Dr Pepper Snapple Group Reports Third Quarter 2016 Results
Company reports EPS of $1.29 for the quarter. Core EPS were $1.17 for the quarter, up 8%.
Net Sales increased 3% for the quarter and year-to-date.
Foreign currency translation reduced Net Sales and Reported EPS by 1% in the quarter.
Company raises guidance and now expects full year 2016 Core EPS in the $4.32 to $4.40 range and expects to return over $1 billion to shareholders in the form of stock repurchases and dividends.
Oct 27, 2016

PLANO, Texas, Oct. 27, 2016 /PRNewswire/ -- Dr Pepper Snapple Group, Inc. (NYSE: DPS) reported third quarter 2016 EPS of $1.29, including a $0.09 tax gain, compared to $1.05 in the prior year period. Core EPS were $1.17, up 8% compared to $1.08 in the prior year period. Year-to-date, the company reported earnings of $3.64 per diluted share compared to $3.00 per diluted share in the prior year period. Core EPS were $3.35, up 11% compared to $3.02 in the prior year period.

For the quarter, reported net sales of $1.68 billion increased 3% on favorable product and package mix, a 1% increase in sales volumes and higher pricing. Net sales growth was reduced in the quarter by 1 percentage point of unfavorable foreign currency translation. Reported segment operating profit (SOP) increased 3%, or $12 million, on net sales growth, lower logistics costs and ongoing productivity improvements, which were partially offset by a $16 million increase in planned marketing investments and increases in certain other operating expenses.

Reported income from operations for the quarter was $373 million, which included $9 million in unrealized commodity mark-to-market gains and a $5 million non-cash gain on the step-acquisition of our joint venture Aguafiel business in Mexico. Reported income from operations was $337 million in the prior year period, which included $9 million in unrealized commodity mark-to-market losses. Core income from operations for the quarter was $364 million, up 5%, and represented 21.7% of net sales compared to 21.3% in the prior year period.

Year-to-date, reported net sales of $4.86 billion increased 3%. Reported income from operations was $1.10 billion, including $41 million in unrealized commodity mark-to-market gains. Foreign currency translation negatively impacted reported net sales and reported income from operations by 1%. Reported income from operations in the prior year period was $976 million, which included $5 million in unrealized commodity mark-to-market losses. Core income from operations was $1.06 billion, up 8%, representing 21.7% of net sales compared to 20.8% in the prior year.

DPS President and CEO Larry Young said, "I'm proud of our teams for continuing to drive strong performance across our portfolio in a competitive and fragmented market."

Young continued, "We gained both dollar and volume share in our largest category, CSDs, in Nielsen measured markets, and our strategy of driving aligned communication and execution across our priority brands is driving positive results. Our allied brand partnerships are allowing us to compete in fast growing categories, and Rapid Continuous Improvement (RCI) continues to be the foundation on which the organization operates."

EPS reconciliation

Third Quarter

Year-to-Date

2016

2015

Percent

Change

2016

2015

Percent

Change

Reported EPS

$1.29

$1.05

23

$3.64

$3.00

21

Unrealized commodity mark-to-market net (gain)/loss

 

Items affecting comparability

- Legal entity restructuring

- Extinguishment gain

- Litigation provision

 

Core EPS

 

(0.03)

 

 

(0.09)

-

-

------

$1.17

 

  0.03

 

 

-

-

-

------

$1.08

 

 

 

------

8

 

(0.13)

 

 

(0.09)

(0.07)

-

-----

$3.35

  0.01

 

 

-

-

  0.01

-----

$3.02

 

 

 

------

11

EPS – earnings per share

 

Net sales and SOP in the tables and commentary below are presented on a currency neutral basis. Refer to the Definitions section of this press release for details on how the company calculates currency neutral metrics. For a reconciliation of non-GAAP to GAAP measures see pages A-5 through A-10 accompanying this release.

Summary of 2016 results

(Percent change)

As Reported

Currency Neutral
(Translation)

Third
Quarter

YTD

Third
Quarter

YTD

BCS Volume

2

1

2

1

Sales Volume

1

1

1

1

Net Sales

3

3

4

4

SOP

3

6

3

7

BCS - bottler case sales

 

BCS Volume
For the quarter, BCS volume increased 2%, with carbonated soft drinks (CSDs) increasing 2% and non-carbonated beverages (NCBs) flat.

By geography, U.S. and Canada volume increased 1%, and Mexico and the Caribbean volume increased 4%.

In CSDs, Dr Pepper increased 1% driven by growth in both our fountain foodservice and bottle-can businesses. Our Core 4 brands increased 2%, as a mid-single-digit increase in Canada Dry and a low-single-digit increase in Sunkist were partially offset by low-single-digit decreases in A&W and 7UP. Squirt increased 7% in the quarter on strong growth in both the U.S. and Mexico, and Schweppes grew 9%. Crush grew 4%, and Peñafiel grew 1%. Fountain foodservice volume increased 2% in the quarter.

In NCBs, our water category grew 16% on strong growth in Bai brands, FIJI and Aguafiel. Clamato increased 5% in the quarter, and Snapple was flat. Hawaiian Punch decreased 6% primarily as a result of reduced promotional activity and higher pricing for our single-serve packages, and Mott's decreased 6% in the quarter, as growth in sauce was more than offset by decreases in juice.

Sales Volume
Sales volumes increased 1% in the quarter and year-to-date.

2016 Segment results
(Percent Change)

Third Quarter

   

As Reported

Currency Neutral

(Translation)

Sales
Volume

Net Sales

 

SOP

Net Sales

 

SOP

Beverage Concentrates

1

5

-

5

-

Packaged Beverages

-

4

7

4

7

Latin America Beverages

4

(6)

(13)

5

(4)

Total

1

3

3

4

3

   

2016 Segment results
(Percent Change)

Year-to-Date

   

As Reported

Currency Neutral

(Translation)

Sales
Volume

Net Sales

 

SOP

Net Sales

 

SOP

Beverage Concentrates

1

3

2

3

2

Packaged Beverages

(1)

4

13

4

13

Latin America Beverages

5

(7)

(12)

7

-

Total

1

3

6

4

7

 

 

Beverage Concentrates
Net sales increased 5% in the quarter on concentrate price increases taken earlier in the year, favorable product mix and a 1% increase in concentrate shipments. SOP was flat, as net sales growth was offset by a $10 million increase in planned marketing investments.

Packaged Beverages
Net sales increased 4% in the quarter on favorable product and package mix, lower discounts driven by a favorable trade accrual adjustment and higher pricing. SOP increased 7% on net sales growth, lower logistics costs and ongoing productivity improvements. These increases were partially offset by a $6 million increase in planned marketing investments and increases in certain other operating expenses.

Latin America Beverages
Net sales increased 5% in the quarter on higher net pricing and a 4% increase in sales volume. SOP was 4% lower in the quarter, as the segment incurred $3 million of higher U.S. dollar denominated input costs, which caused a 13% decline in SOP. The aforementioned foreign currency transaction cost taken together with increases in certain other operating expenses collectively more than offset net sales growth and ongoing productivity improvements.

Corporate and Other Items
For the quarter, corporate costs totaled $64 million, which included $9 million in unrealized commodity mark-to-market gains. Corporate costs in the prior year period were $83 million, which included $9 million in unrealized commodity mark-to-market losses.

Other income increased $5 million in the quarter as a result of a non-cash gain on the step-acquisition of our joint venture Aguafiel business in Mexico.

Net interest expense increased $4 million in the quarter driven by higher debt balances and the refinancing of certain debt in the prior year.

For the quarter, the reported effective tax rate was 29.7%, which included a $17 million tax benefit associated with a legal entity restructuring. The effective tax rate in the prior year period was 34.4%.

Cash Flow
Year-to-date, the company generated $683 million of cash from operating activities compared to $723 million in the prior year period. Capital spending totaled $110 million compared to $71 million in the prior year period. The company returned $748 million to shareholders in the form of stock repurchases ($460 million) and dividends ($288 million).

2016 Full Year Guidance
The company continues to expect full year reported net sales to be up approximately 2% and now expects core EPS to be in the $4.32 to $4.40 range. Collectively, foreign currency translation and transaction are expected to continue to negatively impact net sales by approximately 1% and core EPS growth by approximately 3%.

The company continues to expect packaging and ingredient costs to decrease COGS by approximately 1% on a constant volume/mix basis.

The company now expects its core tax rate to be approximately 35%.

The company continues to expect capital spending to be approximately 3% of net sales.

The company continues to expect to repurchase $650 million to $700 million of its common stock.

Definitions
Bottler case sales (BCS) volume: Sales of finished beverages, in equivalent 288 fluid ounce cases, sold by the company and its bottling partners to retailers and independent distributors and excludes contract manufacturing volume. Volume for products sold by the company and its bottling partners is reported on a monthly basis, with the third quarter comprising July, August and September.

Sales volume: Sales of concentrates and finished beverages, in equivalent 288 fluid ounce cases, shipped by the company to its bottlers, retailers and independent distributors and includes contract manufacturing volume.

Pricing refers to the impact of list price changes.

Unrealized mark-to-market: We recognize the change in the fair value of open commodity derivative positions between periods in corporate unallocated expenses, as these instruments do not qualify for hedge accounting treatment. As the underlying commodity is delivered, the realized gains and losses are subsequently reflected in the segment results.

EPS represents diluted earnings per share.

Core financial measures are non-GAAP financial measures and are determined utilizing reported financial numbers, adjusted for the unrealized mark-to-market impact of commodity derivatives and certain items that are excluded for comparison to prior year periods.

Core metrics are determined based on the core financial measures.

Net sales and Segment Operating Profit, as adjusted to currency neutral: Net sales and Segment Operating Profit are calculated on a currency neutral basis by converting our current-period local currency financial results using the prior-period foreign currency exchange rates.

Forward-Looking Statements
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, statements about future events, future financial performance including earnings estimates, plans, strategies, expectations, prospects, competitive environment, regulation, and cost and availability of raw materials. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend" or the negative of these terms or similar expressions. These forward-looking statements have been based on our current views with respect to future events and financial performance. Our actual financial performance could differ materially from those projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and our financial performance may be better or worse than anticipated. Given these uncertainties, you should not put undue reliance on any forward-looking statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015, and our other filings with the Securities and Exchange Commission. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, after the date of this release, except to the extent required by applicable securities laws. 

Conference Call
At 9 a.m. (CDT) today, the company will host a conference call with investors to discuss third quarter results and the outlook for 2016. The conference call and slide presentation will be accessible live through DPS's website at http://www.drpeppersnapple.com and will be archived for replay for a period of 14 days.

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 on pages A-5 through A-10 accompanying this release and under "Financial News" on the company's website at http://www.drpeppersnapple.com in the "Investors" section.

For additional information about Dr Pepper Snapple Group, please reference the "DPS Overview" presentation slideshow under "Events and Presentations" on the company's website at http://www.drpeppersnapple.com in the "Investors" section.

About Dr Pepper Snapple Group
Dr Pepper Snapple Group (NYSE: DPS) is a leading producer of flavored beverages in North America and the Caribbean. Our success is fueled by more than 50 brands that are synonymous with refreshment, fun and flavor. We have six of the top 10 non-cola soft drinks, and 13 of our 14 leading brands are No. 1 or No. 2 in their flavor categories. In addition to our flagship Dr Pepper and Snapple brands, our portfolio includes 7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian Punch, Mott's, Mr & Mrs T mixers, Peñafiel, Rose's, Schweppes, Squirt and Sunkist soda. To learn more about our iconic brands and Plano, Texas-based company, please visit www.DrPepperSnapple.com. For our latest news and updates, follow us at www.Facebook.com/DrPepperSnapple or www.Twitter.com/DrPepperSnapple.

Contacts:

Media Relations

 

Chris Barnes, (972) 673-5539

   
 

Investor Relations

 

Heather Catelotti, (972) 673-5869

 

DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Three and Nine Months Ended September 30, 2016 and 2015

(Unaudited, in millions, except per share data)

 
 

For the

 

For the

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2016

 

2015

 

2016

 

2015

Net sales

$

1,680

   

$

1,630

   

$

4,862

   

$

4,736

 

Cost of sales

683

   

673

   

1,955

   

1,949

 

Gross profit

997

   

957

   

2,907

   

2,787

 

Selling, general and administrative expenses

603

   

592

   

1,739

   

1,730

 

Depreciation and amortization

24

   

26

   

74

   

79

 

Other operating (income) expense, net

(3)

   

2

   

(4)

   

2

 

Income from operations

373

   

337

   

1,098

   

976

 

Interest expense

33

   

28

   

99

   

83

 

Interest income

(1)

   

   

(2)

   

(1)

 

Other (income) expense, net

(2)

   

1

   

(25)

   

1

 

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries

343

   

308

   

1,026

   

893

 

Provision for income taxes

102

   

106

   

343

   

314

 

Income before equity in earnings of unconsolidated subsidiaries

241

   

202

   

683

   

579

 

Equity in earnings of unconsolidated subsidiaries, net of tax

(1)

   

   

(1)

   

 

Net income

$

240

   

$

202

   

$

682

   

$

579

 

Earnings per common share:

             

Basic

$

1.30

   

$

1.06

   

$

3.66

   

$

3.02

 

Diluted

1.29

   

1.05

   

3.64

   

3.00

 

Weighted average common shares outstanding:

             

Basic

184.8

   

190.4

   

186.1

   

191.6

 

Diluted

185.7

   

191.5

   

187.1

   

192.8

 
                       

A-1

 

DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, 2016 and December 31, 2015

(Unaudited, in millions, except share and per share data)

 
 

September 30,

 

December 31,

 

2016

 

2015

Assets

Current assets:

     

Cash and cash equivalents

$

620

   

$

911

 

Accounts receivable:

     

Trade, net

581

   

570

 

Other

59

   

58

 

Inventories

226

   

209

 

Prepaid expenses and other current assets

116

   

69

 

Total current assets

1,602

   

1,817

 

Property, plant and equipment, net

1,124

   

1,156

 

Investments in unconsolidated subsidiaries

24

   

31

 

Goodwill

2,994

   

2,988

 

Other intangible assets, net

2,657

   

2,663

 

Other non-current assets

210

   

150

 

Non-current deferred tax assets

62

   

64

 

Total assets

$

8,673

   

$

8,869

 

Liabilities and Stockholders' Equity

Current liabilities:

     

Accounts payable

$

311

   

$

277

 

Deferred revenue

64

   

64

 

Short-term borrowings and current portion of long-term obligations

368

   

507

 

Income taxes payable

52

   

27

 

Other current liabilities

688

   

708

 

Total current liabilities

1,483

   

1,583

 

Long-term obligations

2,956

   

2,875

 

Non-current deferred tax liabilities

781

   

787

 

Non-current deferred revenue

1,134

   

1,181

 

Other non-current liabilities

190

   

260

 

Total liabilities

6,544

   

6,686

 

Commitments and contingencies

     

Stockholders' equity:

     

Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued

   

 

Common stock, $0.01 par value, 800,000,000 shares authorized, 183,789,060 and 187,841,509 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively

2

   

2

 

Additional paid-in capital

94

   

211

 

Retained earnings

2,246

   

2,165

 

Accumulated other comprehensive loss

(213)

   

(195)

 

Total stockholders' equity

2,129

   

2,183

 

Total liabilities and stockholders' equity

$

8,673

   

$

8,869

 
 

A-2

 

DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2016 and 2015

(Unaudited, in millions)

 
 

For the

 

Nine Months Ended

 

September 30,

(in millions)

2016

 

2015

Operating activities:

     

Net income

$

682

   

$

579

 

Adjustments to reconcile net income to net cash provided by operating activities:

     

Depreciation expense

142

   

143

 

Amortization expense

24

   

25

 

Amortization of deferred revenue

(48)

   

(48)

 

Employee stock-based compensation expense

33

   

33

 

Deferred income taxes

   

27

 

Gain on step acquisition of unconsolidated subsidiaries

(5)

   

 

Gain on extinguishment of multi-employer plan withdrawal liability

(21)

   

 

Unrealized (gain)/loss on derivatives

(41)

   

5

 

Other, net

(17)

   

(12)

 

Changes in assets and liabilities, net of effects of acquisition:

     

Trade accounts receivable

(14)

   

(25)

 

Other accounts receivable

(5)

   

3

 

Inventories

(19)

   

(2)

 

Other current and non-current assets

(61)

   

(33)

 

Other current and non-current liabilities

(48)

   

(35)

 

Trade accounts payable

35

   

25

 

Income taxes payable

46

   

38

 

Net cash provided by operating activities

683

   

723

 

Investing activities:

     

Acquisition of business

(15)

   

 

Cash acquired in step acquisition of unconsolidated subsidiaries

17

   

 

Purchase of property, plant and equipment

(110)

   

(71)

 

Purchase of intangible assets

(1)

   

(1)

 

Investment in unconsolidated subsidiaries

(6)

   

(20)

 

Purchase of cost method investment

(1)

   

(15)

 

Proceeds from disposals of property, plant and equipment

4

   

12

 

Other, net

(7)

   

 

Net cash used in investing activities

(119)

   

(95)

 

Financing activities:

     

Proceeds from issuance of senior unsecured notes

400

   

 

Repayment of senior unsecured notes

(500)

   

 

Repurchase of shares of common stock

(460)

   

(404)

 

Dividends paid

(288)

   

(264)

 

Tax withholdings related to net share settlements of certain stock awards

(31)

   

(27)

 

Proceeds from stock options exercised

14

   

28

 

Excess tax benefit on stock-based compensation

22

   

22

 

Deferred financing charges paid

(3)

   

 

Capital lease payments

(6)

   

(3)

 

Other, net

(2)

   

 

Net cash used in financing activities

(854)

   

(648)

 

Cash and cash equivalents — net change from:

     

Operating, investing and financing activities

(290)

   

(20)

 

Effect of exchange rate changes on cash and cash equivalents

(1)

   

(10)

 

Cash and cash equivalents at beginning of period

911

   

237

 

Cash and cash equivalents at end of period

$

620

   

$

207

 
 

A-3

 

DR PEPPER SNAPPLE GROUP, INC.

OPERATIONS BY OPERATING SEGMENT

For the Three and Nine Months Ended September 30, 2016 and 2015

 (Unaudited, in millions)

 
 

For the Three Months Ended
September 30,

 

For the Nine Months Ended
September 30,

 

2016

 

2015

 

2016

 

2015

Segment Results – Net sales

             

Beverage Concentrates

$

323

   

$

308

   

$

952

   

$

923

 

Packaged Beverages

1,236

   

1,193

   

3,558

   

3,434

 

Latin America Beverages

121

   

129

   

352

   

379

 

Net sales

$

1,680

   

$

1,630

   

$

4,862

   

$

4,736

 
       
 

For the Three Months Ended
September 30,

 

For the Nine Months Ended
September 30,

 

2016

 

2015

 

2016

 

2015

Segment Results – SOP

             

Beverage Concentrates

$

205

   

$

204

   

$

622

   

$

609

 

Packaged Beverages

208

   

194

   

592

   

525

 

Latin America Beverages

21

   

24

   

60

   

68

 

Total SOP

434

   

422

   

1,274

   

1,202

 

Unallocated corporate costs

64

   

83

   

180

   

224

 

Other operating (income) expense, net

(3)

   

2

   

(4)

   

2

 

Income from operations

373

   

337

   

1,098

   

976

 

Interest expense, net

32

   

28

   

97

   

82

 

Other (income) expense, net

(2)

   

1

   

(25)

   

1

 

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries

$

343

   

$

308

   

$

1,026

   

$

893

 
 

A-4

 

DR PEPPER SNAPPLE GROUP, INC.
RECONCILIATION OF GAAP AND NON-GAAP INFORMATION
(Unaudited)

The company reports its financial results in accordance with U.S. GAAP. However, management believes that certain non-GAAP measures that reflect the way management evaluates the business may provide investors with additional information regarding the company's results, trends and ongoing performance on a comparable basis. Specifically, investors should consider the following with respect to our quarterly results:

Net sales and Segment Operating Profit, as adjusted to currency neutral: Net sales and Segment Operating Profit are calculated on a currency neutral basis by converting our current-period local currency financial results using the prior-period foreign currency exchange rates.

Free Cash Flow: Free cash flow is defined as net cash provided by operating activities adjusted for capital spending and certain items excluded for comparison to prior year periods. For the nine months ended September 30, 2016 and 2015, there were no certain items excluded for comparison to prior year periods.

Core earnings: Core earnings is defined as net income adjusted for the unrealized mark-to-market impact of commodity derivatives and certain items that are excluded for comparison to prior year periods. The certain items excluded for the three and nine months ended September 30, 2016, are (i) a gain on the extinguishment of a multi-employer withdrawal liability and (ii) an income tax benefit driven by a restructuring of the ownership of our Canadian business. The certain item excluded for the three and nine months ended September 30, 2015, is an adjustment to a previously disclosed litigation provision.

The tables on the following pages provide these reconciliations.

A-5

 
 
 

RECONCILIATION OF NET SALES AND SOP

AS REPORTED TO AS ADJUSTED TO CURRENCY NEUTRAL

(Unaudited)

 
   

For the Three Months Ended September 30, 2016

   

Beverage

 

Packaged

 

Latin

America

   

Percent change

 

Concentrates

 

Beverages

 

Beverages

 

Total

Reported net sales

 

5

%

 

4

%

 

(6)

%

 

3

%

Impact of foreign currency

 

%

 

%

 

11

%

 

1

%

Net sales, as adjusted to currency neutral

 

5

%

 

4

%

 

5

%

 

4

%

 
   

For the Three Months Ended September 30, 2016

   

Beverage

 

Packaged

 

Latin

America

   

Percent change

 

Concentrates

 

Beverages

 

Beverages

 

Total

Reported SOP

 

%

 

7

%

 

(13)

%

 

3

%

Impact of foreign currency

 

%

 

%

 

9

%

 

%

SOP, as adjusted to currency neutral

 

%

 

7

%

 

(4)

%

 

3

%

 
   

For the Nine Months Ended September 30, 2016

   

Beverage

 

Packaged

 

Latin

America

   

Percent change

 

Concentrates

 

Beverages

 

Beverages

 

Total

Reported net sales

 

3

%

 

4

%

 

(7)

%

 

3

%

Impact of foreign currency

 

%

 

%

 

14

%

 

1

%

Net sales, as adjusted to currency neutral

 

3

%

 

4

%

 

7

%

 

4

%

 
   

For the Nine Months Ended September 30, 2016

   

Beverage

 

Packaged

 

Latin

America

   

Percent change

 

Concentrates

 

Beverages

 

Beverages

 

Total

Reported SOP

 

2

%

 

13

%

 

(12)

%

 

6

%

Impact of foreign currency

 

%

 

%

 

12

%

 

1

%

SOP, as adjusted to currency neutral

 

2

%

 

13

%

 

%

 

7

%

 

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW

(Unaudited, in millions)

 
   

For the

   
   

Nine Months Ended

   
   

September 30,

   
   

2016

 

2015

 

Change

Net cash provided by operating activities

 

$

683

   

$

723

   

$

(40)

 

Purchase of property, plant and equipment

 

(110)

   

(71)

     

Free Cash Flow

 

$

573

   

$

652

   

$

(79)

 
 

A-6

 

RECONCILIATION OF NET INCOME TO CORE EARNINGS

(Unaudited, in millions, except per share data)

 
 

For the Three Months Ended September 30, 2016

 

Reported

 

Mark to
Market

 

Legal Entity
Restructuring

 

Total
Adjustments

 

Core

 

Impact of
foreign
currency
translation

 

Currency
Neutral Core

Net sales

$

1,680

   

$

   

$

   

$

   

$

1,680

   

$

15

   

$

1,695

 

Cost of sales

683

   

5

   

   

5

   

688

   

8

   

696

 

Gross profit

997

   

(5)

   

   

(5)

   

992

   

7

   

999

 

Selling, general and administrative expenses

603

   

4

   

   

4

   

607

   

6

   

613

 

Depreciation and amortization

24

   

   

   

   

24

   

1

   

25

 

Other operating (income) expense, net

(3)

   

   

   

   

(3)

   

   

(3)

 

Income from operations

373

   

(9)

   

   

(9)

   

364

   

   

364

 

Interest expense

33

   

   

   

   

33

   

   

33

 

Interest income

(1)

   

   

   

   

(1)

   

   

(1)

 

Other (income) expense, net

(2)

   

   

   

   

(2)

   

(1)

   

(3)

 

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries

343

   

(9)

   

   

(9)

   

334

   

1

   

335

 

Provision for income taxes

102

   

(3)

   

17

   

14

   

116

   

   

116

 

Income before equity in earnings of unconsolidated subsidiaries

241

   

(6)

   

(17)

   

(23)

   

218

   

1

   

219

 

Equity in earnings of unconsolidated subsidiaries, net of tax

(1)

   

   

   

   

(1)

   

   

(1)

 

Net income

$

240

   

$

(6)

   

$

(17)

   

$

(23)

   

$

217

   

$

1

   

$

218

 
                           

Diluted earnings per common share

$

1.29

   

$

(0.03)

   

$

(0.09)

   

$

(0.12)

   

$

1.17

   

$

0.01

   

$

1.18

 

Effective tax rate

29.7

%

             

34.7

%

       

Operating margin

22.2

%

             

21.7

%

       
                               

A-7

 

RECONCILIATION OF NET INCOME TO CORE EARNINGS - (Continued)

(Unaudited, in millions, except per share data)

 
 

For the Three Months Ended September 30, 2015

 

Reported

 

Mark to
Market

 

Litigation
Provision

 

Total
Adjustments

 

Core

Net sales

$

1,630

   

$

   

$

   

$

   

$

1,630

 

Cost of sales

673

   

(7)

   

   

(7)

   

666

 

Gross profit

957

   

7

   

   

7

   

964

 

Selling, general and administrative expenses

592

   

(2)

   

(1)

   

(3)

   

589

 

Depreciation and amortization

26

   

   

   

   

26

 

Other operating (income) expense, net

2

   

   

   

   

2

 

Income from operations

337

   

9

   

1

   

10

   

347

 

Interest expense

28

   

   

   

   

28

 

Interest income

   

   

   

   

 

Other (income) expense, net

1

   

   

   

   

1

 

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries

308

   

9

   

1

   

10

   

318

 

Provision for income taxes

106

   

4

   

1

   

5

   

111

 

Income before equity in earnings of unconsolidated subsidiaries

202

   

5

   

   

5

   

207

 

Equity in earnings of unconsolidated subsidiaries, net of tax

   

   

   

   

 

Net income

$

202

   

$

5

   

$

   

$

5

   

$

207

 
                   

Diluted earnings per common share

$

1.05

   

$

0.03

   

$

   

$

0.03

   

$

1.08

 

Effective tax rate

34.4

%

             

34.9

%

Operating margin

20.7

%

             

21.3

%

                       

A-8

 

RECONCILIATION OF NET INCOME TO CORE EARNINGS - (Continued)

(Unaudited, in millions, except per share data)

 
 

For the Nine Months Ended September 30, 2016

 

Reported

 

Mark to
Market

 

Extinguishment
Gain

 

Legal Entity
Restructuring

 

Total
Adjustments

 

Core

 

Impact of
foreign
currency
translation

 

Currency
Neutral Core

Net sales

$

4,862

   

$

   

$

   

$

   

$

   

$

4,862

   

$

62

   

$

4,924

 

Cost of sales

1,955

   

21

   

   

   

21

   

1,976

   

30

   

2,006

 

Gross profit

2,907

   

(21)

   

   

   

(21)

   

2,886

   

32

   

2,918

 

Selling, general and administrative expenses

1,739

   

20

   

   

   

20

   

1,759

   

22

   

1,781

 

Depreciation and amortization

74

   

   

   

   

   

74

   

1

   

75

 

Other operating (income) expense, net

(4)

   

   

   

   

   

(4)

   

   

(4)

 

Income from operations

1,098

   

(41)

   

   

   

(41)

   

1,057

   

9

   

1,066

 

Interest expense

99

   

   

   

   

   

99

   

   

99

 

Interest income

(2)

   

   

   

   

   

(2)

   

   

(2)

 

Other (income) expense, net

(25)

   

   

21

   

   

21

   

(4)

   

   

(4)

 

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries

1,026

   

(41)

   

(21)

   

   

(62)

   

964

   

9

   

973

 

Provision for income taxes

343

   

(15)

   

(9)

   

17

   

(7)

   

336

   

2

   

338

 

Income before equity in earnings of unconsolidated subsidiaries

683

   

(26)

   

(12)

   

(17)

   

(55)

   

628

   

7

   

635

 

Equity in earnings of unconsolidated subsidiaries, net of tax

(1)

   

   

   

   

   

(1)

   

   

(1)

 

Net income

$

682

   

$

(26)

   

$

(12)

   

$

(17)

   

$

(55)

   

$

627

   

$

7

   

$

634

 
                               

Diluted earnings per common share

$

3.64

   

$

(0.13)

   

$

(0.07)

   

$

(0.09)

   

$

(0.29)

   

$

3.35

   

$

0.04

   

$

3.39

 

Effective tax rate

33.4

%

                 

34.9

%

       

Operating margin

22.6

%

                 

21.7

%

       
                                   

A-9

 

RECONCILIATION OF NET INCOME TO CORE EARNINGS - (Continued)

(Unaudited, in millions, except per share data)

 
 

For the Nine Months Ended September 30, 2015

 

Reported

 

Mark to
Market

 

Litigation
Provision

 

Total
Adjustments

 

Core

Net sales

$

4,736

   

$

   

$

   

$

   

$

4,736

 

Cost of sales

1,949

   

(11)

   

   

(11)

   

1,938

 

Gross profit

2,787

   

11

   

   

11

   

2,798

 

Selling, general and administrative expenses

1,730

   

6

   

(2)

   

4

   

1,734

 

Depreciation and amortization

79

   

   

   

   

79

 

Other operating (income) expense, net

2

   

   

   

   

2

 

Income from operations

976

   

5

   

2

   

7

   

983

 

Interest expense

83

   

   

   

   

83

 

Interest income

(1)

   

   

   

   

(1)

 

Other (income) expense, net

1

   

   

   

   

1

 

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries

893

   

5

   

2

   

7

   

900

 

Provision for income taxes

314

   

2

   

1

   

3

   

317

 

Income before equity in earnings of unconsolidated subsidiaries

579

   

3

   

1

   

4

   

583

 

Equity in earnings of unconsolidated subsidiaries, net of tax

   

   

   

   

 

Net income

$

579

   

$

3

   

$

1

   

$

4

   

583

 
                   

Diluted earnings per common share

$

3.00

   

$

0.01

   

$

0.01

   

$

0.02

   

$

3.02

 

Effective tax rate

35.2

%

             

35.2

%

Operating margin

20.6

%

             

20.8

%

                       

A-10

 

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SOURCE Dr Pepper Snapple Group, Inc.

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