PLANO, Texas, Oct. 25, 2017 /PRNewswire/ -- Dr Pepper
Snapple Group, Inc. (NYSE: DPS) reported third quarter 2017 EPS of
$1.11, which included a $0.04 per diluted share loss on early
extinguishment of debt, an estimated $0.02 loss on the recent hurricanes and
earthquakes in the U.S. and Mexico
and a $0.02 loss on a write-off of
prepaid resin inventory. Reported EPS were $1.29 in the prior year period. Core EPS were
$1.10 in the quarter, inclusive of
the aforementioned losses totaling $0.04, compared to $1.17 in the prior year period. Year-to-date, net
sales increased by 4%, and the company reported earnings of
$3.09 per diluted share, including a
$0.23 loss on debt extinguishment
compared to $3.64 per diluted share
in the prior year period. Core EPS were $3.36 compared to $3.35 in the prior year period.
DPS President and CEO Larry Young
said, "We continue to make progress in the execution of our
priority brand strategy, including our brand building platform and
channel strategies for Bai, even though we had markets that were
significantly disrupted by hurricanes and earthquakes in the U.S.
and Mexico. Our CSD portfolio
continued to perform well in the quarter, growing both dollar and
volume share in the category, and our allied portfolio continues to
drive strong growth across the business."
For the quarter, sales volumes increased 1%, inclusive of the
Bai acquisition. Reported net sales increased 4%, including the Bai
acquisition, which accounted for over 1 percentage point of net
sales growth. Total Bai brand sales growth contributed over 2
percentage points of net sales growth. Organic net sales growth was
driven by favorable product and package mix, an increase in organic
sales volumes, favorable foreign currency translation and price
increases. These increases were partially offset by unfavorable
segment mix, the termination of the Rockstar distribution rights
and higher discounts, primarily as a result of an unfavorable
comparison of a true-up of our customer incentive liability.
Reported gross profit margin increased 10 basis points primarily
on a favorable $3 million comparison
of unrealized mark-to-market activity. Core gross profit margin
decreased 10 basis points to 58.9% as the impact of a $6 million prepaid resin inventory write-off, an
unfavorable change of $5 million in
our LIFO inventory provision driven primarily by apples, net
unfavorable mix and increases in manufacturing costs were partially
offset by $33 million of incremental
gross profit from the Bai acquisition.
Selling, general and administrative expenses (SG&A)
increased $37 million in the quarter.
The acquisition of Bai added $38
million, including $20 million
in marketing investments. SG&A also increased as a result of
inflationary increases in certain operating expenses and continued
planned investment behind our DSD front-line sales, delivery and
merchandising workforce, which were partially offset by a favorable
$6 million comparison of unrealized
commodity mark-to-market activity in the quarter.
Other operating income decreased $3
million in the quarter due primarily to the prior year
non-cash gain on the step acquisition of our joint venture Aguafiel
business in Mexico.
Reported income from operations declined by $6 million, or 2%, in the quarter. The
acquisition of Bai reduced reported income from operations by
$6 million. Core income from
operations of $350 million in the
quarter compared to $364 million in
the prior year period.
The recent hurricanes and earthquakes in the U.S. and
Mexico are estimated to have
decreased volume and net sales by about 0.5% and core income from
operations by about 2% in the quarter. The resulting decrease in
Core EPS was $0.02 per diluted share
in the quarter.
EPS
reconciliation
|
Third
Quarter
|
Year-to-Date
|
2017
|
2016
|
Percent
Change
|
2017
|
2016
|
Percent
Change
|
|
|
|
|
|
|
|
Reported
EPS
|
$1.11
|
$1.29
|
(14)
|
$3.09
|
$3.64
|
(15)
|
|
|
|
|
|
|
|
Unrealized commodity
mark-to-market net gain
|
(0.06)
|
(0.03)
|
|
(0.04)
|
(0.13)
|
|
|
|
|
|
|
|
|
Bai transaction and
integration expenses
|
0.01
|
-
|
|
0.08
|
-
|
|
|
|
|
|
|
|
|
Loss on early
extinguishment of debt
|
0.04
|
-
|
|
0.23
|
-
|
|
|
|
|
|
|
|
|
Legal entity
restructuring
|
-
|
(0.09)
|
|
-
|
(0.09)
|
|
|
|
|
|
|
|
|
Extinguishment
gain
|
-
|
-
|
|
-
|
(0.07)
|
|
|
-------
|
------
|
------
|
------
|
------
|
------
|
Core EPS
|
$1.10
|
$1.17
|
(6)
|
$3.36
|
$3.35
|
-
|
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 2017
results (Percent
change)
|
As
Reported
|
Currency
Neutral
(Translation)
|
Third
Quarter
|
YTD
|
Third
Quarter
|
YTD
|
BCS Volume
|
-
|
1
|
-
|
1
|
Sales
Volume
|
1
|
2
|
1
|
2
|
Net Sales
|
4
|
4
|
3
|
4
|
SOP
|
(3)
|
(5)
|
(4)
|
(5)
|
BCS Volume
For the quarter, BCS volume was flat, with
carbonated soft drinks (CSDs) decreasing 1% and non-carbonated
beverages (NCBs) increasing 6%. By geography, U.S. and Canada volume was flat, and Mexico and the Caribbean volume increased 2%. Our volume
performance in the quarter was negatively impacted by about 0.5% as
a result of the recent natural disasters.
In CSDs, Dr Pepper decreased 2% with declines in both regular
and diet due primarily to timing of orders for a large customer in
fountain foodservice. 7UP decreased 8% driven by reduced retail
activity compared to the prior year. Schweppes decreased 1% as
declines in sparkling water were partially offset by continued
growth in ginger ale. A&W decreased 1%, and other CSDs declined
3% primarily due to the loss of Rockstar distribution rights.
Canada Dry grew by 2% on continued growth in the ginger ale
category. Peñafiel increased 5% on distribution gains and product
and package innovation, and Squirt grew 1%. Fountain foodservice
volume declined 3%.
In NCBs, Bai increased 108% on the acquisition and continued
growth in our existing distribution. Our growth allied brands, now
excluding Bai, grew 40% on strong distribution gains in BODYARMOR,
FIJI and Core, as well as
BODYARMOR innovation. Clamato grew 7%, and Mott's increased 5%
primarily on growth in sauce. Snapple declined 5%, and all other
NCBs declined 1%.
Sales Volume
Sales volumes increased 1% in the quarter
and 2% year-to-date.
2017 Segment
results
(Percent Change)
|
Third
Quarter
|
|
|
As
Reported
|
Currency
Neutral
(Translation)
|
Sales
Volume
|
Net
Sales
|
SOP
|
Net
Sales
|
SOP
|
Beverage
Concentrates
|
1
|
3
|
6
|
3
|
6
|
Packaged
Beverages
|
-
|
3
|
(9)
|
3
|
(9)
|
Latin America
Beverages
|
2
|
10
|
(43)
|
5
|
(43)
|
Total
|
1
|
4
|
(3)
|
3
|
(4)
|
2017 Segment
results
(Percent Change)
|
Year-to-Date
|
|
|
As
Reported
|
Currency
Neutral
(Translation)
|
Sales
Volume
|
Net
Sales
|
SOP
|
Net
Sales
|
SOP
|
Beverage
Concentrates
|
2
|
3
|
3
|
3
|
3
|
Packaged
Beverages
|
1
|
4
|
(11)
|
4
|
(11)
|
Latin America
Beverages
|
4
|
5
|
(22)
|
7
|
(20)
|
Total
|
2
|
4
|
(5)
|
4
|
(5)
|
Beverage Concentrates
Net sales increased 3% in the
quarter on concentrate price increases taken earlier in the year, a
1% increase in concentrate shipments and lower discounts. SOP
increased 6% on net sales growth.
Packaged Beverages
Net sales increased 3% in the
quarter on favorable product and package mix, mostly due to growth
in our NCBs, including continued growth in our allied brands and
growth from the Bai acquisition. This increase was partially offset
by the loss of Rockstar distribution rights and higher discounts,
primarily as a result of an unfavorable comparison of a true-up of
our customer incentive liability. SOP decreased 9% as results of
the acquired Bai business, excluding the distribution profits
within our distribution system, were a loss of $5 million, including $20
million of marketing investments.
Additionally, inflationary increases in other operating
expenses, as well as planned increases in operating costs behind
our DSD front-line workforce and an unfavorable change of
$5 million in our LIFO inventory
provision driven primarily by apples were incurred in the
quarter.
Latin America Beverages
Net sales increased 5% in the
quarter on a 2% increase in sales volumes and higher pricing. SOP
decreased 43% in the quarter primarily due to a $6 million write-off of prepaid resin inventory,
representing a 29% decline in SOP, resulting from the contractual
default by a supplier of resin to our operations in Mexico and unfavorable foreign currency
transaction effects. In the quarter, the segment incurred
$4 million of higher U.S. dollar
denominated input costs, which caused a 19% decline in SOP.
Corporate and Other Items
For the quarter, corporate
costs totaled $52 million, which
included $18 million in unrealized
commodity mark-to-market gains. Corporate costs in the prior year
period were $64 million, which
included $9 million in unrealized
commodity mark-to-market gains.
Net interest expense increased $7
million in the quarter primarily driven by a higher debt
balance associated with the Bai acquisition.
The company recognized a $13
million loss on the early extinguishment of debt in the
quarter.
For the quarter, the reported effective tax rate was 36.0%. The
effective tax rate in the prior year period was 29.7%, which
included a $17 million tax benefit
associated with a legal entity restructuring.
Cash Flow
Year-to-date, the company generated
$732 million of cash from operating
activities compared to $705 million
in the prior year period. Capital spending totaled $85 million compared to $110 million in the prior year period. The
company returned $629 million to
shareholders in the form of stock repurchases ($320 million) and dividends ($309 million).
2017 Full Year Guidance includes the following items:
- Organic volume growth is now expected to be over 1%; total
volume growth is still expected to be approximately 2%, inclusive
of the Bai acquisition, which closed on January 31, 2017.
- Net sales growth is still expected to be about 4.5%, including
the Bai acquisition, which is now expected to add over 1 percentage
point to growth.
- The impact of the Bai acquisition is now expected to be
$0.11 dilutive to Core EPS.
- The recent hurricanes and earthquakes in the U.S. and
Mexico are expected to reduce Core
EPS by $0.02.
- Foreign currency transaction is expected to reduce Core EPS by
$0.02, primarily driven by the
Mexican peso.
- Excluding the Bai acquisition, we expect packaging and
ingredient costs to be inflationary by about 0.8% on a constant
volume/mix basis, including the impact from higher resin prices in
the fourth quarter.
- The company continues to expect its full year core tax rate to
be approximately 34%.
- The company continues to expect to repurchase shares of its
common stock of $450 million to $500
million.
- The company continues to expect capital spending to be
approximately 3% of net sales.
- Taking the above items into consideration, the company now
expects 2017 Core EPS in the $4.50 to
$4.57 range.
Non-GAAP Financial Measures
This Press Release may
contain certain forward-looking non-GAAP financial measures, as
defined in Regulation G, relating to forward-looking results. We
have not provided a reconciliation of the forward-looking non-GAAP
financial measures included therein to the closest equivalent GAAP
financial measure because, due primarily to variability and
difficulty in making accurate forecasts and projection, not all of
the information necessary to forecast and quantify the exact amount
of the items excluded from the non-GAAP financial measures that
will be included in the closest equivalent GAAP financial measure
was or is available to us without unreasonable efforts.
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.
Organic: Represents the incremental impact to our results from
our pre-existing business prior to the acquisition of Bai.
Bai acquisition, the Bai acquisition or acquisition of Bai:
Refers to our acquisition of the Bai Brands business by DPS, which
was consummated on January 31, 2017,
and the operation of Bai subsequent to the acquisition. In
part because we were an investor in Bai Brands and were their
largest distributor, there were many financial aspects of the
acquisition, which impacted our financial statements and our
accounting for the transaction as explained in this Press
Release.
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 and interest rate 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.
Loss on the recent hurricanes and earthquakes in the U.S. and
Mexico were estimated primarily
utilizing prior performance adjusted for current year growth and
average rates per case.
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, 2016, 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
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.
DR PEPPER SNAPPLE
GROUP, INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
For the Three and
Nine Months Ended September 30, 2017 and 2016
|
(Unaudited, in
millions, except per share data)
|
|
|
For
the
|
|
For
the
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September
30,
|
|
September
30,
|
(in millions,
except per share data)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net
sales
|
$
|
1,740
|
|
|
$
|
1,680
|
|
|
$
|
5,047
|
|
|
$
|
4,862
|
|
Cost of
sales
|
707
|
|
|
683
|
|
|
2,032
|
|
|
1,955
|
|
Gross
profit
|
1,033
|
|
|
997
|
|
|
3,015
|
|
|
2,907
|
|
Selling, general and
administrative expenses
|
640
|
|
|
603
|
|
|
1,944
|
|
|
1,739
|
|
Depreciation and
amortization
|
26
|
|
|
24
|
|
|
76
|
|
|
74
|
|
Other operating
income, net
|
—
|
|
|
(3)
|
|
|
(30)
|
|
|
(4)
|
|
Income from
operations
|
367
|
|
|
373
|
|
|
1,025
|
|
|
1,098
|
|
Interest
expense
|
40
|
|
|
33
|
|
|
124
|
|
|
99
|
|
Interest
income
|
(1)
|
|
|
(1)
|
|
|
(3)
|
|
|
(2)
|
|
Loss on early
extinguishment of debt
|
13
|
|
|
—
|
|
|
62
|
|
|
—
|
|
Other income,
net
|
(2)
|
|
|
(2)
|
|
|
(6)
|
|
|
(25)
|
|
Income before
provision for income taxes and equity in earnings of unconsolidated
subsidiaries
|
317
|
|
|
343
|
|
|
848
|
|
|
1,026
|
|
Provision for income
taxes
|
114
|
|
|
102
|
|
|
279
|
|
|
343
|
|
Income before equity
in earnings of unconsolidated subsidiaries
|
203
|
|
|
241
|
|
|
569
|
|
|
683
|
|
Equity in loss of
unconsolidated subsidiaries, net of tax
|
—
|
|
|
(1)
|
|
|
(1)
|
|
|
(1)
|
|
Net
income
|
$
|
203
|
|
|
$
|
240
|
|
|
$
|
568
|
|
|
$
|
682
|
|
Earnings per
common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
1.12
|
|
|
$
|
1.30
|
|
|
$
|
3.11
|
|
|
$
|
3.66
|
|
Diluted
|
1.11
|
|
|
1.29
|
|
|
3.09
|
|
|
3.64
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
181.4
|
|
|
184.8
|
|
|
182.7
|
|
|
186.1
|
|
Diluted
|
182.1
|
|
|
185.7
|
|
|
183.5
|
|
|
187.1
|
|
Cash dividends
declared per common share
|
$
|
0.58
|
|
|
$
|
0.53
|
|
|
$
|
1.74
|
|
|
$
|
1.59
|
|
A - 1
DR PEPPER SNAPPLE
GROUP, INC.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
As of September
30, 2017 and December 31, 2016
|
(Unaudited, in
millions, except share and per share data)
|
|
|
September
30,
|
|
December
31,
|
(in millions,
except share and per share data)
|
2017
|
|
2016
|
Assets
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
66
|
|
|
$
|
1,787
|
|
Restricted cash and
restricted cash equivalents
|
89
|
|
|
—
|
|
Accounts
receivable:
|
|
|
|
Trade, net
|
659
|
|
|
595
|
|
Other
|
47
|
|
|
51
|
|
Inventories
|
261
|
|
|
202
|
|
Prepaid expenses and
other current assets
|
144
|
|
|
101
|
|
Total current
assets
|
1,266
|
|
|
2,736
|
|
Property, plant and
equipment, net
|
1,129
|
|
|
1,138
|
|
Investments in
unconsolidated subsidiaries
|
24
|
|
|
23
|
|
Goodwill
|
3,559
|
|
|
2,993
|
|
Other intangible
assets, net
|
3,786
|
|
|
2,656
|
|
Other non-current
assets
|
215
|
|
|
183
|
|
Deferred tax
assets
|
60
|
|
|
62
|
|
Total
assets
|
$
|
10,039
|
|
|
$
|
9,791
|
|
Liabilities and
Stockholders' Equity
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
387
|
|
|
$
|
303
|
|
Deferred
revenue
|
64
|
|
|
64
|
|
Short-term borrowings
and current portion of long-term obligations
|
82
|
|
|
10
|
|
Income taxes
payable
|
10
|
|
|
4
|
|
Other current
liabilities
|
816
|
|
|
670
|
|
Total current
liabilities
|
1,359
|
|
|
1,051
|
|
Long-term
obligations
|
4,399
|
|
|
4,468
|
|
Deferred tax
liabilities
|
877
|
|
|
812
|
|
Non-current deferred
revenue
|
1,071
|
|
|
1,117
|
|
Other non-current
liabilities
|
204
|
|
|
209
|
|
Total
liabilities
|
7,910
|
|
|
7,657
|
|
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, 180,640,432 and
183,119,843 shares issued and outstanding as of September 30, 2017
and December 31, 2016, respectively
|
2
|
|
|
2
|
|
Additional paid-in
capital
|
—
|
|
|
95
|
|
Retained
earnings
|
2,311
|
|
|
2,266
|
|
Accumulated other
comprehensive loss
|
(184)
|
|
|
(229)
|
|
Total stockholders'
equity
|
2,129
|
|
|
2,134
|
|
Total liabilities and
stockholders' equity
|
$
|
10,039
|
|
|
$
|
9,791
|
|
A - 2
DR PEPPER SNAPPLE
GROUP, INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
For the Nine
Months Ended September 30, 2017 and 2016
|
(Unaudited, in
millions)
|
|
|
For
the
|
|
Nine Months
Ended
|
|
September
30,
|
(in
millions)
|
2017
|
|
2016
|
Operating
activities:
|
|
|
|
Net income
|
$
|
568
|
|
|
$
|
682
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation
expense
|
147
|
|
|
142
|
|
Amortization
expense
|
25
|
|
|
24
|
|
Amortization of
deferred revenue
|
(48)
|
|
|
(48)
|
|
Employee stock-based
compensation expense
|
26
|
|
|
33
|
|
Deferred income
taxes
|
65
|
|
|
—
|
|
Loss on early
extinguishment of debt
|
62
|
|
|
—
|
|
Gain on step
acquisition of unconsolidated subsidiaries
|
(28)
|
|
|
(5)
|
|
Gain on
extinguishment of multi-employer plan withdrawal
liability
|
—
|
|
|
(21)
|
|
Unrealized gains on
economic hedges
|
(10)
|
|
|
(41)
|
|
Other, net
|
14
|
|
|
5
|
|
Changes in assets and
liabilities, net of effects of acquisition:
|
|
|
|
Trade accounts
receivable
|
(34)
|
|
|
(14)
|
|
Other accounts
receivable
|
5
|
|
|
(5)
|
|
Inventories
|
(29)
|
|
|
(19)
|
|
Other current and
non-current assets
|
(78)
|
|
|
(61)
|
|
Other current and
non-current liabilities
|
—
|
|
|
(48)
|
|
Trade accounts
payable
|
41
|
|
|
35
|
|
Income taxes
payable
|
6
|
|
|
46
|
|
Net cash provided by
operating activities
|
732
|
|
|
705
|
|
Investing
activities:
|
|
|
|
Acquisition of
business
|
(1,553)
|
|
|
(15)
|
|
Cash acquired in step
acquisition of unconsolidated subsidiaries
|
3
|
|
|
17
|
|
Purchase of property,
plant and equipment
|
(85)
|
|
|
(110)
|
|
Purchase of
intangible assets
|
(5)
|
|
|
(1)
|
|
Investment in
unconsolidated subsidiaries
|
(3)
|
|
|
(6)
|
|
Purchase of cost
method investment
|
—
|
|
|
(1)
|
|
Proceeds from
disposals of property, plant and equipment
|
3
|
|
|
4
|
|
Other, net
|
(3)
|
|
|
(7)
|
|
Net cash used in
investing activities
|
(1,643)
|
|
|
(119)
|
|
Financing
activities:
|
|
|
|
Proceeds from
issuance of senior unsecured notes
|
400
|
|
|
400
|
|
Repayment of senior
unsecured notes
|
(562)
|
|
|
(500)
|
|
Net issuance of
commercial paper
|
70
|
|
|
—
|
|
Repurchase of shares
of common stock
|
(320)
|
|
|
(460)
|
|
Dividends
paid
|
(309)
|
|
|
(288)
|
|
Tax withholdings
related to net share settlements of certain stock awards
|
(30)
|
|
|
(31)
|
|
Proceeds from stock
options exercised
|
20
|
|
|
14
|
|
Premium (discount) on
issuance of senior unsecured notes
|
16
|
|
|
(1)
|
|
Proceeds from
termination of interest rate swap
|
13
|
|
|
—
|
|
Deferred financing
charges paid
|
(5)
|
|
|
(3)
|
|
Capital lease
payments
|
(8)
|
|
|
(6)
|
|
Other, net
|
(2)
|
|
|
(1)
|
|
Net cash used in
financing activities
|
(717)
|
|
|
(876)
|
|
Cash, cash
equivalents, restricted cash and restricted cash equivalents — net
change from:
|
|
|
|
Operating, investing
and financing activities
|
(1,628)
|
|
|
(290)
|
|
Effect of exchange
rate changes on cash, cash equivalents, restricted cash and
restricted cash equivalents
|
6
|
|
|
(1)
|
|
Cash, cash
equivalents, restricted cash and restricted cash equivalents at
beginning of period
|
1,787
|
|
|
911
|
|
Cash, cash
equivalents, restricted cash and restricted cash equivalents at end
of period
|
$
|
165
|
|
|
$
|
620
|
|
A - 3
DR PEPPER SNAPPLE
GROUP, INC.
|
OPERATIONS BY
OPERATING SEGMENT
|
For the Three and
Nine Months Ended September 30, 2017 and 2016
|
(Unaudited,
in millions)
|
|
|
For the Three
Months Ended
September 30,
|
|
For the Nine
Months Ended
September 30,
|
(in
millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Segment Results –
Net sales
|
|
|
|
|
|
|
|
Beverage
Concentrates
|
$
|
334
|
|
|
$
|
323
|
|
|
$
|
984
|
|
|
$
|
952
|
|
Packaged
Beverages
|
1,273
|
|
|
1,236
|
|
|
3,693
|
|
|
3,558
|
|
Latin America
Beverages
|
133
|
|
|
121
|
|
|
370
|
|
|
352
|
|
Net
sales
|
$
|
1,740
|
|
|
$
|
1,680
|
|
|
$
|
5,047
|
|
|
$
|
4,862
|
|
|
|
For the Three
Months Ended
September 30,
|
|
For the Nine
Months Ended
September 30,
|
(in
millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Segment Results –
SOP
|
|
|
|
|
|
|
|
Beverage
Concentrates
|
$
|
218
|
|
|
$
|
205
|
|
|
$
|
641
|
|
|
$
|
622
|
|
Packaged
Beverages
|
189
|
|
|
208
|
|
|
526
|
|
|
592
|
|
Latin America
Beverages
|
12
|
|
|
21
|
|
|
47
|
|
|
60
|
|
Total SOP
|
419
|
|
|
434
|
|
|
1,214
|
|
|
1,274
|
|
Unallocated corporate
costs
|
52
|
|
|
64
|
|
|
219
|
|
|
180
|
|
Other operating
income, net
|
—
|
|
|
(3)
|
|
|
(30)
|
|
|
(4)
|
|
Income from
operations
|
367
|
|
|
373
|
|
|
1,025
|
|
|
1,098
|
|
Interest expense,
net
|
39
|
|
|
32
|
|
|
121
|
|
|
97
|
|
Loss on early
extinguishment of debt
|
13
|
|
|
—
|
|
|
62
|
|
|
—
|
|
Other income,
net
|
(2)
|
|
|
(2)
|
|
|
(6)
|
|
|
(25)
|
|
Income before
provision for income taxes and equity in earnings of unconsolidated
subsidiaries
|
$
|
317
|
|
|
$
|
343
|
|
|
$
|
848
|
|
|
$
|
1,026
|
|
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, 2017 and 2016, 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 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, adjusted for the tax impact.
Tax impact is determined based upon an approximate rate for each
item. For the three and nine months ended September 30, 2017,
we excluded (i) the impact of transaction and integration expenses
associated with the Bai Brands Merger and (ii) the loss on early
extinguishment of debt related to the completion of a tender offer
for our 2018 Notes and 2038 Notes and the redemption of our
remaining 2018 Notes. For the three and nine months ended
September 30, 2016, we excluded (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 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, 2017
|
|
|
Beverage
|
|
Packaged
|
|
Latin America
|
|
|
Percent
change
|
|
Concentrates
|
|
Beverages
|
|
Beverages
|
|
Total
|
Reported net
sales
|
|
3
|
%
|
|
3
|
%
|
|
10
|
%
|
|
4
|
%
|
Impact of foreign
currency
|
|
—
|
%
|
|
—
|
%
|
|
(5)
|
%
|
|
(1)
|
%
|
Net sales, as
adjusted to currency neutral
|
|
3
|
%
|
|
3
|
%
|
|
5
|
%
|
|
3
|
%
|
|
|
|
For the Three
Months Ended September 30, 2017
|
|
|
Beverage
|
|
Packaged
|
|
Latin
America
|
|
|
Percent
change
|
|
Concentrates
|
|
Beverages
|
|
Beverages
|
|
Total
|
Reported
SOP
|
|
6
|
%
|
|
(9)
|
%
|
|
(43)
|
%
|
|
(3)
|
%
|
Impact of foreign
currency
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
(1)
|
%
|
SOP, as adjusted
to currency neutral
|
|
6
|
%
|
|
(9)
|
%
|
|
(43)
|
%
|
|
(4)
|
%
|
|
|
|
For the Nine
Months Ended September 30, 2017
|
|
|
Beverage
|
|
Packaged
|
|
Latin
America
|
|
|
Percent
change
|
|
Concentrates
|
|
Beverages
|
|
Beverages
|
|
Total
|
Reported net
sales
|
|
3
|
%
|
|
4
|
%
|
|
5
|
%
|
|
4
|
%
|
Impact of foreign
currency
|
|
—
|
%
|
|
—
|
%
|
|
2
|
%
|
|
—
|
%
|
Net sales, as
adjusted to currency neutral
|
|
3
|
%
|
|
4
|
%
|
|
7
|
%
|
|
4
|
%
|
|
|
|
For the Nine
Months Ended September 30, 2017
|
|
|
Beverage
|
|
Packaged
|
|
Latin
America
|
|
|
Percent
change
|
|
Concentrates
|
|
Beverages
|
|
Beverages
|
|
Total
|
Reported
SOP
|
|
3
|
%
|
|
(11)
|
%
|
|
(22)
|
%
|
|
(5)
|
%
|
Impact of foreign
currency
|
|
—
|
%
|
|
—
|
%
|
|
2
|
%
|
|
—
|
%
|
SOP, as adjusted
to currency neutral
|
|
3
|
%
|
|
(11)
|
%
|
|
(20)
|
%
|
|
(5)
|
%
|
|
|
RECONCILIATION OF
NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH
FLOW
|
(Unaudited, in
millions)
|
|
|
|
For
the
|
|
|
|
|
Nine Months
Ended
|
|
|
|
|
September
30,
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
Net cash provided
by operating activities
|
|
$
|
732
|
|
|
$
|
705
|
|
|
$
|
27
|
|
Purchase of property,
plant and equipment
|
|
(85)
|
|
|
(110)
|
|
|
|
Free Cash
Flow
|
|
$
|
647
|
|
|
$
|
595
|
|
|
$
|
52
|
|
A - 6
RECONCILIATION OF
NET INCOME TO CORE EARNINGS
|
(Unaudited, in
millions, except per share data)
|
|
|
For the Three
Months Ended September 30, 2017
|
|
Reported
|
|
Mark to
Market
|
|
Transaction
&
Integration
Expenses
|
|
Loss on Early
Extinguishment
of Debt
|
|
Total
Adjustments
|
|
Core
|
Cost of
sales
|
$
|
707
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
715
|
|
Gross
profit
|
1,033
|
|
|
(8)
|
|
|
—
|
|
|
—
|
|
|
(8)
|
|
|
1,025
|
|
Gross
margin
|
59.4
|
%
|
|
(0.5)
|
%
|
|
—
|
%
|
|
—
|
%
|
|
(0.5)
|
%
|
|
58.9
|
%
|
Selling, general and
administrative expenses
|
$
|
640
|
|
|
$
|
10
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
649
|
|
Income from
operations
|
367
|
|
|
(18)
|
|
|
1
|
|
|
—
|
|
|
(17)
|
|
|
350
|
|
Operating
margin
|
21.1
|
%
|
|
(1.0)
|
%
|
|
—
|
%
|
|
—
|
%
|
|
(1.0)
|
%
|
|
20.1
|
%
|
Interest
expense
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
39
|
|
Loss on early
extinguishment of debt
|
13
|
|
|
—
|
|
|
—
|
|
|
(13)
|
|
|
(13)
|
|
|
—
|
|
Income before
provision for income taxes and equity in earnings of unconsolidated
subsidiaries
|
317
|
|
|
(18)
|
|
|
2
|
|
|
13
|
|
|
(3)
|
|
|
314
|
|
Provision for income
taxes
|
114
|
|
|
(6)
|
|
|
1
|
|
|
4
|
|
|
(1)
|
|
|
113
|
|
Effective tax
rate
|
36.0
|
%
|
|
0.2
|
%
|
|
—
|
%
|
|
(0.2)
|
%
|
|
—
|
%
|
|
36.0
|
%
|
Net income
|
$
|
203
|
|
|
$
|
(12)
|
|
|
$
|
1
|
|
|
$
|
9
|
|
|
$
|
(2)
|
|
|
$
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
EPS
|
|
|
|
|
|
|
|
|
|
Core
EPS
|
Diluted earnings per
common share
|
$
|
1.11
|
|
|
$
|
(0.06)
|
|
|
$
|
0.01
|
|
|
$
|
0.04
|
|
|
$
|
(0.01)
|
|
|
$
|
1.10
|
|
FX
Translation
|
(0.01)
|
|
Currency Neutral Core
EPS
|
$
|
1.09
|
|
A - 7
RECONCILIATION OF
NET INCOME TO CORE EARNINGS - (Continued)
|
(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
|
Cost of
sales
|
$
|
683
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
688
|
|
Gross
profit
|
997
|
|
|
(5)
|
|
|
—
|
|
|
(5)
|
|
|
992
|
|
Gross
margin
|
59.3
|
%
|
|
(0.3)
|
%
|
|
—
|
%
|
|
(0.3)
|
%
|
|
59.0
|
%
|
Selling, general and
administrative expenses
|
$
|
603
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
607
|
|
Income from
operations
|
373
|
|
|
(9)
|
|
|
—
|
|
|
(9)
|
|
|
364
|
|
Operating
margin
|
22.2
|
%
|
|
(0.5)
|
%
|
|
—
|
%
|
|
(0.5)
|
%
|
|
21.7
|
%
|
Income before
provision for income taxes and equity in earnings of unconsolidated
subsidiaries
|
$
|
343
|
|
|
$
|
(9)
|
|
|
$
|
—
|
|
|
$
|
(9)
|
|
|
$
|
334
|
|
Provision for income
taxes
|
102
|
|
|
(3)
|
|
|
17
|
|
|
14
|
|
|
116
|
|
Effective tax
rate
|
29.7
|
%
|
|
(0.1)
|
%
|
|
5.1
|
%
|
|
5.0
|
%
|
|
34.7
|
%
|
Net income
|
$
|
240
|
|
|
$
|
(6)
|
|
|
$
|
(17)
|
|
|
$
|
(23)
|
|
|
$
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
EPS
|
|
|
|
|
|
|
|
Core
EPS
|
Diluted earnings per
common share
|
$
|
1.29
|
|
|
$
|
(0.03)
|
|
|
$
|
(0.09)
|
|
|
$
|
(0.12)
|
|
|
$
|
1.17
|
|
A - 8
RECONCILIATION OF
NET INCOME TO CORE EARNINGS - (Continued)
|
(Unaudited, in
millions, except per share data)
|
|
|
For the Nine
Months Ended September 30, 2017
|
|
Reported
|
|
Mark to
Market
|
|
Transaction
&
Integration
Expenses
|
|
Loss on Early
Extinguishment
of Debt
|
|
Total
Adjustments
|
|
Core
|
Cost of
sales
|
$
|
2,032
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
2,052
|
|
Gross
profit
|
3,015
|
|
|
(20)
|
|
|
—
|
|
|
—
|
|
|
(20)
|
|
|
2,995
|
|
Gross
margin
|
59.7
|
%
|
|
(0.4)
|
%
|
|
—
|
%
|
|
—
|
%
|
|
(0.4)
|
%
|
|
59.3
|
%
|
Selling, general and
administrative expenses
|
$
|
1,944
|
|
|
$
|
(10)
|
|
|
$
|
(21)
|
|
|
$
|
—
|
|
|
$
|
(31)
|
|
|
$
|
1,913
|
|
Income from
operations
|
1,025
|
|
|
(10)
|
|
|
21
|
|
|
—
|
|
|
11
|
|
|
1,036
|
|
Operating
margin
|
20.3
|
%
|
|
(0.2)
|
%
|
|
0.4
|
%
|
|
—
|
%
|
|
0.2
|
%
|
|
20.5
|
%
|
Interest
expense
|
$
|
124
|
|
|
$
|
1
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
124
|
|
Loss on early
extinguishment of debt
|
62
|
|
|
—
|
|
|
—
|
|
|
(62)
|
|
|
(62)
|
|
|
—
|
|
Income before
provision for income taxes and equity in earnings of unconsolidated
subsidiaries
|
848
|
|
|
(11)
|
|
|
22
|
|
|
62
|
|
|
73
|
|
|
921
|
|
Provision for income
taxes
|
279
|
|
|
(4)
|
|
|
8
|
|
|
21
|
|
|
25
|
|
|
304
|
|
Effective tax
rate
|
32.9
|
%
|
|
—
|
%
|
|
—
|
%
|
|
0.1
|
%
|
|
0.1
|
%
|
|
33.0
|
%
|
Net income
|
$
|
568
|
|
|
$
|
(7)
|
|
|
$
|
14
|
|
|
$
|
41
|
|
|
$
|
48
|
|
|
$
|
616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
EPS
|
|
|
|
|
|
|
|
|
|
Core
EPS
|
Diluted earnings per
common share
|
$
|
3.09
|
|
|
$
|
(0.04)
|
|
|
$
|
0.08
|
|
|
$
|
0.23
|
|
|
$
|
0.27
|
|
|
$
|
3.36
|
|
FX
Translation
|
—
|
|
Currency Neutral Core
EPS
|
$
|
3.36
|
|
A - 9
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
|
Cost of
sales
|
$
|
1,955
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
1,976
|
|
Gross
profit
|
2,907
|
|
|
(21)
|
|
|
—
|
|
|
—
|
|
|
(21)
|
|
|
2,886
|
|
Gross
margin
|
59.8
|
%
|
|
(0.4)
|
%
|
|
—
|
%
|
|
—
|
%
|
|
(0.4)
|
%
|
|
59.4
|
%
|
Selling, general and
administrative expenses
|
$
|
1,739
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
1,759
|
|
Income from
operations
|
1,098
|
|
|
(41)
|
|
|
—
|
|
|
—
|
|
|
(41)
|
|
|
1,057
|
|
Operating
margin
|
22.6
|
%
|
|
(0.9)
|
%
|
|
—
|
%
|
|
—
|
%
|
|
(0.9)
|
%
|
|
21.7
|
%
|
Other income,
net
|
$
|
(25)
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
(4)
|
|
Income before
provision for income taxes and equity in earnings of unconsolidated
subsidiaries
|
1,026
|
|
|
(41)
|
|
|
(21)
|
|
|
—
|
|
|
(62)
|
|
|
964
|
|
Provision for income
taxes
|
343
|
|
|
(15)
|
|
|
(9)
|
|
|
17
|
|
|
(7)
|
|
|
336
|
|
Effective tax
rate
|
33.4
|
%
|
|
(0.1)
|
%
|
|
(0.1)
|
%
|
|
1.7
|
%
|
|
1.5
|
%
|
|
34.9
|
%
|
Net income
|
$
|
682
|
|
|
$
|
(26)
|
|
|
$
|
(12)
|
|
|
$
|
(17)
|
|
|
$
|
(55)
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
EPS
|
|
|
|
|
|
|
|
|
|
Core
EPS
|
Diluted earnings per
common share
|
$
|
3.64
|
|
|
$
|
(0.13)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.09)
|
|
|
$
|
(0.29)
|
|
|
$
|
3.35
|
|
A - 10
Contacts:
|
Media
Relations
|
|
Chris Barnes, (972)
673-5539
|
|
|
|
Investor
Relations
|
|
Heather Catelotti,
(972) 673-5869
|
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SOURCE Dr Pepper Snapple Group, Inc.