Reporting Short-Term Borrowings – PepsiCo, Inc., manufactures a number of products that are part of our daily lives. Its businesses include Pepsi, Frito-Lay, Tropicana, Quaker, and Gatorade. The company’s annual revenues exceed $22 billion. A recent PepsiCo annual report contained the following information:
At the end of the current year, $3.6 billion of short-term borrowings were classified as long-term, reflecting PepsiCo’s intent and ability to refinance these borrowings on a long-term basis, through either long-term debt issuances or rollover of existing short-term borrowings. The significant amount of short term borrowings classified as long-term, as compared to the end of the previous year when no such amounts were reclassified, primarily reflects the large commercial paper issuances in the current year but also resulted from a refined analysis of amounts expected to be refinanced beyond one year.
As an analyst, comment on the company’s classification of short-term borrowings as long-term liabilities. What conditions should exist to permit a company to make this type of classification?