PEPSICO 2010 Annual Report

Dear Fellow Shareholders,

2010 was a good year for PepsiCo. I am delighted with the success we have achieved, and I am sure you are too.

Amid the continuing challenge of the most difficult global macroeconomic environment in decades, we delivered strong operating performance that puts us in the top tier in our industry while we generated significant operating cash flow.

• Net revenue grew 33 percent on a constant currency basis.1 • Core division operating profit rose 23 percent on a constant currency basis.1 • Core EPS grew 12 percent on a constant currency basis.2 • Management operating cash flow, excluding certain items, reached $6.9 billion, up    23 percent.1 • $8 billion was returned to our shareholders through share repurchases and dividends. • We raised the annual dividend by 7 percent.

We can confidently say that PepsiCo continues to operate from a position of balance and strength. We are the second-largest food and beverage business in the world, and the largest food and beverage business in North America.

We are increasingly global. More than 45 percent of our revenue comes from outside the United States, with approximately 30 percent coming from emerging and developing markets, where we have tremendous growth opportunities. Globally, PepsiCo operates more than 100,000 routes, serves approximately 10 million outlets almost every week and generates more than $300 million in retail sales every day.

We are performing today to deliver top-tier financial performance, while investing to ensure that our performance levels can be sustained in the long term. For example, in 2010 we stepped up our investments in brand building, R&D, emerging markets infrastructure and our people.

PepsiCo has 19 brands that generate more than $1 billion of retail sales each — up from just 11 in 2000. Brands are our lifeblood — we invest to sustain and improve brand equity in existing global brands while judiciously focusing on our local and regional brands. In 2010, all of our $1 billion brands grew revenues, thanks in part to our brand-building activities.

Differentiated products help us drive sales and pricing. In 2010, we again increased our R&D investments in sweetener technologies, next-generation processing and packaging and nutrition products. For example, SoBe Lifewater Zero Calorie, a product made with an all-natural, zero-calorie sweetener, was a direct result of that investment — the SoBe Lifewater brand grew volume 46 percent in 2010 alone. Similarly, our technology investments allowed us to reduce sodium levels in some of our salty snacks without compromising taste and to use 100 percent recycled PET in our Naked Juice bottles.

We increased our investment in emerging markets’ selling and delivery systems by putting more coolers in the market and adding route and distribution capacity ahead of growth in India, China, Russia and other countries.

In 2010, we also increased our emphasis on our people — from leadership development to rotational assignments to experiential learning programs. Our people set us apart and attracting, retaining, retraining and developing them remain our biggest advantages and continuing challenges.

1 Core results and core results on a constant currency basis are non-GAAP measures that exclude certain items. See page 108 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.

2 Core results and core results on a constant currency basis are non-GAAP measures that exclude certain items. See page 64 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.