Chapter 11, Problem 1FSC

Financial Statement Analysis Case

Financial Statement Analysis of Long-Term Fixed Assets

Kellogg Company and Kraft Heinz Company. Inc. are two companies operating in the packaged food industry You have noticed their products in numerous grocery and convenience stores and are interested in their production process Your first step is to analyze the information on their productive capacity Examine the fixed asset disclosures m the two companies' financial statements to address the following issues.

1. a. What categories of tangible long-lived assets does each company report? What is the useful life of each category? Compare the categories and useful lives disclosed by each company.
2. b. For each company, what is the percent of long-lived tangible assets to total assets in 2016 and 2015? In the definition of long-lived tangible assets, include the total of property, plant, and equipment (PPE) - net Comment on any differences between the two companies.
3. c. Compute average age and average remaining life for 2016 and 2015 Comment on any differences between the two companies
4. d. Compute the fixed asset turnover in 2016 In the definition of long-lived tangible assets (fixed assets) include the total property, plant and equipment (PPE) - net Comment on any differences between the two companies

Kellogg Company

NOTE 1 Accounting Policies

Property

Kellogg Company

NOTE 1 Accounting Policies

Property

The Company's property consists mainly of plants and equipment used for manufacturing activities. These assets are recorded at cost and depreciated over estimated useful lives using straight-line methods for financial reporting and accelerated methods where permitted for tax reporting. Major property categories are depreciated over various periods as follows (in years) manufacturing machinery and equipment 5-30, office equipment 4-5, computer equipment and capitalized software 3-7, building components 15-25; building structures 50. Cost includes interest associated with significant capital projects.

NOTE 19: Supplemental

	2016	2015
Land	$ 131	$ 142
Buildings	2,020	2,076
Machinery and equipment	5,646	5,617
Capitalized software	366	328
Construction m progress	686	694
Accumulated depreciation	(5,280)	(5,236)
Property, net	$3,569	$3,621

Additional financial statement information

(dollars in millions)	2016	2015
Revenues	$ 13,014	$ 13,525
Depreciation Expense	$ 510	S 526
Total Assets	$15,111	$ 15,251
Average Net Fixed Assets	$ 3,595	$ 3,695

Source Kellogg Company. Annual Report. December 2016 http://investor.kelloggs.com/∼/media/Files/K/Kelllogg-IR/Annual%20Reports/kellogg-20l6-ar-104.PDF

Kraft Heinz Company, Inc.

NOTE 1: Summary of Significant Accounting Policies (excerpt)

Property, Plant and Equipment:

Property, plant, and equipment are stated at historical cost and depreciated by the straight-line method over the estimated useful lives of the assets Machinery and equipment are depreciated over periods ranging from 3 to 20 years and buildings and improvements over periods up to 40 years.

NOTE 5: Property, Plant, and Equipment

Property, Plant, and Equipment:

Property, plant, and equipment at December 31, 2016 and January 3, 2016 were (in millions):

(in millions)	December 31, 2016	January 3, 2016
Land	$ 264	$ 297
Buildings and improvements	1,884	1,700
Machinery and equipment	4,770	4,432
Construction in progress	1,600	1,001
	8,518	7,430
Accumulated depreciation	(1,830)	(906)
Property, plant, and equipment, not	$ 6,688	$6,524

Additional financial statement information:

(dollars in millions)	2016	2015
Revenues	$ 26,487	$ 18,338
Depreciation Expense	$ 1,337	$ 740
Total Assets	$120,480	$122,973
Average Net Fixed Assets	$ 6,606	$ 4,445

Source: Kraft Heinz Company, SEC Filing, 2016 https://www.sec.gov/Archives/edar/datal/163743000169745917000007/khc201610kt.htm

Additional financial statement information:

Source: Kellogg Company. Annual Report. December 2016. http://investor.kelloggs.com/∼/media/Files/K/Kelllogg-IR/Annual%20Reports/kellogg-20l6-ar-104.PDF

Kraft Heinz Company. Inc.

NOTE 1 Summary of Significant Accounting Policies (excerpt)

Property Plant and Equipment

Additional financial statement information:

Source: Kellogg Company. Annual Report. December 2016. http://investor.kelloggs.com/∼/media/Files/K/Kelllogg-IR/Annual%20Reports/kellogg-20l6-ar-104.PDF

Kraft Heinz Company. Inc.

NOTE 1 Summary of Significant Accounting Policies (excerpt)

Property Plant and Equipment

Property plant and equipment are stated at historical cost and depreciated by the straight-line method over the estimated useful lives of the assets Machinery and equipment are depreciated over periods ranging from 3 to 20 years and buildings and improvements over periods up to 40 years.

NOTE 5 Property, Plant, and Equipment

Property, Plant, and Equipment

Property, plant and equipment at December 31, 2016 and January 3, 2016 were (in millions)

Additional financial statement information:

Source: Kraft Heinz Company, SEC Filing, 2016 https://www.sec.gov/Archives/edar/datal/163743000169745917000007/khc201610kt.htm