Snapple 2012 Annual Report Download - page 50

32
Net Sales. Net sales increased $267 million, or approximately 5%, for the year ended December 31, 2011, compared with the
year ended December 31, 2010. The increase was attributable to price increases, $61 million as a result of a higher net sales value
per case driven by the repatriation of certain brands under the licensing arrangements with PepsiCo and Coca-Cola, $27 million
of incremental revenue recognized under the PepsiCo and Coca-Cola license arrangements and increased volume in our contract
manufacturing.
Gross Profit. Gross profit increased $25 million for the year ended December 31, 2011, compared with the year ended December
31, 2010. Gross margin of 57.9% for the year ended December 31, 2011 was lower than the 60.2% gross margin for the year ended
December 31, 2010, primarily due to higher costs for packaging materials, sweeteners, apple juice concentrate and other
commodities. The cost of inflation also contributed to a $12 million LIFO inventory provision recorded in the current year compared
to a $2 million inventory provision in the prior year. In addition to the effect of this cost inflation, we recorded $22 million of
unrealized losses during the year ended December 31, 2011 for the mark-to-market activity on commodity derivative contracts
versus $1 million of unrealized gains in the prior year. These reductions in our gross margin were partially offset by increases in
our product prices and ongoing productivity savings.
The change in the gross margin was also impacted by the favorable comparison of $19 million of expenses associated with
labor, co-packing, unfavorable yield and an underabsorption of manufacturing overhead as a result of the strike at our Williamson,
New York manufacturing facility in the prior year.
Income from Operations. Income from operations decreased $1 million to $1,024 million for the year ended December 31,
2011, compared with the year ago period. The decrease was primarily attributable to increased SG&A expenses and other operating
expense (income), net, partially offset by the $25 million increase in gross profit discussed above. SG&A expenses increased by
$24 million primarily due to higher transportation costs principally due to rising fuel prices partially offset by RCI-related and
other productivity savings, an $18 million legal provision associated with ABC litigation and incremental costs associated with
the repatriation of brands. Favorable items affecting the comparison include the transaction costs associated with the PepsiCo and
Coca-Cola licensing agreements that did not recur, the reclassification of certain transportation allowances to our customers from
SG&A expenses to net sales and a reduction in our information technology ("IT") investments.
Interest Expense and Other Income, Net. Interest expense decreased $14 million compared with the year ago period, reflecting
lower interest rates on our outstanding debt obligations during 2010 and the repayment of our prior revolving credit facility in
February 2010.
Other income, net of $12 million and $21 million for the years ended December 31, 2011 and 2010, respectively, was related
primarily to indemnity income associated with the Tax Indemnity Agreement with For the year ended December 31,
2010, indemnity income of $19 million included $10 million of benefits not expected to recur driven by our separation related tax
losses and the impact of a Canadian audit in 2010.
Loss on Early Extinguishment of Debt. In December 2010, the Company completed a tender offer on a portion of the 6.82%
senior notes due May 1, 2018 (the "2018 Notes") and retired, at a premium, an aggregate principal amount of approximately $476
million. The loss on early extinguishment of debt included the $96 million premium for the tender offer, a $3 million write-off of
a portion of the debt issuance costs and unamortized discount associated with the 2018 Notes and $1 million of associated
reacquisition costs. There was no loss on early extinguishment of debt in 2011.
Provision for Income Taxes. The effective tax rates for the years ended December 31, 2011 and 2010 were 34.6% and 35.8%,
respectively. The decrease in the effective tax rate for the year ended December 31, 2011 was primarily driven by certain state
and federal income tax benefits, principally 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 by
$19 million and 2.1%, respectively. These benefits will not recur beyond 2011. The provision for income taxes for the year ended
December 31, 2010 also included a $14 million benefit due to a favorable change of Mexican tax law.