Dr. Pepper-Snapple Company
Kim Hayes
Deonta Samilton
Jordan Narcisse
Tori Wallar
Professor Cary
Accounting
November 11, 2013

Section 2: Introduction
Dr. Pepper-Snapple Group, Inc. 5301 Legacy Dr. Plano, TX 75024 Industry: Beverages (Non-Alcoholic) Sic Code: 2080- Beverages
Major Products: Canada Dry (Ginger ale,) 7-up (lemon-lime,) A&W (Root beer,) Sunkist (Orange,) and Sun Drop (Citrus.)
Competitors: Coca-Cola and PepsiCo.
Stock exchange: 47.33
Ticker symbol: DPS
Name of outside auditors: Deloitte & Touche, LLP
SIC (Standard Industry Classification): 2080 Beverages * History:
Today, Dr Pepper Snapple Group is one of the leading producers of flavored beverages in North America and Caribbean. The have 6 of the top 10 non-cola drinks, and 13 of their 14 leading brands are ranked in the top two of its flavor categories. The DPS market more than 50 brands of carbonated soft drinks, juices, teas, mixers, water, and other premium beverages. Dr Pepper Snapple group include: 7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian Punch, Mott's, Mr. & Mrs. T mixers, Penafiel, Rose's, Schweppes, Squirt and Sunkist soda.
We are able to thank DPS for inventing the first carbonated drink. In 1783, Jean Jacob Schweppes created the world’s first carbonated mineral water. Schweppes’s was the original inventor of this new product, shared his invention with a young pharmacist in Waco, Texas, named Charles Alderton. They both invented Dr Pepper in 1885. The fans of this new product would ask the clerk for a “Waco,” that name shortly changed and was named after Dr. Charles Pepper, a friend of the pharmacist. That is where the name “Dr Pepper” originated.
Snapple came around nearly 100 years later; this invention was brought about from three New-York-area health food storeowners. The three owners created a unique apple soda and named it Snapple. The actual company that owned Snapple was known as The Unadulterated Food Corporation, but later became Snapple Beverage Corp.
After much success with these two companies, the merge happened. It was in 1969 when the Calbury Schweppes merged and over three decades the company established the third largest share of the North American beverage market.
In the 1980’s, Duffy-Mott Company ( Later known as Mott’s), Canada Dry, Sunkist Soda, Crush, and Sun Drop joined Cadbury Schweppes. There were a few more additions to the Cadbury Schweppes in the 90’s. A&W which included: root beer and cream soda, Squirt, and Vernors.
After establishing a name for Cadbury Schweppes and expanding across the Nation in drink selection. Cadbury Schweppes purchased Dr Pepper/Seven Up, Inc., IBC Root Beer, and Welch’s soft drink line in the year of 1995. Few years after Snapple Beverage Group, RC Cola, Diet Rite, and Stewarts joined the Schweppes family. In 2003, the four North American beverage companies under Cadbury Schweppes - Dr Pepper/Seven Up, Inc., Snapple Beverage Corp., Mott's, and Bebidas Mexico. * President’s Message:
The President and chief executive officer of Dr Pepper Snapple Inc., is Larry Young. Larry was named president and chief executive officer in the month of October of 2007. In April 2006, Larry joined the company through its full acquisition of Dr Pepper/Seven Up Bottling Group, where he was president and CEO since 2005. Through a leadership position, Larry created a new business model for a fully integrated beverage company.
The company became a more reliable, sustainable, and secure route to market due to the integration of Bottling Group and several other independent bottling businesses into DPS. It has allowed DPS to protect its brand equity and improve their customer relations. The integration of the Bottling Group has created an access to more than 230 million consumers in 34 states.
Larry has accomplished many things throughout the Beverage world. Dr Pepper Snapple Inc., was not the only company Larry worked for, he previously served for more than 25 years in the Pepsi system, and before that with PepsiAmericas and Pepsi-Cola General Bottlers. Larry has had a 30-year career, and produced and sold virtually every type of beverage in the Americas and across Europe and Russia. His legacy includes being inducted into the Beverage World Soft Drink Hall of Fame. He currently resides in Dallas, Texas with his wife, Colette. * Promotional and Informational material in the annual report:
The company is focusing on the high growth and high margin categories. Currently the high growth would include energy drinks and ready-to-drink tea. It intends on capitalizing its opportunity in launching a new product.
Increasing DPS’s presence in high margin channels and packages. DPS Company is focusing on improving its products presence in high margin channels, such as convenience stores, vending machines, and small independent retail outlets. This should increase sell activity and investments in coolers and other cold drink equipment.
Strengths and Weaknesses: The key strengths of our business are: Strong portfolio of leading, consumer-preferred brands: It has a diverse portfolio of well-known CSD and NCB brands. Many of the brands enjoy high levels of consumer awareness, preference, and loyalty rooted in its heritage, which increase its market position.
Integrated business model: Through its integrative business, DPS is able to focus on maximizing profitability of its company as a whole rather than focusing on profitability generated from either the sale of beverage concentrates or the bottling and distribution of its products because of its alignment of the economic interest of its brand ownership and manufacturing and distribution businesses.
Strong customer relationships: DPS has long-standing relationships with many of its top customers. Customers such as: Wal-Mart, The Kroger Co., SUPERVALU, Safeway Inc., Publix Super Markets, Inc., and Target Corporation. This does not include some of the largest food service customers, including: McDonalds’s Corporation, Yum! Brands, Inc., Burger King Corp., Sonic Corp., Wendy’s/Arby’s Group, Inc., Jack in the Box, Inc., and Subway Restaurant.
Attractive positioning within a large and profitable market: According to the Beverage Digest, DPS holds the #1 position in the U.S. flavored CSD beverage markets by volume.
Broad geographic manufacturing and distribution coverage: As of December 31, 2012, DPS had 18 manufacturing facilities and 115 principal distribution centers and warehouse facilities in the U.S., and seven principal distribution centers and warehouse facilities in Mexico.
Strong operating margins and stable cash flows:
The breadth of our brand portfolio has enabled DPS to generate strong operating margins. These margins help deliver stable cash flow which gives DPS a variety of alternatives, such as investing, repurchasing shares of common stock, and paying dividends to its stockholders.
Experienced executive management team:
DPS’s team has over 200 years of collective experience in the food and beverage industry. Through its executive management it brings a diverse skill set to support and operate DPS in a productive and successful way.
Weaknesses of the internal environment in the areas of corporate structure, corporate climate, and corporate resources:
One weakness would be that the DPS Company does not effectively respond to changing consumer preferences, trends, health concerns, and other factors. It shows that preferences can change due to a variety of factors, including the age and ethnic demographic of the population, social trends, negative publicity, economic downturn or other factors.
DPS depends on a small number of larger retailers for a significant portion of its sales. This could turn into a weakness because the larger companies have a better position in refusing the price increase and demanding lower prices.
Opportunities and threats in the external environment, in the areas of the industry environment and its macro environment:
DPS operates in a highly competitive market; the consumer continues to change its preferences. DPS goes up against the two largest competitors in the LRB market, which are Coca-Cola and PepsiCo. These competitors are not the only competition DPS has to consider, there is also companies such as Nestle, Kraft Food Group, Inc., Campbell Soup, and also small bottlers and distributors.
DPS also has a lower exposure to energy drinks, which are growing rapidly NCBs and bottled water segments in the overall LRB market.
The opportunities that limit the company would be that the government and school boards have enacted regulations and restricting the sale of certain types or sizes of soft drinks in municipalities and schools as a result of concerns about the public health consequences and health.
Also, costs of raw materials and energy cost may increase substantially. The principal raw materials we use in our products are aluminum cans and ends, glass bottles, PET bottles and caps, paperboard packaging, sweeteners, juice, fruit, water, and other ingredients. The cost of such raw materials can fluctuate substantially. The continued price increase could exert pressure on our costs and we may not be able to effectively hedge or pass along any such increases to our customers or consumers.
Any economic condition such as recession, financial and credit market disruption can become a threat to the company. A tax increase and potential spending cuts could negatively impact consumer confidence and consumer spending, which could result in a reduction in sales volume and/or switching to lower price offerings.
Section 3 Results of Operations:
Listing of net income/loss for current year, and past year:
2012: 629 million
2011: 609 million
Is your company profitable?
If you are basing profitability strictly on net income then yes our company is profitable. However we aren’t sure of their ability to pay long term debts so we won’t know for sure until we look into their financial statements some more.
What do you expect the company’s earnings to do? It would seem that the company has grown steadily in the past five years in multiple aspects; from making more money in the area of net profits to stock. Sales have grown on more than one scale. As far as their future earnings expect them to grow still. They have diversified their investments, and have several faithful investors. Millions of faithful investors mean a stable company, and a stable company means a good chance of a return on investment. Executive Compensation:
Total Compensation for 2012- (17,554,065)
2011- (18,206,089)
2010- (19,468,793)
Based on the five year summary it would appear that progress has been made each of the last few years. The company doesn’t seem to have experienced a decline in sales from year to year. I would assume the executive compensation would reflect that, but it doesn’t. It shows how much they have been paid, but I haven’t found anything that explains what the companies base how much they are going to compensate their executives, or why.
Section 4 Capital Structure: For the year ending 2012 the total liabilities were (in millions) 6,648, and the total stockholders’ equity was 2,280. For the year ending 2011 the total liabilities were 7,020, and the total stockholder’s equity was 2,263. The equity is greater on both years. The mix of liabilities and equity show how much is invested from a stock standpoint. The closer equity can become to being greater than liability the better position the company will be in as a whole, considering we haven’t even included the assets. On a scale of the past five years growth in the area of stockholder’s equity hasn’t been consistent. In the year 2009 it increased greatly, and then experienced a sharp decline in 2010, then only marginal growth in the years after that.
Section 5: Assets
Cost is primarily determined for inventories of the Company's subsidiaries by the last-in, first-out ("LIFO") valuation method. The costs of finished goods inventories include raw materials, direct labor and indirect production and overhead costs.
Depreciation is computed on the straight-line method over the estimated life of the asset.
Current assets for 2011 and 2012 are cash inventory and prepaid items. Long term assets are listed as goodwill, other intangible assets, other non-current assets, non-current deferred tax assets, investments, and property and plant equipment. There are more long term assets than current assets. It is growing in terms of increasing long term assets because the numbers from 2011 to 2012 have increased by the millions. There was no indication of major purchases in the years if 2011-12.
Section 6: Cash Flows
Operating cash flows: In 2012 the operating cash flow was positive totaling 458 million. Since 2010, the operating cash flows have decreased by 1,317 million. In 20120 the operating cash flow turned out to be 2,535 million, in 2011 it decreased to 760 million, and then in 2012 it decreased even more to 458 million. Since all three years were positive the company was able to meet the cash requirements and not have to obtain cash from other areas.
Investing cash flows: In 2012 the investing cash flow totaled 193 million, in 2011 the grand total was 217 million, and in 2010 the total was 225 so for the last three years the investing cash flows have all been positive. Positive investing cash flows tell us that it wouldn’t be a bad idea to invest in the company because it will be able to pay the dividends back. The specific sources used in the investing activities are: purchase of property, plant and equipment, purchase of intangible assets, investment in unconsolidated subsidiaries, proceeds from disposal of property, plant and equipment, and other net.
Financing cash flows: In 2012 the financial cash flow totaled 603 million, in 2011 it was 152 million and in 2010 it was 2,280. The company has been financing its activities through loans, equity securities, internally, and through profits. The company has not obtained any new debt. DR Pepper Snapple does pay dividends due to the cash flows being so stable the company is also able to consider a variety of alternatives such as investing in the business, repurchasing shares of the common stock, and reducing its debt.
Section 7: Ratio Analysis 2012 2011 Return on assets | .109 | Return on assets | .065 | Profit margin before income tax | .163 | Profit margin before income tax | .243 | Total asset turnover | .671 | Total asset turnover | .267 | Profit margin after income tax | .105 | Profit margin after income tax | .211 | Return on equity | .276 | Return on equity | .232 | Return before taxes on equity | .429 | Return before taxes on equity | .267 | Current ratio | 1.083 | Current ratio | .917 | Quick ratio | .297 | Quick ratio | .366 |

Receivables turnover | | Receivables turnover | | Inventory turnover | 6.187 | Inventory turnover | 11.72 | Debt ratio | 12.69 | Debt ratio | .756 | Debt equity | 2.91 | Debt equity | 4.30 | Coverage ratio | 7.824 | Coverage ratio | 8.11 | | | | | | | | | | | | |

Evaluate company’s profitability, liquidity, and solvency, comparing them to industry averages: With the prices of Dr. Pepper Snapple’s merchandise rising the profitability is rising as well but compared to Coca-Cola we are still behind. The current ratios listed above measure a company's ability to pay short-term debts and other current liabilities by comparing current assets to current liabilities. The ratio illustrates a company's ability to remain solvent. Liquidity measures whether or not a company has enough cash or liquid assets to pay it current liability over the next fiscal year. Most short term creditors will prefer a higher liquidity because it reduces its overall risk.
Section 8: Summary and Conclusion
Throughout this research project, we have all agreed that Dr Pepper Snapple Inc. is not a company in which we would invest. As athletes, we do not consume carbonated soft drinks and/or juices. We do not have a passion for DPS and its products. Another reason we would not invest in DPS is because the soft drink industry has so much competition, Pepsi-Cola and Coke have an advantage over the industry.
Section 9: References
“Dr Pepper Snapple Group.” Annual Report: Form 10-K. Plano, TX: Dr Pepper Snapple Group Inc., 2012
"Dr Pepper Snapple Group." DPS Rss. AOL Money and Finance, 07 Nov. 2013. Web. 07 Nov. 2013.
"Dr Pepper Snapple Group Inc. DPS (U.S.: NYSE)." DPS Stock Chart. Dow Jones & Company, n.d. Web. 07 Nov. 2013.
"Our Founding Flavors: Rose's." DrPepperSnappleGroup.com. N.p., n.d. Web. 07 Nov. 2013.
Section 10: Secondary stock market activity

In August of 2013 the first week rose to $47.40 on the 1st, the second week was $46.70 on the 8th, the third week fell to $45.28 on the 15th, the fourth week rose back up to $45.40 on the 22nd, and the final week $44.59 on the 29th (DPS Stock Chart).
In September of 2013 the first week started at $44.60 which marks the first Thursday on the 5th. The second week was $44.56 on the 12th; the third week was $45.40 on the 19th which was similar to the fourth week in August, and the fourth of September week was $44.90 on the 26th (DPS Stock Chart).
October dropped substantially. Starting with the first week on the 3rd the stock dropped to $43.41 which is the lowest for the year. The second week rose to $44.05 on the 10th, the third week rose again to $45.03 on the 17th, it was $46.45 on the 24th and the last week on the 31st was $47.35 (DPS Stock Chart).
November 7, 2013 stock was closed at $47.325 (DPS Stock Chart).