01—Abstract
Summary
Summary of the 10-K filed March 26, 2009. Cited figures are marked; the original filing is the authoritative source.
Dr Pepper Snapple Group, Inc. is a leading integrated brand owner, bottler and distributor of non-alcoholic beverages in the United States, Canada and Mexico.
It began trading on the New York Stock Exchange under the symbol "DPS" on May 7, 2008, after Cadbury plc distributed its Americas Beverages business to shareholders. In 2008 the company reported net sales of $5.71 billiona (89% United States, 4% Canada, 7% Mexico and the Caribbean), but posted an operating loss of $168 million and a net loss of $312 million, driven by non-cash impairment charges of $1,039 million ($696 million after tax). The impairments covered the Snapple brand ($278 million), Bottling Group distribution rights ($581 million) and Bottling Group goodwill ($180 million), which the company attributed to deteriorating fourth-quarter economic conditions and higher discount rates.
The balance sheet was reshaped by the separation from Cadbury. Total assets were $8.64 billion and total stockholders' equity fell to $2.61 billionb from $5.02 billion. Long-term debt to third parties rose to $3.52 billion, funded by a $2.2 billion term loan A, $1.7 billion of senior unsecured notes and a $1.7 billion bridge loan that was later repaid.
Operating cash flow was $709 millionc and capital expenditures were $304 million. The company stated it intends to use cash to repay debt and does not anticipate paying cash dividends in the short term. No shares were repurchased in 2008.
The company reported a 19.7%d share of the United States CSD market segment in 2008 (retail sales, The Nielsen Company), up from 19.4% in 2007. Investors should weigh the strong brand positions and integrated model against the lower 2008 profitability, the Bottling Group's weakened results, the loss of the glaceau and Hansen distribution agreements, and the debt load.
02—Key points
Key Highlights
- Net sales were $5.71 billion in 2008, roughly flat versus $5.70 billion in 2007, with gross margin at 54.6%.
- Net loss of $312 million, or $(1.23) per share, versus net income of $497 million in 2007, reflecting $1,039 million in pre-tax non-cash impairment charges.
- Impairments of $278 million (Snapple brand), $581 million (Bottling Group distribution rights) and $180 million (Bottling Group goodwill) were recorded in the fourth quarter of 2008.
- Total debt was $3,524 million at December 31, 2008, with debt ratings of Baa3 (stable) from Moody's and BBB- (negative) from Standard & Poor's.
- Total stockholders' equity fell to $2.61 billion from $5.02 billion following the separation from Cadbury and related distributions of $2.24 billion.
- Dr Pepper held the #1 position in flavored CSDs in the United States, with a 38.4% market share in flavored CSDs and a 19.7% share of the total U.S. CSD segment in 2008.
- Termination of the Hansen Natural (Monster Energy) distribution agreement reduced 2008 net sales by $23 million, and the glaceau termination reduced 2008 net sales by $227 million.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2008, Keurig Dr Pepper lost $0.05.
- Revenue$5.71B100.0%
- Cost of revenue−$2.59B45.4%
- Gross profit$3.12B54.6%
- Operating costs−$3.29B57.6%
- Operating income−$168.0M2.9%
- Interest, other & tax−$144.0M2.5%
- Net income−$312.0M5.5%
04—Financials
Financial Highlights
Figures from 10-KFY2008filed March 26, 2009Financial Statements
| Revenue | $5.71B |
| Cost of Revenue | $2.59B |
| Gross Profit | $3.12B |
| R&D Expenses | $17.00M |
| SG&A Expenses | $2.08B |
| Operating Income | -$168.00M |
| Interest Expense | $257.00M |
| Net Income | -$312.00M |
| EPS (Basic) | $-1.23 |
| EPS (Diluted) | $-1.23 |
| Shares Outstanding (Basic) | 254.00M |
| Shares Outstanding (Diluted) | 254.00M |
05—Questions
Frequently Asked Questions
Why did Dr Pepper Snapple Group report a net loss in 2008?
The net loss of $312 million was driven primarily by non-cash pre-tax impairment charges of $1,039 million related to the Snapple brand, the Bottling Group's distribution rights and the Bottling Group's goodwill. Management attributed the impairments to deteriorating economic and market conditions in the fourth quarter, which triggered higher discount rates and lower volume and growth projections.
What is the company's debt position after the separation from Cadbury?
Total indebtedness was $3,524 million as of December 31, 2008. The company's senior unsecured credit facility includes a $2.2 billion term loan A and a $500 million revolving credit facility undrawn at year-end, and it issued $1.7 billion of senior unsecured notes due 2013, 2018 and 2038. The credit agreement contains covenants limiting debt at non-guarantor subsidiaries, liens and certain mergers, and requires compliance with maximum leverage and minimum interest coverage ratios, with which the company stated it was in compliance.
Does the company pay dividends or repurchase stock?
No dividends have been declared or paid since the separation from Cadbury. Management intends to retain cash to repay debt and for other corporate purposes, and does not currently anticipate paying cash dividends in the short term. The company did not repurchase any of its common stock during 2008.
Who are the company's largest customers and competitors?
Wal-Mart Stores, Inc. was the largest retailer, representing approximately 11% of 2008 net sales. The two largest competitors in the liquid refreshment beverage market are Coca-Cola and PepsiCo, each representing more than 30% of the U.S. liquid refreshment beverage market by volume according to Beverage Digest. Other competitors include Nestlé, S.A., Kraft Foods, Inc., Cott Corp. and various bottlers such as Coca-Cola Enterprises and Pepsi Bottling Group.
What risks does the company highlight for future results?
The filing highlights reliance on a small number of large retailers, dependence on third-party bottlers (approximately two-thirds of beverage concentrates volume was sold to bottlers the company does not own), potential future goodwill and intangible impairments, the need to service significant debt, raw material cost volatility and possible shortages, and the impact of global financial events on consumer spending and customer payments. It also notes that Hansen Natural terminated the Monster Energy distribution agreements effective November 10, 2008, and January 26, 2009.
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