SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
February 4, 1997 (February 4, 1997)
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Date of Report (Date of earliest event reported)
PepsiCo, Inc.
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(Exact name of registrant as specified in its charter)
North Carolina
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(State or other jurisdiction of incorporation)
1-1183 13-1584302
(Commission File Number) (IRS Employer Identification
No.)
700 Anderson Hill Road, Purchase, New York 10577
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (914) 253-2000
<PAGE>
Item 5. Other Events.
The information contained in Exhibit 20 hereto is incorporated herein by
reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
20 Press Release dated February 4, 1997 from PepsiCo, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 4, 1997 PepsiCo, Inc.
By: /s/ LAWRENCE F. DICKIE
------------------------
Lawrence F. Dickie
Vice President,
Associate General Counsel
and Assistant Secretary
PEPSICO REPORTS 1996 EARNINGS
PURCHASE, NEW YORK (February 4, 1997)-- PepsiCo, Inc. today announced results
for the fourth quarter and full year ended December 28, 1996. Reported net
income for the year was $1.1 billion or $0.72 per share and for the quarter were
$28 million or $0.03 per share. The following chart shows how the reported
numbers are adjusted to determine ongoing earnings, which are the basis of the
operating segment discussions in this release. The unusual charges are discussed
at the end of the release.
Performance Summary
(dollars in millions except per share data)
Q4 FY
1996 1995 Chng 1996 1995 Chng
------------------- --------------------
($) ($) (%) ($) ($) (%)
Net Sales 9,533 9,205 4 31,645 30,255 5
Net Income 28 181 (85) 1,149 1,606 (28)
REPORTED EPS 0.03 0.11 (73) 0.72 1.00 (28)
Unusual Charges:
Int'l Beverages 0.10 - NM 0.33 - NM
Rest. Held for 0.11 - NM 0.12 - NM
Sale
SFAS 121 - 0.24 NM - 0.24 NM
ONGOING EPS 0.24 0.35 (31) 1.17 1.24 (6)
==== ==== ==== ==== ==== ===
Roger Enrico, Chairman and CEO, offered the following comments: "Our goal is to
produce consistent earnings growth of about 15 percent a year. Despite
remarkably strong performances by many of our businesses, we fell well short of
that in 1996.
<PAGE>
"On one hand, North American beverages, global snacks, international restaurants
and KFC all made terrific progress and lots of money. In fact, altogether, our
businesses produced approximately $1.4 billion in free cash flow, a record,
enabling us to repurchase over 50 million shares of our stock.
"On the negative side, profits at Pizza Hut and Taco Bell were down in a
sluggish industry. Far more significant, however, our international beverage
business suffered dramatic losses, in part from an accumulation of unproductive
investments in markets and in beverage-related activities outside our core
business.
"To get PepsiCo focused squarely on its core businesses and its biggest
opportunities, we've taken several major actions in recent months. Among them:
We totally restructured our international beverage business, making it part
of a global unit led by our most experienced beverage executive. We then
lowered fixed costs, reducing staff, writing down underperforming assets and
shedding non-core businesses. Internationally, we'll focus on beverage
markets that offer both a big profit opportunity and a higher probability of
success.
We placed Pizza Hut under David Novak, whose leadership has made KFC one of
America's top-performing restaurant chains.
We placed Taco Bell under the leadership of John Antioco, who has an
exceptional 25-year track record building retail businesses for the 7-Eleven
and Circle K convenience store
chains.
We are exploring the sale of our $3 billion restaurant supply distribution
company and are proceeding with the sale of our small casual dining chains,
our D'Angelo's sandwich chain and our Hot `n Now hamburger business.
We announced plans to spin off our core restaurant business. Given the
fundamental differences between packaged goods and restaurants, we believe
both will better thrive as totally separate companies.
"Together these actions will dramatically sharpen our focus as a corporation,
position us for strong consistent growth and, ultimately, help us to create a
bigger, more profitable future for PepsiCo and its shareholders."
<PAGE>
BEVERAGES
Pepsi-Cola North America (PCNA) had an excellent year with sales growing four
percent and profits advancing a very strong 14 percent. The key driver of sales
was volume growth. For the year, volume (measured in bottler case sales or BCS)
grew four percent, primarily a result of solid growth in the fountain channel
and the extremely successful Pepsi Stuff promotion which ran from April through
October. Profit growth was driven largely by increased operating margins, which
resulted primarily from lower packaging and raw materials costs.
Fourth quarter results largely reflected the annual trends. BCS growth of two
percent was the primary driver of the three percent sales gain. Profit growth
was a very strong 16 percent. Margin expansion was again primarily the result of
favorable packaging and raw materials costs.
International beverages (PCCI) had a very difficult year. Marketing spending was
increased significantly but commitments for these funds were made to bottlers
and programs early in the year. When the anticipated level of sales did not
materialize, PCCI had almost no flexibility to redirect the marketing funds.
As a result of this, BCS volume declined nine percent in the quarter and two
percent for the year. Over three quarters of the decline in cases in the fourth
quarter came from Latin America, largely due to the loss of the bottler in
Venezuela. Fortunately, PCCI has re-entered the Venezuelan market with a strong
partner who is rebuilding distribution aggressively.
As expected, volume softness was a major factor in the decline in profits in the
fourth quarter, coupled with decisions to reposition the division for future
growth and the cost of meeting previous commitments for marketing spending.
SNACK FOODS
Frito-Lay North America (FLNA) delivered 13 percent sales growth and 12 percent
profit growth for the year, as expected. To achieve these results, FLNA posted
ten percent sales growth and 16 percent operating profit growth in the fourth
quarter.
<PAGE>
Pound volume growth of nine percent for the year and six percent for the quarter
were key factors in this growth. This volume growth reflected FLNA's
extraordinary ability to drive consumption of its salty snacks with innovation.
In 1996, FLNA introduced Baked Lay's which had the highest first-year retail
sales of any new food product this decade.
FLNA also strengthened margins in the fourth quarter, a change from the first
three quarters of 1996. This margin improvement was the result of more effective
net pricing and other operating efficiencies.
Frito-Lay International (FLI) grew sales 14 percent for the year and 18 percent
for the quarter. Profits grew at about the same pace as sales in each period.
Salty snacks made a major contribution to that growth. Profit growth for the
quarter and full year was driven by strong volume increases in key salty snack
markets such as Mexico and the U.K. as well as price increases in certain
inflationary countries. Salty snack volume growth was seven percent in the
quarter and eight percent for the full year.
RESTAURANTS
U.S. restaurant sales declined two percent in the fourth quarter and one percent
for the full year. This was primarily the result of two factors. First, there
were fewer company units due to the ongoing program to refranchise company-owned
stores and aggressively close underperforming units. Second, same store sales
were down at Pizza Hut and Taco Bell.
At Pizza Hut same store sales in the U.S. were down four percent for the quarter
and the year, a significant improvement over trends in the third quarter. Taco
Bell saw a decline of two percent for both the quarter and the year. At KFC,
however, same store sales grew two percent in the fourth quarter, a particularly
remarkable achievement given the very tough comparison to a 14 percent advance
in the fourth quarter of 1995. For the full year, KFC same store sales grew six
percent, one of the best performances in the quick service restaurant industry.
<PAGE>
U.S. profits were down for the quarter and the year. In the fourth quarter more
than half of the decline was due to a negative swing of over $100 million in
"net facility actions" (refranchising gains net of store closures and SFAS 121
impairment charges). This did not reflect any changes in the refranchising
program which continued to produce solid gains. It did reflect the fact that all
of the refranchising gains in 1995 were clustered into the fourth quarter,
whereas they were spread across the year in 1996. It also reflected a decision
to accelerate store closures and, as anticipated, some fourth quarter impairment
costs as a part of our regular review under SFAS 121.
For the year, "net facility actions" resulted in a net gain of $35 million.
Although this was less than the prior year, it reflected a significant step-up
in the amount of refranchising gains. However, we chose to reinvest most of
those gains back into the restaurant business through increased levels of store
closures as well as through the required write-down of underperforming assets
under SFAS 121.
Excluding the impact of "net facility actions", U.S. profits were down 36
percent and 12 percent for the quarter and year, respectively. These declines
were due to higher labor costs (resulting in part from an aggressive program to
upgrade customer service) as well as lower same store sales and higher cheese
costs at Pizza Hut and Taco Bell.
International restaurants posted a double digit advance in sales for both the
quarter and the year. In both cases, this advance was largely driven by new
units and same store sales growth. Profits grew an extremely strong 67 percent
in the fourth quarter bringing the full year profit advance to 37 percent.
Excluding net facility actions, profit growth was still very robust, increasing
40 percent and 26 percent in the quarter and year, respectively. The margin
improvement was driven by increased same store sales and franchise fees.
OTHER ITEMS
Share Repurchases
During 1996, PepsiCo repurchased 54.2 million shares of its capital stock at a
total cost of $1.7 billion. This represented three percent of the shares
outstanding at the beginning of fiscal 1996 adjusted for the impact of the
mid-year stock split.
<PAGE>
Capital Spending
Capital spending for the year was approximately $2.3 billion. This was slightly
higher than 1995.
UNUSUAL CHARGES:
International Beverages
On September 26, 1996, PepsiCo announced that it would be taking more than $500
million in charges over the last half of the year for asset impairment and a
planned management restructuring. In the third quarter, announced on October 15,
1996, a total of $390 million of that amount was taken, primarily related to
asset write-downs. In the fourth quarter, an additional $186 million was taken
reflecting the costs of the management restructuring ($122 million) and some
additional asset write-downs.
Restaurants Held For Sale
PepsiCo indicated in the third quarter that it would be focusing more on core
businesses and that it would consider whether to retain our non-core businesses,
including casual dining. During the fourth quarter, a decision was made to sell
the casual dining businesses, including Chevy's, CPK and East Side Mario's as
well as the D'Angelo's sandwich business which had been managed as a part of
Pizza Hut. As a result, a charge of $220 million ($172 million after-tax or
$0.11 per share) was taken in the fourth quarter to write-down these assets to
their estimated market value. Including a charge of $26 million in the first
quarter to dispose of Hot `n Now, total charges during 1996 for the disposal of
all non-core U.S. restaurant businesses amounted to $246 million ($189 million
after-tax or $0.12 per share).
SFAS 121 Accounting Change
As of the beginning of the fourth quarter of 1995, PepsiCo 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." The new
standard resulted in an initial noncash charge in the 1995 fourth quarter of
$520 million ($384 million after-tax or $0.24 per share). The primary business
affected by this accounting standard is the restaurant business and its 1996
recurring noncash impairment charges have been treated as a part of "net
facility actions."
<PAGE>
PepsiCo, Inc. and Subsidiaries
Condensed Consolidated Statement of Income
($ in millions except per share amounts, unaudited)
% Change
16 Weeks Ended As On-
12/28/96 12/30/95 Rept'd going
-------- -------- ------ -----
(a)
Net Sales $9,533 $9,205 4 4
Costs and Expenses, net:
Cost of sales 4,664 4,562 2 2
Selling, general and
administrative expenses 4,076 3,563 14 14
Amortization of intangible
assets 93 102 (9) (9)
Unusual impairment, disposal and
other charges (b) 406 520 (22) -
------ ------
Operating Profit 294 458 (36) (28)
Interest expense (175) (200) (13) (13)
Interest income 28 42 (33) (33)
------ ------
Income Before Income Taxes 147 300 (51) (33)
Provision for Income Taxes (c) 119 119 - (21)
------ ------
Net Income $ 28 $ 181 (85) (38)
====== ======
Net Income Per Share $ 0.03 $ 0.11 (73) (31)
====== ======
Average Shares Outstanding 1,588 1,615 (2) (2)
NOTES:
(a) Excluded unusual charges described in (b) below.
(b) Unusual charges of $406 ($323 after-tax or $0.21 per share)
in 1996 were associated with international beverage operations ($186 ($151
after-tax or $0.10 per share)) and the decision to dispose of the
remaining non-core U.S. restaurant businesses (including casual dining and
D'Angelo Sandwich Shops) ($220 ($172 after-tax or $0.11 per share)). The
1995 charge of $520 ($384 after-tax or $0.24 per share) was the initial
impact of adopting SFAS 121.
(c) The reported effective tax rates were 81.0% in 1996 and 39.7% in 1995.
Excluding the unusual charges, the 1996 and 1995 effective tax rates were
36.5% and 31.1%, respectively.
PepsiCo, Inc. and Subsidiaries
Condensed Consolidated Statement of Income
($ in millions except per share amounts, unaudited)
% Change
52 Weeks Ended As On-
12/28/96 12/30/95 Rept'd going
-------- -------- ------ ------
(a)
Net Sales $31,645 $30,255 5 5
Costs and Expenses, net:
Cost of sales 15,383 14,886 3 3
Selling, general and
administrative expenses 12,593 11,546 9 9
Amortization of intangible
assets 301 316 (5) (5)
Unusual impairment, disposal and
other charges (b) 822 520 58 -
------- -------
Operating Profit 2,546 2,987 (15) (4)
Interest expense (600) (682) (12) (12)
Interest income 101 127 (20) (20)
------- -------
Income Before Income Taxes 2,047 2,432 (16) (3)
Provision for Income Taxes (c) 898 826 9 4
------- -------
Net Income $ 1,149 $ 1,606 (28) (6)
======= =======
Net Income Per Share $ 0.72 $ 1.00 (28) (6)
======= =======
Average Shares Outstanding 1,606 1,608 - -
NOTES:
(a) Excluded unusual charges described in (b) below.
(b) Unusual charges of $822 ($716 after-tax or $0.45 per share)
in 1996 were associated with international beverage operations ($576 ($527
after-tax or $0.33 per share)) and the decision to dispose of all non-core
U.S. restaurant businesses (including casual dining, D'Angelo Sandwich
Shops and Hot`n Now) ($246 ($189 after-tax or $0.12 per share)). The 1995
charge of $520 ($384 after-tax or $0.24 per share) was the initial impact
of adopting SFAS 121.
(c) The reported effective tax rates were 43.9% in 1996 and 34.0% in 1995.
Excluding the unusual charges, the 1996 and 1995 effective tax rates were
35.0% and 32.6%, respectively.
<PAGE>
PepsiCo, Inc. and Subsidiaries
Supplemental Schedule of Net Sales and Operating Profit
16 Weeks Ended December 28, 1996 and December 30, 1995
($ in millions, unaudited)
Net Sales Operating Profit
--------- ---------------------------------
% Change
--------
16 Weeks Ended % 16 Weeks Ended As On-
12/28/96 12/30/95 Change 12/28/96 12/30/95 Rept'd going
----------------- ----------------- --------------
(a)
Beverages
- -N.A.(b) $2,230 $2,172 3 $ 335 $ 289 16 16
- -Int'l(c)(d) 781 880 (11) (404) (3) NM NM
------ ------ ----- ----
3,011 3,052 (1) (69) 286 NM (59)
Snack Foods
- -N.A.(b) 1,974 1,789 10 405 349 16 16
- -Int'l 1,027 868 18 120 104 15 15
------ ------ ----- ----
3,001 2,657 13 525 453 16 16
Restaurants(e)
- -U.S.(f) 2,776 2,823 (2) (144) 261 NM (71)
- -Int'l 745 673 11 45 27 67 67
------ ------ ----- ----
3,521 3,496 1 (99) 288 NM (58)
Total $9,533 $9,205 4 357 1,027 (65) (26)
====== ======
Initial Impact of Impairment
Accounting Change (SFAS 121) - (520) NM -
Corporate(g) (63) (49) 29 29
----- ------
Operating Profit $ 294 $ 458 (36) (28)
===== ======
NM - Not meaningful.
<PAGE>
NOTES (16 weeks):
a) Excluded the items described in (c) and (f) below and the
initial impact of the impairment accounting change (SFAS
121) in 1995.
b) North America is composed of operations in the U. S. and
Canada.
c) International beverages operating losses in 1996 included
unusual charges of $186 related primarily to a reorganization into ten
business units and a reduction in support staff, impaired investments in
unconsolidated affiliates and other assets and the disposal of some
non-core (primarily packaging) businesses.
d) International beverages operating losses in 1996 included higher than
normal expenses of approximately $80 million from fourth quarter balance
sheet adjustments and actions.
e) Restaurant operating profit included net facility actions:
1996 1995
---- ----
Gains on sale $ 25 $ 80
Store closure costs and
SFAS 121 impairment charges (79) (25)
---- ----
Net facility actions $(54) $ 55
==== ====
U.S. $(50) $ 63
International (4) (8)
---- ----
$(54) $ 55
==== ====
f) U.S. restaurants operating profit included an unusual charge of $220 in
1996 as a result of the decision to dispose of the remaining non-core
(including California Pizza Kitchen, Chevys, D'Angelo Sandwich Shops and
East Side Mario's) U.S. restaurant businesses.
g) Includes corporate headquarters expenses, foreign exchange translation
and transaction gains and losses and other items. A net foreign
exchange gain of $4 and loss of $2 were included in 1996 and 1995,
respectively.
PepsiCo, Inc. and Subsidiaries
Supplemental Schedule of Net Sales and Operating Profit
52 Weeks Ended December 28, 1996 and December 30, 1995
($ in millions, unaudited)
Net Sales Operating Profit
--------------- ------------------
% Change
----------------
52 Weeks Ended % Change 52 Weeks Ended As On-
----------------- ---------- ------------- Rept'd going
12/28/96 12/30/95 12/28/96 12/30/95 ------ -----
(a) (b)
Beverages
- -N.A.(c) $ 7,725 $ 7,400 4 $1,428 $1,249 14 14
- -Int'l(d)(e) 2,799 2,982 (6) (846) 117 NM NM
------ ------- ------ ------
10,524 10,382 1 582 1,366 (57) (15)
Snack Foods
- -N.A.(c) 6,618 5,863 13 1,286 1,149 12 12
- -Int'l 3,062 2,682 14 346 301 15 15
------- ------- ------ ------
9,680 8,545 13 1,632 1,450 13 13
Restaurants(f)
- -U.S.(g) 9,110 9,206 (1) 370 726 (49) (15)
- -Int'l 2,331 2,122 10 153 112 37 37
------- ------- ------ ------
11,441 11,328 1 523 838 (3) (8)
Total $31,645 $30,255 5 2,737 3,654 (25) (3)
======= =======
Initial Impact of Impairment
Accounting Change (SFAS 121) - (520) NM -
Corporate(h) (191) (147) 30 30
------ ------
Operating Profit $2,546 $2,987 (15) (4)
====== ======
NM - Not meaningful.
NOTES (52 weeks):
a) Included a benefit of $46 (U.S. restaurants-30, international
restaurants-$10 and international beverages-$6) for the first three
quarters of 1996 from lower depreciation and amortization expense
resulting from the reduced carrying amount of certain long-lived assets
due to the adoption of SFAS 121 as of the beginning of the fourth quarter
of 1995.
b) Excluded the items described in (d) and (g) below and the
initial impact of the impairment accounting change (SFAS
121) in 1995.
c) North America is composed of operations in the U. S. and
Canada.
d) International beverages operating losses in 1996 included
unusual charges of $576 related primarily to impaired investments in
unconsolidated affiliates and concentrate-related assets, the disposal of
some non-core (primarily packaging) businesses, a reorganization into ten
business units and a reduction in support staff.
e) International beverages operating losses in 1996 included higher than
normal expenses of approximately $80 million from fourth quarter balance
sheet adjustments and actions.
f) Restaurant operating profit included net facility actions:
1996 1995
Gains on sale $ 139 $ 93
Store closure costs and
SFAS 121 impairment charges (102) (38)
----- ----
Net facility actions $ 37 $ 55
===== ====
U.S. $ 35 $ 63
International 2 (8)
----- ----
$ 37 $ 55
===== ====
g) U.S restaurants operating profit included an unusual charge of $246 in
1996 as a result of the decision to dispose of all non-core (including
California Pizza Kitchen, Chevys, D'Angelo Sandwich Shops, East Side
Mario's and Hot'n Now) U.S. restaurant businesses.
h) Includes corporate headquarters expenses, foreign exchange translation and
transaction gains and losses and other items. Net foreign exchange losses
of $1 and $6 were included in 1996 and 1995, respectively.
