Overview and Strategy

PepsiCo has the world's largest portfolio of billion-dollar food and beverage brands, including 22 different brands that each generate more than $1 billion in annual retail sales. As well as our core brands—Pepsi-Cola, Lay's, Quaker Oats, Tropicana and Gatorade—we make hundreds of other nutritious and delicious, convenient and fun foods and drinks that bring joy to our consumers in more than 200 countries worldwide. With annualized revenues of approximately $60 billion, approximately 294,000 of PepsiCo's associates are united by our unique commitment to sustainable growth, called "Performance with Purpose."

By dedicating ourselves to offering consumers a broad array of choices for healthy, convenient and fun nourishment, reducing our environmental impact, and fostering a diverse and inclusive workplace culture, PepsiCo balances strong financial returns with giving back to our communities worldwide. In recognition of our continued sustainability efforts, PepsiCo was named for the fourth time to the Dow Jones Sustainability World Index (DJSI World) and for the fifth time to the Dow Jones Sustainability North America Index (DJSI North America) in 2010. For the second year in a row, PepsiCo was the top performer in the Beverage Sector.

For PepsiCo, the benefits of global expansion include: maximizing growth potential, gaining global scale and achieving geographic diversity. Emerging markets account for a notable portion of PepsiCo's revenue. With faster population and GDP growth than in developed countries, emerging markets represent a significant opportunity for PepsiCo to continue to grow. PepsiCo's business development strategies for emerging markets are focused on:

• Distributing global brands while ensuring local relevance

  PepsiCo strives to create products that appeal to local tastes and needs, promoting our global brands and our innovation and operational capabilities. In markets around the world, our R&D teams work closely with local master chefs to tailor our products to local tastes and consumption patterns and to leverage these insights to launch flavors that make our global brands the local favorites.

  Examples of this include our Lay's offering with red-caviar flavor in Russia; Kurkure extruded snacks in India based on local, traditional flavors; expansion of Mirinda carbonated soft drinks in the Middle East with the addition of locally inspired tamarind flavor; the launch of Aliva, a biscuit that combines wheat and lentils in India; Cao Ben Le ('happy herb')–branded beverages incorporating traditional Chinese medicinal herbs in China; and Nimbooz, a beverage made with real lemon juice, in India.

• Creating affordable products that meet consumer needs

  Revenue management is a significant part of our strategy to ensure our products are affordable and offer good value to consumers in emerging markets, many of whom have limited disposable income. We strive to create products with the right price points and package sizes that offer great consumer value and allow PepsiCo to compete effectively in the marketplace. In some markets, we are inventing brands and business models to create products that meet the needs of lower-income consumers, such as our Lucky snacks product line in Brazil targeting low-income consumers sold through street vendors. And in India, we established a joint venture with the Tata Group in the fourth quarter of last year, to focus on low-cost beverages; the first product from this venture, a glucose-based non-carbonated beverage, was rolled out in early April 2011, at the price of 5 rupees, or the equivalent of 11 cents.

• Strengthening advantaged local supply chain and go-to-market capabilities

  PepsiCo enjoys superior technologies, including advantaged potato varieties, which are a key competitive advantage that leads to superior tastes and production efficiency. We work with local suppliers and farmers to share best practices and maximize results. In China, for example, we introduced proven environmentally friendly irrigation and crop rotation practices that save water and help local farmers grow thriving crops.

  We build advantaged systems in emerging markets that offer the widest reach to customers and consumers. We rely on DSD (direct store delivery) expertise and leverage a variety of go-to-market systems to reach a broad set of customers and consumers, both in organized and traditional trade channels. Importantly, in 2010, in markets such as India, China and Russia, among others, we increased our investment with the placement of coolers and addition of new routes and distribution capacity ahead of growth.

  In many of our emerging markets today, we have integrated "Power-of-One" operating systems in areas such as procurement, customer selling and IT. With the acquisition of our anchor bottlers PBG and PAS in 2010, in key markets such as Russia and Poland, we are now able to build an even stronger supply chain and go-to-market capability, through broader distribution coverage and more joint consumer and in-store activation programs.

• Encouraging people to live balanced and healthy lives

  PepsiCo is committed to offering consumers a range of enjoyable and wholesome foods and beverages. Our portfolio offers products for when consumers want to treat themselves, and we are also actively developing healthier snacks and beverages for health-conscious consumers.

  To that end, we established the Global Nutrition Group in 2010 to centralize the innovation and development of healthier, wholesome and tasty products. And our recently completed acquisition of Wimm-Bill-Dann in Russia, with a vast array of dairy and juice offerings, accelerates our growth in Good-For-You products and makes PepsiCo the number-one foods and beverage company in Russia.

  And, as part of our mission to help people lead healthier lives, we support programs across the world, including Vive Saludable Escuelas in Latin America and our Get Active program in India.

Organizational Responsibility

With its strong leadership team, PepsiCo maximizes shareholder value and invests in entities that ensure sustainable profitability. We have created the Performance Sustainability Leadership Team (PSLT), which informs our Sustainability Steering Committee (SSC) on financial performance, strategy and goals. To find out more about our sustainability governance structure, please go to Sustainability Leadership.

Goals and Commitments

Our performance goals focus on a series of long-term targets, which also are aligned with our short-term needs. To deliver superior, sustainable financial performance, we will continue to put emphasis on innovation and broaden our portfolio through mergers and acquisitions.

Monitoring and Follow-Up of Financial Statements

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 supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted 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 control over financial reporting is effective as of December 25, 2010. Additional information is available in our 2010 Annual Report.

Overview and Strategy

We are the world's second-largest food and beverage business. Either independently, or through contract manufacturers, we make, market and sell a variety of convenient, enjoyable and wholesome foods and beverages in over 200 countries.

As an industry leader, we believe we have a responsibility to help develop solutions to such key global challenges as obesity and malnutrition. We will do this by broadening our product portfolio to include healthier choices; establishing global initiatives, such as calorie labeling, to improve nutrition education; supporting programs that promote physical activity; and using our influence to engage in meaningful private-public partnerships to drive positive change.

PepsiCo is dedicated to producing the safest, highest-quality and best-tasting foods and beverages in every part of the world. Developing and maintaining robust food safety programs is how we assure safety for every package, every day in every market. PepsiCo has detailed internal programs and procedures for food safety. For more information on our policies, programs and actions designed to keep our products safe and meeting high-quality standards, please go to Policies.

We have committed to developing our portfolio of products to provide consumers with a greater choice of healthier options that are lower in sodium, sugar and saturated fats. We have also created a Global Nutrition Group focused on increasing the amount of whole grains, vegetables, nuts and lowfat dairy in our global range of products. We believe this group will accelerate the growth of our Good-For-You products from approximately $10 billion in net revenue in 2010 to $30 billion by 2020.

We have established global initiatives, such as calorie labeling, to improve nutrition education, and supported programs that promote physical activity. On our product labeling, we provide food and beverage nutritional information that allows people to make informed choices about what they choose to consume and serve their families.

PepsiCo voluntarily committed to display calorie count and key nutrients on our food and beverage packaging by 2012. We have already taken significant steps to implement this commitment. Across the globe, PepsiCo is providing nutrition information on products in countries even where regulations do not require the information.

• We have already implemented front-of-pack labeling on many products in the U.K. and other European countries, Australia and New Zealand. In 2011–2012, we will begin expanding implementation to additional countries, including the U.S., Mexico, Brazil, Argentina, Chile, Paraguay and Uruguay.
• In November 2010, the Mexican Council of the Industry of Consumer Products, A.C. (ConMexico) announced the new voluntary front-of-pack Nutrition Labeling Initiative, in which PepsiCo and 15 other food and beverage companies committed to display front-of-pack icons for energy, saturated fat, sugars and sodium per package or container, including percentages based on a 2,000-calorie diet, as well as up to three positive nutrient characteristics. Companies will begin implementing in 2011.
• Lastly, we have continued to engage in meaningful private-public partnerships to drive positive change. We are collaborating with our industry peers, governments and regulatory bodies to develop uniform, science-based labeling systems so that consumers can make informed choices across all their food and beverage options.

We are also working with global partners such as The World Food Programme and USAID to develop and distribute products that address malnutrition in emerging economies. For example, in India we have just launched—as a pilot—iron-fortified biscuits at an affordable price point to provide nutritious snacks that can help address problems with anemia and maternal mortality. For more information, please go to www.pepsico.com/purpose/human.

Organizational Responsibility

The development of the global R&D structure and appointment of our first chief scientific officer (CSO) has enhanced our relationships with world-renowned academic and research-based organizations. PepsiCo continues to evolve its approach to systematically obtaining policy and scientific advice.

The Scientific Advisory Board (SAB), which was created in 2010, reports to the company's CSO. This structure provides long-term research advice to our team of scientists, especially with regard to critical challenges and opportunities related to the transformation of our product portfolio.

In terms of product quality and safety, PepsiCo Quality professionals assess product compliance with our policy. PepsiCo's Quality Policy is focused on processes and procedures supporting quality policies and prioritizing critical risk areas. Our Quality agenda is led by Quality professionals in various regions who oversee the following areas: food safety, innovation (R&D), manufacturing quality, co-manufacturing quality, supplier quality and plant quality.

Regionally, advisory boards in China, the U.K., Mexico, Brazil and India help guide our efforts in health and wellness, food safety, regulatory compliance and innovation.

Goals and Commitments

In line with our efforts to help improve the well-being of people in both developed and developing countries, we are focusing our work on the products we make, and on key policies and partnerships, to help us address global nutrition challenges.

Training and Awareness

Each functional department identifies training needs and provides training for all associates, including full-time, part-time, temporary and contractors. This ensures they have the appropriate level of education, experience and training necessary to effectively perform the required activities specified in the PepsiCo Food Safety Policy. Training business plans are established to address food safety training for Hazard Analysis and Critical Control Points (HACCP), allergen management, low-acid manufacturing, good manufacturing practices (GMP), control of nonconforming product, associate safety, food security and specific job applications.

Monitoring and Follow-Up

The HSLT reports to the SSC on health and wellness strategy and performance (for more information, please go to Sustainability Leadership).

As part of PepsiCo's goal to deliver breakthrough innovation in the areas of fruits and vegetables, grains, dairy and functional nutrition, the Global Nutrition Group (GNG) was established in 2010, headed by chief executive officer, Global Nutrition Group, and senior vice president, chief scientific officer, PepsiCo, Mehmood Khan. GNG is present in six international markets around the world, including Russia, France, India and China. Our structure is designed to integrate globally, while connecting teams locally and cross-functionally with common goals and designing work teams that require collaboration to ensure success. This model is designed to create teams with multiple talents, assets and resources, working together toward a common goal to deliver great-tasting, nutritious foods and beverages made accessible and affordable to people around the world.

In addition, PepsiCo has procedures in place to monitor consumer and customer satisfaction. All PepsiCo divisions conduct regular qualitative and quantitative research to understand their needs. Consumer insights are translated into product improvements and breakthroughs. We provide timely and accurate responses to customer complaints and strive for continuous improvement.

For product quality and safety, it is the responsibility of each PepsiCo operation to plan, design, implement and maintain a comprehensive facility security plan to ensure products are safe for human consumption. A facility security plan is implemented by each plant, facility and distribution center, in accordance with the baseline standards and framework established by the PepsiCo Security Organization. It includes an annual review of effectiveness and is updated as necessary.

Overview and Strategy
PepsiCo's Corporate Environmental Policy is a statement of the company's commitment to being an environmentally responsible corporate citizen in all aspects of our business. The policy expresses principles that form the foundation of our commitment to environmental stewardship at every level within PepsiCo. This includes the commitment to implement and maintain an Environmental Management System; identify and manage environmental risk; and apply formal governance and auditing processes to our environmental programs and systems to verify compliance with regulations and company standards.

The policy also expresses our commitment to conserve natural resources and reduce waste, and to share environmental best practices to minimize the environmental impacts of our business; to set goals and establish metrics to monitor continuous improvement in environmental performance; to work with stakeholders up and down our supply chain to reduce environmental impacts of our products throughout their life cycle; to annually review our performance in implementing our policy; and, finally, to periodically review and update our Environmental Policy as needed. Our expectations for environmental stewardship are further described in the PepsiCo Global Sustainable Agriculture Policy, and the PepsiCo Employee Code of Conduct and PepsiCo Supplier Code of Conduct.

As indicated, PepsiCo is fully and publicly committed to environmental compliance and sustainability. In addition, we also believe in a company's responsibility to positively impact environmental stewardship in the greater global policy arena. Accordingly, PepsiCo is a signatory to the UN CEO Water Mandate, UN Global Compact, UN Caring for Climate: The Business Leadership Platform and U.S. International Policy Declaration on Water.

As part of our sustainability infrastructure, PepsiCo also incorporates sustainability criteria into our Capital Expenditure Filter (CapEx Filter) for all capital expenditure requests over $5 million. Each request must include a review of the sustainability issues and opportunities of the proposed project. The goal is to incorporate sustainability concerns into projects and plans right from the start. In addition, several regional units of PepsiCo have incorporated sustainability filters on capital expenditures lower than $5 million.

Organizational Responsibility

We govern implementation and execution of the PepsiCo Environmental Policy through our Environmental Sustainability Leadership Team (ESLT), the PepsiCo Environmental Compliance Council (ECC) and Environmental Sustainability Council (ESC). These councils are made up of environmental representatives from across PepsiCo's operating divisions, bottlers, purchasing, communications and legal departments.

The ECC oversees the implementation of a global Environmental Management System (EMS) to standardize and consolidate our existing environmental management software solutions into a single, enterprise-wide solution. The ECC and ESC report to the PepsiCo Environmental Sustainability Leadership Team.

The ESLT has chartered two councils in addition to the ECC and ESC: The Sustainable Packaging Council (SPC) and the Sustainable Agriculture Council (SAgC). These councils are made up of subject matter experts from each of our business units and meet regularly to drive PepsiCo performance and provide governance for our sustainable packaging and agricultural commitments.

To find out more about our sustainability governance structure, please go to Sustainability Leadership.

Goals and Commitments

To guide our environmental initiatives, we are focusing our work where we can make the most positive impact—primarily on the issues of water, packaging, climate change, waste elimination and agriculture—and on key policies and partnerships to help address the world's environmental challenges.

Training and Awareness

Our environmental stewardship policies and expectations are communicated to our associates, business partners and other stakeholders through our PepsiCo Global Corporate Environmental Policy, Sustainable Agriculture Policy, the PepsiCo Employee Code of Conduct and PepsiCo Supplier Code of Conduct.

Monitoring and Follow-Up

In 2005, the PepsiCo Environmental Management System (EMS) framework was first developed with the help of an independent third party. All PepsiCo-owned manufacturing facilities are required to have an EMS that complies with the PepsiCo EMS framework while using a locally relevant approach.

Key features of the PepsiCo EMS framework include:

• A risk-based management approach;
• Documented systems that capture and maintain institutional knowledge;
• Objectives and targets for continuous improvement;
• Integration of environmental considerations into core business processes;
• Routine performance monitoring and internal management reporting.

Currently, 86 percent of PepsiCo's manufacturing locations have an EMS in place that aligns with the PepsiCo EMS framework, and 83 locations have achieved ISO 14001 certification for their EMS. By year-end 2011, all manufacturing locations are expected to have implemented the newest version of the PepsiCo EMS or aligned their existing EMS to it. As implementation progresses, each site will use a global audit protocol, which includes a self-assessment and an independent verification of the implementation—in addition to regulatory compliance audits.

For more information, please see Environmental Compliance section.

Overview and Strategy

PepsiCo has a long-standing history of delivering leadership excellence supported by our best-practice people development tools and processes, as well as a legacy of leadership development programs led by our senior-most executives, who also draw on the expertise of leading professors from top business schools. PepsiCo offers blended learning solutions combining classroom style learning with e-learning and performance support tools, enabling self-directed learning. Our PepsiCo University offers expansive classroom and online coursework to help associates develop leadership skills.

We have developed cross-divisional, functional competency models for Sales, Marketing, Finance and Human Resources. These models are used as the basis for building career frameworks in PepsiCo.

As a global and local company, PepsiCo is committed to hiring, developing and retaining employees from diverse backgrounds. We aim to continuously provide an inclusive culture and environment for our associates.

Furthermore, we have a competitive global compensation structure, comprehensive benefits and ongoing wellness programs. PepsiCo offers wellness plans to help associates and their family members have and sustain healthy behaviors to improve their overall quality of life. These include routine medical care programs at work sites, education programs on health, nutrition and exercise, programs on smoking cessation, on-site fitness centers and organized programs to encourage exercise.

For occupational safety, each PepsiCo business has health and safety professionals within the business, and safety committees or coordinators are active in all company-owned manufacturing plants. PepsiCo and our individual businesses set annual health and safety strategic plans and targets for improvement. To ensure a supportive and empowering workplace, we regularly conduct performance reviews and surveys. PepsiCo also ensures that associates have clear lines of communication to report potential issues. This reporting system includes employee and manager communications, intervention by human resources generalists, and the Speak Up hotline.

Organizational Responsibility

The Talent Sustainability Leadership oversees programs concerning associate relations, engagement, diversity, compliance and health and safety. PepsiCo's Global Diversity and Inclusion Governance Council is composed of internal and external thought leaders and is co-chaired by our chairman/chief executive officer and our chief diversity officer. And we have established Diversity and Inclusion Councils in all four continents of PepsiCo's International business.

We also have a Health and Safety Leadership Council (HSLC), with members from across all businesses. For ethics and compliance, issues or violations are handled by the Human Resources and the PepsiCo Law departments.

To find out more about our sustainability governance structure, please go to Sustainability Leadership.

Goals and Commitments

We constantly invest in our associates—PepsiCo's greatest assets—to motivate and encourage them to be as productive and creative as possible in carrying out their responsibilities and to become the leaders of tomorrow. Our Talent initiatives include enabling our associates to thrive in a diverse, inclusive culture; providing a safe and empowering workplace; providing opportunities that strengthen our associates' skills and capabilities; and contributing to better living standards in the communities we serve.

Training and Awareness

Our associates receive annual training on policies and procedures concerning workplace policies and human rights aspects relevant to PepsiCo. In 2010, approximately 57,000 of salaried associates with email accounts completed Code of Conduct training and certification. More than 100,000 associates outside this target group had in-person training in the same year.

Our global wellness strategy is designed to engage associates and their families in developing and sustaining healthy behaviors to improve their overall quality of life. To support associate wellness, PepsiCo offers on-site health and wellness services in many countries around the world, which may include education programs on health, nutrition and exercise.

Lastly, we conduct regular diversity and inclusion sessions and multilevel programs for training associates to work and manage in a multicultural/multigenerational global environment. For more information on our D&I initiatives, please go to www.pepsico.com/purpose/talent.

Monitoring and Follow-Up

The PepsiCo Health and Safety Leadership Council (HSLC) tracks global performance and reports to the Talent Sustainability Leadership Team (TSLT), which then communicates performance to the Sustainability Steering Committee (SSC). HSLC publishes a global scorecard every quarter that tracks our success and challenges, LTIR, near-misses or similar crises and proactive initiatives that are being taken to improve occupational health and safety. In 2010, Bureau Veritas verified our LTIR data.

To measure satisfaction and drive organizational improvements, PepsiCo surveys its associates, reports results back, and takes action from those results. We use the results from our survey efforts at both the strategic level (with the CEO and senior-most leaders) and at a local plant, region and work group level. This combination of reporting and data analysis affords us the ability to make local changes in the workplace or work group level, and to drive broad-scale initiatives across PepsiCo.

Our biennial organizational health survey incorporates questions related to diversity and inclusion and requires analysis at the minority and female level. Senior management is held accountable for results. On the "off" years, we conduct smaller surveys of our managers.

With regard to ethical issues and compliance, all incoming calls and reports to the Speak Up hotline are reviewed by Compliance, and depending upon the nature of the complaint, assigned to an appropriate representative at the divisional or regional level for investigation and resolution. All potentially significant matters are reviewed by the vice president, Compliance and a cross-functional team of senior managers.

Overview and Strategy

Our commitment to responsible sourcing is supported by four areas of focus:

• Supplier Corporate Social Responsibility Assurance: Partnering with our suppliers to operate in a way that respects PepsiCo's values, brands and the communities in which we operate.
• Environmental Supplier Outreach: Setting clear, measurable goals for energy, greenhouse gas (GHG), water, agriculture and forestry resource conservation within the extended supply chain. Please see Environmental Sustainability for more information.
• Sustainable Packaging: Optimizing our use of materials and driving to continually improve the environmental footprint of our packaging. Please see Environmental Sustainability for more information.
• Sustainable Agriculture: Making sure PepsiCo has continued access to the key agricultural raw materials necessary to supply growing consumer needs, while respecting the environment and communities involved in producing those raw materials.

Another integral part of our responsible sourcing mission is a commitment to purchase from a supplier base that represents our associates, consumers, retail customers and communities.

Our Global Sustainable Agriculture Policy articulates how we approach agricultural sustainability with Performance with Purpose. The Sustainable Agriculture Policy includes our vision, aspirations and guiding principles, in addition to identifying six broad objectives within the agriculture supply chain. Also, the PepsiCo Worldwide Code of Conduct and Supplier Code of Conduct include standards highlighting how we expect our people and our suppliers to conduct business aligned with our environmental sustainability values.

We have established objectives focused on improving the sustainability of our agriculture supply chain. These are broad enough to be leveraged across the various commodities we procure around the globe at regional and local levels. Programs with specific and measurable goals are successfully implemented globally, based on these foundational objectives and the challenges and opportunities that exist in the specific region.

Organizational Responsibility

The PepsiCo Sustainable Agriculture Council (SAgC) is led by an agro-scientist and includes engineers, sustainability professionals and other agro-scientists from across our PepsiCo businesses. The SAg, part of PepsiCo's overall Sustainability Framework, coordinates priorities and activities and reports to the Environmental Sustainability Leadership Team.

To find out more about our sustainability governance structure, please go to Sustainability Leadership.

Goals and Commitments

We will continuously improve our procurement practices by leveraging our talents, programs and policies across the globe to all associates involved in purchasing functions and decisions.

Training and Awareness

PepsiCo's Environmental Policy and Sustainable Agriculture Policy are global, covering all of our regions and business units. Where PepsiCo has direct influence over agricultural operations, we implement specific programs and measurement processes to improve overall performance. When PepsiCo's influence is through third parties or contracted agents, we work with these partners to improve and embed best practices into their operations. Business unit and regional policies also exist to articulate specific programs that are of critical importance to that commodity or brand. Whenever these specific programs exist, they cover 100 percent of activities for that business unit. In addition, we conduct Supplier Summit events to engage with our supply chain.

Monitoring and Follow-Up

In 2010, PepsiCo conducted a pilot of global on-farm environmental sustainability metrics for water consumption, agrochemical use, GHG and energy conservation, informed by the work of several well-known initiatives, including the Sustainable Agriculture Initiative, the Keystone Alliance for Sustainable Agriculture and the Stewardship Index for Specialty Crops. The information obtained from pilot growers will be used to establish a baseline of performance and will continue to be expanded globally in 2011.