Snapple 2013 Annual Report Download - page 43

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33
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 SG&A 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 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 the 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 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.