Dr Pepper Snapple Group Reports Fourth Quarter And Full Year 2016 Results
Company reports EPS of $0.90 for the quarter, including an $0.11 per diluted share loss on the early extinguishment of debt.
Core EPS were $1.04 for the quarter, up 4%, including $0.04 per diluted share of negative foreign currency translation and transaction, combined.
Reported net sales increased 2% for the quarter and 3% for the year. Currency neutral net sales increased 3% for the quarter and 4% for the year.
Company returned over $900 million to shareholders in the form of share repurchases and dividends for the full year 2016.
Feb 14, 2017

PLANO, Texas, Feb. 14, 2017 /PRNewswire/ -- Dr Pepper Snapple Group, Inc. (NYSE: DPS) reported fourth quarter 2016 EPS of $0.90, which included an $0.11 per diluted share loss on the early extinguishment of certain debt. Reported EPS were $0.97 in the prior year period. Core EPS were $1.04, up 4%, compared to $1.00 in the prior year period. For the year, the company reported earnings of $4.54 per diluted share compared to $3.97 per diluted share in the prior year. Core EPS were $4.39, up 9%, compared to $4.02 in the prior year.

DPS President and CEO Larry Young said, "I'm proud of our teams and the strong performance they delivered in 2016. In a continuously competitive environment, we remained focused on our integrated communication and execution strategies and unlocked growth across our priority brands. We recently completed our acquisition of Bai, which will strengthen our priority brand portfolio and bring exciting innovation opportunities to the company. We also remained relentlessly focused on driving growth and productivity across our business with Rapid Continuous Improvement."

For the quarter, reported net sales increased 2% on favorable product and package mix, a 1% increase in sales volumes and higher pricing. Net sales was partially offset by 1 percentage point of unfavorable foreign currency translation and unfavorable segment mix. Reported segment operating profit (SOP) increased 2% as net sales growth, lower logistics costs and ongoing productivity improvements were partially offset by increases in certain operating costs and an $8 million increase in planned marketing investments. Currency neutral segment operating profit was further reduced by 2 percentage points of foreign currency transaction.

Reported income from operations for the quarter was $335 million, which included $11 million in unrealized commodity mark-to-market gains and $3 million in expenses related to our acquisition of Bai. Reported income from operations was $322 million in the prior year period, which included a $7 million impairment charge on the Garden Cocktail brand. Currency neutral core income from operations for the quarter was $330 million compared to $329 million in the prior year. Currency neutral income from operations was further reduced by 3 percentage points of foreign currency transaction.

For the year, reported net sales increased by 3% to $6.44 billion. Foreign currency translation negatively impacted reported net sales by 1%. Reported income from operations was $1.43 billion, including $52 million in unrealized commodity mark-to-market gains and $3 million in acquisition expenses related to Bai. Reported income from operations in the prior year was $1.30 billion, which included a $7 million impairment charge and a $5 million unrealized commodity mark-to-market loss. Core income from operations was $1.38 billion, up 5%, representing 21.5% of net sales compared to 20.9% in the prior year. Currency neutral core income from operations was further reduced by 2 percentage points of foreign currency transaction.  

EPS reconciliation

Fourth Quarter

Full Year

2016

2015

Percent

Change

2016

2015

Percent

Change

Reported EPS

$0.90

$0.97

(7)

$4.54

$3.97

14

             

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

-

-

 

(0.13)

0.02

 
             

Items affecting comparability

           

- Extinguishment loss –Debt

0.11

-

 

0.11

-

 

- Bai acquisition costs

0.03

-

 

0.03

-

 

- Extinguishment gain – Multi-Employer

-

-

 

(0.07)

-

 

- Legal entity restructuring

-

-

 

(0.09)

-

 

- Brand impairment

-

0.03

 

-

0.02

 

- Litigation provision

-

-

 

-

0.01

 
 

------

------

------

-----

-----

------

Core EPS

$1.04

$1.00

4

$4.39

$4.02

9

 

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)

Fourth
Quarter

Full Year

Fourth
Quarter

Full Year

BCS Volume

-

1

-

1

Sales Volume

1

1

1

1

Net Sales

2

3

3

4

SOP

2

5

2

6

 

BCS - bottler case sales

 

BCS Volume
For the quarter, BCS volume was flat, with carbonated soft drinks (CSDs) increasing 1% and non-carbonated beverages (NCBs) decreasing 1%.

By geography, U.S. and Canada volume was flat, and Mexico and the Caribbean volume increased 5%.

In CSDs, Squirt grew 8% driven by strong performance in Mexico and the U.S. Schweppes grew 7% on distribution gains in sparkling waters and growth in the ginger ale category. Our Core 4 brands increased 3%, as a mid-single-digit increase in Canada Dry and a low-single-digit increase in 7UP were partially offset by a low-single-digit decrease in A&W. Sunkist was flat in the quarter. Peñafiel grew 1%, while Crush decreased 1%. Brand Dr Pepper decreased 1% in the quarter, primarily driven by timing in fountain foodservice performance. Fountain foodservice volume decreased 4% in the period.

In NCBs, Snapple decreased 3% and Hawaiian Punch declined 5% on category headwinds and higher pricing on single-serve packages. Mott's decreased 2% in the quarter as growth in sauce was more than offset by declines in juices. Our water category increased 8% on strong growth in Bai, Core Hydration and FIJI. Clamato increased 13% on distribution gains, increased promotional activity and product innovation. 

For the year, BCS volume increased 1% with both carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs) increasing 1%.

By geography, U.S. and Canada volume increased 1%, and Mexico and the Caribbean volume increased 5%.

In CSDs, Squirt increased 6% driven by strong performance in Mexico and the U.S. Schweppes increased 8% on distribution gains in sparkling waters and growth in the ginger ale category. Peñafiel increased 3% primarily due to distribution gains, increased promotional activity and product innovation. Brand Dr Pepper increased 1% on growth in fountain foodservice. Crush increased 3% for the year, and our Core 4 brands were flat, as a mid-single-digit increase in Canada Dry was offset by a mid-single-digit decline in 7UP and low-single-digit declines in both A&W and Sunkist. Fountain foodservice volume increased 2% for the year.

In NCBs, our water category grew 18% primarily on growth in Bai, FIJI, Aguafiel and Core Hydration. Snapple was flat and Clamato increased 10% on distribution gains, increased promotional activity and product innovation. Hawaiian Punch decreased 6% due to category headwinds and higher pricing for our single-serve packages. Mott's decreased 3% for the year with declines in juice partially offset by growth in sauce.

Sales Volume
Sales volumes increased 1% in the quarter and for the year.

2016 Segment results
(Percent Change)

Fourth Quarter

   

As Reported

Currency Neutral

(Translation)

Sales
Volume

Net Sales

 

SOP

Net Sales

 

SOP

Beverage Concentrates

1

4

7

4

7

Packaged Beverages

-

3

(3)

3

(3)

Latin America Beverages

5

(8)

(10)

6

-

Total

1

2

2

3

2

 

2016 Segment results
(Percent Change)

Full Year

   

As Reported

Currency Neutral

(Translation)

Sales
Volume

Net Sales

 

SOP

Net Sales

 

SOP

Beverage Concentrates

1

3

3

4

4

Packaged Beverages

-

3

9

3

9

Latin America Beverages

5

(7)

(11)

7

-

Total

1

3

5

4

6

 

Beverage Concentrates
Net sales increased 4% in the quarter driven by concentrate price increases taken earlier in the year, favorable product mix, lower discounts and a 1% increase in concentrate shipments. SOP increased 7%, as the increase in net sales was partially offset by a $1 million increase in planned marketing investments.

Packaged Beverages
Net sales increased 3% for the quarter on favorable product and package mix and price increases. SOP decreased 3% as net sales growth, favorable logistics costs and ongoing productivity improvements were more than offset by increases in certain operating expenses, including $4 million of health and welfare and insurance costs and additional frontline labor costs focused on driving better execution. SOP was further reduced by an $8 million increase in planned marketing investments, which reduced SOP by 4 percentage points.

Latin America Beverages
Net sales increased 6% in the quarter driven by a 5% increase in sales volumes, favorable product and package mix and higher net pricing. SOP was flat, as the segment incurred $8 million of higher U.S. dollar denominated input costs which caused a 40% decline in SOP. The aforementioned foreign currency transaction cost taken together with increases in certain other operating expenses collectively offset net sales growth and ongoing productivity improvements.

Corporate and Other Items
For the quarter, corporate costs totaled $73 million, which included $11 million in unrealized commodity mark-to-market gains, $3 million in acquisition costs related to Bai and an increase in American Beverage Association expenses due to timing. Corporate costs in the prior year period were $75 million.

Other expense decreased $4 million in the quarter on the favorable comparison of a prior year impairment charge of $7 million on the Garden Cocktail brand.

Net interest expense increased $14 million in the quarter driven by $12 million of mark-to-market activity related to certain interest rate swaps and amortization expense associated with a bridge facility related to our acquisition of Bai.

For the quarter, the reported effective tax rate was 35.4%. The effective tax rate in the prior year period was 36.4%.

Cash Flow
For the year, the company generated $939 million of cash from operating activities compared to $991 million in the prior year. Capital spending totaled $180 million compared to $179 million in the prior year period. The company returned $905 million to shareholders in the form of stock repurchases ($519 million) and dividends ($386 million).

2017 Full Year Guidance includes the following items:

  • Organic volume growth of approximately 1%; total volume growth of close to 2%, inclusive of the Bai acquisition, which closed on January 31, 2017.                   
  • Net sales growth of about 4.5%, including over 1 percentage point of negative foreign currency translation impact and also includes the Bai acquisition, which is expected to add approximately 3 percentage points to growth.
  • Expected net sales and operating profit associated with the Bai acquisition are now expected to be better than previously communicated in November of 2016, however non-cash purchase price accounting adjustments are expected make the acquisition $0.10 dilutive to Core EPS for the year.
  • Collectively, foreign currency translation and transaction are expected to reduce Core EPS by $0.11, primarily driven by the Mexican peso, which we believe may deteriorate an additional 14% from the 2016 year-ended level. 
  • Recent events affecting Mexico have created an uncertain economic and consumer environment leading us to reduce our 2017 Core EPS expectation by $0.04.   
  • Excluding the Bai acquisition, packaging and ingredient costs are expected to be inflationary by approximately 0.5% on a constant volume/mix basis.
  • The company expects its core tax rate to be approximately 34.5%, inclusive of a favorable accounting change associated with stock compensation expense that is expected to increase Core EPS by about $0.07.
  • The company expects strong free cash flow, capable of funding both a 9.4% dividend increase and repurchases of its common stock of $450 million to $500 million
  • The company expects capital spending to be approximately 3 percent of net sales.
  • Taking the above items into consideration, the company expects 2017 Core EPS in the $4.44 to $4.54 range.

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 fourth quarter comprising October, November and December.

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.

Organic volume: Represents sales volume excluding the incremental sales volume associated with the Bai acquisition.

Bai acquisition: Represents the incremental third party Bai business and the additional mark-up that we purchased on January 31, 2017.

Pricing refers to the impact of list price changes.

Unrealized mark-to-market: We recognize the change in the fair value of open commodity and interest rate derivative positions not designated as hedges in accordance with U.S. GAAP. As the underlying commodity is delivered, the realized gains and losses associated with commodity derivatives are subsequently reflected in the segment results.

EPS represents diluted earnings per share.

Core financial measures 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. (CST) today, the company will host a conference call with investors to discuss fourth quarter and full year results and the outlook for 2017. 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 seven of the top 10 non-cola soft drinks, and nine of our 10 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, Bai, Canada Dry, Clamato, Crush, Hawaiian Punch, IBC, 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.

CONSOLIDATED STATEMENTS OF INCOME

For the Three and Twelve Months Ended December 31, 2016 and 2015

(Unaudited, in millions, except per share data)

 
 

For the

 

For the

 

Three Months Ended

 

Year Ended

 

December 31,

 

December 31,

 

2016

 

2015

 

2016

 

2015

Net sales

$

1,578

   

$

1,546

   

$

6,440

   

$

6,282

 

Cost of sales

627

   

610

   

2,582

   

2,559

 

Gross profit

951

   

936

   

3,858

   

3,723

 

Selling, general and administrative expenses

590

   

583

   

2,329

   

2,313

 

Depreciation and amortization

25

   

26

   

99

   

105

 

Other operating (income) expense, net

1

   

5

   

(3)

   

7

 

Income from operations

335

   

322

   

1,433

   

1,298

 

Interest expense

48

   

34

   

147

   

117

 

Interest income

(1)

   

(1)

   

(3)

   

(2)

 

Loss on early extinguishment of debt

31

   

   

31

   

 

Other income, net

   

(2)

   

(25)

   

(1)

 

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

257

   

291

   

1,283

   

1,184

 

Provision for income taxes

91

   

106

   

434

   

420

 

Income before equity in (loss) earnings of unconsolidated subsidiaries

166

   

185

   

849

   

764

 

Equity in (loss) earnings of unconsolidated subsidiaries, net of tax

(1)

   

   

(2)

   

 

Net income

$

165

   

$

185

   

$

847

   

$

764

 

Earnings per common share:

             

Basic

$

0.90

   

$

0.98

   

$

4.57

   

$

4.00

 

Diluted

0.90

   

0.97

   

4.54

   

3.97

 

Weighted average common shares outstanding:

             

Basic

183.6

   

188.7

   

185.4

   

190.9

 

Diluted

184.7

   

190.2

   

186.6

   

192.4

 
                       

A-1

 

DR PEPPER SNAPPLE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31, 2016 and 2015

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

 
 

December 31,

 

December 31,

(in millions, except share and per share data)

2016

 

2015

   

Assets

Current assets:

     

Cash and cash equivalents

$

1,787

   

$

911

 

Accounts receivable:

     

Trade, net

595

   

570

 

Other

51

   

58

 

Inventories

202

   

209

 

Prepaid expenses and other current assets

101

   

69

 

Total current assets

2,736

   

1,817

 

Property, plant and equipment, net

1,138

   

1,156

 

Investments in unconsolidated subsidiaries

23

   

31

 

Goodwill

2,993

   

2,988

 

Other intangible assets, net

2,656

   

2,663

 

Other non-current assets

183

   

150

 

Non-current deferred tax assets

62

   

64

 

Total assets

$

9,791

   

$

8,869

 

Liabilities and Stockholders' Equity

Current liabilities:

     

Accounts payable

$

303

   

$

277

 

Deferred revenue

64

   

64

 

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

10

   

507

 

Income taxes payable

4

   

27

 

Other current liabilities

670

   

708

 

Total current liabilities

1,051

   

1,583

 

Long-term obligations

4,468

   

2,875

 

Non-current deferred tax liabilities

812

   

787

 

Non-current deferred revenue

1,117

   

1,181

 

Other non-current liabilities

209

   

260

 

Total liabilities

7,657

   

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, 183,119,843 and
187,841,509 shares issued and outstanding for 2016 and 2015, respectively

2

   

2

 

Additional paid-in capital

95

   

211

 

Retained earnings

2,266

   

2,165

 

Accumulated other comprehensive loss

(229)

   

(195)

 

Total stockholders' equity

2,134

   

2,183

 

Total liabilities and stockholders' equity

$

9,791

   

$

8,869

 
 

A-2

 

DR PEPPER SNAPPLE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Twelve Months Ended December 31, 2016 and 2015

(Unaudited, in millions)

 
 

For the Twelve Months Ended December 31,

(in millions)

2016

 

2015

Operating activities:

     

Net income

$

847

   

$

764

 

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

     

Depreciation expense

191

   

192

 

Amortization expense

33

   

35

 

Amortization of deferred revenue

(64)

   

(64)

 

Impairment of intangible asset

   

7

 

Employee stock-based compensation expense

45

   

44

 

Deferred income taxes

29

   

29

 

Loss on early extinguishment of debt

31

   

 

Gain on step acquisition of unconsolidated subsidiaries

(5)

   

 

Gain on extinguishment of multi-employer plan withdrawal liability

(21)

   

 

Unrealized (gains) losses on economic hedges

(40)

   

5

 

Other, net

(9)

   

(15)

 

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

     

Trade accounts receivable

(31)

   

(26)

 

Other accounts receivable

3

   

1

 

Inventories

3

   

(11)

 

Other current and non-current assets

(50)

   

8

 

Other current and non-current liabilities

(53)

   

(11)

 

Trade accounts payable

32

   

(9)

 

Income taxes payable

(2)

   

42

 

Net cash provided by operating activities

939

   

991

 

Investing activities:

     

Acquisition of business

(15)

   

 

Cash acquired in step acquisition of unconsolidated subsidiaries

17

   

 

Purchase of property, plant and equipment

(180)

   

(179)

 

Purchase of intangible assets

(2)

   

(1)

 

Investment in unconsolidated subsidiaries

(6)

   

(20)

 

Purchase of cost method investments

(1)

   

(15)

 

Proceeds from disposals of property, plant and equipment

6

   

20

 

Other, net

(8)

   

1

 

Net cash used in investing activities

(189)

   

(194)

 

Financing activities:

     

Proceeds from issuance of senior unsecured notes

1,950

   

750

 

Repayment of senior unsecured notes

(891)

   

 

Net repayment of commercial paper

   

 

Repurchase of shares of common stock

(519)

   

(521)

 

Dividends paid

(386)

   

(355)

 

Tax withholdings related to net share settlements of certain stock awards

(31)

   

(27)

 

Proceeds from stock options exercised

14

   

30

 

Excess tax benefit on stock-based compensation

22

   

23

 

Deferred financing charges paid

(19)

   

(6)

 

Capital lease payments

(9)

   

(5)

 

Other, net

(1)

   

(3)

 

Net cash provided by (used in) financing activities

130

   

(114)

 

Cash and cash equivalents — net change from:

     

Operating, investing and financing activities

880

   

683

 

Effect of exchange rate changes on cash and cash equivalents

(4)

   

(9)

 

Cash and cash equivalents at beginning of year

911

   

237

 

Cash and cash equivalents at end of year

$

1,787

   

$

911

 
 

A-3

 

DR PEPPER SNAPPLE GROUP, INC.

OPERATIONS BY OPERATING SEGMENT

For the Three and Twelve Months Ended December 31, 2016 and 2015

 (Unaudited, in millions)

 
 

For the Three Months Ended
December 31,

 

For the Twelve Months Ended
December 31,

 

2016

 

2015

 

2016

 

2015

Segment Results – Net sales

             

Beverage Concentrates

$

332

   

$

318

   

$

1,284

   

$

1,241

 

Packaged Beverages

1,138

   

1,110

   

4,696

   

4,544

 

Latin America Beverages

108

   

118

   

460

   

497

 

Net sales

$

1,578

   

$

1,546

   

$

6,440

   

$

6,282

 
 
 

For the Three Months Ended
December 31,

 

For the Twelve Months Ended
December 31,

 

2016

 

2015

 

2016

 

2015

Segment Results – SOP

             

Beverage Concentrates

$

212

   

$

198

   

$

834

   

$

807

 

Packaged Beverages

179

   

184

   

771

   

709

 

Latin America Beverages

18

   

20

   

78

   

88

 

Total SOP

409

   

402

   

1,683

   

1,604

 

Unallocated corporate costs

73

   

75

   

253

   

299

 

Other operating (income) expense, net

1

   

5

   

(3)

   

7

 

Income from operations

335

   

322

   

1,433

   

1,298

 

Interest expense, net

47

   

33

   

144

   

115

 

Loss on early extinguishment of debt

31

   

   

31

   

 

Other income, net

   

(2)

   

(25)

   

(1)

 

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

$

257

   

$

291

   

$

1,283

   

$

1,184

 
 

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 twelve months ended December 31, 2016 and 2015, there were no such 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 interest rate derivatives not designated as hedges in accordance with U.S. GAAP and certain items that are excluded for comparison to prior year periods.

The certain items excluded for the three months ended December 31, 2016, are (i) the loss on early extinguishment of debt related to the redemption of a portion of our 2018 Notes and (ii) acquisition costs related to the Bai Brands Merger. The certain items excluded for the twelve months ended December 31, 2016, are (i) a gain on the extinguishment of a multi-employer withdrawal liability, (ii) an income tax benefit driven by a restructuring of the ownership of our Canadian business, (iii) the loss on early extinguishment of debt related to the redemption of a portion of our 2018 Notes and (iv) acquisition costs related to the Bai Brands Merger.

The certain item excluded for the three months ended December 31, 2015, is a non-cash brand impairment charge for Garden Cocktail. The certain items excluded for the twelve months ended December 31, 2015, are (i) a non-cash brand impairment charge for Garden Cocktail and (ii) an adjustment to a previously disclosed legal provision.

Currency Neutral Core: Core earnings are calculated on a currency neutral basis by converting our current-period local currency financial results using the prior-period foreign currency exchange rates.

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 December 31, 2016

   

Beverage

 

Packaged

 

Latin

America

   

Percent change

 

Concentrates

 

Beverages

 

Beverages

 

Total

Reported net sales

 

4

%

 

3

%

 

(8)

%

 

2

%

Impact of foreign currency

 

%

 

%

 

14

%

 

1

%

Net sales, as adjusted to currency neutral

 

4

%

 

3

%

 

6

%

 

3

%

     
   

For the Three Months Ended December 31, 2016

   

Beverage

 

Packaged

 

Latin

America

   

Percent change

 

Concentrates

 

Beverages

 

Beverages

 

Total

Reported SOP

 

7

%

 

(3)

%

 

(10)

%

 

2

%

Impact of foreign currency

 

%

 

%

 

10

%

 

%

SOP, as adjusted to currency neutral

 

7

%

 

(3)

%

 

%

 

2

%

     
   

For the Twelve Months Ended December 31, 2016

   

Beverage

 

Packaged

 

Latin

America

   

Percent change

 

Concentrates

 

Beverages

 

Beverages

 

Total

Reported net sales

 

3

%

 

3

%

 

(7)

%

 

3

%

Impact of foreign currency

 

1

%

 

%

 

14

%

 

1

%

Net sales, as adjusted to currency neutral

 

4

%

 

3

%

 

7

%

 

4

%

     
   

For the Twelve Months Ended December 31, 2016

   

Beverage

 

Packaged

 

Latin

America

   

Percent change

 

Concentrates

 

Beverages

 

Beverages

 

Total

Reported SOP

 

3

%

 

9

%

 

(11)

%

 

5

%

Impact of foreign currency

 

1

%

 

%

 

11

%

 

1

%

SOP, as adjusted to currency neutral

 

4

%

 

9

%

 

%

 

6

%

 

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

(Unaudited, in millions)

 
   

For the

   
   

Twelve Months Ended

   
   

December 31,

   
   

2016

 

2015

 

Change

Net cash provided by operating activities

 

$

939

   

$

991

   

$

(52)

 

Purchase of property, plant and equipment

 

(180)

   

(179)

     

Free Cash Flow

 

$

759

   

$

812

   

$

(53)

 
 

A-6

 

RECONCILIATION OF NET INCOME TO CORE EARNINGS

(Unaudited, in millions, except per share data)

 
 

For the Three Months Ended December 31, 2016

 

Reported

 

Mark to
Market

 

Extinguishment
Loss - Debt

 

BAI
Acquisition
Costs

 

Total
Adjustments

 

Core

 

FX
Translation

 

Currency Neutral
Core

Net sales

$

1,578

   

$

   

$

   

$

   

$

   

$

1,578

   

$

17

   

$

1,595

 

Cost of sales

627

   

   

   

   

   

627

   

8

   

635

 

Gross profit

951

   

   

   

   

   

951

   

9

   

960

 

Selling, general and administrative expenses

590

   

11

   

   

(3)

   

8

   

598

   

6

   

604

 

Depreciation and amortization

25

   

   

   

   

   

25

   

   

25

 

Other operating (income) expense, net

1

   

   

   

   

   

1

   

   

1

 

Income from operations

335

   

(11)

   

   

3

   

(8)

   

327

   

3

   

330

 

Interest expense

48

   

(12)

   

   

(5)

   

(17)

   

31

   

   

31

 

Interest income

(1)

   

   

   

   

   

(1)

   

   

(1)

 

Loss on early extinguishment of debt

31

   

   

(31)

   

   

(31)

   

   

   

 

Other income, net

   

   

   

   

   

   

1

   

1

 

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

257

   

1

   

31

   

8

   

40

   

297

   

2

   

299

 

Provision for income taxes

91

   

   

10

   

3

   

13

   

104

   

1

   

105

 

Income before equity in (loss) earnings of unconsolidated subsidiaries

166

   

1

   

21

   

5

   

27

   

193

   

1

   

194

 

Equity in (loss) earnings of unconsolidated subsidiaries, net of tax

(1)

   

   

   

   

   

(1)

   

   

(1)

 

Net income

165

   

1

   

21

   

5

   

27

   

192

   

1

   

193

 
                               

Diluted earnings per common share

$

0.90

   

$

   

$

0.11

   

$

0.03

   

$

0.14

   

$

1.04

   

$

0.01

   

$

1.05

 

Effective tax rate

35.4

%

                 

35.0

%

     

35.1

%

Operating margin

21.2

%

                 

20.7

%

     

20.7

%

 

A-7

 

RECONCILIATION OF NET INCOME TO CORE EARNINGS - (Continued)

(Unaudited, in millions, except per share data)

 
 

For the Three Months Ended December 31, 2015

 

Reported

 

Mark to
Market

 

Brand
Impairment

 

Total
Adjustments

 

Core

Net sales

$

1,546

   

$

   

$

   

$

   

$

1,546

 

Cost of sales

610

   

(2)

   

   

(2)

   

608

 

Gross profit

936

   

2

   

   

2

   

938

 

Selling, general and administrative expenses

583

   

2

   

   

2

   

585

 

Depreciation and amortization

26

   

   

   

   

26

 

Other operating (income) expense, net

5

   

   

(7)

   

(7)

   

(2)

 

Income from operations

322

   

   

7

   

7

   

329

 

Interest expense

34

   

   

   

   

34

 

Interest income

(1)

   

   

   

   

(1)

 

Other income, net

(2)

   

   

   

   

(2)

 

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

291

   

   

7

   

7

   

298

 

Provision for income taxes

106

   

   

2

   

2

   

108

 

Income before equity in (loss) earnings of unconsolidated subsidiaries

185

   

   

5

   

5

   

190

 

Equity in (loss) earnings of unconsolidated subsidiaries, net of tax

   

   

   

   

 

Net income

185

   

   

5

   

5

   

190

 
                   

Diluted earnings per common share

$

0.97

   

$

   

$

0.03

   

$

0.03

   

$

1.00

 

Effective tax rate

36.4

%

             

36.2

%

Operating margin

20.8

%

             

21.3

%

 

A-8

 

RECONCILIATION OF NET INCOME TO CORE EARNINGS - (Continued)

(Unaudited, in millions, except per share data)

 
 

For the Twelve Months Ended December 31, 2016

 

Reported

 

Mark to Market

 

Extinguishment Gain - Multi-Employer

 

Legal Entity Restructuring

 

Extinguishment Loss - Debt

 

BAI Acquisition Costs

 

Total Adjustments

 

Core

 

FX Translation

 

Currency Neutral Core

Net sales

$

6,440

   

$

   

$

   

$

   

$

   

$

   

$

   

$

6,440

   

$

79

   

$

6,519

 

Cost of sales

2,582

   

21

   

   

   

   

   

21

   

2,603

   

38

   

2,641

 

Gross profit

3,858

   

(21)

   

   

   

   

   

(21)

   

3,837

   

41

   

3,878

 

Selling, general and administrative expenses

2,329

   

31

   

   

   

   

(3)

   

28

   

2,357

   

28

   

2,385

 

Depreciation and amortization

99

   

   

   

   

   

   

   

99

   

1

   

100

 

Other operating (income) expense, net

(3)

   

   

   

   

   

   

   

(3)

   

   

(3)

 

Income from operations

1,433

   

(52)

   

   

   

   

3

   

(49)

   

1,384

   

12

   

1,396

 

Interest expense

147

   

(12)

   

   

   

   

(5)

   

(17)

   

130

   

   

130

 

Interest income

(3)

   

   

   

   

   

   

   

(3)

   

   

(3)

 

Loss on early extinguishment of debt

31

   

   

   

   

(31)

   

   

(31)

   

   

   

 

Other income, net

(25)

   

   

21

   

   

   

   

21

   

(4)

   

1

   

(3)

 

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

1,283

   

(40)

   

(21)

   

   

31

   

8

   

(22)

   

1,261

   

11

   

1,272

 

Provision for income taxes

434

   

(15)

   

(9)

   

17

   

10

   

3

   

6

   

440

   

3

   

443

 

Income before equity in (loss) earnings of unconsolidated subsidiaries

849

   

(25)

   

(12)

   

(17)

   

21

   

5

   

(28)

   

821

   

8

   

829

 

Equity in (loss) earnings of unconsolidated subsidiaries, net of tax

(2)

   

   

   

   

   

   

   

(2)

   

   

(2)

 

Net income

847

   

(25)

   

(12)

   

(17)

   

21

   

5

   

(28)

   

819

   

8

   

827

 
                                       

Diluted earnings per common share

$

4.54

   

$

(0.13)

   

$

(0.07)

   

$

(0.09)

   

$

0.11

   

$

0.03

   

(0.15)

   

$

4.39

   

$

0.04

   

$

4.43

 

Effective tax rate

33.8

%

                         

34.9

%

     

34.8

%

Operating margin

22.3

%

                         

21.5

%

     

21.4

%

 

A-9

 

RECONCILIATION OF NET INCOME TO CORE EARNINGS - (Continued)

(Unaudited, in millions, except per share data)

 
 

For the Twelve Months Ended December 31, 2015

 

Reported

 

Mark to Market

 

Litigation Provision

 

Brand Impairment

 

Total Adjustments

 

Core

Net sales

$

6,282

   

$

   

$

   

$

   

$

   

$

6,282

 

Cost of sales

2,559

   

(13)

   

   

   

(13)

   

2,546

 

Gross profit

3,723

   

13

   

   

   

13

   

3,736

 

Selling, general and administrative expenses

2,313

   

8

   

(2)

   

   

6

   

2,319

 

Depreciation and amortization

105

   

   

   

   

   

105

 

Other operating (income) expense, net

7

   

   

   

(7)

   

(7)

   

 

Income from operations

1,298

   

5

   

2

   

7

   

14

   

1,312

 

Interest expense

117

   

   

   

   

   

117

 

Interest income

(2)

   

   

   

   

   

(2)

 

Other income, net

(1)

   

   

   

   

   

(1)

 

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

1,184

   

5

   

2

   

7

   

14

   

1,198

 

Provision for income taxes

420

   

2

   

1

   

2

   

5

   

425

 

Income before equity in (loss) earnings of unconsolidated subsidiaries

764

   

3

   

1

   

5

   

9

   

773

 

Equity in (loss) earnings of unconsolidated subsidiaries, net of tax

   

   

   

   

   

 

Net income

$

764

   

$

3

   

$

1

   

$

5

   

$

9

   

$

773

 
                       

Diluted earnings per common share

$

3.97

   

$

0.02

   

$

0.01

   

$

0.02

   

$

0.05

   

$

4.02

 

Effective tax rate

35.5

%

                 

35.5

%

Operating margin

20.7

%

                 

20.9

%

 

A-10

 

 

 

SOURCE Dr Pepper Snapple Group, Inc.

562 KB
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