PepsiCo Annual Report Analysis Company Overview

Pepsi Beverages Company (PBC) is a global beverage company popularly known as PepsiCo. The company operates in several countries in North America, South America, Europe, Asia, Africa and Middle East. Founded in 1898, the company operates with diverse portfolios, which include some of the world's widely recognized brands such as Pepsi, Dr. Pepper, Mountain Dew, Aquafina, Lipton, Muscle Milk and ROCKSTAR.

Objective of this paper is to carry out the analysis of PepsiCo annual report. The paper uses 2012 and 2011 financial data for the analysis.

Analysis of PepsiCo Annual Report

Answer to Question 1.

The amount of PepsiCo property and equipment on the company balance sheet for the 2012 and 2011 are $19.1 Billion and $19.69 Billion respectively. The amount of the depreciation expenses are $2.48 Billion in 2012 and $2.47 Billion in 2011. Amount of cash flow relating to depreciation was $2.68 billion in 2012 and $2.73 Billion in 2011. Table 1 presents the overall answers to question 1.

Table 1

PepsiCo ($Million)

2012

2012

Property, Plant and Equipment (Net)

$19,136

$19,698

Depreciation Expenses

$2,489

$2,476

Goodwill

16,971

16,800

"Amounts on the cash flow relating gains and sales of property and equipment."

95

84

"Amount of cash flow relating to Depreciation"

2,689

2,737

"Amounts permitted for inclusion in the capitalized cost of property and equipment"

35,140

36,162

2. The individual components of property and equipment are as follows:

Answer to Question 2

2012

2011

Land and Improvements

1,890

1,951

Buildings and Improvements

7,792

7,565

"Machinery and equipment (Including fleet and Software)"

24,743

23,798

Construction in progress

1,737

1,826

Total

36,162

35,140

Accumulated Depreciation

(17,026)

(15,442)

$19,136

$19,698

Depreciation expenses

$2,489

$2,476

The company accounts for nonmonetary disposition and exchange of property and equipment based on the fair value of the property and equipment. By using fair value, the company recognizes the gain or loss immediately.

3. Yes, the company has intangible assets. The company intangible assets are as follows:

Answer to Question 3

Intangible assets ($Millions)

2012

2011

Net Amortizable Intangible Assets.

1,781

1,888

Non-amortizable intangible assets

Goodwill

16,971

16,800

"Other non-amortizable intangible assets"

14,744

14,557

Total Non-amortizable Intangible Assets

31,715

31,357

Amortization expense

Amount of the most recent cash flow statement that relates to the purchase and sale of intangible assets was $900 Million, which relates to the acquisition of distribution and manufacturing rights from DPSG in 2010.

Amortization expense for 2012 fiscal year was $119 Million while amortization expense for 2011 fiscal year $133 Million.

The intangible assets differ from property and equipment because property and equipment are tangible assets, which are the assets that an individual can see and feel. However, intangible assets are assets that nobody can see, and lack physical substance; however, they provide long-term benefit to the company. The intangible assets are the assets that the company has acquired over the years. Example of intangible asset is Goodwill. The costs of intangible assets are called amortization. The cost of intangible is the allocation of expenses to the assets during assets useful life. The straight-line method is used to amortize intangible assets. PepsiCo net cost of intangible assets for 2012 fiscal year was $1.78 Billion. While the net cost of intangible assets for 2011 fiscal year was $1.88 Billion.

Answer to Question 4

4. Yes, PepsiCo has goodwill. Over the years, PepsiCo has developed brand names under the PepsiCo. The company also develops its brand by acquisitions, business combination and these brands are recorded as goodwill. The company determines the fair values of its brand through product life cycles, consumer awareness and amount of future cash flow. PepsiCo believes that goodwill and perpetual brands are not amortized and could be assessed annually for their impairment.

The company evaluates goodwill "using a two-step impairment test at the reporting unit level. A reporting unit can be a division or business within a division. The first step is to compare the book value of a reporting unit, including goodwill, with its fair value, as determined by its discounted cash flows. Discounted cash flows are primarily based on growth rates for sales and operating profit which are inputs from annual long-range planning process." (PepsiCo, 2012 P5).

By December 29, 2012, the worth of the company goodwill was $31.7 billion, which was primarily related to the acquisitions of PAS, PBG, and WBD. The table below reveals the disclosure of the company goodwill.

Answer to Question 4

Disclosure of PepsiCo Goodwill and Intangible Assets ($Millions)

2012

2011

Acquired franchise rights

Reacquired franchise rights

Brands

1,422

1,417

Other identifiable intangibles

Gross Amortizable intangible assets,

3,199

3,220

Accumulated amortization

(1,418)

(1,332)

Net Amortizable intangible assets,

1,781

1,888

Reacquired franchise rights

8,109

8,074

Acquired franchise rights

1,796

1,780

Brands

4,839

4,703

Other

"Other nonamortizable intangible assets"

14,744

14,557

Other intangible assets

16,525

16,445

Goodwill

16,971

16,800

Intangible assets

33,496

33,245

Answer to Question 5

5. PepsiCo...

The range of estimated useful live of the company assets was 14 years in 2012 fiscal year and 13 years for 2011 fiscal year. As being revealed in the table below, estimated useful life of the company assets slightly increase from 2011 to 2012.
PepsiCo Plant, Property, and Equipment Ratios

2012

2011

2010

Average age

49.68%

46.53%

45.01%

Estimated useful life (years)

14

13

15

Estimated age, and time elapsed since purchase (years)

7

6

7

Estimated total remaining life (years)

7

7

8

Typically, the company recognizes the depreciation of tangible assets using a straight-line basis over the asset useful life cycle. On the other hand, the intangible assets are amortized. The company depreciation and amortization for 2012 fiscal year was $2.68 Billion and $2.7 Billion in 2011. The company does not use the same depreciation methods for tax returns and financial statements. The company uses deferred tax assets that represent credit in on tax returns and tax deduction for future year. The company establishes valuation of assets based on deferred assets. "Deferred tax liabilities generally represent tax expense recognized in the financial statements for which payment has been deferred, or expense for which have already taken a deduction in the tax return but have not yet recognized as expense in the financial statements" (PepsiCo 2012, P 3). The company income tax expenses are presented below:

PepsiCo Inc. Income Tax Expense ($Million)

Dec 29, 2012

Dec 31, 2011

U.S. Federal

Foreign

State

Current

2,004

1,617

U.S. Federal

Foreign

(95)

(88)

State

27

54

Deferred

86

Provision for income taxes

2,090

2,372

Answer to Question 6

6. Impairment is a reduction in a company capital. In other word, impairment is a reduction of par value of a company stock. In 2012, PepsiCo incurs a restructuring charge of $279 million equivalent of $0.14 per share in conjunction to the company Productivity Plan. In 2011, the company also incurred restructuring charges of $383 million equivalent of $0.18 per share. All the expenses represent asset impairment; severance related costs to the company and recorded in the company general, selling, and administrative expenses. "The amount of impairment loss is equal to the excess of the book value of the goodwill over the implied fair value of that goodwill." (PepsiCo 2012, P50). The company assesses its goodwill and perpetual brands annually, and the company recognizes the impairment loss if the amount of perpetual brand is greater that its fair value as being determined by discounted cash flows. The company evaluates goodwill based on a two-step impairment test. The first step is to compare the company goodwill with its fair value as being determined by discounted cash flows. If the book value is greater than fair value, the second step is used to calculate the impairment loss.

Answer to Question 7

7. Current liabilities are the short-term obligations that a company needs to settle within one year. PepsiCo current liabilities are recorded in the balance sheet. The company current liabilities are as follows:

Short-term obligations

Accounts payable & other current liabilities

Income taxes payable

The overall amount of the company current liabilities is presented in the table below:

PepsiCo Current Liabilities ($Million)

2012

2011

Short-term obligations

4,815

$6,205

Accounts payable & other current liabilities

11,903

11,757

Income taxes payable

Total Current Liabilities

17,089

18,154

The company does not have contingent liabilities. Contingent liabilities are liabilities that a company may incur based on the outcome of a future event such as court case. The three categories of contingent liabilities are:

Probable: showing that a future event is likely to occur.

Reasonable Possible: The chance of future event likely to occur is less than probable and more than remote.

Remote: The chance of future event occurring is remote.

Answer to Question 8

8. The company long-term liabilities at the end of the 2011 and 2012 fiscal years were categorized as long-term debt obligation, deferred income taxes and other liabilities. The company long-term debt obligations were $23.5 Billion at the end of 2012 fiscal year and $20.5 Billion in 2011. Overall total of the company long-term liabilities in 2012 fiscal year was $35.1 Billion and 33.8 Billion at the end 2011 fiscal year .The summary of the company long-term liabilities is presented in the table below:

PepsiCo Long-term Liabilities ($Million)

2012

2011

Long-Term Debt Obligations

23,544

20,568

Other Liabilities

6,543

8,266

Deferred Income Taxes

5,063

4,995

Total Long-term Liabilities

35,150

33,829

Interest expense

(899)

(856)

"Proceeds from issuances of long-term debt"

5,999

3,000

Payments of long-term debt

(2,449)

(1,596)

On the other hand, the company interest expenses at the end of 2012 fiscal years were $899 Million and $856 Million at the end of 2011 fiscal year. The company "Proceeds from issuances of long-term debt" was $5.9 Billion at the end of 2012 fiscal year and $3 Billion at the end of 2011 fiscal year. The payment of long-term debt was $2.4 Billion in 2012 and $1.5 Billion in 2011.(PepsCo, 2012 P5).

The company has short-term and long-term debts based on different interest rates and maturity. In 2012, the company issues $750 Million worth of senior notes with interest rate of 0.75%, which would mature in March 2015. Moreover, the company issues:

$900 million senior notes with interest rates of 0.7% that would mature in August 2015.

$1 billion senior notes of 1.25% interest rates maturing in August 2017;

$1.25 billion senior…