SEC 10 K Project - Pepsi
Accounting 301 - Summer 2016
UMUC
Bernard Snyder
Introduction
Publicly traded companies such as Pepsi Co., must submit a variety of reports to the
Securities and Exchange Commission (SEC) on a quarterly basis as well as annually. The purpose
of the annual 10 K report is give detailed financial information to the SEC as well as the pubic.
This information can be used by investors to determine whether or not a company is one that
they would want to invest in. There is much information to be learned from a 10 K report and
many parts to it such as income statement, balance sheet and statement of cash flows. With
this information calculations such as various ratio analyses, horizontal analyses and vertical
analyses to glean further pertinent information.
Company Background
Pepsi Co. as it is known today, was established in 1965 when Pepsi merged with Frito-
Lay. Pepsi was invented in the late 1890’s by Caleb Bradham in New Bern, North Carolina.
“Frito-Lay, Inc. was formed by the 1961 merger of the Frito Company, founded by Elmer Doolin
in 1932, and the H. W. Lay Company, founded by Herman W. Lay, also in 1932” (pepsico.com).
The merger of the two companies seems like it was a natural fit, Pepsi-Cola and the snack chip
giant joining forces to corner a nice market-share of the snack food and soda industry.
Shortly after the merger, Pepsi Co. rolled out a new item, Doritos, the tortilla chip that
would become a household snacking mainstay for the next 50 years. The 1970’s brought with it
exponential grow for the snack giant, when Frito-Lay would expand by opening about one new
plant a year. Pepsi began offering plastic bottles and was the first to introduce the two liter
bottle. Pepsi also became “the first American consumer product to be produced, marketed and
sold in the former Soviet Union” (pepsico.com). They also began to move into fast food markets
by acquiring Pizza Hut and Taco Bell, now they could utilize those restaurant chains to sell more
Pepsi to wanton consumers.
During the 1980’s Pepsi Co. continued to expand its business ventures. Between Pepsi
and Frito-Lay five more companies were bought out, Tostitos, Mug Root Beer, Kentucky Fried
Chicken and the two leading snack food companies from the United Kingdom, Walkers Crisps
and Smith Crisps. “PepsiCo is now the largest company in the beverage industry and its
products are available in nearly 150 countries and territories” (pepsico.com).
The 1990’s through today have been more of the same for Pepsi Co. They’ve gone on to
acquire multiple companies, have initiated sales in countries that had been previously untapped
by American companies and for the last fifty years have continued to solidify their place in the
world business markets. They are a diverse company that has continued to do well since its
inception and shows no signs of slowing which is a great sign for their investment future.
Income Statement
An income statement is a key component of accounting. This is a financial tool that
shows how a company has performed during any given period. In the latest 10 K statement for
2015 Pepsi Co. had a net revenue of $63,056 (all dollar amounts are in millions) and a cost of
sales of $28,384. Their total gross profit for the year was $34,672. They had selling, general
and administrative expenses as well as Venezuela impairment charges and amortization of
intangible assets totaling $26,319. After various expenses their net income was $5,501 which is
down from the previous two years.
**(all dollar amounts are in millions)**
2015
201
4
201
3
Net Revenue
$
63,0
56 $
66,6
83 $
66,4
15
Cost of sales 28,38
4 30,884 31,243
Gross profit 34,67
2 35,799 35,172
Selling, general and administrative expenses 24,88
5 26,126 25,357
Venezuela impairment charges 1,359 — —
Amortization of intangible assets 75 92 110
Operating Profit 8,353 9,581 9,705
Interest expense (970) (909) (911)
Interest income and other 59 85 97
Income before income taxes 7,442 8,757 8,891
Provision for income taxes 1,941 2,199 2,104
Net income 5,501 6,558 6,787
Less: Net income attributable to noncontrolling
interests 49 45 47
Net Income Attributable to PepsiCo
$
5,45
2 $
6,51
3 $
6,74
0
Net Income Attributable to PepsiCo per
Common Share
Basic $3.71 $ 4.31 $ 4.37
Diluted $3.67 $ 4.27 $ 4.32
Weighted-average common shares outstanding
Basic 1,469 1,509 1,541
Diluted 1,485 1,527 1,560
Cash dividends declared per common share
$
2.76
25 $
2.53
25 $ 2.24
Balance Sheet
The balance sheet is another critical tool used by accountants. This particular
information set lists the company’s assets, liabilities and capital. Assets can be anything that
can be used to make the company money such as cash, equipment, land and investments
among others. Liabilities are what the company owes such as debt, taxes and other obligations.
Capital is also known as equity, this is the value of the company’s shares. For 2015, PepsiCo had
a variety of assets including cash and cash equivalents- $9,096; inventories $2,720; and
property, plant and equipment $16, 317. All told PepsiCo’s assets total $69,667. Liabilities for
PepsiCo include short term obligations $4,071; Accounts payable $13,507; and long term debt
obligations $29,213. Their total liabilities are $57,637. PepsiCo’s equity includes retained
earnings $50,472; preferred stock, no par value $41; and capital in excess of par value. The total
value of all equity is $12.030. There is some fluctuation from last year but for the most part the
totals are holding steady.
**(all dollar amounts are in millions)**
ASSETS
Current Assets
Cash and cash equivalents
$
9,09
6 $
6,13
4
Short-term investments 2,913 2,592
Accounts and notes receivable, net 6,437 6,651
Inventories 2,720 3,143
Prepaid expenses and other current assets 1,865 2,143
Total Current Assets 23,03
1
20,66
3
Property, Plant and Equipment, net 16,31
7
17,24
4
Amortizable Intangible Assets, net 1,270 1,449
Goodwill 14,17
7
14,96
5
Other nonamortizable intangible assets 11,81
1
12,63
9
Nonamortizable Intangible Assets 25,98
8
27,60
4
Investments in Noncontrolled Affiliates 2,311 2,689
Other Assets 750 860
Total Assets
$
69,6
67 $
70,5
09
LIABILITIES AND EQUITY
Current Liabilities
Short-term obligations
$
4,07
1 $
5,07
6
Accounts payable and other current liabilities 13,50
7
13,01
6
Total Current Liabilities 17,57
8
18,09
2
Long-Term Debt Obligations 29,21
3
23,82
1
Other Liabilities 5,887 5,744
Deferred Income Taxes 4,959 5,304
Total Liabilities 57,63
7
52,96
1
Commitments and contingencies
Preferred Stock, no par value 41 41
Repurchased Preferred Stock (186) (181)
PepsiCo Common Shareholders’ Equity
Common stock, par value 12/3¢ per share (authorized 3,600 shares, issued,
net of repurchased
common stock at par value: 1,448 and 1,488 shares, respectively) 24 25
Capital in excess of par value 4,076 4,115
Retained earnings 50,47
2
49,09
2
Accumulated other comprehensive loss (13,3
19)
(10,66
9)
Repurchased common stock, in excess of par value (418 and 378 shares,
respectively)
(29,1
85)
(24,98
5)
Total PepsiCo Common Shareholders’ Equity 12,06
8
17,57
8
Noncontrolling interests 107 110
Total Equity 12,03
0
17,54
8
Total Liabilities and Equity
$
69,6
67 $
70,5
09
Statement of Cash Flows
The statement of cash flows portion of the 10K filing is important because it shows how
changes in accounts on the balance sheet and income affect cash and how that cash flows into
and out of the company. There are three categories on the statement of cash flows, operating,
investing and financing. Operating activities are relatively straight forward. This is the cash that
affects how PepsiCo operates. Investing activities is what cash is used toward investments.
Financing covers not just what cash Pepsi has borrowed but also what they have loaned out.
Under the operating activities tab, line items such as net income $5,501; restructuring and
impairment charges $230, Venezuela impairment charges $1,359 and pension and retiree
medical plan expenses $467 are included. All operating activities combined provide a total of
$10,580. Investing activities include capital spending ($2,758), sales of plant, property and
equipment $86 and divestitures $76. Cash used for investing activities totals ($3,569).
Financing seems to have the most activity with cash constantly moving in and out of the
company. Some of the line items for this section include proceeds from issuance of long term
debt $8,702, payments of long term debt ($4,095), cash dividends paid ($4,040) and proceeds
from exercises of stock options $504. The total cash used for financing activities is ($3,828).
PepsiCo had an increase in cash and cash equivalents of $2,962 bringing the end of year total to
$9,096.
**(all dollar amounts are in millions)**
Operating Activities
Net income
$
5,5
01 $
6,55
8 $
6,78
7
Depreciation and amortization 2,416 2,625 2,663
Share-based compensation expense 295 297 303
Merger and integration charges — — 10
Cash payments for merger and integration charges — — (25)
Restructuring and impairment charges 230 418 163
Cash payments for restructuring charges (208) (266) (133)
Charge related to the transaction with Tingyi 73 — —
Cash payments for restructuring and other charges related to the
transaction with Tingyi — — (26)
Venezuela impairment charges 1,359 — —
Venezuela remeasurement charges — 105 111
Excess tax benefits from share-based payment arrangements (133) (114) (117)
Pension and retiree medical plan expenses 467 667 663
Pension and retiree medical plan contributions (205) (655) (262)
Deferred income taxes and other tax charges and credits 78 (19) (1,058)
Change in assets and liabilities:
Accounts and notes receivable (461) (343) (88)
Inventories (244) (111) 4
Prepaid expenses and other current assets (50) 80 (51)
Accounts payable and other current liabilities 1,692 1,162 1,007
Income taxes payable 55 371 86
Other, net (285) (269) (349)
Net Cash Provided by Operating Activities
10,580
10,50
6 9,688
Investing Activities
Capital spending
(2,758)
(2,85
9) (2,795)
Sales of property, plant and equipment 86 115 109
Acquisitions and investments in noncontrolled affiliates (86) (88) (109)
Reduction of cash due to Venezuela deconsolidation (568) — —
Divestitures 76 203 130
Short-term investments, by original maturity
More than three months - purchases
(4,428)
(6,30
5) —
More than three months - maturities 4,111 3,891 —
Three months or less, net 3 116 61
Other investing, net (5) (10) (21)
Net Cash Used for Investing Activities
(3,569)
(4,93
7) (2,625)
Financing Activities
Proceeds from issuances of long-term debt
$
8,7
02 $
3,85
5 $
4,19
5
Payments of long-term debt (4,09
5) (2,189)
(3,89
4)
Short-term borrowings, by original maturity
More than three months - proceeds 15 50 23
More than three months - payments (43) (10) (492)
Three months or less, net
53 (2,037)
1,63
4
Cash dividends paid (4,04
0) (3,730)
(3,43
4)
Share repurchases - common (5,00
0) (5,012)
(3,00
1)
Share repurchases - preferred (5) (10) (7)
Proceeds from exercises of stock options
504 755
1,12
3
Excess tax benefits from share-based payment arrangements 133 114 117
Acquisition of noncontrolling interests — — (20)
Other financing (52) (50) (33)
Net Cash Used for Financing Activities (3,82
8) (8,264)
(3,78
9)
Effect of exchange rate changes on cash and cash equivalents (221) (546) (196)
Net Increase/(Decrease) in Cash and Cash Equivalents 2,96
2 (3,241)
3,07
8
Cash and Cash Equivalents, Beginning of Year 6,13
4 9,375
6,29
7
Cash and Cash Equivalents, End of Year
$
9,0
96 $
6,13
4 $
9,37
5
Ratio Analysis
1. Current ratio – Current ratio is assets divided by liabilities. For PepsiCo this is 69,667 divided
by 57,637 (both numbers are in millions) which comes out to 1.20. With the current assets
PepsiCo could pay all of its liabilities and still have assets left over. This indicates that PepsiCo is
successful.
2. Return on equity – Return on Equity is net income divided by shareholders equity. To get this
ratio it would be 5,452 divided by 12,068 for .45 or 45%. That means that 45% of what PepsiCo
makes is profit. PepsiCo is a very profitable company and a solid investment.
3. Debt-equity ratio – Debt-equity ratio is total liabilities divided by shareholders equity. This is
calculated as 57,637 divided by 12,068 which equals 4.77 Debt-equity ratio shows how much
equity is used to finance assets.
4. Dividend payout ratio – Dividend payout is yearly dividend per share divided by earnings per
share. To get this ratio for PepsiCo it would be 2.7625 divided by 3.71 which is .74. This shows
that about 74% of profit is returned to investors while 26% is used to re-invest in the company
or elsewhere.
5. Price/Earnings ratio – Price earnings ratio is the current market price divided by earnings per
share. Today’s market price for a share of PepsiCo is 108.92 divided by 3.71 for a total of 29.35.
This shows an investor approximately how much they stand to make per share with a company.
Horizontal Analysis
Income Statement (numbers in millions)
Account 2015 2014 Variance
Cost of Goods 28,384 30,884 (2,500)
Gross Profit 34,672 35,799 (1,127)
Operating Profit 8,353 9,581 (1,228)
Net Income 5,501 6,558 (1,057)
Balance Sheet (numbers in millions)
Account 2015 2014 Variance
Cash and equiv. 9,096 6,134 2,962
Total Assets 69,667 70,509 (842)
Total Current Lia. 17,578 18,092 514
Total Liabilities 57,637 52,961 (4,676)
Vertical Analysis
Income Statement (numbers in millions)
Account Total Percentage
Gross Profit 34,672 100%
Selling, General, admin 24,885 71%
Venezuela impair. char. 1,359 3%
Amortization of ass. 75 .21%
Balance Sheet (numbers in millions)
Account Total Percentage
Total Assets 69,667 100%
Cash and equiv 9,096 13%
Property, Plant, Equip. 16,317 23%
Goodwill 14,177 20%
Conclusion
PepsiCo has continued to grow for over 50 years. There are many aspects that make up
the financial standing of a company. By analyzing the 10K form for PepsiCo we can see that they
continue to be a profitable publicly traded company. PepsiCo is a solid company for anyone
looking for a steady, long term investment.
References
Hermanson R. H., Maher M. W., Edwards J. D (2011). Accounting principles: A business perspective,
financial accounting. Accessed 23 July 2016
Pepsi 10K report (11 Feb 2016). Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?
c=78265&p=irol-
SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNzMz
MDQzJkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3 Accessed 23 July
2016
Pepsi Company (21016). Retrieved from http://www.pepsico.com/Company/Our-History Accessed
23 July 2016
Pepsi Store (2016). Retrieved from http://www.pepsistore.com/history.asp Accessed 23 July 2016
