Performance with Purpose PepsiCo Corporate Sustainability Report

Performance with PurposePepsiCo Corporate Sustainability Report

2006 ~ 2007

Human Sustainability

Environmental Sustainability

Talent Sustainability

REPORT BOUNDARIES . . . . . . . . . . . . . . 2

MESSAGE FROM THE CHAIRMAN . . . . . 3

TABLE OF SIGNIFICANT ACCOMPLISHMENTS . . . . . . . . . . . . . . . 4

PROFILE . . . . . . . . . . . . . . . . . . . . . . . . 6 Our Business . . . . . . . . . . . . . . . . . . . . . . . . 6

Our Products . . . . . . . . . . . . . . . . . . . . . . . . 7

Our Customers . . . . . . . . . . . . . . . . . . . . . . . 8

Our Operations . . . . . . . . . . . . . . . . . . . . . . . 9

Our Sustainability Journey . . . . . . . . . . . . . . 10

OUR VISION, MISSION, VALUES AND GUIDING PRINCIPLES . . . . 10 Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Guiding Principles . . . . . . . . . . . . . . . . . . . . 11

Code of Conduct . . . . . . . . . . . . . . . . . . . . . 12

Speak Up . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

RISK MANAGEMENT . . . . . . . . . . . . . . . 14 Risks and Responses . . . . . . . . . . . . . . . . . . . 14

Risk Management Process . . . . . . . . . . . . . . . 18

GOVERNANCE . . . . . . . . . . . . . . . . . . . . 20 Our Governance Structure . . . . . . . . . . . . . . 20

Communications with the Board of Directors . . . 20

Shareholder Proposals . . . . . . . . . . . . . . . . . . 22

Board and Executive Compensation . . . . . . . . 22

Conflicts of Interest . . . . . . . . . . . . . . . . . . . 23

Director Nomination Process . . . . . . . . . . . . . 23

Annual Performance Evaluation of the Board . . 23

Capital Expenditure Filter . . . . . . . . . . . . . . . 23

EXTERNAL CHARTERS . . . . . . . . . . . . . . 24 Memberships and Partnerships . . . . . . . . . . . 24

OUR CONSTITUENCIES . . . . . . . . . . . . . . 27 Stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . 27

Stakeholder Engagement . . . . . . . . . . . . . . . 28

ECONOMIC PERFORMANCE . . . . . . . . . . 30 Summary of Economic Performance 2006 . . . 30

Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Public Policy . . . . . . . . . . . . . . . . . . . . . . . . . 31

Economic Contributions . . . . . . . . . . . . . . . . 31

Contributions and Community . . . . . . . . . . . 32

Corporate Honors . . . . . . . . . . . . . . . . . . . . . 35

Cause Marketing . . . . . . . . . . . . . . . . . . . . . . 36

PepsiCo–Performance with Purpose

TABLE OF CONTENTS

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HUMAN SUSTAINABILITY . . . . . . . . . . . 37 Product Responsibility: Our Portfolio . . . . . . 38

Smart Spot . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Portfolio Transformation . . . . . . . . . . . . . . . . 40

Nutrition Timeline . . . . . . . . . . . . . . . . . . . . 42

Health and Wellness Partnerships . . . . . . . . . 42

Product Labeling . . . . . . . . . . . . . . . . . . . . . 46

Food Safety . . . . . . . . . . . . . . . . . . . . . . . . . 46

Consumer and Customer Relations . . . . . . . . 47

Consumer Privacy . . . . . . . . . . . . . . . . . . . . . 48

Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . 48

ENVIRONMENTAL SUSTAINABILITY . . . . 49 Our Commitment . . . . . . . . . . . . . . . . . . . . . 50

Environmental Sustainability Timeline . . . . . . 50

Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Management . . . . . . . . . . . . . . . . . . . . . . . . 53

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Capital Expenditure Filter . . . . . . . . . . . . . . . 54

Our Environmental Policy . . . . . . . . . . . . . . . 54

Education and Awareness . . . . . . . . . . . . . . . 55

Our Approach . . . . . . . . . . . . . . . . . . . . . . . . 56

Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Packaging and Waste . . . . . . . . . . . . . . . . . . 63

Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Environmental Honors . . . . . . . . . . . . . . . . . 66

TALENT SUSTAINABILITY . . . . . . . . . . . . 69 Our Commitment . . . . . . . . . . . . . . . . . . . . . 70

Diversity and Inclusion . . . . . . . . . . . . . . . . . 71

Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Health and Safety . . . . . . . . . . . . . . . . . . . . . 75

Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Human Rights . . . . . . . . . . . . . . . . . . . . . . . 78

Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Talent Honors . . . . . . . . . . . . . . . . . . . . . . . . 79

GRI INDEX . . . . . . . . . . . . . . . . . . . . . . . 81

Dow JonesSustainability Indexes


PepsiCo has been selected for the Dow Jones Sustainability World Index (DJSI World) and the Dow Jones Sustainability Index North America (DJSI North America). The DJSI World comprises the leading companies in terms of sustainability around the world. The DJSI North America captures the leading companies in terms of sustainability out of the largest North American companies.

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REPORT BOUNDARIES

This report covers areas of importance to PepsiCo’s business. It is organized in four sections. The first section covers areas of governance and reports on economic impacts. The next three sections report on PepsiCo’s three sustainability planks:

• Human Sustainability — how we work to nourish people with our products.

• Environmental Sustainability — how we work to replenish the environment.

• Talent Sustainability — how we work to cherish people.

This report covers �006. When �007 information is included it is noted. Our last report covered �005.

Our report includes PepsiCo operations that we own and operate. In the United States and in some other countries, independent franchise bottlers manufacture and distribute beverage products. Our three largest bottlers are The Pepsi Bottling Group (PBG), PepsiAmericas and Pepsi Bottling Ventures. Our ownership of each of these bottlers is less than 50% and because we do not control these bottlers, we do not consolidate their results or include their information in this report except as noted in the text.

The report is expected to be read by employees, customers, consumers, shareholders, analysts and other non-governmental (NGO) groups interested in PepsiCo and sustainability.

Data is prepared following PepsiCo-established metrics and protocols, which often follow external methods. There are no restatements or significant changes from the prior report.

For additional information contact the PepsiCo Communications Department.

PepsiCo World Headquarters in Purchase, NY, includes the Donald M. Kendall Sculpture Gardens, an outdoor sculpture and botanical garden open to the public.

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Dear Friends,

When I was a child in India, my mother would ask my sister and me a simple but compelling question: “What would you do to change the world?” Today, I know my answer would be that I want to lead a company that is a force for good in the world. A company that delivers good financial performance while embracing “purpose” in everything it does.

It therefore gives me great pride to present PepsiCo’s sustainability report to you. Our commitment to sustainability is long-standing and today forms the foundation of our operating strategy which we call “Performance with Purpose.” It means we bring together what is good for business and good for the world.

Our goals, like my mother’s question, are simple, but the journey is long. This report will demonstrate that PepsiCo has made considerable progress, yet we know there is much more to be done.

Our priorities under the Performance with Purpose strategy have been consistent. We are focused on driving sustainability against three priorities:

• Human Sustainability: Nourishing consumers with a range of fun and healthy products, and making the healthier choice the easy choice.

• Environmental Sustainability: Replenishing the environment, and working toward a net-neutral impact on the environment in which we operate.

• Talent Sustainability: Cherishing our employees, and making PepsiCo the most desirable place for people of all backgrounds to build a career.

These priorities reflect the many challenges PepsiCo faces: rising obesity and the need for more balance between energy intake and physical activity; food safety; water quality and scarcity; energy efficiency, emissions and climate change; increasing amounts of waste and the need for more recycling; hiring and retaining the best people and helping them achieve work-life balance; to name a few.

No one person, and no one company, can solve them all. But each one of us can make a difference. And every associate I’ve spoken with at PepsiCo wants to make that difference. This

is what makes PepsiCo such a good company.

One notable example is that in �007, PepsiCo was named to the Dow Jones Sustainability World Index and again to the Dow Jones Sustainability North America Index. We are proud that this exhaustive review of our sustainability work has led to PepsiCo being recognized as among the world’s most sustainable companies.

I thank everyone who has worked with us to make this positive difference. I look forward to continuing to work with you.

Cordially,

Indra K. NooyiChairman and Chief Executive Officer

A MESSAGE FROM THE CHAIRMAN

Indra K. NooyiChairman and Chief Executive Officer

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SIGNIFICANT ACCOMPLISHMENTS

Area Action/ResultsVision/Mission/GovernancePerformance with Purpose (�007) Articulated PepsiCo vision in the areas of human, environmental and talent

sustainability.

Human Rights policy Adopted policy defining PepsiCo’s commitment to human rights.

Political contributions policy Provides clarification of policy and publication of contributions.

Environmental policy Provides clear explanation of PepsiCo environmental standards.

International Anti-Bribery policy Policy adopted and communicated to PepsiCo International employees. Provided training to nearly �5,000 employees.

Supplier Code of Conduct Launched Supplier Corporate Social Responsibility Assurance program, including a global Supplier Code of Conduct.

Public Policy Coordinating Group (�007) The group was formed to formalize review and management of policy and sustainability.

Leads for each of sustainability areas: human, environmental and talent. (�007)

Appointed leaders to ensure key areas of sustainability are addressed.

Millennium Development Goals (�007) Embraced Millennium Development Goals (MDG) and will focus on areas where we can make a difference.

Dow Jones Indexes Named to the Dow Jones Sustainability World Index (�007) and Dow Jones Sustainability Index North America (�006 and �007).

Business Ethics Magazine Named to �00 Best Corporate Citizens list.

Economic

Contributions Donated an estimated $58.5 million in contributions and in-kind donations.

PepsiCo Foundation Supported a number of programs directed to health and wellness that are advancing knowledge about how to effect positive behavior change.

Community Service Organized Global Week of Community Service during which employees served more than 8,000 hours and contributed services worth an estimated $�00,000 to improve local communities. Volunteers built playgrounds in inner cities.

Human Sustainability

Strategic Portfolio Transformation Made portfolio acquisitions, reformulated existing products and introduced new products as we transformed our portfolio to address issues of obesity.

Smart Spot Increased the number of Smart Spot eligible products as we move toward �0�0 goal of deriving 50% of U.S. revenues from Smart Spot eligible products.

Smart Spot Dance (�007) Partnered with America on the Move, YMCA of the USA, National Urban League and National Council of La Raza to engage the African American and Latino communities to get more active.

PepsiCo International Nutrition Team (�007) Created a global team of internal advisors on portfolio transformation.

International Food Safety and Nutrition Network (�007)

Created global network of PepsiCo R&D and food science professions to establish specific priorities and codes of practice regarding PepsiCo food safety.

Alliance for a Healthier Generation (�007) Became a part of voluntary industry, government and health official group working to adopt a practical school vending policy in the United States.

Genetically Modified Ingredients (�007) Developed worldwide policy on biotechnology.

Advertising to children Joined with other food and beverage companies to strengthen guidelines concerning advertising to children.

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Environmental Sustainability

Strategy and Goals Adapted a strategy to reduce water use, greenhouse gas emissions and packaging and solid waste and set goals for water, electricity and fuels consumption. Developed a waste protocol to standardize data collection around waste. Began collecting greenhouse gas emissions data more broadly across the Company.

Environmental Sustainability Leadership Team and Environmental Council (�007)

Established a leadership team to ensure that environmental impacts are considered throughout the organization.

Capital Expenditure Filter (�007) Implemented an analytic framework to ensure that sustainability is factored into capital expenditures at an early stage of the proposal process.

Water projects Implemented a number of programs to conserve water, change our water processes, and find innovative ways to improve water management, including in communities.

Global Water Tool Worked with the World Business Council on Sustainable Development to develop a Global Water Tool for free use.

China Mother Water Cellars Project Project reached landmark of touching more than � million people over the last five years.

India water Established holistic approach to water management that includes water management as well as many other community factors.

Ethos Water (�007) Entered an agreement to distribute Ethos Water that will increase donations to projects that bring clean water to children around the world.

Exnora Waste Management (�007) PepsiCo’s Exnora’s zero waste management project in India was selected by UNICEF as a model project.

Renewable Energy Certificates (�007) Made landmark purchase of Renewable Energy Certificates to offset the purchased electricity used by all PepsiCo U.S. facilities. Our three anchor bottlers also purchased RECs.

U.S. Climate Action Partnership (�007) Joined with other business members and NGOs to promote governmental action on climate change.

Ozone friendly refrigeration Joined Refrigerants Naturally!, a business-NGO group dedicated to moving to HFC-free refrigeration at point-of-sale cooling. More than 99% of our new purchases of refrigerated point-of-sale equipment uses HFC-free insulation.

LEED Certification (�007) Achieved Gold LEED status at QTG Tolleson Distribution Center and Wytheville Gatorade plant.

Alternative energy (�007) Installed Arizona’s largest privately-owned photovoltaic electricity generation system.

Carbon Footprint (�007) Walkers Crisps in the United Kingdom became the first major food brand in the world to display a carbon footprint reduction logo.

Sustainable Packaging Council Established a team to develop sustainable packaging strategies.

Packaging and Waste Material Reduced PET bottles, paperboard and corrugated materials by more than �0 million pounds, continuing our achievement of year-over-year reductions.

Recycled PET Continued to meet goal of including �0% recycled material in our PET soft drink bottles.

EPA Energy Star Partner of the Year (�007) Recognized by Environmental Protection Agency (EPA) for energy conservation.

CEO Water Mandate (�007) Joined the United Nations initiative to address water issues.

Talent Sustainability

Diversity and Inclusion Leadership Legacy Award

Established a new award to recognize senior leaders who champion diversity and inclusion over time.

Diversity and Inclusion Recognized for diversity and inclusion programs and progress by several magazines.

Safety Added new Occupational Safety & Health Administration (OSHA) Voluntary Protection Programs (VPP) sites — giving Frito-Lay more VPP Star sites than any other food company and maintaining all Tropicana sites as VPP Star. QTG was accepted by OSHA to participate in Corporate VPP Program.

HIV/AIDS and Pandemic Preparation Advanced HIV/AIDS work and established Avian Bird Flu task force.

Code of Conduct Approximately �0,000 employees completed mandatory training, with �00% completion.

Supplier Code of Conduct Introduced Supplier Code of Conduct.

Supplier Diversity Passed $� billion mark in purchases from women-owned and minority-owned businesses.

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PROFILEOur BusinessPepsiCo Inc. is a leading global snack and beverage company with �006 net revenues of more than $�5 billion and total operating profit of more than $6.� billion. PepsiCo manufactures and markets snack foods in North America through our Frito-Lay North America division (��% of revenues); beverages in North America through PepsiCo Beverages North America (�7% of revenues); cereals and rice products in North America through Quaker Foods North America (5% of revenues) and beverages, sweet and salty snacks and Quaker brands outside North America through PepsiCo International (�7% of revenues). PepsiCo is a publicly-listed, widely-held company.

On November 5, �007, PepsiCo announced a strategic realignment of its organizational structure to position the Company for continued strong growth and more fully leverage the talents of its senior leaders. PepsiCo, which previously comprised PepsiCo North America and PepsiCo International, will now be organized into three major operating units:

• PepsiCo Americas Foods (PAF) — which includes Frito-Lay North America, Quaker and all Latin American Food and snack businesses, including the Sabritas and Gamesa businesses in Mexico.

• PepsiCo Americas Beverages (PAB) — which includes Pepsi-Cola North America, Gatorade, Tropicana and all Latin American beverage businesses.

• PepsiCo International (PI) — which includes all PepsiCo businesses in the United Kingdom, Europe, Asia, Middle East, and Africa.

PepsiCoInternational�7%

PepsiCoBeveragesNorth America�7%

Frito-LayNorth America��%

5%

Quaker Foods North America

Net RevenueTotal $35,137

We reported: ($ In millions)

Total Assets $29,930

Total Liabilities 14,562

Total CommonShareholders’ Equity 15,447

Our roots go back more than �00 years to the creation of Pepsi-Cola by New Bern, N.C. pharmacist Caleb Bradham and his founding of the Pepsi-Cola Company in �898. The H.W. Lay Company was founded by Herman W. Lay in �9��. In �96�, Lay merged his potato chip company with The Frito Company, founded by Elmer Doolin, to form Frito-Lay. PepsiCo was formed in �965 through the merger of Pepsi-Cola Company and Frito-Lay.

Tropicana was started by Anthony Rossi, who pioneered a pasteurization process for orange juice. Tropicana became part of PepsiCo in �998. Gatorade, which was created in �965, became part of the Quaker Oats Company in �98�. The Quaker Oats Company, which dates back to �90� when several American pioneers in oat milling came together to incorporate, became a part of PepsiCo in �00�.

PepsiCo, Inc. was incorporated in Delaware in �9�9 and was reincorporated in North Carolina in �986.

At year-end �006, PepsiCo employed approximately �68,000 people throughout the world, with approximately 6�,000 in the United States.

Our common stock (PEP) is traded principally on the New York Stock Exchange. PepsiCo is also listed on the Amsterdam, Chicago and Swiss Stock Exchanges. At year-end �006, there were approximately �90,000 shareholders of record.

Frito-LayNorth America

(FLNA)

Quaker FoodsNorth America

(QFNA)

PepsiCoBeverages

North America (PBNA)

PepsiCoInternational

(PI)

From left to right: Caleb Bradham, the pharmacist who formulated Pepsi-Cola; Elmer Doolin, who bought the recipe for Fritos and started the Frito Company; Herman W. Lay, founder of H.W. Lay Company, links arms with Donald M. Kendall, CEO of Pepsi-Cola, as they mark the creation of PepsiCo in 1965; Anthony Rossi, founder of Tropicana, Dr. James Robert Cade, Gatorade inventor; the Quaker trademark.

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We offer great tasting convenient foods and beverages to consumers around the world. Our principal brands include Frito-Lay, Pepsi-Cola, Tropicana, Gatorade and Quaker. We manufacture and sell more than 500 products that serve the needs of consumers of all ages in approximately �00 countries.

Our products offer fun and refreshment and many can contribute to good health and nutrition. Our largest brands at retail include Pepsi-Cola, Gatorade thirst quencher, Mountain Dew (diet and regular), Diet Pepsi, Lay’s potato chips, Doritos tortilla chips, Tropicana Pure Premium orange juice, Cheetos cheese flavored snacks, Aquafina

bottled water, 7UP (outside the United States); ready-to-drink Lipton teas, Quaker cereals, Ruffles potato chips, Mirinda carbonated soft drinks, Tostitos tortilla chips, Sierra Mist carbonated soft drinks (diet and regular) and Fritos corn chips. Many of these brands are known around the world.

As part of our Smart Spot initiative, we offer a growing number of products that can contribute to healthier lifestyles. For a PepsiCo product to carry the Smart Spot it must:�) contain at least �0% of the Daily Value of certain targeted, positive nutrients and meet limits on other nutrients;

�) be formulated to have specific health or wellness benefits, or �) be reduced in calories, or nutrients such as fat, sodium or sugar.

These criteria for Smart Spot eligible products are based on authoritative statements from the U.S. Food and Drug Administration (FDA) and the National Academy of Sciences (NAS). In �006, revenues from Smart Spot eligible products represented over two-thirds of our growth in North America. And we’ve set a goal of deriving 50% of all our U.S. revenues with Smart Spot eligible products by �0�0.

Our Products

Our CustomersOur customers include large supermarkets and small grocery stores, warehouse and club stores, mass merchandisers, convenience and gas station stores, drug stores and other retail outlets as well as restaurants and foodservice and vending operations. We distribute our products to customers through a variety of distribution methods including direct-store-delivery, broker-warehouse delivery and foodservice and vending distribution networks. We manufacture the majority of our products, sourcing from both independent and contract farmers, processing and packaging in our own plants. With respect to soft drinks, we provide concentrate to bottlers who manufacture and distribute our brands. In the United States, these bottlers are independently owned and operate under franchise agreements.

Retail consolidation continues to increase the importance of major customers. In �006, sales to Wal-Mart (including Sam’s) represented over �6% of our North American net revenue. This percentage included concentrate sales to our bottlers which are used in finished goods sold by them to Wal-Mart. In addition, sales to The Pepsi Bottling Group (PBG), represented approximately �0% of our total net revenue.

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PepsiCo World Headquarters are located in Purchase, New York, USA. Pepsi-Cola North America headquarters are also located in Purchase, New York. Other North America headquarters include Frito-Lay North America in Plano, Texas, USA and QTG (Quaker Foods, Tropicana/Gatorade) headquarters in Chicago, Illinois, USA.

PepsiCo International headquarters are located in Purchase, New York, USA. There are international business units headquarters located around the world:PepsiCo Asia — Hong KongPepsiCo Europe — SwitzerlandPepsiCo Latin America Region Foods and Beverages — Mexico PepsiCo Middle East and Africa — United Arab EmiratesSabritas — Mexico

In addition to our various headquarters, our major properties include:

Frito-Lay North America — Owns or leases approximately �0 food manufacturing and processing plants and approximately �,980 warehouses, distribution centers and offices.

PepsiCo Beverages North America — Owns or leases (by us or our co-packers) approximately 60 plants and production processing facilities and �7 warehouses, distribution centers and offices. In addition, authorized bottlers in which we have an ownership interest own or lease approximately 70 bottling plants.

Quaker Foods North America — Owns or leases approximately �5 manufacturing plants and production processing facilities.

PepsiCo International — Owns or leases approximately �50 plants and approximately �,500 warehouses, distribution centers and offices. In addition, authorized bottlers in which

we have an ownership interest own or lease approximately �50 plants and distribution centers.

During �006, we acquired several companies that fit with our portfolio including:

• Stacy’s bagel and pita chips in North America;

• Izze carbonated beverages in North America;

• Naked Juice fruit beverages (acquired January �, �007) in North America;

• Duyvis nuts in the Netherlands;

• Star Foods snacks in Poland;

• Bluebird snacks in New Zealand (in early �007).

Our Operations Outside of the United States, our largest markets are Mexico, the United Kingdom and Canada.

59%Canada $�,70�

All other countries $7,580

Mexico $�,��8

United Kingdom $�,8�9

��%

5%

5%

9%

United States $�0,788

($ In millons)

World Map of Headquarters

Hong Kong

Switzerland

MexicoUnited Arab Emirates

Purchase, NY

Plano, TX

Chicago, IL

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�0


• PepsiCo Headquarters in Purchase opened to the public to visit the outdoor sculpture gardens and grounds, later known as Donald M. Kendall Sculpture Gardens.

• Pepsi-Cola Foundation founded in 1962. • PepsiCo Foundation founded in 1965.

• Code of Conduct introduced.• Community Affairs has active

sponsorship programs.• Diversity focus and African American

Advisory Board formed.• Divisions operate environmental programs.

• Speak Up hotline introduced.• Corporate Governance policies developed.• Advertising policies developed.

OUR VISION, MISSION, VALUES AND GUIDING PRINCIPLES

Legacy Programs

Our Sustainability Journey

Vision PepsiCo’s responsibility is to continually improve all aspects of the world in which we operate – environment, social, economic – creating a better tomorrow than today.

PepsiCo’s Sustainability Vision is the foundation for Performance with Purpose. It expresses our fundamental belief that doing the right thing for society is the right thing for business. It encompasses the health of our world and the health of the Company.

Along with our Mission, Core Values and Guiding Principles it articulates what we stand for and what we are committed to support. The behaviors that will help us achieve our mission are articulated in our Values Statement.

MissionWe aspire to make PepsiCo the world’s premier consumer products company, focused on convenient foods and beverages. We seek to produce healthy financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive to act with honesty, openness, fairness and integrity.

ValuesOur commitment is to deliver sustained growth, through empowered people, acting with responsibility and building trust.

Here is what this means:

Sustained Growth is fundamental to motivating and measuring our success. Our quest for sustained growth stimulates innovation, places a value on results, and helps us understand whether actions today will contribute to our future. It is about growth of people and company performance. It prioritizes making a difference and getting things done.

Empowered People means we have the freedom to act and think in ways that we feel will get the job done, while being consistent with the processes that ensure proper governance and being mindful of the rest of the company’s needs.

Responsibility and Trust form the foundation for healthy growth. It’s about earning the confidence that other people place in us as individuals and as a company. Our responsibility means we take personal and corporate ownership for all we do, to be good stewards of the resources entrusted to us. We build trust between ourselves and others by walking the talk and being committed to succeeding together.

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• Latino/Hispanic Advisory Board formed. • Environmental Task Force formed.

• PepsiCo becomes a member of the Global Business Coalition on HIV/AIDS.

• Established packaging goal of 10% recycled content.

2000 2001 2002

This is how we carry out our commitment.

We must always strive to:

Care for customers, consumers and the world we live in. We are driven by an intense, competitive spirit in the marketplace, but we direct this spirit toward solutions that achieve a win for each of our constituents as well as a win for us. Our success depends on a thorough understanding of our customers, consumers and communities. Caring means going the extra mile. Essentially, this is a spirit of growing rather than taking.

Sell only products we can be proud of. The test of our standards is that we must be able to personally endorse our products without reservation and

consume them ourselves. This principle extends to every part of the business, from the purchasing of ingredients to the point where our products reach the consumer’s hands.

Speak with truth and candor. We speak up, telling the whole picture, not just what is convenient to achieving individual goals. In addition to being clear, honest and accurate, we take responsibility to ensure our communications are understood.

Balance short term and long term. We make decisions that hold both short-term and long-term risks and benefits in balance over time. Without this balance, we cannot achieve the goal of sustainable growth.

Win with diversity and inclusion. We leverage a work environment that embraces people with diverse traits and different ways of thinking. This leads to innovation, the ability to identify new market opportunities, all of which help develop new products and drives our ability to sustain our commitments to growth through empowered people.

Respect others and succeed together. This company is built on individual excellence and personal accountability, but no one can achieve our goals by acting alone. We need great people who also have the capability of working together, whether in structured teams or informal collaboration. Mutual success is absolutely dependent on treating everyone who touches the business with respect, inside and outside the company. A spirit of fun, our respect for others and the value we put on teamwork make us a company people enjoy being a part of, and this enables us to deliver world-class performance.

PEPSICO VALUESGUIDING PRINCIPLES

Care for customers, consumers and the world we live in

Sell only products we can be proud of

Speak with truth and candor

Balance short term and long term

Win with diversity and inclusion

Respect others and succeed together

PEPSICO VALUES

Guiding Principles

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Code of ConductPepsiCo has had a Code of Conduct since �976. It is regularly updated and it applies to all employees and to all divisions and subsidiaries. It is communicated to all our employees annually. PepsiCo’s Code of Conduct is made available on-line and in �0 languages. Our Code of Conduct includes sections on:

• PepsiCo’s Mission

• Respect for Our Employees/Diversity

• Customers, Suppliers and Competitors

• Global Relations

• Business Gifts and Payments

• Health and Safety

• Environment

• Political and Community Activities and Contributions

• Conflicts of Interest

• Insider Trading and Proprietary Information

• Accounts and Record Keeping

• Protection and Use of Company Assets

• Reporting Code of Conduct and Other Ethics Issues

• Responsibility for Compliance

In addition to our Code of Conduct, we have specific policies regarding key topics such as the International Anti-Bribery Compliance Policy, Anti-Harassment/Discrimination Policy, Customer Trade Agreement Policy, Disclosure Policy, Equal Employment Opportunity Policy, Environmental Policy, Human Rights Workplace Policy, Information Security Policies and Travel and Entertainment Policy. These policies apply to all of our associates worldwide.

Specific employees, including management and any individual with access to sensitive information or in a position to acquire goods and services, are required to complete mandatory

web-based training on our Code of Conduct and to certify their compliance with the Code. Each year, we distribute and communicate the Code to employees. In addition, we regularly communicate and reinforce our Code of Conduct and our Values through a variety of means, including in-person training, Town Hall meetings, articles in our daily in-house e-newsletters, information on our intranet, management presentations and awards for ethical behavior.

In �005, PepsiCo established a compliance and ethics leadership structure, appointing a Vice President, Deputy General Counsel, Business Practice and Compliance, who is focused on business practices, ethics and compliance.

In the event of a breach of the Code of Conduct, appropriate disciplinary action is taken, ranging from counseling to termination, depending on the type and seriousness of the matter. PepsiCo’s outside auditor receives reports regarding potentially significant violations that relate to fraud, accounting, auditing and internal

• Voluntarily adopted Global Reporting Initiative (GRI) Guidelines.

• Health and Wellness Advisory Board formed.• Worldwide HIV/AIDS policy adopted.

• Sustainability Task Force formed.• Sustainability Vision –

Tomorrow>Today defined.• PepsiCo joins the World Business Council on

Sustainable Development.

• Smart Spot introduced.• Values Statement adopted.• HealthRoads introduced.

2003 2004

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control matters. The Audit Committee also receives regular reports regarding compliance with the Code of Conduct. In order to maintain the confidentiality and anonymity of PepsiCo’s hotline, PepsiCo does not publicly report on breaches of its Code of Conduct or other policies.

Any reports of potential corruption are investigated immediately under the direction of the Law Department. If employees are found to have engaged in questionable behavior they will be disciplined accordingly. When appropriate law enforcement authorities are notified, PepsiCo cooperates with law enforcement activity to the fullest extent possible.

Anti-corruption policies and procedures are included in our Code of Conduct. In addition, PepsiCo’s International Anti-Bribery Policy was communicated to all Corporate and PepsiCo International employees in �006 and web-based training was provided to approximately �5,000 employees on this Policy in �007.

• Sustainability Capital Expenditure filter piloted.

• Metrics for water and energy developed.• PepsiCo Environmental Management

System established.

• Human Rights policy adopted.• Political contributions policy adopted.• Environmental Policy adopted.

• Performance with Purpose introduced.• Public Policy Coordinating Group formed.• Environmental Sustainability Leadership

Team formed.• Sustainability Capital Expenditure filter

refined and implemented.

2005 2006 2007

Speak UpTo promote high ethical standards and open communication across a global organization, we ensure that employees have clear lines of communication to report potential issues. We have a telephone hotline called “Speak Up” for this purpose. It is accessible from around the world at no charge to employees. To further ensure an environment that fosters open communications, employees may remain anonymous. The availability of the Speak Up line is communicated across PepsiCo. Types of incidents that may be reported through the Speak Up line include, but are not limited to:

• Employee mistreatment

• Discrimination, including sexual harassment

• Product tampering

• Substance abuse

• Falsifying Company records

• Accounting irregularities

• Questionable business practices

• Fraud or theft

• Criminal conduct

• Impermissible gifts

• Safety hazards

RISK MANAGEMENT

Risks and Responses PepsiCo is subject to risks in the normal course of business due to adverse developments with respect to several areas, including those relating to sustainability. These risks include: product demand; our reputation; information technology; supply chain; retail consolidation; the loss of major customers and failure to maintain good relationships with our bottling partners; global, economic, environmental and political conditions; the regulatory environment; workforce retention and outsourcing; raw materials and other supplies; competition; and market risks.

Our risk management process is intended to ensure that risks are taken knowingly and purposefully. As such, we leverage an integrated risk management framework to identify, assess, prioritize, manage, monitor and communicate risks across the Company.

Product demand Risk: Demand for our products may be adversely affected by changes in consumer preferences and tastes or if we are unable to innovate or market our products effectively. Our

continued success depends on our ability to respond to consumer trends, such as consumer health concerns about obesity, product attributes and ingredients, as well as product innovation.

Response: With respect to risks related to demand for our products, such as consumer health concerns, we continued to focus on the development of products that respond to consumer trends, including formulating products to lower sugar, fats and sodium and adding ingredients and new products that can deliver nutritional benefits. For example, at FLNA we introduced a new portion control line of �00-calorie offerings, and we switched to NuSun sunflower oil, an oil containing 90% mono-and polyunsaturated fats and less saturated fat than most other cooking oils, for our Lay’s and Ruffles potato chips. We reduced the amount of saturated fats in our Walkers crisps in the United Kingdom by 70% and the amount of salt by �5%. In an effort to help address the growing concerns regarding childhood obesity trends in the United States, we joined with the Alliance for a Healthier Generation, a joint initiative of the William J. Clinton Foundation and the American Heart Association, to set voluntary beverage guidelines for U.S. schools and limit portion sizes and establish voluntary guidelines for snacks and side items in U.S. schools.

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Our reputation Risk:Any damage to our reputation could have an adverse effect on our business, financial condition and results of operations. Maintaining a good reputation globally is critical to selling our branded products.

Response: Through the PepsiCo Product Integrity Council (PPIC), a cross-functional forum to share leading practices and confer about areas of potential risk, we completed a third-party review of our food safety and food security programs which helped identify opportunities to better leverage internal practices across all our businesses. We also enhanced our product sampling and testing protocols.

Information technology Risk: If we are not able to build and sustain proper information technology infrastructure, our business could suffer.

Response: We have embarked on a multi-year Business Process Transformation (BPT) initiative that includes the delivery of an SAP enterprise resource planning application, as well as the migration to common business practices across our operations.

Supply chainRisk: Disruption of our supply chain could have adverse effect on our business, financial condition and results of operations.

Response: We continued to assess our capability to address disaster recovery, crisis management and business continuity. For example, having recognized the potentially significant impact of a pandemic such as avian influenza, we formed a cross-functional, cross-divisional Pandemic Planning Team that worked to develop strategies and tactics to mitigate that impact.

Retail consolidation, the loss of major customers and failure to maintain good relationships with our bottling partners Risk: Trade consolidation, the loss of any key customer, or failure to maintain good relationships with our bottling partners could adversely affect our financial performance. We must maintain mutually beneficial relationships with our key customers, including our retailers and bottling partners, to effectively compete.

Response: We continued to work to ensure consistent and equitable trade practices across our customers, to deliver value-added product innovation and differentiation, to achieve the most effective trade spend across customers and channels through productivity programs, and to more effectively communicate to our customers the economic advantages of our direct-store-delivery (DSD) system.

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Global economic, environmental and political conditions Risk: Our business and that of our suppliers may be adversely impacted by unfavorable global economic or environmental changes, political conditions or other developments and risks in the countries in which we operate.

Response: We continue to monitor global conditions and enhance our ability to take a positive role in making a difference in the world. We continue to work to broaden and strengthen our presence in emerging markets and to create scale in key international markets.

The regulatory environment Risk: Regulatory decisions and changes in the legal and regulatory environment could increase our costs and liabilities or limit our business activities. Such regulatory environment changes include changes in food and drug laws, changes related to advertising and deceptive marketing practices, accounting standards, taxation requirements, competition laws and environmental laws, including laws relating to the regulation of water rights and treatment.

Response: To address risks relating to legal and regulatory issues we have launched an enhanced Code of Conduct training program in multiple languages. We improved the functionality of our employee hotline. We completed environmental and health & safety audits to help focus our mitigation efforts in these areas going forward.

Workforce retention and outsourcing Risk: If we are unable to hire or retain key employees or outsource certain functions effectively, it could have a negative impact on our business.

Response: We continued to focus on leveraging diversity and inclusion. We worked to expand the breadth and depth of our succession planning. We reinforced our focus on managing our people through an increased emphasis on people development as part of our performance management process.

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Raw materials and others supplies Risk: Our operating results may be adversely affected by increased costs, disruption of supply or shortages of raw materials and other supplies.

Response: We continue to reduce our input cost volatility by employing various hedging strategies where appropriate. We also continue to utilize our scale to achieve maximum value and ensure adequate supply, including working with our suppliers to help minimize volatility.

Competition Risk: Risk: Our business could suffer if we are unable to compete effectively. We compete against global, regional and private label manufacturers on the basis of price, quality, product variety and effective distribution. Increased competition could adversely affect our results.

Response: We continue to take action to be more competitive. We believe the strength of our brands, innovation and marketing, coupled with the quality of our products and flexibility of our distribution network, allows us to compete effectively.

Market risksRisk: We are exposed to market risks rising from adverse changes in:

• Commodity prices, affecting the cost of our raw materials and energy

• Foreign exchange rates

• Interest rates

• Stock prices

• Discount rates affecting the measurement of our pension and retiree medical liabilities.

Response: In the normal course of business, we manage these risks through a variety of strategies, including productivity initiatives, global purchasing programs and hedging strategies.

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Risk Management ProcessPepsiCo utilizes an integrated risk management framework to identify, assess, prioritize, manage, monitor and communicate risks across the Company. This framework includes:

• The PepsiCo Executive Committee (PEC), comprised of our most senior leadership group and chaired by PepsiCo’s Chairman and Chief Executive Officer.

• Five Division Risk Committees (DRCs), comprised of cross-functional senior management teams which meet quarterly to identify, assess, prioritize and address operating risks within our businesses and Information Technology Services group.

• PepsiCo’s Risk Management Office, headed by the Vice President, Enterprise Risk Management, which manages the overall risk management process, provides ongoing guidance, tools and analytical support to the PEC and the DRCs, identifies and assesses emerging risks, and facilitates ongoing communication among the divisions, as well as with PepsiCo’s Audit Committee and Board of Directors.

• PepsiCo Corporate Audit confirms the ongoing effectiveness of the risk management framework through periodic audit and review procedures.

There are a number of work processes across PepsiCo that incorporate risk management principles, including PepsiCo’s compliance programs, internal audit protocols, financial polices and reviews, operating policies and procedures, strategic planning, annual operating plans, business and joint venture reviews, advertising guidelines and reviews, product safety and security programs, crisis management procedures and protocols, disaster recovery plans and people planning and development processes.

In addition to the embedded risk management activities that take place each and every day within our normal business process, PepsiCo uses an integrated risk management framework to explicitly identify, assess, prioritize, manage, monitor and communicate risks across the Company.

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Risk IdentificationThis takes place annually from both a top-down (PEC) and bottom-up (DRC) viewpoint. Our risk identification efforts seek to evaluate both external risks (customer trends, consumer trends, government and public policy risks), as well as risks associated with internal capabilities.

Risk AssessmentAfter identifying our most significant inherent risks, each assessing body (PEC, DRCs, Risk Management Office (RMO) ) assesses the most significant risks from both a probability, impact and vulnerability perspective at two levels – inherent and residual. This assessment requires that we fully understand the existing capabilities, controls, programs, insurance coverage and other mitigating factors that enable an accurate assessment of the risk.

Risk PrioritizationAfter assessment, all risks that exceed a predetermined threshold are prioritized by both assessment itself as well as the ability to influence and/or mitigate. In addition, the RMO aggregates the risk assessment information to look for risk interdependencies and common mitigation solutions.

Risk ResponseFollowing our prioritization of risks, the PEC and DRCs are required to explicitly determine the response to each significant risk. The responses include accepting, avoiding, mitigating and transferring (via third party insurance). The DRCs also identify which risks will be monitored on an ongoing basis and what measurement index will be used for such a purpose.

CommunicationEach DRC is required to summarize its risk management efforts by providing meeting minutes, as well as semi-annual submissions of risk maps and “heat maps.” Risk maps are used to document specific information about identified risks, including the likelihood, the impact and risk response. “Heat maps” provide an aggregate view of the Company’s risks.

For PepsiCo’s top risks, PepsiCo has assigned Executive Risk Owners that are responsible for understanding the risk across the Company and providing annual updates to the PEC as well as the Audit Committee and Board of Directors, depending upon the risk area. The Executive Risk Owners are required to provide risk templates that provide a company-wide assessment and description of mitigation efforts

across the Company. A semi-annual risk management update is provided to the PepsiCo Audit Committee, during which our risk profile, risk mitigation efforts and risk management process are discussed.

More InformationFor a list of major products see: http://www.pepsico.com/PEP Company/BrandsCompanies/index.df.

For more information on Health and Wellness and Smart Spot see:http://www .smartspot .com andhttp://www.pepsico.com/PEP Citizenship/HealthWellness/index.cfm.

For a list of subsidiaries of PepsiCo, see Exhibit �� of PepsiCo’s �006 Form �0-K.

For more information on many of these topics see PepsiCo’s website http://www.pepsico.com, divisional websites, the PepsiCo Annual Report and PepsiCo’s Management Discussion and Analysis included in PepsiCo’s Form �0-K.

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Board of Directors and Standing Committees PepsiCo’s business strategy and affairs are overseen by our Board of Directors. Our Board of Directors has three standing Committees:

�. Nominating and Corporate Governance�. Audit �. Compensation

As of September �007, our Board of Directors has �0 members, including eight independent outside directors and two executive directors. Members of all Board Committees are independent outside directors.

PepsiCo’s independence director standards are defined in Section B of the Corporate Governance Guidelines entitled “Director Qualification Standards.” These standards conform to the director independence rules of the New York Stock Exchange. For a full discussion of how we define an independent director see PepsiCo’s Corporate Governance Guidelines on our website at www.pepsico.com under “Investors – Corporate Governance – Corporate Governance Guidelines.”

PepsiCo’s Board has an independent Presiding (Lead) Director. Effective May �, �007, Sharon Percy Rockefeller serves as Presiding (Lead) Director of PepsiCo’s Board. Prior to May �, �007, Robert Allen served as Presiding (Lead) Director to the Board.

Steven S Reinemund served as Chairman and CEO until October �, �006. From October �, �006 to May �, �007, Indra K. Nooyi served as CEO and Steven S Reinemund served as Chairman. Indra K. Nooyi became Chairman and CEO as of May �, �007.

GOVERNANCE

Our Governance StructurePepsiCo was founded in �965 on a handshake between Donald M. Kendall, President and Chief Executive Officer of Pepsi-Cola and Herman W. Lay, Chairman and Chief Executive Officer of Frito-Lay. Trust has been a cornerstone of PepsiCo since the merger of these two companies. Today we pursue that goal as vigorously as ever.

Our governance includes the following:

• Board of Directors and Standing Committees

• Disclosure Committee

• PepsiCo Executive Committee

• Public Policy Coordinating Group

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PepsiCo Board of Directors: Front row, left to right: Dina Dublon, Consultant, Former Executive Vice President and Chief Financial Officer, JPMorgan Chase & Co.; James J. Schiro, Chief Executive Officer, Zurich Financial Services; Indra K. Nooyi, Chairman and Chief Executive Officer, PepsiCo.Second row: left to right: Michael D. White, Chief Executive Officer, PepsiCo International and Vice Chairman of PepsiCo; Ray L. Hunt, Chief Executive Officer, Hunt Oil Company, and Chairman, Chief Executive Officer and President Hunt Consolidated, Inc.; Arthur C. Martinez, Former Chairman of the Board, President and Chief Executive Officer, Sears Roebuck and Co.Back row, left to right: Victor J. Dzau, M.D., Chancellor for Health Affairs, Duke University and President and Chief Executive Officer, Duke University Health Systems; Alberto Ibargüen, President and Chief Executive Officer, John S. and James L. Knight Foundation; Sharon Percy Rockefeller, President and Chief Executive Officer, WETA Public Stations; Daniel Vasella, Chairman of the Board and Chief Executive Officer, Novartis AG.

Disclosure Committee This Committee consists of the Company’s Controller, General Counsel, General Auditor and Head of Investor Relations. Its responsibilities are detailed in the Disclosure Committee Charter available on our website at the link below. The purpose of the Committee is to ensure that all disclosures made by PepsiCo to its security holders or the investment community are accurate and complete and fairly present the Company’s financial condition and results of operations in all material respects, and are made on a timely basis as required by applicable laws and stock exchange requirements. http://www.pepsico.com/PEP_Investors/CorporateGovernance/DisclosureCommitteeCharter/index.cfm

PepsiCo Executive Committee (PEC) This Committee is comprised of our most senior leadership team and meets regularly on all areas of the business.

Public Policy Coordinating Group In July �007, PepsiCo established the Public Policy Coordinating Group to

address issues of public policy including sustainability. The group is under the direction of PepsiCo’s General Counsel and includes senior functional heads as well as other Company leaders who are focused on the sustainability platforms of Human Sustainability, Environmental Sustainability and Talent Sustainability. Responsibility for performance in our three key areas of sustainability includes:

• Human Sustainability, encompassing our products, is led by our chief Health and Wellness Innovation Officer, working with our R&D functions and divisions.

• Environmental Sustainability and the Environmental Sustainability Leadership Team (ESLT) are led by the head of the supply chain at each of our four businesses. They are supported by the Environmental Council, which is responsible for recommending and implementing actions. The ESLT replaces the Sustainability Task Force.

• Talent Sustainability resides primarily with our Chief Personnel Officer, including diversity officers, training and compensation and benefits groups.

PepsiCo’s Board of Directors and Board Committee responsibilities are detailed on PepsiCo’s website in the Investor section under Corporate Governance. Among the responsibilities of the Board and Committees are the following:

• PepsiCo’s full Board has responsibility for overseeing strategic planning. As part of this strategic oversight capacity, the Board reviews key social responsibility and sustainability issues on an as-needed basis. In addition, the Board Committees periodically review specific issues or initiatives consistent with the scope of each Committee’s charter.

• PepsiCo’s Audit Committee has audit, accounting and risk management responsibilities.

• PepsiCo’s Nominating and Corporate Governance Committee is responsible for selection, nomination and remuneration of Board members.

• PepsiCo’s Compensation Committee is responsible for remuneration of senior executives.

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Communications with the Board of DirectorsTo facilitate communications with our shareholders, we provide a telephone number, mailing address and electronic link to contact the Board of Directors. These may be found under “Contact the Board of Directors/Audit Committee” in the Corporate Governance section of our website and page 8 of PepsiCo’s �007 Proxy Statement. In addition, PepsiCo’s Proxy Statement, which is distributed to all shareholders, details the process for contacting the Board, a Committee of the Board or an individual member of the Board.

The PepsiCo Corporate Law Department reviews all communications sent to the Board of Directors relating to the duties and responsibilities of the Board and its Committees. The Corporate Law Department maintains a log of all such communications and regularly provides a summary of communications to the Board. Certain communications are sent to the Chair of the relevant Board Committee, the Presiding Director or to an individual Board member, as applicable. Concerns relating to PepsiCo’s accounting, internal accounting controls or auditing matters are referred to members of the Audit Committee.

Shareholder ProposalsShareholders wishing to submit shareholder proposals may do so in accordance with the instructions on page �5 of the Proxy Statement. One shareholder proposal, pertaining to Charitable Contributions, was included in the �007 Proxy Statement. The resolution did not receive enough votes to pass.

Board and Executive Compensation Most of the annual compensation provided to directors is tied to PepsiCo stock performance. Directors receive a straight-forward compensation package that includes a market competitive annual stock unit grant and annual retainer that can be deferred into PepsiCo stock units. Directors do not receive any meeting fees, nor do they have a retirement plan or receive any benefits such as life or medical insurance.

Pay levels for executive officers are designed to be competitive and, most importantly, align with the Company’s performance. Pay-for-performance is a critical policy in designing our executive compensation and, as a result, our “pay mix,” defined as the amount of fixed base salary relative to at-risk annual and long-term cash incentive awards and at-risk equity-based awards, places the greatest emphasis on variable pay incentives. As a result, over 90% of our Chairman and CEO’s target total compensation is variable and at-risk.

Performance-related annual incentive awards are earned based on the achievement of Company and individual performance measures. In particular, Company

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needs of the Board. This process is designed to ensure that the Board includes members with diverse backgrounds, skills and experience, including appropriate financial and other expertise relevant to the business of the Corporation.

Annual Performance Evaluation of the BoardThe Board and its Committees conduct a self-evaluation at least once annually to assess Board and Committee performance.

Capital Expenditure FilterAll requests for capital expenditures over $5 million must include a review of sustainability issues and performance against appropriate benchmarks. Additionally, opportunities for improving the sustainability of the project surrounding the capital request must be highlighted. The goal is to incorporate more sustainability opportunities in projects right from the start. This is expected to help drive continued improvement.

performance includes financial performance measures related to profit, net revenue and volume growth. Individual performance includes measures relating to an individual’s contribution to PepsiCo’s strategic business imperatives, such as improved operating efficiencies and driving PepsiCo’s Performance with Purpose priorities in the areas of human sustainability, environmental sustainability and talent sustainability.

We believe that grants of stock-based incentive awards are the best way to align the interests of executives with those of PepsiCo’s shareholders. Long-term incentive awards to PepsiCo executive officers are comprised of:

• Stock options, which have no intrinsic value to the recipient on the date of grant and only deliver meaningful value if PepsiCo achieves sustained long-term stock price growth,

• Performance-based restricted stock units, which only vest if pre-approved earnings targets are achieved, and

• Performance-based long-term cash awards, which are earned based on the same Company and individual performance measures used to determine performance-related annual incentive awards.

Not only is the value of PepsiCo’s long-term incentive awards linked to Company and stock price performance, but the size of the award is also performance-based. For example, the actual size of grants awarded to executive officers range from 0% to �50% of target based on PepsiCo’s financial performance relative to our Board-approved peer group as well as each executive officer’s individual contribution to PepsiCo’s strategic imperatives.

Conflicts of InterestOur Code of Conduct, which applies to all PepsiCo employees and directors, contains clear guidelines regarding conflicts of interest. PepsiCo’s Corporate Governance Guidelines also include director independence standards to address potential director conflicts of interest.

Director Nomination Process The Nominating and Corporate Governance Committee does not solicit director nominations but will consider recommendations for director nominees if the individuals recommended meet certain minimum Board membership criteria detailed on pages 9-�0 of the �007 Proxy Statement and, if so, if the candidates expertise and particular set of skills and background fit the current

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Governance Recognitions 2007

• PepsiCo received a perfect �0 out

of �0 corporate governance rating

from Governance Metrics International in �006

and �007.

• Institutional Shareholder Services said that in �006-

�007, PepsiCo outperformed

99.�% of the S&P 500 companies

and �00% of the companies

in the Food, Beverage and

Tobacco Industry group in key

governance measures.

EXTERNAL CHARTERS

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• American Beverage Association (ABA)

• Snack Food Association• International Life Science Institute

• International Society of Beverage Technologists

• National Safety Council

• American Industrial Hygiene Association

• American Society of Safety Engineers

• Con Mexico

• European Association of Industries of Juices & Nectars

• International Council of Beverage Associations

• CEEREAL European Breakfast Cereals Association

• European Food and Drink

Federation (CIAA)

EXTERNAL CHARTERS

Memberships and PartnershipsPepsiCo has always prided itself on being a good corporate citizen and taking action or aligning itself with organizations focused on emerging social issues. Examples of this include addressing health and wellness, advertising to children, HIV/AIDs, climate change and water resources.

Through our memberships and partnerships, PepsiCo endorses a number of initiatives related to our businesses. In addition to the initiatives noted below, on a global level, we have endorsed the UN Millennium Development Goals.

We are also members of many trade and professional groups and take an active role in these as suitable. These are sometimes local and specific to the business. Among these are:

®

NATIONAL URBAN LEAGUE

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Memberships and Partnerships (Selected Listing)

Organization PurposeOverall SustainabilityGlobal Reporting Initiative PepsiCo began voluntary reporting in �00�.

World Business Council on Sustainable Development

Member companies are united by shared commitment to sustainable development. PepsiCo is active in the Water Group and helped create a water assessment tool available for free use.

World Economic Forum Members are committed to improving society and the environment.

Human SustainabilityAlliance for a Healthier Generation This is a joint alliance with William J. Clinton Foundation and American Heart Association

to combat childhood obesity.

American Council on Fitness and Nutrition A group dedicated to helping people improve health. PepsiCo is a founding member.

America On the Move A group dedicated to helping people improve health through small changes in diet and exercise.

Children’s Advertising Review Unit (CARU) Members evaluate child-directed advertising and self regulate.

Communication Council Association This is a Mexican group promoting a productive, united and just society.

Consortium to Lower Obesity in Chicago’s Children

Members work to lower obesity in Chicago area children.

Cuban American National Council PepsiCo is working with this group on Health and Wellness initiatives, including Smart Spot Dance.

Family Friendly Programming Forum Members support family-friendly programming on TV.

National Council of La Raza PepsiCo is working with this group on Health and Wellness initiatives, including Smart Spot Dance and a research project to equip affiliate organizations with effective community-based healthful lifestyle programs.

National Urban League PepsiCo is working with this group on Health and Wellness initiatives, including Smart Spot Dance and providing capacity development support to build organizational expertise in health and quality of life.

Environmental SustainabilityAir and Waste Management Association Environmental professionals share information.

Beverage Packaging Environmental Council Members are committed to increasing recycling.

Climate Leaders PepsiCo is a member of this U.S. Environmental Protection Agency program focused on voluntary reductions of greenhouse gases.

CEO Water Mandate PepsiCo signed this mandate to contribute positively to the emerging water crisis.

Energy Star PepsiCo participates in this U.S. Environmental Protection Agency program focused on improving energy performance..

Environmental Law Institute PepsiCo joined in �007 as a sponsoring company.

European Organization for Packaging and the Environment (EUROPEN)

Members are dedicated to resolving the environmental challenges facing the packaging chain. PepsiCo is represented at the Board level.

Exnora International PepsiCo is working with this environmental group in India to manage solid waste in an environmentally friendly manner.

Global Beverage Industry Roundtable on Water Stewardship

Members are dedicated to addressing water issues.

Grocery Manufacturers Association/Food Products Association (GMA/FPA)

Through this group, PepsiCo is the chair for industry development of common reporting protocols and procedures for reporting sustainable packaging improvements.

ISO ��00� This group sets environmental standards. PepsiCo facilities in Leicester, United Kingdom and Spain have received certification. PepsiCo’s Environmental Management System (EMS) framework is built along the lines of ISO ��00�.

Keep America Beautiful This group is dedicated to recycling and community cleanups. Pepsi-Cola is a “Great American Cleanup” founding partner.

Mother Water Cellars Project PepsiCo China is working with this group to improve water availability in rural China.

National Arbor Day Foundation Frito-Lay has committed to planting �00,000 trees through this group’s “Make America a Little Greener” initiative.

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National Recycling Partnership Members are committed to increasing recycling in the U.S.

Refrigerants Naturally! This coalition of business and non-governmental members are committed to moving to ozone friendly point-of-sale refrigeration.

Safe Water Network Members are working to help provide safe water for communities in need.

SmartWay Transport Partnership This is a U.S. Environmental Protection Agency partnership. Members are committed to promoting greater energy efficiency and air quality within the freight transport business. Frito-Lay North America is a member.

Sustainable Packaging Coalition/GreenBlue This industry leading organization provides life-cycle analysis and design guidelines for sustainable packaging. PepsiCo is a member of the Executive Committee.

SUSTENTA Members of this Mexican group are committed to the betterment of solid waste management.

The Energy and Resource Institute (TERI) PepsiCo is working with this group in India to expand the availability of water.

US Climate Action Partnership (USCAP) Member companies are working to encourage climate action to reduce greenhouse gas emissions.

World Health Organization (WHO) PepsiCo subscribes to WHO Guidelines on drinking water quality.

Talent SustainabilityCommittee to Encourage Corporate Philanthropy

Members work to raise the level and quality of corporate philanthropy.

Cuban-American National Council PepsiCo is working with this group to advance diversity and inclusion, including building leadership capacity.

Ethics Resource Center Members are devoted to the advancement of high ethical standards and practices.

Global Business Coalition Members lead the business fight against HIV/AIDS and related diseases.

Habitat for Humanity This Tropicana and Tostitos partnership with the national organization builds homes for the needy.

Hispanic Association of Corporate Responsibility

PepsiCo is working with this group to advance diversity and inclusion.

League of United Latin American Citizens (LULAC)

PepsiCo is working with this group to advance national leadership and grass-roots activation.

MacBride Principles Members subscribe to Northern Ireland diversity principles.

Make a Wish Foundation Frito-Lay North America is working with this group to encourage donations.

NAACP PepsiCo is working with this group to advance National Leadership and grass-roots activation.

National Council of La Raza (NCLR) PepsiCo is working with this group to advance diversity and inclusion.

National Minority Supplier Development Council

Members support minority supplier development.

National Urban League (NUL) PepsiCo is working with this group to advance diversity and inclusion.

Organization of Chinese Americans PepsiCo is working with this group to advance diversity and inclusion, especially through national leadership and grass-roots activation.

OSHA Voluntary Protection Plan This is a government health and safety program. Four of Tropicana’s facilities and �6 of our Frito-Lay facilities have received Star certification demonstrating safety. QTG has been accepted to participate in OSHA Corporate VPP program.

Susan G. Komen Breast Cancer Foundation Frito-Lay North America has joined with this group to use SunChips multigrain snacks to raise awareness for a cure for breast cancer.

Sullivan Principles Members subscribe to human rights principles.

Supplier Ethical Data Exchange (Sedex) PepsiCo joined this group to partner with suppliers to improve performance across the supply chain.

US Pan Asian Chamber of Commerce PepsiCo is working with this group to advance diversity and inclusion, especially through national leadership and grass-roots activation.

Women’s Business Enterprise National Council (WBENC)

Members work to promote women’s enterprise.

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OUR CONSTITUENCIES

Our StakeholdersWe touch the lives of many people through our businesses. We welcome honest discussion with individuals, groups and advocates who represent community, environmental and social interests. Issues of concern brought to the attention of PepsiCo will be considered with a view toward our businesses and our sphere of influence.

We interact with many stakeholders.

Our Investors — We strive to provide investors a reasonable return on their investment, based on consistent financial growth in the marketplace and consistent financial results. We take a long-term view and make appropriate investments to strengthen our brands, develop our capabilities and pursue new opportunities. We seek healthy year-over-year growth and report honest, transparent and timely financial results.

Our Employees — Our employees are the greatest factor in our success. Their hard work, dedication and resourcefulness enables PepsiCo to compete effectively, serve the needs of customers and deliver the results our investors expect. We are committed to providing a work environment that allows our employees to achieve professional growth and personal fulfillment.

Our Customers, Partners and Suppliers — We work with our retail customers, franchise bottlers, joint-venture partners and suppliers to ensure that our partnerships appropriately balance the interests of all parties.

• Our retail customers are supermarkets, grocery stores, mass merchandisers, club stores, drug stores, gas stations, convenience stores, restaurants, foodservice outlets, vending machine operations and others who carry our products and make them directly available to consumers. We provide our products as well as marketing support that contributes to their growth, profit and positive cash flow.

• Our bottlers and other business partners manufacture many of our products. We provide certain needed ingredients and supplies as well as quality assurance and technical assistance. We conduct our business to allow both our partners and PepsiCo to earn a reasonable return and grow together.

• Our suppliers provide us with the goods and services needed in our business. We buy goods and services at competitive prices, allowing both our suppliers and PepsiCo to make a reasonable profit. We seek efficient suppliers with whom we can work and grow as long-term partners. We especially seek suppliers that are owned by minorities and women.

Our Consumers — We offer consumers great tasting products that provide outstanding quality, convenience and value. Each year, we invest in innovation to better serve consumer wants and needs through new products and packaging. We continually expand our distribution network to make our products more widely available. And we work relentlessly to improve productivity so we can offer affordable products to a broad range of consumers.

Our Communities — We recognize our responsibility to be a contributing member of our communities, both on a global and local level. We operate our businesses responsibly and seek to be a positive force. We support our communities through our businesses by contributing to not-for-profit groups and by working with organizations dedicated to improving the lives of people. We have advisory groups that focus on health and wellness, African-American and Latino/Hispanic issues.

Stakeholder EngagementPepsiCo actively listens and encourages communications with all our constituencies. Here are some examples of engagement:

Investors — We regularly conduct web-based quarterly conference calls to provide updates to analysts and investors, and we broadcast our annual shareholder meeting on our website.

Associates — We ask associates to respond to an “Organizational Health” survey, generally every other year. Topics

include benefits, working conditions, compensation, career development, diversity and inclusion initiatives, community activities and many others. The results of the survey are shared with associates and action plans to address issues are developed and made a part of performance goals.

We have active employee networks for our associates, including networks for African-Americans, Latinos, Asians, Native Americans, Women, Gay/Lesbian/Bisexual/Transgender and “Enable” for individuals with different abilities. Our most senior level executives reporting to our chief executive officer sponsor these groups across PepsiCo.

We have a daily e-newsletter which offers associates the opportunity to ask questions. We conduct regular “Forum” and “Town Hall” meetings during which employees are encouraged to ask questions and are updated on topics including the business and our priorities.

All associates have access to Speak Up, our telephone hotline to report potential issues.

Customers, Partners and Suppliers — We have dedicated teams for our customers, partners and suppliers and interact with them on a regular basis. We have a team dedicated to Supplier Diversity, including working with our women and minority suppliers to build their capabilities and business with PepsiCo. Our website includes a dedicated site for information on our women and minority supplier diversity program.

Consumers — We have toll-free telephone numbers consumers can call with questions or comments. The call center numbers are included on our product packaging. We provide a number of websites where consumers can get information about our brands, including nutritional content and answers to many other questions. These websites can be found by clicking on the company icons on pepsico.com.

Communities — Our Ethnic Advisory Boards provide counsel and advice on a wide range of business areas including:

• Marketing to targeted communities.

• Building alliances with retailers.

• Creating products for a more diverse consumer base.

• Developing a more diverse supplier base and other business relationships.

• Promoting PepsiCo’s diversity and inclusion efforts.

• Recommending diverse talent for employment opportunities.

• Encouraging the expansion of diverse representation among PepsiCo employees.

• Providing a perspective on diversity and inclusion issues or questions.

Our African-American Advisory Board was formed in �999. Our Latino/Hispanic Advisory Board was formed in �000. Our Canada business has convened an Asian Advisory Board.

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Community, Environmental and Social Interests — During �006 we interacted with several groups representing community, environmental and social interests where we believed we could make a difference. We consulted with shareholders to discuss water, recycling, genetically modified commodities, humane treatment of animals, climate issues, labeling and supply chain.

As a result of these actions, we have done the following:

• further increased our focus on water and recycling;

• developed a corporate-wide position on genetically modified commodities;

• joined the United States Climate Action Partnership (USCAP) to address climate change;

• continued our work with Refrigerants Naturally! to move to HFC-free refrigerants in point-of-sale coolers.

• revised our U.S. Aquafina bottled water label to state that Aquafina originates from public water sources before undergoing a proprietary seven step purification process to yield purified water; and

• developed a Supplier Code of Conduct.

More InformationFor more information on many of these topics see PepsiCo’s website, http://www.pepsico.com, divisional websites, the PepsiCo Annual Report and PepsiCo’s Management Discussion and Analysis included in PepsiCo’s Form �0-K.

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ECONOMIC PERFORMANCE

Summary of Economic Performance 2006 ($ in millions)(The following should be read in conjunction with Management’s Discussion and Analysis

and Consolidated Financial Statements included in PepsiCo’s �006 report on Form �0-K)

Brands

2006

Net Revenue $ �5,��7

Cost of Sales �5,76�

Selling, general and administrative expenses ��,77�

Common Share Repurchases �,000

Capital Spending �,068

Dividends paid �,85�

Taxes paid/net of refunds �,�55

Payments of long-term debt �57

Retained earnings ��,8�7

Largest PepsiCo BrandsEstimated Worldwide Retail Sales $ in Billions

We market hundreds of brands in more than �00 countries and territories around the world. The consumers who eat and drink our products spent an estimated $92 billion on our brands in �006. This includes �7 mega-brands that each delivers retail sales of more than $� billion.

Pepsi-Cola

Mountain Dew (diet and regular)

Diet Pepsi

Gatorade Thirst Quencher

Lay’s Potato Chips

Lipton Teas

Tropicana Pure Premium Orange Juice

Doritos Tortilla Chips

7UP (outside U.S.)

Aquafina Bottled Water

Cheetos Cheese Flavored Snacks

Quaker Cereals

Ruffles Potato ChipsMirinda

Tostitos Tortilla Chips

Sierra Mist (diet and regular)Fritos Corn Chips

0 5 10 15 20

Glossary Consumers the people who eat and drink our products.

Customers the authorized bottlers and independent distributors and retailers who buy our products from us.

Bottlers customers to whom we have granted exclusive contracts to sell and manufacture certain beverage products bearing our trademarks within a specific geographical area.

Retailers customers who buy our products to sell to consumers through a variety of distribution channels including mass merchandisers, superstores, club stores, drug stores, restaurants and foodservice operations, vending machines, grocery and supermarkets, convenience stores and gas stations.

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In addition to benefiting our own associates, this powerful performance helps support our independent bottler network, distribution operations and contributes to the sales of retailers throughout the world. Our economic reach is broad and deep.

TaxesIn �006 our annual tax rate was �9.�% compared to �6.�% in �005. The decrease primarily reflects:

�. Non-cash tax benefits, substantially all of which related to the Internal Revenue Service’s (IRS) examination of our consolidated tax returns for the years �998 through �00�.

�. The absence of a �005 tax charge related to the American Jobs Creation Act (AJCA), which created a one-time incentive for U.S. corporations to repatriate undistributed international earnings.

Public PolicyPepsiCo believes that both as a Company and as individuals it is important to be engaged in the public policy and political arena. PepsiCo has always disclosed information on how we are spending resources for political purposes as required by law and regulation. In �005, PepsiCo developed a Political Contributions Policy that provides shareholders with details on the policies, procedures and criteria used in connection with all political contributions. In addition, we are now providing details of PepsiCo political contributions on our website. Shareholders were involved in discussions leading to the development of this policy.

Our Economic ContributionsThrough our businesses, we make economic contributions in the following ways:

Shareholders — We provide shareholders with a strong return on their investments. In �006, we paid nearly $�.9 billion in dividends and provided shareholders with an 8% return, which is stock appreciation plus dividends reinvested.

Associates — We directly employ approximately �68,000 people. Our customers and business partners, such as franchised bottlers and licensees, employ tens of thousands of additional people as they manufacture and distribute our brands.

Retailers — We create income and profit for our customers, which mean jobs and opportunities in millions of retail establishments around the world. Our brands are among the most profitable brands that retailers carry.

Suppliers — In �006, we purchased more than $�� billion in supplies, services and raw materials. These purchases help to support hundreds of thousands of additional jobs in many communities. Goods and services from women-owned and minority-owned businesses accounted for a record $� billion in �006. We have a robust Supplier Diversity Program. Steven S Reinemund, PepsiCo’s past Chairman and Chief Executive Officer, serves as Chairman of the National Minority Supplier Development Council (NMSDC).

Governments — Our businesses have a positive impact on the economies of the countries and localities in which we operate by generating billions of dollars of revenue for governments through taxes paid directly by PepsiCo and indirectly by PepsiCo employees, investors, commercial partners and suppliers. In �006, PepsiCo paid $�.� billion in income taxes, net of refunds, worldwide. In addition to income taxes, PepsiCo paid hundreds of millions of dollars in payroll, property, transaction-based and other miscellaneous taxes worldwide. These tax payments make an important contribution to the countries and communities in which PepsiCo has a presence.

Technology — We share expertise and technologies that provide important benefits to communities and countries. In emerging markets, such as India and China, our agricultural development programs have significantly improved crop yields for local farmers. For example, in China, we share knowledge about potato farming with the Chinese Ministry of Agriculture, and we have established an advanced potato research laboratory. In India, we are using our knowledge to improve the water supply in the Kerala area. As part of our work with the World Business Council on Sustainable Development (WBCSD), we contributed technical knowledge to the creation of the Global Water Tool, a water assessment tool that is being offered without charge.

Health and wellness initiatives advance the knowledge of how to effect positive behavior changes in diet and exercise..

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Contributions and CommunityAs a corporate citizen, PepsiCo, Inc. and its companies have a long and proud history of supporting communities in which we do business. We give to nonprofit community groups and initiatives through the PepsiCo Foundation, corporate contributions, our various operating divisions and PepsiCo Community Affairs. We encourage employees to volunteer and sponsor a volunteer week with paid time. Additionally, we provide gifts-in-kind, support community and nonprofit events, conventions, journals and sponsor meetings.

Contributions Monetary Value of Philanthropic Contributions and Voluntary Social Investments in �006 ($ in millions)

PepsiCo Foundation $��.9 million

Corporate Giving 5.� million

Division Giving �.� million

Estimated In-kind donations �7.� million

Total $58.5 million

In-kind donations include food, beverages, equipment and services and are estimated at cost to PepsiCo.

PepsiCo FoundationThe PepsiCo Foundation focuses its grant making in the following areas:

• Health and Wellness

• Diversity and Inclusion/Education

• Environment

• Employee Engagement

The PepsiCo Foundation also provides assistance for humanitarian aid and recovery efforts following major disasters.

Health and Wellness

Much of PepsiCo’s and PepsiCo Foundation’s funding has been directed to health and wellness initiatives which advance the knowledge about how to effect positive behavior change in diet and activity.

Education programs reduce high school drop out rates and encourage

youth into higher educations and on to economic security and mobility.

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For example, as a result of PepsiCo Foundation funding, Chicago Communities in Schools and the Consortium to Lower Obesity in Chicago Children have partnered to develop Healthy Foods Healthy Moves: Inform Chicago, a community-wide awareness and prevention program using the social marketing campaign 5-�-�-�-� GO! and activated in neighborhoods across Chicago by youth ambassadors who champion and teach key healthy lifestyle messages and programs.

PepsiCo Foundation supported Tufts University, Friedman School of Nutrition’s community-based intervention program called Shape Up Somerville, which showed a positive slowdown in childhood weight gain as a result of Tuft’s comprehensive community interventions. A second research project was launched in �007 to evaluate and replicate the Shape Up model in three U.S. cities.

With PepsiCo Foundation funding, motivations and barriers to healthful living are being researched at the University of Florida. Psychologist Dr. Carolyn Tucker leads the research project Family Health Self-Empowerment Project: Modifying and Preventing Obesity. This research and intervention program is family focused and community based with particular emphasis toward cultural sensitivity and resonant engagement. It is designed to increase health-smart behaviors among lower income African Americans and Hispanic/Latino Americans by providing segmented health promotion resources to medical professionals across the nation.

AIM-HI (Americans in Motion — Healthy Interventions) is a pilot organizational behavior change process of the American Academy of Family Physicians funded by PepsiCo Foundation intended to guide family physicians and their practices to be better focused on healthful eating and active living as a primary core mission and prevention activity to improve the health of Americans.

Healthy Living Initiative is the Girl Scouts of the USA (GSUSA) core commitment to making Americans healthier. PepsiCo Foundation funding enables the development, testing and distribution of entirely new holistic health educational resources, community activation and activities to engage girls and adult leaders in life-long wellness. In collaboration with America On the Move Foundation, GSUSA will roll out the Healthy Kids and Family Day program across all scouting council communities nationwide in �008.

Diversity and Inclusion/Education

In partnership with the National Council of La Raza, PepsiCo Foundation has developed and funds the national Latino education model called ESCALERA: Taking Steps to Success to reduce high school drop out rates and move Latino youth into higher education and on to economic security and mobility. Within the model’s initial six years, 98% of its students have entered and remained in

two- and four-year colleges. The �007- �009 focus is to bring the network of five hub sites into readiness for greater scale through establishing expanded and sustainable partnership support and funding.

Environment

Providing better access to safe drinking water for families and communities in Western and Central China is the work of the Mother Water Cellars Project by the China Women’s Development Foundation with funding provided by PepsiCo Foundation. Five communities in Gansu and Sichuan Provinces are evaluating pilot interventions of site specific technical installations that deliver increased quantities, and improved quality of drinking water to impoverished farming villages. Advancing the repertoire and expertise around watershed management, water delivery systems and quality improvement process (both residential and village/system-based) is the primary focus of this project. By providing

Healthy eating and active living programs help improve the health of Americans.

centralized water systems and introducing new methods to harvest rainwater, small rural farming villages are able to experience significantly improved quality of life since women and children no longer spend at minimum, more than half of every day walking to collect water for their households, crops and livestock.

In India, the Development and Rehabilitation Outreach Program comprises two pilot water - sanitation programs (in the north and south) funded by PepsiCo and implemented by The Energy and Resources Institute. Common to each of these holistic programs is the fundamental approach of engaging local communities in developing affordable sustainable solutions to improve water availability while simultaneously invigorating local economies. A wide array of education, interventions and activities, tailored to individual communities are advancing hygiene and sanitation in addition to bringing awareness of the need to and methodologies of managing water resources as a non-renewable resource.

Employee Engagement

PepsiCo Foundation has a long history of encouraging employee involvement in the community through nonprofit groups. The Foundation’s commitment

to encourage the personal contributions and volunteer leadership of PepsiCo associates includes the Foundation’s Matching Gifts program, support for United Way Campaigns, and Community Service Days. The PepsiCo Foundation matches employee gifts to nonprofit organizations through a Matching Gifts program and United Way. In �006, Matching Gifts totaled $�,��6,795 and United Way $�,880,769. Grants are made to nonprofit groups where employees volunteer.

Many PepsiCo associates are active in local communities as volunteers. In addition to the wide spectrum of individual volunteer work, teams of associates often represent PepsiCo at events such as runs and walkathons to raise funds to fight cancer or HIV/AIDs and community clean-up days.

To encourage community involvement around the world, in �006, the PepsiCo Foundation granted $5��,88� in support of the PepsiCo Employee Community Service Days initiative. During PepsiCo’s �006 Global Week of Community Service, �,08� associates spent their working time serving their local communities and service organizations. Employees served more than 8,000 hours and contributed an estimated value of $�00,000 to improve local community resources.

Community AffairsPepsiCo’s Community Affairs is an integral part of the way we do business. We are currently active in these areas:

Health and Wellness We participate in conferences, events and volunteer activities to increase awareness of PepsiCo’s commitment to health and wellness in ethnic communities, along with awareness of our Smart Spot symbol and Smart Spot Dance, a program to promote exercise in a healthy, fun way. We form partnerships with community-based organizations to encourage active lifestyles. We have key partnerships with The National Council of La Raza and the National Urban League.

Diversity and Inclusion

We create awareness of PepsiCo’s goals of recruiting diverse associates by representing PepsiCo at national recruiting conferences, such as the National Black MBA Associations, Inc. and the National Society of Hispanic MBAs.

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Employees built playgrounds in inner cities to encourage children to be more physically active.

Funding provides better access to safe drinking water and significantly improves the quality of life, especially for women and children.

The Smart Spot Dance program is a multi-city instructional dance program that offers a fun way for families, especially moms, to get active. Mario Lopez, from the television show Dancing with the Stars and LaChanze, from the Broadway hit, The Color Purple, joined choreographer Maria Torres to get people in urban communities dancing.

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We provide leadership and support PepsiCo’s commitment to increase procurement from minority-owned and women-owned businesses. We participate in events and conferences where we seek first and second tier suppliers. We provide support for events and initiatives of the following groups: U.S. Pan Asian American Chamber of Commerce (USPACC), National Minority Supplier Development Council (NMSDC); U.S. Hispanic Chamber of Commerce (USHCC) and Women’s Business Enterprise National Council (WBENC). The PepsiCo Foundation continues its seed funding to the National Council of La Raza for a scalable national Latino education and workforce model.

Government and Legislative

In partnership with the Black Caucus and the Hispanic Caucuses, we build community awareness of PepsiCo’s health and wellness commitment and program initiatives. We initiate and participate in panels and workshops with the goal of creating understanding and awareness of our commitment to health and wellness.

Employee Involvement

PepsiCo is proud to be an active part of the community. We sponsor and participate in a wide variety of local and national activities through employee involvement. In �006, PepsiCo volunteers and KABOOM, a not-for-profit organization, built �� playgrounds for inner cities to encourage children to be more physically active.

In-Kind DonationsPepsiCo provides in-kind donations for many nonprofit organizations. The largest program is America’s Second Harvest and its network of food banks. We also make in-kind donations of products, premiums, equipment, meeting space and other services.

Corporate Honors 2006 • Institutional Investor magazine

identified PepsiCo as one of America’s Most Shareholder-Friendly Companies.

• PepsiCo ranked as �5th Most-Admired Company on Fortune magazine’s List of the Top �0.

• PepsiCo was named among the 2006 Industry Week 50 Best Manufacturing Companies and recognized as the top performer in the beverages industry.

• PepsiCo won Sam’s Club Supplier of the Year award.

• PepsiCo was named to Business Ethics magazine’s 100 Best Corporate Citizens list.

• PepsiCo was among the �0 Top Ranked Companies in the 2005 Rittenhouse Candor Rankings.

• Pepsi Brands swept Brandweek Magazine’s Customer Loyalty Awards.

• PepsiCo Foodservice won Target Corporation's 2005 Partner Award of Excellence in the Food Operations/Food Avenue category.

• For the second consecutive year, Gamesa-Quaker was named a socially responsible company by Empresa Socialmente Responsible .

• PepsiCo ranked among ''World’s Most Respected Companies’’ by Barron’s.

• PepsiCo’s Treasury Department won two awards, Alexander Hamilton Award for Excellence and the Association for Financial Professionals Pinnacle Award, for its strategic, industry-leading solutions in treasury and financial management.

• Ethisphere Council gave PepsiCo an “A” rating in our Code of Conduct Report Card for creating competitive advantage through ethical leadership.

• PepsiCo Foodservice was awarded as Supplier of the Year by Sysco Food Services.

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2007• Covalence published its Ethical Ranking

for �006, ranking PepsiCo 6th for Best Reported Performance.

• The Hay Group and Chief Executive magazine ranked PepsiCo as #� in the 2006 Top 20 Best Companies for Leaders .

• PepsiCo was been named to the 100 Best Corporate Citizens list for 2007 by Business Ethics Magazine.

• PepsiCo was named among Most Influential Multinationals in China for the third consecutive year.

• PepsiCo China was awarded a 2006 Best Corporate Public Image Award for its brand image of vitality and youthfulness.

• PepsiCo was recognized among the 2007 100 Best Corporate Citizens in the United States by CRO magazine.

• Fortune Magazine ranked PepsiCo to the Top 10 of America’s Most Admired Companies in the World .

• Institutional Investor magazine identified PepsiCo as one of America’s Most Shareholder-Friendly Companies .

• PepsiCo ranked #10 in the LOHAS Index for our corporate social responsibility program and communications.

• Business Week named PepsiCo to its 2007 Best Performers list .

• PepsiCo was named to the Dow Jones Sustainability World Index (DJSI World) and retained its position on the Dow Jones Sustainability North America Index (DJSI North America).

Cause MarketingWhen appropriate, we have begun to enlist our products in promoting key issues. For example, through the North American Coffee Partnership, our joint venture with Starbucks Coffee Company, we entered into an agreement to increase distribution of Ethos Water. For each bottle of Ethos Water that is sold, a $0.05 donation is made to help children and their communities around the world get access to clean drinking water.

Frito-Lay’s SunChips brand sponsored the Komen Race for the Cure National Volunteer Recognition Program in the United States. The partnership included SunChips’ “Crunch for the Cure” pink bags, with part of the proceeds going to the Susan G. Komen Breast Cancer Foundation to support the fight against breast cancer.

More InformationListings of PepsiCo Foundation, corporate and divisional donations are available on PepsiCo’s website: http://www.pepsico.com under Citizenship/Contributions.

Listings of PepsiCo Political donations are available on PepsiCo’s website: http://www.pepsico.com under Corporate Governance/Policies and Guidelines. For more information on many of these topics see PepsiCo’s website http://www.pepsico.com, divisional websites, the PepsiCo Annual Report and PepsiCo’s Management Discussion and Analysis included in PepsiCo’s Form �0-K.

For each bottle of Ethos Water that is sold, a $0.05 donation is made to help children and their communities around the world get access to clean drinking water .

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HUMAN SUSTAINABILITY

HUMAN SUSTAINABILITY

Financial results tell only part of the PepsiCo story. As we achieve success with profitable growth, we continuously give back to the communities we serve. We believe we can do this in ways directly related to our business, beginning with our products. We have a fundamental belief that humans need to be nourished in multiple dimensions — ranging from simple treats to healthier eats. We call this human sustainability and we’re continually transforming our portfolio of products to meet consumer needs.

Product Responsibility: Our PortfolioAs a food and beverage company, we nourish people in many forms. We nourish them with treats and we nourish them with nutritious foods and beverages. In between is a wide range of our foods and beverages that are enjoyable, including those that are reduced in sugar, fats or sodium when compared to our more indulgent varieties. Our goal is to offer great tasting foods and beverages for the wide spectrum of needs and tastes. We consider the health and wellness and safety aspects of our products from start to finish. There is nothing more important.

In line with current interest in health and wellness and efforts to address the obesity crises, we are changing our portfolio, moving toward the nutritious end of the spectrum.

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Smart SpotIn the United States and Canada, we have introduced the Smart Spot to make it easier for consumers to identify those of our products that can contribute to healthier lifestyles. All PepsiCo products carrying the green Smart Spot symbol meet nutrition criteria based on authoritative statements from the U.S. Food and Drug Administration and the National Academy of Sciences or provide other functional benefits.

Products that carry the Smart Spot:

• Contain at least 10% of the Daily Value of a target nutrient (i.e. protein, fiber, calcium, iron, vitamin A, vitamin C) and meet limits for fat, saturated fat, trans fat, cholesterol, sodium and added sugar, and/or

• Are formulated to have specific health or wellness benefits, and/or

• Are reduced in calories or nutrients such as fat, sodium or sugar.

In 2006, 43% of PepsiCo Net Revenues in the United States and Canada came from Smart Spot products, and Smart Spot eligible products represented two-thirds of our growth in North America. We’ve set a goal of deriving 50% of all our U.S. revenues from Smart Spot eligible products by 2010.

Today, the Smart Spot symbol appears on more than 300 products in the United States. It helps retailers join us in the drive to sell healthier products by aligning our product strategy with their promotion and selling strategies. Each Smart Spot eligible product label includes the Smart Spot symbol and an explanation of why the product meets Smart Spot criteria. We complement the science and marketing savvy with detailed scorecards and tracking processes.

Outside the United States, our progress has also been extraordinary and we are transforming our portfolio in both well-developed and less-developed markets. When we have a success with one product in one part of the world, we want to be able to extend it globally.

Non-Smart Spot57%

Smart Spot43%

PepsiCo Net Revenues from Smart Spot Eligible Products U.S. and Canada% Net Revenue

A wide variety of PepsiCo products carry the Smart Spot symbol to identify choices that can contribute to healthier lifestyles.

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Portfolio TransformationThis journey to transform our portfolio has been in process for nearly two decades. To guide us on our journey we rely on science to transform our products and intensive engagement with key internal and external experts to guide us in delivering real improvements. At the same time, we encourage physical activity, which increases the number of calories out on the calorie-in/calorie-out nutritional balance scale.

We have achieved more balance and are continuing to achieve it in our portfolio — in three key ways:

1. Strategic portfolio transformation through acquisitions, large-scale and “tuck-ins,” which drive nutrition.

2. Reformulation of existing products to driver healthier consumption and nutrition.3. Development of new products that drive healthier consumption and nutrition.

Strategic Portfolio TransformationFor the past two decades, PepsiCo has been on a journey that reflects a proactive portfolio transformation. • We began in 1988 to become a “total

beverage company” and began adding new beverages, waters and sports drinks to our traditional carbonated soft drink products.

• I n 1992, we began a partnership with Thomas J. Lipton Co. to sell ready-to-drink tea brands.

• In 1994, we introduced Aquafina bottled water, and we also began a strategic partnership with Starbucks to market ready-to-drink coffee.

• In 1998, we acquired Tropicana and expanded the Dole brand.

• We acquired SoBe, the producer of several varieties of tea and energy drinks in 2001.

• Our merger with Quaker in 2001 put us in the cereal and side dish business —putting us firmly in the business of good nutrition.

• Gatorade Thirst Quencher sports drinks and Propel Fitness Water also became a part of our beverage business when we merged with Quaker in 2001.

• Recent, smaller “tuck-in” acquisitions are adding such products as nuts, rice crackers, fruit smoothies, pita chips and various juices to our portfolio.

• In 2006, we announced our alliance with Ocean Spray to market, bottle and distribute cranberry juice products.

Recent sample “tuck-in” acquisitions

Acquisition Product Year Location

Izze Beverage Company Sparkling fruit juice 2006 USA

Naked Juice Juice 2007 USA

Stacys Pita Chip Co. Pita chips 2006 USA

PJs Fruit Smoothies 2005 United Kingdom

Punica Juice 2005 Germany

Sakata Rice Crackers 2005 Australia

Duyvis Nuts Nuts 2006 Europe

Sandora (Joint Venture) Juice 2007 Ukraine

In 1997, Quaker Oats petitioned for and received from the U.S. Food and Drug Administration (FDA) the first food-specific health claim granted by the FDA. The claim provides that the soluble fiber from oats can help reduce heart disease risk. Scores of Quaker-branded oat-based products qualify for and make this health claim.

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Product ReformulationWe start with science and authoritative statements from the Food and Drug Administration (FDA) and National Academy of Sciences for classifying ingredients. We look at nutrition-based standards for fats, sugar, cholesterol, fiber, vitamins and other ingredients.

Then, we begin by re-formulating our products to reduce the level of indulgent ingredients like fats and added sugar. We add healthy ingredients such as fruit, whole grains and fiber.

Examples of our product reformulations include:

• Removing trans fats

• Moving to healthier oils

• Development and use of sugar substitutes

• Use of whole grains

• Elimination of sugar

• Natural flavorings replacing artificial flavorings

• More baking

• Fewer preservatives

• Processing techniques that improve the nutrition profile.

In these cases, a product delivers a specific functional benefit, such as heart-health or hydration. Examples include Gatorade, which delivers superior hydration, or Baked snacks, which have significantly reduced fat content.

Our goal is to ensure that even though we contribute a very modest portion of calories in a typical diet in most of the markets within which we operate, we believe we should provide continually improving wholesomeness on a calorie-by-calorie basis. In addition we continue to give the highest priority to assuring the safety of all our products worldwide and depend upon international norms developed by the Codex Alimentarious Commission, complemented by national norms, to do so.

New ProductsOur pipeline of innovation includes a stream of new products that offer

greater nutrition or functional benefit. For example, new varieties of Aquafina water and Lipton tea, Gatorade sports drinks, options for Quaker oatmeal, zero-calorie soft drinks, nuts and seeds and fruit snacks.

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1954-Tropicana introduced the first ready-to-serve not from concentrate orange juice.1964- Diet Pepsi carbonated soft drink was introduced, giving consumers great Pepsi taste with only one calorie. 1965 – Gatorade was the first commercially available sports drink.

1989 – Reduced Fat Ruffles was introduced.1991 – SunChips snacks made with whole grain was introduced. 1995 – Baked Lay’s potato chips was introduced.

1997- Quaker Oatmeal was the first food to receive a Food and Drug Administration (FDA) approved health claim for the relationship between oat soluble fiber and reduced risk of heart disease.1998– Pepsi One carbonated soft drink, was introduced and reinvigorated the low-calorie soft drink category.

Sample Product Initiatives• Frito-Lay eliminated trans fats from

Doritos, Cheetos and Tostitos in the United States and Canada by converting to corn oil.

• Frito-Lay changed the oils in Lay’s and Ruffles brand potato chips in the United States and Walkers crisps in the United Kingdom to sunflower oil to reduce saturated fat.

• We provided lower sugar options in Instant Quaker oatmeal.

• We added Take Heart Weight Control versions to our instant Quaker oatmeal products.

• Tropicana Light ‘n Healthy has one-half the sugar and the calories of regular orange juice.

• Tostitos Multigrain tortilla chips brought wholesome grains to snacking.

• We introduced Baked! Cheetos and Doritos snacks in our line of 100-calorie Mini Bites that take the guesswork out of portion control.

• We introduced whole grain side dishes to our Rice-A-Roni brand.

• In the United Kingdom, Potato Heads offered a lower-fat snack with no artificial colors or preservatives.

• Quaker Oatmeal-to-Go bars provided a heart-healthy breakfast in a convenient, portable form.

• Tropicana FruitWise fruit strips and bars are made from real fruit and juice.

• In 2007, we introduced Flat Earth fruit and vegetable crisps that provide a half serving of fruits or vegetables per ounce.

Health and Wellness Partnerships We are teaming up with several people and groups to get the best science on how to really make a difference in health and wellness. Internally, our health and wellness team calls upon the strategic and practical insights of our Blue Ribbon Health and Wellness Advisory Board (BRAB).

1950 – 1970 1980 – 1995 1996 – 1999

Nutrition Timeline PepsiCo nutrition innovations go back half a century.

In 2003, Frito-Lay completed a full conversion from partially hydrogenated to non-hydrogenated cooking oils, virtually eliminating trans fatty acids from all Frito-Lay snack chips. Frito-Lay was the first company to include trans fat information on the nutrition labeling of its packaging — prior to the FDA ruling requiring inclusion of this information by January 2006.

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2000 – Tropicana Pure Premium Juice received FDA approval for health claim regarding the relationship of potassium to reduced risk of high blood pressure and stroke.2000 - Propel Fitness water with added vitamins was introduced.

2003 – Frito-Lay removed trans fats from Frito-Lay branded products. PepsiCo was the first major food company to make this change.2004 – Smart Spot symbol was introduced to help U.S. consumers identify PepsiCo food and beverage choices that contribute to healthier lifestyles.

2006- PepsiCo became part of voluntary, pro-active move to adopt a school vending policy in the United States. 2006 – Frito-Lay produced Lay’s and Ruffles potato chips with sunflower oil, reducing saturated fats by 50%.

2000 2003 – 2004 2006

The BRAB provides high level and independent insight about major health and wellness policies. In addition, it provides science-based guidance on product transformation, labeling and marketing to support our health and wellness goals. The BRAB also helps the Company initiate and participate in partnerships promoting physical activity.

PepsiCo International Nutrition TeamOutside North America, PepsiCo has created the PepsiCo International Nutrition Team. This group is charged with monitoring and advising on product formulation issues worldwide. They are internal advisors on our portfolio transformation. This global network of about 16 full-

time, professional nutritionists with backgrounds in food science, nutrition and regulations, are located in major markets around the world such as Mexico, the United Kingdom, Australia and other locations.

International Food Safety and Nutrition NetworkIn addition to these experts, PepsiCo has created our International Food Safety and Nutrition Network (IFSNN). This is a global network of PepsiCo R & D and food science professionals. They have established specific priorities and codes of practice for PepsiCo regarding such things as food safety policy and promotional insert policies. They also work with outside opinion leaders and agencies to provide advice and the

PepsiCo perspective as needed.

Global Alliance for Improved NutritionOur health and wellness initiatives are bolstered by external partnerships. In 2007, PepsiCo became an active participant in the Global Alliance for Improved Nutrition (GAIN). We are working closing with GAIN in India.

Oxford Health AllianceThe Oxford Health Alliance is a global organization that works to reduce the burden of chronic diseases. Oxford is especially active in the United Kingdom, Mexico, China and India.

In 2006, members of the Blue Ribbon Health and Wellness Advisory Board included:

Front row, left to right: Brock H. Leach; Kristy F. Woods, M.D., M.P.H.; James O. Hill, Ph.D.; Gro Harlem Brundtland, M.D.; Susan Love, M.D.

Second row, left to right: David Herber, M.D., Ph.D.; Pamela Peeke, M.D., M.P.H.; Antonio Lucio (PepsiCo); Antonia Demas, Ph. D.; Mario Maranhao, M.D.; Janet Taylor, M.D.

Back row, left to right: Kenneth Cooper, M.D., M.P.H.; Fernando M. Trevino, Ph.D., M.P.H.; James B. Hunt, Jr.; Dean Ornish, M.D.; Ambassador Thomas Foley; David A. Kessler, M.D., J.D.; Samuel Ward Casscells, M.D.; William Sears, M.D.

Blue Ribbon Health and Wellness Advisory Board

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YMCAPepsiCo is engaged in a partnership with the YMCA to fund and strengthen activities, especially playgrounds and other physical activity programs. The YMCA is the largest provider of fitness programs in the United States. An added element is the multi-cultural focus on reaching communities that suffer disproportionate rates of obesity and poor nutrition.

World Health Organization The World Health Organization/World Economic Forum “Workplace Wellness Unit” is a global program and the first cooperative program between these organizations. PepsiCo is a chief partner and is working with both organizations to develop better workplace wellness solutions.

Vive Saludable ProgramThis is a PepsiCo program now in implementation across Mexico and Latin America. The program is a commitment to promote healthy lifestyles, including diet and exercise, for consumers and employees. It is focused on reducing the risk of nutrition-related health problems, including obesity.

Alliance for a Healthier GenerationIn 2006, PepsiCo became part of this voluntary, pro-active and collaborative movement involving the U.S. beverage industry and government and health officials in taking steps to adopt a practical school vending policy in the United States. PepsiCo partnered with the American Heart Association and the William J. Clinton Foundation. Called the Alliance for a Healthier Generation, its goal is to develop model school wellness programs, take a comprehensive approach to fitness, health and nutrition, and teach students

how to adopt healthier, more active lifestyles. PepsiCo is the only food and beverage company to have signed both a beverage agreement and snacks agreement in schools. As a first step, in May 2006, Pepsi-Cola North America adopted a revised school policy in which beverage companies would no longer offer full-calorie soft drinks, juice drinks or teas in any K -12 schools and that it would limit the calories and portion sizes of other beverages, including sports drinks and juices.

In October 2006, Frito-Lay and Quaker Foods joined the snack food industry to set the first-ever voluntary guidelines for snacks and foods in schools. Many of PepsiCo’s snacks, such as our reduced-sugar granola bars, reduced fat popcorn and low-fat baked potato chips, meet the standards for schools.

Our PepsiCo Foundation is deeply engaged in developing new models of partnerships that will lead to health gains in communities and new research insights. In the United States, support for Tufts University has helped to develop one of the few examples of a community based approach to reducing obesity in children. Internationally, we have recently announced support for large scale community based research projects in India, China, Mexico and the United Kingdom to reduce the impact of the major risk factors for chronic diseases. Both the Company and the Foundation are involved in a wide range of initiatives aimed at increasing physical activity around the world in settings as diverse as Mexico (through Vive Saludable which addresses both healthy eating and physical activity in primary schools), and in the United States (through America On the Move). We see involvement in physical activity promotion as part of our commitment to promoting better understanding of energy balance.

Product Labeling PepsiCo is committed to providing safe, wholesome products and protecting equity in our brands, trademarks and goodwill. Our divisions have implemented policies related to food safety, labeling, product integrity and quality.

Our policies ensure strict adherence to all applicable regulations and legislations. Our policies cover food safety, sanitation, recalls and allergens and require that our products are coded, labeled, identifiable and traceable. PepsiCo is in full compliance with required nutrition labeling and has voluntarily led the industry in “full container labeling” on products where consumers may be reasonably expected to eat or drink the full container on one occasion.

In the United Kingdom and Europe, PepsiCo is joining other food and drink multinationals in labeling products

with common Guideline Daily Amounts (GDAs) for salt/sodium, sugars, fats, saturates and calories. PepsiCo is currently participating in the Keystone Foundation’s analysis of whether such labeling would make sense in the United States.

Our compliance systems include website training, monitoring, preventative measures and readiness for corrective action. We have regular management reviews of our procedures and activities regarding our products.

Food SafetyPepsiCo, like many consumer product goods companies, sources ingredients from around the globe to ensure that we use the freshest, best tasting and highest quality ingredients available for our products. Food safety is at the top of our priority list as we select these materials, and we have an excellent record in providing safe, wholesome and nutritious products to our consumers.

To ensure that PepsiCo provides safe products with the highest quality, we only use foods, ingredients and packaging materials that have been deemed safe by scientific consensus and regulatory review. The health and safety of our consumers is of the highest importance to us.

Genetically Modified Ingredients PepsiCo is dedicated to producing the highest quality, greatest tasting food and beverage products in every part of the world. PepsiCo ensures all products meet or exceed stringent safety and quality standards and uses only ingredients that are safe and approved by applicable government and regulatory authorities. Approval of genetically modified foods differs from country to country regarding both use and labeling. For this reason, PepsiCo adheres to all relevant regulatory requirements regarding the use of genetically modified food crops and food ingredients within the countries it operates. Where legally approved, individual business units may choose to use or not use genetically modified ingredients based on regional preferences.

Organic FoodsPepsiCo currently offers certified organic products from Tropicana and Quaker. Two varieties of Quaker Oatmeal are certified organic, as well as a line of Tropicana chilled products. Certification follows the USDA National Organics Program and follows the National Organics Standards (NOS) established in October 2002. Frito-Lay’s Natural snacks are made with organic ingredients and have been certified by the USDA accredited certifying agency Oregon Tilth. Organic products do not account for a significant portion of revenues.

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Consumer and Customer RelationsPepsiCo serves the needs of two important groups:

• The consumers who purchase and consume our products and

• The retailer and bottler customers who purchase and resell these items.

PepsiCo has several methods in place for measuring and improving consumer and customer relations.

ConsumersAs a cornerstone to understanding consumers’ needs, all PepsiCo divisions conduct research. These studies range from small focus groups to learn from individual consumers to large telephone or online surveys to gain statistically significant insights. These consumer insights are translated into product improvements, new product ideas and communications.

Packages produced in the United States under authority of PepsiCo carry a toll-free number and web address to allow consumers easy access to the Company if they have questions or comments regarding the Company or one of its products. Each business has a Consumer Relations Department that serves as the first point of contact for all communications and correspondence received from our consumers.

Should consumers need to contact us after hours, they can dial our toll-free number and a message will be activated offering them an emergency line number. A special team

of Consumer Relations professionals are available 24/7 and can be contacted through our emergency line and will immediately return a call to a consumer or one of our field representatives.

Based on 2006 surveys, an overwhelming majority of consumers are pleased with the resolution they received based on their inquiry.

CustomersPepsiCo’s key customers are retailers and bottlers. PepsiCo commissions retail customer surveys that measure customer satisfaction, including such things as target setting and strategic planning. As an indication of PepsiCo’s success in customer satisfaction, the Company has received several honors, including being named “Supplier of the Year” by Sam’s Club, Wal-Mart Mexico and Sysco Food Service, as well as receiving Target’s “2005 Partner of the Year Award of Excellence.”

Dedicated PepsiCo Customer Teams work across our divisions to provide the highest level of service to our major customers. These individuals work closely to assure that all customer feedback is understood and addressed as quickly as possible.

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Consumer Privacy Consumer privacy is important to PepsiCo and we make every effort to ensure that consumers understand our policies. Each division maintains its own marketing website and these are accessible by consumers. Brand-specific websites and promotion-specific micro-sites are also maintained. On each website, consumers can voluntarily provide personal information to participate in online programs and promotions. A privacy policy is conspicuously posted on each website that outlines the types of information collected by each division on that site and how the information is used and protected. We comply with applicable laws, rules and regulations, including the Children’s Online Privacy Practices Act (COPPA). Also, personal information received through consumer relations toll-free number is kept confidential and is not shared outside the Company.

AdvertisingPepsiCo has a longstanding policy on the kinds of television programs that can carry our advertising messages. We’re committed to high standards in all our advertising, including the environment in which our advertising appears.

We avoid advertising in excessively violent programs, programs that may be distasteful as judged by contemporary society and those that may be offensive to large groups of people. We also attempt to avoid programs containing material inconsistent with or adverse to our products. We seek to avoid programs featuring exceptionally controversial or potentially inflammatory discussions.

Children are a special audience and we take particular care developing marketing practices and evaluating programs that carry messages to children. In 2006, we joined many of the largest food and beverage companies in the Untied States in an effort to strengthen the guidelines of the Children’s Advertising Review Unit (CARU). In 2007, we joined with 10 of those companies – through CARU—to pledge our continuing commitment to responsible children’s advertising. This CARU initiative requires participating companies to devote at least half of their advertising to children under 12 to promote healthier products and/or encourage good nutrition or active lifestyles. PepsiCo has gone considerably

farther, committing that 100% of PepsiCo advertising directed to those under age 12 will be for Smart Spot products. In addition, we have pledged we will not advertise our products in elementary or middle schools.

More InformationFor more information on many of these topics see PepsiCo’s website http://www.pepsico.com, divisional websites, the PepsiCo Annual Report and PepsiCo’s Management Discussion and Analysis included in PepsiCo’s Form 10-K.

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ENVIRONMENTAL SUSTAINABILITY

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1991 – Frito-Lay established “Green Teams”.1992 – Frito-Lay North America established its environmental management system.1999- Frito-Lay North America began a formal resource conservation program.

2001 – PepsiCo Environmental Task Force (ETF) was formed to share best practices. The ETF developed the Environmental Policy, standard metrics and Environmental Management System framework.

2002- Pepsi-Cola U.S. set 10% recycled content goal by 2005 for plastic carbonated soft drink beverage packaging. PepsiCo responded to the first Carbon Disclosure Project questionnaire and continues to participate. 2003- Global Reporting Initiative Guidelines adopted.

1990 – 1999

Environmental Sustainability Timeline

ENVIRONMENTAL SUSTAINABILITY

Our CommitmentPepsiCo views our environmental responsibility as covering all areas of our business. We are committed to continuously improving our environmental programs and to finding solutions to our environmental challenges. We’ve focused our environmental sustainability efforts on water, energy, packaging and solid waste — areas where we can make the biggest impacts. In addition, we have many programs in the area of sustainable agriculture and we partner with our growers.

Our key elements of our environmental sustainability strategy are as follows:

• Reducing water usage through conservation, reuse and replenishment.

• Reducing greenhouse gas emissions through energy conservation and use of clean energy sources.

• Reducing, recycling and reusing packaging and solid waste.

Our commitment to being an environmentally responsible corporate citizen is so important that a commitment to care for the world we live in is a cornerstone of our Values and we include our commitment in our Worldwide Code of Conduct.

PepsiCo is committed to being an environmentally responsible corporate citizen. We are committed to minimizing the impact of our businesses on the environment with methods that are socially responsible, scientifically based and economically sound. We encourage conservation, recycling and energy use programs that promote clean air and water and reduce landfill waste.

2001 2002 – 2003

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2004- Sustainability Task Force formed with focus on environment. Sustainability Vision formed.

2005- PepsiCo Environmental Management System structure developed. Formal environmental metrics rolled out to North America. Frito-Lay North America awarded LEED Gold certification for its “Green” distribution center in Rochester, NY.

2006 – PepsiCo announced Environmental Policy. Formal environmental metrics rolled out internationally. Dow Jones Sustainability Index North America names PepsiCo to the list.

2004 2005 2006

MetricsPepsiCo’s corporation-wide goal is to reduce water consumption by 20%, electricity consumption by 20% and fuels consumption by 25% per unit of production by 2015 when compared to our consumption metrics in 2006.

PepsiCo established uniform protocols for energy and water measurement and reporting in 2005 and rolled them out for use across all divisions for the first time in 2006. Prior to this, Frito-Lay North America had been collecting data since 1999. Quaker/ Tropicana/ Gatorade began data collection in 2004. PepsiCo International was the final division to implement the metrics and has collected one full year of data.

The data collected represents 100% of usage at FLNA, approximately 97% of the usage at Quaker/Tropicana/Gatorade. As this is the first year of gathering data from all facilities, year-over-year comparisons are not yet available for PepsiCo as a whole.

REDUCE WATER CONSUMPTION

20%

REDUCE FUELS CONSUMPTION

REDUCE ELECTRICITY CONSUMPTION

20%

25%

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2007 – PepsiCo named EPA Energy Star Partner of the Year. LEED Gold certification awarded to Gatorade manufacturing facility in Virginia, the largest food and beverage LEED-certified facility and to the QTG Tolleson Distribution

Center. QTG establishes “QTG Green” initiative. PepsiCo becomes the largest purchaser of Renewable Energy Credits (RECs). PepsiCo anchor bottlers collectively would be second largest purchaser of RECs. PepsiCo joins

United States Climate Action Partnership. PepsiCo named to Dow Jones Sustainability World Index as well as remained on Dow Jones Sustainability Index North America.

2007

QTG(Quaker/Tropicana/Gatorade) NORTH AMERICA Water, Fuels and Electricity Use 2004-20062004 Baseline (Per Unit of Production*)

Our performance in our North American divisions of Frito-Lay and QTG (Quaker, Tropicana, Gatorade) continued to improve. Measured per unit of product produced, Frito-Lay North America (FLNA) reduced its fuel, electricity and water consumption by 4%, 1.6% and 6% respectively compared to 2005. When compared to the baseline year of 1999, FLNA manufacturing has reduced fuel use by 24%, electric use by 19% and water use by 35% per unit of product made. QTG’s performance in 2006 resulted in reductions compared to the prior year of 7% in fuels, 11% in electricity and 5% in water per unit of product produced. Measured against QTG manufacturing’s more recent baseline year of 2004, usage is 24% lower in fuels, 24% lower in electricity and 10% lower in water per pound or gallon of QTG product.

Our beverage Concentrate Operations, including 12 plants throughout the world, reduced overall energy use per unit of production by 21% between 2003 and 2006, with further targets set.

Pepsi-Cola U.S. bottling operations, which is a franchise system, reduced

water use ratios (gallons vs gallons of product) by more than 2% versus prior year and had a less than 1% increase in energy use/8 oz. case versus prior year. The rise in energy use was the result of increased manufacturing of PET bottles at the bottling plants versus off-site manufacturing. The water data represents 61% of the bottler unit case sales in 2005 and 83% in 2006. Energy data represents 81% of bottler unit case sales in 2005 and 83% in 2006.

Our international division, PepsiCo International (PI), represents a diverse operating environment, and includes snacks and beverage operations. PI is making significant progress in resource conservation. In India, for example, our company-owned and franchise beverage partners conserved over 1.4 billion liters of water in 2006. Similarly, in China, our operations have conserved 1.1 billion liters of water, and we have successfully grown potatoes under desert conditions. PepsiCo’s Thailand Lamphun plant was honored in 2007 with the “Excellent Performance in Energy Conservation” by the Thai Government’s Department of Energy. Plans are in place in Thailand to reduce water from ground resources by

50% over the next three years, and to save 2.6MM Kwh annually in energy.

In 2006 PepsiCo’s Environmental Task Force (ETF) developed a waste protocol to standardize data collection and reporting around the waste that is generated, reused, recycled and disposed of by each manufacturing site. The intent of this protocol is to continue our efforts to reduce the generation of waste, increase the recycling and reuse of materials, and to ensure that any waste that cannot be recycled or reused is disposed of in an environmentally responsible manner. This protocol will be implemented in 2008.

GHG emissions data are available for Frito-Lay operations in the United States and began to be collected across the Company beginning in 2006. Frito-Lay has joined the US EPA Climate Leaders program. Frito-Lay has set a 2010 goal to reduce GHG emissions per pound of product by 14% from a 2002 baseline. As of 2006, Frito-Lay has achieved a reduction of 8.8% from that 2002 baseline and a reduction of 16.1% from a 1999 baseline.

FRITO-LAY NORTH AMERICA Water, Fuels and Electricity Use 1999-20061999 Baseline (Per Unit of Production*)

1999 2000 2001 2002 2003 2004 2005 2006

Water Fuels Electricity

60%

70%

80%

90%

100%

2004 2005 2006

Water Fuels Electricity

60%

70%

80%

90%

100%

*Pounds or Kilograms *Gallons or Liters for beverages; Pounds or Kilograms for foods

QTG(Quaker/Tropicana/Gatorade) NORTH AMERICA Water, Fuels and Electricity Use 2004-20062004 Baseline (Per Unit of Production*)

ManagementEnvironmental performance leadership is the responsibility of PepsiCo’s four executive supply chain heads of our operations: Frito-Lay North America, Quaker/Tropicana/Gatorade, Pepsi-Cola North America (including working with our bottlers) and PepsiCo International. These leaders head up our newly-formed (2007) Environmental Sustainability Leadership Team (ESLT). The ESLT includes senior executives from all functions to make sure that environmental impacts are considered in all areas of the business.

The ESLT charter includes the following:

• Create and maintain PepsiCo’s environmental sustainability strategy.

• Develop, administer and maintain PepsiCo-wide policies on matters of environmental sustainability.

• Develop goals and timelines for PepsiCo environmental performance.

• Assess the gaps and strengths of performance relative to our aspirations and external benchmarks.

• Provide support to divisions in improving PepsiCo’s long-term environmental sustainability performance.

• Advise and inform the Chairman and CEO, the PepsiCo Executive Committee and the Board of Directors on matters of environmental sustainability.

The ESLT is supported by the Environmental Council (EC) which replaces the Environmental Task Force and includes the environmental and resource conservation program managers from each of our divisions.

The EC’s mission is to provide subject matter expertise within and across the Divisions. It supports the ESLT to ensure that we have a strategic environmental sustainability vision for PepsiCo, uniform system-wide metrics, standards and practices, sensible environmental goals and accurate reporting to internal and external stakeholders.

Each division is held responsible for implementing its own environmental programs and for training associates, tracking, monitoring, correcting and improving environmental aspects of its business.

ESLT

Environmental Council (EC)

FLNA QTG PCNA PI

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MonitoringIn 2005, the PepsiCo Environmental Management System (EMS) framework was developed with the help of an independent third party, which also helped to develop division specific implementation plans. PepsiCo and its divisions periodically conduct internal and external audits and reviews of their environmental management systems and environmental compliance. The external audits are conducted by experienced environmental experts.

Key features of the PepsiCo Environmental Management System (EMS) framework include:

• A risk-based management approach.

• Documented systems that capture and maintain institutional knowledge.

• Objectives and targets for continuous improvement.

• Integration of environmental considerations into core business processes.

• Routine performance monitoring and internal management reporting.

The EMS framework is built along the lines of ISO 14001. At least three PepsiCo International facilities are ISO 14001 certified.

Capital Expenditure FilterPepsiCo incorporated sustainability criteria into our Capital Expenditure Filter (CapEx Filter) and we are using it on all capital expenditure requests over $5 million. Each request must include a review of the sustainability issues and opportunities surrounding the request. The goal is to incorporate sustainability aspects in projects right from the start and track sustainability-related capital spend across PepsiCo. This is expected to help drive continued improvement.

Our Environmental Policy PepsiCo’s Environmental Policy applies to all our operations. PepsiCo monitors company owned operations and joint ventures where we hold a majority share. We encourage our suppliers, service providers, bottlers and other partners to adhere to the policy.

1. We will comply with applicable legal and regulatory requirements and Company standards and conduct regular audits to verify compliance.

2. We will apply sound environmental management practices where, in our judgment, existing legal requirements are insufficient for our operations.

3. We will consider our potential environmental impacts in our daily business decision-making processes.

4. We will encourage conservation of natural resources, recycling, source reduction and pollution control to ensure cleaner air and water and to reduce landfill wastes. We will share environmental best practices across the Company.

5. We will monitor emerging issues and keep abreast of regulatory changes, technological innovations and stakeholder interests.

Advanced routing technologies and a “no-idle” policy cut fuel consumption on delivery routes.

JOIN PEPSICO IN THE FIGHT AGAINST GLOBAL WARMING. PepsiCo is one of thousands of organizations saving energy with help from EPA's ENERGY STAR®

Program. That means lower energy bills for PepsiCo and a cleaner environment for all of us.

Learn how your organization can be a part of the solution at energystar.gov.

NAME: PepsiCo Green Team

FIGHTING GLOBAL WARMING BY: Empowering employees to help make their

facilities and manufacturing processes more energy efficient.

SAVINGS SINCE 1999: $179 million | 20 trillion Btu | 3 billion lbs. CO2

NEXT PROJECT: Winning the softball championship

PHOT

O: R

USS

QUAC

KEN

BUSH

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Working with governments, academia, nongovernmental organizations, business associations and other interested stakeholders, we will strive to develop effective and sustainable solutions to environmental challenges we face in our business activities.

6. We will establish metrics to monitor our environmental performance, and use these to set goals for continuous improvement.

7. We will implement environmental management systems to identify and manage environmental risks, obligations and opportunities.

8. We will work with our licensed bottlers, suppliers and customers to reduce the environmental impacts of our products throughout their life cycle.

9. We will annually review the Company’s performance in implementing this policy.

10. We will review this policy periodically and update it as needed.

Education and AwarenessEducating our associates and making them aware of the environment is a part of all we do. In addition to regular training of environmental personnel, we conduct special events, such as a Sustainability Summit, in which new ideas are shared.

Information is also shared with all other associates. Examples include:

Green TeamsFrito-Lay North America maintains a dedicated team of experts across our manufacturing facilities focused on reducing consumption of electricity, fuels and water. Through “Green Teams,” made up of groups of volunteer employees, more than 12,000 manufacturing associates have been trained to improve their environmental awareness and to understand how they can do their jobs without adversely impacting the environment.

QTG has established “QTG Green,” an overarching environmental sustainability initiative to raise employee awareness and create actionable tactics to improve the business and each associate’s personal environmental footprint. The focus is to raise awareness, incite action and institutionalize sustainability improvement efforts across Quaker/Tropicana/Gatorade and PepsiCo.

• Holding special events to mark Earth Day and World Water Week.

• Organizing an employee contest in the Peterborough plant in the United Kingdom to identify compressed air losses.

• Presenting to employees and providing information.

• Incorporating environmental information into the daily e-newsletter as well as special sustainability editions.

• Creating a PepsiCo video on environmental programs.

• Presenting a “Performance with Purpose” tent at the headquarters Family Inclusion event, complete with environmental information.

• Hosting special contest asking for employee sustainability suggestions.

• Providing energy-saving light bulbs as contest giveaways.

• Including environmental information, education and ideas for behavioral changes in multiple communications.

A Frito-Lay North America Green Team was featured in an Energy Star ad.

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Our ApproachWe approach water and energy environmental performance with four key strategies:

1. Overall conservation

2. Process change

3. Innovation, including new, creative technologies and approaches.

4. Optimize renewable or low impact sources for water and energy to the greatest extent possible.

WaterOverall ConservationCapturing and Re-circulating — During fruit processing, the Tropicana plant in Bradenton, Florida captures and re-circulates approximately 550,000 gallons of water a day from feed mill evaporators to reuse in washing and cleanup operations. Another 150,000 gallons a day of city reclaim water is used for irrigation and special utility services. The Fort Pierce, Florida Tropicana facility captures approximately 150,000 gallons per day during fruit processing.

Irrigation — Five Frito-Lay locations use treated wastewater to irrigate more than 1,300 acres of alfalfa and Bermuda grass hay grown for animal feed in the United States.

Starch Removal — In making potato chips, water is used to wash away the excess starch that comes from

the potato slices. Once the starch is removed, the water is cleaned and recycled for use in processing operations. In the United States, Frito-Lay recovers almost 66 million pounds of starch a year, reducing the waste load to municipal wastewater treatment plants. The recovered starch is a valuable product for other industries to use.

Starch Removal and Reuse — In the United Kingdom, the starch removed from the water is processed to food grade level and can be reused in our own products.

Cooling with Recycled Water — Several QTG facilities use recycled water for cooling water and plant maintenance. Pepsi Bottling Ventures, one of our largest bottlers, put systems in place to collect and recycle the water used to cool the equipment on its bottling lines. The changes were made at the suggestion of one of the employee/

management “green teams” formed to identify ways to conserve water.

India Efficiency Strategies — In India, we have shown farmers techniques to save approximately 40% of their agriculture water by directly seeding rice paddies, rather than growing the rice through highly water-intensive conventional seeding. By direct seeding only 1,800 hectares of land, we can conserve water equivalent to the combined yearly use of our snacks and beverage operations across India. Our company-owned and franchise beverage partners conserved over 1.4 billion liters of water in 2006. In our Panipat plant the treated wastewater is supporting aquatic life.

In the United Kingdom, two champions of sustainability stand in front of tanks holding starch removed from the water used to make products.

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InnovationMembrane bio reactor to treat and re-use waste water — We installed the first membrane bio reactor in our Florida Gatorade plant in 1998. Currently 85-90% of the process wastewater from the plant feeds into a municipal “grey water” line and is used for local irrigation and municipal power plants for turbine cooling. Now, we are taking this to the next level to treat and re-use the water ourselves for such things as cooling towers.

Potatoes in the Desert — In China, we have developed a method to grow potatoes under desert conditions that uses pivot irrigation systems to save water.

Bottlers — Our independent bottlers are saving water in many ways:

• Buffalo Rock, the Pepsi bottler in Birmingham, Alabama, reclaims 15

million gallons of water a year from their rinsing process. That’s enough to fill their 40 thousand gallon water tank every day and more.

• Pepsi Bottling Ventures collects and recycles water used to cool equipment on its bottling line, conserving 2.5 million gallons per year.

• Pepsi Bottling Group water recovery systems installed on the reverse osmosis filters conserve 280 million gallons of water annually.

Water SourcesFor new sites, each of our businesses applies the elements of an environmental site assessment, similar to the EPA/ASTM Standard for Phase One Environmental Site Assessment.

With specific regard to water sources, in the United States, we utilize a mixture of municipal supplies, which may be

from surface or groundwater sources, and private wells. The selection and management of municipal sources fall under the jurisdiction of the United States Environmental Protection Agency (USEPA) and any applicable corresponding state authority. These sources must comply with the EPA National Primary Drinking Water Regulations and any other applicable regulations and practices related to water resource selection and development (for example site selection, well construction, drought management plans, and many other elements). Sites are selected to assure ample water supply and minimal impact to the local watershed.

PepsiCo is involved as a full supporter and Advisory Board member in the development of a Water Resource Assessment Tool which has been introduced by the World Business Council for Sustainable Development

Process ChangeAdvanced Air Rinsing — Gatorade continues to install state-of-the-art high speed lines. U.S. Gatorade lines are now utilizing air-only rinsing, achieving a 20% reduction in water consumption where installed. This allows PepsiCo to conserve more than 175 million gallons of water annually. The technology also has been incorporated as standard design across our newest hot-fill plants, which means that once those newest plants are on-line, PepsiCo will conserve an additional 210 million gallons of water a year.

Improved steam condensate return — In the United Kingdom, for example, steam reduction will generate savings.

Low-water Corn Cook — Frito-Lay developed a process which reduces the amount of water and heat used to cook corn for tortilla chips and Fritos by 25%, and the redesign of washer spray nozzles optimize the flow, pressure and orientation. These systems are installed in approximately 75% of the corn processing lines in the United States.

Gatorade is installing air-only rinsing technology at its plants.

(WBCSD), in conjunction with a world recognized environmental consulting firm. This tool provides an assessment of relative water availability (abundance, stress, scarcity) for any physical location coordinates entered, in addition to a wealth of other water-related information. This is the first comprehensive tool of its kind that was entered into the public domain completely free of charge—for use by any and all business sectors, governments, NGOs, and other stakeholders. It was launched August 2007 to great acclaim during World Water Week in Stockholm.

Water QualityOur facilities in the United States are primarily supplied by municipal water sources. As such, these sources comply with all applicable water quality requirements and provide Consumer Confidence Reports (CCR), which detail the water quality being provided to the consumer as it compares to compliance with EPA quality requirements. Our facilities in the United States are, in essence, consumers of this municipal drinking water just as are residential customers of the same supplies. As such, the quality data for the water that is purchased is available from the municipal water purveyors, whether the purchaser is PepsiCo, one of our franchise partners, or a home consumer.

Similarly outside the United States, many of our plants are supplied by water from municipal sources, and the same approach would apply—the governing national and local regulations for water resources and water quality would, and do, apply. In areas of the world where we develop our own water sources (for example, extraction from commercial wells) we do so in

full compliance with applicable regulations concerning use of local resources. In these cases, we work with the local authorities to assure that the quantity of water needed to run our business and thereby to help support the local community and economy, is consistent with regulations and safe for the natural resource.

Where we develop our own wells to supply water from groundwater sources, every source is tested by an approved, external laboratory which is capable of reporting drinking water testing results. The test protocol is based on the most current revision of the World Health Organization (WHO) Guidelines for Drinking Water Quality, and also includes testing required by local authorities as well.

Every water source used for our beverages must first be analytically qualified, which includes using government-accredited/recognized laboratories to test for a harmonized list of roughly 100 parameters, covering many classes of raw water chemical/physical constituents. In addition, the microbial quality of the source is evaluated to help confirm that our products will be microbial and chemically safe. We also believe that protection of water at the source is important; accordingly, a formal training program is provided to all of our key beverage plant personnel, which covers areas such as water source selection, well construction, and source protection. At every plant, the incoming water is then further purified, using a

variety of treatments depending on the raw water characterization, to meet the high standards of quality to be used in our products—whether these products are bottled water, carbonated beverages, or non-carbonated drinks.

In addition to source qualification, our plants monitor the raw, in-process, and treated water for a core list of parameters, and at frequencies ranging from hourly, to daily, to weekly (depending on the specific parameter and application). We have also established internal laboratories in the United States and Europe which monitor raw, treated, and bottled water quality worldwide.

Community EngagementPepsiCo has been involved in positive community engagement for decades. When locating a facility, we consider the availability of water to the community. When we build or expand in a water-stressed area, we consider the availability of water to the community. Two major recent examples of this, particularly as they relate to water and the environment, are our partnerships with the Chinese Women’s Development Foundation (CWDF) as part of their China Mother Water Cellars Project, and The Energy & Resources Institute (TERI), a leading environmental NGO in India.

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PepsiCo–Performance with Purpose The China Mother Water Cellars Project increases water availability in remote areas of

China.

In 2007, as in previous years, we were active supporters of World Water Day. Our most visible activity was with Ethos Water, which is a part of the PepsiCo water family. Last year, Starbucks Coffee Company and PepsiCo, through our North American Coffee Partnership, signed an agreement to significantly increase distribution of Ethos Water, including co-packing, distribution and marketing.

Ethos Water has a unique business model, which includes helping to raise awareness of the severity of the world water crisis. PepsiCo is helping to increase the distribution of Ethos Water. For each bottle of Ethos Water sold, Starbucks makes a $0.05 donation to water projects with the goal of contributing $10 million by the end of 2010 to help children and their communities around the world get clean drinking water.

The two new grants made in 2007, in addition to those in 2006, totaled $2.12 million. In India, working through WaterAid, a $1 million grant will help develop an integrated approach to water and sanitation-related health problems for an estimated 120,000 beneficiaries in Madhya Pradesh. In Kenya, working through International Medical Corps, a $1 million grant will help improve water, hygiene and sanitation services in Samburu.

In China, we have partnered with CWDF to continue their mission of making water available to the most water scarce regions of China. The CWDF has touched approximately 1,000,000 people over the last five years, through their 90,000 cellars and 1,200 wells constructed. The Mother Water Cellars Project has made a tremendous difference in the lives of people. Where once getting water took hours of walking, today it is available at the homes. It is used for agriculture and livestock as well as washing and boiling for drinking. As a result, the lives of entire families have been changed.

With TERI in India, we have a multi-year partnership to take a holistic approach to sustainability in two very diverse villages. The areas for our community engagement are many, and include:

• Community watershed management, including rainwater harvesting systems.

• Augmentation of existing water systems to ensure sufficient water.

• Sanitation and hygiene promotion — including public education, toilet installation, waste management systems, and adequate drainage.

• Health and education — to improve awareness levels and provide health care facilities.

• Agriculture — improve irrigation systems, high-yield cash crops, integrated pest management systems, education on organic approaches, and improvement in the moisture content/retention of soil.

• Enterprise Development — train villagers in mushroom processing. Train self help groups in income generation activities to help create a viable local economy.

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Water projects in India are changing the lives of families.

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Energy PepsiCo understands it is increasingly important to address climate change. In addition to impacting our employees, communities and the world around us, climate change may adversely affect the raw materials and other supplies we use, including our sources of water and many agricultural products. Our supply chain could be damaged or disrupted by weather, natural disasters or other areas related to climate change. Climate changes may also affect our energy costs.

Many of our programs address climate change issues and include reduction of energy, encouragement of renewable sources of energy and water programs. Key actions include our landmark purchase of Renewable Energy Certificates (2007) and that of our anchor bottlers (2007), as well as our membership in the United States Climate Action Partnership (2007).

Overall ConservationEnergy Efficiency — Our facilities are increasingly putting in place measures to reduce the amount of energy used to produce our products. These measures include installation of Energy Star rated equipment, energy efficient motors and energy efficient windows and skylights to enhance natural lighting. Our facilities have also installed variable frequency drive systems, which allow efficient energy use, and thermal regeneration systems to capture waste heat. We perform periodic energy audits to find opportunities to continuously improve.

Waste heat recovery — Frito-Lay’s tortilla chip oven stack draft control and heat recovery system, installed closed-loop, controlled, stack dampers on tortilla chip ovens to control the amount of exhaust heat. Then the exhaust heat is captured and used to heat tortilla chip fryer oil. The first heat recovery system for fryer oil was installed in San Antonio, Texas in 2006 and additional installations are being implemented. Quaker cereal ovens are also being fitted with oven draft control technology to improve their efficiency.

Cogeneration — Frito-Lay manufacturing facilities at Kern, California, and shortly, Killingly, Connecticut, produce their own electricity through cogeneration, one of the most energy-efficient means of power generation. Tropicana operates a cogeneration system for producing power in its Bradenton, Florida facility. Cogeneration systems help offset utility companies’ need to build additional power plants.

Compressor efficiency improvements — A United Kingdom program to catch compressed air leaks included an employee contest.


Reclaimed land surrounds the Frito-Lay North America Jim Rich Distribution Center in Rochester, New York, a LEED Gold-level facility.

PepsiCo is installing the largest privately-owned system of photovoltaic electricity generation in Arizona.

Fuel Consumption — With most snack and beverage products delivered by truck, fuel efficiency is important. Both Frito-Lay and our bottlers use advanced routing technologies and have a “no-idle” policy to reduce miles and cut fuel consumption on delivery routes. Pepsi Bottling Group (PBG), our largest bottler, has verified the electronic settings on vehicles with electronic controls to ensure idling reduction and speed parameters are set efficiently.

Lighting upgrades — Solar concentrators in our Gamesa business in Mexico have provided lighting equal to conventional fixtures, saving 30,000 watts in a single distribution center. Many other plants have also had lighting upgrades, such as our Concentrate plants in the United States where high-efficiency lighting and translucent ceiling panels have been installed.

Potato Chip surface moisture reduction — By reducing the amount of water that is carried into the fryer on the surface of our potato chips, we have significantly reduced the natural gas required to make the same amount of chips.

Fuels — Sabritas, our Mexican snack food business, has 13,000 distribution vehicles, about 6,000 of which were converted over the past ten years to burn liquid propane gas. This reduces carbon and nitrogen emissions and generates fuel savings of between 15 and 22% (depending on geographic conditions and fuel costs).

InnovationLEED Certification — The U.S. Green Building Council recognized the Gatorade Thirst Quencher Blue Ridge facility in Wytheville, Virginia with its Leadership in Energy and Environmental Design (LEED) designation at Gold-level status. At 950,000 square feet, the facility is the largest food and beverage site in the world to achieve this designation. The plant’s design helps drive energy and environmental optimization. The facility has state-of-the-art energy savings measures such as high efficiency boilers, water heaters and calibrated control systems. Frito-Lay and Gatorade operate three LEED Gold certified sites. PepsiCo is constructing new domestic manufacturing and distribution sites to LEED standards.

Photovoltaic electricity generation — Frito-Lay has installed photovoltaic cells at six distribution centers (five in California and one in New York). We installed the largest privately-owned system at our Arizona service center. In our China operations, we have constructed a boiler that uses solar power to minimize the consumption of fossil fuel.

Process ChangesCooling equipment — All Pepsi-Cola vending machines, fountain equipment and cooler display units in North America have been converted to non-chloroflurocarbon (CFC) refrigerants. More than 99% of all new purchases of refrigerated point-of-sale equipment use hydroflurocarbon (HFC) free insulation.

Refrigerants Naturally! — We have joined with other corporate members and Greenpeace in a global initiative called ‘Refrigerants Naturally!’ whose goal is to address climate change and ozone layer depletion caused by HFC gases in refrigeration equipment. We are working together to eliminate use of HFC in refrigerated point-of-sale equipment.

Compressed air — Pepsi-Cola Concentrate operations are optimizing production of compressed air and managing air leaks to save energy.

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The Gatorade Thirst Quencher Blue Ridge facility in Wytheville, Virginia is the world’s largest food and beverage site to achieve LEED Gold-level status.

Renewable Energy — In Cupar, Scotland, our Quaker oat mill is contracting for electricity from 100% renewable sources. At our Frito-Lay plant in Modesto, California, we’re building a solar collection and concentration system to supply nearly three-quarters of the heat needed to produce SunChips brand multigrain snacks from solar thermal energy. In China, harnessing the sun’s energy for sugar processing has resulted in significant fuel savings.

Renewable Energy Certificates — PepsiCo purchased renewable energy certificates (RECs) to equal 100% of purchased electricity used by ALL PepsiCo U.S. facilities. The three-year purchase of more than 1 billion kilowatt-hours annually became the largest purchase to-date. The US Environmental Protection Agency (EPA) estimates the PepsiCo purchase is the same amount of electricity needed to power nearly 90,000 American homes annually. The purchase supports the development of renewable energy capacity nationwide, including solar, wind, geothermal, biogas, bio-mass and low-impact hydro. Three PepsiCo anchor bottlers, The Pepsi Bottling

Group, Inc., PepsiAmericas, Inc. and Pepsi Bottling Ventures, LLC also purchased RECs. The combined purchases of these three companies would rank second among the largest purchasers with the EPA, right behind top-ranked PepsiCo.

Biofuels — Tropicana’s Ft. Pierce, Florida facility has partnered with St. Lucie County to burn landfill gas in its boiler. Landfill gas displaces the use of natural gas and reduces the amount

of carbon dioxide emitted into the atmosphere. The landfill gas provides the equivalent environmental benefit of 3,600 acres of pine or fir forest or removing 1,000 cars from the road per year. These environmental benefits will increase as availability of landfill gas increases. At Frito-Lay’s Rosenberg, Texas plant, a third of the steam load for the entire plant is generated by landfill gas.

Greenhouse Gases — Frito-Lay is a member of the U.S. EPA’s Climate Leaders Program. This is a voluntary program established by the EPA to set goals and track reductions in greenhouse gas emissions across the United States. Hybrid Cars — Starting in 2005, Frito-Lay sales personnel in three zones (Jacksonville, Florida; Peoria, Illinois; Las Vegas, Nevada) piloted a hybrid vehicle program. Subsequently, a PepsiCo-wide hybrid company car program was

implemented. As company-supplied vehicles end their lease, new hybrid vehicles are leased. In addition, we are testing two hybrid electric delivery vans for distribution of Frito-Lay products in Texas.

Carbon Footprint Reduction Logo — Walkers Crisps has reduced its energy use per pack by 33%, and water use by

45%, since 2000. They are currently working on plans to reduce energy use per pack by 3% year-on-year, and water use per pack by 5% year-on-year. In 2007 Walkers became the first major food brand in the world to display a carbon footprint reduction logo on its packs. The logo is certified by the Carbon Trust, a United Kingdom-government funded independent business that supports business and the

public in cutting carbon emissions and supports the development of low carbon technologies.

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Walkers Crisps is the first major food brand in the world to display a carbon footprint reduction logo on its packs.

Reduce Across all of our divisions, initiatives conducted in 2006 to reduce packaging have resulted in over 20 million pounds of material reductions across PET bottles, paperboard and corrugated materials.

• Aquafina 500 ml PET bottle weight has been reduced by nearly a third since 2000.

• Gatorade’s 20 ounce bottle weight has been reduced 10% and corrugated packaging reduced 70% since the early 1990s, reducing solid waste by nearly 100 million pounds per year.

• The 64-ounce bottle of Gatorade has been reduced 19% since 1987, with total waste reduction of more than 6 million pounds per year.

• A change in design on the seals on Frito-Lay North America salty snack packaging has reduced overall film use by more than 2 million pounds annually.

• The aluminum in the Pepsi-Cola beverage can has been reduced 10% since 1993, which saves 75 million pounds of aluminum a year.

Packaging and Material WasteThe goal of PepsiCo’s sustainable packaging policy is the design and development of packaging systems that are environmentally responsible throughout their entire life cycle. We have developed a sustainable packaging roadmap to achieve this vision.

To implement this policy, PepsiCo has established a Sustainable Packaging Council. The objectives of this team are to develop sustainable packaging strategies, goals and targets and alternative packaging material technologies, as well as to support responsible disposal practices.

PepsiCo has taken an industry leadership position in packaging. Two significant programs are:

• Sustainable Packaging Coalition: PepsiCo is a member of the Executive Committee for this industry-leading organization that provides life cycle analysis and design guidelines for sustainable packaging.

• Grocery Manufacturers Association/Food Products Association (GMA/FPA): PepsiCo is the GMA/FPA chair for Packaging Sustainability Working Group. These procedures aim to create an industry-wide public reporting process for consumers, investors and other stakeholders to understand packaging and environmental improvements in a consistent and transparent manner.

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Lighter weight PET bottles are among our initiatives to reduce packaging.

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2 Litter PET Carbonated Soft Drink (CSD) Source Reduction Bottle Weight (grams)

The weight of the 2 liter PET soft drink bottle has been reduced by 39% since 1980.

• Community – PepsiCo India established a partnership with Exnora International, an environmental non-government organization, to manage domestic solid waste in an environmentally friendly manner. In 2007, the collaboration which began in 2005, was selected by UNICEF as a model project and as a center for international learning. The project involves reuse and recycling of waste.

• PET programs — A recent PET bottle light weight savings program has removed 40,000 metric tons of material from eight of our top international (non-U.S.) markets over the past three years.

• Single-piece closures — For our beverage products, single-piece closures are under development to significantly reduce materials.

• “Flexi” bag elimination — Tropicana re-engineered the way it delivers apple juice concentrate in the United States. Its move to recyclable “flexi” bags eliminates the need for nearly 43,000 steel drums annually.

ReuseAt PepsiCo, many programs exist to reuse materials, ranging from packaging to agriculture. These programs make the most of our resources:

• Potato and Corn Solids — In the United States, Frito-Lay sends close to 20 million pounds of potato and corn solids (potato pulp and peelings, cracked corn and corn husks) to America’s livestock and dairy farms where it is used for feed.

• Chips for Animal Food — Chips that do not meet Frito-Lay strict quality control standards and chips not sold in stores by the Guaranteed Fresh date, can be used by livestock feeders and pet food manufacturers as a feed supplement. This process diverts 16 million pounds of unusable snacks that otherwise might have been sent to landfill.

• Composting Tea and Coffee Grounds — PepsiCo in Valhalla, New York is composting the leftover tea and coffee grounds from its extraction process. The 40 tons of spent grounds per week are sent for local composting, diverting them from landfill.

• All the Orange — Tropicana minimizes landfill waste by using virtually every part of the orange, as well as its by-products after the juice is extracted. The by-products become scent extracts and animal feed.

• Oat Hulls — Quaker optimizes the use of all oat hull by-products. Quaker delivers oat hulls to local animal feed markets and a nearby university that utilizes oat hulls as a raw material for the generation of power.

• Returnable cases — Programs to return cases have been implemented in areas of the world where appropriate infrastructure exists, notably Greece, Spain, Turkey, and South Africa.

• Bag-In-Box — The old carbonated soft drink bag-in-box (BIB) is being reused to produce food and fuel grade ethanal.

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Tropicana minimizes landfill waste by using virtually every part of the orange as well as its by-products after the juice is extracted.

RecycleAcross all of our packaging platforms, strategies exist to expand and promote recycling. These programs make the most of our resources:

• Recycled material in our packaging — Our beverage cans are made from 40% to 50% recycled aluminum. In 2002, we committed to using 10% recycled material in our PET soft drink bottles by 2005. Thanks to our bottlers, we met that goal on schedule.

• Designed for Recycling — Beverage containers like the ones used by PepsiCo are designed for easy recycling. Beverage containers are the most recycled consumer packaging in the United States.

• National Recycling Partnership — PepsiCo helped found the National Recycling Partnership, an initiative to increase recycling across the United States.

• Corrugated and Paperboard — At Frito-Lay, cartons used to transport bags of chips to retail stores are reused several times before recycling. In the United States this reduces the demand for paperboard by more than 250,000 tons a year. This recycling effort saves more than 4.5 million trees from being harvested for paperboard production and annually diverts about 500 million pounds of cardboard away from landfills. QTG programs reduce our corrugated and paperboard use by more than

8 million pounds saving more than 60,000 trees annually from being harvested for paperboard production.

• Film Packaging — For Frito-Lay's North American and International products, Frito-Lay recycles packaging film waste from our suppliers' sites for use in various other products (park benches, boards, etc).

Renewable SourcesBoth for the production of packaging and the packaging itself, R&D investments continually look for opportunities to promote sustainable packaging.

• Cutting edge technology — PepsiCo innovation teams are working to develop and discover creative packaging solutions, which include the investigation of cutting edge technologies that promote environmentally-friendly packaging.

• Supplier operations — PepsiCo promotes and works with its suppliers to use more renewable energy sources in the production of materials.

• Suppliers — In North America, PepsiCo has increased the selection of suppliers certified in credible resource conservation initiatives. Examples include the FSC/Forest Stewardship Council, SFI/Sustainable Forestry Initiative and Energy Star.

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PepsiCo supports many programs to encourage recycling.

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AgriculturePepsiCo works with our growers to encourage sustainable agricultural practices. Examples from each of our businesses include:

Frito-Lay North America (FLNA)• Has developed protocols to wash potatoes at the farm to reduce or

eliminate the residual soil shipped to our plants, thereby allowing this soil to be redistributed at the farm rather than disposed of through the plants waste water discharge and reducing diesel fuel requirements.

• Practices low or no till soil preparation which results in lower irrigation requirements. Pivot irrigation practices are used (versus flood irrigation) which are more efficient in the use of water.

• Has developed potato varieties that store longer and are resistant to disease. This allows FLNA to grow its potatoes in the most efficient agronomic areas across the United States. This results in higher production per acre. Higher production per acre minimizes the use of all farm inputs including, water, fertilizer, pesticides, and herbicides.

• Practices optimal crop rotation policies which result in improved soil fertility and a reduction in the required nitrogen and other fertilizers.

• Practices plant tissue analysis of our raw materials which allows for a more precise application of fertilizer.

• Continuously develops new growing areas closer to FLNA manufacturing plants reducing the diesel fuel used to transport inbound potatoes.

• Practices the use of cover crops to reduce soil erosion at our suppliers’ farms.

• Requires an independent chemical use and agricultural practice audit of all of our potato and corn growers in North America.

• Includes terms in its contracts with all corn and potato growers that require chemical application practices, quantities and timing to be in full compliance with the label instructions.

• Shares agricultural best practices with all of its corn and potato growers.

Environmental Honors 2006

• PepsiCo was added to the Dow Jones Sustainability Index North America, an index of companies considered most sustainable.

• In Mexico, our Sabritas, Gatorade and Gamesa-Quaker group received the prestigious 2006 Mexican Center of Philanthropy Socially Responsible Company Award. The award recognizes outstanding achievement in four areas: Quality of life for employees, business ethics, community involvement and care and preservation of the environment. This is the first time that three PepsiCo Mexican businesses received the award.

• The City of Arlington, Texas honored Frito-Lay's Arlington plant with the Waste Water Pre-Treatment Excellence award.

• Frito-Lay's San Antonio, Texas site was one of seven companies and organizations honored by the San Antonio Water System with a WaterSaver Award for its focus on water conservation.

• Frito-Lay, Vancouver in Washington State was a winner of the 15th annual Governor's Award for Pollution Prevention and Sustainable Practices.

Dow JonesSustainability Indexes

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PepsiCo Beverages — North America (Pepsi-Cola, Tropicana and Gatorade)• Have initiated programs at PepsiCo’s largest anchor bottler PBG and a

major supplier of High Fructose Corn Syrup (HFCS) which involve improving water conservation practices for the preparation of ingredients. This improved process has already resulted in over 1 million gallons of water in annual savings. This project is being expanded to additional suppliers throughout the entire PepsiCo bottling system and the QTG manufacturing network for additional water conservation saving.

• Uses virtually every part of the orange, including the peels which are sold as cattle feed. Before the peel is dried into cattle feed, Tropicana extracts valuable oils, essences and biodegradable solvents. These products are then sold or used by the company.

• Encourages its growers to follow various Best Management Practices (BMPs) published by the University of Florida, as well as several regional Grower Trade Associations, which include guidelines for water conservation.

Quaker and Convenience Foods — North America• Sources corn locally, reducing the environmental impact of transportation.

• Works with major suppliers and railroads to optimize oat rail freight throughout the year via the use of multi-car, unit trains.

• Encourages the use of established, low till practices on oats that conserve both water and fuel.

• The Environmental Protection Agency (EPA) and the Department of Energy (DOE) honor Frito-Lay as an Energy Star Partner of the Year.

• Frito-Lay’s Kern and Modesto plants won the California Waste Reduction Awards Program (WRAP) Awards. The program annually recognizes California businesses that have made outstanding efforts to reduce non-hazardous waste and send less garbage to our landfills.

• Keep America Beautiful, Inc., the nation’s largest nonprofit community improvement organization, awarded PepsiCo, Inc. its 2006 Vision for America Award for its leadership role in preserving the environment through many diverse conservation and educational efforts.

• PepsiCo China won four major awards at the Fifth Anniversary Award Ceremony of the Mother Water Cellars Project. The recognition was presented on behalf of the China Women’s Federation. The Mother Water Cellars project helps provide access to water to residents in dry areas of rural China.

Sustainable agricultural practices, such as pivot irrigation versus flood irrigation, conserve water.

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Frito-Lay North America and The National Arbor Day Foundation are in a national partnership to “Make America a Little Greener,” which will provide 300,000 tree seedlings for reforestation efforts in areas blighted by natural disasters and to beautify communities.

2007• PepsiCo’s Thailand Lamphun plant

received an Excellent Performance in Energy Conservation Award from the Thailand Government Department of Energy.

• PepsiCo was among a select group of business and organizations that the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Energy (DOE) recognized with its EPA Energy Star Partner of the Year Award for energy conservation.

• PepsiCo was named to the 100 Best Corporate Citizens list for 2007 by Business Ethics Magazine. The review included environmental sustainability.

• Frito-Lay Jonesboro facility received the EPA Performance Track Distinction, which recognizes facilities that set goals for continuous improvements in environmental performance.

• The U.S. Green Building Council Leadership in Energy and Environmental Design (LEED) program awarded LEED Gold Status to the Gatorade Blue Ridge facility in Wytheville, Virginia and Gatorade Tolleson facility in Arizona.

• PepsiCo Boxford plant, located in England, was presented with an Environmental Awareness Award by the Colchester Evening Press. The plant produces Copella Apple Juice, Tropicana Pure Premium and Tropicana Go for chilled distribution in the United Kingdom.

• PepsiCo was named to the Dow Jones Sustainability Index and the Dow Jones Sustainability North America Index.

• PepsiCo was named to the Best Green Companies for America’s Children list in Working Mother Magazine.

• PepsiCo was named a 2007 Green Power Partner of the year by the EPA.

PepsiCo International (PI)• PI agro-programs encourage the application of environmentally sound

agricultural practices with our suppliers. We provide assistance to farmers and raw material suppliers where appropriate and assess their compliance against both regulations and Frito-Lay agro-standards.

• As a result of their forward-looking conservation approaches, our Walkers United Kingdom snacks business recently became the first major food brand in the world to display a carbon footprint reduction logo on its packs for select products. The logo is certified by the Carbon Trust, a United Kingdom-government funded independent business that supports business and the public in cutting carbon emissions and supports the development of low carbon technologies. This effort required close partnership with our plants, as well as with our packaging and raw material suppliers.

• In China, through various collaborations, our foods team there is successfully growing potatoes under desert conditions. By utilizing in-plant conservation approaches, coupled with the installation of pivot irrigation systems, in 2006, our China team saved over a billion liters of water compared to the prior year.


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TALENT SUSTAINABILITY

TALENT SUSTAINABILITY

Our CommitmentPepsiCo’s goal is to attract the highest caliber associates, assist them with achieving their goals that can make a difference in the Company and provide them with a work environment and benefits to retain them.

PepsiCo is committed to hiring, training and retaining the best people. To do this, we recognize that we must build an environment where all our associates can achieve a better quality of life and know that we cherish them.

To achieve our goals, our programs include a strong commitment to diversity and inclusion; competitive compensation and benefits; strong health and safety programs, including HIV/AIDS programs; our SharePower program which provides stock options to eligible associates around the world and encourages them to act like owners of the Company; employee networks; opportunities for career growth; lifestyle and personal development opportunities, including job training programs; a Human Rights Policy introduced in 2006 and robust programs to measure employee satisfaction and award achievement.

Each year we ensure compliance with our Code of Conduct and provide our associates with information on accessing our Speak Up hotline.

In addition to our associates, we have begun to reach out to our suppliers to ensure corporate responsibility. Our Talent Sustainability agenda includes working to increase the number of suppliers that are minority or women-owned.

PepsiCo’s Talent Sustainability strategy is overseen by the Senior Vice President of Human Resources, who is a member of the PepsiCo Executive Committee.

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Diversity and InclusionPepsiCo approaches diversity and inclusion as a fundamental business strategic priority. We believe our leadership in this area gives us an opportunity to drive our growth and gain a competitive advantage.

To attract and retain the brightest, most capable people, we must create a diverse and inclusive culture where everyone feels they have equal opportunity to succeed and grow-regardless of gender, race, ethnicity, religion, sexual orientation or different abilities.

We have active employee networks for our various groups. Each of our employee groups is represented at the most senior levels by an executive reporting to our chief executive officer. Our U.S. groups include African-Americans, Latinos, Asians, Native Americans, Women, Gay/Lesbian/Bisexual/Transgender (GLBT) and “Enable,” for individuals with different abilities. PepsiCo has also created a group, led by a member of the PepsiCo Executive Committee, that is dedicated to ensuring white males are included as an integral part of our diversity and inclusion journey. Outside North America, we have a growing number of programs to promote diversity and inclusion and support employees.

All employees participate in inclusion training sessions. Our Harvey C. Russell Inclusion Award was introduced in 2003 to

recognize outstanding achievement in support of PepsiCo’s diversity and inclusion efforts.

Our Diversity and Inclusion Governance Council, formed in 2005, is a cross-divisional, cross-functional group composed of internal and external thought leaders. Our Ethnic Advisory Boards provide counsel and advice on a broad range of social, cultural and business needs, including marketing, hiring, supplier development and diversity. In the United States we have African-American and Latino/Hispanic Ethnic Advisory Boards. In Canada, we have an Asian Advisory Council.

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Back row, left to right; Kweisi Mfume, Keith Clinkscales, Roderick D. Gillum, Reverend Al Sharpton, Earl G. Graves, Jr., Robert Holland, Jerri DeVard, Warren M. Thompson. Front row, left to right: Darlene Williamson, Ph.D., Ray M. Robinson, Reverend Dr. W. Franklyn Richardson, Glenda McNeal, Amy Hilliard, Earl G. Graves, Sr., Dawn Hudson, Benaree Pratt Wiley, Johnny F. Johnson, Clarence Avant.

Latino/Hispanic Advisory Board — 2007

Left to right: Isabel Valdès, Cid Wilson, Carlos H. Arce, Ph.D., Deborah Rosado Shaw, Raul Yzaguirre, Albert P. Carey, Raquel Malo, Douglas X. Patiño, Ph.D., Maria Contreras-Sweet, Carlos A. Saladrigas, Victor Arias, Jr., Ricardo R. Fernández, Ph.D., Gibert Aranza.

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African-American Advisory Board — 2007

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BenefitsBenefit Programs In the United States, we offer a full range of health care, savings and retirement benefits. Our health and welfare benefits include medical, dental, vision, prescription drugs, mental health, life and accident insurance, disability and flexible spending accounts. We also offer commuter reimbursements, adoption assistance, Employee Assistance Program, child

and elder care referral and resources, smoking cessation programs, care and lifestyle management programs and family and medical leaves. Domestic partners who meet certain eligibility requirements may be covered under PepsiCo benefits. Eligible part time employees receive medical, dental, vision, life insurance and disability benefits.

In 2004, we introduced HealthRoads, a wellness benefit for employees and

their families. HealthRoads provides our employees with information, resources and tools, financial incentives and encouragement to reach exercise, weight management, nutrition, smoking cessation and stress management goals to help them live healthier lifestyles.

Financial benefits include company-funded pension plans, a 401 (k) Plan with a Company match, the PepsiCo Stock Purchase Program and SharePower, a broad-based stock option program. SharePower was introduced in 1989 and is a global program that offers eligible employees stock options that may be exercised after a vesting period. We believe SharePower clearly reflects a culture that places a high priority on ownership.

Many of our headquarters offer on-site fitness centers and wellness classes. We offer lifestyle benefits such as employee credit unions offering on-site banking, ATM machines, dry cleaning and other amenities.

An extensive bi-annual survey process, supplemented by shorter and targeted surveys, provides feedback and input on how associates view the business and drives action plans and improvements throughout the corporation.

Total Women % Minority %

Board of Directors 14 3 21 4 29

Senior Executives 23 4 17 6 26

Executives 2,165 696 32 422 19

All Managers 12,903 3,919 30 2,903 22

All Employees 62,251 15,169 24 18,573 30

U.S. Diversity & Inclusion Statistics Year—End 2006

As of May 2007 the Board of Directors consisted of 10 members, including three women and three minorities.

Although PepsiCo is a global corporation, the way it operates in the marketplace is more local in character. In markets outside the United States, PepsiCo businesses rely primarily on hiring local managers and employees.

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Award Programs PepsiCo offers a variety of Award Programs to recognize associates. Common to all businesses are gift awards for length of service. All associates are eligible to receive stock option grants as recipients of The Chairman’s Award, which recognizes significant achievement above and beyond the individual’s job role. The Harvey Russell Inclusion Award for achievement in the area of diversity and inclusion is a part of this, as are awards for environmental achievement.

The Steve Reinemund Diversity & Inclusion Leadership Legacy Award is a new PepsiCo leadership award announced in January 2007. It will be given to senior leaders who champion diversity and inclusion over time and move PepsiCo to new levels of diversity and inclusion accomplishments and behaviors through their words and actions.

Front line associates are those who make, sell and distribute our brands. These associates, as well as the front line employees of our bottlers, are eligible for the President’s Ring of Honor. This annual award inducts high achievers into a permanent role of honor.

We have a variety of other award programs within our divisions.

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Health and SafetyWorkplace ProgramsOur Code of Conduct includes a commitment to provide a safe and healthy work environment. It is our goal to design, construct, maintain and operate our facilities in a manner to protect our people and physical resources.

At Frito-Lay North America, each manufacturing and distribution center has a safety manager who is responsible for safety. Routine training programs consist of both injury prevention and vehicular training. Injury prevention programs focus on ergonomic issues such as repetition and manual handling, while defensive driver’s training includes classroom, behind the wheel and obstacle courses. Audits conducted on a regular basis also support program and process compliance. In addition, leadership commitment is visible through formalized safety management training and rewards and recognition programs.

Frito-Lay operations have partnered with Occupational Safety and Health Administration (OSHA) and their Voluntary Protection Program (VPP). In 2007, OSHA recommended Frito-Lay’s Rhinelander Agricultural Research site for VPP at the highest level, STAR. Frito-Lay has 26 VPP STAR sites — far more than any other food company.

QTG manufacturing sites have one or more dedicated professionals who assist in managing health, safety and environmental expectations. A division staff supports sites through standardized programming, onsite consultation, training and auditing. A comprehensive management system exists to assure appropriate planning and resources, execution and accountability are in place. These efforts are delivered through a series of organizational practices that apply to both employee safety and health and environmental considerations. All manufacturing facilities in the Tropicana business unit are OSHA VPP Star sites and QTG was recently accepted by OSHA to participate in the Corporate VPP Program.

Management of health and safety within PepsiCo International (PI) operates on three different levels: site level, region/business unit level and division level. Division health and safety professionals provide strategic direction, propose and develop PI-wide policies and practices, and facilitate the communication and sharing of practices and knowledge of health and safety across our operations. Regions/business units and sites are responsible for all managerial and operational aspects of health and safety. To support them in fulfilling these responsibilities, PI has dedicated health and safety professionals around the world. Lost time injury rates are tracked across PI with a uniform web-based reporting tool.

In the United States, PepsiCo tracks occupational health and safety performance based on OSHA definitions and recording criteria. We do not track illness frequency rates. In other countries where we operate, we track and report according to local regulatory requirements.

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HIV/AIDSHIV/AIDS poses an increasingly serious health risk to human society. PepsiCo has recognized the importance of joining the fight against HIV/AIDS.

In 2002, PepsiCo’s South Africa snack food operation, Simba, adopted a formal HIV/AIDS policy. That same year, PepsiCo joined the Global Business Coalition (GBC), a not-for-profit group dedicated to fighting HIV/AIDS and related diseases by providing information, counsel and sharing best practices. PepsiCo established an internal task force on HIV/AIDS to address the issue in our businesses. In addition to the United States and South Africa, the task force identified priority countries where there is a high or rising prevalence and we have major businesses: India, China and Russia.

In 2004, in consultation with interested shareholders, PepsiCo prepared its first report on the known impact of HIV/AIDS in our businesses in the identified countries. We also developed our PepsiCo Worldwide HIV/AIDS policy.

We made great progress as we developed and implemented workplace programs in the four countries: South Africa, India, Russia and China. Thailand joined the first tier efforts and Mexico recently joined. In 2005, we announced our global HIV/AIDS policy and communicated it across all PepsiCo. In South Africa, we launched a direct AIDS intervention program which included full treatment coverage for

all employees and spouses. We are continuing the program, providing community outreach through peer education and providing assistance to affected families.

In India, we have provided education, treatment and community outreach programs, including peer education. In China, we have provided education, engaged in programs with outside groups and have a dedicated wellness doctor who visits our business unit facilities to provide information on health and wellness issues, with an emphasis on HIV/AIDS. An information hotline was established to answer questions about HIV/AIDS and other health issues, as well as to provide referrals to treatment facilities and case management where appropriate. In Russia, in addition to employee education and awareness, PepsiCo is participating in community educational programs.

The Thailand business has been a part of a number of activities, including a National Children’s Day’s activity book on AIDS

prevention for children and how to live with AIDS-infected children. The business has a certificate of gold level from the AIDS Response Standard Organization (ASO Thailand) for outstanding HIV/AIDS work. The Thailand business also received a certificate of outstanding HIV/AIDS Management in the Workplace on a country level for World AIDS Day in 2006, a recognition sponsored by the Thai Red Cross Society and UNAIDS.

In the United States, PepsiCo has an active program that includes information on HealthRoads website, review of benefit plans to ensure coverage of HIV/AIDS. In addition, associates participated in HIV/AIDS awareness marches across the United States, raising funds to fight this disease.

Pandemic PreparationPepsiCo recognizes the dangers of Avian (Bird) Flu, and other pandemics, and has established a task force that is addressing this and other potential pandemics. In the United States, this

includes education, awareness and steps to take regarding work related issues.

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TrainingEmployee training is year round at PepsiCo. Training covers a large number of areas. Associates are regularly updated on the business through forums, town halls, daily e-newsletters, web information, videos and other forms of communications.

On-Boarding

New associates are introduced to the Company and receive information on a variety of areas, including the Company, history, career information and benefit information.

Job TrainingAssociates receive specific job training as required, including attending professional conferences to enhance their skills.

Skill Improvement TrainingPepsiCo offers associates opportunities to improve their skills through a variety of training opportunities, including an educational week during which associates can select from courses in everything from learning to prepare presentations to balancing home and work.

Career ManagementPepsiCo has a very robust program for helping associates manage their careers. Elements include a guide for career growth tailored to PepsiCo, as well as guides focused on specific functions. Our year-long proprietary career process includes objective setting, performance and development reviews, development action plans, mid-year reviews and 360 degree evaluations, all supported by training and materials. Executive leadership training focuses on helping high potential managers learn to be more effective leaders and to gain a broader perspective of our business. In 2007, we introduced a concept called “One Simple Thing” at our headquarters, which strives to help associates better balance work and home by agreeing with their manager to make one change. All employees receive regular performance and career development reviews annually.

Diversity and Inclusion TrainingPepsiCo supports its commitment to fostering a diverse and inclusive workplace with training. Associates move through training levels specifically developed for PepsiCo.

Values and Code of Conduct TrainingPepsiCo has provided interactive training in its Values to associates worldwide. PepsiCo has also provided interactive training on its Code of Conduct. In 2007, approximately 30,000, associates around the world completed mandatory Code of Conduct training. The training was offered in six languages. Of the active employees who were solicited, we achieved 100% completion. PepsiCo also provided web-based training on our Anti-Bribery Policy to nearly 15,000 employees. We provided web-based Sexual Harassment and Trade Spending Compliance courses and tracked completion.

Lifestyle and Personal DevelopmentPepsiCo offers associates the opportunity to hear speakers on a variety of topics and to participate in workshops of special interests. Examples include presentations on diversity, market trends and health topics.

Health and Wellness InformationPepsiCo offers employees health information and presents speakers on topics related to health and wellness.

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Human Rights PepsiCo Values include a commitment to respect others, inside and outside the Company, which is consistent with our value of treating people with dignity. Our commitment to employees includes a work environment that is free from all forms of discrimination, including sexual and other forms of harassment, and fostering a work environment where people feel comfortable and respected. PepsiCo’s

Code of Conduct requires all employees to follow local employment laws and regulations, including child labor laws and treatment of employees. We have set 15 as the minimum age anyone can work for PepsiCo.

Human Rights TrainingTraining is provided throughout PepsiCo on our Code of Conduct and Speak Up hotline. We encourage employees to report issues such as discrimination,

harassment and mistreatment of employees. In addition, in the United States, PepsiCo is providing inclusion training to associates, that includes all managers. During the training, we explore the human rights intrinsic to all and the importance of sustaining an inclusive culture.

Reporting Issues and Speak Up The employee grievance system includes employee and manager communications, intervention by human resource generalists and the Speak Up line. All associates can use Speak Up as a method to raise any issue. Speak Up is a 24-hour, toll-free hotline available to report any suspected violation of the Code of Conduct, PepsiCo’s Values or the law. Callers can be anonymous. Speak Up calls are received by a third-party vendor – not a PepsiCo employee – to ensure anonymity. All calls are free to employees and contractors. The toll-free numbers and an explanation of Speak Up are provided on the PepsiCo intranet, on posters and in PepsiCo’s Worldwide Code of Conduct. The Code of Conduct includes PepsiCo’s policy prohibiting retaliation against employees and contractors who raise grievances.

In 2006, PepsiCo adopted our Human Rights Policy, which states:

PepsiCo Human Rights Workplace PolicyPepsiCo respects the dignity of our workers in the workplace and we work to ensure our associates’ rights to personal security, a safe, clean and healthful workplace, and freedom from harassment or abuse of any kind.

We deal fairly and honestly with our associates regarding wages, benefits and other conditions of employment, and recognize our associates’ right to freedom of association. We do not use compulsory or child labor.

We do not tolerate discrimination and work to ensure equal opportunity for all associates.

We comply with all applicable laws, regulations, and other employment standards, wherever we operate or work.

We encourage our partners, suppliers, contractors and vendors to support these policies and we place substantial value on working with others who share our commitment to human rights.

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Suppliers Supplier CodesPepsiCo products are produced and manufactured locally by our own operations and by authorized bottlers. Our suppliers primarily provide raw materials such as agricultural commodities and packaging. PepsiCo has worked to strengthen its policies with suppliers by providing clarity with respect to our Values and expectations for socially responsible performance.

PepsiCo’s Worldwide Code of Conduct applies to all employees of PepsiCo, its subsidiaries and joint ventures over which it has management control. In 2007, PepsiCo developed a specific Supplier Code of Conduct. This Code establishes our expectations in the areas of labor practices, employee health and safety, environmental management and business integrity. This Supplier Code of Conduct reflects PepsiCo’s Environmental Policy commitment to work with our suppliers to reduce environmental impacts; our Human Rights Policy; and the leading international codes of conduct. It is shared with suppliers and it states we place substantial value on working with others who share our commitment to human rights.

Minority-Owned and Women-Owned SuppliersWe have teams dedicated to increasing the diverse spend of our suppliers. In 2006, we surpassed $1 billion in purchases from U.S. minority-owned and women-owned suppliers. Minority and women suppliers are invited to contact PepsiCo online.

In the United Kingdom, PepsiCo was a founding member of the National Minority Supplier Development Council (NMSDC) international pilot program to inspire supplier diversity. PepsiCo has taken a leadership position in the new group, which is called Minority Supplier Development United Kingdom (MSDUK).

Talent Honors2006 • PepsiCo was given Best Employer of

University Graduates in China by chinahr.com.

• PepsiCo was named to America’s Top Corporations for Women’s Business Enterprises list by The Women’s Business Enterprise National Council (WBENC).

• PepsiCo was presented with the International Corporate Courage Award by the AIDS Responsibility Project (ARP).

• PepsiCo ranked 18 on DiversityInc’s Top 50 Companies for Diversity list.

• Black Enterprise magazine named PepsiCo among 40 Best Companies for Diversity and 10 Best Companies in Marketing Diversity.

• The Women's Foodservice Forum (WFF) honored PepsiCo with the inaugural Jackie B. Trujillo SOAR Award.

• PepsiCo was awarded the prestigious 2005 NAAAP Convention Excellence award at the 19th Annual National Association of Asian American Professionals Convention.

• PepsiCo was honored as one of The 50 Best Companies for Latinas to Work for in the U.S. by LATINA Style magazine.

• Hispanic Business magazine named PepsiCo one of the Top 50 Companies for Hispanics.

• Frito-Lay ranked as one of the Top Three Leaders in the area of Supplier Diversity in North Texas area survey.

• PepsiCo UK and Ireland was named in The Times Top 50 Places Where Women Want to Work.

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2007 • PepsiCo was given the title of 2007

Outstanding Employer of China in Shanghai Region jointly by CRF, Holland’s professional publication and ranking organization, and China Business News Group.

• Diversity Business named PepsiCo as one of America’s Top Organizations for Multicultural Business Opportunities.

• Catalyst honored PepsiCo with the 2007 Catalyst Award for its Woman of Color Multicultural Alliance.

• Human Rights Campaign named PepsiCo as one of the Best Places to Work for GLBT Equality and gave PepsiCo 100% on the Corporate Equality Index.

• PepsiCo was named to list of America’s Top Corporations for Women’s Business Enterprises.

• PepsiCo was among the Top 10 of DiversityInc’s Top 50 Companies for Diversity list.

• Black Enterprise magazine named PepsiCo one of 40 Best Companies.

• Diversity Careers.com honored PepsiCo’s longtime commitment to Supplier Diversity.

• Working Mother magazine named PepsiCo one of the top five among the Top 50 Best Companies for Multicultural Women.

• LATINA Style magazine named PepsiCo Company of the Year.

• Latin Business magazine named PepsiCo to its Corporate Diversity Honor Roll.

• Essence magazine named PepsiCo one of the 25 Best Companies for Black Women.

• PepsiCo and EnAble received the Innovation Award from the Chicagoland Chamber of Commerce.

PepsiCo Supplier Code of ConductPurpose and Scope

This Supplier Code of Conduct sets forth the business conduct standards to which PepsiCo expects its suppliers to adhere. This Code covers suppliers, vendors, contractors, consultants, agents and other providers of goods and services who do, or seek to do, business with PepsiCo entities worldwide.

Business Conduct Standards

PepsiCo expects its suppliers to conduct business responsibly, with integrity, honesty and transparency and adhere to the following standards:

1. Comply with all applicable laws and regulations of the countries of operation.

2. Compete fairly for our business, without paying bribes, kickbacks or giving anything of value to secure an improper advantage.

3. Encourage a diverse workforce and provide a workplace free from discrimination, harassment or any other form of abuse.

4. Treat employees fairly and honestly, including with respect to wages, working hours and benefits.

5. Respect human rights and prohibit all forms of forced or compulsory labor.

6. Ensure that child labor is not used in any operations.

7. Respect employees’ right to freedom of association, consistent with local laws.

8. Provide safe and humane working conditions for all employees.

9. Carry out operations with care for the environment and comply with all applicable environmental laws and regulations.

10. Keep financial books and records in accordance with all applicable legal, regulatory and fiscal requirements and accepted accounting practices.

11. Deliver products and services meeting applicable quality and safety standards.

12. Support compliance with this Code by establishing appropriate management processes and cooperating with reasonable assessment processes requested by PepsiCo.

13. Observe PepsiCo’s policies regarding gifts and entertainment and conflicts of interest when dealing with PepsiCo employees.


Global Reporting Initiative (GRI) Index The Global Reporting Initiative (GRI) is a system of reporting on financial, social, and environmental programs and progress.

GRI Indicator PepsiCo LocationStrategy and Analysis1.1 Statement from CEO. 3

1.2 Section 1-- Description of key impacts risks and opportunities including:a. Description of significant impacts on sustainability, challenges and opportunities.b. Approach to prioritizing challenges and opportunities.c. Key conclusions about addressing the topics.d. Description of the main process in place to address performance and changes.

3, 14, 18, 37-48, 49-68, 69-80

1.2 Section 2 -- a. Description of most important risks and opportunities arising from sustainability trends.b. Prioritization of risks and opportunities.c. Table summarizing performance against targets and lessons learned.e. Description of governance mechanisms in place to manage.

3, 4-5, 14, 18, 20, 23, 37-48, 49-68, 69-80

Organizational Profile2.1 Name of the organization. 6

2.1 Primary brands, products and services. 6, 7, 30

2.3 Operational structure of the organizations, divisions, operating companies, subsidiaries and joint ventures.

6

2.4 Location of organization’s headquarters. 9

2.5 Number of countries where the organization operates and names of countries with major operations or those specifically relevant to sustainability issues.

7, 9

2.6 Nature of ownership and legal form. 6

2.7. Markets served (including geographic breakdown, sectors served and types of customers/beneficiaries).

7, 8, 9

2.8 Scale of the reporting organization including:a. Number of employees.b. Net sales.d. Quantity of products or services provided.e. Total assets.g. Breakdowns by country/region of sales, costs, employees that make up more than 5%.

6, 8, 9, 30

2.9 Significant changes during the reporting period regarding size, structure or ownership, including facility openings, closings, expansions and changes in share capital structure.

9

2.10 Awards received during the reporting period. 23, 35-36, 66-68, 79-80

Report Profile3.1 Reporting period. 2

3.2 Date of most recent previous report. 2

3.3 Reporting cycle. 2

3.4 Contact point for questions regarding the report or its contents. 2

3.5 Process for defining report content including:a. Determining materialityb. Prioritizing topics within the report.c. Identifying stakeholders the organization expects to use the report.

2

3.6 Boundary of the report (eg countries, divisions, subsidiaries, leased facilities, joint ventures, suppliers).

2

3.7 State specific limitations on the scope of the boundary of the report. 2

3.8 Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations, and other entities that can significantly affect comparability from period to period and/or between organizations.

2

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3.9 Data measurement techniques and the bases of calculations, including assumptions and techniques underlying estimations applied to the compilation of the indicators and other information in the report.

2

3.10 Explanation of the effect of any re-statements of information provided in earlier reports and the reasons for such re-statements, eg mergers, acquisitions, change of base years/periods, nature of business, measurement methods.

2

3.11 Significant changes from previous reporting periods in the scope, boundary or measurement methods applied to the report.

2

3.12 Table identifying the location of Standard Disclosures in the report. Identify the page numbers or web links.

19, 29, 36, 48, 68, 80

Governance, Commitments and Engagement 4.1 Governance structure of the organization, including committees under the highest governance body responsible for specific tasks, such as setting strategy or organizational oversight.

20- 22

4.2 Indicate whether the Chair of the highest governance body is also an executive officer. 20

4.3 For organizations that have a unitary board structure, state the number of members of the highest governance body that are independent and/or non-executive members.

20

4.4. Mechanism for shareholders and employees to provide recommendations or direction to the highest governance body. Include reference to processes regarding:a. The use of shareholder resolutions or other mechanisms for enabling minority shareholders to express opinions to the highest governance body, andc. Identify topics related to economic, environmental, and social performance raised through these mechanisms during the reporting period.

22-23, 27-29

4.5 Linkage between compensation for members of the highest governance body, senior managers, and executives and the organization’s performance.

22-23

4.6 Process in place for the highest governance body to ensure conflicts of interest are avoided.

23

4.7 Process for determining the qualifications and expertise of the members of the highest governance body for guiding the organization’s strategy on economic, environmental and social topics.

23

4.8 Internally developed statements of mission or values, codes of conduct, and principles relevant to economic, environmental and social performance and the status of their implementation.

10-13, 39, 43, 46, 48, 53-55, 58, 75, 76, 78, 79-80

4.9 Procedures of the highest governance body for overseeing the organization’s identification and management of economic, environmental and social performance, including relevant risks and opportunities and adherence or compliance with internationally agreed standards, codes of conduct and principles.

18-19, 20-21

4.10 Processes for evaluating the highest governance body’s own performance, particularly with respect to economic, social and environmental performance.

23

4.12 Externally developed economic, environmental and social charters, principles or other initiatives to which the organization subscribes or endorses.

24-26

4.13 Memberships in associations (such as industry associations) and/or international advocacy organizations.

24-26, 29, 31, 33-36, 42-45, 58-65, 68, 75, 76, 79

4.14 List of stakeholder groups engaged by the organizations. 27-29

4.15 Basis for identification and selection of stakeholders with whom to engage. 27-29

4.16 Approaches to stakeholder engagement, including frequency of engagement by type and stakeholder group.

27-29

4.17 Key topics and concerns that have been raised through stakeholder engagement, and how the organization has responded to those key topics and concerns, including through reporting.

27-29

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Economic Performance Indicators EC 1 Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings and payments to capital providers and governments.

30-32

EC 2 Financial implications and other risks and opportunities for the organization’s activities due to climate change.

14-17, 60

EC 4 Significant financial assistance received from government. 31

EC 6 Policy, practices and proportion of spending on locally-based suppliers at significant locations of operation.

31

EC 7 Procedures for local hiring and proportion of senior management hired from the local community at locations of significant operation.

73

EC 8 Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in kind or pro bono engagement.

31, 32-36, 39-45, 56-59, 60, 62, 64, 66, 68, 76,

EC 9 Understanding and describing significant indirect economic impacts, including the extent of impacts.

28-29, 31

Environmental Performance IndicatorsEN 2 Percentage of materials used that is recycled input materials. 56-57, 60-62, 63-65, 66-67

EN 3 Direct energy consumption by primary energy source. 51-52

EN 5 Energy saved due to conservation and efficiency improvements. 51-52

EN 6 Initiatives to provide energy-efficient or renewable energy based products and services, and reductions in energy requirements as a result of these initiatives.

50-68

EN 7 Initiatives to reduce indirect energy consumption and reductions achieved. 50-68

EN 8 Total water withdrawal by source. 50-52, 56-59

EN 9 Water sources significantly affected by withdrawal of water. 50-59

EN 18 Initiatives to reduce greenhouse gas emissions and reductions achieved. 60-62

EN 26 Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation.

50- 68

En 29 Significant environmental impacts of transporting products and other goods and materials used for the organization’s operations, and transporting members of the workforce.

61-62

Social Performance IndicatorsLA 1 Total workforce by employment type, employment contract and region. 6, 9,

LA 3 Benefits provided to full-time employees that are not provided to temporary or part-time employees, by major operations.

73

LA 7 Rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities by region.

75

LA 8 Education, training, counseling, prevention, and risk control programs in place to assist workforce members, their families, or community members regarding serious diseases.

76

LA 10 Average hours of training per year per employee by employee category. 77, 78

LA 11 Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings.

77

La 12 Percentage of employees receiving regular performance and career development reviews.

77

LA 13 Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership and other indicators of diversity.

73

Human Rights Performance IndicatorsHR 1 Percentage and total number of significant investment agreements that include human rights clauses or that have undergone human rights screening.

78-80

HR 3 Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained.

78

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Society Performance IndicatorsSO 3 Percentage of employees trained in organization’s anti-corruption policies and procedures.

12-13

SO 4 Actions taken in response to incidents of corruption. 12-13

SO 5 Public policy positions and participation in public policy development and lobbying. 25-26, 29, 31

SO 6 Total values of financial and in-kind contributions to political parties, politicians and related institutions by country.

31

Product Responsibility Performance IndicatorsPR 1 Life cycle stages in which health and safety impacts of products and services are assessed for improvement and percentage of significant products and services categories subject to such procedures.

38-48, 54-68

PR 3 Type of product and service information required by procedures and percentage of significant products and services subject to such information requirements.

46

PR 5 Practices related to customer satisfaction, including results of surveys measuring customer satisfaction.

47-48

PR 6 Programs for adherence to laws, standards, and voluntary codes related to marketing, communications, including advertising, promotion and sponsorships.

48

PepsiCo’s Corporate Sustainability Report contains many of the valuable trademarks owned and/or used by PepsiCo and its subsidiaries and affiliates in the United States and internationally to distinguish products and services of outstanding quality. This report also contains several of the trademarks owned and used by the partners we mention.

PepsiCo Corporate HeadquartersPepsiCo, Inc. 700 Anderson Hill RoadPurchase, N.Y. 10577Telephone: 914-253-2000

PepsiCo Website: www.pepsico.com

© 2007 PepsiCo, Inc.

Design: Eisenman Associates, a Certified Woman Owned Business (WBE). Photography: Stephen Wilkes, PhotoBureau, Ben Rosenthal, Jonathan Kirn, Grover Sterling, Steve Bonini, Kayte Deioma, Getty Images, Corbis.

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Documents

Performance with Purpose PepsiCo Corporate Sustainability Report