267419_L01_P02_07.v3.qxd 3/3/07 11:42 PM Page 5Questions & AnswersOur Chairman and President & Chief Executive Officer PerspectiveThe questions below reflect key questions shareholders often ask about our businesses,and are followed by joint responses from our Chairman, Steve Reinemund, and ourPresident and Chief Executive Officer, Indra Nooyi.U.S. Category Leaders#2CarbonatedSoft DrinksQ: <strong>PepsiCo</strong>’s product categories andtheir impact on health continues tocapture media, consumer and regulatoryfocus. How is <strong>PepsiCo</strong>’s portfolio faringin this environment?A: As the transformation of <strong>PepsiCo</strong>’sportfolio continues, we’re able to add morechoices for consumers to meet their needsfor products that can contribute to healthierlifestyles, and we’re proud of each and everychoice we offer.Our efforts are galvanized by threeimperatives: continue making our fun-foryouproducts more nutritious, develop newproducts that address the needs of the entirefood pyramid, and try to ensure consumersnever have to trade off nutrition and taste.The range of product choices we offergrows each year, as we develop or acquirenew products or platforms that range fromindulgent to good-for-you. At the same time,we’re improving the nutritional profiles of ourlarger, core brands. For example, changingcooking oils to sunflower oil for both Lay’sand Ruffles potato chips at FLNA andWalkers crisps in the United Kingdomreduces the saturated fat in these productswithout sacrificing taste. And we’re workingon developing new sweeteners and addingmore nutritious ingredients to our products— such as fiber to foods and beverages andomega-3 fatty acids to juices.Our portfolio of more nutritious choices isworking well in this environment, evidencedby over two-thirds of our North America topline growth in 2006 being driven by productsthat are <strong>PepsiCo</strong> Smart Spot eligible —meaning they meet authoritative nutritionalstatements developed by the NationalAcademy of Sciences or the U.S. Food andDrug Administration.Q: What, specifically, is <strong>PepsiCo</strong> doingto address regulatory pressures relatingto health concerns across the globe?A: On the regulatory and policy side, we’refirm believers in engaging a range of publicand private experts to come to workablesolutions on such things as how and whereour products are sold and marketed. We’reactively engaged with policy and thoughtleaders, as well as food and beverage industryleaders, to reach decisions on steps we cantake to support consumers in their quest forhealthier lifestyles. This includes insightsfrom <strong>PepsiCo</strong>’s Blue Ribbon Advisory Board, agroup of leading health and wellness expertsand third-party advisors from across theglobe, as well as our Ethnic Advisory Boardswho have provided insights relating to multiculturalconsumers.Most recently, <strong>PepsiCo</strong>’s work in theUnited States with the Clinton Foundation,the American Heart Association and thebeverage industry, are examples of workingproactively to set policies that put the rightkinds of products in the right locations — inthis case, schools. We’re working in ourinternational markets in much the same way.An advantaged portfolio of good- andbetter-for-you products — products that areSmart Spot eligible — has provided, and willcontinue to provide, growth opportunities atwhat we call the intersection of business andpublic interests.Q: How are you approaching innovationas a means to growth?A: Innovation demands that we constantlylook around the next corner to ensure we’reproviding products that our consumers andretail customers want. We have a relentlessfocus on innovation, as new productsconsistently deliver 15% to 20% of our totalgrowth. In 2006 alone, our North Americanbusinesses introduced new products thattotaled greater than $1 billion in retail sales.More strategically said, we’re focused ongame-changing innovation. Clearly, we needto keep our existing big brands fresh whiledeveloping products and venturing intonew categories.Through a disciplined approach to innovation,we’ve developed a very strong pipelinefor 2007 and beyond, including new productslike Flat Earth vegetable and fruit crisps fromFrito-Lay, and new beverage entries such asIzze, a sparkling beverage made with 70%fruit juice, and Naked Juice, a line of allnatural juices and juice smoothies, acquiredin January 2007. And we’ll expand on oursuccesses, such as introducing Baked Walkerscrisps in the United Kingdom.As the lifeblood of any successful consumerproducts company, we expect innovationwill continue to be a key tool for growth at<strong>PepsiCo</strong> going forward.#1Sports Drink#1Chilled Juices& JuiceDrinks#1Ready-to-DrinkCoffee#1PET WaterBrand(non-jug)#1EnhancedWaterBrand#1Ready-to-DrinkTea5