PepsiCo Reports Second Quarter 2013 Results

7/24/2013 |
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— -- Core(1) EPS $1.31, up 17 percent. Reported EPS $1.28, an increase of 36 percent

— -- Organic(1) revenue grew 4.2 percent. Reported net revenue increased 2 percent reflecting the impacts of foreign currency translation and structural changes

— -- Core gross margin expanded 120 basis points, and reported gross margin increased 110 basis points

— -- Company expects to return approximately $6.4 billion to shareholders through dividends and share repurchases in 2013

— -- Company reaffirms 7 percent core constant currency(1) EPS growth guidance for 2013


PURCHASE, N.Y., July 24, 2013 /PRNewswire/ -- PepsiCo, Inc. (NYSE: PEP) today reported core earnings per share of $1.31 for the second quarter, an increase of 17 percent on organic revenue growth of 4.2 percent.

(Logo: http://photos.prnewswire.com/prnh/20120424/NY93895LOGO )

"We're pleased with our performance in the second quarter and for the first half of 2013.  PepsiCo delivered another quarter of mid-single-digit organic revenue growth, driven by our balanced food and beverage product portfolio and global geographic footprint.  We continue to invest in advertising and marketing, innovation, and other marketplace initiatives to sustain our organic revenue growth and we are driving a robust productivity agenda that serves as a funding source for these investments," said Chairman and CEO Indra Nooyi.

"Importantly, we maintained disciplined, balanced pricing that, together with our productivity initiatives, translated to healthy margin improvement.  In the second quarter, we increased both gross margins and operating margins by more than 100 basis points.

"Our results in the first half give us even greater confidence in achieving our financial goals for the full year.  We remain focused on driving marketplace execution, maintaining discipline in our capital allocation and delivering on our financial targets to create long-term value for our shareholders."

(1)Please refer to the Glossary for the definitions of Non-GAAP financial measures including core, constant currency, organic and management operating cash flow.

Operating and Marketplace Highlights

Summary of Second Quarter Financial Performance

Summary Second Quarter 2013 Performance (Percent Growth)


 

 

Reported

 

Core Constant

Currencyb

 

 

Organicc

Volumea




     Snacks

3


3

    Beverages

5


1.5

Net Revenue

2


4

Operating Profitc

21

11


EPS

36

19







 



 

Organic

Volumea

 

 

 

Net

Revenue

 

 

 

Operating

Profitd

 

 

 

Organic
Revenuec

Core

Constant

Currency

Operating

Profitb

PAF

2

5

8

6

6

    FLNA

3

4

8

4.5

6

    LAF

1

9

17

12

17

    QFNA

1

(1)

(14)

(1)

(14)







PAB

(3.5)

(2)

5

(1)

4

Europe

3/-e

1

(6)

4

(2)

AMEA

6/9e

6

217

14

71

Total Divisions

3/1.5e

2

17

4

11

Total PepsiCo

3/1.5e

2

21

4

11








a All 2013 volume growth measures reflect an adjustment to the base year for divestitures that occurred in 2012.
b Core constant currency results are non-GAAP financial measures that exclude certain items affecting comparability. For more information about our core constant currency results, see "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits. Please refer to the Glossary for definitions of "Core" and "Constant Currency."
c Organic results are non-GAAP financial measures that adjust for impacts of acquisitions, divestitures and other structural changes and foreign exchange translation. For more information about our organic results, see "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits. Please refer to the Glossary for the definition of "Organic."
d The reported operating profit performance was impacted by certain items excluded from our core results in both 2013 and 2012. See "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits for more information about these items. Please refer to the Glossary for the definition of "Core."
e Snacks/Beverages. 

Division Operating Summaries

PepsiCo Americas Foods (PAF) 
Organic revenue grew 6 percent in the quarter driven by 2 percentage points of organic volume growth and 5 percentage points of effective net pricing. Reported net revenue increased 5 percent, reflecting a 1-percentage-point unfavorable impact from foreign exchange translation.

Core constant currency operating profit increased 6 percent, reflecting effective net pricing and productivity initiatives, partially offset by increased advertising and marketing expense. 

Frito-Lay North America (FLNA)
Organic revenue increased 4.5 percent in the quarter, reflecting a 3-percentage-point increase in organic volume and 2 points of effective net pricing. Reported net revenue increased 4 percent.  

Core constant currency operating profit grew 6 percent in the quarter, reflecting organic revenue gains and productivity initiatives. 

Latin America Foods (LAF)
Organic revenue grew 12 percent in the quarter, reflecting 1 percentage point of organic volume growth and 10 percentage points of effective net pricing.  Reported net revenue grew 9 percent in the quarter, reflecting a 3-percentage-point unfavorable foreign exchange translation impact.  

Core constant currency operating profit increased 17 percent. These results reflect revenue growth and productivity gains partially offset by commodity cost inflation, increased advertising and marketing expense and incremental investments.  The incremental investments negatively impacted core constant currency operating profit by 2 percentage points.

Quaker Foods North America (QFNA)
Organic revenue and reported net revenue each declined 1 percent. Core constant currency operating profit declined 14 percent, driven principally by product innovation and the impact of incremental investments.  The incremental investments negatively impacted core constant currency operating profit by 2 percentage points.

PepsiCo Americas Beverages (PAB)
Organic revenue declined 1 percent in the quarter reflecting organic volume that declined 3.5 percent offset by effective net pricing of 3 percentage points. Latin America beverage volume declined less than 1 percentage point. In North America, non-carbonated beverage volume declined low-single digits, and CSD volume declined mid-single digits.

Reported net revenue declined 2 percent reflecting a 0.5-percentage-point impact of unfavorable foreign exchange translation.

Core constant currency operating profit increased 4 percent primarily reflecting favorable effective net pricing and productivity gains. 

Europe
Organic revenue grew 4 percent, reflecting 2 percentage points of volume growth and 2 percentage points of effective net pricing.  Reported net revenue grew 1 percent in the quarter, including a 3-percentage-point unfavorable impact from foreign exchange translation.

Core constant currency operating profit declined 2 percent in the quarter, reflecting incremental investments and increased advertising and marketing expense partially offset by disciplined revenue mix management and continued productivity initiatives.  The impact of more favorable settlements of promotional spending accruals in the current year positively impacted operating profit by 2 percentage points.  The incremental investments negatively impacted operating profit by 4 percentage points.

Asia, Middle East & Africa (AMEA)
Organic revenue grew 14 percent in the quarter, led by 6 percent organic volume growth in snacks and 9 percent organic volume growth in beverages.  Reported net revenue rose 6 percent, reflecting a 6-percentage-point negative impact from structural changes, principally the refranchising of bottling operations in Vietnam and China, and an unfavorable 3-percentage-point impact from foreign exchange translation.

Core constant currency operating profit increased 71 percent, reflecting organic revenue growth and the gain related to the Vietnam refranchising, partially offset by a significant increase in advertising and marketing expense.  Core constant currency operating profit rose 27 percent excluding the pre-tax gain mentioned above.

2013 Guidance and Outlook
Consistent with its previous guidance for 2013, the company expects 7 percent core constant currency EPS growth versus its fiscal 2012 core EPS of $4.10. Based on the current foreign exchange market consensus, the company now expects that foreign exchange translation will have an unfavorable impact of approximately 2 percentage points on the company's full-year core EPS performance in 2013.

The company's full year 2013 core constant currency EPS guidance includes the impact of the second quarter Vietnam gain, which is expected to be offset by the company's incremental investments in the second quarter and over the remainder of 2013.

Excluding the impact of structural changes and foreign exchange translation, organic revenue is expected to grow mid-single digits, consistent with the company's long-term targets. The impact of structural changes, principally beverage refranchisings, is expected to reduce organic revenue growth by approximately 1 percentage point for the full year. Foreign exchange translation is expected to have an unfavorable impact of approximately 1 percentage point on the company's full year net revenue growth.

For 2013, the company expects low-single-digit commodity inflation, and productivity savings of approximately $900 million. The company also expects advertising and marketing expense to increase at or above the rate of net revenue growth. Below the operating profit line, the company expects higher interest expense driven by increased debt balances and a core effective tax rate of approximately 27 percent.

The company is targeting over $9 billion in cash flow from operating activities and more than $7 billion in management operating cash flow (excluding certain items) in 2013.  Net capital spending is expected to be approximately $3 billion in 2013, within the company's long-term capital spending target of less than or equal to 5 percent of net revenue.

The company expects to return a total of $6.4 billion to shareholders in 2013 through dividends of approximately $3.4 billion and share repurchases of approximately $3.0 billion.

Conference Call
At 8 a.m. (Eastern Time) today, the company will host a conference call with investors to discuss second-quarter results and the outlook for 2013. Further details, including a slide presentation accompanying the call, will be accessible on the company's website at www.pepsico.com/investors in advance of the call.

 

PepsiCo, Inc. and Subsidiaries

Condensed Consolidated Statement of Income

(in millions except per share amounts, unaudited)
















12 Weeks Ended


24 Weeks Ended


6/15/13


6/16/12


Change


6/15/13


6/16/12


Change















Net Revenue 

$16,807


$16,458


2

%


$29,388


$28,886


2

%















Cost of sales

7,898


7,915


(0)

%


13,732


13,804


(0.5)

%

Selling, general and administrative expenses 

6,013


6,136


(2)

%


11,079


10,928


1

%

Amortization of intangible assets

27


30


(11)

%


50


55


(9)

%















Operating Profit 

2,869


2,377


21

%


4,527


4,099


10

%















Interest expense 

(208)


(209)


(0)

%


(422)


(407)


4

%

Interest income and other 

18


1


 n/m 



45


24


90

%















Income before income taxes 

2,679


2,169


23

%


4,150


3,716


12

%















Provision for income taxes 

654


668


(2)

%


1,040


1,082


(4)

%















Net income 

2,025


1,501


35

%


3,110


2,634


18

%




13







19




Less:  Net income attributable to noncontrolling interests

15

18

%

25

33

%















Net Income Attributable to PepsiCo 

$  2,010


$  1,488


35

%


$  3,085


$  2,615


18

%















Diluted














  Net Income Attributable to PepsiCo per Common Share 

$    1.28


$    0.94


36

%


$    1.97


$    1.65


19

%

  Weighted-average common shares outstanding

1,567


1,581





1,565


1,583


















  Cash dividends declared per common share 

$0.5675


$0.5375





$  1.105


$1.0525






n/m = not meaningful


A-1

 

PepsiCo, Inc. and Subsidiaries

Supplemental Financial Information

(in millions, unaudited)
















12 Weeks Ended


24 Weeks Ended


6/15/13


6/16/12


Change


6/15/13


6/16/12


Change

Net Revenue























Frito-Lay North America  

$      3,332


$      3,193


4

%


$     6,455


$     6,203


4

%

Quaker Foods North America 

577


583


(1)

%


1,211


1,206


0.5

%

Latin America Foods 

2,116


1,948


9

%


3,483


3,183


9

%

  PepsiCo Americas Foods 

6,025


5,724


5

%


11,149


10,592


5

%















PepsiCo Americas Beverages 

5,260


5,352


(2)

%


9,680


9,800


(1)

%

Europe 

3,653


3,617


1

%


5,595


5,462


2

%

Asia, Middle East & Africa 

1,869


1,765


6

%


2,964


3,032


(2)

%

Total Net Revenue 

$    16,807


$    16,458


2

%


$    29,388


$   28,886


2

%















Operating Profit




























Frito-Lay North America 

$        906


$        835


8

%


$     1,734


$     1,615


7

%

Quaker Foods North America 

133


154


(14)

%


313


341


(8)

%

Latin America Foods 

318


271


17

%


534


454


18

%

  PepsiCo Americas Foods 

1,357


1,260


8

%


2,581


2,410


7

%















PepsiCo Americas Beverages 

882


840


5

%


1,447


1,365


6

%

Europe 

425


453


(6)

%


513


534


(4)

%

Asia, Middle East & Africa 

524


165


217

%


708


313


126

%

Division Operating Profit 

3,188


2,718


17

%


5,249


4,622


14

%















Corporate Unallocated














  Mark-to-Market Net Impact (Losses)/Gains

(39)


(79)


(51)

%


(55)


5


n/m


  Merger and Integration Charges

-


(2)


 n/m 



-


(2)


n/m


  Restructuring and Impairment Charges

(1)


(3)


(78)

%


(2)


(1)


178

%

  Venezuela Currency Devaluation

-


-


-



(124)


-


n/m


  Other 

(279)


(257)


9

%


(541)


(525)


3

%


(319)


(341)


(7)

%


(722)


(523)


38

%















Total Operating Profit 

$      2,869


$      2,377


21

%


$     4,527


$     4,099


10

%





























n/m = not meaningful















A-2

 

PepsiCo, Inc. and Subsidiaries

Condensed Consolidated Statement of Cash Flows

(in millions, unaudited)



 24 Weeks Ended 



6/15/13


6/16/12

Operating Activities





Net income 


$      3,110


$      2,634

Depreciation and amortization


1,185


1,201

Stock-based compensation expense 


149


125

Merger and integration charges 


-


5

Cash payments for merger and integration charges 


(17)


(47)

Restructuring and impairment charges 


30


110

Cash payments for restructuring charges 


(74)


(140)

Restructuring and other charges related to the transaction





   with Tingyi (Cayman Islands) Holding Corp. (Tingyi)


-


163

Cash payments for restructuring and other charges related to the transaction 





   with Tingyi 


(18)


(88)

Non-cash foreign exchange loss related to Venezuela devaluation


111


-

Excess tax benefits from share-based payment arrangements 


(83)


(53)

Pension and retiree medical plan contributions 


(180)


(1,169)

Pension and retiree medical plan expenses 


306


271

Deferred income taxes and other tax charges and credits 


(189)


85

Change in accounts and notes receivable 


(1,088)


(1,084)

Change in inventories 


(659)


(643)

Change in prepaid expenses and other current assets 


(241)


(196)

Change in accounts payable and other current liabilities 


400


(193)

Change in income taxes payable 


543


432

Other, net


(270)


(166)

Net Cash Provided by Operating Activities 


3,015


1,247






Investing Activities





Capital spending 


(911)


(901)

Sales of property, plant and equipment 


30


42

Cash payments related to the transaction with Tingyi


(3)


(298)

Acquisitions and investments in noncontrolled affiliates 


(59)


(49)

Divestitures 


174


14

Short-term investments, net 


(4)


41

Other investing, net 


(13)


13

Net Cash Used for Investing Activities 


(786)


(1,138)






Financing Activities





Proceeds from issuances of long-term debt 


2,491


2,733

Payments of long-term debt 


(1,945)


(1,034)

Short-term borrowings, net 


753


326

Cash dividends paid 


(1,677)


(1,626)

Share repurchases – common 


(1,028)


(1,206)

Share repurchases – preferred 


(4)


(3)

Proceeds from exercises of stock options 


823


496

Excess tax benefits from share-based payment arrangements 


83


53

Acquisition of noncontrolling interests



(20)


(12)

Other financing 


(3)


(19)

Net Cash Used for Financing Activities 


(527)


(292)






Effect of exchange rate changes on cash and cash equivalents 


(206)


(21)







Net Increase/(Decrease) in Cash and Cash Equivalents


1,496


(204)

Cash and Cash Equivalents, Beginning of Year 


6,297


4,067

Cash and Cash Equivalents, End of Period


$      7,793


$      3,863


A-3

 

PepsiCo, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet

(in millions except per share amounts)








6/15/13


12/29/12

Assets


(unaudited)



Current Assets





Cash and cash equivalents 


$           7,793


$           6,297

Short-term investments 


346


322

Accounts and notes receivable, net 


7,981


7,041

Inventories





     Raw materials 


1,910


1,875

     Work-in-process 


351


173

     Finished goods 


1,870


1,533



4,131


3,581






Prepaid expenses and other current assets 


1,712


1,479

     Total Current Assets  


21,963


18,720






Property, plant and equipment, net 


18,390


19,136

Amortizable intangible assets, net 


1,705


1,781






Goodwill 


16,719


16,971

Other nonamortizable intangible assets 


14,469


14,744

     Nonamortizable Intangible Assets 


31,188


31,715






Investments in noncontrolled affiliates 


1,839


1,633

Other assets 


1,568


1,653

     Total Assets 


$         76,653


$         74,638






Liabilities and Equity





Current Liabilities





Short-term obligations 


$           6,298


$           4,815

Accounts payable and other current liabilities 


12,101


11,903

Income taxes payable 


763


371

     Total Current Liabilities 


19,162


17,089






Long-term debt obligations 


23,212


23,544

Other liabilities 


6,414


6,543

Deferred income taxes 


5,100


5,063

        Total Liabilities 


53,888


52,239






Commitments and Contingencies










Preferred stock, no par value 


41


41

Repurchased preferred stock 


(168)


(164)






PepsiCo Common Shareholders' Equity





   Common stock, par value 12/3¢ per share (authorized 3,600 shares, issued, net 


26


26

    of repurchased common stock at par value: 1,547 and 1,544 shares, respectively) 

   Capital in excess of par value 


3,995


4,178

   Retained earnings 


44,523


43,158

   Accumulated other comprehensive loss 


(6,275)


(5,487)

   Repurchased common stock, in excess of par value (319 and 322 shares, respectively) 

(19,483)


(19,458)

        Total PepsiCo Common Shareholders' Equity 


22,786


22,417






Noncontrolling interests


106


105

Total Equity 


22,765


22,399

Total Liabilities and Equity 


$         76,653


$         74,638


A-4

 

PepsiCo, Inc. and Subsidiaries 

Supplemental Share and Stock-Based Compensation Data 

(in millions except dollar amounts, unaudited)














12 Weeks Ended


24 Weeks Ended


6/15/13


6/16/12


6/15/13


6/16/12

Beginning Net Shares Outstanding  

1,545


1,568


1,544


1,565

Options Exercised/Restricted Stock Units and PEPUnits Converted

8


5


18


13

Shares Repurchased  

(6)


(14)


(15)


(19)

Ending Net Shares Outstanding 

1,547


1,559


1,547


1,559









Weighted Average Basic 

1,548


1,563


1,546


1,565

Dilutive Securities:








Options   


12


11


11


12

Restricted Stock Units

6


6


7


5

PEPUnits

-


-


-


-

ESOP Convertible Preferred Stock/Other 

1


1


1


1

Weighted Average Diluted 

1,567


1,581


1,565


1,583









Average Share Price for the Period 

$              81.55


$             67.01


$              77.61


$             65.84

Growth Versus Prior Year 

22%


(1.5%)


18%


(1%)









Options Outstanding  

55


82


58


83

Options in the Money 

55


72


57


63

Dilutive Shares from Options 

12


11


11


12

Dilutive Shares from Options as a % of Options in the Money

21%


16%


19%


18%









Average Exercise Price of Options in the Money 

$              61.17


$             55.67


$              60.76


$             53.51









Restricted Stock Units Outstanding 

12


13


14


11

Dilutive Shares from Restricted Stock Units 

6


6


7


5

Dilutive Shares from PEPUnits 

-


-


-


-









Average Intrinsic Value of Restricted Stock Units Outstanding (a)

$              68.61


$             65.50


$              68.42


$             65.24

Average Intrinsic Value of PEPUnits Outstanding (a)

$              66.65


$             64.53


$              66.65


$             64.53




















(a) Weighted-average intrinsic value at grant date.











A-5

 

PepsiCo, Inc. and Subsidiaries

Reconciliation of GAAP and Non-GAAP Information 

Organic Growth

12 Weeks Ended June 15, 2013 and June 16, 2012

(unaudited)
















Percent Impact


GAAP Measure


Non-GAAP Measure











Reported % Change


Organic % Change (a)

Net Revenue Year over Year % Change


Volume


Effective

Net Pricing


Acquisitions &

Divestitures


Foreign

Exchange

Translation


12 Weeks Ended

6/15/13


12 Weeks Ended

6/15/13














Frito-Lay North America


2


2


-


-


4


4.5

Quaker Foods North America


1


(2)


-


-


(1)


(1)

Latin America Foods


1


10


-


(3)


9


12

   PepsiCo Americas Foods


2


5


-


(1)


5


6














PepsiCo Americas Beverages


(4.5)


3


-


(0.5)


(2)


(1)














Europe


2


2


-


(3)


1


4














Asia, Middle East & Africa


7


7


(6)


(3)


6


14














Total PepsiCo


-


4


(1)


(1.5)


2


4





























Percent Impact


GAAP Measure


Non-GAAP Measure











Reported % Change


Organic % Change (a)

Net Revenue Year over Year % Change


Volume


Effective

Net Pricing


Acquisitions &

Divestitures


Foreign

Exchange

Translation


12 Weeks Ended

6/16/12


12 Weeks Ended

6/16/12














Frito-Lay North America


-


4


-


-


3


4

Quaker Foods North America


(1)


2


-


(1)


-


1

Latin America Foods


3


11


3


(9)


8


14

   PepsiCo Americas Foods


1


6


1


(3)


4


7














PepsiCo Americas Beverages


(1)


3.5


(7)


(0.5)


(5)


2














Europe


(2)


4


-


(8)


(5)


3














Asia, Middle East & Africa


9


1


(15)


(4)


(8)


10














Total PepsiCo


1


4


(4)


(3)


(2)


5














(a) Organic percent change is a financial measure that is not in accordance with GAAP and is calculated by excluding the impact of acquisitions and divestitures and 

      foreign exchange translation from reported growth.

 

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



A-6

 

PepsiCo, Inc. and Subsidiaries

Reconciliation of GAAP and Non-GAAP Information (cont.)

Organic Growth

24 Weeks Ended June 15, 2013 and June 16, 2012

(unaudited)
















Percent Impact


GAAP Measure


Non-GAAP Measure











Reported % Change


Organic % Change (a)

Net Revenue Year over Year % Change


Volume


Effective

Net Pricing


Acquisitions &

 Divestitures


Foreign

Exchange

 Translation


24 Weeks Ended

6/15/13


24 Weeks Ended

6/15/13














Frito-Lay North America


3


1


-


-


4


4

Quaker Foods North America


2


(1)


-


-


0.5


1

Latin America Foods


1


11


-


(3)


9


13

   PepsiCo Americas Foods


2


4


-


(1)


5


6














PepsiCo Americas Beverages


(3.5)


3


-


-


(1)


(1)














Europe


2


2


-


(2)


2


4














Asia, Middle East & Africa


10


4


(14)


(2)


(2)


15














Total PepsiCo


1


3


(1.5)


(1)


2


4





























Percent Impact


GAAP Measure


Non-GAAP Measure











Reported % Change


Organic % Change (a)

Net Revenue Year over Year % Change


Volume


Effective

Net Pricing


Acquisitions &

 Divestitures


Foreign

Exchange

Translation


24 Weeks Ended

6/16/12


24 Weeks Ended

6/16/12














Frito-Lay North America


(1)


5


-


-


3.5


4

Quaker Foods North America


(3)


2


-


-


(1)


(0.5)

Latin America Foods


4


11


2


(8)


9


15

   PepsiCo Americas Foods


-


6


1


(2.5)


4.5


6














PepsiCo Americas Beverages


(2)


4


(5)


-


(3.5)


2














Europe


(1)


5


4


(7)


1


3














Asia, Middle East & Africa


7


4


(9)


(2)


(1)


11














Total PepsiCo


-


5


(2)


(2.5)


-


5



























(a) Organic percent change is a financial measure that is not in accordance with GAAP and is calculated by excluding the impact of acquisitions and divestitures and 

      foreign exchange translation from reported growth.

 

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


A-7

 

PepsiCo, Inc. and Subsidiaries

Reconciliation of GAAP and Non-GAAP Information (cont.)

Year over Year Growth Rates

12 Weeks Ended June 15, 2013 and June 16, 2012

(unaudited)

























































GAAP

 Measure










Non-GAAP

Measure




Non-GAAP

Measure




Reported %

Change


Percent Impact of Non-Core Adjustments 


Core (a)

% Change


Percent

Impact of


Core

Constant

Currency (a)

% Change


Operating Profit Year over Year % Change


12 Weeks

Ended

6/15/13


Commodity

mark-to-

market net

impact


Merger and

 integration

 charges


Restructuring

and

impairment

charges


Restructuring and

other charges

related to the

transaction with

Tingyi


12 Weeks

Ended

6/15/13


 Foreign

exchange

translation


12 Weeks

Ended

6/15/13






































Frito-Lay North America


8


-


-


(2)


-


6


-


6


Quaker Foods North America


(14)


-


-


-


-


(14)


-


(14)


Latin America Foods


17


-


-


(2)


-


14


2


17


   PepsiCo Americas Foods


8


-


-


(2)


-


5


1


6




















PepsiCo Americas Beverages


5


-


-


(3.5)


-


1.5


2


4




















Europe


(6)


-


-


2


-


(5)


3


(2)




















Asia, Middle East & Africa


217


-


-


(7)


(141)


69


2


71




















Division Operating Profit


17


-


-


(2)


(5)


9


2


11




















Impact of Corporate Unallocated


3


(2)


-


-


(1)


-


-


-




















Total Operating Profit


21


(2)


-


(2)


(6)


9


2


11






































Net Income Attributable to PepsiCo


35










16


2


18


Net Income Attributable to PepsiCo per common share - diluted


36










17


2


19








































GAAP Measure










Non-GAAP Measure




Non-GAAP Measure




Reported %

 Change


Percent Impact of Non-Core Adjustments 


Core (a)

% Change


Percent

Impact of


Core Constant

Currency (a)

% Change


Operating Profit Year over Year % Change


12 Weeks

 Ended

 6/16/12


Commodity

 mark-to-

market net impact

 


Merger and integration charges


Restructuring and impairment charges


Restructuring and other charges related to the transaction with Tingyi


12 Weeks Ended 6/16/12


 Foreign exchange translation


12 Weeks Ended 6/16/12






































Frito-Lay North America


(2)


-


-


3


-


1


-


1


Quaker Foods North America


(8)


-


-


1


-


(8)


0.5


(7)


Latin America Foods


(1)


-


-


2.5


-


1


10


11


   PepsiCo Americas Foods


(3)


-


-


2


-


-


2


2




















PepsiCo Americas Beverages


(15)


-


(3)


3.5


-


(14)


1


(13)




















Europe


11


-


(3)


-


-


8


7


15




















Asia, Middle East & Africa


(45)


-


-


3


46


4


3


7




















Division Operating Profit


(9)


-


(1.5)


2


5


(3)


3


(1)




















Impact of Corporate Unallocated


(5)


3


(0.5)


-


-


(2)


-


(1)




















Total Operating Profit


(14)


3


(2)


3


5


(5)


3


(2)






































Net Income Attributable to PepsiCo


(21)










(9)


4


(5)


Net Income Attributable to PepsiCo per common share - diluted


(20)










(7)


3


(4)






































(a)  Core results and core constant currency results are financial measures that are not in accordance with GAAP and exclude the above adjustments.  See A-17 through A-19 for a discussion of each of these adjustments.

 

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


A-8

 

PepsiCo, Inc. and Subsidiaries

Reconciliation of GAAP and Non-GAAP Information (cont.)

Year over Year Growth Rates

24 Weeks Ended June 15, 2013 and June 16, 2012

(unaudited)























GAAP

Measure












Non-GAAP

 Measure




Non-GAAP

Measure




Reported

% Change


Percent Impact of Non-Core Adjustments 


Core (a)

% Change


Percent

 Impact of


Core

 Constant

 Currency (a)

% Change


Operating Profit Year over Year % Change

24 Weeks

 Ended

 6/15/13


Commodity

 mark-to-

market net

 impact


Merger and

 integration

 charges


Restructuring

 and

 impairment

 charges


Restructuring and

other charges

 related to the

 transaction with

Tingyi


Venezuela

 currency

 devaluation


24 Weeks

 Ended

 6/15/13


 Foreign

 exchange

 translation


24 Weeks

 Ended

 6/15/13










































Frito-Lay North America


7


-


-


(2)


-


-


6


-


6


Quaker Foods North America


(8)


-


-


(2)


-


-


(10)


-


(10)


Latin America Foods


18


-


-


(2)


-


-


15


5


20


   PepsiCo Americas Foods


7


-


-


(2)


-


-


5


1


6






















PepsiCo Americas Beverages


6


-


-


(3)


-


(1)


2


2


4






















Europe


(4)


-


(1)


2.5


-


-


(2)


2


-






















Asia, Middle East & Africa


126


-


-


(7)


(67)


-


52


2


54






















Division Operating Profit


14


-


-


(2)


(3)


-


8


1


9






















Impact of Corporate Unallocated

(3)


1.5


-


-


-


3


1


-


1






















Total Operating Profit


10


1.5


-


(2)


(3)


3


9


1.5


10










































Net Income Attributable to PepsiCo

18












14


2


16


Net Income Attributable to PepsiCo per common share - diluted

19












15


2


17












































GAAP

 Measure












Non-GAAP

 Measure




Non-GAAP

 Measure




Reported %

 Change


Percent Impact of Non-Core Adjustments 


Core (a) 

% Change


Percent

Impact of


Core

 Constant

 Currency (a)

% Change


Operating Profit Year over Year % Change

24 Weeks

 Ended

 6/16/12


Commodity

 mark-to-

market net

 impact


Merger and

 integration

 charges


Restructuring

 and

 impairment

 charges


Restructuring and

other charges

 related to the

 transaction with

Tingyi


Inventory Fair

Value

 Adjustments


24 Weeks

 Ended

 6/16/12


 Foreign

 exchange

 translation


24 Weeks

 Ended

 6/16/12










































Frito-Lay North America


(1)


-


-


2


-


-


1


-


1


Quaker Foods North America


(11)


-


-


1.5


-


-


(9)


-


(9)


Latin America Foods


2


-


-


3


-


-


5


9


14


   PepsiCo Americas Foods


(2)


-


-


2


-


-


-


2


2






















PepsiCo Americas Beverages


(11)


-


(3.5)


3


-


(1)


(12)


1


(11)






















Europe


14


-


-


-


-


(5)


7


7


14






















Asia, Middle East & Africa


(29)


-


-


4


31


-


5


1.5


7






















Division Operating Profit


(6)


-


(1)


2


3


(1)


(3)


2


(1)






















Impact of Corporate Unallocated

(3)


-


(1)


-


-


-


(3)


-


(2)






















Total Operating Profit


(9)


-


(2)


2.5


3


(1)


(6)


2


(3.5)










































Net Income Attributable to PepsiCo

(14)












(9)


2


(6)


Net Income Attributable to PepsiCo per common share - diluted

(12)












(7)


2


(5)










































(a)  Core results and core constant currency results are financial measures that are not in accordance with GAAP and exclude the above adjustments.  See A-17 through A-19 for a discussion of each of these adjustments.

 

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


A-9

 

PepsiCo, Inc. and Subsidiaries

Reconciliation of GAAP and Non-GAAP Information (cont.)

Certain Line Items

12 Weeks Ended June 15, 2013 and June 16, 2012

(in millions except per share amounts, unaudited)

















GAAP

 Measure


Non-Core Adjustments


Non-GAAP

Measure






Reported


Commodity mark-

to-market

net impact


Merger and

 integration

 charges




Core (a)






12 Weeks

 Ended

 6/15/13




Restructuring

and

 impairment

 charges


12 Weeks

 Ended

 6/15/13


















Cost of sales


$      7,898


$                (40)


$                    -


$                -


$       7,858


















Selling, general and administrative expenses


$      6,013


$                   1


$                    1


$            (19)


$       5,996


















Operating profit


$      2,869


$                 39


$                  (1)


$              19


$       2,926


















Provision for income taxes


$         654


$                 13


$                     -


$                4


$          671


















Net income attributable to PepsiCo


$      2,010


$                 26


$                  (1)


$              15


$       2,050


















Net income attributable to PepsiCo per common share - diluted


$        1.28


$              0.02


$                     -


$           0.01


$         1.31


















Effective tax rate


24.4%








24.5%


































GAAP

 Measure


Non-Core Adjustments


Non-GAAP

Measure




Reported


Commodity mark-

to-market net

impact


Merger and

 integration

 charges






Core (a)




12 Weeks

Ended

6/16/12




Restructuring

 and

 impairment

 charges


Restructuring

 and other

 charges

 related to the

 transaction

 with Tingyi


12 Weeks

 Ended

 6/16/12
















Cost of sales


$      7,915


$                (24)


$                    -


$                -


$              -


$       7,891
















Selling, general and administrative expenses


$      6,136


$                (55)


$                  (3)


$            (77)


$         (137)


$       5,864
















Operating profit


$      2,377


$                 79


$                   3


$             77


$          137


$       2,673
















Provision for income taxes


$         668


$                 24


$                   1


$             20


$           (26)


$          687
















Net income attributable to PepsiCo


$      1,488


$                 55


$                   2


$              57


$          163


$       1,765
















Net income attributable to PepsiCo per common share - diluted


$        0.94


$              0.04


$                   -


$           0.04


$         0.10


$         1.12
















Effective tax rate


30.8%










27.8%






























(a)  Core results are financial measures that are not in accordance with GAAP and exclude the above adjustments.  See A-17 through A-19 for a discussion of each of these adjustments.

 

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


A-10

 

PepsiCo, Inc. and Subsidiaries

Reconciliation of GAAP and Non-GAAP Information (cont.)

Certain Line Items

24 Weeks Ended June 15, 2013 and June 16, 2012

(in millions except per share amounts, unaudited)

















GAAP

Measure


Non-Core Adjustments


Non-GAAP

 Measure




Reported


Commodity mark-

to-market net

 impact


Merger and

 integration

 charges






Core (a)




24 Weeks

 Ended

 6/15/13




Restructuring

and

 impairment

 charges


Venezuela

currency

devaluation


24 Weeks

 Ended

6/15/13
















Cost of sales


$    13,732


$                (54)


$                   -


$                -


$               -


$      13,678
















Selling, general and administrative expenses


$    11,079


$                  (1)


$                   -


$            (30)


$         (111)


$      10,937






 . 










Operating profit


$      4,527


$                 55


$                   -


$             30


$          111


$       4,723
















Provision for income taxes


$      1,040


$                 18


$                   -


$               7


$               -


$       1,065
















Net income attributable to PepsiCo 


$      3,085


$                 37


$                   -


$             23


$          111


$       3,256
















Net income attributable to PepsiCo per common share - diluted


$        1.97


$              0.02


$                   -


$          0.01


$         0.07


$         2.08
















Effective tax rate


25.0%










24.5%
































GAAP Measure


Non-Core Adjustments


Non-GAAP

 Measure




Reported


Commodity mark-

to-market net

 impact


Merger and

 integration

 charges






Core (a)




24 Weeks

 Ended

6/16/12




Restructuring

and

impairment

charges


Restructuring

and other

charges

related to the

 transaction with

Tingyi


24 Weeks

 Ended

 6/16/12
















Cost of sales


$    13,804


$                  (7)


$                   -


$                -


$               -


$      13,797
















Selling, general and administrative expenses


$    10,928


$                 12


$                  (5)


$         (110)


$         (137)


$      10,688
















Operating profit


$      4,099


$                  (5)


$                   5


$           110


$          137


$       4,346
















Provision for income taxes


$      1,082


$                     -


$                   1


$             30


$           (26)


$       1,087
















Net income attributable to PepsiCo 


$      2,615


$                  (5)


$                   4


$             80


$          163


$       2,857
















Net income attributable to PepsiCo per common share - diluted


$        1.65


$                     -


$                   -


$          0.05


$         0.10


$         1.81
















Effective tax rate


29.1%










27.4%






























(a)  Core results are financial measures that are not in accordance with GAAP and exclude the above adjustments.  See A-17 through A-19 for a discussion of each of these adjustments.     

 

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


A-11

 

PepsiCo, Inc. and Subsidiaries

Reconciliation of GAAP and Non-GAAP Information (cont.)

Operating Profit by Division

12 Weeks Ended June 15, 2013 and June 16, 2012

(in millions, unaudited)

















GAAP

Measure


Non-Core Adjustments


Non-GAAP

 Measure






Reported


Commodity mark-

to-market net

impact






Core (a)




Operating Profit


12 Weeks

Ended

6/15/13



Merger and

integration

charges


Restructuring and

impairment

charges

12 Weeks

Ended

6/15/13


















Frito-Lay North America


$     906


$          -


$          -


$         2


$     908




Quaker Foods North America


133


-


-


1


134




Latin America Foods


318


-


-


1


319




   PepsiCo Americas Foods


1,357


-


-


4


1,361


















PepsiCo Americas Beverages


882


-


-


5


887


















Europe


425


-


(1)


8


432


















Asia, Middle East & Africa


524


-


-


1


525


















Division Operating Profit


3,188


-


(1)


18


3,205


















Corporate Unallocated


(319)


39


-


1


(279)


















Total Operating Profit


$   2,869


$       39


$        (1)


$       19


$   2,926


































GAAP Measure


Non-Core Adjustments


Non-GAAP

Measure




Reported


Commodity mark-

to-market net

impact








Core (a)


Operating Profit


12 Weeks

Ended

 6/16/12



Merger and

integration

charges


Restructuring and

 impairment

 charges


Restructuring

and other

charges

related to the

transaction

with Tingyi

12 Weeks

Ended

6/16/12
















Frito-Lay North America


$     835


$          -


$          -


$       24


$          -


$     859


Quaker Foods North America


154


-


-


1


-


155


Latin America Foods


271


-


-


6


-


277


   PepsiCo Americas Foods


1,260


-


-


31


-


1,291
















PepsiCo Americas Beverages


840


-


-


35


-


875
















Europe


453


-


1


-


-


454
















Asia, Middle East & Africa


165


-


-


8


137


310
















Division Operating Profit


2,718


-


1


74


137


2,930
















Corporate Unallocated


(341)


79


2


3


-


(257)
















Total Operating Profit


$   2,377


$       79


$         3


$       77


$     137


$   2,673






























(a)  Core results are financial measures that are not in accordance with GAAP and exclude the above adjustments.  See A-17 through A-19 for a discussion of each of these adjustments.


A-12

PepsiCo, Inc. and Subsidiaries

Reconciliation of GAAP and Non-GAAP Information (cont.)

Operating Profit by Division

24 Weeks Ended June 15, 2013 and June 16, 2012

(in millions, unaudited)

















GAAP Measure


Non-Core Adjustments


Non-GAAP Measure




Reported


Commodity mark-to-market net impact








Core (a)


Operating Profit


24 Weeks Ended 6/15/13



Merger and integration charges


Restructuring and impairment charges

Venezuela currency devaluation


24 Weeks Ended 6/15/13
















Frito-Lay North America


$       1,734


$                    -


$                    -


$                   4


$              -


$       1,738


Quaker Foods North America


313


-


-


-


-


313


Latin America Foods


534


-


-


5


-


539


   PepsiCo Americas Foods


2,581


-


-


9


-


2,590
















PepsiCo Americas Beverages


1,447


-


-


5


(13)


1,439
















Europe


513


-


-


12


-


525
















Asia, Middle East & Africa


708


-


-


2


-


710
















Division Operating Profit


5,249


-


-


28


(13)


5,264
















Corporate Unallocated


(722)


55


-


2


124


(541)
















Total Operating Profit


$       4,527


$                 55


$                    -


$                 30


$          111


$       4,723
































GAAP Measure


Non-Core Adjustments


Non-GAAP Measure




Reported


Commodity mark-to-market net impact








Core (a)


Operating Profit


24 Weeks Ended 6/16/12



Merger and integration charges


Restructuring and impairment charges

Restructuring and other charges related to the transaction with Tingyi


24 Weeks Ended 6/16/12
















Frito-Lay North America


$       1,615


$                    -


$                    -


$                 32


$              -


$       1,647


Quaker Foods North America


341


-


-


6


-


347


Latin America Foods


454


-


-


12


-


466


   PepsiCo Americas Foods


2,410


-


-


50


-


2,460
















PepsiCo Americas Beverages


1,365


-


-


43


-


1,408
















Europe


534


-


3


(1)


-


536
















Asia, Middle East & Africa


313


-


-


17


137


467
















Division Operating Profit


4,622


-


3


109


137


4,871
















Corporate Unallocated


(523)


(5)


2


1


-


(525)
















Total Operating Profit


$       4,099


$                  (5)


$                   5


$               110


$          137


$       4,346






























(a) Core results are financial measures that are not in accordance with GAAP and exclude the above adjustments.  See A-17 through A-19 for a discussion of each of these adjustments.

A-13

PepsiCo, Inc. and Subsidiaries





Reconciliation of GAAP and Non-GAAP Information (cont.)      





(unaudited)



















Gross Margin Growth Reconciliation 


















12 Weeks Ended














6/15/13






Reported Gross Margin Growth     





110

bps





Commodity Mark-to-Market Net Impact     




9






Core Gross Margin Growth     





118

bps

































Developing and Emerging Markets Net Revenue Growth Reconciliation 


















12 Weeks Ended














6/15/13






Reported Developing and Emerging Markets Net Revenue Growth    




6

%





Impact of Acquisitions and Divestitures    




2






Impact of Foreign Exchange Translation     




3






Developing and Emerging Markets Organic Revenue Growth     




11

%

































Operating Margin Growth Reconciliation     


















12 Weeks Ended














6/15/13






Reported Operating Margin Growth    





263

bps





Commodity Mark-to-Market Net Impact    




(25)






Merger and Integration Charges    





(2)






Restructuring and Impairment Charges    




(36)






Restructuring and Other Charges Related to the Transaction with Tingyi      




(83)






Core Operating Margin Growth     





116

bps

































Impact of Vietnam Beverage Refranchising Gain, Net of Incremental Investments on Operating Profit (in millions)    



Vietnam Beverage Refranchising  Gain, Net of Incremental Investments 


Operating Profit













12 Weeks Ended













6/16/12


% of Impact


Impact on Reported Operating Profit     





$                  92


$              2,377


4

%

Commodity Mark-to-Market Net Impact       






79




Merger and Integration Charges       







3




Restructuring and Impairment Charges       






77




Restructuring and Other Charges Related to the Transaction with Tingyi          






137




Impact on Core Operating Profit      





$                  92


$              2,673


3

%





























Net Cash Provided by Operating Activities Reconciliation (in millions) 


















24 Weeks Ended














6/15/13






Net Cash Provided by Operating Activities 




$              3,015






Capital Spending 







(911)






Sales of Property, Plant and Equipment 




30






Management Operating Cash Flow 





2,134






Discretionary Pension and Retiree Medical Contributions (after-tax) 




13






Merger and Integration Payments (after-tax) 




15






Payments Related to Restructuring Charges (after-tax)       




71






Payments Related to Income Tax Settlements        




102






Net Capital Investments Related to Restructuring Plan          




(4)






Payments for Restructuring and Other Charges Related to   










the Transaction with Tingyi      





18






Management Operating Cash Flow excluding above Items 




$              2,349


































AMEA Operating Profit Growth Reconciliation Excluding Vietnam Beverage Refranchising Gain (in millions)     














12 Weeks Ended


12 Weeks Ended












6/15/13


6/16/12


Growth


Reported Operating Profit Growth    





$                524


$                165


217

%

Restructuring and Impairment Charges     




1


8




Restructuring and Other Charges Related to the Transaction with Tingyi     




-


137




Core Operating Profit Growth     





525


310


69


Vietnam Beverage Refranchising Gain      




(137)


-


(44)


Core Operating Profit Growth excluding Vietnam Beverage Refranchising Gain     



$                388


$                310


25


Impact of Foreign Exchange Translation     








2


Core Constant Currency Operating Profit Growth excluding Vietnam Beverage Refranchising Gain      






27

%





























Diluted EPS Reconciliation



















Year Ended














12/29/12






Reported Diluted EPS     






$               3.92






Commodity Mark-to-Market Net Impact     




(0.03)






Merger and Integration Charges      





0.01






Restructuring and Impairment Charges     




0.14






Restructuring and Other Charges Related to the Transaction with Tingyi       




0.11






Pension Lump Sum Settlement Charge     




0.08






Tax Benefit Related to Tax Court Decision     




(0.14)






Core Diluted EPS     






$               4.10


































Net Cash Provided by Operating Activities Reconciliation (in billions) 
































2013 Guidance






Net Cash Provided by Operating Activities 




$                       ~9 






Net Capital Spending 






~(3)






Management Operating Cash Flow 





~6 






Certain Other Items (a) 






~1 






Management Operating Cash Flow excluding Certain Other Items       




$                       ~7 


































(a) Certain other items include discretionary pension and retiree medical contributions, merger and integration payments, payments related to restructuring charges, 

  capital investments related to the bottling integration, net capital investments related to restructuring plan and payments related to income tax settlements. 

 

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










A-14

Cautionary Statement
Statements in this communication that are "forward-looking statements," including our 2013 guidance, are based on currently available information, operating plans and projections about future events and trends. Terminology such as "believe," "expect," "intend," "estimate," "project," "anticipate," "will," "expressed confidence," "position" or similar statements or variations of such terms are intended to identify forward-looking statements, although not all forward-looking statements contain such terms. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties include, but are not limited to: changes in demand for PepsiCo's products, as a result of changes in consumer preferences and tastes or otherwise; changes in the legal and regulatory environment; PepsiCo's ability to compete effectively; PepsiCo's ability to grow its business in emerging and developing markets or unstable political conditions, civil unrest or other developments and risks in the markets where PepsiCo's products are sold; unfavorable economic conditions in the countries in which PepsiCo operates; increased costs, disruption of supply or shortages of raw materials and other supplies; failure to realize anticipated benefits from PepsiCo's productivity plan or global operating model; disruption of PepsiCo's supply chain; damage to PepsiCo's reputation; failure to successfully complete or integrate acquisitions and joint ventures into PepsiCo's existing operations or to complete or manage divestitures or refranchisings; PepsiCo's ability to hire or retain key employees or a highly skilled and diverse workforce; trade consolidation or the loss of any key customer; any downgrade or potential downgrade of PepsiCo's credit ratings; PepsiCo's ability to build and sustain proper information technology infrastructure, successfully implement its ongoing business transformation initiative or outsource certain functions effectively; fluctuations in foreign exchange rates; climate change, or legal, regulatory or market measures to address climate change; failure to successfully renew collective bargaining agreements or strikes or work stoppages; any infringement of or challenge to PepsiCo's intellectual property rights; and potential liabilities and costs from litigation or legal proceedings.

For additional information on these and other factors that could cause PepsiCo's actual results to materially differ from those set forth herein, please see PepsiCo's filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. PepsiCo undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Miscellaneous Disclosures
In discussing financial results and guidance, the company may refer to certain non-GAAP measures. Reconciliations of any such non-GAAP measures to the most directly comparable financial measures in accordance with GAAP can be found in the attached exhibits, as well as on the company's website at www.pepsico.com in the "Investors" section under "Events & Presentations." Our non-GAAP measures exclude from reported results those items that management believes are not indicative of our ongoing performance and reflect how management evaluates our operating results and trends.

Glossary 
Acquisitions and divestitures: All mergers and acquisitions activity, including the impact of acquisitions, divestitures and changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.

Beverage volume: Volume shipped to retailers and independent distributors from both PepsiCo and our bottlers.

Constant currency: Financial results assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period. In order to compute our constant currency results, we multiply or divide, as appropriate, our current year U.S. dollar results by the current year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior year average foreign exchange rates.

Core: Core results are non-GAAP financial measures which exclude certain items from our historical results. In 2013, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, merger and integration charges in connection with our acquisition of Wimm-Bill-Dann Foods OJSC (WBD), restructuring and impairment charges and a charge related to the Venezuela currency devaluation. In 2012, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, merger and integration charges in connection with our acquisition of WBD, restructuring and impairment charges, restructuring and other charges related to the transaction with Tingyi, a pension lump sum settlement charge and a tax benefit related to a tax court decision. See "Reconciliation of GAAP and Non-GAAP Information" for additional information.

Division operating profit: The aggregation of the operating profit for each of our reportable segments, which excludes the impact of corporate unallocated expenses.

Effective net pricing: Reflects the year-over-year impact of discrete pricing actions, sales incentive activities and mix resulting from selling varying products in different package sizes and in different countries.

Management operating cash flow: Net cash provided by operating activities less capital spending plus sales of property, plant and equipment. See above for a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure in accordance with GAAP (operating cash flow).

Management operating cash flow, excluding certain items: Management operating cash flow, excluding: (1) discretionary pension and retiree medical contributions, (2) merger and integration payments in connection with The Pepsi Bottling Group, Inc. (PBG), PepsiAmericas, Inc. (PAS) and WBD acquisitions, (3) payments related to restructuring and other charges, (4) payments related to income tax settlements, (5) capital investments related to the bottling integration, (6) net capital investments related to restructuring plan, (7) payments for restructuring and other charges related to the transaction with Tingyi and (8) the tax impacts associated with each of these items, as applicable. This non-GAAP financial measure is our primary measure used to monitor cash flow performance. See above for a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure in accordance with GAAP (operating cash flow). See "Reconciliation of GAAP and Non-GAAP Information" for additional information.   

Mark-to-market gain or loss or net impact: Change in market value for commodity contracts that we purchase to mitigate the volatility in costs of energy and raw materials that we consume. The market value is determined based on average prices on national exchanges and recently reported transactions in the marketplace.

Net capital spending: Capital spending less cash proceeds from sales of property, plant and equipment.

Organic: A measure that adjusts for impacts of acquisitions, divestitures and other structural changes, and in the case of organic revenue, foreign exchange translation. In excluding the impact of foreign exchange translation, we assume constant foreign exchange rates used for translation based on the rates in effect for the comparable prior-year period. See the definition of "Constant currency" for additional information.

Reconciliation of GAAP and Non-GAAP Information (unaudited)
Division operating profit, core results, core constant currency results and organic results are non-GAAP financial measures as they exclude certain items noted below.  However, we believe investors should consider these measures as they are more indicative of our ongoing performance and reflect how management evaluates our operational results and trends.

Commodity mark-to-market net impact

In the 12 weeks ended June 15, 2013, we recognized $39 million of mark-to-market net losses on commodity hedges in corporate unallocated expenses. In the 24 weeks ended June 15, 2013, we recognized $55 million of mark-to-market net losses on commodity hedges in corporate unallocated expenses. In the 12 weeks ended June 16, 2012, we recognized $79 million of mark-to-market net losses on commodity hedges in corporate unallocated expenses. In the 24 weeks ended June 16, 2012, we recognized $5 million of mark-to-market net gains 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, metals and energy. Certain of these commodity derivatives do not qualify for hedge accounting treatment and are marked to market with the resulting gains and losses recognized in corporate unallocated expenses. These gains and losses are subsequently reflected in division results when the divisions recognize the cost of the underlying commodity in net income.

Merger and integration charges

In the 12 weeks ended June 15, 2013, we recorded income of $1 million related to our acquisition of WBD. This income was recorded in selling, general and administrative expenses in the Europe segment representing adjustments of previously recorded amounts. In the 24 weeks ended June 15, 2013, merger and integration charges were nominal. In the 12 weeks ended June 16, 2012, we incurred merger and integration charges of $3 million related to our acquisition of WBD, including $1 million recorded in the Europe segment and $2 million recorded in corporate unallocated expenses. In the 24 weeks ended June 16, 2012, we incurred merger and integration charges of $5 million related to our acquisition of WBD, including $3 million recorded in the Europe segment and $2 million recorded in corporate unallocated expenses. 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

In the 12 weeks ended June 15, 2013, we incurred restructuring and impairment charges of $19 million in conjunction with our Productivity Plan, including $2 million recorded in the FLNA segment, $1 million in the QFNA segment, $1 million recorded in the LAF segment, $5 million recorded in the PAB segment, $8 million recorded in the Europe segment, $1 million recorded in the AMEA segment and $1 million recorded in corporate unallocated expenses. In the 24 weeks ended June 15, 2013, we incurred restructuring and impairment charges of $30 million in conjunction with our Productivity Plan, including $4 million recorded in the FLNA segment, $5 million recorded in the LAF segment, $5 million recorded in the PAB segment, $12 million recorded in the Europe segment, $2 million recorded in the AMEA segment and $2 million recorded in corporate unallocated expenses. In the 12 weeks ended June 16, 2012, we incurred restructuring and impairment charges of $77 million in conjunction with our Productivity Plan, including $24 million recorded in the FLNA segment, $1 million recorded in the QFNA segment, $6 million recorded in the LAF segment, $35 million recorded in the PAB segment, $8 million recorded in the AMEA segment and $3 million recorded corporate unallocated expenses. In the 24 weeks ended June 16, 2012, we incurred restructuring and impairment charges of $110 million in conjunction with our Productivity Plan, including $32 million recorded in the FLNA segment, $6 million recorded in the QFNA segment, $12 million recorded in the LAF segment, $43 million recorded in the PAB segment, $17 million recorded in the AMEA segment, $1 million recorded in corporate unallocated expenses and income of $1 million recorded in the Europe segment representing adjustments of previously recorded amounts. In the year ended December 29, 2012, we incurred restructuring charges of $279 million in conjunction with our Productivity Plan, including $38 million recorded in the FLNA segment, $9 million recorded in the QFNA segment, $50 million recorded in the LAF segment, $102 million recorded in the PAB segment, $42 million recorded in the Europe segment, $28 million recorded in the AMEA segment and $10 million recorded in corporate unallocated expenses. The 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.

Venezuela currency devaluation

In the 24 weeks ended June 15, 2013, we recorded a $111 million net charge related to the devaluation of the bolivar fuerte 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.

Restructuring and other charges related to the transaction with Tingyi

In the 12 and 24 weeks ended June 16, 2012, we recorded restructuring and other charges of $137 million in the AMEA segment 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.

Pension lump sum settlement charge

In the year ended December 29, 2012, we recorded a pension lump sum settlement charge of $195 million in corporate unallocated expenses.

Tax benefit related to tax court decision

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.

Management operating cash flow (excluding certain items)

Additionally, management operating cash flow (excluding the items noted in the Net Cash Provided by Operating Activities Reconciliation table) is the primary measure management uses to monitor cash flow performance. This is not a measure defined by 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 (included in the Net Cash Provided by Operating Activities Reconciliation table) in evaluating management operating cash flow which we believe investors should consider in evaluating our management operating cash flow results.

2013 guidance

Our 2013 core tax rate guidance and our 2013 core constant currency EPS guidance exclude the commodity mark-to-market net impact included in corporate unallocated expenses, merger and integration charges in connection with our acquisition of WBD, restructuring and impairment charges and charges related to the Venezuela currency devaluation. Our 2013 organic revenue guidance excludes the impact of acquisitions, divestitures and other structural changes. In addition, our 2013 organic revenue guidance and our 2013 core constant currency EPS guidance exclude the impact of foreign exchange. We are not able to reconcile our full-year projected 2013 core tax rate guidance to our full-year projected 2013 reported tax rate or our 2013 core constant currency EPS guidance to our full-year projected 2013 reported EPS growth because we are unable to predict the 2013 impact of foreign exchange or the mark-to-market net impact on commodity hedges due to the unpredictability of future changes in foreign exchange rates and commodity prices. In addition, we are unable to reconcile our full-year projected 2013 organic revenue guidance to our full-year projected 2013 reported net revenue growth because we are unable to predict the 2013 impact of foreign exchange due to the unpredictability of future changes in foreign exchange rates. Therefore, we are unable to provide a reconciliation of these measures.

SOURCE PepsiCo, Inc.