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The following factors could reduce demand for our products, or otherwise adversely affect our business, financial condition or results of operations: unstable economic, political or social conditions, acts of war, terrorist acts, and civil unrest in areas where our products are sold, including Russia, Ukraine, Venezuela and the Middle East; increased competition; a slowdown in growth and the related impact on other countries who export to these markets; our inability to acquire businesses, form strategic business alliances or to make necessary infrastructure investments; our inability to complete divestitures or refranchisings; imposition of new or increased sanctions against, or other regulations restricting contact with, countries in markets in which our products are made, manufactured, distributed or sold, such as Russia, or imposition of new or increased sanctions against U.S. multinational corporations operating in these markets; foreign ownership restrictions; nationalization of our assets; restrictions on the import or export of our products or ingredients or substances used in our products; regulations on the transfer of funds to and from foreign countries, which, from time to time, result in significant cash balances in foreign countries, such as Venezuela; regulations on the repatriation of funds currently held in foreign jurisdictions to the United States; highly inflationary currency, devaluation or fluctuation, such as the devaluation of the Russian ruble, Venezuelan bolivar, Argentine peso, Ukrainian hryvnia and Turkish lira; the lack of well-established or reliable legal systems; imposition of new or increased labeling, product or production requirements, or other restrictions; and increased costs of doing business due to compliance with complex foreign and United States laws and regulations that apply to our international operations, including the Foreign Corrupt Practices Act, the U.K.
See also “Item 1. Business - Regulatory Environment and Environmental Compliance.”, “Demand for our products may be adversely affected by changes in consumer preferences or any inability on our part to innovate or market our products effectively and any significant reduction in demand could adversely affect our business, financial condition or results of operations.”, “Changes in the legal and regulatory environment could limit our business activities, increase our operating costs, reduce demand for our products or result in litigation.”, “Our business, financial condition or results of operations could suffer if we are unable to compete effectively.”, “Business disruptions could have an adverse impact on our business, financial condition or results of operations.” and “Failure to successfully complete or integrate acquisitions and joint ventures into our existing operations, or to complete or manage divestitures or refranchisings, could adversely affect our business, financial condition or results of operations.” Unfavorable economic conditions may have an adverse impact on our business, financial condition or results of operations.
Our reputation or brand image could be adversely impacted by any of the following, or by adverse publicity (whether or not valid) relating thereto: the failure to maintain high ethical, social and environmental practices for all of our operations and activities or failure to require our suppliers or other third parties to do so; the failure to achieve our goal of continuing to refine our beverage, food and snack choices to meet changing consumer demands by reducing sodium, added sugars and saturated fat and developing a broader portfolio of product choices; health concerns (whether or not valid) about our products or particular ingredients or substances in, or attributes of, our products, including whether certain of our products contribute to obesity; the imposition or proposed imposition of new or increased taxes or other limitations on the sale or advertising of our products; any failure to comply, or perception of a failure to comply, with our policies and goals, including those regarding advertising to children and reducing calorie consumption from sugary drinks; our research and development efforts; our environmental impact, including use of agricultural materials, packaging, water, energy use and waste management or any failure to achieve our goals with respect to minimizing our impact on the environment; the practices of our employees, agents, customers, distributors, suppliers, bottlers, joint venture partners or other third parties with respect to any of the foregoing; consumer perception of our advertising campaigns or marketing programs; consumer perception of our use of social media; or our responses to any of the foregoing or negative publicity as a result of any of the foregoing.
With respect to acquisitions, the following also pose potential risks: our ability to successfully combine our businesses with the business of the acquired company, including integrating the manufacturing, distribution, sales and administrative support activities and information technology systems between us and the acquired company and our ability to successfully operate in new categories or territories; motivating, recruiting and retaining executives and key employees; conforming standards, controls (including internal control over financial reporting, environmental compliance and health and safety compliance), procedures and policies, business cultures and compensation structures between us and the acquired company; consolidating and streamlining corporate and administrative infrastructures; consolidating sales and marketing operations; retaining existing customers and attracting new customers; identifying and eliminating redundant and underperforming operations and assets; coordinating geographically dispersed organizations; managing tax costs or inefficiencies associated with integrating our operations following completion of the acquisitions; and other unanticipated problems and liabilities.
If we do not allocate and effectively manage the resources necessary to build and sustain our information technology infrastructure, if we fail to timely identify or appropriately respond to cybersecurity incidents, or if our information systems are damaged, destroyed or shut down (whether as a result of natural disasters, fires, power outages, acts of terrorism or other catastrophic events, network outages, software, equipment or telecommunications failures, user errors, or from deliberate cyberattacks such as malicious or disruptive software, denial of service attacks, malicious social engineering, hackers or otherwise), our business could be disrupted and we could, among other things, be subject to: transaction errors; processing inefficiencies; the loss of, or failure to attract new, customers and consumers; the loss of revenues from unauthorized use, acquisition or disclosure of or access to confidential information; the loss of or damage to intellectual property or trade secrets, including the loss or unauthorized disclosure of sensitive data, confidential information or other assets; damage to our reputation; litigation; regulatory enforcement actions; violation of data privacy, security or other laws and regulations; and remediation costs.
__________________________________________________ Executive Officers of the Registrant The following is a list of names, ages and backgrounds of our current executive officers: Name Age Title Albert P. Carey Chief Executive Officer, PepsiCo Americas Beverages Sanjeev Chadha Chief Executive Officer, PepsiCo Asia, Middle East and Africa Marie T. Gallagher Senior Vice President and Controller, PepsiCo Thomas Greco Chief Executive Officer, Frito-Lay North America Enderson Guimaraes Executive Vice President, Global Categories and Operations Hugh F. Johnston Executive Vice President and Chief Financial Officer, PepsiCo Dr. Mehmood Khan Vice Chairman, PepsiCo; Executive Vice President, PepsiCo Chief Scientific Officer, Global Research and Development Ramon Laguarta Chief Executive Officer, PepsiCo Europe Laxman Narasimhan Chief Executive Officer, PepsiCo Latin America Foods Indra K. Nooyi Chairman of the Board of Directors and Chief Executive Officer, PepsiCo Cynthia M. Trudell Executive Vice President, Human Resources and Chief Human Resources Officer, PepsiCo Tony West Executive Vice President, Government Affairs, General Counsel and Corporate Secretary, PepsiCo Albert P. Carey, 63, was appointed Chief Executive Officer, PepsiCo Americas Beverages in September 2011.
Consumer preferences may shift due to a variety of factors, including the aging of the general population; consumer concerns regarding the health effects of ingredients, such as 4-MeI, acrylamide, artificial sweeteners, caffeine, high-fructose corn syrup, saturated fat, trans fats, sodium, sugar, or other product ingredients or attributes, including genetically modified ingredients; changes in product packaging, including convenience packaging; changes in social trends that impact travel, vacation or leisure activity patterns; changes in weather patterns or seasonal consumption cycles; negative publicity (whether or not valid) resulting from regulatory action, litigation against us or other companies in our industry or negative or inaccurate posts or comments in the media, including social media, about us, our products or advertising campaigns and marketing programs; consumer perception of social media posts or other information disseminated by us or our employees, agents, customers, suppliers, bottlers, distributors, joint venture partners or other third parties; a downturn in economic conditions; taxes imposed on our products; or consumer perception of our employees, agents, customers, suppliers, bottlers, joint venture partners or other third parties or the business practices of such parties.
See also “Changes in the legal and regulatory environment could limit our business activities, increase our operating costs, reduce demand for our products or result in litigation.”, “Imposition of new taxes, disagreements with tax authorities or additional tax liabilities could adversely affect our financial performance.”, “Our financial performance could suffer if we are unable to compete effectively.”, “Unfavorable economic conditions may have an adverse impact on our business results or financial condition.” and “Any damage to our reputation could have a material adverse effect on our business, financial condition and results of operations.” Our continued success is also dependent on our product innovation, including maintaining a robust pipeline of new products and improving the quality of existing products, and the effectiveness of our product packaging, advertising campaigns and marketing programs, including our ability to successfully adapt to a rapidly changing media environment, such as through use of social media and online advertising campaigns and marketing programs.
Such changes may include changes in: food and drug laws; laws related to product labeling, advertising and marketing practices; laws regarding the import or export of our products or ingredients used in our products; laws and programs restricting the sale and advertising of certain of our products; laws and programs aimed at reducing, restricting or eliminating ingredients present in certain of our products; laws and programs aimed at discouraging the consumption or altering the package or portion size of certain of our products, including laws imposing restrictions on the use of government programs, such as the Supplemental Nutrition Assistance Program, to purchase certain of our products; increased regulatory scrutiny of, and increased litigation involving, product claims and concerns regarding the effects on health of ingredients in, or attributes of, certain of our products, including without limitation those found in energy drinks; state consumer protection laws; taxation requirements, including the imposition or proposed imposition of new or increased taxes or other limitations on the sale of our products; competition laws; anti-corruption laws; employment laws; privacy laws; laws regulating the price we may charge for our products; laws regulating access to and use of water or utilities; and environmental laws, including laws relating to the regulation of water rights and treatment and wastewater discharge.
Factors that could adversely affect our business results in these markets include: foreign ownership restrictions; nationalization of our assets; restrictions on the import of ingredients used in our products; restrictions on the import or export of our products; regulations on the transfer of funds to and from foreign countries, which, from time to time, result in significant cash balances in foreign countries such as Venezuela, and on the repatriation of funds currently held in foreign jurisdictions to the United States; highly inflationary currency, devaluation or fluctuation, such as the devaluation of the Venezuelan bolivar, Argentine peso or Turkish lira; the lack of well-established or reliable legal systems; imposition of new or increased labeling, product or production requirements, or other restrictions; and increased costs of business due to compliance with complex foreign and United States laws and regulations that apply to our international operations, including the Foreign Corrupt Practices Act, the U.K.
Our business or financial results may be adversely impacted by these unfavorable economic conditions, including: adverse changes in interest rates, tax laws or tax rates; volatile commodity markets and inflation; contraction in the availability of credit in the marketplace due to legislation or other economic conditions such as the European sovereign debt crisis, which may potentially impair our ability to access the capital markets on terms commercially acceptable to us or at all; the effects of government initiatives to manage economic conditions, including changes to or cessation of any such initiatives; reduced demand for our products resulting from a slow-down in the general global economy or a shift in consumer preferences for economic reasons or otherwise to regional, local or private label products or other economy products, or to less profitable channels; impairment of assets; or a decrease in the fair value of pension or post-retirement assets that could increase future employee benefit costs and/or funding requirements of our pension or post-retirement plans.
Our reputation could also be adversely impacted by any of the following, or by adverse publicity (whether or not valid) relating thereto: the failure to maintain high ethical, social and environmental practices for all of our operations and activities; the failure to achieve our goal of continuing to refine our food and beverage choices to meet changing consumer demands by reducing sodium, added sugars and saturated fat and developing a broader portfolio of product choices; health concerns (whether or not valid) about our products or particular ingredients in our products, including whether certain of our products contribute to obesity; the imposition or proposed imposition of new or increased taxes or other limitations on the sale or advertising of our products; our research and development efforts; our environmental impact, including use of agricultural materials, packaging, water, energy use and waste management; the practices of our employees, agents, customers, distributors, suppliers, bottlers, joint venture partners or other third parties with respect to any of the foregoing; any failure to comply, or perception of a failure to comply, with our policies and statements, including those regarding advertising to children; consumer perception of our advertising campaigns or marketing programs; consumer perception of our use of social media; or our responses to any of the foregoing or negative publicity as a result of any of the foregoing.
With respect to acquisitions, the following also pose potential risks: our ability to successfully combine our businesses with the business of the acquired company, including integrating the manufacturing, distribution, sales and administrative support activities and information technology systems between us and the acquired company and our ability to successfully operate in new categories or territories; motivating, recruiting and retaining executives and key employees; conforming standards, controls (including internal control over financial reporting, environmental compliance and health and safety compliance), procedures and policies, business cultures and compensation structures between us and the acquired company; consolidating and streamlining corporate and administrative infrastructures; consolidating sales and marketing operations; retaining existing customers and attracting new customers; identifying and eliminating redundant and underperforming operations and assets; coordinating geographically dispersed organizations; and managing tax costs or inefficiencies associated with integrating our operations following completion of the acquisitions.
__________________________________________________ Executive Officers of the Registrant The following is a list of names, ages and backgrounds of our current executive officers: Name Age Title Zein Abdalla President, PepsiCo Albert P. Carey Chief Executive Officer, PepsiCo Americas Beverages Sanjeev Chadha Chief Executive Officer, PepsiCo Asia, Middle East and Africa Brian Cornell Chief Executive Officer, PepsiCo Americas Foods Marie T. Gallagher Senior Vice President and Controller, PepsiCo Thomas Greco Executive Vice President, PepsiCo; President, Frito-Lay North America Enderson Guimaraes Chief Executive Officer, PepsiCo Europe Hugh F. Johnston Executive Vice President and Chief Financial Officer, PepsiCo Dr. Mehmood Khan Executive Vice President, PepsiCo Chief Scientific Officer, Global Research and Development, PepsiCo Indra K. Nooyi Chairman and Chief Executive Officer, PepsiCo Larry D. Thompson Executive Vice President, Government Affairs, General Counsel and Corporate Secretary, PepsiCo Cynthia M. Trudell Executive Vice President, Human Resources and Chief Human Resources Officer, PepsiCo Zein Abdalla, 55, was appointed to the role of President, PepsiCo in September 2012.
• The PepsiCo Risk Committee (PRC), which is comprised of a cross-functional, geographically diverse, senior management group which meets periodically to identify, assess, prioritize and address strategic, financial, operating, business, compliance, safety, reputational and other risks; • Division Risk Committees (DRC), comprised of cross-functional senior management teams which meet regularly to identify, assess, prioritize and address division-specific business risks; • PepsiCo’s Risk Management Office, which manages the overall risk management process, provides ongoing guidance, tools and analytical support to the PRC and the DRCs, identifies and assesses potential risks and facilitates ongoing communication between the parties, as well as with PepsiCo’s Board of Directors and the Audit Committee of the Board; • PepsiCo Corporate Audit, which evaluates the ongoing effectiveness of our key internal controls through periodic audit and review procedures; and • PepsiCo’s Compliance & Ethics Department, which leads and coordinates our compliance policies and practices.
Such changes may include changes in: food and drug laws; laws related to product labeling, advertising and marketing practices; laws regarding the import of ingredients used in our products; laws regarding the import or export of our products; laws and programs aimed at reducing ingredients present in certain of our products, including sodium, saturated fat and added sugar; regulatory actions targeting the snack food or beverage industries such as restrictions on the sale of snack and beverage products in publicly regulated venues or restrictions on the use of the Supplemental Nutrition Assistance Program to purchase certain snacks or beverages; increased regulatory scrutiny of, and increased litigation involving, product claims and concerns regarding the effects on health of ingredients in, or attributes of, certain of our products, including without limitation those found in energy drinks; state consumer protection laws; taxation requirements, including taxes that would increase the cost of our products to consumers; competition laws; employment laws; privacy laws; laws regulating the price we may charge for our products; laws regulating access to and use of water or utilities; and environmental laws, including laws relating to the regulation of water rights and treatment.
With respect to acquisitions, the following also pose potential risks: our ability to successfully combine our businesses with the business of the acquired company, including integrating the manufacturing, distribution, sales and administrative support activities and information technology systems between our Company and the acquired company and successfully operating in new categories; motivating, recruiting and retaining executives and key employees; conforming standards, controls (including internal control over financial reporting), procedures and policies, business cultures and compensation structures between our Company and the acquired company; consolidating and streamlining corporate and administrative infrastructures; consolidating sales and marketing operations; retaining existing customers and attracting new customers; identifying and eliminating redundant and underperforming operations and assets; coordinating geographically dispersed organizations; and managing tax costs or inefficiencies associated with integrating our operations following completion of the acquisitions.
The Compensation Committee of the Board of Directors assists the Board in overseeing potential risks that may be associated with the Company’s compensation programs; • The PepsiCo Risk Committee (PRC), comprised of a cross-functional, geographically diverse, senior management group which meets regularly to identify, assess, prioritize and address our key risks; • Division Risk Committees (DRC), comprised of cross-functional senior management teams which meet regularly to identify, assess, prioritize and address division-specific business risks; • PepsiCo’s Risk Management Office, which manages the overall risk management process, provides ongoing guidance, tools and analytical support to the PRC and the DRCs, identifies and assesses potential risks and facilitates ongoing communication between the parties, as well as with PepsiCo’s Audit Committee and Board of Directors; • PepsiCo Corporate Audit, which evaluates the ongoing effectiveness of our key internal controls through periodic audit and review procedures; and • PepsiCo’s Compliance & Ethics Department, which leads and coordinates our compliance policies and practices.
With respect to acquisitions, including but not limited to the acquisition of WBD, the following also pose potential risks: our ability to successfully combine our businesses with the business of the acquired company, including integrating the manufacturing, distribution, sales and administrative support activities and information technology systems among our company and the acquired company and successfully operating in new categories; motivating, recruiting and retaining executives and key employees; conforming standards, controls (including internal control over financial reporting), procedures and policies, business cultures and compensation structures among our company and the acquired company; consolidating and streamlining corporate and administrative infrastructures; consolidating sales and marketing operations; retaining existing customers and attracting new customers; identifying and eliminating redundant and underperforming operations and assets; coordinating geographically dispersed organizations; and managing tax costs or inefficiencies associated with integrating our operations following completion of the acquisitions.
Potential issues associated with these and other acquisitions and joint ventures could include, among other things, our ability to realize the full extent of the benefits or cost savings that we expect to realize as a result of the completion of the acquisition or the formation of the joint venture within the anticipated time frame, or at all; receipt of necessary consents, clearances and approvals in connection with the acquisition or joint venture; diversion of management’s attention from base strategies and objectives; and, with respect to acquisitions, our ability to successfully combine our businesses with the business of the acquired company in a manner that permits cost savings to be realized, including integrating the manufacturing, distribution, sales and administrative support activities and information technology systems among our company and the acquired company, motivating, recruiting and retaining executives and key employees, conforming standards, controls, procedures and policies, business cultures and compensation structures among our company and the acquired company, consolidating and streamlining corporate and administrative infrastructures, consolidating sales and marketing operations, retaining existing customers and attracting new customers, identifying and eliminating redundant and underperforming operations and assets, coordinating geographically dispersed organizations, and managing tax costs or inefficiencies associated with integrating our operations following completion of the acquisitions.
You should consider the following key factors when evaluating our trends and future results: • continued demand for our products, which is dependent on successful product introductions and other innovations, effectiveness of our sales incentives, advertising campaigns and marketing programs, seasonal weather conditions, relationships with key customers (including our bottlers), and our response to consumer health concerns and changes in product category consumption; • competitive product and pricing pressures; • continued success from our productivity initiatives, which is dependent upon our ability to implement and leverage these programs; • continued success of acquisition integrations, including our ability to achieve cost savings and revenue enhancement opportunities from the Quaker merger; • unforeseen economic changes and political unrest, which may result in business interruption, foreign currency devaluation, inflation, deflation and decreased demand, particularly in areas outside North America, such as in Latin America and the Middle East; • maintenance of our profit margin in the face of a consolidating retail environment; • changes in laws and regulations, including changes in food and drug laws, accounting standards, taxation requirements (including tax rate changes, new tax laws and revised tax law interpretations) and environmental laws; and • fluctuations in manufacturing costs and the availability of raw materials.
SIGNATURE TITLE DATE /s/ STEVEN S REINEMUND Steven S Reinemund Chairman of the Board and Chief Executive Officer March 6, 2003 /s/ INDRA K. NOOYI Indra K. Nooyi President and Chief Financial Officer March 6, 2003 /s/ PETER A. BRIDGMAN Peter A. Bridgman Senior Vice President and Controller (Principal Accounting Officer) March 6, 2003 /s/ JOHN F. AKERS John F. Akers Director March 6, 2003 /s/ ROBERT E. ALLEN Robert E. Allen Director March 6, 2003 /s/ ROGER A. ENRICO Roger A. Enrico Director March 6, 2003 S-1 SIGNATURE TITLE DATE /s/ PETER FOY Peter Foy Director March 6, 2003 /s/ RAY L. HUNT Ray L. Hunt Director March 6, 2003 /s/ ARTHUR C. MARTINEZ Arthur C. Martinez Director March 6, 2003 /s/ FRANKLIN D. RAINES Franklin D. Raines Director March 6, 2003 /s/ SHARON PERCY ROCKEFELLER Sharon Percy Rockefeller Director March 6, 2003 /s/ FRANKLIN A. THOMAS Franklin A. Thomas Director March 6, 2003 /s/ CYNTHIA M. TRUDELL Cynthia M. Trudell Director March 6, 2003 /s/ SOLOMON D. TRUJILLO Solomon D. Trujillo Director March 6, 2003 /s/ DANIEL VASELLA Daniel Vasella Director March 6, 2003 S-2 CERTIFICATION I, Steven S Reinemund certify that: 1.
The results of operations of the separate companies and the combined company for the most recent interim period prior to the merger and for the years presented in the consolidated financial statements are as follows: 24 Weeks Ended 6/16/01 2000 1999 Reported Net Sales: PepsiCo.................................. $ 9,820 $20,438 $20,367 Quaker................................... 2,741 5,041 4,726 Adjustments (a).......................... (518) - - ------- ------- ------- Combined................................... $12,043 $25,479 $25,093 ======= ======= ======= Reported Net Income: PepsiCo.................................. $ 1,150 $ 2,183 $ 2,050 Quaker................................... 279 360 455 Adjustments (a).......................... (61) - - ------- ------- ------- Combined................................... $ 1,368 $ 2,543 $ 2,505 ======= ======= ======= (a) Adjustments reflect the impact of changing Quaker’s fiscal calendar to conform to PepsiCo’s and conforming the accounting policies of the two companies applicable to interim reporting.
Other Impairment and Restructuring Charges 2001 2000 1999 Asset impairment charges Held and used in the business Property, plant and equipment............ $ 19 $ 125 $ 8 Held for disposal/abandonment Property, plant and equipment........... - - 34 ------- ------- ------- Total asset impairment............... 19 125 42 ------- ------- ------- Restructuring charges Employee-related costs..................... - 41 20 Other charges.............................. 12 18 11 ------- ------- ------- Total restructuring.................. 12 59 31 ------- ------- ------- Total...................................... $ 31 $ 184 $ 73 ======= ======= ======= After-tax............................. $ 19 $ 111 $ 45 ======= ======= ======= Per share............................ $0.01 $0.06 $0.02 ======= ======= ======= 2001 and The 2001 and 2000 other impairment and restructuring charges relate to a three-year supply chain reconfiguration project announced in 1999 to upgrade and optimize Quaker’s manufacturing and distribution capabilities across all of its North American businesses.
F - 2 Consolidated Statement of Income (in millions except per share amounts) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 29, 2001, December 30, 2000 and December 25, 1999 2001 2000 1999 Net Sales New PepsiCo.......................................... $26,935 $25,479 $22,970 Bottling operations.................................. - - 2,123 -------- -------- -------- Total Net Sales...................................... 26,935 25,479 25,093 Costs and Expenses Cost of sales........................................ 10,754 10,226 10,326 Selling, general and administrative expenses......... 11,608 11,104 11,018 Amortization of intangible assets.................... 165 147 193 Merger-related costs................................. 356 - - Other impairment and restructuring charges........... 31 184 73 -------- -------- -------- Total Costs and Expenses............................. 22,914 21,661 21,610 Operating Profit New PepsiCo.......................................... 4,021 3,818 3,430 Bottling operations and equity investments........... - - 53 -------- -------- -------- Total Operating Profit............................... 4,021 3,818 3,483 Bottling equity income and transaction gains/ (losses), net...................................... 160 130 1,083 Interest expense..................................... (219) (272) (421) Interest income...................................... 67 85 130 -------- -------- -------- Income Before Income Taxes........................... 4,029 3,761 4,275 Provision for Income Taxes........................... 1,367 1,218 1,770 -------- -------- -------- Net Income........................................... $2,662 $2,543 $2,505 ======== ======== ======== Net Income Per Common Share Basic............................................. $ 1.51 $ 1.45 $ 1.41 Diluted........................................... $ 1.47 $ 1.42 $ 1.38 See accompanying notes to consolidated financial statements.
Return to Index to Financial Information F - 3 Consolidated Statement of Cash Flows (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 29, 2001, December 30, 2000 and December 25, 1999 2001 2000 1999 Operating Activities Net income........................................... $ 2,662 $ 2,543 $ 2,505 Adjustments to reconcile net income to net cash provided by operating activities Bottling equity income and transaction (gains)/ losses, net....................................... (160) (130) (1,083) Depreciation and amortization...................... 1,082 1,093 1,156 Merger-related costs............................... 356 - - Other impairment and restructuring charges......... 31 184 73 Cash payments for merger-related costs and other restructuring charges............................. (273) (38) (98) Deferred income taxes.............................. 162 33 573 Deferred compensation - ESOP....................... 48 36 32 Other noncash charges and credits, net............. 209 303 368 Changes in operating working capital, excluding effects of acquisitions and dispositions Accounts and notes receivable.................. 7 (52) (141) Inventories.................................... (75) (51) (202) Prepaid expenses and other current assets...... (6) (35) (209) Accounts payable and other current liabilities.
(236) 219 357 Income taxes payable........................... 394 335 274 -------- -------- -------- Net change in operating working capital............ 84 416 79 -------- -------- -------- Net Cash Provided by Operating Activities........... 4,201 4,440 3,605 -------- -------- -------- Investing Activities Capital spending..................................... (1,324) (1,352) (1,341) Acquisitions and investments in unconsolidated affiliates........................... (432) (98) (430) Sales of businesses.................................. - 33 513 Sales of property, plant and equipment............... - 57 130 Short-term investments, by original maturity More than three months - purchases.................. (2,537) (4,950) (2,209) More than three months - maturities................. 2,078 4,585 2,220 Three months or less, net........................... (41) (9) 12 Other, net........................................... (381) (262) (67) -------- -------- -------- Net Cash Used for Investing Activities............... (2,637) (1,996) (1,172) -------- -------- -------- (Continued on following page) F - 4 Consolidated Statement of Cash Flows (continued) (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 29, 2001, December 30, 2000 and December 25, 1999 2001 2000 1999 Financing Activities Proceeds from issuances of long-term debt............ 324 130 3,480 Payments of long-term debt........................... (573) (879) (1,216) Short-term borrowings, by original maturity More than three months - proceeds................... 788 198 3,699 More than three months - payments................... (483) (155) (2,758) Three months or less, net........................... (397) 1 (2,814) Cash dividends paid.................................. (994) (949) (935) Share repurchases - common........................... (1,716) (1,430) (1,285) Share repurchases - preferred........................ (10) - - Quaker share repurchases............................. (5) (254) (382) Proceeds from reissuance of shares................... 524 - - Proceeds from exercises of stock options............. 623 690 383 -------- -------- -------- Net Cash Used for Financing Activities............... (1,919) (2,648) (1,828) -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents................................ - (4) 3 Net (Decrease)/Increase in Cash and Cash Equivalents.
Return to Index to Financial Information F - 5 Consolidated Balance Sheet (in millions except per share amounts) PepsiCo, Inc. and Subsidiaries December 29, 2001 and December 30, 2000 2001 2000 ASSETS Current Assets Cash and cash equivalents.................................... $ 683 $ 1,038 Short-term investments, at cost.............................. 966 467 -------- -------- 1,649 1,505 Accounts and notes receivable, net........................... 2,142 2,129 Inventories.................................................. 1,310 1,192 Prepaid expenses and other current assets.................... 752 791 -------- -------- Total Current Assets.................................... 5,853 5,617 Property, Plant and Equipment, net........................... 6,876 6,558 Intangible Assets, net....................................... 4,841 4,714 Investments in Unconsolidated Affiliates..................... 2,871 2,979 Other Assets................................................. 1,254 889 -------- -------- Total Assets....................................... $21,695 $20,757 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings........................................ $ 354 $ 202 Accounts payable and other current liabilities............... 4,461 4,529 Income taxes payable......................................... 183 64 -------- -------- Total Current Liabilities............................... 4,998 4,795 Long-Term Debt............................................... 2,651 3,009 Other Liabilities............................................ 3,876 3,960 Deferred Income Taxes........................................ 1,496 1,367 Preferred Stock, no par value................................ 26 49 Deferred Compensation - preferred ........................... - (27) Common Shareholders' Equity Common stock, par value 1 2/3(cent)per share (issued 1,782 and 2,029 shares, respectively) ............................ 30 34 Capital in excess of par value............................... 13 375 Deferred compensation........................................ - (21) Retained earnings............................................ 11,519 16,510 Accumulated other comprehensive loss......................... (1,646) (1,374) --------- -------- 9,916 15,524 Less: repurchased common stock, at cost (26 and 280 shares, respectively).......................... (1,268) (7,920) --------- --------- Total Common Shareholders' Equity....................... 8,648 7,604 --------- --------- Total Liabilities and Shareholders' Equity......... $21,695 $20,757 ========= ========= See accompanying notes to consolidated financial statements.
Return to Index to Financial Information F - 6 Consolidated Statement of Common Shareholders’ Equity PepsiCo, Inc. and Subsidiaries Fiscal years ended December 29, 2001, December 30, 2000 and December 25, 1999 (in millions) 2001 2000 1999 Shares Amount Shares Amount Shares Amount Common Stock Balance, beginning of year ..... 2,029 $ 34 2,030 $ 34 2,037 $ 34 Share repurchases............... - - (9) - (13) - Stock option exercises.......... 6 - - - - - Quaker stock option exercises... 3 - 8 - 6 - Shares issued to effect merger.. (256) (4) - - - - ------- -------- ------- -------- ------- -------- Balance, end of year ........... 1,782 30 2,029 34 2,030 34 ======= -------- ======= -------- ======= -------- Capital in Excess of Par Value Balance, beginning of year...... 375 559 904 Share repurchases............... - (236) (370) Stock option exercises (a)...... 82 52 (21) Reissued shares................. 150 - - Shares issued to effect merger.. (595) - - Other........................... 1 - 46 -------- -------- -------- Balance, end of year............ 13 375 559 -------- -------- -------- Deferred Compensation Balance, beginning of year.... (21) (45) (68) Net activity.................. 21 24 23 -------- --------- -------- Balance, end of year.......... - (21) (45) -------- --------- -------- Retained Earnings Balance, beginning of year...... 16,510 14,921 13,356 Net income...................... 2,662 2,543 2,505 Shares issued to effect merger.. (6,644) - - Cash dividends declared - common (1,005) (950) (936) Cash dividends declared - preferred (4) (4) (4) -------- -------- -------- Balance, end of year............ 11,519 16,510 14,921 -------- -------- -------- Accumulated Other Comprehensive Loss Balance, beginning of year ..... (1,374) (1,085) (1,139) Currency translation adjustment (CTA) (218) (289) (136) CTA reclassification adjustment.
F - 13 The results of operations of the separate companies and the combined company for the most recent interim period prior to the merger and for the years presented in the consolidated financial statements are as follows: 24 Weeks Ended 6/16/01 2000 1999 Net Sales: PepsiCo.................................. $ 9,820 $20,438 $20,367 Quaker................................... 2,741 5,041 4,726 Adjustments (a).......................... (518) - - -------- -------- -------- Combined................................... $12,043 $25,479 $25,093 ======== ======== ======== Net Income: PepsiCo.................................. $ 1,150 $ 2,183 $ 2,050 Quaker................................... 279 360 455 Adjustments (a).......................... (61) - - -------- -------- ------- Combined................................... $ 1,368 $ 2,543 $ 2,505 ======== ======== ======== (a) Adjustments reflect the impact of changing Quaker’s fiscal calendar to conform to PepsiCo’s and conforming the accounting policies of the two companies applicable to interim reporting.
Note 3 - Other Impairment and Restructuring Charges 2001 2000 1999 Asset impairment charges Held and used in the business Property, plant and equipment............ $ 19 $ 125 $ 8 Held for disposal/abandonment Property, plant and equipment........... - - 34 -------- -------- -------- Total asset impairment............... 19 125 42 -------- -------- -------- Restructuring charges Employee-related costs..................... - 41 20 Other charges.............................. 12 18 11 -------- -------- -------- Total restructuring.................. 12 59 31 -------- -------- -------- Total...................................... $ 31 $ 184 $ 73 ======== ======== ======== After-tax............................. $ 19 $ 111 $ 45 ======== ======== ======== Per share............................ $0.01 $0.06 $0.02 ======== ======== ======== 2001 and 2000 The 2001 and 2000 other impairment and restructuring charges relate to a three-year supply chain reconfiguration project announced in 1999 to upgrade and optimize Quaker’s manufacturing and distribution capabilities across all of its North American businesses.
Analysis of other restructuring reserves: Employee Facility Third-Party Related Closure Termination Other Total Reserve, December 26, 1998....... $ 70 $ 28 $ 62 $ 1 $161 1999 restructuring charges..... 20 8 - 3 31 Cash payments.................. (44) (5) (47) (2) (98) Noncash utilization............ (3) (4) - - (7) Separation of PBG (see Note 10) (25) (5) (5) - (35) ------ ------ ------- ------ ------ Reserve, December 25, 1999....... 18 22 10 2 52 2000 restructuring charges..... 41 18 - - 59 Cash payments.................. (13) (24) (1) - (38) Noncash utilization............ (3) (3) - - (6) Changes in estimate............ - (4) - - (4) ------ ------ ------- ------ ------ Reserve, December 30, 2000....... 43 9 9 2 63 2001 restructuring charges..... - 12 - - 12 Cash payments.................. (28) (17) - - (45) Changes in estimate............ 1 (1) - - - Reclassification to postretirement Liabilities.... (7) - - - (7) ------ ------ ------ ------ ------ Reserve, December 29, 2001....... $ 9 $ 3 $ 9 $ 2 $ 23 ====== ====== ====== ====== ====== The restructuring reserves are included in accounts payable and other current liabilities in the Consolidated Balance Sheet.
The computations of basic and diluted net income per common share are as follows: 2001 2000 1999 Average Average Average Shares Shares Shares Out- Out- Out- Income standing Income standing Income standing -------- -------- -------- -------- -------- -------- Net income ................... $2,662 $2,543 $2,505 Preferred shares: Dividends................... (4) (4) (4) Redemption.................. (1) - - -------- -------- -------- Net income available for common shareholders......... $2,657 1,763 $2,539 1,748 $2,501 1,774 ======== ======== ======== ======== ======== ======== Basic net income per common share................ $ 1.51 $ 1.45 $ 1.41 ======== ======== ======== Net income available for common shareholders......... $2,657 1,763 $2,539 1,748 $2,501 1,774 Dilutive securities: Stock options............... - 39 - 38 - 37 ESOP convertible preferred Stock..................... 3 4 2 4 2 5 Unvested stock awards....... - 1 - 1 - 1 -------- -------- -------- ------- -------- -------- Diluted....................... $2,660 1,807 $2,541 1,791 $2,503 1,817 ======== ======== ======== ======= ======== ======== Diluted net income per common share ............... $ 1.47 $ 1.42 $ 1.38 ======== ======== ======== Diluted net income per common share excludes incremental shares of 0.4 million in 2001, 0.1 million in 2000 and 49.0 million in 1999 related to employee stock options due to their antidilutive effect at each respective year end.
PepsiAmericas (formerly Whitman) PepsiAmericas' summarized financial information is as follows: 2001 2000 Current assets............................ $ 481 $ 477 Noncurrent assets......................... 2,938 2,859 -------- -------- Total assets............................ $3,419 $3,336 ======== ======== Current liabilities....................... $ 653 $ 887 Noncurrent liabilities.................... 1,336 999 -------- -------- Total liabilities....................... $1,989 $1,886 ======== ======== Our equity investment..................... $ 746 $ 741 ======== ======== 2001 2000 1999 Net sales................................. $3,171 $2,528 $2,138 Gross profit.............................. $1,259 $1,033 $ 890 Operating profit.......................... $ 268 $ 223 $ 182 Income from continuing operations......... $ 90 $ 72 $ 43 Net income/(loss)......................... $ 19 $ 80 $ (9) The above financial information for 2000 includes the results of the former PepsiAmericas after the date of the merger with Whitman.
Note 11 - Accounts Payable and Other Current Liabilities 2001 2000 Accounts payable................................ $1,238 $1,212 Accrued selling, advertising and marketing...... 861 986 Accrued compensation and benefits............... 789 809 Dividends payable............................... 255 240 Insurance accruals.............................. 158 227 Other current liabilities....................... 1,160 1,055 -------- -------- $4,461 $4,529 ======== ======== Note 12 - Short-Term Borrowings and Long-Term Debt 2001 2000 Short-term borrowings Current maturities of long-term debt............ $ 319 $ 453 Other borrowings (6.4% and 7.1%)................ 410 499 Amounts reclassified to long-term debt.......... (375) (750) ------- -------- $ 354 $ 202 ======= ======== Long-term debt Short-term borrowings, reclassified............. $ 375 $ 750 Notes due 2002-2026 (4.1% and 6.7%)............. 1,986 1,924 Various foreign currency debt, due 2001 (6.5%).. - 219 Zero coupon notes, $735 million due 2011-2012 (13.4%)............................. 356 339 Other, due 2002-2015 (6.9% and 7.6%)............ 253 230 ------- -------- 2,970 3,462 Less: current maturities of long-term debt..... (319) (453) ------- -------- $2,651 $3,009 ======= ======== The weighted average interest rates in the above table include the effects of associated interest rate and currency swaps at year-end 2001 and 2000.
F - 25 Note 14 - Income Taxes 2001 2000 1999 Income before income taxes: U.S.................................................. $2,922 $2,574 $3,350 Foreign.............................................. 1,107 1,187 925 -------- -------- -------- $4,029 $3,761 $4,275 ======== ======== ======== Provision for income taxes: Current: U.S. Federal.............................. $ 926 $ 958 $ 819 Foreign................................... 226 165 322 State..................................... 53 62 56 -------- -------- -------- 1,205 1,185 1,197 -------- -------- -------- Deferred: U.S. Federal.............................. 159 31 559 Foreign................................... (8) (7) (17) State..................................... 11 9 31 -------- -------- -------- 162 33 573 -------- -------- -------- $1,367 $1,218 $1,770 ======== ======== ======== Tax rate reconciliation: U.S. Federal statutory tax rate...................... 35.0% 35.0% 35.0% State income tax, net of U.S. Federal tax benefit.... 1.0 1.2 1.3 Lower taxes on foreign results....................... (4.3) (2.9) (2.5) Bottling transactions................................ - - 9.0 Merger-related costs and other impairment and restructuring charges............................. 2.3 (0.2) - Other, net........................................... (0.1) (0.7) (1.4) -------- -------- -------- Effective tax rate .................................. 33.9% 32.4% 41.4% ======== ======== ======== In 1999, Quaker adjusted its tax accruals and tax assets to reflect developments and information received during the year.
Deferred tax liabilities/(assets): 2001 2000 Investments in unconsolidated affiliates............. $ 702 $ 672 Property, plant and equipment........................ 804 742 Safe harbor leases................................... 82 94 Zero coupon notes.................................... 68 73 Intangible assets other than nondeductible goodwill.. 121 105 Other................................................ 480 448 -------- -------- Gross deferred tax liabilities....................... $ 2,257 $ 2,134 -------- -------- Net carryforwards.................................... (556) (816) Postretirement benefits.............................. (320) (311) Various current and noncurrent liabilities........... (805) (869) -------- -------- Gross deferred tax assets............................ (1,681) (1,996) Deferred tax asset valuation allowances.............. 529 822 -------- -------- Deferred tax assets, net............................. (1,152) (1,174) -------- -------- Net deferred tax liabilities......................... $ 1,105 $ 960 ======== ======== Included in: Prepaid expenses and other current assets.......... $ (391) $ (407) Deferred income taxes.............................. 1,496 1,367 -------- -------- $ 1,105 $ 960 ======== ======== Net operating loss carryforwards totaling $3.2 billion at year-end 2001 are being carried forward and are available to reduce future taxable income of certain subsidiaries in a number of foreign and state jurisdictions.
Preferred stock activity: 2001 2000 1999 Shares Amount Shares Amount Shares Amount -------- -------- -------- -------- -------- -------- Balance, beginning of year ... 0.8 $ 49 0.9 $ 61 1.0 $70 Redemptions................. (0.1) (23) (0.1) (12) (0.1) (9) -------- -------- -------- -------- -------- -------- Balance, end of year......... 0.7 $ 26 0.8 $ 49 0.9 $61 ======== ======== ======== ======== ======== ======== Note 16 - Other Comprehensive Loss The accumulated balances related to each component of other comprehensive loss were as follows: 2001 2000 1999 Currency translation adjustment......................$(1,587) $(1,369) $(1,080) Cash flow hedges, net of tax: (a) Cumulative effect of accounting change............ 3 - - Derivative (losses)/gains, net.................... (21) - - Minimum pension liability adjustment (a) (b)......... (43) (5) (3) Other................................................ 2 - (2) -------- -------- -------- Accumulated other comprehensive loss.................$(1,646) $(1,374) $(1,085) ======== ======== ======== (a) Includes $7 for our share of our equity investees’ accumulated derivative losses and $29 for our share of our equity investees’ minimum pension liability adjustments.
$ 8.56 2,975 $ 8.56 $14.28 to $33.04 77,165 4.85 24.99 56,023 22.37 $34.00 to $49.00 96,782 8.02 39.13 24,523 37.43 --------- --------- 176,922 6.44 32.35 83,521 26.32 ========= ========= Pro forma income and pro forma income per common share, as if we had recorded compensation expense based on fair value for stock-based awards: 2001 2000 1999 Reported Net income.......................................... $2,662 $2,543 $2,505 Net income per common share - basic................. $ 1.51 $ 1.45 $ 1.41 Net income per common share - diluted............... $ 1.47 $ 1.42 $ 1.38 Pro forma Net income.......................................... $2,356 $2,343 $2,343 Net income per common share - basic................. $ 1.33 $ 1.34 $ 1.32 Net income per common share - diluted............... $ 1.30 $ 1.31 $ 1.29 F - 29 We estimate the fair value of stock-based awards using the Black-Scholes option-pricing model based on the following weighted average assumptions for options granted during the year: 2001 2000 1999 Risk free interest rate............................. 4.8% 6.7% 5.2% Expected life....................................... 5 yrs.
Note 19 - Pension and Postretirement Benefits 2001 2000 1999 Components of net periodic pension cost: Service cost........................................ $ 127 $ 120 $ 133 Interest cost....................................... 233 221 209 Expected return on plan assets...................... (301) (277) (269) Amortization of transition asset.................... (2) (3) (3) Amortization of prior service amendments............ 8 13 11 Amortization of (gain)/loss......................... (9) (18) 15 ------- ------- ------- Net periodic benefit cost........................... 56 56 96 Curtailment/settlement loss......................... 1 6 54 Special termination benefits........................ 26 - 10 ------- ------- ------- Net pension cost.................................... $ 83 $ 62 $ 160 ======= ======= ======= F - 30 2001 2000 1999 Components of net periodic postretirement cost: Service cost........................................ $ 20 $ 22 $ 23 Interest cost....................................... 63 58 54 Amortization of prior service amendments............ (12) (12) (14) Amortization of gain................................ - (1) (1) ------ ------ ------ Net periodic benefit cost........................... 71 67 62 Curtailment loss.................................... - 2 - Special termination benefits........................ 1 - 3 ------ ------ ------ Net postretirement cost............................. $ 72 $ 69 $ 65 ====== ====== ====== 2001 2000 2001 2000 Pension Postretirement -------------------- -------------------- Change in benefit obligation: Obligation at beginning of year........ $3,170 $3,009 $ 834 $ 740 Service cost........................... 127 120 20 22 Interest cost.......................... 233 221 63 58 Plan amendments........................ 10 3 1 - Participant contributions.............. 5 6 - 1 Actuarial loss......................... 170 6 50 48 Acquisitions........................... - 3 - - Benefit payments....................... (170) (166) (58) (43) Curtailment/settlement loss............ 2 6 - 8 Special termination benefits........... 26 - 1 - Foreign currency adjustment............ (17) (38) - - -------- -------- -------- -------- Obligation at end of year.............. $3,556 $3,170 $ 911 $ 834 ======== ======== ======== ======== Change in fair value of plan assets: Fair value at beginning of year........ $3,251 $3,053 $ - $ - Actual (loss)/gain on plan assets...... (382) 281 - - Acquisitions........................... - 14 - - Employer contributions................. 446 103 58 42 Participant contributions.............. 5 6 - 1 Benefit payments....................... (170) (166) (58) (43) Foreign currency adjustment............ (21) (40) - - -------- -------- -------- -------- Fair value at end of year.............. $3,129 $3,251 $ - $ - ======== ======== ======== ======== Funded status as recognized in the Consolidated Balance Sheet: Funded status at end of year........... $ (427) $ 81 $(911) $(834) Unrecognized prior service cost........ 38 49 (5) (17) Unrecognized loss/(gain)............... 548 (349) 91 41 Unrecognized transition asset.......... (2) (3) - - -------- -------- -------- -------- Net amounts recognized................. $ 157 $ (222) $(825) $(810) ======== ======== ======== ======== F - 31 2001 2000 2001 2000 Pension Postretirement -------------------- -------------------- Net amounts as recognized in the Consolidated Balance Sheet: Prepaid benefit cost................... $ 396 $ 141 $ - $ - Intangible assets...................... - 1 - - Accrued benefit liability.............. (261) (372) (825) (810) Accumulated other comprehensive income.
The estimated impact of the fifty-third week on 2000 segment results is as follows: Net Operating Sales Profit -------- --------- Frito-Lay North America................................ $164 $40 Frito-Lay International................................ 61 10 Pepsi-Cola North America............................... 36 13 Gatorade/Tropicana North America....................... 33 5 -------- -------- $294 68 ======== -------- Corporate unallocated.................................. (6) -------- $62 ======== Business Segments 2001 2000 1999 Net Sales Worldwide Snacks - Frito-Lay North America........................... $ 9,374 $ 8,971 $ 8,232 - Frito-Lay International........................... 5,130 4,875 4,274 Worldwide Beverages - Pepsi-Cola North America.......................... 3,842 3,289 2,605 - Gatorade/Tropicana North America.................. 4,016 3,841 3,452 - PepsiCo Beverages International................... 2,582 2,531 2,407 Quaker Foods North America.......................... 1,991 1,972 1,993 --------- -------- --------- Combined Segments................................... 26,935 25,479 22,963 Quaker divested businesses.......................... - - 7 Bottling Operations/Investments..................... - - 2,123 --------- --------- --------- $26,935 $25,479 $25,093 ========= ========= ========= Operating Profit Worldwide Snacks - Frito-Lay North America........................... $ 2,056 $ 1,915 $ 1,679 - Frito-Lay International........................... 627 546 455 Worldwide Beverages - Pepsi-Cola North America.......................... 927 833 751 - Gatorade/Tropicana North America.................. 530 500 433 - PepsiCo Beverages International................... 221 169 108 Quaker Foods North America.......................... 415 392 363 --------- --------- --------- Combined Segments................................... 4,776 4,355 3,789 Merger-related costs................................ (356) - - Other impairment and restructuring charges.......... (31) (184) (73) Corporate (a)....................................... (368) (353) (286) Bottling Operations/Investments..................... - - 53 --------- --------- --------- $ 4,021 $ 3,818 $ 3,483 ========= ========= ========= F - 35 Business Segments (continued) 2001 2000 1999 Total Assets Worldwide Snacks - Frito-Lay North America........................... $ 4,623 $ 4,282 $ 4,146 - Frito-Lay International........................... 4,381 4,352 4,425 Worldwide Beverages - Pepsi-Cola North America.......................... 1,325 836 729 - Gatorade/Tropicana North America.................. 4,328 4,143 3,927 - PepsiCo Beverages International................... 1,747 1,923 1,988 Quaker Foods North America.......................... 917 952 1,036 --------- --------- --------- Combined Segments................................... 17,321 16,488 16,251 Quaker divested businesses.......................... - - 2 Corporate (b)....................................... 1,927 1,737 1,226 Bottling Operations/Investments..................... 2,447 2,532 2,469 --------- --------- --------- $21,695 $20,757 $19,948 ========= ========= ========= Amortization of Intangible Assets Worldwide Snacks - Frito-Lay North America........................... $ 7 $ 7 $ 8 - Frito-Lay International........................... 46 46 46 Worldwide Beverages - Pepsi-Cola North America.......................... 19 2 2 - Gatorade/Tropicana North America.................. 69 68 69 - PepsiCo Beverages International................... 16 16 16 Quaker Foods North America.......................... 8 8 8 --------- --------- --------- Combined Segments................................... 165 147 149 Bottling Operations/Investments..................... - - 44 --------- --------- --------- $ 165 $ 147 $ 193 ========= ========= ========= Depreciation and Other Amortization Expense Worldwide Snacks - Frito-Lay North America........................... $ 377 $ 374 $ 345 - Frito-Lay International........................... 187 182 158 Worldwide Beverages - Pepsi-Cola North America.......................... 64 94 72 - Gatorade/Tropicana North America.................. 129 118 107 - PepsiCo Beverages International................... 99 111 104 Quaker Foods North America.......................... 43 51 53 --------- --------- --------- Combined Segments................................... 899 930 839 Corporate........................................... 18 16 10 Bottling Operations/Investments..................... - - 114 --------- --------- --------- $ 917 $ 946 $ 963 ========= ========= ========= F - 36 Business Segments (continued) 2001 2000 1999 Capital Spending Worldwide Snacks - Frito-Lay North America........................... $ 514 $ 524 $ 485 - Frito-Lay International........................... 291 278 295 Worldwide Beverages - Pepsi-Cola North America.......................... 70 59 22 - Gatorade/Tropicana North America.................. 289 261 216 - PepsiCo Beverages International................... 95 98 128 Quaker Foods North America.......................... 57 96 58 --------- --------- --------- Combined Segments................................... 1,316 1,316 1,204 Corporate........................................... 8 36 42 Bottling Operations/Investments..................... - - 95 --------- --------- --------- $ 1,324 $ 1,352 $ 1,341 ========= ========= ========= Investments in Unconsolidated Affiliates Frito-Lay International............................. $ 361 $ 373 $ 284 Pepsi-Cola North America............................ 25 32 50 Gatorade/Tropicana North America.................... 10 13 17 PepsiCo Beverages International..................... 6 6 4 Quaker Foods North America.......................... - 1 1 -------- --------- --------- Combined Segments................................... 402 425 356 Corporate........................................... 22 22 22 Bottling Operations/Investments..................... 2,447 2,532 2,469 --------- --------- --------- $ 2,871 $ 2,979 $ 2,847 ========= ========= ========= Equity Income/(Loss) and Transaction Gains/(Losses) Frito-Lay International............................. $ 32 $ 26 $ 3 Pepsi-Cola North America............................ 40 33 31 Gatorade/Tropicana North America.................... (3) - 1 PepsiCo Beverages International..................... 3 2 1 Quaker Foods North America.......................... (8) (4) - --------- --------- --------- Combined Segments................................... 64 57 36 Bottling Operations/Investments (c)................. 160 130 1,076 --------- --------- --------- $ 224 $ 187 $ 1,112 ========= ========= ========= F - 37 Business Segments (continued) 2001 2000 1999 Geographic Areas Net Sales United States....................................... $18,215 $17,051 $15,406 International....................................... 8,720 8,428 7,564 --------- --------- --------- Combined Segments................................... 26,935 25,479 22,970 Bottling Operations/Investments..................... - - 2,123 --------- --------- --------- $26,935 $25,479 $25,093 ========= ========= ========= Long-Lived Assets (d) United States....................................... $ 9,689 $ 9,285 $ 9,093 International....................................... 4,899 4,966 5,099 --------- --------- --------- Combined Segments................................... $14,588 $14,251 $14,192 ========= ========= ========= (a) Corporate expenses include unallocated corporate headquarters expenses and costs of centrally managed initiatives and insurance programs, foreign exchange transaction gains and losses and certain one-time charges.
F - 38 Note 22 - Selected Quarterly Financial Data (unaudited) 2001 First Second Third Fourth Quarter Quarter Quarter Quarter PepsiCo............................ $4,539 $5,281 Quaker............................. 1,227 1,514 Adjustments (a).................... (436) (82) -------- -------- Net sales.......................... $5,330 $6,713 $6,906 $7,986 PepsiCo............................ $2,748 $3,250 Quaker............................. 677 846 Adjustments (a).................... (240) (52) -------- -------- Gross profit....................... $3,185 $4,044 $4,178 $4,774 Merger-related costs (b)........... $ - $ - $ 235 $ 121 Quaker............................. $ 4 $ 5 Adjustments (a).................... - (1) -------- -------- Other impairment and restructuring charges (c)..................... $ 4 $ 4 $ 13 $ 10 PepsiCo............................ $ 498 $ 652 Quaker............................. 109 170 Adjustments (a).................... (37) (24) -------- -------- Net income......................... $ 570 $ 798 $ 627 $ 667 Net income per common share - basic (d)..................... $ 0.33 $ 0.45 $ 0.35 $ 0.38 Net income per common share - diluted (d)................... $ 0.32 $ 0.44 $ 0.34 $ 0.37 Cash dividends declared per common share (e)................. $ 0.14 $0.145 $0.145 $0.145 Stock price per share (f) High.......................... $49.50 $46.61 $47.99 $50.46 Low........................... $40.25 $40.90 $43.12 $45.76 Close......................... $43.85 $43.26 $47.40 $49.05 F - 39 2000 (g) First Second Third Fourth Quarter Quarter Quarter Quarter PepsiCo............................ $4,191 $4,928 $4,909 $6,410 Quaker............................. 1,172 1,398 1,475 996 Adjustments (a).................... (422) (76) 37 461 -------- -------- -------- -------- Net sales.......................... $4,941 $6,250 $6,421 $7,867 PepsiCo............................ $2,514 $3,037 $3,044 $3,900 Quaker............................. 649 761 831 512 Adjustments (a).................... (229) (45) 7 272 -------- -------- -------- -------- Gross profit....................... $2,934 $3,753 $3,882 $4,684 Quaker............................. $ 173 $ 4 $ - $ 6 Adjustments (a).................... (172) 167 6 - -------- -------- -------- -------- Other impairment and restructuring charges (c)..................... $ 1 $ 171 $ 6 $ 6 PepsiCo........................... $ 422 $ 563 $ 587 $ 611 Quaker............................ 2 151 159 48 Adjustments (a)................... 72 (120) 9 39 -------- -------- -------- ------- Net income ...................... $ 496 $ 594 $ 755 $ 698 Net income per common share - basic (d)..................... $ 0.28 $ 0.34 $ 0.43 $ 0.40 Net income per common share - diluted (d)................... $ 0.28 $ 0.33 $ 0.42 $ 0.39 Cash dividends declared per common share (e)................ $0.135 $ 0.14 $ 0.14 $ 0.14 Stock price per share (f) High.......................... $38.63 $42.50 $47.06 $49.94 Low........................... $29.69 $31.56 $39.69 $41.31 Close......................... $33.00 $41.25 $42.31 $49.56 (a) Adjustments reflect the impact of changing Quaker's fiscal calendar to conform to PepsiCo's, conforming the accounting policies of the two companies applicable to interim periods, and certain reclassifications for gross profit and other impairment and restructuring charges.
KPMG LLP New York, New York February 6, 2002 Return to Index to Financial Information F - 43 Selected Financial Data (in millions except per share amounts, unaudited) 2001(a)(b) 2000(b)(c) 1999(b)(d) Net sales............................... $26,935 $25,479 $25,093 Income from continuing operations....... $ 2,662 $ 2,543 $ 2,505 Income per common share - continuing operations - basic.................... $ 1.51 $ 1.45 $ 1.41 Income per common share - continuing operations - diluted.................. $ 1.47 $ 1.42 $ 1.38 Cash dividends declared per common share (f)...................... $ 0.575 $ 0.555 $ 0.535 Total assets............................ $21,695 $20,757 $19,948 Long-term debt.......................... $ 2,651 $ 3,009 $3,527 1998(b)(e) 1997(b)(g) Net sales............................... $27,191 $25,933 Income from continuing operations....... $ 2,278 $ 561 Income per common share - continuing operations - basic.................... $ 1.27 $ 0.30 Income per common share - continuing operations - diluted.................. $ 1.23 $ 0.30 Cash dividends declared per common share (f)...................... $ 0.515 $ 0.49 Total assets............................ $25,170 $22,798 Long-term debt.......................... $ 4,823 $ 5,834 As a result of the bottling deconsolidation in 1999 and the Tropicana acquisition late in 1998, the data provided above is not comparable.
Asset Impairment and Restructuring Charges 1999 1998 ------------------------------------------------------------------------------ Asset impairment charges ------------------------ Held and used in the business Property, plant and equipment........................ $ 8 $ 149 Intangible assets.................................... - 37 Other assets......................................... - 14 Held for disposal/abandonment Property, plant and equipment....................... 29 54 ------- ------ Total asset impairment............................ 37 254 Restructuring charges --------------------- Employee related costs................................ 19 24 Other charges......................................... 9 10 ------ ------ Total restructuring............................... 28 34 ------ ------ Total................................................. $ 65 $ 288 ====== ====== After-tax......................................... $ 40 $ 261 ====== ====== Per share......................................... $0.03 $0.17 ====== ====== Impairment by segment --------------------- Frito-Lay North America............................... $ 37 $ 54 Pepsi-Cola International.............................. - 6 ------ ------ Combined segments..................................... 37 60 Bottling operations................................... - 194 ------ ------ $ 37 $ 254 ====== ====== The 1999 asset impairment and restructuring charge of $65 million related to the closure of three plants and impairment of equipment at Frito-Lay North America.
SIGNATURE TITLE DATE /S/ ROGER A. ENRICO Roger A. Enrico A. Rogers Chairman of the Board and Chief Executive Officer March 15, 2001 /S/ INDRA K. NOOYI Indra K. Nooyi Senior Vice President and Chief Financial Officer March 15, 2001 /S/ PETER A. BRIDGMAN Peter A. Bridgman Senior Vice President and Controller (Principal Accounting Officer) March 15, 2001 /S/ JOHN F. AKERS John F. Akers Director March 15, 2001 /S/ ROBERT E. ALLEN Robert E. Allen Director March 15, 2001 /S/ PETER FOY Peter Foy Director March 15, 2001 /S/ ROBERT E. ALLEN Robert E. Allen Director March 15, 2001 /S/ RAY L. HUNT Ray L. Hunt Director March 15, 2001 S-1 /S/ ARTHUR C. MARTINEZ Arthur C. Martinez Director March 15, 2001 /S/ JOHN J. MURPHY John J. Murphy Director March 15, 2001 /S/ FRANKLIN D. RAINES Franklin D. Raines Director March 15, 2001 /S/ STEVEN S REINEMUND Steven S. Reinemund President and Chief Operating Officer and Director March 15, 2001 /S/ SHARON PERCY ROCKEFELLER Sharon Percy Rockefeller Director March 15, 2001 /S/ FRANKLIN A. THOMAS Franklin A. Thomas Director March 15, 2001 /S/ CYNTHIA M. TRUDELL Cynthia M. Trudell Director March 15, 2001 /S/ SOLOMON D. TRUJILLO Solomon D. Trujillo Director March 15, 2001 S-2 INDEX TO EXHIBITS ITEM 14(a)(3) EXHIBIT 3.1 Restated Articles of Incorporation of PepsiCo, Inc., which are incorporated herein by reference to Exhibit 3(i) to PepsiCo’s Quarterly Report on Form 10-Q for the quarterly period ended June 15, 1996.
E-2 PepsiCo, Inc. and Subsidiaries FINANCIAL INFORMATION FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K FISCAL YEAR ENDED DECEMBER 30, 2000 PEPSICO, INC. AND SUBSIDIARIES INDEX TO FINANCIAL INFORMATION Item 14(a)(1) Page Reference --------- Item 14(a)(1) Financial Statements Consolidated Statement of Income for the fiscal years ended December 30, 2000, December 25, 1999 and December 26, 1998.......................................... Consolidated Statement of Cash Flows for the fiscal years ended December 30, 2000, December 25, 1999 and December 26, 1998.......................................... - Consolidated Balance Sheet at December 30, 2000 and December 25, 1999.............. Consolidated Statement of Shareholders' Equity for the fiscal years ended December 30, 2000, December 25, 1999 and December 26, 1998....................... - Notes to Consolidated Financial Statements......................................... - Management's Responsibility for Financial Statements............................... Report of Independent Auditors, KPMG LLP...........................................
Consolidated Statement of Income (in millions except per share amounts) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 30, 2000, December 25, 1999 and December 26, 1998 2000 1999 1998 ----------------------------------------------------------------------------------------------- Net Sales New PepsiCo............................................ $20,438 $18,244 $14,686 Bottling operations.................................... - 2,123 7,662 -------- -------- -------- Total Net Sales........................................ 20,438 20,367 22,348 Costs and Expenses Cost of sales.......................................... 7,943 8,198 9,330 Selling, general and administrative expenses........... 9,132 9,103 9,924 Amortization of intangible assets...................... 138 183 222 Impairment and restructuring charges................... - 65 288 -------- -------- -------- Total Costs and Expenses............................... 17,213 17,549 19,764 Operating Profit New PepsiCo............................................ 3,225 2,765 2,460 Bottling operations and equity investments............. - 53 124 -------- -------- -------- Total Operating Profit................................. 3,225 2,818 2,584 Bottling equity income, net............................ 130 83 - Gain on bottling transactions.......................... - 1,000 - Interest expense....................................... (221) (363) (395) Interest income........................................ 76 118 74 -------- -------- -------- Income Before Income Taxes ............................ 3,210 3,656 2,263 Provision for Income Taxes............................. 1,027 1,606 270 -------- -------- -------- Net Income ............................................ $ 2,183 $ 2,050 $ 1,993 ======== ======== ======== Net Income Per Share - Basic $ 1.51 $ 1.40 $ 1.35 Average shares outstanding - basic..................... 1,446 1,466 1,480 Net Income Per Share - Assuming Dilution............... $ 1.48 $ 1.37 $ 1.31 Average shares outstanding - assuming dilution......... 1,475 1,496 1,519 ----------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Cash Flows (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 30, 2000, December 25, 1999 and December 26, 1998 2000 1999 1998 ----------------------------------------------------------------------------------------------- Operating Activities Net income.................................................. $ 2,183 $ 2,050 $ 1,993 Adjustments to reconcile net income to net cash provided by operating activities Gain on bottling transactions............................. - (1,000) - Bottling equity income, net............................... (130) (83) - Depreciation and amortization............................. 960 1,032 1,234 Noncash portion of income tax benefit..................... - - (259) Noncash portion of impairment and restructuring charges... - 37 254 Deferred income taxes..................................... 63 529 150 Other noncash charges and credits, net.................... 317 364 237 Changes in operating working capital, excluding effects of acquisitions and dispositions Accounts and notes receivable......................... (15) (149) (104) Inventories........................................... (26) (186) 29 Prepaid expenses and other current assets............. - (203) (12) Accounts payable and other current liabilities........ 245 310 (195) Income taxes payable.................................. 314 326 (116) -------- -------- -------- Net change in operating working capital................... 518 98 (398) -------- -------- -------- Net Cash Provided by Operating Activities................... 3,911 3,027 3,211 -------- -------- -------- Investing Activities Capital spending............................................ (1,067) (1,118) (1,405) Acquisitions and investments in unconsolidated affiliates... (98) (430) (4,537) Sales of businesses......................................... 33 499 17 Sales of property, plant and equipment...................... 53 126 134 Short-term investments, by original maturity More than three months-purchases.......................... (4,536) (2,025) (525) More than three months-maturities......................... 4,171 2,008 584 Three months or less, net................................. (9) 12 839 Other, net.................................................. (260) (144) (126) -------- -------- -------- Net Cash Used for Investing Activities...................... (1,713) (1,072) (5,019) -------- -------- -------- ----------------------------------------------------------------------------------------------- (Continued on following page) Consolidated Statement of Cash Flows (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 30, 2000, December 25, 1999 and December 26, 1998 2000 1999 1998 ----------------------------------------------------------------------------------------------- Financing Activities Proceeds from issuances of long-term debt.................... 130 3,480 990 Payments of long-term debt................................... (795) (1,123) (2,277) Short-term borrowings, by original maturity More than three months-proceeds............................ 156 3,691 2,713 More than three months-payments............................ (79) (2,741) (417) Three months or less, net.................................. (43) (2,856) 1,753 Cash dividends paid.......................................... (796) (778) (757) Share repurchases............................................ (1,430) (1,285) (2,230) Proceeds from exercises of stock options..................... 559 308 415 -------- -------- -------- Net Cash (Used for) Provided by Financing Activities......... (2,298) (1,304) 190 -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents.
- 2 1 -------- -------- -------- Net (Decrease) Increase in Cash and Cash Equivalents......... (100) 653 (1,617) Cash and Cash Equivalents - Beginning of Year................ 964 311 1,928 -------- -------- -------- Cash and Cash Equivalents - End of Year...................... $ 864 $ 964 $ 311 ======== ======== ======== ----------------------------------------------------------------------------------------------- Supplemental Cash Flow Information Interest paid................................................ $ 170 $ 321 $ 367 Income taxes paid............................................ $ 691 525 $ 521 Schedule of Noncash Investing and Financing Activities Fair value of assets acquired................................ $ 80 717 $ 5,359 Cash paid and stock issued................................... (98) (438) (4,537) ---------- -------- -------- -------- Liabilities assumed.......................................... $ (18) $ 279 $ 822 ======== ======== ======== ----------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements.
Consolidated Balance Sheet (in millions except per share amount) PepsiCo, Inc. and Subsidiaries December 30, 2000 and December 25, 1999 2000 1999 --------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents..................................... $ 864 $ 964 Short-term investments, at cost............................... 466 92 -------- -------- 1,330 1,056 Accounts and notes receivable, net............................ 1,799 1,704 Inventories................................................... 905 899 Prepaid expenses and other current assets..................... 570 514 -------- -------- Total Current Assets....................................... 4,604 4,173 Property, Plant and Equipment, net............................ 5,438 5,266 Intangible Assets, net........................................ 4,485 4,735 Investments in Unconsolidated Affiliates...................... 2,978 2,846 Other Assets.................................................. 834 531 -------- -------- Total Assets............................................. $18,339 $17,551 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings......................................... $ 72 $ 233 Accounts payable and other current liabilities................ 3,815 3,399 Income taxes payable.......................................... 48 156 -------- -------- Total Current Liabilities.................................. 3,935 3,788 Long-Term Debt................................................ 2,346 2,812 Other Liabilities............................................. 3,448 2,861 Deferred Income Taxes......................................... 1,361 1,209 Shareholders' Equity Capital stock, par value 1 2/3(cent)per share: authorized 3,600 shares, issued 1,726 shares................. 29 29 Capital in excess of par value................................ 955 1,081 Retained earnings............................................. 15,448 14,066 Accumulated other comprehensive loss.......................... (1,263) (989) -------- -------- 15,169 14,187 Less: repurchased shares, at cost: 280 shares and 271 shares, respectively...................... (7,920) (7,306) -------- -------- Total Shareholders' Equity................................. 7,249 6,881 -------- -------- Total Liabilities and Shareholders' Equity.............. $18,339 $17,551 ======== ======== ----------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Shareholders’ Equity (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 30, 2000, December 25, 1999 and December 26, 1998 Capital Stock ------------------------------------------------ Net Out- Issued Repurchased standing ----------------- ----------------- Shares Amount Shares Amount Shares ----------------------------------------------------------------------------------------------- Shareholders' Equity, December 27, 1997..... 1,726 $29 (224) $(4,986) 1,502 ----------------------------------------------- 1998 Net income............................ - - - - - Currency translation adjustment............ - - - - - CTA reclassification adjustment............ - - - - - Minimum pension liability adjustment, net of tax benefit of $11................. - - - - - Comprehensive income.................... Cash dividends declared.................... - - - - - Share repurchases.......................... - - (59) (2,230) (59) Stock option exercises, including tax benefit of $109....................... - - 28 675 28 Other...................................... - - - 6 - ----------------------------------------------- Shareholders' Equity, December 26, 1998..... 1,726 29 (255) (6,535) 1,471 ----------------------------------------------- 1999 Net income............................ - - - - - Currency translation adjustment............ - - - - - CTA reclassification adjustment............ - - - - - Minimum pension liability adjustment, net of tax of $9.......................... - - - - - Other comprehensive income................. - - - - - Comprehensive income..................... Cash dividends declared.................... - - - - - Share repurchases.......................... - - (36) (1,285) (36) Stock option exercises, including tax benefit of $82........................ - - 20 514 20 Other...................................... - - - - - ----------------------------------------------- Shareholders' Equity, December 25, 1999..... 1,726 29 (271) (7,306) 1,455 ----------------------------------------------- 2000 Net income............................ - - - - - Currency translation adjustment............ - - - - - Minimum pension liability adjustment, net of tax benefit of $1.................. - - - - - Other comprehensive income................. - - - - - Comprehensive income..................... Cash dividends declared.................... - - - - - Share repurchases.......................... - - (38) (1,430) (38) Stock option exercises, including tax benefit of $131....................... - - 29 816 29 ----------------------------------------------- Shareholders' Equity, December 30, 2000..... 1,726 $29 (280) $(7,920) 1,446 =============================================== ----------------------------------------------------------------------------------------------- (Continued on following page) Consolidated Statement of Shareholders’ Equity (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 30, 2000, December 25, 1999 and December 26, 1998 Capital Accumulated Total in Other Currency Excess of Retained Comprehensive Translation Par Value Earnings Loss Total Adjustment ----------------------------------------------------------------------------------------------- Shareholders' Equity, December 27, 1997.. $1,314 $11,567 $ (988) $ 6,936 $ (988) -------------------------------------------------- 1998 Net income......................... - 1,993 - 1,993 Currency translation adjustment......... - - (75) (75) (75) CTA reclassification adjustment......... - - 24 24 24 Minimum pension liability adjustment, net of tax benefit of $11.............. - - (20) (20) -------- Comprehensive income.................. 1,922 Cash dividends declared................. - (760) - (760) Share repurchases....................... - - - (2,230) Stock option exercises, including tax benefit of $109.................... (151) - - 524 Other................................... 3 - - 9 -------------------------------------------------- Shareholders' Equity, December 26, 1998.. 1,166 12,800 (1,059) 6,401 (1,039) -------------------------------------------------- 1999 Net income......................... - 2,050 - 2,050 Currency translation adjustment......... - - (121) (121) (121) CTA reclassification adjustment......... - - 175 175 175 Minimum pension liability adjustment, net of tax of $9....................... - - 17 17 Other comprehensive income.............. - - (1) (1) -------- Comprehensive income.................. 2,120 Cash dividends declared................. - (784) - (784) Share repurchases....................... - - - (1,285) Stock option exercises, including tax benefit of $82..................... (131) - - 383 Other................................... 46 - - 46 -------------------------------------------------- Shareholders' Equity, December 25, 1999.. 1,081 14,066 (989) 6,881 (985) -------------------------------------------------- 2000 Net income......................... - 2,183 - 2,183 Currency translation adjustment......... - - (273) (273) (273) Minimum pension liability adjustment, net of tax benefit of $1............... - - (2) (2) Other comprehensive income.............. - - 1 1 -------- Comprehensive income.................. 1,909 Cash dividends declared................. - (801) - (801) Share repurchases....................... - - - (1,430) Stock option exercises, including tax benefit of $131.................... (126) - - 690 -------------------------------------------------- Shareholders' Equity, December 30, 2000.. $ 955 $15,448 $(1,263) $ 7,249 $(1,258) ================================================== ----------------------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements.
PepsiAmericas (formerly Whitman) PepsiAmericas' summarized full year 2000 and 1999 financial information is as follows: 2000 1999 ------------------------------------------------------------------- Current assets............... $ 477 $ 538 Noncurrent assets............ 2,859 2,326 ------- ------- Total assets................ $3,336 $2,864 ======= ======= Current liabilities.......... $ 887 $ 739 Noncurrent liabilities....... 999 983 ------- ------- Total liabilities........... $1,886 $1,722 ======= ======= Our equity investment........ $ 741 $ 668 ======= ======= 2000 1999 --------------------------------------------------------------------------- Net sales.................................. $2,528 $2,138 Gross profit............................... $1,033 $ 890 Operating profit........................... $ 223 $ 182 Income from continuing operations.......... $ 72 $ 43 Net income (loss).......................... $ 80 $ (9) The above financial information for 2000 includes the results of the former PepsiAmericas after the date of the merger with Whitman.
2000 1999 ------------------------------------------------------------------------ Current assets......................... $1,033 $1,210 Noncurrent assets...................... 2,200 2,568 ------- ------- Total assets.......................... $3,233 $3,778 ======= ======= Current liabilities.................... $ 972 $1,214 Noncurrent liabilities................. 578 673 Minority interest...................... 35 41 ------- ------- Total liabilities..................... $1,585 $1,928 ======= ======= Our related equity investments......... $1,030 $1,054 ======= ======= 2000 1999 1998 ---------------------------------------------------------------------------------------- Net sales.............................. $4,714 $3,754 $3,088 Gross profit........................... $2,066 $1,691 $1,356 Operating profit....................... $ 254 $ 89 $ 101 Net income (loss)...................... $ 79 $ (10) $ 22 Related Party Transactions Our significant related party transactions involve our investments in unconsolidated bottling affiliates.
Note 4 - Asset Impairment and Restructuring 1999 1998 -------------------------------------------------------------------------------- Asset impairment charges ------------------------ Held and used in the business Property, plant and equipment...................... $ 8 $ 149 Intangible assets.................................. - 37 Other assets....................................... - 14 Held for disposal/abandonment Property, plant and equipment...................... 29 54 ------ ------ Total asset impairment........................... 37 254 Restructuring charges Employee related costs.............................. 19 24 Other charges....................................... 9 10 ------ ------ Total restructuring.............................. 28 34 ------ ------ Total............................................... $ 65 $ 288 ====== ====== After-tax........................................ $ 40 $ 261 ====== ====== Per share........................................ $0.03 $0.17 ====== ====== Impairment by segment Frito-Lay North America............................. $ 37 $ 54 Pepsi-Cola International............................ - 6 ------ ------ Combined segments................................... 37 60 Bottling operations................................. - 194 ------ ------ $ 37 $ 254 ====== ====== The 1999 asset impairment and restructuring charge of $65 million related to the closure of three plants and impairment of equipment at Frito-Lay North America.
The following reconciles shares outstanding at the beginning of the year to average shares outstanding: 2000 1999 1998 ----------------------------------------------------------------------------------------------- Shares outstanding at beginning of year................... 1,455 1,471 1,502 Weighted average shares issued during the year for exercise of stock options................................ 16 11 18 Weighted average shares repurchased....................... (25) (16) (40) ------- ------- ------- Average shares outstanding - basic........................ 1,446 1,466 1,480 Effect of dilutive securities Dilutive shares contingently issuable upon the exercise of stock options........................................ 146 132 144 Shares assumed purchased with proceeds from exercise of stock options............................... (117) (102) (105) ------- ------- ------- Average shares outstanding - assuming dilution............ 1,475 1,496 1,519 ======= ======= ======= Net income per share - assuming dilution excludes incremental shares of 0.1 million in 2000, 48.9 million in 1999 and 31.1 million in 1998 related to employee stock options due to their antidilutive effect at each respective year end.
Note 10 - Accounts Payable and Other Current Liabilities 2000 1999 ------------------------------------------------------------------------------------------- Accounts payable.................................................. $1,000 $ 924 Accrued selling, advertising and marketing........................ 859 706 Accrued compensation and benefits................................. 673 602 Insurance accruals................................................ 210 86 Dividends payable................................................. 202 197 Other current liabilities......................................... 871 884 ------- ------- $3,815 $3,399 ======= ======= Note 11 - Short-Term Borrowings and Long-Term Debt 2000 1999 ---------------------------------------------------------------------------------------------- Short-Term Borrowings Current maturities of long-term debt.............................. $ 404 $ 718 Other borrowings (7.2% and 6.9%).................................. 418 415 Amounts reclassified to long-term debt............................ (750) (900) ------- ------- $ 72 $233 ======= ======= Long-Term Debt Short-term borrowings, reclassified............................... $ 750 $ 900 Notes due 2001-2013 (6.2% and 6.1%)............................... 1,236 1,685 Various foreign currency debt, due 2001 (6.5% and 6.1%)........... 219 341 Zero coupon notes, $735 million due 2011-2012 (13.4%)............. 339 324 Other, due 2001-2026 (7.8% and 7.3%).............................. 206 280 ------- ------- 2,750 3,530 Less current maturities of long-term debt......................... (404) (718) ------- ------- $2,346 $2,812 ======= ======= The weighted average interest rates in the above table include the effects of associated interest rate and currency swaps at year-end 2000 and 1999.
Fair Value Carrying amounts and fair values of our financial instruments: 2000 1999 ----------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- ------- --------- ------- Assets Cash and cash equivalents.................... $ 864 $ 864 $ 964 $ 964 Short-term investments....................... $ 466 $ 466 $ 92 $ 92 Equity derivative contracts.................. $ 66 66 $ 47 47 Liabilities Forward exchange contracts $ 9 $ 9 $ - $ - Debt Short-term borrowings and long-term debt, excluding capital leases.... $2,415 $2,556 $3,042 $3,121 Debt-related derivative instruments Interest rate swaps in asset position....... - (10) - - Interest rate swaps in liability position... - 5 - 29 Combined currency and interest rate swaps in liability position................ 43 46 62 57 ------- ------- ------- ------- Net debt.................................. $2,458 $2,597 $3,104 $3,207 ======= ======= ======= ======= The above carrying amounts are included in the Consolidated Balance Sheet under the indicated captions, except for combined currency and interest rate swaps, which are included in the appropriate current or noncurrent asset or liability caption.
Note 13 - Income Taxes U.S. and foreign income before income taxes: 2000 1999 1998 ------------------------------------------------------------------------- U.S......................... $2,126 $2,771 $1,629 Foreign..................... 1,084 885 634 ------- ------- ------- $3,210 $3,656 $2,263 ======= ======= ======= Provision for income taxes: 2000 1999 1998 ------------------------------------------------------------------------- Current: Federal......... $ 771 $ 730 $ (193) Foreign......... 157 306 267 State........... 36 40 46 ------- ------- ------- 964 1,076 120 ------- ------- ------- Deferred: Federal......... 60 519 136 Foreign......... (10) (12) 4 State........... 13 23 10 ------- ------- ------- 63 530 150 ------- ------- ------- $1,027 $1,606 $ 270 ======= ======= ======= Reconciliation of the U.S. Federal statutory tax rate to our effective tax rate: 2000 1999 1998 ---------------------------------------------------------------------------------------- U.S. Federal statutory tax rate.................... 35.0% 35.0% 35.0% State income tax, net of Federal tax benefit....... 1.0 1.1 1.6 Lower taxes on foreign results..................... (3.0) (2.7) (3.0) Settlement of prior years' audit issues............ - - (5.7) Puerto Rico settlement............................. - - (21.8) Bottling transactions.............................. - 10.6 - Asset impairment and restructuring................. - - 3.4 Other, net......................................... (1.0) (0.1) 2.4 ----- ----- ------ Effective tax rate ................................ 32.0% 43.9% 11.9% ===== ===== ====== In 1998, we reached final agreement with the IRS to settle substantially all remaining aspects of a tax case related to our concentrate operations in Puerto Rico.
Deferred tax liabilities (assets): 2000 1999 ---------------------------------------------------------------------------------------- Investments in unconsolidated affiliates................ $ 672 $ 667 Property, plant and equipment........................... 576 545 Safe harbor leases...................................... 94 101 Zero coupon notes....................................... 73 76 Intangible assets other than nondeductible goodwill..... 54 47 Other................................................... 404 328 -------- -------- Gross deferred tax liabilities.......................... 1,873 1,764 -------- -------- Net operating loss carryforwards........................ (443) (450) Postretirement benefits................................. (187) (179) Various current liabilities and other................... (640) (626) -------- -------- Gross deferred tax assets............................... (1,270) (1,255) Deferred tax asset valuation allowances................. 464 461 -------- -------- Deferred tax assets, net of valuation allowances........ (806) (794) -------- -------- Net deferred tax liabilities............................ $ 1,067 $ 970 ======== ======== Included in: Prepaid expenses and other current assets.............. $ (294) $ (239) Deferred income taxes.................................. 1,361 1,209 -------- -------- $ 1,067 $ 970 ======== ======== Net operating loss carryforwards totaling $2.9 billion at year-end 2000 are being carried forward and are available to reduce future taxable income of certain subsidiaries in a number of foreign and state jurisdictions.
Stock option activity: (Options in thousands) 2000 1999 1998 ----------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------------------------------- -------- ------------------ Outstanding at beginning of year.............. 163,383 $26.90 146,991 $23.28 146,329 $18.95 Granted....................... 23,111 34.42 44,017 35.04 34,906 36.33 Exercised..................... (29,546) 18.90 (19,646) 15.68 (28,076) 15.31 Surrendered for PSUs.......... - - - - (24) 37.46 Forfeited/expired............. (9,141) 34.48 (7,979) 33.34 (6,144) 28.83 -------- -------- -------- Outstanding at end of year.................... 147,807 29.13 163,383 26.90 146,991 23.28 ======== ======== ======== Exercisable at end of year (a).. 62,656 $21.72 75,045 $18.98 82,692 $16.74 ======== ======== ======== ----------------------------------------------------------------------------------------------- Weighted average fair value of options granted during the year................ $11.85 $10.43 $ 9.82 ----------------------------------------------------------------------------------------------- (a) In connection with the 1999 bottling transactions, substantially all non-vested PepsiCo capital stock options held by bottling employees vested.
$ 9.67 5,936 $ 9.67 $14.20 to $32.25 72,282 5.26 24.43 48,380 20.93 $32.40 to $47.00 69,585 7.92 35.95 8,340 34.94 ------- ------- 147,807 6.32 29.13 62,656 21.72 ======= ======= Pro forma income and pro forma income per share, as if we had recorded compensation expense based on fair value for stock-based awards: 2000 1999 1998 ------------------------------------------------------------------------------------ Reported Net income............................... $2,183 $2,050 $1,993 Income per share - basic................. $ 1.51 $ 1.40 $ 1.35 Income per share - assuming dilution..... $ 1.48 $ 1.37 $ 1.31 Pro Forma Net income............................... $2,000 $1,904 $1,888 Income per share - basic................. $ 1.38 $ 1.30 $ 1.28 Income per share - assuming dilution $ 1.36 $ 1.27 $ 1.24 ------------------------------------------------------------------------------------ The pro forma amounts disclosed above are not fully representative of the effects of stock-based awards because, except for the impact resulting from the bottling transactions, the amounts exclude the pro forma cost related to the unvested stock options granted before 1995.
Components of net periodic benefit cost: 2000 1999 1998 ----------------------------------------------------------------------------------------------- Pension ----------------------------------- Service cost........................................... $ 92 $ 99 $ 95 Interest cost.......................................... 138 128 136 Expected return on plan assets......................... (151) (156) (169) Amortization of transition asset....................... (2) (2) (9) Amortization of prior service amendments............... 6 8 12 Amortization of net loss............................... 6 15 5 ------ ------ ------ Net periodic benefit cost.............................. 89 92 70 Curtailment/settlement loss............................ - 52 9 Special termination benefits........................... - 10 4 ------ ------ ------ Net periodic benefit cost including curtailments/ settlements and special termination benefits.......... $ 89 $ 154 $ 83 ====== ====== ====== Components of net periodic benefit cost: 2000 1999 1998 ---------------------------------------------------------------------------------------------- Postretirement --------------------------------- Service cost........................................... $ 16 $ 16 $ 16 Interest cost.......................................... 37 35 39 Amortization of prior service amendments............... (12) (14) (18) Amortization of net gain............................... (1) (1) (2) ------ ------ ------ Net periodic benefit cost.............................. 40 36 35 Special termination benefits........................... - 3 1 ------ ------ ------ Net periodic benefit cost including special termination benefits.......................... $ 40 $ 39 $ 36 ====== ====== ====== Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits.
Change in benefit obligation: 2000 1999 2000 1999 -------------------------------------------------------------------------------------------- Pension Postretirement -------------------- ------------------ Obligation at beginning of year......... $1,872 $2,479 $468 $ 644 Service cost............................ 92 99 16 16 Interest cost........................... 138 128 37 35 Plan amendments......................... 3 1 - - Participant contributions............... 5 6 - - Actuarial (gain)/loss................... (28) 3 27 6 Acquisitions/(divestitures)............. 3 (717) - (205) Benefit payments........................ (104) (134) (25) (31) Special termination benefits............ - 10 - 3 Foreign currency adjustment............. (28) (3) - - ------- ------- ----- ------ Obligation at end of year............... $1,953 $1,872 $523 $ 468 ======= ======= ===== ====== Change in fair value of plan assets: 2000 1999 2000 1999 ----------------------------------------------------------------------------------------- Pension Postretirement ------------------- --------------- Fair value at beginning of year.......... $1,615 $2,045 $ - $ - Actual return on plan assets............. 285 343 - - Acquisitions/(divestitures).............. 14 (659) - - Employer contributions................... 92 17 25 31 Participant contributions................ 5 6 - - Benefit payments......................... (104) (134) (25) (31) Foreign currency adjustment.............. (30) (3) - - ------- -------- ----- ----- Fair value at end of year................ $1,877 $ 1,615 $ - $ - ======= ======== ===== ===== In 1999, as a result of the bottling transactions, $717 million of pension benefit obligation and $205 million of postretirement benefit obligation were assumed by bottling affiliates.
Selected information for plans with accumulated benefit obligation in excess of plan assets: 2000 1999 2000 1999 --------------------------------------------------------------------------------------- Pension Postretirement ------------------ -------------------- Projected benefit obligation........... $(208) $(780) $(523) $(468) Accumulated benefit obligation......... $(101) $(586) $(523) $(468) Fair value of plan assets.............. $ 9 $ 500 $ - $ - Funded status as recognized in the Consolidated Balance Sheet: 2000 1999 2000 1999 --------------------------------------------------------------------------------------- Pension Postretirement ------------------ ------------------- Funded status at end of year........... $ (76) $(257) $(523) $(468) Unrecognized prior service cost........ 30 34 (21) (33) Unrecognized (gain)/loss............... (121) 61 50 14 Unrecognized transition asset.......... (1) (3) - - ------ ------ ------ ------ Net amounts recognized................. $(168) $(165) $(494) $(487) ====== ====== ====== ====== Net amounts as recognized in the consolidated balance sheet: 2000 1999 2000 1999 --------------------------------------------------------------------------------------- Pension Postretirement ----------------- ------------------ Prepaid benefit cost................... $ 115 $ 117 $ - $ - Intangible assets...................... 1 - - - Accrued benefit liability.............. (292) (287) (494) (487) Accumulated other comprehensive income.
BUSINESS SEGMENTS 2000 1999 1998 ----------------------------------------------------------------------------------- Net Sales ---------------------------------------- Frito-Lay - North America...................... $ 8,562 $ 7,865 $ 7,474 - International...................... 4,319 3,750 3,501 Pepsi-Cola - North America...................... 3,289 2,605 1,389 - International...................... 1,842 1,771 1,600 Tropicana............................ 2,426 2,253 722 -------- -------- -------- New PepsiCo.......................... 20,438 18,244 14,686 Bottling operations/investments...... - 2,123 7,662 -------- -------- -------- $20,438 $20,367 $22,348 ======== ======== ======== BUSINESS SEGMENTS (continued) 2000 1999 1998 -------------------------------------------------------------------------------- Operating Profit (a) ----------------------------------- Frito-Lay - North America...................... $1,851 $1,580 $1,424 - International...................... 493 406 367 Pepsi-Cola - North America...................... 833 751 732 - International...................... 148 108 99 Tropicana............................ 225 170 40 ------- ------- ------- Combined segments.................... 3,550 3,015 2,662 Corporate (b)........................ (325) (250) (202) ------- ------- ------- New PepsiCo.......................... 3,225 2,765 2,460 Bottling operations/investments...... - 53 124 ------- ------- ------- $3,225 $2,818 $2,584 ======= ======= ======= ------------------------------------------------------------------------------- Total Assets ----------------------------------- Frito-Lay - North America...................... $ 4,119 $ 4,013 $ 3,915 - International...................... 4,085 4,170 4,039 Pepsi-Cola - North America...................... 836 729 547 - International...................... 1,432 1,454 1,177 Tropicana............................ 3,743 3,708 3,661 -------- -------- -------- Combined segments.................... 14,215 14,074 13,339 Corporate (c)........................ 1,592 1,008 215 Bottling operations/investments...... 2,532 2,469 9,106 -------- -------- -------- $18,339 $17,551 $22,660 ======== ======== ======== ------------------------------------------------------------------------------- Amortization of Intangible Assets ------------------------------------ Frito-Lay - North America...................... $ 7 $ 8 $ 7 - International...................... 46 46 43 Pepsi-Cola - North America...................... 2 2 3 - International...................... 14 13 8 Tropicana............................ 69 70 22 -------- -------- -------- Combined segments.................... 138 139 83 Bottling operations/investments...... - 44 139 -------- -------- -------- $ 138 $ 183 $ 222 ======== ======== ======== BUSINESS SEGMENTS (continued) 2000 1999 1998 ------------------------------------------------------------------------------- Depreciation and Other Amortization Expense -------------------------------------- Frito-Lay - North America...................... $ 366 $ 338 $ 326 - International...................... 172 149 142 Pepsi-Cola - North America...................... 94 72 30 - International...................... 91 85 64 Tropicana............................ 83 81 27 -------- -------- -------- Combined segments.................... 806 725 589 Corporate............................ 16 10 8 Bottling operations/investments...... - 114 415 -------- -------- -------- $ 822 $ 849 $ 1,012 ======== ======== ======== ------------------------------------------------------------------------------- Significant Other Noncash Items (d) -------------------------------------- Frito-Lay North America.............. $ 37 $ 54 Pepsi-Cola International............. - 6 -------- -------- Combined segments.................... 37 60 Bottling operations/investments...... - 194 -------- -------- $ 37 $ 254 ======== ======== ------------------------------------------------------------------------------- Capital Spending -------------------------------------- Frito-Lay - North America...................... $ 502 $ 472 $ 402 - International...................... 264 282 314 Pepsi-Cola - North America...................... 59 22 21 - International...................... 72 82 46 Tropicana............................ 134 123 50 -------- -------- -------- Combined segments.................... 1,031 981 833 Corporate............................ 36 42 29 Bottling operations/investments...... - 95 543 -------- -------- -------- $ 1,067 $ 1,118 $ 1,405 ======== ======== ======== BUSINESS SEGMENTS (continued) 2000 1999 1998 ------------------------------------------------------------------------------- Investments in Unconsolidated Affiliates ------------------------------------- Frito-Lay International.............. $ 373 $ 284 $ 341 Pepsi-Cola North America............. 32 50 33 Tropicana............................ 19 21 22 -------- -------- -------- Combined segments.................... 424 355 396 Corporate............................ 22 22 22 Bottling operations/investments...... 2,532 2,469 978 -------- -------- -------- $ 2,978 $ 2,846 $ 1,396 ======== ======== ======== ------------------------------------------------------------------------------- Equity Income/(Loss) from Unconsolidated Affiliates ------------------------------------- Frito-Lay International.............. $ 26 $ 3 $ (5) Pepsi-Cola North America............. 33 31 21 Tropicana............................ 2 2 1 -------- -------- -------- Combined segments.................... 61 36 17 Bottling operations/investments...... 130 76 8 -------- -------- -------- $ 191 $ 112 $ 25 ======== ======== ======== GEOGRAPHIC AREAS ------------------------------------------------------------------------------- Net Sales ------------------------------------- United States........................ $13,179 $11,772 $ 8,782 International........................ 7,259 6,472 5,904 -------- -------- -------- Combined segments.................... 20,438 18,244 14,686 Bottling operations/investments...... - 2,123 7,662 -------- -------- -------- $20,438 $20,367 $22,348 ======== ======== ======== ------------------------------------------------------------------------------- Long-Lived Assets (e) ------------------------------------- United States........................ $ 8,179 $ 7,980 $ 6,732 International........................ 4,722 4,867 4,276 Combined segments.................... 12,901 12,847 11,008 Bottling operations/investments...... - - 6,702 -------- -------- -------- $12,901 $12,847 $17,710 ======== ======== ======== ----------------------------------------------------------------------------------------------- (a) Includes asset impairment and restructuring charges.
Note 18 - Selected Quarterly Financial Data (unaudited) First Quarter (a) (12 Weeks) 2000 1999 -------------------------------------------------------------------------------- Net sales........................................... $ 4,191 5,114 Gross profit........................................ $ 2,514 2,974 Asset impairment and restructuring charges (b)...... $ - 65 Gain on bottling transactions (c)................... $ - - Net income (d)...................................... $ 422 333 Net income per share - basic........................ $ 0.29 0.23 Net income per share - assuming dilution............ $ 0.29 0.22 Cash dividends declared per share $ 0.135 0.13 Stock price per share (e) High.............................................. $ 38 5/8 42 9/16 Low............................................... $29 11/16 36 3/16 Close............................................. $ 33 39 15/16 -------------------------------------------------------------------------------- Second Quarter (a) (12 Weeks) 2000 1999 -------------------------------------------------------------------------------- Net sales........................................... $ 4,928 4,982 Gross profit........................................ $ 3,037 2,970 Asset impairment and restructuring charges (b)...... $ - - Gain on bottling transactions (c)................... $ - 1,000 Net income (d)...................................... $ 563 743 Net income per share - basic........................ $ 0.39 0.50 Net income per share - assuming dilution............ $ 0.38 0.49 Cash dividends declared per share $ 0.14 0.135 Stock price per share (e) High.............................................. $ 42 1/2 41 7/16 Low............................................... $ 31 9/16 34 1/16 Close............................................. $ 41 1/4 35 3/8 -------------------------------------------------------------------------------- Third Quarter (a) (12 Weeks) 2000 1999 -------------------------------------------------------------------------------- Net sales........................................... $ 4,909 4,591 Gross profit........................................ $ 3,044 2,798 Asset impairment and restructuring charges (b)...... $ - - Gain on bottling transactions (c)................... $ - - Net income (d)...................................... $ 587 484 Net income per share - basic........................ $ 0.41 0.33 Net income per share - assuming dilution............ $ 0.40 0.32 Cash dividends declared per share $ 0.14 0.135 Stock price per share (e) High.............................................. $ 47 1/16 41 1/2 Low............................................... $39 11/16 33 3/8 Close............................................. $ 42 5/16 34 5/8 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Fourth Quarter (f) (17 Weeks) (16 Weeks) 2000 1999 -------------------------------------------------------------------------------- Net sales........................................... $ 6,410 5,680 Gross profit........................................ $ 3,900 3,427 Asset impairment and restructuring charges (b)...... $ - - Gain on bottling transactions (c)................... $ - - Net income (d)...................................... $ 611 490 Net income per share - basic........................ $ 0.42 0.34 Net income per share - assuming dilution............ $ 0.41 0.33 Cash dividends declared per share $ 0.14 0.135 Stock price per share (e) High.............................................. $49 15/16 37 3/4 Low............................................... $ 41 5/16 30 1/8 Close............................................. $ 49 9/16 35 7/16 -------------------------------------------------------------------------------- Full Year (a) (f) (53 Weeks) (52 Weeks) 2000 1999 -------------------------------------------------------------------------------- Net sales........................................... $ 20,438 20,367 Gross profit........................................ $ 12,495 12,169 Asset impairment and restructuring charges (b)...... $ - 65 Gain on bottling transactions (c)................... $ - 1,000 Net income (d)...................................... $ 2,183 2,050 Net income per share - basic........................ $ 1.51 1.40 Net income per share - assuming dilution............ $ 1.48 1.37 Cash dividends declared per share $ 0.555 0.535 Stock price per share (e) High.............................................. $49 15/16 42 9/16 Low............................................... $29 11/16 30 1/8 Close............................................. $ 49 9/16 35 7/16 ----------------------------------------------------------------------------------------------- (a) 1999 includes the operating results of deconsolidated bottling operations through their respective closing dates (see Note 2).
KPMG LLP New York, New York February 2, 2001 Selected Financial Data (in millions except per share amounts, unaudited) PepsiCo, Inc. and Subsidiaries 2000(a) 1999(b)(c) 1998(c)(d) -------------------------------------------------------------------------------------------- Net sales.......................................... $20,438 20,367 22,348 Income from continuing operations.................. $ 2,183 2,050 1,993 Income per share - continuing operations - basic... $ 1.51 1.40 1.35 Income per share - continuing operations - assuming dilution............................... $ 1.48 1.37 1.31 Cash dividends declared per share.................. $ 0.555 0.535 0.515 Total assets (e)................................... $18,339 17,551 22,660 Long-term debt..................................... $ 2,346 2,812 4,028 ---------------------------------------------------------------------------- 1997(c) 1996(c) ---------------------------------------------------------------------------- Net sales.......................................... $20,917 20,337 Income from continuing operations.................. $ 1,491 942 Income per share - continuing operations - basic... $ 0.98 0.60 Income per share - continuing operations - assuming dilution............................... $ 0.95 0.59 Cash dividends per share........................... $ 0.49 0.445 Total assets (e)................................... $20,101 22,160 Long-term debt..................................... $ 4,946 8,174 As a result of the bottling deconsolidation in 1999 and the Tropicana acquisition late in 1998, the data provided above is not comparable (see Note 1).
- - 21 Net assets of business units............. - - 63 ----- ----- ----- Total asset impairment................ 37 254 200 Restructuring charges - --------------------- Employee related costs...................... 19 24 55 Other charges............................... 9 10 35 ----- ----- ----- Total restructuring.................. 28 34 90 ----- ----- ----- Total....................................... $ 65 $ 288 $ 290 ===== ===== ===== After-tax............................ $ 40 $ 261 $ 239 ===== ===== ===== Per share............................ $0.03 $0.17 $0.15 ===== ===== ===== Impairment by segment - --------------------- Frito-Lay North America..................... $37 $ 54 $ 8 Frito-Lay International..................... - - 30 Pepsi-Cola North America.................... - - 52 Pepsi-Cola International.................... - 6 105 ----- ----- ----- Combined segments........................... 37 60 195 Bottling operations......................... - 194 5 ----- ----- ----- $37 $254 $200 ======= ======= ===== - -------------------------------------------------------------------------------- The 1999 asset impairment and restructuring charge of $65 million recognized in the first quarter relates to the closure of three plants and impairment of equipment at Frito-Lay North America.
SIGNATURE TITLE DATE /S/ ROGER A. ENRICO Chairman of the Board and March 21, 2000 Roger A. Enrico Chief Executive Officer /S/INDRA K. NOOYI Senior Vice President March 21, 2000 Indra K. Nooyi Chief Financial Officer /S/ LIONEL L. NOWELL III Senior Vice President and March 21, 2000 Lionel L. Nowell III Controller (Principal Accounting Officer) /S/ KARL M. VON DER HEYDEN Vice Chairman of the Board March 21, 2000 Karl M. von der Heyden /S/JOHN F. AKERS Director March 21, 2000 John F. Akers /S/ ROBERT E. ALLEN Director March 21, 2000 Robert E. Allen /S/ PETER FOY Director March 21, 2000 Peter Foy /S/ RAY L. HUNT Director March 21, 2000 Ray L. Hunt S-1 /S/ ARTHUR C. MARTINEZ Director March 21, 2000 Arthur C. Martinez /S/ JOHN J. MURPHY Director March 21, 2000 John J. Murphy /S/ FRANKLIN D. RAINES Director March 21, 2000 Franklin D. Raines /S/ STEVEN S REINEMUND President and Chief March 21, 2000 Steven S Reinemund Operating Officer and Director /S/ SHARON PERCY ROCKEFELLER Director March 21, 2000 Sharon Percy Rockefeller /S/ FRANKLIN A. THOMAS Director March 21, 2000 Franklin A. Thomas /S/ P. ROY VAGELOS Director March 21, 2000 P. Roy Vagelos /S/ ARNOLD R. WEBER Director March 21, 2000 Arnold R. Weber S-2 INDEX TO EXHIBITS ITEM 14(a)(3) EXHIBIT 3.1 Restated Articles of Incorporation of PepsiCo, Inc., which is incorporated herein by reference to Exhibit 3(i) to PepsiCo's Quarterly Report on Form 10-Q for the quarterly period ended June 15, 1996.
BUSINESS SEGMENTS (a) ($ in millions) 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------ NET SALES Pepsi-Cola North America (b) $ 8,266 $ 7,899 $ 7,788 $ 7,485 $ 7,119 International 2,385 2,642 2,799 2,982 2,535 ------ ------ ------ ------ ------ 10,651 10,541 10,587 10,467 9,654 ------ ------ ------ ------ ----- Frito-Lay North America (b) 7,474 6,967 6,628 5,873 5,379 International 3,501 3,409 3,122 2,727 2,951 ------ ------ ----- ----- ----- 10,975 10,376 9,750 8,600 8,330 ------ ------ ----- ----- ----- Tropicana (c) 722 - - - - --- ------ ----- ----- ----- Combined Segments $22,348 $20,917 $20,337 $19,067 $17,984 ======= ======= ======= ======= ======= OPERATING PROFIT (d) Pepsi-Cola North America (b) $1,211 $1,274 $1,428 $1,249 $1,115 International (219) (144) (846) 117 136 - ------ ------ ------ ------ ------ 992 1,130 582 1,366 1,251 ------ ----- ----- ----- ----- Frito-Lay North America (b) 1,424 1,388 1,286 1,149 1,043 International 367 318 346 301 354 ----- ----- ----- ----- ----- 1,791 1,706 1,632 1,450 1,397 ----- ----- ----- ----- ----- Tropicana (c) 40 - - - - ----- ----- ----- ----- ----- Combined Segments $2,823 $2,836 $2,214 $2,816 $2,648 ====== ====== ====== ====== ====== (a) Certain reclassifications were made to 1997 through 1994 amounts to conform with the 1998 presentation and to maintain comparability.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ ROGER A. ENRICO Chairman of the Board March 23, 1999 Roger A. Enrico and Chief Executive Officer /s/ MICHAEL D. WHITE Senior Vice President March 23, 1999 Michael D. White and Chief Financial Officer /s/ SEAN F. ORR Senior Vice President March 23, 1999 Sean F. Orr and Controller (Principal Accounting Officer) /s/ KARL M. VON DER HEYDEN Vice Chairman of the March 23, 1999 Karl M. von der Heyden Board /s/ JOHN F. AKERS Director March 23, 1999 John F. Akers /s/ ROBERT E. ALLEN Director March 23, 1999 Robert E. Allen /s/ PETER FOY Director March 23, 1999 Peter Foy /s/ RAY L. HUNT Director March 23, 1999 Ray L. Hunt S-1 /s/ JOHN J. MURPHY Director March 23, 1999 John J. Murphy /s/ STEVEN S REINEMUND Chairman and Chief March 23, 1999 Steven S Reinemund Executive Officer of The Frito-Lay Company and Director /s/ SHARON PERCY ROCKEFELLER Director March 23, 1999 Sharon Percy Rockefeller /s/ FRANKLIN A. THOMAS Director March 23, 1999 Franklin A. Thomas /s/ P. ROY VAGELOS Director March 23, 1999 P. Roy Vagelos /s/ CRAIG E. WEATHERUP Chairman and Chief March 23, 1999 Craig E. Weatherup Executive Officer of The Pepsi Bottling Group and Director /s/ ARNOLD R. WEBER Director March 23, 1999 Arnold R. Weber S-2 INDEX TO EXHIBITS ITEM 14(a)(3) EXHIBIT 3.1 Restated Articles of Incorporation of PepsiCo, Inc., which is incorporated herein by reference from Exhibit 3(i) to PepsiCo's Quarterly Report on Form 10-Q for the quarterly period ended June 15, 1996.
Consolidated Statement of Income (in millions except per share amounts) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 26, 1998, December 27, 1997 and December 28, 1996 1998 1997 1996 - -------------------------------------------------------------------------- Net Sales........................ $22,348 $20,917 $20,337 Costs and Expenses, net Cost of sales.................... 9,330 8,525 8,452 Selling, general and administrative expenses......... 9,924 9,241 9,063 Amortization of intangible assets 222 199 206 Unusual impairment and other items 288 290 576 ------- ------- ------- Operating Profit................. 2,584 2,662 2,040 Interest expense................. (395) (478) (565) Interest income.................. 74 125 91 ------- ------- ------- Income from Continuing Operations Before Income Taxes............ 2,263 2,309 1,566 Provision for Income Taxes....... 270 818 624 ------- ------- ------- Income from Continuing Operations 1,993 1,491 942 Income from Discontinued Operations, net of tax......... - 651 207 ------- ------- ------- Net Income....................... $ 1,993 $ 2,142 $ 1,149 ======= ======= ======= Income Per Share - Basic Continuing Operations............ $ 1.35 $ 0.98 $ 0.60 Discontinued Operations.......... - 0.42 0.13 ------- ------- -------- Net Income ..................... $ 1.35 $ 1.40 $ 0.73 ======= ======= ======= Average shares outstanding....... 1,480 1,528 1,564 Income Per Share - Assuming Dilution Continuing Operations............ $ 1.31 $ 0.95 $ 0.59 Discontinued Operations.......... - 0.41 0.13 ------- ------- ------- Net Income....................... $ 1.31 $ 1.36 $ 0.72 ======= ======= ======= Average shares outstanding....... 1,519 1,570 1,606 - ----------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Cash Flows (page 1 of 2) (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 26, 1998, December 27, 1997 and December 28, 1996 1998 1997 1996 - --------------------------------------------------------------------------- Operating Activities Income from continuing operations..... $ 1,993 $ 1,491 $ 942 Adjustments to reconcile income from continuing operations to net cash provided by operating activities Depreciation and amortization....... 1,234 1,106 1,073 Noncash portion of 1998 tax benefit........................ (259) - - Noncash portion of unusual impairment and other items.................... 254 233 366 Deferred income taxes............... 150 51 160 Other noncash charges and credits, net....................... 237 342 505 Changes in operating working capital, excluding effects of acquisitions and dispositions Accounts and notes receivable...... (104) (53) (67) Inventories........................ 29 79 (97) Prepaid expenses and other current assets............................. (12) (56) 84 Accounts payable and other current liabilities............... (195) 84 297 Income taxes payable............... (116) 142 (71) ------ ------ ------ Net change in operating working capital.................... (398) 196 146 ------ ------ ------ Net Cash Provided by Operating Activities........................... 3,211 3,419 3,192 ------ ------ ------ Investing Activities Capital spending...................... (1,405) (1,506) (1,630) Acquisitions and investments in unconsolidated affiliates......... (4,537) (119) (75) Sales of businesses................... 17 221 43 Sales of property, plant and equipment........................ 134 80 9 Short-term investments, by original maturity More than three months-purchases.... (525) (92) (115) More than three months-maturities... 584 177 192 Three months or less, net........... 839 (735) 736 Other, net............................ (126) (96) (214) ------ ------ ------ Net Cash Used for Investing Activities........................... (5,019) (2,070) (1,054) ------ ------ ------ - --------------------------------------------------------------------------- (Continued on following page) Consolidated Statement of Cash Flows (page 2 of 2) (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 26, 1998, December 27, 1997 and December 28, 1996 1998 1997 1996 - --------------------------------------------------------------------------- Financing Activities Proceeds from issuances of long-term debt................. 990 - 1,772 Payments of long-term debt...... (2,277) (1,875) (1,432) Short-term borrowings, by original maturity More than three months-proceeds 2,713 146 740 More than three months-payments (417) (177) (1,873) Three months or less, net..... 1,753 (1,269) 89 Cash dividends paid............. (757) (736) (675) Share repurchases............... (2,230) (2,459) (1,651) Proceeds from exercises of stock options.................. 415 403 323 Other, net...................... - 5 (9) ------- -------- ------- Net Cash Provided by (Used for) Financing Activities........... 190 (5,962) (2,716) ------- ------- ------- Net Cash Provided by Discontinued Operations..................... - 6,236 605 Effect of Exchange Rate Changes on Cash and Cash Equivalents...... 1 (2) (5) ------- ------- ------- Net (Decrease) Increase in Cash and Cash Equivalents........... (1,617) 1,621 22 Cash and Cash Equivalents - Beginning of Year............ 1,928 307 285 ------- ------- ------- Cash and Cash Equivalents - End of Year.................. $ 311 $ 1,928 $ 307 ======= ======= ======= - --------------------------------------------------------------------------- Supplemental Cash Flow Information Interest paid................... $ 367 $ 462 $ 538 Income taxes paid............... $ 521 $ 696 $ 611 Schedule of Noncash Investing and Financing Activities Fair value of assets acquired... $ 5,359 $ 160 $ 81 Cash paid and stock issued...... (4,537) (134) (76) ------- ------- ------- Liabilities assumed............. $ 822 $ 26 $ 5 ======= ======= ======= - --------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements.
1,396 1,201 Other Assets............................. 588 533 ------- ------- Total Assets........................ $22,660 $20,101 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings.................... $ 3,921 $ - Accounts payable and other current liabilities ............................ 3,870 3,617 Income taxes payable..................... 123 640 ------- ------- Total Current Liabilities............ 7,914 4,257 Long-Term Debt........................... 4,028 4,946 Other Liabilities........................ 2,314 2,265 Deferred Income Taxes.................... 2,003 1,697 Shareholders' Equity Capital stock, par value 1 2/3(cent) per share: authorized 3,600 shares, issued 1,726 shares 29 29 Capital in excess of par value........... 1,166 1,314 Retained earnings........................ 12,800 11,567 Accumulated other comprehensive loss..... (1,059) (988) -------- ------- 12,936 11,922 Less: Treasury stock, at cost: 255 shares and 224 shares in 1998 and 1997, respectively..................... (6,535) (4,986) ------- ------- Total Shareholders' Equity........... 6,401 6,936 ------- ------- Total Liabilities and Shareholders' Equity............... $22,660 $20,101 ======= ======= - ------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Shareholders' Equity (page 1 of 2) (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 26, 1998, December 27, 1997 and December 28, 1996 Capital Stock Issued Treasury Shares Amount Shares Amount Shareholders' Equity, December 30, 1995.............. 1,726 $29 (150) $(1,683) --------------------------------- 1996 Net income............... - - - - Currency translation adjustment - - - - Comprehensive income........ Cash dividends declared....... - - - - Share repurchases............. - - (54) (1,651) Stock option exercises, including tax benefits of $145.......... - - 23 310 Other......................... - - - 1 ---------------------------------- Shareholders' Equity, December 28, 1996.............. 1,726 $29 (181) $(3,023) ---------------------------------- 1997 Net income............... - - - - Currency translation adjustment - - - - Comprehensive income........ Cash dividends declared....... - - - - Share repurchases............. - - (69) (2,459) Stock option exercises, including tax benefits of $173.......... - - 25 488 Spin-off of restaurant businesses - - - - Other......................... - - 1 8 ---------------------------------- Shareholders' Equity, December 27, 1997.............. 1,726 $29 (224) $(4,986) ----------------------------------- 1998 Net income............... - - - - Currency translation adjustment - - - - Reclassification adjustment... - - - - Total currency translation adjustment.................
Minimum pension liability adjustment, net of tax benefits of $11............ - - - - Comprehensive income........ Cash dividends declared....... - - - - Share repurchases............. - - (59) (2,230) Stock option exercises, including tax benefits of $109.......... - - 28 675 Other......................... - - - 6 ---------------------------------- Shareholders' Equity, December 26, 1998............. 1,726 $29 (255) $(6,535) ================================== (Continued on following page) Consolidated Statement of Shareholders' Equity (page 2 of 2) (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 26, 1998, December 27, 1997 and December 28, 1996 Capital Accumulated in Other Excess of Retained Comprehensive Par Value Earnings (Loss)/Income Total - ------------------------------------------------------------------------- Shareholders' Equity, December 30, 1995.............. $1,045 $ 8,730 $ (808) $ 7,313 --------------------------------------- 1996 Net income............... - 1,149 - 1,149 Currency translation adjustment - - 40 40 ------- Comprehensive income........ 1,189 Cash dividends declared....... - (695) - (695) Share repurchases............. - - - (1,651) Stock option exercises, including tax benefits of $145........ 158 - - 468 Other......................... (2) - - (1) --------------------------------------- Shareholders' Equity, December 28, 1996.............. $1,201 $ 9,184 $ (768) $ 6,623 --------------------------------------- 1997 Net income............... - 2,142 - 2,142 Currency translation adjustment - - (220) (220) ------- Comprehensive income........ 1,922 Cash dividends declared....... - (746) - (746) Share repurchases............. - - - (2,459) Stock option exercises, including tax benefits of $173......... 88 - - 576 Spin-off of restaurant businesses - 987 - 987 Other......................... 25 - - 33 --------------------------------------- Shareholders' Equity, December 27, 1997.............. $1,314 $11,567 $ (988) $ 6,936 --------------------------------------- 1998 Net income............... - 1,993 - 1,993 Currency translation adjustment - - (75) (75) Reclassification adjustment... - - 24 24 ------- Total currency translation adjustment................. (1,039) Minimum pension liability..... adjustment (net of tax benefits of $11)........... - - (20) (20) ------ Comprehensive income.......... 1,922 Cash dividends declared....... - (760) - (760) Share repurchases............. - - - (2,230) Stock option exercises, including tax benefits of $109........ (151) - - 524 Other......................... 3 - - 9 --------------------------------------- Shareholders' Equity, December 26, 1998.............. $1,166 $12,800 $(1,059) $ 6,401 ======================================= - ------------------------------------------------------------------------ See accompanying Notes to Consolidated Financial Statements.
54 111 - Investments in unconsolidated affiliates.................. - 21 20 Net assets of business units.. - 63 47 ----- ----- ----- Total asset impairment......... 254 200 373 Restructuring charges Employee related costs......... 24 55 107 Other charges.................. 10 35 96 ----- ----- ----- Total unusual impairment and other items................... $ 288 $ 290 $ 576 ===== ===== ===== After-tax.................... $ 261 $ 239 $ 527 ===== ===== ===== Per share.................... $0.17 $0.15 $0.33 ===== ===== ===== Impairment by segment 1998 1997 1996 - ----------------------------------------------------------- Pepsi-Cola North America....... $ - $ 52 $ - Pepsi-Cola International....... 200 110 373 Frito-Lay North America......... 54 8 - Frito-Lay International........ - 30 - ---- ---- ---- $254 $200 $373 ==== ==== ==== The 1998 asset impairment and restructuring charges of $288 million are comprised of the following: o A fourth quarter charge of $218 million for asset impairment of $200 million and restructuring charges of $18 million related to our Russian bottling operations.
The following reconciles shares outstanding at the beginning of the year to average shares outstanding: 1998 1997 1996 - -------------------------------------------------------------------------------- Shares outstanding at beginning of year........................ 1,502 1,545 1,576 Weighted average shares issued during the year for exercise of stock options.................. 18 14 13 Weighted average shares repurchased.................... (40) (31) (25) ----- ----- ----- Average shares outstanding - basic........................ 1,480 1,528 1,564 Effect of dilutive securities Dilutive shares contingently issuable upon the exercise of stock options.................. 144 151 169 Shares assumed to have been purchased for treasury with assumed proceeds from the exercise of stock options...... (105) (109) (127) ----- ----- ----- Average shares outstanding - assuming dilution.............. 1,519 1,570 1,606 ===== ===== ===== Note 6 - Inventories 1998 1997 - ------------------------------------------------------------------------------- Raw materials and supplies....... $ 506 $398 Work-in-process.................. 70 2 Finished goods................... 440 332 ------ ---- $1,016 $732 ====== ==== The cost of 36% of 1998 inventories and 43% of 1997 inventories was computed using the last-in, first-out method.
Note 9 - Accounts Payable and Other Current Liabilities 1998 1997 - -------------------------------------------------------------------------------- Accounts payable......................... $ 1,180 $ 1,047 Accrued compensation and benefits........ 676 640 Accrued selling and marketing............ 596 485 Other current liabilities................ 1,418 1,445 ------- -------- $ 3,870 $ 3,617 ======= ======= Note 10 - Short-Term Borrowings and Long-Term Debt 1998 1997 - -------------------------------------------------------------------------------- Short-Term Borrowings Commercial paper (5.3%).................. $ 1,901 $ - Current maturities of long-term debt..... 1,075 1,819 Notes (5.2% and 5.7%).................... 2,076 80 Other borrowings (7.4% and 7.4%)......... 519 222 Amount reclassified to long-term debt.... (1,650) (2,121) ------- ------- $ 3,921 $ - ======= ======= Long-Term Debt Short-term borrowings, reclassified...... $ 1,650 $ 2,121 Notes due 1999-2013 (5.8% and 6.4%)...... 1,693 3,063 Various foreign currency debt, due 1999-2001 (5.3% and 5.2%) .......... 956 809 Zero coupon notes, $1.0 billion due 1999-2012 (10.1% and 10.5%) ........ 504 480 Other, due 1999-2014 (6.8% and 7.2%)..... 300 292 ------- ------- 5,103 6,765 Less current maturities of long-term debt (1,075) (1,819) ------- ------- $ 4,028 $ 4,946 ======= ======= The interest rates in the above table include the effects of associated interest rate and currency swaps at year-end 1998 and 1997.
Note 12 - Income Taxes U.S. and foreign income from continuing operations before income taxes: 1998 1997 1996 - -------------------------------------------------------------------------------- U.S........................ $1,629 $1,731 $1,630 Foreign.................... 634 578 (64) ------ ------ ------ $2,263 $2,309 $1,566 ====== ====== ====== Provision for income taxes on income from continuing operations: 1998 1997 1996 - -------------------------------------------------------------------------------- Current: Federal.......... $(193) $598 $254 Foreign.......... 267 110 138 State............ 46 59 72 ----- ---- ---- 120 767 464 ----- ---- ---- Deferred:Federal.......... 136 23 204 Foreign.......... 4 15 (41) State............ 10 13 (3) ----- ---- ---- 150 51 160 ----- ---- ---- $ 270 $818 $624 ===== ==== ==== Reconciliation of the U.S. Federal statutory tax rate to our effective tax rate on continuing operations: 1998 1997 1996 - -------------------------------------------------------------------------------- U.S. Federal statutory tax rate 35.0% 35.0% 35.0% State income tax, net of Federal tax benefit.................. 1.6 2.0 2.9 Effect of lower taxes on foreign results............ (3.0) (5.5) (4.4) Settlement of prior years' audit issues.................. (5.7) (1.7) (2.9) Puerto Rico settlement......... (21.8) - - Effect of unusual impairment and other items............... 3.4 2.2 9.7 Other, net..................... 2.4 3.4 (0.5) ---- ---- ---- Effective tax rate on continuing operations.................... 11.9% 35.4% 39.8% ==== ==== ==== In 1998, we reached final agreement with the IRS to settle substantially all remaining aspects of a tax case related to our concentrate operations in Puerto Rico.
Deferred tax liabilities (assets): 1998 1997 - -------------------------------------------------------------------------------- Intangible assets other than nondeductible goodwill....... $ 1,444 $ 1,363 Property, plant and equipment... 665 500 Safe harbor leases.............. 109 115 Zero coupon notes............... 79 84 Other........................... 473 335 ------- ------- Gross deferred tax liabilities.. 2,770 2,397 ------- ------- Net operating loss carryforwards (562) (520) Postretirement benefits......... (246) (247) Various current liabilities and other...................... (702) (510) ------- ------- Gross deferred tax assets....... (1,510) (1,277) Deferred tax assets valuation allowance............ 571 458 ------- ------- Net deferred tax assets......... (939) (819) ------- ------- Net deferred tax liabilities.... $ 1,831 $ 1,578 ======= ======= Included in: Prepaid expenses, deferred income taxes and other current assets $ (172) $ (119) Deferred income taxes......... 2,003 1,697 ------- ------- $ 1,831 $ 1,578 ======= ======= Deferred tax liabilities are not recognized for temporary differences related to investments in foreign subsidiaries and in unconsolidated foreign affiliates that are essentially permanent in duration.
Stock option activity: (Options in thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- -------- ------- ----- ------- ----- Outstanding at beginning of year 146,329 $18.95 177,217 $20.22 160,662 $16.10 Granted......... 34,906 36.33 3,457 31.54 51,305 31.19 Exercised....... (28,076) 15.31 (25,504) 15.77 (22,687) 14.19 Surrendered for PSUs....... (24) 37.46 (15) 37.68 (431) 29.91 Forfeited....... (6,144) 28.83 (7,819) 24.89 (11,632) 23.13 Spin-off related: Conversion to TRICON options(a).... - - (13,267) 25.75 - - PepsiCo modifi- cation(b)..... - - 12,260 - - - ------- ------- ------- Outstanding at end of year.......... 146,991 23.28 146,329 18.95 177,217 20.22 ======= ======= ======= Exercisable at end of year...... 82,692 16.74 81,447 15.39 80,482 14.92 ======= ======= ======= - -------------------------------------------------------------------------------- Weighted average fair value of options granted during the year.. $ 9.82 $10.55 $ 8.89 - -------------------------------------------------------------------------------- (a) Effective on the date of the TRICON spin-off, unvested PepsiCo capital stock options held by TRICON employees were converted to TRICON stock options.
$ 7.43 11,449 $ 7.45 $11.12 to $23.78 69,021 4.49 16.87 63,449 16.70 $26.04 to $41.50 66,501 8.27 32.80 7,794 30.53 ------- ------ 146,991 5.85 23.28 82,692 16.74 ======= ====== Pro forma income and pro forma income per share, as if we had recorded compensation expense based on fair value for stock-based awards: 1998 1997 1996 - -------------------------------------------------------------------------------- Reported Income Continuing operations.......... $1,993 $1,491 $ 942 Discontinued operations........ - 651 207 ------ ------ ------ Net income..................... $1,993 $2,142 $1,149 ====== ====== ====== Income per share Continuing operations.......... $ 1.31 $ 0.95 $ 0.59 Discontinued operations........ - 0.41 0.13 ------ ------ ------ Net income $ 1.31 $ 1.36 $ 0.72 ====== ====== ====== Pro Forma Income Continuing operations.......... $1,888 $1,390 $ 893 Discontinued operations........ - 635 188 ------ ------ ------ Net income..................... $1,888 $2,025 $1,081 ====== ====== ====== Income per share Continuing operations.......... $ 1.24 $ 0.89 $ 0.55 Discontinued operations........ - 0.40 0.12 ------ ------ ------ Net income $ 1.24 $ 1.29 $ 0.67 ====== ====== ====== - -------------------------------------------------------------------------------- Without the effect of pro forma costs related to the modification of outstanding options arising from the TRICON spin-off, pro forma income from continuing operations is $1,899 million or $1.25 per share in 1998 and $1,436 million or $0.92 per share in 1997.
Components of net periodic benefit cost: 1998 1997 1996 - -------------------------------------------------------------------- Pension ------------------------------ Service cost........................ $ 95 $ 82 $ 74 Interest cost....................... 136 123 111 Expected return on plan assets...... (169) (148) (136) Amortization of transition asset.... (9) (14) (14) Amortization of prior service amendments......................... 12 11 10 Amortization of net loss............ 5 4 2 ----- ----- ----- Net periodic benefit cost........... $ 70 $ 58 $ 47 Settlement loss/(gain).............. 9 (4) - Special termination benefits 4 8 - ----- ----- ----- Net periodic benefit cost including settlements and special termination benefits............... $ 83 $ 62 $ 47 ===== ===== ===== Components of net periodic benefit cost: 1998 1997 1996 - --------------------------------------------------------------------- Postretirement ------------------------------ Service cost........................ $ 16 $ 12 $ 12 Interest cost....................... 39 40 43 Amortization of prior service amendments......................... (18) (18) (18) Amortization of net (gain)/loss..... (2) - 2 ----- ----- ----- Net periodic benefit cost........... $ 35 $ 34 $ 39 Special termination benefits........ 1 - - ----- ----- ----- Net periodic benefit cost including special termination benefits....... $ 36 $ 34 $ 39 ===== ===== ===== Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits.
Change in the benefit obligation: 1998 1997 1998 1997 - --------------------------------------------------------------------- Pension Postretirement Obligation at beginning of year.... $ 1,928 $1,672 $ 528 $ 525 Service cost....................... 95 82 16 12 Interest cost...................... 136 123 39 40 Plan amendments.................... 5 11 - - Participant contributions.......... 4 3 - - Actuarial loss/(gain).............. 229 153 56 (13) Acquisitions/(divestitures)........ 236 (16) 42 (5) Benefit payments................... (149) (99) (38) (31) Curtailment gain................... (1) (1) - - Special termination benefits....... 4 8 1 - Foreign currency adjustment........ (8) (8) - - ------- ------ ----- ----- Obligation at end of year.......... $ 2,479 $1,928 $ 644 $ 528 ======= ====== ===== ===== Change in the fair value of plan assets: 1998 1997 1998 1997 - --------------------------------------------------------------------- Pension Postretirement --------------------------------- Fair value at beginning ofyear.... $ 1,997 $1,638 $ - $ - Actual return on plan assets...... (71) 439 - - Acquisitions/(divestitures)....... 240 (5) - - Employer contributions............ 31 29 38 31 Participant contributions......... 4 3 - - Benefit payments.................. (149) (99) (38) (31) Foreign currency adjustment....... (7) (8) - - ------ ------ ---- ----- Fair value at end of year......... $ 2,045 $1,997 $ - $ - ======= ====== ===== ===== Selected information for plans with accumulated benefit obligation in excess of plan assets: 1998 1997 1998 1997 - --------------------------------------------------------------------- Pension Postretirement --------------------------------- Projected benefit obligation... $(1,960) $ (161) $(644) $(528) Accumulated benefit obligation.. $(1,661) $ (83) $(644) $(528) Fair value of plan assets....... $ 1,498 $ 14 $ - $ - Funded status as recognized on the Consolidated Balance Sheet: 1998 1997 1998 1997 - --------------------------------------------------------------------- Pension Postretirement --------------------------------- Funded status at end of year...... $ (434) $ 69 $(644) $(528) Unrecognized prior service cost... 76 83 (69) (87) Unrecognized loss/(gain).......... 338 (122) 29 (29) Unrecognized transition asset..... (7) (16) - - -------- ------ ----- ----- Net amounts recognized............ $ (27) $ 14 $(684) $(644) ======= ====== ===== ===== Net amounts as recognized in the Consolidated Balance Sheet: 1998 1997 1998 1997 - --------------------------------------------------------------------- Pension Postretirement ------------------------------- Prepaid benefit cost................. $ 116 $ 137 $ - $ - Accrued benefit liability............ (210) (123) (684) (644) Intangible assets.................... 36 - - - Accumulated other comprehensive income 31 - - - ----- ----- ----- ----- Net amounts recognized............... $ (27) $ 14 $(684) $(644) ===== ===== ===== ===== Weighted-average assumptions at end of year: 1998 1997 1996 - -------------------------------------------------------------- Pension ----------------------- Discount rate for benefit obligation 6.8% 7.3% 7.8% Expected return on plan assets....... 10.2% 10.3% 10.3% Rate of compensation increase........ 4.7% 4.8% 4.8% The discount rate assumptions used to compute the postretirement benefit obligation at year-end were 6.9% in 1998 and 7.4% in 1997.
BUSINESS SEGMENTS (page 1 of 3) 1998 1997 1996 - ---------------------------------------------------------------- Net Sales --------------------------- Pepsi-Cola - - North America............ $ 8,266 $ 7,899 $ 7,788 - - International............ 2,385 2,642 2,799 Frito-Lay - - North America............ 7,474 6,967 6,628 - - International............ 3,501 3,409 3,122 Tropicana 722 - - ------- ------- ------- $22,348 $20,917 $20,337 ======= ======= ======= - --------------------------------------------------------------------- Operating Profit (a) --------------------------- Pepsi-Cola - - North America............ $ 1,211 $ 1,274 $ 1,428 - - International............ (219) (144) (846) Frito-Lay - - North America............ 1,424 1,388 1,286 - - International............ 367 318 346 Tropicana 40 - - ------- ------- ------- Combined Segments.......... 2,823 2,836 2,214 Corporate (b).............. (239) (174) (174) ------- ------- ------- $ 2,584 $ 2,662 $ 2,040 ======= ======= ======= - --------------------------------------------------------------------- Total Assets --------------------------- Pepsi-Cola - - North America............ $ 8,269 $ 7,562 $ 7,199 - - International............ 2,536 3,134 3,487 Frito-Lay - - North America............ 3,915 3,650 3,116 - - International............ 4,039 3,583 3,418 Tropicana.................. 3,661 - - Corporate (c)............ 240 2,172 490 Net Assets of Discontinued Operations.............. - - 4,450 ------- ------- ------- $22,660 $20,101 $22,160 ======= ======= ======= - --------------------------------------------------------------------- Amortization of Intangible Assets --------------------------------- Pepsi-Cola - - North America............ $ 136 $ 141 $ 143 - - International............ 14 14 22 Frito-Lay - - North America............ 7 6 5 - - International............ 43 38 36 Tropicana 22 - - ------- ------- ------- $ 222 $ 199 $ 206 ======= ======= ======= - --------------------------------------------------------------------- (a) Includes Impairment and Other Items Affecting Comparability on page.
BUSINESS SEGMENTS (page 2 of 3) 1998 1997 1996 - ----------------------------------------------------------------- Depreciation and Other Amortization Expense ------------------------------------------- Pepsi-Cola - - North America............ $ 369 $ 337 $ 323 - - International............ 140 166 191 Frito-Lay - - North America............ 326 285 243 - - International............ 142 112 103 Tropicana.................. 27 - - Corporate.................. 8 7 7 ------ ------ ------ $1,012 $ 907 $ 867 ====== ====== ====== - --------------------------------------------------------------------- Significant Other Noncash Items (d) ------------------------------- Pepsi-Cola - - North America............ $ - $ 52 $ - - - International............ 200 119 366 Frito-Lay - - North America............ 54 9 - - - International............ - 53 - ------ ------ ------ $ 254 $ 233 $ 366 ====== ====== ====== - --------------------------------------------------------------------- Capital Spending ------------------------------ Pepsi-Cola - - North America............ $ 472 $ 430 $ 399 - - International............ 138 188 249 Frito-Lay - - North America............ 402 622 760 - - International............ 314 251 213 Tropicana.................. 50 - - Corporate................ 29 15 9 ------ ------ ------ $1,405 $1,506 $1,630 ====== ====== ====== - --------------------------------------------------------------------- Investments in Unconsolidated Affiliates ------------------------------ Pepsi-Cola - - North America............ $ 326 $ 340 $ 308 - - International............ 685 605 562 Frito-Lay - - North America............ - - 3 - - International............ 341 234 252 Tropicana.................. 22 - - Corporate.................. 22 22 22 ------ ------ ------ $1,396 $1,201 $1,147 ====== ====== ====== - --------------------------------------------------------------------- (d) Represents the noncash portion of unusual impairment and other items.
See Note 3. BUSINESS SEGMENTS (page 3 of 3) 1998 1997 1996 - -------------------------------------------------------------------- Equity Income/(Loss) from Unconsolidated Affiliates (e) ------------------------------- Pepsi-Cola - - North America............ $ 50 $ 41 $ 32 - - International............ (21) (4) (341) Frito-Lay - - North America............ - (3) - - - International............ (5) 50 35 Tropicana.................. 1 - - ------- ------- ------- $ 25 $ 84 $ (274) ======= ======= ======= - --------------------------------------------------------------------- GEOGRAPHIC AREAS 1998 1997 1996 - --------------------------------------------------------------------- Net Sales --------------------------- United States............ $15,381 $13,878 $13,408 International............ 6,967 7,039 6,929 ------- ------- ------- Combined Segments........ $22,348 $20,917 $20,337 ======= ======= ======= - --------------------------------------------------------------------- Long-Lived Assets (f) ------------------------------- United States............ $12,948 $ 9,466 $ 9,271 International............ 4,762 3,851 3,998 ------- ------- ------- Combined Segments........ $17,710 $13,317 $13,269 ======= ======= ======= - --------------------------------------------------------------------- (e) Includes unusual charges of $256 million in 1996 in PCI related to the write down of our investment in Buenos Aires Embotelladora S.A. and our share of the unusual charges recorded by BAESA.
Note 17 - Selected Quarterly Financial Data ($ in millions except per share amounts, unaudited) (page 1 of 3) First Quarter (12 Weeks) 1998 1997 - -------------------------------------------------------------------------------- Net sales................................ $ 4,353 4,213 Gross profit............................. $ 2,603 2,492 Unusual impairment and other items - (gain) (b)...................... $ - (22) Operating profit......................... $ 590 581 Income from continuing operations........ $ 377 318 Income from discontinued operations (d).. $ - 109 Net income............................... $ 377 427 Net income per share - basic Continuing operations.................. $ 0.25 0.21 Discontinued operations................ $ - 0.07 Net income............................. $ 0.25 0.28 Net income per share - assuming dilution Continuing operations.................. $ 0.24 0.20 Discontinued operations................ $ - 0.07 Net income............................. $ 0.24 0.27 Cash dividends declared per share........ $ 0.125 0.115 Stock price per share (e) High................................... $ 43 9/16 34 55/64 Low.................................... $ 34 7/8 29 1/8 Close.................................. $ 43 32 1/2 - -------------------------------------------------------------------------------- Second Quarter (12 Weeks) 1998 1997 - -------------------------------------------------------------------------------- Net sales................................ $ 5,258 5,086 Gross profit............................. $ 3,110 3,017 Unusual impairment and other items - loss (b)........................ $ - 326 Operating profit......................... $ 778 436 Income from continuing operations........ $ 494 176 Income from discontinued operations (d).. $ - 480 Net income .............................. $ 494 656 Net income per share - basic Continuing operations.................. $ 0.33 0.11 Discontinued operations................ $ - 0.31 Net income............................. $ 0.33 0.42 Net income per share - assuming dilution Continuing operations.................. $ 0.33 0.11 Discontinued operations................ $ - 0.31 Net income............................. $ 0.33 0.42 Cash dividends declared per share........ $ 0.13 0.125 Stock price per share (e) High................................... $44 11/16 39 Low................................... $ 37 5/8 31 1/4 Close.................................. $40 11/16 39 - --------------------------------------------------------------------------- ($ in millions except per share amounts, unaudited) (page 2 of 3) Third Quarter (12 Weeks) 1998 1997 - -------------------------------------------------------------------------------- Net sales................................ $ 5,544 5,362 Gross profit............................. $ 3,261 3,183 Operating profit......................... $ 889 929 Income from continuing operations (c).... $ 761 551 Income from discontinued operations (d).. $ - 107 Net income .............................. $ 761 658 Net income per share - basic Continuing operations.................. $ 0.52 0.36 Discontinued operations................ $ - 0.07 Net income............................. $ 0.52 0.43 Net income per share - assuming dilution Continuing operations.................. $ 0.50 0.35 Discontinued operations................ $ - 0.07 Net income............................. $ 0.50 0.42 Cash dividends declared per share........ $ 0.13 0.125 Stock price per share (e) High................................... $ 43 5/8 39 11/16 Low.................................... $27 11/16 35 1/2 Close.................................. $ 30 5/16 37 5/8 - -------------------------------------------------------------------------------- Fourth Quarter(a) (16 Weeks) 1998 1997 - -------------------------------------------------------------------------------- Net sales................................ $ 7,193 6,256 Gross profit............................. $ 4,044 3,700 Unusual impairment and other items - loss/(gain) (b)................. $ 288 (14) Operating profit......................... $ 327 716 Income from continuing operations (c).... $ 361 446 Income (loss) from discontinued operations(d)$ - (45) Net income .............................. $ 361 401 Net income (loss) per share - basic Continuing operations.................. $ 0.25 0.30 Discontinued operations................ $ - (0.03) Net income............................. $ 0.25 0.27 Net income (loss) per share - assuming dilution Continuing operations.................. $ 0.24 0.29 Discontinued operations................ $ - (0.04) Net income............................. $ 0.24 0.25 Cash dividends declared per share........ $ 0.13 0.125 Stock price per share (e) High................................... $ 41 1/16 40 Low.................................... $28 11/16 34 1/4 Close.................................. $ 40 7/16 34 11/16 - -------------------------------------------------------------------------------- ($ in millions except per share amounts, unaudited) (page 3 of 3) Full Year (52 Weeks) 1998 1997 - -------------------------------------------------------------------------------- Net sales................................ $ 22,348 20,917 Gross profit............................. $ 13,018 12,392 Unusual impairment and other items - loss (b)........................ $ 288 290 Operating profit......................... $ 2,584 2,662 Income from continuing operations (c).... $ 1,993 1,491 Income from discontinued operations (d).. $ - 651 Net income............................... $ 1,993 2,142 Net income per share - basic Continuing operations.................. $ 1.35 0.98 Discontinued operations................ $ - 0.42 Net income............................. $ 1.35 1.40 Net income per share - assuming dilution Continuing operations.................. $ 1.31 0.95 Discontinued operations................ $ - 0.41 Net income............................. $ 1.31 1.36 Cash dividends declared per share........ $ 0.515 0.49 Stock price per share (e) High................................... $44 11/16 40 Low.................................... $27 11/16 29 1/8 Close.................................. $40 7/16 34 11/16 - --------------------------------------------------------------------------- (a) Fourth quarter 1998 includes the operating results of Tropicana which was acquired in August of 1998.
/s/ KPMG LLP New York, New York February 1, 1999, except as to Note 18 which is as of March 8, 1999 - -------------------------------------------------------------------- Selected Financial Data (Page 1 of 4) (in millions except per share and employee amounts, unaudited) PepsiCo, Inc. and Subsidiaries - -------------------------------------------------------------------- Compounded Growth Rates 5-Year 1993-1998 1998(a)(b) 1997(a) - -------------------------------------------------------------------- Summary of Operations Net sales........................... 7% $ 22,348 20,917 Operating profit.................... 4% $ 2,584 2,662 Income from continuing operations... 12% $ 1,993 1,491 Cash Flow Data Provided by operating activities.... $ 3,211 3,419 Dividends paid...................... 10% $ 757 736 Share repurchases................... 37% $ 2,230 2,459 Per Share Data Income from continuing operations - assuming dilution.................. 13% $ 1.31 0.95 Cash dividends declared............. 11% $ 0.515 0.49 Book value per share at year-end.... 2% $ 4.35 4.62 Market price per share at year-end (g) 14% $ 40 7/16 34 11/16 Market price per share at year-end - continuing operations (h).......... 16% $ 40 7/16 34 11/16 Balance Sheet Net assets of discontinued operations (i)..................... $ - - Total assets (j).................... $ 22,660 20,101 Long-term debt...................... $ 4,028 4,946 Total debt (k)...................... $ 7,949 4,946 Shareholders' equity................ $ 6,401 6,936 Other Statistics EBITDA from continuing operations (l) $ 4,072 4,001 Return on invested capital (m)...... 16% 18 Number of shares repurchased........ 59.2 69.0 Shares outstanding at year-end...... 1,471 1,502 Average shares outstanding used to calculate income per share from continuing operations - assuming dilution.................. 1,519 1,570 Employees of continuing operations.. 151,000 142,000 - -------------------------------------------------------------------------------- Selected Financial Data (Page 2 of 4) (in millions except per share and employee amounts, unaudited) PepsiCo, Inc. and Subsidiaries 1996(a) 1995(c) - -------------------------------------------------------------------------------- Summary of Operations Net sales........................... $ 20,337 19,067 Operating profit.................... $ 2,040 2,606 Income from continuing operations... $ 942 1,422 Cash Flow Data Provided by operating activities.... $ 3,192 2,642 Dividends paid...................... $ 675 599 Share repurchases................... $ 1,651 541 Per Share Data Income from continuing operations - assuming dilution.................. $ 0.59 0.88 Cash dividends declared............. $ 0.445 0.39 Book value per share at year-end.... $ 4.29 4.64 Market price per share at year-end (g) $ 29 5/8 27 15/16 Market price per share at year-end - continuing operations (h).......... $27 15/64 25 43/64 Balance Sheet Net assets of discontinued operations(i) $ 4,450 4,744 Total assets (j).................... $ 22,160 22,944 Long-term debt...................... $ 8,174 8,248 Total debt (k) ..................... $ 8,174 8,806 Shareholders' equity................ $ 6,623 7,313 Other Statistics EBITDA from continuing operations (l) $ 3,479 3,718 Return on invested capital (m)......... 17% 18 Number of shares repurchased........ 54.2 24.6 Shares outstanding at year-end...... 1,545 1,576 Average shares outstanding used to calculate income per share from continuing operations - assuming dilution.................. 1,606 1,608 Employees of continuing operations.. 137,000 137,000 - -------------------------------------------------------------------------------- Selected Financial Data (Page 3 of 4) (in millions except per share and employee amounts, unaudited) PepsiCo, Inc. and Subsidiaries - -------------------------------------------------------------------------------- 1994(d)(e)(f) 1993 - -------------------------------------------------------------------------------- Summary of Operations Net sales........................... $ 17,984 15,706 Operating profit.................... $ 2,506 2,141 Income from continuing operations... $ 1,363 1,152 Cash Flow Data Provided by operating activities.... $ NA NA Dividends paid...................... $ 540 462 Share repurchases................... $ 549 463 Per Share Data Income from continuing operations - assuming dilution.................. $ 0.85 0.71 Cash dividends declared............. $ 0.35 0.305 Book value per share at year-end.... $ 4.34 3.97 Market price per share at year-end (g) $ 18 1/8 20 15/16 Market price per share at year-end - continuing operations (h).......... $16 21/32 19 1/4 Balance Sheet Net assets of discontinued operations (i)..................... $ 5,183 4,548 Total assets (j).................... $ 22,533 21,628 Long-term debt...................... $ 8,570 7,148 Total debt (k) ..................... $ 9,114 9,209 Shareholders' equity................ $ 6,856 6,339 Other Statistics EBITDA from continuing operations (l) $ NA NA Return on invested capital (m)...... 18% 17 Number of shares repurchased........ 30.0 24.8 Shares outstanding at year-end...... 1,580 1,598 Average shares outstanding used to calculate income per share from continuing operations - assuming dilution.................. 1,608 1,620 Employees of continuing operations.. 129,000 119,000 NA-Not Available We made a significant acquisition in 1998 (see Note 2), numerous acquisitions in most years presented and a few divestitures in certain years.
PEPSICO, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS Fiscal Years Ended December 26, 1998, December 27, 1997 and December 28, 1996 (in millions) Additions --------------------- Balance Charged Deduct- Balance at to ions at beginning costs and Other from end of year expenses additions reserves of year --------- --------- --------- -------- ------- (1) (2) - ---- Allowance for doubtful accounts $ 125 $ 47 $ 8 $ 53 $ 127 ===== ===== ===== ===== ===== Valuation allowance for deferred tax assets $ 458 $ 113 $ - $ - $ 571 ===== ===== ===== ===== ===== - ---- Allowance for doubtful accounts $ 166 $ 41 $ 7 $ 89 $ 125 ===== ===== ===== ===== ===== Valuation allowance for deferred tax assets $ 435 $ 47 $ - $ 24 $ 458 ===== ===== ===== ===== ===== - ---- Allowance for doubtful accounts $ 132 $ 53 $ 9 $ 28 $ 166 ===== ===== ===== ===== ===== Valuation allowance for deferred tax assets $ 390 $ 76 $ - $ 31 $ 435 ===== ===== ===== ===== ===== - ----------------------- (1) Other additions to the allowances principally relate to acquisitions and reclassifications.
- --------------------------------------------------------------------------- INDUSTRY SEGMENTS (page 1 of 2) ---------------------------------------------------------------------------- ($ in millions) 1997 1996 1995 1994 1993 ----- ---- ---- ---- ---- NET SALES Beverages North America(a) $ 7,852 $ 7,734 $ 7,427 $ 7,045 $ 6,464 International 2,689 2,853 3,040 2,609 2,168 -------- -------- -------- -------- ------- 10,541 10,587 10,467 9,654 8,632 -------- -------- -------- -------- ------- Snack Foods North America(a) 6,967 6,628 5,873 5,379 4,686 International 3,409 3,122 2,727 2,951 2,388 -------- -------- -------- -------- ------- 10,376 9,750 8,600 8,330 7,074 -------- -------- -------- -------- ------- Combined Segments $ 20,917 $ 20,337 $ 19,067 $ 17,984 $15,706 ======== ======== ======== ======== ======= OPERATING PROFIT(b) Beverages North America(a) $ 1,297 $ 1,412 $ 1,238 $ 1,104 $ 1,012 International (137) (830) 128 147 104 -------- -------- -------- -------- ------- 1,160 582 1,366 1,251 1,116 -------- -------- -------- -------- ------- Snack Foods North America(a) 1,414 1,286 1,149 1,043 914 International 318 346 301 354 285 -------- -------- -------- -------- ------- 1,732 1,632 1,450 1,397 1,199 -------- -------- -------- -------- ------- Combined Segments 2,892 2,214 2,816 2,648 2,315 -------- -------- ------- -------- ------- Adjustments Equity (income)/loss from unconsolidated affiliates (84) 274 (38) (52) (31) Other(c) 1 10 (37) (2) 15 -------- -------- ------- -------- ------- Total Adjustments (83) 284 (75) (54) (16) -------- ------- ------- -------- ------- Combined Segments SFAS 14 Basis(d) $ 2,809 $ 2,498 $ 2,741 $ 2,594 $ 2,299 ======== ======== ======== ======== ======= Continued on next page.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ ROGER A. ENRICO Chairman of the Board March 24, 1998 Roger A. Enrico and Chief Executive Officer /s/ KARL M. VON DER HEYDEN Vice Chairman of the March 24, 1998 Karl M. von der Heyden Board and Chief Financial Officer /s/ SEAN F. ORR Senior Vice President March 24, 1998 Sean F. Orr and Controller (Principal Accounting Officer) /s/ JOHN F. AKERS Director March 24, 1998 John F. Akers /s/ ROBERT E. ALLEN Director March 24, 1998 Robert E. Allen /s/ D. WAYNE CALLOWAY Director March 24, 1998 D. Wayne Calloway /s/ PETER FOY Director March 24, 1998 Peter Foy /s/ RAY L. HUNT Director March 24, 1998 Ray L. Hunt S-1 /s/ JOHN J. MURPHY Director March 24, 1998 John J. Murphy /s/ STEVEN S REINEMUND Chairman and Chief March 24, 1998 Steven S Reinemund Executive Officer of The Frito-Lay Company and Director /s/ SHARON PERCY ROCKEFELLER Director March 24, 1998 Sharon Percy Rockefeller /s/ FRANKLIN A. THOMAS Director March 24, 1998 Franklin A. Thomas /s/ P. ROY VAGELOS Director March 24, 1998 P. Roy Vagelos /s/ CRAIG E. WEATHERUP Chairman and Chief March 24, 1998 Craig E. Weatherup Executive Officer of Pepsi-Cola Company and Director /s/ ARNOLD R. WEBER Director March 24, 1998 Arnold R. Weber S-2 INDEX TO EXHIBITS ITEM 14(A)(3) EXHIBIT 3.1 Restated Articles of Incorporation of PepsiCo, Inc., which is incorporated herein by reference from Exhibit 3(i) to PepsiCo's Quarterly Report on Form 10-Q for the quarterly period ended June 15, 1996.
E-2 PEPSICO, INC. AND SUBSIDIARIES INDEX TO FINANCIAL INFORMATION Item 14(a)(1)-(2) Page Reference Item 14(a)(1) Financial Statements Consolidated Statement of Income for the fiscal years ended December 27, 1997 December 28, 1996 and December 30, 1995 Consolidated Statement of Cash Flows for the fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 Consolidated Balance Sheet at December 27, 1997 and December 28, 1996 Consolidated Statement of Shareholders' Equity for the fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 Notes to Consolidated Financial Statements Management's Responsibility for Financial Statements Report of Independent Auditors, KPMG Peat Marwick LLP Selected Financial Data - Item 14(a)(2) Financial Statement Schedule II Valuation and Qualifying Accounts for the fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 All other financial statements and schedules have been omitted since the required information is not applicable.
F - 1 Consolidated Statement of Income (in millions except per share amounts) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 1997 1996 1995 - -------------------------------------------------------------------------- Net Sales $20,917 $20,337 $19,067 Costs and Expenses, net Cost of sales 8,525 8,452 8,054 Selling, general and administrative expenses 9,241 9,063 8,133 Amortization of intangible assets 199 206 208 Unusual items 290 576 66 Operating Profit 2,662 2,040 2,606 Interest expense (478) (565) (629) Interest income 125 91 114 Income from Continuing Operations Before Income Taxes 2,309 1,566 2,091 Provision for Income Taxes 818 624 669 Income from Continuing Operations 1,491 942 1,422 Income from Discontinued Operations, net of tax 651 207 184 Net Income $ 2,142 $ 1,149 $ 1,606 Income Per Share - Basic Continuing Operations $ 0.98 $ 0.60 $ 0.90 Discontinued Operations 0.42 0.13 0.12 Net Income $ 1.40 $ 0.73 $ 1.02 Average shares outstanding 1,528 1,564 1,576 Income Per Share - Assuming Dilution Continuing Operations $ 0.95 $ 0.59 $ 0.88 Discontinued Operations 0.41 0.13 0.12 Net Income $ 1.36 $ 0.72 $ 1.00 Average shares outstanding 1,570 1,606 1,608 - ----------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements.
F - 2 Consolidated Statement of Cash Flows (page 1 of 2) (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 1997 1996 1995 - --------------------------------------------------------------------------- Cash Flows - Operating Activities Income from continuing operations $ 1,491 $ 942 $ 1,422 Adjustments to reconcile income from continuing operations to net cash provided by operating activities Depreciation and amortization 1,106 1,073 1,046 Noncash portion of unusual items 233 366 66 Deferred income taxes 51 160 119 Other noncash charges and credits, net 342 505 585 Changes in operating working capital, excluding effects of acquisitions and dispositions Accounts and notes receivable (53) (67) (182) Inventories 79 (97) (83) Prepaid expenses, deferred income taxes and other current assets (56) 84 59 Accounts payable and other current liabilities 84 297 (2) Income taxes payable 142 (71) (388) Net change in operating working capital 196 146 (596) Net Cash Provided by Operating Activities 3,419 3,192 2,642 Cash Flows - Investing Activities Capital spending (1,506) (1,630) (1,365) Acquisitions and investments in unconsolidated affiliates (119) (75) (400) Sales of businesses 221 43 14 Sales of property, plant and equipment 80 9 93 Short-term investments, by original maturity More than three months-purchases (92) (115) (285) More than three months-maturities 177 192 333 Three months or less, net (735) 736 (2) Other, net (96) (214) (229) Net Cash Used for Investing Activities (2,070) (1,054) (1,841) - --------------------------------------------------------------------------- (Continued on following page) F - 3 Consolidated Statement of Cash Flows (page 2 of 2) (in millions) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 1997 1996 1995 - --------------------------------------------------------------------------- Cash Flows - Financing Activities Proceeds from issuances of long-term debt - 1,772 2,027 Payments of long-term debt (1,875) (1,432) (939) Short-term borrowings, by original maturity More than three months-proceeds 146 740 2,053 More than three months-payments (177) (1,873) (2,711) Three months or less, net (1,269) 89 (782) Cash dividends paid (736) (675) (599) Share repurchases (2,459) (1,651) (541) Proceeds from exercises of stock options 403 323 252 Other, net 5 (9) (7) Net Cash Used for Financing Activities (5,962) (2,716) (1,247) Net Cash Provided by Discontinued Operations 6,236 605 506 Effect of Exchange Rate Changes on Cash and Cash Equivalents (2) (5) (5) Net Increase in Cash and Cash Equivalents 1,621 22 55 Cash and Cash Equivalents - Beginning of Year 307 285 230 Cash and Cash Equivalents - End of Year $ 1,928 $ 307 $ 285 - --------------------------------------------------------------------------- Supplemental Cash Flow Information Interest paid $ 462 $ 538 $ 621 Income taxes paid $ 696 $ 611 $ 741 - --------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements.
F - 4 Consolidated Balance Sheet (in millions except per share amount) PepsiCo, Inc. and Subsidiaries December 27, 1997 and December 28, 1996 1997 1996 - ----------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 1,928 $ 307 Short-term investments, at cost 955 289 2,883 596 Accounts and notes receivable, less allowance: $125 in 1997 and $166 in 1996 2,150 2,276 Inventories 732 853 Prepaid expenses, deferred income taxes and other current assets 486 225 Total Current Assets 6,251 3,950 Property, Plant and Equipment, net 6,261 6,086 Intangible Assets, net 5,855 6,036 Investments in Unconsolidated Affiliates 1,201 1,147 Other Assets 533 491 Net Assets of Discontinued Operations - 4,450 Total Assets $20,101 $22,160 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and other current liabilities $ 3,617 $ 3,378 Income taxes payable 640 413 Total Current Liabilities 4,257 3,791 Long-term Debt 4,946 8,174 Other Liabilities 2,265 1,997 Deferred Income Taxes 1,697 1,575 Shareholders' Equity Capital stock, par value 1 2/3 cents per share: authorized 3,600 shares, issued 1,726 shares 29 29 Capital in excess of par value 1,314 1,201 Retained earnings 11,567 9,184 Currency translation adjustment (988) (768) 11,922 9,646 Less: Treasury stock, at cost: 224 shares and 181 shares in 1997 and 1996, respectively (4,986) (3,023) Total Shareholders' Equity 6,936 6,623 Total Liabilities and Shareholders' Equity $20,101 $22,160 - ---------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements.
- - - - Cash dividends declared (per share $0.49) - - - - Currency translation adjustment - - - - Share repurchases - - (69) (2,459) Stock option exercises, including tax benefits of $173 - - 25 488 Spin-off of restaurant businesses - - - - Other - - 1 8 Shareholders' Equity, December 27, 1997 1,726 $29 (224) $(4,986) (Continued on following page) F - 6 Consolidated Statement of Shareholders' Equity (page 2 of 2) (in millions except per share amounts) PepsiCo, Inc. and Subsidiaries Fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 Capital in Currency Excess of Retained Translation Par Value Earnings Adjustment Total Shareholders' Equity, December 31, 1994 $ 920 $ 7,739 $(471) $ 6,856 1995 Net income - 1,606 - 1,606 Cash dividends declared (per share-$0.39) - (615) - (615) Currency translation adjustment - - (337) (337) Share repurchases - - - (541) Stock option exercises, including tax benefits of $91 125 - - 343 Other - - - 1 Shareholders' Equity, December 30, 1995 $1,045 $ 8,730 $(808) $ 7,313 1996 Net income - 1,149 - 1,149 Cash dividends declared (per share-$0.445) - (695) - (695) Currency translation adjustment - - 40 40 Share repurchases - - - (1,651) Stock option exercises, including tax benefits of $145 158 - - 468 Other (2) - - (1) Shareholders' Equity, December 28, 1996 $1,201 $ 9,184 $(768) $ 6,623 1997 Net income.
Note 12 - Income Taxes Provision for income taxes on income from continuing operations: 1997 1996 1995 Current: Federal $598 $ 254 $ 427 Foreign 110 138 63 State 59 72 60 767 464 550 Deferred: Federal 23 204 101 Foreign 15 (41) 16 State 13 (3) 2 51 160 119 $818 $ 624 $ 669 - --------------------------------------------------------------------------- U.S. and foreign income from continuing operations before income taxes: 1997 1996 1995 U.S. $1,731 $1,630 $1,679 Foreign 578 (64) 412 $2,309 $1,566 $2,091 - --------------------------------------------------------------------------- Reconciliation of the U.S. Federal statutory tax rate to PepsiCo's effective tax rate on continuing operations: 1997 1996 1995 U.S. Federal statutory tax rate 35.0% 35.0% 35.0% State income tax, net of Federal tax benefit 2.0 2.9 2.0 Effect of lower taxes on foreign results (5.5) (4.4) (4.8) Settlement of prior years' audit issues (1.7) (2.9) (4.8) Effect of unusual items 2.2 9.7 1.0 Other, net 3.4 (0.5) 3.6 Effective tax rate on continuing operations 35.4% 39.8% 32.0% - --------------------------------------------------------------------------- F - 16 Deferred tax liabilities are not recognized for basis differences related to investments in foreign subsidiaries and unconsolidated affiliates that are essentially permanent in duration.
Stock option activity: (Options in thousands) 1997 1996 1995 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price Outstanding at beginning of year 177,217 $20.22 160,662 $16.10 165,162 $14.60 Granted 3,457 31.54 51,305 31.19 26,390 22.70 Exercised (25,504) 15.77 (22,687) 14.19 (21,181) 11.91 Surrendered for PSUs (15) 37.68 (431) 29.91 (201) 20.67 Forfeited (7,819) 24.89 (11,632) 23.13 (9,508) 17.69 Spin-off related Conversion to TRICON options(a) (13,267) 25.75 - - - - PepsiCo modifi- cation(b) 12,260 - - - - - Outstanding at end of year 146,329 18.95 177,217 20.22 160,662 16.10 Exercisable at end of year 81,447 15.39 80,482 14.92 65,474 12.63 - --------------------------------------------------------------------------- Weighted average fair value of options granted during the year $10.55 $ 8.89 $ 5.53 - --------------------------------------------------------------------------- (a)Effective on the date of the TRICON spin-off, PepsiCo stock options held by TRICON employees were converted to TRICON stock options.