Dear Fellow
Shareholders,

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

PepsiCo delivered another year of strong performance in 2014, resulting in double-digit total shareholder returns. As 2015 heralds our company’s 50th anniversary, I want to take this opportunity to share my thoughts on what has made PepsiCo one of the top-performing food and beverage companies of the past 50 years, and the steps we are taking to extend this legacy of success for decades to come.

Looking Back:
Our Half-Century Journey

As we prepare to celebrate PepsiCo’s 50th year in June, we look back at our journey with pride. In 1965, when the Pepsi-Cola Company and Frito-Lay, Inc. merged to create PepsiCo, our revenue was $510 million. Today, it stands at more than $66 billion. Our market capitalization, which was $842 million at the end of 1965, grew to $141 billion at the end of 2014, putting us in the top 10% of the S&P 500 by market value. If you invested $100 in PepsiCo stock at the end of 1965, it was worth nearly $43,000 at the end of 2014, a 13.2% annualized return.1 A $100 investment in the S&P 500 over the same time period was worth nearly $10,000 at the end of 2014, a 9.8% annualized return.

Two core attributes of PepsiCo underlie our strong outperformance:

  • Adaptability : We anticipated major shifts in the consumer landscape and business environment and met them head-on by preemptively retooling the company for advantage and growth.
  • Performance : At the same time that we have been driving sometimes radical change, we have managed to deliver strong financial results over the long term.

I am confident that these attributes will continue to define our company for the next 50 years.

The “Adaptable” Corporation

Throughout the past half-century, PepsiCo has made bold moves to reshape our portfolio, build new capabilities and invest in new geographies. I’d like to share with you four major trends and how we adapted in order to thrive.

Trend 1: The Growth of the Middle Class

The past few decades saw the rise of the middle class and the growth of women in the workforce across the globe. Concurrently, as consumers worldwide shifted more of their spending to higher-quality products, they favored companies that could deliver these products through strong, trusted brands.

PepsiCo acted decisively to capitalize on this trend. We globalized our footprint to meet consumers’ quest for convenience around the world, as most of our products can go from package to consumption in seconds. And we established our trusted brands in each of our major markets. Our portfolio of 22 power brands that each generate more than $1 billion in estimated annual retail sales, and more than 10 brands that each generate between $500 million and $1 billion in estimated annual retail sales, is synonymous with quality, great taste and affordability.

Globalizing the company and connecting our brands with consumers around the world has, without question, helped drive significant growth for PepsiCo during our first half-century.

Trend 2: The Evolution of the Retail Environment

The global retail environment changed dramatically over the past decades. Around the world, we witnessed the emergence of organized, efficient, modern trade in many countries, followed by increasing consolidation and sophistication of retailers in each market.

Throughout this transformation, we understood the paramount importance of remaining a key partner to our large retail customers, while continuing to provide the best service to smaller stores. When Pepsi-Cola and Frito-Lay joined forces, it brought together two high-velocity categories under one umbrella and allowed PepsiCo to match retailers’ growing scale with our own. Additionally, we have constantly retooled our direct store delivery (DSD) selling system to provide excellent service to large and small retailers alike.

Thanks in large part to our company’s focus on the transforming retail environment, in 2014 PepsiCo was the number one food and beverage business in the U.S., Canada, Russia, India, Saudi Arabia and Egypt, and among the top three in the U.K., Mexico and Turkey, to name a few.2

Trend 3: The Acceleration of Consumer Focus on Health and Wellness

The emergence and acceleration of consumers’ focus on health and wellness (more recently also a focal point of government regulations) has increasingly challenged companies with Fun-For-You portfolios to adapt their products. At the same time, this trend has also created significant growth opportunities in the Better-For-You and Good-For-You categories.

PepsiCo anticipated this shift early on, and we took steps to future-proof our portfolio. We invested in research and development to improve the nutritional value and increase the appeal of our Fun-For-You products by eliminating trans fats and reducing salt, fat and added sugar content in key brands. We preemptively acquired major brands across the Good-For-You space, including Quaker Oats, Gatorade for athletes, Tropicana, Naked Juice and the Wimm-Bill-Dann line of dairy and juice products in Russia. We also created a nutrition group to grow our Good-For-You portfolio.

In 2014, our nutrition businesses accounted for approximately 20% of PepsiCo’s net revenue. We are one of the top companies in the world in the growing everyday nutrition space.

Future-Proofing
Our Portfolio

We continue to build capabilities to pursue growth opportunities in categories such as fruits and vegetables, whole grains, protein, sports nutrition and hydration.

Trend 4: The War for Talent

PepsiCo proudly serves consumers of every income group and ethnicity, on every continent, and in intensely competitive markets. We also know that women make the majority of food and beverage buying decisions. Understanding how to meet the needs of such a diverse cross-section of global consumers requires a diverse and talented workforce.

PepsiCo committed long ago to attracting the best and brightest from the entire pool of available talent and to building a workforce that reflects the diversity of the consumers we serve. There are many “firsts” in our talent diversity journey. Pepsi broke the color barrier in the U.S. in the 1940s by hiring African-American sales people. We shattered the glass ceiling when we appointed a woman to our Board of Directors in the 1950s. We made history again in 1962 when Harvey C. Russell became the first African-American Vice President of any major U.S. corporation.

Our proud legacy of diversity and inclusion continues to this day. It is our strength. Indeed, PepsiCo’s focus on a diverse and inclusive workforce has only heightened in recent years, as the war for talent among leading, global companies has escalated.

Today, an essential part of our commitment to diversity is growing the participation of women in business and empowering women in local communities. In Saudi Arabia, for example, our team has actively recruited women to PepsiCo for both management and frontline roles, establishing workplaces that respect local customs and developing specialized training programs. Women have assumed leadership roles across the company. Globally, approximately 30% of PepsiCo’s executives are women, and women comprised 38% of our Board of Directors in 2014. (Additional details on our diversity and inclusion programs can be found in PepsiCo’s most recent Global Reporting Initiative report on our website.)

Embracing Design

Our Design Center has attracted world-class talent.

Developing New Capabilities

In addition to adapting the company to benefit from and capitalize on these megatrends, we have deliberately developed new capabilities to compete in the rapidly evolving global business environment in which we operate. For example:

  • We transformed our operating model from a highly decentralized and local one to a judicious blend of global leverage and local execution. This has allowed PepsiCo to effectively utilize our scale to deliver productivity yet retain agility by enabling individual country teams to make rapid decisions in serving local consumers and retailers. Our five-year, $5 billion productivity program announced in 2014 was made possible largely by this new operating model. Importantly, it has increased our ability to lift and shift the best ideas and capabilities from PepsiCo teams around the world in areas such as consumer insights, innovation, revenue management, customer business planning and DSD systems. Our stepped-up innovation performance, where innovation as a percentage of sales has substantially increased, is due to our rapid global deployment and adaptation of new ideas and platforms.
  • We embraced design as a core building block of innovation. By creating a world-class design studio and staffing it with the best and brightest from around the globe, we have begun to embed design early in the innovation process in order to influence product and packaging development in its formative stages. One example is Pepsi Spire, our revolutionary new beverage dispensing system — a groundbreaking design-driven innovation that has contributed to the growth of our Foodservice business.
  • We revamped PepsiCo University to harmonize our course offerings around the world — both to train our people on the “PepsiCo Way of Working” and to ensure they have the skills to continue to lead PepsiCo. Additionally, we revised our talent assessment tools, talent planning and development process, and compensation structure — all to attract and retain top talent and align our reward system with shareholder interests.

These defining characteristics of adaptability, courage to act preemptively, and resilience are why PepsiCo is one of only 77 publicly traded companies remaining from the Fortune 500 in 1965. Of these 77 companies, PepsiCo ranks in the top quartile in Total Shareholder Returns3 — a performance history we reflect on with pride as we celebrate our 50th year.

Innovation is a critical building block in our growth model. Pictured: PepsiCo innovation in North America.

>9% Innovation accounted for more than 9% of our net revenue in 2014.

2014 — ​A Strong Performance Year

PepsiCo delivered strong performance in 2014, meeting or exceeding all of our full-year financial targets.4

  • Organic revenue grew 4%, with PepsiCo outpacing other Consumer Packaged Goods companies in organic revenue growth.5
  • Core gross margins improved by 55 basis points, and core operating margins improved by 30 basis points.
  • Core net return on invested capital (ROIC) improved 110 basis points, to 17.5%.
  • Core constant currency earnings per share (EPS) grew 9%.
  • Free cash flow excluding certain items was strong at $8.3 billion.
  • PepsiCo increased its annual dividend for the 42nd consecutive year in 2014 and returned $8.7 billion to our shareholders through share repurchases and dividends, a 36% increase over 2013.

While delivering this strong financial performance, we continue to deliver progress on the fundamental global capabilities that underpin our long-term competitiveness and resilience in the transformation journey we have been on.

First, our investment in innovation resulted in strong retail sales in North America. Thanks to our world-class research and development capabilities and the strength of our new product pipeline, innovation accounted for more than 9% of our net revenue in 2014, versus more than 7% in 2012. These efforts, combined with new best-in-class selling tools and technologies, made PepsiCo the largest contributor to U.S. retail sales growth among all food and beverage manufacturers, with nearly $1 billion of retail sales growth in all measured channels — more than the next 27 largest manufacturers combined.6 In fact, we had 10 of the top 50 new food and beverage product launches in North America in 2014.7

Second, we continued to benefit from our aggressive productivity culture and mindset. We delivered $1 billion of productivity savings, meeting our three-year, $3 billion productivity target for 2012–2014. As announced in early 2014, we extended our annual productivity savings target of $1 billion through 2019.

Third, we continued to invest in the talent we need to lead our business forward. We created accelerated leadership programs to train leaders for the new global realities; we brought in new talent in areas we believed needed new thinking; and we continued our focus on programs to retain high-potential talent. In 2014, it was gratifying to see the benefits of all our talent management activities — especially in the area of diversity and inclusion — reflected in numerous talent rankings:

  • The Hay Group’s Best Companies for Leadership
  • Universum’s World’s Most Attractive Employers
  • Black Enterprise’s Best Companies for Diversity
  • The Corporate Equality Index (which gave PepsiCo a 100% rating)
  • Working Mother’s Best Companies for Multicultural Women
  • The LATINA Style 50
  • Top Employer Institute recognized PepsiCo Foods, Greater China Region, as Top Employer
  • The Australian Government’s Workplace Gender Equality Agency named PepsiCo Australia “Employer of Choice for Gender Equality”

Building Our Digital
Capabilities

PepsiCo is responding to the growing demand for food and beverages purchased online. In China, for example, our “Click & Mix” innovation provides a broad and unique assortment of products customized for our consumers, and it leverages event-driven marketing relevant to national occasions, such as the Chinese New Year. Shown above: A “Click & Mix” gift box.

Looking Forward: Sustaining PepsiCo’s Resilient Outperformance in the Coming Decades

The environment in which PepsiCo competes will continue to evolve and change. And we will continue to preemptively adapt and position the company for long-term advantage and sustained growth while delivering strong financial results.

Future forces

The four defining trends described earlier — the continued rebalancing of the economic world through the rise of the middle class and women, the transformation of the retail environment, the acceleration of consumer focus on health and wellness, and the war for talent — will almost certainly increase in intensity in the years ahead. We will continue to adapt to and capitalize on these trends. At the same time, over the next decade and beyond, we believe three additional trends will increasingly impact the food and beverage industry:

  1. The rise of the digitally savvy consumer-shopper and the emergence of e-commerce as a new distribution channel for foods and beverages.
  2. The growing pressure on businesses to be a more active force for change in addressing their environmental and social impacts.
  3. The heightened role values, ethics and corporate governance will play in enabling companies to survive and thrive.

Doritos “Crash the Super Bowl” received nearly 5,000 consumer submissions from 29 countries around the world.

Lay’s “Do Us A Flavor” in the U.S. attracted more than 14 million submissions.

How we are adapting

Investing in new digital capabilities

Social media and mobile technology are disrupting old ways of doing business, but they are also creating new opportunities for manufacturers, retailers, shoppers and consumers to interact. PepsiCo is embracing this shift by investing in three core digital capabilities to support our continued growth.

First, a growing percentage of our advertising and marketing spend is now dedicated to digital platforms as consumers dramatically change the way they engage with media. We are leveraging Facebook, Twitter, Instagram and other channels in innovative ways to produce compelling content, drive engagement and build brand equity. We are also partnering with our retail customers on programs linking to their social media platforms, allowing us to reach the right consumers at the right time with the right offerings.

Second, our increased investment in digital is creating unique opportunities for two-way dialogue with consumers. For instance, through our Lay’s “Do Us a Flavor” campaign, we engaged consumers online to co-create innovative new products and content that drives our brands. In China, Mirinda invited consumers through social media to team up with celebrities in a brand-owned variety show to campaign and battle for a best new flavor. And our Doritos “Crash the Super Bowl” contest received nearly 5,000 consumer submissions from 29 countries, all vying for a chance to have their homemade commercial featured during Super Bowl XLIX.

Lastly, we are committed to shaping how this new ecosystem of digital, mobile, customer and consumer converges in the world of e-commerce. To that end, we are building new global e-commerce capabilities to accelerate our trajectory across this fast-growing channel. This involves retooling the form and function of our products, our packaging structures, and our fulfillment models.

Enhancing our commitment to sustainability

PepsiCo is built on the unshakable foundation of our company’s long-standing commitment to transparency, engagement and the highest ethical conduct.

We have made significant strides in integrating sustainability into every aspect of our enterprise. And our journey continues.

When I first articulated Performance with Purpose in 2006, sustainability was largely viewed as tangential to business, and it was often equated with “giving back” through philanthropy and volunteerism. My motivation was different: to change how we made our money, not what we did with the money we made.

Over the past eight years, Performance with Purpose has guided our initiatives. It has inspired us to grow our top line by expanding the range of nutritious and delicious products we offer to consumers. It has spurred us to minimize our environmental footprint — and operating costs — by pioneering new systems that conserve natural resources. And it has led us to continually attract, motivate and inspire our associates by providing a safe and inclusive workplace and enabling them to grow professionally while living their values.

Together, PepsiCo’s businesses have demonstrated that a clear, focused sustainability agenda can create shareholder value. Performance with Purpose continues to position PepsiCo for sustainable financial performance for years to come by aligning what is good for our business with what is good for society and the planet.

Maintaining our commitment to strong and transparent corporate governance

PepsiCo is built on the unshakable foundation of our company’s long-standing commitment to transparency, engagement and the highest ethical conduct. We have an actively engaged Board comprised of directors with diverse backgrounds and perspectives. In addition to informing and strengthening our global businesses, our Board has adopted governance practices that protect the rights of our investors and foster independent thinking as well as alignment with our shareholders in the boardroom. Over the years, through open communication with shareholders and stakeholders alike, we have earned the trust and respect of our investors, business partners and the general public. This ethos of integrity and strong corporate governance is at the heart of all we do.

I am very pleased to report that we were once again recognized as best-in-class in 2014:

  • PepsiCo was named as one of the World’s Most Ethical Companies by Ethisphere for the eighth consecutive year.
  • Corporate Secretary magazine honored PepsiCo for Best Shareholder Engagement.
  • PepsiCo won Best Governance, Risk and Compliance Program at a Large-Cap Company at the New York Stock Exchange Governance Services’ inaugural Governance, Risk & Compliance Leadership Awards.
  • PepsiCo was named to the Dow Jones Sustainability North America Index for the ninth consecutive year, and to the Dow Jones Sustainability World Index for the eighth consecutive year.

A Special Thank You

Above: Former PepsiCo CEOs. Top row: Donald M. Kendall, D. Wayne Calloway; bottom row: Roger A. Enrico, Steven S. Reinemund.

Right: A PepsiCo procurement manager at a blueberry farm in Prosser, Washington; a PepsiCo safety coordinator inspecting solar panels at our snacks plant in Cerrillos, Chile.

Proud to Look Back, Eager to Move Forward

Reflecting on PepsiCo’s 50-year journey, I am struck by how our company has touched countless lives and has been shaped by countless hands. Thanks are in order.

First and foremost, I would like to express my deep gratitude to our consumers, who continue to inspire PepsiCo to greatness as we strive to meet their evolving needs and brighten their days with products that nourish and delight.

I am also deeply grateful to our foodservice and retail partners around the world for their collaboration, commitment to excellence, and dedication to consistently delivering for our consumers, day in and day out.

Each and every day, I draw inspiration and energy from my fellow PepsiCo associates around the world. They have been steadfast in their commitment to our business, and the success PepsiCo has achieved over the past half-century is thanks to their determination, sacrifice and deep love for our company.

All of us at PepsiCo owe a great debt to the four Chief Executive Officers who preceded me — Steven S. Reinemund, Roger A. Enrico, D. Wayne Calloway and Donald M. Kendall. Each left a special mark on our company. Today, we carry the journey forward with the wisdom and dedication of our Board of Directors, under whose oversight I am honored to serve.

Finally, let me express my profound thanks to our long-term shareholders. I am grateful for your far-sighted investment and continued trust in our company, and I am gratified that we have been able to amply reward both.

It is my great privilege to lead this company and to help write the next chapter in our proud history. I look to PepsiCo’s future with tremendous confidence in and commitment to the values and ethos that have driven our success for the past five decades. My optimism for our next 50 years knows no bounds.

Indra K. Nooyi
PepsiCo Chairman of the Board
and Chief Executive Officer
March 2015

1. For further information, please see the Cumulative Total Shareholder Return Since 1965.
2. Based on Euromonitor International data.
3. This comparison is based on publicly available data for the period January 2, 1974 through December 31, 2014 and reflects dividend reinvestment and adjustments for stock splits.
4. Organic, core and constant currency results, as well as free cash flow excluding certain items, are non-GAAP financial measures. Please refer to “Reconciliation of GAAP and Non-GAAP Information” beginning on page 141 of this Annual Report for more information about these results, including a reconciliation to the most directly comparable financial measures in accordance with GAAP.
5. Our organic revenue calculation may differ from similar measures as reported by other companies.
6. Based in part on data reported by Information Resources, Inc. through its Syndicated Advantage Service for the Total US Multi-Outlet Plus Convenience for all Food & Beverage categories for the 52-week period ending December 28, 2014, including PepsiCo’s custom research definitions.
7. Based in part on data reported by Information Resources, Inc. through its Syndicated Advantage Service for the Total US Multi-Outlet Plus Convenience for all Food & Beverage categories for the 52-week period ending December 28, 2014.

Dear Fellow Shareholders Future-Proofing
Our Portfolio
Embracing Design Building Our
Digital Capabilities
A Special
Thank You