[Financial Highlights]
[Letter from the Chairman]
[Worldwide Snacks]
[Worldwide Beverages]
[Quaker Foods North America]
[PepsiCo Shopping List]
[Corporate Citzenship]
[Principal Divisions & Officers]
[Board of Directors]
[Common Stock Information/Stock Performance]
[Shareholder Information]
[Financial Review]

Click here to download the 2001 Annual Report as a PDF file.

Management's Discussion and Analysis of Results of Operations and Financial Condition

Business Segments
Additional information concerning our operating segments is presented in Note 21 to our consolidated financial statements.

Worldwide Snacks
Worldwide Snacks primarily include our salty, sweet and grain-based snack businesses. Products manufactured and sold by Frito-Lay North America include Lay's potato chips, Doritos and Tostitos tortilla chips, Cheetos cheese flavored snacks, Ruffles potato chips, Fritos corn chips, a variety of dips and salsas, Quaker Chewy granola bars, Rold Gold pretzels, Sunchips multigrain snacks and Funyuns onion flavored rings. Frito-Lay International includes Sabritas snack foods and Alegro and Gamesa sweet snacks in Mexico, Walkers snack foods in the United Kingdom and Smith's snack foods in Australia. Frito-Lay International also includes non-snack products, such as cereals that are not material.

Volume growth is reported on a system-wide basis, which includes joint ventures.

Frito-Lay North America

frito-lay North America

2001 vs. 2000
Pound volume advanced 3% excluding the impact of the fifty-third week in 2000. This growth was led by single-digit growth in Lay's potato chips, Cheetos cheese flavored snacks, Doritos tortilla chips, Fritos corn chips and the introduction of our new Lay's Bistro Gourmet potato chips. These gains were partially offset by a double-digit decline in Ruffles potato chips. Pound volume growth including the fifty-third week in 2000 was 1%.

Comparable net sales grew 6% due to higher effective net pricing and the increased volume. Lay's Bistro Gourmet potato chips contributed 1 percentage point to this growth.

Comparable operating profit increased 10% primarily reflecting the higher effective net pricing and increased volume, partially offset by increased advertising and marketing expenses. Advertising and marketing expenses grew at a faster rate than sales primarily due to increased promotional allowances.

2000 vs. 1999
Pound volume advanced 5% excluding the impact of the fifty-third week. This growth was primarily driven by most of our core brands, excluding the low-fat and no-fat versions, and by our new Snack Kit products. The growth in core brands was led by solid single-digit growth in Lay's potato chips, Cheetos cheese flavored snacks and Ruffles potato chips, as well as double-digit growth in Tostitos tortilla chips. These gains were partially offset by continued declines in WOW! products. Pound volume growth including the fifty-third week was 7%.

Comparable net sales increased 7% primarily due to the volume gains and higher effective net pricing. Sales of our new Snack Kit and Snack Mix products and Oberto natural beef jerky snacks accounted for almost 30% of this growth. The fifty-third week enhanced reported net sales growth by 2 percentage points.

Comparable operating profit increased 12% primarily reflecting the higher volume, the higher effective net pricing and reduced vegetable oil costs, partially offset by higher energy and fuel costs. Advertising and marketing expenses grew at a slightly slower rate than sales. The margin impact of these favorable factors contributed to the comparable operating profit margin improvement of 0.9 percentage points. The fifty-third week enhanced reported operating profit growth by 2 percentage points.

Frito-Lay International

Frito-lay International

2001 vs. 2000
Kilo volume increased 6%, excluding the impact of the fifty-third week in 2000. This growth was primarily driven by a 9% increase in salty snack kilos and a 5% increase in sweet snack kilos. The salty snack growth was led by double-digit growth at our European joint venture, in Brazil and in Poland and single-digit growth at Walkers. Acquisitions contributed 2 percentage points of salty growth. The sweet snack increase was primarily attributable to growth at Gamesa. Kilo volume growth including the fifty-third week in 2000 was 5%.

Comparable net sales increased 7%, primarily driven by the volume growth in Walkers, Gamesa and Poland and effective net pricing at Sabritas and Gamesa. Acquisitions contributed 1 percentage point to sales growth. Weaker foreign currencies in Brazil and the United Kingdom decreased net sales growth by 4 percentage points.

Operating profit increased 17%, led by solid results from Sabritas, Walkers, Poland and Gamesa, partially offset by a decrease in Argentina as a result of macroeconomic conditions. The weaker foreign currencies, primarily in Brazil and the United Kingdom, decreased operating profit growth by 2 percentage points.

2000 vs. 1999
Kilo volume increased 10%, excluding the impact of the fifty-third week. This growth was primarily driven by a 13% increase in salty snack kilos and a 9% increase in other non-snack food kilos. The salty snack growth was led by double-digit increases at Sabritas, our European and Latin American joint ventures and Walkers. The other non-snack food growth was led by our business in Brazil. Acquisitions did not significantly impact the kilo growth. Kilo volume growth including the fifty-third week was 11%.

Comparable net sales increased 13% primarily driven by the volume growth at Sabritas, Walkers, and in Turkey, largely due to promotional programs, and effective net pricing at Gamesa and Sabritas. The net impact from acquisitions/divestitures contributed 2 percentage points to sales growth. Weaker foreign currencies, primarily in the United Kingdom and Australia, decreased net sales growth by 3 percentage points.

Comparable operating profit grew 17% reflecting strong operating performances at Sabritas, Gamesa and in Turkey. The net impact from acquisitions/divestitures decreased operating profit growth by 3 percentage points. Weaker foreign currencies, primarily in the United Kingdom, decreased operating profit growth by 2 percentage points.

Worldwide Beverages
Our worldwide beverage operations include Pepsi-Cola North America, Gatorade/Tropicana North America and PepsiCo Beverages International.

Pepsi-Cola North America markets, promotes and manufactures concentrates for Pepsi, Mountain Dew, MUG, Sierra Mist, Slice and other brands for sale to franchised bottlers. It also sells syrups for these brands to national fountain accounts. Pepsi-Cola North America receives a royalty fee for licensing the processing, distribution and sale of Aquafina bottled water; manufactures, markets and distributes ready-to-drink tea and coffee products through joint ventures with Lipton and Starbucks; and manufactures and sells SoBe and Dole beverages for distribution and sale through our franchise bottling system.

Gatorade/Tropicana North America produces, markets, sells and distributes Gatorade sports drinks, Tropicana Pure Premium, Tropicana Season's Best, Tropicana Twister and Dole juices.

PepsiCo Beverages International (PBI) manufactures concentrates of Pepsi, 7UP, Mirinda, KAS, Mountain Dew and other brands internationally for sale to franchised and company-owned bottlers. PBI also produces, markets, sells and distributes Gatorade sports drinks as well as Tropicana and other juices. In addition, PBI operates bottling plants and distribution facilities in certain international markets for the production, distribution and sale of company-owned and licensed brands.

Pepsi-Cola North America

pepsi cola north america

2001 vs. 2000
Concentrate shipments and equivalents increased 4%, excluding the impact of the fifty-third week in 2000. This increase was primarily driven by high single-digit growth in Mountain Dew reflecting the introduction of Code Red, strong growth in Sierra Mist and Aquafina, the acquisition of SoBe and the launch of Dole. These gains were partially offset by a low single-digit decline in trademark Pepsi, which was mitigated, in part, by the successful launch of Pepsi Twist, and a double-digit decline in Slice reflecting the strong growth of Sierra Mist. Bottler case sales volume increased 4%. The carbonated soft drink portfolio and the acquisition of SoBe each contributed 1 percentage point to both concentrate shipments and equivalents and bottler case sales growth.

Comparable net sales increased 18% primarily due to the increased volume and higher effective net pricing. The acquisition of SoBe and our new products Dole, Mountain Dew Code Red, Sierra Mist and Pepsi Twist, accounted for the majority of the volume growth. These gains were partially offset by increased customer support. SoBe and Dole are sold as finished product to our bottling system. Accordingly, net sales growth was accelerated due to their significantly higher price per unit. The SoBe acquisition contributed 7 percentage points to net sales growth.

Comparable operating profit increased 13% primarily due to the increased volume and higher effective net pricing. These gains were partially offset by the increased advertising and marketing expenses related to bottler funding and other programs, increased general and administrative expenses and the increased customer support. General and administrative expenses grew at a significantly faster rate than sales, while advertising and marketing expenses grew at a significantly slower rate. The SoBe acquisition reduced operating profit growth by 4 percentage points.

2000 vs. 1999
Bottler case sales volume increased 1% driven by double-digit growth in Aquafina and distribution gains from Fruitworks. In addition, the introduction of Sierra Mist and low single-digit growth in Diet Pepsi contributed to the increase. These gains were partially offset by a low single-digit decline in Pepsi and double-digit declines in Pepsi One and Lemon Lime Slice. Concentrate shipments were in line with bottler case sales. On a fifty-three week basis, concentrate shipments increased 1.3%.

Comparable net sales increased 8%. Higher concentrate and fountain pricing and higher Aquafina royalties contributed 8 percentage points of growth, and the increased volume, including the launch of Sierra Mist and our new Dole juice product, contributed 2 percentage points. These increases were partially offset by increased customer support. The fifty-third week enhanced reported net sales growth by 1 percentage point.

Comparable operating profit increased 9% primarily due to the higher concentrate pricing, increased volume and the higher Aquafina royalties. These increases were partially offset by higher advertising and marketing expenses, increased customer support and increased general and administrative expenses.

Gatorade/Tropicana North America

gatorade/tropicana north america

2001 vs. 2000
Volume grew 4% excluding the impact of the fifty-third week in 2000. This growth was led by three new Gatorade flavors and double-digit growth in Tropicana Pure Premium nutritionals, offset by low double-digit declines in Tropicana Season's Best.

Comparable net sales increased 5% due to the volume gains and higher effective net pricing for Gatorade.

Comparable operating profit increased 7% due to the volume gains, the higher effective net pricing and lower general and administrative expenses. These increases were partially offset by higher promotional allowances and higher manufacturing costs primarily resulting from lower fruit yields, higher energy costs and lower production leverage.

2000 vs. 1999
Volume grew 10% due to the introduction of two new Gatorade flavors, multiple packs and expanded distribution. Continued double-digit growth in Tropicana Pure Premium, including strong double-digit growth in Tropicana Pure Premium nutritionals and blends, also contributed to this growth. On a fifty-three week basis, volume increased 11%.

Comparable net sales increased 10% primarily due to the volume gains. Lower effective net pricing at Tropicana was substantially offset by increased pricing of selected Gatorade products.

Comparable operating profit increased 15% primarily due to the volume gains. These gains were partially offset by increased advertising and marketing expenses, including costs to support the launch of Propel fitness water, and increased packaging and transportation costs.

PepsiCo Beverages International

pepsico beverages international

2001 vs. 2000
Volume increased 4.5% due to broad-based increases led by Russia, China and Brazil. These increases were partially offset by pricing related declines in Mexico and Saudi Arabia coupled with a macroeconomic decline in Turkey. Total carbonated soft drink concentrate shipments to franchisees, including those bottlers in which we own an equity interest, grew 3% while their bottler case sales grew at about the same rate.

Net sales increased 2%. This increase was primarily due to the volume gains and higher effective net pricing, partially offset by a net unfavorable foreign currency impact. The net unfavorable foreign currency impact, primarily in Europe, Brazil and Egypt, reduced net sales growth by 4 percentage points.

Operating profit increased 31% primarily reflecting the volume gains and higher effective net pricing, partially offset by a net unfavorable foreign currency impact. The net unfavorable foreign currency impact, primarily in Europe, reduced operating profit growth by 12 percentage points. Overall margin improvements contributed to operating profit growth.

2000 vs. 1999
Volume increased 6%. This reflects broad-based increases led by a doubling of volume in Russia, where volumes recovered from the effects of the 1998 ruble devaluation. Volume growth was also driven by double-digit growth in China, India and Thailand and by growth in Mexico. Total carbonated soft drink concentrate shipments to franchisees, including those bottlers in which we own an equity interest, grew 2% while their bottler case sales grew at a higher rate.

Comparable net sales increased 4% due to the volume gains and higher effective net pricing, partially offset by a broad-based net unfavorable foreign currency impact led by Europe. The net unfavorable foreign currency impact reduced net sales growth by 5 percentage points.

Operating profit increased 56% primarily reflecting the volume gains and higher effective net pricing, partially offset by a net unfavorable foreign currency impact, primarily in Europe, higher advertising and marketing and higher general and administrative expenses to support top-line growth.

Quaker Foods North America
Quaker Foods North America manufactures, markets and sells ready-to-eat cereals, hot cereals, flavored rice and pasta products, mixes and syrups, hominy grits and cornmeal in North America. Products manufactured and sold include Quaker oatmeal, Cap'n Crunch and Life ready-to-eat cereals, Rice-A-Roni products, Aunt Jemima mixes and syrups and Quaker grits.

2001 vs. 2000
Volume decreased 1% driven by declines in ready-to-eat cereals and bulk cornmeal and oats products, largely offset by growth in hot cereals. The hot cereals growth resulted primarily from new products and flavor varieties.

Net sales increased 1% primarily due to higher effective net pricing reflecting a mix shift to higher priced products, as well as price increases for cereals. This increase was offset by the lower overall volume.

Operating profit increased 6% reflecting the higher effective net pricing from growth in higher priced products and the price increases in cereals.

2000 vs. 1999
Volume declined 1% driven by price competition in the ready-to-eat cereal category, partially offset by gains from the introduction of new varieties of hot cereals.

Net sales declined 1% primarily due to the lower overall volume.

Operating profit increased 8% reflecting the higher-margin hot cereals volume growth, productivity gains and lower marketing spending. Advertising and marketing expenses declined at a faster rate than sales.

Management's Discussion and Analysis continued -->