For the year, the company generated $2.5 billion of cash from operating activities including one-time proceeds of $900 million from PepsiCo and $715 million from Coca-Cola. Capital spending totaled $246 million. The company repaid $881 million of its debt obligations and returned $1.3 billion to shareholders in the form of stock repurchases ($1.1 billion) and dividends ($194 million).
WSJ-Coca-Cola Co. agreed to pay $715 million for the rights to distribute some of Dr Pepper Snapple Group Inc.'s most popular brands.
A man in Atlanta uses Coke's new vending machine, which employs a touch-screen and new technology. As part of the deal, Dr Pepper and Diet Dr Pepper will be the only non-Coke brands distributed on Coke's new high-tech Freestyle machine, a touch-screen fountain which dispenses more than 100 different flavors. Dr Pepper Snapple values that access at an additional $115 million to $135 million, sweetening the overall deal value.
Atlanta-based Coke has also agreed to include some Dr Pepper brands in sales to local fountain customers, such as small restaurant chains. Dr Pepper Snapple's biggest brands sell briskly in bottles and cans but have struggled to gain valuable space on soda fountains controlled by their rivals. "Fountain is one of the greatest ways to increase sampling of our brands," spokesman Greg Artkop said.
Dr Pepper Snapple, based in Plano, Texas, has a unique bottling arrangement, relying on independent and in-house distribution for some of its sales volume, but the balance of its distribution is handled by rivals in the Coke and Pepsi bottling systems.
Coke and PepsiCo Inc. have both moved to buy their biggest independent bottlers in the past year, triggering change-of-control agreements for distribution of Dr Pepper Snapple.
PepsiCo paid $900 million to Dr Pepper Snapple in December for a licensing deal over 20 years, the same time period as Coke's new agreements.
Coke and PepsiCo are eager to retain distribution rights as Dr Pepper and Diet Dr Pepper have fiercely loyal consumers and are among the top 10 most popular U.S. soft drinks, according to Beverage Digest, a trade publication. The rights to these brands can determine market leadership in many U.S. markets, which gives companies clout with retailers. Coke, which will buy concentrate from Dr Pepper Snapple, will get a one-time sales volume lift from bottling those drinks, and a boost from lucrative single-bottle sales. Coke also wants to hold on to the ability to market Coke products on the same shelves as Dr Pepper and Diet Dr Pepper.
Coke says the investment should help ramp up the hitherto slow expansion of the Freestyle machine. There are currently 69 machines in 53 locations, with Coke hoping to place 500 machines by the end of the summer.
"I'm most excited that Dr Pepper would view our new Freestyle technology as disruptive enough to the industry that they were willing to [invest up to $135 million] just to have access to it.," said Coke's CFO Gary Fayard, in an interview.
Dr Pepper Snapple says the deals with Coke and PepsiCo are comparable, since the volume distributed through the North American bottler, Coca-Cola Enterprises, is less than that of the bottlers that PepsiCo is acquiring. Still, the deal asks investors to place some faith in the development of the Freestyle system, which has been on a slow rollout over its five years in development.