what is your overall evaluation of PepsiCo?s business portfolio in 2014? Does the portfolio provide the company?s shareholders with an opportunity for above-average market returns?

5 PEPSICO PepsiCo 2014 Annual Report YEARS & GROWING PepsiCo 2014 Annual Report 4% 1 Letter to Shareholders 12 2014 Financial Highlights 13 PepsiCo Board of Directors 14 PepsiCo Leadership 15 PepsiCo Form 10-K 141 Reconciliation of GAAP and Non-GAAP Information Corporate Headquarters PepsiCo, Inc. 700 Anderson Hill Road Purchase, NY 10577 Telephone: 914-253-2000 PepsiCo Website www.pepsico.com Organic revenue was up 4% in 20141 Independent Auditors KPMG LLP 345 Park Avenue New York, NY 10154-0102 Telephone: 212-758-9700 144 Common Stock and Shareholder Information 110BPS Core net ROIC improved 110 bps in 2014 compared to 20131 9% Free cash flow, excluding certain items, reached $8.3 billion1 Core constant currency EPS grew 9%1 $8.7B We returned $8.7 billion to shareholders in 2014 through share repurchases and dividends 1. Organic, core and constant currency results, as well as free cash flow excluding certain items, are non-GAAP financial measures. Please refer to \"Reconciliation of GAAP and Non-GAAP Information\" beginning on page 141 of this Annual Report for more information about these results, including a reconciliation to the most directly comparable financial measures in accordance with GAAP. Direct Stock Purchase Interested investors can make their initial purchase directly through Computershare, transfer agent for PepsiCo and Administrator for the Plan. A rochure detailing the Plan is b available on our website, www.pepsico.com, or from our transfer agent: $1B We delivered $1 billion in savings in 2014 as part of our 2012 Productivity Plan and expect to deliver $1 billion in annual productivity savings from 2015-2019 On the front cover: A selection of PepsiCo Annual Report covers from our first 50 years. Design by Addisonwww.addison.com Printing by Sandy Alexander Inc. Photography by Teru Onishi, Jason Schmidt and Steve Giralt $8.3B Other services include dividend reinvestment, direct deposit of dividends, optional cash investments by electronic funds transfer or check drawn on a U.S. bank, sale of shares, online account access, and e lectronic delivery of shareholder materials. Computershare Inc. P.O. Box 30170 College Station, TX 77845-3170 Telephone: 800-226-0083 201-680-6578 (outside the U.S.) Website: www.computershare.com/investor Online inquiries: www-us.computer share.com/investor/contact Additional Information Investors and others should note that we currently announce material information to our investors using filings with the Securities and Exchange Commission, press releases, public conference calls, webcasts or our corporate website (www.pepsico.com). We may from time to time update the list of channels we will use to communicate information that could be deemed material and will post information about such changes on www.pepsico.com/investors. PepsiCo's Annual Report contains many of the valuable trademarks owned and/ or used by PepsiCo and its subsidiaries and affiliates in the U.S. and internationally to distinguish products and services of outstanding quality. All other trademarks featured herein are the property of their respective owners. 2014 Diversity Statistics PepsiCo Values Our Commitment: To deliver SUSTAINED GROWTH through EMPOWERED PEOPLE acting with RESPONSIBILITY and building TRUST. Guiding Principles We must always strive to: 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. 2015 PepsiCo, Inc. Environmental Profile This Annual Report was printed with Forest Stewardship Council (FSC)- certified paper, the use of 100% certified renewable wind power resources and soy ink. PepsiCo continues to reduce the costs and nvironmental impact of annual report e printing and mailing by utilizing a distribution model that drives increased online readership and fewer printed copies. You can learn more about our environmental efforts at www.pepsico.com. Contribution Summary (in millions) % Women % People of Color a Board of Directors Senior Executivesb 38 31 27\t36 Corporate Contributions* Executives (U.S.) 32 22 Division Contributions 11.5 All Managers (U.S.) 33 27 Division Estimated In-Kind 58.8 All Employees (U.S.) 19 35 Total\t$107.0 The data in this chart is as of December 31, 2014, and, other than the Board of Directors, this chart reflects full-time employees only. a) U.S. only; primarily based on completed self-identification forms. b) Composed of PepsiCo Executive Officers subject to Section 16 of the Securities Exchange Act of 1934. 2014 PepsiCo Foundation *Corporate Contributions includes estimated in-kind donations of $0.1 million. $ 30.1 6.6 2014 ANNUAL REPORT1 Dear Fellow Shareholders, Indra K. Nooyi PepsiCo Chairman of the Board and Chief Executive Officer PepsiCo delivered another year of strong performance in 2014, resulting in double-digit total shareholder returns. As 2015 heralds our company's 50th anniversary, I want to take this opportunity to share my thoughts on what has made PepsiCo one of the top-performing food and beverage companies of the past 50 years, and the steps we are taking to extend this legacy of success for decades to come. Looking Back: Our Half-Century Journey As we prepare to celebrate PepsiCo's 50th year in June, we look back at our journey with pride. In 1965, when the Pepsi-Cola Company and Frito-Lay, Inc. merged to create PepsiCo, our revenue was $510 million. Today, it stands at more than $66 billion. Our market capitalization, which was $842 million at the end of 1965, grew to $141 billion at the end of 2014, putting us in the top 10% of the S&P 500 by market value. If you invested $100 in PepsiCo stock at the end of 1965, it was worth nearly $43,000 at the end of 2014, a 13.2% annualized return.1 A $100 investment in the S&P 500 over the same time period was worth nearly $10,000 at the end of 2014, a 9.8% annualized return. 1. For further information, please see pages 2 and 3. Two core attributes of PepsiCo underlie our strong outperformance: Adaptability: We anticipated major shifts in the consumer landscape and business environment and met them head-on by preemptively retooling the company for advantage and growth. Performance: At the same time that we have been driving sometimes radical change, we have managed to deliver strong financial results over the long term. I am confident that these attributes will continue to define our company for the next 50 years. The \"Adaptable\" Corporation Throughout the past half-century, PepsiCo has made bold moves to reshape our portfolio, build new c apabilities and invest in new geographies. I'd like to share with you four major trends and how we adapted in order to thrive. 2PEPSICO $45,000 $40,000 $35,000 The Growth of PepsiCo's Portfolio of Billion Dollar Brands BRAND PepsiCo's product portfolio includes 22 brands that generate more than $1 billion each in estimated annualPEPSI_S1_2PMS_NB_SM ( retail sales. R SE 2 " 1 DT_PEPSI_S1_NB_S _4C ( )" T 1 " )" CMYK Cumulative Total Shareholder Return Since 1965 PEPSI_S1_2PMS_NB_MEDI M ( R SE PANTONE PANTONE 2945 185 R SE 1 " DT_PEPSI_S1_NB_ EDI 4") _4C ( R SE 1 " 4") T CMYK PANTONE PANTONE 2945 185 $30,000 $25,000 $20,000 Return on PepsiCo stock investment and the S&P 500, assuming the reinvestment of all dividends paid and adjusted for stock splits, calculated through December 31, 2014. A $100 investment in PepsiCo stock at the end of 1965 was worth nearly $43,000 at the end of 2014, a 13.2% annualized return, compared to a $100 investment in the S&P 500 over the same time period, which was worth nearly $10,000 at the end of 2014, a 9.8% annualized return. PEPSI_S1_2PMS_NB_LARGE (4" AND LARGER) On October 6, 1997, PepsiCo spun off its restaurant business to its shareholders, who received one share of common stock of Yum! Brands, Inc. (formerly known as TRICON Global Restaurants, Inc.) (Yum!) for every 10 shares of PepsiCo capital stock owned by them (Spin-Off). This return on PepsiCo stock assumes that shareholders immediately sold the Yum! shares received from the Spin-Off and concurrently reinvested the proceeds in additional shares of PepsiCo common stock. DT_PEPSI_S1_NB_LARGE_4C (4" AND LARGER) PANTONE PANTONE 2945 185 To convert the PEPSI logo to 4 - color process please use these values; $15,000 $10,000 CMYK CYAN 100 CYAN 0 MAGENTA 69 MAGENTA 100 YELLOW 17 YELLOW 82 BLACK 3 BLACK 0 PepsiCo, Inc. Total Shareholder Return from December 31, 1965 to December 31, 2014 S&P 500 Total Shareholder Return from December 31, 1965 to December 31, 2014 $5,000 In 1986, a $100 investment made in 1965 would be worth more than: $1,000 $100 PEP Net Revenue* $510M $2.3B $8.1B End-of-Year Split Share Price** $0.75 $1.30 $4.04 $81.50 1965 1965 $70.50 1975 1975 End-of-Year Actual Closing Price *Represents net revenue as initially reported for each of the years presented and does not reflect subsequent reclassifications or changes in presentation. **Closing prices have been restated to reflect PepsiCo stock splits. $72.75 1985 1985 2014 ANNUAL REPORT3 In 2014, a $100 investment made in 1965 would be worth nearly: MAX_H1_4CP_NB_SM_ (FOR USE .25\" 1.5" ) SM_LL_H1_4C CMYK Large 1 inch MAX_H1_4CP_NB_ME .5 inch or less UM(FOR USE 1.5" O 4") CMYK $43,000 In 2013, a $100 investment made in 1965 would be worth more than: $30,000 zero calorie cola maximum taste MAX_H1_4CP_NB_ AR E_ (FOR USE 4" AN In 2005, a $100 investment made in 1965 would be worth more than: AR ER) CMYK $20,000 In 1997, a $100 investment made in 1965 would be worth more than: $10,000 $30.4B $32.6B $66.7B $27.94 $59.08 $94.56 $55.88 $59.08 $94.56 1995 2005 2014 4PEPSICO In 2014, we continued to expand our portfolio of nutritious beverages and foods. Trend 1: The Growth of the Middle Class\u0003 The past few decades saw the rise of the middle class and the growth of women in the workforce across the globe. Concurrently, as consumers worldwide shifted more of their spending to higher-quality products, they favored companies that could deliver these products through strong, trusted brands. PepsiCo acted decisively to capitalize on this trend. We globalized our footprint to meet consumers' quest for convenience around the world, as most of our products can go from package to consumption in seconds. And we established our trusted brands in each of our major markets. Our portfolio of 22 power brands that each generate more than $1 billion in estimated annual retail sales, and more than 10 brands that each generate between $500 million and $1 billion in estimated annual retail sales, is synonymous with quality, great taste and affordability. Globalizing the company and connecting our brands with consumers around the world has, without question, helped drive significant growth for PepsiCo during our first half-century. Trend 2: The Evolution of the Retail Environment\u0003The global retail environment changed dramatically over the past decades. Around the world, we witnessed the emergence of organized, efficient, modern trade in many countries, followed by increasing consolidation and sophistication of retailers in each market. Throughout this transformation, we understood the paramount importance of remaining a key partner to our large retail customers, while continuing to provide the best service to smaller stores. When PepsiCola and Frito-Lay joined forces, it brought together two high-velocity categories under one umbrella and allowed PepsiCo to match retailers' growing scale with our own. Additionally, we have constantly retooled our direct store delivery (DSD) selling system to provide excellent service to large and small retailers alike. Thanks in large part to our company's focus on the transforming retail environment, in 2014 PepsiCo was the number one food and beverage business in the U.S., Canada, Russia, India, Saudi Arabia and Egypt, and among the top three in the U.K., Mexico and Turkey, to name a few.2 Trend 3: The Acceleration of Consumer Focus on Health and Wellness\u0003The emergence and acceleration of consumers' focus on health and wellness (more recently also a focal point of government regulations) has increasingly challenged companies with Fun-For-You portfolios to adapt their products. At the same time, this trend has also created significant growth opportunities in the Better-For-You and Good-For-You categories. PepsiCo anticipated this shift early on, and we took steps to future-proof our portfolio. We invested in research and development to improve the nutritional value and increase the appeal of our Fun-For-You products by eliminating trans fats and reducing salt, fat and added sugar content in key brands. We preemptively acquired major brands across the Good-For-You space, including Quaker Oats, Gatorade for athletes, Tropicana, Naked Juice and the Wimm-Bill-Dann line of dairy and juice products in Russia. We also created a nutrition group to grow our GoodFor-You portfolio. In 2014, our nutrition businesses accounted for approximately 20% of PepsiCo's net revenue. We are one of the top companies in the world in the growing everyday nutrition space. 2. Based on Euromonitor International data. 2014 ANNUAL REPORT5 Future-Proofing Our Portfolio Trend 4: The War for Talent\u0003PepsiCo proudly serves consumers of every income group and ethnicity, on every continent, and in intensely competitive markets. We also know that women make the majority of food and beverage buying decisions. Understanding how to meet the needs of such a diverse cross-section of global consumers requires a diverse and talented workforce. PepsiCo committed long ago to attracting the best and brightest from the entire pool of available talent and to building a workforce that reflects the diversity of the consumers we serve. There are many \"firsts\" in our talent diversity journey. Pepsi broke the color barrier in the U.S. in the 1940s by hiring African-American sales people. We shattered the glass ceiling when we appointed a woman to our Board of Directors in the 1950s. We made history again in 1962 when Harvey C. Russell became the first African-American Vice President of any major U.S. corporation. Our proud legacy of diversity and inclusion continues to this day. It is our strength. Indeed, PepsiCo's focus on a diverse and inclusive workforce has only heightened in recent years, as the war for talent among leading, global companies has escalated. Today, an essential part of our commitment to diversity is growing the participation of women in business and empowering women in local communities. In Saudi Arabia, for example, our team has actively recruited women to PepsiCo for both management and frontline roles, establishing workplaces that respect local customs and developing specialized training programs. Women have assumed leadership roles across the company. Globally, approximately 30% of PepsiCo's executives are women, and women comprised 38% of our Board of Directors in 2014. (Additional details on our diversity and inclusion programs can be found in PepsiCo's most recent Global Reporting Initiative report on our website.) Developing New Capabilities In addition to adapting the company to benefit from and capitalize on these megatrends, we have deliberately developed new capabilities to compete in the rapidly evolving global business environment in which we operate. For example: We transformed our operating model from a highly decentralized and local one to a judicious blend of global leverage and local execution. This has allowed PepsiCo to effectively utilize our scale to deliver productivity yet retain agility by enabling individual country teams to make rapid decisions in serving local consumers and retailers. Our five-year, $5 billion productivity program announced in 2014 was made possible largely by this new operating model. Importantly, it has increased our ability to lift and shift the best ideas and capabilities from PepsiCo teams around the world in areas such as consumer insights, We continue to build capabilities to pursue growth opportunities in categories such as fruits and vegetables, whole grains, protein, sports nutrition and hydration. 6PEPSICO Embracing Design Right: Our Design Center has attracted world-class talent. Far right: A Pepsi Spire digital fountain. innovation, revenue management, customer business planning and DSD systems. Our stepped-up innovation performance, where innovation as a percentage of sales has substantially increased, is due to our rapid global deployment and adaptation of new ideas and platforms. We embraced design as a core building block of innovation. By creating a world-class design studio and staffing it with the best and brightest from around the globe, we have begun to embed design early in the innovation process in order to influence product and packaging development in its formative stages. One example is Pepsi Spire, our revolutionary new beverage dispensing system groundbreaking design-driven innoa vation that has contributed to the growth of our Foodservice business. We revamped PepsiCo University to harmonize our course offerings around the world oth to b train our people on the \"PepsiCo Way of Working\" and to ensure they have the skills to continue to lead PepsiCo. Additionally, we revised our talent assessment tools, talent planning and development process, and compensation structure ll to attract a and retain top talent and align our reward system with shareholder interests. These defining characteristics of adaptability, courage to act preemptively, and resilience are why PepsiCo is one of only 77 publicly traded companies remaining from the Fortune 500 in 1965. Of these 2014 ANNUAL REPORT7 77 companies, PepsiCo ranks in the top quartile in Total Shareholder Returns3 a performance history we reflect on with pride as we celebrate our 50th year. 2014 Strong Performance Year A PepsiCo delivered strong performance in 2014, m eeting or exceeding all of our full-year financial targets.4 Organic revenue grew 4%, with PepsiCo outpacing other Consumer Packaged Goods c ompanies in organic revenue growth.5 Core gross margins improved by 55 basis points, and core operating margins improved by 30 basis points. Core net return on invested capital (ROIC) improved 110 basis points, to 17.5%. Core constant currency earnings per share (EPS) grew 9%. Free cash flow excluding certain items was strong at $8.3 billion. 3. This comparison is based on publicly available data for the period January 2, 1974 through December 31, 2014 and reflects dividend reinvestment and adjustments for stock splits. 4. Organic, core and constant currency results, as well as free cash flow excluding certain items, are non-GAAP financial measures. Please refer to \"Reconciliation of GAAP and Non-GAAP Information\" beginning on page 141 of this Annual Report for more information about these results, including a reconciliation to the most directly comparable financial measures in accordance with GAAP. PepsiCo increased its annual dividend for the 42nd consecutive year in 2014 and returned $8.7 billion to our shareholders through share repurchases and dividends, a 36% increase over 2013. While delivering this strong financial performance, we continue to deliver progress on the fundamental global capabilities that underpin our long-term competitiveness and resilience in the transformation journey we have been on. First, our investment in innovation resulted in strong retail sales in North America. Thanks to our world-class research and development capabilities and the strength of our new product pipeline, innovation accounted for more than 9% of our net revenue in 2014, versus more than 7% in 2012. These efforts, combined with new best-in-class selling tools and technologies, made PepsiCo the largest contributor to U.S. retail sales growth among all food and beverage manufacturers, with nearly $1 billion of retail sales growth in all measured channels ore m than the next 27 largest manufacturers combined.6 5. Our organic revenue calculation may differ from similar measures as reported by other companies. 6. Based in part on data reported by Information Resources, Inc. through its Syndicated Advantage Service for the Total US Multi-Outlet Plus Convenience for all Food & Beverage categories for the 52-week period ending December 28, 2014, including PepsiCo's custom research definitions. Innovation is a critical building block in our growth model. Pictured: PepsiCo innovation in North America. >9% Innovation accounted for more than 9% of our net revenue in 2014. 8PEPSICO Doritos \"Crash the Super Bowl\" received nearly 5,000 consumer submissions from 29 countries around the world. In fact, we had 10 of the top 50 new food and beverage product launches in North America in 2014.7 Second, we continued to benefit from our aggressive productivity culture and mindset. We delivered $1 billion of productivity savings, meeting our three-year, $3 billion productivity target for 2012- 2014. As announced in early 2014, we extended our annual productivity savings target of $1 billion through 2019. Third, we continued to invest in the talent we need to lead our business forward. We created accelerated leadership programs to train leaders for the new global realities; we brought in new talent in areas we believed needed new thinking; and we continued our focus on programs to retain high-potential talent. In 2014, it was gratifying to see the benefits of all our talent management activities specially in the area of diversity and e inclusion eflected in numerous talent rankings: r The Hay Group's Best Companies for Leadership Universum's World's Most Attractive Employers Black Enterprise's Best Companies for Diversity The Corporate Equality Index (which gave PepsiCo a 100% rating) Working Mother's Best Companies for Multicultural Women The LATINA Style 50 Top Employer Institute recognized PepsiCo Foods, Greater China Region, as Top Employer The Australian Government's Workplace Gender Equality Agency named PepsiCo Australia \"Employer of Choice for Gender Equality\" Digital advertising for Mountain Dew was recognized in 2014 with a Gold National ADDY Award, presented by the American Advertising Federation. 7. Based in part on data reported by Information Resources, Inc. through its Syndicated Advantage Service for the Total US Multi-Outlet Plus Convenience for all Food & Beverage categories for the 52-week period ending December 28, 2014. 2014 ANNUAL REPORT9 Building Our Digital Capabilities Looking Forward: Sustaining PepsiCo's Resilient Outperformance in the Coming Decades The environment in which PepsiCo competes will continue to evolve and change. And we will continue to preemptively adapt and position the company for long-term advantage and sustained growth while delivering strong financial results. Future forces The four defining trends described earlier he t continued rebalancing of the economic world through the rise of the middle class and women, the transformation of the retail environment, the acceleration of consumer focus on health and wellness, and the war for talent ill almost certainly w increase in intensity in the years ahead. We will continue to adapt to and capitalize on these trends. At the same time, over the next decade and beyond, we believe three additional trends will increasingly impact the food and beverage industry: 1. The rise of the digitally savvy consumershopper and the emergence of e-commerce as a new distribution channel for foods and beverages. 2.\tThe growing pressure on businesses to be a more active force for change in addressing their environmental and social impacts. 3.\tThe heightened role values, ethics and corporate governance will play in enabling companies to survive and thrive. How we are adapting Investing in new digital capabilities\u0003Social media and mobile technology are disrupting old ways of doing business, but they are also creating new opportunities for manufacturers, retailers, shoppers and consumers to interact. PepsiCo is embracing this shift by investing in three core digital capabilities to support our continued growth. First, a growing percentage of our advertising and marketing spend is now dedicated to digital platforms as consumers dramatically change the way they engage with media. We are leveraging Facebook, Twitter, Instagram and other channels in innovative ways to produce compelling content, drive engagement and build brand equity. We are also partnering with our retail customers on programs linking to their social media platforms, allowing us to reach the right consumers at the right time with the right offerings. Second, our increased investment in digital is creating unique opportunities for two-way dialogue with consumers. For instance, through our Lay's \"Do Us a Flavor\" campaign, we engaged consumers online to co-create innovative new products and content that drives our brands. In China, Mirinda invited consumers through social media to team up with celebrities in a brand-owned variety show to campaign and battle for a best new flavor. And our Doritos \"Crash the Super Bowl\" contest received nearly 5,000 consumer submissions from PepsiCo is responding to the growing demand for food and beverages purchased online. In China, for example, our \"Click & Mix\" innovation provides a broad and unique assortment of products customized for our consumers, and it leverages event-driven marketing relevant to national occasions, such as the Chinese New Year. Shown above: A \"Click & Mix\" gift box. Lay's \"Do Us A Flavor\" in the U.S. attracted more than 14 million submissions. 10PEPSICO A Special Thank You PepsiCo is built on the unshakable foundation of our company's longstanding commitment to transparency, engagement and the highest ethical conduct. 29 countries, all vying for a chance to have their homemade commercial featured during Super Bowl XLIX. Lastly, we are committed to shaping how this new ecosystem of digital, mobile, customer and consumer converges in the world of e-commerce. To that end, we are building new global e-commerce capabilities to accelerate our trajectory across this fast-growing channel. This involves retooling the form and function of our products, our packaging structures, and our fulfillment models. Enhancing our commitment to sustainability\u0003 We have made significant strides in integrating sustainability into every aspect of our enterprise. And our journey continues. When I first articulated Performance with Purpose in 2006, sustainability was largely viewed as tangential to business, and it was often equated with \"giving back\" through philanthropy and volunteerism. My motivation was different: to change how we made our money, not what we did with the money we made. Over the past eight years, Performance with Purpose has guided our initiatives. It has inspired us to grow our top line by expanding the range of nutritious and delicious products we offer to consumers. It has spurred us to minimize our environmental footprintand operating costsby pioneering new systems that conserve natural resources. And it has led us to continually attract, motivate and inspire our associates by providing a safe and inclusive workplace and enabling them to grow professionally while living their values. Together, PepsiCo's businesses have demonstrated that a clear, focused sustainability agenda can create shareholder value. Performance with Purpose continues to position PepsiCo for sustainable financial performance for years to come by aligning what is good for our business with what is good for society and the planet. Maintaining our commitment to strong and transparent corporate governance\u0003PepsiCo is built on the unshakable foundation of our company's long-standing commitment to transparency, engagement and the highest ethical conduct. We have an actively engaged Board comprised of directors with diverse backgrounds and perspectives. In addition to informing and strengthening our global businesses, our Board has adopted governance practices that protect the rights of our investors and foster independent thinking as well as alignment with our shareholders in the boardroom. Over the years, through open communication with shareholders and stakeholders alike, we have earned the trust and respect of our investors, business partners and the general public. This ethos of integrity and strong corporate governance is at the heart of all we do. I am very pleased to report that we were once again recognized as best-in-class in 2014: PepsiCo was named as one of the World's Most Ethical Companies by Ethisphere for the eighth consecutive year. Corporate Secretary magazine honored PepsiCo for Best Shareholder Engagement. PepsiCo won Best Governance, Risk and Compliance Program at a Large-Cap Company at the New York Stock Exchange Governance Services' inaugural Governance, Risk & Compliance Leadership Awards. PepsiCo was named to the Dow Jones Sustainability North America Index for the ninth consecutive year, and to the Dow Jones Sustainability World Index for the eighth consecutive year. 2014 ANNUAL REPORT11 Proud to Look Back, Eager to Move Forward Reflecting on PepsiCo's 50-year journey, I am struck by how our company has touched countless lives and has been shaped by countless hands. Thanks are in order. First and foremost, I would like to express my deep gratitude to our consumers, who continue to inspire PepsiCo to greatness as we strive to meet their evolving needs and brighten their days with products that nourish and delight. I am also deeply grateful to our foodservice and retail partners around the world for their collaboration, commitment to excellence, and dedication to consistently delivering for our consumers, day in and day out. Each and every day, I draw inspiration and energy from my fellow PepsiCo associates around the world. They have been steadfast in their commitment to our business, and the success PepsiCo has achieved over the past half-century is thanks to their determination, sacrifice and deep love for our company. All of us at PepsiCo owe a great debt to the four Chief Executive Officers who preceded me teven S. Reinemund, Roger A. Enrico, S D. Wayne Calloway and Donald M. Kendall. Each left a special mark on our company. Today, we carry the journey forward with the wisdom and dedication of our Board of Directors, under whose oversight I am honored to serve. Finally, let me express my profound thanks to our long-term shareholders. I am grateful for your far-sighted investment and continued trust in our company, and I am gratified that we have been able to amply reward both. It is my great privilege to lead this company and to help write the next chapter in our proud history. I look to PepsiCo's future with tremendous confidence in and commitment to the values and ethos that have driven our success for the past five decades. My optimism for our next 50 years knows no bounds. Indra K. Nooyi PepsiCo Chairman of the Board and Chief Executive Officer March 2015 Above: Former PepsiCo CEOs. Top row: Donald M. Kendall, D. Wayne Calloway; bottom row: Roger A. Enrico, Steven S. Reinemund. Far left: A PepsiCo procurement manager at a blueberry farm in Prosser, Washington; a PepsiCo safety coordinator inspecting solar panels at our snacks plant in Cerrillos, Chile. 12PEPSICO 2014 Financial Highlights Mix of Net Revenue Net Revenues PepsiCo Americas Beverages 32% Food 53% Frito-Lay North America 22% Beverage 47% PepsiCo Europe 20% Latin America Foods 12% PepsiCo AMEA 10% Quaker Foods North America 4% U.S. 51% Outside U.S. 49% Division Operating Profit Frito-Lay North America 36% PepsiCo Americas Beverages 26% PepsiCo Europe 12% Latin America Foods 11% PepsiCo AMEA 9% Quaker Foods North America 6% PepsiCo, Inc. and Subsidiaries (in millions except per share data; all per share amounts assume dilution) Summary of Operations 2014 Core total operating profit % Chg(a) $66,683 Net revenue 2013 $66,415 -% $10,313\t$10,061 (b) 2.5% Core earnings per share attributable to PepsiCo $4.63 $4.37 6% Free cash flow, excluding certain items $8,259 $8,162 1% Capital spending $2,859 $2,795 2% Common share repurchases $ 5,012 $ 3,001 67% Dividends paid $3,730 $3,434 9% (c) (d) (a) Percentage changes are based on unrounded amounts. (b) Excludes the net mark-to-market impact of our commodity hedges and restructuring and impairment charges in both years. In 2014, also excludes a pension lump sum settlement charge and a charge related to the 2014 Venezuela remeasurement. In 2013, also excludes merger and integration charges and a charge related to the 2013 Venezuela currency devaluation. See page 142 of the \"Reconciliation of GAAP and Non-GAAP Information\" for a reconciliation to the most directly comparable financial measure in accordance with GAAP. (c) Excludes the net mark-to-market impact of our commodity hedges and restructuring and impairment charges in both years. In 2014, also excludes a pension lump sum settlement charge and a charge related to the 2014 Venezuela remeasurement. In 2013, also excludes merger and integration charges, a charge related to the 2013 Venezuela currency devaluation and a tax benefit. See page 54 \"Results of Operations onsolidated Review ther Consolidated Results\" C O in Management's Discussion and Analysis for a reconciliation to the most directly comparable financial measure in accordance with GAAP. (d) Includes the impact of net capital spending, and excludes discretionary pension and retiree medical contributions (after tax), payments related to restructuring charges (after-tax) and net capital investments related to restructuring plan in both years. In 2013, also excludes merger and integration payments (after tax), net payments related to income tax settlements, net capital investments related to merger and integration and payments for restructuring and other charges related to the transaction with Tingyi (after tax). See page 66 \"Our Liquidity and Capital Resources\" in Management's Discussion and Analysis for a reconciliation to the most directly comparable financial measure in accordance with GAAP. 2014 ANNUAL REPORT13 PepsiCo Board of Directors Shown in photo, left to right: Robert C. Pohlad President, Dakota Holdings, LLC 60. Elected 2015. Richard W. Fisher Former President and Chief Executive Officer of the Federal Reserve Bank of Dallas 66. Elected 2015. Dina Dublon Former Executive Vice President and Chief Financial Officer, JPMorgan Chase & Co. 61. Elected 2005. Lloyd G. Trotter Managing Partner, GenNx360 Capital Partners 69. Elected 2008. Alberto Weisser Former Chairman and Chief Executive Officer, Bunge Limited 59. Elected 2011. George W. Buckley Retired Chairman, President and Chief Executive Officer, 3M Company; Chairman, Smiths Group plc 68. Elected 2012. Shona L. Brown Senior Advisor, Google Inc. 49. Elected 2009. Alberto Ibarguen President and Chief Executive Officer, John S. and James L. Knight Foundation 71. Elected 2005. David C. Page, M.D. Director of the Whitehead Institute for Biomedical Research; Professor, Massachusetts Institute of Technology 58. Elected 2014. Indra K. Nooyi Chairman of the Board and Chief Executive Officer, PepsiCo 59. Elected 2001. Ian M. Cook Chairman, President and Chief Executive Officer, Colgate-Palmolive Company 62. Elected 2008. Rona A. Fairhead Chairman, BBC Trust 53. Elected 2014. Not pictured (retiring from the Board as of PepsiCo's 2015 Annual Meeting of Shareholders): Daniel Vasella, M.D. Former Chairman and Chief Executive Officer, Novartis AG 61. Elected 2002. Ray L. Hunt Chairman of the Board and Chief Executive Officer, Hunt Consolidated, Inc. 71. Elected 1996. William R. Johnson Operating Partner, Advent International; Former Chairman, Chief Executive Officer and President, H.J. Heinz Company 66. Elected 2015. Sharon Percy Rockefeller President and Chief Executive Officer, WETA Public Stations 70. Elected 1986. 14PEPSICO PepsiCo Leadership Shown in photo, left to right: Ramon Laguarta Chief Executive Officer, PepsiCo Europe Enderson Guimaraes Executive Vice President, Global Categories and Operations, PepsiCo Dr. Mehmood Khan Vice Chairman, PepsiCo; Executive Vice President, PepsiCo Chief Scientific Officer, Global Research and Development Cynthia M. Trudell Executive Vice President, Human Resources and Chief Human Resources Officer, PepsiCo Hugh F. Johnston Executive Vice President and Chief Financial Officer, PepsiCo Laxman Narasimhan Chief Executive Officer, PepsiCo Latin America Foods Albert P. Carey Chief Executive Officer, PepsiCo Americas Beverages Sanjeev Chadha Chief Executive Officer, PepsiCo Asia, Middle East and Africa Indra K. Nooyi Chairman of the Board and Chief Executive Officer, PepsiCo Tony West Executive Vice President, Government Affairs, General Counsel and Corporate Secretary, PepsiCo Thomas Greco Chief Executive Officer, Frito-Lay North America Ruth Fattori Senior Vice President, Talent Management, Training and Development, PepsiCo Jon Banner Executive Vice President, Communications, PepsiCo See page 28 of the Form 10-K for a list of PepsiCo Executive Officers subject to Section 16 of the Securities Exchange Act of 1934. PepsiCo, Inc. Annual Report 2014 Form 10-K For the fiscal year ended December 27, 2014 page intentionally left blank Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 27, 2014 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Commission file number 1-1183 to PepsiCo, Inc. (Exact Name of Registrant as Specified in Its Charter) North Carolina (State or Other Jurisdiction of Incorporation or Organization) 700 Anderson Hill Road, Purchase, New York (Address of Principal Executive Offices) 13-1584302 (I.R.S. Employer Identification No.) 10577 (Zip Code) Registrant's telephone number, including area code: 914-253-2000 Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: Title of each class Common Stock, par value 1-2/3 cents per share 2.500% Senior Notes Due 2022 Name of each exchange on which registered New York and Chicago Stock Exchanges New York Stock Exchange 1.750% Senior Notes Due 2021 2.625% Senior Notes Due 2026 New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( 232.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Table of Contents Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of \"large accelerated filer,\" \"accelerated filer\" and \"smaller reporting company\" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The aggregate market value of PepsiCo, Inc. Common Stock held by nonaffiliates of PepsiCo, Inc. (assuming for these purposes, but without conceding, that all executive officers and directors of PepsiCo, Inc. are affiliates of PepsiCo, Inc.) as of June 13, 2014, the last day of business of our most recently completed second fiscal quarter, was $131.6 billion (based on the closing sale price of PepsiCo, Inc.'s Common Stock on that date as reported on the New York Stock Exchange). The number of shares of PepsiCo, Inc. Common Stock outstanding as of February 6, 2015 was 1,482,368,514. Documents Incorporated by Reference Portions of the Proxy Statement relating to PepsiCo, Inc.'s 2015 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K. Table of Contents PepsiCo, Inc. Form 10-K Annual Report For the Fiscal Year Ended December 27, 2014 Table of Contents PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures 2 11 25 25 27 27 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information 31 34 34 122 122 122 122 123 PART III Item 10. Directors, Executive Officers and Corporate Governance 123 Item 11. Executive Compensation 123 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 123 Item 13. Certain Relationships and Related Transactions, and Director Independence 124 Item 14. Principal Accounting Fees and Services 124 PART IV Item 15. Exhibits and Financial Statement Schedules 1 125 Table of Contents Forward-Looking Statements This Annual Report on Form 10-K contains statements reflecting our views about our future performance that constitute \"forward-looking statements\" within the meaning of the Private Securities Litigation Reform Act of 1995 (Reform Act). Statements that constitute forward-looking statements within the meaning of the Reform Act are generally identified through the inclusion of words such as \"aim,\" \"anticipate,\" \"believe,\" \"drive,\" \"estimate,\" \"expect,\" \"expressed confidence,\" \"forecast,\" \"future,\" \"goals,\" \"guidance,\" \"intend,\" \"may,\" \"objectives,\" \"outlook,\" \"plan,\" \"position,\" \"potential,\" \"project,\" \"seek,\" \"should,\" \"strategy,\" \"target,\" \"will\" or similar statements or variations of such words and other similar expressions. All statements addressing our future operating performance, and statements addressing events and developments that we expect or anticipate will occur in the future, are forward-looking statements within the meaning of the Reform Act. These forward-looking statements are based on currently available information, operating plans and projections about future events and trends. They inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in any such forwardlooking statement. These risks and uncertainties include, but are not limited to, those described in \"Risk Factors\" in Item 1A. and \"Management's Discussion and Analysis of Financial Condition and Results of Operations - Our Business - Our Business Risks\" in Item 7. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. The discussion of risks below and elsewhere in this report is by no means all-inclusive but is designed to highlight what we believe are important factors to consider when evaluating our future performance. PART I Item 1. Business. PepsiCo, Inc. was incorporated in Delaware in 1919 and was reincorporated in North Carolina in 1986. When used in this report, the terms \"we,\" \"us,\" \"our,\" \"PepsiCo\" and the \"Company\" mean PepsiCo, Inc. and its consolidated subsidiaries, collectively. We are a leading global food and beverage company with a complementary portfolio of enjoyable brands, including Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. Through our operations, authorized bottlers, contract manufacturers and other third parties, we make, market, distribute and sell a wide variety of convenient and enjoyable beverages, foods and snacks, serving customers and consumers in more than 200 countries and territories. Performance with Purpose is our goal to deliver sustained value by providing a wide range of beverages, foods and snacks, from treats to healthy eats; finding innovative ways to minimize our impact on the environment and lower our costs through energy and water conservation as well as reduce our use of packaging material; providing a safe and inclusive workplace for our employees globally; and respecting, supporting and investing in the local communities in which we operate. PepsiCo was again recognized for its leadership in this area in 2014 by earning a place on the prestigious Dow Jones World Index for the eighth consecutive year and on the North America Index for the ninth consecutive year. Certain terms used in this Annual Report on Form 10-K are defined in the Glossary included in Item 7. of this report. 2 Table of Contents Our Operations We are organized into six reportable segments (also referred to as divisions), as follows: 1) Frito-Lay North America (FLNA); 2) Quaker Foods North America (QFNA); 3) Latin America Foods (LAF), which includes all of our food and snack businesses in Latin America; 4) PepsiCo Americas Beverages (PAB), which includes all of our North American and Latin American beverage businesses; 5) PepsiCo Europe (Europe), which includes all beverage, food and snack businesses in Europe and South Africa; and 6) PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack businesses in AMEA, excluding South Africa. See Note 1 to our consolidated financial statements for financial information about our divisions and geographic areas. See also \"Risk Factors\" in Item 1A. below for a discussion of certain risks associated with our operations outside the United States. Frito-Lay North America Either independently or in conjunction with third parties, FLNA makes, markets, distributes and sells branded snack foods. These foods include Lay's potato chips, Doritos tortilla chips, Cheetos cheese-flavored snacks, Tostitos tortilla chips, branded dips, Ruffles potato chips, Fritos corn chips and Santitas tortilla chips. FLNA's branded products are sold to independent distributors and retailers. In addition, FLNA's joint venture with Strauss Group makes, markets, distributes and sells Sabra refrigerated dips and spreads. FLNA's net revenue was $14.5 billion, $14.1 billion and $13.6 billion in 2014, 2013 and 2012, respectively, and approximated 22% of our total net revenue in 2014 and 21% of our total net revenue in both 2013 and 2012. Quaker Foods North America Either independently or in conjunction with third parties, QFNA makes, markets, distributes and sells cereals, rice, pasta, dairy and other branded products. QFNA's products include Quaker oatmeal, Aunt Jemima mixes and syrups, Quaker Chewy granola bars, Quaker grits, Cap'n Crunch cereal, Life cereal, Rice-A-Roni side dishes, Quaker rice cakes, Quaker oat squares and Quaker natural granola. These branded products are sold to independent distributors and retailers. QFNA's net revenue was $2.6 billion in each of 2014, 2013 and 2012, and approximated 4% of our total net revenue in each of 2014, 2013 and 2012. Latin America Foods Either independently or in conjunction with third parties, LAF makes, markets, distributes and sells a number of snack food brands including Doritos, Cheetos, Marias Gamesa, Ruffles, Emperador, Saladitas, Lay's, Rosquinhas Mabel, Elma Chips and Sabritas, as well as many Quaker-branded cereals and snacks. These branded products are sold to independent distributors and retailers. LAF's net revenue was $8.4 billion, $8.3 billion and $7.8 billion in 2014, 2013 and 2012, respectively, and approximated 12% of our total net revenue in each of 2014, 2013 and 2012. 3 Table of Contents PepsiCo Americas Beverages Either independently or in conjunction with third parties, PAB makes, markets, distributes and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, 7UP (outside the United States), Diet Mountain Dew, Tropicana Pure Premium, Sierra Mist and Diet 7UP (outside the United States). PAB also, either independently or in conjunction with third parties, makes, markets and sells ready-to-drink tea and coffee products through joint ventures with Unilever (under the Lipton brand name) and Starbucks, respectively. Further, PAB manufactures and distributes certain brands licensed from Dr Pepper Snapple Group, Inc. (DPSG), including Dr Pepper, Crush and Schweppes, and certain juice brands licensed from Dole Food Company, Inc. (Dole) and Ocean Spray Cranberries, Inc. (Ocean Spray). PAB operates its own bottling plants and distribution facilities and sells branded finished goods directly to independent distributors and retailers. PAB also sells concentrate and finished goods for our brands to authorized and independent bottlers, who in turn sell our branded finished goods to independent distributors and retailers in certain markets. PAB's net revenue was $21.2 billion, $21.1 billion and $21.4 billion in 2014, 2013 and 2012, respectively, and approximated 32% of our total net revenue in both 2014 and 2013, and 33% in 2012. PepsiCo Europe Either independently or in conjunction with third parties, Europe makes, markets, distributes and sells a number of leading snack food brands including Lay's, Walkers, Doritos, Cheetos and Ruffles, as well as many Quaker-branded cereals and snacks, through consolidated businesses as well as through noncontrolled affiliates. Europe also, either independently or in conjunction with third parties, makes, markets, distributes and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including Pepsi, Pepsi Max, 7UP, Diet Pepsi and Tropicana. These branded products are sold to authorized bottlers, independent distributors and retailers. In certain markets, however, Europe operates its own bottling plants and distribution facilities. Europe also, either independently or in conjunction with third parties, makes, markets and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name). In addition, Europe makes, markets, sells and distributes a number of leading dairy products including Domik v Derevne, Chudo and Agusha. Europe's net revenue was $13.3 billion, $13.8 billion and $13.4 billion in 2014, 2013 and 2012, respectively, and approximated 20%, 21% and 20% of our total net revenue in 2014, 2013 and 2012, respectively. PepsiCo Asia, Middle East and Africa Either independently or in conjunction with third parties, AMEA makes, markets, distributes and sells a number of leading snack food brands including Lay's, Kurkure, Chipsy, Doritos, Cheetos and Crunchy through consolidated businesses as well as through noncontrolled affiliates. Further, either independently or in conjunction with third parties, AMEA makes, markets, distributes and sells many Quaker-branded cereals and snacks. AMEA also makes, markets, distributes and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including Pepsi, Mirinda, 7UP, Mountain Dew, Aquafina and Tropicana. These branded products are sold to authorized bottlers, independent distributors and retailers. However, in certain markets, AMEA operates its own bottling plants and distribution facilities. AMEA also, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name). Further, we license the Tropicana brand for use in China on co-branded juice products in connection with a strategic alliance with Tingyi (Cayman Islands) Holding Corp. (Tingyi). AMEA's net revenue was $6.7 billion, $6.5 billion and $6.7 billion in 2014, 2013 and 2012, respectively, and approximated 10% of our total net revenue in each of 2014, 2013 and 2012. See Note 15 to our consolidated financial statements for additional information about our transaction with Tingyi in 2012. 4 Table of Contents Our Distribution Network Our products are brought to market through direct-store-delivery (DSD), customer warehouse and distributor networks. The distribution system used depends on customer needs, product characteristics and local trade practices. Direct-Store-Delivery We, our independent bottlers and our distributors operate DSD systems that deliver beverages, foods and snacks directly to retail stores where the products are merchandised by our employees or our independent bottlers. DSD enables us to merchandise with maximum visibility and appeal. DSD is especially well-suited to products that are restocked often and respond to in-store promotion and merchandising. Customer Warehouse Some of our products are delivered from our manufacturing plants and warehouses to customer warehouses and retail stores. These less costly systems generally work best for products that are less fragile and perishable, and have lower turnover. Distributor Networks We distribute many of our products through third-party distributors. Third-party distributors are particularly effective when greater distribution reach can be achieved by including a wide range of products on the delivery vehicles. For example, our foodservice and vending business distributes beverages, foods and snacks to restaurants, businesses, schools and stadiums through third-party foodservice and vending distributors and operators. Ingredients and Other Supplies The principal ingredients we use in our beverage, food and snack products are apple, orange and pineapple juice and other juice concentrates, aspartame, corn, corn sweeteners, flavorings, flour, grapefruit and other fruits, oats, oranges, potatoes, raw milk, rice, seasonings, sucralose, sugar, vegetable and essential oils, and wheat. We also use water in the manufacturing of our products. Our key packaging materials include plastic resins, including polyethylene terephthalate (PET) and polypropylene resins used for plastic beverage bottles and film packaging used for snack foods, aluminum used for cans, glass bottles, closures, cardboard and paperboard cartons. Fuel and natural gas are also important commodities for us due to their use in our facilities and in the trucks delivering our products. We employ specialists to secure adequate supplies of many of these items and have not experienced any significant continuous shortages. Many of these ingredients, raw materials and commodities are purchased in the open market. The prices we pay for such items are subject to fluctuation, and we manage this risk through the use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments, including swaps and futures. In addition, risk to our supply of certain raw materials is mitigated through purchases from multiple geographies and suppliers. When prices increase, we may or may not pass on such increases to our customers. See Note 10 to our consolidated financial statements for additional information on how we manage our exposure to commodity costs. See also \"Item 1A. Risk Factors - Our business, financial condition or results of operations may be adversely affected by increased costs, disruption of supply or shortages of raw materials or other supplies.\" Our Brands and Intellectual Property Rights We own numerous valuable trademarks which are essential to our worldwide businesses, including Agusha, Amp Energy, Aquafina, Aquafina Flavorsplash, Aunt Jemima, Cap'n Crunch, Cheetos, Chester's, Chipsy, Chudo, Cracker Jack, Crunchy, Diet Mountain Dew, Diet Mug, Diet Pepsi, Diet 7UP, Diet Sierra Mist, Domik v Derevne, Doritos, Duyvis, Elma Chips, Emperador, Frito-Lay, Fritos, Fruktovy Sad, Frustyle, G Series, G2, Gatorade, Grandma's, Imunele, Izze, Kurkure, Lay's, Life, Lubimy, Manzanita Sol, Marias Gamesa, Matutano, Mirinda, Miss Vickie's, Mother's, Mountain Dew, Mountain Dew Code Red, Mountain Dew 5 Table of Contents Kickstart, Mug, Munchies, Naked, Near East, O.N.E., Paso de los Toros, Pasta Roni, Pepsi, Pepsi Max, Pepsi Next, Propel, Quaker, Quaker Chewy, Rice-A-Roni, Rold Gold, Rosquinhas Mabel, Ruffles, Sabritas, Sakata, Saladitas, Sandora, Santitas, 7UP (outside the United States) and 7UP Free (outside the United States), Sierra Mist, Simba, Smartfood, Smith's, Snack a Jacks, SoBe, SoBe Lifewater, SoBe V Water, Sonric's, Stacy's, Sting, SunChips, Tonus, Tostitos, Trop 50, Tropicana, Tropicana Farmstand, Tropicana Pure Premium, Tropicana Twister, Vesely Molochnik, Walkers and Ya. We also hold long-term licenses to use valuable trademarks in connection with our products in certain markets, including Dole and Ocean Spray. We also distribute Rockstar Energy drinks, Muscle Milk protein shakes and certain DPSG brands, including Dr Pepper, Crush and Schweppes, in certain markets. Joint ventures in which we have an ownership interest either own or have the right to use certain trademarks, such as Lipton, Mller, Sabra and Starbucks. Trademarks remain valid so long as they are used properly for identification purposes, and we emphasize correct use of our trademarks. We have authorized, through licensing arrangements, the use of many of our trademarks in such contexts as snack food joint ventures and beverage bottling appointments. In addition, we license the use of our trademarks on merchandise that is sold at retail, which enhances brand awareness. We either own or have licenses to use a number of patents which relate to certain of our products, their packaging, the processes for their production and the design and operation of various equipment used in our businesses. Some of these patents are licensed to others. See also \"Item 1A. Risk Factors - Our intellectual property rights could be infringed or challenged and reduce the value of our products and brands and have an adverse impact on our business, financial condition or results of operations.\" Seasonality Our businesses are affected by seasonal variations. For instance, our beverage sales are higher during the warmer months and certain food and dairy sales are higher in the cooler months. Weekly beverage and snack sales are generally highest in the third quarter due to seasonal and holiday-related patterns, and generally lowest in the first quarter. However, taken as a whole, seasonality does not have a material impact on our consolidated financial results. Our Customers Our primary customers include wholesale and other distributors, foodservice customers, grocery stores, drug stores, convenience stores, discount/dollar stores, mass merchandisers, membership stores and authorized independent bottlers. We normally grant our independent bottlers exclusive contracts to sell and manufacture certain beverage products bearing our trademarks within a specific geographic area. These arrangements provide us with the right to charge our independent bottlers for concentrate, finished goods and Aquafina royalties and specify the manufacturing process required for product quality. We also grant distribution rights to our independent bottlers for certain beverage products bearing our trademarks for specified geographic areas. Since we do not sell directly to the consumer, we rely on and provide financial incentives to our customers to assist in the distribution and promotion of our products. For our independent distributors and retailers, these incentives include volume-based rebates, product placement fees, promotions and displays. For our independent bottlers, these incentives are referred to as bottler funding and are negotiated annually with each bottler to support a variety of trade and consumer programs, such as consumer incentives, advertising support, new product support, and vending and cooler equipment placement. Consumer incentives include coupons, pricing discounts and promotions, and other promotional offers. Advertising support is directed at advertising programs and supporting independent bottler media. New product support includes targeted consumer and retailer incentives and direct marketplace support, such as point-of-purchase materials, product placement fees, media and advertising. Vending and cooler equipment placement programs support the acquisition and placement of vending machines and cooler equipment. The nature and type of programs vary annually. 6 Table of Contents Changes to the retail landscape, including increased consolidation of retail ownership, and the current economic environment continue to increase the importance of major customers. See \"Item 1A. Risk Factors - The loss of any key customer or changes to the retail landscape could adversely affect our business, financial condition or results of operations.\" In 2014, sales to Wal-Mart Stores, Inc. (Wal-Mart), including Sam's Club (Sam's), represented approximately 12% of our total net revenue. Our top five retail customers represented approximately 31% of our 2014 North American (United States and Canada) net revenue, with Wal-Mart (including Sam's) representing approximately 18%. These percentages include concentrate sales to our independent bottlers, which were used in finished goods sold by them to these retailers. See Note 8 to our consolidated financial statements for more information on our customers, including our independent bottlers. Our Competition Our beverage, food and snack products are in highly competitive industries and markets and compete against products of international beverage, food and snack companies that, like us, operate in multiple geographies, as well as regional, local and private label manufacturers and other value competitors. In many countries in which our products are sold, including the United States, The Coca-Cola Company is our primary beverage competitor. Other beverage, food and snack competitors include, but are not limited to, DPSG, Kellogg Company, Kraft Foods Group, Inc., Mondelz International, Inc., Monster Beverage Corporation, Nestl S.A., Red Bull GmbH and Snyder's-Lance, Inc. Many of our food and snack products hold significant leadership positions in the food and snack industry worldwide. However, The Coca-Cola Company has significant carbonated soft drink (CSD) share advantage in many markets outside the United States. Our beverage, food and snack products compete primarily on the basis of brand recognition, taste, price, quality, product variety, distribution, advertising, marketing and promotional activity, packaging, convenience, service and the ability to anticipate and respond to consumer trends. Success in this competitive environment is dependent on effective promotion of existing products, introduction of new products and the effectiveness of our advertising campaigns, marketing programs, product packaging, pricing, increased efficiency in production techniques, new vending and dispensing equipment and brand and trademark development and protection. We believe that 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. See also \"Item 1A. Risk Factors - Our business, financial condition or results of operations could suffer if we are unable to compete effectively.\" 7 Table of Contents U.S. Liquid Refreshment Beverage Category Share U.S. LRetail Refreshment Beverage Category Share % iquid Sales in Measured Channels (1)(2) U.S. Savory Snacks U.S. S Measured Channels (1) % Retail Sales inavory Snacks % R snacks ales in Measured Channels Includes salty etail S(including potato, tortilla, corn, pita, bagel and Includes pretzels, fruit otato, tor5lla, c cheese puffs)