-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K/881GXiHcn00PkG1V5k01QE0KZn9acPZzpKn1evFqoSlOdT/7JMY6zByu5k3V6N jqcOiO2OOaUpK9ZFZ91crw== 0000077476-98-000035.txt : 19980729 0000077476-98-000035.hdr.sgml : 19980729 ACCESSION NUMBER: 0000077476-98-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980613 FILED AS OF DATE: 19980728 SROS: CSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEPSICO INC CENTRAL INDEX KEY: 0000077476 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 131584302 STATE OF INCORPORATION: NC FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01183 FILM NUMBER: 98672192 BUSINESS ADDRESS: STREET 1: 700 ANDERSON HILL RD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9142532000 MAIL ADDRESS: STREET 1: 700 ANDERSON HILL ROAD CITY: PURCHASE STATE: NY ZIP: 10577-1444 FORMER COMPANY: FORMER CONFORMED NAME: PEPSI COLA CO DATE OF NAME CHANGE: 19700903 10-Q 1 QUARTERLY REPORT FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 13, 1998 (12 and 24 Weeks Ended) -------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-1183 [GRAPHIC OMITTED] PEPSICO,INC. (Exact name of registrant as specified in its charter) North Carolina 13-1584302 (State or other jurisdiction of (I.R.S. Employer incorporate or organization) identification No.) 700 Anderson Hill Road, Purchase, New York 10577 (Address of principal executive offices) (Zip Code) 914-253-2000 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Number of shares of Capital Stock outstanding as of July 10, 1998: 1,472,836,872 PEPSICO, INC. AND SUBSIDIARIES INDEX Page No. Part I Financial Information Condensed Consolidated Statement of Income - 12 and 24 weeks ended June 13, 1998 and June 14,1997 2 Condensed Consolidated Statement of Comprehensive Income - 12 and 24 weeks ended June 13, 1998 and June 14, 1997 3 Condensed Consolidated Statement of Cash Flows - 24 weeks ended June 13, 1998 and June 14, 1997 4-5 Condensed Consolidated Balance Sheet - June 13, 1998 and December 27, 1997 6-7 Notes to Condensed Consolidated Financial Statements 8 Management's Discussion and Analysis of Operations, Cash Flows and Liquidity and Capital Resources 9-19 Independent Accountants' Review Report 20 Part II Other Information and Signatures 21-22 -1- PART I - FINANCIAL INFORMATION PEPSICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME (in millions, unaudited) 12 Weeks Ended 24 Weeks Ended ------------------ ------------------ 6/13/98 6/14/97 6/13/98 6/14/97 -------- -------- -------- -------- Net Sales............................. $5,258 $5,086 $9,611 $9,299 Costs and Expenses, net Cost of sales....................... 2,148 2,069 3,898 3,790 Selling, general and administrative expenses.......................... 2,286 2,205 4,255 4,094 Amortization of intangible assets... 46 50 90 94 Unusual items....................... - 326 - 304 -------- -------- -------- -------- Operating Profit...................... 778 436 1,368 1,017 Interest expense.................... (76) (120) (152) (235) Interest income..................... 15 11 47 23 -------- -------- -------- -------- Income from Continuing Operations Before Income Taxes................. 717 327 1,263 805 Provision for Income Taxes.......... 223 151 392 311 -------- -------- -------- -------- Income from Continuing Operations..... 494 176 871 494 Income from Discontinued Operations, net of tax ($271 and $341)........... - 480 - 589 -------- -------- -------- -------- Net Income............................ $ 494 $ 656 $ 871 $1,083 ======== ======== ======== ======== Income Per Share - Basic Continuing Operations............... $ 0.33 $ 0.11 $ 0.58 $ 0.32 Discontinued Operations............. - 0.31 - 0.38 -------- -------- -------- -------- Net Income.......................... $ 0.33 $ 0.42 $ 0.58 $ 0.70 ======== ======== ======== ======== Average shares outstanding.......... 1,485 1,534 1,491 1,539 Income Per Share - Assuming Dilution Continuing Operations............... $ 0.33 $ 0.11 $ 0.57 $ 0.31 Discontinued Operations............. - 0.31 - 0.38 -------- -------- -------- -------- Net Income.......................... $ 0.33 $ 0.42 $ 0.57 $ 0.69 ======== ======== ======== ======== Average shares outstanding.......... 1,530 1,575 1,534 1,579 Cash Dividends Declared Per Share..... $ 0.13 $0.125 $0.255 $ 0.24 See accompanying notes. -2- PEPSICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in millions, unaudited) 12 Weeks Ended 24 Weeks Ended ------------------ ------------------ 6/13/98 6/14/97 6/13/98 6/14/97 -------- -------- -------- -------- Net Income............................ $494 $656 $871 $1,083 Other Comprehensive Income/(Loss) Currency translation adjustment, net of related taxes............... (53) 19 (72) (124) Reclassification adjustment for items realized in net income....... 9 (15) 9 14 --------- ------- -------- --------- (44) 4 (63) (110) --------- ------- -------- --------- Comprehensive Income.................. $450 $660 $808 $ 973 ======== ======== ======== ======== See accompanying notes. -3- PEPSICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in millions, unaudited) 24 Weeks Ended ------------------ 6/13/98 6/14/97 ------- --------- Cash Flows - Operating Activities Income From Continuing Operations...... $ 871 $ 494 Adjustments to reconcile income from continuing operations to net cash provided by operating activities Depreciation and amortization......... 523 488 Noncash portion of unusual items...... - 220 Deferred income taxes................. 47 65 Other noncash charges and credits, net ................................. 131 108 Changes in operating working capital, excluding effects of acquisitions and dispositions Accounts and notes receivable........ (376) (264) Inventories.......................... (133) (51) Prepaid expenses, deferred income taxes and other current assets...... (78) (67) Accounts payable and other current liabilities......................... (486) (196) Income taxes payable................. 188 (26) ------- -------- Net change in operating working capital.............................. (885) (604) ------- --------- Net Cash Provided by Operating Activities.............................. 687 771 ------- --------- Cash Flows - Investing Activities Capital spending........................ (540) (621) Acquisitions and investments in unconsolidated affiliates.............. (552) (13) Sales of businesses..................... - 85 Sales of property, plant and equipment.............................. 37 19 Short-term investments, by original maturity More than three months - purchases.... (242) (47) More than three months - maturities... 305 46 Three months or less, net............. 692 (25) Other, net.............................. (48) 33 ------- --------- Net Cash Used for Investing Activities.... (348) (523) -------- -------- Continued next page. -4- PEPSICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) (in millions, unaudited) 24 Weeks Ended ---------------- 6/13/98 6/14/97 ------- ------- Cash Flows - Financing Activities Proceeds from issuances of long-term debt................................... 703 - Payments of long-term debt.............. (1,111) (1,454) Short-term borrowings, by original maturity More than three months - proceeds 110 50 More than three months - payments..... (52) (121) Three months or less, net ............ 277 1,694 Proceeds from formation of REIT......... - 296 Cash dividends paid..................... (375) (342) Share repurchases....................... (1,723) (890) Proceeds from exercises of stock options 280 141 Other, net.............................. - 3 -------- ------- Net Cash Used for Financing Activities.... (1,891) (623) -------- ------ Net Cash Provided by Discontinued Operations................................ - 688 Effect of Exchange Rate Changes on Cash and Cash Equivalents..................... (1) 5 -------- ------ Net (Decrease)/Increase in Cash and Cash Equivalents.............................. (1,553) 318 Cash and Cash Equivalents - Beginning of year..................................... 1,928 307 ------- ------- Cash and Cash Equivalents - End of period. $ 375 $ 625 ======= ======= See accompanying notes. -5- PEPSICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (in millions) ASSETS (Unaudited) 6/13/98 12/27/97 Current Assets Cash and cash equivalents......... $ 375 $ 1,928 Short-term investments, at cost... 201 955 -------- -------- 576 2,883 Accounts and notes receivable, less allowance: 6/98 and 12/97 - $125. 2,507 2,150 Inventories Raw materials and supplies........ 451 400 Finished goods.................... 430 332 -------- -------- 881 732 Prepaid expenses, deferred income taxes and other current assets... 594 486 -------- -------- Total Current Assets............ 4,558 6,251 Property, Plant and Equipment....... 11,940 11,294 Accumulated Depreciation............ (5,387) (5,033) -------- -------- 6,553 6,261 Intangible Assets, net.............. 5,990 5,855 Investments in Unconsolidated Affiliates ......................... 1,255 1,201 Other Assets........................ 537 533 -------- -------- Total Assets.................... $18,893 $20,101 ======== ======== Continued on next page. -6- PEPSICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Continued) (in millions) LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) 6/13/98 12/27/97 Current Liabilities Short-term borrowings................... $ 200 $ - Accounts payable and other current liabilities............................ 3,183 3,617 Income taxes payable.................... 683 640 -------- --------- Total Current Liabilities............. 4,066 4,257 Long-term Debt............................ 4,679 4,946 Other Liabilities......................... 2,324 2,265 Deferred Income Taxes..................... 1,749 1,697 Shareholders' Equity Capital stock, par value 1 2/3 cents per share: authorized 3,600 shares, issued 6/98 and 12/97 - 1,726 shares.. 29 29 Capital in excess of par value.......... 1,293 1,314 Retained earnings....................... 12,059 11,567 Currency Translation adjustment......... (1,051) (988) --------- --------- 12,330 11,922 Less: Treasury Stock, at Cost: 6/98 - 250 shares, 12/97 - 224 shares.. (6,255) (4,986) -------- --------- Total Shareholders' Equity............ 6,075 6,936 -------- --------- Total Liabilities and Shareholders' Equity............................. $18,893 $20,101 ======== ========= See accompanying notes. -7- PEPSICO, INC. AND SUBSIDIARIES (unaudited) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (all per share information is computed using average shares outstanding, assuming dilution) (1) Our Condensed Consolidated Balance Sheet at June 13, 1998 and the Condensed Consolidated Statements of Income and Comprehensive Income for the 12 and 24 weeks ended June 13, 1998 and June 14, 1997 and the Condensed Consolidated Statement of Cash Flows for the 24 weeks ended June 13, 1998 and June 14, 1997 have not been audited, and all have been prepared in conformity with the accounting principles applied in our 1997 Annual Report on Form 10-K (Annual Report) for the year ended December 27, 1997. The Condensed Consolidated Statement of Comprehensive Income was prepared in conformity with the accounting principles and was not required for 1997. In our opinion, this information includes all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation. The results for the 12 and 24 weeks are not necessarily indicative of the results expected for the year. (2) On July 20, 1998, we announced that we will purchase the Tropicana juice business (Tropicana) from The Seagram Company Ltd. for $3.3 billion in cash. Tropicana is the world's largest marketer and producer of branded juices. The acquisition will be accounted for under the purchase method and the purchase price will largely be funded by the issuance of commercial paper which may result in an increase to our revolving credit facilities. The acquisition is subject to regulatory approval and is expected to close at the end of August. On July 23, 1998, we announced that our Board of Directors has authorized a study of the feasibility of converting essentially all of our company-owned bottling operations in North America and possibly some international bottling operations to public ownership. The effect, if any, on our financial statements is dependent on the ultimate outcome of the study and approval of any action by our Board of Directors. (3) In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for fiscal year beginning 2000. We are evaluating SFAS 133 to determine its impact on the consolidated financial statements. (4) Through the 24 weeks ended June 13, 1998, we repurchased 45.6 million shares of our capital stock at a cost of $1.7 billion. From June 14, 1998 through July 24, 1998, we repurchased 5.7 million shares at a cost of $237 million. (5) Supplemental Cash Flow Information 24 Weeks Ended ($ in millions) ------------------ 6/13/98 6/14/97 --------- ------- Interest paid....... $133 $246 Income taxes paid... $232 $201 -8- MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS, CASH FLOWS AND LIQUIDITY AND CAPITAL RESOURCES Cautionary Statements From time to time, in written reports and oral statements, we discuss our expectations regarding PepsiCo's future performance. These "forward-looking statements" are based on currently available competitive, financial and economic data and our operating plans. They are also inherently uncertain, and investors must recognize that events could turn out to be significantly different from what we expect. General All per share information is computed using average shares outstanding, assuming dilution. Volume is the estimated dollar effect of the year-over-year change in case sales by company-owned bottling operations and concentrate unit sales to franchisees in Beverages, and in pound or kilo sales of salty and sweet snacks in Snack Foods. Effective net pricing includes price changes and the effect of product, package and country mix. Ongoing amounts exclude net unusual charges of $326 million ($238 million after- tax or $0.15 per share) and $304 million ($240 million after-tax or $0.15 per share) in the quarter and year-to-date 1997, respectively. Analysis of Consolidated Operations Net sales rose 3% or $172 million and $312 million in the quarter and year-to-date, respectively. The increases reflect volume gains in all businesses and higher effective net pricing by Worldwide Snack Foods, partially offset by an unfavorable foreign currency translation impact and the absence of sales in 1998 resulting from the refranchising of our Japanese bottler late in 1997. Cost of sales as a percent of net sales remained relatively flat to the prior year at 40.9% and 40.6% for the quarter and year-to-date, respectively. Higher potato costs in Worldwide Snack Foods and new product start-up costs in North American Snack Foods were offset by a favorable mix shift in International Beverages and the higher effective net pricing. The favorable mix shift in International Beverages to our higher margin concentrate business from packaged products reflects, in part, the 1997 refranchising of our Japanese bottler. Selling, general and administrative expenses (SG&A) comprises selling and distribution expenses (S&D), advertising and marketing expenses (A&M), general and administrative expenses (G&A), other income and expense and equity income or loss from investments in unconsolidated affiliates. SG&A grew 4% or $81 million and $161 million for the quarter and year-to-date, respectively, a slightly faster rate than sales. This growth primarily reflects A&M growing at a significantly faster rate than sales partially offset by S&D and year-to-date, G&A growing slower than sales. For the quarter, G&A expenses were below the prior year. -9- The A&M growth was led by Worldwide Beverages and year-to-date, North American Snack Foods also contributed to the A&M growth. The slower rate of growth in S&D is driven by the mix shift in International Beverages. The year-to-date growth in G&A includes higher spending on information systems related to the Year 2000 and increased executive compensation expense resulting from our deferred compensation liability, which is indexed to various investment options, including PepsiCo capital stock. Operating Profit ($ in millions) 12 Weeks Ended 24 Weeks Ended -------------------------- --------------------------- % % 6/13/98 6/14/97 Change 6/13/98 6/14/97 Change -------- ------- ------- -------- -------- ------- Reported $778 $436 78 $1,368 $1,017 35 Ongoing* $778 $762 2 $1,368 $1,321 4 * Excludes the effect of unusual charges as described on page 9. - --------------------------------------------------------------------------- Reported operating profit increased $342 million in the quarter and $351 million year-to-date. Ongoing operating profit increased $16 million and $47 million in the quarter and year-to-date, respectively, primarily reflecting segment operating profit growth of $11 million and $44 million for the comparable periods. Interest expense, net of interest income declined 44% and 50% or $48 million and $107 million for the quarter and year-to-date, respectively. The decline is primarily due to lower average U.S. debt levels and higher average worldwide investment levels, reflecting the significant cash flows received from discontinued operations in the latter half of 1997. This was partially offset by higher U.S. interest rates. Provision for Income Taxes ($ in millions) 12 Weeks Ended 24 Weeks Ended --------------- ---------------- 6/13/98 6/14/97 6/13/98 6/14/97 ------- ------ -------- ------- Reported Provision for Income Taxes $223 $151 $392 $311 Effective tax rate 31.1% 46.2% 31.0% 38.6% Ongoing* Provision for Income Taxes $223 $239 $392 $375 Effective tax rate 31.1% 36.6% 31.0% 34.6% * Excludes the effect of unusual charges as described on page 9. - --------------------------------------------------------------------------- Our reported effective tax rates decreased 15.1 points and 7.6 points in the quarter and year-to-date, respectively. The ongoing effective tax rates declined 5.5 points in the quarter and 3.6 points year-to-date reflecting, in part, favorable settlement of prior years' audit issues. -10- Income from Continuing Operations and Income Per Share ($ in millions expect per share amounts) 12 Weeks Ended 24 Weeks Ended % % 6/13/98 6/14/97 Change 6/13/98 6/14/97 Change Income from con- tinuing operations Reported $ 494 $ 176 NM $ 871 $ 494 76 Ongoing* $ 494 $ 414 19 $ 871 $ 734 19 Income per share from continuing operations Reported $ 0.33 $ 0.11 NM $ 0.57 $ 0.31 81** Ongoing* $ 0.33 $ 0.26 23** $ 0.57 $ 0.46 22** * Excludes the effect of unusual charges as described on page 9. ** Based on unrounded amounts. NM Not Meaningful. - -------------------------------------------------------------------------------- Reported income from continuing operations increased $318 million and $377 million while income per share increased $0.22 and $0.26 for the quarter and year-to-date, respectively. Ongoing income from continuing operations and income per share for the quarter and year-to-date increased $80 million and $137 million and $0.07 and $0.11, respectively. The ongoing increases are due to the lower net interest expense, the lower effective tax rate and year-to-date, growth in operating profit. In addition, income per share benefited from a 3% reduction in average shares outstanding for both the quarter and year-to-date. -11- PEPSICO, INC. AND SUBSIDIARIES SUPPLEMENTAL SCHEDULE OF NET SALES AND OPERATING PROFIT (a) ($ in millions, unaudited) Net Sales Operating Profit --------------------------- ----------------------------------- % % Change B/(W) ----------------- 12 Weeks Ended Change 12 Weeks Ended As ------------------ ---------------- 6/13/98 6/14/97 B/(W) 6/13/98 6/14/97 Rept'd Adjusted --------- -------- ------- ------- ------- ------ --------- (b) (c) Beverages -North America $1,989 $1,900 5 $362 $334 8 (6) -International 661 720 (8) 19 (172) NM NM --------- --------- ------- -------- 2,650 2,620 1 381 162 NM (3) Snack Foods -North America 1,802 1,668 8 351 312 13 9 -International 806 798 1 86 7 NM (5) --------- -------- ------- ------- 2,608 2,466 6 437 319 37 6 Combined Segments $5,258 $5,086 3 818 481 70 1 ========= ======== Unallocated Expenses (40) (45) 11 11 -------- ------- Operating Profit $778 $436 78 2 ======= ======= NM - Not Meaningful. Notes: (a) This schedule should be read in conjunction with Management's Discussion and Analysis beginning on page 14. Certain reclassifications were made to prior year amounts to conform with the 1998 presentation. (b) Includes the following unusual items: 1997 ------ Beverages - North America $ 52 - International 180 Snack Foods - North America 10 - International 84 ------ Net unusual charges $326 ====== (c) Excludes the effects of unusual items described in note (b) above. -12- PEPSICO, INC. AND SUBSIDIARIES SUPPLEMENTAL SCHEDULE OF NET SALES AND OPERATING PROFIT (a) ($ in millions, unaudited) Net Sales Operating Profit --------------------------- ----------------------------------- % % Change B/(W) ----------------- 24 Weeks Ended Change 24 Weeks Ended As ------------------ ---------------- 6/13/98 6/14/97 B/(W) 6/13/98 6/14/97 Rept'd Adjusted --------- -------- ------- ------- ------- ------ --------- (b) (c) Beverages -North America $3,642 $3,509 4 $ 620 $ 592 5 (4) -International 972 1,081 (10) 1 (199) NM NM --------- --------- ------- -------- 4,614 4,590 1 621 393 58 (1) Snack Foods -North America 3,433 3,191 8 659 595 11 9 -International 1,564 1,518 3 162 106 53 (4) --------- -------- ------- ------- 4,997 4,709 6 821 701 17 6 Combined Segments $9,611 $9,299 3 1,442 1,094 32 3 ========= ======== Unallocated Expenses (74) (77) 4 4 -------- ------- Operating Profit $1,368 $1,017 35 4 ======= ======= NM - Not Meaningful. Notes: (a) This schedule should be read in conjunction with Management's Discussion and Analysis beginning on page 14. Certain reclassifications were made to prior year amounts to conform with the 1998 presentation. (b) Includes the following unusual items: 1997 ------ Beverages - North America $ 52 - International 180 Snack Foods - North America 10 - International 62 ------ Net unusual charges $304 ====== (c) Excludes the effects of unusual items described in note (b) above. -13- Business Segments Beverages ($ in millions) 12 Weeks Ended 24 Weeks Ended --------------------------- ----------------------------- % % 6/13/98 6/14/97 Change 6/13/98 6/14/97 Change --------- -------- ------- --------- --------- ------- Net Sales North America $1,989 $1,900 5 $3,642 $3,509 4 International 661 720 (8) 972 1,081 (10) --------- -------- --------- --------- $2,650 $2,620 1 $4,614 $4,590 1 ========= ======== ========= ========= Operating Profit Reported North America $ 362 $ 334 8 $ 620 $ 592 5 International 19 (172) NM 1 (199) NM --------- -------- --------- -------- $ 381 $ 162 NM $ 621 $ 393 58 ========= ======== ========= ========= Ongoing* North America $ 362 $ 386 (6) $ 620 $ 644 (4) International 19 8 NM 1 (19) NM --------- -------- --------- --------- $ 381 $ 394 (3) $ 621 $ 625 (1) ========= ======== ========= ========= * Ongoing amounts exclude net unusual charges in 1997 of $232 ($52-North America, $180-International) in the quarter and year-to-date. NM - Not Meaningful. - ------------------------------------------------------------------------- System bottler case sales (BCS) is our standard volume measure. It represents PepsiCo-owned brands as well as brands we have been granted the right to produce, distribute and market nationally. Second quarter BCS includes the months of April and May. North America Net sales increased $89 million and $133 million in the quarter and year-to-date, respectively. The increases primarily reflect packaged products volume growth. BCS increased 7% in the quarter and 4% year-to-date, led by high-single-digit growth by our Mountain Dew brand and mid-single-digit growth in brand Diet Pepsi as well as single-digit growth in brand Pepsi in the quarter. Non-carbonated soft drink products, led by Aquafina bottled water, Lipton Brisk and Frappuccino coffee drink, grew at a double-digit rate. Our concentrate shipments to franchisees grew at a significantly slower rate than their BCS growth in the quarter. -14- Reported operating profit increased $28 million for both the quarter and year-to-date. Ongoing operating profit declined $24 million for both the quarter and year-to-date. The declines primarily reflect increased S&D, A&M and G&A costs partially offset by volume growth. S&D grew faster than sales and year-to-date, volume. The S&D growth reflects higher depreciation expense and labor costs associated with cooler and vendor placements. A&M expenses grew significantly faster than sales and volume. The G&A growth includes higher spending on information systems related to the Year 2000. The current quarter reflected the unfavorable effect of lapping a reversal of a restructuring accrual in 1997. International Net sales declined $59 million and $109 million in the quarter and year-to-date, respectively. The declines were primarily driven by the absence of sales in 1998 resulting from the refranchising of our Japanese bottler late in 1997. Volume gains and higher effective net pricing were substantially offset by unfavorable currency translation effects, led by Thailand, Spain and India. BCS increased 8% in the quarter and 7% year-to-date reflecting double-digit growth in Mexico, the Philippines and India. In addition, BCS more than doubled in Venezuela reflecting the momentum gained by our joint venture as it increases territories and capacity. These advances were partially offset by significantly lower volumes in Japan, the absence of sales volume in South Africa due to the cessation of our joint venture operation, and in the quarter, a decline in Brazil resulting from the transition to the new bottler Brahma. The decline in Japan reflects the elimination of certain of our brands, partially offset by double-digit growth in those of our brands continuing to be sold by our new bottler Suntory. Total concentrate shipments to franchisees for both the quarter and year-to-date increased at a significantly faster rate than their BCS. Reported operating results increased $191 million and $200 million in the quarter and year-to-date, respectively. Ongoing operating results increased $11 million in the quarter and $20 million year-to-date. The improved operating results reflect the higher volumes and effective net pricing partially offset by increases in A&M. -15- Snack Foods ($ in millions) 12 Weeks Ended 24 Weeks Ended ----------------------------- --------------------------- % % 6/13/98 6/14/97 Change 6/13/98 6/14/97 Change -------- -------- ------- -------- ------- ------- Net Sales North America $1,802 $1,668 8 $3,433 $3,191 8 International 806 798 1 1,564 1,518 3 -------- -------- -------- ------- $2,608 $2,466 6 $4,997 $4,709 6 ======== ======== ======== ======= Operating Profit Reported North America $ 351 $ 312 13 $ 659 $ 595 11 International 86 7 NM 162 106 53 -------- -------- -------- ------- $ 437 $ 319 37 $ 821 $ 701 17 ======== ======== ======== ======= Ongoing* North America $ 351 $ 322 9 $ 659 $ 605 9 International 86 91 (5) 162 168 (4) -------- -------- -------- ------- $ 437 $ 413 6 $ 821 $ 773 6 ======== ======== ======== ======= * Ongoing amounts exclude net unusual charges in 1997 of $94 ($10-North America, $84-International) and $72 ($10-North America, $62-International) in the quarter and year-to-date, respectively. - --------------------------------------------------------------------------- Pound and kilo sales are our standard volume measures. Pound and kilo growth are reported on a systemwide and constant territory basis, which includes currently consolidated businesses and unconsolidated affiliates reported for at least one year. North America Net sales grew $134 million for the quarter and $242 million year-to-date. The sales growth reflected increased volume and favorable mix shifts, including the effect of our new "WOW" no-fat product introduction. Pound volume advanced 5% and 6% for the quarter and year-to-date, respectively. Volume gains were led by "WOW" products and solid double-digit growth in Doritos brand tortilla chips. These gains were partially mitigated by declines in our "Baked" products and the elimination of Doritos Reduced Fat. Core potato chip pound volume (excluding low-fat and no-fat versions) declined 2% for the quarter due in part to an intentional reduction in production for two weeks to ration potatoes given a poor spring crop in Florida. -16- Reported operating profit grew $39 million and $64 million for the quarter and year-to-date, respectively. Ongoing operating profit grew $29 million and $54 million for the quarter and year-to-date, respectively. The increase for the quarter reflects the higher volume and favorable mix shifts, partially offset by higher potato and manufacturing costs and increased A&M expense. The year-to-date increase was driven by the higher volume, the favorable mix shifts and by non-operating items, partially offset by increased A&M, higher manufacturing costs and S&D expenses. Increased manufacturing costs are attributable to the start-up of plants and lines related to "WOW" and Doritos 3-D products. Year-to-date, A&M grew at a higher rate than sales and volume due to increased promotional allowances and "WOW" launch costs. International Net sales increased $8 million for the quarter and $46 million year-to-date. For the quarter, contributions from acquisitions and higher effective net pricing were substantially offset by the unfavorable impact of the stronger U.S. dollar. Year-to-date, volume gains, higher effective net pricing and contributions from acquisitions were partially offset by the unfavorable currency translation impact. Salty snack kilos increased 6% for the quarter and 8% year-to-date led by strong double-digit growth at Snack Ventures Europe and Sabritas partially offset by double-digit declines in Brazil. Sweet snack kilos declined 3% and 7% for the quarter and year-to-date, respectively, reflecting continued market softness at Gamesa. Including acquisitions/divestitures, salty snack kilos increased 17% and 14% for the quarter and year-to-date, respectively, while sweet snack kilos declined 9% and 10% for the same periods. Reported operating profit increased $79 million and $56 million for the quarter and year-to-date, respectively. Ongoing operating profit decreased $5 million for the quarter and $6 million year-to-date. A deterioration of operating performance in Brazil and market softness at Gamesa were partially offset by strong double-digit growth at Sabritas. Operating performance was also impacted by increased raw material costs resulting from lower potato yields in Europe. -17- Cash Flows PepsiCo's 1998 consolidated cash and cash equivalents decreased $1.6 billion compared to a $318 million increase in 1997. The unfavorable swing of $1.9 billion reflects the absence of cash provided by discontinued operations, increased cash outflows for share repurchases, acquisitions and investments in unconsolidated affiliates, and changes in operating working capital. The absence of proceeds from the 1997 formation of a Real Estate Investment Trust (REIT) and net debt repayments in 1998 compared to net proceeds in 1997 also contributed to the unfavorable swing. These were partially offset by net proceeds from our investment portfolios compared to a net use of cash for short-term investing activities in the prior year. Our share repurchase activity was as follows: 24 Weeks Ended ------------------ ($ and shares in millions) 6/13/98 6/14/97 --------- ------- Cost $1,723 $ 890 Number of shares repurchased 45.6 26.7 % of shares outstanding at beginning of year 3.0% 1.7% The increase in acquisitions and investments in unconsolidated affiliates includes the purchase of a bottler in Canada, the Cracker Jack brand, the remaining ownership interest in our snack food business Wedel in Poland and various International salty snack food businesses in 1998. The changes in operating working capital reflects a decline in accounts payable and other current liabilities primarily due to higher accruals recorded in 1997 and timing of payments, and growth in accounts and notes receivable due to increased sales volume and timing of collections. These uses of cash were partially offset by an increase in income taxes currently payable compared to a decline in the prior year. -18- Liquidity and Capital Resources On July 20, 1998 we announced our plan to purchase the Tropicana juice business from The Seagram Company Ltd. for $3.3 billion in cash. This acquisition is expected to close by the end of August and will be funded largely by the issuance of commercial paper which may result in an increase to our revolving credit facilities. Please refer to our 1997 Annual Report on Form 10-K for further discussion regarding our Liquidity and Capital Resources. -19- Independent Accountants' Review Report The Board of Directors PepsiCo, Inc. We have reviewed the accompanying condensed consolidated balance sheet of PepsiCo, Inc. and Subsidiaries as of June 13, 1998 and the related condensed consolidated statements of income and comprehensive income for the twelve and twenty-four weeks ended June 13, 1998 and June 14, 1997 and the condensed consolidated statement of cash flows for the twenty-four weeks ended June 13, 1998 and June 14, 1997. These financial statements are the responsibility of PepsiCo, Inc.'s management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of PepsiCo, Inc. and Subsidiaries as of December 27, 1997, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended not presented herein; and in our report dated February 3, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 27, 1997, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Our report, referred to above, contains an explanatory paragraph that states that PepsiCo, Inc. in 1995 adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." KPMG Peat Marwick LLP New York, New York July 16, 1998 -20- PART II - OTHER INFORMATION AND SIGNATURES Item 4. Submission of Matters to a Vote of Security Holders (a)PepsiCo's Annual Meeting of Shareholders was held on May 6, 1998. (c)Certain proposals voted upon at the Annual Meeting, and the number of votes cast for, against and abstentions with respect to each, were as follows: Description of Proposals Number of Shares (in millions) For Against Abstain Approval of the appointment of KPMG Peat Marwick LLP as independent auditors. 1,272 3 4 Shareholders' proposal concerning the location of the annual meeting. 48 973 25 Shareholders' proposal concerning cumulative voting. 255 732 59 Shareholders' proposal concerning a cap on non- performance based executive compensation. 68 958 20 Item 5. Other Information Any shareholder proposal submitted with respect to PepsiCo's 1999 Annual Meeting of Shareholders, which proposal is submitted outside the requirements of Rule 14a-8 under the Securities Exchange Act of 1934, will be considered untimely for purposes of Rules 14a-4 and 14a-5 if notice thereof is received by PepsiCo after February 10, 1999. Item 6. Exhibits and Reports on Form 8-K (a)Exhibits See Index to Exhibits on page 23. (b)Reports on Form 8-K PepsiCo filed a current report on Form 8-K dated July 24, 1998 attaching the PepsiCo, Inc. press release of July 20, 1998 announcing the planned acquisition of the Tropicana juice business from The Seagram Company Ltd. -21- Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned. PEPSICO, INC. (Registrant) Date: July 27, 1998 Sean F. Orr Senior Vice President and Controller Date: July 27, 1998 Lawrence F. Dickie Vice President, Associate General Counsel and Assistant Secretary -22- INDEX TO EXHIBITS ITEM 6 (a) EXHIBITS Exhibit 11 Computation of Net Income Per Share of Capital Stock - Basic and Assuming Dilution Exhibit 12 Computation of Ratio of Earnings to Fixed Charges Exhibit 15 Letter from KPMG Peat Marwick LLP regarding Unaudited Interim Financial Information (Accountants' Acknowledgment) Exhibit 27.1 Financial Data Schedule 24 weeks ended June 13, 1998 Exhibit 27.2 Financial Data Schedule 24 weeks ended June 14, 1997 -23- EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 PEPSICO, INC. AND SUBSIDIARIES Computation of Net Income Per Share of Capital Stock (in millions except per share amounts, unaudited) 12 Weeks Ended 24 Weeks Ended ------------------ ------------------- 6/13/98 6/14/97 6/13/98 6/14/97 -------- -------- --------- -------- Shares outstanding at beginning of period.......... 1,491 1,539 1,502 1,545 Weighted average of shares issued during the period for exercise of stock options... 3 3 12 6 Weighted average shares repurchased.................. (9) (8) (23) (12) ------ ------- --------- --------- Average shares outstanding - Basic........................ 1,485 1,534 1,491 1,539 Effect of dilutive securities Dilutive shares contingently issuable upon the exercise of stock options........... 155 152 158 152 Shares assumed to have been purchased for treasury with assumed proceeds from the exercise of stock options... (110) (111) (115) (112) ------ -------- --------- -------- Average shares outstanding - Assuming dilution........... 1,530 1,575 1,534 1,579 ====== ======= ========= ======== Income from Continuing Operations................... $494 $176 $871 $ 494 Income from Discontinued Operations.................... - 480 - 589 ------ ------- --------- -------- Net Income.................... $494 $656 $871 $1,083 ====== ======= ========= ======== Income per share - Basic Continuing Operations....... $0.33 $0.11 $0.58 $0.32 Discontinued Operations..... - 0.31 - 0.38 ------ ------- --------- -------- Net Income.................. $0.33 $0.42 $0.58 $0.70 ====== ======= ========= ======== Income per share - Assuming dilution Continuing Operations....... $0.33 $0.11 $0.57 $0.31 Discontinued Operations..... - 0.31 - 0.38 ------ ------- --------- -------- Net Income.................. $0.33 $0.42 $0.57 $0.69 ====== ======= ========= ======== -24- EX-12 3 STATEMENT RE COMPUTATION OF RATIOS EXHIBIT 12 PEPSICO, INC. AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges (in millions except ratio amounts, unaudited) 24 Weeks Ended ---------------- 6/13/98 6/14/97 ------- ------- Earnings: (a) Income from continuing operations before income taxes.......... $1,263 $ 805 Joint ventures and minority interests, net................ 1 8 Amortization of capitalized interest...................... 3 2 Interest expense............... 152 235 Interest portion of rent expense (b)................... 21 20 ------- ------- Earnings available for fixed charges....................... $1,440 $1,070 ======= ======= Fixed Charges: Interest expense.............. $ 152 $ 235 Capitalized interest.......... 6 4 Interest portion of rent expense (b)................... 21 20 ------- ------- Total fixed charges.......... $ 179 $ 259 ======= ======= Ratio of Earnings to Fixed Charges....................... 8.04 4.13 ======= ======= (a) Included $304 of unusual charges in 1997. Excluding the unusual charges, the ratio of earnings to fixed charges for the 24 weeks ended June 14, 1997 would have been 5.31. (b) One-third of net rent expense is the portion deemed representative of the interest factor. -25- EX-15 4 LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION EXHIBIT 15 Accountants' Acknowledgment The Board of Directors PepsiCo, Inc. We hereby acknowledge our awareness of the use of our report dated July 16, 1998 included within the Quarterly Report on Form 10-Q of PepsiCo, Inc. for the twelve and twenty-four weeks ended June 13, 1998, and incorporated by reference in the following Registration Statements and in the related Prospectuses: Registration Description Statement Number Form S-3 PepsiCo SharePower Stock Option Plan for PCDC Employees 33-42121 $32,500,000 Puerto Rico Industrial, Medical and Environmental Pollution Control Facilities Financing Authority Adjustable Rate Industrial Revenue Bonds 33-53232 Extension of the PepsiCo SharePower Stock Option Plan to Employees of Snack Ventures Europe, a joint venture between PepsiCo Foods International and General Mills, Inc. 33-50685 $4,587,000,000 Debt Securities and Warrants 33-64243 Form S-8 PepsiCo SharePower Stock Option Plan 33-35602, 33-29037, 33-42058, 33-51496, 33-54731 & 33-66150 1988 Director Stock Plan 33-22970 1979 Incentive Plan and the 1987 Incentive Plan 33-19539 1994 Long-Term Incentive Plan 33-54733 1995 Stock Option Incentive Plan 33-61731 & 333-09363 1979 Incentive Plan 2-65410 PepsiCo, Inc. Long Term Savings Program 2-82645, 33-51514 & 33-60965 Pursuant to Rule 436(c) of the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. KPMG Peat Marwick LLP New York, New York July 27, 1998 -26- EX-27.1 5 FINANCIAL DATA SCHEDULE FOR SECOND QUARTER 10-Q - JUNE 13, 1998
5 This Schedule Contains Summary Financial Information Extracted from PepsiCo, Inc. and Subsidiaries Condensed Consolidated Financial Statements for the 24 Weeks Ended June 13, 1998 and is Qualified in its Entirety by Reference to such Financial Statements. 0000077476 PepsiCo, Inc. 1,000,000 Dec-27-1997 Jun-13-1998 6-MOS 375 201 2,632 125 881 4,558 11,940 5,387 18,893 4,066 4,679 29 0 0 6,046 18,893 9,611 9,611 3,898 3,898 0 15 152 1,263 392 871 0 0 0 871 0.58 0.57
EX-27.2 6 FINANCIAL DATA SCHEDULE FOR SECOND QUARTER 10-Q - JUNE 14, 1997
5 This Schedule Contains Summary Financial Information Extracted from PepsiCo, Inc. and Subsidiaries Condensed Consolidated Financial Statements for the 24 Weeks Ended June 14, 1997 and is Qualified in its Entirety by Reference to such Financial Statements. 0000077476 PepsiCo, Inc. 1,000,000 Dec-28-1996 Jun-14-1997 6-MOS 625 331 3,250 138 838 5,485 10,732 4,731 22,372 4,845 7,300 29 0 0 6,591 22,372 9,299 9,299 3,790 3,790 0 26 235 805 311 494 589 0 0 1,083 0.70 0.69
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