WHO IS PEPSICO? FRITO-LAY – salty snack foods Lays, Doritos, Cheetos, Tostitos, Fritos, Ruffles, Santitas, Sabra, Walkers QUAKER – cereals, rice, pasta Oatmeal, Granola Bars, Aunt Jemima, Capt’n Crunch, Life, Rice-a-Roni BEVERAGES -- carbonated drinks, sports drinks, fruit juices, tea, waters Pepsi, Gatorade, Mountain Dew, Aquafina, Tropicana, Sierra Mist, Mug Has joint ventures with Unilever (Lipton) and Starbucks (coffee), and has a licensing agreement with Dr. Pepper Snapple Group (Dr. Pepper, Snapple, Crush, Schweppes), Dole (pineapple), and Ocean Spray (cranberries). THREE INTERNATIONAL DIVISIONS – Latin America, EuropeSub-SaharanAfrica (ESSA), AsiaMidEastNAfrica (AMENA) Has an international presence in 220 countries.

Convenience Food Competitors in North America Manufacturer Market Share PepsiCo 25 % Kraft Foods 12 Hershey 9 Kellogg 6 Master Foods 5 General Mills 2 Proctor & Gamble 1 Private Label 7 Others

Soft Beverages Market in North America Category Gallons (in millions) Volume Share Carbonated Soft Drinks14, % Bottled Water 8, Fruit Beverages 3, Isotonic Sports Drinks Ready-to-drink Tea Flavored/enhanced water Energy drinks Ready-to-drink Coffee TOTAL 30,

PEPSI Soft Drinks – Market Shares Country/RegionBeverage Market Shares Middle East75 % India49 Thailand49 Egypt47 Venezuela42 United States39 Nigeria38 China36 Russia24

PEPSI Salty Snacks – International Market Shares Country/RegionSnacks Market Shares Mexico75 % Holland59 South Africa57 Australia55 Brazil46 India46 United Kingdom44 Russia43 Spain41 China16

PEPSICO – 22 Top Brands ( > $ billion revenue) Pepsi Cola $ 22.0Lipton RTD Teas $ 3.05 Lays9.0Ruffles2.75 Mountain Dew7.5Tostitos2.55 Gatorade7.3Aquafina2.1 Tropicana6.1Pepsi MAX1.75 Diet Pepsi5.65Brisk1.4 7 Up4.8Sierra Mist1.4 Doritos4.4Fritos1.4 Quaker Foods3.5Diet Mountain Dew1.4 Cheetos3.25Starbucks RTD Bevs1.1 Mirinda3.2Walkers1.1

Macro/Societal Environment (PEST) POLITICAL - Government regulations regarding greenhouse gas emissions, mergers, etc. -Pending regulations on food snacks & sugar content in children’s food, etc. -Anti-American sentiment; deliberate attempts to limit trade ECONOMIC + Emerging consumer markets with disposable income in China and India -Stagnant/sluggish economic growth – worldwide -Financial instability in some international markets; causing runaway inflation -Currency fluctuations and a very strong US Dollar hurt overseas profits/trade SOCIO-CULTURAL + US residents eat snacks 2-3 times each day + Societal interest in health, exercise, and organic foods -Consumer interest in reducing intake of sugary drinks and salty snacks -Decline in demand for carbonated beverages in USA TECHNOLOGICAL + Development of better artificial sweeteners (Stevia/Monk Fruit) + Wearable “fitbit” devices to monitor sweating, need for electrolytes, calories

Competitive Environment RIVALRY – Intense worldwide completion… primarily with Coca-Cola, DPSG, Kellogg, Kraft-Heinz, Mondelez, Monster, Nestle, Red Bull, and Snyder’s-Lance. SUBSTITUTES – water, coffee, tea, bread, competitor products (Coke, etc) BARRIERS TO ENTRY/EXIT – government regulation of beverages and food products; access to emerging markets and distribution channels; high capital investment in food processing factories and bottling plants. CUSTOMER POWER – Very large supermarket chains and WalMart have significant bargaining power. SUPPLIER POWER – Well-integrated supply chain; many suppliers are dependent/captive. –

MARKET STRENGTHS/WEAKNESSES STRENGTHS Well-diversified, large focused brand portfolio; over 100 brands, 22 over $ billion/yr Concentric diversification enables synergy in marketing activities & distribution channels Number 1 in salty snacks worldwide, with a 25% market share in USA Number 1 in beverages in USA (39%) [Note: Coke is # 1 worldwide] Is the number 2 food and beverage company in the world (Nestle is # 1) Has a well-integrated supply chain and distribution network Using solar panels, alternative energy sources, compressed gas vehicles in facilities to curb carbon emissions/footprint Recent acquisitions to enter new markets: Russia’s leading juice company…Lebedyunsky VW Water and True North Nut snacks in UK; Lipton Teas agreement with Unilever Investment in international markets 2016 > $1 billion in China; > $500 million in India WEAKNESSES Too dependent on the US market; over 12% of all sales are with WalMart Hurt by bad publicity over Aquafina scandal, Aunt Jemima and Tropicana recalls International markets have been difficult to develop… some acquisitions have been poor. International profits are badly hurt by currency exchange rates and strong US dollar Some stockholders are pressuring PepsiCo to spin off the food divisions from beverages

STRATEGIC ASSESSMENT Through acquisitions, PepsiCo grew from primarily a beverage company into the second-largest food and beverage company in the world. Using a concentric-diversification strategy, they acquired businesses which were complimentary to their beverages… notably Frito-Lay (salty snacks), Taco Bell and Pizza Hut restaurants. While they weren’t necessarily experts on how to make pizzas or chips, they did know that they could sell their beverages to these same customers, so marketing and distribution channel synergies were achieved. Pepsi continued to acquire food and snack companies, and built a brand portfolio of over 100 products worldwide… most of which go well with one or more of their beverages. In the 1990’s it became apparent that the fast-food restaurant business was becoming very competitive, and with increasing stockholder pressure, Pepsi spun off its restaurants to YUM Co. (Taco Bell, Pizza Hut, Kentucky Fried Chicken). Since that time, the company has continued to focus on its core businesses… beverages and snack foods. Their current portfolio of products is so extensive that they don’t worry about consumer taste shifts or switching, because most consumers will simply switch from one Pepsi product to another product item owned by PepsiCo.

STRATEGIC ASSESSMENT - contd Current plans are to expand into global markets, particularly China and India, where the company will invest $ 1 billion and $500 million, respectively in Pepsi has also recently acquired the largest juice company in Russia, Lebedyansky, has acquired VW Water and True North Nuts in the UK, and has a new agreement with Unilever to distribute Lipton Tea. This international strategy is risky, given recent problems with currency instability and the strong US dollar. Over the last two years, PepsiCo has lost more than $2 billion due to political instability and the devaluation of the Bolivar in Venezuela. This has not only hurt corporate profits, but also threatens the financial stability of the entire firm if it continues (see Altman’s Z). Some new products soon to be introduced include a wearable “fitbit” and patch which monitors sweating and lost electrolytes. The Gatorade division will launch a “smart cap” bottle which senses your seating, and flashes when you need to drink more fluids/Gatorade. Obviously, this is something special for the health/fitness/athletic population.

STRATEGIC ASSESSMENT - contd Another product soon to be launched is ready to drink cold-brewed coffee. In partnership with Starbucks, PepsiCo will distribute in the US, and hopes to introduce it to China by the end of the year. By adding ginseng, taurine, acai berry, and guarana flavors to the brew, it is expected to have particular appeal in the Chinese market. Finally, Quaker Oats division is introducing a new product called Breakfast Flats, which is a type of crispy breakfast food particularly aimed at working women who are on the run. It will come in several flavors, cranberry/almond, banana honey-nut, and golden raisin/cinnamon. Test market results have been quite positive. In summary, PepsiCo continues to follow a strategy of growth through concentration and concentric diversification. They continue to add products that compliment their existing brands/lines, and they are actively trying to expand their market presence globally through acquisitions, mergers, and partnership agreements.

COMMON SIZE INCOME STMT - PEPSICO (in millions $) Frito-LayNorth America Quaker Oats N America North America Beverages Latin America Europe/SubSaharaAfrica * Asia/MidEast/NorthAfrica OPER REVENUE Cost of Sales GROSS PROFIT Selling/Gen/Admin Exp Venezuela Impairment Costs Amortization Intangible Assets OPERATING PROFIT Interest Other Income or (Expense) Income Before Tax Tax NET INCOME

PROFITS by DIVISION -- PEPSICO (in millions $) ___________ DIVISIONProfit %/TotalProfit %/TotalProfit %/Total Frito-LayNA Quaker Oats NA NA Beverages International Latin America Europe/SSAfrica Asia/ME/NAfrica Corporate Operating Profit

PEPSICO (in millions $) NET INCOME Net Income/Share$3.71$4.37 $3.48 Dividends/Share$ %$ % $ % Stock Price/Share (at year end)$99.92$82.94$77.32

COMMON SIZE BALANCE SHEET – PEPSICO (in millions $) Cash Invest Securities Receivables Inventory Other Curr Assets TOT CURR ASSET Equipment (net) Other Property/Asset TOTAL ASSETS Current Liabilities LT Debt+Leases Other Liabilities TOT LIABILITIES Stockholder Equity TOTAL LIAB & SE

CASH FLOW STATEMENTS - PEPSICO (in millions) Note: Net Income was… CASH PROVIDED FROM OPERATIONS CASH PROVIDED FROM INVESTING (3569)(2625) (3744) CASH PROVIDED FROM FINANCING (3828)(3789) (4006) Exchange Rate Changes( 221)( 196) 75 (Decrease)Increase FY ( 741) Beginning End of Year

FINANCIAL ASSESSMENT PEPSICO Current Ratio (CA/CL) Tot Liabilities/Tot Assets Tot Liabilities/SEquity Inventory Turnover (COGS/Invent) Avg Collection Period (ARx365/Sale)37.3dys38.2dys 40.6dys Asset Turn (Sales/TA) Net Profit (NI/Sales) ROA (NP/TA) Altman’s Z

FINANCIAL TRENDS POSITIVE TRENDS Cash is increasing Revenue + profits are up for Frito-Lay and NA Beverages Dividends have been increased WORRISOME TRENDS Revenue + profits are down in all international divisions Big problem in Venezuela… impairment costs > 2 Billion/2 yrs Operating profits and Net profit are both down Long-term debt is up; Debt/Asset ratio is too high Stockholder Equity is way down…why? Interest expense is up Altman’s Z is getting critically low…

SCENARIO 1 - PESSIMISTIC OUTLOOK Over the next three to five years, the world economy remains stagnant, with little disposable income growth. England exits the European Union, creating more economic and financial uncertainty. Interest rates creep up as the US Federal Reserve raises concerns about inflation. The US dollar remains strong relative to other currencies, creating more currency fluctuations and uncertainties for US companies. Disputes with China and Russia continue to muddle trade growth with those countries. The public interest in exercise and health grows, and laws are passed banning sugar in sodas and limiting salt in snacks, especially for children. Sales of carbonated soft drinks in the US continue to decline. Demand remains very modest for fruit juices, energy drinks and snacks, and natural sweeteners. Coke overtakes Pepsi in the North American soft drink market, and Dr. Pepper launches a snack foods division to compete with Frito-Lay.

SCENARIO 2 – OPTIMISTIC OUTLOOK Over the next three to five years, the world economy rebounds significantly, with notable gains in income and trade. Interest rates remain low, as a new Republican administration takes control of the US Federal Reserve. The US dollar remains relatively strong compared to other currencies, but currency fluctuations diminish and uncertainties in the European Union subside as England decides to stay in the Eurozone. China and Russia enact favorable legislation that encourages foreign investment and trade growth. The public interest in exercise and health continues to grow, and demand for healthy snacks, energy drinks, fruit juices and natural sweeteners explodes. Sales of carbonated soft drinks stabilize in the US, and show signs of increasing growth in Brazil, China, and Russia. The RTD coffee market in China expands rapidly, as ginseng and acai berry flavors really catch on with the public. Pepsi maintains its dominance in the North American soft drink market, and Quaker Oats Breakfast Flats is a big hit with the working women in the USA. Dr. Pepper launches a snack foods division, but only gains a 1.5% market share.

SCENARIO 3 – MOST LIKELY OUTLOOK Over the next three to five years, the world economy rebounds gradually, and disposable income increases modestly worldwide. Interest rates remain relatively low, as fears of inflation ease. The US dollar remains relatively strong compared to other currencies, but currency fluctuations and uncertainties continue, with the departure of England from the European Union. Trade with China continues to muddle along, as their economy switches over from an export economy to domestic consumption. Trade growth with Russia continues to be impaired because of ongoing disputes over the Ukraine and Russia’s involvement in the Syrian conflict. While there is public interest in exercise and health, no legislation is enacted about sugary drinks or salty snacks. A notable segment of the population wants healthy snacks, energy drinks, fruit juices and natural sweeteners, so that market is expected to grow in the US. Sales of carbonated soft drinks stabilize in the US, and soft drinks and the RTD coffee market in China are expected to grow significantly. Pepsi will maintain its dominance in the North American soft drink market, but their international divisions will continue to face difficulties and market challenges.

KEYS TO SUCCESS – A Comparison PEPSI Coca-ColaDr. Pepper/Snapple Broad Product Portfolio856 New Products Introduced675 Efficient Operations887 Strong Marketing/Sales896 Good Distribution Channels896 International Market Share687

STRATEGY – For the Next 3-5 Years Continue to find/acquire/launch new products which fit concentrically with Pepsi’s existing portfolio of brands. Launch the healthy snacks and drinks, and start using stevia and other natural sweeteners which appeal to the health-conscious public. Consider exiting markets where the economy is in chaos, like Venezuela. This operation has cost the company $2 billion in lost profits over the past few years. Maybe this is a place we don’t need to be, even if we have a 42% market share there. Cautiously pursue the China market. Certainly it has huge potential, but will the RTD coffee be a big hit? There is plenty of room to grow both traditional soft drinks and salty snacks in China, where we currently have just 36% of the soft beverages and only a 16% of the salty snacks market. Reduce long-term debt, which seems to be a burden the company doesn’t need right now, given the uncertainty in the international marketplace. Keep the North American beverages and snacks divisions healthy, and try to improve performance in the international divisions.