Nicholas M Theodore Economic Analysis

Illinois State University
Educational Investment Fund
Spring 2016
Nicholas M. Theodore

Stock Market Indices
DOW
JONES
NASDAQ S&P 500 FTSE
100
NIKKEI
225
NEW 5/3/16 17,773.51 4,764.91 2,016.11 6,185.59 16,147.38
OLD 1/26/16 16,167.23 4,467.67 1,903.63 5,911.46 17,189.06
3 Months
6 Months
10/26/15 17,623.05 5,034.70 2,071.18 6,417.02 18,947.12
7/26/15 17,568.53 5,039.78 2,067.64 6,505.13 20,350.10
1 Year 1/26/15 17,678.70 4,771.76 2,057.09 6,852.40 17,768.30
3 Year 1/26/13 13,954.42 3,153.66 1,507.84 6,339.13 10,866.72
5 Year 1/26/2011 11,989.83 2,755.28 1,299.54 5,965.08 10,478.66
10 Year 1/26/2006 10,907.21 2,304.23 1,283.72 5,786.84 16,460.80

Returns:
DOW JONES NASDAQ S&P 500 FTSE 100 NIKKEI 225
NEW-OLD 9.93% 6.65% 5.91% 4.64% -6.06%
CURRENT - 3 MTHS -8.26 -11.26% -8.09% -7.88% -9.28%
CURRENT - 6 MTHS -7.98% -11.35% -7.93% -9.13% -15.53%
6 MTHS – 1 YEAR -0.62% 6.96% 0.51% -5.07% 14.53%
1 YEAR – 3 YEARS 26.69% 49.41% 36.43% 8.10% 63.51%
3 YEARS – 5 YEARS 16.39% 14.46% 16.03% 6.29% 3.70%
5 YEARS – 10 YEARS 9.93% 19.57% 1.23% 3.06% -36.34%
The Dow Jones is an index based in the US, and holds 30 large-cap blue chip companies.
The Dow Jones divides up each sector into their own weight, which is a different setup than
many of the other indices.. The S&P 500 is one the leading indicators in the US, and is a market-
weighted index. As for the NASDAQ, it is made up mostly of Internet and technology based
companies. The FTSE is a European index that contains the top 100 highest market capitalization

companies on the London Stock Exchange. Lastly, the Nikkei 225 is a stock market index for the
Tokyo Stock Exchange.
The US markets since 2006 have gotten progressively better on a year after year basis, up
until this most recent year. Increasing concerns in China regarding their currency as well as their
ability to maintain their growth rate have put pressure on the United State economy. Not only has
this been transparent in US stock indices, but also the FTSE 100. Worldwide, the markets
worries in China, with OPEC, and the issues with Greece and their economy have taken a toll.
The European Union has intervened and some peace has been brought to the Greece worries, but
still lingering is the question of the state of the European economy. Over the past year, all 5 of
the indices have seen negative returns.
Being one of our major trade partners, the state of China’s economy is positively
correlated with that of the US. Although irrelevant to some, many companies do business with
China and are dependent on their growth and success. Heading into 2016, China is one of the
major topics of discussion and will continue to be until light is brought to the subject. Starting
the year, the markets in China, the US, and around the world dropped by more than 10% causing
a global sell-off. Many analysts are predicting somewhat of a recession into the coming year, but
only time will tell if that deems to be true.
Interest Rates:
Interest rates are one of the most important factors that affect our nation’s economy. An
interest rate is the cost of borrowing or the price paid for the rental of funds. These rates are
important in many ways. As a consumer, high interest rates may prevent you from purchasing a
house or car because the cost of financing would be high. On the contrary, high interest rates
may encourage you to save because you can earn more interest income while saving your money.

Interest rates impact the overall health of the economy because they affect how consumers
spend, but also affect business’ investment decisions. A high interest rate could influence a
company from building a new facility that would provide additional jobs to society. Aside from
consumers and corporations, interest rates affect banks, investment banks, and other financial
institutions.
There are several different interest rates that can be analyzed to determine the state of our
economy. The first, U.S. Treasury bills and notes, are debt securities that pay a fixed rate of
interest until its maturity date. Once the maturity date is met, the Treasury pays back the initial
par value of the security. Treasury bills are short-term securities with maturities less than one
year, while Treasury notes can have 2, 5, or 10 year maturity dates. Interest rates affect these
securities by modifying their price. If interest rates rise, then the price of the security decreases.
In addition, the longer the maturity of the security, the greater chance of interest rate risk it has
which, historically has had an impact on the purchase of these particular securities.
The second interest rate that can be examined is the Moody’s Corporate Aaa Bond Yield.
Corporate bonds pay the holder an interest payment usually twice a year, and like the Treasury
securities, are affected by interest rates. The third type of interest rates included are the federal
fund rate and discount rate, which are very vital to our economy and the monetary system. The
federal funds rate is the interest rate that banks charge each other for overnight loans. The
discount rate is the interest rate that Federal Reserve Banks charge other banks for overnight
collateralized loans. These rates are important because they ultimately decide how banks lend to
each other and handle their reserve requirements. These rates are tools that control our nation’s
monetary supply. A fall in the money supply results in a rise in interest rates eventually raising
the reserve requirements leading to higher interest rates. The final interest rate we analyzed in the

prime rate. The prime rate is the selective interest rate the commercial banks charge their
customers that have excellent credit
Treasury Bills:
CURRENT 6 MONTHS 1
YEAR
3
YEARS
5
YEARS
10 YEARS
5/3/16 10/26/
15
7/30
/15
4/30/1
5
12/31/
15
12/31/13 12/31/11 12/26/06
4
WKS
BANK
DISCOUNT
0.14 0.01 0.05 -0.01 0.14 0.01 0.01 4.65
COUPON
EQUIVALENT
0.21 0.01 0.05 -0.01 0.14 0.01 0.01 4.73
BANK
DISCOUNT
0.29 0.02 0.07 0.01 0.16 0.07 0.02 4.89
COUPON
EQUIVALENT
0.31 0.02 0.07 0.01 0.16 0.07 0.02 5.02
26
WKS
BANK
DISCOUNT
0.44 0.16 0.15 0.06 0.48 0.10 0.06 4.90
COUPON
EQUIVALENT
0.45 0.16 0.15 0.06 0.49 0.10 0.06 5.09
52
WKS
BANK
DISCOUNT
0.45 0.23 0.34 0.23 0.61 0.12 0.11 N/A
COUPON
EQUIVALENT
0.46 0.23 0.35 0.23 0.62 0.12 0.11 N/A

Treasury 10-Year Note:
CURRENT 6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
5/3/2016 10/25/2015 7/30/2015 4/2/2015 12/31/2014 12/31/2012 12/31/2010 12/31/2006
1.79 2.23 2.27 1.90 2.17 1.78 3.30 4.71
Moody’s Seasoned Aaa Corporate Bond Yield:
CURRENT 6
MONTHS
1 YEAR 3 YEARS 5 YEARS 10 YEARS
5/3/2016 7/30/2015 12/31/2014 12/31/2012 12/31/2010 12/31/2006
3.62 4.05 3.46 3.65 5.02 6.48
Federal Fund Rates:
5/3/2016 10/23/2015 7/30/2015 4/2/2015 12/31/2014 12/31/2012 12/31/2010 12/31/2006
0.30 0.12 0.14 0.12 0.06 0.09 0.13 5.24
Discount Rate:
5/3/2016 10/1/2015 7/1/2015 4/1/2015 12/01/2014 12/01/2012 12/01/2010 12/01/2006
1.00 0.75 0.75 0.75 0.75 0.75 0.75 6.25

Primary Credit Rate:
5/3/16 9/3/2014 5/30/2014 6/3/2014 12/31/2014 12/31/2012 12/31/2010 12/31/2006
1.00 0.75 0.75 0.75 0.75 0.75 0.75 8.25
Aaa Corporate Bond Yield:

Exchange Rates
As one of the most prominent currencies worldwide, the U.S. dollar has always been a
worldwide leader in market exchange rates. Since the housing market bubble burst in 2008 that
caused a crash in the US market as well as the USD, there has been a continual rise in value of
the USD relative to other currencies as markets attempt to regain strength in these turbulent
times. Although in theory a strong currency is representative of a strong economy, it may not be
as simple as that in real-life terms. With the current concerns in China, there is question to
whether or not the USD can hold its value in the coming months.
A currency increasing in strength can have both good and bad outcomes. With a weaker
currency, there is a decrease in imports and an increase in exports. This can be noted in the case
of China. Recently, the Chinese government was accused of artificially suppressing the value of
the Yuan to increase exports. This has resulted in sort of “currency war” between nations who
are battling for exports.

CURRENT 6 MONTHS 1 YEAR 3 YEARS 5
YEARS
10
YEARS
5/3/16 12/26/
15
10/26/1
5
7/26/1
5
1/26/15 1/26/13 1/26/11 1/26/06
EURO 0.86 0.91 .90 .91 0.89 0.74 0.73 0.82
BRITISH
POUND
0.68 0.67 .65 0.64 0.66 0.63 0.63 0.56
SWISS
FRANC
0.95 0.99 0.98 0.96 0.90 0.93 0.94 1.27
JAPANE
SE YEN
106.45 120.25 120.92 123.79 118.39 90.88 82.29 116.28
CANADI
AN
DOLLAR
1.27 1.38 1.31 1.30 1.24 1.00 0.99 1.15
CHINES
E YUAN
7.21 6.46 6.35 6.20 6.25 6.22 6.59 8.06
Commodities:
NEW CURRENT 6 MONTHS 1
YEAR
3
YEARS
5 YEARS 10
YEARS
5/3/16 1/26/16 12/26/1
5
10/26/1
5
7/26/
15
1/26/15 1/26/13 1/26/11 1/26/06
CRUDE OIL
($/BARREL)
43.71 31.45 39.11 46.42 51.57 58.56 88.26 101.43 40.38
GOLD ($/OZ) 1.288.30 1,125.20 1,075.5
0
1135.30 1088.
51
1275.37 1709.70 1425.40 655.98

Commodities, especially crude oil, play a very important role in the world economy. As
the price per barrel of oil fluctuates, so do many of the costs of incurred by businesses and
individuals. While we as individuals may enjoy the low cost of oil at the pump, the US economy
and markets may not see it in the same light. The falling price of oil has been a key talking point
in the economy of the past year, and will continue to be until it reaches prices seen in the past. As
the supply of oil increases, demand has been stagnant and as a result we have seen the lowest oil
prices in over 10 years. Gold however, has been increasing in the time that oil has been
decreasing. Many see it as a hedge against other investments, as it is a precious metal that has
real value. Going into 2016, it is unknown whether or not oil prices will continue to fall or will
regain momentum and reach the highs seen in the past.
% Change in consumer price index:

Real Gross Domestic Product
Year Real GDP
(Trillions)
US Real GDP Growth
Rate
2015 $16.30 0.06%
2014 $16.29 6.54%
2013 $15.29 -0.91%
2012 $15.43 1.58%
2011 $15.19 1.67%
2010 $14.94 2.75%
2009 $14.54 -0.27%
2008 $14.58 -2.74%
2007 $14.99 1.83%
2006 $14.72 2.44%
2005 $14.37 N/A
Shown above is the Real Gross Domestic Product in the US over the past 10 years.
Overall during the time posted, there has been an increase in real GDP. However, there have
been a few that posted a decrease on a year-to-year basis. As shown, there was a steep increase
of 6.54% between the years of 2013 and 2014. Between the years of 2014 and 2015, however,
the increase of 0.06% is reflective of the economic issues that the US has been enduring.

Industry Analysis:
Beverages-Soft Drinks

Industry Classification
Life Cycle Position
Classification: Mature
Companies in the Soda Production industry manufacture soft drinks by blending various
ingredients with artificially carbonated water. This industry also includes energy beverages.
Producers of bottled water, ready-to-drink teas and coffees, as well as juice manufacturers are
excluded from this industry. Falling per capita soft drink consumption significantly dampened
the Soda Production industry's performance. Demand for both regular and diet carbonated soft
drinks has declined as more consumers turned to healthier beverages to quench their thirst.
However, robust growth of energy drinks brands kept the industry from completely going flat.
Over the five years to 2020, the industry's soda segment will experience a difficult operating
environment, as government campaigns promoting healthier habits cause consumers to purchase
less soda, despite improving consumer spending. Even with the introduction of healthier soda
made with all-natural ingredients, volume consumption is anticipated to further decline as taxes
and bans on soda are implemented at the state and city levels of government. Health concerns are
also expected to curb demand for energy drinks, causing this product segment to grow more
conservatively than during the previous period. In the next five years to 2020, the Soda
Production industry is expected to decline at an average annual rate of 1.1% to $40.7 billion.

Business Cycle
Revenue Growth
Year Revenue $ million Growth %
2002 42,004.1 0.0
2003 42,726.6 1.7
2004 46,597.6 9.1
2005 49,818.0 6.9
2006 47,048.3 -5.6
2007 49,779.7 5.8
2008 48,958.6 -1.7
2009 46,049.1 -6.0
2010 45,758.1 -0.6
2011 49,037.8 7.2
2012 45,113.8 -8.0
2013 44,923.2 -0.4
2014 44,307.7 -1.4
2015 43,056.6 -2.8
External Factors
As per capita soft drink consumption declines, demand from downstream markets, such
as wholesalers and retailers, will decline and negatively impact industry revenue. Furthermore,
price-based competition intensifies in response to weakened demand, which can negatively affect
producers' revenue and profitability.

Healthy eating index
As a growing number of consumers become more health conscious, indicated by a rise in
the healthy eating index, demand for regular, calorie-laden soda, energy drinks and sports drinks
is expected to decline. Furthermore, consumers have become more aware of the negative health
consequences of drinking both regular and diet beverages in recent years.
Per capita disposable income
While some consumers drink soda, energy drinks and sports drinks regularly, these
beverages represent discretionary items for most consumers. Consequently, as disposable income
levels decline, consumers are likely to turn to more affordable options, such as bottled and tap
water.
Per capita sugar and sweetener consumption
As per capita sugar and sweetener consumption declines, demand from consumers who consume
products with sugar and sweeteners will decline causing a drop in demand from downstream
markets, such as retailers. Sugar and sweetener consumption moves inversely with the Healthy
eating index, thus the per capita sugar and sweetener consumption is expected to stagnate in
2015.
Price of corn
High fructose corn syrup is a key ingredient used to produce regular soda. A rise in the
price of corn causes producers to either pass along the cost increase to downstream markets in
the form of higher prices or absorb the cost to the detriment of profitability. The price of corn is
expected to decline in 2015, presenting an opportunity for the industry.

As it can be seen above the beverage industry, more specifically the soft drinks sector is
mainly focused on regular soft drinks taking up just over 50% of the products and services sector
as opposed to the 25% each for diet soft drinks and energy drinks. Also, grocery stores at just
above 40% take up the majority of the major market segmentation with gas stations, warehouse
clubs and super centers, vending machines, and others all about the same between 10% and 20%.
Supply Analysis
Degree of Concentration
The Soda Production industry exhibits a high level of concentration. IBIS World
estimates that the four largest producers account for a combined 71.0% of industry revenue in
2015. Market share has increased significantly over the past five years as the leading producers,
The Coca-Cola Company and PepsiCo, have undergone major structural changes. These
companies previously partnered with many bottlers to produce finished beverages under their
brand names but have recently acquired these bottling operations to obtain greater control of the
production process. They also engage in significant marketing and brand promotion activities to
generate brand loyalty. Finally, the leading soda manufacturers have historically purchased
regional brands to expand their presence in the market and diversify their product portfolios,
which have raised the level of concentration in this industry.
Ease of Entry
The barriers to entry in this industry are high and steady. There are significant barriers to
entry into the Soda Production industry including the high initial capital investments, market
saturation, industry concentration and the declining demand for soda. However, as energy drinks
are still in the growth stage of its life cycle, there are greater opportunities for new entrants to

succeed by entering this niche market segment. Nevertheless, significant capital investments are
required to either purchase or lease facilities and acquire expensive machinery and equipment to
produce soda. Additionally, new entrants must be able to offer differentiated products that either
taste significantly better than the existing products in the market or invest heavily in marketing to
position and promote their brand.
Profitability
38,000.00
40,000.00
42,000.00
44,000.00
46,000.00
48,000.00
50,000.00
52,000.00
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Revenue $ Million
Revenue $ Million
-10
-8
-6
-4
-2
0
2
4
6
8
10
Growth %
Growth %

Demand Analysis
Demand for industry products depends on many factors including price levels, consumers' health
concerns and product innovation. Generally, higher prices for soda will place downward pressure
on all varieties of CSDs. Due to the homogeneous nature of soda, when the price of branded
products increases at the retail level, many consumers opt for more affordable branded products
or trade down to generic brands. However, many soda drinkers are also brand-loyal and will
purchase their favorite brand despite higher prices. Additionally, higher per capita disposable
income enables consumers to purchase more soda. Growing health and nutrition concerns have
negatively impacted demand for soda in recent years. Although producers introduced a greater
variety of low-calorie and naturally sweetened soda, Americans still perceive CSDs as unhealthy
when compared with bottled water, iced tea and a variety of juice beverages. The healthy eating
index has increased from 65.6% in 2013 to 67.8% in 2015 showing that Americans have been
opting for healthier choices, and furthermore, is forecast to continue rising in the next few years.
Marketing is another significant driver of demand for industry goods. In particular, energy drink
producers invest a great deal of their revenue to promote their products on college campuses and
in major cities. All companies in this industry also partner with popular athletes, musicians and
celebrities to send targeted messages to teens and young adults.
Capital Intensity
The Soda Production industry exhibits a high level of capital intensity. Using wages as a
proxy for labor and depreciation as a proxy for capital, IBIS World estimates that for every

dollar spent on labor in the industry, $0.37 will be spent on capital in 2015. Capital expenditure
is required in this industry to purchase and maintain machinery and equipment that operators rely
on to produce a high volume of soda and functional beverages on a daily basis. Capital intensity
has fallen slightly over the past five years due to falling demand for traditional soda brands and
dull industry profitability. In turn, operators have begun their investments in new machinery, and
in some cases, opting instead to shutter their factories. Depreciation's share of revenue has also
declined as revenue has grown at a faster annualized rate than capital expenditure.
Profit
The industry's average profit, defined as earnings before interest and taxes, accounted for
an estimated 6.2% of industry revenue in 2015. This figure represents a decline from 6.1% in
2010. While the leading manufacturers experience higher earnings than the industry average,
regional soft drink and private label producers are much less profitable due to the lower price
point of their products. As competition intensified and demand for soda declined over the past
five years, many producers were pressured to lower the prices they charge downstream

customers while investing in advertising and promotional campaigns to drive demand for their
drinks.
Purchases
Although the markup for soda, energy and sports drinks over the cost of raw materials is
high, purchases of raw material account for the largest expense for soda producers.
Manufacturers purchase ingredients such as carbon dioxide gas, sugar, artificial sweeteners, high
fructose corn syrup, caffeine, flavorings and food color. The fluctuating costs of key ingredients
caused purchases' share of revenue to increase over the past five years.
Depreciation, Wages, and other Costs
The industry's cost structure is based on estimates for total enterprises. Thus, primary
costs such as purchases and wages vary from producer to producer. While changes in demand
can significantly impact smaller operators' earnings, multinational companies with greater
resources are able to adjust quickly to market conditions. Labor costs comprise about 6.0% of
revenue in 2015, which represents a slight increase from 5.7% in 2010. The rise in wage costs
can be attributed to producers raising wages as the overall economy recovered. This increase is
also due to rising demand for energy drink products; this segment has performed much better
than traditional CSD sales over the past five years. Employment is estimated to have increased as
well at an annualized rate of 0.8% over the five years to 2015 due to this trend.

Pricing
Price levels are important, many consumers are loyal to specific brands and are willing to
pay a premium for their brand of choice. The leading soda, energy drinks and sports drink
producers invest heavily in marketing and promotions to further drive brand loyalty among
consumers. The range of products that a manufacturer produces is also an important basis of
competition
International Competition and Markets
Exports in this industry are low and increasing. Imports in this industry are medium and
increasing. Carbonated soft drink and energy drink producers engage in a limited amount of
international trade because the value of packaged beverages is low when compared with the cost
of transporting and distributing industry goods. The major export markets are Canada, Mexico,
Taiwan and Vietnam. Canada and Mexico experience close proximity to the United States and
benefit from favorable trade conditions through the North American Free Trade

Agreement. Imports of industry goods have increased in recent years. Switzerland, Austria,
Mexico and Thailand represent the leading sources of industry imports. Switzerland and Austria
remain the leading sources of imports, driven by popular energy drink brands, such as Red Bull.
Over the five years to 2015, imports are expected to increase an annualized 10.3% to $2.6
billion. As demand for imported beverages grows in the upcoming years, imports' share of
domestic demand is anticipated to increase.

Porter’s Five Forces
Threat of New Entrants
Barriers to entry in this industry are high and steady. There are significant barriers to
entry into the Soda Production industry including the high initial capital investments, market
saturation, industry concentration and the declining demand for soda. However, as energy drinks
are still in the growth stage of its life cycle, there are greater opportunities for new entrants to
succeed by entering this niche market segment. Nevertheless, significant capital investments are
required to either purchase or lease facilities and acquire expensive machinery and equipment to
produce soda. Additionally, new entrants must be able to offer differentiated products that either
taste significantly better than the existing products in the market or invest heavily in marketing to
position and promote their brand. A high degree of market saturation also acts as a barrier to
entry. Not only is the market saturated, but demand for soda is also declining in the United
States. While niche producers that target specific regions and consumer groups have appeared in
recent years, they have not been able to obtain significant market share. However, many private
label brands were introduced during the recession when consumers sought more affordable
alternatives at retail stores.
Competitive Rivalry within the Industry
While larger manufacturers like PepsiCo and The Coca-Cola Company also produce
noncarbonated beverages, the emergence of companies that specialize in these smaller beverage
categories continue to threaten the position of the major soda producers.
Due to changing consumer tastes and growing health concerns, producers have
introduced a variety of brand extensions that are made with healthier sweeteners and contain
fewer calories. To capitalize on the growing popularity of natural zero-calorie sweeteners and

low-calorie beverages, soda producers have competed to be the first to introduce alternative low-
calorie soda beverages in recent years.
Bargaining Power of the Buyer
While large retailers, such as Walmart and Safeway, have lots of shelf space to offer a
variety of soda brands, smaller downstream markets usually carry a limited number of products.
Many convenience stores, vending machines and food service operators limit their soda offerings
to one manufacturer. For instance, many vending machines carry only Pepsi or Coca-Cola
products, which makes it even more difficult for smaller competitors to obtain contracts with
downstream markets
Bargaining Power of the Suppliers
Industry operators produce a variety of soda products in different flavors, container types,
container sizes and caloric content. Offering a range of products gives producers a competitive
advantage when negotiating with retailers, boosts brand loyalty among consumers and enables
producers to tap into new markets and consumer groups. Additionally, wholesalers and large
retailers prefer to source a variety of goods from one producer rather than several producers to
reduce transaction costs, further incentivizing manufacturers to expand their product portfolios.
Threat of Substitutes
Competition with producers of other ready-to-drink beverages has intensified over the
five years to 2015. Mainly the growths of the bottled water and juice production industry have
declined revenue growth for soda producers. Products that are manufactured by juice producers
such as sparkling fruit drinks have experienced growth in recent years.

PepsiCo Company Analysis
Industry: Beverage- Soft Drinks
Sector: Consumer Defensive
Ticker: PEP
Stock Exchange: NYSE
Headquarters: Purchase, New York
Company Description
PepsiCo, Inc. operates as a food and beverage company worldwide. Its Frito-Lay North
America segment offers Lays and Ruffles potato chips; Doritos, Tostitos, and Santitas tortilla
chips; and Cheetos cheese-flavored snacks, branded dips, and Fritos corn chips. The company’s
Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, natural
granola, and oat squares; and Aunt Jemima mixes and syrups, Quaker Chewy granola bars,
Captain Crunch cereal, Life cereal, and Rice-A-Roni side dishes.
Its North America Beverages segment offers beverage concentrates, fountain syrups, and
finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Diet Mountain
Dew, Tropicana Pure Premium, Sierra Mist, and Mug brands. The company was founded in 1898
and is headquartered in Purchase, New York.
Corporate Strategy
PepsiCo mission statement is ‘Performance with Purpose’ and this principle is closely
incorporated with the strategic direction chosen for the company. The most prominent aspects of
PepsiCo strategy given by CEO Indra Nooyi are based on the following seven principles.

First: international market expansion strategy through mergers and
acquisitions. Mergers and acquisitions can offer the advantages of gaining access to
competencies and infrastructure, reducing direct costs and overheads and achieving organic
growth.
Second: formation of strategic alliances in global scale. Specifically, strategic
partnerships have been formed with Tingyi in China in order to claim a share in growing
beverage market in China. Also, formation of a joint venture with Tata in India to enhance
drinking water manufacturing capabilities.
Third: focus on emerging markets. The share of net revenues from developing and
emerging markets such as China, India, and Russia. PepsiCo CEO Indra Nooyi has publicly
expressed commitments to further increase the level of presence of the company in emerging
markets.
Fourth: focus on organizational culture. Organizational culture can be defined as “the
collection of words, actions, thoughts, and “stuff” that clarifies and reinforces what a company
truly values” and the nature of organizational culture directly impacts its performance in short-
term and long-term perspectives.
Fifth: developing and promoting the idea of One PepsiCo. Specifically, Indra Nooyi
has been striving to increase the level of association of individual brands with PepsiCo company
values and philosophy through promoting the idea of One PepsiCo.
Sixth: innovation in marketing initiatives. A wide range of innovative marketing
initiatives developed by PepsiCo marketing team include “Do Us a Flavor” campaign that
involved consumers in 17 countries submitting flavor ideas, development of Lipton Brisk Star
Wars game application for mobile phones, and using celebrity endorsement.

Seventh: focus on increasing core organic revenue. Core organic revenue can be
explained as a type of revenue that is achieved through increasing the volume of production and
sales. PepsiCo core organic revenues were increased by 5% during 2012 (Annual Report, 2012)
and the company strategic level management is committed to further increase the levels of core
organic revenues through maintaining high quality standards and applying effective marketing
strategy.
Life Cycle
The Soda Production industry is in the mature stage of its life cycle. Over the 5 years to
2020, industry value added, which measures an industry's contribution to the economy, is
forecasted to decrease at an annualized 0.8%. In comparison, GDP is projected to grow 2.2% per
year on average over the same period. While the industry's energy drink segment continues to
grow, these new gains continue to be offset by declining sales of carbonated soft drinks. These
contradictory trends have somewhat canceled each other out, signaling that the industry is
squarely within the mature phase of its life cycle
Products
Soda produced by industry manufacturers are bottled in cans, glass bottles and plastic
bottles in either single-serve or multi serve container sizes. Manufacturers have added a variety
of can and bottle sizes to their product lines, particularly smaller single-serve bottles, to appeal to
busy consumers and also those who want to consume less calories. PepsiCo's product mix as of
2012 (based on worldwide net revenue) consists of 63 percent foods, and 37 percent beverages.
On a worldwide basis, the company's current products lines include several hundred
brands that in 2009 were estimated to have generated approximately $108 billion in cumulative
annual retail sales The primary identifier of a food and beverage industry main brand is annual

sales over $1 billion. As of 2009, 21 PepsiCo brands met that mark: Pepsi, Mountain
Dew, Lay's, Gatorade, Tropicana, 7 Up, Doritos, Lipton Teas, Quaker Foods, Cheetos, Miranda,
Ruffles, Aquafina, PepsiMax, Tostitos, Sierra Mist, Fritos, and Walkers.
Markets
PepsiCo prides itself in being a global entity and world leader in product innovation. As
seen, there is a strong presence across the world.
Marketing Strategy and Customer Support
One of their core competencies is their product integration and innovation. PepsiCo is
able to enhance their product line by carrying fruit drinks, Gatorade, and Frappuccino. This
allows them to promote their products and services more efficiently while being able to reach a
much broader group of individuals. Through integration, they are able to eliminate potential
competitors, while creating a more diverse product line.
Pepsi always comes up with the unique ad campaign’s focusing towards its target market.
The uniqueness is advertising and branding has given it a competitive advantage over
competitors. PepsiCo’s target audience is mostly teens and young adults and their advertising
reflects this in every possible manner.

Manufacturing and Process Costs
Manufacturing cost is the expenditure incurred in carrying out the production processes
of an organization. The manufacturing costs include direct costs like labor, materials, and
expenses, and indirect costs. Primary costs such as purchases and wages vary from producer to
producer. While changes in demand can significantly impact smaller operators' earnings,
multinational companies with greater resources are able to adjust quickly to market conditions.
Labor costs comprise about 6.0% of revenue in 2015, which represents a slight increase
from 5.7% in 2010. The rise in wage costs can be attributed to producers raising wages as the
overall economy recovered. This increase is also due to rising demand for energy drink products;
this segment has performed much better than traditional carbonated soft drink sales over the past
five years. Employment is estimated to have increased as well at an annualized rate of 0.8% over
the five years to 2015 due to this trend.
Distribution
PepsiCo is a leading food and beverage company with an impressive global presence.
The company’s products reach the market through the following three channels: direct store
delivery (or DSD), customer warehouse, and third-party distributor networks. PepsiCo chooses
the relevant distribution channel based on customer needs, product characteristics, and local
trade practices. Under the DSD system, PepsiCo delivers products directly to retail stores. Of the
three channels, DSD enables PepsiCo to merchandise with maximum visibility. It’s more
suitable for products that are restocked often and are sensitive to promotions and marketing.
The customer warehouse system is a less expensive distribution channel. It’s ideal for
products that are less fragile and perishable, have lower turnover, and are not purchased

impulsively. PepsiCo distributes food and beverage products to restaurants, businesses, schools,
and stadiums through third-party food service and vending distributors and operators.
Suppliers and Raw Materials
The companies are subject to the harvest of raw material that they use in their snack
foods, soft drink and juice, like corn, oranges, grapefruit, vegetables, potatoes, etc. They rely on
trucks to move and distribute many of their products, fuel is also an important aspect, so they are
subject to the fuel prices prevailing in that economy.
Competition
Soda producers compete based on many factors including price levels, range of products
offered, product innovation and marketing. While soda is a low-price item for consumers, price
levels have become more important in recent years following the recession, due to repressed
disposable income levels and frugal consumer spending. As demand for industry goods declined
due to lower overall consumption levels and growing health concerns, producers temporarily
slashed the prices they charged downstream markets to boost demand.
Additionally, the growth of private label brands has also intensified price-based
competition among manufacturers. While energy drinks are sold at a premium compared with
regular carbonated soft drinks, even the leading energy drink producers offered promotions and
discounts over the past five years to drive sales.
Research and Development
At PepsiCo, R&D Associate Engineers translate strategic market objectives into new
products and processes. PepsiCo Engineers participate in and lead accelerated product
development life cycles that include new idea generation, prototype development, product

optimization, process development, process scale-up, and production startup for test market and
national launching of new products. As an R&D Associate Food Scientist with PepsiCo, they
have unique opportunities to increase technical knowledge by participating in the development of
a diverse portfolio of beverage and snack product categories. The teams translate strategic
market objectives into new products and processes, optimize designs per consumer response and
select winning ideas for commercialization.
Foreign Sales and Earnings
Exports in this industry are low and increasing. Imports in this industry are medium and
increasing. Carbonated soft drink and energy drink producers engage in a limited amount of
international trade because the value of packaged beverages is low when compared with the cost
of transporting and distributing industry goods.
The major export markets are Canada, Mexico, Taiwan and Vietnam. Canada and
Mexico experience close proximity to the United States and benefit from favorable trade
conditions through the North American Free Trade Agreement. Imports of industry goods have
increased in recent years. Switzerland, Austria, Mexico and Thailand represent the leading
sources of industry imports. Switzerland and Austria remain the leading sources of imports,
driven by popular energy drink brands, such as Red Bull. Over the five years to 2015, imports
are expected to increase an annualized 10.3% to $2.6 billion. As demand for imported beverages
grows in the upcoming years, imports' share of domestic demand is anticipated to increase.
Government Regulation
PepsiCo’s operations and properties are subject to regulation by various federal, state and
local governmental entities and agencies in the U.S., as well as foreign governmental entities. As
a producer of beverage products, PepsiCo is subject to production, packaging, quality, and

labeling and distribution standards in each of the countries where we have operations including,
in the U.S., those of the Federal Food, Drug and Cosmetic Act. In the U.S., we are also subject to
the Soft Drink Interbrand Competition Act, which permits us to retain an exclusive right to
manufacture, distribute and sell a soft drink product in a geographic territory if the soft drink
product is in substantial and effective competition with other products of the same class in the
same market or markets.
The operations of PepsiCo’s production and distribution facilities are subject to various
federal, state and local environmental laws and workplace regulations both in the U.S. and
abroad. These laws and regulations include, in the U.S., the Occupational Safety and Health Act,
the Unfair Labor Standards Act, the Clean Air Act, the Clean Water Act and laws relating to the
maintenance of fuel storage tanks.
Personnel
There are approximately 263,00 employees currently working for PepsiCo.
Properties
PepsiCo's food and beverage products are sold around the world. They have six global
divisions, either independently or in conjunction with third parties, make, market, distribute and
sell a wide variety of food and beverages.

Management
Indra K. Nooyi - Chairman and Chief Executive Officer
-Joined PepsiCo in 1994
Albert P. Carey - Chief Executive Officer, North American Beverages
-Joined PepsiCo in 1981.
Sanjeev Chadha - Chief Executive Officer, Asia, Middle East & North Africa and founding
member of PepsiCo beverage business in India in 1989
Hugh F. Johnston- Vice Chairman and Chief Financial Officer
-Joined PepsiCo in 1987

Pepsi Financial Statement Analysis
Return on Common Equity
Return on common equity measures the return the company generates using common
equity to finance its operations. It can be noted that in the most recent year, PepsiCo Inc., had the
highest return on common equity in comparison to its competitors in the industry. There has been
some volatility in this measure since 2010, but as of late, PepsiCo Inc. is doing well in this
category. This can be a positive for investors because they are earning a higher return than
competitors on common equity.
Return on Common Equity:
2015 2014 2013 2012 2011
PEP 37.24 31.24 28.96 28.84 30.89
KO 26.31 22.36 26.03 28.00 27.37
DPS 34.13 30.76 27.39 27.69 25.67
MDLZ 26.06 7.27 12.12 8.98 9.93
Return on Assets
Return on assets as an indicator of how profitable a company is in comparison to its total
assets. This ratio gives investors an idea of how efficient assets are used to generate profits for a
company. PepsiCo Inc. has an average return on assets relative to its competitors. The company
has neither the highest or lowest ratio compared to competitors. It can be seen that since 2011,
PepsiCo Inc. has been decreasing this ratio. This could indicate that PepsiCo’s business has been
hurting in recent years or that the company is not investing that much in assets to help generate
earnings. I believe part of the reason is that consumers are trying to be healthier and the soda

beverages are known to be an unhealthy option. This could be a potential red flag for anyone
looking to invest in PepsiCo Inc.
Return on Assets
2015 2014 2013 2012 2011
PEP 7.78 8.79 8.85 8.37 9.13
KO 8.07 7.80 9.74 10.86 11.21
DPS 8.91 8.53 7.29 6.91 6.68
MDLZ 11.21 3.13 5.29 3.58 3.73
Profit Margins
Profit margin is an indicator of how profitable a company is from its operations. This
margin measures, in a percentage, how much out of every dollar of sales a company actually
keeps in earnings. PepsiCo Inc. has a below average profit margin in comparison to competitors
in the industry. The company has the lowest measure, indicating that it could be better in this
area of business. PepsiCo Inc. has been decreasing its profit margin in recent years, which can be
a point of fear for future investors. They are really trying to get their margins by cutting certain
costs and lowering prices in order to get higher profit margins in the future and I feel like that
should work out in their favor because of all the other companies and products they own, they
should see results rise in the future
Profit Margins
2015 2014 2013 2012 2011
PEP 8.65 9.75 10.14 9.42 9.68
KO 16.60 15.43 18.32 18.78 18.42
DPS 12.16 11.49 10.41 10.49 10.27
MDLZ 24.52 6.38 11.09 8.65 6.49
Tax Rate
This measure represents the percentage of earnings before taxes that are paid in taxes.
This is a profitability indicator and measures a company’s tax efficiency. PepsiCo’s tax rate has
stayed below the federal tax rate of 35%, which can suggest that they look for possible tax

breaks. This could be a positive sign for investors when looking to pursue PepsiCo due to a
lower than industry average tax rate. They also receive lots of tax breaks and loop holes, which
makes sense.
Tax Rate:
2015 2014 2013 2012 2011
TAX RATE 26.08 25.11 23.66 25.17 26.85
Common Sized Income Statement
This is an income statement in which each account is expressed as a percentage value of
sales. The common size statement analysis will show how various components of the income
statement will affect a company’s profit. When looking at the common size income statement, it
was seen that PepsiCo has been increasing its gross profit margin over the years examined. This
is a good sign for a company, which indicates more profit and efficient use of cost of goods sold.
It was also noted though that total operating expenses are higher each year in comparison to
previous years of the company. This signals the company is handling its expenses inefficiently.
Finally, it is noticed that net income has been the lowest since 2011. This is a point of interest for
a potential investor and is a bad sign. The increase in net income can arise from a more efficient
handling of operating expenses and tax expenses.
% 2011 2012 2013 2014 2015
REVENUES 100 100 100 100 100
COGS 47.51 47.78 47.04 46.31 45.01
GROSS PROFIT 52.49 52.22 52.96 53.69 54.99
TOTAL OPERATING EXPENSES 38.01 38.31 38.35 39.32 41.74
OPERATING INCOME 14.48 13.91 14.61 14.37 13.25
INCOME BEFORE TAXES 13.28 12.68 13.39 13.13 11.80
NET INCOME 9.69 9.43 10.15 9.77 8.65

Common Sized Balance Sheet
As said earlier, the common size statement demonstrates accounts as a percentage of
assets, liabilities, and stockholder’s equity. This will let the analyst (myself) determine trends
over the past years and relate them to profit. Seeing the percentage change in accounts over the
years can be a good analytical tool. When examining the common size balance sheet, it was
noted that PepsiCo has been decreasing its total non-current assets over the years which may
indicate an decreased spending in long-term assets such as P, P, &E. In contrast, the company
has increased its current assets over the years. To match the movements in asset accounts,
PepsiCo has done the same thing with current and non-current liabilities over the past few years.
Matching assets with liabilities shows an efficient use of resources and keeps financing stable for
the company, a positive sign for potential investors. The company has decreased stockholder’s
equity since 2011, which indicates the company is potentially losing sales or stockholders
looking to buy equity in the company.

ASSETS
2011 2012 2013 2014 2015
TOTAL CASH 6.07 8.87 12.49 12.38 17.24
TOTAL CURRENT ASSETS 23.93 25.08 28.66 29.31 33.06
TOTAL NON-CURRENT ASSETS 76.07 74.92 71.34 70.69 66.94
TOTAL ASSETS 100 100 100 100 100
LIABILITIES & STOCKHOLDERS EQUITY
2011 2012 2013 2014 2015
TOTAL CURRENT LIABILITIES 24.91 22.90 23.02 25.66 25.23
TOTAL NON-CURRENT LIAB 46.84 47.23 45.64 49.61 57.65
TOTAL LIABILITIES 71.75 70.13 68.66 75.27 82.89
STOCKHOLDERS EQUITY
2011 2012 2013 2014 2015
TOTAL STOCKHOLDERS EQUITY 28.25 29.87 31.34 24.73 17.11
TOTAL LIABILITIES AND
EQUITY
100 100 100 100 100
Asset Turnover
This ratio indicates the value of a company’s sales/revenues generates relative to the
value of its assets. This is an efficiency ratio to measure how effective a company uses its assets
to generate profit. PepsiCo has been increasing its asset turnover in recent years and almost back
to where it was in 2011, indicating that it is efficiently using its assets. In comparison to its
competitors, PepsiCo has one of highest asset turnover ratios, making it a point of interest for
investors. Investors would see Pepsi using its assets to generate profits as a positive when
considering investing in the company.

Asset Turnover
2015 2014 2013 2012 2011
PEP 0.90 0.90 0.87 0.89 0.94
KO 0.49 0.51 0.53 0.58 0.61
DPS 0.73 0.74 0.70 0.66 0.65
MDLZ 0.46 0.49 0.48 0.41 0.57
Fixed Asset Turnover
This financial ratio is an efficiency ratio similar to the previous ratio we examined. This
ratio measures a company’s ability to generate sales from fixed-asset investments like property,
plant, and equipment. A higher fixed-asset turnover ratio shows that a company has been
effective in using their investments in fixed assets to generate revenues. PepsiCo has an average
fixed-asset turnover ratio in comparison to its competitors but lower than the leader Mondelez
International Inc. Not investing in fixed assets would increase turnover, which indicates that
Pepsi is using its fixed assets more than others, which decreases turnover. This could be a
positive sign for investors looking to invest in PepsiCo.
2015 2014 2013 2012 2011
PEP 3.76 3.72 3.52 3.37 3.43
KO 3.26 3.11 3.18 3.26 3.14
DPS 5.47 5.29 5.05 5.09 5.09
MDLZ 3.26 3.41 3.49 2.94 3.94
Receivables Turnover
The receivables turnover ratio measures a firm’s effectiveness in extending credit and
collecting debt related to the credit. This ratio indicates how efficiently a company uses its assets
and handles credit. PepsiCo has a slightly higher level of receivables turnover ratio in
comparison with its competitors in the industry. This measure has been increased marginally
since 2011. This could be a positive when looking at the company if someone was interested in

investing in PepsiCo. An investor wants to have a company that handles their credits and assets
in an efficient, consistent manner.
2015 2014 2013 2012 2011
PEP 11.15 11.12 10.86 10.10 10.05
KO 10.54 9.85 9.73 9.92 9.96
DPS 11.16 10.39 10.22 10.55 10.53
MDLZ 9.21 7.44 6.12 5.61 8.43
Inventory Turnover
This ratio shows how many times a company’s inventory is sold and replaced over a
specific period of time. A low turnover implies poor sales and excess inventory, while a high
turnover indicates strong sales. While comparing PepsiCo against its competitors, it can be seen
the company has an average inventory turnover ratio. The company may want to increase sales
efforts or try a new inventory management system to help generate profits and increase investors
for the business but they are about in the middle so I think they’re fine in this category.
Inventory Turnover
2015 2014 2013 2012 2011
PEP 9.68 9.43 8.94 8.45 8.78
KO 5.83 5.61 5.63 6.00 6.34
DPS 12.39 12.33 12.59 12.22 10.90
MDLZ 5.95 5.99 5.93 4.64 6.42
Financial Leverage
Financial leverage relates total assets to total shareholder’s equity for a company. The
higher the ratio, the more debt the company uses in its capital structure. PepsiCo has had a fairly
increasing trend in this ratio with the past years. This increase indicates the company is relying
on more debt to finance the company and its operations. When comparing PepsiCo to its
competitors, it was noted that PepsiCo has one of the highest financial leverage ratios. This can

be a negative aspect of PepsiCo because debt financing is riskier than equity financing. Investors
may want to use caution after seeing this information.
Financial Leverage
2015 2014 2013 2012 2011
PEP 5.86 4.05 3.20 3.35 3.55
KO 3.53 3.04 2.71 2.63 2.53
DPS 4.06 3.61 3.60 3.92 4.10
MDLZ 2.24 2.41 2.24 2.34 2.66
Times Interest Earned
This is a ratio used to measure a company’s ability to meet its debt obligations. More
specifically, it indicates how many times a company can cover its interest charges on a pretax
basis. It can be seen that PepsiCo’s times interest earned ratio has decreased every year since
2011 and its biggest decrease was in the past year. Also, it is noted that PepsiCo’s ratio is
relatively average compared to their competitors in the industry. This can be a huge red flag for
investors seeing that PepsiCo cannot cover their interest expenses as efficiently as those
operating in the industry. Ensuring interest payments to debt holders and preventing bankruptcy
is a critical factor to examine when deciding to invest in a company.
2015 2014 2013 2012 2011
PEP 7.67 9.63 9.75 9.23 10.32
KO 11.22 19.31 24.78 29.74 27.43
DPS 10.11 9.84 4.40 7.82 8.11
MDLZ 12.94 3.28 2.35 1.50 2.90
Current Ratio
The current ratio is a liquidity ratio that measures a company’s ability to pay short-term
debt obligations. This ratio compares current total assets of a company to its current total
liabilities. This can be used as a main indicator of a company’s financial health. PepsiCo has a
faintly higher current ratio in comparison to its competitors. A fairly average current ratio signals

that PepsiCo is handling its assets and liabilities in similar fashion as their competitors, not
showing any red flags for potential investors.
Current Ratio
2015 2014 2013 2012 2011
PEP 1.31 1.14 1.24 1.10 0.96
KO 1.24 1.02 1.13 1.09 1.05
DPS 1.15 1.17 1.09 1.08 0.92
MDLZ 0.82 0.84 0.92 1.05 0.88
Quick Ratio
The quick ratio can be used to measure a company’s short-term liquidity. A company
should use its most liquid assets to meet its short-term debt obligations. Inventory is not included
in this ratio because it is not the most liquid asset. PepsiCo’s quick ratio is pretty consistent with
their competitors in the industry and this year has the highest again since 2011. Being on the
higher side indicates that the company has more liquid assets relative to liabilities compared to
others in the industry. This is a good aspect for investors given a higher ratio.
Quick Ratio
2015 2014 2013 2012 2011
PEP 1.05 0.85 0.93 0.80 0.62
KO 0.89 0.81 0.90 0.77 0.78
DPS 0.97 0.82 0.75 0.79 0.70
MDLZ 0.52 0.46 0.56 0.71 0.45
Statement of Cash Flows
Operating
Operating Cash Flow- Revenue:
2015 2014 2013 2012 2011
PEP 10,580 10,506 9,688 8,479 8,944
When looking at revenues generated via cash flow from operations, it is seen that the
company has good amounts of increases in this area since 2011.These increases are a great sign
because they are getting more cash flow.

Operating Cash Flow-Net Income:
2015 2014 2013 2012 2011
PEP 5,501 6,558 6,787 6,214 6,462
KO 7,366 7,124 8,626 9,086 8,634
DPS 764 703 624 629 606
MDLZ 7,291 2,201 3,935 3,055 3,547
It is seen that net income from operating cash flows has been quite volatile since 2011.
This decrease in net income since 2011 is a worrisome sign for investors, and the recent decrease
from 2014 is also a red flag. When compared to competitors in the industry, PepsiCo has an
average level of net income.
Free Cash Flow:
2015 2014 2013 2012 2011
Operating
Cash Flow
10,580 10,506 9,688 8,479 8,944
Capital
Expenditure
(2,758) (2,859) (2,795) (2,714) (3,339)
As said earlier, when looking at revenues generated via cash flow from operations, it is
seen that the company has good amounts of increases in this area since 2011. This increase can
be a positive signal for investors. Another thing to consider is that their capital expenditure is
much less than operating cash flow, which is a good thing because high capex drains cash, this
means lower dividend and higher geared. Many times, high capex companies require investors to
come up with financing through rights issue or placement or capital increase, which dilutes the
shareholdings. Otherwise, more debt has to be taken up, which investors hate the most.

PepsiCo, Inc. Valuation
For my first valuation, I used the ValuePro to PepsiCo, Inc. This valuation gave me a
value of $105.75, which makes it favorable purchase considered the stock, is currently
$103.21.These calculations infer that the stock is fairly undervalued. I manually entered these
values in ValuePro after finding them on sources such as Morningstar, Zacks, and Valueline. I
also calculated some of the values like the depreciation and investment rate relative to PepsiCo,
Inc. I calculated a growth rate of 6.9% for the company’s revenues. I used the 30-year treasury
yield of 3% and an equity risk premium 5%.

PEP KO DPS MDLZ
Growth 6.90% 8.80% 11.50% -9.90%
ROE 30.98 28.77 34.13 26.06
Beta 0.70 0.80 0.61 1.05
P/E 22.56 23.36 22.70 23.93
Est. P/E 22.12 24.20 21.22 23.93
EPS $3.67 $1.67 $3.97 $4.44
VALUE $82.80 $39.01 $90.12 $106.25
For my second valuation, I used the P/E method. I compared PepsiCo to some of its peers
that are in the consumer beverage industry. With an industry average P/E of 23.13; which I felt
that was right on target especially after comparing Pepsi to these three companies with very
similar P/E ratios. With the stock being priced at $103.21, this valuation gives PepsiCo a
favorable position. PepsiCo’s beta in comparison to its competitors is right around the middle,
which is good because the amount of volatility is lower.
Recommendation
While the valuations show that PepsiCo is a good buy, I would have to agree with the
analysis. Since this class focuses on buying and selling for the long term, I believe PepsiCo is a
great buy, not only because of how well they pay dividends but how much the company is
projected to grow within the next few years. In the long run, I think that PepsiCo is an ideal
company that this class favors and a large corporation that can and has gained a competitive
advantage when competing against the biggest rivals in the industry. The company had a decline

in revenue between 2014 and 2015, but it is clear that PepsiCo is on the rise. Thus, I recommend
buying 50-100 more shares of PepsiCo. If we are deciding to add more consumer beverage
stocks to the portfolio, it should be one of the industry leaders- PepsiCo.

Dr. Pepper Snapple, Inc. Financial Statement Analysis
Return on common equity measures the return the company generates using common
equity to finance its operations. It can be noted that in the most recent year, PepsiCo Inc., had the
highest return on common equity in comparison to its competitors in the industry. There has been
some volatility in this measure since 2011, but as of late, Dr. Pepper Snapple is doing well in this
category and has been increasing year after year. This can be a positive for investors because
they are earning a higher return than most of the competitors on common equity.
2015 2014 2013 2012 2011
DPS 34.13 30.76 27.39 27.69 25.67
KO 26.31 22.36 26.03 28.00 27.37
PEP 37.24 31.24 28.96 28.84 30.89
MDLZ 26.06 7.27 12.12 8.98 9.93
Return on Assets
Return on assets as an indicator of how profitable a company is in comparison to its total
assets. This ratio gives investors an idea of how efficient assets are used to generate profits for a
company. Dr. Pepper Snapple has an average return on assets relative to its competitors. The
company has neither the highest or lowest ratio compared to competitors in 2015. It can be seen
that since 2011, Dr. Pepper Snapple has been increasing this ratio. This could indicate that Dr.
Pepper Snapple’s business has been getting better in recent years or that the company is

investing more in assets to help generate earnings. This could be a good sign for anyone looking
to invest in Dr. Pepper Snapple.
Return on Assets
2015 2014 2013 2012 2011
DPS 8.91 8.53 7.29 6.91 6.68
KO 8.07 7.80 9.74 10.86 11.21
PEP 7.78 8.79 8.85 8.37 9.13
MDLZ 11.21 3.13 5.29 3.58 3.73
Profit Margins
Profit margin is an indicator of how profitable a company is from its operations. This
margin measures, in a percentage, how much out of every dollar of sales a company actually
keeps in earnings. Dr. Pepper Snapple has a below average profit margin in comparison to
competitors in the industry, but not the worst. The company has the 2nd lowest measure,
indicating that it could be better in this area of business. Dr. Pepper Snapple has been increasing
its profit margin in recent years, which can be a good sign for future investors potentially.
Profit Margins
2015 2014 2013 2012 2011
DPS 12.16 11.49 10.41 10.49 10.27
KO 16.60 15.43 18.32 18.78 18.42
PEP 8.65 9.75 10.14 9.42 9.68
MDLZ 24.52 6.38 11.09 8.65 6.49
Tax Rate
This measure represents the percentage of earnings before taxes that are paid in taxes.
This is a profitability indicator and measures a company’s tax efficiency. Dr. Pepper Snapple’s
tax rate has stayed below the federal tax rate of 35%, which can suggest that they look for
possible tax breaks.

Tax Rate
2015 2014 2013 2012 2011
TAX RATE 35.47 34.58 34.53 35.69 34.59
This is an income statement in which each account is expressed as a percentage value of
sales. The common size statement analysis will show how various components of the income
statement will affect a company’s profit. When looking at the common size income statement, it
was seen that Dr. Pepper Snapple has been increasing its gross profit margin over the years
examined. This is a good sign for a company, which indicates more profit and efficient use of
cost of goods sold. It was also noted though that total operating expenses are lower each year in
comparison to previous years of the company for the most part. This signals the company is
handling its expenses efficiently. Finally, it is noticed that net income has been increasing every
year. This is a point of interest for a potential investor and is a good sign. The increase in net
income can arise from a more efficient handling of operating expenses and tax expenses.
% 2011 2012 2013 2014 2015
REVENUES 100 100 100 100 100
COGS 42.10 41.70 41.67 40.70 40.74
GROSS PROFIT 57.90 58.30 58.33 59.30 59.26
TOTAL OPERATING EXPENSES 40.56 40.08 40.89 40.03 38.60
OPERATING INCOME 17.35 18.22 17.44 19.28 20.66
INCOME BEFORE TAXES 15.67 16.31 9.04 17.53 18.85
NET INCOME 10.27 10.49 10.41 11.49 12.16

As said earlier, the common size statement demonstrates accounts as a percentage of
assets, liabilities, and stockholder’s equity. This will let the analyst (myself) determine trends
over the past years and relate them to profit. Seeing the percentage change in accounts over the
years can be a good analytical tool. When examining the common size balance sheet, it was
noted that Dr. Pepper Snapple has been decreased its total non-current assets last year which may
indicate a decreased spending in long-term assets such as P, P, &E. In contrast, the company has
increased its current assets over the years. To match the movements in asset accounts, Dr. Pepper
Snapple has done the same thing with current and non-current liabilities over the past few years.
Matching assets with liabilities shows an efficient use of resources and keeps financing stable for
the company, a positive sign for potential investors. The company has decreased stockholder’s
equity since 2011 has been quite volatile and has decreased a lot since 2014 particularly, which
indicates the company is potentially losing sales or stockholders looking to buy equity in the
company.

ASSETS
2011 2012 2013 2014 2015
TOTAL CASH 7.55 4.10 1.87 2.86 10.27
TOTAL CURRENT ASSETS 18.93 14.95 13.64 14.64 20.49
TOTAL NON-CURRENT ASSETS 73.52 80.95 84.52 82.50 69.24
TOTAL ASSETS 100 100 100 100 100
LIABILITIES & STOCKHOLDERS EQUITY
2011 2012 2013 2014 2015
TOTAL CURRENT LIABILITIES 20.63 13.80 12.56 12.55 17.85
TOTAL NON-CURRENT LIAB 54.99 60.66 59.68 59.72 57.54
TOTAL LIABILITIES 75.62 74.46 72.24 72.27 75.39
STOCKHOLDERS EQUITY
2011 2012 2013 2014 2015
TOTAL STOCKHOLDERS EQUITY 24.38 25.54 27.76 27.73 24.61
TOTAL LIABILITIES AND
EQUITY
100 100 100 100 100
Asset Turnover
This ratio indicates the value of a company’s sales/revenues generates relative to the
value of its assets. This is an efficiency ratio to measure how effective a company uses its assets
to generate profit. Dr. Pepper Snapple has been increasing its asset turnover in recent years and
almost back to where it was in 2011, indicating that it is efficiently using its assets. In
comparison to its competitors, Dr. Pepper Snapple has the second highest asset turnover ratios
among competitors, making it a point of interest for investors. Investors would see Dr. Pepper
Snapple using its assets to generate profits as a positive when considering investing in the
company.

Asset Turnover
2015 2014 2013 2012 2011
DPS 0.73 0.74 0.70 0.66 0.65
KO 0.49 0.51 0.53 0.58 0.61
PEP 0.90 0.90 0.87 0.89 0.94
MDLZ 0.46 0.49 0.48 0.41 0.57
This financial ratio is an efficiency ratio similar to the previous ratio we examined. This
ratio measures a company’s ability to generate sales from fixed-asset investments like property,
plant, and equipment. A higher fixed-asset turnover ratio shows that a company has been
effective in using their investments in fixed assets to generate revenues. Dr. Pepper has the
highest fixed-asset turnover ratio in comparison to its competitors. Not investing in fixed assets
would increase turnover, which indicates that Dr. Pepper Snapple is using its fixed assets more
than others, which decreases turnover. This could be a positive sign for investors looking to
invest in Dr. Pepper Snapple.
2015 2014 2013 2012 2011
DPS 5.47 5.29 5.05 5.09 5.09
KO 3.26 3.11 3.18 3.26 3.14
PEP 3.76 3.72 3.52 3.37 3.43
MDLZ 3.26 3.41 3.49 2.94 3.94
The receivables turnover ratio measures a firm’s effectiveness in extending credit and
collecting debt related to the credit. This ratio indicates how efficiently a company uses its assets
and handles credit. Dr. Pepper Snapple has a slightly higher level of receivables turnover ratio in
comparison with its competitors in the industry. This measure has been increased marginally
since 2011. This could be a positive when looking at the company if someone was interested in

investing in Dr. Pepper Snapple. An investor wants to have a company that handles their credits
and assets in an efficient, consistent manner
2015 2014 2013 2012 2011
DPS 11.16 10.39 10.22 10.55 10.53
KO 10.54 9.85 9.73 9.92 9.96
PEP 11.15 11.12 10.86 10.10 10.05
MDLZ 9.21 7.44 6.12 5.61 8.43
Inventory Turnover
This ratio shows how many times a company’s inventory is sold and replaced over a
specific period of time. A low turnover implies poor sales and excess inventory, while a high
turnover indicates strong sales. While comparing Dr. Pepper Snapple against its competitors, it
can be seen the company has the highest inventory turnover ratio among the pack.
Inventory Turnover
2015 2014 2013 2012 2011
DPS 12.39 12.33 15.59 12.22 10.90
KO 5.83 5.61 5.63 6.00 6.34
PEP 9.68 9.43 8.94 8.45 8.78
MDLZ 5.95 5.99 5.93 4.64 6.42
Financial Leverage
Financial leverage relates total assets to total shareholder’s equity for a company. The
higher the ratio, the more debt the company uses in its capital structure. Dr. Pepper Snapple has
had a fairly volatile trend in this ratio with the past years with increases since 2013. This increase
indicates the company is relying on more debt to finance the company and its operations. When
comparing Dr. Pepper Snapple to its competitors, it was noted that Dr. Pepper Snapple has just
about average financial leverage ratios. This can be a negative aspect of Dr. Pepper Snapple

because debt financing is riskier than equity financing. Investors may want to use caution after
seeing this information.
Financial Leverage
2015 2014 2013 2012 2011
DPS 4.06 3.61 3.60 3.92 4.10
KO 3.53 3.04 2.71 2.63 2.53
PEP 5.86 4.05 3.20 3.35 3.55
MDLZ 2.24 2.41 2.24 2.34 2.66
This is a ratio used to measure a company’s ability to meet its debt obligations. More
specifically, it indicates how many times a company can cover its interest charges on a pretax
basis. It can be seen that Dr. Pepper Snapple’s times interest earned ratio has been very volatile
every year since 2011 but it is at the highest in has been in 2015. Also, it is noted that Dr. Pepper
Snapple’s ratio is relatively average compared to their competitors in the industry. This can be a
huge red flag for investors seeing that Dr. Pepper Snapple cannot cover their interest expenses as
efficiently as those operating in the industry. Ensuring interest payments to debt holders and
preventing bankruptcy is a critical factor to examine when deciding to invest in a company.
2015 2014 2013 2012 2011
DPS 10.11 9.84 4.40 7.82 8.11
KO 11.22 19.31 24.78 29.74 27.43
PEP 7.67 9.63 9.75 9.23 10.32
MDLZ 12.94 3.28 2.35 1.50 2.90
Current Ratio
The current ratio is a liquidity ratio that measures a company’s ability to pay short-term
debt obligations. This ratio compares current total assets of a company to its current total
liabilities. This can be used as a main indicator of a company’s financial health. Dr. Pepper

Snapple has a middle of the road current ratio in comparison to its competitors. A fairly average
current ratio signals that Dr. Pepper Snapple is handling its assets and liabilities in similar
fashion as their competitors, not showing any red flags for potential investors.
Current Ratio
2015 2014 2013 2012 2011
DPS 1.15 1.17 1.09 1.08 0.92
KO 1.24 1.02 1.13 1.09 1.05
PEP 1.31 1.14 1.24 1.10 0.96
MDLZ 0.82 0.84 0.92 1.05 0.88
Quick Ratio
The quick ratio can be used to measure a company’s short-term liquidity. A company
should use its most liquid assets to meet its short-term debt obligations. Inventory is not included
in this ratio because it is not the most liquid asset. Dr. Pepper Snapple’s quick ratio is pretty
consistent with their competitors in the industry and this year has the highest again since 2011.
Being on the higher side indicates that the company has more liquid assets relative to liabilities
compared to others in the industry. This is a good aspect for investors given a higher ratio.
Quick Ratio
2015 2014 2013 2012 2011
DPS 0.97 0.82 0.75 0.79 0.62
KO 0.89 0.81 0.90 0.77 0.78
PEP 1.05 0.85 0.93 0.80 0.62
MDLZ 0.52 0.46 0.56 0.71 0.45
Statement of Cash Flows
Operating
Operating Cash Flow- Revenue:
2015 2014 2013 2012 2011
DPS 991 1,022 866 458 760

When looking at revenues generated via cash flow from operations, it is seen that the
company has seen quite a bit of volatility in this area since 2011.This volatility can be a negative
signal for investors, but the decreased revenue from 2014 could be a negative sign also.
Operating Cash Flow-Net Income:
2015 2014 2013 2012 2011
DPS 764 703 624 629 606
KO 7,366 7,124 8,626 9,086 8,634
PEP 5,501 6,558 6,787 6,214 6,462
MDLZ 7,291 2,201 3,935 3,055 3,547
It is seen that net income from operating cash flows has been quite volatile since 2011.
This increase in net income since 2011 is a good sign for investors, but the recent decrease from
2014 is also a red flag. It should also be noted that the company had very low net income in
2012. It is a bad sign for anyone looking to invest in Dr. Pepper Snapple. When compared to
competitors in the industry, Dr. Pepper has a significantly lower level of net income. This could
mean that competition has better business practices and can potentially gain a competitive
advantage over Dr. Pepper Snapple. They also have a significantly lower amount of inventory,
other working capital, and other non-cash items, which shows clearly in the cash flow statement
via Morningstar.
Free Cash Flow:
2015 2014 2013 2012 2011
Operating
Cash Flow
991 1,022 866 458 760
Capital
Expenditure
(180) (171) (184) (200) (218)
As said earlier, when looking at revenues generated via cash flow from operations, it is
seen that the company has seen quite a bit of volatility in this area since 2011. This volatility can

be a negative signal for investors, but the decreased revenue from 2014 could be a negative sign
also. Another thing to consider is that their capital expenditure is much less than operating cash
flow, which is a good thing because high capex drains cash, this means lower dividend and
higher geared. Many times, high capex companies require investors to come up with financing
through rights issue or placement or capital increase, which dilutes the shareholdings. Otherwise,
more debt has to be taken up, which investors hate the most.

Dr. Pepper Snapple Company Analysis
Industry: Beverage- Soft Drinks
Sector: Consumer Defensive
Ticker: DPS
Stock Exchange: NYSE
Headquarters: Plano, Texas
Company Description
Dr. Pepper Snapple Group, Inc. is a leading integrated brand owner, manufacturer and
distributor of non-alcoholic beverages in the United States, Canada and Mexico with a diverse
portfolio of flavored carbonated soft drinks and non-carbonated beverages, including ready-to-
drink teas, juices, juice drinks, water and mixers. They have some of the most recognized
beverage brands in North America, with significant consumer awareness levels and long
histories that evoke strong emotional connections with consumers.
Corporate Strategy
Build and enhance leading brands:
They use an on-going process of market and consumer analysis to identify key brands
that they believe have the greatest potential for profitable sales growth. They also intend to
continue to invest most heavily in these key brands to drive profitable and sustainable growth by
strengthening consumer awareness, developing innovative products and brand extensions to take
advantage of evolving consumer trends, improving distribution and increasing promotional
effectiveness.

Focus on opportunities in high growth and high margin categories:
Dr. Pepper Snapple is focused on driving growth in their business in selected profitable
and emerging categories. These categories include ready-to-drink teas, energy drinks and other
functional beverages. They also intend to capitalize on opportunities in these categories through
brand extensions, new product launches and selective acquisitions of brand and distribution
rights.
Increase presence in high margin channels and packages:
They focus on improving their product presence in high margin channels, such as
convenience stores, vending machines and small independent retail outlets, through increased
selling activity and investments in coolers and other cold drink equipment. They intend to
increase demand for high margin products like single-serve packages for many of their key
brands through increased promotional activity and innovation.
Leverage our integrated business model:
They believe their integrated brand ownership; bottling and distribution business model
provides them opportunities for net sales and profit growth through the alignment of the
economic interests of their brand ownership and their bottling and distribution businesses. They
aim to leverage their integrated business model to reduce costs by creating greater geographic
manufacturing and distribution coverage and to be more flexible and responsive to the changing
needs of their large retail customers by coordinating sales, service, distribution, promotions and
product launches.

Strengthen our route-to-market through acquisitions:
The acquisition and creation of their Bottling Group is part of their longer-term initiative
to strengthen the route-to-market for their products. They believe additional acquisitions of
regional bottling companies will broaden their geographic coverage and enhance coordination
with their large retail customers.
Improve operating efficiency:
They believe their recently announced restructuring will reduce their selling, general and
administrative expenses and improve their operating efficiency. In addition, the integration of
recent acquisitions into their Bottling Group has created the opportunity to improve their
manufacturing, warehousing and distribution operations.
Life Cycle
The Soda Production industry is in the mature stage of its life cycle. Over the 5 years to
2020, industry value added, which measures an industry's contribution to the economy, is
forecasted to decrease at an annualized 0.8%. In comparison, GDP is projected to grow 2.2% per
year on average over the same period. While the industry's energy drink segment continues to
grow, these new gains continue to be offset by declining sales of carbonated soft drinks. These
contradictory trends have somewhat canceled each other out, signaling that the industry is
squarely within the mature phase of its life cycle.
Products
CSDs:
#1 in its flavor category and #2 overall flavored CSD in the U.S.. Distinguished by its unique

blend of 23 flavors and loyal consumer following. Flavors include regular, diet, cherry and Dr.
Pepper TEN. Oldest major soft drink in the U.S., introduced in 1885.
Their core four brand: Canada Dry, 7UP, A&W Root Beer, and Sunkist. Canada Dry is
#1 ginger ale in the U.S. and Canada, which includes regular, diet and Canada Dry TEN. Brand
also includes club soda, tonic, sparkling seltzer water and other mixers. Created in Toronto,
Canada in 1904 and introduced in the U.S. in 1919. 7UP is #2 lemon-lime CSD in the U.S.
Flavors include regular, diet, cherry and 7UP TEN. The original "Un-Cola," created in 1929.
A&W Root Beer is #1 root beer in the U.S. Flavors include regular, diet, A&W TEN and cream
soda. A classic all-American beverage first sold at a veteran's parade in 1919. Lastly, Sunkist is
#1 orange CSD in the U.S. Flavors include orange, diet, grape, strawberry, Sunkist TEN and
other fruits. Licensed to us as a CSD by the Sunkist Growers Association since 1986.
Markets
They hold the #1 position in the U.S. flavored CSD beverage markets by sales volume
according to Nielsen. They are also a leader in the Canada and Mexico beverage markets. Their
portfolio of products is biased toward flavored CSDs, which continue to gain market share
versus cola CSDs, but also focuses on growing categories such as teas and juices. They believe
marketing and product innovations that target fast growing population segments, such as the
Hispanic community in the U.S., could drive market growth.
Marketing Strategy and Customer Support
They are focused on improving their product presence in high margin brands, products
and channels, such as convenience stores, vending machines and small independent retail outlets,
through increased selling activity. They also intend to increase demand for high margin products
like single-serve packages for many of their key brands through increased in-store activity. They

believe their integrated brand ownership, manufacturing and distribution business model
provides them opportunities for net sales and profit growth through the alignment of the
economic interests of their brand ownership and their manufacturing and distribution businesses.
They intend to continue leveraging their integrated business model to reduce costs by
optimizing geographic manufacturing and distribution coverage and to be more flexible and
responsive to the changing needs of their large retail customers by coordinating sales, service,
distribution, promotions and product launches. Strengthening their route-to-market will ensure
the ongoing health of their brands. They continue to invest in information technology to
improve route productivity and data integrity and standards. With third party bottlers, they
continue to deliver programs that maintain priority for their brands in their systems.
Manufacturing and Process Costs
As of December 31, 2015, they operated 21manufacturing facilities across the U.S. and
Mexico. Almost all of their CSD beverage concentrates are manufactured at a single plant in St.
Louis, Missouri. All of their manufacturing facilities are either regional manufacturing facilities,
with the capacity and capabilities to manufacture many brands and packages, facilities with
particular capabilities that are dedicated to certain brands or products, or smaller bottling plants
with a more limited range of packaging capabilities.
They have a variety of production capabilities, including hot-fill, cold-fill and aseptic
bottling processes, and they manufacture beverages in a variety of packaging materials, including
aluminum, glass and PET cans and bottles and a variety of package formats, including single-
serve and multi-serve packages and "bag-in-box" fountain syrup packaging. In 2015, 91% of
their manufactured volumes came from their brands and 9% from third party and private-label

products. They also use third party manufacturers to package their products for us on a limited
basis.
The principal raw materials they use in their business, which they commonly refer to as
ingredients and packaging costs, are aluminum cans and ends, glass bottles, PET bottles and
caps, paper products, sweeteners, juice, fruit, water and other ingredients. These ingredients and
packaging costs can fluctuate substantially. As it relates to their costs of sales, these costs make
up a significant portion of their costs, as shown below. In addition, they are significantly
impacted by changes in fuel costs, which can also fluctuate substantially, due to the large truck
fleet they operate in their distribution businesses. Under many of their supply arrangements for
these raw materials, the price they pay fluctuates along with certain changes in underlying
commodities costs, such as aluminum in the case of cans, natural gas in the case of glass bottles,
resin in the case of PET bottles and caps, corn in the case of sweeteners and pulp in the case of
paperboard packaging. When appropriate, they will mitigate the exposure to volatility in the
prices of certain commodities used in their production process through the use of forward
contracts and supplier pricing agreements. The intent of the contracts and agreements is to
provide a certain level of short-term predictability in their operating margins and their overall
cost structure, while remaining in what they believe to be a competitive cost position.
Distribution
They are a leading integrated brand owner, manufacturer and distributor of non-alcoholic
beverages in the U.S., Mexico and the Caribbean and Canada. They also sell certain of their
products to distributors in Europe and Asia. They recognized net sales from the shipment of 1.6
billion equivalent 288 fluid ounce cases in 2015. The following chart provides details regarding
sources of their total 288 fluid ounce cases in 2015:

Competition
The consumer beverage industry is highly competitive and continues to evolve in
response to changing consumer preferences. Competition is generally based upon brand
recognition, taste, quality, price, availability, selection and convenience. Brand recognition can
also be impacted by the effectiveness of their advertising campaigns and marketing programs, as
well as their use of social media. They compete with multinational corporations with significant
financial resources. Their two largest competitors in the consumer beverage market are Coca-
Cola and PepsiCo, which represent approximately 46% of the U.S. market by retail sales,
according to Nielsen. They also compete against other large companies, including Nestle, Kraft
Foods and Campbell Soup. These competitors can use their resources and scale to rapidly
respond to competitive pressures and changes in consumer preferences by introducing new
products, changing their route to market, reducing prices or increasing promotional activities.
As a bottler and manufacturer, they also compete with a number of smaller bottlers and
distributors and a variety of smaller, regional and private label manufacturers, such as Cott.
Smaller companies may be more innovative, better able to bring new products to market and

better able to quickly exploit and serve niche markets. They also compete for contract
manufacturing with other bottlers and manufacturers. They have lower exposure to energy
drinks, some of the faster growing bottled water segments in the overall consumer beverage
market. In Canada, Mexico and the Caribbean, they compete with many of these same
international companies as well as a number of regional competitors
Research and Development
Their research and development team is composed of scientists and engineers in the U.S.
and Mexico who are focused on developing high quality products which have broad consumer
appeal, can be sold at competitive prices and can be safely and consistently produced across a
diverse manufacturing network. Their research and development team engages in activities
relating to product development, microbiology, analytical chemistry, process engineering,
sensory science, nutrition, knowledge management and regulatory compliance. They have
particular expertise in flavors and sweeteners, which allows them to focus their research in areas
of importance to the industry, such as new sweetener development.
Foreign Sales and Earnings
Their Latin America Beverages segment is a brand ownership, manufacturing and
distribution business. This segment participates mainly in the carbonated mineral water, flavored
CSD, bottled water and vegetable juice categories, with particular strength in carbonated mineral
water, vegetable juice categories and grapefruit flavored CSDs. In 2015, their Latin America
Beverages segment had net sales of $497 million, with their operations in Mexico representing
approximately 90% of the net sales of this segment. Key brands include Peñafiel, Squirt,
Aguafiel, Clamato and Crush.

In Mexico, they manufacture and distribute their products through their bottling
operations and third party bottlers and distributors. In the Caribbean, they distribute their
products through third party bottlers and distributors. They have also begun to distribute certain
products in other international jurisdictions through various third party bottlers and distributors.
In Mexico, they also participate in a joint venture to manufacture Aguafiel brand water
with Acqua Minerale San Benedetto. They sell their finished beverages through all major
Mexican retail channels, including "mom and pop" stores, supermarkets, hypermarkets,
convenience stores and on-premise channels.
In 2015, OXXO and Walmart, the largest customers of their Latin America Beverages
segment, accounted for approximately 11% and 10% of their net sales in this segment,
respectively.
Government Regulation
They are subject to a variety of federal, state and local laws and regulations in the
countries in which they do business. Regulations apply to many aspects of their business,
including their products and their ingredients, manufacturing, safety, labeling, transportation,
recycling, advertising and sale. For example, their products and their manufacturing, labeling,
marketing and sale in the U.S. are subject to various aspects of the Federal Food, Drug, and
Cosmetic Act, the Federal Trade Commission Act, the Lanham Act, state consumer protection
laws and state warning and labeling laws.
In Canada and Mexico, the manufacture, distribution, marketing and sale of many of their
products are also subject to similar statutes and regulations. Additionally, the government of
Mexico enacted broad based tax reform, including a one peso per liter tax on the manufacturing
of certain sugar-sweetened beverages, which went into effect January 1, 2014. Their bottlers use

various refillable and non-refillable, recyclable bottles and cans in the U.S. and other countries.
Various states and other authorities require deposits, eco-taxes or fees on certain containers.
Similar legislation or regulations may be proposed in the future at local, state and federal
levels, both in the U.S. and elsewhere. In Mexico, the government has encouraged the soft drink
industry to comply voluntarily with collection and recycling programs of plastic material, and
they are in compliance with these programs.
In the normal course of their business, they are subject to a variety of federal, state and
local environmental, health and safety laws and regulations. They maintain environmental, health
and safety policies and a quality, environmental, health and safety program designed to ensure
compliance with applicable laws and regulations. The cost of such compliance measures does not
have a material financial impact on their operations.
Personnel
As of December 31, 2015, they employed approximately 19,000 employees. In the U.S.,
they have approximately 16,000 full-time employees. They have union collective bargaining
agreements covering approximately 4,000 full-time employees. Several agreements cover
multiple locations. These agreements address working conditions as well as wage rates and
benefits. In Mexico and the Caribbean, they employ approximately 3,000 full-time employees,
with approximately 2,000 employees party to collective bargaining agreements. They do not
have a significant number of employees in Canada or overseas.
Properties

As of December 31, 2015, they have owned or leased 148 office buildings,
manufacturing facilities and principal distribution centers and warehouse facilities operating
across the Americas. Their corporate headquarters are located in Plano, Texas, in a facility that
they own
Management
Larry D. Young- President and Chief Executive Officer
Marty Ellen- Chief Financial Officer
Jim Baldwin-Executive Vice President and General Counsel
Rodger Collins- President- Packaged Beverages
Derry Hobson- Executive Vice President- Supply Chain
Jim Johnson- President- Concentrate Sales

Nicholas M Theodore Economic Analysis

Nicholas M Theodore Economic Analysis

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