DR PEPPER SNAPPLE GROUP PLANO, Texas, July 27, 2016 /PRNewswire/ -- Dr Pepper Snapple Group, Inc. (NYSE: DPS) reported second quarter 2016 EPS of $1.39 compared to $1.14 in the prior year period. Core EPS were $1.25, up 11% compared to $1.13 in the prior year period. Year-to-date, the company reported earnings of $2.35 per diluted share compared to $1.95 per diluted share in the prior year period. Core EPS were $2.18, up 12% compared to $1.94 in the prior year period.
For the quarter, reported net sales increased 2% on favorable product and package mix, net price increases and a 1% increase in sales volumes, which were partially offset by unfavorable segment mix. Net sales growth was further reduced by 2 percentage points of unfavorable foreign currency translation. Reported segment operating profit (SOP) increased 5%, or $24 million, on net sales growth, lower commodity costs, ongoing productivity improvements and lower logistics costs, which were partially offset by increases in certain operating costs including a one-time charge of $4 million related to a transition of a certain employee benefit program. Unfavorable foreign currency translation further reduced SOP growth by 2 percentage points.
Reported income from operations for the quarter was $412 million, which included $25 million in unrealized commodity mark-to-market gains. Reported income from operations was $369 million in the prior year period, which included $5 million in unrealized commodity mark-to-market gains. Core income from operations for the quarter was $387 million, up 6%, and represented 22.8% of net sales compared to 22.1% in the prior year period.
Year-to-date, reported net sales increased 2%. Reported income from operations was $725 million, including $32 million in unrealized commodity mark-to-market gains. Foreign currency translation negatively impacted reported net sales by 2% and reported income from operations by 1%. Reported income from operations in the prior year period was $639 million, which included $4 million in unrealized commodity mark-to-market gains. Core income from operations was $693 million, up 9%, representing 21.8% of net sales compared to 20.5% in the prior year.
DPS President and CEO Larry Young said, "Our teams delivered another solid quarter of growth in what continues to be a competitive industry. We focused relentlessly on driving integrated communication and execution across our key priority brands."
Young continued, "Our partnerships with allied brands are driving meaningful growth, and Rapid Continuous Improvement (RCI) continues to provide tangible financial benefits to the business."
EPS reconciliation Second Quarter Year-to-Date
------------------ -------------- ------------
2016 2015 Percent 2016 2015 Percent
Change Change
--- ------ ------ ------
Reported EPS $1.39 $1.14 22 $2.35 $1.95 21
Unrealized commodity
mark-to-market net
gain (0.08) (0.01) (0.11) (0.01)
Items affecting
comparability
- Extinguishment gain (0.06) - (0.06) -
- Litigation provision - - - -
--- --- --- --- --- ---
Core EPS $1.25 $1.13 11 $2.18 $1.94 12
-------- ----- ----- --- ----- ----- ---
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 As Reported Currency Neutral
(Translation)
(Percent change)
---------------
Second YTD Second YTD
Quarter Quarter
------- -------
BCS Volume 1 1 1 1
---------- --- --- --- ---
Sales Volume 1 1 1 1
------------ --- --- --- ---
Net Sales 2 2 4 4
--------- --- --- --- ---
SOP 5 8 7 9
--- --- --- --- ---
BCS -bottler case
sales
BCS Volume
For the quarter, BCS volume increased 1%, with carbonated soft drinks (CSDs) increasing 1% and non-carbonated beverages (NCBs) increasing 2%.
By geography, U.S. and Canada volume was flat, and Mexico and the Caribbean volume increased 6%.
In CSDs, Squirt increased 8% in the quarter on strong growth in both the U.S. and Mexico, and Schweppes grew 9% on increased promotional activity at a large retailer. Peñafiel and Crush each grew 4%. Brand Dr Pepper decreased 1%, as growth in our fountain foodservice business was more than offset by declines in diet. Our Core 4 brands decreased 1%, as a mid-single-digit increase in Canada Dry was more than offset by a 10% decrease in 7UP and low-single-digit decreases in both A&W and Sunkist soda. Fountain foodservice volume increased 1% in the quarter.
In NCBs, our water category grew 25% on strong growth in Bai brands, Aguafiel and FIJI. Clamato increased 14% in the quarter on distribution gains and increased promotional activity, while Hawaiian Punch decreased 5% primarily on price increases on single-serve packages. Snapple decreased 2%, as growth from product innovation was more than offset by the effect a year ago of liquidating certain Snapple inventories. Mott's was flat in the quarter, as growth in sauce was fully offset by decreases in juice.
Sales Volume
Sales volumes increased 1% in the quarter and year-to-date.
2016 Segment results
(Percent Change) Second Quarter
-------------------- --------------
As Reported Currency Neutral
(Translation)
------------
Sales Net Sales Net Sales
Volume
SOP SOP
--- --- --- ---
Beverage Concentrates 1 4 4 4 4
--------------------- --- --- --- --- ---
Packaged Beverages (1) 3 10 3 11
------------------ --- --- --- --- ---
Latin America
Beverages 6 (7) (11) 10 -
------------- --- --- --- --- ---
Total 1 2 5 4 7
----- --- --- --- --- ---
2016 Segment results
(Percent Change) Year-to-Date
-------------------- ------------
As Reported Currency Neutral
(Translation)
------------
Sales Net Sales Net Sales
Volume
SOP SOP
--- --- --- ---
Beverage Concentrates 1 2 3 3 3
--------------------- --- --- --- --- ---
Packaged Beverages (1) 4 16 4 16
------------------ --- --- --- --- ---
Latin America
Beverages 6 (8) (11) 8 -
------------- --- --- --- --- ---
Total 1 2 8 4 9
----- --- --- --- --- ---
Beverage Concentrates
Net sales increased 4% in the quarter on concentrate price increases taken earlier in the year and a 1% increase in concentrate shipments. Lower discounts further increased net sales as favorable trade accrual adjustments were partially offset by increases related to our fountain foodservice business. SOP increased 4% driven by net sales growth, which was partially offset by increases in marketing investments and certain operating costs.
Packaged Beverages
Net sales increased 3% in the quarter on favorable product and package mix and price increases, which were partially offset by lower contract manufacturing volumes. SOP increased 11% on net sales growth, lower commodity and logistics costs and ongoing productivity improvements. These increases were partially offset by increases in certain operating costs, including a one-time charge of $4 million related to a transition of a certain employee benefit program.
Latin America Beverages
Net sales increased 10% in the quarter on a 6% increase in sales volumes, favorable product mix and higher net pricing. SOP was flat in the quarter, as the segment incurred $5 million of higher U.S. dollar denominated input costs which caused a 19% decline in SOP. The aforementioned foreign currency transaction cost taken together with increases in certain operating and logistics costs collectively offset net sales growth and ongoing productivity improvements.
Corporate and Other Items
For the quarter, corporate costs totaled $52 million, which included $25 million in unrealized commodity mark-to-market gains. Corporate costs in the prior year period were $70 million, which included $5 million in unrealized commodity mark-to-market gains.
Other income increased $23 million in the quarter as a result of a $21 million gain on the extinguishment of a multi-employer pension plan withdrawal liability.
Net interest expense increased $5 million in the quarter driven by higher debt balances and refinancing of certain debt in the prior year.
For the quarter, the reported effective tax rate was 35.3%. The effective tax rate in the prior year period was 35.5%.
Cash Flow
Year-to-date, the company generated $407 million of cash from operating activities net of the $35 million multi-employer pension plan settlement payment, compared to $349 million in the prior year period. Capital spending totaled $68 million compared to $42 million in the prior year period. The company returned $493 million to shareholders in the form of stock repurchases ($303 million) and dividends ($190 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 $4.27 to $4.35 range. Collectively, foreign currency translation and transaction are expected to continue to negatively impact net sales by approximately 1% and are now expected to negatively impact core EPS growth by approximately 3%.
Packaging and ingredient costs are now expected to decrease COGS by approximately 1% on a constant volume/mix basis.
The company continues to expect its core tax rate to be approximately 35.5%.
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 second quarter comprising April, May and June.
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 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 second 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 Six Months Ended June 30, 2016 and 2015
(Unaudited, in millions, except per share data)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
---- ---- ---- ----
Net sales $1,695 $1,655 $3,182 $3,106
Cost of sales 670 674 1,272 1,276
--- --- ----- -----
Gross profit 1,025 981 1,910 1,830
Selling, general and
administrative expenses 590 586 1,136 1,138
Depreciation and
amortization 24 26 50 53
Other operating income, net (1) - (1) -
--- --- --- ---
Income from operations 412 369 725 639
Interest expense 33 28 66 55
Interest income (1) (1) (1) (1)
Other (income) expense, net (22) 1 (23) -
--- --- --- ---
Income before provision for
income taxes and equity in
earnings of unconsolidated
subsidiaries 402 341 683 585
Provision for income taxes 142 121 241 208
--- --- --- ---
Income before equity in
earnings of unconsolidated
subsidiaries 260 220 442 377
Equity in earnings of
unconsolidated
subsidiaries, net of tax - - - -
--- --- --- ---
Net income $260 $220 $442 $377
==== ==== ==== ====
Earnings per common share:
Basic $1.40 $1.15 $2.37 $1.96
Diluted 1.39 1.14 2.35 1.95
Weighted average common shares outstanding:
Basic 185.7 191.4 186.7 192.2
Diluted 186.5 192.4 187.7 193.5
A-1
DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2016 and December 31, 2015
(Unaudited, in millions, except share and per share data)
June 30, December 31,
2016 2015
---- ----
Assets
Current assets:
Cash and cash
equivalents $245 $911
Accounts receivable:
Trade, net 642 570
Other 58 58
Inventories 236 209
Prepaid
expenses and
other current
assets 144 69
--- ---
Total current
assets 1,325 1,817
Property, plant
and equipment,
net 1,129 1,156
Investments in
unconsolidated
subsidiaries 35 31
Goodwill 2,986 2,988
Other
intangible
assets, net 2,658 2,663
Other non-
current assets 209 150
Non-current
deferred tax
assets 64 64
--- ---
Total assets $8,406 $8,869
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts
payable $359 $277
Deferred
revenue 64 64
Short-term
borrowings and
current
portion of
long-term
obligations 9 507
Income taxes
payable 50 27
Other current
liabilities 688 708
--- ---
Total current
liabilities 1,170 1,583
Long-term
obligations 2,921 2,875
Non-current
deferred tax
liabilities 811 787
Non-current
deferred
revenue 1,150 1,181
Other non-
current
liabilities 212 260
--- ---
Total
liabilities 6,264 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 outstanding
value, for 2016 and
800,000,000 2015,
shares respectively
authorized,
185,403,402
and
187,841,509
shares issued
and 2 2
Additional
paid-in
capital 94 211
Retained
earnings 2,248 2,165
Accumulated
other
comprehensive
loss (202) (195)
---- ----
Total
stockholders'
equity 2,142 2,183
----- -----
Total
liabilities
and
stockholders'
equity $8,406 $8,869
====== ======
A-2
DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2016 and 2015
(Unaudited, in millions)
For the
Six Months Ended
June 30,
--------
2016 2015
---- ----
Operating activities:
Net income $442 $377
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense 95 96
Amortization expense 16 16
Amortization of
deferred revenue (32) (32)
Employee stock-based
compensation expense 22 21
Deferred income taxes 30 19
Gain on
extinguishment of
multi-employer plan
withdrawal liability (21) -
Other, net (50) (21)
Changes in assets and liabilities,
net of effects of acquisition:
Trade accounts
receivable (74) (78)
Other accounts
receivable (5) (2)
Inventories (29) (16)
Other current and
non-current assets (80) (77)
Other current and
non-current
liabilities (33) (41)
Trade accounts
payable 81 18
Income taxes payable 45 69
--- ---
Net cash provided by
operating activities 407 349
Investing activities:
Purchase of property,
plant and equipment (68) (42)
Purchase of
intangible assets - (1)
Investment in
unconsolidated
subsidiaries (6) -
Purchase of cost
method investment (1) (15)
Proceeds from
disposals of
property, plant and
equipment 3 11
Other, net (7) -
Net cash used in
investing activities (79) (47)
Financing activities:
Repayment of senior
unsecured notes (500) -
Repurchase of shares
of common stock (303) (251)
Dividends paid (190) (172)
Tax withholdings
related to net share
settlements of
certain stock awards (31) (27)
Proceeds from stock
options exercised 12 22
Excess tax benefit on
stock-based
compensation 21 20
Capital lease
payments (4) (2)
Other, net - 1
Net cash used in
financing activities (995) (409)
Cash and cash equivalents -net
change from:
Operating, investing
and financing
activities (667) (107)
Effect of exchange
rate changes on cash
and cash equivalents 1 (3)
Cash and cash
equivalents at
beginning of period 911 237
--- ---
Cash and cash
equivalents at end
of period $245 $127
==== ====
A-3
DR PEPPER SNAPPLE GROUP, INC.
OPERATIONS BY OPERATING SEGMENT
For the Three and Six Months Ended June 30, 2016 and 2015
(Unaudited, in millions)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------- --------
2016 2015 2016 2015
---- ---- ---- ----
Segment Results - Net sales
Beverage Concentrates $342 $330 $629 $615
Packaged Beverages 1,225 1,188 2,322 2,241
Latin America Beverages 128 137 231 250
--- --- --- ---
Net sales $1,695 $1,655 $3,182 $3,106
====== ====== ====== ======
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------- --------
2016 2015 2016 2015
---- ---- ---- ----
Segment Results - SOP
Beverage Concentrates $230 $222 $417 $405
Packaged Beverages 209 190 384 331
Latin America Beverages 24 27 39 44
--- --- --- ---
Total SOP 463 439 840 780
Unallocated corporate costs 52 70 116 141
Other operating income, net (1) - (1) -
--- --- --- ---
Income from operations 412 369 725 639
Interest expense, net 32 27 65 54
Other (income) expense, net (22) 1 (23) -
--- --- --- ---
Income before provision for
income taxes and equity in
earnings of unconsolidated
subsidiaries $402 $341 $683 $585
==== ==== ==== ====
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 six months ended June 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 item excluded for the three and six months ended June 30, 2016 is a gain on the extinguishment of a multi-employer withdrawal liability. The certain item excluded for the three and six months ended June 30, 2015, is an adjustment to a previously disclosed legal 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 June 30, 2016
----------------------------------------
Beverage Packaged Latin
America
Percent change Concentrates Beverages Beverages Total
-------------- ------------ --------- --------- -----
Reported net sales 4% 3% (7)% 2%
Impact of foreign
currency - % - % 17% 2%
--- --- --- --- --- ---
Net sales, as adjusted
to currency neutral 4% 3% 10% 4%
=== === === ===
For the Three Months Ended June 30, 2016
----------------------------------------
Beverage Packaged Latin
America
Percent change Concentrates Beverages Beverages Total
-------------- ------------ --------- --------- -----
Reported SOP 4% 10% (11)% 5%
Impact of foreign
currency - % 1% 11% 2%
--- --- --- --- ---
SOP, as adjusted to
currency neutral 4% 11% - % 7%
=== === === === ===
For the Six Months Ended June 30, 2016
--------------------------------------
Beverage Packaged Latin
America
Percent change Concentrates Beverages Beverages Total
-------------- ------------ --------- --------- -----
Reported net sales 2% 4% (8)% 2%
Impact of foreign
currency 1% - % 16% 2%
--- --- --- --- ---
Net sales, as adjusted
to currency neutral 3% 4% 8% 4%
=== === === ===
For the Six Months Ended June 30, 2016
--------------------------------------
Beverage Packaged Latin
America
Percent change Concentrates Beverages Beverages Total
-------------- ------------ --------- ---------
Reported SOP 3% 16% (11)% 8%
Impact of foreign
currency - % - % 11% 1%
--- --- --- --- --- ---
SOP, as adjusted to
currency neutral 3% 16% - % 9%
=== === === === ===
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(Unaudited, in millions)
For the
Six Months Ended
June 30,
--------
2016 2015 Change
---- ---- ------
Net cash provided by
operating activities $407 $349 $58
Purchase of property,
plant and equipment (68) (42)
--- ---
Free Cash Flow $339 $307 $32
==== ====
A-6
RECONCILIATION OF NET INCOME TO CORE EARNINGS
(Unaudited, in millions, except per share data)
For the Three Months Ended June 30, 2016
----------------------------------------
Reported Mark to Extinguishment Total
Gain Adjustments Core FX Translation Currency
Market Neutral
Core
----
Net sales $1,695 $ - $ - $ - $1,695 $26 $1,721
Cost of sales 670 13 - 13 683 13 696
Gross profit 1,025 (13) - (13) 1,012 13 1,025
Selling, general and
administrative
expenses 590 12 - 12 602 7 609
Depreciation and
amortization 24 - - - 24 - 24
Other operating
income, net (1) - - - (1) - (1)
Income from operations 412 (25) - (25) 387 6 393
Interest expense 33 - - - 33 - 33
Interest income (1) - - - (1) - (1)
Other (income)
expense, net (22) - 21 21 (1) 1 -
Income before
provision for income
taxes and equity in
earnings of
unconsolidated
subsidiaries 402 (25) (21) (46) 356 5 361
Provision for income
taxes 142 (10) (9) (19) 123 1 124
Income before equity
in earnings of
unconsolidated
subsidiaries 260 (15) (12) (27) 233 4 237
Equity in earnings of
unconsolidated
subsidiaries, net of
tax - - - - - - -
Net income $260 $(15) $(12) $(27) $233 $4 $237
Diluted earnings per
common share $1.39 $(0.08) $(0.06) $(0.14) $1.25 $0.02 $1.27
Effective tax rate 35.3% 34.6% 34.3%
Operating margin 24.3% 22.8% 22.8%
A-7
RECONCILIATION OF NET INCOME TO CORE EARNINGS - (Continued)
(Unaudited, in millions, except per share data)
For the Three Months Ended June 30, 2015
----------------------------------------
Reported Mark to Litigation Total
Provision Adjustments Core
Market
---
Net sales $1,655 $ - $ - $ - $1,655
Cost of sales 674 (2) - (2) 672
Gross profit 981 2 - 2 983
Selling, general and
administrative
expenses 586 7 (1) 6 592
Depreciation and
amortization 26 - - - 26
Other operating
income, net - - - - -
Income from operations 369 (5) 1 (4) 365
Interest expense 28 - - - 28
Interest income (1) - - - (1)
Other (income)
expense, net 1 - - - 1
Income before
provision for income
taxes and equity in
earnings of
unconsolidated
subsidiaries 341 (5) 1 (4) 337
Provision for income
taxes 121 (2) - (2) 119
Income before equity
in earnings of
unconsolidated
subsidiaries 220 (3) 1 (2) 218
Equity in earnings of
unconsolidated
subsidiaries, net of
tax - - - - -
Net income $220 $(3) $1 $(2) $218
Diluted earnings per
common share $1.14 $(0.01) $ - $(0.01) $1.13
Effective tax rate 35.5% 35.3%
Operating margin 22.3% 22.1%
A-8
RECONCILIATION OF NET INCOME TO CORE EARNINGS - (Continued)
(Unaudited, in millions, except per share data)
For the Six Months Ended June 30, 2016
--------------------------------------
Reported Mark to Extinguishment Total
Gain Adjustments Core FX Translation Currency
Market Neutral
Core
----
Net sales $3,182 $ - $ - $ - $3,182 $47 $3,229
Cost of sales 1,272 16 - 16 1,288 22 1,310
Gross profit 1,910 (16) - (16) 1,894 25 1,919
Selling, general and
administrative
expenses 1,136 16 - 16 1,152 16 1,168
Depreciation and
amortization 50 - - - 50 - 50
Other operating
income, net (1) - - - (1) - (1)
Income from operations 725 (32) - (32) 693 9 702
Interest expense 66 - - - 66 - 66
Interest income (1) - - - (1) - (1)
Other (income)
expense, net (23) - 21 21 (2) 1 (1)
Income before
provision for income
taxes and equity in
earnings of
unconsolidated
subsidiaries 683 (32) (21) (53) 630 8 638
Provision for income
taxes 241 (12) (9) (21) 220 2 222
Income before equity
in earnings of
unconsolidated
subsidiaries 442 (20) (12) (32) 410 6 416
Equity in earnings of
unconsolidated
subsidiaries, net of
tax - - - - - - -
Net income $442 $(20) $(12) $(32) $410 $6 $416
Diluted earnings per
common share $2.35 $(0.11) $(0.06) $(0.17) $2.18 $0.03 $2.21
Effective tax rate 35.3% 34.9% 34.8%
Operating margin 22.8% 21.8% 21.7%
A-9
RECONCILIATION OF NET INCOME TO CORE EARNINGS - (Continued)
(Unaudited, in millions, except per share data)
For the Six Months Ended June 30, 2015
--------------------------------------
Reported Mark to Litigation Total
Provision Adjustments Core
Market
---
Net sales $3,106 $ - $ - $ - $3,106
Cost of sales 1,276 (4) - (4) 1,272
Gross profit 1,830 4 - 4 1,834
Selling, general and
administrative
expenses 1,138 8 (1) 7 1,145
Multi-employer
pension plan
withdrawal - - - - -
Depreciation and
amortization 53 - - - 53
Other operating
income, net - - - - -
Income from operations 639 (4) 1 (3) 636
Interest expense 55 - - - 55
Interest income (1) - - - (1)
Other (income)
expense, net - - - - -
Income before
provision for income
taxes and equity in
earnings of
unconsolidated
subsidiaries 585 (4) 1 (3) 582
Provision for income
taxes 208 (2) - (2) 206
Income before equity
in earnings of
unconsolidated
subsidiaries 377 (2) 1 (1) 376
Equity in earnings of
unconsolidated
subsidiaries, net of
tax - - - - -
Net income $377 $(2) $1 $(1) $376
Diluted earnings per
common share $1.95 $(0.01) $ - $(0.01) $1.94
Effective tax rate 35.6% 35.4%
Operating margin 20.6% 20.5%
A-10
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SOURCE Dr Pepper Snapple Group, Inc.
