Common Stock Information Shareholder Information PepsiCo Stock Purchase Program — for Canadian employees:

Fidelity Stock Plan Services

Stock Trading Symbol — PEP Annual Meeting
Contents Stock Exchange Listings The Annual Meeting of Shareholders will be held at Frito-Lay
P.O. Box 5000
Cincinnati, OH 45273-8398
The New York Stock Exchange is the principal market for Corporate Headquarters, 7701 Legacy Drive, Plano, Texas, Telephone: 800-544-0275
PepsiCo common stock, which is also listed on the Chicago on Wednesday, May 7, 2008, at 9:00 a.m. local time. Website: www.iStockPlan.com/ESPP
1 ...... Financial Highlights
and Swiss Stock Exchanges. Proxies for the meeting will be solicited by an independent Please have a copy of your most recent statement available
2 ...... Letter to Shareholders proxy solicitor. This Annual Report is not part of the proxy when calling with inquiries.
Shareholders
7 ...... Questions & Answers As of February 8, 2008, there were approximately 185,000
solicitation.
10..... Leadership Team shareholders of record. Inquiries Regarding Your Stock Holdings If using overnight or certified mail send to:
12..... PepsiCo Americas Foods Registered Shareholders (shares held by you in your name) Fidelity Investments
Dividend Policy 100 Crosby Parkway
14..... PepsiCo Americas Beverages should address communications concerning transfers, state-
We target an annual dividend payout of 50% of prior year’s Mail Zone KC1F-L
ments, dividend payments, address changes, lost certificates
16..... PepsiCo International earnings, excluding certain items. Dividends are usually Covington, KY 41015
and other administrative matters to:
declared in late January or early February, May, July and
19..... Purpose: Human, Environment, Talent
November and paid at the end of March, June and
29..... PepsiCo Board of Directors September and the beginning of January. The dividend PepsiCo, Inc. Shareholder Services
c/o BNY Mellon Shareowner Services
30..... Executive Officers record dates for these payments are, subject to approval BuyDIRECT Plan
of the Board of Directors, expected to be March 7, P.O. Box 358015
31..... Financial Review Interested investors can make their initial purchase directly
June 6, September 5 and December 5, 2008. We have Pittsburgh, PA 15252-8015
through The Bank of New York, transfer agent for PepsiCo,
paid consecutive quarterly cash dividends since 1965. Telephone: 800-226-0083
and Administrator for the Plan. A brochure detailing the
201-680-6685 (Outside the U.S.)
Stock Performance Plan is available on our website www.pepsico.com or from
E-mail: [email protected]
PepsiCo was formed through the 1965 merger of Pepsi-Cola our transfer agent:
Website: www.bnymellon.com/shareowner/isd
Company and Frito-Lay, Inc. A $1,000 investment in our or
stock made on December 31, 2002 was worth about PepsiCo, Inc.
Manager Shareholder Relations
$1,964 on December 31, 2007, assuming the reinvestment c/o BNY Mellon Shareowner Services
PepsiCo, Inc.
of dividends into PepsiCo stock. This performance repre- P.O. Box 358015
700 Anderson Hill Road
sents a compounded annual growth rate of 14%. Pittsburgh, PA 15252-8015
Purchase, NY 10577
Telephone: 800-226-0083
Telephone: 914-253-3055
The closing price for a share of PepsiCo common stock on 201-680-6685 (Outside the U.S.)
the New York Stock Exchange was the price as reported E-mail: [email protected]
In all correspondence or telephone inquiries, please mention
by Bloomberg for the years ending 2003-2007. Past Website: www.bnymellon.com/shareowner/isd
PepsiCo, your name as printed on your stock certificate,
performance is not necessarily indicative of future returns your Investor ID (IID), your address and telephone number.
on investments in PepsiCo common stock. Other services include dividend reinvestment, optional cash
investments by electronic funds transfer or check drawn
SharePower Participants (employees with Share- on a U.S. bank, sale of shares, online account access, and
Cash Dividends Declared Power options) should address all questions regarding your
electronic delivery of shareholder materials.
Per Share (In $) account, outstanding options or shares received through
option exercises to: Financial and Other Information
1.425 PepsiCo’s 2008 quarterly earnings releases are expected to
Merrill Lynch/SharePower be issued the weeks of April 21, July 21, October 6, 2008,
Stock Option Unit and February 2, 2009.
1.16
1600 Merrill Lynch Drive Copies of PepsiCo’s SEC reports, earnings and other
1.01 Mail Stop 06-02-SOP financial releases, corporate news and additional company
Pennington, NJ 08534 information are available on our website www.pepsico.com.
.850
Telephone: 800-637-6713 (U.S., Puerto Rico PepsiCo’s CEO and CFO Certifications required under
and Canada) Sarbanes-Oxley Section 302 were filed as an exhibit to
.630 609-818-8800 (all other locations) our Form 10-K filed with the SEC on February 15, 2008.
PepsiCo’s 2007 Domestic Company Section 303A CEO
In all correspondence, please provide your account number Certification was filed with the New York Stock Exchange
(for U.S. citizens, this is your Social Security number), your (NYSE). In addition, we have a written statement
address, your telephone number and mention PepsiCo of Management’s Report on Internal Control over
SharePower. For telephone inquiries, please have a copy of Financial Reporting on page 83 of this annual report.
your most recent statement available. If you have questions regarding PepsiCo’s financial
03 04 05 06 07 performance contact:
Employee Benefit Plan Participants
PepsiCo 401(k) Plan & PepsiCo Stock Purchase Program
Year-end Market Price of Stock Jane Nielsen
Based on calendar year-end (In $) Vice President, Investor Relations
The PepsiCo Savings & Retirement Center at Fidelity
PepsiCo, Inc.
P.O. Box 770003
Purchase, NY 10577
80 Cincinnati, OH 45277-0065
Telephone: 914-253-3035
Telephone: 800-632-2014
(Overseas: Dial your country’s AT&T Access Number Independent Auditors
60
+800-632-2014. In the U.S., access numbers are avail- KPMG LLP
able by calling 800-331-1140. From anywhere in the 345 Park Avenue
40 world, access numbers are available online at New York, NY 10154-0102
www.att.com/traveler.) Telephone: 212-758-9700
Website: www.netbenefits.fidelity.com Corporate Headquarters
20
PepsiCo, Inc.
700 Anderson Hill Road
0 Purchase, NY 10577
03 04 05 06 07
Telephone: 914-253-2000
PepsiCo Website: www.pepsico.com
PepsiCo’s Annual Report contains many of the valuable trademarks owned and/or used by PepsiCo and its subsidiaries and © 2008 PepsiCo, Inc.
affiliates in the United States and internationally to distinguish products and services of outstanding quality.

Design: Eisenman Associates. Printing: Earth - Thebault an EarthColor Company. Photography: Greg Kinch, PhotoBureau, Ben Rosenthal, Diana Scrimgeour, Stephen Wilkes.
Financial Highlights Largest PepsiCo Brands
PepsiCo, Inc. and Subsidiaries
($ in millions except per share amounts; all per share amounts assume dilution)

2007 2006 Chg(a)

Summary of Operations
Total net revenue $39,474 $35,137 12%
Division operating profit(b) $8,025 $7,307 10%
Total operating profit(c) $7,272 $6,569 11%
Net income(d) $5,599 $5,065 11%
Earnings per share(d) $3.38 $3.00 13%

Other Data
Management operating
cash flow(e) $4,551 $4,065 12%
Net cash provided by
operating activities $6,934 $6,084 14%
Capital spending $2,430 $2,068 17%
Common share repurchases $4,300 $3,000 43%
Dividends paid $2,204 $1,854 19%
Long-term debt $4,203 $2,550 65%
Estimated Worldwide Retail Sales $ in Billions
( a ) Percentage changes are based on unrounded amounts. Pepsi-Cola
( b ) Excludes corporate unallocated expenses and restructuring and
impairment charges. Mountain Dew
See page 86 for a reconciliation to the most directly comparable
Diet Pepsi
financial measure in accordance with GAAP.
( c ) Excludes restructuring and impairment charges. Gatorade Thirst Quencher
See page 86 for a reconciliation to the most directly comparable
Tropicana Beverages
financial measure in accordance with GAAP.
( d ) Excludes restructuring and impairment charges and certain tax items. Lay’s Potato Chips
See page 86 for a reconciliation to the most directly comparable
Quaker Foods and Snacks
financial measure in accordance with GAAP.
( e ) Includes the impact of net capital spending. Also, see “Our Liquidity and Doritos Tortilla Chips
Capital Resources” in Management’s Discussion and Analysis.
7UP (outside U.S.)

Lipton Teas (PepsiCo/Unilever Partnership)

Cheetos Cheese Flavored Snacks

Aquafina Bottled Water

PepsiCo Estimated Ruffles Potato Chips

Worldwide Retail Sales: Mirinda

Tostitos Tortilla Chips

$98 Billion* Sierra Mist

*Includes estimated retail sales of all PepsiCo products, including those Walkers Potato Crisps
sold by our partners and franchised bottlers. Fritos Corn Chips

0 5 10 15 20
PepsiCo has 18 mega-brands that generate $1 billion or more each in
annual retail sales.

1
 Delivering Performance with Purpose in 2007
Dear Shareholders:

We have titled this year’s annual report “Performance with Purpose: The Journey Continues.”
That’s because in 2007 PepsiCo made great progress toward the long-term corporate
objectives we set for ourselves last year: To achieve business and financial success while
leaving a positive imprint on society.

Once more, our extraordinary associates around the world

delivered terrific performance, and I am delighted to share
with you the following 2007 financial results:
• Net revenue grew 12%, roughly three times the rate of global GDP growth.
• Division operating profit grew 10%.*
• Earnings per share grew 13%.*
• Total return to shareholders was 26%.
• Return on invested capital was 29%.
• Cash flow from operations was $6.9 billion.

In 2007 PepsiCo took important steps to support future growth.

What makes me particularly proud is that our 2007 performance was strong —
not just measured by these short-term metrics — but also with the long-term equally
in mind:

• We increased capital expenditures in plant and equipment worldwide to enable

growth of core brands and expand into new platforms such as baked and crisp-bread
snacks and non-carbonated beverages.
• We added several tuck-in acquisitions in key markets and segments, and we further
expanded our successful coffee and tea joint ventures.
• We created the Chief Scientific Officer position to ensure our technical
capabilities keep pace with increasingly sophisticated consumer demand;
and we funded incremental investment to explore breakthrough
R&D opportunities.
• We maintained focus on building next-generation IT capabilities with
Project One Up, to support our long-term growth prospects worldwide.

*See page 86.

Indra Nooyi
Chairman and Chief Executive Officer

2
Our brands once again demonstrated competitive strength.
Earnings Per Share*
On the ground, in cities and towns around the world, good brand strategies were
implemented with operational excellence. I’d like to share a few notable examples of
$3.38
the big marketplace wins we enjoyed in 2007:
$3.00
$2.66
• Our carbonated soft drink and savory snack brands gained market share in the United
States and in many of our top international markets.
• In the United Kingdom, Baked Walkers crisps was named “New Product of the Year” by
Marketing Week magazine.
• SunChips snacks delivered double-digit growth in the United States as a result of great,
innovative marketing and in-store execution.
• 7UP H2Oh! was our fastest-growing brand in value and volume share in Brazil in
its launch year.
• Pepsi Max came of age as a global brand, with outstanding performance in the United
States as Diet Pepsi Max, after successes in Northern Europe and Australia and 2007 2005 2006 2007
launches across Asia.
*See page 86.
• PepsiCo beverage brands crossed the $1 billion mark in Russia retail sales.
• We posted double-digit volume growth in China beverages and high-single-digit
beverage volume growth in India.
Management Operating
And we did all of this while battling increased commodity inflation and more Cash Flow**
macroeconomic volatility than in previous years. $ in Millions
$4,551
$4,204
$4,065
In the next few pages you’ll learn a lot more about the performance of our individual
businesses from the leaders of PepsiCo Americas Foods, PepsiCo Americas Beverages and
PepsiCo International.

2007 Scorecard

12%
10%

4%

2005 2006 2007

Volume Net Revenue Division Operating Profit*

29% **See page 55.

26%

13%

Earnings Per Share* Total Return to Return on Invested Capital

Shareholders

*See page 86.

3
 You’ll see it’s been a good year commercially. I believe that is in part Select Portfolio
because we have moved our purpose agenda forward. Transformation Milestones

In a networked global marketplace, The goal of human sustainability is 1964: Pepsi-Cola introduces Diet Pepsi.
companies must embrace the reality of to nourish consumers with a range of
rapid change and interconnectedness — products, from treats to healthy eats. 1980: Frito-Lay begins “Light” line of low-
fat snacks.
and corporate strategy must holistically We are proud to give consumers choices
consider the complex factors shaping across the spectrum. Our products 1989: Frito-Lay launches “1/3 Less Oil” line
the landscape. That was why, last year, deliver joy as well as nutrition — of snacks.
we said we would commit ourselves to and always, great taste. In 2007
deliver performance — but it would be we made great progress toward 1991: Frito-Lay launches SunChips, its first
multigrain snack.
performance with purpose. human sustainability:
1992: Pepsi-Cola launches Lipton Iced Teas
You see, our performance and our • Reformulating some of our in the United States.
purpose are not two separate things. existing products to improve their
They are not even two sides of the same nutritional profile. 1995: Baked Lay’s arrives as a major
coin. They are merging. For example, • Launching new products that reflect low-fat snack.
portfolio transformation — offering consumer demand for healthier,
1998: PepsiCo acquires Tropicana.
consumers healthier choices — is nutritious snacks and beverages.
equally about human sustainability and • Partnering with governments, health
2001: PepsiCo merges with Quaker Oats,
top-line growth. officials and non-governmental including Gatorade.
organizations to help address
With great pride, I turn now to PepsiCo’s obesity concerns. 2002: Frito-Lay announces removal of
2007 achievements in each of the • Continuing to grow our portfolio of trans fats from Doritos, Tostitos and
Cheetos snacks.
three elements that together form our Smart Spot* eligible products.
purpose agenda: human, environment • Providing consumers with many 2004: PepsiCo introduces Smart Spot* symbol.
and talent sustainability. great new treat choices and
innovations. 2006: Walkers introduces Baked Walkers
“Nothing would be more Crisps with 70% less fat.

tiresome than eating and You will find many examples of these
efforts in the pages that follow. 2007: Frito-Lay completes the conversion to
drinking if God had not made sunflower oil across all potato chip
brands in the United States, eliminat-
them a pleasure as well as a
ing over 50% of the saturated fat in
necessity.” — Voltaire those brands.

*See page 21.

4
“Your descendants shall gather your fruits.” — Virgil 2007 Environmental Honors
• PepsiCo was added to DJSI World Index
and maintained its position on DJSI North
America Index.

The second component of purpose • Incorporating consideration of envi- • The U.S. Environmental Protection Agency
(EPA) recognized PepsiCo as Green Power
is environmental sustainability. ronmental sustainability issues and
Partner of the Year and Energy Star
Companies — like individuals — must opportunities as part of every capital Partner of the Year.
act as custodians of our natural expenditure evaluation for projects • Working Mother magazine named
resources. As it is for each individual, it greater than $5 million. PepsiCo to its Best Green Companies for
is a matter of moral urgency that • Using new technologies to save America’s Children List.
companies do what they can. But it is a energy, and working out ways • The Cause Marketing Forum awarded
matter of business urgency too. Today, to communicate our conservation Sam’s Club/Aquafina’s “Return the
Warmth“ program with the top
recruiting the best people is difficult efforts through brand marketing environmental honor, the Halo Award.
without a good record on the environ- activities. • CRO magazine recognized PepsiCo among
ment — to say nothing of the direct • Offsetting the total purchased the 2007 100 Best Corporate Citizens in
link between resource conservation and electricity used by all PepsiCo the United States.
business productivity. U.S.-based facilities, by purchasing • PepsiCo was ranked #10 in the LOHAS
renewable energy certificates. (Lifestyles of Health and Sustainability)
Index for its corporate social responsibility
Our stated goal is to further reduce program and communications.
our water and energy usage and move These initiatives pay. Since 1999,
• The China Association of Enterprises
towards the ideal of “net neutral.” By Frito-Lay North America has reduced with Foreign Investment (CAEFI) and
2015, corporate-wide, we will reduce per-pound water use by more than WTO Tribune Magazine honored PepsiCo
per-unit water consumption by 20%, 38%, manufacturing fuels by more than Investment (China) Ltd. with the Corporate
Social Responsibility Outstanding
electricity consumption by 20% and 27%, and electricity by more than 21%, Contribution Award.
manufacturing fuel consumption thereby saving $55 million in energy and
• Frito-Lay’s Jonesboro facility received
by 25% — as compared with our utility costs compared with 1999. the EPA Performance Track Distinction,
consumption metrics in 2006. We which recognizes facilities that set goals
evaluate each project against return on As a result of these and many other for continuous improvements in
environmental performance.
investment hurdles, but also consider actions, detailed later in this report,
• The U.S. Green Building Council
intangible benefits and longer-term we earned inclusion in the Dow Jones Leadership in Energy and Environmental
implications. Here are some of the Sustainability Index (DJSI) in both their Design (LEED) program awarded LEED
ways we continued to make real North America and World Indices. Gold Status to the Gatorade Blue Ridge
facility in Wytheville, Virginia and
progress in 2007:
Gatorade Tolleson facility in Arizona.
• The Thailand Government Department of
• Reusing water from processing, Energy gave PepsiCo’s Thailand Lamphun
working with local communities to plant an Excellent Performance in Energy
provide access to clean water, and Conservation Award.
supporting local farmers to deliver • Frito-Lay was recognized in the EPA’s 2007
“more crop per drop.” Water Efficiency Leader awards in
recognition for exceptional commitment
to water efficiency.
• Seven PepsiCo China bottling plants
were recognized as Best Water-Saving
Companies in China’s beverage industry
by the China Beverage Industry Association.

5
 2007 Talent Honors All of this activity is crucial in its own Catalyst, DiversityInc, Black Enterprise
• Corporate Research Foundation right and crucial in fostering the third magazine, Latina STYLE magazine,
International, Holland’s professional part of our purpose aims: Cherishing Fortune, and others. We are proud to
publication and ranking organiza- our employees, what we call talent be recognized internationally as “a great
tion, named PepsiCo among the Best
Companies to Work for in Spain. sustainability. company” for which to work.
• Latina STYLE named PepsiCo Company of
the Year. “The way you see people is the Doing better by doing better — that’s
• University students in China named PepsiCo way you treat them, and the the ambition Performance with Purpose
one of the Best Graduate Employers in has sparked in us. It’s always been part
China for the second year in a row. way you treat them is what they
of our DNA and our operating mind set.
• Catalyst honored PepsiCo with the 2007 become.” — Johann von Goethe In 2007, it boosted the engagement and
Catalyst Award for its Woman of Color
Multicultural Alliance. emotional commitment of associates
PepsiCo is blessed with an extraordinary across the company.
• China Rights Forum and China Business
News Group named PepsiCo 2007 group of people. Talent sustainability is
Outstanding Employer of China in the the process of treating them well and All over the world, I have met associates
Shanghai Region.
priming them to fulfill their dreams. So who have embraced Performance with
• Business Ethics magazine named PepsiCo it is at PepsiCo. We pursue diversity to Purpose. New associates understand it
to the 100 Best Corporate Citizens list.
reflect the consumers we serve. We create instinctively and expect this sort of holistic
• DiversityBusiness named PepsiCo as
one of America’s Top Organizations for
an inclusive environment and encourage approach from their employer. Veteran
Multicultural Business Opportunities. associates to bring their whole selves to employees have embraced it with no less
• Hispanic Business named PepsiCo among work. We provide excellent benefits and passion. For many it has rekindled their
its Top 60 Diversity Elite. training opportunities. Our associates creative spirit and renewed their commit-
• PepsiCo was named among the Most respond accordingly and deliver the out- ment to the company.
Influential Multinationals in China for the standing results we present to you here.
third consecutive year.
They are great corporate citizens, in addi- Together, we are all building on the
• The Human Rights Campaign named
PepsiCo as one of the Best Places to Work
tion to being good parents, caregivers, platform of human, environment and
for Gay/Lesbian/Bisexual/Transgender coaches, and community leaders. They
(GLBT) Equality. talent sustainability, while continuing
combine a wonderful can-do spirit with
• The AIDS Responsibility Project (ARP) an earnest must-do sense of responsibility. to deliver great financial results.
presented PepsiCo with the International
Gathered together each day in offices,
Corporate Courage Award.
manufacturing facilities and distribution We can do that because all associates
• The Women’s Foodservice Forum (WFF)
honored PepsiCo with the inaugural centers around the world, they make can see that performance and purpose
Jackie B. Trujillo SOAR Award. PepsiCo a company with a soul. go hand-in-hand. They see that what is
• Working Mother magazine named PepsiCo good for society is also good for business.
one of the top five among the Top 50 Best Let me share some notable examples of They see that we are walking the talk:
Companies for Multicultural Women.
the ways we continued to advance our measuring and tracking the things that we
• Latin Business magazine named PepsiCo
talent sustainability goals in 2007: say are important. That is a great source of
to its Corporate Diversity Honor Roll.
motivation across the company.
• Essence magazine named PepsiCo one of
the 25 Best Companies for Black Women. • Increasing female and minority repre-
• The Chicagoland Chamber of Commerce
sentation in the management ranks. We enter the new year with great results
awarded PepsiCo and EnAble with the • Engaging employees in health and behind us and great prospects to come.
Innovation Award. wellness programs. I look forward to 2008, because I know
• The Times recognized PepsiCo U.K. & Ireland • Encouraging employees to partici- we are a strong company, a responsible
as a place Where Women Want to Work.
pate in community service activities. company, a good company.
• Black Enterprise magazine named • Creating rewarding job opportunities
PepsiCo as one of the 40 Best
Companies for Diversity. for people with different abilities.

Again, these and other initiatives are

detailed later in this report, and they Indra K. Nooyi
helped PepsiCo earn accolades from sev- Chairman and Chief Executive Officer
eral prominent organizations including

6
A Perspective from Our Chairman and CEO
The questions below reflect those often asked by our shareholders about key areas of our businesses.
The answers come from our Chairman and CEO, Indra Nooyi.

Q: In November 2007, PepsiCo announced a new Q: How is PepsiCo reacting to the changing global
organizational structure. What drove this decision, and economy, particularly the slowing U.S. economy?
how will the restructuring impact financial results?
A: It is likely the world economies outside the emerging
A: Given our robust growth in recent years, we felt it was countries will slow in 2008 — although our businesses have
time to manage the company as three units instead of two generally proved pretty resilient in past economic downturns.
— both to allow us to sustain our growth rate and also to It’s also clear that inflation in commodity costs has acceler-
develop global senior leadership talent for PepsiCo’s future. ated, particularly as it relates to grains and energy. We will
We therefore created three operating business units: PepsiCo be utilizing all of the tools at our disposal to address rising
Americas Foods (PAF), PepsiCo Americas Beverages (PAB), and inflation. From a productivity standpoint, we’re accelerating
PepsiCo International (PI). efforts across the entire business system: product formula-
tions, ingredient sourcing, trade efficiencies, manufacturing,
We are confident this organizational structure will help us go-to-market and administrative expenses. In addition,
deliver strong top-line performance and profit growth for the we will be looking to gain effective pricing, both through
following reasons: innovative new products as well as through a judicious
combination of mix management, product weight-outs,
• Each sector has significant scale and growth potential, and absolute pricing. As always, our decisions are grounded
operates across multiple geographies, and is comprised of in the consumer, customer and competitive environments in
both developed and developing markets; each market.
• This facilitates our ability to leverage both capabilities and
innovation between our international and North American Underlying these efforts are the important structural
businesses; advantages we have across the world. Our brands have
• With each sector being of significant scale, more executives highly loyal and engaged consumers; they are affordable
will have the opportunity to run large operating businesses treats and healthy eats; and the strength of our go-to-market
and gain global operating experience; and systems makes them readily available to consumers.
• It enables us to extend the competitive advantages of our
very successful Power of One initiatives by making them And as a team, we remain committed to managing for
increasingly global. the long term, executing with excellence and consistently
delivering our annual targets.
Finally, investors will receive more granular international
performance data, as we will report volume, revenue and
operating profit for six PepsiCo segments, versus four in the
previous structure. Results under the new structure for 2005,
2006, and 2007 can be found on our company website
www.pepsico.com, under the “Investors” tab.

7
 Q: How are you responding to the category shift in PepsiCo defines the performance category with our number-
consumer beverage consumption between carbonated one sports drink Gatorade; and with our recent launch of G2
soft drinks (CSDs) and non-carbonated beverages (NCB), we have added a low-calorie, off-the-field hydration answer
particularly in the United States? for athletes. Rounding out the NCB portfolio are great en-
hanced water brands including our low-calorie reformulated
A: We know that consumers have changing desires, and SoBe Life Water and Propel Fitness Waters.
we are continually transforming our beverage portfolio in
response to these changes. Across the entire spectrum of categories, our continued
focus on R&D and innovation as well as consumer insights
Consumers respond to innovation in the CSD category, and enables us to adapt and continually meet consumer needs,
so we continue to invigorate our flagship CSDs: Pepsi, Diet while still leveraging the global strength of our flagship CSD
Pepsi and Mountain Dew. Last year, we launched Diet Pepsi beverage portfolio.
Max in the United States, a no-calorie beverage with the en-
ergy boost of added caffeine and ginseng; and we launched Q: What progress has PepsiCo made in its
Mountain Dew Game Fuel, created in conjunction with SAP implementation?
Microsoft’s Xbox 360 exclusive title, Halo 3, marking the
first time a soft drink has been created specifically for A: PepsiCo’s multi-year technology transformation initiative
video gamers. continues on track. At the end of 2007, we kicked off our
third major deployment by successfully implementing new
We have also introduced new carbonated juice drinks like capabilities to PCNA and the Quaker, Tropicana and
Izze, an all-natural sparkling fruit juice brand that we acquired Gatorade businesses. These implementations build on earlier
in 2006; and we have a growing energy drink business with SAP releases, enhancing the order management and demand
Amp Energy, SoBe Adrenaline Rush and No Fear. planning functions for the Quaker, Tropicana and Gatorade
businesses and deliver new capability to PCNA’s fountain
In non-carbonated beverages, we have made great progress equipment service model. They also lay the groundwork to
in the nutrition category with the acquisition of Naked Juice convert all of the financial processes, contracts and projects
and our recent introduction of Tropicana Pure. to SAP technology.

We have U.S. category leadership positions with many of On the international front we went live with SAP financials at
our NCB brands, including Aquafina, the number-one Gamesa and Sabritas and launched our first plant in Saltillo,
national PET water brand; Lipton, the number-one ready- Mexico; successfully integrated our Duyvis acquisition onto
to-drink tea and the number-one ready-to-drink coffee with our new global platform; and launched China Beverages.
Starbucks Frappuccino. We are working toward 2008 implementations in Egypt and
Saudi Arabia.

We remain confident in the capabilities and business case

that our transformation initiative will deliver.

8
Q: PepsiCo’s businesses generate a lot of cash, and some acquisition of Bluebird Foods, and we expanded our snacks
people may believe the company’s balance sheet is conser- business in Brazil with the purchase of Lucky snacks. We also
vative. Will investors see any changes in capital structure, recently announced a joint venture with the Strauss Group to
acquisition activity or increased share repurchases? produce and sell Sabra refrigerated dips and spreads in the
United States and Canada. In 2007, Sabra was the top-selling
A: PepsiCo does generate considerable cash, and we are and fastest-growing maker of hummus in the United States.
disciplined about how cash is reinvested in the business. Over And we expanded our global juice footprint by acquiring
the past three years, over $6 billion has been reinvested in U.S.-based Naked Juice, and the Sandora juice business in
the businesses through capital expenditures to fuel growth. the Ukraine, which we purchased in a joint venture with
All cash not reinvested in the business is returned to our PepsiAmericas.
shareholders. Since 2005, $16 billion has been returned to
shareholders through a combination of dividends and share So there are tremendous opportunities for us to continue to
repurchases; and in 2007, cash returned to shareholders was grow — through partnerships, as well as organically, and with
up 34%. We will generally use our borrowing capacity in tuck-in acquisitions.
order to fund acquisitions — which was the case in 2007,
when we spent $1.3 billion in acquisitions to enhance our
future growth and create value for our shareholders. Our
current capital structure and debt ratings give us ready access Cumulative Total Shareholder Return
Return on PepsiCo stock investment (including dividends), the S&P 500 and
to capital markets and keep our cost of borrowing down. the S&P Average of Industry Groups.*

Q: In 2007, you expanded your joint venture agreements 250

with Starbucks and Unilever. Does this represent a new
200
growth model for PepsiCo?
150
A: We have great partnerships on ready-to-drink beverages,
100
with both Starbucks and Unilever. If what it takes to win in
PepsiCo, Inc.
a certain marketplace is to partner with other brands and 50 S&P 500®
S&P® Average of Industry Groups
together make the pie much bigger, then we will apply that
0
model to grow our businesses. 2002 2003 2004 2005 2006 2007

Shareholders purchasing PepsiCo stock at the end of 2002 and holding it to

A key factor in these successful partnerships is that PepsiCo the end of 2007 received a higher cumulative return than the returns of the
S&P 500 and our industry groups.
is not simply a distributor. The development of these brands
is included in the partnerships between our companies on a *The S&P Average of Industry Groups is derived by weighting the returns of two
worldwide scale, and that certainly distinguishes our model. applicable S&P Industry Groups (Non-Alcoholic Beverages and Food) by PepsiCo’s sales
in its beverage and foods businesses. The return on PepsiCo stock investment is
calculated through December 28, 2007, the last trading day prior to the end of
Growth will also come from the enormous opportunities PepsiCo’s fiscal year. The return for the S&P 500 and the S&P Average indices is
calculated through December 31, 2007.
we see for tuck-in acquisitions. We are also expanding into
adjacent categories through our recently announced acquisi-
Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07
tion of Penelopa nuts and seeds in Bulgaria and our 2006 PepsiCo, Inc. $100 $113 $129 $149 $161 $202
purchase of the Duyvis nuts business in Europe. Last year, we S&P 500® $100 $129 $143 $150 $173 $183
entered the salty snacks business in New Zealand with the S&P® Avg. of Industry Groups $100 $110 $121 $118 $137 $152

9
 Our Global Leadership Team OUR NEW BUSINESS
PepsiCo’s strong results are driven by a deeply experienced, global STRUCTURE
leadership team that is aligned to position our new business structure
for future growth. In the fourth quarter of 2007,
PepsiCo announced a strategic
realignment of our organiza-
Our PepsiCo Executive Committee provides a solid bench of leadership talent, with tional structure. Beginning in
over 415 years combined PepsiCo experience. We are also continually feeding and 2008, we are now organized into
developing the leadership pipeline with our Leadership Development MBA intern- three business units, as follows:
ship program, through our annual “Ring of Honor” sales awards and leadership
development program, our Multicultural Inclusion Summit, and by hiring the very 1) PepsiCo Americas Foods
best experienced leaders into strategic roles. And our new organizational structure (PAF), which includes
provides more executives with the opportunity to run large businesses and gain Frito-Lay North America,
global operating experience. Quaker Foods North America
and all of our Latin America
Our leadership team is ready to instill the best of PepsiCo across all of our divisions food and snack businesses,
and geographies to generate profitable growth, expand our global presence and including our Sabritas and
continue our journey for Performance with Purpose. Gamesa businesses in Mexico.

2) PepsiCo Americas
Beverages (PAB), which
includes PepsiCo Beverages
Diversity and Inclusion Statistics
North America and all of
Total Women % Minority % our Latin America beverage
Board of Directors* 10 3 30 3 30 businesses.
Senior Executives** 28 3 11 12 43
3) PepsiCo International (PI),
Executives (U.S.) 2,326 763 33 470 20
which includes all PepsiCo
All Managers (U.S.) 10,862 4,037 37 3,003 28 businesses in the United
All Employees (U.S.)*** 58,532 15,125 26 17,936 31 Kingdom, Europe, Asia,
Middle East and Africa.
At year-end we had approximately 185,000 associates worldwide. The financial section of this annual
report (pages 31-86) is based on the 2007
*Our Board of Directors is pictured on page 29.
reporting structure. Turn to pages 12-17
**Includes PepsiCo Executive Committee members listed on the next page.
of this annual report for highlights of
***Includes full-time employees only.
the successes and capabilities of the new
business structure, as shared by the CEOs
of PAF, PAB and PI.

10
PepsiCo Executive Committee
Corporate PepsiCo Americas Foods PepsiCo Americas PepsiCo International
25 Indra K. Nooyi 22 John C. Compton Beverages 7 Michael D. White
Chairman of the Board and Chief Executive Officer 21 Massimo F. d’Amore Chief Executive Officer
Chief Executive Officer PepsiCo Americas Foods Chief Executive Officer PepsiCo International
PepsiCo Americas Beverages Vice Chairman, PepsiCo
13 Mitch Adamek 24 Albert P. Carey
Senior Vice President and President and 1 Tim Minges
8 Hugh Johnston
Chief Procurement Officer Chief Executive Officer President
President
Frito-Lay North America Pepsi-Cola North America PepsiCo Asia Pacific
3 Rich Beck
Executive Vice President 28 Mark Schiller 23 Todd Magazine 9 Zein Abdalla
PepsiCo Chicago
President President President
Quaker Foods and Snacks Gatorade PepsiCo Europe
12 Robert Dixon
North America
Senior Vice President, Global
Chief Information Officer 2 Luis Montoya 11 Saad Abdul-Latif
PBSG 18 Pedro Padierna President President
President Latin America Beverages PepsiCo SAMEA Region
19 Richard Goodman Sabritas Region
Chief Financial Officer 27 Chris Furman 4 Salman Amin
14 Jose Luis Prado President President
20 Julie Hamp President PepsiCo Foodservice PepsiCo United Kingdom
Senior Vice President Gamesa-Quaker
PepsiCo Communications 5 Neil Campbell
16 Olivier Weber President
10 Mehmood Khan President Tropicana
Chief Scientific Officer South America Foods

15 Ronald C. Parker 26 Tom Greco

Senior Vice President President
Chief Global Diversity and PepsiCo Sales
Inclusion Officer

17 Larry D. Thompson 21
5 11 13 19 23 25
Senior Vice President 2 3 8 10
15 17
27
Government Affairs, General 28
16 20
Counsel and Secretary 6 9 12 14 18 22 24 26
1 4 7

6 Cynthia M. Trudell
Senior Vice President
PepsiCo Human Resources

11
 PepsiCo Americas Foods

PepsiCo Americas Foods (PAF) innovate and market our brands better
may be new in terms of than most. Second, our scale and verti-
geography and organizational cal integration provide us advantages
structure, but there’s nothing new about in manufacturing, warehousing and
our success. PAF brings together a group distribution. Third, our go-to-market sys-
of big, vibrant businesses like Frito-Lay tems provide ubiquitous reach, putting
and Quaker Foods in North America, our brands virtually wherever consumers
Sabritas and Gamesa in Mexico and live, work and play. We operate over
Elma Chips in Brazil. Collectively, they 35,000 direct-to-store selling routes
market and sell some of the world’s and have access to a scaled warehouse
most popular snack and food brands. and third-party distributors. Finally, and
most importantly, we have the cultural
These businesses have been advantage of having all of our associates
making major contributions to empowered to make a difference.
PepsiCo’s growth for many years.
Our Performance with Purpose journey
Our success is built on several advan- has many great 2007 highlights:
tages — some structural and some • Sabritas continued to perform very
cultural. First, by keeping our ears • Frito-Lay North America (FLNA) well with operations in Mexico,
to the ground and our eyes on the is PAF’s largest operating division Central America and the Caribbean.
marketplace, we have been able to and had another tremendous year. Strong sales results were comple-
Revenue grew 7%, led by double- mented by record-high productivity
digit growth in Doritos snacks, savings and employee advancements
multipacks, dips and SunChips throughout the region.
snacks. Additionally, we continued
to extend beyond the core by intro- • Mexico’s Gamesa-Quaker business
ducing Flat Earth baked fruit and posted exceptionally strong volume
vegetable crisps. And Stacy’s pita and share growth, with premium
chips is the fastest-growing cookies leading the way.
brand in the fast-growing salty
snacks category. • Finally, our South America foods
business — which includes
• Quaker Foods North America had operations in Brazil, Argentina,
solid revenue growth of 5% driven Colombia, Peru and Venezuela —
by our hot cereals business. grew organically and via acquisition,
through the purchase of the Lucky
snacks business in Brazil.

12
PERFORMANCE
PepsiCo Net Revenue: $39,474
PepsiCo, Inc. and Subsidiaries
$ in millions
Quaker Foods
North America 5%

Frito-Lay
North America Latin
29% America
Foods
12%

So, where do we grow from here? people who are committed to winning
Middle East/ Convenience and health and wellness wherever and however we operate —
Africa/Asia
12% will continue to drive consumers to our from seed to shelf — while taking care
PAB
28% snack and food offerings. We have a of the world around us.
UK/Europe
14% balanced portfolio of fun and nutritious
products with new additions like True We’re focused on delivering
North nut snacks and Quaker Simple Performance with Purpose throughout
Harvest Multigrain Hot Cereal. And we the Americas. In PAF
PAF comprises 46% of PepsiCo Net Revenue are introducing a new line of premium, parlance, that’s savory food
wholesome cookies and snacks under for thought.
the Quaker trademark. These are in
PepsiCo Division Operating addition to our usual strong offerings
Profit: $7,923 from brands like Doritos, Sabritas and
PepsiCo, Inc. and Subsidiaries Elma Chips.
$ in millions
Quaker Foods
North America Our greatest source of growth
7%
will continue to come from the
John Compton
engagement of our people. CEO, PepsiCo Americas Foods
Frito-Lay
North America Our new PAF structure provides oppor-
36%
Latin America
tunities to quickly share best practices
Foods 9% and scale regional successes. We have
a terrific team of diverse and devoted
Middle East/
Africa/Asia 7%
PAB
31%
UK/Europe
10%

PAF comprises 52% of PepsiCo Division

Operating Profit

13
 PepsiCo Americas Beverages

Rejuvenating, replenishing, Here are some examples of how we

restoring, refreshing consumers’ performed in 2007:
thirst all over the Americas 440
million times a day is what we do • PAB already has North America’s
in PepsiCo Americas Beverages (PAB). foremost non-carbonated beverage
lineup. Growing our leadership
Across the United States, Canada and positions in water, enhanced waters
Latin America, PAB is shaped around and isotonics, we’re focused on
great people, great brands and great building on our hydration advan-
consumer insights. We enjoy the tage. Including restaged SoBe Life
number-one or -two share position Water, reformulated Aquafina Alive,
in virtually every market in which we the full Propel line, Gatorade Thirst
compete, and we continue to push Quencher and low-calorie G2 — the
the innovation envelope into emerging single-biggest new product innova-
growth categories. Our powerful go-to- tion in Gatorade’s history — we now
market systems allow fast and flexible have the industry’s biggest, most
service across multiple trade channels. comprehensive hydration portfolio,
outselling our nearest competitor by drink proposition. It’s a zero-calorie,
a factor of nearly two to one. zero-caffeine sparkling beverage
in three exotic flavor blends. Light,
• What’s more, we’ve signed legend- crisp-tasting Tava is fortified with
ary golfer Tiger Woods to develop a essential vitamins, minerals, and
signature line of sports performance antioxidants, including Vitamins B6,
beverages. Representing the first- E, Niacin and Chromium.
ever licensing deal for the Gatorade
brand and Tiger Woods’ first-ever • Answering the call for better-for-
endorsed sports beverage, Gatorade you innovation at the breakfast
Tiger, the first product in the new table (and beyond), we successfully
line, hit store shelves in March 2008. launched Tropicana Pure Premium
Healthy Heart — the United States’
• Leveraging consumers’ inherent first national orange juice fortified
love of bubbles, we also have been with Omega-3 fatty acids.
working to reinvent carbonated soft
drinks and provide greater variety • In Argentina and Brazil, 7UP H2Oh!
in North America. Diet Pepsi Max, — a lightly carbonated, distinctively
for example, is a great-tasting, flavored water — is a sensational
zero-calorie cola with ginseng and new product that could easily
extra caffeine to provide a kick of become a global success.
energy — a real point of difference.
Launched in January 2008, Tava
is another unique carbonated soft

14
PERFORMANCE
 There are countless other examples of to show the power of our brands, the
PepsiCo Net Revenue: $39,474
what we’re doing north and south of acuity of our strategic vision and the
PepsiCo, Inc. and Subsidiaries
$ in millions the border — initiatives that will allow innovative thinking of our people. Be it
us to selectively seize multicultural new products, packages or programs,
marketing opportunities in the United we are committed to promoting faster
PAB States and elsewhere. and more efficient transfer
28% of ideas and best practices
Breakthrough marketing is throughout the Americas.
UK/Europe
14% putting our brands where
Ciao,
Frito-Lay they belong — at the core of
North America
29% Middle East/ pop culture.
Africa/Asia
12% We are leveraging the world’s most
Latin
America
Foods
interactive communications environment
12% to get there, creating unprecedented
consumer “buzz” via internet blogs,
Quaker Foods
North America 5% online video views and interactive Massimo d’Amore
promotions. CEO, PepsiCo Americas Beverages
PAB comprises 28% of PepsiCo Net Revenue
Wherever we operate, we’re offering an
increasingly diverse portfolio of product
PepsiCo Division Operating choices to more and more variety-con-
Profit: $7,923 scious consumers. Prevailing trends such
PepsiCo, Inc. and Subsidiaries as health and wellness will continue to
$ in millions
drive our portfolio transformation and
lead to growth opportunities like our
acquisition of Naked Juice in 2007. Our
PAB R&D and marketing teams understand
31%
we have to move quickly to invest
UK/ in better-for-you and good-for-you
Europe
10% products, which is now reflected in our
innovation pipeline.
Frito-Lay Middle East/
North America Africa/Asia
7%
36% Latin Going forward, we will continue to
America
Foods invest in marketing and insights to build
9% our competitive advantage and acceler-
ate future growth. We have only begun
Quaker Foods
North America
7%

PAB comprises 31% of PepsiCo Division

Operating Profit

15
 PepsiCo International

2007 was a year of exciting To convey the breadth of our progress,

progress for PepsiCo International, let me share a few 2007 highlights:
marked by strong financial results
and important gains in the marketplace. • We dramatically strengthened our
Once again PI was the largest con- non-carbonated beverage portfolio
tributor to PepsiCo’s revenue and profit by expanding our successful Unilever
growth in 2007. tea partnership and launching
an international joint venture
I am particularly proud of our for Starbucks ready-to-drink
2007 performance because we coffee products.
built a strong foundation for
• In the United Kingdom, our Baked
future growth. Walkers crisps, with 70% less fat
We completed acquisitions in 2007 that than original Walkers, was declared
are expected to add over $1 billion to “New Product of the Year” by
our 2008 revenues. Importantly, they Marketing Week magazine; while
• In the Middle East, zero-calorie
also advance the strategic transforma- an important turnaround in bever-
Pepsi Max posted strong growth,
tion of our international portfolio. age volume led to mid-single-digit
and Mountain Dew surged ahead
We also made major investments to volume growth.
in markets like Nigeria and Pakistan;
transform our information systems and
the Lay’s brand helped drive contin-
capability to be better equipped to • We continued our portfolio transfor-
ued share gains in Turkey, while the
support and enable further growth. mation in Europe with the launch of
Doritos brand drove healthy growth
Baked Lay’s crisps and integration of
in Egypt.
Duyvis nuts. We also enjoyed strong
growth in non-carbonated drinks,
• In Asia, new marketing drove
complemented by the acquisition,
double-digit growth in non-sugar
with PepsiAmericas, of Ukraine’s
colas in virtually all markets; and
leading juice company.
new locally tailored flavors sparked
strong growth in savory snacks,
• In Russia, annual beverage volume
particularly in China and Thailand.
reached more than 200 million
cases, while we strengthened our
leadership in savory snacks and
broke ground on our second
snack plant.

16
PERFORMANCE
PepsiCo Net Revenue: $39,474
PepsiCo, Inc. and Subsidiaries
$ in millions For all our progress, we still have
enormous room to grow.
Middle East/ Under PepsiCo’s new organization, PI
Africa/Asia
UK/Europe
12% today offers a diverse portfolio of scale
14% businesses with critical mass and solid
profit margins, spanning the United
Frito-Lay
Kingdom, Europe, the Middle East, Asia,
North America Australia and Africa. This is a vast area
29%
comprising 86% of the Earth’s popula-
PAB
28% tion and 45 of the 50 fastest-growing
Latin economies — not only China, India and
America
Foods Russia, but many smaller, fast-growing
12% markets like Vietnam, Pakistan, Turkey
Quaker Foods
North America 5% and Eastern Europe.

PI comprises 26% of PepsiCo Net Revenue Our business is well-balanced between

Looking ahead,
developed and developing nations.
I see vast oppor-
And our expanding product portfolio,
tunity for PepsiCo
offering benefits ranging from simple
International. I also
refreshment to basic nutrition, positions
PepsiCo Division Operating am excited by our
us well to serve a wide range of
Profit: $7,923 opportunities for progress
consumer needs.
in the corporate functions I
PepsiCo, Inc. and Subsidiaries
$ in millions now lead: Information Technology and
Middle East/ I’m confident we’ll fulfill Global Purchasing. And I feel especially
Africa/Asia
7% PI’s mission, thanks to our privileged to have a major role in devel-
UK/ outstanding team of PI associates oping the next generation of
Europe PepsiCo leaders. Nothing
10% and many valued partners, who
work together every day, focused is more important to our
continued success.
on common goals and embracing
PAB Frito-Lay the core values of PepsiCo.
31% North America
36%

We are deeply committed to

Performance with Purpose and operat- Michael D. White
Latin ing in sustainable ways that benefit Vice Chairman, PepsiCo
America
Foods 9% our shareholders, employees, business CEO, PepsiCo International
partners and the communities we serve.
Quaker Foods
North America 7%
PI comprises 17% of PepsiCo Division
Operating Profit

17
 Power of One

“Given shifting population movement around the world,

our largest customers encourage PepsiCo Power of One
teams to fully leverage our diverse global portfolio to
accelerate growth. We dive deep to understand the
unique shoppers of each strategic customer, which
enables a greater flow of innovative and customized
product solutions. We then leverage our portfolio to drive
sales and profit growth for PepsiCo and our retail partners
by offering relevant products and targeted programs to
consumers in a more localized way worldwide.”
— Tom Greco, President, PepsiCo Sales

18
Profit is where PepsiCo’s responsibility begins, not ends.

Throughout our long history of delivering profit and performance for PepsiCo has made considerable progress
shareholders, a deep sense of purpose has been embedded in every- on each of these priorities, from our
industry-leading product labeling with
thing we do. It represents the fundamental commitment we have
the Smart Spot program in 2004, to last
embraced for years — to give back as we grow. This is a continuing year’s purchase of renewable energy cer-
journey that spans three major areas of focus — human sustainability, tificates, to our 2008 launch of PepsiCo
environmental sustainability and talent sustainability. University to develop tomorrow’s multi-
cultural/multigenerational leaders.

As a member of the Dow Jones

Sustainability World Index (DJSI World)
and the Dow Jones Sustainability North
America Index (DJSI North America),
PepsiCo is a recognized leader in
sustainability. The DJSI World comprises
the top 10% of the world’s 2,500
Nourishing our consumers with a range of fun and healthy products, and
largest companies based on corporate
making the healthful choice an easier choice. economic, environmental and social
performance. The DJSI North America
captures the leading 20% of companies
in sustainability out of the largest 600
North American companies of the Dow
Jones Global Index.

Dow Jones
Sustainability Indexes
Replenishing the natural resources we can, and minimizing the impact we
have on our environment.

2007 Contribution Summary

$ in Millions

PepsiCo Foundation . . . . . . . $23.4

Cherishing our employees, and making PepsiCo the most desirable place for Corporate Contributions . . . . . 4.3
people of all backgrounds to establish personal and professional growth.
Division Contributions . . . . . . . 8.2
Estimated In-Kind Donations. . 38.9
Total . . . . . . . . . . . . . . . . . . $74.8

19
 To nourish consumers is our fundamental commitment.
It begins with product innovation and transformation,
extends to marketing and labeling commitments that
make the smart choice an easy choice for consumers,
and continues with support for research and develop-
ment programs to advance public health around the
world. Finally, we balance the entire energy equation Quaker Mini Delights multi-
through community outreach programs designed to grain cakes are for calorie-con-
scious consumers who say they’re
empower and motivate consumers to adopt healthier, looking for a satisfying snack option that
more active lifestyles. tastes great and helps them stay on track.
Mini Delights bring three new benefits to
the snack category: taste indulgence,
90-calorie portion packs and plenty
of pieces in every pouch.
Product Innovation
Our transformation as a good company
We have been reinventing our brands • Our Gamesa-Quaker business in
with nourishing products, from snacks
to meet consumer needs for healthier Mexico launched a new line of
to healthier treats, gained momentum
lifestyles since we introduced Diet Pepsi oat-based cookies and snacks, and
across all of our businesses in 2007:
in 1964. our South Africa business launched
• We reduced saturated fats in our
a new health snack line called
Frito-Lay potato chip and Walkers
As we grow, PepsiCo will continue our Sunbites pretzels.
crisp brands, by converting to
transformation with a systematic plan to
sunflower oil.
reduce sodium, added sugar and satu-
rated fats in our products. We start with
• We expanded our baked snacks in Marketing and Labeling
Brazil and introduced low-fat bread
science and authoritative statements Our commitment to nourish is fully
snacks in Chile, Puerto Rico, Spain,
from the World Health Organization, embraced in our marketing and labeling
Turkey and Saudi Arabia.
the Food and Drug Administration and programs around the world. Last year,
• Tropicana promoted cardiovascular
the U.S. National Academy of Sciences PepsiCo was a founding member of
health, by becoming the first
for identifying how we should best a voluntary U.S. food and beverage
national orange juice to include
focus our efforts. We then look at industry initiative that redefined how we
Omega-3s, the fatty acids known for
nutrition-based standards including total market products to children under 12.
helping to promote heart health.
calories, fat, carbohydrate and protein Today, less than 1% of PepsiCo’s total
• Frito-Lay introduced Flat Earth fruit
as well as vitamins and minerals, and advertising budget in North America
and vegetable crisps that combine
then reformulate our products to offer is allocated for advertising to kids, and
great taste and nutrition in a break-
smart choices that contribute to an 100% of that advertising is devoted
through snack with a ½ serving of
overall healthier diet and lifestyle. We exclusively to Smart Spot products.
fruits or vegetables baked into
don’t stop there, because we also look
each ounce.
for ways to add wholesome ingredients, PepsiCo Europe has recently made a
such as fruit, whole grains and fiber to similar advertising and school marketing
many of our products.

20
 With the addition of G2, a low-calorie
lifestyle beverage, the broadened
Gatorade line meets the hydration needs of
athletes and active people on a 24/7 basis. With
just 25 calories per 8-oz serving, G2 helps keep
people hydrated when they are not playing sports
or exercising. More than 200 associates at PepsiCo’s
Chicago office commemorated the product launch by
creating a G2 living logo.

pledge, and full implementation with guidelines for

independent monitoring of this new schools, PepsiCo
program will begin next year. is taking the lead to
provide healthier choices to kids.
And in the United Kingdom, in partner-
ship with dozens of other food and As part of PepsiCo’s commitment, we
beverage companies and the Food agreed to remove full-calorie soft drinks
and Drink Federation, PepsiCo has from K-12 schools in the United States
introduced front-of-package nutritional over three years. One year into our
labeling across all its brands. The labels commitment, we have seen more than
help consumers understand the percent- a 40% drop in the calories of beverages
age of their “Guideline Daily Amount shipped to these schools.
(GDA)” of calories, sugars, fat, and salt
that is contained in a portion of food Supporting Research and In the United States and
or drink. GDAs are now being rolled Development Canada, our green Smart
Spot packaging symbol
out across PepsiCo Europe — all of our makes it easier for consumers
The PepsiCo Foundation is deeply
products in European Union countries to identify products that can con-
engaged in developing new partnership tribute to healthier lifestyles. All PepsiCo products
will display GDAs by the end of 2008.
models which lead to healthier communi- carrying the Smart Spot symbol meet nutrition cri-
teria based on authoritative statements from the
ties and new research insights. In the
PepsiCo is also a founding member of U.S. Food and Drug Administration and the
United States, the Foundation’s grant to National Academy of Sciences or provide other
the Keystone Center Food and Nutrition
Tufts University supported a groundbreak- functional benefits.
Roundtable, which seeks to drive
ing project that resulted in measurable
improvements in the American diet
improvements in school children’s body
and long-term improvements in public
mass index.
health; its current focus is to establish Getting Active through
common front-of-package nutritional Community Outreach
Last year, we announced a new PepsiCo
labeling to help consumers identify
Foundation grant of $5.2 million to the PepsiCo is committed to helping people
healthier choices.
Oxford Health Alliance, for implementa- achieve energy balance through physical
tion and evaluation of community-based activity.
In 2006, PepsiCo joined with the
health interventions in China, England,
Alliance for a Healthier Generation — a
India and Mexico, impacting more than In China for example, PepsiCo intro-
joint initiative of the American Heart
two million people. The Foundation’s duced a “Sports and Music” promotion
Association and the William J. Clinton
Foundation — and other leaders in grant helped launch a program to to encourage people to participate in
the U.S food and beverage industries enhance scientific knowledge about sports; and the U.S.-based Gatorade
to adopt voluntary guidelines for the the effectiveness of community inter- Sport Science Institute established a
foods and beverages we offer to grade ventions in reducing the prevalence of branch in China to help Chinese
schools in the United States. As the only chronic diseases. athletes improve performance through
food and beverage company to have scientific research.
embraced both the beverage and food

21
 Blue Ribbon Advisory Board
Our Smart Spot Dance program in the The PepsiCo Blue Ribbon Advisory Board delivers high-level,
United States launched a multi-city independent insight about major health and wellness policies. It also
instructional dance program to provide a
offers science-based perspectives on product transformation, labeling
fun way for families, especially moms, to
become more physically active.
and marketing and provides guidance on partnerships that promote
physical activity.
PepsiCo International Mexico launched
the Vive Saludable Escuelas Health and 1 Gro Harlem Brundtland, M.D., Former Director-General, World Health
1 2
Wellness program, an initiative to teach Organization, United Nations, Former Prime Minister, Norway
kids how to work towards a healthier life- 2 Antonia Demas, Ph.D., President, Food Studies Institute
style by combining daily physical activity
and a balanced diet. Each student worked
with interactive software that taught 3 James O. Hill, Ph.D., Professor of Pediatrics & Medicine, University of
3 4 Colorado Health Sciences Center, Founder, America On the Move
them about the calories in/calories out
equation. Students were taught a daily 4 Brock H. Leach, Seminary Student & Community Volunteer, PepsiCo
Chief Innovation and Health & Wellness Officer, Retired
physical education routine designed by
Mexico’s Sports Commission and imple-
mented by teachers at each school. The 5 William Sears, M.D., Associate Clinical Professor of Pedi-
5 6 7
program will impact one million children atrics, University of California, Irvine, School of Medicine
in 3,000 schools throughout Mexico. 6 Janet E. Taylor, M.D., Clinical Instructor of Psychiatry,
Columbia University
7 Governor James B. Hunt, Jr., Former Governor of
North Carolina
8 9 10 11 8 David A. Kessler, M.D., J.D., Dean,
School of Medicine,
Vice Chancellor for Medical Affairs,
University of California, San Francisco
9 Kristy F. Woods, M.D., M.P.H., Former
Director, Maya Angelou Research Center
for Minority Health, Wake Forest University
10 David Heber, M.D., Ph.D., Professor of Medicine & Public Health and Director,
UCLA Center for Human Nutrition
11 Raquel Malo, Sr. Vice President, High Performance Nutrition, Human Performance Institute
(Joined 2008)

“I’m proud of the work of the PepsiCo Blue Ribbon Advisory Board, which includes many of the
world’s leading experts in health and nutrition. It is a tangible example of visionary leadership
in establishing PepsiCo as a health and wellness leader in portfolio transformation, policy, and
nutrition science.”
— Dean Ornish, M.D., Chairman of the PepsiCo Blue Ribbon Advisory Board
Founder & President, Preventive Medicine Research Institute
Clinical Professor of Medicine, University of California, San Francisco

22
“Frito-Lay uses the energy from the sun in so many ways. Many of our products are distributed
through our Phoenix, Arizona distribution center, where we have solar panels on the roof that
generate electricity; and we are installing solar collectors at our plant in Modesto, California to
provide up to 75% of the thermal energy the plant uses to make SunChips snacks in that location.
As a six-year member of the Frito-Lay sales organization, I’m glad to work for a company that is
finding many ways to use renewable energy.”
— Carrie Carroll, National Account Manager, Frito-Lay North America
2007 PepsiCo President’s Ring of Honor Recipient for Top Sales Performance

23
 We strive to replenish the resources we’ve used, where possible, as part of our commitment to being an
environmentally responsible corporate citizen. Our associates are passionate about this vision and continue
to drive programs to reduce our energy and water consumption, invest in new energy research and
improve our packaging sustainability.

We have proven that extraordinary Conserving Energy and Our three-year purchase of more than
results are possible. Frito-Lay has Harnessing Renewable Resources one billion kilowatt-hours annually is the
reduced per-pound water use by more same amount of electricity needed to
2007 was a year of considerable prog-
than 38%, manufacturing fuels by more power nearly 90,000 average American
ress for PepsiCo, beginning with exter-
than 27% and electricity by more than homes annually, as estimated by the U.S.
nal partnerships and programs focused
21% since 1999; and our Quaker, EPA based on national averages.
on renewable energy and strategies to
Tropicana and Gatorade businesses have
reduce greenhouse gas emissions.
reduced manufacturing fuels by 26%, We are already implementing many of
electricity by 24% and water by 12% in our own renewable energy operations.
PepsiCo joined the U.S. Environmental
the last three years. In 2007, we announced major renew-
Protection Agency (EPA) Climate
able energy projects including plans for
Leaders, a voluntary partnership pro-
We’re achieving similar results in markets our “net zero” plant in Casa Grande,
gram that works to develop comprehen-
outside the United States. In Mexico, our Arizona. With plans to run almost
sive climate change strategies, including
Sabritas team has cut per-unit electricity use entirely on renewable fuels and recycled
supporting reduction in greenhouse
by more than 9% over the past five years, water, this plant is scheduled to begin
gases. And we were the first consumer
and water use by 26%. In China, our bot- production by 2010.
products company to join with other
tling plants have reduced water consump-
concerned companies and non-
tion by 40% and energy consumption by Frito-Lay North America flipped the
governmental organizations in the U.S.
38% over the past three years. switch last year on the largest business-
Climate Action Partnership to encourage
owned, photovoltaic power system in
the federal government to enact climate
Throughout the world, we have similar Arizona. Producing no emissions, the
legislation. These programs make good
stories that demonstrate how we are system captures the energy of one of
commercial sense for us and help us use
taking this responsibility seriously, Arizona’s abundant natural resources
our resources well.
because it is the right thing to do, but — turning the power of the sun into
also because it’s the smart thing to do for electricity. It incorporates a 201-kilowatt
We are also proud of PepsiCo’s land-
more efficient use of energy, water and photovoltaic array covering 27,000
mark purchase of renewable energy
packaging in our business operations. square feet of roof space at the com-
certificates. This financial instrument
pany’s service center in Phoenix. PepsiCo
stimulates and supports the develop-
has already installed photovoltaic
ment of renewable electricity, and our
systems in six other distribution centers,
investment matches the purchased elec-
from California to New York.
tricity, used by all of PepsiCo U.S.-based
manufacturing facilities, headquarters,
distribution centers and regional offices.

Walkers is the first major food brand in the world to display a carbon footprint/reduction logo on
its packs. The label was developed by the Carbon Trust, a U.K.-government-funded independent
organization that works to accelerate the move to a low-carbon economy.
Walkers has had a partnership with the Trust since 2001 and has
reduced energy use per pack by a third and water use by
almost half. One step in reducing carbon was sourcing the
potatoes domestically to reduce the transport miles.
The Walkers advertising campaign highlights that the
brand now uses 100% Great British potatoes.

24
Our bottlers are also sourcing power international community to address recycled content, the weight of a two-
from the sun. In 2007, The Pepsi-Cola water issues both in our own opera- liter polyethylene terephthalate (PET)
Bottling Company of Eugene installed tions and our supply chain. We also soft drink bottle has been reduced by
a 250-kilowatt solar electric system in affirmed support for the UN Millennium 39% since 1980, and our Aquafina 500
their Oregon facility, which is now the Development goals, which have ml PET bottle weight has been reduced
second-largest photovoltaic system in wide-ranging ramifications for water by more than a third since 2000.
the Pacific Northwest. The renewable programs.
energy generated from this system is We also team with business and
the equivalent to the average annual In China and India, the PepsiCo community partners to encourage
energy consumption of approximately Foundation is helping to change the reuse and recycling.
21 Eugene homes and has a regional lives of an increasing number of people
carbon dioxide offset of about 140 tons through our support of organizations We continued our partnership for
per year. that are focused on building sustainable a second year with Sam’s Club and
water practices, including the Chinese Keep America Beautiful to “Return the
Projects in other regions went live last Women’s Development Foundation Warmth,” collecting and recycling over
year as well. PepsiCo India launched our and The Energy and Resources Institute 70 million PET bottles via schools, and
in India. giving away over 25,000 backpacks
made from recycled PET.
PepsiCo has seven photovoltaic- In early 2008, PepsiCo announced
powered distribution centers. a partnership between the PepsiCo PepsiCo put a spotlight on recycling
Foundation and the Earth Institute at at the Live Earth New York concert by
Columbia University, one of the world’s making it easy for people to recycle
first remote wind turbine, harnessing premier institutions dedicated to global their bottles and cans and by offering
one of the most efficient, clean and sustainable development. And the com- information about how they can make
renewable sources of energy. This pany announced a commitment to H2O recycling a part of their everyday lives.
turbine is connected to the public Africa, a foundation focused on clean Our commitment to environmental
electricity grid with sufficient power to water initiatives in Africa. responsibility extends across the globe.
meet more than 75% of the electricity One highly successful program is our
needs of the company’s local Mamandur Building a Lifecycle of PepsiCo India partnership with Exnora
plant, and it directly offsets up to 7% of Environmentally Responsible International, an environmental non-
our company-owned bottling operations’ governmental organization, to manage
Packaging
power requirements for 2008. The initia- domestic solid waste. The program
tive is estimated to help reduce carbon We have formed a Sustainable was recognized by UNICEF as a
emissions by more than 3,500 tons Packaging Council to develop a model project and as a center for inter-
annually, with the potential to offset roadmap that will guide us toward national learning.
70,000 tons of carbon emissions over its achieving packaging systems that are
entire 20-year life cycle. environmentally responsible throughout Looking into the future, PepsiCo teams
their entire lifecycle. are developing innovative packaging
Improving Access to Water solutions which include cutting-edge
Although beverage containers like ours technologies for even more environmen-
PepsiCo is addressing the world’s water are the most recycled consumer packag- tally friendly packaging.
challenge at all levels of our influence. ing in the United States, and they are
designed for recycling, we continue to
In 2007, we announced support for look for ways to reduce the amount of
global initiatives that seek to improve packaging used for our products. And
access to water. These include the CEO we are achieving success. For example,
Water Mandate, a partnership with the Pepsi’s soft drink bottles contain 10%

25
 — to assure we reach our performance
goals. Regardless of current role, level
or career aspiration, every associate can
use the model to understand which
behaviors they should strive for today
and what will contribute to their own
personal success, as well as success
for PepsiCo.
By inspiring, challenging and cherishing our associates, we’re
making PepsiCo a company where coming to work means more Expanding Opportunities through
than just having a job. And that’s important in today’s marketplace Diversity and Inclusion
because global competition for talent has never been more intense.
We believe a sense of belonging in our
Companies that win provide the best opportunities for personal and professional lives is just as important
professional growth. as it is in our personal relationships; it
PepsiCo already has some of the very ensure that an associate focuses on builds trust, encourages teamwork and
best talent in our industry, thanks to our the growth and development of the collaboration, and enables the free shar-
industry-leading people processes. But team as well as him or herself, while ing of ideas that helps us develop, grow
as we evolve to meet future business equally focusing on achieving business and innovate. This is why we continue
needs, we must also continue to evolve results. Putting accountability and 50/50 to grow our efforts to promote diversity
our approach to recruiting, developing, weighting to people priorities helps nur- and inclusion around the globe.
rewarding and retaining our associates. ture PepsiCo’s already strong culture of
We made excellent progress toward this diversity and inclusion where people feel
objective in 2007 by enhancing valued and respected for their unique PepsiCo and its bottler community
our focus on “people results,” and talents, perspectives and experiences. achieved 2007 spending of
further defining key ways to: nurture approximately $1.13 billion
talent, empower people, and expand Empowering People with with U.S. minority-owned and
opportunities for diversity and inclusion. women-owned suppliers,
Clear Expectations
marking the fifth consecutive
Knowing what’s expected of us — and year of double-digit growth in
Nurturing Talent: Our Greatest everyone around us — helps us act with supplier diversity spending.
Sustainable Advantage responsibility, trust and understanding
Our people are our greatest strength. of how leadership and individual per-
Without great people, we can’t deliver formance are rewarded. As a guide for In the United States, our Diversity and
great results for the long term. By focus- associates in all functions and at all lev- Inclusion Networks promote a culture
ing on the continuing development of els of our organization, we introduced where everyone feels they have an equal
our associates and their ability to work the PepsiCo Leadership and Individual opportunity to contribute and succeed.
effectively together, we believe we will Effectiveness Model in 2007. By com- Each of our U.S. groups is represented
maximize PepsiCo’s performance and be municating what’s important at PepsiCo at senior levels by an executive reporting
even better positioned to build on our and what we value from each of our directly to the chief executive officer.
current success in the marketplace. associates, we are helping to shape an The groups include African Americans,
unrivaled corporate environment that Latinos/Hispanics, Asians, Native
We reinforced our people priorities in provides our company with the ultimate Americans, Women, Gay/Lesbian/
2007 by changing how we evaluate competitive advantage. Bisexual/Transgender, Women of Color,
performance, giving equal weight to Support Team/Non-exempt and EnAble,
the achievement of people results and The model details the key competen- for individuals with different abilities. In
business results. This new 50/50 balance cies and associated behaviors that are 2007, we added a group dedicated to
of goals and objectives is designed to required — individually and collectively

26
ensuring that white males are included Today that spirit is alive and well, inspir- associates continue developing the job-
as an integral part of our diversity and ing PepsiCo’s diverse and innovative related and management skills that are
inclusion journey. In that same year, workforce to contribute their best needed to drive innovation and growth
diversity and inclusion councils were thinking in taking diversity and inclusion for the future.
successfully established in all four to the next level — while continuing
continents of our PepsiCo International to bring their insights to delivering Also beginning in 2008, we will align
business — focusing on delivering locally innovative products for our consumers, our 360-degree feedback process with
relevant, regional diversity and inclusion retail customers, and the broad range the PepsiCo Leadership and Individual
strategies and plans. of constituents we serve. An EnAble Effectiveness Model to make it more
team demonstrated that spirit recently robust and ensure that leaders know
In January 2007, we initiated the Steve by producing and starring in “Bob’s and understand what’s expected of
Reinemund Diversity and Inclusion House,” a silent but attention-getting them. As a new and significantly valu-
Leadership Legacy Award to honor lead- television commercial that appeared on able addition, we will combine the
ers who champion diversity and inclu- the FOX network’s pre-game show for 360-degree process with other feedback
sion over time. The award, named for Super Bowl XLII. tools to further build self-awareness and
our former chairman, who was a relent- provide participants with rich,
less champion for diversity, is presented Sharpening Our Focus on Employee one-on-one developmental feedback
to leaders who move PepsiCo to new Learning and Development from trained and certified facilitators.
levels of diversity and inclusion accom-
Everyone at PepsiCo, from our newest
plishments and behaviors. This award
associates to seasoned senior managers,
is in addition to the Harvey C. Russell
has a responsibility to continue his or her
Inclusion Award, introduced in 2003,
own development journey by improving
which is presented to associates at all
both personal and professional effec-
levels of the business in recognition of
tiveness. In 2008, with the launch of
their distinctive achievements in diversity
PepsiCo University, we will help
and inclusion. The award is named after
Harvey C. Russell, who broke America’s
color barrier when he became a vice
president of PepsiCo in 1962 — the first “The commercial provided consumers with a true glimpse into the
African American executive at a Fortune real culture of PepsiCo, because when we talk about diversity and
500 company. inclusion it is not just lip service, it is part of our belief and core.”
— Clay Broussard, creator, “Bob’s House” commercial
Filmed entirely in American Sign Language, the
“Bob’s House” commercial was inspired by
EnAble’s mission to make PepsiCo the employer
of choice, partner of choice and brand of choice
for people with different abilities. Response
was overwhelming with nearly 850,000 views
on video-sharing sites before it aired, a host of
“thank you” videos posted on YouTube by the
deaf community and mentions in over 3,000
blogs after it aired.

Pictured left to right: “Bob’s House” creator, Clay

Broussard, Project Manager, PepsiCo Customer
Supply Chain & Logistics; co-stars, Brian Dowling,
Warehouser II, Frito-Lay North America; Sheri
Christianson, Sr. Specialist and Development
Team Lead, PBSG; and Darren Therriault,
Application Configuration Specialist, Project
One Up, PepsiCo Chicago

27
 Ethnic Advisory Boards
Our Ethnic Advisory Boards provide management with external viewpoints on issues related to diversity and
inclusion, especially in the U.S. marketplace.
African American Advisory Board
1 2 3 4 1 Keith Clinkscales 3 Amy Hilliard 6 Roderick D. Gillum
Senior Vice President, President and Chief Vice President,
Content Development Executive Officer, Corporate
and Enterprises, ESPN The Hilliard Group & Responsibility
Publishing The ComfortCake Co. and Diversity, General
Motors Corporation
2 Jerri DeVard 4 Robert Holland Chairman,
Former Senior Partner, GM Foundation
5 6 7 8 Vice President, Cordova, Smart and
Brand Management Willams, LLC 7 Earl G. Graves, Jr.
and Marketing President and CEO,
Communications, 5 Reverend Dr. Franklyn Black Enterprise
Verizon Richardson Magazine
Communications Senior Pastor,
Grace Baptist Church 8 Glenda McNeal
Senior Vice President
Global Partnerships,
American Express

“Since PepsiCo’s African American Advisory Board was formed in 1999, our members
have provided valuable counsel to the company on a range of issues including reaching
a more diverse consumer base, creating a more diverse workforce and strengthening its
relationship with the community. We are pleased with the results. During our years of
involvement, PepsiCo has increased the number of minorities in its management ranks
and increased spending with minority-owned businesses.”
— Benaree Pratt Wiley, Principal, The Wiley Group, Chairman of the Advisory Board

Latino/Hispanic Advisory Board

1 Dr. Carlos H. Arce, Ph.D. 4 Carlos A. Saladrigas 7 Cid Wilson
1 2 3 4
President and Founder, Chairman, Director of Equity
NuStats Premier American Bank Research,
Kevin Dann and
2 Maria Contreras-Sweet 5 Deborah Rosado Shaw Partners LLC
Chairwoman, Partner,
Promerica Bank Multi-ethnic Success Roger Rivera
Ventures, LLC President and Founder,
5 6 7 3 Dr. Douglas X. Patiño National Hispanic
Vice Chancellor Emeritus 6 Isabel Valdés Environmental Council
and Professor, Consultant, Author, (Not pictured,
California State Public Speaker Joined 2008)
University

“As a founding member of the PepsiCo Latino/Hispanic Advisory Board, I am honored to repre-
sent a group that provides the company with diverse points of view, which benefit consumers,
PepsiCo and the communities in which it operates. These perspectives influence new products and
marketing. We also provide insights to assist retailers with the effective planning of promotional
outreach, product mix and support of healthier lifestyles. Because so much change is occurring in
demographic mix and in lifestyle trends, our input helps to ensure that the tastes of consumers are
met and that diverse talent is identified for employment opportunities.”
— Raúl Yzaguirre, Presidential Professor, Center for Community Development and Civil Rights,
Arizona State University, Chairman of the Advisory Board

28
PepsiCo Board of Directors Welcome New Board Members

2 Dina Dublon 10 Indra K. Nooyi PepsiCo is pleased to welcome two new

members to our Board of Directors. Ian M.
Consultant, Former Executive Vice Chairman of the Board and Cook and Lloyd G. Trotter have joined the
President and Chief Financial Officer Chief Executive Officer board, effective March 14, 2008. They
JPMorgan Chase & Co. PepsiCo will bring a breadth of experience and
54. Elected 2005. 52. Elected 2001. knowledge to PepsiCo and its communities.

Ian Cook, 55, is presently president and

3 Victor J. Dzau, M.D. 6 Sharon Percy Rockefeller chief executive officer of Colgate-Palmolive
Chancellor for Health Affairs President and Chief Executive Officer Company, one of the world’s
Duke University and WETA Public Stations oldest and most respected
consumer products compa-
President & CEO 63. Elected 1986. nies. He joined Colgate in
Duke University Health Systems 1976 and progressed through
62. Elected 2005. 1 James J. Schiro marketing and other man-
Chief Executive Officer agement roles in the United
Kingdom, the United States
5 Ray L. Hunt Zurich Financial Services Ian Cook and the Philippines until he
Chief Executive Officer 62. Elected 2003. became CEO in July 2007.
Hunt Oil Company
and Chairman, Chief Executive Officer 8 Daniel Vasella Lloyd Trotter, 61, recently
retired from his post as
and President Chairman of the Board and vice chairman of GE, after
Hunt Consolidated, Inc. Chief Executive Officer a 37-year career there. He
64. Elected 1996. Novartis AG has joined the New York-
54. Elected 2002. based investment firm of
GenNx360 Lloyd Trotter
7 Alberto Ibargüen Capital Partners as one of
President and Chief Executive Officer 4 Michael D. White the principals. The firm intends to focus
John S. and James L. Knight Foundation Chief Executive Officer on investments in commercial security,
64. Elected 2005. PepsiCo International industrial water treatment, infrastructure
and aerospace.
Vice Chairman
9 Arthur C. Martinez PepsiCo 3
1 5 6 8 10
Former Chairman of the Board, 56. Elected 2006.
President and Chief Executive Officer 2 4 7 9

Sears, Roebuck and Co. Listings include age and year elected
68. Elected 1999. as a PepsiCo director.

29
 Corporate Information

Executive Offices PepsiCo, Inc. John C. Compton Larry D. Thompson

Chief Executive Officer Senior Vice President, Government
700 Anderson Hill Road
PepsiCo Americas Foods Affairs, General Counsel and Secretary
Purchase, NY 10577
914-253-2000
Massimo F. d’Amore Cynthia M. Trudell
Chief Executive Officer Senior Vice President
Co-founder of PepsiCo PepsiCo Americas Beverages PepsiCo Human Resources
Donald M. Kendall
Richard Goodman Michael D. White
Executive Officers* Chief Financial Officer Chief Executive Officer
Indra K. Nooyi PepsiCo International
Chairman of the Board and Hugh Johnston Vice Chairman, PepsiCo
Chief Executive Officer President
Pepsi-Cola North America
Peter A. Bridgman
Senior Vice President and Controller Lionel L. Nowell III * PepsiCo Officers subject to Section 16 of
Senior Vice President and Treasurer the Securities and Exchange Act of 1934.
For a complete list of the PepsiCo Executive
Albert P. Carey
Committee, please see page 11.
President and Chief Executive Officer
Frito-Lay North America

Values Mission Primary Websites

Our commitment is to deliver sustained We aspire to make PepsiCo the world’s PepsiCo, Inc. — www.pepsico.com
growth, through empowered people, premier consumer products company, Frito-Lay North America — www.fritolay.com
acting with responsibility and building trust. focused on convenient foods and Pepsi-Cola North America — www.pepsi.com
beverages. We seek to produce healthy Tropicana North America — www.tropicana.com
financial rewards to investors as we Quaker Foods — www.quakeroats.com
provide opportunities for growth and Gatorade — www.gatorade.com
enrichment to our employees, our busi- Smart Spot — www.smartspot.com
ness partners and the communities in
which we operate. And in everything
we do, we strive to act with honesty,
openness, fairness and integrity.

When market or market share are referred to in this report, the markets and share are defined by the
sources of the information, primarily Information Resources, Inc. and ACNielsen. The Measured
Channel Information excludes Wal*Mart and Sam’s, as Wal*Mart and Sam’s do not report volume
to these services.

This report is entirely recyclable. The cover was printed on Sterling Ultra Recycled Cover manufactured
by NewPage. The editorial pages are printed on Sterling Ultra Recycled Dull Text with wood procure-
ment practices certified by the Forest Stewardship Council©. The financial pages are printed on Plainfield
Smooth Opaque Text, manufactured by Domtar Inc., using sustainable energy sources and wood
procurement practices certified by the Forest Stewardship Council©. PepsiCo purchases Green-e certified
renewable energy certificates to offset 100% of the purchased electricity used for our U.S. operations.
This report was printed with 100% Green-e certified wind power.

30
Management’s Discussion and Analysis
OUR BUSINESS Notes to Consolidated Financial Statements

Our Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Note 1 — Basis of Presentation and Our Divisions. . . . . . . 60

Our Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Note 2 — Our Significant Accounting Policies. . . . . . . . . . 63

Our Distribution Network . . . . . . . . . . . . . . . . . . . . . . . . . 34 Note 3 — Restructuring and Impairment Charges. . . . . . . 64

Our Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Note 4 — Property, Plant and Equipment and

Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . 65
Other Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Note 5 — Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Our Business Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Note 6 — Stock-Based Compensation . . . . . . . . . . . . . . . 69
OUR CRITICAL ACCOUNTING POLICIES
Note 7 — Pension, Retiree Medical and Savings Plans. . . . 71
Revenue Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Note 8 — Noncontrolled Bottling Affiliates . . . . . . . . . . . . 75
Brand and Goodwill Valuations. . . . . . . . . . . . . . . . . . . . . 41
Note 9 — Debt Obligations and Commitments. . . . . . . . . 77
Income Tax Expense and Accruals . . . . . . . . . . . . . . . . . . . 42
Note 10 — Risk Management. . . . . . . . . . . . . . . . . . . . . . 78
Pension and Retiree Medical Plans . . . . . . . . . . . . . . . . . . 43
Note 11 — Net Income per Common Share . . . . . . . . . . . 80
OUR FINANCIAL RESULTS
Note 12 — Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . 80
Items Affecting Comparability . . . . . . . . . . . . . . . . . . . . . 46
Note 13 — Accumulated Other Comprehensive Loss . . . . 81
Results of Operations — Consolidated Review . . . . . . . . . 47
Note 14 — Supplemental Financial Information . . . . . . . . 82
Results of Operations — Division Review . . . . . . . . . . . . . 49
MANAGEMENT’S RESPONSIBILITY FOR
Frito-Lay North America . . . . . . . . . . . . . . . . . . . . . . . . 50 FINANCIAL REPORTING . . . . . . . . . . . . . . . . . . . . 83

PepsiCo Beverages North America. . . . . . . . . . . . . . . . . 51 MANAGEMENT’S REPORT ON INTERNAL

CONTROL OVER FINANCIAL REPORTING . . . . . . . 83
PepsiCo International . . . . . . . . . . . . . . . . . . . . . . . . . . 52
REPORT OF INDEPENDENT REGISTERED PUBLIC
Quaker Foods North America . . . . . . . . . . . . . . . . . . . . 53 ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . 84
Our Liquidity and Capital Resources . . . . . . . . . . . . . . . . . 54
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . 85
Consolidated Statement of Income . . . . . . . . . . . . 56 RECONCILIATION OF GAAP AND
NON-GAAP INFORMATION . . . . . . . . . . . . . . . . . 86
Consolidated Statement of Cash Flows . . . . . . . . . 57
GLOSSARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . 58

Consolidated Statement of Common

Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . 59

31
 OUR BUSINESS
Our discussion and analysis is an integral part of understanding our financial results. Definitions
of key terms can be found in the glossary on page 86. Tabular dollars are presented 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. Percentage changes are based on
unrounded amounts.

Our Operations
We are a leading global snack and bever- division sells products in approximately tea, coffee and water products through
age company. We manufacture, market 200 countries, with our largest opera- joint ventures with Unilever (under the
and sell a variety of salty, convenient, tions in Mexico and the United Kingdom. Lipton brand name) and Starbucks. In
sweet and grain-based snacks, carbonated Additional information concerning our addition, PBNA licenses the Aquafina
and non-carbonated beverages and foods. divisions and geographic areas is pre- water brand to its bottlers and markets
Our commitment to sustainable growth, sented in Note 1. this brand. PBNA sells concentrate and
defined as Performance with Purpose, is finished goods for some of these brands
focused on generating healthy financial Frito-Lay North America to authorized bottlers, and some of these
returns while giving back to the com- Frito-Lay North America (FLNA) manu- branded products are sold directly by us
factures or uses contract manufacturers, to independent distributors and retailers.
markets, sells and distributes branded The bottlers sell our brands as finished
Our commitment to sustainable snacks. These snacks include Lay’s potato goods to independent distributors and
growth, defined as Performance chips, Doritos tortilla chips, Tostitos tortilla retailers. PBNA’s volume reflects sales to its
with Purpose, is focused on chips, Cheetos cheese flavored snacks, independent distributors and retailers, as
generating healthy financial branded dips, Fritos corn chips, Ruffles well as the sales of beverages bearing our
returns while giving back to the potato chips, Quaker Chewy granola bars, trademarks that bottlers have reported
communities we serve. SunChips multigrain snacks, Rold Gold as sold to independent distributors and
pretzels, Santitas tortilla chips, Grandma’s retailers. Bottler case sales (BCS) and
munities we serve. This includes meet- cookies, Frito-Lay nuts, Munchies snack concentrate shipments and equivalents
ing consumer needs for a spectrum of mix, Gamesa cookies, Funyuns onion fla- (CSE) are not necessarily equal during any
convenient foods and beverages, reducing vored rings, Quaker Quakes corn and rice given period due to seasonality, timing
our impact on the environment through snacks, Miss Vickie’s potato chips, Stacy’s of product launches, product mix, bottler
water, energy and packaging initiatives, pita chips, Smartfood popcorn, Chester’s inventory practices and other factors.
and supporting our employees through fries, branded crackers and Flat Earth While our revenues are not based on
a diverse and inclusive culture that crisps. FLNA branded products are sold to BCS volume, we believe that BCS is a
recruits and retains world-class talent. In independent distributors and retailers. valuable measure as it measures the
September 2007, we were again included sell-through of our products at the con-
PepsiCo Beverages North America
on the Dow Jones Sustainability North sumer level.
PepsiCo Beverages North America (PBNA)
America Index and were also added to
manufactures or uses contract manu- PepsiCo International
the Dow Jones Sustainability World Index.
facturers, markets and sells beverage PepsiCo International (PI) manufactures
These lists are compiled annually.
concentrates, fountain syrups and finished through consolidated businesses as well
We are organized into four divisions:
goods, under various beverage brands as through noncontrolled affiliates, a
• Frito-Lay North America,
including Pepsi, Mountain Dew, Gatorade, number of leading salty and sweet snack
• PepsiCo Beverages North America,
Tropicana Pure Premium, Sierra Mist, brands including Gamesa, Lay’s, Doritos,
• PepsiCo International, and
Propel, Tropicana juice drinks, Dole, SoBe Walkers, Cheetos, Ruffles and Sabritas.
• Quaker Foods North America.
Life Water, Naked juice and Izze. PBNA Further, PI manufactures or uses contract
Our North American divisions operate
also manufactures or uses contract manu- manufacturers, markets and sells many
in the U.S. and Canada. Our international
facturers, markets and sells ready-to-drink

32
Quaker brand cereals and snacks. PI also our revenues are not based on BCS volume, (3) PepsiCo International (PI), which
manufactures, markets and sells bever- we believe that BCS is a valuable measure as includes all PepsiCo businesses in the
age concentrates, fountain syrups and it measures the sell-through of our products United Kingdom, Europe, Asia, Middle
finished goods under the brands Pepsi, at the consumer level. East and Africa.
7UP, Mirinda, Mountain Dew, Gatorade
and Tropicana. These brands are sold to Quaker Foods North America
authorized bottlers, independent distribu- Quaker Foods North America (QFNA) In the fourth quarter of 2007, we
tors and retailers. However, in certain manufactures or uses contract manu- announced a strategic realignment
markets, PI operates its own bottling facturers, markets and sells cereals, rice, of our organizational structure
plants and distribution facilities. PI also pasta and other branded products. QFNA’s into three new business units:
manufactures or uses contract manufac- products include Quaker oatmeal, Aunt PAF, PAB and PI.
turers, markets and sells ready-to-drink Jemima mixes and syrups, Life cereal,
tea products through a joint venture with Cap’n Crunch cereal, Quaker grits, Rice-
Unilever (under the Lipton brand name). A-Roni, Pasta Roni and Near East side In 2008, our three business units will
In addition, PI licenses the Aquafina water dishes. These branded products are sold be comprised of six reportable segments,
brand to certain of its authorized bottlers. to independent distributors and retailers. as follows:
PI reports two measures of volume. Snack • FLNA,
New Organizational Structure
volume is reported on a system-wide • QFNA,
In the fourth quarter of 2007, we
basis, which includes our own sales and • LAF,
announced a strategic realignment of our
the sales by our noncontrolled affiliates • PAB,
organizational structure into three new
of snacks bearing Company-owned or • United Kingdom & Europe, and
business units, as follows:
licensed trademarks. Beverage volume • Middle East, Africa & Asia.
(1) PepsiCo Americas Foods (PAF),
reflects Company-owned or autho- In the first quarter of 2008, our historical
which includes FLNA, QFNA and all of our
rized bottler sales of beverages bearing segment reporting will be restated to reflect
Latin American food and snack businesses
Company-owned or licensed trademarks to the new structure. The segment amounts
(LAF), including our Sabritas and Gamesa
independent distributors and retailers. BCS and discussions reflected in this annual
businesses in Mexico;
and CSE are not necessarily equal during report reflect the management reporting
(2) PepsiCo Americas Beverages (PAB),
any given period due to seasonality, timing that existed through fiscal year-end 2007.
which includes PBNA and all of our Latin
of product launches, product mix, bottler
American beverage businesses; and
inventory practices and other factors. While

Our Customers
Our customers include authorized bottlers volume-based rebates, product placement advertising. Vending and cooler
and independent distributors, including fees, promotions and displays. For our equipment placement programs
foodservice distributors, and retailers. bottlers, these incentives are referred to as support the acquisition and placement
We normally grant our bottlers exclusive bottler funding and are negotiated annu- of vending machines and cooler equip-
contracts to sell and manufacture certain ally with each bottler to support a variety ment. The nature and type of programs
beverage products bearing our trade- of trade and consumer programs, such as vary annually.
marks within a specific geographic area. consumer incentives, advertising support, Retail consolidation continues to
These arrangements provide the Company new product support, and vending and increase the importance of major custom-
with the right to charge our bottlers for cooler equipment placement. Consumer ers. In 2007, sales to Wal-Mart Stores, Inc.
concentrate, finished goods and Aquafina incentives include coupons, pricing (Wal-Mart), including Sam’s Club (Sam’s),
royalties and specify the manufacturing discounts and promotions, and other represented approximately 12% of our
process required for product quality. promotional offers. Advertising support total net revenue. Our top five retail
Since we do not sell directly to the con- is directed at advertising programs and customers represented approximately
sumer, we rely on and provide financial supporting bottler media. New product 31% of our 2007 North American net
incentives to our customers to assist in support includes targeted consumer and revenue, with Wal-Mart (including Sam’s)
the distribution and promotion of our retailer incentives and direct marketplace representing approximately 18%. These
products. For our independent distribu- support, such as point-of-purchase mate- percentages include concentrate sales to
tors and retailers, these incentives include rials, product placement fees, media and our bottlers which are used in finished

33
 goods sold by them to these retailers. net income based on our percentage and Pepsi Bottling Ventures LLC (PBV), as
In addition, sales to The Pepsi Bottling of economic ownership in our income our anchor bottlers. Our anchor bottlers
Group (PBG) represented approximately statement as bottling equity income. distribute approximately 58% of our
9% of our total net revenue. See “Our We have designated three related party North American beverage volume and
Related Party Bottlers” and Note 8 for bottlers, PBG, PepsiAmericas, Inc. (PAS) approximately 18% of our international
more information on our anchor bottlers. beverage volume. Our anchor bottlers
participate in the bottler funding pro-
Our Related Party Bottlers Our anchor bottlers distribute grams described above. Approximately
We have ownership interests in certain approximately 58% of our North 6% of our total 2007 sales incentives are
of our bottlers. Our ownership is less American beverage volume related to these bottlers. See Note 8 for
than 50%, and since we do not control and approximately 18% of our additional information on these related
these bottlers, we do not consolidate international beverage volume. parties and related party commitments
their results. We include our share of their and guarantees.

Our Distribution Network

Our products are brought to market visibility and appeal. DSD is especially best for products that are less fragile and
through direct-store-delivery (DSD), well-suited to products that are restocked perishable, have lower turnover, and are
broker-warehouse and foodservice and often and respond to in-store promotion less likely to be impulse purchases.
vending distribution networks. The distri- and merchandising.
bution system used depends on customer Foodservice and Vending
needs, product characteristics and local Our foodservice and vending sales force
DSD enables us to merchandise distributes snacks, foods and beverages to
trade practices.
with maximum visibility and appeal. third-party foodservice and vending dis-
Direct-Store-Delivery tributors and operators. Our foodservice
We, our bottlers and our distributors and vending sales force also distributes
operate DSD systems that deliver snacks Broker-Warehouse certain beverages through our bottlers.
and beverages directly to retail stores Some of our products are delivered from This distribution system supplies our
where the products are merchandised our manufacturing plants and warehouses products to schools, businesses, stadiums,
by our employees or our bottlers. DSD to customer warehouses and retail stores. restaurants and similar locations.
enables us to merchandise with maximum These less costly systems generally work

Our Competition
Our businesses operate in highly com- Cola Company. However, The Coca-Cola Success in this competitive environment
petitive markets. We compete against Company has a significant CSD share is dependent on effective promotion of
global, regional, local and private label advantage in many markets outside the existing products and the introduction
manufacturers on the basis of price, U.S. Further, our snack brands hold sig- of new products. We believe that the
quality, product variety and distribution. nificant leadership positions in the snack strength of our brands, innovation and
In U.S. measured channels, we have a industry worldwide. Our snack brands marketing, coupled with the quality of our
similar share of CSD consumption and a face local and regional competitors, as products and flexibility of our distribution
larger share of liquid refreshment bever- well as national and global snack competi- network, allow us to compete effectively.
ages consumption, as compared to our tors, and compete on the basis of price,
chief beverage competitor, The Coca- quality, product variety and distribution.

34
Other Relationships
Certain members of our Board of our customer negotiations. Our transac- certain of our employees serve on the
Directors also serve on the boards of tions with these vendors and customers boards of our anchor bottlers and other
certain vendors and customers. Those are in the normal course of business and affiliated companies and do not receive
Board members do not participate in our are consistent with terms negotiated with incremental compensation for their
vendor selection and negotiations nor in other vendors and customers. In addition, Board services.

Our Business Risks

Demand for our products may be Our continued success is also depen- or tampering, whether or not valid,
adversely affected by changes in dent on our product innovation, including may reduce demand for our products or
consumer preferences and tastes maintaining a robust pipeline of new cause production and delivery disrup-
or if we are unable to innovate or products, and the effectiveness of our tions. If any of our products becomes
market our products effectively. advertising campaigns and marketing unfit for consumption, misbranded or
programs. There can be no assurance as causes injury, we may have to engage in a
We are a consumer products company
to our continued ability either to develop product recall and/or be subject to liability.
operating in highly competitive markets
and launch successful new products A widespread product recall or a sig-
and rely on continued demand for our
or variants of existing products, or to nificant product liability judgment could
products. To generate revenues and
effectively execute advertising campaigns cause our products to be unavailable for
profits, we must sell products that appeal
and marketing programs. In addition, a period of time, which could further
to our customers and to consumers. Any
both the launch and ongoing success of reduce consumer demand and brand
significant changes in consumer prefer-
new products and advertising campaigns equity. Failure to maintain high ethical,
ences and any inability on our part to
are inherently uncertain, especially as to social and environmental standards for
anticipate and react to such changes
their appeal to consumers. Our failure to all of our operations and activities or
could result in reduced demand for our
successfully launch new products could adverse publicity regarding our responses
products and erosion of our competi-
decrease demand for our existing prod- to health concerns, our environmental
tive and financial position. Our success
ucts by negatively affecting consumer impacts, including agricultural materials,
depends on our ability to respond to con-
perception of existing brands, as well packaging, energy and water use and
sumer trends, such as consumer health
as result in inventory write-offs and waste management, or other sustainabil-
concerns about obesity, product attributes
other costs. ity issues, could jeopardize our reputa-
and ingredients. In addition, changes in
tion. Failure to comply with local laws
product category consumption
and regulations, to maintain an effective
or consumer demographics
system of internal controls or to provide
could result in reduced demand Our success depends on our ability to
accurate and timely financial statement
for our products. Consumer respond to consumer trends, such as
information could also hurt our reputa-
preferences may shift due to a consumer health concerns about obesity,
tion. Damage to our reputation or loss of
variety of factors, including the product attributes and ingredients.
consumer confidence in our products for
aging of the general population,
any of these reasons could have a material
changes in social trends, changes
adverse effect on our business, financial
in travel, vacation or leisure activity pat- Any damage to our reputation condition and results of operations, as
terns, weather, negative publicity result- could have an adverse effect on well as require additional resources to
ing from regulatory action or litigation our business, financial condition rebuild our reputation.
against companies in the industry, or a and results of operations.
downturn in economic conditions. Any
Maintaining a good reputation globally
of these changes may reduce consumers’
is critical to selling our branded products.
willingness to purchase our products. See
If we fail to maintain high standards for
also “Changes in the legal and regula-
product quality, safety and integrity, our
tory environment could limit our business
reputation could be jeopardized. Adverse
activities, increase our operating costs,
publicity about these types of concerns or
reduce demand for our products or result
the incidence of product contamination
in litigation” below.
35
 If we are not able to build and in the future to achieve cost savings and uncertainty or governmental controls.
sustain proper information tech- efficiencies. If the service providers that We purchase these materials and energy
nology infrastructure, successfully we outsource these functions to do not mainly in the open market. If commod-
implement our ongoing business perform effectively, we may not be able ity price changes result in unexpected
transformation initiative or out- to achieve the expected cost savings and increases in raw materials and energy
source certain functions effectively may have to incur additional costs to cor- costs, we may not be able to increase our
our business could suffer. rect errors made by such service providers. prices to offset these increased costs with-
Depending on the function involved, out suffering reduced volume, revenue
We depend on information technology as
such errors may also lead to business and operating income.
an enabler to improve the effectiveness of
disruption, processing inefficiencies or Our profitability may also be adversely
our operations and to interface with our
the loss of or damage to intellectual impacted due to water scarcity and
customers, as well as to maintain financial
property through security breach, or harm regulation. Water is a limited resource in
accuracy and efficiency. If we do not allo-
employee morale. many parts of the world. As demand for
cate and effectively manage the resources
Our information systems could also be water continues to increase, we and our
necessary to build and sustain the proper
penetrated by outside parties intent on business partners may face disruption of
technology infrastructure, we could be
extracting information, corrupting infor- supply or increased costs to obtain the
subject to transaction errors, processing
mation or disrupting business processes. water needed to produce our products.
inefficiencies, the loss of customers,
Such unauthorized access could disrupt
business disruptions, or the loss of or Our business could suffer if we are
our business and could result in the loss
damage to intellectual property through unable to compete effectively.
of assets.
security breach.
Our businesses operate in highly com-
We have embarked on a multi-year Our operating results may be petitive markets. We compete against
business transformation initiative that adversely affected by increased global, regional and private label manu-
includes the delivery of an SAP enterprise costs, disruption of supply or facturers on the basis of price, quality,
shortages of raw materials and product variety and effective distribution.
other supplies. Increased competition and actions by
We depend on information
technology as an enabler to We and our business partners use various our competitors could lead to downward
improve the effectiveness of our raw materials and other supplies in our pressure on prices and/or a decline in
operations and to interface with business, including aspartame, cocoa, our market share, either of which could
our customers. corn, corn sweeteners, flavorings, flour, adversely affect our results. See “Our
grapefruits and other fruits, juice and Competition” for more information about
juice concentrates, oats, oranges, pota- our competitors.
toes, rice, seasonings, sucralose, sugar,
resource planning application, as well Disruption of our supply chain
vegetable and essential oils, and wheat.
as the migration to common business could have an adverse effect on
Our key packaging materials include PET
processes across our operations. There can our business, financial condition
resin used for plastic bottles, film packag-
be no certainty that these programs will and results of operations.
ing used for snack foods, aluminum used
deliver the expected benefits. The failure
for cans, glass bottles and cardboard. Our ability and that of our suppliers, busi-
to deliver our goals may impact our ability
Fuel and natural gas are also important ness partners, including bottlers, contract
to (1) process transactions accurately and
commodities due to their use in our plants manufacturers, independent distributors
efficiently and (2) remain in step with the
and in the trucks delivering our products. and retailers, to make, move and sell
changing needs of the trade, which could
Some of these raw materials and supplies products is critical to our success. Damage
result in the loss of customers. In addition,
are available from a limited number of or disruption to our or their manufactur-
the failure to either deliver the applica-
suppliers. We are exposed to the market ing or distribution capabilities due to
tion on time, or anticipate the necessary
risks arising from adverse changes in weather, natural disaster, fire or explosion,
readiness and training needs, could lead
commodity prices, affecting the cost of terrorism, pandemics such as avian flu,
to business disruption and loss of custom-
our raw materials and energy. The raw strikes or other reasons, could impair our
ers and revenue.
materials and energy which we use for ability to manufacture or sell our prod-
In addition, we have outsourced certain
the production of our products are largely ucts. Failure to take adequate steps to
information technology support services
commodities that are subject to price mitigate the likelihood or potential impact
and administrative functions, such as
volatility and fluctuations in availability of such events, or to effectively manage
payroll processing and benefit plan
caused by changes in global supply and such events if they occur, could adversely
administration, to third-party service pro-
demand, weather conditions, agricultural affect our business, financial condition
viders and may outsource other functions

36
and results of operations, as well as their own short-term profit, may be detri- in a wide variety of foods when they
require additional resources to restore our mental to us or our brands. Such actions are cooked (whether commercially or
supply chain. could have an adverse effect on our prof- at home), including french fries, potato
itability. In addition, any deterioration of chips, cereal, bread and coffee. It is
Trade consolidation, the loss our relationships with our bottlers could believed that acrylamide may cause cancer
of any key customer, or failure adversely affect our business or financial in laboratory animals when consumed in
to maintain good relationships performance. See “Our Customers,” significant amounts. Studies are underway
with our bottling partners could “Our Related Party Bottlers” and Note 8 by various regulatory authorities and oth-
adversely affect our financial for more information on our customers, ers to assess the effect on humans due to
performance. including our anchor bottlers. acrylamide in the diet. If we were required
We must maintain mutually beneficial to label any of our products or place
relationships with our key customers, Changes in the legal and regula- warnings in locations where our products
including our retailers and bottling tory environment could limit are sold in California under Proposition
partners, to effectively compete. There is our business activities, increase 65, sales of those products could suffer
a greater concentration of our customer our operating costs, reduce not only in California but elsewhere. In
base around the world generally due demand for our products or addition, if consumer concerns about
to the continued consolidation of retail result in litigation. acrylamide increase as a result of these
trade. As retail ownership becomes more The conduct of our businesses, and the studies, other new scientific evidence,
concentrated, retailers demand lower pric- production, distribution, sale, advertising, or for any other reason, whether or not
ing and increased promotional programs. labeling, safety, transportation and use valid, demand for our products could
Further, as larger retailers increase utiliza- of many of our products, are subject to decline and we could be subject to addi-
tion of their own distribution networks various laws and regulations administered tional lawsuits or new regulations that
and private label brands, the competitive by federal, state and local governmental could affect sales of our products, any of
advantages we derive from our go-to- agencies in the United States, as well as to which could have an adverse effect on
market systems and brand equity may be foreign laws and regulations administered our business, financial condition or results
eroded. Failure to appropriately respond by government entities and agencies in of operations.
to these trends or to offer effective sales markets in which we operate. These laws In many jurisdictions, compliance with
incentives and marketing programs to our and regulations may change, sometimes competition laws is of special importance
customers could reduce our ability dramatically, as a result of political, to us due to our competitive position in
to secure adequate shelf space at our economic or social events. Such regulatory those jurisdictions. Regulatory authorities
retailers and adversely affect our environment changes include changes under whose laws we operate may also
financial performance. in food and drug laws, laws related to have enforcement powers that can sub-
Retail consolidation continues to advertising and deceptive marketing ject us to actions such as product recall,
increase the importance of major custom- practices, accounting standards, taxation seizure of products or other sanctions,
ers. In 2007, sales to Wal-Mart (including requirements, competition laws and which could have an adverse effect on our
Sam’s) represented approximately 12% of environmental laws, including laws relat- sales or damage our reputation.
our total net revenue. Our top five retail ing to the regulation of water rights and
customers represented approximately treatment. Changes in laws, regulations If we are unable to hire or retain
31% of our 2007 North American net or governmental policy and the related key employees, it could have a
revenue, with Wal-Mart (including Sam’s) interpretations may alter the environment negative impact on our business.
representing approximately 18%. These in which we do business and, therefore, Our continued growth requires us to
percentages include concentrate sales to may impact our results or increase our develop our leadership bench and
our bottlers which are used in finished costs or liabilities. to implement programs, such as our
goods sold by them to these retailers. Loss In particular, governmental bodies long-term incentive program, designed
of any of our key customers, including in jurisdictions where we operate may to retain talent. However, there is no
Wal-Mart, could have an adverse effect impose new labeling, product or produc- assurance that we will continue to be
on our business, financial condition and tion requirements, or other restrictions. able to hire or retain key employees. We
results of operations. For example, we are one of several compete to hire new employees, and then
Furthermore, if we are unable to companies that have been sued by the must train them and develop their skills
provide an appropriate mix of incentives State of California under Proposition 65 to and competencies. Our operating results
to our bottlers through a combination of force warnings that certain potato-based could be adversely affected by increased
advertising and marketing support, they products contain acrylamide. Acrylamide costs due to increased competition for
may take actions that, while maximizing is a chemical compound naturally formed employees, higher employee turnover or

37
 increased employee benefit costs. Any have adverse impacts on our business Forward-Looking and Cautionary
unplanned turnover could deplete our results or financial condition. Our opera- Statements
institutional knowledge base and erode tions outside of the U.S. accounted for We discuss expectations regarding our
our competitive advantage. 44% and 35% of our net revenue and future performance, such as our busi-
operating profit, respectively, for the year ness outlook, in our annual and quarterly
ended December 29, 2007. Our contin- reports, press releases, and other written
Our continued growth requires us ued success depends on our ability to and oral statements. These “forward-
to develop our leadership bench broaden and strengthen our presence in looking statements” are based on
and to implement programs, emerging markets, such as Brazil, Russia, currently available information, operating
such as our long-term incentive India and China, and to create scale in key plans and projections about future events
program, designed to retain talent. international markets. and trends. They inherently involve risks
and uncertainties that could cause actual
results to differ materially from those
Our business may be adversely
Our continued success depends predicted in any such forward-looking
impacted by unfavorable economic
on our ability to broaden and statements. Investors are cautioned not
or environmental conditions or
strengthen our presence in to place undue reliance on any such
political or other developments
emerging markets, such as Brazil, forward-looking statements, which speak
and risks in the countries in which
Russia, India and China. only as of the date they are made. We
we operate.
undertake no obligation to update any
Unfavorable global economic or environ- forward-looking statement, whether as a
mental changes, political conditions or result of new information, future events
other developments may result in business or otherwise. The discussion of risks above
disruption, supply constraints, foreign and elsewhere in this annual report is by
currency devaluation, inflation, deflation no means all inclusive but is designed to
or decreased demand. Unstable economic highlight what we believe are important
and political conditions or civil unrest in factors to consider when evaluating our
the countries in which we operate could trends and future results.

derivatives are designated as either cash

Market Risks flow or fair value hedges and qualify for
hedge accounting treatment, while others
We are exposed to market risks arising from adverse changes in: do not qualify and are marked to market
through earnings. We do not use deriva-
• commodity prices, affecting the cost of our raw materials tive instruments for trading or speculative
and energy, purposes, and we limit our exposure to
individual counterparties to manage credit
• foreign exchange rates, and risk. The fair value of our derivatives fluc-
tuates based on market rates and prices.
• interest rates. The sensitivity of our derivatives to these
market fluctuations is discussed below.
In the normal course of business, we agreements. Our hedging strategies See Note 10 for further discussion of
manage these risks through a variety of include the use of derivatives. Certain these derivatives and our hedging policies.
strategies, including productivity initia- See “Our Critical Accounting Policies” for
tives, global purchasing programs and a discussion of the exposure of our pen-
hedging strategies. Ongoing productivity sion plan assets and pension and retiree
We manage market risks through
initiatives involve the identification and medical liabilities to risks related to stock
a variety of strategies, including
effective implementation of meaningful prices and discount rates.
productivity initiatives, global
cost saving opportunities or efficiencies. Inflationary, deflationary and recession-
purchasing programs and
Our global purchasing programs include ary conditions impacting these market
hedging strategies.
fixed-price purchase orders and pricing risks also impact the demand for and
pricing of our products.

38
Commodity Prices Exchange rate gains or losses related Risk Management Framework
Our open commodity derivative contracts to foreign currency transactions are The achievement of our strategic and
that qualify for hedge accounting had a recognized as transaction gains or losses operating objectives will necessarily
face value of $5 million at December 29, in our income statement as incurred. We involve taking risks. Our risk management
2007 and $55 million at December 30, may enter into derivatives to manage our
2006. The open derivative contracts that exposure to foreign currency transaction
qualify for hedge accounting resulted in risk. Our foreign currency derivatives We leverage an integrated
net unrealized gains of less than $1 million had a total face value of $1.6 billion at risk management framework
at December 29, 2007 and December 30, December 29, 2007 and $1.0 billion at to identify, assess, prioritize,
2006. We estimate that a 10% decline in December 30, 2006. The contracts that manage, monitor and
commodity prices would have had qualify for hedge accounting resulted communicate risks across
no impact on our net unrealized gains in net unrealized losses of $44 million the Company.
in 2007. at December 29, 2007 and $6 million
Our open commodity derivative at December 30, 2006. We estimate
contracts that do not qualify for hedge that an unfavorable 10% change in the process is intended to ensure that risks
accounting had a face value of $105 million exchange rates would have resulted in net are taken knowingly and purposefully.
at December 29, 2007 and $196 million at unrealized losses of $152 million in 2007. As such, we leverage an integrated risk
December 30, 2006. The open derivative The contracts not meeting the criteria for management framework to identify,
contracts that do not qualify for hedge hedge accounting resulted in a net gain assess, prioritize, manage, monitor and
accounting resulted in net gains of $3 million of $15 million in 2007 and a net loss of communicate risks across the Company.
in 2007 and net losses of $28 million in $10 million in 2006. All losses and gains This framework includes:
2006. We estimate that a 10% decline were offset by changes in the underlying • The PepsiCo Executive Committee
in commodity prices would have had no hedged items, resulting in no net material (PEC), comprised of a cross-functional,
impact on our net gains in 2007. impact on earnings. geographically diverse, senior manage-
We expect to be able to continue to ment group which identifies, assesses,
reduce the impact of increases in our raw
Interest Rates prioritizes and addresses strategic and
We centrally manage our debt and invest-
material and energy costs through our reputational risks;
ment portfolios considering investment
hedging strategies and ongoing produc- • Division Risk Committees (DRCs),
opportunities and risks, tax consequences
tivity initiatives. comprised of cross-functional senior
and overall financing strategies. We
management teams which meet
Foreign Exchange may use interest rate and cross currency
regularly each year to identify, assess,
Financial statements of foreign subsidiar- interest rate swaps to manage our overall
prioritize and address division-specific
ies are translated into U.S. dollars using interest expense and foreign exchange
operating risks;
period-end exchange rates for assets risk. These instruments effectively change
• PepsiCo’s Risk Management Office,
and liabilities and weighted-average the interest rate and currency of specific
which manages the overall risk man-
exchange rates for revenues and expenses. debt issuances. These swaps are entered
agement process, provides ongoing
Adjustments resulting from translating net into concurrently with the issuance of the
guidance, tools and analytical support
assets are reported as a separate compo- debt that they are intended to modify.
to the PEC and the DRCs, identifies and
nent of accumulated other comprehensive The notional amount, interest payment
assesses potential risks, and facilitates
loss within shareholders’ equity under the and maturity date of the swaps match the
ongoing communication between the
caption currency translation adjustment. principal, interest payment and maturity
parties, as well as to PepsiCo’s Audit
Our operations outside of the U.S. date of the related debt. Our counterparty
Committee and Board of Directors;
generate 44% of our net revenue, with credit risk is considered low because these
• PepsiCo Corporate Audit, which evalu-
Mexico, the United Kingdom and Canada swaps are entered into only with strong
ates the ongoing effectiveness of our
comprising 19% of our net revenue. As a creditworthy counterparties and are
key internal controls through periodic
result, we are exposed to foreign currency generally settled on a net basis.
audit and review procedures; and
risks. During 2007, net favorable foreign Assuming year-end 2007 variable rate
• PepsiCo’s Compliance Office, which
currency, primarily due to appreciation in debt and investment levels, a 1-percent-
leads and coordinates our compliance
the euro, British pound, Canadian dollar age-point increase in interest rates would
policies and practices.
and Brazilian real, contributed 2 percentage have decreased net interest expense by
points to net revenue growth. Currency $1 million in 2007.
declines which are not offset could
adversely impact our future results.

39
 OUR CRITICAL ACCOUNTING POLICIES
An appreciation of our critical accounting policies
is necessary to understand our financial results. Our critical accounting policies arise in conjunction
with the following:
These policies may require management to make
difficult and subjective judgments regarding • revenue recognition,

uncertainties, and as a result, such estimates • brand and goodwill valuations,

may significantly impact our financial results. The • income tax expense and accruals, and
precision of these estimates and the likelihood of • pension and retiree medical plans.
future changes depend on a number of underlying
variables and a range of possible outcomes. Other
than our accounting for pension plans, our critical accounting policies do not involve the choice
between alternative 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.

Revenue Recognition
Our products are sold for cash or on credit commitment to freshness and product $10.1 billion in 2006 and $8.9 billion in
terms. Our credit terms, which are estab- dating serves to regulate the quantity of 2005. Sales incentives include payments
lished in accordance with local and indus- product shipped or delivered. In addition, to customers for performing merchan-
try practices, typically require payment DSD products are placed on the shelf dising activities on our behalf, such as
within 30 days of delivery in the U.S., and by our employees with customer shelf payments for in-store displays, payments
generally within 30 to 90 days interna- space limiting the quantity of product. to gain distribution of new products,
tionally, and may allow discounts for early For product delivered through our other payments for shelf space and discounts
payment. We recognize revenue upon distribution networks, customer inventory to promote lower retail prices. A number
shipment or delivery to our customers levels are monitored. of our sales incentives, such as bottler
based on written sales terms that do not funding and customer volume rebates,
allow for a right of return. However, our are based on annual targets, and accruals
policy for DSD and chilled products is to Our policy for DSD and chilled are established during the year for the
remove and replace damaged and out-of- products is to remove and expected payout. These accruals are based
date products from store shelves to ensure replace damaged and out-of-date on contract terms and our historical expe-
that consumers receive the product quality products from store shelves to rience with similar programs and require
and freshness they expect. Similarly, our ensure that consumers receive management judgment with respect to
policy for warehouse-distributed products the product quality and freshness estimating customer participation and
is to replace damaged and out-of-date they expect. performance levels. Differences between
products. Based on our historical experi- estimated expense and actual incentive
ence with this practice, we have reserved costs are normally insignificant and are
for anticipated damaged and out-of-date As discussed in “Our Customers,” recognized in earnings in the period such
products. Our bottlers have a similar we offer sales incentives and discounts differences are determined. The terms of
replacement policy and are responsible for through various programs to customers most of our incentive arrangements do
the products they distribute. and consumers. Sales incentives and dis- not exceed a year, and therefore do not
Our policy is to provide customers counts are accounted for as a reduction of require highly uncertain long-term esti-
with product when needed. In fact, our revenue and totaled $11.3 billion in 2007, mates. For interim reporting, we estimate

40
total annual sales incentives for most of the economic or contractual life, as a We estimate and reserve for our
of our programs and record a pro rata reduction of revenue, and the remaining bad debt exposure based on our
share in proportion to revenue. Certain balances of $287 million at year-end 2007 experience with past due accounts. Bad
arrangements, such as fountain pouring and $297 million at year-end 2006 are debt expense is classified within selling,
rights, may extend beyond one year. The included in current assets and other assets general and administrative expenses in
costs incurred to obtain incentive arrange- on our balance sheet. our income statement.
ments are recognized over the shorter

Brand and Goodwill Valuations

We sell products under a number of brand amortized over their expected useful impairment loss that we should record. In
names, many of which were developed lives, which generally range from five to the second step, we determine an implied
by us. The brand development costs are 40 years. Determining the expected life fair value of the reporting unit’s goodwill
expensed as incurred. We also purchase of a brand requires management judg- by allocating the fair value of the report-
brands in acquisitions. Upon acquisition, ment and is based on an evaluation of ing unit to all of the assets and liabilities
the purchase price is first allocated to a number of factors, including market other than goodwill (including any unrec-
identifiable assets and liabilities, includ- share, consumer awareness, brand history ognized intangible assets). The amount of
ing brands, based on estimated fair and future expansion expectations, as well impairment loss is equal to the excess of
value, with any remaining purchase price as the macroeconomic environment of the the book value of the goodwill over the
recorded as goodwill. Determining fair countries in which the brand is sold. implied fair value of that goodwill.
value requires significant estimates and Amortizable brands are only evaluated
assumptions based on an evaluation of a for impairment upon a significant change
number of factors, such as marketplace We did not recognize any in the operating or macroeconomic
participants, product life cycles, market impairment charges for environment. If an evaluation of the
share, consumer awareness, brand his- perpetual brands or goodwill undiscounted future cash flows indicates
tory and future expansion expectations, in the years presented. impairment, the asset is written down to
amount and timing of future cash flows its estimated fair value, which is based on
and the discount rate applied to the its discounted future cash flows.
cash flows. Perpetual brands and goodwill, includ- Management judgment is necessary
We believe that a brand has an ing the goodwill that is part of our non- to evaluate the impact of operating and
indefinite life if it has a history of strong controlled bottling investment balances, macroeconomic changes and to estimate
revenue and cash flow performance, and are not amortized. Perpetual brands and future cash flows. Assumptions used
we have the intent and ability to support goodwill are assessed for impairment at in our impairment evaluations, such as
the brand with marketplace spending for least annually. If the carrying amount of a forecasted growth rates and our cost of
the foreseeable future. If these perpetual perpetual brand exceeds its fair value, as capital, are based on the best available
brand criteria are not met, brands are determined by its discounted cash flows, market information and are consistent
an impairment loss is recognized in an with our internal forecasts and operat-
Determining the expected life of amount equal to that excess. Goodwill is ing plans. These assumptions could be
a brand requires management evaluated using a two-step impairment adversely impacted by certain of the risks
judgment and is based on an test at the reporting unit level. A reporting discussed in “Our Business Risks.”
evaluation of a number of factors, unit can be a division or business within We did not recognize any impairment
including market share, consumer a division. The first step compares the charges for perpetual brands or goodwill
awareness, brand history and book value of a reporting unit, including in the years presented. As of December
future expansion expectations, goodwill, with its fair value, as determined 29, 2007, we had $6.4 billion of per-
as well as the macroeconomic by its discounted cash flows. If the book petual brands and goodwill, of which
environment of the countries in value of a reporting unit exceeds its fair approximately 60% related to Tropicana
which the brand is sold. value, we complete the second step and Walkers.
to determine the amount of goodwill

41
 Income Tax Expense and Accruals
Our annual tax rate is based on our tax returns (our cash tax rate). Some of In 2006, the Financial Accounting
income, statutory tax rates and tax plan- these differences are permanent, such as Standards Board (FASB) issued FASB
ning opportunities available to us in the expenses that are not deductible in our Interpretation No. 48, Accounting for
various jurisdictions in which we oper- tax return, and some differences reverse Uncertainty in Income Taxes — an
ate. Significant judgment is required in over time, such as depreciation expense. interpretation of FASB Statement No. 109
determining our annual tax rate and in These temporary differences create (FIN 48), which clarifies the accounting
evaluating our tax positions. We establish deferred tax assets and liabilities. Deferred for uncertainty in tax positions. FIN 48
reserves when, despite our belief that tax assets generally represent items that requires that we recognize in our financial
our tax return positions are fully support- can be used as a tax deduction or credit statements the impact of a tax position,
able, we believe that certain positions are in our tax returns in future years for which if that position is more likely than not
subject to challenge and that we may not we have already recorded the tax benefit of being sustained on audit, based on
succeed. We adjust these reserves, as well the technical merits of the position. We
as the related interest, in light of chang- adopted the provisions of FIN 48 as of the
ing facts and circumstances, such as the We adopted the provisions of beginning of our 2007 fiscal year. As a
progress of a tax audit. FIN 48 as of the beginning of our result of our adoption of FIN 48, we rec-
An estimated effective tax rate for a 2007 fiscal year. ognized a $7 million decrease to reserves
year is applied to our quarterly operating for income taxes, with a corresponding
results. In the event there is a significant increase to opening retained earnings.
or unusual item recognized in our quar- in our income statement. We establish See Note 5 for additional information
terly operating results, the tax attributable valuation allowances for our deferred regarding our tax reserves and our adop-
to that item is separately calculated and tax assets if, based on the available tion of FIN 48.
recorded at the same time as that item. evidence, it is more likely than not that In 2007, our annual tax rate was 25.9%
We consider the tax adjustments from the some portion or all of the deferred tax compared to 19.3% in 2006 as discussed
resolution of prior year tax matters to be assets will not be realized. Deferred tax in “Other Consolidated Results.” The tax
such items. liabilities generally represent tax expense rate in 2007 increased 6.6 percentage
Tax law requires items to be included recognized in our financial statements for points primarily reflecting an unfavorable
in our tax returns at different times than which payment has been deferred, comparison to the prior year’s non-cash
the items are reflected in our financial or expense for which we have already tax benefits. In 2008, our annual tax
statements. As a result, our annual tax taken a deduction in our tax return but rate is expected to be 27.5%, primarily
rate reflected in our financial statements have not yet recognized as expense in reflecting the absence of the non-cash tax
is different than that reported in our our financial statements. benefits recorded in 2007.

42
Pension and Retiree Medical Plans
Our pension plans cover full-time employ- balance sheet date. As a result of this At each measurement date, the
ees in the U.S. and certain international change in measurement date, we will discount rate is based on interest rates
employees. Benefits are determined based record an after-tax $7 million reduction to for high-quality, long-term corporate debt
on either years of service or a combina- 2008 opening shareholders’ equity which securities with maturities comparable to
tion of years of service and earnings. U.S. will be reflected in our 2008 first quar- those of our liabilities. In the U.S., we use
and Canada retirees are also eligible for ter Form 10-Q. For further information the Moody’s Aa Corporate Bond Index
medical and life insurance benefits (retiree regarding the impact of our adoption of yield (Moody’s Aa Index) and adjust for
medical) if they meet age and service SFAS 158, see Note 7. differences between the average duration
requirements. Generally, our share of of the bonds in this Index and the average
retiree medical costs is capped at specified Our Assumptions duration of our benefit liabilities, based
dollar amounts that vary based upon years The determination of pension and retiree upon a published index. As of the begin-
of service, with retirees contributing the medical plan obligations and related ning of our 2008 fiscal year, our discount
remainder of the cost. expenses requires the use of assumptions rate will be determined using the Mercer
On December 30, 2006, we adopted to estimate the amount of the benefits Pension Discount Yield Curve (Mercer
SFAS 158, Employers’ Accounting for that employees earn while working, as Yield Curve). The Mercer Yield Curve uses
Defined Benefit Pension and Other well as the present value of those ben- a portfolio of high-quality bonds rated
Postretirement Plans — an amendment efits. Annual pension and retiree medical Aa or higher by Moody’s. We believe the
of FASB Statements No. 87, 88, 106, and expense amounts are principally based on Mercer Yield Curve includes bonds that
132(R) (SFAS 158). In connection with four components: (1) the value of benefits provide a better match to the timing and
our adoption, we recognized the funded earned by employees for working during amount of expected benefit payments
status of our pension and retiree medical the year (service cost), (2) increase in the than the Moody’s Aa Index.
plans (our Plans) on our balance sheet as liability due to the passage of time The expected return on pension plan
of December 30, 2006 with subsequent (interest cost), and (3) other gains and assets is based on our historical experi-
changes in the funded status recognized losses as discussed below, reduced by ence, our pension plan investment strat-
in comprehensive income in the years in (4) expected return on plan assets for our egy and our expectations for long-term
which they occur. In accordance with SFAS funded plans. rates of return. Our pension plan invest-
158, amounts prior to the year of adop- Significant assumptions used to ment strategy is reviewed annually and is
tion have not been adjusted. SFAS 158 measure our annual pension and retiree established based upon plan liabilities, an
also requires that, no later than 2008, our medical expense include: evaluation of market conditions, tolerance
assumptions used to measure our annual • the interest rate used to determine for risk, and cash requirements for benefit
pension and retiree medical expense the present value of liabilities payments. As part of our investment
be determined as of the balance sheet (discount rate); strategy, we employ certain equity strate-
date, and all plan assets and liabilities be • certain employee-related factors, such gies which, in addition to investing in U.S.
reported as of that date. Accordingly, as as turnover, retirement age and international common and preferred
and mortality; stock, include investing in certain equity-
• for pension expense, the expected and debt-based securities used collectively
As of the beginning of our 2008 return on assets in our funded plans to generate returns in excess of certain
fiscal year, in accordance with and the rate of salary increases for equity-based indices. Our investment
SFAS 158, we will change the plans where benefits are based on policy also permits the use of derivative
measurement date for our annual earnings; and instruments to enhance the overall return
pension and retiree medical • for retiree medical expense, health care of the portfolio. Our expected long-term
expense and all plan assets and cost trend rates. rate of return on U.S. plan assets is 7.8%,
liabilities from September 30 to Our assumptions reflect our historical reflecting estimated long-term rates of
our year-end balance sheet date. experience and management’s best judg- return of 9.3% from our equity strategies,
ment regarding future expectations. Due and 5.8% from our fixed income strate-
to the significant management judgment gies. Our target investment allocation is
of the beginning of our 2008 fiscal year, involved, our assumptions could have a 60% for equity strategies and 40% for
we will change the measurement date for material impact on the measurement of fixed income strategies. We use a market-
our annual pension and retiree medical our pension and retiree medical benefit related valuation method for recogniz-
expense and all plan assets and liabilities expenses and obligations. ing investment gains or losses. For this
from September 30 to our year-end purpose, investment gains or losses are

43
 the difference between the expected and portion of the net gain or loss is included our 2008 fiscal year to comply with legis-
actual return based on the market-related in expense for the following year. The cost lative and regulatory changes.
value of assets. This market-related valua- or benefit of plan changes that increase or The health care trend rate used to
tion method recognizes investment gains decrease benefits for prior employee ser- determine our retiree medical plan’s
or losses over a five-year period from the vice (prior service cost/(credit)) is included liability and expense is reviewed annually.
year in which they occur, which has the in earnings on a straight-line basis over Our review is based on our claim experi-
effect of reducing year-to-year volatility. the average remaining service period ence, information provided by our health
Expense in future periods will be impacted of active plan participants, which is plans and actuaries, and our knowledge
as gains or losses are recognized in the approximately 11 years for pension of the health care industry. Our review
market-related value of assets over the expense and approximately 13 years for of the trend rate considers factors such
five-year period. retiree medical expense. as demographics, plan design, new
Other gains and losses resulting from Effective as of the beginning of our medical technologies and changes in
actual experience differing from our 2008 fiscal year, we amended our U.S. medical carriers.
assumptions and from changes in our hourly pension plan to increase the
assumptions are also determined at each amount of participant earnings recog-
measurement date. If this net accumu- nized in determining pension benefits.
lated gain or loss exceeds 10% of the Additional pension plan amendments
greater of plan assets or liabilities, a were also made as of the beginning of

Weighted-average assumptions for pension and retiree medical expense

are as follows:
2008 2007 2006
Pension
Expense discount rate 6.3% 5.7% 5.6%
Expected rate of return on plan assets 7.6% 7.7% 7.7%
Expected rate of salary increases 4.4% 4.5% 4.4%
Retiree medical
Expense discount rate 6.4% 5.8% 5.7%
Current health care cost trend rate 8.5% 9.0% 10.0%

44
Sensitivity of Assumptions are made in accordance with applicable a pay-as-you-go basis. Our pension and
A decrease in the discount rate or in tax regulations that provide for current tax retiree medical contributions are subject
the expected rate of return assumptions deductions for our contributions, and tax- to change as a result of many factors,
would increase pension expense. The ation to the employee only upon receipt of such as changes in interest rates, devia-
estimated impact of a 25-basis-point plan benefits. Generally, we do not fund tions between actual and expected asset
decrease in the discount rate on 2008 our pension plans when our contributions returns, and changes in tax or other
pension expense is an increase of approxi- would not be currently deductible. benefit laws. For estimated future benefit
mately $36 million. The estimated impact Our pension contributions for 2007 payments, including our pay-as-you-go
on 2008 pension expense of a 25-basis- were $230 million, of which $92 million payments as well as those from trusts,
point decrease in the expected rate of was discretionary. In 2008, we expect see Note 7.
return is an increase of approximately to make contributions of up to
$17 million. $150 million with up to $75 million
See Note 7 regarding the sensitivity of expected to be discretionary. Our cash
our retiree medical cost assumptions. payments for retiree medical are esti-
mated to be approximately $85 million
Future Funding in 2008. As our retiree medical plans
We make contributions to pension trusts are not subject to regulatory funding
maintained to provide plan benefits for requirements, we fund these plans on
certain pension plans. These contributions

Recent Accounting Pronouncements measurements. The provisions of SFAS instruments and certain other items at
In September 2006, the SEC issued Staff 157 are effective as of the beginning of fair value. The provisions of SFAS 159 are
Accounting Bulletin No. 108, Considering our 2008 fiscal year. However, the FASB effective as of the beginning of our 2008
the Effects of Prior Year Misstatements deferred the effective date of SFAS 157, fiscal year. Our adoption of SFAS 159 will
when Quantifying Misstatements in until the beginning of our 2009 fiscal not impact our financial statements.
Current Year Financial Statements (SAB year, as it relates to fair value measure- In December 2007, the FASB issued
108), to address diversity in practice ment requirements for nonfinancial SFAS 141 (revised 2007), Business
in quantifying financial statement assets and liabilities that are not remea- Combinations (SFAS 141R), and SFAS 160,
misstatements. SAB 108 requires that sured at fair value on a recurring basis. Noncontrolling Interests in Consolidated
we quantify misstatements based on We are currently evaluating the impact Financial Statements (SFAS 160), to
their impact on each of our financial of adopting SFAS 157 on our financial improve, simplify, and converge inter-
statements and related disclosures. On statements. We do not expect our adop- nationally the accounting for business
December 30, 2006, we adopted SAB tion to have a material impact on our combinations and the reporting of
108. Our adoption of SAB 108 did not financial statements. noncontrolling interests in consolidated
impact our financial statements. In February 2007, the FASB issued SFAS financial statements. The provisions of
In September 2006, the FASB issued 159, The Fair Value Option for Financial SFAS 141R and SFAS 160 are effective as
SFAS 157, Fair Value Measurements (SFAS Assets and Financial Liabilities Including of the beginning of our 2009 fiscal year.
157), which defines fair value, establishes an amendment of FASB Statement No. We are currently evaluating the impact of
a framework for measuring fair value, 115 (SFAS 159), which permits entities adopting SFAS 141R and SFAS 160 on our
and expands disclosures about fair value to choose to measure many financial financial statements.

45
 OUR FINANCIAL RESULTS
Items Affecting Comparability
The year-over-year comparisons of our financial results are affected by the following items:
2007 2006
Operating profit
Restructuring and impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(102) $(67)
Net income
Restructuring and impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(70) $(43)
Tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $129 $602
PepsiCo share of PBG tax settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – $18
Net income per common share — diluted
Restructuring and impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(0.04) $(0.03)
Tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.08 $0.36
PepsiCo share of PBG tax settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – $0.01
For the items affecting our 2005 results, see Notes 3 and 5, as well as our 2006 Annual Report.

Restructuring and Impairment Tax Benefits PepsiCo Share of PBG

Charges In 2007, we recognized $129 million Tax Settlement
In 2007, we incurred a charge of of non-cash tax benefits related to the In 2006, the IRS concluded its examination
$102 million in conjunction with restruc- favorable resolution of certain foreign of PBG’s consolidated income tax returns
turing actions primarily to close certain tax matters. for the years 1999 through 2000 (PBG’s
plants and rationalize other production In 2006, we recognized non-cash tax Tax Settlement). Consequently, a non-cash
lines across FLNA, PBNA and PI. benefits of $602 million, substantially all benefit of $21 million was included in
In 2006, we incurred a charge of of which related to the Internal Revenue bottling equity income as part of record-
$67 million in conjunction with con- Service’s (IRS) examination of our con- ing our share of PBG’s financial results.
solidating the manufacturing network at solidated tax returns for the years 1998
FLNA by closing two plants in the U.S., through 2002.
and rationalizing other assets, to increase
manufacturing productivity and supply
chain efficiencies.

46
Results of Operations — Consolidated Review
In the discussions of net Servings In 2007, total servings increased over
4% compared to 2006, as servings for
revenue and operating profit Since our divisions each use different mea-
beverages worldwide grew 4% and serv-
sures of physical unit volume (i.e., kilos,
below, effective net pricing gallons, pounds and case sales), a com- ings for snacks worldwide grew 6%. All
reflects the year-over-year mon servings metric is necessary to reflect of our divisions positively contributed to
the total servings growth. In 2006, total
impact of discrete pricing our consolidated physical unit volume.
Our divisions’ physical volume measures servings increased 5.5% compared to
actions, sales incentive 2005, as servings for beverages world-
are converted into servings based on U.S.
activities and mix resulting Food and Drug Administration guidelines wide grew over 6% and servings for
snacks worldwide grew 5%.
from selling varying products for single-serving sizes of our products.
in different package sizes and
in different countries.

Net Revenue and Operating Profit

Change
2007 2006 2005 2007 2006
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,474 $35,137 $32,562 12% 8%
Operating profit
FLNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,845 $2,615 $2,529 9% 3%
PBNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,188 2,055 2,037 6% 1%
PI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,322 2,016 1,661 15% 21%
QFNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 568 554 537 2.5% 3%
Corporate unallocated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (753) (738) (780) 2% (5)%
Total operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,170 $6,502 $5,984 10% 9%
Total operating profit margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2% 18.5% 18.4% (0.3) 0.1

2007 2006 the prior year’s additional week reduced

Net revenue increased 12% primarily Net revenue increased 8% primarily operating profit growth by over 1 percent-
reflecting favorable effective net pricing reflecting higher volume and positive age point.
and volume growth. Effective net pricing effective net pricing across all divisions.
contributed 4 percentage points and the The volume gains and the effective net
Corporate Unallocated Expenses
Corporate unallocated expenses include
volume gains contributed 3 percentage pricing each contributed 3 percentage
the costs of our corporate headquarters,
points to net revenue growth. The impact points to net revenue growth. Acquisitions
centrally managed initiatives, such as our
of acquisitions contributed 3 percentage contributed 1 percentage point and
ongoing business transformation initiative
points and foreign currency contributed foreign exchange contributed almost
in North America, unallocated insurance
2 percentage points to net revenue growth. 1 percentage point to net revenue
and benefit programs, foreign exchange
Total operating profit increased 10% growth. The absence of the prior year’s
transaction gains and losses, and certain
and margin decreased 0.3 percentage additional week reduced net revenue
commodity derivative gains and losses,
points. The operating profit performance growth by over 1 percentage point and
as well as profit-in-inventory elimination
reflects leverage from the revenue reduced volume growth by almost
adjustments for our noncontrolled bot-
growth, offset by increased cost of sales, 1 percentage point.
tling affiliates and certain other items.
largely due to higher raw material costs. Total operating profit increased 9% and
In 2007, corporate unallocated
The impact of foreign currency contrib- margin increased 0.1 percentage points.
expenses increased 2% primarily reflect-
uted 2 percentage points to operating The operating profit gains reflect the net
ing $35 million of increased research and
profit growth. There was no net impact of revenue growth, partially offset by the
development costs, partially offset by
acquisitions and divestitures on operating impact of higher raw material and energy
lower pension costs of $18 million. Gains
profit growth. costs across all divisions. The absence of

47
 of $19 million from certain mark-to-market reflecting the absence of a non-recurring unfavorable comparison to the prior year’s
derivatives (compared to $18 million of charge of $55 million in the prior year to $25 million gain in connection with the
losses in the prior year) were fully offset conform our method of accounting across settlement of a class action lawsuit, were
by the absence of certain other favorable all divisions, primarily for warehouse and offset by the favorable impact of certain
corporate items in the prior year. freight costs. Higher costs associated with other corporate items.
In 2006, corporate unallocated our ongoing business transformation
expenses decreased $42 million primarily initiative of $35 million, as well as the

Other Consolidated Results

Change
2007 2006 2005 2007 2006
Bottling equity income $560 $553 $495 1% 12%
Interest expense, net $(99) $(66) $(97) $(33) $31
Annual tax rate 25.9% 19.3% 36.1%
Net income $5,658 $5,642 $4,078 – 38%
Net income per common share — diluted $3.41 $3.34 $2.39 2% 40%

Bottling equity income includes our 2007 2006

share of the net income or loss of our Bottling equity income increased 1% Bottling equity income increased 12%
anchor bottlers as described in “Our reflecting higher earnings from our primarily reflecting a $186 million pre-tax
Customers.” Our interest in these bot- anchor bottlers, partially offset by the gain on our sale of PBG stock, which com-
tling investments may change from time impact of our reduced ownership level in pared favorably to a $126 million pre-tax
to time. Any gains or losses from these 2007 and lower pre-tax gains on our sale gain in the prior year. The non-cash gain
changes, as well as other transactions of PBG stock. of $21 million from our share of PBG’s
related to our bottling investments, are Net interest expense increased $33 mil- Tax Settlement was fully offset by lower
also included on a pre-tax basis. During lion primarily reflecting the impact of lower equity income from our anchor bottlers in
2007, we continued to sell shares of PBG investment balances and higher average the current year, primarily resulting from
stock to reduce our economic ownership rates on our debt, partially offset by higher the impact of their respective adoptions of
to the level at the time of PBG’s initial average interest rates on our investments SFAS 123R in 2006.
public offering, since our ownership has and lower average debt balances. Net interest expense decreased
increased as a result of PBG’s share repur- The tax rate increased 6.6 percentage $31 million primarily reflecting higher
chase program. We sold 9.5 million and points compared to the prior year primar- average rates on our investments and
10.0 million shares of PBG stock in 2007 ily reflecting an unfavorable comparison lower debt balances, partially offset
and 2006, respectively. The resulting lower to the prior year’s non-cash tax benefits. by lower investment balances and the
ownership percentage reduces the equity Net income remained flat and the impact of higher average rates on our
income from PBG that we recognize. In related net income per share increased borrowings.
November 2007, our Board of Directors 2%. Our solid operating profit growth The tax rate decreased 16.8 percentage
approved the sale of additional PBG stock was offset by unfavorable comparisons points compared to prior year primar-
to an economic ownership level of 35%, to the non-cash tax benefits and restruc- ily reflecting the non-cash tax benefits
as well as the sale of PAS stock to the turing and impairment charges in the recorded in 2006, the absence of the
ownership level at the time of the merger prior year. Additionally, net income per 2005 tax charge related to the American
with Whitman Corporation in 2000 of share was favorably impacted by our Jobs Creation Act of 2004 (AJCA) and
about 37%. share repurchases. the resolution of certain state income tax
audits in the current year.
Net income increased 38% and the
related net income per share increased
40%. These increases primarily reflect the
non-cash tax benefits recorded in 2006,
the absence of the AJCA tax charge and
our solid operating profit growth.

48
Results of Operations — Division Review
The results and discussions below are based on how our Chief Executive Officer monitors
the performance of our divisions. For additional information on these items and our
divisions, see Note 1.

FLNA PBNA PI QFNA Total

Net Revenue, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,586 $10,230 $15,798 $1,860 $39,474
Net Revenue, 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,844 $9,565 $12,959 $1,769 $35,137
% Impact of:
Volume(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% (2)% 7% 2% 3%
Effective net pricing(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 6 3.5 3 4
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 – 6 1 2
Acquisitions/divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 2 6 – 3
% Change(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7% 7% 22% 5% 12%

FLNA PBNA PI QFNA Total

Net Revenue, 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,844 $9,565 $12,959 $1,769 $35,137
Net Revenue, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,322 $9,146 $11,376 $1,718 $32,562
% Impact of:
Volume(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1% 3% 6% 1% 3%
Effective net pricing(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1 4 2 3
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 – 1 1 1
Acquisitions/divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 – 3 – 1
% Change(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% 5% 14% 3% 8%
(a) Excludes the impact of acquisitions and divestitures. For PBNA and PI, volume growth varies from the amounts disclosed in the following divisional discussions
due primarily to non-consolidated joint venture volume and temporary timing differences between BCS and CSE. Our net revenue for PBNA and PI excludes non-
consolidated joint venture volume and 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.

49
 Frito-Lay North America

% Change
2007 2006 2005 2007 2006
Net revenue $11,586 $10,844 $10,322 7 5
Operating profit $2,845 $2,615 $2,529 9 3

2007 impact of lower restructuring and impair- Operating profit grew 3% reflecting
Net revenue grew 7% reflecting volume ment charges in the current year related the net revenue growth. This growth
growth of 3% and positive effective net to the continued consolidation of the was partially offset by higher commodity
pricing due to pricing actions and favor- manufacturing network. costs, primarily cooking oil and energy.
able mix. Pound volume grew primarily Smart Spot eligible products rep- Operating profit was also negatively
due to high-single-digit growth in trade- resented approximately 16% of net impacted by almost 3 percentage points
mark Doritos and double-digit growth revenue. These products experienced as a result of a fourth quarter charge for
in dips, SunChips and multipack. These double-digit revenue growth, while the the consolidation of the manufacturing
balance of the portfolio had mid-single- network, including the closure of two
digit revenue growth. plants and rationalization of other manu-
In 2007, FLNA volume grew facturing assets. The absence of the prior
2006 year’s additional week, which reduced
primarily due to high-single-digit
Net revenue grew 5% reflecting volume operating profit growth by 2 percentage
growth in trademark Doritos
growth of 1% and positive effective net points, was largely offset by the impact of
and double-digit growth in dips,
pricing due to salty snack pricing actions restructuring charges in the prior year to
SunChips and multipack.
and favorable mix. Pound volume grew reduce costs in our operations, principally
primarily due to double-digit growth through headcount reductions.
in SunChips, Multipack and Quaker
Rice Cakes. These volume
volume gains were partially offset by a
gains were partially offset by FLNA’s Smart Spot eligible products
mid-single-digit decline in trademark Lay’s.
low-single-digit declines in experienced double-digit revenue growth in
Operating profit grew 9% primarily
trademark Lay’s and Doritos. both 2007 and 2006.
reflecting the net revenue growth, as well
The Stacy’s Pita Chip Company
as a favorable casualty insurance actuarial
acquisition contributed
adjustment reflecting improved safety
approximately 0.5 percentage points to Smart Spot eligible products rep-
performance. This growth was partially
both revenue and volume growth. The resented approximately 15% of net
offset by higher commodity costs, as well
absence of the prior year’s additional revenue. These products experienced
as increased advertising and marketing
week reduced volume and net revenue double-digit revenue growth, while the
expenses. Operating profit benefited
growth by 2 percentage points. balance of the portfolio had low-single-
almost 2 percentage points from the
digit revenue growth.

50
PepsiCo Beverages North America

% Change
2007 2006 2005 2007 2006
Net revenue $10,230 $9,565 $9,146 7 5
Operating profit $2,188 $2,055 $2,037 6 1

2007 Smart Spot eligible products primarily oranges, increased supply chain
BCS volume was flat due to a 3% decline represented over 70% of net revenue. costs in Gatorade and higher energy costs
in CSDs, entirely offset by a 5% increase These products experienced mid-single- substantially offset the operating profit
in non-carbonated beverages. The decline digit net revenue growth, while the increase. Total marketplace spending for
in the CSD portfolio reflects a mid-single- balance of the portfolio grew in the the year increased, reflecting a shift from
digit decline in trademark Pepsi offset high-single-digit range. advertising and marketing spending to
slightly by a low-single-digit increase trade spending. Additionally, the impact
in trademark Sierra Mist. Trademark
2006 of more-favorable settlements of trade
BCS volume grew 4%. The volume spending accruals in 2005 was mostly
Mountain Dew volume was flat. Across
increase was driven by a 14% increase offset by a favorable insurance settlement
the brands, regular CSDs experienced a
in non-carbonated beverages, partially of $29 million in 2006. The absence of
mid-single-digit decline and diet CSDs
offset by a 2% decline in CSDs. The the prior year’s additional week, which
experienced a low-single-digit decline. The
non-carbonated portfolio performance reduced operating profit growth by
non-carbonated portfolio performance
was driven by double-digit
was driven by double-digit growth in
growth in trademark Aquafina,
Lipton ready-to-drink teas, double-digit
Gatorade, Lipton ready-to-drink Smart Spot eligible products represented over
growth in waters and enhanced waters
teas, Tropicana juice drinks and 70% of PBNA’s total revenue in both 2007
under the Aquafina, Propel and SoBe Life
Propel. Tropicana Pure Premium and 2006.
Water trademarks and low-single-digit
experienced a low-single-digit
growth in Gatorade, partially offset by a
decline in volume. The decline 1 percentage point, was fully offset
mid-single-digit decline in our juice and
in CSDs reflects a low-single-digit decline by the impact of charges taken in the
juice drinks portfolio as a result of previous
in trademark Pepsi, partially offset by a fourth quarter of 2005 to reduce costs
price increases.
mid-single-digit increase in trademark in our operations, principally through
Net revenue grew 7% driven by effec-
Sierra Mist and a low-single-digit increase headcount reductions.
tive net pricing, primarily reflecting price
in trademark Mountain Dew. Across the Smart Spot eligible products represented
increases on Tropicana Pure Premium
brands, regular CSDs experienced a low- over 70% of net revenue. These products
and CSD concentrate and growth in
single-digit decline and diet CSDs declined experienced high-single-digit revenue
finished goods beverages. Acquisitions
slightly. The additional week in 2005 had growth, while the balance of the portfolio
contributed 2 percentage points to net
no significant impact on volume growth declined in the low-single-digit range.
revenue growth.
as bottler volume is reported based on a
Operating profit increased 6% reflect-
calendar month.
ing the net revenue growth, partially
Net revenue grew 5%. Positive mix
offset by higher cost of sales, mainly due
contributed to the revenue growth,
to increased fruit costs, as well as higher
reflecting the strength of non-carbonated
general and administrative costs. The
beverages. Price increases taken in 2006,
impact of restructuring actions taken in
primarily on concentrate, Tropicana
the fourth quarter was fully offset by the
Pure Premium and fountain, were offset
favorable impact of Canadian exchange
by overall higher trade spending. The
rates during the year. Operating profit was
absence of the prior year’s additional
also positively impacted by the absence
week reduced net revenue growth by
of amortization expense related to a prior
1 percentage point.
acquisition, partially offset by the absence
Operating profit increased 1% primar-
of a $29 million favorable insurance
ily reflecting the net revenue growth
settlement, both recorded in 2006. The
and lower advertising and marketing
impact of acquisitions reduced operating
expenses. Higher raw material costs,
profit by less than 1 percentage point.
51
 PepsiCo International

% Change
2007 2006 2005 2007 2006
Net revenue $15,798 $12,959 $11,376 22 14
Operating profit $2,322 $2,016 $1,661 15 21

2007 point. CSDs grew at a high-single-digit International snack volume growth rate.
International snacks volume grew 9% rate while non-carbonated beverages The absence of the prior year’s additional
reflecting double-digit growth in Russia, grew at a double-digit rate. week reduced the growth rate by
the Middle East and Turkey, partially offset Net revenue grew 22% reflecting the 1 percentage point.
by low-single-digit declines at Sabritas volume growth and favorable effective Beverage volume grew 9% reflecting
in Mexico and Walkers in the United net pricing. Foreign currency contributed broad-based increases led by double-
Kingdom. Additionally, Gamesa in Mexico, 6 percentage points of growth primar- digit growth in the Middle East, China,
India and China all grew at double-digit ily reflecting the favorable euro, British Argentina, Russia and Venezuela. The
rates. Overall, the Europe, Middle East pound and Brazilian real. The net impact Europe, Middle East & Africa region grew
& Africa region grew 9%, the Latin of acquisitions and divestitures also 11%, the Asia Pacific region grew 9%
America region grew 6% and the Asia contributed 6 percentage points to net and the Latin America region grew 7%.
Pacific region grew 20%. Acquisitions in revenue growth. Acquisitions contributed 1 percentage
Europe, New Zealand and Brazil increased Operating profit grew 15% driven point to the Europe, Middle East & Africa
the Europe, Middle East & Africa region largely by the volume growth and region volume growth rate and contrib-
volume growth by 1 percentage point, the favorable effective net pricing, partially uted slightly to the reported total PepsiCo
Asia Pacific region volume growth by offset by increased raw material costs. International beverage volume growth
7 percentage points and the Latin America Foreign currency contributed 5 percent- rate. CSDs grew at a high-single-digit rate
region volume growth by 0.5 percentage age points of growth primarily reflecting while non-carbonated beverages grew at
points, respectively. In aggregate, acquisi- the favorable British pound, euro and a double-digit rate.
tions contributed almost 2 percentage Brazilian real. The net impact of acquisi- Net revenue grew 14% primarily as a
points to the reported total PepsiCo tions and divestitures on operating profit result of the broad-based volume growth
International snack volume growth rate. was minimal. The impact of restructuring and favorable effective net pricing. The
actions taken in the fourth quarter to net impact of acquisitions and divestitures
reduce costs in our operations, rationalize contributed nearly 3 percentage points
PI experienced double-digit revenue capacity and realign our organizational to net revenue growth. Foreign currency
and operating profit growth in structure reduced operating profit growth contributed 1 percentage point of growth.
both 2007 and 2006. by 3 percentage points. The absence of the prior year’s additional
week reduced net revenue growth by
2006 1 percentage point.
International snacks volume grew 9% Operating profit grew 21% driven
Beverage volume grew 8% led by
reflecting double-digit growth in Russia, primarily by the net revenue growth,
double-digit growth in the Middle East,
Turkey, Egypt and India and single-digit partially offset by increased raw mate-
China and Pakistan, partially offset by a
growth at Sabritas in Mexico. Overall, rial and energy costs. The net impact of
low-single-digit decline in Mexico and
the Europe, Middle East & Africa region acquisitions and divestitures contributed
a high-single-digit decline in Thailand.
grew 17%, the Latin America region grew 1 percentage point of growth. Foreign
Additionally, Russia and Brazil grew at
2.5% and the Asia Pacific region grew currency also contributed 1 percentage
double-digit rates. The Europe, Middle
12%. Acquisitions of two businesses in point of growth. The absence of the prior
East & Africa region grew 11%, the Asia
Europe in 2006 increased the Europe, year’s additional week, which reduced the
Pacific region grew 8% and the Latin
Middle East & Africa region volume operating profit growth rate by 1 percent-
America region grew 4%. The acquisi-
growth by nearly 6 percentage points. age point, was fully offset by the impact
tion of a business in Europe increased
The acquisition of a business in Australia of charges taken in 2005 to reduce costs
the Europe, Middle East & Africa region
increased the Asia Pacific region volume in our operations and rationalize capacity.
volume growth by 1 percentage point and
growth by 1 percentage point. In aggre-
the total PepsiCo International beverage
gate, acquisitions contributed 2 percent-
volume growth by nearly 1 percentage
age points to the reported total PepsiCo

52
Quaker Foods North America

% Change
2007 2006 2005 2007 2006
Net revenue $1,860 $1,769 $1,718 5 3
Operating profit $568 $554 $537 2.5 3

2007 2006 by higher raw material and energy costs,

Net revenue increased 5% and volume Net revenue grew 3% and volume were largely offset by lower advertising
increased 2%. The volume increase increased 1%. The volume increase and marketing expenses. The absence of
reflects mid-single-digit growth in reflects mid-single-digit growth in the prior year’s additional week reduced
Oatmeal and Life cereal, as well as Oatmeal, high-single-digit growth in Life operating profit growth by approximately
low-single-digit growth in Cap’n Crunch cereal and low-single-digit growth in 2 percentage points.
cereal. These increases were partially Cap’n Crunch cereal. These
offset by a double-digit decline in Rice-A- increases were partially offset
Roni. The increase in net revenue primarily by a low-single-digit decline QFNA’s revenue and volume growth
reflects price increases taken earlier in in Aunt Jemima syrup and mix accelerated in 2007 to 5% and
the year, as well as the volume growth. and a mid-single-digit decline 2%, respectively.
Favorable Canadian exchange rates con- in Rice-A-Roni. Net revenue
tributed nearly 1 percentage point to net growth was also driven by
revenue growth. favorable effective net pricing, which Smart Spot eligible products repre-
Operating profit increased 2.5% pri- contributed almost 2 percentage points sented approximately 55% of net revenue
marily reflecting the net revenue to net revenue growth, and favorable and had mid-single-digit net revenue
growth partially offset by increased Canadian foreign exchange rates which growth. The balance of the portfolio
raw material costs. contributed almost 1 percentage point. experienced a low-single-digit decline.
Smart Spot eligible products repre- The absence of the prior year’s additional The absence of the prior year’s additional
sented over half of net revenue and week reduced both net revenue and vol- week negatively impacted these results.
experienced mid-single-digit net revenue ume growth by approximately 2 percent-
growth. The balance of the portfolio also age points.
grew in the mid-single-digit range. Operating profit increased 3% primar-
ily reflecting the net revenue growth.
Increased cost of sales, primarily driven

53
 Our Liquidity and Capital Resources
Our strong cash-generating capability and 2007 Cash Utilization
financial condition give us ready access to
capital markets throughout the world. Our
principal source of liquidity is our operating
Short-term investments
cash flow. This cash-generating capability is one $383
Other, net $357
of our fundamental strengths and provides us Acquisitions
Long-term debt $1,589 $1,320
with substantial financial flexibility in meeting Cash proceeds
from sale of PBG stock Dividends
operating, investing and financing needs. In $315
Stock option exercises
$2,204

addition, we have revolving credit facilities $1,108

Capital spending
that are further discussed in Note 9. Our cash $2,430
provided from operating activities is somewhat Operating activities
impacted by seasonality. Working capital $6,934

needs are impacted by weekly sales, which are Share repurchases

$4,312
generally highest in the third quarter due to
seasonal and holiday-related sales patterns, and Short-term borrowings
Source of Cash Use of Cash $395
generally lowest in the first quarter.

Operating Activities We anticipate net capital spending of In 2006, we used $6.0 billion for our
In 2007, our operations provided approximately $2.7 billion in 2008, which financing activities, primarily reflecting
$6.9 billion of cash, compared to is expected to be within our net capital the return of operating cash flow to our
$6.1 billion in the prior year, primarily spending target of approximately 5% shareholders through common share
reflecting our solid business results. Our to 7% of net revenue. Planned capital repurchases of $3.0 billion and dividend
operating cash flow in 2006 also reflects spending in 2008 includes investments payments of $1.9 billion. Net repayments
a tax payment of $420 million related to to increase capacity in our snack and of short-term borrowings of $2.3 billion
our repatriation of international cash in beverage businesses to support growth were partially offset by stock option
connection with the AJCA. in developing and emerging markets, proceeds of $1.2 billion.
investments in North America to support We annually review our capital structure
Investing Activities growth in key trademarks, and invest- with our Board, including our dividend
In 2007, we used $3.7 billion for our ments in our ongoing business transfor- policy and share repurchase activity. In
investing activities primarily reflecting mation initiative. New capital projects are the second quarter of 2007, our Board
capital spending of $2.4 billion and evaluated on a case-by-case basis and of Directors approved an increase in our
acquisitions of $1.3 billion. Acquisitions must meet certain payback and internal targeted dividend payout rate from 45%
primarily included the remaining interest in rate of return targets. to 50% of prior year’s earnings, exclud-
a snacks joint venture in Latin America, ing certain items. The Board of Directors
Naked Juice Company and Bluebird Foods, Financing Activities also authorized stock repurchases of
and the acquisition of a minority interest in In 2007, we used $4.0 billion for our up to an additional $8 billion through
a juice company in the Ukraine through a financing activities, primarily reflecting June 30, 2010, once the current share
joint venture with PAS. Proceeds from our the return of operating cash flow to our repurchase authorization is complete. The
sale of PBG stock of $315 million were shareholders through common share current $8.5 billion authorization began in
offset by net purchases of short-term repurchases of $4.3 billion and dividend 2006 and has approximately $3.1 billion
investments of $383 million. In 2006, payments of $2.2 billion, as well as net remaining. We have historically repur-
capital spending of $2.1 billion and repayments of short-term borrowings of chased significantly more shares each year
acquisitions of $522 million were mostly $395 million. The use of cash was partially than we have issued under our stock-
offset by net sales of short-term invest- offset by stock option proceeds of based compensation plans, with aver-
ments of $2.0 billion and proceeds from $1.1 billion and net proceeds from issu- age net annual repurchases of 1.4% of
our sale of PBG stock of $318 million. ances of long-term debt of $1.6 billion. outstanding shares for the last five years.

54
2006 Cash Utilization 2005 Cash Utilization

Other, net $223 Long-term debt $106

Short-term Acquisitions Other, net
investments $2,017 $522 $70 Long-term debt
Short-term borrowings $152
Dividends
Cash proceeds $1,854 $1,848 Acquisitions
from sale of PBG stock $1,095
$318 Cash proceeds
from sale of PBG stock
Stock option exercises Capital spending $214 Dividends
$1,194 $2,068 $1,642
Stock option exercises
$1,099
Short-term investments
$991

Share repurchases Capital spending

Operating activities $3,010 Operating activities $1,736
$6,084 $5,852

Share repurchases
Short-term $3,031
borrowings
$2,341

Source of Cash Use of Cash Source of Cash Use of Cash

2007 2006 2005

Net cash provided by operating activities $ 6,934 $ 6,084 $ 5,852
Capital spending (2,430) (2,068) (1,736)
Sales of property, plant and equipment 47 49 88
Management operating cash flow $ 4,551 $ 4,065 $ 4,204

Management Operating Cash Flow Management operating cash flow Credit Facilities and Long-Term
We focus on management operating was used primarily to repurchase shares Contractual Commitments
cash flow as a key element in achieving and pay dividends. We expect to con- See Note 9 for a description of our
maximum shareholder value, and it is the tinue to return approximately all of our credit facilities and long-term
primary measure we use to monitor cash management operating cash flow to our contractual commitments.
flow performance. However, it is not a shareholders through dividends and share
measure provided by accounting prin- repurchases. However, see “Our Business Off-Balance-Sheet Arrangements
Risks” for certain factors that may impact It is not our business practice to enter
ciples generally accepted in the U.S. Since
our operating cash flows. into off-balance-sheet arrangements,
net capital spending is essential to our
other than in the normal course of busi-
product innovation initiatives and main-
Credit Ratings ness. However, certain guarantees were
taining our operational capabilities, we
Our debt ratings of Aa2 from Moody’s necessary to facilitate the separation of
believe that it is a recurring and necessary
and A+ from Standard & Poor’s contribute our bottling and restaurant operations
use of cash. As such, we believe investors
to our ability to access global capital mar- from us. At year-end 2007, we believe it
should also consider net capital spending
kets. We have maintained strong invest- is remote that these guarantees would
when evaluating our cash from operating
ment grade ratings for over a decade. require any cash payment. We do not
activities. The table above reconciles the
Each rating is considered strong invest- enter into off-balance-sheet transactions
net cash provided by operating activities,
ment grade and is in the first quartile of specifically structured to provide income
as reflected in our cash flow statement, to
their respective ranking systems. These or tax benefits or to avoid recognizing
our management operating cash flow.
ratings also reflect the impact of our or disclosing assets or liabilities. See
anchor bottlers’ cash flows and debt. Note 9 for a description of our
off-balance-sheet arrangements.

55
 Consolidated Statement of Income
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 29, 2007, December 30, 2006 and December 31, 2005

(in millions except per share amounts) 2007 2006 2005

Net Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,474 $35,137 $32,562
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,038 15,762 14,176
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,208 12,711 12,252
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 162 150
Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,170 6,502 5,984
Bottling equity income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560 553 495
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (224) (239) (256)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 173 159
Income before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,631 6,989 6,382
Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,973 1,347 2,304
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,658 $ 5,642 $ 4,078
Net Income per Common Share
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.48 $3.42 $2.43
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.41 $3.34 $2.39
See accompanying notes to consolidated financial statements.

Net Revenue Operating Profit

$39,474
$35,137 $7,170
$32,562 $6,502
$5,984

2005 2006 2007 2005 2006 2007

Net Income Net Income per Common Share

$5,658 $3.34 $3.41
$5,642

$4,078 $2.39

2005 2006 2007 2005 2006 2007

56
Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 29, 2007, December 30, 2006 and December 31, 2005

(in millions) 2007 2006 2005

Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,658 $ 5,642 $ 4,078
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,426 1,406 1,308
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 270 311
Excess tax benefits from share-based payment arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (208) (134) –
Cash payments for merger-related costs and restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – (22)
Pension and retiree medical plan contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (310) (131) (877)
Pension and retiree medical plan expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535 544 464
Bottling equity income, net of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (441) (442) (414)
Deferred income taxes and other tax charges and credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 (510) 440
Change in accounts and notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (405) (330) (272)
Change in inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (204) (186) (132)
Change in prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16) (37) (56)
Change in accounts payable and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 223 188
Change in income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 (295) 609
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (107) 64 227
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,934 6,084 5,852
Investing Activities
Capital spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,430) (2,068) (1,736)
Sales of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 49 88
Proceeds from (Investment in) finance assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (25) –
Acquisitions and investments in noncontrolled affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,320) (522) (1,095)
Cash proceeds from sale of PBG stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 318 214
Divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 37 3
Short-term investments, by original maturity
More than three months — purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (83) (29) (83)
More than three months — maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 25 84
Three months or less, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (413) 2,021 (992)
Net Cash Used for Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,744) (194) (3,517)
Financing Activities
Proceeds from issuances of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,168 51 25
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (579) (157) (177)
Short-term borrowings, by original maturity
More than three months — proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 185 332
More than three months — payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (133) (358) (85)
Three months or less, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (345) (2,168) 1,601
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,204) (1,854) (1,642)
Share repurchases — common. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,300) (3,000) (3,012)
Share repurchases — preferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12) (10) (19)
Proceeds from exercises of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,108 1,194 1,099
Excess tax benefits from share-based payment arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 134 –
Net Cash Used for Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,006) (5,983) (1,878)
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 28 (21)
Net (Decrease)/Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (741) (65) 436
Cash and Cash Equivalents, Beginning of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,651 1,716 1,280
Cash and Cash Equivalents, End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 910 $ 1,651 $ 1,716
See accompanying notes to consolidated financial statements.
57
 Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
December 29, 2007 and December 30, 2006

(in millions except per share amounts) 2007 2006

ASSETS
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 910 $ 1,651
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,571 1,171
Accounts and notes receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,389 3,725
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,290 1,926
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 991 657
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,151 9,130
Property, Plant and Equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,228 9,687
Amortizable Intangible Assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796 637
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,169 4,594
Other nonamortizable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,248 1,212
Nonamortizable Intangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,417 5,806
Investments in Noncontrolled Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,354 3,690
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,682 980
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,628 $29,930
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Short-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ – $ 274
Accounts payable and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,602 6,496
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 90
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,753 6,860
Long-Term Debt Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,203 2,550
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,792 4,624
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 646 528
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,394 14,562

Commitments and Contingencies

Preferred Stock, no par value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 41

Repurchased Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (132) (120)

Common Shareholders’ Equity

Common stock, par value 1 2/3¢ per share (authorized 3,600 shares, issued 1,782 shares) . . . . . . . . . . . . . . . . . . 30 30
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 584
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,184 24,837
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (952) (2,246)
27,712 23,205
Less: repurchased common stock, at cost (177 and 144 shares, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,387) (7,758)
Total Common Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,325 15,447
Total Liabilities and Shareholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,628 $29,930
See accompanying notes to consolidated financial statements.

58
Consolidated Statement of Common
Shareholders’ Equity
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 29, 2007, December 30, 2006 and December 31, 2005

2007 2006 2005

(in millions) Shares Amount Shares Amount Shares Amount
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,782 $ 30 1,782 $ 30 1,782 $ 30
Capital in Excess of Par Value
Balance, beginning of year . . . . . . . . . . . . . . . . . . . 584 614 618
Stock-based compensation expense . . . . . . . . . . . . 260 270 311
Stock option exercises/RSUs converted(a) . . . . . . . . . (347) (300) (315)
Withholding tax on RSUs converted . . . . . . . . . . . . (47) – –
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . 450 584 614
Retained Earnings
Balance, beginning of year . . . . . . . . . . . . . . . . . . . 24,837 21,116 18,730
Adoption of FIN 48. . . . . . . . . . . . . . . . . . . . . . . . . 7 – –
Adjusted balance, beginning of year . . . . . . . . . . . . 24,844 – –
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,658 5,642 4,078
Cash dividends declared — common . . . . . . . . . . . (2,306) (1,912) (1,684)
Cash dividends declared — preferred . . . . . . . . . . . (2) (1) (3)
Cash dividends declared — RSUs . . . . . . . . . . . . . . (10) (8) (5)
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . 28,184 24,837 21,116
Accumulated Other Comprehensive Loss
Balance, beginning of year . . . . . . . . . . . . . . . . . . . (2,246) (1,053) (886)
Currency translation adjustment . . . . . . . . . . . . . . . 719 465 (251)
Cash flow hedges, net of tax:
Net derivative (losses)/gains . . . . . . . . . . . . . . . . (60) (18) 54
Reclassification of losses/(gains) to net income . . 21 (5) (8)
Adoption of SFAS 158 . . . . . . . . . . . . . . . . . . . . . . – (1,782) –
Pension and retiree medical, net of tax:
Net pension and retiree medical gains . . . . . . . . 464 – –
Reclassification of net losses to net income. . . . . 135 – –
Minimum pension liability adjustment, net of tax . . – 138 16
Unrealized gain on securities, net of tax . . . . . . . . . 9 9 24
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 – (2)
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . (952) (2,246) (1,053)
Repurchased Common Stock
Balance, beginning of year . . . . . . . . . . . . . . . . . . . (144) (7,758) (126) (6,387) (103) (4,920)
Share repurchases . . . . . . . . . . . . . . . . . . . . . . . . . (64) (4,300) (49) (3,000) (54) (2,995)
Stock option exercises . . . . . . . . . . . . . . . . . . . . . . 28 1,582 31 1,619 31 1,523
Other, primarily RSUs converted . . . . . . . . . . . . . . . 3 89 – 10 – 5
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . (177) (10,387) (144) (7,758) (126) (6,387)
Total Common Shareholders’ Equity . . . . . . . . . . . . $17,325 $15,447 $14,320
2007 2006 2005
Comprehensive Income
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,658 $5,642 $4,078
Currency translation adjustment . . . . . . . . . . . . . . . 719 465 (251)
Cash flow hedges, net of tax. . . . . . . . . . . . . . . . . . (39) (23) 46
Minimum pension liability adjustment, net of tax . . – 5 16
Pension and retiree medical, net of tax:
Net prior service cost . . . . . . . . . . . . . . . . . . . . . (105) – –
Net gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 704 – –
Unrealized gain on securities, net of tax . . . . . . . . . 9 9 24
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 – (2)
Total Comprehensive Income . . . . . . . . . . . . . . . . . . $6,952 $6,098 $3,911
(a) Includes total tax benefits of $216 million in 2007, $130 million in 2006 and $125 million in 2005.
See accompanying notes to consolidated financial statements.
59
 Notes to Consolidated Financial Statements
Note 1 — Basis of Presentation and Our Divisions
Basis of Presentation
Our financial statements include the Beginning in the first quarter of 2007, in determining, among other items, sales
consolidated accounts of PepsiCo, Inc. income for certain non-consolidated inter- incentives accruals, tax reserves, stock-
and the affiliates that we control. In national bottling interests was reclassified based compensation, pension and retiree
addition, we include our share of the from bottling equity income and corpo- medical accruals, useful lives for intangible
results of certain other affiliates based on rate unallocated results to PI’s division assets, and future cash flows associated
our economic ownership interest. We do operating results, to be consistent with with impairment testing for perpetual
not control these other affiliates, as our PepsiCo’s internal management account- brands, goodwill and other long-lived
ownership in these other affiliates is gen- ability. Prior period amounts have been assets. Actual results could differ from
erally less than 50%. Our share of the net adjusted to reflect this reclassification. these estimates.
income of our anchor bottlers is reported Raw materials, direct labor and plant See “Our Divisions” below and for
in our income statement as bottling overhead, as well as purchasing and additional unaudited information on
equity income. Bottling equity income also receiving costs, costs directly related to items affecting the comparability of our
includes any changes in our ownership production planning, inspection costs consolidated results, see “Items Affecting
interests of these affiliates. Bottling and raw material handling facilities, are Comparability” in Management’s
equity income includes $174 million, included in cost of sales. The costs of Discussion and Analysis.
$186 million and $126 million of pre-tax moving, storing and delivering finished Tabular dollars are in millions, except
gains on our sales of PBG stock in 2007, product are included in selling, general per share amounts. All per share amounts
2006 and 2005, respectively. See Note 8 and administrative expenses. reflect common per share amounts, assume
for additional information on our sig- The preparation of our consolidated dilution unless noted, and are based on
nificant noncontrolled bottling affiliates. financial statements in conformity with unrounded amounts. Certain reclassifica-
Intercompany balances and transactions generally accepted accounting prin- tions were made to prior years’ amounts to
are eliminated. In 2005, we had an addi- ciples requires us to make estimates conform to the 2007 presentation.
tional week of results (53rd week). Our and assumptions that affect reported
fiscal year ends on the last Saturday of amounts of assets, liabilities, revenues,
each December, resulting in an additional expenses and disclosure of contingent
week of results every five or six years. assets and liabilities. Estimates are used

Our Divisions Stock-Based Compensation Expense Pension and Retiree Medical Expense
We manufacture or use contract manu- Our divisions are held accountable for Pension and retiree medical service costs
facturers, market and sell a variety of salty, stock-based compensation expense and, measured at a fixed discount rate, as
sweet and grain-based snacks, carbon- therefore, this expense is allocated to well as amortization of gains and losses
ated and non-carbonated beverages, and our divisions as an incremental employee due to demographics, including sal-
foods through our North American and compensation cost. The allocation of ary experience, are reflected in division
international business divisions. Our North stock-based compensation expense in results for North American employees.
American divisions include the U.S. and 2007 was approximately 29% to FLNA, Division results also include interest costs,
Canada. Division results are based on how 17% to PBNA, 34% to PI, 4% to QFNA measured at a fixed discount rate, for
our Chief Executive Officer assesses the and 16% to corporate unallocated retiree medical plans. Interest costs for
performance of and allocates resources expenses. We had similar allocations of the pension plans, pension asset returns
to our divisions. For additional unaudited stock-based compensation expense to our and the impact of pension funding,
information on our divisions, see “Our divisions in 2006 and 2005. The expense and gains and losses other than those
Operations” in Management’s Discussion allocated to our divisions excludes any due to demographics, are all reflected
and Analysis. The accounting policies impact of changes in our Black-Scholes in corporate unallocated expenses. In
for the divisions are the same as those assumptions during the year which reflect addition, corporate unallocated expenses
described in Note 2, except for the follow- market conditions over which division include the difference between the service
ing certain allocation methodologies: management has no control. Therefore, costs measured at a fixed discount rate
• stock-based compensation expense, any variances between allocated expense (included in division results as noted
• pension and retiree medical and our actual expense are recognized in above) and the total service costs deter-
expense, and corporate unallocated expenses. mined using the Plans’ discount rates as
• derivatives. disclosed in Note 7.
60
Derivatives divisions take delivery of the underlying New Organizational Structure
Beginning in the fourth quarter of 2005, commodity. Therefore, division results In the fourth quarter of 2007, we
we began centrally managing commod- reflect the contract purchase price of the announced a strategic realignment of our
ity derivatives on behalf of our divisions. energy or other commodities. organizational structure. For additional
Certain of the commodity derivatives, In the second quarter of 2007, we unaudited information on our new orga-
primarily those related to the purchase expanded our commodity hedging pro- nizational structure, see “Our Operations”
of energy for use by our divisions, do not gram to include derivative contracts used in Management’s Discussion and Analysis.
qualify for hedge accounting treatment. to mitigate our exposure to price changes In the first quarter of 2008, our histori-
These derivatives hedge underlying com- associated with our purchases of fruit. cal segment reporting will be restated to
modity price risk and were not entered Similar to our energy contracts, these con- reflect the new structure. The segment
into for speculative purposes. Such tracts do not qualify for hedge accounting amounts and discussions reflected in this
derivatives are marked to market with treatment and are marked to market with annual report reflect the management
the resulting gains and losses recognized the resulting gains and losses recognized reporting that existed through fiscal year-
in corporate unallocated expenses. in corporate unallocated expenses. These end 2007.
These gains and losses are subsequently gains and losses are then subsequently
reflected in division results when the reflected in divisional results.

PepsiCo
Frito-Lay PepsiCo Quaker Foods
Beverages
North America International North America
North America
(FLNA) (PI) (QFNA)
(PBNA)

Net Revenue Operating Profit

2007 2006 2005 2007 2006 2005
FLNA $11,586 $10,844 $10,322 $2,845 $2,615 $2,529
PBNA 10,230 9,565 9,146 2,188 2,055 2,037
PI 15,798 12,959 11,376 2,322 2,016 1,661
QFNA 1,860 1,769 1,718 568 554 537
Total division 39,474 35,137 32,562 7,923 7,240 6,764
Corporate – – – (753) (738) (780)
$39,474 $35,137 $32,562 $7,170 $6,502 $5,984

Net Revenue Division Operating Profit Corporate

Corporate includes costs of our corpo-
QFNA
5% rate headquarters, centrally managed
initiatives, such as our ongoing business
QFNA
7% transformation initiative in North America,
FLNA unallocated insurance and benefit pro-
29%
PI FLNA
36%
grams, foreign exchange transaction gains
PI 29%
40% and losses, and certain commodity deriva-
tive gains and losses, as well as profit-
PBNA
26% PBNA
28%
in-inventory elimination adjustments for
our noncontrolled bottling affiliates and
certain other items.

61
 Other Division Information

Total Assets Capital Spending

2007 2006 2005 2007 2006 2005
FLNA $ 6,270 $ 5,969 $ 5,948 $ 624 $ 499 $ 512
PBNA 7,130 6,567 6,316 430 492 320
PI 14,747 11,571 10,229 1,108 835 667
QFNA 1,002 1,003 989 41 31 31
Total division 29,149 25,110 23,482 2,203 1,857 1,530
Corporate(a) 2,124 1,739 5,331 227 211 206
Investments in bottling affiliates 3,355 3,081 2,914 – – –
$34,628 $29,930 $31,727 $2,430 $2,068 $1,736
(a) Corporate assets consist principally of cash and cash equivalents, short-term investments, and property, plant and equipment.

Total Assets Capital Spending Net Revenue Long-Lived Assets

QFNA
2% Corporate
QFNA Other FLNA 9%
3% 16% 18% Other
FLNA
26% 25% Other
28%
United States
PBNA 56% United States
PI Canada 55%
20% 5% Canada
PI 45% PBNA 3%
43% 18% United
Kingdom Mexico
9% United
5% Kingdom
9%
Mexico
5%

Amortization of Depreciation and

Intangible Assets Other Amortization
2007 2006 2005 2007 2006 2005
FLNA $ 9 $ 9 $ 3 $ 437 $ 432 $ 419
PBNA 11 77 76 302 282 264
PI 38 76 71 564 478 420
QFNA – – – 34 33 34
Total division 58 162 150 1,337 1,225 1,137
Corporate – – – 31 19 21
$58 $162 $150 $1,368 $1,244 $1,158

Net Revenue (a) Long-Lived Assets (b)

2007 2006 2005 2007 2006 2005
U.S. $21,978 $20,788 $19,937 $12,498 $11,515 $10,723
Mexico 3,498 3,228 3,095 1,067 996 902
United Kingdom 1,987 1,839 1,821 2,090 1,995 1,715
Canada 1,961 1,702 1,509 699 589 582
All other countries 10,050 7,580 6,200 6,441 4,725 3,948
$39,474 $35,137 $32,562 $22,795 $19,820 $17,870
(a) Represents net revenue from businesses operating in these countries.
(b) 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.

62
Note 2 — Our Significant Accounting Policies
Revenue Recognition balance sheet. For additional unaudited and related benefits for employees who
We recognize revenue upon shipment information on our sales incentives, see are directly associated with the software
or delivery to our customers based on “Our Critical Accounting Policies” in project and (iii) interest costs incurred
written sales terms that do not allow for Management’s Discussion and Analysis. while developing internal-use computer
a right of return. However, our policy for Other marketplace spending, which software. Capitalized software costs are
DSD and chilled products is to remove and includes the costs of advertising and other included in property, plant and equipment
replace damaged and out-of-date prod- marketing activities, totaled $2.9 billion in on our balance sheet and amortized on
ucts from store shelves to ensure that our 2007, $2.7 billion in 2006 and $2.8 billion a straight-line basis when placed into
consumers receive the product quality and in 2005 and is reported as selling, general service over the estimated useful lives of
freshness that they expect. Similarly, our and administrative expenses. Included in the software, which approximate five to
policy for warehouse-distributed products these amounts were advertising expenses seven years. Net capitalized software and
is to replace damaged and out-of-date of $1.9 billion in 2007, $1.7 billion in development costs were $652 million at
products. Based on our historical experi- 2006 and $1.8 billion in 2005. Deferred December 29, 2007 and $537 million at
ence with this practice, we have reserved advertising costs are not expensed until December 30, 2006.
for anticipated damaged and out-of-date the year first used and consist of:
products. For additional unaudited infor- • media and personal service Commitments and Contingencies
prepayments, We are subject to various claims and
mation on our revenue recognition and
• promotional materials in inventory, and contingencies related to lawsuits, taxes
related policies, including our policy on
• production costs of future media and environmental matters, as well as
bad debts, see “Our Critical Accounting
advertising. commitments under contractual and other
Policies” in Management’s Discussion and
Deferred advertising costs of $160 million commercial obligations. We recognize
Analysis. We are exposed to concentration
and $171 million at year-end 2007 and liabilities for contingencies and com-
of credit risk by our customers, Wal-Mart
2006, respectively, are classified as prepaid mitments when a loss is probable and
and PBG. In 2007, Wal-Mart (including
expenses on our balance sheet. estimable. For additional information on
Sam’s) represented approximately 12% of
our commitments, see Note 9.
our total net revenue, including concen-
trate sales to our bottlers which are used
Distribution Costs
Distribution costs, including the costs Research and Development
in finished goods sold by them to Wal- We engage in a variety of research and
of shipping and handling activities, are
Mart; and PBG represented approximately development activities. These activities
reported as selling, general and adminis-
9%. We have not experienced credit principally involve the development of
trative expenses. Shipping and handling
issues with these customers. new products, improvement in the quality
expenses were $5.1 billion in 2007,
$4.6 billion in 2006 and $4.1 billion in 2005. of existing products, improvement and
Sales Incentives and Other
modernization of production processes,
Marketplace Spending
We offer sales incentives and discounts
Cash Equivalents and the development and implementation
Cash equivalents are investments with of new technologies to enhance the qual-
through various programs to our custom-
original maturities of three months or ity and value of both current and pro-
ers and consumers. Sales incentives and
less which we do not intend to rollover posed product lines. Consumer research is
discounts are accounted for as a reduction
beyond three months. excluded from research and development
of revenue and totaled $11.3 billion in
costs and included in other marketing
2007, $10.1 billion in 2006 and $8.9 billion Software Costs costs. Research and development costs
in 2005. While most of these incentive We capitalize certain computer software were $364 million in 2007, $282 million
arrangements have terms of no more than and software development costs incurred in 2006 and $280 million in 2005 and are
one year, certain arrangements, such as in connection with developing or obtain- reported as selling, general and adminis-
fountain pouring rights, extend beyond ing computer software for internal use trative expenses.
one year. Costs incurred to obtain these when both the preliminary project stage
arrangements are recognized over the is completed and it is probable that
shorter of the economic or contractual the software will be used as intended.
life, as a reduction of revenue, and the Capitalized software costs include only
remaining balances of $287 million at (i) external direct costs of materials and
December 29, 2007 and $297 million services utilized in developing or obtain-
at December 30, 2006 are included in ing computer software, (ii) compensation
current assets and other assets on our

63
 Other Significant Accounting Policies Recent Accounting Pronouncements are currently evaluating the impact of
Our other significant accounting policies In September 2006, the SEC issued SAB adopting SFAS 157 on our financial state-
are disclosed as follows: 108 to address diversity in practice in ments. We do not expect our adoption to
• Property, Plant and Equipment and quantifying financial statement misstate- have a material impact on our financial
Intangible Assets — Note 4, and for ments. SAB 108 requires that we quantify statements.
additional unaudited information on misstatements based on their impact In February 2007, the FASB issued SFAS
brands and goodwill, see “Our Critical on each of our financial statements and 159 which permits entities to choose
Accounting Policies” in Management’s related disclosures. On December 30, to measure many financial instruments
Discussion and Analysis. 2006, we adopted SAB 108. Our adoption and certain other items at fair value. The
• Income Taxes — Note 5, and for of SAB 108 did not impact our financial provisions of SFAS 159 are effective as of
additional unaudited information, see statements. the beginning of our 2008 fiscal year. Our
“Our Critical Accounting Policies” in In September 2006, the FASB issued adoption of SFAS 159 will not impact our
Management’s Discussion and Analysis. SFAS 157 which defines fair value, estab- financial statements.
• Pension, Retiree Medical and Savings lishes a framework for measuring fair In December 2007, the FASB issued
Plans — Note 7, and for additional value, and expands disclosures about fair SFAS 141R and SFAS 160 to improve,
unaudited information, see “Our value measurements. The provisions of simplify, and converge internationally the
Critical Accounting Policies” in SFAS 157 are effective as of the beginning accounting for business combinations and
Management’s Discussion and Analysis. of our 2008 fiscal year. However, the FASB the reporting of noncontrolling interests
• Risk Management — Note 10, and for has deferred the effective date of SFAS in consolidated financial statements. The
additional unaudited information, see 157, until the beginning of our 2009 fiscal provisions of SFAS 141R and SFAS 160 are
“Our Business Risks” in Management’s year, as it relates to fair value measure- effective as of the beginning of our 2009
Discussion and Analysis. ment requirements for nonfinancial assets fiscal year. We are currently evaluating the
and liabilities that are not remeasured impact of adopting SFAS 141R and SFAS
at fair value on a recurring basis. We 160 on our financial statements.

Note 3 — Restructuring and Impairment Charges

2007 Restructuring and FLNA, PBNA and PI. The charge was costs primarily reflect the termination
Impairment Charge comprised of $57 million of asset impair- costs for approximately 1,100 employees.
In 2007, we incurred a charge of $102 million ments, $33 million of severance and other Substantially all cash payments related to
($70 million after-tax or $0.04 per share) employee-related costs and $12 million of this charge are expected to be paid by the
in conjunction with restructuring actions other costs and was recorded in selling, end of 2008.
primarily to close certain plants and general and administrative expenses in
rationalize other production lines across our income statement. Employee-related

A summary of the restructuring and impairment charge by division is as follows:

Severance and Other
Asset Impairments Employee Costs Other Costs Total
FLNA $19 $ – $ 9 $ 28
PBNA – 11 – 11
PI 38 22 3 63
$57 $33 $12 $102

2006 Restructuring and by closing two plants in the U.S., and employee-related costs and $10 million
Impairment Charge rationalizing other assets, to increase of other costs. Employee-related costs
In 2006, we incurred a charge of manufacturing productivity and sup- primarily reflect the termination costs for
$67 million ($43 million after-tax or $0.03 ply chain efficiencies. The charge was approximately 380 employees. All cash
per share) in conjunction with consolidat- comprised of $43 million of asset impair- payments related to this charge were paid
ing the manufacturing network at FLNA ments, $14 million of severance and other by the end of 2007.

64
2005 Restructuring Charge through headcount reductions. Of this of approximately 700 employees. As of
In 2005, we incurred a charge of $83 million charge, $34 million related to FLNA, December 30, 2006, all terminations had
($55 million after-tax or $0.03 per share) $21 million to PBNA, $16 million to PI occurred, and as of December 29, 2007,
in conjunction with actions taken to and $12 million to Corporate. Most of no accrual remains.
reduce costs in our operations, principally this charge related to the termination

Note 4 — Property, Plant and Equipment and Intangible Assets

Average Useful Life 2007 2006 2005

Property, plant and equipment, net
Land and improvements 10 – 34 yrs. $ 864 $ 756
Buildings and improvements 20 – 44 4,577 4,095
Machinery and equipment, including fleet and software 5 – 14 14,471 12,768
Construction in progress 1,984 1,439
21,896 19,058
Accumulated depreciation (10,668) (9,371)
$ 11,228 $ 9,687
Depreciation expense $1,304 $1,182 $1,103
Amortizable intangible assets, net
Brands 5 – 40 $ 1,476 $1,288
Other identifiable intangibles 3 – 15 344 290
1,820 1,578
Accumulated amortization (1,024) (941)
$ 796 $ 637
Amortization expense $58 $162 $150

Property, plant and equipment is of intangible assets for each of the next
recorded at historical cost. Depreciation five years, based on average 2007 foreign
and amortization are recognized on a exchange rates, is expected to be
straight-line basis over an asset’s esti- $62 million in 2008, $60 million in 2009,
mated useful life. Land is not depreciated $60 million in 2010, $59 million in 2011
and construction in progress is not depre- and $59 million in 2012.
ciated until ready for service. Amortization

65
 Depreciable and amortizable assets occurred which indicate the need for by its discounted cash flows, an impair-
are only evaluated for impairment upon revision. For additional unaudited infor- ment loss is recognized in an amount
a significant change in the operating or mation on our amortizable brand policies, equal to that excess. No impairment
macroeconomic environment. In these see “Our Critical Accounting Policies” in charges resulted from the required impair-
circumstances, if an evaluation of the Management’s Discussion and Analysis. ment evaluations. The change in the book
undiscounted cash flows indicates impair- value of nonamortizable intangible assets
ment, the asset is written down to its Nonamortizable Intangible Assets is as follows:
estimated fair value, which is based on Perpetual brands and goodwill are
discounted future cash flows. Useful lives assessed for impairment at least annu-
are periodically evaluated to determine ally. If the carrying amount of a perpetual
whether events or circumstances have brand exceeds its fair value, as determined

Balance, Translation Balance, Translation Balance,

Beginning 2006 Acquisitions and Other End of 2006 Acquisitions and Other End of 2007
FLNA
Goodwill $ 145 $139 $ – $ 284 $ – $ 27 $ 311
PBNA
Goodwill 2,164 39 – 2,203 146 20 2,369
Brands 59 – – 59 – – 59
2,223 39 – 2,262 146 20 2,428
PI
Goodwill 1,604 183 145 1,932 236 146 2,314
Brands 1,026 – 127 1,153 – 36 1,189
2,630 183 272 3,085 236 182 3,503
QFNA
Goodwill 175 – – 175 – – 175
Corporate
Pension intangible 1 – (1) – – – –
Total goodwill 4,088 361 145 4,594 382 193 5,169
Total brands 1,085 – 127 1,212 – 36 1,248
Total pension intangible 1 – (1) – – – –
$5,174 $361 $271 $5,806 $382 $229 $6,417

66
Note 5 — Income Taxes
2007 2006 2005
Income before income taxes
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,085 $3,844 $3,175
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,546 3,145 3,207
$7,631 $6,989 $6,382
Provision for income taxes
Current: U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,422 $ 776 $1,638
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489 569 426
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 56 118
2,015 1,401 2,182
Deferred: U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (31) 137
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66) (16) (26)
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (7) 11
(42) (54) 122
$1,973 $1,347 $2,304
Tax rate reconciliation
U.S. Federal statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 35.0%
State income tax, net of U.S. Federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9 0.5 1.4
Lower taxes on foreign results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6.5) (6.5) (6.5)
Tax settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.7) (8.6) –
Taxes on AJCA repatriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 7.0
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.8) (1.1) (0.8)
Annual tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.9% 19.3% 36.1%
Deferred tax liabilities
Investments in noncontrolled affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,163 $1,103
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 828 784
Intangible assets other than nondeductible goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 169
Pension benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 –
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 248
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,555 2,304
Deferred tax assets
Net carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 722 667
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425 443
Retiree medical benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 528 541
Other employee-related benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 342
Pension benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 38
Deductible state tax and interest benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 –
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618 592
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,929 2,623
Valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (695) (624)
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,234 1,999
Net deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 321 $ 305
Deferred taxes included within:
Assets:
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $325 $223
Liabilities:
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $646 $528
Analysis of valuation allowances
Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $624 $532 $564
Provision/(benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 71 (28)
Other additions/(deductions). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 21 (4)
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $695 $624 $532
67
 For additional unaudited information to settle the agreed-upon issues, and For further unaudited information on
on our income tax policies, includ- we do not anticipate the resolution of the impact of the resolution of open tax
ing our reserves for income taxes, see the open matter will significantly impact issues, see “Other Consolidated Results.”
“Our Critical Accounting Policies” in our financial statements. In 2007, In 2006, the FASB issued FIN 48, which
Management’s Discussion and Analysis. the IRS initiated their audit of our clarifies the accounting for uncertainty
In 2007, we recognized $129 million U.S. tax returns for the years 2003 in tax positions. FIN 48 requires that we
of non-cash tax benefits related to the through 2005; recognize in our financial statements the
favorable resolution of certain foreign tax • Mexico — in 2006, we completed and impact of a tax position, if that position
matters. In 2006, we recognized non-cash agreed with the conclusions of an audit is more likely than not of being sustained
tax benefits of $602 million, substantially of our tax returns for the years 2001 on audit, based on the technical merits of
all of which related to the IRS’s exami- through 2005; the position. We adopted the provisions
nation of our consolidated income tax • the United Kingdom — audits have of FIN 48 as of the beginning of our 2007
returns for the years 1998 through 2002. been completed for all taxable years fiscal year. As a result of our adoption
In 2005, we repatriated approximately prior to 2004; and of FIN 48, we recognized a $7 million
$7.5 billion in earnings previously consid- • Canada — audits have been completed decrease to reserves for income taxes,
ered indefinitely reinvested outside the for all taxable years through 2004. We with a corresponding increase to opening
U.S. and recorded income tax expense are disputing some of the adjustments retained earnings.
of $460 million related to the AJCA. The for the years 1999 through 2004. We As of December 29, 2007, the total
AJCA created a one-time incentive for do not anticipate the resolution of the gross amount of reserves for income
U.S. corporations to repatriate undistrib- 1999 through 2004 tax years will signif- taxes, reported in other liabilities, was
uted international earnings by providing icantly impact our financial statements. $1.5 billion. Of that amount, $1.4 billion,
an 85% dividends received deduction. The Canadian tax return for 2005 is cur- if recognized, would affect our effective
rently under audit and no adjustments tax rate. Any prospective adjustments
Reserves are expected to significantly impact our to our reserves for income taxes will
A number of years may elapse before financial statements. be recorded as an increase or decrease
a particular matter, for which we have to our provision for income taxes and
established a reserve, is audited and finally While it is often difficult to predict the would impact our effective tax rate. In
resolved. The number of years with open final outcome or the timing of resolution addition, we accrue interest related to
tax audits varies depending on the tax of any particular tax matter, we believe reserves for income taxes in our provi-
jurisdiction. Our major taxing jurisdictions that our reserves reflect the probable sion for income taxes and any associated
and the related open tax audits are as outcome of known tax contingencies. penalties are recorded in selling, general
follows: We adjust these reserves, as well as the and administrative expenses. The gross
• the U.S. — in 2006, the IRS issued a related interest, in light of changing facts amount of interest accrued, reported in
Revenue Agent’s Report (RAR) related and circumstances. Settlement of any par- other liabilities, was $338 million as of
to the years 1998 through 2002. We ticular issue would usually require the use December 29, 2007, of which $34 million
are in agreement with their conclu- of cash. Favorable resolution would be was recognized in 2007.
sion, except for one matter which we recognized as a reduction to our annual A rollforward of our reserves in 2007
continue to dispute. We made the tax rate in the year of resolution. for all federal, state and foreign tax juris-
appropriate cash payment during 2006 dictions, is as follows:

Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,435

FIN 48 adoption adjustment to retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)
Reclassification of deductible state tax and
interest benefits to other balance sheet accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (144)
Adjusted balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,284
Additions for tax positions related to the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
Additions for tax positions from prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Reductions for tax positions from prior years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73)
Settlement payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (174)
Statute of limitations expiration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,461

68
Carryforwards and Allowances establish valuation allowances for our for the foreseeable future and, therefore,
Operating loss carryforwards totaling deferred tax assets if, based on the avail- have not recognized any U.S. tax expense
$7.1 billion at year-end 2007 are being able evidence, it is more likely than not on these earnings.
carried forward in a number of foreign that some portion or all of the deferred
and state jurisdictions where we are tax assets will not be realized. Mexico Tax Legislation
In October 2007, Mexico enacted new tax
permitted to use tax operating losses from
prior periods to reduce future taxable
Undistributed International Earnings legislation effective January 1, 2008. The
At December 29, 2007, we had approxi- deferred tax impact was not material and
income. These operating losses will expire
mately $14.7 billion of undistributed is reflected in our effective tax rate in 2007.
as follows: $0.5 billion in 2008, $5.6 billion
international earnings. We intend to con-
between 2009 and 2027 and $1.0 billion
tinue to reinvest earnings outside the U.S.
may be carried forward indefinitely. We

Note 6 — Stock-Based Compensation

Our stock-based compensation program in 2005. Stock-based compensation cost been granted. Senior officers do not have
is a broad-based program designed to capitalized in connection with our ongo- a choice and are granted 50% stock
attract and retain employees while also ing business transformation initiative was options and 50% RSUs. RSU expense is
aligning employees’ interests with the $3 million in 2007, $3 million in 2006 and based on the fair value of PepsiCo stock
interests of our shareholders. A majority $4 million in 2005. At year-end 2007, on the date of grant and is amortized over
of our employees participate in our stock- 67 million shares were available for future the vesting period, generally three years.
based compensation program, which stock-based compensation grants. Each RSU is settled in a share of our stock
includes our broad-based SharePower pro- after the vesting period. Vesting of RSU
gram established in 1989 to grant an an- Method of Accounting and awards for senior officers is contingent
nual award of stock options to all eligible Our Assumptions upon the achievement of pre-established
employees, based on job level or clas- We account for our employee stock performance targets. There have been no
sification and, in the case of international options, which include grants under our reductions to the exercise price of previ-
employees, tenure as well. In addition, executive program and broad-based ously issued awards, and any repricing
members of our Board of Directors par- SharePower program, under the fair value of awards would require approval of
ticipate in our stock-based compensation method of accounting using a Black- our shareholders.
program in connection with their service Scholes valuation model to measure stock On January 1, 2006, we adopted
on our Board. Beginning in 2007, mem- option expense at the date of grant. All SFAS 123R under the modified prospec-
bers of our Board of Directors no longer stock option grants have an exercise price tive method. Since we had previously
receive stock-based compensation grants. equal to the fair market value of our accounted for our stock-based compensa-
Stock options and restricted stock units common stock on the date of grant and tion plans under the fair value provisions
(RSU) are granted to employees under the generally have a 10-year term. The fair of SFAS 123, our adoption did not signifi-
shareholder-approved 2007 Long-Term value of stock option grants is amortized cantly impact our financial position or our
Incentive Plan (LTIP), our only active stock- to expense over the vesting period, results of operations. Under SFAS 123R,
based plan. Stock-based compensation generally three years. Executives who are actual tax benefits recognized in excess of
expense was $260 million in 2007, awarded long-term incentives based on tax benefits previously established upon
$270 million in 2006 and $311 million their performance are offered the choice grant are reported as a financing cash
in 2005. Related income tax benefits of stock options or RSUs. Executives who inflow. Prior to adoption, such excess tax
recognized in earnings were $77 million in elect RSUs receive one RSU for every four benefits were reported as an operating
2007, $80 million in 2006 and $87 million stock options that would have otherwise cash inflow.

69
 Our weighted-average Black-Scholes fair value assumptions are as follows:
2007 2006 2005
Expected life 6 yrs. 6 yrs. 6 yrs.
Risk free interest rate 4.8% 4.5% 3.8%
Expected volatility 15% 18% 23%
Expected dividend yield 1.9% 1.9% 1.8%

The expected life is the period over expected life. Volatility reflects move- of net income, share repurchases and
which our employee groups are expected ments in our stock price over the most stock price.
to hold their options. It is based on our recent historical period equivalent to the A summary of our stock-based com-
historical experience with similar grants. expected life. Dividend yield is estimated pensation activity for the year ended
The risk free interest rate is based on over the expected life based on our December 29, 2007 is presented below:
the expected U.S. Treasury rate over the stated dividend policy and forecasts

Average Aggregate
Average Life Intrinsic
Our Stock Option Activity Options(a) Price(b) (years)(c) Value(d)
Outstanding at December 30, 2006 127,749 $44.24
Granted 11,671 65.12
Exercised (28,116) 39.34
Forfeited/expired (2,496) 56.04
Outstanding at December 29, 2007 108,808 $47.47 5.26 $3,216,316
Exercisable at December 29, 2007 75,365 $42.65 3.97 $2,590,994
(a) Options are in thousands and include options previously granted under Quaker plans. No additional options or shares may be granted under the Quaker plans.
(b) Weighted-average exercise price.
(c) Weighted-average contractual life remaining.
(d) In thousands.
Average Average Aggregate
Intrinsic Life Intrinsic
Our RSU Activity RSUs(a) Value(b) (years)(c) Value(d)
Outstanding at December 30, 2006 7,885 $53.38
Granted 2,342 65.21
Converted (2,361) 47.83
Forfeited/expired (496) $57.73
Outstanding at December 29, 2007 7,370 $58.63 1.28 $567,706
(a) RSUs are in thousands.
(b) Weighted-average intrinsic value at grant date.
(c) Weighted-average contractual life remaining.
(d) In thousands.
Other Stock-Based Compensation Data 2007 2006 2005
Stock Options
Weighted-average fair value of options granted $13.56 $12.81 $13.45
Total intrinsic value of options exercised(a) $826,913 $686,242 $632,603
RSUs
Total number of RSUs granted(a) 2,342 2,992 3,097
Weighted-average intrinsic value of RSUs granted $65.21 $58.22 $53.83
Total intrinsic value of RSUs converted(a) $125,514 $10,934 $4,974
(a) In thousands.

At December 29, 2007, there was $287 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 1.5 years.
70
Note 7 — Pension, Retiree Medical and Savings Plans
Our pension plans cover full-time employ- in expense for the following year. The cost assumptions used to measure our annual
ees in the U.S. and certain international or benefit of plan changes that increase or pension and retiree medical expense
employees. Benefits are determined based decrease benefits for prior employee ser- be determined as of the balance sheet
on either years of service or a combina- vice (prior service cost/(credit)) is included date, and all plan assets and liabilities be
tion of years of service and earnings. U.S. in earnings on a straight-line basis over reported as of that date. Accordingly, as
and Canada retirees are also eligible for the average remaining service period of of the beginning of our 2008 fiscal year,
medical and life insurance benefits (retiree active plan participants, which is approxi- we will change the measurement date for
medical) if they meet age and service re- mately 11 years for pension expense and our annual pension and retiree medical
quirements. Generally, our share of retiree approximately 13 years for retiree medical expense and all plan assets and liabilities
medical costs is capped at specified dollar expense. from September 30 to our year-end bal-
amounts, which vary based upon years On December 30, 2006, we adopted ance sheet date. As a result of this change
of service, with retirees contributing the SFAS 158. In connection with our adop- in measurement date, we will record an
remainder of the costs. tion, we recognized the funded status after-tax $7 million reduction to 2008
Other gains and losses resulting from of our Plans on our balance sheet as of opening shareholders’ equity which
actual experience differing from our December 30, 2006 with subsequent will be reflected in our 2008 first quarter
assumptions and from changes in our changes in the funded status recognized Form 10-Q.
assumptions are also determined at each in comprehensive income in the years in Selected financial information for
measurement date. If this net accumu- which they occur. In accordance with SFAS our pension and retiree medical plans is
lated gain or loss exceeds 10% of the 158, amounts prior to the year of adop- as follows:
greater of plan assets or liabilities, a tion have not been adjusted. SFAS 158
portion of the net gain or loss is included also requires that, no later than 2008, our

71
 Pension Retiree Medical
2007 2006 2007 2006 2007 2006
U.S. International
Change in projected benefit liability
Liability at beginning of year $5,947 $5,771 $1,511 $1,263 $1,370 $1,312
Service cost 244 245 59 52 48 46
Interest cost 338 319 81 68 77 72
Plan amendments 147 11 4 8 – –
Participant contributions – – 14 12 – –
Experience (gain)/loss (309) (163) (155) 20 (80) (34)
Benefit payments (319) (233) (46) (38) (77) (75)
Settlement/curtailment loss – (7) – (6) – –
Special termination benefits – 4 – – – 1
Foreign currency adjustment – – 96 126 9 –
Other – – 31 6 7 48
Liability at end of year $6,048 $5,947 $1,595 $1,511 $1,354 $1,370
Change in fair value of plan assets
Fair value at beginning of year $5,378 $5,086 $1,330 $1,099 $ – $ –
Actual return on plan assets 654 513 122 112 – –
Employer contributions/funding 69 19 58 30 77 75
Participant contributions – – 14 12 – –
Benefit payments (319) (233) (46) (38) (77) (75)
Settlement/curtailment loss – (7) – – – –
Foreign currency adjustment – – 91 116 – –
Other – – 26 (1) – –
Fair value at end of year $5,782 $5,378 $1,595 $1,330 $ – $ –
Reconciliation of funded status
Funded status $(266) $(569) $ – $(181) $(1,354) $(1,370)
Adjustment for fourth quarter contributions 15 6 107 13 19 16
Adjustment for fourth quarter special termination benefits (5) – – – – –
Net amount recognized $(256) $(563) $107 $(168) $(1,335) $(1,354)
Amounts recognized
Other assets $ 440 $ 185 $187 $ 6 $ – $ –
Other current liabilities (24) (19) (3) (2) (88) (84)
Other liabilities (672) (729) (77) (172) (1,247) (1,270)
Net amount recognized $(256) $(563) $107 $(168) $(1,335) $(1,354)
Amounts included in accumulated other comprehensive loss (pre-tax)
Net loss $1,136 $1,836 $287 $475 $276 $ 364
Prior service cost/(credit) 156 13 28 24 (88) (101)
Total $1,292 $1,849 $315 $499 $188 $ 263
Components of the (decrease)/increase in net loss
Change in discount rate $ (292) $(123) $(224) $ 2 $(50) $(30)
Employee-related assumption changes – (45) 61 6 (9) –
Liability-related experience different from assumptions (17) 5 7 6 (21) (4)
Actual asset return different from expected return (255) (122) (25) (30) – –
Amortization of losses (136) (164) (30) (29) (18) (21)
Other, including foreign currency adjustments and
2003 Medicare Act – (3) 23 46 10 17
Total $ (700) $(452) $(188) $ 1 $(88) $(38)
Liability at end of year for service to date $5,026 $4,998 $1,324 $1,239
72
 Components of benefit expense are as follows:
Pension Retiree Medical
2007 2006 2005 2007 2006 2005 2007 2006 2005
U.S. International
Components of benefit expense
Service cost $ 244 $ 245 $ 213 $ 59 $ 52 $ 32 $ 48 $ 46 $ 40
Interest cost 338 319 296 81 68 55 77 72 78
Expected return on plan assets (399) (391) (344) (97) (81) (69) – – –
Amortization of prior service cost/(credit) 5 3 3 3 2 1 (13) (13) (11)
Amortization of net loss 136 164 106 30 29 15 18 21 26
324 340 274 76 70 34 130 126 133
Settlement/curtailment loss – 3 – – – – – – –
Special termination benefits 5 4 21 – – – – 1 2
Total $ 329 $ 347 $ 295 $ 76 $ 70 $ 34 $ 130 $ 127 $ 135
The estimated amounts to be amortized from accumulated other comprehensive loss into benefit expense in 2008 for our
pension and retiree medical plans are as follows:
Pension Retiree Medical
U.S. International
Net loss $56 $20 $ 7
Prior service cost/(credit) 20 3 (12)
Total $76 $23 $ (5)
The following table provides the weighted-average assumptions used to determine projected benefit liability and benefit expense
for our pension and retiree medical plans:
Pension Retiree Medical
2007 2006 2005 2007 2006 2005 2007 2006 2005
U.S. International
Weighted-average assumptions
Liability discount rate 6.2% 5.8% 5.7% 5.8% 5.2% 5.1% 6.1% 5.8% 5.7%
Expense discount rate 5.8% 5.7% 6.1% 5.2% 5.1% 6.1% 5.8% 5.7% 6.1%
Expected return on plan assets 7.8% 7.8% 7.8% 7.3% 7.3% 8.0%
Rate of salary increases 4.7% 4.5% 4.4% 3.9% 3.9% 4.1%
The following table provides selected information about plans with liability for service to date and total benefit liability in excess
of plan assets:
Pension Retiree Medical
2007 2006 2007 2006 2007 2006
U.S. International
Selected information for plans with liability
for service to date in excess of plan assets
Liability for service to date $(364) $(387) $(72) $(286)
Fair value of plan assets $– $1 $13 $237
Selected information for plans with
benefit liability in excess of plan assets
Benefit liability $(707) $(754) $(384) $(1,387) $(1,354) $(1,370)
Fair value of plan assets $– $1 $278 $1,200

Of the total projected pension benefit liability at year-end 2007, $658 million relates to plans that we do not fund because the
funding of such plans does not receive favorable tax treatment.

73
 Future Benefit Payments and Funding
Our estimated future benefit payments are as follows:
2008 2009 2010 2011 2012 2013-17
Pension $290 $315 $350 $385 $425 $2,755
Retiree medical(a) $95 $100 $105 $110 $115 $640
(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 $10 million for each of the years from 2008 through 2012 and approximately $70 million in total for 2013 through 2017.

These future benefits to beneficiaries ensure that funds are available to meet 2007 and 2006. Our investment policy
include payments from both funded and the plans’ benefit obligations when they also permits the use of derivative instru-
unfunded pension plans. are due. Our overall investment strategy is ments to enhance the overall return of the
In 2008, we expect to make pension to prudently invest plan assets in high- portfolio. Our expected long-term rate of
contributions of up to $150 million, with quality and diversified equity and debt return on U.S. plan assets is 7.8%, reflect-
up to $75 million expected to be discre- securities to achieve our long-term return ing estimated long-term rates of return
tionary. Our cash payments for retiree expectation. As part of our investment of 9.3% from our equity strategies, and
medical are estimated to be approximately strategy, we employ certain equity strate- 5.8% from our fixed income strategies.
$85 million in 2008. gies which, in addition to investing in U.S. Our target investment allocation is 60%
and international common and preferred for equity strategies and 40% for fixed
Pension Assets stock, include investing in certain equity- income strategies. Our actual pension
Our pension plan investment strategy and debt-based securities used collectively plan asset allocations, consistent with our
is reviewed annually and is established to generate returns in excess of certain investment approach and with how we
based upon plan liabilities, an evalua- equity-based indices. Debt-based securi- view and manage our overall investment
tion of market conditions, tolerance for ties represent approximately a third of our portfolio, for the plan years 2007 and
risk, and cash requirements for benefit equity strategy portfolio as of year-end 2006, are as follows:
payments. Our investment objective is to

Actual Allocation
Asset Category 2007 2006
Equity strategies 61% 61%
Fixed income strategies 38% 39%
Other, primarily cash 1% –
Total 100% 100%

The expected return on pension plan in the market-related value of assets over pension expense, future contributions or
assets is based on our historical experi- the five-year period. the funded status of our plans.
ence, our pension plan investment strat- Pension assets include 5.5 million shares
egy and our expectations for long-term of PepsiCo common stock with a market Retiree Medical Cost Trend Rates
rates of return. We use a market-related value of $401 million in 2007, and An average increase of 8.5% in the cost
valuation method for recognizing invest- 5.5 million shares with a market value of covered retiree medical benefits is
ment gains or losses. For this purpose, of $358 million in 2006. Our investment assumed for 2008. This average increase
investment gains or losses are the differ- policy limits the investment in PepsiCo is then projected to decline gradually
ence between the expected and actual stock at the time of investment to 10% of to 5% in 2014 and thereafter. These
return based on the market-related value the fair value of plan assets. assumed health care cost trend rates have
of assets. This market-related valuation As of December 29, 2007, approximately an impact on the retiree medical plan
method recognizes investment gains or 3%, or approximately $165 million, of expense and liability. However, the cap on
losses over a five-year period from the securities in the investment portfolio of our share of retiree medical costs limits
year in which they occur, which has the our U.S. pension plans are subprime mort- the impact. A 1-percentage-point change
effect of reducing year-to-year volatility. gage holdings. We do not believe that the in the assumed health care trend rate
Pension expense in future periods will be ultimate realization of such investments would have the following effects:
impacted as gains or losses are recognized will result in a material impact to future
74
 1% Increase 1% Decrease
2007 service and interest cost components $5 $(4)
2007 benefit liability $55 $(48)

Savings Plan retirement. We make matching contribu- For additional unaudited information
Our U.S. employees are eligible to tions on a portion of eligible pay based on on our pension and retiree medical plans
participate in 401(k) savings plans, which years of service. In 2007 and 2006, our and related accounting policies and
are voluntary defined contribution plans. matching contributions were $62 million assumptions, see “Our Critical Accounting
The plans are designed to help employ- and $56 million, respectively. Policies” in Management’s Discussion
ees accumulate additional savings for and Analysis.

Note 8 — Noncontrolled Bottling Affiliates

Our most significant noncontrolled bot- The Pepsi Bottling Group of the equity of Bottling Group, LLC, PBG’s
tling affiliates are PBG and PAS. Sales to In addition to approximately 35% and principal operating subsidiary. Bottling
PBG reflect approximately 9% of our total 38% of PBG’s outstanding common stock equity income includes $174 million,
net revenue in 2007 and approximately that we own at year-end 2007 and 2006, $186 million and $126 million of pre-tax
10% in 2006 and 2005. respectively, we own 100% of PBG’s class gains on our sales of PBG stock in 2007,
B common stock and approximately 7% 2006 and 2005, respectively.

PBG’s summarized financial information is as follows:

2007 2006 2005
Current assets $ 3,086 $ 2,749
Noncurrent assets 10,029 9,178
Total assets $13,115 $11,927
Current liabilities $ 2,215 $2,051
Noncurrent liabilities 7,312 7,252
Minority interest 973 540
Total liabilities $10,500 $9,843
Our investment $2,022 $1,842
Net revenue $13,591 $12,730 $11,885
Gross profit $6,221 $5,830 $5,540
Operating profit $1,071 $1,017 $1,023
Net income $532 $522 $466

Our investment in PBG, which includes market value of our shares in PBG concentrate and PBG’s bottling businesses
the related goodwill, was $507 million exceeded our investment balance, exclud- in Russia. PBG holds a 60% majority
and $500 million higher than our owner- ing our investment in Bottling Group, LLC, interest in the joint venture and con-
ship interest in their net assets at year-end by approximately $1.7 billion and solidates the entity. We account for our
2007 and 2006, respectively. Based upon $1.4 billion, respectively. interest of 40% under the equity method
the quoted closing price of PBG shares at Additionally, in 2007, we formed a of accounting.
year-end 2007 and 2006, the calculated joint venture with PBG, comprising our

75
 PepsiAmericas
At year-end 2007 and 2006, we owned approximately 44% of PAS, and their
summarized financial information is as follows:
2007 2006 2005
Current assets $ 922 $ 675
Noncurrent assets 4,386 3,532
Total assets $5,308 $ 4,207
Current liabilities $ 903 $ 694
Noncurrent liabilities 2,274 1,909
Minority interest 273 –
Total liabilities $3,450 $ 2,603
Our investment $1,118 $1,028
Net revenue $4,480 $3,972 $3,726
Gross profit $1,823 $1,608 $1,562
Operating profit $436 $356 $393
Net income $212 $158 $195

Our investment in PAS, which includes PAS holds a 60% majority interest in the affiliates, and we receive royalties for the
the related goodwill, was $303 million joint venture and consolidates the entity. use of our trademarks for certain prod-
and $316 million higher than our owner- We account for our interest of 40% under ucts. Sales of concentrate and finished
ship interest in their net assets at year-end the equity method of accounting. goods are reported net of bottler funding.
2007 and 2006, respectively. Based upon For further unaudited information on
the quoted closing price of PAS shares Related Party Transactions these bottlers, see “Our Customers” in
at year-end 2007 and 2006, the calcu- Our significant related party transactions Management’s Discussion and Analysis.
lated market value of our shares in PAS include our noncontrolled bottling affili- These transactions with our bottling
exceeded our investment by $855 million ates. We sell concentrate to these affili- affiliates are reflected in our consolidated
and $173 million, respectively. ates, which they use in the production of financial statements as follows:
Additionally, in 2007, we completed the CSDs and non-carbonated beverages. We
joint purchase of Sandora, LLC with PAS. also sell certain finished goods to these

2007 2006 2005

Net revenue $4,874 $4,837 $4,633
Selling, general and administrative expenses $91 $87 $143
Accounts and notes receivable $163 $175
Accounts payable and other current liabilities $106 $62

Such amounts are settled on terms of sweeteners and other raw material transactions are not reflected in our
consistent with other trade receivables requirements for certain of our bottlers. consolidated financial statements. As
and payables. See Note 9 regarding our Once we have negotiated the contracts, the contracting party, we could be liable
guarantee of certain PBG debt. the bottlers order and take delivery to these suppliers in the event of any
In addition, we coordinate, on an directly from the supplier and pay the nonpayment by our bottlers, but we
aggregate basis, the contract negotiations suppliers directly. Consequently, these consider this exposure to be remote.

76
Note 9 — Debt Obligations and Commitments
to a variable rate based on LIBOR. We
2007 2006
previously entered into an interest rate
Short-term debt obligations swap in 2004 to effectively convert the
Current maturities of long-term debt $ 526 $ 605 interest rate of a specific debt issuance
Commercial paper (4.3% and 5.3%) 361 792 from a fixed rate to a variable rate. This
Other borrowings (7.2% and 7.3%) 489 377 interest rate swap matured in May 2007.
Amounts reclassified to long-term debt (1,376) (1,500) The terms of the swaps match the terms
$ – $ 274 of the debt they modify. The notional
Long-term debt obligations amounts of the interest rate swaps
Short-term borrowings, reclassified $1,376 $1,500 outstanding at December 29, 2007 and
Notes due 2008-2026 (5.3% and 6.0%) 2,673 1,148 December 30, 2006 were $1 billion and
$500 million, respectively.
Zero coupon notes, $375 million due 2008-2012 (13.3%) 285 299
At December 29, 2007, approximately
Other, due 2008-2016 (6.1% and 6.1%) 395 208
56% of total debt, after the impact of the
4,729 3,155
related interest rate swap, was exposed
Less: current maturities of long-term debt obligations (526) (605)
to variable interest rates, compared to
$4,203 $2,550 63% at December 30, 2006. In addition
The interest rates in the above table reflect weighted-average rates at year-end. to variable rate long-term debt, all debt
with maturities of less than one year is
In the second quarter of 2007, we for general corporate purposes, except as categorized as variable for purposes of
issued $1 billion of senior unsecured notes otherwise specified in the related prospec- this measure.
maturing in 2012. We used a portion of tus. As of December 29, 2007, we have
the proceeds from the issuance of the no outstanding notes under the program.
Cross Currency Interest Rate Swaps
In 2004, we entered into a cross currency
notes to repay existing short-term debt In the fourth quarter of 2007, we
interest rate swap to hedge the currency
of $500 million, bearing interest at 3.2% issued $1 billion of senior unsecured
exposure on U.S. dollar denominated debt
per year and maturing on May 15, 2007, notes maturing in 2013. We used the
of $50 million held by a foreign affiliate.
with the balance of the proceeds used proceeds from the issuance of the notes
The terms of this swap match the terms
primarily for general corporate purposes. for general corporate purposes, including
of the debt it modifies. The swap matures
Additionally, in the second quarter of the repayment of outstanding short-term
in 2008. The unrealized loss related to
2007, we extended the maturity of our indebtedness.
this swap was approximately $8 million
$1.5 billion unsecured revolving credit As of December 29, 2007, we have
at December 29, 2007, resulting in a U.S.
agreement by one year to 2012, and, in reclassified $1.4 billion of short-term debt
dollar liability of $58 million. The unreal-
the third quarter of 2007, we increased to long-term based on our intent and abil-
ized gain related to this swap was less
the amount of this agreement from ity to refinance on a long-term basis.
than $1 million at December 30, 2006,
$1.5 billion to $2 billion. Funds borrowed In addition, as of December 29, 2007,
resulting in a U.S. dollar liability of
under this agreement may be used for $806 million of our debt related to bor-
$50 million.
general corporate purposes, including rowings from various lines of credit is
We also entered into cross currency
supporting our outstanding commercial maintained for our international divi-
interest rate swaps to hedge the currency
paper issuances. This line of credit remains sions. These lines of credit are subject to
exposure on U.S. dollar denominated
unused as of December 29, 2007. normal banking terms and conditions and
intercompany debt of $45 million at
In the third quarter of 2007, we are fully committed to the extent of our
December 29, 2007 and $95 million at
updated our U.S. $2.5 billion euro borrowings.
December 30, 2006. The terms of the
medium term note program following the
Interest Rate Swaps swaps match the terms of the debt they
expiration of the existing program. Under
In connection with the issuance of the modify. The net unrealized losses related
the program, we may issue unsecured
$1 billion notes in the second quarter to these swaps was less than $1 million
notes under mutually agreed upon terms
of 2007, we entered into an interest at December 29, 2007 and December
with the purchasers of the notes. Proceeds
rate swap to effectively convert the 30, 2006. The outstanding swap matures
from any issuance of notes may be used
interest rate from a fixed rate of 5.15% in 2008.

77
 Long-Term Contractual Commitments(a)
Payments Due by Period Total 2008 2009-2010 2011-2012 2013 and beyond
Long-term debt obligations(b) $ 2,827 $ – $ 171 $1,340 $1,316
Interest on debt obligations(c) 938 184 300 285 169
Operating leases 1,105 260 340 191 314
Purchasing commitments 3,767 1,182 1,713 509 363
Marketing commitments 1,251 329 551 278 93
Other commitments 248 44 127 75 2
$10,136 $1,999 $3,202 $2,678 $2,257
(a) Reflects non-cancelable commitments as of December 29, 2007 based on year-end foreign exchange rates and excludes any reserves for income taxes under FIN 48
as we are unable to reasonably predict the ultimate amount or timing of settlement of our reserves for income taxes.
(b) Excludes short-term borrowings reclassified as long-term debt of $1,376 million and includes $273 million of accrued interest related to our zero coupon notes.
(c) Interest payments on floating-rate debt are estimated using interest rates effective as of December 29, 2007.

Most long-term contractual commit- Off-Balance-Sheet Arrangements us and our payment obligation would be
ments, except for our long-term debt It is not our business practice to enter into triggered if Bottling Group, LLC failed to
obligations, are not recorded on our off-balance-sheet arrangements, other perform under these debt obligations or
balance sheet. Non-cancelable operating than in the normal course of business. the structure significantly changed. Our
leases primarily represent building leases. However, certain guarantees were neces- guarantees of certain obligations ensured
Non-cancelable purchasing commitments sary to facilitate the separation of our bot- YUM’s continued use of certain proper-
are primarily for oranges and orange tling and restaurant operations from us. ties. These guarantees would require our
juice, packaging materials and cooking In connection with these transactions, we cash payment if YUM failed to perform
oil. Non-cancelable marketing commit- have guaranteed $2.3 billion of Bottling under these lease obligations. See Note 8
ments are primarily for sports marketing. regarding contracts related to certain of
Group, LLC’s long-term debt through
Bottler funding is not reflected in our our bottlers.
2012 and $18 million of YUM! Brands,
long-term contractual commitments as it is
Inc.’s (YUM) outstanding obligations, See “Our Liquidity and Capital
negotiated on an annual basis. See Note 7
primarily property leases, through 2020. Resources” in Management’s Discussion
regarding our pension and retiree medical
The terms of our Bottling Group, LLC and Analysis for further unaudited infor-
obligations and discussion below regarding
debt guarantee are intended to preserve mation on our borrowings.
our commitments to noncontrolled bottling
affiliates and former restaurant operations. the structure of PBG’s separation from

Note 10 — Risk Management

We are exposed to market risks arising item is recognized in net income. For We also use derivatives that do not
from adverse changes in: fair value hedges, changes in fair value qualify for hedge accounting treatment.
• commodity prices, affecting the cost of are recognized immediately in earnings, We account for such derivatives at market
our raw materials and energy, consistent with the underlying hedged value with the resulting gains and losses
• foreign exchange risks, and item. Hedging transactions are limited reflected in our income statement. We do
• interest rates. to an underlying exposure. As a result, not use derivative instruments for trading
In the normal course of business, we any change in the value of our derivative or speculative purposes, and we limit our
manage these risks through a variety of instruments would be substantially offset exposure to individual counterparties to
strategies, including the use of deriva- by an opposite change in the value of manage credit risk.
tives. Certain derivatives are designated the underlying hedged items. Hedging
as either cash flow or fair value hedges ineffectiveness and a net earnings impact Commodity Prices
and qualify for hedge accounting treat- occur when the change in the value of We are subject to commodity price risk
ment, while others do not qualify and are the hedge does not offset the change in because our ability to recover increased
marked to market through earnings. See the value of the underlying hedged item. costs through higher pricing may be
“Our Business Risks” in Management’s If the derivative instrument is terminated, limited in the competitive environment
Discussion and Analysis for further unau- we continue to defer the related gain or in which we operate. This risk is man-
dited information on our business risks. loss and include it as a component of the aged through the use of fixed-price
For cash flow hedges, changes in fair cost of the underlying hedged item. Upon purchase orders, pricing agreements,
value are deferred in accumulated other determination that the underlying hedged geographic diversity and derivatives. We
comprehensive loss within sharehold- item will not be part of an actual transac- use derivatives, with terms of no more
ers’ equity until the underlying hedged tion, we recognize the related gain or loss than two years, to economically hedge
in net income in that period.
78
price fluctuations related to a portion of Foreign Exchange risk. These instruments effectively change
our anticipated commodity purchases, Our operations outside of the U.S. gener- the interest rate and currency of specific
primarily for natural gas, diesel fuel and ate 44% of our net revenue, with Mexico, debt issuances. These swaps are entered
fruit. For those derivatives that qualify for the United Kingdom and Canada compris- into concurrently with the issuance of the
hedge accounting, any ineffectiveness ing 19% of our net revenue. As a result, debt that they are intended to modify.
is recorded immediately. However, such we are exposed to foreign currency risks. The notional amount, interest payment
commodity cash flow hedges have not On occasion, we enter into hedges, pri- and maturity date of the swaps match the
had any significant ineffectiveness for all marily forward contracts with terms of no principal, interest payment and maturity
periods presented. We classify both the more than two years, to reduce the effect date of the related debt. These swaps
earnings and cash flow impact from these of foreign exchange rates. Ineffectiveness are entered into only with strong credit-
derivatives consistent with the underly- of these hedges has not been material. worthy counterparties and are settled on
ing hedged item. During the next 12 a net basis.
months, we expect to reclassify net gains Interest Rates
of $1 million related to cash flow hedges We centrally manage our debt and invest- Fair Value
from accumulated other comprehensive ment portfolios considering investment All derivative instruments are recognized
loss into net income. Derivatives used to opportunities and risks, tax consequences on our balance sheet at fair value. The
hedge commodity price risks that do not and overall financing strategies. We fair value of our derivative instruments is
qualify for hedge accounting are marked may use interest rate and cross currency generally based on quoted market prices.
to market each period and reflected in our interest rate swaps to manage our overall Book and fair values of our derivative and
income statement. interest expense and foreign exchange financial instruments are as follows:

2007 2006
Book Value Fair Value Book Value Fair Value
Assets
Cash and cash equivalents(a) $910 $910 $1,651 $1,651
Short-term investments(b) $1,571 $1,571 $1,171 $1,171
Forward exchange contracts(c) $32 $32 $8 $8
Commodity contracts(d) $10 $10 $2 $2
Prepaid forward contracts(e) $74 $74 $73 $73
Interest rate swaps(f) $36 $36 $– $–
Cross currency interest rate swaps(f) $– $– $1 $1
Liabilities
Forward exchange contracts(c) $61 $61 $24 $24
Commodity contracts(d) $7 $7 $29 $29
Debt obligations $4,203 $4,352 $2,824 $2,955
Interest rate swaps(g) $– $– $4 $4
Cross currency interest rate swaps(g) $8 $8 $– $–
The above items are included on our balance sheet under the captions noted or as indicated below. In addition, derivatives qualify for hedge accounting unless otherwise
noted below.
(a) Book value approximates fair value due to the short maturity.
(b) Principally short-term time deposits and includes $189 million at December 29, 2007 and $145 million at December 30, 2006 of mutual fund investments used to
manage a portion of market risk arising from our deferred compensation liability.
(c) The 2007 asset includes $20 million related to derivatives that do not qualify for hedge accounting and the 2007 liability includes $5 million related to derivatives
that do not qualify for hedge accounting. The 2006 liability includes $10 million related to derivatives that do not qualify for hedge accounting. Assets are reported
within current assets and other assets, and liabilities are reported within current liabilities and other liabilities.
(d) The 2007 asset includes $10 million related to derivatives that do not qualify for hedge accounting and the 2007 liability includes $7 million related to derivatives
that do not qualify for hedge accounting. The 2006 liability includes $28 million related to derivatives that do not qualify for hedge accounting. Assets are reported
within current assets and other assets, and liabilities are reported within current liabilities and other liabilities.
(e) Included in current assets and other assets.
(f) Asset included within other assets.
(g) Reported in other liabilities.

This table excludes guarantees, including our guarantee of $2.3 billion of Bottling Group, LLC’s long-term debt. The guarantee had
a fair value of $35 million at December 29, 2007 and December 30, 2006 based on our estimate of the cost to us of transferring the
liability to an independent financial institution. See Note 9 for additional information on our guarantees.
79
 Note 11 — Net Income per Common Share
Basic net income per common share is net would occur if in-the-money employee because these options were out-of-the-
income available to common sharehold- stock options were exercised and RSUs money. Out-of-the-money options had
ers divided by the weighted average of and preferred shares were converted into average exercise prices of $65.18 in 2007,
common shares outstanding during the common shares. Options to purchase $65.24 in 2006 and $53.77 in 2005.
period. Diluted net income per common 2.7 million shares in 2007, 0.1 million The computations of basic and
share is calculated using the weighted shares in 2006 and 3.0 million shares in diluted net income per common share
average of common shares outstand- 2005 were not included in the calculation are as follows:
ing adjusted to include the effect that of diluted earnings per common share

2007 2006 2005

(a) (a)
Income Shares Income Shares Income Shares(a)
Net income $5,658 $5,642 $4,078
Preferred shares:
Dividends (2) (2) (2)
Redemption premium (10) (9) (16)
Net income available for common shareholders $5,646 1,621 $5,631 1,649 $4,060 1,669
Basic net income per common share $3.48 $3.42 $2.43
Net income available for common shareholders $5,646 1,621 $5,631 1,649 $4,060 1,669
Dilutive securities:
Stock options and RSUs – 35 – 36 – 35
ESOP convertible preferred stock 12 2 11 2 18 2
Diluted $5,658 1,658 $5,642 1,687 $4,078 1,706
Diluted net income per common share $3.41 $3.34 $2.39
(a) Weighted-average common shares outstanding.

Note 12 — Preferred Stock

As of December 29, 2007 and December of $5.46 per share. At year-end 2007 convertible at the option of the holder
30, 2006, there were 3 million shares of and 2006, there were 803,953 preferred into 4.9625 shares of common stock.
convertible preferred stock authorized. shares issued and 287,553 and The preferred shares may be called by us
The preferred stock was issued only for 320,853 shares outstanding, respec- upon written notice at $78 per share plus
an ESOP established by Quaker and these tively. The outstanding preferred shares accrued and unpaid dividends. Quaker
shares are redeemable for common stock had a fair value of $108 million as of made the final award to its ESOP plan in
by the ESOP participants. The preferred December 29, 2007 and $100 million June 2001.
stock accrues dividends at an annual rate as of December 30, 2006. Each share is

2007 2006 2005

Shares Amount Shares Amount Shares Amount
Preferred stock 0.8 $41 0.8 $41 0.8 $41
Repurchased preferred stock
Balance, beginning of year 0.5 $120 0.5 $110 0.4 $ 90
Redemptions – 12 – 10 0.1 19
Balance, end of year 0.5 $132 0.5 $120 0.5 $110(a)
(a) Does not sum due to rounding.

80
Note 13 — Accumulated Other Comprehensive Loss
Comprehensive income is a measure of recognition into our income statement. was $1,294 million in 2007, $456 million
income which includes both net income Accumulated other comprehensive loss in 2006 and $(167) million in 2005. The
and other comprehensive income or is separately presented on our balance accumulated balances for each compo-
loss. Other comprehensive income or sheet as part of common shareholders’ nent of other comprehensive loss were
loss results from items deferred from equity. Other comprehensive income/(loss) as follows:

2007 2006 2005

Currency translation adjustment $ 213 $ (506) $ (971)
Cash flow hedges, net of tax(a) (35) 4 27
Unamortized pension and retiree medical, net of tax(b) (1,183) (1,782) –
Minimum pension liability adjustment(c) – – (138)
Unrealized gain on securities, net of tax 49 40 31
Other 4 (2) (2)
Accumulated other comprehensive loss $ (952) $ (2,246) $ (1,053)
(a) Includes $3 million after-tax gain in 2007 and 2006 and no impact in 2005 for our share of our equity
investees’ accumulated derivative activity.
(b) Net of taxes of $645 million in 2007 and $919 million in 2006.
(c) Net of taxes of $72 million in 2005. Also includes $120 million for our share of our equity investees’
minimum pension liability adjustments, net of tax.

81
 Note 14 — Supplemental Financial Information

2007 2006 2005

Accounts receivable
Trade receivables $3,670 $3,147
Other receivables 788 642
4,458 3,789
Allowance, beginning of year 64 75 $ 97
Net amounts charged/(credited) to expense 5 10 (1)
Deductions(a) (7) (27) (22)
Other(b) 7 6 1
Allowance, end of year 69 64 $ 75
Net receivables $4,389 $3,725
Inventories(c)
Raw materials $ 1,056 $ 860
Work-in-process 157 140
Finished goods 1,077 926
$2,290 $1,926
(a) Includes accounts written off.
(b) Includes currency translation effects and other adjustments.
(c) Inventories are valued at the lower of cost or market. Cost is determined using the average, first-in,
first-out (FIFO) or last-in, first-out (LIFO) methods. Approximately 14% in 2007 and 19% in 2006 of the
inventory cost was computed using the LIFO method. The differences between LIFO and FIFO methods of
valuing these inventories were not material.
2007 2006
Other assets
Noncurrent notes and accounts receivable $ 121 $ 149
Deferred marketplace spending 205 232
Unallocated purchase price for recent acquisitions 451 196
Pension plans 635 197
Other 270 206
$1,682 $ 980
Accounts payable and other current liabilities
Accounts payable $2,562 $ 2,102
Accrued marketplace spending 1,607 1,444
Accrued compensation and benefits 1,287 1,143
Dividends payable 602 492
Other current liabilities 1,544 1,315
$7,602 $ 6,496
Other supplemental information
Rent expense $303 $291 $228
Interest paid $251 $215 $213
Income taxes paid, net of refunds $1,731 $2,155 $1,258
Acquisitions(a)
Fair value of assets acquired $ 1,611 $ 678 $ 1,089
Cash paid and debt issued (1,320) (522) (1,096)
SVE minority interest eliminated – – 216
Liabilities assumed $ 291 $ 156 $ 209
(a) In 2005, these amounts include the impact of our acquisition of General Mills, Inc.’s 40.5% ownership
interest in SVE for $750 million. The excess of our purchase price over the fair value of net assets acquired
was $250 million and reported in goodwill. We also reacquired rights to distribute global brands for
$263 million which is included in other nonamortizable intangible assets.

82
Management’s Responsibility for Management’s
Financial Reporting Report on Internal
To Our Shareholders:
Control over
At PepsiCo, our actions — the actions of all our associates — are governed by our Worldwide Financial Reporting
Code of Conduct. This code is clearly aligned with our stated values — a commitment to sus-
tained growth, through empowered people, operating with responsibility and building trust. Both To Our Shareholders:
the code and our core values enable us to operate with integrity — both within the letter and the Our management is responsible for establishing
spirit of the law. Our code of conduct is reinforced consistently at all levels and in all countries. and maintaining adequate internal control over
We have maintained strong governance policies and practices for many years. financial reporting, as such term is defined in
The management of PepsiCo is responsible for the objectivity and integrity of our consolidated Rule 13a-15(f) of the Exchange Act. Under the
financial statements. The Audit Committee of the Board of Directors has engaged independent supervision and with the participation of our
registered public accounting firm, KPMG LLP, to audit our consolidated financial statements and
management, including our Chief Executive
they have expressed an unqualified opinion.
We are committed to providing timely, accurate and understandable information to investors. Officer and Chief Financial Officer, we
Our commitment encompasses the following: conducted an evaluation of the effectiveness
of our internal control over financial report-
Maintaining strong controls over financial reporting. Our system of internal control is based ing based upon the framework in Internal
on the control criteria framework of the Committee of Sponsoring Organizations of the Treadway Control — Integrated Framework issued by
Commission published in their report titled Internal Control — Integrated Framework. The system
the Committee of Sponsoring Organizations
is designed to provide reasonable assurance that transactions are executed as authorized and
of the Treadway Commission. Based on that
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 evaluation, our management concluded that
with accounting principles generally accepted in the U.S. We maintain disclosure controls and our internal control over financial reporting is
procedures designed to ensure that information required to be disclosed in reports under the effective as of December 29, 2007.
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the KPMG LLP, an independent registered
specified time periods. We monitor these internal controls through self-assessments and an public accounting firm, has audited the
ongoing program of internal audits. Our internal controls are reinforced through our Worldwide consolidated financial statements included in
Code of Conduct, which sets forth our commitment to conduct business with integrity, and this Annual Report and, as part of their audit,
within both the letter and the spirit of the law. has issued their report, included herein, on
Exerting rigorous oversight of the business. We continuously review our business results and the effectiveness of our internal control over
strategies. This encompasses financial discipline in our strategic and daily business decisions. Our financial reporting.
Executive Committee is actively involved — from understanding strategies and alternatives to During our fourth fiscal quarter of 2007, we
reviewing key initiatives and financial performance. The intent is to ensure we remain objective in continued migrating certain of our financial
our assessments, constructively challenge our approach to potential business opportunities and processing systems to SAP software. This
issues, and monitor results and controls. software implementation is part of our
Engaging strong and effective Corporate Governance from our Board of Directors. We ongoing global business transformation initia-
have an active, capable and diligent Board that meets the required standards for independence, tive, and we plan to continue implementing
and we welcome the Board’s oversight as a representative of our shareholders. Our Audit such software throughout other parts of our
Committee is comprised of independent directors with the financial literacy, knowledge and businesses over the course of the next few
experience to provide appropriate oversight. We review our critical accounting policies, financial years. In connection with the SAP implementa-
reporting and internal control matters with them and encourage their direct communication tion and resulting business process changes,
with KPMG LLP, with our General Auditor, and with our General Counsel. We also have a senior we continue to enhance the design and
compliance officer to lead and coordinate our compliance policies and practices.
documentation of our internal control
Providing investors with financial results that are complete, transparent and under- processes to ensure suitable controls over our
standable. The consolidated financial statements and financial information included in this financial reporting.
report are the responsibility of management. This includes preparing the financial statements in Except as described above, there were no
accordance with accounting principles generally accepted in the U.S., which require estimates changes in our internal control over financial
based on management’s best judgment. reporting that have materially affected, or
PepsiCo has a strong history of doing what’s right. We realize that great companies are are reasonably likely to materially affect, our
built on trust, strong ethical standards and principles. Our financial results are delivered from internal control over financial reporting during
that culture of accountability, and we take responsibility for the quality and accuracy of our our fourth fiscal quarter of 2007.
financial reporting.

Peter A. Bridgman Richard Goodman Indra K. Nooyi

Senior Vice President and Controller Chief Financial Officer Chairman of the Board of Directors and
Chief Executive Officer

83
 Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders dispositions of the assets of the company; (2) provide reasonable
PepsiCo, Inc.: assurance that transactions are recorded as necessary to permit
We have audited the accompanying Consolidated Balance preparation of financial statements in accordance with generally
Sheet of PepsiCo, Inc. and Subsidiaries (“PepsiCo, Inc.” or the accepted accounting principles, and that receipts and expendi-
“Company”) as of December 29, 2007 and December 30, 2006, tures of the company are being made only in accordance with
and the related Consolidated Statements of Income, Cash Flows authorizations of management and directors of the company;
and Common Shareholders’ Equity for each of the years in the and (3) provide reasonable assurance regarding prevention or
three-year period ended December 29, 2007. We also have timely detection of unauthorized acquisition, use, or disposition
audited PepsiCo, Inc.’s internal control over financial reporting as of the company’s assets that could have a material effect on the
of December 29, 2007, based on criteria established in Internal financial statements.
Control — Integrated Framework issued by the Committee Because of its inherent limitations, internal control over finan-
of Sponsoring Organizations of the Treadway Commission cial reporting may not prevent or detect misstatements. Also,
(“COSO”). PepsiCo, Inc.’s management is responsible for these projections of any evaluation of effectiveness to future periods
consolidated financial statements, for maintaining effective are subject to the risk that controls may become inadequate
internal control over financial reporting, and for its assessment because of changes in conditions, or that the degree of compli-
of the effectiveness of internal control over financial report- ance with the policies or procedures may deteriorate.
ing, included in Management’s Report on Internal Control over In our opinion, the consolidated financial statements referred
Financial Reporting. Our responsibility is to express an opinion on to above present fairly, in all material respects, the financial posi-
these consolidated financial statements and an opinion on the tion of PepsiCo, Inc. as of December 29, 2007 and December
Company’s internal control over financial reporting based on 30, 2006, and the results of its operations and its cash flows
our audits. for each of the years in the three-year period ended December
We conducted our audits in accordance with the standards of 29, 2007, in conformity with accounting principles generally
the Public Company Accounting Oversight Board (United States). accepted in the United States of America. Also in our opinion,
Those standards require that we plan and perform the audits to PepsiCo, Inc. maintained, in all material respects, effective inter-
obtain reasonable assurance about whether the financial state- nal control over financial reporting as of December 29, 2007,
ments are free of material misstatement and whether effective based on criteria established in Internal Control — Integrated
internal control over financial reporting was maintained in all Framework issued by COSO.
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 finan- New York, New York
cial reporting included obtaining an understanding of internal February 15, 2008
control over financial reporting, assessing the risk that a mate-
rial weakness exists, and testing and evaluating the design and
operating effectiveness 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

84
Selected Financial Data (in millions except per share amounts, unaudited)
First Second Third Fourth Five-Year Summary 2007 2006 2005
Quarterly Quarter Quarter Quarter Quarter Net revenue $39,474 $35,137 $32,562
Net revenue Net income $5,658 $5,642 $4,078
2007 $7,350 $9,607 $10,171 $12,346 Income per common share — basic $3.48 $3.42 $2.43
2006 $6,719 $8,714 $9,134 $10,570 Income per common share — diluted $3.41 $3.34 $2.39
Gross profit Cash dividends declared per
2007 $4,065 $5,265 $5,544 $6,562 common share $1.425 $1.16 $1.01
2006 $3,757 $4,852 $5,026 $5,740 Total assets $34,628 $29,930 $31,727
Restructuring and impairment charges(a) Long-term debt $4,203 $2,550 $2,313
2007 – – – $102 Return on invested capital(a) 28.9% 30.4% 22.7%
2006 – – – $67 Five-Year Summary (cont.) 2004 2003
Tax benefits(b) Net revenue $29,261 $26,971
2007 – – $(115) $(14) Income from continuing operations $4,174 $3,568
2006 – – – $(602) Net income $4,212 $3,568
Net income Income per common share — basic,
2007 $1,096 $1,557 $1,743 $1,262 continuing operations $2.45 $2.07
2006 $947 $1,375 $1,494 $1,826 Income per common share — diluted,
Net income per common share — basic continuing operations $2.41 $2.05
2007 $0.67 $0.96 $1.08 $0.78 Cash dividends declared per common share $0.85 $0.63
2006 $0.57 $0.83 $0.90 $1.11 Total assets $27,987 $25,327
Net income per common share — diluted Long-term debt $2,397 $1,702
2007 $0.65 $0.94 $1.06 $0.77 Return on invested capital(a) 27.4% 27.5%
2006 $0.56 $0.81 $0.89 $1.09 (a) Return on invested capital is defined as adjusted net income divided by the
sum of average shareholders’ equity and average total debt. Adjusted net
Cash dividends declared per common share income is defined as net income plus net interest expense after-tax. Net
2007 $0.30 $0.375 $0.375 $0.375 interest expense after-tax was $63 million in 2007, $72 million in 2006,
$62 million in 2005, $60 million in 2004 and $72 million in 2003.
2006 $0.26 $0.30 $0.30 $0.30
(c) • Includes restructuring and impairment charges of:
2007 stock price per share
2007 2006 2005 2004 2003
High $65.54 $69.64 $70.25 $79.00
Pre-tax $102 $67 $83 $150 $147
Low $61.89 $62.57 $64.25 $68.02
After-tax $70 $43 $55 $96 $100
Close $64.09 $66.68 $67.98 $77.03
Per share $0.04 $0.03 $0.03 $0.06 $0.06
2006 stock price per share(c)
• Includes Quaker merger-related costs of:
High $60.55 $61.19 $65.99 $65.99
2003
Low $56.00 $56.51 $58.65 $61.15
Pre-tax $59
Close $59.34 $59.70 $64.73 $62.55
After-tax $42
2006 results reflect our change in reporting calendars of certain operating units
within PI. Per share $0.02
(a) The restructuring and impairment charge in 2007 was $102 million
($70 million or $0.04 per share after-tax). The restructuring and impairment • In 2007, we recognized $129 million ($0.08 per share) of non-cash tax benefits
charge in 2006 was $67 million ($43 million or $0.03 per share after-tax). related to the favorable resolution of certain foreign tax matters. In 2006, we
See Note 3. recognized non-cash tax benefits of $602 million ($0.36 per share) primarily in
(b) In 2007, represents non-cash tax benefits related to the favorable resolution connection with the IRS’s examination of our consolidated income tax returns
of certain foreign tax matters. In 2006, represents non-cash tax benefits for the years 1998 through 2002. In 2005, we recorded income tax expense
primarily related to the IRS’s examination of our consolidated income tax of $460 million ($0.27 per share) related to our repatriation of earnings in
returns for the years 1998 through 2002. See Note 5. connection with the AJCA. In 2004, we reached agreement with the IRS for an
(c) Represents the composite high and low sales price and quarterly closing prices open issue related to our discontinued restaurant operations which resulted in
for one share of PepsiCo common stock. a tax benefit of $38 million ($0.02 per share).
• On December 30, 2006, we adopted SFAS 158 which reduced total assets by
$2,016 million, total common shareholders’ equity by $1,643 million and total
liabilities by $373 million.
• The 2005 fiscal year consisted of 53 weeks compared to 52 weeks in our normal
fiscal year. The 53rd week increased 2005 net revenue by an estimated
$418 million and net income by an estimated $57 million ($0.03 per share).

85
 Reconciliation of GAAP and Non-GAAP Information
The financial measures listed below are not measures defined by
generally accepted accounting principles. However, we believe 2007
investors should consider these measures as they are more Percentage
Operating Profit Reconciliation 2007 2006 of Total
indicative of our ongoing performance and how management
Frito-Lay North America Operating Profit $2,845 $2,615 36%
evaluates our operational results and trends. Specifically,
Quaker Foods North America Operating Profit 568 554 7
investors should consider the following:
• Our 2007 and 2006 division operating profit; Latin America Foods Operating Profit 714 655 9

• Our 2007 and 2006 division operating profit and total operat- PepsiCo Americas Beverages Operating Profit 2,487 2,315 31

ing profit without the impact of restructuring and impairment United Kingdom & Europe Operating Profit 774 700 10
charges; and our 2007 division operating profit growth and Middle East, Africa & Asia Operating Profit 535 401 7
total operating profit growth without the impact of restructur- PepsiCo Total Division Operating Profit 7,923 7,240 100%
ing and impairment charges; Impact of Corporate Unallocated (753) (738)
• Our 2007 and 2006 net income without the impact of our Total PepsiCo Reported Operating Profit $7,170 $6,502
2007 and 2006 non-cash tax benefits and restructuring and
impairment charges; our 2007 net income growth without the Net Income Reconciliation 2007 2006 Growth
impact of the aforementioned items; and Reported Net Income $5,658 $5,642 –
• Our 2007 and 2006 diluted EPS without the impact of our Tax Benefits (129) (620)
2007 and 2006 non-cash tax benefits and restructuring and Restructuring and Impairment Charges 70 43
impairment charges; our 2007 diluted EPS growth without the Net Income Excluding above Items $5,599 $5,065 11%
impact of the aforementioned items; and our 2005 diluted
EPS without the impact of the AJCA tax charge, restructuring 2007
charges and the extra week in 2005. Diluted EPS Reconciliation 2007 2006 Growth 2005
Reported Diluted EPS $ 3.41 $ 3.34 2% $ 2.39
Operating Profit Reconciliation 2007 2006 Growth Tax Benefits (0.08) (0.37)
Total PepsiCo Reported Operating Profit $7,170 $6,502 10% AJCA Tax Charge 0.27
Impact of Restructuring and Impairment Charges 102 67 Extra Week (0.03)
Total Operating Profit Excluding above Item 7,272 6,569 11% Restructuring and Impairment Charges 0.04 0.03 0.03
Impact of Corporate Unallocated 753 738 Diluted EPS Excluding above Items $ 3.38* $ 3.00 13% $ 2.66
PepsiCo Total Division Operating
*Does not sum due to rounding.
Profit Excluding above Items $8,025 $7,307 10%

GLOSSARY
Anchor bottlers: The Pepsi Bottling Group CSD: carbonated soft drinks. Marketplace spending: sales incentives
(PBG), PepsiAmericas (PAS) and Pepsi Bottling Customers: authorized bottlers and offered through various programs to our
Ventures (PBV). independent distributors and retailers. customers and consumers (trade spending), as
Bottler: customers to whom we have granted well as advertising and other marketing activities.
Derivatives: financial instruments that we
exclusive contracts to sell and manufacture use to manage our risk arising from changes in Servings: common metric reflecting our
certain beverage products bearing our trademarks commodity prices, interest rates, foreign exchange consolidated physical unit volume. Our
within a specific geographical area. rates and stock prices. divisions’ physical unit measures are converted
Bottler Case Sales (BCS): measure of physical into servings based on U.S. Food and Drug
Direct-Store-Delivery (DSD): delivery system
beverage volume shipped to retailers and Administration guidelines for single-serving sizes
used by us and our bottlers to deliver snacks
independent distributors from both PepsiCo and of our products.
and beverages directly to retail stores where our
our bottlers. products are merchandised. Smart Spot: our initiative that helps consumers
Bottler funding: financial incentives we give find our products that can contribute to healthier
Effective net pricing: reflects the year-over-
to our bottlers to assist in the distribution and lifestyles.
year impact of discrete pricing actions, sales
promotion of our beverage products. incentive activities and mix resulting from selling Transaction gains and losses: the impact on
Concentrate Shipments and Equivalents varying products in different package sizes and in our consolidated financial statements of exchange
(CSE): measure of our physical beverage volume different countries. rate changes arising from specific transactions.
shipments to bottlers, retailers and independent Management operating cash flow: net Translation adjustments: the impact of the
distributors. This measure is reported on our fiscal cash provided by operating activities less capital conversion of our foreign affiliates’ financial
year basis. spending plus sales of property, plant and statements to U.S. dollars for the purpose of
Consumers: people who eat and drink equipment. It is our primary measure used to consolidating our financial statements.
our products. monitor cash flow performance.
86
 Common Stock Information Shareholder Information PepsiCo Stock Purchase Program — for Canadian employees:
Fidelity Stock Plan Services
Stock Trading Symbol — PEP Annual Meeting
Contents Stock Exchange Listings The Annual Meeting of Shareholders will be held at Frito-Lay
P.O. Box 5000
Cincinnati, OH 45273-8398
The New York Stock Exchange is the principal market for Corporate Headquarters, 7701 Legacy Drive, Plano, Texas, Telephone: 800-544-0275
PepsiCo common stock, which is also listed on the Chicago on Wednesday, May 7, 2008, at 9:00 a.m. local time. Website: www.iStockPlan.com/ESPP
1 ...... Financial Highlights
and Swiss Stock Exchanges. Proxies for the meeting will be solicited by an independent Please have a copy of your most recent statement available
2 ...... Letter to Shareholders proxy solicitor. This Annual Report is not part of the proxy when calling with inquiries.
Shareholders
7 ...... Questions & Answers As of February 8, 2008, there were approximately 185,000
solicitation.
10..... Leadership Team shareholders of record. Inquiries Regarding Your Stock Holdings If using overnight or certified mail send to:
12..... PepsiCo Americas Foods Registered Shareholders (shares held by you in your name) Fidelity Investments
Dividend Policy 100 Crosby Parkway
14..... PepsiCo Americas Beverages should address communications concerning transfers, state-
We target an annual dividend payout of 50% of prior year’s Mail Zone KC1F-L
ments, dividend payments, address changes, lost certificates
16..... PepsiCo International earnings, excluding certain items. Dividends are usually Covington, KY 41015
and other administrative matters to:
declared in late January or early February, May, July and
19..... Purpose: Human, Environment, Talent
November and paid at the end of March, June and
29..... PepsiCo Board of Directors September and the beginning of January. The dividend PepsiCo, Inc. Shareholder Services
c/o BNY Mellon Shareowner Services
30..... Executive Officers record dates for these payments are, subject to approval BuyDIRECT Plan
of the Board of Directors, expected to be March 7, P.O. Box 358015
31..... Financial Review Interested investors can make their initial purchase directly
June 6, September 5 and December 5, 2008. We have Pittsburgh, PA 15252-8015
through The Bank of New York, transfer agent for PepsiCo,
paid consecutive quarterly cash dividends since 1965. Telephone: 800-226-0083
and Administrator for the Plan. A brochure detailing the
201-680-6685 (Outside the U.S.)
Stock Performance Plan is available on our website www.pepsico.com or from
E-mail: [email protected]
PepsiCo was formed through the 1965 merger of Pepsi-Cola our transfer agent:
Website: www.bnymellon.com/shareowner/isd
Company and Frito-Lay, Inc. A $1,000 investment in our or
stock made on December 31, 2002 was worth about PepsiCo, Inc.
Manager Shareholder Relations
$1,964 on December 31, 2007, assuming the reinvestment c/o BNY Mellon Shareowner Services
PepsiCo, Inc.
of dividends into PepsiCo stock. This performance repre- P.O. Box 358015
700 Anderson Hill Road
sents a compounded annual growth rate of 14%. Pittsburgh, PA 15252-8015
Purchase, NY 10577
Telephone: 800-226-0083
Telephone: 914-253-3055
The closing price for a share of PepsiCo common stock on 201-680-6685 (Outside the U.S.)
the New York Stock Exchange was the price as reported E-mail: [email protected]
In all correspondence or telephone inquiries, please mention
by Bloomberg for the years ending 2003-2007. Past Website: www.bnymellon.com/shareowner/isd
PepsiCo, your name as printed on your stock certificate,
performance is not necessarily indicative of future returns your Investor ID (IID), your address and telephone number.
on investments in PepsiCo common stock. Other services include dividend reinvestment, optional cash
investments by electronic funds transfer or check drawn
SharePower Participants (employees with Share- on a U.S. bank, sale of shares, online account access, and
Cash Dividends Declared Power options) should address all questions regarding your
electronic delivery of shareholder materials.
Per Share (In $) account, outstanding options or shares received through
option exercises to: Financial and Other Information
1.425 PepsiCo’s 2008 quarterly earnings releases are expected to
Merrill Lynch/SharePower be issued the weeks of April 21, July 21, October 6, 2008,
Stock Option Unit and February 2, 2009.
1.16
1600 Merrill Lynch Drive Copies of PepsiCo’s SEC reports, earnings and other
1.01 Mail Stop 06-02-SOP financial releases, corporate news and additional company
Pennington, NJ 08534 information are available on our website www.pepsico.com.
.850
Telephone: 800-637-6713 (U.S., Puerto Rico PepsiCo’s CEO and CFO Certifications required under
and Canada) Sarbanes-Oxley Section 302 were filed as an exhibit to
.630 609-818-8800 (all other locations) our Form 10-K filed with the SEC on February 15, 2008.
PepsiCo’s 2007 Domestic Company Section 303A CEO
In all correspondence, please provide your account number Certification was filed with the New York Stock Exchange
(for U.S. citizens, this is your Social Security number), your (NYSE). In addition, we have a written statement
address, your telephone number and mention PepsiCo of Management’s Report on Internal Control over
SharePower. For telephone inquiries, please have a copy of Financial Reporting on page 83 of this annual report.
your most recent statement available. If you have questions regarding PepsiCo’s financial
03 04 05 06 07 performance contact:
Employee Benefit Plan Participants
PepsiCo 401(k) Plan & PepsiCo Stock Purchase Program
Year-end Market Price of Stock Jane Nielsen
Based on calendar year-end (In $) Vice President, Investor Relations
The PepsiCo Savings & Retirement Center at Fidelity
PepsiCo, Inc.
P.O. Box 770003
Purchase, NY 10577
80 Cincinnati, OH 45277-0065
Telephone: 914-253-3035
Telephone: 800-632-2014
(Overseas: Dial your country’s AT&T Access Number Independent Auditors
60
+800-632-2014. In the U.S., access numbers are avail- KPMG LLP
able by calling 800-331-1140. From anywhere in the 345 Park Avenue
40 world, access numbers are available online at New York, NY 10154-0102
www.att.com/traveler.) Telephone: 212-758-9700
Website: www.netbenefits.fidelity.com Corporate Headquarters
20
PepsiCo, Inc.
700 Anderson Hill Road
0 Purchase, NY 10577
03 04 05 06 07
Telephone: 914-253-2000
PepsiCo Website: www.pepsico.com
PepsiCo’s Annual Report contains many of the valuable trademarks owned and/or used by PepsiCo and its subsidiaries and © 2008 PepsiCo, Inc.
affiliates in the United States and internationally to distinguish products and services of outstanding quality.

Design: Eisenman Associates. Printing: Earth - Thebault an EarthColor Company. Photography: Greg Kinch, PhotoBureau, Ben Rosenthal, Diana Scrimgeour, Stephen Wilkes.