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PEPSICO INC Annual Report, Year Ended Dec 25, 1999

Filing Date
Filed March 21, 2000
Period End
December 25, 1999
Security
PEP
In the record · 2016–202610-K1110-Q338-K145

PEP filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 145 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Jun ’16Jun ’16
  2. FY2018 annual report10-K · Feb ’19Feb ’19
  3. Leadership change8-K · Aug ’21Aug ’21
  4. Leadership change8-K · Dec ’25Dec ’25

01—Abstract

Summary

Summary of the 10-K filed March 21, 2000. Cited figures are marked; the original filing is the authoritative source.

PepsiCo's fiscal 1999 results were shaped by a major portfolio restructuring rather than by underlying operating momentum alone.

During 1999 the company deconsolidated much of its bottling system by forming four anchor bottlers (PBG, the Whitman combination, PepCom and Pohlad), retaining noncontrolling stakes of roughly 24% to 40%. Reported net sales fell 9% to $20.4 billiona, but this reflects the deconsolidation rather than weakness. Excluding the bottling changes and the Tropicana consolidation, New PepsiCo net sales rose 24% to $18.2 billion, with volume gains at Frito-Lay and higher effective pricing.

Reported operating profit rose 9% to $2.8 billionb, and reported EPS from continuing operations was $1.37 (diluted), up 5%. The $1.0 billion pre-tax gain on the PBG IPO and the Whitman transaction (partly offset by an after-tax loss on Whitman) flattered reported results, while the 43.9% effective tax rate reflects taxes on those transactions. Ongoing results, which exclude the one-time items, were more modest.

Ongoing EPS rose 6% to $1.23c, and ongoing operating profit margin on New PepsiCo sales slipped 0.3 points to 15.2% as G&A spending (including $71 million for a shared services program) and advertising and marketing expenses grew faster than sales. Net interest expense fell 24% after the bottling-related debt paydown, and average diluted shares dropped about 1.5%. Share repurchases were $1.3 billion, with a new $3 billion authorization covering 1999 through 2001.

Dividends were raised to 53.5 cents per share from 51.5 cents. Capital spending was $1.1 billiond, and operating cash flow was $3.0 billion. The balance sheet is substantially lighter following the deconsolidation.

Total assets fell to $17.6 billion from $22.7 billion, and long-term debt fell to $2.8 billion from $4.0 billion. Intangible assets dropped to $4.7 billion from $9.0 billion, and investments in unconsolidated affiliates rose to $2.8 billion.

The company guaranteed $2.3 billion of Bottling Group LLC debt, a contingent obligation investors should monitor. Tropicana, acquired in 1998 for $3.3 billion, contributed $2.25 billion in net sales and $170 million in operating profit in its first full year as part of PepsiCo.

02—Key points

Key Highlights

  1. Reported net sales declined 9% to $20.4 billion, largely due to deconsolidation of bottling operations (PBG, Whitman, PepCom, Pohlad). New PepsiCo sales rose 24% to $18.2 billion, aided by Tropicana's inclusion.
  2. Reported diluted EPS from continuing operations was $1.37, up 5%. Ongoing EPS was $1.23, up 6%, excluding the $1.0 billion pre-tax gain on bottling transactions and impairment charges.
  3. Ongoing New PepsiCo operating margin slipped 0.3 points to 15.2% as G&A (including $71 million for shared services) and advertising/marketing spending outpaced sales growth.
  4. Total assets fell to $17.6 billion from $22.7 billion and long-term debt fell to $2.8 billion from $4.0 billion after the bottling separations.
  5. Returned capital to shareholders: $1.3 billion in buybacks (35.8 million shares) and dividends increased to 53.5 cents per share from 51.5 cents. A new $3 billion repurchase authorization covers 1999 to 2001.
  6. PepsiCo guarantees $2.3 billion of Bottling Group LLC long-term debt, a contingent liability that could become material if PBG's credit deteriorates.
  7. Impairment and restructuring charges fell sharply to $65 million from $288 million in 1998, mainly from closing three Frito-Lay North America plants.

03—Questions

Frequently Asked Questions

  1. Why did reported net sales and assets fall so sharply in 1999?

    The company deconsolidated several bottling operations after forming bottling partnerships with PBG, Whitman, PepCom and Pohlad. These businesses are now accounted for under the equity method, so their sales and assets no longer appear in PepsiCo's consolidated figures. Tropicana, acquired in 1998, was included for the first three quarters of 1999, which partly offset the decline. The company's own ongoing business grew.

  2. How much of the 1999 earnings growth came from one-time items?

    A substantial portion. Reported EPS of $1.37 included the $1.0 billion pre-tax gain on the PBG IPO and the Whitman transaction, which was partly offset by the Whitman loss and a 10.6-point tax rate impact. Ongoing EPS, which excludes these items and impairment charges, was $1.23, up 6%. Investors should focus on the ongoing figure for underlying trends.

  3. What are the main risks to PepsiCo's financial position?

    Key risks include the $2.3 billion guarantee of Bottling Group LLC debt, margin pressure from rising G&A and marketing costs, and exposure to commodity prices (oil, corn, juice concentrates), foreign exchange (Mexican peso, British pound, euro, Canadian dollar), and interest rates. Management estimates a 10% currency move would change operating profit by about $60 million. The company also reports that the euro conversion costs are not expected to be material.

  4. Is the dividend and share repurchase program sustainable?

    Operating cash flow of $3.0 billion comfortably covered the $778 million in dividends paid and the $1.3 billion in share repurchases in 1999. The company has paid quarterly dividends since 1965 and raised the 1999 payout to 53.5 cents per share. A $3 billion buyback authorization for 1999 to 2001 is in place. Debt reduction and the cash received from the PBG transaction also supported this capital return.

04—Continue

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