Snapple 2012 Annual Report Download - page 45

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27
Gross Profit. Gross profit increased $77 million, or approximately 2%, for the year ended December 31, 2012, compared with
the year ended December 31, 2011. Gross margin of 58.3% for the year ended December 31, 2012 was higher than the 57.9%
gross margin for the year ended December 31, 2011. Significant factors causing the increase in gross margin were increases in
our net price realization and $15 million of unrealized gains during the year ended December 31, 2012 for the mark-to-market
activity on commodity derivative contracts, which were partially offset by higher costs for apples, flavors, apple juice concentrate,
packaging, sweeteners and other commodities. The mark-to-market activity on commodity derivative contracts generated $22
million of unrealized losses for the year ended December 31, 2011.
Income from Operations and Selling, General and Administrative Expenses. Income from operations increased $68 million
to $1,092 million for the year ended December 31, 2012, principally due to the increase in our gross profit partially offset by the
increase in selling, general and administrative ("SG&A") expenses. As a percentage of net sales, our SG&A expenses improved
to 37.8% for the year ended December 31, 2012, compared to 38.3% in the prior year, SG&A expenses increased $11 million for
the year ended December 31, 2012 compared with the prior period. The increase was the result of higher labor and benefit costs
and an increase in marketing investments. These increases were partially offset by lower transportation costs, lower professional
fees driven by the favorable comparison to the $18 million legal provision associated with litigation against The American Bottling
Company ("ABC litigation") recorded during the prior year and the favorable impact of foreign currency on our SG&A expenses.
The lower transportation costs were the result of the reclassification of $14 million for certain transportation allowances to our
customers from SG&A expenses to net sales and lower distribution fees as a result of lower NCB volumes from our Packaged
Beverages segment.
Interest Expense, Interest Income and Other Income, Net. Interest expense increased $11 million for the year ended
December 31, 2012, compared with the year ago period primarily due to higher interest rates associated with the senior notes that
we issued during 2011. Other income, net was $9 million for the year ended December 31, 2012, which related primarily to
indemnity income associated with the Tax Sharing and Indemnification Agreement ("Tax Indemnity Agreement") with
Provision for Income Taxes. The effective tax rates for the year ended December 31, 2012 and 2011 were 35.7% and 34.6%,
respectively. The prior year effective tax rate included certain state and federal income tax benefits, primarily the domestic
manufacturing deduction, related to the PepsiCo and Coca-Cola licensing agreements executed in 2010. The impact of these
benefits decreased the provision for income taxes and the effective tax rate for the year ended December 31, 2011 by $19 million
and 2.1%, respectively.