[PepsiCo logo and operating division logos omitted]
Peter Bridgman
August 10, 2001
Agenda
o Welcome and Introductions
-------------------------
o Meeting Objective
o Rules of the Day
o New Operating Businesses
o Corporate Costs and Assumptions
o Accounting Assumptions
o Financials: Pro Forma
o Financials: Reported
o Q & A
Safe Harbor Statement
This material contains certain "forward looking" statements. These statements
are based on management's current expectations and are naturally subject to
uncertainty and changes in circumstances. Actual results may vary materially
from the expectations contained herein. The forward-looking statements include
statements about future benefits of the merger between PepsiCo, Inc.
("PepsiCo") and The Quaker Oats Company ("Quaker Oats") Factors that could
cause actual results to differ materially from those described herein include:
the inability to successfully integrate the businesses of PepsiCo and Quaker
Oats; the inability to achieve cost-cutting synergies resulting from the
merger; changing consumer or marketplace trends; and the general economic
environment. For a review of other risk factors, please refer to our statements
filed at the Securities and Exchange Commission. PepsiCo is not under any
obligation to update or alter its forward-looking statements, whether as a
result of new information, future events, or otherwise.
Agenda
o Welcome and Introductions
o Meeting Objective
-----------------
o Rules of the Day
o New Operating Businesses
o Corporate Costs and Assumptions
o Accounting Assumptions
o Financials: Pro Forma
o Financials: Reported
o Q & A
Meeting Objective
To provide an understanding of the financial statements of the New PepsiCo so
that
o you have an historical basis for the New PepsiCo and
o you have the appropriate base upon which to build your outlook for
the New PepsiCo.
Agenda
o Welcome and Introductions
o Meeting Objective
o Rules of the Day
----------------
o New Operating Businesses
o Corporate Costs and Assumptions
o Accounting Assumptions
o Financials: Pro Forma
o Financials: Reported
o Q & A
Rules of the Day
o What we will cover
- HISTORY (1998 - Q2 2001)
- Operating Segment Definitions
- Accounting Assumptions
- Financial Statements
Rules of the Day
o What we will not cover
---
- The FUTURE
- Growth algorithm
- Operating Synergies and Restructuring Estimates
Agenda
o Welcome and Introductions
o Meeting Objective
o Rules of the Day
o New Operating Businesses
------------------------
o Corporate Costs and Assumptions
o Accounting Assumptions
o Financials: Pro Forma
o Financials: Reported
o Q & A
Six Reporting Segments
Pepsi-Cola North America (PCNA)
Gatorade/Tropicana North America (GTNA)
Frito-Lay North America (FLNA)
PepsiCo Beverages International (PBI)
Frito-Lay International (FLI)
Quaker Foods North America (QFNA)
Our New Operating Businesses
Pepsi-Cola = PCNA
North America
[Image of Pepsi-Cola North America's products omitted]
Our New Operating Businesses
Gatorade/ Gatorade Tropicana's
Tropicana = U.S. and Canada + North American
North America Business
[Image of Gatorade's U.S. and Canada products and Tropicana's
North American products omitted]
Our New Operating Businesses
Frito-Lay Quaker's
North = FLNA + North American
America Snack Business
(Bars & Rice Cakes)
[Image of Quaker's North American snack products and Frito-Lay
North America's products omitted]
Our New Operating Businesses
PepsiCo Pepsi-Cola Tropicana's Gatorade's
Beverages = International + International + International
International Business Business
[Image of Pepsi-Cola International's products, Tropicana's international
products and Gatorade's international products omitted]
Our New Operating Businesses
Frito-Lay Quaker's
International = FLI + International Rice
Cakes, Bars and
Foods Businesses
[Image of Frito-Lay International's products and Quaker's
international rice cakes, bars and food products omitted]
Our New Operating Businesses
Quaker's North
Quaker Foods American Cereals,
North America = Rice and Prepared
Foods Businesses
[Image of Quaker's international cereals, rice cakes and prepared
food products omitted]
Agenda
o Welcome and Introductions
o Meeting Objective
o Rules of the Day
o New Operating Businesses
o Corporate Costs and Assumptions
-------------------------------
o Accounting Assumptions
o Financials: Pro forma
o Financials: Reported
o Q & A
Our Corporate Costs
o Corporate unallocated costs include
- Corporate overhead expenses, primarily in Purchase and Chicago
- Centralized cross divisional initiatives
- Transactional forex gains and losses
Our Corporate Costs
o Provision for Income Taxes
- As previously reported by PepsiCo and Quaker
- No adjustments for potential strategies had we been combined in
earlier years
o Average Shares Outstanding
- Added Quaker's weighted average shares outstanding, multiplied by the
2.3 exchange ratio
o Net Interest Expense
- As previously reported by PepsiCo and Quaker on a proforma basis,
adjusted for reclassifications
Agenda
o Welcome and Introductions
o Meeting Objective
o Rules of the Day
o New Operating Businesses
o Corporate Costs and Assumptions
o Accounting Assumptions
----------------------
o Financials: Pro forma
o Financials: Reported
o Q & A
Accounting Assumptions:
Policies
o Quaker Accounting Policies very similar to PepsiCo
o We have made minor adjustments to ensure ongoing comparability
- No impact on full year Net Income
- Quaker's quarterly advertising and marketing expense
- Quarterly tax accruals
- Reclassifications between financial statement lines
- Quarterly reporting calendar
Accounting Assumptions:
Reporting Calendar
o We will keep PepsiCo's existing reporting calendar
- Year-end is the last Saturday in December
- 52 week year; 53 weeks every 5 or 6 years - next 2005
- Quarters 1, 2 & 3 are 12 weeks; Quarter 4 is 16 weeks
Accounting Assumptions:
Reporting Calendar
o Quaker had a December 31 year-end and 3 month reporting cycle
- Quaker calendar year is consolidated with PepsiCo's 52/53 week
year
- For example, for 2001:
Quaker PepsiCo New PepsiCo
------ ------- -----------
February 28 + March 24 = March 24
May 31 + June 16 = June 16
August 31 + September 8 = September 8
December 31 + December 29 = December 29
o Similar methodology for all years presented
- Methodology consistent with PCI
- Quaker operating businesses will ultimately change to 52/53 week
cycle
o Implementation dependent on overall systems integration
o Probably not before 2003
Accounting Assumptions:
Future Changes
o New accounting guidance has recently been issued regarding goodwill and
classification of customer support
o We are currently evaluating the impact of these statements
- Non amortization of goodwill
o Raises EPS
o Estimated to lower EPS growth rate slightly
- Reclassification of customer promotional incentives from selling,
general and administrative expenses to net sales
o Non-cash and no impact on Operating Profit or EPS
- Improves margins
Agenda
o Welcome and Introductions
o Meeting Objective
o Rules of the Day
o New Operating Businesses
o Corporate Costs and Assumptions
o Accounting Assumptions
o Financials: Pro forma
---------------------
o Financials: Reported
o Q & A
Financials: Pro Forma
o Pro Forma Financials provide a basis of comparison for historical results
- Excludes impact of 53rd week in 2000
- Excludes various one-time gains and losses
- Excludes significant impairment and restructuring charges
- Restates all years for any accounting changes
- Reflects PepsiCo's 1999 bottling transactions as though they occurred
as of January 1998
- Reflects PepsiCo's August 1998 Tropicana acquisition as if it
occurred in January 1998
- Excludes Quaker divested businesses
o However pro forma financials are not consistent with financial results
reported in SEC filings
Financials: Pro Forma
% vs. % vs.
----- -----
Volume (MM) Unit of Measure 2000 1999 1999 1998 1998
- ----------- --------------- ---- ---- ---- ---- ----
Frito-Lay Pounds 3,245 5% 3,103 4% 2,987
North America
Frito-Lay Kilos 1,531 10% 1,397 4% 1,340
International
Pepsi-Cola 8oz. equivalent 3,552 1% 3,523 2% 3,475
North America Bottler Case Sales
Gatorade/Tropicana Gallons 1,064 10% 970 8% 900
North America
PepsiCo Beverages 8oz. equivalent 3,154 6% 2,956 -- 2,967
International Bottler Case Sales
Quaker Foods Pounds 1,251 (1%) 1,269 1% 1,255
North America
Volume
o "Servings" - a new volume measure for total PepsiCo
- Clearly defined conversion factors
- Will also continue to give segment volume guidance
Serving Sizes | Traditional = Servings
- -------------------------------------|------------------- ----------------
Beverage 8 oz | 1 Lb 15.1 Salty
| 11.3 Sweet
Salty Snack 30 g | 10.1 Other Foods
|
Sweet Snack 40 g | 1 Kilo 33.3 Salty
| 25.0 Sweet
Other Food 45 g | 22.2 Other Foods
|
| 1 BCS 24
|
| 1 Gallon 16
|
Volume
Total Servings % vs. % vs.
- -------------- ----- -----
2000 1999 1999 1998 1998
---- ---- ---- ---- ----
Worldwide Snacks 93,312 7% 87,053 4% 83,327
Worldwide Beverages 177,966 4% 171,492 1% 169,016
Quaker Foods N.A. 12,613 (1%) 12,793 1% 12,649
Total PepsiCo 283,891 5% 271,338 2% 264,992
Financials: Pro Forma
Net Sales % vs. % vs.
- --------- ----- -----
2000 1999 1999 1998 1998
---- ---- ---- ---- ----
Frito-Lay N. A. $8,807 7% $8,232 5% $7,821
Frito-Lay Intl. 4,814 13% 4,274 5% 4,077
------- ------- -------
Worldwide Snacks 13,621 9% 12,506 5% 11,898
------- ------- -------
Pepsi-Cola N. A. 3,253 8% 3,005 3% 2,912
Gatorade/Tropicana N. A. 3,808 10% 3,452 12% 3,079
PepsiCo Beverages Intl. 2,531 4% 2,429 3% 2,368
------- ------- -------
Worldwide Beverages 9,592 8% 8,886 6% 8,359
------- ------- -------
Quaker Foods N. A. 1,972 (1%) 1,993 3% 1,928
Total Net Sales $25,185 8% $23,385 5% $22,185
======= ======= =======
Financials: Pro Forma
Segment Operating Profit % vs. % vs.
- ------------------------ ----- -----
2000 1999 1999 1998 1998
---- ---- ---- ---- ----
Frito-Lay N.A. $1,875 12% $1,679 11% $1,515
Frito-Lay Intl. 536 17% 455 15% 397
------ ------ ------
Worldwide Snacks 2,411 13% 2,134 12% 1,912
------ ------ ------
Pepsi-Cola N. A. 820 9% 751 2% 738
Gatorade/Tropicana N. A. 495 15% 433 30% 333
PepsiCo Beverages Intl. 169 56% 108 (7%) 116
------ ------ ------
Worldwide Beverages 1,484 15% 1,292 9% 1,187
------ ------ ------
Quaker Foods N. A. 392 8% 363 10% 331
Segment Operating Profit $4,287 13% $3,789 10% $3,430
====== ====== ======
Financials: Pro Forma
2000 1999
------------------ ------------------
New Pep Old Pep New Pep Old Pep
------- ------- ------- -------
Cost of sales
(as a %of sales) 40.6% 38.9% 38.9% 37.3%
Selling, general and
administrative expenses
(as a % of sales) 43.1% 44.7% 45.5% 46.8%
Financials: Pro Forma
2000 1999 1998
---- ---- ----
Segment Operating Profit $4,287 $3,789 $3,430
Corporate Unallocated Expenses (330) (330) (276)
Bottling Equity Income - Net 125 82 46
Interest Expense - Net (202) (203) (223)
------ ------ ------
Income Before Income Taxes 3,880 3,338 2,977
Provision for Income Taxes 1,270 1,093 974
------ ------ ------
Net Income $2,610 $2,245 $2,003
Financials: Pro Forma
2000 1999 1998
---- ---- ----
Net Income $2,610 $2,245 $2,003
Preferred Dividends 4 4 5
------ ------ ------
Net Income Available for Common $2,606 $2,241 $1,998
Average Shares Outstanding - Diluted 1,791 1,817 1,848
EPS
Basic $1.490 $1.263 $1.113
Diluted $1.456 $1.234 $1.083
Financials: Pro Forma
The seasonality of our 2000 results is not significantly impacted by the
addition of Quaker
Volume
------------------------------
Q1 Q2 Q3 Q4
-- -- -- --
"Old" PepsiCo 21% 25% 26% 28% 100%
"New" PepsiCo 20% 26% 28% 26% 100%
Net Sales
------------------------------
Q1 Q2 Q3 Q4
-- -- -- --
"Old" PepsiCo 21% 25% 24% 30% 100%
"New" PepsiCo 20% 25% 25% 30% 100%
Cash Flow Items:
Capital Spending
Pro forma Capital Spending 2000 1999 1998
- -------------------------- ---- ---- ----
PepsiCo 1,067 1,118 1,405
Quaker 268 222 197
(ongoing business) ------ ------ ------
Total 1,353 1,340 1,602
Capex at Divested
Bottling Operations -- (95) (543)
Tropicana Jan-Aug '98 59
- ----------------------------------------------------------
Pro Forma 1,353 1,245 1,118
- ----------------------------------------------------------
Agenda
o Welcome and Introductions
o Meeting Objective
o Rules of the Day
o New Operating Businesses
o Corporate Costs and Assumptions
o Accounting Assumptions
o Financials: Pro forma
o Financials: Reported
--------------------
o Q & A
Financials: Reported
o Pro Formas that we have just reviewed include assumptions not permitted in
SEC filings
o We use "Reported" and "Comparable" results in SEC filings
Reported = Generally Accepted Accounting Principles (GAAP)
Comparable = Reported results excluding objectively
verifiable adjustments
Financials: Reported
o Reported Income Statement
o Comparable Income Statement
- Exclude impact of 53rd week
- Exclude impact of one-time gains and losses
- Exclude significant impairment and restructuring charges
- Restate all periods for any accounting changes
- Exclude Quaker divested businesses
o Pro Forma Income Statement
- Reflect PepsiCo's 1999 bottling transactions as though they occurred
January 1998
- Reflect PepsiCo's August 1998 Tropicana acquisition as if it occurred
in January 1998
Financials: Reported
Net Sales 2000 1999 1998
- --------- ---- ---- ----
Frito-Lay N. A. $8,971 $8,232 $7,821
Frito-Lay Intl. 4,875 4,274 4,077
------- ------- -------
Worldwide Snacks 13,846 12,506 11,898
------- ------- -------
Pepsi-Cola N. A. 3,289 2,605 1,389
Gatorade/Tropicana N. A. 3,841 3,452 1,956
PepsiCo Beverages Intl. 2,531 2,407 2,074
------- ------- -------
Worldwide Beverages 9,661 8,464 5,419
------- ------- -------
Quaker Foods N. A. 1,972 1,993 1,928
------- ------- -------
Segment Net Sales 25,479 22,963 19,245
------- ------- -------
Quaker Divested Businesses -- 7 284
Bottling Operations -- 2,123 7,662
------- ------- -------
Total Net Sales $25,479 $25,093 $27,191
------- ------- -------
Financials: Reported
Segment Operating Profit 2000 1999 1998
- ------------------------ ---- ---- ----
Frito-Lay N. A. $1,915 $1,679 $1,515
Frito-Lay Intl. 546 455 397
------ ------ ------
Worldwide Snacks 2,461 2,134 1,912
------ ------ ------
Pepsi-Cola N. A. 833 751 738
Gatorade/Tropicana N. A. 500 433 259
PepsiCo Beverages Intl. 169 108 120
------ ------ ------
Worldwide Beverages 1,502 1,292 1,117
------ ------ ------
Quaker Foods N. A. 392 363 331
------ ------ ------
Segment Operating Profit $4,355 $3,789 $3,360
------ ------ ------
Financials: Reported
2000 1999 1998
------------------------
Segment Operating Profit $4,355 $3,789 $3,360
Corporate Unallocated Expenses (353) (286) (186)
Impairment and Restructuring Charges (184) (73) (482)
Quaker Divested Businesses -- -- (2)
Bottling Operations/Investments -- 53 346
Gain on Bottling Transactions -- 1,000 --
Bottling Equity Income - Net 130 83 --
Interest Expense - Net (187) (291) (376)
------ ------ ------
Income Before Income Taxes 3,761 4,275 2,660
Provision for Income Taxes 1,218 1,770 382
------ ------ ------
Net Income $2,543 $2,505 $2,278
------ ------ ------
Average Shares Outstanding - Diluted 1,791 1,817 1,848
EPS
Basic $1.452 $1.409 $1.266
Diluted $1.419 $1.377 $1.231
Financials: Reported
o We anticipate filing our restated 10K later this month
- Filing on Form 8K
- Required within 60 days of announcing transaction
- 1998 - 2000 full year financials, footnotes and Management
Discussions and Analysis
o Q2 2001 financial statements and footnotes
Agenda
o Welcome and Introductions
o Meeting Objective
o Rules of the Day
o New Operating Businesses
o Corporate Costs and Assumptions
o Accounting Assumptions
o Financials: Pro forma
o Financials: Reported
o Q & A
------
[PEPSICO LOGO]
Q&A
[operating division logos omitted]