Please complete assignment excel financial statement with attached instructions and reading material.

Read "Pepsico's Diversification Strategy in 2015" (In Textbook pp. 377-389) Complete the PEPSICO Financial Segment Analysis Spreadsheet with your calculations of the indicated (green boxes) financial ratios. Calculate your financial ratios for the spreadsheet from Exhibit 7 in the case (pp. 385) Note: There are two tables with calculations, revenue growth and operating margins.

IEB Wireframe Page 1 of 3 Page 377 John E. Gamble Texas A&M UniversityCorpus Christi David L. Turnipseed University of South Alabama PepsiCo was the world's largest snack and beverage company, with 2014 net revenues of approximately $66.7 billion. The company's portfolio of businesses in 2015 included Frito-Lay salty snacks, Quaker Chewy granola bars, Pepsi soft-drink products, Tropicana orange juice, Lipton Brisk tea, Gatorade, Propel, SoBe, Quaker Oatmeal, Cap'n Crunch, Aquafina, Rice-A-Roni, Aunt Jemima pancake mix, and many other regularly consumed products. The company viewed the lineup as highly complementary since most of its products could be consumed together. For example, Tropicana orange juice might be consumed during breakfast with Quaker Oatmeal, and Doritos and a Mountain Dew might be part of someone's lunch. In 2015, PepsiCo's business lineup included 22 $1 billion global brands. The company's top managers were focused on sustaining the impressive performance through strategies keyed to product innovation, close relationships with distribution allies, international expansion, and strategic acquisitions. Newly introduced products such as Mountain Dew KickStart, Tostitos Cantina tortilla chips, Quaker Real Medleys, Starbucks Refreshers, and Gatorade Energy Chews accounted for 15 to 20 percent of all new growth in recent years. New product innovations that addressed consumer health and wellness concerns were important contributors to the company's growth, with PepsiCo's better-for-you and good-for-you products becoming focal points in the company's new product development initiatives. In 2014, PepsiCo's nutrition business accounted for about 20 percent of the company's net revenue. In addition to focusing on strategies designed to deliver revenue and earnings growth, the company maintained an aggressive dividend policy, with more than $53 billion returned to shareholders between 2003 and 2012. PepsiCo increased its dividend for the 42nd consecutive year in 2014 and paid $8.7 billion to its shareholders through dividends and stock repurchases, which was a 36 percent increase over 2013. The company bolstered its cash returns through carefully considered capital expenditures and acquisitions and a focus on operational excellence. Its Performance with Purpose plan utilized investments in manufacturing automation, a rationalized global manufacturing plan, reengineered distribution systems, and simplified organization structures to drive efficiency. In addition, the company's Performance with Purpose plan was focused on minimizing the company's impact on the environment by lowering energy and water consumption, and reducing its use of packaging material, providing a safe and inclusive workplace for employees, and supporting and investing in the local communities in which it operated. PepsiCo had been listed on the Dow Jones http://textflow.mheducation.com/parser.php?secload=19&fake&print 8/9/2017 IEB Wireframe Page 2 of 3 Sustainability World Index for eight consecutive years and listed on the North America Index for nine consecutive years as of 2014. Even though the company had recorded a number of impressive achievements over the past decade, its growth had slowed since 2011. In fact, the spikes in the company's revenue growth since 2000 had resulted from major acquisitions, such as the $13.6 billion acquisition of Quaker Oats in 2001, the 2010 acquisition of the previously independent Pepsi Bottling Group and PepsiCo Americas for $8.26 billion, and the acquisition of Russia's leading food-and-beverage company, Wimm-Bill-Dann (WBD) Foods, for $3.8 billion in 2011. A summary of PepsiCo's financial performance for 2005 through 2014 is shown in Exhibit 1. Exhibit 2 tracks PepsiCo's market performance between 2004 and July 2014. EXHIBIT 1 Financial Summary for PepsiCo, Inc., 2005-2014 (in millions, except per share amounts) EXHIBIT 1 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Net revenue $66,683$66,415$65,492$66,504$57,838$43,232$43,251$39,474$35,137$32,562 Net income 6,558 6,787 6,214 6,443 6,320 5,946 5,142 5,599 5,065 4,078 Income per $4.31 common sharebasic, continuing operations $4.37 $3.96 $4.08 $3.97 $3.81 $3.26 $3.38 $3.00 $2.43 Cash $2.53 dividends declared per common share $2.24 $2.13 $2.03 $1.89 $1.78 $1.65 $1.42 $1.16 $1.01 http://textflow.mheducation.com/parser.php?secload=19&fake&print 8/9/2017 IEB Wireframe Page 3 of 3 Total assets $70,50977,478 74,638 72,882 68,153 39,848 35,994 34,628 29,930 37,727 Long-term debt 23,821 24,333 23,544 20,568 19,999 7,400 7,858 4,203 2,550 2,313 EXHIBIT 1 Financial Summary for PepsiCo, Inc., 2005-2014 (in millions, except per share amounts) EXHIBIT 2 Monthly Performance of PepsiCo, Inc.'s Stock Price, 2005-July 2015 EXHIBIT 2 http://textflow.mheducation.com/parser.php?secload=19&fake&print 8/9/2017 IEB Wireframe Page 1 of 8 Page 378 CompanyHi story PepsiCo, Inc., was established in 1965 when Pepsi-Cola and Frito-Lay shareholders agreed to a merger between the salty-snack icon and the soft-drink giant. The new company was founded with annual revenues of $510 million and such well-known brands as Pepsi-Cola, Mountain Dew, Fritos, Lay's, Cheetos, Ruffles, and Rold Gold. PepsiCo's roots can be traced to 1898, when New Bern, North Carolina, pharmacist Caleb Bradham created the formula for a carbonated beverage he named Pepsi-Cola. The company's salty-snack business began in 1932, when Elmer Doolin, of San Antonio, Texas, began manufacturing and marketing Fritos corn chips and Herman Lay started a potato chip distribution business in Nashville, Tennessee. In 1961, Doolin and Lay agreed to a merger between their businesses to establish the Frito-Lay Company. During PepsiCo's first five years as a snack and beverage company, it introduced new products such as Doritos and Funyuns, entered markets in Japan and eastern Europe, and opened, on average, one new snack-food plant per year. By 1971, PepsiCo had more than doubled its revenues to reach $1 billion. The company began to pursue growth through acquisitions outside snacks and beverages as early as 1968, but its 1977 acquisition of Pizza Hut significantly shaped the strategic direction of PepsiCo for the next 20 years. The acquisitions of Taco Bell in 1978 and Kentucky Fried Chicken in 1986 created a business portfolio described by Wayne Calloway (PepsiCo's CEO between 1986 and 1996) as a balanced three-legged stool. Calloway believed the combination of snack foods, soft drinks, and fast food offered considerable cost-sharing and skill-transfer opportunities, and he routinely shifted managers among the company's three divisions as part of the company's management development efforts. PepsiCo strengthened its portfolio of snack foods and beverages during the 1980s and 1990s with the acquisitions of Mug Root Beer, 7-Up International, Smartfood ready-to-eat popcorn, Walker's Crisps (United Kingdom), Smith's Crisps (United Kingdom), Mexican cookie company Gamesa, and Sunchips. Calloway added quick-service restaurants Hot-n-Now in 1990;California Pizza Kitchens in 1992;and East Side Mario's, D'Angelo Sandwich Shops, and Chevy's Mexican Restaurants in 1993. The company expanded beyond carbonated beverages through a 1992 agreement with Ocean Spray to distribute single-serving juices, the introduction of Lipton ready-to-drink (RTD) teas in 1993, and the introduction of Aquafina bottled water and Frappuccino ready-to-drink coffees in 1994. Page 379 By 1996, it had become clear to PepsiCo management that the potential strategic-fit benefits existing between restaurants and PepsiCo's core beverage and snack businesses were difficult to capture. In addition, any synergistic benefits achieved were more than offset by the fast-food industry's fierce price competition and low profit margins. In 1997, CEO Roger Enrico spun off the company's restaurants as an independent, publicly traded company to focus PepsiCo on food and beverages. Soon after the spin-off of PepsiCo's fast-food restaurants was completed, Enrico acquired Cracker Jack, Tropicana, Smith's Snackfood Company in Australia, SoBe teas and alternative beverages, Tasali Snack Foods (the leader in the Saudi Arabian salty-snack market), and the Quaker Oats Company. Page 380 http://textflow.mheducation.com/parser.php?secload=19.1&fake&print 8/9/2017 IEB Wireframe Page 2 of 8 The2001 AcquisitionofQuaker Oats At $13.9 billion, Quaker Oats was PepsiCo's largest acquisition and gave it the number-one brand of oatmeal in the United States, with more than a 60 percent category share;the leading brand of rice cakes and granola snack bars;and other well-known grocery brands such as Cap'n Crunch, Rice-ARoni, and Aunt Jemima. However, Quaker's most valuable asset in its arsenal of brands was Gatorade. Gatorade was developed by University of Florida researchers in 1965, but it was not marketed commercially until the formula was sold to Stokely-Van Camp in 1967. When Quaker Oats acquired the brand from Stokely-Van Camp in 1983, Gatorade gradually made a transformation from a regionally distributed product with annual sales of $90 million to a $2 billion powerhouse. Gatorade was able to increase sales by more than 10 percent annually during the 1990s, with no new entrant to the sports beverage category posing a serious threat to the brand's dominance. PepsiCo, Coca-Cola, France's Danone Group, and Swiss food giant Nestlall were attracted to Gatorade because of its commanding market share and because of the expected growth in the isotonic sports beverage category. PepsiCo became the successful bidder for Quaker Oats and Gatorade with an agreement struck in December 2000, but the merger would not receive U.S. Federal Trade Commission (FTC) approval until August 2001. The FTC's primary concern over the merger was that Gatorade's inclusion in PepsiCo's portfolio of snacks and beverages might give the company too much leverage in negotiations with convenience stores and ultimately force smaller snack-food and beverage companies out of convenience store channels. In its approval of the merger, the FTC stipulated that Gatorade and PepsiCo's soft drinks could not be jointly distributed for 10 years. Acquisitionsafter 2001 After the completion of the Quaker Oats acquisition in 2001, the company focused on integration of Quaker Oats's food, snack, and beverage brands into the PepsiCo portfolio. The company made a number of \"tuck-in\"acquisitions of small, fast-growing food and beverage companies in the United States and internationally to broaden its portfolio of brands. Tuck-in acquisitions in 2006 included Stacy's bagel and pita chips, Izze carbonated beverages, Netherlands-based Duyvis nuts, and Star Foods (Poland). Acquisitions made during 2007 included Naked Juice fruit beverages, Sandora juices in the Ukraine, New Zealand's Bluebird snacks, Penelopa nuts and seeds in Bulgaria, and Brazilian snack producer Lucky. The company also entered into a joint venture with the Strauss Group in 2007 to market Sabra, the top-selling and fastest-growing brand of hummus in the United States and Canada. The company acquired the Russian beverage producer Lebedyansky in 2008 for $1.8 billion, and in 2010, it acquired Marbo, a potato chip production operation in Serbia. In 2010 and 2011, the company executed its largest acquisitions since the 2001 acquisition of Quaker Oats. In 2010, PepsiCo acquired the previously independent Pepsi Bottling Group and PepsiCo Americas for $8.26 billion in cash and PepsiCo common shares. The acquisition was designed to better integrate its global distribution system for its beverage business. In 2011, it acquired Russia's leading food and beverage company, Wimm-Bill-Dann Foods, for $3.8 billion. The combination of acquisitions and the strength of PepsiCo's core snacks and beverages business allowed the company's revenues to increase from approximately $29 billion in 2004 to more than $66 billion in 2013. Exhibit 3 presents PepsiCo's consolidated statements of income for 2012-2014, while the company's consolidated balance sheets for 2013-2014 are presented in Exhibit 4. The company's calculation of free cash flow for 2011-2014 is shown in Exhibit 5. http://textflow.mheducation.com/parser.php?secload=19.1&fake&print 8/9/2017 IEB Wireframe EXHIBIT 3 Page 3 of 8 PepsiCo, Inc.'s Consolidated Statements of Income, 2012-2014 (in millions, except per share data) EXHIBIT 3 2014 2013 2012 Net Revenue $ $ $ 66,683 66,415 65,492 Cost of sales 30,884 31,243 31,291 Gross Profit 35,799 35,172 34,201 Selling, general and administrative expenses 26,126 25,357 24,970 Amortization of intangible assets 92 Operating Profit 9,581 9,705 9,112 110 119 http://textflow.mheducation.com/parser.php?secload=19.1&fake&print 8/9/2017 IEB Wireframe Page 4 of 8 Interest expense (909) (911) (899) Interest income and other 85 91 Income before income taxes 8,757 8,891 8,304 Provision for income taxes 2,199 2,104 2,090 Net Income (Loss), Including Portion Attributable to Noncontrolling Interest 6,558 6,787 6,214 Less: Net income attributable to noncontrolling interests 45 Net Income Attributable to PepsiCo $ 6,513$ 6,740 $ 6,178 Net Income Attributable to PepsiCo per Common Share Basic $ 4.31 $ 4.37 $ 3.96 Diluted $ 4.27 $ 4.32 $ 3.92 Weighted-average common shares outstanding Basic 1,509 1,541 1,557 [1] Diluted 1,527 1,560 1,575 97 47 36 Cash dividends declared per common share$ $ 2.24 $ 2.5325 2.1275 EXHIBIT 3 PepsiCo, Inc.'s Consolidated Statements of Income, 2012-2014 (in millions, except per share data) PepsiCo, Inc.'s Consolidated Balance Sheets, 2013-2014 (in millions, except per share EXHIBIT 4 data) http://textflow.mheducation.com/parser.php?secload=19.1&fake&print 8/9/2017 IEB Wireframe Page 5 of 8 EXHIBIT 4 Dec.27, Dec.28, 2014 2013 ASSETS Cash and cash equivalents $ 6,134 $ 9,375 Short-term Investments 2,592 303 Accounts and notes receivable, net 6,651 6,954 http://textflow.mheducation.com/parser.php?secload=19.1&fake&print 8/9/2017 IEB Wireframe Inventories Page 6 of 8 3,143 3,409 Prepaid expenses and other current assets 2,143 2,162 Assets, current 20,663 22,203 Property, plant and equipment, net 17,244 18,575 Amortizable intangible assets, net 1,449 1,638 Goodwill 14,965 16,613 Indefinite-lived intangible assets (excluding goodwill) 12,639 14,401 Nonamortizable intangible assets 27,604 31,014 Equity method investments 2,689 2,623 Other assets 860 1,425 Total assets $70,509 $77,478 Short-term obligations $5,076 $5,306 Accounts payable and other current liabilities 13,016 12,533 Liabilities, current 18,092 17,839 Long-term debt obligations 23,821 24,333 Other liabilities, noncurrent 5,744 4,931 Deferred income taxes 5,304 5,986 LIABILITIES AND EQUITY http://textflow.mheducation.com/parser.php?secload=19.1&fake&print 8/9/2017 IEB Wireframe Liabilities Page 7 of 8 52,961 53,089 41 41 25 25 Commitments and contingencies Preferred stock, no par value PepsiCo common shareholders' equity Common stock, value, issued Additional paid in capital, common stock 4,115 4,095 Retained earnings (accumulated deficit) 49,092 46,420 Accumulated other comprehensive loss (10,669) (5,127) Stockholders' equity attributable to parent 17,578 24,409 Stockholders' equity attributable to noncontrolling interest 110 110 Total equity 17,548 24,389 Liabilities and equity $70,509 $77,478 EXHIBIT 4 PepsiCo, Inc.'s Consolidated Balance Sheets, 2013-2014 (in millions, except per share data) EXHIBIT 5 Net Cash Provided By PepsiCo's Operating Activities, 2011-2014 EXHIBIT 5 http://textflow.mheducation.com/parser.php?secload=19.1&fake&print 8/9/2017 IEB Wireframe Page 8 of 8 2014 2013 2012 2011 Net cash provided by operating activities $10,506$9,688 $8,479 $8,944 Capital spending (2,859) (2,795)(2,714)(3,339) Sales of property, plant, and equipment 115 Free cash flow $7,762 $7,002 $5,860 $5,689 109 95 84 EXHIBIT 5 Net Cash Provided By PepsiCo's Operating Activities, 2011-2014 http://textflow.mheducation.com/parser.php?secload=19.1&fake&print 8/9/2017 IEB Wireframe Page 1 of 14 Page 382 Buil dingShareholder Valuei n2015 Three people had held the position of CEO since the company began its portfolio restructuring in 1997. Even though Roger Enrico was the chief architect of the business lineup as it stood in 2007, his successor, Steve Reinemund, and Indra Nooyi, the company's CEO in 2007, were both critically involved in the restructuring. Nooyi joined PepsiCo in 1994 and developed a reputation as a tough negotiator who engineered the 1997 spin-off of Pepsi's restaurants, spearheaded the 1998 acquisition of Tropicana, and played a critical role in the 1999 IPO of Pepsi's bottling operations. After being promoted to chief financial officer, Nooyi was also highly involved in the 2001 acquisition of Quaker Oats. Nooyi was selected as the company's CEO upon Reinemund's retirement in October 2006. Nooyi had emigrated to the United States in 1978 to attend Yale's Graduate School of Business, and she worked with the Boston Consulting Group, Motorola, and Asea Brown Boveri before arriving at PepsiCo in 1994. In the eight years under Nooyi's leadership, PepsiCo's revenues had increased by nearly 90 percent, and its share price had grown by 50 percent. In 2014, PepsiCo's corporate strategy had diversified the company into salty and sweet snacks, soft drinks, orange juice, bottled water, ready-to-drink teas and coffees, purified and functional waters, isotonic beverages, hot and ready-to-eat breakfast cereals, grain-based products, and breakfast condiments. Most PepsiCo brands had achieved number-one or number-two positions in their respective food and beverage categories through strategies keyed to product innovation, close relationships with distribution allies, international expansion, and strategic acquisitions. The company was committed to producing the highest-quality products in each category and was working diligently on product reformulations to make snack foods and beverages less unhealthy. The company believed that its efforts to develop good-for-you and better-for-you products would create growth opportunities from the intersection of business and public interests. Page 383 PepsiCo was organized into six business divisions, which all followed the corporation's general strategic approach. Frito-Lay North America manufactured, marketed, and distributed such snack foods as Lay's potato chips, Doritos tortilla chips, Cheetos cheese snacks, Fritos corn chips, Grandma's cookies, and Smartfood popcorn. Quaker Foods North America manufactured and marketed cereals, rice and pasta dishes, granola bars, and other food items that were sold in supermarkets. Latin American Foods manufactured, marketed, and distributed snack foods and many Quaker-branded cereals and snacks in Latin America. PepsiCo Americas Beverages manufactured, marketed, and sold beverage concentrates, fountain syrups, and finished goods under such brands as Pepsi, Gatorade, Aquafina, Tropicana, Lipton, Dole, and SoBe throughout North and South America. PepsiCo Europe manufactured, marketed, and sold snacks and beverages throughout Europe, while the company's Asia, Middle East, and Africa division produced, marketed, and distributed snack brands and beverages in more than 150 countries in those regions. A full listing of Frito-Lay snacks, PepsiCo beverages, and Quaker Oats products is presented in Exhibit 6. Select financial information for PepsiCo's six reporting units is presented in Exhibit 7. EXHIBIT 6 PepsiCo, Inc.'s Snack, Beverage, and Quaker Oats Brands, 2014 http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe http://textflow.mheducation.com/parser.php?secload=19.2&fake&print Page 2 of 14 8/9/2017 IEB Wireframe Page 3 of 14 EXHIBIT 6 SnackBrands Lay's potato chips Maui Style potato chips Ruffles potato chips Doritos tortilla chips Tostitos tortilla chips Santitas tortilla chips Fritos corn chips Cheetos cheeseflavored snacks Rold Gold pretzels and snack mix Funyuns onionflavored rings Go Snacks Sunchips multigrain snacks Sabritones puffed-wheat snacks BeverageBrands Pepsi-Cola Mountain Dew Mountain Dew AMP energy drink Mug Sierra Mist Quaker Oats Brands Quaker Oatmeal Cap'n Crunch cereal Life cereal Quaker 100% Natural cereal Slice Quaker Squares cereal Lipton Brisk (partnership) Quisp cereal Lipton Iced Tea (partnership) Dole juices and juice drinks (license) FruitWorks juice drinks King Vitaman cereal Quaker Oh's! cereal Mother's cereal Quaker grits Aquafina purified drinking water Quaker Oatmeal-toGo Frappuccino ready-to-drink coffee (partnership) Aunt Jemima mixes and syrups Starbucks DoubleShot (partnership) Quaker rice cakes Quaker rice snacks (Quakes) http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe Page 4 of 14 Cracker Jack candy-coated popcorn SoBe juice drinks, dairy, and teas Quaker Chewy granola bars Chester's popcorn SoBe energy drinks (No Fear and Adrenaline Rush) Quaker Dipps granola bars Grandma's cookies Munchos potato crisps Smartfood popcorn Baken-ets fried pork skins Oberto meat snacks Rustler's meat snacks Churrumais fried corn strips Frito-Lay nuts Frito-Lay, Ruffles, Fritos, and Tostitos dips and salsas Frito-Lay, Doritos, and Cheetos snack crackers Fritos, Tostitos, Ruffles, and Doritos snack kits Grain Waves Lay's Stax potato crisps H2OH! Gatorade Propel Tropicana Tropicana Twister Tropicana Smoothie Izze Naked Juice OutsideNorth America Mirinda 7UP Pepsi Kas Teem Manzanita Sol Paso de los Toros Fruko Evervess Yedigun Rice-A-Roni side dishes Pasta Roni side dishes Near East side dishes Puffed Wheat Harvest Crunch cereal Quaker baking mixes Spudz snacks Crisp'ums baked crisps Quaker Fruit & Oatmeal bars Quaker Fruit & Oatmeal Bites Quaker Fruit and Oatmeal Toastables Quaker Soy Crisps Quaker Bakeries Outside North America Shani http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe Miss Vickie's potato chips Munchies snack mix Stacy's Pita Chips Flat Earth fruit and vegetable chips Red Rock Deli Chips Sabra hummus OutsideNorth Ameri ca Bocabits wheat snacks Crujitos corn snacks Fandangos corn snacks Page 5 of 14 Fiesta D&G (license) Mandarin (license) Radical Fruit Tropicana Touche de Lait Alvalle gazpacho fruit juices and vegetable juices Tropicana Season's Best juices and juice drinks FrescAvena beverage powder Toddy chocolate powder Toddynho chocolate drink Coqueiro canned fish Sugar Puffs cereal Puffed Wheat Cruesli cereal Loza juices and nectars Hot Oat Crunch cereal Copella juices Quaker Oatso Simple hot cereal Frui'Vita juices Sandora juices Hamka's snacks Scott's Porage Oats Niknaks cheese snacks Scott's So Easy Oats Quavers potato snacks Quaker bagged cereals Sabritas potato chips Smiths potato chips Quaker Mais Sabor Quaker Oats Walkers potato crisps Quaker oat flour Gamesa cookies Quaker Meu Mingau Doritos Dippas http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe Page 6 of 14 Sonric's sweet snacks Quaker cereal bars Wotsits corn snacks Quaker Oatbran Red Rock Deli Corn goods Kurkure Magico chocolate powder Smiths Sensations Cheetos Shots Quavers Snacks Bluebird Snacks Duyvis Nuts Mller yogurts Lucky snacks Penelopa nuts and seeds Marbo Quaker Vitaly Cookies 3 Minutos Mixed Cereal Quaker Mgica Quaker Mgica con Soja Quaker pastas Quaker Frut Wimm-BillDann EXHIBIT 6 PepsiCo, Inc.'s Snack, Beverage, and Quaker Oats Brands, 2014 EXHIBIT 7 Select Financial Data for PepsiCo, Inc.'s Business Segments, 2011-2014 (in millions) http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe Page 7 of 14 EXHIBIT 7 2014 2013 2012 2011 Netrevenue http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe Page 8 of 14 Frito-Lay North America $14,502$14,126$13,574$13,322 Quaker Foods North America 2,568 2,612 2,636 2,656 Latin American Foods 8,442 8,350 7,780 7,156 PepsiCo Americas Beverages 21,154 21,068 21,408 22,418 Europe 13,290 13,752 13,441 13,560 Asia, Middle East, Africa 6,727 Total division 66,683 66,415 65,492 66,504 6,507 6,653 7,392 Operatingprofit Frito-Lay North America $ 4,054 $ 3,877 $ 3,646 $ 3,621 Quaker Foods North America 621 617 695 797 Latin American Foods 1,211 1,242 1,059 1,078 PepsiCo Americas Beverages 2,846 2,955 2,937 3,273 Europe 1,331 1,293 1,330 1,210 Asia, Middle East, Africa 1,043 1,174 1,330 1,210 Total division 11,106 11,158 10,414 10,866 Capitalexpendi tures Frito-Lay North America $ 519 $ 423 $ 365 $ 439 Quaker Foods North America 58 38 37 43 http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe Page 9 of 14 Latin American Foods 368 384 436 413 PepsiCo Americas Beverages 719 716 702 1,006 Europe 502 550 575 588 Asia, Middle East, Africa 517 531 510 693 Total division 2,683 2,642 2,625 3,182 Totalassets Frito-Lay North America $ 5,307 $ 5,308 $ 5,332 $ 5,384 Quaker Foods North America 982 983 966 1,024 Latin American Foods 4,760 4,829 4,993 4,721 PepsiCo Americas Beverages 30,188 30,350 30,889 31,142 Europe 13,902 18,702 19,218 18,461 Asia, Middle East, Africa 5,887 Total division 61,102 65,926 67,146 66,770 5,754 5,738 6,038 Depreciationand other amortization Frito-Lay North America $ 424 $ 430 $ 445 $ 458 Quaker Foods North America 51 51 53 54 Latin American Foods 254 253 248 238 PepsiCo Americas Beverages 856 863 855 865 http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe Page 10 of 14 Europe 471 525 522 522 Asia, Middle East, Africa 313 283 305 350 Total division 2,553 2,553 2,570 2,604 Amorti zationofother intangi ble assets Frito-Lay North America $7 $7 $7 $7 Quaker Foods North America Latin American Foods 8 8 10 10 PepsiCo Americas Beverages 45 58 59 65 Europe 28 32 36 39 Asia, Middle East, Africa 4 5 7 12 Total division 92 110 119 133 EXHIBIT 7 Select Financial Data for PepsiCo, Inc.'s Business Segments, 2011-2014 (in millions) Fri to-LayNorthAmerica As of 2015, three key trends that were shaping the industry were convenience, a growing awareness of the nutritional content of snack foods, and indulgent snacking. A product manager for a regional snack producer explained, \"Many consumers want to reward themselves with great-tasting, gourmet flavors and styles. . . . The indulgent theme carries into seasonings as well. Overall, upscale, restaurant-influenced flavor trends are emerging to fill consumers'desires to escape from the norm and taste snacks from a wider, often global, palate.\"1 Most manufacturers had developed new flavors of salty snacks such as j alapeno and cheddar tortilla chips and pepper jack potato chips to attract the interest of indulgent snackers. Manufacturers had also begun using healthier oils when processing chips and had expanded lines of baked and natural salty snacks to satisfy the demands of healthconscious consumers. Snacks packaged in smaller bags not only addressed overeating concerns but also were convenient to take along on an outing. In 2013, Frito-Lay owned the top-selling chip brand in each U.S. salty-snack category and held more than a 2-to-1 lead over the next-largest snack-food maker in the United States. Frito-Lay's 36.6 percent market share of convenience foods sold in the http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe Page 11 of 14 United States was more than five times greater than runner-up Kellogg's market share of 6.9 percent. Convenience foods included both salty and sweet snacks, such as chips, pretzels, ready-to-eat popcorn, crackers, dips, snack nuts and seeds, candy bars, and cookies. Page 386 PepsiCo's Performance with Purpose goals applied to all of its business units. Frito-Lay North America's (FLNA's) net revenues increased by 3 percent during 2014, its volume increased by 2 percent, and its operating profit increased by 5 percent. The division's management believed that growth in snack foods remained possible since typical individuals, on average, consumed snacks 67 times per month. On average, consumers chose Frito-Lay snacks only eight times per month. To increase its share of snack consumption, FLNA was focused on developing additional better-for-you (BFY) snacks such as Baked Cheetos and Doritos packaged in smaller portion sizes. Between 2008 and 2014, improving the performance of the division's core salty brands and further developing health and wellness products were key strategic initiatives. The company had eliminated trans fats from all Lay's, Fritos, Ruffles, Cheetos, Tostitos, and Doritos varieties, marketed a wide variety of gluten-free products, and was looking for further innovations to make its salty snacks more healthy. The company had introduced Lay's Classic Potato Chips cooked in sunflower oil that retained Lay's traditional flavor but contained 50% less saturated fat. Good-for-you (GFY) snacks, such as Flat Earth fruit and vegetable snacks, offered an opportunity for the company to exploit consumers' desires for healthier snacks and address a deficiency in most diets. Americans, on average, consumed only about 50 percent of the U.S. Department of Agriculture's recommended daily diet of fruits and vegetables. Other GFY snacks included Stacy's Pita Chips, Sabra hummus, salsas and dips, and Quaker Chewy granola bars. In 2013, FLNA manufactured and marketed baked versions of its most popular products, such as Cheetos, Lay's potato chips, Ruffles potato chips, and Tostitos Scoops! tortilla chips. Quaker Foods North America Quaker Foods produced, marketed, and distributed hot and ready-to-eat cereals, pancake mixes and syrups, and rice and pasta side dishes in the United States and Canada. In 2014, the division recorded sales of approximately $2.56 billion, down 2 percent, and sales volume was even with the prior year. The sales volume of Quaker Foods products decreased by nearly 1 percent annually between 2011 and 2013 with Quaker Oatmeal, Life cereal, and Cap'n Crunch cereal volumes competing in mature industries with weak competitive positions relative to Kellogg's and General Mills. Sales of Aunt Jemima syrup and pancake mix, and Rice-A-Roni rice and pasta kits also declined between 2011 and 2013. Quaker Oats was the star product of the division, with a commanding share of the North American market for oatmeal in 2013. Rice-A-Roni also held a number-one market share in the rice and pasta side-dish segment of the consumer food industry. More than one-half of Quaker Foods' 2013 revenues was generated by BFY and GFY products. Latin American Foods PepsiCo management believed international markets offered the company's greatest opportunity for growth since per capita consumption of snacks in the United States averaged 6.6 servings per month, while per capita consumption in other developed countries averaged 4 servings per month and in developing countries averaged 0.4 serving per month. PepsiCo executives expected China and Brazil http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe Page 12 of 14 to become the two largest international markets for snacks. The United Kingdom was estimated to be the third-largest international market for snacks, while developing markets Mexico and Russia were expected to be the fourth- and fifth-largest international markets, respectively. Page 387 Developing an understanding of consumer taste preferences was a key to expanding into international markets. Taste preferences for salty snacks were more similar from country to country than were preferences for many other food items, and this allowed PepsiCo to make only modest modifications to its snacks in most countries. For example, classic varieties of Lay's, Doritos, and Cheetos snacks were sold in Latin America. In addition, consumer characteristics in the United States that had forced snack-food makers to adopt better-for-you or good-for-you snacks applied in most other developed countries as well. PepsiCo operated 50 snack-food manufacturing and processing plants and 640 warehouses in Latin America, with its largest facilities located in Guarulhos, Brazil; Monterrey, Mexico; Mexico City, Mexico; and Celaya, Mexico. PepsiCo was the second-largest seller of snacks and beverages in Mexico, and its Doritos, Marias Gamesa, Cheetos, Ruffles, Emperador, Saladitas, Sabritas, and Tostitos brands were popular throughout most of Latin America. The division's revenues had grown from $7.2 billion in 2011 to $8.4 billion in 2014 and accounted for 11 percent of 2014 total net revenues. PepsiCo Americas Beverages PepsiCo was the largest seller of liquid refreshments in the United States, with a 24 percent share of the market in 2013. Coca-Cola was the second-largest nonalcoholic beverage producer, with a 21 percent market share. Dr. Pepper Snapple Group was the third-largest beverage seller in 2013, with a market share of 8.9 percent. Private-label sellers of beverages collectively held an 8 percent market share in 2013. As with Frito-Lay, PepsiCo's beverage business contributed greatly to the corporation's overall profitability and free cash flows. In 2014, PepsiCo Americas Beverages (PAB) accounted for 32 percent of the corporation's total revenues and 26 percent of its operating profits. The PAB division's $1 billion brands included Gatorade, Tropicana fruit juices, Lipton ready-to-drink tea, Pepsi, Diet Pepsi, Mountain Dew, Diet Mountain Dew, Aquafina, Miranda, Sierra Mist, Dole fruit drinks, Starbucks cold-coffee drinks, and SoBe. Gatorade was the number-one brand of sports drink sold worldwide; Tropicana was the number-two seller of juice and juice drinks globally; and PAB was the second-largest seller of carbonated soft drinks worldwide, with a 29 percent market share in 2014. Market leader Coca-Cola held a 42 percent share of the carbonated soft-drink (CSD) industry in 2014. Carbonated soft drinks were the most consumed type of beverage in the United States, with industry sales of $20.4 billion, but the industry had declined by 1 to 2 percent annually for nearly a decade. The overall decline in CSD consumption was a result of consumers' interest in healthier food and beverage choices. In contrast, flavored and enhanced water, energy drinks, ready-to-drink teas, and bottled water were growing beverage categories that were capturing a larger share of the stomachs in the United States and internationally. PepsiCo's Carbonated Soft-Drink Business http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe Page 13 of 14 PepsiCo's Carbonated Soft-Drink Business Among Pepsi's most successful strategies to sustain volume and share in soft drinks was its Power of One strategy, which attempted to achieve the synergistic benefits of a combined Pepsi-Cola and Frito-Lay envisioned by shareholders of the two companies in 1965. The Power of One strategy called for supermarkets to place Pepsi and Frito-Lay products side by side on shelves. The company was also focused on soft-drink innovation to sustain sales and market share, including new formulations to lower the calorie content of nondiet drinks. PepsiCo's Noncarbonated Beverage Brands PepsiCo's Noncarbonated Beverage Brands Although carbonated beverages made up the largest percentage of PAB's total beverage volume, much of the division's growth was attributable to the success of its noncarbonated beverages. Aquafina was the number-one brand of bottled water in the United States. Gatorade, Tropicana, Aquafina, SoBe, Starbucks Frappuccino, Lipton RTD teas, and Propel were all leading BFY and GFY beverages in the markets where they were sold. PepsiCo Europe All of PepsiCo's global brands were sold in Europe, as well as its country- or region-specific brands, such as Domik v Derevne, Chjudo, and Agusha. PespiCo Europe operated 125 plants and approximately 525 warehouses, distribution centers, and offices in eastern and western Europe. The company's acquisition of Wimm-Bill-Dann Foods, along with sales of its long-time brands, made it the number-one food and beverage company in Russia, with a 2-to-1 advantage over its nearest competitor. It was also the leading seller of snacks and beverages in the United Kingdom. PepsiCo Europe management believed further opportunities in other international markets existed, with opportunities to distribute many of its newest brands and product formulations throughout Europe. PepsiCo Europe provided 20% of the corporation's net revenues and 12% of its operating profit in 2014. PepsiCo Europe's net sales fell 3 percent in 2014 over the prior year but contributed 20 percent to the corporation's total revenue. Page 388 Asia, Middle East, and Africa PepsiCo's business unit operating in Asia, the Middle East, and Africa manufactured and marketed all of the company's global brands and many regional brands such as Kurkure and Chipsy. PepsiCo operated 45 plants, 490 distribution centers, warehouses, and offices located in Egypt, Jordan, and China, and was the number-one brand of beverages and snacks in India, Egypt, Saudi Arabia, United Arab Emirates, and China. The division's revenues had declined from $7.4 billion in 2011 to $6.5 billion in 2013 but rebounded to $6.7 billion in 2014, while its operating profit declined from $1,210 to $1,080 over the period 2011 to 2014. In 2014, Asia, Middle East, and Africa provided 10% of the corporation's net revenues and 9% of its operating profit. Value Chain Alignment Between PepsiCo Brands and Products PepsiCo's management team was dedicated to capturing strategic-fit benefits within the business lineup throughout the value chain. The company's procurement activities were coordinated globally to achieve the greatest possible economies of scale, and best practices were routinely transferred http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB Wireframe Page 14 of 14 among its more than 200 plants, over 3,500 distribution systems, and 120,000 service routes around the world. PepsiCo also shared market research information with its divisions to better enable each division to develop new products likely to be hits with consumers, and the company coordinated its Power of One activities across product lines. PepsiCo management had a proven ability to capture strategic fits between the operations of new acquisitions and its other businesses. The Quaker Oats integration produced a number of noteworthy successes, including $160 million in cost savings resulting from corporatewide procurement of product ingredients and packaging materials and an estimated $40 million in cost savings attributed to the joint distribution of Quaker snacks and Frito-Lay products. In total, the company estimated that the synergies among its business units generated approximately $1 billion annually in productivity savings. http://textflow.mheducation.com/parser.php?secload=19.2&fake&print 8/9/2017 IEB W ireframe Page1 of1 Pepsico's Strategic Situation in 2015 For themostpart ,PepsiCo'sst rategiesseemed tobefi ri ngonal lcyl indersi n2015.PepsiCo'schief managersexpect ed thecompany'sl ineupofsnack,beverage,and groceryit emst ogenerat eoperati ng cashflowssufficienttoreinvestinit scorebusinesses,provi dea7. 3 percentincreaseincash dividendstoshareholders,fund a$4. 5 bil lionto$5 bi llionshare-buybackpl an,and pursue acquisit ionsthatwould provideat tractivereturns.Nevertheless,thelow relativeprofitmarginsof PepsiCo'sint ernat ionalbusinessescreat ed theneed for acontinued examinat ionofitsst rategyand operat ionstobetter expl oitstrategicfit sbet weenthecompany'sinternat ionalbusinessunits. Thecompanyhad devel oped anew di visionalstructurei n2008 tocombineitsfood and beverage businessesi nLati nAmericaintoacommondivisi on.Al so,thecompany'sinternat ionalbusinesses werereorganized t oboostprofi tmarginsinEuropeand Asia,theMiddleEast ,and Afri ca.However, morethansixyearsafter thereorganizat ion,theperformanceofthecompany'si nternational businessesconti nued tol agt hatofit sNorthAmericanbusi nessesbyameani ngfulmargin.Somefood and beveragei ndustryanalyst shad speculat ed t hataddit ionalcorporat est rategychangesmightalso berequi red toi mprovetheprofi tabilit yofPepsi Co'sinternati onaloperationsand tohelprest ore previousrevenueand earni ngsgrowt hrates.Possi bleactionsmightincludearepri ori tizat ionof internalusesofcash,new acquisit ions,furt her effortstocapt urestrategicfit sexi stingbetweenthe company'svariousbusinesses,or thedivesti tureofbusinesseswithpoor prospectsoffuturegrowth and mi nimalstrategicfitwi thPepsiCo'sot her businesses. http:// textflow. mheducation. com/parser. php?secload=19. 3&fake&print 8/9/2017 PEPSICO MGMT 5355 Online Read \"Pepsico's Diversification Strategy in 2015\" (In Textbook pp. 377-389) Complete the PEPSICO Financial Segment Analysis Spreadsheet with your calculations of the indicated (green boxes) financial ratios. Calculate your financial ratios for the spreadsheet from Exhibit 7 in the case (pp. 385) Note: There are two tables with calculations, revenue growth and operating margins. Helpful Formulas Revenue Growth: (New - Old) / Old Example: ($13,574 - $13,322) / $13,322 = 0.0189 or 1.89% Note: This is the formula for simple percentage change. For the purpose of this exercise, we will be using simple one-year percentage changes, rather than Net Revenue CAGR. Express Revenue Growth in % Terms. Operating Margin: Operating Income / Net Revenue Example: $3,621 / $13,322 = 0.2718 or 27.18% Note: Express Operating Margins in % Terms. Converting Numbers Reported in Millions to Billions: Add six zeroes Example: $13,322 (millions) = $13,322,000,000 or $13.32 billion Note: Always report numbers like they sound, not like they are reported. Upload your spreadsheet to Blackboard. This assignment is due to be completed and posted to Blackboard by 11pm CDT on Sunday. Pepsico Financial Segment Analysis Pepsico's Diversification Strategy in 2015 Data from Textbook Exhibit 7, Page 385 SEGMENT REVENUE GROWTH ANALYSIS 9 2011 Net Revenue Frito Lay North America (millions) Frito Lay NA Actual Frito Lay NA Growth Rate 2012 2013 2014 $13,322 $13,574 $13.32 billion $13.57 billion N/A 1.89% $14,126 $14.13 billion 4.07% $14,502 $14.50 billion 2.66% $2,636 $2,612 $2,568 $7,780 $8,350 $8,442 $21,408 $21,068 $21,154 $13,441 $13,752 $13,290 $6,653 $6,507 $6,727 Quaker North America (millions) Quaker NA Actual Quaker NA Growth Rate $2,656 Latin American Foods (millions) LA Foods Actual LA Foods Growth Rate $7,156 N/A N/A Pepsico Americas Beverage (millions) Pepsico Americas Actual Pepsico Americas Growth $22,418 Europe (millions) Europe Actual Europe Growth Rate $13,560 Asia, Middle East, Africa AMEA Actual AMEA Growth Rate N/A N/A $7,392 Note: N/A means not available or missing data N/A Pepsico Financial Segment Analysis Pepsico's Diversification Strategy in 2015 Data from Textbook Exhibit 7, Page 385 OPERATING MARGIN ANALYSIS 2011 2012 2013 2014 $13,322 $3,621 27.18% $13,574 $3,646 26.86% $14,126 $3,877 27.45% $14,502 $4,054 27.95% Quaker North America (millions) Operating Income (millions) Operating Margin $2,656 $797 $2,636 $695 $2,612 $617 $2,568 $621 Latin American Foods (millions) Operating Income (millions) Operating Margin $7,156 $1,078 $7,780 $1,059 $8,350 $1,242 $8,442 $1,211 Pepsico Americas Beverage (millions) Operating Income (millions) Operating Margin $22,418 $3,273 $21,408 $2,937 $21,068 $2,955 $21,154 $2,846 Europe (millions) Operating Income (millions) Operating Margin $13,560 $1,210 $13,441 $1,330 $13,752 $1,293 $13,290 $1,331 Asia, Middle East, Africa Operating Income (millions) Operating Margin $7,392 $1,210 $6,653 $1,330 $6,507 $1,174 $6,727 $1,043 Operating Margins Frito Lay North America (millions) Operating Income (millions) Operating Margin