Interpreting and Analyzing Debt Footnotes PepsiCo Inc. reports $32,322 million of long-term debt outstanding as of December 2015 in the following schedule to its 10-K report.

Debt Obligations and Commitments

$ millions 2015 2014 Short-term debt obligations Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . $ 3,109 $ 4,096 Commercial paper (0.3% and 0.1%) . . . . . . . . . . . . . . . . . . . . . . . 770 746 Other borrowings (10.0% and 17.7%) . . . . . . . . . . . . . . . . . . . . . . 192 234

$ 4,071 $ 5,076 Long-term debt obligations Notes due 2015 (1.4%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $— $ 4,093 Notes due 2016 (2.6% and 2.6%) . . . . . . . . . . . . . . . . . . . . . . . . . 3,087 3,099 Notes due 2017 (1.2% and 1.6%) . . . . . . . . . . . . . . . . . . . . . . . . . 4,392 2,004 Notes due 2018 (3.6% and 4.4%) . . . . . . . . . . . . . . . . . . . . . . . . . 4,122 3,410 Notes due 2019 (3.7% and 3.7%) . . . . . . . . . . . . . . . . . . . . . . . . . 1,627 1,631 Notes due 2020 (2.4% and 3.8%) . . . . . . . . . . . . . . . . . . . . . . . . . 3,830 1,983 Notes due 2021–2046 (3.9% and 4.0%) . . . . . . . . . . . . . . . . . . . . 15,228 11,657 Other, due 2016–2021 (4.3% and 4.4%) . . . . . . . . . . . . . . . . . . . . 36 40 32,322 27,917 Less: current maturities of long-term debt obligations . . . . . . . . . (3,109) (4,096)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,213 $23,821 Long-Term Contractual Commitments Payments Due by Period

($ millions) Total 2016 2017–

2018 2019–

2020 2021 and beyond Long-term debt obligations . . . . . . . $32,322 $3,109 $8,396 $5,447 $15,307 Our borrowing costs and access to capital and credit markets may be adversely affected by a downgrade or potential downgrade of our credit ratings.

We expect to maintain Tier 1 commercial paper access, which we believe will facilitate appropriate financial flexibility and ready access to global credit markets at favorable interest rates. Any downgrade of our credit ratings by a credit rating agency, especially any downgrade to below investment grade, whether as a result of our actions or factors which are beyond our control, could increase our future borrowing costs and impair our ability to access capital and credit markets on terms commercially acceptable to us, or at all. Further, any downgrade of our current short-term credit ratings could impair our ability to access the commercial paper market with the same flexibility that we have experienced historically, and therefore require us to rely more heavily on more expensive types of debt financing.

Our borrowing costs and access to the commercial paper market could also be adversely affected if a credit rating agency announces that our ratings are under review for a potential downgrade. An increase in our borrowing costs, limitations on our ability to access the global capital and credit markets or a reduction in our liquidity could adversely affect our financial condition and results of operations.

Moody’s Investors Service (www.moodys.com) reported the following regarding PepsiCo.

Rating Action: Moody’s rates Pepsi’s $3 billion notes A1; outlook stable New York, October 08, 2015—Moody’s today assigned an A1 rating to PepsiCo, Inc.’s new

$3 billion senior note offering in 2, 5, and 30 year maturity tranches. PepsiCo will use the proceeds for general corporate purposes. Other ratings were unchanged. The outlook is stable.

Source: Moody’s Investor Service (www.moodys.com)

As of December 2016, the price of its $1 billion 5.0% senior notes maturing in 2018 follows (from Yahoo!

Finance, reports.finance.yahoo.com):

Type Issuer Price Coupon(%) Maturity YTM(%) Fitch Ratings Callable Corp PEPSICO INC 112.32 5.0 01-Jun-2018 1.374 A No Required

a. PepsiCo reports current maturities of long-term debt of $3,109 million as part of short-term debt. Why is this amount reported that way? PepsiCo reports $8,396 million of long-term debt due in 2017–2018.
What does this mean? Is this amount important to our analysis of PepsiCo? Explain.

b. The $1 billion 5.0% notes maturing in 2018 are priced at 112.32 (112.32% of face value, or $1.1232 billion) as of December 2016, resulting in a yield to maturity of 1.374%. Assuming that the credit rating of PepsiCo has not changed, what does the pricing of this bond imply about interest rate changes since PepsiCo issued the bond?

c. What does the schedule of long-term contractual commitments reveal that might be useful in analyzing PepsiCo’s liquidity?

d. What can investors infer about PepsiCo’s creditworthiness given the $3 billion note issuance in 2015?
How does this rating action affect the issue proceeds?

e. What type of actions can PepsiCo take to improve its credit ratings?