I.
Nooyi: Good
morning, everyone. On behalf of the PepsiCo board and all our
management team, I would like to extend a warm welcome to each of you in the
room, and everyone on the Webcast. And I thank you for attending
PepsiCo's 2009 Annual Meeting.
I
hope that the opening video leaves you with a sense of pride and optimism for
your company and ours, PepsiCo. It is often said that it's in the
tough times that a company's true performance, the determination of its people
to get through the difficult time successfully, while keeping an eye on the
future, is what separates the good from the great company. And I
believe PepsiCo is indeed a great company.
The
past year has been very difficult in markets the world over. The
macroeconomic environment is already the most severe we've ever
experienced. But PepsiCo is growing and providing a very healthy
return. All of us should be proud that PepsiCo had a good year, on
the top line, the bottom line, and in every which way in
between.
But
before getting into the details, I want to start a special recognition of our
guests, and also to the shareholders who have taken the time to share their
views through proxy resolutions. To Mr. Rauscher and Mr. DiGuiseppe,
welcome back. To both of you, it's good to see you. To
Ms.
Amy
Galland
and Mr. Quinlan,
it was a pleasure to meet both of you this morning. And I would like
to welcome back two people who are passionate about access to safe, clean
drinking water as I am, Grace Kelly and Gigi Kellett. It's
good to have all of you here again.
PepsiCo's
your company. We are known for having a culture of ownership and
empowerment, where our associates and you, our shareholders, express diverse
views and make a real difference in the performance of this great
company. Our strong determination to win and to grow is what gets us
up every morning, and keeps us fueled every day.
There
are many PepsiCo family members here today that I'll recognize in a
moment. But I want to start saying a big "thank you" to every single
one of the 1.5 million shareholders, many of whom are listening to this on the
Webcast. Today's meeting is indeed a celebration and a thank you, for
your investment and ongoing belief in our company's mission and long-term growth
potential. Your faith in us is even more notable in the current
business climate. But it presents an immediate opportunity for
PepsiCo to showcase our leadership as a company that does well by doing
good. We call that “Performance With
Purpose”,
which is now woven into the fabric of our company. Whether it's
Plano,
Paris,
Shanghai or
Sao
Paulo,
our associates the world over will tell you that, wherever we see success, we
see both parts of this mission in action.
Let
me take a moment to recognize three leaders in PepsiCo, who've embraced
Performance With Purpose and drive it through the whole
organization. John Compton, Chief
Executive
Officer,
Pepsi Americas Foods. John,
if you could just stand up. John Compton. Mike White, our
Vice
Chairman
and PepsiCo's Chief
Executive
Officer
of our international businesses. And Massimo d’Amore,
Chief
Executive
Officer,
PepsiCo Americas
Beverages. (Applause).
I
also want to introduce a very special leader. A co-founder, and a former
Chairman
and CEO,
Don Kendall,
and in an even more special way, his dear wife, Bim. Don and
Bim (Applause).
And
I want to recognize Jan Calloway. Jan Calloway hasn't been to a
shareholder meeting in a couple of years, but
Jan's
late husband, Wayne Calloway,
succeeded Don Kendall as our Chairman and CEO. Jan,
thank you for being with us today. It's indeed special to have you
here. (Applause).
I'm
also pleased that another former Chairman and CEO,
the most beloved Roger Enrico and his wife Rosemary are here with us
today. Roger,
Rosemary. (Applause).
And
now, our Board
of Directors. Please
stand while I call your name. And if you could hold your applause
until all of them stand up, I'd appreciate it. Shona Brown,
Ian Cooke, Dina
Dublon,
Dr. Victor Dzau,
Ray Hunt, Arthur Martinez, Sharon Percy Rockefeller,
our presiding director, Lloyd Trotter, Dan Vasella and Mike White, our
Vice-Chairman. Two
board members couldn't be with us today, Jim Schiro
and Alberto Ibarguen. Alberto's
in Washington doing
a testimony before the Senate Commerce Committee. So, a warm welcome
to our board of
directors. (Applause).
And
of course, a familiar face. Larry Thompson, our PepsiCo General
Counsel, who will ensure that this meeting runs smoothly for all of
us.
Finally,
I want to acknowledge Al Carey, President
and CEO of
Frito-Lay North
America. Frito-Lay
has hosted our annual meeting for several years. And, Al, we are
delighted to be holding this meeting here in Frito-Lay, a division of
PepsiCo. It gives us a great opportunity to thank everyone in
Frito-Lay for the extraordinary performance you did over last year and last
quarter. So, Al, to you and the entire team, a big thank
you.
We're
also grateful that we have members from the founding families of Frito-Lay with
us here today. And I'd like to welcome Kaletta
Doolin. Kaletta?
(Applause). Now,
Kaletta tells
me that Kitty Doolin,
who always comes to the meeting, had back surgery yesterday. Please
convey our best wishes to your mother, Kaletta,
and tell her that she's in our prayers and our thoughts. Thank
you.
Inspired
by a proud past, every member of PepsiCo's leadership team knows that our job is
to manage this company for the benefit of our associates, our investors, as well
as for the benefit of the many people who have a stake in how we
operate. The customers, the consumers, the communities in the 200
countries in which we sell our products. Hundreds of bottling
partners around the world. Our valued suppliers
worldwide. And most importantly, our retirees, who've driven our
performance for the last 44 years. For those of you here who are
PepsiCo retirees, alumni of our great company, could you please stand up so we
can recognize your contributions to
PepsiCo? (Applause). Roger and Don, the last time I
checked, you both were retirees, too. (Laughter).
When
I reflect on 2008, I'll be honest with you. I can not recall a more
eventful or trying year. The extreme macroeconomic pressures included
unprecedented commodity inflation and then volatility, a crisis in global
financial markets, a credit crunch that left many businesses and consumers
strapped for cash, and a global economy that lurched into real deep
recession. And, all this happened while global business grappled with
wildly fluctuating foreign exchange rates.
On
top of this, PepsiCo also confronted natural forces, as floods temporarily
closed our flagship Quaker plant in Cedar
Rapids,
and a fire destroyed our snacks plant in Curitiba, Brazil.
Nature even
produced a potato shortage here in the United
States. So
2008 was a very eventful year.
But
even in this incredibly tough environment, PepsiCo did extremely
well. Across the company, our associates came to us, ready to perform
and deliver Performance With Purpose. This shared mission binds us
all together, and the way our associates have taken it to
heart
and embedded it throughout the businesses, and helped us meet the challenges of
2008 is indeed remarkable. Our businesses continue to grow, and
deliver solid performance into the first quarter of this year
also.
Together,
we achieved another year of strong financial growth. Net revenue in
2008 grew 10 percent. Core division operating profit growth was six
percent. And core EPS grew nine percent. More importantly,
cash flow from operations, before capital expenditures, was $7
billion.
And
as part of our commitment to return cash to our shareholders, over the past five
years, PepsiCo has generated $26 billion of cash after capital expenditures and
option proceeds, and returned all of it and more. In fact, we've
returned $27 billion through dividends and share repurchases, to shareholders.
With
dividends
alone over $10 billion over the last five years.
Yesterday,
we announced a dividend increase of six percent, bringing our annual dividend to
$1.80 a share. It is the 37th annual increase in our dividend, and
over the past 10 years, PepsiCo's annual dividend has grown at a compounded
annual growth rate of more than 12 percent. This is a time for some
applause. (Applause).
Your
company is also sharing success with our associates, through our Total Rewards
program, benefits they appreciate even more in today's challenging economic
times. In addition to offering quality health insurance programs for
our associates and their families, we offer financial protection if they're
unable to work, through life, disability, and accident
insurance.
PepsiCo's
committed to a well-funded pension plan. And our strong liquidity
enabled us to make a discretionary contribution of $1 billion to our pension
fund this year. Our associates can
also
save for the long-term through our 401(k) and employee stock ownership benefit
program.
But
we haven't stopped there, because we are committed to helping our associates
achieve work-life balance. And we provide benefits that can save them
both time and money. From commuter assistance and vehicle discounts, to backup
child care and elder care benefits, we have programs to help our associates live
life well, and in balance.
For
instance, our exclusive Health Roads program has helped build an internal
culture of health and wellness. Through this program, our teams have
opportunities to receive financial incentives, to improve their health and have
access to programs like weight management, smoking cessation, healthy
pregnancy management, and programs like that. And you know, this is
good for shareholders, too, because healthier employees mean more productive
employees, that use less health care costs for the whole
company.
I
hope you can take pride that your company maintained these commitments to share
in our success. And all this happened even as the economy worsened
last year.
As
we approached 2009, we were very pragmatic about the challenges we would face
from the global slowdown. I'm proud of the ways our teams anticipated
the challenges, and delivered the first quarter. We quickly adjusted
key operating levels to deliver solid top- and bottom-line growth, while
continuing to invest for the long term.
In
the first quarter, our balanced global portfolio delivered six percent net
revenue growth, and eight percent core EPS growth on a constant currency
basis. PepsiCo's Americas Foods continues to be rock
solid. PepsiCo International is off to a flying start. And
PepsiCo Americas Beverages, in spite of the fact that the category is a troubled
one,
came
in just about where we were expecting it to come in. And interesting,
we are looking for it to show sequential improvement as the year goes
on.
Just
spending a minute on North American beverages. We've re-staged our
entire North American beverage portfolio. It's a massive undertaking
that is gaining good traction. And this builds on a solid foundation,
with 10 of our beverage brands generating more than a billion dollars of annual
retail sales globally.
Most
recently, as most of you know, we have proposed an offer to acquire all of the
outstanding shares of common stock that we don't currently own, in both the
Pepsi Bottling Group, PBG, and Pepsi Americas, PAS,
our two largest anchor bottlers. I know we have many PepsiCo retirees
here with us today, and some of you may recall when we formed our anchor
bottlers, just over 10 years ago. You also know firsthand that we
have a track record of making proactive moves to better position ourselves for
the future. This is what we did back in '97 and '99, and this is what
we're doing again today.
There
have been profound changes that have happened in the beverage business in the
last 10 years, and to take our North American beverage business to a whole new
level, we need to reshape it in a fundamentally different way. We
formed our anchor bottlers under very different market conditions, and it was a
right decision then for several reasons. The category was growing
fast. Carbonated soft drinks dominated the market. The
overall profit pool in the business was expanding steadily. And there
were really only two major players in the market.
Contrast
that with today's mature market, where the role of non-carbonated beverages has
increased substantially. Retailers have consolidated. Many
more small companies have come into the beverage business, and the profit pool
is not growing at all.
And
during this time, our portfolio has changed substantially also. We
acquired Tropicana and then Gatorade, which expanded our non-carb footprint
substantially, and also brought with a different manufacturing and go-to-market
system.
Almost
every aspect of the beverage business has changed, and we believe this is the
right time to strategically transform our North American beverage business
model. The time is right to integrate our two anchor bottlers within
PepsiCo, so all of us can compete more effectively and continue to
grow.
This
nimble North American beverage system will generate cost savings, a lot of which
we can re-invest back in the business, to become even more
competitive. It would also increase our speed of decision-making, and
allow us to effectively meet the needs of customers and
consumers.
And
we've been working on enhancing the brand innovation, and feel that we are
making increasingly good progress in the new PepsiCo Americas beverage
structure. The proposed acquisition would dramatically increase our
ability to bring to market differentiated innovation in a much more rapid
way.
And
on the talent side, both PBG and
PAS Associates
share the same values and culture as PepsiCo. And it's like really
bringing the extended family back into PepsiCo, besides giving us an incredible
base of operating executives from which to grow PepsiCo well into the
future.
As
this also was launched just about 10 days ago, I do not intend to discuss any
additional aspects of this transaction now, or in the Q&A
session.
So,
let me now turn to the balance of 2009. For the rest of 2009, as a
company, we are focused on four key
initiatives. First,
we
are investing in initiatives that deliver a strong value proposition to
consumers, who are feeling the pinch in this tough economy. Second,
we are working on every driver that's in our control to grow both the top and
the bottom line.
Third,
we have a maniacal focus on cash. We have extremely strict financial
discipline to make sure that our cash flow is robust. All of you
know that we are a very strong cash flow generating company, but we want to make
sure that, in this environment, we keep that focus on cash, and in fact,
generate a lot more than we did last year.
And
lastly, we are maintaining our focus on investing for the long term, whether
it's brand-building, R&D, investment in IT systems. We are not
taking our eye off the long term. And in this environment, it's all
the more important that we don't sacrifice the long term because of one year of
economic turmoil. So that's the performance side of our
business.
Let
me now turn to the other side of the equation, the other side of the Performance
With Purpose mission, purpose. As most of you know, we've defined
purpose along three planks: human sustainability, environmental sustainability,
and talent sustainability.
So
let me start with human sustainability. We take our responsibility to
improve the way that we nourish our consumers very seriously. That's
why we are transforming our portfolio to offer a broader range of treats, and
healthy, nutritious eats. For many years now, we've found really
creative ways to re-formulate our products to reduce fat, reduce sodium and take
out added sugars. We're now adding whole grains, and fruit and
vegetables, to our snacks, and making many of our drinks healthier,
too.
But
what's interesting, through all of these changes, we have retained the safety,
taste, and incredible joy that make our
brand
so loved and trusted. And we've made these investments
enthusiastically, and we're accelerating our plans for new nutritious foods and
beverages, to serve better our consumers all over the world.
Just
to give you some examples. Last year, we introduced our True North
line of all natural nut-based snacks. Please make sure you pick up
some of those True North samples. They're absolutely
delicious. And we were the first company to offer a zero-calorie,
naturally sweetened, enhanced water. SoBe Life, in South
America. And
in the United
States,
it's called SoBe Life Water. Again, another great-tasting,
zero-calorie beverage.
We're
also reaching beyond our own products to promote more nutritious diets in
communities around the world. For example, we have joined hands with
many global partners, including the World Health Organization, the National
Institutes of Health, the Global Alliance for Improved Nutrition, the
International Union of Nutrition Sciences and other organizations, to really
figure out how we can improve nutrition worldwide.
And
in many countries, PepsiCo leads coalitions of companies committed to addressing
obesity concerns. With public-private partnerships on the rise, we're
looking for greater collaborations with governments and others to help produce
sustained and scalable outreach this health concern requires. And
with the support of the Oxford Health Alliance, the PepsiCo Foundation is
supporting pioneering efforts in Mexico,
China,
India and
the United
Kingdom,
to develop effective, community-based ways of preventing chronic
diseases. That's on one end of the
spectrum.
We're
also working on the other end of the spectrum, to address an even more serious
issue, world hunger. I'm especially proud to tell you about two
initiatives very briefly, because they tell you a bit about the soul of PepsiCo,
and the tremendous optimism that we've
unleashed
in PepsiCo because of Performance With Purpose. There were two
initiatives, both with a common goal, but they were both started
independently. And they were started independently by associates in
very different parts of the world.
The
first is an international project called Project Asha. And asha, in
Sanskrit, means "hope." This program is dedicated to producing
and distributing fortified nutritious products to address hunger in countries
like Nigeria,
Mexico,
South
Africa and
India. This
project has forged new partnerships with non-governmental groups and foundations
in these countries.
What
is fascinating was that, independent of this international project, right here
in Frito-Lay North America, a team started a program of its own, to reduce
hunger in local communities here in the United States. And guess
what? They called this project Project Hope. So Project
Asha, Project Hope both have the same name - one in Sanskrit, one in
English. Interesting part, these two teams had not spoken to each
other when they started the project, yet both were working on
hope.
Like
Project Asha, the goal of Project Hope was to develop scalable social businesses
that present an alternative to traditional hunger reduction programs, based on
philanthropy. The team plans to launch a pilot program this year,
right here in Dallas,
in partnership with the Central Dallas Ministries.
The
PepsiCo Foundation is also addressing world hunger. This year, for
example, we made a three-year, $5 million grant to Save the Children, for their
work to reduce malnutrition for children in India and
Bangladesh. In
Haiti,
the poorest country in the Western
Hemisphere,
our support of the Hands and Feet Project is sustaining an awesome prevention
program.
You
know, for many families facing extreme poverty in Haiti,
mothers sometimes have to send their children to orphanages, to give them basic
care and food. Hands and Feet is an organization which is providing
resources and education to enable mothers to take care of the children right at
home.
And
all told, over the past 10 years, nearly $54 million of contributions went to
organizations that many of you recognize and support in your own communities,
organizations such as the YMCA, Save the Children, Hands and Feet, Salvation
Army, Feeding America, Big Brothers/Big Sisters, Scholarship America, the United
Way, Boys and Girls Club. I could rattle off a whole list of
organizations. But we'll continue to support these types of
organizations and the communities in which we operate. So that's
human sustainability.
Let
me now turn to environmental sustainability, which is the second plank of our
Performance With Purpose mission. Our environmental strategy has
three goals. Achieving broader balance, reducing carbon emissions, and improving
our eco-footprint, through responsible practices in agriculture, packaging and
waste.
Our
efforts to achieve water balance directly address the global water
crisis. We have improved technologies across our global manufacturing
operations. We are finding ways to reclaim and recycle steam vapor
from heating processes. And, we're looking to clean bottles through
air rinsing, which uses ionized air instead of water.
We're
also making great progress in sustainable agriculture to get more crop per
drop. Because, in some areas in the developing world, agriculture
accounts for 90 percent of the fresh water consumption. For example,
we're using pivot and drip irrigation systems in some of these regions, to
reduce agriculture water use by up to 50 percent.
And
in addition to our system-wide conservation efforts, the PepsiCo foundation has
committed more than $16 million to bring safe water to many developing
countries. Our goal is to help one million people get access to safe
water by the end of next year.
Second,
environmental sustainability at PepsiCo also means reducing greenhouse gas
emissions. Our solar collectors in Modesto,
California supplies
all the power we need to make our great product, Sun Chips. Our first
green plant, in Chongqing, China,
will open in June. And in India,
our new wind turbines generate clean, renewable
energy.
Our
results here show why purpose goes hand in hand with performance. In
2008 alone, PepsiCo saved more than 575,000 metric tons of greenhouse gas
emissions here in the United
States. We
reduced our energy costs by $90 million.
The
third part of environmental sustainability, we are dramatically reducing our
eco-footprint through responsible practices in agriculture and packaging
waste. We have taken the first step, by reducing the amount of
material that goes into the production of our containers. A case in
point is our new Eco-Fina bottle. It weighs just 10.9
grams. That's a little less than just two U.S.
quarters.
We're
also helping develop a market for recovered containers, by using recycled
material in our bottles and cans. You know, the average aluminum
Pepsi can contains 65 percent recycled aluminum. And the average
Pepsi plastic bottle contains 10 percent recycled plastic. And I'm
proud to say that it contains more recycled plastic material than any other
national soft drink brand here in the United
States. More
than any other national soft drink brand here in the United
States. So,
consumers who want to play a vital role in increasing the market for recycled
goods, can take pride in buying our beverage
products.
And
because innovation is our life blood, PepsiCo's at the leading edge of
sustainable packaging, even in our foods business, something you'll see shortly
in a video reel we've prepared for you. For these and all our
efforts, I'm proud to tell you that we've been recognized as the leading
company, leading the industry in sustainable packaging. And this
recognition came from the Dow Jones Sustainability World
Index.
All
these accomplishments are made possible by the final aspect of Performance With
Purpose, and that is talent sustainability. In today's world, with
all the macroeconomic challenges we're navigating, we need to attract and retain
the best and brightest people. They are absolutely critical to our
performance, and to our purpose.
We
are building an inclusive work force that truly reflects the consumers and
customers we serve, with talents from every culture, and more importantly, from
every generation. Even executives who have retired are signing up to
be part of the PepsiCo service corps to further our Performance With Purpose
mission.
This
year, we began a new recruiting program, to harness the ideas and the energy of
millennials. You know, these recent college graduates know how to
keep us relevant with the shifting consumer base out there. And the
enthusiasm of this group let us even develop an organic garden in Purchase,
New
York,
and now it's taking root in every location of PepsiCo where there is
land. These millennials are banding together to dig and plant their
own organic garden. Now, there was a great Fortune magazine that
said, "You gave birth to them. Now you manage
them." (Laughs). I'm living
that. (Laughter).
You
know, we even tapped into the talents of today's youngest generation, the
children of PepsiCo's associates across our global operations, by featuring
their artwork on the cover of our 2008 annual
report,
to demonstrate that we're growing in ways that nurture, sustain and inspire all
our people.
All
of us at PepsiCo are working hard to earn your support and your
confidence. We are conscious of our many
responsibilities. Social, fiduciary, economic. And as we
work to fulfill them, we never lose sight of our mission, our mission of
Performance With Purpose.
So
before I invite Larry Thompson to kick off the business portion of the meeting,
I'd like to show you what I mean. Because, nothing speaks about
Performance With Purpose, the mission, than the words and actions of PepsiCo
associates from around the world. Let's watch.
(VIDEO
PLAYS):
(MUSIC)
W: At
PepsiCo, we are committed to helping consumers achieve healthier lifestyles, and
that starts with our products.
(MUSIC)
W: We're
transforming our portfolio to offer a wide array of great-tasting food and
drinks that provide fun refreshment, as well as clear nutritional
benefits.
M: We
believe it's our responsibility to understand the health and diet of all our
consumers all over the world, and we've set global goals to improve the
nutritional profile of our products.
M: With
our existing products, we're really reinventing the way those products are
formulated, by using healthier ingredients, healthier oils, whole grains, and
less sodium.
W: We
are also adding fiber, fruits and vegetables, nuts and seeds, and vitamins and
minerals to our products.
(MUSIC)
W: In
Mexico,
Gamesa
Quaker launched a line of portion-controlled oat-based cookies and
snacks. In the UK,
Walkers developed Sun Bites, a whole grain snack with 30 percent less fat than
standard chips. We're also developing new flavors, to suit different
tastes around the world. And our beverage businesses are changing,
too.
W: Consumer
trends are changing. And, people are looking for more natural and
healthy products.
W: Tropicana
has been expanding its portfolio to include new juice blends and added
nutrients. In China,
we're introducing products that tap into a centuries-old source of health and
nutrition benefits.
M:
Traditional Chinese medicine is really the number one way consumers manage their
health and well-being. We actually have a saying called, "Three dates
a day makes you younger." This [product] here is five dates, and it's
going to be very popular. It's all about driving naturalness as a way
of providing the benefit to the Chinese consumer.
W: But
offering more healthful products is just one way we're promoting health and
wellness. We're also supporting programs like the Vide Saludable
school program in Mexico, that educates young people about good nutrition and
exercise, and a soccer program in Egypt that reaches more than 7,500
schools.
(MUSIC)
W: For
more than a decade, we've also been working hard to reduce our impact on the
environment. Our programs focus on water, climate change, and
packaging.
M:
The businesses are taking the environmental agenda very seriously. We
set some specific objectives around conservation, based on what we thought we
could do. The businesses have far exceeded our expectations, and what
we thought we would need until 2015 to accomplish, we're going to accomplish
many years earlier.
(MUSIC)
W: Walkers
has found new ways to reuse and distribute water more effectively in making
potato crisps.
M: Over
the last eight years, we've reduced our water by 42 percent. If I put
that in context, it's the equivalent to 350 Olympic-size swimming
pools.
W: Our
efforts extend to packaging, as well. Sun Chips is introducing the
first fully compostible snack chip bag, made from plant-based materials, a
change that will significantly reduce our environmental
impact.
(MUSIC)
W: To
reduce its environmental impact, Aquafina introduced a new ultralight bottle,
called Eco-Fina. At just 10.9 grams, that's half as much as the
bottles weighed in 2002. That's expected to reduce our use of plastic
each year by 75 million pounds.
We
also work to drive environmental progress through partnerships with other
organizations. In India and
other markets, PepsiCo is collaborating on projects to provide safe drinking
water to communities, improve their sanitation, and help farmers use water more
efficiently.
(MUSIC)
W: For
all our strengths, our people remain our single greatest
asset.
W: Everybody
wants to work with a great team. And we have incredible teams
here. They're passionate about what they do, they're driven to
deliver results, and they're good at bringing that can-do spirit to whatever the
challenge is.
W: At
PepsiCo, we work hard to promote a diverse and inclusive workplace, one where
people of all backgrounds can achieve their full
potential.
M: An
inclusive culture is just that. It is making sure that the uniqueness
of each individual who's a part of the PepsiCo team is appreciated and valued
and leveraged.
W: Innovative
thinking, industry leadership, and giving every individual the opportunity to
make a real difference, help us to attract and retain the best talent in the
world. Performance With Purpose is at the core of PepsiCo's
success. It reflects our commitment to the many stakeholders we
serve. Consumers, investors, partners, employees, and communities
around the world. Wherever we operate, we strive each day to build a
strong, successful, sustainable business, while making a positive contribution
to the world around us.
(MUSIC)
Larry
Thompson: Thank
you Madame Chair. I am pleased to report that a majority of the votes
entitled to be cast at this meeting are represented today in person or by proxy,
and therefore we have the necessary quorum under state law and under our
bylaws. It is now in order to proceed with the meeting, and I hereby
declare the polls to be open. Now, if anyone has not yet voted and
wants to vote by ballot during the meeting, please raise your
hand. We have staff assistants who will distribute ballots to
you. Please remember to vote on all items, not just the ones on which
you may want to
change
an earlier vote. If you've previously voted by proxy, you do not need
to vote today unless you wish to change your vote. 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.
I.
Nooyi: We
have seven items on the agenda this morning: election of directors;
ratification of auditors; approval of the PepsiCo executive incentive
compensation plan; and four shareholder proposals. In proceeding with
the meeting, we will introduce all agenda items, then we will open the floor for
questions. I ask you to hold any questions on our agenda items until
we actually open the floor. So let's begin with the first item, which
is the election of directors. I call for nominees for election of
directors of the corporation.
M.
Nathenson: Madame
Chairman, I nominate the slate of 13 directors, as specified in the proxy
statement.
K.
Riggins: Madame
Chairman, I second that motion.
I.
Nooyi: Thank
you. We now turn to our second agenda item. May I have a
motion with respect to the auditors for the year?
M.
Nathenson: Madame
Chairman, I move that the appointment of KPMG LLP, as the independent registered
public accountants of the corporation for the ensuing year be
ratified.
K.
Riggins: Madame
Chairman, I second this motion.
I.
Nooyi: Thank
you. I'd like to now introduce to you John Chapman, representing KPMG
LLP. John Chapman. (Applause). Thank you,
John. Our next item is the approval of the PepsiCo, Inc., executive
incentive compensation plan. May I have a motion for approval of the
plan?
M,
Nathenson: Madame
Chairman, I move that the executive incentive compensation plan be
approved.
K.
Riggins: Madame
Chairman, I second this motion.
I.
Nooyi: Thank
you. Our next item of business is a shareholder proposal submitted by
As You Sow, regarding recycling. Miss Amy Galland will now introduce
the proposal. Hi Amy.
A.
Galland: Hello,
my name is
Amy Galland, and I represent As You Sow foundation, the filer of proposal number
four on the proxy statement. This proposal in effect asks the company
to develop a public quantitative goal for higher rates of beverage container
recovery in the United
States. The
U.S.
beverage container recovery rate has dropped from 54 percent in 1992 to 34
percent in 2006. Containers and packaging form the largest segment of
municipal solid waste, and beverage containers make up nearly 15 percent of all
packaging. So that means that two thirds of plastic water bottles,
about 40 billion bottles, purchased by U.S. consumers, will end up at an
incinerator or landfill instead of being recycled. That's an enormous
waste of resources as we enter an age of carbon constraints. If all
beverage containers were recycled, an additional 15.6 million tons of greenhouse
gas emissions would be avoided, the equivalent of the emissions from 36,269,070
barrels of oil. As You Sow, Walden Asset Management, and other
socially concerned investors have been in dialogue with PepsiCo on recycled
content and beverage container recovery for several years. This issue
has taken on more significance with recent concerns over climate
change. Recycling more plastic bottles will result in less reliance
on virgin plastic resin derived from petroleum, and a smaller carbon footprint
for our company.
We
appreciate tremendously PepsiCo's leadership in incorporating ten percent
recycled PET resin into plastic bottles sold in the U.S. and
recent announcement on source reduction efforts, as we discuss
today. However, we remain concerned that the company and the beverage
industry lack a public goal for beverage container recovery. For many
years, both PepsiCo and its major peers have stated that it was
not
realistic
for individual companies to set their own recovery goals; yet in 2007, a major
soft drink competitor committed to a 50 percent recycling rate for aluminum cans
and PET plastic bottles by 2015.
Then,
last year, a major bottled water competitor committed to a 60 percent PET
industry recovery goal by 2018. We know that higher container
recovery rates are possible. In the 11 U.S. states with container
deposit laws, beverage container recycling rates of 70 percent and higher are
being achieved, levels that are more than twice as high on average as states
without deposit systems.
Our
company is relatively close to establishing industry leadership on sustainable
packaging. As noted in our recent report on the environmental
packaging performance of the beverage industry, "Waste and Opportunity",
PepsiCo is already a leader in the use of recycled content. With its
recent announcement on the additional lightweighting of the bottles, it will
rival competitors for leadership on source reduction. The company has
an exciting opportunity to establish clear environmental packaging leadership in
all major categories if it takes steps to set an aggressive container recovery
goal in a reasonable time frame. PepsiCo's reputation will be
enhanced by establishing such clear industry leadership. Therefore,
we urge our company to step up and set its own recovery goal. We urge
you to support Proxy Proposal Number Four. Thank you very
much.
I.
Nooyi: Thank
you, Miss Galland. And my apologies for pronouncing your last name
wrong, Miss Galland. Thank you. Before we call for a
second, I'd like to take a minute to state PepsiCo's position on this matter as
outlined in the proxy statement. We agree with the need to increase
recycling. But in order to increase the recycling rate, a variety of
stakeholders must be engaged in a public-private partnership; it cannot be done
by one company alone. We are doing our part. We have taken
the
first
step by reducing the amount of material that goes into the production of our
containers. And we have also reduced the amount of aluminum in each
Pepsi can by about ten percent since 1993, saving approximately 75 million
pounds of aluminum a year. And we've reduced the plastic in our beverage
containers, with our two-liter beverage bottles being 40 percent lighter today
than they were a couple decades ago. As I mentioned earlier, we are
also helping develop a market for recovered containers by using recycled
material in our bottles and cans. And we are advancing consumer
awareness of recycling; by partnering with Keep America Beautiful for the 2008
Great American Cleanup, we were part of the largest community-improvement
program here in the United
States. PepsiCo
is very proud of all of these efforts to support recycling, and beverage
containers remain the most recycled consumer packaging in the country
today. We believe in a multi-faceted and comprehensive approach to
recycling that include public education, government partnership, an enhancement
of infrastructure, as well as public policy changes and model
programs. But all these efforts require public-private partnerships,
community engagement, and ongoing input and cooperation from a variety of
stakeholders. We as a company continue to take recycling very
seriously, and to address this issue from many angles. With that
said, is there anyone to second Miss Galland's
motion?
M.
Nathenson: I
second the motion.
I.
Nooyi: Thank
you. Our next item of business is the shareholder proposal submitted
by the Adrian Dominican Sisters concerning genetically engineered
products. Mr. Frank Rauscher is representing the shareholder, and
will now introduce the proposal. Good morning Mr.
Rauscher.
F.
Rauscher: Good
morning Madame Chairman. My compliments on the presentation so far;
we really appreciate it.
I.
Nooyi: Thank
you.
F.
Rauscher: Madame
Chair, members of the board, shareholders, I am Frank Rauscher, representing the
Adrian Dominican Sisters and numerous other shareholder proponents of Proxy Item
Number Five. Fellow shareholders, the Board of Directors's response
was based on a reliance on regulatory agencies. Of course that was
the regulators that were supposed to keep the American economy strong and
allayed from consequences of additional risk in financial
products. Many years ago, filers like these of this proposal, brought
the financial risk of derivatives to Fannie Mae, Freddie Mac, Lehman, Citibank,
Bank of America, and were stonewalled by their boards because regulators oversaw
them. Their boards ignored the issues. Perhaps the PepsiCo
board is aware of some government doctrine called, "Too big a food products
company to fail" that could rescue the company if your FDA regulators are
wrong. How much do the FDA staffs really get paid? Are
they the best and the brightest? You're putting the future of the
company in the hands of people that probably would not make mid-management at
PepsiCo. That's not a slap at government employees; it is a
compliment to the high quality of the staff at PepsiCo. Currently,
the regulatory system isn't strong enough to protect any company from the
multitude of errors since the widespread introduction of bioengineered
crops. PepsiCo has numerous corn-based products. Corn is
one of the easiest of the bio-engineered crops to be polluted in the
field. Unapproved corn traits can quickly become part of a commercial
field, and thus part of the corn product, a PepsiCo product. PepsiCo
used to seek only non-engineered corn products; no longer. Thus the
increased potential for Frito-Lay products to contain some corn that is only
being tested, not yet fully approved.
In
addition to the concern about product pollution, there are the environmental
impacts of current GMOs, the increased use of
pesticides
due to the herbicide-resistance weeds, continuous use of herbicide-resistant
crop yields, herbicide resistant weeds; the solution is more
herbicide. Thus we again pose our key questions: What
criteria does the company have for use of future genetically engineered
products? How does PepsiCo alleviate the greatest risk of errors,
particularly with an easily polluted crop such as corn? Is PepsiCo
prepared to meet consumer choices as they shift on other genetically engineered
ingredients?
Hopefully
the board has spent significant time with company presentations on this topic,
and a report would be easy to prepare. But if you've not spent time
on that, here's a chance to start. Make it clear how PepsiCo pays
attention. Vote yes on item number five. Thank you very
much.
I.
Nooyi: Thank
you Mr. Rauscher. We appreciate your input. Before we call
for a second, let me just take a minute to share PepsiCo's position on this
matter as outlined in the proxy statement. PepsiCo is dedicated to
producing high-quality, great-tasting food and beverage products in every part
of the world. We strive to ensure that all products meet or exceed
stringent safety and quality standards, and use only ingredients that are safe
and approved by the applicable government or regulatory authority in every
country in which we operate. As a global company, we believe that
genetically engineered products can play a role in generating positive economic,
social, and environmental contributions to societies around the world,
particularly in times of food shortages. Here at home in the United
States, the Food and Drug Administration has concluded that approved foods
developed through biotechnology, such as corn, are as safe for consumption as
traditionally developed food, and may be used as ingredients in other
food. This finding is supported by significant scientific
consensus. As a result, along with almost all food companies in the
United
States,
PepsiCo has many products that may contain genetically
engineered
ingredients. To
avoid contamination by crops not approved for food ingredients, PepsiCo tests
ingredients and works closely with our suppliers and regulatory
authorities. Our priority is to ensure the safety of all our
products. With that said, is there anyone to second Mr. Rauscher's
motion?
M.
Nathenson: I
second the motion.
I.
Nooyi: Thank
you. Our next item of business is a shareholder proposal submitted by
Miss Estella Salvatierra regarding charitable contributions
reporting. Mr. Greg Quinlan will now introduce the
proposal.
G.
Quinlan: Thank
you very much. My name is Greg Quinlan, I'm a member of PFOX, Parents
and Friends of Ex-Gays & Gays. PFOX is a non-profit charity that
supports families in the ex-gay community. I myself am an ex-gay, a
former homosexual. I ask you to support resolution number six, the
charitable contributions resolution, because PepsiCo gives away over $1 million
to gay organizations that hate people like me. Last year, PepsiCo
gave away $.5 million to PFLAG, Parents and Friends of Lesbians and
Gays. PFLAG is a gay organization that supports tolerance for gays,
but does not believe in tolerance for ex-gays or other
heterosexuals. When Republican Vice Presidential nominee Sarah
Palin's church sponsored an ex-gay conference last year, PFLAG issued press
releases against Sarah Palin and organized protests at her
church. This same church was later vandalized by fire, reminiscent of
the burning of black churches in the south during the Civil Rights
movement. Churches should welcome former homosexuals like me, and
PepsiCo should not fund organizations like PFLAG that do not welcome diversity
but promote hatred. I have been shouted and heckled by PFLAG members
because I am out and open in society as a former homosexual. Why does
PepsiCo fund groups like PFLAG that hate people who are different from
them? This is not tolerance. This is not inclusion by any
definition.
PFLAG
publishes anti-gay literature and opposes ex-gay
inclusion. Although they advocate for gay rights, they just don't
believe others should have the same equal rights. PFLAG contributes
to the intolerance of the ex-gay community, and stereotypes former homosexuals
like myself. By funding PFLAG, PepsiCo promotes fear and hostility
against the ex-gay community and supporters, and spreads lies about ex-gay
organizations. Diversity does not and should not mean funding one
organization to attack another.
PFLAG
also funded support for the recent gay marriage political battles across the
country, but the American people voted for traditional marriage and against gay
marriage in every state where the initiative was held. In fact, 30
states, three fifths of the United
States,
60 percent, supports marriage as one man, one woman. So why is
PepsiCo involved in funding an organization like PFLAG that supports genderless
marriage, when the majority of the American people do not? This could
hurt PepsiCo's image and stock value; in fact, it already
has.
Currently,
there is a boycott of PepsiCo by the AFA, the American Family
Association. AFA is a grassroots organization of concerned families
across the country that successfully boycotted Ford Motor Company products for
donating money to gay activist organizations. Now they're boycotting
Pepsi products because they claim PepsiCo is funding the gay agenda, including
same sex marriage. Their boycott petition has already got over
300,000 signatures by concerned Americans who are boycotting all PepsiCo
brands. You can see them for yourself on
www.boycottpepsico.com.
AFA
has over a million members nationwide. AFA works closely with
thousands of religious organizations and denominations in the United
States and
abroad, representing nearly 30 million American consumers.
Your
PepsiCo is alienating those consumers.
The
money that PepsiCo is giving away to organizations like PFLAG, which I
personally consider a hate group, are your profits. You have a right
to know where your profits are going and what these so-called charities are
doing with those profits.
PepsiCo
current disclosure hides more than it shows. Therefore, Resolution
Number Six that I ask you to support requires PepsiCo to provide a report to
shareholders on the following: standards for choosing which groups
receive your profits as PepsiCo charitable contributions; the business rationale
and purpose for each of the contributions; the benefits to PepsiCo produced by
said contributions; and monitoring the contributions where used for the purposes
subscribed. This is a reasonable request with a minimal
cost. The PepsiCo Board of Directors approved a $13 million total
compensation package for your CEO,
in addition to her free personal use of the PepsiCo company plane and a car and
a chauffeur for commuting.
If
PepsiCo can afford that, then it can afford to issue a report revealing to you,
the shareholders, how your money is being spent on dubious charities that
support genderless marriage and hate against ex-gays like
myself. Please support charitable contributions number six, and thank
you very much.
I.
Nooyi: Thank
you, Mr. Quinlan. Before we call for a second, let me just take a
minute to share PepsiCo's position on this matter as outlined in the proxy
statement. The PepsiCo Foundation seeks to expand opportunities for
under-served communities to enjoy improved health, a better environment, and
greater inclusion. We're also committed to diversity and inclusion in
our businesses so that we can serve and appreciate our many different
communities and consumers without the imposition of personal
judgment. Shareholders can easily see the extensive steps PepsiCo
already takes to document its corporate social
responsibility
and foundation activities. Details regarding grant guidelines, and
lists of donations, are already featured prominently on the PepsiCo
website. So the goal underpinning the proposal under consideration
has already been accomplished. With that said, is there anyone to
second Mr. Quinlan's motion?
M.
Nathenson: I
second the motion.
I.
Nooyi: Thank
you. Our next item of business is the shareholder proposal submitted
by TIAA-CREF, regarding an advisory vote on compensation. Mr. Matthew
DiGuiseppe will now introduce the proposal.
M.
DiGuiseppe: Good
morning. Thank you Madame Chairman. My name is Matt
DiGuiseppe, and I am with the College Retirement Equities Fund, the equity arm
to TIAA, together known as TIAA-CREF. TIAA-CREF manages the
retirement savings of over 3.4 million individuals, and as of the record date
holds over 16 million shares of PepsiCo stock, valued at over $800
million. CREF has filed a shareholder proposal asking that the Board
of Directors adopt an advisory vote on executive compensation. The
specific language of the proposal and our supporting statement are in the proxy
materials you've received. I'd like to make a few additional comments
at this time. As we all know, a lot has changed in the past six
months since we filed our proposal. First, I want to commend PepsiCo
for taking steps over the past year to review and modify its compensation
program and disclosure based on the concerns raised by us and other
shareholders. This is the second year we are filing this proposal
with PepsiCo; and again, we selected the company because of its unique position
to take a leadership role on this issue. As the company has stated in
its response to our resolution, Congress took the first step towards a
federally-mandated advisory vote for all public companies when it required those
banks receiving TARP funds to provide a vote. Many in the investment
community believe, like both TIAA-
CREF
and PepsiCo, that it is only a matter of time before this mandate is expanded to
all U.S.
companies.
Though
we would have preferred that PepsiCo work towards a market-based solution over
the past year, we continue to believe that the company can play an important
role in the development of a useful tool, for shareholders and corporations
alike, by publicly committing to adopting an advisory vote and actively trying
to participate in the development of any legislation or
regulations. So to be clear, this proposal is not
punitive. As our proposal states, we do not seek a vote on the
amounts paid to executives, but instead on the quality of the company's
communication. The SEC mandates that a company disclose its
compensation in a manner understandable to all shareholders; and we strongly
believe that in return, shareholders have a responsibility and an obligation to
advise the company if they have met this charge to our standards. An
advisory vote is the only efficient way to do so.
Finally,
we acknowledge that it could be difficult to discern the meaning of small
variations in the level of support a proposal receives. This is a
systemic issue with the proxy system, and we do believe that nuanced issues
should be raised with the company in dialogue. However, the advisory
vote is not meant to replace dialogue; it is meant to enhance it. In
our experience over the past several years, investors, management, and even
boards of directors agree that an attentive and qualified board would easily be
able to understand why a vote was overwhelmingly against, and thus approach
shareholders with a knowledge of their concerns.
Based
on TIAA-CREF's own experience with the advisory vote, we are confident that if a
compensation program is appropriately customized, and clearly and concisely
explained in plain English, shareholders will either support the board's
compensation decisions
or
articulate their concerns. So for the reasons outlined above, we urge
you to take the opportunity now to recast your ballot in support of our
proposal. Thank you.
I.
Nooyi: Thank
you, Mr. DiGuiseppe. Before we call for a second, I'd like to take a
minute again to outline PepsiCo's position on the matter as outlined in the
proxy statement. PepsiCo is proud of its strong pay-for-performance
orientation, ownership culture, and governance practices. We believe
that adoption of an advisory board resolution is unnecessary because PepsiCo's
executive compensation programs are responsibly designed and administered by the
Compensation Committee within strict corporate governance standards to support
PepsiCo's pay-for-performance philosophy. In addition, PepsiCo
shareholders already have many ways to communicate their views to PepsiCo,
and its Board of Directors regarding executive compensation, including
management dialogue with shareholders, shareholder access to Board of Directors,
shareholder approval of PepsiCo's equity incentive plan, and an annual vote for
PepsiCo's Board of Directors. Furthermore, leaders of the U.S.
Congress have made it clear that they intend to recommend legislation requiring
a shareholder advisory vote on compensation in the current Congressional
session. We really believe that the company and the shareholders are
best served by monitoring legislative developments and promptly adopting any new
shareholder advisory board procedures that are mandated by law. With
that said, is there anyone to second Mr. DiGuiseppe's
motion?
M.
Nathenson: I
second the motion.
I.
Nooyi: Thank
you. If there are any ballots still outstanding at this time, we'd
like to collect them. Please raise your hand and one of our
assistants will pick up your ballot. Let me remind you again that you
must remember to vote on each item.
L.
Thompson: We
now seem to have all of the ballots; and since all those desiring to vote by
ballot have done so, I hereby declare the polls closed. The ballots
and proxies will be held in the possession of the Inspector of Election, John
Sivertson from The Bank of New York Mellon. Mr. Sivertson, will you
.... Mr. Sivertson's responsibility as Inspector of Elections is to tabulate the
voting results, and he will begin to do so now.
L.
Thompson: The
meeting is now open for general questions. I’d like to remind you
that in order to accommodate all of you who wish to pose a question, your
question will be limited to three minutes. And to facilitate this,
you will hear a chime indicating when it is time for you to begin to wrap up
your question.
K.
Urquiza: Hello,
good morning. Thank you for the opportunity to speak here
today. My name is Kristen Urquiza, and I’m with corporate
accountability international’s Think Outside the Bottle campaign. At
last year’s shareholder meeting, we acknowledged PepsiCo’s first steps in
responding to the concerns of tens of thousands of customers and people who are
actively engaged with the Think Outside the Bottle campaign. Pepsi’s
change to the Aquafina label to include public water source has provided
customers and consumers with more information about the bottled water they are
buying. As Aquafina is a leading national brand, Pepsi’s leadership
on the issue has had an impact on the entire
industry,
setting
the stage for Nestle to add public water source to the labels of it’s Pure Life
brand and increasing the pressure on Coke to do the
same.
Your
shareholders, the public and our members recognize this action as a positive
first step in addressing the concerns surrounding PepsiCo’s water
practices. And there is still progress to be made. Thank
you for your time earlier discussing this matter, Madame
Chairwoman. Through Think Outside the Bottle, tens of thousands of
people are calling on Pepsi to take another concrete step and publicly share
more information on quality testing results for its Aquafina brand, comparable
to reports by public water systems. This is a central concern for the
Think Outside the Bottle campaign, and Pepsi lags behind other major bottled
water corporations in this area.
As
Pepsi positions itself as responsive and a leader on water issues, it must not
undermine the ability of democratic institutions to set and implement public
policies on water, public health, environmental, or human rights
issues. Pepsi’s track record on this (Inaudible). For
example, last summer, when more than 1,000 mayors resolved to cut city bottled
water budgets to reduce waste and promote tap water, Pepsi’s trade association
lobbied aggressively against the resolution. Actions speak louder
than words, and so now more than ever, the world will be
watching.
Our
members recognize the positive step that you have taken in changing your
Aquafina labels, but why does the corporation refuse to provide its customers
with water quality information equivalent to what our public water systems
provide as customers? What does Pepsi have to hide? Thank
you.
I.
Nooyi: Thank
you. As we discussed just before the meeting, we appreciate the
partnership we have with your organization. Last year we had a
constructive dialogue, and this year we had a brief
dialogue,
but
Dan Bena is our head of water for all of PepsiCo. And Dan Bena will
be in conversation with you if not today, within the next week or ten
days. And let’s figure out what exactly you want us to
do. Because Aquafina today goes through intensive testing, as well as
the purest waters out there. You know, the Aquafina plants are
high-tech plants. They really go through a seven-stage reverse
osmosis process and produces a high-quality water. If there’s
something we’re not doing, and something we need to do more to disclose whatever
we are doing, let’s have a conversation and let’s do
it.
Let’s
not forget: everybody in PepsiCo is first a citizen of the community,
parents, children, wives, husbands, mothers. So we care about the
products we produce, too. So we welcome the dialogue with
you. And Dan Bena ... where are you Dan? Dan Bena will be
in touch with you today and set a time within the next week or ten days that we
can have a constructive dialogue and see where it takes us. Thank you
for your attendance at that meeting today.
G.
Rangel: Madame
Chair, my name is George Rangel. As a Pepsi shareholder, I’m here
today on behalf of the farm labor organizing committee, AFL-CIO. FLOC
represents tobacco farm workers who work on Reynolds American Contract farms in
North
Carolina. Reynolds
American is the second-largest tobacco company in the United
States. I
would ask Mr. Lionel Nowell, III, Pepsi Treasurer and the members of the
Reynolds American Board of Directors to assist FLOC in gaining a meeting with
Reynolds American CEO,
Susan Ivey, to discuss ways to improve the conditions of tobacco
workers.
I
would like Mr. Nowell to receive a copy of the letter, FLOC President Baldemar
Velásquez
sent to Mr. Nowell dated December
29th, 2008. Mr.
Nowell has never responded to President Velásquez,
even though there have been repeated efforts to contact him. Also, he
has not responded to hundreds of letters sent to him by
PepsiCo
shareholders
and consumers asking him to assist FLOC, obtaining the meeting with Reynolds
CEO,
Susan Ivey. Thank you.
I.
Nooyi: Thank
you. This is a matter that is extraneous to PepsiCo, but I received
your letter that you sent to me, and I will mention to Mr. Nowell that you came
here and made this comment. Thank you.
F.
Rauscher: It’s
Frank Rauscher again. I am in from Plano,
Texas,
and I represent Aquinas Associates, a corporate social responsibility
organization. I want to actually compliment you. Last
year, you had a proposal with regard to access to water, and it was
resolved. It’s not again on the proposal this year, but I’d just like
to thank you and Mr. Trotter, with whom I had a nice conversation after our
meeting last year. And I assume that the two of you and the rest of
the staff got together and ended up with a really great statement with regard to
access to water. So I just want to publicly thank you very
much. Appreciate it.
I.
Nooyi: Thank
you, Mr. Rauscher.
F.
Rauscher: Good
morning.
I.
Nooyi: Good
morning.
F.
Rauscher: I’m
happy to be here again this year. Good lord saw to it. My
question is, I don’t know if you can answer this, but maybe somebody else here
can. Many years ago, when you spun off KFC and Taco Bell, you made a
separate company and all the shareholders got stock in it. You spun
off The Pepsi Bottling Group, and no one, no shareholders that I know of, got
stock. Unless you went out and bought it. So I’d like to
know why the company didn’t issue stock to the shareholders when they spun off
the bottling group.
I.
Nooyi: They
were done under two very different structures. The restaurant was a
spin-off. Meaning we took PepsiCo and created two companies out of
it: a restaurant company and PepsiCo. And so each of the shareholders
got a piece of the restaurant company stock, and
you
kept the PepsiCo stock. In the case of the bottling company, we did
an initial public offering, an IPO. So we actually sold 60 percent of
the bottling companies to the public. And so PepsiCo collected the
cash from the sale of that bottling ownership, the 60 percent
ownership. And that’s why, the shareholders ... you didn’t get a
piece of paper that said you owned the bottling company. But PepsiCo
overall benefitted from the cash proceeds, which allowed us to increase
dividends to all of you substantially, repurchase more stock and improve the
overall value of the company.
F.
Rauscher: Thank
you.
I.
Nooyi: Pleasure.
L.
Roy: Madame
Chairman, my name is Lance Roy. I was curious ... Dallas/Ft. Worth
and Dallas
and Tarrant Counties
are fairly large, and I’m assuming that the rest of the area of Texas is
affected. But I’m wondering why the naval air station is the only
place this can be bought?
I.
Nooyi: What
is that? I can’t see from here.
L.
Roy: It’s
Tropicana orange juice, frozen concentrate. Now I’ve tried for
several years at ... Albertson’s, Minyard’s, Tom Thumb. Nobody
carries it. In fact, I’ve had a couple of them people say, "They
don’t make it anymore." I know that’s a lie, because (Inaudible)
can get it anywhere in the country.
I.
Nooyi: (Laughs) Actually,
we are de-emphasizing that product. My strong suggestion is you buy
Tropicana not from concentrate orange juice. And let me tell you a
little story. There was something I read on the website a few days
ago, where there was a shareholder meeting for some other
company. And the shareholders were complaining that that company was
wasting money by serving fresh orange juice. And people were up in
arms. The company then came on and showed the containers of Tropicana
orange juice and said, "No, this is Tropicana orange juice, the closest to
freshly squeezed orange juice." My suggestion is I would go
out
and
get some Tropicana, not from concentrate, orange juice. And to get
you started, let’s make sure we give you some coupons to go out and buy the
first containers. I think you’re going to be absolutely
delighted. Absolutely delighted.
L.
Roy: You
can’t freeze it.
I.
Nooyi: You
know what? Enjoy this juice, and then call me back and tell me how
much you liked it. You’re going to love it, trust
me. You’re going to love it. Absolutely love
it.
L.
Roy: I’d
had no problem with this for 30
years. (Laughter)
I.
Nooyi: I’m
giving you an added experience. (Laughter)
L.
Roy: Also,
outside of my regular job, I work weekends at a convenience
store. I’ve got in my truck some 60 containers for 20-ounce and
one-liter plastic bottles that we can’t get the distributors to pick
up. They throw them away. Now I know from my regular job
that plastic containers of that type probably cost two or three dollars to be
made. Now if we’ve got this problem in this area, that means we may
have the problem in other areas. That looks to me like a lot of money
being wasted.
I.
Nooyi: Well
you know, if you go back to our discussion on recycling, this is where you need
public-private partnerships. Companies have to work with municipal
governments, local communities to ...
L.
Roy: (Overlap)
No, you misunderstand. These are the carriers that your drivers bring
the bottles in. And they’re supposed to pick up again when they
deliver the next time. We can’t get them to pick them
up. They’re throwing them away. These are molded things
that hold the (Inaudible).
I.
Nooyi: (Overlap)
Yes, I understand (Inaudible). Let’s look into that, because they’re
supposed to pick up the shells and recycle and re-use them again and again and
again. These are designed to have
multiple
trips. So who ... ? Massimo, maybe you can ... get in
touch with them and get the name and the location of the place. Thank
you.
L.
Roy: Appreciate
your time, lady.
I.
Nooyi: Okay. If
there are no more questions, Larry Thompson has the results of the balloting,
the preliminary results. Larry, over to
you.
L.
Thompson: Thank
you, Madame Chair. I’d like to report the preliminary results of the
voting. I remind everyone that the holders of our common stock and
convertible preferred stock vote together on all matters as a single
class. With respect to the nominees for director, I’d like to report
that each nominee received approximately at least 70 percent of the votes cast
in support of their election. The auditors received approximately 98
percent of the votes cast in favor of their continuing as our independent
auditors. The PepsiCo executive incentive compensation plan received
approximately 94 percent of the votes cast, approving the
plan.
Proposal
number four on recycling received approximately 8.7 percent of the votes cast,
and did not receive enough support to past. Proposal number five on
genetically modified products received approximately 8.4 percent of the votes
cast and did not receive enough support to pass. Proposal number six,
on charitable contributions, received approximately five percent of the votes
cast and did not receive enough support to pass. Proposal number
seven on the advisory vote on compensation received at this time approximately
49 percent of the votes cast, and it appears it did not receive enough support
to pass.
Now
I’d like to remind everyone that these are preliminary numbers. Final
results will be available after the results have been certified by our inspector
of elections. Final voting results will be disclosed in our next 10Q
filing in July.
I.
Nooyi: Thank
you, Larry, and this concludes the business portion of our
meeting. But our work to make sure PepsiCo reaches its full potential
is never finished. I thank you for your time and attention today, and
with that, I will entertain a motion for adjournment.
L.
Thompson: Madame
Chair, I move that the meeting be adjourned.
M.
Nathenson: I
second the motion.
I.
Nooyi: Without
objections, the meeting is now adjourned. Thank
you. (Applause)
Reconciliation
of GAAP and Non-GAAP Information
(unaudited)
Division
operating profit growth, core results and core results on a constant currency
basis are non-GAAP financial measures as they exclude certain items noted
below. Additionally, our management operating cash flow is a non-GAAP
financial measure. We believe investors should consider these
measures as they are more indicative of our ongoing performance and with how
management evaluates our operational results and trends.
In the
first quarter of 2009, we recognized $62 million of mark-to-market net gains on
commodity hedges in corporate unallocated expenses. In the first
quarter of 2008, we recognized $4 million of mark-to-market net losses on
commodity hedges in corporate unallocated expenses. In the full-year
2008, we recognized $346 million of mark-to-market net losses on commodity
hedges in corporate unallocated expenses. In the full-year 2007, we
recognized $19 million of mark-to-market net gains on commodity hedges in
corporate unallocated expenses. We centrally manage commodity
derivatives on behalf of our divisions. Certain of these commodity
derivatives do not qualify for hedge accounting treatment and are marked to
market with the resulting gains and losses recognized in corporate unallocated
expenses. These gains and losses are subsequently reflected in
division results when the divisions take delivery of the underlying
commodity.
As a
result of our previously initiated Productivity for Growth program, we recorded
restructuring and impairment charges of $25 million in the first quarter of
2009. In the full-year 2008, we recorded restructuring and impairment
charges of $543 million in connection with this program. The program
includes actions in all segments of the business, including the closure of six
plants that we believe will increase cost competitiveness across the supply
chain, upgrade and streamline our product portfolio and simplify the
organization for more effective and timely decision-making. In
addition, in the full-year 2007, we recorded restructuring and impairment
charges of $102 million in connection with plant closings and production line
rationalizations.
In the
full-year 2008, The Pepsi Bottling Group, Inc. (PBG) implemented a restructuring
initiative across all of its geographic segments. PBG also recognized
an asset impairment charge related to its business in
Mexico. Consequently, in 2008, we recorded a non-cash charge of $138
million, included in bottling equity income, as part of recording our share of
PBG’s financial results.
In 2007,
we recognized $129 million of non-cash tax benefits related to the favorable
resolution of certain foreign tax matters.
We
believe investors should consider the following non-GAAP financial measures with
respect to our 2009 first quarter results:
|
|
·
|
Our
2009 net revenue growth on a constant currency basis;
and
|
|
|
·
|
Our
2009 diluted EPS growth excluding the impact of restructuring and
impairment charges and the mark-to-market net impact on commodity hedges,
on a constant currency basis.
|
We
believe investors should consider the following non-GAAP financial measures with
respect to our 2008 full-year results:
|
|
·
|
Our
2008 division operating profit growth excluding the impact of
restructuring and impairment charges;
and
|
|
|
·
|
Our
2008 diluted EPS growth excluding the impact of restructuring and
impairment charges (including, for 2008, charges associated with our
Productivity for Growth initiatives), mark-to-market net impact on
commodity hedges, our share of PBG’s restructuring and impairment charges
and certain tax benefits.
|
Additionally,
we believe investors should consider our cumulative management operating cash
flow and option proceeds for the five-year period from 2004-2008.
Reconciliation
of GAAP and Non-GAAP Information (cont.)
(unaudited)
Net
Revenue Growth Reconciliation
|
|
|
Quarter
Ended
|
|
|
|
|
3/21/09
|
|
|
Reported
Net Revenue Growth
|
|
|
(1 |
)% |
|
Impact
of Foreign Currency Translation
|
|
|
7 |
|
|
Net
Revenue Growth, on a constant currency basis
|
|
|
6 |
% |
Operating
Profit Growth Reconciliation
|
|
|
Year
Ended
|
|
|
|
|
12/27/08
|
|
|
Total
PepsiCo Reported Operating Profit
|
|
|
(3 |
)% |
|
Impact
of Mark-to-Market Net Impact on Commodity Hedges
|
|
|
5 |
|
|
Impact
of Restructuring and Impairment Charges
|
|
|
6 |
|
|
Total
Operating Profit Excluding above Items
|
|
|
8 |
% |
|
Impact
of Other Corporate Unallocated
|
|
|
(2 |
) |
|
PepsiCo
Total Division Operating Profit Excluding above Items
|
|
|
6 |
% |
Diluted
EPS Reconciliation
|
|
|
Quarter
Ended
|
|
|
|
|
|
|
|
3/21/09
|
|
|
3/22/08
|
|
|
Growth
|
|
|
Reported
Diluted EPS
|
|
$ |
0.72 |
|
|
$ |
0.70 |
|
|
|
3 |
% |
|
Impact
of Mark-to-Market Net Gains on Commodity Hedges
|
|
|
(0.03 |
) |
|
|
– |
|
|
|
|
|
|
Impact
of Restructuring and Impairment Charges
|
|
|
0.01 |
|
|
|
– |
|
|
|
|
|
|
Diluted
EPS Excluding above Items
|
|
$ |
0.71 |
* |
|
$ |
0.71 |
* |
|
|
1 |
% |
|
Impact
of Foreign Currency Translation
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
Diluted
EPS Excluding above Items, on a constant currency basis
|
|
|
|
|
|
|
|
|
|
|
8 |
% |
*
Does not sum due to rounding
|
|
|
Year
Ended
|
|
|
|
|
|
|
|
12/27/08
|
|
|
12/29/07
|
|
|
Growth
|
|
|
Reported
Diluted EPS
|
|
$ |
3.21 |
|
|
$ |
3.41 |
|
|
|
(6 |
)% |
|
Impact
of Mark-to-Market Net Losses/(Gains) on Commodity Hedges
|
|
|
0.14 |
|
|
|
(0.01 |
) |
|
|
|
|
|
Impact
of Restructuring and Impairment Charges
|
|
|
0.25 |
|
|
|
0.04 |
|
|
|
|
|
|
Impact
of PBG’s Restructuring and Impairment Charges
|
|
|
0.07 |
|
|
|
– |
|
|
|
|
|
|
Impact of Tax
Benefits
|
|
|
– |
|
|
|
(0.08 |
) |
|
|
|
|
|
Diluted
EPS Excluding above Items
|
|
$ |
3.68 |
* |
|
|
3.37 |
* |
|
|
9 |
% |
*
Does not sum due to rounding
5-Year Management Operating Cash Flow
and Option Proceeds ($ billions)
|
|
|
Total
|
|
|
|
|
|
2004-2008
|
|
|
Net
Cash Provided by Operating Activities
|
|
$ |
30.9 |
|
|
Net
Capital Spending
|
|
|
(9.7 |
) |
|
Management
Operating Cash Flow
|
|
|
21.2 |
|
|
Option
Proceeds
|
|
|
5.0 |
|
|
Management
Operating Cash Flow and Option Proceeds
|
|
$ |
26.2 |
|