–
2,543

2,624
–
–
1,378
4,002

519
126
645

6,534
–
–
1,782
–
$8,316

8,175
8,039
892
180
10
$17,296

(48)
37
900
(57)
–
$ 832

14,661
8,076
1,792
1,905
10
$26,444

38
8
46

14
–
–
5
–
19

(136)
–
–
(38)
(174)

91
28
119

30
–
–
7
–
$ 37

(a) Net increases in 2010 relate primarily to our acquisitions of PBG and PAS.
(b) Includes $900 million related to our upfront payment to DPSG to manufacture and distribute Dr Pepper and certain other DPSG products.

Notes to Consolidated Financial Statements

Note 5 Income Taxes

Income before income taxes
U.S.
Foreign

Provision for income taxes
Current:

U.S. Federal
Foreign
State

Deferred:

U.S. Federal
Foreign
State

Tax rate reconciliation
U.S. Federal statutory tax rate
State income tax, net of

U.S. Federal tax benefit
Lower taxes on foreign results
Acquisitions of PBG and PAS
Other, net
Annual tax rate

2010

2009

2008

$4,008
4,224
$8,232

$4,209
3,870
$8,079

$3,274
3,771
$7,045

$ 932
728
137
1,797
78
18
1
97

$ 815
732

1,634

313

(69)

245

$1,894 $2,100 $1,879

$1,238
473
124
1,835
223
21
21
265

35.0%

1.1
(9.4)
(3.1)
(0.6)
23.0%

1.2
(7.9)
–
(2.3)
26.0%

0.8
(8.0)
–
(1.1)
26.7%

Deferred tax liabilities
Investments in noncontrolled affiliates
Debt guarantee of wholly owned subsidiary
Property, plant and equipment
Intangible assets other than
nondeductible goodwill

Other
Gross deferred tax liabilities
Deferred tax assets
Net carryforwards
Stock-based compensation
Retiree medical benefits
Other employee-related benefits
Pension benefits
Deductible state tax and interest benefits
Long-term debt obligations acquired
Other
Gross deferred tax assets
Valuation allowances
Deferred tax assets, net
Net deferred tax liabilities

$ 74
828
1,984

$1,120
–
1,056

3,726
647
7,259

417
68
2,661

1,264

455

579

527

291

320

291

904

4,631

(875)

3,756

$3,503

624
410
508
442
179
256
–
560
2,979
(586)
2,393
$ 268

PepsiCo, Inc. 2010 Annual Report

2010

2009

2008

Deferred taxes included within:
Assets:
Prepaid expenses and other current assets $ 554
Other assets
–
Liabilities:
Deferred income taxes
Analysis of valuation allowances
Balance, beginning of year
Provision/(Benefit)
Other additions/(deductions)
Balance, end of year

$ 586
75

214

$ 875

$4,057

$391
–

$659

$657

(78)
7
$586

$695
(5)
(33)
$657

For additional unaudited information on our income tax poli-
cies, including our reserves for income taxes, see “Our Critical
Accounting Policies” in Management’s Discussion and Analysis
of Financial Condition and Results of Operations.

Reserves
A number of years may elapse before a particular matter, for
which we have established a reserve, is audited and finally
resolved. The number of years with open tax audits varies
depending on the tax jurisdiction. Our major taxing jurisdictions
and the related open tax audits are as follows:
•

U.S. — continue to dispute one matter related to tax years 1998
through 2002. During 2010, all but three issues were resolved
for tax years 2003 through 2005. These three issues are cur-
rently under review by the IRS Appeals Division. Our U.S. tax
returns for the years 2006 through 2007 are currently under
audit;
Mexico — audits have been substantially completed for all
taxable years through 2005;
United Kingdom — audits have been completed for all taxable
years prior to 2008; and
Canada — domestic audits have been substantially completed
for all taxable years through 2007. International audits have
been completed for all taxable years through 2003.

•

While it is often difficult to predict the final outcome or the
timing of resolution of any particular tax matter, we believe that
our reserves reflect the probable outcome of known tax contin-
gencies. We adjust these reserves, as well as the related interest,
in light of changing facts and circumstances. Settlement of any
particular issue would usually require the use of cash. Favorable
resolution would be recognized as a reduction to our annual tax
rate in the year of resolution. For further unaudited informa-
tion on the impact of the resolution of open tax issues, see “Other
Consolidated Results.”

As of December 25, 2010, the total gross amount of reserves for

income taxes, reported in other liabilities, was $2,023 million.
Any prospective adjustments to these reserves will be recorded
as an increase or decrease to our provision for income taxes
and would impact our effective tax rate. In addition, we accrue
interest related to reserves for income taxes in our provision for

income taxes and any associated penalties are recorded in sell-
ing, general and administrative expenses. The gross amount of
interest accrued, reported in other liabilities, was $570 million
as of December 25, 2010, of which $135 million was recognized
in 2010. The gross amount of interest accrued was $461 million
as of December 26, 2009, of which $30 million was recognized
in 2009.

integration charges. $86 million of the $352 million recorded
in 2010 was related to the unvested acquisition-related grants
described below. Income tax benefits related to stock-based com-
pensation expense and recognized in earnings were $89 million
in 2010, $67 million in 2009 and $71 million in 2008. At year-end
2010, 154 million shares were available for future stock-based
compensation grants.

A rollforward of our reserves for all federal, state and foreign

In connection with our acquisition of PBG, we issued 13.4 million

tax jurisdictions, is as follows:

Balance, beginning of year
Additions for tax positions related to the current year
Additions for tax positions from prior years
Reductions for tax positions from prior years
Settlement payments
Statute of limitations expiration
Translation and other
Balance, end of year

2010

2009
$1,731 $1,711
238
204
79
517
(236)
(391)
(64)
(30)
(4)
(7)
7
(2)
$2,022(a) $1,731

(a) Includes amounts related to our acquisitions of PBG and PAS.

Carryforwards and Allowances
Operating loss carryforwards totaling $9.1 billion at year-end
2010 are being carried forward in a number of foreign and state
jurisdictions where we are permitted to use tax operating losses
from prior periods to reduce future taxable income. These oper-
ating losses will expire as follows: $0.4 billion in 2011, $6.5 billion
between 2012 and 2030 and $2.2 billion may be carried forward
indefinitely. We establish valuation allowances for our deferred
tax assets if, based on the available evidence, it is more likely than
not that some portion or all of the deferred tax assets will not
be realized.

Undistributed International Earnings
As of December 25, 2010, we had approximately $26.6 billion of
undistributed international earnings. We intend to continue
to reinvest earnings outside the U.S. for the foreseeable future
and, therefore, have not recognized any U.S. tax expense on
these earnings.

Note 6 Stock-Based Compensation

Our stock-based compensation program is designed to attract
and retain employees while also aligning employees’ inter-
ests with the interests of our shareholders. Stock options and
restricted stock units (RSU) are granted to employees under the
shareholder-approved 2007 Long-Term Incentive Plan (LTIP),
the only stock-based plan under which we currently grant stock
options and RSUs. Stock-based compensation expense was
$352 million in 2010, $227 million in 2009 and $238 million in
2008. In 2010, $299 million was recorded as stock-based com-
pensation expense and $53 million was included in merger and

stock options and 2.7 million RSUs at weighted-average grant
prices of $42.89 and $62.30, respectively, to replace previously
held PBG equity awards. In connection with our acquisition of
PAS, we issued 0.4 million stock options at a weighted-average
grant price of $31.72 to replace previously held PAS equity
awards. Our equity issuances included 8.3 million stock options
and 0.6 million RSUs which were vested at the acquisition
date and were included in the purchase price. The remaining
5.5 million stock options and 2.1 million RSUs issued are
unvested and are being amortized over their remaining vesting
period, up to three years.

As a result of our annual benefits review in 2010, the Company

approved certain changes to our benefits programs to remain
market competitive relative to other leading global companies.
These changes included ending the Company’s broad-based
SharePower stock option program. Consequently, beginning in
2011, no new awards will be granted under the SharePower pro-
gram. Outstanding SharePower awards from 2010 and earlier
will continue to vest and be exercisable according to the terms
and conditions of the program. See Note 7 for additional informa-
tion regarding other related changes.

Method of Accounting and Our Assumptions
We account for our employee stock options under the fair value
method of accounting using a Black-Scholes valuation model
to measure stock option expense at the date of grant. All stock
option grants have an exercise price equal to the fair market
value of our common stock on the date of grant and generally have
a 10-year term. We do not backdate, reprice or grant stock-based
compensation awards retroactively. Repricing of awards would
require shareholder approval under the LTIP.

The fair value of stock option grants is amortized to expense
over the vesting period, generally three years. Executives who are
awarded long-term incentives based on their performance are
generally offered the choice of stock options or RSUs. Executives
who elect RSUs receive one RSU for every four stock options that
would have otherwise been granted. Senior officers do not have a
choice and are granted 50% stock options and 50% performance-
based RSUs. Vesting of RSU awards for senior officers is con-
tingent upon the achievement of pre-established performance
targets approved by the Compensation Committee of the Board
of Directors. RSU expense is based on the fair value of PepsiCo
stock on the date of grant and is amortized over the vesting
period, generally three years. Each RSU is settled in a share of
our stock after the vesting period.

Notes to Consolidated Financial Statements

Our weighted-average Black-Scholes fair value assumptions

Other Stock-Based Compensation Data

are as follows:

Expected life
Risk-free interest rate
Expected volatility
Expected dividend yield

2010
5 yrs.

2009
6 yrs.

2008
6 yrs.

Stock Options
Weighted-average fair value

2010

2009

2008

2.3%
17%
2.8%

2.8%
17%
3.0%

3.0%
16%
1.9%

of options granted

$ 13.93 $ 7.02 $ 11.24
Total intrinsic value of options exercised(a) $502,354 $194,545 $410,152
RSUs
Total number of RSUs granted(a)
Weighted-average intrinsic value

8,326

2,653

2,135

of RSUs granted

Total intrinsic value of RSUs converted(a)
(a) In thousands.

$ 65.01 $ 53.22 $ 68.73
$202,717 $124,193 $180,563

As of December 25, 2010, there was $423 million of total
unrecognized compensation cost related to nonvested share-
based compensation grants. This unrecognized compensation
is expected to be recognized over a weighted-average period
of two years.

Note 7 Pension, Retiree Medical
and Savings Plans

Our pension plans cover full-time employees in the U.S. and
certain international employees. Benefits are determined based
on either years of service or a combination of years of service and
earnings. U.S. and Canada retirees are also eligible for medical
and life insurance benefits (retiree medical) if they meet age and
service requirements. Generally, our share of retiree medical
costs is capped at specified dollar amounts, which vary based
upon years of service, with retirees contributing the remainder
of the costs.

Gains and losses resulting from actual experience differing

from our assumptions, including the difference between the
actual return on plan assets and the expected return on plan
assets, and from changes in our assumptions are also deter-
mined at each measurement date. If this net accumulated gain
or loss exceeds 10% of the greater of the market-related value of
plan assets or plan liabilities, a portion of the net gain or loss is
included in expense for the following year based upon the aver-
age remaining service period of active plan participants, which
is approximately 11 years for pension expense and approximately
eight years for retiree medical expense. The cost or benefit of plan
changes that increase or decrease benefits for prior employee
service (prior service cost/(credit)) is included in earnings on a
straight-line basis over the average remaining service period of
active plan participants.

The expected life is the period over which our employee groups

are expected to hold their options. It is based on our historical
experience with similar grants. The risk-free interest rate is
based on the expected U.S. Treasury rate over the expected life.
Volatility reflects movements in our stock price over the most
recent historical period equivalent to the expected life. Dividend
yield is estimated over the expected life based on our stated
dividend policy and forecasts of net income, share repurchases
and stock price.

A summary of our stock-based compensation activity for the

year ended December 25, 2010 is presented below:

Our Stock Option Activity

Average

Average Aggregate
Intrinsic

Life
(years) (c)

Value (d)

Outstanding at

December 26, 2009

Granted
Exercised
Forfeited/expired
Outstanding at

Options (a)

Price (b)

106,011
26,858
(23,940)
(2,726)

$51.68
54.09
43.47
55.85

December 25, 2010

106,203

$54.03

5.19 $1,281,596

Exercisable at

December 25, 2010

67,304
(a) Options are in thousands and include options previously granted under PBG,
PAS and Quaker plans. No additional options or shares may be granted under
the PBG, PAS and Quaker plans.
(b) Weighted-average exercise price.
(c) Weighted-average contractual life remaining.
(d) In thousands.

3.44 $1,040,510

$50.26

Our RSU Activity

Outstanding at

December 26, 2009

Granted
Converted
Forfeited/expired
Outstanding at

Average Average Aggregate
Intrinsic

Intrinsic

Life
(years) (c)

Value (d)

RSUs (a)

Price (b)

6,092
8,326
(3,183)
(573)

$60.98
65.01
63.58
62.50

December 25, 2010

10,662

$63.27

1.69

$700,397

(a) RSUs are in thousands and include RSUs previously granted under a PBG
plan. No additional RSUs or shares may be granted under the PBG plan.

(b) Weighted-average intrinsic value at grant date.
(c) Weighted-average contractual life remaining.
(d) In thousands.

PepsiCo, Inc. 2010 Annual Report

In connection with our acquisitions of PBG and PAS, we

assumed sponsorship of pension and retiree medical plans that
provide benefits to U.S. and certain international employees.
Subsequently, during the third quarter of 2010, we merged the
pension plan assets of the legacy PBG and PAS U.S. pension plans
with those of PepsiCo into one master trust.

During 2010, the Compensation Committee of PepsiCo’s Board

of Directors approved certain changes to the U.S. pension and
retiree medical plans, effective January 1, 2011. Pension plan
design changes include implementing a new employer contribu-
tion to the 401(k) savings plan for all future salaried new hires of
the Company, as salaried new hires are no longer eligible to partici-
pate in the defined benefit pension plan, as well as implementing
a new defined benefit pension formula for certain hourly new
hires of the Company. Pension plan design changes also include

implementing a new employer contribution to the 401(k) savings
plan for certain legacy PBG and PAS salaried employees
(as such employees are also not eligible to participate in the
defined benefit pension plan), as well as implementing a
new defined benefit pension formula for certain legacy PBG and
PAS hourly employees. The retiree medical plan design change
includes phasing out Company subsidies of retiree medical benefits.
As a result of these changes, we remeasured our pension and
retiree medical expenses and liabilities in the third quarter of
2010, which resulted in a one-time pre-tax curtailment gain of
$62 million included in retiree medical expense.

The provisions of both the PPACA and the Health Care
and Education Reconciliation Act are reflected in our retiree
medical expenses and liabilities and were not material to our
financial statements.

Selected financial information for our pension and retiree medical plans is as follows:

Pension

Retiree Medical

2010

2009

2010

2009

2010

2009

U.S.

International

Change in projected benefit liability
Liability at beginning of year
Acquisitions
Service cost
Interest cost
Plan amendments
Participant contributions
Experience loss/(gain)
Benefit payments
Settlement/curtailment gain
Special termination benefits
Foreign currency adjustment
Other
Liability at end of year
Change in fair value of plan assets
Fair value at beginning of year
Acquisitions
Actual return on plan assets
Employer contributions/funding
Participant contributions
Benefit payments
Settlement
Foreign currency adjustment
Other
Fair value at end of year
Funded status

$6,606
2,161
299
506
28
–
583
(375)
(2)
45
–
–
$9,851

$5,420
1,633
943
1,249
–
(375)
–
–
–
$8,870
$ (981)

$ 6,217
–
238
373
–
–
70
(296)
–
–
–
4
$ 6,606

$ 3,974
–
697
1,041
–
(296)
–
–
4
$ 5,420
$(1,186)

$1,709
90
81
106
–
3
213
(69)
(3)
3
(18)
27
$2,142

$1,561
52
164
215
3
(69)
(2)
(28)
–
$1,896
$ (246)

$1,270
–
54
82
–
10
221
(50)
(8)
–
130
–
$1,709

$1,165
–
159
167
10
(50)
(8)
118
–
$1,561
$ (148)

$ 1,359
396
54
93
(132)
–
95
(100)
–
3
2
–
$ 1,770

$ 13
–
7
270
–
(100)
–
–
–
$ 190
$(1,580)

$ 1,370
–
44
82
–
–
(63)
(80)
–
–
6
–
$ 1,359

$ –
–
2
91
–
(80)
–
–
–
$ 13
$(1,346)

Notes to Consolidated Financial Statements

Amounts recognized
Other assets
Other current liabilities
Other liabilities
Net amount recognized

Amounts included in accumulated

other comprehensive loss (pre-tax)

Net loss
Prior service cost/(credit)
Total

Components of the increase/(decrease) in net loss
Change in discount rate
Employee-related assumption changes
Liability-related experience different from assumptions
Actual asset return different from expected return
Amortization of losses
Other, including foreign currency adjustments
Total

Liability at end of year for service to date

The components of benefit expense are as follows:

Pension

Retiree Medical

2010

2009

2010

2009

2010

2009

U.S.

International

$ 47
(54)
(974)
$ (981)

$2,726
117
$2,843

$ 556
4
43
(300)
(119)
(21)
$ 163

$9,163

$ –
(36)
(1,150)
$(1,186)

$ 2,563
101
$ 2,664

$ 47
–
23
(235)
(111)
13
$ (263)

$ 5,784

$ 66
(10)
(302)
$ (246)

$ 767
17
$ 784

$ 213
(4)
5
(41)
(24)
(7)
$ 142

$1,743

$ 50
(1)
(197)
$ (148)

$ 625
20
$ 645

$ 97
70
51
(54)
(9)
49
$ 204

$1,414

$ –
(145)
(1,435)
$(1,580)

$ 270
(150)
$ 120

$ 101
8
(22)
(6)
(9)
8
$ 80

$ –
(105)
(1,241)
$(1,346)

$ 190
(102)
$ 88

$ 11
(38)
(36)
(2)
(11)
–
$ (76)

Components of benefit expense
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost/(credit)
Amortization of net loss

Settlement/curtailment (gain)/loss
Special termination benefits
Total

2010

$ 299
506
(643)
12
119
293
(2)
45
$ 336

2009

U.S.

$ 238
373
(462)
12
110
271
(13)
–
$ 258

Pension

Retiree Medical

2008

2010

2009

2008

2010

2009

2008

International

$ 244
371
(416)
19
55
273
3
31
$ 307

$ 81
106
(123)
2
24
90
1
3
$ 94

$ 54
82
(105)
2
9
42
3
–
$ 45

$ 61
88
(112)
3
19
59
3
2
$ 64

$ 54
93
(1)
(22)
9
133
(62)
3
$ 74

$ 44
82
–
(17)
11
120
–
–
$120

$ 45
82
–
(13)
7
121
–
3
$124

The estimated amounts to be amortized from accumulated other comprehensive loss into benefit expense in 2011 for our pension

and retiree medical plans are as follows:

Net loss
Prior service cost/(credit)
Total

Pension

Retiree Medical

U.S.
$144
15
$159

International
$39
2
$41

$ 12
(28)
$(16)

PepsiCo, Inc. 2010 Annual Report

The following table provides the weighted-average assumptions used to determine projected benefit liability and benefit expense for

our pension and retiree medical plans:

Weighted-average assumptions
Liability discount rate
Expense discount rate
Expected return on plan assets
Liability rate of salary increases
Expense rate of salary increases

2010

2009

U.S.

Pension

Retiree Medical

2008

2010

2009

2008

2010

2009

2008

International

5.7%
6.0%
7.8%
4.1%
4.4%

6.1%
6.2%
7.8%
4.4%
4.4%

6.2%
6.5%
7.8%
4.4%
4.6%

5.5%
6.0%
7.1%
4.1%
4.1%

5.9%
6.3%
7.1%
4.1%
4.2%

6.3%
5.6%
7.2%
4.1%
3.9%

5.2%
5.8%
7.8%

6.1%
6.2%

6.2%
6.5%

The following table provides selected information about plans with liability for service to date and total benefit liability in excess of

plan assets:

Selected information for plans with liability for service

to date in excess of plan assets

Liability for service to date
Fair value of plan assets

Selected information for plans with projected

benefit liability in excess of plan assets

Benefit liability
Fair value of plan assets

2010

2009

2010

2009

2010

2009

Pension

Retiree Medical

U.S.

International

$ (525)
$ –

$(2,695)
$ 2,220

$ (610)
$ 474

$ (342)
$ 309

$(5,806)
$ 4,778

$(6,603)
$ 5,417

$(1,949)
$ 1,638

$(1,566)
$ 1,368

$(1,770)
$ 190

$(1,359)
$ 13

Of the total projected pension benefit liability at year-end 2010, $747 million relates to plans that we do not fund because the funding

of such plans does not receive favorable tax treatment.

Future Benefit Payments and Funding
Our estimated future benefit payments are as follows:

2011
$480
$155

2012
$500
$155

2013
$520
$160

2014
$560
$165

2015
$595
$170

2016–20
$3,770
$ 875

Pension
Retiree medical(a)
(a) Expected future benefit payments for our retiree medical plans do not reflect any estimated subsidies expected to be received under the 2003 Medicare Act. Subsidies

are expected to be approximately $11 million for each of the years from 2011 through 2015 and approximately $90 million in total for 2016 through 2020.

These future benefits to beneficiaries include payments from

both funded and unfunded pension plans.

In 2011, we expect to make pension contributions of approxi-

mately $160 million, with up to approximately $15 million
expected to be discretionary. Our net cash payments for retiree
medical are estimated to be approximately $145 million in 2011.

Plan Assets

Pension
Our pension plan investment strategy includes the use of actively
managed securities and is reviewed annually based upon plan lia-
bilities, an evaluation of market conditions, tolerance for risk and
cash requirements for benefit payments. Our investment objec-
tive is to ensure that funds are available to meet the plans’ benefit
obligations when they become due. Our overall investment strat-
egy is to prudently invest plan assets in a well-diversified portfolio
of equity and high-quality debt securities to achieve our long-term

return expectations. Our investment policy also permits the use
of derivative instruments which are primarily used to reduce risk.
Our expected long-term rate of return on U.S. plan assets is 7.8%.
Our target investment allocation is 40% for U.S. equity allocations,
20% for international equity allocations and 40% for fixed income
allocations. Actual investment allocations may vary from our
target investment allocations due to prevailing market conditions.
We regularly review our actual investment allocations and peri-
odically rebalance our investments to our target allocations. In
an effort to enhance diversification, the pension plan divested its
holdings of PepsiCo stock in the fourth quarter of 2010.

Notes to Consolidated Financial Statements

are reasonable. To calculate the expected return on pension plan
assets, we use a market-related valuation method that recognizes
investment gains or losses (the difference between the expected
and actual return based on the market-related value of assets)
for securities included in our equity strategies over a five-year
period. This has the effect of reducing year-to-year volatility.
For all other asset categories, the actual fair value is used for the
market-related value of assets.

Retiree Medical
In 2010, we made nondiscretionary contributions of $100 mil-
lion to fund the payment of U.S. retiree medical claims. During
the fourth quarter of 2010, we made a discretionary contribution

of $170 million to fund future U.S. retiree medical plan benefits.
This contribution was invested consistent with the allocation of
existing assets in the U.S. pension plan.

Fair Value
The guidance on fair value measurements defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. The fair value
framework requires the categorization of assets and liabilities
into three levels based upon the assumptions (inputs) used to
price the assets. Level 1 provides the most reliable measure
of fair value, whereas Level 3 generally requires significant
management judgment.

Plan assets measured at fair value as of fiscal year-end 2010 and 2009 are categorized consistently by level in both years, and are as follows:

U.S. plan assets
Equity securities:
PepsiCo common stock(a)
U.S. common stock(a)
U.S. commingled funds(b)

International common stock(a)
International commingled fund(c)

Preferred stock(d)
Fixed income securities:
Government securities(d)
Corporate bonds(d)
Mortgage-backed securities(d)
Other:
Contracts with insurance companies(f)
Cash and cash equivalents
Subtotal U.S. plan assets
Dividends and interest receivable
Total U.S. plan assets

International plan assets
Equity securities:
U.S. commingled funds(b)

International commingled funds(c)

Fixed income securities:
Government securities(d)
Corporate bonds(d)
Fixed income commingled funds(e)
Other:
Contracts with insurance companies(f)
Currency commingled funds(g)
Cash and cash equivalents
Subtotal international plan assets
Dividends and interest receivable
Total international plan assets

Total

Level 1

Level 2

Level 3

2010*

$ –
304
–
834
–
–

–
–
–

–
81
$1,219

$ –
–
3,426
–
992
4

950
2,374
20

–
–
$7,766

$ –
–
–
–
–
–

–
–
–

28
–
$28

$ –
304
3,426
834
992
4

950
2,374
20

28
81
9,013
47
$9,060

2009

Total

$ 332
229
1,387
700
114
4

741
1,214
201

9
457
5,388
32
$5,420

$ 193
779

$ –
–

$ 193
779

$ –
–

$ 180
661

–
–
–

–
–
120
$ 120

184
152
393

–
42
–
$1,743

184
152
393

28
42
120
1,891
5
$1,896

–
–
–

28
–
–
$28

139
128
363

29
44
17
1,561
–
$1,561

(a) Based on quoted market prices in active markets.
(b) Based on the fair value of the investments owned by these funds that track various U.S. large, mid-cap and small company indices. Includes one large-cap fund that

represents 32% and 25%, respectively, of total U.S. plan assets for 2010 and 2009.

(c) Based on the fair value of the investments owned by these funds that track various non-U.S. equity indices.
(d) Based on quoted bid prices for comparable securities in the marketplace and broker/dealer quotes that are not observable. Corporate bonds of U.S.-based companies

represent 22% and 18%, respectively, of total U.S. plan assets for 2010 and 2009.

(e) Based on the fair value of the investments owned by these funds that track various government and corporate bond indices.
( f ) Based on the fair value of the contracts as determined by the insurance companies using inputs that are not observable.
(g) Based on the fair value of the investments owned by these funds. Includes managed hedge funds that invest primarily in derivatives to reduce currency exposure.
* 2010 amounts include $190 million of retiree medical plan assets that are restricted for purposes of providing health benefits for U.S. retirees and their beneficiaries.

PepsiCo, Inc. 2010 Annual Report

Retiree Medical Cost Trend Rates
An average increase of 7% in the cost of covered retiree medical
benefits is assumed for 2011. This average increase is then pro-
jected to decline gradually to 5% in 2020 and thereafter. These
assumed health care cost trend rates have an impact on the
retiree medical plan expense and liability. However, the cap on
our share of retiree medical costs limits the impact. In addition,
beginning January 1, 2011, the Company will start phasing out
company subsidies of retiree medical benefits. A 1-percentage-
point change in the assumed health care trend rate would have
the following effects:

the acquisition date) represented less than 1% of our total net
revenue in 2010, 6% of our total net revenue in 2009 and 7% of our
total net revenue in 2008.

See Note 15 for additional information regarding our acquisi-

tions of PBG and PAS.

The Pepsi Bottling Group
In addition to approximately 32% of PBG’s outstanding common
stock that we owned at year-end 2009, we owned 100% of PBG’s
class B common stock and approximately 7% of the equity of
Bottling Group, LLC, PBG’s principal operating subsidiary.
PBG’s summarized financial information is as follows:

2010 service and interest cost components
2010 benefit liability

1%
Increase Decrease
$ (4)
$(50)

$ 5
$42

Savings Plan
Our U.S. employees are eligible to participate in 401(k) sav-
ings plans, which are voluntary defined contribution plans. The
plans are designed to help employees accumulate additional
savings for retirement, and we make company matching con-
tributions on a portion of eligible pay based on years of service.
In 2010, in connection with our acquisitions of PBG and PAS,
we also made company retirement contributions for certain
employees on a portion of eligible pay based on years of service.
In 2010 and 2009, our total contributions were $135 million and
$72 million, respectively.

Beginning January 1, 2011, a new employer contribution to
the 401(k) savings plan will become effective for certain eligible
legacy PBG and PAS salaried employees as well as all future
eligible salaried new hires of PepsiCo who are not eligible to
participate in the defined benefit pension plan as a result of plan
design changes approved during 2010.

For additional unaudited information on our pension

and retiree medical plans and related accounting policies and
assumptions, see “Our Critical Accounting Policies” in
Management’s Discussion and Analysis.

Note 8 Noncontrolled
Bottling Affiliates

On February 26, 2010, we completed our acquisitions of PBG
and PAS, at which time we gained control over their operations
and began to consolidate their results. See Note 1. Prior to these
acquisitions, PBG and PAS represented our most significant
noncontrolled bottling affiliates. Sales to PBG in 2010 (prior to

Current assets
Noncurrent assets
Total assets

Current liabilities
Noncurrent liabilities
Total liabilities

Our investment

Net revenue
Gross profit
Operating income
Net income attributable to PBG

2008

2009
$ 3,412
10,158
$13,570

$ 1,965
7,896

$ 9,861

$ 1,775

$13,219 $13,796
$ 5,840 $ 6,210
$ 1,048 $ 649
$ 612 $ 162

Our investment in PBG, which included the related goodwill,
was $463 million higher than our ownership interest in their net
assets less noncontrolling interests at year-end 2009.

During 2008, together with PBG, we jointly acquired Russia’s

leading branded juice company, Lebedyansky. See Note 14 for
further information on this acquisition.

PepsiAmericas
At year-end 2009, we owned approximately 43% of the outstand-
ing common stock of PAS.

PAS’s summarized financial information is as follows:

Current assets
Noncurrent assets
Total assets

Current liabilities
Noncurrent liabilities
Total liabilities

Our investment

Net revenue
Gross profit
Operating income
Net income attributable to PAS

2008

2009
$ 952

4,141
$5,093

$ 669

2,493
$3,162

$1,071

$4,421 $4,937
$1,767 $1,982
$ 381 $ 473
$ 181 $ 226

Notes to Consolidated Financial Statements

Our investment in PAS, which included the related goodwill,
was $322 million higher than our ownership interest in their net
assets less noncontrolling interests at year-end 2009.

Note 9 Debt Obligations
and Commitments

Related Party Transactions
Our significant related party transactions are with our non-
controlled bottling affiliates, including PBG and PAS prior to
our acquisitions on February 26, 2010. All such amounts are
settled on terms consistent with other trade receivables and
payables. The transactions primarily consist of (1) selling con-
centrate to these affiliates, which they use in the production of
CSDs and non-carbonated beverages, (2) selling certain finished
goods to these affiliates, (3) receiving royalties for the use of our
trademarks for certain products and (4) paying these affiliates
to act as our manufacturing and distribution agent for product
associated with our national account fountain customers. Sales
of concentrate and finished goods are reported net of bottler
funding. For further unaudited information on these bottlers, see
“Our Customers” in Management’s Discussion and Analysis of
Financial Condition and Results of Operations. These transac-
tions with our bottling affiliates are reflected in our consolidated
financial statements as follows:

Net revenue

Cost of sales

Selling, general and administrative expenses
Accounts and notes receivable

Accounts payable and other liabilities

2010(a)
2008
2009
$993 $3,922 $4,049
$116 $ 634 $ 660
$ 6 $ 24 $ 30
$ 27 $ 254 $ 248
$ 42 $ 285 $ 198

(a) Includes transactions with PBG and PAS in 2010 prior to the date of

acquisition. 2010 balance sheet information for PBG and PAS is not applicable
as we consolidated their balance sheets at the date of acquisition.

We also coordinate, on an aggregate basis, the contract nego-

tiations of sweeteners and other raw material requirements,
including aluminum cans and plastic bottles and closures for
certain of our independent bottlers. Once we have negotiated
the contracts, the bottlers order and take delivery directly from
the supplier and pay the suppliers directly. Consequently, these
transactions are not reflected in our consolidated financial
statements. As the contracting party, we could be liable to these
suppliers in the event of any nonpayment by our bottlers, but we
consider this exposure to be remote.

In addition, our joint ventures with Unilever (under the Lipton

brand name) and Starbucks sell finished goods (ready-to-drink
teas, coffees and water products) to our noncontrolled bottling
affiliates. Consistent with accounting for equity method invest-
ments, our joint venture revenue is not included in our consoli-
dated net revenue and therefore is not included in the above table.

In 2010, we repurchased $357 million (5.5 million shares)
of PepsiCo stock from the Master Trust which holds assets of
PepsiCo’s U.S. qualified pension plans at market value. See Note 7.

PepsiCo, Inc. 2010 Annual Report

Short-term debt obligations
Current maturities of long-term debt
Commercial paper (0.2%)
Notes due 2011 (4.4%)
Other borrowings (5.3% and 6.7%)

Long-term debt obligations
Notes due 2012 (3.1% and 1.9%)
Notes due 2013 (3.0% and 3.7%)
Notes due 2014 (5.3% and 4.0%)
Notes due 2015 (2.6%)
Notes due 2016–2040 (4.9% and 5.4%)
Zero coupon notes, due 2011–2012 (13.3%)
Other, due 2011–2019 (4.8% and 8.4%)

2010

2009

$ 113 $ 102
–

–

362

$ 4,898 $ 464

2,632
1,513
640

$ 2,437 $1,079
2,110
999

1,026
2,888

–
1,617

4,056
10,828
192
136

150
96

7,502
20,112
(102)
(113)
$19,999 $7,400

Less: current maturities of long-term debt obligations

The interest rates in the above table reflect weighted-average rates at year-end.

In the first quarter of 2010, we issued $1.25 billion of floating
rate notes maturing in 2011 which bear interest at a rate equal to
the three-month London Inter-Bank Offered Rate (LIBOR) plus
3 basis points, $1.0 billion of 3.10% senior notes maturing in 2015,
$1.0 billion of 4.50% senior notes maturing in 2020 and $1.0 bil-
lion of 5.50% senior notes maturing in 2040. A portion of the net
proceeds from the issuance of these notes was used to finance
our acquisitions of PBG and PAS and the remainder was used for
general corporate purposes.

On February 26, 2010, in connection with the transac-

tions contemplated by the PBG merger agreement, Pepsi-Cola
Metropolitan Bottling Company, Inc. (Metro) assumed the due
and punctual payment of the principal of (and premium, if any)
and interest on PBG’s 7.00% senior notes due March 1, 2029
($1 billion principal amount of which are outstanding). These
notes are guaranteed by Bottling Group, LLC and PepsiCo.

On February 26, 2010, in connection with the transactions
contemplated by the PAS merger agreement, Metro assumed
the due and punctual payment of the principal of (and premium,
if any) and interest on PAS’s 7.625% notes due 2015 ($9 million
principal amount of which are outstanding), 7.29% notes due
2026 ($100 million principal amount of which are outstand-
ing), 7.44% notes due 2026 ($25 million principal amount of
which are outstanding), 4.50% notes due 2013 ($150 million
principal amount of which are outstanding), 5.625% notes due
2011 ($250 million principal amount of which are outstanding),
5.75% notes due 2012 ($300 million principal amount of which

are outstanding), 4.375% notes due 2014 ($350 million princi-
pal amount of which are outstanding), 4.875% notes due 2015
($300 million principal amount of which are outstanding), 5.00%
notes due 2017 ($250 million principal amount of which are
outstanding) and 5.50% notes due 2035 ($250 million principal
amount of which are outstanding). These notes are guaranteed
by PepsiCo.

On February 26, 2010, as a result of the transactions con-

templated by the PBG merger agreement, Bottling Group,
LLC became a wholly owned subsidiary of Metro. Bottling
Group, LLC’s 4.625% senior notes due 2012 ($1 billion principal
amount of which are outstanding), 4.125% senior notes due 2015
($250 million principal amount of which are outstanding), 5.00%
senior notes due 2013 ($400 million principal amount of which
are outstanding), 5.50% senior notes due 2016 ($800 million
principal amount of which are outstanding), 6.95% senior notes
due 2014 ($1.3 billion principal amount of which are outstanding)
and 5.125% senior notes due 2019 ($750 million principal amount
of which are outstanding) are guaranteed by PepsiCo.

As of December 25, 2010, the long-term debt acquired from
our anchor bottlers (including debt previously issued by PBG,
Bottling Group, LLC and PAS) in connection with our acquisi-
tions of PBG and PAS has a total face value of approximately
$7,484 million (fair value of $8,472 million) with a weighted-
average stated interest rate of 5.7%. This acquired debt has a
remaining weighted-average maturity of 6.6 years. See Note 15.
In the third quarter of 2010, we entered into a $2,575 million
364-day unsecured revolving credit agreement which expires in
June 2011. We may request renewal of this facility for an addi-
tional 364-day period or convert any amounts outstanding into

Long-Term Contractual Commitments(a)

a term loan for a period of up to one year, which would mature no
later than June 2012. This agreement replaced our $1,975 million
364-day unsecured revolving credit agreement and a $540 mil-
lion amended PAS credit facility and is in addition to our exist-
ing $2,000 million unsecured revolving credit agreement and
the $1,080 million amended PBG credit facility, both of which
expire in 2012. Funds borrowed under these agreements may be
used for general corporate purposes, including but not limited to
repayment of our outstanding commercial paper, working capi-
tal, capital investments and/or acquisitions. Borrowings under
the amended PBG credit facility are guaranteed by PepsiCo. Our
lines of credit remain unused as of December 25, 2010.

In the fourth quarter of 2010, we paid $672 million in a cash

tender offer to repurchase $500 million (aggregate principal
amount) of our 7.90% senior unsecured notes maturing in 2018.
As a result of this debt repurchase, we recorded a $178 million
charge to interest expense, primarily representing the premium
paid in the tender offer.

In the fourth quarter of 2010, we issued $500 million of 0.875%

senior unsecured notes maturing in 2013, $1.0 billion of 3.125%
senior unsecured notes maturing in 2020 and $750 million of
4.875% senior unsecured notes maturing in 2040. A portion
of the net proceeds from the issuance of these notes was used
to finance the debt repurchase and the remainder was used for
general corporate purposes.

In addition, as of December 25, 2010, $657 million of our debt
related to borrowings from various lines of credit that are main-
tained for our international divisions. These lines of credit are
subject to normal banking terms and conditions and are fully
committed at least to the extent of our borrowings.

Long-term debt obligations(b)
Interest on debt obligations(c)
Operating leases
Purchasing commitments
Marketing commitments

Payments Due by Period

Total
$19,337
7,746
1,676
2,433
824
$32,016

2011
$ –
809
390
765
294
$2,258

2012–2013
$4,569
1,480
543
1,159
268
$8,019

2014–2015
$4,322
1,075
320
481
151
$6,349

2016 and
beyond
$10,446
4,382
423
28
111
$15,390

(a) Reflects non-cancelable commitments as of December 25, 2010 based on year-end foreign exchange rates and excludes any reserves for uncertain tax positions as

we are unable to reasonably predict the ultimate amount or timing of settlement.

(b) Excludes $662 million related to the fair value step-up of debt acquired in connection with our acquisitions of PBG and PAS, as well as $113 million related to current

maturities of long-term debt.

Notes to Consolidated Financial Statements

Most long-term contractual commitments, except for our
long-term debt obligations, are not recorded on our balance
sheet. Non-cancelable operating leases primarily represent
building leases. Non-cancelable purchasing commitments are
primarily for packaging materials, oranges and orange juice.
Non-cancelable marketing commitments are primarily for
sports marketing. Bottler funding to independent bottlers is
not reflected in our long-term contractual commitments as it is
negotiated on an annual basis. Accrued liabilities for pension and
retiree medical plans are not reflected in our long-term contrac-
tual commitments because they do not represent expected future
cash outflows. See Note 7 for additional information regarding
our pension and retiree medical obligations.

Off-Balance-Sheet Arrangements
It is not our business practice to enter into off-balance-sheet
arrangements, other than in the normal course of business. See
Note 8 regarding contracts related to certain of our bottlers.

See “Our Liquidity and Capital Resources” in Management’s
Discussion and Analysis of Financial Condition and Results of
Operations for further unaudited information on our borrowings.

Note 10 Financial Instruments

We are exposed to market risks arising from adverse changes in:
commodity prices, affecting the cost of our raw materials
•
and energy,

• foreign exchange risks, and
• interest rates.

In the normal course of business, we manage these risks
through a variety of strategies, including the use of derivatives.
Certain derivatives are designated as either cash flow or fair
value hedges and qualify for hedge accounting treatment, while
others do not qualify and are marked to market through earnings.
Cash flows from derivatives used to manage commodity, foreign
exchange or interest risks are classified as operating activities.
See “Our Business Risks” in Management’s Discussion and
Analysis of Financial Condition and Results of Operations for
further unaudited information on our business risks.

For cash flow hedges, changes in fair value are deferred in
accumulated other comprehensive loss within common share-
holders’ equity until the underlying hedged item is recognized in
net income. For fair value hedges, changes in fair value are rec-
ognized immediately in earnings, consistent with the underlying
hedged item. Hedging transactions are limited to an underlying
exposure. As a result, any change in the value of our derivative
instruments would be substantially offset by an opposite change
in the value of the underlying hedged items. Hedging ineffec-
tiveness and a net earnings impact occur when the change in
the value of the hedge does not offset the change in the value
of the underlying hedged item. Ineffectiveness of our hedges
is not material. If the derivative instrument is terminated, we
continue to defer the related gain or loss and then include it as a
component of the cost of the underlying hedged item. Upon deter-
mination that the underlying hedged item will not be part of an
actual transaction, we recognize the related gain or loss in net
income immediately.

We also use derivatives that do not qualify for hedge account-
ing treatment. We account for such derivatives at market value
with the resulting gains and losses reflected in our income state-
ment. We do not use derivative instruments for trading or specu-
lative purposes. We perform assessments of our counterparty
credit risk regularly, including a review of credit ratings, credit
default swap rates and potential nonperformance of the counter-
party. Based on our most recent assessment of our counterparty
credit risk, we consider this risk to be low. In addition, we enter
into derivative contracts with a variety of financial institutions
that we believe are creditworthy in order to reduce our concen-
tration of credit risk and generally settle with these financial
institutions on a net basis.

Commodity Prices
We are subject to commodity price risk because our ability to
recover increased costs through higher pricing may be limited
in the competitive environment in which we operate. This risk
is managed through the use of fixed-price purchase orders,
pricing agreements, geographic diversity and derivatives. We
use derivatives, with terms of no more than three years, to eco-
nomically hedge price fluctuations related to a portion of our
anticipated commodity purchases, primarily for natural gas,

PepsiCo, Inc. 2010 Annual Report

diesel fuel and aluminum. For those derivatives that qualify for
hedge accounting, any ineffectiveness is recorded immediately
in corporate unallocated expenses. We classify both the earnings
and cash flow impact from these derivatives consistent with the
underlying hedged item. During the next 12 months, we expect
to reclassify net gains of $12 million related to these hedges
from accumulated other comprehensive loss into net income.
Derivatives used to hedge commodity price risk that do not qual-
ify for hedge accounting are marked to market each period and
reflected in our income statement.

Our open commodity derivative contracts that do not qualify

Foreign Exchange
Financial statements of foreign subsidiaries are translated
into U.S. dollars using period-end exchange rates for assets and
liabilities and weighted-average exchange rates for revenues and
expenses. Adjustments resulting from translating net assets are
reported as a separate component of accumulated other compre-
hensive loss within common shareholders’ equity as currency
translation adjustment.

Our operations outside of the U.S. generate over 45% of our net

revenue, with Mexico, Canada, Russia and the United Kingdom
comprising approximately 20% of our net revenue. As a result, we
are exposed to foreign currency risks. We also enter into deriva-
tives, primarily forward contracts with terms of no more than
two years, to manage our exposure to foreign currency transac-
tion risk. Exchange rate gains or losses related to foreign cur-
rency transactions are recognized as transaction gains or losses
in our income statement as incurred.

Our foreign currency derivatives had a total face value
of $1.7 billion as of December 25, 2010 and $1.2 billion as of

December 26, 2009. The contracts that qualify for hedge
accounting resulted in net unrealized losses of $15 million as
of December 25, 2010 and $20 million as of December 26, 2009.
During the next 12 months, we expect to reclassify net losses
of $14 million related to these hedges from accumulated other
comprehensive loss into net income. The contracts that do not
qualify for hedge accounting resulted in net losses of $6 million
in 2010 and a net gain of $1 million in 2009. All losses and gains
were offset by changes in the underlying hedged items, resulting
in no net material impact on earnings.

Interest Rates
We centrally manage our debt and investment portfolios consid-
ering investment opportunities and risks, tax consequences and
overall financing strategies. We use various interest rate deriva-
tive instruments including, but not limited to, interest rate swaps,
cross-currency interest rate swaps, Treasury locks and swap locks
to manage our overall interest expense and foreign exchange risk.
These instruments effectively change the interest rate and cur-
rency of specific debt issuances. Certain of our fixed rate indebt-
edness has been swapped to floating rates. The notional amount,
interest payment and maturity date of the interest rate and cross-
currency swaps match the principal, interest payment and matu-
rity date of the related debt. Our Treasury locks and swap locks are
entered into to protect against unfavorable interest rate changes
relating to forecasted debt transactions.

The notional amounts of the interest rate derivative instru-
ments outstanding as of December 25, 2010 and December 26,
2009 were $9.23 billion and $5.75 billion, respectively. For those
interest rate derivative instruments that qualify for cash flow
hedge accounting, any ineffectiveness is recorded immediately.
We classify both the earnings and cash flow impact from these
interest rate derivative instruments consistent with the under-
lying hedged item. During the next 12 months, we expect to
reclassify net losses of $13 million related to these hedges from
accumulated other comprehensive loss into net income.

As of December 25, 2010, approximately 43% of total debt
(including indebtedness acquired in our acquisitions of PBG
and PAS), after the impact of the related interest rate derivative
instruments, was exposed to variable rates compared to 57% as
of December 26, 2009.

Notes to Consolidated Financial Statements

Fair Value Measurements
The fair values of our financial assets and liabilities as of December 25, 2010 and December 26, 2009 are categorized as follows:

Available-for-sale securities(b)
Short-term investments — index funds(c)
Deferred compensation(d)

Derivatives designated as hedging instruments:
Forward exchange contracts(e)
Interest rate derivatives(f)
Commodity contracts — other(g)
Commodity contracts — futures(h)

Derivatives not designated as hedging instruments:
Forward exchange contracts(e)
Interest rate derivatives(f)
Commodity contracts — other(g)
Commodity contracts — futures(h)
Prepaid forward contracts(i)

2010

2009

Assets(a) Liabilities(a)
$ 636
$ 167
$ –

$ –
$ –
$559

Assets(a)
$ 71
$120
$ –

Liabilities(a)
$ –
$ –
$461

$ 8
284
70
1
$ 363

$ 23
12
2
23
$ 60

$ 11
177
8
–
$196

$ 31
43
5
32
$111

$ 1
6
28
–
48
$ 83
$ 446
$1,249

$ 7
45
1
1
–
$ 54
$114
$673

$ 4
–
7
–
46
$ 57
$253
$444

$ 2
–
60
3
–
$ 65
$176
$637

Total derivatives at fair value
Total
(a) Financial assets are classified on our balance sheet within other assets, with the exception of short-term investments. Financial liabilities are classified on our balance
sheet within other current liabilities and other liabilities. Unless specifically indicated, all financial assets and liabilities are categorized as Level 2 assets or liabilities.

(b) Based on the price of common stock. Categorized as a Level 1 asset.
(c) Based on price changes in index funds used to manage a portion of market risk arising from our deferred compensation liability. Categorized as a Level 1 asset.
(d) Based on the fair value of investments corresponding to employees’ investment elections. At December 25, 2010 and December 26, 2009, $170 million and

$121 million, respectively, are categorized as Level 1 liabilities. The remaining balances are categorized as Level 2 liabilities.

(e) Based on observable market transactions of spot and forward rates.
( f ) Based on LIBOR and recently reported transactions in the marketplace.
(g) Based on recently reported transactions in the marketplace, primarily swap arrangements.
(h) Based on average prices on futures exchanges. Categorized as a Level 1 asset or liability.
( i ) Based primarily on the price of our common stock.

The effective portion of the pre-tax (gains)/losses on our derivative instruments are categorized in the tables below.

Fair Value/Non-
designated Hedges

Losses/(Gains)
Recognized in
Income Statement(a)
2009
2010
$ (29)
$ 6
206
(5)
(274)
$(102)

(104)
(4)
(30)
$(132)

Cash Flow Hedges

Losses/(Gains)
Recognized in
Accumulated Other
Comprehensive Loss

2010
$ 26
75
–
(32)
$ 69

2009
$ 75
32
–
(1)
$106

Losses/(Gains)
Reclassified from
Accumulated Other
Comprehensive Loss
into Income Statement(b)

2010
$40
7
–
28
$75

2009
$(64)
–
–
90
$ 26

Forward exchange contracts
Interest rate derivatives
Prepaid forward contracts
Commodity contracts
Total

(a) Interest rate gains/losses are included in interest expense in our income statement. All other gains/losses are included in corporate unallocated expenses.
(b) Interest rate losses are included in interest expense in our income statement. All other gains/losses are included in cost of sales in our income statement.

The carrying amounts of our cash and cash equivalents and short-term investments approximate fair value due to the short-term
maturity. Short-term investments consist principally of short-term time deposits and index funds used to manage a portion of market
risk arising from our deferred compensation liability. The fair value of our debt obligations as of December 25, 2010 and December 26,
2009 was $25.9 billion and $8.6 billion, respectively, based upon prices of similar instruments in the marketplace.

The above table excludes guarantees. See Note 9 for additional information on our guarantees.

PepsiCo, Inc. 2010 Annual Report

Note 11 Net Income Attributable to PepsiCo per Common Share

Basic net income attributable to PepsiCo per common share is net income available for PepsiCo common shareholders divided by the
weighted average of common shares outstanding during the period. Diluted net income attributable to PepsiCo per common share is
calculated using the weighted average of common shares outstanding adjusted to include the effect that would occur if in-the-money
employee stock options were exercised and RSUs and preferred shares were converted into common shares. Options to purchase
24.4 million shares in 2010, 39.0 million shares in 2009 and 9.8 million shares in 2008 were not included in the calculation of diluted
earnings per common share because these options were out-of-the-money. Out-of-the-money options had average exercise prices of
$67.26 in 2010, $61.52 in 2009 and $67.59 in 2008.

The computations of basic and diluted net income attributable to PepsiCo per common share are as follows:

Net income attributable to PepsiCo
Preferred shares:
Dividends
Redemption premium
Net income available for PepsiCo common shareholders

Basic net income attributable to PepsiCo per common share

Net income available for PepsiCo common shareholders
Dilutive securities:
Stock options and RSUs
ESOP convertible preferred stock
Diluted

Diluted net income attributable to PepsiCo per common share

(a) Weighted-average common shares outstanding (in millions).

Note 12 Preferred Stock

2010

2009

2008

Income
$6,320

(1)
(5)
$6,314

$ 3.97

$6,314

–
6
$6,320

$ 3.91

Shares(a)

1,590

23
1
1,614

Income
$5,946

(1)
(5)
$5,940

$ 3.81

$5,940

–
6
$5,946

$ 3.77

Shares(a)

1,558

17
2
1,577

Income
$5,142

(2)
(6)
$5,134

$ 3.26

$5,134

–
8
$5,142

$ 3.21

Shares(a)

1,573

27
2
1,602

As of December 25, 2010 and December 26, 2009, there were 3 million shares of convertible preferred stock authorized. The preferred
stock was issued for an ESOP established by Quaker and these shares are redeemable for common stock by the ESOP participants. The
preferred stock accrues dividends at an annual rate of $5.46 per share. At year-end 2010 and 2009, there were 803,953 preferred shares
issued and 227,653 and 243,553 shares outstanding, respectively. The outstanding preferred shares had a fair value of $74 million as
of December 25, 2010 and $73 million as of December 26, 2009. Each share is convertible at the option of the holder into 4.9625 shares of
common stock. The preferred shares may be called by us upon written notice at $78 per share plus accrued and unpaid dividends.
Quaker made the final award to its ESOP plan in June 2001.

Preferred stock

Repurchased preferred stock
Balance, beginning of year
Redemptions
Balance, end of year

(a) In millions.

2010

2009

2008

Shares(a)
0.8

Amount
$ 41

Shares(a)
0.8

Amount
$ 41

Shares(a)
0.8

Amount
$ 41

0.6
–
0.6

$145
5
$150

0.5
0.1
0.6

$138
7
$145

0.5
–
0.5

$132
6
$138

Note 14 Supplemental
Financial Information

Accounts receivable
Trade receivables
Other receivables

Allowance, beginning of year
Net amounts charged to expense
Deductions(a)
Other(b)
Allowance, end of year
Net receivables
Inventories(c)
Raw materials
Work-in-process
Finished goods

2010

2009

2008

$ 69
21
(16)
(4)
$ 70

$5,514 $4,026
688

4,714

(21)

$6,323 $4,624

953
6,467
90
12
(37)
79
144

$1,654 $1,274
165

1,179

$3,372 $2,618

128
1,590

(a) Includes accounts written off.
(b) Includes adjustments related to our acquisitions of PBG and PAS, currency

translation effects and other adjustments.

the average, first-in, first-out (FIFO) or last-in, first-out (LIFO) methods.
Approximately 8% in 2010 and 10% in 2009 of the inventory cost was
computed using the LIFO method. The differences between LIFO and FIFO
methods of valuing these inventories were not material.

Other assets
Noncurrent notes and accounts receivable
Deferred marketplace spending
Unallocated purchase price for recent acquisitions
Pension plans
Other investments(a)
Other

Accounts payable and other current liabilities
Accounts payable
Accrued marketplace spending
Accrued compensation and benefits
Dividends payable
Other current liabilities

2010

2009

$ 165 $ 118
182

143

369

$ 1,689 $ 965

203
–
121
653
547

$ 3,865 $2,881
1,656

1,291

706

1,593

$10,923 $8,127

1,841
1,779
766
2,672

(a) In 2010, includes our investment in WBD of $549 million. This investment is
accounted for as an available-for-sale security with any unrealized gains or
losses recorded in other comprehensive income.

Notes to Consolidated Financial Statements

Note 13 Accumulated Other
Comprehensive Loss Attributable
to PepsiCo

Comprehensive income is a measure of income which includes
both net income and other comprehensive income or loss. Other
comprehensive income or loss results from items deferred from
recognition into our income statement. Accumulated other
comprehensive loss is separately presented on our balance sheet
as part of common shareholders’ equity. Other comprehensive
income/(loss) attributable to PepsiCo was $164 million in 2010,
$900 million in 2009 and $(3,793) million in 2008. The accumu-
lated balances for each component of other comprehensive loss
attributable to PepsiCo were as follows:

Currency translation adjustment
Cash flow hedges, net of tax(a)
Unamortized pension and retiree medical,

net of tax(b)

Unrealized gain on securities, net of tax
Other
Accumulated other comprehensive

2009

2010

2008

$(1,159) $(1,471) $(2,271)
(14)

(100)

(42)

(2,442)
70
1

(2,328)
47
–

(2,435)
28
(2)

loss attributable to PepsiCo

$(3,630) $(3,794) $(4,694)
(a) Includes $23 million after-tax gain in 2009 and $17 million after-tax loss in 2008

for our share of our equity investees’ accumulated derivative activity.

(b) Net of taxes of $1,322 million in 2010, $1,211 million in 2009 and $1,288 million
in 2008. Includes $51 million decrease to the opening balance of accumulated
other comprehensive loss attributable to PepsiCo in 2008 due to a change in
measurement date for our pension and retiree medical plans.

PepsiCo, Inc. 2010 Annual Report

Other supplemental information
Rent expense
Interest paid
Income taxes paid, net of refunds
Acquisitions(a)
Fair value of assets acquired
Cash paid, net of cash acquired
Equity issued
Previously held equity interests in

2010

2009

2008

$ 526 $ 412 $ 357
$ 1,043 $ 456 $ 359
$ 1,495 $1,498 $ 1,477

$27,665 $ 851 $ 2,907
(1,925)

–

(3,044)
(4,451)

(466)
–

PBG and PAS

(4,293)

–

Liabilities and noncontrolling

interests assumed

$15,877 $ 385 $ 982

(a) In 2010, amounts primarily reflect our acquisitions of PBG and PAS. During

2008, together with PBG, we jointly acquired Lebedyansky, for a total purchase
price of $1.8 billion.

Note 15 Acquisitions

PBG and PAS
On August 3, 2009, we entered into a Merger Agreement (the
PBG Merger Agreement) with PBG and Metro pursuant to
which PBG merged with and into Metro, with Metro continu-
ing as the surviving corporation and a wholly owned subsidiary
of PepsiCo. Also on August 3, 2009, we entered into a Merger
Agreement (the PAS Merger Agreement and together with the
PBG Merger Agreement, the Merger Agreements) with PAS and
Metro pursuant to which PAS merged with and into Metro, with
Metro continuing as the surviving corporation and a wholly
owned subsidiary of PepsiCo. On February 26, 2010, we acquired
PBG and PAS to create a more fully integrated supply chain and
go-to-market business model, improving the effectiveness and
efficiency of the distribution of our brands and enhancing our
revenue growth. The total purchase price was approximately
$12.6 billion, which included $8.3 billion of cash and equity and
the fair value of our previously held equity interests in PBG and
PAS of $4.3 billion.

Under the terms of the PBG Merger Agreement, each outstand-
ing share of common stock of PBG not held by Metro, PepsiCo or
a subsidiary of PepsiCo or held by PBG as treasury stock (each,
a “PBG Share”) was canceled and converted into the right to
receive, at the holder’s election, either 0.6432 shares of common
stock of PepsiCo (the “PBG Per Share Stock Consideration”) or
$36.50 in cash, without interest (the “PBG Cash Election Price”),
subject to proration provisions which provide that an aggregate
50% of such outstanding PBG Shares were converted into the

right to receive common stock of PepsiCo and an aggregate 50%
of such outstanding PBG Shares were converted into the right to
receive cash and each PBG Share and share of Class B common
stock of PBG held by Metro, PepsiCo or a subsidiary of PepsiCo
was canceled or converted to the right to receive 0.6432 shares
of common stock of PepsiCo. Under the terms of the PAS Merger
Agreement, each outstanding share of common stock of PAS
not held by Metro, PepsiCo or a subsidiary of PepsiCo or held
by PAS as treasury stock (each, a “PAS Share”) was canceled
and converted into the right to receive, at the holder’s election,
either 0.5022 shares of common stock of PepsiCo (the “PAS Per
Share Stock Consideration”) or $28.50 in cash, without interest
(the “PAS Cash Election Price”), subject to proration provisions
which provide that an aggregate 50% of such outstanding PAS
Shares were converted into the right to receive common stock of
PepsiCo and an aggregate 50% of such outstanding PAS Shares
were converted into the right to receive cash and each PAS Share
held by Metro, PepsiCo or a subsidiary of PepsiCo was canceled
or converted into the right to receive 0.5022 shares of common
stock of PepsiCo.

Under the terms of the applicable Merger Agreement, each
PBG or PAS stock option was converted into an adjusted PepsiCo
stock option to acquire a number of shares of PepsiCo common
stock, determined by multiplying the number of shares of PBG or
PAS common stock subject to the PBG or PAS stock option by an
exchange ratio (the “Closing Exchange Ratio”) equal to the clos-
ing price of a share of PBG or PAS common stock on the business
day immediately before the acquisition date divided by the clos-
ing price of a share of PepsiCo common stock on the business day
immediately before the acquisition date. The exercise price per
share of PepsiCo common stock subject to the adjusted PepsiCo
stock option is equal to the per share exercise price of PBG or PAS
stock option divided by the Closing Exchange Ratio.

Under the terms of the PBG Merger Agreement, each PBG

restricted stock unit (RSU) was adjusted so that its holder
is entitled to receive, upon settlement, a number of shares of
PepsiCo common stock equal to the number of shares of PBG
common stock subject to the PBG RSU multiplied by the PBG Per
Share Stock Consideration. PBG performance-based RSUs were
converted into PepsiCo RSUs based on 100% target achievement,
and, following conversion, remain subject to continued service of
the holder. Each PBG RSU held by a non-employee director was
vested and canceled at the acquisition date, and, in exchange for
cancellation of the PBG RSU, the holder received the PBG Per
Share Stock Consideration for each share of PBG common stock
subject to the PBG RSU.

Notes to Consolidated Financial Statements

Under the terms of the PAS Merger Agreement, each cash-
settled PAS RSU was canceled in exchange for a cash payment
equal to the closing price of a share of PAS common stock on the
business day immediately before the closing of the PAS merger
for each share of PAS common stock subject to each PAS RSU.
Each PAS restricted share was converted into either the PAS Per
Share Stock Consideration or the PAS Cash Election Price, at the
election of the holder, with the same proration procedures appli-
cable to PAS stockholders described above.

Pursuant to the terms of PBG’s executive retention arrange-
ments, PBG equity awards granted to certain executives prior to
the PBG merger vest immediately upon a qualifying termination
of the executive’s employment except for certain PBG executives
whose equity awards vested immediately at the effective time
of the PBG merger pursuant to the terms of PepsiCo’s executive
retention agreements. Each PAS equity award granted prior to
the PAS merger vested immediately at the effective time of the
PAS merger pursuant to the original terms of the awards.

Prior to the acquisitions, we had equity investments in PBG
and PAS. In addition to approximately 32% of PBG’s outstanding
common stock that we owned at year-end 2009, we owned 100%
of PBG’s class B common stock and approximately 7% of the
equity of Bottling Group, LLC, PBG’s principal operating sub-
sidiary. At year-end 2009, we owned approximately 43% of the
outstanding common stock of PAS.

The guidance on accounting for business combinations
requires that an acquirer remeasure its previously held equity
interest in an acquiree at its acquisition date fair value and rec-
ognize the resulting gain or loss in earnings. Thus, in connection
with our acquisitions of PBG and PAS, the carrying amounts of
our previously held equity interests in PBG and PAS were reval-
ued to fair value at the acquisition date, resulting in a gain in the
first quarter of 2010 of $958 million, comprising $735 million
which is non-taxable and recorded in bottling equity income and
$223 million related to the reversal of deferred tax liabilities
associated with these previously held equity interests.

As discussed in Note 9, in January 2010, we issued $4.25 bil-
lion of fixed and floating rate notes. A portion of the net proceeds
from the issuance of these notes was used to finance our acquisi-
tions of PBG and PAS.

Our actual stock price on February 25, 2010 (the last trading
day prior to the closing of the acquisitions) was used to determine
the value of stock, stock options and RSUs issued as consider-
ation in connection with our acquisitions of PBG and PAS and
thus to calculate the actual purchase price.

The table below represents the computation of the purchase
price excluding assumed debt and the fair value of our previously
held equity interests in PBG and PAS as of the acquisition date:

Payment in cash, for the remaining

(not owned by PepsiCo and its subsidiaries)
outstanding shares of PBG and PAS
common stock and equity awards vested
at consummation of merger

Payment to PBG and PAS of shares of

PepsiCo common stock for the remaining
(not owned by PepsiCo and its subsidiaries)
outstanding shares of PBG and PAS
common stock and equity awards vested
at consummation of merger
Issuance of PepsiCo equity awards

(vested and unvested) to replace existing
PBG and PAS equity awards

Total purchase price

Total Number
of Shares/
Awards Issued

Total
Fair
Value

–

$3,813

4,175

16
83

276
$8,264

The following table summarizes the fair value of identifi-
able assets acquired and liabilities assumed in the acquisi-
tions of PBG and PAS and the resulting goodwill as of the
acquisition date:

Inventory
Property, plant and equipment
Amortizable intangible assets
Nonamortizable intangible assets, primarily

reacquired franchise rights

Other current assets and current liabilities(a)
Other noncurrent assets
Debt obligations
Pension and retiree medical benefits
Other noncurrent liabilities
Deferred income taxes
Total identifiable net assets
Goodwill
Subtotal
Fair value of acquisition of noncontrolling interest

Total purchase price

Acquisition Date

Fair Value
$ 1,006
5,574

1,298

9,036

751

281

(8,814)

(962)

(744)

(3,246)

4,180

8,059
12,239
317

$12,556

(a) Includes cash and cash equivalents, accounts receivable, prepaid expenses

and other current assets, accounts payable and other current liabilities.

100

PepsiCo, Inc. 2010 Annual Report

Goodwill is calculated as the excess of the purchase price paid
over the net assets recognized. The goodwill recorded as part of
the acquisitions of PBG and PAS primarily reflects the value of
adding PBG and PAS to PepsiCo to create a more fully integrated
supply chain and go-to-market business model, as well as any
intangible assets that do not qualify for separate recognition.
Goodwill is not amortizable nor deductible for tax purposes.
Substantially all of the goodwill is recorded in our PAB segment.

In connection with our acquisitions of PBG and PAS, we
reacquired certain franchise rights which had previously pro-
vided PBG and PAS with the exclusive and perpetual rights to
manufacture and/or distribute beverages for sale in specified
territories. Reacquired franchise rights totaling $8.0 billion
were assigned a perpetual life and are, therefore, not amortiz-
able. Amortizable acquired franchise rights of $0.9 billion have
weighted-average estimated useful lives of 56 years. Other amor-
tizable intangible assets, primarily customer relationships, have
weighted-average estimated useful lives of 20 years.

Under the guidance on accounting for business combinations,
merger and integration costs are not included as components of
consideration transferred but are accounted for as expenses in
the period in which the costs are incurred. See Note 3 for details
on the expenses incurred during 2010.

The following table presents unaudited consolidated pro forma

financial information as if the closing of our acquisitions of PBG
and PAS had occurred on December 27, 2009 for purposes of the
financial information presented for the year ended December 25,
2010; and as if the closing of our acquisitions of PBG and PAS
had occurred on December 28, 2008 for purposes of the financial
information presented for the year ended December 26, 2009.

Net Revenue
Net Income Attributable to PepsiCo
Net Income Attributable to PepsiCo
per Common Share – Diluted

2010

2009

$59,582 $57,471
$ 5,856 $ 6,752

$ 3.60 $ 4.09

The unaudited consolidated pro forma financial informa-
tion was prepared in accordance with the acquisition method of
accounting under existing standards, and the regulations of the
U.S. Securities and Exchange Commission, and is not necessarily
indicative of the results of operations that would have occurred
if our acquisitions of PBG and PAS had been completed on the
dates indicated, nor is it indicative of the future operating results
of PepsiCo.

The historical unaudited consolidated financial informa-
tion has been adjusted to give effect to pro forma events that are
(1) directly attributable to the acquisitions, (2) factually support-
able, and (3) expected to have a continuing impact on the com-
bined results of PepsiCo, PBG and PAS.

The unaudited pro forma results have been adjusted with respect

•

to certain aspects of our acquisitions of PBG and PAS to reflect:
• the consummation of the acquisitions;
•

consolidation of PBG and PAS which are now owned 100%
by PepsiCo and the corresponding gain resulting from the
remeasurement of our previously held equity interests in PBG
and PAS;
the elimination of related party transactions between PepsiCo
and PBG, and PepsiCo and PAS;
changes in assets and liabilities to record their acquisition
date fair values and changes in certain expenses resulting
therefrom; and
additional indebtedness, including, but not limited to, debt
issuance costs and interest expense, incurred in connection
with the acquisitions.
The unaudited pro forma results do not reflect future events
that may occur after the acquisitions, including, but not limited
to, the anticipated realization of ongoing savings from operating
synergies in subsequent periods. They also do not give effect to
certain one-time charges we expect to incur in connection with
the acquisitions, including, but not limited to, charges that are
expected to achieve ongoing cost savings and synergies.

•

WBD
On February 3, 2011, we announced that we had completed the
previously announced acquisition of ordinary shares, American
Depositary Shares and Global Depositary Shares of WBD, a com-
pany incorporated in the Russian Federation, which represent in
the aggregate approximately 66% of WBD’s outstanding ordinary
shares, pursuant to the purchase agreement dated December 1,
2010 between PepsiCo and certain selling shareholders of
WBD for approximately $3.8 billion. The acquisition increased
PepsiCo’s total ownership of WBD to approximately 77%.

PepsiCo expects to make an offer in Russia (Russian Offer) on
or before March 11, 2011 to acquire all of the remaining ordinary
shares, in accordance with the mandatory tender offer rules of
the Russian Federation. The price to be paid in the Russian Offer
will be 3,883.70 Russian rubles per ordinary share. This price
is $132, which is the price per share PepsiCo paid to the selling
shareholders pursuant to the purchase agreement, converted
to Russian rubles at the Central Bank of Russia exchange rate
established for February 3, 2011. Concurrently with the Russian
Offer, we expect to make an offer (U.S. Offer) to all holders of
American Depositary Shares at a price per American Depositary
Share equal to 970.925 Russian rubles (which is one-fourth of
3,883.70 Russian rubles since each American Depositary Share
represents one-fourth of an ordinary share), without interest
and less any fees, conversion expenses and applicable taxes.
This amount will be converted to U.S. dollars at the spot market
rate on or about the date that PepsiCo pays for the American
Depositary Shares tendered in the U.S. Offer.

101

Management’s Responsibility for Financial Reporting

To Our Shareholders:

At PepsiCo, our actions — the actions of all our associates — are
governed by our Worldwide Code of Conduct. This Code is clearly
aligned with our stated values — a commitment to sustained
growth, through empowered people, operating with responsibil-
ity and building trust. Both the Code and our core values enable
us to operate with integrity — both within the letter and the spirit
of the law. Our Code of Conduct is reinforced consistently at all
levels and in all countries. We have maintained strong governance
policies and practices for many years.

The management of PepsiCo is responsible for the objectivity
and integrity of our consolidated financial statements. The Audit
Committee of the Board of Directors has engaged independent
registered public accounting firm, KPMG LLP, to audit our
consolidated financial statements, and they have expressed an
unqualified opinion.

We are committed to providing timely, accurate and under-
standable information to investors. Our commitment encom-
passes the following:

Maintaining strong controls over financial reporting.
Our system of internal control is based on the control criteria
framework of the Committee of Sponsoring Organizations of the
Treadway Commission published in their report titled Internal
Control — Integrated Framework. The system is designed to
provide reasonable assurance that transactions are executed as
authorized and accurately recorded; that assets are safeguarded;
and that accounting records are sufficiently reliable to permit the
preparation of financial statements that conform in all material
respects with accounting principles generally accepted in the
U.S. We maintain disclosure controls and procedures designed
to ensure that information required to be disclosed in reports
under the Securities Exchange Act of 1934 is recorded, pro-
cessed, summarized and reported within the specified time
periods. We monitor these internal controls through self-assess-
ments and an ongoing program of internal audits. Our internal
controls are reinforced through our Worldwide Code of Conduct,
which sets forth our commitment to conduct business with
integrity, and within both the letter and the spirit of the law.

Exerting rigorous oversight of the business.
We continuously review our business results and strategies.
This encompasses financial discipline in our strategic and
daily business decisions. Our Executive Committee is actively
involved — from understanding strategies and alternatives to
reviewing key initiatives and financial performance. The intent
is to ensure we remain objective in our assessments, construc-
tively challenge our approach to potential business opportunities
and issues, and monitor results and controls.

102

PepsiCo, Inc. 2010 Annual Report

Engaging strong and effective Corporate Governance from
our Board of Directors.
We have an active, capable and diligent Board that meets the
required standards for independence, and we welcome the Board’s
oversight as a representative of our shareholders. Our Audit
Committee is comprised of independent directors with the finan-
cial literacy, knowledge and experience to provide appropriate
oversight. We review our critical accounting policies, financial
reporting and internal control matters with them and encourage
their direct communication with KPMG LLP, with our General
Auditor, and with our General Counsel. We also have a Compliance
Department to coordinate our compliance policies and practices.

Providing investors with financial results that are
complete, transparent and understandable.
The consolidated financial statements and financial information
included in this report are the responsibility of management.
This includes preparing the financial statements in accordance
with accounting principles generally accepted in the U.S., which
require estimates based on management’s best judgment.

PepsiCo has a strong history of doing what’s right.
We realize that great companies are built on trust, strong ethical
standards and principles. Our financial results are delivered
from that culture of accountability, and we take responsibility
for the quality and accuracy of our financial reporting.

February 18, 2011

Peter A. Bridgman
Senior Vice President and Controller

Hugh F. Johnston
Chief Financial Officer

Indra K. Nooyi
Chairman of the Board of Directors and
Chief Executive Officer

Management’s Report on Internal Control
Over Financial Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Rule 13a-15(f) of the Exchange Act. Under the super-
vision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we con-
ducted an evaluation of the effectiveness of our internal control
over financial reporting based upon the framework in Internal
Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on
that evaluation, our management concluded that our internal con-
trol over financial reporting is effective as of December 25, 2010.

KPMG LLP, an independent registered public accounting firm,

has audited the consolidated financial statements included in
this Annual Report on Form 10-K and, as part of their audit, has
issued their report, included herein, on the effectiveness of our
internal control over financial reporting.

During our fourth fiscal quarter of 2010, we continued migrat-
ing certain of our financial processing systems to an enterprise-
wide systems solution. These systems implementations are part
of our ongoing global business transformation initiative, and we
plan to continue implementing such systems throughout other
parts of our businesses over the course of the next few years. In
connection with these implementations and resulting business
process changes, we continue to enhance the design and docu-
mentation of our internal control processes to ensure suitable
controls over our financial reporting.

Except as described above, there were no changes in our internal

control over financial reporting during our fourth fiscal quarter

of 2010 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

February 18, 2011

Peter A. Bridgman
Senior Vice President and Controller

Hugh F. Johnston
Chief Financial Officer

Indra K. Nooyi
Chairman of the Board of Directors and
Chief Executive Officer

103

Report of Independent Registered
Public Accounting Firm

To the Board of Directors and Shareholders of
PepsiCo, Inc.:

We have audited the accompanying Consolidated Balance
Sheets of PepsiCo, Inc. and subsidiaries (“PepsiCo, Inc.” or “the
Company”) as of December 25, 2010 and December 26, 2009, and
the related Consolidated Statements of Income, Cash Flows and
Equity for each of the fiscal years in the three-year period ended
December 25, 2010. We also have audited PepsiCo, Inc.’s internal
control over financial reporting as of December 25, 2010, based on
criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). PepsiCo, Inc.’s management
is responsible for these consolidated financial statements, for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our respon-
sibility is to express an opinion on these consolidated financial
statements and an opinion on the Company’s internal control over
financial reporting based on our audits.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial state-
ments are free of material misstatement and whether effective
internal control over financial reporting was maintained in all
material respects. Our audits of the consolidated financial state-
ments included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assess-
ing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial report-
ing included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effec-
tiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.

A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reason-
able detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expendi-
tures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the finan-
cial statements.

Because of its inherent limitations, internal control over finan-

cial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compli-
ance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial posi-
tion of PepsiCo, Inc. as of December 25, 2010 and December 26,
2009, and the results of its operations and its cash flows for each
of the fiscal years in the three-year period ended December 25,
2010, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, PepsiCo, Inc. maintained, in
all material respects, effective internal control over financial
reporting as of December 25, 2010, based on criteria established
in Internal Control — Integrated Framework issued by COSO.

New York, New York
February 18, 2011

104

PepsiCo, Inc. 2010 Annual Report

Selected Financial Data

Quarterly
(in millions except per share amounts, unaudited)
Net revenue
Gross profit
Mark-to-market net impact(a)
Merger and integration charges(b)
Gain on previously held equity interests(c)
Inventory fair value adjustments(d)
Venezuela currency devaluation(e)
Asset write-off(f)
Foundation contribution(g)
Debt repurchase(h)
Restructuring and impairment charges(i)
Net income attributable to PepsiCo
Net income attributable to PepsiCo

2010

2009

First
Quarter
$8,263
$4,519
$ (62)
–

Second
Quarter
$10,592
$ 5,711
$ (100)
–

Third
Quarter
$11,080
$ 5,899
$ (29)
$ 9

Fourth
Quarter
$13,297
$ 7,004
$ (83)
$ 52

First
Quarter
$9,368
$4,905
$ (46)
$ 321
$ (958)
$ 281
$ 120
$ 145
$ 100
–

Second
Quarter
$14,801
$ 8,056
$ 4
$ 155
–
$ 76
–
–
–
–

Third
Quarter
$15,514
$ 8,506
$ (16)
$ 69
–
$ 17
–
–
–
–

Fourth
Quarter
$18,155
$ 9,796
$ (33)
$ 263
–
$ 24
–
–
–
$ 178

$1,430

$ 1,603

$ 1,922

$ 1,365

$ 25
$1,135

$ 11
$ 1,660

–
$ 1,717

–
$ 1,434

per common share – basic

$ 0.90

$ 1.00

$ 1.21

$ 0.86

$ 0.73

$ 1.06

$ 1.10

$ 0.92

Net income attributable to PepsiCo

per common share – diluted

Cash dividends declared
per common share
Stock price per share(j)
High
Low
Close

$ 0.89

$ 0.98

$ 1.19

$ 0.85

$ 0.72

$ 1.06

$ 1.09

$ 0.90

$ 0.45

$ 0.48

$0.425

$ 0.45

$66.98
$58.75
$66.56

$ 67.61
$ 61.04
$ 63.56

$ 66.83
$ 60.32
$ 65.57

$ 68.11
$ 63.43
$ 65.69

$56.93
$43.78
$50.02

$ 56.95
$ 47.50
$ 53.65

$ 59.64
$ 52.11
$ 57.54

$ 64.48
$ 57.33
$ 60.96

(a) In 2010, we recognized $91 million ($58 million after-tax or $0.04 per share) of mark-to-market net gains on commodity hedges in corporate unallocated expenses. In
2009, we recognized $274 million ($173 million after-tax or $0.11 per share) of mark-to-market net gains on commodity hedges in corporate unallocated expenses.

(b) In 2010, we incurred merger and integration charges of $799 million related to our acquisitions of PBG and PAS, as well as advisory fees in connection with our

acquisition of WBD. In addition, we recorded $9 million of merger-related charges, representing our share of the respective merger costs of PBG and PAS. In total,
these charges had an after-tax impact of $648 million or $0.40 per share. In 2009, we recognized $50 million of merger-related charges, as well as an additional
$11 million of costs in bottling equity income representing our share of the respective merger costs of PBG and PAS. In total, these costs had an after-tax impact of
$44 million or $0.03 per share. See Note 3.

(c) In 2010, in connection with our acquisitions of PBG and PAS, we recorded a gain on our previously held equity interests of $958 million ($0.60 per share), comprising
$735 million which is non-taxable and recorded in bottling equity income and $223 million related to the reversal of deferred tax liabilities associated with these
previously held equity interests. See Note 15.

(d) In 2010, we recorded $398 million ($333 million after-tax or $0.21 per share) of incremental costs related to fair value adjustments to the acquired inventory and other

related hedging contracts included in PBG’s and PAS’s balance sheets at the acquisition date.

(e) In 2010, we recorded a one-time $120 million net charge ($120 million after-tax or $0.07 per share) related to our change to hyperinflationary accounting for our

Venezuelan businesses and the related devaluation of the bolivar.

( f ) In 2010, we recorded a $145 million charge ($92 million after-tax or $0.06 per share) related to a change in scope of one release in our ongoing migration to SAP software.
(g) In 2010, we made a $100 million ($64 million after-tax or $0.04 per share) contribution to The PepsiCo Foundation Inc., in order to fund charitable and social programs

over the next several years.

(h) In 2010, we paid $672 million in a cash tender offer to repurchase $500 million (aggregate principal amount) of our 7.90% senior unsecured notes maturing in 2018. As
a result of this debt repurchase, we recorded a $178 million charge to interest expense ($114 million after-tax or $0.07 per share), primarily representing the premium
paid in the tender offer.

( i ) Restructuring and impairment charges in 2009 were $36 million ($29 million after-tax or $0.02 per share). See Note 3.
( j ) Represents the composite high and low sales price and quarterly closing prices for one share of PepsiCo common stock.

105

Five-Year Summary (unaudited)

Net revenue
Net income attributable to PepsiCo
Net income attributable to PepsiCo per common share − basic
Net income attributable to PepsiCo per common share − diluted
Cash dividends declared per common share
Total assets
Long-term debt
Return on invested capital(a)
(a) Return on invested capital is defined as adjusted net income attributable to PepsiCo divided by the sum of average common shareholders’ equity and average total

19.3%

27.2%

28.9%

25.5%

2010
$57,838
$ 6,320
$ 3.97
$ 3.91
$ 1.89
$68,153
$19,999

2009
$43,232
$ 5,946
$ 3.81
$ 3.77
$ 1.775
$39,848
$ 7,400

2007
$39,474
$ 5,658
$ 3.48
$ 3.41
$ 1.425
$34,628
$ 4,203

2008
$43,251
$ 5,142
$ 3.26
$ 3.21
$ 1.65
$35,994
$ 7,858

2006
$35,137
$ 5,642
$ 3.42
$ 3.34
$ 1.16
$29,930
$ 2,550

30.4%

debt. Adjusted net income attributable to PepsiCo is defined as net income attributable to PepsiCo plus net interest expense after-tax. Net interest expense after-tax
was $534 million in 2010, $211 million in 2009, $184 million in 2008, $63 million in 2007 and $72 million in 2006.

•

Includes restructuring and impairment charges of:

Pre-tax
After-tax
Per share

•

Includes mark-to-market net (income)/expense of:

Pre-tax
After-tax
Per share

2009
$ 36
$ 29
$0.02

2009
$ (274)
$ (173)
$(0.11)

2008
$ 543
$ 408
$0.25

2008
$ 346
$ 223
$0.14

2007
$ 102
$ 70
$0.04

2007
$ (19)
$ (12)
$(0.01)

2006
$ 67
$ 43
$0.03

2006
$ 18
$ 12
$0.01

2010
$ (91)
$ (58)
$(0.04)

•

•
•

•

In 2010, we incurred merger and integration charges of $799 million related to our acquisitions of PBG and PAS, as well as advisory fees in connection with our
acquisition of WBD. In addition, we recorded $9 million of merger-related charges, representing our share of the respective merger costs of PBG and PAS. In total,
these costs had an after-tax impact of $648 million or $0.40 per share.
In 2010, in connection with our acquisitions of PBG and PAS, we recorded a gain on our previously held equity interests of $958 million ($0.60 per share), comprising
$735 million which is non-taxable and recorded in bottling equity income and $223 million related to the reversal of deferred tax liabilities associated with these
previously held equity interests.
In 2010, we recorded $398 million ($333 million after-tax or $0.21 per share) of incremental costs related to fair value adjustments to the acquired inventory and other
related hedging contracts included in PBG’s and PAS’s balance sheets at the acquisition date.
In 2010, we recorded a one-time $120 million net charge ($120 million after-tax or $0.07 per share) related to our change to hyperinflationary accounting for our
Venezuelan businesses and the related devaluation of the bolivar.
In 2010, we recorded a $145 million charge ($92 million after-tax or $0.06 per share) related to a change in scope of one release in our ongoing migration to
SAP software.
In 2010, we made a $100 million ($64 million after-tax or $0.04 per share) contribution to The PepsiCo Foundation Inc., in order to fund charitable and social programs
over the next several years.
In 2010, we paid $672 million in a cash tender offer to repurchase $500 million (aggregate principal amount) of our 7.90% senior unsecured notes maturing in 2018.
As a result of this debt repurchase, we recorded a $178 million charge to interest expense ($114 million after-tax or $0.07 per share), primarily representing the premium
paid in the tender offer.
In 2009, we recognized $50 million of merger-related charges related to our acquisitions of PBG and PAS, as well as an additional $11 million of costs in bottling equity
income representing our share of the respective merger costs of PBG and PAS. In total, these costs had an after-tax impact of $44 million or $0.03 per share.
In 2008, we recognized $138 million ($114 million after-tax or $0.07 per share) of our share of PBG’s restructuring and impairment charges.
In 2007, we recognized $129 million ($0.08 per share) of non-cash tax benefits related to the favorable resolution of certain foreign tax matters. In 2006, we recognized
non-cash tax benefits of $602 million ($0.36 per share) primarily in connection with the IRS’s examination of our consolidated income tax returns for the years 1998
through 2002.
On December 30, 2006, we adopted guidance from the FASB on accounting for pension and other postretirement benefits which reduced total assets by
$2,016 million, total common shareholders’ equity by $1,643 million and total liabilities by $373 million.

106

PepsiCo, Inc. 2010 Annual Report

Reconciliation of GAAP and Non-GAAP Information

Division operating profit, core results and core constant currency
results are non-GAAP financial measures as they exclude certain
items noted below. However, we believe investors should con-
sider these measures as they are more indicative of our ongoing
performance and with how management evaluates our opera-
tional results and trends.

Commodity Mark-to-Market Net Impact
In the year ended December 25, 2010, we recognized $91 million
of mark-to-market net gains on commodity hedges in corpo-
rate unallocated expenses. In the year ended December 26,
2009, we recognized $274 million of mark-to-market net gains
on commodity hedges in corporate unallocated expenses. We
centrally manage commodity derivatives on behalf of our divi-
sions. Certain of these commodity derivatives do not qualify for
hedge accounting treatment and are marked to market with the
resulting gains and losses recognized in corporate unallocated
expenses. These gains and losses are subsequently reflected
in division results when the divisions take delivery of the
underlying commodity.

Merger and Integration Charges
In the year ended December 25, 2010, we incurred merger and
integration charges of $799 million related to our acquisitions
of PBG and PAS, as well as advisory fees in connection with
our acquisition of WBD, including $467 million recorded in the
PAB segment, $111 million recorded in the Europe segment,
$191 million recorded in corporate unallocated expenses and
$30 million recorded in interest expense. These charges also
include closing costs, one-time financing costs and advisory
fees related to the acquisitions. In addition, in the year ended
December 25, 2010, we recorded $9 million of charges, repre-
senting our share of the respective merger costs of PBG and
PAS, recorded in bottling equity income. In the year ended
December 26, 2009, we incurred $50 million of costs associated
with the mergers with PBG and PAS, as well as an additional
$11 million of costs representing our share of the respective
merger costs of PBG and PAS, recorded in bottling equity income.

Restructuring and Impairment Charges
As a result of our previously initiated Productivity for Growth
program, in the year ended December 26, 2009, we recorded
$36 million of restructuring and impairment charges.

Gain on Previously Held Equity Interests in PBG and PAS
In the first quarter of 2010, in connection with our acquisitions
of PBG and PAS, we recorded a gain on our previously held equity
interests of $958 million, comprising $735 million which is non-
taxable and recorded in bottling equity income and $223 million
related to the reversal of deferred tax liabilities associated with
these previously held equity interests.

Inventory Fair Value Adjustments
In the year ended December 25, 2010, we recorded $398 million of
incremental costs, substantially all in cost of sales, related to fair
value adjustments to the acquired inventory and other related
hedging contracts included in PBG’s and PAS’s balance sheets at
the acquisition date, including $358 million recorded in the PAB
segment and $40 million recorded in the Europe segment.

Venezuela Currency Devaluation
As of the beginning of our 2010 fiscal year, we recorded a one-time
$120 million net charge related to our change to hyper inflationary
accounting for our Venezuelan businesses and the related deval-
uation of the bolivar fuerte (bolivar). $129 million of this net
charge was recorded in corporate unallocated expenses, with the
balance (income of $9 million) recorded in our PAB segment.

Asset Write-Off for SAP Software
In the first quarter of 2010, we recorded a $145 million charge
related to a change in scope of one release in our ongoing migra-
tion to SAP software. This change was driven, in part, by a
review of our North America systems strategy following our
acquisitions of PBG and PAS. This change does not impact our
overall commitment to continue our implementation of SAP
across our global operations over the next few years.

Foundation Contribution
In the first quarter of 2010, we made a $100 million contribution
to The PepsiCo Foundation, Inc. (Foundation), in order to fund
charitable and social programs over the next several years. This
contribution was recorded in corporate unallocated expenses.

107

Net Income Attributable to PepsiCo Reconciliation

Reported Net Income

Attributable to PepsiCo
Mark-to-Market Net Gains
Restructuring and Impairment Charges
Merger and Integration Charges
Gain on Previously Held Equity Interests
Inventory Fair Value Adjustments
Venezuela Currency Devaluation
Asset Write-Off
Foundation Contribution
Debt Repurchase
Core Net Income Attributable to PepsiCo

2010

2009 Growth

$6,320
(58)
–
648
(958)
333
120
92
64
114
$6,675

$5,946
(173)
29
44
–
–
–
–
–
–
$5,846

14%

Net Cash Provided by Operating Activities Reconciliation

Net Cash Provided by Operating Activities
Capital Spending
Sales of Property, Plant and Equipment
Management Operating Cash Flow
Discretionary Pension and Retiree
Medical Contributions (after-tax)

Payments Related to 2009

Restructuring Charges (after-tax)

Merger and Integration Payments (after-tax)
Foundation Contribution (after-tax)
Debt Repurchase (after-tax)
Capital Investments Related to
the PBG/PAS Integration

Management Operating Cash Flow

Excluding above Items

2010
$ 8,448
(3,253)
81
5,276

2009 Growth

24%

$ 6,796
(2,128)
58
4,726

983

640

20
299
64
112

138

168
49
–
–

–

$ 6,892

$ 5,583

23%

Reconciliation of GAAP and Non-GAAP Information
(continued)

Interest Expense Incurred in Connection with
Debt Repurchase
In the year ended December 25, 2010, we paid $672 million in a
cash tender offer to repurchase $500 million (aggregate principal
amount) of our 7.90% senior unsecured notes maturing in 2018.
As a result of this debt repurchase, we recorded a $178 million
charge to interest expense, primarily representing the premium
paid in the tender offer.

Management Operating Cash Flow
Additionally, management operating cash flow is the primary
measure management uses to monitor cash flow performance.
This is not a measure defined by GAAP. Since net capital
spending is essential to our product innovation initiatives and
maintaining our operational capabilities, we believe that it is a
recurring and necessary use of cash. As such, we believe inves-
tors should also consider net capital spending when evaluating
our cash from operating activities.

2010 Net Revenue Growth Reconciliation

Reported Net Revenue Growth
Foreign Currency Translation
Constant Currency Net Revenue Growth

Operating Profit Reconciliation

Total Reported Operating Profit
Mark-to-Market Net Gains
Merger and Integration Charges
Restructuring and Impairment Charges
Inventory Fair Value Adjustments
Venezuela Currency Devaluation
Asset Write-Off
Foundation Contribution
Total Core Operating Profit
Impact of Other Corporate Unallocated
Core Division Operating Profit

Foreign Currency Translation
Core Constant Currency Division

Operating Profit Growth

* Does not sum due to rounding

2010

34%
(1)
33%

2010
$ 8,332
(91)

769

–

398

120

145

100

9,773

853
$10,626

2009 Growth

$8,044
(274)
50
36
–
–
–
–
7,856
791
$8,647

24%

23%

0.5

23%*

108

PepsiCo, Inc. 2010 Annual Report

Glossary

Acquisitions: reflect all mergers and acquisitions activity,
including the impact of acquisitions, divestitures and changes
in ownership or control in consolidated subsidiaries and
nonconsolidated equity investees.

Effective net pricing: reflects the year-over-year impact of
discrete pricing actions, sales incentive activities and mix
resulting from selling varying products in different package
sizes and in different countries.

Bottlers: customers to whom we have granted exclusive con-
tracts to sell and manufacture certain beverage products bearing
our trademarks within a specific geographical area.

Bottler Case Sales (BCS): measure of physical beverage volume
shipped to retailers and independent distributors from both
PepsiCo and our independent bottlers.

Bottler funding: financial incentives we give to our indepen-
dent bottlers to assist in the distribution and promotion of our
beverage products.

Concentrate Shipments and Equivalents (CSE): measure of
our physical beverage volume shipments to independent bottlers,
retailers and independent distributors. This measure is reported
on our fiscal year basis.

Constant currency: financial results assuming constant foreign
currency exchange rates used for translation based on the rates
in effect for the comparable prior-year period.

Consumers: people who eat and drink our products.

CSD: carbonated soft drinks.

Customers: authorized independent bottlers, distributors
and retailers.

Derivatives: financial instruments, such as futures, swaps,
Treasury locks, options and forward contracts, that we use to
manage our risk arising from changes in commodity prices,
interest rates, foreign exchange rates and stock prices.

Direct-Store-Delivery (DSD): delivery system used by us and
our independent bottlers to deliver snacks and beverages directly
to retail stores where our products are merchandised.

Hedge accounting: treatment for qualifying hedges that allows
fluctuations in a hedging instrument’s fair value to offset cor-
responding fluctuations in the hedged item in the same report-
ing period. Hedge accounting is allowed only in cases where
the hedging relationship between the hedging instruments and
hedged items is highly effective, and only prospectively from the
date a hedging relationship is formally documented.

Management operating cash flow: net cash provided by
operating activities less capital spending plus sales of property,
plant and equipment. It is our primary measure used to monitor
cash flow performance.

Mark-to-market net gain or loss or impact: the change in
market value for commodity contracts, that we purchase to
mitigate the volatility in costs of energy and raw materials that
we consume. The market value is determined based on average
prices on national exchanges and recently reported transactions
in the marketplace.

Marketplace spending: sales incentives offered through various
programs to our customers and consumers (trade spending), as
well as advertising and other marketing activities.

Servings: common metric reflecting our consolidated physical
unit volume. Our divisions’ physical unit measures are converted
into servings based on U.S. Food and Drug Administration guide-
lines for single-serving sizes of our products.

Transaction gains and losses: the impact on our consolidated
financial statements of exchange rate changes arising from
specific transactions.

Translation adjustment: the impact of converting our foreign
affiliates’ financial statements into U.S. dollars for the purpose
of consolidating our financial statements.

109

Common Stock Information

Shareholder Information

If using overnight or certified mail, send to:

Stock Trading Symbol — PEP

Stock Exchange Listings
The New York Stock Exchange is the principal
market for PepsiCo common stock, which is also
listed on the Chicago and Swiss Stock Exchanges.

Shareholders
As of February 11, 2011, there were approxi-
mately 165,700 shareholders of record.

Dividend Policy
Dividends are usually declared in late January
or early February, May, July and November and
paid at the end of March, June and September
and the beginning of January. The dividend
record dates for these payments are, subject to
approval by the Board of Directors, expected
to be March 4, June 3, September 2 and
December 2, 2011. We have paid consecutive
quarterly cash dividends since 1965.

Stock Performance
PepsiCo was formed through the 1965 merger
of Pepsi-Cola Company and Frito-Lay, Inc.
A $1,000 investment in our stock made on
December 31, 2005 was worth about $1,255 on
December 31, 2010, assuming the reinvestment
of dividends into PepsiCo stock. This perfor-
mance represents a compounded annual growth
rate of 4.6 percent.

Cash Dividends Declared
Per Share (in $)

10
09
08
07
06

1.89

1.775

1.65

1.425

1.16

The closing price for a share of PepsiCo com-
mon stock on the New York Stock Exchange
was the price as reported by Bloomberg for the
years ending 2006–2010. Past performance is
not necessarily indicative of future returns on
investments in PepsiCo common stock.

Year-end Market Price of Stock
Based on calendar year end (in $)

Annual Meeting
The Annual Meeting of Shareholders will be
held at Frito-Lay Corporate headquarters,
7701 Legacy Drive, Plano, Texas, on Wednesday,
May 4, 2011, at 9:00 a.m. local time. Proxies for
the meeting will be solicited by an independent
proxy solicitor. This annual report is not part
of the proxy solicitation.

Inquiries Regarding Your Stock Holdings
Registered Shareholders (shares held by you in
your name) should address communications
concerning transfers, statements, dividend pay-
ments, address changes, lost certificates and
other administrative matters to:

PepsiCo, Inc.
c/o BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
Telephone: 800-226-0083
800-231-5469 (TDD for hearing impaired)
201-680-6685 (Outside the U.S.)
201-680-6685 (TDD outside the U.S.)
E-mail: shrrelations@bnymellon.com
Website: www.bnymellon.com/shareowner/
equityaccess

Manager Shareholder Relations
PepsiCo, Inc.
700 Anderson Hill Road
Purchase, NY 10577
Telephone: 914-253-3055
E-mail: investor@pepsico.com

Merrill Lynch
Client Account Services ESOP
1800 Merrill Lynch Drive
MSC 0802
Pennington, NJ 08534

In all correspondence, please provide your
account number (for U.S. citizens, this is your
Social Security number), your address and
your telephone number, and mention PepsiCo
SharePower. For telephone inquiries, please have
a copy of your most recent statement available.

Associate Benefit Plan Participants
PepsiCo 401(k) Plan and PepsiCo Stock
Purchase Program

The PepsiCo Savings & Retirement
Center at Fidelity
P.O. Box 770003
Cincinnati, OH 45277-0065
Telephone: 800-632-2014
(Overseas: Dial your country’s AT&T Access
Number +800-632-2014. In the U.S., access
numbers are available by calling 800-331-1140.
From anywhere in the world, access numbers
are available online at www.att.com/traveler.)
Website: www.netbenefits.com

PepsiCo Stock Purchase Program — for
Canadian associates:

Fidelity Stock Plan Services
P.O. Box 5000
Cincinnati, OH 45273-8398
Telephone: 800-632-2014
Website: www.netbenefits.com

In all correspondence or telephone inquiries,
please mention PepsiCo, your name as printed
on your stock certificate, your Investor ID
(IID), your address and your telephone number.

Please have a copy of your most recent state-
ment available when calling with inquiries.

If using overnight or certified mail, send to:

Fidelity Investments
100 Crosby Parkway
Mail Zone KC1F-L
Covington, KY 41015

SharePower Participants (associates with
SharePower Options) should address all
questions regarding your account, outstanding
options or shares received through option
exercises to:

Merrill Lynch
1400 Merrill Lynch Drive
MSC NJ2-140-03-17
Pennington, NJ 08534
Telephone: 800-637-6713 (U.S., Puerto Rico
and Canada)
609-818-8800 (all other locations)

110

PepsiCo, Inc. 2010 Annual Report

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All of the inks used in this annual report were
formulated with soy-based products. Soy ink
is naturally low in VOCs (volatile organic com-
pounds, chemical compounds that evaporate
and react to sunlight) and its usage can reduce
emissions causing air pollution.

PepsiCo continues to reduce the costs and envi-
ronmental impact of annual report printing and
mailing by utilizing a distribution model that
drives increased online readership and fewer
printed copies.

We hope you can agree that this is truly
Performance with Purpose in action. You can
learn more about our environmental efforts at
www.pepsico.com.

QR Codes

A QR (Quick Response) code is a two-dimensional
code that directs users to a specific web des-
tination, video or application. Readers should
scan the code using the camera on their
smartphone and an application specific to the
phone’s operating system. Here are a few
QR code readers we recommend:
www.scanlife.com, www.i-nigma.com,
www.neoreader.com. The URLs that are coded
into the four QR codes are:

Walkers “Do Us a Flavour” Campaign
www.tinyurl.com/pepsico1

Frito-Lay All-Natural Ingredients
www.tinyurl.com/pepsico2

PepsiCo India
www.tinyurl.com/pepsico3

PepsiCo Talent Sustainability
www.tinyurl.com/pepsico4

Shareholder Services

BuyDIRECT Plan
Interested investors can make their initial pur-
chase directly through BNY Mellon Shareowner
Services, transfer agent for PepsiCo and
Administrator for the Plan. A brochure detailing
the Plan is available on our website
www.pepsico.com or from our transfer agent:

Corporate Headquarters
PepsiCo, Inc.
700 Anderson Hill Road
Purchase, NY 10577
Telephone: 914-253-2000

PepsiCo Website
www.pepsico.com

PepsiCo, Inc.
c/o BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
Telephone: 800-226-0083
800-231-5469 (TDD for hearing impaired)
201-680-6685 (Outside the U.S.)
201-680-6610 (TDD outside the U.S.)
E-mail: shrrelations@bnymellon.com
Website: www.bnymellon.com/
shareowner/equityaccess

Other services include dividend reinvestment,
direct deposit of dividends, optional cash
investments by electronic funds transfer or
check drawn on a U.S. bank, sale of shares,
online account access and electronic delivery
of shareholder materials.

Financial and Other Information
PepsiCo’s 2011 quarterly earnings releases are
expected to be issued the weeks of April 25, July
18, October 10, 2011 and February 6, 2012.

Copies of PepsiCo’s SEC filings, earnings and
other financial releases, corporate news and
additional company information are available
on our website www.pepsico.com.

PepsiCo’s CEO and CFO Certifications required
under Sarbanes-Oxley Section 302 were filed as
an exhibit to our Form 10-K filed with the SEC
on February 18, 2011. PepsiCo’s 2010 Domestic
Company Section 303A CEO Certification was
filed with the New York Stock Exchange
(NYSE). In addition, we have a written state-
ment of Management’s Report on Internal
Control over Financial Reporting on page 103 of
this annual report. If you have questions regard-
ing PepsiCo’s financial performance contact:

Independent Auditors
KPMG LLP
345 Park Avenue
New York, NY 10154-1002
Telephone: 212-758-9700

PepsiCo’s annual report contains many of the
valuable trademarks owned and/or used by
PepsiCo and its subsidiaries and affiliates in the
United States and internationally to distinguish
products and services of outstanding quality.
All other trademarks featured herein are the
property of their respective owners.

PepsiCo Values

Our commitment:
To deliver SUSTAINED GROWTH
through EMPOWERED PEOPLE
acting with RESPONSIBILITY
and building TRUST.

Guiding Principles

We must always strive to:
Care for customers, consumers and the world
we live in.
Sell only products we can be proud of.
Speak with truth and candor.
Balance short term and long term.
Win with diversity and inclusion.
Respect others and succeed together.

Environmental Profile

This annual report paper is Forest Stewardship
Council (FSC) certified, which promotes envi-
ronmentally appropriate, socially beneficial
and economically viable management of the
world’s forests. This report was printed with
the use of 100 percent certified renewable wind
power resources, preventing approximately
14,000 pounds of carbon dioxide greenhouse
gas emissions from reaching the environment.
This amount of wind-generated electricity is
equivalent to approximately 12,000 miles not
driven in an automobile or approximately 1,000
trees being planted.

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Performance
with Purpose
The Promise of PepsiCo

2010 Annual Report