PepsiCo Reports Second Quarter 2012 Results

PURCHASE, N.Y, July 25, 2012 /PRNewswire/ -- PepsiCo, Inc. (NYSE: PEP) today reported a decline in second quarter net revenue of 2 percent, reflecting a negative 4-percentage-point impact from previously announced structural changes (primarily beverage refranchisings in China and Mexico), and a negative 3-percentage-point impact from foreign exchange translation. Excluding these items, net revenue grew 5 percent in the quarter on an organic basis.

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Reported EPS was $0.94, and core EPS was $1.12, in line with management's expectations. Management reaffirmed both its 2012 core constant currency EPS guidance and long-term financial targets and stated that its 2012 strategic initiatives are on track.

"PepsiCo is diligently executing the strategy we set forth at the start of the year, and we remain on track to achieve our full-year targets," said PepsiCo Chairman and CEO Indra Nooyi.  "We were able to achieve significant pricing in the second quarter, reflecting the strength of our brand portfolio and the success of our packaging initiatives.  Our disciplined approach to pricing and continued focus on brand investment drove 5 percent organic net revenue growth and allowed us to substantially offset approximately $350 million in commodity cost inflation.

"Our focus for the second half of the year is squarely on executing against our strategic priorities.  We will continue to step up our brand support through increased advertising and marketing, accelerate our innovation to drive growth, and drive our aggressive productivity agenda.

"The work we are doing will enhance our competitiveness while positioning PepsiCo for sustainable growth and value creation for the long term."

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

Operating and Marketplace Highlights

• Grew net revenue in one of four business units on a reported basis, while achieving net revenue growth in all four business units on an organic basis.
• Achieved 4 points of effective net pricing globally.
• Grew global snacks net revenue on a reported basis. Grew both global snacks and global beverage net revenue on an organic basis.
• Emerging and developing market reported net revenue declined 8 percent, primarily due to beverage refranchisings in China and Mexico.  On an organic basis, emerging and developing market net revenue grew 9 percent.
• Delivered strong operating profit results in Europe behind productivity savings and, in Russia, gained value share in savory snacks, social beverages and value-added dairy.
• Completed strategic beverage alliance with Tingyi, one of the leading food and beverage companies in China, with integration of the bottling system now substantially complete.
• Largest contributor to food and nonalcoholic beverage revenue growth across measured channels² in the U.S. in the second quarter.
• Increased media spending in the U.S. by over 40 percent in the second quarter supporting the company's long-term brand-building initiatives.
• Launched first ever global campaign for brand Pepsi – Live for Now.
• Decreased net capital spending by $338 million year to date with net capital spending 4.4 percent of net revenue over the last four quarters, an improvement of more than 100 basis points over the comparable prior four quarters.

² IRI GDMxC

Summary of Second Quarter Financial Performance

• Organic net revenue growth, excluding the impact of acquisitions and divestitures and foreign exchange translation, was 5 percent.  Reported net revenue benefited from 1 percentage point of volume growth and 4 percentage points of effective net pricing, offset by negative foreign exchange translation of 3 percentage points.  Structural changes, primarily refranchisings in China and Mexico, negatively impacted reported net revenue performance by 4 percentage points. 
• Reported operating profit declined 14 percent and core operating profit declined 5 percent.  Operating profit performance was in line with management's expectations and reflected the impact of division operating profit performance and higher corporate unallocated expenses reflecting increased pension expense.  Core operating profit excluded mark-to-market net losses on commodity hedges and restructuring, impairment and integration charges.
• Division operating profit declined 9 percent and core division operating profit declined 3 percent.  Division operating profit performance reflected structural changes, a negative 3 percentage point impact of foreign exchange translation, and approximately $350 million of commodity cost inflation.   
• Net interest expense was $208 million, an increase of $29 million, primarily driven by lower interest income and higher debt balances.
• The company's reported effective tax rate was 30.8 percent.  The company's core effective tax rate was 27.8 percent, 180 basis points above the prior year quarter, reflecting comparisons against a prior year tax benefit related to a portion of our international business operations, partially offset by the favorable resolution of certain tax matters in the current year.
• Reported EPS was $0.94 and core EPS was $1.12, in line with management's expectations. Core EPS reflects a $0.04 negative impact of foreign exchange translation and excludes a $0.04 per share impact of restructuring, impairment and integration charges, a $0.10 per share impact from restructuring and other charges related to the transaction with Tingyi and a $0.04 per share impact from mark-to-market net losses on commodity hedges.  Mark-to-market gains and losses are subsequently reflected in core division results when the divisions take delivery of the underlying commodity.
• Operating cash flow was $1.2 billion year to date. Management operating cash flow (excluding certain items) was $1.4 billion.  The company has returned $2.8 billion to shareholders through dividends and share repurchases through the end of the second quarter, and expects to return more than $6 billion to shareholders for the full year 2012.

^aThe above core results and core constant currency results are non-GAAP financial measures that exclude certain items affecting comparability.  For more information about our core results and core constant currency results, see "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits.  Please refer to the Glossary for definitions of "Constant Currency" and "Core".

^b Volume growth measures reflect an adjustment to the base year (2011) for divestitures that occurred in 2011 and 2012, as applicable.

^cSnacks/Beverages.

^dThe reported operating profit performance was impacted by certain items excluded from our core results in both 2012 and 2011.  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".

^eLAF volume included 11 percentage points of benefit related to acquisitions.

^fOrganic results are non-GAAP financial measures that exclude the impact of acquisitions and divestitures and, beginning with the second quarter 2012 results, foreign exchange translation.  Please refer to the Glossary for additional information regarding organic results.

All comparisons are on a core year-over-year basis unless otherwise noted.

Division Operating Summaries

PepsiCo Americas Foods (PAF) 

Organic net revenue grew 7 percent in the quarter, and reported net revenue grew 4 percent. Net revenue growth was driven by positive effective net pricing across all three PAF divisions (FLNA, LAF, and QFNA) supported by strong contributions from innovations and increased media support. Core constant currency operating profit grew 2 percent, reflecting high commodity cost inflation and higher A&M investments across all divisions, partially offset by productivity initiatives.

Frito-Lay North America (FLNA)

Organic net revenue increased 4 percent.  Effective net pricing and disciplined channel revenue management strategies drove particularly strong net revenue growth in the C-store, Club, Dollar and Foodservice channels and unit growth was positive overall.  Reported net revenue grew 3 percent.

Operating profit growth of 1 percent in the quarter reflected the net revenue growth and productivity gains, partially offset by higher commodity cost inflation and increased advertising and marketing investments.

Latin America Foods (LAF)

On an organic basis, LAF net revenue grew 14 percent led by strong growth in Mexico.  Reported net revenue grew 8 percent, reflecting 11 percentage points of effective net pricing and a 3-percentage-point benefit from acquisitions and divestitures, partially offset by a 9-percentage-point unfavorable foreign exchange translation impact.   

Core constant currency operating profit grew 11 percent, reflecting volume gains, positive effective net pricing and productivity initiatives, offset by higher commodity cost inflation and marketplace investments.   

Quaker Foods North America (QFNA)

Organic net revenue increased 1 percent.  Reported net revenue performance was even with the prior year quarter, reflecting 2 percentage points of effective net pricing, including weight outs in certain product segments, and supported by innovation such as the launch of Quaker Medleys.  

Core constant currency operating profit in the quarter declined 7 percent driven by higher commodity cost inflation, partially offset by productivity initiatives. Core constant currency operating profit was also impacted by less-favorable settlements of promotional spending accruals in the current year, which negatively impacted performance by 3 percentage points. 

PepsiCo Americas Beverages (PAB)

On an organic basis, net revenue increased 2 percent in the quarter on 3.5 percentage points of effective net pricing with strength in the small format and wholesale club channels.  Reported net revenue declined 5 percent, primarily reflecting the impact of the refranchising of the division's Mexican beverage business in the fourth quarter of 2011.  The refranchising negatively impacted net revenue performance by 7 percentage points in the quarter. 

Operating profit declined in the quarter primarily reflecting increased commodity costs and higher advertising and marketing spending, partially offset by favorable effective net pricing and savings resulting from productivity initiatives.

Europe

On an organic basis, net revenue grew 3 percent with a focus on mix management to drive margin accretion.  Reported net revenue declined 5 percent, reflecting 4 percentage points of effective net pricing, more than offset by unfavorable foreign exchange translation impact of 8 percentage points.  

Core constant currency operating profit grew 15 percent in the quarter, reflecting significant productivity gains and effective net pricing, partially offset by commodity cost inflation. Core constant currency operating profit was negatively impacted by a benefit in the prior year quarter from accelerated timing of concentrate shipments in connection with our global SAP implementation and less favorable promotional spending accruals in the current quarter, which impacted growth by 4 percentage points and 2 percentage points, respectively.  Excluding these items, core constant currency operating profit increased 22 percent.

Asia, Middle East & Africa (AMEA)

On an organic basis, net revenue grew 10 percent.  Reported net revenue declined 8 percent reflecting a 15-percentage-point negative impact due to the refranchising of our bottling operations in China and the deconsolidation of a joint venture, and a negative 4-percentage-point impact from foreign exchange translation. 

Core constant currency operating profit grew 7 percent, with volume growth and effective net pricing partially offset by higher commodity costs. The benefits in the prior year from both the accelerated timing of concentrate shipments in connection with our global SAP implementation and the recovery of a previously written-off receivable negatively impacted growth in the current-year quarter by 10 percentage points.  Excluding these items, core constant currency operating profit increased 17 percent.

Restructuring

As previously announced, the company has committed to a multi-year productivity program.  The company incurred pre-tax non-core restructuring charges of $77 million in the second quarter of 2012 and anticipates additional charges of approximately $315 million in the balance of 2012 and $102 million from 2013 through 2015.  Charges under this program resulted in cash expenditures of $96 million in the second quarter of 2012, and the company anticipates additional cash expenditures of approximately $295 million in the remainder of 2012, with the balance of approximately $290 million of related cash expenditures expected in 2013 through 2015. 

2012 Guidance and Outlook

Consistent with its previous guidance for 2012, the company expects a decline in core constant currency EPS of approximately 5 percent from its fiscal 2011 core EPS of $4.40.  Based on the current foreign exchange market consensus, foreign exchange translation would have an unfavorable impact of approximately three percentage points on the company's full year core EPS performance in 2012.  Consistent with its previous guidance, the company expects core constant currency net revenue growth of low-single-digits reflecting the impact of structural changes, principally refranchisings, which are expected to reduce core constant currency net revenue growth by approximately three percentage points for the full year.  Excluding these structural changes, core constant currency net revenue is expected to grow mid-single-digits, consistent with the company's prior guidance. 

The company is targeting approximately $8 billion in cash flow from operating activities and more than $6 billion in management operating cash flow (excluding certain items) in 2012, which includes the favorable impact of an expected 10 percent reduction in capital spending and improved working capital efficiency.  The company also made a pre-tax discretionary pension and retiree medical contribution of $1 billion in the first quarter of 2012.

Reflecting its commitment to return capital to shareholders, the company anticipates more than $3 billion in share repurchases for 2012, and expects to pay $3.3 billion in dividends.  The dividend reflects a 4 percent dividend per share increase that was effective with the dividend paid in June 2012, making 2012 the company's 40^th consecutive year of dividend per share growth.

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 2012. 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.

Cautionary Statement

Statements in this communication that are "forward-looking statements,"  including our 2012 guidance and long-term growth targets, 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" 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; PepsiCo's ability to compete effectively; unfavorable economic conditions in the countries in which PepsiCo operates; damage to PepsiCo's reputation; PepsiCo's ability to grow its business in developing and emerging markets or unstable political conditions, civil unrest or other developments and risks in the countries where PepsiCo operates; trade consolidation or the loss of any key customer; changes in the legal and regulatory environment; 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; increased costs, disruption of supply or shortages of raw materials and other supplies; disruption of PepsiCo's supply chain; climate change, or legal, regulatory or market measures to address climate change; PepsiCo's ability to hire or retain key employees or a highly skilled and diverse workforce; failure to successfully renew collective bargaining agreements or strikes or work stoppages; failure to successfully complete or integrate acquisitions and joint ventures into PepsiCo's existing operations; failure to successfully implement PepsiCo's global operating model; failure to realize anticipated benefits from our productivity plan; any downgrade of our credit ratings; and any infringement of or challenge to PepsiCo's intellectual property rights.

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 SEC, 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 "Investor Presentations." Our non-GAAP measures exclude from reported results those items that management believes are not indicative of our ongoing performance and 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.  

Core: Core results are non-GAAP financial measures which exclude certain items from our historical results.  In 2012, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, restructuring and impairment charges, merger and integration charges in connection with our acquisition of WBD and restructuring and other charges related to the transaction with Tingyi.  In 2011, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, as well as merger and integration charges and certain inventory fair value adjustments in connection with our acquisitions of The Pepsi Bottling Group, Inc. (PBG), PepsiAmericas, Inc. (PAS) and WBD.  In addition, full-year 2011 core results exclude an extra week of results and restructuring and impairment charges.  For more details and reconciliations of our 2012 and 2011 core and core constant currency results and guidance, see "Reconciliation of GAAP and Non-GAAP Information" in the exhibits attached hereto.

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.

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: The combined impact of mix and price.  

Management operating cash flow: Net cash provided by operating activities less capital spending plus sales of property, plant and equipment. See the attached exhibits for a reconciliation of this 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) a discretionary pension and post-retirement contribution,  (2) restructuring payments, (3) merger and integration payments in connection with the PBG, PAS and WBD acquisitions, (4) capital investments related to the bottling integration, (5) capital investments related to the productivity plan, (6) payments for restructuring and other charges related to the transaction with Tingyi and (7) 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 the attached exhibits for a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure in accordance with GAAP (operating cash flow).

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 pricing: The combined impact of list price changes, weight changes per package, discounts and allowances.  

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

Organic: A measure that excludes the impact of acquisitions and divestitures and, beginning with the second quarter 2012 results, 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" above for additional information.

Pricing: The impact of list price changes and weight changes per package.  

*Core results, core constant currency results, division operating profit and organic results are financial measures that are not in accordance with Generally Accepted Accounting Principles (GAAP).  In 2012, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, restructuring and impairment charges, merger and integration costs in connection with our acquisition of Wimm-Bill-Dann Foods OJSC (WBD) and restructuring and other charges related to the transaction with Tingyi (Cayman Islands) Holding Corp. (Tingyi).  In 2011, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses,  as well as merger and integration costs and certain inventory fair value adjustments in connection with our acquisitions of The Pepsi Bottling Group, Inc. (PBG), PepsiAmericas, Inc. (PAS) and WBD.  Organic results exclude the impact of acquisitions and divestitures and, beginning with the second quarter 2012 results, foreign exchange translation.  Core growth on a constant currency basis and organic results are financial measures that assume constant foreign currency exchange rates used for translation based on the rates in effect for the comparable period during 2011.  In order to compute these 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.  In addition, core constant currency EPS growth is computed by adjusting core EPS growth by the after-tax foreign currency translation impact on core operating profit growth using PepsiCo's core effective tax rate.  See schedules A-7 through A-23 for a discussion of these items and reconciliations to the most directly comparable financial measures in accordance with GAAP.

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PepsiCo, Inc. and Subsidiaries
Reconciliation of GAAP and Non-GAAP Information
(unaudited)

Core results, core constant currency results, organic results and division operating profit 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 with how management evaluates our operational results and trends. 

53rd week impact

In 2011, we had an additional week of results (53rd week).  Our fiscal year ends on the last Saturday of each December, resulting in an additional week of results every five or six years.  The 53rd week increased net revenue by $623 million and operating profit by $109 million in the quarter and year ended December 31, 2011.

Commodity mark-to-market net impact

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 12 weeks ended June 11, 2011, we recognized $9 million of mark-to-market net losses on commodity hedges in corporate unallocated expenses.  In the 24 weeks ended June 11, 2011, we recognized $22 million of mark-to-market net gains on commodity hedges in corporate unallocated expenses. In the year ended December 31, 2011, we recognized $102 million of mark-to-market net losses on commodity hedges in corporate unallocated expenses.  We centrally manage commodity derivatives on behalf of our divisions.  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 take delivery of the underlying commodity.  

Restructuring and impairment charges

In the 12 weeks ended June 16, 2012, we incurred restructuring and impairment charges of $77 million in conjunction with our multi-year productivity plan (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 in 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 31, 2011, we incurred charges of $383 million in conjunction with our Productivity Plan, including $76 million recorded in the FLNA segment, $18 million recorded in the QFNA segment, $48 million recorded in the LAF segment, $81 million recorded in the PAB segment, $77 million recorded in the Europe segment, $9 million recorded in the AMEA segment and $74 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.

Merger and integration charges

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 12 weeks ended June 11, 2011, we incurred merger and integration charges of $58 million related to our acquisitions of PBG, PAS and WBD, including $32 million recorded in the PAB segment, $14 million recorded in the Europe segment and $12 million recorded in corporate unallocated expenses.  In the 24 weeks ended June 11, 2011, we incurred merger and integration charges of $113 million  related to our acquisitions of PBG, PAS and WBD, including $53 million recorded in the PAB segment, $6 million recorded in the Europe segment and $54 million recorded in corporate unallocated expenses. These charges also include closing costs and advisory fees related to our acquisition of WBD.  In the year ended December 31, 2011, we incurred

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PepsiCo, Inc. and Subsidiaries
Reconciliation of GAAP and Non-GAAP Information (cont.)
(unaudited)

merger and integration charges of $329 million related to our acquisitions of PBG, PAS and WBD, including $112 million recorded in the PAB segment, $123 million recorded in the Europe segment, $78 million recorded in corporate unallocated expenses and $16 million recorded in interest expense.  These charges also included closing costs and advisory fees related to our acquisition of WBD.

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 related to the transaction with Tingyi.

Inventory fair value adjustments

In the 12 and 24 weeks ended June 11, 2011, we recorded $4 million and $38 million, respectively, of incremental costs in cost of sales related to fair value adjustments to the acquired inventory included in WBD's balance sheet at the acquisition date and hedging contracts included in PBG's and PAS's balance sheets at the acquisition date. In the year ended December 31, 2011, we recorded $46 million of incremental costs in cost of sales related to fair value adjustments to the acquired inventory included in WBD's balance sheet at the acquisition date and hedging contracts included in PBG's and PAS's balance sheets at the acquisition date. 

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 below) 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.

2012 guidance and long-term targets

Our 2012 full-year core constant currency EPS guidance and our long-term core constant currency EPS growth targets exclude the commodity mark-to-market net impact included in corporate unallocated expenses, restructuring and impairment charges, merger and integration charges, and restructuring and other charges related to the transaction with Tingyi.  In addition, our 2012 full-year core constant currency net revenue and EPS guidance and our long-term constant currency net revenue and core constant currency EPS growth targets exclude the impact of foreign exchange.  We are not able to reconcile our full-year projected 2012 core constant currency EPS growth or our long-term core constant currency EPS growth targets to our full-year projected 2012 and long-term reported results because we are unable to predict the 2012 and long-term impact of foreign exchange or the mark-to-market net gains or losses 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 2012 and long-term core constant currency net revenue growth to our full-year projected 2012 and long-term reported net revenue growth because we are unable to predict the 2012 and long-term 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.

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PepsiCo, Inc. and Subsidiaries
Reconciliation of GAAP and Non-GAAP Information (cont.)
($ in millions, unaudited)

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*Core results and core constant currency results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments.  See schedules A-7 and A-8 for a discussion of each of these non-core adjustments.

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

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*Core results and core constant currency results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments.  See schedules A-7 and A-8 for a discussion of each of these non-core adjustments.

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

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*Core results and core constant currency results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments.  See schedules A-7 and A-8 for a discussion of each of these non-core adjustments.

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

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*Core results and core constant currency results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments.  See schedules A-7 and A-8 for a discussion of each of these non-core adjustments.

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

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*Organic Results are financial measures that are not in accordance with GAAP and exclude the impact of acquisitions and divestitures and foreign exchange.

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

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*Organic Results are financial measures that are not in accordance with GAAP and exclude the impact of acquisitions and divestitures and foreign exchange.

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

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SOURCE PepsiCo