View:
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 March 21, 1998 (12 weeks)
----------------------------
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 April 17, 1998:
1,491,032,028
PEPSICO, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I Financial Information
Condensed Consolidated Statement of Income -
12 weeks ended March 21, 1998 and March 22, 1997 ...... 2
Condensed Consolidated Statement of Comprehensive Income -
12 weeks ended March 21, 1998 and March 22, 1997 ...... 3
Condensed Consolidated Statement of Cash Flows -
12 weeks ended March 21, 1998 and March 22, 1997 ...... 4-5
Condensed Consolidated Balance Sheet -
March 21, 1998 and December 27, 1997 .................. 6-7
Notes to Condensed Consolidated Financial Statements ..... 8-9
Management's Discussion and Analysis of Operations,
Cash Flows and Liquidity and Capital Resources ........ 10-18
Independent Accountants' Review Report ................... 19
Part II Other Information and Signatures.......................... 20-21
-1-
PART I - FINANCIAL INFORMATION
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in millions except per share amounts, unaudited)
12 Weeks
Ended
3/21/98 3/22/97
Net Sales ............................................ $ 4,353 $ 4,213
Costs and Expenses, net
Cost of sales ...................................... 1,750 1,721
Selling, general and administrative expenses ....... 1,969 1,867
Amortization of intangible assets .................. 44 44
------- -------
Operating Profit...................................... 590 581
Interest expense.................................... (76) (115)
Interest income..................................... 32 12
------- -------
Income from Continuing Operations
Before Income Taxes................................. 546 478
Provision for Income Taxes............................ 169 160
------- -------
Income from Continuing Operations..................... 377 318
Income from Discontinued Operations, net of tax....... - 109
------- -------
Net Income ........................................... $ 377 $ 427
======= =======
Income Per Share - Basic
Continuing Operations .............................. $ 0.25 $ 0.21
Discontinued Operations............................. - 0.07
------- -------
Net Income ......................................... $ 0.25 $ 0.28
======= =======
Average shares outstanding.......................... 1,496 1,544
Income Per Share - Assuming Dilution
Continuing Operations .............................. $ 0.24 $ 0.20
Discontinued Operations............................. - 0.07
------- -------
Net Income ......................................... $ 0.24 $ 0.27
======= =======
Average shares outstanding.......................... 1,539 1,583
Cash Dividends Declared Per Share .................... $ 0.125 $ 0.115
See accompanying notes.
-2-
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
(in millions, unaudited)
12 Weeks
Ended
3/21/98 3/22/97
Net Income................................................ $ 377 $ 427
Other Comprehensive Income/(Loss)
Currency translation adjustment
(net of tax expense of $1 - 3/97)...................... (19) (143)
Less: Reclassification adjustment for items realized in
net income............................................. - 29
----- -----
(19) (114)
----- -----
Comprehensive Income...................................... $ 358 $ 313
===== =====
See accompanying notes.
-3-
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions, unaudited)
12 Weeks
Ended
3/21/98 3/22/97
Cash Flows - Operating Activities
Income from Continuing Operations ..................... $ 377 $ 318
Adjustments to reconcile income from continuing
operations to net cash provided by
operating activities
Depreciation and amortization..................... 246 231
Deferred income taxes............................. 16 5
Other noncash charges and credits, net............ 73 29
Changes in operating working capital, excluding
effects of acquisitions and dispositions
Accounts and notes receivable.................. 2 73
Inventories.................................... (69) 20
Prepaid expenses, deferred income taxes and
other current assets.......................... (70) (97)
Accounts payable and other current liabilities. (503) (581)
Income taxes payable........................... 202 99
---- ----
Net change in operating working capital........... (438) (486)
---- ----
Net Cash Provided by Operating Activities................. 274 97
---- ----
Cash Flows - Investing Activities
Capital spending....................................... (228) (291)
Acquisitions and investments in unconsolidated
affiliates ........................................... (192) (2)
Sales of businesses.................................... - 62
Sales of property, plant and equipment................. 13 15
Short-term investments, by original maturity
More than three months - purchases............... (170) (16)
More than three months - maturities................. 217 67
Three months or less, net........................... 736 5
Other, net............................................. (63) 48
---- ----
Net Cash Provided by (Used for) Investing Activities...... 313 (112)
---- ----
Continued on next page.
-4-
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(in millions, unaudited)
12 Weeks
Ended
3/21/98 3/22/97
Cash Flows - Financing Activities
Proceeds from issuances of long-term debt................ 544 -
Payments of long-term debt............................. (785) (927)
Short-term borrowings, by original maturity
More than three months - proceeds................... 49 33
More than three months - payments................... (22) (127)
Three months or less, net........................... (29) 1,076
Proceeds from formation of REIT........................ - 296
Cash dividends paid.................................... (188) (172)
Share repurchases...................................... (877) (378)
Proceeds from exercises of stock options............... 192 72
------- -------
Net Cash Used for Financing Activities.................... (1,116) (127)
------- -------
Net Cash Provided by Discontinued Operations.............. - 158
Effect of Exchange Rate Changes on Cash and Cash
Equivalents ............................................. (1) (1)
------- -------
Net (Decrease) Increase in Cash and Cash Equivalents...... (530) 15
Cash and Cash Equivalents - Beginning of year ............ 1,928 307
------- -------
Cash and Cash Equivalents - End of period ................ $ 1,398 $ 322
======= =======
See accompanying notes.
-5-
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
(Unaudited)
3/21/98 12/27/97
Current Assets
Cash and cash equivalents ......................... $ 1,398 $ 1,928
Short-term investments, at cost.................... 172 955
-------- --------
1,570 2,883
Accounts and notes receivable, less
allowance: 3/98 - $123, 12/97 - $125............ 2,132 2,150
Inventories
Raw materials and supplies..................... 426 400
Finished goods................................. 379 332
-------- --------
805 732
Prepaid expenses, deferred income taxes and
other current assets............................. 556 486
-------- --------
Total Current Assets....................... 5,063 6,251
Property, Plant and Equipment ........................ 11,493 11,294
Accumulated Depreciation.............................. (5,189) (5,033)
-------- --------
6,304 6,261
Intangible Assets, net................................ 5,889 5,855
Investments in Unconsolidated Affiliates.............. 1,183 1,201
Other Assets.......................................... 746 533
-------- --------
Total Assets ............................... $ 19,185 $ 20,101
======== ========
Continued on next page.
-6-
PEPSICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (continued)
(in millions except per share amount)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
3/21/98 12/27/97
Current Liabilities
Accounts payable and other current liabilities ........ $ 3,065 $ 3,617
Income taxes payable................................... 756 640
-------- --------
Total Current Liabilities....................... 3,821 4,257
Long-term Debt............................................ 4,715 4,946
Other Liabilities......................................... 2,406 2,265
Deferred Income Taxes..................................... 1,724 1,697
Shareholders' Equity
Capital stock, par value 1 2/3 cents per share:
authorized 3,600 shares, issued 3/98
and 12/97 - 1,726 shares............................ 29 29
Capital in excess of par value......................... 1,290 1,314
Retained earnings ..................................... 11,758 11,567
Currency translation adjustment........................ (1,007) (988)
-------- --------
12,070 11,922
Less: Treasury Stock, at Cost:
3/98 - 235 shares, 12/97 - 224 shares............... (5,551) (4,986)
-------- --------
Total Shareholders' Equity...................... 6,519 6,936
-------- --------
Total Liabilities and Shareholders' Equity . $ 19,185 $ 20,101
======== ========
See accompanying notes.
-7-
PEPSICO, INC. AND SUBSIDIARIES
(unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Our Condensed Consolidated Balance Sheet at March 21, 1998 and the Condensed
Consolidated Statements of Income, Comprehensive Income and Cash Flows for the
12 weeks ended March 21, 1998 and March 22, 1997 have not been audited, and all
but the Condensed Consolidated Statement of Comprehensive Income (Note 2) 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.
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 weeks are not necessarily indicative of the results expected for the
year.
(2) As of December 28, 1997, PepsiCo adopted Statement of Position 98-1 (SOP),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," issued by The American Institute of Certified Public Accountants
in March, 1998. The SOP requires capitalization of certain costs related to
computer software developed or obtained for internal use which PepsiCo had
previously expensed in selling, general and administrative expenses. The amount
capitalized under the SOP in the first quarter of 1998 was immaterial. PepsiCo
does not expect the full-year impact of adopting the SOP to be material to its
consolidated results.
As of December 28, 1997, PepsiCo adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income," issued in June
1997. SFAS 130 requires the reporting and display of comprehensive income, which
is composed of net income and other comprehensive income items, in a full set of
general purpose financial statements. Other comprehensive income items are
revenues, expenses, gains and losses that under generally accepted accounting
principles are excluded from net income and reflected as a component of equity;
such as currency translation and minimum pension liability adjustments.
(3) Through the 12 weeks ended March 21, 1998, PepsiCo repurchased 24.4 million
shares of its capital stock at a cost of $877 million. From March 22, 1998
through May 4, 1998, PepsiCo repurchased 4.0 million shares at a cost of $169
million.
-8-
(4) Supplemental Cash Flow Information
12 Weeks
Ended
3/21/98 3/22/97
Cash Flow Data
Interest paid.................................... $ 64 $121
Income taxes paid................................ $ 51 $ 63
-9-
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 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.
Analysis of Consolidated Operations
Net sales rose $140 million or 3% reflecting 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
resulting from the refranchising of our Japanese bottler late in 1997.
Cost of sales as a percent of net sales decreased 0.6 points to 40.2% primarily
due to lower product costs in Worldwide Beverages and higher effective net
pricing in International Snack Foods, partially offset by lower potato yields in
Europe.
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 5%, a faster rate
than sales. This primarily reflects A&M growing at a significantly faster rate
than sales driven by Worldwide Beverages and North American Snack Foods, as well
as an increase in G&A. The increased G&A reflects higher executive compensation
expense resulting from our deferred compensation liability, which is indexed to
various investment options, including PepsiCo capital stock. S&D grew slightly
slower than sales.
-10-
Amortization of intangible assets remained even with the prior year as the
effect of reducing intangible assets, as part of the unusual charges recorded
during the second quarter of 1997, was offset by an increase in intangible
assets resulting from our recent Snack Foods acquisitions.
Operating Profit increased $9 million or 2% to $590 million reflecting segment
operating profit growth of $11 million or 2%, partially offset by a $2 million
or 6% increase in unallocated expenses. The segment operating profit growth
reflects the increased volume and higher effective net pricing, which was
substantially offset by increased operating costs. Segment operating profit
growth also benefited from non-operating gains in North American Beverages and
North American Snack Foods, which were mostly offset by lapping a 1997 gain from
the sale of an investment in a non-core international snack food business.
Unallocated expenses include the increased executive compensation partially
offset by credits related to centrally managed insurance programs.
Interest expense, net of interest income, declined $59 million or 57%, 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.
Provision for Income Taxes increased by $9 million or 6%. The effective tax rate
decreased 2.5 points to 31.0% primarily reflecting reserve reversals related to
settlement of prior years' audit issues and lapping the high effective tax rate
associated with the 1997 gain arising from the sale of the non-core investment
partially offset by an increase in foreign tax expense.
Income from Continuing Operations increased $59 million or 19% while Income Per
Share from Continuing Operations increased $0.04 or 20% to $0.24. The increases
were due to the lower net interest expense, the non-operating gains and the
lower effective tax rate. In addition, income per share benefited from a 3%
reduction in average shares outstanding.
Comprehensive Income increased $45 million or 14% due to a decline in other
comprehensive losses, driven by lapping unfavorable 1997 currency translation
effects of rate devaluations in the UK and Spain, partially offset by lower net
income, reflecting the absence of income from discontinued operations.
-11-
PEPSICO, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE OF NET SALES AND OPERATING PROFIT (a)
($ in millions, unaudited)
Net Sales Operating Profit (b)
% %
12 Weeks Ended Change 12 Weeks Ended Change
3/21/98 3/22/97 B/(W) 3/21/98 3/22/97 B/(W)
Beverages
- - North America $1,653 $1,609 3 $ 258 $ 258 -
- - International 311 361 (14) (18) (27) 33
------ ------ ----- -----
1,964 1,970 - 240 231 4
Snack Foods
- - North America $1,631 1,523 7 308 283 9
- - International 758 720 5 76 99 (23)
------ ----- ----- -----
2,389 2,243 7 384 382 1
Combined Segments $4,353 $4,213 3 624 613 2
====== ======
Unallocated Expenses (34) (32) (6)
----- -----
Operating Profit $ 590 $ 581 2
===== =====
Notes:
(a) This schedule should be read in conjunction with Management's Analysis
beginning on page 13. Certain reclassifications were made to prior year
amounts to conform with the 1998 presentation.
(b) Non-operating gains are included in North American Beverages and North
American Snack Foods in 1998 and in International Snack Foods in 1997. The
percent change in combined segments operating profit was not materially
affected by these non-operating gains.
-12-
Segments of The Business
Beverages
($ in millions)
12 Weeks Ended %
3/21/98 3/22/97 Change
Net Sales
North America $1,653 $1,609 3
International 311 361 (14)
------ ------
$1,964 $1,970 -
====== ======
Operating Profit
North America $ 258 $ 258 -
International (18) (27) 33
------ ------
$ 240 $ 231 4
====== ======
- -------------------------------------------------------------------------
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. First quarter BCS includes the months
of January, February and March.
North America
Net sales increased $44 million primarily reflecting packaged products volume
growth.
BCS increased 2.5%, led by mid-single-digit growth by our Mountain Dew brand.
Non-carbonated soft drink products, led by Aquafina bottled water and
Frappuccino coffee drink grew at a strong double-digit rate. Our concentrate
shipments to franchisees grew at a faster rate than their BCS growth.
Operating profit was even with the prior year reflecting the volume growth,
non-operating gains and lower product costs, offset by increased A&M and S&D
costs. S&D grew faster than sales and volume reflecting higher depreciation
expense associated with an aggressive cooler and vendor placement program which
commenced in the second half of 1997. A&M and G&A expenses grew significantly
faster than sales and volume. The G&A growth includes the increased executive
compensation and higher spending on information systems.
-13-
International
Net sales declined $50 million. The decline was primarily driven by the absence
of sales resulting from the refranchising of our Japanese bottler late in 1997.
Volume gains were substantially offset by unfavorable currency translation
effects, led by Spain and Thailand.
BCS increased 6% as volume more than doubled in the Philippines, while
Mexico grew at a double-digit rate. In addition, BCS more than doubled in
Venezuela reflecting the momentum of our joint venture. These advances were
partially offset by the absence of sales volume in South Africa, due to the
cessation of our joint venture operation and, significantly lower volumes in
Japan. The decline in Japan reflects the elimination of certain beverages
previously sold, partially offset by double-digit growth in our remaining
brands. Total concentrate shipments to franchisees increased at a faster rate
than their BCS.
Operating losses declined $9 million. The improved operating results
reflect higher volumes, lower product costs and reduced G&A, partially offset by
increases in A&M. The favorable product costs were driven by reductions in
certain duty rates and lower packaging costs, while efficiencies from our 1996
restructuring continue to benefit G&A.
-14-
Snack Foods
($ in millions)
12 Weeks Ended %
3/21/98 3/22/97 Change
Net Sales
North America $1,631 $1,523 7
International 758 720 5
------ ------
$2,389 $2,243 7
====== ======
Operating Profit
North America $ 308 $ 283 9
International 76 99 (23)
------ ------
$ 384 $ 382 1
====== ======
- ---------------------------------------------------------------------------
Pound and kilo sales are our standard volume measures. Pound and kilo growth are
reported on a systemwide basis, which includes currently consolidated businesses
and unconsolidated affiliates reported for at least one year.
North America
Net sales grew $108 million reflecting increased volume and favorable mix
shifts, including the effect of our new "WOW" product introduction.
Pound volume advanced 6%. Growth of our core brands, excluding their
low-fat and no-fat versions, was led by high double-digit growth in Lay's brand
potato chips and single-digit growth in Doritos brand tortilla chips. These
gains were partially offset by declines in our "Baked" products and the
elimination of Doritos Reduced Fat.
Operating profit grew $25 million, reflecting volume growth and a
non-operating gain, partially offset by higher A&M and S&D expenses. A&M grew at
twice the rate of sales and volume due to increased promotional allowances. G&A
grew slightly faster than sales due to the increased executive compensation.
-15-
International
Net sales increased $38 million reflecting volume gains, primarily driven by
Sabritas. Higher effective net pricing was fully offset by the impact of the
stronger U.S. dollar.
Salty snack kilos rose 10%, led by strong double-digit growth at Sabritas
and our Snack Ventures Europe joint venture, while sweet snack kilos declined
5%, due to continued market softness at Gamesa.
Operating profit decreased $23 million, primarily reflecting higher
operating costs and the effect of lapping the 1997 gain on the sale of a
non-core investment, partially offset by the higher effective net pricing and
the volume gains. Higher operating costs primarily reflect increased raw
material costs resulting from lower potato yields in Europe.
-16-
Cash Flows
Please refer to our 1997 Annual Report on Form 10-K for information regarding
our Liquidity and Capital Resources.
PepsiCo's 1998 consolidated cash and cash equivalents decreased $530 million
compared to a $15 million increase in 1997. The unfavorable swing primarily
reflects increased share repurchases, net debt repayments in 1998 compared to
net proceeds in 1997 and the absence of proceeds from the 1997 formation of a
Real Estate Investment Trust (REIT). These were partially offset by increased
proceeds from our investment portfolios.
Net cash provided by operating activities nearly tripled to $274 million,
reflecting an increase in income before all noncash charges and credits and
lower operating working capital growth, driven by a first quarter tax refund
that was used to offset payments.
Net cash provided by (used for) investing activities reflects a favorable swing
of $425 million resulting in cash provided of $313 million in 1998. The swing is
due to $727 million of increased proceeds from our short-term investment
portfolios, partially offset by a $190 million increase in acquisitions and
investments in unconsolidated affiliates and an increase in various other
investing activities, which was due to a number of individually immaterial
items. In the first quarter of 1998, we purchased the Cracker Jack brand and the
remaining ownership interest in a previously unconsolidated affiliate.
Net cash used for financing activities increased $989 million to $1.1 billion.
The increase primarily reflects increased share repurchases of $499 million and
a $298 million swing in debt related cash flows, as well as the absence of the
1997 REIT proceeds of $296 million.
Our share repurchase activity was as follows:
12 Weeks
Ended
($ and shares in millions) 3/21/98 3/22/97
Cost $ 877 $ 378
Number of shares repurchased 24.4 11.7
% of shares outstanding at
beginning of year 1.6% .8%
-17-
Free cash flow is a measure we use internally to evaluate our cash flow
performance and should be considered in addition to, but not as a substitute
for, other measures of financial performance in accordance with generally
accepted accounting principles. These funds provide us with flexibility to
reduce our debt outstanding, repurchase shares or make strategic investments and
acquisitions.
12 Weeks
Ended
($ in millions) 3/21/98 3/22/97
Earnings before interest, taxes,
depreciation and amortization $ 836 $ 812
Interest expense, net (44) (103)
Provision for income taxes (169) (160)
Other noncash items and working
capital (349) (452)
----- -----
Net cash provided by operating
activities 274 97
Investing activities
Capital spending (228) (291)
Sales of businesses - 62
Sales of property, plant and
equipment 13 15
Other, net (63) 48
----- -----
Free cash flow before cash
dividends paid (4) (69)
Cash dividends paid (188) (172)
----- -----
Free cash flow
Continuing operations (192) (241)
Discontinued operations - 158
----- -----
$(192) $ (83)
===== =====
The $109 million increase in our negative free cash flow primarily reflects the
absence of the cash flows from discontinued operations. The $49 million decline
in our negative free cash flow from continuing operations primarily reflects the
increase in net cash provided by operating activities partially offset by the
unfavorable swing in other investing activities. The negative free cash flow
reflects the seasonality of our business.
-18-
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 March 21, 1998 and the related condensed
consolidated statements of income, comprehensive income and cash flows for the
twelve weeks ended March 21, 1998 and March 22, 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
April 28, 1998
-19-
PART II - OTHER INFORMATION AND SIGNATAURES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits on page 22.
(b) Reports on Form 8-K
None
-20-
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: May 4, 1998 Sean F. Orr
Senior Vice President and
Controller
Date: May 4, 1998 Lawrence F. Dickie
Vice President, Associate General
Counsel and Assistant Secretary
-21-
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 12 weeks ended March 21, 1998
Exhibit 27.2 Financial Data Schedule 12 weeks ended March 22, 1997
-22-
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
3/21/98 3/22/97
Shares outstanding at beginning of period ........... 1,502 1,545
Weighted average of shares issued during
the period for exercise of stock options.......... 6 3
Weighted average shares repurchased.................. (12) (4)
------ ------
Average shares outstanding - Basic................... 1,496 1,544
Effect of dilutive securities
Dilutive shares contingently issuable
upon the exercise of stock options............... 162 153
Shares assumed to have been purchased
for treasury with assumed proceeds
from the exercise of stock options.............. (119) (114)
------ ------
Average shares outstanding - Assuming dilution ...... 1,539 1,583
====== ======
Income from Continuing Operations ................... $ 377 $ 318
Income from Discontinued Operations.................. - 109
------ ------
Net Income .......................................... $ 377 $ 427
====== ======
Income per share - Basic
Continuing Operations ............................. $ 0.25 $ 0.21
Discontinued Operations............................ - 0.07
------ ------
Net Income ........................................ $ 0.25 $ 0.28
====== ======
Income per share - Assuming dilution
Continuing Operations ............................. $ 0.24 $ 0.20
Discontinued Operations............................ - 0.07
------ ------
Net Income ........................................ $ 0.24 $ 0.27
====== ======
-23-
EXHIBIT 12
PEPSICO, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges (page 1 of 2)
(in millions except ratio amounts, unaudited)
12 Weeks Ended
3/21/98 3/22/97
Earnings: .................................. (b)
Income from continuing operations
before income taxes ...................... $ 546 $ 478
Joint ventures and minority
interests, net............................ 3 (6)
Amortization of capitalized interest........ 1 -
Interest expense............................ 76 115
Interest portion of rent expense (a)........ 11 10
----- -----
Earnings available for fixed charges ..... $ 637 $ 597
===== =====
Fixed Charges:
Interest expense ........................... $ 76 $ 115
Capitalized interest........................ 4 2
Interest portion of rent expense (a) ....... 11 10
----- -----
Total fixed charges ...................... $ 91 $ 127
===== =====
Ratio of Earnings to Fixed Charges ......... 7.00 4.70
===== =====
(a) One-third of net rent expense is the portion deemed representative of the
interest factor.
(b) Included the impact of an unusual gain of $22. Excluding the gain, the
ratio of earnings to fixed charges would have been 4.53.
-24-
EXHIBIT 12
PEPSICO, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges (page 2 of 2)
(in millions except ratio amounts)
52 Weeks Ended 53 Weeks 52 Weeks
------------------------ Ended Ended
Earnings: 12/27/97 12/28/96 12/30/95 12/31/94 12/25/93
Income from continuing operations
before income taxes and cumulative
effect of accounting changes...... $2,309 $1,566 $2,091 $1,991 $1,694
Unconsolidated affiliates
interests, net..................... 17 273 26 (12) 4
Amortization of capitalized
interest........................... 6 4 6 5 4
Interest expense................... 478 565 629 596 527
Interest portion of net rent
expense (a)....................... 43 48 41 38 43
------ ------ ------ ------ ------
Earnings available for fixed
charges......................... $2,853 $2,456 $2,793 $2,618 $2,272
====== ====== ====== ====== ======
Fixed Charges:
Interest expense................. $ 478 $ 565 $ 629 $ 596 $ 527
Capitalized interest............. 18 8 10 5 7
Interest portion of net rent
expense (a) .................... 43 48 41 38 43
------ ------ ------ ------ ------
Total fixed charges.......... $ 539 $ 621 $ 680 $ 639 $ 577
====== ====== ====== ====== ======
Ratio of Earnings to Fixed
Charges (b) .................... 5.29 3.95 4.11 4.10 3.94
====== ====== ====== ====== ======
(a) One-third of net rent expense is the portion deemed representative of the
interest factor.
(b) Included the impact of unusual items of $290, $576 and $66 in 1997, 1996
and 1995, respectively. Excluding those charges, the ratio of earnings to
fixed charges for 1997, 1996 and 1995 would have been 5.83, 4.88 and 4.20,
respectively.
-25-
EXHIBIT 15
Accountants' Acknowledgment
The Board of Directors
PepsiCo, Inc.
We hereby acknowledge our awareness of the use of our report dated April 28,
1998 included within the Quarterly Report on Form 10-Q of PepsiCo, Inc. for the
twelve weeks ended March 21, 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
May 4, 1998
-26-