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42 PepsiCo, Inc. 2008 Annual Report
Management’s Discussion and Analysis
OUR BUSINESS
Our discussion and analysis is an integral part of understanding
our nancial results. Denitions of key terms can be found in
the glossary on page 96. Tabular dollars are presented in millions,
except per share amounts. All per share amounts reect common
per share amounts, assume dilution unless noted, and are based
on unrounded amounts. Percentage changes are based on
unrounded amounts.
EXECUTIVE OVERVIEW
We are a leading global beverage, snack and food company.
We manufacture or use contract manufacturers, market and sell
a variety of salty, convenient, sweet and grain-based snacks,
carbonated and non-carbonated beverages and foods in approxi-
mately 200 countries, with our largest operations in North America
(United States and Canada), Mexico and the United Kingdom.
Additional information concerning our divisions and geographic
areas is presented in Note 1.
Our commitment to sustainable growth, dened as
Performance with Purpose, is focused on generating healthy
nancial returns while giving back to the communities we serve.
This includes meeting consumer needs for a spectrum of conve-
nient foods and beverages, reducing our impact on the environ-
ment through water, energy and packaging initiatives, and
supporting our employees through a diverse and inclusive culture
that recruits and retains world-class talent. In September 2008,
we were again included on the Dow Jones Sustainability North
America Index and the Dow Jones Sustainability World Index.
These indices are compiled annually.
We were again included on the Dow Jones Sustainability North
America Index and the Dow Jones Sustainability World Index.
Our management monitors a variety of key indicators to evalu-
ate our business results and nancial conditions. These indicators
include market share, volume, net revenue, operating prot, man-
agement operating cash ow, earnings per share and return on
invested capital.
Key Challenges and Strategies for Growth
To achieve our nancial objectives, we consistently focus on
initiatives to improve our results and increase returns for our
shareholders. For 2009, we have identied the following key
challenges and related competitive strategies for growth that we
believe will enable us to achieve our nancial objectives:
Revitalizing our North American Beverage Business
In 2008, the U.S. liquid refreshment beverage category declined
on a year-over-year basis. During 2009, we intend to invest to
keep our total beverage portfolio relevant to consumers of all
ages. We plan to capitalize on our new “Refresh Everything”
campaign, which features new brand identities for trademarks
Gatorade, Pepsi, Sierra Mist and Mountain Dew, as well as key
product innovations like new SoBe Lifewater, sweetened with
PureVia™, an all-natural, zero-calorie sweetener recently approved
by the U.S. Food and Drug Administration. In non-carbonated
beverages, we will work to identify untapped thirst occasions and
to deliver even more functional benets.
Broadening our Diverse Portfolio of Global Products
Consumer tastes and preferences are constantly changing. The
increasingly on-the-go lifestyles of consumers and their desire for
healthier choices means that it is more important than ever for
us to continue to broaden our diverse portfolio of global products.
We remain committed to offering consumers a broad range of
choices to satisfy their diverse lifestyles and desires. For example,
in 2008, we broadened the beverage portfolio by partnering
with The Pepsi Bottling Group (PBG) to acquire JSC Lebedyansky
(Lebedyansky), Russia’s leading juice company, by acquiring
V Water in the United Kingdom and by expanding our successful
Lipton Tea partnership with Unilever. We expanded into adjacent
snack categories by introducing TrueNorth nut snacks and forming
a joint venture that offers Sabra refrigerated dips. During 2009,
through a combination of tuck-in acquisitions and innovation,
we plan to continue to broaden the range of products we offer
in our existing categories and expand into adjacent ones. We are
also committed to securing our innovation pipeline, and have
coordinated our research and development departments across
the Company into one global innovation team.
Successfully Navigating the Global Economic Crisis
We and our customers, suppliers and distributors have all been
impacted by the continuing global economic crisis. Global eco-
nomic conditions have resulted in decreased consumer purchas-
ing power, volatile uctuations in the prices of key commodities
such as oil, corn, sugar and oats and adverse foreign currency
exchange rates. To navigate through these conditions we plan to
continue to focus on fundamentals, such as ensuring that we
offer products with the right price to value proposition and man-
aging cash ow, interest expense and commodity costs. We have
also implemented our Productivity for Growth program which is