No. 1-1183
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 28, 1996
PepsiCo, Inc.
Incorporated in North Carolina
Purchase, New York 10577-1444
(914) 253-2000
13-1584302
(I.R.S. Employer Identification No.)
------------------------------------
Securities registered pursuant to Section 12(b) of the Securities Exchange
Act of 1934:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Capital Stock, par value 1-2/3 cents New York and Chicago Stock
per share Exchanges
7-5/8% Notes due 1998 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The number of shares of PepsiCo Capital Stock outstanding as of
March 14, 1997 was 1,541,460,586.
Documents of Which Portions Parts of Form 10-K into Which Portion
Are Incorporated by Reference of Documents Are Incorporated
- ----------------------------- -----------------------------
Proxy Statement for PepsiCo's I, III
May 7, 1997
Annual Meeting of Shareholders
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PART I
Item 1. Business
PepsiCo, Inc. (the "Company") was incorporated in Delaware in 1919 and
was reincorporated in North Carolina in 1986. Unless the context indicates
otherwise, when used herein the term "PepsiCo" shall mean the Company and
its various divisions and subsidiaries. PepsiCo is engaged in the following
businesses: beverages, snack foods and restaurants. In January, 1997, the
Company announced that it would pursue a plan to spin off its restaurant
businesses, consisting of Pizza Hut, Taco Bell and KFC, to shareholders as
an independent publicly traded company. In 1996, the Company decided to
dispose of its non-core restaurant businesses.
Beverages
PepsiCo's beverage business, which operates as Pepsi-Cola Company, is
comprised of two business units: Pepsi-Cola North America ("PCNA"), and
Pepsi-Cola Company International ("PCCI").
PCNA manufactures and sells beverage products, primarily soft drinks
and soft drink concentrates, in the United States and Canada. PCNA sells
its concentrates to licensed bottlers ("Pepsi-Cola bottlers"). Under
appointments from PepsiCo, bottlers manufacture, sell and distribute, within
defined territories, soft drinks and syrups bearing trademarks owned by
PepsiCo, including PEPSI-COLA, DIET PEPSI, MOUNTAIN DEW, SLICE, MUG, ALL
SPORT and, within Canada, 7UP and DIET 7UP (the foregoing are sometimes
referred to as "Pepsi-Cola beverages"). The Pepsi/Lipton Tea Partnership, a
joint venture of PCNA and Lipton, develops and sells tea concentrate to
Pepsi-Cola bottlers and develops and markets ready-to-drink tea products
under the LIPTON trademark. Such products are distributed by Pepsi-Cola
bottlers throughout the United States and Canada. Pepsi-Cola bottlers
distribute single-serve sizes of OCEAN SPRAY juice products throughout the
United States pursuant to a distribution agreement.
Pepsi-Cola beverages are manufactured in approximately 175 plants
located throughout the United States and Canada. PCNA operates
approximately 65 plants, and manufactures, sells and distributes beverages
throughout approximately 455 licensed territories, accounting for
approximately 56% of the Pepsi-Cola beverages sold in the United States and
Canada. Approximately 110 plants are operated by independent licensees or
unconsolidated affiliates, which manufacture, sell and distribute
approximately 44% of the Pepsi-Cola beverages sold in the United States and
Canada. PCNA has a minority interest in 7 of these licensees, comprising
approximately 70 licensed territories.
PCCI manufactures and sells beverage products, primarily soft drinks
and soft drink concentrates, outside the United States and Canada. PCCI
sells its concentrates to Pepsi-Cola bottlers. Under appointments from
PepsiCo, bottlers manufacture, sell and distribute, within defined
territories, beverages bearing PEPSI-COLA, 7UP, MIRINDA, DIET PEPSI, PEPSI
MAX, MOUNTAIN DEW, DIET 7UP and other trademarks. PCCI operates
approximately 30 plants bottling PepsiCo beverage products. There are
approximately 560 plants operated by independent licensees or
unconsolidated affiliates, bottling PepsiCo's beverage products. These
products are available in 191 countries and territories outside the United
States and Canada. Principal international markets include Argentina,
Brazil, China, Mexico, Saudi Arabia, Spain, Thailand and the United Kingdom.
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PCNA and PCCI make programs available to assist licensed bottlers in
servicing markets, expanding operations and improving production methods and
facilities. PCNA and PCCI also offer assistance to bottlers in the
distribution, advertising and marketing of PepsiCo's beverage products and
offer sales assistance through special merchandising and promotional
programs and by training bottler personnel. PCNA and PCCI maintain control
over the composition and quality of beverages sold under PepsiCo trademarks.
Snack Foods
PepsiCo's snack food business, which operates as The Frito-Lay Company,
is comprised of Frito-Lay North America ("Frito-Lay") and Frito-Lay
International ("FLI") (formerly known as PepsiCo Foods International).
Frito-Lay manufactures and sells a varied line of salty snack foods
throughout the United States and Canada, including LAY'S and RUFFLES brand
potato chips, DORITOS and TOSTITOS brand tortilla chips, FRITOS brand corn
chips, CHEE.TOS brand cheese flavored snacks, ROLD GOLD brand pretzels and
SUNCHIPS brand multigrain snacks.
Frito-Lay's products are transported from its manufacturing plants to
major distribution centers, principally by company-owned trucks. Frito-Lay
utilizes a "store-door-delivery" system, whereby its approximately 17,500
person sales force delivers the snacks directly to the store shelf. This
system permits Frito-Lay to work closely with approximately 500,000 retail
trade customers weekly and to be responsive to their needs. Frito-Lay
believes this form of distribution is a valuable marketing tool and is
essential for the proper distribution of products with a short shelf life.
FLI's products are available in 81 countries outside the United States
and Canada through company-owned facilities and unconsolidated affiliates.
On most of the European continent, PepsiCo's snack food business consists of
Snack Ventures Europe, a joint venture between PepsiCo and General Mills,
Inc., in which PepsiCo owns a 60% interest. FLI also sells a variety of
snack food products which appeal to local tastes including, for example,
WALKERS snack foods, which are sold in the United Kingdom, WEDEL sweet
snacks, which are sold in Poland, and GAMESA cookies and ALEGRO sweet
snacks, which are sold in Mexico. In addition, RUFFLES, CHEEoTOS, DORITOS,
FRITOS and SUNCHIPS salty snack foods have been introduced to international
markets. Principal international markets include Australia, Brazil, France,
Mexico, the Netherlands, Poland, Spain and the United Kingdom.
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RESTAURANTS
PepsiCo's restaurant business principally consists of Pizza Hut North
America ("PHNA"), Taco Bell North America ("TBNA"), KFC North America
("KFCNA") and PepsiCo Restaurants International ("PRI").
PHNA is engaged principally in the operation, development, franchising
and licensing of a system of casual full service family restaurants,
delivery/carryout units and kiosks throughout the United States, Canada,
Guam and Saipan, operating under the name PIZZA HUT. The full service
restaurants serve several varieties of pizza as well as pasta, salads and
sandwiches. PHNA (through its subsidiaries and affiliates) operates
approximately 4,800 PIZZA HUT restaurants, delivery/carryout units and other
outlets in the United States and approximately 245 in Canada. Franchisees
operate approximately 3,000 additional restaurants, delivery/carryout units
and other outlets in the United States and approximately 165 in Canada, Guam
and Saipan. Licensees operate approximately 1,000 kiosk outlets in the
United States and approximately 155 kiosk outlets in Canada.
TBNA is engaged principally in the operation, development, franchising
and licensing of a system of fast-service restaurants serving carryout and
dine-in moderately priced Mexican-style food, including tacos, burritos,
taco salads and nachos, throughout the United States and Canada, operating
under the name TACO BELL. TBNA (through its subsidiaries and affiliates)
operates approximately 2,900 TACO BELL outlets in the United States and
approximately 75 in Canada. Franchisees operate approximately 2,250
additional units in the United States. Licensees operate approximately
1,750 special concept outlets in the United States and approximately 35 in
Canada.
KFCNA is engaged principally in the operation, development, franchising
and licensing of a system of carryout and dine-in restaurants featuring
chicken throughout the United States and Canada, operating under the names
KENTUCKY FRIED CHICKEN and/or KFC. KFCNA (through its subsidiaries and/or
affiliates) operates approximately 2,000 restaurants in the United States
and approximately 245 in Canada. Franchisees operate approximately 3,000
additional restaurants in the United States and approximately 570 in
Canada. Licensees operate approximately 110 outlets in the United States
and approximately 55 in Canada.
PRI is engaged principally in the operation and development of casual
dining and fast-service restaurants, delivery units and kiosks which sell
PIZZA HUT, KFC and, to a lesser extent, TACO BELL products outside the
United States and Canada. PRI operates approximately 940 PIZZA HUT
restaurants, delivery/carryout units and kiosks, franchisees operate
approximately 1,550 units, and unconsolidated affiliates operate
approximately 575 units. PIZZA HUT units are located in a total of 82
countries and territories outside of the United States and Canada. PRI also
operates approximately 990 KFC restaurants and kiosks, franchisees operate
approximately 2,500 restaurants and kiosks, and unconsolidated affiliates
operate approximately 430 restaurants and kiosks. KFC units are located in
72 countries and territories outside of the United States and Canada. PRI
also operates approximately 20 TACO BELL outlets, and franchisees and
licensees operate approximately 75 outlets, in a total of 15 countries and
territories outside of the United States and Canada. PRI's principal markets
include Australia, Korea, Mexico, Puerto Rico, Spain, New Zealand and the
United Kingdom.
PepsiCo also owns and operates other restaurant concepts in the United
States. PHNA operates approximately 155 D'ANGELO SANDWICH SHOPS, and
franchisees and licensees operate approximately 55 additional outlets. TBNA
also operates approximately 75 CHEVYS Mexican restaurants and approximately
70 CALIFORNIA PIZZA KITCHEN restaurants.
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PepsiCo Restaurant Services Group ("PRSG"), a new unit formed in 1996 which
also includes the existing operations of PFS, PepsiCo's restaurant distribution
operation, is responsible for the consolidation of many restaurant activities
and furnishes food, supplies, equipment and services to approximately 16,000
company-operated, franchised and licensed PIZZA HUT, TACO BELL and KFC
restaurants in the United States, Canada, Mexico and Poland. On January 23,
1997, the Company announced that it is exploring the possible sale of PFS.
COMPETITION
All of PepsiCo's businesses are highly competitive. PepsiCo's beverages and
snack foods compete in the United States and internationally with widely
distributed products of a number of major companies that have plants in many of
the areas PepsiCo serves, as well as with private label soft drinks and snack
foods and with the products of local and regional manufacturers. PepsiCo's
restaurants compete in the United States and internationally with other
restaurants, restaurant chains, food outlets and home delivery operations. PRSG
competes in the United States and internationally with other food distribution
companies. For all of PepsiCo's industry segments, the main areas of competition
are price, quality and variety of products, and customer service.
EMPLOYEES
At December 28, 1996, PepsiCo employed, subject to seasonal variations,
approximately 486,000 persons (including approximately 260,000 part-time
employees), of whom approximately 335,000 (including approximately 200,000
part-time employees) were employed within the United States. PepsiCo believes
that its relations with employees are generally good.
RAW MATERIALS AND OTHER SUPPLIES
The principal materials used by PepsiCo in its beverage, snack food and
restaurant businesses are corn sweeteners, sugar, aspartame, flavorings,
vegetable and essential oils, potatoes, corn, flour, tomato products, pinto
beans, lettuce, cheese, butter, beef, pork and chicken products, seasonings and
packaging materials. Since PepsiCo relies on trucks to move and distribute many
of its products, fuel is also an important commodity. PepsiCo employs
specialists to secure adequate supplies of many of these items and has not
experienced any significant continuous shortages. Prices paid by PepsiCo for
such items are subject to fluctuation. When prices increase, PepsiCo may or may
not pass on such increases to its customers. Generally, when PepsiCo has decided
to pass along price increases, it has done so successfully. There is no
assurance that PepsiCo will be able to do so in the future.
GOVERNMENTAL REGULATIONS
The conduct of PepsiCo's businesses, and the production, distribution and
use of many of its products, are subject to various federal laws, such as the
Food, Drug and Cosmetic Act, the Occupational Safety and Health Act and the
Americans with Disabilities Act. The conduct of PepsiCo's businesses is also
subject to state, local and foreign laws.
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PATENTS, TRADEMARKS, LICENSES AND FRANCHISES
PepsiCo owns numerous valuable trademarks which are essential to
PepsiCo's worldwide businesses, including PEPSI-COLA, PEPSI, DIET PEPSI,
PEPSI MAX, MOUNTAIN DEW, SLICE, MUG, ALL SPORT, 7UP and DIET 7UP (outside
the United States), MIRINDA, FRITO-LAY, LAY'S, DORITOS, RUFFLES, TOSTITOS,
FRITOS, CHEE.TOS, ROLD GOLD, SUNCHIPS, SANTITAS, SMARTFOOD, SABRITAS,
WALKERS, PIZZA HUT, TACO BELL, KENTUCKY FRIED CHICKEN and KFC. Trademarks
remain valid so long as they are used properly for identification purposes,
and PepsiCo emphasizes correct use of its trademarks. PepsiCo has
authorized (through licensing or franchise arrangements) the use of many of
its trademarks in such contexts as Pepsi-Cola bottling appointments, snack
food joint ventures and wholly-owned operations and Pizza Hut, Taco Bell and
KFC franchise agreements. In addition, PepsiCo licenses the use of its
trademarks on collateral products for the primary purpose of enhancing brand
awareness.
PepsiCo either owns or has licenses to use a number of patents which
relate to certain of its products and the processes for their production and
to the design and operation of various equipment used in its businesses.
Some of these patents are licensed to others.
RESEARCH AND DEVELOPMENT
PepsiCo expensed $115 million, $96 million and $152 million on research
and development activities in 1996, 1995 and 1994, respectively.
ENVIRONMENTAL MATTERS
PepsiCo continues to make expenditures in order to comply with federal,
state, local and foreign environmental laws and regulations, which
expenditures have not been material with respect to PepsiCo's capital
expenditures, net income or competitive position.
BUSINESS SEGMENTS
Information as to net sales, operating profits and identifiable assets
for each of PepsiCo's industry segments and major geographic areas of
operations, as well as capital spending, acquisitions and investments in
unconsolidated affiliates, amortization of intangible assets and
depreciation expense for each industry segment for 1996, 1995 and 1994 is
contained in Item 8 "Financial Statements and Supplementary Data" in Note 19
on page F-30.
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Item 2. PROPERTIES
BEVERAGES
PepsiCo's beverage segment operates approximately 110 plants throughout the
world, of which approximately 100 are owned and 10 are leased, and
unconsolidated affiliates operate approximately 110 plants. In addition,
PepsiCo's beverage business operates approximately 370 warehouses or offices in
the United States and Canada, of which approximately 260 are owned and
approximately 110 are leased.
PepsiCo owns a research and technical facility in Valhalla, New York, for
its beverage businesses. PepsiCo also owns the headquarters facilities for its
beverage businesses in Somers, New York.
SNACK FOODS
Frito-Lay operates approximately 50 food manufacturing and processing
plants in the United States and Canada, of which approximately 45 are owned and
5 are leased. In addition, Frito-Lay owns approximately 195 warehouses and
distribution centers and leases approximately 50 warehouses and distribution
centers for storage of food products in the United States and Canada.
Approximately 1,600 smaller warehouses and storage spaces located throughout the
United States and Canada are leased or owned. Frito-Lay owns its headquarters
building and a research facility in Plano, Texas. Frito-Lay also leases offices
in Dallas, Texas and leases or owns sales/regional offices throughout the United
States. PepsiCo's snack food businesses also operate 70 plants and approximately
900 distribution centers, warehouses and offices outside of the United States
and Canada.
RESTAURANTS
Through PHNA, TBNA, KFCNA and PRI, PepsiCo owns approximately 3,400 and
leases approximately 6,900 restaurants, delivery/carryout units and other
outlets in the United States and Canada, and owns approximately 900 and leases
approximately 1,000 additional units outside the United States and Canada. PIZZA
HUT, TACO BELL and KFC restaurants in the United States which are not owned are
generally leased for initial terms of 15 or 20 years, and generally have renewal
options, while PIZZA HUT delivery/carryout units in the United States generally
are leased for significantly shorter initial terms with shorter renewal options.
Unconsolidated affiliates operate approximately 1,000 units outside the United
States and Canada. PHNA owns and leases office facilities in Wichita, Kansas;
Dallas, Texas; and other locations, some of which are shared with PFS. TBNA
leases its corporate headquarters in Irvine, California. KFCNA owns a research
facility and its corporate headquarters building in Louisville, Kentucky. PFS
owns 1 and leases 21 distribution centers and 1 manufacturing plant in the
United States. PFS owns 1 and leases 2 distribution centers outside of the
United States.
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GENERAL
The Company owns its corporate headquarters buildings in Purchase, New
York.
With a few exceptions, leases of plants in the United States and Canada
are on a long-term basis, expiring at various times, with options to renew
for additional periods. Most international plants are leased for varying
and usually shorter periods, with or without renewal options.
The Company believes that its properties and those of its subsidiaries
and divisions are in good operating condition and are suitable for the
purposes for which they are being used.
ITEM 3. LEGAL PROCEEDINGS
PepsiCo is subject to various claims and contingencies related to
lawsuits, taxes, environmental and other matters arising out of the normal
course of business. Management believes that the ultimate liability, if
any, in excess of amounts already provided for, is not likely to have a
material adverse effect on PepsiCo's annual results of operations or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their current positions and
ages are as follows:
NAME POSITION AGE
Roger A. Enrico Chairman of the Board and 52
Chief Executive Officer
Karl M. von der Heyden Vice Chairman of the Board 60
and Chief Financial Officer
Randall C. Barnes Senior Vice President and 45
Treasurer
Robert L. Carleton Senior Vice President and 56
Controller
Edward V. Lahey, Jr. Senior Vice President, 58
General Counsel and
Secretary
Indra K. Nooyi Senior Vice President, 41
Strategic Planning
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Steven S Reinemund Chairman and Chief 48
Executive Officer of The
Frito-Lay Company
Craig E. Weatherup Chairman and Chief 51
Executive Officer of
Pepsi-Cola Company
Each of the above-named officers has been employed by PepsiCo in an
executive capacity for at least five years except Indra K. Nooyi and Karl M.
von der Heyden. Ms. Nooyi has held her current position at PepsiCo since
1994. Prior to joining PepsiCo, Ms. Nooyi spent four years as Senior Vice
President of Strategy, Planning and Strategic Marketing for Asea Brown
Boveri. Information regarding Mr. von der Heyden's business experience
during the past five years is set forth in the Proxy Statement for the
Company's 1997 Annual Meeting of Shareholders and is incorporated herein by
reference.
Executive officers are elected by the Company's Board of Directors, and
their terms of office continue until the next annual meeting of the Board or
until their successors are elected and have qualified. There are no family
relationships among the Company's executive officers.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Stock Trading Symbol - PEP
Stock Exchange Listings - The New York Stock Exchange is the principal
market for PepsiCo Capital Stock, which is also listed on the Amsterdam,
Chicago, Swiss and Tokyo Stock Exchanges.
Shareholders - At year-end 1996, there were approximately 207,000
shareholders of record.
Dividend Policy - Quarterly cash dividends are usually declared in
November, January, May and July and paid at the beginning of January and the
end of March, June and September. The dividend record dates for 1997 are
expected to be March 14, June 13, September 12 and December 12. Quarterly
cash dividends have been paid since 1965, and dividends paid per share have
increased for 24 consecutive years.
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Cash Dividends Declared Per Share (in cents): (See Note 1)
Quarter 1996 1995
1 10 9
2 11 1/2 10
3 11 1/2 10
4 11 1/2 10
Total 44 1/2 39
Stock Prices - The high, low and closing prices for a share of PepsiCo
Capital Stock on the New York Stock Exchange, as reported by The Dow Jones
News/Retrieval Service, for each fiscal quarter of 1996 and 1995 were as
follows (in dollars): (See Note 1)
1996 High Low Close
First Quarter 33 3/8 27 1/2 31 5/8
Second Quarter 34 1/2 29 11/16 33 1/8
Third Quarter 35 5/8 28 1/4 28 3/8
Fourth Quarter 32 7/8 28 1/8 29 5/8
1995 High Low Close
First Quarter 20 1/2 16 15/16 20 3/16
Second Quarter 24 1/2 19 1/2 23 5/16
Third Quarter 23 5/8 21 13/16 22 7/8
Fourth Quarter 29 23 1/8 27 15/16
Note 1: Cash dividends and stock prices have been adjusted to reflect the
two-for-one stock split effective for shareholders of record at the close of
business on May 10, 1996.
ITEM 6. SELECTED FINANCIAL DATA
Included on pages F-44 through F-50.
Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS, CASH FLOWS
AND FINANCIAL CONDITION
MANAGEMENT'S ANALYSIS
INTRODUCTION
Management's Analysis is presented in four sections. The first section
provides introductory comments, highlights items that significantly impact
comparability of reported financial information and provides some
perspective of our operations outside of the United States (pages 10-13).
The second section analyzes the results of operations, first on a
consolidated basis and then for each of our three industry segments (pages
13-31). The final two sections address our consolidated cash flows and
financial condition, which also includes our Cautionary Statements (pages
31-36).
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As described in Note 1 to the Consolidated Financial Statements, we had
a two-for-one stock split in 1996. All share data in Management's Analysis
have been adjusted to reflect the stock split.
CHANGE IN SEGMENT REPORTING
Beginning in the fourth quarter of 1996, we changed the segment reporting
which supports our Management's Analysis to more closely reflect how we
manage the business. As a result, our beverages and snack foods segments
are now reported on a North American basis (U.S. and Canada combined) and an
International basis (all other international) while the restaurants segment
continues to be reported on a U.S. and international basis. Also, the net
sales and operating profit we report externally now generally match the net
sales and operating profit our operating units report to our senior
management. The operating profit reported on this "Management Basis" does
not reflect items the operating units are not held accountable for, such as
the $520 million initial impact of adopting Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", in 1995 (see
Note 4). It also does not reflect insignificant allocations for corporate
items directly attributable to the segments or exclude results from
unconsolidated affiliates, both of which are required by Statement of
Financial Accounting Standards No. 14 (SFAS 14), "Financial Reporting for
Segments of a Business Enterprise." The Management Basis operating profit
(page 19) includes a reconciliation to the operating profit disclosure
required by SFAS 14, which is provided in Note 19. Prior year amounts and
related management's analysis have been restated.
CERTAIN FACTORS AFFECTING COMPARABILITY
The following table summarizes items impacting comparability, which are
described in Notes 2, 13 and 15. We believe the items included in the first
section are so unusual and distortive that we do not include them when we
evaluate the ongoing performances of our businesses.
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($ in millions except Expense/(Income)
per share amounts) 1996 1995 1994
---- ---- -----
Per Per Per
(a) Share (a) Share (a) Share
UNUSUAL ITEMS AND --- ----- --- ------ --- -----
ACCOUNTING CHANGES
- ------------------
International beverages
impairment, disposal
and other charges $ 576 $ 0.33
Disposal of non-core
U.S. restaurant businesses 246 0.12
Gain on stock offering
by an unconsolidated
affiliate $(18) $(0.01)
Accounting changes (b)
SFAS 121 $520 $ 0.24
SFAS 112 84 0.03
Pension assets (38) (0.01)
----- ----- ---- ------ ---- ------
$ 822 $ 0.45 $520 $ 0.24 $ 28 $ 0.01
----- ----- ---- ------ ---- ------
OTHER ITEMS
- -----------
Refranchising gains (c) $(139) $(0.05) $(93) $(0.03)
Store closure costs 40 0.01 38 0.01 $10 $ -
---- ---- ---- ---- --- ------
Net refranchising
(gains)/ losses (99) (0.04) (55) (0.02) 10 -
Reduced depreciation
and amortization (46) (0.02) (21) (0.01)
Recurring restaurant
impairment charges 62 0.03
Fifty-third week (54) (0.02)
---- ------ ----- ------ --- ----
$ (83) $(0.03) $(76) $(0.03) $(44) $(0.02)
==== ====== ==== ====== ==== ======
(a) Pre-tax amounts.
(b) Initial impact of adopting SFAS 121 and cumulative effect of other
accounting changes.
(c) Included initial franchise fees.
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INTERNATIONAL BUSINESSES
Excluding the $576 million of unusual impairment, disposal and other
charges, ongoing international operating profit (including Canada), as
measured on the Management Basis, represented 10%, 24% and 20% of our
consolidated operating profit in 1996, 1995 and 1994, respectively. The
decline in 1996 reflected an operating loss in International beverages
compared to an operating profit in 1995. The 4% growth in 1995 was slowed
by Mexico, formerly our largest international market, where the Mexican peso
devalued approximately 50% in late 1994 and early 1995. Consumer demand
declined dramatically in response to declining real incomes, increased
unemployment and price increases taken to offset rising costs.
Our efforts to stimulate demand, reduce costs and reduce capital spending
resulted in only a modest decline in peso operating profit. However, on a
U.S. dollar basis, 1995 sales, income and identifiable assets in Mexico
declined dramatically, reflecting the unfavorable translation effect of the
much weaker peso, as summarized below:
($ in millions except
per share amounts)
%
1995 1994 Decline
---- ---- -------
Net sales $1,228 $2,023 39
Net income $ 55 $ 175 69
Net income per
share $ 0.03 $ 0.11 73
Identifiable
assets $ 637 $ 995 36
RESULTS OF OPERATIONS
Volume is defined as the estimated effect on net sales and operating profit
of the year-over-year change in company-owned Bottler Case Sales and
concentrate unit sales in beverages, pound or kilo sales in snack foods and
transaction counts in restaurants.
CONSOLIDATED REVIEW
NET SALES
% Growth Rates
--------------
($ in millions) 1996 1995 1994 1996 1995
---- ---- ---- ---- ----
Net sales $31,645 $30,255 $28,351 5 7
- ------------------------------------------------------------------------------
Worldwide net sales rose $1.4 billion in 1996 reflecting higher effective
net pricing (including the effect of product, package and country mix) in
each of our three business
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segments and net volume gains of $592 million. The higher effective net pricing
was partially offset by an unfavorable foreign currency exchange impact,
primarily reflecting the weaker peso and the strengthening of the U.S. dollar
compared to the Japanese yen. The volume gains were driven by worldwide snack
foods and North American beverages, partially offset by declines at U.S.
restaurants. The sales growth rate was reduced by 1 point as we reduced our
ownership of the restaurant system through refranchising and closing
underperforming restaurants, as described in Management's Analysis - Restaurants
beginning on page 26.
Worldwide net sales rose $1.9 billion or 7% in 1995. The fifty-third week
in 1994 reduced worldwide net sales growth by approximately 2 points. The growth
benefited from higher effective net pricing in International snack foods, driven
by Mexico, and in North American beverages, primarily to help offset higher
prices for packaging. These benefits were partially offset by the unfavorable
currency translation impact of the weaker peso on International snack foods.
Volume gains in worldwide snack foods and beverages added $934 million to net
sales. Additional restaurant units contributed $623 million to sales growth.
COST OF SALES
($ in millions) 1996 1995 1994
---- ---- ----
Cost of sales $15,383 $14,886 $13,715
As a percent of net sales 48.6% 49.2% 48.4%
- ------------------------------------------------------------------------------
Cost of sales as a percent of net sales decreased .6 of a point in 1996
primarily due to lower raw materials costs in North American beverages coupled
with the leveraging effect of the higher effective net pricing.
The .8 of a point increase in cost of sales as a percent of net sales in
1995 was primarily due to higher packaging prices in North American beverages,
the effect of which was partially mitigated by increased effective net pricing,
and an unfavorable mix shift in International beverages sales from higher-margin
concentrate to lower-margin packaged products. Cost of sales as a percent of net
sales in International snack foods increased due to inflation-driven cost
increases in Mexico, which were partially mitigated by price increases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
($ in millions) 1996 1995 1994
---- ---- ----
SG&A $12,593 $11,546 $11,123
As a percent of net
sales 39.8% 38.2% 39.2%
- ------------------------------------------------------------------------------
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. In 1996, A&M,
14
<PAGE>
S&D and G&A all grew faster than net sales driving a 9% increase in SG&A, led by
International beverages. Other income and expense included refranchising gains
in excess of the costs of closing other restaurants (net refranchising gains) of
$99 million, compared to $55 million in 1995. In addition, 1996 included
recurring SFAS 121 noncash impairment charges of $62 million related to
restaurants. Losses from our unconsolidated affiliates, compared to earnings a
year ago, primarily reflected our share of operating losses from Buenos Aires
Embotelladora S.A. (BAESA). BAESA is one of our bottling joint ventures in Latin
America.
In 1995, SG&A grew 4% due to A&M, S&D and G&A all growing at a slower rate
than sales. The slower spending was driven by worldwide beverages and U.S.
restaurants. G&A in worldwide beverages benefited from International cost
containment initiatives, savings in North American beverages from a 1994
reorganization and leverage from the increased effective net pricing in North
American beverages. Other income benefited from net refranchising gains of $55
million, compared to store closure costs of $10 million in 1994 and a gain on
the sale of an International bottling plant in 1995.
AMORTIZATION OF INTANGIBLE ASSETS declined 5% in 1996 to $301 million as a
result of the reduced carrying amount of intangible assets in connection with
the 1995 adoption of SFAS 121 (see Note 4), but increased 1% to $316 million in
1995. This noncash expense reduced net income per share by $0.14 in 1996 and
$0.15 in 1995.
UNUSUAL IMPAIRMENT, DISPOSAL AND OTHER CHARGES of $822 million ($716 million
after-tax or $0.45 per share) in 1996 were associated with International
beverages ($576 million) and the decision to dispose of our non-core U.S.
restaurant businesses ($246 million). See Note 3.
The 1995 charge of $520 million ($384 million after-tax or $0.24 per share)
was the initial, noncash impairment charge upon adoption of SFAS 121. See Note
4.
15
<PAGE>
OPERATING PROFIT
% Growth Rates
--------------
($ in millions) 1996 1995 1994 1996 1995
---- ---- ---- ---- ----
Operating
Profit
Reported $2,546 $2,987 $3,201 (15) (7)
Ongoing* $3,368 $3,507 $3,201 (4) 10
* Excluded the unusual impairment, disposal and other charges in 1996 and
1995 (see Note 3).
- ------------------------------------------------------------------------------
In 1996, reported operating profit declined $441 million. Ongoing operating
profit decreased $139 million, primarily due to a combined segment operating
profit decrease of $95 million or 3%. The decline reflected increased costs in
excess of higher effective net pricing in International beverages and North
American snack foods and unfavorable currency translation impacts, partially
offset by the $177 million of volume gains. Also included in the segment
operating profit results were reduced depreciation and amortization expense of
$46 million as a result of the reduced carrying amount of assets in connection
with the adoption of SFAS 121, and $99 million of net refranchising gains in
1996 compared to $55 million in 1995, partially offset by the recurring SFAS 121
noncash impairment charge of $62 million in 1996. Ongoing operating profit
growth was also hampered by increased net corporate costs.
In 1995, reported operating profit declined $214 million. Ongoing operating
profit increased $306 million or 10%. The fifty-third week in 1994 reduced the
operating profit growth by approximately 2 points. The profit growth was driven
by combined segment operating profit growth of $283 million or 8%, which
reflected volume growth of $283 million ($430 million excluding the impact of
the fifty-third week) and $76 million due to net additional restaurant units.
These advances were partially offset by net unfavorable currency translation
impacts, primarily related to the peso. The benefit of higher effective net
pricing for all segments combined was almost entirely offset by increased
product and operating costs, primarily in Mexico, and higher packaging prices in
North American beverages. Ongoing operating profit growth benefited from reduced
net corporate costs.
GAIN ON STOCK OFFERING BY AN UNCONSOLIDATED AFFILIATE of $18 million ($17
million after-tax or $0.01 per share) in 1994 related to the public share
offering by BAESA. See Note 17.
16
<PAGE>
INTEREST EXPENSE, NET
% Growth Rates
--------------
($ in millions) 1996 1995 1994 1996 1995
---- ---- ---- ---- ----
Interest expense $(600) $(682) $(645) (12) 6
Interest income 101 127 90 (20) 41
----- --- -----
Interest expense,
net $(499) $(555) $(555) (10) -
===== ===== =====
- -------------------------------------------------------------------------------
Interest expense, net, declined 10% in 1996 reflecting lower international
debt levels and U.S. interest rates.
Interest expense, net in 1995 was even with 1994, reflecting the net
impact of higher average interest rates offset by lower average borrowings.
PROVISION FOR INCOME TAXES
($ in millions) 1996 1995 1994
---- ---- ----
Reported
Provision for
Income Taxes $ 898 $ 826 $ 880
Effective Tax Rate 43.9% 34.0% 33.0%
Ongoing*
Provision for
Income Taxes $1,004 $ 962 $ 880
Effective Tax Rate 35.0% 32.6% 33.0%
* Excluded the unusual impairment, disposal and other charges in 1996 and
1995 (see Note 3).
- ------------------------------------------------------------------------------
Our 1996 reported effective tax rate increased 9.9 points to 43.9%, driven
by the low tax benefits associated with the unusual impairment, disposal and
other charges. Our 1996 ongoing effective tax rate increased 2.4 points to
35.0%, primarily reflecting lower benefits in 1996 from the current year
resolution of certain prior years audit issues and a decline in lower-taxed
foreign income coupled with an increase in foreign losses with low tax
benefits.
Our 1995 reported effective tax rate increased 1 point to 34.0%. Our
1995 ongoing effective tax rate declined slightly, reflecting benefits from
the current year resolution of certain prior years audit issues. These
benefits were partially offset by a higher foreign effective tax rate,
primarily due to a provision in 1993 U.S. tax legislation and a decrease in
the proportion of income taxed at lower foreign rates. The legislation
limited the U.S. tax
17
<PAGE>
credit on income we earned in Puerto Rico to 60% of the amount allowed under the
previous tax law beginning on December 1, 1994. The legislation further reduces
the limit ratably over the following four years to 40%. This provision reduced
our 1995 earnings by $58 million or $0.04 per share.
INCOME AND INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES
($ in millions % Growth Rates
except per share amounts) ---------------
1996 1995 1994 1996 1995
---- ---- ---- ---- ----
Reported
Income $1,149 $1,606 $1,784 (28) (10)
Income Per
Share $ 0.72 $ 1.00 $ 1.11 (28) (10)
Ongoing*
Income $1,865 $1,990 $1,767 (6) 13
Income Per
Share $ 1.17 $ 1.24 $ 1.10 (6) 13
* Excluded the unusual impairment, disposal and other charges in 1996
and 1995 (see Note 3) and the 1994 BAESA gain (see Note 17).
18
<PAGE>
INDUSTRY SEGMENTS - MANAGEMENT BASIS
- --------------------------------------------------------------------------------
($ in millions) Growth Rate
1991-1996(a) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
NET SALES
Beverages
North America(b) 7% $ 7,725 $ 7,400 $ 7,031 $ 6,404 $ 5,932
International 15% 2,799 2,982 2,535 2,148 1,589
------- ------ ------- ------- -------
9% 10,524 10,382 9,566 8,552 7,521
------- ------- ------- ------- -------
Snack Foods
North America(b) 12% 6,618 5,863 5,356 4,674 3,922
International 15% 3,062 2,682 2,908 2,353 2,210
----- ----- ----- ----- -----
13% 9,680 8,545 8,264 7,027 6,132
----- ----- ----- ----- -----
Restaurants
U.S. 8% 9,110 9,206 8,696 8,025 7,112
International 22% 2,331 2,122 1,825 1,331 1,120
----- ----- ----- ----- -----
10% 11,441 11,328 10,521 9,356 8,232
------ ------ ------ ----- -----
Combined Segments 10% $31,645 $30,255 $28,351 $24,935 $21,885
------- ------- ------- ------- -------
OPERATING PROFIT(c)
Beverages
North America(b) 12% $1,428 $1,249 $1,115 $1,019 $ 759
International NM (846) 117 136 97 45
------ ------ ------ ------ -----
6% 582 1,366 1,251 1,116 804
------ ------ ------ ----- -----
Snack Foods
North America(b) 13% 1,286 1,149 1,043 914 762
International 12% 346 301 354 285 221
------ ----- ------- ----- -----
13% 1,632 1,450 1,397 1,199 983
----- ----- ------ ----- -----
Restaurants
U.S. 4% 370 726 637 682 594
International 7% 153 112 86 109 134
------ ----- ------ ----- -----
4% 523 838 723 791 728
------ ------ ------ ----- -----
Combined Segments -
Management Basis 8% 2,737 3,654 3,371 3,106 2,515
Adjustments ------ ------ ------ ------ -----
Equity (income)/loss 266 (14) (38) (30) (40)
Initial impact of impairment
accounting change (SFAS 121) (520)
Gain on stock offering
by unconsolidated affiliate (18)
Other(d) 6 51 9 1 27
------ ------ ------ ------ ------
Total Adjustments 272 (483) (47) (29) (13)
------ ------ ----- ------ ------
Combined Segments -
SFAS 14 Basis(e) 10% $3,009 $3,171 $3,324 $3,077 $2,502
======= ====== ====== ====== ======
19
<PAGE>
(a) Five-year compounded annual growth rate. Operating profit growth
rates excluded the impacts of the unusual impairment, disposal
and other charges in 1996 affecting International beverages
($576) and U.S. restaurants ($246) (see Note 3) and the 1991
unusual charges of $170 to streamline operations of North
American snack foods ($91), U.S. restaurants ($43) and
International snack foods ($36).
(b) North America is composed of operations in the U.S. and Canada.
(c) The amounts for the years 1992-1996 represent reported amounts.
See Note 19 - Items Affecting Comparability for 1996, 1995 and
1994. In addition, 1995 segment operating profit on the
Management Basis excluded the $520 charge for the initial,
noncash impact of adopting SFAS 121, 1994 International beverages
included an $18 gain on a stock offering by BAESA and 1992
included $193 of unusual charges to reorganize and streamline
operations of North American beverages ($115), International
beverages ($30) and certain International snack foods operations
($48).
(d) Adjustments directly allocable to industry segments but reported
in Corporate.
(e) Operating profit as defined by SFAS 14 and as disclosed in Note
19.
NM - Not Meaningful.
20
<PAGE>
Industry Segments
Beverages
% Growth Rates
--------------
($ in millions) 1996 1995 1994 1996 1995
---- ---- ---- ---- ----
Net Sales
North America $ 7,725 $ 7,400 $7,031 4 5
International 2,799 2,982 2,535 (6) 18
----- ------- -------
$10,524 $10,382 $9,566 1 9
======= ======= =======
Operating Profit
Reported
North America $ 1,428 $ 1,249 $1,115 14 12
International (846) 117 136 NM (14)
------ ------ -----
$ 582 $ 1,366 $1,251 (57) 9
====== ======= ======
Ongoing*
North America $ 1,428 $ 1,249 $1,115 14 12
International (270) 117 118 NM (1)
------- ------ ------
$ 1,158 $ 1,366 $1,233 (15) 11
======= ====== ======
* Excluded unusual International impairment, disposal and other charges of
$576 in 1996 (see Note 3) and a BAESA gain of $18 in 1994 (see Note 17).
NM - Not Meaningful
___________________________________________________________________________
[Note: Unless otherwise noted, net sales and operating profit comparisons
within the following discussions are based on ongoing operating profit and
include the impact of the fifty-third week in 1994 (see Notes 2 and 19).]
System bottler case sales (BCS) of Pepsi Corporate brands is our standard
volume measure. It represents company-owned brands as well as brands we
have the right to produce, distribute and market nationally, and includes
sales of packaged products and fountain syrup by company-owned and
franchised bottlers. BCS was not impacted by the fifty-third week in 1994
because it is measured on a calendar year basis.
1996 vs. 1995
North America
- -------------
Sales in North America rose $325 million. The gain reflected volume growth
of $215 million, led by carbonated soft drink (CSD) products, and higher
effective net pricing.
North American BCS increased 4%, with solid increases in Brand Pepsi
and the Mountain Dew brand. Alternative beverages, led by Aquafina bottled
water and Hawaiian Punch fountain syrup, grew at a double-digit rate.
21
<PAGE>
Profit in North America increased $179 million. The growth reflected volume
gains of $117 million, lower product costs and the higher effective net pricing.
Advertising and marketing expenses grew significantly faster than sales,
primarily due to the Pepsi Stuff promotion. Selling and distribution expense
grew at the same rate as sales and volume. Profit growth was aided by lapping
charges taken in 1995, primarily for losses on supply contracts, take-or-pay
co-packing penalties and a write-down of excess co-packing assets. A 1996 gain
on the sale of an investment in a bottling cooperative and a 1996 settlement
with a supplier for purchases made in prior years also helped profit growth.
Benefits of approximately $130 million related to the 1992 U.S.
restructuring were achieved in 1996 due to the centralization of purchasing and
improved administrative and business processes. Benefits are expected to grow
until fully realized in 1998, when they are expected to be about $145 million
annually. All benefits from the restructuring will continue to be reinvested in
the business to strengthen our competitive position.
International
- -------------
Our new strategy for International beverages is to focus on building our core
business in markets in which we are already strong and in emerging markets where
we believe the competitive playing field is essentially level. As a result, we
took a restructuring charge of $122 million, which is described in Note 3.
Almost all of the charge is expected to be paid by the end of 1997. The
restructuring is expected to generate about $50 million in savings in 1997, and
about $80 million a year thereafter. See Cautionary Statements beginning on page
35. In addition, a largely noncash charge of $454 million was recognized in 1996
related to the impairment of certain investments in unconsolidated affiliates
($216 million), concentrate-related assets ($129 million), assets not related to
the core International beverage business ($69 million) and our share of the
unusual charges recorded by BAESA for restructuring actions and noncash
accounting charges ($40 million).
International sales declined $183 million, primarily due to unfavorable
currency translation impacts and lower volume of $41 million. The volume decline
reflected lower concentrate shipments to franchisees, partially offset by higher
packaged product sales to retailers.
International BCS decreased 2%. Excluding the fourth quarter impact of the
unexpected loss of our Venezuelan bottler in August 1996, BCS declined 1%. A
single-digit decline in Latin America was partially offset by strong
double-digit growth in China and India.
International beverages reported operating losses of $846 million or a
decline of $963 million. Excluding the unusual charges, International beverages
reported an ongoing operating loss of $270 million or a decline of $387 million.
The ongoing operating loss reflected broad-based increases in advertising and
marketing expenses, higher-than-normal expenses from fourth quarter balance
sheet adjustments and actions, increased net losses from our unconsolidated
affiliates and a volume decline of $41 million. The increased net losses from
our unconsolidated affiliates was driven by our 24% equity share of BAESA's
operating losses.
22
<PAGE>
1995 vs. 1994
North America
- -------------
Sales in North America rose $369 million or 5%. The fifty-third week in
1994 reduced the sales growth by approximately 2 points. The sales growth
reflected higher effective net pricing on most CSD packages, primarily in
response to significantly higher packaging prices. Sales growth also
benefited from increased volume, which contributed $92 million.
North American BCS increased 4%, reflecting double-digit growth in the
Mountain Dew brand, solid increases in Brand Pepsi and strong double-digit
growth in alternative beverages, led by Lipton brand tea and the All Sport
brand.
North American profit increased $134 million or 12%. The fifty-third
week in 1994 reduced the operating profit growth by approximately 2 points.
Profit growth reflected the higher effective net pricing on CSD packages and
concentrate which exceeded the increased packaging costs. Volume gains,
driven by packaged products, contributed $46 million ($104 million excluding
the impact of the fifty-third week) to the profit growth. Administrative
expenses declined, reflecting savings from a 1994 consolidation of
headquarters and field operations in the U.S. Selling and distribution
expenses declined as a percentage of sales, in part reflecting higher
pricing. Advertising and marketing expenses decreased, reflecting a
reallocation of funds to support promotional discounts in the fountain
channel, which is classified as a reduction of sales. In the aggregate,
advertising and marketing expenses and fountain discounts was about even
with the prior year.
In 1995, North America continued to execute actions related to the 1992
U.S. restructuring. Benefits in 1995 were offset by incremental costs
associated with the continued development and implementation of the
restructuring. Net benefits of approximately $130 million were expected to
begin to be realized in 1996 and to increase annually until fully realized
in 1998.
International
- -------------
International sales rose $447 million or 18%. The fifty-third week in 1994
reduced the sales growth by approximately 1 point. Start-up operations,
principally in Eastern Europe, and net acquisitions, primarily of bottling
operations in Asia, together contributed 5 points to the sales growth.
Sales growth also benefited from volume advances of $205 million and higher
effective net pricing.
International BCS grew 8%. This advance reflected broad-based growth
partially offset by declines in Mexico, our largest International BCS
market, and Argentina, both of which had adverse economic conditions.
International beverages reported a profit decrease of $19 million or
14%. Ongoing operating profit declined $1 million or 1%. The fifty-third
week in 1994 reduced the ongoing operating profit decline by approximately 2
points. The slight decline in ongoing operating profit primarily reflected
significantly weaker results in Mexico (discussed below). Excluding Mexico,
ongoing operating profit increased $64 million or 44%, reflecting increased
volume, primarily concentrate, of $58 million and the higher effective net
pricing, partially offset by higher field operating costs and increased
headquarters expenses. Profit was also aided by a gain on the sale of a
bottling plant.
23
<PAGE>
As discussed in Management's Analysis - International Businesses on page
13, results in Mexico were adversely impacted by economic difficulties resulting
from the significant devaluation of the peso. Net sales in Mexico declined 37%,
while 1995 operating results declined to a $27 million operating loss, including
losses of $12 million from unconsolidated affiliates formed in 1995, compared to
a $38 million operating profit in 1994.
Snack Foods
- -----------
% Growth Rates
--------------
($ in millions) 1996 1995 1994 1996 1995
---- ---- ---- ---- ----
Net Sales
North America $6,618 $5,863 $5,356 13 9
International 3,062 2,682 2,908 14 (8)
------ ----- -----
$9,680 $8,545 $8,264 13 3
====== ====== ======
Operating
Profit
North America $1,286 $1,149 $1,043 12 10
International 346 301 354 15 (15)
------ ------ ------
$1,632 $1,450 $1,397 13 4
====== ====== ======
_______________________________________________________________________________
[Note: Net sales and operating profit comparisons within the 1995 vs. 1994
discussions include the impact of the fifty-third week in 1994 (see Notes 2 and
19), while pound or kilo growth have been adjusted to exclude its impact.]
1996 vs. 1995
North America
- -------------
Sales in North America grew $755 million. The sales increase reflected
strong volume growth of $495 million and higher effective net pricing across all
core brands in late 1995 and late 1996. Volume grew in almost all core brands
with low-fat and no-fat snacks accounting for over 45% of the sales growth.
Pound volume in North America advanced 9%, reflecting exceptional
performance from the low-fat and no-fat categories. These categories contributed
over 45% of the total pound growth, led by Baked Lay's brand potato crisps. Core
brands, excluding their low-fat and no-fat versions, had mid-single-digit growth
led by double-digit growth in Lay's brand potato chips and strong double-digit
growth in Tostitos brand tortilla chips.
Profit in North America grew $137 million. The profit increase reflected
the volume growth, which contributed $224 million, and the higher effective net
pricing, which exceeded increased promotional price allowances and merchandising
support. The growth rate of promotional price allowances moderated in the fourth
quarter. These gains were partially offset by higher operating and manufacturing
costs and increased administrative expenses. The increased operating costs
reflected increased selling and distribution and advertising expenses. Selling
and distribution expenses and manufacturing costs both reflected higher capacity
costs and some inefficiencies incurred to capture the volume opportunities
created when Anheuser-Busch exited the salty snack food business. These
inefficiencies began to moderate in the fourth quarter. Operating expenses grew
faster than sales for the year. The
24
<PAGE>
increase in operating expenses coupled with higher administrative expenses,
partially reflected investment spending to sustain strong volume growth. This
increased investment spending, including costs of developing and testing new
products, was partially offset by a gain on the sale of a non-core business.
International
- -------------
International sales increased $380 million. The sales increase reflected
inflation-based pricing increases in Mexico and volume growth of $157 million,
partially offset by an unfavorable currency translation impact, led by the peso.
International kilo growth is reported on a systemwide basis, which includes
both consolidated businesses and unconsolidated affiliates operating for at
least one year. Salty snack kilos rose 8%, reflecting double-digit growth at
Sabritas in Mexico and strong single-digit growth by Walkers in the U.K., our
two largest salty snack businesses. Sweet snack kilos declined 2%, led by a
single-digit decline at Gamesa in Mexico, due to market-wide contraction and a
double-digit decline at Alegro, the sweet snack division of Sabritas.
International operating profit increased $45 million. The increase
reflected higher effective net pricing in advance of inflation-driven product
and operating cost increases, primarily in Mexico, and the increased volumes of
$28 million. These gains were partially offset by increased administrative
expenses and the net unfavorable currency translation impact. Advertising and
marketing expenses increased, partially reflecting investment in global
advertising and design.
Beginning in 1997, we will categorize Mexico as highly inflationary and,
therefore, the U.S. dollar will be the functional currency. Although difficult
to estimate, we expect the 1997 reported results of our Sabritas and Gamesa
operations to be slightly lower than what they would have been had we retained
the peso as our functional currency. See Cautionary Statements beginning on page
35.
1995 vs. 1994
North America
- -------------
Sales in North America grew $507 million or 9%. The fifty-third week in 1994
reduced the sales growth by approximately 2 points. The increase reflected
volume growth of $427 million and higher pricing across all core brands. Volume
grew in almost all core brands, with low-fat and no-fat snacks accounting for
almost 45% of the total sales growth.
Pound volume in North America advanced 11%, reflecting exceptional
performance from the low-fat and no-fat categories. These categories contributed
almost 45% of the total pound growth, led by Rold Gold brand pretzels and Baked
Tostitos brand tortilla chips. Core brands, excluding their low-fat and no-fat
versions, had solid single-digit growth, led by Doritos brand tortilla chips and
Lay's brand potato chips.
Profit in North America grew $106 million or 10%. The fifty-third week in
1994 reduced the profit growth by approximately 3 points. The profit increase
reflected strong volume growth, which contributed $196 million ($247 million
excluding the impact of the fifty-third week), and higher pricing that exceeded
increased promotional price allowances and merchandising support. This growth
was partially offset by increased operating costs, driven by higher selling,
distribution and administrative expenses and increased marketing investment to
promote strong volume momentum. Selling and distribution expenses grew at about
the same rate as sales, while advertising and marketing costs grew slower than
sales. The higher administrative expenses reflected investment spending to
maintain volume
25
<PAGE>
growth, including new manufacturing and delivery systems. The profit growth was
also hampered by higher manufacturing costs, reflecting increased capacity costs
and an unfavorable sales mix shift to lower-margin value-oriented packages.
International
- -------------
As discussed in Management's Analysis - International Businesses on page 13,
1995 results in Mexico were adversely impacted by economic difficulties
resulting from the significant devaluation of the peso. This effect was
particularly dramatic on International snack foods results as Mexico represented
almost 75% of its 1994 operating profit. Net sales in Mexico declined 39% in
1995, while operating profit declined $113 million or 44% to $142 million. As a
result, Mexico represented about half of 1995 International snack foods profit.
Since the change in results of Mexico had such a distortive effect on
International results, the following net sales and operating profit discussions
exclude the effects of Mexico where noted.
International sales decreased $226 million or 8%. Excluding Mexico, sales
grew more than 35%; the fifty-third week in 1994 reduced the sales growth by
approximately 3 points. This growth reflected increased volumes of $272 million,
a favorable mix shift to higher-priced packages and products and acquisitions,
which contributed $43 million.
Salty snack kilos rose 10%, reflecting strong double-digit volume growth in
Brazil, the U.K. and our joint ventures in the Netherlands and Spain. Sweet
snack kilos grew 12%, led by a double-digit advance at Gamesa.
International operating profit decreased $53 million. The fifty-third week
in 1994 had no effect on operating profit. The principal cause of the decrease
in operating profit was the economic difficulties in Mexico. Excluding Mexico,
operating profit increased $58 million or 58%. The fifty-third week in 1994
reduced this profit growth by approximately 2 points. Profit growth reflected
the favorable mix shift to higher-priced packages and products and increased
volumes of $45 million, partially offset by higher manufacturing costs and
increased administrative expenses.
RESTAURANTS
- -----------
An update to our restaurant strategy is provided to set the context of the
operating results discussion beginning on page 29.
STRATEGY UPDATE
- ---------------
In January 1997, we announced that we would pursue a plan to spin off our core
restaurant businesses to our shareholders as an independent publicly-traded
company. The new company will include both the U.S. and international operations
of Pizza Hut, Taco Bell and KFC. We are exploring the possibility of selling
PepsiCo Food Systems (PFS), our restaurant distribution operation. In the first
quarter of 1996, we recorded a $26 million charge related to a decision to
dispose of Hot 'n Now (HNN). In the fourth quarter, we recognized an impairment
loss of $220 million as a result of our decision to sell our remaining non-core
U.S. restaurant businesses which include California Pizza Kitchen (CPK), Chevys,
D'Angelo Sandwich Shops (D'Angelo) and East Side Mario's (ESM). We reduced our
investments in these businesses to estimated fair market value, less costs to
sell. Estimated fair market value was based primarily upon the opinion of an
investment banking firm. See Notes 3 and 4 and Cautionary Statements beginning
on page 35.
26
<PAGE>
In addition, we will continue to execute the strategy we initiated two
years ago to reduce our percentage ownership in our restaurant businesses by
selling company-operated restaurants to franchisees (refranchising) and
closing underperforming units. Although this refranchising strategy reduces
reported sales, it improves restaurants returns and profit by eliminating
capital investment in stores while generating a franchise royalty revenue
stream which, in some cases, exceeds the profit we had earned from the
stores prior to refranchising. In addition, margins benefit from the
closing of underperforming stores in the company-operated portfolio.
Operating profit and cash flows benefit from the one-time refranchising
gains (including initial franchise fees). Our restaurant companies have
usually remained contingently liable for restaurant leases assigned as part
of the refranchising activity; however, we believe any risk of loss under
these assignments would not be material.
Restaurant Unit Activity
Company-Operated and Joint Venture
----------------------------------
U.S. International Worldwide
---- ------------- ---------
December 31, 1994 10,500 3,119 13,619
New Builds &
Acquisitions 427 347 774
Refranchising &
Licensing (302) (12) (314)
Closures (272) (40) (312)
----- ---- -----
December 30, 1995* 10,353 3,414 13,767
New Builds &
Acquisitions 213 241 454
Refranchising &
Licensing (605) (50) (655)
Transfers (5) - (5)
Closures (294) (85) (379)
----- ----- ------
December 28, 1996** 9,662 3,520 13,182
===== ===== ======
Units as a percent of
the total system
December 31, 1994 54% 42% 51%
December 30, 1995 51% 42% 49%
December 28, 1996 46% 41% 45%
- --------------------------------------------------------------------------------
* As of year-end 1995, closure costs had been recorded for 185 units
(141-U.S., 44-international) which were expected to be closed in the future.
** As of year-end 1996, closure costs had been recorded for 270 units
(249-U.S., 21-international) which were expected to be closed in the future.
- --------------------------------------------------------------------------------
27
<PAGE>
As a result of the unit activity, coupled with net new points of
distribution added by our franchisees and licensees, our overall ownership
percentage of total system units declined 4 points to 45% at year-end 1996
and 2 points to 49% at year-end 1995, driven by declines in the U.S. Total
system units grew 4% and 6% in 1996 and 1995, respectively.
Refranchising and closures affected worldwide restaurants operating
profit as follows:
($ in millions) 1996 1995 1994
---- ---- ----
U.S.
- ----
Refranchising gains $134 $ 89 $ -
Store closure costs (45) (26) (10)
--- --- ---
Net refranchising
gains/(losses) $ 89 $ 63 $(10)
International
- -------------
Refranchising gains $ 5 $ 4
Store closure costs 5 (12)
---- ---
Net refranchising
gains/(losses) $ 10 $ (8)
Worldwide
- ---------
Refranchising gains $139 $ 93 $ -
Store closure costs (40) (38) (10)
---- ---- ----
Net refranchising
gains/(losses) $ 99 $ 55 $(10)
==== ==== ====
In 1997, the refranchising program will be expanded at Pizza Hut U.S.,
Taco Bell U.S. and international restaurants and will also be extended to
include KFC U.S. restaurants. See Cautionary Statements beginning on page 35.
28
<PAGE>
OPERATING RESULTS
- -----------------
The operating results presented below include Pizza Hut, Taco Bell and
KFC in both the U.S. and international results. In addition, U.S. results
include PFS as well as CPK, Chevys, D'Angelo, ESM and HNN.
% Growth Rates
--------------
($ in millions) 1996 1995 1994 1996 1995
---- ---- ---- ---- ----
Net Sales
U.S. $ 9,110 $ 9,206 $ 8,696 (1) 6
International 2,331 2,122 1,825 10 16
------- ------- -------
$11,441 $11,328 $10,521 1 8
======= ======= =======
Operating Profit
Reported
U.S. $ 370 $ 726 $ 637 (49) 14
International 153 112 86 37 30
------- ------- -------
$ 523 $ 838 $ 723 (38) 16
======= ======= =======
Ongoing*
U.S. $ 616 $ 726 $ 637 (15) 14
International 153 112 86 37 30
------- ------- ----
$ 769 $ 838 $ 723 (8) 16
======= ====== =====
*Excluded $246 of charges related to the disposal of our non-core U.S.
restaurant businesses (see Note 3).
- --------------------------------------------------------------------------------
[Note: Net sales and operating profit comparisons within the following
discussions include the impact of the fifty-third week in 1994 (see Notes 2
and 19), while same store sales growth has been adjusted to exclude its
impact.]
1996 vs. 1995
U.S.
- ----
Net sales decreased $96 million. The decrease was driven by volume declines
of $286 million, partially due to lapping the second quarter 1995
introduction of Stuffed Crust pizza, and the unfavorable impact of fewer
company units of $272 million. These declines were partially offset by
higher effective net pricing and the consolidation of CPK at the end of the
second quarter of 1996. Same store sales decreased 4% and 2% at Pizza Hut
and Taco Bell, respectively, reflecting fewer transaction counts. KFC's same
store sales increased 6% due primarily to the impact of new products such as
Tender Roast Chicken, Colonel's Crispy Strips and Chunky Chicken Pot Pies.
Reported operating profit declined $356 million. Ongoing operating
profit decreased $110 million because of higher store operating costs, a
volume decrease of $166 million and recurring noncash SFAS 121 impairment
charges of $54 million. The higher store operating costs reflected
increased labor and food costs, partially offset by reduced depreciation and
amortization expense of $30 million in connection with the adoption of SFAS
121. The above effects were partially offset by the higher effective net
pricing which exceeded the
29
<PAGE>
increased store operating costs, and by a net refranchising gain of $89 million
in 1996 compared to $63 million in 1995.
INTERNATIONAL
- -------------
International sales increased $209 million, driven by the favorable impact of
net additional company units of $112 million, higher effective net pricing and
increased volumes, which contributed $52 million.
Operating profit increased $41 million, reflecting the higher effective net
pricing, a net refranchising gain in 1996 of $10 million compared to a net
refranchising loss in 1995 of $8 million, $18 million due to net additional
company units and increased volumes of $15 million. These benefits were
partially offset by higher store operating costs, increased administrative and
support costs and an $8 million recurring noncash SFAS 121 impairment charge.
The higher store operating costs, which exceeded the higher effective net
pricing, primarily reflected increased food prices and higher labor costs and
advertising expenses. These increased store operating costs were partially
offset by reduced depreciation and amortization expense of $10 million in
connection with the adoption of SFAS 121. The profit growth also benefited from
increased equity income.
1995 vs. 1994
U.S.
- ----
Net sales increased $510 million or 6%. The fifty-third week in 1994
reduced the sales growth by approximately 1 point. The sales growth reflected
$378 million from net additional company units and higher effective net pricing,
partially offset by $52 million of volume declines. Same store sales increased
4% and 7% at Pizza Hut and KFC, respectively, driven by new products. Taco
Bell's same store sales declined 4% due to fewer transaction counts.
Operating profit grew $89 million or 14%. The fifty-third week in 1994
reduced the profit growth by approximately 5 points. The growth included a net
refranchising gain of $63 million in 1995 as well as $12 million for the
write-off of costs associated with sites that will not be developed (undeveloped
sites). This compared to $10 million of store closure costs and $6 million of
undeveloped site costs in 1994. Profit growth was also aided by the net
additional company units, which contributed $54 million, and lower depreciation
and amortization expense of $11 million in connection with the adoption of SFAS
121. These benefits were partially offset by the lower volumes of $27 million
($24 million excluding the impact of the fifty-third week) and increased
overhead costs, primarily due to a $17 million charge in 1995 to move Pizza
Hut's U.S. headquarters from Wichita to Dallas.
INTERNATIONAL
- -------------
International net sales increased $297 million or 16%. The fifty-third week in
1994 reduced the sales growth by approximately 2 points. The sales increase
primarily reflected additional units of $244 million. International operating
profit increased $26 million or 30%. The fifty-third week in 1994 reduced the
operating profit growth rate by approximately 5 points. The increased profit
reflected higher effective net pricing and net additional company units that
contributed
30
<PAGE>
$22 million. It also reflected reduced depreciation and amortization expense of
$6 million as a result of the 1995 adoption of SFAS 121. These gains were
partially offset by higher store operating costs, increased administrative and
support costs and a $17 million reduction in volume ($14 million excluding the
impact of the fifty-third week). Profit growth was also hampered by $8 million
of net refranchising losses in 1995 and equity losses in 1995 compared to equity
earnings in 1994.
CONSOLIDATED CASH FLOWS
- -----------------------
Consolidated cash flows in 1996 reflected strong cash flows from operating
activities of $4.2 billion, cash from restaurant refranchising of $355 million
and cash from stock option exercises of $323 million. The cash funded capital
spending of $2.3 billion, share repurchases of $1.7 billion and dividend
payments of $675 million. Debt payments of $801 million were substantially
funded by short-term investment proceeds of $775 million.
Graph: Net Cash Provided by Operating Activities, Refranchising of Restaurants
and Exercises of Stock Options vs. Capital Spending, Share Repurchases, Cash
Dividends Paid and Acquisitions
($ in millions) 1996 1995 1994
---- ---- ----
Sources:
Operating activities $4,194 $3,742 $3,716
Refranchising of
restaurants 355 165 -
Exercises of stock
options 323 252 98
------ ------ ------
$4,872 $4,159 $3,814
====== ====== ======
Uses:
Capital spending $2,287 $2,104 $2,253
Share repurchases 1,651 541 549
Dividends paid 675 599 540
Acquisitions 75 466 316
------ ------ ------
$4,688 $3,710 $3,658
====== ====== ======
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES increased $452 million or 12% to $4.2
billion in 1996 due primarily to operating working capital cash inflows of $179
million in 1996 compared to net cash outflows of $411 million in 1995. The
change in operating working capital cash flows primarily reflected slower growth
in accounts and notes receivable in 1996 compared to 1995, higher growth in
accounts payable and other current liabilities and slower growth in inventories.
The slower growth in accounts and notes receivable reflected lower sales by
International beverages and a sale of $134 million of U.S. trade accounts
receivable in 1996 to take advantage of favorable effective financing rates. The
growth in accounts payable and other current liabilities was driven primarily by
accruals related to the 1996 unusual charges and timing of payments, partially
offset by the impact of our accounts payable amount remaining about the same as
1995. These cash flow favorabilities were
31
<PAGE>
partially offset by the tax-related decision to stop prefunding certain employee
benefits at the end of 1995.
Net cash provided by operating activities in 1995 rose $26 million or 1%
over 1994 to $3.7 billion, primarily reflecting improved income before noncash
charges and credits largely offset by the effect of operating working capital
cash outflows of $411 million in 1995 compared to cash inflows of $31 million in
1994.
NET CASH USED FOR INVESTING ACTIVITIES in 1996 decreased $1.2 billion or 48% to
$1.3 billion compared to an $89 million or 4% increase in 1995 to $2.5 billion.
The 1996 decline was principally due to the repatriation of funds we had held in
Puerto Rico. We manage the investment activity in our short-term portfolios,
which are primarily held outside the U.S., as part of our overall financing
strategy. We continually reassess our alternatives to redeploy them considering
investment opportunities and risks, tax consequences and current financing
activity. As a result of the Small Business Job Protection Act of 1996, our
exemption from U.S. Federal income tax on investment income generated in Puerto
Rico was completely eliminated effective as of December 1, 1996. Accordingly, as
our investments in Puerto Rico mature, we are repatriating the proceeds and
using them to reduce outstanding commercial paper debt. We repatriated $690
million in 1996.
Capital spending increased $183 million, reflecting higher North American
snack foods investments of $195 million, primarily for capacity expansion.
Increased spending in worldwide beverages of $85 million was offset by decreased
spending in worldwide restaurants, primarily in the U.S., of $82 million. In
1995, capital spending declined $149 million reflecting substantially reduced
spending in restaurants. Increased 1995 North American snack foods spending,
primarily for capacity expansion and new products, was partially offset by a
decline in beverages. Capital spending outside of the U.S. represented 30%, 29%
and 35% of total capital spending in 1996, 1995 and 1994, respectively.
Graph: Capital Spending by Segment
($ in millions)
Beverages Snack Foods Restaurants Corporate TOTAL
--------- ----------- ----------- --------- -----
1996 $648 $973 $ 657 $ 9 $2,287
1995 563 768 739 34 2,104
1994 664 527 1,059 3 2,253
Graph: Capital Spending: U.S. versus International
($ in millions)
1996 1995 1994
---- ---- ----
U.S. 70% 71% 65%
International 30 29 35
32
<PAGE>
NET CASH USED FOR FINANCING ACTIVITIES more than doubled in 1996 to $2.9
billion, primarily reflecting a $1.1 billion increase in our share
repurchases and increased debt payments of $498 million. Net cash used for
financing activities in 1995 of $1.2 billion was unchanged from the prior
year.
Our share repurchase activity was as follows:
(in millions) 1996 1995 1994
---- ---- ----
Cost $1,651 $ 541 $ 549
Shares repurchased
Number of shares 54.2 24.6 30.0
% of shares
outstanding at
beginning of year 3.4% 1.6% 1.9%
At December 28, 1996, 51.4 million shares are available under the
current repurchase authority granted by our Board of Directors.
FREE CASH FLOW is the measure we use internally to evaluate our cash flow
performance.
($ in millions) 1996 1995 1994
---- ---- ----
Net cash provided by
operating activities $ 4,194 $ 3,742 $ 3,716
Cash dividends paid (675) (599) (540)
Investing activities
Capital spending (2,287) (2,104) (2,253)
Refranchising of
restaurants 355 165 -
Sales of property,
plant and equipment 57 138 55
Other, net (100) (247) (268)
---- ---- ----
Free cash flow $ 1,544 $ 1,095 $ 710
======= ======= ======
In 1996, free cash flow increased $449 million or 41%, reflecting the
strong increase in net cash provided by operating activities. Higher
proceeds from restaurant refranchising were offset by higher capital
spending. In 1995, free cash flow advanced $385 million or 35% due
primarily to refranchising of restaurants and the lower capital spending.
CONSOLIDATED FINANCIAL CONDITION
ASSETS decreased $920 million or 4% to $24.5 billion. The decline reflected
the repatriation of funds from our investment portfolio in Puerto Rico, the
impact of the unusual impairment,
33
<PAGE>
disposal and other charges of $822 million (see Note 3) and the effects of the
restaurant program to refranchise stores and close underperforming stores,
partially offset by normal business growth. Short-term investments largely
represent high-grade marketable securities portfolios held outside the U.S. As
discussed, we are repatriating the funds from our portfolio in Puerto Rico as
our investments mature and we are using them to reduce our short-term debt. Our
Puerto Rico portfolio totaled $126 million at year-end 1996 and $816 million at
year-end 1995. We expect to repatriate most of the year-end 1996 balance in
1997. The increase in prepaid expenses, deferred income taxes and other current
assets principally reflected a reclassification of the carrying amount of our
non-core U.S. restaurant long-lived assets, partially offset by a significant
decline in current deferred income taxes. These non-core restaurants assets are
now being held for disposal and carried at estimated fair market value.
LIABILITIES decreased $230 million or 1% to $17.9 billion. The decline
reflected the pay-down of short-term debt with the funds repatriated from Puerto
Rico, partially offset by increased accounts payable and other current
liabilities, due in part to the International beverages restructuring charge.
At year-end 1996 and 1995, $3.5 billion of short-term borrowings were
reclassified as long-term, reflecting our intent and ability, through the
existence of our unused revolving credit facilities, to refinance these
borrowings. Our unused credit facilities, which exist largely to support the
issuances of short-term borrowings, were $3.5 billion at year-end 1996 and 1995.
Effective January 10, 1997, we extended to 2002 $3.3 billion of these credit
facilities. Annually, these facilities can be extended an additional year upon
the mutual consent of PepsiCo and the lending institutions.
Our strong cash-generating capability and our strong financial condition
give us ready access to capital markets throughout the world.
We measure FINANCIAL LEVERAGE on both a market value and historical cost
basis. We believe that the most meaningful measure of debt is on a net basis,
which takes into account our investment portfolios held outside the U.S. These
portfolios are managed as part of our overall financing strategy and are not
required to support day-to-day operations. Net debt reflects the pro forma
remittance of the portfolios (net of related taxes) as a reduction of total
debt. Total debt includes the present value of operating lease commitments.
We also use market leverage to measure our long-term financial leverage. We
define market leverage as net debt as a percent of net debt plus the market
value of equity, based on the year-end stock price. Unlike historical cost
measures, the market value of equity primarily reflects the estimated net
present value of expected future cash flows that will both support debt and
provide returns to shareholders.
The market net debt ratio was unchanged in 1996, largely because the 6%
increase in our year-end stock price was offset by a 2% decline in our shares
outstanding. In 1995, the market net debt ratio declined 8 points to 18% due
primarily to a 54% increase in our stock price.
Measured on a historical cost basis, the ratio of net debt to net capital
employed (defined as net debt, other liabilities, deferred income taxes and
shareholders' equity) increased 2 points to 48% in 1996, reflecting a 3% decline
in net capital employed. The 3-point decline to 46% in 1995 reflected a 2%
decline in net debt and a 4% increase in net capital employed.
34
<PAGE>
1996 1995 1994
---- ---- ----
Graph: MARKET NET DEBT RATIO 18% 18% 26%
1996 1995 1994
---- ---- ----
Graph: HISTORICAL NET DEBT RATIO 48% 46% 49%
Our negative operating working capital position, which reflects the
cash sales nature of our restaurant operations partially offset by our more
working capital intensive packaged goods businesses, effectively provides
additional capital for investment. Operating working capital, which
excludes short-term investments and short-term borrowings, was a negative
$313 million and negative $94 million at year-end 1996 and 1995,
respectively. The $219 million increase in negative working capital in 1996
primarily reflected reclassifications of a portion of other liabilities and
deferred income taxes to income taxes payable and accounts payable and other
current liabilities, respectively, and a decline in operating working
capital in our International beverages business. The increase was partially
offset by the reclassification of our non-core U.S. restaurant long-lived
assets held for disposal to prepaid expenses, deferred income taxes and
other current assets in the Consolidated Balance Sheet. The decline in
International beverages reflected higher accrued liabilities due to the
restructuring charge, coupled with lower receivables from a decline in sales.
SHAREHOLDERS' EQUITY decreased $690 million or 9% to $6.6 billion.
This change was the result of a $1.3 billion increase in treasury stock,
reflecting repurchases of 54.2 million shares offset by 22.7 million shares
used for stock option exercises. This decrease was mitigated by a 5%
increase in retained earnings due to $1.1 billion in net income less
dividends declared of $695 million.
Cautionary Statements
- ---------------------
From time to time, in written reports and oral statements, we discuss our
expectations regarding future performance of the Company. 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 had expected. In addition, as
discussed in the Management's Analysis:
- - The forecasted annual savings of $50 million in 1997, and about $80
million a year thereafter related to the International beverages
restructuring charge (page 22) assumes that facilities are vacated and
employees are terminated within the time frames used to develop the
estimate.
35
<PAGE>
- - The expectation that our reported results in Mexico will be slightly
lower than what they would have been had we not changed our functional
currency from the peso to the U.S. dollar (page 25) assumes that the peso
will not devalue significantly in 1997.
- - The spin-off of our core restaurant businesses (page 26) is subject to
receipt of a tax ruling by the Internal Revenue Service that would allow
it to be tax free to our shareholders, various regulatory approvals,
appropriate stock market conditions for distribution and final approval
by our Board of Directors.
- - The impairment charge recorded to reduce our investment in our non-core
U.S. restaurant businesses to estimated fair market value assumed certain
sales prices based primarily upon the opinion of an investment banking
firm. These estimates could vary significantly from the final sales
prices (page 26).
- - Our ability to execute our restaurant refranchising program (page 28)
depends on our ability to find investors to purchase our restaurants at
prices we consider appropriate.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Information on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age and background of each of the Company's directors
nominated for reelection are contained under the caption "Election of
Directors" in the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders on pages 2 and 3 and are incorporated herein by reference.
Pursuant to Item 401(b) of Regulation S-K, the executive officers of the
Company are reported in Part I of this report.
Item 11. EXECUTIVE COMPENSATION
Information on compensation of the Company's directors and executive
officers is contained in the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders under the captions "Directors Compensation" and
"Executive Compensation", respectively, and is incorporated herein by
reference.
36
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on the number of shares of PepsiCo Capital Stock
beneficially owned by each director and by all directors and officers as a
group is contained under the caption "Ownership of Capital Stock by
Directors and Officers" in the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders and is incorporated herein by reference. As far as
is known to the Company, no person owns beneficially more than 5% of the
outstanding shares of PepsiCo Capital Stock.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See Index to Financial Information on page F-1.
2. Financial Statement Schedule
See Index to Financial Information on page F-1.
3. Exhibits
See Index to Exhibits on page E-1.
(b) Reports on Form 8-K
PepsiCo filed a Current Report on Form 8-K dated September
30, 1996, attaching a press release dated September 26,
1996, regarding a series of long-term strategic actions
intended to strengthen its competitiveness in the
marketplace, improve the consistency of its financial
performance and significantly improve shareholder returns,
including a one-time charge of $125 million dollars due to
the restructuring of the international beverage business and
a $400 million dollar write-down of the carrying value of
certain international beverage assets.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, PepsiCo has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: March 25, 1997
PepsiCo, Inc.
By: /s/ ROGER A. ENRICO
-------------------
Roger A. Enrico
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
PepsiCo and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
Chairman of the
/s/ ROGER A. ENRICO Board and
Roger A. Enrico Chief Executive March 25, 1997
Officer (Principal
Executive Officer)
/s/ KARL M. VON DER HEYDEN Vice Chairman of the
Karl M. von der Heyden Board and Chief March 25, 1997
Financial Officer
(Principal Financial
Officer)
/s/ ROBERT L. CARLETON Senior Vice
Robert L. Carleton President and March 10, 1997
Controller
(Principal
Accounting Officer)
/s/ JOHN F. AKERS Director March 25, 1997
John F. Akers
/s/ ROBERT E. ALLEN Director
Robert E. Allen March 10, 1997
/s/ D. WAYNE CALLOWAY Director
D. Wayne Calloway March 25, 1997
/s/ RAY L. HUNT Director March 25, 1997
Ray L. Hunt
/s/ JOHN J. MURPHY Director March 25, 1997
John J. Murphy
S-1
<PAGE>
Chairman and Chief
/s/ STEVEN S REINEMUND Executive Officer of March 25, 1997
Steven S Reinemund The Frito-Lay
Company and Director
/s/ SHARON PERCY ROCKEFELLER Director
Sharon Percy Rockefeller March 11, 1997
/s/ FRANKLIN A. THOMAS Director
Franklin A. Thomas March 25, 1997
/s/ P. ROY VAGELOS Director
P. Roy Vagelos March 10, 1997
Chairman and Chief
/s/ CRAIG E. WEATHERUP Executive Officer of
Craig E. Weatherup Pepsi-Cola Company March 25, 1997
and Director
/s/ ARNOLD R. WEBER Director March 17, 1997
Arnold R. Weber
S-2
<PAGE>
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.
3.2 By-Laws of PepsiCo, Inc., as amended to July 25, 1996, which are
incorporated herein by reference from Exhibit 3(ii) to PepsiCo's
Quarterly Report on Form 10-Q for the quarterly period ended June
15, 1996.
4 PepsiCo, Inc. agrees to furnish to the Securities and Exchange
Commission, upon request, a copy of any instrument defining the
rights of holders of long-term debt of PepsiCo, Inc. and all of
its subsidiaries for which consolidated or unconsolidated
financial statements are required to be filed with the Securities
and Exchange Commission.
10.1 Description of PepsiCo, Inc. 1988 Director Stock Plan, which is
incorporated herein by reference from Post-Effective Amendment No.
2 to PepsiCo's Registration Statement on Form S-8 (Registration
No. 33-22970).
10.2 Copy of PepsiCo, Inc. 1987 Incentive Plan (the "1987 Plan"), which
is incorporated by reference from Exhibit 10(b) to PepsiCo's
Annual Form 10-K for the Fiscal Year ended December 26, 1992.
10.3 Copy of PepsiCo, Inc. 1979 Incentive Plan (the "Plan"), which is
incorporated by reference from Exhibit 10(c) to PepsiCo's Annual
Report on Form 10-K for the Fiscal year ended December 28, 1991.
10.4 Copy of Operating Guideline No. 1 under the 1987 Plan, as amended
through July 25, 1991, which is incorporated by reference from
Exhibit 10(d) to PepsiCo's Annual Report on Form 10-K for the
fiscal year ended December 28, 1991.
10.5 Copy of Operating Guideline No. 2 under the 1987 Plan and the
Plan, as amended through January 22, 1987, which is incorporated
herein by reference from Exhibit 28(b) to PepsiCo's Registration
Statement on Form S-8 (Registration No. 33-19539).
10.6 Amended and Restated PepsiCo Long Term Savings Program, dated
June 21, 1996.
10.7 Copy of PepsiCo, Inc. 1995 Stock Option Incentive Plan, which is
incorporated herein by reference from PepsiCo's Registration
Statement on Form S-8 (Registration No. 33-61731).
10.8 Copy of PepsiCo, Inc. 1994 Long-Term Incentive Plan, which is
incorporated herein by reference from Exhibit A to PepsiCo's Proxy
Statement for its 1994 Annual Meeting of Shareholders.
E-1
<PAGE>
10.9 Copy of PepsiCo, Inc. Executive Incentive Compensation Plan, which
is incorporated herein by reference from Exhibit B to PepsiCo's
Proxy Statement for its 1994 Annual Meeting of Shareholders.
10.10 Copy of PepsiCo, Inc. Restaurant Deferred Compensation Plan, which
is incorporated herein by reference from PepsiCo's Registration
Statement on Form S-8 (Registration No. 333-01377).
11 Computation of Net Income Per Share of Capital Stock -- Primary and
Fully Diluted.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Active Subsidiaries of PepsiCo, Inc.
23 Report and Consent of KPMG Peat Marwick LLP.
24 Copy of Power of Attorney.
27 Financial Data Schedule.
E-2
<PAGE>
PepsiCo, Inc. and Subsidiaries
FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 28, 1996
<PAGE>
PEPSICO, INC. AND SUBSIDIARIES
<TABLE>
INDEX TO FINANCIAL INFORMATION
Item 14(a)(1)-(2)
<CAPTION>
Item 14(a)(1) Financial Statements
<S> <C>
Page
Reference
Consolidated Statement of Income for
the fiscal years ended December 28, 1996
December 30, 1995 and December 31, 1994...................................... F-2
Consolidated Statement of Cash Flows for
the fiscal years ended December 28, 1996,
December 30, 1995 and December 31, 1994...................................... F-3
Consolidated Balance Sheet at December 28, 1996
and December 30, 1995........................................................ F-5
Consolidated Statement of Shareholders' Equity
for the fiscal years ended December 28, 1996,
December 30, 1995 and December 31, 1994...................................... F-6
Notes to Consolidated Financial Statements...................................... F-8
Management's Responsibility for Financial Statements............................ F-42
Report of Independent Auditors, KPMG Peat Marwick LLP........................... F-43
Selected Financial Data......................................................... F-44
Item 14(a)(2) Financial Statement Schedule
II Valuation and Qualifying Accounts and Reserves
for the fiscal years ended December 28, 1996,
December 30, 1995 and December 31, 1994.......................... F-51
</TABLE>
All other financial statements and schedules have been omitted since the
required information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the above listed financial statements or the notes thereto.
F-1
<PAGE>
<TABLE>
Consolidated Statement of Income
(in millions except per share amounts)
PepsiCo, Inc. and Subsidiaries
<CAPTION>
Fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994
<S> <C> <C> <C>
1996 1995 1994
(52 Weeks) (52 Weeks) (53 Weeks)
- ---------------------------------------------------------------------------------------------------------
Net Sales............................................ $31,645 $30,255 $28,351
Costs and Expenses, net
Cost of sales........................................ 15,383 14,886 13,715
Selling, general and
administrative expenses............................. 12,593 11,546 11,123
Amortization of intangible assets.................... 301 316 312
Unusual impairment, disposal and
other charges....................................... 822 520 -
------- ------- -------
Operating Profit..................................... 2,546 2,987 3,201
Gain on stock offering by an
unconsolidated affiliate............................ - - 18
Interest expense..................................... (600) (682) (645)
Interest income...................................... 101 127 90
------- ------- -------
Income Before Income Taxes and Cumulative
Effect of Accounting Changes....................... 2,047 2,432 2,664
Provision for Income Taxes........................... 898 826 880
------- ------- -------
Income Before Cumulative Effect of
Accounting Changes................................. 1,149 1,606 1,784
Cumulative Effect of Accounting Changes
Postemployment benefits (net of income
tax benefit of $29)................................. - - (55)
Pension assets (net of income tax
expense of $15)..................................... - - 23
------- ------- -------
Net Income........................................... $ 1,149 $ 1,606 $ 1,752
======= ======= =======
Income (Charge) Per Share
Before cumulative effect of accounting
changes............................................. $ 0.72 $ 1.00 $ 1.11
Cumulative effect of accounting changes
Postemployment benefits............................ - - (0.03)
Pension assets..................................... - - 0.01
------- ------- -------
Net Income Per Share................................. $ 0.72 $ 1.00 $ 1.09
======= ======= =======
Average shares outstanding........................... 1,606 1,608 1,608
- -------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
F-2
<PAGE>
<TABLE>
Consolidated Statement of Cash Flows (page 1 of 2)
(in millions)
PepsiCo, Inc. and Subsidiaries
<CAPTION>
Fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994
<S> <C> <C> <C>
1996 1995 1994
(52 Weeks) (52 Weeks) (53 Weeks)
- ---------------------------------------------------------------------------------------------------------
Cash Flows - Operating Activities
Income before cumulative effect of
accounting changes................................ $ 1,149 $ 1,606 $ 1,784
Adjustments to reconcile income
before cumulative effect of
accounting changes to net cash
provided by operating activities
Depreciation and amortization.................... 1,719 1,740 1,577
Noncash portion of unusual
impairment, disposal and
other charges................................... 601 520 -
Deferred income taxes............................ 11 (111) (67)
Other noncash charges and
credits, net.................................... 535 398 391
Changes in operating working capital,
excluding effects of acquisitions
Accounts and notes receivable.................. (70) (434) (112)
Inventories.................................... (28) (129) (102)
Prepaid expenses, deferred income
taxes and other current assets............... (30) 76 1
Accounts payable and other
current liabilities.......................... 427 173 189
Income taxes payable........................... (120) (97) 55
------- ------- --------
Net change in operating
working capital................................. 179 (411) 31
------- ------- --------
Net Cash Provided by Operating
Activities........................................ 4,194 3,742 3,716
------- ------- --------
Cash Flows - Investing Activities
Capital spending................................... (2,287) (2,104) (2,253)
Acquisitions and investments
in unconsolidated affiliates...................... (75) (466) (316)
Refranchising of restaurants....................... 355 165 -
Sales of property, plant
and equipment..................................... 57 138 55
Short-term investments, by original
maturity
More than three months-purchases................. (160) (289) (219)
More than three months-maturities................ 195 335 650
Three months or less, net........................ 740 18 (10)
Other, net......................................... (100) (247) (268)
------- ------- --------
Net Cash Used for Investing
Activities........................................ (1,275) (2,450) (2,361)
------- ------- --------
- -----------------------------------------------------------------------------------------------------
(Continued on following page)
</TABLE>
F-3
<PAGE>
<TABLE>
Consolidated Statement of Cash Flows (page 2 of 2)
(in millions)
PepsiCo, Inc. and Subsidiaries
<CAPTION>
Fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994
<S> <C> <C> <C>
1996 1995 1994
(52 Weeks) (52 Weeks) (53 Weeks)
- ------------------------------------------------------------------------------------------------------
Cash Flows - Financing Activities
Proceeds from issuances of
long-term debt.................................... 1,773 2,030 1,285
Payments of long-term debt......................... (1,424) (928) (1,180)
Short-term borrowings, by original
maturity
More than three months-proceeds.................. 747 2,053 1,304
More than three months-payments.................. (1,873) (2,711) (1,728)
Three months or less, net........................ (24) (747) 114
Cash dividends paid................................ (675) (599) (540)
Share repurchases.................................. (1,651) (541) (549)
Proceeds from exercises of
stock options..................................... 323 252 98
Other, net......................................... (46) (42) (44)
------- ------- -------
Net Cash Used for
Financing Activities.............................. (2,850) (1,233) (1,240)
------- ------- -------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents......................... (4) (8) (11)
------- ------- -------
Net Increase in Cash
and Cash Equivalents.............................. 65 51 104
Cash and Cash Equivalents
- Beginning of Year............................... 382 331 227
------- ------- -------
Cash and Cash Equivalents
- End of Year..................................... $ 447 $ 382 $ 331
======= ======= =======
- ---------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information
Interest paid....................................... $ 573 671 591
Income taxes paid................................... $ 679 790 663
- ---------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
F-4
<PAGE>
<TABLE>
Consolidated Balance Sheet
(in millions except per share amount)
PepsiCo, Inc. and Subsidiaries
December 28, 1996 and December 30, 1995
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents........................................ $ 447 $ 382
Short-term investments, at cost.................................. 339 1,116
------- -------
786 1,498
Accounts and notes receivable, less allowance:
$183 in 1996 and $150 in 1995................................... 2,516 2,407
Inventories...................................................... 1,038 1,051
Prepaid expenses, deferred income taxes and
other current assets............................................ 799 590
------- -------
Total Current Assets........................................ 5,139 5,546
Property, Plant and Equipment, net............................... 10,191 9,870
Intangible Assets, net........................................... 7,136 7,584
Investments in Unconsolidated Affiliates......................... 1,375 1,635
Other Assets..................................................... 671 797
------- -------
Total Assets.............................................. $24,512 $25,432
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current
liabilities .................................................... $ 4,626 $ 4,137
Income taxes payable............................................. 487 387
Short-term borrowings............................................ 26 706
------- -------
Total Current Liabilities................................... 5,139 5,230
Long-term Debt................................................... 8,439 8,509
Other Liabilities................................................ 2,533 2,495
Deferred Income Taxes............................................ 1,778 1,885
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................................... 1,201 1,045
Retained earnings................................................ 9,184 8,730
Currency translation adjustment and other........................ (768) (808)
------- -------
9,646 8,996
Less: Treasury stock, at cost:
181 shares and 150 shares in 1996 and
1995, respectively............................................. (3,023) (1,683)
------- -------
Total Shareholders' Equity.................................. 6,623 7,313
------- -------
Total Liabilities and
Shareholders' Equity..................................... $24,512 $25,432
======= =======
- -------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
F-5
<PAGE>
<TABLE>
Consolidated Statement of Shareholders' Equity (page 1 of 2)
(in millions except per share amounts)
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994
<CAPTION>
Capital Stock
-------------------------------------------------
Issued Treasury
------------------- ----------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shareholders' Equity,
December 25, 1993................................. 1,726 $29 (128) $ (913)
------------------------------------------------
1994 Net income.................................. - - - -
Cash dividends declared
(per share-$0.35)............................... - - - -
Currency translation adjustment.................. - - - -
Share repurchases................................ - - (30) (549)
Stock option exercises, including
tax benefits of $27............................. - - 10 81
Shares issued in connection with
acquisitions.................................... - - 2 15
Pension liability adjustment, net
of deferred taxes of $5......................... - - - -
Other............................................ - - - 5
------------------------------------------------
Shareholders' Equity,
December 31, 1994................................. 1,726 $29 (146) $(1,361)
------------------------------------------------
1995 Net income.................................. - - - -
Cash dividends declared
(per share-$0.39).............................. - - - -
Currency translation adjustment.................. - - - -
Share repurchases................................ - - (24) (541)
Stock option exercises, including
tax benefits of $91............................. - - 20 218
Other............................................ - - - 1
------------------------------------------------
Shareholders' Equity,
December 30, 1995................................. 1,726 $29 (150) $(1,683)
------------------------------------------------
1996 Net income.................................. - - - -
Cash dividends declared
(per share-$0.445).............................. - - - -
Currency translation adjustment.................. - - - -
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)
=================================================
- ------------------------------------------------------------------------------------------------------
(Continued on next page)
</TABLE>
F-6
<PAGE>
<TABLE>
Consolidated Statement of Shareholders' Equity (page 2 of 2)
(in millions except per share amounts)
PepsiCo, Inc. and Subsidiaries
Fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994
<CAPTION>
Capital Currency
in Translation
Excess of Retained Adjustment
Par Value Earnings and Other Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholders' Equity,
December 25, 1993................................. $ 865 $6,542 $(184) $6,339
-----------------------------------------------
1994 Net income.................................. - 1,752 - 1,752
Cash dividends declared
(per share-$0.35)............................... - (555) - (555)
Currency translation adjustment.................. - - (295) (295)
Share repurchases................................ - - - (549)
Stock option exercises, including
tax benefits of $27............................. 44 - - 125
Shares issued in connection with
acquisitions.................................... 14 - - 29
Pension liability adjustment, net
of deferred taxes of $5......................... - - 8 8
Other............................................ (3) - - 2
-----------------------------------------------
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
===============================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular dollars in millions except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of the Consolidated Financial Statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain reclassifications were made to prior year amounts to conform
with the 1996 presentation.
PRINCIPLES OF CONSOLIDATION. The financial statements reflect the
consolidated accounts of PepsiCo, Inc. and its controlled affiliates.
Intercompany accounts and transactions have been eliminated. Investments in
unconsolidated affiliates in which PepsiCo exercises significant influence but
not control are accounted for by the equity method and PepsiCo's share of the
net income or loss of its unconsolidated affiliates is included in selling,
general and administrative expenses.
FISCAL YEAR. PepsiCo's fiscal year ends on the last Saturday in December
and, as a result, a fifty-third week is added every five or six years. The
fiscal year ending December 31, 1994 consisted of 53 weeks.
MARKETING COSTS. Marketing costs are reported in selling, general and
administrative expenses and include costs of advertising and other marketing
activities. Marketing costs not deferred at year-end are charged to expense
ratably in relation to sales over the year in which incurred. Advertising
expenses were $1.9 billion, $1.8 billion and $1.7 billion in 1996, 1995 and
1994, respectively. Advertising expenses deferred at year-end, which are
classified in prepaid expenses, deferred income taxes and other current assets
in the Consolidated Balance Sheet, were $49 million and $78 million in 1996 and
1995, respectively. Deferred advertising consists of media and personal service
advertising-related prepayments, promotional materials in inventory and
production costs of future media advertising; these assets are expensed in the
year first used.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses, which
are expensed as incurred, were $115 million, $96 million and $152 million in
1996, 1995 and 1994, respectively.
STOCK-BASED COMPENSATION. PepsiCo measures stock-based compensation cost as
the excess of the quoted market price of PepsiCo's capital stock at the grant
date over the amount the employee must pay for the stock. PepsiCo's policy is to
generally grant stock options at fair market value at the date of grant.
STOCK SPLIT. On May 1, 1996 PepsiCo's Board of Directors authorized a
two-for-one stock split of PepsiCo's capital stock effective for shareholders of
record at the close of business on May 10, 1996. The number of authorized shares
was increased from 1.8 billion to 3.6 billion. The information in the
Consolidated Financial Statements, as well as all other share data in this
report, have been adjusted to reflect the stock split and the increase in
authorized shares. The par value remains 1 2/3 cents per share, with capital in
excess of par value reduced to reflect the total par value of the additional
shares.
NET INCOME PER SHARE. Net income per share is computed by dividing net
income by the weighted average number of shares and dilutive share equivalents
(primarily stock options) outstanding (average shares outstanding).
F-8
<PAGE>
DERIVATIVE INSTRUMENTS. The interest differential to be paid or received on
an interest rate swap is recognized as an adjustment to interest expense as the
differential occurs. The interest differential not yet settled in cash is
reflected in the Consolidated Balance Sheet as a receivable or payable under the
appropriate current asset or liability caption. If an interest rate swap
position was to be terminated, the gain or loss realized upon termination would
be deferred and amortized to interest expense over the remaining term of the
underlying debt instrument it was intended to modify or would be recognized
immediately if the underlying debt instrument was settled prior to maturity.
The differential to be paid or received on a currency swap related to
non-U.S. dollar denominated debt is charged or credited to income as the
differential occurs. This is fully offset by the corresponding gain or loss
recognized in income on the currency translation of the debt, as both amounts
are based upon the same exchange rates. The currency differential not yet
settled in cash is reflected in the Consolidated Balance Sheet under the
appropriate current or noncurrent receivable or payable caption. If a currency
swap position was to be terminated prior to maturity, the gain or loss realized
upon termination would be immediately recognized in income.
A seven-year put option, issued in connection with the formation of a joint
venture with the principal shareholder of Grupo Embotellador de Mexico, S.A.
(GEMEX) in 1995, an unconsolidated franchised bottling affiliate in Mexico, is
marked-to-market with gains or losses recognized currently as an adjustment to
PepsiCo's share of the net income of unconsolidated affiliates. The offsetting
amount adjusts the carrying amount of the put obligation which is classified in
other liabilities in the Consolidated Balance Sheet.
Gains and losses on futures contracts designated as hedges of future
commodity purchases are deferred and included in the cost of the related raw
materials when purchased. Changes in the value of futures contracts that PepsiCo
uses to hedge commodity purchases are highly correlated to the changes in the
value of the purchased commodity. If the degree of correlation between the
futures contracts and the purchase contracts were to diminish such that the two
were no longer considered highly correlated, subsequent changes in the value of
the futures contracts would be recognized in income.
CASH EQUIVALENTS. Cash equivalents represent funds temporarily invested
(with original maturities not exceeding three months) as part of PepsiCo's
management of day-to-day operating cash receipts and disbursements. All other
investment portfolios, largely held outside the U.S., are primarily classified
as short-term investments.
INVENTORIES. Inventories are valued at the lower of cost (computed on the
average, first-in, first-out or last-in, first-out method) or net realizable
value.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment (PP&E) are
stated at cost, except for PP&E that have been impaired, for which the carrying
amount is reduced to estimated fair market value. Depreciation is calculated on
a straight-line basis over the estimated useful lives of the assets.
INTANGIBLE ASSETS. Intangible assets are amortized on a straight-line basis
over appropriate periods, generally ranging from 20 to 40 years.
RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS.
PepsiCo reviews most long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used in the business
semi-annually for impairment, or whenever events or changes in circumstances
indicate that the carrying amount of an asset or a group of
F-9
<PAGE>
assets may not be recoverable. PepsiCo uses a history of operating losses as its
primary indicator of potential impairment. Assets are grouped and evaluated for
impairment at the lowest level for which there are identifiable cash flows that
are largely independent of the cash flows of other groups of assets (Assets).
PepsiCo has identified the appropriate grouping of Assets to be individual
restaurants for the restaurants segment and, for each of the snack foods and
beverages segments, Assets are generally grouped at the country level. An
impaired Asset is written down to its estimated fair market value based on the
best information available; PepsiCo generally measures estimated fair market
value by discounting estimated future cash flows. Considerable management
judgment is necessary to estimate discounted future cash flows. Accordingly,
actual results could vary significantly from such estimates.
PepsiCo's methodology for determining and measuring impairment of its
investments in unconsolidated affiliates and enterprise level goodwill was
changed in 1996 to conform with the methodology it uses when applying the
provisions of Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," except (a) the recognition test for an investment in an
unconsolidated affiliate compares the investment to a forecast of PepsiCo's
share of the unconsolidated affiliate's undiscounted cash flows including
interest and taxes, compared to undiscounted cash flows before interest and
taxes used for all other long-lived assets and (b) enterprise level goodwill is
evaluated at a country level for the restaurants segment, instead of by
individual restaurant. The change in methodology did not have a material impact
in 1996.
F-10
<PAGE>
<TABLE>
Note 2 - ITEMS AFFECTING COMPARABILITY OF INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Per Per
(a) Share (a) Share (a) Share
--- ------ --- ----- --- -----
Unusual Items
Unusual impairment,
disposal and
other charges............... $ 822 $ 0.45 $520 $ 0.24
Gain on stock
offering by an
unconsolidated
affiliate................... $(18) $(0.01)
----- ------ ---- -------- ----- ------
$ 822 $ 0.45 $520 $ 0.24 $(18) $(0.01)
===== ====== ==== ======== ===== =======
Other Items
Refranchising gains $(139) $(0.05) $(93) $(0.03)
Store closure costs.......... 40 0.01 38 0.01 $ 10 $ -
----- ------ ---- ------ ---- ------
Net refranchising
(gains)/losses............. (99) (0.04) (55) (0.02) 10 -
Reduced depreciation
and amortization (46) (0.02) (21) (0.01)
Recurring restaurant
impairment charges 62 0.03
Fifty-third week.............. (54) (0.02)
------ ------- ----- ------- ---- ------
$ (83) $(0.03) $(76) $(0.03) $(44) $(0.02)
===== ====== ==== ======= ==== ======
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) Pre-tax amounts.
See Note 3 for information regarding unusual impairment, disposal and other
charges.
See Note 17 for information regarding the 1994 gain from a public share
offering by Buenos Aires Embotelladora S.A. (BAESA), our Latin American bottling
joint venture.
Net refranchising (gains)/losses reflected PepsiCo's strategy to reduce its
ownership in its restaurant businesses by selling company-operated restaurants
to franchisees and closing underperforming units. See Management's Analysis -
Restaurants beginning on page 26.
Reduced depreciation and amortization reflected the reduced carrying amount
of PepsiCo's long-lived assets to be held and used in the business as a result
of the fourth quarter 1995 adoption of SFAS 121. See Items Affecting
Comparability - Unusual Impairment, Disposal and Other Charges in Note 19 for
the estimated impact of the reduced depreciation and amortization on segment
operating profit.
See Note 4 for information regarding the 1996 recurring restaurant
impairment charges.
The fifty-third week in 1994 increased 1994 net sales by an estimated $434
million. See Items Affecting Comparability - Fiscal Year in Note 19 for the
estimated impact of the fifty-third week on segment net sales and operating
profit.
F-11
<PAGE>
<TABLE>
Note 3 - UNUSUAL IMPAIRMENT, DISPOSAL AND OTHER CHARGES
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Per
(a) Share (a) Share
---- ----- --- -----
International beverages $576 $0.33
Non-core U.S. restaurant
businesses..................... 246 0.12
Initial adoption of
SFAS 121....................... $520 $0.24
---- ----- ---- -----
$822 $0.45 $520 $0.24
==== ===== ==== =====
- -------------------------------------------------------------------------------
</TABLE>
(a) Pre-tax amounts.
PepsiCo recognized unusual impairment, disposal and other charges of $822
million ($716 million after-tax or $0.45 per share) in 1996. The International
beverages charge included $454 million ($429 million after-tax or $0.27 per
share) related primarily to investments in unconsolidated affiliates and
concentrate-related and non-core assets (primarily packaging) and its 24% equity
share of unusual charges recorded by BAESA. In addition, it included a
restructuring charge of $122 million ($98 million after-tax or $0.06 per share)
related to a fourth quarter reorganization into 10 business units and reduction
of support staff. The charge primarily reflected severance-related costs,
relocation costs for employees who, in 1996, accepted offers to relocate and
facility closing costs. Included in the International beverages charges are
impairment charges of $373 million (see Note 4).
The non-core U.S. restaurant businesses charge of $246 million ($189
million after-tax or $0.12 per share) was a result of a decision made by PepsiCo
in the fourth quarter of 1996 to dispose of its non-core U.S. restaurant
businesses; California Pizza Kitchen (CPK), Chevys, D'Angelo Sandwich Shops
(D'Angelo) and East Side Mario's (ESM) and a first quarter decision to dispose
of Hot `n Now (HNN). The charge was primarily composed of impairment charges and
estimated disposal costs (see Note 4). The remaining carrying amount of the
assets of these non-core U.S. restaurant businesses of $333 million is included
in 1996 in Prepaid expenses, deferred income taxes and other current assets in
the Consolidated Balance Sheet as PepsiCo plans to dispose of them in 1997. The
non-core U.S. restaurant businesses contributed $394 million, $297 million and
$281 million to net sales in 1996, 1995 and 1994, respectively. Excluding the
unusual impairment, disposal and other charges in 1996 and 1995, the non-core
U.S. restaurant businesses incurred operating losses of $10 million, $42 million
and $40 million in 1996, 1995 and 1994, respectively.
PepsiCo early adopted SFAS 121 as of the beginning of the fourth quarter
of 1995. The initial, noncash charge upon adoption of SFAS 121 was $520 million
($384 million after-tax or $0.24 per share). See Note 4.
F-12
<PAGE>
Note 4 - IMPAIRMENT OF LONG-LIVED ASSETS
Impairment charges of $681 million ($396 million after-tax or $0.25 per share)
in 1996 and $520 million ($384 million after-tax or $0.24 per share) in 1995
included in the Consolidated Statement of Income are set forth below:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
International beverages
Investments in unconsolidated
affiliates...................... $210 $ -
Concentrate-related assets....... 110 -
Non-core assets.................. 53 -
---- ----
373 -
Non-core U.S. restaurant businesses 246 -
Initial adoption of SFAS 121....... - 520
---- ----
Unusual charges.................. 619 520
Restaurants-recurring SFAS 121
charges......................... 62 -
---- ----
$681 $520
- -------------------------------------------------------------------------------
</TABLE>
The unusual charges and the recurring restaurant charges are included in
unusual impairment, disposal and other charges and selling, general and
administrative expenses, respectively, in the Consolidated Statement of Income.
The impairment charges represented a reduction of the carrying amounts
of impaired Assets to their estimated fair market value. For assets to be held
and used in the business, estimated fair market value was generally determined
by using discounted estimated future cash flows. The estimated fair market value
for assets to be disposed of was determined by using estimated selling prices
based primarily upon the opinion of an investment banking firm, less costs to
sell. Considerable management judgment is necessary to estimate fair market
value. Accordingly, actual results could vary significantly from such estimates.
The International beverages assets were deemed impaired due to a
reduction in forecasted cash flows that was attributable to increased
competitive activity and weakened macroeconomic factors in various geographic
regions and an estimate of the fair market value, less estimated costs to sell,
of certain non-core businesses PepsiCo decided to dispose of.
The charges for PepsiCo's non-core U.S. restaurant businesses were a
result of decisions made by PepsiCo to dispose of its non-core U.S. restaurant
businesses: CPK, Chevys, D'Angelo, ESM and HNN. See Note 3.
The recurring SFAS 121 restaurant charge resulted from the semi-annual
impairment evaluations of all restaurants that either initially met the
"two-year history of operating losses" impairment indicator that PepsiCo uses to
identify potentially impaired restaurants or were previously evaluated for
impairment and, due to changes in circumstances, a current forecast of future
cash flows would be expected to be significantly lower than the forecast used in
the prior evaluation.
PepsiCo early adopted Statement of Financial Accounting Standards No.
121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," as of the beginning of the fourth quarter
of 1995. The initial charge resulted from PepsiCo grouping assets at a lower
level than under its previous accounting policy for evaluating and measuring
impairment. This initial charge affected worldwide
F-13
<PAGE>
restaurants, International beverages and, to a much lesser extent, International
snack foods and certain unconsolidated affiliates.
As a result of the reduced carrying amount of certain long-lived assets
due to the adoption of SFAS 121, depreciation and amortization expense for the
fourth quarter of 1995 was reduced by $21 million ($15 million after-tax or
$0.01 per share) and for the first three quarters of 1996 by $46 million ($29
million after-tax or $0.02 per share). See Items Affecting Comparability in Note
19.
<TABLE>
Note 5 - INVENTORIES
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies.................. $ 571 $ 550
Finished goods.............................. 467 501
------ ------
$1,038 $1,051
====== ======
- --------------------------------------------------------------------------------
</TABLE>
The cost of 33% of 1996 inventories and 32% of 1995 inventories was computed
using the last-in, first-out (LIFO) method. The carrying amount of total LIFO
inventories was lower than the approximate current cost of those inventories by
$8 million at year-end 1996 and $11 million at year-end 1995.
<TABLE>
Note 6 - PROPERTY, PLANT AND EQUIPMENT, NET
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Land........................................ $ 1,294 $ 1,327
Buildings and improvements.................. 5,838 5,668
Capital leases, primarily
buildings.................................. 418 531
Machinery and equipment..................... 9,503 8,598
Construction in progress.................... 787 627
------- -------
17,840 16,751
Accumulated depreciation.................... (7,649) (6,881)
------- -------
$10,191 $ 9,870
======= =======
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
Note 7 - INTANGIBLE ASSETS, NET
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Reacquired franchise rights................. $3,684 $3,826
Trademarks.................................. 742 711
Other identifiable
intangibles................................ 220 286
Goodwill.................................... 2,490 2,761
------ ------
$7,136 $7,584
====== ======
- -------------------------------------------------------------------------------
</TABLE>
Identifiable intangible assets primarily arose from the allocation of purchase
prices of businesses acquired. Amounts assigned to such identifiable intangibles
were based on independent appraisals or internal estimates. Goodwill represents
the residual purchase price after allocation to all identifiable net assets.
Accumulated amortization, included in the amounts above, was $2.1 billion
and $1.8 billion at year-end 1996 and 1995, respectively.
F-14
<PAGE>
<TABLE>
Note 8 - ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable.......................................... $1,565 $1,556
Accrued compensation and benefits......................... 847 815
Accrued selling and marketing............................. 573 469
Other current liabilities................................. 1,641 1,297
------ ------
$4,626 $4,137
====== ======
- ------------------------------------------------------------------------------------------
</TABLE>
Note 9 - LEASES
PepsiCo has noncancelable commitments under both capital and long-term operating
leases, primarily for restaurant units. Capital and operating lease commitments
expire at various dates through 2087 and, in many cases, provide for rent
escalations and renewal options. Most leases require payment of related
executory costs, which include property taxes, maintenance and insurance.
Sublease income and sublease receivables were insignificant.
Future minimum commitments under noncancelable leases are set forth
below:
<TABLE>
<CAPTION>
Later
1997 1998 1999 2000 2001 Years Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital $ 47 67 36 34 31 239 $ 454
Operating $356 317 276 243 220 1,139 $2,551
- ------------------------------------------------------------------------------------------------------------
</TABLE>
At year-end 1996, the present value of minimum payments under capital
leases was $263 million, after deducting $1 million for estimated executory
costs and $190 million representing imputed interest.
<TABLE>
The details of rental expense are set forth below:
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum................................................... $464 $452 $433
Contingent................................................ 28 27 32
---- ---- ----
$492 $479 $465
==== ==== ====
- --------------------------------------------------------------------------------------------------
</TABLE>
Contingent rentals are based on sales by restaurants in excess of levels
stipulated in the lease agreements.
F-15
<PAGE>
<TABLE>
Note 10 - SHORT-TERM BORROWINGS AND LONG-TERM DEBT
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM BORROWINGS
Commercial paper (5.4% and 5.7%)(A).............................. $ 1,176 $ 2,006
Current maturities of long-term
debt issuances (A)(B)........................................... 1,918 1,405
Other borrowings (6.0% and 7.4%)(A)(C)........................... 432 795
Amount reclassified
to long-term debt (D)........................................... (3,500) (3,500)
------- -------
$ 26 $ 706
======= =======
LONG-TERM DEBT
Short-term borrowings, reclassified (D).......................... $ 3,500 $ 3,500
Notes due 1997-2011 (6.4% and
6.4%) (A)....................................................... 3,111 3,886
Various foreign currency debt, due 1997-2001
(5.5% and 5.6%) (A)(C).......................................... 1,448 677
Zero coupon notes, $1.5 billion
due 1997-2012 (7.9% and 11.1% annual yield
to maturity) (A)................................................ 930 395
Euro notes due 1997-1999
(5.5% and 5.7%) (A)............................................. 700 550
Swiss franc perpetual Foreign Interest
Payment bonds (E)............................................... 39 214
Capital lease obligations
(See Note 9).................................................... 263 294
Other, due 1997-2020 (7.1% and 7.4%)............................. 366 398
------- -------
10,357 9,914
Less current maturities of long-term
debt issuances (B).............................................. (1,918) (1,405)
------- -------
$ 8,439 $ 8,509
======= =======
- -----------------------------------------------------------------------------------------------------
</TABLE>
The interest rates in the above table included the effects of associated
interest rate and currency swaps at year-end 1996 and 1995. See Note 11 for a
discussion of PepsiCo's use of interest rate and currency swaps, its management
of the inherent credit risk and fair value information related to debt and
interest rate and currency swaps.
The carrying amount of long-term debt includes any related discount or
premium and unamortized debt issuance costs. The debt agreements include various
restrictions, none of which are currently significant to PepsiCo.
The annual maturities of long-term debt through 2001, excluding capital
lease obligations and the reclassified short-term borrowings, are: 1997-$1.9
billion, 1998-$1.9 billion, 1999-$1.1 billion, 2000-$952 million and 2001-$218
million.
(A) The following table indicates the notional amount and weighted
average interest rates, by category, of interest rate swaps outstanding at
year-end 1996 and 1995, respectively. The weighted average variable interest
rates that PepsiCo pays, which are primarily indexed to either commercial paper
or LIBOR rates, were based on rates as of the respective balance sheet date and
are subject to change. Terms of interest rate swaps generally match the terms of
the debt they modify. The swaps terminate at various dates through 2011.
F-16
<PAGE>
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Receive fixed-pay variable
Notional amount....................................... $3,976 $2,657
Weighted average receive rate......................... 6.6% 6.8%
Weighted average pay rate............................. 5.5% 5.7%
Receive variable-pay variable
Notional amount....................................... $ 552 $ 577
Weighted average receive rate......................... 5.5% 5.7%
Weighted average pay rate............................. 5.7% 5.8%
Receive variable-pay fixed
Notional amount....................................... $ 215 $ 215
Weighted average receive rate......................... 5.6% 5.8%
Weighted average pay rate............................. 8.2% 8.2%
- ----------------------------------------------------------------------------------------------
</TABLE>
The following table identifies the composition of total debt (excluding
capital lease obligations and before the reclassification of amounts from
short-term borrowings) after giving effect to the impact of interest rate swaps.
All short-term borrowings are considered variable interest rate debt for
purposes of this table.
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Carrying Interest Carrying Interest
Amount Rate Amount Rate
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Variable interest
rate debt
Short-term
borrowings.................... $3,504 5.7% $4,177 6.4%
Long-term debt................. 2,573 5.5% 2,103 5.8%
------ ------
6,077 5.6% 6,280 6.2%
Fixed interest rate
debt............................. 2,125 7.9% 2,641 7.4%
------ ------
$8,202 6.2% $8,921 6.6%
====== ======
- ----------------------------------------------------------------------------------------
</TABLE>
(B) Included certain long-term notes aggregating $110 million, which are
reasonably expected to be called, without penalty, by PepsiCo in 1997. The 1996
amount was $248 million. The expectation is based upon the belief of PepsiCo
management that, based upon projected yield curves, our counterparties to
interest rate swaps, which were entered into to modify these notes, will
exercise their option to early terminate the swaps without penalty. Also
included in 1995 is the $214 million carrying amount of the Swiss franc
perpetual Foreign Interest Payment bonds in 1995, which were expected to be
redeemed in 1996. At year-end 1996, $39 million of these bonds were still
outstanding and are classified as long-term debt (see (E) below).
(C) PepsiCo has entered into currency swaps to hedge its currency
exposure on non-U.S. dollar denominated debt. At year-end 1996, the aggregate
carrying amount of the debt was $1.8 billion and the receivables and payables
under related currency swaps were $54 million and $59 million, respectively,
resulting in a net effective U.S. dollar liability of $1.8 billion with a
weighted average interest rate of 5.6%, including the
F-17
<PAGE>
effects of related interest rate swaps. At year-end 1995, the carrying amount of
this debt aggregated $696 million and the receivables and payables under related
currency swaps aggregated $5 million and $12 million, respectively, resulting in
a net effective U.S. dollar liability of $703 million with a weighted average
interest rate of 5.8%, including the effects of related interest rate swaps.
(D) At year-end 1996 and 1995, PepsiCo had unused revolving credit
facilities covering potential borrowings aggregating $3.5 billion expiring in
2001 and 2000, respectively. Effective January 10, 1997, PepsiCo extended to
2002 $3.3 billion of the credit facilities. At year-end 1996 and 1995, $3.5
billion of short-term borrowings were classified as long-term debt, reflecting
PepsiCo's intent and ability, through the existence of the unused credit
facilities, to refinance these borrowings. These credit facilities exist largely
to support the issuances of short-term borrowings and are available for general
corporate purposes.
(E) The coupon rate of the Swiss franc 400 million perpetual Foreign
Interest Payment bonds issued in 1986 was 7 1/2% through 1996, and 5.6% through
2006. The bonds have no stated maturity date. At the end of each 10-year period
after the issuance of the bonds, PepsiCo and the bondholders each have the right
to cause redemption of the bonds. If not redeemed, the coupon rate will be
adjusted based on the prevailing yield of 10-year U.S. Treasury Securities. The
principal of the bonds is denominated in Swiss francs. PepsiCo can, and intends
to, limit the ultimate redemption amount to the U.S. dollar proceeds at
issuance, which is the basis of the carrying amount. Interest payments are made
in U.S. dollars and are calculated by applying the coupon rate to the original
U.S. dollar principal proceeds. This debt was included in current maturities of
long-term debt (see (B) above) at year-end 1995 because the bondholders had the
right to cause PepsiCo to redeem the debt in 1996 on its 10-year anniversary
date. During 1996, $175 million of this debt was redeemed.
Note 11 - FINANCIAL INSTRUMENTS
Derivative Instruments
- ----------------------
PepsiCo's policy prohibits the use of derivative instruments for trading
purposes and PepsiCo has procedures in place to monitor and control their use.
PepsiCo's use of derivative instruments is primarily limited to interest
rate and currency swaps, which are entered into with the objective of reducing
borrowing costs. PepsiCo enters into interest rate and currency swaps to
effectively change the interest rate and currency of specific debt issuances.
These swaps are generally entered into concurrently with the issuance of the
debt they are intended to modify. The notional amount, interest payment dates
and maturity dates of the swaps generally match the principal, interest payment
dates and maturity dates of the related debt. Accordingly, any market risk or
opportunity associated with these swaps is offset by the opposite market impact
on the related debt. PepsiCo's credit risk related to interest rate and currency
swaps is considered low because they are only entered into with strong
creditworthy counterparties, are generally settled on a net basis and are of
relatively short duration. See Note 10 for the notional amounts, related
interest rates and maturities of the interest rate and currency swaps.
F-18
<PAGE>
<TABLE>
Fair Value
- ----------
The carrying amounts and fair values of PepsiCo's financial instruments are as
follows:
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
ASSETS
Cash and
cash equivalents.......................... $ 447 $ 447 $ 382 $ 382
Short-term
investments............................... $ 339 $ 339 $1,116 $1,116
Other assets (noncurrent
investments) ............................. $ 15 $ 15 $ 23 $ 23
LIABILITIES
Debt
Short-term borrowings
and long-term debt,
net of capital
leases................................. $8,202 $8,298 $8,921 $9,217
Debt-related derivative
instruments
Open contracts in asset
position............................... (91) (122) (25) (96)
Open contracts in liability
position............................... 62 74 13 26
------ ------ ------ -----
Net debt............................. $8,173 $8,250 $8,909 $9,147
------ ------ ------ ------
Other liabilities
(GEMEX put option)....................... $ 28 $ 28 $ 30 $ 30
Guarantees................................. - $ 25 - $ 4
- -----------------------------------------------------------------------------------------------------
</TABLE>
The carrying amounts in the above table are included in the Consolidated
Balance Sheet under the indicated captions, except for debt-related derivative
instruments (interest rate and currency swaps), which are included in the
appropriate current or noncurrent asset or liability caption. Short-term
investments consist primarily of debt securities and have been classified as
held-to-maturity. Noncurrent investments mature at various dates through 2000.
Because of the short maturity of cash equivalents and short-term
investments, the carrying amount approximates fair value. The fair value of
noncurrent investments is based upon market quotes. The fair value of debt,
debt-related derivative instruments and guarantees is estimated using market
quotes, valuation models and calculations based on market rates. The fair value
of the GEMEX put option (see Note 1) is based upon a valuation model.
Note 12 - EMPLOYEE STOCK OPTIONS
PepsiCo grants stock options to employees pursuant to three different incentive
plans - the SharePower Stock Option Plan (SharePower), the Long-Term Incentive
Plan (LTIP) and the Stock Option Incentive Plan (SOIP). All stock option grants
are authorized by the Compensation Committee of
F-19
<PAGE>
PepsiCo's Board of Directors (the Committee), which is comprised of outside
directors.
Under SharePower, approved by the Board of Directors and effective in
1989, essentially all full-time employees, other than executive officers and
short-service employees, may be granted stock options annually. The number of
options granted is based on each employee's annual earnings. The options
generally become exercisable ratably over 5 years from the grant date and must
be exercised within 10 years of the grant date. SharePower options of 12 million
were granted to approximately 130,000 employees in 1996; 16 million to 134,000
employees in 1995; and 23 million to 128,000 employees in 1994.
The shareholder-approved 1994 LTIP succeeds and continues the principal
features of the shareholder-approved 1987 LTIP (the 1987 Plan). PepsiCo ceased
making grants under the 1987 Plan at the end of 1994. Together, these plans
comprise the LTIP. At year-end 1996, there were 121 million shares available for
future grants under the LTIP.
Most LTIP stock options are granted every other year to senior management
employees. Most of these options become exercisable after 4 years and must be
exercised within 10 years from their grant date. In addition, the LTIP allows
for grants of performance share units (PSUs). The value of a PSU is fixed at the
value of a share of stock at the grant date and vests for payment 4 years from
the grant date, contingent upon attainment of prescribed Corporate performance
goals. PSUs are not directly granted, as certain stock options granted may be
exchanged by employees for a specified number of PSUs within 60 days of the
option grant date. At year-end 1996, 1995 and 1994, there were 916,100,
1,198,200 and 1,258,400 PSUs outstanding, respectively. Payment of PSUs are made
in cash and/or stock as approved by the Committee. Amounts expensed for PSUs
were $5 million for both 1996 and 1995 and $7 million in 1994.
In 1995, the Committee approved the 1995 SOIP for middle-management
employees. SOIP stock options are expected to be granted annually and are
exercisable after 1 year and must be exercised within 10 years after their grant
date. At year-end 1996, there were 37 million shares available for future grants
under the SOIP. In 1994, grants similar to those under the SOIP were made under
the LTIP to a more limited number of middle-management employees.
Effective in 1996, PepsiCo adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." As permitted under SFAS 123, PepsiCo will continue to
measure stock-based compensation cost as the excess of the quoted market price
of PepsiCo's capital stock at the grant date over the amount the employee must
pay for the stock.
SFAS 123 requires disclosure of pro forma net income and pro forma net
income per share as if the fair value-based method had been applied in measuring
compensation cost for stock-based awards granted in 1996 and 1995. Management
believes that 1996 and 1995 pro forma amounts are not representative of the
effects of stock-based awards on future pro forma net income and pro forma net
income per share because those pro forma amounts exclude the pro forma
compensation expense related to unvested stock options granted before 1995.
F-20
<PAGE>
<TABLE>
Reported and pro forma net income and net income per share amounts are set
forth below:
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Reported
Net income $1,149 $1,606
Net income per share $ 0.72 $ 1.00
Pro forma
Net income $1,081 $1,590
Net income per share $ 0.67 $ 0.99
- ----------------------------------------------------------------------------------------
</TABLE>
The fair values of the options granted were estimated on the date of
their grant using the Black-Scholes option-pricing model based on the following
weighted average assumptions:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Risk free interest rate 6.0% 6.2%
Expected life 6 years 5 years
Expected volatility 20% 20%
Expected dividend yield 1.5% 1.75%
- ---------------------------------------------------------------------------------------
Stock option activity for 1996, 1995 and 1994 is set forth below:
</TABLE>
<TABLE>
(Options in thousands)
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
Outstanding at
beginning of year 160,662 $16.10 165,162 $14.60 133,570 $13.43
Granted 51,305 31.19 26,390 22.70 55,740 17.34
Exercised (22,687) 14.19 (21,181) 11.91 (9,744) 10.01
Surrendered
for PSUs (431) 29.91 (201) 20.67 (3,082) 19.48
Forfeited (11,632) 23.13 (9,508) 17.69 (11,322) 16.79
------- ------- ------
Outstanding at end
of year 177,217 20.22 160,662 16.10 165,162 14.60
======= ======= =======
Exercisable at
end of year 80,482 14.92 65,474 12.63 69,107 11.66
======= ======= =======
- ---------------------------------------------------------------------------------------------------------
Weighted-average
fair value of
options granted
during the year $ 8.89 $ 5.53
- ---------------------------------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE>
<TABLE>
Stock options outstanding at December 28, 1996:
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Price Options Life Price Options Price
- ---------------- ------- ----------- -------- ------- -----
$ 4.38 to $ 8.79 14,163 2.51 yrs. $ 6.55 11,089 $ 7.01
$ 8.82 to $17.63 63,658 5.35 14.70 49,653 14.41
$18.16 to $35.56 99,396 8.32 25.70 19,740 20.65
------- ------
177,217 6.79 20.22 80,482 14.92
======= ======
</TABLE>
Note 13 - POSTEMPLOYMENT BENEFITS OTHER THAN TO RETIREES
Effective the beginning of 1994, PepsiCo adopted Statement of Financial
Accounting Standards No. 112 (SFAS 112), "Employers' Accounting for
Postemployment Benefits." The principal effect to PepsiCo resulted from accruing
severance benefits to be provided to employees of certain business units who are
terminated in the ordinary course of business over the expected service lives of
the employees. Previously, these benefits were accrued upon the occurrence of an
event. Severance benefits resulting from actions not in the ordinary course of
business will continue to be accrued when those actions occur. The cumulative
effect charge upon adoption of SFAS 112, which relates to years prior to 1994,
was $84 million ($55 million after-tax or $0.03 per share).
Note 14 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
PepsiCo provides postretirement health care benefits to eligible retired
employees and their dependents, principally in the U.S. Retirees who have 10
years of service and attain age 55 while in service with PepsiCo are eligible to
participate in the postretirement benefit plans. The plans are not funded and
were largely noncontributory through 1993.
Effective in 1993 and 1994, PepsiCo implemented programs intended to
stem rising costs and introduced retiree cost-sharing, including adopting a
provision that limits its future obligation to absorb health care cost
inflation. These amendments resulted in an unrecognized prior service gain of
$191 million, which is being amortized on a straight-line basis over the average
remaining employee service period of approximately 10 years as a reduction in
postretirement benefit expense beginning in 1993.
F-22
<PAGE>
<TABLE>
The components of postretirement benefit expense for 1996, 1995 and 1994
are set forth below:
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
- --------------------------------------------------------------------------------------------------
Service cost of benefits earned........................... $ 15 $ 13 $ 19
Interest cost on accumulated
postretirement benefit obligation...................... 46 46 41
Amortization of prior service gain........................ (20) (20) (20)
Amortization of net loss/(gain)........................... 2 (1) 6
---- ---- ----
$ 43 $ 38 $ 46
==== ==== ====
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The components of the 1996 and 1995 postretirement benefit liability
recognized in the Consolidated Balance Sheet are set forth below:
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of postretirement
benefit obligation
Retirees.............................................................. $(288) $(344)
Fully eligible active plan participants............................... (103) (96)
Other active plan participants........................................ (166) (171)
----- -----
Accumulated postretirement benefit obligation........................... (557) (611)
Unrecognized prior service gain......................................... (115) (132)
Unrecognized net (gain)/loss............................................ (17) 68
----- -----
$(689) $(675)
===== =====
- --------------------------------------------------------------------------------------------------
</TABLE>
The discount rate assumptions used to compute the accumulated
postretirement benefit obligation were 7.8% and 7.7% in 1996 and 1995,
respectively.
As a result of the plan amendments discussed above, separate assumed health
care cost trend rates are used for employees who retire before and after the
effective date of the amendments. The assumed health care cost trend rate for
employees who retired before the effective date was 8.1% for 1997, declining
gradually to 5.5% in 2010 and thereafter. For employees retiring after the
effective date, the trend rate was 7.0% for 1997, declining to zero in 2004 and
thereafter. A 1 point increase in the assumed health care cost trend rate would
have increased the 1996 postretirement benefit expense by $2 million and would
have increased the 1996 accumulated postretirement benefit obligation by $23
million.
Note 15 - PENSION PLANS
PepsiCo sponsors noncontributory defined benefit pension plans covering
substantially all full-time U.S. employees as well as contributory and
noncontributory defined benefit pension plans covering certain international
employees. Benefits generally are based on years of service and compensation or
stated amounts for each year of service. PepsiCo funds the U.S. plans in amounts
not less than minimum statutory funding requirements nor more than the maximum
amount that can be deducted for U.S. income tax purposes. International plans
are funded in amounts sufficient to comply with local statutory requirements.
The plans' assets consist principally of equity securities, government and
corporate debt securities and other fixed-income obligations. The U.S. plans'
assets included 12.2
F-23
<PAGE>
million and 13.7 million shares of PepsiCo capital stock in 1996 and 1995, with
a market value of $344 million and $350 million, respectively. In the interest
of maintaining an appropriate level of diversification within the U.S. plans'
asset portfolio, 1.5 million shares of PepsiCo capital stock were sold during
the 1996 plan year to offset the large increase in market value of PepsiCo
capital stock holdings relative to other portfolio assets. Dividends on PepsiCo
capital stock of $5 million were received by the U.S. plans in both 1996 and
1995.
<TABLE>
The components of net pension expense for U.S. company-sponsored plans are
set forth below:
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned........................... $ 80 $ 60 $ 70
Interest cost on projected benefit
obligation............................................... 110 92 84
Return on plan assets
Actual (gain)/loss...................................... (192) (338) 20
Deferred gain/(loss).................................... 65 221 (131)
----- ----- -----
(127) (117) (111)
Amortization of net transition gain....................... (19) (19) (19)
Net other amortization.................................... 12 5 9
----- ----- -----
$ 56 $ 21 $ 33
===== ===== =====
- --------------------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
<TABLE>
Reconciliations of the funded status of the U.S. plans to the pension
liability recognized in the Consolidated Balance Sheet are set forth below:
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligation
Vested benefits......................... $(1,159) $ (824) $ (53) $(270)
Nonvested benefits...................... (154) (110) (5) (30)
------- ------ ----- -----
Accumulated benefit
obligation............................... (1,313) (934) (58) (300)
Effect of projected
compensation increases................... (175) (155) (80) (78)
------- ------ ----- -----
Projected benefit obligation.............. (1,488) (1,089) (138) (378)
Plan assets at fair value................. 1,547 1,152 17 267
------- ------ ----- -----
Plan assets in excess of
(less than) projected
benefit obligation...................... 59 63 (121) (111)
Unrecognized prior
service cost............................. 65 37 23 51
Unrecognized net
(gain)/loss ............................. (53) (20) 38 34
Unrecognized net
transition (gain)/loss................... (35) (51) - (3)
Adjustment required to
recognize minimum liability.............. - - - (26)
------- ------ ----- -----
Prepaid (accrued) pension
liability................................ $ 36 $ 29 $ (60) $ (55)
======= ====== ===== =====
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The assumptions used to compute the U.S. information above are set forth below:
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected long-term rate of return
on plan assets........................................... 10.0% 10.0 10.0
Discount rate - projected benefit
obligation............................................... 7.7% 7.7 9.0
Future compensation growth rate........................... 3.2%-6.6% 3.3-6.6 3.3-7.0
- -----------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
<TABLE>
The components of net pension expense for international
company-sponsored plans are set forth below:
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned........................... $ 13 $ 11 $ 15
Interest cost on projected benefit
obligation............................................... 19 16 15
Return on plan assets
Actual (gain)/loss...................................... (39) (31) 8
Deferred gain/(loss).................................... 10 6 (32)
---- ---- ----
(29) (25) (24)
Net other amortization.................................... 1 - 2
---- ---- ----
$ 4 $ 2 $ 8
==== ==== ====
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Reconciliations of the funded status of the international plans to the
pension liability recognized in the Consolidated Balance Sheet are set forth
below:
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligation
Vested benefits......................... $(179) $(144) $(30) $(34)
Nonvested benefits...................... (5) (2) (4) (1)
----- ----- ---- ----
Accumulated benefit
obligation............................... (184) (146) (34) (35)
Effect of projected
compensation increases................... (34) (23) (13) (12)
----- ----- ---- ----
Projected benefit obligation.............. (218) (169) (47) (47)
Plan assets at fair value................. 289 235 17 18
----- ----- ---- ----
Plan assets in excess of
(less than) projected
benefit obligation...................... 71 66 (30) (29)
Unrecognized prior
service cost............................. 4 3 - -
Unrecognized net
loss/(gain).............................. 24 16 5 4
Unrecognized net
transition (gain)/loss................... (1) (1) 3 4
Adjustment required to
recognize minimum
liability............................... - - (3) (2)
----- ----- ---- ----
Prepaid (accrued) pension
liability................................ $ 98 $ 84 $(25) $(23)
===== ===== ==== ====
============================================================================================================
</TABLE>
F-26
<PAGE>
<TABLE>
The assumptions used to compute the international information above are set
forth below:
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected long-term rate of return
on plan assets........................................... 11.4% 11.3 11.3
Discount rate - projected benefit
obligation............................................... 8.4% 8.8 9.3
Future compensation growth rate...........................3.0%-10.5% 3.0-11.8 3.0-8.5
- -------------------------------------------------------------------------------------------------
</TABLE>
The discount rates and rates of return for the international plans represent
weighted averages.
In 1994, PepsiCo changed the method for calculating the market-related
value of plan assets used in determining the return-on-assets component of
annual pension expense and the cumulative net unrecognized gain or loss subject
to amortization. Under the previous accounting method, the calculation of the
market-related value of assets reflected amortization of the actual capital
return on assets on a straight-line basis over a five-year period. Under the new
method, the calculation of the market-related value of assets reflects the
long-term rate of return expected by PepsiCo and amortization of the difference
between the actual return (including capital, dividends and interest) and the
expected return over a five-year period. PepsiCo believes the new method is
widely used in practice and is preferable because it results in calculated plan
asset values that more closely approximate fair value, while still mitigating
the effect of annual market-value fluctuations. This change resulted in a
noncash benefit in 1994 of $38 million ($23 million after-tax or $0.01 per
share) representing the cumulative effect of the change related to years prior
to 1994.
<TABLE>
Note 16 - INCOME TAXES
The details of the provision for income taxes on income before cumulative effect
of accounting changes are set forth below:
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current: Federal................... $520 $ 706 $642
Foreign................... 262 154 174
State..................... 105 77 131
---- ----- ----
887 937 947
---- ----- ----
Deferred: Federal.................. 102 (92) (64)
Foreign................... (55) (18) (2)
State..................... (36) (1) (1)
---- ----- ----
11 (111) (67)
---- ----- ----
$898 $ 826 $880
==== ===== ====
- --------------------------------------------------------------------------------
</TABLE>
F-27
<PAGE>
<TABLE>
U.S. and foreign income before income taxes and cumulative effect of
accounting changes are set forth below:
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S......................................... $2,015 $1,792 $1,762
Foreign..................................... 32 640 902
------ ------ ------
$2,047 $2,432 $2,664
====== ====== ======
- ----------------------------------------------------------------------------------
</TABLE>
PepsiCo operates centralized concentrate manufacturing facilities in
Puerto Rico and Ireland under long-term tax incentives. The U.S. amount in the
above table included approximately 73%, 70% and 50% in 1996, 1995 and 1994,
respectively, (consistent with the income subject to U.S. tax) of the income
from sales of concentrate manufactured in Puerto Rico. The increases in 1996 and
1995 reflected the effects of the 1993 U.S. Federal income tax legislation,
which limited the U.S. Federal tax credit on income earned in Puerto Rico. See
Management's Analysis - Provision for Income Taxes beginning on page 17 for a
discussion of the reduction of the U.S. Federal tax credit associated with
beverage concentrate operations in Puerto Rico.
<TABLE>
A reconciliation of the U.S. Federal statutory tax rate to PepsiCo's
effective tax rate is set forth below:
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal statutory tax rate.................. 35.0% 35.0% 35.0%
State income tax, net of Federal
tax benefit................................... 2.8 2.0 3.2
Effect of lower taxes
on foreign results (including
Puerto Rico and Ireland)....................... (0.9) (3.0) (5.4)
Adjustment to the beginning-of-
the-year deferred tax assets
valuation allowance............................ - - (1.3)
Settlement of prior years'
audit issues.................................... (2.4) (4.1) -
Effect of unusual impairment,
disposal and other charges...................... 8.9 1.4 -
Nondeductible amortization of
U.S. goodwill................................... 1.1 1.0 0.8
Other, net....................................... (0.6) 1.7 0.7
---- ---- ----
Effective tax rate............................... 43.9% 34.0% 33.0%
==== ==== ====
- -------------------------------------------------------------------------------------
</TABLE>
In accordance with generally accepted accounting principles, deferred
tax liabilities have not been recognized for bases differences that are
essentially permanent in duration related to investments in foreign subsidiaries
and unconsolidated affiliates. These differences, which consist primarily of
unremitted earnings intended to be indefinitely reinvested, aggregated
approximately $4.0 billion at year-end 1996 and $4.5 billion at year-end 1995,
exclusive of amounts that if remitted in the future would result in little or no
tax under current tax laws and the Puerto Rico tax incentive grant.
Determination of the amount of unrecognized deferred tax liabilities is not
practicable.
F-28
<PAGE>
<TABLE>
The details of the 1996 and 1995 deferred tax liabilities (assets) are
set forth below:
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Intangible assets other than
nondeductible goodwill.......................... $ 1,635 $ 1,631
Property, plant and equipment...................... 387 496
Safe harbor leases................................. 143 165
Zero coupon notes.................................. 103 100
Other.............................................. 394 257
------- -------
Gross deferred tax liabilities..................... 2,662 2,649
------- -------
Net operating loss carryforwards................... (503) (418)
Postretirement benefits............................ (254) (248)
Casualty claims.................................... (123) (119)
Various current liabilities
and other......................................... (749) (790)
------- -------
Gross deferred tax assets.......................... (1,629) (1,575)
Deferred tax assets
valuation allowance............................... 560 498
------- -------
Net deferred tax assets............................ (1,069) (1,077)
------- -------
Net deferred tax liability......................... $ 1,593 $ 1,572
======= =======
Included in
Prepaid expenses, deferred income
taxes and other current assets................ $ (185) $ (313)
Deferred income taxes............................ 1,778 1,885
------- -------
$ 1,593 $ 1,572
======= =======
- ---------------------------------------------------------------------------------
</TABLE>
The valuation allowance related to deferred tax assets increased by $62
million in 1996 primarily due to additions related to current year operating
losses and temporary differences in a number of foreign and state jurisdictions.
Net operating loss carryforwards totaling $2.5 billion at year-end 1996 are
available to reduce future tax of certain subsidiaries and are related to a
number of foreign and state jurisdictions. Of these carryforwards, $21 million
expire in 1997, $2.2 billion expire at various times between 1998 and 2010 and
$291 million may be carried forward indefinitely.
Tax benefits associated with exercises of stock options of $145 million in
1996, $91 million in 1995 and $27 million in 1994 were credited to shareholders'
equity.
Note 17 - STOCK OFFERING BY AN UNCONSOLIDATED AFFILIATE
In 1993, PepsiCo entered into an arrangement with the principal shareholders of
Buenos Aires Embotelladora S.A. (BAESA), a franchised bottler which currently
has operations in Argentina, Brazil, Chile, Costa Rica and Uruguay, to form a
joint venture. PepsiCo contributed certain assets, primarily bottling operations
in Chile and Uruguay, while the principal shareholders contributed all of their
shares in BAESA, representing 73% of the voting control and 43% of the ownership
interest. Through this arrangement, PepsiCo's beneficial ownership in BAESA,
which is accounted for by the equity method, was 26%. Under PepsiCo's
partnership
F-29
<PAGE>
agreement with the principal shareholders of BAESA, voting control of BAESA will
be transferred to PepsiCo no later than December 31, 1999.
On March 24, 1994, BAESA completed a public offering of 3 million
American Depositary Shares (ADS) at $34.50 per ADS, which are traded on the New
York Stock Exchange. In conjunction with the offering, PepsiCo and certain other
shareholders exercised options for the equivalent of 2 million ADS. As a result
of these transactions, PepsiCo's ownership in BAESA declined to 24%. The
transactions generated cash proceeds for BAESA of $136 million. The resulting
one-time, noncash gain to PepsiCo was $18 million ($17 million after-tax or
$0.01 per share).
Note 18 - CONTINGENCIES
PepsiCo is subject to various claims and contingencies related to lawsuits,
taxes, environmental and other matters arising out of the normal course of
business. Management believes that the ultimate liability, if any, in excess of
amounts already recognized arising from such claims or contingencies is not
likely to have a material adverse effect on PepsiCo's annual results of
operations or financial condition. PepsiCo was contingently liable under
guarantees for $338 million and $283 million at year-end 1996 and 1995,
respectively. At year-end 1996, $74 million represented contingent liabilities
to lessors as a result of PepsiCo assigning its interest in real estate leases
as a condition to the refranchising of company-operated restaurants. The $74
million represented the present value of the minimum payments of the assigned
leases, excluding any renewal option periods, discounted at PepsiCo's pre-tax
cost of debt. On a nominal basis, the contingent liability resulting from the
assigned leases was $115 million. The balance of the contingent liabilities
primarily reflected guarantees to support financial arrangements of certain
unconsolidated affiliates, and other restaurant franchisees.
Note 19 - BUSINESS SEGMENTS
PepsiCo operates on a worldwide basis within three industry segments: beverages,
snack foods and restaurants. However, as discussed in Note 21 and Management's
Analysis - Restaurants beginning on page 26, PepsiCo announced in 1997 that it
would pursue a spin off of its Pizza Hut, Taco Bell and KFC businesses to its
shareholders as an independent publicly-traded company and explore the
possibility that PFS would be sold separately. In addition, decisions were made
in 1996 to sell PepsiCo's non-core U.S. restaurant businesses (see Note 3).
Beverages
- ---------
The beverage segment (beverages) markets and distributes its Pepsi-Cola, Diet
Pepsi, Mountain Dew and other brands worldwide, and 7UP, Diet 7UP, Mirinda,
Pepsi Max and other brands internationally. Beverages manufactures concentrates
of its brands for sale to franchised bottlers worldwide. Beverages operates
bottling plants and distribution facilities located in North America and in
various International markets for the production and distribution of
company-owned and licensed brands. Beverages also manufactures and distributes
ready-to-drink Lipton tea products in North America.
F-30
<PAGE>
Beverages products are available in 191 countries and territories outside
North America, including emerging markets such as China, the Czech Republic,
Hungary, India, Poland, Russia and Slovakia. Principal International markets
include Argentina, Brazil, China, Mexico, Saudi Arabia, Spain, Thailand and the
U.K. Investments in unconsolidated affiliates are primarily in franchised
bottling and distribution operations. Internationally, the largest investments
in unconsolidated affiliates are GEMEX (Mexico), General Bottlers (Poland), Serm
Suk (Thailand) and SOPRESA (Venezuela) as well as the aggregate of several
investments in China. The primary investment in the U.S. is General Bottlers.
Snack Foods
- -----------
The snack food segment (snack foods) manufactures, distributes and markets salty
and sweet snacks worldwide, with Frito-Lay representing the North American
business. Products primarily manufactured and distributed in North America
include Lay's and Ruffles brand potato chips, Doritos and Tostitos brand
tortilla chips, Fritos brand corn chips, Chee.tos brand cheese flavored snacks,
Rold Gold brand pretzels, a variety of dips and salsas and other brands. Low-fat
and no-fat versions of several core brands are also manufactured and distributed
in North America. Snack Foods products are available in 81 countries and
territories outside North America. Principal International markets include
Australia, Brazil, France, Mexico, the Netherlands, Poland, Spain and the U.K.
International snack foods manufactures and distributes salty snacks in almost
all countries and sweet snacks in certain countries, primarily in France, Mexico
and Poland. Snack Foods has investments in several unconsolidated affiliates
outside the U.S., the largest of which are Snack Ventures Europe (SVE), a joint
venture with General Mills, Inc., which has operations on the continent of
Europe, and an investment in Simba, a snack food operation in South Africa.
Restaurants
- -----------
The restaurant segment (restaurants) is engaged principally in the operation,
development, franchising and licensing of the worldwide Pizza Hut, Taco Bell and
KFC concepts. Restaurants also operates other non-core U.S. businesses including
CPK, Chevys, D'Angelo, ESM and HNN. PepsiCo Restaurant Services Group (PRSG), a
new unit formed in 1996 which also includes the existing operations of PFS,
PepsiCo's restaurant distribution operation, is responsible for the
consolidation of many restaurants activities. The activities include licensing
arrangements in non-traditional locations, real estate and asset management and
accounting services for the U.S. operations in addition to worldwide
procurement. PFS provides food, supplies and equipment to company-operated,
franchised and licensed units, principally in the U.S. Net sales and the related
estimated operating profit of PFS' franchisee and licensee operations have been
included in U.S. restaurants results.
Pizza Hut, Taco Bell and KFC operate throughout the U.S. Pizza Hut, KFC
and, to a lesser extent, Taco Bell operate in 94 countries and territories
outside the U.S. Principal international markets include Australia, Canada,
Japan, Korea, Mexico, New Zealand, Spain and the U.K. Restaurants has
investments in several unconsolidated affiliates outside the U.S., the most
significant of which are located in Japan and the U.K.
F-31
<PAGE>
Unallocated expenses, net included corporate headquarters expenses,
minority interests, primarily in the Gamesa (Mexico) and Wedel (Poland) snack
food businesses, foreign exchange translation and transaction gains and losses
and other items not allocated to the business segments. Corporate identifiable
assets consist principally of cash and cash equivalents and short-term
investments, primarily held outside the U.S.
PepsiCo has invested in about 85 unconsolidated affiliates in which it
exercises significant influence but not control. As noted above, the investments
are primarily international and principally within PepsiCo's three industry
segments.
PepsiCo's year-end investments in unconsolidated affiliates totaled $1.4
billion in 1996 and $1.6 billion in 1995. The decrease in 1996 reflected the
unusual impairment, disposal and other charges of $256 million recorded by
International beverages (see below) and the consolidation of CPK, previously an
unconsolidated equity investment, at the end of the second quarter of 1996.
Significant investments in unconsolidated affiliates at year-end 1996 included a
combined $306 million in General Bottlers U.S. and Poland, $206 million in
GEMEX, $140 million in a KFC Japan joint venture and $99 million in SVE.
ITEMS AFFECTING COMPARABILITY
UNUSUAL IMPAIRMENT, DISPOSAL AND OTHER CHARGES
Beverages and restaurants operating profit and equity (loss) income included
$320 million, $246 million and $256 million, respectively, of unusual
impairment, disposal and other charges in 1996. The charges included in
beverages operating profit and equity (loss) income reflected impairment,
disposal and other costs related to International investments in unconsolidated
affiliates and concentrate-related and non-core assets as well as costs
associated with a restructuring of International operations. The restaurants
charge reflected management's decisions in 1996 to dispose of all of its
non-core U.S. restaurant businesses: CPK, Chevys, D'Angelo, ESM and HNN. See
Note 3.
PepsiCo adopted SFAS 121 as of the beginning of the fourth quarter of
1995. See Note 4. The initial, noncash charges reduced operating profit as
follows:
1995
----
Beverages.................................. $ 62
Snack Foods ............................... 4
Restaurants(a)............................. 437
----
Combined Segments ......................... 503
Equity (Loss) Income(b).................... 17
---
$520
(a) HNN and Chevys incurred $103 of this charge, with HNN
responsible for almost all of the charge.
(b) Primarily related to CPK.
F-32
<PAGE>
As a result of the reduced carrying amount of certain of PepsiCo's
long-lived assets to be held and used in the business in connection with the
1995 adoption of SFAS 121, depreciation and amortization expense for the first
three quarters of 1996 and the fourth quarter of 1995 was reduced by $46 million
and $21 million, respectively, as follows:
1996 1995
---- ----
Beverages $ 6 $ 4
Restaurants 40 16
Equity (Loss) Income - 1
--- ---
$46 $21
=== ===
RECURRING RESTAURANT IMPAIRMENT
Restaurants operating profit in 1996 included impairment charges of $62 million
as a result of the ongoing application of SFAS 121 to long-lived assets held and
used in the business. See Note 4.
NET REFRANCHISING GAINS
Restaurants operating profit in 1996 and 1995 included net gains of $99 million
and $55 million, respectively, from refranchising of restaurants in excess of
the cost of closing other restaurants. These gains compared to $10 million of
costs in 1994 to close stores.
FISCAL YEAR
Fiscal year 1994 consisted of 53 weeks, and the years 1995 and 1996 consisted of
52 weeks. The fifty-third week increased 1994 consolidated net sales by an
estimated $434 million and beverages, snack foods and restaurants net sales by
$119 million, $143 million and $172 million, respectively. The fifty-third week
increased 1994 consolidated operating profit by an estimated $65 million and
beverages, snack foods and restaurants operating profit by $17 million, $26
million and $23 million, respectively, and increased unallocated expenses, net
by $1 million.
F-33
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
INDUSTRY SEGMENTS (page 1 of 3)
- --------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Beverages $10,524 $10,382 $ 9,566
Snack Foods 9,680 8,545 8,264
Restaurants 11,441 11,328 10,521
------- ------- -------
$31,645 $30,255 $28,351
======= ======= =======
OPERATING PROFIT (a)
Beverages $ 890 $ 1,309 $ 1,217
Snack Foods 1,608 1,432 1,377
Restaurants 511 430 730
------- ------- -------
Combined Segments 3,009 3,171 3,324
Equity (Loss) Income (266) (3) 38
Unallocated
Expenses, net (197) (181) (161)
------- ------- -------
Operating Profit $ 2,546 $ 2,987 $ 3,201
======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
(a) See Items Affecting Comparability beginning on page F-32.
F-34
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------
GEOGRAPHIC AREAS (b) (page 2 of 3)
- ---------------------------------------------------------------------------------------
<CAPTION>
Net Sales
-------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe $ 2,865 $ 2,783 $ 2,177
Canada 1,340 1,299 1,244
Mexico 1,334 1,228 2,023
Other 3,658 3,437 2,782
------- ------- -------
Total International 9,197 8,747 8,226
United States 22,448 21,508 20,125
------- ------- -------
Combined Segments $31,645 $30,255 $28,351
======= ======= =======
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Segment Operating Profit (Loss)
-------------------------------------
1996(c) 1995(c) 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe $ (90) $ (65) $ 17
Canada 134 86 82
Mexico 116 80 261
Other (73) 342 258
------- ------- -------
Total International 87 443 618
United States 2,922 2,728 2,706
------- ------- -------
Combined Segments $ 3,009 $ 3,171 $ 3,324
======= ======= =======
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Identifiable Assets
--------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe $ 3,159 $ 3,127 $ 3,062
Canada 1,354 1,344 1,342
Mexico 661 637 995
Other 2,628 2,629 2,196
------- ------- -------
Total International 7,802 7,737 7,595
United States 14,728 14,505 14,218
------- ------- -------
Combined Segments 22,530 22,242 21,813
Investments in Unconsolidated
Affiliates 1,375 1,635 1,295
Corporate 607 1,555 1,684
------- ------- -------
$24,512 $25,432 $24,792
======= ======= =======
- ---------------------------------------------------------------------------------------
</TABLE>
(b) The results of centralized concentrate manufacturing operations in
Puerto Rico and Ireland have been allocated based upon sales to the
respective geographic areas.
(c) The unusual impairment, disposal and other charges reduced combined
segment operating profit by $822 (United States - $246, Europe - $69,
Mexico - $4, Other - $503) in 1996 and $503 (United States - $302,
Europe - $119, Mexico - $21, Canada - $30, Other - $31) in 1995 (see
Items Affecting Comparability beginning on page F-32).
F-35
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------
INDUSTRY SEGMENTS (page 3 of 3)
- ---------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------
Amortization of Intangible Assets
-----------------------------------------
<S> <C> <C> <C>
Beverages $ 164 $ 166 $ 165
Snack Foods 41 41 42
Restaurants 96 109 105
------- ------- -------
$ 301 $ 316 $ 312
======= ======= =======
- ---------------------------------------------------------------------------------------
Depreciation Expense
----------------------------------------
Beverages $ 440 $ 445 $ 385
Snack Foods 346 304 297
Restaurants 546 579 539
Corporate 7 7 7
------- ------- -------
$ 1,339 $ 1,335 $ 1,228
======= ======= =======
- ---------------------------------------------------------------------------------------
Identifiable Assets
----------------------------------------
Beverages $ 9,816 $10,032 $ 9,566
Snack Foods 6,279 5,451 5,044
Restaurants 6,435 6,759 7,203
Investments in Unconsolidated
Affiliates 1,375 1,635 1,295
Corporate 607 1,555 1,684
------- ------- -------
$24,512 $25,432 $24,792
======= ======= =======
- ---------------------------------------------------------------------------------------
Capital Spending (d)
--------------------
Beverages $ 650 $ 566 $ 677
Snack Foods 973 769 532
Restaurants 665 750 1,072
Corporate 9 34 7
------- ------- -------
$ 2,297 $ 2,119 $ 2,288
======= ======= =======
United States $ 1,613 $ 1,496 $ 1,492
International 684 623 796
------- ------- -------
$ 2,297 $ 2,119 $ 2,288
======= ======= =======
- ---------------------------------------------------------------------------------------
Acquisitions and Investments
in Unconsolidated Affiliates (e)
------------------------------------------
Beverages $ 75 $ 323 $ 195
Snack Foods - 82 12
Restaurants 1 70 148
------- ------- -------
$ 76 $ 475 $ 355
======= ======= =======
United States $ 16 $ 73 $ 88
International 60 402 267
------- ------- -------
$ 76 $ 475 $ 355
======= ======= =======
- ---------------------------------------------------------------------------------------
</TABLE>
(d) Included immaterial, noncash amounts related to capital leases, largely in
the restaurants segment.
(e) Included immaterial noncash amounts related to treasury stock and debt
issued.
F-36
<PAGE>
<TABLE>
Note 20 - SELECTED QUARTERLY FINANCIAL DATA
($ in millions except per share amounts, unaudited) (page 1 of 4)
<CAPTION>
First Quarter
(12 Weeks)
1996(a) 1995(a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales........................................................ $ 6,554 6,157
Gross profit..................................................... $ 3,348 3,135
Unusual impairment, disposal and other
charges(b)..................................................... $ 26 -
Operating profit................................................. $ 706 629
Net income....................................................... $ 394 321
Net income per share............................................. $ 0.24 0.20
Cash dividends declared per share................................ $ 0.10 0.09
Stock price per share(c)
High........................................................... $ 33 3/8 20 1/2
Low............................................................ $ 27 1/2 16 15/16
Close.......................................................... $ 31 5/8 20 3/16
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Second Quarter
(12 Weeks)
1996(a) 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales........................................................ $ 7,691 7,245
Gross profit..................................................... $ 3,995 3,694
Operating profit................................................. $ 986 869
Net income ...................................................... $ 583 487
Net income per share............................................. $ 0.36 0.30
Cash dividends declared per share................................ $ 0.115 0.10
Stock price per share (c)
High........................................................... $ 34 1/2 24 1/2
Low........................................................... $29 11/16 19 1/2
Close.......................................................... $ 33 1/8 23 5/16
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Third Quarter
(12 Weeks)
1996(a) 1995(a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales........................................................ $ 7,867 7,648
Gross profit..................................................... $ 4,050 3,897
Unusual impairment, disposal and other
charges(b)..................................................... $ 390 -
Operating profit................................................. $ 560 1,031
Net income ...................................................... $ 144 617
Net income per share............................................. $ 0.09 0.39
Cash dividends declared per share................................ $ 0.115 0.10
Stock price per share (c)
High........................................................... $ 35 5/8 23 5/8
Low............................................................ $ 28 1/4 21 13/16
Close.......................................................... $ 28 3/8 22 7/8
- -------------------------------------------------------------------------------------------------
</TABLE>
F-37
<PAGE>
($ in millions except per share amounts, unaudited) (page 2 of 4)
<TABLE>
<CAPTION>
Fourth Quarter
(16 Weeks)
1996(a) 1995(a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales........................................................ $ 9,533 9,205
Gross profit..................................................... $ 4,869 4,643
Unusual impairment, disposal and other
charges(b)..................................................... $ 406 520
Operating profit................................................. $ 294 458
Net income ...................................................... $ 28 181
Net income per share............................................. $ 0.03 0.11
Cash dividends declared per share................................ $ 0.115 0.10
Stock price per share (c)
High........................................................... $32 7/8 29
Low............................................................ $28 1/8 23 1/8
Close.......................................................... $29 5/8 27 15/16
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Full Year
(52 Weeks)
1996(a) 1995(a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales........................................................ $31,645 30,255
Gross profit..................................................... $16,262 15,369
Unusual impairment, disposal and other
charges(b)..................................................... $ 822 520
Operating profit................................................. $ 2,546 2,987
Net income....................................................... $ 1,149 1,606
Net income per share............................................. $ 0.72 1.00
Cash dividends declared per share................................ $ 0.445 0.39
Stock price per share (c)
High........................................................... $35 5/8 29
Low............................................................ $27 1/2 16 15/16
Close.......................................................... $29 5/8 27 15/16
- --------------------------------------------------------------------------------------------------
</TABLE>
F-38
<PAGE>
($ in millions except per share amounts, unaudited) (page 3 of 4)
Notes:
(a) Included certain items affecting comparability as summarized below. Net
refranchising gains represent gains from sales of restaurants to
franchisees in excess of costs of closing other restaurants. The
depreciation and amortization reduction for the first three quarters of
1996 arose from the adoption of SFAS 121, at the beginning of the fourth
quarter of 1995, which reduced the carrying amount of certain long-lived
assets to be held and used in the business (see Note 4). The restaurant
impairment charges represent the ongoing application of SFAS 121 (see Note
4).
<TABLE>
<CAPTION>
1996 1995
------------------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Pre- After- Per Pre- After- Per
Tax Tax Share Tax Tax Share
--- --- ----- --- --- -----
Net refranchising gains
First quarter $ 46 $28 $0.02 $ 3 $ 2 $ -
Second quarter 38 25 0.01 - - -
Third quarter 25 15 0.01 (3) (2) -
Fourth quarter (10) (7) - 55 29 0.02
---- --- ----- --- --- -----
Full year $ 99 $61 $0.04 $55 $29 $0.02
==== === ===== === === =====
Depreciation and amorti-
zation reduction
First quarter $ 15 $10 $0.01
Second quarter 18 12 -
Third quarter 13 7 0.01
---- --- -----
Full year $ 46 $29 $0.02
==== === =====
Restaurant impairment
charges
Second quarter $ 18 $12 $0.01
Fourth quarter 44 28 0.02
---- --- -----
Full year $ 62 $40 $0.03
==== === =====
</TABLE>
Notes continued on next page
F-39
<PAGE>
($ in millions except per share amounts, unaudited) (page 4 of 4)
Notes(cont'd):
<TABLE>
(b) Included unusual impairment, disposal and other charges (see Note 3) as follows:
<CAPTION>
1996 1995
-------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Pre- After- Per Pre- After- Per
Tax Tax Share Tax Tax Share
----- ------ ------ ---- ----- -----
International beverages
Impairment, disposal
and other charges
Third quarter $390 $376 $0.23
Fourth quarter 64 53 0.04
---- ---- ----
Full year $454 $429 $0.27
Restructuring
Fourth quarter $122 $ 98 $0.06
---- ---- -----
Full year $122 $ 98 $0.06
Disposal of non-core
restaurant businesses
First quarter $ 26 $ 17 $0.01
Fourth quarter 220 172 0.11
---- ---- -----
Full year $246 $189 $0.12
Initial impact of
adopting SFAS 121
Fourth quarter $520 $384 $0.24
---- ---- -----
Full year $520 $384 $0.24
Total
First quarter $ 26 $ 17 $0.01
Third quarter 390 376 0.23
Fourth quarter 406 323 0.21 $520 $384 $0.24
---- ---- ----- ---- ---- -----
Full year $822 $716 $0.45 $520 $384 $0.24
==== ==== ===== ==== ==== =====
</TABLE>
(c) Represented the high, low and closing prices for a share of PepsiCo
capital stock on the New York Stock Exchange adjusted for the 1996
two-for-one stock split (see Note 1).
Note 21 - SUBSEQUENT EVENTS
In January 1997, PepsiCo announced that it would pursue a plan to spin off its
restaurant businesses to its shareholders as an independent publicly- traded
company. The new company will include both the U.S. and international operations
of PepsiCo's core restaurant concepts - Pizza Hut, Taco Bell and KFC. PepsiCo is
exploring the possibility that PFS, our restaurant distribution operation, will
be sold separately. Subject to a
F-40
<PAGE>
tax ruling by the Internal Revenue Service that would allow the spin off to be
tax free to shareholders, various regulatory approvals, appropriate stock market
conditions for distribution, and final approval from PepsiCo's Board of
Directors, PepsiCo expects to complete these activities by the end of 1997.
F-41
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
To Our Shareholders:
Management is responsible for the reliability of the consolidated financial
statements and related notes, which have been prepared in conformity with
generally accepted accounting principles and include amounts based upon our
estimates and assumptions, as required. The financial statements have been
audited and reported on by our independent auditors, KPMG Peat Marwick LLP, who
were given free access to all financial records and related data, including
minutes of the meetings of the Board of Directors and Committees of the Board.
We believe that management representations made to the independent auditors were
valid and appropriate.
PepsiCo maintains a system of internal control over financial reporting,
designed to provide reasonable assurance as to the reliability of the financial
statements, as well as to safeguard assets from unauthorized use or disposition.
The system is supported by formal policies and procedures, including an active
Code of Conduct program intended to ensure employees adhere to the highest
standards of personal and professional integrity. PepsiCo's internal audit
function monitors and reports on the adequacy of and compliance with the
internal control system, and appropriate actions are taken to address
significant control deficiencies and other opportunities for improving the
system as they are identified. The Audit Committee of the Board of Directors,
which is composed solely of outside directors, provides oversight to our
financial reporting process and our controls to safeguard assets through
periodic meetings with our independent auditors, internal auditors and
management. Both our independent auditors and internal auditors have free access
to the Audit Committee.
Although no cost-effective internal control system will preclude all
errors and irregularities, we believe our controls as of December 28, 1996
provide reasonable assurance that the financial statements are reliable and that
our assets are reasonably safeguarded.
F-42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
PepsiCo, Inc.
We have audited the accompanying consolidated balance sheet of PepsiCo, Inc. and
Subsidiaries as of December 28, 1996 and December 30, 1995 and the related
consolidated statements of income, cash flows and shareholders' equity for each
of the years in the three-year period ended December 28, 1996. These
consolidated financial statements are the responsibility of PepsiCo, Inc.'s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PepsiCo,
Inc. and Subsidiaries as of December 28, 1996 and December 30, 1995, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 28, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 4 to the consolidated financial statements,
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." As discussed in Notes 15 and 13 to the consolidated financial
statements, PepsiCo, Inc. in 1994 changed its method for calculating the
market-related value of pension plan assets used in the determination of pension
expense and adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," respectively.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
New York, New York
February 4, 1997
F-43
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (Page 1 of 7)
(in millions except per share and employee amounts, unaudited)
PepsiCo, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Growth Rates
------------------------------------
Compounded Annual
------------------------ ---------
<S> <C> <C> <C>
10-Year 5-Year 1-Year
1986-96 1991-96 1995-96
SUMMARY OF OPERATIONS
Net sales................................................. 13% 10% 5%
Operating profit.......................................... 12% 4% (15)%
Gain on stock offering by an
unconsolidated affiliate (k).............................
Interest expense, net.....................................
Income from continuing operations
before income taxes and cumulative
effect of accounting changes 11% 4% (16)%
Income from continuing operations
before cumulative effect of
accounting changes....................................... 9% 1% (28)%
Cumulative effect of accounting
changes (l)..............................................
Net income................................................ 10% 1% (28)%
CASH FLOW DATA
Dividends paid............................................ 15% 14% 13%
Free cash flow(m)......................................... 18% 21% 41%
Share repurchases.........................................
Acquisitions and investments in
unconsolidated affiliates................................
PER SHARE DATA AND OTHER SHARE INFORMATION
Income from continuing operations
before cumulative effect of
accounting changes....................................... 9% 1% (28)%
Cumulative effect of accounting
changes (l)..............................................
Net income................................................ 10% 1% (28)%
Cash dividends declared................................... 16% 14% 14%
Book value per share at year-end.......................... 13% 4% (8)%
Market price per share at year-end........................ 21% 12% 6%
Number of shares repurchased..............................
Shares outstanding at year-end............................
Average shares outstanding used to
calculate income (charge) per
share (n)................................................
BALANCE SHEET
Total assets.............................................. 12% 5% (4)%
Long-term debt............................................ 12% 2% (1)%
Total debt (o)............................................ 11% 1% (8)%
Shareholders' equity......................................
STATISTICS
Return on average shareholders'
equity (p)...............................................
Market net debt ratio (q).................................
Historical cost net debt ratio (r)........................
Employees................................................. 9% 7% 1%
</TABLE>
F-44
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (Page 2 of 7)
(in millions except per share and employee amounts, unaudited)
PepsiCo, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
1996(a)(b) 1995(b)(c) 1994(d)(e)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales................................................. $31,645 30,255 28,351
Operating profit.......................................... $ 2,546 2,987 3,201
Gain on stock offering by an
unconsolidated affiliate (k)............................. - - 18
Interest expense, net..................................... (499) (555) (555)
------- ------- ------
Income from continuing operations
before income taxes and cumulative
effect of accounting changes............................. $ 2,047 2,432 2,664
======= ======== ======
Income from continuing operations
before cumulative effect of
accounting changes....................................... $ 1,149 1,606 1,784
Cumulative effect of accounting
changes (l).............................................. $ - - (32)
Net income................................................ $ 1,149 1,606 1,752
CASH FLOW DATA
Dividends paid............................................ $ 675 599 540
Free cash flow(m)......................................... $ 1,544 1,095 710
Share repurchases......................................... $ 1,651 541 549
Acquisitions and investments in
unconsolidated affiliates................................ $ 75 466 316
PER SHARE DATA AND OTHER SHARE INFORMATION
Income from continuing operations
before cumulative effect of
accounting changes....................................... $ 0.72 1.00 1.11
Cumulative effect of accounting
changes (l).............................................. $ - - (0.02)
Net income................................................ $ 0.72 1.00 1.09
Cash dividends declared................................... $ 0.445 0.39 0.35
Book value per share at year-end.......................... $ 4.29 4.64 4.34
Market price per share at year-end........................ $29 5/8 27 15/16 18 1/8
Number of shares repurchased.............................. 54.2 24.6 30.0
Shares outstanding at year-end............................ 1,545 1,576 1,580
Average shares outstanding used to
calculate income (charge) per
share (n)................................................ 1,606 1,608 1,608
BALANCE SHEET
Total assets.............................................. $24,512 25,432 24,792
Long-term debt............................................ $ 8,439 8,509 8,841
Total debt (o) ........................................... $ 8,465 9,215 9,519
Shareholders' equity...................................... $ 6,623 7,313 6,856
STATISTICS
Return on average shareholders'
equity (p)............................................... 16% 23 27
Market net debt ratio (q)................................. 18% 18 26
Historical cost net debt ratio (r)........................ 48% 46 49
Employees................................................. 486,000 480,000 471,000
</TABLE>
F-45
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (Page 3 of 7)
(in millions except per share and employee amounts, unaudited)
PepsiCo, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
1993(f) 1992(g)(h) 1991(i)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales................................................. $ 24,935 21,885 19,218
Operating profit.......................................... $ 2,907 2,371 2,112
Gain on stock offering by an
unconsolidated affiliate (k)............................. - - -
Interest expense, net..................................... (484) (472) (452)
--------- ------- -------
Income from continuing operations
before income taxes and cumulative
effect of accounting changes............................. $ 2,423 1,899 1,660
========= ======= =======
Income from continuing operations
before cumulative effect of
accounting changes....................................... $ 1,588 1,302 1,080
Cumulative effect of accounting
changes (l).............................................. $ - (928) -
Net income................................................ $ 1,588 374 1,080
CASH FLOW DATA
Dividends paid............................................ $ 462 396 343
Free cash flow(m)......................................... $ 653 824 593
Share repurchases......................................... $ 463 32 195
Acquisitions and investments in
unconsolidated affiliates................................ $ 1,011 1,210 641
PER SHARE DATA AND OTHER SHARE INFORMATION
Income from continuing operations
before cumulative effect of
accounting changes....................................... $ 0.98 0.81 0.68
Cumulative effect of accounting
changes (l) ............................................. $ - (0.58) -
Net income .............................................. $ 0.98 0.23 0.68
Cash dividends declared................................... $ 0.305 0.255 0.23
Book value per share at year-end.......................... $ 3.97 3.35 3.52
Market price per share at year-end........................ $20 15/16 21 1/8 16 7/8
Number of shares repurchased.............................. 24.8 2.0 12.8
Shares outstanding at year-end............................ 1,598 1,598 1,578
Average shares outstanding used to
calculate income (charge) per
share (n)................................................ 1,620 1,613 1,605
BALANCE SHEET
Total assets.............................................. $ 23,706 20,951 18,775
Long-term debt............................................ $ 7,443 7,965 7,806
Total debt (o) ........................................... $ 9,634 8,672 8,034
Shareholders' equity...................................... $ 6,339 5,356 5,545
STATISTICS
Return on average shareholders'
equity (p) .............................................. 27% 24 21
Market net debt ratio (q) ................................ 22% 19 21
Historical cost net debt ratio (r) ....................... 50% 49 51
Employees................................................. 423,000 372,000 338,000
</TABLE>
F-46
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (Page 4 of 7)
(in millions except per share and employee amounts, unaudited)
PepsiCo, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
1990(j) 1989 1988(e)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales................................................. $17,516 15,049 12,381
Operating profit.......................................... $ 2,042 1,773 1,342
Gain on stock offering by an
unconsolidated affiliate (k) ............................ 118 - -
Interest expense, net..................................... (506) (433) (222)
------- ------- -------
Income from continuing operations
before income taxes and cumulative
effect of accounting changes............................. $ 1,654 1,340 1,120
======= ======= =======
Income from continuing operations
before cumulative effect of
accounting changes....................................... $ 1,091 901 762
Cumulative effect of accounting
changes (l) ............................................. $ - - -
Net income................................................ $ 1,077 901 762
CASH FLOW DATA
Dividends paid............................................ $ 294 242 199
Free cash flow(m)......................................... $ 561 672 978
Share repurchases......................................... $ 148 - 72
Acquisitions and investments in
unconsolidated affiliates................................ $ 631 3,297 1,416
PER SHARE DATA AND OTHER SHARE INFORMATION
Income from continuing operations
before cumulative effect of
accounting changes....................................... $ 0.69 0.57 0.49
Cumulative effect of accounting
changes (l) ............................................. $ - - -
Net income................................................ $ 0.68 0.57 0.49
Cash dividends declared................................... $ 0.192 0.16 0.133
Book value per share at year-end.......................... $ 3.11 2.46 2.01
Market price per share at year-end........................ $12 7/8 10 43/64 6 5/8
Number of shares repurchased.............................. 12.6 - 12.4
Shares outstanding at year-end............................ 1,577 1,582 1,577
Average shares outstanding used to
calculate income (charge) per
share (n)................................................ 1,597 1,592 1,580
BALANCE SHEET
Total assets.............................................. $17,143 15,127 11,135
Long-term debt............................................ $ 5,900 6,077 2,656
Total debt (o) ........................................... $ 7,526 6,943 4,107
Shareholders' equity...................................... $ 4,904 3,891 3,161
STATISTICS
Return on average shareholders'
equity (p) .............................................. 25% 26 27
Market net debt ratio (q) ................................ 24% 26 24
Historical cost net debt ratio (r) ....................... 51% 54 43
Employees................................................. 308,000 266,000 235,000
</TABLE>
F-47
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (Page 5 of 7)
(in millions except per share and employee amounts, unaudited)
PepsiCo, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
1987 1986
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUMMARY OF OPERATIONS
Net sales................................................. $ 11,018 9,017
Operating profit.......................................... $ 1,128 829
Gain on stock offering by an
unconsolidated affiliate (k)............................. - -
Interest expense, net..................................... (182) (139)
-------- --------
Income from continuing operations
before income taxes and cumulative
effect of accounting changes............................. $ 946 690
======== ========
Income from continuing operations
before cumulative effect of
accounting changes....................................... $ 605 464
Cumulative effect of accounting
changes (l).............................................. $ - -
Net income................................................ $ 595 458
CASH FLOW DATA
Dividends paid............................................ $ 172 160
Free cash flow(m)......................................... $ 418 301
Share repurchases......................................... $ 19 158
Acquisitions and investments in
unconsolidated affiliates................................ $ 372 1,680
PER SHARE DATA AND OTHER SHARE INFORMATION
Income from continuing operations
before cumulative effect of
accounting changes....................................... $ 0.39 0.30
Cumulative effect of accounting
changes (l).............................................. $ - -
Net income................................................ $ 0.38 0.29
Cash dividends declared................................... $ 0.112 0.105
Book value per share at year-end.......................... $ 1.61 1.32
Market price per share at year-end........................ $5 41/64 4 3/8
Number of shares repurchased.............................. 3.8 40.4
Shares outstanding at year-end............................ 1,562 1,562
Average shares outstanding used to
calculate income (charge) per
share (n)................................................ 1,579 1,573
BALANCE SHEET
Total assets.............................................. $ 9,023 8,027
Long-term debt............................................ $ 2,579 2,633
Total debt (o) ........................................... $ 3,225 2,865
Shareholders' equity...................................... $ 2,509 2,059
STATISTICS
Return on average shareholders'
equity (p) .............................................. 27% 24
Market net debt ratio (q) ................................ 22% 28
Historical cost net debt ratio (r)........................ 41% 46
Employees................................................. 225,000 214,000
</TABLE>
F-48
<PAGE>
- -------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (Page 6 of 7)
(in millions except per share and employee amounts, unaudited)
PepsiCo, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
All share and per share amounts reflect a two-for-one stock split in
1996 and three-for-one stock splits in 1990 and 1986. Additionally, PepsiCo made
numerous acquisitions in most years presented and a few divestitures in certain
years. Such transactions did not materially affect the comparability of
PepsiCo's operating results for the periods presented, except for certain large
acquisitions made in 1986, 1988 and 1989 and the $246 ($189 after-tax or $0.12
per share) of charges included in 1996 as a result of the decisions made to
dispose of PepsiCo's non-core U.S. restaurant businesses. See Note 3.
(a) Included unusual impairment, disposal and other charges of $822 ($716
after-tax or $0.45 per share). See Note 3. Also included the benefit of
reduced depreciation and amortization expense for the first three
quarters of 1996 of $46 ($29 after-tax or $0.02 per share) as a result
of the initial impact of adopting SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" at the beginning of the fourth quarter of 1995. See (c) below.
(b) Included a net refranchising gain of $99 ($61 after-tax or $0.04 per
share) and $55 ($29 after-tax or $0.02 per share) in 1996 and 1995, re-
spectively.
(c) Included the initial, noncash charge of $520 ($384 after-tax or $0.24
per share) upon adoption of SFAS 121 at the beginning of the fourth
quarter. As a result of the reduced carrying amount of certain
long-lived assets to be held and used in the business, depreciation and
amortization expense for the fourth quarter was reduced by $21 ($15
after-tax or $0.01 per share). See Note 4.
(d) Included a benefit of changing to a preferable method for calculating
the market-related value of plan assets in 1994, which reduced full-year
pension expense by $35 ($22 after-tax or $0.01 per share).
(e) Fiscal years 1994 and 1988 each consisted of 53 weeks. Normally, fiscal
years consist of 52 weeks; however, because the fiscal year ends on the
last Saturday in December, a week is added every 5 or 6 years. The
fifty-third week increased 1994 earnings by approximately $54 ($35
after-tax or $0.02 per share) and 1988 earnings by approximately $23
($16 after-tax or $0.01 per share).
(f) Included a $30 charge ($0.02 per share) to increase net deferred tax
liabilities as of the beginning of 1993 for a 1% statutory income tax
rate increase due to 1993 U.S. Federal tax legislation.
(g) Included $193 ($129 after-tax or $0.08 per share) in unusual charges to
reorganize and streamline worldwide beverages and certain International
snack foods operations.
(h) Included increased postretirement benefits expense of $52 ($32 after-tax
or $0.02 per share) as a result of adopting SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Included
the impact of adopting SFAS 109, "Accounting for Income Taxes," which
reduced pre-tax income by $21 and the provision for income taxes by $34.
(i) Included $170 in unusual charges ($120 after-tax or $0.07 per share)
primarily to streamline operations in worldwide snack foods and KFC in
the U.S.
F-49
<PAGE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (Page 7 of 7)
(in millions except per share and employee amounts, unaudited)
PepsiCo, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
(j) Included $83 in unusual charges ($49 after-tax or $0.03 per share) for
costs of closing restaurants, U.S. trade receivables exposures,
accelerated contributions to the PepsiCo Foundation and a reduction in
the carrying amount of an unconsolidated international Pizza Hut
affiliate.
(k) The $18 gain ($17 after-tax or $0.01 per share) in 1994 arose from a
public share offering by BAESA, an unconsolidated franchised bottling
affiliate in South America. See Note 17. The $118 gain ($53 after-tax or
$0.03 per share) in 1990 arose from an initial public offering of new
shares by an unconsolidated KFC joint venture in Japan and a sale by
PepsiCo of a portion of its shares.
(l) Represented the cumulative effect of adopting in 1994 SFAS 112,
"Employers' Accounting for Postemployment Benefits," and changing to a
preferable method for calculating the market-related value of plan
assets used in determining the return-on-asset component of annual
pension expense and the cumulative net unrecognized gain or loss subject
to amortization (see Notes 13 and 15, respectively) and adopting in 1992
SFAS 106 ($575 ($357 after-tax or $0.22 per share)) and SFAS 109 ($571
tax charge ($0.35 per share)). Prior years were not restated for these
changes in accounting.
(m) Defined as net cash provided by operating activities reduced by cash
dividends paid and adjusted for the following investing activities:
capital spending, refranchising of restaurants, sales of property, plant
and equipment and other, net. Cash flows from other investing and
financing activities, which are not presented, are an integral part of
total cash flow activity.
(n) See Net Income Per Share in Note 1.
(o) Total debt includes short-term borrowings and long-term debt, which
for 1987 through 1990 included a
nonrecourse obligation.
(p) The return on average shareholders' equity is calculated using income
from continuing operations before cumulative effect of accounting
changes.
(q) The market net debt ratio represents net debt as a percent of net debt
plus the market value of equity, based on the year-end stock price. Net
debt is total debt, which for this purpose includes the present value of
long-term operating lease commitments, reduced by the pro forma
remittance of investment portfolios held outside the U.S. For 1987
through 1990, total debt was also reduced by the nonrecourse obligation
in the calculation of net debt.
(r) The historical cost net debt ratio represents net debt (see (q) above)
as a percent of capital employed (net debt, other liabilities, deferred
income taxes and shareholders' equity).
F-50
<PAGE>
PEPSICO, INC. AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES Years Ended December 28, 1996, December 30, 1995 and
December 31, 1994
(in millions)
<TABLE>
Additions
--------------------------------------------------------------
Balance Charged Deduct- Balance
at to ions at
beginning costs and Other from end
of year expenses additions reserves of year
----------- -------- ---------- -------- --------
(1) (2)
<CAPTION>
Deductions from assets:
<S> <C> <C> <C> <C> <C>
1996
- ----
Allowance for
doubtful accounts $ 150 $ 62 $ 9 $ 38 $ 183
===== ===== ===== ===== =====
Valuation allowance for
deferred tax assets $ 498 $ 99 $ 12 $ 49 $ 560
===== ===== ===== ===== =====
1995
- ----
Allowance for
doubtful accounts $ 151 $ 49 $ 6 $ 56 $ 150
===== ===== ===== ===== =====
Valuation allowance for
deferred tax assets $ 319 $ 150 $ 29 $ - $ 498
===== ===== ===== ===== =====
1994
- ----
Allowance for
doubtful accounts $ 128 $ 59 $ 8 $ 44 $ 151
===== ===== ===== ===== =====
Valuation allowance for
deferred tax assets $ 249 $ 69 $ 1 $ - $ 319
===== ===== ===== ===== =====
</TABLE>
(1) Other additions to the allowances principally related to acquisitions and
reclassifications.
(2) Principally accounts written off.
F-51
+
PEPSICO LONG TERM SAVINGS PROGRAM
As Amended and Restated
Effective July 1, 1992, Except as Otherwise Noted
<PAGE>
Table of Contents
Page
ARTICLE I Foreword I-1
ARTICLE II Definitions and Construction
2.1 Definitions I-1
2.2 Construction II-18
ARTICLE III Eligibility and Participation
3.1 Eligibility III-1
3.2 Participation III-2
3.3 Break In Service III-3
ARTICLE IV Contributions and Deferral Amounts
4.1 Deferral Amount IV-1
4.2 Dollar Limits on Elective Deferrals IV-2
4.3 Limitation on Deferral Percentage IV-5
4.4 Rollover Contributions IV-9
4.5 Maximum Allocations IV-10
4.6 Excess Allocations IV-16
4.7 Fund for Exclusive Benefit
of Participants IV-16
ARTICLE VI Interests of Participants
5.1 Accounts of Participants V-1
5.2 Investment of Participant Accounts V-1
5.3 Adjusting Account Balances V-11
ARTICLE VI Distributions to Participants
6.1 Termination of Employment VI-1
6.2 Death VI-1
6.3 Withdrawals VI-1
6.4 Form of Distributions VI-6
6.5 Errors in Participant's Accounts VI-6
6.6 Commencement of Payments VI-6
6.7 Payment for Benefit of Disabled
or Incapacitated Person VI-10
6.8 No Other Benefits or Withdrawals VI-11
6.9 Participants Who Cannot Be Located VI-11
<PAGE>
Table of Contents (continued)
ARTICLE VII Plan Loans
7.1 Eligibility for Plan Loans VII-1
7.2 Application Procedure VII-1
7.3 Loan Amount VII-2
7.4 Maximum Number of Outstanding Loans
and Refinancing VII-3
7.5 Effect on Participant's Investment VII-3
7.6 Fees VII-4
7.7 Interest Rate VII-4
7.8 Term and Repayment VII-5
7.9 Loan Default VII-6
7.10 Nondiscrimination VII-7
7.11 Collins Food International, Inc. VII-7
7.12 Miscellaneous VII-7
ARTICLE VIII Determination of Beneficiary
8.1 Certain Married Participants VIII-1
8.2 Other Participants VIII-3
ARTICLE IX Administration
9.1 Allocation of Responsibility Among
Fiduciaries for Plan and Trust
Administration IX-1
9.2 Administration IX-1
9.3 Claims Procedure IX-2
9.4 Records and Reports IX-3
9.5 Other Administrative Powers
and Duties IX-3
9.6 Rules and Decisions IX-4
9.7 Procedures IX-4
9.8 Authorization of Benefit
Distributions IX-5
9.9 Application and Forms for
Distributions IX-5
ARTICLE X Trust Fund X-1
ARTICLE XI Amendment of the Plan XI-1
ARTICLE XII Termination of the Plan XII-1
ARTICLE XIIII Miscellaneous
13.1 Participants' Rights; Acquittance XIII-1
13.2 Nonalienation of Benefits XIII-1
13.3 Actions Involving the Trust XIII-2
13.4 Qualification of Plan as a Condition XIII-3
13.5 Successor to the Company XIII-3
ii
<PAGE>
13.6 Transfer of Plan Assets XIII-4
13.7 Indemnification XIII-4
13.8 Action by the Company XIII-4
13.9 Application Law XIII-4
13.10 Interpreting the Plan XIII-5
ARTICLE XIV Top-Heavy Plan Provisions
14.1 Application XIV-1
14.2 Definitions XIV-1
14.3 Allocation of Minimum Contribution XIV-2
ARTICLE XV Signature XV-1
APPENDIX
Appendix
Article A KFC-Collins A-1
Article B KFC Hourly Employees B-1
Article C Pizza Hut Employees C-1
Article D Prior Definitions of Eligible Pay D-1
SCHEDULE 1 Designated Employers for Nonrestaurant Salaried
Employees 1-1
SCHEDULE 2 Designated Employers for Nonrestaurant Hourly and
Commissioned Employees 2-1
SCHEDULE 3 Designated Employers for Restaurant
Employees 3-1
SCHEDULE 4 Designated Employers for Transportation
Employees 4-1
SCHEDULE 5 Designated Hourly Employees of the
Company 5-1
iii
<PAGE>
ARTICLE I
Foreword
The PepsiCo Long Term Savings Program permits eligible
employees to defer receipt of a portion of their Eligible Pay in
order to promote savings on a tax-favored basis. The Plan provides
for distributions in the event of termination of employment, death,
or attainment of age 59-1/2. In addition, in certain circumstances,
withdrawals are permitted in the event of hardship.
The Plan has been established by PepsiCo, Inc. for the
benefit of its salaried Employees and certain union employees and
certain salaried, commissioned sales and hourly Employees of each
subsidiary designated by PepsiCo, Inc. which adopts this Plan as an
Employer.
The PepsiCo Long Term Savings Program was initially
established effective January 1, 1983, and was subsequently
amended. Effective December 31, 1991, the Kentucky Fried Chicken
Corporation Long Term Savings Program, the Pizza Hut Long Term
Savings Program, the Pepsi-Cola Operating Company Long Term Savings
Program and the Taco Bell Long Term Savings Program (the "Merged
Plans") were merged into the PepsiCo Long Term Savings Program (the
"Plan"). The Plan was amended and restated effective July 1, 1992.
Except as otherwise provided herein, this amendment and restatement
is effective as of July 1, 1992, and applies to persons who are
Participants in the Plan on or after that date. Except as so
provided, the rights and benefits with respect to persons who
terminated participation in the Plan or the Merged Plans prior to
the date a provision is effective shall be governed by the prior
provisions of the Plan and the Merged Plans. The provisions set
forth in the following Articles apply to all Participants except to
the extent otherwise provided. To provide for the investment of
contributions to this Plan and other tax-favored savings plans
maintained by it and its subsidiaries and affiliates, PepsiCo, Inc.
has established the Master Trust described in Article X.
I-1
<PAGE>
ARTICLE II
Definitions and Construction
2.1 Definitions: This section provides definitions for
certain words and phrases listed below. These definitions can be
found on the pages indicated.
Page
----
(a) Account II-2
(b) Authorized Leaves of Absence II-2
(c) Annuity Starting Date II-2
(d) Beneficiary II-2
(e) Board II-2
(f) Code II-2
(g) Company II-2
(h) Company Stock II-2
(i) Effective Date II-3
(j) Elective Deferral II-3
(k) Eligible Pay II-3
(l) Employee II-10
(m) Employer II-11
(n) Employment II-11
(o) Employment Commencement Date II-11
(p) ERISA II-11
(q) Excess Contributions II-11
(r) Excess Elective Deferrals II-12
(s) Fiduciaries II-12
(t) Highly Compensated Employee II-12
(u) Hour of Service II-13
(v) Investment Expense II-14
(w) Limitation Year II-14
(x) Merged Plans II-14
(y) Non-Highly Compensated Employee II-14
(z) Participant II-14
(1) Active Participant II-14
(2) Inactive Participant II-14
(aa) PepsiCo Organization II-14
(bb) Plan II-14
(cc) Plan Administrator II-15
(dd) Plan Year II-15
(ee) Recordkeeper II-15
(ff) Retired Employee II-15
(gg) Rollover Account II-15
(hh) Rollover Contributions II-15
II-1
<PAGE>
(ii) Salary Deferral Account II-15
(jj) Salary Deferral Contributions II-15
(kk) Severance from Service Date II-16
(ll) Termination of Employment II-16
(mm) Trust (or Trust Fund) II-16
(nn) Trustee II-16
(oo) Valuation Date II-16
(pp) Year of Service II-16
Where the following words and phrases in bold face and underlined
appear in this Plan with initial capitals they shall have the
meaning set forth below, unless a different meaning is plainly
required by context.
(a) Account: A Participant's total interest in
--------
the Plan, the aggregate of the Participant's Salary Deferral
Account and Rollover Account (and any other accounts that may
be provided for in the Appendix).
(b) Authorized Leaves of Absence: Any absence:
(i) that is authorized by an Employer under its standard
personnel practices; and (ii) during which the individual's
base pay is continued by the Employer. It is intended that
all persons under similar circumstances shall be treated alike
in the granting of such Authorized Leaves of Absence.
(c) Annuity Starting Date: The first day on
-------------------------
which all events have occurred that entitle the Participant to
payment of a benefit.
(d) Beneficiary: Any person or persons (natural
------------
or otherwise) determined under Article VIII to be entitled to
receive benefits hereunder upon the death of a Participant.
(e) Board: The Board of Directors of the Company.
-----
(f) Code: The Internal Revenue Code of 1986, as
----
amended from time to time.
(g) Company: PepsiCo, Inc., a corporation
-------
organized and existing under the laws of the State of North
Carolina, or its successor or successors.
(h) Company Stock: The capital stock issued by
--------------
the Company.
II-2
<PAGE>
(i) Effective Date: The date upon which this
----------------
amendment and restatement is generally effective, July 1,
1992. Certain identified provisions are effective on
different dates as noted herein. Provisions made effective
prior to July 1, 1992 amend the corresponding terms of both
the Plan and the Merged Plans as of the date indicated, and
any reference in such provisions to the Plan shall be taken as
a reference to both the Plan and the Merged Plans (unless the
context clearly indicates to the contrary).
(j) Elective Deferral: With respect to any
-------------------
taxable year, a Participant's Elective Deferral is the sum of
all employer contributions made on his behalf pursuant to an
election to defer under any (i) qualified cash or deferred
arrangement (as defined in Code section 401(k), (ii)
simplified employee pension cash or deferred arrangement (as
defined in Code section 408(k)), (iii) eligible deferred
compensation plan under Code section 457, (iv) plan described
in Code section 501(c)(18), and (v) any employer contribution
made on the behalf of a Participant for the purchase of an
annuity contract under Code section 403(b) pursuant to a
salary reduction agreement.
(k) Eligible Pay: Effective January 1, 1993, for
-------------
each Plan Year, a Participant's Eligible Pay shall be
determined as follows:
(1) Participants Other Than Those Employed
by the KFC Division: With respect to all Participants
other than those employed by the KFC division, Eligible
Pay shall be determined as follows:
(i) In the case of a Participant who
is a salaried Employee considered exempt from the
minimum wage and overtime pay provisions of the
Fair Labor Standards Act, Eligible Pay shall mean:
(A) If the Participant was an
Employee on the Eligible Pay determination
date (or dates), (hereinafter referred to
II-3
<PAGE>
as the determination date), designated by
the Plan Administrator, with respect to
Employees employed by the Frito division,
(I) the Participant's
annual base salary in effect on the
Eligible Pay determination date in the
preceding Plan Year, plus
(II) any lump sum amount
received by the Participant prior to
the Salary Determination Date and
during such preceding Plan Year under
the PepsiCo Executive Incentive or
PepsiCo's or subsidiary's Middle
Management Incentive Plan, including
any trimester Frito-Lay Management
Incentive Plan payments received by
the Participant.
(B) If the Participant was not
an Employee on the Eligible Pay
determination date in the preceding Plan
Year, the Participant's annual base salary
on his Employment Commencement Date.
(ii) In the case of a Participant who
is a salaried Employee not considered exempt from
the minimum wage and overtime pay provisions of
the Fair Labor Standards Act, and in the case of a
Participant who is an hourly Employee, Eligible
Pay shall mean:
(A) If the Participant was an
Employee on or before the Eligible Pay
determination date in the preceding Plan
Year, the greater of:
(I) the Participant's W-2
earnings, plus any amounts designated
as "Choice Pay" ("Flexible Pay" in the
case of Frito-Lay and its
subsidiaries, collectively "Flexible
Pay") and contributed by salary
reduction
II-4
<PAGE>
agreement to the Employer's Benefits
Plus program or this Plan, in each
case through the Eligible Pay
determination date during such
preceding Plan Year, annualized in
accordance with rules adopted by the
Plan Administrator or
(II) the Participant's
W-2 earnings plus Flexible Pay during
the calendar year immediately prior to
such preceding Plan Year.
(B) If the Participant was not
an Employee on or before the Eligible Pay
determination date, the Participant's annual
base salary or hourly wage rate on his
Employment Commencement Date, annualized in
accordance with rules adopted by the Plan
Administrator.
(iii) In the case of a Participant
who is classified as a commissioned ("route
sales") Employee, Eligible Pay shall mean:
(A) If the Participant was an
Employee on or before the Eligible Pay
determination date, the greater of:
(I) the Participant's W-2
earnings, plus any amounts of Flexible
Pay through the Eligible Pay
determination date during the
preceding Plan Year, annualized in
accordance with rules adopted by the
Plan Administrator, or
(II) the Participant's
W-2 earnings plus Flexible Pay during
the Calendar year immediately prior to
such preceding Plan Year.
(B) If the Participant was not
an Employee on or before the Eligible Pay
determination date for the preceding Plan
Year, the Participant's weekly guarantee on
his Employment
II-5
<PAGE>
Commencement Date, annualized in accordance with rules
adopted by the Plan Administrator.
(iv) In the case of a Participant who
is an hourly Employee of the Pizza Hut division,
Eligible Pay shall mean:
(A) If the Participant was an
Employee on the Eligible Pay determination
date designated by the Plan Administrator
with respect to Pizza Hut division
Employees, the sum of:
(I) the Participant's
annualized hourly wage rate in effect
on the Eligible Pay determination
date, plus
(II) any overtime paid
prior to the Eligible Pay
determination date but within the same
calendar year, annualized in
accordance with rules adopted by the
Plan Administrator.
(B) If the Participant was not
an Employee on the eligible Pay
determination date with respect to Pizza Hut
division Employees, the sum of the amounts
under (I) and (II) above but determined as
of the Participant's Employment Commencement
Date.
(2) Participants Employed by the KFC
Division: With respect to a Participant employed by the
KFC division of the Company, his Eligible Pay shall be
determined as follows:
(i) The Participant's salary or wages, including forms
of pay delivered in alternative manners such as piecework
and payment by mileage for drivers, overtime, shift
differentials, commissions, bonuses received under the
PepsiCo Executive
II-6
<PAGE>
Incentive Plan or the Company's or a subsidiary's
Middle Management Incentive Plan, and
(ii) Any amount not included in (i)
above which is contributed by the Employer on
behalf of the Participant pursuant to a salary
reduction agreement and which is not includable in
gross income under Code sections 125, 402(e)(4),
or 402(g).
The amounts under subparagraphs (i) and (ii) shall be
taken from payroll records for the full calendar year
that precedes the Plan Year by 2 years. For example,
for the 1993 Plan Year, "Eligible Pay" shall be
determined from amounts earned for the full calendar
year ending December 31, 1990. For a Participant who
has only a partial year's earnings during the full
calendar year 2 years prior to the Plan Year, the
partial year's earnings shall be annualized. For a
Participant with no earnings during the full calendar
year 2 years prior to the Plan Year, Eligible Pay shall
equal the Participant's base salary or wages, not
including alternative forms of base pay, overtime, shift
differentials, commissions or bonuses on the later of:
(A) the "Eligible Pay determination date" designated by
the Plan Administrator with respect to Employees other
than those employed by a restaurant division or a Frito
division, or (B) the Participant's Employment
Commencement Date.
(iii) In the case of a Participant
who is an hourly Employee of the KFC division,
Eligible Pay shall mean:
(A) If the Participant was an
Employee on the Eligible Pay determination
date designated by the Plan Administrator
with respect to KFC division Employees, the
sum of:
(I) the Participant's
annualized hourly wage rate in effect
on the Eligible Pay determination
date, plus
II-7
<PAGE>
(II) Any overtime paid
prior to the Eligible Pay
determination date but within the same
calendar year, annualized in
accordance with rules adopted by the
Plan Administrator.
(B) If the Participant was not
an Employee on the Eligible Pay
determination date with respect to KFC
division Employees, the sum of the amounts
under (I) and (II) above but determined as
of the Participant's Employment Commencement
Date.
(3) Special Rules for Determining Eligible
Pay:
(i) For purposes of paragraphs (1)
through (3) above and except for salary reduction
amounts designated as Flexible Pay under an
Employer's Benefits Plus program that are used to
buy benefits and amounts contributed under the
Plan, salary or wages shall not include amounts or
the value of benefits received, or deemed
received, under any performance share plan, stock
option plan or similar plan or under any pension
or welfare benefit plan maintained by the
Employer, whether such plan is qualified or
non-qualified and whether such amounts are
deferred or not deferred.
(ii) In the case of Employees who
transfer from one Employer to another during the
year, Eligible Pay of such Employees shall be the
amount of annualized base salary or hourly wage
rate on the transfer date plus annualized
overtime, commission pay received prior to the
transfer date and prior to the determination date
and the amount of any lump sum bonus paid from an
Employer's Incentive Compensation program.
(iii) Notwithstanding the foregoing
provisions of this subsection, in the case of an
Employee who elects to make nonqualified
II-8
<PAGE>
deferrals under the PepsiCo Executive Income
Deferral Program for an upcoming Plan Year, the
Employee's Eligible Pay for such Plan Year shall
not be greater than his current base pay and the
prior year's bonus under the Employer's incentive
compensation program, decreased by any
nonqualified deferrals elected for the upcoming
Plan Year, and increased by amounts that will be
received as distributions from the PepsiCo
Executive Income Deferral Program for such Plan
Year.
(iv) For any Plan Year beginning on
or after January 1, 1989, the Eligible Pay of each
Participant taken into account under the Plan
shall not be less than $10,000 and shall not
exceed $200,000, the latter as adjusted by the
Secretary of the Treasury. In determining the
Eligible Pay of a Participant for purposes of the
$200,000 limitation set forth in the preceding
sentence, the rules of section 414(q)(6) of the
Code shall apply, except in applying such rules,
the term "family" shall include only the spouse of
the Participant and any lineal descendants of the
Participant who have not attained age 19 before
the close of the Plan Year. If, as a result of
the application of such rules, the adjusted
$200,000 limitation is exceeded, then the
limitation shall be prorated among the affected
individuals in proportion to each such
individual's Eligible Pay as determined under this
Section prior to the application of this
limitation.
(v) For any Plan Year beginning on or
after January 1, 1994, the Eligible Pay of each
Participant taken into account under the Plan
shall not be less than $10,000 and shall not
exceed $150,000, the latter as adjusted by the
Secretary of the Treasury. In determining the
Eligible Pay of a Participant for purposes of the
$150,000 limitation set forth in the preceding
sentence, the rules of section 414(q)(6) of the
Code shall apply, except in applying such rules, the
term "family" shall include only the spouse of the
Participant and any lineal descendants of the
II-9
<PAGE>
Participant who have not attained age 19 before
the close of the Plan Year. If, as a result of
the application of such rules, the adjusted
$150,000 limitation is exceeded, then the
limitation shall be prorated among the affected
individuals in proportion to each such
individual's Eligible Pay as determined under this
Section prior to the application of this
limitation.
References in the Plan to deferrals of Eligible Pay, or Salary
Deferral Contributions from Eligible Pay, shall be read as
referring to deferrals of a Participant's current Employee
compensation not in excess of Eligible Pay, determined as
above.
(l) Employee: Any person who is: receiving
remuneration for personal services currently rendered in the
employment of an Employer (or who would be receiving such
remuneration except for an Authorized Leave of Absence), and
who is described in one of the following paragraphs:
(1) A United States citizen whose primary
place of employment is within the 50 states or the
District of Columbia (collectively referred to in this
subsection as "the U.S.");
(2) An alien who has been lawfully admitted
for permanent residence in the U.S. (referred to in this
subsection as a "resident alien") and whose primary
place of employment is within the U.S., but excluding
any person working as a designate or in a U.S.
assignment that the Employer classifies as primarily for
training or temporary;
(3) A United States citizen or resident
alien relocated by the Employer to a primary place of
employment outside the U.S. and classified by the
Employer as an United States expatriate;
(4) Effective January 1, 1994, a resident
alien:
(i) who is employed in a position
that is classified as a globalist under the
personnel practices of an Employer,
(ii) who works for an Employer
outside of his home country, and
II-10
<PAGE>
(iii) who previously worked for an
Employer (or an unrelated multinational employer)
in another country that was neither his home
country nor the U.S.; and
(5) Effective September 1, 1994, a
third-country national (as defined below) who is a
resident alien or whose primary place of employment is
within the U.S.
For purposes of this subsection, a "third-country national"
shall mean an alien who works for an Employer outside of his
home country, and who previously worked for an Employer in
another country that was not his home country.
(m) Employer: The Company and any subsidiary
--------
which is authorized by the Company to participate herein and
which adopts the Plan for its Employees, in accordance with
any conditions required by the Company. Any such subsidiary
shall be designated on the attached Schedules 1, 2, 3, 4, or
5, which specify the classes of Employees with respect to
which it is considered an Employer. However, no subsidiary
acquired after the Effective Date shall be an Employer with
respect to Employees who are not currently eligible to enroll
in the subsidiary's Benefits Plus program unless the
subsidiary is individually designated on the applicable
Schedule.
(n) Employment: Service with an Employer.
----------
(o) Employment Commencement Date:The date on
-------------------------------
which an Employee first performs an Hour of Service for a
member of the PepsiCo Organization.
(p) ERISA: Public Law 93-406, the Employee
-----
Retirement Income Security Act of 1974, as amended from time
to time.
(q) Excess Contributions: With respect to any
---------------------
Plan Year, the excess of:
(1) The aggregate amount of Employer
contributions paid to the Plan as Salary Deferral
Contributions on behalf of Highly Compensated Employees
for such Plan Year, over
(2) The maximum amount of such
contributions permitted by the limitations contained in
Section 4.3(a) (determined by reducing such
contributions made on behalf of such Highly Compensated
Employees in order
II-11
<PAGE>
of their Average Deferral Percentages, beginning with
the Highly Compensated Employee(s) with the highest
Average Deferral Percentage).
(r) Excess Elective Deferrals: Those Elective
----------------------------
Deferrals that are includable in an individual's gross income
under Code section 402(g) because they exceed the dollar
limitation in effect for the year under such Code section.
Excess Elective Deferrals shall be treated as annual additions
under the Plan for purposes of Section 4.5.
(s) Fiduciaries: The named fiduciaries, as
-----------
defined in section 402 of ERISA, who shall be the Plan
Administrator and the Trustee, and other parties designated as
fiduciaries, as defined in section 3(21) of ERISA, by such
named fiduciaries in accordance with the terms of the Plan and
the Trust (but only with respect to the specific
responsibilities of each in connection with the Plan and
Trust).
(t) Highly Compensated Employee:
---------------------------
(1) General Definition: Effective for Plan
years beginning on or after January 1, 1987, any
Employee who during the relevant Plan Year or the
preceding Plan Year:
(i) Was, at any time, a 5 percent
owner (as defined in Code section 416(i)(1));
(ii) Received compensation from an
Employer in excess of $75,000 (as adjusted
pursuant to Code section 415(d));
(iii) Received compensation from an
Employer in excess of $50,000 (as adjusted
pursuant to Code section 415(d)) and was a member
of the group consisting of the top 20 percent of
the employees when ranked on the basis of
compensation paid during the relevant year (i.e.,
the top-paid group), or
(iv) Was an officer of an Employer
and received compensation greater than 50 percent
of the dollar limitation in effect under Code
section 415(b)(1)(A) for such Plan Year.
II-12
<PAGE>
(2) Certain Current Year Exclusions: In
applying paragraph (1) with respect to the current Plan
Year, any Employee not described in subparagraphs (ii)
or (iv) above for the preceding Plan Year (without
regard to this sentence) shall not be treated as
described in subparagraphs (ii) or (iv) for the current
Plan Year unless such Employee is among the 100
Employees receiving the greatest compensation from the
Employer for the current Plan Year. In addition,
subparagraph (iii) shall not apply in determining who
are Highly Compensated Employees for the current Plan
Year.
(3) Determination of Officers: For
purposes of applying subparagraph (iv) of paragraph (1)
above, no more than 50 Employees, or, if less, the
greater of 3 Employees or 10 percent of all Employees,
shall be treated as officers. In addition, if, for any
year, no officer of the Employer is described in
subparagraph (a)(iv) above, the officer of the Employer
with the greatest compensation shall be treated as an
officer described in subparagraph (a)(iv) above.
(4) Former Employees: A former Employee
shall be treated as a Highly Compensated Employee if:
(i) Such Employee was a Highly
Compensated Employee when such Employee separated
from service, or
(ii) Such Employee was a Highly
Compensated Employee at any time after attaining
age 55.
(5) Treatment of Certain Family Members:
Any family member of a 5 percent owner or one of the 10
Highly Compensated Employees receiving the greatest
compensation from the Employer during the relevant year
shall be aggregated with such 5 percent owner or top-ten
Highly Compensated Employee for purposes of Section 4.3
of the Plan. In such case, the family member and 5
percent owner or top 10 Highly Compensated Employee
shall be treated as a single Employee having
compensation and Plan contributions equal to the sum of
such compensation and contributions of the
II-13
<PAGE>
family member and 5 percent owner or top 10 Highly
Compensated Employee. For purposes of this subsection,
family member includes the spouse, lineal ascendants and
descendants of the Employee and the spouses of such
lineal ascendants and descendants.
(6) Compensation: For purposes of this
subsection, compensation means an Employee's
compensation as determined under Code section 415(c)(3),
increased by elective contributions that are: (i) made
on behalf of the Employee under this Plan, a Merged
Plan, another section 401(k) plan or a cafeteria plan of
his Employer, and (ii) that are excludable from income
under Code sections 125 or 402(a)(8).
The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of
Employees in the top-paid group, the top 100 employees, the
number of employees treated as officers and the compensation
that is considered, will be made in accordance with Code
section 414(q) and the regulations thereunder.
(u) Hour of Service: Each hour for which an
----------------------------------------------
Employee is:
------------
(1) Paid, or entitled to payment, by the
Employer for the performance of duties.
(2) Directly or indirectly compensated or
entitled to compensation by the Employer for reasons
other than the performance of duties (such as vacation,
holidays, sickness, jury duty, disability, lay-off,
military duty or leave of absence) irrespective of
whether the employment relationship has terminated
unless such compensation is solely for the purposes of
complying with applicable workers' compensation or
disability insurance laws; or
(3) Awarded back-pay or back-pay is agreed
to by the Employer without regard to mitigation of
damages, except that no Hour of Service shall be
credited under this paragraph for any period for which
the Employee is credited with an Hour of Service under
paragraph (1) or (2) above.
II-14
<PAGE>
In addition, each hour for which a leased employee,
within the meaning of Code section 414(n), is paid or
entitled to payment by the Employer for the performance
of duties shall be considered an Hour of Service.
(v) Investment Expenses: All expenses related to
---------------------
the management and maintenance, on a separate basis, of the
individual investment options under the Plan. The term
"Investment Expenses" shall not include general fees for
management and maintenance of the Trust as a whole.
(w) Limitation Year: The 12-month period
------------------
commencing on January 1 and ending on December 31.
(x) Merged Plans: The Kentucky Fried Chicken
-------------
Corporation Long Term Savings Program, the Pizza Hut Long Term
Savings Program, the Taco Bell Long Term Savings Program and
the Pepsi-Cola Operating Company Long Term Savings Program, as
in effect prior to their merger into this Plan on December 31,
1991.
(y) Non-Highly Compensated Employee: Effective
----------------------------------
for Plan Years beginning on or after January 1, 1987, any
Employee who is not a Highly Compensated Employee.
(z) Participant: Any individual who is either an
-----------
Active Participant or an Inactive Participant.
(1) Active Participant: Any eligible
Employee, as defined in Section 3.1, who has a current
election in effect to make Salary Deferral Contributions
in accordance with Article IV.
(2) Inactive Participant: Any individual
(other than an Active Participant) who has an Account
under the Plan.
(aa) PepsiCo Organization: The controlled group
---------------------
of corporations of which the Company is a member, as defined
in Code Section 414(b) and regulations issued thereunder.
II-15
<PAGE>
(bb) Plan: The PepsiCo Long Term Savings
----
Program, the Plan set forth herein, as it may be amended from
time to time. The Plan Administrator may also designate
certain informal names for the Plan, such as "Save-Up", for
use in communications regarding the Plan.
(cc) Plan Administrator: The Company, or its
--------------------
successor or successors, which shall have authority to
administer the Plan as provided in Article IX.
(dd) Plan Year: The 12-month period commencing
----------
on January 1 and ending on December 31. From December 1, 1988
to December 31, 1991, the Plan Year commenced on December 1.
(ee) Recordkeeper: The party designated by the
Plan Administrator to maintain records of Participants'
Accounts in accordance with procedures established by the Plan
Administrator.
(ff) Retired Employee: Any person: (i) who has
-----------------
received, while age 55 or over, a qualifying lump sum
distribution from a defined benefit pension plan sponsored by
an Employer, and (ii) who was an Employee eligible to
participate in this Plan immediately prior to his retirement
from the Employer. For purposes of this subsection, a
qualifying lump sum distribution shall refer to lump sums
other than single sum distributions with a value of $3,500 or
less, determined in accordance with Code section 417(e).
(gg) Rollover Account: The account maintained to
-----------------
record any rollover contributions pursuant to Section 4.4, and
any adjustments relating thereto. A Participant's Rollover
Account shall at all times be fully vested.
(hh) Rollover Contributions: Contributions to the
-----------------------
Plan that are made pursuant to Section 4.4.
(ii) Salary Deferral Account: The account
-----------------------
maintained for a Participant to record amounts deferred
pursuant to the election described in Section 4.1, as well as
any adjustments relating to such amount. A Participant's
Salary Deferral Account shall at all times be fully vested.
II-16
<PAGE>
(jj) Salary Deferral Contributions: Any
---------------------------------
Employer contributions made to the Plan at the election of
a Participant, in lieu of cash compensation, pursuant to
Section 4.1.
(kk) Severance from Service Date: An
----------------------------------
Employee's Severance from Service Date shall occur on the
earlier of:
(1) The date the Employee quits,
retires, is discharged or dies; or
(2) The first anniversary of the date
the Employee is absent from service with an Employer
(with or without pay) for any reason other than a
quit, retirement, discharge or death, such as
vacation, holiday, sickness, disability, leave of
absence or layoff.
(ll) Termination of Employment: The cessation
--------------------------
of an Employee's employment with an Employer or other
member of the PepsiCo Organization, whether by quit,
resignation, discharge, retirement, disability or
indefinite layoff. However, such term shall not include an
Authorized Leave of Absence or the transfer from the
Employment of one Employer that maintains this Plan to
another such Employer, or to employment with any other
member of the PepsiCo Organization.
(mm) Trust (or Trust Fund): The fund
---------------------------
established pursuant to the Trust instrument to receive and
to invest amounts credited to Participants' Accounts and
from which distributions will be made.
(nn) Trustee: The individual or corporation
-------
appointed by the Company pursuant to the Trust instrument
to hold the Trust Fund.
(oo) Valuation Date: Each business day,
----------------
except that the Trustee may temporarily suspend valuations
when it deems it to be necessary in accordance with Section
5.2(b). In all cases, however, there shall be a Valuation
Date on the last business day of the Plan Year.
(pp) Year of Service: Each 12-month period of
service in the period of service commencing on an
Employee's Employment Commencement Date
II-17
<PAGE>
and ending on his Severance from Service Date, subject to
the following special rules.
(1) If an Employee has a Severance from
Service Date as a result of a quit, discharge or
retirement and then returns to the employment of the
PepsiCo Organization within 12 months from his
Severance from Service Date, the Employee's period of
severance shall be counted as part of his period of
service.
(2) If an Employee terminates employment
because of a quit, discharge or retirement (during
any other absence from service of 12 months or less)
and then returns to the employment of the PepsiCo
Organization within 12 months from the date on which
he was first absent, the Employee's period of
severance shall be counted as part of his period of
service.
(3) If an Employee has a break in
service (as defined below), his Years of Service
prior to such break in service shall only be taken
into account if he has a Year of Service following
his rehire (determined under the preceding provisions
of this subsection as if his employment first
commenced on his date of rehire). A "break in
service" is a 12-month period beginning on an
Employee's Severance from Service Date during which
the Employee is not credited with an Hour of
Service.
2.2 Construction: The terms of this Plan shall be
construed in accordance with this section.
(a) Gender and Number: The masculine gender,
where appearing in the Plan, shall be deemed to include the
feminine gender and the singular shall include the plural,
unless the context clearly indicates to the contrary.
(b) Headings: The headings of sections and
subsections are for ease of reference only and shall not be
construed to limit or modify the detailed provisions
thereof.
II-18
<PAGE>
ARTICLE III
Eligibility and Participation
3.1 Eligibility: This section, as modified by the
Appendix, specifies who is eligible to participate in the Plan
(the "eligible Employees").
(a) General Rule: The following Employees
shall be eligible to participate in the Plan if they are
currently eligible to enroll in their Employer's Benefits
Plus program: All full-time and part-time salaried
Employees of an Employer and all full-time hourly,
commissioned sales or transportation Employees of an
Employer.
(b) Ineligible Employees: Notwithstanding the
general rule in (a) above, the following Employees shall
not be eligible to participate in the Plan:
(1) Any Employee whose terms and
conditions of employment are determined by collective
bargaining with a union representing such persons and
with respect to whom inclusion in this Plan has not
been specifically provided for in such collective
bargaining agreement;
(2) Any Employee who is a leased
employee within the meaning of Code section 414(n);
(3) Effective December 1, 1989, any
Highly Compensated Employee who has not attained age
21 and completed a Year of Service;
(4) Any individual who is an independent
contractor; and
(5) Effective on and after January 1,
1996, any Employee of an Employer designated on Part
1 of the attached Schedule 3 who is a Highly
Compensated Employee (or who is reasonably projected
to be a Highly Compensated Employee based on the best
available data).
An independent contractor who is recharacterized by the
Internal Revenue Service as a common law employee will not
be considered described in paragraph (4) for periods on and
after the recharacterization. Such individual also will
not be considered described in paragraph (4) for periods
before the recharacterization, unless the Employer
III-1
<PAGE>
had classified the individual as an independent contractor
in good faith, and the individual was part of a group of
independent contractors identified by similar work
requirements. An individual's ineligibility under the
previous sentence shall have no bearing on whether the
individual is an excludable employee for purposes of the
nondiscrimination tests under Code sections 410(b) and
401(a)(4).
(c) Certain Part-Time Employees: Effective
July 1, 1995, any Employee who would be an eligible
Employee if he were classified by his Employer as full-time
(with no other changes in his status and circumstances)
shall be eligible to participate in the Plan.
For purposes of this section, an Employee who is an associate,
casual, part-time or temporary employee is not considered to be
full-time.
3.2 Participation:
(a) Commencement of Active Participation: An
eligible Employee shall become an Active Participant upon
enrolling in the Plan.
(1) An eligible Employee's enrollment in
the Plan shall be made by electing to defer a portion
of his Eligible Pay, in accordance with Section
4.1(b). An eligible Employee's qualifying election
to participate actively in the Plan shall be
effective as soon as practicable for his Employer.
(2) Notwithstanding paragraph (1) above,
the election of an Employee eligible under
Section 3.1(c) shall not be effective before the
first January 1 or July 1 following his attainment of
age 21 and his completion of a 12-month period of
employment (measured as described below) in which he
is credited with at least 1,000 Hours of Service
(referred to as a "year of eligibility service").
The 12-month period between the date the Employee
first completes one Hour of Service and the first
anniversary thereof shall be used initially to
determine his eligibility to participate in the Plan;
thereafter, his eligibility to participate in the
Plan shall be determined by reference to whether he
completes 1,000 or more Hours of Service in any Plan
Year, beginning with the first Plan
III-2
<PAGE>
Year commencing after he first completes one Hour of
Service. An employee who completes 1,000 or more Hours
of Service in both the initial 12-month eligibility
computationperiod and the first Plan Year commencing
after he first completes one Hour of Service shall be
credited with two years of eligibility service for
purposes of this section.
(b) Termination of Participation: An Active
Participant shall continue to participate actively in the
Plan until he revokes his enrollment or his enrollment ends
as a result of his Termination of Employment or transfer to
a position that is ineligible for participation. When
active participation ceases, an individual with a balance
in his Plan Account shall continue as an Inactive
Participant until his Account has been distributed.
(c) Recommencement of Active Participation:
Subject to Section 3.3, any individual whose active
participation has terminated pursuant to subsection (b) may
return to active participation by reinstating his
enrollment (following his return to service as an eligible
Employee, if applicable).
3.3 Break in Service: This section shall apply in the case of an
Employee described in Section 3.1(c) who has a break in service, as defined
below. In determining such Employee's post-break participation in the Plan,
the Employee's pre-break years of eligibility service shall be restored
only after he has a year of eligibility service following his rehire
(determined under Section 3.2 as if his employment first commenced on his
date of rehire). For purposes hereof, a "break in service" shall mean a
12-consecutive-month computation period during which an Employee is
credited with 500 or less Hours of Service. The applicable computation
period for determining breaks in service shall be the 12-month period
beginning on the Employee's date of employment and Plan Years commencing
after such date of employment.
III-3
<PAGE>
ARTICLE IV
Contributions and Deferral Amounts
4.1 Elective Deferrals: An Employee who is eligible
under Section 3.1 and who has Eligible Pay may elect to defer a
portion of his Eligible Pay in accordance with the following
subsections.
(a) Deferral Amount: Subject to the
limitations established by this Article, each Active
Participant may defer in any Plan Year up to 10 percent
(15 percent, effective January 1, 1996) of his Eligible Pay
in accordance with this section. In the event a
Participant elects to defer a portion of his Eligible Pay
under the Plan, it will be designated for contribution by
the Employer to the Trust on behalf of the Participant, and
for deposit in his Salary Deferral Account. All amounts
deposited to a Participant's Salary Deferral Account shall
at all times be fully vested.
(b) Election to Defer: Each Employee who
qualifies as an eligible Employee under Section 3.1 may
elect to defer a portion of his Eligible Pay in accordance
with subsection (d). An eligible Employee shall make this
election by:
(1) Completing and returning the
enrollment form, or utilizing the telephone
enrollment system, provided by the Plan
Administrator,
(2) Designating a portion of his
Eligible Pay to be contributed by his Employer to the
Plan, and
(3) Indicating how such amounts are to
be invested under Section 5.2.
An eligible Employee's election under this subsection shall
be effective as soon as practicable for his Employer and
shall remain in effect until it is modified or terminated
under subsection (c) below, or until his active
participation terminates in accordance with Section 3.2(b).
(c) Changes in Deferral Election: Subject to
subsection (d), an Active Participant may elect to
increase, decrease or terminate the amount of his deferral
at any
<PAGE>
time by completing and returning a change of election form,
or using the telephone enrollment system to designate the
revised deferral rate to be contributed to the Plan. A
Participant's election under this subsection shall be
effective as soon as practicable for his Employer.
(d) Election Procedures: To be effective, an
election made pursuant to subsection (b) or (c) above must
be made in the manner specified by the Plan Administrator.
In addition, the election shall specify the amount of the
deferral desired for each Plan Year in the form of a whole
dollar amount, a percentage of Eligible Pay, or a
combination of the two as specified by the Plan
Administrator from time to time (effective prior to 1996,
only the whole dollar amount form shall be available),
subject to the limitation in subsection (a) above. Any
election purporting to defer more than the maximum
percentage of Eligible Pay permitted under subsection (a)
shall be treated as an election to defer such maximum
percentage of Eligible Pay. Notwithstanding the preceding
sentence, the Plan Administrator shall not give effect to
elections that do not meet the minimum standards for
completeness and accuracy the Plan Administrator
establishes from time to time.
(e) Payroll Deductions: A Participant's
Salary Deferral Contributions shall be withheld from his
Eligible Pay through automatic payroll deductions. The
amount to be withheld in any pay period shall be a ratable
share of the Participant's currently effective salary
deferral election for the entire Plan Year. Salary
Deferral Contributions may not be withheld after they have
been actually or constructively received by the Participant.
4.2 Dollar Limits on Elective Deferrals:
Notwithstanding Section 4.1, a Participant's Elective Deferrals
shall be limited as provided in this section.
(a) Initial Limit: Effective for calendar
years beginning on and after January 1, 1987, a
Participant's Elective Deferrals under the Plan shall be
limited to $7,000 or, if greater, the adjusted amount in
effect under Code section 402(g) for the preceding calendar
year.
(b) Additional Limit: Effective for Plan
Years beginning after 1987, a Participant's Elective
Deferrals, which are made in any calendar year to the Plan
or any
IV-2
<PAGE>
other arrangement maintained by the Employer, shall be limited to
the amount permissible under Code section 402(g) for taxable years
beginning in such calendar year.
(c) Distribution of Excess Elective Deferral:
(1) Assignment: If the Elective Deferral made
on behalf of a Participant under all plans in which such
individual is a participant, whether or not maintained by
the Employer, exceeds the dollar limitation contained in
Code section 402(g), such Participant may assign to this
Plan any Excess Elective Deferral made during a taxable year
of the Participant no later than March 1 following the close
of, and with respect to, the taxable year in which such
Excess Elective Deferral was made by:
(i) Notifying the Plan Administrator in
writing of the Elective Deferral made under any plan
other than this Plan,
(ii) Allocating in writing such Excess
Elective Deferral between or among such other plans
and this Plan, and
(iii) Stating in writing that if such
Excess Elective Deferral allocable to the Plan is not
distributed, the deferral limitations of Code section
402(g) will be exceeded for the Participant's taxable
year with respect to which such Elective Deferral
occurred.
(2) Distribution: Upon notification in
accordance with paragraph (1), the Plan Administrator shall
distribute any Excess Elective Deferral allocated to the
Plan (plus any income and minus any loss allocable thereto)
to the relevant Participant no later than April 15 of the
calendar year following the close of the taxable year of the
Participant with respect to which such Excess Elective
Deferral was made.
(3) Determination of Income or Loss: Excess Elective
Deferrals shall be adjusted for any income or loss through the
end of the taxable year of the Participant with respect to which
such Excess Elective Deferral was
IV-3
<PAGE>
made. The income or loss allocable to a Participant's Excess
Elective Deferral is the income or loss allocable to the
Participant's Salary Deferral Account for such taxable year,
multiplied by a fraction, the numerator of which is the
Participant's Excess Elective Deferrals for such taxable year and
the denominator of which is the Participant's account balance
attributable to Salary Deferral Contributions as of the end of
the taxable year without regard to any income or loss occurring
during such taxable year.
To the extent necessary to ensure compliance with
subsection (b) above, the Plan Administrator shall distribute
Excess Elective Deferrals to a Participant, notwithstanding the
fact that the Participant has not assigned such Excess Elective
Deferrals to this Plan by the deadline specified in subsection
(c)(1). Such distribution shall be accomplished as contemplated
in subsection (c)(2) above.
4.3 Limitation on Deferral Percentage:
(a) Limitation: Notwithstanding anything herein to
the contrary, in any Plan Year beginning on or after January 1,
1987, the Average Deferral Percentage of the eligible Employees
who are Highly Compensated Employees for such Plan Year shall not
exceed the greater of (1) or (2) below:
(1) The Average Deferral Percentage of the
eligible Employees who are Non-Highly Compensated Employees
for such Plan Year multiplied by 1.25, or
(2) The Average Deferral Percentage of the
eligible Employees who are Non-Highly Compensated Employees
for such Plan Year multiplied by 2.0, provided, however,
that in this case the Average Deferral Percentage of the
eligible Employees who are Highly Compensated Employees
shall not exceed the Average Deferral Percentage of the
eligible Employees who are Non-Highly Compensated Employees
by more than 2 percentage points.
IV-4
<PAGE>
(b) Average Deferral Percentage: For purposes of
subsection (a) above, the Average Deferral Percentage for a
specified group of Employees for a Plan Year shall mean the
average of the ratios (calculated separately for each Participant
in such group) of:
(1) The amount of the Salary Deferrals
made on behalf of the Employee for the Plan Year
(including Excess Elective Deferrals of Highly
Compensated Employees), to
(2) The Employee's compensation for the
Plan Year (whether or not the Employee was a
Participant for the entire Plan Year).
For Plan Years beginning on or after January 1, 1989, the
Average Deferral Percentage shall be computed to the nearest
one hundredth of one percent.
(c) Special Rules: In applying the limits set
forth in subsection (a) above, the following rules shall
apply:
(1) For purposes of this subsection,
compensation means compensation as defined in Code
section 414(s). For Plan Years in which Excess
Contributions and Income are distributed pursuant to
subsection (e), compensation means compensation as
defined in Treas. Reg. 1.415-2(d)(11)(ii). For Plan
Years beginning on or after January 1, 1989,
compensation shall be limited to $200,000 (adjusted at
the same time and in such manner as permitted under
Code section 415(d)) provided that for Plan Years
beginning on or after January 1, 1994, compensation is
limited to $150,000 (adjusted at the same time and in
such manner as permitted under Code section 415(d)).
(2) If a Highly Compensated Employee is
eligible to participate under more than one cash or
deferred arrangement described in Code section 401(k)
maintained by the Employer, all such cash or deferred
arrangements shall be treated as one for purposes of
calculating such Employee's Average Deferral
Percentage.
(3) For purposes of determining the
Deferral Percentage of a Highly Compensated Employee
who is a 5 percent owner or one of the 10
IV-5
<PAGE>
most highly-paid Highly Compensated Employees, as described
in Section 2.1(t)(5), the Salary Deferral
Contributions and compensation of such Employee shall
include the Salary Deferral Contributions and
compensation for the Plan Year of such Highly
Compensated Employee's Family Members, as described in
Code section 414(q)(6). Family Members, with respect
to such Highly Compensated Employees, shall be
disregarded as separate Employees in determining the
Average Deferral Percentage both for eligible
Employees who are Non-Highly Compensated Employees and
for eligible Employees who are Highly Compensated
Employees.
(d) Adjustment of Salary Deferrals: If during a Plan
Year the Plan Administrator determines that there is a likelihood
that the Average Deferral Percentage of the Highly Compensated
Employees will exceed the limitation specified in subsection (a),
then the Plan Administrator may prospectively reduce or limit the
deferrals of the Highly Compensated Employees to such amount and
beginning as of such pay period during the Plan Year as is deemed
necessary by the Plan Administrator in its sole discretion to
prevent the limitation in subsection (a) from being exceeded for
the Plan Year. The Plan Administrator may terminate (in whole or
in part) any reduction or limitation on deferrals under this
subsection which is no longer necessary to prevent the limitation
specified in subsection (a) from being exceeded for the Plan
Year. Whenever necessary during the Plan Year, the Plan
Administrator may institute further reductions or limitations on
deferrals, or reinstate reductions or limitations on deferrals, to
the extent required to prevent the limitation in subsection (a)
from being exceeded.
(e) Distribution of Excess Contributions and Income:
If the Average Deferral Percentage of the eligible Employees who
are Highly Compensated Employees exceeds the limitations of
subsection (a) for any Plan Year, then notwithstanding any other
provision of the Plan, any Excess Contributions for such Plan Year
IV-6
<PAGE>
(plus any income and minus any loss allocable thereto) shall be
distributed to the appropriate Highly Compensated Employees and,
where applicable, family members, not later than two and one-half
months following the Plan Year with respect to which such Excess
Contributions were made.
(1) Determination of Income or Loss: Excess
Contributions shall be adjusted for any income or loss
through the end of the Plan Year for which the Excess
Contributions occurred. The income or loss allocable to a
Participant's Excess Elective Deferral shall be as follows:
(i) For the Plan Year beginning in 1987,
the Employer may use any reasonable and consistently
applied method for computing the income allocable to
any Excess Contributions for such Plan Year.
(ii) For Plan Years beginning on or after
January 1, 1988, the income or loss allocable to
Excess Contributions is the income or loss allocable
to the Participant's Salary Deferral Account for the
Plan Year for which the Excess Contributions occurred
multiplied by a fraction, the numerator of which is
the Participant's Excess Contributions for such Plan
Year and the denominator of which is the Participant's
account balance attributable to Salary Deferral
Contributions as of the end of the Plan Year without
regard to any income or loss occurring during such
Plan Year.
(2) Special Rules:
(i) In the event family members are
aggregated for purposes of this section, distributions
to such family members of any Excess Contributions
shall be made in the manner prescribed by the
regulations under Code section 401(k).
(ii) Any distribution of Excess
Contributions and income thereon shall be made to
Highly Compensated Employees on the basis of the re-
IV-7
<PAGE>
spective portions of the total Excess Contributions
attributable to each such Employee.
(iii) Any distribution of Excess
Contributions and income thereon may and shall be made
without regard to any other provision of this Plan
restricting distributions.
(f) Determination By Plan Administrator:
Notwithstanding the foregoing provisions of this section, any
determination required by this section shall be made by the Plan
Administrator, and the determination by such Plan Administrator of
the method of compliance with subsection (a) and reduction of
deferrals in excess of that permitted by subsection (a), in
accordance with subsection (d), and the determination of any
Excess Contribution to be distributed pursuant to subsection (e),
shall be final, binding, and conclusive as to all Participants,
former Participants, Beneficiaries, and any other person or entity
associated with or benefiting from this Plan.
(g) Priority of Application of Sections: Section 4.2
shall be applied before this section.
4.4 Rollover Contributions: At the request of a
Participant, a Retired Employee or an Employee who is eligible under
Section 3.1 (or could be upon the completion of any requirements with
respect to age or service), the Plan may accept a rollover of cash
amounts from another qualified plan described in section 401(a) of the
Code, including an individual retirement account or annuity whose assets
came solely from a qualified plan. Any such rollover amount will be
held for the Participant, Employee, or Retired Employee, as the case may
be, in a Rollover Account established for his benefit. A person who
makes such a rollover contribution to the Plan, but who is not otherwise
eligible to make (or who chooses not to make) a deferral election under
Section 4.1(b), shall be considered an Inactive Participant. The Plan
Administrator and the Trustee may request such information from the
Participant, Employee, or Retired Employee, as the case may be, any
documents or opinion of counsel which it, in its discretion, deems
necessary to determine that a proper rollover
IV-8
<PAGE>
contribution will be made. Amounts in a Rollover Account shall be invested as
designated by the Participant pursuant to Section 5.2(c). The amounts in the
Rollover Account shall be distributed at the same time and in the same manner as
amounts in the Salary Deferral Account.
4.5 Maximum Allocations:
(a) The amount of Annual Additions (as defined in
subsection (d) below) which may be credited to the Participant
under this Plan during any Limitation Year shall not exceed the
lesser of $30,000 (or, if greater, one-fourth of the defined
benefits dollar limitation set forth in Code section 415(b)(1) as
in effect for the Limitation Year) or 25% of the Participant's
Annual Compensation (as defined in subsection (e) below) for the
applicable Limitation Year.
(b) For any Participant in the Plan who is also a
participant in one or more defined benefit plans (as defined in
section 414(j) of the Code) maintained by the Company or by the
Employer, the sum of the fractions in (1) and (2) below, computed
as of the close of the Limitation Year, may not exceed 1.0, where
the fractions are determined as follows:
(1) The Projected Annual Benefit (as defined in
subsection (d) below) of the Participant under such defined
benefit plans, divided by the lesser of:
(i) the product of the dollar limitation
determined for the Limitation Year under Code sections
415(b) and (d) multiplied by 1.25 (or 1.0, if the Plan
is a Top-Heavy Plan, as defined by Section 14.2(c)), or
(ii) 140 percent of the Participant's
Average Compensation (as defined in subsection (d)
below), including any adjustments under Code section
415(b) plus
(2) The sum of the Annual Addition to such
Participant's accounts under this Plan and all other defined
contribution plans maintained by
IV-9
<PAGE>
the Employer for such Limitation Year and for all Prior Years (as defined
in subsection (d) below) divided by the sum of the lesser of the following
amounts determined for such Plan Year and all Prior Years:
(i) the product of the Dollar Limitation (as defined in
subsection (d) below) in effect for the year multiplied
by 1.25 (or 1.0, if the Plan is a Top-Heavy Plan, as
defined by Section 14.2(c)), or
(ii) 35 percent of the Participant's Annual Compensation for
the year.
(c) In the event that a Participant's Annual Addition
under this Plan, when added to the Annual Addition under any other
defined contribution plan (as defined in section 414(i) of the
Code) or the Projected Annual Benefit under any defined benefit
plan maintained by the Employer, exceeds the limitations specified
in Section 4.5(a) or (b), appropriate reductions in such Annual
Addition or Projected Annual Benefit shall be made in the
following order:
(1) First, under any defined benefit plan(s)
maintained by the Employer,
(2) To the extent that additional reductions
are still necessary, under this Plan, and
(3) To the extent that any additional
reductions are still necessary, under a PepsiCo employee
stock ownership plan.
(d) For purposes of this Section 4.5, the following
definitions and rules of interpretation shall apply:
(1) Effective for years beginning after
December 31, 1986, the "Annual Addition" of a Participant
means the sum credited to a Participant's account for any
year of (i) employer contributions; (ii) employee
contributions; (iii) forfeitures and (iv) amounts described
in Code sections 415(l)(2) and 419A(d)(2). Notwithstanding
the foregoing, for years beginning prior to
IV-10
<PAGE>
January 1, 1987, only that portion of the employee's contributions
equal to the lesser of: (A) the portion of his employee contributions
(if any) during such year in excess of 6 percent of his annual
compensation, or (B) one-half of his employee contributions during
such plan year shall be considered an "Annual Addition." The Annual
Addition for any year beginning prior to January 1, 1987, shall not be
recomputed to treat all employee contributions as an Annual Addition.
(2) "Projected Annual Benefit" means the Annual Benefit (as defined in
paragraph (3) below) to which a Participant would be entitled under a
defined benefit plan (after giving effect to any limitation on such
benefit contained in such plan that may be applicable to the
Participant) on the assumptions that he continues employment until his
Normal Retirement Date thereunder, that his compensation continues at
the same rate as in effect for the Limitation Year under consideration
until such Normal Retirement Date, and that all other relevant factors
used to determine benefits under such plan remain constant for all
future Limitation Years.
(3) The "Annual Benefit" of a Participant means the annual amount
payable under a defined benefit plan computed in accordance with the
following rules:
(i) Where the Annual Benefit payable
under a defined benefit plan is other than in the form
of either a single life annuity or a qualified joint
and survivor annuity within the meaning of Code
section 417(b) it shall be adjusted to an actuarial
equivalent benefit in the form of a single life
annuity.
(ii) In the case of a benefit under a
defined benefit plan which begins prior to the
Participant's Social Security Retirement Age
(as defined below), such benefit shall be adjusted so
that it is the
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actuarial equivalent of a benefit commencing at the
Participant's Social Security Retirement Age for
purposes of applying the Code section 415(b) dollar
maximum.
(iii) In the case of a benefit under a
defined benefit plan which begins after the
Participant's Social Security Retirement Age, such
benefit shall be adjusted to the actuarial equivalent
of a benefit commencing at the Participant's Social
Security Retirement Age for purposes of applying the
Code section 415(b) dollar maximum.
(iv) For years beginning prior to January
1, 1987, subparagraph (B) shall be applied by
substituting "age 62" for "the Participant's Social
Security Retirement Age," and subparagraph (C) shall
be applied by substituting "age 65" for "the
Participant's Social Security Age."
(4) "Average Compensation" means a
Participant's average compensation for the period of 3
consecutive Plan Years (or the actual number of consecutive
years of employment for Participants employed by an Employer
less than 3 consecutive years) during which the Participant
had the greatest aggregate Annual Compensation.
(5) "Prior Year" means a year, preceding the
current Limitation Year, in which the Participant was in the
service of the Employer. For purposes of the preceding
sentence, "year" shall mean (in the event the Plan was in
existence during such year) a Limitation Year, or (in the
event the Plan was not in existence during such year) a 12-
month period which begins and ends on the same dates as the
Limitation Year.
(6) "Dollar Limitation" means the limitation
provided in Code section 415(c)(1)(A) (adjusted in
accordance with Internal Revenue Service Regulations) as in
effect for the particular Plan Year.
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(7) "Social Security Retirement Age" means age
65 in the case of a Participant who attains age 62 before
January 1, 2000; age 66 in the case of a Participant who
attains age 62 after December 31, 1999 but before January 1,
2017; and age 67 in the case of a Participant who attains
age 62 after December 31, 2016.
(8) For purposes of Section 4.5(b)(1)(i) above,
if as of the last Plan Year ending before January 1, 1983, a
Participant's accrued benefit (within the meaning of Section
235(g)(4) of the Tax Equity and Fiscal Responsibility Act of
1982) under the Employer's defined benefit plans is greater
than $90,000 (and also such other amount as may apply
pursuant to automatic adjustments of the $90,000 figure),
then Section 4.5(b)(1)(i) shall be applied by substituting
such accrued benefit for $90,000 where it appears therein.
(9) For purposes of computing the maximum
allocation under either subsection (a) or (b), all defined
benefit plans (whether or not terminated) of the Employer
shall be treated as one defined benefit plan, and all
defined contribution plans (whether or not terminated) of
the Employer shall be treated as one defined contribution
plan.
(10) When the term "Employer" is used in this
section, it shall mean the Employer and any other
corporation or division which is a member of a controlled
group of corporations (within the meaning of Code Section
414(b), as modified by Code section 415(h)) of which the
Employer is also a member.
(e) Annual Compensation: A Participant's annual
compensation as determined solely for purposes of this section and
Article XIV of the Plan.
(1) A Participant's Annual Compensation shall
include:
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(i) The Participant's earned income,
wages, salaries, and fees for professional services,
and other amounts received for personal services
actually rendered in the course of employment with the
Employer maintaining the plan to the extent that the
amounts are includable in gross income (including, but
not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage
of profits, commissions on insurance premiums, tips
and bonuses, fringe benefits, reimbursements, and
expense allowances);
(ii) Amounts described in Code sections
104(a)(3), 105(a) and 105(h), but only to the extent
that such amounts are includable in the gross income
of the Participant;
(iii) Amounts paid or reimbursed by the
Employer for moving expenses incurred by a
Participant, but only to the extent that such amounts
are not deductible by the Participant under Code
section 217;
(iv) The value of a non-qualified stock
option granted to a Participant, but only to the
extent that the value of the option is includable in
the gross income of the Participant for the taxable
year in which granted; and
(v) The amount includable in the gross
income of a Participant upon making the election
described in Code section 83(b).
(2) A Participant's Annual Compensation shall
not include:
(i) Employer contributions to a plan of
deferred compensation which are not included in the
Participant's gross income for the taxable year in
which contributed or Employer contributions under a
simplified employee pension plan to the extent such
contributions are
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<PAGE>
deductible by the Participant, or any distributions
from a plan of deferred compensation;
(ii) Amounts realized from the exercise
of a non-qualified stock option, or when restricted
stock (or property) held by the Participant either
becomes freely transferable or is no longer subject to
a substantial risk of forfeiture;
(iii) Amounts realized from the sale,
exchange or other disposition of stock acquired under
a qualified stock option; and
(iv) Other amounts which received special
tax benefits, or contributions made by the Employer
(whether or not under a salary reduction agreement)
towards the purchase of an annuity described in
section 403(b) of the Code (whether or not the amounts
are actually excludable from the gross income of the
Participant).
Compensation for any limitation year is the
compensation actually paid or includable in gross income
during such year.
4.6 Excess Allocations: If pursuant to Section 4.5 there
is an excess Annual Addition under this Plan with respect to a
Participant for a Limitation Year, such excess Annual Addition shall be
disposed of by distributing to the Participant such Participant's
Elective Deferrals for the Limitation Year (and related earnings
thereon) to the extent necessary to eliminate such excess.
4.7 Fund for Exclusive Benefit of Participants: Except as
otherwise provided hereinafter (i) all assets of the Trust Fund,
including investment income, shall be retained for the exclusive benefit
of Participants and Beneficiaries, and shall be used to pay benefits to
such persons or to pay administrative expenses of the Plan and Trust to
the extent not paid by the Employer, and (ii) contributions made by the
Employer may not under any circumstances revert to or inure to the
benefit of the Employer; except that, and notwithstanding anything
contained herein to the contrary, contributions (a) made by the Employer
by mistake of fact, or (b) conditioned upon the deductibility of the
contribution under Code section 404, shall be returned to the Employer
within 1 year of the mistaken payment or the disallowance of the
deduction (to the extent disallowed), whichever is applicable. Each
contribution by the Employer is expressly made contingent on the
deductibility of such contribution for the year with respect to which
the contribution is made.
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ARTICLE V
Interests of Participants
5.1 Accounts of Participants: The Plan Administrator, or its agent, shall
maintain separate accounts on its books, for recordkeeping purposes only, for
each Participant. A given Participant may have two accounts if he has: (i)
deferred a percentage of his Eligible Pay pursuant to Section 4.1, and (ii) made
a rollover contribution pursuant to Section 4.4, i.e., a Salary Deferral
Account, and a Rollover Account. The maintenance of individual accounts is only
for accounting purposes, and a segregation of the assets of the Trust Fund to
each account shall not be required (except as the Trustee deems necessary under
the Brokerage Option). Distributions and withdrawals from a Participant's
Account shall be charged to the appropriate account at the time the transaction
is processed.
5.2 Investment of Participant Accounts: The investment options under the
Plan are described in subsection (a), subject to the limitations set forth in
subsection (b) and other provisions of the Plan.
(a) Investment Options: In accordance with the
rules provided in subsection (c) below, a Participant shall direct
the investment of the amounts credited to his Account to any of
the following separate investment options within the Trust Fund
for which he is eligible at the time:
(1) The Security Plus Fund: This investment
option, available effective January 1, 1992, is an investment
portfolio comprised of investment funds and contracts issued
by highly rated banks and insurance companies and short-term
securities. The objective of the Fund is to provide, over a
period of time, a higher rate of return than average money
market funds, while preserving principal and providing
liquidity. The Fund's rate of return will fluctuate and is
not intended to provide a guaranteed rate of return. The
Participant's interest in the fund will be denominated as
"units". The value of a unit in this Fund will be $1.00.
The number of units credited to a Participant will fluctuate
based upon the
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performance of the Fund. As of January 1, 1992, two 1991 Guaranteed Income
Fund contracts, both issued by Metropolitan Life, were transferred to the
Security Plus Fund. In addition to the transferred investment contracts, the
Fund is expected to invest primarily in: (A) short-term investment funds
(including government short-term investment funds) that invest in certificates
of deposit, time deposits, bankers' acceptances, commercial paper, U.S. Treasury
and agency securities, and mortgage and asset-backed securities; and (B) new
investment contracts issued by highly-rated insurance companies, banks, and
other financial institutions. The transfer of funds invested in the Security
Plus Fund to other separate investment options within the Trust Fund shall be
subject to the following restrictions:
(i) No amounts invested in the Security
Plus Fund may be transferred by a Participant directly
to the Brokerage Option. No amounts invested in the
Security Plus Fund may be transferred by a Participant
indirectly to the Brokerage Option, i.e., by first
transferring the amounts to some other investment
option (or options) under the Plan, unless such amounts
remain invested in the intervening investment option
(or options) for at least 3 months;
(ii) A Participant can transfer amounts
from the Security Plus Fund into some other investment
option (or options) under the Plan no more than 12
times during the Plan Year; and
(iii) Withdrawals of amounts invested in
the Security Plus Fund are subject to the limitations
specified in Section 6.3(c).
(2) The Equity Index Fund: This investment
option is a diversified stock fund, invested primarily in
the Vanguard Institutional Index Fund. It is a passively
managed fund designed to mirror the performance of Standard
and Poor's 500 Index, a broadly-based average of stock
market
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<PAGE>
performance. Investments in this investment option
are subject to fluctuations, and there is no guarantee of
future performance. The Participant's interest in the Fund
will be denominated as "units". The value of a unit in this
Fund will fluctuate based on the performance of the Fund.
The number of units credited to a Participant will not
fluctuate based upon the performance of the Fund.
(3) The Equity-Income Fund: This Fund is
primarily invested in the Fidelity Equity-Income Fund, which
invests primarily in income-producing stocks. The Fund's
chief objective is to provide reasonable income, although
some consideration is given to capital appreciation.
Amounts invested in this investment option are subject to
fluctuations, and there is no guarantee of future
performance. The Participant's interest in the Fund will be
denominated as "units". The value of a unit in this Fund
will fluctuate based on the performance of the Fund. The
number of units credited to a Participant will not fluctuate
based upon the performance of the Fund. Notwithstanding
anything to the contrary herein, if with respect to any
calendar quarter ("quarter") Fidelity Institutional
Retirement Services Company makes a payment pursuant to its
Plan Expense Reimbursement Agreement with the Company, such
payment shall be allocated to certain Participants who have
an interest in the Equity Income Fund as provided in (i) or
(ii) below, as applicable.
(i) Effective for any such payment made
with respect to a quarter beginning after June 30,
1996, the projected amount payable with respect to
each business day in a quarter shall be allocated on a
daily basis to Participants in proportion to their
interest in the Fund on such business day. If the
actual amount of payment for a quarter differs from
the projected amount allocated, then as soon as
practicable after the actual payment is received
appropriate adjustments will be made in affected
Participants' Accounts that remain in the Plan.
(ii) Any such payment made with respect
to an earlier quarter shall be allocated to
Participants who have an interest in the
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Equity-Income Fund on the last business day of such quarter in proportion
to their interest in the Fund on such date.
For purposes of (i) and (ii) above, a Participant's interest in the
Equity-Income Fund on a day shall be determined before adjustments in Accounts
are made for that day in accordance with Section 5.3.
(4) The PepsiCo Capital Stock Fund: This
investment option is invested primarily in Company Stock.
Earnings will be applied primarily to the purchase of
additional shares of Company Stock. The objective of the
Fund is to parallel the total return (stock price
appreciation/depreciation plus dividends) of Company Stock.
Amounts invested in this investment option are subject to
fluctuations, and there is no guarantee of future
performance.
A Participant's interest in the Fund will be
denominated as "units". The initial value of a unit (as of
February 29, 1992) in this Fund is $10.00 and thereafter the
value of a unit will fluctuate in response to various
factors including, but not limited to, the price of and
dividends paid on Company Stock, earnings and losses on
other investments in the Fund, the mix of assets in the Fund
and Fund expenses. The number of units credited to a
Participant's account will not fluctuate based upon the
performance of the Fund. Shares of PepsiCo Capital Stock
held in the Fund and dividends and other distributions on
PepsiCo Capital Stock are not specifically allocated to
Participant accounts. Each Participant's investment in the
PepsiCo Capital Stock Fund will be based on the proportion
of his investment in the Fund to the total investment in the
Fund of all Plan Participants.
All dividends on shares of Company Stock in the
Fund are paid to the Fund. Dividends on these shares are
added to the Fund without the purchase of additional units
in the Fund. The Trustee shall use the dividend income to
purchase additional shares of Company Stock for the Fund or
to meet the cash demands of the Fund. Any Company Stock
received by the Trustee as a stock split or dividend, or as
a result of a reorganization or other recapitalization of
PepsiCo, will be added to the assets of the Fund. Any other
property (other than shares of
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<PAGE>
Company Stock) received by the Trustee may be sold by the Trustee and the
proceeds added to the Fund. Any rights to subscribe to additional shares of
Company Stock shall be sold by the Trustee and the proceeds credited to the
Fund.
Participants who have invested in the Fund may
direct the Trustee how to vote (or tender, if applicable)
Company Stock. The Trustee will determine each
Participant's proportional share of the Company Stock in the
Fund (based on the number of units allocated to the
Participant's Accounts) and solicit the Participant's
instructions. The Trustee shall vote (and/or tender) this
stock according to the Participant's directions. The
Trustee shall not vote stock in the Fund for which it does
not receive directions.
The Company shall assist the Trustee in
furnishing Participants investing in the PepsiCo Capital
Stock Fund with proxy materials, notices and information
statements at the time voting rights are to be exercised.
In general, the materials to be furnished Participants shall
be the same as those provided to security holders.
Shares of Company Stock will be purchased for
the Fund in the open market or in privately negotiated
transactions, at prices not in excess of the fair market
value of the Company Stock on the date of purchase. Sales
of shares will also be made in the open market or in
privately negotiated transactions at prices not lower than
the fair market value of Company Stock on the date of sale.
The Trustee, or its designated agent, may limit the daily
volume of purchases and sales to the extent it believes it
will be in the interest of Participants to do so.
(5) The Brokerage Option:
(i) Description of Funds: This investment
option will be administered by State Street Bank and
the agents it employs as securities brokers to execute
Participants' trades. This option permits certain
Participants and Beneficiaries to invest all or a
portion of their interest in the Plan in additional
choices for self-directed investment. The Plan
Administrator shall publish written rules and
procedures for the election of
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<PAGE>
these additional choices by Participants and Beneficiaries, and may
revise such rules and procedures at any time and for any reason. The
investments expected to be available under the Brokerage Option are
generally as follows: securities traded on the New York Stock
Exchange, the American Stock Exchange, and the NASDAQ exchange, and
certain mutual funds as specified by the Plan Administrator.
(A) The following investments will
not be available through the Brokerage Option:
Non-taxable bonds; options; futures;
commodities; limited partnerships which are
unlisted on the New York or American Stock
Exchange or the NASDAQ exchange; foreign
securities which are unlisted on the New York or
American Stock Exchange or the NASDAQ exchange;
commercial paper; bank investments (such as
certificates of deposits and bank investment
contracts); physical assets (such as coins, art,
jewelry, and real estate); insurance investment
or insurance investment funds; mutual funds not
specified by the Plan Administrator; and
securities of the Company or its subsidiaries
(even if listed on the New York or American
Stock Exchange or the NASDAQ exchange).
(B) The following trading practices
are prohibited under the Brokerage Option: Short
sales, margin trades, third party trades, direct
trades, and any trades occurring outside the
procedures established by the Plan Administrator.
(ii) Restrictions: Each Participant who
participates in the Brokerage Option shall have his
interest in the Plan reduced by any brokerage
commissions and fees (including fees charged on
account of one or more investments in a mutual fund)
payable on their individual transactions and shall
also have his interest in the Plan reduced by an
access fee (initially $4.20) for each month or part
thereof that the Participant participates in the
Brokerage Option. Such access fee will be taken from
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<PAGE>
the Plan in the following order: Security Plus Fund,
Equity-Index Fund, Equity Income Fund, PepsiCo Capital
Stock Fund and the Brokerage Option. The Plan
Administrator, and its agent, are authorized to sell
securities or other assets held within a Participant's
Account for the purpose of paying the commissions and
fees described in this subsection. Investment in the
Brokerage Option is subject to the following
restrictions:
(A) To commence investing under
this program, the Participant must first be
eligible to enroll in the Brokerage Option. A
Participant is eligible to enroll if he has at
least $1,000.00 in his Participant Account;
completes and returns the application as
required by the Plan Administrator or its agent;
and his initial transfer election into the
Brokerage Option is at least $1,000. Subsequent
transfers to and from the Brokerage Option must
be at least $250 unless such transfer is to
close the Participant's account under the
Brokerage Option. All transfers to the
Brokerage Option must be from prior savings.
(B) No amounts invested either in
the Security Plus Fund or in the Guaranteed
Income Fund may be directly transferred to the
Brokerage Option, and no amounts invested either
in the Security Plus Fund or in the Guaranteed
Income Fund may be indirectly transferred to the
Brokerage Option, i.e., by first transferring
the amounts to some other investment fund (or
funds) under the Plan, unless such amounts
remain invested in the intervening fund (or
funds) for at least 3 months.
(C) Except as provided in the last
sentence of this clause (C), no security or
investment held by a Participant's account
within the Brokerage Option may be transferred
or distributed directly to the Participant. The
Participant must initially sell the security or
investment. The Trustee will place the proceeds
of such
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<PAGE>
sale in a short-term investment fund,
designed to generate a money market rate of
return, within the Brokerage Option. The
proceeds will remain in such account until the
Participant instructs the Plan Administrator or
its agent to transfer all or a portion of such
proceeds into one or more of the other separate
investment options within the Trust Fund
provided that the investment option chosen by
the Participant permits contributions. The
crediting of earnings within the short-term
investment fund and the transfer of funds to
other investment funds within the Trust Fund may
be delayed until after the settlement period for
the class of security sold by the Participant,
ranging from one to five business days. In-kind
distributions are permitted in the event of a
complete distribution of a Participant's
interest as specified under Section 6.1 or 6.2.
(6) The Guaranteed Income Fund: This fund is
established through contractual arrangements with one or
more insurance companies or other financial institutions.
Effective January 1, 1992, the Guaranteed Income Fund no
longer accepts additional deposits. As of January 1, 1992,
two 1991 Guaranteed Income Fund contracts, both issued by
Metropolitan Life, were transferred to the Security Plus
Fund. The return on amounts that remain invested in the
Guaranteed Income Fund is determined in accordance with the
contract (or contracts) applicable to the year in which the
amounts were invested. Guarantees of principal and interest
are provided solely by the insurance company or other
financial institution issuing the contract. The transfer of
funds invested in the Guaranteed Income Fund to other
separate investment funds within the Trust Fund will be
restricted in the following manner:
(i) No amounts invested in the Guaranteed
Income Fund for any Plan Year may be transferred by a
Participant directly into the Security Plus Fund or
the Brokerage Option. No amounts invested in the
Guaranteed Income Fund for any Plan Year may be
transferred by a Participant
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<PAGE>
indirectly to the Security Plus Fund or the Brokerage Option,
i.e., by first transferring the amounts to some other invest-
ment fund (or funds) under the Plan, unless such amounts remain
invested in the intervening fund (or funds)for at least 3 months;
and (ii) A Participant can transfer amounts from the
Guaranteed Income Fund into some other
investment fund (or funds) under the Plan no more than
12 times during the Plan Year.
(b) Maintaining Liquidity: Notwithstanding
subsection (a) above, for the purpose of providing liquidity in
each of the separate investment options (other than the Brokerage
Option) under the Plan, the Trustee may invest a portion of each
fund or investment option under the Plan in cash or short-term
securities. The percentage of assets held for this purpose is
normally expected to range from 2-10 percent, but under
extraordinary circumstances the percentages may be substantially
higher. Consequently, the mix of cash, securities and other
investments in each of the investment funds could vary
significantly at any given time and the performance of any
particular fund may not match the performance of the fund or
stock, as the case may be, outside the Plan. In the unlikely
event that the amount of liquid assets held by these funds is
insufficient to satisfy the immediate demand for liquidity under
the Plan, the Trustee, in consultation with the Plan
Administrator, may temporarily limit or suspend transfers of any
type (including withdrawals and distributions) to or from the
investment options specified in subsection (a). In any such case,
the Plan Administrator shall temporarily change the Plan's
Valuation Date or, in its discretion, the Valuation Date for a
specific option. During this period, contributions to any
affected option may be redirected to substitute investments chosen
by the Trustee.
(c) Procedures for Investment Directions: A
Participant may direct the investment of the amounts credited to
him under the Plan into the investment options described in
subsection (a) only in accordance with this subsection. A
Participant shall direct the investment, or change the direction
of the investment, of his future or existing investment by
directing the Plan Administrator through the telephone enrollment
system
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<PAGE>
provided by the Plan Administrator for such purpose (or
through any other method made available by the Plan Administrator)
and by specifying whether the Participant's investment
instructions apply to existing savings, future contributions or
both.
(1) The Participant will have sole
responsibility for the investment of his savings and for
transfers among the available investment funds, and no named
fiduciary or other person will have any liability for any
loss or diminution in value resulting from the Participant's
exercise of such investment responsibility. In addition,
because Participants control the investment of Participant
Accounts, the Plan is intended to be covered to the maximum
extent possible by section 404(c) of ERISA and related
Department of Labor regulations, which provide that Plan
fiduciaries may be relieved of liability for any losses that
are the result of investment instructions given by a
Participant or Beneficiary.
(2) In the case of an option other than the
Brokerage Option, a Participant's investment instruction or
change in investment instruction shall take effect as of the
end of the day on which the Participant gives such
instruction or change to the Plan Administrator (or its
agent), provided the Participant executes such instruction
or change by 3:00 p.m. (Eastern time) on a business day. If
the Participant executes his instruction or change on a
Saturday, Sunday, holiday or after 3:00 p.m. (Eastern time)
on a business day, such instruction or change will become
effective on the next following business day.
(3) In the case of the Brokerage Option, a
Participant's investment instruction or change within the
Brokerage Option or fund transfers into the Brokerage Option
shall be effective in accordance with rules set forth by the
Plan Administrator consistent with the rules that govern the
exchange or fund in which Participants invest.
Any investment direction submitted by a Participant must specify,
in whole percentages (1 to 100), the percentage of his accounts to
be invested in any or all of the separate investment funds
maintained under the Plan. If a Participant fails to submit a
statement of direction properly directing the investment of 100
percent of his accounts, and such failure
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<PAGE>
is not corrected, the Participant shall not be eligible to participate
actively, or to continue to participate actively, in the Plan;
provided, however, that amounts previously invested pursuant to a
properly executed statement of investment direction shall continue to
remain invested in the Fund or Funds so elected. The rules for
transfers set forth in paragraphs (2) and (3) above are subject to the
last 3 sentences of subsection (b) above.
(d) Miscellaneous:
(1) It is expressly permissible under this Plan
for Trust assets
to be invested in qualifying employer securities, as that
term is defined in section 407(d)(5) of ERISA, up to and
including 100 percent of the total Trust assets. If Company
Stock is purchased other than on the open market, the
Company Stock shall be valued in good faith and based on all
relevant factors, including the sales prices of such stock,
as reported on the New York Stock Exchange, on the date of
purchase.
(2) The separate investment funds made
available under the Trust Fund and their rules of operation
and valuation may be changed from time to time by agreement
between the Company and the Trustee.
(3) As of each Valuation Date, the Trustee will
determine the fair market value of the assets in each
separate investment fund of the Trust Fund, relying upon
such evidence of valuation as the Trustee deems appropriate.
5.3 Adjusting Account Balances: As of the close of
business on each Valuation Date (before adjusting for contributions,
distributions and investment transfers), Participants' Accounts shall be
charged or credited with:
(a) Investment Expenses,
(b) Investment income, and
(c) Gains and losses in asset values,
to the extent they have occurred with respect to each separate option
(and each separate investment within the Brokerage Option) since the
preceding Valuation Date. Thereafter, the final Account balances as of
the Valuation Date will be determined by adjusting the amounts
determined under the preceding sentence for contributions, distributions
and investment transfers. The allocation of
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Investment Expenses and investment results as of a Valuation Date shall be in
proportion to the final Account balances in the fund or investment as of the
preceding Valuation Date. Gains and losses in assets values as of a Valuation
Date shall be determined in accordance with rules of the Plan Administrator and
may not reflect the closing values of the assets on such Valuation Date.
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ARTICLE VI
Distributions To Participants
6.1 Termination of Employment: Subject to Section 6.2, a
Participant who incurs a Termination of Employment under the Plan shall
be entitled to receive the entire amount of his interest in the Plan
computed as of: (i) the Valuation Date on which the final distribution
form for the Participant is processed by the Recordkeeper, or (ii) if
the Participant's interest in the Plan is $3,500 or less, the Valuation
Date on which the Recordkeeper processes the distribution of the
Participant's Account (such distribution to be processed as soon as
practicable after the 90 days specified in section 6.6(d)). Subject to
Section 6.6(a), the Participant's interest at Termination of Employment
shall be payable to the Participant as a lump sum distribution as soon
as practicable.
6.2 Death: Subject to Section 7.1(b), in the event of the
death of a Participant, the entire amount, if any, of the interest of
such Participant in the Plan shall be paid as provided in Section 6.1,
except that it shall be payable to such Participant's Beneficiary or
Beneficiaries determined in accordance with Article VIII.
6.3 Withdrawals: Subject to the restriction on direct
withdrawals from the Brokerage Option specified in Subsection (c) below,
a Participant who has made a Salary Deferral Contribution or a Rollover
Contribution may withdraw certain amounts credited to his Salary
Deferral Account and Rollover Account to the extent permitted by this
section.
(a) Hardship Withdrawals: In the case of a
Participant who has not yet attained the age of 59-1/2,
withdrawals shall only be permitted on account of the
Participant's hardship. For this purpose, a withdrawal is made on
account of hardship only if the Plan Administrator (or its
delegate) determines the withdrawal is: (A) made on account of an
immediate and heavy financial need of the Participant, and (B)
necessary to satisfy this financial need. Such determinations are
intended to follow applicable regulations and rulings issued by
the Internal Revenue Service.
VI-1
<PAGE>
(1) Immediate and Heavy Financial Need: The
determination of whether a Participant has an immediate and
heavy financial need shall be based on all of the relevant
facts and circumstances. In addition, a distribution shall
be deemed to be made on account of an immediate and heavy
financial need of the Participant if the distribution is on
account of:
(i) Expenses for medical care (within the
meaning of Code section 213(d)) incurred by the
Employee, the Employee's spouse or dependents;
(ii) A cost directly related to the
purchase (excluding mortgage payments) of a principal
residence for the Employee;
(iii) Payment of tuition and related
educational fees for the next 12 months of
post-secondary education for the Employee, the
Employee's spouse, children or dependents; or
(iv) The need to prevent the eviction of
the Employee from, or a foreclosure on the mortgage
of, the Employee's principal residence.
For purposes of this paragraph, "dependent"
means an Employee's dependent within the meaning of Code
section 152.
(2) Necessary for the Need: A withdrawal shall be considered necessary
to satisfy a need described in paragraph (1) only to the extent: (A)
the amount of the withdrawal is not in excess of the amount required
to relieve such need, and (B) the need cannot be satisfied from other
resources that are reasonably available to the Participant.
Determinations under this paragraph shall be based on all of the
relevant facts and circumstances. A distribution generally may be
treated as necessary to satisfy a financial need if the Plan
Administrator (or its delegate) relies upon the Participant's written
VI-3
<PAGE>
representation (unless the Plan Administrator has actual knowledge to
the contrary) that the need cannot reasonably be relieved:
(i) Through reimbursement or compensation
by insurance or otherwise;
(ii) By liquidation of the Participant's
assets;
(iii) By cessation of Salary Deferral
Contributions;
(iv) By other distributions or nontaxable
loans from plans maintained by an employer, or by
borrowing from commercial sources on reasonable
commercial terms, in an amount sufficient to satisfy
the need.
For this purpose, a need cannot be treated as
reasonably relieved from the sources listed above if the effect
would be to increase the amount of the need.
(3) Maximum Withdrawal: The amount that may be
made available to a Participant for hardship withdrawal may
not exceed:
(i) The sum of:
(A) the Participant's total Salary
Deferral Contributions,
(B) any earnings on the Participant's
Salary Deferral Contributions credited to the
Participant's Account on December 31. 1988, and
(C) the Participant's total Rollover
Contributions (and contributions on behalf of the
Participant to any other accounts that may be provided
for in the Appendix) plus any earnings thereon;
reduced by
(ii) The amount of any prior withdrawals
and distributions to or on behalf of the Participant.
VI-3
<PAGE>
The amounts specified in this paragraph (except that specified in
subparagraph (i)(B)) are to be determined as of the Valuation Date
on which the withdrawal is processed.
(4) Administrative Procedures: A withdrawal
request under this subsection shall be made on the form
specified for this purpose by the Plan Administrator. For a
withdrawal to be approved, this form must be fully completed
and the Participant must provide such additional information
as the Plan Administrator (or its delegate) shall request.
The hardship withdrawal shall be paid to the Participant as
promptly as practicable after its approval and shall not
exceed the value of the Participant's distributable interest.
(b) Post-Age 59-1/2 Withdrawals: In the case of a
Participant who has attained age 59-1/2, such Participant shall be
eligible to withdraw amounts from his Account by submitting to the
Plan Administrator a request in such form and manner as the Plan
Administrator may provide, specifying the amount to be withdrawn;
provided, however, that a Participant shall be ineligible to make a
withdrawal under this subsection more than 2 times within the same
calendar year. Distribution shall be made to the Participant as
soon as practicable after the withdrawal request is received by the
Plan Administrator, based upon the Participant's balance in his
Account as of the Valuation Date the withdrawal is processed.
(c) Order of Asset Liquidation for all Withdrawals:
In the event the Participant's Account is invested in more than one
investment option, a partial withdrawal will be distributed
pro-rata from each of the investment options from which withdrawals
are available subject to the following requirements: amounts
invested in the Security Plus Fund must be withdrawn before amounts
invested in the Guaranteed Income Fund can be withdrawn, and
amounts invested in the Guaranteed Income Fund shall be withdrawn
in reverse order of the Participant's investment in the
VI-4
<PAGE>
underlying contracts, i.e., the most recent contract shall be
liquidated first. In addition, withdrawals directly from the Brokerage
Account are not permitted.
6.4 Form of Distributions: Distributions under the Plan on
account of Termination of Employment or death shall be made in cash,
except to the extent that a Participant elects to receive: (i) his
interest in the PepsiCo Capital Stock Fund in whole shares of Company
Stock; or (ii) securities held in his Brokerage Option as permitted in
Section 5.2(a)(5)(ii)(C). An election to receive an in-kind distribution
shall not apply to fractional shares, uninvested cash or amounts invested
for liquidity purposes, and shall not be available with respect to
hardship withdrawals under section 6.3(a).
6.5 Errors in Participant's Accounts: When an error or
omission is discovered in an account of a Participant, the Plan
Administrator and the Trustee shall be authorized to make such equitable
adjustments as may be appropriate as of the Plan Year in which the error
or omission is discovered.
6.6 Commencement of Payments: Notwithstanding anything in
the Plan to the contrary, the distribution of a Participant's benefits
hereunder shall be determined in accordance with the provisions of this
section and shall otherwise comply with Code section 401(a)(9) and the
regulations under section 401(a)(9) including section 1.401(a)(9)-2. In
addition, any provisions of the Plan that reflect Code section 401(a)(9)
(including subsection (b) below) override any other distribution options
in the Plan that are inconsistent with Code section 401(a)(9).
(a) Consent Requirements: Effective as of January 1,
1985, if the value of a Participant's total interest in the
Plan exceeds $3,500 at the time a distribution is to be made, then
such interest shall not be distributed hereunder prior to the
Participant's attainment of age 65 or death unless the Participant
consents in writing, on a form prescribed by the Plan
Administrator, to the earlier distribution of his interest in the
Plan. However, upon termination of the Plan, the Participant's
interest may, without the Participant's consent, be distributed to
him or transferred to
VI-5
<PAGE>
another defined contribution plan (other than an employee stock
ownership plan as defined in Code section 4975(e)(7)) maintained by
the Employer.
(b) Code Section 401(a)(14) Provisions: Subject to
subsection (c) below, distribution of a Participant's interest in
the Plan shall not commence later than the 60th day after the close
of the latest of the following:
(1) The Plan Year in which the Participant
attains age 65,
(2) The Plan Year in which occurs the tenth
anniversary of the date his participation commenced,
(3) The Plan Year in which occurs the
Participant's Termination of Employment, or
(4) The Plan Year containing the date to which
the Participant has elected in writing to defer commencement
of his Plan distribution.
If a distribution otherwise payable to a Participant or his
Beneficiary hereunder remains unpaid because the Plan
Administrator (after making reasonable efforts) cannot locate
the Participant or Beneficiary, the amount so distributable
shall be treated as a forfeiture under the Plan. Following
its forfeiture, such amount shall be used to pay any expense
of Plan administration which may be charged to the Plan in
accordance with ERISA. In the event the Participant or his
Beneficiary is located subsequent to the forfeiture of his
Account, such Account shall be restored, without adjustment
for earnings or losses, and payment to the Participant or
Beneficiary shall be made no later than 60 days after the
date on which the Plan Administrator locates the Participant
or Beneficiary.
(c) Code Section 401(a)(9) Provisions:
(1) A Participant's total interest in the Plan
must be distributed to him no later than the Participant's
required beginning date.
VI-6
<PAGE>
(i) In the case of a Participant who is
not a percent owner after 1979, the "required
beginning date" shall be determined as follows:
(A) If the Participant attains age
70-1/2 after 1987, the required beginning date is
the April 1 following the calendar year in which
the Participant attains age 70-1/2 (but not
before April 1, 1990).
(B) If the Participant attains age
70-1/2 before 1988, the required beginning date
is the April 1 following the calendar year in
which occurs the later of his Termination of
Employment or attainment of age 70-1/2.
(ii) In the case of a Participant who is a
5 percent owner after 1979, the required beginning date
is the April 1 following the later of:
(A) the calendar year in which the
Participant attains age 70-1/2, or
(B) the first calendar year in which
the Participant either becomes a 5 percent owner
or terminates employment.
For purposes of this paragraph, a 5-percent
owner is any Participant who is a 5-percent owner as
defined in section 416(i) of the Code (determined in
accordance with section 416 but without regard to
whether the Plan is top-heavy) at any time during the
Plan Year ending with or within the calendar year in
which such owner attains age 66-1/2 or any subsequent
Plan Year.
(2) In the event a Participant dies on or after
his Annuity Starting Date but before actual payment has
commenced, the Participant's total interest in the Plan (if
any) shall be distributed by December 31 of the calendar year
containing the fifth anniversary of the Participant's date
of
VI-7
<PAGE>
death occurs. Notwithstanding the preceding sentence, if the
Participant's designated beneficiary is his surviving spouse
and the surviving spouse dies after the Participant, but before
payments to such spouse begin, the provisions of this
subsection 6.6(c)(2) shall be applied as if the surviving
spouse were the Participant.
(d) Cashout Distributions: Subject to the last sentence
of this subsection, upon a Participant's death or other Termination
of Employment, the value of the Participant's total interest in the
Plan shall be automatically distributed to him in a lump-sum cash
distribution as soon as practicable following the earlier of (i) the
date the Participant reaches age 65 (or such later date as permitted
by the Plan Administrator in accordance with Code section
401(a)(14)); or (ii) 90 days after the Participant's Termination of
Employment. However, such a Participant (or where the Participant
has died, his Beneficiary as determined under Article VIII) can
effect an earlier distribution by submitting a properly completed
final distribution form in the manner specified by the Plan
Administrator. By submitting a properly completed final distribution
form, the Participant may elect to receive an in-kind distribution as
provided in Section 6.4. Notwithstanding any provision of this
Section 6.6(d) to the contrary, if such Participant is disabled
(within the meaning of the PepsiCo Long Term Disability Plan) or has
a total interest in the Plan in excess of $3,500 and has not died, a
distribution of his total interest in the Plan will not occur until
the earlier of: (i) the date the Participant attains age 65 (or such
later date as permitted by the Plan Administrator in accordance with
Code section 401(a)(14)); or (ii) the date the Participant submits a
properly completed final distribution form in the manner specified by
the Plan Administrator.
6.7 Payment for Benefit of Disabled or Incapacitated
Person: Whenever, in the opinion of the Plan Administrator or its agent,
a person entitled to receive any payment of a benefit hereunder is under
a legal disability or is incapacitated in any way so as to be unable
VI-8
<PAGE>
to manage his financial affairs, the Plan Administrator or its agent may
direct the Trustee to make payments to such person or to his legal
representative or to a relative or friend of such person for his benefit,
or the Plan Administrator or its agent may direct the Trustee to apply
the payment for the benefit of such person in such manner as the Plan
Administrator or its agent considers advisable. Any payment of a benefit
or installment thereof in accordance with the provisions of this section
shall be a complete discharge of any liability for the making of such
payment under the provisions of the Plan.
6.8 No Other Benefits or Withdrawals: Except as expressly
provided for in this Article VI or the Appendix, no individual, whether a
Participant, former Participant, Beneficiary or otherwise, shall be
entitled to any distribution or withdrawal of funds from the Trust Fund.
6.9 Participants Who Cannot Be Located: If the Plan
Administrator after the passage of a period of time (which period shall
be established by the Plan Administrator in accordance with reasonable
administrative practices) and reasonable due diligence is unable to
locate an inactive Participant or Beneficiary to whom a payment is due
under this Article VI, the amount of the Account due such person shall be
treated as a forfeiture hereunder, provided that any such forfeited
benefits shall be subject to reinstatement if the inactive Participant or
Beneficiary ever makes a valid claim for the benefit. If a claim is made
for a benefit that was forfeited under this Section 6.9, the benefit to
be restored shall be the dollar value of the Account that was forfeited,
determined as of the date the forfeiture occurred without any interest,
earnings or adjustments in value occurring after the date of forfeiture.
This Section 6.9 shall be administered by the Plan Administrator in
accordance with any restrictions mandated by law. Forfeitures occurring
pursuant to this Section 6.9 shall be used to pay Plan expenses as
described in Section 9.2 and, to the extent not so used or reserved for
such use, shall be allocated to Participants in the manner determined by
Plan amendment.
VI-9
<PAGE>
ARTICLE VII
Plan Loans
7.1 Eligibility for Plan loans: Subject to the restrictions
set forth in this Article VII, the opportunity to take a Plan loan shall
be made available to any Participant who, at the time such loan is to be
made:
(a) is actively employed by an Employer who has agreed
to participate in the loan program;
(b) has a minimum account balance of $2,000 in the
Plan;
(c) has not defaulted on a Plan loan within the prior
two years; and
(d) consents to and authorizes repayment of the loan
through payroll deductions.
Employers that are not participating in the loan program may be
designated by the Plan Administrator from time to time. The requirement
of subsection (a) above shall be deemed satisfied in the case of a
Participant who is not currently employed if the Participant is a party
in interest within the meaning of ERISA section 3(14). For purposes of
subsection (c) above, the time of default shall be determined under
Section 7.9
7.2 Application Procedure: A Participant shall apply for a
loan by calling into the telephone system established by the Plan
Administrator and providing the requested information ("Telephone
Application"). As soon as practicable after the Participant's Telephone
Application, the Plan Administrator shall send such Participant a
promissory note, an authorization form for withholding loan payments from
the Participant's pay, a document granting the Plan a security interest
in the Participant's Plan account, and any other documents the Plan
Administrator deems appropriate ("Application Forms"). The promissory
note shall state the amount and term of the loan, the applicable interest
rate and repayment
VII-1
<PAGE>
schedule, and other information as determined by the Plan Administrator. To
complete the application, the Participant must properly fill out, sign and
return the Application Forms so that they are received by the Plan Administrator
within 30 days of the date of the Application Forms are prepared by the Plan.
The Plan Administrator shall approve a Participant's loan application if the
Participant:
(a) is eligible for a loan pursuant to Article 7.1,
(b) has properly completed and timely returned the
Application Forms, and
(c) is requesting a loan that meets the terms of this
Article VII and the summary plan description for this Plan.
An approved loan will be disbursed as soon as practicable after the Plan
Administrator has received the Application Forms from the Participant.
7.3 Loan Amount: A Plan loan shall not be less than $1,000
nor, when aggregated with all other outstanding loans to such borrowing
Participant from qualified retirement plans of the Company and any
affiliated companies, exceed the least of (rounded down to the nearest
hundred):
(a) $50,000 (reduced by the excess of (i) the
Participant's highest outstanding loan balance during the preceding
one-year period ending on the day before the date the loan was
made, over (ii) the outstanding balance of loans from the Plan on
the date the loan is made);
(b) 50% of the Participant's account balance under the
Plan;
(c) 100% of the value of the Participant's investments
in the following "Core" Funds: PepsiCo Capital Stock, Security
Plus, Equity-Index and Equity Income; or
(d) the maximum loan amount that can be amortized by
the Participant's net pay (determined under Section 7.8).
VII-2
<PAGE>
The value of the Participant's account balance and investment in the Core
Funds shall be based on the market values of such items at the time of
the participant's Telephone Applications or the issuance of the loan,
whichever is less.
7.4 Maximum Number of Outstanding Loans and Refinancing:
(a) A Participant shall not have more than one loan
outstanding from the Plan at any time. Subject to subsection (b), no
loan may be made to a Participant until the repayment of any previous
loan to such Participant.
(b) A Participant with an outstanding loan from the
Plan is eligible to apply for a refinanced loan, provided the refinanced
loan is issued at least two year (six months, effective as soon as
practicable after October 20, 1995) after issuance of the outstanding
loan. A refinanced loan shall meet all the requirements for a loan set
forth in this Article VII. Its proceeds shall first be applied to repay
the balance of the outstanding loan, with any remainder payable to the
Participant as cash. The interest rate, fees, term and repayment
schedule applicable to a refinanced loan shall be determined without
reference to the original loan.
7.5 Effect on Participant's Investment: A loan shall
constitute a segregated investment solely of the Account of the borrowing
Participant.
(a) When initially made, a loan shall be funded from
the borrowing Participant's Core Fund investments, prorated based on the
Participant's balance in each Core Fund.
(b) All repayments of principal and related interest
any gains and losses on a loan shall be credited to the borrowing
Participant's account. Loan repayments shall be invested in accordance
with the Participant's current investment direction for Salary Deferral
Contributions. If the Participant does not have an investment in
direction in effect on the date of the Participant's Loan Application,
the Participant must provide an investment
VII-3
<PAGE>
direction as part of his loan application. When a selected
investment is no longer available, or when otherwise necessary,
loan repayments shall be invested in the manner specified by the
Plan Administrator from time to time.
(c) A loan shall be adequately secured at all times.
All loans are secured by the portion of the borrowing Participant's
Account that is invested in the Participant's loan. If the
principal amount of a loan immediately after its issuance does not
exceed 50 percent of the Participant's Account as of such time, the
loan shall be deemed adequately secured at all times hereunder.
7.6 Fees. Following the issuance of a loan, the borrowing
Participant shall pay a one-time origination fee. For each month or part
thereof the loan remains outstanding the borrowing Participant shall pay
a monthly administration fee. Such fee shall be deducted from the
Participant's Account at the end of the applicable month. They shall be
charged against the position of the Account that is not invested in the
loan, in accordance with rules adopted by the Plan Administrator. The
fees applicable to a Participant's loan shall be determined on the date
of the Participant's Telephone Application and shall not change while
such loan is outstanding.
7.7 Interest Rate. Plan loans shall bear a reasonable rate
of interest that provides the Plan with a return commensurate with the
interest rates charged by persons in the business of lending money for
loans which would be made under similar circumstances as part of a
similar nationwide loan program. To this end, the Plan Administrator
shall adopt rules and procedures for redetermining on a monthly basis the
interest rate applicable to new Plan loans. The interest rate for any
loan shall be fixed for the period of the loan and shall be determined as
of the date of the related Telephone Application. No interest rate shall
be less than the applicable federal rate in effect under Section 1274(d)
of the Code, as of the day on which the loan was initiated, compounded
annually.
VII-4
<PAGE>
7.8 Term and Repayment.
(a) Term. Subject to subsections (c) through (e), the
term of a loan shall be not less than 1 year nor greater than 4
years, measuring from the date of issuance.
(b) Repayment. Subject to subsections (c) through
(e), a borrowing Participant shall repay his outstanding loan by
making substantially level amortization payments at the interval
determined by the Plan Administrator. When a Participant is
receiving net pay, this shall be the interval of the Participant's
regular payroll checks from the Employer, and loan repayments (and
any outstanding loan amounts that are due and payable) shall be
withheld from the Participant's net pay to the extent possible.
For this purpose, "net pay" shall mean a Participant's pay from an
Employer, reduced by applicable taxes and such other payroll
deductions that are accorded priority by the Plan Administrator.
Notwithstanding the preceding provisions, direct payment to the
Plan Administrator shall be required in the case of a Participant
who is on an authorized leave of absence or long term disability,
or a Participant who becomes a foreign service employee. For
purposes of this subsection, a loan is not considered outstanding
following its default.
(c) Prepayment. A Participant may prepay his entire
outstanding loan balance without penalty after first notifying the
Plan Administrator. Upon notification, the Plan Administrator
shall make the necessary administrative arrangements to permit
repayment and shall advise the Participant of the payment-in-full
amount and its due date. No partial prepayments are permitted, and
no payment-in-full amount will be accepted after its due date.
VII-5
<PAGE>
(d) Terminating Employees. Notwithstanding
subsections (a) and (b), an outstanding loan shall become
immediately due and payable in full if the borrowing Participant
retires, dies or otherwise terminates employment. For purposes of
this subsection, a Participant's employment shall be deemed to
continue: (1) while he is receiving long term disability benefits
and making loan repayment directly to the Plan Administrator, or
(2) while he is repaying his loan through payroll deduction from
salary continuation or other similar payments.
(e) Termination of Loan Program. In the event the
Plan terminates or the portion of the Plan applicable to a
Participant terminates, the Participant's loan shall become due and
payable in full immediately.
7.9 Loan Default. A loan shall be in default if:
(a) the borrowing Participant is delinquent on more
than 12 weeks of scheduled loan repayment amounts;
(b) the loan becomes due and payable and the
Participant fails to pay the outstanding principal amount plus
accrued interest within 60 days;
(c) the term of the loan has been extended to more
than 56 months as a result of the Participant's failure or
inability to make timely loan payments; or
(d) there occurs such other circumstances as the Plan
Administrator considers to be a default in order to protect the
interests of the Plan.
A default on a Plan loan occurs on the date the first of the preceding
conditions is met. If a default on a Participant's Plan loan occurs, the Plan
shall have the right to foreclose on the Participant's security interest in his
Account, and shall do so on or
VII-6
<PAGE>
after the first distributable event for such Participant described in Article VI
(other than a hardship distribution event pursuant to Section 6.3(a)).
7.10 Nondiscrimination. Loans shall be made available to
all Participants who meet the requirements set forth in section 7.1 on a
reasonably equivalent basis, except that the Plan Administrator may make
reasonable distinctions based on other obligations of the Participant,
state law requirements affecting payroll deductions and other factors
that may adversely affect the ability to assure repayment through payroll
deduction. The Plan Administrator may refuse a requested loan where it
determines that timely repayment of the loan through payroll deduction is
not assured.
7.11 Collins Food International, Inc. With respect to a
borrowing Participant: (i) who was employed by Collins Food
International, Inc. before becoming employed by Kentucky Fried Chicken
Corporation and (ii) who has a loan outstanding under the Plan, the
provisions of this Article VII shall apply. In addition, the terms of
the promissory note for such outstanding loan shall govern to the extent
not in conflict with this Plan or applicable federal law.
7.12 Miscellaneous.
(a) Additional Documentation. A Participant shall
execute any additional documents as required by the Plan
Administrator that correct ministerial errors in the Application
Forms, or that are required for proper administration of the loan.
(b) Agent of Plan Administrator. The Plan
Administrator may designate an exclusive agent for purposes of
administration of some or all of the loan program, and to such
extent any references in this Article VII to the Plan Administrator
shall mean the designated agent.
(c) Power to Amend Outstanding Loans. It is specifically intended
that the Company's power to amend the Plan set forth in Article XI
VII-7
<PAGE>
applies to loans from this Plan that are outstanding (including loans in
default) at the time of the amendment.
VII-8
<PAGE>
ARTICLE VIII
Determination of Beneficiary
A Participant's Beneficiary under the Plan shall be
determined in accordance with this Article. In the event of a
Participant's death, any interest of the Participant in the Plan shall be
payable to such Beneficiary in accordance with Section 6.2.
8.1 Certain Married Participants: A Participant's
Beneficiary shall be determined in accordance with this Section if: (i)
the Participant is married on the date of his death, and (ii) the
Participant is credited with at least one Hour of Service after August
22, 1984.
(a) Deaths After November 13, 1984:
(1) Qualified Designations: If a Participant
covered by this section dies after November 13, 1984, and has
a Qualified Designation (as hereinafter defined) in effect on
the date of his death, then such Participant's Beneficiary
shall be the person or persons designated by the Participant
in the most recent Qualified Designation on file with the
Plan Administrator. For purposes of this subsection, a
"Qualified Designation" is any Designation of Beneficiary
form filed by a Participant which names someone other than
the Participant's spouse as a primary beneficiary, and which
meets the requirements of subparagraphs (i) or (ii) below:
(i) A Participant's Designation of
Beneficiary form meets the requirements of this
subparagraph if:
(A) such designation is consented to
in writing by the spouse to whom the Participant
is married on the date of his death,
(B) the spouse's consent
acknowledges the effect of the designation,
VIII-1
<PAGE>
(C) the spouse's consent is
witnessed by a notary public or an official
designated by the Plan Administrator, and
(D) the designation is signed by the
Participant and satisfies any other requirements
which are prescribed by the Plan Administrator.
(ii) A Participant's Designation of
Beneficiary form meets the requirements of this
subparagraph if:
(A) at the time such form is filed,
it is established to the satisfaction of the Plan
Administrator (or its authorized representative)
that the consent required under subparagraph (i)
may not be obtained because the Participant's
spouse cannot be located or because of such other
circumstances as may be specified by Internal
Revenue Service Regulations,
(B) the Participant is legally
separated or the Participant has been abandoned
(within the meaning of local law) and (I) the
Participant has a court order to such effect, and
(II) there is no qualified domestic relations
order (within the meaning of Code section 414(p))
which requires spousal consent to the
Participant's elections covered by this section,
and
(C) the designation is signed by the
Participant and satisfies any other requirements
which are prescribed by the Plan Administrator.
Consent by a spouse, or establishment that a spouse's consent cannot be
obtained, shall be effective only with respect to such individual spouse.
If the spouse is legally incompetent to give consent, consent may be given
by the spouse's legal guardian (even if the guardian is the
VIII-2
<PAGE>
Participant). Once a spouse has given consent to an election
of the Participant, such consent shall be irrevocable.
(2) No Qualified Designation: If a Participant
covered by this Section dies after November 13, 1984, and
does not have a Qualified Designation in effect on the date
of his death, then notwithstanding any Designation of
Beneficiary form the Participant may have completed, such
Participant's sole Beneficiary shall be his spouse. A
Participant's Qualified Designation shall not be considered
to be in effect hereunder if all the Participant's designated
Beneficiaries have predeceased the Participant.
(b) Deaths Before November 14, 1984: If a Participant
described in this Section dies before November 14, 1984, then
notwithstanding any Designation of Beneficiary form the Participant
may have completed, such Participant's Beneficiary for one-half of
his interest in the Plan shall be such Participant's spouse. If the
amount payable to the Participant's spouse pursuant to the
preceding sentence would exceed $3,500, then notwithstanding any
other provision contained herein, such one-half of the
Participant's interest shall be payable to the spouse as a life
annuity unless the spouse consents in writing to the distribution
of such amount as a lump sum. The remaining one-half of the
Participant's interest in the Plan shall be payable to the
Participant's Beneficiary determined in accordance with Section 8.2
(as if such Section applied with respect to the Participant).
8.2 Other Participants: A Participant's Beneficiary shall
be determined in accordance with this Section if: (i) the Participant is
not married on the date of his death, or (ii) the Participant is not
credited with an Hour of Service after August 22, 1984.
(a) Except as provided in subsections (b) and (c) below, the Beneficiary of
a Participant covered by this Section shall be the person or persons
designated by the Participant on the most recent Designation of Beneficiary
form on
VIII-3
<PAGE>
file with the Plan Administrator. A Designation of Beneficiary
form shall not be taken into account under this section unless it
has been signed by the Participant.
(b) In the case of a Participant covered by this
Section who is married at death, any Designation of Beneficiary
form executed by such Participant after December 31, 1984 shall not
be effective hereunder unless such form meets the requirements of
Section 8.1(a)(1)(i) or (ii).
(c) In the event benefits became payable upon the
death of a Participant described in this Section and no Beneficiary
has been properly designated as provided in subsections (a) and
(b), or if all such designated Beneficiaries shall have predeceased
the Participant, then the Participant's sole Beneficiary hereunder
shall be his estate.
VIII-4
<PAGE>
ARTICLE IX
Administration
9.1 Allocation of Responsibility Among Fiduciaries for Plan
and Trust Administration: The Fiduciaries shall have only those specific
powers, duties, responsibilities, and obligations as are specifically
given them under this Plan or the Trust instrument. The Plan
Administrator shall have the sole responsibility for the administration
of the Plan, which responsibility is specifically described in this Plan
and the Trust instrument, except where an agent is appointed to perform
administrative duties as specifically agreed to by the Plan Administrator
and the agent. Subject to Section 5.2(c)(1), the Trustee shall have the
sole responsibility for the administration of the Trust and the
management of the assets held under the Trust as specifically provided in
the Trust instrument, except where an investment manager has been
appointed or as provided otherwise in the Trust instrument. Each
Fiduciary warrants that any directions given, information furnished, or
action taken by it shall be in accordance with the provisions of the Plan
or the Trust instrument, as the case may be, authorizing or providing for
such direction, information or action. Furthermore, each Fiduciary may
rely upon any direction, information or action of another Fiduciary as
being proper under this Plan or the Trust, and is not required under this
Plan or the Trust instrument to inquire into the propriety of any
direction, information or action. It is intended under this Plan and the
Trust instrument that each Fiduciary shall be responsible for the proper
exercise of its own powers, duties, responsibilities and obligations
under this Plan and the Trust instrument and shall not be responsible for
any act or failure to act of another Fiduciary. No Fiduciary guarantees
the Trust in any manner against investment loss or depreciation in asset
value.
9.2 Administration: The Plan shall be administered by the
Plan Administrator which may appoint or employ individuals to assist in
the administration of the Plan and which may appoint or employ any other
agents it deems advisable, including legal counsel, actuaries and auditors
to serve at the Plan Administrator's direction. All usual and reasonable
expenses of maintaining, operating
and administering the Plan and the Trust, including the expenses of the
Plan Administrator and the
IX-1
<PAGE>
Trustee (and their agents), shall be paid from the Trust (whether directly
or by reimbursement to the Company or the Employer), except to the extent
the Company or the Employer elect to pay such expenses.
9.3 Claims Procedure: The Plan Administrator, or a party
designated by the Plan Administrator, shall have the exclusive
discretionary authority to construe and to interpret the Plan, to decide
all questions of eligibility for benefits and to determine the amount of
such benefits, and its decision on such matters are final and conclusive.
Any exercise of this discretionary authority shall be reviewed by a court
under the arbitrary and capricious standard, (i.e., the abuse of
discretion standard). If, pursuant to this discretionary authority, an
assertion of any right to a benefit by a Participant or beneficiary is
wholly or partially denied, the Plan Administrator, or a party designated
by the Plan Administrator, will provide such claimant a comprehensible
written notice setting forth:
(a) The specific reason or reasons for such denial;
(b) Specific reference to pertinent Plan provisions on
which the denial is based;
(c) A description of any additional material or
information necessary for the claimant to submit to perfect the
claim and an explanation of why such material or information is
necessary; and
(d) A description of the Plan's claim review
procedure. The claim review procedure is available upon written
request by the claimant to the Plan Administrator, or the designated
party, within 60 days after receipt by the claimant of written
notice of the denial of the claim, and includes the right to examine
pertinent documents and submit issues and comments in writing to the
Plan Administrator, or the designated party. The decision on review
will be made within 60 days after receipt of the request for review,
unless circumstances warrant an extension of time not to exceed an
additional 60 days, and shall be in writing and drafted in a manner
calculated to be
IX-2
<PAGE>
understood by the claimant, and include specific reasons for the
decision with references to the specific Plan provisions on which
the decision is based.
If circumstances warrant, the Plan Administrator shall provide the
claimant a written notice, prior to the end of the 90-day period for
processing the claim, extending such period by up to an additional 90
days and indicating the circumstances requiring the extension and the
date by which the Plan Administrator expects to render its decision.
If the Plan Administrator fails to provide a comprehensible written
notice stating that the claim is wholly or partially denied and setting
forth the information described in (a) through (d) above within the
90-day processing period and if no extension of such 90-day period is
made, the claim shall be deemed denied. Once the claim is deemed
denied, the Participant shall be entitled to the claims review
procedure described in subsection (d) above. Such review procedure
shall be available upon written request by the claimant to the Plan
Administrator within 60 days after the claim is deemed denied. Any
claim referenced in this section that is reviewed by a court,
arbitrator, or any other tribunal shall be reviewed solely on the basis
of the record before the Plan Administrator. In addition, any such
review shall be conditioned on the claimants having fully exhausted all
rights under this section.
9.4 Records and Reports: The Plan Administrator shall
exercise such authority and responsibility as it deems appropriate in
order to comply with ERISA and government regulations issued thereunder
relating to records of Participants' service and benefits;
notifications to Participants; reports to, or registration with, the
Internal Revenue Service; reports to the Department of Labor; and such
other documents and reports as may be required by ERISA.
9.5 Other Administrative Powers and Duties: The Plan
Administrator shall have such powers and duties as may be necessary or
desirable to discharge its functions hereunder, including:
IX-3
<PAGE>
(a) To exercise its discretionary authority to
construe and interpret the Plan, decide all questions of
eligibility and determine the amount, manner and time of payment
of any benefits hereunder;
(b) To prescribe procedures to be followed by
Participants or Beneficiaries filing applications for benefits;
(c) To prepare and distribute, in such manner as the
Plan Administrator determines to be appropriate, information
explaining the Plan;
(d) To receive from employees and agents and from
Participants such information as shall be necessary for the
proper administration of the Plan;
(e) To receive, review and keep on file (as it deems
convenient or proper) reports of the financial condition, and of
the receipts and disbursements, of the Trust from the Trustee;
(f) To appoint or employ individuals or other
parties to assist in the administration of the Plan and any other
agents it deems advisable, including accountants, actuaries and
legal counsel; and
(g) To delegate to other persons or entities, or to
designate or employ persons to carry out any of the Plan
Administrator's fiduciary duties or responsibilities or other
functions under the Plan.
9.6 Rules and Decisions: The Plan Administrator may adopt
such rules and procedures as it deems necessary, desirable, or
appropriate. To the extent practicable, all rules and decisions of the
Plan Administrator shall be uniformly and consistently applied to all
Participants in similar circumstances. When making a determination or
calculation, the Plan Administrator shall be entitled to rely upon
information furnished by a Participant or beneficiary, the legal
counsel of the Plan Administrator, or the Trustee.
9.7 Procedures: The Plan Administrator shall keep all
necessary records and forward all necessary communications to the
Trustee. The Plan Administrator may adopt such regulations as it deems
desirable for the administration of the Plan.
IX-4
<PAGE>
9.8 Authorization of Benefit Distributions: The Plan
Administrator shall issue directions to the Trustee concerning all
benefits which are to be paid from the Trust pursuant to the provisions
of the Plan, and shall warrant that all such directions are in
accordance with this Plan.
9.9 Application and Forms for Distributions: The Plan
Administrator may require a Participant to complete and file with the
Plan Administrator an application for a distribution and all other
forms approved by the Plan Administrator, and to furnish all pertinent
information requested by the Plan Administrator. The Plan
Administrator may rely upon all such information so furnished it,
including the Participant's current mailing address, age and marital
status.
IX-5
<PAGE>
ARTICLE X
Trust Fund
All contributions made by the Employers, or the Company on
behalf of the Employers, under this Plan shall be paid to the Trustee and
deposited in the Trust Fund or with an insurance company or a financial
institution pursuant to a contract to be held and invested in accordance
with the Trust instrument. Assets of other plans maintained by the PepsiCo
Organization, which meet the requirements of Code section 401, may be
commingled, for investment purposes only, through one or more master trust
arrangements with the assets of this Plan. The Company shall have the
right to appoint an investment manager or investment managers (as defined
in section 3(38) of ERISA) to manage all or any
part of the assets of the Trust Fund.
X-1
<PAGE>
ARTICLE XI
Amendment of the Plan
The Company shall have the right at any time by instrument in
writing, duly executed and acknowledged and delivered to the Trustee, to
modify, alter or amend this Plan in whole or in part. However, except as
permissible under the Code and ERISA, no amendment shall:
(a) Reduce the amounts in any Participant's Account
because of forfeiture or reduce the vested right or interest to
which any Participant or Beneficiary is then entitled under this
Plan;
(b) Eliminate an optional form of benefit with respect
to a Participant's Account as of the date of the amendment;
(c) Cause or authorize any part of the Trust Fund to
revert or be refunded to the Employer; or
(d) Cause any assets of the Trust to be used for, or
diverted to, purposes other than for the exclusive benefit of
Participants and their Beneficiaries (other than such part as is
required to pay taxes and expenses of administration).
To the extent permitted under the Code, the Company shall have the right
to amend the Plan at any time, retroactively or otherwise, in such
respects and to such extent as may be necessary to qualify it under
existing and applicable laws and regulations in order to make available to
the Employers the tax benefits associated with qualified plans, including
the full deduction for tax purposes of the Employer contributions made
hereunder. A participating Employer shall not have the right to amend the
Plan. Notwithstanding any provision herein to the contrary, the Company
may by such amendment decrease or otherwise affect the rights of
Participants hereunder if, and to the extent, necessary to accomplish such
purpose.
XI-1
<PAGE>
ARTICLE XII
Termination of the Plan
The Plan herein provided for has been established by the
Company with the bona fide intention that it shall be continued in
operation indefinitely. However, the Company reserves the right at any
time to terminate or to partially terminate the Plan. In addition, a
participating Employer may cease participation in the Plan with respect to
its Employees.
Should the Company decide to terminate the Plan, the Trustee
shall be notified of such event in writing and shall proceed at the
direction of the Plan Administrator to handle the assets of the Trust
Fund, as follows:
First, to the extent determined by the Plan Administrator, to
pay any due and accrued expenses and liabilities of the Trust and any
expenses involved in the termination.
Second, to pay to Participants in the Plan who are active
Employees affected by such termination the amount of their interest in the
Trust Fund, as soon as permitted by applicable law, as determined by the
Plan Administrator. If some or all of the Participants may not receive
distributions of their interest at the time of such termination or
cessation, the Plan Administrator may in its sole discretion direct the
Trustee to segregate each such Participant's interest to a savings
account, certificate of deposit, or other suitable investment for
distribution at the appropriate future time.
Notwithstanding the foregoing, the Trustee shall not be
required to make any distribution from the Trust in the event the Plan is
terminated until such time as the Internal Revenue Service shall have
determined in writing that such termination will not adversely affect the
prior qualification of the Plan.
In the event of a termination or partial termination of this
Plan instituted either by the Company or the Internal Revenue Service, or
in the event of a complete discontinuance of contributions under this
Plan, the right of each affected Participant to benefits accrued to the
date of such termination, to the extent then funded, shall be
nonforfeitable. In the case of a partial termination, this provision
shall apply only to the portion of the Plan terminated and only to
Participants affected by such partial termination.
XII-1
<PAGE>
ARTICLE XIII
Miscellaneous
13.1 Participants' Rights; Acquittance: Except to the extent
required or provided for by a mandatory law as in effect and applicable
hereto from time to time, neither the establishment of the Trust hereby
created, nor any modification thereof, nor the creation of any fund or
account, nor the payment of any distributions, shall be construed as
giving to any Participant or other person any legal or equitable right
against the Employer, or any officer or employee thereof, or the Trustee
or the Plan Administrator except as herein provided; nor shall any
Participant have any legal right, title or interest in this Trust or any
of its assets, except in the event and to the extent that amounts may
actually be distributable to him hereunder, and the same limitations shall
be applicable with respect to distributions upon death which may be
payable to the Beneficiaries of a Participant. Under no circumstances
shall the terms of employment of any Participant be modified or in any way
affected hereby. This Plan and Trust shall not constitute a contract of
employment nor afford any individual any right to be retained in the
employ of the Employer.
13.2 Nonalienation of Benefits:
(a) In General: Except as provided in subsection (b)
below, benefits payable under this Plan shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution, or levy of any
kind, either voluntary or involuntary, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber,
charge or otherwise dispose of any right to benefits payable
hereunder, shall be void. The Trust Fund shall not in any manner be
liable for, or subject to, the debts, contracts, liabilities,
engagements or torts of any person entitled to benefits hereunder.
(b) Qualified Domestic Relations Orders: To the
extent mandated by law, the Plan Administrator shall comply
with a qualified domestic relations order, as defined by Code
section 414(p)(1)(A), which requires that all or part of a
Participant's
XIII-1
<PAGE>
interest in the Plan be paid to an alternate payee, i.e., the
spouse, former spouse, child or other dependent of such
Participant. If the Plan Administrator receives an order which
purports to be a qualified domestic relations order, the Plan
Administrator shall in accordance with such procedures and rules as
it may establish: (i) determine the qualified status of such
qualified domestic relations order under Code section 414(p)(6), and
(ii) if satisfied that the qualified domestic relations order meets
the requirements of Code section 414(p), direct the Trustee to
comply with the qualified domestic relations order and pay amounts
from the Trust Fund in accordance therewith. A qualified domestic
relations order may not require the Plan to make a distribution to
an alternate payee prior to the date the Participant terminates
employment or, if earlier, the date the Participant attains age 50.
However, the Plan may make a distribution to an alternate payee
prior to such date in accordance with permissive terms of a
qualified domestic relations order. Except as otherwise expressly
provided in a qualified domestic relations order, no consent by a
Participant or alternate payee shall be required in applying the
provisions of Section 6.6 to an alternate payee's interest in the
Plan. For purposes of the investment options under Article V and
the determination of the amount of a distribution under Article VI,
an alternate payee, with respect to his interest in the Plan, shall
be treated as a Participant would with respect to his Account.
Neither the Plan, the Company, the Employer, the Plan Administrator nor
the Trustee shall be liable in any manner to any person, including any
Participant or Beneficiary, for complying with a domestic relations order
that is considered a qualified domestic relations order in accordance with
the provisions of Code section 414(p).
13.3 Actions Involving the Trust: In any action or
proceeding involving the Trust Fund, or any property constituting part or
all thereof, or the administration thereof, the Company, the Employer, the
Plan Administrator, and the Trustee shall be the only necessary parties
and no employees or former employees of the Employer or their
Beneficiaries or any
XIII-2
<PAGE>
other person having or claiming to have an interest in the Trust Fund or
under the Plan shall be entitled to any notice or service of process.
Any final judgment which is not appealed or appealable that
may be entered in any such action or proceeding shall be binding and
conclusive on the parties hereto, the Plan Administrator, the Trustee and
all persons having or claiming to have any interest in the Trust Fund or
under the Plan.
13.4 [Reserved]
13.5 Successor to the Company: In the event of the
dissolution, merger, consolidation or reorganization of the Company,
provision may be made by which the Plan and Trust will be continued by the
successor; and, in that event, such successor shall be substituted for the
Company under the Plan. The substitution of the successor shall constitute
an assumption of Plan liabilities by the successor and the successor shall
have all the powers, duties and responsibilities of the Company under the
Plan.
13.6 Transfer of Plan Assets: In the event of any merger or
consolidation of the Plan with, or transfer in whole or in part of the
assets and liabilities of the Trust Fund to another trust fund, held under
any other plan of deferred compensation maintained or to be established
for the benefit of all or some of the Participants of this Plan, the
assets of the Trust Fund applicable to such Participants shall be
transferred to the other trust fund only if:
(a) Each Participant would, if either this Plan or the
other plan then terminated, receive a benefit immediately after the
merger, consolidation or transfer which is equal to or greater than
the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer, if the Plan had then
terminated;
(b) Resolutions of the Board of Directors of the
Employer of the affected Participants, shall authorize such transfer
of assets; and, in the case of the new or successor employer of the
affected Participants, its resolutions shall include an assumption
of liabilities with respect to such Participant's inclusion in the
new employer's plan, and
(c) Such other plan and trust are qualified under
sections 401(a) and 501(a) of the Code.
XIII-3
<PAGE>
13.7 Indemnification: Unless the Board of Directors of the
Company shall determine otherwise, the Company shall indemnify, to the
full extent permitted by law, any employee acting in good faith within the
scope of his employment in carrying out the administration of the Plan.
13.8 Action by the Company: Any action by the Company,
including any amendment authorized to be made under Article XI, shall be
made by a resolution adopted by the Company's Board of Directors. In
addition, any person or persons authorized by the Board may take action on
behalf of the Company. Any such resolution of the Board of Directors
shall be effective provided it is adopted in accordance with the bylaws
(or other governing authority) of the Company. Any action taken by any
other person or persons shall be effective provided it is executed in
accordance with the authorization of the Board.
13.9 Applicable Law: The provisions of the Plan shall be
construed and administered according to, and its validity and
enforceability shall be determined under, ERISA. In the event ERISA does
not preempt state law in a particular circumstance, the laws of the State
of New York shall govern.
13.10 Interpreting the Plan: This Plan shall be interpreted
in accordance with the rules of this section and Section 2.2.
(a) Compounds of the Word "Here": The words "hereof",
"hereunder" and other similar compounds of the word "here" shall
mean and refer to the entire Plan, not to any particular provision
or section.
(b) Examples: Whenever an example is provided or the
text uses the term "including" followed by a specific item or items,
or there is a passage having similar effect, such passages of the
Plan shall be construed as if the phrase "without limitation"
followed such example or term (or otherwise applied to such passage
in a manner that avoids limits on its breadth of application).
(c) Fiduciary Discretion: With respect to the powers,
duties and responsibilities allocated to the named Fiduciaries under the
Plan, the Plan Administrator and the Trustee shall
have full discretionary authority to implement and perform such powers,
duties and responsibilities.
XIII-4
<PAGE>
Specific references in the Plan to the Plan Administrator's or the
Trustee's discretion in a particular context shall create no inference
that the Plan Administrator's or Trustee's discretion in any other
respect, or in connection with any other provisions, is less complete or
broad.
(d) Invalid Provisions: If any provision of this Plan is,
or is hereafter declared to be void, voidable, invalid or otherwise
unlawful, the remainder of the Plan shall not be affected thereby.
XIII-5
<PAGE>
ARTICLE XIV
Top-Heavy Plan Provisions
14.1 Application: In the event that the Plan is determined to be
a Top-Heavy Plan (as hereinafter defined), this Article XIV shall become
effective as of the first day of the Plan Year in which the Plan is a
Top-Heavy Plan.
14.2 Definitions:
(a) Key Employee: During any year that the Plan is a
Top-Heavy Plan, an Employee (including any Beneficiary of an Employee)
is a Key Employee if, at any time during the Plan Year or any of the 4
preceding Plan Years, he is (or was):
(1) An officer of the Employer whose Annual
Compensation (as hereinafter defined) exceeds 50 percent of the
dollar limitation in effect for such year under Code section
415(b)(1)(A);
(2) One of the 10 employees having Annual
Compensation of more than the dollar limitation in effect for such
year under Code section 415(c)(1)(A), having individual ownership
interests in the Employer of more than 1/2 of 1 percent, and
owning the largest interests in the Employer;
(3) A 1 percent owner of the Employer having Annual
Compensation from the Employer of more than $150,000; or
(4) A 5 percent owner of the Employer. Ownership shall be
determined according to Code section 416(i)(1)(B). For purposes
of paragraph (1) above, no more than 50 Employees (or if less,
the greater of 3 or 10 percent of the Employees) shall be treated
as officers. For purposes of paragraph (2) above, if 2 Employees
have the same ownership interest, the Employee with the higher
Annual Compensation shall be treated as having the larger
interest. For purposes of Paragraph (1), (2) and (3), annual
compensation means compensation as defined in Code section
415(c)(3), but including amounts contributed by the Employer
XIV-1
<PAGE>
pursuant to a salary reduction agreement which are excludable from
the employee's gross income under Code section 125 or 402(a)(8).
(b) Minimum Contribution - For a Plan Year, the lesser
of 3 percent of a Participant's Annual Compensation or, if this Plan
does not enable a defined benefit plan in the Required Aggregation
Group (as determined below) to satisfy the requirements of Code
section 401(a)(4) or 410, a percentage of a Participant's Annual
Compensation equal to the percentage at which contributions are made
(or required to be made) under the Plan and all other plans in the
Required Aggregation Group (as defined below) for the Key Employee
for whom such percentage is highest.
(c) Top-Heavy Plan: For any Plan Year beginning after
December 31, 1983, a plan that is required in such year to satisfy
the requirements of Code section 416 because the aggregate of the
account balances of all Key Employees in the Plan exceeds 60 percent
of the aggregate of the account balances of all Participants in the
Plan, such determination to be made in accordance with the
procedures described in Code section 416(g) and the regulations
thereunder as of the last day of the preceding Plan Year (or in the
case of the first Plan Year, as of the last day of such Plan Year)
(the "determination date"). For purposes of determining whether the
Plan is a Top-Heavy Plan, the Plan must be aggregated with all other
plans maintained by the Employer which are required to be aggregated
with the Plan in order for the Plan to meet the requirements of Code
sections 401(a)(4) or 410, and all other plans maintained by the
Employer in which a Key Employee is a Participant (the "Required
Aggregation Group"). In addition, the Plan may also be aggregated
with any other plans maintained by the Employer so long as such
aggregation would not prevent the aggregated group from satisfying
the requirements of Code sections 401(a)(4) or 410 (the "Permissive
Aggregation Group").
14.3 Allocation of Minimum Contribution: For any year in which the Plan is
a Top-Heavy Plan, the Minimum Contribution as defined in Section 14.2(b) hereof
shall be made to the account of each Participant who is a non-Key Employee,
unless the Participant accrues the defined benefit minimum required by Code
section 416 for such year under a defined benefit plan maintained by the
Employer. Such Minimum Contribution shall be made to the account of each non-Key
Employee Participant who is employed on the last day of such Plan Year without
regard to such Participant's Hours of Service during such Plan Year. The
XIV-2
<PAGE>
Employer and the Plan Administrator shall determine under which plan a
Participant shall receive the Minimum Contribution if the Employee is a
Participant in more than one plan maintained by the Employer.
14.4 Vesting: If for any Plan Year the Plan is a Top-Heavy Plan, a
Participant's vested interest in the Plan for such Plan Year and all preceding
Plan Years shall not be less than as determined under the following vesting
schedule:
Years of Vested Forfeited
Service Percentage Percentage
Less than 2 0% 100%
2 20% 80%
3 40% 60%
4 60% 40%
5 or more 100% 0%
If the Plan ceases to be a Top-Heavy Plan, the vesting schedule in this
Section 14.4 shall not apply, provided that any portion of the Participant's
interest in the Plan that was nonforfeitable before the Plan ceases to be a
Top-Heavy Plan shall remain nonforfeitable, and further provided that any
Participant who has 3 or more Years of Service at the time the Plan ceases to be
a Top-Heavy Plan shall have the right to elect during the Election Period (as
hereinafter defined) to continue to have his vested interest determined in
accordance with the vesting schedule contained in this Section 14.4.
For the purposes of this Section 14.4, Years of Service shall include
service prior to the Effective Date, and shall include service during the
Election Period. The Election Period shall be the period during which such
Participant may make such vesting schedule election and shall begin on the date
of the adoption of the amendment which changes the vesting schedule and shall
end on the latest of:
(a) The date which is 60 days after the adoption of the amendment which
changes the vesting schedule;
(b) The date which is 60 days after the effective date of the amendment
which changes the vesting schedule; or
(c) The date which is 60 days after the date such Participant is notified
in writing of the amendment which changes the vesting schedule.
XIV-3
<PAGE>
ARTICLE XV
Signature
The above amended and restated Plan is hereby adopted and
approved, to be effective as of July 1, 1992 (except as otherwise indicated),
this 29th day of June, 1994.
PEPSICO, INC.
By: /s/ J. ROGER KING
---------------------
J. Roger King
Senior Vice President,
Personnel
Approved:
/s/ ALAN ROCKOFF
- ----------------
Law Department
/s/ SYLVESTER HOLMES
- --------------------
Tax Department
XV-1
<PAGE>
SCHEDULE 1
PEPSICO
LONG TERM SAVINGS PROGRAM
Designated Employers for Nonrestaurant Salaried Employees
(As of 1/1/94)
Atlantic Soft Drink Company, Inc.
Beamon Bottling Co.
Belfast Bottling Co. of Reno
Beverage Products Corporation
Frito-Lay, Inc.
Frito-Lay, Texas, Inc.
Gamble, Inc.
General Cinema Beverages of North Florida, Inc.
General Cinema Beverages of Youngstown, Inc.
Laurel Group, Ltd
Mann Bottling Company, Inc.
National Beverages, Inc.
Pepsi-Cola Bottling Company of Alaska
Pepsi-Cola Bottling Company of Everett
Pepsi-Cola Bottling Company of Los Angeles
Pepsi-Cola Bottling Company of St. Louis, Inc.
Pepsi-Cola Bottling Commodities, Inc.
Pepsi-Cola Metropolitan Bottling Company, Inc.
(only at certain locations as designated
by the Plan Administrator)
Pepsi-Cola Operating Company
Pepsi-Cola Personnel, Inc. (only at certain
locations as designated by the Plan Administrator)
Recot, Inc.
Rice Bottling Enterprises, Inc.
Shelbyville Bottling Co.
Smartfoods, Inc.
Western Bottling Co., Inc.
<PAGE>
SCHEDULE 2
PEPSICO
LONG TERM SAVINGS PROGRAM
Designated Employers for Nonrestaurant Hourly and Commissioned Employees
(As of 1/1/94)
Atlantic Soft Drink Company, Inc.
Beamon Bottling Co.
Belfast Bottling Co. of Reno
Beverage Products Corporation
Frito-Lay, Inc.
Frito-Lay, Texas, Inc.
Gamble, Inc.
General Cinema Beverages of North Florida, Inc.
General Cinema Beverages of Youngstown, Inc.
Laurel Group, Ltd
Mann Bottling Company, Inc.
National Beverages, Inc.
Pepsi-Cola Bottling Company of Alaska
Pepsi-Cola Bottling Company of Everett
Pepsi-Cola Bottling Company of Los Angeles
Pepsi-Cola Bottling Company of St. Louis, Inc.
Pepsi-Cola Bottling Commodities, Inc.
Pepsi-Cola Metropolitan Bottling Company, Inc.
(only at certain locations as designated
by the Plan Administrator)
Pepsi-Cola Operating Company
Pepsi-Cola Personnel, Inc. (only at certain
locations as designated by the Plan Administrator)
Recot, Inc.
Rice Bottling Enterprises, Inc.
Shelbyville Bottling Co.
Smartfoods, Inc.
Western Bottling Co., Inc.
<PAGE>
SCHEDULE 3
PEPSICO
LONG TERM SAVINGS PROGRAM
Designated Employers for Restaurant Employees
(As of 1/1/94)
Part 1:
Pizza Hut, Inc. and its domestic locations and subsidiaries,
Except for locations formerly owned by the Herb Blankenship
Franchise; Middleton Enterprises, Inc. and its subsidiaries; and
Employees who work for Pizza Hut of Cincinnati); and
Including Delops, Inc. (eff. 3/1/96); D'Angelos Sandwich
Shops, Inc. (eff. 3/1/96); and Progressive Food, Inc. (eff.
3/1/96)
Kentucky Fried Chicken Corporation (and its domestic locations
and subsidiaries except for locations formerly owned by the Fitzpatrick
Franchise)
KFC Corporation
KFC Enterprises, Inc.
KFC National Management Company
Kentucky Fried Chicken of California, Inc.
Kentucky Fried Chicken of Southern California, Inc.
Kentucky Fried Chicken Corporate Holdings, Ltd.
NKFC, Inc.
QSR, Inc.
Taco Bell Corp. (and its domestic subsidiaries)
Taco Bell Enterprises, Inc.
Calny, Inc.
Taco Bell of California, Inc.
Taco Del Sur, Inc.
Tenga Taco, Inc.
PepsiCo, Inc. (only with respect to those Employees of PepsiCo,
Inc. who are (i) providing services in Illinois to another Employer and
(ii) working under the supervision of such other Employer)
Part 2:
PepsiCo Food Systems, a division of PepsiCo, Inc.
<PAGE>
SCHEDULE 4
PEPSICO
LONG TERM SAVINGS PROGRAM
Designated Employers for Transportation Employees
(As of 1/1/94)
Frito-Lay, Inc. (and its domestic subsidiaries)
Frito-Lay of Texas, Inc.
Smartfoods, Inc.
Recot, Inc.
<PAGE>
SCHEDULE 5
PEPSICO
LONG TERM SAVINGS PROGRAM
Designated Hourly Employees of the Company
(As of 1/1/94)
Employees represented by Local 30 of the International Union
of Operating Engineers/A.F.L.-C.I.O.
Security Guards based in Purchase, New York
<PAGE>
Appendix
APPENDIX
The following Appendix Articles modify particular terms of the Plan as it
applies to certain Employee groups. Except as specifically modified in
this Appendix, the foregoing provisions of the Plan shall fully apply. In
the event of a conflict between this Appendix and the foregoing provisions
of the Plan, the Appendix shall govern with respect to the conflict.
<PAGE>
Article A
KFC - Collins
The terms of this Article apply to certain Plan Participants
who were employees of Collins Foods International, Inc. and who were
Participants in the Collins Food International, Inc. Employee Savings Plan
on March 17, 1991. The effective date of this amendment is March 17, 1991,
the date Collins Foods International, Inc. was merged into Kentucky Fried
Chicken Corporation. As of the merger, Participants were entitled to make
investment directions into the Kentucky Fried Chicken Corporation Long Term
Savings Program. If no investment election was received, the Participant's
account was transferred to the Security Plus Fund. The Kentucky Fried
Chicken Corporation Long Term Savings Program was merged into the PepsiCo
Long Term Savings Program effective December 31, 1991.
A.1 Definitions: The following words and phrases as used
herein, have the respective meanings set forth in this Article, unless the
context clearly indicates to the contrary.
(a) Collins: Collins Food International, Inc.
(b) Savings Plan: Collins Food International, Inc.
Employee Savings Plan.
(c) Closing Date: March 17, 1991
(d) Account Balance: The amount in the account of each
Participant in the Savings Plan as of the Closing Date.
(e) Voluntary Contribution: The amount voluntarily
contributed to the Savings Plan by a Participant prior to January 1,
1987.
(f) Voluntary Contribution Account The account of a
Participant to which his Voluntary Contributions and the gains and
losses thereon are credited.
A.2 Participants Covered by this Appendix: As of the Closing
Date, Employees of Collins who participated in the Savings Plan became
Participants in the Kentucky Fried Chicken Corporation Long Term Savings
Program if the Participant had an Account Balance in the Savings Plan as of
the Closing Date. In addition, individuals described in the preceding
sentence became Participants in this Plan as of December 31, 1991 if they
had an account balance in the Kentucky Fried Chicken Corporation Long Term
Savings Program as of December 31, 1991. Each Participant in the Savings
Plan as of the Closing Date became fully vested in his Account Balance.
A.3 Voluntary Contributions: A Participant may make
withdrawals from his Voluntary Contribution Account from time to time,
subject to reasonable procedures as the Plan Administrator may establish.
Withdrawals of Voluntary Contributions shall consist only of the principal
amount credited to the Participant's Voluntary Contribution Account.
A.4 Plan Loans: Effective as of the Closing Date, no new plan
loans shall be available under the Kentucky Fried Chicken Corporation Long
Term Savings Program and this Plan and no existing loans may be renewed or
extended. Plan loans that were made under the Savings Plan, and are
outstanding as of the Closing Date, are expressly authorized as a
permissible investment under the Kentucky Fried Chicken Corporation Long
Term Savings Program and this Plan in accordance with (and subject to) the
following provisions of this section.
(a) The program of Plan loans authorized by this section
shall be administered by the Plan Administrator (or its delegate).
(b) Plan loans shall bear a reasonable rate of interest,
the amount to be determined from time to time in accordance with the
rules and procedures in effect under the Savings Plan on the Closing
Date. The term of any loan shall be that in effect for the loan on
the Closing Date.
(c) A loan shall continue to be repaid in the manner in
effect on the Closing Date, provided that interest and principal on
the loan must be repaid through payroll deduction installments (not
less frequently than quarterly) over a total period not to exceed
4-1/2 years (including renewals and extensions). Loan repayments
shall be invested in accordance with the Participant's current
investment direction for Salary Deferral Contributions. If no such
election is in effect, repayments shall be invested in the manner
specified by the Plan Administrator from time to time.
(d) A loan shall be documented by such notes, evidences
of indebtedness, security agreements and other instruments executed
by the Participant as the Plan Administrator may require.
(e) A loan shall constitute an investment of only
amounts credited to the Account of the borrowing Participant. All
gains and losses on a loan shall be credited to the borrowing
Participant's Account.
(f) A loan shall be adequately secured at all times.
All loans are secured by a portion of a borrowing Participant's
Account (but not more than the lesser of: (1) 50 percent of the
Account, or (2) the amount of the loan). To the extent the principal
amount of the loan (immediately after its origination, extension or
renewal) does not exceed 50 percent of the Participant's Account at
such time, the loan will be deemed to be adequately secured. Any
additional loan amount must at all times be secured by other security
of a type and value that would be accepted by commercial lenders for
such purpose.
(g) A loan shall be in default if the Participant fails
to make any payment when due or if there occurs such other
circumstances as may be prescribed by the Plan Administrator. If a
loan is in default, execution on the defaulting Participant's Account
shall be accomplished when and to the extent the Account is
distributed to the Participant hereunder. Execution on any other
security of the Participant shall be accomplished at the time deemed
necessary by the Plan Administrator to prevent a loss to the Plan.
(h) If a Participant has a Termination of Employment or
dies, any loan outstanding to the Participant shall become
immediately due. If the portion of a Participant's Account securing
his loan otherwise becomes payable to the Participant hereunder, such
loan shall become due to the extent this portion of the Account is to
be distributed. In either case, the amount of the loan that is due
shall be satisfied by applying against it the portion of the
Participant's Account that secures the loan. In turn, such Account
shall be correspondingly reduced prior to making the distribution to
or on behalf of the Participant.
<PAGE>
ARTICLE B
KFC Hourly Employees
The terms of this Article apply to any Employee who is employed on or after
December 1, 1989 on an hourly basis by KFC Corporation; KFC Enterprises,
Inc.; KFC National Management Company; Kentucky Fried Chicken International
Holdings, Inc.; Kentucky Fried Chicken Corporate Holdings, Ltd.; Kentucky
Fried Chicken Corporation or the Company (only with respect to those
Employees of the Company who are (i) providing services in Illinois to
Kentucky Fried Chicken Corporation and (ii) working under the supervision
of Kentucky Fried Chicken Corporation) (collectively referred to as "KFC").
B.1 Modifications to Article III: To determine the
eligibility to participate in the Plan of an Employee covered by this
Article, Section 3.1(a) shall be modified to read as follows:
"(a) General Rule: An hourly Employee of KFC who is
employed on or after December 1, 1989 shall be eligible to
participate in the Plan on and after such date as follows:
"(1) Effective for periods before July 1, 1995, if
he is either a full-time hourly Employee of KFC whose
Employment Commencement Date is before 1992 or a full-time
hourly Employee of KFC who is coded as a shift supervisor and
whose Employment Commencement Date is after 1991, or
"(2) Effective beginning July 1, 1995, if he is an
hourly Employee of KFC. Any such hourly Employee of KFC shall
be considered to be described in Section 3.1(c) and, therefore,
shall be subject to the age 21 and year of eligibility service
requirements in Sections 3.2 and 3.3."
In addition, Section 3.2(a)(2) shall read as follows with respect to
individuals who are eligible Employees pursuant to this Article B:
"(2) The following rules shall apply
notwithstanding paragraph (1) above.
"(i) For purposes of Employees eligible under
Section B.1(a) of the Appendix, the election of a
full-time hourly Employee of KFC whose Employment
Commencement Date is before 1992 shall not be effective
until he has enrolled in his Employer's One Plus program,
and the election of a full-time hourly Employee who is
coded as a shift supervisor and whose Employment
Commencement Date is after 1991 shall not be effective
until he has attained age 21 and completed one Year of
Service.
"(ii) The election of an Employee eligible
under Appendix Section B.1(b) shall not be effective
before the first January 1 or July 1 following his
attainment of age 21 and his completion of a 12-month
period (measured as described below) in which he is
credited with at least 1,000 Hours of Service (referred
to as a _year of eligibility service_). The 12-month
period between the date the Employee first completes one
Hour of Service and the first anniversary thereof shall
be used initially to determine his eligibility to
participate in the Plan; thereafter, his eligibility to
participate in the Plan shall be determined by reference
to whether he completes 1,000 or more Hours of Service in
any Plan Year, beginning with the first Plan Year
commencing after he first completes one Hour of Service.
An employee who completes 1,000 or more Hours of Service
in both the initial 12-month eligibility computation
period and the first Plan Year commencing after he first
completes one Hour of Service shall be credited with two
years of eligibility service for purposes of this
section. Effective as soon as practicable after
September 30, 1995, the term _payroll date_ shall replace
_January 1 or July 1_ in the first sentence of this
subparagraph."
B.2 Modifications to Section 4.1: For purposes of determining
the deferral amount in the case of an Active Participant who is covered by
this Article, subsections (a), (d) and (e) of Section 4.1 shall read as
follows:
"(a) Deferral Amount: Subject to the limitations
established by this Article IV, each active Participant may defer in
any Plan Year up to $60 of his Eligible Pay per pay period, in
accordance with such rules and regulations as may be established by
the Plan Administrator. In the event that a Participant elects to
defer a portion of his Eligible Pay under the Plan, it will be
designated for contribution by the Employer to the Trust on behalf of
the Participant, and for deposit in his Salary Deferral Account. All
amounts deposited to a Participant's Salary Deferral Account shall at
all times be fully vested."
"(d) Election Procedures: An election made pursuant to
subsection (b) or (c) above shall be in the manner specified by the
Plan Administrator. Any election shall specify the amount of the
deferral desired as a whole dollar amount, subject to the limitation
in subsection (a) above. The Plan Administrator, in its discretion,
may give no effect to an election that does not meet minimum
standards for completeness and accuracy as the Plan Administrator may
establish."
"(e) Payroll Deductions: A Participant's Salary
Deferral Contributions shall be withheld from his Eligible Pay
through automatic payroll deductions. Salary Deferral Contributions
may not be withheld after they have been actually or constructively
received by the Participant."
<PAGE>
ARTICLE C
Pizza Hut Employees
The terms of this Article apply to any Employee who is: (a)
employed on an hourly basis by Pizza Hut, Inc. or its domestic restaurant
locations and restaurant subsidiaries (collectively referred to as "Pizza
Hut"), or (b) employed by Delops, Inc., D'Angelos Sandwich Shops, Inc. or
Progressive Food, Inc. (restaurant subsidiaries of Pizza Hut which are
collectively referred to as "D'Angelos"). Such Employees are eligible to
participate in this Plan only as provided in this Article C.
C.1 Modifications to Section 3.1(a), Pre-1996: Effective for
periods before January 1, 1996, to determine the eligibility to participate
in the Plan of an Employee covered by this Article, Section 3.1(a) shall be
modified to read as follows:
"(a) General Rule: Effective for periods before January
1, 1996, any hourly Employee of Pizza Hut (other than a D'Angelos
employee) who is either:
"(A) Currently eligible to enroll in his
Employer's Benefits Plus program, or
"(B) Effective January 1, 1993 through December
31, 1995, employed in any of the following states: Alabama,
Alaska, Arizona, Arkansas, California, Colorado, District of
Columbia, Florida, Georgia, Idaho, Kansas, Kentucky, Louisiana,
Maryland, Mississippi, Montana, Nebraska, Nevada, New Mexico,
North Carolina, North Dakota, Oklahoma, Oregon, South Carolina,
South Dakota, Tennessee, Texas, Utah, Virginia, Washington,
West Virginia or Wyoming,
shall be eligible to participate in the Plan while he is a
participant in the Pizza Hut Hourly Employees Retirement Plan, i.e.,
not before he attains age 21 and completes 1,000 hours of service."
C.2 Modifications to Section 3.1(a) for Hourly Employees,
Post-1995: Effective on and after January 1, 1996, to determine the
eligibility to participate in the Plan of hourly Employees of Pizza Hut
(including D'Angelos), Section 3.1(a) shall be modified to read as follows:
"(a) General Rule: Effective on and after January 1,
1996, any hourly Employee of Pizza Hut shall be eligible to
participate in the Plan only as follows:
"(A) Any such Employee who is currently eligible
to enroll in his Employer's Benefits Plus program shall be
eligible to participate in the Plan;
"(B) Any such Employee:
"(i) Who is an hourly Employee of Pizza Hut
as of January 1, 1996, and
"(ii) Who has an Account balance in the Plan
on such date,
shall be eligible to participate in the Plan, but only through
the date his employment with Pizza Hut first terminates on or
after January 1, 1996.
"(C) Effective March 1, 1996, any such Employee:
"(i) Who is employed by D'Angelos on
March 1, 1996, and
"(ii) Who has an account balance in the
D'Angelo, Inc. Profit Sharing/401(k) Plan ("D Plan") on
such date,
shall be eligible to participate in the Plan, but only through
the date his employment with Pizza Hut first terminates on or
after March 1, 1996."
C.3 Modifications to Section 3.1(a) for D'Angelos Salaried
Employees: Effective March 1, 1996, salaried Employees of D'Angelos shall
be eligible to participate in the Plan on the same terms and conditions as
other Pizza Hut salaried employees. Thus, a D'Angelos salaried Employee
shall be eligible for SaveUp to the same extent that he would be if
D'Angelos were a participating employer in Pizza Hut Benefits Plus.
C.4 Special Provisions Governing D'Angelos Employees: The
D Plan shall be merged into this Plan effective as soon as administratively
convenient after adoption of this provision ("Merger Date").
(a) Initial Accounts: Effective as of the Merger Date,
each Employee who has an account balance under the D Plan ("D Plan
Balance") immediately before the merger: (1) shall become fully
vested in his D Plan Balance, and (2) shall have his Salary Deferral
Account credited with the amount realized upon liquidation of the
portion of his D Plan Balance not invested as an Employee loan
("liquidation amount"), as well as the value of any loan to the
Employee that is outstanding on the Merger Date. If prior to the
Merger Date the Employee directs the Plan Administrator how to invest
the liquidation amount (and the direction meets the Plan
Administrator's requirements), then this amount shall be invested in
accordance with the Employee's direction as soon as practicable after
the merger. If no such investment direction is received, then this
amount shall be invested in the Security Plus Fund as soon as
practicable after the merger. Thereafter, investment changes may be
made in accordance with the Plan's usual rules.
(b) Loans: If an Employee has a loan outstanding from
the D Plan immediately prior to the merger, such loan shall
thereafter be subject to the provisions of Article VII that apply to
already outstanding loans except as follows.
(1) Section 7.3 shall not apply.
(2) The administration fees applicable under
Section 7.6 shall not exceed and shall not be charged more
frequently than permissible under the Employee's pre-merger
loan agreement and the related D Plan terms ("loan
agreement").
(3) Notwithstanding Section 7.7, the interest rate
shall be based on the loan agreement.
(4) Subject to Section 7.8(e), the term and
repayment procedures shall be based on the loan agreement.
Section 7.8(a), (b) and (d) shall not apply.
(5) Notwithstanding Section 7.9(a), (b) and (c), a
loan covered by this subsection shall be in default as of the
earliest of the following: (i) the time applicable under
Section 7.9(d), (ii) the date applicable under the loan
agreement, or (iii) immediately before a distribution is made
to the Employee.
<PAGE>
ARTICLE D
Prior Definitions of Eligible Pay
The terms of this article apply to prior definitions of Eligible Pay.
Effective January 1, 1989, except where otherwise noted, Eligible Pay was
defined as follows:
2.1(k) Eligible Pay: For each Plan Year, a Participant's Eligible Pay
shall be determined as follows:
(1) With respect to all Employees other than those employed by
Frito-Lay, Inc. or its subsidiaries:
(i) In the case of salaried Employees who are considered exempt from
the minimum wage and overtime pay provisions of the Fair Labor Standards
Act:
(I) for such Employees who were Employees on or before July
15 of the preceding Plan Year, or such other date during the
preceding Plan Year as the Plan Administrator may select (July 15
or such other date being hereinafter referred to as the "Salary
Determination Date" with respect to all Employees other than
those employed by Frito-Lay, Inc. or its subsidiaries), Annual
Compensation shall be the Participant's annual base salary in
effect on the Salary Determination Date plus any lump sum amount
received by the Participant prior to the Salary Determination
Date and during such preceding Plan Year under the PepsiCo
Executive Incentive Plan or PepsiCo's or a subsidiary's Middle
Management Incentive Plan; or
(II) for such Employees who were not Employees
on or before the Salary Determination Date, Annual Compensation
shall be the Participant's annual base salary on his date of
hire;
(ii) In the case of any salaried Employees who are not
considered exempt from the minimum wage and overtime pay
provisions of the Fair Labor Standards Act, and in the case
of eligible hourly Employees: (I) for such Employees who
were Employees on or beforethe Salary Determination Date,
Eligible Pay shall be the Participant's base salary or
hourly wage rate on the Salary Determination Date, plus any
overtime pay earned by the Participant prior to the Salary
Determination Date during such preceding Plan Year,
annualized in accordance with rules adopted by the Plan
Administrator;
(II) for such Employees who were not Employees on or before
the Salary Determination Date, Annual Compensation shall be the
Participant's annual base salary or hourly wage rate on his date
of hire, annualized in accordance with rules adopted by the Plan
Administrator;
(iii) In the case of Employees whose remuneration is
based, in whole or in part, on sales-related commission
payments:
(I) for such Employees who were Employees on or before
the salary Determination Date, Eligible Pay shall be the
Participant's base annual salary in effect on the Salary
Determination Date, plus any commissions earned by the
Participant prior to the Salary Determination Date during
such preceding Plan Year, annualized in accordance with
rules adopted by the Plan Administrator;in accordance with
rules adopted by the Plan Administrator;
(II) for such Employees who were not Employees on or
before the Salary Determination Date, Eligible Pay shall be
the Participant's annual base salary on his date of hire.
(2) With respect to Employees employed by Frito-Lay,
Inc. or its subsidiaries:
(i) In the case of salaried Employees who are
considered exempt from the minimum wage and overtime pay
provisions of the Fair Labor Standards Act:
(I) for such Employees who were Employees on or before
July 13 of the preceding Plan Year, or such other date
during the preceding Plan Year as the Plan Administrator may
select (July 13 or such other date being hereafter referred
to as the "Salary Determination Date" with respect to
Employees employed by Frito-Lay, Inc. or its subsidiaries),
Eligible Pay shall be the Participant's annual base salary
in effect on the Salary Determination Date plus any lump sum
amount under the PepsiCo Executive Incentive Plan received
by the Participant prior to the Salary Determination Date
and during such preceding Plan Year, or any quarterly
Frito-Lay Management Incentive Plan payments received by the
Participant prior to the Salary Determination Date and
during such preceding Plan Year annualized; or
(II) for such Employees who were not Employees on or
before the Salary Determination Date, Eligible Pay shall be
the Participant's annual base salary on his date of hire;
(ii) In the case of any salaried Employees who are not
considered exempt from the minimum wage and overtime pay
provisions of the Fair Labor Standards Act, and in the case
of eligible hourly Employees:
(I) for such Employees who were Employees on or before
the Salary Determination Date, Eligible Pay shall be the
Participant's W-2 earnings plus any amounts designated as
"Choice Pay" or "Flexible Pay" under an Employer's Benefits
Plus program that are used to pay for benefits or are
contributed under the Plan (such amounts being hereafter
referred to as "Flexible Pay") prior to the Salary
Determination Date during such preceding Plan Year,
annualized in accordance with rules adopted by the Plan
Administrator or, if greater, the Participant's W-2 earnings
plus Flexible Pay during the calendar year prior to such
preceding Plan Year; or
(II) for such Employees who were not Employees on or
before the Salary Determination Date, Annual compensation
shall be the Participant's annual base salary on his date of
hire, annualized in accordance with rules adopted by the
Plan Administrator;
(iii) In the case of Employees who are classified as
commissioned ("route sales") Employees:
(I) for such Employees who were Employees on or before
the Salary Determination Date, Eligible Pay shall be the
Participant's W-2 earnings plus Flexible Pay prior to the
Salary Determination Date during such preceding Plan Year,
annualized in accordance with rules adopted by the Plan
Administrator or, if greater, the Participant's W-2 earnings
plus Flexible Pay during the Calendar Year prior to such
preceding Plan Year; or
(II) for such Employees who were not Employees on or
before the Salary Determination Date, Eligible Pay shall be
the Participant's monthly guaranty on his date of hire,
annualized.
(3) With respect to Employees employed by Wilson
Sporting Goods Co. or its subsidiaries:
(i) In the case of salaried Employees who are
considered exempt from the minimum wage and overtime pay
provisions of the Fair Labor Standards Act:
(I) for such Employees who were Employees on or before
the Salary Determination Date, Eligible Pay shall be the
Participant's annual base salary in effect on the Salary
Determination Date plus any lump sum amount received by the
Participant prior to the Salary Determination Date and
during such preceding Plan Year under the PepsiCo Executive
Incentive Plan or PepsiCo's or a subsidiary's Middle
Management Incentive Plan; or
(II) for such Employees who were not Employees on or
before the Salary Determination Date, Eligible Pay shall be
the Participant's annual base salary on his date of hire;
(ii) In the case of any salaried Employees who are not
considered exempt from the minimum wage and overtime pay
provisions of the Fair Labor Standards Act, and in the case
of eligible commissioned Employees:
(I) for such Employees who were Employees on or before
the Salary Determination Date, Eligible Pay shall be the
Participant's W-2 earnings plus Flexible Pay prior to the
Salary Determination Date during such preceding Plan Year,
annualized in accordance with rules adopted in the Plan
Administrator; or
(II) for such Employees who were not Employees on or
before the Salary Determination Date, Eligible Pay shall be
the Participant's annual base salary on his date of hire;
(iii) In the case of eligible hourly Employees: (I) for
such Employees who were Employees on or before the Salary
Determination Date, Eligible Pay shall be the Participant's
base salary or hourly wage rate on the Salary Determination
Date, plus any overtime pay earned by the Participant prior
to the Salary Determination Date during such preceding Plan
Year, annualized in accordance with rules adopted by the
Plan Administrator; or
(II) for such Employees who were not Employees on or
before the Salary Determination Date, Eligible Pay shall be
the Participant's hourly wage rate on his date of hire,
annualized in accordance with rules adopted by the Plan
Administrator;
(iv) In the case of Employees who are classified as
piecework-paid Employees:
(I) for such Employees who were Employees on or before
the Salary Determination Date, Eligible Pay shall be
Participant's average hourly rate of pay during the first
six months of the preceding Plan Year, plus any overtime pay
earned by the Participant prior to the Salary Determination
Date during said preceding Plan Year, annualized in
accordance with rules adopted by the Plan Administrator; or
(II) for such Employees who were not Employees on or
before the Salary Determination Date, Eligible Pay shall be
the greater of the Participant's labor guarantee on his date
of hire or his piecework guarantee on his date of hire,
annualized in accordance with rules adopted by the Plan
Administrator.
(4) Effective as of January 1, 1985, in the case of an
Employee that is transferred from one Employer to another
after the Salary Determination Date for any year, such
Employee's Eligible Pay for the year shall be the Employee's
annual base salary, annualized hourly wage rate, annualized
weekly guarantee, annualized labor guarantee or annualized
piecework guarantee (whichever is applicable based on the
Employee's classification) as of the transfer date, plus
certain additional compensation received by the Employee
prior to the Salary Determination date but in the same Plan
Year as such date. The additional compensation included
pursuant to the preceding sentence is any overtime,
commissions or unit pay (annualized), any lump sum paid
under the PepsiCo Executive Incentive Plan or PepsiCo's or a
subsidiary's Middle Management Incentive Plan, and any
quarterly payments under a Frito-Lay Management Incentive
Plan (annualized).
(5) For purposes of paragraphs (1), (2), (3), and (4)
above and except for amounts designated as "Choice Pay"
under an Employer's Benefits Plus program that are used to
buy benefits and amounts contributed under the Plan, salary
or wages shall not include amounts or the value of benefits
received, or deemed received, under any performance share
plan, stock option plan or similar plan or under any pension
or welfare benefit plan maintained by the Employer, whether
such plan is qualified or non-qualified and whether such
amounts are deferred or not deferred.
(6) In the case of Employees who are not covered by
the provisions of paragraphs (1), (2), (3), or (4) above,
the Plan Administrator shall establish a method for
determining Eligible Pay based upon the method of
compensation of such Employees and such method shall be
applied in a nondiscriminatory manner for such group of
Employees.
(7) No more than $200,000 in Eligible Pay shall be
taken into account under the Plan in any Plan Year on or
after the Effective Date. This $200,000 limit shall be
adjusted automatically at the same time and in such manner
as permitted under Code section 415(d).
Effective January 1, 1992, Eligible Pay was defined as follows:
(k) Eligible Pay: Effective January 1, 1992, for each
Plan Year, a Participant's Eligible Pay shall be determined
as follows:
(1) Participants Other Than Those Employed by
Restaurants or Frito Division: With respect to all
Participants other than those employed by a restaurant
division or by Frito-Lay, Inc., Frito-Lay of Texas, Inc.,
Recot, Inc., or Smartfoods, Inc. (a "Frito division"), a
Participant's Eligible Pay shall be the sum of:
(i) The Participant's salary or wages, including forms
of pay delivered in alternative manners such as piecework
and payment by mileage for drivers, overtime, shift
differentials, commissions, bonuses received under the
PepsiCo Executive Incentive Plan or the Company's or a
subsidiary's Middle Management Incentive Plan, and payment
by mileage for drivers, overtime, shift differentials,
commissions, bonuses received under the PepsiCo Executive
Incentive Plan or the Company's or a subsidiary's Middle
Management Incentive Plan, and
(ii) Any amount no included in (i) above which is
contributed by the Employer on behalf of the Participant
pursuant to a salary reduction agreement and which is not
includable in gross income under Code sections 125,
402(a)(8), or 402(h).
The amounts under subparagraphs (i) and (ii) shall be
taken from payroll records for the full calendar year that
precedes the Plan Year by 2 years. For example, for the 1993
Plan Year, "Eligible Pay" shall be determined from amounts
earned for the full calendar year ending December 31, 1990.
For a Participant who has only a partial year's earnings
during the full calendar year 2 years prior to the Plan
Year, the partial year's earnings shall be annualized. For a
Participant with no earnings during the full calendar year 2
years prior to the Plan Year, Eligible Pay shall equal the
Participant's base salary or wages, not including
alternative forms of base pay, overtime, shift
differentials, commissions or bonuses on the later of: (A)
the "Eligible Pay determination date" designated by the Plan
Administrator with respect to Employees other than those
employed by a restaurant division or a Frito division, or
(B) the Participant's Employment Commencement Date.
(2) Participants Employed by Frito Division: With
respect to a Participant employed by a Frito division,
Eligible Pay shall be determined as follows:
(i) in the case of a Participant who is a salaried
Employee considered exempt from the minimum wage and
overtime pay provisions of the Fair Labor Standards Act,
Eligible Pay shall mean: (A) If the Participant was an
Employee on the Eligible Pay Determination date designated
by the Plan Administrator with respect to Employees employed
by the Frito division,
(I) the Participant's annual base salary in effect on
the Eligible Pay determination date in the preceding Plan
Year, plus
(II) any trimester Frito-Lay Management Incentive Plan
payments received by the Participant prior to the Eligible
Pay determination date and during such preceding Plan Year,
annualized or any lump sum amount under the PepsiCo
Executive Incentive Plan received by the Participant prior
to the Eligible Pay determination date and during such
preceding Plan Year.
(B) If the Participant was not an Employee on the
Eligible Pay determination date in the preceding Plan Year,
the Participant's annual base salary on his Employment
Commencement Date.
(ii) In the case of a Participant who is a salaried
Employee not considered exempt from the minimum wage and
overtime pay provisions of the Fair Labor Standards Act, and
in the case of a Participant who is an hourly Employee,
Eligible Pay shall mean:
(A) If the Participant was an Employee on or before the
Eligible Pay determination date in the preceding Plan Year,
the greater of:
(I) the Participant's W-2 earnings, plus any amounts
designated as "Flexible Pay" and contributed by salary
reduction agreement to the Employer's Benefits Plus program
or this Plan, in each case through the Eligible Pay
determination date during such preceding Plan Year,
annualized in accordance with rules adopted by the Plan
Administrator, or
(II) the Participant's W-2 earnings plus Flexible Pay
during the calendar year immediately prior to such preceding
Plan Year.
(B) If the Participant was not an Employee on or before
the Eligible Pay determination date, the Participant's
annual base salary or hourly wage rate on his Employment
Commencement Date, annualized in accordance with rules
adopted by the Plan Administrator.
(iii) In the case of a Participant who is classified as
a commissioned ("route sales") Employee, Eligible Pay shall
mean:
(A) If the Participant was an Employee on or before the
Eligible Pay determination date, the greater of:
(I) the Participant's W-2 earnings, plus any amounts of
Flexible Pay through the Eligible Pay determination date
during the preceding Plan Year, annualized in accordance
with rules adopted by the Plan Administrator, or
(II) the Participant's W-2 earnings plus Flexible Pay
during the calendar year immediately prior to such preceding
Plan Year.
(B) If the Participant was not an Employee on or before
the Eligible Pay determination date for the preceding Plan
Year, the Participant's weekly guarantee on his Employment
Commencement Date, annualized in accordance with rules
adopted by the Plan Administrator.
(3) Participants Employed by Restaurant Division: With
respect to a Participant employed by a restaurant division
of the Company, his Eligible Pay shall be determined as
follows:
(i) In the case of a Participant who is a salaried Employee
of a restaurant division, Eligible Pay shall mean.
(A) If the Participant was an Employee on the Eligible Pay
determination date designated by the Plan Administrator with
respect to the Employees of his Employer, the sum of:
(I) the Participant's annual base salary in effect on the
Eligible Pay determination date,
(II) any target or lump sum bonus for the calendar year
including such determination date, and
(III) any overtime paid prior to the determination date but
within the same calendar year, annualized in accordance with
rules adopted by the Plan Administrator.
(B) If the Participant was not an Employee on the Eligible
Pay determination date with respect to the Employees of his
Employer, the sum of the amounts under (I) and (II) above but
determined as of the Participant's Employment Commencement Date.
(ii) In the case of a Participant who is an hourly Employee
of the KFC division, Eligible Pay shall mean:
(A) If the Participant was an Employee on the Eligible Pay
determination date designated by the Plan Administrator with
respect to KFC division Employees, the sum of:
(I) the Participant's annualized hourly wage rate in effect
on the Eligible Pay determination date, plus
(II) any overtime paid prior to the Eligibility Pay
determination date but within the same calendar year, annualized
in accordance with rules adopted by the Plan Administrator.
(B) If the Participant was not an Employee on the Eligible
Pay determination date with respect to KFC division Employees,
the sum of the amounts under (I) and (II) above but determined as
of the Participant's Employment Commencement Date.
(4) Special Rules for Determining Eligible Pay:
(i) For purposes of paragraphs (1) through (3) above and
except for salary reduction amounts designated as Flexible Pay
under an Employer's Benefits Plus program that are used to buy
benefits and amounts contributed under the Plan, salary or wages
shall not include amounts or the value of benefits received, or
deemed received, under any performance share plan, stock option
plan or similar plan or under any pension or welfare benefit plan
maintained by the Employer, whether such plan is qualified or
non-qualified and whether such amounts are deferred or not
deferred.
(ii) In the case of Employees who transfer from one Employer
to another during the year, Eligible Pay of such Employees shall
be the amount of annualized base salary or hourly wage rate on
the transfer date plus annualized overtime, commission pay
received prior to the transfer date and prior to the
determination date and the amount of any lump sum bonus paid from
an Employer's Incentive Compensation program.
(iii) Notwithstanding the foregoing provisions of this
subsection, in the case of an Employee who elects to make
nonqualified deferrals under the PepsiCo Executive Income
Deferral Program for an upcoming Plan Year, the Employee's
Eligible Pay for such Plan Year shall not be greater than his
current base pay and the prior year's bonus under the Employer's
incentive compensation program, decreased by any nonqualified
deferrals elected for the upcoming Plan Year, and increased by
amounts that will be received as distributions from the PepsiCo
Executive Income Deferral Program for such Plan Year.
(iv) For any Plan Year beginning on or after January 1,
1989, the Eligible Pay of each Participant taken into account
under the Plan shall not be less than $10,000 and shall not
exceed $200,000, the latter as adjusted by the Secretary of the
Treasury. In determining the Eligible Pay of a Participant for
purposes of the $200,000 limitation set forth in the preceding
sentence, the rules of section 414(q)(6) of the Code shall apply,
except in applying such rules, the term "family" shall include
only the spouse of the Participant and any lineal descendants of
the Participant who have not attained age 19 before the close of
the Plan Year. If, as a result of the application of such rules,
the adjusted $200,000 limitation is exceeded, then the limitation
shall be prorated among the affected individuals in proportion to
each such individual's Eligible Pay as determined under this
Section prior to the application of this limitation.
References in the Plan to deferrals of Eligible Pay, or Salary Deferral
Contributions from Eligible Pay, shall be read as referring to deferrals of a
Participant's current Employee compensation not in excess of Eligible Pay,
determined as above.
EXHIBIT 11
(Page 1 of 2)
PEPSICO, INC. AND SUBSIDIARIES
Computation of Net Income Per Share of Capital Stock - Primary
Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
(in millions except per share amounts)
1996 1995(a) 1994(a)
---- ---- ----
Shares outstanding at beginning
of year................................. 1,576 1,580 1,598
Weighted average of shares issued
during the year for exercise of
stock options, acquisitions,
conversion of debentures and
payment of compensation awards.......... 13 9 6
Shares repurchased (weighted)............. (25) (13) (16)
Dilutive shares contingently issuable
upon exercise of stock options,
conversion of debentures and payment
of compensation awards, net of
shares assumed to have been purchased for
treasury (at the average price) with
assumed proceeds from exercise of
stock options and compensation
awards.................................. 42 32 20
----- ----- -----
Total shares - primary.................... 1,606 1,608 1,608
===== ===== =====
Income before cumulative effect of
accounting changes....................... $1,149 $ 1,606 $1,784
Cumulative effect of accounting
changes:
Postemployment benefits............... - - (55)
Pension assets........................ - - 23
------ ------ ------
Net income as adjusted.................... $1,149 $ 1,606 $1,752
Income (charge) per share: ====== ====== ======
Before cumulative effect of
accounting changes...................... $ 0.72 $ 1.00 $ 1.11
Cumulative effect of
accounting changes:
Postemployment benefits.............. - - (0.03)
Pension assets....................... - - 0.01
------ ------- ------
Net income per share - primary............ $ 0.72 $ 1.00 $ 1.09
====== ====== ======
(a) 1995 and 1996 shares have been adjusted to reflect a two-for-one stock
split in May, 1996.
<PAGE>
EXHIBIT 11
(Page 2 of 2)
PEPSICO, INC. AND SUBSIDIARIES
Computation of Net Income Per Share of Capital Stock - Fully Diluted
Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
(in millions except per share amounts)
1996 1995(a) 1994(a)
---- ---- ----
Shares outstanding at beginning
of year................................. 1,576 1,580 1,598
Shares issued during the year for exercise
of stock options, acquisitions,
conversion of debentures and
payment of compensation awards.......... 23 21 12
Shares repurchased (weighted)............. (25) (13) (16)
Dilutive shares contingently issuable
upon exercise of stock options,
conversion of debentures and payment
of compensation awards, net of
shares assumed to have been purchased for
treasury (at the higher of average or
quarter-end price) with assumed
proceeds from exercise of stock
options and compensation awards......... 37 29 18
------ ------ -----
Total shares - fully diluted.............. 1,611 1,617 1,612
===== ===== =====
Income before cumulative effect of
accounting changes....................... $1,149 $1,606 $1,784
Cumulative effect accounting
changes:
Postemployment benefits............... - - (55)
Pension assets........................ - - 23
------ ------ ------
Net income as adjusted.................... $1,419 $1,606 $1,752
====== ====== ======
Income (charge) per share:
Before cumulative effect of
accounting changes...................... $ 0.71 $ 0.99 $ 1.11
Cumulative effect of accounting
changes:
Postemployment benefits.............. - - (0.03)
Pension assets....................... - - 0.01
Net income per share - ------ ------ -------
fully diluted............................ $ 0.71 $ 0.99 $ 1.09
====== ====== ======
(a) 1995 and 1996 shares have been adjusted to reflect a two-for-one stock
split in May, 1996.
EXHIBIT 12
PEPSICO, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years Ended December 28, 1996, December 30, 1995, December 31, 1994,
December 25, 1993 and December 26, 1992
(in millions except ratio amounts)
52 Weeks 53 Weeks 52 Weeks
---------------- -------- --------------
1996 1995 1994 1993 1992
Earnings:
Income from continuing
operations before income
taxes and cumulative
effect of accounting
changes .................. $2,047 $2,432 $2,664 $2,423 1,899
Unconsolidated affiliates
interests, net (a)........... 271 11 (19) (6) (1)
Amortization of
capitalized interest......... 4 6 5 5 5
Interest expense ............. 600 682 645 573 586
Interest portion of net
rent expense (b)............. 159 156 150 134 122
------ ------ ------ ------ ------
Earnings available for
fixed charges................ $3,081 $3,287 $3,445 $3,129 $2,611
====== ====== ====== ====== ======
Fixed Charges:
Interest expense ............. $ 600 $ 682 $ 645 $ 573 $ 586
Capitalized interest.......... 8 10 5 7 7
Interest portion of net
rent expense (b)............. 159 156 150 134 122
------ ------ ------ ------ ------
Total fixed charges........ $ 767 $ 848 $ 800 $ 714 $ 715
====== ====== ======= ====== ======
Ratio of Earnings
to Fixed Charges(c).......... 4.02 3.88 4.31 4.38 3.65
======= ====== ====== ===== ======
(a) 1994, 1993 and 1992 amounts have been restated to adjust for the
effects of unconsolidated affiliates and minority interests. The
inclusion of these items did not have a material impact on the
previously reported ratio of earnings to fixed charges.
(b) One-third of net rent expense is the portion deemed representative of
the interest factor.
(c) Included the impact of the unusual, disposal and other charges of $822
(or $716 after-tax) and $520 (or $384 after-tax) in 1996 and 1995,
respectively (see Note 3). Excluding those charges, the ratio of
earnings to fixed charges for 1996 and 1995 would have been 5.09 and
4.49, respectively.
EXHIBIT 21
ACTIVE SUBSIDIARIES OF PEPSICO, INC.
DECEMBER 28, 1996
State or
Country of
Subsidiary Incorporation
A & M Food Services, Inc. ......................... Nevada
El KrAm, Inc..................................... Iowa
Pizza Huts of the Northwest, Inc................. Minnesota
Ainwick Corporation................................ Oregon
Anderson Hill Insurance Limited.................... Bermuda
Atlantic Soft Drink Company, Inc. ................. South Carolina
Atlantic Holding Company......................... California
Atlantic Soft Drink Company of Knoxville......... Tennessee
Beaman Bottling Company............................ Tennessee
Beverages, Foods & Service Industries, Inc......... Delaware
Chevys, Inc........................................ California
CPK Acquisition Corp............................... California
California Pizza Kitchen, Inc.................... Maryland
California Pizza Kitchen of Annapolis.......... California
California Pizza Kitchen of Illinois, Inc...... Illinois
California Pizza Kitchen of Scottsdale, Inc.... Arizona
Davlyn Realty Corporation.......................... Delaware
Equity Beverage, Inc. ............................. Delaware
FLRC, Inc.......................................... California
Hostess-FL NRO Ltd. ............................... Canada
Hot 'n Now, Inc. .................................. Michigan
HNN, Inc......................................... Delaware
Japan Frito-Lay Ltd................................ Japan
Kentucky Fried Chicken of California, Inc. ........ Delaware
Kentucky Fried Chicken of Southern California, Inc. California
KFC West, Inc...................................... Delaware
Mountain Dew Marketing, Inc........................ Delaware
National Beverages, Inc. .......................... Florida
North Pacific Territories Holding Company.......... Washington
Alpac Corporation................................ Washington
Gamble, Inc.................................... Oregon
MBA Western Co................................. Delaware
Western Bottling Company, Inc................ Washington
Mann Bottling Company, Inc................. Idaho
Pepsi Cola Bottling Company of
Everett, Inc.............................. Washington
Pepsi-Cola Bottling Company of Alaska, Inc..... Alaska
PepsiCo Capital Corporation N.V. .................. Neth. Antilles
Bramshaw Limited................................. Ireland
PepsiCo Global Investments B.V.................. Netherlands
Pepsi-Cola France SNC.......................... France
Pepsi-Cola G.m.b.H............................. Germany
Florida Int'l
Fruchtsaftgetraenke G.m.b.H.................. Germany
PepsiCo Restaurants International Ltd. & Co. K.G. Germany
Kentucky Fried Chicken Corporate Holdings, Ltd. Delaware
Kentucky Fried Chicken International Holdings, Inc. Delaware
PepsiCo Eurasia Limited...................... Delaware
Seven-Up Nederland B.V. ..................... Netherlands
PepsiCo Investments (Europe) I B.V......... Netherlands
Pepsi-Cola International (PVT) Limited... Pakistan
PepsiCo IVI S.A. .......................... Greece
PepsiCo Restaurants Internationl (Taiwan) Co. Ltd. Taiwan
Pepsi-Cola Belgium S.A..................... Belgium
Pepsi-Cola Mamulleri Limited Sirketi....... Turkey
Pizza Gida Isletmeleri................... Turkey
Pizza Hut Korea Co., Ltd................... Korea
Uzay Gida Sanayive Picaret A.S............. Turkey
KFC Canada (NRO) Ltd......................... Canada
Pamimex (Mauritius).............................. Mauritius
PepsiCo (India) Holdings....................... India
PepsiCo Finance (Antilles A) N.V. ............... Neth. Antilles
Pepsi-Cola Canada (NRO) Ltd. .................. Canada
Pepsi-Cola Canada, Ltd. ..................... Canada
KFCC/PepsiCo Holdings Ltd.................. Canada
Sociedad de Productora y Sabores C.A. (SOPRESA) Venezuela
PepsiCo Finance (Antilles B) N.V. ............... Neth. Antilles
Senrab Limited ................................ Netherlands
PepsiCo Worlwide Investments B.V............. Netherlands
Pepsi-Cola Argentina, S.A.C.I.................... Argentina
Inversiones PFI Chile Limitada................. Chile
Evercrisp Snack Products de Chile S.A........ Chile
Pepsi-Cola CR SPOL SRO........................... Czech Republic
Pepsi Snacks Argentina S.A....................... Argentina
PepsiCo Captive Holdings, Inc...................... Delaware
Hillbrook Insurance Company, Inc................. Vermont
Mexico Trust Company............................ Mexico
PepsiCo Holdings Ltd............................... England
Kentucky Fried Chicken (Great Britain) Limited... England
PepsiCo International Ltd........................ England
PepsiCo Property Management Limited.............. England
PepsiCo World Trading Company (UK) Ltd. ......... England
Pizza Hut International (UK) Ltd................. England
Smiths Crisps Limited............................ England
Walkers Snack Foods Limited...................... England
Crispflow Limited.............................. England
Frito-Lay Holdings Limited..................... England
PFI Agriculture Europe Ltd..................... England
PepsiCo Investment (China) Ltd..................... China
PepsiCo China, Ltd. ............................. China
Shanghai Pizza Hut Company....................... China
PepsiCo Overseas Corp. ............................ Delaware
PepsiCo Overseas Finance N.V. ..................... Neth. Antilles
PepsiCo Pacific Trading Co. Ltd.................... Hong Kong
PepsiCo Restaurant Services Group, Inc............. Delware
PepsiCo Services Corp.............................. Delaware
PepsiCo World Trading Company, Inc. ............... Delaware
Pepsi-Cola (Bermuda) Limited....................... Bermuda
Pepsi-Cola Manufacturing Company of Uruguay S.A.. Uruguay
The Concentrate Manufacturing Company of Ireland. Ireland
Seven-Up (Ireland) Limited.................... Ireland
Pepsi-Cola Manufacturing (Ireland)............ Ireland
PARCO N.V................................... Neth. Antilles
Paine Corporation N.V. ................... Neth. Antilles
Paige N.V............................... Neth. Antilles
PepsiCo Finance (U.K.) Limited........ England
Pepsi-Cola Kft. Hungary............. Hungary
Pizza Belgium S.A................... Belgium
E Wedel S.A......................... Poland
PepsiCo (Ireland) Limited............. Ireland
Pepsi-Cola Bottling Company of Los Angeles......... California
Pepsi-Cola Commodities, Inc. ...................... Delaware
Pepsi-Cola de Espana, S.A.......................... Spain
Compania de Bebides PepsiCo, S.A................. Spain
Kas S.A.......................................... Spain
Snack Ventures Europe S.C.A...................... Spain
Pepsi-Cola France S.A.R.L.......................... France
Pepsi-Cola Equipment Corp. ........................ New York
Pepsi-Cola Far East Trade Development Co., Inc. ... Philippines
Pepsi-Cola Gesellschaft m.b.H...................... Austria
Pepsi-Cola Interamericana de Guatemala S.A......... Guatemala
Pepsi-Cola International Limited................... Bermuda
Pepsi-Cola International Limited (U.S.A.).......... Delaware
Pepsi-Cola Metropolitan Bottling Company, Inc. .... New Jersey
General Cinema Beverages, Inc. .................. Delaware
New Century Beverage Company..................... California
Belfast Bottling Co. of Reno................... Nevada
PepsiCo Puerto Rico, Inc......................... Delaware
PRS, Inc....................................... Delaware
PEI N.V...................................... Neth. Antilles
PepsiCo do Brazil Holdings Ltda............ Brazil
Capital Services Associates............... Neth. Antilles
Pepsi-Cola Alton Bottling, Inc................... Illinois
Pepsi-Cola Mediterranean, Ltd. .................. Wyoming
Seven-Up International, Inc...................... Delaware
Seven-Up Southern Hemisphere, Inc. ............ Missouri
Pepsi-Cola Mexicana S.A. de C.V. .................. Mexico
Pepsi-Cola Panamericana, S.A....................... Delaware
Pepsi-Cola Panamericana, S.A..................... Venezuela
Pepsi-Cola Personnel, Inc.......................... Delaware
Pepsi Cola San Joaquin Bottling Company............ Delaware
Pepsi-Cola (Thai) Trading Co., Ltd................. Thailand
Pepsi Stuff, Inc................................... Delaware
Pizza Hut, Inc. ................................... Delaware
PepsiCo Australia Pty., Ltd. .................... Australia
Frito-Lay Australia............................ Australia
Kentucky Fried Chicken Pty. Ltd................ Australia
Pizza Hut of America, Inc. ...................... Delaware
Bell Taco Funding Syndicate.................... Australia
PGCC, Inc...................................... Delaware
Pepsi-Cola Bottling Company of Ohio, Inc..... Delaware
Pizza Management, Inc.............................. Texas
Recot, Inc......................................... Delaware
Frito-Lay, Inc. ................................. Delaware
FL Holding, Inc................................ Delaware
Opco Holding Inc. ........................... Delaware
Pepsi-Cola Operating Company of Chesapeake
and Indianapolis.......................... Delaware
Frito-Lay JV, Inc.............................. Delaware
Midland Bottling Co............................ Delaware
Beverage Products Corporation................ Oklahoma
EIEIO Beverage Company....................... Delaware
Pepsi-Cola Bottling Company of
St. Louis, Inc............................ Missouri
Wetter Beverage Company...................... Delaware
NKFC, Inc...................................... Delaware
QSR, Inc..................................... Delaware
KFC Enterprises, Inc. ..................... Delaware
Kentucky Fried Chicken Corporation....... Delaware
KFC Corporation........................ Delaware
KFC National Management Company...... Delaware
Smartfoods, Inc. .............................. Delaware
TGCC, Inc...................................... Delaware
General Cinema Beverages of
North Florida, Inc.......................... Delaware
General Cinema Beverages of Virginia, Inc.... Delaware
General Cinema Beverages of
Washington, D.C., Inc....................... Delaware
Redux Realty, Inc. ................................ Delaware
Rice Bottling Enterprises, Inc. ................... Tennessee
Rio Grande Snack Company........................... Delaware
Sabritas, S.A. de C.V. ............................ Mexico
Corporativo International S.A. de C.V............ Mexico
PepsiCo Worldwide Holdings..................... Neth. Antilles
Empresas Gamesa, S.A. de C.V..................... Mexico
Groupo Gamesa, S.A. de C.V..................... Mexico
Shelbyville Bottling Company, Inc.................. Tennessee
Taco Bell Corp. ................................... California
Calny, Inc....................................... Delaware
Taco Bell of California, Inc..................... California
Taco Bell Royalty Company........................ California
Taco Caliente, Inc............................. Arizona
Taco Del Sur, Inc.............................. Georgia
Tenga Taco, Inc................................ Florida
Taco Enterprises, Inc. .......................... Michigan
TBLD Corp........................................ California
TFL Holdings, Inc. ................................ Delaware
Upper Midwest Pizza Hut, Inc....................... Delaware
Von Karman Leasing Corp. .......................... Delaware
Wilson International Sales Corporation............. Delaware
Omitted from the above list are approximately 375 insignificant or inactive
subsidiaries which, if considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary. The list also excludes
approximately 100 subsidiaries of Pizza Hut, Inc., of which xx operate
restaurants in the U.S., and approximately 40 subsidiaries of Kentucky Fried
Chicken Corporation and Kentucky Fried Chicken Corporate Holdings, Ltd.,
which operate restaurants outside of the U.S.
Report and Consent of Independent Auditors EXHIBIT 23
The Board of Directors
PepsiCo, Inc.
The audits referred to in our report dated February 4, 1997 included the related
financial statement schedule as of December 28, 1996, and for each of the years
in the three-year period ended December 28, 1996 listed in the accompanying
index at Item 14(a)2. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We consent to the use of our reports included herein (or incorporated herein
by reference) in the following Registration Statements on:
DESCRIPTION REGISTRATION
- ----------- STATEMENT NUMBER
----------------
Form S-3
- --------
Pizza Hut Cincinnati, Inc. and Tri-L Pizza Huts,
Inc. acquisitions 33-37271
PepsiCo SharePower Stock Option Plan for Employees
of Monsieur Henri Wines, Ltd. 33-35601,33-42122,
33-56666 &33-66146
PepsiCo SharePower Stock Option Plan for Opco
Employees 33-30658 & 33-38014
PepsiCo SharePower Stock Option Plan for PCDC
Employees 33-42121
PepsiCo SharePower Stock Option Plan for Employees
of Chevys, Inc. 33-66144
PepsiCo SharePower Stock Option Plan for Employees of
Southern Tier Pizza Hut, Inc. and STPH Delco, Inc. 33-66148
Pepsi-Cola Bottling Company Annapolis acquisition 33-30372
$500,000,000 Euro-Medium-Term Notes 33-8677
$2,500,000,000 Debt Securities and Warrants 33-39283
Semoran Management Corporation acquisition 33-47527
$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-4
- --------
Erin Investment Corp. acquisition 33-31844
A&M Food Services, Inc. acquisition 33-4635
Pizza Hut Titusville, Inc. acquisition 33-21607
U.S. Kentucky Fried Chicken operations of Collins
Foods International, Inc. acquisition 33-37978
Pizza Management, Inc. acquisition 33-47314
Form S-8
- --------
PepsiCo SharePower Stock Option Plan 33-35602, 33-29037,
33-42058, 33-51496,
33-54731 & 33-66150
PepsiCo SharePower Stock Option Plan for Opco
Employees 33-43189
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
Long Term Savings Programs of Taco Bell Corp.,
Pizza Hut, Inc. and Kentucky Fried
Chicken Corporation, respectively 2-93163, 2-99532 &
33-10488
Restaurant Deferred Compensation Plan 333-01377
/s/ KPMG Peat Marwick LLP
New York, New York
March 25, 1997
EXHIBIT 24
POWER OF ATTORNEY
PepsiCo, Inc. ("PepsiCo") and each of the undersigned, an officer or
director, or both, of PepsiCo, do hereby appoint Edward V. Lahey, Jr. and
Lawrence F. Dickie, and each of them severally, its, his or her true and lawful
attorney-in-fact to execute on behalf of PepsiCo and the undersigned the
following documents and any and all amendments thereto (including post-effective
amendments):
(i) Registration Statements No. 33-8677, 33-39283, 33-53232 and
33-64342 relating to the offer and sale of PepsiCo's Debt Securities and
Warrants, and any registration statements deemed by any such
attorney-in-fact to be necessary or appropriate to register the offer and
sale of debt securities or warrants by PepsiCo or guarantees by PepsiCo of
any of its subsidiaries' debt securities or warrants;
(ii) Registration Statements No. 33-4635, 33-21607, 33-30372,
33-31844, 33-37271, 33-37978, 33-47314 and 33-47527 all relating to the
primary and/or secondary offer and sale of PepsiCo Capital Stock issued or
exchanged in connection with acquisition transactions, and any registration
statements deemed by any such attorney-in-fact to be necessary or
appropriate to register the primary and/or secondary offer and sale of
PepsiCo Capital Stock issued or exchanged in acquisition transactions;
(iii) Registration Statements No. 33-29037, 33-35602, 33-42058,
33-51496, 33-54731 and 33-66150 relating to the offer and sale of
shares of PepsiCo Capital Stock under the PepsiCo SharePower Stock Option
Plan; Registration Statements No. 33-38014, 33-30658 and 33-43189 relating
to the extension of the PepsiCo SharePower Stock Option Plan to employees
of Pepsi-Cola Operating Company of Chesapeake and Indianapolis;
Registration Statements No. 33-35601, 33-42122, 33-56666 and 33-66146
relating to the extension of the PepsiCo SharePower Stock Option Plan to
employees of Monsieur Henri; Registration Statement No. 33-42121 relating
to the extension of the PepsiCo SharePower Stock Option Plan to employees
of Pepsi-Cola of Washington D.C., L.P.; Registration Statement No. 33-66144
relating to the extension of the PepsiCo SharePower Stock Option Plan to
employees of Chevys, Inc.; Registration No. 33-66148 relating to the
extension of the PepsiCo SharePower Stock Option Plan to employees of
Southern Tier Pizza Hut, Inc.; Registration Statement No. 33-50685 relating
to the 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., and any registration statements
deemed by any such attorney-in-fact to be necessary or appropriate to
register the offer and sale of shares of PepsiCo Capital Stock under the
PepsiCo SharePower Stock Option Plan to employees of PepsiCo or otherwise;
(iv) Registration Statements No. 2-82645, 2-99532, 2-93163, 33-10488,
33-51514 and 33-60965 covering the offer and sale of shares of PepsiCo
Capital Stock under the Long Term Savings Programs of PepsiCo, Pizza Hut,
Inc., Taco Bell Corp. and Kentucky Fried Chicken Corporation, and any
registration statements deemed by any such attorney-in-fact to be necessary
or appropriate to register the offer and sale of shares of PepsiCo Capital
Stock under the long term savings programs of any other subsidiary of
PepsiCo;
(v) Registration Statements No. 33-61731 and No. 333-09363 pertaining
to the offer and sale of PepsiCo Capital Stock under PepsiCo's 1995 Stock
Option Incentive Plan, Registration Statement No. 33-54733, relating to the
offer and sale of shares of PepsiCo Capital Stock under PepsiCo's 1994
Long-Term Incentive Plan, Registration Statement No. 33-19539 relating to
the offer and sale of shares of PepsiCo Capital Stock under PepsiCo's 1987
Incentive Plan and resales of such shares by officers of PepsiCo, and
Registration Statement No. 2-65410 relating to the offer and sale of shares
of PepsiCo Capital Stock under PepsiCo's 1979 Incentive Plan, 1972
Performance Share Plan, as amended, and various option plans, and resales
of such shares by officers of PepsiCo;
(vi) Registration Statement No. 33-22970 relating to the offer and
sale of shares of PepsiCo Capital Stock under PepsiCo's 1988 Director Stock
Plan;
<PAGE>
(vii) Registration Statement No. 333-01377 relating to the obligations
of PepsiCo under the Restaurant Deferred Compensation Plan; and
(viii) all other applications, reports, registrations, information,
documents and instruments filed or required to be filed by PepsiCo with the
Securities and Exchange Commission, any stock exchanges or any governmental
official or agency in connection with the listing, registration or approval
of PepsiCo Capital Stock, PepsiCo debt securities or warrants, other
securities or PepsiCo guarantees of its subsidiaries' debt securities or
warrants, or the offer and sale thereof, or in order to meet PepsiCo's
reporting requirements to such entities or persons;
and to file the same, with all exhibits thereto and other documents in
connection therewith, and each of such attorneys shall have the power to act
hereunder with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this instrument on March ,
1997.
PepsiCo, Inc.
By: /s/ EDWARD V. LAHEY, JR.
Edward V. Lahey, Jr.
Senior Vice President, General
Counsel and Secretary
/s/ ROGER A. ENRICO /s/ KARL M. VON DER HEYDEN
Roger A. Enrico Karl M. von der Heyden
Chairman of the Board and Vice Chairman and
Chief Executive Officer Chief Financial Officer
/s/ ROBERT L. CARLETON /s/ ROBERT E. ALLEN
Robert L. Carleton Robert E. Allen
Senior Vice President and Controller Director
(Chief Accounting Officer)
/s/ JOHN F. AKERS /s/ RAY L. HUNT
John F. Akers Ray L. Hunt
Director Director
/s/ D. WAYNE CALLOWAY /s/ STEVEN S REINEMUND
D. Wayne Calloway Steven S Reinemund
Director Chairman and Chief
Executive Officer of
/s/ JOHN J. MURPHY The Frito-Lay Company
John J. Murphy and Director
Director
/s/ SHARON PERCY ROCKEFELLER /s/ FRANKLIN A. THOMAS
Sharon Percy Rockefeller Franklin A. Thomas
Director Director
/s/ P. ROY VAGELOS
P. Roy Vagelos /s/ ARNOLD R. WEBER
Director Arnold R. Weber
Director
/s/ CRAIG E. WEATHERUP
Craig E. Weatherup
Chairman and Chief Executive
Officer of Pepsi-Cola Company and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM PEPSICO, INC. AND
SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 52 WEEK PERIOD ENDED DECEMBER 28, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<CIK> 0000077476
<NAME> PepsiCo, Inc.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-28-1996
<PERIOD-END> Dec-28-1996
<CASH> 447
<SECURITIES> 339
<RECEIVABLES> 2,699
<ALLOWANCES> 183
<INVENTORY> 1,038
<CURRENT-ASSETS> 5,139
<PP&E> 17,840
<DEPRECIATION> 7,649
<TOTAL-ASSETS> 24,512
<CURRENT-LIABILITIES> 5,139
<BONDS> 8,439
0
0
<COMMON> 29
<OTHER-SE> 6,594
<TOTAL-LIABILITY-AND-EQUITY> 24,512
<SALES> 31,645
<TOTAL-REVENUES> 31,645
<CGS> 15,383
<TOTAL-COSTS> 15,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 62
<INTEREST-EXPENSE> 600
<INCOME-PRETAX> 2,047
<INCOME-TAX> 898
<INCOME-CONTINUING> 1,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,149
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.71
</TABLE>
