PepsiCo Annual Report 2009

Corporate Headquarters, PepsiCo, Inc.700 Anderson Hill RoadPurchase, NY 10577 www.pepsico.com2009 Annual Report0   1 2 0 1 3 0   30   1 2 0 1 3 0   3WHAT ISAt PepsiCo, Performance with Purpose means delivering sustainable growth by investing in a healthier future for people and our planet. As a global food and beverage company with brands that stand for quality and are respected household names—Quaker Oats, Tropicana, Gatorade, Lay’s and Pepsi-Cola, to name a few—we will continue to build a portfolio of enjoyable and wholesome foods and beverages, find innovative ways to reduce the use of energy, water and packaging, and provide a great workplace for our associates. Additional y, we wil 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, govern-ments and community groups. Because a healthier future for al people and our planet means a more successful future for PepsiCo. This is our promise.PerformanceTo all our investors…It’s a promise to strive to deliver superior, sustainable financial performance.*Our GOals and COmmitmentsToP Line: • Grow international revenues at two times real global GDP growth rate. • Grow savory snack and Liquid refreshment Beverage market share in the top 20 markets. • Sustain or improve brand equity scores for Pepsico’s 19 billion-dollar brands in top 10 markets. • rank among the top two suppliers in customer (retail partner) surveys where third-party measures exist. BoTTom Line: • continue to expand division operating margins. • increase cash flow in proportion to net income growth over three-year windows. • Deliver total shareholder returns in the top quartile of our industry group.corPoraTe Governance anD vaLueS: • utilize a robust corporate Governance structure to consistently score in the top quartile of corporate Governance metrics. • ensure our Pepsico value commitment to deliver sustained growth through empowered people acting with responsibility and building trust.* For more information on our goals and commitments, including a metrics baseline and timeline, and risks, please visit www.pepsico.com.Human SuSTainaBiLiTyTo the people of the world…It’s a promise to encourage people to live healthier by offering a portfolio of both enjoyable and wholesome foods and beverages.*Our GOals and COmmitmentsProDucTS:Provide more food and beverage choices made with wholesome ingredients that contribute to healthier eating and drinking. • increase the amount of whole grains, fruits, vegetables, nuts, seeds and low-fat dairy in our global product portfolio. • reduce the average amount of sodium per serving in key global food brands by 25 percent. • reduce the average amount of saturated fat per serving in key global food brands by 15 percent. • reduce the average amount of added sugar per serving in key global beverage brands by 25 percent. markeTPLace:encourage people to make informed choices and live healthier. • Display calorie count and key nutrients on our food and beverage packaging by 2012. • advertise to children under 12 only products that meet our global science-based nutrition standards. • eliminate the direct sale of full-sugar soft drinks in primary and secondary schools around the globe by 2012. • increase the range of foods and beverages that offer solutions for managing calories, like portion sizes.communiTy:actively work with global and local partners to help address global nutrition challenges. • invest in our business and research and development to expand our offerings of more affordable, nutritionally relevant products for underserved and lower-income communities. • expand Pepsico foundation and Pepsico corporate contribution initiatives to promote healthier communities, including enhancing diet and physical activity programs. • integrate our policies and actions on human health, agriculture and the environment to make sure that they support each other.* For more information on our goals and commitments, including a metrics baseline and timeline, and risks, please visit www.pepsico.com.environmenTaL SuSTainaBiLiTyTo 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.*Our GOals and COmmitmentsWaTer:respect the human right to water through world-class efficiency in our operations, preserving water resources and enabling access to safe water. • improve our water use efficiency by 20 percent per unit of production by 2015. • Strive for positive water balance in our operations in water-distressed areas. • Provide access to safe water to three million people in developing countries by the end of 2015.LanD anD PackaGinG:rethink the way we grow, source, create, package and deliver our products to minimize our impact on land. • continue to lead the industry by incorporating at least 10 percent recycled polyethylene terephthalate (rPeT) in our primary soft drink containers in the u.S., and broadly expand the use of rPeT across key international markets. • create partnerships that promote the increase of u.S. beverage container recycling rates to 50 percent by 2018. • reduce packaging weight by 350 mil ion pounds—avoiding the creation of one bil ion pounds of landfil waste by 2012. • Work to eliminate all solid waste to landfills from our production facilities.cLimaTe cHanGe:reduce the carbon footprint of our operations. • improve our electricity use efficiency by 20 percent per unit of production by 2015. • reduce our fuel use intensity by 25 percent per unit of production by 2015. • commit to 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. • commit to an absolute reduction in GHG emissions across global operations.communiTy:respect and responsibly use natural resources in our businesses and in the local communities we serve. • apply proven sustainable agricultural practices on our farmed land. • Provide funding, technical support and training to local farmers. • Promote environmental education and best practices among our associates and business partners. • integrate our policies and actions on human health, agriculture and the environment to make sure that they support each other.* For more information on our goals and commitments, including a metrics baseline and timeline, and risks, please visit www.pepsico.com.TaLenT SuSTainaBiLiTyTo 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.*Our GOals and COmmitmentscuLTure:enable our people to thrive by providing a supportive and empowering workplace. • ensure high levels of associate engagement and satisfaction as compared with other fortune 500 companies. • foster diversity and inclusion by developing a workforce that reflects local communities. • encourage our associates to lead healthier lives by offering workplace wellness programs globally. • ensure a safe workplace by continuing to reduce lost time injury rates, while striving to improve other occupational health and safety metrics through best practices. • Support ethical and legal compliance through annual training in our code of conduct, which outlines Pepsico’s unwavering commitment to its human rights policy, including treating every associate with dignity and respect.career:Provide opportunities that strengthen our associates’ skills and capabilities to drive sustainable growth. • Become universally recognized through top rankings as one of the best companies in the world for leadership development. • create a work environment in which associates know that their skills, talents and interests can fully develop. • conduct training for associates from the frontline to senior management, to ensure that associates have the knowledge and skills required to achieve performance goals.communiTy:contribute to better living standards in the communities we serve. • create local jobs by expanding operations in developing countries. • Support education through Pepsico foundation grants. • Support associate volunteerism and community involvement through company-sponsored programs and initiatives. • match eligible associate charitable contributions globally, dollar for dollar, through the Pepsico foundation.* For more information on our goals and commitments, including a metrics baseline and timeline, and risks, please visit www.pepsico.com.indra k. nooyi, Chairman and Chief Executive OfficerDear Fellow Shareholders,A Roman author said more than two mil ennia ago that anyone can steer the ship when the sea is calm. The true test of endur-ance and stamina, he went on, is to navigate through rough waters. Wel , this year has seen some of the roughest possible waters. The economic tempest of 2008 turned into the perfect storm of 2009. Business was battered by volatile commodity costs, frozen credit markets, fluctuating currencies and negative GDP rates. At PepsiCo, it seemed as if each day brought a new challenge. Every one of them tested the strength and capabilities of our organization. And I can declare with great pride that we passed the test of endurance and stamina wonderfully well. We are a company with great resilience. The ability of our associates to pull together has left me excited about our momentum from 2009 into 2010 and beyond. I don’t think this is due just to the ability of all the great people we have. I think our company is more than the sum of This acknowledges that businesses have a responsibility to the those considerable parts; we draw extra strength from the solid communities in which they operate, to the consumers they foundation of values and principles upon which PepsiCo is built. serve and to the environment whose resources they use. The business community and government did a great deal of We provide great-tasting products, outstanding quality and soul-searching in the midst of the challenging global economy, supreme value to consumers worldwide, while maintaining an seeking to uncover the source of our world’s financial problems underpinning of integrity and responsibility. We have instil ed this and how best to share responsibility to address the situation. As fundamental belief into al of our brands—Quaker Oats, Tropicana, debates raged on issues that are core to a vibrant, functioning Sabritas, Walkers, Lay’s, Gatorade and Pepsi-Cola, to name a few—marketplace, it became increasingly clear as the year went on to ensure we offer consumers a diverse portfolio of enjoyable and that corporate ethics are inexorably linked to a healthy economy. wholesome nutritious foods and beverages. We take seriously A former American president, Dwight Eisenhower, once our responsibility to find innovative ways to use less energy, said, “A people that values its privileges above its principles water and packaging, our responsibility to hire local people in soon loses both.” The same is true of a company, and the past the communities where we operate, create products designed 18 months have proved the wisdom of the remark. for local tastes, and partner with local producers and suppliers. Here at PepsiCo, we are fortunate to have embedded And, we have expanded our responsibility to partner with local Performance with Purpose into our culture and fabric long governments and NGOs to address the growing twin problems before this current downturn. It is one of the fundamental of malnutrition and obesity acute to different parts of the world.factors that kept PepsiCo on the leading edge in 2009. Performance with Purpose means that we will continue to Our basic belief—that companies today must marry bring together what is good for society and what is good for performance with ethical concerns—is resonating more than business. It encourages us to think global y while acting local y. It ever before. For consumers, this translates into receiving value, has helped us break into new regions and harness local products both economic and social, from trusted brands. For govern-and talent to drive our growth. It drives our commitment to ments and the wider public, it translates into responsibility. increase diversity in the workforce, enhancing our ability to 2Pepsico, inc. 2009 annual reportrecruit the brightest and most talented associates from around and brought exciting innovation to market with the launch of the world. And it helps keep us focused on staying strong over zero-calorie SoBe Lifewater and Trop50 orange juice beverage, the long term so that we are well-prepared to capitalize on all both natural y sweetened with purified stevia extract. We also growth opportunities. Most importantly, the promise of PepsiCo reached agreement on merging into PepsiCo our two anchor is to continue to generate solid value for our shareholders.bottlers, Pepsi Bottling Group and PepsiAmericas, in order to cre-ate a more agile, efficient, innovative and competitive beverage PePSICo DelIvereD SolID FInAnCIAl system, which wil enable us to extend our leadership position in PerFormAnCe In 2009the North American Liquid Refreshment Beverage business.Amidst the most challenging global macroeconomic environ- With the merger of our anchor bottlers, PepsiCo wil be a ment in decades, we demonstrated the strength and resilience nearly $60 bil ion company in terms of annual revenue. We are of both our people and portfolio by delivering solid operating the largest food and beverage business in North America and the performance and generating significant operating cash flow. second-largest food and beverage business in the world, making • Net revenue grew 5% on a constant currency basis.*us a critical partner for al retailers. We wil have a new business • Core division operating profit rose 6% on a constant structure and, as outlined below, clear strategies to support con-currency basis.*tinued strong growth—growth that wil enable us to continue to • Core EPS grew 6% on a constant currency basis.*be both an attractive place to work and an attractive investment. • Management operating cash flow, excluding certain items, reached $5.6 billion, up 16%.*STrATegIeS To DrIve our groWTH • And, we raised the annual dividend by 6%.We continue to focus on delivering top-quartile financial perfor-mance in both the near term and the long term, while making Let me offer a few highlights from 2009:the global investments in key regions and targeted product PepsiCo Americas Foods (PAF) had another exceptional categories to drive sustainable growth. The next chapter in our year with strong net revenue and operating profit growth despite growth is founded on six long-term growth strategies:significant commodity inflation. We held or grew share across the region, sustaining consumer momentum with solid innovation 1. expand the global leadership Position of our Snacks and targeted value offerings.Business. PepsiCo is the global snacks leader, with the No. 1 Although al of Europe was hit hard by the economic savory category share position in virtually every key region recession, PepsiCo europe outpaced its peers and delivered across the globe. We have advantaged positions across the solid results through excel ent revenue management, tight entire value chain in more than 40 developed and develop-cost controls and outstanding productivity.ing regions in which we operate as we capitalize on local PepsiCo Asia middle east and Africa (AmeA) had another manufacturing and optimized go-to-market capabilities in excellent year, with solid net revenue and operating profit each region, as well as the ability to introduce locally relevant growth driven by strong volume growth across the region, with products using global capabilities. And we have significant exceptional growth in our India beverage business.growth opportunities as we expand our current businesses PepsiCo Americas Beverages (PAB), which faced con-in these regions, extend our reach into new geographies and siderable category pressures in North America, continued to enter adjacent categories. Importantly, we will continue to make significant progress in rejuvenating the entire beverage make our core snacks healthier through innovations in heart-portfolio. We successful y launched the Pepsi “Refresh Everything” healthier oil, sodium reduction and the addition of whole campaign, gained traction on our Gatorade transformation to “G,” grains, nuts and seeds.* Core results and core results on a constant currency basis are non-GAAP measures that exclude certain items. Please refer to pages 91 and 92 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.2. ensure Sustainable, Profitable growth in global Gatorade (for athletes); the new dairy joint venture with Beverages. The merger with our anchor bottlers creates a Almarai; and local “Good-for-You” products and brands. We will lean, agile organization in North America with an optimized build on this core with an increasing stream of science-based supply chain, a flexible go-to-market system and enhanced innovation derived from the R&D capabilities that we have innovation capabilities. When combined with the actions we been ramping up over the past couple of years, as wel as from are taking to refresh our brands across the entire beverage targeted acquisitions and joint ventures. We wil be investing category, we believe this game-changing transaction will to accelerate the growth of these platforms, and we wil use enable us to accelerate our top-line growth and also improve the knowledge from these initiatives to improve our core our profitability. We continue to see significant areas of snack and beverage offerings and also to develop highly nutri-global beverage growth, particularly in developing markets tious products for undernourished people across the world.and in evolving categories. We will invest in those attractive opportunities, concentrating in geographies and categories 5. Continue to Deliver on our environmental in which we are the leader or a close second, or where the Sustainability goals and Commitments. We are commit-competitive game remains wide open. Additionally, we will ted to protecting the Earth’s natural resources and are well use our R&D capabilities to develop low- and zero-calorie on our way to meeting our public goals for meaningful re-beverages that taste great and add positive nutrition such ductions in water, electricity and fuel usage. Our businesses as fiber, vitamins and calcium. around the world are implementing innovative approaches to be significantly more efficient in the use of land, energy, 3. unleash the Power of “Power of one.” PepsiCo is in the water and packaging—and we are actively working with the unique position to leverage two extraordinary consumer communities in which we operate to be responsive to their categories that have special relevance to retailers across the resource needs. In 2009, we formalized our commitment globe. Our snacks and beverages are both high-velocity cat-to water as a human right, and we wil focus not only on egories; both generate retail traffic; both are very profitable; world-class efficiency in our operations, but also on preserv-and both deliver exceptional cash flow. The combination of ing water resources and enabling access to safe water. Our snacks and beverages—with our high-demand global and climate change focus is on reducing our carbon footprint, local brands—makes PepsiCo an essential partner for large-including a reduction in absolute greenhouse gas emissions format as wel as smal -format retailers. We wil increasingly through continued improvement in energy efficiency and use this portfolio and the high coincidence of consumption the use of alternative energy sources. We actively work with of these products through integrated offerings (products, our farmers to promote sustainable agriculture—and we are marketing and merchandising) to create value for consumers developing new packaging alternatives in both snacks and and deliver greater top-line growth for retailers. We also will beverages to reduce our impact on the environment. be accelerating Power of One supply chain and back-office synergies in many regions to improve profitability and 6. Cherish our Associates and Develop the leadership to enhance customer service.Sustain our growth. We have an extraordinary talent base across our global organization—in our manufacturing facilities, 4. rapidly expand our “good-for-You” Portfolio. PepsiCo our sales and distribution organizations, our marketing groups, currently has a roughly $10 bil ion core of “Good-for-You” our staff functions and with our general managers. As we products anchored by: Tropicana, Naked juice, Lebedyansky, expand our businesses, we are placing heightened focus on Sandora and our other juice brands; Aquafina; Quaker Oats; ensuring that we maintain an inclusive environment and on Document Outline

• 1-32
• 33-59
• 60-63
• 64-86
• 87-92
• 93-96