Reconciliation of GAAP and Non-GAAP Information

Organic, core and constant currency results, as well as free cash flow excluding certain items, are non-GAAP financial measures as they exclude certain items noted below. However, we believe investors should consider these non-GAAP measures in evaluating our results as they are indicative of our ongoing performance and reflect how management evaluates our operational results and trends. These measures are not, and should not be viewed as, a substitute for U.S. GAAP reporting measures.

Commodity Mark-to-Market Net Impact

In the year ended December 27, 2014, we recognized mark-to-market net losses of $68 million on commodity hedges in corporate unallocated expenses. In the year ended December 28, 2013, we recognized $72 million of mark-to-market net losses on commodity hedges in corporate unallocated expenses. In the year ended December 29, 2012, we recognized $65 million of mark-to-market net gains on commodity hedges in corporate unallocated expenses. We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include agricultural products, energy and metals. Commodity derivatives that do not qualify for hedge accounting treatment are marked to market each period with the resulting gains and losses recorded in corporate unallocated expenses, as either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. These gains and losses are subsequently reflected in division results when the divisions recognize the cost of the underlying commodity in operating profit.

Gross Margin Growth Reconciliation
  Year Ended 12/27/14
Reported Gross Margin Growth 73 bps
Commodity Mark-to-Market Net Impact (17)
Core Gross Margin Growth 55 bps
Operating Margin Growth Reconciliation
  Year Ended 12/27/14
Reported Operating Margin Growth (25) bps
Commodity Mark-to-Market Net Impact (1)
Merger and Integration Charges (1.5)
Restructuring and Impairment Charges 38
Pension Lump Sum Settlement Charge 21
Venezuela Remeasurement Charges (1)
Core Operating Margin Growth 32 bps

Merger and Integration Charges

In the year ended December 28, 2013, we incurred merger and integration charges of $10 million related to our acquisition of WBD recorded in the Europe segment. In the year ended December 29, 2012, we incurred merger and integration charges of $16 million related to our acquisition of WBD, including $11 million recorded in the Europe segment and $5 million recorded in interest expense.

Restructuring and Impairment Charges

2014 Productivity Plan

In the year ended December 27, 2014, we incurred restructuring charges of $357 million in conjunction with the 2014 Productivity Plan. In the year ended December 28, 2013, we incurred restructuring charges of $53 million in conjunction with our 2014 Productivity Plan. The 2014 Productivity Plan includes the next generation of productivity initiatives that we believe will strengthen our food, snack and beverage businesses by: accelerating our investment in manufacturing automation; further optimizing our global manufacturing footprint, including closing certain manufacturing facilities; re-engineering our go-to-market systems in developed markets; expanding shared services; and implementing simplified organization structures to drive efficiency.

2012 Productivity Plan

In the year ended December 27, 2014, we incurred restructuring charges of $61 million in conjunction with the 2012 Productivity Plan. In the year ended December 28, 2013, we incurred restructuring charges of $110 million in conjunction with our 2012 Productivity Plan. In the year ended December 29, 2012, we incurred restructuring charges of $279 million in conjunction with our 2012 Productivity Plan. The 2012 Productivity Plan includes actions in every aspect of our business that we believe will strengthen our complementary food, snack and beverage businesses by: leveraging new technologies and processes across PepsiCo’s operations, go-to-market and information systems; heightening the focus on best practice sharing across the globe; consolidating manufacturing, warehouse and sales facilities; and implementing simplified organization structures, with wider spans of control and fewer layers of management.

Pension Lump Sum Settlement Charge

In the year ended December 27, 2014, we recorded a pension lump sum settlement charge of $141 million related to payments for pension liabilities to certain former employees who had vested benefits. In the year ended December 29, 2012, we recorded a pension lump sum settlement charge of $195 million related to payments for pension liabilities to certain former employees who had vested benefits.

Return on Invested Capital (ROIC) Growth
Reconciliation
  Year Ended 12/27/14
Reported ROIC Growth (79) bps
Impact of:  
Cash, Cash Equivalents and Short-Term
Investments
88
Tax Benefits 42
Restructuring and Impairment Charges 37
Pension Lump Sum Settlement Charge 17
Merger and Integration Charges 3
Venezuela Remeasurement Charges (3)
Restructuring and Other Charges Related to the
Transaction with Tingyi
3
Core Net ROIC Growth (a) 108 bps
ROIC Reconciliation
  Year Ended 12/27/14
Reported ROIC 13.2%
Impact of:  
Cash, Cash Equivalents and Short-Term
Investments
3.4
Interest Income After Tax (0.1)
Commodity Mark-to-Market Net Impact 0.1
Venezuela Remeasurement Charges 0.2
Tax Benefits 0.1
Restructuring and Impairment Charges 0.5
Pension Lump Sum Settlement Charge 0.1
Core Net ROIC (a) 17.5%
(a)

Core Net ROIC represents core net income attributable to PepsiCo plus after-tax core net interest expense, divided by a quarterly average of invested capital less cash, cash equivalents and short-term investments adjusted for non-core items.

Total Operating Profit Reconciliation
  Year Ended
  12/27/14 12/28/13 Growth
Reported Operating Profit $9,581 $9,705 (1)%
Commodity Mark-to-Market Net Impact 68 72  
Merger and Integration Charges 10  
Restructuring and Impairment Charges 418 163  
Pension Lump Sum Settlement Charge 141  
Venezuela Remeasurement Charge 105 111  
Core Operating Profit $10,313 $10,061 2.5%

Note – Certain amounts above may not sum due to rounding.

Venezuela Remeasurement Charges

In the year ended December 27, 2014, we recorded a $105 million net charge related to our remeasurement of the bolivar for certain net monetary assets of our Venezuela businesses. $126 million of this charge was recorded in corporate unallocated expenses, with the balance (equity income of $21 million) recorded in our PAB segment. In the year ended December 28, 2013, we recorded a $111 million net charge related to the devaluation of the bolivar for our Venezuela businesses. $124 million of this charge was recorded in corporate unallocated expenses, with the balance (equity income of $13 million) recorded in our PAB segment.

Tax Benefits

In the year ended December 28, 2013, we recognized a non-cash tax benefit of $209 million associated with our agreement with the IRS resolving all open matters related to the audits for taxable years 2003 through 2009, which reduced our reserve for uncertain tax positions for the tax years 2003 through 2012. In the year ended December 29, 2012, we recognized a non-cash tax benefit of $217 million associated with a favorable tax court decision related to the classification of financial instruments.

Restructuring and Other Charges Related to the Transaction with Tingyi

In the year ended December 29, 2012, we recorded restructuring and other charges of $150 million in the AMEA segment related to the transaction with Tingyi.

Free Cash Flow (excluding certain items)

Free cash flow (excluding certain items) is the primary measure management uses to monitor cash flow performance. This is not a measure defined by U.S. GAAP. Since net capital spending is essential to our product innovation initiatives and maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider net capital spending when evaluating our cash from operating activities. Additionally, we consider certain other items in evaluating free cash flow that we believe investors should consider in evaluating our free cash flow results. See page 66 “Our Liquidity and Capital Resources — Free Cash Flow” in Management’s Discussion and Analysis for a reconciliation to the most directly comparable financial measure in accordance with U.S. GAAP.

Organic Revenue

Organic revenue growth is a non-GAAP financial measure that excludes certain items. See page 56 “Results of Operations — Division Review” in Management’s Discussion and Analysis for a reconciliation to the most directly comparable financial measure in accordance with U.S. GAAP.

Core Constant Currency EPS

Core constant currency EPS growth is a non-GAAP financial measure that excludes certain items. See page 54 “Results of Operations — Consolidated Review — Other Consolidated Results” in Management’s Discussion and Analysis for a reconciliation to the most directly comparable financial measure in accordance with U.S. GAAP.