10-QPeriod: Q1 FY2001

PEPSICO INC Quarterly Report for Q1 Ended Mar 24, 2001

Filed May 2, 2001For Securities:PEP

Summary

PepsiCo Inc. reported strong first-quarter results for 2001, with net sales increasing by 8% to $4.539 billion and net income growing by 18% to $498 million compared to the same period in the prior year. This growth was driven by volume gains across all divisions, higher effective net pricing, and strategic acquisitions like South Beach Beverage Company (SoBe). The company also benefited from a slightly lower effective tax rate and reduced net interest expense, contributing to a 17% increase in net income per share to $0.34. Key segments like Frito-Lay and Pepsi-Cola North America demonstrated robust performance, with Frito-Lay International also showing significant operating profit growth despite currency headwinds. Significant strategic developments are underway, most notably the proposed merger with The Quaker Oats Company, which received shareholder approval and significant regulatory progress. This merger is expected to be accounted for using the pooling-of-interests method and is anticipated to close by the end of June 2001. While the company experienced a decrease in cash and cash equivalents due to acquisitions and capital spending, its strong cash-generating capabilities and access to capital markets provide a solid liquidity position. The adoption of SFAS 133 for derivative instruments also impacted the financial statements, with no material adverse effect on operations.

Key Highlights

  • 1Net sales grew 8% to $4.539 billion, driven by volume, pricing, and acquisitions.
  • 2Net income increased 18% to $498 million, with net income per share rising 17% to $0.34.
  • 3Frito-Lay North America and International divisions showed solid sales and operating profit growth.
  • 4Pepsi-Cola North America experienced strong net sales growth (21%) fueled by new products and the SoBe acquisition.
  • 5The proposed merger with The Quaker Oats Company received shareholder approval and is progressing towards a June 2001 completion.
  • 6Cash and cash equivalents decreased by $461 million, primarily due to acquisitions (including SoBe) and capital spending.
  • 7PepsiCo adopted SFAS 133 for derivative instruments at the beginning of 2001, with no material adverse impact.

Frequently Asked Questions

Revenue growth was primarily driven by volume increases across all business segments, higher effective net pricing, and the acquisition of South Beach Beverage Company (SoBe). Specific brand performance, like strong growth for Doritos, Lay's, Aquafina, and Sierra Mist, also contributed significantly.

As of the filing date (May 2, 2001), both PepsiCo and Quaker Oats shareholders approved the merger agreement. Significant regulatory progress has been made, with antitrust approvals obtained in Canada, Mexico, and Europe. The transaction is subject to further conditions, including U.S. Federal Trade Commission clearance, and is expected to be completed by the end of June 2001, accounted for under the pooling-of-interests method.

PepsiCo adopted SFAS 133 ('Accounting for Derivative Instruments and Hedging Activities') on December 31, 2000. This required the recognition of all derivative instruments at fair value. The adoption resulted in a modest increase in assets and liabilities, with a small amount recognized in accumulated other comprehensive income and the income statement. The company stated that its use of derivatives is primarily for hedging, not speculation, and that the impact of this adoption was not material to its operations.

While cash and cash equivalents decreased by $461 million in the quarter primarily due to acquisitions and capital expenditures, PepsiCo maintains strong cash-generating capabilities and ready access to global capital markets. The company has substantial revolving credit facilities available to support its liquidity needs.