Snapple 2014 Annual Report Download - page 32

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Net Sales. Net sales increased $124 million, or approximately 2%, for the year ended December 31, 2014 compared with the
year ended December 31, 2013. The primary drivers of the increase were favorable product and package mix, increased branded
sales volume, higher pricing driven by the Mexican sugar tax and an increase in contract manufacturing. These drivers were
partially offset by $35 million in unfavorable foreign currency translation and higher discounts, driven primarily by the annual
true-up of our prior year estimated customer liability.
Gross Profit. Gross profit increased $132 million for the year ended December 31, 2014 compared with the year ended
December 31, 2013. Gross margin was 59.3% and 58.3% for the years ended December 31, 2014 and 2013, respectively. The
drivers of the favorable change in gross margin were lower commodity costs, net of the change in our last-in, first-out ("LIFO")
inventory provision, ongoing productivity improvements and mark-to-market activity on commodity derivative contracts, which
increased gross margin 1.1%, 0.8% and 0.4%, respectively. These drivers were partially offset by unfavorable product, package
and segment mix, the net impact of the Mexican sugar tax, unfavorable foreign currency effects and an increase in other
manufacturing costs, which decreased gross margin by 0.5%, 0.4%, 0.2% and 0.2%, respectively.
The favorable mark-to-market activity on commodity derivative contracts for the year ended December 31, 2014 was $11
million in unrealized gains versus $15 million in unrealized losses in the prior year. The unfavorable comparison in our LIFO
inventory provision was the result of a $3 million increase in the provision for the year ended December 31, 2014 versus a $39
million decrease in the provision for the year ended December 31, 2013 driven primarily by apple prices.
Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses increased $62 million
for the year ended December 31, 2014 compared with the prior year. The increase was primarily driven by the following items:
• increased people costs, primarily driven by performance-based incentive compensation;
• a $23 million unfavorable comparison in the mark-to-market activity on commodity derivative contracts;
• higher logistics costs from our third party carriers partially driven by tighter than expected overall system capacity; and
• pension settlement charges of $16 million, of which $14 million related to the purchase of annuities for certain participants
receiving benefits in our U.S. defined benefit pension plans.
For the year ended December 31, 2014, we recognized $24 million in unrealized losses related to the mark-to-market activity
on commodity derivative contracts versus $1 million in unrealized losses in the year ago period.
These items were partially offset by a planned reduction of $13 million for our marketing investments, the favorable impact
of foreign currency and the favorable comparison of the $7 million in workforce reduction costs related to certain restructuring
activities in the prior year.
Multi-employer Pension Plan Withdrawal. We recognized a non-cash charge of $56 million related to our withdrawal from
Local 710 during the year ended December 31, 2013. Refer to Note 14 of the Notes to our Audited Consolidated Financial Statements
for further information on this charge.
Income from Operations. Income from operations increased $134 million to $1,180 million for the year ended December 31,
2014, due primarily to the increase in gross profit and the favorable comparison to the non-cash charge for the multi-employer
pension plan withdrawal taken in the prior year, partially offset by an increase in our SG&A expenses.
Interest Expense. Interest expense decreased $14 million, or approximately 11%, for the year ended December 31, 2014,
compared with the year ago period primarily due to the favorable impact of our fair value hedges and the repayment of our 6.12%
senior unsecured notes in May 2013 (the "2013 Notes").
Other Expense (Income), Net and (Benefit) Provision for Income Taxes. Through the second quarter of 2013, we recorded
indemnification income from under the Tax Indemnity Agreement as other expense, net in the unaudited Condensed
Consolidated Statements of Income. Due to the completion of the IRS audit for our 2006-2008 federal income tax returns in August
2013, we recognized an income tax benefit of $463 million primarily related to decreasing our liability for unrecognized tax
benefits and $430 million of other expense, net, as we no longer anticipate collecting amounts from In June 2013, a
bill was enacted by the Canadian government, which reduced amounts amortized for income tax purposes. We recognized $38
million of indemnity income due to the reduction of our long-term liability to and $50 million of income tax expense
for the reduction of our tax assets.