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PepsiCo Inc. (NYSE:PEP)

2012 Annual Meeting of Shareholders Conference Call

May 1, 2013 9:00 am ET

Executives

Indra K. Nooyi – Chairman and Chief Executive Officer

Larry D. Thompson – Executive Vice President-Government Affairs, General Counsel, Corporate Secretary

Operator

Before we begin, please take note of our cautionary statement. This presentation includes forward-looking statements based on currently available information. Forward-looking statements inherently involved risks and uncertainties that could cause our actual results to differ materially from those predicted in such forward-looking statements. Statements made on this presentation should be considered together with the cautionary statements and other information contained in our most recent earnings release and then our most periodic reports filed with the SEC. Also, to find reconciliations of non-GAAP measures that we may use when discussing PepsiCo’s financial results, please refer to the Investor section of PepsiCo’s website under the Investor Presentation tab. And now please welcome the Chairman and Chief Executive Officer of PepsiCo, Indra Nooyi.

Indra K. Nooyi

Thank you. On behalf of PepsiCo’s Board of Directors and our entire management team, it’s my pleasure to welcome all of you in the room and those joining us via webcast to PepsiCo’s 2013 Annual Meeting of Shareholders.

I must say it is great to be back in New Bern, North Carolina. As you know this is where a pharmacist named Caleb Bradham set about more than 110 years ago to create a delicious and refreshing drink that became our beloved Pepsi-Cola, But if Mr. Bradham was standing here today he might not recognize this 19 century North Carolina business, in our global 21st century PespiCo. But make no mistake what define us then innovation, excellence, performance, endurance is an inextricable part of who we are today and who we will be for many years to come. You and I, our shareholders are the custodians of this legacy. And that’s why we are so pleased to be here in New Bern once again to celebrate our roots, take stock of the present and look to the future.

Before I begin, I’d like to thank a few people representatives from Corporate Accountability International who join us today. Welcome TJ, Julia, Tim, Adam and Grace welcome. Thank you also to Justin Danhof from the National Center for Public Policy Research for being here with us today. And it’s nice to see several of our partners and members of the PespiCo family here today. I’d like to welcome our former Chairman and Chief Executive Officer the most wonderful Don Kendall. Don

It is also my incredible pleasure to welcome Jan Calloway, whose late husband Wayne Calloway, a proud North Carolina native succeeded Don as our Chairman and Chief Executive Officer, Jan Calloway

I’m really happy that Jeff Minges, the President and CEO of Minges Bottling Group has joined us today welcome Jeff. As all of you know he is a respected leader of the local business community and our franchise partner for many counties across the great state of North Carolina. And I want to say a special welcome to Jeff and your sons; Miles and Landon, so welcome to Jeff, Miles and Landon.

Next, I’d like to welcome and introduce to you members of our Board of Directors who will each stand as his or her name is read. This year, we welcome to our Board George Buckley Chairman of Arle Capital, George will you please stand. We also welcome today Shona Brown, Ian Cook, Dina Dublon, Victor Dzau, Ray Hunt, Sharon Percy Rockefeller, Jim Schiro, Lloyd Trotter, Dan Vasella, and Alberto Weisser. Thank you all for being here..

Unfortunately director Alberto Ibarguen is unable to join us in person due to a surgical procedure that prevent him from travelling. Alberto, thank you for joining us via webcast. And now it’s my pleasure to introduce to you members of the PepiCo leadership team who will each stand as I say his or her name. Here on stage is my General Counsel, Larry Thompson, Executive Vice President of Government Affairs, General Counsel, Corporate Secretary of PespiCo, Larry good to see you here.

We’re also joined by Zein Abdalla, Zein is here; Al Carey, Chief Executive Officer of Pepsi Americas Beverages; Brian Cornell, Chief Executive Officer of Pepsi Americas Foods; Ruth Fattori, Senior Vice President, Senior Leadership Development in PepsiCo University; Hugh Johnston, Executive Vice President and Chief Financial Officer; Cynthia Trudell, Executive Vice President, Human Resources and Chief Human Resources Officer; and Jim Wilkinson, Executive Vice President of Communication.

Thank you all for joining us today. And, before we begin our formal proceeding, I’d like to take a few minutes to just comment on our business overall. 2012 was a year of transition for PepsiCo. It was a year in which we took concrete steps to position our company to deliver superior financial return in the coming years. We dialed up our investment behind our brands and innovation. We stepped up our execution capabilities and embarked on aggressive productivity programs. Today I’m pleased to report that these actions have directly translated into solid results.

In 2012, organic revenue was up 5%. Core earnings per share were $4.10. We delivered more than $1 billion in productivity savings. We achieved a core net return on invested capital of 15% and a core return on equity of 28%. Management operating cash flow excluding certain items reached $7.4 billion and we returned $6.5 billion to our shareholders through dividends and share repurchases. And last month we reported strong first quarter 2013 results. Organic revenue grew 4.4%, right in line with our long-term target. Core constant currency within operating profit grew 7% with an increase in our core operating margins of 80 basis points. Core earnings per share was $0.77, a growth of 12%. Our productivity efforts continue to remain strong and we returned more than $1.4 billion to shareholders through dividends and share repurchases.

If you want to clap anytime I’m not going to stop you. I want to tell that PepsiCo today is a strong and profitable company. We more than a $65 billion global powerhouse. We’re the largest food and beverage business in North America and we’re one of the largest in world. And if you look around the room and all of these pictures, you see how proud we are of all of our powerful brands and our portfolio; Pepsi, Mountain Dew, Gatorade, Tropicana, Lay’s, Doritos, Cheetos, Quaker; all great tasting products. Importantly, the actions we took last year enable us to deliver our strong results and we’re on another step on PepsiCo’s transformation journey, which we started way back in 2007. Let me briefly talk to you about the journey.

Back then we realized the market environment was radically changing and we needed to transform our business to ensure strong results both in the near-term and the long-term. Global macroeconomic growth was slowing. The East of the world was becoming a larger player in the world. And in the West an increasing share of consumption was moving into the hands of boomers, women, smaller households. Western consumers are focusing more on health and wellness and consumers everywhere were becoming more environmentally conscious focusing on water, energy used and waste and disposal.

Organized modern trade was starting to replace traditional mom and pop stores in emerging markets and the developed markets knew discount channels of growing pretty rapidly. At the same time, online retailing was beginning to make inroad and consumers around the world were shifting to social media and messages for traveling around the world in an instant. We saw all of these changes coming back then and over the years we have preemptively transformed and developed new capabilities to capitalize on these opportunities.

Now, I want to about six key areas of transformation that PepsiCo undertook over the last seven years. First, we reinforced our existing value drivers. We double down our efforts behind our key global brands in categories in our most important developed markets to make sure we drive continued profitable growth. Today we are very proud that we’re the number one macro stake player in many developed markets around the world. Lay’s and the Banner Sun is the number one snack food brand in the world, the number one snack food brand in the world.

Lay’s, Doritos and Cheetos are lovemarks in many, many countries around the world.

And our beverage business in the developed markets remains large and profitable. We are the number one liquid refreshment beverage player in measured channels in North America and we’re dialing up our beverage innovation in support of zero calorie products, and we’ve also stepped up our initiatives behind offering reduced calorie beverages like Pepsi Next, which surpassed $100 million in retail sales in less than 12 months from the markets.

Generate all kinds of excitement around our global brands through innovative social media campaigns. Our Lay's "Do Us A Flavor" contest drew 19 million consumer responses around the world, 19 million users, and we continue to create excitement and award winning commercials throughout Doritos “Crash the Super Bowl” campaigns. In short, we are continuing to grow our power house brands in our developed markets. That was the first transformation.

Second we are migrating our portfolio towards attractive growth stages. Very early on we recognized a growth prospect in the good-for-you space. And we invested to expand our tasty, nutritious offerings across platforms and markets. We are building from a position of strength with loved and trusted brands like Quaker, Tropicana, Gatorade, for athletes, Naked Juice.

We are also unlocking growth in new categories like diaries with our Wimm-Bill-Dann acquisition in Russia, our joint venture with Almarai in the Middle East and our Muller Quaker Dairy joint venture in the U.S. I was watching some of you taste our Müller yogurt outside and saying, wow this yogurt tastes great. You’re right, it is a fabulous product.

Our portfolio also includes hummus and other fresh dips with our partner Sabra here in the U.S. and Obela in Mexico, as well as baked grains with our Stacy's brand. In fact one fifth of the revenue of PepsiCo today comes from good-for-you products.

We’ve also invested aggressively in emerging and developing markets. Today we are the number one, food and beverage business in Russia, India, Middle East. We’re number 2 in Mexico. We’re in the top 5 in Brazil, Turkey and many other emerging markets like Vietnam, the Philippines, Thailand. So, our reach is global and we are a very strong company in many of these growth markets.

Our net revenue from emerging and developing markets has grown more than 10% in the last six years and we’ll continue to maintain this aggressive pace of growth over the long-term. That was transformation two.

Third, we accelerated the benefit of one-PepsiCo, our convenient snack and beverage businesses have high levels of coincidence of purchase and consumption and very high velocity on the shelf. Our complementary portfolio allow us to manage through individual category issues and still deliver good returns, you can think of the combined benefit of our portfolio in three ways.

First, cost leverage; we’re using our assets in a way that lowers cost. Second, capability sharing. We’re leveraging our talent and insights across both beverages and snacks.

And finally, commercial benefits. We’re using our powerful love brands across the portfolio to increase coincidence of purchase and provide real benefit to our retail partners. The best example is the Doritos Locos Tacos. We had a long-term relationship with Taco Bell in our Mountain Dew business, and that translated to creation of Doritos Locos Tacos. I hope you have had a chance to taste it. In nine months, we sold 325 million Doritos Locos Tacos. So, it’s a very powerful combination. One PepsiCo as a whole is worth more than the sum of our parts, so that’s the third transformation.

Fourth, we are aggressively building new capabilities. As the world had changed, we have significantly ramped up our innovation, research and development to meet our changing consumer need. This includes creating long-term research capability at PepsiCo and increasing our investment in natural sweeteners, packaging and nutrition platforms.

You’ve see our innovation and the launch of Quaker Real Medleys, Quaker Congee, breakfast product in China, Tropicana Farmstand, which is a fruit and vegetable juice, Tropicana Fruits in the Middle East, Mountain Dew Kickstart and Doritos Locos Tacos with our important customer Taco Bell. In fact, new products, new innovation over the past three years has accounted for approximately 8% of our 2012 revenue and will continue to deliver breakthrough innovation across our portfolio and good for you, better for you and fun for your products.

And we’ve also become more globally connected. We are building our innovation, brand building and supply chain management more efficient, effective and productive. That’s number four.

Five, we are building a second to none team and culture. The transformative actions we’ve taken over the past several years has required from our associates around the world. It’s only because of their passion, resilience and their talent that our progress has been made possible. We have put in place award winning talent and leadership development programs to nurture and grow our associates so they can lead the company well into the future. And because of the exceptional work of our global teams, PepsiCo has been recognized by prestigious third parties as one of the world’s best multinational workplaces and one of the best companies for leaders.

Our associates consistently demonstrates great leadership, courage and humanity. Teams stepped up to the plate and led the response to the recent earthquake in China, Hurricane Sandy in the United States, the terrible flooding in the Philippines and political unrest and transition in Egypt. They always do. And it makes me truly proud to lead our compassionate responsible PepsiCo team.

Finally, everything we do is guided by the promise of performance and purpose. It remains the goal of this company to deliver sustained financial performance by providing a range of foods and beverages from treats to healthy eats, finding innovative ways to minimize our impact on the environment while also reducing our cost and providing a safe and inclusive workplace for employees globally and most importantly investing in our local communities.

We were among the first company to recognize the interdependence between corporations and society when we articulated performance and purpose six years ago. It takes great courage to live in the moment and look beyond it at the same time.

With that great courage, we’re proving that performance and purpose isn’t just the right thing to do. It is crucial to PepsiCo’s right to exist and absolutely essential to delivering long-term sustainable growth and superior performance. Performance and purpose is how we will continue to win in the marketplace and that won’t change. It’s not a program, not an initiative. It’s the sole of PepsiCo and how we do business. So performance and purpose is the last step of our transformation journey.

Our performance in 2012 and for the Q1 of this year demonstrates that the necessary actions we’ve taken positions us to support our shareholders today and for the next generation. We were born right here in New Bern more than a century of (inaudible) strength. Today PepsiCo looks remarkably different and a century from now we will be a different company than we are today. The reason we’ve reached this day with such momentum is because we’ve taken the tough and necessary actions to evolve and strengthen an already strong foundation on which we will continue to build in the years to come.

So with that, let me just say thank you very much for listening to me, and now I’ll turn the meeting over to Larry Thompson to begin the formal proceedings. Larry?

Larry D. Thompson

Thank you, ma’am. Thank you, Madam Chairman. I am pleased to report that a majority of the votes entitled to be cast at this meeting are presented today in person or by proxy, and therefore we have the necessary form under state law and our bylaws to begin. Anyone who has not yet voted and would like to do so by ballot during the meeting, please raise your hand. We have staff assistants who will distribute ballots to you. If you’re a holder of convertible preferred stock, please tell the staff assistant. So he or she can give you the appropriate ballot. Please remember to vote on all items, not just those which you may want to change an earlier vote. Please also remember to sign your ballot. If you have previously voted by proxy, you do not need to do so today unless you wish to change your vote.

Indra K. Nooyi

Thanks, Larry. Now that we have a quorum, I declare this meeting to be duly convened for purposes of transacting such business as may properly come before it in accordance with state law and our bylaw. It is now in order to proceed with the meeting, and I hereby declare the polls to be open. We have three agenda items this morning. The first is the election of Directors. The second is to ratify the appointment of KPMG LLP as the company’s independent registered public accountant for the fiscal year 2013. The third, an advisory vote on executive compensation. In proceeding with the meeting we will introduce all agenda items and then we will open the floor to questions relating to the agenda items only. I ask you to hold all questions in our agenda items until we actually open the floor and please direct your questions if there’s any.

After we address any questions regarding the agenda items, we will collect all the ballots, then ask our Inspector of Elections to tabulate the voting results. And at the end of the meeting, we will open to floor to general questions.

So let’s begin with out first item, which is the election of directors. I place before the meetings to service directors for the coming year, the 13 individuals whose names and biographies appear in the proxy statement. Our Board recommends a vote for each of the nominees for directors.

We’ll now turn to our second agenda item, ratification of the appointment of KPNP as our independent registered public accountant for 2013 calculated before the meeting. Doug Root, [Alan Polaso and Don Chasman] are here with us representing KPNP. Our Board recommends a vote for ratification of the appointment of KPNP as our independent registered public accountant for 2013.

And the third agenda item is the Advisory Board to approve the compensation of executive officers named with the proxy statement, which I’ve placed before the meeting. Our Board recommends a vote for the advisory resolution to approve executive compensation. Are there any questions about any of the agenda items we distribute? And in order to accommodate all of you who wish to pose a question, each question will limited to three minutes and to facilitate the process in this year in time and it’s time to begin finalize second quarter results.

Any question with three agenda items? Okay. It’s really outstanding ballots at this time, please raise your hand to be collected from you. I remind you again to vote on each item. Anybody else the ballot vote to be collected? Well, no. Any other ballots? Okay. We now seem to have all the ballots and since all those desiring to vote have done so I now declare the poll close.

Larry D. Thompson

The ballot and proxy will be held in the possession of the Inspector of Election, Mr. James [Kisko] from Computershare Shareowner Services. Mr. Kisco. Mr. Kisco’s responsibility as Inspector of Election is to tabulate the voting results and he will begin to do so now while we take a brief break.

Indra K. Nooyi

While votes are being tabulated, we want to show you a brief video about PepsiCo, and what we are doing around the performance of that. Please watch.

[Advertisement]

Unidentified Company Representative

Thank you. Larry Thompson has a preliminary results I think. Larry?

Larry D. Thompson

Thank you (inaudible). I’d like to report the preliminary results of the voting. I remind everyone that the holders of our common stock and our holders of convertible preferred stock both together on all maters as a single clan. With respect to the nominees for director, I’d like to report that all director nominees have been duly elected.

Valid item number 2; the ratification of auditors received approximately 99.1% of the vote cast in favor of KPMG continuing as our independent auditor.

Valid item number three, the advisory votes on executive compensation received approximately 91.5% of the votes cast thereby approving such compensations on advisory basis.

Now again I’d like to remind you that these are preliminary results and final results would be available after the votes have been certified by our inspector of election. And the final results will be disclosed on our Form 8-K that will be filed with the SEC.

Indra K. Nooyi

And this concludes the business portion of our meeting. After the meeting has done, we will open the floor to general questions. And I thank you all very much for your time in attending today. The formal business portion of the meeting is now adjourned.

Question-and-Answer Session

[No Q&A session for this event]

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